<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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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: March 31, 2000
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
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MOHEGAN TRIBAL GAMING AUTHORITY
(Exact name of registrant as specified in its charter)
----------------
Connecticut 06-1436334
(State or other jurisdiction of (IRS employer Identification No.)
incorporation or organization)
06382
One Mohegan Sun Boulevard, Uncasville, (Zip Code)
CT
(Address of principal executive
offices)
Registrant's telephone number, including area code (860) 204-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange On Which
Title of Each Class Registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
NONE
------ ---
<S> <C>
(Title of Class)
</TABLE>
----------------
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
Balance Sheets of Mohegan Tribal Gaming Authority as of March 31, 2000
(unaudited) and September 30, 1999..................................... 2
Statements of Income (Loss) of Mohegan Tribal Gaming Authority for the
Three and Six Months Ended March 31, 2000 and 1999 (unaudited)......... 3
Statements of Capital of Mohegan Tribal Gaming Authority for the Six
Months Ended March 31, 2000 and 1999 (unaudited)....................... 4
Statements of Cash Flows of Mohegan Tribal Gaming Authority for the Six
Months Ended March 31, 2000 and 1999 (unaudited)....................... 5
Notes to Financial Statements of Mohegan Tribal Gaming Authority........ 6-11
ITEM 2 -- Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 12-17
ITEM 3 -- Quantitative and Qualitative Disclosure of Market Risk........ 17
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
</TABLE>
<PAGE>
REVIEW REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Mohegan Tribal Gaming Authority:
We have reviewed the accompanying balance sheet of the Mohegan Tribal Gaming
Authority (the "Authority") as of March 31, 2000, and the related statements of
income (loss) for the three and six month periods ended March 31, 2000 and 1999
and the statements of capital and cash flows for the six month periods ended
March 31, 2000 and 1999. These financial statements are the responsibility of
the Authority's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States,
the objective of which is the expression of an opinion regarding the financial
statements as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the balance sheet of the Mohegan Tribal Gaming
Authority as of September 30, 1999, and the related statements of income
(loss), capital and cash flows for the year then ended (not presented
separately herein) and in our report dated December 3, 1999, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying balance sheet of the Mohegan Tribal
Gaming Authority as of September 30, 1999, is fairly stated, in all material
respects, in relation to the balance sheet from which it has been derived.
Arthur Andersen llp
Hartford, Connecticut
May 5, 2000
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
----------- -------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 224,025 $ 276,598
Defeasance trust asset (Note 2).................... -- 138,845
Receivables, net................................... 6,430 3,306
Inventories........................................ 6,706 5,971
Other current assets............................... 3,062 1,891
---------- ----------
Total current assets............................. 240,223 426,611
---------- ----------
Non-current assets:
Property and equipment, net........................ 283,493 287,858
Construction in process............................ 149,946 52,031
Trademark, net..................................... 124,846 127,423
Other assets, net.................................. 22,059 21,039
---------- ----------
Total assets..................................... $ 820,567 $ 914,962
========== ==========
LIABILITIES AND CAPITAL
Current liabilities:
Current portion of capital lease obligations (Note
3)................................................ $ 9,414 $ 12,222
Defeasance trust liability (Note 2)................ -- 136,254
Accounts payable and accrued expenses.............. 44,693 45,827
Accrued interest payable........................... 10,625 10,625
---------- ----------
Total current liabilities........................ 64,732 204,928
---------- ----------
Non-current liabilities:
Long-term debt (Note 2)............................ 500,000 500,000
Relinquishment liability (Note 6).................. 672,537 661,010
Capital lease obligations, net of current portion
(Note 3).......................................... 3,893 7,076
---------- ----------
Total liabilities.................................. 1,241,162 1,373,014
---------- ----------
Commitments and contingencies (Note 4)
Capital:
Total capital.................................... (420,595) (458,052)
---------- ----------
Total liabilities and capital.................... $ 820,567 $ 914,962
========== ==========
</TABLE>
The accompanying accountants' review report and notes to the financial
statements should be read in conjunction with the financial statements
2
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
STATEMENTS OF INCOME (LOSS)
(in thousands)
<TABLE>
<CAPTION>
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
March 31, 2000 March 31, 1999 March 31, 2000 March 31, 1999
-------------- -------------- -------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Gaming................ $175,548 $149,169 $340,473 $301,841
Food and beverage..... 11,680 11,164 22,997 22,883
Retail and other...... 11,520 8,206 27,399 17,915
Bingo operations...... 1,622 1,512 2,755 2,739
-------- -------- -------- --------
Gross revenues........ 200,370 170,051 393,624 345,378
Less--Promotional
allowances........... (16,469) (13,147) (35,415) (27,380)
-------- -------- -------- --------
Net revenues.......... 183,901 156,904 358,209 317,998
-------- -------- -------- --------
Cost and expenses:
Gaming................ 75,933 63,660 149,554 128,128
Food and beverage..... 5,856 5,282 11,864 10,963
Retail and other...... 5,905 6,278 14,171 13,501
Bingo................. 882 1,019 1,720 1,890
General and
administration....... 31,816 26,273 64,047 57,363
Expansion costs....... 636 -- 1,158 --
Management fee........ -- 14,397 13,634 28,043
Depreciation and
amortization......... 7,760 5,506 15,286 10,175
-------- -------- -------- --------
Total costs and
expenses............. 128,788 122,415 271,434 250,063
-------- -------- -------- --------
Income from
operations........... 55,113 34,489 86,775 67,935
-------- -------- -------- --------
Other income (expense):
