-----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, KR9EDmQhv40PaVpKlpI1NvjcGhwVUCcwevy9Xx73/gGyr/4HAFpA1POj7BgIWln1 Szio+KKZ06izMH6IPEgO1g== 0000928385-02-003556.txt : 20021112 0000928385-02-003556.hdr.sgml : 20021111 20021112170132 ACCESSION NUMBER: 0000928385-02-003556 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20010930 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-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 033-80655 FILM NUMBER: 02817783 BUSINESS ADDRESS: STREET 1: 27 CHURCH LANE CITY: UNCASVILLE STATE: CT ZIP: 06382 BUSINESS PHONE: 2038480545 10-K/A 1 d10ka.txt FORM 10-K/A SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K/A Amendment No. 1 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to _________________ Commission file number 033-80655 MOHEGAN TRIBAL GAMING AUTHORITY (Exact name of registrant as specified in its charter) Connecticut 06-1436334 (State or other jurisdiction of (IRS employer incorporation or organization) Identification No.) One Mohegan Sun Boulevard, Uncasville, CT 06382 (Address of principal executive offices) (Zip Code) (860) 862-8000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange On Which Registered NONE Securities registered pursuant to Section 12(g) of the Act: Title of Class NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] EXPLANATORY NOTE The Mohegan Tribal Gaming Authority (the "Authority") has restated its financial statements for the quarterly periods ended December 31, 2000, March 31, 2001, June 30, 2001, December 31, 2001, March 31, 2002 and June 30, 2002 and for the fiscal year ended September 30, 2001. As more fully discussed in Note 15, this 10-K/A includes in Items 6 and 8 of Part II such restated financial statements and related footnotes thereto for the fiscal year ended September 30, 2001 and other information relating to such restated financial statements. Item 7 of Part II includes the Authority's amended and restated discussion and analysis of financial condition and results of operations. Except for Items 6, 7, 7A, and 8 of Part II, Items 10, 11 and 13 of Part III, Item 15 of Part IV (which was numbered Item 14 of Part IV in the originally filed Form 10-K) and the addition of certifications required under Sections 302 (as further described in Rule 15d-14 issued by the Securities and Exchange Commission) and 906 of the Sarbanes-Oxley Act of 2002, no other information included in the original report on Form 10-K is amended by this amendment. The information contained herein is as of September 30, 2001 and does not reflect subsequent events except as disclosed in the originally filed Form 10-K relating to such period and which were disclosed therein. For information regarding additional subsequent events, please refer to the Authority's Quarterly Reports on Forms 10-Q and 10-Q/A filed with respect to periods after September 30, 2001. MOHEGAN TRIBAL GAMING AUTHORITY INDEX TO FORM 10-K/A
Number PART II Item 6. Selected Financial Data. 1 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 3 Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 19 Item 8. Financial Statements and Supplementary Data. 20 PART III Item 10. Directors and Executive Officers of the Registrant. 21 Item 11. Executive Compensation. 23 Item 13. Certain Relationships and Related Transactions. 25 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 27 Signatures. Mohegan Tribal Gaming Authority. 30 Certifications. 31 Index to Financial Statements F-1 Schedule II--Valuation and Qualifying Accounts and Reserves S-1
PART II Item 6. Selected Financial Data The selected financial data shown below for the fiscal years ended September 30, 2001, 2000 and 1999, and as of September 30, 2001 and 2000, have been taken from the Authority's audited financial statements included in this Form 10-K/A. The selected financial data set forth below for the fiscal years ended September 30, 1998 and 1997, and as of September 30, 1999, 1998 and 1997, have been derived from the Authority's audited financial statements for those years, which are not included in this Form 10-K/A. The selected financial data shown below should be read in conjunction with the Authority's financial statements and related notes beginning on page F-1 of this Form 10-K/A, the section entitled "--Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the other financial and statistical data included in this Form 10-K/A. Unless otherwise indicated, dollar amounts shown in the following table are in thousands. The following discussion should be read in conjunction with the Authority's financial statements and the related notes beginning on page F-1 of this Form 10-K/A, which has been updated to reflect the restatements and the reclassifications as more fully described in Note 15 to the Authority's financial statements. As of or for the Fiscal Year Ended September 30,
2001 2000 1999 1998 1997(1) ---- ---- ---- ---- ------- (restated - see note 15 to the Authority's financial statements) Operating Results: Gross revenues $ 857,977 $809,314 $725,510 $ 611,463 $506,911 Promotional allowances (71,372) (70,044) (56,827) (42,501) (43,276) Net revenues $ 786,605 $739,270 $668,683 $ 568,962 $463,635 Income from operations $ 267,935 $195,514 $ 66,675 $ 135,687 $ 82,378 Other income (expense), net (53,403)(2) (48,906)(2) (66,355)(2) (47,539) (43,342) Loss from discontinued operations (591) (674) (812) (569) (2,349) Extraordinary items -- -- (38,428)(3) (419,458)(4) -- Net income (loss) $ 213,941 $145,934 $(38,920) $(331,879) $ 36,687 Other Data: Adjusted EBITDA(5) $ 256,164 $253,955 $239,475 $ 200,658 $137,776 Interest expense, net of capitalized interest $ 20,375 $ 37,799 $ 55,595 $ 50,172 $ 45,137 Capital expenditures $ 728,742 $288,278 $ 62,795 $ 32,731 $ 35,700 Net cash flows provided by operating activities $ 201,338 $194,845 $144,724 $ 135,067 $156,552
1 Balance Sheet Data: Total assets $1,554,693 $885,379 $914,962 $554,480 $386,974 Long-term debt and capital lease obligations $ 909,514 $506,391 $519,298 $294,567 $298,237
(1) The Authority commenced operations at Mohegan Sun on October 12, 1996. (2) For the fiscal years ended September 30, 2001, 2000 and 1999, includes expense of $35.8 million, $23.1 million and $22.0 million, respectively, for the accretion of relinquishment liability discount under the Relinquishment Agreement. A discussion of the estimation may be found under Note 13 to the Authority's financial statements beginning on page F-1 of this Form 10-K/A. (3) Includes expense of $33.7 million related to the tender premium of the $175.0 million senior secured notes, $5.2 million write-off of financing fees, net of $500,000 forgiveness of debt. (4) Includes expense of $419.1 million related to the initial assessment of the Authority's liability under the Relinquishment Agreement. (5) EBITDA represents earnings before interest, income taxes, depreciation and amortization. The EBITDA margin is calculated as EBITDA as a percentage of net revenues. Adjusted EBITDA represents further adjustments to EBITDA to remove the effects of pre-opening costs and expenses, accretion of relinquishment liability discount on the relinquishment liability to Trading Cove Associates ("TCA") pursuant to the Relinquishment Agreement, discontinued operations, management fees pursuant to the Management Agreement, extraordinary items and non-operating income/expense. The Adjusted EBITDA margin is calculated as Adjusted EBITDA as a percentage of net revenues. Adjusted EBITDA should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States of America (such as operating income or net income), nor should it be considered as an indicator of the Authority's overall financial performance. The Authority's calculation of Adjusted EBITDA is likely to be different from the calculation of EBITDA or similar measurements used by other companies and therefore comparability may be limited. EBITDA and Adjusted EBITDA are computed as follows (in thousands):
For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended 09/30/2001 09/30/2000 09/30/1999 09/30/1998 09/30/1997 ------------- ------------ ------------ ------------ ------------ (restated - see note 15 to the Authority's financial statements) EBITDA Net Income (loss) $ 213,941 $ 145,934 $ (38,920) $ (331,879) $ 36,687 Add back: Interest expense, net of capitalized interest 20,375 37,799 55,595 50,172 45,137 Interest income (2,920) (13,469) (11,254) (2,633) (1,795) Income taxes -- -- -- -- -- Depreciation and amortization 31,295 30,739 23,397 17,529 32,155 ------------ ------------ ------------ ------------ ------------ EBITDA $ 262,691 $ 201,003 $ 28,818 $ (266,811) $ 112,184 ------------ ------------ ------------ ------------ ------------ Adjustments to EBITDA to reconcile to Adjusted EBITDA Pre-opening costs and expenses $ 31,344 $ 5,278 -- -- -- Accretion of relinquishment liability discount 35,833 23,053 22,014 -- -- Relinquishment liability reassessment(6) (74,410) 8,790 89,871 -- -- Other non-operating expense 115 1,523 -- -- -- Management fees -- 13,634 59,532 47,442 23,243 Discontinued Operations 591 674 812 569 2,349 Extraordinary items -- -- 38,428 419,458 -- ------------ ------------ ------------ ------------ ------------ Adjusted EBITDA $ 256,164 $ 253,955 $ 239,475 $ 200,658 $ 137,776 ============ ============ ============ ============ ============
(6) For the fiscal years ended September 30, 2001, 2000, and 1999, includes relinquishment liability reassessment of $(74.4) million, $8.8 million and $89.9 million, respectively, for the reassessment of the relinquishment liability. A discussion of the estimation may be found under Note 13 to the Authority's financial statements beginning on page F-1 of this Form 10-K/A. 2 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the Authority's financial statements and the related notes beginning on page F-1 of this Form 10-K/A and "--Item 6. Selected Financial Data". Although the Authority believes the expectations reflected in such forward looking statements are based on reasonable assumptions, there can be no assurance that the Authority's expectations will be realized. The actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, without limitation, development and construction risks, business conditions, competition, changes in interest rates, the risks of downturns in economic conditions generally and the availability of financing for development and operations. The Authority assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. The following discussion should be read in conjunction with the Authority's financial statements and the related notes beginning on page F-1 of this Form 10-K/A, which has been updated to reflect the restatements and reclassifications as more fully described in Note 15 to the Authority's financial statements. Overview The Tribe and the Authority The Tribe is a federally recognized Indian tribe with an approximately 390-acre reservation situated in southeastern Connecticut. Under the Indian Gaming Regulatory Act, federally recognized Indian tribes are permitted to conduct full-scale casino gaming operations on tribal land, subject to, among other things, the negotiation of a gaming compact with the state in which they operate. The Tribe and the State of Connecticut have entered into such a compact that has been approved by the United States Secretary of the Interior. The Tribe's gaming operation is one of only two legally authorized gaming operations in New England offering traditional slot machines and table games. The Tribe has established an instrumentality, the Authority, with the exclusive power to conduct and regulate gaming activities on the existing reservation of the Tribe located adjacent to Uncasville, Connecticut. The Authority is governed by a Management Board, consisting of the same nine members of the Mohegan Tribal Council. Mohegan Sun In October 1996, the Authority opened a gaming and entertainment complex known as Mohegan Sun. Mohegan Sun is situated in southeastern Connecticut on a 240-acre site on the Tribe's reservation overlooking the Thames River with direct access from Routes I-395 and 2A via a four-lane access road constructed by the Authority. Mohegan Sun is located approximately 125 miles from New York City and approximately 100 miles from Boston, Massachusetts. The Authority recently has completed the first phase of a major expansion of Mohegan Sun known as Project Sunburst. The first phase of Project Sunburst, the Casino of the Sky, which includes increased gaming, restaurant and retail space and an entertainment arena, opened on September 25, 2001. The remaining components, including the majority of a 1,200-room luxury hotel and approximately 100,000 square feet of convention space, are expected to open in April 2002, with substantial completion of construction occurring in June 2002. Mohegan Sun operates in an approximately 1.9 million square foot facility which, at September 30, 2001, includes the following two casinos: Casino of the Earth. The Casino of the Earth, the original casino at Mohegan Sun, has approximately 176,500 square feet of gaming space and offers: . approximately 3,655 slot machines, 158 table games (including blackjack, roulette, craps and baccarat) and 42 poker tables; . food and beverage amenities, including three full-service themed fine dining restaurants, a 610- 3 seat buffet, a New York style delicatessen, a 24-hour coffee shop, a ten-station food court featuring international and domestic cuisine and multiple service bars for a total of approximately 1,800 restaurant seats; . an approximately 10,000 square foot, 350-seat lounge featuring live entertainment seven days a week; . an approximately 9,000 square foot simulcasting race book facility; . three retail shops providing shopping opportunities ranging from Mohegan Sun logo souvenirs to clothing to cigars; and Casino of the Sky. The Casino of the Sky has approximately 119,000 square feet of gaming space and offers: . approximately 2,564 slot machines and 82 table games (including blackjack, roulette, craps and baccarat); . food and beverage amenities, including two full-service restaurants, three quick-service restaurants, a 350-seat buffet and four lounges operated by Mohegan Sun, as well as four full-service and three quick-service restaurants operated by third-parties, for a total of approximately 2,200 restaurant seats; . the Mohegan Sun Arena with seating for up to 10,000; . a 300-seat Cabaret; . an arcade style recreation area and a child care facility; . the Shops at Mohegan Sun containing approximately 30 different retail shops, five of which are owned by the Authority. Mohegan Sun currently has parking spaces for approximately 8,300 guests and 3,100 employees. In addition, the Authority operates an approximately 4,000 square foot, 16-pump gasoline service station and convenience store. Additional Mohegan Sun Enhancements In addition to Project Sunburst, the Authority has begun construction on the following capital improvements to the Mohegan Sun facility: Parking Garages. The Indian Summer Garage will provide approximately 2,700 additional parking spaces and currently is being constructed. The approved budget for the construction of the Indian Summer Garage is $65.0 million. Construction began on the Indian Summer Garage in July 2001, and the Authority anticipates that the project will be completed in June 2002. A second parking garage, the Thames Garage, which provides approximately 1,700 additional parking spaces, is anticipated to be completed in April 2002 for approximately $25.0 million. Project Sunburst Utilities. The Authority is constructing various utility upgrades and enhancements needed to support Project Sunburst. These improvements originally were to be financed entirely by the Tribe from the proceeds of tax-exempt financing. The Tribe, however, subsequently received an opinion from its outside legal counsel advising it that a portion of the costs for these improvements would not qualify for tax-exempt financing. Therefore, the Authority will pay for this portion of the total costs, which the Authority expects will equal the budget of approximately $35.0 million. These improvements are anticipated to be completed concurrently with the opening of certain components of Project Sunburst in April 2002. As of September 30, 2001, the Authority placed 4 $22.6 million of these assets into service. Child Development Center. The Authority is constructing a 36,000 square foot employee day care facility which will enhance the benefits and services provided to employees of both the Tribe and the Authority. The project is expected to cost approximately $10.0 million. Construction began in November 2001, and the Authority anticipates that the project will be completed in August 2002. Explanation of Key Financial Statement Captions Gross revenues. The Authority's gross revenues are derived mostly from the following three sources: . Gaming revenues, which include revenues from slot machines, table games, poker and racebook; . Food and beverage sales; . Retail, entertainment and other revenues, which include revenues from the Mohegan Sun managed retail outlets, the Mohegan Sun gasoline and convenience center and the Mohegan Sun Arena, which opened in September 2001. The table below summarizes the Authority's percentage of gross revenues from each of these sources: Year ended September 30, 2001 2000 1999 ------ ------ ------ Gaming 88% 88% 88% Food and beverage 6% 6% 7% Retail, entertainment and other 6% 6% 5% ------ ------ ------ Total 100% 100% 100% Slot win. Gross slot win represents all amounts played in the slot machines reduced by both (1) the winnings paid out and (2) all amounts deposited by the Authority into the slot machines to ensure sufficient coins in each machine to pay out the winnings. Progressive slot machines retain some of each amount wagered and aggregate these amounts with similar amounts from other slot machines in order to create one-time winnings that are substantially larger than those paid in the ordinary course. The Authority refers to such aggregated amounts as progressive jackpots. In-house progressive jackpot amounts are accrued by the Authority until paid and such accrued amounts are deducted from gross slot win to arrive at net slot win. Wide-area progressive jackpot amounts are paid by a third-party vendor, and the Authority remits a weekly payment to the vendor, which is deducted from gross slot win. Casino revenues and promotional allowances. The Authority recognizes casino revenue as gaming wins less gaming losses. Revenues from food and beverages, retail, entertainment and other services are recognized at the time the service is performed. The Authority operates the Mohegan Sun complimentary program in which food, beverages, retail, entertainment and other services are provided to guests based on points that are earned through the Mohegan Sun Player's Club. The retail value of these complimentary items is included in gross revenue and then deducted as promotional allowances, except for the redemption at third party retail tenants at the Shops at Mohegan Sun, and from a catalog program, the Sun Select Catalog, which includes vacations, electronics and gift items, to arrive at net revenues. The estimated cost of providing these promotional allowances is charged to gaming expenses in the following amounts (in thousands): 5
For the For the For the Fiscal Year Fiscal Year Fiscal Year Ended Ended Ended September 30, September 30, September 30, 2001 2000 1999 -------------------- -------------------- -------------------- Food and beverage $ 26,943 $ 24,987 $ 26,794 Retail, entertainment and other 28,044 25,308 20,928 -------------------- -------------------- -------------------- Total $ 54,987 $ 50,295 $ 47,722 ==================== ==================== ====================
Mohegan Sun Player's Club. The Mohegan Sun Player's Club is a voluntary program, without membership fees, which awards points to members based on their gaming activities. These points may be used to purchase items at restaurants located within Mohegan Sun, the Mohegan Sun gasoline and convenience center, as well as to purchase tickets to entertainment events held at the Mohegan Sun facilities and items from the Sun Select Catalog. The Authority accrues for Player's Club points expected to be redeemed in the future based on the average cost to the Authority of items expected to be redeemed, and includes the related cost in marketing, general and administrative expenses in the Authority's income statement. Gaming expenses. Gaming expenses primarily include the Slot Win Contribution which the Authority is required to pay to the State of Connecticut, expenses associated with slot operations and table games, poker and racebook expenses and promotional expenses for the redemption of the Mohegan Sun Player's Club points in third party locations, including the Shops at Mohegan Sun and the Sun Select Catalog. EBITDA and Adjusted EBITDA. EBITDA represents earnings before interest, income taxes, depreciation and amortization. The EBITDA margin is calculated as EBITDA as a percentage of net revenues. Adjusted EBITDA represents further adjustments to EBITDA to remove the effects of pre-opening costs and expenses, accretion of relinquishment liability discount on the relinquishment liability to TCA pursuant to the Relinquishment Agreement, management fees pursuant to the Management Agreement, discontinued operations, extraordinary items and non-operating income/expense. The Adjusted EBITDA margin is calculated as Adjusted EBITDA as a percentage of net revenues. Adjusted EBITDA should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States of America (such as operating income or net income), nor should it be considered as an indicator of the Authority's overall financial performance. The Authority's calculation of Adjusted EBITDA is likely to be different from the calculation of EBITDA or similar measurements used by other companies and therefore comparability may be limited. EBITDA and Adjusted EBITDA are computed as follows (in thousands):
For the Fiscal For the Fiscal For the Fiscal Year Ended Year Ended Year Ended September 30, 2001 September 30, 2000 September 30, 1999 -------------------- -------------------- --------------------- (restated - see note 15 to the Authority's financial statements) EBITDA Net Income $ 213,941 $ 145,934 $ (38,920) Add back: Interest expense, net of capitalized interest 20,375 37,799 55,595 Interest income (2,920) (13,469) (11,254) Income taxes - - - Depreciation and amortization 31,295 30,739 23,397 -------------------- -------------------- --------------------- EBITDA $ 262,691 $ 201,003 $ 28,818 -------------------- -------------------- --------------------- EBITDA Margin 33.4% 27.2% 4.3% Adjustments to EBITDA to reconcile to Adjusted EBITDA Pre-opening costs and expenses $ 31,344 $ 5,278 $ - Accretion of relinquishment liability discount 35,833 23,053 22,014 Relinquishment liability reassessment (74,410) 8,790 89,871 Other expense, net 115 1,523 - Management fees - 13,634 59,532 Extraordinary items - - 38,428 Discontinued operations 591 674 812 -------------------- -------------------- --------------------- Adjusted EBITDA $ 256,164 $ 253,955 $ 239,475 ==================== ==================== ===================== Adjusted EBITDA Margin 32.6% 34.4% 35.8%
6 Accretion on relinquishment liability discount and reassessment of relinquishment liability. The Authority stopped paying management fees to TCA due to the termination of the Management Agreement and began recognizing amounts due under the Relinquishment Agreement beginning January 1, 2000. Under the Management Agreement, TCA was responsible for the day-to-day management, operation and maintenance of Mohegan Sun. The Management Agreement authorized TCA to pay itself a management fee in monthly installments based on 30% to 40% of net income, before management fees, as defined in the Management Agreement, depending on profitability levels. Under the Relinquishment Agreement, the Authority and TCA agreed to terminate the Management Agreement with TCA on January 1, 2000. To compensate TCA for terminating its management rights, the Authority agreed to pay to TCA five percent of the revenues, as defined in the Relinquishment Agreement, generated by Mohegan Sun (including Project Sunburst) during the 15-year period commencing on January 1, 2000 and ending on December 31, 2014. The Authority has recorded a relinquishment liability of the estimated present value of its obligations under the Relinquishment Agreement. The relinquishment liability is reassessed when necessary to account for material increases or decreases in projected revenues and quarterly to reflect the impact on the time value of money due to the passage of time. In addition, the Authority has capitalized $130.0 million of this relinquishment liability in connection with the trademark value of the Mohegan Sun brand name. The Authority adopted Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142") on October 1, 2001. Under SFAS 142, the Mohegan Sun trademark is no longer subject to amortization over its estimated useful life as it has been deemed to have an indefinite useful life. However, SFAS 142 requires the trademark to be evaluated at least annually for impairment by applying a fair-value based test and, if impairment occurs, the amount of impaired trademark must be written off immediately. With the adoption of SFAS 142, the Authority no longer records amortization of the trademark. See Note 13 to the Authority's financial statements beginning on page F-1 of this Form 10-K/A for a further discussion of how the relinquishment liability and related reassessments are calculated. Results of Operations Comparison of Operating Results for the Fiscal Years Ended September 30, 2001 and 2000: Net revenues for the fiscal year ended September 30, 2001 increased by $47.3 million, or 6.4%, to $786.6 million from $739.3 million for the fiscal year ended September 30, 2000. This increase is attributable primarily to an increase in gaming revenues as discussed below. Adjusted EBITDA for the fiscal year ended September 30, 2001 increased by $2.2 million, or 0.9%, to $256.2 million from $254.0 million for the fiscal year ended September 30, 2000. Mohegan Sun achieved a 32.6% Adjusted EBITDA margin for the fiscal year ended September 30, 2001 compared to a 34.4% Adjusted EBITDA margin for the fiscal year ended September 30, 2000. The decline in the margin was the result of labor, marketing and operating expenses increasing at a greater rate than revenues. The Connecticut slot market grew at a rate of 4.1% for the fiscal year ended September 30, 2001 as compared to the fiscal year ended September 30, 2000. The State of Connecticut reported a gross slot win of $1.4 billion and $1.3 billion for the fiscal years ended September 30, 2001 and 2000, respectively. Mohegan Sun exceeded the market's growth in slot win as it experienced an increase in gross slot revenues of 7.0% for the fiscal year ended September 30, 2001 over the fiscal year ended September 30, 2000. Gross slot revenues were $578.4 million and $540.3 million for the fiscal years ended September 30, 2001 and 2000, respectively. Gross slot win per unit per day was $471 and $488 for the respective periods. The decrease in gross slot win per unit per day was due to an increase in the weighted average number of slot machines from 3,028 per day in the fiscal year ended September 30, 2000 to 3,362 in the fiscal year ended September 30, 2001. Gaming revenues for the fiscal year ended September 30, 2001 increased by $41.4 million, or 5.8%, to $751.0 million from $709.6 million for the fiscal year ended September 30, 2000. This increase primarily is due to a 6.3% growth in net slot machine revenues as a result of the continued growth of the Mohegan Sun customer base, and the opening of the first phase of Project Sunburst for six days during fiscal year 2001. 7 Food and beverage revenues for the fiscal year ended September 30, 2001 increased by $2.2 million, or 4.6%, to $49.5 million from $47.3 million for the fiscal year ended September 30, 2000. This increase in food and beverage revenues is attributable to a higher average sale per check, partially offset by a decrease in meals served of 115,000, or 2.8%. Retail, entertainment and other revenues for the fiscal year ended September 30, 2001 increased by $5.1 million, or 9.8%, to $57.5 million from $52.4 million for the fiscal year ended September 30, 2000. This increase is attributable to increased utilization of the Mohegan Sun gasoline and convenience center. Promotional allowances for the fiscal year ended September 30, 2001 increased by $1.4 million, or 1.9%, to $71.4 million from $70.0 million for the fiscal year ended September 30, 2000. This increase is attributable to the increase in gross revenues. Promotional allowances as a percentage of gaming revenue decreased from 9.9% in the fiscal year ended September 30, 2000 to 9.5% in the fiscal year ended September 30, 2001 due to an increase in the redemption of Mohegan Sun Player's Club points at retail outlets not managed by the Authority. See Note 3 to the Authority's financial statements beginning on page F-1 of this Form 10-K/A. Total operating costs and expenses for the fiscal year ended September 30, 2001 decreased by $25.1 million, or 4.6%, to $518.7 million from $543.8 million for the fiscal year ended September 30, 2000. The decrease primarily is a result of the $74.4 million reassessment adjustment of the relinquishment liability for the fiscal year ended September 30, 2001 compared to the expense of $8.8 million recognized for the fiscal year ended September 30, 2000. The Authority reviewed current revenue forecasts and, as a result, reduced revenue projections for the period in which the Relinquishment Agreement applies, due to uncertainties involving current economic market conditions that have affected Project Sunburst revenues and future competition from potential Native American casinos. Gaming costs and expenses for the fiscal year ended September 30, 2001 increased by $27.3 million, or 8.9%, to $334.5 million from $307.2 million for the fiscal year ended September 30, 2000. This increase primarily is due to increases in labor and benefit costs and the allocation of complimentaries associated with gaming. The Slot Win Contribution payments to the State of Connecticut also have contributed to the increase in gaming costs and expenses. The Authority reflected expenses associated with the Slot Win Contribution totaling $144.6 million and $135.1 million for the fiscal years ended September 30, 2001 and 2000, respectively. The increase in Slot Win Contribution is related directly to the increase in net slot revenues. Food and beverage costs and expenses for the fiscal year ended September 30, 2001 increased by $702,000, or 3.0%, to $24.4 million from $23.7 million in expenses for the fiscal year ended September 30, 2000. This increase is attributable to increased labor and benefit costs. Retail, entertainment and other costs and expenses for the fiscal year ended September 30, 2001 increased by $5.0 million, or 18.3%, to $32.1 million from $27.1 million for the fiscal year ended September 30, 2000. This increase primarily is attributable to the increased utilization of the Mohegan Sun gasoline and convenience center, as well as the increase in expenses associated with the Uncas Pavilion, a temporary event structure. The Uncas Pavilion closed permanently in September 2001. Marketing, general and administrative costs and expenses for the fiscal year ended September 30, 2001 increased by $12.1 million, or 9.5%, to $139.3 million from $127.2 million for the fiscal year ended September 30, 2000. This increase is attributable to increases in marketing expenses aimed to promote Mohegan Sun. Pre-opening costs and expenses for the fiscal year ended September 30, 2001 increased by $26.1 million, or 493.9%, to $31.3 million from $5.3 million for the fiscal year ended September 30, 2000. This increase primarily is comprised of personnel costs and marketing costs associated with the September 25, 2001 opening of Project Sunburst. There were no management fees earned by TCA for the fiscal year ended September 30, 2001, compared to $13.6 million of management fees for the fiscal year ended September 30, 2000. The decrease in management fees was a direct result of the termination of the Management Agreement on December 31, 1999. 