Financial Statements
 

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2000

1. STATEMENT OF ACCOUNTING POLICIES

The financial statements presented here are for the reporting entity Sky City Limited (the parent company) and the consolidated financial statements of the group comprising Sky City Limited and its subsidiaries. Sky City Limited is a company registered under the Companies Act 1993 and is an issuer in terms of the Securities Act 1978.

The financial statements have been prepared in accordance with the requirements of the Companies Act 1993 and the Financial Reporting Act 1993.

The financial statements have been prepared on the basis of historical cost with the exception of certain items for which specific accounting policies are identified.

Accounting Policies

The financial statements are prepared in accordance with New Zealand generally accepted accounting practice. The accounting policies that materially affect the measurement of financial performance, financial position and cashflows are set out below.

(i) Principles of Consolidation

The consolidated financial statements include those of the parent company and its subsidiaries accounted for using the purchase method. Subsidiaries are entities that are controlled, either directly or indirectly, by the parent. All intercompany transactions, balances and unrealised surpluses and deficits on transactions between group members have been eliminated.

The results of subsidiaries acquired during the year are included in the consolidated Statement of Financial Performance from the date of acquisition.

(ii) Goods and Services Tax (GST)

The Statement of Financial Performance and Statement of Cash Flows have been prepared so that all components are stated net of GST. All items in the Statement of Financial Position are stated net of GST, with the exception of receivables and payables which include GST invoiced.

(iii) Operating Revenue Recognition

Revenues include casino, hotel, food and beverage, tower admissions and other revenues. Casino revenues represent the net win to the casino from gaming activities, being the difference between amounts wagered and amounts won by casino patrons.

Revenues exclude the retail value of rooms, food, beverage and other promotional allowances provided on a complimentary basis to customers.

(iv) Income Tax

The company follows the liability method of accounting for deferred taxation. The taxation charge against the surplus for the year is the estimated liability in respect of that surplus after allowance for permanent differences between accounting and tax rules.

The impact of all timing differences between accounting and taxable income is recognised as a deferred tax liability or asset. This is the comprehensive basis for the calculation of deferred taxation. Timing differences relating to interest capitalised to buildings are determined on a net present value basis over the estimated life of the buildings.

A deferred tax asset, or the effect of losses carried forward that exceed the deferred tax liability, is recognised in the financial statements only where there is virtual certainty that the benefit of the timing differences, or losses, will be utilised.

(v) Property, Plant and Equipment

The cost of assets is the value of the consideration paid to acquire the assets and the value of other directly attributable costs which have been incurred in bringing the assets to the location and condition necessary for their intended service. Funding costs incurred during the period of construction are capitalised as part of the total cost of the assets.

(vi) Depreciation

As construction is completed and property, plant and equipment is used in operations, depreciation is charged on a straight line basis so as to write off the cost of the assets to their estimated residual value over their expected useful lives. The estimated economic lives are as follows:

Gains and losses on disposals of property, plant and equipment are taken into account in determining the operating result for the year.

(vii) Year 2000 Expenditure

Costs incurred to test and/or modify existing information systems to ensure compatibility with the Year 2000 are expensed when incurred. If modifications are part of a wider project of significant system improvement, including added functionality, the costs incurred will be capitalised in accordance with the policy on property, plant and equipment (Note 1(v)).

(viii) Deferred Expenditure

Costs directly incurred in obtaining and operating funding arrangements, such as origination, commitment and transaction fees, are amortised to earnings over the period of the funding arrangement. If an arrangement does not proceed, costs incurred in setting up the arrangement are expensed to earnings immediately.

Operator rights are expensed to earnings over the period of each management contract.

(ix) Pre-licence Expenditure

Pre-licence expenditure relates to expenditure incurred to obtain a casino premises licence. Pre-licence expenditure is expensed as incurred.

(x) Leased Assets

Leases under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Operating lease payments are recognised as an expense in the periods of expected benefit.

