SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2001
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 033-80655
MOHEGAN TRIBAL GAMING AUTHORITY
(Exact name of registrant as specified in its charter)
Connecticut 06-1436334
(State or other jurisdiction of (IRS employer
incorporation or organization) Identification No.)
One Mohegan Sun Boulevard, Uncasville, CT 06382
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (860) 862-8000
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
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act): Yes No X
----- -----
EXPLANATORY NOTE
The Mohegan Tribal Gaming Authority (the "Authority") has restated its financial
statements for the quarterly periods ended December 31, 2000, March 31, 2001,
June 30, 2001, December 31, 2001, March 31, 2002 and June 30, 2002 and for the
fiscal year ended September 30, 2001.
As more fully described in Note 9, this Form 10-Q/A includes in Item 1 of Part I
the restated financial statements and related notes thereto for the quarter and
six months ended March 31, 2001 and other information relating to such restated
financial statements. Item 2 of Part I also includes the Authority's amended and
restated discussion and analysis of financial condition and results of
operations. Except for Part I, Item 6 of Part II and the addition of the
certifications required under Sections 302 (as further described in Rule 15d-14
issued by the Securities and Exchange Commission) and 906 of the Sarbanes-Oxley
Act of 2002, no other information included in the original report on Form 10-Q
is amended by this amendment. The information contained herein is as of March
31, 2001 and does not reflect subsequent events except any that may have existed
as of the date of filing of the original Form 10-Q relating to such quarterly
period and which were disclosed therein. For information regarding additional
subsequent events, please refer to the Authority's Quarterly Reports on Forms
10-Q and 10-Q/A and Annual Reports on Forms 10-K and 10-K/A filed with respect
to periods after March 31, 2001.
MOHEGAN TRIBAL GAMING AUTHORITY
INDEX TO FORM 10-Q/A
PART I. FINANCIAL INFORMATION Page
Number
------
Item 1. Financial Statements.
Report of Independent Accountants by PricewaterhouseCoopers LLP. 1
Report of Independent Accountants by Arthur Andersen LLP. 2
Balance Sheets of Mohegan Tribal Gaming Authority as of March 31, 2001 (unaudited) and 3
September 30, 2000.
Statements of Income of Mohegan Tribal Gaming Authority for the Quarters and Six Months 4
Ended March 31, 2001 and 2000 (unaudited).
Statements of Changes in Capital of Mohegan Tribal Gaming Authority for the Quarters 5
and Six Months Ended March 31, 2001 and 2000 (unaudited).
Statements of Cash Flows of Mohegan Tribal Gaming Authority for the Six Months Ended 6
March 31, 2001 and 2000 (unaudited).
Notes to Financial Statements of Mohegan Tribal Gaming Authority. 7-20
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 21-35
Operations.
Item 3. Quantitative and Qualitative Disclosure of Market Risk. 35
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 36
Signatures. Mohegan Tribal Gaming Authority. 37
Certifications. 38-39
REPORT OF INDEPENDENT ACCOUNTANTS
To the Mohegan Tribal Gaming Authority:
We have reviewed the accompanying balance sheet of the Mohegan Tribal Gaming
Authority ("the Authority") as of March 31, 2001, the related statements of
income and of changes in capital for the quarter and six-month period ended
March 31, 2001 and the related statement of cash flows for the six-month period
ended March 31, 2001. These financial statements are the responsibility of the
Authority's management. The Authority's financial statements for the quarter and
six-month period ended March 31, 2000 were reviewed by other independent
accountants who have ceased operations. Those independent accountants indicated
that they were not aware of any material modifications that should be made to
those financial statements for them to be in conformity with accounting
principles generally accepted in the United States in their report dated April
26, 2001.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim financial statements as of March 31, 2001
and for the quarter and six-month period then ended for them to be in
conformity with accounting principles generally accepted in the United States of
America.
As described in Note 9 to the financial statements, the Authority has restated
its financial statements as of March 31, 2001 and for the quarter and six-month
period then ended, previously reviewed by other independent accountants who have
ceased operations.
/S/ PRICEWATERHOUSECOOPERS LLP
Hartford, CT
November 11, 2002
1
THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP (ANDERSEN) AND HAS NOT BEEN REISSUED BY ANDERSEN.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Mohegan Tribal Gaming Authority:
We have reviewed the accompanying balance sheet of the Mohegan Tribal Gaming
Authority (the "Authority") as of March 31, 2001* and the related statements of
income for the three and six month periods ended March 31, 2001* and 2000 and
the statements of capital and cash flows for the six months ended March 31,
2001* and 2000. These financial statements are the responsibility of the
Authority's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States, the objective
of which is the expression of an opinion regarding the financial statements as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the balance sheet of the Mohegan Tribal Gaming
Authority as of September 30, 2000, and the related statements of income (loss),
capital and cash flows for the year then ended (not presented separately herein)
and in our report dated December 1, 2000, we expressed an unqualified opinion on
those financial statements. In our opinion, the information set forth in the
accompanying balance sheet of the Mohegan Tribal Gaming Authority as of
September 30, 2000, is fairly stated, in all material respects, in relation to
the balance sheet from which it has been derived.
/S/ ARTHUR ANDERSEN LLP
Hartford, Connecticut
April 26, 2001
* Subsequent to the date of this report, the Authority's balance sheet as of
March 31, 2001 and the related statements of income and of capital for the
quarter and six month period ended March 31, 2001 and the related statement of
cash flows for the six month period ended March 31, 2001 were reviewed by other
independent accountants whose report appears on page 1.
2
Mohegan Tribal Gaming Authority
Balance Sheets
(in thousands)
March 31,
2001 September 30,
(unaudited) 2000
----------------------- -----------------
(restated - see note 9)
ASSETS
------
Current assets:
Cash and cash equivalents $ 62,488 $ 115,731
Receivables, net 6,127 5,490
Due from Tribe 16,803 1,648
Inventories 7,179 7,577
Other current assets 6,836 5,325
------------- --------------
Total current assets 99,433 135,771
Non-current assets:
Property and equipment, net 347,378 338,243
Construction in process 525,923 264,999
Trademark, net 121,410 123,128
Other assets, net 21,787 23,238
------------- --------------
Total assets $ 1,115,931 $ 885,379
============= ==============
LIABILITIES AND CAPITAL
-----------------------
Current liabilities:
Current portion of capital lease obligations $ 2,721 $ 4,055
Current portion of relinquishment liability 56,689 56,646
Accounts payable and accrued expenses 51,707 45,811
Construction payables 58,815 11,790
Accrued interest payable 11,041 10,625
------------- --------------
Total current liabilities 180,973 128,927
Non-current liabilities:
Long-term debt 628,000 500,000
Relinquishment liability, net of current portion 613,076 616,234
Capital lease obligations, net of current portion 950 2,336
Other long-term liabilities 2,643 -
------------- --------------
Total liabilities 1,425,642 1,247,497
------------- --------------
Commitments and contingencies (Note 7)
Capital:
Retained deficit (308,545) (362,118)
Accumulated other comprehensive loss (1,166) -
------------- --------------
Total capital (309,711) (362,118)
------------- --------------
Total liabilities and capital $ 1,115,931 $ 885,379
============= ==============
The accompanying notes to financial statements should be read
in conjunction with the financial statements.
3
Mohegan Tribal Gaming Authority
Statements of Income
(in thousands)
For the For the For the For the
Quarter Ended Quarter Ended Six Months Ended Six Months Ended
March 31, 2001 March 31, 2000 March 31, 2001 March 31, 2000
(unaudited) (unaudited) (unaudited) (unaudited)
------------------ ---------------- ------------------ ----------------
(restated - see (restated - see
note 9) note 9)
Revenues:
Gaming $ 180,605 $ 175,572 $ 355,563 $ 340,519
Food and beverage 11,037 11,680 21,761 22,997
Retail, entertainment and other 11,981 10,603 28,576 26,034
------------------ ---------------- ------------------ ----------------
Gross revenues 203,623 197,855 405,900 389,550
Less - Promotional allowances (15,843) (15,646) (35,030) (34,029)
------------------ ---------------- ------------------ ----------------
Net revenues 187,780 182,209 370,870 355,521
------------------ ---------------- ------------------ ----------------
Operating costs and expenses:
Gaming 77,770 74,210 156,159 147,419
Food and beverage 5,942 5,856 12,020 11,864
Retail, entertainment and other 7,571 6,486 15,474 12,125
Marketing, general and administrative 32,352 31,609 71,789 66,026
Pre-opening costs and expenses 1,927 1,110 3,316 2,017
Management fees - - - 13,634
Depreciation and amortization 5,893 7,760 11,534 15,286
------------------ ---------------- ------------------ ----------------
Total operating costs and expenses 131,455 127,031 270,292 268,371
------------------ ---------------- ------------------ ----------------
Income from operations 56,325 55,178 100,578 87,150
------------------ ---------------- ------------------ ----------------
Other income (expense):
Accretion of relinquishment liability
discount (Note 8) (8,958) (5,764) (17,916) (11,527)
Interest income 576 4,299 1,740 7,544
Other income, net 2 1 2 1
Interest expense, net of capitalized
interest (Note 7) (4,249) (9,131) (10,304) (23,159)
------------------ ---------------- ------------------ ----------------
Total other income (expense) (12,629) (10,595) (26,478) (27,141)
------------------ ---------------- ------------------ ----------------
Income from continuing operations 43,696 44,583 74,100 60,009
Loss from discontinued operations (335) (40) (527) (306)
------------------ ---------------- ------------------ ----------------
Net income $ 43,361 $ 44,543 $ 73,573 $ 59,703
================== ================ ================== ================
The accompanying notes to financial statements should be read
in conjunction with the financial statements.
4
Mohegan Tribal Gaming Authority
Statements of Changes in Capital
(in thousands)
For the Six Months For the Six Months
Ended March 31, 2001 Ended March 31, 2000
(unaudited) (unaudited)
--------------------------------- ---------------------------------
(restated - see note 9)
Comprehensive Comprehensive
Capital Income Capital Income
-------------- --------------- ------------- ---------------
Retained deficit at October 1 $ (362,118) $ (458,052)
Net income 73,573 $ 73,573 59,703 $ 59,703
----------------- ---------------
Distributions to Tribe (20,000) (22,246)
--------------- -------------
Retained deficit at March 31 (308,545) (420,595)
--------------- -------------
Accumulated other comprehensive loss at October 1 - -
Unrealized loss on derivative instruments (1,166) -
--------------- ---------------
Other comprehensive loss (1,166) (1,166) - -
------------- --------------- ------------- ---------------
Comprehensive income $ 72,407 $ 59,703
=============== ===============
Accumulated other comprehensive loss at March 31 (1,166) -
------------- -------------
Total capital ending balance at March 31 $ (309,711) $ (420,595)
============= =============
For the Quarter For the Quarter
Ended March 31, 2001 Ended March 31, 2000
(unaudited) (unaudited)
--------------------------------- ---------------------------------
(restated - see note 9)
Comprehensive Comprehensive
Capital Income Capital Income
-------------- --------------- ------------- ---------------
Retained deficit at December 31 $ (341,906) $ (453,140)
Net income 43,361 $ 43,361 44,543 $ 44,543
-------------- ---------------
Distributions to Tribe (10,000) (11,998)
------------- ------------
Retained deficit at March 31 (308,545) (420,595)
------------- ------------
Accumulated other comprehensive loss at December 31 (645) -
Unrealized loss on derivative instruments (521) -
-------------- ---------------
Other comprehensive loss (521) (521) - -
------------- --------------- ------------- ---------------
Comprehensive income $ 42,840 $ 44,543
============== ===============
Accumulated other comprehensive loss at March 31 (1,166) -
------------- -------------
Total capital ending balance at March 31 $ (309,711) $ (420,595)
============= =============
The accompanying notes to financial statements should be read
in conjunction with the financial statements
5
Mohegan Tribal Gaming Authority
Statements of Cash Flows
(in thousands)
For the For the
Six Months Ended Six Months Ended
March 31, 2001 March 31, 2000
(unaudited) (unaudited)
------------------------- ---------------------
(restated - see note 9)
Cash flows provided by (used in) operating activities:
Net income $ 73,573 $ 59,703
Adjustments to reconcile net income to
net cash flow provided by operating activities:
Depreciation and amortization 11,534 15,286
Loss on disposition of assets - 182
Provision for losses on receivables 275 414
Accretion of relinquishment liability discount 17,916 11,527
Cash paid for accretion of relinquishment liability
discount (14,721) -
Decrease in fair value of derivative instruments 2,402 -
Amortization of debt issuance costs 2,094 -
Changes in operating assets and liabilities:
Increase in receivables and other assets (16,547) (4,623)
Increase in accounts payable and accrued expenses 6,312 2,956
------------------------- ---------------------
Net cash flows provided by operating activities 82,838 85,445
------------------------- ---------------------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment (18,919) (7,029)
Increase in construction in process, net of change in
construction payables of $47,025 and $0, respectively (213,899) (97,915)
------------------------- ---------------------
Net cash flows used in investing activities (232,818) (104,944)
------------------------- ---------------------
Cash flows provided by (used in) financing activities:
Distributions to Tribe (20,000) (22,246)
Principal portion of relinquishment liability payments (6,310) -
Payment on capital lease obligations (2,719) (5,991)
Bank credit facility borrowings 128,000 -
Capitalized financing fees (2,234) -
Defeasance trust asset - 135,507
Defeasance liability - (140,344)
------------------------- ---------------------
Net cash flows provided by (used in) financing activities 96,737 (33,074)
------------------------- ---------------------
Net decrease in cash and cash equivalents (53,243) (52,573)
Cash and cash equivalents at beginning of period 115,731 276,598
------------------------- ---------------------
Cash and cash equivalents at end of period $ 62,488 $ 224,025
========================= =====================
The accompanying notes to financial statements should be read
in conjunction with the financial statements
6
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
The Mohegan Tribe of Indians of Connecticut (the "Tribe") established
the Mohegan Tribal Gaming Authority (the "Authority") in July 1995 with the
exclusive power to conduct and regulate gaming activities for the Tribe on
Tribal lands. On October 12, 1996, the Authority opened a casino known as the
Mohegan Sun Casino ("Mohegan Sun"). The Authority is governed by a nine-member
Management Board, consisting of the same nine members as those of the Tribal
Council (the governing body of the Tribe). Any change in the composition of the
Tribal Council results in a corresponding change in the Authority's Management
Board. The President and Chief Executive Officer and other senior officers of
Mohegan Sun are hired by the Management Board and are employees of the
Authority.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited financial statements have been prepared in
accordance with the accounting principles generally accepted in the United
States of America for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. In accordance with Rule 10-01, the
unaudited financial statements do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals and
adjustments) considered necessary for a fair presentation have been included.
