SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2002
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 and
six months ended March 31, 2002 and other information relating to such restated
financial statements. Item 2 of Part I also includes the Authority's amended and
restated discussion and analysis of financial condition and results of
operations. Except for Part I, Item 6 of Part II and the addition of the
certifications required under Sections 302 (as further described in Rule 15d 14
issued by the Securities and Exchange Commission) and 906 of the Sarbanes-Oxley
Act of 2002, no other information included in the original report on Form 10-Q
is amended by this amendment. The information contained herein is as of March
31, 2002 and does not reflect subsequent events except any that may have existed
as of the date of the filing of the original Form 10-Q relating to such quarter
and six months 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 March 31, 2002.
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 March 31, 2002
(unaudited) and September 30, 2001. 2
Statement of Income of Mohegan Tribal Gaming Authority for the Quarters
and Six Months Ended March 31, 2002 and 2001 (unaudited). 3
Statements of Changes in Capital of Mohegan Tribal Gaming Authority for
the Quarters and Six Months Ended March 31, 2002 and 2001 (unaudited). 4
Statements of Cash Flows of Mohegan Tribal Gaming Authority for the Six
Months Ended March 31, 2002 and 2001 (unaudited). 5
Notes to Financial Statements of Mohegan Tribal Gaming Authority. 6-19
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 20-37
Item 3. Quantitative and Qualitative Disclosure of Market Risk. 37
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 39
Signatures. Mohegan Tribal Gaming Authority. 40
Certifications. 45-46
Report of Independent Accountants
To the Mohegan Tribal Gaming Authority:
We have reviewed the accompanying balance sheet of the Mohegan Tribal Gaming
Authority ("the Authority") as of March 31, 2002, the related statements of
income and of changes in capital for the quarters and six-month periods ended
March 31, 2002 and 2001 and the related statements of cash flows for the
six-month periods ended March 31, 2002 and 2001. These financial statements are
the responsibility of the Authority's management.
We conducted our reviews 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 March 31, 2002 and for the quarter and six-month
period ended March 31, 2002. The financial statements for the quarter and
six-month period ended March 31, 2001 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)
March 31,
2002 September 30,
(unaudited) 2001
----------------------- ----------------
(restated - see note 7)
ASSETS
------
Current assets:
Cash and cash equivalents $ 80,656 $ 74,284
Receivables, net 9,633 5,347
Due from Tribe 162 957
Inventories 12,064 11,455
Other current assets 18,555 14,209
----------- ----------------
Total current assets 121,070 106,252
Non-current assets:
Property and equipment, net 1,090,022 1,080,415
Construction in process 341,303 223,568
Trademark, net 119,692 119,692
Other assets, net 28,305 24,766
----------- ----------------
Total assets $ 1,700,392 $ 1,554,693
=========== ================
LIABILITIES AND CAPITAL
-----------------------
Current liabilities:
Current portion of capital lease obligations $ - $ 1,514
Current portion of relinquishment liability 70,171 70,199
Accounts payable and accrued expenses 72,112 73,548
Construction payables 103,209 155,497
Accrued interest payable 16,080 13,062
----------- ----------------
Total current liabilities 261,572 313,820
Non-current liabilities:
Long-term debt 1,099,000 908,000
Relinquishment liability, net of current portion 515,552 521,809
Other long-term liabilities 3,824 5,232
----------- ----------------
Total liabilities 1,879,948 1,748,861
----------- ----------------
Commitments and contingencies (Note 5)
Capital:
Retained deficit (178,128) (192,177)
Accumulated other comprehensive loss (1,428) (1,991)
----------- ----------------
Total capital (179,556) (194,168)
----------- ----------------
Total liabilities and capital $ 1,700,392 $ 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 For the For the
Quarter Ended Quarter Ended Six Months Ended Six Months Ended
March 31, 2002 March 31, 2001 March 31, 2002 March 31, 2001
(unaudited) (unaudited) (unaudited) (unaudited)
------------------- ---------------- -------------------- ------------------
(restated - see (restated - see
note 7) note 7)
Revenues:
Gaming $ 221,254 $ 180,605 $ 448,121 $ 355,563
Food and beverage 14,946 11,037 32,037 21,761
Retail, entertainment and other 12,943 11,981 27,588 28,576
------------------- ---------------- -------------------- ------------------
Gross revenues 249,143 203,623 507,746 405,900
Less - Promotional allowances (14,461) (15,843) (31,588) (35,030)
------------------- ---------------- -------------------- ------------------
Net revenues 234,682 187,780 476,158 370,870
------------------- ---------------- -------------------- ------------------
Operating costs and expenses:
Gaming 101,196 77,770 207,689 156,159
Food and beverage 9,097 5,942 19,014 12,020
Retail, entertainment and other 7,739 7,571 20,245 15,474
Marketing, general and administrative 48,489 32,352 110,703 71,789
Pre-opening costs and expenses 2,006 1,927 3,663 3,316
Depreciation and amortization 18,062 5,893 35,298 11,534
------------------- ---------------- -------------------- ------------------
Total operating costs and expenses 186,589 131,455 396,612 270,292
------------------- ---------------- -------------------- ------------------
Income from operations 48,093 56,325 79,546 100,578
------------------- ---------------- -------------------- ------------------
Other income (expense):
Accretion of relinquishment liability
discount (Note 6) (9,084) (8,958) (18,167) (17,916)
Interest income 117 576 240 1,740
Interest expense, net of capitalized
interest (Note 5) (16,143) (4,249) (30,792) (10,304)
Other income (expense), net (50) 2 (87) 2
------------------- ---------------- -------------------- ------------------
Total other income (expense) (25,160) (12,629) (48,806) (26,478)
------------------- ---------------- -------------------- ------------------
Income from continuing operations 22,933 43,696 30,740 74,100
Loss from discontinued operations - (335) - (527)
------------------- ---------------- -------------------- ------------------
Net income $ 22,933 $ 43,361 $ 30,740 $ 73,573
=================== ================ ==================== ==================
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 Six Months For the Six Months
Ended March 31, 2002 Ended March 31, 2001
(unaudited) (unaudited)
------------------------------- -------------------------------
(restated - see note 7)
Comprehensive Comprehensive
Capital Income Capital Income
-------------- --------------- -------------- ---------------
Retained deficit at October 1 $ (192,177) $ (362,118)
Net income 30,740 $ 30,740 73,573 $ 73,573
--------------- ---------------
Distributions to Tribe (16,691) (20,000)
-------------- --------------
Retained deficit at March 31 (178,128) (308,545)
-------------- --------------
Accumulated other comprehensive loss at October 1 (1,991) -
Unrealized gain (loss) on derivative instruments 563 (1,166)
--------------- ---------------
Other comprehensive income (loss) 563 563 (1,166) (1,166)
-------------- --------------- -------------- ---------------
Comprehensive income $ 31,303 $ 72,407
=============== ===============
Accumulated other comprehensive loss at October 1 (1,428) (1,166)
-------------- --------------
Total capital ending balance at March 31 $ (179,556) $ (309,711)
============== ==============
For the Quarter For the Quarter
Ended March 31, 2002 Ended March 31, 2001
(unaudited) (unaudited)
------------------------------- -------------------------------
(restated - see note 7)
Comprehensive Comprehensive
Capital Income Capital Income
-------------- --------------- -------------- ---------------
Retained deficit at January 1 $ (191,341) $ (341,906)
Net income 22,933 $ 22,933 43,361 $ 43,361
--------------- ---------------
Distributions to Tribe (9,720) (10,000)
-------------- --------------
Retained deficit at March 31 (178,128) (308,545)
-------------- --------------
Accumulated other comprehensive loss at January 1 (1,889) (645)
Unrealized gain (loss) on derivative instruments 461 (521)
--------------- ---------------
Other comprehensive income (loss) 461 461 (521) (521)
-------------- --------------- -------------- ---------------
Comprehensive income $ 23,394 $ 42,840
=============== ===============
Accumulated other comprehensive loss at January 1 (1,428) (1,166)
-------------- --------------
Total capital ending balance at March 31 $ (179,556) $ (309,711)
============== ==============
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
Six Months Ended Six Months Ended
March 31, 2002 March 31, 2001
(unaudited) (unaudited)
------------------------- -------------------------
(restated - see note 7)
Cash flows provided by (used in) operating activities:
Net income $ 30,740 $ 73,573
Adjustments to reconcile net income to
net cash flow provided by operating activities:
Depreciation and amortization 35,298 11,534
Loss on early extinguishment of debt 6 -
Loss on disposition of assets 80 -
Provision for losses on receivables 459 275
Accretion of relinquishment liability discount 18,167 17,916
Cash paid for accretion of relinquishment liability
discount (18,041) (14,721)
Change in fair value of derivative instruments (890) 2,402
Amortization of debt issuance costs 3,524 2,094
Changes in operating assets and liabilities:
Increase in receivables and other assets (8,601) (16,547)
Increase in accounts payable and accrued expenses 1,582 6,312
------------------------- -------------------------
Net cash flows provided by operating activities 62,324 82,838
------------------------- -------------------------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment, net of change in
construction payables of $(52,288) and $47,026, respectively (215,043) (232,818)
Proceeds from asset sale 72 -
Issuance of tenant loans (1,181) -
Tenant loan payments 35 -
------------------------- -------------------------
Net cash flows used in investing activities (216,117) (232,818)
------------------------- -------------------------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of long-term debt 250,000 -
Bank Credit Facility borrowings 184,000 128,000
Bank Credit Facility payments (243,000) -
Principal portion of relinquishment liability payments (6,411) (6,310)
Distributions to Tribe (16,691) (20,000)
Capitalized financing fees (6,257) (2,234)
Payment on capital lease obligations (1,520) (2,719)
Increase in other long-term liabilities 44 -
------------------------- -------------------------
Net cash flows provided by financing activities 160,165 96,737
------------------------- -------------------------
Net (decrease) increase in cash and cash equivalents 6,372 (53,243)
Cash and cash equivalents at beginning of period 74,284 115,731
------------------------- -------------------------
Cash and cash equivalents at end of period $ 80,656 $ 62,488
========================= =========================
The accompanying 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 and six month periods ended March 31, 2002 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 or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 modifies
the rules for accounting for the impairment or disposal of long-lived assets.
