-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RbYZ59J/ftbb9+QHl1ewPFNaRkaVHIL8tLF6KIACvsOZRMqKVbP47xgeB8nDFi6j 41bCGC7vJ6DYwQuQPoMeVg== 0000928385-02-003555.txt : 20021112 0000928385-02-003555.hdr.sgml : 20021111 20021112165842 ACCESSION NUMBER: 0000928385-02-003555 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20021112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOHEGAN TRIBAL GAMING AUTHORITY CENTRAL INDEX KEY: 0001005276 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEMBERSHIP SPORTS & RECREATION CLUBS [7997] IRS NUMBER: 061436334 FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 033-80655 FILM NUMBER: 02817756 BUSINESS ADDRESS: STREET 1: 27 CHURCH LANE CITY: UNCASVILLE STATE: CT ZIP: 06382 BUSINESS PHONE: 2038480545 10-Q/A 1 d10qa.txt FORM 10-Q/A 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: June 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to _____________ Commission file number 033-80655 MOHEGAN TRIBAL GAMING AUTHORITY (Exact name of registrant as specified in its charter) Connecticut 06-1436334 (State or other jurisdiction of (IRS employer incorporation or organization) Identification No.) One Mohegan Sun Boulevard, Uncasville, CT 06382 (Address of principal executive offices) (Zip Code) 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 ----- ----- 1 EXPLANATORY NOTE The Mohegan Tribal Gaming Authority (the "Authority") has restated its financial statements for the quarterly periods ended December 31, 2000, March 31, 2001, June 30, 2001, December 31, 2001, March 31, 2002 and June 30, 2002 and for the fiscal year ended September 30, 2001. As more fully described in Note 9, this Form 10-Q/A includes in Item 1 of Part I the restated information and related footnotes thereto for the quarter and nine months ended June 30, 2001 and other information relating to such restated financial statements. Item 2 of Part I also includes the Authority's amended and restated discussion and analysis of financial condition and results of operations. Except for Part I, Item 6 of Part II and the addition of the certifications required under Sections 302 (as further described in Rule 15d 14 issued by the Securities and Exchange Commission) and 906 of the Sarbanes-Oxley Act of 2002, no other information included in the original report on Form 10-Q is amended by this amendment. The information contained herein is as of June 30, 2001 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 quarterly period and which were disclosed therein. For information regarding subsequent events, please refer to the Authority's Quarterly Reports on Forms 10-Q and 10-Q/A and Annual Reports on Forms 10-K and 10-K/A filed with respect to periods after June 30, 2001. MOHEGAN TRIBAL GAMING AUTHORITY INDEX TO FORM 10-Q/A
PART I. FINANCIAL INFORMATION Page Number ------ Item 1. Financial Statements. Report of Independent Accountants by PricewaterhouseCoopers LLP. 1 Report of Independent Accountants by Arthur Andersen LLP. 2 Balance Sheets of Mohegan Tribal Gaming Authority as of June 30, 2001 (unaudited) and September 30, 2000. 3 Statements of Income of Mohegan Tribal Gaming Authority for the Quarters and Nine 4 Months Ended June 30, 2001 and 2000 (unaudited). Statements of Changes in Capital of Mohegan Tribal Gaming Authority for the Quarters 5 and Nine Months Ended June 30, 2001 and 2000 (unaudited). Statements of Cash Flows of Mohegan Tribal Gaming Authority for the Nine Months Ended 6 June 30, 2001 and 2000 (unaudited). Notes to Financial Statements of Mohegan Tribal Gaming Authority. 7-21 Item 2. Management's Discussion and Analysis of Financial Condition and Results of 22-36 Operations. Item 3. Quantitative and Qualitative Disclosure of Market Risk. 37 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. 38 Signatures. Mohegan Tribal Gaming Authority. 39 Certifications. 40
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 June 30, 2001, the related statements of income and of changes in capital for the quarter and nine-month period ended June 30, 2001 and the related statement of cash flows for the nine-month period ended June 30, 2001. These financial statements are the responsibility of the Authority's management. The Authority's financial statements for the quarter and nine-month period ended June 30, 2000 were reviewed by other independent accountants who have ceased operations. Those independent accountants indicated that they were not aware of any material modifications that should be made to those financial statements for them to be in conformity with accounting principles generally accepted in the United States in their report dated August 8, 2001. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements as of June 30, 2001 and for the quarter and nine-month period then ended for them to be in conformity with accounting principles generally accepted in the United States of America. As described in Note 9 to the financial statements, the Authority has restated its financial statements as of June 30, 2001 and for the quarter and nine-month period then ended, previously reviewed by other independent accountants who have ceased operations. /s/ PRICEWATERHOUSECOOPERS LLP Hartford, CT November 11, 2002 1 THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP (ANDERSEN) AND HAS NOT BEEN REISSUED BY ANDERSEN. REVIEW REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Mohegan Tribal Gaming Authority: We have reviewed the accompanying balance sheet of the Mohegan Tribal Gaming Authority ("the Authority") as of June 30, 2001*, and the related statements of income for the quarter and nine month periods ended June 30, 2001* and 2000 and the statements of capital and cash flows for the nine months ended June 30, 2001* and 2000. These financial statements are the responsibility of the Authority's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States. We have previously audited, in accordance with auditing standards generally accepted in the United States, the balance sheet of the Mohegan Tribal Gaming Authority as of September 30, 2000, and the related statements of income (loss), capital and cash flows for the three years then ended (not presented separately herein) and in our report dated December 1, 2000, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet of the Mohegan Tribal Gaming Authority as of September 30, 2000, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. /s/ ARTHUR ANDERSEN LLP Hartford, Connecticut August 8, 2001 *Subsequent to the date of this report, the Authority's balance sheet as of June 30, 2001 and the related statements of income and of capital for the quarter and nine month period ended June 30, 2001, and the related statement of cash flows for the nine month period ended June 30, 2001 were reviewed by other independent accountants whose report appears on page 1. 2 Mohegan Tribal Gaming Authority Balance Sheets (in thousands)
June 30, 2001 (unaudited) September 30, 2000 ------------------------- ------------------- (restated - see note 9) ASSETS ------ Current assets: Cash and cash equivalents $ 76,239 $ 115,731 Receivables, net 6,367 5,490 Due from Tribe 27,637 1,648 Inventories 9,217 7,577 Other current assets 7,428 5,325 ----------- ----------- Total current assets 126,888 135,771 Non-current assets: Property and equipment, net 360,429 338,243 Construction in process 682,925 264,999 Trademark, net 120,551 123,128 Other assets, net 21,177 23,238 ----------- ----------- Total assets $ 1,311,970 $ 885,379 =========== =========== LIABILITIES AND CAPITAL ----------------------- Current liabilities: Current portion of capital lease obligations $ 1,739 $ 4,055 Current portion of relinquishment liability 62,933 56,646 Accounts payable and accrued expenses 52,723 45,811 Construction payables 69,762 11,790 Accrued interest payable 21,540 10,625 ----------- ----------- Total current liabilities 208,697 128,927 Non-current liabilities: Long-term debt 774,000 500,000 Relinquishment liability, net of current portion 610,700 616,234 Capital lease obligations, net of current portion 222 2,336 Other long-term liabilities 2,778 - ----------- ----------- Total liabilities 1,596,397 1,247,497 ----------- ----------- Commitments and contingencies (Note 7) Capital: Retained deficit (283,256) (362,118) Accumulated other comprehensive loss (1,171) - ----------- ----------- Total capital (284,427) (362,118) ----------- ----------- Total liabilities and capital $ 1,311,970 $ 885,379 =========== ===========
The accompanying notes to financial statements should be read in conjunction with the financial statements 3 Mohegan Tribal Gaming Authority Statements of Income (in thousands)
For the For the For the For the Quarter Quarter Nine Months Nine Months Ended Ended Ended Ended June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000 (unaudited) (unaudited) (unaudited) (unaudited) ----------------- --------------- ------------------ ------------------- (restated- see (restated- see note 9) note 9) Revenues: Gaming $ 192,053 $ 177,993 $ 547,616 $ 518,512 Food and beverage 12,849 11,242 34,610 34,239 Retail, entertainment and other 14,014 12,286 42,590 38,319 --------- --------- --------- --------- Gross revenues 218,916 201,521 624,816 591,070 Less - Promotional allowances (18,374) (16,712) (53,404) (50,741) --------- --------- --------- --------- Net revenues 200,542 184,809 571,412 540,329 --------- --------- --------- --------- Operating costs and expenses: Gaming 86,965 78,108 243,123 225,527 Food and beverage 6,442 5,565 18,462 17,429 Retail, entertainment and other 7,002 3,771 22,476 15,896 Marketing, general and administrative 32,009 32,094 103,798 98,120 Pre-opening costs and expenses 3,724 1,381 7,040 3,398 Management fees - - - 13,634 Depreciation and amortization 7,404 7,500 18,938 22,786 --------- --------- --------- --------- Total operating costs and expenses 143,546 128,419 413,837 396,790 --------- --------- --------- --------- Income from operations 56,996 56,390 157,575 143,539 --------- --------- --------- --------- Other income (expense): Accretion of relinquishment liability discount (Note 8) (8,958) (5,763) (26,874) (17,290) Interest income 648 2,892 2,389 10,435 Interest expense, net of capitalized interest (Note 7) (3,219) (8,132) (13,524) (31,291) Other income (expense), net (114) - (113) 2 --------- --------- --------- --------- Total other income (expense) (11,643) (11,003) (38,122) (38,144) --------- --------- --------- --------- Income from continuing operations 45,353 45,387 119,453 105,395 Loss from discontinued operations (64) (159) (591) (465) --------- --------- --------- --------- Net income $ 45,289 $ 45,228 $ 118,862 $ 104,930 ========= ========= ========= =========
The accompanying notes to financial statements should be read in conjunction with the financial statements 4 Mohegan Tribal Gaming Authority Statements of Changes in Capital (in thousands)
For the Nine Months For the Nine Months Ended June 30, 2001 Ended June 30, 2000 (unaudited) (unaudited) ----------------------------------- ------------------------------------ (restated - see note 9) Comprehensive Comprehensive Capital Income Capital Income ------------- ------------------- --------------- ----------------- Retained deficit at October 1 $ (362,118) $ (458,052) Net income 118,862 $ 118,862 104,930 $ 104,930 --------------- ------------- Distributions to Tribe (40,000) (32,245) ------------ ------------- Retained deficit at June 30 (283,256) (385,367) ------------ ------------- Accumulated other comprehensive loss at October 1 - - Unrealized loss on derivative instruments (1,171) - --------------- ------------- Other comprehensive loss (1,171) (1,171) - - ------------ --------------- ------------- ------------- Comprehensive income $ 117,691 $ 104,930 =============== ============= Accumulated other comprehensive loss at June 30 (1,171) - ------------ ------------- Total capital ending balance June 30 $ (284,427) $ (385,367) ============ ============= For the Quarter For the Quarter Ended June 30, 2001 Ended June 30, 2000 (unaudited) (unaudited) ----------------------------------- ------------------------------------ (restated - see note 9) Capital Comprehensive Capital Comprehensive Income Income ----------------------------------- ----------------- ----------------- Retained deficit at April 1 $ (308,545) $ (420,595) Net income 45,289 $ 45,289 45,228 $ 45,228 --------------- ------------- Distributions to Tribe (20,000) (10,000) ------------ ------------- Retained deficit at June 30 (283,256) (385,367) ------------ ------------- Accumulated other comprehensive loss at April 1 (1,166) - Unrealized loss on derivative instruments (5) - --------------- ------------- Other comprehensive loss (5) (5) - - ------------ --------------- ------------- ------------- Comprehensive income $ 45,284 $ 45,228 =============== ============= Accumulated other comprehensive loss at June 30 (1,171) - ------------ ------------- Total capital ending balance June 30 $ (284,427) $ (385,367) ============ =============
The accompanying notes to financial statements should be read in conjunction with the financial statements 5 Mohegan Tribal Gaming Authority Statements of Cash Flows (in thousands)
For the Nine Months Ended For the Nine Months Ended June 30, 2001 June 30, 2000 (unaudited) (unaudited) ----------- ----------- (restated - see note 9) Cash flows provided by (used in) operating activities: Net income $ 118,862 $ 104,930 Adjustments to reconcile net income to net cash flow provided by operating activities: Depreciation and amortization 18,938 22,786 Loss on disposition of assets 114 182 Provision for losses on receivables 288 542 Accretion of relinquishment liability discount 26,874 17,290 Cash paid for accretion of relinquishment liability discount (19,200) (2,881) Change in fair value of derivative instruments 2,488 - Amortization of debt issuance costs 3,257 - Changes in operating assets and liabilities: Increase in receivables and other assets (30,281) (32,210) Increase in accounts payable and accrued expenses 17,827 12,924 ------------------ ------------------ Net cash flows provided by operating activities 139,167 123,563 ------------------ ------------------ Cash flows provided by (used in) investing activities: Purchase of property and equipment (38,699) (70,863) Increase in construction in process, net of change in construction payables of $57,972 and $0, respectively (359,954) (79,834) Proceeds from asset sale 89 - ------------------ ------------------ Net cash flows used in investing activities (398,564) (150,697) ------------------ ------------------ Cash flows provided by (used in) financing activities: Distributions to Tribe (40,000) (32,245) Principal portion of relinquishment liability payments (6,921) (2,067) Payment on capital lease obligations (4,430) (9,076) Bank credit facility borrowings 274,000 - Capitalized financing fees (2,789) - Increase in other long-term liabilities 45 - Defeasance trust asset - 135,507 Defeasance liability - (140,344) ------------------ ------------------ Net cash flows provided by (used in) financing activities 219,905 (48,225) ------------------ ------------------ Net decrease in cash and cash equivalents (39,492) (75,359) Cash and cash equivalents at beginning of period 115,731 276,598 ------------------ ------------------ Cash and cash equivalents at end of period $ 76,239 $ 201,239 ================== ==================