For further information, refer to the financial statements and footnotes thereto
included in the Authority's annual report on Form 10-K for the year ended
September 30, 2000 filed with the Securities and Exchange Commission (the
"SEC").
Reclassifications
Certain amounts in the fiscal year 2000 financial statements have been
reclassified to conform with the fiscal year 2001 presentation.
New Accounting Pronouncements
On October 1, 2000, the Authority adopted Statement of Financial
Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"), designated all derivative instruments as cash
flow hedging instruments and marked them to market. The impact of the adoption
of SFAS 133 was not material to the financial position of the Authority taken as
a whole. The Authority excludes the change in time value when assessing the
effectiveness of the hedging relationships. See Note 4.
NOTE 3 - DISCONTINUED OPERATIONS:
On November 29, 2000 the Authority discontinued bingo operations in
order to build the Hall of the Lost Tribes smoke-free slot machine venue.
Pursuant to Accounting Principles Board Opinion No. 30 "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions,"
the financial statements of the Authority have been restated to reflect
the disposition of bingo operations as discontinued operations. Accordingly, the
revenues, costs and expenses of bingo operations have been excluded from the
captions in the Statements of Income and have been reported as "Loss from
discontinued operations."
7
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 4 - FINANCING FACILITIES:
Financing facilities, as described below, consisted of the following (in
thousands):
March 31, September 30,
2001 2000
-------------------- ------------------------
Bank Credit Facility $ 128,000 $ -
$200M 8 1/8% Senior Notes 200,000 200,000
$300M 8 3/4% Senior Subordinated Notes 300,000 300,000
-------------------- ------------------------
$ 628,000 $ 500,000
==================== ========================
Bank Credit Facility
As of March 31, 2001, the Authority had $128.0 million outstanding under
a $500.0 million reducing, revolving, collateralized credit facility (the "Bank
Credit Facility"), with a syndicate of lenders led by Bank of America N.A.
(formerly known as Bank of America National Trust and Savings Association),
which will mature in March 2004. The Authority draws on the Bank Credit Facility
primarily in connection with the major expansion of Mohegan Sun, known as
Project Sunburst, and other capital expenditure projects. The Bank Credit
Facility is collateralized by a lien on substantially all of the Authority's
assets, by a leasehold mortgage on the land and improvements which comprise
Mohegan Sun, and by each of the Authority's cash operating accounts.
At the Authority's option, each advance of loan proceeds accrues
interest on the basis of base rate or on the basis of a one-month, two-month,
three-month or six-month London Inter-Bank Offered Rate ("LIBOR") plus, in
either case, the applicable spread (based on the Authority's Total Leverage
Ratio, as defined in the Bank Credit Facility). At March 31, 2001, one-month
LIBOR was 5.08% and the applicable spread on a LIBOR loan was 1.375%. Interest
on each LIBOR loan, that is for a term of three months or less shall be due and
payable on the last day of the related interest period. Interest on each LIBOR
loan that is for a term of more than three months is due and payable on the
date that is three months after the date such LIBOR loan was made and every
three months thereafter and on the last day of the related interest period.
Interest on each base rate loan shall be due and payable quarterly in arrears.
The Authority had no base rate loans at March 31, 2001. Accrued interest on the
Bank Credit Facility was $416,000 as of March 31, 2001.
Pursuant to the terms of the Bank Credit Facility, the commitment (or
the maximum amount that may be borrowed under the Bank Credit Facility) will be
reduced automatically as of the earlier of March 31, 2002 or the last full day
of the first full fiscal quarter following the completion date of Project
Sunburst, and on the last day of each fiscal quarter thereafter, by 10% of the
commitment as in effect immediately prior to the first such reduction.
Financial Covenant Requirements
The Authority's debt agreements require, among other restrictions, the
maintenance of various financial covenants and terms including a fixed charge
coverage ratio, and certain debt leverage ratios. As of March 31, 2001, the
Authority was in compliance with all financial covenant requirements.
Derivative Instruments
The Authority uses derivative instruments, including an interest rate
cap, collar and swap, in its strategy to manage interest rate risk associated
with the variable interest rates applicable to advances under the Bank Credit
Facility. The Authority's objective in managing interest rate risk is to ensure
appropriate income and sufficient liquidity to meet its obligations. The
Authority analyzes interest rate risk using various models that forecast cash
8
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
flows of the liabilities and their supporting assets, including derivative
instruments. The Authority does not believe that there is any material risk
exposure with respect to derivative or other financial instruments which it
currently holds. The Authority continually monitors these exposures and makes
the appropriate adjustments to manage these risks within management's
established limits.
The Authority is considered an "end user" of derivative instruments and
engages in derivative transactions for risk management purposes only. On October
1, 2000 the Authority adopted SFAS 133, designated all derivative instruments as
cash flow hedging instruments and marked them to market. The impact of the
adoption of SFAS 133 was not material to the financial position of the Authority
taken as a whole. The Authority excludes the change in time value when assessing
the effectiveness of the hedging relationships. All derivatives are evaluated
quarterly. The interest rate cap and interest rate swap listed below were deemed
to be effective at March 31, 2001. The interest rate collar listed below was
deemed to be ineffective at March 31, 2001.
Derivative instruments held by the Authority at March 31, 2001 are as
follows:
Notional Estimated
Value Cost Fair Value
----------- -------- ------------
Interest Rate Cap
Strike Rate - 8% $22,314,600 $410,000 $ 2,000
Interest Rate Collar
Ceiling Strike Rate - 8%
Floor Strike Rate - 6% 1,353,800 295,000 (1,665,267)
Interest Rate Swap
Pay fixed - 6.35%
Receive Variable 676,900 221,000 ( 980,111)
----------- -------- ------------
Total $24,345,300 $926,000 $(2,643,378)
=========== ======== ============
All derivative instruments are based on one-month LIBOR. One-month LIBOR
was 5.08% on March 31, 2001.
In November 2000, the Authority modified the terms of its existing interest
rate collar and interest rate swap agreements. As a result of the modifications,
the interest rate collar was deemed to be a net written option that did not
qualify for hedge accounting. The negative fair market value at the date of
modification of approximately $212,000 will be reclassified from other
comprehensive income to interest expense over the life of the original terms of
the hedge contract and future changes in the fair market value of the modified
interest rate collar will be recorded directly to earnings as a component of
interest expense. The Authority will reclassify approximately $73,000 of the
negative fair market value into earnings over the next twelve months. The
modification of the interest rate swap agreement did not change the Authority's
assessment of hedge effectiveness at March 30, 2001.
The aggregate fair market value change in all derivative instruments was
$1.4 million and $3.5 million for the three and six months ended March 31, 2001.
In accordance with SFAS 133, the Authority recorded $521,000 and $1.1 million
related to the unrealized loss on the derivative instruments as a component of
accumulated other comprehensive loss in the accompanying balance sheets and
recorded $904,000 and $2.4 million as interest expense in the accompanying
statements of income for the quarter and six months ended March 31, 2001,
respectively. The Authority held no derivative instruments during the quarter
ended March 31, 2000. As of March 31, 2001, the fair market value of the
Authority's derivative instruments is included in other long-term liabilities in
the accompanying balance sheets. As of September 30, 2000, premiums paid for
derivative instruments were capitalized and are reflected in other assets in the
accompanying balance sheets.
Senior Notes
On March 3, 1999, the Authority issued $200.0 million Senior Notes with
fixed interest payable at a rate of 8.125 % per annum (the "Senior Notes"). The
proceeds from this financing were used to extinguish or defease existing debt,
pay transaction costs and fund initial costs related to Project Sunburst.
Interest on the Senior Notes is
9
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
payable semi-annually on January 1 and July 1. The Senior Notes mature on
January 1, 2006. The Senior Notes are uncollateralized general obligations of
the Authority and rank pari passu in right of payment with all current and
future uncollateralized senior indebtedness of the Authority. Borrowings under
the Bank Credit Facility and other capital lease obligations are collateralized
by first priority liens on substantially all of the assets of the Authority. As
a result, upon any distribution to creditors in a bankruptcy, liquidation or
reorganization or similar proceeding relating to the Authority or the Tribe, the
holders of collateralized debt may be paid in full in cash before any payment
may be made with respect to the Senior Notes. The Senior Notes rank equally in
right of payment with 50% of the Authority's payment obligations under the
Relinquishment Agreement (See Note 8) that are then due and owing and rank
senior to the remaining 50% of the Authority's payment obligations under the
Relinquishment Agreement that are then due and owing and the $300 million 8.75%
Senior Subordinated Notes ("Senior Subordinated Notes"). As of March 31, 2001,
accrued interest on the Senior Notes was $4.1 million.
Senior Subordinated Notes
On March 3, 1999, the Authority issued $300.0 million Senior Subordinated
Notes with fixed interest payable at a rate of 8.75% per annum. The proceeds
from this financing were used to extinguish or defease existing debt, pay
transaction costs and fund initial costs related to Project Sunburst. Interest
on the Senior Subordinated Notes is payable semi-annually on January 1 and July
1. The Senior Subordinated Notes mature on January 1, 2009. The Senior
Subordinated Notes are uncollateralized general obligations of the Authority and
are subordinated to the Bank Credit Facility, the Senior Notes and in a
liquidation, bankruptcy or similar proceeding 50% of the Authority's payment
obligations under the Relinquishment Agreement (See Note 8) that are then due
and owing. The Senior Subordinated Notes rank equally to the remaining 50% of
the Authority's payment obligations under the Relinquishment Agreement that are
then due and owing. As of March 31, 2001, accrued interest on the Senior
Subordinated Notes was $6.6 million.
Letters of Credit
The Authority has available a $250,000 uncollateralized letter of credit
that expires on August 31, 2001 and a $550,000 letter of credit agreement that
expires on April 16, 2002. The $550,000 letter of credit was reduced from $1.0
million on April 13, 2001. The Authority maintains these letters of credit in
order to satisfy potential workers compensation liabilities that may arise. The
Authority also had a $250,000 letter of credit that expired on January 11, 2001.
As of March 31, 2001, no amounts were drawn on the letters of credit.
Subordinated Notes/Defeasance Trust
The Authority had $90.0 million of subordinated financing from Sun
International and Waterford Gaming LLC in the form of subordinated notes
("Subordinated Notes"). Interest on the Subordinated Notes ranged from prime
plus 1.0% to 15.0%. Interest on the Subordinated Notes was payable
semi-annually, provided that all such interest was deferred and not paid until
at least half of the Authority's then existing secured notes ("Existing Notes")
were offered to be repurchased or retired, pursuant to the terms of the Existing
Notes and certain other conditions. In March 1999, the Authority redeemed the
Existing Notes.
The Authority agreed to redeem the outstanding Subordinated Notes on
January 1, 2000, the first permitted redemption date, at a price of 100.0% of
the principal amount plus accrued and unpaid interest, less $500,000. To do
this, the Authority exercised its rights under the original purchase agreement
for the Subordinated Notes to affect a defeasance of the Subordinated Notes. The
Authority established a separate trust account with First Union National Bank,
the defeasance agent, in the form of U.S. Government securities, in an amount
that was estimated to be sufficient to redeem the Subordinated Notes plus
accrued interest on January 1, 2000. The Subordinated Notes of $140.3 million,
representing the outstanding principal balance of $90.0 million and accrued
interest of $50.3 million, were tendered on December 30, 1999, two days prior to
the redemption date for year 2000 contingency purposes. The Authority had
reduced accrued interest by $ 500,000 to account for the gain on the
extinguishment of debt related to the tender of the Subordinated Notes. The
amounts reflected in the accompanying Statements of Cash Flows reflect the sale
of the assets in the defeasance trust and the payment of the defeasance
liability on December 30, 1999.