The new rules become effective for fiscal years beginning after December 15,
2001, with earlier application encouraged. The Authority has not 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 and
six months ended March 31, 2001, the Authority recorded $859,000 and $1.7
million, respectively, related to the amortization of the trademark. The
Authority applied the initial fair value test and determined that no impairment
existed at March 31, 2002. Had SFAS 142 been in effect in these periods, the
Authority's results would have been as follows (in thousands):
For the Quarter For the For the Six For the Six
Ended March Quarter Ended Months Ended Months Ended
31, 2002 March 31, 2001 March 31, 2002 March 31, 2001
----------- -------------- -------------- --------------
(restated - (restated -
see note 7) see note 7)
Net income $ 22,933 $ 43,361 $ 30,740 $ 73,573
Trademark amortization - 859 - 1,718
----------------- ------------------ ---------------- -----------------
As adjusted net income $ 22,933 $ 44,220 $ 30,740 $ 75,291
=============== ================== ================ =================
6
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections as of April 2002" ("SFAS 145"). The key provision of SFAS 145 which
will affect the Authority rescinds the existing rule that all gains or losses
from the extinguishment of debt should be classified as extraordinary items.
Instead such gains and losses must be analyzed to determine if they meet the
criteria for extraordinary item classification based on the event being both
unusual and infrequent. The Authority will adopt SFAS 145 beginning on October
1, 2002. Prior period gains and losses must be analyzed to determine if they
meet the criteria to be classified as extraordinary items. If they fail the
criteria, prior period gains and losses must be reclassified. The Authority has
not yet quantified the impact of implementing SFAS 145.
NOTE 3 - FINANCING FACILITIES:
Financing facilities, as described below, consisted of the following (in
thousands):
March 31, 2002 September 30, 2001
-------------- ------------------
Bank Credit Facility $ 199,000 $ 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
$250M 8% Senior Subordinated Notes 250,000 -
---------- ----------
$1,099,000 $ 908,000
========== ==========
Bank Credit Facility
As of March 31, 2002, the Authority had $199.0 million outstanding under
a $400.0 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. On March 26, 2002, the Authority reduced the
commitment amount on the Bank Credit Facility to $400.0 million from $500.0
million (see Third Amendment below). 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 March 31, 2002, one-month
LIBOR, was 1.88%, and the applicable spread on a LIBOR loan was 2.625%. 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 March 31, 2002. Accrued interest on the Bank Credit Facility
was $148,000 at March 31, 2002.
Pursuant to the terms of Amendment No. 3 to the Bank Credit Facility,
the commitment (or the maximum amount that may be borrowed under the Bank Credit
Facility) will be automatically reduced on September 30, 2002, 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.
7
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
On February 20, 2002, the Authority used the net proceeds from the
issuance of the $250.0 million 8% Senior Subordinated Notes to repay a portion
of the outstanding balance under the Bank Credit Facility.
Recent Amendments to the Bank Credit Facility
During the quarter ended March 31, 2002, the Authority received the
requisite consent of its lenders for two amendments. On February 8, 2002, the
Authority received the requisite consent of its lenders for Amendment No. 2 to
its Bank Credit Facility. The amendment revised several of the restrictive
covenants governing the Authority's activities and finances. On March 26, 2002,
the Authority received the requisite consent of its lenders' for Amendment No. 3
to its Bank Credit Facility. The amendment reduced the lenders' commitment from
$500.0 million to $400.0 million effective March 26, 2002, and changed the first
scheduled commitment reduction date to September 30, 2002 from March 31, 2002.
The amount of each reduction on the last day of each fiscal quarter must equal
10% of the commitment as in effect immediately prior to the first such
reduction. For more information regarding the amendments to the Bank Credit
Facility, see the Authority's Current Reports on Form 8-K filed on February 12,
2002 and March 26, 2002, respectively.
Financial Covenant Requirements
The Authority's debt agreements require, among other restrictions, the
maintenance of various financial covenants and terms including a fixed charge
coverage ratio, and certain debt leverage ratios. As of March 31, 2002, 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
March 31, 2002. The interest rate collar listed below was deemed to be
ineffective at March 31, 2002.
Derivative instruments held by the Authority at March 31, 2002 are as
follows:
Notional Estimated
Value Cost Fair Value
------------ ------ -----------
Interest Rate Cap
Strike Rate - 8% $ 69,883,000 $410,000 $ 1,300
Interest Rate Collar
Ceiling Strike Rate - 8%
Floor Strike Rate - 6% 79,063,800 295,000 (2,383,757)
Interest Rate Swap
Pay fixed - 6.35%
Receive Variable 39,531,900 221,000 (1,314,262)
------------ -------- ------------
Total $188,478,700 $926,000 $(3,696,719)
============ ======== ============
All derivative instruments are based on one-month LIBOR. One-month LIBOR
was 1.88% on March 31, 2002.
8
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 did not qualify for hedge accounting. The negative fair market value at the
date of modification of approximately $212,000 will be reclassified from
accumulated other comprehensive loss to 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 March 31, 2002.
The aggregate fair market value change in all derivative instruments was
$1.2 million and $1.4 million for the three and six months ended March 31, 2002,
respectively. In accordance with SFAS 133, the Authority recorded an unrealized
gain of $461,000 and $563,000 related to the derivative instruments as a
component of other comprehensive loss in the accompanying balance sheets and
recorded a gain of $811,000 and $890,000 as interest expense in the accompanying
statements of income for the three and six months ended March 31, 2002,
respectively. As of March 31, 2002 and 2001, the fair market 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 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, the 2001 Senior Subordinated Notes and the 2002 Senior
Subordinated Notes. As of March 31, 2002, accrued interest on the Senior Notes
was $4.1 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, the 2001 Senior Subordinated Notes and the 2002 Senior
Subordinated Notes. As of March 31, 2002, accrued interest on the 1999 Senior
Subordinated Notes was $6.6 million.
2001 Senior Subordinated Notes
On July 26, 2001, the Authority issued $150.0 million Senior
Subordinated Notes with fixed interest payable at a rate of 8.375% per annum
(the "2001 Senior Subordinated Notes"). The proceeds from this financing were
used to pay transaction costs, pay down $90.0 million on the Bank Credit
Facility and fund costs related to Project Sunburst. Interest on the 2001 Senior
Subordinated Notes is payable semi-annually on January 1 and July 1. The 2001
Senior Subordinated Notes mature on July 1, 2011. The 2001 Senior Subordinated
Notes are uncollateralized general obligations of the Authority and are
subordinated to the Bank Credit Facility, the Senior Notes and in a liquidation,
bankruptcy or similar proceeding 50% of the Authority's payment obligations
under the
9
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Relinquishment Agreement (see Note 6), that are then due and owing. The
2001 Senior Subordinated Notes rank equally with the 1999 Senior Subordinated
Notes, the 2002 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 March 31, 2002, accrued interest on the 2001
Senior Subordinated Notes was $3.1 million.
2002 Senior Subordinated Notes
On February 20, 2002, the Authority issued $250.0 million Senior
Subordinated Notes with fixed interest payable at a rate of 8.0% per annum (the
"2002 Senior Subordinated Notes"). The proceeds from this financing were used to
pay transaction costs and pay down $243.0 million of the outstanding balance
under the Bank Credit Facility. Interest on the 2002 Senior Subordinated Notes
is payable semi-annually on April 1 and October 1, with the first interest
payment scheduled for October 1, 2002. The 2002 Senior Subordinated Notes mature
on April 1, 2012. The 2002 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 2002 Senior
Subordinated Notes rank equally with the 1999 Senior Subordinated Notes, the
2001 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 March 31, 2002, accrued interest on the 2002 Senior
Subordinated Notes was $2.2 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 2003. The
Authority is currently negotiating a reduction in the required amounts covered
by letters of credit. The $550,000 letter of credit was reduced from $1,000,000
on April 13, 2001. As of March 31, 2002, 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 March 31, 2002 and 2001, expenses associated with these services were $1.2
million and $2.7 million, respectively, and $4.1 million and $5.5 million for
the six months ended March 31, 2002 and 2001, respectively. The Tribe, through
one of its limited liability companies, has entered into various land lease
agreements with the Authority for access, parking and related purposes for
Mohegan Sun. For each of the quarters ended March 31, 2002 and 2001, expenses
related to these agreements totaled $97,000. Expenses related to these
agreements totaled $194,000 and $181,000 for the six months ended March 31, 2002
and 2001, respectively.
NOTE 5 - COMMITMENTS AND CONTINGENCIES:
Project Sunburst
During the quarter ended March 31, 2002, the Tribe received a
notification from Trading Cove Associates ("TCA"), the developer of Project
Sunburst, indicating that the cost of completing Project Sunburst is estimated
to be $1.0 billion, excluding capitalized interest, which represents an increase
of $40.0 million over the previous estimate of $960.0 million. TCA indicated
that the $40.0 million increase relates to scope changes to the Mohegan Sun
retail program amounting to $10.0 million and acceleration costs related to the
early opening of the Casino of the Sky and the extended hotel tower completion
date in the amount of $12.0 million. The balance of the increase relates to
theming and quality improvements and claims reserves in the amount of $18.0
million. Mohegan Sun currently anticipates obtaining $25.0 million in operating
lease financing to fund a portion of the cost overrun and will increase its 2002
maintenance capital expenditures by $15.0 million to the maximum authorized
spending of $35.0 million to fund the balance of the overrun out of operating
cash flows. As of March 31, 2002, the Authority had spent $967.4 million,
excluding capitalized interest, on Project Sunburst. The remaining $32.6 million
(of which $15.0 million will be categorized as maintenance capital expenditures)
is anticipated to be spent during the remainder of fiscal year 2002.
10
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
As of March 31, 2002, cumulative capitalized interest for Project
Sunburst construction expenses totaled $61.2 million. Capitalized interest
totaled $5.5 million and $9.6 million for the quarters ended March 31, 2002 and
2001, respectively. Capitalized interest totaled $10.1 million and $16.7 million
for the six months ended March 31, 2002 and 2001, 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
March 31, 2002 and March 31, 2001, the Authority reflected expenses associated
with the Slot Win Contribution totaling $41.2 million and $33.8 million,
respectively. For the six months ended March 31, 2002 and 2001, expenses
associated with the Slot Win Contribution totaled $84.2 million and $66.8
million, respectively. As of March 31, 2002, outstanding Slot Win Contribution
payments to the State of Connecticut totaled $15.4 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 March
31, 2002, Perini had received $23.9 million of the $27.3 million fee, of which
$17.9 million has been included in property and equipment, net and the
remainder has been included in construction in process in the accompanying
balance sheets. For the quarters ended March 31, 2002 and 2001, the Authority
incurred $2.0 million and $1.5 million, respectively, related to the
construction management fee. The Authority incurred $7.9 million and $3.0
million in fees for the six months ended March 31, 2002 and 2001, respectively.