Relinquishment
liability
reassessment
(Note 6)............. (5,764) (11,007) (11,527) (11,007)
Interest and other
income............... 4,325 1,202 7,614 1,821
Interest expense...... (9,131) (12,806) (23,159) (25,616)
-------- -------- -------- --------
(10,570) (22,611) (27,072) (34,802)
-------- -------- -------- --------
Income before
extraordinary items.. 44,543 11,878 59,703 33,133
Extraordinary items... -- (39,423) -- (39,423)
-------- -------- -------- --------
Net income (loss)..... $ 44,543 $(27,545) $ 59,703 $ (6,290)
======== ======== ======== ========
</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
STATEMENTS OF CAPITAL
(in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended For the Six Months Ended
March 31, 2000 March 31, 1999
------------------------ ------------------------
(unaudited) (unaudited)
<S> <C> <C>
Beginning balance........... $(458,052) $(377,874)
Net income.................. 59,703 (6,290)
Capital contribution by
Tribe...................... -- 51,244
Distributions to Tribe...... (22,246) (72,316)
--------- ---------
Ending balance.............. $(420,595) $(405,236)
========= =========
</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
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended For the Six Months Ended
March 31, 2000 March 31, 1999
------------------------ ------------------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows provided by
operating activities:
Net income (loss)........... $ 59,703 $ (6,290)
Adjustments to reconcile net
income (loss) to net cash
flow provided by operating
activities:
Depreciation and
amortization............. 15,286 10,175
Loss on early
extinguishment of debt... -- 33,717
Write-off of financing
fees..................... -- 5,706
Loss on asset disposal.... 182 335
Provision for losses on
receivables.............. 414 147
Relinquishment liability
and reassessment......... 11,527 11,007
Changes in operating assets
and liabilities:
Increase in receivables
and other assets......... (4,623) (2,547)
Decrease in accounts
payable and accrued
expenses................. 2,956 527
--------- ---------
Net cash flows provided by
operating activities..... 85,445 52,777
--------- ---------
Cash flows used in investing
activities:
Purchase of property and
equipment.................. (7,029) (16,864)
(Increase) decrease in
construction in process.... (97,915) 3,680
--------- ---------
Net cash flows used in
investing activities..... (104,944) (13,184)
--------- ---------
Cash flows (used in)
provided by financing
activities:
Distributions to Tribe...... (22,246) (72,316)
Contribution of capital by
Tribe...................... -- 51,244
Proceeds from issuance of
long-term debt............. -- 500,000
Capitalized financing fees.. -- (16,745)
Defeasance trust asset...... 135,507 (135,507)
Defeasance liability........ (140,344) --
Proceeds from equipment
financing.................. -- 879
Payment on equipment
financing.................. (5,991) (5,374)
Extinguishment of Senior
Secured Notes.............. -- (208,717)
--------- ---------
Net cash flows (used in)
provided by financing
activities............... (33,074) 113,464
--------- ---------
Net (decrease) increase in
cash and cash
equivalents.............. (52,573) 153,057
Cash and cash equivalents at
beginning of period........ 276,598 110,728
--------- ---------
Cash and cash equivalents at
end of period.............. $ 224,025 $ 263,785
========= =========
Supplemental disclosures:
Cash paid during the period
for interest............... $ 72,252 $ 30,177
</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 FINANCIAL STATEMENTS
1.Organization and 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, 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 tribal state compact with the affected
state. The Tribe and the State of Connecticut have entered into such a compact
(the "Mohegan Compact"), that was approved by the Secretary of the Interior.
The Authority is governed by a Management Board, which consists of the nine
members of the Tribal Council. The Management Board previously engaged Trading
Cove Associates ("TCA"), a Connecticut general partnership, to manage the
operation of Mohegan Sun pursuant to a seven year contract (the "Management
Agreement"). TCA is 50% owned by Sun Cove Limited, an affiliate of Sun
International Hotels Limited ("Sun International"), and 50% owned by Waterford
Gaming L.L.C. The Management Agreement between the Tribe and TCA concluded on
January 1, 2000. (See Note 6 for discussion of Relinquishment Agreement between
the Tribe and TCA).
The accompanying financial statements have been prepared in accordance with
the accounting policies described in the Authority's 1999 Annual Report on Form
10-K and should be read in conjunction with the Notes to Financial Statements
which appear in that report. The Balance Sheet at September 30, 1999, contained
herein, was taken from audited financial statements, but does not include all
disclosures contained in the Form 10-K and required by accounting principles
generally accepted in the United States.
Certain amounts in the financial statements have been reclassified. The
reclassification has no effect on the Authority's 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 financial
statements for the three and six months ended March 31, 2000 are not
necessarily indicative of expected results for the full year, as the casino
industry in Connecticut is seasonal in nature.
2.Financing Facilities:
During 1999, the Authority issued $200 million in Senior Notes and $300
million in Senior Subordinated Notes. The proceeds from this financing were
used to extinguish the existing Senior Secured Notes, defease the existing
Subordinated Notes, pay transaction costs for the financing of the newly issued
Senior and Senior Subordinated Notes, and fund initial costs related to the
expansion of Mohegan Sun ("Project Sunburst").
Subordinated Notes/Defeasance Trust
The Authority redeemed the outstanding Subordinated Notes for $140.3
million, a price representing 100% of the principal amount plus accrued and
unpaid interest, less $500,000 pursuant to the Relinquishment Agreement between
the Tribe and TCA (See Note 6). The Authority exercised its rights under the
original purchase agreement for the Subordinated Notes to effect a defeasance
of these 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 sufficient to redeem the Subordinated Notes
plus accrued interest. All Subordinated Notes were held by Sun International
Hotels Limited, the parent company of a partner in TCA, and by Waterford Gaming
LLC, also a partner in TCA. The Authority used the defeasance trust funds to
redeem the Subordinated Notes on December 30, 1999.