8 Depreciation and amortization for the fiscal year ended September 30, 2001 increased by $556,000, or 1.8%, to $31.3 million from $30.7 million for the fiscal year ended September 30, 2000. This increase is a result of additional depreciation on capital expenditures made during the year. The relinquishment liability reassessment for the fiscal year ended September 30, 2001 decreased by $83.2 million, or 946.5%, to the reassessment adjustment of $74.4 million from an expense of $8.8 million for the fiscal year ended September 30, 2000. This decrease is due to the review by the Authority of current revenue forecasts and the reduction of revenue projections for the period in which the Relinquishment Agreement applies, due to uncertainties involving economic market conditions that have affected Project Sunburst revenues and future competition from potential Native American casinos. For a further discussion of the relinquishment liability, see Note 13 to the Authority's financial statements beginning on page F-1 on this Form 10-K/A. Income from operations for the fiscal year ended September 30, 2001 increased by $72.4 million, or 37.0%, to $267.9 million from $195.5 million for the fiscal year ended September 30, 2000. This increase primarily is attributable to the decrease in the relinquishment liability reassessment from an $8.8 million expense for the fiscal year ended September 30, 2000 to $74.4 million in income for the fiscal year ended September 30, 2001. Accretion of the discount associated with the relinquishment liability for the fiscal year ended September 30, 2001 increased by $12.8 million, or 55.4%, to $35.8 million from $23.1 million for the fiscal year ended September 30, 2000. The accretion represents the impact of the time value of money due to the passage of time. Interest income for the fiscal year ended September 30, 2001 decreased by $10.5 million, or 78.3%, to $2.9 million from $13.5 million for the fiscal year ended September 30, 2000. The decrease in interest income resulted from the liquidation of investments to fund Project Sunburst plus a decline in return on the invested assets. The weighted average invested cash was $29.1 million and $171.5 million for the fiscal years ended September 30, 2001 and 2000, respectively. The Authority invests its excess cash in investment-grade commercial paper having maturities of not more than six months from the date of acquisition. Interest expense for the fiscal year ended September 30, 2001 decreased by $17.4 million, or 46.1%, to $20.4 million from $37.8 million for the fiscal year ended September 30, 2000. Included in interest expense for the year ended September 30, 2001 is a net loss of $4.1 million due to the change in the fair value of its derivative instruments. The overall decrease in interest expense mainly is attributable to the capitalization of $40.7 million in interest on the Bank Credit Facility, the $200.0 million Senior Notes, the $300.0 million 1999 Senior Subordinated Notes and the $150.0 million 2001 Senior Subordinated Notes. During fiscal year 2000, $9.9 million of interest expense was capitalized. The increase in debt was the result of draws on the Bank Credit Facility and the issuance of the $150.0 million 2001 Senior Subordinated Notes. The weighted average interest rate was 8.04% and 8.39% for the fiscal years ended September 30, 2001 and 2000, respectively. The weighted average debt outstanding was $787.9 million and $512.6 million for the fiscal years ended September 30, 2001 and 2000, respectively. Other expense for the fiscal year ended September 30, 2001 decreased by $1.4 million, or 92.4%, to $115,000 from $1.5 million for the fiscal year ended September 30, 2000. This decrease is attributable to a loss of $1.7 million for assets disposed of during fiscal year 2000 compared to a loss of $116,000 for assets disposed of during fiscal year 2001. Loss from discontinued operations for the fiscal year ended September 30, 2001 decreased by $83,000, or 12.3%, to $591,000 from $674,000 for the fiscal year ended September 30, 2000. The loss is the result of the decision of the Authority, in conjunction with the Tribe, to cease bingo operations in order to convert the floor space into the 637-unit Hall of the Lost Tribes smoke-free slot machine venue. Net income for the fiscal year ended September 30, 2001 increased by $68.0 million, or 46.6%, to $213.9 million from $145.9 million the fiscal year ended September 30, 2000. This increase primarily is attributable to an increase in income from operations and a decrease in interest expense more fully discussed above. Comparison of Operating Results for the Fiscal Years Ended September 30, 2000 and 1999 Net revenues for the fiscal year ended September 30, 2000 increased by $70.6 million, or 10.6%, to $739.3 million 9 from $668.7 million for the fiscal year ended September 30, 1999. This increase primarily is attributable to an increase in gaming revenues as discussed below. Adjusted EBITDA for the fiscal year ended September 30, 2000 increased by $14.5 million, or 6.0%, to $254.0 million from $239.5 million for the fiscal year ended September 30, 1999. Mohegan Sun achieved a 34.4% Adjusted EBITDA margin for the fiscal year ended September 30, 2000 compared to a 35.8% Adjusted EBITDA margin for the fiscal year ended September 30, 1999. The decline in the margin was the result of increased labor, marketing and operating expenses increasing at a greater rate than revenues. The Connecticut slot market grew at a rate of 8.5% from the fiscal year ended September 30, 2000 to the fiscal year ended September 30, 1999. The State of Connecticut reported a gross slot win of $1.3 billion and $1.2 billion for the fiscal years ended September 30, 2000 and 1999, respectively. Mohegan Sun exceeded the market's growth in slot win as it experienced an increase in net slot revenues of 11.6% in the fiscal year ended September 30, 2000 over the fiscal year ended September 30, 1999. Gross slot revenues were $540.3 million and $484.2 million for the fiscal years ended September 30, 2000 and 1999, respectively. Gross slot win per unit per day was $488 and $439 for the respective periods. Gaming revenues for the fiscal year ended September 30, 2000 increased by $68.5 million, or 10.7%, to $709.6 million from $641.1 million for the fiscal year ended September 30, 1999. This increase in gaming revenues primarily is due to an 11.6% growth in Mohegan Sun net slot revenues as a result of the continued growth of the Mohegan Sun customer base. Food and beverage revenues for the fiscal year ended September 30, 2000 decreased by $591,000, or 1.2%, to $47.3 million from $47.9 million for the fiscal year ended September 30, 1999. This decrease in food and beverage revenues is attributable to reduced food covers and a patron shift in Mohegan Sun Player's Club point redemption from the food and beverage products toward retail and gas products. Retail, entertainment and other revenues for the fiscal year ended September 30, 2000 increased by $15.9 million, or 43.5%, to $52.4 million from $36.5 million for the fiscal year ended September 30, 1999. This increase is attributable to increased utilization of retail complimentaries and the popularity of the Mohegan Sun gasoline and convenience center. Promotional allowances for the fiscal year ended September 30, 2000 increased by $13.2 million, or 23.3%, to $70.0 million from $56.8 million for the fiscal year ended September 30, 1999. This increase is attributable to an increase in the customer base as well as increased utilization of the Mohegan Sun Player's Club complimentary program. Additionally, promotional allowances as a percentage of gaming revenue increased from 8.9% in the fiscal year ended September 30, 1999 to 9.9% in the fiscal year ended September 30, 2000. Total operating costs and expenses for the fiscal year ended September 30, 2000 decreased by $58.3 million, or 9.7%, to $543.8 million from $602.0 million for the fiscal year ended September 30, 1999. This decrease primarily is the result of the significant decrease in expense related to the reassessment of the relinquishment liability to $8.8 million for the fiscal year ended September 30, 2000 from $89.9 million for the fiscal year ended September 30, 1999. Gaming costs and expenses for the fiscal year ended September 30, 2000 increased by $33.7 million, or 12.3%, to $307.2 million from $273.5 million for the fiscal year ended September 30, 1999. This increase primarily is due to increases in the Slot Win Contribution and the allocation of complimentaries associated with gaming. The Slot Win Contribution totaled $135.1 million and $121.1 million for the fiscal years ended September 30, 2000 and 1999, respectively. The increase in the Slot Win Contribution is directly related to the increase in slot revenues. Food and beverage costs and expenses for the fiscal year ended September 30, 2000 increased by $1.5 million, or 6.9%, to $23.7 million from $22.2 million for the fiscal year ended September 30, 1999. This increase is attributable to increased labor and benefit costs. Retail, entertainment and other costs and expenses for the fiscal year ended September 30, 2000 increased by $4.6 million, or 20.2%, to $27.1 million from $22.6 million for the fiscal year ended September 30, 1999. This increase 10 primarily is attributable to a full year of operations for the Mohegan Sun gasoline and convenience center, which opened in December 1998, as well as the increased utilization of the Mohegan Sun complimentary programs in the retail outlets. Marketing, general and administrative costs and expenses for the fiscal year ended September 30, 2000 increased by $16.3 million, or 14.7%, to $127.2 million from $110.9 million for the fiscal year ended September 30, 1999. This increase partially is attributable to continued marketing campaigns associated with efforts to increase the frequency of patron visits. Pre-opening costs and expenses were $5.3 million for the fiscal year ended September 30, 2000. Pre-opening costs and expenses were composed of labor and marketing costs associated with Project Sunburst. Mohegan Sun did not incur any pre-opening costs and expenses for the fiscal year ended September 30, 1999. Management fees earned by TCA for the fiscal year ended September 30, 2000 decreased by $45.9 million, or 77.1%, to $13.6 million from $59.5 million for the fiscal year ended September 30, 1999. This decrease is a direct result of the termination of the Management Agreement on December 31, 1999. Depreciation and amortization for the fiscal year ended September 30, 2000 increased by $7.3 million, or 31.4%, to $30.7 million from $23.4 million for the fiscal year ended September 30, 1999. This increase primarily is attributable to the $4.3 million amortization of the trademark asset and the increase in depreciation of newly acquired capital assets including the Riverview Garage and the Eagleview Center. The relinquishment liability reassessment expense for the fiscal year ended September 30, 2000 decreased by $81.1 million, or 90.2%, to $8.8 million from $89.9 million for the fiscal year ended September 30, 1999. This decrease is due to the review by the Authority of current revenue forecasts and the increase in revenue projections for the period in which the Relinquishment Agreement applies. Income from operations for the fiscal year ended September 30, 2000 increased by $128.8 million, or 193.2%, to $195.5 million from $66.7 million for fiscal year ended September 30, 1999. This increase primarily is attributable to the decrease in the relinquishment liability reassessment from $89.9 million for the fiscal year ended September 30, 1999 to $8.8 million for the fiscal year ended September 30, 2000, lower management fees and increased gaming revenues. Accretion of the discount associated with the relinquishment liability reassessment for the fiscal year ended September 30, 2000 increased by $1.0 million, or 4.7%, to $23.1 million from $22.0 million for the fiscal year ended September 30, 1999. The accretion represents the impact of the time value of money due to the passage of time. Interest income for the fiscal year ended September 30, 2000 increased by $2.2 million, or 19.7%, to $13.5 million from $11.3 million for the fiscal year ended September 30, 1999. This increase was related to the investment of the remainder of the proceeds from the Authority's Senior Notes and 1999 Senior Subordinated Notes issued on March 3, 1999. A portion of the financing was used to pay off existing debt and the remainder was invested to be used later for construction of Project Sunburst. The weighted average invested cash was $171.3 million and $151.8 million for the fiscal years ended September 30, 2000 and 1999, respectively. The Authority invests its excess cash in investment-grade commercial paper having maturities of not more than six months from the date of acquisition. Interest expense for the fiscal year ended September 30, 2000 decreased by $17.8 million, or 32.0%, to $37.8 million from $55.6 million for the fiscal year ended September 30, 1999. This decrease mainly is attributable to the capitalization of $9.9 million in interest on the $200 million Senior Notes and the $300 million 1999 Senior Subordinated Notes to Project Sunburst. The increase in debt was the result of the payoff of $175 million of the Authority's senior secured notes due 2002 (the net "Senior Secured Notes"), the defeasance of $90 million of the Authority's subordinated financing from Sun International and Waterford Gaming L.L.C., which was in the form of notes (the "Subordinated Notes"), and the issuance of the $200 million Senior Notes and $300 million 1999 Senior Subordinated Notes in March 1999. The weighted average interest rate was 8.39% and 10.45% for the fiscal years ended September 30, 2000 and 1999, respectively. The weighted average debt outstanding was $512.6 million and $435.1 million for the fiscal years ended September 30, 2000 and 1999, respectively. 11 Other expense for the fiscal year ended September 30, 2000 was $1.5 million and was attributable to the disposal of assets having a net book value of $1.7 million. There were no costs attributable to other expense in the fiscal year ended September 30, 1999. Loss from discontinued operations for the fiscal year ended September 30, 2000 decreased by $138,000, or 17.0%, to $674,000 from $812,000 for the fiscal year ended September 30, 1999. The loss was the result of the decision of the Authority, in conjunction with the Tribe, to cease bingo operations in order to convert the floor space into the 637-unit Hall of the Lost Tribes smoke-free slot machine venue. Net income for the fiscal year ended September 30, 2000 increased by $184.9 million to $145.9 million from a loss of $38.9 million for the fiscal year ended September 30, 1999. This increase in net income primarily is attributable to a $128.8 million increase in income from operations as discussed above, lower interest expense as a result of amounts capitalized (See Note 12 to the Authority's audited financial statements beginning on page F-1 of this Form 10-K/A), and an extraordinary item of $38.4 million in fiscal 1999, of which $33.7 million related to the early extinguishment of the Senior Secured Notes, $5.2 million related to the write-off of financing fees associated with the original facility construction and $500,000 related to the forgiveness of debt associated with the defeasance of the Subordinated Notes (see Note 8 to the Authority's audited financial statements beginning on page F-1 of this Form 10-K/A). Liquidity, Capital Resources and Capital Spending As of September 30, 2001, 2000 and 1999, the Authority held cash and cash equivalents of $74.3 million, $115.7 million and $276.6 million, respectively. The decrease in cash and cash equivalents is attributable to the funding of capital expenditures in connection with Project Sunburst. Cash provided by operating activities for the year ended September 30, 2001 was $201.3 million compared to cash provided by operating activities for the year ended September 30, 2000 and 1999 of $194.8 million and $144.7 million, respectively. The increases in cash provided by operating activities is attributable to increases in net income, net of the effect of the reassessment of relinquishment liability. Operating activities are the principal source of the Authority's cash flows. The principal application of these funds was capital expenditures incurred in connection with the construction and development of Project Sunburst and other real property improvements. While the Authority does not believe that there is any trend or a likelihood of an event that would adversely impact the level of cash generated by its activities, there are numerous potential factors which may cause a substantial reduction in the amount of cash flow, including, but not limited to the following: . downturn in the economy and lack of consumer confidence, which would result in reduced spending on discretionary items such as gaming activities; . an act of terrorism on the United States of America; . substantial cost overruns in connection with the completion of Project Sunburst; . operating expenses increasing at a greater rate than revenue; and . increased competition in the gaming industry, or the legalization of gaming activities in the State of Connecticut, which may result in a substantial decrease in revenue. In addition to cash generated by operating activities, the Authority has relied on external sources of liquidity to meet its operating and investing requirements. External Sources of Liquidity Bank Credit Facility. As of September 30, 2001, the Authority had $258.0 million outstanding under a $500.0 million reducing, revolving collateralized credit facility ("the "Bank Credit Facility"), with a syndicate of lenders led by Bank of America N.A. (formerly known as Bank of America National Trust and Savings Association), which will mature in March 2004. During the fiscal year ended September 30, 2001, the Authority paid down $90.0 million on the Bank Credit Facility and borrowed $348.0 million. The Authority draws on the Bank Credit Facility primarily in connection with the major expansion of Mahegan Sun, known as Project Sunburst, and further capital expenditure projects. The Bank Credit Facility is collateralized by a lien on substantially all of the Authority's assets, by a leasehold mortgage on the land and improvements which comprise Mohegan Sun, and by each of the Authority's cash operating accounts. At the Authority's option, each advance of loan proceeds accrues interest on the basis of a base rate or on the basis of a one-month, two-month, three-month or six-month London Inter-Bank Offered Rate ("LIBOR") 12 plus, in either case, the applicable spread (based on the Authority's Total Leverage Ratio as defined in the Bank Credit Facility). As of September 30, 2001, one month LIBOR was 2.64% and the applicable spread on a LIBOR loan was 2.125%. Interest on each LIBOR loan which is for a term of three months or less is due and payable on the last day of the related interest period. Interest on each LIBOR loan which is for a term of more than three months is due and payable on the date which is three months after the date such LIBOR loan was made, every three months thereafter and on the last day of the related interest period. Interest on each base rate loan is due and payable quarterly in arrears. As of September 30, 2001, the Authority had no base rate loans. Pursuant to the terms of the Bank Credit Facility, the commitment (or the maximum amount that may be borrowed under the Bank Credit Facility) will be reduced automatically on the earlier of March 31, 2002 or the last day of the first full fiscal quarter following the completion date of Project Sunburst, and on the last day of each fiscal quarter thereafter by 10% of the commitment as in effect immediately prior to the first such reduction. The Bank Credit Facility contains various provisions that require the Authority to maintain specified financial ratios. If the Authority's revenue declines due to economic or competitive factors, or if there is a substantial cost overrun in connection with the completion of Project Sunburst, it is possible that these financial ratios may be violated. If this were to happen, the Authority would not be able to borrow additional funds under the Bank Credit Facility and it may even result in an event of default which could accelerate the payment of any outstanding balance. In addition, while the Authority has entered into some hedging transactions to mitigate against its exposure to interest rate fluctuations on the Bank Credit Facility, the majority of the outstanding balance is subject to interest rate fluctuations. As the economy rebounds, it is possible that the interest rate will start to increase, which would mean that the Authority's interest cost may increase significantly. A substantial increase in interest expense could have a negative effect on the Authority's liquidity. For a further discussion on hedging transactions that mitigate against this exposure, see "Item 7A. Quantitative and Qualitative Disclosure of Market Risk" and Note 3 to the Authority's financial statements beginning on page F-1 of this Form 10-K/A. Capital Expenditures Capital expenditures incurred to date. Capital expenditures totaled $728.7 million including capitalized interest for the fiscal year ended September 30, 2001, versus $288.3 million and $62.8 million for the fiscal years ended September 30, 2000 and 1999, respectively. These capital expenditures were an aggregate of the following: . Cumulative Project Sunburst construction expenditures totaled $940.0 million, including $51.1 million in capitalized interest and net of $1.4 million expensed or recorded as inventory, through September 30, 2001, of which $664.8 million was expended in the fiscal year ended September 30, 2001 and $275.3 million was expended in prior periods. Under the Development Agreement, TCA will oversee the planning, design and construction and will receive a development fee of $14.0 million for such services. As of September 30, 2001, TCA has earned $11.3 million in development fees, of which $9.3 million has been paid and is included in Project Sunburst construction costs presented above. . Property maintenance capital expenditures for furniture, fixtures and equipment totaled $23.6 million, $20.1 million, and $11.8 million for the fiscal years ended September 30, 2001, 2000 and 1999, respectively. . Capital expenditures on the Authority's electrical and water systems infrastructure totaled $15.2 million and $17.0 million for the fiscal years ended September 30, 2001 and 2000, respectively. . Capital expenditures on the Authority's Eagleview employee parking center totaled $1.3 million, $13.9 million and $9.8 million for the fiscal years ended September 30, 2001, 2000 and 1999, respectively. . Capital expenditures for the $65.0 million Indian Summer Garage, a 2,700-space patron parking garage, totaled $9.8 million for the fiscal year ended September 30, 2001. . Capital expenditures for the construction of the Hall of the Lost Tribes, the new 637-unit smoke-free slot 13 venue which opened on April 18, 2001, were $14.9 million as of September 30, 2001, $5.1 million below the $20.0 million original budget amount. The Authority did not incur any capital expenditures for the construction of the Hall of the Lost Tribes for the fiscal year ended September 30, 2000. . Capital expenditures for the construction of an employee day care facility were $568,000 during the fiscal year ended September 30, 2001, with construction expected to be completed in August 2002. The employee day care facility is expected to have a total cost of $10.0 million. Employee parking center. The Authority, in conjunction with the Project Sunburst expansion, commenced construction on the employee parking center in March 1999. The employee parking center includes 2,550 parking spaces and amenities such as a dry cleaning service, on-site banking, an employee computer/training center and a 15,000 square foot exercise facility. A portion of the employee parking center opened in June 2000 with the remainder opening in January 2001. The total cost of the employee parking center was $25.0 million. Infrastructure improvements. The Authority commenced construction of the infrastructure improvements, estimated to cost $35.0 million, that will service Mohegan Sun and other Tribal facilities. Such infrastructure improvements will handle the increased utility demands of the expanded facility that are attributable to the Project Sunburst expansion. The infrastructure improvements were funded by the Authority and are expected to be completed concurrent with the completion of Project Sunburst. As of September 30, 2001, approximately $32.2 million has been incurred, of which $15.2 million was incurred in fiscal year 2001, and $22.6 million of these assets were placed into service. In keeping with standard practice in the construction industry, the Authority retains a portion of the construction expenditures until satisfactory completion of individual contracts. As of September 30, 2001, construction retainage totaled $23.3 million, which has been included in construction payables in the Authority's financial statements beginning on page F-1 of this Form 10-K/A. Expected future capital expenditures. During fiscal year 2002, the Authority expects to incur capital expenditures totaling approximately $191.3 million and to be allocated as follows: . $25.0 million on maintenance capital expenditures. . $71.1 million on Project Sunburst construction. . $55.2 million on the Indian Summer parking. . $25.0 million on a new 1,700 space Thames Garage. . $5.5 million on infrastructure improvements. . $9.5 million on an employee day care center. Project Sunburst In November 2000, the Tribal Council approved a formal resolution increasing the expansion budget to $960.0 million, excluding capitalized interest, from $800.0 million. The Project Sunburst budget was increased to $960.0 million for primarily three reasons: (1) enhancements in project scope such as an increase in the number of slot machines scheduled to be placed on the gaming floor; (2) quality improvements to the hotel and public areas; and (3) increases in Project Sunburst labor costs because of the competitive nature of the construction labor market in the northeastern United States. As of September 30, 2001, the Authority had incurred $888.9 million, excluding 14 capitalized interest, on Project Sunburst. The remaining $71.1 million is anticipated to be incurred during fiscal year 2002. As of September 30, 2001, cumulative capitalized interest for Project Sunburst construction expenses totaled $51.1 million. Capitalized interest totaled $40.7 million, $9.9 million and $534,000 for the fiscal years ended September 30, 2001, 2000 and 1999, respectively. During fiscal year 1998, the Authority finalized contract negotiations with TCA for Project Sunburst ("Development Agreement"). Under the Development Agreement, TCA will oversee the planning, design and construction of the expansion at Mohegan Sun and will receive a development fee of $14.0 million for such services. As of September 30, 2001, TCA had earned $11.3 million in development fees, of which $9.3 million had been paid. Sources of funding for capital expenditures. The Authority will rely primarily on cash generated from its operations and amounts available to be drawn under the Bank Credit Facility to finance these capital expenditures. However, the Authority's ability to finance sufficiently the anticipated capital expenditures from these sources depends on its ability to maintain a stable level of cash generation from its operations and its ability to draw down on the Bank Credit Facility. Other Property Enhancements Public safety facility. The Tribe commenced construction of a public safety facility within the Eagleview Complex that will service the Mohegan Reservation, including Mohegan Sun. The Authority initially funded the construction and was subsequently reimbursed by the Tribe. Approximately $1.6 million was reflected as amounts due from the Tribe in the Authority's balance sheet as of September 30, 2000. No amounts were due as of September 30, 2001 as the Authority was reimbursed for amounts due from the Tribe. Relinquishment Agreement Under the terms of the Relinquishment Agreement, TCA continued to manage Mohegan Sun under the Management Agreement until January 1, 2000, when the Management Agreement terminated, and the Authority assumed day-to-day management of Mohegan Sun. As a result of the termination of the Management Agreement, the Authority has agreed to pay TCA five percent of gross revenues (as defined in the Relinquishment Agreement) generated from Mohegan Sun including Project Sunburst, beginning January 1, 2000 and ending December 31, 2014. The Authority refer to these payments as the relinquishment payments. The Authority initially recorded a relinquishment liability of $549.1 million in September 1998. The present value of this liability is estimated at $592.0 million as of September 30, 2001, a decrease of $80.9 million over the $672.9 million liability recognized as of September 30, 2000. The Authority reviewed current revenue forecasts and has reduced revenue projections for the period in which the Relinquishment Agreement applies, due to uncertainties involving economic market conditions that have affected Project Sunburst revenues and future competition from potential Native American casinos. For a further discussion of relinquishment liability, see Note 13 to the Authority's financial statements beginning on page F-1 of this Form 10-K/A. The Authority reassesses the relinquishment liability when necessary to account for material increases or decreases in projected revenues and quarterly to reflect the impact on the time value of money due to the passage of time. The Authority has capitalized $130.0 million of the relinquishment liability associated with the trademark value of the Mohegan Sun brand name. The Authority paid $42.3 million in relinquishment payments during the fiscal year ended September 30, 2001. Of the $42.3 million in relinquishment payments for the fiscal year ended September 30, 2001, $9.7 million represents principal amounts and the remaining $32.6 million is payment for the accretion of interest. As of September 30, 2001, relinquishment payments earned but unpaid were $11.5 million. During the fiscal year ended September 30, 2000, the Authority paid $20.0 million in relinquishment payments, consisting of $8.5 million in principal amounts and $11.5 million for the accretion of interest. Distributions to the Tribe During fiscal years 2001, 2000 and 1999, the Authority distributed $44.0 million, $50.0 million and $138.4 million, respectively, to the Tribe. In fiscal year 1999, $51.2 million was subsequently returned to the Authority by the Tribe as a capital contribution to finance partially Project Sunburst. Also in fiscal year 1999, $45.9 million previously held in escrow pursuant to certain contractual obligations of the Authority was distributed to the Tribe and subsequently returned as a capital contribution towards Project Sunburst. Debt Service Costs 15 For the fiscal years ended September 30, 2001, 2000 and 1999, the Authority incurred the following debt service costs (in thousands):
For the For the Year Ended Year Ended For the Year Ended September 30, September 30, September 30, 2001 2000 1999 ----------------------- --------------- ---------------- (restated - see note 15 to the Authority's financial statements) Bank Credit Facility $ 7,439 $ - $ - $200M 8.125% Senior Notes 16,250 16,250 9,389 $300M 8.75% Senior Subordinated Notes 26,250 26,250 15,167 $150M 8.375% Senior Subordinated Notes 2,268 - - $175M 13.5% Senior Secured Notes - - 9,975 Participating interest - - 4,256 $40M Subordinated Notes - 2,648 9,872 $50M Subordinated Notes - 1,473 5,342 Change in fair value of derivative instruments 4,084 - - Financing fees 4,536 - - Capital lease obligations 263 1,058 2,128 Capitalized interest (40,715) (9,880) (534) --------------- ------------ ------------- Total Interest Expense $ 20,375 $ 37,799 $ 55,595 =============== ============ =============
Sufficiency of Resources The Authority believes that existing cash balances, financing arrangements and operating cash flow will provide the Authority with sufficient resources to meet its existing debt obligations, relinquishment payments, distributions to the Tribe and foreseeable capital expenditure requirements with respect to current operations and Project Sunburst for at least the next twelve months. Nonetheless, as discussed above, there are potential events or occurrences that may affect adversely the Authority's ability to meet its existing debt obligations, make relinquishment payments and distributions to the Tribe and pay for capital expenditures. Due to delays in the construction schedule of the Project Sunburst hotel, the Authority has initiated discussions with its lenders regarding possible amendments to its financial covenants under the Bank Credit Facility. These amendments would be intended to address the impact of the extended construction borrowing period and the delay in achieving the full cash flows anticipated from the fully completed hotel. The Authority also is considering the issuance of additional Senior Subordinated Notes in 2002 in order to curtail a portion of the outstanding balance of the Bank Credit Facility. Contractual Obligations and Commitments The Authority's future payment obligations related to its material debt and certain other contractual obligations and the timing of those payments are set forth below. Since many of these payment amounts are not fixed, the amounts in the table below are solely estimates as more fully described in the footnotes and the actual amounts may be different.
