SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended September 30, 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)
(860) 862-8000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange
On Which Registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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 discussed in Note 15, this 10-K/A includes in Items 6 and 8 of
Part II such restated financial statements and related footnotes thereto for
the fiscal year ended September 30, 2001 and other information relating to such
restated financial statements. Item 7 of Part II includes the Authority's
amended and restated discussion and analysis of financial condition and results
of operations. Except for Items 6, 7, 7A, and 8 of Part II, Items 10, 11 and 13
of Part III, Item 15 of Part IV (which was numbered Item 14 of Part IV in the
originally filed Form 10-K) and the addition of 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-K is amended by this
amendment. The information contained herein is as of September 30, 2001 and does
not reflect subsequent events except as disclosed in the originally filed Form
10-K relating to such 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 filed with respect to periods after
September 30, 2001.
MOHEGAN TRIBAL GAMING AUTHORITY
INDEX TO FORM 10-K/A
Number
PART II
Item 6. Selected Financial Data. 1
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 3
Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 19
Item 8. Financial Statements and Supplementary Data. 20
PART III
Item 10. Directors and Executive Officers of the Registrant. 21
Item 11. Executive Compensation. 23
Item 13. Certain Relationships and Related Transactions. 25
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 27
Signatures. Mohegan Tribal Gaming Authority. 30
Certifications. 31
Index to Financial Statements F-1
Schedule II--Valuation and Qualifying Accounts and Reserves S-1
PART II
Item 6. Selected Financial Data
The selected financial data shown below for the fiscal years ended
September 30, 2001, 2000 and 1999, and as of September 30, 2001 and 2000, have
been taken from the Authority's audited financial statements included in this
Form 10-K/A. The selected financial data set forth below for the fiscal years
ended September 30, 1998 and 1997, and as of September 30, 1999, 1998 and 1997,
have been derived from the Authority's audited financial statements for those
years, which are not included in this Form 10-K/A. The selected financial data
shown below should be read in conjunction with the Authority's financial
statements and related notes beginning on page F-1 of this Form 10-K/A, the
section entitled "--Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the other financial and statistical
data included in this Form 10-K/A. Unless otherwise indicated, dollar amounts
shown in the following table are in thousands.
The following discussion should be read in conjunction with the Authority's
financial statements and the related notes beginning on page F-1 of this
Form 10-K/A, which has been updated to reflect the restatements and the
reclassifications as more fully described in Note 15 to the Authority's
financial statements.
As of or for the Fiscal Year Ended September 30,
2001 2000 1999 1998 1997(1)
---- ---- ---- ---- -------
(restated - see
note 15 to the
Authority's
financial
statements)
Operating Results:
Gross revenues $ 857,977 $809,314 $725,510 $ 611,463 $506,911
Promotional
allowances (71,372) (70,044) (56,827) (42,501) (43,276)
Net revenues $ 786,605 $739,270 $668,683 $ 568,962 $463,635
Income from
operations $ 267,935 $195,514 $ 66,675 $ 135,687 $ 82,378
Other income
(expense), net (53,403)(2) (48,906)(2) (66,355)(2) (47,539) (43,342)
Loss from
discontinued
operations (591) (674) (812) (569) (2,349)
Extraordinary
items -- -- (38,428)(3) (419,458)(4) --
Net income (loss) $ 213,941 $145,934 $(38,920) $(331,879) $ 36,687
Other Data:
Adjusted
EBITDA(5) $ 256,164 $253,955 $239,475 $ 200,658 $137,776
Interest
expense, net
of capitalized
interest $ 20,375 $ 37,799 $ 55,595 $ 50,172 $ 45,137
Capital
expenditures $ 728,742 $288,278 $ 62,795 $ 32,731 $ 35,700
Net cash flows
provided by
operating
activities $ 201,338 $194,845 $144,724 $ 135,067 $156,552
1
Balance Sheet Data:
Total assets $1,554,693 $885,379 $914,962 $554,480 $386,974
Long-term debt
and capital
lease
obligations $ 909,514 $506,391 $519,298 $294,567 $298,237
(1) The Authority commenced operations at Mohegan Sun on October 12, 1996.
(2) For the fiscal years ended September 30, 2001, 2000 and 1999, includes
expense of $35.8 million, $23.1 million and $22.0 million, respectively,
for the accretion of relinquishment liability discount under the
Relinquishment Agreement. A discussion of the estimation may be found under
Note 13 to the Authority's financial statements beginning on page F-1 of
this Form 10-K/A.
(3) Includes expense of $33.7 million related to the tender premium of the
$175.0 million senior secured notes, $5.2 million write-off of financing
fees, net of $500,000 forgiveness of debt.
(4) Includes expense of $419.1 million related to the initial assessment of the
Authority's liability under the Relinquishment Agreement.
(5) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. The EBITDA margin is calculated as EBITDA as a percentage of
net revenues. 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,
discontinued operations, management fees pursuant to the Management
Agreement, extraordinary items and non-operating income/expense. The
Adjusted EBITDA margin is calculated as Adjusted EBITDA as a percentage of
net revenues. 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):
For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
09/30/2001 09/30/2000 09/30/1999 09/30/1998 09/30/1997
------------- ------------ ------------ ------------ ------------
(restated -
see note 15
to the
Authority's
financial
statements)
EBITDA
Net Income (loss) $ 213,941 $ 145,934 $ (38,920) $ (331,879) $ 36,687
Add back:
Interest expense, net of capitalized
interest 20,375 37,799 55,595 50,172 45,137
Interest income (2,920) (13,469) (11,254) (2,633) (1,795)
Income taxes -- -- -- -- --
Depreciation and amortization 31,295 30,739 23,397 17,529 32,155
------------ ------------ ------------ ------------ ------------
EBITDA $ 262,691 $ 201,003 $ 28,818 $ (266,811) $ 112,184
------------ ------------ ------------ ------------ ------------
Adjustments to EBITDA to
reconcile to Adjusted EBITDA
Pre-opening costs and expenses $ 31,344 $ 5,278 -- -- --
Accretion of relinquishment liability
discount 35,833 23,053 22,014 -- --
Relinquishment liability reassessment(6) (74,410) 8,790 89,871 -- --
Other non-operating expense 115 1,523 -- -- --
Management fees -- 13,634 59,532 47,442 23,243
Discontinued Operations 591 674 812 569 2,349
Extraordinary items -- -- 38,428 419,458 --
------------ ------------ ------------ ------------ ------------
Adjusted EBITDA $ 256,164 $ 253,955 $ 239,475 $ 200,658 $ 137,776
============ ============ ============ ============ ============
(6) For the fiscal years ended September 30, 2001, 2000, and 1999, includes
relinquishment liability reassessment of $(74.4) million, $8.8 million and
$89.9 million, respectively, for the reassessment of the relinquishment
liability. A discussion of the estimation may be found under Note 13 to the
Authority's financial statements beginning on page F-1 of this Form 10-K/A.
2
Item 7. 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 F-1 of this Form 10-K/A and "--Item 6. Selected Financial Data". Although
the Authority believes the expectations reflected in such forward looking
statements are based on reasonable assumptions, there can be no assurance that
the Authority's expectations will be realized. The actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including, without limitation, development and
construction risks, business conditions, competition, changes in interest rates,
the risks of downturns in economic conditions generally and the availability of
financing for development and operations. The Authority assumes no obligation to
update or supplement forward-looking statements that become untrue because of
subsequent events.
The following discussion should be read in conjunction with the
Authority's financial statements and the related notes beginning on page F-1 of
this Form 10-K/A, which has been updated to reflect the restatements and
reclassifications as more fully described in Note 15 to the Authority's
financial statements.
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. Mohegan Sun is located approximately 125 miles
from New York City and approximately 100 miles from Boston, Massachusetts. The
Authority recently has completed the first phase of a major expansion of Mohegan
Sun known as Project Sunburst. The first phase of Project Sunburst, the Casino
of the Sky, which includes increased gaming, restaurant and retail space and an
entertainment arena, opened on September 25, 2001. The remaining components,
including the majority of a 1,200-room luxury hotel and approximately 100,000
square feet of convention space, are expected to open in April 2002, with
substantial completion of construction occurring in June 2002.
Mohegan Sun operates in an approximately 1.9 million square foot
facility which, at September 30, 2001, includes the following two casinos:
Casino of the Earth. The Casino of the Earth, the original casino at
Mohegan Sun, has approximately 176,500 square feet of gaming space and offers:
. approximately 3,655 slot machines, 158 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-
3
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 for a total of
approximately 1,800 restaurant seats;
. 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;
. three retail shops providing shopping opportunities ranging from
Mohegan Sun logo souvenirs to clothing to cigars; and
Casino of the Sky. The Casino of the Sky has approximately 119,000
square feet of gaming space and offers:
. approximately 2,564 slot machines and 82 table games (including
blackjack, roulette, craps and baccarat);
. food and beverage amenities, including two full-service
restaurants, three quick-service restaurants, a 350-seat buffet
and four lounges operated by Mohegan Sun, as well as four
full-service and three quick-service restaurants operated by
third-parties, for a total of approximately 2,200 restaurant
seats;
. the Mohegan Sun Arena with seating for up to 10,000;
. a 300-seat Cabaret;
. an arcade style recreation area and a child care facility;
. the Shops at Mohegan Sun containing approximately 30 different
retail shops, five of which are owned by the Authority.
Mohegan Sun currently has parking spaces for approximately 8,300 guests
and 3,100 employees. In addition, the Authority operates an approximately 4,000
square foot, 16-pump gasoline service station and convenience store.
Additional Mohegan Sun Enhancements
In addition to Project Sunburst, the Authority has begun construction
on the following capital improvements to the Mohegan Sun facility:
Parking Garages. The Indian Summer Garage will provide approximately
2,700 additional parking spaces and currently is being constructed. The approved
budget for the construction of the Indian Summer Garage is $65.0 million.
Construction began on the Indian Summer Garage in July 2001, and the Authority
anticipates that the project will be completed in June 2002. A second parking
garage, the Thames Garage, which provides approximately 1,700 additional parking
spaces, is anticipated to be completed in April 2002 for approximately $25.0
million.
Project Sunburst Utilities. The Authority is constructing various
utility upgrades and enhancements needed to support Project Sunburst. These
improvements originally were to be financed entirely by the Tribe from the
proceeds of tax-exempt financing. The Tribe, however, subsequently received an
opinion from its outside legal counsel advising it that a portion of the costs
for these improvements would not qualify for tax-exempt financing. Therefore,
the Authority will pay for this portion of the total costs, which the Authority
expects will equal the budget of approximately $35.0 million. These improvements
are anticipated to be completed concurrently with the opening of certain
components of Project Sunburst in April 2002. As of September 30, 2001, the
Authority placed
4
$22.6 million of these assets into service.
Child Development Center. The Authority is constructing a 36,000 square
foot employee day care facility which will enhance the benefits and services
provided to employees of both the Tribe and the Authority. The project is
expected to cost approximately $10.0 million. Construction began in November
2001, and the Authority anticipates that the project will be completed in August
2002.
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;
. Retail, entertainment and other revenues, which include revenues
from the Mohegan Sun managed retail outlets, the Mohegan Sun
gasoline and convenience center and the Mohegan Sun Arena, which
opened in September 2001.
The table below summarizes the Authority's percentage of gross revenues
from each of these sources:
Year ended
September 30,
2001 2000 1999
------ ------ ------
Gaming 88% 88% 88%
Food and beverage 6% 6% 7%
Retail, entertainment and other 6% 6% 5%
------ ------ ------
Total 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.
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 at third party retail tenants at the Shops at Mohegan Sun, and 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 gaming expenses in the following amounts
(in thousands):
5
For the For the For the
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
September 30, September 30, September 30,
2001 2000 1999
-------------------- -------------------- --------------------
Food and beverage $ 26,943 $ 24,987 $ 26,794
Retail, entertainment and other 28,044 25,308 20,928
-------------------- -------------------- --------------------
Total $ 54,987 $ 50,295 $ 47,722
==================== ==================== ====================
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 located within Mohegan Sun, the Mohegan Sun gasoline and convenience
center, as well as to purchase tickets to entertainment events held at the
Mohegan Sun facilities and items from the Sun Select Catalog. 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 and table games, poker and racebook
expenses and promotional expenses for the redemption of the Mohegan Sun Player's
Club points in third party locations, including the Shops at Mohegan Sun 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 revenues. 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 TCA pursuant to the Relinquishment Agreement, management fees
pursuant to the Management Agreement, discontinued operations, extraordinary
items and non-operating income/expense. The Adjusted EBITDA margin is calculated
as Adjusted EBITDA as a percentage of net revenues. 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):
For the Fiscal For the Fiscal For the Fiscal
Year Ended Year Ended Year Ended
September 30, 2001 September 30, 2000 September 30, 1999
-------------------- -------------------- ---------------------
(restated - see note 15
to the Authority's
financial statements)
EBITDA
Net Income $ 213,941 $ 145,934 $ (38,920)
Add back:
Interest expense, net of capitalized interest 20,375 37,799 55,595
Interest income (2,920) (13,469) (11,254)
Income taxes - - -
Depreciation and amortization 31,295 30,739 23,397
-------------------- -------------------- ---------------------
EBITDA $ 262,691 $ 201,003 $ 28,818
-------------------- -------------------- ---------------------
EBITDA Margin 33.4% 27.2% 4.3%
Adjustments to EBITDA to reconcile to Adjusted
EBITDA
Pre-opening costs and expenses $ 31,344 $ 5,278 $ -
Accretion of relinquishment liability discount 35,833 23,053 22,014
Relinquishment liability reassessment (74,410) 8,790 89,871
Other expense, net 115 1,523 -
Management fees - 13,634 59,532
Extraordinary items - - 38,428
Discontinued operations 591 674 812
-------------------- -------------------- ---------------------
Adjusted EBITDA $ 256,164 $ 253,955 $ 239,475
==================== ==================== =====================
Adjusted EBITDA Margin 32.6% 34.4% 35.8%
6
Accretion on 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
adopted Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill
and Other Intangible Assets" ("SFAS 142") on October 1, 2001. Under SFAS 142,
the Mohegan Sun trademark is no longer subject to amortization over its
estimated useful life as it has been deemed to have an indefinite useful life.
However, SFAS 142 requires the trademark to be evaluated at least annually for
impairment by applying a fair-value based test and, if impairment occurs, the
amount of impaired trademark must be written off immediately. With the adoption
of SFAS 142, the Authority no longer records amortization of the trademark. See
Note 13 to the Authority's financial statements beginning on page F-1 of this
Form 10-K/A for a further discussion of how the relinquishment liability and
related reassessments are calculated.
Results of Operations
Comparison of Operating Results for the Fiscal Years Ended
September 30, 2001 and 2000:
Net revenues for the fiscal year ended September 30, 2001 increased by
$47.3 million, or 6.4%, to $786.6 million from $739.3 million for the fiscal
year ended September 30, 2000. This increase is attributable primarily to an
increase in gaming revenues as discussed below.
Adjusted EBITDA for the fiscal year ended September 30, 2001 increased
by $2.2 million, or 0.9%, to $256.2 million from $254.0 million for the fiscal
year ended September 30, 2000. Mohegan Sun achieved a 32.6% Adjusted EBITDA
margin for the fiscal year ended September 30, 2001 compared to a 34.4% Adjusted
EBITDA margin for the fiscal year ended September 30, 2000. The decline in the
margin was the result of labor, marketing and operating expenses increasing at a
greater rate than revenues.
The Connecticut slot market grew at a rate of 4.1% for the fiscal year
ended September 30, 2001 as compared to the fiscal year ended September 30,
2000. The State of Connecticut reported a gross slot win of $1.4 billion and
$1.3 billion for the fiscal years ended September 30, 2001 and 2000,
respectively. Mohegan Sun exceeded the market's growth in slot win as it
experienced an increase in gross slot revenues of 7.0% for the fiscal year ended
September 30, 2001 over the fiscal year ended September 30, 2000. Gross slot
revenues were $578.4 million and $540.3 million for the fiscal years ended
September 30, 2001 and 2000, respectively. Gross slot win per unit per day was
$471 and $488 for the respective periods. The decrease in gross slot win per
unit per day was due to an increase in the weighted average number of slot
machines from 3,028 per day in the fiscal year ended September 30, 2000 to 3,362
in the fiscal year ended September 30, 2001.
Gaming revenues for the fiscal year ended September 30, 2001 increased
by $41.4 million, or 5.8%, to $751.0 million from $709.6 million for the fiscal
year ended September 30, 2000. This increase primarily is due to a 6.3% growth
in net slot machine revenues as a result of the continued growth of the Mohegan
Sun customer base, and the opening of the first phase of Project Sunburst for
six days during fiscal year 2001.
7
Food and beverage revenues for the fiscal year ended September 30,
2001 increased by $2.2 million, or 4.6%, to $49.5 million from $47.3 million for
the fiscal year ended September 30, 2000. This increase in food and beverage
revenues is attributable to a higher average sale per check, partially offset by
a decrease in meals served of 115,000, or 2.8%.
Retail, entertainment and other revenues for the fiscal year ended
September 30, 2001 increased by $5.1 million, or 9.8%, to $57.5 million from
$52.4 million for the fiscal year ended September 30, 2000. This increase is
attributable to increased utilization of the Mohegan Sun gasoline and
convenience center.
Promotional allowances for the fiscal year ended September 30, 2001
increased by $1.4 million, or 1.9%, to $71.4 million from $70.0 million for the
fiscal year ended September 30, 2000. This increase is attributable to the
increase in gross revenues. Promotional allowances as a percentage of gaming
revenue decreased from 9.9% in the fiscal year ended September 30, 2000 to 9.5%
in the fiscal year ended September 30, 2001 due to an increase in the redemption
of Mohegan Sun Player's Club points at retail outlets not managed by the
Authority. See Note 3 to the Authority's financial statements beginning on page
F-1 of this Form 10-K/A.
Total operating costs and expenses for the fiscal year ended
September 30, 2001 decreased by $25.1 million, or 4.6%, to $518.7 million from
$543.8 million for the fiscal year ended September 30, 2000. The decrease
primarily is a result of the $74.4 million reassessment adjustment of the
relinquishment liability for the fiscal year ended September 30, 2001 compared
to the expense of $8.8 million recognized for the fiscal year ended September
30, 2000. The Authority reviewed current revenue forecasts and, as a result,
reduced revenue projections for the period in which the Relinquishment Agreement
applies, due to uncertainties involving current economic market conditions that
have affected Project Sunburst revenues and future competition from potential
Native American casinos.
