<PAGE>
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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: DECEMBER 31, 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 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
MOHEGAN SUN BOULEVARD, UNCASVILLE, CT 06382
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(860) 204-7171
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 [_]
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<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I--FINANCIAL INFORMATION
ITEM 1--Financial Statements
Review Report of Independent Public Accountants........................ 1
Condensed Balance Sheets of Mohegan Tribal Gaming Authority as of
December 31, 1997 (unaudited) and September 30, 1997.................. 2
Condensed Statements of Income of Mohegan Tribal Gaming Authority for
the Quarter Ended December 31, 1997, (unaudited) and for the Period
October 12, 1996 (date of commencement of operations), through
December 31, 1996 (unaudited)......................................... 3
Condensed Statements of Cash Flow of Mohegan Tribal Gaming Authority
for the Quarter Ended December 31, 1997 (unaudited) and for the
Quarter Ended December 31, 1996 (unaudited)........................... 4
Condensed Statements of Capital of Mohegan Tribal Gaming Authority for
the Quarter Ended December 31, 1997 (unaudited) and for the Period
October 12, 1996 (date of commencement of operations) through December
31, 1996 (unaudited).................................................. 5
Notes to Condensed Financial Statements of Mohegan Tribal Gaming
Authority............................................................. 6-9
ITEM 2--Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 10-12
PART II--OTHER INFORMATION
ITEM 1--Legal Proceedings................................................ 13
ITEM 2--Changes in Securities............................................ 13
ITEM 3--Defaults upon Senior Securities.................................. 13
ITEM 4--Submission of Matters to a Vote of Security Holders.............. 13
ITEM 5--Other Information................................................ 13
ITEM 6--Exhibits and Reports on Form 8-K................................. 13
Signatures--Mohegan Tribal Gaming Authority.............................. 14
</TABLE>
<PAGE>
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 December 31, 1997, and the related
condensed statements of income, capital and cash flows for the three months
ended December 31, 1997 and the condensed statements of income, capital and
cash flows for the period October 12, 1996 (date of commencement of
operations) through December 31, 1996. These financial statements are the
responsibility of the Authority's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with 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 balance sheet of Mohegan Tribal Gaming Authority as of
September 30, 1997 (not presented herein), and the related statement of income
for the period October 12, 1996 (date of commencement of operations) through
September 30, 1997 (not presented herein) and statements of cash flows and
capital for the year ended September 30, 1997 (not presented herein), and, in
our report dated December 11, 1997, 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, 1997, 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
January 30, 1998
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 20,060 $ 40,387
Restricted cash................................... 49,275 48,457
Receivables, net.................................. 2,140 1,140
Inventories....................................... 4,536 4,516
Other current assets.............................. 1,833 1,263
-------- --------
Total current assets............................ 77,844 95,763
NON-CURRENT ASSETS:
Property and equipment, net....................... 300,313 287,192
Pre-opening, Financing & Organization Other
assets........................................... 1,551 4,019
-------- --------
Total assets.................................... $379,708 $386,974
-------- --------
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
Line of Credit.................................... $ 650 $ 0
Current portion of capital lease obligations...... 9,439 9,200
Accounts payable and accrued expenses............. 29,870 35,985
Accrued interest payable.......................... 25,899 30,821
-------- --------
Total current liabilities....................... 65,858 76,006
NON-CURRENT LIABILITIES:
Long -term debt................................... 265,000 265,000
Capital leases, net of current portion............ 21,586 24,037
-------- --------
Total liabilities............................... 352,444 365,043
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
CAPITAL:
Total capital..................................... 27,264 21,931
-------- --------
Total liabilities and capital..................... $379,708 $386,974
======== ========
</TABLE>
The accompanying accountants' review report and
notes to financial statements should be read in
conjunction with the financial statements
2
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD OCTOBER 12 1996
FOR THE QUARTER ENDED (DATE OF COMMENCEMENT OF OPERATIONS)
DECEMBER 31, 1997 THROUGH DECEMBER 31, 1996
--------------------- ------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Gaming................................... $119,798 $90,896
