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 June 30, 2000
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)
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
--- ---
Number of shares outstanding of registrant's common stock as of June 30, 2000:
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.
Exhibit Index is presented on page 14
Total number of pages 15
<PAGE>
SUN INTERNATIONAL NORTH AMERICA, INC.
-------------------------------------
FORM 10-Q
INDEX
Page Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
at June 30, 2000 and
December 31, 1999 3
Consolidated Statements of
Operations for the Three
Months and Six Months Ended
June 30, 2000 and 1999 4
Consolidated Statements of
Cash Flows for the Six Months
Ended June 30, 2000 and 1999 5
Notes to Consolidated
Financial Statements 6
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations 9
Part II. Other Information
Item 2. Legal Proceedings 12
Item 6. Exhibits and Reports on
Form 8-K 12
<PAGE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
SUN INTERNATIONAL NORTH AMERICA, INC. AND SUBSIDIARIES
------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In Thousands of Dollars, except par value)
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,691 $ 22,669
Receivables, less allowance for
doubtful accounts of $2,542
and $2,708 18,800 8,542
Inventories 2,327 2,500
Prepaid expenses 4,291 2,742
Due from affiliates 5,841 7,829
-------- --------
51,950 44,282
Land held for investment,
development or resale 61,311 61,308
Property and equipment, net of
accumulated depreciation of $38,640
and $35,035 297,031 294,970
Deferred charges and other assets,
net 26,192 40,591
Goodwill, net 92,534 93,855
-------- --------
$529,018 $535,006
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,381 $ 944
Accounts payable and accrued
liabilities 50,498 51,633
Due to affiliates 20,096 4,518
-------- --------
71,975 57,095
-------- --------
Long-term debt, net of current
maturities 272,298 272,374
-------- --------
Deferred income taxes 42,253 42,223
-------- --------
Shareholder's equity:
Common stock - $.01 par value - -
Capital in excess of par 192,635 192,635
-------- --------
142,492 163,314
-------- --------
$529,018 $535,006
======== ========
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>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Casino $ 62,066 $ 54,209 $ 113,521 $ 104,895
Rooms 4,564 3,593 8,115 6,098
Food and beverage 6,931 6,449 12,898 12,316
Other casino/hotel revenues 1,196 2,159 2,186 4,128
--------- --------- --------- ---------
74,757 66,410 136,720 127,437
Less promotional allowances (6,700) (6,192) (12,209) (11,866)
--------- --------- --------- ---------
Net casino and resort
revenues 68,057 60,218 124,511 115,571
Tour operations 5,902 6,116 12,138 12,133
Management fees and other income 4,701 3,824 9,892 8,304
--------- --------- --------- ---------
78,660 70,158 146,541 136,008
--------- --------- --------- ---------
Expenses:
Casino 40,750 37,343 77,481 73,657
Rooms 963 656 1,986 1,283
Food and beverage 4,002 4,353 7,750 8,112
Other casino/hotel operating
expense 6,707 7,188 12,920 14,163
Tour operations 5,116 5,933 10,788 11,806
Selling, general and
administrative 12,550 10,400 24,154 20,327
Depreciation and amortization 4,669 4,202 9,490 7,897
Pre-opening expenses - 1,063 - 1,063
Purchase termination costs 11,202 - 11,202 -
--------- --------- --------- ---------
85,959 71,138 155,771 138,308
Operating loss (7,299) (980) (9,230) (2,300)
Other income (expense):
Interest income 600 381 1,021 1,030
Interest expense, net (6,102) (4,317) (12,184) (8,252)
--------- --------- --------- ---------
Loss before income taxes (12,801) (4,916) (20,393) (9,522)
Income tax expense (75) - (429) (2)
--------- --------- --------- ---------
Net loss $ (12,876) $ (4,916) $ (20,822) $ (9,524)
========= ========= ========= =========
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>
Six Months Ended June 30,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Reconciliation of net loss to net
cash used in operating activities:
Net loss $(20,822) $ (9,524)
Depreciation and amortization 9,785 8,051
Provision for doubtful receivables 451 382
Provision for discount on CRDA
obligations, net 461 255
Net change in working capital accounts:
Receivables (2,959) (1,688)
Due from affiliates 1,988 -
Inventories and prepaid expenses (1,376) (2,425)
Accounts payable and accrued liabilities (3,217) 1,888
Net change in deferred charges 9,679 (1,160)
Net change in deferred tax liability 30 (30)
-------- --------
Net cash used in operating activities (5,980) (4,251)
-------- --------
Cash flows from investing activities:
Payments for construction capital expenditures (6,342) (23,665)
Payments for operating capital expenditures (2,202) (2,624)
Acquisition of other fixed assets - (9,386)
Proceeds from the sale of fixed assets 146 -
Proceeds from the sale of land (361) (15,272)
CRDA deposits and bond purchases,
net of redemptions (1,024) (1,263)
-------- --------
Net cash used in investing activities (9,783) (52,210)
-------- --------
Cash flows from financing activities:
Borrowings - 42,011
Advances from affiliates 14,877 10,216
Repayment of debt (1,092) (1,803
-------- --------
Net cash provided by financing activities 13,785 50,424
-------- --------
Net decrease in cash and cash equivalents (1,978) (6,037)
Cash and cash equivalents at beginning of period 22,669 25,160
-------- --------
Cash and cash equivalents at end of period $ 20,691 $ 19,123
======== ========
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 1999 Form 10-K. The results of operations for the
three-month and six-month periods presented are not necessarily indicative of
the results to be expected for the entire fiscal year ending December 31, 2000.
