<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period___________________ to _________________________ .
Commission file number: 033-80655
MOHEGAN TRIBAL GAMING AUTHORITY
(Exact name of Registrant as specified in its charter)
N/A 06-1436334
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
Mohegan Sun Boulevard, Uncasville, CT 06382
(Address of principal executive offices) (Zip Code)
(860)204-7171
(Registrant's telephone number, including area code)
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q, continued
Indicate by check mark whether the Registrants (1) have filed all reports
required to 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) have been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
Total number of pages in this report: 20
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
INDEX TO FORM 10-Q
PART I -- FINANCIAL INFORMATION Page
ITEM 1 -- Financial Statements Number
-------
Review Report of Independent Public Accountants 1
Financial Information 2
Condensed Balance Sheets of Mohegan Tribal Gaming Authority as of
June 30, 1997 (unaudited) and September 30, 1996. 3
Condensed Statement of Income of Mohegan Tribal Gaming Authority for
the Three Months Ended June 30, 1997, and for the Period October 12, 1996
(date of commencement of operations), through June 30, 1997 (unaudited). 4
Condensed Statement of Capital of Mohegan Tribal Gaming Authority for the
Period October 12, 1996 (date of commencement of operations) through
June 30, 1997 (unaudited). 5
Condensed Statement of Cash Flow of Mohegan Tribal Gaming Authority
for the Period October 12, 1996 (date of commencement of operations),
through June 30, 1997 (unaudited). 6
Notes to Condensed Financial Statements of Mohegan Tribal Gaming 7-11
Authority.
ITEM 2 -- Management's Discussion and Analysis of Financial Condition 12-18
and Results of Operations.
PART II -- OTHER INFORMATION
ITEM 1 -- Legal Proceedings 19
ITEM 2 -- Changes in Securities 19
ITEM 3 -- Defaults upon Senior Securities 19
ITEM 4 -- Submission of Matters to a Vote of Security Holders 19
ITEM 5 -- Other Information 19
ITEM 6 -- Exhibits and Reports on Form 8-K 19
Signatures - Mohegan Tribal Gaming Authority 20
<PAGE>
[LETTERHEAD]
REVIEW REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Mohegan Tribal Gaming Authority:
We have reviewed the accompanying condensed balance sheet of Mohegan Tribal
Gaming Authority ("Authority") as of June 30, 1997, and the related condensed
statements of income and capital for the three months ended June 30, 1997, and
for the period October 12, 1996 (date of commencement of operations) through
June 30, 1997, and the related condensed statements of cash flows for the period
October 12, 1996 (date of commencement of operations), through June 30, 1997.
These condensed financial statements are the responsibility of the Authority's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the condensed balance sheet of Mohegan Tribal Gaming Authority as of
September 30, 1996, and the related cash flow for the year then ended (not
presented herein), and, in our report dated November 27, 1996, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed balance sheet of Mohegan
Tribal Gaming Authority as of September 30, 1996, is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
/s/ Arthur Andersen LLP
Hartford, Connecticut
August 4, 1997
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited condensed financial information as of June 30, 1997, and for the
three-month period ended June 30, 1997, included in this report was reviewed by
Arthur Andersen LLP, independent public accountants, in accordance with the
professional standards and procedures established for such reviews by the
American Institute of Certified Public Accountants.