Food and beverage........................ 12,596 9,620
Retail and Other......................... 10,025 3,464
-------- -------
Gross revenues........................... 142,419 103,980
Less--Promotional allowances............. (15,866) (6,968)
-------- -------
Net revenues............................. 126,553 97,012
-------- -------
COST AND EXPENSES:
Gaming................................... 56,308 43,644
Food and beverage........................ 4,940 6,561
Retail and Other......................... 6,390 4,144
Loss from bingo operations............... 113 1,322
General and administration............... 23,740 19,851
Management fee........................... 7,404 2,358
Depreciation and amortization............ 4,800 7,664
-------- -------
Total costs and expenses............... 103,695 85,544
-------- -------
Income from operations................... 22,858 11,468
-------- -------
NONOPERATING INCOME AND (EXPENSES):
Interest and other income................ 648 235
Interest expense......................... (11,778) (9,736)
-------- -------
(11,130) (9,501)
======== =======
Net income............................... $ 11,728 $ 1,967
======== =======
</TABLE>
The accompanying accountants' review report and
notes to financial statements should be read in
conjunction with the financial statements
3
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE QUARTER ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------- ---------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income........................................................ $11,728 $ 1,967
Adjustments to reconcile net
income to net cash flow provided
by operating activities:
Depreciation and amortization.................................. 4,800 7,664
Provision for losses on receivables............................ 332 19
Changes in operating assets and liabilities:
Increase (decrease) in receivables and other assets............ 534 (3,983)
(Increase) decrease in accounts payable and accrued expenses... (7,433) 20,533
------- -------
Net cash flow provided by operating activities................. 9,961 26,200
------- -------
CASH FLOW USED IN INVESTING ACTIVITIES:
Purchase of property and equipment................................ (17,909) (9,340)
Decrease in construction payable.................................. (3,604) (19,258)
------- -------
Net cash flow used in investing activities..................... (21,513) (28,598)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Distributions to Tribe............................................ (6,395) (999)
Increase in short-term borrowings................................. 650 8,094
Proceeds from equipment financing................................. 0 9,761
Payment on equipment financing.................................... (2,212) (867)
Additional borrowing from Secured Completion Guarantee............ 0 15,000
------- -------
Net cash flow (used in) provided by financing activities....... (7,957) 30,989
-------
Net (decrease) increase in cash and cash equivalents........... (19,509) 28,591
Cash and Cash Equivalents at beginning of period................. 88,844 12,537
------- -------
Cash and Cash Equivalents at end of period....................... $69,335 $41,128
======= =======
SUPPLEMENTAL DISCLOSURES:
Cash Paid during the year for interest........................... 16,700 $12,567
Debt assumed from acquisition of property........................ $ 0 $22,739
</TABLE>
The accompanying accountants' review report and
notes to financial statements should be read in
conjunction with the financial statements
4
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED STATEMENTS OF CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD OCTOBER 12, 1996
FOR THE QUARTER ENDED (DATE OF COMMENCEMENT OF OPERATIONS)
CAPITAL DECEMBER 31, 1997 THROUGH DECEMBER 31, 1996
------- --------------------- ------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Beginning Balance....... $ 21,931 $ --
Net income.............. 11,728 1,967
Distributions to Tribe.. (6,395) (999)
-------- ------
Ending Balance.......... $ 27,264 $ 968
======== ======
</TABLE>
The accompanying accountants' review report and
notes to financial statements should be read in
conjunction with the financial statements
5
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
1. 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 Tribe established the Authority with the exclusive power to
conduct and regulate gaming activities for the Tribe. Under the Indian Gaming
Regulatory Act of 1988, as amended ("IGRA"), federally recognized Indian
tribes are permitted to conduct casino gaming operations on tribal land,
subject to, among other things, the negotiation of a tribal state compact with
the affected state. The Tribe and the State of Connecticut have entered into
such a compact (the "Mohegan Compact"), which has been approved by the
Secretary of the Interior on December 14, 1994. On October 12, 1996, the
Authority opened a casino known as Mohegan Sun Casino ("Mohegan Sun").
The Authority has engaged Trading Cove Associates ("TCA") to manage the
operations of Mohegan Sun pursuant to a seven year contract (the "Management
Agreement"). TCA is 50% owned by Sun Cove Ltd., an affiliate of Sun
International Hotels Limited ("Sun International"), and 50% owned by Waterford
Gaming L.L.C.
