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: 6/30/97
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period to .
Commission file number: 333-17795
WATERFORD GAMING, L.L.C.
(Exact name of Registrant as specified in its charter)
DELAWARE 06-1465402
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
914 HARTFORD TURNPIKE
P.O. BOX 715
WATERFORD, CT 06385
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 860-442-4559
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
WATERFORD GAMING, L.L.C.
INDEX TO FORM 10-Q
Page
Number
PART I -- FINANCIAL INFORMATION
ITEM 1 -- Financial Statements
Report of Independent Accountants 1
Financial Information 2
Condensed Balance Sheets of Waterford Gaming, L.L.C.
as of June 30, 1997 (unaudited) and December 31, 1996. 3
Condensed Statements of Operations of Waterford Gaming,
L.L.C. for the three months and six months ended
June 30, 1997 (unaudited). 4
Condensed Statement of Changes in Members' Deficiency
of Waterford Gaming, L.L.C. for the six months ended
June 30, 1997 (unaudited). 5
Condensed Statement of Cash Flows of Waterford Gaming,
L.L.C. for the six months ended June 30, 1997 (unaudited). 6
Notes to Condensed Financial Statements of Waterford Gaming,
L.L.C. 7-8
ITEM 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9-16
PART II -- OTHER INFORMATION
ITEM 1 -- Legal Proceedings 17
ITEM 2 -- Changes in Securities 17
ITEM 3 -- Defaults upon Senior Securities 17
ITEM 4 -- Submission of Matters to a Vote of Security Holders 17
ITEM 5 -- Other Information 17
ITEM 6 -- Exhibits and Reports on Form 8-K 17-19
Signatures - Waterford Gaming, L.L.C. 20
Report of Independent Accountants
To the Members of Waterford Gaming, L.L.C.:
We have reviewed the condensed balance sheet of Waterford Gaming, L.L.C.
(the "Company") as of June 30, 1997, and the related condensed statements
of operations for the three months and six months ended June 30, 1997, and
the related condensed statement of changes in members' deficiency and cash
flows for the six months ended June 30, 1997. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet as of December 31, 1996, and the related
statements of operations, changes in members' equity (deficiency) and cash
flows for the period from September 30, 1996 (commencement of operations)
to December 31, 1996 (not presented herein); and in our report dated
April 11, 1997, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the condensed
balance sheet as of December 31, 1996, is fairly stated, in all material
respects, in relation to the balance sheet from which it has been derived.
Coopers & Lybrand, L.L.P.
Hartford, Connecticut
July 25, 1997
1
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited condensed financial information as of June 30, 1997, and for
the three months and six months ended June 30, 1997, included in this report
was reviewed by Coopers & Lybrand, L.L.P., independent public accountants,
in accordance with the professional standards and procedures established for
such reviews by the American Institute of Certified Public Accountants.
2
WATERFORD GAMING, L.L.C.
CONDENSED BALANCE SHEETS
June 30, 1997 (Unaudited) and December 31, 1996
________
ASSETS
June 30, December 31,
1997 1996
Current assets:
Cash $ 862,657 $ 841,512
Temporary investments 15,150,958 15,895,904
Due from Trading Cove Associates 32,699 ----
Other assets 2,717 ----
---------- ----------
Total current assets 16,049,031 16,737,416
---------- ----------
Investment in Trading Cove Associates 11,747,610 12,682,469
Investment in 15% subordinated
notes receivable 25,806,647 25,965,897
Deferred financing costs, net of accumulated
amortization of $271,459 2,776,772 2,788,529
---------- ----------
Total assets $56,380,060 $58,174,311
=========== ===========
LIABILITIES AND MEMBERS' DEFICIENCY
Current liabilities:
Accrued expenses $ 155,533 $ 53,510
Accrued interest on senior notes payable 1,058,958 1,220,104
--------- ---------
Total current liabilities 1,214,491 1,273,614
12-3/4% senior notes payable 65,000,000 65,000,000
---------- ----------
Total liabilities 66,214,491 66,273,614
---------- ----------
Members' deficiency ( 9,834,431) (8,099,303)
----------- ----------
Total liabilities and members'
deficiency $56,380,060 $58,174,311
=========== ===========
The accompanying notes are an integral part of the financial statements.