The accompanying notes to financial statements should be read in conjunction with the financial statements 6 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION: The Mohegan Tribe of Indians of Connecticut (the "Tribe") established the Mohegan Tribal Gaming Authority (the "Authority") in July 1995 with the exclusive power to conduct and regulate gaming activities for the Tribe on Tribal lands. On October 12, 1996, the Authority opened a casino known as the Mohegan Sun Casino ("Mohegan Sun"). The Authority is governed by a nine-member Management Board, consisting of the same nine members as those of the Tribal Council (the governing body of the Tribe). Any change in the composition of the Tribal Council results in a corresponding change in the Authority's Management Board. The President and Chief Executive Officer and other senior officers of Mohegan Sun are hired by the Management Board and are employees of the Authority. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The accompanying unaudited financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In accordance with Rule 10-01, the unaudited financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair presentation have been included. For further information, refer to the financial statements and footnotes thereto included in the Authority's annual report on Form 10-K for the year ended September 30, 2000 filed with the Securities and Exchange Commission (the "SEC"). Reclassifications Certain amounts in the fiscal year 2000 financial statements have been reclassified to conform to the fiscal year 2001 presentation. New Accounting Pronouncements On October 1, 2000, the Authority adopted Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), designated all derivative instruments as cash flow hedging instruments and marked them to market. The impact of the adoption of SFAS 133 was not material to the financial position of the Authority taken as a whole. The Authority excludes the change in time value when assessing the effectiveness of the hedging relationships. See Note 4. On June 30, 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142") to be effective for fiscal years beginning after December 15, 2001. Upon adoption of SFAS 142, the Mohegan Sun trademark will no longer be subject to amortization over its estimated useful life as it has been deemed to have an indefinite useful life. However, SFAS 142 requires the trademark to be evaluated at least annually by applying a fair value based test, and, if impairment occurs, the amount of impaired trademark must be written off immediately. The Authority believes no impairment of the trademark will be necessary upon adoption of SFAS 142. 7 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 3 - DISCONTINUED OPERATIONS: On November 29, 2000, the Authority discontinued bingo operations in order to build the Hall of the Lost Tribes smoke-free slot machine venue. Pursuant to Accounting Principles Board Opinion No. 30 "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the financial statements of the Authority have been restated to reflect the disposition of bingo operations as discontinued operations. Accordingly, the revenues, costs and expenses of bingo operations have been excluded from the captions in the Statements of Income and have been reported as "Loss from discontinued operations." NOTE 4 - FINANCING FACILITIES: Financing facilities, as described below, consisted of the following (in thousands):
June 30, 2001 September 30, 2000 ------------- ------------------ Bank Credit Facility $ 274,000 $ - $200M 8 1/8% Senior Notes 200,000 200,000 $300M 8 3/4% Senior Subordinated Notes 300,000 300,000 ------------ --------------- $ 774,000 $ 500,000 ============ ===============
Bank Credit Facility As of June 30, 2001, the Authority had $274.0 million outstanding under a $500.0 million reducing, revolving, collateralized credit facility (the "Bank Credit Facility"), with a syndicate of lenders led by Bank of America N.A. (formerly known as Bank of America National Trust and Savings Association), which will mature in March 2004. The Authority draws on the Bank Credit Facility primarily in connection with 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 will accrue interest on the basis of base rate or on the basis of a one-month, two-month, three-month or six-month London Inter-Bank Offered Rate ("LIBOR") plus, in either case, the applicable spread (based on the Authority's Total Leverage Ratio, as defined in the Bank Credit Facility). At June 30, 2001, one-month LIBOR was 3.86% and the applicable spread was 1.625%. Interest on each LIBOR loan that is for a term of three months or less shall be due and payable on the last day of the related interest period. Interest on each LIBOR loan that is for a term of more than three months is due and payable on the date which is three months after the date such LIBOR loan was made and every three months thereafter and on the last day of the related interest period. Interest on each base rate loan shall be due and payable quarterly in arrears. The Authority has no base rate loans at June 30, 2001. Accrued interest on the Bank Credit Facility was $290,000 as of June 30, 2001. Pursuant to the terms of the Bank Credit Facility, the commitment (or the maximum amount that may be borrowed under the Bank Credit Facility) will be reduced as of the earlier of March 31, 2002 or the last full day of the first full fiscal quarter following the completion date of Project Sunburst, and on the last day of each fiscal quarter thereafter, by 10% of the commitment in effect immediately prior to the first such reduction. 8 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS--(Continued) Financial Covenant Requirements The Authority's debt agreements require, among other restrictions, the maintenance of various financial covenants and terms including a fixed charge coverage ratio, and certain debt leverage ratios. As of June 30, 2001, the Authority was in compliance with all financial covenant requirements. Derivative Instruments The Authority uses derivative instruments, including an interest rate cap, collar and swap in its strategy to manage interest rate risk associated with the variable interest rates applicable to advances under the Bank Credit Facility. The Authority's objective in managing interest rate risk is to ensure appropriate income and sufficient liquidity to meet its obligations. The Authority analyzes interest rate risk using various models that forecast cash flows of the liabilities and their supporting assets, including derivative instruments. The Authority does not believe that there is any material risk exposure with respect to derivative or other financial instruments which it currently holds. The Authority continually monitors these exposures and makes the appropriate adjustments to manage these risks within management's established limits. The Authority is considered an "end user" of derivative instruments and engages in derivative transactions for risk management purposes only. On October 1, 2000, the Authority adopted SFAS 133, designated all derivative instruments as cash flow hedging instruments and marked them to market. The impact of the adoption of SFAS 133 was not material to the financial position of the Authority taken as a whole. The Authority excludes the change in time value when assessing the effectiveness of the hedging relationships. All derivatives are evaluated quarterly. The interest rate cap and interest rate swap listed below were deemed to be effective at June 30, 2001. The interest rate collar listed below was deemed to be ineffective at June 30, 2001. Derivative instruments held by the Authority at June 30, 2001 are as follows:
Estimated Notional Value Cost Fair Value -------------- -------- ---------- Interest Rate Cap Strike Rate - 8% $39,621,200 $410,000 $ 3,000 Interest Rate Collar Ceiling Strike Rate - 8% Floor Strike Rate - 6% 25,704,800 295,000 (1,732,268) Interest Rate Swap Pay fixed - 6.35% Receive Variable 12,852,400 221,000 (1,003,760) ----------- -------- ------------ Total $78,178,400 $926,000 $(2,733,028) =========== ======== ============
All derivative instruments are based on one-month LIBOR. One-month LIBOR was 3.86% on June 30, 2001. In November 2000, the Authority modified the terms of its existing interest rate collar and interest rate swap agreements. As a result of the modifications, the interest rate collar was deemed to be a net written option that did not quality for hedge accounting. The negative fair market value at the date of modification of approximately $212,000 will be reclassified from other comprehensive income to interest expense over the life of the original terms of the hedge contract and future changes in the fair market value of the modified interest rate collar will be recorded directly to earnings as a component of interest expense. The Authority will reclassify approximately $73,000 of the negative fair market value into earnings over the next twelve months. The modification of the interest rate swap agreement did not change the Authority's assessment of hedge effectiveness at June 30, 2001. 9 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS--(Continued) The aggregate fair market value change in all derivative instruments was $90,000 and $3.6 million for the quarter and nine months ended June 30, 2001. In accordance with SFAS 133, the Authority recorded $5,000 and $1.1 million related to the unrealized loss on the derivative instruments as a component of accumulated other comprehensive income in the accompanying balance sheets and recorded $85,000 and $2.4 million as interest expense in the accompanying statements of income for the quarter and nine months ended June 30, 2001, respectively. As of June 30, 2001, the fair market value of the Authority's derivative instruments in included in other long-term liabilities in the accompanying balance sheets. As of September 30, 2000, premiums paid for derivative instruments were capitalized and are reflected in other assets in the accompanying balance sheets. Senior Notes On March 3, 1999, the Authority issued $200.0 million Senior Notes with fixed interest payable at a rate of 8.125 % per annum (the "Senior Notes"). The proceeds from this financing were used to extinguish or defease existing debt, pay transaction costs and fund initial costs related to Project Sunburst. Interest on the Senior Notes is payable semi-annually on January 1 and July 1. The Senior Notes mature on January 1, 2006. The Senior Notes are uncollateralized general obligations of the Authority and rank pari passu in right of payment with all current and future uncollateralized senior indebtedness of the Authority. Borrowings under the Bank Credit Facility and other capital lease obligations are collateralized by first priority liens on substantially all of the assets of the Authority. As a result, upon any distribution to creditors in a bankruptcy, liquidation or reorganization or similar proceeding relating to the Authority or the Tribe, the holders of collateralized debt may be paid in full in cash before any payment may be made with respect to the Senior Notes. The Senior Notes rank equally in right of payment with 50% of the Authority's payment obligations under the Relinquishment Agreement (See Note 8) that are then due and owing, and rank senior to the remaining 50% of the Authority's payment obligations under the Relinquishment Agreement that are then due and owing and the $300 million 8.75% Senior Subordinated Notes ("Senior Subordinated Notes"). As of June 30, 2001, accrued interest on the Senior Notes was $8.1 million. Senior Subordinated Notes On March 3, 1999, the Authority issued $300.0 million Senior Subordinated Notes with fixed interest payable at a rate of 8.75% per annum. The proceeds from this financing were used to extinguish or defease existing debt, pay transaction costs and fund initial costs related to Project Sunburst. Interest on the Senior Subordinated Notes is payable semi-annually on January 1 and July 1. The Senior Subordinated Notes mature on January 1, 2009. The Senior Subordinated Notes are uncollateralized general obligations of the Authority and are subordinated to the Bank Credit Facility (see below), the Senior Notes and in a liquidation, bankruptcy or similar proceeding, 50% of the Authority's payment obligations under the Relinquishment Agreement (See Note 8) that are then due and owing. The Senior Subordinated Notes rank equally to the remaining 50% of the Authority's payment obligations under the Relinquishment Agreement that are then due and owing. As of June 30, 2001, accrued interest on the Senior Subordinated Notes was $13.1 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 expires on August 31, 2001 and a $550,000 letter of credit agreement that expires on April 16, 2002. The $550,000 letter of credit was reduced from $1.0 million on April 13, 2001. As of June 30, 2001, no amounts were drawn on the letters of credit. Subordinated Notes/Defeasance Trust The Authority had $90.0 million of subordinated financing from Sun International and Waterford Gaming LLC in the form of subordinated notes ("Subordinated Notes"). Interest on the Subordinated Notes ranged from prime plus 1.0% to 15.0%. Interest on the Subordinated Notes was payable semi-annually, provided that all such interest was deferred and not paid until at least half of the Authority's then existing secured notes ("Existing Notes") were 10 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS--(Continued) offered to be repurchased or retired, pursuant to the terms of the Existing Notes, and certain other conditions. In March 1999, the Authority redeemed the Existing Notes. The Authority agreed to redeem the outstanding Subordinated Notes on January 1, 2000, the first permitted redemption date, at a price of 100.0% of the principal amount plus accrued and unpaid interest, less $ 500,000. To do this, the Authority exercised its rights under the original purchase agreement for the Subordinated Notes to affect a defeasance of the Subordinated Notes. The Authority established a separate trust account with First Union National Bank, the defeasance agent, in the form of U.S. Government securities, in an amount that was estimated to be sufficient to redeem the Subordinated Notes plus accrued interest on January 1, 2000. The Subordinated Notes of $140.3 million, representing the outstanding principal balance of $ 90.0 million and accrued interest of $50.3 million, were tendered on December 30, 1999, two days prior to the redemption for year 2000 contingency purposes. The Authority had reduced accrued interest by $ 500,000 to account for the gain on the extinguishment of debt related to the tender of the Subordinated Notes. The amounts reflected in the accompanying Statements of Cash Flows reflect the sale of the assets in the defeasance trust and the payment of the defeasance liability on December 30, 1999. NOTE 5 - LEASES: At June 30, 2001, the Authority was obligated under capital leases to make future minimum lease payments as follows (in thousands): For