The condensed financial statements have been prepared in accordance with the
accounting policies described in the Authority's 1997 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, 1997, contained herein was derived from audited financial
statements, but does not include all disclosures contained in the Form 10-K
and required by 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 first quarter of fiscal 1998 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 (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 AT SEPTEMBER 30, 1997
-------------------- ---------------------
<S> <C> <C>
Senior Secured Notes................. $175,000 $175,000
Subordinated Notes................... 90,000 90,000
-------- --------
$265,000 $265,000
======== ========
</TABLE>
6
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
2. LONG-TERM DEBT--(CONTINUED)
Senior Secured Notes
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
13.5% per annum and Cash Flow Participation Interest, as defined therein, in
an aggregate amount of 5% 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 the outstanding
principal amount of Senior Secured 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. The Senior Notes are redeemable after
November 15, 1999 at set prices as set forth in the Senior Secured Notes, at
the option of the Authority. Upon the occurrence of certain events (as
specified in the Indenture) each holder of Senior Secured Notes can require
the Authority to repurchase the notes at prices specified in the Indenture.
Beginning with the fiscal year ending September 30, 1997, the Authority will
be required within 120 days, under certain circumstances, to offer to
purchase, at set prices, certain amounts of Senior Secured Notes then
outstanding, under the Excess Cash Purchase Offer, as defined in the
Indenture. See Note 4 for the Excess Cash Purchase Offer made by the Authority
for the fiscal year ended September 30, 1997.
Subordinated Notes
The Authority has obtained $90 million of subordinated financing from Sun
International and Waterford Gaming L.L.C. in the form of notes ("Subordinated
Notes"). The Authority issued $20 million of Subordinated Notes to each of Sun
International and Waterford Gaming L.L.C., which notes bear interest at 15%
per year. The Authority also has issued $50 million in Subordinated Notes to
Sun International evidencing draws made by the Authority under the secured
completion guarantee provided by Sun International ("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. Interest on the Subordinated Notes is
payable semi-annually, provided, however that all such interest is deferred
and will not be paid until at least half of the Senior Secured Notes have been
retired, pursuant to the terms of the Indenture, and certain other conditions
have been fulfilled. 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. During October 1997, $2.5 million of Subordinated Notes
issued to Sun International pursuant to the Secured Completion Guarantee was
purchased by Waterford Gaming L.L.C.
Lines Of Credit
The Authority has obtained an unsecured line of credit totaling $2.5
million. The line of credit obtained from Fleet National Bank, provides for
interest based on various floating indexes. As of December 31, 1997, $650,000
was outstanding under the line of credit at an interest rate of 8.5%. The
amount was used for working capital purposes.
3. LEASES
Capital Leases
The Authority received gaming equipment financing of $23 million from CIT
Group/Equipment Financing, Inc. ("CIT Group"). The terms of this agreement
provide that borrowings bear interest of 2% over prime,
7
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
3. LEASES--(CONTINUED)
commencing from the date of delivery of the equipment. Principal payments will
be over 48 months and commenced December 1996.
The Authority received equipment financing of $9 million from the CIT Group
and Phoenixcor, Inc. ("Phoenixcor"). The CIT Group agreement provides for
funding of $5 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 million with an interest rate of 8.95%. Principal
payments will be over 48 months and commenced November 1996.
The Authority received financing of $5.1 million from PDS Financial
Corporation ("PDS"). The PDS agreement provides that borrowings bear interest
of 12%. Principal payments will be over 48 months and commenced January 1997.
The Authority received equipment financing of $3 million from Fleet Capital
Corporation ("Fleet"). The Fleet agreement provides that borrowing bear
interest of 8.75%. Principal payments will be made over 48 months and
commenced July 1997. The Fleet agreement has been assigned to Keycorp Leasing.
Operating Leases
The Authority leases various equipment under operating leases. Rent expense
under these leases for the three months ending December 31, 1997 was $2.2
million.
4. COMMITMENTS AND CONTINGENCIES
The Mohegan Compact
The Mohegan Compact 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 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) $80,000,000.
These payments will not be required if the State of Connecticut legalizes
any other gaming operations with slot machines or other commercial casino
games to be operated in the State of Connecticut (other than on certain Indian
lands). The Authority has reflected $22 million of gaming expense in its
financial statements for the Slot Win Contribution for the three months ending
December 31, 1997. At December 31, 1997, $6.8 million was owed to the State of
Connecticut for the Slot Win Contribution.
