UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: 9/30/2000
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: 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
incorporation or organization) Identification No.)
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
September 30, 2000 (unaudited) and December 31, 1999 3
Condensed Statements of Operations of Waterford Gaming, L.L.C.
for the three months and nine months ended September 30, 2000
(unaudited) and September 30, 1999 (unaudited) 4
Condensed Statements of Changes in Members' Deficiency of
Waterford Gaming, L.L.C. for the nine months ended
September 30, 2000 (unaudited) and September 30, 1999 (unaudited) 5
Condensed Statements of Cash Flows of Waterford Gaming, L.L.C.
for the nine months ended September 30, 2000 (unaudited) and
September 30, 1999 (unaudited) 6
Notes to Condensed Financial Statements for Waterford
Gaming, L.L.C. 7
ITEM 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
ITEM 3 -- Quantitative and Qualitative Disclosures about
Market Risk 18
PART II -- OTHER INFORMATION
----------------------------
Item 1 -- Legal Proceedings 18
Item 2 -- Changes in Securities 18
Item 3 -- Defaults upon Senior Securities 18
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 - Waterford Gaming, L.L.C. 21
Report of Independent Accountants
---------------------------------
To the Member of Waterford Gaming, L.L.C.:
We have reviewed the accompanying condensed balance sheet of Waterford Gaming,
L.L.C. (the "Company") as of September 30, 2000, and the related condensed
statements of operations for the three months and nine months ended September
30, 2000 and 1999, and the related condensed statements of changes in member's
deficiency and of cash flows for the nine months ended September 30, 2000 and
1999. 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 auditing standards generally accepted in the United States of America, 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 accompanying condensed interim financial statements for them to
be in conformity with accounting principles generally accepted in the United
States of America.
We previously audited, in accordance with auditing standards generally accepted
in the United States of America, the balance sheet as of December 31, 1999, and
the related statements of operations and changes in member's deficiency and of
cash flows for the year then ended (not presented herein); and in our report
dated March 9, 2000, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
condensed balance sheet as of December 31, 1999, is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
PricewaterhouseCoopers, LLP
November 6, 2000
1
PART I -- FINANCIAL INFORMATION
-------------------------------
Item 1 -- Financial Statements
The unaudited condensed financial information as of September 30, 2000 and
1999, and for the three months and nine months ended September 30, 2000 and
1999, included in this report was reviewed by PricewaterhouseCoopers, LLP,
independent public accountants, in accordance with the professional standards
and procedures established for such reviews by the American Institute of
Certified Public Accountants.
2
Waterford Gaming, L.L.C.
Condensed Balance Sheets
September 30, 2000 (Unaudited) and December 31, 1999
-------------------------
September 30, December 31,
2000 1999
----------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 1,878,806 $ 60,337,617
Restricted investments 26,458,709 11,807,092
Due from Trading Cove Associates 2,166,500 492,907
Other assets 33,816 86,821
------------ ------------
Total current assets 30,537,831 72,724,437
------------ ------------
Trading Cove Associates-equity
investment 8,372,501 9,041,568
Beneficial interest-Leisure Resort
Technology, Inc. 5,391,293 5,674,009
Deferred financing costs,
net of accumulated amortization of
$566,394 and $294,125 at September 30,
2000 and December 31, 1999,
respectively 3,468,782 3,781,051
Fixed assets, net of accumulated
depreciation of $17,967 and
$9,882 at September 30, 2000 and
December 31, 1999, respectively 35,951 44,036
------------ ------------
Total assets $ 47,806,358 $ 91,265,101
============ ============
LIABILITIES AND MEMBERS' DEFICIENCY
Current liabilities
Accrued expenses $ 67,547 $ 159,480
Accrued interest on senior notes
payable 505,362 3,417,059
----------- ------------
Total current liabilities 572,909 3,576,539
----------- ------------
9-1/2% senior notes payable 119,691,000 122,159,000
----------- ------------
Total liabilities 120,263,909 125,735,539
----------- ------------
Members' deficiency (72,457,551) (34,470,438)
----------- ------------
Total liabilities and members'
deficiency $ 47,806,358 $ 91,265,101
=========== ============
The accompanying notes are an integral part of these condensed financial
statements.
3
<TABLE>
Waterford Gaming, L.L.C.
Condensed Statements of Operations
For the Three Months and Nine Months Ended September 30, 2000 and 1999
(Unaudited)
-----------
<CAPTION>
<S> <C> <C> <C> <C>
For the three For the three For the nine For the nine
months ended months ended months ended months ended
Sept 30, 2000 Sept 30, 1999 Sept 30, 2000 Sept 30, 1999
----------- ----------- ----------- -----------
Revenue
Interest and dividend income $ 490,450 $ 1,427,774 $ 1,415,947 $ 4,374,604
Subordinated notes fee income-
Trading Cove Associates --- --- 692,782 1,798,460
Completion guarantee notes fee
income-Trading Cove Associates --- --- 215,625 437,500
Management services income-
Trading Cove Associates --- --- --- 1,171,792
Organizational and administrative
fee income-Trading Cove
Associates 2,166,500 6,470,817 7,879,600 14,252,209
----------- ----------- ----------- -----------
Total revenue 2,656,950 7,898,591 10,203,954 22,034,565
----------- ----------- ----------- -----------
Expenses
Interest expense 2,862,885 3,226,649 8,798,387 16,143,799
Salaries-related parties 171,654 --- 496,383 ---
General and administrative 21,533 24,378 384,669 241,846
12-3/4% senior notes tender expense --- (5,000) (90,000) 617,486
Amortization of beneficial interest-
Leisure Resort Technology, Inc. 95,274 95,274 282,716 422,626
Amortization on deferred financing
costs 91,716 92,607 272,269 3,541,417
Depreciation 2,695 2,695 8,085 7,187
----------- ----------- ----------- -----------
Total expenses 3,245,757 3,436,603 10,152,509 20,974,361
----------- ----------- ----------- -----------
(588,807) 4,461,988 51,445 1,060,204
Equity in income (loss) of
Trading Cove Associates (443,588) 75,947 (345,955) 219,328
----------- ----------- ----------- -----------
Net income (loss) $(1,032,395) $ 4,537,935 $ (294,510) $ 1,279,532
=========== =========== =========== ===========
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
4
Waterford Gaming, L.L.C.
Condensed Statements of Changes in Members' Deficiency
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
-----------
For the Nine Months Ended September 30, 2000
Waterford Group, L.L.C. Total
----------------------- -------------
Balance, January 1, 2000 $ (34,470,438) $ (34,470,438)
Contributions --- ---
Distributions (37,692,603) (37,692,603)
Net loss (294,510) (294,510)
------------- -------------
Balance, September 30, 2000 $ (72,457,551) $ (72,457,551)
============= =============
For the Nine Months Ended September 30, 1999
<TABLE>
<S> <C> <C> <C> <C>
Slavik Suites Inc. LMW Investments Inc. Waterford Group, LLC Total
------------------ -------------------- -------------------- -------------
Balance, January 1,1999 $ (1,765,936) $ (955,186) $ (2,721,122)
Contributions,
January 1- March 17 33,220 15,780 49,000
Distributions,
January 1- March 17 (1,277,787) (606,945) (1,884,732)
Net loss,
January 1-March 17 (5,046,831) (2,397,235) (7,444,066)
Transfer of interest 8,057,334 3,943,586 $ (12,000,920) ---
Distributions,
March 17- September 30 --- --- (37,645,660) (37,645,660)
Net income,
March 17-September 30 --- --- 8,723,598 8,723,598
------------ ------------ ------------ -----------
Balance, September 30, 1999 $ --- $ --- $ (40,922,982) $(40,922,982)
============ ============ ============= ============
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
5
Waterford Gaming, L.L.C.