Assets under finance leases are recognised and depreciated on the same basis as other property, plant and equipment held by the group. Payment obligations are recorded within total borrowings on the Statement of Financial Position.

(xi) Investments

The parent company’s investment in the shares of its subsidiaries are stated at cost.

(xii) Goodwill

Goodwill represents the excess of purchase consideration over the fair value of net assets held by a subsidiary at the time of acquisition of shares in that subsidiary or associate. Goodwill is capitalised and amortised over the period of expected benefit which may be up to twenty years from the time of acquisition.

The directors review the carrying amount annually and adjust the value of goodwill if an impairment in value above normal amortisation has occurred.

(xiii) Amortisation of Casino Licences Acquired

Amortisation of casino licences is calculated on a straight line basis so as to expense the cost of the licences over their legal lives.

The directors review the carrying amounts annually and adjust the value of amortisation if an impairment in value above normal amortisation has occurred.

(xiv) Receivables

Receivables are stated at estimated realisable value after providing against debts where collection is doubtful. Bad debts are written off during the year in which they are identified.

(xv) Inventories

Inventories, all of which are finished goods, are stated at the lower of cost or net realisable value determined on a first-in first-out basis.

(xvi) Foreign Currencies

Transactions

Transactions denominated in a foreign currency are converted to New Zealand dollars at the exchange rate at the date of the transaction, except when forward currency contracts have been taken out to cover short-term forward currency commitments.

Where short-term forward currency contracts have been taken out, the transaction is translated at the rate contained in the contract.

Translations

Foreign currency receivables and payables at balance date are translated at exchange rates current at balance date. Exchange gains and losses are brought to account in determining the surplus for the year, except where monetary liabilities are treated as a hedge against an independent foreign operation.

Foreign Operations

Revenues and expenses of independent foreign operations are translated to New Zealand dollars at the exchange rates in effect at the date of the transaction, or at rates approximating them. Assets and liabilities are converted to New Zealand dollars at the rates of exchange ruling at balance date.

Exchange differences arising from the translation of independent foreign operations are recognised in the foreign currency translation reserve, together with unrealised gains and losses on foreign currency monetary liabilities that are identified as hedges against these operations.

(xvii) Employee Entitlements

Employee entitlements to salaries and wages, non-monetary benefits, annual leave and other benefits are recognised when they accrue to employees. This includes the estimated liability for salaries and wages and annual leave as a result of services rendered by employees up to balance date.

(xviii) Financial Instruments

Financial instruments carried on the Statement of Financial Position include cash and bank balances, investments, receivables, trade creditors and borrowings. These instruments are carried at their estimated fair value. For example, receivables are carried net of the estimated doubtful receivables. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item.

Where possible, financial assets are supported by collateral or other security. These arrangements are described in the individual policy statements associated with each item.

The parent company and group are also parties to financial instruments that have not been recognised in the financial statements.

These instruments reduce exposure to fluctuations in interest rates and include fixed rate borrowings, interest rate swap and forward rate agreements which have been transacted. Any risks associated with these instruments are not recorded in the financial statements. However, the purpose of these instruments is to cover interest rate risk. The net differential paid or received on interest swaps is recognised as a component of interest expense or revenue over the period of the agreement.

Full disclosure of information about financial instruments to which the group is a party is provided in Note 21.

(xix) Statement of Cash Flows

The following are definitions of the terms used in the consolidated and parent company Statement of Cash Flows:

Cash is considered to be cash on hand including cash for use within the casino and current accounts in banks net of bank overdrafts and short-term deposits.

Investing Activities are those activities relating to the acquisition, holding and disposal of fixed assets and of investments.

Investments can include securities not falling within the definition of cash.

Financing Activities are those activities which result in changes in the size and composition of the capital structure of the company. This includes both equity and debt not falling within the definition of cash. Share issues/repurchases and dividends paid in relation to the capital structure are included in Financing Activities.

