SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to _____________
Commission file number 033-80655
MOHEGAN TRIBAL GAMING AUTHORITY
(Exact name of registrant as specified in its charter)
Connecticut 06-1436334
(State or other jurisdiction of (IRS employer
incorporation or organization) Identification No.)
One Mohegan Sun Boulevard, Uncasville, CT 06382
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (860) 862-8000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act): Yes No X
----- -----
EXPLANATORY NOTE
The Mohegan Tribal Gaming Authority (the "Authority") has restated its financial
statements for the quarterly periods ended December 31, 2000, March 31, 2001,
June 30, 2001, December 31, 2001, March 31, 2002 and June 30, 2002 and for the
fiscal year ended September 30, 2001.
As more fully described in Note 7, this Form 10-Q/A includes in Item 1 of Part I
the restated financial statements and related notes thereto for the quarter
ended December 31, 2001 and other information relating to such restated
financial statements. Item 2 of Part I also includes the Authority's amended and
restated discussion and analysis of financial condition and results of
operations. Except for Part I, Item 6 of Part II and the addition of the
certifications required under Sections 302 (as further described in Rule 15d 14
issued by the Securities and Exchange Commission) and 906 of the Sarbanes-Oxley
Act of 2002, no other information included in the original report on Form 10-Q
is amended by this amendment. The information contained herein is as of December
31, 2001 and does not reflect subsequent events except any that may have existed
as of the date of filing of the original Form 10-Q relating to such quarter and
which were disclosed therein. For information regarding additional subsequent
events please refer to the Authority's Quarterly Reports on Forms 10-Q and
10-Q/A filed with respect to periods after December 31, 2001.
MOHEGAN TRIBAL GAMING AUTHORITY
INDEX TO FORM 10-Q/A
PART I. FINANCIAL INFORMATION Page
Number
------
Item 1. Financial Statements.
Report of Independent Accountants by PricewaterhouseCoopers LLP. 1
Balance Sheets of Mohegan Tribal Gaming Authority as of December 31,
2001 (unaudited) and September 30, 2001. 2
Statements of Income of Mohegan Tribal Gaming Authority for the
Quarters Ended December 31, 2001 and 2000 (unaudited). 3
Statements of Changes in Capital of Mohegan Tribal Gaming Authority for
the Quarters Ended December 31, 2001 and 2000 (unaudited). 4
Statements of Cash Flows of Mohegan Tribal Gaming Authority for the
Quarters Ended December 31, 2001 and 2000 (unaudited). 5
Notes to Financial Statements of Mohegan Tribal Gaming Authority. 7-17
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 18-33
Operations.
Item 3. Quantitative and Qualitative Disclosure of Market Risk. 34
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 35
Signatures. Mohegan Tribal Gaming Authority. 36
Certifications. 37-38
Report of Independent Accountants
To the Mohegan Tribal Gaming Authority:
We have reviewed the accompanying balance sheet of the Mohegan Tribal
Gaming Authority ("the Authority") as of December 31, 2001, and the related
statements of income, of changes in capital and of cash flows for the quarters
ended December 31, 2001 and 2000. These financial statements are the
responsibility of the Authority's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
As described in Note 7 to the financial statements, the Authority has restated
its financial statements as of December 31, 2001 and for the quarter ended
December 31, 2001. The financial statements for the quarter ended December 31,
2000 were previously reviewed by other independent accountants who have ceased
operations.
We also audited in accordance with auditing standards generally accepted in the
United States of America, the Authority's balance sheet as of September 30,
2001, and the related statements of income, of changes in capital and of cash
flows for the year then ended (not presented herein), and in our report dated
November 11, 2002, we expressed an unqualified opinion on those financial
statements (with an explanatory paragraph indicating that the Authority has
restated those financial statements which were previously audited by other
independent accountants who have ceased operations). In our opinion, the
information set forth in the accompanying balance sheet as of September 30, 2001
(after the restatement described in Note 7 to these financial statements), is
fairly stated in all material respects in relation to the balance sheet from
which it has been derived.
/s/ PRICEWATERHOUSECOOPERS LLP
Hartford, CT
May 9, 2002, except for Note 7
as to which the date is November 11, 2002
1
Mohegan Tribal Gaming Authority
Balance Sheets
(in thousands)
December 31,
2001 September 30,
(unaudited) 2001
----------------------- ------------------
(restated - see note 7)
ASSETS
------
Current assets:
Cash and cash equivalents $ 81,287 $ 74,284
Receivables, net 7,059 5,347
Due from Tribe - 957
Inventories 12,506 11,455
Other current assets 19,167 14,209
----------- -----------------
Total current assets 120,019 106,252
Non-current assets:
Property and equipment, net 1,082,893 1,080,415
Construction in process 288,790 223,568
Trademark, net 119,692 119,692
Other assets, net 25,189 24,766
----------- ------------------
Total assets $ 1,636,583 $ 1,554,693
=========== ==================
LIABILITIES AND CAPITAL
-----------------------
Current liabilities:
Current portion of capital lease obligations $ - $ 1,514
Current portion of relinquishment liability 75,918 70,199
Accounts payable and accrued expenses 72,638 73,548
Construction payables 139,901 155,497
Accrued interest payable 26,859 13,062
----------- ------------------
Total current liabilities 315,316 313,820
Non-current liabilities:
Long-term debt 990,000 908,000
Relinquishment liability, net of current portion 519,408 521,809
Other long-term liabilities 5,088 5,232
----------- ------------------
Total liabilities 1,829,812 1,748,861
----------- ------------------
Commitments and contingencies (Note 5)
Capital:
Retained deficit (191,340) (192,177)
Accumulated other comprehensive loss (1,889) (1,991)
----------- ------------------
Total capital (193,229) (194,168)
----------- ------------------
Total liabilities and capital $ 1,636,583 $ 1,554,693
=========== ==================
The accompanying notes to financial statements should be read
in conjunction with the financial statements
2
Mohegan Tribal Gaming Authority
Statements of Income
(in thousands)
For the For the
Quarter Ended Quarter Ended
December 31, 2001 December 31, 2000
(unaudited) (unaudited)
------------------------ ----------------------
(restated - see note 7)
Revenues:
Gaming $ 226,867 $ 174,958
Food and beverage 17,091 10,724
Retail, entertainment and other 14,645 16,595
---------------- ---------------------
Gross revenues 258,603 202,277
Less - Promotional allowances (17,127) (19,187)
---------------- ---------------------
Net revenues 241,476 183,090
---------------- ---------------------
Operating costs and expenses:
Gaming 106,491 78,389
Food and beverage 9,917 6,078
Retail, entertainment and other 12,506 7,903
Marketing, general and administrative 62,215 39,437
Pre-opening costs and expenses 1,657 1,389
Depreciation and amortization 17,236 5,642
----------------- ---------------------
Total operating costs and expenses 210,022 138,838
----------------- ---------------------
Income from operations 31,454 44,252
----------------- ---------------------
Other income (expense):
Accretion of relinquishment liability discount (Note 6) (9,083) (8,958)
Interest income 123 1,163
Interest expense, net of capitalized interest (Note 5) (14,649) (6,054)
Other income (expense), net (37) 1
---------------- ---------------------
Total other income (expenses) (23,646) (13,848)
---------------- ---------------------
Income from continuing operations 7,808 30,404
Loss from discontinued operations - (192)
----------------- ---------------------
Net income $ 7,808 $ 30,212
================= =====================
The accompanying notes to financial statements
should be read in conjunction with the financial statements
3
Mohegan Tribal Gaming Authority
Statements of Changes in Capital
(in thousands)
For the Quarter For the Quarter
Ended December 31, 2001 Ended December 31, 2000
(unaudited) (unaudited)
---------------------------------------- -------------------------------------
(restated - see note 7)
Comprehensive Comprehensive
Capital Income Capital Income
------------------ -------------------- ------------------ ------------------
Retained deficit at October 1 $ (192,177) $ (362,118)
Net income 7,808 $ 7,808 30,212 $ 30,212
----------------- ------------------
Distributions to Tribe (6,971) (10,000)
---------------- -----------------
Retained deficit at December 31 (191,340) (341,906)
---------------- -----------------
Accumulated other comprehensive loss at October 1 (1,991) -
Unrealized gain (loss) on derivative instruments 102 (645)
----------------- ------------------
Other comprehensive income (loss) 102 102 (645) (645)
---------------- ----------------- ----------------- ------------------
Comprehensive income $ 7,910 $ 29,567
================= ==================
Accumulated other comprehensive loss at December 31 (1,889) (645)
---------------- -----------------
Total capital ending balance at December 31 $ (193,229) $ (342,551)
================ =================
The accompanying notes to financial statements
should be read in conjunction with the financial statements
4
Mohegan Tribal Gaming Authority
Statements of Cash Flows
(in thousands)
For the For the
Quarter Ended Quarter Ended
December 31, 2001 December 31, 2000
(unaudited) (unaudited)
------------------------- -------------------------
(restated - see note 7)
Cash flows provided by (used in) operating activities:
Net income $ 7,808 $ 30,212
Adjustments to reconcile net income to
net cash flow provided by operating activities:
Depreciation and amortization 17,236 5,642
Loss on early extinguishment of debt, net 6 -
Loss on disposition of assets 30 -
Provision for losses on receivables 253 117
Accretion of relinquishment liability discount 9,083 8,958
Cash paid for accretion of relinquishment liability
discount (4,479) (2,881)
Change in fair value of derivative instruments (79) 1,497
Amortization of debt issuance costs 1,281 980
Changes in operating assets and liabilities:
Increase in current assets (7,017) (5,100)
Decrease in other assets 277 615
Increase in current liabilities 12,887 9,350
------------------------- -------------------------
Net cash flows provided by operating activities 37,286 49,390
------------------------- -------------------------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment, net of change in
construction payables of $(15,596) and $60,608, respectively (100,576) (80,562)
Proceeds from asset sale 33 -
Issuance of tenant loans (781) -
Tenant loan payments 10 -
------------------------- -------------------------
Net cash flows used in investing activities (101,314) (80,562)
------------------------- -------------------------
Cash flows provided by (used in) financing activities:
Bank Credit Facility borrowings 82,000 -
Distributions to Tribe (6,971) (10,000)
Principal portion of relinquishment liability payments (1,286) (2,576)
Payment on capital lease obligations (1,520) (2,071)
Capitalized financing fees (1,229) (1,368)
Increase in other long-term liabilities 37 -
------------------------- -------------------------
Net cash flows provided by (used in) financing activities 71,031 (16,015)
------------------------- -------------------------
Net increase (decrease) in cash and cash equivalents 7,003 (47,187)
Cash and cash equivalents at beginning of period 74,284 115,731
------------------------- -------------------------
Cash and cash equivalents at end of period $ 81,287 $ 68,544
========================= =========================
The accompanying notes to financial statements should be read
in conjunction with the financial statements
5
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
The Mohegan Tribe of Indians of Connecticut (the "Tribe") established
the Mohegan Tribal Gaming Authority (the "Authority") in July 1995 with the
exclusive power to conduct and regulate gaming activities for the Tribe on
Tribal lands. On October 12, 1996, the Authority opened a casino known as the
Mohegan Sun Casino ("Mohegan Sun"). The Authority is governed by a nine-member
Management Board, consisting of the same nine members as those of the Tribal
Council (the governing body of the Tribe). Any change in the composition of the
Tribal Council results in a corresponding change in the Authority's Management
Board. The President and Chief Executive Officer and other senior officers of
Mohegan Sun are hired by the Management Board and are employees of the
Authority.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited financial statements have been prepared in
accordance with the accounting principles generally accepted in the United
States of America for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. In accordance with Rule 10-01, the
unaudited financial statements do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals and
adjustments) considered necessary for a fair presentation have been included.
Operating results for the quarter ending December 31, 2001 are not necessarily
indicative of the results that may be expected for the year ending September 30,
2002. For further information, refer to the financial statements and footnotes
thereto included in the Authority's Annual Report on Form 10-K, as amended by
Form 10-K/A, for the year ended September 30, 2001 filed with the Securities and
Exchange Commission ("SEC").
Reclassifications
Certain amounts in the fiscal year 2001 financial statements have been
reclassified to conform to the fiscal year 2002 presentation.
New Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for the Impairment of Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144
modifies the rules for accounting for the impairment or disposal of long-lived
assets. The new rules become effective for fiscal years beginning after December
15, 2001, with earlier application encouraged. The Authority has not adopted
SFAS 144, and has not yet quantified the impact of implementing SFAS 144 on the
Authority's financial statements, but does not anticipate a negative effect on
the Authority's financial position, results of operations or cash flows upon
adoption of the standard.