Litigation
The Authority is a defendant in certain litigation incurred in the normal
course of business. In the opinion of management, based on the advice of
counsel, the aggregate liability, if any, arising from such litigation will
not have a material adverse effect on the Authority's financial position or
results of operations.
Excess Cash Purchase Offer
Pursuant to the Indenture dated September 29, 1995 among the Authority,
First Union Bank of Connecticut and the Mohegan Tribe of Indians, the
Authority is required to make an Excess Cash Purchase offer to all
8
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
4. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Holders of the Senior Notes within 120 days of the Authority's September 30,
1997 fiscal year end. Such offer shall be equal to 50% of the Excess Cash Flow
plus 100% of the Deferred Subordinated Interest ($29.1 million for the period
ended September 30,1997).
The offer date of the Senior Note purchase will be January 28, 1998. In
accordance with the Indenture, the Authority will offer to purchase the Senior
Notes at 113.5 percent of the principal amount of the Notes plus accrued and
unpaid interest due as of the purchase date.
Pursuant to the Indenture, the purchase date shall occur no later than March
4, 1998.
5. RELATED PARTY TRANSACTIONS
The Tribe provides governmental and administrative services to the Authority
in conjunction with the operation of Mohegan Sun. For the quarter ending
December 31, 1997, the Authority incurred $1.9 million of expense for such
services of which $1.3 million was paid.
The Tribe, through one of its limited liability companies, has provided
goods to the Authority for resale at its retail location.
The Tribe, through two other limited liability companies, has entered into
various land lease agreements with the Authority for adjacent properties. The
properties are used by the Authority for access, parking and related amenities
for Mohegan Sun.
Under terms of the Management Agreement, the Authority may award service
contracts or purchase services from qualified members of the Tribe if the
costs of services are competitive in the local market.
As of December 31, 1997, 200 employees of the Authority are Mohegan tribal
members.
6. SUBSEQUENT EVENTS
On February 7, 1998, the Tribe finalized contract negotiations with TCA and
is prepared to move forward with an estimated $450 million expansion project
at Mohegan Sun.
Under the terms of a new agreement, TCA will continue to manage the existing
property under the existing management contract until December 31, 1999. On
January 1, 2000 the existing management contract with TCA will terminate and
MTGA will assume day to day management of the Mohegan Sun. As part of this
"Relinquishment Agreement" and to compensate TCA for giving up its rights
under the current agreements, the Tribe has agreed to render to TCA 5% of
gross revenues, generated from the Mohegan Sun and from the planned expansion,
beginning January 1, 2000 and ending October, 2014. The effective date under
the Relinquishment Agreement is the later of (a) the date the Authority
receives all required approvals or (b) the date the Senior Notes are
refinanced or repaid.
The Tribe has also negotiated a second agreement with TCA which will make
TCA the exclusive developer of the planned expansion of the property. Under
this "Development Agreement", TCA will oversee the planning, design, and
construction of the expansion of the property. TCA will be paid a development
fee of about $14 million under the terms of the Development Agreement. The
effective date under the Development Agreement is the first day of the first
calendar month following the later of (a) the date the Authority receives all
required approvals or (b) closing of the anticipated refinancing of certain of
the Authority's existing indebtedness, together with construction financing.
The proposed development plans include 100,000 square feet of additional
gaming space, a luxury hotel (or hotels) with approximately 1,500 rooms, a
convention/events center with seating for 10,000 patrons and 100,000 square
feet of convention space. The Tribe also plans to include additional retail
and restaurant facilities into its design. Current plans would also require
significant upgrades and additions to the facility's parking and
infrastructure systems.
9
<PAGE>
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain Forward Looking Statements
Certain information included in this Form 10-Q and other materials filed or
to be filed by the Authority with the Securities and Exchange Commission (as
well as information included in oral statements or other written statements
made or to be made by the Authority) contains forward-looking statements,
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Such
statements include information relating to plans for future expansion and other
business development activities as well as other capital spending, financing
sources and the effects of regulation (including gaming and tax regulation) and
competition. 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, domestic or global economic conditions, pending
litigation, changes in federal tax laws or the administration of such laws and
changes in gaming laws or regulations (including the legalization of gaming in
certain jurisdictions).