6
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Senior Notes
On March 3, 1999, the Authority issued the Senior Notes with fixed interest
payable at a rate of 8.125 % per annum. Interest on the Senior Notes is payable
semi-annually on January 1 and July 1. The notes mature on January 1, 2006. The
Senior Notes are unsecured general obligations of the Authority and are
subordinated to the syndicated $459.5 million reducing, revolving secured
credit facility ("Bank Credit Facility") (see below). A total of 50% of the
Relinquishment Agreement payment (see Note 6) to TCA will rank equal in right
of payment to the Senior Notes and the remaining 50% of this payment will rank
junior in right of payment to the Senior Notes.
Senior Subordinated Notes
On March 3, 1999, the Authority issued the Senior Subordinated Notes with
fixed interest payable at a rate of 8.75% per annum. Interest on the Senior
Subordinated Notes is payable semi-annually on January 1 and July 1. The notes
mature on January 1, 2009. The Senior Subordinated Notes are unsecured general
obligations of the Authority and are subordinated to the Bank Credit Facility
(see below), to the Senior Notes and to 50% of the Relinquishment Agreement
payment to TCA (see Note 6). The Senior Subordinated Notes rank equally to the
remaining 50% of the Authority's Relinquishment Agreement payment obligations.
Bank Credit Facility
In November 1999, the availability under the Bank Credit Facility was
increased from $425 million to $459.5 million. The Bank Credit Facility is
secured by a lien on substantially all of the Authority's assets, by a
leasehold mortgage on the land on which Mohegan Sun is located, and by each of
the Authority's cash operating accounts. At the Authority's option, interest
will accrue on the basis of a 1-month, 3-month or 6-month London Inter-Bank
Offer Rate ("LIBOR") based formula plus applicable spreads. As of March 31,
2000, there were no borrowings outstanding on the Bank Credit Facility. The
Bank Credit Facility will automatically reduce by 10% of the facility
commitment as of the earlier of March 31, 2002 or the last full day of the
first full fiscal quarter following the completion date of Project Sunburst.
The Authority plans to draw on the Bank Credit Facility primarily in connection
with Project Sunburst.
On April 7, 2000, the Authority entered into a 36-month hedging transaction.
The Authority executed a hedge agreement with a notional amount based on 20% of
the estimated draws on the Bank Credit Facility. The transaction, which is
effective October 2000, is an interest rate collar with a 7.75% ceiling and a
5.75% floor, based upon one-month LIBOR. The Authority paid a premium of
$295,000 for the transaction.
The Authority executed an additional 36-month hedging agreement on April 7,
2000 with a notional amount based on 20% of the estimated draws on the Bank
Credit Facility. The transaction, which is effective October 2000, is an
interest rate cap of 8.0%, based upon one-month LIBOR. The Authority paid a
premium of $410,000 for this transaction.
On April 18, 2000, the Authority entered into a 36-month hedging transaction
with a notional amount, based on 10% of the estimated draws on the Bank Credit
Facility. The transaction is an interest rate cap of 7.75%, based upon one-
month LIBOR. The Authority paid a premium of $221,000 for the transaction.
Letters of Credit
The Authority has available a $250,000 unsecured letter of credit with Fleet
National Bank that will expire on August 31, 2000, and a $1.6 million letter of
credit agreement with Bank of America that expires in April 2000. As of March
31, 2000, no amounts were drawn on the letters of credit. On April 12, 2000,
the letter of
7
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
credit agreement with Bank of America was renewed and reduced to $1.0 million
and will expire on April 12, 2001.
The Authority's debt agreements require, among other things, the maintenance
of various financial covenants and terms including a fixed charge coverage
ratio, and certain debt leverage ratios. As of March 31, 2000, the Authority
was in compliance with all covenant requirements.
3.Leases:
At March 31, 2000, the Authority was obligated under non-cancelable
operating leases and capital leases to make future minimum lease payments as
follows:
<TABLE>
<CAPTION>
Operating Capital
For the fiscal year ending September 30, Leases Leases
---------------------------------------- --------- -------
(In Thousands)
<S> <C> <C>
2000...................................................... $ 924 $ 6,648
2001...................................................... 112 5,062
2002...................................................... -- 2,357
2003...................................................... -- 64
------ -------
Total minimum lease payment............................... $1,036 14,131
======
Amount representing interest.............................. 824
-------
Total obligation under capital leases..................... 13,307
Less: Amount due within one year.......................... 9,414
-------
Amount due after one year................................. $ 3,893
=======
</TABLE>
Rent expense on the non-cancelable operating leases was $902,000 for each of
the quarters ended March 31, 2000 and 1999. For the six months ended March 31,
2000 and 1999, rent expense on the non-cancelable operating leases was $1.8
million each.
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 12-month period commencing July 1, 1995, the Slot Win Contribution
shall be the lesser of (a) 30% of gross revenues from slot machines, or (b) the
greater of (i) 25% of gross revenues from slot machines or (ii) $80 million.
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/or the Mashantucket Pequot Tribe). The Authority reflected
expenses associated with Slot Win Contribution totaling $32.7 million and $27.9
million, respectively for the quarters ended March 31, 2000 and 1999. For the
six months ended March 31, 2000 and 1999, the Authority incurred expenses of
$63.6 million and $56.3 million, respectively for Slot Win Contribution.