Operating Activities are those activities relating to the trading and management of the business and include all transactions and other events that are not Investing or Financing Activities. Cash receipts from customers are net of complimentaries.

(xx) Capital Note Interest

Interest on capital notes is expensed to earnings consistent with other interest costs and is included in funding expenses in the Statement of Financial Performance.

(xxi) Changes in Accounting Policies

There have been no significant changes in accounting policies during the current year. Accounting policies have been applied on bases consistent with the prior year.

2. OPERATING REVENUE

3. OPERATING EXPENSES

4. INCOME TAX

The parent company, together with its New Zealand based wholly-owned subsidiary companies, excluding Sky City Management (Auckland) Limited and Riverside Fund Limited form a consolidated group for income tax purposes. Accordingly income tax payments and imputation credit movements are generally reported on a consolidated basis and are available to shareholders through their shareholding in the parent company.

(i) Income Tax Expense

(ii) Current Tax Liability

At 30 June 2000 the company has pre-paid income tax of $11,170,000 (1999: $6,765,000). During the year ended 30 June 1999 and 30 June 2000 the group prepaid income tax pending the resolution of tax deductibility issues as described in Note 18 of the financial statements.

The group has tax losses arising from companies which are outside the consolidated tax group:

(iii) Deferred Tax Liability

(iv) Imputation Credit

5. SHARE CAPITAL

(i) Issued and Paid-Up Capital

96,279,100 ordinary shares (1999: 96,269,100)

(ii) Executive Share Option Plan

Pursuant to the Executive Share Option Plan approved by shareholders at the Annual Meeting of the company held on 5 December 1996 155,000 (1999: 165,000) options are on issue to executive personnel at 30 June 2000.

Options are exercisable two years after the date of issue provided the terms and conditions of the Plan are met, and lapse if not exercised within five years of issue. A total of 185,000 (1999: 185,000) options have been issued in accordance with the Plan and 10,000 options have been exercised during the year ended 30 June 2000 (1999: 20,000) as follows:

Pursuant to the Executive Share Option Plan approved by shareholders at the Annual Meeting of the company held on 28 October 1999, 986,000 options are on issue to executive personnel at 30 June 2000. These options are in addition to the 155,000 options referred to above in respect of the earlier Plan approved by shareholders in 1996.

Options are exercisable one year after the date of issue provided the terms and conditions of the Plan are met, and lapse if not exercised within five years of issue. None of the options have been exercised. The exercise price of the options issued under the 1999 Plan is the relevant base exercise price of the option (as defined in the Plan), grossed up by the company’s estimated cost of equity and adjusted for dividends between the date the option was issued and its exercise date.

6. RETAINED EARNINGS AND DIVIDENDS

(i) Retained Earnings

(ii) Dividends

7. RESERVES

A Performance Pay Incentive Plan has been introduced where selected employees are eligible for performance related bonuses in respect of the three financial years ending 30 June 2000, 30 June 2001 and 30 June 2002. The employee share entitlement reserve represents the value of ordinary shares to be issued in respect of the plan for the year ended 30 June 2000.

Shares will be issued in three equal instalments, being one third of the shares on the bonus declaration date, and provided eligibility criteria continues to be met, one third on the next entitlement date (approximately 12 months later) and one third on the final entitlement date (approximately 24 months later).

Shares will be issued at the average closing price of Sky City Limited’s shares, on the New Zealand Stock Exchange, on each of the ten business days following the release, to the New Zealand Stock Exchange, of Sky City Limited’s annual result for the relevant year of the plan.

Shares issued will have the same rights as existing ordinary shares and will be issued as soon as possible after the tenth business day following the release of Sky City Limited’s annual result to the New Zealand Stock Exchange, for the relevant year of the plan (the bonus declaration date).

The share option reserve arises following the issue of options under the Executive Share Option Plan approved by shareholders on 28 October 1999 (Note 5). Following the annual meeting of the company held on 28 October 1999 986,000 options were issued at a theoretical value of $0.45 cents each as determined by the directors. 99,000 options will lapse as a result of resignations that took place before the year end and the value of these options is accordingly not recognised. The value of the options is treated as remuneration leading to the creation of the reserve.