Condensed Statements of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
-----------
2000 1999
----------- ------------
Cash flows from operating activities
Net (loss) income $ (294,510) $ 1,279,532
----------- ------------
Adjustments to reconcile net (loss) income
to net cash (used in) provided by
operating activities
Amortization 554,985 3,964,043
Depreciation 8,085 7,187
Equity in loss (income) of Trading
Cove Associates 345,955 (219,328)
Changes in operating assets
and liabilities
Increase in accrued interest
receivable-15% subordinated
notes receivable --- (3,415,341)
Increase in accrued interest
receivable-completion
guarantee subordinated notes
receivable --- (107,292)
Increase in due from
Trading Cove Associates (1,673,593) (195,064)
(Decrease) increase in other
assets 53,005 (34,208)
(Decrease) increase in accrued
expenses (51,933) 83,152
Decrease in accrued
interest on senior notes
payable (2,911,697) (486,932)
----------- ------------
Total adjustments (3,675,193) (403,783)
----------- ------------
Net cash (used in)provided
by operating activities (3,969,703) 875,749
----------- ------------
Cash flows from investing activities
Beneficial interest-Leisure
Resort Technology, Inc. --- (2,000,000)
Contributions to Trading Cove
Associates (1,000,000) (500,000)
Distributions from Trading Cove
Associates 1,323,112 867,659
(Purchases) and sales of
temporary investments-net --- 2,045,430
(Purchases) and sales of
restricted investments-net (14,651,617) (11,643,529)
Fixed assets --- (53,918)
------------ ------------
Net cash used in
investing activities (14,328,505) (11,284,358)
------------ ------------
Cash flows from financing activities
Redemption of 12-3/4% senior
notes --- (61,471,000)
Proceeds from 9-1/2% senior notes
issuance --- 125,000,000
Redemption of 9-1/2% senior notes (2,468,000) (2,841,000)
Deferred financing costs --- (4,028,000)
Contributions by members --- 49,000
Distributions to member (37,692,603) (39,530,392)
------------ ------------
Net cash (used in)
provided by
financing activities (40,160,603) 17,178,608
------------ ------------
Net (decrease) increase in cash (58,458,811) 6,769,999
Cash and cash equivalents at
beginning of period 60,337,617 2,783,344
------------ ------------
Cash and cash equivalents at
end of period $ 1,878,806 $ 9,553,343
============ ============
Supplemental disclosure of cash
flow information:
Cash paid during the period
for interest $ 11,710,084 $ 16,630,732
============ ============
Supplemental disclosure of
non-cash financing activities:
Deferred financing costs (overaccrued)
funded through accrued expenses $ (40,000) $ 45,000
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
6
WATERFORD GAMING, L.L.C.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
-----------
1. Basis of Presentation:
The unaudited condensed interim financial statements have been prepared in
accordance with the policies described in Waterford Gaming, L.L.C.'s (the
"Company") 1999 audited financial statements and should be read in conjunction
with the Company's 1999 audited financial statements within the Company's Annual
Report for the fiscal year ended December 31, 1999 on Form 10-K as filed with
the Securities and Exchange Commission (the "Commission") File No. 333-17795 on
March 27, 2000. The condensed balance sheet at December 31, 1999, contained
herein, was derived from audited financial statements, but does not include all
disclosures contained in the Form 10-K and required by generally accepted
accounting principles. The unaudited condensed 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
September 30, 2000, and the results of operations for the three months and nine
months ended September 30, 2000, and the statements of member's deficiency and
of cash flows for the nine months ended September 30, 2000. Results of
operations for the period are not necessarily indicative of the results to be
expected for the full year. In March 1999, the Company with its wholly-owned
subsidiary Waterford Gaming Finance Corp. ("Finance") has issued $125 million
9-1/2% senior notes payable which mature March 15, 2010 (the "$125 Million
Senior Notes") in connection with the redemption of the Company's and Finance's
$65 million 12-3/4% senior notes (the "$65 Million Senior Notes").
2. Trading Cove Associates - Equity Investment:
As of September 30, 2000 and 1999, the following summary information relates to
Trading Cove Associates ("TCA"). Total revenues and net income are for the nine
months ended September 30, 2000 and 1999:
September 30, September 30,
2000 1999
------------ ------------
Total assets $ 12,405,017 $ 9,915,565
Total liabilities (6,189,287) (4,297,157)
------------ ------------
Partners' capital $ 6,215,730 $ 5,618,408
============ ============
Total revenue $ 30,096,887 $ 47,576,420
============ ============
Net (loss) income $ (31,867) $ 1,644,951
============ ============
Company's interest:
Trading Cove Associates -
equity investment, beginning
of period $ 9,041,568 $ 8,662,198
Contributions 1,000,000 500,000
Distributions (1,323,112) (867,659)
------------ ------------
8,718,456 8,294,539
------------ ------------
(Loss) income from Trading Cove
Associates (15,934) 822,475
Amortization of interests
purchased (330,021) (603,147)
------------ ------------
Equity in (loss) income of
Trading Cove Associates (345,955) 219,328
------------- -------------
Trading Cove Associates -
equity investment, end of period $ 8,372,501 $ 8,513,867
============= =============
7
3. Beneficial Interest - Leisure Resort Technology, Inc:
On January 6, 1998, the Company paid $5,000,000 to Leisure Resort Technology,
Inc. ("Leisure") whereby Leisure gave up its beneficial interest in 5% of
certain fees and excess cash flows, as defined, of TCA and any other claims it
may have had against the Company, TCA and TCA's partners and former partner. On
August 6, 1997, Leisure, a former partner of TCA, had filed a lawsuit against
TCA, Sun Cove Limited ("Sun Cove"), former partner of TCA, RJH Development Corp.
and the Company and its owners, claiming breach of contract, breach of fiduciary
duties and other matters in connection with the development of the Mohegan Sun
Casino (the "Mohegan Sun") by TCA. The Company agreed to acquire Leisure's
contractual rights and settle all matters. The Company no longer has the
obligation to pay to Leisure 5% of the Organizational and Administrative fee, as
defined in the Organizational and Administrative Services Agreement, and 5% of
TCA's Excess Cash as defined in TCA's partnership agreement. The Company is now
entitled to such cash flow. On March 17, 1999, the $65 Million Senior Notes were
retired and on March 18, 1999, the Company paid an additional $2,000,000 to
Leisure pursuant to the settlement and release agreement.
The Leisure payments plus associated costs were amortized on a straight-line
basis over the remaining term of TCA's Management Agreement through March 17,
1999. As a result of the Relinquishment Agreement becoming effective, the
remaining balance will be amortized over 189 months which began March 18, 1999.
Accumulated amortization at September 30, 2000 and 1999 amounts to $1,665,918
and $1,287,928, respectively.
4. $125 Million 9-1/2% Senior Notes Payable:
On March 17, 1999, the Company and Finance, issued $125 Million Senior Notes.
Payment of the principal of, and interest on, the $125 Million Senior Notes is
subordinate in right of payment to all of their existing and future secured
debts.