Fiscal Contractual Obligations Year (in thousands) 2002 (1) 2-3 years 4-5 years After 5 years --------------------------------------------------------------------------------------------- Long-term debt (2) $ - $ 258,000 $ 200,000 $ 450,000 Construction obligations (3) 166,671 - - - Development obligations (4) 4,718 - - - --------- --------- --------- ------------ Total $ 171,389 $ 258,000 $ 200,000 $ 450,000 ========= ========= ========= ============
(1) Amounts due within one year represent obligations expected to be incurred from October 1, 2001 to September 30, 2002. 16 (2) Long-term debt includes scheduled amortization and scheduled maturities for notes payable and credit facilities, but excludes interest payments. (3) Construction obligations represent the remainder of expenditures the Authority must pay in connection with Project Sunburst and related construction enhancement. See Note 12 to the Authority's financial statements beginning on page F-1 of this Form 10-K/A. The Authority does not believe that it will have any construction obligations after September 30, 2002, and this table has been prepared based on that assumption. (4) Under the Development Agreement, the Authority is required to pay to TCA a development fee of $14.0 million. Development obligations represent the remainder of the fee due to TCA. See Note 13 to the Authority's financial statements beginning on page F-1 of this Form 10-K/A. The Authority does not believe that it will have any development fee obligations after September 30, 2002, and this table has been prepared based on that assumption. In addition to the contractual obligations described above, the Authority has certain other contractual commitments that will require payments throughout the periods described below. The calculation of the estimated payments in the table below are based, in large part, on projections of future revenues over an extended period of time, as well as other factors which are indicated more fully in the footnotes to the following table. Since there is a high level of estimates and judgments used with respect to calculating these liabilities, future events that affect such estimates and judgments may cause the actual payments to differ significantly from the estimates set forth below. The amounts included in the table are estimates and, while some agreements are perpetual in term, for the purposes of calculating these amounts, the Authority has assumed that the table contains information for only ten years.
Contractual Commitments Fiscal Year (in thousands) 2002 (1) 2-3 years 4-5 years 5-10 years ------------------------------------------------------------------------------------------------- Slot winning payment commitments (2) 180,381 392,963 425,029 1,184,902 Relinquishment commitments (3) 55,935 128,675 139,162 578,699 Priority distributions (4) 14,882 31,282 33,420 93,889 ---------- ---------- --------- ----------- Total $ 251,198 $ 552,920 $ 597,611 $ 1,857,490 ========== ========== ========= ===========
(1) Amounts due within one year represent payment commitments from October 1, 2001 to September 30, 2002. (2) Slot winning payment commitments are a portion of the revenues earned on slot machines that must be paid by the Authority to the State of Connecticut pursuant to the Mohegan Compact. The payment commitment is the lesser of (a) 30% of gross revenues from slot machines, or (b) the greater of (i) 25% of gross revenues from slot machines or (ii) $80.0 million. For the fiscal years ended September 30, 2001, 2000 and 1999, the Slot Win Contribution totaled $144.6 million, $135.1 million and $121.1 million, respectively. The amounts shown in this table are estimates of the required payments for the next ten years. (3) Relinquishment commitments represent payment commitments of the Authority to TCA under the Relinquishment Agreement as described in Note 13 to the Authority's financial statements. The relinquishment commitment is calculated as five percent of revenues, as defined in the Relinquishment Agreement. The amounts shown in this table are estimates of the required payments for the next ten years and have been calculated in accordance with the Relinquishment Agreement. See Note 13 to the Authority's financial statements beginning on page F-1 of this Form 10-K/A. (4) Priority distributions are monthly payments required to be made by the Authority to the Tribe pursuant to the Priority Distribution Agreement. The payments are calculated based on net cash flow and are limited to a maximum amount of $14.0 million, which maximum amount is subject to an annual adjustment based on Consumer Price Index, or CPI. During the fiscal year ended September 30, 2001, the Authority paid $14.0 million in priority distributions to the Tribe. The amounts included in the table are estimates of the required payments for the next ten years and, while this agreement is perpetual in term, for the purposes of calculating these amounts, the Authority has assumed that it will pay the maximum amount in each of the years covered by the table, as adjusted by an annual CPI adjustment of 3.361%. Critical Accounting Policies and Estimates Management has identified the following critical accounting policies that affect the Authority's more significant judgments and estimates used in the preparation of the Authority's financial statements. The preparation of the Authority's financial statements in conformity with accounting principles generally accepted in the United States of America requires the Authority's management to make estimates and judgments that affect the reported amounts of 17 assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, management evaluates those estimates, including those related to asset impairment, accruals for Player's Club points, self-insurance, compensation and related benefits, revenue recognition, allowance for doubtful accounts, contingencies and litigation. The Authority states these accounting policies in the notes to the financial statements and in relevant sections in this discussion and analysis. These estimates are based on the information that is currently available to the Authority and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could vary from those estimates. The Authority believes that the following critical accounting policies affect significant judgments and estimates used in the preparation of its financial statements: One of the most significant policies used by the Authority relates to its estimate of its relinquishment liability. The Authority, in accordance with Statement of Financial Accounting Standards No. 5 "Accounting for Contingencies," has recorded a relinquishment liability of the estimated present value of its obligations under the Relinquishment Agreement. The Authority reassesses the relinquishment liability when necessary to account for material increases or decreases in projected revenues and quarterly to reflect the impact on the time value of money due to the passage of time. Since there is a high level of estimates and judgments used with respect to calculating this liability, future events that affect such estimates and judgments may cause the actual liability to differ significantly from the estimate. The Authority recognizes casino revenue as gaming wins less gaming losses. Revenues from food and beverage, retail, entertainment and other are recognized at the time the service is performed. Minimum rental revenues in the Shops at Mohegan Sun are recognized on a straight-line basis over the terms of the related leases. Percentage rents are recognized in the period in which the tenants exceed their respective percentage rent thresholds. Recoveries from tenants for operating expenses related to the Shops at Mohegan Sun are recognized as offsetting expenses in the period billed, which approximates the period in which the applicable costs are incurred. The Authority maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments, which results in bad debt expense. Management determines the adequacy of this allowance by continually evaluating individual customer receivables, considering the customer's financial condition, credit history and current economic conditions. If the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Authority maintains accruals for workers compensation self-insurance and Player's Club points redemption, which are classified in other accrued liabilities in the accompanying balance sheets. Management determines the adequacy of these accruals by periodically evaluating the historical experience and projected trends related to these accruals. If such information indicates that the accruals are overstated or understated, the Authority will adjust the assumptions utilized in the methodologies and reduce or provide for additional accruals as appropriate. The Authority is subject to various claims and legal actions in the ordinary course of business. Some of these matters relate to personal injuries to customers and damage to customers' personal assets. Management estimates guest claims expense and accrues for such liability based upon historical experience in the accounts payable and accrued expenses category in its accompanying balance sheets. Impact of Inflation Absent changes in competitive and economic conditions or in specific prices affecting the hotel and casino industry, the Authority does not expect that inflation will have a significant impact on its operations. Changes in specific prices, such as fuel and transportation prices, relative to the general rate of inflation may have a material adverse effect on the hotel and casino industry in general. 18 New Accounting Pronouncements In November 2000, the Emerging Issues Task Force ("EITF") on the Financial Accounting Standards Board ("FASB") reached a consensus on EITF Issue No. 00-14, "Accounting for Certain Sales Incentives." EITF 00-14 requires that discounts which result in a reduction in or refund of the selling price of a product or service in a single exchange transaction be recorded as a reduction of revenues. The Authority's accounting policy related to free or discounted food and beverage and other services already complies with EITF 00-14, and those free or discounted services are generally deducted from gross revenues as "promotional allowances." In January 2001, the EITF reached a consensus on certain issues within EITF Issue No. 00-22, "Accounting for Points and Certain Other Time-Based or Volume-Based Sales Incentive Offers." EITF 00-22 requires that cash or equivalent amounts provided or returned to customers as part of a transaction not be shown as an expense, but instead as an offset to the related revenue. The adoption of this Issue is not expected to have a material impact the Authority's financial position, results of operations or cash flows. In June 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142") to be effective for fiscal years beginning after December 15, 2001. The Authority adopted SFAS 142 on October 1, 2001. Under SFAS 142, the trademark is no longer subject to amortization over its estimated useful life as it has been deemed to have an indefinite useful life. However, SFAS 142 requires the trademark to be evaluated at least annually for impairment by applying a fair-value based test and, if impairment occurs, the amount of impaired trademark must be written off immediately. With the adoption of SFAS 142, the Authority no longer records amortization of the trademark. For the year ended September 30, 2001, the Authority recorded $3.4 million related to the amortization of the trademark. The Authority is required to apply the initial fair value test by March 31, 2002. The Authority has not yet determined whether the initial fair value test will result in any impairment charges, but does not anticipate a negative effect on its financial position, results of operations or cash flows upon completing the fair value assessment. Had SFAS 142 been in effect in these periods, the Authority's results would have been as follows (in thousands):
For the For the For the Year Ended Year Ended Year Ended September 30, September 30, September 30, 2001 2000 1999 ------------------------ -------------------------- --------------------- (restated - see note 15 to the Authority's financial statements) Net income (loss) $ 213,941 $ 145,934 $ (38,920) Trademark amortization 3,436 4,295 2,577 ------------------------ -------------------------- --------------------- As adjusted net income (loss) $ 217,377 $ 150,229 $ (36,343) ======================== ========================== =====================
In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 modifies the rules for accounting for the impairment or disposal of long-lived assets. The new rules become effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. The Authority has not yet adopted and has not yet quantified the impact of implementing SFAS 144 on the Authority's financial statements, but does not anticipate a negative effect on the Authority's financial position, result of operations or cash flows upon adoption of the standard. Item 7A. Quantitative and Qualitative Disclosure of Market Risk Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. The Authority's primary exposure to market risk is interest rate risk associated with its $500.0 million Bank Credit Facility in which interest will accrue on the basis of a base rate formula or a LIBOR-based formula, plus applicable spreads. See Note 4 to the Authority's financial statements beginning on page F-1 for further details relating to the terms and conditions of the Bank Credit Facility. As of September 30, 2001, the Authority had drawn $258.0 million from the Bank Credit Facility. The Authority uses derivative instruments, 19 including an interest cap, interest rate collar and an interest rate swap as its strategy to manage interest rate risk associated with the variable interest rates applicable to advances under the Bank Credit Facility. The following table provides information about the Authority's derivative instruments at September 30, 2001:
Notional Estimated Fair Maturity Date Value Value ------------- ------------ -------------- Interest Rate Cap Strike Rate--8% October 1, 2003 $ 61,038,000 $ 1,000 Interest Rate Collar Ceiling Strike Rate--8% Floor Strike Rate--6% March 1, 2004 56,356,800 (3,310,295) Interest Rate Swap Pay fixed--6.35% Receive Variable March 1, 2004 28,178,400 (1,840,126) ------------- ------------ Total $ 145,573,200 $(5,149,421) ============= ============
All derivative instruments are based upon one-month LIBOR, which was 2.64% on September 30, 2001. Item 8. Financial Statements and Supplementary Data The Authority's financial statements and notes thereto, referred to in Item 15(A)(1) of this Form 10-K/A, are included in this Form 10-K/A beginning on page F-1. 20 PART III Item 10. Directors and Executive Officers of the Registrant The Authority is governed by a nine-member Management Board, consisting of the same nine members on the Tribal Council (the governing body of the Tribe). Any change in the composition of the Tribal Council results in a corresponding change in the Authority's Management Board. The President and Chief Executive Officer and other executive officers of Mohegan Sun are hired by the Management Board and are employees of the Authority. Management Board and Executive Officers The following table provides information as of September 30, 2001 with respect to each of (i) the members of the Management Board and (ii) the executive officers of Mohegan Sun.
Name Age Position Mark F. Brown 44 Chairman and Member, Management Board Peter J. Schultz 46 Vice Chairman and Member, Management Board Christine Damon-Murtha 53 Corresponding Secretary and Member, Management Board Donald M. Chapman 75 Treasurer and Member, Management Board Shirley M. Walsh 56 Recording Secretary and Member, Management Board Jayne G. Fawcett 65 Member, Management Board Roland J. Harris 54 Member, Management Board Glenn R LaVigne 40 Member, Management Board Maynard L. Strickland 60 Member, Management Board William J. Velardo 46 President and Chief Executive Officer, Mohegan Sun Mitchell Grossinger Etess 42 Executive Vice President, Marketing, Mohegan Sun Jeffrey E. Hartmann 39 Executive Vice President, Finance and Chief Financial Officer, Mohegan Sun Michael Bloom 43 Senior Vice President, Marketing, Mohegan Sun John Arnesen 54 Senior Vice President, Hotel Operations, Mohegan Sun Gary Crowder 51 Senior Vice President, Food and Beverage, Mohegan Sun Robert Soper 28 Senior Vice President, Administration, Mohegan Sun
Mark F. Brown--Mr. Brown has been a member of the Authority's Management Board since October 1995. Mr. Brown became the Chairman of the Management Board in October 2000. Mr. Brown worked with the Tribe's historian during the period in which the Tribe was working to obtain federal recognition and also served on the Tribal Constitutional Review Board from 1993 to 1995. Mr. Brown served as a law enforcement officer for over twelve years. Prior to his work in law enforcement, Mr. Brown was involved in retail sales and management. Peter J. Schultz--Mr. Schultz was seated on the Management Board and was elected Vice Chairman of the Management Board in October 2000. Mr. Schultz held the position of Human Resources Director for the Tribe from February 1997 to September 2000. From 1982 to 1997, Mr. Schultz was employed by Aetna Life and Casualty, a large insurance company, culminating with the position of Manager of Organizational Development at the Aetna Institute. Christine Damon-Murtha--Ms. Murtha was seated on the Management Board and was elected Corresponding Secretary in October 2000. Ms. Murtha was employed in the Finance Department for the Tribe from 1996 to 1998 and as a reporter and photographer for the Tribe's Communication Department from 1998 to September 2000. Ms. Murtha held the position of Supervisor/Senior Accounting Analyst with Travelers Insurance Company from 1984 to 1992. Ms. Murtha serves as council liaison for the Environmental Department of the Tribe. 21 Donald M. Chapman--Mr. Chapman was seated on the Management Board and was elected Treasurer in October 2000. Mr. Chapman retired from the United States Coast Guard at the rank of Commander. Following Mr. Chapman's retirement, he held management positions with the Urban Mass Transportation Administration in Washington, D.C. Mr. Chapman was also employed as a stockbroker with Legg Mason & Company. Shirley M. Walsh--Ms. Walsh has been the Recording Secretary of the Management Board since October 1995 and has been a member of the Management Board since July 1995. Ms. Walsh has worked for the Tribe in various capacities for almost nine years. Prior to that time, she was employed for 13 years by a local certified public accountant. Ms. Walsh chaired the Tribal Election Committee from 1994 to 1995 and has served on several other committees for the Tribe. Jayne G. Fawcett--Ms. Fawcett has been a member of the Management Board since its inception in July 1995. Ms. Fawcett served as the Vice Chair of the Management Board and the Tribal Council from December 1995 until October 2000. Ms. Fawcett worked as a social worker for the State of Connecticut in 1987 and is a retired teacher after 27 years of service. Ms. Fawcett was a Chairman of the Tribe's Constitutional Review Board from 1992 to 1993. Currently, she oversees the Tribe's public relations and serves as the Tribe's Public Relations Ambassador. Roland J. Harris--Mr. Harris has been a member of the Management Board since October 1995. He served as Chairman of the Management Board and the Tribal Council from October 1995 until October 2000. Mr. Harris was the founder of the firm Harris and Clark, Inc., Civil Engineers, Land Surveyors and Land Planners. Mr. Harris has served as First Selectman and CEO of the Town of Griswold, Connecticut, and also as its Planning and Zoning Commissioner. He has also served as Deputy Chief of the Griswold Fire Department and as Fire Marshal and Inspector of the Town of Griswold. Prior to assuming the Chairmanship of the Management Board in 1995, Mr. Harris served as the Tribal Planner. Glenn R. LaVigne--Mr. LaVigne has been a member of the Management Board since January 1996. Mr. LaVigne was previously employed by the Town of Montville, Connecticut and oversaw building and maintenance for Montville's seven municipal buildings. Mr. LaVigne serves as council liaison for development and construction. Maynard L. Strickland--Mr. Strickland has been a member of the Management Board since October 1995. Before that, Mr. Strickland owned and operated several restaurants in Norwich, Connecticut and Florida for 20 years. William J. Velardo--Mr. Velardo currently serves as President and Chief Executive Officer of Mohegan Sun. Mr. Velardo has served as Mohegan Sun's President and Chief Executive Officer since October 1995 and has over 25 years of experience in gaming operations. Prior to his employment with the Authority, Mr. Velardo was Chief Operating Officer for River City, a riverboat gaming venture in New Orleans, Louisiana. From 1991 to 1994, Mr. Velardo served as Senior Vice President, Casino Operations at Trump Plaza Hotel and Casino in New Jersey. Mr. Velardo participated in the opening of the Mirage in Las Vegas, Nevada, a casino, where he served as Vice President, Table Games from 1989 to 1991. Mr. Velardo also worked as Assistant Casino Manager and Pit Manager at Caesar's Tahoe and Caesar's Palace casinos. Mitchell Grossinger Etess--Mr. Etess has been Executive Vice President of Marketing at Mohegan Sun since November 1995 and has 20 years experience in the casino and hotel industry. Prior to his employment with the Authority, Mr. Etess was Vice President of Marketing at Players Island and, from 1989 to 1994, was Senior Vice President of Marketing and Hotel Operations at Trump Plaza Hotel and Casino. Prior thereto, Mr. Etess held various management positions in the hospitality and advertising industries. Jeffrey E. Hartmann--Mr. Hartmann has been Executive Vice President of Finance and the Chief Financial Officer of Mohegan Sun since December 1996 and has 10 years of experience in the casino and hotel industry. Prior to joining the Authority, Mr. Hartmann worked for Foxwoods, a casino located in Connecticut, from August 1991 to December 1996, including as Vice President of Finance for Foxwoods Management Company. Mr. Hartmann was employed by PricewaterhouseCoopers, LLP, an independent public accounting firm, as an Audit Manager from 1984 to 1991. Mr. Hartmann is a certified public accountant. 22 Michael Bloom - Mr. Bloom has been the Senior Vice President of Marketing since March 1996 and has more than 20 years of experience in the casino and hotel industry. Prior to his employment with the Authority, Mr. Bloom was Director of Marketing from May 1994 to February 1996 for the new Casino Windsor and Northern Belle Casinos in Windsor, Ontario. Mr. Bloom also held several positions from 1984 to 1994 at the Tropicana in Atlantic City, where he was Director of Hotel Operations and Executive Director of Marketing Administration. John Arnesen - Mr. Arnesen has been the Senior Vice President of Hotel Operations for the Authority since 1999 and has over 20 years experience in hotel and gaming operations. Prior to joining the Authority, Mr. Arnesen was the Chief Operating Officer for Millamax Gaming & Hospitality in Fort Lauderdale, Florida and subsequently President and Chief Operating Officer for Carnival Gaming & Hospitality in San Juan, Puerto Rico. Mr. Arnesen has also managed and directed hotel operations for Trump Taj Mahal Resorts and Resorts International in Atlantic City, New Jersey and the Tropicana Resort in Las Vegas, Nevada. Gary Crowder - Mr. Crowder has served as the Senior Vice President of Food and Beverage since May 2000 and has more than 30 years of experience in the hospitality industry. Prior to his employment with the Authority, he held the position of Vice President at the MGM Grand in Las Vegas from 1998 to 1999 and the Grand Casino in Mississippi from 1993 to 1995. Mr. Crowder has also served as Director of Food and Beverage at the Walt Disney World Dolphin Resort Hotel in Orlando, Bally's Resort in Reno, Nevada, Resorts International in Atlantic City and Tropicana Casinos in Atlantic City. Robert Soper - Mr. Soper serves as the Senior Vice President of Administration at Mohegan Sun. Mr. Soper has served in this position since June 2001. Prior to this position, Mr. Soper served as Senior Attorney for the Mohegan Tribe from 1997 to 2001. Item 11. Executive Compensation Compensation of the Management Board The individual members of the Management Board do not receive any direct compensation from the Authority. The Tribe compensates members of the Management Board for the services they render as members of the Tribal Council and of the Management Board. The members of the Management Board received the following amounts for their services as members of the Management Board for fiscal year 2001: Mr. Brown, $70,896; Mr. Schultz, $66,766; Ms. Fawcett, $63,320; Mr. Harris, $63,144; Mr. LaVigne, $61,762; Mr. Strickland, $61,391; Ms. Walsh, $61,874; Ms. Murtha, $51,191; and Mr. Chapman, $53,523. Compensation of Executive Officers The following table sets forth the compensation paid to the President and Chief Executive Officer of the Authority and each of the Authority's other four most highly compensated executive officers for fiscal year 2001, referred to collectively as the "Named Executive Officers": SUMMARY COMPENSATION TABLE
Annual Compensation Other(1) 401(k) Plan Fiscal Life Matching Name and Principal Position Year Salary Bonus Insurance Contributions William J. Velardo 2001 $ 1,043,000 $ 271,000 $ 64,000 $ 5,100 President and Chief Executive Officer 2000 $ 789,000 $ 264,000 $ 27,000 $ 5,100 1999 $ 503,000 $ 150,000 $ -- $ 4,800
23 Mitchell Grossinger Etess 2001 $ 622,000 $ 164,000 $ 30,000 $ 5,100 Executive Vice President, Marketing 2000 $ 463,000 $ 164,000 $ 8,000 $ 5,100 1999 $ 306,000 $ 100,000 $ -- $ 4,800 Jeffrey E. Hartmann 2001 $ 552,000 $ 150,000 $ 24,000 $ 5,100 Executive Vice President, Finance 2000 $ 401,000 $ 158,000 $ 12,000 $ 5,100 and Chief Financial Officer 1999 $ 250,000 $ 100,000 $ -- $ 4,800 Michael Bloom 2001 $ 203,000 $ 58,000 $ -- $ 5,100 Senior Vice President, Marketing 2000 $ 156,000 $ 45,000 $ -- $ 4,000 1999 $ 136,000 $ 33,000 $ -- $ 4,400 John Arnesen (3) 2001 $ 197,000 $ 62,000 $ -- $ -- Senior Vice President, Hotel Operations 2000 $ 174,000 $ 45,000 $ -- $ -- 1999 $ 20,000 $ 13,000 $ -- $ --
(1) The only compensation received by these employees other than salary and bonus was employer matching contributions to the Authority's 401(k) plan and the payment by the Authority of premiums on life insurance policies for which the employee is the owner and beneficiary. (2) Commenced employment on November 1, 1999. Compensation Committee Interlocks and Insider Participation The President and Chief Executive Officer sets the compensation for executive officers other than for himself and the two executive vice presidents. The compensation of the President and Chief Executive Officer and the two executive vice presidents has been determined in accordance with their employment agreements, which previously have been approved by the Management Board in 1999. A description of these agreements is provided below. Employment Agreements On April 22, 1999, the Authority entered into employment agreements with each of William J. Velardo, Mitchell Grossinger Etess and Jeffrey E. Hartmann. The term of each agreement runs until December 31, 2004, with automatic renewal for an additional term of five years unless either the employee or the Authority provides notice to the other of its intention to terminate. Under the employment agreements, commencing on January 1, 2000, each of Messrs. Velardo, Etess and Hartmann is entitled to receive an annual salary of $800,000, $485,000 and $435,000, respectively. The annual salary is subject to an annual increase on each subsequent January 1, of no less than five percent of the then current annual salary. Each employee is also entitled to receive an annual bonus of not less that 33 1/3% of the base salary in effect for the period for which the annual bonus is paid. Each employment agreement provides that, if the employee is terminated for cause or if the employee terminates his employment voluntarily, then the employee will not be entitled to any further compensation. If the employee is terminated other than for cause, then the employee will be entitled to receive, at termination, a severance payment equal to his annual salary plus an annual bonus equal to 100% of his annual salary from the date of termination to the expiration date of the employment agreement. These employment agreements further provide that the applicable employee may not, without prior written consent of the Authority, compete with the Authority in specified states in the northeastern United States during the term of his employment and for a one-year period following a termination for cause or a voluntary termination of employment. Also, during this period, the applicable employee may not hire or solicit other employees of the Authority or encourage any such employees to leave employment with the Authority. Under these employment agreements, the applicable employee may not disclose any of the Authority's confidential information while employed by the Authority or thereafter. This confidentiality obligation will survive the termination of such employee's employment and employment agreement. On July 24, 2000 and January 5, 2001, the Authority entered into employment agreements with John Arnesen and Michael Bloom, respectively. Under the employment agreements, Messrs. Arnesen and Bloom are entitled to receive base salaries of $175,000 and $201,600, respectively. The employment agreement provides that if the employee is terminated for cause, then the employee will not be entitled to any further compensation. If the employee voluntarily terminates his employment and provides the required 60-day written notice, then the Authority will pay the employee's base salary for 60 days following the employee's resignation, so long as the employee remains in compliance with all of the other covenants under the agreement. If the employee is terminated other than for cause, then the employee will receive his base salary for a one year period and a lump sum payment of $25,000 for relocation expenses. The employment agreements further provide that the applicable employee may not, without prior written consent of the Authority, compete with the Authority in specified states in the northeastern United States during the term of his employment and for a one-year period following termination of his employment. Also, during this period, the applicable employee may not hire or solicit other employees of the Authority or encourage any such employees to leave employment with the Authority. Under these employment agreements, the applicable employee may not disclose any of the Authority's confidential information while employed by the Authority or thereafter. Copies of these employment agreements are included as exhibits to this Form 10-K/A. 24 Item 13. Certain Relationships and Related Transactions Services Provided by the Tribe to the Authority The Tribe provides governmental and administrative services to the Authority in conjunction with the operation of Mohegan Sun. During the fiscal year ended September 30, 2001, the Authority incurred $10.9 million of expenses for such services. The Authority incurred $9.9 million and $8.3 million of expenses for such services during fiscal years 2000 and 1999, respectively. The Tribe provided services through its Development Department for projects related to Mohegan Sun and Project Sunburst. The Authority incurred $954,000 of such expenses associated with the Development Department for the fiscal year ended September 30, 2000. There were no expenses incurred during the year ended September 30, 2001. Leases by the Authority to the Tribe Prior to October 1, 2000, the Authority operated a retail outlet at Mohegan Sun and purchased goods for resale at this location from a limited liability company ("Little People, LLC") owned by the Tribe. For the fiscal year ended September 30, 2000 and 1999 the Authority purchased $348,000 and $417,000, respectively, of such goods from Little People, LLC. On October 1, 2000, the Tribe assumed the management of this retail outlet from the Authority and purchased the remaining inventory from the Authority. The Tribe paid the Authority approximately $172,000 for such remaining inventory. The Authority and Little People, LLC have entered into a lease agreement, whereby Little People, LLC leases retail space located in the Shops at Mohegan Sun from the Authority. The lease term expires on June 30, 2006 and may be renewed on a monthly basis. Little People, LLC is not obligated to pay any base rent. The Authority reimburses the Tribe for sales where patron player's club points are utilized. Leases by the Tribe to the Authority The Authority leases the land on which Mohegan Sun is located from the Tribe pursuant to a long-term lease. The Authority is required to pay to the Tribe a nominal annual rental fee under the lease. The lease has an initial term of 25 years and is renewable for an additional 25-year term upon expiration. The Tribe, through MTIC Acquisitions, LLC, a Connecticut limited liability company owned by the Tribe, has entered into various land lease agreements with the Authority for access, parking and related purposes for Mohegan Sun. For the fiscal years ended September 30, 2001, 2000 and 1999, the Authority expended $386,000, $386,000 and $412,000, respectively, relating to these land lease agreements. Distributions by the Authority to the Tribe On August 7, 2001, the Tribe issued Gaming Authority Priority Distribution Payment Public Improvement Bond Anticipation Notes (the "Series 2001 BANS"). The Authority has no obligations to make any payments under the Series 2001 BANS. Debt service on the Series 2001 BANS is paid by the Tribe from 95% of amounts received from the Authority under the Priority Distribution Agreement. The Priority Distribution Agreement obligates the Authority to make monthly priority distribution payments to the Tribe in a maximum aggregate amount of $14.0 million per calendar year, adjusted annually in accordance with the formula specified in the Priority Distribution Agreement to reflect the effects of inflation. However, payments pursuant to the Priority Distribution Agreement do not reduce the Authority's obligations to make payments pursuant to invoices for governmental services provided by the Tribe or any payments under any other agreements with the Tribe to the extent that such agreements are permitted under the Bank Credit Facility. The priority distribution payments are limited obligations of the Authority payable only to the extent of its net cash flow, as defined in the Priority Distribution Agreement, and are not secured by a lien or encumbrance on any assets or property of the Authority. The remaining 5% of each priority distribution payment is remitted to the Tribe free and clear of any lien. The Authority's financial statements reflect payments associated with the Priority Distribution Agreement of $14.0 million for the fiscal year ended September 30, 2001. 