Town of Montville Agreement
On June 16, 1994, the Tribe and the Town of Montville (the "Town") entered
into an agreement whereby the Tribe agreed to pay to the Town an annual payment
of $500,000 to minimize the impact to the Town
8
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
resulting from decreased tax revenues on reservation land held in trust. Three
annual $500,000 payments, payable beginning one year after the commencement of
slot machine gaming activities, were remitted to the Town of Montville in
October 1999, 1998 and 1997, respectively. 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 has assigned its rights and obligations in
this agreement to the Authority. The Town is billing the Authority for the
infrastructure improvements as the Town's costs are incurred. As of March 31,
2000, the Authority has paid $2.9 million to the Town of Montville towards
improvements to the municipal water system, which has been included in other
assets in the accompanying balance sheet and will be amortized over 40 years.
Expansion Construction Management Agreement with Perini Building Company, Inc.
The Authority has engaged Perini Building Company, Inc. ("Perini") as
Construction Manager to provide construction management services for Project
Sunburst. As Construction Manager, Perini will receive a fee of $20.5 million
for services including, but not limited to, pre-construction review and
construction phase contract administration. As of March 31, 2000, Perini has
received $5.1 million of the $20.5 million 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 material adverse effect on the Authority's financial position or results
of operations.
5.Related Party Transactions:
The Tribe provides governmental and administrative services to the Authority
in conjunction with the operation of Mohegan Sun. For the quarters ended March
31, 2000 and 1999, the Authority incurred expenses of $2.5 million and $2.0
million, respectively, for such services. For the six months ended March 31,
2000 and 1999, the Authority incurred expenses of $4.6 million and $3.9
million, respectively for tribal governmental and administrative services.
Distributions to the Tribe for the quarter ended March 31, 2000 and 1999 were
$12.0 million and $10.6 million, respectively. For the six months ended March
31, 2000 and 1999, these distributions totaled $22.3 million and 23.0 million,
respectively.
6.TCA Agreements:
Relinquishment Agreement
In February 1998, the Authority and TCA entered into an agreement, (the
"Relinquishment Agreement"). The Relinquishment Agreement supercedes the
Management Agreement (see below) effective January 1, 2000 (the "Relinquishment
Date"), and provides that the Authority make certain payments to TCA out of,
and determined as a percentage of, the revenues generated by the Mohegan Sun
over a 15-year period commencing on the Relinquishment Date. The payments
("Senior Relinquishment Payments" and "Junior Relinquishment Payments"), each
of which are calculated as 2.5% of Revenues, as defined, have separate payment
schedules and priority. Payment of Senior Relinquishment Payments commences on
April 25, 2000, twenty-five days subsequent to the end of the first three month
period following the Relinquishment Date and continues at the end of each three
month period occurring thereafter until December 31, 2014. Junior
Relinquishment Payments
9
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
commence on July 25, 2000, twenty-five days subsequent to the end of the first
six month period following the Relinquishment Date and continue at the end of
each six month period occurring thereafter until December 31, 2014. 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. At March 31, 2000,
approximately $10.0 million was included in the relinquishment liability
representing the amount earned from January 1, 2000 to March 31, 2000. As of
April 25, 2000, $5.0 million was paid related to the Senior Relinquishment
Payment. "Revenues" are defined as gross gaming revenues (other than Class II
gaming revenue) and all other facility revenues (including, without limitation,
hotel revenues, fees or receipts from convention/events center in the expansion
and all rental or other receipts from lessees and concessionaires operating in
the facility but not the gross receipts of such lessees, licenses and
concessionaires).
The Authority, in accordance with Financial Accounting Standards Board
Statement No. 5 ("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, 1999, the relinquishment liability was
reassessed to be $661.0 million. This reassessment resulted from the increase
in the estimated future Revenues that will be generated by the Authority during
the term of the Relinquishment Agreement, and by the impact of the time value
of money due to the passage of time. At March 31, 2000, the relinquishment
liability, which is reassessed quarterly, has been reassessed to be $672.5
million from $661.0 million at September 30, 1999, and the $11.5 million
increase, which reflects the time value of money due to the passage of time,
has been reflected as a relinquishment liability reassessment in the
accompanying statements of income (loss). For the three months ended March 31,
2000, the quarterly reassessment was $5.8 million.
Management Agreement
Previously, the Tribe and TCA had 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 $14.4
million for the quarter ended March 31, 1999. For the six months ended March
31, 2000 and 1999, management fees totaled $13.6 million and $28.0 million,
respectively.
Development Agreement
The Authority has negotiated an agreement with TCA (the "Development
Agreement"), which has made TCA the exclusive developer of Project Sunburst.
Under the Development Agreement, TCA oversees the planning, design and
construction of Project Sunburst and will receive compensation of $14 million
for such services based on the incremental completed percentage of Project
Sunburst. As of March 31, 2000, TCA has earned $2.3 million of the $14 million
development fee, of which $1.4 million has been paid. On April 24, the
additional $896,000 was paid. The development fee is paid quarterly based on
the terms of the Development Agreement.
10
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO FINANCIAL STATEMENTS--(Continued)
7.Employee Benefits Plans
Effective February 10, 1997, the Authority adopted a retirement savings plan
for its employees under Section 401(k) of the Internal Revenue Code. 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 this plan. The Authority had matched 50% of
the first 4% for the period February 10, 1997 to December 31, 1998, and the
Authority now matches 100% of eligible employees' contributions up to a maximum
of 3% of their individual earnings effective January 1, 1999. The Authority
recorded matching contributions of approximately $685,000 and $392,000,
respectively, to this plan for the quarters ended March 31, 2000 and 1999.
Cumulative contributions have totaled $1.3 million and $766,000 for the six
months ended March 31, 2000 and 1999, respectively.
The Authority, in conjunction with the Tribe, adopted a Nonqualified
Deferred Compensation Plan for certain key employees. This plan allows
participants to defer up to 100% of their pre-tax income to the plan. The
deferrals are in addition to those allowed under the Authority's 401(k) savings
plan. All deferred amounts vest immediately. There are no employer matching
contributions made under this plan. The full amount vested in a participant's
account will be distributed to a participant following termination of
employment, normal retirement or in the event of disability or death. Custody
of the Nonqualified Deferred Compensation Plan resides with the Mohegan Tribe.