2
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, SEPTEMBER 30,
1997 1996
---------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $36,233 $7,437
Restricted cash 27,952 5,100
Receivables, net 1,911 -
Inventories 4,417 819
Other current assets 1,238 8,035
-------- -------
Total current assets 71,751 21,391
NON-CURRENT ASSETS:
Capitalized property and equipment, net 286,294 264,918
Other assets, net 14,360 21,172
-------- --------
Total assets $372,405 $307,481
-------- --------
-------- --------
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
Current maturities of long-term debt
and line of credit $ 9,805 $4,999
Accounts payable and accrued expenses 41,478 44,250
Accrued interest payable 19,674 15,232
-------- --------
Total current liabilities 70,957 64,481
NON-CURRENT LIABILITIES:
Long-term debt, net of current maturities 291,653 243,000
-------- --------
Total liabilities 362,610 307,481
-------- --------
CAPITAL:
Total capital 9,795 -
-------- --------
Total liabilities and capital $372,405 $307,481
-------- --------
-------- --------
The accompanying accountants' review report and notes to
financial statements should be read in
conjunction with these financial statements
3
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE PERIOD OCTOBER 12, 1996
MONTHS ENDED (DATE OF COMMENCEMENT OF OPERATIONS)
JUNE 30, 1997 THROUGH JUNE 30, 1997
-------------- ------------------------------------
<S> <C> <C>
REVENUES:
Gaming $116,960 $314,872
Food and beverage 12,272 33,549
Other 4,413 10,315
--------- ----------
Gross revenues 133,645 358,736
Less - Promotional allowances (10,531) (25,593)
--------- ----------
Net revenues 123,114 333,143
--------- ----------
COST AND EXPENSES:
Gaming 55,108 149,423
Loss from bingo operations 230 2,043
Food and beverage 5,460 18,207
General and administration 23,834 66,732
Depreciation and amortization 7,683 22,995
Management fee 6,608 13,812
Other 2,512 7,280
--------- ----------
Total costs and expenses 101,435 280,492
--------- ----------
Income from operations 21,679 52,651
--------- ----------
NONOPERATING INCOME AND
(EXPENSES):
Interest and other income 464 1,204
Interest expense (11,800) (33,186)
--------- ----------
(11,336) (31,982)
--------- ----------
Net income $10,343 $20,669
--------- ----------
--------- ----------
</TABLE>
The accompanying accountants' review report and notes to
financial statements should be read in
conjunction with these financial statements
4
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED STATEMENT OF CAPITAL
(UNAUDITED)
(IN THOUSANDS)
FOR THE PERIOD OCTOBER 12, 1996
(DATE OF COMMENCEMENT OF OPERATIONS)
CAPITAL THROUGH JUNE 30, 1997
- ------- ------------------------------------
Balance, October 12, 1996 $ -
Net income 20,669
Distributions to Tribe
(10,874)
-----------
Balance, June 30, 1997
$ 9,795
-----------
-----------
The accompanying accountants' review report and notes to
financial statements should be read in
conjunction with these financial statements
5
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED STATEMENT OF CASH FLOW
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD OCTOBER 12, 1996
(DATE OF COMMENCEMENT OF OPERATIONS)
THROUGH JUNE 30, 1997
-------------------------------------
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $20,669
Adjustments to reconcile net income to
net cash flow provided by operating activities-
Depreciation and amortization 22,995
Provision for losses on receivables 180
Changes in operating assets and liabilities
Increase in receivables and other current assets (5,900)
Increase in accounts payable and accrued expenses 38,848
Decrease in construction payable (37,178)
--------
Net cash flow provided by operating activities 39,614
--------
CASH FLOW USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (30,551)
--------
Net cash flow used in investing activities (30,551)
--------
CASH FLOW FROM FINANCING ACTIVITIES:
Distributions to Tribe (10,874)
Increase in short-term borrowings 7,056
Proceeds from equipment financing 40,391
Additional borrowing from Secured Completion Guarantee 23,000
Payments on current maturities of long-term debt (16,988)
--------
Net cash flow provided by financing activities 42,585
--------
Net increase in cash and cash equivalents 51,648
Cash and Cash Equivalents at October 12, 1996 12,537
--------
Cash and Cash Equivalents at June 30, 1997 $64,185
--------
--------
Cash Paid for Interest $26,535
--------
--------
</TABLE>
The accompanying accountants' review report and notes to
financial statements should be read in
conjunction with these financial statements
6
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
BASIS OF PRESENTATION:
The Mohegan Tribal Gaming Authority (the "Authority"), established on July 15,
1995, is an instrumentality of the Mohegan Tribe of Indians of Connecticut (the
"Tribe"). The Authority commenced operation of the gaming and entertainment
facility (the "Mohegan Sun") on October 12, 1996.