The Authority adopted SFAS No. 142 "Goodwill and Other Intangible
Assets" ("SFAS 142") on October 1, 2001. Under SFAS 142, the Mohegan Sun
trademark is no longer subject to amortization over its estimated useful life as
it has been deemed to have an indefinite useful life. However, SFAS 142 requires
the trademark to be evaluated at least annually for impairment by applying a
fair-value based test and, if impairment occurs, the amount of impaired
trademark must be written off immediately. With the adoption of SFAS 142, the
Authority no longer records amortization of the trademark. For the quarter ended
December 31, 2000, the Authority recorded $859,000 related to the amortization
of the trademark. The Authority is required to apply the initial fair value test
by March 31, 2002. The Authority has not yet determined whether the initial fair
value test will result in any impairment changes, but does not anticipate a
negative effect on its operating income upon completing the fair value
assessment. Had SFAS 142 been in effect in these periods, the Authority's
results would have been as follows (in thousands):
For the Quarter Ended For the Quarter Ended
December 31, 2001 December 31, 2000
---------------------- ----------------------
(restated - see note 7)
Net income $ 7,808 $ 30,212
Trademark amortization - 859
---------------------- ----------------------
As adjusted net income $ 7,808 $ 31,071
====================== ======================
6
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 3 - FINANCING FACILITIES:
Financing facilities, as described below, consisted of the following
(in thousands):
December 31, 2001 September 30, 2001
------------------- -------------------
Bank Credit Facility $ 340,000 $ 258,000
$200M 8 1/8% Senior Notes 200,000 200,000
$300M 8 3/4% Senior Subordinated Notes 300,000 300,000
$150M 8 3/8% Senior Subordinated Notes 150,000 150,000
------------------- -------------------
$ 990,000 $ 908,000
=================== ===================
Bank Credit Facility
As of December 31, 2001, the Authority had $340.0 million outstanding
under a $500.0 million reducing, revolving, collateralized credit facility (the
"Bank Credit Facility") with a syndicate of lenders led by Bank of America N.A.
(formerly known as Bank of America National Trust and Savings Association),
which will mature in March 2004. The Authority draws on the Bank Credit Facility
primarily in connection with the major expansion of Mohegan Sun, known as
Project Sunburst, and other capital expenditure projects. The Bank Credit
Facility is collateralized by a lien on substantially all of the Authority's
assets, by a leasehold mortgage on the land and improvements which comprise
Mohegan Sun, and by each of the Authority's cash operating accounts.
At the Authority's option, each advance of loan proceeds accrues
interest on the basis of a base rate or on the basis of a one-month, two-month,
three-month or six-month London Inter-Bank Offered Rate ("LIBOR") plus, in
either case, the applicable spread (based on the Authority's Total Leverage
Ratio as defined in the Bank Credit Facility). At December 31, 2001, one-month
LIBOR was 1.87% and the applicable spread on a LIBOR loan was 2.375%. Interest
on each LIBOR loan that is for a term of three months or less is due and payable
on the last day of the related interest period. Interest on each LIBOR loan that
is for a term of more than three months is due and payable on the date which is
three months after the date such LIBOR loan was made, every three months
thereafter and on the last day of the related interest period. Interest on each
base rate loan is due and payable quarterly in arrears. The Authority had no
base rate loans at December 31, 2001. Accrued interest on the Bank Credit
Facility was $200,000 at December 31, 2001.
Pursuant to the terms of the Bank Credit Facility, the commitment (or
the maximum amount that may be borrowed under the Bank Credit Facility) will be
reduced automatically on the earlier of March 31, 2002 or the last day of the
first full fiscal quarter following the completion date of Project Sunburst, and
on the last day of each fiscal quarter thereafter. The amount of such reduction
must equal 10% of the commitment as in effect immediately prior to the first
such reduction.
Due to delays in the construction schedule of the Project Sunburst
hotel, the Authority has initiated discussions with its lenders regarding
possible amendments to its financial covenants under the Bank Credit Facility.
These amendments would be intended to address the impact of the extended
construction borrowing period and the delay in achieving the full cash flows
anticipated from the fully completed hotel. The administrative agent has advised
the Authority that preliminary approval of the principal terms of these
amendments have been received from the requisite lenders. An amendment is being
prepared to finalize these terms. The Authority also is considering the issuance
of additional Senior Subordinated Notes in 2002 in order to curtail a portion of
the outstanding balance of the Bank Credit Facility.
7
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Financial Covenant Requirements
The Authority's debt agreements require, among other restrictions, the
maintenance of various financial covenants and terms including a fixed charge
coverage ratio, and certain debt leverage ratios. As of December 31, 2001, the
Authority was in compliance with all financial covenant requirements.
Derivative Instruments
The Authority uses derivative instruments, including an interest rate
cap, collar, and swap in its strategy to manage interest rate risk associated
with the variable interest rates applicable to advances under the Bank Credit
Facility. The Authority's objective in managing interest rate risk is to ensure
appropriate income and sufficient liquidity to meet its obligations. The
Authority analyzes interest rate risk using various models that forecast cash
flows of the liabilities and their supporting assets, including derivative
instruments. The Authority does not believe that there is any material risk
exposure with respect to derivative or other financial instruments which it
currently holds. The Authority continually monitors these exposures and makes
the appropriate adjustments to manage these risks within management's
established limits.
The Authority is considered an "end user" of derivative instruments and
engages in derivative transactions for risk management purposes only. On October
1, 2000, the Authority adopted SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), designated all derivative
instruments as cash flow hedging instruments and marked them to market. The
Authority excludes the change in time value when assessing the effectiveness of
the hedging relationships. All derivatives are evaluated quarterly. The interest
rate cap and interest rate swap listed below were deemed to be effective at
December 31, 2001. The interest rate collar listed below was deemed to be
ineffective at December 31, 2001.
Derivative instruments held by the Authority at December 31, 2001 are
as follows:
Estimated Fair
Notional Value Cost Value
----------------- --------- --------------
Interest Rate Cap
Strike Rate - 8% $ 62,399,200 $ 410,000 $ 600
Interest Rate Collar
Ceiling Strike Rate - 8%
Floor Strike Rate - 6% 67,143,400 295,000 (3,212,839)
Interest Rate Swap
Pay fixed - 6.35%
Receive Variable 33,571,700 221,000 (1,756,283)
----------------- --------- --------------
Total $ 163,114,300 $ 926,000 $ (4,968,522)
================= ========= ==============
All derivative instruments are based on one-month LIBOR. One-month
LIBOR was 1.87% on December 31, 2001.
In November 2000, the Authority modified the terms of its existing
interest rate collar and interest rate swap agreements. As result of the
modifications, the interest rate collar was deemed to be a net written option
that does not qualify for hedge accounting. The negative fair market value at
the date of modification of approximately $212,000 will be reclassified into
earnings as interest expense over the life of the original terms of the hedge
contract and future changes in the fair market value of the modified interest
rate collar will be recorded directly to earnings as a component of interest
expense. The Authority will reclassify approximately $73,000 of the negative
fair market value into earnings over the next twelve months. The modification of
the interest rate swap agreement did not change the Authority's assessment of
hedge effectiveness at December 31, 2001.
The aggregate fair market value change in all derivative instruments
was $181,000 and $2.1 million for the quarters ending December 31, 2001 and
2000, respectively. In accordance with SFAS 133, the Authority recorded an
unrealized gain of $102,000 and an unrealized loss of $645,000 related to the
derivative instruments as
8
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
a component of accumulated other comprehensive loss in the accompanying balance
sheets and recorded a gain of $79,000 and an expense of $1.5 million as interest
expense in the accompanying statements of income for the quarters ending
December 31, 2001 and 2000, respectively. As of December 31, 2001 and 2000, the
fair market value of the Authority's derivative instruments is included in other
long-term liabilities in the accompanying balance sheets.
Senior Notes
On March 3, 1999, the Authority issued $200.0 million Senior Notes with
fixed interest payable at a rate of 8.125% per annum (the "Senior Notes"). The
proceeds from this financing were used to extinguish or defease existing debt,
pay transaction costs and fund initial costs related to Project Sunburst.
Interest on the Senior Notes is payable semi-annually on January 1 and July 1.
The Senior Notes mature on January 1, 2006. The Senior Notes are
uncollateralized general obligations of the Authority and rank pari passu in
right of payment with all current and future uncollateralized senior
indebtedness of the Authority. Borrowings under the syndicated Bank Credit
Facility and other capital lease obligations are collateralized by first
priority liens on substantially all of the assets of the Authority. As a result,
upon any distribution to creditors in a bankruptcy, liquidation or
reorganization or similar proceeding relating to the Authority or the Tribe, the
holders of collateralized debt may be paid in full in cash before any payment
may be made with respect to the Senior Notes. The Senior Notes rank equally in
right of payment with 50% of the Authority's payment obligations under the
Relinquishment Agreement (See Note 6), that are then due and owing, and rank
senior to the remaining 50% of the Authority's payment obligations under the
Relinquishment Agreement (See Note 6), that are then due and owing, the 1999
Senior Subordinated Notes and the 2001 Senior Subordinated Notes. As of December
31, 2001, accrued interest on the Senior Notes was $8.1 million.
1999 Senior Subordinated Notes
On March 3, 1999, the Authority issued $300.0 million Senior
Subordinated Notes with fixed interest payable at a rate of 8.75% per annum (the
"1999 Senior Subordinated Notes"). The proceeds from this financing were used to
extinguish or defease existing debt, pay transaction costs and fund initial
costs related to Project Sunburst. Interest on the 1999 Senior Subordinated
Notes is payable semi-annually on January 1 and July 1. The 1999 Senior
Subordinated Notes mature on January 1, 2009. The 1999 Senior Subordinated Notes
are uncollateralized general obligations of the Authority and are subordinated
to the Bank Credit Facility, the Senior Notes and in a liquidation, bankruptcy
or similar proceeding 50% of the Authority's payment obligations under the
Relinquishment Agreement (see Note 6), that are then due and owing. The 1999
Senior Subordinated Notes rank equally with the remaining 50% of the Authority's
payment obligations under the Relinquishment Agreement (see Note 6), that are
then due and owing, and the 2001 Senior Subordinated Notes. As of December 31,
2001, accrued interest on the 1999 Senior Subordinated Notes was $13.1 million.
2001 Senior Subordinated Notes
On July 26, 2001, the Authority issued $150.0 million Senior
Subordinated Notes with fixed interest payable at a rate of 8.375% per annum
(the "2001 Senior Subordinated Notes"). The proceeds from this financing were
used to pay transaction costs, pay down $90.0 million on the Bank Credit
Facility and fund costs related to Project Sunburst. Interest on the 2001 Senior
Subordinated Notes is payable semi-annually on January 1 and July 1. The 2001
Senior Subordinated Notes mature on July 1, 2011. The 2001 Senior Subordinated
Notes are uncollateralized general obligations of the Authority and are
subordinated to the Bank Credit Facility, the Senior Notes and in a liquidation,
bankruptcy or similar proceeding 50% of the Authority's payment obligations
under the Relinquishment Agreement (see Note 6), that are then due and owing.
The 2001 Senior Subordinated Notes rank equally with the 1999 Senior
Subordinated Notes and the remaining 50% of the Authority's payment obligations
under the Relinquishment Agreement (see Note 6), that are then due and owing. As
of December 31, 2001, accrued interest on the 2001 Senior Subordinated Notes was
$5.4 million.
Letters of Credit
The Authority maintains letters of credit in order to satisfy potential
workers compensation liabilities that may arise. The Authority has available a
$250,000 uncollateralized letter of credit that will expire in August 2002. The
Authority also has a $550,000 letter of credit that expires in April 2002. The
$550,000 letter of credit was
9
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
reduced from $1.0 million on April 13, 2001. As of December 31, 2001, no amounts
were drawn on the letters of credit.
NOTE 4 - RELATED PARTY TRANSACTIONS:
The Tribe provides governmental and administrative services to the
Authority in conjunction with the operation of Mohegan Sun. For the quarters
ended December 31, 2001 and 2000, the Authority incurred $2.9 million and $2.7
million, respectively, of expenses for such services. The Tribe, through one of
its limited liability companies, has entered into various land lease agreements
with the Authority for access, parking and related purposes for Mohegan Sun. For
each of the quarters ended December 31, 2001 and 2000, expenses related to these
agreements totaled $97,000.
NOTE 5 - COMMITMENTS AND CONTINGENCIES:
Project Sunburst
The Authority has received authorization from the Tribe to expend up to
$960.0 million, excluding capitalized interest, for completion of Project
Sunburst. As of December 31, 2001, the Authority had spent $942.0 million,
excluding capitalized interest, on Project Sunburst and expects to incur an
additional $18.0 million during the remainder of fiscal year 2002. As of
December 31, 2001, cumulative capitalized interest for Project Sunburst
construction expenses totaled $55.7 million. Capitalized interest totaled $4.6
million and $7.2 million for the quarters ended December 31, 2001 and 2000,
respectively.
