<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 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
MOHEGAN TRIBAL GAMING AUTHORITY
(Exact name of registrant as specified in its charter)
Connecticut 06-1436334
(State or other jurisdiction of (IRS employer
incorporation or organization) Identification No.)
One Mohegan Sun Boulevard, Uncasville, CT 06382
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (860) 204-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
NONE
----------------------- -----------------------
----------------------- -----------------------
----------------------- -----------------------
Securities registered pursuant to Section 12(g) of the Act:
NONE
-----------------------
(Title of Class)
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>
PART I -- FINANCIAL INFORMATION Page
Number
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<S> <C>
Item 1 -- Financial Statements
Review Report of Independent Public Accountants 1
Balance Sheets of Mohegan Tribal Gaming Authority as of June 30, 2000
(unaudited) and September 30, 1999. 2
Statements of Income of Mohegan Tribal Gaming Authority for the Three and Nine
Months Ended June 30, 2000 and 1999 (unaudited). 3
Statements of Capital of Mohegan Tribal Gaming Authority for the Nine Months
Ended June 30, 2000 and 1999 (unaudited). 4
Statements of Cash Flows of Mohegan Tribal Gaming Authority for the Nine
Months Ended June 30, 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. 11-17
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 June 30, 2000, and the related statements of
income for the three and nine month periods ended June 30, 2000 and 1999 and the
statements of capital and cash flows for the nine month periods ended June 30,
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
August 4, 2000
<PAGE>
Mohegan Tribal Gaming Authority
-------------------------------
Balance Sheets
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(in thousands)
--------------
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
----------- -------------
(unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 201,238 $ 276,598
Defeasance trust asset (Note 2) - 138,845
Receivables, net 7,283 3,306
Due from affiliates (Note 8) 18,556 -
Inventories 7,194 5,971
Other current assets 7,190 1,891
----------- -------------
Total current assets 241,461 426,611
Non-current assets:
Property and equipment, net 341,553 287,858
Construction in process 131,865 52,031
Trademark, net 123,987 127,423
Other assets, net 24,626 21,039
----------- -------------
Total assets $ 863,492 $ 914,962
=========== =============
LIABILITIES AND CAPITAL
-----------------------
Current liabilities:
Current portion of capital lease obligations (Note 3) $ 7,212 $ 12,222
Defeasance trust liability (Note 2) - 136,254
Current portion of Relinquishment liability 42,217 19,973
Accounts payable and accrued expenses 44,036 45,827
Accrued interest payable 21,250 10,625
----------- -------------
Total current liabilities 114,715 224,901
Non-current liabilities:
Long-term debt (Note 2) 500,000 500,000
Relinquishment liability, net of current portion (Note 6) 631,135 641,037
Capital lease obligations, net of current portion (Note 3) 3,010 7,076
----------- -------------
Total liabilities 1,248,860 1,373,014
Commitments and contingencies (Note 4)
Capital:
Total capital (385,368) (458,052)
----------- -------------
Total liabilities and capital $ 863,492 $ 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
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(in thousands)
--------------
<TABLE>
<CAPTION>
For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Gaming $177,970 $161,444 $518,443 $463,284
Food and beverage 11,242 11,683 34,239 34,566
Retail and other 12,349 9,412 38,472 26,261
Bingo operations 1,217 1,155 4,001 3,894
--------------------- ------------------- ------------------- -------------------
Gross revenues 202,778 183,694 595,155 528,005
Less - Promotional allowances (17,255) (14,666) (52,670) (42,046)
--------------------- ------------------- ------------------- -------------------
Net revenues 185,523 169,028 542,485 485,959
--------------------- ------------------- ------------------- -------------------
Cost and expenses:
Gaming 77,502 69,535 225,987 196,691
Food and beverage 5,565 5,399 17,429 16,362
Retail and other 4,836 4,341 15,896 15,600
Bingo 414 975 2,164 2,865
General and administration 32,094 26,458 98,120 85,968
Pre-opening costs 1,381 - 3,398 -
Management fee (Note 6) - 16,047 13,634 44,090
Depreciation and amortization 7,500 6,238 22,786 16,413
--------------------- ------------------- ------------------- -------------------
Total costs and expenses 129,292 128,993 399,414 377,989
--------------------- ------------------- ------------------- -------------------
Income from operations 56,231 40,035 143,071 107,970
--------------------- ------------------- ------------------- -------------------
Other income (expense):
Relinquishment liability reassessment
(Note 6) (5,763) (5,504) (17,290) (16,511)
Interest and other income 2,892 4,393 10,439 6,214
Interest expense (8,132) (15,503) (31,291) (41,118)
--------------------- ------------------- ------------------- -------------------
(11,003) (16,614) (38,142) (51,415)
--------------------- ------------------- ------------------- -------------------
Income before extraordinary items 45,228 23,421 104,929 56,555
