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, 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)
(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
March 31, 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.
Total number of pages 12
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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, 2000 and
December 31, 1999 3
Consolidated Statements of
Operations for the Quarters
Ended March 31, 2000 and 1999 4
Consolidated Statements of
Cash Flows for the Quarters
Ended March 31, 2000 and 1999 5
Notes to Consolidated
Financial Statements 6
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations 8
Part II. Other Information
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on
Form 8-K 10
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<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,
2000 1999
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,782 $ 22,669
Receivables, less allowance for
doubtful accounts of $2,677
and $2,708 8,512 8,542
Inventories 2,110 2,500
Prepaid expenses 2,776 2,742
Due from affiliates 7,974 7,829
39,154 44,282
Land held for investment,
development or resale 61,308 61,308
Property and equipment, net of
accumulated depreciation of
$39,035 and $35,035 295,578 294,970
Deferred charges and other assets,
net 42,133 40,591
Goodwill, net 93,195 93,855
$531,368 $535,006
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term
debt $ 471 $ 944
Accounts payable and accrued
liabilities 45,269 51,633
Due to affiliates 15,656 4,518
61,396 57,095
Long-term debt, net of current
maturities 272,381 272,374
Deferred income taxes 42,223 42,223
Shareholder's equity:
Common stock - $.01 par value - -
Capital in excess of par 192,635 192,635
Accumulated deficit (37,267) (29,321)
155,368 163,314
$531,368 $535,006
See Notes to Consolidated Financial Statements.
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<TABLE>
SUN INTERNATIONAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars)
(Unaudited)
<CAPTION>
Quarter Ended
March 31,
2000 1999
<S> <C> <C>
Revenues:
Casino $51,455 $50,686
Rooms 3,551 2,505
Food and beverage 5,966 5,867
Other casino/hotel 991 1,969
61,963 61,027
Less promotional allowances (5,509) (5,674)
Net casino and resort revenues 56,454 55,353
Tour operations 6,236 6,017
Management fees and other income 5,191 4,480
67,881 65,850
Expenses:
Casino 36,731 36,314
Rooms 1,023 627
Food and beverage 3,748 3,759
Other casino/hotel operating
expense 6,213 6,975
Tour operations 5,672 5,873
Selling, general and
administrative 11,604 9,927
Depreciation and amortization 4,821 3,695
69,812 67,170
Operating loss (1,931) (1,320)
Other income (expense):
Interest income 421 649
Interest expense, net (6,082) (3,935)
Loss before income taxes (7,592) (4,606)
Income tax expense (354) (2)
Net loss $(7,946) $(4,608)
See Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
SUN INTERNATIONAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
<CAPTION>
Quarter Ended
March 31,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Reconciliation of net loss to net
cash used in operating activities:
Net loss $ (7,946) $ (4,608)
Depreciation and amortization 4,965 3,831
Provision for doubtful receivables 301 251
Provision for discount on CRDA
obligations, net 215 122
Gain on disposition of assets (14) -
Net change in working capital accounts:
Receivables (271) 92
Inventories and prepaid expenses 356 (355)
Accounts payable and accrued
liabilities (5,480) (3,390)
Net change in deferred charges (1,043) (1,119)
Net cash used in operating
activities (8,917) (5,176)
Cash flows from investing activities:
Payments for major capital projects (2,887) (6,903)
Payments for operating capital
expenditures (1,914) (1,230)
Acquisition of other fixed assets - (9,199)
CRDA deposits and bond purchases (646) (651)
Other (239) -
Net cash used in investing
activities (5,686) (17,983)
Cash flows from financing activities:
Net repayments from affiliates 10,273 18,468
Repayment of debt (557) (1,617)
Net cash provided by financing
activities 9,716 16,851
Net decrease in cash and cash equivalents (4,887) (6,308)
Cash and cash equivalents at beginning
of period 22,669 25,160
Cash and cash equivalents at end
of period $ 17,782 $ 18,852
See Notes to Consolidated Financial Statements.
</TABLE>
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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 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"). Pursuant to the Termination Agreement, if the
property is sold for less than the purchase price originally agreed by
the Company, then the Company will pay to Starwood 50% of such deficit,
as defined, up to a maximum of $15 million. In the event that Starwood
sells the property for an amount in excess of the purchase price
originally agreed by the Company, then the Company will share 50% of
such excess. Should the Company be required to pay $15 million of any
potential deficit, it would be paid from the $15 million deposit
previously paid to Starwood. The deposit is included in deferred
charges and other assets in the accompanying consolidated balance
sheets.
On April 28, 2000, Starwood announced that they had received a non-
refundable $30 million deposit from another party to purchase the Desert
Inn for approximately $270 million. According to Starwood's
announcement, this transaction is expected to close by June 30,2000.
Should this transaction close, the loss to SINA would be approximately
$8.8 million.