Prior to October 12, 1996, the Authority was classified as a Development Stage
enterprise as defined by Statement of Financial Accounting Standards No. 7.
The Authority has engaged Trading Cove Associates ("TCA") to manage the
development, construction and operation of the Mohegan Sun. TCA is 50% owned by
Sun Cove Ltd., an affiliate of Sun International Hotels Limited ("Sun
International"), and 50% owned by Waterford Gaming, LLC.
The condensed financial statements have been prepared in accordance with the
accounting policies described in the Authority's 1996 Annual Report on Form 10-K
and should be read in conjunction with the Notes to Condensed Financial
Statements which appear in that report. The condensed Balance Sheet at
September 30, 1996, contained herein was derived from audited financial
statements, but does not include all disclosures contained in the Form 10-K and
applicable under generally accepted accounting principles.
Certain amounts in the condensed financial statements have been reclassified.
The reclassification has no effect on net income.
In the opinion of the Authority, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim periods have been included. The results reflected in the condensed
financial statements for the third quarter of 1997 are not necessarily
indicative of expected results for the full year, as the casino industry in
Connecticut is seasonal in nature.
The Authority's operation of a casino in Connecticut is subject to significant
regulatory controls which affect virtually all of its operations.
2. LONG-TERM DEBT:
Long-term debt consists of the following:
June 30, September 30,
1997 1996
-------- -------------
(000's) (000's)
Senior Secured Notes (A) $175,000 $175,000
Subordinated Notes (B) 90,000 67,000
Lines of Credit (working capital) (C) 650 4,749
Equipment Financing (D) 35,808 -
Other - 1,250
-------- ---------
301,458 247,999
Less - Current Maturities 9,805 4,999
-------- ---------
$291,653 $243,000
-------- --------
-------- --------
7
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
2. LONG-TERM DEBT CONTINUED:
A. On September 29, 1995, the Authority issued $175 million in Senior Secured
Notes due 2002 (the "Senior Notes") with fixed interest payable at a rate of
13.50% per annum and Cash Flow Participation Interest, as defined, in an
aggregate amount of 5.0% of the Authority's Cash Flow up to a limit, during any
two consecutive semi-annual periods, ending September 30, of $250 million of the
Authority's Cash Flow. Fixed interest is payable semi-annually and commenced
May 15, 1996. The aggregate amount of Cash Flow Participation Interest payable
will be reduced pro rata for reductions in outstanding principal amount of
Senior Notes. The payment of Cash Flow Participation Interest may be deferred
if the Authority's Fixed Charge Coverage Ratio is less than 2 to 1 for the four
prior consecutive quarters. The Senior Notes are redeemable at set prices as
set forth in the Senior Notes after November 15, 1999, at the option of the
Authority. Upon the occurrence of certain events (as specified in the Indenture
for the Senior Notes) each holder of Senior Notes can require the Authority to
repurchase the notes at prices specified in the Senior Notes. Beginning with
the fiscal year ending September 30, 1997, the Authority will be required, under
certain circumstances, to offer to purchase, at set prices, certain amounts of
Senior Notes then outstanding.
B. The Authority obtained $90.0 million of subordinated financing from Sun
International and Waterford Gaming LLC in the form of notes (the "Subordinated
Notes"). The Authority issued $20.0 million of Subordinated Notes to each of
Sun International and Waterford Gaming LLC, which notes bear interest at 15.0%
per year, payable semi-annually. Interest on the Subordinated Notes is being
deferred and will not be paid until at least half of the Senior Notes have been
retired (or offered to be retired, pursuant to the terms of the Indenture
governing the Senior Notes) and certain other conditions have been fulfilled.