Extraordinary items - - - (39,423)
--------------------- ------------------- ------------------- -------------------
Net income $ 45,228 $ 23,421 $104,929 $ 17,132
===================== =================== =================== ===================
</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
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(in thousands)
--------------
<TABLE>
<CAPTION>
For the Nine Months For the Nine Months
Ended June 30, 2000 Ended June 30, 1999
------------------- -------------------
(unaudited) (unaudited)
<S> <C> <C>
Beginning balance $(458,052) $(377,874)
Net income 104,929 17,132
Capital contribution by Tribe - 97,097
Distributions to Tribe (32,245) (127,779)
--------------------------- ---------------------------
Ending balance $(385,368) $(391,424)
=========================== ===========================
</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 Nine Months Ended For the Nine Months Ended
June 30, 2000 June 30, 1999
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows provided by operating activities:
Net income $104,929 $17,132
Adjustments to reconcile net income to
net cash flow provided by operating activities:
Depreciation and amortization 22,786 16,413
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 542 467
Relinquishment reassessment 17,290 16,511
Changes in operating assets and liabilities:
Increase in current assets (32,210) (5,158)
Increase in current liabilities 12,924 13,897
------------------------- -------------------------
Net cash flows provided by operating activities 126,443 99,020
------------------------- -------------------------
Cash flows used in investing activities:
Purchase of property and equipment (70,863) (19,677)
Increase in construction in process (79,834) (10,360)
------------------------- -------------------------
Net cash flows used in investing activities (150,697) (30,037)
------------------------- -------------------------
Cash flows (used in) provided by financing activities:
Defeasance liability (140,344) -
Defeasance trust asset 135,507 (135,507)
Distributions to Tribe (32,245) (127,779)
Payment on equipment financing (9,076) (8,240)
Relinquishment liability (4,948) -
Proceeds from issuance of long-term debt - 500,000
Extinguishment of Senior Secured Notes - (208,717)
Capital contribution by Tribe - 97,097
Capitalized financing fees - (18,529)
Proceeds from equipment financing - 879
------------------------- -------------------------
Net cash flows (used in) provided by financing activities (51,106) 99,204
------------------------- -------------------------
Net (decrease) increase in cash and cash equivalents (75,360) 168,187
Cash and cash equivalents at beginning of period 276,598 110,728
------------------------- -------------------------
Cash and cash equivalents at end of period $201,238 $278,915
========================= =========================
Supplemental disclosures:
Cash paid during the period for interest $72,491 $30,634
========================= =========================
</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 nine months ended June 30, 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 June 30, 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 1-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 1-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 1-month
LIBOR. The Authority paid a premium of $221,000 for the transaction.
All premiums paid for hedging transactions have been capitalized and are
reflected in other assets in the accompanying balance sheet as of June 30, 2000.
These premiums will be amortized over the life of the hedging agreement.
Letters of Credit
The Authority has available a $250,000 unsecured letter of credit with Fleet
National Bank that has been renewed and will expire on August 31, 2001, and a
$1.0 million letter of credit agreement with Bank of America that expires in
April 2001. As of June 30, 2000, no amounts were drawn on the letters of credit.
On April 12, 2000, the letter of credit agreement with Bank of America was
renewed and reduced to $1.0 million from $1.6 million.
7
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
-------------------------------
NOTES TO FINANCIAL STATEMENTS--(Continued)
------------------------------------------
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 June 30, 2000, the Authority was in
compliance with all covenant requirements.
3. Leases:
At June 30, 2000, the Authority was obligated under capital leases to make
future minimum lease payments as follows:
Capital
For the fiscal year ending September 30, Leases
---------------------------------------- ------
(In Thousands)
2000 $ 3,324
2001 5,062
2002 2,357
2003 65
-------
Total minimum lease payment 10,808
Amount representing interest (586)
-------
Total obligation under capital leases 10,222
Less: Amount due within one year (7,212)
-------
Amount due after one year $ 3,010
=======
Lease expenses excluding costs to obtain assets for the three months ended June
30, 2000 and 1999 were $756,000 and $902,000, respectively. For the nine months
ended June 30, 2000 and 1999 lease expenses excluding costs to obtain assets
were $2.6 million and $2.7 million, respectively. Certain operating leases were
accelerated to obtain assets. The Authority has remitted $2.7 million,
representing full and final payment of its operating leases to obtain these
assets.
