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 September 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
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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
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(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
--- ---
Number of shares outstanding of registrant's common stock as of September 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
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SUN INTERNATIONAL NORTH AMERICA, INC.
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FORM 10-Q
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INDEX
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Page Number
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
at September 30, 2000 and
December 31, 1999 3
Consolidated Statements of
Operations for the Three
Months and Nine Months Ended
September 30, 2000 and 1999 4
Consolidated Statements of
Cash Flows for the Nine Months
Ended September 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
2
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PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
SUN INTERNATIONAL NORTH AMERICA, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
---------------------------
(In Thousands of Dollars, except par value)
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 23,601 $ 22,669
Receivables, less allowance for
doubtful accounts of $3,022
and $2,708 11,031 8,542
Inventories 2,128 2,500
Prepaid expenses 3,448 2,742
Due from affiliates 5,285 7,829
-------- --------
45,493 44,282
Land held for investment,
development or resale 50,260 61,308
Property and equipment, net of
accumulated depreciation of $41,787
and $35,035 309,837 294,970
Deferred charges and other assets,
net 26,707 40,591
Goodwill, net 91,874 93,855
-------- --------
$524,171 $535,006
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt $ 928 $ 944
Accounts payable and accrued
liabilities 49,243 51,633
Due to affiliates 12,273 4,518
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62,444 57,095
-------- --------
Long-term debt, net of current
maturities 278,317 272,374
-------- --------
Deferred income taxes 42,253 42,223
-------- --------
Shareholder's equity:
Common stock - $.01 par value - -
Capital in excess of par 192,635 192,635
Accumulated deficit (51,478) (29,321)
-------- --------
141,157 163,314
-------- --------
$524,171 $535,006
======== ========
See notes to consolidated financial statements.
</TABLE>
3
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<TABLE>
SUN INTERNATIONAL NORTH AMERICA, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(In Thousands of Dollars)
(Unaudited)
<CAPTION>
Quarter Ended Three Quarters Ended
September 30, September 30,
----------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Casino $69,076 $63,804 $182,597 $168,699
Rooms 4,720 5,011 12,835 11,109
Food and beverage 7,192 7,573 20,090 19,889
Other casino/hotel revenues 1,389 1,981 3,575 6,109
-------- -------- -------- --------
82,377 78,369 219,097 205,806
Less promotional allowances (7,135) (8,518) (19,344) (20,384)
------- -------- -------- -------
Net casino and resort
revenues 75,242 69,851 199,753 185,422
Tour operations 6,506 6,339 18,644 18,472
Management fees and other income 4,151 3,002 14,043 11,306
------ -------- -------- -------
85,899 79,192 232,440 215,200
------- ------- -------- -------
Expenses:
Casino 43,436 42,022 120,917 115,679
Rooms 1,118 589 3,104 1,872
Food and beverage 3,823 3,704 11,573 11,816
Other casino/hotel operating
expense 6,480 7,802 19,400 21,965
Tour operations 5,487 6,119 16,275 17,925
Selling, general and
administrative 13,556 10,784 37,724 31,111
Depreciation and amortization 4,345 4,984 13,835 12,881
Pre-opening expenses - 4,335 - 5,398
Purchase termination costs - - 11,202 -
------- ------- -------- -------
78,245 80,339 234,030 218,647
------- ------- -------- -------
Operating income (loss) 7,654 (1,147) (1,590) (3,447)
Other income (expense):
Interest income 389 393 1,410 1,423
Interest expense, net (6,217) (6,649) (18,401) (14,901)
Other (704) - (690) -
------- ------- -------- -------
Income (loss) before income taxes 1,122 (7,403) (19,271) (16,925)
Income tax expense (2,457) (123) (2,886) (125)
------- ------- -------- --------
Net loss $(1,335) $(7,526) $(22,157) $(17,050)
======= ======= ======== ========
See notes to consolidated financial statements.
</TABLE>
4
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<TABLE>
SUN INTERNATIONAL NORTH AMERICA, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In Thousands of Dollars)
(Unaudited)
<CAPTION>
Three Quarters Ended
September 30,
-------------------------
2000 1999
<S> <C> <C>
--------- ---------
Cash flows from operating activities:
Reconciliation of net loss to net
cash used in operating activities:
Net loss $(22,157) $(17,050)
Depreciation and amortization 14,283 13,166
Provision for doubtful receivables 1,078 667
Provision for discount on CRDA
obligations, net 740 412
Loss on disposal of fixed assets 691 -
Net change in working capital accounts:
Receivables (3,567) (3,607)
Due from affiliates 2,544 -
Inventories and prepaid expenses (334) (2,129)
Accounts payable and accrued liabilities (4,954) (4,959)
Net change in deferred charges 9,488 (876)
Net change in deferred tax liability 30 (30)
--------- --------
Net cash used in operating activities (2,158) (14,406)
--------- --------
Cash flows from investing activities:
Payments for major capital projects (8,219) (31,787)
Payments for operating capital expenditures (6,599) (5,548)
Acquisition of other fixed assets - (9,433)
Proceeds from the sale of fixed assets 391 4,200
Desert Inn acquisition costs (361) (15,638)
Refund of deposit for terminated Desert Inn
acquisition 7,750 -
CRDA deposits and bond purchases (1,801) (1,943)
--------- --------
Net cash used in investing activities (8,839) (60,149)
--------- --------
Cash flows from financing activities:
Borrowings 6,000 31,000
Advances from affiliates 7,474 48,591
Repayment of debt (1,545) (8,183)
--------- --------
Net cash provided by financing activities 11,929 71,408
--------- --------
Net increase (decrease) in cash and
cash equivalents 932 (3,147)
Cash and cash equivalents at beginning of period 22,669 25,160
--------- --------
Cash and cash equivalents at end of period $ 23,601 $ 22,013
======== ========
See notes to consolidated financial statements.