The Mohegan Compact
In May 1994, the Tribe and the State of Connecticut entered into a
Memorandum of Understanding ("MOU") which sets forth certain matters regarding
implementation of the Mohegan Compact. The MOU stipulates that a portion of the
revenues earned on slot machines must be paid to the State of Connecticut ("Slot
Win Contribution"). The Slot Win Contribution payments will not be required if
the State of Connecticut legalizes any other gaming operations with slot
machines or other commercial casino table games within Connecticut, except those
consented to by the Tribe and the Mashantucket Pequot Tribe. For each 12-month
period commencing July 1, 1995, the Slot Win Contribution shall be the lesser of
(a) 30% of gross revenues from slot machines, or (b) the greater of (i) 25% of
gross revenues from slot machines or (ii) $80.0 million.
For the quarters ended December 31, 2001 and 2000, the Authority
reflected expenses associated with the Slot Win Contribution totaling $43.0
million and $33.0 million, respectively. As of December 31, 2001, outstanding
Slot Win Contribution payments to the State of Connecticut totaled $14.6
million.
Expansion Construction Management Agreement with Perini Building Company, Inc.
The Authority engaged Perini Building Company, Inc. ("Perini") as
construction manager to provide construction management services for Project
Sunburst. As construction manager, Perini is receiving a fee of $25.5 million
for services including, but not limited to, pre-construction review and
construction phase contract administration. In addition, the Authority has
agreed to pay Perini $1.3 million in construction management fees relating to
the Indian Summer Garage and $500,000 relating to the Thames Garage. As of
December 31, 2001, Perini earned $21.9 million, of which $20.9 million had been
paid. All amounts incurred have been reflected in the construction in process or
property, plant and equipment in the accompanying balance sheets. For the
quarters ended December 31, 2001 and 2000, the Authority incurred $5.9 million
and $1.5 million, respectively, in fees related to the construction management
fee. As of December 31, 2001, the Authority owed $993,000 to Perini related to
the Construction Management Agreement.
Radio Station Guarantee
The Authority entered into an agreement with AAA Entertainment, LLC
("AAA") to operate the radio station WMOS on the premises of Mohegan Sun. In the
event WMOS's annual net revenue is less than $600,000, the Authority agrees to
reimburse AAA $600,000 less the actual net revenue. AAA will retain 100% of
WMOS's annual net revenues between $600,000 and $750,000, and the Authority will
share one-half of annual net revenues
10
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
that exceed $750,000. Amounts to be reimbursed are assessed monthly, but
payments are calculated on a cumulative annual basis. As of December 31, 2001,
amounts to be reimbursed totaled $61,000.
Litigation
The Authority is a defendant in certain litigation incurred in the
normal course of business. In the opinion of management, based on the advice of
counsel, the aggregate liability, if any, arising from such litigation will not
have a materially adverse effect on the Authority's financial position, results
of operations or cash flows.
NOTE 6 - TCA AGREEMENTS:
Relinquishment Agreement
In February 1998, the Authority and Trading Cove Associates ("TCA")
entered into an agreement (the "Relinquishment Agreement"). Effective January 1,
2000 (the "Relinquishment Date"), the Relinquishment Agreement superseded the
September 30, 1995 Amended and Restated Gaming Facility Management Agreement
("the Management Agreement"), and provides that the Authority is to make certain
payments to TCA out of, and determined as a percentage of, Revenues, as defined,
generated by the Mohegan Sun over a 15-year period commencing on the
Relinquishment Date. The payments ("Senior Relinquishment Payments" and "Junior
Relinquishment Payments") have separate payment schedules and priority. Senior
Relinquishment Payments commenced on April 25, 2000, twenty-five days following
the end of the first three-month period following the Relinquishment Date, and
continue at the end of each three-month period occurring thereafter until
January 25, 2015. Junior Relinquishment Payments commenced on July 25, 2000,
twenty-five days following the end of the first six-month period following the
Relinquishment Date, and continue at the end of each six-month period occurring
thereafter until January 25, 2015. Each Senior Relinquishment Payment and Junior
Relinquishment Payment is an amount equal to 2.5% of the Revenues generated by
Mohegan Sun over the immediately preceding three-month or six-month payment
period, as the case may be. "Revenues" are defined as gross gaming revenues
(other than Class II gaming revenue) and all other facility revenues (including,
without limitation, hotel revenues, room service, food and beverage sales,
ticket revenues, fees or receipts from the convention center, Mohegan Sun Arena
and all rental or other receipts from lessees and concessionaires but not the
gross receipts of such lessees, licenses and concessionaires).
The Authority, in accordance with SFAS No. 5, "Accounting for
Contingencies," has recorded a relinquishment liability of the estimated present
value of its obligations under the Relinquishment Agreement. A relinquishment
liability of $549.1 million was established at September 30, 1998 based on the
present value of the estimated future Mohegan Sun revenues utilizing the
Authority's risk free investment rate. At December 31, 2001, the carrying amount
of the relinquishment liability was $595.3 million as compared to $592.0 million
at September 30, 2001. The increase is due to $9.1 million in accretion of
relinquishment liability discount expense less a relinquishment payment of $5.8
million. Of the $5.8 million in relinquishment payments made during the quarter
ended December 31, 2001, $1.3 million represents principal amounts and the
remaining $4.5 million is for the accretion of interest. This accretion resulted
from the impact on the discount for the time value of money due to the passage
of time. As of December 31, 2001, relinquishment payments earned but unpaid were
$18.7 million.
Development Agreement
On February 7, 1998, the Authority and TCA entered into a development
services agreement (the "Development Agreement"). Under the Development
Agreement, TCA is responsible for the administration and supervision of the
construction manager and the entire construction process of Project Sunburst.
TCA is acting as the Authority's representative in connection with construction
contracts that are approved by the Authority. Specifically, TCA is responsible
for overseeing all persons performing work on the expansion site, inspecting the
progress of construction, determining completion dates and reviewing contractor
payment requests submitted to the Authority.
11
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Payment of the Development Fee
Under the Development Agreement, the Authority is required to pay to
TCA a development fee of $14.0 million. Pursuant to the payment schedule
described in the Development Agreement, on January 15, 2000, the Authority began
paying the development fee to TCA on a quarterly basis, based upon the
incremental completion as of each payment date. As of December 31, 2001, the
Authority had incurred $12.5 million related to the TCA development fee, of
which $11.3 million had been paid. Due to the opening of the first phase of
Project Sunburst and the capitalization of the related assets, a portion of the
fees incurred have been included in property, plant and equipment, while the
remainder is included in construction in process in the accompanying balance
sheet.
Termination and Disputes
The Development Agreement terminates upon the earlier of (a) completion
of Project Sunburst or (b) February 7, 2008. In addition, each party has the
right to terminate the Development Agreement if there is a material default or
failure to perform a material duty or obligation by the other party. The parties
must submit disputes arising under the Development Agreement to arbitration and
have agreed that punitive damages may not be awarded to either party by an
arbitrator. The Authority has also waived sovereign immunity for the purpose of
permitting, compelling or enforcing arbitration and has agreed to be sued by TCA
in any court of competent jurisdiction for the purposes of compelling
arbitration or enforcing any arbitration or judicial award arising out of the
Development Agreement.
NOTE 7 - RESTATEMENT AND RECLASSIFICATIONS:
The Authority has restated its financial statements for the quarter
ended December 31, 2001 to reflect the effects of the following adjustments: (i)
to record additional capitalized interest pertaining to Project Sunburst in
accordance with SFAS No. 34, "Capitalization of Interest Cost," (ii) to record
Project Sunburst related capital expenditures incurred in the quarter ended
December 31, 2001, (iii) to record depreciation expense associated with placing
additional fixed assets in service prior to December 31, 2001 and (iv) to
record adjustments necessary to account for the Authority's derivative
instruments in accordance with SFAS 133. The aggregate effect of recording
these adjustments resulted in the Authority increasing its net income by
$193,000 for the quarter ended December 31, 2001 and increasing its total
assets by $69.2 million as of December 31, 2001.
In addition, the Authority also has reclassified certain other costs,
expenses and balances in the financial statments. These reclassofications have
no effect on the Authority's net income.
The financial statements as of and for the quarter ended December 31,
2001 contained herein have been updated to reflect these restatements and
reclassifications. The following tables summarize the impact of these
adjustments on the Authority's financial statements, as restated (in thousands):
12
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Mohegan Tribal Gaming Authority
Condensed Balance Sheet
(in thousands)
Previously
Reported Restated
December 31, Restatement December 31,
2001* Reclassifications Adjustments 2001
----------------- -------------------- ---------------- ----------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 81,287 $ - $ 81,287
Receivables, net 9,192 (2,133) a - 7,059
Inventories 12,506 - - 12,506
Other current assets 17,034 2,133 a - 19,167
----------------- ----------------- ---------------- ----------------
Total current assets $ 120,019 $ - $ - $ 120,019
Non-current assets:
Property and equipment, net 983,973 - 98,920 c,f.3,g.1 1,082,893
Construction in process 318,490 - (29,700) c,g.2,h.3 288,790
Trademark, net 119,692 - - 119,692
Other assets, net 25,189 - - 25,189
----------------- ----------------- ---------------- ----------------
Total assets $ 1,567,363 $ - $ 69,220 $ 1,636,583
================= ================= ================ ================
LIABILITIES AND CAPITAL
-----------------------
Current liabilities:
Current portion of relinquishment
liability $ 75,436 $ 482 d $ - $ 75,918
Accounts payable and accrued
expenses 155,646 (83,008) e - 72,638
Construction payables - 83,008 e 56,893 g 139,901
Accrued interest payable 26,859 - - 26,859
----------------- ----------------- ---------------- ----------------
Total current liabilities 257,941 482 56,893 315,316
Non-current liabilities:
Long-term debt 990,000 - - 990,000
Relinquishment liability, net of
current portion 519,890 (482) d - 519,408
Other long-term liabilities 5,088 - - 5,088
----------------- ----------------- ---------------- ----------------
Total liabilities 1,772,919 - 56,893 1,829,812
----------------- ----------------- ---------------- ----------------
Capital:
Retained deficit (200,626) - 9,286 f.3,h.3,i.3 (191,340)
Accumulated other comprehensive
loss (4,930) - 3,041 i.3 (1,889)
----------------- ----------------- ---------------- ----------------
Total capital (205,556) - 12,327 (193,229)
----------------- ----------------- ---------------- ----------------
Total liabilities and capital $ 1,567,363 $ - $ 69,220 $ 1,636,583
================= ================= ================ ===============
* Previously reported in Form 10-Q filed by the Authority on February 8, 2002.
See page 17 of the notes to the Authority's financial statements for the
footnotes to this restatement schedule.
13
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Mohegan Tribal Gaming Authority
Condensed Statement of Income
(in thousands)
Previously
Reported Restated
For the For the
Quarter Ended Restatement Quarter Ended
December 31, 2001* Reclassifications Adjustments December 31, 2001
------------------ ----------------- --------------- ------------------
Revenues:
Net revenues $ 241,476 $ - $ - $ 241,476
------------------ ----------------- --------------- ------------------
Operating costs and expenses:
Gaming 133,290 (26,799) j - 106,491
Food and beverage 11,091 (1,174) j - 9,917
Retail, entertainment and other 8,910 3,596 j - 12,506
Marketing, general and
administrative 37,838 24,377 j - 62,215
Pre-opening costs and expenses 1,657 - - 1,657
Depreciation and amortization 17,263 (1,281) k 1,254 f.1 17,236
------------------ ----------------- --------------- ------------------
Total operating costs and
expenses 210,049 (1,281) 1,254 210,022
------------------ ----------------- --------------- ------------------
Income from operations 31,427 1,281 (1,254) 31,454
------------------ ----------------- --------------- ------------------
Other income (expense):
Accretion of relinquishment
liability discount (9,083) - (9,083)
Interest income 123 - 123
Interest expense, net of
capitalized interest (14,799) (1,281) k 1,431 h.1,i.1,l (14,649)
Other non-operating expense (37) - - (37)
Change in fair value of derivative
instruments (16) - 16 l -
------------------ ----------------- --------------- ------------------
Total other income (expense) (23,812) (1,281) 1,447 (23,646)
------------------ ----------------- --------------- ------------------
Net income $ 7,615 $ - $ 193 $ 7,808
================== ================= =============== ==================
* Previously reported in Form 10-Q filed by the Authority on February 8, 2002.
See page 17 of the notes to the Authority's financial statements for the
footnotes to this restatement schedule.