Gaming costs and expenses for the fiscal year ended September 30, 2001
increased by $27.3 million, or 8.9%, to $334.5 million from $307.2 million for
the fiscal year ended September 30, 2000. This increase primarily is due to
increases in labor and benefit costs and the allocation of complimentaries
associated with gaming. The Slot Win Contribution payments to the State of
Connecticut also have contributed to the increase in gaming costs and expenses.
The Authority reflected expenses associated with the Slot Win Contribution
totaling $144.6 million and $135.1 million for the fiscal years
ended September 30, 2001 and 2000, respectively. The increase in Slot Win
Contribution is related directly to the increase in net slot revenues.
Food and beverage costs and expenses for the fiscal year ended
September 30, 2001 increased by $702,000, or 3.0%, to $24.4 million from $23.7
million in expenses for the fiscal year ended September 30, 2000. This increase
is attributable to increased labor and benefit costs.
Retail, entertainment and other costs and expenses for the fiscal
year ended September 30, 2001 increased by $5.0 million, or 18.3%, to $32.1
million from $27.1 million for the fiscal year ended September 30, 2000. This
increase primarily is attributable to the increased utilization of the Mohegan
Sun gasoline and convenience center, as well as the increase in expenses
associated with the Uncas Pavilion, a temporary event structure. The Uncas
Pavilion closed permanently in September 2001.
Marketing, general and administrative costs and expenses for the
fiscal year ended September 30, 2001 increased by $12.1 million, or 9.5%, to
$139.3 million from $127.2 million for the fiscal year ended September 30, 2000.
This increase is attributable to increases in marketing expenses aimed to
promote Mohegan Sun.
Pre-opening costs and expenses for the fiscal year ended September
30, 2001 increased by $26.1 million, or 493.9%, to $31.3 million from $5.3
million for the fiscal year ended September 30, 2000. This increase primarily is
comprised of personnel costs and marketing costs associated with the September
25, 2001 opening of Project Sunburst.
There were no management fees earned by TCA for the fiscal year ended
September 30, 2001, compared to $13.6 million of management fees for the fiscal
year ended September 30, 2000. The decrease in management fees was a direct
result of the termination of the Management Agreement on December 31, 1999.
8
Depreciation and amortization for the fiscal year ended September 30,
2001 increased by $556,000, or 1.8%, to $31.3 million from $30.7 million for the
fiscal year ended September 30, 2000. This increase is a result of additional
depreciation on capital expenditures made during the year.
The relinquishment liability reassessment for the fiscal year ended
September 30, 2001 decreased by $83.2 million, or 946.5%, to the reassessment
adjustment of $74.4 million from an expense of $8.8 million for the fiscal year
ended September 30, 2000. This decrease is due to the review by the Authority of
current revenue forecasts and the reduction of revenue projections for the
period in which the Relinquishment Agreement applies, due to uncertainties
involving economic market conditions that have affected Project Sunburst
revenues and future competition from potential Native American casinos. For a
further discussion of the relinquishment liability, see Note 13 to the
Authority's financial statements beginning on page F-1 on this Form 10-K/A.
Income from operations for the fiscal year ended September 30, 2001
increased by $72.4 million, or 37.0%, to $267.9 million from $195.5 million for
the fiscal year ended September 30, 2000. This increase primarily is
attributable to the decrease in the relinquishment liability reassessment from
an $8.8 million expense for the fiscal year ended September 30, 2000 to $74.4
million in income for the fiscal year ended September 30, 2001.
Accretion of the discount associated with the relinquishment liability
for the fiscal year ended September 30, 2001 increased by $12.8 million, or
55.4%, to $35.8 million from $23.1 million for the fiscal year ended September
30, 2000. The accretion represents the impact of the time value of money due to
the passage of time.
Interest income for the fiscal year ended September 30, 2001 decreased by
$10.5 million, or 78.3%, to $2.9 million from $13.5 million for the fiscal year
ended September 30, 2000. The decrease in interest income resulted from the
liquidation of investments to fund Project Sunburst plus a decline in return on
the invested assets. The weighted average invested cash was $29.1 million and
$171.5 million for the fiscal years ended September 30, 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 fiscal year ended September 30, 2001 decreased
by $17.4 million, or 46.1%, to $20.4 million from $37.8 million for the fiscal
year ended September 30, 2000. Included in interest expense for the year ended
September 30, 2001 is a net loss of $4.1 million due to the change in the fair
value of its derivative instruments. The overall decrease in interest expense
mainly is attributable to the capitalization of $40.7 million in interest on the
Bank Credit Facility, the $200.0 million Senior Notes, the $300.0 million 1999
Senior Subordinated Notes and the $150.0 million 2001 Senior Subordinated Notes.
During fiscal year 2000, $9.9 million of interest expense was capitalized. The
increase in debt was the result of draws on the Bank Credit Facility and the
issuance of the $150.0 million 2001 Senior Subordinated Notes. The weighted
average interest rate was 8.04% and 8.39% for the fiscal years ended September
30, 2001 and 2000, respectively. The weighted average debt outstanding was
$787.9 million and $512.6 million for the fiscal years ended September 30, 2001
and 2000, respectively.
Other expense for the fiscal year ended September 30, 2001 decreased by
$1.4 million, or 92.4%, to $115,000 from $1.5 million for the fiscal year ended
September 30, 2000. This decrease is attributable to a loss of $1.7 million for
assets disposed of during fiscal year 2000 compared to a loss of $116,000 for
assets disposed of during fiscal year 2001.
Loss from discontinued operations for the fiscal year ended September 30,
2001 decreased by $83,000, or 12.3%, to $591,000 from $674,000 for the fiscal
year ended September 30, 2000. The loss is the result of the decision of the
Authority, in conjunction with the Tribe, to cease bingo operations in order to
convert the floor space into the 637-unit Hall of the Lost Tribes smoke-free
slot machine venue.
Net income for the fiscal year ended September 30, 2001 increased by
$68.0 million, or 46.6%, to $213.9 million from $145.9 million the fiscal year
ended September 30, 2000. This increase primarily is attributable to an increase
in income from operations and a decrease in interest expense more fully
discussed above.
Comparison of Operating Results for the Fiscal Years Ended September 30,
2000 and 1999
Net revenues for the fiscal year ended September 30, 2000 increased by
$70.6 million, or 10.6%, to $739.3 million
9
from $668.7 million for the fiscal year ended September 30, 1999. This increase
primarily is attributable to an increase in gaming revenues as discussed below.
Adjusted EBITDA for the fiscal year ended September 30, 2000 increased by
$14.5 million, or 6.0%, to $254.0 million from $239.5 million for the fiscal
year ended September 30, 1999. Mohegan Sun achieved a 34.4% Adjusted EBITDA
margin for the fiscal year ended September 30, 2000 compared to a 35.8% Adjusted
EBITDA margin for the fiscal year ended September 30, 1999. The decline in the
margin was the result of increased labor, marketing and operating expenses
increasing at a greater rate than revenues.
The Connecticut slot market grew at a rate of 8.5% from the fiscal year
ended September 30, 2000 to the fiscal year ended September 30, 1999. The State
of Connecticut reported a gross slot win of $1.3 billion and $1.2 billion for
the fiscal years ended September 30, 2000 and 1999, respectively. Mohegan Sun
exceeded the market's growth in slot win as it experienced an increase in net
slot revenues of 11.6% in the fiscal year ended September 30, 2000 over the
fiscal year ended September 30, 1999. Gross slot revenues were $540.3 million
and $484.2 million for the fiscal years ended September 30, 2000 and 1999,
respectively. Gross slot win per unit per day was $488 and $439 for the
respective periods.
Gaming revenues for the fiscal year ended September 30, 2000 increased by
$68.5 million, or 10.7%, to $709.6 million from $641.1 million for the fiscal
year ended September 30, 1999. This increase in gaming revenues primarily is due
to an 11.6% growth in Mohegan Sun net slot revenues as a result of the continued
growth of the Mohegan Sun customer base.
Food and beverage revenues for the fiscal year ended September 30, 2000
decreased by $591,000, or 1.2%, to $47.3 million from $47.9 million for the
fiscal year ended September 30, 1999. This decrease in food and beverage
revenues is attributable to reduced food covers and a patron shift in Mohegan
Sun Player's Club point redemption from the food and beverage products toward
retail and gas products.
Retail, entertainment and other revenues for the fiscal year ended
September 30, 2000 increased by $15.9 million, or 43.5%, to $52.4 million from
$36.5 million for the fiscal year ended September 30, 1999. This increase is
attributable to increased utilization of retail complimentaries and the
popularity of the Mohegan Sun gasoline and convenience center.
Promotional allowances for the fiscal year ended September 30, 2000
increased by $13.2 million, or 23.3%, to $70.0 million from $56.8 million for
the fiscal year ended September 30, 1999. This increase is attributable to an
increase in the customer base as well as increased utilization of the Mohegan
Sun Player's Club complimentary program. Additionally, promotional allowances as
a percentage of gaming revenue increased from 8.9% in the fiscal year ended
September 30, 1999 to 9.9% in the fiscal year ended September 30, 2000.
Total operating costs and expenses for the fiscal year ended September
30, 2000 decreased by $58.3 million, or 9.7%, to $543.8 million from $602.0
million for the fiscal year ended September 30, 1999. This decrease primarily is
the result of the significant decrease in expense related to the reassessment of
the relinquishment liability to $8.8 million for the fiscal year ended September
30, 2000 from $89.9 million for the fiscal year ended September 30, 1999.
Gaming costs and expenses for the fiscal year ended September 30, 2000
increased by $33.7 million, or 12.3%, to $307.2 million from $273.5 million for
the fiscal year ended September 30, 1999. This increase primarily is due to
increases in the Slot Win Contribution and the allocation of complimentaries
associated with gaming. The Slot Win Contribution totaled $135.1 million and
$121.1 million for the fiscal years ended September 30, 2000 and 1999,
respectively. The increase in the Slot Win Contribution is directly related to
the increase in slot revenues.
Food and beverage costs and expenses for the fiscal year ended September
30, 2000 increased by $1.5 million, or 6.9%, to $23.7 million from $22.2 million
for the fiscal year ended September 30, 1999. This increase is attributable to
increased labor and benefit costs.
Retail, entertainment and other costs and expenses for the fiscal year
ended September 30, 2000 increased by $4.6 million, or 20.2%, to $27.1 million
from $22.6 million for the fiscal year ended September 30, 1999. This increase
10
primarily is attributable to a full year of operations for the Mohegan Sun
gasoline and convenience center, which opened in December 1998, as well as the
increased utilization of the Mohegan Sun complimentary programs in the retail
outlets.
Marketing, general and administrative costs and expenses for the fiscal
year ended September 30, 2000 increased by $16.3 million, or 14.7%, to $127.2
million from $110.9 million for the fiscal year ended September 30, 1999. This
increase partially is attributable to continued marketing campaigns associated
with efforts to increase the frequency of patron visits.
Pre-opening costs and expenses were $5.3 million for the fiscal year
ended September 30, 2000. Pre-opening costs and expenses were composed of labor
and marketing costs associated with Project Sunburst. Mohegan Sun did not incur
any pre-opening costs and expenses for the fiscal year ended September 30, 1999.
Management fees earned by TCA for the fiscal year ended September 30,
2000 decreased by $45.9 million, or 77.1%, to $13.6 million from $59.5 million
for the fiscal year ended September 30, 1999. This decrease is a direct result
of the termination of the Management Agreement on December 31, 1999.
Depreciation and amortization for the fiscal year ended September 30,
2000 increased by $7.3 million, or 31.4%, to $30.7 million from $23.4 million
for the fiscal year ended September 30, 1999. This increase primarily is
attributable to the $4.3 million amortization of the trademark asset and the
increase in depreciation of newly acquired capital assets including the
Riverview Garage and the Eagleview Center.
The relinquishment liability reassessment expense for the fiscal year
ended September 30, 2000 decreased by $81.1 million, or 90.2%, to $8.8 million
from $89.9 million for the fiscal year ended September 30, 1999. This decrease
is due to the review by the Authority of current revenue forecasts and the
increase in revenue projections for the period in which the Relinquishment
Agreement applies.
Income from operations for the fiscal year ended September 30, 2000
increased by $128.8 million, or 193.2%, to $195.5 million from $66.7 million for
fiscal year ended September 30, 1999. This increase primarily is attributable to
the decrease in the relinquishment liability reassessment from $89.9 million for
the fiscal year ended September 30, 1999 to $8.8 million for the fiscal year
ended September 30, 2000, lower management fees and increased gaming revenues.
Accretion of the discount associated with the relinquishment liability
reassessment for the fiscal year ended September 30, 2000 increased by $1.0
million, or 4.7%, to $23.1 million from $22.0 million for the fiscal year ended
September 30, 1999. The accretion represents the impact of the time value of
money due to the passage of time.
Interest income for the fiscal year ended September 30, 2000 increased by
$2.2 million, or 19.7%, to $13.5 million from $11.3 million for the fiscal year
ended September 30, 1999. This increase was related to the investment of the
remainder of the proceeds from the Authority's Senior Notes and 1999 Senior
Subordinated Notes issued on March 3, 1999. A portion of the financing was used
to pay off existing debt and the remainder was invested to be used later for
construction of Project Sunburst. The weighted average invested cash was $171.3
million and $151.8 million for the fiscal years ended September 30, 2000 and
1999, 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 fiscal year ended September 30, 2000 decreased
by $17.8 million, or 32.0%, to $37.8 million from $55.6 million for the fiscal
year ended September 30, 1999. This decrease mainly is attributable to the
capitalization of $9.9 million in interest on the $200 million Senior Notes and
the $300 million 1999 Senior Subordinated Notes to Project Sunburst. The
increase in debt was the result of the payoff of $175 million of the Authority's
senior secured notes due 2002 (the net "Senior Secured Notes"), the defeasance
of $90 million of the Authority's subordinated financing from Sun International
and Waterford Gaming L.L.C., which was in the form of notes (the "Subordinated
Notes"), and the issuance of the $200 million Senior Notes and $300 million 1999
Senior Subordinated Notes in March 1999. The weighted average interest rate was
8.39% and 10.45% for the fiscal years ended September 30, 2000 and 1999,
respectively. The weighted average debt outstanding was $512.6 million and
$435.1 million for the fiscal years ended September 30, 2000 and 1999,
respectively.
11
Other expense for the fiscal year ended September 30, 2000 was $1.5
million and was attributable to the disposal of assets having a net book value
of $1.7 million. There were no costs attributable to other expense in the fiscal
year ended September 30, 1999.
Loss from discontinued operations for the fiscal year ended September 30,
2000 decreased by $138,000, or 17.0%, to $674,000 from $812,000 for the fiscal
year ended September 30, 1999. The loss was the result of the decision of the
Authority, in conjunction with the Tribe, to cease bingo operations in order to
convert the floor space into the 637-unit Hall of the Lost Tribes smoke-free
slot machine venue.
Net income for the fiscal year ended September 30, 2000 increased by
$184.9 million to $145.9 million from a loss of $38.9 million for the fiscal
year ended September 30, 1999. This increase in net income primarily is
attributable to a $128.8 million increase in income from operations as discussed
above, lower interest expense as a result of amounts capitalized (See Note 12 to
the Authority's audited financial statements beginning on page F-1 of this Form
10-K/A), and an extraordinary item of $38.4 million in fiscal 1999, of which
$33.7 million related to the early extinguishment of the Senior Secured Notes,
$5.2 million related to the write-off of financing fees associated with the
original facility construction and $500,000 related to the forgiveness of debt
associated with the defeasance of the Subordinated Notes (see Note 8 to the
Authority's audited financial statements beginning on page F-1 of this Form
10-K/A).
Liquidity, Capital Resources and Capital Spending
As of September 30, 2001, 2000 and 1999, the Authority held cash and cash
equivalents of $74.3 million, $115.7 million and $276.6 million, respectively.
The decrease in cash and cash equivalents is attributable to the funding of
capital expenditures in connection with Project Sunburst. Cash provided by
operating activities for the year ended September 30, 2001 was $201.3 million
compared to cash provided by operating activities for the year ended September
30, 2000 and 1999 of $194.8 million and $144.7 million, respectively. The
increases in cash provided by operating activities is attributable to increases
in net income, net of the effect of the reassessment of relinquishment
liability.
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;
. an act of terrorism on the United States of America;
. substantial cost overruns in connection with the 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 September 30, 2001, the Authority had $258.0
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. During the fiscal year
ended September 30, 2001, the Authority paid down $90.0 million on the Bank
Credit Facility and borrowed $348.0 million.
The Authority draws on the Bank Credit Facility primarily in connection
with the major expansion of Mahegan Sun, known as Project Sunburst, and further
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 a base rate or on the basis of a one-month, two-month,
three-month or six-month London Inter-Bank Offered Rate ("LIBOR")
12
plus, in either case, the applicable spread (based on the Authority's Total
Leverage Ratio as defined in the Bank Credit Facility). As of September 30,
2001, one month LIBOR was 2.64% and the applicable spread on a LIBOR loan was
2.125%. Interest on each LIBOR loan which is for a term of three months or less
is due and payable on the last day of the related interest period. Interest on
each LIBOR loan which 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, every
three months thereafter and on the last day of the related interest period.
Interest on each base rate loan is due and payable quarterly in arrears. As of
September 30, 2001, the Authority had no base rate loans.
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 on the earlier of March 31, 2002 or the last 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.
The Bank Credit Facility contains various provisions that require the
Authority to maintain specified financial ratios. If the Authority's revenue
declines due to economic or competitive factors, or if there is a substantial
cost overrun in connection with the completion of Project Sunburst, 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. As the economy
rebounds, 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 "Item 7A. Quantitative and Qualitative
Disclosure of Market Risk" and Note 3 to the Authority's financial statements
beginning on page F-1 of this Form 10-K/A.