The Authority also issued $50.0 million in Subordinated Notes to Sun
International evidencing draws made by the Authority under the $50.0 million
secured completion guarantee provided by Sun International (the "Secured
Completion Guarantee"). Each Subordinated Note issued under the Secured
Completion Guarantee bears interest at the rate per annum then most recently
announced by Chemical Bank of New York as its prime rate plus 1%, which shall be
set and revised at intervals of six months. All Subordinated Notes are due
2003; however, principal cannot be paid until the Senior Notes have been paid in
full, unless certain conditions are met.
8
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
2. LONG-TERM DEBT CONTINUED:
C. The Authority has obtained two lines of credit totaling $13.2 million. The
line of credit for $12.5 million, obtained from Fleet National Bank, provided
for interest based on various floating indexes (9.50% as of June 30, 1997). As
of June 30, 1997 there is no outstanding working capital under the Fleet
National Bank line of credit. The second line of credit for $650,000 was
obtained from Norwich Savings Society and bears interest at a rate of 7.75%. As
of June 30, 1997, $650,000 was outstanding under the Norwich Savings Society
line of credit. These amounts were used for working capital purposes.
D. The Authority has received gaming equipment financing of $23.0 million from
CIT Group/Equipment Financing, Inc. ("CIT Group"). The terms of this agreement
provide that borrowings bear interest of 2% over prime, commencing from the date
of delivery of the equipment. Principal payments will be over 48 months and
commenced December 1996.
The Authority has received equipment financing of $9.0 million from the CIT
Group and Phoenixcor, Inc. ("Phoenixcor"). The CIT Group agreement provides for
funding of $5.0 million with an interest rate of 9.17%. Principal payments will
be over 48 months and commenced December 1996. The Phoenixcor agreement
provides for funding of $4.0 million with an interest rate of 9.35%. Principal
payments will be over 48 months and commenced November 1996.
The Authority has received equipment financing of $5.1 million from PDS
Financial Corporation. The terms of this agreement provide that borrowings bear
interest of 12%. Principal payments will be over 48 months and commenced
January 1997.
The Authority has received equipment financing of $3.0 million from Fleet
Capital Corporation. The agreement provides that borrowings bear interest of
9.30%. Principal payments will be made over 48 months and will commence July
1997.
The Authority received working capital financing of $500,000 from New Horizon
Kids Quest IV, Inc. The agreement provides for an interest rate of 2% over
prime. Principal payments will be over 36 months, which commenced October 1996.
9
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
3. OPERATING LEASES:
The Authority has entered into numerous operating leases, the most significant
of which are as follows:
The PDS Financial Corporation has two operating leases for equipment with the
Authority. The first agreement, with a fixed monthly payment of $253,000,
commenced October 1996. The second lease agreement, with a fixed monthly
payment of $95,000, commenced November 1996. Both agreements require lease
payments over 48 months.
The third agreement with Pitney Bowes Credit Corp., with a fixed monthly payment
of $114,000, is over 42 months and commenced January 1997.
The fourth agreement with New England Capital Corporation, with a fixed monthly
payment of $42,000, is over 48 months and commenced March 1997.
Fleet Capital Corporation holds the fifth and sixth operating lease agreements
for equipment with the Authority. The fifth agreement contains a fixed monthly
payment of $88,000. The sixth agreement contains a fixed monthly payment of
$58,000. Both agreements require lease payments over 36 months and commenced in
June 1997.
4. COMMITMENTS:
The Tribe's Compact with the State of Connecticut stipulates that a portion
of the revenues earned on slot machines must be paid to the State of
Connecticut ("Slot Win contribution"). For each twelve-month period
commencing July 1, 1995, the minimum contribution of the Tribe to the State
of Connecticut 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) $80,000,000.
10
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
4. COMMITMENTS CONTINUED:
These payments will not be required if the State of Connecticut legalizes any
other gaming operations with slot machines to be operated in the State of
Connecticut (other than on certain Indian lands). The Authority has reflected
$57,644,000 of gaming expense in its financial statements for the required Slot
Win Contribution payments to the State of Connecticut for the period from
October 12, 1996 through June 30, 1997. As Mohegan Sun commenced operations in
October 1996, the Minimum Contribution for the State fiscal year ending June 30,
1997 has been prorated in accordance with the Tribe's Compact with the State of
Connecticut. Slot Win Contribution expense to the State of Connecticut for the
quarter ended June 30, 1997, totaled $22,455,000.