14
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Mohegan Tribal Gaming Authority
Condensed Statement of Changes in Capital
(in thousands)
Previously
Reported Restated
For the For the
Quarter Ended Restatement Quarter Ended
December 31, 2001* Adjustments December 31, 2001
-------------------------- --------------------------- ------------------------
Comprehensive Comprehensive Comprehensive
Capital Income Capital Income Capital Income
----------- ------------- ------- ------------------ ------- -------------
Retained deficit at October 1 $ (201,270) $ 9,093 $ - f.2,h.2,i.2 $(192,177)
Net income 7,615 $ 7,615 193 193 f.l,h.l,i.l 7,808 $ 7,808
------------ ------ ---------
Distributions to Tribe (6,971) - (6,971)
----------- ------- ---------
Retained deficit at December 31 (200,626) 9,286 (191,340)
----------- ------- ---------
Accumulated other comprehensive loss at October 1 (5,127) 3,136 i.2 (1,991)
Unrealized gain (loss) on derivative instruments 197 197 (95) (95)i.1 102
----------- ------------ ------- ------ ---------
Other comprehensive loss 197 197 3,136 (95) 102 102
----------- ------------ ------- ------ --------- ---------
Comprehensive income $ 7,812 98 $ 7,910
============ ====== =========
Accumulated other comprehensive loss at December 31 (4,930) 3,041 (1,889)
----------- ------- ---------
Total capital ending balance at December 31 $ (205,556) $12,327 $(193,229)
=========== ======= =========
* Previously reported in Form 10-Q/A filed by the Authority on February 14,
2001.
See page 17 of the notes to the Authority's financial statements for the
footnotes to this restatement schedule.
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Mohegan Tribal Gaming Authority
Condensed Statement of Cash Flows
(in thousands)
Previously
Reported For the Restated
Quarter Ended For the
December 31, Restatement Quarter Ended
2001* Reclassifications Adjustments December 31, 2001
---------------- ------------------- ------------- -----------------
Cash flows provided by (used in) operating
activities:
Net income $ 7,615 $ - $ 193 h.1,i.1,l.1 $ 7,808
Adjustments to reconcile net income to
net cash flow provided by operating
activities:
Depreciation and amortization 17,263 (1,281) m 1,254 f.1 17,236
Loss on early extinguishment of debt, net 6 - - 6
Loss on disposition of assets 30 - - 30
Provision for losses on receivables 253 - - 253
Accretion of relinquishment liability
discount - 9,083 n - 9,083
Relinquishment liability reassessment 9,083 (9,083) n - -
Cash paid for accretion of relinquishment
liability discount - (4,479) o - (4,479)
Change in fair value of derivative
instruments - 16 p (95) i.1 (79)
Amortization of debt issuance costs - 1,281 m - 1,281
Changes in operating assets and liabilities: -
Increase in current assets (7,661) 644 q - (7,017)
Decrease in other assets (494) 771 r - 277
Increase in other liabilities 53 (53) t - -
Increase in current liabilities 30,127 (17,240) s - 12,887
---------------- ------------------- ------------- ----------------
Net cash flows provided by operating
activities 56,275 (20,341) 1,352 37,286
---------------- ------------------- ------------- ----------------
Cash flows provided by (used in) investing
activities:
Purchase of property and equipment, net of
change in construction payables (64,983) (34,241) s,q,u (1,352) h.1 (100,576)
Increase in construction in process, net (50,837) 50,837 u - -
Proceeds from asset sale 33 - - 33
Issuance of tenant loans - (781) r - (781)
Tenant loan payments - 10 r - 10
---------------- ------------------- ------------- ----------------
Net cash flows used in investing
activities (115,787) 15,825 (1,352) (101,314)
---------------- ------------------- ------------- ----------------
Cash flows provided (used in) by financing
activities:
Bank Credit Facility borrowings 82,000 - - 82,000
Distributions to Tribe (6,971) - - (6,971)
Principal portion of relinquishment liability
payments (5,765) 4,479 o - (1,286)
Payment on capital lease obligations (1,520) - - (1,520)
Capitalized financing fees (1,229) - - (1,229)
Increase in other long-term liabilities - 37 p,t - 37
---------------- ------------------- ------------- ----------------
Net cash flows provided by financing
activities 66,515 4,516 71,031
---------------- ------------------- ------------- ----------------
Net increase in cash and cash equivalents 7,003 - - 7,003
Cash and cash equivalents at beginning of
period 74,284 - - 74,284
---------------- ------------------- ------------- ----------------
Cash and cash equivalents at end of period $ 81,287 $ - $ - $ 81,287
================ =================== ============= ================
* Previously reported in Form 10-Q filed by the Authority on February 8, 2002.
See page 17 of the notes to the Authority's financial statements for the
footnotes to this restatement schedule.
16
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Restatement Adjustment footnotes (in thousands):
a. Reclassified an amount pertaining to the Deferred Compensation Plan of
$2,133 from receivables, net to other current assets.
b. Omitted.
c. Reclassified utilities facility costs of $10,175 from construction in
process to property and equipment, net.
d. Reclassified long-term relinquishment liability of $482 to current portion
of relinquishment liability.
e. Reclassified construction related payables of $83,008 from accounts
payable and accrued expenses to construction payables.
f. Recorded depreciation on additional Project Sunburst and utilities
facility costs placed into service:
1. $1,254 for the quarter ended December 31, 2001.
2. $1,078 for the fiscal year ended September 30, 2001.
3. $2,334 for the period from October 1, 2000 through December 31, 2001.
g. Recorded an accrual for construction payables of $56,893 pertaining to
Project Sunburst for work completed by December 31, 2001, but paid
subsequent to December 31, 2001:
1. $91,077 of costs recorded for work completed by December 31, 2001, but
paid subsequent to December 31, 2001.
2. ($34,184) to Construction in process.
h. Recorded additional capitalized interest pertaining to Project Sunburst:
1. $1,352 for the quarter ended December 31, 2001.
2. $13,307 for the fiscal year ended September 30, 2001.
3. $14,659 for the period from October 1, 2000 through December 31, 2001.
i. In accordance with SFAS 133, recorded an adjustment to other comprehensive
gain (loss) to reflect aggregate unrealized gain (loss) on derivative
instruments:
1. ($95) for the quarter ended December 31, 2001.
2. $3,136 for the year ended September 30, 2001.
3. $3,041 for the period from October 1, 2000 through December 31, 2001.
j. Reclassified certain expenses from gaming and food and beverage to
marketing, general and administrative, and retail, entertainment and
other.
k. Reclassified $1,281 of amortization of debt issuance costs from
depreciation and amortization to interest expense, net of capitalized
interest.
l. Reclassified change in fair value of derivative instruments of $16 to
interest expense, net of capitalized interest.
m. Reclassified the amortization of debt issuance costs of $1,281 from
depreciation and amortization to amortization of debt issuance costs.
n. Reclassified the accretion of relinquishment liability discount of $9,083
from relinquishment reassessment to accretion of relinquishment liability
discount.
o. Reclassified cash paid for accretion of relinquishment liability discount
of $4,479 from principal portion of relinquishment payments.
p. Reclassified change in derivative instruments of $16 from fair value of
derivative instruments to other long-term liabilities.
q. Reclassified construction payables of $644 from increase in current assets
to construction in process.
r. Reclassified issuance of tenant loans of $771, net of payments of $10,
from decrease in other assets to issuance of tenant loans and tenant loan
payments.
s. Reclassified change in construction payables from increases in current
liabilities to purchase of property and equipment, net of change in
construction payables of $17,240.
t. Reclassified other long-term liabilities of $53 from change in other
liabilities to changes in other long-term liabilities.
u. Reclassified increase in construction in process, net to purchase of
property and equipment, net of change in construction payables.
17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction
with the Authority's financial statements and the related notes beginning on
page 2 of this Form 10-Q/A which has been updated to reflect the restatements
and reclassifications more fully described in Note 7 to the Authority's
financial statements.
Forward Looking Statements
Some information included in this Amended Quarterly Report and other
materials filed by the Authority with the Securities and Exchange Commission
("SEC") contain forward-looking statements, within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Such statements include information relating to plans for future expansion
and other business development activities, as well as other capital spending,
financing sources and the effects of regulation (including gaming and tax
regulation) and competition. These statements can sometimes be identified by our
use of forward-looking words such as "may," "will," "anticipate," "estimate,"
"expect," or "intend" and similar expressions. Such forward-looking information
involves important risks and uncertainties that could significantly affect
anticipated results in the future and, accordingly, such results may differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Authority. These risks and uncertainties include, but are not
limited to, those relating to development and construction activities,
dependence on existing management, leverage and debt service, domestic or global
economic conditions, pending litigation, changes in federal tax laws or the
administration of such laws and changes in gaming laws or regulations (including
the legalization of gaming in certain jurisdictions). Additional information
concerning potential factors that could affect the Authority's financial results
are included in the Authority's Annual Reports on Forms 10-K and 10-K/A for the
fiscal year ended September 30, 2001 as well as the Authority's other reports
and filings with the SEC. The forward-looking statements included in this
Quarterly Report on Form 10-Q/A are made only as of the date of this report. The
Authority does not have and the Authority does not undertake any obligation to
publicly update any forward-looking statements to reflect subsequent events or
circumstances. The Authority can not assure you that projected results or events
will be achieved.
Overview
The Tribe and the Authority
The Tribe is a federally recognized Indian tribe with an approximately
405-acre reservation situated in southeastern Connecticut. Under the Indian
Gaming Regulatory Act, federally recognized Indian tribes are permitted to
conduct full-scale casino gaming operations on tribal land, subject to, among
other things, the negotiation of a gaming compact with the state in which they
operate. The Tribe and the State of Connecticut have entered into such a compact
that has been approved by the United States Secretary of the Interior. The
Tribe's gaming operation is one of only two legally authorized gaming operations
in New England offering traditional slot machines and table games. The Tribe has
established an instrumentality, the Authority, with the exclusive power to
conduct and regulate gaming activities on the existing reservation of the Tribe
located adjacent to Uncasville, Connecticut. The Authority is governed by a
Management Board, consisting of the same nine members of the Mohegan Tribal
Council.
Mohegan Sun
In October 1996, the Authority opened a gaming and entertainment
complex known as Mohegan Sun. Mohegan Sun is situated in southeastern
Connecticut on a 240-acre site on the Tribe's reservation overlooking the Thames
River with direct access from Routes I-395 and 2A via a four-lane access road
constructed by the Authority. Mohegan Sun is located approximately 125 miles
from New York City and approximately 100 miles from Boston, Massachusetts. The
Authority has recently completed the first phase of construction for a major
expansion of Mohegan Sun known as Project Sunburst. The first phase of Project
Sunburst, the Casino of the Sky, including increased gaming, restaurant and
retail space and an
18
entertainment arena, opened on September 25, 2001. The remaining components,
including the majority of a 1,200-room luxury hotel and approximately 100,000
square feet of convention space, are anticipated to open in April 2002 with
substantial completion of construction expected to occur in June 2002.
Mohegan Sun operates in an approximately 1.9 million square foot
facility, which, at December 31, 2001, includes the following two casinos:
Casino of the Earth. The Casino of the Earth, the original casino at
Mohegan Sun, has approximately 176,500 square feet of gaming space and offers:
. approximately 3,655 slot machines, 158 table games (including
blackjack, roulette, craps and baccarat) and 42 poker tables;
. food and beverage amenities, including three full-service themed
fine dining restaurants, a 610-seat buffet, a New York style
delicatessen, a 24-hour coffee shop, a ten-station food court
featuring international and domestic cuisine and multiple service
bars for a total of approximately 1,800 restaurant seats;
. an approximately 10,000 square foot, 400-seat lounge featuring
live entertainment seven days a week;
. an approximately 9,000 square foot simulcasting race book
facility; and
. three retail shops providing shopping opportunities ranging from
Mohegan Sun logo souvenirs to clothing to cigars.
Casino of the Sky. The Casino of the Sky has approximately 119,000
square feet of gaming space and offers:
. approximately 2,564 slot machines and 82 table games (including
blackjack, roulette, craps and baccarat);
. food and beverage amenities, including two full-service
restaurants, three quick-service restaurants, a 350-seat buffet
and four lounges operated by Mohegan Sun, as well as four
full-service and three quick-service restaurants operated by
third-parties, for a total of approximately 2,200 restaurant
seats;
. the Mohegan Sun Arena with seating for up to 10,000;
. a 300-seat Cabaret;
. a child care facility and an arcade style recreation area; and
. the Shops at Mohegan Sun containing approximately 30 different
retail shops, five of which are owned by the Authority.
As of December 31, 2001, Mohegan Sun has parking spaces for
approximately 8,300 guests and 3,100 employees. In addition, the Authority
operates an approximately 4,000 square foot, 16-pump gasoline and convenience
center located adjacent to Mohegan Sun.