For the quarter ended March 31, 2000, contributions by Authority employees
totaled $192,000. Cumulative contributions by Authority employees to the plan
have totaled $401,000.
11
<PAGE>
Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Comparison of Operating Results for the Three Months Ended March 31, 2000 and
1999:
Net revenues for the three months ended March 31, 2000 were $183.9 million
compared to $156.9 million reported for the same period of the prior year. This
17.2% increase is primarily attributable to an increase in gaming revenues.
Gaming revenues totaled $175.5 million for the three months ended March 31,
2000 as compared to $149.2 million for the three months ended March 31, 1999.
The increase of 17.7% in gaming revenues is due to an 18.3% growth in slot
machine revenues and a 16.0% increase in table game revenue.
For the three months ended March 31, 2000, food and beverage revenues were
$11.7 million versus $11.2 million for the three months ended March 31, 1999.
The increase in food and beverage revenue is attributable to increases in both
food covers and average check for the three months ended March 31, 2000.
Retail and other revenues were $11.5 million and $8.2 million for the three
months ended March 31, 2000 and 1999, respectively. This represents growth of
$3.3 million or 40.4% over the same period in the prior year. Retail and other
revenues have experienced growth as patrons continue to participate in the
Mohegan Sun Player's Club ("Player's Club"). Of the $3.3 million increase in
retail and other revenues, $1.7 million is attributable to the Mohegan Sun
gasoline and convenience center, which became fully operational in December
1998.
Bingo revenues increased $110,000 to $1.6 million during the three months
ended March 31, 2000 compared to the same period in the prior year as a result
of increased attendance per bingo session. Bingo revenues were $1.5 million for
the three months ended March 31, 1999.
Promotional allowances totaled $16.5 million for the three months ended
March 31, 2000, representing a $3.3 million or 25.3% increase over the same
period in the prior year. The increase is primarily attributable to increased
redemption of Mohegan Sun Player's Club points. The increase in promotional
allowances is also attributable to the movement of the redemption of the
Player's Club points to the gasoline and convenience center from retail
outlets. Promotional allowances as a percentage of gaming revenue were 9.4% and
8.8% for the three months ending March 31, 2000 and 1999, respectively.
Total costs and expenses were $128.8 million for the three months ended
March 31, 2000, an increase of $6.4 million or 5.2% over the prior year. The
increase is the combined result of increased gaming expense, the addition of
pre-opening expansion costs for Project Sunburst, and increases in general and
administrative costs, offset by a reduction in management fees due to the
termination of the Management Agreement.
Gaming costs and expenses were $75.9 million for the three months ended
March 31, 2000, an increase of $12.2 million or 19.3% over the same period in
the prior year. The slot win contribution totaled $32.7 million and $27.9
million for the three months ended March 31, 2000 and 1999, respectively. The
increase of $4.8 million or 17.3% over the same period in the prior year, is
directly attributable to the $19.9 million increase in slot revenues. The
balance of the increase is due to volume related labor growth and an increase
in the cost of providing casino marketing complimentaries.
Food and beverage costs were $5.9 million for the three months ended March
31, 2000, an increase of $574,000 or 10.9% from the same period in the prior
year. The increase is primarily attributable to increased labor costs
associated with the growth in food covers.
Retail and other costs were $5.9 million for the three months ended March
31, 2000, a decrease of $373,000 or 5.9% over the same period in the prior
year. The decrease is attributable to an increase in the allocation of retail,
gas, and convenience center complimentaries as a gaming expense.
12
<PAGE>
Bingo operation costs were $882,000 for the three months ended March 31,
2000, a decrease of $137,000 or 13.4% over the same period in the prior year
due to fewer bingo sessions being conducted, combined with increased operating
efficiencies.
General and administrative costs were $31.8 million for the three months
ended March 31, 2000. The increase of $5.5 million or 21.1% for the same period
in the prior year is attributable to continued casino marketing promotions.
Management believes the marketing program has driven incremental visitation,
expanding our brand awareness and market share.
Expansion costs totaled $636,000 for the three months ended March 31, 2000.
Expansion costs are primarily composed of pre-opening labor costs associated
with the Project Sunburst expansion. Mohegan Sun did not incur pre-opening
expansion costs for the three months ended March 31, 1999.
TCA did not receive management fees for the three months ending March 31,
2000, as a result of the termination of the Management Agreement on January 1,
2000. Management fees earned by TCA totaled $14.4 million for the three months
ended March 31, 1999.
For the three months ended March 31, 2000, depreciation and amortization
increased by $2.3 million or 40.9% over the same period in the prior year. The
increase is primarily attributable to the increased amortization of the
trademark asset and depreciation related to new property and equipment placed
in service. Depreciation and amortization for the three months ended March 31,
2000 and 1999 were $7.8 million and $5.5 million, respectively.
As a result of the above, income from operations for the three months ended
March 31, 2000 totaled $55.1 million, compared to $34.5 million for the same
period in the prior year. This represents a $20.6 million or 59.8% increase
over the prior year.
For the three months ended March 31, 2000, the relinquishment liability
reassessment was $5.8 million as compared to $11.0 million for the same period
in the prior year. This decrease of $5.2 million or 47.3% is mainly due to the
Authority now reassessing the impact of the time value of money due to the
passage of time on a quarterly basis, whereas, in the fiscal 1999, the first
assessment was done at March 31, 1999.
