| SECURITIES AND EXCHANGE COMMISSION | ||
| WASHINGTON, D.C. 20549 | ||
| FORM 10-K | ||
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) | |
| OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For The Fiscal Year Ended December 31, 2000 | ||
| or | ||
|
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) | |
| OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| Commission File No. 1-4748 | ||
| SUN INTERNATIONAL NORTH AMERICA, INC. | ||
| (Exact name of Registrant as specified in itscharter) | ||
| DELAWARE | ||
| (State or other jurisdiction of corporation or organization) | ||
| 59-0763055 | ||
| (I.R.S. Employer Identification No.) | ||
| 1415 E. Sunrise Blvd. | ||
| Ft. Lauderdale, Florida 33304 | ||
| (Address of principal executive offices) | ||
| 954-713-2500 | ||
| (Registrant’s telephone number, including areacode) | ||
| Securities registered pursuant to Section 12(b) of the Act: None | ||
| Securities registered pursuant to Section 12(g) of the Act: None | ||
| 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 o | ||
| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of registrant´s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. x | ||
| As of February 28, 2001, there were 100 shares of the registrant’s common stock outstanding, all of which were owned by one shareholder. Accordingly there is no current market for any such shares. | ||
| The registrant meets the conditions set forth in General Instruction I (1) (a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format permitted by that General Instruction. | ||
Total Number of Pages 103
Exhibit Index is presented on pages 50 through 52
Sun International North America, Inc. (“SINA”) was incorporated in Delaware in 1958, and on December 16, 1996, through a merger transaction, SINA became a wholly owned subsidiary of Sun International Hotels Limited (“SIHL”). SINA is a holding company through which SIHL, a corporation organized and existing under the laws of the Commonwealth of The Bahamas, owns and operates its properties and investments in the United States. Through its indirect wholly owned subsidiary, Resorts International Hotel, Inc. (“RIH”), SINA owns the Resorts Atlantic City hotel and casino in Atlantic City, New Jersey (“Resorts Atlantic City”). SINA also provides management services to certain affiliated companies and owns a tour operator which wholesales tour packages and provides reservation services. In addition, through its wholly-owned subsidiary Sun Cove Limited (“Sun Cove”), SINA earns income based on the gross revenues of a casino operated by an unaffiliated entity in Connecticut. Unless stated otherwise, the term “Company” as used herein includes SINA and its consolidated subsidiaries.
During the fourth quarter of 2000, the Company entered into a definitive agreement to sell Resorts Atlantic City to an affiliate of Colony Capital LLC (“Colony”) for a purchase price of $140 million, such purchase price to accrue interest at an annual rate of 6% until closing (the “Resorts Atlantic City Sale”). In addition, Colony has a two year option to acquire certain undeveloped real estate owned by the Company, adjacent to Resorts Atlantic City, for a purchase price of $40 million (the “Atlantic City Option”) 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 (the “Casino Control Commission”) and is also subject to Colony receiving certain financing in order to consummate the transaction. To facilitate Colony’s financing, SINA has agreed to lend Colony’s affiliate $17.5 million toward the purchase price of Resorts Atlantic City in exchange for an unsecured note (the “Note”) at an interest rate of 12.5% per annum with interest payable one-half in cash and one-half in payment-in-kind note (“PIK Notes”), the principal balance and all outstanding interest of the Note and the PIK Notes to be paid in seven years from the date of the original Note. The parties expect to close the transaction around the end of the first quarter of 2001. As a result of entering into the agreement to sell Resorts Atlantic City at a purchase price less than its carrying value, the Company recorded a loss of $229.2 million in the fourth quarter of 2000.
The Company, SIHL and Sun
International Bahamas Limited, a wholly-owned subsidiary of SIHL, are
co-borrowers on an existing Revolving Bank Credit Agreement (the “Revolving
Credit Facility”), for which the maximum amount of borrowings outstanding
is $500 million, such amount to be reduced by $125 million on August 12, 2001.
To allow for the Resorts Atlantic City Sale and the Atlantic City Option, in
January 2001, the Revolving Credit Facility was amended. The amendment states,
among other things, that in lieu of the $125 million reduction discussed above,
(i) if the Resorts Atlantic City Sale is consummated on or before August 12,
2001, on the date of such consummation, the maximum amount of borrowings that
Sun Cove has a 50% interest in, and is a managing partner of Trading Cove Associates (“TCA”), a Connecticut general partnership that developed, and until December 31, 1999, had a management agreement (the “Management Agreement”) with the Mohegan Tribal Gaming Authority, an instrumentality of the Mohegan Tribe of Indians of Connecticut (the “Tribe”) to operate a casino resort and entertainment complex situated in the town of Uncasville, Connecticut (the “Mohegan Sun Casino”). The Management Agreement which covered management, marketing and administrative services, provided that TCA was entitled to receive between 30% and 40% of the net profits, as defined, of the Mohegan Sun Casino. TCA is obligated to pay certain amounts to its partners and certain of their affiliates, as priority payments. These amounts are paid as TCA receives sufficient cash to meet those priority distributions.
On February 9,1998, the Tribe appointed TCA to develop its expansion of the Mohegan Sun Casino, which is currently expected to cost approximately $960.0 million. In addition, TCA and the Tribe entered into an agreement (the “Relinquishment Agreement”) whereby it was agreed that effective January 1, 2000, TCA would turn over management of the Mohegan Sun Resort Complex (which comprises the existing operations and the proposed expansion) to the Tribe. Pursuant to the Relinquishment Agreement, the Management Agreement was terminated and, effective January 1, 2000, TCA receives payments of five percent of the gross revenues of the Mohegan Sun Resort Complex for a 15-year period. The expansion of the Mohegan Sun Casino is expected to open in late 2001, at which time payments received by TCA under the Relinquishment Agreement will be based on gross revenues of the expanded casino.
Trading Cove New York, LLC (“TCNY”), a Delaware limited liability company, is 50% owned by Sun Cove. In March 2001, TCNY entered into a Development Services Agreement (the “Development Agreement”) with the Stockbridge-Munsee Band of Mohican Indians (the “Mohican Tribe”) for the development of a casino project in the Catskill region of New York (the “NY Project”). Pursuant to the Development Agreement, TCNY will provide preliminary NY Project funding, certain NY Project financing and development services. TCNY has secured land and/or options on approximately 340 acres of property in the town of Thompson for the NY Project. The Mohican Tribe does not currently have reservation land in the State of New York, but is federally recognized and operates a casino on its reservation in Wisconsin. The NY Project is contingent upon numerous federal, state and local approvals to be obtained by the Mohican Tribe, which approvals are beyond the control of TCNY. The Company can make no representation as to whether any of the required approvals will be obtained by the Mohican Tribe.
On March 2, 2000, SIHL and
Starwood Hotels and Resorts Worldwide Inc. (“Starwood”) announced that
they had agreed to terminate their agreement (the “Termination
Agreement”) under which the Company was to acquire the Desert Inn Hotel and
In June 2000, Starwood closed on the sale of the Desert Inn for approximately $270 million, subject to certain post-closing adjustments, to an unrelated party. As a result, the Company was required to pay to Starwood $7.2 million from the Deposit. The remaining $7.8 million of the Deposit was refunded to the Company in August 2000. Purchase termination costs in the accompanying consolidated statement of operations include the $7.2 million paid to Starwood and $4.0 million of further costs related to the Desert Inn transaction.
Resorts Atlantic City has a 75,000-square foot casino and a simulcast pari-mutuel betting facility of approximately 3,000 square feet. At December 31, 2000, these gaming areas contained approximately 73 table games that consisted of 35 blackjack tables, eight roulette tables, seven craps tables, and 23 other specialty games that included Caribbean Stud, Baccarat, Mini- Baccarat, Let It Ride, Three-card Poker, Pai Gow Poker, Big Six and Spanish 21. There were also 2,367 slot machines and five betting windows and six customer-operated terminals for simulcast pari-mutuel betting. Management of Resorts Atlantic City continuously monitors the configuration of the casino floor and the games it offers to patrons with a view towards making changes and improvements. As new games have been approved by the Casino Control Commission, management has integrated such games into its casino operations to the extent it deems appropriate.
Casino gaming in Atlantic City is highly competitive and is strictly regulated under the New Jersey Casino Control Act and regulations promulgated thereunder (the “Casino Control Act”), which affect virtually all aspects of RIH’s casino operations. See “Regulation and Gaming Taxes and Fees” below.
Resorts Atlantic City
commenced operations in May 1978 and was the first casino/hotel opened in
Atlantic City. This was accomplished by the conversion of the former Haddon Hall
RIH owns a garage that is connected to Resorts Atlantic City by a covered walkway. This garage is used for patrons’ self parking and accommodates approximately 700 vehicles. RIH also owns additional adjacent properties consisting of approximately 3.5 acres which provide parking for approximately 300 cars. In addition, SINA owns approximately 4.4 acres adjoining Resorts Atlantic City which acreage currently provides additional uncovered self-parking for approximately 400 cars and valet parking for approximately 415 cars. Pursuant to the Resorts Atlantic City Sale, the 4.4 acres owned by SINA will be leased to Colony upon closing of that transaction. This property is also included in the Atlantic City Option.
Consistent with industry practice, RIH reserves a portion of its hotel rooms and suites as complimentary accommodations for high-level casino wagers. For 2000, 1999 and 1998 the average occupancy rates, including complimentary rooms, which were primarily provided to casino patrons, were 87%, 82% and 91% respectively. The average occupancy rate and weighted average daily room rate, excluding complimentary rooms, were 27% and $86, respectively, for 2000. This compares with 36% and $68, respectively, for 1999, and 36% and $71, respectively, for 1998.
Although Resorts Atlantic City has reduced the amount of headline entertainment it offers as compared to recent years, the property continues to offer some headliners as part of its strategy to pursue retail revenue in its theater. In addition, the property offers complimentary entertainment in its VIP player lounge to attract casino patrons.
RIH employs junket, player development and Asian marketing representatives to promote Resorts Atlantic City to prospective gaming patrons. Resorts Atlantic City has casino hosts who assist patrons on the casino floor, make room and dinner reservations, encourage Resorts Card membership (the player identification card) sign-ups in order to increase Resorts’ marketing base and provide general assistance.
The Resorts Card
Resorts Atlantic City designs promotional offers, conveyed via direct mail and telemarketing, and to patrons expected to provide revenues based upon their historical gaming patterns. Such information is gathered on slot wagering by the Resorts Card and on table game wagering by the table games management. Promotional activities include the mailing of vouchers for complimentary slot play.
Resorts Atlantic City conducts slot machine and table game tournaments in which cash prizes are offered to a select group of players invited to participate in the tournament based upon their tendency to play. Such players tend to play at their own expense during “off-hours” of the tournament. At times, tournament players are also offered special dining and entertainment privileges that encourage them to remain at Resorts Atlantic City.
