SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 033-08655
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MOHEGAN TRIBAL GAMING AUTHORITY
(Exact name of registrant as specified in its charter)
Not Applicable 06-1436334
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
67 Sandy Desert Road, Uncasville, Connecticut 06382
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (860) 204-7190
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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 No X .
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MOHEGAN TRIBAL GAMING AUTHORITY
FORM 10-Q
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 1996 and September 30, 1995. . . 3
Statement of Cash Flow from Inception, July 15, 1995 through
June 30, 1996.. . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements. . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition . . . . . . . . . . . . . . . . . . . . . . . 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 13
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PAGE 2
PART I. FINANCIAL INFORMATION
MOHEGAN TRIBAL GAMING AUTHORITY
BALANCE SHEETS
AS OF JUNE 30, 1996 AND SEPTEMBER 30, 1995
(in thousands)
June 30, September 30,
ASSETS 1996 1995
---- ----
(unaudited)
CURRENT ASSETS:
Restricted cash $ 53,881 $213,300
Deposits 1,918 -
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Total Current Assets 55,799 213,300
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CAPITALIZED PROPERTY COSTS:
Deferred lease cost 29,630 -
Leasehold interest under construction 152,584 -
Equipment 4,644 -
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Total Capitalized Property Costs 186,858 -
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OTHER ASSETS:
Pre-opening costs 4,455 -
Deferred financing costs 8,915 11,352
Organizational costs 700 700
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Total Other Assets 14,070 12,052
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Total Assets $256,727 $225,352
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The accompanying notes are an integral
part of these financial statements.
PAGE 3
MOHEGAN TRIBAL GAMING AUTHORITY
BALANCE SHEETS
AS OF JUNE 30, 1996 AND SEPTEMBER 30, 1995
(in thousands)
June 30, September 30,
LIABILITIES 1996 1995
---- ----
(unaudited)
CURRENT LIABILITIES:
Construction retainage $ 9,151 $ -
Current maturities of long-term debt 25 -
Accounts payable 24,461 10,352
Accrued liabilities 7,781 -
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Total Current Liabilities 41,418 10,352
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COMMITMENTS & CONTINGENCIES (SEE NOTE 5)
NON-CURRENT LIABILITIES:
Senior notes 175,000 175,000
Subordinated notes 40,000 40,000
Other long-term debt 309 -
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Total Non-Current Liabilities 215,309 215,000
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Total Liabilities $256,727 $225,352
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The accompanying notes are an integral
part of these financial statements.
PAGE 4
MOHEGAN TRIBAL GAMING AUTHORITY
STATEMENT OF CASH FLOW
FOR THE PERIOD FROM INCEPTION (July 15, 1995)
THROUGH JUNE 30, 1996
(in thousands, unaudited)
PRE-OPENING ACTIVITIES:
Increase in deposits $ (1,918)
Increase in construction retainage 9,151
Increase in accounts payable 24,461
Increase in accrued liabilities 7,781
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Net cash provided by pre-opening activities 39,475
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INVESTING ACTIVITIES:
Deferred lease cost (29,630)
Leasehold interest under construction (152,584)
Equipment additions (4,644)
Pre-opening costs (4,455)
Deferred financing costs (8,915)
Organizational costs (700)
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Net cash used in investing activities (200,928)
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FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 215,334
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Net cash provided by financing activities 215,334
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Net increase in cash and cash equivalents 53,881
CASH AND CASH EQUIVALENTS, at beginning of period -
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CASH AND CASH EQUIVALENTS, at end of period $ 53,881
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SUPPLEMENTAL INFORMATION:
INTEREST PAID $ 14,925
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The accompanying notes are an integral
part of these financial statements.
PAGE 5
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE AUTHORITY -
The Mohegan Tribal Gaming Authority (the "Authority"), established on July
15, 1995, is an instrumentality of the Mohegan Tribe of Indians of
Connecticut (the "Tribe"). The Authority is developing a gaming and
entertainment facility (the "Mohegan Sun"). The Authority's year-end is
September 30.
The Tribe and the Authority have entered into a land lease ("Lease")
pursuant to which the Tribe is leasing to the Authority certain land
located in southeastern Connecticut on which the Mohegan Sun is being
constructed (the "Site"). The Site is a portion of a parcel of land that
has been acquired and held in trust for the Tribe by the United States of
America, with the Tribe retaining perpetual rights to the use of the Site
(see Note 3).