Additional Mohegan Sun Enhancements
In addition to Project Sunburst, the Authority has begun construction
on the following capital improvements to the Mohegan Sun facility:
19
Parking Garages. Capital expenditures for the $65.0 million Indian
Summer Garage, a 2,700-space patron parking garage, totaled $18.8 million for
the quarter ended December 31, 2001. Cumulative expenditures totaled $28.6
million as of December 31, 2001. The Authority expects that the remaining $36.4
million will be spent during the remainder of fiscal year 2002. The Indian
Summer Garage is anticipated to open in June 2002. The Authority anticipates
spending $25.0 million for the Thames Garage, a 1,700-space parking garage
expected to be completed in the spring of 2002. The Authority did not incur any
capital expenditures for the construction of the Thames Garage for the quarter
ending December 31, 2001.
Project Sunburst Utilities. The Authority is constructing various
utility upgrades and enhancements needed to support Project Sunburst. These
improvements originally were to be financed entirely by the Tribe from the
proceeds of tax-exempt financing. The Tribe, however, subsequently received an
opinion from its outside legal counsel advising it that a portion of the costs
for these improvements would not qualify for tax-exempt financing. Therefore,
the Authority will pay for this portion of the total costs, which we expect will
equal approximately $35.0 million. These improvements are anticipated to be
competed concurrently with the opening of certain components of Project Sunburst
in April 2002. As of December 31, 2001, the Authority has placed $23.9 million
of these assets in service.
Other Reservation Enhancements
Child Development Center. The Tribe is constructing a 36,000 square
foot employee day care facility which will enhance the benefits and services
provided to employees of both the Tribe and of the Authority. The project is
expected to cost approximately $10.0 million. The Authority originally paid $1.1
million of the facility's cost; however, that amount later was reimbursed fully
by the Tribe. The Tribe will pay all future expenditures related to this
project. Construction began in November 2001, and the Tribe anticipates that the
project will be completed in January 2003.
Explanation of Key Financial Statement Captions
Gross revenues. The Authority's gross revenues are derived mostly from
the following three sources:
. Gaming revenues, which include revenues from slot machines, table
games, poker, keno and racebook;
. Food and beverage sales; and
. Retail, entertainment and other revenues, which include revenues
from the Mohegan Sun managed retail outlets and the Mohegan Sun
Arena.
The table below summarizes the Authority's percentage of gross revenues
from each of these sources:
20
For the For the
Quarter Quarter
Ended Ended
December 31, December 31,
2001 2000
-------------------- --------------------
Gaming 88% 87%
Food and beverage 7% 5%
Retail, entertainment and other 5% 8%
-------------------- --------------------
Total 100% 100%
==================== ====================
Slot win. Gross slot win represents all amounts played in the slot
machines reduced by both (1) the winnings paid out and (2) all amounts deposited
by the Authority into the slot machines to ensure sufficient coins in each
machine to pay out the winnings. Progressive slot machines retain some of each
amount wagered and aggregate these amounts with similar amounts from other slot
machines in order to create one-time winnings that are substantially larger than
those paid in the ordinary course. The Authority refers to such aggregated
amounts as progressive jackpots. In-house progressive jackpot amounts are
accrued by the Authority until paid and such accrued amounts are deducted from
gross slot win to arrive at net slot win. Wide-area progressive jackpot amounts
are paid by a third-party vendor, and the Authority remits a weekly payment to
the vendor, which is deducted from gross slot win.
Casino revenues and promotional allowances. The Authority recognizes
casino revenue as gaming wins less gaming losses. Revenues from food and
beverages, retail, entertainment events and other are recognized at the time the
service is performed. The Authority operates the Mohegan Sun complimentary
program in which food, beverages, retail, entertainment and other services are
provided to guests based on points that are earned through the Mohegan Sun
Player's Club. The retail value of these complimentary items is included in
gross revenue and then deducted as promotional allowances, except for the
redemption at third party retail tenants at the Shops at Mohegan Sun and from a
catalog program, the Sun Select Catalog, which includes vacations, electronics
and gift items, to arrive at net revenues. The estimated cost of providing these
promotional allowances is charged to the casino department in the following
amounts (in thousands):
For the For the
Quarter Quarter
Ended Ended
December 31, December 31,
2001 2000
-------------------- --------------------
Food and beverage $ 7,095 $ 6,367
Retail, entertainment and other 6,175 7,436
-------------------- --------------------
Total $ 13,270 13,803
==================== ====================
Mohegan Sun Player's Club. The Mohegan Sun Player's Club is a voluntary
program, without membership fees, which awards points to members based on their
gaming activities. These points may be used to purchase items at restaurants
located within Mohegan Sun, Mohegan Sun managed retail shops, the Mohegan Sun
gasoline and convenience center and the Sun Select Catalog, as well as to
purchase tickets to entertainment events held at the Mohegan Sun facilities. The
Authority accrues for Player's Club points expected to be redeemed in the future
based on the average cost to the Authority of items expected to be redeemed, and
includes the related cost in marketing, general and administrative expenses in
the Authority's income statement.
Gaming expenses. Gaming expenses primarily include the Slot Win
Contribution which the Authority is required to pay to the State of Connecticut,
expenses associated with slot operations, table games, poker, keno and racebook
and promotional expenses for the redemption of the Mohegan Sun Player's Club
points in third party locations, including the Shops at Mohegan Sun and the Sun
Select Catalog.
21
EBITDA and Adjusted EBITDA. EBITDA represents earnings before interest,
income taxes, depreciation and amortization. The EBITDA margin is calculated as
EBITDA as a percentage of net revenue. Adjusted EBITDA represents further
adjustments to EBITDA to remove the effects of pre-opening costs and expenses,
accretion of relinquishment liability discount on the relinquishment liability
to Trading Cove Associates ("TCA") pursuant to the Relinquishment Agreement,
discontinued operations and other non-operating expense (income). The Adjusted
EBITDA margin is calculated as Adjusted EBITDA as a percentage of net revenue.
Adjusted EBITDA should not be considered as an alternative to any measure of
performance as promulgated under accounting principles generally accepted in the
United States of America (such as operating income or net income), nor should it
be considered as an indicator of the Authority's overall financial performance.
The Authority's calculation of Adjusted EBITDA is likely to be different from
the calculation of EBITDA or similar measurements used by other companies and
therefore comparability may be limited. EBITDA and Adjusted EBITDA are computed
as follows (in thousands):
For the Quarter For the
ended Quarter Ended
December 31, December 31,
2001 2000
------------------ ---------------
(restated-see
note 7 to the
Authority's
financial
statements)
EBITDA
Net income $ 7,808 $ 30,212
Add back:
Interest expense, net of capitalized interest 14,649 6,054
Interest income (123) (1,163)
Income taxes - -
Depreciation and amortization 17,236 5,642
------------------- ---------------
EBITDA $ 39,570 $ 40,745
------------------- ---------------
EBITDA Margin 16.4% 22.3%
Adjustments to EBITDA to
reconcile to Adjusted EBITDA
Pre-opening costs and expenses $ 1,657 $ 1,389
Accretion of relinquishment liability discount 9,083 8,958
Other non-operating expense (income) 37 (1)
Discontinued operations - 192
------------------- ---------------
Adjusted EBITDA $ 50,347 $ 51,283
=================== ===============
Adjusted EBITDA Margin 20.8% 28.0%
Accretion of relinquishment liability discount and reassessment of
relinquishment liability. The Authority stopped paying management fees to TCA
due to the termination of the Management Agreement and began recognizing amounts
due under the Relinquishment Agreement beginning January 1, 2000. Under the
Management Agreement, TCA was responsible for the day-to-day management,
operation and maintenance of Mohegan Sun. The Management Agreement authorized
TCA to pay itself a management fee in monthly installments based on 30% to 40%
of net income, before management fees, as defined in the
22
Management Agreement, depending on profitability levels. Under the
Relinquishment Agreement, the Authority and TCA agreed to terminate the
Management Agreement with TCA on January 1, 2000. To compensate TCA for
terminating its management rights, the Authority agreed to pay to TCA five
percent of the revenues, as defined in the Relinquishment Agreement, generated
by Mohegan Sun (including Project Sunburst) during the 15-year period commencing
on January 1, 2000 and ending on December 31, 2014.
The Authority has recorded a relinquishment liability of the estimated
present value of its obligations under the Relinquishment Agreement. The
relinquishment liability is reassessed when necessary to account for material
increases or decreases in projected revenues and quarterly to reflect the impact
on the time value of money due to the passage of time. In addition, the
Authority has capitalized $130.0 million of this relinquishment liability in
connection with the trademark value of the Mohegan Sun brand name. The Authority
adopted Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142") on October 1, 2001. Under SFAS 142, the Mohegan
Sun trademark is no longer subject to amortization over its estimated useful
life as it has been deemed to have an indefinite useful life. However, SFAS 142
requires the trademark to be evaluated at least annually for impairment by
applying a fair-value based test and, if impairment occurs, the amount of
impaired trademark must be written off immediately. With the adoption of SFAS
142, the Authority no longer records amortization of the trademark. See Note 6
to the Authority's financial statements for a further discussion of how the
relinquishment liability and related reassessments are calculated.
Results of Operations
Comparison of Operating Results for the Quarter Ended December 31, 2001
and 2000:
Net revenues for the quarter ended December 31, 2001 increased by $58.4
million, or 31.9%, to $241.5 million from $183.1 million reported for the same
period of the prior year. This increase primarily is attributable to an increase
in gaming revenues due to the opening of the Casino of the Sky on September 25,
2001.
Adjusted EBITDA for the quarter ended December 31, 2001 decreased by
$936,000, or 1.8%, to $50.3 million from $51.3 million for the quarter ended
December 31, 2000. Mohegan Sun achieved a 20.8% Adjusted EBITDA margin for the
quarter ended December 31, 2001 compared to a 28.0% Adjusted EBITDA margin for
the quarter ended December 31, 2000. The decline in margin was the result of
increased labor, marketing and operating expenses increasing at a greater rate
than revenues. Additionally, the unfavorable variance can be attributed to
national recession and the tragic events of September 11, 2001. However, the
Authority relies heavily on drive-in traffic, and the Authority believes that
its ability to host events in the arena on weekends and to otherwise accommodate
guests during peak periods have been limited. The Authority believes this will
continue until the parking enhancements provided by the Thames Garage and the
Indian Summer Garage are completed. It is anticipated that the Thames Garage and
the Indian Summer Garage will be completed in April 2002 and June 2002,
respectively. Accordingly, operating revenues and margins are expected to be
negatively impacted until the fourth quarter of 2002. See "Overview - Additional
Mohegan Sun Enhancements - Parking Garages" and "Liquidity, Capital Resources
and Capital Spending - Capital Expenditures" for a discussion of parking
enhancements.
The Connecticut slot market grew at a rate of 15.7% for the quarter
ended December 31, 2001 as compared to the quarter ended December 31, 2000. The
State of Connecticut reported a gross slot win of $358.3 million and $309.6
million for the quarters ended December 31, 2001 and 2000, respectively. Mohegan
Sun exceeded the market's growth in slot win as it experienced an increase in
gross slot revenues of 30.2% in the quarter ended December 31, 2001 over the
quarter ended December 31, 2000. Gross slot revenues were $171.9 million and
$132.0 million for the quarters ended December 31, 2001 and 2000, respectively.
Gross slot win per unit per day was $300 and $473 for the respective periods.
The decrease in gross slot win per unit was due to an increase in the weighted
average number of slot machines from approximately 3,034 in the quarter ended
December 31, 2000 to approximately 6,219 in the quarter ended December 31, 2001.
The increase in weighted average slot machines is attributable primarily to the
opening of the Casino of the Sky and the Hall of the Lost Tribes smoke-free slot
machine venue, which combined added a total of approximately 3,200 slot machines
to Mohegan Sun.
23
Gaming revenues for the quarter ended December 31, 2001 increased by
$51.9 million, or 30.0%, to $226.9 million from $175.0 million for the quarter
ended December 31, 2000. This increase is due to a 30.3% growth in net slot
machine revenues and a 29.9% increase in table game revenues as a result of the
opening of the Casino of the Sky and the Hall of the Lost Tribes smoke-free slot
machine venue.
Food and beverage revenues for the quarter ended December 31, 2001
increased by $6.4 million, or 59.4%, to $17.1 million from $10.7 million for the
quarter ended December 31, 2000. This increase is attributable principally to a
38.6% increase in meals served for the quarter ended December 31, 2001 as
compared to the same period in the prior year and a higher average sale per
check. The increases in meals served and higher average sale per check are
associated primarily with the new Project Sunburst restaurants which include the
350-seat Sunburst Buffet, the Rising Moon Gallery of Eateries, Fidelia's,
Rain and Tuscany.