The notes presented herein are intended to provide supplemental
disclosure of items of significance occurring subsequent to December 31, 1999
and should be read in conjunction with the Notes to Consolidated Financial
Statements contained in pages 33 through 46 of the SINA 1999 Form 10-K.
B. Termination of Desert Inn Acquisition Agreement
In SINA's 1999 Form 10-K, it was reported that, on March 2, 2000, SIHL
and Starwood Hotels and Resorts Worldwide Inc. ("Starwood") announced that they
have agreed to terminate their agreement under which the Company along with SIHL
was to acquire the Desert Inn Hotel and Casino in Las Vegas (the "Desert Inn")
for $275 million (the "Termination Agreement"). In connection with the proposed
acquisition of the Desert Inn, SINA had previously placed a $15 million deposit
with Starwood (the "Deposit"). Pursuant to the Termination Agreement, the
amount, if any, that SINA would be required to pay from the Deposit was based on
the ultimate sales price of the Desert Inn to another party.
On June 23, 2000, Starwood announced that it had closed on the sale of
the Desert Inn for approximately $270 million, subject to certain post- closing
adjustments. As a result, SINA was required to pay to Starwood $7.2 million from
the Deposit. As of December 31, 1999, the Deposit is included in deferred
charges and other assets in the accompanying consolidated balance sheets. The
balance of the Deposit in excess of what SINA paid to Starwood, $7.8 million, is
included in receivables as of June 30, 2000 in the accompanying consolidated
balance sheet and was refunded to the Company in early August 2000. Purchase
termination costs included the $7.2 million paid to Starwood, costs previously
incurred by SINA in connection with it's proposed acquisition, and further costs
incurred in connection with the Termination Agreement.
<PAGE>
C. Proposed Acquisition of SIHL Ordinary Shares
On January 19, 2000, SIHL announced that it had received a proposal
from Sun International Investments Limited ("SIIL") to acquire in a merger
transaction all ordinary shares of SIHL (the "Ordinary Shares") not already
owned by SIIL or its shareholders for $24 per share in cash. SIIL and its
shareholders own approximately 54% of the outstanding Ordinary Shares. To
consider the proposal, SIHL formed a committee of independent members of its
Board of Directors (the "Special Committee") which retained its own financial
and legal advisors. The proposed transaction was subject to various conditions,
including approval by the Special Committee. On June 16, 2000, SIHL announced
that SIIL was not able to negotiate a mutually satisfactory transaction with the
Special Committee and that SIIL advised SIHL that its proposal had been
withdrawn.
In order to allow shareholders of SIHL to sell at least a portion of
their Ordinary Shares at the price formerly proposed by SIIL, the Board of
Directors of SIHL approved a self-tender offer for up to 5,000,000 Ordinary
Shares at a $24 per share cash price. The self tender-offer commenced on June
26, 2000 and expired on July 25, 2000. On August 1, 2000, SIHL announced that a
total 13,554,651 Ordinary Shares were tendered of which SIHL has accepted
5,000,000. Because the offer was oversubscribed, a proration factor of 36.89%
was applied. As of August 1, 2000, SIHL had 32,682,350 Ordinary Shares issued
and outstanding. As a result of the completion of the offer, SIHL expects to
have 27,840,286 Ordinary Shares issued and outstanding. None of the Ordinary
Shares held by SIIL and its shareholders were tendered.
D. Reverse Repurchase Agreements:
-----------------------------
Cash equivalents at June 30, 2000 included $8.6 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
July 2000.
<PAGE>
E. Statements of Cash Flows:
------------------------
Supplemental disclosures required by Statement of Financial Accounting
Standards No. 95 "Statement of Cash Flows" are presented below.