In 1999, the Company completed a major renovation of Resorts Atlantic City at a cost of approximately $48 million. This included extensive renovations to the casino floor, hotel lobby, guestrooms and suites, room corridors, restaurants, the hotel porte cochere and public areas. In addition, three new restaurants were created, replacing two older restaurants and a VIP player lounge was constructed. In December 2000 management completed construction of a $3.5 million nine-bay bus center with a waiting area having a capacity of 250 persons. Additionally, during 2000 RIH expended $3.3 million on new slot machines, conversions and upgrades of existing machines and for associated amenities. Other expenditures consisted of various building improvement projects and information technology upgrades.
In May 1997, the State of New Jersey opened a new convention center. The new convention center has 500,000 square feet of continuous exhibit space and an additional 109,000 square feet of meeting rooms, making it the largest center from Atlanta to Boston.
The convention center was part of a broader plan that included the expansion of the Atlantic City International Airport, a new 500-room convention hotel, which opened in November 1997, and the transformation of the main entryway into Atlantic City into a new corridor. In 1997, this new corridor, which links the new convention center and hotel with the Boardwalk, was completed. In all, six blocks were transformed into an expansive park with extensive landscaping, night-time lighting, and a large fountain and pool with an 86-foot lighthouse. Officials have commented upon the need for improved commercial air service into Atlantic City as a factor in the success of the convention center. See further discussion under “Transportation Facilities” below.
It is believed that
additional hotel rooms are necessary to support the convention center as well as
to allow Atlantic City to become a competitive destination resort. To spur
Although these developments are viewed as positive and favorable to the future prospects of the Atlantic City gaming industry, management of RIH, at this point, can make no representations as to whether, to what extent or to how these developments may affect RIH’s operations.
The lack of an adequate transportation infrastructure in the Atlantic City area continues to negatively affect the industry’s ability to attract patrons from outside a core geographic area. In 1996, the Atlantic City International Airport (located approximately 12 miles from Atlantic City) was expanded to double the size of the terminal and add departure gates, to improve the baggage handling system and provide sheltered walkways connecting the terminal and planes. However, scheduled service to that airport from major cities by national air carriers remains limited.
Since the inception of gaming in Atlantic City there has been no significant change in the industry’s marketing base or in the principal means of transportation to Atlantic City, which continues to be automobile and bus. The resulting geographic limitations and traffic congestion have restricted Atlantic City’s growth as a major resort destination.
RIH continues to utilize day-trip bus programs. To accommodate its bus patrons in 2000, Resorts Atlantic City constructed a nine-bay bus center with a waiting area which can accommodate up to 250 persons.
In conjunction with a
street beautification and housing project that was given approval by the CRDA,
that agency has engaged consultants to explore the feasibility of the
beautification and widening of North Carolina Avenue which would allow for
Competition in the Atlantic City casino/hotel industry is intense. Casino/hotels compete primarily on the basis of promotional allowances, entertainment, advertising, services provided to patrons, caliber of personnel, attractiveness of the hotel and casino areas and related amenities and parking facilities. Resorts Atlantic City competes directly with 11 casino/hotels in Atlantic City which, in the aggregate, contain approximately 1,198,000 square feet of gaming area, including simulcast betting and poker rooms, and 11,318 hotel rooms. Significant additional expansion is expected in the near future due to the previously discussed expansion projects to be financed by the CRDA, as well as the construction of new casino/hotels announced for the Marina area and the South Inlet section.
Resorts Atlantic City is located at the northern end of the Boardwalk adjacent to the Taj Mahal, which is next to the Showboat Casino Hotel (the “Showboat”). These three properties have a total of approximately 2,649 hotel rooms and approximately 328,000 square feet of gaming space in close proximity to each other. In 2000, the three casino/hotels combined generated approximately 26% of the gross gaming revenue of Atlantic City. A 28-foot wide enclosed pedestrian bridge between Resorts Atlantic City and the Taj Mahal allows patrons of both hotels and guests for events being held at Resorts Atlantic City and at the Taj Mahal to move between the facilities without exposure to the weather. A similar enclosed pedestrian bridge connects the Showboat to the Taj Mahal, allowing patrons to walk under cover among all three casino/hotels. The remaining nine Atlantic City casino/hotels are located approximately one-half mile to one and one-half miles to the south on the Boardwalk or in the Marina area of Atlantic City.
In recent years, competition for the gaming patron outside of Atlantic City has become extremely intense. In 1988, only Nevada and New Jersey had legalized casino operations. Currently, almost every state in the United States has some form of legalized gaming. Directly competing with Atlantic City for the day-trip patron are two gaming properties on Indian reservations in Connecticut. One is Foxwoods Resort and Casino operated by the Pequot Tribe. The other, the Mohegan Sun Casino, opened in October 1996 and until December 31, 1999 was managed by TCA. The Oneida Indians operate a casino near Syracuse, New York. Other Indian tribes in the states of New York, Rhode Island and Connecticut are seeking federal recognition in order to establish gaming operations which would further increase the competition for day-trip patrons. In addition, three racetracks in the State of Delaware operate slot machines.
The expansion of casino gaming, particularly that which has been or may be introduced into jurisdictions in close proximity to Atlantic City, adversely affects RIH’s operations as well as the Atlantic City gaming industry.
Credit is extended to select gaming customers primarily in order to compete with other casino/hotels in Atlantic City which also extend credit to customers. Credit play represented 25.3% of table game volume at Resorts Atlantic City in 2000, 25.0% in 1999 and 17.4% in 1998. The credit play percentage of table game volume for the Atlantic City industry was 23.4% in 2000, 24% in 1999 and 23.2% in 1998. RIH’s gaming receivables, net of allowance for uncollectible amounts, were $6.9 million, $4.8 million and $3.3 million as of December 31, 2000, 1999 and 1998, respectively. The collectibility of gaming receivables has an effect on results of operations, however management believes that overall collections have been satisfactory. Atlantic City gaming debts are enforceable under the laws of New Jersey and certain other states, although it is not clear whether other states will honor this policy or enforce judgments rendered by the courts of New Jersey with respect to such debts.
Gaming at Resorts Atlantic City is conducted by personnel trained and supervised by RIH. Prior to employment, all casino personnel must be licensed under the Casino Control Act. Security checks are made to determine, among other matters, that job applicants for key positions have had no criminal ties or associations. RIH employs extensive security and internal controls at its casino. Security at Resorts Atlantic City utilizes closed circuit video cameras to monitor the casino floor and money counting areas. The count of moneys from gaming is observed daily by government representatives.
RIH’s business activities are strongly affected by seasonal factors that influence the New Jersey beach tourist trade. Higher revenues and earnings are typically realized during the middle third of the year.
RIH had a maximum of approximately 3,220 employees during 2000 and RIH believes that its employee relations are satisfactory. Approximately 1,350 of RIH’s employees are represented by unions. Of these employees, approximately 1,050 are represented by the Hotel Employees and Restaurant Employees International Union Local 54, whose contract was renewed in September 1999 for a term of five years. There are several union contracts covering other union employees.
All of RIH’s casino employees and certain of its hotel employees must be licensed under the Casino Control Act. Casino employees are those employees whose work requires access to the casino, the casino simulcasting facility or restricted casino areas. Casino and certain hotel employees must meet applicable standards pertaining to such matters as financial responsibility, good character, ability, casino training and experience and New Jersey residency. Certain hotel employees are no longer required to be registered with the Casino Control Commission.
RIH’s operations in Atlantic City are subject to regulation under the Casino Control Act, which authorizes the establishment of casinos in Atlantic City, provides for licensing, regulation and taxation of casinos and created the Casino Control Commission and the Division of Gaming Enforcement to administer the Casino Control Act. In general, the provisions of the Casino Control Act concern: the ability, character and financial stability and integrity of casino operators, their officers, directors and employees and others financially interested in a casino; the nature and suitability of hotel and casino facilities, operating methods and conditions; and financial and accounting practices. Gaming operations are subject to a number of restrictions relating to the rules of games, type of games, credit play, size of hotel and casino operations, hours of operation, persons who may be employed, companies which may do business with casinos, the maintenance of accounting and cash control procedures, security and other aspects of the business.
A casino license is initially issued for a term of one year and must be renewed annually by action of the Casino Control Commission for the first two renewal periods succeeding the initial issuance of a casino license. The Casino Control Commission may renew a casino license for a period of four years, although licensing hearings may be reopened at any time. A license is not transferable and may be conditioned, revoked or suspended at any time upon proper action by the Casino Control Commission. The Casino Control Act also requires an operations certificate which, in effect, has a term coextensive with that of a casino license.
On February 26, 1979, the Casino Control Commission granted a casino license to RIH for the operation of Resorts Atlantic City. In January 2000, RIH’s license was renewed until January 31, 2004.
The Casino Control Act imposes certain restrictions upon the ownership of securities issued by a corporation which holds a casino license or is a holding, intermediary or subsidiary company of a corporate licensee (collectively, “holding company”). Among other restrictions, the sale, assignment, transfer, pledge or other disposition of any security issued by a corporation which holds a casino license is conditional and shall be ineffective if disapproved by the Casino Control Commission. If the Casino Control Commission finds that an individual owner or holder of any securities of a corporate licensee or its holding company must be qualified and is not qualified under the Casino Control Act, the Casino Control Commission has the right to propose any necessary remedial action. In the case of corporate holding companies and affiliates whose securities are publicly traded, the Casino Control Commission may require divestiture of the security held by any disqualified holder who is required to be qualified under the Casino Control Act.
In the event that entities or persons required to be qualified refuse or fail to qualify and fail to divest themselves of such security interest, the Casino Control Commission has the right to take any necessary action, including the revocation or suspension of the casino license. If any security holder of the licensee or its holding company or affiliate who is required to be qualified is found disqualified, it will be unlawful for the security holder to (i) receive any dividends or interest upon any such securities, (ii) exercise, directly or through any trustee or nominee, any right conferred by such securities or (iii) receive any remuneration in any form from the corporate licensee for services rendered or otherwise. The Amended and Restated Certificate of Incorporation of SINA provides that all securities of SINA are held subject to the condition that if the holder thereof is found to be disqualified by the Casino Control Commission pursuant to provisions of the Casino Control Act, then that holder must dispose of his or her interest in the securities.
In the event that it is determined that a licensee has violated the Casino Control Act, or if a security holder of the licensee required to be qualified is found disqualified but does not dispose of his securities in the licensee or holding company, under certain circumstances the licensee could be subject to fines or have its license suspended or revoked.