As of March 31, 2002, the Authority owed $1.5 million 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 that exceed $750,000. Amounts to be
reimbursed are assessed monthly, but payments are calculated on a cumulative
annual basis. No payments have been made during the quarter ended March 31,
2002. Payments to AAA have totaled $61,000 for the six months ended March 31,
2002. These amounts represent the revenue shortfall from October 1, 2001 through
March 31, 2002. As of March 31, 2002, amounts accrued totaled $44,000.
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 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,
11
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 March 31, 2002, the carrying amount of
the relinquishment liability was $585.7 million as compared to $592.0 million at
September 30, 2001. The decrease is due to $24.5 million in relinquishment
payments, partially offset by $18.2 million in accretion of relinquishment
liability discount. Of the $24.5 million in relinquishment payments for the six
months ended March 31, 2002, $6.4 million represents principal amounts and the
remaining $18.1 million is payment for the accretion of interest. Of the $21.0
million in relinquishment payments made during the six months ended March 31,
2001, $6.3 million represents principal amounts and the remaining $14.7 million
is payment for 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 March
31, 2002, relinquishment payments earned but unpaid were $12.5 million.
Development Agreement
On February 7, 1998, the Authority and TCA entered into a development
services agreement (the "Development Agreement"). Under the Development
Agreement, TCA is responsible for the administration and supervision of the
construction manager and the entire construction process of Project Sunburst.
TCA is acting as the Authority's representative in connection with construction
contracts that are approved by the Authority. Specifically, TCA is responsible
for overseeing all persons performing work on the expansion site, inspecting the
progress of construction, determining completion dates and reviewing contractor
payment requests submitted to the Authority.
Payment of the Development Fee
Under the Development Agreement, the Authority is required to pay to TCA
a development fee of $14.0 million. Pursuant to the payment schedule described
in the Development Agreement, on January 15, 2000, the Authority began paying
the development fee to TCA on a quarterly basis, based upon the incremental
completion as of each payment date. As of March 31, 2002, the Authority had
incurred $12.9 million related to the TCA development fee, of which $12.5
million had been paid. Of the $12.9 million incurred, $8.8 million had been
included in property and equipment, net and the remainder has been included in
construction in process in the accompanying balance sheets.
Termination and Disputes
The Development Agreement terminates upon the earlier of (a) completion
of Project Sunburst or (b) February 7, 2008. In addition, each party has the
right to terminate the Development Agreement if there is a material default or
failure to perform a material duty or obligation by the other party. The parties
must submit disputes arising under the Development Agreement to arbitration and
have agreed that punitive damages may not be awarded to either party by an
arbitrator. The Authority also has waived sovereign immunity for the purpose of
permitting, compelling or enforcing arbitration and has agreed to be sued by TCA
in any court of competent jurisdiction for the purposes of compelling
arbitration or enforcing any arbitration or judicial award arising out of the
Development Agreement.
12
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 7 - RESTATEMENT AND RECLASSIFICATIONS:
The Authority has restated its financial statements for the quarter
ended March 31, 2002 to reflect the effects of the following adjustments: (i) to
record additional capitalized interest pertaining to Project Sunburst in
accordance with SFAS 34, "Capitalization of Interest Cost," (ii) to record
Project Sunburst related capital expenditures incurred in the quarter and six
months ended March 31, 2002, (iii) to record depreciation expense associated
with placing additional fixed assets in service prior to March 31, 2002, (iv) to
record adjustments necessary to account for the Authority's derivative
instruments in accordance with SFAS 133 and (v) to record additional interest
expense relating to the amortization of additional debt issuance costs. The
aggregate effect of recording these adjustments resulted in the Authority
increasing its net income by $2.9 million and $3.1 million for the quarter and
six months ended March 31, 2002, respectively, and increasing its total assets
$45.7 million as of March 31, 2002.
In addition, the Authority also has reclassified certain other costs,
expenses and balances in the financial statements. These reclassifications have
no effect on the Authority's net income.
The financial statements as of and for the quarter and six months ended
March 31, 2002 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):
13
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Mohegan Tribal Gaming Authority
Condensed Balance Sheet
(in thousands)
Previously
Reported Restatement Restated
March 31, 2002* Reclassifications Adjustments March 31, 2002
--------------- ----------------- ----------- --------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 80,656 - $ 80,656
Receivables, net 12,154 (2,521) a,b - 9,633
Due from Tribe - 162 a - 162
Inventories 12,064 - - 12,064
Other current assets 16,196 2,359 b - 18,555
----------- ----------- ---------- -----------
Total current assets $ 121,070 $ - $ - $ 121,070
Non-current assets:
Property and equipment, net 1,044,552 - 45,470 f.4,g.1 1,090,022
Construction in process 340,244 - 1,059 g.2,h.4 341,303
Trademark, net 119,692 - - 119,692
Other assets, net 29,131 - (826) i 28,305
----------- ----------- ---------- -----------
Total assets $ 1,654,689 $ - $ 45,703 $ 1,700,392
=========== =========== ========== ===========
LIABILITIES AND CAPITAL
-----------------------
Current liabilities:
Current portion of relinquishment
liability 69,207 $ 964 d - 70,171
Accounts payable and accrued
expenses 73,782 (1,670) e - 72,112
Construction payables 70,306 1,670 e 31,233 g 103,209
Accrued interest payable 16,080 - - 16,080
----------- ----------- ---------- -----------
Total current liabilities 229,375 964 31,233 261,572
Non-current liabilities:
Long-term debt 1,099,000 - - 1,099,000
Relinquishment liability, net of
current portion 516,516 (964) d - 515,552
Other long-term liabilities 3,824 - - 3,824
----------- ----------- ---------- -----------
Total liabilities $ 1,848,715 - $ 31,233 $ 1,879,948
----------- ----------- ---------- -----------
Capital:
Retained deficit (190,357) - 12,229 f.4,h.4,i,j.4 (178,128)
Accumulated other comprehensive
loss (3,669) - 2,241 j.4 (1,428)
----------- ----------- ---------- -----------
Total capital (194,026) - 14,470 (179,556)
----------- ----------- ---------- -----------
Total liabilities and capital $ 1,654,689 $ - $ 45,703 $ 1,700,392
=========== =========== ========== ===========
* Previously reported in Form 10-Q filed by the Authority on May 9, 2002.
See page 19 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 Statements of Income
(in thousands)
Previously
Reported Restated
For the For the
Quarter Ended Restatement Quarter Ended
March 31, 2002* Reclassifications Adjustments March 31, 2002
--------------- ----------------- ----------- --------------
Revenues:
Net revenues $ 234,682 $ - $ - $ 234,682
---------- ---------- --------- ----------
Operating costs and expenses:
Gaming 119,725 (18,529) k - 101,196
Food and beverage 10,131 (1,034) k - 9,097
Retail, entertainment and other 5,818 1,921 k - 7,739
Marketing, general and administrative 30,847 17,642 k - 48,489
Pre-opening costs and expenses 2,006 - - 2,006
Depreciation and amortization 20,013 (1,417) l.1 (534) f.1 18,062
---------- ---------- --------- ----------
Total operating costs and expenses 188,540 (1,417) (534) 186,589
---------- ---------- --------- ----------
Income from operations 46,142 1,417 534 48,093
---------- ---------- --------- ----------
Other income (expense):
Accretion of relinquishment liability
discount (9,084) - (9,084)
Interest income 117 - 117
Interest expense, net of capitalized
interest (17,147) (1,417) l.1 2,421 h.1,i,j.1,m.1 (16,143)
Other expense, net (50) - - (50)
Change in fair value of derivative
instruments 11 - (11) m.1 -
---------- ---------- --------- ----------
Total other income (expense) (26,153) (1,417) 2,410 (25,160)
---------- ---------- --------- ----------
Net income $ 19,989 $ - $ 2,944 $ 22,933
========== ========== ========= ==========
* Previously reported in Form 10-Q filed by the Authority on May 9, 2002.
See page 19 of the notes to the Authority's financial statements for the
footnotes to this restatement schedule.
15
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Mohegan Tribal Gaming Authority
Condensed Statements of Income
(in thousands)
Previously
Reported Restated
For the For the
Six Months Ended Restatement Six Months Ended
March 31, 2002* Reclassifications Adjustments March 31, 2002
--------------- ----------------- ----------- --------------
Net revenues $ 476,158 $ - $ - $ 476,158
----------- ----------- -------- ----------
Operating costs and expenses:
Gaming 253,015 (45,326) k - 207,689
Food and beverage 21,222 (2,209) k - 19,013
Retail, entertainment and other 14,728 5,517 k - 20,245
Marketing, general and administrative 68,685 42,018 k - 110,703
Pre-opening costs and expenses 3,663 - - 3,663
Depreciation and amortization 37,276 (2,698) l.2 720 f.2 35,298
---------- ----------- -------- ----------
Total operating costs and expenses 398,589 (2,698) 720 396,611
---------- ----------- -------- ----------
Income from operations 77,569 2,698 (720) 79,547
---------- ----------- -------- ----------
Other income (expense):
Accretion of relinquishment liability
discount (18,167) - - (18,167)
Interest income 240 - - 240
Interest expense, net of capitalized
interest (31,946) (2,698) l.2 3,851 h.2,i,j.2,m.2 (30,793)
Other expense, net (87) - - (87)
Change in fair value of derivative
instruments (5) - 5 m.2 -
---------- ----------- -------- ----------
Total other income (expense) (49,965) (2,698) 3,856 (48,807)
---------- ----------- -------- ----------
Net income $ 27,604 $ - $ 3,136 $ 30,740
========== =========== ======== ==========
* Previously reported in Form 10-Q filed by the Authority on May 9, 2002.
See page 19 of the notes to the Authority's financial statements for the
footnotes to this restatement schedule.
