SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2000
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 06382
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (860) 204-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange
NONE On Which Registered
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
Securities registered pursuant to Section 12(g) of the Act:
NONE
_________________________
(Title of Class)
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
--- ---
MOHEGAN TRIBAL GAMING AUTHORITY
INDEX TO FORM 10-K
Page
PART I.
Item 1. Business 1
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters 12
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 13
Item 7a. Quantitative and Qualitative Disclosure of Market Risk 20
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants on Accounting and 21
Financial Disclosure
PART III.
Item 10. Executive Officers of the Registrant 22
Item 11. Executive Compensation 24
Item 12. Security Ownership of Certain Beneficial Owners and Management 25
Item 13. Certain Relationships and Related Transactions 25
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 26
PART I
Item 1. Business
A. General
Disclosure Regarding Forward-Looking Statements
Some information included in this Form 10-K and other materials filed or to be
filed by the Mohegan Tribal Gaming Authority ("the Authority") with the
Securities and Exchange Commission contain forward-looking statements, within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such statements include information relating to
plans for future expansion and other business development activities, as well as
other capital spending, financing sources and the effects of regulation
(including gaming and tax regulation) and competition. Such forward-looking
information involves important risks and uncertainties that could significantly
affect anticipated results in the future and, accordingly, such results may
differ from those expressed in any forward-looking statements made by or on
behalf of the Authority. These risks and uncertainties include, but are not
limited to, those relating to development and construction activities,
dependence on existing management, leverage and debt service, domestic or global
economic conditions, pending litigation, changes in federal tax laws or the
administration of such laws and changes in gaming laws or regulations (including
the legalization of gaming in certain jurisdictions).
Overview
The Authority established on July 15, 1995, is an instrumentality of the Mohegan
Tribe of Indians of Connecticut (the "Tribe"). The Tribe is a federally
recognized Indian tribe with a 390-acre reservation located in southeastern
Connecticut.
The Tribe established the Authority with the exclusive power to conduct and
regulate gaming activities for the Tribe. Under the Indian Gaming Regulatory Act
of 1988, 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 compact with the affected state. The Tribe and the State of
Connecticut have entered into such a compact (the "Mohegan Compact") that has
been approved by the U.S. Secretary of the Interior. On October 12, 1996, the
Authority opened a casino known as Mohegan Sun Casino ("Mohegan Sun"). The
Authority is currently engaged in a major expansion of Mohegan Sun ("Project
Sunburst"), including the addition of a hotel, increased gaming and retail
space, a convention center and an entertainment arena.
The Authority is governed by a Management Board, which consists of the nine
members of the Tribal Council. The Management Board engaged Trading Cove
Associates ("TCA"), a Connecticut general partnership, to operate, manage and
market Mohegan Sun under a seven-year contract ("Management Agreement"). TCA is
50% owned by Sun Cove Limited, an affiliate of Sun International Hotels Limited
("Sun International"), and 50% by Waterford Gaming, L.L.C. In February 1998, the
Authority and TCA entered into a new agreement ("Relinquishment Agreement")
which superceded the Management Agreement effective January 1, 2000. As a result
of the Relinquishment Agreement, the Authority assumed full management of
Mohegan Sun and agreed to pay TCA 5% of gross revenues (as defined in the
agreement) generated from Mohegan Sun and from the planned expansion, beginning
January 1, 2000 and ending December 31, 2014. See "--Relinquishment Agreement
with TCA" and Note 13 to the Authority's Financial Statements.
1
B. Description of Business
Mohegan Sun is a full-service gaming and entertainment complex on a 240-acre
site overlooking the Thames River on the Tribe's reservation in southeastern
Connecticut. The Authority has entered into a land lease with the Tribe whereby
the Tribe leases to the Authority the site on which Mohegan Sun is located.
Mohegan Sun opened in October 1996 at a total cost of approximately $303.0
million. Mohegan Sun is one of two legally authorized gaming operations in New
England offering both traditional slot machines and table games.
Mohegan Sun currently operates in a 634,500 square foot facility which conveys a
historical northeastern Indian theme through architectural features and the use
of natural design elements such as timber, stone and water. It is comprised of
four quadrants, each of which has its own unique entrance and reflects a
separate seasonal theme - winter, spring, summer and fall - emphasizing the
importance of the seasonal changes to Mohegan Tribal life.
Mohegan Sun currently has approximately 176,500 square feet of gaming space
("Casino of the Earth"), 3,031 slot machines, 153 table games (including
blackjack, roulette, craps, baccarat, Spanish 21 and let it ride), 42 poker
tables and a 9,000 square foot simulcast race book facility. Food and beverage
amenities include a 680-seat buffet, three full-service themed fine dining
restaurants, a 24-hour coffee shop, a New York style delicatessen, a nine
station food court featuring international and domestic cuisine, and multiple
full and floor service bars for a total of 1,888 restaurant seats. The 350-seat,
10,000 square foot Wolf Den Lounge located in the center of the casino hosts
musical entertainment seven days a week. Larger events are currently held in the
temporary Uncas Pavilion constructed on the grounds of the casino (which will be
replaced by the Mohegan Sun Arena), including entertainment and casino marketing
activities. Six retail shops covering 2,276 square feet of space provide
shopping opportunities ranging from Mohegan Sun souvenirs to clothing and
cigars. For non-gaming entertainment, Mohegan Sun also offers an arcade-style
recreation area and a child care facility operated by New Horizons Kids Quest,
Inc. The Authority also operates a 4,000 square foot, 16-pump gasoline service
station and convenience store.
On October 12, 2000, the Authority announced it would discontinue bingo
operations in order to build a 650-unit smoke-free slot area. 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" ("APB
30"), 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 Authority believes ease of access is one of the important factors that
differentiate Mohegan Sun from its competition. Mohegan Sun is located
approximately one mile from the interchange of Interstate 395 and Connecticut
Route 2A in Uncasville, Connecticut. The Authority constructed a four-lane
access road and entrance/exit ramps off of Route 2A, giving guests direct access
to Interstate 395 and Interstate 95, the main highways connecting Boston,
Providence and New York. Mohegan Sun currently has parking spaces for 7,500
guests and 2,700 employees.
During 1999, the Authority raised $200.0 million in Senior Notes ("Senior
Notes") and $300.0 million in Senior Subordinated Notes ("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. Project Sunburst will also be funded by cash from operations and by a
syndicated $425.0 million reducing, revolving, secured credit facility ("Bank
Credit Facility"), which the Authority entered into on March 3, 1999. The
Authority has the right within two years subsequent to the closing of the Bank
Credit Facility to arrange for increases to an aggregate amount of $500.0
million. In November 1999, the Bank Credit Facility was increased to $459.5
million. On November 30, 2000 the Authority exercised its right and increased
the Bank Credit Facility to $500.0 million.
2
Project Sunburst will include approximately 115,000 square feet of additional
gaming space ("Casino of the Sky"), a 1,200 room luxury hotel, approximately
100,000 square feet of convention space, the Mohegan Sun Arena with seating for
up to 10,000, approximately 6,000 additional guest parking spaces, specialty
retail shops and third party operated, branded restaurants. On October 13, 2000,
the Tribal Council approved a formal resolution increasing the expansion budget
to $960.0 million (excluding capitalized interest), from $800.0 million. The
Authority, in conjunction with the Tribe, has increased the Project Sunburst
budget to $960.0 million for three reasons: (1) expected increases in Project
Sunburst labor costs because of the extreme competitive nature of the Northeast
construction labor market; (2) enhance project scope such as an increase in the
number of slot machines scheduled to be placed on the gaming floor; and (3)
quality improvements to the hotel. As a result of the increase to the Project
Sunburst budget, the Authority anticipates seeking to issue an additional $150.0
million in additional subordinated notes or a term loan. The Authority, based on
current market conditions, anticipates securing such financing after January
2001. The remainder of the increase will be funded by internally generated
funds. In addition to the financing provided by the Senior Notes, Senior
Subordinated Notes and the Bank Credit Facility, the Tribe has set aside, with a
trustee, a $40.0 million, fully-funded construction reserve account that, in
certain circumstances, will be used to pay costs in excess of the approved
Project Sunburst budget.
The following is a summary of certain physical attributes of Mohegan Sun before
and after expansion:
Casino Retail Convention Guest
Space Slot Table Poker Restaurant Hotel Space Event Space Parking
(sq. ft.) Machines Games Tables Seats Rooms (sq. ft.) Seating (sq. ft.) Spaces
--------- -------- ----- ------ ----- ----- --------- ------- --------- ------
Resort before expansion (September
30, 2000)........................ 176,500 3,031 153 42 1,888 0 2,276 1,800 0 7,500
Resort after expansion (estimated).. 291,500 6,227 233 42 2,976 1,200 130,000 10,000 100,000 13,500
The Tribe and the Authority continue to believe that the market favors expansion
now for three reasons: (1) unsatisfied current patron demand for gaming space at
the existing facility; (2) growth of the gaming market in the Northeast region;
and (3) length of stay data indicating the need for a hotel and other amenities.
Management believes that Project Sunburst will continue to attract a significant
number of guests to the facility, particularly during midweek periods. When
completed, Management believes the patron length of stay will increase, as well
as the average spending per guest.
The Authority has established the Mohegan Tribal Gaming Commission (the
"Commission"), which is responsible for the regulation of gaming activities of
Mohegan Sun. The Commission ensures the integrity of the gaming operation
through the promulgation and enforcement of appropriate regulations. The
Commission staff is also responsible for performing background investigations on
gaming license applicants and for issuance and revocation of such gaming
licenses.
The gaming industry in Connecticut experiences seasonal fluctuations, with the
heaviest gaming activity at Mohegan Sun occurring during the period from July
through October.
Competition from Other Gaming Operations
The gaming industry is highly competitive. Mohegan Sun currently competes
primarily with Foxwoods Resort Casino ("Foxwoods") and, to a lesser extent, with
casinos in Atlantic City, New Jersey. Foxwoods is approximately 10 miles from
Mohegan Sun and is the largest gaming facility in the United States in terms of
total gaming positions. It is owned and operated by the Mashantucket Pequot
Tribe ("Pequot Tribe") under a separate compact with the State of Connecticut.
Foxwoods has been in operation for nearly nine years.
Mohegan Sun's current market area is predominantly for day-trip customers. When
Project Sunburst is completed, the Authority intends to broaden its market
beyond day-trip customers to include patrons making overnight or extended stays
at Mohegan Sun. At that time, the Authority will begin to compete for customers
more directly with casinos in Atlantic City, New Jersey. Despite the new
overnight amenities that will be available to guests visiting Mohegan Sun,
Management believes that ninety-five percent of the daily guests visiting
Mohegan Sun will arrive by car or bus and visit for one day.
3
Currently, outside of Atlantic City, New Jersey, casino gaming in the
northeastern United States is conducted only by federally recognized Indian
tribes operating under the federal Indian gaming law. The Oneida Indian Nation
currently operates Turning Stone Casino Resort in Verona, New York,
approximately 270 miles from Mohegan Sun. The St. Regis Mohawk Tribe opened a
casino in Hogansburg, New York on the Canadian border in April 1999. In
addition, at least two other federally recognized tribes in New England are each
seeking to establish gaming operations. Several other tribes in New England are
seeking federal recognition and have announced plans to establish gaming
operations. A number of states, including Connecticut in 1995, have considered
legalizing casino gaming by non-Indians in one or more locations. The Authority
cannot predict whether any of these other tribes or other efforts to legalize
casino gaming will be successful in establishing gaming operations, and if
established, whether such gaming operations will have a materially adverse
effect on the operations of the Authority.
The following is an assessment of the competitive prospects in Connecticut, each
of the Authority's neighboring states and certain other states in the Northeast.
Connecticut
Currently, only the Tribe and the Pequot Tribe are authorized to conduct gaming
in Connecticut. As required by their state compacts, the Tribe and the Pequot
Tribe make monthly payments to the State of Connecticut based on 25% of annual
gross slot revenues. Together, these payments totaled over $324.9 million for
the 12 months ended September 30, 2000, of which the Authority contributed
$135.1 million. These payments are linked to an exclusivity clause and will
terminate if Connecticut legalizes other gaming operations (except those
consented to by the Tribe and the Pequot Tribe) with slot machines or other
commercial casino table games. There are currently at least four tribes in
Connecticut that are attempting to gain federal recognition, a lengthy process
managed by the Bureau of Indian Affairs ("BIA"). Two tribes, the Schagitcoke
Tribe and the Golden Hill Paugussett Tribe, both have federal recognition
petitions before the BIA. The other two tribes are the Eastern Pequot and the
Paucatuck Eastern Pequot Tribe, both of which share a reservation located next
to that of the Pequot Tribe. In March of 2000, the Eastern Pequot and the
Paucatuck Eastern Pequot Tribes received preliminary federal recognition. A
determination was expected to be made in the fall of 2000, but the BIA has
extended the period for public comment through March 2001. The federal
recognition process for these tribes is proceeding, but it is not clear if or
when permanent federal recognition will be achieved. Even upon gaining
recognition, a tribe must have land taken into trust by the federal government,
negotiate a compact with the State of Connecticut, and construct a facility
before gaming operations may commence. Due to these factors, the Authority
anticipates it would take at least 3-5 years before a new casino could open.
Rhode Island
There is no commercial casino gaming in Rhode Island although the state's two
pari-mutuel facilities, Lincoln Greyhound Park and Newport Grand Jai Alai, offer
approximately 1,900 video slot machines and have petitions pending before the
Rhode Island Lottery Commission for additional machines. In November 1994, Rhode
Island voters defeated numerous local and statewide gaming referenda and passed
a referendum, which requires that any new gaming proposals will have to be
approved in a statewide referendum. The Narragansett Tribe, with a reservation
in Charlestown, is the only federally recognized Indian tribe in Rhode Island.