Six Months Ended
June 30,
-------------------
(In Thousands of Dollars) 2000 1999
--------------------------------------------------------------------
Interest paid, net of capitalization $12,386 $8,479
Income taxes pai 882 129
Non-cash investing and financing activities:
Refinancing of capital lease obligations - 1,444
Property and equipment acquired
under capital lease obligations 1,417 738
Increase in liabilities for
additions to other assets 131 27
--------------------------------------------------------------------
F. Comprehensive Income
--------------------
Comprehensive income is equal to net loss for all periods presented.
G. 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 June 30, 2000, SINA had $7.9 million face value of bonds issued by
the CRDA and had $19.5 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 will 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
June 30, 2000, $1.8 million of the total amount deposited with the CRDA
<PAGE>
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.
Litigation
----------
SINA and certain of its subsidiaries are defendants in certain
litigation. Except for items disclosed in the 1999 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.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
--------------------------------------------------------------------
RESULTS OF OPERATIONS
Revenues
--------
Second Quarter and First Half of 2000 Compared to 1999
------------------------------------------------------
Casino and Resort Revenues
--------------------------
Casino revenues of $62.1 million for the second quarter of 2000 reflect
an increase of $7.9 million, or 14.5%, over the comparable period in 1999. This
was primarily due to an increase in table game revenue and, to a lesser extent,
an increase in slot revenues. Table game revenues increased by $6.4 million, or
50.0%, due to increases in both table game drop (the dollar amount of chips
purchased) and table game hold percentage. Table game drop increased by $17.9
million to $117.1 million for the second quarter of 2000, and the hold
percentage increased to 16.4% in the second quarter of 2000 compared to 13.0%
for the same period in 1999. Slot revenues increased by $1.3 million, or 3.2%
for the second quarter compared to 1999. This was due to an increase in slot
handle (dollar amounts wagered) of $73.4 million, or 17.3%, to $498.2 million,
which was partially offset by a decrease in the slot hold percentage to 8.5% in
the second quarter of 2000 compared to 9.6% for the same period in 1999.
Simulcast revenues in the second quarter increased by $200,000 over the same
period of 1999.
For the first half of 2000, casino revenues of $113.5 million reflect
an increase of $8.6 million, or 8.2%. This was due to the increases in table
game revenue and slot revenues described above as the change in casino revenues
for the first quarter of 2000 compared to 1999 was virtually flat. Table game
revenues and slot revenues increased by $6.4 million and $1.8 million,
respectively for the first half compared to the same period in 1999. The
increases in table game drop and slot handle for the half were $28.4 million and
$112.6 million, respectively. The hold percentage for table game revenues
increased to 15.5% in the first half 2000, from 14.4% in 1999, while the hold
percentage for slot revenues decreased to 8.5% from 9.5% in 1999. Simulcast
revenues increased by $400,000 in the first half compared to 1999.
During the first half of 1999 the Company was undergoing a renovation
of it's casino hotel in Atlantic City, New Jersey ("Resorts Atlantic City")
<PAGE>
which was completed in early July 1999. During this period, the property was
operating with over 25% of its slot machines off the casino floor at any one
time. Additionally, the Company had to add, remove, and relocate table game
units during that time as a result of the renovation.
Room revenues in the second quarter and first half of 2000 increased by
$1.0 million, or 27.0%, and by $2.0 million, or 33.1%, respectively compared to
the same periods in 1999. This was primarily due to an increase in average room
rate in the second quarter and first half of $12.78 and $15.63, respectively. In
addition, due to the renovation, in the first half of 1999 the Company had taken
an average of 45 hotel rooms, of its inventory of 658 hotel rooms, out of
service.
Other casino/hotel revenues in the second quarter and first half of
2000 decreased by $1.0 million and $1.9 million, respectively from the
comparable periods in 1999. This was primarily due to lower complimentary
entertainment revenues. With the availability of "Club 1133", an entertainment
lounge which offers free admission to patrons, there were fewer headliner shows
in the main theater.
Management Fees and Other Income
--------------------------------
Management fees and other income increased by $900,000 for the second
quarter and by $1.6 million for the first half compared to the same periods of
1999. This is primarily due to development fees earned in the second quarter and
first half of 2000 of $.5 million and $1.0 million, respectively. The company
has a fifty percent interest in Trading Cove Associates ("TCA"), a Connecticut
general partnership. TCA was appointed to develop an expansion of the Mohegan
Sun Casino in Uncasville, Connecticut, further described in SINA's 1999 Form
10-K, which results in development fees earned by the Company. In addition,
management fees earned for services provided to certain unconsolidated
affiliated companies increased in both the second quarter and first half of 2000
compared to 1999.