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 $34.2 million and $30.3
million, respectively for the quarters ended June 30, 2000 and 1999. For the
nine months ended June 30, 2000 and 1999, the Authority incurred expenses of
$97.8 million and $86.6 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 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.
8
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MOHEGAN TRIBAL GAMING AUTHORITY
-------------------------------
NOTES TO FINANCIAL STATEMENTS--(Continued)
------------------------------------------
As of June 30, 2000, the Authority has paid $2.9 million to the Town of
Montville for 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 June 30, 2000, Perini has
received $6.6 million of the $20.5 million fee which has been included in
construction in process in the accompanying balance sheet. 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 each of the quarters ended
June 30, 2000 and 1999, the Authority incurred expenses of $2.0 million for such
services. For the nine months ended June 30, 2000 and 1999, the Authority
incurred expenses of $6.8 million and $5.9 million, respectively for tribal
governmental and administrative services. Distributions to the Tribe for the
quarters ended June 30, 2000 and 1999 were $10.0 million and $9.6 million,
respectively. For the nine months ended June 30, 2000 and 1999, these
distributions totaled $32.2 million and $127.8 million, respectively. Of the
$127.8 million distributed to the Tribe for the nine months ended June 30, 1999,
$97.1 million was returned to the Authority as a capital contribution by the
Tribe.
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 commenced on April 25,
2000, twenty-five days subsequent to the end of the first three-month period
following the Relinquishment Date and continue at the end of each three-month
period occurring thereafter until December 31, 2014. Junior Relinquishment
Payments were scheduled to 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. "Revenues" are defined as gross gaming revenues (other than Class II
gaming revenue) and all other facility revenues (including, without limitation,
hotel revenues, room service, food and beverage sales, ticket revenues, fees or
receipts from convention/events center 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).
9
<PAGE>
MOHEGAN TRIBAL GAMING AUTHORITY
-------------------------------
NOTES TO FINANCIAL STATEMENTS--(Continued)
------------------------------------------
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 June 30, 2000, the relinquishment liability, which is
reassessed quarterly, has been reassessed to be $673.4 million from $661.0
million at September 30, 1999. For the nine months ended June 30, 2000 the $12.4
million increase reflects a $17.3 million reassessment for the time value of
money due to the passage of time net of $4.9 million of Senior Relinquishment
Payments. At June 30, 2000, approximately $15.0 million was included in the
relinquishment liability representing the amount earned from January 1, 2000 to
June 30, 2000. This includes $4.9 million of Senior Relinquishment Payments
relating to the period from April 1, 2000 to June 30, 2000 and $10.1 million of
Junior Relinquishment Payments relating to the period from January 1, 2000 to
June 30, 2000. For the three months ended June 30, 2000, the quarterly
reassessment for the time value of money due to the passage of time 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 $16.0
million for the quarter ended June 30, 1999. For the nine months ended June 30,
2000 (which reflects only amounts incurred from October 1, 1999 through December
31, 1999, the date upon which the management agreement was terminated) and for
the nine months ended June 30, 1999, management fees totaled $13.6 million and
$44.1 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 June 30, 2000, TCA had earned $3.5 million of the $14 million
development fee of which $2.2 million was paid. On July 17, 2000, the remaining
$1.3 million due and outstanding was paid. The development fee is paid
quarterly based on the terms of the Development Agreement.
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 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 $393,000 and $653,000, respectively, to this plan
for the quarters ended June 30, 2000 and 1999. Cumulative contributions have
totaled $1.7 million and $1.4 million for the nine months ended June 30, 2000
and 1999, respectively.
10
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MOHEGAN TRIBAL GAMING AUTHORITY
-------------------------------
NOTES TO FINANCIAL STATEMENTS--(Continued)
------------------------------------------
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 June 30, 2000, contributions by Authority employees totaled $240,000.
Cumulative contributions by Authority employees to the plan have totaled
$641,000.