However, under specific federal legislation, the Narragansett Tribe is legally
barred from opening a gaming facility. Thus, the Narragansett Tribe could open a
facility only if it were successful in winning both local and statewide votes.
In June 2000, the Rhode Island House Committee rejected putting the Narragansett
Tribe's proposed Indian casino on the November ballot. The House Committee
believed that the casino would negatively impact operations at Lincoln Park and
the Newport Jai Alai. There are two pending federal recognition petitions from
other Rhode Island tribes, the Pokanoket Tribe and the Seaconke Wampanoag Tribe.
It is not clear if or when federal recognition for these tribes will be
achieved.
4
Massachusetts
Leisure Casino Cruises, located in Gloucester, Massachusetts, currently operates
a casino cruise ship with gaming amenities including 14 table games and 175 slot
machines. The casino cruise also offers a buffet style dinner and live
entertainment. These "cruises to nowhere," during which gaming activities are
conducted on board once the boat is in international waters, are permitted under
federal law unless prohibited by the state from which they operate.
Massachusetts to date has not prohibited such operations. Due to the difference
in the gaming experience, the Authority does not believe the "cruises to
nowhere" are potentially significant competition to Mohegan Sun. The Wampanoag
Tribe, located on the island of Martha's Vineyard, is currently the only
federally recognized Indian tribe in Massachsetts. This tribe has determined
that a casino on the island would not be economically feasible, and the
Massachusetts legislature has rejected proposals to locate an Indian casino off
tribal lands. The Wampanoag Tribe has announced plans to open a high-stakes
bingo facility in Fall River, for which no state compact would be required, but
significant hurdles, including local government approval, still remain. The
Hassanamisco Band and the Chaubanagungamaug Band of the Nipmuc Tribe are
currently seeking federal recognition and the BIA has extended their decision
deadline to December 15, 2000. The Nipmuc tribe filed a petition for recognition
in 1984, but in 1996 the tribe formally split into separate political entities
and requested that the BIA consider its applications separately. In addition, a
number of other petitions for federal recognition are pending in Massachusetts,
but the Authority believes potential recognition is several years away, if at
all.
New York
New York has seven federally recognized tribes with reservations in the northern
part of the state. Two tribes, the Oneida Tribe and the St. Regis Mohawk Tribe,
have executed gaming compacts with New York. These compacts allow casino table
games, but no conventional slot machines.
The Oneida Tribe opened the Turning Stone Casino in July 1993 on its reservation
in Verona, near Syracuse, New York. The facility has 3,500 video lottery
machines (which operate on a pari-mutuel system as opposed to the traditional
fixed odds reel-type machines operated by most casinos), 150 table games and 285
hotel rooms. Turning Stone currently draws primarily from the Syracuse market
and does not compete directly with Mohegan Sun for customers.
The St. Regis Mohawk Tribe, which has a reservation in Hogansburg on the
Canadian border, opened a gaming facility in April 1999 with 78 table games and
400 video lottery machines. In April 2000, the St. Regis Mohawk Tribe entered
into an agreement with Park Place Entertainment Corp ("Park Place") for
exclusive rights to develop a Class II or Class III casino project in the State
of New York for a period of three years, extendable thereafter by a mutual
agreement. In the event such a casino project is developed, the parties also
agreed to enter into a seven-year management agreement whereby Park Place will
manage the casino and pay the St. Regis Mohawk Tribe 70 percent of the net
profits. The agreement is subject to the approval of the National Indian Gaming
Commission ("NIGC"). On May 1, 2000, Park Place announced it had entered into a
definitive gaming agreement to acquire 50 acres of the Kutsher's Resort Hotel
and Country Club in Sullivan County, New York (approximately 170 miles from
Mohegan Sun). The 50-acre site will be transferred in trust to the St. Regis
Mohawk Nation subject to approval by the BIA. All of the agreements and plans
relating to the development and management of the above Indian gaming project
are contingent upon various regulatory approvals, including a compact between
the St. Regis Mohawk Nation and the State of New York, and receipt of approvals
from the BIA, NIGC and local planning and zoning boards.
In addition, the Seneca Nation of Indians have bingo operations on two of their
three reservations in western New York. These bingo halls are located in
Vandalia and Gowanda, both over 400 miles from Mohegan Sun. The Seneca Indians
have not entered into a compact with New York, which would allow this tribe to
expand their gaming operations to include casino games. There currently are no
non-Indian casinos operating in New York, and the establishment of commercial
casino operations would require the approval of two successive state
legislatures, followed by the voters in a statewide referendum. However,
gambling boats began operating out of the New York City area in January 1998
("cruises to nowhere"). New York to date has not prohibited gambling boat
operations. Only a small number of operators have applied for licenses for
offshore gambling cruises, and currently there are no operations in existence.
Due to the difference in the gaming experience, the Authority does not believe
the "cruises to nowhere" are potentially significant competition to Mohegan Sun.
5
Maine
There are no commercial casinos allowed in Maine and there are no significant
initiatives currently underway to legalize such casinos. There are four
federally recognized tribes in Maine, one of which (the Penobscot Tribe) opened
a high stakes bingo facility in the township of Albany in western Maine. None of
the federally recognized tribes have negotiated a tribal-state compact or
otherwise significantly begun the process of developing casino operations.
New Hampshire
There are no casinos allowed in New Hampshire and no significant initiatives
currently underway to facilitate legalization. A bill to allow the state's
racetracks to offer slot machines was defeated in a House committee in May 1997,
the fourth consecutive time that New Hampshire legislators voted against gaming
expansion. There are no federally recognized Indian tribes in the state and no
petitions for recognition pending.
Vermont
There are no casinos allowed in Vermont and no significant initiatives currently
underway to allow legislation. There are no federally recognized tribes in
Vermont, but there is a petition pending from the St. Francis/Sokoki Band of
Abenakis in Swanton. The Authority believes any approval is still several years
away.
Employees and Labor Relations
As of September 30, 2000, Mohegan Sun employed approximately 5,495 full-time
employees, and 707 seasonal and part-time employees. When recruiting personnel,
Mohegan Sun is obligated to give preference first to qualified members of the
Tribe (and qualified spouses and children of members of the Tribe) and second to
members of other federally recognized Indian tribes. None of Mohegan Sun's
employees are covered by collective bargaining agreements.
Material Agreements
Gaming Compact with the State of Connecticut
In April 1994, the Tribe and the State of Connecticut entered into a gaming
compact to authorize and regulate the Tribe's conduct of gaming on the Tribe's
lands (the "Mohegan Compact"). The Mohegan Compact is substantively similar to
the agreement governing gaming operations of the Pequot Tribe in Connecticut and
provides, among other things, as follows:
(1) The Tribe is authorized to conduct certain Class III gaming activities on
its reservation. The forms of Class III gaming authorized under the Mohegan
Compact include (a) certain games of chance, (b) video facsimiles of such
authorized games of chance (i.e., slot machines), (c) off-track pari-mutuel
betting on animal races, (d) pari-mutuel betting, through simulcasting, on
animal races and (e) certain types of pari-mutuel betting on games and races
conducted at the gaming facility (some types of which currently are, together
with off-track pari-mutuel telephone betting on animal races, under a
moratorium).
(2) The Tribe must establish standards of operations and management of all
gaming operations in order to protect the public interest, ensure the fair and
honest operation of gaming activities and maintain the integrity of all Class
III gaming activities. The first of such standards was set forth in the Mohegan
Compact and approved by the State gaming agency. State gaming agency approval is
required for any revision to such standards. The Tribe must supervise the
implementation of these standards by regulation through a Tribal gaming agency.
Additionally, the NIGC established Minimum Internal Control Standards ("MICS")
that require each tribe or its designated tribal government body or agency,
6
by federal regulation, to establish and implement tribal MICS by February 4,
2000. On October 26, 1999, prior to the MICS becoming effective, the Authority
submitted variance requests to the NIGC associated with twelve MICS. Within the
last year, the NIGC and the Authority were able to resolve nine of the twelve
issues. On November 17, 2000 the NIGC determined the Authority was not in
compliance with the three remaining issues. The Authority will file an appeal to
the NIGC on the three remaining issues. The Authority estimates that if the
appeal is denied, the Authority will incur an additional $2.3 million in expense
to become compliant with these MICS requirements.
(3) Law enforcement matters relating to Class III gaming activities are under
the jurisdiction of the State of Connecticut and the Tribe.
(4) All gaming employees must obtain and maintain a gaming license issued by
the State gaming agency.
(5) Any enterprise providing gaming services or gaming equipment to the Tribe
is required to hold a current valid registration issued by the Connecticut
Division of Special Revenue.
(6) The State of Connecticut annually assesses the Tribe for the costs
attributable to its regulation of the Tribe's gaming operations and for the
provision of law enforcement at the Tribe's gaming facility.
(7) Net revenues from the Tribe's gaming operations may be applied only for
the certain purposes related to Tribal operations and welfare, charitable
contributions and payments to local governmental agencies.
(8) Tribal ordinances and regulations governing health and safety standards
at the gaming facilities may be no less rigorous than the applicable laws and
regulations of the State.
(9) Service of alcoholic beverages within any gaming facility is subject to
regulation by the State of Connecticut.
(10) The Tribe waives any defense which it may have by virtue of sovereign
immunity with respect to any action brought in United States District Court to
enforce the Mohegan Compact.
The Tribe and the State of Connecticut entered into a Memorandum of
Understanding ("MOU") setting forth certain matters regarding the implementation
of the Mohegan Compact. The Mohegan Compact 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 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. 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 games within the State
of Connecticut except those consented to by the Tribe and the Pequot Tribe. The
Authority's financial statements reflect expenses associated with the Slot Win
Contribution totaling $135.1 million, $121.1 million and $102.3 million for the
fiscal years ended September 30, 2000, 1999 and 1998, respectively.
Agreement with the Town of Montville
In June 1994, the Tribe and the neighboring town of Montville entered into an
agreement whereby the Tribe makes annual payments of $500,000 to the town to
minimize the impact to Montville resulting from the decreased tax revenues on
the land taken into trust for the Tribe's reservation. The Tribe also agreed to
pay Montville $3.0 million for infrastructure improvements to the town's water
system and to pay for its use of the Town's disposal and wastewater collection
and treatment systems. Finally, the Tribe agreed to make payments in lieu of
taxes to the Town on lands that the Tribe acquires outside of its current
reservation. The Tribe has assigned its rights and obligations under this
agreement to the Authority. As of September 30, 2000, the Town of Montville had
billed and received payment for approximately $2.9 million of the $3.0 million
obligation. The incurred cost has been included in other assets in the
accompanying balance sheet, and will be amortized over 40 years, once payments
are complete.
7
Land Lease from the Tribe to the Authority
The land in Uncasville, Connecticut upon which Mohegan Sun is situated and
upon which Project Sunburst will be constructed is held in trust for the Tribe
by the United States of America. The Tribe and the Authority have entered into a
land lease under which the Tribe is leasing 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 certain 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 leased 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 and Project Sunburst, 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
The Authority will be in default under the lease if, subject to certain
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.
8
Expansion Construction Management Agreement with Perini Building Company, Inc.
The Authority has engaged Perini Building Company, Inc. ("Perini") as
Construction Manager to provide construction management services for Project
Sunburst. As Construction Manager, Perini will receive a basic fee of $20.5
million for services including, but not limited to, pre-construction review and
construction phase contract administration. 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 connection with
the limited waiver of sovereign immunity, Perini may seek satisfaction of
judgement against the undistributed and/or future revenues of Project Sunburst
and/or the existing Mohegan Sun facility. As of September 30, 2000, the
Authority has incurred $8.6 million related to the Construction Management
Agreement, of which $8.1 million has been paid.
Expansion Development Services Agreement with Trading Cove Associates
General
The Authority has a Development Services Agreement ("Development
Agreement") with TCA, under which TCA oversees the design, construction,
furnishing, equipping and staffing of Project Sunburst for a $14.0 million
development fee. The Development Agreement provides that the design and
construction of the expansion must comply with all federal and Connecticut
statutes and regulations that otherwise would apply if the expansion were
located outside the jurisdictional boundaries of the Tribe's land.
Construction Phase
During the construction phase, TCA is responsible for the administration
and supervision of the construction manager and the entire construction process.
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. The Development Agreement
specifically gives TCA the right to include provisions in construction contracts
that impose liquidated damage payments in the event of failure to meet
construction schedules.
Retail Facilities
As permitted by the Development Agreement, the Authority elected to engage
a retail consultant to oversee the design and construction of the retail
facilities in the expansion. The Authority chose the Gordon Group Holdings, Ltd.
as the retail consultant for the retail expansion. This work is under the
overall supervision of TCA, which will integrate the design and construction of
the retail facilities with that of the other components of the expansion.
Engagement of Certified Entities; Staffing the Expansion
The Development Agreement requires TCA to implement procedures described
in the Tribal Employment Rights Ordinance. TCA is required to give preference to
business entities or persons, which have been approved by the Authority, in the
selection of all contractors, vendors and suppliers engaged in the development
of the expansion. In addition, in staffing the operation of the expansion, the
Development Agreement requires that TCA give preference first to qualified
members of the Tribe (and their spouses and children) and then to enrolled
members of other federally recognized Indian tribes.
Payment of the Development Fee
The Authority began paying the development fee to TCA quarterly, beginning
on January 15, 2000, based upon the incremental completion of the expansion as
of each payment date. As of September 30, 2000, the Authority has incurred $4.9
million related to the TCA development fee, of which $3.5 million has been paid.