10
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5 - LEASES:
At March 31, 2001, the Authority was obligated under capital leases to make
future minimum lease payments as follows (in thousands):
For the fiscal year ending:
September 30, 2001 $ 1,452
September 30, 2002 2,357
September 30, 2003 64
---------
Total minimum lease payments 3,873
Amount representing interest (202)
---------
Total capital lease obligations 3,671
Less: Amount due within one year (2,721)
---------
Amount due after one year $ 950
=========
On April 18, 2001, the Authority paid $1.4 million to buy out two of its
capital lease obligations.
Operating lease expenses, excluding costs to obtain assets, were $902,000
and $1.8 million, respectively, for the quarter and six months ended March 31,
2000. No operating leases with terms of more than one year existed during the
six months ended March 31, 2001.
NOTE 6 - RELATED PARTY TRANSACTIONS:
The Tribe provides governmental and administrative services to the
Authority in conjunction with the operation of Mohegan Sun. For the quarters
ended March 31, 2001 and 2000, expenses associated with these services were $2.7
million and $2.5 million, respectively, and $5.5 million and $4.6 million for
the six months ended March 31, 2001 and 2000, respectively. The Tribe, through
one of its limited liability companies, has entered into various land lease
agreements with the Authority for access, parking and related purposes for
Mohegan Sun. For the quarters ended March 31, 2001 and 2000, expenses related to
these agreements totaled $97,000 and $88,000, respectively. Expenses related to
these agreements totaled $181,000 and $172,000, for the six months ended March
31, 2001 and 2000, respectively.
At March 31, 2001, amounts due from the Tribe of $16.8 million relates to
$15.8 million in payments made by the Authority on behalf of the Tribe for the
construction of certain utilities and the public safety facility that will
service the Mohegan Reservation. The Tribe anticipates obtaining tax-exempt
financing which will, among other
11
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
things, be used to repay this advance. The remainder of the amounts due from the
Tribe are related to operational receivables incurred in the normal course of
business.
NOTE 7 - COMMITMENTS AND CONTINGENCIES:
Project Sunburst
The Authority has received authorization from the Tribe to expend up to
$960.0 million, excluding capitalized interest, for the completion of Project
Sunburst. As of March 31, 2001, the Authority had incurred $506.0 million,
excluding capitalized interest and expects to incur an additional $382.9 million
for the remainder of fiscal year 2001. The remaining $71.1 million is
anticipated to be incurred during fiscal year 2002. As of March 31, 2001,
cumulative capitalized interest for Project Sunburst construction expenses
totaled $27.1 million. Capitalized interest for the quarters ended March 31,
2001 and 2000 totaled $9.6 million and $1.8 million, respectively. Capitalized
interest for the six months ended March 31, 2001 and 2000 totaled $16.7 million
and $2.9 million, respectively.
The Mohegan Compact
In May 1994, the Tribe and the State of Connecticut entered into a
Memorandum of Understanding ("MOU") which sets forth certain matters regarding
implementation of the Mohegan Compact. The MOU stipulates that a portion of the
revenues earned on slot machines must be paid to the State of Connecticut ("Slot
Win Contribution"). The Slot Win Contribution payments will not be required if
the State of Connecticut legalizes any other gaming operations with slot
machines or other commercial casino table games within Connecticut, except those
consented to by the Tribe and the Mashantucket Pequot Tribe. For each 12-month
period commencing July 1, 1995, the Slot Win Contribution 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. For the quarters ended
March 31, 2001 and 2000, the Authority reflected expenses associated with the
Slot Win Contribution totaling $33.8 million and $32.7 million, respectively.
The Authority reflected expenses associated with Slot Win Contribution totaling
$66.8 million and $63.6 million for the six months ended March 31, 2001 and
2000, respectively. As of March 31, 2001, outstanding Slot Win Contribution
payments to the State of Connecticut totaled $12.7 million.
Town of Montville Agreement
On June 16, 1994, the Tribe and the Town of Montville (the "Town")
entered into an agreement whereby the Tribe agreed to pay to the Town a
recurring annual payment of $500,000 to minimize the impact to the Town
resulting from decreased tax revenues on reservation land held in trust.
Additionally, the Tribe agreed to make a one-time payment of $3.0 million
towards infrastructure improvements to the Town's water system. The Tribe
assigned its rights and obligations in this agreement to the Authority. As of
March 31, 2001, the Authority had fulfilled this obligation and paid $3.0
million to the Town of Montville for improvements to the municipal water system,
which has been included in other assets in the accompanying balance sheets and
is being amortized over 40 years.
Expansion Construction Management Agreement with Perini Building Company, Inc.
The Authority engaged Perini Building Company, Inc. ("Perini") as
construction manager to provide construction management services for Project
Sunburst. As construction manager, Perini is receiving a fee of $20.5 million
for services including, but not limited to, pre-construction review and
construction phase contract administration. As of March 31, 2001, Perini had
received $11.1 million of the $20.5 million fee, which has been included in
construction in process in the accompanying balance sheets. For each of the
quarters ended March 31, 2001 and 2000, the Authority incurred $1.5 million
related to the construction management fee. The Authority incurred $3.0 million
in fees for each of the six months ended March 31, 2001 and 2000, respectively.
As of March 31, 2001, the Authority owed $497,000 to Perini related to the
Construction Management Agreement.
12
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Litigation
The Authority is a defendant in certain litigation incurred in the
normal course of business. In the opinion of management, based on the advice of
counsel, the aggregate liability, if any, arising from such litigation will not
have a material adverse effect on the Authority's financial position, results of
operations or cash flows.
NOTE 8 - TCA AGREEMENTS:
Management Agreement
Previously, the Tribe and Trading Cove Associates ("TCA") entered
into the Amended and Restated Gaming Facility Management Agreement (the
"Management Agreement"), pursuant to which the Tribe retained and engaged TCA,
on an independent contractor basis, to operate, manage and market Mohegan Sun.
The Tribe assigned its rights and obligations under the Management Agreement to
the Authority. TCA had a responsibility to manage Mohegan Sun in exchange for
payments ranging from 30% to 40% of net income, before management fees, as
defined, depending upon profitability levels. Management fees totaled $13.6
million for the six months ended March 31, 2000. There were no management fees
for the quarters ended March 31, 2001 and 2000, or for the six months ended
March 31, 2001, due to the termination of the Management Agreement. (See
discussion of Relinquishment Agreement below.)
Relinquishment Agreement
In February 1998, the Authority and TCA entered into an agreement (the
"Relinquishment Agreement"). Effective January 1, 2000 (the "Relinquishment
Date"), the Relinquishment Agreement superseded the Management Agreement. The
Relinquishment Agreement provides that the Authority will make certain payments
to TCA out of, and determined as a percentage of, Revenues, as defined,
generated by Mohegan Sun over a 15-year period commencing on the Relinquishment
Date. The payments ("Senior Relinquishment Payments" and "Junior Relinquishment
Payments") have separate payment schedules and priority. Senior Relinquishment
Payments commenced on April 25, 2000, twenty-five days following the end of the
first three-month period following the Relinquishment Date, and continue at the
end of each three-month period occurring thereafter until January 25, 2015.
Junior Relinquishment Payments commenced on July 25, 2000, twenty-five days
following the end of the first six-month period following the Relinquishment
Date and continue at the end of each six-month period occurring thereafter until
January 25, 2015. Each Senior Relinquishment Payment and Junior Relinquishment
Payment is an amount equal to 2.5% of the Revenues generated by Mohegan Sun over
the immediately preceding three-month or six-month payment period, as the case
may be. "Revenues" are defined as gross gaming revenues (other than Class II
gaming revenue) and all other facility revenues (including, without limitation,
hotel revenues, room service, food and beverage sales, ticket revenues, fees or
receipts from the convention center, Mohegan Sun Arena and all rental or other
receipts from lessees and concessionaires, but not the gross receipts of such
lessees, licenses and concessionaires).
The Authority, in accordance with SFAS No. 5, "Accounting for
Contingencies," has recorded a relinquishment liability of the estimated present
value of its obligations under the Relinquishment Agreement. A relinquishment
liability of $549.1 million was established at September 30, 1998 based on the
present value of the estimated future Mohegan Sun revenues utilizing the
Authority's risk free investment rate. At March 31, 2001, the carrying amount of
the relinquishment liability was $669.8 million as compared to $672.9 million at
September 30, 2000. The decrease is due to $21.0 million in relinquishment
payments, partially offset by $17.9 million in accretion of relinquishment
liability discount. Of the $21.0 million in relinquishment payments, $6.3
million represents principal amounts and the remaining $14.7 million is payment
for the accretion of interest. As of March 31, 2001, relinquishment payments
earned but unpaid were $10.2 million.
Development Agreement
On February 7, 1998, the Authority and TCA entered into a development
services agreement (the "Development Agreement"). Under the Development
Agreement, TCA is responsible for the administration and supervision of the
13
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
construction manager and the entire construction process of Project Sunburst.
TCA is acting as the Authority's representative in connection with construction
contracts that are approved by the Authority. Specifically, TCA is responsible
for overseeing all persons performing work on the expansion site, inspecting the
progress of construction, determining completion dates and reviewing contractor
payments requests submitted to the Authority.
Payment of the Development Fee
Under the Development Agreement, the Authority is required to pay TCA a
development fee of $14.0 million. Pursuant to the payment schedule described in
the Development Agreement, on January 15, 2000, the Authority began paying the
development fee to TCA on a quarterly basis, based upon the incremental
completion as of each payment date. As of March 31, 2001, the Authority had
incurred $7.1 million related to the development fee, of which $5.5 million had
been paid. For the quarters ended March 31, 2001 and 2000, the Authority
incurred $1.6 million and $896,000, respectively, related to the development
fee. Development fees totaled $2.2 million and $2.3 million, for the six months
ended March 31, 2001 and 2000, respectively. All amounts incurred have been
included in construction in process on the accompanying balance sheets.
Termination and Disputes
The Development Agreement terminates upon the earlier of (a) completion
of Project Sunburst or (b) February 7, 2008. In addition, each party has the
right to terminate the Development Agreement if there is a material default or
failure to perform a material duty or obligation by the other party. The parties
must submit disputes arising under the Development Agreement to arbitration and
have agreed that punitive damages may not be awarded to either party by an
arbitrator. The Authority also has waived sovereign immunity for the purpose of
permitting, compelling or enforcing arbitration and has agreed to be sued by TCA
in any court of competent jurisdiction for the purposes of compelling
arbitration or enforcing any arbitration or judicial award arising out of the
Development Agreement.
NOTE 9 - RESTATEMENT AND RECLASSIFICATIONS:
The Authority has restated its financial statements for the quarter
ended March 31, 2001 to reflect the effects of the following adjustments: (i) to
record additional capitalized interest pertaining to Project Sunburst in
accordance with SFAS No. 34 "Capitalization of Interest Cost," (ii) to record
Project Sunburst related capital expenditures incurred in the quarter and six
months ended March 31, 2001, (iii) to record depreciation expense associated
with placing additional fixed assets in service prior to March 31, 2001 and (iv)
to record adjustments necessary to account for the Authority's derivative
instruments in accordance with SFAS 133. The aggregate effect of recording
these adjustments resulted in the Authority increasing its net income by $1.8
million and $4.8 million for the quarter and six months ended March 31, 2001,
respectively, and increasing its total assets by $46.5 million as of March 31,
2001.
In addition, the Authority also has reclassified certain other costs,
expenses and balances in the financial statements. The reclassifications have no
effect on the Authority's net income.
The financial statements as of and for the quarter and six months ended
March 31, 2001 contained herein have been updated to reflect these restatements
and reclassifications. The following tables summarize the impact of these
adjustments on the Authority's financial statements, as restated (in thousands):
14
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Mohegan Tribal Gaming Authority
Condensed Balance Sheet
(in thousands)
Previously
Reported
For the Restatement Restated
March 31, 2001* Reclassifications Adjustments March 31, 2001
-------------- ----------------- -------------- ---------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 62,488 $ - $ - $ 62,488
Receivables, net 7,204 (1,077)a - 6,127
Due from Tribe 16,803 - - 16,803
Inventories 7,179 - - 7,179
Other current assets 5,759 1,077 a - 6,836
-------------- ---------------- -------------- ---------------
Total current assets 99,433 - - 99,433
Non-current assets:
Property and equipment, net 337,309 - 10,069 e,f.2 347,378
Construction in process 492,093 - 33,830 e,g.2,h 525,923
Trademark, net 121,410 - - 121,410
Other assets, net 19,144 2,643 b - 21,787
-------------- ---------------- -------------- ---------------
Total assets $ 1,069,389 $ 2,643 $ 43,899 $ 1,115,931
============== ================ ============== ===============
LIABILITIES AND CAPITAL
-----------------------
Current liabilities:
Current portion of capital lease
obligations $ 2,721 $ - $ - $ 2,721
Current portion of relinquishment
liability 46,508 10,181 c - 56,689
Accounts payable and accrued expenses 72,524 (20,817)d - 51,707
Construction payables - 20,817 d 37,998 h 58,815
Accrued interest payable 11,041 - - 11,041
-------------- ---------------- -------------- ---------------
Total current liabilities 132,794 10,181 37,998 180,973
Non-current liabilities:
Long-term debt 628,000 - - 628,000
Relinquishment liability, net of
current portion 623,257 (10,181)c - 613,076
Capital lease obligations, net of
current portion 950 - - 950
Other long-term liabilities - 2,643 b - 2,643
-------------- ---------------- -------------- ---------------
Total liabilities 1,385,001 2,643 37,998 1,425,642
-------------- ---------------- -------------- ---------------
Capital:
Retained deficit (313,321) - 4,776 f.2,g.2,i.2 (308,545)
Accumulated other comprehensive loss (2,291) - 1,125 i.2 (1,166)
-------------- ---------------- -------------- ---------------
Total capital (315,612) - 5,901 (309,711)
-------------- ---------------- -------------- ---------------
Total liabilities and capital $ 1,069,389 $ 2,643 $ 43,899 $ 1,115,931
============== ================ ============== ===============
* Previously reported in Form 10-Q filed by the Authority on May 11, 2001.