16
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Mohegan Tribal Gaming Authority
Condensed Statement of Changes in Capital
(in thousands)
Previously
Reported
For the
Six Months Restated For the
Ended Six Month Ended
March 31, 2002* Restatement Adjustments March 31, 2002
----------------------------- --------------------------- ----------------------------
Comprehensive Comprehensive Comprehensive
Capital Income Capital Income Capital Income
-------------- ------------- ----------- ------------- ------------- -------------
Retained deficit at October 1 $(201,270) $ 9,093 f.3,h.3,j.3 $(192,177)
Net income 27,604 $ 27,604 3,136 $ 3,136 f.2,h.2,i,j.2 30,740 $ 30,740
---------- --------- -----------
Distributions to Tribe (16,691) - (16,691)
---------- --------- -----------
Retained deficit at March 31 $(190,357) 12,229 (178,128)
---------- --------- -----------
Accumulated other comprehensive
income (loss) at October 1 (5,127) 3,136 j.3 (1,991)
Unrealized gain (loss) on
derivative instruments - 1,458 (895) (895) j.2 - 563
--------- -------- -----------
Other comprehensive income (loss) 1,458 1,458 (895) (895) 563 563
---------- --------- --------- -------- ----------- -----------
Comprehensive income $ 29,062 $ 2,241 $ 31,303
========= ======== ===========
Accumulated other comprehensive
income (loss) at March 31 (3,669) 2,241 (1,428)
---------- --------- -----------
Total capital ending balance at
March 31 $(194,026) $ 14,470 $ (179,556)
========== ========= ===========
* Previously reported in Form 10-Q filed by the Authority on May 9, 2002.
See page 19 of the notes to the Authority's financial statements for the
footnotes to this restatement schedule.
17
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Mohegan Tribal Gaming Authority
Condensed Statement of Cash Flows
(in thousands)
Previously
Reported
For the Restated For the
Six Months Ended Restatement Six Months Ended
March 31, 2002* Reclassifications Adjustments March 31, 2002
---------------- ----------------- ------------- ----------------
Cash flows provided by (used in) operating
activities:
Net income $ 27,604 $ - $ 3,136 f.2,h.2,i,j.2 $ 30,740
Adjustments to reconcile net income to net
cash flow provided by operating
activities:
Depreciation and amortization 37,276 (2,698) 1.2 720 f.2 35,298
Loss on early extinguishment of debt 6 - - 6
Loss on disposition of assets 80 - - 80
Provision for losses on receivables 459 - - 459
Accretion of relinquishment liability
discount 18,167 - - 18,167
Cash paid for accretion of relinquishment
liability discount (18,041) - - (18,041)
Change in fair value of derivative
instruments 5 - (895) j.2 (890)
Amortization of debt issuance costs - 2,698 1.2 826 i 3,524
Changes in operating assets and liabilities:
Increase in receivables and other assets (10,391) 1,790 n,o - (8,601)
Increase in accounts payable and accrued
expenses 3,252 (1,670) e - 1,582
---------------- ----------------- -------------- ----------------
Net cash flows provided by operating
activities 58,417 120 3,787 62,324
---------------- ----------------- -------------- ----------------
Cash flows provided by (used in) investing
activities:
Purchase of property and equipment, net of
change in construction payables (144,229) (67,027) c,e,n (3,787) h.2 (215,043)
Increase in construction in process, net (68,053) 68,053 c - -
Proceeds from asset sale 72 - - 72
Issuance of tenant loans - (1,181) o - (1,181)
Tenant loan payments - 35 o - 35
---------------- ----------------- -------------- ----------------
Net cash flows used in investing
activities (212,210) (120) (3,787) (216,117)
---------------- ----------------- -------------- ----------------
Cash flows provided by (used in) financing
activities:
Proceeds from issuance of long-term debt 250,000 - - 250,000
Bank Credit Facility borrowings 184,000 - - 184,000
Payment on Bank Credit Facility (243,000) - - (243,000)
Principal portion of relinquishment
liability payments (6,411) - - (6,411)
Distributions to Tribe (16,691) - - (16,691)
Capitalized financing fees (6,257) - - (6,257)
Payment on capital lease obligations (1,520) - - (1,520)
Increase in other long-term liabilities 44 - - 44
---------------- ----------------- -------------- ----------------
Net cash flows provided by financing
activities 160,165 - - 160,165
---------------- ----------------- -------------- ----------------
Net increase in cash and cash equivalents 6,372 6,372
Cash and cash equivalents at beginning of
period 74,284 - - 74,284
---------------- ----------------- -------------- ----------------
Cash and cash equivalents at end of period $ 80,656 $ - $ - $ 80,656
================ ================= ============== ================
* Previously reported in Form 10-Q filed by the Authority on May 9, 2002.
See page 19 of the notes to the Authority's financial statements for the
footnotes to this restatement schedule.
18
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Restatement Adjustment footnotes (in thousands):
a. Reclassified an amount due from Tribe of $162 from receivables, net to Due
from Tribe.
b. Reclassified an amount pertaining to the Deferred Compensation Plan of
$2,359 from receivables, net to other current assets.
c. Reclassified increase in construction in process, net to purchase of
property and equipment, net of change in construction payables.
d. Reclassified long-term relinquishment liability of $964 to current portion
of relinquishment liability.
e. Reclassified $1,670 from accounts payable and accrued expenses to
construction payables.
f. Recorded depreciation on additional Project Sunburst and utilities facility
costs placed into service:
1. ($534) for the quarter ended March 31, 2002.
2. $720 for the six months ended March 31, 2002.
3. $1,078 for the year ended September 30, 2001.
4. $1,798 for the period from October 1, 2000 through March 31, 2002.
g. Recorded an adjustment to accruals for construction payables of $31,231
pertaining to Project Sunburst for work completed by March 31, 2002, but
paid subsequent to March 31, 2002:
1. $47,269 to Property and equipment, net
2. ($16,038) to Construction in process
h. Recorded additional capitalized interest pertaining to Project Sunburst:
1. $2,436 for the quarter ended March 31, 2002.
2 $3,788 for the six months ended March 31, 2002.
3. $13,307 for the year ended September 30, 2001.
4. $17,097 for the period from October 1, 2000 through March 31, 2002.
i. Recorded additional interest expense of $826 pertaining to the amortization
of additional debt issuance costs as a result of reducing the Bank Credit
Facility commitment from $500.0 million to $400.0 million.
j. In accordance with SFAS 133, recorded amounts related to unrealized
loss (gain) on derivative instruments to other comprehensive loss:
1. ($800) for the quarter ended March 31, 2002.
2 ($895) for the six months ended March 31, 2002.
3. $3,136 for the year ended September 30, 2001.
4. $2,241 for the period from October 1, 2000 through March 31, 2002.
k. Reclassified expenditures from food and beverage and gaming to marketing,
general and administrative, retail, entertainment and other.
l. Reclassified amortization of debt issuance costs from depreciation and
amortization to interest expense.
1. $1,417 for the quarter ended March 31, 2002.
2. $2,698 for the six months ended March 31, 2002.
m. Reclassified change in fair value of derivative instruments to interest
expense, net of capitalized interest:
1. ($11) for the quarter ended March 31, 2002.
2. $5 for the six months ended March 31, 2002.
n. Reclassified $644 from change in receivables and other assets to change in
construction in process.
o. Reclassified issuance of tenant loans of $1,146, net of payments of $35,
from other assets to issuance of tenant loans and tenant loan payments.
19
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 1
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 cannot 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 is
currently engaged in 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 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, opened 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 March 31, 2002, includes the following two casinos:
20
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;
. an approximately 3,000 square foot, 50-seat Keno lounge; 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;
. the Shops at Mohegan Sun containing approximately 30 different
retail shops, five of which are owned by the Authority.
As of March 31, 2002, Mohegan Sun has parking spaces for approximately
10,000 guests and 3,100 employees. In addition, the Authority operates an
approximately 4,000 square foot, 20-pump gasoline and convenience center located
adjacent to Mohegan Sun.
Additional Mohegan Sun Enhancements
In addition to Project Sunburst, the Authority has scheduled the
following capital improvements to the Mohegan Sun facility:
Parking Garages. The Indian Summer Garage will provide approximately
2,700 additional parking spaces and currently is being constructed. The approved
budget for the construction of the Indian Summer Garage is $65.0 million.
Construction began on the Indian Summer Garage in July 2001, and the Authority
anticipates that the project will be completed in June 2002. A second parking
garage, the Thames Garage, which provides approximately 1,700 additional parking
spaces is expected to be completed in April 2002 at an estimated cost of
$25.0 million.
Project Sunburst Utilities. The Authority is constructing various
utility upgrades and enhancements needed to support Project Sunburst. These
improvements originally were to be financed entirely by the Tribe from the
proceeds of tax-exempt financing. The Tribe, however, subsequently received an
opinion from its outside legal counsel advising it that a portion of the costs
for these improvements would not qualify for tax-exempt financing. Therefore,
the Authority will pay for this portion of the total costs, which we expect will
equal approximately $35.0 million. These improvements were completed
concurrently with the opening of certain components of Project Sunburst in April
2002.
21
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 was later fully reimbursed by the
Tribe. 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:
For the Quarter For the Six Months
Ended March 31, ended March 31,
--------------- ---------------
2002 2001 2002 2001
-------- -------- -------- --------
Gaming ................................. 89% 89% 88% 88%
Food and beverage ...................... 6% 5% 6% 5%
Retail, entertainment and other ........ 5% 6% 6% 7%
-------- -------- -------- --------
Total 100% 100% 100% 100%
======== ======== ======== ========
Slot win. Gross slot win represents all amounts played in the slot
machines reduced by both (1) the winnings paid out and (2) all amounts deposited
by the Authority into the slot machines to ensure sufficient coins in each
machine to pay out the winnings. Progressive slot machines retain some of each
amount wagered and aggregate these amounts with similar amounts from other slot
machines in order to create one-time winnings that are substantially larger than
those paid in the ordinary course. The Authority refers to such aggregated
amounts as progressive jackpots. In-house progressive jackpot amounts are
accrued by the Authority until paid and such accrued amounts are deducted from
gross slot win to arrive at net slot win. Wide-area progressive jackpot amounts
are paid by a third-party vendor and the Authority remits a weekly payment to
the vendor, which is deducted from gross slot win.