9
Termination and Disputes
The Development Agreement terminates upon the earlier of (a) completion of
Project Sunburst or (b) February 2008. In addition, each party has the right to
terminate the Development Agreement if there is a default or failure to perform
by the other party. The parties must submit disputes arising under the agreement
to arbitration and have agreed that punitive damages may not be awarded to
either party by any arbitrator. The Authority has also waived sovereign immunity
for the purpose of permitting, compelling or enforcing arbitration and has
agreed to be sued by TCA in any court of competent jurisdiction for the purposes
of compelling arbitration or enforcing any arbitration or judicial award arising
out of the Development Agreement.
Relinquishment Agreement with Trading Cove Associates
General
Under the Relinquishment Agreement, the Authority and TCA agreed to
terminate the Management Agreement with TCA, under which TCA managed the
Authority's gaming operations. This termination occurred on January 1, 2000, at
which time the Authority assumed the day-to-day management of Mohegan Sun. To
compensate TCA for terminating its management rights, the Authority agreed to
pay to TCA 5% of the revenues, as defined, generated by Mohegan Sun and the
planned expansion during the 15-year period commencing on January 1, 2000, and
ending December 31, 2014.
Relinquishment Payments
The payments under the Relinquishment Agreement are divided into Senior
Relinquishment Payments and Junior Relinquishment Payments, each of which are
2.5% of "Revenues," as defined in the Relinquishment Agreement. Senior
Relinquishment Payments are payable quarterly in arrears and commenced on April
25, 2000 and the Junior Relinquishment Payments are payable semi-annually in
arrears and commenced on July 25, 2000. "Revenues" are defined as gross gaming
revenues (other than Class II gaming revenue) and all other facility revenues
(including hotel revenues, room service, food and beverage sales, parking
revenues, ticket revenues and other fees or receipts from the convention/events
center and all rental or other receipts from the lessees, licensees and
concessionaires, but not the gross receipts of such lessees, licensees and
concessionaires). TCA has notified the Authority that it does not agree with the
Authority's treatment of certain promotional transactions that, in TCA's
opinion, has resulted in a reduction in revenues subject to the Relinquishment
Agreement. The amount in dispute does not have a material effect on the
Authority's financial statements as of September 30, 2000.
Subordination of Relinquishment Payments/Minimum Priority Distribution to the
Tribe
The Relinquishment Agreement provides that each of the Senior and Junior
Relinquishment Payments are subordinated in right to payment of senior secured
obligations, which includes the Bank Credit Facility and capital lease
obligations, and that the Junior Relinquishment Payments are further
subordinated to payment of all other senior obligations, including the
Authority's Senior Notes. The Relinquishment Agreement also provides that all
relinquishment payments are subordinated in right of payment to an annual
minimum priority distribution of $14.0 million to the Tribe from the operations
of Mohegan Sun. The minimum priority distribution will be adjusted annually to
reflect the cumulative increase in the Consumer Price Index.
Marks
TCA has granted to the Authority an exclusive and perpetual license with
respect to trademarks and other similar rights, including the "Mohegan Sun"
name, used at or developed for Mohegan Sun. The Authority has agreed, however,
that it will only use the word "Sun" in conjunction with Mohegan Sun and
together with "Mohegan" or "Mohegan Tribe."
10
Previous Management Agreement with Trading Cove Associates
Until January 1, 2000, TCA was the exclusive manager of Mohegan Sun. 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, depending on profitability
levels. Management fees for the years ended September 30, 2000, 1999 and 1998
were $13.6 million, $59.5 million and $47.4 million, respectively. Management
fees for fiscal 2000 represent amounts earned from October 1, 1999 through
December 31, 1999 due to the termination of the Management Agreement on January
1, 2000.
Item 2. Properties
Mohegan Sun is located on 240 acres of the Tribe's reservation just
outside of Uncasville, Connecticut, approximately one mile from the interchange
of Interstate 395 and Connecticut Route 2A. Mohegan Sun has its own exit from
Route 2A, giving patrons direct access to Interstate 395 and Interstate 95, the
main highways connecting Boston, Providence and New York. By highway, Mohegan
Sun is approximately 125 miles from New York City, 100 miles from Boston,
Massachusetts, 35 miles from Hartford, Connecticut and 50 miles from Providence,
Rhode Island.
The Authority has a lease with the Tribe for land on which Mohegan Sun is
located. The initial term of the lease is 25 years, with an option to renew for
one additional 25-year term provided that the Authority is not in default under
the lease. The lease also provides that all improvements constructed on the site
will become the property of the Tribe. The lease is a net lease requiring that
the Authority assume all costs of operating, constructing, maintaining,
repairing, replacing and insuring the leased property, in addition to the
payment of a nominal annual rental fee.
The Authority has entered into various lease agreements for properties
adjacent to Mohegan Sun. The properties are owned by MTIC Acquisitions, L.L.C.,
a Connecticut limited liability company controlled by the Tribe. The properties
are used for providing access and/or parking for Mohegan Sun. For the fiscal
years ending September 30, 2000, 1999 and 1998, the Authority incurred charges
of $386,000, $412,000 and $446,000, respectively, relating to the lease
agreements.
Item 3. Legal Proceedings
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 or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters
The Authority has not issued or sold any equity securities.
Item 6. Selected Financial Data
(Amounts In Thousands)
For the Year Ended For the Year Ended For the Year Ended
September 30, 2000 September 30, 1999 September 30, 1998
--------------------------------------------------------------------------
OPERATING RESULTS:
- -----------------
Gross revenues $ 809,314 $ 725,510 $ 611,463
Promotional allowances (70,044) (56,827) (42,501)
--------- --------- ---------
Net revenues $ 739,270 $ 668,683 $ 568,962
--------- --------- ---------
Income from operations $ 204,304 $ 156,546 $ 135,687
Other income (expense), net (57,696)(1) (156,226)(2) (47,539)
Loss from discontinued operations (674) (812) (569)
Extraordinary items -- (38,428)(3) (419,458)(4)
--------- --------- ---------
Net income (loss) $ 145,934 $ (38,920) $(331,879)
========= ========= =========
OTHER DATA:
Interest expense, net $ 37,799 $ 55,595 $ 50,172
Capital expenditures $ 288,278 $ 62,795 $ 32,731
YEAR-END STATUS:
- ---------------
Net cash flows provided
by operating activities $ 218,162 $ 144,724 $ 131,463
Total assets $ 885,379 $ 914,962 $ 554,480
Long-term debt and
capital lease obligations $ 506,391 $ 519,298 $ 294,567
(1) Includes expense of $31.8 million related to the reassessment of the
Relinquishment Liability - See Note 13 to the Authority's Financial Statements
for estimation of this liability.
(2) Includes expense of $111.9 million related to the reassessment of the
Relinquishment Liability - See Note 13 to the Authority's Financial Statements
for estimation of this liability.
(3) Includes expense of $33.7 million related to the tender premium of the $175
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 Relinquishment Liability -
See Note 13 to the Authority's Financial Statements for estimation of this
liability.
12
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Comparison of Operating Results for the Fiscal Years Ended September 30, 2000
and September 30, 1999
Mohegan Sun has continued to experience favorable growth since opening in
October 1996. Net revenues for fiscal 2000 were $739.3 million, an increase of
$70.6 million or 10.6% over fiscal year 1999 net revenues of $668.7 million. The
earnings before interest, taxes, depreciation, amortization, pre-opening costs
and management fees for the fiscal year ended September 30, 2000 increased $14.5
million or 6.0% to $254.0 million compared to $239.5 million in fiscal year
1999. Mohegan Sun achieved a fiscal year 2000 operating margin of 34.4% compared
to a 35.8% operating margin during the fiscal year ended September 30, 1999. On
October 13, 2000 it was announced that bingo operations would be converted into
a 650-unit smoke-free slot area, therefore, the corresponding revenues,
promotional allowances, expenses and interest income have been consolidated in
discontinued operations.
The Connecticut slot market continues to grow as does Mohegan Sun's market
share. The Connecticut slot market grew at a rate of 8.5% from fiscal 1999 to
fiscal 2000. 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 has exceeded the market's growth in slot win as it
experienced a fiscal 2000 increase in net slot revenues of 11.6% over the prior
year. Slot revenues were $529.9 million and $474.9 million for the fiscal years
ended September 30, 2000 and 1999, respectively. Net slot win per unit per day
was $478 and $430 for the respective periods.
Gaming revenues for fiscal 2000 increased $68.5 million or 10.7% to $709.6
million compared to $641.1 million for the fiscal year 1999. The increase in
gaming revenues is primarily due to an 11.6% growth in Mohegan Sun slot revenues
as a result of superior customer service and the continued growth of the Mohegan
Sun customer base. Membership in the Mohegan Sun Player's Club totaled
approximately 1.4 million and approximately 1.2 million as of September 30, 2000
and 1999, respectively.
For the fiscal year ended September 30, 2000, food and beverage revenues were
$47.3 million, a decrease of $591,000 or 1.2% compared to the prior year. The
decrease in revenues is attributable to reduced food covers and a patron shift
in point redemption from the food and beverage products toward retail and gas
products. Food and beverage revenues for the fiscal year ended September 30,
1999 were $47.9 million.
Retail and other revenues were $52.4 million in fiscal 2000, a growth of $15.9
million or 43.5% over fiscal year 1999. Retail and other revenues for the fiscal
year ended September 30, 1999 were $36.5 million. This increase is attributed to
increased utilization of retail complimentaries and the popularity of the
Mohegan Sun gas station facility.
Promotional allowances totaled $70.0 million for the fiscal year ended September
30, 2000, representing a $13.2 million or 23.3% increase over fiscal year 1999
promotional allowances of $56.8 million. The increase is attributable to an
increase in the customer base as well as an increased utilization of the Mohegan
Sun Player's Club complimentary program. Additionally, promotional allowances as
a percentage of gross revenue increased from 7.8% in fiscal 1999 to 8.7% in
fiscal 2000.
Total costs and expenses were $535.0 million for the fiscal year ended September
30, 2000, an increase of $22.8 million or 4.5% over the prior year's costs and
expenses of $512.1 million. The increase in expenses is primarily a result of an
11.6% increase in gross revenues and pre-opening expenses related to Project
Sunburst incurred during fiscal 2000.
13
Gaming costs and expenses were $307.2 million for fiscal year 2000, an increase
of $33.7 million or 12.3% over gaming costs for fiscal 1999 of $273.5 million.
The slot win contribution for the fiscal years ended September 30, 2000 and 1999
totaled $135.1 million and $121.1 million, respectively. The increase in slot
win contribution is directly related to the increase in slot revenues.
Food and beverage costs for fiscal year 2000 increased $1.5 million to $23.7
million or 6.9% over fiscal 1999 food and beverage costs of $22.2 million. The
increase is attributable to increased labor and benefit costs.
Retail and other costs were $27.1 million for fiscal year 2000, an increase of
$4.6 million or 20.2% over retail and other costs of $22.6 million for fiscal
1999. The increase is primarily attributable to a full year of operations for
the gas station facility, which opened in December 1998, as well as the
increased utilization of the Mohegan Sun complimentary program in the retail
outlets.
General and administrative costs were $127.2 million and $110.9 million for
fiscal years ended September 30, 2000 and 1999, respectively. The increase of
$16.3 million or 14.7% is partially attributable to continued marketing
campaigns associated with efforts to increase the frequency of patron visits. Of
the $16.3 million increase, $3.5 million is associated with the Uncas Pavilion.
Pre-opening costs were $5.3 million for the fiscal year ended September 30,
2000. Pre-opening costs are composed of labor and advertising costs associated
with Project Sunburst. Mohegan Sun did not incur any pre-opening costs for the
fiscal year ended September 30, 1999.
Management fees earned by TCA totaled $13.6 million for the fiscal year ended
September 30, 2000, a decrease of $45.9 million or 77.1% over management fees
for fiscal 1999 of $59.5 million. The decrease in management fees is a direct
result of the termination of the management agreement on January 1, 2000.
For the fiscal year ended September 30, 2000, depreciation and amortization
increased $7.3 million to $30.7 million, an increase of 31.4% over depreciation
and amortization for fiscal 1999 of $23.4 million. The increase is primarily
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.
Income from operations for the fiscal year ended September 30, 2000 totaled
$204.3 million compared to $156.5 million in fiscal 1999. The increase is
primarily due to an increase in gaming revenues.
For the fiscal year ended September 30, 2000, the relinquishment liability
reassessment associated with the Relinquishment Agreement with TCA was $31.8
million, compared to $111.9 million in fiscal 1999. The reassessment represents
the impact of time on the value of money discounted to present value using the
Authority's current risk-free rate of investment and an adjustment for the
difference between forecasted and actual revenues. See Note 13 to the
Authority's Financial Statements.
Interest and other income was $13.5 million for the fiscal year ended September
30, 2000, an increase of $2.2 million over interest and other income of $11.3
million for fiscal 1999. The increase in interest and other income is related to
the investment of the remainder of the proceeds from the Authority's Senior
Notes and Senior Subordinated Notes issued on March 3, 1999. A portion of the
financing was used to pay off existing debt and the remainder has been invested
to be used for construction of Project Sunburst. The Authority's treasury
program requires investment in investment-grade commercial paper having
maturities not more than six months from the date of acquisition. Weighted
average invested cash was $171.3 million and $151.8 million for the fiscal years
ended September 30, 2000 and 1999, respectively.
14
Interest expense of $37.8 million for the fiscal year ended September 30, 2000
represents a decrease of $17.8 million or 32.0% over the prior year interest
expense. The decrease is mainly attributable to the capitalization of $9.9
million in interest on the $200 million Senior Notes and the $300 million Senior
Subordinated Notes to Project Sunburst. The increase in debt was the result of
the payoff of the $175 million Senior Secured Notes, the defeasance of the $90
million Subordinated Notes and the issuance of the $200 million Senior Notes and
$300 million 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.