Capital Expenditures
Capital expenditures incurred to date. Capital expenditures totaled
$728.7 million including capitalized interest for the fiscal year ended
September 30, 2001, versus $288.3 million and $62.8 million for the fiscal years
ended September 30, 2000 and 1999, respectively. These capital expenditures were
an aggregate of the following:
. Cumulative Project Sunburst construction expenditures totaled
$940.0 million, including $51.1 million in capitalized interest
and net of $1.4 million expensed or recorded as inventory, through
September 30, 2001, of which $664.8 million was expended in the
fiscal year ended September 30, 2001 and $275.3 million was
expended in prior periods. Under the Development Agreement, TCA
will oversee the planning, design and construction and will
receive a development fee of $14.0 million for such services. As
of September 30, 2001, TCA has earned $11.3 million in development
fees, of which $9.3 million has been paid and is included in
Project Sunburst construction costs presented above.
. Property maintenance capital expenditures for furniture, fixtures
and equipment totaled $23.6 million, $20.1 million, and $11.8
million for the fiscal years ended September 30, 2001, 2000 and
1999, respectively.
. Capital expenditures on the Authority's electrical and water
systems infrastructure totaled $15.2 million and $17.0 million for
the fiscal years ended September 30, 2001 and 2000, respectively.
. Capital expenditures on the Authority's Eagleview employee parking
center totaled $1.3 million, $13.9 million and $9.8 million for
the fiscal years ended September 30, 2001, 2000 and 1999,
respectively.
. Capital expenditures for the $65.0 million Indian Summer Garage, a
2,700-space patron parking garage, totaled $9.8 million for the
fiscal year ended September 30, 2001.
. Capital expenditures for the construction of the Hall of the Lost
Tribes, the new 637-unit smoke-free slot
13
venue which opened on April 18, 2001, were $14.9 million as of
September 30, 2001, $5.1 million below the $20.0 million original
budget amount. The Authority did not incur any capital expenditures
for the construction of the Hall of the Lost Tribes for the fiscal
year ended September 30, 2000.
. Capital expenditures for the construction of an employee day care
facility were $568,000 during the fiscal year ended September 30,
2001, with construction expected to be completed in August 2002. The
employee day care facility is expected to have a total cost of $10.0
million.
Employee parking center. The Authority, in conjunction with the Project
Sunburst expansion, commenced construction on the employee parking center in
March 1999. The employee parking center includes 2,550 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. A portion
of the employee parking center opened in June 2000 with the remainder opening in
January 2001. The total cost of the employee parking center was $25.0 million.
Infrastructure improvements. The Authority commenced construction of the
infrastructure improvements, estimated to cost $35.0 million, that will service
Mohegan Sun and other Tribal facilities. Such infrastructure improvements will
handle the increased utility demands of the expanded facility that are
attributable to the Project Sunburst expansion. The infrastructure improvements
were funded by the Authority and are expected to be completed concurrent with
the completion of Project Sunburst. As of September 30, 2001, approximately
$32.2 million has been incurred, of which $15.2 million was incurred in fiscal
year 2001, and $22.6 million of these assets were placed into service.
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 September 30, 2001, construction
retainage totaled $23.3 million, which has been included in construction
payables in the Authority's financial statements beginning on page F-1 of this
Form 10-K/A.
Expected future capital expenditures. During fiscal year 2002, the
Authority expects to incur capital expenditures totaling approximately $191.3
million and to be allocated as follows:
. $25.0 million on maintenance capital expenditures.
. $71.1 million on Project Sunburst construction.
. $55.2 million on the Indian Summer parking.
. $25.0 million on a new 1,700 space Thames Garage.
. $5.5 million on infrastructure improvements.
. $9.5 million on an employee day care center.
Project Sunburst
In November 2000, the Tribal Council approved a formal resolution
increasing the expansion budget to $960.0 million, excluding capitalized
interest, from $800.0 million. The Project Sunburst budget was increased to
$960.0 million for primarily three reasons: (1) enhancements in project scope
such as an increase in the number of slot machines scheduled to be placed on the
gaming floor; (2) quality improvements to the hotel and public areas; and (3)
increases in Project Sunburst labor costs because of the competitive nature of
the construction labor market in the northeastern United States. As of September
30, 2001, the Authority had incurred $888.9 million, excluding
14
capitalized interest, on Project Sunburst. The remaining $71.1 million is
anticipated to be incurred during fiscal year 2002.
As of September 30, 2001, cumulative capitalized interest for Project
Sunburst construction expenses totaled $51.1 million. Capitalized interest
totaled $40.7 million, $9.9 million and $534,000 for the fiscal years ended
September 30, 2001, 2000 and 1999, 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 September 30, 2001, TCA had earned $11.3 million in
development fees, of which $9.3 million had been paid.
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.
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 its ability to draw down on the
Bank Credit Facility.
Other Property Enhancements
Public safety facility. The Tribe commenced construction of a public
safety facility within the Eagleview Complex that will service the Mohegan
Reservation, including Mohegan Sun. The Authority initially funded the
construction and was subsequently reimbursed by the Tribe. Approximately $1.6
million was reflected as amounts due from the Tribe in the Authority's balance
sheet as of September 30, 2000. No amounts were due as of September 30, 2001 as
the Authority was reimbursed for amounts due from the Tribe.
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 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 refer 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 $592.0
million as of September 30, 2001, a decrease of $80.9 million over the $672.9
million liability recognized as of September 30, 2000. The Authority reviewed
current revenue forecasts and has reduced revenue projections for the period in
which the Relinquishment Agreement applies, due to uncertainties involving
economic market conditions that have affected Project Sunburst revenues and
future competition from potential Native American casinos. For a further
discussion of relinquishment liability, see Note 13 to the Authority's financial
statements beginning on page F-1 of this Form 10-K/A. 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. The Authority has capitalized $130.0
million of the relinquishment liability associated with the trademark value of
the Mohegan Sun brand name. The Authority paid $42.3 million in relinquishment
payments during the fiscal year ended September 30, 2001. Of the $42.3 million
in relinquishment payments for the fiscal year ended September 30, 2001, $9.7
million represents principal amounts and the remaining $32.6 million is payment
for the accretion of interest. As of September 30, 2001, relinquishment payments
earned but unpaid were $11.5 million. During the fiscal year ended September 30,
2000, the Authority paid $20.0 million in relinquishment payments, consisting of
$8.5 million in principal amounts and $11.5 million for the accretion of
interest.
Distributions to the Tribe
During fiscal years 2001, 2000 and 1999, the Authority distributed $44.0
million, $50.0 million and $138.4 million, respectively, to the Tribe. In fiscal
year 1999, $51.2 million was subsequently returned to the Authority by the Tribe
as a capital contribution to finance partially Project Sunburst. Also in fiscal
year 1999, $45.9 million previously held in escrow pursuant to certain
contractual obligations of the Authority was distributed to the Tribe and
subsequently returned as a capital contribution towards Project Sunburst.
Debt Service Costs
15
For the fiscal years ended September 30, 2001, 2000 and 1999, the
Authority incurred the following debt service costs (in thousands):
For the For the
Year Ended Year Ended
For the Year Ended September 30, September 30,
September 30, 2001 2000 1999
----------------------- --------------- ----------------
(restated - see note
15 to the
Authority's
financial statements)
Bank Credit Facility $ 7,439 $ - $ -
$200M 8.125% Senior Notes 16,250 16,250 9,389
$300M 8.75% Senior Subordinated Notes 26,250 26,250 15,167
$150M 8.375% Senior Subordinated Notes 2,268 - -
$175M 13.5% Senior Secured Notes - - 9,975
Participating interest - - 4,256
$40M Subordinated Notes - 2,648 9,872
$50M Subordinated Notes - 1,473 5,342
Change in fair value of derivative instruments 4,084 - -
Financing fees 4,536 - -
Capital lease obligations 263 1,058 2,128
Capitalized interest (40,715) (9,880) (534)
--------------- ------------ -------------
Total Interest Expense $ 20,375 $ 37,799 $ 55,595
=============== ============ =============
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.
Due to delays in the construction schedule of the Project Sunburst hotel,
the Authority has initiated discussions with its lenders regarding possible
amendments to its financial covenants under the Bank Credit Facility. These
amendments would be intended to address the impact of the extended construction
borrowing period and the delay in achieving the full cash flows anticipated from
the fully completed hotel. The Authority also is considering the issuance of
additional Senior Subordinated Notes in 2002 in order to curtail a portion of
the outstanding balance of the Bank Credit Facility.
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.
Fiscal
Contractual Obligations Year
(in thousands) 2002 (1) 2-3 years 4-5 years After 5 years
---------------------------------------------------------------------------------------------
Long-term debt (2) $ - $ 258,000 $ 200,000 $ 450,000
Construction obligations (3) 166,671 - - -
Development obligations (4) 4,718 - - -
--------- --------- --------- ------------
Total $ 171,389 $ 258,000 $ 200,000 $ 450,000
========= ========= ========= ============
(1) Amounts due within one year represent obligations expected to be incurred
from October 1, 2001 to September 30, 2002.
16
(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 enhancement. See Note 12 to the Authority's
financial statements beginning on page F-1 of this Form 10-K/A.
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.
(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 13 to the
Authority's financial statements beginning on page F-1 of this
Form 10-K/A. 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 assumed
that the table contains information for only ten years.
Contractual Commitments Fiscal Year
(in thousands) 2002 (1) 2-3 years 4-5 years 5-10 years
-------------------------------------------------------------------------------------------------
Slot winning payment commitments (2) 180,381 392,963 425,029 1,184,902
Relinquishment commitments (3) 55,935 128,675 139,162 578,699
Priority distributions (4) 14,882 31,282 33,420 93,889
---------- ---------- --------- -----------
Total $ 251,198 $ 552,920 $ 597,611 $ 1,857,490
========== ========== ========= ===========
(1) Amounts due within one year represent payment commitments from
October 1, 2001 to September 30, 2002.
(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, 2001, 2000 and 1999, the Slot Win Contribution
totaled $144.6 million, $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 13 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 13 to the Authority's financial
statements beginning on page F-1 of this Form 10-K/A.
(4) Priority distributions are monthly payments required to be made by
the Authority to the Tribe pursuant to the Priority Distribution
Agreement. The payments are calculated based on net cash flow and
are limited to a maximum amount of $14.0 million, which maximum
amount is subject to an annual adjustment based on Consumer Price
Index, or CPI. During the fiscal year ended September 30, 2001,
the Authority paid $14.0 million in priority distributions to the
Tribe. The amounts included in the table are estimates of the
required payments for the next ten years and, while this agreement
is perpetual in term, for the purposes of calculating these
amounts, the Authority has assumed that it will pay the maximum
amount in each of the years covered by the table, as adjusted by
an annual CPI adjustment of 3.361%.
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
17
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 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. 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 casino revenue as gaming wins less gaming
losses. Revenues from food and beverage, retail, entertainment and other are
recognized at the time the service is performed. Minimum rental revenues in the
Shops at Mohegan Sun are recognized on a straight-line basis over the terms of
the related leases. Percentage rents are recognized in the period in which the
tenants exceed their respective percentage rent thresholds. Recoveries from
tenants for operating expenses related to the Shops at Mohegan Sun are
recognized as offsetting expenses in the period billed, which approximates the
period in which the applicable costs are incurred.
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 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 points 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.
18
New Accounting Pronouncements
In November 2000, the Emerging Issues Task Force ("EITF") on the Financial
Accounting Standards Board ("FASB") reached a consensus on EITF Issue No. 00-14,
"Accounting for Certain Sales Incentives." EITF 00-14 requires that discounts
which result in a reduction in or refund of the selling price of a product or
service in a single exchange transaction be recorded as a reduction of revenues.
The Authority's accounting policy related to free or discounted food and
beverage and other services already complies with EITF 00-14, and those free or
discounted services are generally deducted from gross revenues as "promotional
allowances."
In January 2001, the EITF reached a consensus on certain issues within EITF
Issue No. 00-22, "Accounting for Points and Certain Other Time-Based or
Volume-Based Sales Incentive Offers." EITF 00-22 requires that cash or
equivalent amounts provided or returned to customers as part of a transaction
not be shown as an expense, but instead as an offset to the related revenue. The
adoption of this Issue is not expected to have a material impact the Authority's
financial position, results of operations or cash flows.
In June 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible
Assets" ("SFAS 142") to be effective for fiscal years beginning after December
15, 2001. The Authority adopted SFAS 142 on October 1, 2001. Under SFAS 142, the
trademark is no longer subject to amortization over its estimated useful life as
it has been deemed to have an indefinite useful life. However, SFAS 142 requires
the trademark to be evaluated at least annually for impairment by applying a
fair-value based test and, if impairment occurs, the amount of impaired
trademark must be written off immediately. With the adoption of SFAS 142, the
Authority no longer records amortization of the trademark. For the year ended
September 30, 2001, the Authority recorded $3.4 million related to the
amortization of the trademark. The Authority is required to apply the initial
fair value test by March 31, 2002. The Authority has not yet determined whether
the initial fair value test will result in any impairment charges, but does not
anticipate a negative effect on its financial position, results of operations or
cash flows upon completing the fair value assessment. Had SFAS 142 been in
effect in these periods, the Authority's results would have been as follows (in
thousands):
For the For the For the
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
2001 2000 1999
------------------------ -------------------------- ---------------------
(restated - see note
15 to the Authority's
financial statements)
Net income (loss) $ 213,941 $ 145,934 $ (38,920)
Trademark amortization 3,436 4,295 2,577
------------------------ -------------------------- ---------------------
As adjusted net income (loss) $ 217,377 $ 150,229 $ (36,343)
======================== ========================== =====================
In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS 144"). SFAS 144 modifies the rules for accounting for the impairment or
disposal of long-lived assets. The new rules become effective for fiscal years
beginning after December 15, 2001, with earlier application encouraged. The
Authority has not yet adopted and has not yet quantified the impact of
implementing SFAS 144 on the Authority's financial statements, but does not
anticipate a negative effect on the Authority's financial position, result of
operations or cash flows upon adoption of the standard.
Item 7A. 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 beginning on page F-1 for further details relating to the terms and
conditions of the Bank Credit Facility. As of September 30, 2001, the Authority
had drawn $258.0 million from the Bank Credit Facility. The Authority uses
derivative instruments,
19
including an interest 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 September 30, 2001:
Notional Estimated Fair
Maturity Date Value Value
------------- ------------ --------------
Interest Rate Cap
Strike Rate--8% October 1, 2003 $ 61,038,000 $ 1,000
Interest Rate Collar
Ceiling Strike Rate--8%
Floor Strike Rate--6% March 1, 2004 56,356,800 (3,310,295)
Interest Rate Swap
Pay fixed--6.35%
Receive Variable March 1, 2004 28,178,400 (1,840,126)
------------- ------------
Total $ 145,573,200 $(5,149,421)
============= ============
All derivative instruments are based upon one-month LIBOR, which was
2.64% on September 30, 2001.
Item 8. Financial Statements and Supplementary Data
The Authority's financial statements and notes thereto, referred to in
Item 15(A)(1) of this Form 10-K/A, are included in this Form 10-K/A beginning on
page F-1.
20
PART III
Item 10. Directors and Executive Officers of the Registrant
The Authority is governed by a nine-member Management Board, consisting
of the same nine members on 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 executive officers of Mohegan Sun are hired by
the Management Board and are employees of the Authority.
Management Board and Executive Officers
The following table provides information as of September 30, 2001 with
respect to each of (i) the members of the Management Board and (ii) the
executive officers of Mohegan Sun.
Name Age Position
Mark F. Brown 44 Chairman and Member, Management Board
Peter J. Schultz 46 Vice Chairman and Member, Management Board
Christine Damon-Murtha 53 Corresponding Secretary and Member, Management Board
Donald M. Chapman 75 Treasurer and Member, Management Board
Shirley M. Walsh 56 Recording Secretary and Member, Management Board
Jayne G. Fawcett 65 Member, Management Board
Roland J. Harris 54 Member, Management Board
Glenn R LaVigne 40 Member, Management Board
Maynard L. Strickland 60 Member, Management Board
William J. Velardo 46 President and Chief Executive Officer, Mohegan Sun
Mitchell Grossinger Etess 42 Executive Vice President, Marketing, Mohegan Sun
Jeffrey E. Hartmann 39 Executive Vice President, Finance and Chief Financial Officer,
Mohegan Sun
Michael Bloom 43 Senior Vice President, Marketing, Mohegan Sun
John Arnesen 54 Senior Vice President, Hotel Operations, Mohegan Sun
Gary Crowder 51 Senior Vice President, Food and Beverage, Mohegan Sun
Robert Soper 28 Senior Vice President, Administration, Mohegan Sun
Mark F. Brown--Mr. Brown has been a member of the Authority's Management
Board since October 1995. Mr. Brown became the Chairman of the Management Board
in October 2000. Mr. Brown worked with the Tribe's historian during the period
in which the Tribe was working to obtain federal recognition and also served on
the Tribal Constitutional Review Board from 1993 to 1995. Mr. Brown served as a
law enforcement officer for over twelve years. Prior to his work in law
enforcement, Mr. Brown was involved in retail sales and management.
Peter J. Schultz--Mr. Schultz was seated on the Management Board and was
elected Vice Chairman of the Management Board in October 2000. Mr. Schultz held
the position of Human Resources Director for the Tribe from February 1997 to
September 2000. From 1982 to 1997, Mr. Schultz was employed by Aetna Life and
Casualty, a large insurance company, culminating with the position of Manager of
Organizational Development at the Aetna Institute.
Christine Damon-Murtha--Ms. Murtha was seated on the Management Board and
was elected Corresponding Secretary in October 2000. Ms. Murtha was employed in
the Finance Department for the Tribe from 1996 to 1998 and as a reporter and
photographer for the Tribe's Communication Department from 1998 to September
2000. Ms. Murtha held the position of Supervisor/Senior Accounting Analyst with
Travelers Insurance Company from 1984 to 1992. Ms. Murtha serves as council
liaison for the Environmental Department of the Tribe.
21
Donald M. Chapman--Mr. Chapman was seated on the Management Board and was
elected Treasurer in October 2000. Mr. Chapman retired from the United States
Coast Guard at the rank of Commander. Following Mr. Chapman's retirement, he
held management positions with the Urban Mass Transportation Administration in
Washington, D.C. Mr. Chapman was also employed as a stockbroker with Legg Mason
& Company.
Shirley M. Walsh--Ms. Walsh has been the Recording Secretary of the
Management Board since October 1995 and has been a member of the Management
Board since July 1995. Ms. Walsh has worked for the Tribe in various capacities
for almost nine years. Prior to that time, she was employed for 13 years by a
local certified public accountant. Ms. Walsh chaired the Tribal Election
Committee from 1994 to 1995 and has served on several other committees for the
Tribe.