8. Due from Affilitates
At June 30, 2000, amounts due from affiliates totaled $18.6 million, which
consist of $13.5 million relating to infrastructure improvements that will
service Mohegan Sun and $5.1 million relating to the Public Safety Facility that
will service the Mohegan Reservation. Construction costs for both projects are
currently funded by the Authority. On August 14, 2000, the Tribe reimbursed the
Authority $18.6 million for these project costs.
9. Recent Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS No.
133"), "Accounting for Derivative Instruments and Hedging Activities" was
issued. This statement revises the accounting for derivative financial
instruments. The Authority is currently analyzing the impact of this statement
which is required to be adopted in the first fiscal year after June 15, 2000 and
does not expect it to have a material impact on the Authority's financial
position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 "Revenue Recognition". This bulletin, as amended, establishes
guidelines for revenue recognition and is required to be adopted no later than
the fourth fiscal quarter of the fiscal year beginning after December 15, 1999.
The Authority is currently analyzing the impact of this statement and does not
expect this statement to have a material impact on the Authority's financial
position or results of operations.
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 June 30, 2000 and
1999:
Net revenues for the three months ended June 30, 2000 were $185.5 million
compared to $169.0 million reported for the same period of the prior year. This
9.8% increase is primarily attributable to an increase in gaming revenues.
Gaming revenues totaled $178.0 million for the three months ended June 30, 2000
compared to $161.4 million for the three months ended June 30, 1999. The
increase of 10.2% in gaming revenues is due to an 11.9% growth in slot machine
revenues and a 4.5% increase in table game revenue.
For the three months ended June 30, 2000, food and beverage revenues were $11.2
million compared to $11.7 million for the three months ended June 30, 1999. The
3.8% decrease in food and beverage revenue is attributable to a 2.4% decrease in
food covers for the three months ended June 30, 2000 as compared to the same
period in the prior year.
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Retail and other revenues were $12.3 million and $9.4 million for the three
months ended June 30, 2000 and 1999, respectively. This represents growth of
$2.9 million, or 31.2%, over the same period in the prior year. Of the $2.9
million increase in retail and other revenues, $2.2 million is attributable to
the growth of the Mohegan Sun gasoline and convenience center.
Bingo revenues increased $62,000, or 5.4%, during the three months ended June
30, 2000 compared to the same period in the prior year as a result of a greater
number of bingo sessions. Bingo revenues were $1.2 million for each of the
three months ended June 30, 2000 and 1999.
Promotional allowances totaled $17.3 million for the three months ended June 30,
2000, representing a $2.6 million, or 17.7%, increase over the same period in
the prior year. The growth is primarily attributable to increased redemption of
Mohegan Sun Player's Club points. The increase in promotional allowances is
also attributable to the higher utilization of the Mohegan Sun gasoline and
convenience center. Promotional allowances as a percentage of gaming revenue
were 9.7% and 9.1% for the three months ended June 30, 2000 and 1999,
respectively.
Total costs and expenses were $129.3 million for the three months ended June 30,
2000, an increase of $299,000 over the same period in the prior year. The
increase is the combined result of increased gaming expense, pre-opening 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 effective January 1, 2000.
Gaming costs and expenses were $77.5 million for the three months ended June 30,
2000, an increase of $8.0 million, or 11.5%, over the same period in the prior
year. The slot win contribution totaled $34.2 million and $30.3 million for the
three months ended June 30, 2000 and 1999, respectively. The slot win
contribution increase of $3.9 million, or 12.8%, over the same period in the
prior year is directly attributable to the $14.3 million, or 11.9%, increase in
slot revenues. The balance of the growth in gaming costs and expenses is
attributable to an increase in the cost of providing casino marketing
complimentaries.
Food and beverage costs were $5.6 million for the three months ended June 30,
2000, an increase of $166,000 or 3.1% from the same period in the prior year.
The increase is primarily attributable to higher labor costs.
Retail and other costs were $4.8 million for the three months ended June 30,
2000, an increase of $495,000, or 11.4%, over the same period in the prior year.
The increase is directly attributable to the 31.2% growth in retail and other
revenue which is attributable to the shift of coupon redemption from food and
beverage to retail outlets.
Bingo operation costs were $414,000 for the three months ended June 30, 2000, a
decrease of $561,000, or 57.5%, over the same period in the prior year due to
increased operating efficiencies.
General and administrative costs were $32.1 million for the three months ended
June 30, 2000. The increase of $5.6 million, or 21.3%, for the same period in
the prior year is attributable to continued casino marketing and advertising.