The Casino Control Act provides for the mandatory appointment of a conservator to operate the casino and hotel facility if a license is revoked or not renewed and permits the appointment of a conservator if a license is suspended for a period in excess of 120 days. If a conservator is appointed, the suspended or former licensee is entitled to a “fair rate of return out of net earnings, if any, during the period of the conservatorship, taking into consideration that which amounts to a fair rate of return in the casino or hotel industry.” Under certain circumstances, upon the revocation of a license or failure to renew, the conservator, after approval by the Casino Control Commission and consultation with the former licensee, may sell, assign, convey or otherwise dispose of all of the property of the casino/hotel. In such cases, the former licensee is entitled to a summary review of such proposed sale by the Casino Control Commission and creditors of the former licensee and other parties in interest are entitled to prior written notice of sale.
The Casino Control Act provides for casino license renewal fees, other fees based upon the cost of maintaining control and regulatory activities and various license fees for the various classes of employees. In addition, a casino licensee is subject annually to a tax of 8% of “gross revenue” (defined under the Casino Control Act as casino win, less provision for uncollectible accounts up to 4% of casino win) and license fees of $500 on each slot machine. Also, the Casino Control Act has been amended to create an Atlantic City fund (the “AC Fund”) for economic development projects other than the construction and renovation of casino/hotels. Beginning with fiscal year 1999/2000 and for the following three fiscal years, an amount equal to the average paid into the AC Fund for the previous four fiscal years shall be contributed to the AC Fund. Each licensee’s share of the amount to be contributed to the AC Fund is based upon its percentage of the total industry gross revenue for the relevant fiscal year. After eight years, the casino licensee’s requirement to contribute to this fund ceases.
The following table summarizes, for the periods shown, the fees, taxes and contributions assessed upon RIH by the Casino Control Commission.
2000 1999 1998
-------------- -------------- --------------
Gaming tax $ 18,904,000 $ 17,701,000 $ 18,785,000
License, investigation, inspection and
other fees 3,891,000 3,603,000 3,733,000
Contribution to AC Fund 453,000 307,000 496,000
-------------- -------------- --------------
$ 23,248,000 $ 21,611,000 $ 23,014,000
============== ============== ==============
The Casino Control Act, as originally adopted, required a licensee to make investments equal to 2.5% of the licensee’s gross revenue (the “investment obligation”) for each calendar year, commencing in 1979, in which such gross revenue exceeded its “cumulative investments” (as defined in the Casino Control Act). A licensee had five years from the end of each calendar year to satisfy this investment obligation or become liable for an “alternative tax” in the same amount. In 1984, the New Jersey legislature amended the Casino Control Act so that these provisions now apply only to investment obligations for the years 1979 through 1983.
Effective for 1984 and subsequent years, the amended Casino Control Act requires a licensee to satisfy its investment obligation by purchasing bonds to be issued by the CRDA or by making other investments authorized by the CRDA, in an amount equal to 1.25% of a licensee’s gross revenue. If the investment obligation is not satisfied, then the licensee will be subject to an investment alternative tax of 2.5% of gross revenue. Licensees are required to make quarterly deposits with the CRDA against their current year investment obligations. RIH’s investment obligations for the years 2000, 1999, and 1998 amounted to $2.6 million, $2.8 million and $2.9 million, respectively, and have been satisfied by deposits made with the CRDA. At December 31, 2000, RIH held $7.5 million face amount of bonds issued by the CRDA and had $18.1 million on deposit with the CRDA. The CRDA bonds issued have interest rates ranging from 3.6% to 7.0% and have repayment terms of between 20 and 50 years.
In February 1999, the Company and various Atlantic City casinos entered into agreements with the CRDA to invest in a project the CRDA and the New Jersey Sports and Exposition Authority are planning to renovate the existing Atlantic City Boardwalk Convention Center into a 10,000 to 14,000 seat special events center (the “Project”).
The Project will be funded in phases through direct investments from various Atlantic City casinos, including the Company. Of the total budgeted cost, the Company has agreed to invest $8.7 million in cash which will be paid from funds the Company has or will have deposited with the CRDA to meet its investment obligations as described above. As of December 31, 2000, $1.9 million of the total amount deposited with the CRDA by the Company had been allocated to the Project. As the CRDA allocates funds deposited by the Company to the Project, the Company will receive an investment credit reducing its obligation to purchase CRDA bonds in an equal amount.
SINA owns approximately 15 acres of land adjacent to Resorts Atlantic City and an additional 11 acres at various sites in Atlantic City that the Company intends to develop or are available for sale. As part of the Resorts Atlantic City Sale, See “ITEM 1. BUSINESS, (a) General Development of Business”, 5.5 acres of the land adjacent to Resorts Atlantic City, and approximately six acres elsewhere in Atlantic City will be sold to Colony. The remainder of the land adjacent to Resorts Atlantic City is included in the Atlantic City Option, certain of which will be leased by Colony immediately following the closing of the Resorts Atlantic City Sale.
Sun Cove has a 50% interest in, and is a managing partner of, TCA, a Connecticut general partnership, that developed and until December 31, 1999, managed the Mohegan Sun Casino, a casino and entertainment complex in Uncasville, Connecticut. TCA managed the Mohegan Sun Casino pursuant to the Management Agreement. The Management Agreement provided that TCA was entitled to receive between 30% and 40% of the net profits, as defined, of the Mohegan Sun Casino.
In February 1998, the Tribe appointed TCA to develop its $960.0 million expansion of the Mohegan Sun Casino, for a fee of $14 million. The expansion includes an additional 120,000 square foot casino, a 1,200-room hotel, an arena and additional retail space. It is anticipated that the new casino will open in the fourth quarter of 2001 with the hotel opening in the second quarter of 2002. In addition, TCA and the Tribe entered into the Relinquishment Agreement whereby it was agreed that effective January 1, 2000, TCA would turn over management of the Mohegan Sun Resort Complex to the Tribe. Pursuant to the Relinquishment Agreement, the Management Agreement was terminated and, beginning January 1, 2000, TCA receives annual payments of five percent of the gross revenues of the Mohegan Sun Resort Complex, including the expansion, for a 15-year period.
The Mohegan Sun Casino has a Native American theme that is conveyed through architectural features and the use of natural design elements such as timber, stone and water. Guests enter the Mohegan Sun Casino through one of four major entrances, each of which is distinguished by a separate seasonal theme; winter, spring, summer and fall, emphasizing the importance of the seasonal changes to tribal life. The Mohegan Sun Casino currently includes approximately 150,000 square feet of gaming space and features more than 3,000 slot machines, 153 table games, 42 poker tables and guest parking for 7,500 cars. The site for the Mohegan Sun Casino is located approximately one mile from the interchange of Interstate 395 and Connecticut Route 2A, which is a four-lane expressway. A four-lane access road from Route 2A (with its own exit) gives patrons of the Mohegan Sun Casino direct access to Interstate 395, which is connected to Interstate 95, the main highway linking Boston, Providence and New York. This road system allows customers to drive directly into the property from the interstate highway system without encountering any traffic light.
Sun Cove is one of two managing partners of TCA. All decisions of the managing partners require the concurrence of Sun Cove and the other managing partner, Waterford Gaming, L.L.C. In the event of deadlock there are mutual buy-out provisions.
Sun International Resorts, Inc., together with its subsidiaries based in Florida, provides general and administrative support services, marketing services, travel reservations and wholesale tour services for SIHL’s properties in The Bahamas.
A subsidiary of SINA leases office space in New York City for its corporate marketing and public relations office which provides services to SINA and its affiliated companies.
The Company’s core real estate assets consist of approximately 26 acres of developed land and land available for development in Atlantic City.
RIH owns land used in the operation of the casino/hotel which consists of approximately 12 acres and is owned in fee simple, except for approximately 1.2 acres of the Resorts Atlantic City site which are leased by RIH pursuant to ground leases expiring from 2056 through 2067. The 12 acres includes approximately seven acres under the Resorts Atlantic City building complex, approximately 3.5 acres of parking lots available for future expansion and the approximate one acre in front of the casino/hotel which is utilized for patron valet and related services.
SINA also owns in fee
simple approximately 15 acres of real property immediately adjacent to its
existing casino hotel in Atlantic City. These properties are zoned for casino
hotel use and available for future expansion. Some of the properties are
currently utilized as surface parking lots and others are vacant lots. Among
these properties is an approximate 5.5 acre Atlantic Ocean pier site, two acres
of which contained the former Steeplechase Pier. The pier has been removed and
the Company has current federal and state permits to construct a new pier on two
acres of the 5.5-acre site. Atlantic City amended its zoning ordinances to
permit casinos, hotel rooms and ancillary amusements on five of the city’s
pier sites, including the Steeplechase Pier site. State environmental
regulations are currently under review as a result of the city’s recent
zoning changes. The Steeplechase Pier site is among the property that will be
sold to Colony in the Resorts Atlantic City Sale. The remainder of the 15 acres
The Company also owns in fee simple real estate at several different locations in Atlantic City consisting of approximately 11 acres. Among these are an approximate six acres of land adjacent to Delaware Avenue in Atlantic City, a portion of which is utilized by the Company for a warehouse operation servicing Resorts Atlantic City and an approximate four acres of real estate in the Southeast Inlet section of Atlantic City. The Delaware Avenue site is included in the property being sold to Colony in the Resorts Atlantic City Sale, however, the real estate in the Southeast Inlet section will continue to be owned by SINA upon completion of that transaction.
In addition, SINA currently owns in fee simple approximately 45 acres of property located in Atlantic City on Blackhorse Pike, a portion of which may be considered to be wetlands.
As previously reported, in September 1989 SINA filed an action in the US District Court for the Eastern District of Pennsylvania to recover certain sums paid to the defendant, as trustee for two Individual Retirement Accounts and the Fred Lowenschuss Associates Pension Plan (the “Pension Plan”), for SINA stock in a 1988 merger, in which SINA was acquired by Merv Griffin. This action was transferred to the NJ Bankruptcy Court in connection with the Company’s former bankruptcy case commenced there in 1989.
In February 1992, the NJ Bankruptcy Court issued an opinion granting partial summary judgment in favor of SINA on one of its six causes of action. The NJ Bankruptcy Court reserved the issue of remedies for trial.
In August 1992, Fred Lowenschuss filed for Chapter 11 reorganization in the US Bankruptcy Court for the District of Nevada (the “Nevada Bankruptcy Court”). As a result, the NJ Bankruptcy Court stayed SINA’s action against Lowenschuss.
The Nevada Bankruptcy Court confirmed Fred Lowenschuss’ plan of reorganization in October 1993. SINA appealed certain portions of the confirmation order and other orders of the Nevada Bankruptcy Court. In June 1994, the US District Court for the District of Nevada (the “Nevada District Court”) granted SINA’s appeal in all respects. In October 1995, the US Court of Appeals for the Ninth Circuit affirmed the Nevada District Court’s ruling in all respects, and in November 1995, the Court of Appeals denied Fred Lowenschuss’ petition for rehearing. On June 10, 1996, the United States Supreme Court denied Fred Lowenschuss’ petition for a writ of certiorari.