3
WATERFORD GAMING, L.L.C.
CONDENSED STATEMENTS OF OPERATIONS
for the three months and six months ended June 30, 1997
(Unaudited)
_________
For the three For the six
months ended months ended
June 30, 1997 June 30, 1997
Revenue:
Interest income $ 1,151,298 $ 2,247,710
Financing fee income -
Trading Cove Associates 842,699 1,285,039
--------- ---------
Total revenue 1,993,997 3,532,749
--------- ---------
Expenses:
Interest expense 2,078,375 4,150,250
Amortization on deferred financing costs 111,040 212,728
General and administrative (16,236) 44,934
--------- ---------
Total expenses 2,173,179 4,407,912
--------- ---------
(179,182) (875,163)
Equity in loss of Trading Cove Associates (454,565) (859,965)
---------- ----------
Net loss $ (633,747) $(1,735,128)
========== ===========
The accompanying notes are an integral part of the financial statements.
4
WATERFORD GAMING, L.L.C.
CONDENSED STATEMENT OF CHANGES IN MEMBERS' DEFICIENCY
for the six months ended June 30, 1997
(Unaudited)
_________
Slavik LMW Total
Suites, Investments Members'
Inc. Inc. Deficiency
Balance, January 1, 1997 $(5,412,165) $(2,687,138) $(8,099,303)
Net loss (1,176,360) (558,768) (1,735,128)
----------- ----------- -----------
Balance, June 30, 1997 $(6,588,525) $(3,245,906) $(9,834,431)
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
5
WATERFORD GAMING, L.L.C.
CONDENSED STATEMENT OF CASH FLOWS
for the six months ended June 30, 1997
(Unaudited)
_________
Cash flows from operating activities:
Net loss $(1,735,128)
-----------
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization 212,728
Equity in loss of Trading Cove Associates 859,965
Changes in operating assets and liabilities:
Accrued interest receivable -
15% subordinated notes receivable (1,798,410)
Accrued interest on temporary investments 27,819
Due from Trading Cove Associates (32,699)
Other assets (2,717)
Accrued expenses (20,410)
Accrued interest on senior notes payable (161,146)
---------
Total adjustments (914,870)
---------
Net cash used in operating activities (2,649,998)
---------
Cash flows from investing activities:
Return on investment -
15% subordinated notes receivable 1,957,660
Purchases and sales of temporary investments - net 717,127
Distribution from Trading Cove Associates 74,894
---------
Net cash provided by investing activities 2,749,681
---------
Cash flows from financing activities:
Deferred financing costs (78,538)
---------
Net increase in cash 21,145
Cash at beginning of period 841,512
-----------
Cash at end of period $ 862,657
===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 4,311,396
===========
Supplemental disclosure of non-cash financing activities:
Deferred financing costs funded through accrued expenses $ 122,433
===========
The accompanying notes are an integral part of the financial statements.
6
WATERFORD GAMING, L.L.C.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
_________
1. Basis of Presentation:
The unaudited interim financial statements should be read in conjunction
with the Company's 1996 audited financial statements within the Company's
Registration Satement on Form S-4, as amended, initially filed with the
Securities and Exchange Commission (the "Commission") File No. 333-17795
on April 29, 1997.
The unaudited interim financial statements include normal and recurring
adjustments which are, in the opinion of management, necessary to present
a fair statement of financial position as of June 30, 1997, and the results
of operations for the three months and six months ended June 30, 1997, and
the statement of members' deficiency and cash flows for the six months
ended June 30, 1997. The Company was formed on September 30, 1996 and,
accordingly, there are no comparative statements for the corresponding
three months and six months ending June 30, 1996. Results of operations
for the period are not necessarily indicative of the results to be
expected for the full year.
The following significant event has occurred subsequent to fiscal year
1996, which requires disclosure in this interim report per Regulation S-X,
Rule 10-01, Paragraph (a)(5).
Effective as of May 15, 1997, the Company's 12-3/4% senior notes payable
(the "Notes") were registered with the Commission through a Registration
Statement on Form S-4 under the Securities Exchange Act of 1933. As a
result, the Company is subject to the informational requirements of the
Securities Exchange Act of 1934.