25 As permitted by the restrictive provisions of the Bank Credit Facility and the Authority's indentures, the Authority distributed to the Tribe $30.0 million in cash, net of $14.0 million related to the Priority Distribution Agreement, during the fiscal year ended September 30, 2001. Mohegan Tribal Employment Rights Ordinance On September 25, 1995, the Tribe adopted the Mohegan Tribal Employment Rights Ordinance (the "TERO"), which sets forth hiring and contracting preference requirements for employers and entities conducting business on Tribal land or working on behalf of the Tribe. Pursuant to the TERO, an employer is required to give hiring, promotion, training, retention and other employment-related preferences to Native Americans who meet the minimum qualifications for the applicable employment position. However, this preference requirement does not apply to key employees, as such persons are defined in the TERO. In addition, when staffing the operations of the Project Sunburst expansion, the Development Agreement requires TCA to give hiring and recruiting preferences, first to qualified members of the Tribe (and their spouses and children) and then to enrolled members of other federally recognized Indian tribes. Similarly, any entity awarding a contract to be performed on Tribal land or on behalf of the Tribe must give preference, first to certified Mohegan entities and second to other certified Indian entities. This contracting preference is conditioned upon the bid by the preferred certified entity being within 5% of the lowest bid by a non-certified entity (unless the preferred certified entity's bid exceeds $100,000 of the lowest bid by a non-certified entity). The TERO establishes procedures and requirements for certifying Mohegan entities and other Indian entities. Certification is based largely on the level of ownership and control exercised by the members of the Tribe or other Indian tribes, as the case may be, over the entity bidding on a contract. A number of contracts for Project Sunburst were awarded to companies controlled by Tribal members under the TERO provision described above. As of September 30, 2001, 146 employees of the Authority were members of the Tribe. Services from Entities in Which Members Have an Interest The Authority engages McFarland Johnson, Inc. for surveying, civil engineering and professional design services. Roland Harris, a current member and a former Chairman of the Management Board and the Tribal Council, was a consultant for this firm pursuant to a consulting agreement which expired in May 2001. For the fiscal years ended September 30, 2001, 2000 and 1999, the Authority incurred $175,000, $792,000 and $373,000, respectively, for such services provided by McFarland Johnson. McFarland Johnson formerly conducted business as Harris and Clark, Inc. The Authority believes that the terms of this engagement are comparable to those that would pertain to arms length engagement with an unaffiliated firm. Services Provided by the Authority to the Tribe In July 1999, the Tribe commenced construction of a public safety facility within the Eagleview Complex that will service the Mohegan Reservation, including Mohegan Sun. The Authority initially funded the construction and was subsequently reimbursed by the Tribe. The total cost of the public safety facility is anticipated to be $7.5 million, of which $7.1 million has been incurred. The Authority also has initially funded other Tribal projects and subsequently has been reimbursed by the Tribe, including the construction of a temporary Tribal office, construction of roads and improvements made to the Town of Montville's wastewater collection and treatment facilities. The total amount incurred by the Authority for these projects, including the public safety spaces referred to above, is $45.6 million. The Authority anticipates the total incurred to be $50.7 million. Approximately $1.6 million was reflected as amounts due from the Tribe in the Authority's balance sheet as of September 30, 2000. No amounts were due as of September 30, 2001, as the Authority was reimbursed for amounts due from the Tribe. 26 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports of Form 8-K A(1). Financial Statements See Index to financial statements included herein. A(2). Financial Statement Schedules Included in Part IV of this Report: Schedule II--Valuation and Qualifying Accounts and Reserves Schedules other than that listed above are omitted because they are not required or are not applicable, or the required information is shown in the financial statements or notes to the financial statements. A(3). Exhibits Exhibit No. Description 3.1 Constitution of the Mohegan Tribe of Indians of Connecticut* 3.2 Ordinance No. 95-2 of the Mohegan Tribe of Indians of Connecticut for Gaming on Tribal Lands, enacted on July 15, 1995* 4.1 Indenture dated March 3, 1999 among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and First Union National Bank, as Trustee, relating to the 8 1/8% Senior Notes Due 2006 of the Mohegan Tribal Gaming Authority** 4.2 Form of Global 8 1/8% Senior Notes Due 2006 of the Mohegan Tribal Gaming Authority (contained in the Indenture filed as Exhibit 4.1)** 4.3 Indenture dated as of March 3, 1999 among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and State Street Bank and Trust Company, as Trustee, relating to the 8 3/4% Senior Subordinated Notes Due 2009 of the Mohegan Tribal Gaming Authority** 4.4 Form of Global 8 3/4% Senior Subordinated Notes Due 2009 of the Mohegan Tribal Gaming Authority F (contained in the Indenture filed as Exhibit 4.3)** 4.5 Indenture dated as of July 26, 2001 among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and State Street Bank and Trust Company, as Trustee, relating to the 8 3/8% Senior Subordinated Notes Due 2011 of the Mohegan Tribal Gaming Authority*** 4.6 Form of Global 8 3/8% Senior Subordinated Notes Due 2011 of the Mohegan Tribal Gaming Authority F (contained in the Indenture filed as Exhibit 4.5)*** 10.1 The Mohegan Tribe--State of Connecticut Gaming Mohegan Compact between the Mohegan Tribe of Indians of T Connecticut and the State of Connecticut (the "Compact")* 10.2 Agreement dated April 25, 1994 between the Mohegan Tribe of Indians of Connecticut and the State of A Connecticut resolving certain land claims (the "Resolution Agreement")* 10.3 Memorandum of Understanding dated May 17, 1994 between the Mohegan Tribe of Indians of Connecticut and M the State of Connecticut regarding implementation of the Compact and the Resolution Agreement* 27 10.4 Agreement between the Mohegan Tribe of Indians of Connecticut and the Town of Montville, Connecticut* 10.5 Land Lease dated September 29, 1995 between the Mohegan Tribe of Indians of Connecticut and the Mohegan Tribal Gaming Authority; Amendment of Land Lease dated September 29, 1995* 10.5 Land Lease dated September 29, 1995 between the Mohegan Tribe of Indians of Connecticut and the Mohegan Tribal Gaming Authority; Amendment of Land Lease dated September 29, 1995* 10.6 Amendment to the Land Lease dated February 18, 1999 between the Mohegan Tribe of Indians of Connecticut and the Mohegan Tribal Gaming Authority** 10.7 Amended and Restated Gaming Facility Management Agreement dated August 30, 1995 between the Mohegan Tribe of Indians of Connecticut, the Mohegan Tribal Gaming Authority and Trading Cove Associates* 10.8 Development Services Agreement dated February 7, 1998 by and among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Trading Cove Associates+ 10.9 Relinquishment Agreement dated February 7, 1998 by and among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Trading Cove Associates+ 10.10 The Loan Agreement dated as of March 3, 1999 by and among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut, Bank of America National Trust and Savings Association as Administrative Agent, Salomon Smith Barney Inc. as Syndication Agent, Societe Generale as Documentation Agent, NationsBanc Montgomery Securities LLC as Lead Arranger and each lender named therein (the "Loan Agreement")** 10.11 Escrow Deposit Agreement dated as of March 3, 1999 by and among the Mohegan Tribal Gaming Authority, E the Mohegan Tribe of Indians of Connecticut and First Union National Bank** 10.12 Construction Reserve Disbursement Agreement dated March 3, 1999 among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Fleet National Bank** 10.13 The Merrill Lynch Non-Qualified Deferred Compensation Plan Trust Agreement dated September 1, 1998 between the Mohegan Tribal Gaming Authority and Merrill Lynch Trust+ 10.14 Employment Agreement dated April 22, 1999 by and between the Mohegan Tribal Gaming Authority and William J. Velardo** 10.15 Employment Agreement dated April 22, 1999 by and between the Mohegan Tribal Gaming Authority and Mitchell Grossinger Etess** 10.16 Employment Agreement dated April 22, 1999 by and between the Mohegan Tribal Gaming Authority and Jeffrey E. Hartmann** 10.17 Amendment No. 1 to the Loan Agreement dated as of November 30, 2000 by and among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Bank of America National Trust and Savings Association++ 10.18 Priority Distribution Agreement between Mohegan Tribal Gaming Authority and the Mohegan Tribe of Indians of Connecticut dated August 1, 2001+++ 10.19 Administrative Services Agreement between Mohegan Tribal Gaming Authority and Fleet Retirement Plan A Services dated July 30, 2001+++ 10.20 Employment Agreement dated July 24, 2000 by and between the Mohegan Tribal Gaming Authority 28 and John Arnesen 10.21 Employment Agreement dated January 5, 2001 by and between the Mohegan Tribal Gaming Authority and Michael Bloom 10.22 Employment Agreement dated June 14, 2000 by and between the Mohegan Tribal Gaming Authority and Gary Crowder 10.23 Employment Agreement dated October 4, 2001 by and between the Mohegan Tribal Gaming Authority and Robert Soper 12.1 Computation of Ratio of Earnings to Fixed Charges 99.1 Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification of Vice President, Finance and Chief Financial Officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * Filed by the Authority with its Registration Statement on Form S-1 (file no. 33-80655), filed with the SEC on December 21, 1995, as amended, and incorporated herein by reference. ** Filed by the Authority with its Registration Statement on Form S-4 (file no. 333-76753), filed with the SEC on April 21, 1999, and incorporated herein by reference. *** Filed by the Authority with it Registration Statement on Form S-4 (file no. 333-69472), filed with the SEC on September 17, 2001, and incorporated herein by reference. + Filed by the Authority with its Form 10-K for the fiscal year ended September 30, 1998 and incorporated herein by reference. ++ Filed by the Authority with its Form 10-K for the fiscal year ended September 30, 2000 and incorporated herein by reference. +++ Filed by the Authority with its Form 10-Q for the quarter ended June 30, 2001 and incorporated herein by reference. B. Reports on Form 8-K On July 18, 2001, the Authority filed a Current Report on Form 8-K to report a press release announcing the Authority's financial results for the quarter ended June 30, 2001. C. Exhibits See A(3) above. D. Financial Statement Schedule See A(1) and (2) above. 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Mohegan Tribal Gaming Authority has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 12, 2002. MOHEGAN TRIBAL GAMING AUTHORITY By: /s/ Mark F. Brown ------------------- Mark F. Brown Chairman, Management Board 30 CERTIFICATION I, William J. Velardo, certify that: 1. I have reviewed this annual report on Form 10-K/A of the Mohegan Tribal Gaming Authority; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: November 12, 2002 /s/ William J. Velardo -------------------------------- William J. Velardo President and Chief Executive Officer 31 CERTIFICATION I, Jeffrey E. Hartmann, certify that: 1. I have reviewed this annual report on Form 10-K/A of the Mohegan Tribal Gaming Authority; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: November 12, 2002 /s/ Jeffrey E. Hartmann -------------------------- Jeffrey E. Hartmann Executive Vice President, Finance and Chief Financial Officer 32 INDEX TO FINANCIAL STATEMENTS Report of Independent Accountants by PricewaterhouseCoopers LLP F-2 Report of Independent Accountants on Financial Statement Schedule F-3 Report of Independent Public Accountants by Arthur Andersen LLP F-4 Balance Sheets of the Mohegan Tribal Gaming Authority as of September 30, 2001 and 2000 F-5 Statements of Income (Loss) of the Mohegan Tribal Gaming Authority for the Years Ended September 30, 2001, 2000 and 1999 F-6 Statements of Changes in Capital of the Mohegan Tribal Gaming Authority for the Years Ended September 30, 2001, 2000 and 1999 F-7 Statements of Cash Flows of the Mohegan Tribal Gaming Authority for the Years Ended September 30, 2001, 2000 and 1999 F-8 Notes to Financial Statements of the Mohegan Tribal Gaming Authority F-9
F-1 Report of Independent Accountants To The Mohegan Tribal Gaming Authority: In our opinion, the accompanying balance sheet as of September 30, 2001 and the related statements of income, of changes in capital and of cash flows present fairly, in all material respects, the financial position of The Mohegan Tribal Gaming Authority (the "Authority") at September 30, 2001, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Authority's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The Authority's financial statements as of September 30, 2000, and for each of the two years in the period ended September 30, 2000, were audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those financial statements in their report dated December 14, 2001. As discussed in Note 15, the Authority has restated its financial statements as of September 30, 2001 and for the year then ended, previously audited by other independent accountants who have ceased operations. PricewaterhouseCoopers LLP /s/ Hartford, CT November 11, 2002 F-2 Report of Independent Accountants on Financial Statement Schedule To the Mohegan Tribal Gaming Authority Our audit of the September 30, 2001 financial statements referred to in our report dated November 11, 2002 appearing in this Annual Report on Form 10-K/A of the Mohegan Tribal Gaming Authority (the "Authority") also included an audit of the September 30, 2001 financial statement schedule information listed in Item 15 of this Form 10-K/A. In our opinion, this 2001 financial statement schedule information presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements. The 2000 and 1999 financial statement schedule information of the Authority was audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on that financial statement schedule information in their report dated December 14, 2001. PricewaterhouseCoopers LLP /s/ Hartford, CT November 11, 2002 F-3 THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP (ANDERSEN) AND HAS NOT BEEN REISSUED BY ANDERSEN Report of Independent Public Accountants To the Mohegan Tribal Gaming Authority We have audited the accompanying balance sheets of the Mohegan Tribal Gaming Authority (the Authority) as of September 30, 2001* and 2000 and the related statements of income (loss), capital and cash flows for the each of the three years in the period ended September 30, 2001*. These financial statements and the schedule referred to below are the responsibility of the Authority's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material aspects, the financial position of the Mohegan Tribal Gaming Authority as of September 30, 2001* and 2000, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2001*, in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 15** is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP/S/ Hartford, Connecticut December 14, 2001 * Subsequent to the date of this report, the Authority's balance sheet as of September 30, 2001 and the related statements of income, of capital and of cash flows were audited by other independent accountants whose report appears on page F-2. ** This item, which was previously numbered Item 14, was renumbered as Item 15 due to a change in the formatting of Form 10-K by the Securities and Exchange Commission. F-4 Mohegan Tribal Gaming Authority Balance Sheets (in thousands)
September 30, September 30, 2001 2000 ------------------------- ------------------------- (restated - see note 15) ASSETS ------ Current assets: Cash and cash equivalents $ 74,284 $ 115,731 Receivables, net 5,347 5,490 Due from Tribe 957 1,648 Inventories 11,455 7,577 Other current assets 14,209 5,325 ------------------------- ------------------------- Total current assets 106,252 135,771 Non-current assets: Property and equipment, net 1,080,415 338,243 Construction in process 223,568 264,999 Trademark, net 119,692 123,128 Other assets, net 24,766 23,238 ------------------------- ------------------------- Total assets $ 1,554,693 $ 885,379 ========================= ========================= LIABILITIES AND CAPITAL ----------------------- Current liabilities: Current portion of capital lease obligations $ 1,514 $ 4,055 Current portion of relinquishment liability 70,199 56,646 Trade payables 13,810 6,486 Construction payables 155,497 11,790 Accrued interest payable 13,062 10,625 Other current liabilities 59,738 39,325 ------------------------- ------------------------- Total current liabilities 313,820 128,927 Non-current liabilities: Long-term debt 908,000 500,000 Relinquishment liability, net of current portion 521,809 616,234 Capital lease obligations, net of current portion - 2,336 Other long-term liabilities 5,232 - ------------------------- ------------------------- Total liabilities 1,748,861 1,247,497 ------------------------- ------------------------- Commitments and contingencies (Note 12) Capital: Retained deficit (192,177) (362,118) Accumulated other comprehensive loss (1,991) - ------------------------- ------------------------- Total capital (194,168) (362,118) ------------------------- ------------------------- Total liabilities and capital $ 1,554,693 $ 885,379 ========================= =========================
The accompanying notes are an integral part of these financial statements F-5 Mohegan Tribal Gaming Authority Statements of Income (Loss) (in thousands)
For the Year Ended -------------------------------------------------------------------------- September 30, 2001 September 30, 2000 September 30, 1999 ------------------ ------------------ ------------------ (restated - see note 15) Revenues: Gaming $ 750,988 $ 709,627 $ 641,117 Food and beverage 49,508 47,316 47,907 Retail, entertainment and other 57,481 52,371 36,486 -------------------- ------------------ -------------------- Gross revenues 857,977 809,314 725,510 Less - Promotional allowances (71,372) (70,044) (56,827) -------------------- ------------------ -------------------- Net revenues 786,605 739,270 668,683 -------------------- ------------------ -------------------- Operating costs and expenses: Gaming 334,537 307,202 273,488 Food and beverage 24,447 23,745 22,218 Retail, entertainment and other 32,114 27,142 22,583 Marketing, general and administrative 139,343 127,226 110,919 Pre-opening costs and expenses 31,344 5,278 - Management fees - 13,634 59,532 Depreciation and amortization 31,295 30,739 23,397 Relinquishment liability reassessment (74,410) 8,790 89,871 -------------------- ------------------ -------------------- Total operating costs and expenses 518,670 543,756 602,008 -------------------- ------------------ -------------------- Income from operations 267,935 195,514 66,675 -------------------- ------------------ -------------------- Other income (expense): Accretion of relinquishment liability discount (35,833) (23,053) (22,014) Interest income 2,920 13,469 11,254 Interest expense, net of capitalized interest (20,375) (37,799) (55,595) Other expense, net (115) (1,523) - -------------------- ------------------ -------------------- Total other income (expense) (53,403) (48,906) (66,355) -------------------- ------------------ -------------------- Income from continuing operations 214,532 146,608 320 Loss from discontinued operations (591) (674) (812) -------------------- ------------------ -------------------- Income (loss) before extraordinary items 213,941 145,934 (492) Extraordinary items - - (38,428) -------------------- ------------------ -------------------- Net income (loss) $ 213,941 $ 145,934 $ (38,920) ==================== ================== ====================
The accompanying notes are an integral part of these financial statements F-6 Mohegan Tribal Gaming Authority Statements of Changes in Capital (in thousands)
For the Year Ended For the Year Ended For the Year Ended September 30, 2001 September 30, 2000 September 30, 1999 ---------------------------- ------------------------------- ------------------------------- (restated - see note 15) Comprehensive Comprehensive Comprehensive Capital Income Capital Income Capital Income (Loss) ------------- ------------- -------------- --------------- -------------- --------------- Retained deficit at October 1 $ (362,118) $ (458,052) $ (377,874) Net income 213,941 $ 213,941 145,934 $ 145,934 (38,920) $ (38,920) ------------- --------------- ------------- Capital contribution by Tribe - - 97,096 Distributions to Tribe (44,000) (50,000) (138,354) ----------- ----------- ----------- Retained deficit at September 30 (192,177) (362,118) (458,052) ----------- ----------- ----------- Accumulated other comprehensive loss at October 1 - - - Unrealized loss on derivative instruments (1,991) - - ------------- -------------- ------------- Other comprehensive loss (1,991) (1,991) - - - - ----------- ------------- ----------- -------------- ----------- ------------- Comprehensive income (loss) $ 211,950 $ 145,934 $ (38,920) ============= ============== ============= Accumulated other comprehensive loss at September 30 (1,991) - - ----------- ----------- ----------- Total Capital ending balance September 30 $ (194,168) $ (362,118) $ (458,052) =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-7 Mohegan Tribal Gaming Authority Statements of Cash Flows (in thousands)
For the Year Ended ---------------------------------------------------------------------- September 30, 2001 September 30, 2000 September 30, 1999 ------------------ ------------------ ------------------ (restated - see note 15) Cash flows provided by (used in) operating activities: Net income (loss) $ 213,941 $ 145,934 $ (38,920) Adjustments to reconcile net income (loss) to net cash flow provided by operating activities: Depreciation and amortization 31,295 30,739 23,397 Accretion of relinquishment liability discount 35,833 23,053 22,014 Reassessment of relinquishment liability (74,410) 8,790 89,871 Cash paid for accretion of relinquishment liability discount (32,637) (11,527) - Decrease in fair value of derivative instruments 4,085 - - Loss on disposition of assets 116 1,705 453 Provision for losses on receivables 411 617 679 Amortization of debt issuance costs 4,536 - - Loss on early extinguishment of debt - - 33,217 Write-off of financing fees - - 5,211 Changes in operating assets and liabilities: (Increase) decrease in current assets (12,339) (6,150) 759 Decrease (increase) in other assets 333 (2,390) (6,000) Increase in current liabilities 30,174 4,074 14,043 ----------- ------------ ------------ Net cash flows provided by operating activities 201,338 194,845 144,724 ----------- ------------ ------------ Cash flows provided by (used in) investing activities: Purchase of property and equipment, net of change in construction payables of $143,707, $11,790 and $0, respectively (585,035) (276,488) (62,795) Proceeds from asset sale 95 - - Issuance of tenant loans (1,078) - - ----------- ------------ ------------ Net cash flows used in investing activities (586,018) (276,488) (62,795) ----------- ------------ ------------ Cash flows provided by (used in) financing activities: Proceeds from issuance of long-term debt 150,000 - 500,000 Bank Credit Facility borrowings 348,000 - - Bank Credit Facility payments (90,000) - - Distributions to Tribe (44,000) (50,000) (138,354) Principal portion of relinquishment liability payments (9,658) (8,446) - Capitalized financing fees (6,314) (3,034) (20,309) Payments on capital lease obligations (4,877) (12,907) (11,148) Increase in other long-term liabilities 82 - - Defeasance liability - (140,344) - Defeasance trust asset - 135,507 (135,507) Extinguishment of Senior Secured Notes - - (208,717) Capital contribution by Tribe - - 97,096 Proceeds from equipment financing - - 878 ----------- ---------- ------------ Net cash flows provided by (used in) financing activities 343,233 (79,224) 83,939 ----------- ------------ ------------ Net (decrease) increase in cash and cash equivalents (41,447) (160,867) 165,868 Cash and cash equivalents at beginning of period 115,731 276,598 110,730 ----------- ------------ ------------ Cash and cash equivalents at end of period $ 74,284 $ 115,731 $ 276,598 =========== ============ ============ Supplemental disclosures: Cash paid during the period for interest $ 50,031 $ 43,558 $ 44,981
The accompanying notes are in integral part of these financial statements F-8 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION: The Mohegan Tribe of Indians of Connecticut (the "Tribe") established the Mohegan Tribal Gaming Authority (the "Authority") in July 1995 with the exclusive power to conduct and regulate gaming activities for the Tribe on Tribal lands. On October 12, 1996, the Authority opened a casino known as the Mohegan Sun Casino ("Mohegan Sun"). The Authority is governed by a nine-member Management Board, consisting of the same nine members as those of the Tribal Council (the governing body of the Tribe). Any change in the composition of the Tribal Council results in a corresponding change in the Authority's Management Board. The President and Chief Executive Officer and other senior officers of Mohegan Sun are hired by the Management Board and are employees of the Authority. NOTE 2--DISCONTINUED OPERATIONS: On November 29, 2000, the Authority discontinued bingo operations in order to build the Hall of the Lost Tribes, a smoke-free slot machine venue. Pursuant to Accounting Principles Board Opinion No. 30 "Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the financial statements of the Authority have been restated to reflect the disposition of bingo operations as discontinued operations. Accordingly, the revenues, costs and expenses have been excluded from the captions in the Statements of Income (Loss) and have been reported as "Loss from discontinued operations." The loss for fiscal year 2001 relates to severance pay and disposal of bingo inventory. NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Cash and Cash Equivalents The Authority classifies as cash and cash equivalents all highly liquid investments with a maturity of three months or less when purchased. Cash equivalents are carried at cost, which approximates market value. Inventories Inventories are stated at the lower of cost or market and consist principally of food and beverage, retail, and operating supplies. Cost is determined using the average cost method. Other assets Other current assets are as follows (in thousands):
September 30, 2001 September 30, 2000 ------------------------ ------------------------ Currency remaining in slot machines that have not been collected $ 6,838 $ - Prepaids 5,868 4,478 Other 1,503 847 ------------------------ ------------------------ $ 14,209 $ 5,325 ======================== ========================
The Authority also has loaned funds to tenants related to the Shops at Mohegan Sun. As of September 30, 2001, outstanding tenant loans were $1.1 million. These loans mature in periods between three and ten years. These amounts have been included in other assets in the accompanying balance sheets. Property and Equipment Property and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets using the straight-line basis. Useful life estimates of asset categories are as follows: F-9 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS -- (Continued) Buildings and land improvements 40 years Furniture and equipment 3-7 years The costs of significant improvements are capitalized. Costs of normal repairs and maintenance are charged to expense as incurred. Gains or losses on disposition of property and equipment are included in the determination of income. Interest incurred for the construction of Project Sunburst is capitalized at the Authority's weighted-average borrowing rate and amortized over the life of the related asset. Interest capitalized for the years ended September 30, 2001, 2000 and 1999 was $40.7 million, $9.9 million and $534,000, respectively. The carrying value of the Authority's assets are reviewed when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that an impairment loss has occurred based on current and future levels of income and expected future cash flows as well as other factors, then an impairment loss is recognized in the Statement of Income (Loss). The Authority believes no such impairment exists at September 30, 2001. Fair Value of Financial Instruments The fair value amounts presented below are reported to satisfy the disclosure requirements of Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures about Fair Values of Financial Instruments" and are not necessarily indicative of the amounts that the Authority could realize in a current market exchange. The carrying amount of cash and cash equivalents, receivables, accounts payable and accrued expenses, financing facilities and capital lease obligations approximate fair value. The fair value of the Authority's financing facilities is as follows:
September 30, 2001 September 30, 2000 -------------------- ---------------------- $200M Senior Notes $ 200.0 million $ 196.0 million $300M Senior Subordinated Notes $ 303.0 million $ 294.0 million $150M Senior Subordinated Notes $ 152.3 million --