5. RELATED PARTY TRANSACTIONS:
The Tribe provides Governmental and Administrative services to the Authority in
conjunction with the operation of Mohegan Sun. For the period October 12, 1996
through June 30, 1997, the Authority incurred $5,540,000 of expense for such
services of which $5,518,000 was paid as of June 30, 1997. The Authority
incurred third quarterservices of $2,256,000, of which $2,234,000 was paid as of
June 30, 1997.
In addition, the Tribe, through one of its limited liability companies, has
entered into various land lease agreements with the Authority. Amounts paid by
the Authority under these agreements to the limited liability companies were
$140,000 for the period October 12, 1996 through June 30, 1997. The Authority
paid $66,000 for the third quarter ended June 30, 1997.
11
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
RESULTS OF OPERATIONS
CAPITAL RESOURCES, CAPITAL SPENDING AND LIQUIDITY
The Mohegan Sun commenced operations on October 12, 1996. During the period
from October 12 through June 30, 1997, cash provided by operations was
$76,792,000. On November 15, 1996, Mohegan Sun made an interest payment of
$11,813,000 to the holders of the Senior Notes. This interest payment consisted
of $9,304,000, which was funded from the Authority's pre-opening construction
account (funds available before operations commenced on October 12, 1996) and
$2,509,000 which was funded from the operational cash flow. On May 15, 1997
Mohegan Sun made a second interest payment to the holders of the Senior Notes in
the amount of $14,517,000 which consisted of $11,813,000 Senior Note interest
and $2,704,000 for the 5% cash flow participation interest which was funded from
operational cash flow.
The Authority historically has funded its operations through the issuance of
debt. On September 29, 1995, the Authority issued $175 million of Senior
Secured Notes due 2002 (the "Senior Notes") with fixed interest payable at a
rate of 13.5% per annum and cash flow participation interest equal to 5.0% of
the Authority's cash flow up to a limit, during any two consecutive semi-annual
periods ending on September 30, of $250 million of the Authority's cash flow.
Fixed interest is payable semi-annually on May 15 and November 15. The Senior
Notes are redeemable after November 15, 1999, at the option of the Authority, at
prices set forth in the Senior Notes. Upon the occurrence of certain events (as
specified in the Indenture for the Senior Notes), each holder of Senior Notes
can require the Authority to repurchase the Notes at prices specified in the
Senior Notes. Beginning with the current fiscal year, the Authority will be
required, under certain circumstances, to offer to purchase, at set prices,
certain amounts of Senior Notes then outstanding. The Indenture governing the
Senior Notes contains certain convenants restricting the Authority's ability to,
among other things, make certain cash payments, incur liens or additional
indebtedness, sell assets, lease property, enter into transactions with
affiliates or effect any merger, consolidation or any transfer or sale of
substantially all of its assets. The Authority believes it currently is in
compliance with all of the convenants and restrictions contained in the
Indenture.
The Authority obtained $90.0 million of subordinated financing from Sun
International and Waterford Gaming LLC in the form of notes (the "Subordinated
Notes"). On September 29, 1995, the Authority issued $40.0 million of
Subordinated Notes to Sun International. Subsequent to issuance, Sun
International resold fifty percent of such Subordinated Notes, in a principal
amount equal to $20.0 million, to Waterford Gaming LLC. Such Subordinated Notes
bear interest at 15.0% per year, payable semi-annually. Interest on the
Subordinated Notes is being deferred and will not be paid until at least half of
the Senior Notes have been retired (or offered to be retired, pursuant to the
terms of the Indenture governing the Senior Notes) and certain other conditions
12
<PAGE>
RESULTS OF OPERATIONS
CAPITAL RESOURCES, CAPITAL SPENDING AND LIQUIDITY continued
have been fulfilled. The Authority also issued $50.0 million in Subordinated
Notes to Sun International evidencing draws made by the Authority under the
$50.0 million secured completion guarantee provided by Sun International (the
"Secured Completion Guarantee") for completion of construction of the
facility. Each Subordinated Note issued under the Secured Completion
Guarantee bears interest at the rate per annum then most recently announced
by Chemical Bank of New York as its prime rate plus 1%, which is set and
revised at intervals of six months. All Subordinated Notes are due 2003;
however, principal cannot be paid until the Senior Notes have been paid in
full, unless certain conditions are met.