7
2. Investment in Trading Cove Associates:
As of June 30, 1997, the following summary information relates to
Trading Cove Associates. Total revenues and net loss are for the six
months ended June 30, 1997:
Total assets $ 8,437,137
Total liabilities 2,155,133
------------
Partners' capital $ 6,282,004
============
Total revenues $ 11,993,681
============
Net loss $ (187,400)
============
Company's interest:
Investment in Trading Cove Associates,
beginning of year $ 12,682,469
Distributions (74,894)
------------
12,607,575
------------
Loss from Trading Cove Associates (93,700)
Amortization of interests purchased (766,265)
------------
Equity in loss of Trading Cove Associates (859,965)
------------
Investment in Trading Cove Associates $ 11,747,610
============
3. Notes Receivable:
On November 8, 1996, the Company invested in 15% subordinated notes
receivable from the Mohegan Tribal Gaming Authority (the "Subordinated
Notes") in the principal amount of $19,150,000 from Sun International
Hotels Limited ("Sun International"). The Company also purchased
the related accrued interest, deferred interest and Financing
Fee Amounts as defined as of November 8, 1996 totaling $5,922,543,
of which $1,957,660 relates to Financing Fee Amounts as defined owed
by Trading Cove Associates on the Subordinated Notes as of December 31,
1996. During the six months ended June 30, 1997, the Company received
$3,210,000 and accrued $32,699, totalling $3,242,699, in financing fee
payments from Trading Cove Associates. These financing fee payments
were first applied against the $1,957,660, which resulted in recognition
of $1,285,039 in financing fee income during the six months ended
June 30, 1997.
8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Company's financial statements and the notes
thereto included elsewhere herein.
Development and Operational Activities
The operation of the Company or its predecessors in its role as a managing
general partner of Trading Cove Associates (the "Manager") has been to
negotiate the Management Agreement as defined, to assist the Mohegan Tribe
of Indians of Connecticut (the "Tribe") and the Mohegan Tribal Gaming
Authority (the "Authority") in obtaining federal recognition, negotiate the
tribal-state compact with the State of Connecticut, obtain financing for the
development of the Mohegan Sun Casino (the "Mohegan Sun") located in
Uncasville, Connecticut, and participate in the design and development of the
Mohegan Sun which commenced operations on October 8, 1996. Since the opening
of the Mohegan Sun, the Company has overseen the Mohegan Sun's day-to-day
operations.
Overview of Current and Future Cash Flows
The Company expects to fund its operating debt service and capital needs
from cash flows from the Management Agreement as defined and Subordinated
Notes (to the extent interest or Financing Fee Amounts as defined are
payable in cash on the Subordinated Notes and to the extent of principal
payments on the Subordinated Notes) and from amounts in the Company's cash
collateral account (the "Cash Collateral Account"). Based upon the
Company's anticipated future operations, management believes that available
cash flow will be sufficient for that purpose. The following is a summary
of the cash flows of the Company.
For the six month period ended June 30, 1997, the Company received
$3,210,000 in cash distributions from the Manager and $32,699 was due from
the Manager, which represented its share of approximately $11,823,000 in
net management fees earned by the Manager from the Authority pursuant to the
terms of the Management Agreement as defined for the same period. The
actual amount of management fees earned by the Manager for any annual
period are subject to year-end adjustment.
Sources of Revenues. The Company has two sources of revenues:
distributions on its partnership interest in the Manager and payments on the
Subordinated Notes.