The estimated fair value of the Authority's financing facilities was based on quoted market prices on or about September 30, 2001. Casino Revenues and Promotional Allowances The Authority recognizes casino revenue as gaming wins less gaming losses. Revenues from food and beverage, retail, entertainment and other are recognized at the time the service is performed. Minimum rental revenues in the Shops at Mohegan Sun are recognized on a straight-line basis over the terms of the related leases. Percentage rents are recognized in the period in which the tenants exceed their respective percentage rent thresholds. Recoveries from tenants for operating expenses related to the Shops at Mohegan Sun are recognized as offsetting expenses in the period billed, which approximates the period in which the applicable costs are incurred. The retail value of food and beverage sales and other services furnished to casino guests, mainly through the use of the Mohegan Sun complimentary program, is included in gross revenues and then deducted as promotional allowances to arrive at net revenues. The estimated retail value of providing such promotional allowances was included in revenues as follows (in thousands):
For the Year Ended September 30, 2001 2000 1999 ------------- ------------- ------------ Food and beverage $ 26,215 $ 25,466 $ 26,724
F-10 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS -- (Continued) Retail, entertainment and other 45,157 44,578 30,103 ------------ ----------- ----------- Total $ 71,372 $ 70,044 $ 56,827 ============ =========== ===========
Advertising The Authority expenses the production costs of advertising the first time the advertising takes place. The rental fees associated with billboard advertising are capitalized and amortized over the term of the related rental agreement. Total advertising costs for the fiscal years ended September 30, 2001, 2000 and 1999 were $31.4 million, $20.7 million and $16.9 million, respectively. Prepaid advertising on the Authority's balance sheet at September 30, 2001 and September 30, 2000 was $1.1 million and $3,000, respectively. Pre-Opening Costs and Expenses Pre-opening costs and expenses consist principally of direct incremental personnel costs, marketing and advertising expenses related to Project Sunburst. In accordance with the American Institute of Certified Public Accountants' Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities," pre-opening costs and expenses are expensed as incurred. Previously, these costs were capitalized prior to the opening of a specific project and were charged to expense at the commencement of operations. Derivative Instruments The Authority utilizes derivative instruments including interest rate swaps, collars and caps to manage interest rate risk associated with the variable interest rates. The Authority accounts for these derivative instruments in accordance with SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." The derivative instruments are designated as cash flow hedging instruments and are marked to market with unrealized gains (losses) included as a component of accumulated other comprehensive income (loss). All derivatives are evaluated quarterly, are deemed effective or ineffective, and accounted for accordingly. Other Current Liabilities The Authority maintains accruals for workers compensation self-insurance and Player's Club points redemption, which are classified in other accrued liabilities in the accompanying balance sheets. Management determines the adequacy of these accruals by periodically evaluating the historical experience and projected trends related to these accruals. If such information indicates that the accruals are overstated or understated, the Authority will adjust the assumptions utilized in the methodologies and reduce or provide for additional accruals as appropriate. Income Taxes The Tribe is a sovereign Indian nation with independent legal jurisdiction over its people and its lands. Like other sovereign governments, the Tribe and its entities, including the Authority, is not subject to federal, state or local income taxes. F-11 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS -- (Continued) Trademarks In connection with the Relinquishment Agreement (see Note 13), Trading Cove Associates ("TCA") granted the Authority an exclusive, irrevocable, perpetual, world-wide and royalty-free license with respect to trademarks and other similar rights, including the "Mohegan Sun" name used at or developed for Mohegan Sun. The trademarks were appraised by an independent valuation firm to have a value of $130.0 million. The independent valuation firm used the Income Approach - Relief From Royalty Method. The trademark is being amortized on a straight-line basis over approximately 38 years. The balance of the trademark is as follows (in thousands):
September 30, 2001 September 30, 2000 ------------------ ------------------ Trademark $ 130,000 $ 130,000 Accumulated amortization (10,308) (6,872) ----------------- ----------------- Trademark, net $ 119,692 $ 123,128 ================= =================
Relinquishment Liability The Authority, in accordance with Statement of Financial Accounting Standards No. 5 "Accounting for Contingencies," has recorded a relinquishment liability of the estimated present value of its obligations under the Relinquishment Agreement. The Authority reassesses the relinquishment liability when necessary to account for material increases or decreases in projected revenues and quarterly to reflect the impact on the time value of money due to the passage of time. Since there is a high level of estimates and judgments used with respect to calculating this liability, future events that affect such estimates and judgments may cause the actual liability to differ significantly from the estimate. Management's Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimate included in the accompanying financial statements relates to the relinquishment liability (see Note 13). Actual results could differ from those estimates. Reclassifications Certain amounts in the fiscal year 2000 financial statements have been reclassified to conform with the fiscal year 2001 presentation. New Accounting Pronouncements In November 2000, the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board ("FASB") reached a consensus on EITF Issue No. 00-14, "Accounting for Certain Sales Incentives." EITF 00-14 requires that discounts which result in a reduction in or refund of the selling price of a product or service in a single exchange transaction be recorded as a reduction of revenues. The Authority's accounting policy related to free or discounted food and beverage and other services already complies with EITF 00-14, and those free or discounted services are generally deducted from gross revenues as "promotional allowances." F-12 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS -- (Continued) In January 2001, the EITF reached a consensus on certain issues within EITF Issue No. 00-22, "Accounting for `Points' and Certain Other Time-Based or Volume Based Sales Incentive Offers." EITF 00-22 requires that cash or cash equivalent amounts provided or returned to customers as part of a transaction not be shown as an expense, but instead as an offset to the related revenue. The adoption of this issue is not expected to have a material impact on the Authority's financial position, results of operations or cash flows. In June of 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142") to be effective for fiscal years beginning after December 15, 2001. The Authority adopted SFAS 142 on October 1, 2001. Under SFAS 142, the Mohegan Sun trademark will no longer be subject to amortization over its estimated useful life as it has been deemed to have an indefinite useful life. However, SFAS 142 requires the trademark to be evaluated at least annually for impairment by applying a fair-value based test and, if impairment occurs, the amount of impaired trademark must be written off immediately. With the adoption of SFAS 142, the Authority no longer records amortization of the trademark. For the years ended September 30, 2001, 2000 and 1999, the Authority recorded $3.4 million, $4.3 million and $2.6 million, respectively, related to the amortization of the trademark. The Authority is required to apply the initial fair value test by March 31, 2002. The Authority has not yet determined whether the initial fair value test will result in any impairment changes, but does not anticipate a negative effect on its financial position, results of operations or cash flows upon completing the fair value assessment. Had SFAS 142 been in effect in these periods, the Authority's results would have been as follows (in thousands):
For the For the Year For the Year Year Ended Ended September 30, Ended September September 30, 2001 2000 30, 1999 -------------------------- -------------------------- -------------------- (restated - see note 15) Net Income (loss) $ 213,941 $ 145,934 $ (38,920) Trademark amortization 3,436 4,295 2,577 -------------------------- -------------------------- -------------------- As adjusted net income (loss) $ 217,377 $ 150,229 $ (36,343) ========================== ========================== ====================
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 modifies the rules for accounting for the impairment or disposal of long-lived assets. The new rules become effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. The Authority has not adopted SFAS 144, and has not yet quantified the impact of implementing SFAS 144 on the Authority's financial statements, but does not anticipate a negative effect on the Authority's financial position, results of operations or cash flows upon adoption of the standard. NOTE 4--CASH AND CASH EQUIVALENTS: At September 30, 2001 and 2000, the Authority had cash and cash equivalents of $74.3 million and $115.7 million, respectively, of which, $5.3 million and $81.4 million, respectively, were invested in highly liquid investments with original maturities not to exceed three months. For reporting purposes, cash and cash equivalents include all operating cash, in-house funds, and cash set aside for the expansion of Mohegan Sun ("Project Sunburst"). F-13 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS -- (Continued) NOTE 5--RECEIVABLES, NET: Accounts receivable consists primarily of casino receivables which represent credit extended to approved casino customers. The Authority maintains an allowance for doubtful accounts which is based on management's estimate of the amount expected to be uncollectible considering historical experience and the information management obtains regarding the credit worthiness of the customer. The collectibility of these receivables could be affected by future business or economic trends. Total accounts receivable are as follows (in thousands):
September 30, 2001 September 30, 2000 --------------------------- -------------------------- (restated - see note 15) Gaming $ 3,571 $ 3,080 Non-gaming 2,541 3,146 ----------- ----------- Subtotal 6,112 6,226 Allowance for doubtful accounts (765) (736) ----------- ----------- Receivables, net $ 5,347 $ 5,490 =========== ===========
NOTE 6--PROPERTY AND EQUIPMENT, NET: Components of property and equipment were as follows (in thousands):
September 30, 2001 September 30, 2000 ---------------------- --------------------- (restated - see note 15) Land $ 28,581 $ 28,581 Land improvements 44,119 44,834 Buildings and improvements 773,313 251,931 Furniture and equipment 313,627 80,476 ---------- --------- Subtotal 1,159,640 405,822 Less: accumulated depreciation (79,225) (67,579) ---------- --------- Property and Equipment, net 1,080,415 338,243 Construction in Process 223,568 264,999 ---------- --------- Total Property and Equipment $ 1,303,983 $ 603,242 ========== =========
For the fiscal years ended September 30, 2001, 2000 and 1999 depreciation expenses were $27.8 million, $23.2 million and $18.7 million, respectively. NOTE 7--OTHER CURRENT LIABILITIES: Components of other current liabilities were as follows (in thousands):
September 30, 2001 (restated - see note 15) September 30, 2000 Accrued payroll and related taxes and benefits $ 26,576 $ 15,801 Accrued slot win contribution (Note 12) 13,504 11,842 Other 19,658 11,682 -------- -------- Other current liabilities $ 59,738 $ 39,325 ======== ========
NOTE 8--FINANCING FACILITIES: Financing facilities, as described below, consisted of the following (in thousands):
September 30, 2001 September 30, 2000 -------------------- --------------------- Bank Credit Facility $ 258,000 -- $200M Senior Notes 200,000 $ 200,000 $300M Senior Subordinated Notes 300,000 300,000
F-14 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS -- (Continued) $150M Senior Subordinated Notes 150,000 -- --------- --------- Long-term debt $ 908,000 $ 500,000 ========= =========
Maturities of the Authority's long-term debt as of September 30, 2001 are as follows (in thousands): Long-term debt Fiscal Year Maturities ------------------ -------------------------- 2002 $ - 2003 108,000 2004 150,000 2005 - 2006 200,000 Thereafter 450,000 -------------------------- Total $ 908,000 ========================== Bank Credit Facility As of September 30, 2001, the Authority had $258.0 million outstanding under a $500 million reducing, revolving, collateralized credit facility (the "Bank Credit Facility") with a syndicate of lenders led by Bank of America N.A. (formerly known as Bank of America National Trust and Savings Association), which will mature in March 2004. The Authority draws on the Bank Credit Facility primarily in connection with the major expansion of Mohegan Sun, known as Project Sunburst, and other capital expenditure projects. The Bank Credit Facility is collateralized by a lien on substantially all of the Authority's assets, by a leasehold mortgage on the land and improvements which comprise Mohegan Sun and by each of the Authority's cash operating accounts. At the Authority's option, each advance of loan proceeds accrues interest on the basis of a base rate or on the basis of a one-month, two-month, three-month or six-month London Inter-Bank Offered Rate ("LIBOR"), plus, in either case, the applicable spread (based on the Authority's Total Leverage Ratio as defined in the Bank Credit Facility). As of September 30, 2001, one-month LIBOR was 2.64% and the applicable spread on a LIBOR loan was 2.125%. Interest on each LIBOR loan which is for a term of three months or less is due and payable on the last day of the related interest period. Interest on each LIBOR loan which is for a term of more than three months is due and payable on the date which is three months after the date such LIBOR loan was made and every three months thereafter and on the last day of the related interest period. Interest on each base rate loan is due and payable quarterly in arrears. The Authority had no base rate loans at September 30, 2001. Accrued interest on the Bank Credit Facility was $169,000 at September 30, 2001. Pursuant to the terms of the Bank Credit Facility, the commitment (or the maximum amount that may be borrowed under the Bank Credit Facility) will be reduced automatically on the earlier of March 31, 2002 or the last day of the first full fiscal quarter following the completion date of Project Sunburst, and on the last day of each fiscal quarter thereafter by 10% of the commitment as in effect immediately prior to the first such reduction. Financial Covenant Requirements The Authority's debt agreements require, among other restrictions, the maintenance of various financial covenants and terms including a fixed charge coverage ratio, and certain debt leverage ratios. As of September 30, 2001 and 2000, the Authority was in compliance with all financial covenant requirements. Recent Financing Transactions During fiscal year 1999, the Authority issued $200.0 million in Senior Notes and $300.0 million in Senior Subordinated Notes. The proceeds from these financings were used to extinguish the then existing Senior Secured Notes, defease the then existing Subordinated Notes, pay transaction costs for the newly issued Senior and Senior Subordinated Notes, and fund initial costs related to Project Sunburst (see Note 14). During fiscal year 2001, the Authority issued $150.0 million in new Senior Subordinated Notes. A portion of the proceeds from this financing, net of fees, were used in conjunction with Project Sunburst. On July 30, 2001, the Authority paid down $90.0 million on the Bank Credit Facility with a portion of the proceeds from the financing. Derivative Instruments The Authority uses derivative instruments, including an interest rate cap, collar, and swap in its strategy to manage interest rate risk associated with the variable interest rate on the Bank Credit Facility. The Authority's F-15 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS -- (Continued) objective in managing interest rate risk is to ensure the Authority has appropriate income and sufficient liquidity to meet its obligations. The Authority analyzes interest rate risk using various models that forecast cash flows of the liabilities and their supporting assets, including derivative instruments. The Authority does not believe that there is any material risk exposure with respect to derivative or other financial instruments which it currently holds. The Authority continually monitors these exposures and makes the appropriate adjustments to manage these risks within management's established limits. The Authority is considered an "end user" of derivative instruments and engages in derivative transactions for risk management purposes only. On October 1, 2000, the Authority adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), designated all derivative instruments as cash flow hedging instruments, and marked them to market. The impact of the adoption of SFAS 133 was not material to the financial position of the Authority taken as a whole. The Authority excludes the change in time value when assessing the effectiveness of the hedging relationships. All derivatives are evaluated quarterly. The interest rate cap and interest rate swap listed below were deemed to be effective at September 30, 2001. The interest rate collar listed below was deemed to be ineffective at September 30, 2001. Derivative instruments held by the Authority at September 30, 2001 are as follows:
Estimated Notional Fair Value Cost Value ------------- --------- ------------ Interest Rate Cap Strike Rate--8% $ 61,038,000 $ 410,000 $ 1,000 Interest Rate Collar Ceiling Strike Rate--8% Floor Strike Rate--6% 56,356,800 295,000 (3,310,295) Interest Rate Swap Pay fixed--6.35% Receive Variable 28,178,400 221,000 (1,840,126) ------------- ----------- ------------ Total $ 145,573,200 $ 926,000 $ (5,149,421) ============= =========== ============
All derivative instruments are based upon one-month LIBOR. One-month LIBOR was 2.64% on September 30, 2001. In November 2000, the Authority modified the terms of its existing interest rate collar and interest rate swap agreements. As a result of the modifications, the interest rate collar was deemed to be a net written option that did not qualify for hedge accounting. The negative fair market value at the date of modification of approximately $212,000 will be reclassified from other comprehensive income to interest expense over the life of the original terms of the hedge contract and future changes in the fair market value of the modified interest rate collar will be recorded directly to earnings as a component of interest expense. The Authority will reclassify approximately $73,000 of the negative fair market value into earnings over the next twelve months. The modification of the interest rate swap agreement did not change the Authority's assessment of hedge effectiveness at September 30, 2001. The aggregate fair market value change in all derivative instruments was $6.0 million for the year ended September 30, 2001. In accordance with SFAS 133, the Authority recorded $1.9 million related to the unrealized loss on the derivative instruments as a component of accumulated other comprehensive income in the accompanying balance sheets and recorded $4.1 million as interest expense in the accompanying statements of income for the year ended September 30, 2001. As of September 30, 2001, the fair market value of the Authority's derivative instruments is included in other long-term liabilities in the accompanying balance sheets. As of September 30, 2000, premiums paid for derivative instruments were capitalized and are reflected in other assets in the accompanying balance sheets. Senior Notes On March 3, 1999, the Authority issued $200.0 million Senior Notes with fixed interest payable at a rate of 8.125% per annum (the "Senior Notes"). The proceeds from this financing were used to extinguish or defease F-16 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS -- (Continued) existing debt, pay transaction costs and fund initial costs related to Project Sunburst. Interest on the Senior Notes is payable semi-annually on January 1 and July 1. The Senior Notes mature on January 1, 2006. The Senior Notes are uncollateralized general obligations of the Authority and rank pari passu in right of payment with all current and future uncollateralized senior indebtedness of the Authority. Borrowing under the Bank Credit Facility and other capital lease obligations are collateralized by first priority liens on substantially all of the assets of the Authority. As a result, upon any distribution to creditors in a bankruptcy, liquidation or reorganization or similar proceeding relating to the Authority or the Tribe, the holders of collateralized debt may be paid in full in cash before any payment may be made with respect to the Senior Notes. The Senior Notes rank equally in right of payment with 50% of the Authority's payment obligations under the Relinquishment Agreement (see Note 13), that are then due and owing, and rank senior to the remaining 50% of the Authority's payment obligations under the Relinquishment Agreement (see Note 13), that are then due and owing, the 1999 Senior Subordinated Notes and the 2001 Senior Subordinated Notes. As of September 30, 2001 and 2000, accrued interest on the Senior Notes was $4.1 million. 1999 Senior Subordinated Notes On March 3, 1999, the Authority issued the $300.0 million Senior Subordinated Notes with fixed interest payable at a rate of 8.75% per annum (the "1999 Senior Subordinated Notes"). The proceeds from this financing were used to extinguish or defease existing debt, pay transaction costs and fund initial costs related to Project Sunburst. Interest on the 1999 Senior Subordinated Notes is payable semi-annually on January 1 and July 1. The 1999 Senior Subordinated Notes mature on January 1, 2009. The 1999 Senior Subordinated Notes are uncollateralized general obligations of the Authority and are subordinated to the Bank Credit Facility, the Senior Notes and in a liquidation, bankruptcy or similar proceeding 50% of the Authority's payment obligations under the Relinquishment Agreement (see Note 13), that are then due and owing. The 1999 Senior Subordinated Notes rank equally with the remaining 50% of the Authority's payment obligations under the Relinquishment Agreement (see Note 13), that are then due and owing and the 2001 Senior Subordinated Notes. As of September 30, 2001 and 2000, accrued interest on the 1999 Senior Subordinated Notes was $6.6 million. 2001 Senior Subordinated Notes On July 26, 2001, the Authority issued $150.0 million Senior Subordinated Notes with fixed interest payable at a rate of 8.375% per annum (the "2001 Senior Subordinated Notes"). The proceeds from this financing were used to pay transaction costs, pay down $90.0 million on the Bank Credit Facility and fund costs related to Project Sunburst. Interest on the 2001 Senior Subordinated Notes is payable semi-annually on January 1 and July 1. The 2001 Senior Subordinated Notes mature on July 1, 2011. The 2001 Senior Subordinated Notes are uncollateralized general obligations of the Authority and are subordinated to the Bank Credit Facility, the Senior Notes and in a liquidation, bankruptcy or similar proceeding 50% of the Authority's payment obligations under the Relinquishment Agreement (see Note 13), that are then due and owing. The 2001 Senior Subordinated Notes rank equally with the 1999 Senior Subordinated Notes and the remaining 50% of the Authority's payment obligations under the Relinquishment Agreement (see Note 13), that are then due and owing. As of September 30, 2001, accrued interest on the 2001 Senior Subordinated Notes was $2.3 million. Subordinated Notes/Defeasance Trust The Authority had $90.0 million of subordinated financing from Sun International and Waterford Gaming LLC in the form of subordinated notes ("Subordinated Notes"). Interest on the Subordinated Notes ranged from prime plus 1.0% to 15.0%. Interest on the Subordinated Notes was payable semi-annually, provided that all such interest was deferred and not paid until at least half of the Authority's then existing secured notes ("Existing Notes") were offered to be repurchased or retired, pursuant to the terms of the Existing Notes and certain other conditions. In March 1999, the Authority redeemed the Existing Notes. F-17 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS--(Continued) The Authority agreed to redeem the outstanding Subordinated Notes on January 1, 2000, the first permitted redemption date, at a price of 100.0% of the principal amount plus accrued and unpaid interest, less $500,000. To do this, the Authority exercised its rights under the original purchase agreement for the Subordinated Notes to affect a defeasance of the Subordinated Notes. The Authority established a separate trust account with First Union National Bank, the defeasance agent, in the form of U.S. Government securities, in an amount that was estimated to be sufficient to redeem the Subordinated Notes plus accrued interest on January 1, 2000. The Subordinated Notes of $140.3 million, representing the outstanding principal balance of $90.0 million and accrued interest of $50.3 million were tendered on December 30, 1999, two days prior to the redemption date for year 2000 contingency purposes. The Authority had reduced accrued interest by $500,000 to account for the gain on the extinguishment of debt related to the tender of the Subordinated Notes. The amounts reflected in the accompanying Statements of Cash Flows reflect the purchase and sale of the defeasance trust assets and the payment of the defeasance liability on December 30, 1999. Letters of Credit The Authority maintains letters of credit in order to satisfy potential workers compensation liabilities that may arise. The Authority has available a $250,000 uncollateralized letter of credit that expires in August 2002. The Authority has a $550,000 letter of credit that expires in April 2002. The $550,000 letter of credit was reduced from $1.0 million on April 13, 2001. As of September 30, 2001 and 2000, no amounts were drawn on the letters of credit. NOTE 9--LEASES: At September 30, 2001, the Authority was obligated under capital leases to make future minimum lease payments of $1.6 million, of which $54,000 represents interest. These capital leases consist principally of furniture and equipment, and the depreciation of these assets is included in total depreciation and amortization on the Authority's Statement of Income (Loss). In October and November 2001, the Authority repaid the total obligation under the capital leases. The Authority leases certain equipment. Rental expense, excluding costs to obtain assets, was $2.5 million and $3.6 million for the fiscal years ended September 30, 2000 and 1999, respectively. No operating leases with terms of more than a year existed during the fiscal year ended September 30, 2001. During fiscal year 2000, the Authority purchased equipment previously used under operating leases for $2.7 million. The Authority leases space to tenants in the Shops at Mohegan Sun. Minimum future rental income on non-cancelable leases expected to be received by the Authority is as follows (in thousands):
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2002 2003 2004 2005 2006 Thereafter Total ---------- ------------ ----------- ----------- ----------- ---------- -------- Minimum future rental income $ 383 $ 1,229 $ 1,167 $ 1,259 $ 1,213 $ 16,088 $ 21,339
NOTE 10--RELATED PARTY TRANSACTIONS: The Tribe provides governmental and administrative services to the Authority in conjunction with the operation of Mohegan Sun. During the fiscal years ended September 30, 2001, 2000 and 1999, the Authority incurred $10.9 million, $9.9 million and $8.3 million, respectively, of expenses for such services. Prior to October 1, 2000, the Authority operated a retail outlet at Mohegan Sun and purchased goods for resale at this location from a limited liability company ("Little People, LLC") owned by the Tribe. For the fiscal years ended September 30, 2000 and 1999, the Authority purchased $348,000 and $417,000, respectively, of such goods from Little People, LLC. On October 1, 2000, the Tribe assumed the management of this retail outlet from the Authority and purchased the remaining inventory from the Authority for approximately $172,000. The Authority and Little People, LLC have entered into a lease agreement, whereby Little People, LLC leases retail space located in the Shops at Mohegan Sun from the Authority. The lease term expires on June 30, 2006 and may be renewed on a monthly basis. Little People, LLC is not obligated to pay any base rent. The Authority reimburses the Tribe for sales where patron player's club points are utilized. F-18 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS -- (Continued) The Tribe, through one of its limited liability companies, has entered into various land lease agreements with the Authority for access, parking and related purposes for Mohegan Sun. For the fiscal years ended September 30, 2001, 2000 and 1999, the Authority expensed $386,000, $386,000 and $412,000, respectively, relating to these land lease agreements. The Tribe provided services through its Development Department for projects related to Mohegan Sun and Project Sunburst. The Authority incurred $954,000 of such expenses associated with the Development Department for the fiscal year ended September 30, 2000. There were no expenses incurred during the year ended September 30, 2001. On August 7, 2001, the Tribe issued Gaming Authority Priority Distribution Payment Public Improvement Bond Anticipation Notes (the "Series 2001 BANS"). The Authority has no obligations to make any payments under the Series 2001 BANS. Debt service on the Series 2001 BANS is paid by the Tribe from 95% of amounts received from the Authority under the Priority Distribution Agreement. The Priority Distribution Agreement obligates the Authority to make monthly priority distribution payments to the Tribe in a maximum aggregate amount of $14.0 million per calendar year, adjusted annually in accordance with the formula specified in the Priority Distribution Agreement to reflect the effects of inflation. However, payments pursuant to the Priority Distribution Agreement do not reduce the Authority's obligations to make payments pursuant to invoices for governmental services provided by the Tribe or any payments under any other agreements with the Tribe to the extent that such agreements are permitted under the Bank Credit Facility. The priority distribution payments are limited obligations of the Authority payable only to the extent of its net cash flow, as defined in the Priority Distribution Agreement, and are not secured by a lien or encumbrance on any assets or property of the Authority. The remaining 5% of each priority distribution payment is remitted to the Tribe free and clear of any lien. The Authority's financial statements reflect payments associated with the Priority Distribution Agreement of $14.0 million for the fiscal year ended September 30, 2001. The Authority's payment obligations under the Relinquishment Agreement (see Note 13) are subordinated in right of payment to the minimum distribution payment as defined in the Relinquishment Agreement, from the Authority to the Tribe to the extent then due. In compliance with the restrictive provisions of the Bank Credit Facility and the Authority's indentures, the Authority distributed to the Tribe $30.0 million, net of $14.0 million related to the Priority Distribution Agreement, during the fiscal year ended September 30, 2001. On September 25, 1995, the Tribe adopted the Mohegan Tribal Employment Rights Ordinance (the "TERO"), which sets forth hiring and contracting preference requirements for employers and entities conducting business on Tribal land or working on behalf of the Tribe. Pursuant to the TERO, an employer is required to give hiring, promotion, training, retention and other employment-related preferences to Native Americans who meet the minimum qualifications for the applicable employment position. However, this preference requirement does not apply to key employees, as such persons are defined in the TERO. In addition, when staffing the operations of the Project Sunburst expansion, the Development Agreement requires TCA to give hiring and recruiting preferences, first to qualified members of the Tribe (and their spouses and children) and then to enrolled members of other federally