Jayne G. Fawcett--Ms. Fawcett has been a member of the Management Board
since its inception in July 1995. Ms. Fawcett served as the Vice Chair of the
Management Board and the Tribal Council from December 1995 until October 2000.
Ms. Fawcett worked as a social worker for the State of Connecticut in 1987 and
is a retired teacher after 27 years of service. Ms. Fawcett was a Chairman of
the Tribe's Constitutional Review Board from 1992 to 1993. Currently, she
oversees the Tribe's public relations and serves as the Tribe's Public Relations
Ambassador.
Roland J. Harris--Mr. Harris has been a member of the Management Board
since October 1995. He served as Chairman of the Management Board and the Tribal
Council from October 1995 until October 2000. Mr. Harris was the founder of the
firm Harris and Clark, Inc., Civil Engineers, Land Surveyors and Land Planners.
Mr. Harris has served as First Selectman and CEO of the Town of Griswold,
Connecticut, and also as its Planning and Zoning Commissioner. He has also
served as Deputy Chief of the Griswold Fire Department and as Fire Marshal and
Inspector of the Town of Griswold. Prior to assuming the Chairmanship of the
Management Board in 1995, Mr. Harris served as the Tribal Planner.
Glenn R. LaVigne--Mr. LaVigne has been a member of the Management Board
since January 1996. Mr. LaVigne was previously employed by the Town of
Montville, Connecticut and oversaw building and maintenance for Montville's
seven municipal buildings. Mr. LaVigne serves as council liaison for development
and construction.
Maynard L. Strickland--Mr. Strickland has been a member of the Management
Board since October 1995. Before that, Mr. Strickland owned and operated several
restaurants in Norwich, Connecticut and Florida for 20 years.
William J. Velardo--Mr. Velardo currently serves as President and Chief
Executive Officer of Mohegan Sun. Mr. Velardo has served as Mohegan Sun's
President and Chief Executive Officer since October 1995 and has over 25 years
of experience in gaming operations. Prior to his employment with the Authority,
Mr. Velardo was Chief Operating Officer for River City, a riverboat gaming
venture in New Orleans, Louisiana. From 1991 to 1994, Mr. Velardo served as
Senior Vice President, Casino Operations at Trump Plaza Hotel and Casino in New
Jersey. Mr. Velardo participated in the opening of the Mirage in Las Vegas,
Nevada, a casino, where he served as Vice President, Table Games from 1989 to
1991. Mr. Velardo also worked as Assistant Casino Manager and Pit Manager at
Caesar's Tahoe and Caesar's Palace casinos.
Mitchell Grossinger Etess--Mr. Etess has been Executive Vice President of
Marketing at Mohegan Sun since November 1995 and has 20 years experience in the
casino and hotel industry. Prior to his employment with the Authority, Mr. Etess
was Vice President of Marketing at Players Island and, from 1989 to 1994, was
Senior Vice President of Marketing and Hotel Operations at Trump Plaza Hotel and
Casino. Prior thereto, Mr. Etess held various management positions in the
hospitality and advertising industries.
Jeffrey E. Hartmann--Mr. Hartmann has been Executive Vice President of
Finance and the Chief Financial Officer of Mohegan Sun since December 1996 and
has 10 years of experience in the casino and hotel industry. Prior to joining
the Authority, Mr. Hartmann worked for Foxwoods, a casino located in
Connecticut, from August 1991 to December 1996, including as Vice President of
Finance for Foxwoods Management Company. Mr. Hartmann was employed by
PricewaterhouseCoopers, LLP, an independent public accounting firm, as an Audit
Manager from 1984 to 1991. Mr. Hartmann is a certified public accountant.
22
Michael Bloom - Mr. Bloom has been the Senior Vice President of Marketing
since March 1996 and has more than 20 years of experience in the casino and
hotel industry. Prior to his employment with the Authority, Mr. Bloom was
Director of Marketing from May 1994 to February 1996 for the new Casino Windsor
and Northern Belle Casinos in Windsor, Ontario. Mr. Bloom also held several
positions from 1984 to 1994 at the Tropicana in Atlantic City, where he was
Director of Hotel Operations and Executive Director of Marketing Administration.
John Arnesen - Mr. Arnesen has been the Senior Vice President of Hotel
Operations for the Authority since 1999 and has over 20 years experience in
hotel and gaming operations. Prior to joining the Authority, Mr. Arnesen was the
Chief Operating Officer for Millamax Gaming & Hospitality in Fort Lauderdale,
Florida and subsequently President and Chief Operating Officer for Carnival
Gaming & Hospitality in San Juan, Puerto Rico. Mr. Arnesen has also managed and
directed hotel operations for Trump Taj Mahal Resorts and Resorts International
in Atlantic City, New Jersey and the Tropicana Resort in Las Vegas, Nevada.
Gary Crowder - Mr. Crowder has served as the Senior Vice President of Food
and Beverage since May 2000 and has more than 30 years of experience in the
hospitality industry. Prior to his employment with the Authority, he held the
position of Vice President at the MGM Grand in Las Vegas from 1998 to 1999 and
the Grand Casino in Mississippi from 1993 to 1995. Mr. Crowder has also served
as Director of Food and Beverage at the Walt Disney World Dolphin Resort Hotel
in Orlando, Bally's Resort in Reno, Nevada, Resorts International in Atlantic
City and Tropicana Casinos in Atlantic City.
Robert Soper - Mr. Soper serves as the Senior Vice President of
Administration at Mohegan Sun. Mr. Soper has served in this position since June
2001. Prior to this position, Mr. Soper served as Senior Attorney for the
Mohegan Tribe from 1997 to 2001.
Item 11. Executive Compensation
Compensation of the Management Board
The individual members of the Management Board do not receive any direct
compensation from the Authority. The Tribe compensates members of the Management
Board for the services they render as members of the Tribal Council and of the
Management Board. The members of the Management Board received the following
amounts for their services as members of the Management Board for fiscal year
2001: Mr. Brown, $70,896; Mr. Schultz, $66,766; Ms. Fawcett, $63,320; Mr.
Harris, $63,144; Mr. LaVigne, $61,762; Mr. Strickland, $61,391; Ms. Walsh,
$61,874; Ms. Murtha, $51,191; and Mr. Chapman, $53,523.
Compensation of Executive Officers
The following table sets forth the compensation paid to the President and
Chief Executive Officer of the Authority and each of the Authority's other four
most highly compensated executive officers for fiscal year 2001, referred to
collectively as the "Named Executive Officers":
SUMMARY COMPENSATION TABLE
Annual Compensation
Other(1)
401(k) Plan
Fiscal Life Matching
Name and Principal Position Year Salary Bonus Insurance Contributions
William J. Velardo 2001 $ 1,043,000 $ 271,000 $ 64,000 $ 5,100
President and Chief Executive Officer 2000 $ 789,000 $ 264,000 $ 27,000 $ 5,100
1999 $ 503,000 $ 150,000 $ -- $ 4,800
23
Mitchell Grossinger Etess 2001 $ 622,000 $ 164,000 $ 30,000 $ 5,100
Executive Vice President, Marketing 2000 $ 463,000 $ 164,000 $ 8,000 $ 5,100
1999 $ 306,000 $ 100,000 $ -- $ 4,800
Jeffrey E. Hartmann 2001 $ 552,000 $ 150,000 $ 24,000 $ 5,100
Executive Vice President, Finance 2000 $ 401,000 $ 158,000 $ 12,000 $ 5,100
and Chief Financial Officer 1999 $ 250,000 $ 100,000 $ -- $ 4,800
Michael Bloom 2001 $ 203,000 $ 58,000 $ -- $ 5,100
Senior Vice President, Marketing 2000 $ 156,000 $ 45,000 $ -- $ 4,000
1999 $ 136,000 $ 33,000 $ -- $ 4,400
John Arnesen (3) 2001 $ 197,000 $ 62,000 $ -- $ --
Senior Vice President, Hotel Operations 2000 $ 174,000 $ 45,000 $ -- $ --
1999 $ 20,000 $ 13,000 $ -- $ --
(1) The only compensation received by these employees other than salary and
bonus was employer matching contributions to the Authority's 401(k) plan
and the payment by the Authority of premiums on life insurance policies
for which the employee is the owner and beneficiary.
(2) Commenced employment on November 1, 1999.
Compensation Committee Interlocks and Insider Participation
The President and Chief Executive Officer sets the compensation for
executive officers other than for himself and the two executive vice presidents.
The compensation of the President and Chief Executive Officer and the two
executive vice presidents has been determined in accordance with their
employment agreements, which previously have been approved by the Management
Board in 1999. A description of these agreements is provided below.
Employment Agreements
On April 22, 1999, the Authority entered into employment agreements with
each of William J. Velardo, Mitchell Grossinger Etess and Jeffrey E. Hartmann.
The term of each agreement runs until December 31, 2004, with automatic renewal
for an additional term of five years unless either the employee or the Authority
provides notice to the other of its intention to terminate. Under the employment
agreements, commencing on January 1, 2000, each of Messrs. Velardo, Etess and
Hartmann is entitled to receive an annual salary of $800,000, $485,000 and
$435,000, respectively. The annual salary is subject to an annual increase on
each subsequent January 1, of no less than five percent of the then current
annual salary. Each employee is also entitled to receive an annual bonus of not
less that 33 1/3% of the base salary in effect for the period for which the
annual bonus is paid.
Each employment agreement provides that, if the employee is terminated
for cause or if the employee terminates his employment voluntarily, then the
employee will not be entitled to any further compensation. If the employee is
terminated other than for cause, then the employee will be entitled to receive,
at termination, a severance payment equal to his annual salary plus an annual
bonus equal to 100% of his annual salary from the date of termination to the
expiration date of the employment agreement.
These employment agreements further provide that the applicable employee
may not, without prior written consent of the Authority, compete with the
Authority in specified states in the northeastern United States during the term
of his employment and for a one-year period following a termination for cause or
a voluntary termination of employment. Also, during this period, the applicable
employee may not hire or solicit other employees of the Authority or encourage
any such employees to leave employment with the Authority. Under these
employment agreements, the applicable employee may not disclose any of the
Authority's confidential information while employed by the Authority or
thereafter. This confidentiality obligation will survive the termination of such
employee's employment and employment agreement.
On July 24, 2000 and January 5, 2001, the Authority entered into
employment agreements with John Arnesen and Michael Bloom, respectively. Under
the employment agreements, Messrs. Arnesen and Bloom are entitled to receive
base salaries of $175,000 and $201,600, respectively.
The employment agreement provides that if the employee is terminated for
cause, then the employee will not be entitled to any further compensation. If
the employee voluntarily terminates his employment and provides the required
60-day written notice, then the Authority will pay the employee's base salary
for 60 days following the employee's resignation, so long as the employee
remains in compliance with all of the other covenants under the agreement. If
the employee is terminated other than for cause, then the employee will receive
his base salary for a one year period and a lump sum payment of $25,000 for
relocation expenses.
The employment agreements further provide that the applicable employee
may not, without prior written consent of the Authority, compete with the
Authority in specified states in the northeastern United States during the term
of his employment and for a one-year period following termination of his
employment. Also, during this period, the applicable employee may not hire or
solicit other employees of the Authority or encourage any such employees to
leave employment with the Authority. Under these employment agreements, the
applicable employee may not disclose any of the Authority's confidential
information while employed by the Authority or thereafter.
Copies of these employment agreements are included as exhibits to this
Form 10-K/A.
24
Item 13. Certain Relationships and Related Transactions
Services Provided by the Tribe to the Authority
The Tribe provides governmental and administrative services to the
Authority in conjunction with the operation of Mohegan Sun. During the fiscal
year ended September 30, 2001, the Authority incurred $10.9 million of expenses
for such services. The Authority incurred $9.9 million and $8.3 million of
expenses for such services during fiscal years 2000 and 1999, respectively.
The Tribe provided services through its Development Department for projects
related to Mohegan Sun and Project Sunburst. The Authority incurred $954,000 of
such expenses associated with the Development Department for the fiscal year
ended September 30, 2000. There were no expenses incurred during the year ended
September 30, 2001.
Leases by the Authority to the Tribe
Prior to October 1, 2000, the Authority operated a retail outlet at Mohegan
Sun and purchased goods for resale at this location from a limited liability
company ("Little People, LLC") owned by the Tribe. For the fiscal year ended
September 30, 2000 and 1999 the Authority purchased $348,000 and $417,000,
respectively, of such goods from Little People, LLC. On October 1, 2000, the
Tribe assumed the management of this retail outlet from the Authority and
purchased the remaining inventory from the Authority. The Tribe paid the
Authority approximately $172,000 for such remaining inventory. The Authority and
Little People, LLC have entered into a lease agreement, whereby Little People,
LLC leases retail space located in the Shops at Mohegan Sun from the Authority.
The lease term expires on June 30, 2006 and may be renewed on a monthly basis.
Little People, LLC is not obligated to pay any base rent. The Authority
reimburses the Tribe for sales where patron player's club points are utilized.
Leases by the Tribe to the Authority
The Authority leases the land on which Mohegan Sun is located from the
Tribe pursuant to a long-term lease. The Authority is required to pay to the
Tribe a nominal annual rental fee under the lease. The lease has an initial term
of 25 years and is renewable for an additional 25-year term upon expiration.
The Tribe, through MTIC Acquisitions, LLC, a Connecticut limited
liability company owned by the Tribe, has entered into various land lease
agreements with the Authority for access, parking and related purposes for
Mohegan Sun. For the fiscal years ended September 30, 2001, 2000 and 1999, the
Authority expended $386,000, $386,000 and $412,000, respectively, relating to
these land lease agreements.
Distributions by the Authority to the Tribe
On August 7, 2001, the Tribe issued Gaming Authority Priority Distribution
Payment Public Improvement Bond Anticipation Notes (the "Series 2001 BANS"). The
Authority has no obligations to make any payments under the Series 2001 BANS.
Debt service on the Series 2001 BANS is paid by the Tribe from 95% of amounts
received from the Authority under the Priority Distribution Agreement. The
Priority Distribution Agreement obligates the Authority to make monthly priority
distribution payments to the Tribe in a maximum aggregate amount of $14.0
million per calendar year, adjusted annually in accordance with the formula
specified in the Priority Distribution Agreement to reflect the effects of
inflation. However, payments pursuant to the Priority Distribution Agreement do
not reduce the Authority's obligations to make payments pursuant to invoices for
governmental services provided by the Tribe or any payments under any other
agreements with the Tribe to the extent that such agreements are permitted under
the Bank Credit Facility. The priority distribution payments are limited
obligations of the Authority payable only to the extent of its net cash flow, as
defined in the Priority Distribution Agreement, and are not secured by a lien or
encumbrance on any assets or property of the Authority. The remaining 5% of each
priority distribution payment is remitted to the Tribe free and clear of any
lien. The Authority's financial statements reflect payments associated with the
Priority Distribution Agreement of $14.0 million for the fiscal year ended
September 30, 2001.
25
As permitted by the restrictive provisions of the Bank Credit Facility and
the Authority's indentures, the Authority distributed to the Tribe $30.0 million
in cash, net of $14.0 million related to the Priority Distribution Agreement,
during the fiscal year ended September 30, 2001.
Mohegan Tribal Employment Rights Ordinance
On September 25, 1995, the Tribe adopted the Mohegan Tribal Employment
Rights Ordinance (the "TERO"), which sets forth hiring and contracting
preference requirements for employers and entities conducting business on Tribal
land or working on behalf of the Tribe. Pursuant to the TERO, an employer is
required to give hiring, promotion, training, retention and other
employment-related preferences to Native Americans who meet the minimum
qualifications for the applicable employment position. However, this preference
requirement does not apply to key employees, as such persons are defined in the
TERO. In addition, when staffing the operations of the Project Sunburst
expansion, the Development Agreement requires TCA to give hiring and recruiting
preferences, first to qualified members of the Tribe (and their spouses and
children) and then to enrolled members of other federally recognized Indian
tribes.
Similarly, any entity awarding a contract to be performed on Tribal land
or on behalf of the Tribe must give preference, first to certified Mohegan
entities and second to other certified Indian entities. This contracting
preference is conditioned upon the bid by the preferred certified entity being
within 5% of the lowest bid by a non-certified entity (unless the preferred
certified entity's bid exceeds $100,000 of the lowest bid by a non-certified
entity). The TERO establishes procedures and requirements for certifying Mohegan
entities and other Indian entities. Certification is based largely on the level
of ownership and control exercised by the members of the Tribe or other Indian
tribes, as the case may be, over the entity bidding on a contract. A number of
contracts for Project Sunburst were awarded to companies controlled by Tribal
members under the TERO provision described above.
As of September 30, 2001, 146 employees of the Authority were members of
the Tribe.
Services from Entities in Which Members Have an Interest
The Authority engages McFarland Johnson, Inc. for surveying, civil
engineering and professional design services. Roland Harris, a current member
and a former Chairman of the Management Board and the Tribal Council, was a
consultant for this firm pursuant to a consulting agreement which expired in May
2001. For the fiscal years ended September 30, 2001, 2000 and 1999, the
Authority incurred $175,000, $792,000 and $373,000, respectively, for such
services provided by McFarland Johnson. McFarland Johnson formerly conducted
business as Harris and Clark, Inc. The Authority believes that the terms of this
engagement are comparable to those that would pertain to arms length engagement
with an unaffiliated firm.
Services Provided by the Authority to the Tribe
In July 1999, the Tribe commenced construction of a public safety facility
within the Eagleview Complex that will service the Mohegan Reservation,
including Mohegan Sun. The Authority initially funded the construction and was
subsequently reimbursed by the Tribe. The total cost of the public safety
facility is anticipated to be $7.5 million, of which $7.1 million has been
incurred. The Authority also has initially funded other Tribal projects and
subsequently has been reimbursed by the Tribe, 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 spaces
referred to above, is $45.6 million. The Authority anticipates the total
incurred to be $50.7 million. Approximately $1.6 million was reflected as
amounts due from the Tribe in the Authority's balance sheet as of September 30,
2000. No amounts were due as of September 30, 2001, as the Authority was
reimbursed for amounts due from the Tribe.
26
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports of Form 8-K
A(1). Financial Statements
See Index to financial statements included herein.