9
Distribution on the Company's partnership interest in the Manager
Pursuant to an agreement between the Manager and the Tribe, the Manager
manages the Mohegan Sun for a management fee under a seven year management
agreement (the "Management Agreement"). The Manager will have only one
source of revenue, management fees under the Management Agreement. The
management fees are calculated in three tiers based upon Net Revenues
of the Mohegan Sun set forth below (in thousands):
I II III
40% of Net Revenues in Tier I Revenues in
Revenues up to plus Tiers I &
35% of Net II plus 30% of
Revenues Net Revenues
between above
Year 1.....................$50,546 $50,547-$63,183 $63,183
Year 2.....................$73,115 $73,116-$91,394 $91,394
Year 3.....................$91,798 $91,799-$114,747 $114,747
Year 4.....................$95,693 $95,694-$119,616 $119,616
Year 5.....................$104,107 $104,108-$130,134 $130,134
Year 6 (subject to
Buyout Option).............$114,335 $114,336-$142,919 $142,919
Year 7 (subject to
Buyout Option).............$130,944 $130,945-$163,680 $163,680
The monthly management fee payments are calculated against 1/12th of the
amounts set forth above, and then adjusted annually within 60 days of the
close of the fiscal year. This annual adjustment might or might not have
a material effect on cash flow. As defined in the Management Agreement,
"Net Revenues" of the Mohegan Sun means the amount of the gross revenues of
the facility less operating expenses and certain specified categories of
revenue, such as income from any financing or refinancing, taxes or charges
received from patrons on behalf of and remitted to a governmental entity,
proceeds from the sale of capital assets, insurance proceeds and interest
on the capital replacement reserve. Net Revenues also include Net Gaming
Revenues, which are equal to the amount of the "net win" from Class III
Gaming operations (i.e., the difference between gaming wins and losses)
less all gaming-related operational expenses (excluding the management fee).
Within 25 days after the end of each calendar month, the Manager is required
to calculate and report to the Tribe, the gross revenues, operating expenses
and net revenues.
In addition, the Manager is required to fund $1.2 million per year ($100,000
per month) from its management fees into a capital replacement reserve. The
Management Agreement has a term of seven years that commenced upon the
opening of the Mohegan Sun, subject to a right of the Authority to buy-out
the Management Agreement after the fifth year (the "Buyout Option").
If the Management Agreement is bought out after the fifth year, the Company
will use its share of the proceeds to redeem Notes.
10
Upon receipt of the management fees, the Manager is required to make a number
of different types of payments to its subcontractors. The subcontracts are
primarily with its partners of their affiliates. Some of these payments
are one-time non-recurring payments (the "Non-recurring Payments") and others
are required on a continuing basis (the "Continuing Payments"). The payments
marked with an asterisk below are Non-recurring Payments and the others are
Continuing Payments. One of the considerations used by the National Indian
Gaming Commission in determining whether or not to approve a management
contract is whether the Manager is providing a portion of the capital required.
Accordingly, the Manager agreed to provide or cause to be provided $40 million
of capital in the form of the Subordinated Notes. However, at the time that
the subordinated loan was made, the partners of the Manager, including the
Company's predecessors-in-interest, did not participate in the loan in
accordance with their economic interests in the Manager. Therefore, the
partners of the Manager agreed that those entities who participated in
funding the Subordinated Notes would be entitled to financing fees (the
"Financing Fee Amounts") as a priority allocation of the management fee to
compensate those entities for the additional risk of funding the Subordinated
Notes. The Financing Fee Amounts represent a priority payment of available
cash by the Manager. If every partner of the Manager participated in the
Subordinated Notes to the extent of its pro rata economic interest in the
Manager, then the Financing Fee Amounts would have no economic effect on the
partners. Such payments by the Manager, along with the allocation of the other
management fees, are to compensate the recipients for the subcontracted
services provided by them to the Mohegan Sun, including compensation for the
provision of capital resources, and to provide the initial investors in the
Mohegan Sun with a return of capital for their initial investment.
The following table sets forth the priority of the distribution of the
management fee from the Manager to its partners:
*1. Return of capital contributions made after September 24, 1995.
These capital contributions aggregated $2.2 million and are to be repaid
to the partners, 50% to the Company and 50% to Sun Cove Ltd. These capital
contributions were deemed returned at the consummation of the offering of
the Notes upon the distribution by the Manager of the $1.7 million in
principal amount of Subordinated Notes together with accrued interest and
a cash distribution totalling $275,000, 50% to Sun Cove Ltd. and 50% to
the Company.
2. Payment of an amount equal to 11 1/2% per annum on the Subordinated
Notes. These payments will be made semi-annually to the holders of the
Subordinated Notes, 50% to the Company and 50% to Sun International.