The Tribe established the Authority with the exclusive power to conduct and
regulate gaming activities for the Tribe. Under the Indian Gaming
Regulatory Act of 1988, as amended ("IGRA"), federally recognized Indian
tribes are permitted to conduct full-scale casino gaming operations on
tribal-land, subject to, among other things, the negotiation of a tribal
state compact with the affected state. The Tribe and the State of
Connecticut have entered into such a compact (the "Compact") that has been
approved by the Secretary of the Interior.
The Authority has engaged Trading Cove Associates ("TCA") to manage the
development, construction and operation of the Mohegan Sun. TCA is 50%
owned by a subsidiary of Sun International Hotels Limited ("Sun
International"). The remaining partners of TCA are hotel and real estate
developers and operators located primarily in the northeastern United
States.
The Authority is financing the development of the Mohegan Sun with the
proceeds of the sale of senior notes, subordinated notes and equipment and
working capital financing, as described in Note 2. The total cost of
development and construction of the Mohegan Sun and working capital is
estimated to be $318 million, all of which has been obtained as of the
balance sheet date as follows (000's):
Series A Senior Notes $175,000
Subordinated Notes 40,000
Subordinated Notes: Secured
Completion Guarantee 50,000
Working Capital Financing 13,000
Equipment Financing 40,000
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$318,000
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The Authority will draw funds under a Secured Completion Guarantee (the
"Guarantee") provided by Sun International. The Guarantee provides that,
subject to certain qualifications, Sun International will provide up to $50
million to fund any cost overruns incurred in connection with the
construction, development, equipping and opening of the Mohegan Sun. The
Guarantee terminates on September 30, 1997 or, if certain other criteria
are met, as agreed upon by the Authority and Sun International. Any draws
on the Guarantee will be evidenced by additional subordinated notes issued
by the Authority to Sun International. These additional subordinated notes
will bear interest at the prime rate plus 1% and will be payable under the
same terms as the subordinated notes discussed in Note 2.
USE OF ESTIMATES IN THE PRESENTATION OF FINANCIAL STATEMENTS -
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
PRESENTATION OF FINANCIAL STATEMENTS -
The financial statements as of June 30, 1996 have been prepared by the
Authority without audit. In the opinion of management, these financial
statements contain all adjustments necessary to present fairly the
financial position of the Authority as of June 30, 1996 and cash flow from
the Authority's inception on July 15, 1995 to June 30, 1996.
FAIR VALUE OF FINANCING INSTRUMENTS -
The Authority's carrying amount of financial instruments including cash,
payables and debt, approximate fair market value.
DEVELOPMENT STAGE ENTERPRISE -
The Authority is classified as a Development Stage enterprise as defined by
Statement of Financial Accounting Standards No. 7.
CASH EQUIVALENTS -
For purposes of the statement of cash flow, the Authority has considered
all investments with maturities of 3 months or less to be cash equivalents.
RESTRICTED CASH -
Included in restricted cash is approximately $48 million held in escrow as
required by the Indenture governing the Senior Notes (see Note 2).
Disbursements from the escrow account can only occur upon submission of a
disbursement request (as defined) to the Escrow Agent, and such funds
disbursed can only be used for payment of costs and expenses as
contemplated in the original or amended budgets as referred to in the
Disbursement and Escrow Agreement.
PAGE 7
CAPITALIZED PROPERTY COSTS -
Capitalized property costs consist of (i) deferred lease costs related to
the payment made by the Authority on behalf of the Tribe for the
acquisition of the Site (see Note 3), (ii) leasehold interest costs which
represent costs incurred through the balance sheet date for the
construction of the Mohegan Sun (see Note 3) and (iii) equipment (primarily
furniture and computers) that is being used in connection with the pre-
opening activities of the Authority. Upon the commencement of operations,
these costs will be depreciated or amortized, as applicable, on a straight-
line basis over the following estimated useful lives:
Deferred lease cost 50 years
Leasehold interest cost 40-50 years
Equipment 5-7 years
DEFERRED LEASE COST -
Deferred lease cost consists of the following (000's):
Acquisition cost of the site $28,385
Acquisition cost of additional parcel 1,245
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$29,630
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The Site and the additional parcel (see Note 2) were acquired from third
parties unrelated to the Tribe or the Authority. The Authority will not be
reimbursed by the Tribe for these payments.
OTHER ASSETS -
Other assets consist of pre-opening, deferred financing and organization
costs. Pre-opening costs are mainly payroll and related benefits and
general office overhead incurred through the balance sheet date. Deferred
financing costs have been incurred in connection with the issuance of the
senior notes and the subordinated notes. Organization costs represent
primarily legal costs incurred in the organization of the Authority.