The marketing programs have driven incremental visitation, expanding our brand
awareness and market share.
Pre-opening costs for Project Sunburst totaled $1.4 million for the three months
ended June 30, 2000. Expansion costs are primarily composed of pre-opening
labor and advertising costs associated with the Project Sunburst expansion.
Mohegan Sun did not incur pre-opening expansion costs for the three months ended
June 30, 1999.
TCA did not receive management fees for the three months ending June 30, 2000,
as a result of the termination of the Management Agreement on January 1, 2000.
Management fees earned by TCA totaled $16.0 million for the three months ended
June 30, 1999.
12
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For the three months ended June 30, 2000, depreciation and amortization
increased by $1.3 million, or 20.2%, 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 June 30, 2000
and 1999 were $7.5 million and $6.2 million, respectively.
Income from operations for the three months ended June 30, 2000 totaled $56.2
million, compared to $40.0 million for the same period in the prior year. This
represents a $16.2 million, or 40.5%, increase over the same period in the prior
year.
For the three months ended June 30, 2000, the relinquishment liability
reassessment was $5.8 million compared to $5.5 million for the same period in
the prior year. This increase of $259,000 or 4.7% is due to the Authority's
quarterly reassessment of the liability to reflect the impact of the time value
of money due to the passage of time.
Interest and other income were $2.9 million for the three months ended June 30,
2000, a decrease of $1.5 million, or 34.2%, from the same period in the prior
year. The decrease in interest income resulted from the liquidation of
investments to cover construction payments. The weighted average invested cash
was $173.5 million and $246.2 million for the three months ended June 30, 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 $8.1 million for the three months ended June 30, 2000
represented a decrease of $7.4 million, or 47.5%, over the same period in the
prior year. This decrease was mainly attributable to lower average debt
outstanding, lower average interest rates and increased capitalization of
interest related to Project Sunburst. Capital interest was $2.7 million for the
three months ended June 30, 2000 compared to $70,000 for the same period in the
prior year. The weighted average interest rate for the three months ended June
30, 2000 was 8.40%, compared to 8.84% for the three months ended June 30, 1999.
The weighted average outstanding debt was $511.3 million for the three months
ended June 30, 2000, compared to $613.2 million for the three months ended June
30, 1999.
Comparison of Operating Results for the Nine Months Ended June 30, 2000 and
1999:
Net revenues for the nine months ended June 30, 2000 were $542.5 million
compared with $486.0 million for the same period of the prior year. This 11.6%
increase is primarily attributable to an increase in gaming revenues.
Gaming revenues totaled $518.4 million for the nine months ended June 30, 2000,
an increase of $55.2 million or 11.9% over the nine months ended June 30, 1999.
The increase in gaming revenues is due to a 13.1% growth in slot machine
revenues and an 8.1% growth in table game revenue.
For the nine months ended June 30, 2000, food and beverage revenues were $34.2
million compared to $34.6 million for the nine months ended June 30, 1999. The
decrease in revenue is attributable to a decrease in food covers for the nine
months ended June 30, 2000 as compared to the same period in the prior year.
Retail and other revenues were $38.5 million and $26.3 million for the nine
months ended June 30, 2000 and 1999, respectively. This represents a growth of
$12.2 million, or 46.5%, over the same period in the prior year. Of the $12.2
million increase in retail and other revenues, $8.1 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
nine months ending June 30, 2000 versus the 205 days of operation for the period
ending June 30, 1999. The remaining $4.1 million increase is due to increased
retail sales primarily as a result of patrons utilizing their Player's Club
points in our retail outlets.
Bingo revenues increased $107,000, or 2.7%, to $4.0 million during the nine
months ended June 30, 2000 compared to the same period in the prior year as the
result of a greater number of patrons attending the bingo sessions. Bingo
revenues for the nine months ended June 30, 1999 were $3.9 million.
13
<PAGE>
Promotional allowances totaled $52.7 million for the nine months ended June 30,
2000, representing a $10.6 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 higher utilization of the Mohegan Sun gasoline and
convenience center. Promotional allowances as a percentage of gaming revenue
were 10.2% and 9.1% for the nine months ending June 30, 2000 and 1999,
respectively.
Total costs and expenses were $399.4 million for the nine months ended June 30,
2000, an increase of $21.4 million, or 5.7%, over the same period in the prior
year. The increase is the combined result of increased gaming volume, pre-
opening expansion costs for Project Sunburst and 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
effective January 1, 2000. Total costs and expenses were $378.0 million for the
nine months ended June 30, 1999.