</TABLE>
5
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SUN INTERNATIONAL NORTH AMERICA, INC. AND SUBSIDIARIES
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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 nine-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. Sale of Resorts Atlantic City
The Company has entered into a definitive agreement to sell its Resorts
Casino Hotel in Atlantic City, New Jersey ("Resorts Atlantic City") to an
affiliate of Colony Capital LLC ("Colony") for a purchase price of $140 million,
such purchase price shall accrue interest at an annual rate of 6% during the
period from September 30, 2000 until closing. In addition, Colony has a two-year
option to acquire certain undeveloped real estate adjacent to Resorts Atlantic
City for a purchase price of $40 million (the "Option Agreement"), which option
can be extended for an additional two years under certain circumstances. The
sale is subject to certain customary conditions, including approval by the New
Jersey Casino Control Commission, and is also subject to Colony receiving
certain financing in order to consummate the transaction. The parties expect to
close the transaction early next year. If this transaction had been consummated
on December 31, 1999, on a pro forma basis, the results of operations of SINA
for the nine months ended September 30, 2000 would be as follows (unaudited):
Revenues - $33.6 million; net loss - $23.5 million.
C. 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
had 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"). As of December 31, 1999, the Deposit is included
in deferred charges and other assets in the
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accompanying consolidated balance sheets. 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.
In June 2000, Starwood 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. The
remaining $7.8 million of the Deposit was refunded to SINA 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.
D. Reverse Repurchase Agreements
Cash equivalents at September 30, 2000 included $10.8 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 October 2000.
E. Statements of Cash Flows
Supplemental disclosures required by Statement of Financial Accounting
Standards No. 95 "Statement of Cash Flows" are presented below.
Three Quarters Ended
September 30,
--------------------
(In Thousands of Dollars) 2000 1999
---------------------------------------------------------------------
Interest paid, net of capitalization $22,930 $19,609
Income taxes paid 949 155
Non-cash investing and financing
activities:
Refinancing of capital lease obligations 1,444
Property and equipment acquired
under capital lease obligations 1,419 938
Increase in liabilities for
additions to other assets 210 153
---------------------------------------------------------------------
F. Comprehensive Income
Comprehensive income is equal to net loss for all periods presented.
7
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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 September 30, 2000, SINA had $7.9 million face value of bonds issued
by the CRDA and had $20.2 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 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
September 30, 2000, $1.8 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.
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.
8
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Item 2. Management's Discussion and Analysis of Financial Condition
--------------------------------------------------------------------
and Results of Operations
-------------------------
RESULTS OF OPERATIONS
---------------------
Revenues
--------
Third Quarter and First Three Quarters Compared to 1999
-------------------------------------------------------
Casino and Resort Revenues
--------------------------
Casino revenues of $69.1 million for the third quarter of 2000 reflect
an increase of $5.3 million, or 8.3%, 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 $3.6 million, or
19.1%, due to an increase in table game hold percentage, from 12.9% in the third
quarter 1999 to 16.7% for the same period in 2000. The effect of the increased
hold percentage more than offset the effect of lower table game drop (the dollar
amount of chips purchased) which reflected a $12.5 million decrease compared to
the previous year. Slot revenues increased by $1.6 million, or 3.6% for the
third quarter compared to 1999. This was due to an increase in slot handle
(dollar amounts wagered) of $64.0 million, or 13%, to $556.8 million, which was
partially offset by a decrease in the slot hold percentage to 8.3% in the third
quarter of 2000 compared to 9.0% for the same period in 1999. Simulcast revenues
in the third quarter increased by $100,000 over the same period of 1999.