Interest is payable semi-annually in arrears on March 15 and September 15 at a
rate of 9-1/2% per annum which commenced on September 15, 1999.
The principal amount of the $125 Million Senior Notes is payable on March 15,
2010. The Company and Finance may elect to redeem the $125 Million Senior Notes
at any time on or after March 15, 2004 at a redemption price equal to a
percentage (105.182% after March 14, 2004 and declining to 104.318% after March
14, 2005, 103.455% after March 14, 2006, 102.591% after March 14, 2007, 101.727%
after March 14, 2008, 100.864% after March 14, 2009, and to 100% after March 14,
2010) of the principal amount thereof plus accrued interest. The $125 Million
Senior Notes provide that upon the occurrence of a Change of Control (as
defined), the holders thereof will have the option to require the redemption of
the $125 Million Senior Notes at a redemption price equal to 101% of the
principal amount thereof plus accrued interest.
If the Company and Finance have any Company Excess Cash, as defined, they must
redeem the $125 Million Senior Notes (on a semi-annual basis on March 15 and
September 15) equal to a percentage (109.500% after March 15, 1999 and declining
to 108.636% after March 14, 2000, 107.773% after March 14, 2001, 106.909% after
March 14, 2002, 106.045% after March 14, 2003, 105.182% after March 14, 2004,
104.318% after March 14, 2005, 103.455% after March 14, 2006, 102.591% after
March 14, 2007, 101.727% after March 14, 2008, 100.864% after March 14, 2009,
and to 100.00% after March 14, 2010). On August 1, 1999 the Company and Finance
had Company Excess Cash, as defined, available for mandatory redemption of the
$125 Million Senior Notes totaling approximately $8,983,000, and accordingly on
September 15, 1999 the Company and Finance made a mandatory redemption of $125
Million Senior Notes in the principal amount of $2,841,000 at the redemption
price of 109.50%. On February 1, 2000 the Company and Finance had Company Excess
Cash, as defined, available for mandatory redemption of the $125 Million Senior
Notes totaling approximately $8,276,000 and accordingly the Company and Finance
made a mandatory redemption of $125 Million Senior Notes in the principal amount
of $2,277,000 at the redemption price of 108.636% on March 15, 2000. On August
1, 2000 the Company and Finance had Company Excess Cash, as defined, available
for mandatory redemption of the $125 Million Senior Notes totaling approximately
$5,902,000, and accordingly on September 15, 2000 the Company and Finance made a
mandatory redemption of $125 Million Senior Notes in the principal amount of
$191,000 at the redemption price of 108.636%. In some circumstances, if either
the Company or its partner in TCA exercises the option to buy or sell
partnership interests in TCA, the Company and Finance must redeem the $125
Million Senior Notes.
The indenture relating to the $125 Million Senior Notes (the "Indenture")
contains certain affirmative and negative covenants customarily contained in
agreements of this type, including without limitation, covenants that restrict,
subject to specified exceptions the Company's and Finance's ability to (i)
borrow money, (ii) pay dividends on stock or make certain other restricted
payments, (iii) use assets as security in other transactions, (iv) make
investments, (v) sell other assets or merge with other companies and (vi) engage
in any business except as currently conducted or contemplated or amend their
relationship with TCA. The Indenture also provides for customary events of
default and the establishment of a restricted investment fund with a trustee for
interest reserves.
The fair value of the Company's long term debt at September 30, 2000 and
December 31, 1999 is estimated to be approximately $119,691,000 and
$120,300,000, respectively, based on the quoted market price for the same issue.
8
5. Change of Ownership:
In connection with the Company's and Finance's issuance of $125 Million Senior
Notes, each of Slavik Suites, Inc. ("Slavik") and LMW Investments, Inc. ("LMW")
have contributed their respective interests in the Company as of March 17, 1999
to a Delaware Limited Liability Company, Waterford Group, L.L.C. (the "Waterford
Group"). The Waterford Group is now the sole member of the Company. Slavik and
LMW own Waterford Group in the same respective interest as they had in the
Company.
6. Certain Relationships and Related Transactions
Len Wolman, the Company's Chairman of the Board of Directors and Chief Executive
Officer, is a managing partner of TCA.
On February 9, 1998 the Agreement Relating to Development Services (the
"Development Services Agreement Phase II") was entered into between TCA and Sun
International Management Limited ("SIML"). Pursuant to the Development Services
Agreement Phase II, TCA subcontracted with SIML and SIML agreed to perform those
services assigned to SIML by TCA in order to facilitate TCA's fulfillment of its
duties and obligations to the Mohegan Tribal Gaming Authority (the "Authority")
an instrumentality of the Mohegan Tribe of Indians of Connecticut (the "Tribe")
under the Development Agreement, as defined. TCA shall pay to SIML a fee, as
subcontractor (the "Development Services Fee Phase II") equal to 3% of the
development costs of the Project, as defined, less all costs incurred by TCA in
connection with the Project, as defined. The Development Services Fee Phase II
shall be paid in installments due on December 31, 1999 and 2000 and on the
Completion Date, as defined in the Development Agreement, with a final payment
being made when the actual development costs of the Project are known. SIML has
further subcontracted with Wolman Construction, L.L.C. ("Construction") who has
subcontracted with The Slavik Company. The fee payable by SIML to Construction
as and when SIML receives payment from TCA is 20.83% of the Development Services
Fee Phase II. Construction has agreed to pay The Slavik Company 14.30% of the
amount that Construction receives from SIML that relates to its share of the
Development Services Fee Phase II. On April 26, 2000 and July 26, 2000 TCA paid
$3,095,000 and $1,238,000, respectively, as partial payment Development Services
Fee Phase II. Construction received $644,688 and $257,875 and Construction paid
The Slavik Company $92,190 and 36,876 on April 26, 2000 and July 26, 2000,
respectively.
The Company paid amounts to an affiliate for accounting services totaling $0 and
$95,200, respectively, during the nine months ended September 30, 2000 and 1999.
On September 28, 1998, the Company entered into an employment agreement with Len
Wolman. The employment agreement provides for a base annual salary of $250,000
reduced by any amounts Mr. Wolman receives as a salary from TCA for such period.
Pursuant to such employment agreement, the Company shall pay to Mr. Wolman an
amount equal to 0.05% of the revenues of the Mohegan Sun including the expansion
to the extent Mr. Wolman has not received such amounts from TCA. On and after
January 1, 2004, the Company shall pay to Mr. Wolman incentive compensation
based on the revenues of the Mohegan Sun, including the expansion, as a
percentage (ranging from .00% to .10%) to be determined using a formula attached
to the employment agreement which compares actual revenues to predetermined
revenue targets. For the nine months ended September 30, 2000 and 1999 the
Company incurred $496,383 and $0, respectively, as an expense pursuant to Len
Wolman's employment agreement.
Waterford Group, Slavik and the other principals of Waterford Group have
interests in and may acquire interests in hotels in southeastern Connecticut
which have or may have arrangements with the Mohegan Sun to reserve and provide
hotel rooms to patrons of the Mohegan Sun.
9
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 condensed financial statements and the notes
thereto included elsewhere herein.