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 tenant outlets at the Shops at Mohegan Sun and from a
catalog program, the Sun Select Catalog, which includes vacations, electronics
and gift items, to arrive at net revenues. The estimated cost of providing these
promotional allowances is charged to gaming costs in the following amounts (in
thousands):
22
For the For the For the For the
Quarter Quarter Six Months Six Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2002 2001 2002 2001
-------- -------- --------- -----------
Food and Beverage $ 6,658 $ 5,947 $ 14,622 $ 12,314
Retail, entertainment and other 5,623 6,304 11,777 13,740
-------- -------- -------- --------
Total $ 12,281 $ 12,251 $ 26,399 $ 26,054
======== ======== ======== ========
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, and 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.
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 income/expense. The Adjusted
EBITDA margin is calculated as Adjusted EBITDA as a percentage of net revenue.
Adjusted EBITDA should not be considered as an alternative to any measure of
performance as promulgated under accounting principles generally accepted in the
United States of America (such as operating income or net income), nor should it
be considered as an indicator of the Authority's overall financial performance.
The Authority's calculation of Adjusted EBITDA is likely to be different from
the calculation of EBITDA or similar measurements used by other companies and
therefore comparability may be limited. EBITDA and Adjusted EBITDA are computed
as follows (in thousands):
23
For the For the For the For the
Quarter Quarter Six Months Six Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2002 2001 2002 2001
--------------- --------- --------------- --------------
(restated - see (restated - see
note 7 to the note 7 to the
Authority's Authority'
financial financial
statements) statements)
EBITDA
Net income $ 22,933 $ 43,361 $ 30,740 $ 73,573
Add back:
Interest expense, net of capitalized
interest 16,143 4,249 30,792 10,304
Interest income (117) (576) (240) (1,740)
Income taxes - - - -
Depreciation and amortization 18,062 5,893 35,298 11,534
-------- -------- --------- ---------
EBITDA $ 57,021 $ 52,927 $ 96,590 $ 93,671
-------- -------- --------- ---------
EBITDA Margin 24.3% 28.2% 20.3% 25.3%
Adjustments to EBITDA to
reconcile to Adjusted EBITDA
Pre-opening costs and expenses $ 2,006 $ 1,927 $ 3,663 $ 3,316
Accretion of relinquishment liability
discount 9,084 8,958 18,167 17,916
Other non-operating expense (income) 50 (2) 87 (2)
Discontinued operations - 335 - 527
-------- -------- --------- ---------
Adjusted EBITDA $ 68,161 $ 64,145 $ 118,507 $ 115,428
======== ======== ========= =========
Adjusted EBITDA Margin 29.0% 34.2% 24.9% 31.1%
Accretion of relinquishment liability discount and reassessment of
relinquishment liability. The Authority stopped paying management fees to TCA
due to the termination of the Management Agreement and began recognizing amounts
due under the Relinquishment Agreement beginning January 1, 2000. Under the
Management Agreement, TCA was responsible for the day-to-day management,
operation and maintenance of Mohegan Sun. The Management Agreement authorized
TCA to pay itself a management fee in monthly installments based on 30% to 40%
of net income, before management fees, as defined in the Management Agreement,
depending on profitability levels. Under the Relinquishment Agreement, the
Authority and TCA agreed to terminate the Management Agreement with TCA on
January 1, 2000. To compensate TCA for terminating its management rights, the
Authority agreed to pay to TCA five percent of the revenues, as defined in the
Relinquishment Agreement, generated by Mohegan Sun (including Project Sunburst)
during the 15-year period commencing on January 1, 2000 and ending on December
31, 2014.
The Authority has recorded a relinquishment liability of the estimated
present value of its obligations under the Relinquishment Agreement. The
relinquishment liability is reassessed when necessary to account for material
increases or decreases in projected revenues and quarterly to reflect the impact
on the time value of money due to the passage of time. In addition, the
Authority has capitalized $130.0 million of this relinquishment liability in
connection with the trademark value of the Mohegan Sun brand name. The Authority
adopted Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill
and Other Intangible Assets" ("SFAS 142") on October 1, 2001. Under SFAS 142,
the Mohegan Sun trademark is no longer subject to amortization over its
estimated useful life as it has been deemed to have an indefinite useful life.
However, SFAS 142 requires the trademark to be evaluated at least annually for
impairment by applying a fair-value based test and, if impairment occurs, the
amount of impaired trademark must be written off immediately. With the adoption
of SFAS 142, the Authority no longer records amortization of the trademark. See
Note 6 to the Authority's financial statements for a further discussion of how
the relinquishment liability and related reassessments are calculated.
24
Results of Operations
Comparison of Operating Results for the Quarters Ended March 31, 2002
and 2001:
Net revenues for the quarter ended March 31, 2002 increased by $46.9
million, or 25.0%, to $234.7 million from $187.8 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 March 31, 2002 increased by $4.0
million, or 6.3%, to $68.2 million from $64.1 million for the quarter ended
March 31, 2001. Mohegan Sun achieved a 29.0% Adjusted EBITDA margin for the
quarter ended March 31, 2002 compared to a 34.2% Adjusted EBITDA margin for the
quarter ended March 31, 2001. The decline in the margin was the result of
increased labor, marketing and operating expenses increasing at a greater rate
than revenues. The Authority expects revenues to increase and operating expenses
to decrease as a percentage of revenues as the facility matures and as the
remaining Project Sunburst amenities are opened. However, the Authority relies
heavily on drive-in traffic and the current parking infrastructure is not
sufficient to accommodate peak crowds. The Authority believes that its ability
to host events in the arena on weekends and to otherwise accommodate guests
during peak periods will be limited until the parking enhancements provided by
the Thames Garage and the Indian Summer Garage are fully completed in April 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 13.4% for the quarter
ended March 31, 2002 as compared to the quarter ended March 31, 2001. The State
of Connecticut reported a gross slot win of $359.7 million and $317.2 million
for the quarters ended March 31, 2002 and 2001, respectively. Mohegan Sun
exceeded the market's growth in slot win as it experienced an increase in gross
slot revenues of 21.8% in the quarter ended March 31, 2002 over the quarter
ended March 31, 2001 due to expanded capacity as described below. Gross slot
revenues were $164.8 million and $135.2 million for the quarters ended March 31,
2002 and 2001, respectively. Gross slot win per unit per day was $295 and $496
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
3,030 in the quarter ended March 31, 2001 to approximately 6,199 in the quarter
ended March 31, 2002. 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.
Gaming revenues for the quarter ended March 31, 2002 increased by $40.6
million, or 22.5%, to $221.3 million from $180.6 million for the quarter ended
March 31, 2001. This increase is due to a 20.1% growth in net slot machine
revenues and a 30.4% 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 March 31, 2002
increased by $3.9 million, or 35.4%, to $14.9 million from $11.0 million for the
quarter ended March 31, 2001. This increase is attributable principally to a
29.4% increase in meals served for the quarter ended March 31, 2002, 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 primarily
associated 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 increased by $962,000, or 8.0%, to
$12.9 million for the quarter ended March 31, 2002 from $12.0 million for the
same period in the prior year. Entertainment revenue increased primarily due to
the opening of the Mohegan Sun Arena on September 25, 2001. Additional increases
are attributable to an increase in other revenue associated with the rental
income earned from third party retail tenants in the Shops at Mohegan Sun. The
increase is partially offset by a decrease in retail revenues due to a shift in
patronage from Mohegan Sun operated retail outlets, including the Mohegan Sun
Citgo, to the third party retail tenants in the Shops at Mohegan Sun.
25
Promotional allowances for the quarter ended March 31, 2002 decreased by
$1.4 million, or 8.7%, to $14.5 million from $15.8 million for the quarter ended
March 31, 2001. The decrease in retail and gas complimentaries 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 retail 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 Player's 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 March 31, 2002
increased by $55.1 million, or 41.9%, to $186.6 million from $131.4 million for
the quarter ended March 31, 2001. The majority of the increase is attributable
to additional operating costs and expenses associated with the opening of
Project Sunburst, and $12.2 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 March 31, 2002 increased
by $23.4 million, or 30.1%, to $101.2 million from $77.8 million for the quarter
ended March 31, 2001. The majority of the increase is attributable to additional
labor costs associated with an approximately 90-unit increase in table games and
the addition of approximately 3,200 slot machines associated with the opening of
the Casino of the Sky 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 $41.2 million and $33.8 million, respectively,
for the quarters ended March 31, 2002 and 2001. Also, the point redemption by
Mohegan Sun Player's Club patrons in the third party retail tenant restaurants
and in the Shops at Mohegan Sun resulted in an increase in Mohegan Sun's gaming
expenses for the quarter ended March 31, 2002. Gaming costs and expenses as a
percentage of gaming revenues were 45.7% in the quarter ended March 31, 2002
compared to 43.1% in the same period of the prior year.
Food and beverage costs and expenses for the quarter ended March 31,
2002 increased by $3.2 million, or 53.1%, to $9.1 million from $5.9 million in
expenses for the quarter ended March 31, 2001. 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 and Leffingwell's bar located at the base of Wombi
Rock and the Sachem's Lounge. The opening of these additional outlets resulted
in an increase in the number of meals served, or food covers, from 870,000 in
the quarter ended March 31, 2001 to 1.1 million in the quarter ended March 31,
2002, a 29.4% increase. The net cost of sales for food calculated as a
percentage of food revenue was 33.8% for each of the quarters ended March 31,
2002 and 2001.
Retail, entertainment and other costs and expenses for the quarter ended
March 31, 2002 increased by $168,000, or 2.2%, to $7.7 million from $7.6 million
for the quarter ended March 31, 2001. This increase mainly is attributable to an
increase in entertainment costs associated with events held in the Mohegan Sun
Arena during the quarter ended March 31, 2002. Some of these events included the
National Women's Basketball League Championships, concerts by Janet Jackson and
Anne Murray, Showtime Boxing, and an Ultimate Fighting Championship. Costs
associated with operating the Cabaret, an intimate 300-seat theater in the
Casino of the Sky, also contributed to the increase.
Marketing, general and administrative costs and expenses for the quarter
ended March 31, 2002 increased by $16.1 million, or 49.9%, to $48.5 million from
the $32.4 million for the quarter ended March 31, 2001. This increase is
primarily associated 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 were $2.0 million for the quarter ended March 31, 2002
compared to pre-opening costs and expenses (relating to the opening of the first
phase of Project Sunburst) of $1.9 million for the quarter ended March 31, 2001.