For the first three quarters of 2000, casino revenues of $182.6 million
reflect an increase of $13.9 million, or 8.2%. This was primarily due to
increases in table game revenue and slot revenues of $10.0 million, or 21.2%,
and $3.5 million, or 2.9%, respectively, compared to 1999. The increase in table
game revenue was primarily due to an increase in table game hold percentage to
15.9% in 2000 compared to 13.8% in 1999. In addition, table game drop for the
three quarters of 2000 increased over the previous year by $15.9 million. The
increase in slot revenues was due to higher slot handle which increased by
$176.6 million from 1999 to $1,467.8 million for the three quarters of 2000. The
increased slot handle was partially offset by a decrease in the slot hold
percentage to 8.4% in the three quarters of 2000, compared to 9.3% for the same
period of 1999. Simulcast revenues increased by $400,000 in the first three
quarters compared to 1999.
During the first six months of 1999 the Company was undergoing a
renovation of Resorts Atlantic City 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 were down by $291,000, or 5.8%, in the third quarter of
2000 compared to 1999. This slight decrease was a result of a lower average room
rate during the quarter, which decreased by $7.38 to $86.78, which more than
offset an increase in number of rooms sold. For the first three quarters of
2000, room revenues reflect an increase of $1.7 million, or 15.5%, due to
increases in both occupancy and average room rate during the
9
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period. The hotel's occupancy during the first three quarters of 2000 was 88%,
compared to 82% in 1999, and the average room rate increased by $7.18 over the
prior year to $83.19. Due to the renovation of Resorts Atlantic City, 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 third quarter and first three
quarters of 2000 decreased by $592,000 and $2.5 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 $1.1 million for the
third quarter and by $2.7 million for the first three quarters compared to the
same periods of 1999. This is partially due to development fees earned in the
third quarter and first three quarters of 2000 of $0.5 million and $1.5 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, as
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 third
quarter and first three quarters of 2000 compared to 1999.
Expenses
--------
Casino and Resort Expenses
--------------------------
Casino expense increased by $1.4 million in the third quarter of 2000,
compared to the same period of 1999. This was primarily due to an increase in
promotional costs, and to a lesser extent, increases in payroll and related
costs as well as increased casino win tax. For the first three quarters of 2000,
casino expense increased by $5.2 million compared to the previous year. This
variances was largely due to the increased volume of play and an 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 increased relative to the increase in
casino revenues. Increases in payroll and related costs and casino win tax for
the three quarters were $1.1 million and $1.2 million, respectively.
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 $2.8 million in
the third quarter of 2000 compared to 1999. This included an increase in
corporate payroll and related costs of $1.3 million, largely due to increased
staffing in the information technology department as a result of certain major
projects completed during 2000. In addition, at Resorts Atlantic City,
10
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advertising costs, employee incentive costs and real estate taxes increased by
$705,000, $357,000 and $128,000, respectively. For the first three quarters of
2000, selling, general and administrative costs increased by $6.6 million
compared to 1999. The increase described above in corporate payroll and related
costs was $2.7 million for the three quarters. At Resorts Atlantic City,
employee incentives and advertising costs increased by $1.0 million and
$924,000, respectively. In addition, the first three quarters of 2000 included
severance costs at Resorts Atlantic City of $812,000 and a $400,000 write-off
related to an option to purchase a parcel of land in Atlantic City which the
Company did not exercise. Other than these items, none of the other cost
variances were individually significant.
Other Income (Expense)
----------------------
In the first three quarters of 2000, net interest expense increased by
$3.5 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 has increased to $79.0 million. In addition, interest
expense in 1999 was net of amounts capitalized of $907,000.
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).
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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.
SIHL Shareholder Litigation
---------------------------
A stipulated Order of Dismissal was entered into by all the parties to
the litigation and filed with the Court on September 8, 2000 concluding the
litigation.
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
a. Exhibits
The following Part I exhibits are filed herewith:
Exhibit
Number Exhibit
------- -------------------------------------------------------------
(10) Purchase Agreement among SINA as parent, GGRI, Inc. as Seller
and Colony RIH Acquisitions, Inc. as Buyer dated as of
October 30, 2000. (Incorporated by reference to SIHL's Form
6-K filed on November 2, 2000 in File No. 0-22794).
(27) Financial data schedule as of September 30, 2000.
b. Reports on Form 8-K
No Current Report on Form 8-K was filed by SINA covering an event
during the third quarter of 2000. No amendments to previously filed Forms 8-K
were filed during the third quarter of 2000.
12
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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: November 14, 2000
13
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SUN INTERNATIONAL NORTH AMERICA, INC.
-------------------------------------
Form 10-Q for the quarterly period
ended September 30, 2000
EXHIBIT INDEX
-------------
Exhibit
Number Exhibit Page Number in Form 10-Q
------- ------------------------ ------------------------
(10) Purchase Agreement among Incorporated by reference
SINA as parent, GGRI, Inc. to SIHL's Form 6-K filed
as Seller and Colony RIH on November 2, 2000 in
Acquisitions, Inc. as Buyer File No. 0-22794
dated as of October 30,
2000.
(27) Financial data schedule Page 15
as of September 30, 2000.
14
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