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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 9/30/2002
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 333-17795-01
WATERFORD GAMING FINANCE CORP.
------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1485836
------------------------------- --------------------
(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 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 FINANCE CORP.
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 Finance Corp.
as of September 30, 2002 (unaudited) and December 31, 2001 3
Condensed Statements of Operations and Retained Earnings (Deficit)
of Waterford Gaming Finance Corp. for the three months and nine
months ended September 30, 2002 (unaudited)
and September 30, 2001 (unaudited) 4
Condensed Statements of Cash Flows of Waterford Gaming Finance Corp.
for the nine months ended September 30, 2002 (unaudited) and
September 30, 2001 (unaudited) 5
Notes to Condensed Financial Statements for Waterford Gaming
Finance Corp. (unaudited) 6
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3 -- Quantitative and Qualitative Disclosures about
Market Risk 7
Part II -- OTHER INFORMATION
- ----------------------------
Item 1 -- Legal Proceedings 7
Item 2 -- Changes in Securities 8
Item 3 -- Defaults upon Senior Securities 8
Item 4 -- Submission of Matters to a Vote of Security Holders 8
Item 5 -- Other Information 8
Item 6 -- Exhibits and Reports on Form 8-K 8
Signatures- Waterford Gaming Finance Corp. 10
Report of Independent Accountants
---------------------------------
To the Stockholder of Waterford Gaming Finance Corp.:
We have reviewed the accompanying condensed balance sheet of Waterford Gaming
Finance Corp. (the "Company") as of September 30, 2002, and the related
condensed statements of operations and retained earnings (deficit) for each of
the three-month and nine-month periods ended September 30, 2002, and 2001, and
the related condensed statements of cash flows for each of the nine-month
periods ended September 30, 2002 and 2001. 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 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, 2001, and
the related statements of operations and retained earnings (deficit) and cash
flows for the year then ended (not presented herein), and in our report dated
March 20, 2002 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, 2001, is fairly stated in all
material respects in relation to the balance sheet from which it has been
derived.
PricewaterhouseCoopers LLP
November 1, 2002
Hartford, Connecticut
1
PART I -- FINANCIAL INFORMATION
- -------------------------------
Item 1 -- Financial Statements
The unaudited condensed financial information as of September 30, 2002 and 2001,
and for each of the three-month and nine-month periods ended September 30, 2002
and 2001 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 Finance Corp.
Condensed Balance Sheets
September 30, 2002 (Unaudited) and December 31, 2001
----------------------------------------------------
September 30, December 31,
2002 2001
------------- ------------
ASSETS
Cash $100 $100
==== ====
STOCKHOLDER'S EQUITY
Stockholder's equity:
Common stock, $.01 par value;
1,000 shares authorized, issued
and outstanding $ 10 $ 10
Additional paid-in capital 90 90
Retained earnings (deficit) -- --
---- ----
Total stockholder's equity $100 $100
==== ====
The accompanying notes are an integral part of these condensed financial
statements.
3
Waterford Gaming Finance Corp.
Condensed Statements of Operations and Retained Earnings (Deficit)
For the Three Months and Nine Months Ended September 30, 2002 and 2001
(Unaudited)
-----------------
For the three-months For the three-months For the nine-months For the nine-months
ended ended ended ended
September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001
-------------------- ------------------- ------------------- -------------------
Revenue $-- $-- $-- $--
Expenses -- -- -- --
---- ---- ---- ----
Net income -- -- -- --
Retained earnings
(deficit), beginning
of period -- -- -- --
---- ---- ---- ----
Retained earnings
(deficit), end
of period $-- $-- $-- $--
==== ==== ==== ====
The accompanying notes are an integral part of these condensed financial
statements.
4
Waterford Gaming Finance Corp.
Condensed Statements of Cash Flows
For the Nine Months ended September 30, 2002 and 2001
(Unaudited)
-----------------------------
2002 2001
----------- -----------
Cash flows from operating activities
Net income (loss) $ -- $ --
---- ----
Net cash provided by operating activities -- --
---- ----
Net increase in cash -- --
Cash at beginning of period 100 100
---- ----
Cash at end of period $100 $100
==== ====
The accompanying notes are an integral part of these condensed financial
statements.
5
WATERFORD GAMING Finance Corp.
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 Finance Corp.'s (the
"Company") 2001 audited financial statements and should be read in conjunction
with the Company's 2001 audited financial statements within the Company's Annual
Report for the fiscal year ended December 31, 2001 on Form 10-K as filed with
the Securities and Exchange Commission (the "Commission") File No. 333-17795-01
on March 28, 2002. The condensed balance sheet at December 31, 2001, contained
herein, was derived from audited financial statements, but does not include all
disclosures contained in the Form 10-K and required by accounting principles
generally accepted in the United States of America. 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, 2002, the results of operations and retained
earnings (deficit) for each of the three-month and nine-month periods ended
September 30, 2002 and 2001 and of cash flows for each of the nine-month periods
ended September 30, 2002 and 2001. Results of operations for the period are not
necessarily indicative of the results to be expected for the full year.
The Company is a wholly-owned subsidiary of Waterford Gaming, L.L.C. ("Gaming").
Effective as of May 15, 1997, the Company functioned as a co-issuer with its
parent, Gaming, to issue $65 million 12-3/4% senior notes payable (the "$65
Million Senior Notes"). The $65 Million Senior Notes were redeemed as part of
the Company's and Gaming's $125 million 9-1/2% senior notes (the "$125 Million
Senior Notes") offering which was completed on March 17, 1999.