Future Development
On February 7, 1998, the Tribe finalized contract negotiations with TCA and
is prepared to move forward with an estimated $450 million expansion project at
Mohegan Sun.
Under the terms of a new agreement, TCA will continue to manage the existing
property under the existing management contract until December 31, 1999. On
January 1, 2000 the existing management contract with TCA will terminate and
MTGA will assume day to day management of the Mohegan Sun. As part of this
"Relinquishment Agreement" and to compensate TCA for giving up its rights under
the current agreements, the Tribe has agreed to render to TCA 5% of gross
revenues, generated from the Mohegan Sun and from the planned expansion,
beginning January 1, 2000 and ending October, 2014. The effective date under
the Relinquishment Agreement is the later of (a) the date the Authority
receives all required approvals or (b) the date the Senior Notes are refinanced
or repaid.
The Tribe has also negotiated a second agreement with TCA which will make TCA
the exclusive developer of the planned expansion of the property. Under this
"Development Agreement", TCA will oversee the planning, design, and
construction of the expansion of the property. TCA will be paid a development
fee of about $14 million under the terms of the Development Agreement. The
effective date under the Development Agreement is the first day of the first
calendar month following the later of (a) the date the Authority receives all
required approvals or (b) closing of the anticipated refinancing of certain of
the Authority's existing indebtedness, together with construction financing.
The proposed development plans include 100,000 square feet of additional
gaming space, a luxury hotel (or hotels) with approximately 1,500 rooms, a
convention/events center with seating for 10,000 patrons and 100,000 square
feet of convention space. The Tribe also plans to include additional retail and
restaurant facilities into its design. Current plans would also require
significant upgrades and additions to the facility's parking and infrastructure
systems.
Any such expanded operations will require additional sources of funding,
which may include public and private debt and bank financing. There can be no
assurance that the Authority will be able to obtain such financing, although
the Authority believes that the current results of operations of Mohegan Sun
make such financing a viable likelihood.
10
<PAGE>
RESULTS OF OPERATIONS
CAPITAL RESOURCES, CAPITAL SPENDING AND LIQUIDITY
For the quarter ending December 31, 1997, cash provided by operating
activities (as shown in the Statement of Cash Flows) was $10.0 million, and
the Authority has approximately $20.1 million in unrestricted cash and cash
equivalents.
The Authority expects its capital expenditures will range between $12--$16
million for the fiscal year 1998. These expenditures will include a retail
expansion, additional building themeing and further enhancement of the gaming
product offered at Mohegan Sun. In addition to new capital expenditures of
$1.7 million, the Authority purchased assets previously obtained under
operating leases during the first quarter of fiscal 1998.
The Authority has reached a settlement with Morse Diesel International
("Morse Diesel") for final payment for the development and construction of
Mohegan Sun. The final payment to Morse Diesel of $3.6 million during the
first quarter of fiscal 1998 has relieved the Authority of any further
construction obligation related to the initial development of Mohegan Sun.
On November 15, 1997, the Authority made an interest payment of $15.9
million to the holders of the Senior Secured Notes which consisted of $11.8
million of Senior Note interest and $4.1 million of Cash Flow Participation
Interest. Interest paid in connection with equipment financing and working
capital was $835,000.
The Authority, subsequent to meeting its operating expenses and required
deposits to reserve funds pursuant to the Indenture, has distributed $6.2
million of the $6.4 million distributable to the Tribe for the first quarter
of fiscal 1998.
Management believes that existing cash balances and operating cash flow will
provide the Authority with sufficient resources to meet its existing debt
obligations and foreseeable capital expenditure requirements with respect to
current operations for at least the next twelve (12) months. On February 7,
1998, the Mohegan Tribe finalized contract negotiations with TCA and is
prepared to move forward with an estimated $450 million expansion project at
Mohegan Sun. See "Future Development".
COMPARISON OF OPERATING RESULTS FOR THE QUARTER ENDED DECEMBER 31, 1997 AND
THE PERIOD FROM OCTOBER 12, 1996 (DATE OF COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 1996
Consolidated net revenues for the first quarter ended December 31, 1997,
were $126.6 million compared with $97 million reported in the same period of
the prior year. The quarter ended December 31, 1996 reflected eleven fewer
days of operation as Mohegan Sun opened on October 12, 1996.