3. Payment of an amount equal to the difference between 26 1/2% and the
reference rate of Chase Manhattan Bank plus 1.0% on the first $15.0 million
advanced under the Completion Guarantee (the "First Tranche Completion
Guarantee Subordinated Notes"). This amount will be paid semi-annually
pari passu with the amounts under paragraph 4.
11
This amount will be paid to Sun International. However, these amounts become
payable to the Company as it purchases its share of the First Tranche
Completion Guarantee Subordinated Notes over three years.
4. Payment of an amount equal to the reference rate of Chase Manhattan
Bank plus 1.0% on the First Tranche Completion Guarantee Subordinated Notes
to the extent the Authority is not permitted to pay interest thereon. This
amount will be paid semi-annually pari passu with the amount under paragraph
3. When the Authority can pay such interest, payment under this paragraph 4
shall be reduced accordingly. In addition, to the extent the Manager has
paid amounts otherwise payable by the Authority, the holder will be required
to repay the Manager.
5. Payment of an amount equal to the difference between 26 1/2% and the
reference rate of Chase Manhattan Bank plus 1.0% on the amounts advanced
under the Completion Guarantee in excess of the First Tranche Completion
Guarantee Subordinated Notes (which total $35.0 million) (the "Second
Tranche Completion Guarantee Subordinated Notes"). This amount
is paid semi-annually to Sun International.
*6. Return of capital contributions made before September 24, 1995. These
capital contributions aggregated approximately $6.72 million (balance as of
June 30, 1997 approximately $6.56 million) and are repaid to the partners,
50% to the Company and 50% to Sun Cove Ltd.
*7. Payment of a Development Services Fee to Sun International equal to 3%
of total development costs (less land acquisition costs) of the Mohegan Sun
plus $25,000 (estimated to be $8.3 million).
8. Payment of a monthly Management Services Fee equal to the lesser of
1% of the gross revenues of the Mohegan Sun and 25% of the sum of the Excess
Cash (as defined in the Partnership Agreement) of the Manager plus the
organizational and administrative fee and the marketing and casino
operations fee. After deducting operating expenses (which will be the
following amounts: $2.0 million if the Mohegan Sun's EBITDA (as defined)
is $200.0 million or less, $3.0 million if the Mohegan Sun's EBITDA is
greater than $200.0 million but less than $225.0 million, and $4.0 million if
the Mohegan Sun's EBITDA is greater than $225.0 million) the remaining
amounts will be distributed in equal amounts to Sun International and
to the Company.
*9. Payment of a Completion Guarantee Fee to Sun International equal to 2%
of the total development costs (less land acquisition costs) of the Mohegan
Sun (approximately $5.5 million).
10. Payment of amount equal to the state and federal income tax
liability of the Manager as if it were an individual paying federal income
tax and the higher of Michigan or Connecticut taxes. This amount will be
paid 50% to Sun Cove Ltd. and 50% to the Company.
12
11. All remaining fees and Excess Cash distributed 50% to Sun Cove Ltd.,
45% to the Company and 5% to a former partner.
The Company has an obligation to purchase one-half ($7.5 million) of the
aggregate principal amount of the outstanding First Tranche Completion
Guarantee Subordinated Notes in three equal annual installments beginning
in October 1997.
Payments on the Subordinated Notes
Interest accrues on the Subordinated Notes semi-annually. Interest is
deferred (and compounds semi-annually) until the Authority purchases or
offers to purchase at least 50% of its $175 million, 13 1/2% Authority
Senior Secured Notes due 2002 (the "Authority Senior Secured Notes") and
certain fixed charge coverage ratios are met. The Authority is required
to offer annually to purchase the Authority Senior Secured Notes with the
sum of (i) 50% of its Excess Cash Flow (defined as an amount equal to the
cash flow of the Authority for any given period, less (a) management fees
for such period, (b) interest expense and principal payments on indebtedness
of the Authority for such period, (c) amount set aside in the Cash
Maintenance Account (as defined in the indenture for the Authority Senior
Secured Notes) for such period, (d) amounts for the payment of federal and
state taxes for such period, and (e) certain other amounts (not to
exceed $6.8 million) for such fiscal year), (ii) 100% of the amount of
Deferred Subordinated Interest (as defined in the indenture for the
Authority Senior Secured Notes) for such fiscal year and (iii) accrued and
unpaid interest, if any, to the date of closing of such Excess Cash Purchase
Offer (as defined in the Indenture for the Authority Senior Secured Notes).