Certain Forward Looking Statements
----------------------------------
Certain information included in this Form 10-Q and other materials filed or to
be filed by the Company with the Commission (as well as information included in
oral statements or other written statements made or to be made by the Company)
contains forward-looking statements, within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such statements include, but are not limited to,
information relating to the Mohegan Sun including plans for future expansion and
other business development activities, financing sources, the effects of
regulation (including gaming and tax regulation) and competition. Any
forward-looking statements included herein do not purport to be predictions of
future events or circumstances. Forward-looking statements can be identified by,
among other things, the use of forward-looking terminology such as "believes",
"expects", "may", "will", "should", "seeks", "pro forma", "anticipates",
"intends", or the negative of any thereof or other variations thereon or
comparable technology. 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 Company.
The information concerning Sun International Hotels Limited ("Sun
International"), the Tribe and the Authority has been derived from publicly
filed information.
Development and Operational Activities
--------------------------------------
The Company is a special purpose company formed solely for the purpose of
holding its partnership in TCA.
Trading Cove Associates
-----------------------
TCA was organized on July 27, 1993. The primary purpose of TCA has been to
assist the Tribe and 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 located on certain Tribal land in Uncasville,
Connecticut, negotiate the Amended and Restated Gaming Facility Management
Agreement (the "Management Agreement") and participate in the design and
development of the Mohegan Sun which commenced operations on October 12, 1996.
Since the opening of the Mohegan Sun and until January 1, 2000, TCA had overseen
the Mohegan Sun's day-to-day operations. The TCA partnership will terminate on
December 31, 2040, or earlier, in accordance with the terms of the partnership
agreement. The Company has a 50% voting and profits interest in TCA. The
remaining 50% interest is owned by Sun Cove, an affiliate of Sun International.
10
Trading Cove Associates - Material Agreements
---------------------------------------------
On February 7, 1998, TCA, the Tribe and the Authority finalized contract
negotiations and are moving forward with a significant expansion project at the
Mohegan Sun (the "Project"). As a result, TCA and the Authority have terminated
the Management Agreement effective January 1, 2000.
Under the terms of an agreement (the "Relinquishment Agreement") TCA continued
to manage the Mohegan Sun under the Management Agreement until January 1, 2000.
On December 31, 1999 the Management Agreement terminated and the Tribe assumed
day-to-day management of the Mohegan Sun. Under this Relinquishment Agreement to
compensate TCA for terminating its rights under the Management Agreement and the
Hotel/Resort Management Agreement, the Authority has agreed to pay to TCA 5% of
Revenues, as defined, (the "Relinquishment Fees") generated by the Mohegan Sun
during the 15-year period commencing on January 1, 2000.
Relinquishment Agreement
------------------------
The payments under the Relinquishment Agreement will be divided into senior
relinquishment payments and junior relinquishment payments, each of which will
be 2.5% of Revenues. Revenues are defined as gross gaming revenues (other than
Class II gaming revenue, i.e. bingo) and all other facility revenues (including,
without limitation, hotel revenues, food and beverage sales, parking revenues,
ticket revenues and other fees or receipts from the convention/events center in
the expansion and all rental or other receipts from lessees, licensees and
concessionaires operating in the facility but not the gross receipts of such
lessees, licensees and concessionaires). Revenues exclude revenues generated by
any other expansion of the Mohegan Sun. Senior relinquishment payments will be
payable quarterly in arrears commencing on April 25, 2000 for the quarter ended
March 31, 2000, and the junior relinquishment payments will be payable
semi-annually in arrears commencing on July 25, 2000 for the six months ended
June 30, 2000, assuming sufficient funds are available after satisfaction of the
Tribe's senior obligations.
For the quarter and the nine months ended September 30, 2000 the Relinquishment
Fees earned was $5,457,627 and $25,430,639, respectively. A summary of
relinquishment payments recieved is as follows:
Senior Junior Total
----------- ----------- -----------
April 25, 2000 $ 4,947,458 $ --- $ 4,947,458
July 26, 2000 5,039,048 9,986,506 15,025,554
October 25, 2000 5,457,627 --- 5,457,627
----------- ----------- -----------
$15,444,133 $ 9,986,506 $25,430,639
=========== =========== ===========
Development Agreement
---------------------
TCA and the Authority entered into a development services agreement on February
7, 1998. Under this "Development Agreement", TCA agreed to oversee the design,
construction, furnishing, equipping and staffing of the Project for a $14.0
million development fee (the "Development Fee"). On May 24, 2000 TCA and the
Authority agreed that TCA had performed and completed all its obligations
relating to the staffing of the Project and that TCA has no further obligations
relating to the staffing of the Project.
The Authority will pay the Development Fee to TCA quarterly beginning on January
15, 2000 until the Completion Date, as defined in the Development Agreement, of
the Project based on incremental completion of the Project as of each payment
date. A summary of the quarterly Development Fee payments received by TCA in
accordance with the terms of the Development Agreement is as follows:
January 15, 2000 $ 1,372,000
April 20, 2000 896,000
July 17, 2000 1,260,000
October 13, 2000 1,372,000
-----------
$ 4,900,000
===========
On February 9, 1998 the Development Services Agreement Phase II was entered into
between TCA and SIML. Pursuant to the Development Services Agreement Phase II,
TCA subcontracted with SIML and SIML agreed to perform those services assigned
to SIML by TCA in order to facilitate TCA's fulfillment of its duties and
obligations to the Authority under the Development Agreement. TCA shall pay to
SIML a Development Services Fee Phase II equal to 3% of the development costs of
the Project, less all costs incurred by TCA in connection with the Project. The
Development Services Fee Phase II shall be paid in installments due on December
31, 1999 and 2000 and on the Completion Date, as defined in the Development
Agreement, with a final payment being made when the actual development costs of
the Project are known. The fee is to be paid from available cash flow of TCA, if
any, subordinate to certain other fees as described below under the heading
"Omnibus Termination Agreement".
SIML has further subcontracted with Construction (the "Local Construction
Services Agreement") to provide certain of those services assigned to SIML by
TCA. SIML shall pay 20.83% of the Development Services Fee Phase II as and when
SIML receives payment from TCA. Construction has subcontracted with The Slavik
Company for 14.30% of its fee.
11
Management Agreement
--------------------
The Management Agreement between TCA and the Tribe was entered into on August
30, 1995. The Tribe had assigned its rights and obligations in this agreement to
the Authority. The Authority and TCA had consented to this assignment.
Until January 1, 2000, TCA was the exclusive manager of the Mohegan Sun. Under
the Management Agreement, the Tribe had granted to TCA the exclusive right and
obligation to develop, manage, operate and maintain the Mohegan Sun and all
other related facilities that are owned by the Tribe or any of its
instrumentalities, including the Authority and to train members of the Tribe and
others in the management of the Mohegan Sun.
Until January 1, 2000 TCA earned a management fee from the Authority pursuant to
the Management Agreement (the "Management Fees"). The Management Fees were paid
monthly (the final payment was received by TCA from the Authority on January 25,
2000) and were 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 35% of Net Tiers I & II plus
Revenues between 30% of Net
Revenues 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
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
Fees).
In addition, TCA was required to fund $1.2 million per year ($100,000 per month)
from its Management Fees into a capital replacement reserve. The capital
replacement reserve is the property of the Authority.
Certain Risk Factors
--------------------
Lack of Operations; Dependance on the Mohegan Sun
The Company does not conduct any business operations other than in connection
with its role as a managing general partner of TCA and activities incidental to
the issuance of the $125 Million Senior Notes and the making of restricted and
temporary investments. The Company is prohibited by the terms of the Indenture
from engaging in any other business activities. The Company intends to fund its
operating, debt service and capital needs from cash flows from TCA and from cash
flows (dividend and interest) from restricted and temporary investments.