Retail, entertainment and other revenues decreased by $2.0 million, or
11.8%, to $14.6 million for the quarter ended December 31, 2001 from $16.6
million for the same period in the prior year. Retail revenue decreased $3.0
million due to a shift in patronage from Mohegan Sun operated outlets to the
third party retail tenants in the Shops at Mohegan Sun. The decrease is
partially offset by an increase of $1.0 million in entertainment and other
revenue due to the opening of the Mohegan Sun Arena on September 25, 2001.
Promotional allowances for the quarter ended December 31, 2001
decreased by $2.1 million, or 10.7%, to $17.1 million from $19.2 million for the
quarter ended December 31, 2000. The decrease in retail and gas complimentaries,
which are included in promotional allowances, is due to the shift in patronage
from Mohegan Sun managed retail outlets, including the Mohegan Sun gasoline and
convenience center to the third party tenants in the Shops at Mohegan Sun. The
expenses related to the Shops at Mohegan Sun are included in gaming expenses.
Effective with the opening of the first phase of Project Sunburst, members of
the Mohegan Sun Players Club were eligible to redeem points at third party
tenants, in the Shops at Mohegan Sun.
Total operating costs and expenses for the quarter ended December 31,
2001 increased by $71.2 million, or 51.3%, to $210.0 million from $138.8 million
for the quarter ended December 31, 2000. The majority of the increase is
attributable to additional operating costs and expenses associated with the
opening of Project Sunburst, and $11.6 million of the increase is the result
of an increase in depreciation and amortization expense due to the opening of
the Casino of the Sky.
Gaming costs and expenses for the quarter ended December 31, 2001
increased by $28.1 million, or 35.8%, to $106.5 million from $78.4 million for
the quarter ended December 31, 2000. The majority of the increase is
attributable to additional labor costs associated with the approximately 90-unit
increase in table games and the addition of approximately 3,200 slot machines
associated with the opening of first phase of Project Sunburst and the Hall of
the Lost Tribes. The Slot Win Contribution payments to the State of Connecticut
also have contributed to the increase in gaming costs and expenses. The
Authority reflected expenses associated with the Slot Win Contribution totaling
$43.0 million and $33.0 million, respectively, for the quarters ended December
31, 2001 and 2000. Additionally, the first phase of Project Sunburst included
the opening of the Shops at Mohegan Sun. The increased traffic generated by the
opening of the Shops of Mohegan Sun, coupled with the holiday shopping season,
resulted in a significant increase in Mohegan Sun's gaming expenses as points
were redeemed by Mohegan Sun Player's Club patrons in the third party tenant
restaurants and in the Shops at Mohegan Sun. Gaming costs and expenses as a
percentage of gaming revenues were 46.9% in the quarter ended December 31, 2001
compared to 44.8% in the same period of the prior year.
Food and beverage costs and expenses for the quarter ended December 31,
2001 increased by $3.8 million, or 63.2%, to $9.9 million from $6.1 million in
expenses for the quarter ended December 31, 2000. These increases are the result
of higher food and beverage operating costs, particularly labor costs and other
operating expenses related to the opening of the Rising Moon Gallery of
Eateries, a 350-seat Sunburst Buffet, Fidelia's, Rain and Tuscany, the arena
concessions, the Cabaret bar, Leffingwell's bar located at the base of Wombi
Rock and the Sachem's
24
Lounge. The opening of these additional outlets resulted in an increase in the
number of meals served, or food covers, from 929,000 in the quarter ended
December 31, 2000 to 1.3 million in the quarter ended December 31, 2001, a 38.6%
increase. The cost of sales for food calculated as a percentage of revenue was
35.8% for the quarter ended December 31, 2001 compared to 36.7% for the quarter
ended December 31, 2000.
Retail, entertainment and other costs and expenses for the quarter
ended December 31, 2001 increased by $4.6 million, or 58.2%, to $12.5 million
from $7.9 million for the quarter ended December 31, 2000. This increase was
attributable mainly to an increase in entertainment costs associated with the
events held in the Mohegan Sun Arena during the quarter ended December 31, 2001.
Some of these events included an NBA basketball game with Michael Jordan and the
Washington Wizards, concerts by Tim McGraw, Gloria Estefan, Aerosmith, Bob
Dylan, an exhibition tennis match with Martina Navritolova and Monica Seles and
ESPN Bowling. Also contributing to the increase are expenses associated with the
Cabaret, an intimate 300-seat theater that plays host to entertainers from
singers, such as Tony Bennett and Betty Buckley, to comics, such as Phyllis
Diller and the Amazing Kreskin.
Marketing, general and administrative costs and expenses for the
quarter ended December 31, 2001 increased by $22.8 million, or 57.8%, to $62.2
million from $39.4 million for the quarter ended December 31, 2000. The increase
is associated primarily with costs to operate the expanded facility, such as
utilities, engineering, risk management and maintenance services, and marketing
expenses targeted to promote Mohegan Sun through all major media outlets.
Pre-opening costs and expenses associated with the April 2002 opening
of the Mohegan Sun hotel, increased by $268,000, or 19.3% to $1.7 million for
the quarter ended December 31, 2001 from $1.4 million in pre-opening costs and
expenses (relating to the opening of the first phase of Project Sunburst) for
the quarter ended December 31, 2000.
Depreciation and amortization for the quarter ended December 31, 2001
increased by $11.6 million, or 205.5%, to $17.2 million from $5.6 million for
the quarter ended December 31, 2000. This increase was a result of $758.5
million of assets related to Project Sunburst, including $32.4 million of
capitalized interest, being placed in service with the opening of the first
phase of Project Sunburst on September 25, 2001.
Income from operations for the quarter ended December 31, 2001
decreased by $12.8 million, or 28.9%, to $31.5 million from $44.3 million for
the quarter ended December 31, 2000. This decrease is attributable to increases
in costs and expenses associated with the expansion of Mohegan Sun, including
increased staffing levels and increases in depreciation and amortization due to
the placing in service of assets related to the first phase of Project Sunburst.
Additionally, the unfavorable variance can be attributed to the impact of the
economic slowdown and the tragic events of September 11, 2001.
Accretion of the discount associated with the relinquishment liability
reassessment for the quarter ended December 31, 2001 increased by $125,000, or
1.4%, to $9.1 million from $9.0 million for the quarter ended December 31, 2000.
This increase is due to the Authority's quarterly accretion of the
relinquishment liability to reflect the impact of time on the value of money,
discounted to present value using the Authority's current risk-free rate of
investment.
Interest income for the quarter ended December 31, 2001 decreased by
$1.0 million, or 89.4%, to $123,000 from $1.2 million in income for the quarter
ended December 31, 2000. The decrease in interest income resulted from the
liquidation of investments to fund Project Sunburst plus a decline in return on
the invested assets. The weighted average invested cash was $36.3 million and
$42.1 million for the quarters ended December 31, 2001 and December 31, 2000,
respectively. The Authority invests in investment-grade commercial paper having
maturities of not more than six months from the date of acquisition.
Interest expense for the quarter ended December 31, 2001 increased by
$8.6 million, or 142.0%, to $14.6 million from $6.1 million for the quarter
ended December 31, 2000. Included in interest expense for the quarter ended
December 31, 2001 is a net gain of $79,000 due to the change in the fair value
of the Authority's derivative instruments. For the quarter ended December 31,
2000, a net loss of $1.5 million was recorded
25
for the change in the fair value of the Authority's derivative instruments. This
increase in interest expense is attributable mainly to higher average debt
outstanding and a decrease in the amount of capitalized interest for the period
due to the opening of the first phase of Project Sunburst in September 2001. The
weighted average outstanding debt was $976.7 million for the quarter ended
December 31, 2001 compared to $504.8 million for the quarter ended December 31,
2000. Capitalized interest was $4.6 million for the quarter ended December 31,
2001 compared to $7.2 million for the same period in the prior year. The
weighted average interest rate for the quarter ended December 31, 2001 was
7.14%, compared to 8.42% for the quarter ended December 31, 2000.
Loss from discontinued operations associated with the conversion of the
bingo hall into the Hall of the Lost Tribes smoke-free slot machine venue
totaled $192,000 for the quarter ended December 31, 2001. There was no loss from
discontinued operations for the quarter ended December 31, 2000.
Net income for the quarter ended December 31, 2001 decreased by $22.4
million, or 74.2%, to $7.8 million from $30.2 million for the quarter ended
December 31, 2000. The decrease primarily is due to the increase in interest
expense and depreciation and amortization. Interest expense increased by $8.6
million during the quarter ended December 31, 2001 contributing to the reduction
in net income. This increase is attributable mainly to higher average debt
outstanding and a decrease in capitalized interest for the period due to the
opening of the first phase of Project Sunburst in September 2001. The weighted
average outstanding debt was $976.7 million for the quarter ended December 31,
2001 compared to $504.8 million for the quarter ended December 31, 2000.
Liquidity, Capital Resources and Capital Spending
As of December 31, 2001, the Authority held cash and cash equivalents
of $81.3 million, an increase of $7.0 million from $74.3 million as of September
30, 2001. Cash provided by operating activities for the quarter ended December
31, 2001 decreased $12.1 million, or 24.5%, to $37.3 million from $49.4 million
for the quarter ended December 31, 2000. The decrease in cash provided by
operating activities is attributable primarily to a decrease in net income.
Operating activities are the principal source of the Authority's cash
flows. The principal application of these funds was capital expenditures
incurred in connection with the construction and development of Project Sunburst
and other real property improvements. While the Authority does not believe that
there is any trend or a likelihood of an event that would adversely impact the
level of cash generated by its activities, there are numerous potential factors
which may cause a substantial reduction in the amount of cash flow, including,
but not limited to the following:
. downturn in the economy and lack of consumer confidence, which
would result in reduced spending on discretionary items such as
gaming activities;
. an act of terrorism on the United States of America;
. substantial cost overruns in connection with the completion of
Project Sunburst;
. operating expenses increasing at a greater rate than revenue; and
. increased competition in the gaming industry, or the legalization
of gaming activities in the State of Connecticut, which may result
in a substantial decrease in revenue.
In addition to cash generated by operating activities, the Authority
has relied on external sources of liquidity to meet its operating and investing
requirements.
26
External Sources of Liquidity
Bank Credit Facility. As of December 31, 2001, the Authority had $340.0
million outstanding under a $500.0 million reducing, revolving, collateralized
credit facility (the "Bank Credit Facility") with a syndicate of lenders led by
Bank of America N.A. (formerly known as Bank of American National Trust and
Savings Association), which will mature in March 2004. The Authority draws on
the Bank Credit Facility primarily in connection with the major expansion of
Mohegan Sun, known as Project Sunburst, and other capital expenditure projects.
The Bank Credit Facility is collateralized by a lien on substantially all of the
Authority's assets, by a leasehold mortgage on the land and improvements which
comprise Mohegan Sun, and by each of the Authority's cash operating accounts.
At the Authority's option, each advance of loan proceeds accrues
interest on the basis of a base rate or on the basis of a one-month, two-month,
three-month or six-month London Inter-Bank Offered Rate ("LIBOR") plus, in
either case, the applicable spread (based on the Authority's Total Leverage
Ratio as defined in the Bank Credit Facility). As of December 31, 2001,
one-month LIBOR was 1.87% and the applicable spread on a LIBOR loan was 2.375%.
Interest on each LIBOR loan that is for a term of three months or less is due
and payable on the last day of the related interest period. Interest on each
LIBOR loan which is for a term of more than three months is due and payable on
the date which is three months after the date such LIBOR loan was made, every
three months thereafter and on the last day of the related interest period.
Interest on each base rate loan is due and payable quarterly in arrears. The
Authority had no base rate loans at December 31, 2001. Accrued interest on the
Bank Credit Facility was $200,000 at December 31, 2001.
Pursuant to the terms of the Bank Credit Facility, the commitment (or
the maximum amount that may be borrowed under the Bank Credit Facility) will be
automatically reduced on the earlier of March 31, 2002 or the last day of the
first full fiscal quarter following the completion date of Project Sunburst, and
on the last day of each fiscal quarter thereafter, by 10% of the commitment as
in effect immediately prior to the first such reduction.
The Bank Credit Facility contains various provisions that require the
Authority to maintain specified financial ratios. If the Authority's revenue
declines due to economic or competitive factors, it is possible that these
financial ratios may be violated. If this were to happen, the Authority would
not be able to borrow additional funds under the Bank Credit Facility and it may
even result in an event of default, which could accelerate the payment of any
outstanding balance. In addition, while the Authority has entered into some
hedging transactions to mitigate against its exposure to interest rate
fluctuations on the Bank Credit Facility, the majority of the outstanding
balance is subject to interest rate fluctuations. As the economy rebounds, it is
possible that the interest rate will start to increase, which would mean that
the Authority's interest cost may increase significantly. A substantial increase
in interest expense could have a negative effect on the Authority's liquidity.
For a further discussion on hedging transactions that mitigate against this
exposure, see "Quantitative and Qualitative Disclosure of Market Risk" and Note
3 to the Authority's unaudited financial statements as of December 31, 2001.