If the holders of the Authority Senior Secured Notes do not accept the
offer, then such amount of the Excess Cash must be offered to purchase the
Subordinated Notes. In the event that the Company receives an offer to
purchase the Subordinated Notes, the indenture requires the Company to
accept such offer in the same proportion as Sun International. The
Authority may make an optional redemption of the Subordinated Notes; however,
such redemption, except as detailed above, may be made only after the
Authority Senior Secured Notes have been paid in full.
Results of Operations
Discussion of the period from April 1, 1997 to June 30, 1997
Interest Income. Interest income of $1,151,298 for the quarter ended
June 30, 1997 was attributable to accrued interest on the Subordinated Notes
of $920,136 and interest received and accrued on Cash and Temporary
Investments of $231,162.
Financing fee income - Trading Cove Associates. Financing fee income -
Trading Cove Associates of $842,699 for the three months ended June 30, 1997
represents Financing Fee Amounts due as provided under point 2 of the table
set forth above under "Overview of Current and Future Cash Flows".
13
Interest expense. Interest expense of $2,078,375 for the quarter ended
June 30, 1997 resulted from paid, and accrued and unpaid, interest on the
Notes. On May 15, 1997 $4,311,396 was paid as interest on the Notes. The
next interest payment date is November 15, 1997.
Amortization on deferred financing costs. Amortization on deferred
financing costs for the three months ended June 30, 1997 of $111,040 resulted
from amortization of costs associated with the issuance of the Notes.
General and administrative expenses. General and administrative expenses
for the quarter ended June 30, 1997 was $(16,236) which resulted from a
reclassification to deferred financing costs of certain charges that had
previously been expensed.
Equity in loss of Trading Cove Associates. Equity in loss of Trading
Cove Associates for the three months ended June 30, 1997 was $454,565.
As a result of the foregoing factors, the Company experienced a net loss of
$633,747 for the three months ended June 30, 1997.
Discussion of the period from January 1, 1997 to June 30, 1997
Interest income. Interest income of $2,247,710 for the period
ended June 30, 1997 was attributable to accrued interest on the Subordinated
Notes of $1,798,411 and interest received and accrued on Cash and Temporary
Investments of $449,299.
Financing fee income - Trading Cove Associates. Financing fee income -
Trading Cove Associates of $1,285,039 for the six months ended June 30, 1997
represents Financing Fee Amounts due as provided under point 2 of the
table set forth above under "Overview of Current and Future Cash Flows".
Interest expense. Interest expense of $4,150,250 for the period
ended June 30, 1997 resulted from paid, and accrued and unpaid, interest
on the Notes. On May 15, 1997 $4,311,396 was paid as interest on the
Notes. The next interest payment date is November 15, 1997.
Amortization on deferred financing costs. Amortization on deferred
financing costs for the six months ended June 30, 1997 of $212,728
resulted from amortization of costs associated with the issuance of the Notes.
General and administrative expenses. General and administrative expenses
for the period ended June 30, 1997 was $44,934 which was primarily attributable
to investment management, legal and accounting fees.
Equity in loss of Trading Cove Associates. Equity in loss of Trading
Cove Associates for the six months ended June 30, 1997 was $859,965.
As a result of the foregoing factors, the Company experienced a net loss of
$1,735,128 for the six months ended June 30, 1997.
14
The Company was formed on September 30, 1996 and accordingly there are no
comparative results of operations for the corresponding quarter ending
June 30, 1996 and for the corresponding six months ending June 30, 1996.
Liquidity and Capital Resources
The initial capital of the Company consists of the partnership interests in
the Manager contributed by Slavik Suites, Inc. and LMW Investments, Inc. in
forming the Company. In connection with the offering of the Notes, the
Company used approximately $25.1 million to purchase $19.2 million in
principal amount of Subordinated Notes plus accrued and unpaid interest and
Financing Fee Amounts. In addition, the Manager distributed approximately
$850,000 in principal amount of Subordinated Notes to the Company.