The Authority's capital expenditures associated with the development of the
facility totaled $67,729,000 for the period from October 12, 1996, through June
30, 1997. Including land and capitalized interest, the Mohegan Sun is expected
to cost approximately $305 million. As of June 30, 1997, the Authority had
incurred expenditures of approximately $301.2 million with the development of
the facility. The Authority may not obligate itself to pay development costs in
excess of $325 million without the further consent of the National Indian Gaming
Commission (the "NIGC"). In the event final development costs exceed $325
million, the Authority would require additional consent of the NIGC, and there
can be no assurances such consent would be given. Based upon its review of the
budget and the open cost items, the Authority believes that the total cost of
developing, constructing, equipping and opening the Mohegan Sun will not exceed
the sum of the proceeds from the sale of the Senior Notes and the Subordinated
Notes, amounts advanced under the Secured Completion Guarantee, the Equipment
Financing and the Working Capital Financing and cash flow from operations.
However, there is no assurance that such costs will not exceed budgeted amounts.
Of the Authority's total capital expenditures, those for post-opening
enhancement projects at the facility totaled $7,382,000 for the period from
October 12, 1996, through June 30, 1997. Capital spending will increase over
the last quarter of the fiscal year. The additional expenditures will represent
capital projects at the facility, that in the Authority's opinion, will further
enhance the guest's experience at the facility. The Authority believes that
borrowings under its existing financing agreements and cash flow from operations
will be sufficient to fund its currently planned capital expenditures.
The Authority had a $12.5 million line of credit which expires on September 24,
1997. Borrowings under this line incur interest at various rates. As of
June 30, 1997, there is no outstanding working capital under the Fleet
National Bank line of credit. The Authority also has a $650,000 line of
credit which expires on July 31, 1997. As of June 30, 1997, approximately
$650,000 was outstanding under this line at an interest rate of 7.75%. The
funds were used for the initial working capital needs in conjunction with the
opening of the facility.
13
<PAGE>
RESULTS OF OPERATIONS
CAPITAL RESOURCES, CAPITAL SPENDING AND LIQUIDITY continued
The Authority entered into equipment financing arrangements with several finance
companies, under varying terms. As of June 30, 1997, the Authority had
outstanding borrowings under these arrangements of $20.0 million, at an interest
rate of 2% over prime; $4.4 million, at an interest rate of 9.17%; $3.4 million,
at an interest rate of 8.95%; $4.6 million at an interest rate of 12.0%,
$408,000 at an interest rate of 2% over prime and $3.0 million at an interest
rate of 9.3%. All of such amounts are being repaid by the Authority over a
period from 36 to 48 months.
The Authority believes that existing cash balances and operating cash flow will
provide the Authority with sufficient resources to meet its existing debt
obligations and capital expenditure requirements. However, the ability of the
Authority to meet its debt service requirements will be entirely dependent upon
future successful performance of the Mohegan Sun, which is subject to financial,
economic, political, competitive, and other factors, many of which are beyond
the Authority's control.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Form 10-Q
filed by the Authority with the Securities and Exchange Commission contains
statements that are forward-looking, such as statements relating to business
development activities, ability to meet existing debt obligations, as well as
other capital spending, financing sources and the effects of regulation
(including gaming and tax regulation) and competition. Such forward-looking
information involves important risks and uncertainties that could significantly
affect anticipated results in the future and, accordingly, such results may
differ from those expressed in any forward-looking statements made by or on
behalf of the Authority. These risks and uncertainties include, but are not
limited to, those relating to development and construction activities,
dependence on existing management, leverage and debt service (including
sensitivity to fluctuations in interest rates), competition for gaming patrons
in the northeastern United States, domestic or global economic conditions,
changes in federal tax laws or the administration of such laws and changes in
gaming laws or regulations (including the legalization of gaming in certain
jurisdictions).