8. MINORITY INTERESTS

9. CAPITAL FUNDS

(i) Capital Notes

On 5 May 2000 the company issued a prospectus offering 150 million unsecured subordinated capital notes at an issue price of $1 per note. At 30 June 2000 60.072 million capital notes had been issued. The offer closed on 28 July 2000, and 150 million capital notes had been issued at that date. The capital notes offer holders a fixed interest rate until the first election date, being 15 May 2005. Election dates will occur every five years after the first election date.

Sky City Limited may elect to redeem or purchase some or all of the capital notes that holders have elected to convert, at an amount equal to the principal amount plus any accrued but unpaid interest. Prior to the election date, the company must notify holders of the proportion of their capital notes it will redeem (if any), and, if applicable the new conditions (including as to interest rate, interest dates, new election date, and other modifications to the existing conditions) that will apply to the capital notes from the election date. Holders may then choose either to retain some or all of their capital notes on the new terms, and/or to convert some or all of their capital notes into Sky City Limited ordinary shares.

If capital notes are converted, holders will receive ordinary shares determined on the basis of 95% of the weighted average sale price of the ordinary share on the Stock Exchange during the 15 days prior to the election date.

The capital notes do not carry voting rights. Capital notes are not entitled to any distributions made by Sky City Limited in respect of its ordinary shares prior to the conversion date of the capital notes, and do not participate in any change in value of the issued shares of Sky City Limited.

(ii) Convertible Notes

Convertible notes were issued by the subsidiary company Riverside Casino Limited on 21 March 2000 as follows:

The amount appearing in the group accounts ($9,315,000; 1999 $Nil) represents the minority shareholders portion of the notes issued by Riverside Casino Limited.

Interest payable on the convertible notes will accrue after the casino opens to the public.

The convertible notes have been issued on the basis that payments by note holders will be due at such time or times and in such instalments as is determined from time to time by the board of directors of Riverside Casino Limited. The convertible notes are unsecured and rank without any preference among the classes, and all classes are pari passu in all respects.

Notes will be converted into ordinary shares on the maturity date (5 December 2007). Riverside Casino Limited may elect that all or some of the notes be converted at an earlier date.

The convertible notes do not carry any voting rights. Convertible notes are not entitled to any distributions made by Riverside Casino Limited in respect of its ordinary shares prior to the conversion date of the convertible notes.

10. RECEIVABLES AND PREPAYMENTS

The directors consider the carrying amounts of receivables reflect their fair values.

11. PROPERTY, PLANT AND EQUIPMENT

Interest incurred during the year to 30 June 2000 of $354,000 (1999: $255,000) has been capitalised to land and buildings under construction during the financial year.

Total capitalised interest and facility fees included in the cost of land and buildings at 30 June 2000 is $32,975,000 (1999: $32,621,000).

A memorandum of encumbrance is registered against the title of land for Auckland Casino in favour of Auckland City Council. Prior written consent is required by Auckland City Council before any transfer, assignment or disposition of the land. The intent of the covenant is to protect the Council’s rights under the Resource Consent, relating to the provision of the bus terminus, public carpark and the provision of public footpaths around the complex.

A further encumbrance records the Council’s interest in relation to the sub-soil areas under Federal and Hobson Streets used by Sky City as carparking and a vehicle tunnel. The encumbrance is to notify any transferee of the Council’s interest as lessor of the sub-soil areas.

Part of the Riverside Casino (Hamilton) property (an area of airspace over the land) is held on trust for Perry Developments Limited.

This area will be used for strata title apartments to be held by Perry Developments Limited. Drainage rights have been granted over parts of the land appurtenant to Lot 2 Plan 5.23789 (CT22C/1428). There is also a right of way granted over part of Lot 1 and part of Lot 2 DP580554.