All interested parties, including SINA, filed motions with the Nevada Bankruptcy Court about their respective claims and priority rights under the US Bankruptcy Code. The Nevada Bankruptcy Court ruled on these motions, and SINA and other parties appealed, first to the Nevada District Court and then to the Court of Appeals for the Ninth Circuit. At the time that the United States Supreme Court denied SINA’s petition for a writ of certiorari, on November 29,1999 (see discussion below), SINA had three appeals pending, one in the Court of Appeals and two in the Nevada District Court. SINA voluntarily dismissed all three appeals and simultaneously withdrew its proofs of claim in Lowenschuss’ bankruptcy case.
On November 2 and 3, 1995, the NJ Bankruptcy Court held a trial on the merits of SINA’s claims against the trustee of the Pension Plan. On April 22, 1997, the NJ Bankruptcy Court issued a final opinion in SINA’s favor, and on May 20, 1997 entered a judgment in SINA’s favor finding that the trustee for the two Individual Retirement Accounts and the Pension Plan committed fraud against SINA and that SINA was entitled to restitution. The NJ Bankruptcy Court awarded SINA $3.8 million plus prejudgment interest and $250,000 punitive damages, for a total award of approximately $5.7 million. On July 7, 1997 the NJ Bankruptcy Court amended the judgment to apportion the damages between the Pension Plan and the Individual Retirement Accounts. The NJ Bankruptcy Court also denied Defendant’s request for a stay of enforcement of the judgment. Subsequently, the Defendants filed an appeal of the NJ Bankruptcy Court’s decision in the US District Court for the District of New Jersey (the “New Jersey District Court”). On March 26, 1998, The New Jersey District Court reversed the judgment of the NJ Bankruptcy Court. SINA filed an appeal of the New Jersey District Court’s decision with the US Court of Appeals for the Third Circuit (the “Circuit Court”). On June 30, 1999, the Circuit Court issued an opinion affirming the New Jersey District Court’s decision. SINA’s subsequent petition for a writ of certiorari to the United States Supreme Court was denied on November 29, 1999, thereby concluding this litigation.
In connection with that litigation, Laurance Lowenschuss, as trustee for the Pension Plan, and Fred Lowenschuss, as trustee of the Trusts and as custodian, filed an action in May 1996 against SINA for preliminary and permanent injunctive relief. The Lowenschusses sought an order from the US Bankruptcy Court for the District of Delaware (the “Delaware Bankruptcy Court”) to extend the post-confirmation bar date of the Plan and to secure the return of certain escrowed distributions to holders of Old Series Notes (as defined in the Plan).
On May 9, 1996, the Delaware Bankruptcy Court entered an order, to which the parties had stipulated, extending the Lowenschuss’ date of surrender for Old Series Notes through November 10, 1996. By further stipulations, the date of surrender has been further extended through May 12, 2000, during which time any funds held in escrow under the Plan will not be distributed.
On March 8, 1996, Fred
Lowenschuss, as trustee of various Lowenschuss children’s trusts (the
“Trusts”), and Laurance Lowenschuss, as trustee for the Pension Plan,
filed a counterclaim and a third party claim against SINA and First Interstate
Trust Company in the NJ Bankruptcy Court alleging that the Pension Plan and the
Trusts timely surrendered certain securities for exchange under the
Company’s 1990 plan of reorganization and that those securities were
wrongfully dishonored and returned. The Company replied to the counterclaims in
The foregoing litigation and bankruptcy proceedings have spawned additional and related litigation, including the following: (a) an injunction action brought by Fred Lowenschuss, wherein the Nevada Bankruptcy Court enjoined SINA from proceeding against Fred Lowenschuss individually; the Nevada District Court dismissed appeals by both SINA and Fred Lowenschuss, and the Ninth Circuit, on March 6, 1997, affirmed the District Court’s dismissal of Fred Lowenschuss’ appeal; (b) a malicious prosecution action brought by Fred Lowenschuss against SINA and its counsel that was dismissed by the Nevada Bankruptcy Court and the Nevada District Court; on March 6, 1997, the Ninth Circuit affirmed the District Court’s dismissal of Lowenschuss’ appeal and awarded SINA monetary sanctions, finding that the Lowenschuss’ appeal was frivolous; and (c) an action filed by Laurance Lowenschuss, as trustee of the Pension Plan, in the Nevada District Court against SINA, which was transferred to the NJ District Court; in January, 1996, the NJ District Court referred the matter to the NJ Bankruptcy Court. In February 2001, the NJ Bankruptcy Court granted SINA’s motion to dismiss Lowenschuss’ action for malicious prosecution in Adversary Proceeding No. 96-2350 and denied SINA’s motion to dismiss certain counterclaims in Adversary Proceeding No. 90-1005 related to the exchange of bonds in the Delaware Bankruptcy Court proceeding discussed above.
On June 25, 1998 Betsy Peck, as Trustee for the Philip Goldberg Family Trust (the “Trust”), filed suit against RIH in the Superior Court of New Jersey, Chancery Division, Atlantic County. The complaint involved a quarter of an acre parcel of land that lies under the parking garage adjacent to RIH (the “Lot”). The Lot is owned by the Trust and by way of an assignment in 1978, RIH is a leasee under a lease which was entered into in 1956 for purposes of using the site to construct improvements that would be tied into a motel which was located on a contiguous lot (the “Lease”). In 1980 RIH demolished the motel and the improvements on the Lot and in 1981 RIH completed construction of a parking garage on four parcels of land, which included the Lot and three parcels which are owned by RIH.
The complaint alleged that the Lease requires any improvements on the Lot to be freestanding and detached or detachable from improvements or uses on the contiguous lots. Based upon this interpretation of the Lease, the Trust argued that when the parking garage was constructed approximately twenty years ago, the construction violated the Lease. The Trust sought damages based upon this alleged violation of the Lease.
On June 26, 1998, RIH filed a complaint against the Trust in the same court. The RIH complaint sought declaratory relief that RIH was within its rights in demolishing the improvements on the Lot and constructing the parking garage on the Lot and the three contiguous lots. RIH took the position that the demolition of the improvements and construction of the parking garage was done with the notice, knowledge and/or consent of Mr. and Mrs. Goldberg and for this, and other related reasons, the Trust is prohibited from obtaining relief against RIH under various equitable principles.
On August 1, 2000, the parties agreed to settle the litigation by entering into a Lease Modification Agreement, containing terms beneficial to both parties. 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.
The disclosure required by Item 4 has been omitted pursuant to General Instruction I of Form 10-K.
There is no trading market for SINA common stock, all of which is owned by SIHL.
No dividends were paid on SINA common stock during the last two fiscal years. The indentures for certain of SINA’s indebtedness contain certain restrictions as to the payment of dividends by SINA.
The disclosure required by Item 6 has been omitted pursuant to General Instruction I of Form 10-K.
For the year 2000, gaming revenues were $235.8 million, an increase of $14.8 million (6.7%) from gaming revenues of $221.0 million in 1999. The higher gaming win was a result of increases in both table game and slot revenues.
Table game revenues in 2000 increased by $8.2 million (12.7%) primarily due to an increase in hold percentage (ratio of table game win to dollar amount of chips purchased) to 15.5% from 14.1% in 1999. Also contributing to the higher revenues was an increase of $12.2 million in table game drop (the dollar amount of chips purchased) in 2000 compared to 1999.
Slot revenues in 2000 increased by $6.1 million (3.9%) due to an increase in slot handle (dollar amounts wagered) of $241.1 million (14.3%), partially offset by a decrease in hold percentage to 8.3% in 2000 from 9.2% in 1999. The average number of slot units in operation during the year 2000 was 2,298 as compared to 2,033 in 1999. Commencing in February 1999, the Company had taken out of service and/or removed from the floor as many as 800 slot units at a time during the renovation of Resorts Atlantic City, which was completed at the end of the second quarter of 1999.
RIH also experienced slight increases in rooms and food and beverage revenues for the year ended 2000, primarily as a result of the disruption caused by the renovation in 1999. Throughout the year, in order to complete the renovation of its existing hotel rooms, RIH took out of service an average of 45 rooms of its then existing inventory of 658. Upon completion of the renovation, the number of available rooms decreased to 644.
Other resort revenues decreased by $3.1 million (38%) mainly due to decreased entertainment revenues as there were fewer headliner acts at Resorts Atlantic City in 2000 compared to 1999. The Company continues to provide complimentary entertainment by offering free admission to patrons to its VIP player lounge, “Club 1133", and reducing the emphasis on headliner acts.
Revenues from tour operations increased slightly in 2000 compared to 1999. This was due to an increase in reservation sales at the resort operations of a subsidiary of SIHL located in The Bahamas.
Management fees and other income in 2000 increased by $3.0 million (13.6%) over the previous year. Payments received by Sun Cove from TCA in 2000 reflected an increase of $4.7 million over payments received in 1999 pursuant to the Management Agreement. This increase was partially offset by a decrease in development fees from TCA which were $3.8 million in 2000 compared to $6.7 million in 1999. In addition, management fees earned from a subsidiary of SIHL which operates in The Bahamas, increased by $1.2 million.
Gaming costs and expenses in 2000 increased by $6.0 million (3.8%) as compared to 1999. This represented higher costs attributable to increased gaming revenues compared to the prior year, principally promotional expenses, labor costs and casino win tax.
Selling, general and administrative costs in 2000 increased by $2.8 million (6.1%) compared to 1999. This was partially due to severance costs at Resorts Atlantic City during the first two quarters of 2000 and higher real estate related costs including the write-off of a land purchase option and increased property taxes. In addition, the Company incurred higher information technology costs in connection with the enhancement of certain computer software programs and improving the overall structure of computer systems throughout the Company.
Expenses in 2000 included a write-down of assets related to the Resorts Atlantic City Sale and Atlantic City Option to their realizable value. As a result of entering into the agreement to sell Resorts Atlantic City at a purchase price less than its carrying value, the Company recorded a loss of $229.2 million in the fourth quarter of 2000. Purchase termination costs of $11.2 million in 2000 related to the cancellation of the Company’s agreement to acquire the Desert Inn from Starwood. These costs included $7.2 million paid to Starwood pursuant to the Termination Agreement. Pre-opening expenses of $5.4 million in 1999 related to the opening of the renovation completed at Resorts Atlantic City.
Interest expense in 2000 increased by $3.5 million (17.1%) as compared to 1999. In 1999, $907,000 of interest related to the renovation of Resorts Atlantic City was capitalized. In addition, there was an increase in the weighted average amount of borrowings outstanding under the Revolving Credit Facility.
See Note 12 of Notes to Consolidated Financial Statements for a discussion of the Company’s income taxes for the years 2000 and 1998.
For the year 1999, gaming revenues were lower than the previous year by $13.7 million (5.8%). This decrease consisted of a reduction in slot revenues partially offset by an increase in table games revenues.