Gaming costs and expenses were $226.0 million for the nine months ended June 30,
2000, an increase of $29.3 million, or 14.9%, over the same period in the prior
year. The slot win contribution totaled $97.8 million and $86.6 million for the
nine months ended June 30, 2000 and 1999, respectively. This represents an
increase of $11.2 million, or 12.9%, over the same period in the prior year,
which is directly attributable to the $44.5 million increase in slot revenues.
The balance of the increase is due to an increase in the cost of providing
casino marketing complimentaries.
Food and beverage costs were $17.4 million for the nine months ended June 30,
2000, an increase of $1.1 million, or 6.5%, over the same period in the prior
year. Food and beverage costs were $16.4 million for the nine months ended June
30, 1999. The increase is attributable to increased labor costs.
Retail and other costs were $15.9 million for the nine months ended June 30,
2000, an increase of $296,000 or 1.9% over the same period in the prior year.
The increase is attributable to the 46.5% increase in retail and other revenue
which is attributable to the shift of coupon redemption from food and beverage
to retail outlets.
Bingo operation costs were $2.2 million for the nine months ended June 30, 2000,
a decrease of $701,000 or 24.5% over the same period in the prior year as a
result of fewer bingo sessions being conducted.
General and administrative costs were $98.1 million for the nine months ended
June 30, 2000. The increase of $12.2 million, or 14.1%, for the same period in
the prior year is attributable to continued casino marketing and advertising.
The marketing programs have driven incremental visitation, expanding our brand
awareness and market share.
Expansion costs for Project Sunburst totaled $3.4 million for the nine months
ended June 30, 2000. Expansion costs are composed of pre-opening labor and
advertising costs associated with the Project Sunburst expansion. Mohegan Sun
did not incur pre-opening expansion costs for the nine months ended June 30,
1999.
Management fees earned by TCA totaled $13.6 million and $44.1 million for the
nine months ended June 30, 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 nine months ended June 30, 2000, depreciation and amortization was $22.8
million, an increase of $6.4 million, or 38.8%, 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.
Income from operations for the nine months ended June 30, 2000 totaled $143.1
million, compared to $108.0 million for the same period in the prior year. This
represents a $35.1 million, or 32.5%, increase.
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<PAGE>
For the nine months ended June 30, 2000, the relinquishment liability
reassessment was $17.3 million as compared to $16.5 for the same period in the
prior year. This increase of $779,000 or 4.7% represents the Authority's
quarterly reassessment of the liability to reflect the impact of the time value
of money due to the passage of time.
Interest and other income was $10.4 million for the nine months ended June 30,
2000, an increase of $4.2 million, or 68.0%, over the same period in 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 $194.7 million and $118.1 million for the nine months ended
June 30, 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 $31.3 million for the nine months ended June 30, 2000
represented a decrease of $9.8 million, or 23.9%, over the same period in the
prior year. This decrease was mainly attributable to the lower average debt
outstanding, lower average interest rates and increased capitalization of
interest related to Project Sunburst. The weighted average interest rate for the
nine months ended June 30, 2000 was 8.39% compared to 11.20% for the nine months
ended June 30, 1999. The weighted average outstanding debt was $514.3 million
for the nine months ended June 30, 2000 as compared to $376.0 million for the
nine months ended June 30, 1999. During fiscal 2000, $5.6 million of interest
was capitalized as part of Project Sunburst, compared to $70,000 in capitalized
interest for the nine months ended June 30, 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 for the period ending June
30, 1999.
Liquidity, Capital Resources and Capital Spending
As of June 30, 2000 and 1999, the Authority held cash and cash equivalents of
$201.2 million and $276.6 million, respectively. Cash provided by operating
activities for the nine months ended June 30, 2000 was $126.4 million, compared
to cash provided by operating activities of $99.0 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 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, with which the
Authority remains compliant with as of June 30, 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 1-month LIBOR. The Authority paid a premium of $295,000 for this
transaction.
15
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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 1-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 1-month
LIBOR. The Authority paid a premium of $221,000 for this transaction.