C. Reverse Repurchase Agreements:
Cash equivalents at March 31, 2000 included $6.2 million of reverse
repurchase agreements (federal government securities purchased under
agreements to resell those securities) under which the Company had not
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taken delivery of the underlying securities. These agreements matured
during the first week of April 2000.
D. Statements of Cash Flows:
Supplemental disclosures required by Statement of Financial
Accounting Standards No. 95 "Statement of Cash Flows" are presented
below.
Quarter Ended
March 31,
(In Thousands of Dollars) 2000 1999
Interest paid, net of capitalization $10,935 $8,992
Income taxes paid 556 70
Non-cash investing and financing
activities:
Property and equipment acquired
under capital lease obligations 73 -
Increase in liabilities
for additions to other assets 16 23
E. Comprehensive Income
Comprehensive income is equal to net loss for all periods
presented.
F. 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, 2000, SINA had $8.2 million face value of bonds issued
by the CRDA and had $18.7 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
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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, 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.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS - Quarter Ended March 2000 Compared to 1999
Revenues
Casino and Resort Revenues
Casino revenues of $51.5 million for the first quarter of 2000
reflect a slight increase of $.8 million, or 1.5%, over the comparable
period in 1999. Slot handle (dollar amounts wagered) increased by $39.1
million, or 10.5%, over the previous year, and table game drop (dollar
amount of chips purchased) increased by $10.4 million, or 10.6%. This
increase in gaming activity was substantially offset by a lower hold
percentage in both slots and table games resulting in slight increases
in both slot win and table game win.
During the first quarter of 1999 the Company commenced a renovation
of it's casino hotel in Atlantic City, New Jersey ("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 in the first quarter of 2000 increased by $1.0
million, or 41.8%, over the previous year. This was primarily due to an
increase of $18.67 in the average room rate. In addition, due to the
renovation, in the first quarter 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 first quarter of 2000
decreased by $1.0 million from the comparable period 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.
<PAGE>
Management Fees and Other Income
Management fees and other income increased by $.7 million, or
15.9%, over the previous year. In the first quarter of 2000, management
fees included $4.5 million for services provided to certain
unconsolidated affiliated companies, compared to $4.0, for the first
quarter of 1999.
Expenses
Casino and Resort Expenses
Casino expenses increased slightly primarily due to the increased
gaming activity reflected above in 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 quarter of 1999.
Selling, General and Administrative
Selling, general and administrative costs increased by $1.7
million, or 16.9%, over the previous year. This was primarily due to
increased corporate payroll costs of $.7 million and $.5 million in
severance expense associated with a management reorganization at Resorts
Atlantic City.
Other Income (Expense)
In the first quarter of 2000, net interest expense increased by
$2.1 million over the previous year. This was primarily due to an
increase in long-term debt over the comparable period last year. During
1999, subsequent to the first quarter, the Company incurred borrowings
of $73.0 million from a revolving credit facility primarily to fund the
renovation of Resorts Atlantic City and various land purchases in
Atlantic City.
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
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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).
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.
Discovery is ongoing and a trial date has been scheduled for June
20, 2000.
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 53%
of the outstanding shares of SIHL. Answers were filed to each of the
complaints on or about March 27, 2000.
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, 2000.
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 2000. No amendments to previously filed
Forms 8-K were filed during the first quarter of 2000.
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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: May 11, 2000
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SUN INTERNATIONAL NORTH AMERICA, INC.
Form 10-Q for the quarterly period
ended March 31, 2000
EXHIBIT INDEX
Exhibit
Number Exhibit Page Number in Form 10-Q
(27) Financial data schedule Page 13
as of March 31, 2000.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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, 2000, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY>
<S> <C>
<PERIOD-TYPE> QUARTER
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> $17,782<F1>
<SECURITIES> 0
<RECEIVABLES> $8,249
<ALLOWANCES> $2,677
<INVENTORY> $2,110
<CURRENT-ASSETS> $39,154
<PP&E> $334,613
<DEPRECIATION> $39,035
<TOTAL-ASSETS> $531,368
<CURRENT-LIABILITIES> $61,396
<BONDS> $272,381<F2>
0
0
<COMMON> 0
<OTHER-SE> $155,368
<TOTAL-LIABILITY-AND-EQUITY> $531,368
<SALES> 0
<TOTAL-REVENUES> $67,881
<CGS> 0
<TOTAL-COSTS> $53,387
<OTHER-EXPENSES> $4,821<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $6,082
<INCOME-PRETAX> $(7,592)
<INCOME-TAX> $(354)
<INCOME-CONTINUING> $(7,946)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $(7,946)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>INCLUDES NON-RESTRICTED CASH EQUIVALENTS OF $6,689.
<F2>NET OF UNAMORTIZED DISCOUNTS.
<F3>DEPRECIATION EXPENSE OF $4,040 AND AMORTIZATION EXPENSE OF $781.
</FN>
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