The Riverside Casino site is also subject to the normal rights that the Crown reserves in respect of minerals and mining in relation to the sub-soil areas. Furthermore, the land title is subject to section 27B of the State Owned Enterprises Act 1986 which does not provide for the owner of the land to be heard in relation to any recommendations of the Waitangi Tribunal for the resumption of the land.

12. INTANGIBLE ASSETS

Casino Licence

Sky City Limited acquired the Adelaide Casino licence on 30 June 2000 as a result of the acquisition of 100% of the shares in Adelaide Casino Pty Limited, through its wholly-owned subsidiary Sky City Australia Pty Limited, on that date. The cost of the casino licence and other assets and liabilities of Adelaide Casino Pty Limited have been determined by the directors applying fair value assessments to all assets (including the casino licence) and liabilities acquired as part of the acquisition of Adelaide Casino Pty Limited. The casino licence will be amortised over 85 years, being the length of the licence.

13. CREDITORS AND ACCRUALS

The directors consider the carrying amounts of payables reflect their fair values.

14. BORROWINGS

(i) Secured Bank Loan

At balance date a bank loan secured by a composite debenture over the assets and undertakings of the group was outstanding to the amount of $478,630,945 (1999: $290,000,000). This bank loan comprises NZ$235,000,000 borrowed in New Zealand and A$188,010,000 borrowed in Australia (converted at balance date using an exchange rate of NZ$1 = A$0.7717) (1999:NZ$290,000,000 A$Nil).

A total facility of $573,055,591, secured by way of composite debenture, was available to the group as at 30 June 2000 (1999:$350,000,000). The facility comprises:

• A facility of NZ$310,000,000 comprising a fixed term facility of NZ$210,000,000 and a revolving credit facility of NZ$100,000,000 (1999:NZ$250,000,000 and NZ$100,000,000).
  
  
• A facility of A$203,000,000 (converted at 0.7717 to NZ$263,055,591), comprising an A$143,000,000 (NZ$185,305,170) (1999: A$Nil; NZ$Nil) fixed term facility and a revolving credit facility of A$60,000,000 (NZ$77,750,421) (1999: A$Nil; NZ$Nil).

The fixed term facilities are reduced pro rata by an aggregate amount of NZ$15,000,000 by 31 March 2001, NZ$15,000,000 by 31 March 2002 and NZ$15,000,000 by 31 March 2003. Both facilities mature on 30 November 2003.

Weighted Average Interest Rate

The weighted average interest rate (inclusive of margin) on the group’s NZ$ debt, incurred during the year ended 30 June 2000, was 7.59% (1999: 8.08%). The weighted average interest rate (inclusive of margin) on the Australian debt incurred during the year ended 30 June 2000, was 6.21% (1999:Nil).

(ii) Analysis of Finance Lease Liabilities

15. COMMITMENTS

The following amounts have been committed by the group or parent company, but not recognised in the financial statements:

(i) Capital Expenditure

Contractual commitments of up to $16,564,763 are outstanding as at 30 June 2000 (1999: $27,200,000). These relate to purchases of plant and equipment for the Auckland complex and construction and fitout costs associated with Riverside Casino and Queenstown Casino.

(ii) Non-Cancellable Operating Lease Commitments

Operating lease commitments include a sub-soil lease of $85,000 per annum on the Auckland Casino site (20 years and 6 months remaining), and a premises lease for the Adelaide Casino site (85 years remaining). The above obligations payable later than five years from balance date reflect the sub-soil lease for the remainder of the term of the Auckland Casino premises licence; and the term of the Adelaide Casino site lease (comprising a base amount plus an incremental contingent rental based on the movements in the Australian consumer price index).

16. EARNINGS PER SHARE

Earnings per share is calculated by dividing the group operating surplus after income tax and minority interests by the weighted average of the number of ordinary shares on issue during the year.

17. INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES

Subsidiaries

The following companies were wholly-owned subsidiaries of Sky City Limited as at 30 June 2000:

All wholly-owned subsidiary companies have balance dates of 30 June.

The following companies were partly-owned subsidiaries of Sky City Limited as at 30 June 2000:

Amalgamation

There were no amalgamations during the year ended 30 June 2000.

On 30 June 1999 Sky Tower Limited, Sky City Properties Limited, Kionis Investments Limited, Lespel Investments Limited and Noorka Investments Limited were amalgamated with Sky City Auckland Limited.

Sky City Anywhere Limited, Sky City Reservations Limited and Sky City Hamilton Limited which were all non-trading subsidiaries were amalgamated with Sky City Limited on 30 June 1999.

Under the above amalgamations Sky City Auckland Limited and Sky City Limited took control of all assets and assumed responsibility for the liabilities of the respective amalgamating subsidiaries.

Prior to 12 July 1999, Sky Tower Limited, a subsidiary of Sky City Limited, operated under the name Sky City Nominees Limited.

Shareholding of Subsidiary Companies

Sky City International Holdings Limited was incorporated on 15 December 1999. The shares in Sky City International ApS were acquired on 17 March 2000 and Sky City Australia Pty Limited was incorporated on 14 February 2000. On 18 October 1999 Sky City Limited acquired the shares in Riverside Fund Limited. The operating results of these companies have been included in the Statement of Financial Performance from that date.

On 30 June 2000 Sky City Australia Pty Limited acquired the shares in Adelaide Casino Pty Limited.

Summary of the effect of acquisition of Adelaide Casino Pty Limited:

Summary of net cash paid by the group relating to the investment in Riverside Casino Limited:

Other Subsidiaries

Sky City Limited holds a 60% share in Queenstown Casinos Limited which is the holder of a casino premises licence in Queenstown. The company has not traded in the year to 30 June 2000 (1999: $Nil). Queenstown Casinos Limited changed its balance date from 31 March to 30 June during this financial year. Until December 1999 costs in relation to the casino premises licence application were recognised in a joint venture arrangement with Skyline Enterprises Limited. Sky City Limited’s share of these joint venture costs was recognised in the Statement of Financial Performance. The joint venture arrangement concluded in December 1999 and Queenstown Casinos Limited is now consolidated as part of the Sky City group.

As a result of the acquisition of the shares in Riverside Fund Limited, Sky City Limited increased its shareholding in Riverside Casino Limited from 35% to 55% in October 1999. Riverside Casino Limited has not traded in the year to 30 June 2000 (1999:$Nil). The carrying value of the investment held by the parent company ($18,759,777; 1999:$1,680,000), including shares and convertible notes issued but uncalled of $8,165,000 (1999:$Nil) and the deferred expenditure relating to operator rights ($2,250,000; 1999:$Nil), is dependent on the outcome of the appeal against the setting aside of the casino premises licence granted to Riverside Casino Limited.

If the appeal and a rehearing of the licence application is unsuccessful the investment made to date will be written-off (after allowing for realisable assets) in the Statement of Financial Performance. Until March 2000, costs in relation to the casino premises licence were recognised in a cost sharing arrangement with Perry Holdings Limited and Tainui Developments Limited. Sky City Limited’s share of these costs was recognised in the Statement of Financial Performance. The arrangement concluded in March 2000 and costs are now borne directly by Riverside Casino Limited which is consolidated as part of the Sky City group.

The parent company cost of investment comprises:

In the event of the appeal and rehearing being unsuccessful, the amount of investment that would be subject to impairment is:

18. CONTINGENT LIABILITIES

For the year ended 30 June 1998 income tax was recognised in the Statement of Financial Performance on the basis that various non-recurring expenditure items are deductible for tax purposes.

The Inland Revenue Department has indicated that some or all of approximately $15,000,000 of income tax credit claimed in relation to these expenses may be re-assessed. The directors have received professional advice that it is not appropriate to recognise a liability and the company intends to contest any re-assessment received.