See page 20 of the notes to the Authority's financial statements for the
footnotes to this restatement schedule.
15
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Mohegan Tribal Gaming Authority
Condensed Statements of Income
(in thousands)
Previously
Reported Restated
For the For the
Quarter Ended Restatement Quarter Ended
March 31, 2001* Reclassifications Adjustments March 31, 2001
-------------- ----------------- ----------- ---------------
Revenues:
Net revenues $ 187,780 $ - $ - $ 187,780
-------------- ---------- ----------- ----------
Operating costs and expenses:
Gaming 77,770 - - 77,770
Food and beverage 5,942 - - 5,942
Retail, entertainment and other 7,571 - - 7,571
Marketing, general and administrative 32,352 - - 32,352
Pre-opening costs and expenses 1,927 - - 1,927
Depreciation and amortization 6,943 (1,114) k.1 64 f.1 5,893
-------------- ---------- ---------- ----------
Total operating costs and expenses 132,505 (1,114) 64 131,455
-------------- ---------- ---------- ----------
Income from operations 55,275 1,114 (64) 56,325
-------------- ---------- ---------- ----------
Other income (expense):
Relinquishment liability reassessment (8,958) 8,958 l.1 - -
Accretion of relinquishment liability
discount - (8,958) l.1 - (8,958)
Interest income 578 (2) m.1 - 576
Other income, net - 2 m.1 - 2
Interest expense, net of capitalized
interest (5,890) (1,114) k.1 2,755 g.1,i.1,n.1 (4,249)
Change in fair value of derivative
instruments 865 - (865)n.1 -
-------------- ---------- ---------- ----------
Total other income (expense) (13,405) (1,114) 1,890 (12,629)
-------------- ---------- ---------- ----------
Income from continuing operations 41,870 - 1,826 43,696
Loss from discontinued operations (335) - - (335)
-------------- ---------- ---------- ----------
Net income $ 41,535 $ - $ 1,826 $ 43,361
============== ========== ========== ==========
* Previously reported in Form 10-Q filed by the Authority on May 11, 2001.
See page 20 of the notes to the Authority's financial statements for the
footnotes to this restatement schedule.
16
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Mohegan Tribal Gaming Authority
Condensed Statements of Income
(in thousands)
Previously
Reported Restated
For the For the
Six Months Ended Restatement Six Months Ended
March 31, 2001* Reclassifications Adjustments March 31, 2001
-------------- ----------------- ----------- --------------
Revenues:
Net revenues $ 370,870 $ - $ - $ 370,870
------------- ------------ ---------- -------------
Operating costs and expenses:
Gaming 156,159 - - 156,159
Food and beverage 12,020 - - 12,020
Retail, entertainment and other 15,474 - - 15,474
Marketing, general and administrative 71,789 - - 71,789
Pre-opening costs and expenses 3,316 - - 3,316
Depreciation and amortization 13,522 (2,094) k.2 106 f.2 11,534
------------- ------------ ---------- -------------
Total operating costs and expenses 272,280 (2,094) 106 270,292
------------- ------------ ---------- -------------
Income from operations 98,590 2,094 (106) 100,578
------------- ------------ ---------- -------------
Other income (expense):
Relinquishment liability reassessment (17,916) 17,916 l.2 - -
Accretion of relinquishment liability
discount (17,916) l.2 - (17,916)
Interest income 1,742 (2) m.2 - 1,740
Other income, net - 2 m.2 - 2
Interest expense, net of capitalized
interest (11,815) (2,094) k.2 3,605 g.2,i.2,n.2 (10,304)
Change in fair value of derivative
instruments (1,277) - 1,277 n.2 -
------------- ------------ ---------- -------------
(29,266) (2,094) 4,882 (26,478)
------------- ------------ ---------- -------------
Income from continuing operations 69,324 - 4,776 74,100
Loss from discontinued operations (527) - - (527)
------------- ------------ ---------- -------------
Net income $ 68,797 $ - $ 4,776 $ 73,573
============= ============ ========== =============
* Previously reported in Form 10-Q filed by the Authority on May 11, 2001.
See page 20 of the notes to the Authority's financial statements for the
footnotes to this restatement schedule.
17
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Mohegan Tribal Gaming Authority
Condensed Statement of Changes in Capital
(in thousands)
Previously
Reported
For the Restated
Six Months For the
Ended Restatement Six Months Ended
March 31, 2001* Adjustments March 31, 2001
--------------- -------------------------- ----------------------------
Comprehensive Comprehensive
Capital Income Capital Income
--------- ------------- --------- -------------
Retained deficit at October 1 $ (362,118) $ - - $ (362,118) -
Net income 68,797 4,776 $ 4,776 f.2,g.2,i.2 73,573 $ 73,573
------------ -------------
Distributions to Tribe (20,000) - (20,000)
------------- ------- ----------
Retained deficit at March 31 $ (313,321) 4,776 (308,545)
------------- ------- ----------
Accumulated other
comprehensive income at
October 1 - - -
Unrealized gain (loss) on
derivative instruments (2,291) 1,125 i.2 (1,166)
------------- ------------ -------------
Other comprehensive income
(loss) (2,291) 1,125 1,125 (1,166) (1,166)
------------- ------- ------------ ---------- -------------
Comprehensive income $ 5,901 $ 72,407
============ =============
Accumulated other
comprehensive income
(loss) at March 31 (2,291) (2,291)
------------- -----------
Total capital ending balance
at March 31 (315,612) $ 5,901 (309,711)
============= ======= ==========
* Previously reported in Form 10-Q filed by the Authority on May 11, 2001.
See page 20 of the notes to the Authority's financial statements for the
footnotes to this restatement schedule.
18
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Mohegan Tribal Gaming Authority
Condensed Statement of Cash Flows
(in thousands)
Previously
Reported Restated
For the Six For the Six
Months Ended Restatement Months Ended
March 31, 2001* Reclassifications Adjustments March 31, 2001
-------------- ----------------- --------------- --------------
Cash flows provided by (used in) operating
activities:
Net income $ 68,797 $ - $ 4,776 f.2,g.2, i.2 $ 73,573
Adjustments to reconcile net income to net
cash flow provided by operating
activities:
Depreciation and amortization 13,522 (2,094) o 106 f.2 11,534
Loss on disposition of assets - - - -
Provision for losses on receivables 275 - - 275
Accretion of relinquishment liability
discount - 17,916 p - 17,916
Relinquishment liability reassessment 17,916 (17,916) p - -
Cash paid for accretion of relinquishment
liability discount - (14,721) q - (14,721)
Change in fair value of derivative
instruments 1,277 - 1,125 i.2 2,402
Amortization of debt issuance costs - 2,094 o - 2,094
Changes in operating assets and liabilities: - -
Increase in receivables and other assets (16,547) - - (16,547)
Increase in accounts payable and accrued
expenses 15,339 (9,027) r - 6,312
-------------- ----------------- --------------- --------------
Net cash flows provided by operating
activities 100,579 (23,748) 6,007 82,838
-------------- ----------------- --------------- --------------
Cash flows provided by (used in) investing
activities:
Purchase of property and equipment (8,744) - (10,175) e (18,919)
Increase in construction in process, net of
change in construction payables (227,094) 9,027 r 4,168 e, g.2 (213,899)
-------------- ----------------- --------------- --------------
Net cash flows used in investing
activities (235,838) 9,027 (6,007) (232,818)
-------------- ----------------- --------------- --------------
Cash flows provided by (used in)
financing activities:
Distributions to Tribe (20,000) - - (20,000)
Principal portion of relinquishment liability
payments (21,031) 14,721 q - (6,310)
Payment on capital lease obligations (2,719) - - (2,719)
Bank credit facility borrowings 128,000 - - 128,000
Capitalized financing fees (2,234) - - (2,234)
-------------- ----------------- --------------- --------------
Net cash flows provided by financing
activities 82,016 14,721 - 96,737
-------------- ----------------- --------------- --------------
Net decrease in cash and cash equivalents (53,243) - - (53,243)
Cash and cash equivalents at beginning of period 115,731 - - 115,731
-------------- ----------------- --------------- --------------
Cash and cash equivalents at end of period $ 62,488 $ - $ - $ 62,488
============== ================= =============== ==============
* Previously reported in Form 10-Q filed by the Authority on May 11, 2001.
See page 20 of the Notes to the Authority's financial statements for the
footnotes to this restatement schedule.
19
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Adjustment footnotes (in thousands):
a. Reclassified an amount pertaining to Deferred Compensation Plan assets of
$1,077 from receivables, net to other current assets.
b. Reclassified estimated negative fair value of $2,643 on derivative
instruments held by the Authority at March 31, 2001 from other assets, net
to other long-term liabilities.
c. Reclassified long-term relinquishment liability of $10,181 to short-term
relinquishment liability.
d. Reclassified construction related payables of $20,817 from accounts payable
and accrued expenses to construction payables.
e. Reclassified utilities facility costs of $10,175 from construction in
process to property and equipment, net.
f. Recorded depreciation on additional utilities facility costs capitalized
and placed into service in November 2000:
1. $64 for quarter ended March 31, 2001.
2. $106 for the six months ended March 31, 2001.
g. Recorded additional capitalized interest pertaining to Project Sunburst:
1. $3,659 for quarter ended March 31, 2001.
2. $6,007 for the six months ended March 31, 2001.
h. Recorded an accrual for construction payables of $37,998 pertaining to
Project Sunburst for work completed by March 31, 2001, but paid subsequent
to March 31, 2001:
i. In accordance with SFAS 133, recorded an adjustment to reflect the
unrealized loss on derivative instruments:
1. $1,769 for the quarter ended March 31, 2001.
2. $1,125 for the six months ended March 31, 2001.
j. Omitted.
k. Reclassified amortization of debt issuance costs from depreciation and
amortization to interest expense, net of capitalized interest:
1. $1,114 for quarter ended March 31, 2001.
2. $2,094 for the six months ended March 31, 2001.
l. Reclassified relinquishment liability reassessment to accretion of
relinquishment liability discount:
1. $8,958 for quarter ended March 31, 2001.
2. $17,916 for six months ended March 31, 2001.
m. Reclassified interest income of $2 to other income, net:
1. $2 for the quarter ended March 31, 2001.
2. $2 for the six months ended March 31, 2001.
n. Reclassified change in fair value of derivative instruments to interest
expense, net of capitalized interest:
1. $865 for quarter ended March 31, 2001.
2. $1,277 for six months ended March 31, 2001.
o. Reclassified amortization of debt issuance costs from depreciation and
amortization to amortization of debt issuance costs.
p. Reclassified relinquishment liability reassessment to accretion of
relinquishment liability discount.
q. Reclassified cash paid for accretion of relinquishment liability discount
from principal portion of relinquishment payments.
r. Reclassified change in construction payables from increases in accounts
payable and accrued expenses to increase in construction in process.
NOTE 10--SUBSEQUENT EVENTS:
On April 18, 2001, the Authority opened its smoke-free slot area, The Hall
of the Lost Tribes. The highly thematic smoke-free gaming venue features 637
slot machines, quick service dining, and a new cocktail bar with video poker.
The Hall of the Lost Tribes is anticipated to be completed for $18.0 million,
$2.0 million below the original $20.0 million budget.
On April 18, 2001, the Authority announced that all employees will be
enrolled in a Defined Retirement Plan ("The Plan") sponsored by the Authority.
The Plan will be effective July 2001 and contributions by the Authority will be
based on hours worked. Employees become eligible after 90 days of employment and
will be fully vested at the completion of seven years of employment by the
Authority.
20
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with
the Authority's financial statements and the related notes beginning on page 3
of this Form 10-Q/A which has been updated to reflect the restatements and
reclassifications more fully described in Note 9 to the Authority's financial
statements.
Forward Looking Statements
Some information included in this Amended Quarterly Report and other
materials filed by the Authority with the Securities and Exchange Commission
("SEC") contain forward-looking statements, within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. 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. These statements can sometimes be identified by our
use of forward-looking words such as "may," "will," "anticipate," "estimate,"
"expect," or "intend" and similar expressions. Such forward-looking information
involves important risks and uncertainties that could significantly affect
anticipated results in the future and, accordingly, such results may differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Authority. 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, domestic or global
economic conditions, pending litigation, changes in federal tax laws or the
administration of such laws and changes in gaming laws or regulations (including
the legalization of gaming in certain jurisdictions). Additional information
concerning potential factors that could affect the Authority's financial results
are included in the Authority's Annual Reports on Form 10-K for the fiscal year
ended September 30, 2000, as well as the Authority's other reports and filings
with the SEC. The forward-looking statements included in this Quarterly Report
on Form 10-Q/A are made only as of the date of this report. The Authority does
not have and the Authority does not undertake any obligation to publicly update
any forward-looking statements to reflect subsequent events or circumstances.