Capital Expenditures
Capital Expenditures Incurred to Date. Capital expenditures totaled
$85.6 million including capitalized interest for the quarter ended December 31,
2001, versus $141.2 million for the same period in the prior year. These capital
expenditures were an aggregate of the following:
. Cumulative Project Sunburst construction expenses totaled $995.7
million, including $55.7 million in capitalized interest and net
of $2.0 million expensed or recorded as inventory, through
December 31, 2001. During the quarter ending December 31, 2001,
expenditures totaled $57.6 million, including $4.6 million in
capitalized interest and net of $654,000 expensed or recorded as
inventory, versus $134.6 million, including $7.2 million in
capitalized interest, expended during the quarter ended December
31, 2000.
27
. Property maintenance capital expenditures for furniture, fixtures
and equipment totaled $6.5 million and $4.8 million for the
quarter ended December 31, 2001 and December 31, 2000,
respectively.
. Capital expenditures on the Authority's electrical and water
systems infrastructure totaled $1.7 million and $624,000 for the
quarter ended December 31, 2001 and December 31, 2000,
respectively. Cumulative infrastructure improvements totaled $33.9
million as of December 31, 2001. The total estimated cost of the
infrastructure improvements is $35.0 million. The infrastructure
improvements will handle the increased utility demands of the
expanded facility that are attributable to the Project Sunburst
expansion.
. Capital expenditures for the $65.0 million Indian Summer Garage, a
2,700-space patron parking garage, totaled $18.8 million for the
quarter ending December 31, 2001. The Authority did not incur any
capital expenditures for the Indian Summer Garage for the quarter
ending December 31, 2000. Cumulative expenditures totaled $28.6
million as of December 31, 2001. The Indian Summer Garage is
expected to open in June 2002.
. Capital expenditures for the construction of the Hall of the Lost
Tribes, the 637-unit smoke free slot machine venue which opened on
April 18, 2001, were $474,000 for the quarter ended December 31,
2001. Cumulative expenditures for the Hall of the Lost Tribes
totaled $15.4 million as of December 31, 2001. The Authority did
not have any expenditures for the construction of the Hall of the
Lost Tribes for the quarter ending December 31, 2000.
. Capital expenditures for the construction of an employee day care
facility were $554,000 during the quarter ended December 31, 2001
and cumulative expenditures reached $1.1 million as of December
31, 2001. The employee day care facility is expected to have a
total cost of $10.0 million, with construction expected to be
completed in August 2002. The Authority did not incur any
construction expenses in conjunction with the employee day care
facility for the quarter ended December 31, 2000.
. The Authority, in conjunction with the Project Sunburst expansion,
commenced construction on the employee parking center in March
1999. The employee parking center includes 2,550 parking spaces
and amenities such as a dry cleaning service, on-site banking, an
employee computer/training center and a 15,000 square foot
exercise facility. A portion of the employee parking center opened
in June 2000 with the remainder opening in January 2001. The total
cost of the Employee Parking Center was $25.0 million. The
Authority did not incur any capital expenditures for the employee
parking center for the quarter ended December 31, 2001. Capital
expenditures associated with the Employee Parking Garage were $1.2
million for the quarter ended December 31, 2000.
In keeping with standard practice in the construction industry, the
Authority retains a portion of the construction expenditures until satisfactory
completion of individual contracts. As of December 31, 2001, construction
retainage totaled $20.1 million, which has been included in construction
payables in the Authority's financial statements.
Expected future capital expenditures. During the remainder of fiscal
year 2002, the Authority expects to incur capital expenditures to total
approximately $104.5 million and to be allocated as follows:
. $18.5 million on maintenance capital expenditures.
. $18.0 million on Project Sunburst construction.
28
. $8.9 million on the employee day care center.
. $33.0 million on the Indian Summer parking garage. The Indian Summer
parking garage is expected to have a total cost of $65.0 million and
is expected to open in June 2002. The remaining $3.4 million is
anticipated to be spent in fiscal year 2003.
. $25.0 million on the Thames Garage.
. $1.1 million on infrastructure improvements.
Project Sunburst
The Authority has received authorization from the Tribe to expend up to
$960.0 million, excluding capitalized interest, for completion of Project
Sunburst. As of December 31, 2001, the Authority incurred $942.0 million,
excluding capitalized interest, on Project Sunburst. The remaining $18.0 million
is anticipated to be incurred during the remainder of fiscal year 2002.
As of December 31, 2001, cumulative capitalized interest for Project
Sunburst construction expenses totaled $55.7 million. Capitalized interest
totaled $4.6 million and $7.2 million for the quarters ended December 31, 2001
and 2000, respectively.
Sources of funding for capital expenditures. The Authority will rely
primarily on cash generated from its operations and amounts available to be
drawn under the Bank Credit Facility to finance these capital expenditures.
However, the Authority's ability to finance sufficiently the anticipated capital
expenditures from these sources depends on its ability to maintain a stable
level of cash generation from its operations and its ability to draw down on the
Bank Credit Facility.
Relinquishment Agreement
Under the terms of the Relinquishment Agreement, TCA continued to manage
Mohegan Sun under the Management Agreement until January 1, 2000, when the
Management Agreement terminated, and the Authority assumed day-to-day management
of Mohegan Sun. As a result of the termination of the Management Agreement, the
Authority has agreed to pay TCA five percent of gross revenues (as defined in
the Relinquishment Agreement) generated from Mohegan Sun including Project
Sunburst, beginning January 1, 2000 and ending December 31, 2014. The Authority
refers to these payments as the relinquishment payments. The Authority initially
recorded a relinquishment liability of $549.1 million in September 1998. The
present value of this liability is estimated at $595.3 million as of December
31, 2001. The relinquishment liability is reassessed when necessary to account
for material increases or decreases in projected revenues and quarterly to
reflect the impact on the time value of money due to the passage of time. See
Note 6 to the Authority's financial statements. The Authority has capitalized
$130.0 million of the relinquishment liability associated with the trademark
value of the Mohegan Sun brand name. The Authority paid $5.8 million in
relinquishment payments during the quarter ending December 31, 2001. Of the $5.8
million in relinquishment payments for the quarter ended December 31, 2001, $1.3
million represents principal amounts and the remaining $4.5 million is payment
for the accretion of interest. As of December 31, 2001, relinquishment payments
earned but unpaid were $18.7 million. During the quarter ended December 31,
2000, the Authority paid $5.5 million in relinquishment payments, consisting of
$2.6 million in principal amounts and $2.9 million for the accretion of
interest.
Distributions to the Tribe
During the quarter ended December 31, 2001, the Authority distributed $7.0
million to the Tribe. The Authority distributed $10.0 million to the Tribe for
the quarter ended December 31, 2000.
29
Debt Service Costs
For the quarters ended December 31, 2001 and 2000, the Authority incurred
the following debt service costs (in thousands):
For the Quarter Ended For the Quarter Ended
December 31, 2001 December 31, 2000
------------------------- -------------------------
(restated - see note 7
to the Authority's
financial statements)
Bank Credit Facility $ 4,252 $ -
$200M 8.125% Senior Notes 4,062 4,062
$300M 8.75% Senior Subordinated Notes 6,563 6,563
$150M 8.375% Senior Subordinated Notes 3,141 -
$250M 8% Senior Subordinated Notes - -
Change in fair value of derivative instruments (79) 1,497
Financing fees 1,281 980
Capital lease obligations 9 112
Capitalized interest (4,580) (7,160)
------------------------- -------------------------
Total Interest Expense $ 14,649 $ 6,054
========================= =========================
Sufficiency of Resources
The Authority believes that existing cash balances, financing arrangements
and operating cash flow will provide the Authority with sufficient resources to
meet its existing debt obligations, relinquishment payments, distributions to
the Tribe and foreseeable capital expenditure requirements with respect to
current operations and Project Sunburst for at least the next twelve months.
Nonetheless, as discussed above, there are potential events or occurrences that
may affect adversely the Authority's ability to meet its existing debt
obligations, make relinquishment payments and distributions to the Tribe and pay
for capital expenditures.
Due to delays in the construction schedule of the Project Sunburst hotel,
the Authority has initiated discussions with its lenders regarding possible
amendments to its financial covenants under the Bank Credit Facility. These
amendments would be intended to address the impact of the extended construction
borrowing period and the delay in achieving the full cash flows anticipated from
the fully completed hotel. The administrative agent has advised the Authority
that preliminary approval of the principal terms of these amendments have been
received from the requisite lenders. An amendment is being prepared to finalize
these terms. The Authority also is considering the issuance of additional senior
subordinated notes in 2002 in order to curtail a portion of the outstanding
balance of the Bank Credit Facility.
Contractual Obligations and Commitments
The Authority's future payment obligations related to its material debt and
certain other contractual obligations and the timing of those payments are set
forth below. Since many of these payment amounts are not fixed, the amounts in
the table below are solely estimates as more fully described in the footnotes
and the actual amounts may be different.
30
Contractual Obligations Fiscal Year
(in thousands) 2002 (1) 2-3 years 4-5 years After 5 years
-------------------------------------------------------------------------------------------
Long-term debt (2) $ - $340,000 $200,000 $700,000
Construction obligations (3) 166,671 - - -
Development obligations (4) 4,718 - - -
----------------------------------------------------------
Total $171,389 $340,000 $200,000 $700,000
==========================================================
(1) Amounts due within one year represent obligations expected to be
incurred from October 1, 2001 to September 30, 2002.
(2) Long-term debt includes scheduled amortization and scheduled maturities
for notes payable and credit facilities, but excludes interest
payments.
(3) Construction obligations represent the remainder of expenditures the
Authority must pay in connection with Project Sunburst and related
construction enhancements. See Note 5 to the Authority's financial
statements. The Authority does not believe that it will have any
construction obligations after September 30, 2002, and this table has
been prepared based on that assumption.
(4) Under the Development Agreement, the Authority is required to pay to
TCA a development fee of $14.0 million. Development obligations
represent the remainder of the fee due to TCA. See Note 6 to the
Authority's financial statements. The Authority does not believe that
it will have any development fee obligations after September 30, 2002,
and this table has been prepared based on that assumption.
In addition to the contractual obligations described above, the Authority
has certain other contractual commitments that will require payments throughout
the periods described below. The calculation of the estimated payments in the
table below are based, in large part, on projections of future revenues over an
extended period of time, as well as other factors which are indicated more fully
in the footnotes to the following table. Since there is a high level of
estimates and judgments used with respect to calculating these liabilities,
future events that affect such estimates and judgments may cause the actual
payments to differ significantly from the estimates set forth below. The amounts
included in the table are estimates and, while some of these agreements are
perpetual in term, for the purposes of calculating these amounts, the Authority
has prepared the information in this table for only ten years.
Contractual Commitments Fiscal Year
(in thousands) 2002 (1) 2-3 years 4-5 years 5-10 years
------------------------------------------------------------------------------------------------
Slot winning payment commitments (2) 180,381 392,963 425,029 1,184,902
Relinquishment commitments (3) 55,935 128,675 139,162 578,699
Priority distributions (4) 14,882 31,282 33,420 93,889
------------------------------------------------------
Total $251,198 $552,920 $597,611 $1,857,490
======================================================
(1) Amounts due within one year represent payment commitments from October
1, 2001 to September 30, 2002.
(2) Slot winning payment commitments are a portion of the revenues earned
on slot machines that must be paid by the Authority to the State of
Connecticut pursuant to the Mohegan Compact. The payment commitment is
the lesser of (a) 30% of gross revenues from slot machines, or (b) the
greater of (i) 25% of gross revenues from slot machines or (ii) $80.0
million. For the fiscal years ended September 30, 2001, 2000 and 1999,
the Slot Win Contribution totaled $144.6 million, $135.1 million and
$121.1 million, respectively. The amounts shown in this table are
estimates of the required payments for the next ten years.
(3) Relinquishment commitments represent payment commitments of the
Authority to TCA under the Relinquishment Agreement as described in
Note 6 to the Authority's financial statements. The relinquishment
commitment is calculated as five percent of revenues, as defined in the
Relinquishment Agreement. The amounts shown in this table are estimates
of the required payments for the next ten years and have been
calculated in accordance with the Relinquishment Agreement. See Note 6
to the Authority's financial statements.
(4) Priority distributions are monthly payments required to be made by the
Authority to the Tribe pursuant to the Priority Distribution Agreement.
The payments are calculated based on net cash flow and are
31
limited to a maximum amount of $14.0 million, which maximum amount is
subject to an annual adjustment based on Consumer Price Index, or CPI.