Slot revenues decreased by $15.7 million (9.2%) mainly due to a decrease in slot handle of $138.9 million (7.6%). Commencing in February 1999, the Company had taken out of service and/or removed from the floor as many as 800 slot units at a time during the renovation of Resorts Atlantic City. As a result, there was an average of 2,033 slot machines in service during the year 1999 compared to 2,253 in 1998.
Table games revenues increased by $2.2 million (3.6%) over the previous year. This was primarily due to an increase in table games drop of $39.2 million (9.4%) which was partially offset by a reduction in hold percentage to 14.1% in 1999 from 14.9% in 1998.
RIH also experienced slight decreases in rooms and food and beverage revenues for the year ended 1999 as a result of the renovation. Throughout the year, in order to complete the renovation of its existing hotel rooms, RIH took out of service an average of 45 rooms of its then existing inventory of 658. Upon completion of the renovation, the number of available rooms decreased to 644 compared to 662 in 1998.
Other casino hotel revenues decreased by $3.4 million in 1999 compared to the previous year. This decrease 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.
On June 30, 1999, management completed the renovation of Resorts Atlantic City. The construction included extensive renovations to the casino floor, hotel lobby, guestrooms and suites, room corridors, restaurants, the hotel porte cochere and public areas. In addition, three new restaurants were created, replacing two older restaurants and a VIP player lounge was constructed.
Revenues from tour operations for the year 1999 increased by $10.0 million (72.7%) compared to the previous year. This increase was the result of the Company’s tour operator subsidiary significantly expanding 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 in 1999 increased by $11.2 million over the previous year. The Company earned $6.7 million of development fees from TCA in 1999, while management fees from TCA increased slightly in 1999 over 1998. No development fees were earned in 1998. In addition, management fees earned from a subsidiary of SIHL which operates in The Bahamas, increased by $4.3 million as a result of changes in the management services agreement.
While gaming revenues were down for the year 1999, gaming expense increased by $5.5 million. This was primarily due to increased promotional costs which more than offset a decrease in casino win tax which is based on a percentage of casino win. As explained above, the effect of fewer slot machines on the floor and lower hold percentage on table games had an unfavorable impact on casino revenues. Therefore, RIH was not able to fully realize the effects of the increased promotional costs.
See Note 12 of Notes to Consolidated Financial Statements for a discussion of the Company’s income taxes for the years 1999 and 1998.
During the fourth quarter
of 2000, the Company entered into a definitive agreement to sell Resorts
Atlantic City to Colony for a purchase price of $140 million, such purchase
price to accrue interest at an annual rate of 6% until closing. In addition,
Colony has a two year option to acquire certain undeveloped real estate owned by
SINA, adjacent to Resorts Atlantic City, for a purchase price of $40 million,
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 Casino Control Commission and is also subject to Colony
receiving certain financing in order to consummate the transaction. To
facilitate Colony’s financing, SINA has agreed to lend Colony’s
affiliate $17.5 million toward the purchase price of Resorts Atlantic City in
exchange for an unsecured note at an interest rate of 12.5% per annum with
interest payable one-half in cash and one-half in payment-in-kind note, the
principal balance and all outstanding interest of the Note and the PIK Notes to
Currently, the maximum amount of borrowings that may be outstanding on the Revolving Credit Facility by SINA and its affiliates is $500 million, such amount to be reduced by $125 million on August 12, 2001. In January 2001, the Company amended the Revolving Credit Facility to allow for the Resorts Atlantic City Sale and the Atlantic City Option. The amendment states, among other things, that, in lieu of the $125 million reduction discussed above, (i) if the Resorts Atlantic City Sale is consummated on or before August 12, 2001, on the date of such consummation, the maximum amount of borrowings that may be outstanding on the Revolving Credit Facility will be reduced by the net cash proceeds received by the Company, subject to a minimum cash consideration of $125 million and (ii) if the Atlantic City Option is consummated on or before August 12, 2001, the amount of borrowings available on the Revolving Credit Facility will be further reduced by the net cash proceeds received by the Company. As of December 31, 2000, the aggregate amount of borrowings outstanding under the Revolving Credit Facility by SINA and its affiliates amounted to $369 million, of which $79 million was outstanding by SINA.
TCNY, a Delaware limited liability company, is 50% owned by Sun Cove. In March 2001, TCNY entered into the Development Agreement with the Mohican Tribe for development of the NY project, a casino project in the Catskill region of New York. Pursuant to the Development Agreement, TCNY will provide preliminary NY Project funding, certain NY Project financing and development services. TCNY has secured land and/or options on approximately 340 acres of property in the town of Thompson for the NY Project. The Mohican Tribe does not currently have reservation land in the State of New York, but is federally recognized and operates a casino on its reservation in Wisconsin. The NY Project is contingent upon numerous federal, state and local approvals to be obtained by the Mohican Tribe, which approvals are beyond the control of TCNY. The Company can make no representation as to whether any of the required approvals will be obtained by the Mohican Tribe.
In June 1998, the Financial
Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards No. 133, “Accounting for Derivative Instruments and
Hedging Activities”, subsequently amended by FASB Statement No. 137 and
FASB Statement No. 138. SFAS 133, as amended, is effective for fiscal years
beginning after June 15, 2000. SFAS 133 requires that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. Changes in the derivative’s fair values will be
recognized in income unless specific hedge accounting criteria are met. The
Certain information included in this Form 10-K filing contains 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).
The Company’s consolidated financial statements are presented on the following pages:
Financial Statements Page Reference
Report of Independent Public Accountants 26
Consolidated Balance Sheets
at December 31, 2000 and 1999 27
Consolidated Statements of Operations
for the years ended December 31, 2000, 1999 and 1998 28
Consolidated Statements of Changes in Shareholder's Equity
for the years ended December 31, 2000, 1999 and 1998 29
Consolidated Statements of Cash Flows
for the years ended December 2000, 1999 and 1998 30
Notes to Consolidated Financial Statements 31
Financial Statement Schedule:
Schedule II: Valuation and Qualifying Accounts
for the years ended December 31, 2000, 1999 and 1998 45
We have audited the accompanying consolidated balance sheets of Sun International North America, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in shareholder’s equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements and the schedule referred to below are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sun International North America, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to the financial statements is presented for the purpose of complying with the Securities and Exchange Commission’s rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
SUN INTERNATIONAL NORTH AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
December 31,
----------------------------
2000 1999
----------- ------------
ASSETS
Current assets:
Cash (including cash equivalents
of $0 and $6,678) $ 1,276 $ 22,669
Receivables, net 1,434 8,542
Inventories 71 2,500
Prepaid expenses 872 2,742
Due from affiliates 7,506 7,829
Net assets held for sale 138,350 -
----------- ------------
Total current assets 149,509 44,282
Property and equipment, net 70,536 356,278
Deferred charges and other assets, net 6,076 40,591
Goodwill, net - 93,855
----------- ------------
Total assets $ 226,121 $ 535,006
=========== ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 58 $ 944
Accounts payable and accrued liabilities 28,214 51,633
Due to affiliates 5,771 4,518
----------- ------------
Total current liabilities 34,043 57,095
Long-term debt, net of unamortized discounts 278,420 272,374
Deferred income taxes - 42,223
----------- ------------
Total liabilities 312,463 371,692
----------- ------------
Commitments and contingencies
Shareholder's equity:
Common stock - 100 shares
outstanding - $.01 par value - -
Capital in excess of par 192,635 192,635
Accumulated deficit (278,977) (29,321)
----------- ------------
Total shareholder's equity (86,342) 163,314
----------- ------------
Total liabilities and shareholder's equity $ 226,121 $ 535,006
=========== ============
See Notes to Consolidated Financial Statements.
SUN INTERNATIONAL NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars)
For the Year Ended December 31,
----------------------------------------------
2000 1999 1998
------------ ------------ ------------
Revenues:
Gaming $ 235,827 $ 221,015 $ 234,736
Rooms 16,412 15,160 16,148
Food and beverage 26,039 25,512 26,692
Other resort revenues 4,973 8,076 11,460
------------ ------------ ------------
283,251 269,763 289,036
Less promotional allowances (25,288) (26,632) (28,295)
------------ ------------ ------------
Net gaming and resort revenues 257,963 243,131 260,741
Tour operations 25,048 23,766 13,758
Management fees and other 25,007 22,000 11,545
------------ ------------ ------------
308,018 288,897 286,044
------------ ------------ ------------
Expenses:
Gaming 159,126 152,661 147,141
Rooms 4,186 2,929 3,454
Food and beverage 14,716 15,401 16,638
Other resort expenses 25,667 28,762 30,509
Tour operations 21,815 22,543 12,583
Selling, general and administrative 48,514 45,715 44,687
Depreciation and amortization 18,714 18,219 15,529
Pre-opening expenses - 5,398 -
Purchase termination costs 11,202 - -
Write-down of assets to be sold 229,208 - -
------------ ------------ ------------
533,148 291,628 270,541
------------ ------------ ------------
Operating income (loss) (225,130) (2,731) 15,503
Other income (expenses):
Interest income 1,945 1,839 3,602
Interest expense, net of capitalized interest (24,098) (20,571) (20,466)
Amortization of debt discounts and issue costs (606) (429) (511)
Other, net (687) (729) -
------------ ------------ ------------
Loss before benefit (provision) for income taxes (248,576) (22,621) (1,872)
Benefit (provision) for income taxes (1,080) (2,845) 38
------------ ------------ ------------
Net loss $ (249,656) $ (25,466) $ (1,834)
============ ============ ============
See Notes to Consolidated Financial Statements.
SUN INTERNATIONAL NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
For the Years Ended December 31, 2000, 1999 and 1998
(In Thousands of Dollars)
Capital
Common in excess Accumulated
stock of par deficit Total
---------- ----------- ------------ -----------
Balance at December 31, 1997 $ - $ 193,008 $ (2,021) $ 190,987
Net loss for year 1998 - - (1,834) (1,834)
---------- ----------- ------------ -----------
Balance at December 31, 1998 - 193,008 (3,855) 189,153
Shares canceled - (373) - (373)
-
Net loss for year 1999 - - (25,466) (25,466)
---------- ----------- ------------ -----------
Balance at December 31, 1999 - 192,635 (29,321) 163,314
Net loss for year 2000 - - (249,656) (249,656)
---------- ----------- ------------ -----------
Balance at December 31, 2000 $ - $ 192,635 $ (278,977) $ (86,342)
========== =========== ============ ===========
See Notes to Consolidated Financial Statements.