recognized Indian tribes. Similarly, any entity awarding a contract to be performed on Tribal land or on behalf of the Tribe must give preference, first to certified Mohegan entities and second to other certified Indian entities. This contracting preference is conditioned upon the bid by the preferred certified entity being within 5% of the lowest bid by a non-certified entity (unless the preferred certified entity's bid exceeds $100,000 of the lowest bid by a non-certified entity). The TERO establishes procedures and requirements for certifying Mohegan entities and other Indian entities. Certification is based largely on the level of ownership and control exercised by the members of the Tribe or other Indian tribes, as the case may be, over the entity bidding on a contract. A number of contracts for Project Sunburst were awarded to companies controlled by Tribal members under the TERO provision described above. The Authority engages McFarland Johnson, Inc. for surveying, civil engineering and professional design services. Roland Harris, a current member and a former Chairman of the Management Board and the Tribal Council, was a consultant for this firm pursuant to a consulting agreement which expired in May 2001. For the fiscal years ended September 30, 2001, 2000 and 1999, the Authority incurred $175,000, $792,000 and $373,000, respectively, for such services provided by McFarland Johnson. McFarland Johnson formerly conducted business as Harris and F-19 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS--(Continued) Clark, Inc. The Authority believes that the terms of this engagement are comparable to those that would pertain to arms length engagement with an unaffiliated firm. As of September 30, 2001, 146 employees of the Authority were members of the Tribe. NOTE 11--EMPLOYEE BENEFIT PLANS: The Authority maintains a retirement savings plan for its employees under Section 401(k) of the Internal Revenue Code ("401(k) Plan"). The plan allows employees of the Authority to defer up to the lesser of the maximum amount prescribed by the Internal Revenue Code or 15% of their income on a pre-tax basis, through contributions to the 401(k) Plan. The Authority matches 100% of the eligible employees' contributions up to a maximum of 3% of their individual earnings. The Authority recorded matching contributions of approximately $2.7 million, $2.9 million and $2.0 million to this plan for the years ended September 30, 2001, 2000 and 1999, respectively. The Authority, together with the Tribe, maintains a Non-Qualified Deferred Compensation Plan (the "Deferred Compensation Plan") for certain key employees. This plan allows participants to defer up to 100% of their pre-tax income to the plan. For the fiscal years ended September 30, 2001, 2000 and 1999, contributions, net of withdrawals, totaled $657,000, $703,000 and $144,000, respectively. On April 18, 2001, the Authority announced a Deferred Retirement Plan (the "Retirement Plan") for all employees sponsored by the Authority. The Retirement Plan was effective July 2, 2001 and contributions by the Authority are based on hours worked. Employees become eligible after 90 days of employment and will be fully vested at the completion of seven years of employment. For the year ended September 30, 2001, the Authority has contributed $986,000 to the Retirement Plan. NOTE 12--COMMITMENTS AND CONTINGENCIES: Project Sunburst In November 2000, the Tribal Council approved a formal resolution increasing the expansion budget to $960.0 million (excluding capitalized interest), from $800.0 million. The Project Sunburst budget was increased to $960.0 million for primarily three reasons: (1) enhancements in project scope such as an increase in the number of slot machines scheduled to be placed on the gaming floor; (2) quality improvements to the hotel and public areas; and (3) increases in Project Sunburst labor costs because of the competitive nature of the construction labor market in the northeastern United States. As of September 30, 2001, the Authority had incurred $888.9 million, excluding capitalized interest, on Project Sunburst. The remaining $71.1 million is anticipated to be incurred during fiscal year 2002. As of September 30, 2001, cumulative capitalized interests for Project Sunburst construction expenses totaled $51.1 million. Capitalized interest totaled $40.7 million, $9.9 million and $534,000 for the fiscal years ended September 30, 2001, 2000 and 1999, respectively. The Mohegan Compact In May 1994, the Tribe and the State of Connecticut entered into a Memorandum of Understanding ("MOU") which sets forth certain matters regarding implementation of the Mohegan Compact. The MOU stipulates that a portion of the revenues earned on slot machines must be paid to the State of Connecticut ("Slot Win Contribution"). The Slot Win Contribution payments will not be required if the State of Connecticut legalizes any other gaming operations with slot machines or other commercial casino table games within Connecticut, except those consented to by the Tribe and the Mashantucket Pequot Tribe. For each 12-month period commencing July 1, 1995, the Slot Win Contribution shall be the lesser of (a) 30% of gross revenues from slot machines, or (b) the greater of (i) 25% of gross revenues from slot machines or (ii) $80.0 million. The Authority reflected expenses associated with the Slot Win Contribution totaling $144.6 million, $135.1 million and $121.1 million, respectively, for the fiscal years ended September 30, 2001, 2000 and 1999. As of September 30, 2001, outstanding Slot Win Contribution payments to the State of Connecticut totaled $13.5 million. F-20 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS -- (Continued) Agreement with the Town of Montville On June 16, 1994, the Tribe and the Town of Montville (the "Town") entered into an agreement whereby the Tribe agreed to pay to the Town a recurring annual payment of $500,000 to minimize the impact on the Town resulting from the decreased tax revenues on reservation land held in trust. Additionally, the Tribe agreed to make a one-time payment of $3.0 million towards infrastructure improvements to the Town's water system. The Tribe assigned its rights and obligations in this agreement to the Authority. As of September 30, 2001, the Authority had fulfilled this obligation and paid $3.0 million to the Town for improvements to the municipal water system, which has been included in other assets in the accompanying balance sheets and is being amortized over 40 years. Land Lease from the Tribe to the Authority The land upon which Mohegan Sun is situated is held in trust for the Tribe by the United States. The Tribe and the Authority have entered into a land lease under which the Tribe leases to the Authority the property and all buildings, improvements and related facilities constructed or installed on the property. The lease was approved by the Secretary of the Interior on September 29, 1995. Summarized below are several key provisions of this lease. Term The term of the lease is 25 years with an option, exercisable by the Authority, to extend the term for one additional 25-year period. Upon the termination of the lease, the Authority will be required to surrender to the Tribe possession of the property and improvements, excluding any equipment, furniture, trade fixtures or other personal property. Rent and Other Operating Expenses The Authority is required to pay to the Tribe a nominal annual rental fee. For any period when the Tribe or another agency or instrumentality of the Tribe is not the tenant under the lease, the rent will be 8% of the tenant's gross revenues from the premises. The Authority is responsible for the payment of all costs of owning, operating, constructing, maintaining, repairing, replacing and insuring the leased property. Use of Leased Property The Authority may use the leased property and improvements solely for the construction and operation of Mohegan Sun, unless prior approval is obtained from the Tribe for any proposed alternative use. Similarly, no construction or alteration of any building or improvement located on the leased property by the Authority may be made unless complete and final plans and specifications have been approved by the Tribe. Following foreclosure of any mortgage on the Authority's interest under the lease or any transfer of such interest to the holder of such mortgage in lieu of foreclosure, the leased property and improvements may be used for any lawful purpose, subject only to applicable codes and governmental regulations; provided, however, that a non-Indian holder of the leased property may in no event conduct gaming operations on the property. Permitted Mortgages and Rights of Permitted Mortgages The Authority may not mortgage, pledge or otherwise encumber its leasehold estate in the leased property except to a holder of a permitted mortgage. Under the lease, a "permitted mortgage" includes the leasehold mortgage securing the Authority's obligations under the Bank Credit Facility granted by the Authority that provides, among other things, that (1) the Tribe will have the right to notice of, and to cure, any default of the Authority, (2) the Tribe will have the right to prior notice of an intention by the holder to foreclose on the permitted mortgage and the right to purchase the mortgage in lieu of any foreclosure, and (3) the permitted mortgage is subject and subordinated to any and all access and utility easements granted by the Tribe under the lease. As provided in the lease, each holder of a permitted mortgage has the right to notice of any default of the Authority under the lease and the opportunity to cure such default within any applicable cure period. Default Remedies F-21 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS -- (Continued) The Authority will be in default under the lease if, subject to the notice provisions, it fails to make lease payments or to comply with its covenants under the lease or if it pledges, encumbers or conveys its interest in the lease in violation of the terms of the lease. Following a default, the Tribe may, with approval from the Secretary of the Interior, terminate the lease unless a permitted mortgage remains outstanding with respect to the leased property. In that case, the Tribe may not (1) terminate the lease or the Authority's right to possession of the leased property, (2) exercise any right of re-entry, (3) take possession of and/or relet the leased property or any portion thereof, or (4) enforce any other right or remedy which may materially and adversely affect the rights of the holder of the permitted mortgage, unless the default triggering such rights was a monetary default which such holder failed to cure after notice. Expansion Construction Management Agreement with Perini Building Company, Inc. The Authority engaged Perini Building Company, Inc. ("Perini") as construction manager to provide construction management services for Project Sunburst. As construction manager, Perini is receiving a fee of $25.5 million for services including, but not limited to, pre-construction review and construction phase contract administration. As of September 30, 2001, Perini had received $14.0 million of the $25.5 million fee, which has been included in construction in process in the accompanying balance sheets. For the year ended September 30, 2001 and 2000, the Authority incurred $7.5 million and $6.0 million, respectively, related to the construction management fee. The Construction Management Agreement contains a limited waiver of sovereign immunity to permit the commencement, maintenance and enforcement of any dispute, claim and/or cause of action arising under the Construction Management Agreement. In conjunction with the limited waiver of sovereign immunity, Perini may seek satisfaction of judgment against the undistributed and/or future revenues of Project Sunburst and/or the existing Mohegan Sun facility. Litigation The Authority is a defendant in certain litigation incurred in the normal course of business. In the opinion of management, based on the advice of counsel, the aggregate liability, if any, arising from such litigation will not have a materially adverse effect on the Authority's financial position, results of operations or cash flows. NOTE 13--TCA AGREEMENTS: Management Agreement On September 30, 1995, the Tribe and TCA entered into the Amended and Restated Gaming Facility Management Agreement (the "Management Agreement"), pursuant to which the Tribe retained and engaged TCA, on an independent contractor basis, to operate, manage and market Mohegan Sun. The Tribe assigned its rights and obligations under the Management Agreement to the Authority. TCA had a responsibility to manage Mohegan Sun in exchange for payments ranging from 30% to 40% of net income, before management fees, as defined, depending upon profitability levels. Management fees totaled $13.6 million and $59.5 million, respectively, for the fiscal years ended September 30, 2000 and 1999. The amount for fiscal year 2000 represents only the amounts earned from the period October 1, 1999 through December 31, 1999, the date upon which the Management Agreement was terminated. Relinquishment Agreement In February 1998, the Authority and TCA entered into an agreement (the "Relinquishment Agreement"). Effective January 1, 2000 (the "Relinquishment Date"), the Relinquishment Agreement superseded the Management Agreement. The Relinquishment Agreement provides that the Authority will make certain payments to TCA out of, and determined as a percentage of, Revenues, as defined, generated by the Mohegan Sun over a 15-year period commencing on the Relinquishment Date. The payments ("Senior Relinquishment Payments" and "Junior Relinquishment Payments") have separate payment schedules and priority. Senior Relinquishment Payments commenced on April 25, 2000, twenty-five days following the end of the first three-month period following the Relinquishment Date and continue at the end of each three-month period occurring thereafter until January 25, 2015. Junior Relinquishment Payments commenced on July 25, 2000, twenty-five days following the end of the first six-month period following the Relinquishment Date and continue at the end of each F-22 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS -- (Continued) six-month period occurring thereafter until January 25, 2015. Each Senior Relinquishment Payment and Junior Relinquishment Payment is an amount equal to 2.5% of the Revenues generated by Mohegan Sun over the immediately preceding three-month or six-month payment period, as the case may be. "Revenues" are defined as gross gaming revenues (other than Class II gaming revenue) and all other facility revenues (including, without limitation, hotel revenues, room service, food and beverage sales, ticket revenues, fees or receipts from convention/events center and all rental or other receipts from lessees and concessionaires but not the gross receipts of such lessees, licenses and concessionaires). In the fourth quarter of fiscal year 2000, TCA notified the Authority that it did not agree with the Authority's treatment of certain promotional transactions that, in TCA's opinion, had resulted in a reduction in revenues subject to the Relinquishment Agreement. The Authority and TCA have agreed on the accounting for Revenues related to certain promotional allowances in accordance with the Relinquishment Agreement. As a result, in August 2001, the Authority paid TCA approximately $137,000 of additional relinquishment fees. The Authority, in accordance with SFAS No. 5, "Accounting for Contingencies", has recorded a relinquishment liability of the estimated present value of its obligations under the Relinquishment Agreement. A relinquishment liability of $549.1 million was established at September 30, 1998 based on the present value of the estimated future Mohegan Sun revenues utilizing the Authority's risk free investment rate. At September 30, 2001, the carrying amount of the relinquishment liability was $592.0 million as compared to $672.9 million at September 30, 2000. The decrease is due to $74.4 million in relinquishment liability reassessment income and $42.3 million in relinquishment payments offset by $35.8 million in accretion of relinquishment liability discount. Of the $42.3 million in relinquishment payments, $9.7 million represents principal amounts and the remaining $32.6 million is payment for the accretion of interest. Relinquishment payments of $20.0 million were made during the fiscal year ended September 30, 2000. Of the $20.0 million in relinquishment payments for the fiscal year ended September 30, 2000, $8.5 million represents principal payments and the remaining $11.5 million is payment for the accretion of interest. There were no relinquishment payments made during the fiscal year ended September 30, 1999. The accretion of relinquishment liability discount resulted from the impact on the discount for the time value of money due to the passage of time. The relinquishment liability reassessment resulted from the impact of actual revenues compared to original estimates on the determination of the relinquishment liability for the fiscal year 2001. The Authority reviewed current revenue forecasts and has reduced revenue projections for the period in which the Relinquishment Agreement applies, due to uncertainties involving economic market conditions that have affected Project Sunburst revenues and future competition from potential Native American casinos. At September 30, 2001 relinquishment payments earned but unpaid, were $11.5 million. Development Agreement On February 7, 1998, the Authority and TCA entered into a development services agreement (the "Development Agreement"). Under the Development Agreement, TCA is responsible for the administration and supervision of the construction manager and the entire construction process of Project Sunburst. TCA is acting as the Authority's representative in connection with construction contracts that are approved by the Authority. Specifically, TCA is responsible for overseeing all persons performing work on the expansion site, inspecting the progress of construction, determining completion dates and reviewing contractor payment requests submitted to the Authority. Payment of the Development Fee Under the Development Agreement, the Authority is required to pay to TCA a development fee of $14.0 million. Pursuant to the payment schedule described in the Development Agreement, on January 15, 2000, the Authority began paying the development fee to TCA on a quarterly basis, based upon the incremental completion as of each payment date. As of September 30, 2001, the Authority had incurred $11.3 million related to the TCA development fee, of which $9.3 million has been paid. All amounts incurred have been included in the property, plant and equipment and construction in process sections of the accompanying balance sheets. Termination and Disputes The Development Agreement terminates upon the earlier of (a) completion of Project Sunburst or (b) February 7, 2008. In addition, each party has the right to terminate the Development Agreement if there is a material default or failure to perform a material duty or obligation by the other party. The parties must submit disputes arising under the Development Agreement to arbitration and have agreed that punitive damages may not be awarded to either party by an arbitrator. The Authority has also waived sovereign immunity for the purpose of permitting, compelling F-23 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS -- (Continued) or enforcing arbitration and has agreed to be sued by TCA in any court of competent jurisdiction for the purposes of compelling arbitration or enforcing any arbitration or judicial award arising out of the Development Agreement. NOTE 14--EXTRAORDINARY ITEMS: The Authority incurred $38.4 million in extraordinary items for the fiscal year ended September 30, 1999. Included in the expense is $33.7 million related to the early extinguishment of the Senior Secured Notes and $5.2 million related to the write-off of financing fees associated with the original facility construction. Also included is an extraordinary gain for the forgiveness of debt of $500,000 associated with the defeasance of the Subordinated Notes (see Note 8). NOTE 15 - RESTATEMENT AND RECLASSIFICATIONS: The Authority has restated its financial statements for the fiscal year ended September 30, 2001 to reflect the effects of the following adjustments: (i) to record additional capitalized interest pertaining to Project Sunburst in accordance with SFAS No. 34 "Capitalization of Interest Cost," (ii) to record Project Sunburst related capital expenditures incurred in the fiscal year ended September 30, 2001 (iii) to record depreciation expense associated with placing additional fixed assets in service prior to September 30, 2001 and (iv) to record adjustments necessary to account for the Authority's derivative instruments in accordance with SFAS 133. The aggregate effect of recording these adjustments resulted in the Authority increasing its net income by $9.1 million for the fiscal year ended September 30, 2001, and increasing its total assets by $101.9 million as of September 30, 2001. In addition, the Authority also has reclassified certain other costs, expenses and balances in the financial statements. These reclassifications have no effect on the Authority's net income. The financial statements as of and for the fiscal year ended September 30, 2001 contained herein have been updated to reflect these restatements and reclassifications. The following tables summarize the impact of these adjustments on the Authority's financial statements, as restated (in thousands): F-24 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS -- (Continued) Mohegan Tribal Gaming Authority Condensed Balance Sheet (in thousands)
Restated Previously Reported Restatement September 30, September 30, 2001* Reclassifications Adjustments 2001 ------------------- ----------------- -------------- ------------- ASSETS ------ Current assets: Cash and cash equivalents $ 74,284 $ - $ - $ 74,284 Receivables, net 7,163 (1,816) a, b - 5,347 Due from Tribe - 957 b, c - 957 Inventories 11,455 - - 11,455 Other current assets 12,706 1,503 a - 14,209 ------------------- ---------------- -------------- ----------- Total current assets $ 105,608 $ 644 $ - $ 106,252 Non-current assets: Property and equipment, net 935,016 - 145,399 h, i, j, k, l 1,080,415 Construction in process 267,653 (644) c (43,441) h, k, m 223,568 Trademark, net 119,692 - - 119,692 Other assets, net 24,766 - - 24,766 ------------------- ---------------- -------------- ----------- Total assets $ 1,452,735 $ - $ 101,958 $ 1,554,693 =================== ================ ============== =========== LIABILITIES AND CAPITAL - ----------------------- Current liabilities: Current portion of capital lease obligations $ 1,514 $ - $ - $ 1,514 Current portion of relinquishment liability 68,272 1,927 e - 70,199 Trade payables - 13,810 d - 13,810 Accounts payable and accrued expenses 139,316 (139,316) d, f, g - - Construction payables - 65,768 f 89,729 j 155,497 Accrued interest payable 13,062 - - 13,062 Other current liabilities - 59,738 g - 59,738 ------------------- ---------------- -------------- ----------- Total current liabilities 222,164 1,927 89,729 313,820 Non-current liabilities: Long-term debt 908,000 - - 908,000 Relinquishment liability, net of current portion 523,736 (1,927) e - 521,809 Other long-term liabilities 5,232 - - 5,232 ------------------- ---------------- -------------- ----------- Total liabilities 1,659,132 - 89,729 1,748,861 ------------------- ---------------- -------------- ----------- Capital: Retained deficit (201,270) - 9,093 i, l, m, n (192,177) Accumulated other comprehensive loss (5,127) - 3,136 n (1,991) ------------------- ---------------- -------------- ----------- Total capital (206,397) - 12,229 (194,168) ------------------- ---------------- -------------- ----------- Total liabilities and capital $ 1,452,735 $ - $ 101,958 $ 1,554,693 =================== ================ ============== ===========
* Previously reported in Form 10-K filed by the Authority on December 17, 2001. See page F-29 of the notes to the Authority's financial statements for the footnotes to this restatement schedule. F-25 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS -- (Continued) Mohegan Tribal Gaming Authority Condensed Statement of Income (in thousands)
Previously Reported Restated For the Year Ended Restatement For the Year Ended September 30, 2001* Reclassifications Adjustments September 30, 2001 ------------------- ----------------- -------------- ------------------ Revenues: Gaming $ 750,988 $ - $ - $ 750,988 Food and beverage 49,508 - - 49,508 Retail and other 57,481 - - 57,481 ------------- ---------------- -------------- ------------------ Gross revenues 857,977 - - 857,977 Less - Promotional allowances (71,372) - - (71,372) ------------- ---------------- -------------- ------------------ Net revenues $ 786,605 $ - $ - $ 786,605 ------------- ---------------- -------------- ------------------ Operating costs and expenses: Gaming 334,537 - - 334,537 Food and beverage 24,447 - - 24,447 Retail, entertainment and other 32,114 - - 32,114 Marketing, general and administrative 139,343 - - 139,343 Pre-opening costs and expenses 31,344 - - 31,344 Depreciation and amortization 34,753 (4,536) p 1,078 i,l 31,295 Relinquishment liability reassessment - (74,410) q - (74,410) ------------- ---------------- -------------- ------------------ Total operating costs and expenses 596,538 (78,946) 1,078 518,670 ------------- ---------------- -------------- ------------------ Income from operations 190,067 78,946 (1,078) 267,935 ------------- ---------------- -------------- ------------------ Other income (expense): Relinquishment liability reassessment 38,577 (38,577) q,r - Accretion of relinquishment liability discount - (35,833) r - (35,833) Interest income 2,920 - - 2,920 Interest expense, net of capitalized interest (25,060) (4,537) p,s 9,222 m,n,t (20,375) Other expense, net (116) 1 s - (115) Change in fair value of derivative instruments (949) - 949 t - ------------- ---------------- -------------- ------------------ Total other income (expense) 15,372 (78,946) 10,171 (53,403) ------------- ---------------- -------------- ------------------ Income from continuing operations 205,439 - 9,093 214,532 Loss from discontinued operations (591) - - (591) ------------- ---------------- -------------- ------------------ Net income $ 204,848 $ - $ 9,093 $ 213,941 ============= ================ ============== ==================
* Previously reported in Form 10-K filed by the Authority on December 17, 2001. See page F-29 of the notes to the Authority's financial statements for the footnotes to this restatement schedule. F-26 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS -- (Continued) Mohegan Tribal Gaming Authority Condensed Statement of Changes in Capital (in thousands)
Previously Reported For the Year Ended Restated for the September 30, 2001* Restatement Adjustments Year Ended September 30, 2001 ------------------- ---------------------------- ----------------------------- Comprehensive Comprehensive Capital Income Capital Income ------- ------ ------- ------ Retained deficit at October 1 $ (362,118) $ - $ - $ (362,118) $ - Net income 204,848 9,093 9,093 i, l, m, n 213,941 213,941 ---------- --------- Accumulated other comprehensive loss Distributions to Tribe (44,000) - (44,000) ------------------ ----------- ----------- Retained deficit at September 30 $ (201,270) $ 9,093 $ (192,177) ------------------ ----------- ----------- Accumulated other comprehensive loss at October 1 - - Unrealized gain (loss) on derivative instruments (5,127) $ 3,136 n (1,991) ------------------ ---------- --------- Other comprehensive income (loss) (5,127) 3,136 3,136 (1,991) (1,991) ------------------ ----------- ---------- ----------- --------- Comprehensive income $ 199,721 $ 12,229 $ 211,950 ------------------ ========== ========= Accumulated other comprehensive income (loss) at September 30 (5,127) 3,136 (1,991) ------------------ ----------- ----------- Total capital ending balance September 30 $ (206,397) $ 12,229 $ (194,168) ================== =========== ===========
* Previously reported in Form 10-K filed by the Authority on December 17, 2001. See page F-29 of the notes to the Authority's financial statements for the footnotes to this restatement schedule. F-27 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS -- (Continued) Mohegan Tribal Gaming Authority Condensed Statement of Cash Flows (in thousands)
Previously Reported Restated For the For the Year Ended Year Ended September 30, Restatement September 2001* Reclassifications Adjustments 30, 2001 -------------- ----------------- ----------- ----------- Cash flows provided by (used in) operating activities: Net income $ 204,848 $ - $ 9,093 i, l, m, n $ 213,941 Adjustments to reconcile net income to net cash flow provided by operating activities: Depreciation and amortization 34,753 (4,536) u 1,078 i, l 31,295 Accretion of relinquishment liability discount - 35,833 r - 35,833 Relinquishment liability reassessment (38,577) (35,833) r - (74,410) Cash paid for accretion of relinquishment liability discount - (32,637) v - (32,637) Change in fair value of derivative instruments 949 - 3,136 n 4,085 Loss on disposition of assets 116 - - 116 Provision for losses on receivables 411 - - 411 Amortization of debt issuance costs - 4,536 u - 4,536 Changes in operating assets and liabilities: Increase in current assets (11,695) (644) c - (12,339) Decrease (increase) in other assets (5,894) 6,227 w, x - 333 Increase in current liabilities 84,151 (84,151) y - - Increase in other liabilities 5,232 24,942 w, z, bb - 30,174 ------------- ---------- --------- --------- Net cash flows provided by operating activities 274,294 (86,263) 13,307 201,338 ------------- ---------- --------- --------- Cash flows provided by (used in) investing activities: Purchase of property and equipment, net of change in construction payables (623,696) 51,968 c, y, bb, cc (13,307) h.3 (585,035) Increase in construction in process, net (2,654) 2,654 cc - - Proceeds from asset sale 95 - - 95 Issuance of tenant loans - (1,078) x - (1,078) ------------- ---------- --------- --------- Net cash flows used in investing activities (626,255) 53,544 (13,307) (586,018) ------------- ---------- --------- --------- Cash flows provided by (used in) financing activities: Proceeds from issuance of long-term debt 498,000 (348,000) aa - 150,000 Bank Credit Facility borrowings - 348,000 aa - 348,000 Bank Credit Facility payments (90,000) - - (90,000) Distributions to Tribe (44,000) - - (44,000) Principal portion of relinquishment liability payments (42,295) 32,637 v - (9,658) Capitalized financing fees (6,314) - - (6,314) Payment on capital lease obligations (4,877) - - (4,877) Increase in other long-term liabilities - 82 z - 82 ------------- ---------- --------- --------- Net cash flows provided by financing activities 310,514 32,719 - 343,233 ------------- ---------- --------- --------- Net decrease in cash and cash equivalents (41,447) - - (41,447) Cash and cash equivalents at beginning of period 115,731 - - 115,731 ------------- ---------- --------- --------- Cash and cash equivalents at end of period $ 74,284 $ - $ - $ 74,284 ============= ========== ========= =========