the fiscal year ending: September 30, 2001 $ 554 September 30, 2002 1,493 September 30, 2003 - ---------- Total minimum lease payments 2,047 Amount representing interest (86) ----------- Total capital lease obligations 1,961 Less: Amount due within one year (1,739) ----------- Amount due after one year $ 222 ========== On April 18, 2001, the Authority paid $1.4 million to buy out two of its capital lease obligations. Operating lease expenses, excluding costs to obtain assets, were $1.8 million for the nine months ended June 30, 2000. No operating leases with terms of more than one year existed during the nine months ended June 30, 2001. NOTE 6 - RELATED PARTY TRANSACTIONS: The Tribe provides governmental and administrative services to the Authority in conjunction with the operation of Mohegan Sun. For the quarters ended June 30, 2001 and 2000, expenses associated with these services were $2.7 million and $2.0 million, respectively, and $8.2 million and $6.8 million for the nine months ended June 30, 2001 and 2000, respectively. The Tribe, through one of its limited liability companies, has entered into various land lease agreements with the Authority for access, parking and related purposes for Mohegan Sun. For the quarters ended June 30, 2001 and 2000, expenses related to these agreements totaled $97,000 and $84,000, respectively. Expenses related to the agreements totaled $277,000 and $256,000 for the nine months ended June 30, 2001 and 2000, respectively. At June 30, 2001, amounts due from the Tribe of $27.6 million relates to $25.9 million in payments made by the Authority on behalf of the Tribe for the construction of certain utilities and the public safety facility that will service the Mohegan Reservation. The Tribe anticipates obtaining tax-exempt financing which will, among other things, be 11 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS--(Continued) used to repay this advance. The remainder of the amounts due from the Tribe are related to operational receivables incurred in the normal course of business. NOTE 7 - COMMITMENTS AND CONTINGENCIES: Project Sunburst The Authority has received authorization from the Tribe to expend up to $960.0 million, excluding capitalized interest, for completion of Project Sunburst. As of June 30, 2001, the Authority had incurred $658.1 million, excluding capitalized interest on Project Sunburst and expects to incur an additional $230.8 million for the remainder of fiscal year 2001. The remaining $71.1 million is anticipated to be spent during fiscal year 2002. As of June 30, 2001, cumulative capitalized interest for Project Sunburst construction expenses totaled $38.6 million. Capitalized interest for the quarters ended June 30, 2001 and 2000 totaled $11.5 million and $2.7 million, respectively. Capitalized interest for the nine months ended June 30, 2001 and 2000 totaled $28.2 million and $5.6 million, respectively. The Mohegan Compact In May 1994, the Tribe and the State of Connecticut entered into a Memorandum of Understanding ("MOU") which sets forth certain matters regarding implementation of the Mohegan Compact. The MOU stipulates that a portion of the revenues earned on slot machines must be paid to the State of Connecticut ("Slot Win Contribution"). The Slot Win Contribution payments will not be required if the State of Connecticut legalizes any other gaming operations with slot machines or other commercial casino table games within Connecticut, except those consented to by the Tribe and the Mashantucket Pequot Tribe. For each 12-month period commencing July 1, 1995, the Slot Win Contribution shall be the lesser of (a) 30% of gross revenues from slot machines, or (b) the greater of (i) 25% of gross revenues from slot machines or (ii) $80 million. For the quarters ended June 30, 2001 and 2000, the Authority reflected expenses associated with the Slot Win Contribution of $37.6 million and $34.2 million, respectively. The Authority reflected expenses associated with the Slot Win Contribution totaling $104.4 million and $97.8 million, respectively, for the nine months ended June 30, 2001 and 2000. As of June 30, 2001, outstanding Slot Win Contribution payments to the State of Connecticut totaled $13.1 million. Town of Montville Agreement On June 16, 1994, the Tribe and the Town of Montville (the "Town") entered into an agreement whereby the Tribe agreed to pay to the Town a recurring annual payment of $500,000 to minimize the impact to the Town resulting from decreased tax revenues on reservation land held in trust. Additionally, the Tribe agreed to make a one-time payment of $3.0 million towards infrastructure improvements to the Town's water system. The Tribe assigned its rights and obligations in this agreement to the Authority. As of June 30, 2001, the Authority had fulfilled this obligation and paid $3.0 million to the Town of Montville for improvements to the municipal water system, which has been included in other assets in the accompanying balance sheets and is being amortized over 40 years. Expansion Construction Management Agreement with Perini Building Company, Inc. The Authority engaged Perini Building Company, Inc. ("Perini") as construction manager to provide construction management services for Project Sunburst. As construction manager, Perini is receiving a fee of $20.5 million for services including, but not limited to, pre-construction review and construction phase contract administration. As of June 30, 2001, Perini had received $12.5 million of the $20.5 million fee, which has been included in construction in process in the accompanying balance sheets. For each of the respective quarters ended June 30, 2001 and 2000, the Authority incurred $1.5 million related to the construction management fee. The Authority incurred $4.5 million related to the construction management fee for each of the respective nine month 12 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS--(Continued) periods ended June 30, 2001 and 2000. As of June 30, 2000, the Authority owed $497,000 to Perini related to the Construction Management Agreement. Litigation The Authority is a defendant in certain litigation incurred in the normal course of business. In the opinion of management, based on the advice of counsel, the aggregate liability, if any, arising from such litigation will not have a material adverse effect on the Authority's financial position, results of operations or cash flows. NOTE 8 - TCA AGREEMENTS: Management Agreement Previously, the Tribe and Trading Cove Associates ("TCA") entered into the Amended and Restated Gaming Facility Management Agreement (the "Management Agreement"), pursuant to which the Tribe retained and engaged TCA, on an independent contractor basis, to operate, manage and market Mohegan Sun. The Tribe assigned its rights and obligations under the Management Agreement to the Authority. TCA had a responsibility to manage Mohegan Sun in exchange for payments ranging from 30% to 40% of net income, before management fees, as defined, depending upon profitability levels. Management fees totaled $13.6 million for the nine months ended June 30, 2000. There were no management fees for the quarters ended June 30, 2001 and 2000 or for the nine months ended June 30, 2001 due to the termination of the Management Agreement. (See discussion of Relinquishment Agreement below.) Relinquishment Agreement In February 1998, the Authority and TCA entered into an agreement (the "Relinquishment Agreement"). Effective January 1, 2000 (the "Relinquishment Date"), the Relinquishment Agreement superseded the Management Agreement. The Relinquishment Agreement provides that the Authority will make certain payments to TCA out of, and determined as a percentage of, Revenues, as defined, generated by Mohegan Sun over a 15-year period commencing on the Relinquishment Date. The payments ("Senior Relinquishment Payments" and "Junior Relinquishment Payments") have separate payment schedules and priority. Senior Relinquishment Payments commenced on April 25, 2000, twenty-five days following the end of the first three-month period following the Relinquishment Date, and continue at the end of each three-month period occurring thereafter until January 25, 2015. Junior Relinquishment Payments commenced on July 25, 2000, twenty-five days following the end of the first six-month period following the Relinquishment Date and continue at the end of each six-month period occurring thereafter until January 25, 2015. Each Senior Relinquishment Payment and Junior Relinquishment Payment is an amount equal to 2.5% of the Revenues generated by Mohegan Sun over the immediately preceding three-month or six-month payment period, as the case may be. "Revenues" are defined as gross gaming revenues (other than Class II gaming revenue) and all other facility revenues (including, without limitation, hotel revenues, room service, food and beverage sales, ticket revenues, fees or receipts from the convention center, Mohegan Sun Arena and all rental or other receipts from lessees and concessionaires, but not the gross receipts of such lessees, licenses and concessionaires). The Authority, in accordance with SFAS No. 5, "Accounting for Contingencies," has recorded a relinquishment liability of the estimated present value of its obligations under the Relinquishment Agreement. A relinquishment liability of $549.1 million was established at September 30, 1998 based on the present value of the estimated future Mohegan Sun revenues utilizing the Authority's risk free investment rate. At June 30, 2001, the carrying amount of the relinquishment liability was $673.6 million as compared to $672.9 million as of September 30, 2000. The increase is due to $26.9 million in accretion of relinquishment liability discount, partially offset by $26.1 million in relinquishment payments. Of the $26.1 million in relinquishment payments for the nine months ended June 30, 2001, $6.9 million represents principal amounts and the remaining $19.2 million is for the accretion of interest. This accretion resulted from the impact on the discount for the time value of money due to the passage of time. As of June 30, 2001, relinquishment payments earned but unpaid were $16.0 million. 13 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS--(Continued) 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 Development Fee Under the Development Agreement, the Authority is required to pay TCA a development fee of $14.0 million. Pursuant to the payment schedule described in the Development Agreement, on January 15, 2000, the Authority began paying the development fee to TCA on a quarterly basis, based upon the incremental completion as of each payment date. As of June 30, 2001, the Authority had incurred $9.3 million related to the TCA development fee, of which $7.1 million had been paid. For the quarters ended June 30, 2001, the Authority has incurred $2.2 million and $1.3 million, respectively, related to the TCA development fee. Development fees have totaled $4.4 million and $3.5 million for the nine months ended June 30, 2001 and 2000, respectively. All amounts incurred have been included in the construction in process on the accompanying balance sheets. Termination and Disputes The Development Agreement terminates upon the earlier of (a) completion of Project Sunburst or (b) February 7, 2008. In addition, each party has the right to terminate the Development Agreement if there is a material default or failure to perform a material duty or obligation by the other party. The parties must submit disputes arising under the Development Agreement to arbitration and have agreed that punitive damages may not be awarded to either party by an arbitrator. The Authority has also waived sovereign immunity for the purpose of permitting, compelling or enforcing arbitration and has agreed to be sued by TCA in any court of competent jurisdiction for the purposes of compelling arbitration or enforcing any arbitration or judicial award arising out of the Development Agreement. NOTE 9 - RESTATEMENT AND RECLASSIFICATIONS: The Authority has restated its financial statements for the quarter ended June 30, 2001 to reflect the effects of the following adjustments: (i) to record additional capitalized interest pertaining to Project Sunburst in accordance with SFAS No. 34 "Capitalization of Interest Cost," (ii) to record Project Sunburst related capital expenditures incurred in the quarter and nine months ended June 30, 2001, (iii) to record depreciation expense associated with placing additional fixed assets in service prior to June 30, 2001 and (iv) to record adjustments necessary to account for the Authority's derivative instruments in accordance with SFAS 133. The aggregate effect of recording these adjustments resulted in the Authority increasing its net income by $4.7 million and $9.5 million for the quarter and nine months ended June 30, 2001, respectively, and increasing its total assets by $55.1 million as of June 30, 2001. In addition, the Authority also has reclassified certain other costs, expenses and balances in the financial statements. These reclassifications have no effect on the Authority's net income. The financial statements as of and for the quarter and nine months ended June 30, 2001 contained herein have been updated to reflect these restatements and reclassifications. The following tables summarize the impact of these adjustments on the Authority's financial statements, as restated (in thousands): 14 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS--(Continued) Mohegan Tribal Gaming Authority Condensed Balance Sheet (in thousands)
Previously Reported Restatement Restated June 30, 2001* Reclassifications Adjustments June 30, 2001 -------------- ----------------- ----------- ------------- ASSETS ------ Current assets: Cash and cash equivalents $ 76,239 $ - $ - $ 76,239 Receivables, net 7,891 (1,524) a - 6,367 Due from Tribe 27,637 - - 27,637 Inventories 9,217 - - 9,217 Other current assets 5,904 1,524 a - 7,428 ----------- ---------- ---------- ----------- Total current assets $ 126,888 $ - $ - $ 126,888 Non-current assets: Property and equipment, net 350,424 - 10,005 e,f.2 360,429 Construction in process 640,554 - 42,371 e,g.2,h 682,925 Trademark, net 120,551 - - 120,551 Other assets, net 18,444 2,733 b - 21,177 ----------- ---------- ---------- ----------- Total assets $ 1,256,861 $ 2,733 $ 52,376 $ 1,311,970 =========== ========== ========== =========== LIABILITIES AND CAPITAL ----------------------- Current liabilities: Current portion of capital lease obligations $ 1,739 $ - $ - $ 1,739 Current portion of relinquishment liability 46,897 16,036 c - 62,933 Accounts payable and accrued expenses 79,986 (27,263) d - 52,723 Construction payables - 27,263 d 42,499 h 69,762 Accrued interest payable 21,540 - - 21,540 ----------- ---------- ---------- ----------- Total current liabilities 150,162 16,036 42,499 208,697 Non-current liabilities: Long-term debt 774,000 - - 774,000 Relinquishment liability, net of current portion 626,736 (16,036) c - 610,700 Capital lease obligations, net of current portion 222 - - 222 Other long-term liabilities 45 2,733 b - 2,778 ----------- ---------- ---------- ----------- Total liabilities 1,551,165 2,733 42,499 1,596,397 ----------- ---------- ---------- ----------- Capital: Retained deficit (292,733) - 9,477 f.2,g.2,i.2 (283,256) Accumulated other comprehensive loss (1,571) - 400 i.2 (1,171) ----------- ---------- ---------- ----------- Total capital (294,304) - 9,877 (284,427) ----------- ---------- ---------- ----------- Total liabilities and capital $ 1,256,861 $ 2,733 $ 52,376 $ 1,311,970 =========== ========== ========== ===========