The Authority can not assure you that projected results or events will be
achieved.
Overview
The Tribe and the Authority
The Tribe is a federally recognized Indian tribe with an approximately
390-acre reservation situated in southeastern Connecticut. Under the Indian
Gaming Regulatory Act, 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 gaming compact with the state in which they
operate. The Tribe and the State of Connecticut have entered into such a compact
that has been approved by the United States Secretary of the Interior. The
Tribe's gaming operation is one of only two legally authorized gaming operations
in New England offering traditional slot machines and table games. The Tribe has
established an instrumentality, the Authority, with the exclusive power to
conduct and regulate gaming activities on the existing reservation of the Tribe
located adjacent to Uncasville, Connecticut. The Authority is governed by a
Management Board, consisting of the same nine members of the Mohegan Tribal
Council.
Mohegan Sun
In October 1996, the Authority opened a gaming and entertainment complex
known as Mohegan Sun. Mohegan Sun is situated in southeastern Connecticut on a
240-acre site on the Tribe's reservation overlooking the Thames River with
direct access from Routes I-395 and 2A via a four-lane access road constructed
by the Authority. As of March 31, 2001 Mohegan Sun had parking spaces for
approximately 7,500 guests and 2,700 employees. Mohegan Sun is located
approximately 125 miles from New York City and approximately 100 miles from
Boston, Massachusetts. The Authority began construction in 1999 of a major
expansion of Mohegan Sun known as Project Sunburst. The first phase of Project
Sunburst, the Casino of the Sky, will include increased gaming, restaurant and
retail space and an entertainment arena. The remaining components will include a
1,200-room luxury hotel and approximately 100,000 square feet of convention
space.
21
Mohegan Sun operates in an approximately 635,000 square foot facility
which, at March 31, 2001, includes the following:
. approximately 3,033 slot machines, 154 table games (including
blackjack, roulette, craps and baccarat) and 42 poker tables;
. food and beverage amenities, including three full-service themed fine
dining restaurants, a 610-seat buffet, a New York style delicatessen,
a 24-hour coffee shop, a ten-station food court featuring
international and domestic cuisine and multiple service bars;
. an approximately 10,000 square foot, 350-seat lounge featuring live
entertainment seven days a week;
. an approximately 9,000 square foot simulcasting race book facility;
. six retail shops providing shopping opportunities ranging from Mohegan
Sun logo souvenirs to clothing to cigars;
. arcade-style recreation area and a child care facility operated by New
Horizons Kids Quest; and
. a 4,000 square foot, 16-pump gasoline service station and convenience
store.
Explanation of Key Financial Statement Captions
Gross revenues. The Authority's gross revenues are derived mostly from the
following three sources:
. Gaming revenues, which include revenues from slot machines, table
games, poker and racebook;
. Food and beverage sales; and
. Retail, entertainment and other revenues, which include revenues from
the Mohegan Sun managed retail outlets.
The table below summarizes the Authority's percentage of gross revenues
from each of these sources:
For the For the For the For the
Quarter Quarter Six Months Six Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2001 2000 2001 2000
--------- --------- --------- ---------
Gaming 89% 89% 88% 87%
Food and beverage 5% 6% 5% 6%
Retail, entertainment and other 6% 5% 7% 7%
--------- --------- --------- ---------
Total 100% 100% 100% 100%
========= ========= ========= =========
Slot win. Gross slot win represents all amounts played in the slot machines
reduced by both (1) the winnings paid out and (2) all amounts deposited by the
Authority into the slot machines to ensure sufficient coins in each machine to
pay out the winnings. Progressive slot machines retain some of each amount
wagered and aggregate these amounts with similar amounts from other slot
machines in order to create one-time winnings that are substantially larger than
those paid in the ordinary course. The Authority refers to such aggregated
amounts as progressive jackpots. In-house progressive jackpot amounts are
accrued by the Authority until paid and such accrued amounts are deducted from
gross slot win to arrive at net slot win. Wide-area progressive jackpot amounts
are paid by a third-party vendor, and the Authority remits a weekly payment to
the vendor, which is deducted from gross slot win.
22
Casino revenues and promotional allowances. The Authority recognizes casino
revenue as gaming wins less gaming losses. Revenues from food and beverages,
retail, entertainment and other services are recognized at the time the service
is performed. The Authority operates the Mohegan Sun complimentary program in
which food, beverages, retail, entertainment and other services are provided to
guests based on points that are earned through the Mohegan Sun Player's Club.
The retail value of these complimentary items is included in gross revenue and
then deducted as promotional allowances, except for the redemption from a
catalog program, the Sun Select Catalog, which includes vacations, electronics
and gift items, to arrive at net revenues. The estimated cost of providing these
promotional allowances is charged to the casino department in the following
amounts (in thousands):
For the For the For the For the
Quarter Quarter Six Months Six Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2001 2000 2001 2000
--------- --------- ----------- -------------
Food and beverage $ 5,947 $ 5,771 $ 12,314 $ 12,283
Retail, entertainment and other 6,304 6,001 13,740 13,354
--------- --------- ---------- -----------
Total $ 12,251 $ 11,772 $ 26,054 $ 25,637
========= ========= ========== ===========
Mohegan Sun Player's Club. The Mohegan Sun Player's Club is a voluntary
program, without membership fees, which awards points to members based on their
gaming activities. These points may be used to purchase items at restaurants and
retail outlets located within Mohegan Sun, the Mohegan Sun gasoline and
convenience center and the Sun Select Catalog, as well as to purchase tickets to
entertainment events held at Mohegan Sun facilities. The Authority accrues for
Player's Club points expected to be redeemed in the future based on the average
cost to the Authority of items expected to be redeemed, and includes the related
cost in marketing, general and administrative expenses in the Authority's income
statement.
Gaming expenses. Gaming expenses primarily include the Slot Win
Contribution which the Authority is required to pay to the State of Connecticut,
expenses associated with slot operations, table games, poker and racebook
expenses and promotional expenses for the redemption of the Mohegan Sun Player's
Club points and the Sun Select Catalog.
EBITDA and Adjusted EBITDA. EBITDA represents earnings before interest,
income taxes, depreciation and amortization. The EBITDA margin is calculated as
EBITDA as a percentage of net revenue. Adjusted EBITDA represents further
adjustments to EBITDA to remove the effects of pre-opening costs and expenses,
accretion of relinquishment liability discount on the relinquishment liability
to Trading Cove Associates ("TCA") pursuant to the Relinquishment Agreement,
management fees payable to TCA pursuant to the Management Agreement,
discontinued operations and other non-operating income/expense. The Adjusted
EBITDA margin is calculated as Adjusted EBITDA as a percentage of net revenue.
Adjusted EBITDA should not be considered as an alternative to any measure of
performance as promulgated under accounting principles generally accepted in the
United States of America (such as operating income or net income), nor should it
be considered as an indicator of the Authority's overall financial performance.
The Authority's calculation of Adjusted EBITDA is likely to be different from
the calculation of EBITDA or similar measurements used by other companies and
therefore comparability may be limited. EBITDA and Adjusted EBITDA are computed
as follows (in thousands):
23
For the For the For the For the
Quarter Quarter Six Month Six Month
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2001 2000 2001 2000
--------------- ------------- --------------- ---------------
(restated - see (restated - see
note 9 to the note 9 to the
Authority's Authority's
financial financial
statements) statements)
EBITDA
Net income $ 43,361 $ 44,543 $ 73,573 $ 59,703
Add back:
Interest expense, net of capitalized interest 4,249 9,131 10,304 23,159
Interest income (576) (4,299) (1,740) (7,544)
Income taxes - - - -
Depreciation and amortization 5,893 7,760 11,534 15,286
-------------- -------------- --------------- ---------------
EBITDA $ 52,927 57,135 93,671 90,604
-------------- -------------- --------------- ---------------
EBITDA Margin 28.2% 31.4% 25.3% 25.5%
Adjustments to EBITDA to reconcile to
Adjusted EBITDA
Pre-opening costs and expenses $ 1,927 $ 1,110 $ 3,316 $ 2,017
Accretion of relinquishment liability discount 8,958 5,764 17,916 11,527
Other income, net (2) (1) (2) (1)
Management fees - - - 13,634
Discontinued operations 335 40 527 306
-------------- -------------- --------------- ---------------
Adjusted EBITDA $ 64,145 $ 64,048 $ 115,428 $ 118,087
============== ============== =============== ===============
Adjusted EBITDA Margin 34.2% 35.2% 31.1% 33.2%
Accretion of relinquishment liability discount and reassessment of
relinquishment liability. The Authority stopped paying management fees to TCA
due to the termination of the Management Agreement and began recognizing amounts
due under the Relinquishment Agreement beginning January 1, 2000. Under the
Management Agreement, TCA was responsible for the day-to-day management,
operation and maintenance of Mohegan Sun. The Management Agreement authorized
TCA to pay itself a management fee in monthly installments based on 30% to 40%
of net income, before management fees, as defined in the Management Agreement,
depending on profitability levels. Under the Relinquishment Agreement, the
Authority and TCA agreed to terminate the Management Agreement with TCA on
January 1, 2000. To compensate TCA for terminating its management rights, the
Authority agreed to pay to TCA five percent of the revenues, as defined in the
Relinquishment Agreement, generated by Mohegan Sun (including Project Sunburst)
during the 15-year period commencing on January 1, 2000 and ending on December
31, 2014.
The Authority has recorded a relinquishment liability of the estimated
present value of its obligations under the Relinquishment Agreement. The
relinquishment liability is reassessed when necessary to account for material
increases or decreases in projected revenues and quarterly to reflect the impact
on the time value of money due to the passage of time. In addition, the
Authority has capitalized $130.0 million of this relinquishment liability in
connection with the trademark value of the Mohegan Sun brand name. The Authority
has recognized amortization associated with the $130.0 million trademark of
$859,000 for each of the quarters ended March 31, 2001 and 2000. The Authority
has recognized amortization associated with the $130.0 million trademark of $1.7
million and $2.6 million for the six months ended March 31, 2001 and 2000,
respectively. See Note 8 to the Authority's financial statements beginning on
page 3 for a further discussion of how the relinquishment liability and related
reassessments are calculated.
Results of Operations
Comparison of Operating Results for the Quarters Ended March 31, 2001 and
2000:
24
Net revenues for the quarter ended March 31, 2001 increased by $5.6
million, or 3.1%, to $187.8 million from $182.2 million reported for the same
period of the prior year. This increase primarily is attributable to an increase
in gaming revenues.
Adjusted EBITDA for the quarter ended March 31, 2001 increased by $97,000,
or 0.2%, to $64.1 million from $64.0 million for the quarter ended March 31,
2000. Mohegan Sun achieved a 34.2% Adjusted EBITDA margin for the quarter ended
March 31, 2001 compared to a 35.2% Adjusted EBITDA margin for the quarter ended
March 31, 2000. The decline in margin is the result of marketing, general and
administrative and gaming expenses increasing at a greater rate than revenues.
The Connecticut slot market grew at a rate of 0.2% for the quarter ended
March 31, 2001 as compared to the quarter ended March 31, 2000. The State of
Connecticut reported a gross slot win of $317.2 million and $316.4 million for
the quarters ended March 31, 2001 and 2000, respectively. Mohegan Sun exceeded
the market's growth in slot win as it experienced an increase in gross slot
revenues of 3.4% in the quarter ended March 31, 2001 over the quarter ended
March 31, 2000. Gross slot revenues were $135.2 million and $130.7 million for
the quarters ended March 31, 2001 and 2000, respectively. Gross slot win per
unit per day was $496 and $475 for the respective periods.
Gaming revenues for the quarter ended March 31, 2001 increased by $5.0
million, or 2.9%, to $180.6 million from $175.6 million for the quarter ended
March 31, 2000. This increase in gaming revenues is due to a 2.1% growth in net
slot machine revenues and a 5.8% increase in table game revenues.
Food and beverage revenues for the quarter ended March 31, 2001 decreased
by $643,000, or 5.5% to $11.0 million from $11.7 million for the quarter ended
March 31, 2000. The decrease is attributable principally to an 11.8% decrease in
meals served for the quarter ended March 31, 2001 as compared to the same period
in the prior year.
Retail, entertainment and other revenues for the quarter ended March 31,
2001 increased by $1.4 million, or 13.0%, to $12.0 million from $10.6 million
for the same period in the prior year. Of the $1.4 million increase in retail,
entertainment and other revenues, $313,000 is attributable to increased retail
revenues, $586,000 is attributable to the increased sales at the Mohegan Sun
gasoline and convenience center and $389,000 is attributable to increased
entertainment revenue.
Promotional allowances for the quarter ended March 31, 2001 increased by
$197,000, or 1.3%, to $15.8 million from $15.6 million for the quarter ended
March 31, 2000. This growth is attributable to increased redemption of Mohegan
Sun Player's Club points by patrons. Promotional allowances as a percentage of
gaming revenues were 8.8% and 8.9% for the quarters ended March 31, 2001 and
2000, respectively.
Total operating costs and expenses for the quarter ended March 31, 2001
increased by $4.4 million, or 3.5%, to $131.5 million from $127.0 million for
the quarter ended March 31, 2000. The increase is primarily the result of
increases in gaming, retail, entertainment and other, marketing, general and
administrative costs including higher utility costs.