Beginning on the opening date of the Mohegan Sun, these costs will be
amortized on a straight-line basis over the following estimated useful
lives:
Pre-opening costs 12 months
Deferred financing costs 7 years
Organization costs 5 years
2. DEBT:
The Authority issued $175 million in principal amount of Senior Secured
Notes due 2002 (the "Senior Notes") with fixed interest payable at a rate
of 13-1/2% per annum and Cash Flow Participation Interest (as defined) in
an aggregate amount of 5.0% of the Authority's Cash Flow (as defined) up to
a limit, during any two consecutive semi-annual periods, ending on
September 30, of $250 million of the Authority's Cash Flow. Fixed
interest is payable semi-annually commencing May 15, 1996. No Cash Flow
Participation Interest shall be payable with respect to any period prior
to the earlier of the first day the Mohegan Sun commences operations or
October 31, 1996. The aggregate amount of Cash Flow Participation
Interest payable will be reduced pro rata for reductions in
PAGE 8
outstanding principal amount of Senior Notes. The payment of Cash Flow
Participation Interest may be deferred if the Authority's Fixed Charge
Coverage Ratio (as defined) is less than 2 to 1. The Senior Notes are
redeemable, at set prices as set forth in the Senior Notes, after November
15, 1999 at the option of the Authority. Upon the occurrence of certain
events (as specified in the Indenture for the Senior Notes), each holder of
Senior Notes can require the Authority to repurchase the Notes at prices
specified in the Senior Notes. Beginning with fiscal year ending September
30, 1997, the Authority will be required, under certain circumstances, to
offer to purchase, at set prices, certain amounts of Senior Notes then
outstanding.
The Authority has issued $40 million of subordinated notes to Sun
International. These notes bear interest at 15% per year, payable semi-
annually, and are due in 2003; however, principal cannot be paid until the
Senior Notes have been paid in full, unless certain conditions are met.
The above described debt is secured by substantially all the assets of the
Authority.
The Tribe has acquired an additional parcel of land adjacent to the Site
("Additional Parcel") that will be used to expand the access road to the
Mohegan Sun. The lease between the Tribe and the Authority with respect to
the Site has been amended to include the Additional Parcel. The annual
rent under the Lease remains at $1.00 (see Note 3), but the Authority has
made the initial downpayment of $250,000 and assumed the promissory note
($350,000) with respect to the Additional Parcel. The terms of the
promissory note provide for monthly payments of principal and interest (8%)
of $4,246.48 commencing on January 1, 1996, with a final payment due on
December 1, 2005. This promissory note is secured by a mortgage on the
Additional Parcel.
Repayments of debt for the next five years and thereafter follows:
Year Ending
September 30, Amount
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(000's)
1996 (3 months) $ 6
1997 25
1998 27
1999 29
2000 32
Thereafter 215,215
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$215,334
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The ability of the Authority to meet its debt service requirements will be
entirely dependent upon the completion and future successful performance of
the Mohegan Sun, which is subject to financial, economic, political,
competitive, and other factors, many of which are beyond the Authority's
control.
The amount of interest capitalized for the period from the Authority's
inception to June 30, 1996 was approximately $22.4 million.
The Authority has also obtained a capital lease commitment for gaming
equipment financing of up to $40 million from Sodak Gaming, Inc. The terms
of this agreement provide for payment of interest at a rate of 2% over
prime, commencing from the date of delivery of the equipment. Principal
payments will be over 48 months commencing 30 days after full use of the
Mohegan Sun has commenced.
3. Lease Agreement:
As discussed in Note 1, the Authority has entered into a Lease with the
Tribe with respect to the Site. The initial term of the Lease is 25 years,
with an option to extend the term for an additional 25 years provided that
the Authority is not in default under the Lease. The Lease also provides
that all improvements constructed on the Site will become the property of
the Tribe and subject to the Lease. The Lease is a net Lease requiring
that the Authority be responsible for all costs of operating, constructing,
maintaining, repairing, replacing and insuring the leased property, plus
paying the Tribe an annual rent of $1.00. In addition to the rent, the
Authority has used the proceeds from the issuance of the subordinated
notes, described in Note 2, to acquire the Site on behalf of the Tribe.
Due to these payments and other terms of the Lease described above,
expenditures made by the Authority in connection with the acquisition of
the Site and the Additional Parcel have been recorded as deferred lease
costs and related improvements have been reflected as leasehold interests
for financial reporting purposes. The deferred lease costs will be
amortized on a straight-line basis over the term of the Lease, plus the
option period (a total of 50 years). The leasehold interest will be
amortized on a straight-line basis over the estimated life of the buildings
(40 years).
