To Our Shareholders
The Company reported income before pre-opening expenses for the third quarter of
$9.2 million, compared to $19.1 million for the same period last year. Earnings
per share for the quarter before pre-opening expenses were $0.27 compared to
$0.56 for the same period last year. Earnings for the quarter were lower than
those in the same quarter last year primarily as a result of higher interest and
depreciation charges and poor results at Resorts Atlantic City.
Earnings before interest, taxes, depreciation and pre-openings expenses (EBITDA)
for the quarter of $35.5 million increased by 38.7% over last year's $25.6
million.
The Company's flagship Paradise Island operations generated EBITDA of $20.4
million compared to $6.4 million in the same period last year. Atlantis achieved
an average occupancy of 79% for the quarter, and recorded an average room rate
of $196, an increase of 28% over the same period last year.
The results for the quarter were adversely affected by the impact of Hurricane
Floyd during September. The property did sustain some damage and experienced a
number of cancellations. Rectification work commenced immediately. Although
almost all of the resort is now operating normally, certain remedial work is
continuing and should be complete by year-end. Discussions with the Company's
insurance carriers are in progress regarding recovery of damage repair costs
together with loss of earnings. EBITDA for the quarter includes management's
current estimate of amounts anticipated to be recovered from insurers for
business interruption related to the hurricane. At the Ocean Club, the company's
59-room boutique hotel on Paradise Island, Hurricane Floyd caused considerable
damage to the hotel's garden and beach facilities and, in order to ensure that
it will continue to provide a superb experience in the luxury segment of the
resort market, it has been closed until the 1999 Christmas season to enable full
restoration of its facilities.
The airport on Paradise Island closed during the quarter with the sole carrier
to this airport redirecting its service into Nassau International Airport. The
airport was closed to enable the Company to begin developing the eastern part of
Paradise Island into an exclusive resort, with a championship golf course,
luxury homes, villas and condominiums. The airport was closed approximately one
month ahead of plan due to damage from Hurricane Floyd. Sales of these
properties are expected to commence in the first half of next year.
Resorts Atlantic City generated EBITDA of $9.3 million for the quarter,
excluding pre-opening expenses, compared to $13.8 million for the same period
last year. The property did not recover business levels it had lost while under
reconstruction in the first half of this year. Slot revenues were below last
year partly due to a reduction in the number of slot machines on the casino
floor and disappointing results in the higher denomination segment of the
market. Management is focused on addressing these issues and additional slot
machines will be installed to bring the slot count back to historical levels.
Although table games experienced a 38% increase in drop, table win was
marginally below last year due to an unusually low hold percentage in the
casino. This had the effect of further depressing the quarter's results as the
higher marketing costs incurred to stimulate the increase in drop had to be
absorbed without the benefits of increased win. During the quarter, the Atlantic
City gaming market showed growth in total gaming revenues of 4% over the
previous year.
The Mohegan Sun Casino, which is managed by Trading Cove Associates, a
partnership in which the Company has a 50% interest, performed well for the
quarter, generating earnings before interest, taxes, management fees,
depreciation and bingo ("Adjusted EBITDA") of $70.3 million, a 14% increase over
the same period last year. The property achieved an Adjusted EBITDA margin of
38% for the quarter. Slot revenues for the quarter increased by 17% over the
same period last year with a slot win per unit per day of $495 compared to $423
last year. The overall Connecticut gaming market continued to demonstrate strong
growth in the quarter, with slot revenues increasing by 13% over the same period
last year. The Company's share of management fees was $7.3 million for the
quarter.
The Company has recently amended its current $375 million credit facility to
allow for borrowings up to $625 million, subject to certain covenants and
restrictions. The amended facility provides the company with the funding to
complete the acquisition of the Desert Inn, which is expected to close during
the second half of 2000.
/s/Sol Kerzner
Sol Kerzner
Chairman of the Board & Chief Executive Officer
November 15, 1999
Paradise Island, The Bahamas
Forward-Looking Statements
This document contains forward-looking statements, which are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements involve risks and uncertainties that
could cause actual results to differ materially from the forward-looking
statements.