Gaming costs and expenses for the quarter ended March 31, 2001 increased by
$3.6 million, or 4.8%, to $77.8 million from $74.2 million for the quarter ended
March 31, 2000. The Slot Win Contribution totaled $33.8 million and $32.7
million for the quarters ended March 31, 2001 and 2000, respectively. The Slot
Win Contribution increase of $1.1 million, or 3.4%, over the same period in the
prior year is attributable to the $2.7 million, or 2.1%, increase in net slot
revenues. Gaming costs and expenses as a percentage of gaming revenues were
43.1% in the quarter ended March 31, 2001 compared to 42.3% in the quarter ended
March 31, 2000. The increase is due to a greater increase in costs compared to
revenues.
Food and beverage costs and expenses for the quarter ended March 31, 2001
increased by $86,000, or 1.5%, over the quarter ended March 31, 2000. Food and
beverage costs were $5.9 million for each of the quarters ended March 31, 2001
and 2000. The increase is primarily attributable to higher labor and benefit
costs.
25
Retail, entertainment and other costs and expenses for the quarter ended
March 31, 2001 increased by $1.1 million, or 16.7%, to $7.6 million from $6.5
million for the quarter ended March 31, 2000. The increase is attributable
directly to the 13.0% growth in retail, entertainment and other revenues which
is attributable to the shift of complimentary point redemption from food and
beverage to retail outlets and the Mohegan Sun gasoline and convenience center.
Marketing, general and administrative costs for the quarter ended March 31,
2001 increased by $743,000, or 2.4%, to $32.4 million from $31.6 million for the
quarter ended March 31, 2000. This increase is attributable to advertising
campaigns and higher utility costs. Management believes advertising programs
have driven incremental patronage, expanding Mohegan Sun's brand awareness and
market share.
Pre-opening costs and expenses for the quarter ended March 31, 2001
increased by $817,000, or 73.6%, to $1.9 million from $1.1 million for the
quarter ended March 31, 2000. Pre-opening costs and expenses are comprised
primarily of pre-opening labor and marketing costs associated with the Project
Sunburst expansion.
Depreciation and amortization for the quarter ended March 31, 2001
decreased by $1.9 million, or 24.1%, to $5.9 million from $7.8 million for the
quarter ended March 31, 2000. This decrease is attributable to decreased
depreciation on furniture and equipment, versus the same period in the prior
year.
Income from operations for the quarter ended March 31, 2001 increased by
$1.1 million, or 2.1%, to $56.3 million from $55.2 million for the quarter ended
March 31, 2000. This increase is attributable to the increase in gross revenues,
partially offset by an increase in gaming, retail, entertainment and other and
marketing, general and administrative expenses.
Accretion of relinquishment liability discount for the quarter ended March
31, 2001 increased by $3.2 million, or 55.4%, to $9.0 million from $5.8 million
for the quarter ended March 31, 2000. This increase is due to the Authority's
quarterly accretion of the liability to reflect the impact of the time value of
money due to the passage of time.
Interest income for the quarter ended March 31, 2001 decreased by $3.7
million, or 86.6%, to $576,000 from $4.3 million for the quarter ended March 31,
2000. This decrease in interest income resulted from the liquidation of
investments to fund Project Sunburst. The weighted average invested cash was
$20.6 million and $193.7 million for the quarter ended March 31, 2001 and 2000,
respectively. The Authority invests its excess cash in investment-grade
commercial paper having maturities of not more than six months from the date of
acquisition.
Interest expense for the quarter ended March 31, 2001 decreased by $4.9
million, or 53.8%, to $4.2 million from $9.1 million for the quarter ended March
31, 2000. Included in interest expense for the quarter ended March 31, 2001 is a
net loss of $904,000 due to the change in the fair value of the Authority's
derivative instruments. This decrease in interest expense mainly was
attributable to a lower average interest rate and increased capitalization of
interest related to Project Sunburst, partially offset by an increase in average
debt outstanding. Capitalized interest was $9.6 million for the quarter ended
March 31, 2001 compared to $1.8 million for the quarter ended March 31, 2000.
The weighted average interest rate for the quarter ended March 31, 2001 was
8.2%, compared to 8.4% for the quarter ended March 31, 2000. The weighted
average outstanding debt was $595.9 million for the quarter ended March 31,
2001, compared to $514.3 million for the quarter ended March 31, 2000.
Loss from discontinued operations associated with the conversion of the
bingo hall into the Hall of the Lost Tribes smoke-free slot machine venue for
the quarter ended March 31, 2001 increased by $295,000, or 737.5%, to $335,000
from $40,000 for the quarter ended March 31, 2000.
Net income for the quarter ended March 31, 2001 decreased by $1.2 million,
or 2.7%, to $43.4 million from $44.5 million for the quarter ended March 31,
2000. The decrease in net income is due primarily to an increase in the
accretion of the relinquishment liability discount mentioned above, partially
offset by an increase in income from operations discussed above.
26
Comparison of Operating Results for the Six Months Ended March 31, 2001 and
2000:
Net revenues for the six months ended March 31, 2001 increased by $15.3
million, or 4.3%, to $370.9 million from $355.5 million reported for the six
months ended March 31, 2000. This increase primarily is attributable to growth
in gaming revenues.
Adjusted EBITDA for the six months ended March 31, 2001 decreased by $2.7
million, or 2.3%, to $115.4 million from $118.1 million for the six months ended
March 31, 2000. Mohegan Sun achieved a 31.1% Adjusted EBITDA margin for the six
months ended March 31, 2001 compared to a 33.2% Adjusted EBITDA margin for the
six months ended March 31, 2000. The decline in margin is the result of
marketing, general and administrative and gaming expenses increasing at a
greater rate than revenues.
The Connecticut slot market grew at a rate of 1.5% for the six months ended
March 31, 2001 as compared to the six months ended March 31, 2000. The State of
Connecticut reported a gross slot win of $626.8 million and $617.5 million for
the six months ended March 31, 2001 and 2000, respectively. Mohegan Sun exceeded
the market's growth in slot win as it experienced an increase in gross slot
revenues of 5.1% in the six months ended March 31, 2001 over the six months
ended March 31, 2000. Gross slot revenues were $267.2 million and $254.2 million
for the six months ended March 31, 2001 and 2000, respectively. Gross slot win
per unit per day was $484 and $459 for the respective periods.
Gaming revenues for the six months ended March 31, 2001 increased by $15.0
million, or 4.4%, to $355.6 million from $340.5 million for the six months ended
March 31, 2000. This increase in gaming revenues is due to a 3.9% growth in slot
machine revenues and a 6.6% increase in table game revenues.
Food and beverage revenues for the six months ended March 31, 2001
decreased by $1.2 million, or 5.4%, to $21.8 million from $23.0 million for the
six months ended March 31, 2000. The decrease in food and beverage revenues is
attributable principally to an 8.0% decrease in meals served for the six months
ended March 31, 2001 as compared to the same period in the prior year.
Retail, entertainment and other revenues for the six months ended March 31,
2001 increased by $2.5 million, or 9.8%, to $28.6 million from $26.0 million for
the six months ended March 31, 2000. Of the $2.5 million increase in retail,
entertainment and other revenues, $1.6 million is attributable to increased
retail revenues and $1.5 million is attributable to the increased sales at the
Mohegan Sun gasoline and convenience center. The increase is offset by a
decrease in entertainment and other revenue of $550,000.
Promotional allowances for the six months ended March 31, 2001 increased by
$1.0 million, or 2.9%, to $35.0 million from $34.0 million for the six months
ended March 31, 2000. This growth is attributable primarily to increased
redemption of Mohegan Sun Player's Club points by patrons. Promotional
allowances as a percentage of gaming revenues were 9.9% and 10.0% for the six
months ended March 31, 2001 and 2000, respectively.
Total operating costs and expenses for the six months ended March 31, 2001
increased by $1.9 million, or 0.7%, to $270.3 million from $268.4 million for
the six months ended March 31, 2000. The increase is a result of increases in
gaming, retail, entertainment and other, marketing, general and administrative
costs and higher utility costs, partially offset by a reduction in management
fees due to the termination of the Management Agreement.
Gaming costs and expenses for the six months ended March 31, 2001 increased
by $8.7 million, or 5.9%, to $156.2 million from $147.4 million for the six
months ended March 31, 2000. The Slot Win Contribution totaled $66.8 million and
$63.6 million for the six months ended March 31, 2001 and 2000, respectively.
The Slot Win Contribution increase of $3.2 million, or 5.1%, over the same
period in the prior year is attributable to the $9.8 million, or 3.9%, increase
in net slot revenues. Gaming costs and expenses as a percentage of gaming
revenues were 43.9% in the six months ended March 31, 2001 compared to 43.3% in
the six months ended March 31, 2000.
27
Food and beverage costs for the six months ended March 31, 2001 increased
by $156,000, or 1.3%, to $12.0 million from $11.9 million for the six months
ended March 31, 2000. The increase is attributable primarily to higher labor and
benefit costs.
Retail, entertainment and other costs for the six months ended March 31,
2001 increased by $3.3 million, or 27.6%, to $15.5 million from $12.1 million
for the six months ended March 31, 2000. The increase is attributable directly
to the 9.8% growth in retail, entertainment and other revenues which is
attributable to the shift of complimentary point redemption from food and
beverage to retail outlets and the Mohegan Sun gasoline and convenience center.
Marketing, general and administrative costs for the six months ended March
31, 2001 increased by $5.8 million, or 8.7%, to $71.8 million from $66.0 million
for the six months ended March 31, 2000. The increase is attributable to
advertising campaigns, combined with higher utility costs. Management
believes advertising programs have driven incremental patronage, expanding
Mohegan Sun's brand awareness and market share.
Pre-opening costs and expenses for the six months ended March 31, 2001
increased by $1.3 million, or 64.4%, to $3.3 million from $2.0 million for the
six months ended March 31, 2000. Pre-opening costs and expenses are comprised
primarily of pre-opening labor and marketing costs associated with the Project
Sunburst expansion.
TCA did not receive management fees for the six months ended March 31,
2001, as a result of the termination of the Management Agreement on January 1,
2000. Management fees earned by TCA totaled $13.6 million for the six months
ended March 31, 2000.
Depreciation and amortization for the six months ended March 31, 2001
decreased by $3.8 million, or 24.5%, to $11.5 million from $15.3 million for the
six months ended March 31, 2000. The decrease is attributable to decreased
depreciation on furniture and equipment versus the same period in the prior
year.
Income from operations for the six months ended March 31, 2001 increased by
$13.4 million, or 15.4%, to $100.6 million from $87.2 million for the six months
ended March 31, 2000. The increase is attributable to the increase in net
revenues and the decrease in management fees, partially offset by increases in
gaming, retail, entertainment and other, and marketing, general and
administrative costs.
Accretion of relinquishment liability discount for the six months ended
March 31, 2001 increased by $6.4 million, or 55.4%, to $17.9 million from $11.5
million for the six months ended March 31, 2000. This increase is due to the
Authority's quarterly accretion of the liability to reflect the impact of the
time value of money due to the passage of time.
Interest income for the six months ended March 31, 2001 decreased by $5.8
million, or 76.9%, to $1.7 million from $7.5 million for the six months ended
March 31, 2000. This decrease in interest income resulted from the liquidation
of investments to fund Project Sunburst. The weighted average invested cash was
$21.3 million and $110.0 million for the six months ended March 31, 2001 and
2000, respectively. The Authority invests in investment-grade commercial paper
having maturities of not more than six months from the date of acquisition.
Interest expense for the six months ended March 31, 2001 decreased by $12.9
million, or 55.5%, to $10.3 million from $23.2 million for the six months ended
March 31, 2000. Included in interest expense for the six months ended March 31,
2001 is a net loss of $2.4 million due to the change in the fair value of its
derivative instruments. This decrease in interest expense mainly was
attributable to a lower average interest rate and increased capitalization of
interest related to Project Sunburst, partially offset by an increase in average
debt outstanding. Capitalized interest was $16.7 million for the six months
ended March 31, 2001 compared to $2.9 million for the six months ended March 31,
2000. The weighted average interest rate for the six months ended March 31, 2001
was 8.3%, compared to 8.4% for the six months ended March 31, 2000. The weighted
average outstanding debt was $550.1 million for the six months ended March 31,
2001, compared to $515.8 million for the six months ended March 31, 2000.
28
Loss from discontinued operations associated with the conversion of the
bingo hall into the Hall of the Lost Tribes smoke-free slot machine venue for
the six months ended March 31, 2001 increased by $221,000, or 72.2%, to $527,000
from $306,000 for the six months ended March 31, 2000.
Net income for the six months ended March 31, 2001 increased by $13.9
million, or 23.2%, to $73.6 million from $59.7 million for the six months ended
March 31, 2000. This increase is due primarily to the increase in income from
operations mentioned above, and a decrease in interest expense of $12.9 million,
partially offset by an increase in the accretion of relinquishment liability
discount of $6.4 million.