Expenses
--------
Casino and Resort Expenses
--------------------------
Casino expenses increased by $3.4 million and $3.8 million in the
second quarter and first half of 2000, respectively, compared to 1999. This was
primarily due to an increase in complimentaries provided to casino patrons, and
to a lesser extent, increases in payroll and related costs as well as increased
casino win tax. These variances are largely due to the increased volume of play
and increase in casino staff compared to the same periods in 1999, as a result
of the renovation during first half of 1999. Casino win tax increases relative
to the increase in casino revenues. The increase in rooms expense is due to the
increase in room nights sold over the same period last year. As described above
in revenues, 45 rooms were taken out of inventory during the first half of 1999.
Selling, General and Administrative
-----------------------------------
Selling, general and administrative costs increased by $2.2 million and
$3.8 million for the second quarter and first half of 2000, respectively, over
the previous year. Corporate payroll and related costs increased over
<PAGE>
the prior year by $.7 million and $1.4 million in the second quarter and first
half, respectively. In addition, real estate related expense increased in both
periods resulting from a $.4 million write-off of an option to purchase a parcel
of land in Atlantic City which the Company did not exercise. The increase for
the first half included $.5 million in severance expense associated with a
management reorganization at Resorts Atlantic City in the first quarter of 2000.
Other than these items, none of the other cost variances were individually
significant.
Other Income (Expense)
----------------------
In the second quarter and first half of 2000, net interest expense
increased by $1.8 million and $3.9 million, respectively, over the previous
year. This was primarily due to an increase in long-term debt over the
comparable period last year. In June 1999, the Company incurred borrowings of
$42.0 million from a revolving credit facility primarily to fund the renovation
of Resorts Atlantic City and various land purchases in Atlantic City. Subsequent
to the first half of 1999, the borrowing on this facility increased to $73.0
million. In addition, interest expense in 1999 was net of amounts capitalized of
$569,000 and $907,000 for the second quarter and first half, respectively.
Forward Looking Statements
The statements contained herein include forward looking statements,
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements are based on current expectations, estimates,
projections, management's beliefs and assumptions made by management. Words such
as "expects", "anticipates", "intends", "plans", "believes", "estimates" and
variations of such words and similar expressions are intended to identify such
forward-looking statements. Such statements include information relating to
plans for future expansion and other business development activities as well as
other capital spending, financing sources and the effects of regulation
(including gaming and tax regulation) and competition. Such forward-looking
information involves important risks and uncertainties that could significantly
affect anticipated results in the future and accordingly, such results may
differ from those expressed in any forward- looking statements made herein.
These risks and uncertainties include, but are not limited to, those relating to
development and construction activities, dependence on existing management,
leverage and debt service (including sensitivity to fluctuations in interest
rates), availability of financing, democratic or global economic conditions,
pending litigation, changes in tax laws or the administration of such laws and
changes in gaming laws or regulations (including the legalization of gaming in
certain jurisdictions).
<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 1999 Form
10- K.
Philip Goldberg Family Trust vs. Resorts International Hotel, Inc.
------------------------------------------------------------------
On August 1, 2000, the parties agreed to settle the litigation by
entering into a Lease Modification Agreement, containing terms beneficial to
both parties, and a Stipulation of Dismissal terminating the litigation.
SIHL Shareholder Litigation
---------------------------
Beginning on or about January 20, 2000, eight class action lawsuits
were filed in courts of the states of New York, New Jersey and Florida, by
certain shareholders of SIHL. These actions, purportedly brought as class
actions on behalf of all public shareholders, name Sun International Investments
Limited ("SIIL"), SIHL and directors of SIHL (including Chairman and Chief
Executive Officer Solomon Kerzner) as defendants, alleging generally that they
breached their fiduciary duties to shareholders in connection with SIIL's
proposal to acquire all of the ordinary shares of SIHL not owned by SIIL or its
shareholders for $24 per share. Currently, SIIL and its shareholders own
approximately 54% of the outstanding shares of SIHL. Answers were filed to each
of the complaints on or about March 27, 2000. Subsequently, the eight class
action lawsuits were consolidated into one, the Sun International Hotels Limited
Class Action Lawsuit, and in May 2000, this consolidated complaint was filed
with the Supreme Court of the State of the State of New York, County of New
York, docket No. 600250.
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 June 30, 2000.
b. Reports on Form 8-K
No Current Report on Form 8-K was filed by SINA covering an event
during the second quarter of 2000. No amendments to previously filed Forms 8-K
were filed during the second quarter of 2000.
<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 R. Allison
-------------------------------------
John R. Allison
Executive Vice President - Finance
(Authorized Officer of Registrant
and Chief Financial Officer)
Date: August 11, 2000
<PAGE>
SUN INTERNATIONAL NORTH AMERICA, INC.
-------------------------------------
Form 10-Q for the quarterly period
ended June 30, 2000
EXHIBIT INDEX
Exhibit
Number Exhibit Page Number in Form 10-Q
------- ------------------------ ------------------------
(27) Financial data schedule Page 15
as of June 30, 2000.