Other expense for the fiscal year ended September 30, 2000 is attributable to
the disposal of assets having a net book value of $1.5 million. There was no
other expense in fiscal year 1999.
Loss from discontinued operations totaled $674,000 for the fiscal year ended
September 30, 2000, a decrease of $138,000 or 17.0% over the loss from
discontinued operations for the fiscal year ended September 30, 1999 of
$812,000. 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
room into a 650 unit smoke-free slot area.
Net income for the fiscal year ended September 30, 2000 increased $184.9 million
to $145.9 million. The increase in net income is primarily attributable to the
decrease in the relinquishment reassessment expense from $111.9 million in
fiscal year 1999 to $31.8 million in fiscal year 2000 and the increase in income
from operations of $47.8 million over the prior year. Under this Relinquishment
Agreement, the Authority agreed to pay to TCA 5% of gross revenues (as defined
in the agreement) generated from Mohegan Sun and the planned expansion,
beginning January 1, 2000 and ending December 31, 2014 (See Note 13 to the
Authority's Financial Statements). Net loss for fiscal year 1999 totaled $38.9
million, which was primarily attributable to the relinquishment reassessment
expense of $111.9 million and the extraordinary item of $38.4 million relating
to the early extinguishment of debt (see Note 14 to the Authority's financial
statements).
Comparison of Operating Results for the Fiscal Years Ended September 30, 1999
and September 30, 1998
Mohegan Sun has continued to experience favorable growth since opening in
October 1996. Net revenues for fiscal 1999 increased $99.7 million or 17.5% to
$668.7 million compared to $569.0 million for fiscal year 1998. The earnings
before interest, taxes, depreciation, amortization and management fees for the
year ended September 30, 1999 increased $38.8 million or 19.3% to $239.5 million
compared to $200.7 million in fiscal 1998. Mohegan Sun achieved a fiscal year
1999 operating margin of 35.8% compared to a 35.3% operating margin during the
fiscal year ended September 30, 1998. On October 13, 2000 it was announced that
bingo operations would be converted into a 650-unit smoke-free slot area,
therefore, the corresponding revenues, promotional allowances, expenses and
interest income have been consolidated in discontinued operations.
The Connecticut slot market continues to grow as does Mohegan Sun's market
share. The Connecticut slot market grew at a rate of 11.5% from fiscal 1998 to
fiscal 1999. The State of Connecticut reported a gross slot win of $1.2 billion
and $1.1 billion for the fiscal years ended September 30, 1999 and 1998,
respectively. Mohegan Sun has exceeded the market's growth in slot win as it
experienced a fiscal year 1999 increase in net slot revenues of 19.8% over the
prior year. Slot revenues were $474.9 million and $396.3 million for the fiscal
years 1999 and 1998, respectively. Net slot win per unit per day was $430 and
$361 for the respective periods.
Gaming revenues for fiscal year 1999 increased $97.2 million or 17.9% to $641.1
million compared to $543.9 million for fiscal year ended September 30, 1998. The
increase in gaming revenues is primarily due to a 19.8% growth in Mohegan Sun
slot revenues as a result of the continued growth of the Mohegan Sun customer
base. Membership in the Mohegan Sun Player's Club increased by almost 300,000 to
1.2 million as of September 30, 1999.
For the fiscal year ended September 30, 1999, food and beverage revenues were
$47.9 million, a growth of $3.5 million or 7.9% over food and beverage revenues
for the fiscal year ended September 30, 1998 of $44.4 million. The increase is
attributable to an increase in patronage, combined with an increase in average
food check.
15
Retail and other revenues were $36.5 million, a growth of $13.3 million or 57.3%
over retail and other revenues for the fiscal year 1998 of $23.2 million. This
increase is attributed to increased utilization of complimentaries and the
opening of the gas station facility in December 1998.
Promotional allowances totaled $56.8 million for the fiscal year ended September
30, 1999, representing a $14.3 million or 33.7% increase over fiscal year 1998
promotional allowances of $42.5 million. The increase is attributable to an
increase in the customer base as well as an increased utilization of the Mohegan
Sun Player's Club complimentary program. Additionally, promotional allowances as
a percentage of gross revenue increased from 7.0% in fiscal year 1998 to 7.8% in
fiscal year 1999.
Total costs and expenses were $512.1 million for the fiscal year ended September
30, 1999, an increase of $78.9 million or 18.2% over the prior year's total
costs and expenses of $433.3 million. The increase in expenses is primarily a
result of an 18.7% increase in gross revenues.
Gaming costs and expenses were $273.5 million for fiscal year 1999, an increase
of $44.9 million or 19.7% over gaming costs for fiscal year 1998 of $228.5
million. The slot win contribution for the fiscal years ended September 30, 1999
and 1998 totaled $121.1 million and $102.3 million, respectively. The increase
in slot win contribution is directly related to the increase in slot revenues.
Food and beverage costs were $22.2 million for fiscal year 1999 compared to
$22.0 million in fiscal year 1998. The increase is attributable to increased
volumes in food and beverage sales, partially offset by savings gained through
operational efficiencies.
Retail and other costs were $22.6 million for fiscal year 1999, an increase of
$1.4 million or 6.6% over retail and other costs of $21.2 million for fiscal
year 1998. The increase is primarily attributable to the opening of the gas
station facility in December 1998, as well as the continued utilization of the
Mohegan Sun complimentary program in the retail outlets.
General and administrative costs were $110.9 million and $96.6 million for the
fiscal years ended September 30, 1999 and 1998, respectively. The increase of
$14.3 million or 14.8% is partially attributable to continued marketing
campaigns associated with efforts to increase the frequency of patron visits.
Management fees earned by TCA totaled $59.5 million for the fiscal year ended
September 30, 1999, an increase of $12.1 million or 25.5% over management fees
for fiscal year 1998 of $47.4 million. The increase in management fees is a
direct result of the increase in net income before management fees and
extraordinary items.
For the fiscal year ended September 30, 1999, depreciation and amortization
increased $5.9 million to $23.4 million, an increase of 33.5% over depreciation
and amortization for fiscal 1998 of $17.5 million. The increase is primarily
attributable to the $2.6 million amortization of the trademark asset and the
increase in depreciation of newly acquired capital assets utilized in the
racebook and fueling facilities.
Income from operations for fiscal the year ended September 30, 1999 totaled
$156.5 million, compared to $135.7 million for fiscal year 1998. The increase is
primarily due to an increase in gaming revenues.
For the fiscal year ended September 30, 1999, the relinquishment liability
associated with the Relinquishment Agreement with TCA was reassessed to $661.0
million, an increase of $111.9 million. The reassessment is based on the change
in forecasted incremental revenues through December 31, 2014 discounted to
present value using the Authority's current risk-free rate of return. See Note
13 to the Authority's Financial Statements.
16
Interest and other income was $11.3 million for the fiscal year ended September
30, 1999, an increase of $8.6 million over interest and other income for fiscal
1998 of $2.6 million. The increase in interest and other income is related to
the investment of a portion of the proceeds from the Authority's Senior Notes
and Senior Subordinated Notes issued on March 3, 1999, partially offset by the
extinguishment of the reserve trust accounts required under the prior financing
arrangement. A portion of the financing was used to pay off existing debt and
the remainder has been temporarily invested and will be used for construction of
the expansion. The Authority's treasury program requires investment in
investment-grade commercial paper having maturities not more than six months
from the date of acquisition. Weighted average invested cash was $151.8 million
and $9.7 million for the fiscal years ended September 30, 1999 and 1998,
respectively.
Interest expense of $55.6 million for the fiscal year ended September 30, 1999
represents an increase of $5.4 million or 10.8% over prior year's interest
expense. The increase was mainly attributable to the amount of weighted average
debt outstanding, which increased from $293.5 million at September 30, 1998 to
$435.1 million at September 30, 1999. The increase in debt was the result of the
payoff of the $175 million Senior Secured Notes, and the issuance of the Senior
Notes and Senior Subordinated Notes in March 1999. The weighted average interest
rate was 10.45% and 15.33% for the fiscal years ended September 30, 1999 and
1998, respectively.
Loss from discontinued operations totaled $812,000 for the fiscal year ended
September 30, 1999, an increase of $243,000 or 42.7% over the loss from
discontinued operations for fiscal year 1998 of $569,000. The loss is the result
of the October 13, 2000 decision of management to cease bingo operations to make
room for a smoke-free slot area.
Extraordinary items for fiscal year 1999 of $38.4 million include a loss on the
early extinguishment of debt of $33.7 million due to the tender of the $175
million Senior Secured Notes on March 3, 1999, and the write-off of associated
financing fees of $5.2 million. Also included is a $500,000 extraordinary gain
for the forgiveness of debt associated with the defeasance of the Subordinated
Notes. Extraordinary items for the fiscal year ended September 30, 1998 totaled
$419.5 million, consisting of $332,000 for the early extinguishment of the debt
and $419.1 million related to the Relinquishment Agreement. See Notes 8 and 13
to the Authority's Financial Statements.
Net loss for the fiscal year ended September 30, 1999 totaled $38.9 million,
which is primarily attributable to the relinquishment reassessment expense of
$111.9 million related to the Relinquishment Agreement with TCA. Under this
Relinquishment Agreement, the Authority agreed to pay to TCA 5% of gross
revenues (as defined in the agreement) generated from Mohegan Sun and the
planned expansion, beginning January 1, 2000 and ending December 31, 2014 (See
Note 13 to the Authority's Financial Statements). Net loss for fiscal year 1998
totaled $331.9 million, which was primarily attributable to the relinquishment
expense of $419.1 million.
Liquidity, Capital Resources and Capital Spending
As of September 30, 2000, 1999 and 1998, the Authority held cash and cash
equivalents of $115.7 million, $276.6 million and $110.7 million, respectively.
Cash provided by operating activities for the fiscal year ended September 30,
2000 was $218.2 million, compared with $144.7 million and $131.5 million for the
fiscal years ended September 30, 1999 and 1998, respectively. During fiscal year
2000, the Authority tendered $90 million of Subordinated Notes using the
defeasance trust asset established in fiscal year 1999, for the sum of $140.3
million including all accrued and deferred interest, on December 30, 1999.
During fiscal year 1998, the Authority finalized contract negotiations with TCA
for Project Sunburst, which is currently estimated to cost $960.0 million
(excluding capitalized interest). 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 million for such services. As of
September 30, 2000, the Authority has paid $3.5 million in TCA development fees.
17
On March 3, 1999, the Authority entered into a syndicated $425.0 million Bank
Credit Facility maturing in March 2004. The Bank Credit Facility provided the
Authority the right to arrange for increases in the Bank Credit Facility to an
aggregate amount of $500.0 million, within two years subsequent to the closing.
In November 1999, the Bank Credit Facility was increased to $459.5 million. On
November 30, 2000 the Authority exercised its right and increased the Bank
Credit Facility to $500.0 million. The Bank Credit Facility is secured by a lien
on substantially all of the Authority's assets, by a leasehold mortgage on the
land on which Mohegan Sun is located, and by each of the Authority's cash
operating accounts. At the Authority's option, interest will accrue on the basis
of a base rate formula or a Reserve Adjusted London Inter-bank Offer Rate
("LIBOR") based formula plus applicable spreads. As of September 30, 2000, there
were no borrowings outstanding on the Bank Credit Facility. The Authority plans
to draw on the Bank Credit Facility primarily in connection with Project
Sunburst. In addition to the financing provided by the Senior Notes, Senior
Subordinated Notes and the Bank Credit Facility, the Tribe has set aside, with a
trustee, a $40.0 million, fully-funded construction reserve account that, in
certain circumstances, may be used to pay costs in excess of the Project
Sunburst budget. The Authority has entered into certain hedging transactions
effective October 1, 2000 and January 2, 2001, to mitigate against the exposure
to interest rate fluctuations on the Bank Credit Facility. (See Note 8 to the
Authority's Financial Statements.)
The Authority's capital spending has increased significantly with the
commencement of the Project Sunburst expansion. Capital expenditures totaled
$288.3 million for the fiscal year ended September 30, 2000, versus $62.7
million and $32.7 million for the fiscal years ended September 30, 1999 and
1998, respectively. Project Sunburst construction costs, including capitalized
interest, totaled $275.3 million through September 30, 2000, of which $237.9
million was expended in fiscal 2000 and $37.4 million was expended in prior
periods. The Casino of the Sky, Shops at Mohegan Sun and Mohegan Sun Arena are
expected to open in October of 2001. The 1,200-room luxury hotel and the
convention space are expected to open in April 2002. Property maintenance
capital expenditures for furniture, fixtures and equipment totaled $19.5 million
in 2000, $11.2 million in 1999, and $24.0 million in 1998. The $24.0 million
expended in fiscal 1998 included the buyout of $15.2 million in operating
leases. Expenditures on the Authority's utility enhancements and the Eagleview
employee parking center totaled $17.0 million and $13.9 million, respectively,
for the fiscal year ended September 30, 2000.
The Authority, in conjunction with the Project Sunburst expansion, commenced
construction on the Eagleview employee parking center in March 1999. The
Eagleview employee parking center includes 2,700 parking spaces and amenities
such as a dry cleaning service, on-site banking, an employee computer/training
center and a 15,000 square foot exercise facility. The Eagleview employee
parking center opened in June 2000. The total cost of the Eagleview employee
parking center to date is $23.7 million. The total cost of the Eagleview
employee parking garage is expected to be $25.0 million. As of September 30,
1999, the Authority had expended $9.8 million on the construction of the
Eagleview employee parking center. It is anticipated that the parking garage
will be completed by December 2000.