TCA has two current sources of revenue and cash flows, Relinquishment Fees and
Development Fee. There can be no assurance that the Mohegan Sun will continue to
generate sufficient revenues for the Authority to be profitable or to service
its debt obligations, or to pay Relinquishment Fees and Development Fee. The
Company is entirely dependent upon the performance of the Mohegan Sun, which is
subject to matters over which the Authority, TCA and the Company have no control
including, without limitation, general economic conditions, effects of
competition, political, regulatory and other factors, and the actual number of
gaming customers and the amount wagered.
Although TCA is entitled to a $14.0 million Development Fee under the
Development Agreement, it has entered into a subcontract with SIML who has
subcontracted with affiliates of the Company to provide certain of the services
required by such agreement and TCA is to pay such subcontractors a Development
Services Fee Phase II and incur expenses equal to 3% of the total cost of the
Project. On October 13, 2000 the Tribe approved a $160 million increase to the
original budget of $800 million for the Project. The final budget for the
Project is $960 million. Based upon the final budgeted cost of the Project of
$960 million, such Development Services Fee Phase II and expenses are expected
to be approximately $28.8 million. Such Development Services Fee Phase II are
only payable to the extent of available cash flow. Thus, ultimately TCA may pay
more in Development Services Fee Phase II to its subcontractors and expenses
than it will receive under the Development Agreement. Although the Authority has
passed a resolution that the total costs of the Project cannot exceed $960
million, the actual costs of the Project may exceed such amount. If the total
costs of the Project increase, then the total Development Services Fee Phase II
and expenses paid by TCA will increase proportionately, which reduces the cash
flow distributable to the Company.
While the Company expects its future operating cash flows will be sufficient to
cover its expenses, including interest costs, the Company cannot give any
assurance that it will be able to do so.
12
Overview of Current and Future Cash Flows
-----------------------------------------
The Company expects to fund its operating, debt service and capital needs from
cash flows from the Company's share of payments from TCA, and from the Company's
available cash. Based upon the Company's anticipated future operations,
management believes that available cash flow will be sufficient to meet the
Company's anticipated requirements for future operating expenses, future
scheduled payments of principal and interest on the $125 Million Senior Notes
and additional investments in TCA that may be required in connection with the
Project. No assurance, however, can be given that the operating cash flow will
be sufficient for that purpose.
Sources of Revenues
-------------------
The Company has one primary source of revenue: payments from TCA. The Company
anticipates regular payments from TCA based on the results of the Mohegan Sun
and Relinquishment Fees and Development Fee payments by the Authority.
Distribution on the Company's Partnership Interest in TCA
---------------------------------------------------------
TCA's major sources of revenues for 2000 are Relinquishment Fees and Development
Fee which are both payable by the Authority.
Omnibus Termination Agreement
-----------------------------
On March 18, 1999, the Omnibus Termination Agreement (the "Omnibus Termination
Agreement") was entered into by TCA, Sun International, the Company, SIML, LMW,
Sun Cove, Slavik and Construction; which (i) terminated the memorandum of
understanding dated February 7, 1998; and (ii) effective January 1, 2000
terminated a) the Omnibus Financing Agreement, as defined; b) completion
guarantee and investment banking and financing arrangement fee agreement (the
"Financing Arrangement Agreement"); c) the management services agreement; d) the
organizational and administrative services agreement; e) the marketing services
agreement; and f) a letter agreement relating to expenses dated October 19,
1996.
In consideration for the termination of such agreements, TCA will use its cash
(primarily cash from payments from the Authority for Relinquishment Fees and
Development Fee) to pay the following obligations in the priority set forth
below:
13
(a) First, to pay all unpaid amounts which may be due under the terminated
letter agreement and to pay certain affiliates of the Company and to
Sun Cove a percentage of an annual fee of $2.0 million less the actual
expenses incurred by TCA. Such annual fee shall be payable in equal
quarterly installments beginning March 31, 2000 and ending December
31, 2014. For the nine months ended September 30, 2000 $1,380,750
($690,375 to Sun Cove and $690,375 to affiliates of the Company) had
been paid and incurred by TCA in terms of this first priority. The
contingent obligation at September 30, 2000 was $0.
(b) Second, to return all capital contributions made by the partners of
TCA after September 29, 1995. TCA anticipates making monthly capital
calls to fund expenses related to the development of the Project, and
these capital calls will be repaid, based on cash flow, in the quarter
following the quarter in which the capital call was made. From January
1, 2000 to September 30, 2000 these capital contributions aggregated
$2,000,000. $1,200,000 has been repaid to the partners of TCA, 50% to
the Company and 50% to Sun Cove.
As of September 30, 2000, $800,000 in capital contributions remained
outstanding.
(c) Third, to pay any accrued amounts for obligations performed prior to
January 1, 2000 under the Financing Arrangement Agreement. For the
nine months ended September 30, 2000 $2,977,932 ($2,069,525 to Sun
International and $908,407 to the Company) had been paid by TCA in
terms of this third priority. No further obligation is payable at
September 30, 2000.
(d) Fourth, to make the payments set forth in the agreement relating to
Development Services Agreement Phase II and the Local Construction
Services Agreement. For the nine months ended September 30, 2000
$4,333,000 ($3,430,436 to SIML, $773,497 to Construction and $129,067
to The Slavik Company) had been paid by TCA in terms of this fourth
priority. No additional amounts are payable at September 30, 2000.
(e) Fifth, to pay Sun International an annual fee of $5.0 million payable
in equal quarterly installments of $1.25 million beginning March 31,
2000 and ending December 31, 2006. For the nine months ended September
30, 2000 $3.75 million had been paid and incurred by TCA in terms of
this fifth priority. No additional amounts are payable at September
30, 2000.
(f) Sixth, to pay any accrued amounts for obligations performed with
respect to periods prior to January 1, 2000 under the management
services agreement, the organizational and administrative services
agreement and the marketing services agreement. For the nine months
ended September 30, 2000 $15,759,200 ($7,879,600 to SIML and
$7,879,600 to the Company) had been paid and incurred by TCA in terms
of this sixth priority. The contingent obligation at September 30,
2000 was approximately $31,162,000.
(g) Seventh, for the period beginning March 31, 2000 and ending December
31, 2014, to pay each of SIML and the Company twenty-five percent
(25%) of the relinquishment payments. The contingent obligation at
September 30, 2000 was approximately $12,715,000.
(h) Eighth, to distribute all excess cash.
In addition, TCA shall not make any distributions pursuant to the Omnibus
Termination Agreement until it has annually distributed to its partners pro
rata, the amounts related to its partners tax obligations as described in
Section 3.03a(1) of the Partnership Agreement less twice the amount of all other
funds paid or distributed to the Company during such year pursuant to the
Omnibus Termination Agreement.
To the extent TCA does not have adequate cash to make the payments pursuant to
the Omnibus Termination Agreement, such amount due shall be deferred without the
accrual of interest until TCA has sufficient cash to pay them.
Until January 1, 2000 TCA's primary source of revenue was Management Fees. Those
fees were utilized by TCA pursuant to The Amended and Restated Omnibus Financing
Agreement (the "Omnibus Financing Agreement") which was terminated effective
January 1, 2000.