Interest and other income were $4.3 million for the three months ended March
31, 2000, an increase of $3.1 million over the prior year. The increase in
interest income resulted from the temporary investment of net proceeds from the
issuance of the $200 million Senior Notes and the $300 million Senior
Subordinated Notes on March 3, 1999. The weighted average invested cash was
$191.6 million and $101.1 million for the three months ended March 31, 2000 and
1999, respectively. The Authority invests in investment-grade commercial paper
having maturities of not more than six months from the date of acquisition.
Interest expense of $9.1 million for the three months ended March 31, 2000
represented a decrease of $3.7 million or 28.7% over the same period in the
prior year. This decrease was mainly attributable to the tender of the existing
$175 million Senior Secured Notes that had a coupon rate of 13.5%, plus a 5%
cash flow participation interest, partially offset by the interest associated
with the $200 million Senior Notes and $300 million Senior Subordinated Notes
which have coupon rates of 8.125% and 8.75%, respectively. The weighted average
interest rate for the three months ended March 31, 2000 was 8.39%, compared to
11.93% for the three months ended March 31, 1999. Although the weighted average
outstanding debt was $514.3 million for the three months ended March 31, 2000,
compared to $312.9 million for the three-months ended March 31, 1999, $1.8
million of interest incurred during fiscal 2000 was capitalized as part of
Project Sunburst. The Authority did not capitalize interest for the three
months ended March 31, 1999.
On March 3, 1999, the Authority extinguished the $175 million Senior Secured
Notes for $208.7 million including a tender premium of $33.7 million. The
Authority also wrote-off $5.7 million in financing fees related to the $175
million Senior Secured Notes. Both the tender premium and the financing fee
write-off have been reflected as extraordinary items.
13
<PAGE>
Comparison of Operating Results for the Six Months Ended March 31, 2000 and
1999:
Net revenues for the six months ended March 31, 2000 were $358.2 million
compared with $318.0 million reported for the same period of the prior year.
This 12.6% increase is primarily attributable to an increase in gaming
revenues.
Gaming revenues totaled $340.5 million for the six months ended March 31,
2000, an increase of $38.6 million or 12.8% over the six months ended March 31,
1999. The increase in gaming revenues is due to a 13.7% growth in slot machine
revenues and a 9.9% growth in table game revenue.
For the six months ended March 31, 2000, food and beverage revenues were
$23.0 million versus $22.9 million for the six months ended March 31, 1999.
This growth in revenue is attributable to increases in food covers and average
check for the six months ended March 31, 2000.
Retail and other revenues were $27.4 million and $17.9 million for the six
months ended March 31, 2000 and 1999, respectively. This represents a growth of
$9.5 million or 52.9% over the same period in the prior year. Retail and other
revenues have experienced growth as patrons continue to participate in the
Mohegan Sun Player's Club. Of the $9.5 million increase in retail and other
revenues, $5.9 million is attributable to the Mohegan Sun gasoline and
convenience center. This is primarily due to the availability of the Mohegan
Sun gasoline and convenience center for the entire six months ending March 31,
2000 versus the 114 days of operation for the period ending March 31, 1999.
Bingo revenues increased $16,000 to $2.8 million during the six months ended
March 31, 2000 compared to the same period in the prior year as a result of
increased attendance per bingo session.
Promotional allowances totaled $35.4 million for the six months ended March
31, 2000, representing a $8.0 million or 29.3% increase over the prior year.
The increase is primarily attributable to increased redemption of Mohegan Sun
Player's Club points. The increase in promotional allowances is also
attributable to the movement of the redemption of the Player's Club points to
the gasoline and convenience center from retail outlets. Promotional allowances
as a percentage of gaming revenue were 10.4% and 9.1% for the six months ending
March 31, 2000 and 1999, respectively.
Total costs and expenses were $271.4 million for the six months ended March
31, 2000, an increase of $21.4 million or 8.5% over the prior year. The
increase is the combined result of increased gaming volume, the addition of
pre-opening expansion costs for Project Sunburst, increases in general and
administrative costs and depreciation and amortization partially offset by the
reduction of management fees due to the termination of the Management
Agreement. Total costs and expenses were $250.1 million for the six months
ended March 31, 1999.
Gaming costs and expenses were $149.6 million for the six months ended March
31, 2000, an increase of $21.5 million or 16.7% over the same period in the
prior year. The slot win contribution totaled $63.6 million and $56.3 million
for the six months ended March 31, 2000 and 1999, respectively. This represents
an increase of $7.3 million or 13.0% over the same period in the prior year,
which is directly attributable to the $30.2 million increase in slot revenues.
The balance of the increase is due to volume related labor growth and an
increase in the cost of providing casino marketing complimentaries.
Food and beverage costs were $11.9 million for the six months ended March
31, 2000, an increase of $901,000 or 8.2% over the same period in the prior
year. The increase is attributable to increased labor costs associated with the
growth in food covers. Food and beverage costs were $11.0 million for the six
months ended March 31, 1999.
Retail and other costs were $14.2 million for the six months ended March 31,
2000, an increase of $670,000 or 5.0% over the same period in the prior year.
The increase is primarily attributable to the
14
<PAGE>
availability of the Mohegan Sun gasoline and convenience center for the entire
six months ended March 31, 2000 versus the 114 days of operation for the period
ending March 31, 1999.
Bingo operation costs were $1.7 million for the six months ended March 31,
2000, a decrease of $170,000 or 9.0% over the same period in the prior year due
to fewer bingo sessions being conducted and increased operating efficiencies.
General and administrative costs were $64.1 million for the six months ended
March 31, 2000. The increase of $6.7 million or 11.7% for the same period in
the prior year is attributable to continued casino marketing promotions.
Management believes the marketing program has driven incremental visitation,
expanding our brand awareness and market share.