14
<PAGE>
OPERATING RESULTS FOR THE THREE MONTHS ENDING JUNE 30, 1997-
OPERATING REVENUES AND EXPENSES:
Mohegan Sun has 150,000 square feet of gaming space, 2,962 slot machines and 186
gaming tables, dining, entertainment, and retail shopping. The facility had
5,270 employees as of June 30, 1997. Mohegan Sun is approximately a two hour
drive from New York City and Boston.
Gaming revenues were $116,960,000 for the three months ending June 30, 1997.
The third quarter reflects 91 days of gaming activity.
Slot revenues were $84,481,000 for the three months ending June 30, 1997 and
reflects a win per unit per day of $328 for the third quarter.
Table game revenues were $32,479,000 for the three months ending June 30, 1997.
Other revenues were $16,685,000 for the three months ending June 30, 1997.
Other revenues primarily represent revenues from food and beverage and retail
operations.
Gaming costs and expenses were $55,108,000 for the three months ending June 30,
1997, which reflects costs and expenses associated with table games, slot
operations, slot win contribution expense and promotional allowances given to
patrons.
Under its Tribal-State Compact, the Authority is required to pay Slot Win
contributions to the State of Connecticut equal to the lesser of (i) 30% of
gross operating revenues derived from slot machines during the State's fiscal
year, or (ii) the greater of 25% of gross operating revenues from such devices
during the State's fiscal year or $80,000,000. For the three months ending
June 30, 1997, $22,455,000 was recorded as gaming expenses.
Loss from Bingo operations of $230,000 reflects the operating results, excluding
depreciation, amortization and interest of $91,000 of the Mohegan Sun's Bingo
operations. Bingo is operated by the Mohegan Tribal Gaming Authority and is not
managed by Trading Cove Associates.
Depreciation and amortization includes amortization of $4,564,000 of pre-opening
costs associated with the development of Mohegan Sun.
Management fee reflects Trading Cove Associates management fee associated with
net revenue of Mohegan Sun before bingo operations, which is operated directly
by the Mohegan Tribal Gaming Authority and not managed by Trading Cove
Associates. For the three months ending June 30, 1997, the management fee
incurred was $6,608,000, of which $4,466,000 was paid as of June 30, 1997.
15
<PAGE>
OPERATING RESULTS FOR THE THREE MONTHS ENDING JUNE 30, 1997-
OPERATING REVENUES AND EXPENSES CONTINUED
Income from operations was $21,679,000 for the three months ending June 30,
1997. Earnings before depreciation and interest for the third quarter were
$29,362,000.
Net interest expense was $11,336,000 for the three months ending June 30, 1997.
The interest expense reflects interest on working capital debt, both fixed and
participating interest on the Senior Secured Notes, and interest on the
Equipment Financing and Subordinated Notes.
16
<PAGE>
OPERATING RESULTS FOR THE PERIOD OCTOBER 12, 1996 (COMMENCEMENT OF OPERATIONS)
THROUGH JUNE 30, 1997-
OPERATING REVENUES AND EXPENSES
Gaming revenues were $314,872,000 for the period October 12, 1996, through
June 30, 1997. The fiscal period ending June 30, 1997, reflects 265 days of
gaming activity. Table games and slot machines were in operation for 262 and
265 days respectively for the fiscal period ending June 30, 1997.
Slot revenues were $222,354,000 for the period October 12, 1996, through
June 30, 1997 and reflects a win per unit per day of $314 for such period.
Table game revenues were $92,518,000 for the period October 12, 1996, through
June 30, 1997.
Other revenues were $43,864,000 for the period October 12, 1996, through June
30, 1997. Other revenues primarily represent revenues from food and beverage
and retail operations.