As of June 30, 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 debt financing facilities, the Mohegan Tribe
has set aside, with a trustee, a $40.0 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. Project Sunburst is the $800
million expansion of Mohegan Sun. Project Sunburst consists of 115,000 square
feet of additional gaming space, a 1,200 room luxury hotel, 100,000 square feet
of convention space, a 10,000 seat arena, spectacular restaurants and
approximately 150,000 square feet of retail space. Three components of Project
Sunburst, the Casino of the Sky, Mohegan Sun Arena and the Shops at Mohegan Sun
are anticipated to open in the fall of 2001. The hotel and convention space are
anticipated to open in the spring of 2002. Capital expenditures totaled $150.7
million for the nine months ended June 30, 2000. These included property
maintenance capital expenditures for furniture, fixtures and equipment of $11.5
million, employee parking center expenditures of $14.4 million and construction
costs related to Project Sunburst of $124.8 million.
Cumulative Project Sunburst construction costs totaled $162.2 million through
June 30, 2000. For the remaining quarter of fiscal 2000, based on TCA estimates,
the Authority anticipates spending of $99.6 million on Project Sunburst costs.
For fiscal 2000, the Authority expects capital expenditures to total
approximately $23.4 million on facility improvements and maintenance capital
expenditures, $224.4 million on Project Sunburst construction and $14.4 million
on the employee parking garage center.
TCA recently has advised the Authority of the potential for cost overruns in
connection with the performance of the mechanical, electrical and plumbing
contracts relating to Project Sunburst. TCA has informed the Authority that it
is acting aggressively to eliminate or minimize any such potential overruns.
However, due in part to rising labor costs, the Authority can not give any
assurance TCA will be successful, or that the actual amounts the Authority will
have to pay for the mechanical, electrical and plumbing work on Project Sunburst
will not exceed budgeted levels.
In light of these recent developments, the Authority has requested from TCA a
revised, itemized budget of the total costs to complete Project Sunburst. Such
budget is to be delivered to the Authority in September 2000. In addition, the
Authority has requested Perini, as construction manager for Project Sunburst,
prepare a master agreement specifying a guaranteed maximum price for all
remaining work on Project Sunburst. Like with the revised budget, such contract
is to be delivered to the Authority for review and negotiation in September
2000.
During the nine months ended June 30, 2000, the Authority distributed $32.2
million to the Mohegan Tribe.
The Mohegan Tribal Utility Authority commenced construction of a $61.0 million
electrical, natural gas, water and sewer systems infrastructure ("Infrastructure
Improvements") that will service Mohegan Sun and other facilities. The
infrastructure improvements budget was increased from the amounts previously
disclosed and now includes the cost of significant upgrades to the Town of
Montville Wastewater Treatment system that were not initially contemplated. The
upgrades provide the most efficient manner of handling the increased wastewater
of the property that is attributable to the Project Sunburst expansion. The
construction was initially funded by the Authority, and is expected to be
complete concurrent with the opening of Project Sunburst. Approximately $13.5
million has been incurred and reflected as amounts due from affiliates in the
Authority's balance sheet as of June 30, 2000. On August 14, 2000, the Tribe
reimbursed the $13.5 million to the Authority.
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<PAGE>
The Tribe commenced construction of a Public Safety Facility that will service
the Mohegan Reservation. Construction was initially funded by the Authority.
Approximately $5.1 million has been incurred and reflected as amounts due from
affiliates in the Authority's balance sheet as of June 30, 2000. On August 14,
2000, the Tribe reimbursed the $5.1 million to the Authority.
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 $673.4 million as of June 30, 2000. In April
2000, the Authority paid $4.9 million in Senior Relinquishment payments. In July
2000, the Authority paid $4.9 million in Senior Relinquishment payments and
$10.1 million in Junior Relinquishment Payments, 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; and
Money market funds at least 95% of the assets of which constitute cash
equivalents of the kind described in the sections above.
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At the Authority's option, the Bank Credit Facility will accrue interest on the
basis of a 1-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 to manage interest rates
up to 50% of its total available borrowings under the Bank Credit Facility,
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 Bank 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.
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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
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOHEGAN TRIBAL GAMING AUTHORITY
-------------------------------
Date: August 14, 2000 By: /s/ Roland J. Harris
--------------- ----------------------------
Roland J. Harris
Chairman, Management Board
Date: August 14, 2000 By: /s/ William J. Velardo
--------------- ----------------------------
William J. Velardo
President and General Manager
Date: August 14, 2000 By: /s/ Jeffrey Hartmann
--------------- ----------------------------
Jeffrey E. Hartmann, Executive Vice President
Finance/Chief Financial Officer (Principal
Financial and Accounting Officer)