Liquidity, Capital Resources and Capital Spending
As of March 31, 2001, the Authority held cash and cash equivalents of $62.5
million, a decrease of $53.2 million from $115.7 million as of September 30,
2000. The decrease is attributable mainly to the decrease in investments held at
March 31, 2001 due to the liquidation of the investments for construction
payments. Cash provided by operating activities for the six months ended March
31, 2001 decreased by $2.6 million, or 3.1%, to $82.8 million from $85.4 million
for the same period in the prior year. The decrease in cash provided from
operating activities is attributable to an increase in the cash paid for the
accretion of relinquishment liability discount and higher working capital needs
offset by higher net income. During fiscal year 2001, the Authority has drawn
$128.0 million from the Bank Credit Facility. During fiscal year 2000, the
Authority tendered $90.0 million of Subordinated Notes using the defeasance
trust asset established in fiscal year 1999, for the sum of $140.3 million,
including all accrued and deferred interest on December 30, 1999.
Operating activities are the principal source of the Authority's cash
flows. The principal application of these funds was capital expenditures
incurred in connection with the construction and development of Project Sunburst
and other real property improvements. While the Authority does not believe that
there is any trend or a likelihood of an event that would adversely impact the
level of cash generated by its activities, there are numerous potential factors
which may cause a substantial reduction in the amount of cash flow, including,
but not limited to the following:
. downturn in the economy and lack of consumer confidence, which would
result in reduced spending on discretionary items such as gaming
activities;
. substantial cost overruns in connection with completion of Project
Sunburst;
. operating expenses increasing at a greater rate than revenue; and
. increased competition in the gaming industry, or the legalization of
gaming activities in the State of Connecticut, which may result in a
substantial decrease in revenue.
In addition to cash generated by operating activities, the Authority has
relied on external sources of liquidity to meet its operating and investing
requirements.
External Sources of Liquidity
Bank Credit Facility. As of March 31, 2001, the Authority had $128.0
million outstanding under a $500.0 million reducing, revolving, collateralized
credit facility (the "Bank Credit Facility"), with a syndicate of lenders led by
Bank of America N.A. (formerly known as Bank of America National Trust and
Savings Association), which will mature in March 2004. The Authority draws on
the Bank Credit Facility primarily in connection with the major expansion of
Mohegan Sun, known as Project Sunburst, and other capital expenditure projects.
The Bank Credit Facility is collateralized by a lien on substantially all of the
Authority's assets, by a leasehold mortgage on the land and improvements which
comprise Mohegan Sun, and by each of the Authority's cash operating accounts.
At the Authority's option, each advance of loan proceeds accrues on the
basis of base rate or on the basis of a one-month, two-month, three-month or
six-month London Inter-Bank Offered Rate ("LIBOR") plus, in either case, the
applicable spread (based on the Authority's Total Leverage Ratio, as defined in
the Bank Credit Facility). At March 31, 2001, one-month LIBOR was 5.08% and the
applicable spread on a LIBOR loan was 1.375%. Interest on each LIBOR loan that
is for a term of three months or less shall be due and payable on the last day
of the related
29
interest period. Interest on each LIBOR loan that is for a term of more than
three months is due and payable on the date which is three months after the date
such LIBOR loan was made and every three months thereafter and on the last day
of the interest period. Interest on each base rate loan shall be due and payable
quarterly in arrears. The Authority had no base rate loans at March 31, 2001.
Accured interest on the Bank Credit Facility was $416,000 as of March 31, 2001.
Pursuant to the terms of the Bank Credit Facility, the commitment (or the
maximum amount that may be borrowed under the Bank Credit Facility) will be
reduced automatically as of the earlier of March 31, 2002 or the last full day
of the first full quarter following the completion date of Project Sunburst, and
on the last day of each fiscal quarter thereafter, by 10% of the commitment as
in effect immediately prior to the first such reduction.
The Bank Credit Facility contains various provisions that require the
Authority to maintain specified financial ratios. If the Authority's revenues
decline due to economic or competitive factors, it is possible that these
financial ratios may be violated. If this were to happen, the Authority would
not be able to borrow additional funds under the Bank Credit Facility and it may
even result in an event of default, which could accelerate the payment of any
outstanding balance. In addition, while the Authority has entered into some
hedging transactions to mitigate against its exposure to interest rate
fluctuations on the Bank Credit Facility, the majority of the outstanding
balance is subject to interest rate fluctuations. It is possible that the
interest rate will start to increase, which would mean that the Authority's
interest cost may increase significantly. A substantial increase in interest
expense could have a negative effect on the Authority's liquidity. For a further
discussion on hedging transactions that mitigate against this exposure, see
"Quantitative and Qualitative Disclosure of Market Risk" and Note 4 to the
Authority's financial statements.
In addition to the financing provided by the Senior Notes, Senior
Subordinated Notes and the Bank Credit Facility, the Tribe has set aside, with a
trustee, a $40.0 million, fully-funded construction reserve account that, in
certain circumstances, may be used to pay costs in excess of the Project
Sunburst budget.
Capital Expenditures
Capital Expenditures Incurred to Date. Capital expenditures totaled $279.8
million, including capitalized interest, for the six months ended March 31,
2001, versus $104.9 million for the same period in the prior year. These capital
expenditures were an aggregate of the following:
. Cumulative Project Sunburst construction expenses totaled $533.1
million, including $27.1 million in capitalized interest, through March
31, 2001. During the six months ended March 31, 2001, expenditures
totaled $257.9 million, including $16.7 million in capitalized
interest, versus $73.4 million, including $2.9 million in capitalized
interest, for the six months ended March 31, 2000.
. Property maintenance capital expenditures for furniture, fixtures and
equipment totaled $12.1 million and $7.7 million for the six months
ended March 31, 2001 and 2000, respectively.
. Employee parking center capital expenditures totaled $1.2 million and
$14.0 million for the six months ended March 31, 2001 and 2000,
respectively. Cumulative expenditures on the employee parking center
have totaled $24.9 million through March 31, 2001.
. Utility enhancement capital expenditures totaled $3.9 million and $9.8
million for the six months ended March 31, 2001 and 2000, respectively.
Cumulative expenditures on utility enhancements have totaled $20.9
million through March 31, 2001.
. Capital expenditures for the construction of the new 637-unit Hall of
the Lost Tribes smoke free slot machine venue were $4.7 million for the
six months ended March 31, 2001. The Authority did not incur any
expenses in conjunction with the Hall of the Lost Tribes for the six
months ended March 31, 2000. Cumulative expenditures on the Hall of the
Lost Tribes have totaled $4.7 million through March 31, 2001.
30
. Capital expenditures for the construction of the employee day care
facility were $10,000 during the six months ended March 31, 2001. The
Authority did not incur any construction expenses in conjunction with
the employee day care facility during the six months ended March 31,
2000. Cumulative expenditures on the employee day care facility have
totaled $10,000 through March 31, 2001.
In keeping with standard practice in the construction industry, the
Authority retains a portion of the construction expenditures until satisfactory
completion of individual contracts. As of March 31, 2001, construction retainage
totaled $23.4 million, which has been included in construction payables in the
Authority's financial statements.
Expected future capital expenditures. During the remainder of fiscal year
2001, the Authority expects to incur capital expenditures to total approximately
$437.0 million and to be allocated as follows:
. $12.9 million on maintenance capital expenditures.
. $382.9 million, excluding capitalized interest, on Project Sunburst
construction.
. $0.1 million on employee parking center expenditures.
. $18.0 million on conversion of the bingo hall into the Hall of the Lost
Tribes smoke-free slot machine venue.
. $14.1 million on utility enhancements.
. $1.0 million on an employee day care center.
. $8.0 million on an additional patron parking garage.
Project Sunburst
On October 13, 2000, the Tribal Council approved a formal resolution
increasing the expansion budget from $800.0 million to $960.0 million (excluding
capitalized interest, which will be paid from internally generated funds). The
Authority, in conjunction with the Tribe, increased the Project Sunburst budget
to $960.0 million for three reasons: (1) expected increases in Project Sunburst
labor costs because of the extremely competitive nature of the Northeast
construction labor market; (2) enhancements to project scope such as an increase
in the number of slot machines scheduled to be placed on the gaming floor; and
(3) quality improvements to the hotel and public areas. As a result of the
increase to the Project Sunburst budget, the Authority anticipates seeking to
issue an additional $150.0 million of subordinated notes or a term loan. The
remainder of the increase will be funded through internally generated funds.
As of March 31, 2001, cumulative capitalized interest for Project Sunburst
construction expenses totaled $27.1 million. Capitalized interest for the
quarters ended March 31, 2001 and 2000 totaled $9.6 million and $1.8 million,
respectively. For the six months ended March 31, 2001 and 2000, capitalized
interest totaled $16.7 million and $2.9 million, respectively.
During fiscal year 1998, the Authority finalized contract negotiations with
TCA for Project Sunburst ("Development Agreement"). Under the Development
Agreement, TCA will oversee the planning, design and
construction of the expansion at Mohegan Sun and will receive a development
fee of $14.0 million for such services. As of March 31, 2001, TCA has earned
$7.1 million of the development fee of which $5.5 million has been paid. The
Authority has incurred $1.6 million and $896,000, respectively, for the quarters
ended March 31, 2001 and 2000 related to the development fee. Development fees
incurred for the six months ended March 31, 2001 and 2000 totaled $2.2 million
and $2.3 million, respectively.
Sources of funding for capital expenditures. The Authority will rely
primarily on cash generated from its operations and amounts available to be
drawn under the Bank Credit Facility to finance these capital expenditures.
31
However, the Authority's ability to finance sufficiently the anticipated capital
expenditures from these sources depends on its ability to maintain a stable
level of cash generation from its operations and it ability to draw down on the
Bank Credit Facility.
Other Property Enhancements
The Authority commenced construction of an electrical and water system
infrastructure ("Infrastructure Improvements"), estimated to cost $35.0 million,
that will service Mohegan Sun and other facilities. The Infrastructure
Improvements provide the most efficient manner of handling the increased utility
demands of the expanded facility that are attributable to the Project Sunburst
expansion. The construction was funded by the Authority, and is expected to be
complete concurrent with the opening of Project Sunburst. As of June 30, 2001,
approximately $23.7 million has been incurred in connection with construction of
the Infrastructure Improvements and $10.2 million of these assets were placed in
service. Infrastructure Improvement spending for the final quarter of fiscal
year 2001 is anticipated to be $11.3 million.
The Authority, in conjunction with the Project Sunburst expansion,
commenced construction on the Employee Parking Center in March 1999. The
Employee Parking Center includes 2,700 parking spaces and amenities such as a
dry cleaning service, on-site banking, an employee computer/training center
and a 15,000 square foot exercise facility. The Employee Parking Center opened
in June 2000. The total cost of the Employee Parking Center was $24.9 million.
The Employee Parking Center was completed in January 2001.
The Tribe commenced construction of a Public Safety Facility in December
1999, within the Eagleview complex, that will service the Mohegan Reservation.
Construction was funded initially by the Authority and subsequently reimbursed
by the Tribe. The total cost of the Public Safety Facility is $6.8 million. The
Authority also has funded initially other Tribal projects, including the
construction of a temporary Tribal office, construction of roads and
improvements made to the Town of Montville's wastewater collection and treatment
facilities. The total amount incurred by the Authority for these projects,
including the Public Safety Facility, is $32.1 million. To date, $16.3 million
has been reimbursed by the Tribe, and $15.8 million is reflected in amounts due
from Tribe in the Authority's balance sheet as of March 31, 2001.
Relinquishment Agreement
Under the terms of the Relinquishment Agreement, TCA continued to manage
Mohegan Sun under the Management Agreement until January 1, 2000, when the
Management Agreement terminated, and the Authority assumed day-to-day management
of Mohegan Sun. As a result of the termination of the Management Agreement, the
Authority has agreed to pay to TCA five percent of gross revenues (as defined in
the Relinquishment Agreement) generated from Mohegan Sun, including Project
Sunburst, beginning January 1, 2000 and ending December 31, 2014. The Authority
refers to these payments as the relinquishment payments. The Authority initially
recorded a relinquishment liability of $549.1 million in September 1998. The
present value of this liability is estimated at $669.8 million as of March 31,
2001. The Authority reassesses the relinquishment liability when necessary to
account for material increases or decreases in projected revenues and quarterly
to reflect the impact on the time value of money due to the passage of time. See
Note 8 to the Authority's financial statements. The Authority has capitalized
$130.0 million of the relinquishment liability associated with the trademark
value of the Mohegan Sun brand name. For the six months ended March 31, 2001,
the Authority paid $21.0 million in relinquishment payments, of which $6.3
million represents principal amounts and the remaining $14.7 million is payment
for the accretion of interest. As of March 31, 2001, relinquishment payments
earned but unpaid were $10.2 million. There were no relinquishment payments
during the six months ended March 31, 2000.
Distributions to the Tribe
During each of the quarters ended March 31, 2001 and 2000, the Authority
distributed $10.0 million to the Tribe. During the six months ended March 31,
2001 and 2000, the Authority distributed $20.0 million and $22.2 million,
respectively, to the Tribe.