Expansion costs totaled $1.2 million for the six months ended March 31,
2000. Expansion costs are composed of pre-opening labor costs associated with
the Project Sunburst expansion. Mohegan Sun did not incur pre-opening expansion
costs for the six months ended March 31, 1999.
Management fees earned by TCA totaled $13.6 million and $28.0 million for
the six months ended March 31, 2000 and 1999, respectively. The decrease in
management fees is the result of the termination of the Management Agreement on
January 1, 2000.
For the six months ended March 31, 2000, depreciation and amortization was
$15.3 million, an increase of $5.1 million or 50.2% over the same period in the
prior year. The increase is primarily attributable to the increase in the
amortization of the trademark asset and the increase of property and equipment
placed in service during fiscal 2000.
As a result of the above, income from operations for the six months ended
March 31, 2000 totaled $86.8 million, compared to $67.9 million for the same
period in the prior year. This represents an $18.8 million or 27.7% increase.
For the six months ended March 31, 2000, the relinquishment liability
reassessment was $11.5 million as compared to $11.0 for the same period in the
prior year. This increase of $500,000 or $4.6% represents the impact of the
time value of money due to the passage of time.
Interest and other income were $7.6 million for the six months ended March
31, 2000, an increase of $5.8 million over the prior year. The increase in
interest income resulted from the temporary investment of net proceeds from the
issuance of the $200 million Senior Notes and the $300 million Senior
Subordinated Notes on March 3, 1999. The weighted average invested cash was
$205.3 million and $54.0 million for the six months ended March 31, 2000 and
1999, respectively. The Authority invests in investment-grade commercial paper
having maturities of not more than six months from the date of acquisition.
Interest expense of $23.2 million for the six months ended March 31, 2000
represented a decrease of $2.5 million or 9.6% over the same period in the
prior year. This decrease was mainly attributable to the tender of the existing
Senior Secured Notes that had a coupon rate of 13.5% plus a 5% cash flow
participation interest, partially offset by the interest associated with the
$200 million Senior Notes and $300 million Senior Subordinated Notes which have
coupon rates of 8.125% and 8.75%, respectively. The weighted average interest
rate for the six months ended March 31, 2000 was 8.38% compared to 13.30% for
the six months ended March 31, 1999. Although the weighted average outstanding
debt was $515.8 million for the six months ended March 31, 2000 as compared to
$257.4 million for the six-months ended March 31, 1999, $2.9 million of
interest incurred during fiscal 2000 was capitalized as part of Project
Sunburst. The Authority did not capitalize interest for the six months ended
March 31, 1999.
On March 3, 1999, the Authority extinguished the $175 million Senior Secured
Notes for $208.7 million including a tender premium of $33.7 million. The
Authority also wrote-off $5.7 million in financing fees related to the $175
million Senior Secured Notes. Both the tender premium and the financing fee
write-off have been reflected as extraordinary items.
15
<PAGE>
Liquidity, Capital Resources and Capital Spending
As of March 31, 2000 and 1999, the Authority held cash and cash equivalents
of $224.0 million and $263.8 million, respectively. Cash provided by operating
activities for the six months ended March 31, 2000 was $85.4 million, compared
to cash provided by operating activities of $52.8 million for the same period
in the prior year.
On December 30, 1999, the Authority redeemed the outstanding Subordinated
Notes for $140.3 million, an amount representing 100% of the principal amount
plus accrued and unpaid interest, less $500,000. The Authority exercised its
rights under the original purchase agreement for the Subordinated Notes to
effect a defeasance of these 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 sufficient to redeem the
Subordinated Notes plus accrued interest. All Subordinated Notes were held by
Sun International Hotels Limited, the parent company of a partner in TCA, and
by Waterford Gaming LLC, also a partner in TCA.
In November 1999, the availability under the Bank Credit Facility was
increased from $425 million to $459.5 million. At the Authority's option,
interest will accrue on the basis of a 1-month, 3-month or 6-month London
Inter-bank Offer Rate ("LIBOR") based formula plus applicable basis point
spreads. The Bank Credit Facility has various restrictive and financial
covenants, which the Authority remains compliant with as of March 31, 2000.
On April 7, 2000, the Authority entered into a 36-month hedging transaction.
The Authority executed a hedge agreement with a notional amount based on 20% of
the estimated draws on the Bank Credit Facility. The transaction, which is
effective October 2000, is an interest rate collar with a 7.75% ceiling and a
5.75% floor, based upon one-month LIBOR. The Authority paid a premium of
$295,000 for the transaction.
The Authority executed an additional 36-month hedging agreement on April 7,
2000 with a notional amount based on 20% of the estimated draws on the Bank
Credit Facility. The transaction, which is effective October 2000, is an
interest rate cap of 8.0% based upon one-month LIBOR. The Authority paid a
premium of $410,000 for this transaction.
On April 18, 2000, the Authority entered into a 36-month hedging transaction
with a notional amount, based on 10% of the estimated draws on the Bank Credit
Facility. The transaction is an interest rate cap of 7.75%, based upon one-
month LIBOR. The Authority paid a premium of $221,000 for the transaction.
As of March 31, 2000, there were no borrowings outstanding under the Bank
Credit Facility. The Authority plans to draw on the Bank Credit Facility
primarily in connection with the expansion of Mohegan Sun. In addition to the
financing provided by the Authority's various financing facilities, the Mohegan
Tribe has set aside, with a trustee, a $40 million, fully-funded construction
reserve account that, in certain circumstances, will be used to pay costs in
excess of the expansion budget.