* Previously reported in Form 10-K filed by the Authority on December 17, 2001. See page F-29 of the notes to the Authority's financial statements for the footnotes to this restatement schedule. F-28 MOHEGAN TRIBAL GAMING AUTHORITY NOTES TO FINANCIAL STATEMENTS -- (Continued) Restatement Adjustment footnotes (in thousands): a. Reclassified an amount pertaining to the Deferred Compensation Plan of $1,503 from receivables, net to other current assets. b. Reclassified amounts due from Tribe of $313 from receivables, net to due from Tribe. c. Reclassified construction in process of $644 pertaining to amounts due from the Tribe for work completed by September 30, 2001. d. Reclassified trade payables from accounts payable and accrued expenses. e. Reclassified long-term relinquishment liability of $1,927 to current portion of relinquishment liability. f. Reclassified construction related payables of $65,768 to construction payables from accounts payable and accrued expenses. g. Reclassified other current liabilities accounts payable and accrued expenses of $59,738 to other current liabilities. h. Reclassified utilities facility costs of $10,175 from construction in process to property and equipment, net. i. Recorded $234 of depreciation on additional utilities facility costs capitalized and placed into service in November 2000. j. Recorded an accrual for construction payables of $89,729 pertaining to Project Sunburst for work completed by September 30, 2001, but paid subsequent to September 30, 2001. k. Reclassified Project Sunburst costs of $46,573 pertaining to Project Sunburst for work completed by September 30, 2001, but paid subsequent to September 30, 2001. l. Recorded depreciation of $844 on additional capitalized Project Sunburst costs for the year ended September 30, 2001. m. Recorded $13,307 of additional capitalized interest pertaining to Project Sunburst for the year ended September 30, 2001. n. In accordance with SFAS 133, recorded a $3,136 adjustment to reflect an unrealized loss on certain derivative instruments to other comprehensive loss. (See Note 8). o. Omitted. p. Reclassified $4,536 of amortization of debt issuance costs from depreciation and amortization to interest expense. q. Reclassified relinquishment reassessment adjustment of $74,410 from relinquishment liability reassessment included in other income (expense) to relinquishment liability reassessment included in operating costs and expenses. r. Reclassified $35,833 from relinquishment liability reassessment to accretion of relinquishment liability discount. s. Reclassified $1 from interest income to other expense, net. t. Reclassified change in fair value of derivative instruments of $949 to interest expense, net of capitalized interest. u. Reclassified the amortization of debt issuance costs or $4,536 from depreciation and amortization to amortization of debt issuance costs. v. Reclassified accretion of relinquishment liability discount of $32,637 from principal portion of relinquishment payments. w. Reclassified negative fair value on derivative instruments of $5,149 from decrease (increase) in other assets to increase in other liabilities. x. Reclassified issuance of tenant loans of $1,078 from decrease (increase) in other assets to issuance of tenant loans. y. Reclassified change in construction payables to construction in process of $84,151 from accounts payable and accrued expenses. z. Reclassified increase in other long-term liabilities of $82 from increase in other liabilities to increase in other long-term liabilities. aa. Reclassified Bank Credit Facility draws of $348,000 from proceeds from issuance of long term-debt to Bank Credit Facility borrowings. bb. Reclassified $30,173 in increase in other liabilities to increase in construction in process, net. cc. Reclassified increase in construction in process to purchase of property and equipment, net of change in construction payables. F-29 SCHEDULE II MOHEGAN TRIBAL GAMING AUTHORITY SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 and 1999 (in thousands)
Column A Column B Column C Column D Column E Charged to costs Balance and Charged Deductions Balance at beginning expenses to other from end of of period (income) accounts reserves(1) period Description: Year Ended September 30, 2001 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts $ 736 $ 411 $ -- $ 382 $ 765 Relinquishment liability $ 672,880 $ (38,577) $ -- $ 42,295 $ 592,008 Year Ended September 30, 2000 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts $ 834 $ 617 $ -- $ 715 $ 736 Relinquishment liability $ 661,010 $ 31,843 $ -- $ 19,973 $ 672,880 Period ended September 30, 1999 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts $ 348 $ 679 $ -- $ 193 $ 834 Relinquishment Liability $ 549,125 $ 111,885 $ -- $ -- $ 661,010
Note (1): Deductions from reserves include the write-off of uncollectible accounts, net of recoveries of accounts previously written off and payments under the Relinquishment Agreement. S-1 EXHIBITS INDEX Exhibit No. Description 3.1 Constitution of the Mohegan Tribe of Indians of Connecticut* 3.2 Ordinance No. 95-2 of the Mohegan Tribe of Indians of Connecticut for Gaming on Tribal Lands, enacted on July 15, 1995* 4.1 Indenture dated March 3, 1999 among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and First Union National Bank, as Trustee, relating to the 8 1/8% Senior Notes Due 2006 of the Mohegan Tribal Gaming Authority** 4.2 Form of Global 8 1/8% Senior Notes Due 2006 of the Mohegan Tribal Gaming Authority (contained in the Indenture filed as Exhibit 4.1)** 4.3 Indenture dated as of March 3, 1999 among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and State Street Bank and Trust Company, as Trustee, relating to the 8 3/4% Senior Subordinated Notes Due 2009 of the Mohegan Tribal Gaming Authority** 4.4 Form of Global 8 3/4% Senior Subordinated Notes Due 2009 of the Mohegan Tribal Gaming Authority (contained in the Indenture filed as Exhibit 4.3)** 4.5 Indenture dated as of July 26, 2001 among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and State Street Bank and Trust Company, as Trustee, relating to the 8 3/8% Senior Subordinated Notes Due 2011 of the Mohegan Tribal Gaming Authority*** 4.6 Form of Global 8 3/8% Senior Subordinated Notes Due 2011 of the Mohegan Tribal Gaming Authority (contained in the Indenture filed as Exhibit 4.5)*** 10.1 The Mohegan Tribe--State of Connecticut Gaming Mohegan Compact between the Mohegan Tribe of Indians of Connecticut and the State of Connecticut (the "Compact")* 10.2 Agreement dated April 25, 1994 between the Mohegan Tribe of Indians of Connecticut and the State of Connecticut resolving certain land claims (the "Resolution Agreement")* 10.3 Memorandum of Understanding dated May 17, 1994 between the Mohegan Tribe of Indians of Connecticut and the State of Connecticut regarding implementation of the Compact and the Resolution Agreement* 10.4 Agreement between the Mohegan Tribe of Indians of Connecticut and the Town of Montville, Connecticut* 10.5 Land Lease dated September 29, 1995 between the Mohegan Tribe of Indians of Connecticut and the Mohegan Tribal Gaming Authority; Amendment of Land Lease dated September 29, 1995* 10.6 Amendment to the Land Lease dated February 18, 1999 between the Mohegan Tribe of Indians of Connecticut and the Mohegan Tribal Gaming Authority** 10.7 Amended and Restated Gaming Facility Management Agreement dated August 30, 1995 between the Mohegan Tribe of Indians of Connecticut, the Mohegan Tribal Gaming Authority and Trading Cove Associates* 10.8 Development Services Agreement dated February 7, 1998 by and among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Trading Cove Associates+ 10.9 Relinquishment Agreement dated February 7, 1998 by and among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Trading Cove Associates+ Exhibit No. Description 10.10 The Loan Agreement dated as of March 3, 1999 by and among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut, Bank of America National Trust and Savings Association as Administrative Agent, Salomon Smith Barney Inc. as Syndication Agent, Societe Generale as Documentation Agent, NationsBanc Montgomery Securities LLC as Lead Arranger and each lender named therein (the "Loan Agreement")** 10.11 Escrow Deposit Agreement dated as of March 3, 1999 by and among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and First Union National Bank** 10.12 Construction Reserve Disbursement Agreement dated March 3, 1999 among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Fleet National Bank** 10.13 The Merrill Lynch Non-Qualified Deferred Compensation Plan Trust Agreement dated September 1, 1998 between the Mohegan Tribal Gaming Authority and Merrill Lynch Trust+ 10.14 Employment Agreement dated April 22, 1999 by and between the Mohegan Tribal Gaming Authority and William J. Velardo** 10.15 Employment Agreement dated April 22, 1999 by and between the Mohegan Tribal Gaming Authority and Mitchell Grossinger Etess** 10.16 Employment Agreement dated April 22, 1999 by and between the Mohegan Tribal Gaming Authority and Jeffrey E. Hartmann** 10.17 Amendment No. 1 to the Loan Agreement dated as of November 30, 2000 by and among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Bank of America National Trust and Savings Association++ 10.18 Priority Distribution Agreement between Mohegan Tribal Gaming Authority and the Mohegan Tribe of Indians of Connecticut dated August 1, 2001+++ 10.19 Administrative Services Agreement between Mohegan Tribal Gaming Authority and Fleet Retirement Plan Services dated July 30, 2001+++ 10.20 Employment Agreement dated July 24, 2000 by and between the Mohegan Tribal Gaming Authority and John Arnesen 10.21 Employment Agreement dated January 5, 2001 by and between the Mohegan Tribal Gaming Authority and Michael Bloom 10.22 Employment Agreement dated June 14, 2000 by and between the Mohegan Tribal Gaming Authority and Gary Crowder 10.23 Employment Agreement dated October 4, 2001 by and between the Mohegan Tribal Gaming Authority and Robert Soper 12.1 Computation of Ratio of Earnings to Fixed Charges Exhibit No. Description 99.1 Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification of Executive Vice President, Finance and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * Filed by the Authority with its Registration Statement on Form S-1 (file no. 33-80655), filed with the SEC on December 21, 1995, as amended, and incorporated herein by reference. ** Filed by the Authority with its Registration Statement on Form S-4 (file no. 333-76753), filed with the SEC on April 21, 1999, and incorporated herein by reference. *** Filed by the Authority with it Registration Statement on Form S-4 (file no. 333-69472), filed with the SEC on September 17, 2001, and incorporated herein by reference. + Filed by the Authority with its Form 10-K for the fiscal year ended September 30, 1998 and incorporated herein by reference. ++ Filed by the Authority with its Form 10-K for the fiscal year ended September 30, 2000 and incorporated herein by reference. +++ Filed by the Authority with its Form 10-Q for the quarter ended June 30, 2001 and incorporated herein by reference. EX-10.20 3 dex1020.txt EXHIBIT 10.20 Exhibit 10.20 MOHEGAN SUN EXECUTIVE EMPLOYMENT AGREEMENT This is an employment agreement which we will hereinafter refer to simply as the "Agreement," which I, Jon Arnesen, of 132 Sandy Point Road, Old Saybrook, CT [NAME/ADDRESS], voluntarily enter into on behalf of myself and my heirs, executors, administrators and assigns with my employer, MOHEGAN TRIBAL GAMING AUTHORITY, acting on behalf of its affiliates, successors, or assigns (the "MTGA") through its President/Chief Executive Officer ("President/CEO") on this the 24th day of July 2000. WHEREAS, the MTGA is an instrumentality of the Mohegan Tribe of Indians of Connecticut, a federally recognized Indian tribe, doing business as Mohegan Sun, a Class III gaming casino located on the Mohegan Reservation and operated under the authority of the National Indian Gaming Commission and the Indian Gaming Regulatory Act and pursuant to a Compact with the State of Connecticut; and WHEREAS, as an instrumentality of the Mohegan Tribe of Indians of Connecticut, the MTGA is a sovereign Indian tribal entity that is immune from unconsented suit; and WHEREAS, the MTGA is willing to waive its sovereign immunity for the purposes and to the extent set forth herein, in consideration for my agreement to perform my obligations and duties as an employee of the MTGA as such obligations and duties may be established, modified, or assigned by the President/CEO of the MTGA (or his authorized designee); and WHEREAS, the MTGA acts with respect to its employees exclusively through its President/CEO, in whom is vested sole legal authority to make decisions with respect to my employment, the continuation and/or termination of my employment, and the terms and conditions of my employment; THE MTGA AND I THEREFORE, in consideration of my employment by the MTGA after the date of this Agreement and the additional consideration set forth in Paragraph 3 of this Agreement, which I acknowledge to be good and sufficient, set forth our agreement and understanding with respect to my obligations as an employee, as follows: 1. DEFINITIONS. As used in this Agreement: MOHEGAN SUN EXECUTIVE EMPLOYMENT AGREEMENT Page 2 of 8 (a) "MTGA" means the Mohegan Tribal Gaming Authority, its successors and assigns, and any organizations or businesses controlled by it. (b) "Conflicting Organization" means me individually and/or in affiliation with any person, group of persons, entity or organization which is engaged in or is about to become engaged in the design, development, administration, operation or marketing of a gaming casino in competition with the MTGA. (c) "Executive Assignment" means any and all duties, assignments, titles, roles, or obligations that I am expected to perform consistent with and in furtherance of the MTGA's business objectives. (d) "Base Salary" means my regular salary as established by the President/CEO and paid in regular periodic installments, subject to any deductions required by applicable law, and does not include any bonuses or additional compensation of any kind. (e) "Non-Compete Area" means the States of Connecticut, Rhode Island, Massachusetts, and New York. 2. MY COVENANTS (a) I will not, without express prior written permission of the President/CEO of the MTGA, during my employment by the MTGA and for a period of twelve (12) months following the termination of that employment: (i) directly or indirectly engage in the gaming industry within the Non-Compete Area; (ii) contact for the purpose of soliciting business any person or entity who was at any time a patron of or supplier or vendor to the MTGA; (iii) perform services of any kind for any person or entity that was at any time a patron of or vendor or supplier to the MTGA; or (iv) contact any other employee of the MTGA for the purpose of recruiting such other employee for employment, directly or indirectly, for another employer. MOHEGAN SUN EXECUTIVE EMPLOYMENT AGREEMENT Page 3 of 8 (b) I also covenant and agree that in the event that I voluntarily terminate my employment by resignation, I shall deliver written notice of my intention to terminate my employment sixty (60) days in advance of my termination date to the President/CEO. I understand and acknowledge that if I exercise my right to terminate my employment, my covenants not to compete remain in full force and effect for the duration and within the Non-Compete Area as set forth herein. (c) I acknowledge that my skills are transferable or applicable to industries and entities which are not in competition with the MTGA and/or that I may engage in the gaming industry outside the Non-Compete area, so that my covenants against competition with the MTGA will not prevent me from providing for myself and my family. I understand that I may make written request to the President/CEO of the MTGA for a waiver of any of the provisions of this Paragraph, and that the decision of the President/CEO in response to any such request for waiver shall be final and shall not be subject to an appeal or review in any forum. 3. CONSIDERATION In consideration for my obligations and undertakings herein, expressly including my covenant not to compete with the MTGA: (a) The MTGA shall, upon the final execution of this Agreement by me and by the President/CEO, increase my Base Salary by 9.38 percent to $175,000.00; (b) I understand that if I voluntarily terminate my employment by resignation and give the written notice required by Paragraph 2(b), the MTGA shall continue to pay my Base Salary from the date of my notice of resignation through and including the sixtieth (60th) calendar day following my delivery of my resignation notice, so long as I remain fully in compliance with all of my other covenants under this Agreement. (c) If the MTGA exercises its right to terminate my employment at its discretion pursuant to Paragraph 4(a) and without "cause" as set forth in Paragraph 4(b), then the MTGA shall pay me: (i) my Base Salary in regular installments at the same Base Salary rate as was in effect at the date of my termination for a period of one calendar year from the date of my termination, and (ii) a lump sum in the amount of twenty five thousand dollars ($25,000.00) for relocation expenses subject to all deductions required by applicable law. MOHEGAN SUN EXECUTIVE EMPLOYMENT AGREEMENT Page 4 of 8 I hereby acknowledge that the foregoing represents good and sufficient consideration to which I am not otherwise entitled so as to assure that this agreement may be enforced against me in the event of my breach. 4. TERMINATION (a) Termination At Will I understand, acknowledge and agree that my employment is "at will," in that either I or the MTGA, independently, can terminate my employment for any reason or for no reason, at any time, with or without notice, subject only to the terms and limitations of this Agreement. If I terminate my employment by voluntary resignation and provide written notice pursuant to Paragraph 2(b), I may, unless I am otherwise disqualified by my breach of other terms of this Agreement, receive the benefits set forth in Paragraph 3(b). If the MTGA terminates my employment at its discretion and without "cause" as described more fully below, the MTGA shall pay me the benefits set forth in Paragraph 3(c). (b) Termination for Cause I acknowledge and agree that the MTGA may terminate this Agreement for cause, and that in the event of a termination for cause, the MTGA shall have no obligation to pay me any of the benefits described in Paragraph 3(c) or any other benefit except that required by applicable law. I understand that cause for termination includes, but is not limited to: o My conviction of a criminal offense; o My violation of Mohegan Sun policies, including, but not limited to, my violation of the standards for personal conduct set forth in Mohegan Sun Policy #27 (as amended); o My breach of my covenants under this Agreement, including my covenants not to compete; o My aiding, assisting, or abetting any other person to breach a covenant not to compete; o Suspension or revocation of my gaming license; o My engagement, directly or indirectly, in a conflict of interest; o My failure or refusal to perform my Executive Assignment; or o Other serious misconduct by me. MOHEGAN SUN EXECUTIVE EMPLOYMENT AGREEMENT Page 5 of 8 I understand that the foregoing is illustrative of grounds for my termination for cause, and is not an exclusive or exhaustive list. I understand that I have a right to a rudimentary hearing prior to the termination of my employment for cause, at which hearing I shall be afforded an opportunity to present reasons to the President/CEO or his designee why the termination should not be imposed. However, I understand that any such hearing shall be subject to such limitations in time and scope that the MTGA may impose, and that I may obtain a review of the termination decision pursuant to the "Remedies" set forth in this Agreement. (c) Confidentiality of MTGA Records I agree that all records, material and information obtained by me in the course of my employment with the MTGA shall at all times be treated and maintained in confidence and shall remain the exclusive property of the MTGA during and following my employment with the MTGA. I agree that I shall at all times adhere to all policies, standards and procedures as established by the MTGA for protecting the confidentiality of information and records, including but not limited to trade secrets. (d) Return of MTGA Documents Upon Termination Upon termination of my employment with the MTGA, I will return to and leave with the MTGA all documents, records and notebooks concerning the business of the MTGA, including copies thereof, then in my actual or constructive possession, whether prepared by me or by others, and I will not duplicate such materials for my own use or the use of another person, corporation or entity at any time, either during or following my employment. 5. REMEDIES. (a) I recognize that if I violate the covenants and undertakings of this Agreement I may cause the MTGA irreparable injury and damage. Therefore, the MTGA and I agree that, if I violate this Agreement, the MTGA may seek to enjoin my actions which are in breach of this Agreement and that the MTGA is entitled to recover from me all of its reasonable costs and expenses, including reasonable attorney's fees, incurred by or on behalf of the MTGA in the enforcement of this Agreement or any part thereof and in its investigation of my violation of this Agreement, as well as any damages that may be proven to the satisfaction of a court of competent jurisdiction. MOHEGAN SUN EXECUTIVE EMPLOYMENT AGREEMENT Page 6 of 8 (b) I understand that the MTGA may disclose this Agreement to any entity with whom I may become affiliated or employed following the termination of my employment with and by the MTGA. (c) I understand that the Mohegan Tribe of Indians of Connecticut and the MTGA have established the Mohegan Gaming Disputes Court on the Mohegan Reservation. I consent to the exercise of personal jurisdiction over me by the Mohegan Gaming Disputes Court. (d) I understand and agree that, since I am not restricted from travelling and relocating, the MTGA may at its discretion bring an action to enforce this Agreement against me in any court that can assert personal jurisdiction over me, including but not limited to the Gaming Disputes Court. (e) I understand and agree that any claim by me that the MTGA has breached its obligations to me under this Agreement may be asserted solely and exclusively in the Gaming Disputes Court. In order to permit the Gaming Disputes Court to assert subject matter jurisdiction over such a claim, the MTGA hereby grants a limited waiver of its sovereign immunity and consents to suit by me for enforcement of the MTGA's obligations under this Agreement but limits said waiver so that the maximum amount I may recover is the amount authorized to be paid to me by Paragraph 3(c), and the MTGA shall not be liable to me for any additional or consequential damages. 6. EFFECT OF WAIVERS. The failure of the MTGA to insist upon strict adherence to one or more or all of the covenants and restrictions set forth above, on one or more occasions, or the failure to insist upon strict adherenece by another MTGA employee who is a party to an agreement similar to this Agreement, shall not be construed as a waive of the MTGA's right thereafter to require strict compliance with any or all of such covenants or restrictions. 7. PARTIAL INVALIDITY. I agree that, if any part of this Agreement is held to be invalid or unenforceable for any reason, the remaining covenants and restrictions shall remain in full force and effect; and if invalidity or unenforceability is due to the unreasonableness of the time or geographical areas covered by Paragraph 2, such provisions shall be effective for whatever length of time and within such area as a court of competent jurisdiction deems appropriate. MOHEGAN SUN EXECUTIVE EMPLOYMENT AGREEMENT Page 7 of 8 8. APPLICABLE LAW. This Agreement shall be governed for all purposes by the Constitution and laws of the Mohegan Tribe of Indians of Connecticut. 9. ACKNOWLEDGEMENT. (a) I have had an opportunity to review fully a copy of this Agreement prior to signing it and I have carefully read and I understand all of the terms stated in this Agreement. (b) I understand that I must sign and abide by this Agreement in order to be eligible to receive the consideration described in Paragraph 3 of this Agreement. 10. AMENDMENTS This Agreement may be amended. However, to become binding on the MTGA, any amendment or modification must be set forth in a written document signed by the President/CEO. In the event that I request a substantial modification of my work assignment, working hours, title, or other material change in the terms and conditions of my employment, such request shall be directed to the President/CEO, who shall decide whether to grant or deny the request in whole or in part and whether to modify this Agreement or the terms and conditions of my employment. The decision of the President/CEO shall be final. My covenants not to compete will remain in full force and effect regardless of any modification of the terms and conditions of this Agreement. 11. SUPERSEDENCE This Agreement supersedes any and all prior agreements between me and the MTGA concerning or relating to my employment. This Agreement shall be construed in harmony with all employment-related policies, standards, and procedures adopted by the MTGA and/or the President/CEO, but in the event of any conflict between the terms of this Agreement and any policy, standard or procedure adopted by the MTGA for general application to MTGA employees, the terms of this Agreement shall be given controlling effect. By way of example, but without limitation, the remedies set forth in Paragraph 5 herein shall supersede the procedures set forth in Mohegan Sun Policy #27 to the extent that said Policy #27 conflicts with this Agreement. MOHEGAN SUN EXECUTIVE EMPLOYMENT AGREEMENT Page 8 of 8 By: /s/ William Velardo 7-24-00 ---------------------------------- --------------------- William Velardo, President/CEO Date /s/ J. Arnesen 7-24-00 - ------------------------------------- --------------------- Employee Date J. Arnesen - ------------------------------------- (Printed Name) EX-10.21 4 dex1021.txt EXHIBIT 20.21 Exhibit 10.21 MOHEGAN SUN EXECUTIVE EMPLOYMENT AGREEMENT This is an employment agreement which we will hereinafter refer to simply as the "Agreement," which I, Michael Bloom, of East Haddam, CT, voluntarily enter into on behalf of myself and my heirs, executors, administrators and assigns with my employer, MOHEGAN TRIBAL GAMING AUTHORITY, acting on behalf of its affiliates, successors, or assigns (the "MTGA") through its President/Chief Executive Officer ("President/CEO") on the 5th day of January 2001. WHEREAS, the MTGA is an instrumentality of the Mohegan Tribe of Indians of Connecticut, a federally recognized Indian tribe, doing business as Mohegan Sun, a Class III gaming casino located on the Mohegan Reservation and operated under the authority of the National Indian Gaming Commission and the Indian Gaming Regulatory Act and pursuant to a Compact with the State of Connecticut; and WHEREAS, as an instrumentality of the Mohegan Tribe of Indians of Connecticut, the MTGA is a sovereign Indian tribal entity that is immune from unconsented suit; and WHEREAS, the MTGA is willing to waive its sovereign immunity for the purposes and to the extent set forth herein, in consideration for my agreement to perform my obligations and duties as an employee of the MTGA as such obligations and duties may be established, modified, or assigned by the President/CEO of the MTGA (or his authorized designee); and WHEREAS, the MTGA acts with respect to its employees exclusively through its President/CEO, in whom is vested sole legal authority to make decisions with respect to my employment, the continuation and/or termination of my employment, and the terms and conditions of my employment; THE MTGA AND I THEREFORE, in consideration of my employment by the MTGA after the date of this Agreement and the additional consideration set forth in Paragraph 3 of the Agreement, which I acknowledge to be good and sufficient, set forth our agreement and understanding with respect to my obligations as an employee, as follows: 1. DEFINITIONS. As used in this Agreement: (a) "MTGA" means the Mohegan Tribal Gaming Authority, its successors and assigns, and any organizations or businesses controlled by it. (b) "Conflicting Organization" means me individually and/or in affiliation with any person, group of persons, entity or organization which is engaged in or is about to become engaged in the design, development, administration, operation or marketing of a gaming casino in competition with the MTGA. (c) "Executive Assignment" means any and all duties, assignments, titles, roles, or obligations that I am expected to perform consistent with and in furtherance of the MTGA's business objectives. (d) "Base Salary" means my regular salary as established by the President/CEO and paid in regular periodic installments, subject to any deductions required by applicable law, and does not include any bonuses or additional compensation of any kind. (e) "Non-Compete Area" means the States of Connecticut, Rhode Island, Massachusetts, and New York. 2. MY COVENANTS (a) I will not, without express prior written permission of the President/CEO of the MTGA, during my employment by the MTGA and for a period of twelve (12) months following the termination of that employment: (i) directly or indirectly engage in the gaming industry within the Non-Compete Area; (ii) contact for the purpose of soliciting business any person or entity who was at any time a patron of or supplier or vendor to the MTGA; (iii) perform services of any kind for any person or entity that was at any time a patron of or vendor or supplier to the MTGA; or (iv) contact any other employee of the MTGA for the purpose of recruiting such other employee for employment, directly or indirectly, for another employer. (b) I also covenant and agree that in the event that I voluntarily terminate my employment by resignation, I shall deliver written notice of my intention to terminate my employment sixty (60) days in advance of my termination date to the President/CEO. I understand and acknowledge that if I exercise my right to terminate my employment, my covenants not to compete remain in full force and effect for the duration and within the Non-Compete Area as set forth herein. (c) I acknowledge that my skills are transferable or applicable to industries and entities which are not in competition with the MTGA and/or that I may engage in the gaming industry outside the Non-Compete area, so that my covenants against competition with the MTGA will not prevent me from providing for myself and my family. I understand that I may make written request to the President/CEO of the MTGA for a waiver of any of the provisions of this Paragraph, and that the decision of the President/CEO in response to any such request for waiver shall be final and shall not be subject to an appeal or review in any forum. 3. CONSIDERATION In consideration for my obligation and undertakings herein, expressly including my covenant not to compete with the MTGA: (a) The MTGA shall, upon the final execution of this Agreement by me and by the President/CEO, increase my Base Salary by 20.00 percent to $201,600.00; (b) I understand that if I voluntarily terminate my employment by resignation and give the written notice required by Paragraph 2(b), the MTGA shall continue to pay my Base Salary from the date of my notice of resignation through and including the sixtieth (60th) calendar day following my delivery of my resignation notice, so long as I remain fully in compliance with all of my other covenants under this Agreement. (c) If the MTGA exercises its right to terminate my employment at its discretion pursuant to Paragraph 4(a) and without "cause" as set forth in Paragraph 4(b), then the MTGA shall pay me: (i) my Base Salary in regular installments at the same Base Salary rate as was in effect at the date of my termination for a period of one calendar year from the date of my termination, and (ii) a lump sum in the amount of twenty five thousand dollars ($25,000.00) for relocation expenses subject to all deductions required by applicable law. I hereby acknowledge that the foregoing represents good and sufficient consideration to which I am not otherwise entitled so as to assure that this agreement may be enforced against me in the event of my breach. 