14
Results of Operations
---------------------
Comparison of Operating Results for the Quarters Ended September 30, 2000 and
--------------------------------------------------------------------------------
1999
----
Total revenue for the three months ended September 30, 2000 was $2,656,950
compared with $7,898,591 for the three months ended September 30, 1999. This
decrease was primarily attributable to the termination of the Management
Agreement and the commencement of the Relinquishment Agreement and by the
termination of the Omnibus Financing Agreement and the commencement of the
Omnibus Termination Agreement on January 1, 2000. Organizational and
administrative fee income-Trading Cove Associates decreased by $4,304,317 as a
result of the termination of the Management Agreement and the commencement of
the Relinquishment Agreement and by the termination of the Omnibus Financing
Agreement and the commencement of the Omnibus Termination Agreement on January
1, 2000 as detailed above under "Trading Cove Associates-Material Agreements"
and "Omnibus Termination Agreement" and "Amended and Restated Omnibus Financing
Agreement". In addition, interest and dividend income decreased by $937,324
primarily attributable to the repayment on December 30, 1999 by the Authority of
the Authority Subordinated Notes.
Total expenses for the quarter ended September 30, 2000 was $3,245,757 compared
with $3,436,603 for the quarter ended September 30, 1999. Interest expense
decreased by $363,764, due to the redemption of the $125 Million Senior Notes in
the principal amounts of $2,841,000, $2,277,000 and $191,000 on September 15,
1999, March 15, 2000 and September 15, 2000, respectively and salaries-related
parties increased during the period by $171,654 due to Len Wolman's employment
agreement.
Equity in (loss) income of Trading Cove Associates for the quarter ended
September 30, 2000 was $(443,588) compared with $75,947 for the quarter ended
September 30, 1999 as a result of the decrease in income from Trading Cove
Associates of approximately $519,500 due to the timing of payments pursuant to
the Omnibus Termination Agreement and the Omnibus Financing Agreement.
As a result of the foregoing factors, the Company experienced a net loss of
$1,032,395 for the three months ended September 30, 2000 compared with net
income of $4,537,935 for the three months ended September 30, 1999.
Comparison of Operating Results for the Nine Months Ended September 30, 2000 and
--------------------------------------------------------------------------------
1999
----
Total revenue for the nine months ended September 30, 2000 was $10,203,954
compared with $22,034,565 for the nine months ended September 30, 1999. This
decrease was primarily attributable to the termination of the Management
Agreement and the commencement of the Relinquishment Agreement and by the
termination of the Omnibus Financing Agreement and the commencement of the
Omnibus Termination Agreement on January 1, 2000. Subordinated notes fee income
- Trading Cove Associates decreased by $1,105,678, completion guarantee notes
fee income - Trading Cove Associates decreased by $221,875, management services
income - Trading Cove Associates decreased by $1,171,792 and organizational and
administrative fee income - Trading Cove Associates decreased by $6,372,609 as a
result of the termination of the Management Agreement and the commencement of
the Relinquishment Agreement and by the termination of the Omnibus Financing
Agreement and the commencement of the Omnibus Termination Agreement on January
1, 2000 as detailed above under "Trading Cove Associates - Material Agreements"
and "Omnibus Termination Agreement" and "Amended and Restated Omnibus Financing
Agreement". In addition, interest and dividend income decreased by $2,958,657
primarily attributable to the repayment on December 30, 1999 by the Authority of
the Authority Subordinated Notes.
Total expenses for the nine months ended September 30, 2000 was $10,152,509
compared with $20,974,361 for the nine months ended September 30, 1999. Interest
expense decreased by $7,345,412 and amortization on deferred financing costs
decreased by $3,269,148 due primarily to the redemption of the $65 Million
Senior Notes and the issuance of the $125 Million Senior Notes, salaries-related
parties increased during the period by $496,383 due to Len Wolman's employment
agreement, general and administrative costs increased by $142,823 (primarily
attributable to an increase in legal and other expenses related to the defense
of the Leisure litigation, as detailed under Part II Other Information: Item 1
Legal Proceedings, totaling approximately $280,400, and partially offset by a
decrease in filing expense of approximately $15,600, by a decrease in other
legal fees of approximately $51,000 and by a decrease in accounting fees of
approximately $89,600 (during the nine months ended September 30, 2000 and 1999
the Company paid accounting fees to an affiliate totaling $0 and $95,000,
respectively)), 12-3/4% senior notes tender expense decreased by $707,486 due to
the redemption of the $65 Million Senior Notes and to an over accrual of $90,000
at December 31, 1999 and a decrease in amortization of beneficial interest
Leisure Resort Technology, Inc. of $139,910 due to the increase in the period
over which the asset is amortized.
15
Equity in (loss) income of Trading Cove Associates for the nine months ended
September 30, 2000 was $(345,955) compared with $219,328 for the nine months
ended September 30, 1999 as a result of the decrease in income from Trading Cove
Associates of approximately $838,400 due to the timing of payments pursuant to
the Omnibus Termination Agreement and the Omnibus Financing Agreement and by a
decrease in amortization of interests purchased of approximately $273,100 due to
the increase in the period over which the interests purchased is amortized.
As a result of the foregoing factors, the Company experienced a net loss of
$(294,510) for the nine months ended September 30, 2000 compared with net income
of $1,279,532 for the nine months ended September 30, 1999.
Liquidity and Capital Resources
-------------------------------
The initial capital of the Company consists of the partnership interests in TCA
contributed by Slavik and LMW in forming the Company. In connection with the
offering of the $65 Million Senior Notes, the Company used approximately $25.1
million to purchase from Sun International $19.2 million in principal amount of
Subordinated Notes plus accrued and unpaid interest and Subordinated Notes Fee
Amounts. In addition, TCA distributed approximately $850,000 in principal amount
of Subordinated Notes to the Company. During September 1997 and on October 12,
1998 and 1999, the Company purchased from Sun International $2.5 million Non-Pik
Completion Guarantee Notes plus accrued and unpaid interest and Non-Pik
Completion Guarantee Fee Amounts (total cost approximately $2.8 million for each
transaction).
On January 6, 1998 the Company paid $5,000,000 to Leisure whereby Leisure gave
up its beneficial interest in 5% of the Organizational and Administrative Fee
and Excess Cash of TCA and any other claims it may have had against the Company,
TCA and TCA's partners and former partner.
In connection with the offering of the $125 Million Senior Notes, the Company
used approximately $72 million to repurchase its $65 Million Senior Notes,
distributed approximately $37 million to its new parent, Waterford Group and
paid the final $2 million to Leisure.
On December 30, 1999, the Authority paid to the holders of the Authority
Subordinated Notes, an amount to satisfy all obligations of such Authority
Subordinated Notes. The Company received $44,403,517 from the Authority.
On December 30, 1999, TCA distributed $10,536,543 to its partners. The Company
received $5,268,272.
On January 4, 2000 in accordance with the terms of the Indenture and the
Security and Control Agreement dated as of March 17, 1999 between the Company
and Finance and State Street Bank and Trust Company, $15,000,000 was transferred
to restricted investments ("Interest Reserve Account").
On January 4, 2000 also in accordance with the terms of the Indenture, the
Company distributed $34,671,789 to its sole member Waterford Group. On January
11, 2000, on April 13, 2000, and on June 12, 2000 the Company distributed
$2,557,545, $132,869, and $330,400, respectively, to Waterford Group as a tax
distribution, in accordance with the terms of the Indenture.
For the nine months ended September 30, 2000 and 1999, net cash (used in)
provided by operating activities (as shown in the Condensed Statements of Cash
Flows) was $(3,969,703) and $875,749, respectively.