The Authority's capital spending has increased significantly with the
commencement of the Project Sunburst expansion. Capital expenditures totaled
$104.9 million for the six months ended March 31, 2000. These included,
property maintenance capital expenditures for furniture, fixtures and equipment
of $7.7 million, spending on infrastructure improvements of $9.8 million,
employee parking center expenditures of $14.0 million and construction costs
related to Project Sunburst of $73.4 million.
Cumulative Project Sunburst construction costs totaled $110.7 million
through March 31, 2000. For the remaining half of fiscal 2000, Mohegan Sun
anticipates spending of $136.7 million on Project Sunburst costs. The opening
of the Riverview Garage has enabled major excavation to begin on the site,
signaling the start of construction of the casino, hotel and arena phase of
Project Sunburst. Project Sunburst is expected to open in the fall of 2001.
16
<PAGE>
The Authority commenced construction of the electrical, natural gas, water
and sewer systems infrastructure that will service Mohegan Sun. The
construction is funded from cash from operations, and is expected to be
complete by September 2001. Payments are expected to total $45.0 million, of
which $9.8 million has been spent through March 31, 2000. Payments are expected
to total $18.8 million for the remainder of fiscal 2000.
For fiscal 2000, the Authority expects capital expenditures to total
approximately $23.4 million on facility improvements and maintenance capital
expenditures, $210.1 million on Project Sunburst construction and $28.6 million
on infrastructure improvements.
During the six months ended March 31, 2000, the Authority distributed $22.3
million to the Mohegan Tribe.
Under the terms of the Relinquishment Agreement, TCA continued to manage the
existing property under the Management Agreement through December 31, 1999. On
January 1, 2000, the Management Agreement terminated, and the Authority assumed
day-to-day management of Mohegan Sun. The Authority, as a result of the
termination of the Management Agreement, has agreed to pay to TCA 5% of gross
revenues (as defined in the Relinquishment Agreement), generated from Mohegan
Sun beginning January 1, 2000 and ending December 31, 2014. The present value
of this liability is estimated to be $672.5 million as of March 31, 2000. As of
April 25, 2000 the Authority has paid $5.0 million under the terms of the
Relinquishment Agreement.
Management 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, tribal
distributions, and foreseeable capital expenditure requirements with respect to
current operations and Project Sunburst for at least the next 12 months.
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
contains forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934. Such statements include information relating
to plans for future expansion and other business development activities as well
as other capital spending, financing sources and the effects of regulation
(including gaming and tax regulation) and competition. 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).
Item 3 -- Quantitative and Qualitative Disclosure of Market Risk
The Authority is exposed to inherent market risk on the following:
Interest rate fluctuations on securities issued or directly and fully
guaranteed or insured by the United States government or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities of not more than six
months from the date of acquisition;
Commercial paper having one of the two highest ratings obtainable from
Moody's or Standard & Poor and in each case maturing within six months after
the date of acquisition;
17
<PAGE>
Money market funds at least 95% of the assets of which constitute cash
equivalents of the kind described in the sections above.
At the Authority's option, the Bank Credit Facility interest will accrue on
the basis of a one-month, 3-month or 6-month LIBOR based formula, plus
applicable basis point spreads. The Authority is exposed to market risk in the
form of fluctuations in interest rates and their potential impact upon the
Authority's variable-rate debt. The Authority will manage this market risk by
utilizing derivative financial instruments in accordance with established
policies and procedures. The Authority has entered into agreements, effective
October 2000, with highly rated institutions that can be expected to fully
perform under the terms of such agreements. These institutions are also members
of the bank group providing the Authority's credit facility, which management
believes further minimizes the risk of nonperformance. The Authority evaluates
its exposure to market risk by monitoring interest rates in the marketplace.
The Authority does not utilize derivative financial instruments for trading
purposes.
The Authority's derivative financial instruments consist exclusively of
interest rate caps and interest rate collars.
18
<PAGE>
PART II -- OTHER INFORMATION:
Item 1 -- 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 advice 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
None
19
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOHEGAN TRIBAL GAMING AUTHORITY
<TABLE>
<C> <S> <C> <C>
Date: May 12, 2000 By: /s/ Roland J. Harris
------------- ----------------------------------------
Roland J. Harris
Chairman, Management Board
Date: May 12, 2000 By: /s/ William J. Velardo
------------- ----------------------------------------
William J. Velardo
President and General Manager
Date: May 12, 2000 By: /s/ Jeffrey E. Hartmann
------------- ----------------------------------------
Jeffrey E. Hartmann, Executive Vice President
Finance/Chief Financial Officer
(Principal Financial and Accounting Officer)
</TABLE>
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> SEP-30-2000 SEP-30-1999
<PERIOD-START> OCT-01-1999 OCT-01-1998
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 224,025 263,785
<SECURITIES> 0 0
<RECEIVABLES> 7,572 3,139
<ALLOWANCES> (1,422) (412)
<INVENTORY> 6,706 6,141
<CURRENT-ASSETS> 240,223 410,674
<PP&E> 341,490 326,551
<DEPRECIATION> 57,997 37,660
<TOTAL-ASSETS> 820,567 859,157
<CURRENT-LIABILITIES> 64,732 190,518
<BONDS> 500,000 500,000
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (420,595) (405,236)
<TOTAL-LIABILITY-AND-EQUITY> 820,567 859,157
<SALES> 393,624 345,378
<TOTAL-REVENUES> 393,624 345,378
<CGS> (20,269) (14,673)
<TOTAL-COSTS> (271,434) (250,063)
<OTHER-EXPENSES> (27,072) (34,802)
<LOSS-PROVISION> (414) (147)
<INTEREST-EXPENSE> (23,159) (25,616)
<INCOME-PRETAX> 59,703 33,133
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 59,703 33,133
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (39,423)
<CHANGES> 0 0
<NET-INCOME> 59,703 (6,290)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