A(2). Financial Statement Schedules
Included in Part IV of this Report:
Schedule II--Valuation and Qualifying Accounts and Reserves
Schedules other than that listed above are omitted because they are not
required or are not applicable, or the required information is shown in the
financial statements or notes to the financial statements.
A(3). Exhibits
Exhibit
No. Description
3.1 Constitution of the Mohegan Tribe of Indians of Connecticut*
3.2 Ordinance No. 95-2 of the Mohegan Tribe of Indians of Connecticut for
Gaming on Tribal Lands, enacted on July 15, 1995*
4.1 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**
4.2 Form of Global 8 1/8% Senior Notes Due 2006 of the Mohegan Tribal
Gaming Authority (contained in the Indenture filed as Exhibit 4.1)**
4.3 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**
4.4 Form of Global 8 3/4% Senior Subordinated Notes Due 2009 of the Mohegan
Tribal Gaming Authority F (contained in the Indenture filed as
Exhibit 4.3)**
4.5 Indenture dated as of July 26, 2001 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 3/8%
Senior Subordinated Notes Due 2011 of the Mohegan Tribal Gaming
Authority***
4.6 Form of Global 8 3/8% Senior Subordinated Notes Due 2011 of the Mohegan
Tribal Gaming Authority F (contained in the Indenture filed as
Exhibit 4.5)***
10.1 The Mohegan Tribe--State of Connecticut Gaming Mohegan Compact between
the Mohegan Tribe of Indians of T Connecticut and the State of
Connecticut (the "Compact")*
10.2 Agreement dated April 25, 1994 between the Mohegan Tribe of Indians of
Connecticut and the State of A Connecticut resolving certain land
claims (the "Resolution Agreement")*
10.3 Memorandum of Understanding dated May 17, 1994 between the Mohegan
Tribe of Indians of Connecticut and M the State of Connecticut
regarding implementation of the Compact and the Resolution Agreement*
27
10.4 Agreement between the Mohegan Tribe of Indians of Connecticut and the Town
of Montville, Connecticut*
10.5 Land Lease dated September 29, 1995 between the Mohegan Tribe of Indians
of Connecticut and the Mohegan Tribal Gaming Authority; Amendment of
Land Lease dated September 29, 1995*
10.5 Land Lease dated September 29, 1995 between the Mohegan Tribe of Indians
of Connecticut and the Mohegan Tribal Gaming Authority; Amendment of
Land Lease dated September 29, 1995*
10.6 Amendment to the Land Lease dated February 18, 1999 between the Mohegan
Tribe of Indians of Connecticut and the Mohegan Tribal Gaming
Authority**
10.7 Amended and Restated Gaming Facility Management Agreement dated August 30,
1995 between the Mohegan Tribe of Indians of Connecticut, the Mohegan
Tribal Gaming Authority and Trading Cove Associates*
10.8 Development Services Agreement dated February 7, 1998 by and among the
Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of
Connecticut and Trading Cove Associates+
10.9 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+
10.10 The Loan Agreement dated as of March 3, 1999 by and among the Mohegan
Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut,
Bank of America National Trust and Savings Association as
Administrative Agent, Salomon Smith Barney Inc. as Syndication Agent,
Societe Generale as Documentation Agent, NationsBanc Montgomery
Securities LLC as Lead Arranger and each lender named therein (the
"Loan Agreement")**
10.11 Escrow Deposit Agreement dated as of March 3, 1999 by and among the
Mohegan Tribal Gaming Authority, E the Mohegan Tribe of Indians of
Connecticut and First Union National Bank**
10.12 Construction Reserve Disbursement Agreement dated March 3, 1999 among the
Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of
Connecticut and Fleet National Bank**
10.13 The Merrill Lynch Non-Qualified Deferred Compensation Plan Trust Agreement
dated September 1, 1998 between the Mohegan Tribal Gaming Authority and
Merrill Lynch Trust+
10.14 Employment Agreement dated April 22, 1999 by and between the Mohegan
Tribal Gaming Authority and William J. Velardo**
10.15 Employment Agreement dated April 22, 1999 by and between the Mohegan
Tribal Gaming Authority and Mitchell Grossinger Etess**
10.16 Employment Agreement dated April 22, 1999 by and between the Mohegan
Tribal Gaming Authority and Jeffrey E. Hartmann**
10.17 Amendment No. 1 to the Loan Agreement dated as of November 30, 2000 by and
among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians
of Connecticut and Bank of America National Trust and Savings
Association++
10.18 Priority Distribution Agreement between Mohegan Tribal Gaming Authority
and the Mohegan Tribe of Indians of Connecticut dated August 1, 2001+++
10.19 Administrative Services Agreement between Mohegan Tribal Gaming Authority
and Fleet Retirement Plan A Services dated July 30, 2001+++
10.20 Employment Agreement dated July 24, 2000 by and between the Mohegan Tribal
Gaming Authority
28
and John Arnesen
10.21 Employment Agreement dated January 5, 2001 by and between the Mohegan
Tribal Gaming Authority and Michael Bloom
10.22 Employment Agreement dated June 14, 2000 by and between the Mohegan
Tribal Gaming Authority and Gary Crowder
10.23 Employment Agreement dated October 4, 2001 by and between the Mohegan
Tribal Gaming Authority and Robert Soper
12.1 Computation of Ratio of Earnings to Fixed Charges
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 Vice President, Finance and Chief Financial Officer
pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
* Filed by the Authority with its Registration Statement on Form S-1 (file
no. 33-80655), filed with the SEC on December 21, 1995, as amended, and
incorporated herein by reference.
** Filed by the Authority with its Registration Statement on Form S-4 (file
no. 333-76753), filed with the SEC on April 21, 1999, and incorporated
herein by reference.
*** Filed by the Authority with it Registration Statement on Form S-4 (file
no. 333-69472), filed with the SEC on September 17, 2001, and incorporated
herein by reference.
+ Filed by the Authority with its Form 10-K for the fiscal year ended
September 30, 1998 and incorporated herein by reference.
++ Filed by the Authority with its Form 10-K for the fiscal year ended
September 30, 2000 and incorporated herein by reference.
+++ Filed by the Authority with its Form 10-Q for the quarter ended June 30,
2001 and incorporated herein by reference.
B. Reports on Form 8-K
On July 18, 2001, the Authority filed a Current Report on Form 8-K to
report a press release announcing the Authority's financial results for the
quarter ended June 30, 2001.
C. Exhibits
See A(3) above.
D. Financial Statement Schedule
See A(1) and (2) above.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Mohegan Tribal Gaming Authority has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized,
on November 12, 2002.
MOHEGAN TRIBAL GAMING AUTHORITY
By: /s/ Mark F. Brown
-------------------
Mark F. Brown
Chairman, Management Board
30
CERTIFICATION
I, William J. Velardo, certify that:
1. I have reviewed this annual report on Form 10-K/A of the Mohegan
Tribal Gaming Authority;
2. Based on my knowledge, this annual 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 annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report.
Date: November 12, 2002 /s/ William J. Velardo
--------------------------------
William J. Velardo
President and Chief Executive Officer
31
CERTIFICATION
I, Jeffrey E. Hartmann, certify that:
1. I have reviewed this annual report on Form 10-K/A of the Mohegan
Tribal Gaming Authority;
2. Based on my knowledge, this annual 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 annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report.
Date: November 12, 2002 /s/ Jeffrey E. Hartmann
--------------------------
Jeffrey E. Hartmann
Executive Vice President, Finance
and Chief Financial Officer
32
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants by PricewaterhouseCoopers LLP F-2
Report of Independent Accountants on Financial Statement Schedule F-3
Report of Independent Public Accountants by Arthur Andersen LLP F-4
Balance Sheets of the Mohegan Tribal Gaming Authority as of September 30, 2001 and 2000 F-5
Statements of Income (Loss) of the Mohegan Tribal Gaming Authority for the Years Ended September 30, 2001, 2000 and 1999 F-6
Statements of Changes in Capital of the Mohegan Tribal Gaming Authority for the Years Ended September 30, 2001, 2000 and 1999 F-7
Statements of Cash Flows of the Mohegan Tribal Gaming Authority for the Years Ended September 30, 2001, 2000 and 1999 F-8
Notes to Financial Statements of the Mohegan Tribal Gaming Authority F-9
F-1
Report of Independent Accountants
To The Mohegan Tribal Gaming Authority:
In our opinion, the accompanying balance sheet as of September 30, 2001 and the
related statements of income, of changes in capital and of cash flows present
fairly, in all material respects, the financial position of The Mohegan Tribal
Gaming Authority (the "Authority") at September 30, 2001, and the results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Authority's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. The Authority's financial statements as of
September 30, 2000, and for each of the two years in the period ended September
30, 2000, were audited by other independent accountants who have ceased
operations. Those independent accountants expressed an unqualified opinion on
those financial statements in their report dated December 14, 2001.
As discussed in Note 15, the Authority has restated its financial statements as
of September 30, 2001 and for the year then ended, previously audited by other
independent accountants who have ceased operations.
PricewaterhouseCoopers LLP /s/
Hartford, CT
November 11, 2002
F-2
Report of Independent Accountants on
Financial Statement Schedule
To the Mohegan Tribal Gaming Authority
Our audit of the September 30, 2001 financial statements referred to in our
report dated November 11, 2002 appearing in this Annual Report on Form 10-K/A of
the Mohegan Tribal Gaming Authority (the "Authority") also included an audit of
the September 30, 2001 financial statement schedule information listed in Item
15 of this Form 10-K/A. In our opinion, this 2001 financial statement schedule
information presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related financial statements. The 2000
and 1999 financial statement schedule information of the Authority was audited
by other independent accountants who have ceased operations. Those independent
accountants expressed an unqualified opinion on that financial statement
schedule information in their report dated December 14, 2001.
PricewaterhouseCoopers LLP /s/
Hartford, CT
November 11, 2002
F-3
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 audited the accompanying balance sheets of the Mohegan Tribal Gaming
Authority (the Authority) as of September 30, 2001* and 2000 and the related
statements of income (loss), capital and cash flows for the each of the three
years in the period ended September 30, 2001*. These financial statements and
the schedule referred to below are the responsibility of the Authority's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material aspects, the financial position of the Mohegan Tribal Gaming
Authority as of September 30, 2001* and 2000, and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
2001*, in conformity with accounting principles generally accepted in the United
States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 15** is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP/S/
Hartford, Connecticut
December 14, 2001
* Subsequent to the date of this report, the Authority's balance sheet as of
September 30, 2001 and the related statements of income, of capital and of
cash flows were audited by other independent accountants whose report appears
on page F-2.
** This item, which was previously numbered Item 14, was renumbered as Item 15
due to a change in the formatting of Form 10-K by the Securities and
Exchange Commission.
F-4
Mohegan Tribal Gaming Authority
Balance Sheets
(in thousands)
September 30, September 30,
2001 2000
------------------------- -------------------------
(restated - see note 15)
ASSETS
------
Current assets:
Cash and cash equivalents $ 74,284 $ 115,731
Receivables, net 5,347 5,490
Due from Tribe 957 1,648
Inventories 11,455 7,577
Other current assets 14,209 5,325
------------------------- -------------------------
Total current assets 106,252 135,771
Non-current assets:
Property and equipment, net 1,080,415 338,243
Construction in process 223,568 264,999
Trademark, net 119,692 123,128
Other assets, net 24,766 23,238
------------------------- -------------------------
Total assets $ 1,554,693 $ 885,379
========================= =========================
LIABILITIES AND CAPITAL
-----------------------
Current liabilities:
Current portion of capital lease obligations $ 1,514 $ 4,055
Current portion of relinquishment liability 70,199 56,646
Trade payables 13,810 6,486
Construction payables 155,497 11,790
Accrued interest payable 13,062 10,625
Other current liabilities 59,738 39,325
------------------------- -------------------------
Total current liabilities 313,820 128,927
Non-current liabilities:
Long-term debt 908,000 500,000
Relinquishment liability, net of current portion 521,809 616,234
Capital lease obligations, net of current portion - 2,336
Other long-term liabilities 5,232 -
------------------------- -------------------------
Total liabilities 1,748,861 1,247,497
------------------------- -------------------------
Commitments and contingencies (Note 12)
Capital:
Retained deficit (192,177) (362,118)
Accumulated other comprehensive loss (1,991) -
------------------------- -------------------------
Total capital (194,168) (362,118)
------------------------- -------------------------
Total liabilities and capital $ 1,554,693 $ 885,379
========================= =========================
The accompanying notes are an integral part of these financial statements
F-5
Mohegan Tribal Gaming Authority
Statements of Income (Loss)
(in thousands)
For the Year Ended
--------------------------------------------------------------------------
September 30, 2001 September 30, 2000 September 30, 1999
------------------ ------------------ ------------------
(restated - see note 15)
Revenues:
Gaming $ 750,988 $ 709,627 $ 641,117
Food and beverage 49,508 47,316 47,907
Retail, entertainment and other 57,481 52,371 36,486
-------------------- ------------------ --------------------
Gross revenues 857,977 809,314 725,510
Less - Promotional allowances (71,372) (70,044) (56,827)
-------------------- ------------------ --------------------
Net revenues 786,605 739,270 668,683
-------------------- ------------------ --------------------
Operating costs and expenses:
Gaming 334,537 307,202 273,488
Food and beverage 24,447 23,745 22,218
Retail, entertainment and other 32,114 27,142 22,583
Marketing, general and administrative 139,343 127,226 110,919
Pre-opening costs and expenses 31,344 5,278 -
Management fees - 13,634 59,532
Depreciation and amortization 31,295 30,739 23,397
Relinquishment liability reassessment (74,410) 8,790 89,871
-------------------- ------------------ --------------------
Total operating costs and expenses 518,670 543,756 602,008
-------------------- ------------------ --------------------
Income from operations 267,935 195,514 66,675
-------------------- ------------------ --------------------
Other income (expense):
Accretion of relinquishment liability
discount (35,833) (23,053) (22,014)
Interest income 2,920 13,469 11,254
Interest expense, net of capitalized
interest (20,375) (37,799) (55,595)
Other expense, net (115) (1,523) -
-------------------- ------------------ --------------------
Total other income (expense) (53,403) (48,906) (66,355)
-------------------- ------------------ --------------------
Income from continuing operations 214,532 146,608 320
Loss from discontinued operations (591) (674) (812)
-------------------- ------------------ --------------------
Income (loss) before extraordinary items 213,941 145,934 (492)
Extraordinary items - - (38,428)
-------------------- ------------------ --------------------
Net income (loss) $ 213,941 $ 145,934 $ (38,920)
==================== ================== ====================
The accompanying notes are an integral part of these financial statements
F-6
Mohegan Tribal Gaming Authority
Statements of Changes in Capital
(in thousands)
For the Year Ended For the Year Ended For the Year Ended
September 30, 2001 September 30, 2000 September 30, 1999
---------------------------- ------------------------------- -------------------------------
(restated - see note 15)
Comprehensive Comprehensive Comprehensive
Capital Income Capital Income Capital Income (Loss)
------------- ------------- -------------- --------------- -------------- ---------------
Retained deficit at October 1 $ (362,118) $ (458,052) $ (377,874)
Net income 213,941 $ 213,941 145,934 $ 145,934 (38,920) $ (38,920)
------------- --------------- -------------
Capital contribution by Tribe - - 97,096
Distributions to Tribe (44,000) (50,000) (138,354)
----------- ----------- -----------
Retained deficit at September 30 (192,177) (362,118) (458,052)
----------- ----------- -----------
Accumulated other comprehensive loss
at October 1 - - -
Unrealized loss on derivative
instruments (1,991) - -
------------- -------------- -------------
Other comprehensive loss (1,991) (1,991) - - - -
----------- ------------- ----------- -------------- ----------- -------------
Comprehensive income (loss) $ 211,950 $ 145,934 $ (38,920)
============= ============== =============
Accumulated other comprehensive
loss at September 30 (1,991) - -
----------- ----------- -----------
Total Capital ending balance
September 30 $ (194,168) $ (362,118) $ (458,052)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-7
Mohegan Tribal Gaming Authority
Statements of Cash Flows
(in thousands)
For the Year Ended
----------------------------------------------------------------------
September 30, 2001 September 30, 2000 September 30, 1999
------------------ ------------------ ------------------
(restated - see note 15)
Cash flows provided by (used in) operating activities:
Net income (loss) $ 213,941 $ 145,934 $ (38,920)
Adjustments to reconcile net income (loss) to
net cash flow provided by operating activities:
Depreciation and amortization 31,295 30,739 23,397
Accretion of relinquishment liability discount 35,833 23,053 22,014
Reassessment of relinquishment liability (74,410) 8,790 89,871
Cash paid for accretion of relinquishment liability
discount (32,637) (11,527) -
Decrease in fair value of derivative instruments 4,085 - -
Loss on disposition of assets 116 1,705 453
Provision for losses on receivables 411 617 679
Amortization of debt issuance costs 4,536 - -
Loss on early extinguishment of debt - - 33,217
Write-off of financing fees - - 5,211
Changes in operating assets and liabilities:
(Increase) decrease in current assets (12,339) (6,150) 759
Decrease (increase) in other assets 333 (2,390) (6,000)
Increase in current liabilities 30,174 4,074 14,043
----------- ------------ ------------
Net cash flows provided by operating activities 201,338 194,845 144,724
----------- ------------ ------------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment, net of change
in construction payables of $143,707, $11,790 and $0,
respectively (585,035) (276,488) (62,795)
Proceeds from asset sale 95 - -
Issuance of tenant loans (1,078) - -
----------- ------------ ------------
Net cash flows used in investing activities (586,018) (276,488) (62,795)
----------- ------------ ------------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of long-term debt 150,000 - 500,000
Bank Credit Facility borrowings 348,000 - -
Bank Credit Facility payments (90,000) - -
Distributions to Tribe (44,000) (50,000) (138,354)
Principal portion of relinquishment liability payments (9,658) (8,446) -
Capitalized financing fees (6,314) (3,034) (20,309)
Payments on capital lease obligations (4,877) (12,907) (11,148)
Increase in other long-term liabilities 82 - -
Defeasance liability - (140,344) -
Defeasance trust asset - 135,507 (135,507)
Extinguishment of Senior Secured Notes - - (208,717)
Capital contribution by Tribe - - 97,096
Proceeds from equipment financing - - 878
----------- ---------- ------------
Net cash flows provided by (used in) financing activities 343,233 (79,224) 83,939
----------- ------------ ------------
Net (decrease) increase in cash and cash equivalents (41,447) (160,867) 165,868
Cash and cash equivalents at beginning of period 115,731 276,598 110,730
----------- ------------ ------------
Cash and cash equivalents at end of period $ 74,284 $ 115,731 $ 276,598
=========== ============ ============
Supplemental disclosures:
Cash paid during the period for interest $ 50,031 $ 43,558 $ 44,981
The accompanying notes are in integral part of these financial statements
F-8
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--DISCONTINUED OPERATIONS:
On November 29, 2000, the Authority discontinued bingo operations in order
to build the Hall of the Lost Tribes, a 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 have been excluded from the captions in the
Statements of Income (Loss) and have been reported as "Loss from discontinued
operations." The loss for fiscal year 2001 relates to severance pay and disposal
of bingo inventory.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
The Authority classifies as cash and cash equivalents all highly liquid
investments with a maturity of three months or less when purchased. Cash
equivalents are carried at cost, which approximates market value.
