SEARCH NEWS:

 

Mohegan Sun Revenues Up, Earnings Down Slightly

Operating Results:

Mohegan Sun reported first quarter income from operations before interest, depreciation, amortization, pre-opening expenses and relinquishment fees earned by Trading Cove Associates (``EBITDAR'') of $50.3 million, a decrease of $936,000 or 1.8 percent over the prior year. The first quarter operating results reflect the impact of the recession and the events of the September 11, 2001 tragedy. In the aftermath of September 11th, marketing strategies were less effective in achieving the projected growth for the expanded Mohegan Sun (``Project Sunburst'').

However, prior to September 11th, the facility was already staffed for anticipated business volume growth in excess of fifty percent. This resulted in higher than anticipated labor expenses. Management aggressively reacted to reduce staffing levels as soon as it became apparent in early November that operating revenues would be below earlier expectations.

First quarter staffing levels of 7,890 increased by 2,843 or 56.3 percent over the same period in the prior year, due to the opening of the first phase of Project Sunburst. The results of the quarter were also negatively impacted by the overwhelming acceptance of the Shops at Mohegan Sun and the use of players club points for purchases resulting in higher than anticipated marketing expenses.

Gross revenues for the quarter were $258.6 million, an increase of $56.3 million, or 27.8 percent, over the same period last year. Table games drop increased by 42.0 percent in the quarter ended December 31, 2001. Table games revenues were impacted for the quarter by a lower win percentage. Table games revenues were $54.7 million, a $12.6 million or 29.9 percent increase over the first quarter of the prior year.

This favorable variance was partially offset by a negative impact in first quarter win percentage of 15.6 percent versus 17.2 percent in the prior year.

First quarter gross slot revenue of $171.9 million increased by 30.2 percent over the same period last year and as a result Mohegan Sun increased its Connecticut slot win market share to 48.0 percent, a 5.4 percent increase over the prior year. Gross slot win per unit per day in the first quarter was $300 as compared to $473 for the same period last year. The decrease in win per unit is attributed to the opening of the Casino of the Sky and the Hall of the Lost Tribes smoke-free slot room, which combined added 3,201 slot machines to the property.

Income from operations was $31.4 million for the quarter ended December 2001 compared to $43.3 million for the quarter ended December 2000. The decrease of $11.9 million is attributable to increases in expenses associated with the expanded Mohegan Sun, including increased staffing levels. Additionally, the unfavorable variance can be attributed to the impact of the recession and the events of the September 11, 2001 tragedy.

Gaming expenses were $133.3 million for the quarter ended December 2001 compared to $93.3 million in the quarter ended December 2000. The increase of $40.0 million is attributable to an 89-unit increase in table games and a 3,201-unit increase in slot machines associated with the opening of the first phase of Project Sunburst and the Hall of the Lost Tribes. Gaming expenses as a percent of gaming revenues were 58.8 percent in the quarter ended December 31, 2001 compared to 53.3 percent in the same period of the prior year, an increase of 5.5 percent.

Additionally, the first phase of Project Sunburst included the opening of the Shops at Mohegan Sun. Effective with the opening of the first phase of Project Sunburst, members of the Mohegan Sun Players Club were eligible to redeem points at these leased shops and restaurants. The excitement created by the opening of the Shops at Mohegan Sun, coupled with the holiday shopping season, resulted in a significant increase in Mohegan Sun's gaming expenses as points were redeemed in these leased shops and restaurants.

Food and Beverage expenses were $11.1 million for the quarter ended December 31, 2001, an increase of $5.0 million over the $6.1 million in the prior year quarter. The cost of sales for food decreased from 36.7 percent in the prior year quarter to 35.8 percent in the quarter ended December 2001. Food covers increased from 929,000 in the quarter ended December 31, 2000 to 1.3 million in the quarter ended December 31, 2001, a 40.0 percent increase.

Mohegan Sun opened the 350-seat Sunburst Buffet, the Rising Moon Gallery of Eateries, Rain, a gourmet restaurant, and Todd English's Tuscany restaurant during the quarter ended December 2001. These new establishments, along with the additional beverage service in the Casino of the Sky, the arena concessions, the Cabaret bar, Leffingwell's bar located at the base of Wombi Rock and the Sachem's Lounge have increased food and beverage expenses quarter over quarter.

Retail, entertainment and other expenses are $8.9 million and $4.8 million for the quarter ended December 31, 2001 and 2000 respectively. The $4.1 million increase is primarily a result of the fifteen events that were held in the Mohegan Sun Arena in the quarter ended December 31, 2001.