Current assets decreased from $72,724,437 at December 31, 1999 to $30,537,831 at
September 30, 2000. The decrease was caused primarily by the distributions to
the Company's sole member Waterford Group of approximately $37,693,000,
approximately $3,970,000 of cash used in operations, the redemption of $125
Million Senior Notes in the principal amount of $2,468,000, and offset by the
payment of fees and distributions by TCA in terms of the Omnibus Termination
Agreement.
Current liabilities decreased from $3,576,539 at December 31, 1999 to $572,909
at September 30, 2000. The decrease was primarily attributable to a decrease in
accrued interest on senior notes payable of approximately $2,912,000 and by a
decrease in accrued expenses of approximately $91,900 (primarily attributable to
an increase in the amount due under Len Wolman's employment agreement of
approximately $44,100 and offset by the over accrual of deferred financing costs
of $40,000 and 12-3/4% senior notes tender expense of $90,000 at December
31,1999).
16
For the nine months ended September 30, 2000 and 1999 net cash used in investing
activities ( as shown in the Condensed Statements of Cash Flows) was $14,328,505
and $11,284,358, respectively. The increase was caused primarily by the increase
in (purchases) and sales of restricted investments-net of approximately
$3,008,000 (principally due to the funding of the Interest Reserve Account in
the amounts of approximately $12 Million on March 17, 1999 and $15 Million on
January 4, 2000), the increase in contributions to TCA of $500,000 (to fund
certain development expenses in connection with the Project at the Mohegan Sun),
and offset by the decrease in the payment to Leisure of 2,000,000, an increase
in distributions from TCA of approximately $455,500 and by the decrease in
(purchases) and sales of temporary investments-net of $2,045,430 primarily due
to the redemption of the $65 Million Senior Notes and the issuance of the $125
Million Senior Notes.
The Company anticipates that up to $3,500,000 in additional investments in TCA
(as of September 30, 2000, $2,000,000 had been invested in TCA) may be required
by the Company in connection with the Project at the Mohegan Sun.
For the nine months ended September 30, 2000 and 1999 net cash (used in)
provided by financing activities (as shown in the Condensed Statements of Cash
Flows) was $(40,160,603) and $17,178,608, respectively. The net cash used in
financing activities in 2000 was primarily the result of the redemption of $125
Million Senior Notes in the principal amount of $2,468,000 and distributions to
the Company's sole member of approximately $37,693,000. The net cash provided by
financing activities in 1999 was primarily the result of the issuance of the
$125 Million Senior Notes in the principal amount of $125,000,000, contributions
by members of $49,000, and offset by the redemption of the $65 Million Senior
Notes in the principal amount of $61,471,000, deferred financing costs of
$4,028,000 (primarily due to the costs associated with the issuance of the $125
Million Senior Notes) and by distributions to members of approximately
$39,530,000.
The Company and Finance are required to make a mandatory redemption on September
15 and March 15, of each year, which began September 15, 1999, of $125 Million
Senior Notes using any Company Excess Cash, as defined in the Indenture, which
the Company and Finance may have as of the preceding August 1 and February 1. On
August 1, 1999 the Company and Finance had Company Excess Cash, as defined in
the Indenture, available for mandatory redemption of the $125 Million Senior
Notes totaling approximately $8,983,000, and accordingly on September 15, 1999
the Company and Finance made a mandatory redemption of $125 Million Senior Notes
in the principal amount of $2,841,000 at the redemption price of 109.50%. On
February 1, 2000 the Company and Finance had Company Excess Cash, as defined in
the Indenture, available for mandatory redemption of the $125 Million Senior
Notes totaling approximately $8,276,000, and accordingly on March 15, 2000 the
Company and Finance made a mandatory redemption of $125 Million Senior Notes in
the principal amount of $2,277,000 at the redemption price of 108.636%. On
August 1, 2000 the Company and Finance had Company Excess Cash, as defined,
available for mandatory redemption of the $125 Million Senior Note, totaling
approximately $5,902,000, and accordingly on September 15, 2000 the Company and
Finance made a mandatory redemption of $125 Million Senior Notes in the
principal amount of $191,000 at the redemption price of 108.636%.
The Company expects to fund its operating, debt service and capital needs from
cash flows from the Company's share of payments from TCA, and from the Company's
available cash. Based upon the Company's anticipated future operations,
management believes that available cash flow will be sufficient to meet the
Company's anticipated requirements for future operating expenses, future
scheduled payments of principal and interest on the $125 Million Senior Notes
and additional investments in TCA that may be required in connection with the
Project. No assurance, however, can be given that the operating cash flow will
be sufficient for that purpose.
17
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of changes in value of a financial instrument,
derivative or non-derivative, caused by fluctuations in interest rates, foreign
exchange rates and equity prices. Changes in these factors could cause
fluctuations in earnings and cash flows.
For fixed rate debt, changes in interest rates generally affect the fair market
value of the debt instrument, but not earnings or cash flows. Therefore,
interest rate risk and changes in the fair market value of fixed rate debt
should not have a significant impact on earnings or cash flows until such debt
is refinanced, if necessary. For variable rate debt, changes in interest rates
generally do not impact the fair market value of the debt instrument, but do
affect future earnings and cash flows. The Company did not have any variable
rate debt outstanding at September 30, 2000. The fair market value of the
Company's long-term debt at September 30, 2000 is estimated to be approximately
$119,691,000 based on the quoted market price for the same issue.
The Company is exposed to market risks from fluctuations in interest rates and
the effects of those fluctuations on market values of the Company's cash
equivalents and restricted investments. Cash equivalents generally consist of
overnight investments while the restricted investments are generally comprised
of an investment in a Federal National Mortgage Association Discount Note. These
investments are not significantly exposed to interest rate risk, except to the
extent that changes in interest rates will ultimately affect the amount of
interest income earned and cash flow from these investments.
The Company does not currently have any derivative financial instruments in
place to manage interest costs, but that does not mean that the Company will not
use them as a means to manage interest rate risk in the future.
The Company does not use foreign currency exchange forward contracts or
commodity contracts and does not have foreign currency exposure in its
operations.
Part II -- Other Information:
----------------------------
Item 1 -- Legal Proceedings:
As derived from publicly filed information, the Authority is a defendant in
certain litigations incurred in the normal course of business. In the opinion of
the Authority's management, based on the advise of counsel, the aggregate
liability, if any, arising from such litigation will not have a material adverse
effect on the Authority's financial condition or results of operations.
On January 6, 1998, Leisure Resort Technology, Inc. ("Leisure") and defendants
Waterford Gaming, L.L.C., Trading Cove Associates, LMW Investments, Inc., and
Slavik Suites, Inc. settled a prior lawsuit brought by Leisure. In connection
with this settlement, Leisure and Trading Cove Associates, Waterford Gaming,
L.L.C., LMW Investments, Inc., and Slavik Suites, Inc. entered into a settlement
and release agreement. Pursuant to this settlement and release agreement,
Waterford Gaming, L.L.C. bought out Leisure's beneficial interest in Trading
Cove Associates.