2. $125 Million 9-1/2% Senior Notes Payable:
On March 17, 1999, the Company and Gaming, 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 Gaming 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 Gaming 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 February 1, 2001 the Company and Gaming
had Company Excess Cash, as defined, available for mandatory redemption of the
$125 Million Senior Notes totaling approximately $6,173,000 and accordingly on
March 15, 2001 the Company and Gaming made a mandatory redemption of the $125
Million Senior Notes in the principal amount of $452,000 at the redemption price
of 107.773%. On August 1, 2001 the Company and Gaming had Company Excess Cash,
as defined, available for mandatory redemption of the $125 Million Senior Notes
totaling approximately $9,765,000, and accordingly on September 15, 2001 the
Company and Gaming made a mandatory redemption of the $125 Million Senior Notes
in the principal amount of $3,805,000 at the redemption price of 107.773%. On
February 1, 2002 the Company and Gaming had Company Excess Cash, as defined,
available for mandatory redemption of the $125 Million Senior Notes totaling
approximately $9,793,000 and accordingly on March 15, 2002 the Company and
Gaming made a mandatory redemption of the $125 Million Senior Notes in the
principal amount of $4,031,000 at the redemption price of 106.909%. On August 1,
2002 the Company and Gaming had Company Excess Cash, as defined, available for
mandatory redemption of the $125 Million Senior Notes totaling approximately
$8,923,000 and accordingly on September 15, 2002 the Company and Gaming made a
mandatory redemption of the $125 Million Senior Notes in the principal amount of
$3,396,000 at the redemption price of 106.909%. In some circumstances, if either
Gaming or its partner in Trading Cove Associates ("TCA") exercises the option to
buy or sell partnership interests in TCA, the Company and Gaming 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 Gaming'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.
6
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 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 Company is a wholly-owned subsidiary of Gaming.
Results of Operations
- ---------------------
Discussion of the Three Months and Nine Months ended September 30, 2002
- -----------------------------------------------------------------------
and 2001
- --------
For the three-months and nine-months ended September 30, 2002 and 2001 the
Company had no revenue and expense.
The Company is not expected to have significant operating activity. Funding for
future operations will come from the financial support of Gaming.
Item 3 -- Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
Part II -- OTHER INFORMATION
- ----------------------------
Item 1 -- Legal Proceedings:
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 has been
transferred to the complex litigation docket and is pending in Waterbury,
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 struck the alter ego allegations in the complaint against LMW
Investments, Inc., Slavik Suites, Inc., Len Wolman and Mark Wolman. In a
decision dated August 6, 2001, the Court dismissed all claims against LMW
Investments, Inc., Slavik Suites, Inc., Len Wolman and Mark Wolman.
On November 15, 2000, Waterford Gaming, L.L.C. and its co-defendants answered
the complaint. In addition, Waterford Gaming, L.L.C. and Trading Cove Associates
asserted counterclaims for breach of the settlement and release agreement and
breach of the implied covenant of good faith against Leisure and its president,
Lee Tyrol. In a decision dated June 6, 2001, the Court dismissed the
counterclaims against Lee Tyrol.
Discovery has commenced. Pursuant to the current scheduling order, all
depositions are to be completed by June 30, 2003. A trial date has not been set.
Waterford Gaming, L.L.C. 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, Waterford Gaming, L.L.C. 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 Waterford Gaming, L.L.C. 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.
7
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 Incorporation of Waterford
Gaming Finance Corp. (i)
3.2 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. (iii)
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. (iii)
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. (iii)
4.4 Specimen Form of 9-1/2% Senior Notes due 2010
(included in Exhibit 4.2). (iii)
10.1 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. (iii)
10.2 Waiver and Acknowledgment of Noteholder. (ii)
21.1 Subsidiaries of Waterford Gaming Finance Corp. (i)
99.1 Quarterly report, for the period ended September
30, 2002 on Form 10-Q of Waterford Gaming, L.L.C.,
dated November 6, 2002 incorporated by reference
to Waterford Gaming, L.L.C.'s electronic filing of
such report on Form 10-Q, Securities and Exchange
Commission file reference no. 333-17795.
8
(i) Incorporated by reference to the Registrant's Registration Statement
on Form S-4, Securities and Exchange Commission (the "Commission")
File No. 333-17795-01, declared effective on May 15, 1997.
(ii) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1998, Commission File No.
333-17795-01, as accepted by the Commission on May 14, 1998.
(iii) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1999, Commission File No.
333-17795-01, as accepted by the Commission on May 17, 1999.
b) Reports on Form 8-K
-------------------
(i) Form 8-K filed on August 16, 2002
Item 5.
On August 14, 2002, the Mohegan Tribal Gaming Authority (the
"Authority") filed a Form 12b-25, Notice of Late Filing for Form 10-Q,
under the Securities Act of 1933, 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 12b-25,
Securities and Exchange Commission file reference No. 033-80655.
Date of Report: August 14, 2002
(ii) Form 8-K filed on August 21, 2002
Item 5.
On August 19, 2002, the Mohegan Tribal Gaming Authority, (the
"Authority") filed its quarterly report on Form 10-Q for the quarter
ended June 30, 2002, and a current report on Form 8-K, a copy of each
of which is filed as an exhibit to this report and is incorporated
herein by reference to the Authority's electronic filing of such
reports on Form 10-Q and Form 8-K with Securities and Exchange
Commission file reference No. 033-80655.
Date of Report: August 19, 2002
9
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 6, 2002 By: /s/Len Wolman
Len Wolman, Chief Executive Officer
Date: November 6, 2002 By: /s/Del Lauria
Del Lauria, Treasurer
10