The Tribe has approved a formal resolution increasing the expansion budget from
$800.0 million to $960.0 million (excluding capitalized interest which will be
paid from internally generated funds). The Authority, in conjunction with the
Tribe, has increased the Project Sunburst budget to $960.0 million for three
reasons: (1) expected increases in Project Sunburst labor costs because of the
extreme competitive nature of the Northeast construction labor market; (2)
enhance project scope such as an increase in the number of slot machines
scheduled to be placed on the gaming floor; and (3) quality improvements to the
hotel. As a result of the increase to the Project Sunburst budget, the Authority
anticipates seeking to issue an additional $150.0 million of subordinated notes
or a term loan. Based on current market conditions, the Authority anticipates
securing such financing after January 2001. The remainder of the increase will
be funded through internally generated funds. In addition to the financing
provided by the Senior Notes, Senior Subordinated Notes and the Bank Credit
Facility, the Tribe has set aside, with a trustee, a $40.0 million, fully-funded
construction reserve account that, in certain circumstances, will be used to pay
costs in excess of the approved Project Sunburst budget.
The Tribe commenced construction of a Public Safety Facility that will service
the Mohegan Reservation. Construction was initially funded by the Authority and
subsequently reimbursed by the Tribe. Approximately $1.6 million has been
incurred and remains due from the Tribe and reflected as amounts due from
affiliates in the Authority's balance sheet as of September 30, 2000.
18
Construction commenced on a $35.0 million electrical and water systems
infrastructure ("Infrastructure Improvements") that will service Mohegan Sun and
other facilities. The upgrades provide the most efficient manner of satisfying
the increased water and electrical needs of the property that is attributable to
Project Sunburst expansion. The construction was funded by the Authority, and is
expected to be complete concurrent with the opening of Project Sunburst. As of
September 30, 2000, approximately $17.0 million has been incurred.
In September 1998, the Authority introduced a race book facility as an
additional gaming amenity. This 9,000 square foot facility features horse racing
from the New York Racing Association circuit as well as greyhound racing and jai
alai from throughout the United States. The race book facility features 218
seats with individual television monitors and computerized self-service betting
capabilities. Expenditures associated with the race book facility totaled $5.2
million, of which $1.3 million was expended in fiscal 1999 and $3.9 million was
expended in fiscal 1998.
During the fiscal year ending September 30, 1998, Mohegan Sun underwent a
renovation of its Winter entrance of the casino and retail area. This $2.0
million project extended Mohegan Sun's historical northeastern Indian theme in
the depiction of a stylized version of an ancient Mohegan Longhouse. The wooden
panels depicting old Indian tales, the ceiling of blankets and the clay pipe
decor enhance the interior design of the casino, which was inspired by Mohegan
tradition and culture. Renovations to the north entry totaled $1.7 million and
$0.3 million for the fiscal years ended September 30, 1998 and 1999,
respectively, and were financed through internally generated funds.
The Authority opened a 4,000 square foot gas station facility on December 7,
1998. The facility consists of 16 gasoline pumps, one diesel fuel pump and a
convenience store that offers baked goods and retail items. The total cost of
the facility was $5.8 million, $2.8 million of which was expended in the fiscal
year ending September 30, 1998. The remaining $3.0 million in expenditures were
expended during the fiscal year ended September 30, 1999. Both the gas station
and race book were financed through equipment leasing and internally generated
funds.
During fiscal year 2001, the Authority expects capital expenditures to be
approximately $25.0 million on facility improvements and $528.2 million on
Project Sunburst construction. In addition to capital expenditures and Project
Sunburst, the Authority anticipates spending $82.5 million on the following
enhancement projects in fiscal year 2001. The Authority anticipates spending
$20.0 million to convert the bingo hall into a 650-unit smoke-free slot parlor,
$2.0 million on an employee day care center, $42.0 million on an additional
parking garage that will enhance the guest experience and accessibility and
$18.5 million on additional utility expenditures to support the entire Mohegan
Sun infrastructure. Upon completion of these project enhancements, the total
expenditures are anticipated to be: $20.0 million to convert the bingo hall;
$10.0 million on the employee day care center; $50.0 million on the additional
parking garage; and $35.0 million on additional utility expenditures.
During fiscal years 2000, 1999 and 1998, the Authority, subsequent to meeting
its operating expenses and required deposits to reserve funds under the
indenture for the Senior Secured Notes, distributed a total of $50.0 million,
$138.4 million and $69.2 million, respectively, to the Tribe. As required under
the indenture for the Senior Secured Notes, the Authority made Excess Cash
Purchase Offers of $51.2 million and $29.1 million to all holders of the Senior
Secured Notes in January 1999 and 1998, respectively. The holders of the Senior
Secured Notes rejected the offers, which were subsequently offered to the
holders of the Authority's Junior Subordinated Notes. The holders of the Junior
Subordinated Notes also rejected the offers. The Excess Cash Purchase Offers of
$51.2 million and $29.1 million were distributed to the Tribe in February 1999
and April 1998, respectively. In fiscal year 1999, the $51.2 million was
subsequently returned to the Authority by the Tribe as a capital contribution to
partially finance Project Sunburst. The release of restricted cash of $45.9
million upon the tender of the Senior Secured Notes was also distributed to the
Tribe, and subsequently returned as a capital contribution towards Project
Sunburst.
19
On January 1 and July 1, 2000, the Authority made interest payments of $8.1
million and $13.1 million each to the holders of the $200 million Senior Notes
and $300 million Senior Subordinated Notes, respectively. On each of November
15, 1998, May 15, 1998 and November 15, 1997, the Authority made interest
payments of $11.8 million each to the holders of the Senior Secured Notes. On
the same dates, the Authority made Cash Flow Participation Interest payments of
$5.8 million, $4.2 million and $4.1 million, respectively, to the holders of the
Senior Secured Notes. In March 1999, the Authority redeemed the Senior Secured
Notes for $220.0 million, including accrued interest of $11.3 million and a
tender premium of $33.7 million. There were no cash interest payment
requirements on the Subordinated Notes as interest was accrued and deferred
until the payoff date. In March 1999, the Authority established a defeasance
trust of $135.5 million in conjunction with the defeasance of the Subordinated
Notes, which fully satisfied the principal and accrued interest due on the
Subordinated Notes on January 1, 2000, the first permitted redemption date. The
total tender of the Subordinated Notes was $140.3 million, including all accrued
and deferred interest on December 30, 1999, two days prior to the redemption
date for year 2000 contingency purposes.
Under the terms of the Relinquishment Agreement, TCA continued to manage the
existing property under the Management Agreement until December 31, 1999. On
January 1, 2000, 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 5% of gross revenues
(as defined in the Relinquishment Agreement) generated from Mohegan Sun
including the planned expansion, beginning January 1, 2000 and ending December
31, 2014. The present value of this liability is estimated at $672.9 million as
of September 30, 2000, an increase of $11.8 million over the $661.1 million
liability recognized as of September 30, 1999. The relinquishment liability will
be reassessed periodically to account for increases in projected revenues and
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. As of September 30, 2000 the
Authority has paid $19.9 million in relinquishment payments. Of the $19.9
million in relinquishment payments, 50% are related to Senior Relinquishment
Payments and 50% are related to Junior Relinquishment Payments. As of September
30, 2000 relinquishment payments earned but unpaid, were $10.9 million.
Management 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, tribal distributions,
and foreseeable capital expenditure requirements with respect to current
operations and expansion for at least the next 12 months.
New Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS No.
133"), "Accounting for Derivative Instruments and Hedging Activities" was
issued. This statement revises the accounting for derivative financial
instruments. The Authority will adopt SFAS No. 133 on October 1, 2000. The
impact of the adoption is not expected to have a material impact on the
Authority's financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-Up Activities," which revises the accounting for start-up costs and will
require the expensing of certain costs which the Authority has historically
capitalized. The Authority has adopted SOP 98-5 and has recognized its impact as
pre-opening costs in its Statement of Income (Loss).
Item 7a. Qualitative and Quantitative Disclosure of Market Risk
The Authority is exposed to inherent market risk on the following:
At the Authority's option, Bank Credit Facility interest will accrue on the
basis of a base rate formula or a LIBOR-based formula, plus applicable spreads.
As of September 30, 2000, the Bank Credit Facility was undrawn. The Authority
expects to draw down on the Bank Credit Facility in fiscal 2001. The Authority
plans to draw on the Bank Credit Facility primarily in connection with Project
Sunburst. The Authority has entered into certain hedging transactions effective
October 1, 2000 and January 2, 2001 to mitigate against the exposure to interest
rate fluctuations on the Bank Credit Facility. (See Note 8 to the Authority's
Financial Statements.)
20
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Notes to Financial Statements of the Mohegan Tribal
Gaming Authority, referred to in Item 14(A)(1) of this Form 10-K, are included
at pages F-1 to F-16.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
21
PART III
Item 10. 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). The
General Manager and other senior officers of Mohegan Sun are hired by the
Management Board. The General Manager and other senior officers are employees of
the Authority.
The following table provides information with respect to each of (i) the members
of the Management Board and (ii) the executive officers of Mohegan Sun as of
September 30, 2000.
Name Age Position
- ---- --- --------
Roland J. Harris 53 Chairman and member, Management Board
Jayne G. Fawcett 64 Vice Chair and member, Management Board
William J. Velardo 46 President and General Manager
Mitchell Grossinger Etess 42 Executive Vice President, Marketing
Jeffrey E. Hartmann 39 Executive Vice President, Finance and Chief Financial Officer
Carlisle M. Fowler 72 Treasurer and member, Management Board
Loretta F. Roberge 69 Corresponding Secretary and member, Management Board
Shirley M. Walsh 56 Recording Secretary and member, Management Board
Mark F. Brown 43 Member, Management Board
Courtland C. Fowler 73 Member, Management Board
Maynard L. Strickland 60 Member, Management Board
Glen R. LaVigne 40 Member, Management Board
Roland J. Harris - Mr. Harris has been Chairman and a member of the Management
Board since October 1995. As of October 2, 2000, Mr. Harris is no longer
Chairman but remains a member of the Management Board. Mr. Harris is the founder
and former president of the corporation Harris and Clark, Inc. - Civil
Engineers, Land Surveyors & Land Planners, which has performed services for the
Authority. The corporation, now known as McFarland Johnson, Inc., has retained
Mr. Harris as a consultant for a fixed fee. 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 served as Deputy Chief of the Griswold Fire
Department and as Fire Marshall and Inspector of the Town of Griswold. Prior to
assuming the Chairmanship of the Management Board, Mr. Harris served as the
Tribal Planner.
Jayne G. Fawcett - Ms. Fawcett has been Vice Chair of the Management Board since
December 1995 and a member of the Management Board since July 1995. As of
October 2, 2000, Ms. Fawcett is no longer Vice Chair but remains a member of the
Management Board and is the Public Relations Ambassador for the Tribe. 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 Chair of the Tribe's
Constitutional Review Board from 1992 to 1993. Currently, she oversees the
Tribe's public relations.
William J. Velardo - Mr. Velardo has been President and General Manager of
Mohegan Sun since October 1995 and has 24 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 joint 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 was part of the management team that opened the Mirage in Las Vegas and
served as Vice President, Table Games from 1989 to 1991. Mr. Velardo also worked
as Assistant Casino Manager and Pit Manager for Caesar's Tahoe and Caesar's
Palace.
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.
22
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 9
years of experience in the casino and hotel industry. Prior to joining the
Authority, Mr. Hartmann worked for Foxwoods Resort Casino from August 1991 to
December 1996, most recently as Vice President of Finance for Foxwoods
Management Company. Mr. Hartmann was employed by PricewaterhouseCoopers, LLP, as
an Audit Manager from 1984 to 1991. Mr. Hartmann is a certified public
accountant.
Carlisle M. Fowler - Mr. Fowler has been the Treasurer and a member of the
Management Board since July 15, 1995 and has been active in the Tribe's
government for over 20 years. As of October 2, 2000, Mr. Fowler is no longer
Treasurer nor a member of the Management Board. Prior to his retirement in 1989,
Mr. Fowler was an electronics technician for the State of Connecticut and
operated his own electronics business. Mr. Carlisle Fowler is the brother of Mr.
Courtland Fowler.
Loretta F. Roberge - Ms. Roberge has been Corresponding Secretary and a member
of the Management Board since July 1995. As of October 2, 2000, Ms. Roberge is
no longer Corresponding Secretary nor a member of the Management Board. Ms.
Roberge has served as a paraprofessional at the Mohegan School for 25 years,
working with children with special needs. Ms. Roberge has remained active in the
Tribal community throughout her life, including her previous service as
secretary of the Management Board.
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 serves on several other Committees of the Tribe.
Mark F. Brown - Mr. Brown has been a member of the Management Board since
October 1995 and serves as the Public Safety liaison for the Tribal Council. As
of October 2, 2000, Mr. Brown is the Chairman of the Management Board. 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.
Courtland C. Fowler - Mr. Fowler has been a member of the Management Board since
July 1995 and was a major contributor to the cultural research that led to the
federal recognition of the Tribe. As of October 2, 2000, Mr. Fowler is no longer
a member of the Management Board. Mr. Fowler was previously employed as a
chemical operator and assistant foreman at Pfizer, Inc. until his retirement in
1990. He served as Vice Chairman of the Management Board, and as a member of the
Tribe's Constitutional Review Board. Mr. Fowler was on the committee that
drafted the first constitution of the Tribe. Mr. Courtland Fowler is the brother
of Mr. Carlisle Fowler.
Maynard L. Strickland - Mr. Strickland has been a member of the Management Board
since October 1995. Prior to his election to the Management Board, Mr.
Strickland owned and operated several restaurants in Norwich, Connecticut and in
Florida for 20 years.
Glen 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.