There were no other significant contingent liabilities at 30 June 2000 or 30 June 1999.

19. RELATED PARTY INFORMATION

Sky City Limited is a publicly listed company on the New Zealand and Australian stock exchanges.

Subsidiaries and Associates

All members of the group as listed in Note 17 are considered to be related parties of the parent company Sky City Limited.

In presenting the financial statements of the group the effect of transactions and balances between fellow subsidiaries and those with the parent company have been eliminated. Accordingly, so far as the group is concerned the subsidiaries are not related parties.

20. SEGMENT INFORMATION

Industry Segments

The group currently operates in the entertainment, leisure and recreation sector.

Geographic Segments

The surplus is that of the group before income tax and before equity accounted results of associated entities, minority interest and extraordinary items.

21. FINANCIAL INSTRUMENTS

(i) Credit Risk

Financial assets which potentially subject the group and parent company to concentrations of credit risk consist principally of cash, short-term deposits and trade receivables. The parent company’s and group’s cash equivalents and short-term deposits are placed with high credit quality financial institutions. Trade receivables are presented net of the allowance for estimated doubtful receivables. Credit risk with respect to trade receivables is limited due to the relatively low value of receivables at any given time as the nature of the business is cash-oriented. Accordingly the directors believe the group has no significant concentration of credit risk.

(ii) Fair Values

The carrying amount of cash and bank balances reflect their fair values. Information on the fair values of all other financial instruments recognised in the financial statements is included in the relevant notes to the financial statements.

Financial Assets and Liabilities

The directors believe the carrying values of the financial assets and liabilities reflect the fair values of those assets and liabilities.

(iii) Currency Risk and Interest Rate Risk

Interest Rate Risk

Short-term deposits were at call as at 30 June 2000. Deposits are held with major banking institutions.

Interest rates on borrowings are a mix of fixed and floating. As at 30 June 2000 60% (1999: 59%) of total borrowings were hedged via long-term (exceeding 12 months) interest rate swap agreements with major banks.

A number of short-term (less than 12 months) interest rate swap agreements of varying maturities, with major banks, were in place over 6% (1999: 41%) of the balance of the total borrowing.

Fixed versus Floating Interest Rate – Bank Facility

At 30 June 2000, Sky City Limited had total borrowings of $478,630,945 (1999: $290,000,000), structured as below:

Rates shown above are inclusive of bank margin.

Maturities

The interest swap maturities are at various dates through July 2007.

The long term interest rate swap maturities occur between twelve months and seven years from balance date.

Swap Values : Mark to Market

The swaps and forward rate agreements in place as at 30 June 2000 have been valued by the respective banks, on a mark to market basis, at a loss of $2,029,821 (1999: loss $5,047,000).

Forward Exchange Cover

There were no foreign exchange contract positions as at 30 June 2000 (1999: $Nil). Payments to overseas suppliers are made using the currency conversion rate as at the date of payment. The value of such transactions has been and will continue to be at a relatively low level.

22. EVENTS OCCURRING AFTER BALANCE DATE

On 20 July 2000, Sky City Limited announced the purchase of a 6.8% shareholding in the Australian online wagering company, Canbet Limited with an option for this to increase to 33%, subject to due diligence and regulatory approval.

Sky City Limited would initially acquire, subject to Canbet shareholder approval, 16.67 million new shares (6.8% of the shareholding of Canbet Limited) including options on a 1:1 basis at A$0.30 per share. This would represent an initial investment cost of A$5 million. Options may be exercised at any time prior to 31 March 2002 at A$0.20 per share.

Upon receipt of regulatory approval, and the outcome of due diligence being satisfactory to Sky City Limited in all respects, Sky City Limited would then be issued with additional shares and options on identical terms as the initial issue, increasing the investment cost to A$39.1 million or 33% of the shareholding of Canbet Limited.

Canbet Limited directors are supportive of Sky City Limited’s potential investment and are to recommend that shareholders approve the share and option issues.