<PAGE>
<TABLE>
Sun International Hotels Limited
Condensed Consolidated Balance Sheets
(In Thousands of Dollars)
<CAPTION>
September 30, December 31,
1999 1998
-------------- ---------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 35,692 $ 61,206
Restricted cash 1,076 1,917
Trade receivables, net 44,020 36,319
Due from affiliates 11,172 7,062
Inventories 10,937 8,899
Prepaid expenses 11,253 5,126
------------- -------------
Total current assets 114,150 120,529
Property and equipment, net 1,351,407 1,257,165
Subordinated notes receivable 94,398 87,385
Deferred charges and other assets 47,569 36,889
Investment in associated companies
and joint venture 26,184 26,894
Goodwill 94,515 96,871
============== =============
Total assets $ 1,728,223 $ 1,625,733
============== =============
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt $ 1,726 $ 2,382
Accounts payable and other liabilities 118,838 130,989
Capital creditors 10,241 33,736
-------------- -------------
Total current liabilities 130,805 167,107
-------------- -------------
Long-term debt, net of current maturities 657,572 565,752
Deferred tax liability 42,223 42,253
-------------- -------------
Total liabilities 830,600 775,112
-------------- -------------
Shareholders' equity 897,623 850,621
-------------- -------------
Total liabilities and shareholders' equity $ 1,728,223 $ 1,625,733
============== =============
</TABLE>
<PAGE>
<TABLE>
Sun International Hotels Limited
Condensed Consolidated Statements of Operations
(In Thousands of Dollars Except Per Share Data)
(Unaudited)
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
-------------------- --------------------
<S> <C> <C> <C> <C>
Revenues:
Casino and resort revenues $ 169,515 $ 126,785 $ 539,511 $ 405,076
Less: promotional allowances (12,762) (10,910) (37,977) (31,247)
--------- --------- --------- ---------
156,753 115,875 501,534 373,829
Tour operations 7,611 3,274 21,584 10,290
Management and other fees 10,414 10,544 33,780 30,070
Real estate related - - - 754
Other 729 706 2,141 2,072
--------- --------- --------- ---------
175,507 130,399 559,039 417,015
--------- --------- --------- ---------
Expenses:
Casino and resort expenses 107,685 82,941 321,347 251,696
Tour operations 7,384 3,207 21,441 10,022
Selling, general and administrative 21,139 14,143 64,143 51,881
Corporate expenses 3,824 4,486 12,663 14,394
Depreciation and amortization 15,006 7,915 42,933 23,140
Pre-opening expenses 4,335 - 5,398 -
--------- --------- --------- ---------
159,373 112,692 467,925 351,133
--------- --------- --------- ---------
Operating income 16,134 17,707 91,114 65,882
Other income and expenses:
Interest income 3,068 3,435 9,494 12,371
Interest expense, net of
capitalization (12,325) (236) (37,186) (2,450)
Equity in earnings of associated
company 365 231 1,700 1,041
Other, net 159 - 865 -
--------- --------- --------- ---------
Income before income taxes 7,401 21,137 65,987 76,844
Provision for income taxes (2,528) (1,996) (7,477) (5,996)
--------- --------- --------- ---------
Net income $ 4,873 $ 19,141 $ 58,510 $ 70,848
========= ========= ========= =========
Diluted earnings per share $ 0.14 $ 0.56 $ 1.71 $ 2.07
========= ========= ========= =========
Weighted average number of shares
outstanding 34,148 34,218 34,269 34,189
========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
Sun International Hotels Limited
Consolidated Statement of Cash Flows
(Dollars in thousands)
(Unaudited)
<CAPTION>
For the Three Months Ended
September 30,
1999 1998
---------- ---------
<S> <C> <C>
Cashflows from operating activities:
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 4,873 $ 19,141
Depreciation and amortization 15,587 8,479
Provision for doubtful receivables 1,247 321
Provision for discount on CRDA obligations, net 157 156
Gain on disposal of fixed assets (159) -
Net change in working capital accounts (10,045) (3,965)
Net change in deferred charges 1,129 (1,792)
Net change in deferred tax liability - (500)
Equity earnings from affiliates, net (365) (231)
-------- --------
Net cash provided by operating activities 12,424 21,609
-------- --------
Cashflows from investing activities:
Payments for construction capital expenditures (14,743) (91,001)
Other operating capital expenditures (12,884) (10,841)
Acquisition of other fixed assets (47) (10,209)
Desert Inn acquisition costs (366) -
Proceeds from the sale of assets 4,364 -
Payments for investment in joint venture (5)
Preopening expenses - (5,246)
Payments for expenses of merger - (34)
CRDA deposits (680) (744)
-------- --------
Net cash used in investing activities (24,361) (118,075)
-------- --------
Cashflows from financing activities:
Proceeds from issuance of debt 37,000 80,000
Repayment of debt (11,436) (721)
Payment for purchase of treasury shares (12,354) -
Proceeds from exercise of stock options 304 239
-------- --------
Net cash provided by financing activities 13,514 79,518
-------- --------
Net increase (decrease) in cash and cash equivalents 1,577 (16,948)
Cash and cash equivalents at beginning of period 35,191 50,456
-------- --------
Cash and cash equivalents at end of period $ 36,768 $ 33,508
======== ========
</TABLE>