* Previously reported in Form 10-Q filed by the Authority on August 10, 2001. See page 20 of the notes to the Authority's financial statements for the footnotes to this restatement schedule. 15 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS--(Continued) Mohegan Tribal Gaming Authority Condensed Statement of Income (in thousands)
Previously Reported Restated For the For the Quarter Ended Restatement Quarter Ended June 30, 2001* Reclassifications Adjustments June 30, 2001 ----------------- ------------------- --------------- ----------------- Revenues: Net revenues $ 200,542 $ - $ - $ 200,542 ---------------- ------------- ---------- ------------ Operating costs and expenses: Gaming 86,965 - - 86,965 Food and beverage 6,442 - - 6,442 Retail, entertainment and other 7,002 - - 7,002 Marketing, general and administrative 32,009 - - 32,009 Pre-opening costs and expenses 3,724 - - 3,724 Depreciation and amortization 8,503 (1,163) k.1 64 f.1 7,404 ---------------- ------------- ---------- ------------ Total operating costs and expenses 144,645 (1,163) 64 143,546 ---------------- ------------- ---------- ------------ Income from operations 55,897 1,163 (64) 56,996 ---------------- ------------- ---------- ------------ Other income (expense): Relinquishment liability reassessment (8,958) 8,958 l.1 - - Accretion of relinquishment liability discount - (8,958) l.1 - (8,958) Interest income 648 - - 648 Interest expense, net of capitalized interest (6,011) (1,163) k.1 3,955 g.1, i.1, m.1 (3,219) Other income (expense), net (114) - - (114) Change in fair value of derivative instruments (810) - 810 m.1 - ---------------- ------------- ---------- ------------ (15,245) (1,163) 4,765 (11,643) ---------------- ------------- ---------- ------------ Income from continuing operations 40,652 - 4,701 45,353 Loss from continuing operations (64) - - (64) ---------------- ------------- ---------- ------------ Net income $ 40,588 $ - $ 4,701 $ 45,289 ================ ============= ========== ============
* Previously reported in Form 10-Q filed by the Authority on August 10, 2001 See page 20 of the notes to the Authority's financial statements for the footnotes to this restatement schedule. 16 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS--(Continued) Mohegan Tribal Gaming Authority Condensed Statement of Income (in thousands)
Previously Reported Restated For the Nine For the Nine Months Ended Restatement Months Ended June 30, 2001* Reclassifications Adjustments June 30, 2001 --------------- ------------------ -------------- --------------- Revenues: Net revenues $ 571,412 $ - $ - $ 571,412 --------------- --------------- ------------ ----------- Operating costs and expenses: Gaming 243,123 - - 243,123 Food and beverage 18,462 - - 18,462 Retail, entertainment and other 22,476 - - 22,476 Marketing, general and administrative 103,798 - - 103,798 Pre-opening costs and expenses 7,040 - - 7,040 Depreciation and amortization 22,025 (3,257) k.2 170 f.2 18,938 --------------- --------------- ------------ ----------- Total operating costs and expenses 416,924 (3,257) 170 413,837 --------------- --------------- ------------ ----------- Income from operations 154,488 3,257 (170) 157,575 --------------- --------------- ------------ ----------- Other income (expense): Relinquishment liability reassessment (26,874) 26,874 l.2 - - Accretion of relinquishment liability discount - (26,874) l.2 - (26,874) Interest income 2,390 (1) n - 2,389 Interest expense, net of capitalized interest (17,826) (3,257) k.2 7,559 g.2, i.2, m.2 (13,524) Other expense, net (114) 1 n - (113) Change in fair value of derivative instruments (2,088) - 2,088 m.2 - --------------- --------------- ------------ ----------- (44,512) (3,257) 9,647 (38,122) --------------- --------------- ------------ ----------- Income from continuing operations 109,976 - 9,477 119,453 Loss from continuing operations (591) - - (591) --------------- --------------- ------------ ----------- Net income $ 109,385 $ - $ 9,477 $ 118,862 =============== =============== ============ ===========
* Previously reported in Form 10-Q filed by the Authority on August 10, 2001. See page 20 of the notes to the Authority's financial statements for the footnotes to this restatement schedule. 17 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS--(Continued) Mohegan Tribal Gaming Authority Condensed Statement of Changes in Capital (in thousands)
Previously Reported Restated For the Nine For the Nine Months Ended Restatement Months Ended June 30, 2001* Adjustments June 30, 2001 ------------------ --------------------------------- -------------------------- Comprehensive Comprehensive Capital Income Capital Income ------- ------ ------- ------ Retained deficit at October 1 $ (362,118) $ - $ (362,118) Net income 109,385 9,477 $ 9,477 f.2, g.2, i.2 118,862 $ 118,862 ------- --------- Distributions to Tribe (40,000) - (40,000) ----------- --------- ----------- Retained deficit at June 30 (292,733) 9,477 (283,256) ----------- --------- ----------- Accumulated other comprehensive loss at October 1 - - Unrealized gain (loss) on derivative instruments (1,571) 400 i.2 (1,171) ------- --------- Other comprehensive income (loss) (1,571) 400 400 (1,171) (1,171) ----------- --------- ------- ----------- --------- Comprehensive income $ 9,877 $ 117,691 ======= ========= Accumulated other comprehensive income (loss) at June 30 (1,571) 400 (1,171) ----------- --------- ----------- Total capital ending balance at June 30 $ (294,304) $ 9,877 $ (284,427) =========== ========= ===========
* Previously reported in Form 10-Q/A filed by the Authority on August 10, 2001. See page 20 of the notes to the Authority's financial statements for the footnotes to this restatement schedule. 18 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS--(Continued) Mohegan Tribal Gaming Authority Condensed Statement of Cash Flows (in thousands)
Previously Reported Restated For the Nine For the Nine Months Ended Restatement Months Ended June 30, 2001* Reclassifications Adjustments June 30, 2001 ---------------- ----------------- ------------ -------------- Cash flows provided by (used in) operating activities: Net income $ 109,385 $ - $ 9,477 f.2, g.2, i.2 $ 118,862 Adjustments to reconcile net income to net cash flow provided by operating activities: Depreciation and amortization 22,025 (3,257) o 170 f.2 18,938 Loss on disposition of assets 114 - - 114 Provision for losses on receivables 288 - - 288 Accretion of relinquishment liability discount - 26,874 p - 26,874 Relinquishment liability reassessment 26,874 (26,874) p - - Cash paid for accretion of relinquishment liability discount - (19,200) q - (19,200) Change in fair value of derivative instruments 2,088 - 400 i.2 2,488 Amortization of debt issuance costs - 3,257 o - 3,257 Changes in operating assets and liabilities: Increase in receivables and other assets (30,281) - - (30,281) Increase in accounts payable and accrued expenses 33,345 (15,518) r,s - 17,827 ------------ ------------- ------------ ------------ Net cash flows provided by operating activities 163,838 (34,718) 10,047 139,167 ------------ ------------- ------------ ------------ Cash flows provided by (used in) investing activities: Purchase of property and equipment (28,524) - (10,175) e (38,699) Increase in construction in process, net of change in construction payables (375,555) 15,473 r 128 e, g.2 (359,954) Proceeds from asset sale 89 - - 89 ------------ ------------- ------------ ------------ Net cash flows used in investing activities (403,990) 15,473 (10,047) (398,564) ------------ ------------- ------------ ------------ Cash flows provided by (used in) financing activities: Distributions to Tribe (40,000) - - (40,000) Principal portion of relinquishment liability payments (26,121) 19,200 q - (6,921) Payment on capital lease obligations (4,430) - - (4,430) Bank credit facility borrowings 274,000 - - 274,000 Capitalized financing fees (2,789) - - (2,789) Increase in other long-term liabilities - 45 s - 45 ------------ ------------- ------------ ------------ Net cash flows provided by financing activities 200,660 19,245 - 219,905 ------------ ------------- ------------ ------------ Net decrease in cash and cash equivalents (39,492) - - (39,492) Cash and cash equivalents at beginning of period 115,731 - - 115,731 ------------ ------------- ------------ ------------ Cash and cash equivalents at end of period $ 76,239 $ - $ - $ 76,239 ============ ============= ============ ============
* Previously reported in Form 10-Q filed by the Authority on August 10, 2001. See page 20 of the notes to the Authority's financial statements for the footnotes to this restatement schedule. 19 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS--(Continued) Adjustment footnotes (in thousands): a. Reclassified an amount pertaining to Deferred Compensation Plan assets of $1,524 from receivables, net to other current assets. b. Reclassified negative fair value of $2,733 on derivative instruments held by the Authority at June 30, 2001 from other assets, net to other long-term liabilities. c. Reclassified long-term relinquishment liability of $16,036 to current portion of relinquishment liability. d. Reclassified construction related payables of $27,263 from accounts payable and accrued expenses to construction payables. e. Reclassified utilities facility costs of $10,175 from construction in process to property and equipment, net. f. Recorded depreciation on additional utilities facility costs capitalized and placed into service in November 2000: 1. $64 for the quarter ended June 30, 2001. 2. $170 for the nine months ended June 30, 2001. g. Recorded additional capitalized interest pertaining to Project Sunburst: 1. $4,040 for the quarter ended June 30, 2001. 2. $10,047 for the nine months ended June 30, 2001. h. Recorded an accrual for construction payables of $42,499 pertaining to Project Sunburst for work completed by June 30, 2001, but paid subsequent to June 30, 2001. i. In accordance with SFAS 133, recorded an adjustment to reflect unrealized loss(income) on derivative instruments to other comprehensive loss: 1. ($725) for the quarter ended June 30, 2001. 2. $400 for the nine months ended June 30, 2001. j. Omitted. k. Reclassified amortization of debt issuance costs from depreciation and amortization to interest expense, net of capitalized interest: 1. $1,163 for the quarter ended June 30, 2001. 2. $3,257 for the nine months ended June 30, 2001. l. Reclassified relinquishment liability reassessment to accretion of relinquishment liability discount: 1. $8,958 for the quarter ended June 30, 2001. 2. $26,874 for the nine months ended June 30, 2001. m. Reclassified change in fair value of derivative instruments to interest expense: 1. $810 for quarter ended June 30, 2001. 2. $2,088 for nine months ended June 30, 2001. n. Reclassified $1 from interest income to other expense, net. o. Reclassified amortization of debt issuance costs from depreciation and amortization to amortization of debt issuance costs. p. Reclassified relinquishment liability reassessment as accretion of relinquishment liability discount. q. Reclassified cash paid for accretion of relinquishment liability discount to principal portion of relinquishment payments. r. Reclassified change in construction payables from accounts payable and accrued expenses to construction in process. s. Reclassified change in other long-term liabilities from increase in accounts payable and accrued expenses to increase in other long-term liabilities. 20 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS--(Continued) NOTE 10 - EMPLOYEE BENEFIT PLAN: On April 18, 2001, the Authority announced the creation of the Defined Retirement Plan (the "Plan") for all employees to be sponsored by the Authority. The Plan will go into effect July 2, 2001, and contributions made by the Authority will be based on hours worked. Employees become eligible after 90 days of employment and will be fully vested at the completion of seven years. NOTE 11 - SUBSEQUENT EVENTS: On July 26, 2001, the Authority issued $150 million of Senior Subordinated Notes due 2001 with fixed interest payable at a rate of 8.375% per annum. The proceeds from this financing, net of fees, will be used in conjunction with Project Sunburst. On July 30, 2001, the Authority paid down $90.0 million on the Bank Credit Facility with the proceeds from the financing. On August 7, 2001, the Tribe obtained tax-exempt financing which, among other things, was used to repay the Authority in full. On August 8, 2001, the Tribe reimbursed the Authority $27.6 million. The reimbursement relates to construction that will service the Mohegan Reservation that initially was funded by the Authority and other various operating expenses. 21 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the Authority's financial statements and the related notes beginning on page 3 of this Form 10-Q/A which has been updated to reflect the restatements and reclassifications more fully described in Note 9 to the Authority's financial statements. Forward Looking Statements Some information included in this Amended Quarterly Report and other materials filed by the Authority with the Securities and Exchange Commission contain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements include information relating to plans for future expansion and other business development activities, as well as other capital spending, financing sources and the effects of regulation (including gaming and tax regulation) and competition. These statements can sometimes be identified by our use of forward-looking words such as "may," "will," "anticipate," "estimate," "expect," or "intend" and similar expressions. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ materially from those expressed in any forward-looking statements made by or on behalf of the Authority. These risks and uncertainties include, but are not limited to, those relating to development and construction activities, dependence on existing management, leverage and debt service, domestic or global economic conditions, pending litigation, changes in federal tax laws or the administration of such laws and changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions). Additional information concerning potential factors that could affect the Authority's financial results are included in the Authority's Annual Reports on Form 10-K for the fiscal year ended September 30, 2000, as well as the Authority's other reports and filings with the SEC. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this report. The Authority does not have and the Authority does not undertake any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances. The Authority can not assure you that projected results or events will be achieved. Overview The Tribe and the Authority The Tribe is a federally recognized Indian tribe with an approximately 390-acre reservation situated in southeastern Connecticut. Under the Indian Gaming Regulatory Act, federally recognized Indian tribes are permitted to conduct full-scale casino gaming operations on tribal land, subject to, among other things, the negotiation of a gaming compact with the state in which they operate. The Tribe and the State of Connecticut have entered into such a compact that has been approved by the United States Secretary of the Interior. The Tribe's gaming operation is one of only two legally authorized gaming operations in New England offering traditional slot machines and table games. The Tribe has established an instrumentality, the Authority, with the exclusive power to conduct and regulate gaming activities on the existing reservation of the Tribe located adjacent to Uncasville, Connecticut. The Authority is governed by a Management Board, consisting of the same nine members of the Mohegan Tribal Council. Mohegan Sun In October 1996, the Authority opened a gaming and entertainment complex known as Mohegan Sun. Mohegan Sun is situated in southeastern Connecticut on a 240-acre site on the Tribe's reservation overlooking the Thames River with direct access from Routes I-395 and 2A via a four-lane access road constructed by the Authority. As of June 30, 2001, Mohegan Sun had parking spaces for approximately 7,500 guests and 2,700 employees. Mohegan Sun is located approximately 125 miles from New York City and approximately 100 miles from Boston, Massachusetts. The Authority began construction in 1999 of a major expansion of Mohegan Sun known as Project Sunburst. The first phase of Project Sunburst, the Casino of the Sky, will include increased gaming, restaurant and retail space and an entertainment arena. The remaining components will include an approximate 1,200-room luxury hotel and approximately 100,000 square feet of convention space. 22 Mohegan Sun operates in an approximately 635,000 square foot facility which, at June 30, 2001, includes the following: . approximately 3,655 slot machines, 153 table games (including blackjack, roulette, craps and baccarat) and 42 poker tables; . food and beverage amenities, including three full-service themed fine dining restaurants, a 610-seat buffet, a New York style delicatessen, a 24-hour coffee shop, a ten-station food court featuring international and domestic cuisine and multiple service bars; . an approximately 10,000 square foot, 350-seat lounge featuring live entertainment seven days a week; . an approximately 9,000 square foot simulcasting race book facility; . six retail shops providing shopping opportunities ranging from Mohegan Sun logo souvenirs to clothing to cigars; . arcade-style recreation area and a child care facility operated by New Horizons Kids Quest; and . a 4,000 square foot, 16-pump gasoline service station and convenience store. Explanation of Key Financial Statement Captions Gross revenues. The Authority's gross revenues are derived mostly from the following three sources: . Gaming revenues, which include revenues from slot machines, table games, poker and racebook; . Food and beverage sales; and . Retail, entertainment and other revenues, which include revenues from the Mohegan Sun managed retail outlets. The table below summarizes the Authority's percentage of gross revenues from each of these sources:
For the For the For the For the Quarter Quarter Nine Months Nine Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2001 2000 2001 2000 ------------ ----------- ------------- -------------- Gaming ................................... 88% 88% 88% 88% Food and beverage ........................ 6% 6% 6% 6% Retail, entertainment and other .......... 6% 6% 6% 6% ------------ ----------- ------------- -------------- 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 23 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 and entertainment events are recognized at the time the service is performed. The Authority operates the Mohegan Sun complimentary program in which food, beverages, retail, entertainment and other services are provided to guests based on points that are earned through the Mohegan Sun Player's Club. The retail value of these complimentary items is included in gross revenue and then deducted as promotional allowances, except for the redemption from a catalog program, the Sun Select Catalog, which includes vacations, electronics and gift items, to arrive at net revenues. The estimated cost of providing these promotional allowances is charged to the casino department in the following amounts (in thousands):
For the For the For the For the Quarter Quarter Nine Months Nine Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2001 2000 2001 2000 ---------- ----------- ----------- ----------- Food and beverage $ 6,565 $ 5,606 $ 18,879 $ 17,889 Retail, entertainment and other 8,697 6,672 22,437 20,026 ---------- ----------- ----------- ----------- Total $ 15,262 $ 12,278 $ 41,316 $ 37,915 ========== =========== =========== ===========
Mohegan Sun Player's Club. The Mohegan Sun Player's Club is a voluntary program, without membership fees, which awards points to members based on their gaming activities. These points may be used to purchase items at restaurants and retail outlets located within Mohegan Sun 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 and table games, poker and racebook expenses and promotional expenses for the redemption of the Mohegan Sun Player's Club points and the Sun Select Catalog. EBITDA and Adjusted EBITDA. EBITDA represents earnings before interest, income taxes, depreciation and amortization. The EBITDA margin is calculated as EBITDA as a percentage of net revenue. Adjusted EBITDA represents further adjustments to EBITDA to remove the effects of pre-opening costs and expenses, accretion of relinquishment liability discount on the relinquishment liability to Trading Cove Associates ("TCA") pursuant to the Relinquishment Agreement, management fees paid to TCA pursuant to Management Agreement, discontinued operations and other non-operating income/expense. The Adjusted EBITDA margin is calculated as Adjusted EBITDA as a percentage of net revenue. Adjusted EBITDA should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States of America (such as operating income or net income), nor should it be considered as an indicator of the Authority's overall financial performance. The Authority's calculation of Adjusted EBITDA is likely to be different from the calculation of EBITDA or similar measurements used by other companies and therefore comparability may be limited. EBITDA and Adjusted EBITDA are computed as follows (in thousands): 24
For the For the Quarter Nine Months Ended For the Ended For the Nine June 30, Quarter Ended June 30, Months Ended 2001 June 30, 2000 2001 June 30, 2000 ---------------- ---------------- ----------------- ---------------- (restated - see (restated - see note 9 to the note 9 to the Authority's Authority's financial financial statements) statements) --------------- EBITDA Net income $ 45,289 $ 45,228 $ 118,862 $ 104,930 Add back: Interest expense, net of capitalized interest 3,219 8,132 13,524 31,291 Interest income (648) (2,892) (2,389) (10,435) Income taxes - - - - Depreciation and amortization 7,404 7,500 18,938 22,786 ------------ ------------- --------------- ----------- EBITDA $ 55,264 $ 57,968 $ 148,935 $ 148,572 ------------ ------------- --------------- ----------- EBITDA Margin 27.6% 31.4% 26.1% 27.5% Adjustments to EBITDA to reconcile to Adjusted EBITDA Pre-opening costs and expenses $ 3,724 $ 1,381 $ 7,040 $ 3,398 Accretion of relinquishment liability discount 8,958 5,763 26,874 17,290 Management fees - - - 13,634 Other income (expense), net 114 - 113 (2) Discontinued operations 64 159 591 465 ------------ ------------- --------------- ----------- Adjusted EBITDA $ 68,124 $ 65,271 $ 183,553 $ 183,357 ============ ============= =============== =========== Adjusted EBITDA Margin 34.0% 35.3% 32.1% 33.9%
Accretion of relinquishment liability discount and reassessment of relinquishment liability. The Authority stopped paying management fees to TCA due to the termination of the Management Agreement and began recognizing amounts due under the Relinquishment Agreement beginning January 1, 2000. Under the Management Agreement, TCA was responsible for the day-to-day management, operation and maintenance of Mohegan Sun. The Management Agreement authorized TCA to pay itself a management fee in monthly installments based on 30% to 40% of net income, before management fees, as defined in the Management Agreement, depending on profitability levels. Under the Relinquishment Agreement, the Authority and TCA agreed to terminate the Management Agreement with TCA on January 1, 2000. To compensate TCA for terminating its management rights, the Authority agreed to pay to TCA five percent of the revenues, as defined in the Relinquishment Agreement, generated by Mohegan Sun (including Project Sunburst) during the 15-year period commencing on January 1, 2000 and ending on December 31, 2014. The Authority has recorded a relinquishment liability of the estimated present value of its obligations under the Relinquishment Agreement. The relinquishment liability is reassessed when necessary to account for material increases or decreases in projected revenues and quarterly to reflect the impact on the time value of money due to the passage of time. In addition, the Authority has capitalized $130.0 million of this relinquishment liability in connection with the trademark value of the Mohegan Sun brand name. The Authority has recognized amortization associated with the $130.0 million trademark of $859,000 for each of the quarters ended June 30, 2001 and 2000. The Authority has recognized amortization associated with the 25 $130.0 million trademark of $2.6 million and $3.4 million for the nine months ended June 30, 2001 and 2000, respectively. See Note 8 to the Authority's financial statements beginning on page 3 for a further discussion of how the relinquishment liability and related reassessments are calculated. Results of Operations Comparison of Operating Results for the Quarters Ended June 30, 2001 and 2000: Net revenues for the quarter ended June 30, 2001 increased by $15.7 million, or 8.5%, to $200.5 million from $184.8 million for the quarter ended June 30, 2000. The increase is attributable primarily to an increase in gaming revenues. Adjusted EBITDA for the quarter ended June 30, 2001 increased by $2.9 million, or 4.4%, to $68.1 million from $65.3 million for the quarter ended June 30, 2000. Mohegan Sun achieved a 34.0% Adjusted EBITDA margin for the quarter ended June 30, 2001 compared to 35.3% for the quarter ended June 30, 2000. The decline in margin is the result of retail, entertainment and other and gaming expenses increasing at a greater rate than revenues. The Connecticut slot market grew at a rate of 6.3% for the quarter ended June 30, 2001 as compared to the quarter ended June 30, 2000. The State of Connecticut reported a gross slot win of $346.7 million and $326.0 million for the quarters ended June 30, 2001 and 2000, respectively. Mohegan Sun exceeded the market's growth in slot win as it experienced an increase in gross slot revenues of 10.0% in the quarter ended June 30, 2001 over the quarter ended June 30, 2000. Gross slot revenues were $150.5 million and $136.9 million for the quarters ended June 30, 2001 and 2000, respectively. Gross slot win per unit per day was $466 and $497 for the respective periods. Gaming revenues for the quarter ended June 30, 2001 increased by $14.1 million, or 7.9%, to $192.1 million from $178.0 million for the quarter ended June 30, 2000. This increase in gaming revenues is due to an 8.8% growth in net slot machine revenues and a 6.2% increase in table game revenues. Food and beverage revenues for the quarter ended June 30, 2001 increased by $1.6 million, or 14.3%, to $12.8 million from $11.2 million for the quarter ended June 30, 2000. The increase in food and beverage revenues is attributable principally to a 0.9% increase in meals served and a 9.3% increase in the average check for the quarter ended June 30, 2001 as compared to the same period in the prior year. Retail, entertainment and other revenues for the quarter ended June 30, 2001 increased by $1.7, million or 14.1%, to $14.0 million from $12.3 million for the quarter ended June 30, 2000. Of the $1.7 million increase in retail and other revenues, $937,000 is attributable to the increased sales at the Mohegan Sun gasoline and convenience center and $811,000 is attributable to increased entertainment revenue as a result of the Uncas Pavilion, a temporary entertainment structure used for special events. Promotional allowances for the quarter ended June 30, 2001 increased by $1.7 million, or 9.9%, to $18.4 million from $16.7 million for the quarter ended June 30, 2000. This increase is attributable to increased redemption of Mohegan Sun Player's Club points by patrons. Promotional allowances as a percentage of gaming revenues were 9.6% and 9.4% for the quarters ended June 30, 2001 and 2000, respectively. Total operating costs and expenses for the quarter ended June 30, 2001 increased by $15.1 million, or 11.8%, to $143.5 million from $128.4 million for the quarter ended June 30, 2000. This increase is primarily the result of increases in gaming and retail, entertainment and other expenses. Gaming costs and expenses for the quarter ended June 30, 2001 increased by $8.9 million or 11.3% to $87.0 million from $78.1 million for the quarter ended June 30, 2000. The Slot Win Contribution totaled $37.6 million and $34.2 million for the quarters ended June 30, 2001 and 2000, respectively. The Slot Win Contribution increase of $3.4 million, or 10.0%, over the same period in the prior year is attributable directly to the $11.8 million, or 8.8%, increase in net slot revenues. Gaming costs and expenses as a percentage of gaming revenues were 45.3% in the quarter ended June 30, 2001 compared to 43.9% in the quarter ended June 30, 2000. 