Gaming Revenues of $119.8 million for the first quarter of 1998, increased
by $28.9 million or 32% when compared with $90.9 for the same period in the
prior year. The increase in gaming revenue is primarily attributable to the
20% growth of the Connecticut slot market, the continued development of the
Mohegan Sun customer base and a stronger table game win for the quarter.
Slot revenues were $85.3 million for the quarter ended December 31, 1997 and
reflected a gross slot win per unit per day of $321. The slot win increase of
$20.6 million or 32% over the same period in the prior year reflected the
Authority's increase of the Connecticut slot win market share from 95% in
first quarter 1997 to 108% achieved in first quarter 1998. Slot win percentage
was 8.1% and 7.0% for the quarter and period ending December 31, 1997 and
1996, respectively.
Food and Beverage revenues were $12.6 million for the quarter, an increase
of $3 million over the same period in the prior year. The 31% increase in food
and beverage revenue was primarily due to a 17% increase in food covers and a
14% increase in average cover price.
11
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE QUARTER ENDED DECEMBER 31, 1997 AND
THE PERIOD FROM OCTOBER 12, 1996 (DATE OF COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 1996--(CONTINUED)
Other revenues, consisting of retail, entertainment and other revenues, were
$10 million for the quarter ending December 31, 1997, or $6.6 million (189%)
greater than the same period in the prior year.
Total costs and expenses were $103.7 million in the first quarter,
representing an increase of $18.2 million or 21% over the same period in the
prior year which contained 84 days of operation versus 92 days of operation in
the first quarter of 1998. Gaming costs and expenses were $56.3 million for
the period, an increase of $12.7 million or 29% over the same period in the
prior year. Under the Mohegan Compact, the Authority is required to remit to
the State of Connecticut 25% of the gross slot revenues from slot machines.
The increased contribution over the same period in the prior year to the State
of Connecticut was $5.3 million for the quarter.
General and Administrative costs increased by $3.9 million or 20% due to the
additional eleven days of operation in the quarter. Food and beverage costs
decreased by $1.7 million or 25% due to decreased cost of goods and improved
labor operating efficiencies. Other operating expenses increased by $2.2
million or 54% primarily due to increased retail volume. The loss from bingo
operation was $113,000, a reduction of $1.2 million over the same period in
the prior year. The reduction in the bingo operation loss for the quarter was
due to increased game revenues and the implementation of several cost
containment programs.
Depreciation and Amortization decreased by $2.9 million or 37% for the
quarter due to the full amortization of pre-opening costs during fiscal 1997.
Management fees earned by Trading Cove Associates increased by $5 million
for the same period in the prior year.
Income from operations was $22.9 million for the quarter ended December 31,
1997 versus $11.5 million for the period ended December 31, 1996.
Interest and Other Income was $648,000 for the quarter, an increase of
$413,000 over the same period in the prior year.
Interest Expense of $11.8 million in the first quarter of fiscal 1998 was $2
million or 21% greater than the same period in the prior year. The increase in
the first quarter of fiscal 1998 was primarily due to increases in the
outstanding Subordinated Notes and Equipment Leases at the end of the quarter
versus the prior period.
12
<PAGE>
PART II--OTHER INFORMATION
ITEM I--LEGAL PROCEEDINGS
The Authority is a defendant in certain litigation incurred in the normal
course of business. In the opinion of Management, based on the advise of
counsel, the aggregate liability, if any, arising from such litigation will not
have a material adverse effect on the Authority's 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
None
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
13
<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: February 12, 1998 By: /s/ Roland Harris
---------------------- -----------------------------------
Roland J. Harris
Chairman, Management Board,
Duly Authorized
Date: February 12, 1998 By: /s/ William J. Velardo
---------------------- -----------------------------------
William J. Velardo
Executive Vice President and
General Manager
Date: February 12, 1998 By: /s/ Jeffrey E. Hartmann
---------------------- -----------------------------------
Jeffrey E. Hartman, Senior Vice
President of Finance and Chief
Financial Officer (Principal
Financial and Accounting Officer)
14
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