SUN INTERNATIONAL NORTH AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
For the Year Ended December 31,
----------------------------------------
2000 1999 1998
----------- ------------ -----------
Cash flows from operating activities:
Net loss $ (249,656) $ (25,466) $ (1,834)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 19,320 18,648 16,041
Write-down of net assets held for sale 229,208 - -
Write-off of Desert Inn purchase termination costs 11,202 - -
Loss on disposition of assets 687 729 -
Utilization of tax benefits acquired in merger - - 1,887
Provision for doubtful receivables 1,250 1,543 708
Provision for discount on CRDA obligations, net 799 587 572
Net change in deferred tax liability 205 (30) (3,747)
Net change in working capital accounts:
Receivables (3,284) (1,131) (105)
Due from affiliates 323 (7,443) -
Inventories and prepaid expenses 359 (1,628) 77
Accounts payable and accrued liabilities (167) 2,945 472
Net change in deferred charges (1,293) (288) 322
----------- ------------ -----------
Net cash provided by (used in) operating
activities 8,953 (11,534) 14,393
----------- ------------ -----------
Cash flows from investing activities:
Payments for major capital projects (10,360) (34,943) (13,591)
Operating capital expenditures (9,047) (11,408) (7,195)
Acquisition of other fixed assets - (9,433) (11,727)
Deposit refunded (paid) for proposed
Desert Inn acquisition 7,750 (16,117) -
Proceeds from sale of assets 395 5,052 110,256
Reclassification of cash to assets held for sale (21,453) - -
Other (2,695) (2,746) (3,700)
----------- ------------ -----------
Net cash provided by (used in) investing activities (35,410) (69,595) 74,043
----------- ------------ -----------
Cash flows from financing activities:
Borrowings 6,000 73,000 -
Repayments of borrowings (1,908) (8,710) (108,480)
Advances from (repayments to) affiliates 972 14,348 (5,610)
----------- ------------ -----------
Net cash provided by (used in) financing activities 5,064 78,638 (114,090)
----------- ------------ -----------
Net decrease in cash and cash equivalents (21,393) (2,491) (25,654)
Cash and cash equivalents at beginning of period 22,669 25,160 50,814
----------- ------------ -----------
Cash and cash equivalents at end of period $ 1,276 $ 22,669 $ 25,160
=========== ============ ===========
See Notes to Consolidated Financial Statements
Sun International North America, Inc. (“SINA”) is a holding company which, through an indirect wholly owned subsidiary, owns a resort and casino property in Atlantic City, New Jersey (“Resorts Atlantic City”). SINA also provides management services to certain of its affiliated companies and owns a tour operator which wholesales tour packages and provides reservation services. In addition, SINA earns income based on the gross revenues of a casino operated by an unaffiliated entity in Connecticut (see below). SINA is a wholly owned subsidiary of Sun International Hotels Limited (“SIHL”). The term “Company” as used herein includes SINA and its subsidiaries.
SINA, through its indirect wholly owned subsidiary, Resorts International Hotel, Inc. (“RIH”), owns and operates Resorts Atlantic City. Resorts Atlantic City includes two hotel towers which are comprised of 644 guest rooms, a 75,000 square foot casino and a 3,000 square foot pari-mutuel betting and slot machine area.
During the fourth quarter
of 2000, the Company entered into a definitive agreement to sell Resorts
Atlantic City to an affiliate of Colony Capital LLC (“Colony”) for a
purchase price of $140 million, such purchase price to accrue interest at an
annual rate of 6% until closing (the “Resorts Atlantic City Sale”). In
addition, Colony has a two year option to acquire certain undeveloped real
estate owned by the Company, adjacent to Resorts Atlantic City, for a purchase
price of $40 million (the “Atlantic City Option”) 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. To facilitate Colony’s
financing, SINA has agreed to lend Colony’s affiliate $17.5 million toward
the purchase price of Resorts Atlantic City in exchange for an unsecured note
(the “Note”) at an interest rate of 12.5% per annum with interest
payable one-half in cash and one-half in payment-in-kind note (“PIK
Notes”), the principal balance and all outstanding interest of the Note and
the PIK Notes to be paid in seven years from the date of the original Note. The
parties expect to close the transaction around the end of the first quarter of
2001. As a result of entering into the agreement to sell Resorts Atlantic City
at a purchase price less than its carrying value, the Company recorded a loss of
$229.2 million in the fourth quarter of 2000. The adjusted book value of the
assets to be disposed of in the Resorts Atlantic City Sale is reflected in the
accompanying consolidated balance sheets as net assets held for sale. If this
transaction had been consummated on December 31, 1999, on a pro forma basis, the
Components of net assets held for sale are as follows (in thousands of US dollars):
Current assets $ 34,534
Non-current assets 173,233
Current liabilities (26,989)
Non-current liabilities (42,428)
-----------
$ 138,350
===========
Sun Cove Limited, a wholly owned subsidiary of SINA, has a 50% interest in, and is a managing partner of, Trading Cove Associates (“TCA”), a Connecticut general partnership that developed and until December 31, 1999, had a management agreement (the “Management Agreement”) with the Mohegan Tribal Gaming Authority, an instrumentality of the Mohegan Tribe of Indians of Connecticut (the “Tribe”) to operate a casino resort and entertainment complex situated in the town of Uncasville, Connecticut (the “Mohegan Sun Casino”). The Management Agreement which covered management, marketing and administrative services, provided that TCA is entitled to receive between 30% and 40% of the net profits, as defined, of the Mohegan Sun Casino. TCA is obligated to pay certain amounts to its partners and certain of their affiliates, as priority payments. These amounts are paid as TCA receives sufficient cash to meet those priority distributions.
On February 9, 1998, the Tribe appointed TCA to develop its proposed expansion of the Mohegan Sun Casino, which is currently expected to cost approximately $960.0 million, for a fee of $14 million. In addition, TCA and the Tribe entered into an agreement (the “Relinquishment Agreement”) whereby it was agreed that effective January 1, 2000, TCA turned over management of the Mohegan Sun Resort Complex, (which comprises the existing operations and the proposed expansion), to the Tribe. Pursuant to the Relinquishment Agreement, the Management Agreement was terminated and, effective January 1, 2000, TCA receives payments of five percent of the gross revenues of the Mohegan Sun Resort Complex for a 15-year period.
Sun International Resorts, Inc. (“Sun Resorts”), is a wholly-owned subsidiary of SINA. Sun Resorts, along with its subsidiaries, is a tour operator and wholesaler of tour packages and provides reservation services. In addition, Sun Resorts provides certain support services for SIHL’s resort and casino operations in The Bahamas.
On March 2, 2000, SIHL and Starwood
Hotels and Resorts Worldwide Inc. (“Starwood”) announced that they had
agreed to terminate their agreement (the “Termination Agreement”)
In June 2000, Starwood closed on the sale of the Desert Inn for approximately $270 million, subject to certain post-closing adjustments, to an unrelated party. As a result, the Company was required to pay to Starwood $7.2 million from the Deposit. The remaining $7.8 million of the Deposit was refunded to the Company in August 2000. Purchase termination costs in the accompanying consolidated statement of operations included the $7.2 million paid to Starwood and $4.0 million of further costs related to the Desert Inn transaction.
The consolidated financial statements include the accounts of SINA and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Certain balances in the accompanying consolidated financial statements for 1998 have been reclassified to conform with the current year presentation.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company provides allowances for doubtful accounts arising from casino, hotel and other services, which are based upon a specific review of certain outstanding receivables. In determining the amounts of the allowances, the Company is required to make certain estimates and assumptions and actual results may differ from those estimates and assumptions.
The Company recognizes the
net win from casino gaming activities (the difference between gaming wins and
losses) as gaming revenues. Revenues from hotel and related services are
recognized at the time the related service is performed. Management fees and
The retail value of accommodations, food, beverage and other services provided to customers without charge is included in gross revenues and deducted as promotional allowances. The estimated departmental costs of providing such promotional allowances for the years ended December 31 are included in gaming costs and expenses as follows:
(In Thousands of Dollars) 2000 1999 1998
--------- ---------- ----------
Rooms $ 8,407 $ 5,536 $ 5,655
Food and beverage 15,502 14,634 13,448
Other 3,201 6,704 5,570
--------- ---------- ----------
$ 27,110 $ 26,874 $ 24,673
========= ========== ==========
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 133 “Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”). SFAS 133, as amended, is effective for fiscal years beginning after June 15, 2000. SFAS 133 requires that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. Changes in the derivative’s fair values will be recognized in income unless specific hedge accounting criteria are met. The Company will adopt SFAS 133, as amended, beginning January 1, 2001, and does not anticipate that it will have a material impact on its consolidated financial statements.
The Company considers all of its short-term money market securities purchased with original maturities of three months or less to be cash equivalents.
Inventories of provisions, supplies and spare parts are carried at the lower of cost (first-in, first-out) or market.
Property and equipment are stated at cost and are depreciated over the estimated useful lives reported below using the straight-line method for financial reporting purposes.
Land improvements 14 years
Hotels and other buildings 40 years
Furniture, machinery and equipment 2-5 years
Deferred charges related to the Mohegan Sun Casino are amortized over the term of the Management Agreement. Debt issuance costs are amortized over the terms of the related indebtedness.
Goodwill is amortized on a straight line basis over 40 years. Amortization expense included in the accompanying consolidated statements of operations related to goodwill was $2.6 million, $2.6 million and $2.7 million for the years ended December 31, 2000, 1999 and 1998, respectively. In the accompanying consolidated balance sheets, goodwill as of December 31, 1999 relates to SINA’s investment in Resorts Atlantic City. As a result of the Resorts Atlantic City Sale, goodwill was written off in its entirety in the fourth quarter of 2000.
Interest is capitalized on construction expenditures and land under development at the weighted average interest rate of the Company’s long-term debt.
Under the New Jersey Casino Control Act, the Company is obligated to purchase CRDA bonds, such obligation is based on gross revenues earned at Resorts Atlantic City, which will bear a below-market interest rate, or make an alternative qualifying investment. The Company charges to expense an estimated discount related to CRDA investment obligations as of the date the obligation arises based on fair market interest rates of similar quality bonds in existence as of that date.
The discount on CRDA bonds purchased is amortized to interest income over the life of the bonds using the effective interest rate method.
The Company reviews its long lived assets and certain related intangibles for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If changes in circumstances indicate that the carrying amount of an asset that the Company expects to hold and use may not be recoverable, future cash flows expected to result from the use of the asset and its disposition must be estimated. If the undiscounted value of the future cash flows is less than the carrying amount of the asset, an impairment would be recognized. The Company does not believe that any such changes have occurred except as previously described as a result of the Resorts Atlantic City Sale and the Atlantic City Option.
SINA and all of its subsidiaries file consolidated United States federal income tax returns.
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”. Under this standard, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities at enacted tax rates. A valuation allowance is recognized based on an estimate of the likelihood that some portion or all of the deferred tax asset will not be realized.
Comprehensive income is equal to net loss for all periods presented.
Cash equivalents at December 31, 2000 and 1999 included 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 and investments in a money market fund which invests exclusively in United States Treasury obligations. At December 31, 2000, the Company held reverse repurchase agreements of $300,000, all of which matured the first week of January 2001.