If construction costs exceed the current budget or if additional amenities
or facilities are constructed, the Manager may determine to loan the Authority
funds for such purposes, although it does not have any obligation to do so.
The Company currently believes that the completion costs of the Mohegan Sun
are within the current budget but construction costs may increase, and no
assurance can be given that the Authority will be able to obtain sufficient
funds if it is required to do so. A portion of the proceeds of the Offering
of the Notes were placed in the Cash Collateral Account and are available to
fund the Company's share of any additional funding required by the Manager,
if any.
At this time the Company anticipates that no further investment is required
in the Manager by the Company.
Current Assets decreased from $16,737,416 to $16,049,031 at June 30, 1997.
The decrease was primarily the result of the interest payment on the Notes
of $4,311,396 on May 15, 1997.
The Company has two primary sources of revenues: Distributions on its
partnership interest in the Manager and debt service payments on the
Subordinated Notes. The Company anticipates regular payments from the
Manager based on the results of the Manager and management fee payment by
the Authority.
Current Liabilities decreased from $1,273,614 to $1,214,491 at June 30, 1997.
The reduction was primarily attributable to the decrease in accrued and unpaid
interest on the Notes.
The Company is required to purchase from Sun International on each October
12, 1997, October 12, 1998 and October 12, 1999 one-sixth of the outstanding
principal amount of First Tranche Completion Guarantee Subordinated Notes
owned by Sun International. The purchase price which is to be paid by the
Company to Sun International will be equal to the outstanding principal
balance of the First Tranche Completion Guarantee Subordinated Notes to be
purchased plus all accrued and unpaid interest thereon plus any amount due
thereon under point 3 of the table set forth above under "Overview of Current
and Future Cash Flows". As of June 30, 1997, $15 million principal was
outstanding as First Tranche Completion Guarantee Subordinated Notes.
15
The Company believes that it will fund its current operating expenses, debt
service requirements and capital needs from cash flows from the Manager and
payments under the Subordinated Notes (to the extent payments on the
Subordinated Notes is payable in cash and to the extent of principal payments
on the Subordinated Notes) and from amounts in the Cash Collateral Account.
Based upon the Company's anticipated future operations, management believes
these sources will be sufficient to meet the Company's anticipated requirements
for future operating expenses and future scheduled payments of principal of
and interest on the Notes. No assurance, however, can be given that the
operating cash flow will be sufficient for that purpose. The Mohegan Sun has
only recently begun operations and does not have a long operating history.
16
Part II. - Other Information:
Item 1 -- Legal Proceedings:
On August 6, 1997, a former partner of the Manager filed a lawsuit
against the Manager, the Company and its owners, Sun Cove Ltd. and
RJH Development Corp. claiming breach of contract, breach of
fiduciary duties and other matters in connection with the development
of the Mohegan Sun by the Manager. The Company believes that it has
meritorious defenses and intends to vigorously defend the lawsuit and
that the outcome of the lawsuit will not have a material adverse
effect on the business of the Company.