During the fiscal year ended September 30, 2001, the Authority paid $14.0
million in priority distributions to the Tribe. In addition, for the
quarter ended December 31, 2001, the Authority paid $7.0 million in
priority distributions to the Tribe. The amounts included in the table are
estimates of the required payments for the next ten years and, while this
agreement is perpetual in term, for the purposes of calculating these
amounts, the Authority has assumed that it will pay the maximum amount in
each of the years covered by the table, as adjusted by an annual CPI
adjustment of 3.361%.
Critical Accounting Policies and Estimates
Management has identified the following critical accounting policies
that affect the Authority's more significant judgments and estimates used in the
preparation of the Authority's financial statements. The preparation of the
Authority's financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Authority's
management to make estimates and judgments that affect the reported amounts of
assets and liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, management evaluates
those estimates, including those related to asset impairment, accruals for
Player's Club points, self-insurance, compensation and related benefits, revenue
recognition, allowance for doubtful accounts, contingencies and litigation. The
Authority states these accounting policies in the notes to the financial
statements and in relevant sections in this discussion and analysis. These
estimates are based on the information that is currently available to the
Authority and on various other assumptions that management believes to be
reasonable under the circumstances. Actual results could vary from those
estimates.
The Authority believes that the following critical accounting policies
affect significant judgments and estimates used in the preparation of its
financial statements:
One of the most significant policies used by the Authority relates to
its estimate of its relinquishment liability. The Authority, in accordance with
Statement of Financial Accounting Standards No. 5 "Accounting for
Contingencies", has recorded a relinquishment liability of the estimated present
value of its obligations under the Relinquishment Agreement. The Authority
reassesses the relinquishment liability when necessary to account for material
increases or decreases in projected revenues and quarterly to reflect the impact
on the time value of money due to the passage of time. See Note 6 to the
Authority's financial statements. Since there is a high level of estimates and
judgments used with respect to calculating this liability, future events that
affect such estimates and judgments may cause the actual liability to differ
significantly from the estimate.
The Authority recognizes revenue as net wins and losses occur in the
casino and upon delivery of food, beverage and other services. Minimum rental
revenues in the Shops at Mohegan Sun are recognized on a straight-line basis
over the terms of the related leases. Percentage rents are recognized in the
period in which the tenants exceed their respective percentage rent thresholds.
Recoveries from tenants for operating expenses related to the Shops at Mohegan
Sun are recognized as offsetting expenses in the period billed, which
approximates the period in which the applicable costs are incurred.
The Authority maintains an allowance for doubtful accounts for
estimated losses resulting from the inability of its customers to make required
payments, which results in bad debt expense. Management determines the adequacy
of this allowance by continually evaluating individual customer receivables,
considering the customer's financial condition, credit history and current
economic conditions. If the financial condition of customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
The Authority's trademark is no longer subject to amortization over its
estimated useful life as it has been deemed to have an indefinite useful life.
The Authority is required to apply the initial fair value test by March 31,
2002. The Authority has not yet determined whether the initial fair value test
will result in any impairment changes, but does not anticipate a negative effect
on its operating
32
income upon completion on the fair value assessment.
The Authority maintains accruals for workers compensation
self-insurance and Player's Club points redemption, which are classified in
other accrued liabilities in the accompanying balance sheets. Management
determines the adequacy of these accruals by periodically evaluating the
historical experience and projected trends related to these accruals. If such
information indicates that the accruals are overstated or understated, the
Authority will adjust the assumptions utilized in the methodologies and reduce
or provide for additional accruals as appropriate.
The Authority is subject to various claims and legal actions in the
ordinary course of business. Some of these matters relate to personal injuries
to customers and damage to customers' personal assets. Management estimates
guest claims expense and accrues for such liability based upon historical
experience in the accounts payable and accrued expenses category in its
accompanying balance sheets.
Impact of Inflation
Absent changes in competitive and economic conditions or in specific
prices affecting the hotel and casino industry, the Authority does not expect
that inflation will have a significant impact on its operations. Changes in
specific prices, such as fuel and transportation prices, relative to the general
rate of inflation may have a material adverse effect on the hotel and casino
industry in general.
New Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 144, "Accounting for the Impairment of Disposal of Long-Lived
Assets" ("SFAS 144"). SFAS 144 modifies the rules for accounting for the
impairment or disposal of long-lived assets. The new rules become effective for
fiscal years beginning after December 15, 2001, with earlier application
encouraged. The Authority has not yet adopted and has not yet quantified the
impact of implementing SFAS 144 on the Authority's financial statements, but
does not anticipated a negative effect on the Authority's financial position,
results of operations or cash flows upon adoption of the standard.
The Authority adopted SFAS No. 142 "Goodwill and Other Intangible
Assets" ("SFAS 142") on October 1, 2001. Under SFAS 142, the trademark is no
longer subject to amortization over its estimated useful life as it has been
deemed to have an indefinite useful life. However, SFAS 142 requires the
trademark to be evaluated at least annually for impairment by applying a
fair-value based test and, if impairment occurs, the amount of impaired
trademark must be written off immediately. With the adoption of SFAS 142, the
Authority no longer records amortization of the trademark. For the quarter ended
December 31, 2000, the Authority recorded $859,000 related to the amortization
of the trademark. The Authority is required to apply the initial fair value test
by March 31, 2002. The Authority has not yet determined whether the initial fair
value test will result in any impairment changes, but does not anticipate a
negative effect on its financial position, results of operations or cash flows
upon completion of the fair value assessment. Had SFAS 142 been in effect in
these periods, the Authority's results would have been as follows (in
thousands):
For the Quarter Ended For the Quarter Ended
December 31, 2001 December 31, 2000
------------------------ -------------------------
(restated - see note 7
to the Authority's
financial statements)
Net income $ 7,808 $ 30,212
Trademark amortization - 859
------------------------ -------------------------
As adjusted net income $ 7,808 $ 31,071
======================== =========================
33
Item 3. Quantitative and Qualitative Disclosure of Market Risk
Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates and
commodity prices. The Authority's primary exposure to market risk is interest
rate risk associated with its $500.0 million Bank Credit Facility in which
interest will accrue on the basis of a base rate formula or a LIBOR-based
formula, plus applicable spreads. See Note 3 to the Authority's financial
statements for further details relating to the terms and conditions of the Bank
Credit Facility. As of December 31, 2001, the Authority had drawn $340.0 million
under the Bank Credit Facility. The Authority uses derivative instruments,
including an interest rate cap, interest rate collar and an interest rate swap
as its strategy to manage interest rate risk associated with the variable
interest rates applicable to advances under the Bank Credit Facility.
The following table provides information about the Authority's
derivative instruments at December 31, 2001:
Maturity Notional Estimated Fair
Date Value Value
--------------- -------------- ---------------
Interest Rate Cap
Strike Rate - 8% October 1, 2003 $ 62,399,200 $ 600
Interest Rate Collar
Ceiling Strike Rate - 8%
Floor Strike Rate - 6% March 1, 2004 67,143,400 (3,212,839)
Interest Rate Swap
Pay fixed - 6.35%
Receive Variable March 1, 2004 33,571,700 (1,756,283)
-------------- ---------------
Total $163,114,300 $(4,968,522)
============== ===============
All derivative instruments are based upon one-month LIBOR which was
1.87% at December 31, 2001.
34
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibit Index filed herewith is incorporated herein by reference.
(b) Reports on Form 8-K
None.
35
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOHEGAN TRIBAL GAMING AUTHORITY
--------------------------------
Date: November 12, 2002 By: /s/ Mark F. Brown
------------------------------ --------------------------------------------
Mark F. Brown
Chairman, Management Board
Date: November 12, 2002 By: /s/ William J. Velardo
------------------------------ --------------------------------------------
William J. Velardo
President and Chief Executive Officer
Date: November 12, 2002 By: /s/ Jeffrey E. Hartmann
------------------------------ --------------------------------------------
Jeffrey E. Hartmann, Executive Vice President
Finance/Chief Financial Officer
(Principal Financial and Accounting Officer)
36
CERTIFICATION
I, William J. Velardo, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of the
Mohegan Tribal Gaming Authority;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report.
Date: November 12, 2002 /s/ William J. Velardo
---------------------------
William J. Velardo
President and Chief Executive
Officer
37
CERTIFICATION
I, Jeffrey E. Hartmann, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of the Mohegan
Tribal Gaming Authority;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
Date: November 12, 2002 /s/ Jeffrey E. Hartmann
---------------------------
Jeffrey E. Hartmann
Executive Vice President, Finance and
Chief Financial Officer
38
Exhibit Index
Exhibit Exhibit Description
No.
3.1 Constitution of the Mohegan Tribe of Indians of Connecticut
(filed as Exhibit 3.1 to the Registration Statement on Form S-1,
File No. 33-80655, filed with the SEC on December 21, 1995 (the
"1996 Form S-1"), and incorporated by reference herein).
3.2 Ordinance No. 95-2 of the Tribe for Gaming on Tribal Lands,
enacted on July 15, 1995 (filed as Exhibit 3.2 to the 1996 Form
S-1 and incorporated by reference herein).
4.1 Relinquishment Agreement dated February 7, 1998 by and among the
Mohegan Tribal Gaming Authority, The Mohegan Tribe of Indians of
Connecticut and Trading Cove Associates (filed as Exhibit 10.14
to Form 10-K for the Authority's fiscal year ended September 30,
1998, File No. 33-80653, and incorporated by reference herein).
4.2 Indenture dated March 3, 1999 among the Mohegan Tribal Gaming
Authority, the Mohegan Tribe of Indians of Connecticut and First
Union National Bank, as Trustee, relating to the 8 1/8% Senior
Notes Due 2006 of the Mohegan Tribal Gaming Authority (filed as
Exhibit 4.3 to Registration Statement on Form S-4, File No.
333-76753, filed with the SEC on April 21, 1999 (the "1999 Form
S-4"), and incorporated by reference herein).
4.3 Form of Global 8 1/8% Senior Note Due 2006 of the Mohegan Tribal
Gaming Authority (contained in the Indenture filed as Exhibit 4.3
to the 1999 Form S-4 and incorporated by reference herein).
4.4 Senior Registration Agreement dated March 3, 1999 among the
Mohegan Tribal Gaming Authority, Salomon Smith Barney Inc.,
NationsBanc Montgomery Securities, LLC, SG Cowen Securities
Corporation, Bear, Sterns & Co. Inc., BankBoston Robertson
Stephens Inc. and Fleet Securities, Inc. (filed as Exhibit 4.5 to
the 1999 Form S-4 and incorporated by reference herein).
4.5 Indenture dated as of March 3, 1999 among the Mohegan Tribal
Gaming Authority, the Mohegan Tribe of Indians of Connecticut and
State Street Bank and Trust Company, as Trustee, relating to the
8 3/4% Senior Subordinated Notes Due 2009 of the Mohegan Tribal
Gaming Authority (filed as Exhibit 4.6 to the 1999 Form S-4 and
incorporated by reference herein).
4.6 Form of Global 8 3/4% Senior Subordinated Notes Due 2009 of the
Mohegan Tribal Gaming Authority (contained in the Indenture filed
as Exhibit 4.6 to the 1999 Form S-4 and incorporated by reference
herein).
4.7 Senior Subordinated Registration Agreement dated March 3, 1999
among the Mohegan Tribal Gaming Authority, Salomon Smith Barney
Inc., NationsBanc Montgomery Securities LLC, SG Cowen Securities
Corporation, Bear, Stearns & Co. Inc., BankBoston Robertson
Stephens Inc. and Fleet Securities, Inc. (filed as Exhibit 4.8 to
the 1999 Form S-4 and incorporated by reference herein).
4.8 Indenture dated as of July 26, 2001 among the Mohegan Tribal
Gaming Authority, the Mohegan Tribe of Indians of Connecticut and
State Street Bank and Trust Company, as Trustee, relating to the
8 3/8% Senior Subordinated Notes Due 2011 of the Mohegan Tribal
Gaming Authority (filed as Exhibit 4.9 to Registration Statement
on Form S-4, File No. 333-69472, filed with the SEC on September
14, 2001 (the "2001 Form S-4") and
39
incorporated by reference herein).
4.9 Form of Global 8 3/8% Senior Subordinated Notes Due 2011 of the
Mohegan Tribal Gaming Authority (contained in the Indenture filed
as Exhibit 4.9 to the 2001 Form S-4 and incorporated by reference
herein).
4.10 Registration Rights Agreement dated July 26, 2001 among the
Mohegan Tribal Gaming Authority, Salomon Smith Barney Inc., Banc
of America Securities LLC, Fleet Securities, Inc., SG Cowen
Securities Corporation, Commerzbank Capital Markets Corp.,
McDonald Investments Inc. and Wells Fargo Brokerage Services, LLC
(filed as Exhibit 4.11 to the 2001 Form S-4 and incorporated by
reference herein).
99.1* Certification of President and Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2* Certification of Executive Vice President, Finance and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Filed herewith.
40