Inventories
Inventories are stated at the lower of cost or market and consist
principally of food and beverage, retail, and operating supplies. Cost is
determined using the average cost method.
Other assets
Other current assets are as follows (in thousands):
September 30, 2001 September 30, 2000
------------------------ ------------------------
Currency remaining in slot machines
that have not been collected $ 6,838 $ -
Prepaids 5,868 4,478
Other 1,503 847
------------------------ ------------------------
$ 14,209 $ 5,325
======================== ========================
The Authority also has loaned funds to tenants related to the Shops at
Mohegan Sun. As of September 30, 2001, outstanding tenant loans were $1.1
million. These loans mature in periods between three and ten years. These
amounts have been included in other assets in the accompanying balance sheets.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided over
the estimated useful lives of the assets using the straight-line basis. Useful
life estimates of asset categories are as follows:
F-9
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Buildings and land improvements 40 years
Furniture and equipment 3-7 years
The costs of significant improvements are capitalized. Costs of normal
repairs and maintenance are charged to expense as incurred. Gains or losses on
disposition of property and equipment are included in the determination of
income. Interest incurred for the construction of Project Sunburst is
capitalized at the Authority's weighted-average borrowing rate and amortized
over the life of the related asset. Interest capitalized for the years ended
September 30, 2001, 2000 and 1999 was $40.7 million, $9.9 million and $534,000,
respectively.
The carrying value of the Authority's assets are reviewed when events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If it is determined that an impairment loss has occurred based
on current and future levels of income and expected future cash flows as well as
other factors, then an impairment loss is recognized in the Statement of Income
(Loss). The Authority believes no such impairment exists at September 30, 2001.
Fair Value of Financial Instruments
The fair value amounts presented below are reported to satisfy the
disclosure requirements of Statement of Financial Accounting Standards No. 107
("SFAS 107"), "Disclosures about Fair Values of Financial Instruments" and are
not necessarily indicative of the amounts that the Authority could realize in a
current market exchange.
The carrying amount of cash and cash equivalents, receivables, accounts
payable and accrued expenses, financing facilities and capital lease obligations
approximate fair value.
The fair value of the Authority's financing facilities is as follows:
September 30, 2001 September 30, 2000
-------------------- ----------------------
$200M Senior Notes $ 200.0 million $ 196.0 million
$300M Senior Subordinated Notes $ 303.0 million $ 294.0 million
$150M Senior Subordinated Notes $ 152.3 million --
The estimated fair value of the Authority's financing facilities was based
on quoted market prices on or about September 30, 2001.
Casino Revenues and Promotional Allowances
The Authority recognizes casino revenue as gaming wins less gaming losses.
Revenues from food and beverage, retail, entertainment and other are recognized
at the time the service is performed. Minimum rental revenues in the Shops at
Mohegan Sun are recognized on a straight-line basis over the terms of the
related leases. Percentage rents are recognized in the period in which the
tenants exceed their respective percentage rent thresholds. Recoveries from
tenants for operating expenses related to the Shops at Mohegan Sun are
recognized as offsetting expenses in the period billed, which approximates the
period in which the applicable costs are incurred.
The retail value of food and beverage sales and other services furnished to
casino guests, mainly through the use of the Mohegan Sun complimentary program,
is included in gross revenues and then deducted as promotional allowances to
arrive at net revenues.
The estimated retail value of providing such promotional allowances was
included in revenues as follows (in thousands):
For the Year Ended September 30,
2001 2000 1999
------------- ------------- ------------
Food and beverage $ 26,215 $ 25,466 $ 26,724
F-10
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Retail, entertainment and other 45,157 44,578 30,103
------------ ----------- -----------
Total $ 71,372 $ 70,044 $ 56,827
============ =========== ===========
Advertising
The Authority expenses the production costs of advertising the first time
the advertising takes place. The rental fees associated with billboard
advertising are capitalized and amortized over the term of the related rental
agreement. Total advertising costs for the fiscal years ended September 30,
2001, 2000 and 1999 were $31.4 million, $20.7 million and $16.9 million,
respectively. Prepaid advertising on the Authority's balance sheet at September
30, 2001 and September 30, 2000 was $1.1 million and $3,000, respectively.
Pre-Opening Costs and Expenses
Pre-opening costs and expenses consist principally of direct incremental
personnel costs, marketing and advertising expenses related to Project Sunburst.
In accordance with the American Institute of Certified Public Accountants'
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
pre-opening costs and expenses are expensed as incurred. Previously, these costs
were capitalized prior to the opening of a specific project and were charged to
expense at the commencement of operations.
Derivative Instruments
The Authority utilizes derivative instruments including interest rate
swaps, collars and caps to manage interest rate risk associated with the
variable interest rates. The Authority accounts for these derivative instruments
in accordance with SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities." The derivative instruments are designated as cash flow
hedging instruments and are marked to market with unrealized gains (losses)
included as a component of accumulated other comprehensive income (loss). All
derivatives are evaluated quarterly, are deemed effective or ineffective, and
accounted for accordingly.
Other Current Liabilities
The Authority maintains accruals for workers compensation self-insurance
and Player's Club points 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.
Income Taxes
The Tribe is a sovereign Indian nation with independent legal jurisdiction
over its people and its lands. Like other sovereign governments, the Tribe and
its entities, including the Authority, is not subject to federal, state or local
income taxes.
F-11
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Trademarks
In connection with the Relinquishment Agreement (see Note 13), Trading Cove
Associates ("TCA") granted the Authority an exclusive, irrevocable, perpetual,
world-wide and royalty-free license with respect to trademarks and other similar
rights, including the "Mohegan Sun" name used at or developed for Mohegan Sun.
The trademarks were appraised by an independent valuation firm to have a value
of $130.0 million. The independent valuation firm used the Income Approach -
Relief From Royalty Method. The trademark is being amortized on a straight-line
basis over approximately 38 years. The balance of the trademark is as follows
(in thousands):
September 30, 2001 September 30, 2000
------------------ ------------------
Trademark $ 130,000 $ 130,000
Accumulated amortization (10,308) (6,872)
----------------- -----------------
Trademark, net $ 119,692 $ 123,128
================= =================
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 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. 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.
Management's Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The most significant estimate included in the
accompanying financial statements relates to the relinquishment liability (see
Note 13). Actual results could differ from those estimates.
Reclassifications
Certain amounts in the fiscal year 2000 financial statements have been
reclassified to conform with the fiscal year 2001 presentation.
New Accounting Pronouncements
In November 2000, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board ("FASB") reached a consensus on EITF Issue No. 00-14,
"Accounting for Certain Sales Incentives." EITF 00-14 requires that discounts
which result in a reduction in or refund of the selling price of a product or
service in a single exchange transaction be recorded as a reduction of revenues.
The Authority's accounting policy related to free or discounted food and
beverage and other services already complies with EITF 00-14, and those free or
discounted services are generally deducted from gross revenues as "promotional
allowances."
F-12
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
In January 2001, the EITF reached a consensus on certain issues within EITF
Issue No. 00-22, "Accounting for `Points' and Certain Other Time-Based or Volume
Based Sales Incentive Offers." EITF 00-22 requires that cash or cash equivalent
amounts provided or returned to customers as part of a transaction not be shown
as an expense, but instead as an offset to the related revenue. The adoption of
this issue is not expected to have a material impact on the Authority's
financial position, results of operations or cash flows.
In June of 2001, the FASB issued SFAS No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142") to be effective for fiscal years beginning after
December 15, 2001. The Authority adopted SFAS 142 on October 1, 2001. Under SFAS
142, the Mohegan Sun trademark will no longer be subject to amortization over
its estimated useful life as it has been deemed to have an indefinite useful
life. However, SFAS 142 requires the trademark to be evaluated at least annually
for impairment by applying a fair-value based test and, if impairment occurs,
the amount of impaired trademark must be written off immediately. With the
adoption of SFAS 142, the Authority no longer records amortization of the
trademark. For the years ended September 30, 2001, 2000 and 1999, the Authority
recorded $3.4 million, $4.3 million and $2.6 million, respectively, related to
the amortization of the trademark. The Authority is required to apply the
initial fair value test by March 31, 2002. The Authority has not yet determined
whether the initial fair value test will result in any impairment changes, but
does not anticipate a negative effect on its financial position, results of
operations or cash flows upon completing the fair value assessment. Had SFAS 142
been in effect in these periods, the Authority's results would have been as
follows (in thousands):
For the For the Year For the Year
Year Ended Ended September 30, Ended September
September 30, 2001 2000 30, 1999
-------------------------- -------------------------- --------------------
(restated - see note 15)
Net Income (loss) $ 213,941 $ 145,934 $ (38,920)
Trademark amortization 3,436 4,295 2,577
-------------------------- -------------------------- --------------------
As adjusted net income (loss) $ 217,377 $ 150,229 $ (36,343)
========================== ========================== ====================
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment of Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 modifies the
rules for accounting for the impairment or disposal of long-lived assets. The
new rules become effective for fiscal years beginning after December 15, 2001,
with earlier application encouraged. The Authority has not adopted SFAS 144, and
has not yet quantified the impact of implementing SFAS 144 on the Authority's
financial statements, but does not anticipate a negative effect on the
Authority's financial position, results of operations or cash flows upon
adoption of the standard.
NOTE 4--CASH AND CASH EQUIVALENTS:
At September 30, 2001 and 2000, the Authority had cash and cash
equivalents of $74.3 million and $115.7 million, respectively, of which, $5.3
million and $81.4 million, respectively, were invested in highly liquid
investments with original maturities not to exceed three months. For reporting
purposes, cash and cash equivalents include all operating cash, in-house funds,
and cash set aside for the expansion of Mohegan Sun ("Project Sunburst").
F-13
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 5--RECEIVABLES, NET:
Accounts receivable consists primarily of casino receivables which
represent credit extended to approved casino customers. The Authority maintains
an allowance for doubtful accounts which is based on management's estimate of
the amount expected to be uncollectible considering historical experience and
the information management obtains regarding the credit worthiness of the
customer. The collectibility of these receivables could be affected by future
business or economic trends. Total accounts receivable are as follows (in
thousands):
September 30, 2001 September 30, 2000
--------------------------- --------------------------
(restated - see note 15)
Gaming $ 3,571 $ 3,080
Non-gaming 2,541 3,146
----------- -----------
Subtotal 6,112 6,226
Allowance for doubtful accounts (765) (736)
----------- -----------
Receivables, net $ 5,347 $ 5,490
=========== ===========
NOTE 6--PROPERTY AND EQUIPMENT, NET:
Components of property and equipment were as follows (in thousands):
September 30, 2001 September 30, 2000
---------------------- ---------------------
(restated - see note 15)
Land $ 28,581 $ 28,581
Land improvements 44,119 44,834
Buildings and improvements 773,313 251,931
Furniture and equipment 313,627 80,476
---------- ---------
Subtotal 1,159,640 405,822
Less: accumulated depreciation (79,225) (67,579)
---------- ---------
Property and Equipment, net 1,080,415 338,243
Construction in Process 223,568 264,999
---------- ---------
Total Property and Equipment $ 1,303,983 $ 603,242
========== =========
For the fiscal years ended September 30, 2001, 2000 and 1999 depreciation
expenses were $27.8 million, $23.2 million and $18.7 million, respectively.
NOTE 7--OTHER CURRENT LIABILITIES:
Components of other current liabilities were as follows (in thousands):
September 30, 2001
(restated - see note 15) September 30, 2000
Accrued payroll and related taxes and benefits $ 26,576 $ 15,801
Accrued slot win contribution (Note 12) 13,504 11,842
Other 19,658 11,682
-------- --------
Other current liabilities $ 59,738 $ 39,325
======== ========
NOTE 8--FINANCING FACILITIES:
Financing facilities, as described below, consisted of the following (in
thousands):
September 30, 2001 September 30, 2000
-------------------- ---------------------
Bank Credit Facility $ 258,000 --
$200M Senior Notes 200,000 $ 200,000
$300M Senior Subordinated Notes 300,000 300,000
F-14
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
$150M Senior Subordinated Notes 150,000 --
--------- ---------
Long-term debt $ 908,000 $ 500,000
========= =========
Maturities of the Authority's long-term debt as of September 30, 2001 are
as follows (in thousands):
Long-term debt
Fiscal Year Maturities
------------------ --------------------------
2002 $ -
2003 108,000
2004 150,000
2005 -
2006 200,000
Thereafter 450,000
--------------------------
Total $ 908,000
==========================
Bank Credit Facility
As of September 30, 2001, the Authority had $258.0 million outstanding
under a $500 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 a 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). As of September 30, 2001,
one-month LIBOR was 2.64% and the applicable spread on a LIBOR loan was 2.125%.
Interest on each LIBOR loan which is for a term of three months or less is due
and payable on the last day of the related interest period. Interest on each
LIBOR loan which 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 related interest period.
Interest on each base rate loan is due and payable quarterly in arrears. The
Authority had no base rate loans at September 30, 2001. Accrued interest on the
Bank Credit Facility was $169,000 at September 30, 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 on the earlier of March 31, 2002 or the last 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 September 30, 2001 and
2000, the Authority was in compliance with all financial covenant requirements.
Recent Financing Transactions
During fiscal year 1999, the Authority issued $200.0 million in Senior
Notes and $300.0 million in Senior Subordinated Notes. The proceeds from these
financings were used to extinguish the then existing Senior Secured Notes,
defease the then existing Subordinated Notes, pay transaction costs for the
newly issued Senior and Senior Subordinated Notes, and fund initial costs
related to Project Sunburst (see Note 14).
During fiscal year 2001, the Authority issued $150.0 million in new Senior
Subordinated Notes. A portion of the proceeds from this financing, net of fees,
were used in conjunction with Project Sunburst. On July 30, 2001, the Authority
paid down $90.0 million on the Bank Credit Facility with a portion of the
proceeds from the financing.
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 rate on the Bank Credit Facility. The Authority's
F-15
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
objective in managing interest rate risk is to ensure the Authority has
appropriate income and sufficient liquidity to meet its obligations. The
Authority analyzes interest rate risk using various models that forecast cash
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 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. All derivatives
are evaluated quarterly. The interest rate cap and interest rate swap listed
below were deemed to be effective at September 30, 2001. The interest rate
collar listed below was deemed to be ineffective at September 30, 2001.
Derivative instruments held by the Authority at September 30, 2001 are as
follows:
Estimated
Notional Fair
Value Cost Value
------------- --------- ------------
Interest Rate Cap
Strike Rate--8% $ 61,038,000 $ 410,000 $ 1,000
Interest Rate Collar
Ceiling Strike Rate--8%
Floor Strike Rate--6% 56,356,800 295,000 (3,310,295)
Interest Rate Swap
Pay fixed--6.35%
Receive Variable 28,178,400 221,000 (1,840,126)
------------- ----------- ------------
Total $ 145,573,200 $ 926,000 $ (5,149,421)
============= =========== ============
All derivative instruments are based upon one-month LIBOR. One-month LIBOR
was 2.64% on September 30, 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 September 30, 2001.
The aggregate fair market value change in all derivative instruments was
$6.0 million for the year ended September 30, 2001. In accordance with SFAS 133,
the Authority recorded $1.9 million related to the unrealized loss on the
derivative instruments as a component of accumulated other comprehensive income
in the accompanying balance sheets and recorded $4.1 million as interest expense
in the accompanying statements of income for the year ended September 30, 2001.
As of September 30, 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
F-16
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
existing debt, pay transaction costs and fund initial costs related to Project
Sunburst. Interest on the Senior Notes is 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. Borrowing 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 13), that are then due and owing, and rank senior to the
remaining 50% of the Authority's payment obligations under the Relinquishment
Agreement (see Note 13), that are then due and owing, the 1999 Senior
Subordinated Notes and the 2001 Senior Subordinated Notes. As of September 30,
2001 and 2000, accrued interest on the Senior Notes was $4.1 million.
1999 Senior Subordinated Notes
On March 3, 1999, the Authority issued the $300.0 million Senior
Subordinated Notes with fixed interest payable at a rate of 8.75% per annum (the
"1999 Senior Subordinated 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 1999 Senior Subordinated
Notes is payable semi-annually on January 1 and July 1. The 1999 Senior
Subordinated Notes mature on January 1, 2009. The 1999 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 13), that are then due and owing. The 1999
Senior Subordinated Notes rank equally with the remaining 50% of the Authority's
payment obligations under the Relinquishment Agreement (see Note 13), that are
then due and owing and the 2001 Senior Subordinated Notes. As of September 30,
2001 and 2000, accrued interest on the 1999 Senior Subordinated Notes was $6.6
million.
2001 Senior Subordinated Notes
On July 26, 2001, the Authority issued $150.0 million Senior Subordinated
Notes with fixed interest payable at a rate of 8.375% per annum (the "2001
Senior Subordinated Notes"). The proceeds from this financing were used to pay
transaction costs, pay down $90.0 million on the Bank Credit Facility and fund
costs related to Project Sunburst. Interest on the 2001 Senior Subordinated
Notes is payable semi-annually on January 1 and July 1. The 2001 Senior
Subordinated Notes mature on July 1, 2011. The 2001 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 13), that are then due and owing. The 2001
Senior Subordinated Notes rank equally with the 1999 Senior Subordinated Notes
and the remaining 50% of the Authority's payment obligations under the
Relinquishment Agreement (see Note 13), that are then due and owing. As of
September 30, 2001, accrued interest on the 2001 Senior Subordinated Notes was
$2.3 million.