4. INCOME TAXES:
The Tribe is an "Indian Tribal Government" within the meaning of sections
7701(a)(40) and 7871 of the Internal Revenue Code of 1986, as amended. As
such, the Authority has tax-exempt status with respect to federal and state
income and certain excise taxes.
PAGE 10
5. COMMITMENTS AND CONTINGENCIES:
The Tribe, by itself and acting through the Authority, and TCA have entered
into an Amended and Restated Gaming Facility Development and Construction
Agreement ("the Construction Agreement") providing for the design,
construction, furnishing and site development of the Mohegan Sun by TCA.
The total cost of the Mohegan Sun, as outlined in the Construction
Agreement, is not to exceed $325 million. The Tribe has assigned its
rights and obligations in the Agreement to the Authority.
The Tribe has entered into a seven-year Amended and Restated Gaming
Facility Management Agreement ("the Management Agreement") with TCA to
provide for the management of the Mohegan Sun. Under the terms of the
Management Agreement, the Tribe has granted TCA the exclusive right and
obligation to develop, manage, operate and maintain the Mohegan Sun and all
other related facilities that are owned by the Tribe or any of its
instrumentalities. The Management Agreement authorizes TCA to pay itself a
monthly management fee from the Mohegan Sun's net revenues. The management
fee under the Management Agreement is expressed as a percentage of net
revenues, which ranges from 30% to 40%, depending on the level of the net
revenues generated by the Mohegan Sun. The Tribe has assigned its rights
in and delegated its obligations under the Management Agreement to the
Authority.
The Tribe's Compact with the State of Connecticut stipulates that a portion
of the revenues earned on slot machines will be paid to the State of
Connecticut. For each twelve-month period commencing July 1, 1995 the
minimum contribution of the Tribe to the State of Connecticut shall be the
lesser of (a) 30% of gross revenues from slot machines, or (b) the greater
of (i) 25% of gross revenues from slot machines or (ii) $80 million. These
payments will not be required if the State of Connecticut legalizes any
other gaming operations with slot machines to be operated in the State of
Connecticut (other than on certain Indian lands). No payments have been
made or are due as of the balance sheet date. When such payments become
payable, they will be reflected as operating expenses of the Authority.
The Tribe has entered into an agreement with the Town of Montville,
Connecticut (the "Town") pursuant to which the Tribe has agreed to pay to
the Town (i) an annual payment of $500,000 to compensate the Town for the
financial impact of removing the Site from the Town's tax rolls and
jurisdiction and (ii) a one-time fee of $3 million to make improvements to
the Town's water system, which improvements are necessitated by the
development and operation of the Mohegan Sun. The one time payment is
payable, and the annual payments are due commencing, one year after the
commencement of slot machine gaming activities.
PAGE 11
It is anticipated that these payments will be made by the Authority on
behalf of the Tribe. When that occurs, the one-time fee of $3 million for
the improvement of the Town's water system will be capitalized as part of
leasehold interest (see Note 3), while the annual payments of $500,000 will
be treated as operating expenses of the Authority since they are
effectively in lieu of property taxes that would be the responsibility of
the Authority under the Lease. It is not anticipated that the Tribe will
reimburse the Authority for these payments.
As of June 30, 1996 the Authority has entered into or is negotiating
various commitments to obtain (through purchase or under capital or
operating leases) approximately $34 million worth of assets. Also, the
Authority has obtained a working capital line of credit of $13 million none
of which was outstanding as of June 30, 1996.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS
The cost of developing, constructing, equipping and opening the Mohegan Sun is
expected to total approximately $318 million, which consists of $305 million of
project development costs and $13 million of initial working capital.
The Authority has obtained $175 million from the issuance of Senior Notes, $40
million from the issuance of subordinated notes, up to $40 million from
equipment financing, up to $50 million under a secured completion guarantee
provided by Sun International and $13 million in working capital financing,
which is the Authority's principal source of liquidity.
For the period from the Authority's inception, July 15, 1995, through June 30,
1996, the Authority expended $161,453,000 for the financing, construction and
development of the Mohegan Sun, which included $14,925,000 in interest paid on
May 15, 1996 to the holders of the Senior Notes.
Management believes that upon the commencement of operations, during the fourth
quarter of 1996, cash flow from operating activities will be sufficient to pay
for operations and service all debt incurred for the development of the Mohegan
Sun.
PAGE 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following document is filed as an exhibit to this report:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the quarter
ended June 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOHEGAN TRIBAL GAMING AUTHORITY
Date: August 14, 1996 By: /s/ Roland Harris
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Roland Harris,
Chairman Management Board
Date: August 14, 1996 By: /s/ George T. Papanier
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George T. Papanier, Chief Financial
Officer and Senior Vice President of
Finance
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