26 Food and beverage costs and expenses for the quarter ended June 30, 2001 increased by $877,000, or 15.8%, to $6.4 million from $5.6 million for the quarter ended June 30, 2000. The increase is attributable primarily to higher labor and benefit costs. Retail, entertainment and other costs for the quarter ended June 30, 2001 increased by $3.2 million, or 85.7%, to $7.0 million from $3.8 million for the quarter ended June 30, 2000. This increase is directly attributable to 14.1% growth in retail, entertainment and other revenues, which is attributable to the shift of complimentary point redemption from food and beverage to retail outlets and the Mohegan Sun gasoline and convenience center. Marketing, general and administrative costs and expenses for the quarter ended June 30, 2001 decreased by $85,000, or 0.3%, to $32.0 million from $32.1 million for the quarter ended June 30, 2000. The decrease is attributable to the Authority's effort to manage marketing, general and administrative costs. Pre-opening costs and expenses for the quarter ended June 30, 2001 increased by $2.3 million, or 169.7%, to $3.7 million from $1.4 million for the quarter ended June 30, 2000. Pre-opening costs are comprised primarily of pre-opening labor and marketing costs associated with the Project Sunburst expansion. Depreciation and amortization for the quarter ended June 30, 2001 decreased by $96,000, or 1.3%, to $7.4 million from $7.5 million for the quarter ended June 30, 2000. The decrease is attributable to decreased depreciation on furniture and equipment versus the same period in the prior year. Income from operations for the quarter ended June 30, 2001 increased by $606,000, or 1.1%, to $57.0 million from $56.4 million for the quarter ended June 30, 2000. The increase is attributable to increases in gross revenues, partially offset by increases in gaming, food and beverage, and retail, entertainment and other costs. Accretion of relinquishment liability discount for the quarter ended June 30, 2001 increased by $3.2 million, or 55.4%, to $9.0 million from $5.8 million for the quarter ended June 30, 2000. This increase is due to the Authority's quarterly accretion of the liability to reflect the impact of the time value of money due to the passage of time. Interest income for the quarter ended June 30, 2001 decreased by $2.2 million, or 77.6%, to $648,000 from $2.9 million for the quarter ended June 30, 2000. The decrease in interest income resulted from the liquidation of investments to fund Project Sunburst. The weighted average invested cash was $39.3 million and $173.5 million for the quarters ended June 30, 2001 and 2000, respectively. The Authority invests its excess cash in investment-grade commercial paper having maturities of not more than six months from the date of acquisition. Interest expense for the quarter ended June 30, 2001 decreased by $4.9 million, or 60.4%, to $3.2 million from $8.1 million for the same period in the prior year. Included in interest expense for the quarter ended June 30, 2001 is a net loss of $85,000 due to the change in the fair value of the Authority's derivative instruments. This decrease in interest expense is attributable mainly to a lower average interest rate and increased capitalization of interest related to Project Sunburst, partially offset by an increase in average debt outstanding. Capitalized interest was $11.5 million for the quarter ended June 30, 2001 compared to $2.7 million for the same period in the prior year. The weighted average interest rate for the quarter ended June 30, 2001 was 7.7 %, compared to 8.4% for the quarter ended June 30, 2000. The weighted average outstanding debt was $730.7 million for the quarter ended June 30, 2001, compared to $511.3 million for the quarter ended June 30, 2000. Loss from discontinued operations associated with the conversion of the bingo hall into the Hall of the Lost Tribes smoke-free slot machine venue for the quarter ended June 30, 2001 decreased by $95,000, or 59.7%, to $64,000 from $159,000 for the quarter ended June 30, 2000. Net income for the quarter ended June 30, 2001 increased by $61,000, or 0.1%, to $45.3 million from $45.2 million for the quarter ended June 30, 2000. The increase relates to a reduction in interest expense mentioned above, 27 partially offset by a higher accretion of relinquishment liability discount and a reduction in income from operations discussed above. Comparison of Operating Results for the Nine Months Ended June 30, 2001 and 2000: Net revenues for the nine months ended June 30, 2001 increased by $31.1 million, or 5.8%, to $571.4 million from $540.3 million for the nine months ended June 30, 2000. This increase is attributable primarily to an increase in gaming revenues. Adjusted EBITDA for the nine months ended June 30, 2001 increased by $196,000, or 0.1%, to $183.6 million from $183.4 million for the nine months ended June 30, 2000. Mohegan Sun achieved a 32.1% Adjusted EBITDA margin for the nine months ended June 30, 2001 compared to a 33.9% Adjusted EBITDA margin for the nine months ended June 30, 2000. The decline in margin is the result of marketing, general and administrative, retail, entertainment and other and gaming expenses increasing at a greater rate than revenues. The Connecticut slot market grew at a rate of 3.2% for the nine months ended June 30, 2001 as compared to the nine months ended June 30, 2000. The State of Connecticut reported a gross slot win of $973.5 million and $943.5 million for the nine months ended June 30, 2001 and 2000, respectively. Mohegan Sun exceeded the market's growth in slot win as it experienced an increase in gross slot revenues of 6.8% in the nine months ended June 30, 2001 over the nine months ended June 30, 2000. Gross slot revenues were $417.7 million and $391.1 million for the nine months ended June 30, 2001 and 2000, respectively. Gross slot win per unit per day was $478 and $472 for the respective periods. Gaming revenues for the nine months ended June 30, 2001 increased by $29.1 million, or 5.6%, to $547.6 million from $518.5 million for the nine months ended June 30, 2000. The increase in gaming revenues is due to a 5.6% growth in slot machine revenues and a 6.5% increase in table game revenues. Food and beverage revenues for the nine months ended June 30, 2001 increased by $371,000, or 1.1%, to $34.6 million from $34.2 million for the nine months ended June 30, 2000. The increase in food and beverage revenues is principally attributable to a 7.2% increase in the average check, partially offset by a 5.0% decrease in meals served for the nine months ended June 30, 2001 as compared to the same period in the prior year. Retail, entertainment and other revenues for the nine months ended June 30, 2001 increased by $4.3 million, or 11.1% to $42.6 million from $38.3 million for the nine months ended June 30, 2000. Of the $4.3 million increase in retail, entertainment and other revenues, $1.6 million is attributable to increased retail revenues and $2.4 million is attributable to the increased sales at the Mohegan Sun gasoline and convenience center. The increase also is attributable to entertainment revenue growth of $679,000 related to the Uncas Pavilion, a temporary entertainment structure used for special events. These increases are partially offset by a decrease in other revenues of $450,000 primarily related to slot entry fee revenue during the nine months ended June 30, 2000. There were no slot entry fees during the nine months ended June 30, 2001. Promotional allowances for the nine months ended June 30, 2001 increased by $2.7 million, or 5.2%, to $53.4 million from $50.7 million for the nine months ended June 30, 2000. The growth is primarily attributable to increased redemption of Mohegan Sun Player's Club points by patrons. Promotional allowances as a percentage of gaming revenues were 9.8% for both the nine months ended June 30, 2001 and 2000. Total operating costs and expenses for the nine months ended June 30, 2001 increased by $17.0 million, or 4.3%, to $413.8 million from $396.8 million for the nine months ended June 30, 2000. This increase is primarily the result of increases in gaming, retail and marketing, general and administrative costs, partially offset by a reduction in management fees due to the termination of the Management Agreement. Gaming costs and expenses for the nine months ended June 30, 2001 increased by $17.6 million or 7.8% to $243.1 million from $225.5 million for the nine months ended June 30, 2000. The Slot Win Contribution totaled $104.4 million and $97.8 million for the nine months ended June 30, 2001 and 2000, respectively. The Slot Win Contribution increase of $6.6 million, or 6.8%, over the nine months ended June 30, 2000 is attributable to the $21.6 28 million, or 5.6%, increase in net slot revenues. Gaming costs and expenses as a percentage of gaming revenues were 44.4% in the nine months ended June 30, 2001 compared to 43.5% in the nine months ended June 30, 2000. Food and beverage costs and expenses for the nine months ended June 30, 2001 increased by $1.0 million, or 5.9%, to $18.5 million from $17.4 million for the nine months ended June 30, 2000. The increase is primarily attributable to higher labor and benefit costs. Retail, entertainment and other costs and expenses for the nine months ended June 30, 2001 increased by $6.6 million or 41.4% to $22.5 million from $15.9 million for the quarter ended June 30, 2000. The increase is attributable directly to the 11.1% growth in retail, entertainment and other revenues, which is attributable to the shift of complimentary point redemption from food and beverage to retail outlets and the Mohegan Sun gasoline and convenience center. Marketing, general and administrative costs and expenses for the nine months ended June 30, 2001 increased by $5.7 million, or 5.8%, to $103.8 million from $98.1 million for the nine months ended June 30, 2000. The increase is attributable to advertising campaigns and higher utility costs. Management believes marketing programs have increased patronage and have expanded Mohegan Sun's brand awareness and market share. Pre-opening costs and expenses for the nine months ended June 30, 2001 increased by $3.6 million, or 107.2%, to $7.0 million from $3.4 million for the nine months ended June 30, 2000. Pre-opening costs and expenses are comprised primarily of pre-opening labor and marketing costs associated with the Project Sunburst expansion. TCA did not receive management fees for the nine months ended June 30, 2001, as a result of the termination of the Management Agreement on January 1, 2000. Management fees earned by TCA totaled $13.6 million for the nine months ended June 30, 2000. Depreciation and amortization for the nine months ended June 30, 2001 decreased by $3.8 million, or 16.9%, to $18.9 million from $22.8 million for the nine months ended June 30, 2000. This decrease is attributable to decreased depreciation on furniture and equipment versus the same period in the prior year, and the prior year acceleration of the amortization of the trademark. Income from operations for the nine months ended June 30, 2001 increased by $14.0 million, or 9.8%, to $157.6 million from $143.5 million for the nine months ended June 30, 2000. The increase is attributable to an increase in gross revenues, partially offset by an increase in gaming, retail, entertainment and other, and marketing, general and administrative expenses. Accretion of relinquishment liability discount for the nine months ended June 30, 2001 increased by $9.6 million, or 55.4%, to $26.9 million from $17.3 million for the nine months ended June 30, 2000. This increase is due to the Authority's quarterly accretion of the liability to reflect the impact of the time value of money due to the passage of time. Interest income for the nine months ended June 30, 2001 decreased by $8.0 million, or 77.1%, to $2.4 million from $10.4 million for the nine months ended June 30, 2000. The decrease in interest income resulted from the liquidation of investments to fund Project Sunburst. The weighted average invested cash was $14.2 million and $73.5 million for the nine months ended June 30, 2001 and 2000, respectively. The Authority invests in investment-grade commercial paper having maturities of not more than six months from the date of acquisition. Interest expense for the nine months ended June 30, 2001 decreased by $17.8 million, or 56.8%, to $13.5 million from $31.3 million for the nine months ended June 30, 2000. Included in interest expense for the nine months ended June 30, 2001 is a net loss of $2.4 million due to the change in the fair value of its derivative instruments. This decrease in interest expense was attributable mainly to increased capitalization of interest related to Project Sunburst, partially offset by an increase in average debt outstanding. Capitalized interest was $28.2 million for the nine months ended June 30, 2001 compared to $5.6 million for the same period in the prior year. The weighted average interest rate for the nine months ended June 30, 2001 was 8.0%, compared to 8.4% for the nine 29 months ended June 30, 2000. The weighted average outstanding debt was $610.5 million for the nine months ended June 30, 2001, compared to $514.3 million for the nine months ended June 30, 2000. Other income (expense), net was $113,000 for the nine months ended June 30, 2001, representing the disposal of assets. There was no material other income (expense), net for the same period in the prior year. Loss from discontinued operations associated with the conversion of the bingo hall into the Hall of the Lost Tribes smoke-free slot machine venue for the nine months ended June 30, 2001 and 2000 totaled $591,000 and $465,000, respectively. Net income for the nine months ended June 30, 2001 increased by $13.9 million, or 13.3%, to $118.9 million from $104.9 million for the nine months ended June 30, 2000. This increase is primarily due to an increase in income from operations and a decrease in interest expense, partially offset by a increase in the accretion of the relinquishment liability discount as mentioned above. Liquidity, Capital Resources and Capital Spending As of June 30, 2001, the Authority held cash and cash equivalents of $76.2 million, a decrease of $39.5 million from $115.7 million as of September 30, 2000. The decrease is attributable mainly to the decrease in investments held at June 30, 2001 due to liquidation of investments for construction payments. Cash provided by operating activities for the nine months ended June 30, 2001 increased by $15.6 million, or 12.6%, to $139.2 million from $123.6 million for the nine months ended June 30, 2000. The increase is attributable to an increase in net income partially offset by lower working capital needs. During fiscal year 2001, the Authority has drawn $274.0 million from the Bank Credit Facility. During fiscal year 2000, the Authority tendered $90.0 million of Subordinated Notes using the defeasance trust asset established in fiscal year 1999, for the sum of $140.3 million, including all accrued and deferred interest on December 30, 1999. Operating activities are the principal source of the Authority's cash flows. The principal application of these funds was capital expenditures incurred in connection with the construction and development of Project Sunburst and other real property improvements. While the Authority does not believe that there is any trend or a likelihood of an event that would adversely impact the level of cash generated by its activities, there are numerous potential factors which may cause a substantial reduction in the amount of cash flow, including, but not limited to the following: . downturn in the economy and lack of consumer confidence, which would result in reduced spending on discretionary items such as gaming activities; . substantial cost overruns in connection with completion of Project Sunburst; . operating expenses increasing at a greater rate than revenue; and . increased competition in the gaming industry, or the legalization of gaming activities in the State of Connecticut, which may result in a substantial decrease in revenue. In addition to cash generated by operating activities, the Authority has relied on external sources of liquidity to meet its operating and investing requirements. External Sources of Liquidity Bank Credit Facility. As of June 30, 2001, the Authority had $274.0 million outstanding under a $500.0 million reducing, revolving, collateralized credit facility (the "Bank Credit Facility"), with a syndicate of lenders led by Bank of America N.A. (formerly known as Bank of America National Trust and Savings Association), which will mature in March 2004. On July 30, 2001, the Authority paid down $90.0 million on the Bank Credit Facility from a portion of the proceeds from the Authority's $150 million 8.375% Senior Subordinated Notes, due 2011, issued on July 26, 2001. 