Depreciation and amortization for the quarter ended March 31, 2002
increased by $12.2 million, or 206.5%, to $18.1 million from $5.9 million for
the quarter ended March 31, 2001. This increase was a result of $766.6 million
of assets related to Project Sunburst, including $32.4 million of capitalized
interest being placed in service.
26
Income from operations for the quarter ended March 31, 2002 decreased by
$8.2 million, or 14.6%, to $48.1 million from $56.3 million for the quarter
ended March 31, 2001. 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.
Accretion of the discount associated with the relinquishment liability
reassessment for the quarter ended March 31, 2002 increased by $126,000, or
1.4%, to $9.1 million from $9.0 million for the quarter ended March 31, 2001.
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 the present value using the Authority's current risk free rate of
investment.
Interest income for the quarter ended March 31, 2002 decreased by
$459,000, or 79.7%, to $117,000 from $576,000 in income for the quarter ended
March 31, 2001. 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 $23.8 million and $20.6 million
for the quarters ended March 31, 2002 and March 31, 2001, 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 March 31, 2002 increased by $11.9
million, or 279.9%, to $16.1 million from $4.2 million in expense for the
quarter ended March 31, 2001. Included in interest expense for the quarter ended
March 31, 2002 is a net gain of $811,000 due to the change in the fair value of
the Authority's derivative instruments. For the quarter ended March 31, 2001, a
net loss of $906,000 was recorded. This increase in interest expense mainly is
attributable to higher average debt outstanding and a decrease in the amount of
capitalized interest due to the placing in service of assets related to the
first phase of Project Sunburst. The weighted average outstanding debt was $1.1
billion for the quarter ended March 31, 2002, compared to $595.9 million for the
quarter ended March 31, 2001. Capitalized interest was $5.5 million for the
quarter ended March 31, 2002 compared to $9.6 million for the same period in the
prior year. The weighted average interest rate for the quarter ended March 31,
2002 was 7.4%, compared to 8.2% for the quarter ended March 31, 2001.
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 $335,000 for the quarter ended March 31, 2001. There was no loss from
discontinued operations for the quarter ended March 31, 2002.
Net income for the quarter ended March 31, 2002 decreased by $20.4
million, or 47.1%, to $22.9 million from $43.4 million for the quarter ended
March 31, 2001. The decrease in net income primarily is due to the decrease in
operating income as more fully described above and an increase in interest
expense. The increase in interest expense is mainly attributable to higher
average debt outstanding due to the completion of the first phase of Project
Sunburst in September 2001. The weighted average outstanding debt was $1.1
billion for the quarter ended March 31, 2002, compared to $595.9 million for the
quarter ended March 31, 2001.
Comparison of Operating Results for the Six Months Ended March 31, 2002
and 2001:
Net revenues for the six months ended March 31, 2002 increased by $105.3
million, or 28.4%, to $476.2 million from $370.9 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 six months ended March 31, 2002 increased by
$3.1 million, or 2.7%, to $118.5 million from $115.4 million for the six months
ended March 31, 2001. Mohegan Sun achieved a 24.9% Adjusted EBITDA margin for
the six months ended March 31, 2002 compared to a 31.1% adjusted EBITDA margin
for the six months ended March 31, 2001. The decline in the 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 the national recession and the tragic events of September 11,
2001. The Authority expects revenues to increase and operating expenses to
decrease as a percentage of revenues as the facility matures and as the
remaining amenities are opened. However, the Authority relies heavily on
drive-in traffic and the current parking infrastructure is not sufficient to
accommodate peak crowds. The Authority believes that its ability to host events
in the arena on weekends and to otherwise accommodate guests during peak periods
will be limited until the parking enhancements provided by the Thames Garage and
the Indian Summer Garage are fully completed in April and June 2002,
respectively. Accordingly, operating revenues and margins are expected to be
negatively impacted until the fourth quarter of 2002. See
27
"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 14.5% for the six months
ended March 31, 2002 as compared to the six months ended March 31, 2001. The
State of Connecticut reported a gross slot win of $717.9 million and $626.8
million for the six months ended March 31, 2002 and 2001, respectively. Mohegan
Sun exceeded the market's growth in slot win as it experienced an increase in
gross slot revenues of 26.0% in the six months ended March 31, 2002 over the six
months ended March 31, 2001 due to expanded capacity as described below. Mohegan
Sun gross slot revenues were $336.6 million and $267.2 million for the six
months ended March 31, 2002 and 2001, respectively. Gross slot win per unit per
day was $298 and $484 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
year over year from approximately 3,032 in the six months ended March 31, 2001
to approximately 6,209, in the six months ended March 31, 2002. The increase in
weighted average slot machines primarily is attributable 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.
Gaming revenues for the six months ended March 31, 2002 increased by
$92.6 million, or 26.0%, to $448.1 million from $355.6 million for the six
months ended March 31, 2001. This increase is due to a 25.1% growth in net slot
machine revenues and a 30.2% 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 six months ended March 31, 2002
increased by $10.3 million, or 47.2%, to $32.0 million from $21.8 million for
the six months ended March 31, 2001. This increase in food and beverage revenues
is attributable principally to a 34.1% increase in meals served for the six
months ended March 31, 2002, 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 primarily associated 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 for the six months ended March
31, 2002 decreased by $988,000, or 3.5%, to $27.6 million from $28.6 million for
the six months ended March 31, 2001. Retail revenue decreased $4.3 million due
to a shift in patronage from Mohegan Sun operated outlets, including the Mohegan
Sun Citgo, to the tird party retail tenants in the Shops at Mohegan Sun. The
decrease was partially offset by an increase of $3.5 million in entertainment
and other revenue due to the opening of the Mohegan Sun Arena on September 25,
2001 and the rental income earned from third party retail tenants in the Shops
at Mohegan Sun.
Promotional allowances for the six months ended March 31, 2002
decreased by $3.4 million, or 9.8%, to $31.6 million from $35.0 million for the
six months ended March 31, 2001. The decrease is attributable to the shift in
patronage from Mohegan Sun managed retail outlets to the third party retail
tenants in the Shops at Mohegan Sun. The expenses related to the Shops at
Mohegan Sun are included gaming expenses. Effective with the opening of the
first phase of Project Sunburst, members of the Mohegan Sun Player's Club were
eligible to redeem points at these third party tenants in the Shops at Mohegan
Sun.
Total operating costs and expenses for the six months ended March 31,
2002 increased by $126.3 million, or 46.7%, to $396.6 million from $270.3
million during the six months ended March 31, 2001. The majority of the increase
is attributable to additional operating costs associated with the opening of
Project Sunburst and $23.8 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 six months ended March 31, 2002
increased by $51.5 million, or 33.0%, to $207.7 million from $156.2 million for
the six months ended March 31, 2001. The majority of the increase is
attributable to additional labor costs associated with an approximately 90-unit
increase in table games and the addition of approximately 3,200 slot machines
associated with the opening of the first phase of Project Sunburst and the Hall
of the Lost Tribes. The point redemption by Mohegan Sun Player's Club patrons in
the tenant Shops at Mohegan Sun resulted in an increase in Mohegan Sun's gaming
expenses for the six months ended March 31, 2002. Gaming costs and expenses as a
percentage of gaming revenues were 46.3% in the six months ended March 31, 2002
compared to 43.9% in the same period of the prior year.
28
Food and beverage costs and expenses for the six months ended March 31,
2002 increased by $7.0 million, or 58.2%, to $19.0 million from $12.0 million
for the six months ended March 31, 2001. These increases are the result of
higher food and beverage operating costs, particularly labor costs and other
operating expenses due to the September 25, 2001 opening of the Rising Moon
Gallery of Eateries, a 350-seat Sunburst Buffet, Fidelia's, Rain and Tuscany,
the arena concessions, the Cabaret bar and Leffingwell's bar located on the at
the base of Wombi Rock and the Sachems lounge. The opening of these additional
outlets resulted in an increase in the number of meals served, or food covers,
from 1.8 million in the six months ended March 31, 2001 to 2.4 million in the
six months ended March 31, 2002, a 34.1% increase. The net cost of sales for
food as calculated as a percentage of food revenue decreased to 34.9% in the six
months ended March 31, 2002 from 35.3% in the six months ended March 31, 2001.
Retail, entertainment and other costs and expenses for the six months
ended March 31, 2002 increased by $4.8 million, or 30.8%, to $20.2 million from
$15.5 million for the six months ended March 31, 2001. This increase mainly is
attributle to an increase in entertainment costs associated with events held in
the Mohegan Sun Arena in the six months ended March 31, 2002. The first event
held in the Mohegan Sun Arena on October 26, 2001 was a pre-season NBA
basketball game with Michael Jordan and the Washington Wizards. Additional
events included the National Women's Basketball League Championships, concerts
with Janet Jackson, Tim McGraw, Gloria Estefan, Aerosmith, Julio Iglesias, Toby
Keith, Bob Dylan and Anne Murray, Polkapalooza, Showtime Boxing, 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, Betty Buckley, Shirley Jones and Jack Jones, to comics, such as
Phyllis Diller, Nell Carter and the Amazing Kreskin.
Marketing, general and administrative costs and expenses for the six
months ended March 31, 2002 increased by $38.9 million, or 54.2%, to $110.7
million from the $71.8 million for the six months ended March 31, 2001. This
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 23, 2002
partial opening of the Mohegan Sun hotel were $3.7 million for the six months
ended March 31, 2002 compared to pre-opening costs and expenses (relating to the
opening of the first phase of Project Sunburst) of $3.3 million for the six
months ended March 31, 2001.
Depreciation and amortization for the six months ended March 31, 2002
increased by $23.8 million, or 206.0%, to $35.3 million for the six months ended
March 31, 2002 from $11.5 million for the six months ended March 31, 2001. This
increase was a result of $766.6 million of assets related to Project Sunburst,
including $32.4 million of capitalized interest, being placed in service.
Income from operations for the six months ended March 31, 2002
decreased by $21.0 million, or 20.9%, to $79.5 million from $100.6 million for
the six months ended March 31, 2001. This decrease is attributable to increases
in costs and expenses associated with the expansion of Mohegan Sun, including
increased staffing levels and 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 six months ended March 31, 2002 increased by $251,000, or
1.4%, to $18.2 million from $17.9 million for the same period in the prior year.
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 the present value using the Authority's current risk free rate of
investment.