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.
F-17
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
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
purchase and sale of the defeasance trust assets and the payment of the
defeasance liability on December 30, 1999.
Letters of Credit
The Authority maintains letters of credit in order to satisfy potential
workers compensation liabilities that may arise. The Authority has available a
$250,000 uncollateralized letter of credit that expires in August 2002. The
Authority has a $550,000 letter of credit that expires in April 2002. The
$550,000 letter of credit was reduced from $1.0 million on April 13, 2001. As of
September 30, 2001 and 2000, no amounts were drawn on the letters of credit.
NOTE 9--LEASES:
At September 30, 2001, the Authority was obligated under capital leases to
make future minimum lease payments of $1.6 million, of which $54,000 represents
interest. These capital leases consist principally of furniture and equipment,
and the depreciation of these assets is included in total depreciation and
amortization on the Authority's Statement of Income (Loss).
In October and November 2001, the Authority repaid the total obligation
under the capital leases.
The Authority leases certain equipment. Rental expense, excluding costs to
obtain assets, was $2.5 million and $3.6 million for the fiscal years ended
September 30, 2000 and 1999, respectively. No operating leases with terms of
more than a year existed during the fiscal year ended September 30, 2001. During
fiscal year 2000, the Authority purchased equipment previously used under
operating leases for $2.7 million.
The Authority leases space to tenants in the Shops at Mohegan Sun. Minimum
future rental income on non-cancelable leases expected to be received by the
Authority is as follows (in thousands):
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
2002 2003 2004 2005 2006 Thereafter Total
---------- ------------ ----------- ----------- ----------- ---------- --------
Minimum future rental income $ 383 $ 1,229 $ 1,167 $ 1,259 $ 1,213 $ 16,088 $ 21,339
NOTE 10--RELATED PARTY TRANSACTIONS:
The Tribe provides governmental and administrative services to the
Authority in conjunction with the operation of Mohegan Sun. During the fiscal
years ended September 30, 2001, 2000 and 1999, the Authority incurred $10.9
million, $9.9 million and $8.3 million, respectively, of expenses for such
services.
Prior to October 1, 2000, the Authority operated a retail outlet at Mohegan
Sun and purchased goods for resale at this location from a limited liability
company ("Little People, LLC") owned by the Tribe. For the fiscal years ended
September 30, 2000 and 1999, the Authority purchased $348,000 and $417,000,
respectively, of such goods from Little People, LLC. On October 1, 2000, the
Tribe assumed the management of this retail outlet from the Authority and
purchased the remaining inventory from the Authority for approximately $172,000.
The Authority and Little People, LLC have entered into a lease agreement,
whereby Little People, LLC leases retail space located in the Shops at Mohegan
Sun from the Authority. The lease term expires on June 30, 2006 and may be
renewed on a monthly basis. Little People, LLC is not obligated to pay any base
rent. The Authority reimburses the Tribe for sales where patron player's club
points are utilized.
F-18
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
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 fiscal years ended September 30, 2001, 2000
and 1999, the Authority expensed $386,000, $386,000 and $412,000, respectively,
relating to these land lease agreements.
The Tribe provided services through its Development Department for projects
related to Mohegan Sun and Project Sunburst. The Authority incurred $954,000 of
such expenses associated with the Development Department for the fiscal year
ended September 30, 2000. There were no expenses incurred during the year ended
September 30, 2001.
On August 7, 2001, the Tribe issued Gaming Authority Priority Distribution
Payment Public Improvement Bond Anticipation Notes (the "Series 2001 BANS"). The
Authority has no obligations to make any payments under the Series 2001 BANS.
Debt service on the Series 2001 BANS is paid by the Tribe from 95% of amounts
received from the Authority under the Priority Distribution Agreement. The
Priority Distribution Agreement obligates the Authority to make monthly priority
distribution payments to the Tribe in a maximum aggregate amount of $14.0
million per calendar year, adjusted annually in accordance with the formula
specified in the Priority Distribution Agreement to reflect the effects of
inflation. However, payments pursuant to the Priority Distribution Agreement do
not reduce the Authority's obligations to make payments pursuant to invoices for
governmental services provided by the Tribe or any payments under any other
agreements with the Tribe to the extent that such agreements are permitted under
the Bank Credit Facility. The priority distribution payments are limited
obligations of the Authority payable only to the extent of its net cash flow, as
defined in the Priority Distribution Agreement, and are not secured by a lien or
encumbrance on any assets or property of the Authority. The remaining 5% of each
priority distribution payment is remitted to the Tribe free and clear of any
lien. The Authority's financial statements reflect payments associated with the
Priority Distribution Agreement of $14.0 million for the fiscal year ended
September 30, 2001. The Authority's payment obligations under the Relinquishment
Agreement (see Note 13) are subordinated in right of payment to the minimum
distribution payment as defined in the Relinquishment Agreement, from the
Authority to the Tribe to the extent then due.
In compliance with the restrictive provisions of the Bank Credit Facility
and the Authority's indentures, the Authority distributed to the Tribe $30.0
million, net of $14.0 million related to the Priority Distribution Agreement,
during the fiscal year ended September 30, 2001.
On September 25, 1995, the Tribe adopted the Mohegan Tribal Employment
Rights Ordinance (the "TERO"), which sets forth hiring and contracting
preference requirements for employers and entities conducting business on Tribal
land or working on behalf of the Tribe. Pursuant to the TERO, an employer is
required to give hiring, promotion, training, retention and other
employment-related preferences to Native Americans who meet the minimum
qualifications for the applicable employment position. However, this preference
requirement does not apply to key employees, as such persons are defined in the
TERO. In addition, when staffing the operations of the Project Sunburst
expansion, the Development Agreement requires TCA to give hiring and recruiting
preferences, first to qualified members of the Tribe (and their spouses and
children) and then to enrolled members of other federally recognized Indian
tribes.
Similarly, any entity awarding a contract to be performed on Tribal land or
on behalf of the Tribe must give preference, first to certified Mohegan entities
and second to other certified Indian entities. This contracting preference is
conditioned upon the bid by the preferred certified entity being within 5% of
the lowest bid by a non-certified entity (unless the preferred certified
entity's bid exceeds $100,000 of the lowest bid by a non-certified entity). The
TERO establishes procedures and requirements for certifying Mohegan entities and
other Indian entities. Certification is based largely on the level of ownership
and control exercised by the members of the Tribe or other Indian tribes, as the
case may be, over the entity bidding on a contract. A number of contracts for
Project Sunburst were awarded to companies controlled by Tribal members under
the TERO provision described above.
The Authority engages McFarland Johnson, Inc. for surveying, civil
engineering and professional design services. Roland Harris, a current member
and a former Chairman of the Management Board and the Tribal Council, was a
consultant for this firm pursuant to a consulting agreement which expired in May
2001. For the fiscal years ended September 30, 2001, 2000 and 1999, the
Authority incurred $175,000, $792,000 and $373,000, respectively, for such
services provided by McFarland Johnson. McFarland Johnson formerly conducted
business as Harris and
F-19
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Clark, Inc. The Authority believes that the terms of this engagement are
comparable to those that would pertain to arms length engagement with an
unaffiliated firm.
As of September 30, 2001, 146 employees of the Authority were members of
the Tribe.
NOTE 11--EMPLOYEE BENEFIT PLANS:
The Authority maintains a retirement savings plan for its employees under
Section 401(k) of the Internal Revenue Code ("401(k) Plan"). The plan allows
employees of the Authority to defer up to the lesser of the maximum amount
prescribed by the Internal Revenue Code or 15% of their income on a pre-tax
basis, through contributions to the 401(k) Plan. The Authority matches 100% of
the eligible employees' contributions up to a maximum of 3% of their individual
earnings. The Authority recorded matching contributions of approximately $2.7
million, $2.9 million and $2.0 million to this plan for the years ended
September 30, 2001, 2000 and 1999, respectively.
The Authority, together with the Tribe, maintains a Non-Qualified Deferred
Compensation Plan (the "Deferred Compensation Plan") for certain key employees.
This plan allows participants to defer up to 100% of their pre-tax income to the
plan. For the fiscal years ended September 30, 2001, 2000 and 1999,
contributions, net of withdrawals, totaled $657,000, $703,000 and $144,000,
respectively.
On April 18, 2001, the Authority announced a Deferred Retirement Plan (the
"Retirement Plan") for all employees sponsored by the Authority. The Retirement
Plan was effective July 2, 2001 and contributions by the Authority are 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. For the year ended
September 30, 2001, the Authority has contributed $986,000 to the Retirement
Plan.
NOTE 12--COMMITMENTS AND CONTINGENCIES:
Project Sunburst
In November 2000, the Tribal Council approved a formal resolution
increasing the expansion budget to $960.0 million (excluding capitalized
interest), from $800.0 million. The Project Sunburst budget was increased to
$960.0 million for primarily three reasons: (1) enhancements in project scope
such as an increase in the number of slot machines scheduled to be placed on the
gaming floor; (2) quality improvements to the hotel and public areas; and (3)
increases in Project Sunburst labor costs because of the competitive nature of
the construction labor market in the northeastern United States. As of September
30, 2001, the Authority had incurred $888.9 million, excluding capitalized
interest, on Project Sunburst. The remaining $71.1 million is anticipated to be
incurred during fiscal year 2002. As of September 30, 2001, cumulative
capitalized interests for Project Sunburst construction expenses totaled $51.1
million. Capitalized interest totaled $40.7 million, $9.9 million and $534,000
for the fiscal years ended September 30, 2001, 2000 and 1999, 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) $80.0 million.
The Authority reflected expenses associated with the Slot Win Contribution
totaling $144.6 million, $135.1 million and $121.1 million, respectively, for
the fiscal years ended September 30, 2001, 2000 and 1999. As of September 30,
2001, outstanding Slot Win Contribution payments to the State of Connecticut
totaled $13.5 million.
F-20
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Agreement with the Town of Montville
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 on the Town resulting from the
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 September 30, 2001, the
Authority had fulfilled this obligation and paid $3.0 million to the Town 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.
Land Lease from the Tribe to the Authority
The land upon which Mohegan Sun is situated is held in trust for the Tribe
by the United States. The Tribe and the Authority have entered into a land lease
under which the Tribe leases to the Authority the property and all buildings,
improvements and related facilities constructed or installed on the property.
The lease was approved by the Secretary of the Interior on September 29, 1995.
Summarized below are several key provisions of this lease.
Term
The term of the lease is 25 years with an option, exercisable by the
Authority, to extend the term for one additional 25-year period. Upon the
termination of the lease, the Authority will be required to surrender to the
Tribe possession of the property and improvements, excluding any equipment,
furniture, trade fixtures or other personal property.
Rent and Other Operating Expenses
The Authority is required to pay to the Tribe a nominal annual rental fee.
For any period when the Tribe or another agency or instrumentality of the Tribe
is not the tenant under the lease, the rent will be 8% of the tenant's gross
revenues from the premises. The Authority is responsible for the payment of all
costs of owning, operating, constructing, maintaining, repairing, replacing and
insuring the leased property.
Use of Leased Property
The Authority may use the leased property and improvements solely for the
construction and operation of Mohegan Sun, unless prior approval is obtained
from the Tribe for any proposed alternative use. Similarly, no construction or
alteration of any building or improvement located on the leased property by the
Authority may be made unless complete and final plans and specifications have
been approved by the Tribe. Following foreclosure of any mortgage on the
Authority's interest under the lease or any transfer of such interest to the
holder of such mortgage in lieu of foreclosure, the leased property and
improvements may be used for any lawful purpose, subject only to applicable
codes and governmental regulations; provided, however, that a non-Indian holder
of the leased property may in no event conduct gaming operations on the
property.
Permitted Mortgages and Rights of Permitted Mortgages
The Authority may not mortgage, pledge or otherwise encumber its leasehold
estate in the leased property except to a holder of a permitted mortgage. Under
the lease, a "permitted mortgage" includes the leasehold mortgage securing the
Authority's obligations under the Bank Credit Facility granted by the Authority
that provides, among other things, that (1) the Tribe will have the right to
notice of, and to cure, any default of the Authority, (2) the Tribe will have
the right to prior notice of an intention by the holder to foreclose on the
permitted mortgage and the right to purchase the mortgage in lieu of any
foreclosure, and (3) the permitted mortgage is subject and subordinated to any
and all access and utility easements granted by the Tribe under the lease. As
provided in the lease, each holder of a permitted mortgage has the right to
notice of any default of the Authority under the lease and the opportunity to
cure such default within any applicable cure period.
Default Remedies
F-21
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
The Authority will be in default under the lease if, subject to the notice
provisions, it fails to make lease payments or to comply with its covenants
under the lease or if it pledges, encumbers or conveys its interest in the lease
in violation of the terms of the lease. Following a default, the Tribe may, with
approval from the Secretary of the Interior, terminate the lease unless a
permitted mortgage remains outstanding with respect to the leased property. In
that case, the Tribe may not (1) terminate the lease or the Authority's right to
possession of the leased property, (2) exercise any right of re-entry, (3) take
possession of and/or relet the leased property or any portion thereof, or (4)
enforce any other right or remedy which may materially and adversely affect the
rights of the holder of the permitted mortgage, unless the default triggering
such rights was a monetary default which such holder failed to cure after
notice.
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 $25.5 million
for services including, but not limited to, pre-construction review and
construction phase contract administration. As of September 30, 2001, Perini had
received $14.0 million of the $25.5 million fee, which has been included in
construction in process in the accompanying balance sheets. For the year ended
September 30, 2001 and 2000, the Authority incurred $7.5 million and $6.0
million, respectively, related to the construction management fee. The
Construction Management Agreement contains a limited waiver of sovereign
immunity to permit the commencement, maintenance and enforcement of any dispute,
claim and/or cause of action arising under the Construction Management
Agreement. In conjunction with the limited waiver of sovereign immunity, Perini
may seek satisfaction of judgment against the undistributed and/or future
revenues of Project Sunburst and/or the existing Mohegan Sun facility.
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 materially adverse effect on the Authority's financial position, results
of operations or cash flows.
NOTE 13--TCA AGREEMENTS:
Management Agreement
On September 30, 1995, the Tribe and 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 and $59.5 million,
respectively, for the fiscal years ended September 30, 2000 and 1999. The amount
for fiscal year 2000 represents only the amounts earned from the period October
1, 1999 through December 31, 1999, the date upon which the Management Agreement
was terminated.
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 the 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
F-22
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
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
convention/events center and all rental or other receipts from lessees and
concessionaires but not the gross receipts of such lessees, licenses and
concessionaires).
In the fourth quarter of fiscal year 2000, TCA notified the Authority that
it did not agree with the Authority's treatment of certain promotional
transactions that, in TCA's opinion, had resulted in a reduction in revenues
subject to the Relinquishment Agreement. The Authority and TCA have agreed on
the accounting for Revenues related to certain promotional allowances in
accordance with the Relinquishment Agreement. As a result, in August 2001, the
Authority paid TCA approximately $137,000 of additional relinquishment fees.
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 September 30, 2001, the carrying
amount of the relinquishment liability was $592.0 million as compared to $672.9
million at September 30, 2000. The decrease is due to $74.4 million in
relinquishment liability reassessment income and $42.3 million in relinquishment
payments offset by $35.8 million in accretion of relinquishment liability
discount. Of the $42.3 million in relinquishment payments, $9.7 million
represents principal amounts and the remaining $32.6 million is payment for the
accretion of interest. Relinquishment payments of $20.0 million were made during
the fiscal year ended September 30, 2000. Of the $20.0 million in relinquishment
payments for the fiscal year ended September 30, 2000, $8.5 million represents
principal payments and the remaining $11.5 million is payment for the accretion
of interest. There were no relinquishment payments made during the fiscal year
ended September 30, 1999. The accretion of relinquishment liability discount
resulted from the impact on the discount for the time value of money due to the
passage of time. The relinquishment liability reassessment resulted from the
impact of actual revenues compared to original estimates on the determination of
the relinquishment liability for the fiscal year 2001. The Authority reviewed
current revenue forecasts and has reduced revenue projections for the period in
which the Relinquishment Agreement applies, due to uncertainties involving
economic market conditions that have affected Project Sunburst revenues and
future competition from potential Native American casinos. At September 30, 2001
relinquishment payments earned but unpaid, were $11.5 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
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
payment requests submitted to the Authority.
Payment of the Development Fee
Under the Development Agreement, the Authority is required to pay to 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 September 30, 2001, the Authority had
incurred $11.3 million related to the TCA development fee, of which $9.3 million
has been paid. All amounts incurred have been included in the property, plant
and equipment and construction in process sections of 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 has also waived sovereign immunity for the purpose of
permitting, compelling
F-23
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
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 14--EXTRAORDINARY ITEMS:
The Authority incurred $38.4 million in extraordinary items for the fiscal
year ended September 30, 1999. Included in the expense is $33.7 million related
to the early extinguishment of the Senior Secured Notes and $5.2 million related
to the write-off of financing fees associated with the original facility
construction. Also included is an extraordinary gain for the forgiveness of debt
of $500,000 associated with the defeasance of the Subordinated Notes (see Note
8).
NOTE 15 - RESTATEMENT AND RECLASSIFICATIONS:
The Authority has restated its financial statements for the fiscal year
ended September 30, 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 fiscal year ended
September 30, 2001 (iii) to record depreciation expense associated with placing
additional fixed assets in service prior to September 30, 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 $9.1 million
for the fiscal year ended September 30, 2001, and increasing its total assets by
$101.9 million as of September 30, 2001.
In addition, the Authority also has reclassified certain other costs,
expenses and balances in the financial statements. These reclassifications have
no effect on the Authority's net income.