23
On October 2, 2000, the Tribe held its election of the Tribal Council as
mandated by the Tribal Constitution. Six of the previous nine Tribal Council and
Management Board members have been re-elected. Additionally, Mark Brown and
Peter Schultz have been elected as Chairman and Vice Chairman of the Tribal
Council and Management Board, respectively. Mark Brown has served as a
Management Board member since October 1995 and Peter Schultz previously served
as the Tribe's Director of Human Resources.
The Tribe's Tribal Council and the Authority's Management Board members,
effective October 2, 2000, are as follows: Mark F. Brown, Chairman, Peter J.
Schultz, Vice Chairman, Donald M. Chapman, Treasurer, Christine Murtha,
Corresponding Secretary, Shirley M. Walsh, Recording Secretary, Jayne G.
Fawcett, Ambassador, and Roland J. Harris, Maynard L. Strickland and Glen R.
LaVigne, members. Biographies for new members follow.
Peter J. Schultz - Mr. Schultz was seated on the Management Board and was
elected Vice Chairman of the Board in October 2000. Mr. Schultz held the
position of Human Resources Director for the Tribe from 1997 to September 2000.
From 1982 to 1997 Mr. Schultz was employed by Aetna Life and Casualty
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 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.
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 Urban Mass Transportation Administration in
Washington, D.C. Mr. Chapman was also employed as a stockbroker with Legg Mason
& Company.
Item 11. Executive Compensation
The following table summarizes the compensation paid during the three fiscal
years ended September 30, 2000, 1999 and 1998, to the senior executive officers:
SUMMARY COMPENSATION TABLE
Fiscal
Name and Principal Position Year Ended Salary Bonus Insurance
- --------------------------- ---------- ------ ----- ---------
William J. Velardo 2000 $789,000 $264,000 $ 27,000
President and General Manager 1999 $503,000 $150,000 $ ---
1998 $400,000 $150,000 $ ---
Mitchell Grossinger Etess 2000 $463,000 $164,000 $ 8,000
Executive Vice President, Marketing 1999 $306,000 $100,000 $ ---
1998 $262,500 $100,000 $ ---
Jeffrey E. Hartmann 2000 $401,000 $158,000 $ 12,000
Executive Vice President, Finance 1999 $250,000 $100,000 $ ---
and Chief Financial Officer 1998 $210,000 $100,000 $ ---
During April 1999, the Authority entered into employment agreements with certain
key executive employees. The employment agreements provide for a base salary,
annual compensation increases, annual bonuses and life insurance coverage
subject to certain restrictions as set forth within the agreement. The
employment agreements became effective upon the approval of the Secretary of the
Interior, and will remain effective through and including December 31, 2004. The
employment agreements automatically renew for an additional term of five years
unless terminated.
24
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Authority has no outstanding equity securities.
Item 13. Certain Relationships and Related Transactions
The Tribe provided governmental and administrative services to the Authority in
conjunction with the operation of Mohegan Sun for the fiscal years ended
September 30, 2000, 1999 and 1998. During the fiscal year ended September 30,
2000, the Authority incurred $9.9 million of expenses for such services. The
Authority incurred $8.3 million and $7.7 million of expenses for such services
during fiscal years 1999 and 1998, respectively.
The Tribe, through one of its limited liability companies, has provided goods to
the Authority for resale at its retail location. For the fiscal years ended
September 30, 2000, 1999 and 1998, the Authority expended $348,000, $417,000 and
$400,000, respectively, for the resale goods. Commencing October 1, 2000, this
retail outlet, previously managed by the Authority, will now be managed by the
Tribe. The Tribe will reimburse the Authority for the value of the inventory of
the outlet.
The Tribe, also 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, 2000, 1999
and 1998, the Authority expended $386,000, $412,000 and $446,000, respectively,
relating to the 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
expenses associated with the Development Department for the fiscal year ended
September 30, 2000.
The Authority engages McFarland Johnson, Inc. for surveying, civil engineering
and professional design services. Roland Harris, member and former Chairman of
the Management Board is a consultant for this corporation. For the fiscal years
ended September 30, 2000, 1999 and 1998, the Authority incurred $187,000,
$495,000 and $41,000, respectively, for such services provided by McFarland
Johnson. McFarland Johnson formerly conducted business as Harris & Clark. The
Authority believes the terms of these engagements are comparable to those that
would pertain to arms length engagements of unaffiliated firms.
As of September 30, 2000, the Authority employed 123 Mohegan tribal members.
25
PART IV
Item 14. 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.
26
A(3). Exhibits
Exhibit No. Description
- ---------- -----------
3.1 Constitution of the Mohegan Tribe of Indians of Connecticut*
3.2 Ordinance No. 95-7/15-1 of the Tribe for Gaming on Tribal
Lands, enacted on July 20, 1995*
4.1 Note Purchase Agreement dated September 29, 1995 between the
Mohegan Tribal Gaming Authority and Sun International Hotels
Limited (filed as Exhibit 10.10 to 1996 Form S-1and
incorporated herein by reference)*
4.2 Form of Junior Subordinated Notes due 2003 of the Mohegan
Tribal Gaming Authority (contained in the Note Purchase
Agreement as filed as Exhibit 4.1)*
4.3 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**
4.4 Form of Global 8 1/8% Senior Notes Due 2006 of the Mohegan
Tribal Gaming Authority (contained in the Indenture filed as
Exhibit 4.3)**
4.5 Registration Agreement dated March 3, 1999 among the Mohegan
Tribal Gaming Authority, Salomon Smith Barney Inc., NationsBanc
Montgomery Securities, LLC, SG Cowen Securities Corporation,
Bear, Stearns & Co., Inc., BankBoston Robertson Stephens Inc.
and Fleet Securities, Inc.**
4.6 Indenture dated as of March 3, 1999 among the Mohegan Tribal
Gaming Authority, 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**
4.7 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)**
4.8 Registration Agreement dated March 3, 1999 among the Mohegan
Tribal Gaming Authority, Salomon Smith Barney Inc., NationsBanc
Montgomery Securities LLC, SG Cowen Securities Corporation,
Bear, Stearns & Co. Inc., BankBoston Roberston Stephens Inc.
and Fleet Securities, Inc.**
10.1 The Mohegan Tribe - State of Connecticut Gaming Mohegan Compact
between the Tribe and the State of Connecticut (the "Compact")*
10.2 Agreement dated April 25, 1994 between the Tribe and the State
of Connecticut resolving certain land claims (the "Resolution
Agreement")*
10.3 Memorandum of Understanding dated April 25, 1994 between the
Tribe and the State of Connecticut regarding implementation of
the Compact and the Resolution Agreement*
10.4 Agreement between the Tribe and the Town of Montville,
Connecticut*
10.5 Land Lease dated September 29, 1995 between the Tribe and the
Authority; Amendment of Land Lease dated September 29, 1995*
10.6 Amended to the Land Lease dated February 19, 1999 between the
Mohegan Tribe of Indians of Connecticut and the Mohegan Tribal
Gaming Authority**
27
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 TCA*
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 TCA***
10.9 Relinquishment Agreement dated February 7, 1998 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, and NationsBanc
Montgomery Securities as lead arranger**
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 and Fleet National Bank**
10.11 Defeasance 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 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 Loan 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****
*Filed by the Authority with its Registration Statement on Form S-1 (file
no. 33-80655), and incorporated herein by reference
**Filed by the Authority with its Registration Statement on Form S-4 (file
no. 333-76753), 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
A(4). Reports on Form 8-K
None.
28
B. SCHEDULE II
MOHEGAN TRIBAL GAMING AUTHORITY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 and 1998
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------------------------------------
Description: Balance at beginning of Charged to costs and Charged to other Deductions from Balance at end
period expenses accounts reserves(1) of period
- ------------------------------------------------------------------------------------------------------------------------------------
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
Year 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
Period ended September 30, 1998
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 187 $ 523 $ -- $ 362 $ 348
Relinquishment Liability $ -- $ -- $549,125 $ -- $549,125
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.
29
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Report of Independent Public Accountants F-1
Balance Sheets of the Mohegan Tribal Gaming Authority as of September 30, 2000 and 1999 F-2
Statements of Income (Loss) of the Mohegan Tribal Gaming Authority for the Years F-3
Ended September F-3 30, 2000, 1999 and 1998
Statements of Capital of the Mohegan Tribal Gaming Authority for the Years Ended September 30, F-4
2000, 1999 and 1998
Statements of Cash Flows of the Mohegan Tribal Gaming Authority for the Years Ended September 30, F-5
2000, 1999 and 1998
Notes to Financial Statements of the Mohegan Tribal Gaming Authority F-6 to F-16
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, 2000 and 1999 and the
related statements of income(loss), capital and cash flows for the years ended
September 30, 2000, 1999 and 1998. 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, 2000 and 1999, and the results of its
operations and its cash flows for the years ended September 30, 2000, 1999 and
1998, 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 14 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
Hartford, Connecticut
December 1, 2000
F-1
Mohegan Tribal Gaming Authority
-------------------------------
Balance Sheets
--------------
(in thousands)
--------------
September 30, September 30,
2000 1999
----------- -----------
ASSETS
------
Current assets:
Cash and cash equivalents $ 115,731 $ 276,598
Defeasance trust asset - 138,845
Receivables, net 6,337 3,306
Due from affiliates 1,648 -
Inventories 7,577 5,971
Other current assets 4,478 1,891
----------- -----------
Total current assets 135,771 426,611
Non-current assets:
Property and equipment, net 338,243 287,858
Construction in process 264,999 52,031
Trademark, net 123,128 127,423
Other assets, net 23,238 21,039
----------- -----------
Total assets $ 885,379 $ 914,962
=========== ===========
LIABILITIES AND CAPITAL
-----------------------
Current liabilities:
Current portion of capital lease obligations $ 4,055 $ 12,222
Defeasance trust liability - 136,254
Current portion of relinquishment liability 56,646 19,073
Accounts payable and accrued expenses 57,601 45,827
Accrued interest payable 10,625 10,625
----------- -----------
Total current liabilities 128,927 224,001
Non-current liabilities:
Capital lease obligations, net of current portion 2,336 7,076
Long-term debt 500,000 500,000
Relinquishment liability, net of current portion 616,234 641,937
----------- -----------
Total liabilities 1,247,497 1,373,014
Commitments and contingencies (Note 12)
Capital:
Total capital (362,118) (458,052)
----------- -----------
Total liabilities and capital $ 885,379 $ 914,962
=========== ===========
The accompanying notes are an integral part of these financial statements
F-2
Mohegan Tribal Gaming Authority
-------------------------------
Statements of Income (Loss)
----------------------------
(in thousands)
--------------
For the Year For the Year For the Year
Ended Ended Ended
September 30, 2000 September 30, 1999 September 30, 1998
------------------ ------------------ ------------------
Revenues:
Gaming $ 709,627 $ 641,117 $ 543,870
Food and beverage 47,316 47,907 44,398
Retail and other 52,371 36,486 23,195
-------------- --------- ----------
Gross revenues 809,314 725,510 611,463
Less - Promotional allowances (70,044) (56,827) (42,501)
-------------- --------- ----------
Net revenues 739,270 668,683 568,962
-------------- --------- ----------
Cost and expenses:
Gaming 307,202 273,488 228,542
Food and beverage 23,745 22,218 21,983
Retail and other 27,142 22,583 21,180
General and administration 127,226 110,919 96,599
Pre-opening costs 5,278 - -
Management fee 13,634 59,532 47,442
Depreciation and amortization 30,739 23,397 17,529
-------------- --------- ----------
Total costs and expenses 534,966 512,137 433,275
-------------- --------- ----------
Income from operations 204,304 156,546 135,687
-------------- --------- ----------
Other income (expense):
Relinquishment liability reassessment (31,843) (111,885) -
Interest and other income 13,469 11,254 2,633
Interest expense, net (37,799) (55,595) (50,172)
Other expense (1,523) - -
-------------- --------- ----------
(57,696) (156,226) (47,539)
-------------- --------- ----------
Income from continuing operations 146,608 320 88,148
Loss from discontinued operations (674) (812) (569)
-------------- --------- ----------
Income (loss) before extraordinary items 145,934 (492) 87,579
Extraordinary items - (38,428) (419,458)
-------------- --------- ----------
Net income(loss) $ 145,934 $ (38,920) $ (331,879)
============== ========= ==========
The accompanying notes are an integral part of these financial statements
F-3
Mohegan Tribal Gaming Authority
-------------------------------
Statements of Capital
--------------------
(in thousands)
--------------
For the Year For the Year For the Year
Ended September 30, 2000 Ended September 30, 1999 Ended September 30, 1998
------------------------ ------------------------ ------------------------
Beginning balance $ (458,052) $ (377,874) $ 23,245
Net income 145,934 (38,920) (331,879)
Capital contribution by Tribe - 97,096 -
Distributions to Tribe (50,000) (138,354) (69,240)
------------------------ ------------------------- ------------------------
Ending balance $ (362,118) $ (458,052) $ (377,874)
======================== ========================= ========================
The accompanying notes an integral part of these financial statements
F-4
Mohegan Tribal Gaming Authority
-------------------------------
Statements of Cash Flows
------------------------
(in thousands)
--------------
For the Year For the Year For the Year
Ended Ended Ended
September 30, 2000 September 30, 1999 September 30, 1998
------------------ ------------------ ------------------
Cash flows provided by operating activities:
Net income (loss) $ 145,934 $ (38,920) $ (331,879)
Adjustments to reconcile net income (loss) to
net cash flow provided by operating activities:
Depreciation and amortization 30,739 23,397 17,529
Loss on early extinguishment of debt - 33,217 332
Write-off of financing fees - 5,211 -
Loss on asset disposal 1,705 453 124
Provision for losses on receivables 617 679 523
Relinquishment reassessment 31,843 111,885 419,125
Changes in operating assets and liabilities:
Increase in current assets (8,540) (5,241) (1,065)
Increase in current liabilities 15,864 14,043 26,774
---------------- ---------------- ----------------
Net cash flows provided by operating activities 218,162 144,724 131,463
---------------- ---------------- ----------------
Cash flows used in investing activities:
Purchase of property and equipment (75,310) (17,772) (25,700)
Increase in construction in process, net (212,968) (45,023) (7,031)
Decrease in construction payable - - (3,604)
---------------- ---------------- ----------------
Net cash flows used in investing activities (288,278) (62,795) (36,335)
---------------- ---------------- ----------------
Cash flows (used in) provided by financing activities:
Defeasance liability (140,344) - -
Defeasance trust asset 135,507 (135,507) -
Distributions to Tribe (50,000) (138,354) (69,240)
Payment on capital lease obligations (12,907) (11,148) (13,774)
Relinquishment liability (19,973) - -
Capitalized financing fees (3,034) (20,309) -
Proceeds from issuance of long-term debt - 500,000 -
Extinguishment of Senior Secured Notes - (208,717) -
Capital contribution by Tribe - 97,096 -
Proceeds from equipment financing - 878 9,772
---------------- ---------------- ----------------
Net cash flows (used in) provided by financing
activities (90,751) 83,939 (73,242)
---------------- ---------------- ----------------
Net (decrease) increase in cash and cash equivalents (160,867) 165,868 21,886
Cash and cash equivalents at beginning of period 276,598 110,730 88,844
---------------- ---------------- ----------------
Cash and cash equivalents at end of period $ 115,731 $ 276,598 $ 110,730
Supplemental disclosures:
Trademark $ - $ - $ 130,000
Cash paid during the period for interest $ 43,558 $ 44,981 $ 34,763
The accompanying notes are an integral part of these financial statements
F-5
MOHEGAN TRIBAL GAMING AUTHORITY
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
- -----------------------------------------------
The Mohegan Tribal Gaming Authority (the "Authority"), established on July 15,
1995, is an instrumentality of the Mohegan Tribe of Indians of Connecticut (the
"Tribe"). The Tribe established the Authority with the exclusive power to
conduct and regulate gaming activities for the Tribe. Under the Indian Gaming
Regulatory Act of 1988, federally recognized Indian tribes are permitted to
conduct full-scale casino gaming operations on tribal land, subject to, among
other things, the negotiation of a tribal state compact with the affected state.