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 30 the Authority's assets, by a leasehold mortgage on the land and improvements which comprise Mohegan Sun, and by each of the Authority's cash operating accounts. At the Authority's option, each advance of loan proceeds accrues on the basis of base rate or on the basis of a one-month, two-month, three-month or six-month London Inter-Bank Offered Rate ("LIBOR") plus, in either case, the applicable spread (based on the Authority's Total Leverage Ratio, as defined in the Bank Credit Facility). As of June 30, 2001, one-month LIBOR was 3.86% and the applicable spread on a LIBOR loan was 1.625%. Interest on each LIBOR loan, that is for a term of three months or less shall be due and payable on the last day of the related interest period. Interest on each LIBOR loan that is for a term of more than three months is due and payable on the date which is three months after the date such LIBOR loan was made and every three months thereafter and on the last day of the interest period. The Authority had no base rate loans at June 30, 2001. Accrued interest on the Bank Credit Facility was $290,000 as of June 30, 2001. Pursuant to the terms of the Bank Credit Facility, the commitment (or the maximum amount that may be borrowed under the Bank Credit Facility) will be reduced automatically as of the earlier of March 31, 2002 or the last full day of the first full quarter following the completion date of Project Sunburst, and on the last day of each fiscal quarter thereafter, by 10% of the commitment as in effect immediately prior to the first such reduction. The Bank Credit Facility contains various provisions that require the Authority to maintain specified financial ratios. If the Authority's revenues decline due to economic or competitive factors, it is possible that these financial ratios may be violated. If this were to happen, the Authority would not be able to borrow additional funds under the Bank Credit Facility and it may even result in an event of default, which could accelerate the payment of any outstanding balance. In addition, while the Authority has entered into some hedging transactions to mitigate against its exposure to interest rate fluctuations on the Bank Credit Facility, the majority of the outstanding balance is subject to interest rate fluctuations. It is possible that the interest rate will start to increase, which would mean that the Authority's interest cost may increase significantly. A substantial increase in interest expense could have a negative effect on the Authority's liquidity. For a further discussion on hedging transactions that mitigate against this exposure, see "Quantitative and Qualitative Disclosure of Market Risk" and Note 4 to the Authority's financial statements. In addition to the financing provided by the Senior Notes, Senior Subordinated Notes and the Bank Credit Facility, the Tribe has set aside, with a trustee, a $40.0 million, fully-funded construction reserve account that, in certain circumstances, may be used to pay costs in excess of the Project Sunburst budget. Capital Expenditures Capital Expenditures Incurred to Date. Capital expenditures totaled $456.6 million, including capitalized interest, for the nine months ended June 30, 2001, versus $150.7 million for the same period in the prior year. These capital expenditures were an aggregate of the following: . Cumulative Project Sunburst construction expenses totaled $696.7 million, including $38.6 million in capitalized interest, through June 30, 2001. During the nine months ended June 30, 2001, expenditures totaled $421.5 million, including $28.2 million in capitalized interest, versus $124.8 million, including $5.6 million in capitalized interest, for the nine months ended June 30, 2000. . Property maintenance capital expenditures for furniture, fixtures and equipment totaled $14.7 million and $11.5 million for the nine months ended June 30, 2001 and 2000, respectively. . Employee parking center capital expenditures totaled $1.2 million and $14.4 million for the nine months ended June 30, 2001 and 2000, respectively. Cumulative expenditures on the employee parking center have totaled $24.9 million through June 30, 2001. 31 . Utility enhancement capital expenditures totaled $6.7 million for the nine months ended June 30, 2001. Cumulative expenditures on utility enhancement have totaled $10.2 million through June 30, 2001. The Authority did not incur any expenditures in connection with the utility enhancements during the nine months ended June 30, 2000. . Capital expenditures for the construction of the new 637-unit Hall of Lost Tribes smoke free slot machine venue were $12.1 million for the nine months ended June 30, 2001. The Authority did not incur any expenses in conjunction with the Hall of the Lost Tribes for the nine months ended June 30, 2000. Cumulative expenditures on the Hall of the Lost Tribes have totaled $12.1 million through June 30, 2001. . Capital expenditures for the construction of the employee day care facility were $68,000 during the nine months ended June 30, 2001. The Authority did not incur any construction expenses in conjunction with the employee day care facility during the nine months ended June 30, 2000. Cumulative expenditures on the employee day care facility have totaled $68,000 through June 30, 2001. In keeping with standard practice in the construction industry, the Authority retains a portion of the construction expenditures until satisfactory completion of individual contracts. As of June 30, 2001, construction retainage totaled $23.9 million, which has been included in construction payables in the Authority's financial statements. Expected future capital expenditures. During the remainder of fiscal year 2001, the Authority expects to incur capital expenditures to total approximately $269.3 million and to be allocated as follows: . $10.3 million on maintenance capital expenditures. . $230.8 million, excluding capitalized interest, on Project Sunburst construction. . $7.9 million on conversion of the bingo hall into the Hall of the Lost Tribes smoke-free slot machine venue. . $11.3 million on utility enhancements. . $1.0 million on an employee day care center. . $8.0 million on an additional patron parking garage. Project Sunburst On October 13, 2000, the Tribal Council approved a formal resolution increasing the expansion budget from $800.0 million to $960.0 million (excluding capitalized interest, which will be paid from internally generated funds). The Authority, in conjunction with the Tribe, has increased the Project Sunburst budget to $960.0 million for three reasons: (1) enhancements to project scope such as an increase in the number of slot machines from 2,000 to 2,550; (2) quality improvements to the hotel and public areas; and (3) expected increases in Project Sunburst labor costs because of the extremely competitive nature of the Northeast construction labor market. As a result of the increase to the Project Sunburst budget, the Authority issued an additional $150.0 million of 8.375% Senior Subordinated Notes, due 2011, on July 26, 2001. The remainder of the increase will be funded through internally generated funds. As of June 30, 2001, cumulative capitalized interest for Project Sunburst construction expenses totaled $38.6 million. Capitalized interest for the quarters ended June 30, 2001 and 2000 totaled $11.5 million and $2.7 million, respectively. For the nine months ended June 30, 2001 and 2000, capitalized interest totaled $28.2 million and $5.6 million, respectively. During fiscal year 1998, the Authority finalized contract negotiations with TCA for Project Sunburst ("Development Agreement"). Under the Development Agreement, TCA will oversee the planning, design and construction of the expansion at Mohegan Sun and will receive a development fee of $14.0 million for such services. As of June 30, 2001, TCA had earned $9.3 million of the development fee, of which $7.1 million had been paid. The 32 Authority has incurred $2.2 million and $1.3 million, respectively, for the quarters ended June 30, 2001 and 2000 related to the development fee. Development fees incurred for the nine months ended June 30, 2001 and 2000 totaled $4.4 million and $3.5 million, respectively. The Casino of the Sky, Mohegan Sun Arena and the Shops at Mohegan Sun are expected to open in late September 2001. The approximately 1,200-room hotel and the convention space are expected to open in April 2002. Sources of funding for capital expenditures. The Authority will rely primarily on cash generated from its operations and amounts available to be drawn under the Bank Credit Facility to finance these capital expenditures. However, the Authority's ability to finance sufficiently the anticipated capital expenditures from these sources depends on its ability to maintain a stable level of cash generation from its operations and it ability to draw down on the Bank Credit Facility. Other Property Enhancements The Authority commenced construction of an electrical and water system infrastructure ("Infrastructure Improvements"), estimated to cost $35.0 million, that will service Mohegan Sun and other facilities. The Infrastructure Improvements provide the most efficient manner of handling the increased utility demands of the expanded facility that are attributable to the Project Sunburst expansion. The construction was funded by the Authority, and is expected to be complete concurrent with the opening of Project Sunburst. As of June 30, 2001, approximately $23.7 million has been incurred in connection with construction of the Infrastructure Improvements and $10.2 million of these assets were placed in service. Infrastructure Improvement spending for the final quarter of fiscal year 2001 is anticipated to be $11.3 million. The Authority, in conjunction with the Project Sunburst expansion, commenced construction on the Employee Parking Center in March 1999. The Employee Parking Center includes 2,700 parking spaces and amenities such as a dry cleaning service, on-site banking, an employee computer/training center and a 15,000 square foot exercise facility. The Employee Parking Center opened in June 2000. The total cost of the Employee Parking Center was $24.9 million. The Employee Parking Center was completed in January 2001. The Tribe commenced construction of a Public Safety Facility in December 1999, within the Eagleview complex, that will service the Mohegan Reservation. Construction was funded initially by the Authority and subsequently reimbursed by the Tribe. The total cost of the Public Safety Facility is $6.8 million. The Authority also initially has funded other Tribal projects, including the construction of a temporary Tribal office, construction of roads and improvements made to the Town of Montville's wastewater collection and treatment facilities. The total amount incurred by the Authority for these projects, including the Public Safety Facility, is $42.2 million. To date, $16.3 million has been reimbursed by the Tribe, and $25.9 million is reflected in amounts due from Tribe in the Authority's balance sheet as of June 30, 2001 for these projects. The due from Tribe amount on the balance sheet also includes $1.7 million of operational receivables. On August 8, 2001, the Tribe reimbursed the Authority $27.6 million. The reimbursement relates to construction that will service the Mohegan Reservation that was funded initially by the Authority and other various operating expenses. 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 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 $673.6 million as of June 30, 2001. The Authority reassesses the relinquishment liability when necessary to account for material increases or decreases in projected revenues and quarterly to reflect the impact on the time value of money due to the passage of time. See Note 8 to the Authority's financial statements. The Authority has capitalized $130.0 million of the relinquishment liability associated with the trademark value of the Mohegan Sun brand name. For the nine months 33 ended June 30, 2001 the Authority paid $26.1 million in relinquishment payments, of which $6.9 million represents principal amounts and the remaining $19.2 million is payment for the accretion of interest. As of June 30, 2001, relinquishment payments earned but unpaid were $16.0 million. During the nine months ended June 30, 2000, the Authority paid $4.9 million in relinquishment payments consisting of $2.0 million in principal amounts and $2.9 million for the accretion of interest. Distributions to the Tribe During the quarters ended June 30, 2001 and 2000, the Authority distributed $20.0 million and $10.0 million, respectively, to the Tribe. During the nine months ended June 30, 2001 and 2000, the Authority distributed $40.0 million and $32.2 million, respectively, to the Tribe. Debt Service Costs For the quarter and nine months ended June 30, 2001 and 2000, the Authority incurred the following debt service costs (in thousands):
For the Quarter For the Quarter For the Nine Months For the Nine Months Ended June 30, Ended June 30, Ended June 30, Ended June 30, 2001 2000 2001 2000 ----------------- --------------- ------------------- ------------------- (restated - see (restated - see note 9 to the note 9 to the Authority's Authority's financial financial statements) statements) Bank Credit Facility $ 2,795 $ - $ 3,882 $ - $200M 8.125% Senior Notes 4,062 4,062 12,187 12,187 $300M 8.75% Senior Subordinated Notes 6,563 6,563 19,688 19,688 Financing fees 1,163 - 3,257 - Capital lease obligations 47 241 236 898 $50M Subordinated Notes - - - 2,648 $40M Subordinated Notes - - - 1,473 Change in fair market value of derivative instruments 85 - 2,488 - Capitalized interest (11,496) (2,734) (28,214) (5,603) --------------- --------------- --------------- --------------- Total Interest Expense $ 3,219 $ 8,132 $ 13,524 $ 31,291 =============== =============== =============== ===============
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. 34
Contractual Obligations Fiscal Year (in thousands) 2001 (1) 2-3 years 4-5 years After 5 years ----------------------------------------------------------------------------------------- Long-term debt (2) $ - $ - $274,000 $500,000 Construction obligations (3) 665,820 141,671 - - Development obligations (4) 9,282 4,718 - - ------------------------------------------------- Total $675,102 $146,389 $274,000 $500,000 =================================================