Interest income for the six months ended March 31, 2002 decreased by
$1.5 million, or 86.2%, to $240,000 from $1.7 million for the six months ended
March 31, 2001. The decrease in interest income resulted from the liquidation of
investments to fund Project Sunburst plus a decline in the return on the
invested assets. The weighted average invested cash was $18.2 million and $21.3
million for the six months ended March 31, 2002 and March 31, 2001,
respectively. The Authority invests in investment-grade commercial paper having
maturities of not more than six months from the date of acquisition.
29
Interest expense for the six months ended March 31, 2002 increased
$20.5 million, or 198.8%, to $30.8 million from $10.3 million for the six months
ended March 31, 2001. Included in interest expense for the six months ended
March 31, 2002 is a net gain of $890,000 due to the change in the fair value of
its derivative instruments. For the six months ended March 31, 2001, a net loss
of $2.4 million was recorded. This increase in interest expense is attributable
mainly to higher average debt outstanding and a decrease in the amount of
capitalized interest due to the placing in service of assets related to the
first phase of Project Sunburst. The weighted average outstanding debt was $1.0
billion for the six months ended March 31, 2002, compared to $550.3 million for
the six months ended March 31, 2001. Capitalized interest was $10.1 million for
the six months ended March 31, 2002 compared to $16.7 million for the same
period in the prior year. The weighted average interest rate for the six months
ended March 31, 2002 was 7.27%, compared to 8.31% for the six months ended March
31, 2001.
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 $527,000 for the six months ended March 31, 2001. There was no loss from
discontinued operations for the six months ended March 31, 2002.
Net income for the six months ended March 31, 2002 decreased by $42.8
million, or 58.2%, to $30.7 million from $73.6 million for the same period in
the prior year. The decrease in net income primarily is due to the decrease in
operating income as described more fully above and an increase in interest
expense. The increase in interest expense is attributable mainly to higher
average debt outstanding due to the completion of the first phase of Project
Sunburst in September 2001. The weighted average outstanding debt was $1.0
billion for the six months ended March 31, 2002, compared to $550.3 million for
the six months ended March 31, 2001.
Liquidity, Capital Resources and Capital Spending
As of March 31, 2002, the Authority held cash and cash equivalents of
$80.7 million, an increase of $6.4 million from $74.3 million as of September
30, 2001. This increase is attributable mainly to the increase in cash on hand
requirements related to the opening of the Casino of the Sky. Cash provided by
operating activities for the six months ended March 31, 2002 decreased by $20.5
million, or 24.8%, to $62.3 million from $82.8 million for the six months ended
March 31, 2001. This decrease in cash provided by operating activities is
attributable to a decrease in net income, partially offset by lower working
capital needs.
Operating activities are the principal source of the Authority's cash
flows. The principal application of these funds was capital expenditures
incurred in connection with the construction and development of Project Sunburst
and other real property improvements. While the Authority does not believe that
there is any trend or a likelihood of an event that would adversely impact the
level of cash generated by its activities, there are numerous potential factors
which may cause a substantial reduction in the amount of cash flow, including,
but not limited to the following:
. downturn in the economy and lack of consumer confidence, which would
result in reduced spending on discretionary items such as gaming
activities;
. an act of terrorism on the United States of America;
. substantial cost overruns in connection with the completion of
Project Sunburst;
. operating expenses increasing at a greater rate than revenue; and
. increased competition in the gaming industry, or the legalization of
gaming activities in the State of Connecticut, which may result in a
substantial decrease in revenue.
In addition to cash generated by operating activities, the Authority
has relied on external sources of liquidity to meet its operating and investing
requirements.
External Sources of Liquidity
Bank Credit Facility. On March 26, 2002, the Authority reduced the
commitment amount on its $500.0 million reducing, revolving, collateralized
credit facility (the "Bank Credit Facility"), which will mature in March 2004 to
$400.0 million from $500.0 million (see Third Amendment below). The Authority
draws on the Bank Credit Facility primarily in connection with the major
30
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, or 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 March 31, 2002, one-month
LIBOR, was 1.88% and the applicable spread on a LIBOR loan was 2.625%. 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 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 March 31, 2002. Accrued interest on the Bank Credit
Facility was $148,000 at March 31, 2002.
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 September 30, 2002, and on the last day of each fiscal
quarter thereafter, by 10% of the commitment as in effect immediately prior to
the first such reduction.
The Bank Credit Facility contains various provisions that require the
Authority to maintain specified financial ratios. If the Authority's revenue
declines due to economic or competitive factors, or if there is a substantial
cost overrun in connection with the completion of Project Sunburst, it is
possible that these financial ratios may be violated. If this were to happen,
the Authority would not be able to borrow additional funds under the Bank Credit
Facility and it may even result in an event of default, which could accelerate
the payment of any outstanding balance. In addition, while the Authority has
entered into some hedging transactions to mitigate against its exposure to
interest rate fluctuations on the Bank Credit Facility, the majority of the
outstanding balance is subject to interest rate fluctuations. As the economy
rebounds, it is possible that the interest rate will start to increase, which
would mean that the Authority's interest cost may increase significantly. A
substantial increase in interest expense could have a negative effect on the
Authority's liquidity. For a further discussion on hedging transactions that
mitigate against this exposure, see "Quantitative and Qualitative Disclosure of
Market Risk" and Note 3 to the Authority's unaudited financial statements as of
March 31, 2002.
Recent Amendments to the Bank Credit Facility. On February 8, 2002 the
Authority received the requisite consent of its lenders for Amendment No. 2 to
its Bank Credit Facility. The amendment revised several of the restrictive
covenants governing the Authority's activities and finances.
On February 20, 2002, the Authority issued $250.0 million Senior
Subordinated Notes with fixed interest payable at a rate of 8.0% per annum (the
"2002 Senior Subordinated Notes"), net proceeds of which were used to pay down a
portion of the outstanding balance under the Bank Credit Facility.
On March 26, 2002, the Authority received the requisite consent of its
lenders for Amendment No. 3 to its Bank Credit Facility. The amendment reduced
the lenders' commitment from $500.0 million to $400.0 million effective March
26, 2002, and changed the first scheduled commitment reduction date to September
30, 2002 from March 31, 2002.
Capital Expenditures
Capital Expenditures Incurred to Date. Capital expenditures totaled
$164.7 million including capitalized interest for the six months ended March 31,
2002, versus $279.8 million for the same period in the prior year. These capital
expenditures were an aggregate of the following:
. Cumulative Project Sunburst construction expenses totaled $1.0
billion, including $61.2 million in capitalized interest and net of
2.1 million expensed or recorded as inventory, through March 31,
2002. During the six months ended March 31, 2002, expenditures
totaled $88.6 million, including $10.1 million in capitalized
interest and net of $780,000 expensed or recorded as inventory,
31
versus $257.9 million, including $16.7 million in capitalized
interest, expended during the six months ended March 31, 2001.
. Property maintenance capital expenditures for furniture, fixtures
and equipment totaled $16.8 million and $12.1 million for the six
months ended March 31, 2002 and March 31, 2001, respectively.
. Capital expenditures on the Authority's electrical and water
systems infrastructure improvements totaled $2.8 million and $3.9
million for the six months ended March 31, 2002 and March 31, 2001,
respectively. Cumulative infrastructure improvements totaled $35.0
million as of March 31, 2002. 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 $37.1 million for the six
months ended March 31, 2002. The Authority did not incur any capital
expenditures for the Indian Summer Garage for the six months ended
March 31, 2001. Cumulative expenditures totaled $46.8 million as of
March 31, 2002. The Indian Summer Garage is expected to open in June
2002.
. Capital expenditures for the $25.0 million, 1,700-space Thames
Garage totaled $18.3 million for the six months ended March 31,
2002. The Authority did not incur any capital expenditures for the
construction of the Thames Garage for the six months ending March
31, 2001. The Thames Garage opened in April 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 $499,000 for the six months ending March 31,
2002. Expenditures for the construction of the Hall of the Lost
Tribes for the six months ending March 31, 2001 totaled $4.7
million. Cumulative expenditures for the Hall of the Lost Tribes
totaled $15.4 million as of March 31, 2002. Construction is now
complete.
. 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 six months ended March 31, 2002 as construction of the facility
is complete. Capital expenditures associated with the Employee
Parking Garage were $1.2 million for the six months ended March 31,
2001.
Other Reservation Enhancements
. Capital expenditures for the construction of the employee day care
facility were $554,000 during the six months ended March 31, 2002
and cumulative expenditures on the employee day care facility
reached $1.1 million as of March 31, 2002. The Authority did not
incur any construction expenses in conjunction with the employee day
care facility for the six months ended March 31, 2001. The
Authority's expenditure of $1.1 million has been fully reimbursed by
the Tribe. The Tribe will pay all future expenditures related to
this project and will operate it when opened.
In keeping with standard practice in the construction industry, the
Authority retains a portion of the construction expenditures until satisfactory
completion of individual contracts. As of March 31, 2002, construction retainage
totaled $16.3 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 $60.5 million and to be allocated as follows:
32
. $6.6 million on maintenance capital expenditures.
. $32.6 million on Project Sunburst construction.
. $14.6 million on the Indian Summer parking garage.
. $6.7 million on the Thames Garage.
Project Sunburst
During the quarter ended March 31, 2002, the Tribe received a
notification from TCA, the developer of Project Sunburst, indicating that the
cost of completing Project Sunburst is estimated to be $1.0 billion, excluding
capitalized interest, which represents an increase of $40.0 million over the
previous estimate of $960.0 million. TCA indicated that the $40.0 million
increase relates to scope changes to the Mohegan Sun retail program amounting to
$10.0 million and acceleration costs related to the early opening of the Casino
of the Sky and the extended hotel tower completion date in the amount of $12.0
million. The balance of the increase relates to theming and quality improvements
and claims reserves in the amount of $18.0 million. Mohegan Sun currently
anticipates obtaining $25.0 million in operating lease financing to fund a
portion of the cost overrun and will increase its 2002 maintenance capital
expenditures by $15.0 million to the maximum authorized spending of $35.0
million to fund the balance of the overrun out of operating cash flows. As of
March 31, 2002, the Authority spent $967.4 million, excluding capitalized
interest, on Project Sunburst. The remaining $32.6 million (of which $15.0
million will be categorized as maintenance capital expenditures) is anticipated
to be spent during the remainder of fiscal year 2002.