The Tribe and the State of Connecticut have entered into such a compact (the
"Mohegan Compact") that has been approved by the U.S. Secretary of the Interior.
The Authority is governed by a Management Board, which consists of the nine
members of the Tribal Council. The Management Board previously engaged Trading
Cove Associates ("TCA"), a Connecticut general partnership, to manage the
operation of Mohegan Sun pursuant to a seven year contract (the "Management
Agreement"). TCA is 50% owned by Sun Cove Limited, an affiliate of Sun
International Hotels Limited ("Sun International"), and 50% owned by Waterford
Gaming, L.L.C. The Management Agreement between the Tribe and TCA concluded on
January 1, 2000. (See Note 13 for discussion of the Relinquishment Agreement
between the Tribe and TCA).
NOTE 2 - DISCONTINUED OPERATIONS
- --------------------------------
On October 12, 2000, the Authority announced it will discontinue bingo
operations in order to build a smoke-free slot area. 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" ("APB 30"), 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."
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
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. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Authority classifies as cash and cash equivalents all highly liquid
investments with a maturity of six months or less when purchased. Cash
equivalents are carried at cost, which approximates market value.
Inventories
Inventories are stated at weighted average cost.
F-6
Due from Affiliates
Due from Affiliates represents amounts paid by the Authority on behalf of the
Tribe for certain Tribal development projects.
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:
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.
Fair Value of Financial Instruments
The fair value amounts disclosed below have been reported to meet the disclosure
requirements of Statement of Financial Accounting Standards No. 107 ("SFAS No.
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.
At September 30, 2000, the fair value of the Authority's financing facilities is
as follows:
Senior Notes $196.0 million
Senior Subordinated Notes $294.0 million
Revenue Recognition
The Authority recognizes casino revenue as gaming wins less gaming losses.
Revenues from food and beverage, retail and special events are recognized at the
time the service is performed.
Promotional Allowances
The retail value of food, beverage 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 value of providing such promotional allowances was included in
revenues as follows (in thousands):
For the Year Ended For the Year Ended For the Year Ended
September 30, 2000 September 30, 1999 September 30, 1998
------------------ ------------------ ------------------
Food and beverage $25,466 $26,724 $23,637
Retail and Other 44,578 30,103 18,864
-------- ------- -------
$70,044 $56,827 $42,501
======= ======= =======
F-7
Advertising
The Authority expenses the production costs of advertising the first time the
advertising takes place, with the exception of billboard advertising, which is
treated as a prepaid and amortized over the expected period of future benefits.
Trademarks
Trademarks are amortized on a straight-line basis over the estimated period of
benefit, which has been determined to be 37 years. As of September 30, 2000, the
unamortized portion of the trademark is $123.1 million. See Note 13 for further
discussion of the trademark.
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.
New Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS No.
133"), "Accounting for Derivative Instruments and Hedging Activities" was
issued. This statement revises the accounting for derivative financial
instruments. The Authority will adopt SFAS No. 133 on October 1, 2000. The
impact of the adoption is not expected to have a material impact on the
Authority's financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-Up Activities," which revises the accounting for start-up costs and will
require the expensing of certain costs which the Authority has historically
capitalized. The Authority has adopted SOP 98-5 and has recognized its impact as
pre-opening costs in its Statement of Income (Loss) for the year ended September
30, 2000.
Reclassifications
Certain amounts in the 1998 and 1999 financial statements have been reclassified
to conform with the 2000 presentation.
NOTE 4 - CASH AND CASH EQUIVALENTS
- ----------------------------------
At September 30, 2000 and 1999, the Authority had cash and cash equivalents of
$115.7 million and $276.6 million, respectively, of which, $81.4 million and
$237.9 million, respectively, were invested in highly liquid investments with
original maturities not to exceed six 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").
NOTE 5 - ACCOUNTS RECEIVABLE
- ----------------------------
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. Although management believes
the allowance is adequate, it is possible that the estimated amount of cash
collections could change. At September 30, 2000 and 1999, the Authority
established approximately $736,000 and $834,000, respectively in allowance for
doubtful accounts.
F-8
NOTE 6 - PROPERTY AND EQUIPMENT, NET
- ------------------------------------
Components of property and equipment were as follows (in thousands):
September 30, 2000 September 30, 1999
------------------ ------------------
Land $ 28,581 $ 28,581
Land improvements 44,834 47,297
Buildings 251,931 185,534
Furniture and equipment 80,476 73,630
--------- ---------
Subtotal 405,822 335,042
Less: accumulated depreciation (67,579) (47,184)
--------- ---------
Property and Equipment, net 338,243 287,858
Construction in Process 264,999 52,031
--------- ---------
Total Property and Equipment $ 603,242 $ 339,889
========= =========
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
- -----------------------------------------------
Components of accounts payable and accrued expenses were as follows (in
thousands):
September 30, 2000 September 30, 1999
------------------ ------------------
Trade payables $ 6,486 $ 6,581
Construction retainage 11,790 2,126
Accrued payroll and related taxes and benefits 15,733 12,583
Accrued gaming taxes 11,842 10,394
Other accrued liabilities 11,750 14,143
------- -------
$57,601 $45,827
======= =======
NOTE 8 - FINANCING FACILITIES
- -----------------------------
During 1999, the Authority issued $200 million in Senior Notes and $300 million
in Senior Subordinated Notes. The proceeds from this financing were used to
extinguish the existing Senior Secured Notes, defease the existing Subordinated
Notes, pay transaction costs for the financing of the newly issued Senior and
Senior Subordinated Notes, and fund initial costs related to the expansion of
Mohegan Sun ("Project Sunburst").
Financing facilities, as described below, consisted of the following (in
thousands):
September 30, 2000 September 30, 1999
------------------ ------------------
Senior Notes $200,000 $200,000
Senior Subordinated Notes 300,000 300,000
-------- --------
$500,000 $500,000
======== ========
F-9
Senior Secured Notes
On March 3, 1999, the Authority redeemed the Senior Secured Notes for $220.0
million, including accrued interest of $11.3 million and a tender premium of
$33.7 million.
Subordinated Notes/Defeasance Trust
At September 30, 1998, the Authority had $90.0 million of subordinated financing
from Sun International and Waterford Gaming L.L.C. in the form of notes
("Subordinated Notes") bearing interest at 15% per annum. The Authority had
issued $20.0 million of Subordinated Notes to each of Sun International and
Waterford Gaming L.L.C., bearing interest at 15.0% per annum. The Authority also
had issued $50.0 million of Subordinated Notes to Sun International evidencing
draws made by the Authority under the Secured Completion Guarantee provided by
Sun International and Waterford Gaming L.L.C. during the initial construction of
Mohegan Sun. Sun International held $42.5 million of the Secured Completion
Guarantee, and Waterford Gaming L.L.C. held the remaining $7.5 million. The
interest rate on the Subordinated Notes issued under the Secured Completion
Guarantee was at prime rate plus 1%, which was revised at intervals of six
months. The interest rate was 8.75% per annum at September 30, 1999 and 9.5% per
annum at September 30, 1998. In November 1999, the interest rate was revised to
9.25% per annum. Interest on the Subordinated Notes was payable semi-annually,
provided that all such interest was deferred and would not be paid until at
least half of the Senior Secured Notes had been offered to be repurchased or
retired, pursuant to the terms of the Senior Secured Notes, and certain other
conditions had been fulfilled.
The Authority has redeemed the outstanding Subordinated Notes for $140.3
million, a price representing 100% of the principal amount plus accrued and
unpaid interest, less $500,000 pursuant to the Relinquishment Agreement between
the Tribe and TCA (See Note 13). The Authority exercised its rights under the
original purchase agreement for the Subordinated Notes to effect a defeasance of
these 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 sufficient to redeem the Subordinated Notes plus accrued
interest. All Subordinated Notes were held by Sun International Hotels Limited,
the parent company of a partner in TCA, and by Waterford Gaming L.L.C., also a
partner in TCA. The Authority used the defeasance trust funds to redeem the
Subordinated Notes on December 30, 1999.
Senior Notes
On March 3, 1999, the Authority issued the $200.0 million Senior Notes with
fixed interest payable at a rate of 8.125% per annum. Interest on the Senior
Notes is payable semi-annually on January 1 and July 1. The notes mature on
January 1, 2006. The Senior Notes are unsecured general obligations of the
Authority and rank pari passu in right of payment with all current and future
unsecured senior indebtedness of the Authority. However, borrowing under the
syndicated $500.0 million Bank Credit Facility and other capital lease
obligations are secured 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 secured debt may be paid in full in cash
before any payment may be made with respect to the Senior Notes. A total of 50%
of the Relinquishment Agreement (See Note 13) payment to TCA will rank equal in
right of payment to the Senior Notes and the remaining 50% of this payment will
rank junior in right of payment to the Senior Notes. As of September 30, 2000
and 1999, accrued interest on the Senior Notes was $4.1 million.
F-10
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. Interest on the
Senior Subordinated Notes is payable semi-annually on January 1 and July 1. The
notes mature on January 1, 2009. The Senior Subordinated Notes are unsecured
general obligations of the Authority and are subordinated to the Bank Credit
Facility (See below), to the Senior Notes and to 50% of the Relinquishment
Agreement payment to TCA. The Senior Subordinated Notes rank equally to the
remaining 50% of the Authority's payment obligations under the Relinquishment
Agreement that are then due and owing, but are effectively senior to such
payment obligations that are not yet due under the Relinquishment Agreement
since payment obligations under the Relinquishment Agreement cannot be
accelerated by their terms. As of September 30, 2000 and 1999, accrued interest
on the Senior Subordinated Notes was $6.5 million.
Bank Credit Facility
On March 3, 1999, the Authority entered into the $425.0 million Bank Credit
Facility, which will mature in March of 2004. The Bank Credit Facility provided
the Authority the right to arrange for increases in the Bank Credit Facility to
an aggregate amount of $500.0 million within two years subsequent to the
closing. In November 1999, the Bank Credit Facility was increased to $459.5
million. On November 30, 2000, the Authority exercised its right to increase the
Bank Credit Facility to $500.0 million. The Bank Credit Facility is secured by a
lien on substantially all of the Authority's assets, by a leasehold mortgage on
the land on which Mohegan Sun is located, and by each of the Authority's cash
operating accounts. At the Authority's option, interest will accrue on the basis
of a 1-month, 3-month or 6-month London Inter-Bank Offer Rate ("LIBOR") based
formula plus applicable spreads. As of September 30, 2000, there were no
borrowings outstanding on the Bank Credit Facility. The Bank Credit Facility
will automatically reduce by 10% of the commitment as of the earlier of March
31, 2002 or the last full day of the first full fiscal quarter following the
completion date of Project Sunburst. The Authority plans to draw on the Bank
Credit Facility primarily in connection with Project Sunburst.
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, 2000 and
1999, the Authority was in compliance with all financial covenant requirements.
Subsequent to September 30, 2000, the Authority amended certain financial
covenants and capital spending limitations of the Bank Credit Facility. These
amendments were effective November 30, 2000.