The financial statements as of and for the fiscal year ended September 30,
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):
F-24
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Mohegan Tribal Gaming Authority
Condensed Balance Sheet
(in thousands)
Restated
Previously Reported Restatement September 30,
September 30, 2001* Reclassifications Adjustments 2001
------------------- ----------------- -------------- -------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 74,284 $ - $ - $ 74,284
Receivables, net 7,163 (1,816) a, b - 5,347
Due from Tribe - 957 b, c - 957
Inventories 11,455 - - 11,455
Other current assets 12,706 1,503 a - 14,209
------------------- ---------------- -------------- -----------
Total current assets $ 105,608 $ 644 $ - $ 106,252
Non-current assets:
Property and equipment, net 935,016 - 145,399 h, i, j, k, l 1,080,415
Construction in process 267,653 (644) c (43,441) h, k, m 223,568
Trademark, net 119,692 - - 119,692
Other assets, net 24,766 - - 24,766
------------------- ---------------- -------------- -----------
Total assets $ 1,452,735 $ - $ 101,958 $ 1,554,693
=================== ================ ============== ===========
LIABILITIES AND CAPITAL
- -----------------------
Current liabilities:
Current portion of capital lease
obligations $ 1,514 $ - $ - $ 1,514
Current portion of relinquishment
liability 68,272 1,927 e - 70,199
Trade payables - 13,810 d - 13,810
Accounts payable and accrued expenses 139,316 (139,316) d, f, g - -
Construction payables - 65,768 f 89,729 j 155,497
Accrued interest payable 13,062 - - 13,062
Other current liabilities - 59,738 g - 59,738
------------------- ---------------- -------------- -----------
Total current liabilities 222,164 1,927 89,729 313,820
Non-current liabilities:
Long-term debt 908,000 - - 908,000
Relinquishment liability, net of
current portion 523,736 (1,927) e - 521,809
Other long-term liabilities 5,232 - - 5,232
------------------- ---------------- -------------- -----------
Total liabilities 1,659,132 - 89,729 1,748,861
------------------- ---------------- -------------- -----------
Capital:
Retained deficit (201,270) - 9,093 i, l, m, n (192,177)
Accumulated other comprehensive loss (5,127) - 3,136 n (1,991)
------------------- ---------------- -------------- -----------
Total capital (206,397) - 12,229 (194,168)
------------------- ---------------- -------------- -----------
Total liabilities and capital $ 1,452,735 $ - $ 101,958 $ 1,554,693
=================== ================ ============== ===========
* Previously reported in Form 10-K filed by the Authority on December 17, 2001.
See page F-29 of the notes to the Authority's financial statements for the
footnotes to this restatement schedule.
F-25
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Mohegan Tribal Gaming Authority
Condensed Statement of Income
(in thousands)
Previously Reported Restated
For the Year Ended Restatement For the Year Ended
September 30, 2001* Reclassifications Adjustments September 30, 2001
------------------- ----------------- -------------- ------------------
Revenues:
Gaming $ 750,988 $ - $ - $ 750,988
Food and beverage 49,508 - - 49,508
Retail and other 57,481 - - 57,481
------------- ---------------- -------------- ------------------
Gross revenues 857,977 - - 857,977
Less - Promotional allowances (71,372) - - (71,372)
------------- ---------------- -------------- ------------------
Net revenues $ 786,605 $ - $ - $ 786,605
------------- ---------------- -------------- ------------------
Operating costs and expenses:
Gaming 334,537 - - 334,537
Food and beverage 24,447 - - 24,447
Retail, entertainment and other 32,114 - - 32,114
Marketing, general and administrative 139,343 - - 139,343
Pre-opening costs and expenses 31,344 - - 31,344
Depreciation and amortization 34,753 (4,536) p 1,078 i,l 31,295
Relinquishment liability reassessment - (74,410) q - (74,410)
------------- ---------------- -------------- ------------------
Total operating costs and expenses 596,538 (78,946) 1,078 518,670
------------- ---------------- -------------- ------------------
Income from operations 190,067 78,946 (1,078) 267,935
------------- ---------------- -------------- ------------------
Other income (expense):
Relinquishment liability reassessment 38,577 (38,577) q,r -
Accretion of relinquishment liability
discount - (35,833) r - (35,833)
Interest income 2,920 - - 2,920
Interest expense, net of capitalized
interest (25,060) (4,537) p,s 9,222 m,n,t (20,375)
Other expense, net (116) 1 s - (115)
Change in fair value of derivative
instruments (949) - 949 t -
------------- ---------------- -------------- ------------------
Total other income (expense) 15,372 (78,946) 10,171 (53,403)
------------- ---------------- -------------- ------------------
Income from continuing operations 205,439 - 9,093 214,532
Loss from discontinued operations (591) - - (591)
------------- ---------------- -------------- ------------------
Net income $ 204,848 $ - $ 9,093 $ 213,941
============= ================ ============== ==================
* Previously reported in Form 10-K filed by the Authority on December 17, 2001.
See page F-29 of the notes to the Authority's financial statements for the
footnotes to this restatement schedule.
F-26
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
Year Ended Restated for the
September 30, 2001* Restatement Adjustments Year Ended September 30, 2001
------------------- ---------------------------- -----------------------------
Comprehensive Comprehensive
Capital Income Capital Income
------- ------ ------- ------
Retained deficit at October 1 $ (362,118) $ - $ - $ (362,118) $ -
Net income 204,848 9,093 9,093 i, l, m, n 213,941 213,941
---------- ---------
Accumulated other comprehensive loss
Distributions to Tribe (44,000) - (44,000)
------------------
----------- -----------
Retained deficit at September 30 $ (201,270) $ 9,093 $ (192,177)
------------------ ----------- -----------
Accumulated other comprehensive loss at
October 1 - -
Unrealized gain (loss) on derivative
instruments (5,127) $ 3,136 n (1,991)
------------------ ---------- ---------
Other comprehensive income (loss) (5,127) 3,136 3,136 (1,991) (1,991)
------------------ ----------- ---------- ----------- ---------
Comprehensive income $ 199,721 $ 12,229 $ 211,950
------------------ ========== =========
Accumulated other comprehensive income
(loss) at September 30 (5,127) 3,136 (1,991)
------------------ ----------- -----------
Total capital ending balance September 30 $ (206,397) $ 12,229 $ (194,168)
================== =========== ===========
* Previously reported in Form 10-K filed by the Authority on December 17, 2001.
See page F-29 of the notes to the Authority's financial statements for the
footnotes to this restatement schedule.
F-27
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 For the
Year Ended Year Ended
September 30, Restatement September
2001* Reclassifications Adjustments 30, 2001
-------------- ----------------- ----------- -----------
Cash flows provided by (used in) operating activities:
Net income $ 204,848 $ - $ 9,093 i, l, m, n $ 213,941
Adjustments to reconcile net income to
net cash flow provided by operating activities:
Depreciation and amortization 34,753 (4,536) u 1,078 i, l 31,295
Accretion of relinquishment liability discount - 35,833 r - 35,833
Relinquishment liability reassessment (38,577) (35,833) r - (74,410)
Cash paid for accretion of relinquishment
liability discount - (32,637) v - (32,637)
Change in fair value of derivative instruments 949 - 3,136 n 4,085
Loss on disposition of assets 116 - - 116
Provision for losses on receivables 411 - - 411
Amortization of debt issuance costs - 4,536 u - 4,536
Changes in operating assets and liabilities:
Increase in current assets (11,695) (644) c - (12,339)
Decrease (increase) in other assets (5,894) 6,227 w, x - 333
Increase in current liabilities 84,151 (84,151) y - -
Increase in other liabilities 5,232 24,942 w, z, bb - 30,174
------------- ---------- --------- ---------
Net cash flows provided by operating activities 274,294 (86,263) 13,307 201,338
------------- ---------- --------- ---------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment, net of change in
construction payables (623,696) 51,968 c, y, bb, cc (13,307) h.3 (585,035)
Increase in construction in process, net (2,654) 2,654 cc - -
Proceeds from asset sale 95 - - 95
Issuance of tenant loans - (1,078) x - (1,078)
------------- ---------- --------- ---------
Net cash flows used in investing activities (626,255) 53,544 (13,307) (586,018)
------------- ---------- --------- ---------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of long-term debt 498,000 (348,000) aa - 150,000
Bank Credit Facility borrowings - 348,000 aa - 348,000
Bank Credit Facility payments (90,000) - - (90,000)
Distributions to Tribe (44,000) - - (44,000)
Principal portion of relinquishment liability payments (42,295) 32,637 v - (9,658)
Capitalized financing fees (6,314) - - (6,314)
Payment on capital lease obligations (4,877) - - (4,877)
Increase in other long-term liabilities - 82 z - 82
------------- ---------- --------- ---------
Net cash flows provided by financing activities 310,514 32,719 - 343,233
------------- ---------- --------- ---------
Net decrease in cash and cash equivalents (41,447) - - (41,447)
Cash and cash equivalents at beginning of period 115,731 - - 115,731
------------- ---------- --------- ---------
Cash and cash equivalents at end of period $ 74,284 $ - $ - $ 74,284
============= ========== ========= =========
* Previously reported in Form 10-K filed by the Authority on December 17, 2001.
See page F-29 of the notes to the Authority's financial statements for the
footnotes to this restatement schedule.
F-28
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Restatement Adjustment footnotes (in thousands):
a. Reclassified an amount pertaining to the Deferred Compensation Plan of
$1,503 from receivables, net to other current assets.
b. Reclassified amounts due from Tribe of $313 from receivables, net to due
from Tribe.
c. Reclassified construction in process of $644 pertaining to amounts due from
the Tribe for work completed by September 30, 2001.
d. Reclassified trade payables from accounts payable and accrued expenses.
e. Reclassified long-term relinquishment liability of $1,927 to current
portion of relinquishment liability.
f. Reclassified construction related payables of $65,768 to construction
payables from accounts payable and accrued expenses.
g. Reclassified other current liabilities accounts payable and accrued
expenses of $59,738 to other current liabilities.
h. Reclassified utilities facility costs of $10,175 from construction in
process to property and equipment, net.
i. Recorded $234 of depreciation on additional utilities facility costs
capitalized and placed into service in November 2000.
j. Recorded an accrual for construction payables of $89,729 pertaining to
Project Sunburst for work completed by September 30, 2001, but paid
subsequent to September 30, 2001.
k. Reclassified Project Sunburst costs of $46,573 pertaining to Project
Sunburst for work completed by September 30, 2001, but paid subsequent to
September 30, 2001.
l. Recorded depreciation of $844 on additional capitalized Project Sunburst
costs for the year ended September 30, 2001.
m. Recorded $13,307 of additional capitalized interest pertaining to Project
Sunburst for the year ended September 30, 2001.
n. In accordance with SFAS 133, recorded a $3,136 adjustment to reflect an
unrealized loss on certain derivative instruments to other comprehensive
loss. (See Note 8).
o. Omitted.
p. Reclassified $4,536 of amortization of debt issuance costs from
depreciation and amortization to interest expense.
q. Reclassified relinquishment reassessment adjustment of $74,410 from
relinquishment liability reassessment included in other income (expense) to
relinquishment liability reassessment included in operating costs and
expenses.
r. Reclassified $35,833 from relinquishment liability reassessment to
accretion of relinquishment liability discount.
s. Reclassified $1 from interest income to other expense, net.
t. Reclassified change in fair value of derivative instruments of $949 to
interest expense, net of capitalized interest.
u. Reclassified the amortization of debt issuance costs or $4,536 from
depreciation and amortization to amortization of debt issuance costs.
v. Reclassified accretion of relinquishment liability discount of $32,637 from
principal portion of relinquishment payments.
w. Reclassified negative fair value on derivative instruments of $5,149 from
decrease (increase) in other assets to increase in other liabilities.
x. Reclassified issuance of tenant loans of $1,078 from decrease (increase) in
other assets to issuance of tenant loans.
y. Reclassified change in construction payables to construction in process of
$84,151 from accounts payable and accrued expenses.
z. Reclassified increase in other long-term liabilities of $82 from increase
in other liabilities to increase in other long-term liabilities.
aa. Reclassified Bank Credit Facility draws of $348,000 from proceeds from
issuance of long term-debt to Bank Credit Facility borrowings.
bb. Reclassified $30,173 in increase in other liabilities to increase in
construction in process, net.
cc. Reclassified increase in construction in process to purchase of property
and equipment, net of change in construction payables.
F-29
SCHEDULE II
MOHEGAN TRIBAL GAMING AUTHORITY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 and 1999
(in thousands)
Column A Column B Column C Column D Column E
Charged
to costs
Balance and Charged Deductions Balance at
beginning expenses to other from end of
of period (income) accounts reserves(1) period
Description:
Year Ended September 30, 2001
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts $ 736 $ 411 $ -- $ 382 $ 765
Relinquishment liability $ 672,880 $ (38,577) $ -- $ 42,295 $ 592,008
Year Ended September 30, 2000
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts $ 834 $ 617 $ -- $ 715 $ 736
Relinquishment liability $ 661,010 $ 31,843 $ -- $ 19,973 $ 672,880
Period ended September 30, 1999
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts $ 348 $ 679 $ -- $ 193 $ 834
Relinquishment Liability $ 549,125 $ 111,885 $ -- $ -- $ 661,010
Note (1): Deductions from reserves include the write-off of uncollectible
accounts, net of recoveries of accounts previously written off and payments
under the Relinquishment Agreement.
S-1
EXHIBITS INDEX
Exhibit
No. Description
3.1 Constitution of the Mohegan Tribe of Indians of Connecticut*
3.2 Ordinance No. 95-2 of the Mohegan Tribe of Indians of Connecticut
for Gaming on Tribal Lands, enacted on July 15, 1995*
4.1 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**
4.2 Form of Global 8 1/8% Senior Notes Due 2006 of the Mohegan Tribal
Gaming Authority (contained in the Indenture filed as Exhibit
4.1)**
4.3 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**
4.4 Form of Global 8 3/4% Senior Subordinated Notes Due 2009 of the
Mohegan Tribal Gaming Authority (contained in the Indenture filed
as Exhibit 4.3)**
4.5 Indenture dated as of July 26, 2001 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 3/8% Senior Subordinated Notes Due 2011 of the Mohegan Tribal
Gaming Authority***
4.6 Form of Global 8 3/8% Senior Subordinated Notes Due 2011 of the
Mohegan Tribal Gaming Authority (contained in the Indenture filed
as Exhibit 4.5)***
10.1 The Mohegan Tribe--State of Connecticut Gaming Mohegan Compact
between the Mohegan Tribe of Indians of Connecticut and the State
of Connecticut (the "Compact")*
10.2 Agreement dated April 25, 1994 between the Mohegan Tribe of Indians
of Connecticut and the State of Connecticut resolving certain
land claims (the "Resolution Agreement")*
10.3 Memorandum of Understanding dated May 17, 1994 between the Mohegan
Tribe of Indians of Connecticut and the State of Connecticut
regarding implementation of the Compact and the Resolution
Agreement*
10.4 Agreement between the Mohegan Tribe of Indians of Connecticut and
the Town of Montville, Connecticut*
10.5 Land Lease dated September 29, 1995 between the Mohegan Tribe of
Indians of Connecticut and the Mohegan Tribal Gaming Authority;
Amendment of Land Lease dated September 29, 1995*
10.6 Amendment to the Land Lease dated February 18, 1999 between the
Mohegan Tribe of Indians of Connecticut and the Mohegan Tribal
Gaming Authority**
10.7 Amended and Restated Gaming Facility Management Agreement dated
August 30, 1995 between the Mohegan Tribe of Indians of
Connecticut, the Mohegan Tribal Gaming Authority and Trading Cove
Associates*
10.8 Development Services Agreement dated February 7, 1998 by and among
the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians
of Connecticut and Trading Cove Associates+
10.9 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+
Exhibit
No. Description
10.10 The Loan Agreement dated as of March 3, 1999 by and among the
Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of
Connecticut, Bank of America National Trust and Savings
Association as Administrative Agent, Salomon Smith Barney Inc. as
Syndication Agent, Societe Generale as Documentation Agent,
NationsBanc Montgomery Securities LLC as Lead Arranger and each
lender named therein (the "Loan Agreement")**
10.11 Escrow Deposit Agreement dated as of March 3, 1999 by and among the
Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of
Connecticut and First Union National Bank**
10.12 Construction Reserve Disbursement Agreement dated March 3, 1999
among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of
Indians of Connecticut and Fleet National Bank**
10.13 The Merrill Lynch Non-Qualified Deferred Compensation Plan Trust
Agreement dated September 1, 1998 between the Mohegan Tribal
Gaming Authority and Merrill Lynch Trust+
10.14 Employment Agreement dated April 22, 1999 by and between the
Mohegan Tribal Gaming Authority and William J. Velardo**
10.15 Employment Agreement dated April 22, 1999 by and between the
Mohegan Tribal Gaming Authority and Mitchell Grossinger Etess**
10.16 Employment Agreement dated April 22, 1999 by and between the
Mohegan Tribal Gaming Authority and Jeffrey E. Hartmann**
10.17 Amendment No. 1 to the Loan Agreement dated as of November 30, 2000
by and among the Mohegan Tribal Gaming Authority, the Mohegan
Tribe of Indians of Connecticut and Bank of America National
Trust and Savings Association++
10.18 Priority Distribution Agreement between Mohegan Tribal Gaming
Authority and the Mohegan Tribe of Indians of Connecticut dated
August 1, 2001+++
10.19 Administrative Services Agreement between Mohegan Tribal Gaming
Authority and Fleet Retirement Plan Services dated July 30,
2001+++
10.20 Employment Agreement dated July 24, 2000 by and between the Mohegan
Tribal Gaming Authority and John Arnesen
10.21 Employment Agreement dated January 5, 2001 by and between the
Mohegan Tribal Gaming Authority and Michael Bloom
10.22 Employment Agreement dated June 14, 2000 by and between the Mohegan
Tribal Gaming Authority and Gary Crowder
10.23 Employment Agreement dated October 4, 2001 by and between the
Mohegan Tribal Gaming Authority and Robert Soper
12.1 Computation of Ratio of Earnings to Fixed Charges
Exhibit
No. Description
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 by the Authority with its Registration Statement on Form S-1
(file no. 33-80655), filed with the SEC on December 21, 1995, as
amended, and incorporated herein by reference.
** Filed by the Authority with its Registration Statement on Form S-4
(file no. 333-76753), filed with the SEC on April 21, 1999, and
incorporated herein by reference.
*** Filed by the Authority with it Registration Statement on Form S-4
(file no. 333-69472), filed with the SEC on September 17, 2001, and
incorporated herein by reference.
+ Filed by the Authority with its Form 10-K for the fiscal year ended
September 30, 1998 and incorporated herein by reference.
++ Filed by the Authority with its Form 10-K for the fiscal year ended
September 30, 2000 and incorporated herein by reference.
+++ Filed by the Authority with its Form 10-Q for the quarter ended
June 30, 2001 and incorporated herein by reference.