By complaint dated January 7, 2000, as amended February 4, 2000, Leisure filed a
four count complaint naming as defendants Waterford Gaming, L.L.C., Trading Cove
Associates, LMW Investments, Inc., Slavik Suites, Inc., Waterford Group, L.L.C.,
Len Wolman and Mark Wolman (collectively, the "Defendants"). The matter is
pending in the Judicial District of Middlesex at Middletown, Connecticut. The
complaint alleged breach of fiduciary duties, fraudulent non-disclosure,
violation of Connecticut Statutes Section 42-110a, et seq., and unjust
enrichment in connection with the negotiation by certain of the Defendants of
the settlement and release agreement. The complaint also brought a claim for an
accounting. The complaint seeks unspecified legal and equitable damages. On
February 29, 2000, Defendants filed a Motion to Strike and a Motion for Summary
Judgement, each with respect to all claims. The Court granted Defendants' Motion
to Strike in part and denied Defendants' Motion for Summary Judgement, on
October 13, 2000. The Court's order dismissed the claim for an accounting and
the claim under Connecticut Statutes Section 42-110a, et seq. The Court also
dismissed all claims against LMW Investments, Inc., Slavik Suites, Inc., Len
Wolman and Mark Wolman.
The Company believes that it has meritorious defenses and intends to vigorously
contest the claims in this action and to assert all available defenses. At the
present time, the Company is unable to express an opinion on the likelihood of
an unfavorable outcome or to give an estimate of the amount or range of
potential loss to the Company as a result of this litigation due to the disputed
issues of law and/or facts on which the outcome of this litigation depends and
due to the infancy of both the action and discovery in the action.
Item 2 -- Changes in Securities:
None
Item 3 -- Defaults Upon Senior Securities:
None
18
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, LLC (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)
4.1.1 First Supplemental Indenture, dated as of March 4,
1999, among Waterford Gaming, L.L.C. and Waterford
Gaming Finance, Corp., as issuers, and State Street
Bank and Trust Company, as trustee, relating to
$65,000,000 12-3/4% Senior Notes due 2003. (vi)
4.2 Indenture, dated as of March 17, 1999, among
Waterford Gaming, L.L.C. and Waterford Gaming
Finance Corp., as issuers, and State Street Bank
and Trust Company, as trustee, relating to
$125,000,000 9-1/2% Senior Notes
due 2010. (vi)
4.3 Security and Control Agreement, dated as of March
17, 1999, among Waterford Gaming, L.L.C. and
Waterford Gaming Finance Corp., as pledgors and
State Street Bank and Trust Company, as securities
intermediary. (vi)
4.4 Specimen Form of 9-1/2% Senior Notes due 2010
(included in Exhibit 4.2). (vi)
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)
10.2.1 Amended and Restated Omnibus Financing Agreement
dated September 10, 1997 (ii)
10.2.2 Omnibus Termination Agreement, dated as of March
18, 1999, among Sun International Hotels Limited,
Trading Cove Associates, Waterford Gaming, L.L.C.,
Sun International Management Limited, LMW
Investments, Inc., Sun Cove Limited, Slavik Suites,
Inc., and Wolman Construction, L.L.C. (vi)
10.3 Amended and Restated Partnership Agreement of
Trading Cove Associates, dated as of September 21,
1994, among Sun Cove Limited, 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 Limited, Slavik
Suites, Inc., RJH Development Corp., LMW
Investments, Inc. and Waterford Gaming, L.L.C. (i)
10.5 Purchase Agreement, dated as of March 10, 1999,
among Waterford Gaming, L.L.C., Waterford Gaming
Finance Corp., Bear, Stearns & Co., Inc., Merrill
Lynch, Pierce, Fenner and Smith Inc. and Salomon
Smith Barney. (vi)
10.5.1 Agreement with Respect to Redemption or Repurchase
of Subordinated Notes, dated September 10, 1997 (ii)
10.6 Amended and Restated Limited Liability Company
Agreement of Waterford Gaming, L.L.C., dated as of
March 17, 1999 by Waterford Group, L.L.C. (vi)
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)
19
10.9 Management Agreement, dated as of July 28, 1994,
between the Mohegan Tribe of Indians of Connecticut
and Trading Cove Associates. (i)
10.10 Management Services Agreement, dated September 10,
1997. (ii)
10.11 Development Services Agreement, dated September 10,
1997. (ii)
10.12 Subdevelopment Services Agreement, dated September
10, 1997. (ii)
10.13 Completion Guarantee and Investment Banking and
Financing Arrangement Fee Agreement, dated
September 10, 1997. (ii)
10.14 Settlement and Release Agreement, dated January 6,
1998, by and among Leisure Resort Technology, Inc.,
Lee R. Tyrol, Trading Cove Associates, Slavik
Suites, Inc., LMW Investments, Inc., RJH
Development Corp., Waterford Gaming, L.L.C. and Sun
Cove Limited. (iii)
10.15 Waiver and Acknowledgment of Noteholder. (iv)
10.16 Relinquishment Agreement, dated February 7, 1998,
between the Mohegan Tribal Gaming Authority and
Trading Cove Associates. (v)
10.17 Development Services Agreement, dated February 7,
1998, between the Mohegan Tribal Gaming Authority
and Trading Cove Associates. (v)
10.18 Agreement, dated September 28, 1998, by and among,
Waterford Gaming, L.L.C., Slavik Suites, Inc., LMW
Investments, Inc., Len Wolman, Mark Wolman,
Stephan F. Slavik, Sr. and Del J. Lauria (Len
Wolman's Employment Agreement). (v)
10.19 Agreement Relating to Development Services, dated
as of February 9, 1998, between Trading Cove
Associates and Sun International Management
Limited. (vi)
10.20 Local Construction Services Agreement, dated as of
February 9, 1998 between Sun International
Management Limited and Wolman Construction,
L.L.C. (vi)
10.21 Escrow Deposit Agreement, dated as of the 3rd day of
March 1999, by and among the Mohegan Tribal Gaming
Authority and First Union National Bank, as
Defeasance Agent. (vi)
21.1 Subsidiaries of Waterford Gaming, L.L.C. (i)
21.2 Subsidiaries of Waterford Gaming Finance Corp. (i)
27 Financial Data Schedule (vii)
(i) Incorporated by reference to the Registrant's Registration Statement on
Form S-4,Securities and Exchange Commission (the "Commission") File No.
333-17795, declared effective on May 15, 1997.
(ii) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1997, Commission File No.
333-17795, as accepted by the Commission on November 14, 1997.
(iii) Incorporated by reference to the Registrant's Annual Report on Form
10- K for the fiscal year ended December 31, 1997, Commission File
No. 333-17795, as accepted by the Commission on March 30, 1998.
(iv) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1998, Commission File No.
333-17795, as accepted by the Commission on May 14, 1998.
(v) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1998, Commission File No.
333-17795, as accepted by the Commission on November 13, 1998.
(vi) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1999, Commission File No. 333-17795
as accepted by the Commission on May 17, 1999.
(vii) Included in Edgar filing only.
(b) Reports on Form 8-K
Form 8-K filed on August 15, 2000
Item 5.
The Mohegan Tribal Gaming Authority (the "Authority") has filed
its quarterly report on Form 10-Q for the quarter ended June 30,
2000, a copy of which has been filed as an exhibit to this report
and is incorporated by reference to the Authority's electronic
filing of such report on Form 10-Q, Securities and Exchange
Commission file reference no. 033-80655.
Date of Report: August 14, 2000
20
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: November 13, 2000 By: /s/Len Wolman
Len Wolman, Chief Executive Officer
Date: November 13, 2000 By: /s/Alan Angel
Alan Angel, Chief Financial Officer
21