(1) Amounts due within one year represent obligations expected to be incurred from October 1, 2000 to September 30, 2001. (2) Long-term debt includes scheduled amortization and scheduled maturities for notes payable and credit facilities, but excludes interest payments. (3) Construction obligations represent the remainder of expenditures the Authority must pay in connection with Project Sunburst and related construction enhancements. See Note 7 to the Authority's financial statements. The Authority does not believe that it will have any construction obligations after September 30, 2002, and this table has been prepared based on that assumption. (4) Under the Development Agreement, the Authority is required to pay to TCA a development fee of $14.0 million. Development obligations represent the remainder of the fee due to TCA. See Note 8 to the Authority's financial statements. The Authority does not believe that it will have any development fee obligations after September 30, 2002, and this table has been prepared based on that assumption. In addition to the contractual obligations described above, the Authority has certain other contractual commitments that will require payments throughout the periods described below. The calculation of the estimated payments in the table below are based, in large part, on projections of future revenues over an extended period of time, as well as other factors which are indicated more fully in the footnotes to the following table. Since there is a high level of estimates and judgments used with respect to calculating these liabilities, future events that affect such estimates and judgments may cause the actual payments to differ significantly from the estimates set forth below. The amounts included in the table below 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) 2001 (1) 2-3 years 4-5 years 5-10 years ------------------------------------------------------------------------------------------------ Slot winning payment commitments (2) 144,589 373,009 408,682 1,150,391 Relinquishment commitments (3) 42,899 119,017 133,810 376,658 --------------------------------------------------------- Total $187,488 $492,026 $542,492 $1,527,049 =======================================================
(1) Amounts due within one year represent payment commitments from October 1, 2000 to September 30, 2001. (2) Slot winning payment commitments are a portion of the revenues earned on slot machines that must be paid by the Authority to the State of Connecticut pursuant to the Mohegan Compact. The payment commitment is the lesser of (a) 30% of gross revenues from slot machines, or (b) the greater of (i) 25% of gross revenues from slot machines or (ii) $80.0 million. For the fiscal years ended September 30, 2000 and 1999, the Slot Win Contribution totaled $135.1 million and $121.1 million, respectively. The amounts shown in this table are estimates of the required payments for the next ten years. (3) Relinquishment commitments represent payment commitments of the Authority to TCA under the Relinquishment Agreement as described in Note 8 to the Authority's financial statements. The relinquishment commitment is calculated as five percent of revenues, as defined in the Relinquishment Agreement. The amounts shown in this table are estimates of the required payments for the next ten years and have been calculated in accordance with the Relinquishment Agreement. See Note 8 to the Authority's financial statements. 35 Critical Accounting Policies and Estimates Management has identified the following critical accounting policies that affect the Authority's more significant judgments and estimates used in the preparation of the Authority's financial statements. The preparation of the Authority's financial statements in conformity with accounting principles generally accepted in the United States of America requires the Authority's management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, management evaluates those estimates, including those related to asset impairment, accruals for Player's Club points, self-insurance, compensation and related benefits, revenue recognition, allowance for doubtful accounts, contingencies and litigation. The Authority states these accounting policies in the notes to the financial statements and in relevant sections in this discussion and analysis. These estimates are based on the information that is currently available to the Authority and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could vary from those estimates. The Authority believes that the following critical accounting policies affect significant judgments and estimates used in the preparation of its financial statements: One of the most significant policies used by the Authority relates to its estimate of its relinquishment liability. The Authority, in accordance with Statement of Financial Accounting Standards No. 5 "Accounting for Contingencies", has recorded a relinquishment liability of the estimated present value of its obligations under the Relinquishment Agreement. The Authority reassesses the relinquishment liability when necessary to account for material increases or decreases in projected revenues and quarterly to reflect the impact on the time value of money due to the passage of time. See Note 8 to the Authority's financial statements. Since there is a high level of estimates and judgments used with respect to calculating this liability, future events that affect such estimates and judgments may cause the actual liability to differ significantly from the estimate. The Authority recognizes revenue as net wins and losses occur in the casino and upon delivery of food, beverage and other services. The Authority maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments, which results in bad debt expense. Management determines the adequacy of this allowance by continually evaluating individual customer receivables, considering the customer's financial condition, credit history and current economic conditions. If the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Authority maintains accruals for workers compensation self-insurance and Player's Club points redemption, which are classified in other accrued liabilities in the accompanying balance sheets. Management determines the adequacy of these accruals by periodically evaluating the historical experience and projected trends related to these accruals. If such information indicates that the accruals are overstated or understated, the Authority will adjust the assumptions utilized in the methodologies and reduce or provide for additional accruals as appropriate. The Authority is subject to various claims and legal actions in the ordinary course of business. Some of these matters relate to personal injuries to customers and damage to customers' personal assets. Management estimates guest claims expense and accrues for such liability based upon historical experience in the accounts payable and accrued expenses category in its accompanying balance sheets. Impact of Inflation Absent changes in competitive and economic conditions or in specific prices affecting the hotel and casino industry, the Authority does not expect that inflation will have a significant impact on its operations. Changes in specific prices, such as fuel and transportation prices, relative to the general rate of inflation may have a material adverse effect on the hotel and casino industry in general. 36 Item 3. Quantitative and Qualitative Disclosure of Market Risk. Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. The Authority's primary exposure to market risk is interest rate risk associated with its $500.0 million Bank Credit Facility in which interest will accrue on the basis of a base rate formula or a LIBOR-based formula, plus applicable spreads. See Note 4 to the Authority's financial statements for further details relating to the terms and conditions of the Bank Credit Facility. As of June 30, 2001, the Authority had drawn $274.0 million on the Bank Credit Facility. On July 30, 2001, the Authority paid down $90.0 million on the Bank Credit Facility. The Authority uses derivative instruments, including an interest rate cap, interest rate collar and an interest rate swap as its strategy to manage interest rate risk associated with the variable interest rates applicable to advances under the Bank Credit Facility. The following table provides information about the Authority's derivative instruments at June 30, 2001:
Estimated Fair Maturity Date Notional Value Value ------------- -------------- ----- Interest Rate Cap Strike Rate - 8% October 1, 2003 $ 39,621,200 $ 3,000 Interest Rate Collar Ceiling Strike Rate - 8% Floor Strike Rate - 6% March 1, 2004 25,704,800 (1,732,268) Interest Rate Swap Pay fixed - 6.35% Receive Variable March 1, 2004 12,852,400 (1,003,760) ------------- ----------- Total $ 78,178,400 $(2,733,028) ============= ===========
All derivative instruments are based upon one-month LIBOR, which was 3.86% on June 30, 2001. 37 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 July 18, 2001 the Authority filed a Current Report on Form 8-K to report a press release announcing the Authority's financial results for the quarter ended June 30, 2001. 38 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. MOHEGAN TRIBAL GAMING AUTHORITY ------------------------------- Date: November 12, 2002 By: /s/ Mark F. Brown ------------------ -------------------------------------------------- Mark F. Brown Chairman, Management Board Date: November 12, 2002 By: /s/ William J. Velardo ------------------ -------------------------------------------------- William J. Velardo President and Chief Executive Officer Date: November 12, 2002 By: /s/ Jeffrey E. Hartmann ------------------ -------------------------------------------------- Jeffrey E. Hartmann, Executive Vice President Finance/ Chief Financial Officer (Principal Financial and Accounting Officer) 39 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 40 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 41 Exhibit Index Exhibit Exhibit Description No. 3.1 Constitution of the Mohegan Tribe of Indians of Connecticut (filed as Exhibit 3.1 to the Registration Statement on Form S-1, File No. 33-80655, filed with the SEC on December 21, 1995 (the "1996 Form S-1"), and incorporated by reference herein). 3.2 Ordinance No. 95-2 of the Tribe for Gaming on Tribal Lands, enacted on July 15, 1995 (filed as Exhibit 3.2 to the 1996 Form S-1 and incorporated by reference herein). 4.1 Relinquishment Agreement dated February 7, 1998 by and among the Mohegan Tribal Gaming Authority, The Mohegan Tribe of Indians of Connecticut and Trading Cove Associates (filed as Exhibit 10.14 to Form 10-K for the Authority's fiscal year ended September 30, 1998, File No. 33-80653, and incorporated by reference herein). 4.2 Indenture dated March 3, 1999 among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and First Union National Bank, as Trustee, relating to the 8 1/8% Senior Notes Due 2006 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.3 to Registration Statement on Form S-4, File No. 333-76753, filed with the SEC on April 21, 1999 (the "1999 Form S-4"), and incorporated by reference herein). 4.3 Form of Global 8 1/8% Senior Note Due 2006 of the Mohegan Tribal Gaming Authority (contained in the Indenture filed as Exhibit 4.3 to the 1999 Form S-4 and incorporated by reference herein). 4.4 Senior Registration Agreement dated March 3, 1999 among the Mohegan Tribal Gaming Authority, Salomon Smith Barney Inc., NationsBanc Montgomery Securities, LLC, SG Cowen Securities Corporation, Bear, Sterns & Co. Inc., BankBoston Robertson Stephens Inc. and Fleet Securities, Inc. (filed as Exhibit 4.5 to the 1999 Form S-4 and incorporated by reference herein). 4.5 Indenture dated as of March 3, 1999 among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and State Street Bank and Trust Company, as Trustee, relating to the 8 3/4% Senior Subordinated Notes Due 2009 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.6 to the 1999 Form S-4 and incorporated by reference herein). 4.6 Form of Global 8 3/4% Senior Subordinated Notes Due 2009 of the Mohegan Tribal Gaming Authority (contained in the Indenture filed as Exhibit 4.6 to the 1999 Form S-4 and incorporated by reference herein). 4.7 Senior Subordinated Registration Agreement dated March 3, 1999 among the Mohegan Tribal Gaming Authority, Salomon Smith Barney Inc., NationsBanc Montgomery Securities LLC, SG Cowen Securities Corporation, Bear, Stearns & Co. Inc., BankBoston Robertson Stephens Inc. and Fleet Securities, Inc. (filed as Exhibit 4.8 to the 1999 Form S-4 and incorporated by reference herein). 4.8 Indenture dated as of July 26, 2001 among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and State Street Bank and Trust Company, as Trustee, relating to the 8 3/8% Senior Subordinated Notes Due 2011 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.9 to Registration Statement on Form S-4, File No. 333-69472, filed with the SEC on September 14, 2001 (the "2001 Form S-4") and incorporated by reference herein). 42 Exhibit No. Exhibit Description 4.9 Form of Global 8 3/8% Senior Subordinated Notes Due 2011 of the Mohegan Tribal Gaming Authority (contained in the Indenture filed as Exhibit 4.9 to the 2001 Form S-4 and incorporated by reference herein). 4.10 Registration Rights Agreement dated July 26, 2001 among the Mohegan Tribal Gaming Authority, Salomon Smith Barney Inc., Banc of America Securities LLC, Fleet Securities, Inc., SG Cowen Securities Corporation, Commerzbank Capital Markets Corp., McDonald Investments Inc. and Wells Fargo Brokerage Services, LLC (filed as Exhibit 4.11 to the 2001 Form S-4 and incorporated by reference herein). 99.1* Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2* Certification of Executive Vice President, Finance and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * Filed herewith 43 EX-99.1 3 dex991.txt WRITTEN STATEMENT Exhibit 99.1 Written Statement of President and Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) The undersigned, the President and Chief Executive Office of the Mohegan Tribal Gaming Authority (the "Authority"), hereby certifies that, to his knowledge, on the date hereof: (a) the Quarterly Report on Form 10-Q/A of the Authority for the Quarter Ended June 30, 2001 filed on the date hereof with the Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (b) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Authority. /s/ William J. Velardo --------------------------------- William J. Velardo President and Chief Executive Officer November 12, 2002 44 EX-99.2 4 dex992.txt WRITTEN STATEMENT Exhibit 99.2 Written Statement of Executive Vice President, Finance and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) The undersigned, the Executive Vice President, Finance and Chief Financial Officer of the Mohegan Tribal Gaming Authority (the "Authority"), hereby certifies that, to his knowledge, on the date hereof: (a) the Quarterly Report on Form 10-Q/A of the Authority for the Quarter Ended June 30, 2001 filed on the date hereof with the Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (b) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Authority. /s/ Jeffrey E. Hartmann ----------------------------------- Jeffrey E. Hartmann Executive Vice President, Finance and Chief Financial Officer November 12, 2002 45 -----END PRIVACY-ENHANCED MESSAGE-----