Gaming costs and expenses were $149,423,000 for the period October 12, 1996,
through June 30, 1997, which reflects costs and expenses associated with table
games, slot operations, slot win contribution expense and promotional allowances
given to patrons.
Under its Tribal-State Compact, the Authority is required to pay Slot Win
contributions to the State of Connecticut equal to the lesser of (i) 30% of
gross operating revenues derived from slot machines during the State's fiscal
year, or (ii) the greater of 25% of gross operating revenues from such devices
during the State's fiscal year or $80,000,000. For the period October 12, 1996,
through June 30, 1997, $57,644,000 was recorded as gaming expenses for slot win
contributions.
Loss from Bingo operations of $2,043,000 reflects the operating results,
excluding depreciation, amortization and interest of $257,000, of the Mohegan
Sun's Bingo operations. Bingo is operated by the Mohegan Tribal Gaming
Authority and not managed by Trading Cove Associates.
Depreciation and amortization includes amortization of pre-opening costs
amounting to $13,640,000 associated with the development of Mohegan Sun.
17
<PAGE>
OPERATING RESULTS FOR THE PERIOD OCTOBER 12, 1996 (COMMENCEMENT OF OPERATIONS)
THROUGH JUNE 30, 1997-
OPERATING REVENUES AND EXPENSES CONTINUED
Management fee reflects Trading Cove Associates management fee associated with
net revenue of Mohegan Sun before bingo operations, which is operated directly
by the Mohegan Tribal Gaming Authority and not managed by Trading Cove
Associates. For the period October 12, 1996, through June 30, 1997, management
fees incurred were $13,812,000 of which $11,669,000 were paid as of June 30,
1997.
Income from operations was $52,651,000 for the period October 12, 1996, through
June 30, 1997. Earnings before depreciation and interest for the period October
12, 1996 through June 30, 1997 were $75,646,000.
Net interest expense was $31,982,000 for the period October 12, 1996, through
June 30, 1997. The interest expense reflects interest on working capital debt,
both fixed and participating interest on the Senior Secured Notes, and interest
on the Equipment Financing and Subordinated Notes.
18
<PAGE>
Part II - OTHER INFORMATION:
Item I -- LEGAL PROCEEDINGS:
The Authority is involved in various legal proceedings arising in the ordinary
course of business. Additionally, the Authority is involved in two construction
related cases brought by subcontractors. In the opinion of Management, the
ultimate disposition of these matters will not have a material adverse effect on
the Authority's consolidated financial condition or results of operations.
Item 2 -- CHANGES IN SECURITIES:
None
Item 3 -- DEFAULTS UPON SENIOR SECURITIES:
None
Item 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
Item 5 -- OTHER INFORMATION:
On December 30, 1996, Jeffrey E. Hartmann was appointed Senior Vice President of
Finance and the Chief Financial Officer of the Authority. Mr. Hartmann has six
years of experience in the casino and hotel industry. Prior to joining the
Authority, Mr. Hartmann worked for Foxwoods Resort Casino from August 1991 to
December 1996, most recently as its Vice President of Finance for Foxwoods
Management Company. Mr. Hartmann was employed by Coopers and Lybrand as an
Audit Manager from 1984 to 1991. Mr. Hartmann is a certified public accountant.
Item 6 -- EXHIBITS AND REPORTS ON FORM 8-K:
a. Exhibits: 27 Financial Data Schedule for Mohegan Tribal Gaming
Authority
b. Current reports on Form 8-K: None
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOHEGAN TRIBAL GAMING AUTHORITY
Date: 8-8-97 By: /s/ William J. Velardo,
---------------------------------
William J. Velardo,
Executive Vice President
Date: 8-8-97 By: /s/ Jeffrey E. Hartmann
--------------------------------------------
Jeffrey E. Hartmann, Chief Financial Officer
and Senior Vice President of Finance
(Principal Financial and Accounting Officer)
20
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<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-12-1996
<PERIOD-END> JUN-30-1997
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