December 31,
-----------------------
(In Thousands of Dollars) 2000 1999
--------- ---------
Gaming $ - $ 7,439
Less allowance for doubtful accounts - (2,606)
--------- ---------
- 4,833
--------- ---------
Other 1,557 3,811
Less allowance for doubtful accounts (123) (102)
--------- ---------
1,434 3,709
--------- ---------
$ 1,434 $ 8,542
========= =========
Gaming receivables at December 31, 1999 related to Resorts Atlantic City.
December 31,
--------------------------
(In Thousands of Dollars) 2000 1999
----------- -----------
Land held for investment, development or resale $ 37,254 $ 61,308
Land and land rights 18,623 111,907
Land improvements 299 1,001
Hotels, other buildings and leasehold improvements 2,468 166,512
Furniture, machinery and equipment 11,670 45,588
Construction in progress 5,330 4,997
----------- -----------
75,644 391,313
Less accumulated depreciation (5,108) (35,035)
----------- -----------
Net property and equipment $ 70,536 $ 356,278
=========== ===========
Interest costs of $0, $907,000 and $75,000 were capitalized in 2000, 1999 and 1998,
respectively.
December 31,
--------------------------
(In Thousands of Dollars) 2000 1999
----------- ----------
Accrued payroll and related taxes and benefits $ 3,659 $ 9,956
Trade payables 5,458 12,768
Customer deposits and unearned revenues 6,247 5,965
Accrued interest 3,673 5,799
Other accrued liabilities 9,177 17,145
----------- ----------
$ 28,214 $ 51,633
=========== ==========
December 31,
--------------------------
(In Thousands of Dollars) 2000 1999
---------- -----------
CRDA bonds and deposits $ - $ 16,983
Desert Inn acquisition costs - 16,117
Debt issue costs 4,677 5,208
Mohegan Sun Casino 1,259 1,639
Other 140 644
---------- -----------
$ 6,076 $ 40,591
========== ===========
December 31,
--------------------------
(In Thousands of Dollars) 2000 1999
---------- -----------
9% Senior Notes $ 200,000 $ 200,000
Unamortized discount (663) (738)
---------- -----------
199,337 199,262
Revolving Credit Facility 79,000 73,000
Other 141 1,056
---------- -----------
278,478 273,318
Less current maturities (58) (944)
---------- -----------
$ 278,420 $ 272,374
========== ===========
The 9% senior subordinated unsecured notes due 2007 (the “9% Senior Notes”), are unconditionally guaranteed by certain subsidiaries of SINA. Interest on the 9% Senior Notes is payable semi-annually. The Indenture for the 9% Senior Notes contains certain covenants, including limitations on the ability of the issuers and the guarantors to, among other things: (i) incur additional indebtedness, (ii) incur certain liens, (iii) engage in certain transactions with affiliates and (iv) pay dividends and make certain other payments.
SINA is a co-borrower along
with SIHL and Sun International Bahamas Limited, an unconsolidated affiliated
company, under a facility (the “Revolving Credit Facility”) with a
syndicate of banks led by The Bank of Nova Scotia acting as administrative
Loans under the Revolving Credit Facility bear interest at (i) the higher of (a) the Bank of Nova Scotia’s base rate or (b) the Federal Funds rate, in either case plus an additional 0.750% to 1.625% based on a debt to earnings ratio of SIHL during the period, as defined (the “Debt Ratio”) or (ii) the Bank of Nova Scotia’s reserve-adjusted LIBOR rate plus 1.50% to 2.25% based on the Debt Ratio. After each drawdown on the Revolving Credit Facility accrued interest is due every three months for the first six months, and is due monthly thereafter. Loans under the Revolving Credit Facility may be prepaid and reborrowed at any time and are due in full on August 12, 2002. Commitment fees are calculated at per annum rates ranging from 0.375% to 0.500%, based on the Debt Ratio, applied to the undrawn amount of the Revolving Credit Facility and are due quarterly.
The Revolving Credit Facility contains restrictive covenants that include: (a) restrictions on the payment of dividends by SIHL, (b) minimum levels of earnings before interest expense, income taxes, depreciation and amortization (“EBITDA”) of SIHL and (c) a minimum relationship between SIHL’s EBITDA and interest expense and debt.
The Company is a co-obligor, with SIHL, on $100 million senior subordinated, unsecured notes due December 2007 (the “8.625% Notes”). Interest on the 8.625% Notes is payable semi-annually. The cash was drawn down by and the debt is reflected in the consolidated financials of SIHL.
SINA is authorized to issue 100 million shares of SINA common stock, 120,000 shares of Class B Stock and 10 million shares of preferred stock. The only shares of SINA stock outstanding are 100 shares of SINA common stock, all of which are owned by SIHL. In 1999, 7,502 shares of stock were canceled pursuant to a court order by the United States Bankruptcy Court District of Delaware related to SINA’s plan of reorganization in May 1994.
At December 31, 2000 and 1999, amounts due from affiliates represents payments due from TCA related to the Mohegan Sun Casino.
At December 31, 2000 and 1999, amounts due to affiliates represent non-interest bearing, due on demand advances received from affiliates.
Effective January 1, 1998, the Company entered into an agreement to provide management services to certain unconsolidated affiliated companies. For the years ended December 31, 2000, 1999 and 1998, such fees amounted to $15.3 million, $14.1 million and $9.8 million, respectively.
A subsidiary of SINA earned $5.9 million, $1.2 million and $1.0 million in priority payments from TCA related to the Mohegan Sun Casino for the years ended 2000, 1999 and 1998, respectively. Development fees earned in 2000 and 1999 related to the Mohegan Sun Casino totaled $3.8 million and $6.7 million, respectively.
SINA and certain of its subsidiaries participate in a defined contribution plan covering substantially all of their non-union employees. The Company makes contributions to this plan based on a percentage of eligible employee contributions. Total expense for this plan was $861,000, $844,000 and $869,000 in 2000, 1999 and 1998, respectively.
In addition to the plan described above, union and certain other employees of RIH and certain former subsidiaries of SINA are covered by multi-employer defined benefit pension plans to which the subsidiaries make, or made, contributions. The Company’s pension expense for these plans totaled $1.6 million, $1.3 million and $1.1 million in 2000, 1999, and 1998, respectively.
For the Year Ended December 31,
---------------------------------------
(In Thousands of Dollars) 2000 1999 1998
--------- --------- ---------
Current:
Federal $ (303) $ 2,718 $ 3,430
State 1,178 157 279
--------- --------- ---------
875 2,875 3,709
Deferred:
Federal 205 (30) (3,747)
--------- --------- ---------
$ 1,080 $ 2,845 $ (38)
========= ========= =========
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The components of the deferred tax assets and liabilities were as follows:
December 31,
----------------------------
(In Thousands of Dollars) 2000 1999
------------ ------------
Deferred tax liabilities:
Basis differences on land held for investment,
development or resale $ (2,300) $ (6,100)
Basis differences on property and equipment - (44,400)
Other - (2,402)
------------ ------------
Total deferred tax liabilities (2,300) (52,902)
------------ ------------
Deferred tax assets:
NOL carryforwards 202,000 196,700
Assets held for sale 26,700 -
Basis differences on property and equipment 2,100 -
Book reserves not yet deductible
for tax return purposes 800 14,000
Tax credit carryforwards 2,700 2,700
Other 4,000 5,700
------------ ------------
Total deferred tax assets 238,300 219,100
Valuation allowance for deferred tax assets (236,000) (208,421)
------------ ------------
Deferred tax asset, net of valuation allowance 2,300 10,679
------------ ------------
Net deferred tax liabilities $ - $ (42,223)
============ ============
A valuation allowance has been recorded against the portion of those deferred tax assets that the Company believes will more likely than not remain unrealized. If such deferred tax assets were to be realized in the future, the corresponding reduction to the valuation allowance would reduce income tax expense.
The effective income tax rate on loss before income taxes varies from the statutory federal income tax rate as a result of the following factors:
For the Year Ended December 31,
--------------------------------------
2000 1999 1998
--------- ---------- ----------
Statutory federal income tax rate (35.0%) (35.0%) (35.0%)
State tax costs .5% .7% 14.9%
NOLs and temporary differences for which a
valuation allowance has been provided 34.1% 39.9% -
Reduction of valuation allowance relating to
prior years' operating loss utilized - - (100.8%)
Nondeductible expenses, including
amortization of goodwill .3% 3.8% 87.6%
Other .5% 2.5% 31.3%
--------- ---------- ----------
Effective income tax rate .4% 11.9% (2.0%)
========= ========== ==========
For federal income tax purposes, the Company had NOL carryforwards of $577 million at December 31, 2000, of which $166 million are unrestricted as to use. However, due to the change of ownership of SINA in 1996, $411 million of these NOL carryforwards (the “Pre-Change NOLs”) are limited in their availability to offset future taxable income of the Company. As a result of these limitations, approximately $11.3 million of Pre-Change NOLs will become available for use each year through the year 2008; an additional $8.4 million will be available in 2009. An additional $13 million of these Pre-Change NOLs would be available to offset gains on sales of assets owned at the date of change in ownership of the Company which are sold within five years of that date. The remaining Pre-Change NOLs are expected to expire unutilized.
The Company’s restricted NOLs expire as follows: $49 million in 2005, $23 million in 2006, $18 million in 2007, $1 million in 2009 and $8 million in 2011. The Company’s unrestricted NOLs expire as follows: $6 million in 2005, $7 million in 2007, $57 million in 2008, $57 million in 2012, $33 million in 2019 and $6 million in 2020.
Interest paid, net of amounts capitalized, was $24.6 million, $20.8 million and $24.4 million for the years ended December 31, 2000, 1999 and 1998, respectively. Income taxes paid amounted to $975,000, $188,000 and $2.1 million for the years ended December 31, 2000, 1999 and 1998, respectively. Non-cash investing and financing activities were as follows:
For the Year Ended December 31,
----------------------------------
(In Thousands of Dollars) 2000 1999 1998
-------- -------- --------
Property and equipment acquired under
capital lease obligations $1,574 $ 938 $5,098
Refinancing of capital lease obligation - $1,444 -
SINA and certain of its subsidiaries are defendants in certain litigation. 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.
The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.
Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. The assumptions used have a significant effect on the estimated amounts reported.
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments: (a) Cash and cash equivalents, receivables, other current assets, accounts payable, accrued liabilities and variable rate debt: The amounts reported in the accompanying consolidated balance sheets approximate fair value; (b) Fixed-rate debt: Fixed rate debt is valued based upon published market quotations, as applicable. The carrying amount of remaining fixed-rate debt approximates fair value.