On April 7, 2000, the Authority entered into a 36-month hedging transaction. The
Authority executed a hedge agreement with a notional amount based on 20% of the
estimated draws on the Bank Credit Facility. The transaction, which is effective
October 2000, is an interest rate collar with a 7.75% ceiling and a 5.75% floor,
based upon one-month LIBOR. The Authority paid a premium of $295,000 for the
transaction. On November 20, 2000 the Authority sold this hedging transaction
and simultaneously purchased a 38-month interest rate collar with a ceiling of
8.00% and a floor of 6.00% based upon one-month LIBOR and a notional amount
based on 20% of the estimated draws on the Bank Credit Facility. The Authority
did not incur an additional premium on this transaction.
The Authority executed an additional 36-month hedging agreement on April 7, 2000
with a notional amount based on 20% of the estimated draws on the Bank Credit
Facility. The transaction, which is effective October 2000, is an interest rate
cap of 8.0%, based upon one-month LIBOR. The Authority paid a premium of
$410,000 for this transaction.
On April 18, 2000, the Authority entered into a 36-month hedging transaction
with a notional amount, based on 10% of the estimated draws on the Bank Credit
Facility. The transaction is an interest rate cap of 7.75%, based upon one-month
LIBOR. The Authority paid a premium of $221,000 for the transaction. On November
22, 2000, the Authority sold this hedging transaction and simultaneously
purchased a 38-month interest rate swap at 6.35% based upon one-month LIBOR and
a notional amount based on 10% of the estimated draws on the Bank Credit
Facility. The Authority did not incur an additional premium on this transaction.
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All premiums paid for hedging transactions have been capitalized and are
reflected in other assets in the accompanying balance sheet as of September 30,
2000. These premiums will be evaluated quarterly and marked to market value in
accordance with SFAS No. 133.
Letters of Credit
The Authority has available a $250,000 unsecured letter of credit with Fleet
National Bank that will expire in August 2001, a $250,000 letter of credit with
Peoples Bank that will expire in January 2001 and a $1.0 million letter of
credit with Bank of America that expires in April 2001. As of September 30, 2000
and 1999, no amounts were drawn on the letters of credit.
Excess Cash Purchase Offer
Pursuant to the Senior Secured Notes, the Authority was required to make an
excess cash purchase offer to all holders of the Senior Secured Notes within 120
days after each fiscal year end of the Authority, commencing September 30, 1997.
The excess cash purchase offer was equal to 50% of the excess cash flow, as
defined, plus 100% of the deferred subordinated interest.
An Excess Cash Purchase Offer of $51.2 million was made on December 30, 1998.
The Excess Cash Purchase Offer expired, by its terms, on January 29, 1999, and
all holders declined to exercise the offer. On February 1, 1999, pursuant to the
Subordinated Note purchase agreement, an offer to repurchase in the amount of
the Excess Cash Purchase Offer was made to the holders of the Subordinated
Notes. On February 1, 1999, the holders of the Subordinated Notes also rejected
the offer. On February 2, 1999, as permitted by Section 4.07(g) of the Senior
Secured Notes, the Authority distributed the Excess Cash Purchase Offer of $51.2
million to the Tribe. The Tribe contributed the $51.2 million back to the
Authority on February 2, 1999.
NOTE 9 - LEASES
- ---------------
At September 30, 2000, the Authority was obligated under capital leases to make
future minimum lease payments as follows:
Fiscal Year Ending September 30,
(In Thousands)
2001 $ 4,371
2002 2,358
2003 64
-------
Total minimum lease payments 6,793
Amount representing interest (402)
-------
Total obligation under capital leases 6,391
Less: Amount due within one year (4,055)
-------
Amount due after one year $ 2,336
=======
Operating lease expenses, excluding costs to obtain assets, were $2.5 million,
$3.6 million, $3.6 million for the years ended September 30, 2000, 1999 and
1998, respectively. During 2000, the Authority purchased equipment previously
used under operating leases for $2.7 million. No operating leases existed as of
September 30, 2000.
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NOTE 10 - RELATED PARTY TRANSACTIONS
- ------------------------------------
The Tribe provided governmental and administrative services to the Authority in
conjunction with the operation of Mohegan Sun for the fiscal years ended
September 30, 2000, 1999 and 1998. During the fiscal year ended September 30,
2000, the Authority incurred $9.9 million of expenses for such services. The
Authority incurred $8.3 million and $7.7 million of expenses for such services
during fiscal years 1999 and 1998, respectively.
The Tribe, through one of its limited liability companies, has provided goods to
the Authority for resale at its retail location. For the fiscal years ended
September 30, 2000, 1999 and 1998, the Authority expended $348,000, $417,000 and
$400,000, respectively, for the resale goods. Commencing on October 1, 2000 this
retail outlet, previously managed by the Authority, will now be managed by the
Tribe. The Tribe will reimburse the Authority for the value of the inventory of
the outlet as of the close of business on September 30, 2000.
The Tribe, also 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, 2000, 1999
and 1998, the Authority expended $386,000, $412,000 and $446,000, respectively,
relating to the 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
expenses associated with the Development Department for the fiscal year ended
September 30, 2000.
The Authority engages McFarland Johnson, Inc. for surveying, civil engineering
and professional design services. Roland Harris, member and former chairman of
the Management Board, is a consultant for this corporation. For the fiscal years
ended September 30, 2000, 1999 and 1998, the Authority incurred $187,000,
$495,000 and $41,000, respectively, for such services. McFarland Johnson
formerly conducted business as Harris & Clark. The Authority believes the terms
of these engagements are comparable to those that would pertain to arms length
engagements of unaffiliated firms.
As of September 30, 2000, the Authority employed 123 Mohegan tribal members.
NOTE 11 - EMPLOYEE BENEFIT PLANS
- --------------------------------
Effective February 10, 1997, the Authority adopted a retirement savings plan for
its employees under Section 401(k) of the Internal Revenue Code. 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 this plan. The Authority had matched 50% of the
first 4% for the period February 10, 1997 to December 31, 1998, and the
Authority now matches 100% of eligible employees' contributions up to a maximum
of 3% of their individual earnings effective January 1, 1999. The Authority
recorded matching contributions of approximately $2.4 million, $2.0 million and
$1.4 million, respectively, to this plan for the years ended September 30, 2000,
1999 and 1998.
Effective September 1, 1998, the Authority, in conjunction with the Tribe,
adopted a Non-Qualified Deferred Compensation Plan for certain key employees.
This plan allows participants to defer up to 100% of their pre-tax income to the
plan. Deferred compensation paid to this plan for the fiscal years ended
September 30, 2000 and 1999 was $703,000 and $144,000, respectively.
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NOTE 12 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
Project Sunburst
The Authority has received an authorization from the Tribe to expend up to
$960.0 million, excluding capitalized interest, for completion of Project
Sunburst. As of September 30, 2000 the Authority has spent $264.9 million,
excluding capitalized interest, on Project Sunburst. Fiscal 2001 expenditures
are expected to total $528.2 million. The remaining $166.9 million is
anticipated to be spent during fiscal 2002.
The Mohegan Compact
The Mohegan Compact stipulates that a portion of the revenues earned on slot
machines must be paid to the State of Connecticut ("Slot Win Contribution"). 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 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. The Authority reflected expenses
associated with the Slot Win Contribution totaling $135.1 million, $121.1
million and $102.3 million, respectively for the fiscal years ended September
30, 2000, 1999 and 1998.
Town of Montville Agreement
On June 16, 1994, the Tribe and the Town of Montville (the "Town") entered into
an agreement whereby the Tribe agreed to pay to the Town a recurring annual
payment of $500,000 to minimize the impact to the Town resulting from decreased
tax revenues on reservation land held in trust. Additionally, the Tribe agreed
to make a one-time payment of $3.0 million towards infrastructure improvements
to the Town's water system. The Tribe has assigned its rights and obligations in
this agreement to the Authority. The Town is billing the Authority for the
infrastructure improvements as the Town's costs are incurred. As of September
30, 2000, the Authority has paid $2.9 million to the Town towards improvements
to the municipal water system, which has been included in other assets in the
accompanying balance sheet and will be amortized over 40 years.
Expansion Construction Management Agreement with Perini Building Company, Inc.
The Authority has engaged Perini Building Company, Inc. ("Perini") as
Construction Manager to provide construction management services for Project
Sunburst. As Construction Manager, Perini will receive a basic fee of $20.5
million for services including, but not limited to, pre-construction review and
construction phase contract administration, of which $8.1 million has been paid
through September 30, 2000. 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 connection with the limited waiver of
sovereign immunity, Perini may seek satisfaction of judgement against the
undistributed and/or future revenues of Project Sunburst and/or the existing
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 or results of
operations.
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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 has 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, $59.5 million and $47.4 million, respectively, for the fiscal years
ended September 30, 2000, 1999 and 1998. The amount for fiscal 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. See
discussion on Relinquishment Agreement below.
Relinquishment Agreement
In February 1998, the Authority and TCA entered into an agreement, (the
"Relinquishment Agreement"). The Relinquishment Agreement superceded the
Management Agreement effective January 1, 2000 (the "Relinquishment Date"), and
provides that the Authority make certain payments to TCA out of, and determined
as a percentage of, the gross revenues generated by the Mohegan Sun over a
15-year period commencing on the Relinquishment Date. The payments ("Senior
Relinquishment Payments" and "Junior Relinquishment Payments"), each of which
are calculated as 2.5% of revenues, as defined, have separate payment schedules
and priority. Payment of 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 December 31, 2014. Junior Relinquishment
Payments commenced on July 25, 2000, twenty-five days following the end of the
first six-month period following the Relinquishment Date and continue at the end
of each six-month period occurring thereafter until December 31, 2014. 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). TCA has notified the Authority that it does not agree with
the Authority's treatment of certain promotional transactions that, in TCA's
opinion, has resulted in a reduction in revenues subject to the Relinquishment
Agreement. The amount in dispute does not have a material effect on the
Authority's financial statements as of September 30, 2000.
The Authority, in accordance with Financial Accounting Standards Board Statement
No. 5 ("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, 2000, the relinquishment liability was reassessed to be $672.9
million from $661.0 million at September 30, 1999. The increase is due to a
$31.8 million relinquishment liability reassessment less $19.9 million in
relinquishment payments. This reassessment resulted from the impact on the time
value of money due to the passage of time and the impact of actual revenues over
original estimates on the determination of the 2000 relinquishment liability.
Due to uncertainties involving economic market conditions and future competition
from potential Native American casinos, management believes that no further
adjustment is needed. Of the $19.9 million in relinquishment payments, 50% are
Senior Relinquishment Payments and 50% are Junior Relinquishment Payments. At
September 30, 2000 relinquishment payments earned but unpaid, were $10.9
million.
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As part of the Relinquishment Agreement, the Authority received an exclusive and
perpetual license with respect to trademarks and other similar rights
(Trademarks) including the name "Mohegan Sun." These Trademarks were appraised
by an independent valuation firm to have a value of $130.0 million. Therefore,
for the year ended September 30, 1998, the difference between the estimated
relinquishment liability of $549.1 million and the value of the Trademark of
$130.0 million, was reflected as an extraordinary item of $419.1 million in the
accompanying Statement of Income (Loss) for the year ended September 30, 1998.
Development Agreement
The Authority also negotiated a second agreement with TCA (the "Development
Agreement"), which makes TCA the exclusive developer of the planned expansion of
Mohegan Sun. Under the Development Agreement, TCA oversees the planning, design
and construction of the expansion of Mohegan Sun and will receive a development
fee of $14.0 million for such services. Payments of the development fee
commenced on January 15, 2000 and are required to continue thereafter within
fifteen days following the end of each calendar quarter until Project Sunburst
is completed. As of September 30, 2000 TCA has earned $4.9 million of the
development fee, of which $3.5 million has been paid.
NOTE 14 - EXTRAORDINARY ITEMS
- -----------------------------
The Authority incurred $38.4 million in extraordinary items for the 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). For the
year ended September 30, 1998, the Authority incurred $419.5 million of
extraordinary items consisting of $419.1 million related to the relinquishment
liability and $332,000 related to an early extinguishment of debt.
NOTE 15 - SUBSEQUENT EVENTS
- ---------------------------
On October 1, 2000, a retail outlet previously managed by the Authority will now
be managed by the Tribe. The Tribe will reimburse the Authority for the value of
the inventory of the outlet as of September 30, 2000.
On October 2, 2000 the Tribe held its election of the Tribal Council (whose
members also serve as the members of the Authority's Management Board). Six of
the previous nine Tribal Council members have been reelected. Additionally, Mark
Brown and Peter Schultz were elected Chairman and Vice Chairman, respectively.
F-16
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
December 14, 2000.
MOHEGAN TRIBAL GAMING AUTHORITY
By: /s/ Mark F. Brown
-----------------
Mark F. Brown
Chairman, Management Board,
Duly Authorized
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities indicated on December 14, 1999.
Signature Title
/s/ Chairman and Member, Management Board
- -----------------------------
Mark F. Brown
/s/ Vice Chairman and Member, Management Board
- -----------------------------
Peter J. Schultz
/s/ President and General Manager,
- -----------------------------
William J. Velardo Mohegan Sun (Principal Executive Officer)
/s/ Executive Vice President, Finance & Chief Financial
- -----------------------------
Jeffrey E. Hartmann Officer Mohegan Sun (Principal Financial and Accounting Officer)
/s/ Recording Secretary and Member, Management Board
- -----------------------------
Shirley M. Walsh
/s/ Corresponding Secretary and Member, Management Board
- -----------------------------
Christine D. Murtha
/s/ Treasurer and Member, Management Board
- -----------------------------
Donald M. Chapman
/s/ Ambassador and Member, Management Board
- -----------------------------
Jayne G. Fawcett
/s/ Member, Management Board
- -----------------------------
Roland J. Harris
/s/ Member, Management Board
- -----------------------------
Maynard L. Strickland
/s/ Member, Management Board
- -----------------------------
Glenn R. LaVigne
F-17