These events included Michael Jordan and the Washington Wizards, Tim McGraw, Gloria Estefan, Aerosmith, Bob Dylan, exhibition tennis with Martina Navritolova and Monica Seles and ESPN Bowling. Also contributing to the increase are expenses associated with the Cabaret, an intimate 300-seat theater that plays host to a wealth of entertainers from singers, such as Tony Bennett and Betty Buckley, to comics, such as Phyllis Diller and the Amazing Kreskin.

General and Administrative expenses total $37.8 million for the quarter ended December 2001, an increase of 37.0 percent from the $27.6 million for the quarter ended December 2000. The $10.2 million increase is primarily associated with advertising expenses targeted to promote the Project Sunburst expansion efforts through all major media outlets.

Pre-Opening expenses associated with the April 2002 opening of the Mohegan Sun hotel were $1.7 million for the quarter ended December 2001 compared to pre-opening expenses of $1.4 million for the quarter ended December 2000. The December 2000 pre-opening expenses were related to the first phase of Project Sunburst.

Depreciation increased by $10.7 million from the quarter ended December 2000 to the quarter ended December 2001 as a result of $667.5 million of assets, including $26.5 million of capitalized interest, placed in service with the opening of the first phase of Project Sunburst.

Net income for the quarter ended December 2001 was $7.6 million, a $19.7 million decrease from the $27.3 million net income in the prior year quarter. Interest expense increased by $8.9 million during the quarter. The increase in interest expense was mainly attributable to higher average debt outstanding. The weighted average outstanding debt was $976.7 million for the three months ended December 31, 2001, compared to $504.8 million for the three months ended December 31, 2000.

Project Sunburst:

In order to capitalize on the strong demand for gaming opportunities in the northeast and Mohegan Sun's popularity, the Authority decided in 1998 to expand the casino significantly and to add a hotel, convention facilities, an entertainment arena and additional retail establishments. The first phase of Project Sunburst, the Casino of the Sky, opened on September 25, 2001.

The remaining components, including 765 rooms of the 1,200-room luxury hotel and approximately 100,000 square feet of convention space, are expected to open in April 2002 and full completion of construction is expected in June 2002. Mohegan Sun spent $63.5 million, excluding capitalized interest, for the quarter ended December 31, 2001 for construction of Project Sunburst.

Mohegan Sun has expended $871.2 million of the $960.0 million budgeted through December 31, 2001, excluding capitalized interest. Mohegan Sun and its Project Developer, Trading Cove Associates, expects that Project Sunburst will be completed within the $960.0 million budget. During the remainder of fiscal year 2002, Mohegan Sun anticipates spending $88.8 million on Project Sunburst.

Other Capital Spending:

Capital spending on the $65.0 million 2,700-space Indian Summer Garage totaled $24.1 million for the quarter ending December 31, 2001. Expenditures to date have totaled $28.6 million. The Indian Summer Garage is expected to open in June 2002.

The Authority also anticipates spending $25.0 million on the 1,700-space Thames Garage expected to be completed in the spring of 2002. ``Expanding our parking facilities will allow us to continue to provide extraordinary access and parking, one of the key reasons for Mohegan Sun's success,'' said Mark Brown, Chairman of the Mohegan Tribal Council.

Capital spending on the $10.0 million Employee Daycare facility for the quarter ended December 31, 2001 totaled $600,000, while cumulative expenditures reached $1.1 million.

During the quarter, $4.1 million was spent on the electrical and water systems infrastructure (``Infrastructure Improvements'') that service Mohegan Sun and other facilities. Cumulative Infrastructure Improvements total $33.7 million as of December 31, 2001.

For the three months ended December 31, 2001, property maintenance capital expenditures for furniture, fixtures and equipment totaled $6.5 million.

Liquidity:

Cash and cash equivalents at December 31, 2001 were $81.3 million compared to $74.3 million at September 30, 2001. As of December 31, 2001, Mohegan Sun has $340.0 million outstanding under the $500.0 million Bank Credit Facility.

Management believes that existing cash balances, financing arrangements, and operating cash flow will provide Mohegan Sun with sufficient resources to meet its existing debt obligations, relinquishment payments, tribal distributions, the completion of Project Sunburst and foreseeable capital expenditure requirements with respect to current operations for at least the next twelve months.

Due to delays in the construction schedule of the hotel, the Authority has initiated discussions with its lenders regarding possible amendments to its financial covenants under the Bank Credit Facility. These amendments would be intended to address the impact of the extended construction borrowing period and the delay in achieving the full cash flows anticipated from the fully completed hotel.

Certain amounts in the 2001 financial statements have been reclassified to conform with the 2002 presentation.

< Gaming News