Debt Service Costs
For the quarters and six months ended March 31, 2001 and 2000, the
Authority incurred the following debt service costs (in thousands):
32
For the For the
For the For the Six Months Six Months
Quarter Ended Quarter Ended Ended Ended
March 31, March 31, March 31, March 31,
2001 2000 2001 2000
----------------- ------------- ----------------- ------------
(restated - see (restated - see
note 9 to the note 9 to the
Authority's Authority's
financial financial
statements) statements)
Bank Credit Facilty $ 1,087 $ - $ 1,087 $ -
$200M 8.125% Senior Notes 4,063 4,062 8,125 8,125
$300M 8.75% Senior Subordinated Notes 6,560 6,563 13,124 13,125
Financing fees 1,114 - 2,094 -
Capital lease obligations 77 290 189 658
$50M Subordinated Notes - - - 2,648
$40M Subordinated Notes - - - 1,473
Change in fair market value of derivative instruments 906 - 2,403 -
Capitalized interest (9,558) (1,784) (16,718) (2,870)
----------- --------- ------------- ---------
Total Interest Expense $ 4,249 $ 9,131 $ 10,304 $ 23,159
=========== ========= ============= =========
Sufficiency of Resources
The Authority believes that existing cash balances, financing arrangements
and operating cash flow will provide the Authority with sufficient resources to
meet its existing debt obligations, relinquishment payments, distributions to
the Tribe, and foreseeable capital expenditure requirements with respect to
current operations and Project Sunburst for at least the next twelve months.
Nonetheless, as discussed above, there are potential events or occurrences that
may affect adversely the Authority's ability to meet its existing debt
obligations, make relinquishment payments and distributions to the Tribe and pay
for capital expenditures.
Contractual Obligations and Commitments
The Authority's future payment obligations related to its material debt
and certain other contractual obligations and the timing of those payments are
set forth below. Since many of these payment amounts are not fixed, the amounts
in the table below are solely estimates as more fully described in the footnotes
and the actual amounts may be different.
Contractual Obligations Fiscal Year
(in thousands) 2001 (1) 2-3 years 4-5 years After 5 years
---------------------------------------------------------------------------------------------------
Long-term debt (2) $ - $ - $ 128,000 $ 500,000
Construction obligations (3) 665,820 141,671 - -
Development obligations (4) 9,282 4,718 - -
--------------------------------------------------------
Total $ 675,102 $ 146,389 $ 128,000 $ 500,000
========================================================
(1) Amounts due within one year represent obligations expected to be
incurred from October 1, 2000 to September 30, 2001.
(2) Long-term debt includes scheduled amortization and scheduled
maturities for notes payable and credit facilities, but excludes
interest payments.
(3) Construction obligations represent the remainder of expenditures
the Authority must pay in connection with Project Sunburst and
related construction enhancements. See Note 7 to the Authority's
financial statements. The Authority does not believe that it will
have any construction obligations after September 30, 2002, and
this table has been prepared based on that assumption.
33
(4) Under the Development Agreement, the Authority is required to pay to
TCA a development fee of $14.0 million. Development obligations
represent the remainder of the fee due to TCA. See Note 8 to the
Authority's financial statements. The Authority does not believe that
it will have any development fee obligations after September 30, 2002,
and this table has been prepared based on that assumption.
In addition to the contractual obligations described above, the Authority has
certain other contractual commitments that will require payments throughout the
periods described below. The calculation of the estimated payments in the table
below are based, in large part, on projections of future revenues over an
extended period of time, as well as other factors which are indicated more fully
in the footnotes to the following table. Since there is a high level of
estimates and judgments used with respect to calculating these liabilities,
future events that affect such estimates and judgments may cause the actual
payments to differ significantly from the estimates set forth below. The amounts
included in the table are estimates and, while some agreements are perpetual in
term, for the purposes of calculating these amounts, the Authority has prepared
the information in the table for only ten years.
Fiscal
Contractual Commitments Year
(in thousands) 2001 (1) 2-3 years 4-5 years 5-10 years
----------------------------------------------------------------------------------------------
Slot winning payment commitments (2) 144,589 373,009 408,682 1,150,391
Relinquishment commitments (3) 42,899 119,017 133,810 376,658
------------------------------------------------------
Total $187,488 $492,026 $542,492 $1,527,049
======================================================
(1) Amounts due within one year represent payment commitments from October
1, 2000 to September 30, 2001.
(2) Slot winning payment commitments are a portion of the revenues earned
on slot machines that must be paid by the Authority to the State of
Connecticut pursuant to the Mohegan Compact. The payment commitment is
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) $80.0
million. For the fiscal years ended September 30, 2000 and 1999, the
Slot Win Contribution totaled $135.1 million and $121.1 million,
respectively. The amounts shown in this table are estimates of the
required payments for the next ten years.
(3) Relinquishment commitments represent payment commitments of the
Authority to TCA under the Relinquishment Agreement as described in
Note 8 to the Authority's financial statements. The relinquishment
commitment is calculated as five percent of revenues, as defined in
the Relinquishment Agreement. The amounts shown in this table are
estimates of the required payments for the next ten years and have
been calculated in accordance with the Relinquishment Agreement. (See
Note 8 to the Authority's financial statements.)
Critical Accounting Policies and Estimates
Management has identified the following critical accounting policies
that affect the Authority's more significant judgments and estimates used in the
preparation of the Authority's financial statements. The preparation of the
Authority's financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Authority's
management to make estimates and judgments that affect the reported amounts of
assets and liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, management evaluates
those estimates, including those related to asset impairment, accruals for
Player's Club points, self-insurance, compensation and related benefits, revenue
recognition, allowance for doubtful accounts, contingencies and litigation. The
Authority states these accounting policies in the notes to the financial
statements and in relevant sections in this discussion and analysis. These
estimates are based on the information that is currently available to the
Authority and on various other assumptions that management believes to be
reasonable under the circumstances. Actual results could vary from those
estimates.
The Authority believes that the following critical accounting policies
affect significant judgments and estimates used in the preparation of its
financial statements:
One of the most significant policies used by the Authority relates to its
estimate of its relinquishment liability. The Authority, in accordance with
Statement of Financial Accounting Standards No. 5 "Accounting for
Contingencies", has recorded a relinquishment liability of the estimated present
value of its obligations under the Relinquishment Agreement. The Authority
reassesses relinquishment liability when necessary to account for material
increases or decreases in projected revenues and quarterly to reflect the impact
on the time value of money due to the passage of time. See Note 8 to the
Authority's financial statements. Since there is a high level of estimates and
judgments used with respect to calculating this liability, future events that
affect such estimates and judgments may cause the actual liability to differ
significantly from the estimate.
The Authority recognizes revenue as net wins and losses occur in the casino
and upon delivery of food, beverage and other services.
The Authority maintains an allowance for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments,
which results in bad debt expense. Management determines the adequacy of this
allowance by continually evaluating individual customer receivables, considering
the customer's financial
34
condition, credit history and current economic conditions. If the financial
condition of customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required.
The Authority maintains accruals for workers compensation self-insurance
and Player's Club point redemption, which are classified in other accrued
liabilities in the accompanying balance sheets. Management determines the
adequacy of these accruals by periodically evaluating the historical experience
and projected trends related to these accruals. If such information indicates
that the accruals are overstated or understated, the Authority will adjust the
assumptions utilized in the methodologies and reduce or provide for additional
accruals as appropriate.
The Authority is subject to various claims and legal actions in the
ordinary course of business. Some of these matters relate to personal injuries
to customers and damage to customers' personal assets. Management estimates
guest claims expense and accrues for such liability based upon historical
experience in the accounts payable and accrued expenses category in its
accompanying balance sheets.
Impact of Inflation
Absent changes in competitive and economic conditions or in specific prices
affecting the hotel and casino industry, the Authority does not expect that
inflation will have a significant impact on its operations. Changes in specific
prices, such as fuel and transportation prices, relative to the general rate of
inflation may have a material adverse effect on the hotel and casino industry in
general.
Item 3. Quantitative and Qualitative Disclosure of Market Risk.
Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates and
commodity prices. The Authority's primary exposure to market risk is interest
rate risk associated with its $500.0 million Bank Credit Facility in which
interest will accrue on the basis of a base rate formula or a LIBOR-based
formula, plus applicable spreads. See Note 4 to the Authority's financial
statements for futher details relating to the terms and conditions of the Bank
Credit Facility. As of March 31, 2001, the Authority had drawn $128.0 million on
the Bank Credit Facility. On April 26, 2001, the Authority drew an additional
$52.0 million on the Bank Credit Facility in connection with Project Sunburst.
The Authority uses derivative instruments, including an interest rate cap,
interest rate collar and an interest rate swap as its strategy to manage
interest rate risk associated with the variable interest rates applicable to
advances under the Bank Credit Facility.
The following table provides information about the Authority's derivative
instruments at March 31, 2001.
Estimated Fair
Maturity Date Notional Value Value
--------------- -------------- -------------
Interest Rate Cap
Strike Rate - 8% October 1, 2003 $22,314,600 $ 2,000
Interest Rate Collar
Ceiling Strike Rate - 8%
Floor Strike Rate - 6% March 1, 2004 1,353,800 (1,665,267)
Interest Rate Swap
Pay fixed - 6.35%
Receive Variable March 1, 2004 676,900 (980,111)
----------- -----------
Total $24,345,300 $(2,643,378)
=========== ===========
All derivative instruments are based upon one-month LIBOR, which was 5.08%
on March 31, 2001.
35
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibit Index filed herewith is incorporated herein by reference.
(b) Reports on Form 8-K
None.
36
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: November 12, 2002 By: /s/ Mark F. Brown
----------------- ----------------------------------------------
Mark F. Brown
Chairman, Management Board
Date: November 12, 2002 By: /s/ William J. Velardo
----------------- ---------------------------------------------
William J. Velardo
President and Chief Executive Officer
Date: November 12, 2002 By: /s/ Jeffrey E. Hartmann
----------------- ---------------------------------------------
Jeffrey E. Hartmann, Executive Vice President
Finance/ Chief Financial Officer
(Principal Financial and Accounting Officer)
37
CERTIFICATION
I, William J. Velardo, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of the Mohegan
Tribal Gaming Authority;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
Date: November 12, 2002 /s/ William J. Velardo
---------------------------
William J. Velardo
President and Chief Executive Officer
38
CERTIFICATION
I, Jeffrey E. Hartmann, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of the Mohegan
Tribal Gaming Authority;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
Date: November 12, 2002 /s/ Jeffrey E. Hartmann
---------------------------
Jeffrey E. Hartmann
Executive Vice President, Finance and
Chief Financial Officer
39
Exhibit Index
Exhibit Exhibit Description
No.
3.1 Constitution of the Mohegan Tribe of Indians of Connecticut (filed
as Exhibit 3.1 to the Registration Statement on Form S-1, File No.
33-80655, filed with the SEC on December 21, 1995 (the "1996 Form
S-1"), and incorporated by reference herein).
3.2 Ordinance No. 95-2 of the Tribe for Gaming on Tribal Lands, enacted
on July 15, 1995 (filed as Exhibit 3.2 to the 1996 Form S-1 and
incorporated by reference herein).
4.1 Relinquishment Agreement dated February 7, 1998 by and among the
Mohegan Tribal Gaming Authority, The Mohegan Tribe of Indians of
Connecticut and Trading Cove Associates (filed as Exhibit 10.14 to
Form 10-K for the Authority's fiscal year ended September 30, 1998,
File No. 33-80653, and incorporated by reference herein).
4.2 Indenture dated March 3, 1999 among the Mohegan Tribal Gaming
Authority, the Mohegan Tribe of Indians of Connecticut and First
Union National Bank, as Trustee, relating to the 8 1/8% Senior Notes
Due 2006 of the Mohegan Tribal Gaming Authority (filed as Exhibit
4.3 to Registration Statement on Form S-4, File No. 333-76753, filed
with the SEC on April 21, 1999 (the "1999 Form S-4"), and
incorporated by reference herein).
4.3 Form of Global 8 1/8% Senior Note Due 2006 of the Mohegan Tribal
Gaming Authority (contained in the Indenture filed as Exhibit 4.3 to
the 1999 Form S-4 and incorporated by reference herein).
4.4 Senior Registration Agreement dated March 3, 1999 among the Mohegan
Tribal Gaming Authority, Salomon Smith Barney Inc., NationsBanc
Montgomery Securities, LLC, SG Cowen Securities Corporation, Bear,
Sterns & Co. Inc., BankBoston Robertson Stephens Inc. and Fleet
Securities, Inc. (filed as Exhibit 4.5 to the 1999 Form S-4 and
incorporated by reference herein).
4.5 Indenture dated as of March 3, 1999 among the Mohegan Tribal Gaming
Authority, the Mohegan Tribe of Indians of Connecticut and State
Street Bank and Trust Company, as Trustee, relating to the 8 3/4%
Senior Subordinated Notes Due 2009 of the Mohegan Tribal Gaming
Authority (filed as Exhibit 4.6 to the 1999 Form S-4 and
incorporated by reference herein).
4.6 Form of Global 8 3/4% Senior Subordinated Notes Due 2009 of the
Mohegan Tribal Gaming Authority (contained in the Indenture filed as
Exhibit 4.6 to the 1999 Form S-4 and incorporated by reference
herein).
4.7 Senior Subordinated Registration Agreement dated March 3, 1999 among
the Mohegan Tribal Gaming Authority, Salomon Smith Barney Inc.,
NationsBanc Montgomery Securities LLC, SG Cowen Securities
Corporation, Bear, Stearns & Co. Inc., BankBoston Robertson Stephens
Inc. and Fleet Securities, Inc. (filed as Exhibit 4.8 to the 1999
Form S-4 and incorporated by reference herein).
99.1* Certification of President and Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2* Certification of Executive Vice President, Finance and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Filed herewith.
40