Item 2 -- Changes in Securities:
None
Item 3 -- Defaults Upon Senior Securities:
None
Item 4 -- Submission of Matters to a Vote of Security Holders:
None
Item 5 -- Other Information:
None
Item 6 -- Exhibits and Reports on Form 8-K:
(a) Exhibits
Exhibit No. Description
3.1 Certificate of Formation, as amended, of
Waterford Gaming, L.L.C. (i)
3.2 Certificate of Incorporation of
Waterford Gaming Finance Corp. (i)
3.3 Bylaws of Waterford Gaming Finance Corp. (i)
4.1 Indenture, dated as of November 8, 1996,
between Waterford Gaming, L.L.C. and
Waterford Gaming Finance Corp., the issuers,
and Fleet National Bank, as trustee, relating
to $65,000,000 12 3/4% Senior Notes due 2003.(i)
4.2 Registration Rights Agreement, dated as of
November 8, 1996, among, Waterford Gaming,
L.L.C., Waterford Gaming Finance Corp.,
Bear, Stearns & Co., Inc., and Merrill Lynch,
Pierce, Fenner & Smith Incorporated. (i)
4.3 Note Pledge Agreement, dated as of November 8,
1996, between Waterford Gaming, L.L.C. and Fleet
National Bank, as trustee. (i)
17
4.4 Cash Collateral and Disbursement Agreement,
dated as of November 8, 1996, among Fleet
National Bank, as trustee, Fleet National Bank
as disbursement agent, and Waterford Gaming,
L.L.C. (i)
4.5 Specimen Form of 12 3/4% Senior Notes due 2003
(the "Private Notes") (included in
Exhibit 4.1). (i)
4.6 Specimen Form of 12 3/4% Senior Notes due 2003
(the "Exchange Notes") (included in
Exhibit 4.1) (i)
10.1 Omnibus Financing Agreement, dated as of
September 21, 1995, between Trading Cove
Associates and Sun International Hotels
Limited. (i)
10.2 First Amendment to the Omnibus Financing
Agreement, dated as of October 19, 1996,
among Trading Cove Associates, Sun International
Hotels Limited and Waterford Gaming, L.L.C. (i)
10.3 Amended and Restated Partnership Agreement of
Trading Cove Associates, dated as of
September 21, 1994, among Sun Cove Ltd.,
RJH Development Corp., Leisure Resort
Technology, Inc., Slavik Suites, Inc.,
and LMW Investments, Inc. (i)
10.4 First Amendment to Amended and Restated
Partnership Agreement of Trading Cove Associates,
dated as of October 22, 1996, among Sun Cove
Ltd., Slavik Suites, Inc., RJH Development Corp.,
LMW Investments, Inc. and Waterford Gaming,
L.L.C. (i)
10.5 Purchase Agreement, dated as of November 5, 1996,
among Waterford Gaming, L.L.C., Waterford
Gaming Finance Corp., Bear, Stearns & Co.,
Inc. and Merrill Lynch, Pierce, Fenner and
Smith Incorporated. (i)
10.6 Limited Liability Company Agreement of
Waterford Gaming, L.L.C., dated as of
September 30, 1996, among Slavik Suites, Inc.,
LMW Investments, Inc. and Waterford Gaming,
L.L.C. (i)
10.7 Note Purchase Agreement, dated as of
October 19, 1996, among Sun International
Hotels Limited, Waterford Gaming, L.L.C. and
Trading Cove Associates. (i)
10.8 Note Purchase Agreement, dated as of
September 29, 1995, between the Mohegan Tribal
Gaming Authority and Sun International Hotels
Limited relating to the Subordinated Notes. (i)
10.9 Management Agreement, dated as of
July 28, 1994, between the Mohegan Tribe of
Indians of Connecticut and Trading Cove
Associates. (i)
21.1 Subsidiaries of Waterford Gaming, L.L.C. (i)
21.2 Subsidiaries of Waterford Gaming Finance Corp. (i)
18
27 Financial Data Schedule (ii)
99.1 Quarterly Report on Form 10-Q of the
Mohegan Tribal Gaming Authority (the "Authority")
dated May 15, 1997, incorporated by reference to
the Authority's electronic filing of such report
on Form 10-Q SEC file reference no. 033-80655.
(i) Incorporated by reference to the Registrant's Registration
Statement on Form S-4, Commission File No. 333-17795, declared
effective on May 15, 1997.
(ii) Included in Edgar filing only.
(b) NO FORM 8-K FILINGS.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: 8/14/97 By: /s/Len Wolman
Len Wolman, Chief Executive Officer
Date: 8/14/97 By: /s/Del Lauria
Del Lauria, Chief Financial Officer
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Waterford Gaming, L.L.C.
All amounts are unaudited.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 862,657
<SECURITIES> 15,150,958
<RECEIVABLES> 32,699
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,049,031
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,380,060
<CURRENT-LIABILITIES> 1,214,491
<BONDS> 65,000,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 56,380,060
<SALES> 0
<TOTAL-REVENUES> 3,532,749
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 257,662
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,150,250
<INCOME-PRETAX> (1,735,128)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,735,128)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,735,128)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