SCHEDULE II
-----------
SUN INTERNATIONAL NORTH AMERICA, INC.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(In Thousands of Dollars)
Balance at Additions Net assets Balance at
beginning charged to Deductions held for end of
of period expenses (a) sale (b) period
----------- ----------- ----------- ------------ -----------
For the year ended December 31, 2000:
Allowance for doubtful receivables
Gaming $ 2,606 $ 1,139 $ (853) $ (2,892) $ -
Other 102 111 (56) (34) 123
------------- ------------ ------------- ------------- -------------
$ 2,708 $ 1,250 $ (909) $ (2,926) $ 123
============= ============ ============= ============= =============
For the year ended December 31, 1999:
Allowance for doubtful receivables
Gaming $ 2,401 $ 1,452 $ (1,247) $ - $ 2,606
Other 35 91 (24) - 102
------------- ------------ ------------- ------------- -------------
$ 2,436 $ 1,543 $ (1,271) $ - $ 2,708
============= ============ ============= ============= =============
For the year ended December 31, 1998:
Allowance for doubtful receivables
Gaming $ 3,011 $ 644 $ (1,254) $ - $ 2,401
Other 63 64 (92) - 35
------------- ------------ ------------- ------------- -------------
$ 3,074 $ 708 $ (1,346) $ - $ 2,436
============= ============ ============= ============= =============
(a) Write-off of uncollectible accounts, net of recoveries.
(b) Reclassification of net assets held for sale related to the Resorts Atlantic City Sale.
(a) Documents Filed as Part of This Report
1. The financial statement index required herein is incorporated by reference to "ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
2. The index of financial statement schedules required herein is incorporated by
reference to "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA." Financial
statement schedules not included have been omitted because they are either not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.
3. The following exhibits are filed herewith or incorporated by reference:
Exhibit
Numbers Exhibit
- --------------- -------------------------------------------------------------------------------
(3) (a) (1) Restated Certificate of Incorporation of SINA. (Incorporated by reference
to Exhibit (3) (a) to Registrant's Form 10-Q Quarterly Report for the quarter
ended June 30, 1996, in File No. 1-4748).
(3) (a) (2) Certificate of Amendment of Restated Certificate of Incorporation of SINA.
(Incorporated by reference to Exhibit (3)(a)(2) to Registrant's Form 10-K
Annual Report for the fiscal year ended December 31, 1996, in File No.
1-4748).
(3) (b) Amended and Restated By-Laws of SINA. (Incorporated by reference to Exhibit
(3)(b) to Registrant's Form 10-Q Quarterly Report for the quarter ended June
30, 1996, in File No. 1-4748).
(4) (a) See Exhibits (3) (a) (1), (3) (a) (2) and (3) (b) as to the rights of holders
of Registrant's common stock.
(4) (b) (1) Form of Purchase Agreement for $200,000,000 principal amounts of 9% Senior
Subordinated Notes due 2007 dated March 5, 1997, among SIHL and SINA, as
issuers, Bear, Stearns & Co. Inc., Societe Generale Securities Corporation
and Scotia Capital Markets (USA) Inc., as purchasers, and various
subsidiaries of SIHL, including RIH and GGRI, Inc., as guarantors.
(Incorporated by reference to Exhibit (4)(e)(1) to Registrant's Form 10-K
Annual Report for the fiscal year ended December 31, 1996, in File No.
1-4748.)
(4) (b) (2) Form of Indenture dated as of March 10, 1997, between SIHL and SINA, as
issuers, various subsidiaries of SIHL, including RIH and GGRI, Inc., as
guarantors, and The Bank of New York, as trustee, with respect to
$200,000,000 principal amount of 9% Senior Subordinated Notes due 2007 and
exhibits thereto. (Incorporated by reference to Exhibit (4)(e)(2) to
Registrant's Form 10-K Annual Report for the fiscal year ended December 31,
1996, in File No. 1-4748.)
(4) (b) (3) Form of Registration Rights Agreement dated as of March 5, 1997, by and among
SIHL and SINA, as issuers, various subsidiaries of SIHL, including RIH and
GGRI, Inc., as guarantors, and Bear, Stearns & Co. Inc., Societe Generale
Securities Corporation and Scotia Capital Markets (USA) Inc., as purchasers.
(4) (b) (4) Form of Inter-Borrower Agreement dated as of March 10, 1997, between SIHL and
SINA. (Incorporated by reference to Exhibit (4)(e)(4) to registrant's Form
10-K Annual Report for the fiscal year ended December 31, 1996, in File No.
1-4748.)
(10) (a) Termination Agreement among Sheraton Desert Inn Corporation, Starwood,
Sheraton Gaming Corporation, SIHL and Sun International Nevada, Inc. dated as
of February 29, 2000, terminating the Asset and Land Purchase Agreement among
the parties, dated as of May 17, 1999. (Incorporated by reference to Exhibit
2 to SIHL's Form 6-K Current Report dated March 17, 2000, in File No.
0-22794).
(10) (b) (1) Amended and Restated Partnership Agreement of TCA dated as of August 29,
1995, among Sun Cove, RJH Development Corp., Leisure Resort Technology, Inc.,
Slavik Suites, Inc., and LMW Investments, Inc. (Incorporated by reference to
Exhibit 10.7 of Registration Statement No. 33-80477 of the registrant on Form
F-3.)
(10) (b) (2) Relinquishment Agreement dated February 7, 1998, between the Mohegan Tribal
Gaming Authority and TCA. (Incorporated by reference to Exhibit 2.2 to
SIHL's Form 20-F Annual Report for the fiscal year ended December 31, 1997,
in File No. 0-22794.)
(10) (c) * Resorts Retirement Savings Plan, dated January 1,2000.
(10) (d) Purchase Agreement among SINA as parent, GGRI, Inc., as Seller and Colony as
Buyer dated as of October 30, 2000. (Incorporated by reference to Exhibit
(10) to registrant's Form 10-Q Quarterly Report for the quarter ended
September 30, 2000 in File No. 1-4748.)
Registrant agrees to file with the Securities and Exchange Commission, upon request, copies
of any instrument defining the rights of the holders of its consolidated long-term debt.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed during the fourth quarter of 2000. No amendments to
previously filed Forms 8-K were filed during the fourth quarter of 2000.
(c) Exhibits Required by Item 601 of Regulation S-K
The exhibits listed in Item 14(a)3 of this report and not incorporated by reference to a
separate file, follow "SIGNATURES."
(d) Financial Statement Schedules Required by Regulation S-X
The financial statement schedules required by Regulation S-X are incorporated by reference to
"ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
Date: April 2, 2001 By /s/John R. Allison
----------------------------------------
John R. Allison
Executive Vice President - Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/John R. Allison April 2, 2001
-------------------------------------
John R. Allison
Director
By /s/Charles D. Adamo April 2, 2001
-------------------------------------
Charles D. Adamo
Director
Exhibit Reference to previous
Number Exhibit filing or this Form 10-K
- -------------- -------------------------------- -------------------------------------------------
(3) (a) (1) Restated Certificate of Incorporated by reference to Exhibit (3) (a) to
Incorporation of SINA. Registrant's Form 10-Q Quarterly Report for the
quarter ended June 30, 1996, in File No. 1-4748.
(3) (a) (2) Certificate of Amendment of Incorporated by reference to Exhibit (3) (a)
Restated Certificate of (2) to Registrant's Form 10-K Annual Report.
Incorporation of SINA.
(3) (b) Amended and Restated By-Laws Incorporated by reference to Exhibit (3) (b) to
of SINA. Registrant's Form 10-Q Quarterly Report for the
quarter ended June 30, 1996, in File No. 1-4748.
(4) (a) See Exhibits (3) (a) (1), (3)
(a) (2) and (3) (b) as to the
rights of holders of
Registrant's common stock.
(4) (b) (1) Form of Purchase Agreement for Incorporated by reference to Exhibit (4)(e)(1)
$200,000,000 principal amounts to Registrant's Form 10-K Annual Report for the
of 9% Senior Subordinated fiscal year ended December 31, 1996, in File
Notes due 2007 dated March 5, No. 1-4748.
1997, among SIHL and SINA, as
issuers, Bear, Stearns & Co.
Inc., Societe Generale
Securities Corporation and
Scotia Capital Markets (USA)
Inc., as purchasers, and
various subsidiaries of SIHL,
including RIH and GGRI, Inc.,
as guarantors.
(4) (b) (2) Form of Indenture dated as of Incorporated by reference to Exhibit (4)(e)(2)
March 10, 1997, between SIHL to Registrant's Form 10-K Annual Report for the
and SINA, as issuers, various fiscal year ended December 31, 1996, in File
subsidiaries of SIHL, No. 1-4748.
including RIH and GGRI, Inc.,
as guarantors, and The Bank of
New York, as trustee, with
respect to $200,000,000
principal amount of 9% Senior
Subordinated Notes due 2007
and exhibits thereto.
(4) (b) (3) Form of Registration Rights
Agreement dated as of March 5,
1997, by and among SIHL and
SINA, as issuers, various
subsidiaries of SIHL,
including RIH and GGRI, Inc.,
as guarantors, and Bear,
Stearns & Co. Inc., Societe
Generale Securities
Corporation and Scotia Capital
Markets (USA) Inc., as
purchasers.
(4) (b) (4) Form of Inter-Borrower Incorporated by reference to Exhibit (4)(e)(4)
Agreement dated as of March to registrant's Form 10-K Annual Report for the
10, 1997, between SIHL and fiscal year ended December 31, 1996, in File
SINA. No. 1-4748.
(10) (a) Termination Agreement among Incorporated by reference to Exhibit 2 to
Sheraton Desert Inn SIHL's Form 6-K Current Report dated March 17,
Corporation, Starwood, 2000, in File No. 0-22794.
Sheraton Gaming Corporation,
SIHL and Sun International
Nevada, Inc. dated as of
February 29, 2000, terminating
the Asset and Land Purchase
Agreement among the parties,
dated as of May 17, 1999.
(10) (b) (1) Amended and Restated Incorporated by reference to Exhibit 10.7 of
Partnership Agreement of TCA Registration Statement No. 33-80477 of the
dated as of August 29, 1995, registrant on Form F-3.
among Sun Cove, RJH
Development Corp., Leisure
Resort Technology, Inc.,
Slavik Suites, Inc. and LMW
Investments, Inc.
(10) (b) (2) Relinquishment Agreement dated Incorporated by reference to Exhibit 2.2 to
February 7, 1998, between the SIHL's Form 20-F Annual Report for the fiscal
Mohegan Tribal Gaming year ended December 31, 1997, in File No.
Authority and TCA. 0-22794.
(10) (c) Resorts Retirement Savings Page 54
Plan, dated January 1, 2000.
(10) (d) Purchase Agreement among SINA Incorporated by reference to Exhibit (10) to
as parent, GGRI, Inc., as registrant's Form 10-Q Quarterly Report for the
Seller and Colony as Buyer quarter ended September 30, 2000 in File No.
dated as of October 30, 2000. 1-4748.