4. TERMINATION (a) Termination At Will I understand, acknowledge and agree that my employment is "at will," in that either I or the MTGA, independently, can terminate my employment for any reason or for no reason, at any time, with or without notice, subject only to the terms and limitations of this Agreement. If I terminate my employment by voluntary resignation and provide written notice pursuant to Paragraph 2(b), I may, unless I am otherwise disqualified by my breach of other terms of this Agreement, receive the benefits set forth in Paragraph 3(b). If the MTGA terminates my employment at its discretion and without "cause" as described more fully below, the MTGA shall pay me the benefits set forth in Paragraph 3(c). (b) Termination for Cause I acknowledge and agree that the MTGA may terminate this Agreement for cause, and that in the event of a termination for cause, the MTGA shall have no obligation to pay me any of the benefits described in Paragraph 3(c) or any other benefit except that required by applicable law. I understand that cause for termination includes, but is not limited to: o My conviction of a criminal offense; o My violation of Mohegan Sun policies, including, but not limited to, my violation of the standards for personal conduct set forth in Mohegan Sun Policy #27 (as amended); o My breach of my covenants under this Agreement, including my covenants not to compete; o My aiding, assisting, or abetting any other person to breach a covenant not to compete; o Suspension or revocation of my gaming license; o My engagement, directly or indirectly, in a conflict of interest; o My failure or refusal to perform my Executive Assignment; or o Other serious misconduct by me. I understand that the foregoing is illustrative of grounds for my termination for cause, and is not an exclusive or exhaustive list. I understand that I have a right to rudimentary hearing prior to the termination of my employment for cause, at which hearing I shall be afforded an opportunity to present reasons to the President/CEO or his designee why the termination should not be imposed. However, I understand that any such hearing shall be subject to such limitations in time and scope that the MTGA may impose, and that I may obtain a review of the termination decision pursuant to the "Remedies" set forth in this Agreement. (c) Confidentiality of MTGA Records I agree that all records, material and information obtained by me in the course of my employment with the MTGA shall at all times be treated and maintained in confidence and shall remain the exclusive property of the MTGA during and following my employment with the MTGA. I agree that I shall at all times adhere to all policies, standards and procedures as established by the MTGA for protecting the confidentiality of information and records, including but not limited to trade secrets. (d) Return of MTGA Documents Upon Termination Upon termination of my employment with the MTGA, I will return to and leave with the MTGA all documents, records and notebooks concerning the business of the MTGA, including copies thereof, then in my actual or constructive possession, whether prepared by me or by others, and I will not duplicate such materials for my own use or the use of another person, corporation or entity at any time, either during or following my employment. 5. REMEDIES. (a) I recognize that if I violate the covenants and undertakings of this Agreement I may cause the MTGA irreparable injury and damage. Therefore, the MTGA and I agree that, if I violate this Agreement, the MTGA may seek to enjoin my actions which are in breach of this Agreement and that the MTGA is entitled to recover from me all of its reasonable costs and expenses, including reasonable attorney's fees, incurred by or on behalf of the MTGA in the enforcement of this Agreement or any part thereof and in its investigation of my violation of this Agreement, as well as any damages that may be proven to the satisfaction of a court of competent jurisdiction. (b) I understand that the MTGA may disclose this Agreement to any entity with whom I may become affiliated or employed following the termination of my employment with and by the MTGA. (c) I understand that the Mohegan Tribe of Indians of Connecticut and the MTGA have established the Mohegan Gaming Disputes Court on the Mohegan Reservation. I consent to the exercise of personal jurisdiction over me by the Mohegan Gaming Disputes Court. (d) I understand and agree that, since I am not restricted from travelling and relocating, the MTGA may at its discretion bring an action to enforce this Agreement against me in any court that can assert personal jurisdiction over me, including but not limited to the Gaming Disputes Court. (e) I understand and agree that any claim by me that the MTGA has breached its obligations to me under this Agreement may be asserted solely and exclusively in the Gaming Disputes Court. In order to permit the Gaming Disputes Court to assert subject matter jurisdiction over such a claim, the MTGA hereby grants a limited waiver of its sovereign immunity and consents to suit by me for enforcement of the MTGA's obligations under this Agreement but limits said waiver so that the maximum amount I may recover is the amount authorized to be paid to me by Paragraph 3(c), and the MTGA shall not be liable to me for any additional or consequential damages. 6. EFFECT OF WAIVERS. The failure of the MTGA to insist upon strict adherence to one or more or all of the covenants and restrictions set forth above, on one or more occasions, or the failure to insist upon strict adherence by another MTGA employee who is a party to an agreement similar to this Agreement, shall not be construed as a waiver of the MTGA's right thereafter to require strict compliance with any or all of such covenants or restrictions. 7. PARTIAL INVALIDITY. I agree that, if any part of this Agreement is held to be invalid or unenforceable for any reason, the remaining covenants and restrictions shall remain in full force and effect; and if invalidity or unenforceability is due to the unreasonableness of the time or geographical areas covered by Paragraph 2, such provisions shall be effective for whatever length of time and within such area as a court of competent jurisdiction deems appropriate. 8. APPLICABLE LAW. This Agreement shall be governed for all purposes by the Constitution and laws of the Mohegan Tribe of Indians of Connecticut. 9. ACKNOWLEDGEMENT. (a) I have had an opportunity to review fully a copy of this Agreement prior to signing it and I have carefully read and I understand all of the terms stated in this Agreement. (b) I understand that I must sign and abide by this Agreement in order to be eligible to receive the consideration described in Paragraph 3 of this Agreement. 10. AMENDMENTS This Agreement may be amended. However, to become binding on the MTGA, any amendment or modification must be set forth in a written document signed by the President/CEO. In the event that I request a substantial modification of my work assignment, working hours, title, or other material change in the terms and conditions of my employment, such request shall be directed to the President/CEO, who shall decide whether to grant or deny the request in whole or in part and whether to modify this Agreement or the terms and conditions of my employment. The decision of the President/CEO shall be final. My covenants not to compete will remain in full force and effect regardless of any modification of the terms and conditions of this Agreement. 11. SUPERSEDENCE This Agreement supersedes any and all prior agreements between me and the MTGA concerning or relating to my employment. This Agreement shall be construed in harmony with all employment-related policies, standards, and procedures adopted by the MTGA and/or the President/CEO, but in the event of any conflict between the terms of this Agreement and any policy, standard or procedure adopted by the MTGA for general application to MTGA employees, the terms of this Agreement shall be given controlling effect. By way of example, but without limitation, the remedies set forth in Paragraph 5 herein shall supersede the procedures set forth in Mohegan Sun Policy #27 to the extent that said Policy #27 conflicts with this Agreement. By: /s/ William Velardo 1/5/01 ------------------------------ -------------- William Velardo, President/CEO Date /s/ Michael W. Bloom 1/5/01 - ------------------------------- -------------- Employee Date Michael W. Bloom - ------------------------------- (Printed Name) EX-10.22 5 dex1022.txt EXHIBIT 10.22 Exhibit 10.22 MOHEGAN SUN EXECUTIVE EMPLOYMENT AGREEMENT This is an employment agreement which we will hereinafter refer to simply as the "Agreement," which I, Gary Crowder, of 1124 Old Pond Lane, Norwich CT 06360 [NAME/ADDRESS], voluntarily enter into on behalf of myself and my heirs, executors, administrators and assigns with my employer, MOHEGAN TRIBAL GAMING AUTHORITY, acting on behalf of its affiliates, successors, or assigns (the "MTGA") through its President/Chief Executive Officer ("President/CEO") on this the 14th day of June 2000. WHEREAS, the MTGA is an instrumentality of the Mohegan Tribe of Indians of Connecticut, a federally recognized Indian tribe, doing business as Mohegan Sun, a Class III gaming casino located on the Mohegan Reservation and operated under the authority of the National Indian Gaming Commission and the Indian Gaming Regulatory Act and pursuant to a Compact with the State of Connecticut; and WHEREAS, as an instrumentality of the Mohegan Tribe of Indians of Connecticut, the MTGA is a sovereign Indian tribal entity that is immune from unconsented suit; and WHEREAS, the MTGA is willing to waive its sovereign immunity for the purposes and to the extent set forth herein, in consideration for my agreement to perform my obligations and duties as an employee of the MTGA as such obligations and duties may be established, modified, or assigned by the President/CEO of the MTGA (or his authorized designee); and WHEREAS, the MTGA acts with respect to its employees exclusively through its President/CEO, in whom is vested sole legal authority to make decisions with respect to my employment, the continuation and/or termination of my employment, and the terms and conditions of my employment; THE MTGA AND I THEREFORE, in consideration of my employment by the MTGA after the date of this Agreement and the additional consideration set forth in Paragraph 3 of this Agreement, which I acknowledge to be good and sufficient, set forth our agreement and understanding with respect to my obligations as an employee, as follows: 1. DEFINITIONS. As used in this Agreement: MOHEGAN SUN EXECUTIVE EMPLOYMENT AGREEMENT Page 2 of 8 (a) "MTGA" means the Mohegan Tribal Gaming Authority, its successors and assigns, and any organizations or businesses controlled by it. (b) "Conflicting Organization" means me individually and/or in affiliation with any person, group of persons, entity or organization which is engaged in or is about to become engaged in the design, development, administration, operation or marketing of a gaming casino in competition with the MTGA. (c) "Executive Assignment" means any and all duties, assignments, titles, roles, or obligations that I am expected to perform consistent with and in furtherance of the MTGA's business objectives. (d) "Base Salary" means my regular salary as established by the President/CEO and paid in regular periodic installments, subject to any deductions required by applicable law, and does not include any bonuses or additional compensation of any kind. (e) "Non-Compete Area" means the States of Connecticut, Rhode Island, Massachusetts, and New York. 2. MY COVENANTS (a) I will not, without express prior written permission of the President/CEO of the MTGA, during my employment by the MTGA and for a period of twelve (12) months following the termination of that employment: (i) directly or indirectly engage in the gaming industry within the Non-Compete Area; (ii) contact for the purposes of soliciting business any person or entity who was at any time a patron of or supplier or vendor to the MTGA; (iii) perform services of any kind for any person or entity that was at any time a patron of or vendor or supplier to the MTGA; or (iv) contact any other employee of the MTGA for the purpose of recruiting such other employee for employment, directly or indirectly, for another employer. MOHEGAN SUN EXECUTIVE EMPLOYMENT AGREEMENT Page 3 of 8 (b) I also covenant and agree that in the event that I voluntarily terminate my employment by resignation, I shall deliver written notice of my intention to terminate my employment sixty (60) days in advance of my termination date to the President/CEO. I understand and acknowledge that if I exercise my right to terminate my employment, my covenants not to compete remain in full force and effect for the duration and within the Non-Compete Area as set forth herein. (c) I acknowledge that my skills are transferable or applicable to industries and entities which are not in competition with the MTGA and/or that I may engage in the gaming industry outside the Non-Compete Area, so that my covenants against competition with the MTGA will not prevent me from providing for myself and my family. I understand that I may make written request to the President/CEO of the MTGA for a waiver of any of the provisions of this Paragraph, and that the decision of the President/CEO in response to any such request for waiver shall be final and shall not be subject to an appeal or review in any forum. 3. CONSIDERATION In consideration for my obligations and undertakings herein, expressly including my covenant not to compete with MTGA: (a) The MTGA shall, upon the final execution of this Agreement by me and by the President/CEO, increase my Base Salary by 6.25 percent to $170,000.00; (b) I understand that if I voluntarily terminate my employment by resignation and give the written notice required by Paragraph 2(b), the MTGA shall continue to pay my Base Salary from the date of my notice of resignation through and including the sixtieth (60th) calendar day following my delivery of my resignation notice, so long as I remain fully in compliance with all of my other covenants under this Agreement. (c) If the MTGA exercises its right to terminate my employment at its discretion pursuant to Paragraph 4(a) and without "cause" as set forth in Paragraph 4(b), then the MTGA shall pay me: (i) my Base Salary in regular installments at the same Base Salary rate as was in effect at the date of my termination for a period of one calendar year from the date of my termination, and (ii) a lump sum in the amount of twenty five thousand dollars ($25,000.00) for relocation expenses subject to all deductions required by applicable law. MOHEGAN SUN EXECUTIVE EMPLOYMENT AGREEMENT Page 4 of 8 I hereby acknowledge that the foregoing represents good and sufficient consideration to which I am not otherwise entitled so as to assure that this agreement may be enforced against me in the event of my breach. 4. TERMINATION (a) Termination At Will I understand, acknowledge and agree that my employment is "at will," in that either I or the MTGA, independently, can terminate my employment for any reason or for no reason, at any time, with or without notice, subject only to the terms and limitations of this Agreement. If I terminate my employment by voluntary resignation and provide written notice pursuant to Paragraph 2(b), I may, unless I am otherwise disqualified by my breach of other terms of this Agreement, receive the benefits set forth in Paragraph3(b). If the MTGA terminates my employment at its discretion and without "cause" as described more fully below, the MTGA shall pay me benefits set forth in Paragraph 3(c). (b) Termination for Cause I acknowledge and agree that the MTGA may terminate this Agreement for cause, and that in the event of a termination for cause, the MTGA shall have no obligation to pay me any of the benefits described in Paragraph 3(c) or any other benefit except that required by applicable law. I understand that cause for termination includes, but is not limited to: o My conviction of a criminal offense; o My violation of Mohegan Sun policies, including, but not limited to, my violation of the standards for personal conduct set forth in Mohegan Sun Policy #27(as amended); o My breach of my covenants under this Agreement, including my covenants not to compete; o My aiding, assisting, or abetting any other person to breach a covenant not to compete; o Suspension or revocation of my gaming license; o My engagement, directly or indirectly, in a conflict of interest; o My failure or refusal to perform my Executive Assignment; or o Other serious misconduct by me. MOHEGAN SUN EXECUTIVE EMPLOYMENT AGREEMENT Page 5 of 8 I understand that the foregoing is illustrative of grounds for my termination for cause, and is not an exclusive or exhaustive list. I understand that I have a right to a rudimentary hearing prior to the termination of my employment for cause, at which hearing I shall be afforded an opportunity to present reasons to the President/CEO or his designee why the termination should not be imposed. However, I understand that any such hearing shall be subject to such limitations in time and scope that the MTGA may impose, and that I may obtain a review of the termination decision pursuant to the "Remedies" set forth in this Agreement. (c) Confidentiality of MTGA Records I agree that all records, material and information obtained by me in the course of my employment with the MTGA shall at all times be treated and maintained in confidence and shall remain the exclusive property of the MTGA during and following my employment with the MTGA. I agree that I shall at all times adhere to all policies, standards and procedures as established by the MTGA for protecting the confidentiality of information and records, including but not limited to trade secrets. (d) Return of MTGA Documents Upon Termination Upon termination of my employment with the MTGA, I will return to and leave with the MTGA all documents, records and notebooks concerning the business of the MTGA, including copies thereof, then in my actual or constructive possession, whether prepared by me or by others, and I will not duplicate such materials for my own use or the use of another person, corporation or entity at any time, either during or following my employment. 5. REMEDIES. (a) I recognize that if I violate the covenants and undertakings of this Agreement I may cause the MTGA irreparable injury and damage. Therefore, the MTGA and I agree that, if I violate this Agreement, the MTGA may seek to enjoin my actions which are in breach of this Agreement and that the MTGA is entitled to recover from me all of its reasonable costs and expenses, including reasonable attorney's fees, incurred by or on behalf of the MTGA in the enforcement of this Agreement or any part thereof and in its investigation of my violation of the Agreement, as well as any damages that may be proven to the satisfaction of a court of competent jurisdiction. MOHEGAN SUN EXECUTIVE EMPLOYMENT AGREEMENT Page 6 of 8 (b) I understand that the MTGA may disclose this Agreement to any entity with whom I may become affiliated or employed following the termination of my employment with and by the MTGA. (c) I understand that the Mohegan Tribe of Indians of Connecticut and the MTGA have established the Mohegan Gaming Disputes Court on the Mohegan Reservation. I consent to the exercise of personal jurisdiction over me by the Mohegan Gaming Disputes Court. (d) I understand and agree that, since I am not restricted from traveling and relocating, the MTGA may at its discretion bring an action to enforce this Agreement against me in any court that can assert personal jurisdiction over me, including but not limited to the Gaming Disputes Court. (e) I understand and agree that any claim by me that the MTGA has breached its obligations to me under this Agreement may be asserted solely and exclusively in the Gaming Disputes Court. In order to permit the Gaming Disputes Court to assert subject matter jurisdiction over such a claim, the MTGA hereby grants a limited waiver of its sovereign immunity and consents to suit by me for enforcement of the MTGA's obligations under this Agreement but limits said waiver so that the maximum amount I may recover is the amount authorized to be paid to me by Paragraph 3(c), and the MTGA shall not be liable to me for any additional or consequential damages. 6. EFFECT OF WAIVERS. The failure of the MTGA to insist upon strict adherence to one or more or all of the covenants and restrictions set forth above, on one or more occasions, or the failure to insist upon strict adherence by another MTGA employee who is a party to an agreement similar to this Agreement, shall not be construed as a waiver of the MTGA's right thereafter to require strict compliance with any or all of such covenants or restrictions. 7. PARTIAL INVALIDITY. I agree that, if any part of this Agreement is held to be invalid or unenforceable for any reason, the remaining covenants and restrictions shall remain in full force and effect; and if invalidity or unenforceability is due to the unreasonableness of the time or geographical areas covered by Paragraph 2, such provisions shall be effective for whatever length of time and within such area as a court of competent jurisdiction deems appropriate. MOHEGAN SUN EXECUTIVE EMPLOYMENT AGREEMENT By: /s/ William Velardo 6-14-00 ------------------------------------- ------------------- William Velardo, President/CEO Date /s/ Gary S. Crowder 6-14-00 - ----------------------------------------- ------------------- Employee Date Gary S. Crowder - ----------------------------------------- (Printed Name) EX-10.23 6 dex1023.txt EXHIBIT 10.23 Exhibit 10.23 MOHEGAN SUN EXECUTIVE EMPLOYMENT AGREEMENT This is an employment agreement which we will hereinafter refer to simply as the "Agreement," which I, Robert Soper, of Colchester, Ct. voluntarily enter into on behalf of myself and my heirs, executors, administrators and assigns with my employer, MOHEGAN TRIBAL GAMING AUTHORITY, acting on behalf of its affiliates, successors, or assigns (the "MTGA") through its President/Chief Executive Officer (President/CEO") on this the 4th day of October 2001. WHEREAS, the MTGA is an instrumentality of the Mohegan Tribe of Indians of Connecticut, a federally recognized Indian tribe, doing business as Mohegan Sun, a Class III gaming casino located on the Mohegan Reservation and operated under the authority of the National Indian Gaming Commission and the Indian Gaming Regulatory Act and pursuant to a Compact with the State of Connecticut; and WHEREAS, as an instrumentality of the Mohegan Tribe of Indians of Connecticut, the MTGA is a sovereign Indian tribal entity that is immune from unconsented suit; and WHEREAS, the MTGA is willing to waive its sovereign immunity for the purposes and to the extent set forth herein, in consideration for my agreement to perform my obligations and duties as an employee of the MTGA as such obligations and duties may be established, modified, or assigned by the President/CEO of the MTGA (or his authorized designee); and WHEREAS, the MTGA acts with respect to its employees exclusively through its President/CEO, in whom is vested sole legal authority to make decisions with respect to my employment, the continuation and/or termination of my employment, and the terms and conditions of my employment; THE MTGA AND I THEREFORE, in consideration of my employment by the MTGA after the date of this Agreement and the additional consideration set forth in Paragraph 3 of this Agreement, which I acknowledge to be good an sufficient, set forth our agreement and understanding with respect to my obligations as an employee, as follows: 1. DEFINITIONS. As used in the Agreement: (a) "MTGA" means the Mohegan Tribal Gaming Authority, its successors and assigns, and any organizations or businesses controlled by it. (b) "Conflicting Organization" means me individually and/or in affiliation with any person, group of persons, entity or organization which is engaged in or is about to become engaged in the design, development, administration, operation or marketing of a gaming casino in competition with the MTGA. (c) "Executive Assignment" means any and all duties, assignments, titles, roles or obligations that I am expected to perform consistent with and in furtherance of the MTGA's business objectives. (d) "Base Salary" means my regular salary as established by the President/CEO and paid in regular periodic installments, subject to any deductions required by applicable law, and does not include any bonuses or additional compensation of any kind. (e) "Non-Compete Area" means the States of Connecticut, Rhode Island, Massachusetts, and New York. 2. MY COVENANTS (a) I will not, without express prior written permission of the President/CEO of the MTGA, during my employment by the MTGA and for a period of twelve (12) months following there termination of that employment: (i) directly or indirectly engage in the gaming industry within the Non-Compete Area; (ii) contact for the purpose of soliciting business any person or entity who was at any time a patron of or supplier or vendor to the MTGA: (iii) perform services of any kind for any person or entity that was at any time a patron of or vendor or supplier to the MTGA; (iv) contact any other employee of the MTGA for the purpose of recruiting such other employee for employment, directly or indirectly, for another employer. (b) I also covenant and agree that in the event that I voluntarily terminate my employment by resignation, I shall deliver written notice of my intention to terminate my employment sixty (60) days in advance of my termination date to the President/CEO. I understand and acknowledge that if I exercise my right to terminate my employment, my covenants not to compete remain in full force and effect for the duration and within the Non-Compete area set forth herein. (c) I acknowledge that my skills are transferable or applicable to industries and entities which are not in competition with the MTGA and/or that I may engage in the gaming industry outside the Non-Compete area, so that my covenants against competition with the MTGA will not prevent me from providing for myself and my family. I understand that I may make written request to the President/CEO of the MTGA for a waiver or any of the provisions of this Paragraph, and that the decision of the President/CEO in response to any such request for waiver shall be final and shall not be subject to an appeal or review in any forum. 3. CONSIDERATION In consideration for my obligation and undertakings herein, expressly including my covenant not to compete with the MTGA (a) The MTGA shall, upon the final execution of this Agreement by me and by the President/CEO, increase my Base Salary by 5 percent to $178,500.60; (b) I understand that if I voluntarily terminate my employment by resignation and give the written notice required by Paragraph 2(b), the MTGA shall continue to pay my Base Salary from the date of my notice of resignation through and including the sixtieth (60th) calendar day following my delivery of my resignation notice, so long as I remain fully in compliance with all of my other covenants under this Agreement. (c) If the MTGA exercises its right to terminate my employment at its discretion pursuant to Paragraph 4(a) and without "cause" as set forth in Paragraph 4(b), then the MTGA shall pay me: (i) my Base Salary in regular installments at the same Base Salary rate as was in effect at the date of my termination for a period of one calendar year from the date of my termination, and (ii) a lump sum in the amount of twenty five thousand dollars ($25,000.00) for relocation expenses subject to all deductions required by applicable law. I hereby acknowledge that the foregoing represents good and sufficient consideration to which I am not otherwise entitled so as to assure that this agreement may be enforced against me in the event of my breach. 4. TERMINATION (a) Termination At Will I understand, acknowledge and agree that my employment is "at will," in that either I or the MTGA, independently, can terminate my employment for any reason or for no reason, at any time, with or without notice, subject only to the terms and limitations of this Agreement. If I terminate my employment by voluntary resignation and provide written notice pursuant to Paragraph 2(b), I may, unless I am otherwise disqualified by my breach of other terms of this Agreement, receive the benefits set forth in Paragraph 3(b). If the MTGA terminates my employment at its discretion and without "cause" as described more fully below, the MTGA shall pay me the benefits set forth in Paragraph 3(c). (b) Termination for Cause I acknowledge and agree that the MTGA may terminate this Agreement for cause, and that in the event of a termination for cause, the MTGA shall have no obligation to pay me any of the benefits described in Paragraph 3(c) or any other benefit except that required by applicable law. I understand that cause for termination includes, but is not limited to: o My conviction of a criminal offense; o My violation of Mohegan Sun policies, including, but not limited to, my violation of the standards for personal conduct set forth in Mohegan Sun Policy #27(as amended); o My breach of my covenants under this Agreement, including my covenants not to compete; o My aiding, assisting, or abetting any other person to breach a covenant not to compete; o Suspension or revocation of my gaming license; o My engagement, directly or indirectly, in a conflict of interest; o My failure or refusal to perform my Executive Assignment; or o Other serious misconduct by me. I understand that the foregoing is illustrative of grounds for my termination for cause, and is not an exclusive or exhaustive list. I understand that I have a right to a rudimentary hearing prior to the termination of my employment for cause, at which hearing I shall be afforded an opportunity to present reasons to the President/CEO or his designee why the termination should not be imposed. However, I understand that any such hearing shall be subject to such limitations in time and scope that the MTGA may impose, and that I may obtain a review of the termination decision pursuant to the "Remedies" set forth in this Agreement. (c) Confidentiality of MTGA Records I agree that all records, material and information obtained by me in the course of my employment with the MTGA shall at all times be treated and maintained in confidence and shall remain the exclusive property of the MTGA during and following my employment with the MTGA. I agree that I shall at all times adhere to all policies, standards and procedures as established by the MTGA for protecting the confidentiality of information and records, including but not limited to trade secrets. (d) Return of MTGA Documents Upon Termination Upon termination of my employment with the MTGA, I will return to and leave with the MTGA all documents, records and notebooks concerning the business of the MTGA, including copies thereof, then in my actual or constructive possession, whether prepared by me or by others, and I will not duplicate such materials for my own use or the use of another person, corporation or entity at any time, either during or following my employment. 5. REMEDIES. (a) I recognize that if I violate the covenants and undertakings of this Agreement I may cause the MTGA irreparable injury and damage. Therefore, the MTGA and I agree that, if I violate this Agreement, the MTGA may seek to enjoin my actions which are in breach of this Agreement and that the MTGA is entitled to recover from me all of its reasonable costs and expenses, including reasonable attorney's fees, incurred by or on behalf of the MTGA in the enforcement of this Agreement or any part thereof and in its investigation of my violation of this Agreement, as well as any damages that may be proven to the satisfaction of a court of competent jurisdiction. (b) I understand that the MTGA may disclose this Agreement to any entity with whom I may become affiliated or employed following the termination of my employment with and by the MTGA. (c) I understand that the Mohegan Tribe of Indians of Connecticut and the MTGA have established the Mohegan Gaming Disputes Court on the Mohegan Reservation. I consent to the exercise of personal jurisdiction over me by the Mohegan Gaming Disputes Court. By: /s/ William Velardo 2-14-02 ------------------------------ ----------------- William Velardo, President/CEO Date /s/ Robert Soper 2-15-02 - --------------------------------- ----------------- Employee Date Robert Soper - --------------------------------- (Printed Name) EX-12.1 7 dex121.txt EXHIBIT 12.1 Exhibit 12.1 MOHEGAN TRIBAL GAMING AUTHORITY RATIO OF EARNINGS TO FIXED CHARGES
Fiscal Years Ended September 30, 2001 2000 1999 1998 1997(1) -------- -------- -------- -------- -------- (in thousands, except ratios) Income from continuing operations $214,532 $146,608 $ 320 $ 88,148 $ 39,374 Amortization of capitalized interest 794 794 794 794 794 Fixed charges 65,626 50,904 58,442 51,055 46,327 Capitalized interest (40,715) (9,880) (534) -- -- -------- -------- -------- -------- -------- Earnings $240,237 $188,426 $ 59,022 $139,997 $ 86,495 ======== ======== ======== ======== ======== Interest expense $ 20,375 $ 37,799 $ 55,595 $ 50,172 $ 45,095 Capitalized interest 40,715 9,880 534 -- -- Amortization of financing fees 4,536 3,225 2,313 883 1,232 -------- -------- -------- -------- -------- Total Fixed Charges $ 65,626 $ 50,904 $ 58,442 $ 51,055 $ 46,327 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 3.66x 3.70x 1.01x 2.74x 1.87x ======== ======== ======== ======== ========
____________________ (1) The Authority commenced operations at Mohegan Sun on October 12, 1996. EX-99.1 8 dex991.txt EXHIBIT 99.1 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 Officer of the Mohegan Tribal Gaming Authority (the "Authority"), hereby certifies that, to his knowledge, on the date hereof: (a) the Annual Report on Form 10-K/A of the Authority for the Fiscal Year Ended September 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 EX-99.2 9 dex992.txt EXHIBIT 99.2 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 Annual Report on Form 10-K/A of the Authority for the Fiscal Year Ended September 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 -----END PRIVACY-ENHANCED MESSAGE-----