As of March 31, 2002, cumulative capitalized interest for Project
Sunburst construction expenses totaled $61.2 million. Capitalized interest
totaled $5.5 million and $9.6 million for the quarter ended March 31, 2002 and
2001, respectively. Capitalized interest totaled $10.1 million and $16.7 million
for the six months ended March 31, 2002 and 2001, 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. In
addition, the Authority expects to complete a $25.0 million operating lease
transaction to fund a portion of the cost overrun. 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, its ability to draw down on the Bank Credit Facility, and
the successful completion of the operating lease transaction.
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 $585.7
million as of March 31, 2002. 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. The Authority has capitalized $130.0 million of the relinquishment
liability associated with the trademark value of the Mohegan Sun brand name. For
the six months ended March 31, 2002, the Authority paid $24.5 million in
relinquishment payments, of which $6.4 million represents principal amounts and
the remaining $18.1 million is payment for the accretion of interest. As of
March 31, 2002, relinquishment payments earned but unpaid were $12.5 million.
During the six months ended March 31, 2001, the Authority paid $21.0 million in
Senior Relinquishment Payments consisting of $6.3 million in principal amounts
and $14.7 million for the accretion of interest.
Distributions to the Tribe
33
During the quarter and six months ending March 31, 2002, the Authority
distributed $9.7 million and $16.7 million, respectively, to the Tribe. The
Authority distributed $10.0 million and $20.0 million, respectively, to the
Tribe for the quarter and six months ended March 31, 2001.
Debt Service Costs
For the quarter and six months ended March 31, 2002 and March 31, 2001 the
Authority incurred the following debt service costs (in thousands):
For the For the For the Six For the Six
Quarter Ended Quarter Ended Months Ended Months Ended
March 31, 2002 March 31, 2001 March 31, 2002 March 31, 2001
---------------- -------------- ---------------- --------------
(restated - see (restated - see
note 7 to the note 7 to the
Authority's Authority's
financial financial
statements) statements)
Bank Credit Facility $ 4,309 $ 1,087 $ 8,561 $ 1,087
$200M 8.125% Senior Notes 4,062 4,062 8,125 8,125
$300M 8.75% Senior Subordinated Notes 6,562 6,562 13,125 13,125
$150M 8.375% Senior Subordinated Notes 3,141 - 6,281 -
$250M 8% Senior Subordinated Notes 2,167 - 2,167 -
Change in fair value of derivative instruments (811) 906 (890) 2,403
Financing fees 2,243 1,114 3,524 2,094
Capital lease obligations - 77 9 188
Capitalized interest (5,530) (9,559) (10,110) (16,718)
-------- -------- -------- --------
Total Interest Expense $ 16,143 $ 4,249 $ 30,792 $ 10,304
======== ======== ======== ========
Sufficiency of Resources
The Authority believes that existing cash balances, financing arrangements
and operating cash flow will provide the Authority with sufficient resources to
meet its existing debt obligations, relinquishment payments, distributions to
the Tribe and foreseeable capital expenditure requirements with respect to
current operations and Project Sunburst for at least the next twelve months.
Nonetheless, as discussed above, there are potential events or occurrences that
may affect adversely the Authority's ability to meet its existing debt
obligations, make relinquishment payments and distributions to the Tribe and pay
for capital expenditures.
Contractual Obligations and Commitments
The Authority's future payment obligations related to its material debt and
certain other contractual obligations and the timing of those payments are set
forth below. Since many of these payment amounts are not fixed, the amounts in
the table below are solely estimates as more fully described in the footnotes
and the actual amounts may be different.
Contractual Obligations Fiscal Year
(in thousands) 2002(1) 2-3 years 4-5 years After 5 years
-----------------------------------------------------------------------------------------
Long-term debt (2) $114,648 $143,352 $200,000 $700,000
Construction obligations (3) 157,239 - - -
Development obligations (4) 4,718 - - -
-------------------------------------------------------
Total $276,605 $143,352 $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
34
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.
Fiscal
Contractual Commitments Year
(in thousands) 2002(1) 2-3 years 4-5 years After 5 years
---------------------------------------------------------------------------------------------------
Slot winning payment commitments (2) 187,388 402,144 434,959 1,184,902
Relinquishment commitments (3) 58,478 131,341 142,058 578,699
Priority distributions (4) 14,882 31,282 33,420 93,889
------------------------------------------------------
Total $260,748 $564,767 $610,437 $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 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 six months ended
March 31, 2002, the Authority paid $7.7 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
35
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 ("SFAS") No. 5 "Accounting for
Contingencies," has recorded a relinquishment liability of the estimated present
value of its obligations under the Relinquishment Agreement. The Authority
reassesses the relinquishment liability when necessary to account for material
increases or decreases in projected revenues and quarterly to reflect the impact
on the time value of money due to the passage of time. Since there is a high
level of estimates and judgments used with respect to calculating this
liability, future events that affect such estimates and judgments may cause the
actual liability to differ significantly from the estimate.
The Authority recognizes 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 trademark is evaluated periodically for impairment by applying a fair-value
based test and, if impairment occurs, the amount of impaired trademark will be
written off immediately. The Authority applied the initial fair value test and
determined that no impairment existed at March 31, 2002.
The Authority maintains accruals for health and 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
36
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 or Disposal of Long-Lived
Assets" ("SFAS 144"). SFAS 144 modifies the rules for accounting for the
impairment or disposal of long-lived assets. The new rules become effective for
fiscal years beginning after December 15, 2001, with earlier application
encouraged. The Authority has not yet adopted, and has not yet quantified the
impact of implementing SFAS 144 on the Authority's financial statements, but
does not anticipate a negative effect on the Authority's financial position,
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 and
six months ended March 31, 2001, the Authority recorded $859,000 and $1.7
million, respectively, related to the amortization of the trademark. The
Authority applied the initial fair value test and determined that no impairment
existed at March 31, 2002. Had SFAS 142 been in effect in these periods, the
Authority's results would have been as follows (in thousands):
For the Quarter For the Quarter For the Six Months For the Six Months
Ended March 31, Ended March 31, Ended March 31, Ended March 31,
2002 2001 2002 2001
-------------------- ------------------- --------------------- -------------------
(restated - (restated -
see note 7 to the see note 7 to the
Authority's Authority's
financial financial
statements) statements)
Net income $ 22,933 $ 43,361 $ 30,740 $ 73,573
Trademark amortization - 859 - 1,718
-------------------- ------------------- --------------------- --------------------
As adjusted net income $ 22,933 $ 44,220 $ 30,740 $ 75,291
==================== =================== ===================== ====================
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements 4, 44, and 64, Amendment of FASB Statement 13, and Technical
Corrections as of April 2002" ("SFAS 145"). The key provision of SFAS 145 which
will affect the Authority rescinds the existing rule that all gains or losses
from the extinguishment of debt should be classified as extraordinary items.
Instead, such gains and losses must be analyzed to determine if they meet the
criteria for extraordinary item classification based on the event being both
unusual and infrequent. The Authority will adopt SFAS 145 beginning October 1,
2002. Prior period gains and losses must be analyzed to determine if they meet
the criteria to be classified as extraordinary items. If they fail to meet the
criteria, prior period gains and losses must be reclassified. The Authority has
not yet quantified the impact of implementing SFAS 145.
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 $400.0 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 March 31, 2002, the Authority had drawn $199.0 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.
37
The following table provides information about the Authority's
derivative instruments at March 31, 2002:
Estimated
Maturity Date Notional Value Fair Value
------------- -------------- ----------
Interest Rate Cap
Strike Rate - 8% October 1, 2003 $69,883,000 $1,300
Interest Rate Collar
Ceiling Strike Rate - 8%
Floor Strike Rate - 6% March 1, 2004 79,063,800 (2,383,757)
Interest Rate Swap
Pay fixed - 6.35%
Receive Variable March 1, 2004 39,531,900 (1,314,262)
------------ -----------
Total $188,478,700 $(3,696,719)
============ ===========
All derivative instruments are based upon one-month LIBOR which was 1.88% at
March 31, 2002.
38
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
On February 12, 2002, the Authority filed a Form 8-K regarding
Amendment No. 2 to its Bank Credit Facility. The amendment revised
several of the restrictive covenants governing the Authority's
activities and finances.
On March 26, 2002, the Authority filed a Form 8-K regarding Amendment
No. 3 to its Bank Credit Facility. The amendment reduced the lenders'
commitment from $500.0 million to $400.0 million effective March 26,
2002, and changed the first scheduled commitment reduction date to
September 30, 2002 from March 31, 2002.
39
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 Office
Date: November 12, 2002
________________________ By: /s/ Jeffrey E. Hartmann
-----------------------------------------
Jeffrey E. Hartmann, Executive Vice President
Finance/Chief Financial Officer
(Principal Financial and Accounting Officer)
40
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
41
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
42
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%
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 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
43
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).
4.11 Indenture dated as of February 20, 2002 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%
Senior Subordinated Notes Due 2012 of the Mohegan Tribal Gaming
Authority (filed as Exhibit 4.12 to Registration Statement on Form
S-4, File No. 333-84984, filed with the SEC on March 27, 2002 (the
"2002 Form S-4") and incorporated by reference herein.
4.12 Form of Global 8% Senior Subordinated Notes Due 2012 of the Mohegan
Tribal Gaming Authority (contained in the Indenture filed as Exhibit
4.12 to the 2002 Form S-4 and incorporated by reference herein).
4.13 Registration Rights Agreement dated February 20, 2002 among the
Mohegan Tribal Gaming Authority, Banc of America Securities LLC,
Salomon Smith Barney Inc., Fleet Securities, Inc., SG Cowen
Securities Corporation, Commerzbank Securities, McDonald Investments
Inc., Wells Fargo Brokerage Services, LLC, and Credit Lyonnais
Securities (filed as Exhibit 4.14 to the 2002 Form S-4 and
incorporated by reference herein).
10.1 Amendment No. 2 to the Loan Agreement dated as of February 12, 2002
by and among the Mohegan Tribal Gaming Authority, the Mohegan Tribe
of Indians of Connecticut and Bank of America National Trust and
Savings Associated (filed by the Authority with its Current Report
on Form 8-K dated February 12, 2002 and incorporated by reference
herein).
10.2 Amendment No. 3 to the Loan Agreement dated as of March 26, 2002 by
and among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of
Indians of Connecticut and Bank of America National Trust and
Savings Associated (filed by the Authority with its Current Report
on Form 8-K dated March 26, 2002 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.
44