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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For
The Fiscal Year Ended: September 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 333-63348
CHOCTAW RESORT DEVELOPMENT ENTERPRISE
(Exact name of registrant as specified in its charter)
Mississippi Band of Choctaw Indians 64-0345731
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
PO Box 6260, Choctaw Branch, Choctaw, MS 39350
(Address of principal executive offices) (Zip code)
(601) 650-9294
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
None
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 __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 126-2):
Yes__ No X
Documents Incorporated by Reference: The information required by Part IV of this
Report, to the extent not set forth herein, is incorporated by reference from
the Registration Statement on Form S-4/A filed on September 26, 2001 with the
Securities and Exchange Commission.
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1
CHOCTAW RESORT DEVELOPMENT ENTERPRISE
SEPTEMBER 30, 2002 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Item 14. Controls and Procedures
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports of Form 8-K
2
Disclosure Regarding Forward-Looking Statements
Some information included in this Form 10-K and other materials filed or to be
filed by the Choctaw Resort Development Enterprise with the Securities and
Exchange Commission contain forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Such statements include information relating to plans for
future expansion and other business development activities, as well as other
capital spending, financing sources and the effects of regulation (including
gaming and tax regulation) and competition. In addition, words such as
"anticipates," "expects," "plans," "intends" and similar expressions have been
used to identify these forward looking statements, but are not the exclusive
means of identifying these statements. These statements reflect our current
beliefs and expectations and are based on information currently available to us.
Accordingly, 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 Enterprise. These risks
and uncertainties include, but are not limited to, those relating to development
and construction activities, dependence on existing management, leverage and
debt service, domestic or global economic condition, pending litigation, changes
in federal tax laws or the administration of such laws and changes in gaming
laws or regulations (including the legalization of gaming in certain
jurisdictions). Except to the extent required by the federal securities laws and
rules and regulations of the Securities and Exchange Commission, the Enterprise
has no intention or obligations to update or revise these forward looking
statements to reflect new events, information or circumstances.
PART I
Item 1. Business
General
The Mississippi Band of Choctaw Indians established the Choctaw Resort
Development Enterprise to operate the Silver Star Hotel and Casino (the "Silver
Star"), and to develop and operate the Golden Moon Hotel and Casino (the "Golden
Moon"), and related businesses. References in this annual report to (1) the
"Tribe" refer to the Mississippi Band of Choctaw Indians, and (2) the
"Enterprise," "we," "our," "ours" and "us" refer to the Choctaw Resort
Development Enterprise, a business enterprise of the Tribe.
The Tribe is a federally recognized, self governing Indian tribe with
approximately 9,100 enrolled members, most of whom live on or near the Tribe's
approximately 31,000-acre reservation in east-central Mississippi. The Indian
Gaming Regulatory Act of 1988 permits federally recognized Indian tribes to
conduct full-scale casino gaming operations on certain Indian lands, subject to,
among other things, the negotiation of a compact with the affected state. The
Tribe and the State of Mississippi entered into a compact in 1992, which was
approved by the U.S. Secretary of the Interior. The compact authorizes full
Class III gaming to the same extent as non-Indian casinos in the State of
Mississippi. The compact is not subject to a term of years and will continue
unless mutually terminated, imposes no required payments to the State of
Mississippi other than for certain agreed upon reimbursement of expenses and
limits distributions from gaming revenues to each Tribal member to $1,000 per
year. The Tribe is currently the only entity legally authorized to operate
land-based casinos in the State.
Description of Business
The Enterprise is a business enterprise of the Tribe that was created
on October 12, 1999 to operate the Silver Star and to develop and operate the
Golden Moon and related businesses. Effective July 1, 2001, the Tribe
contributed the Dancing Rabbit Golf Club (the "Dancing Rabbit"), to the
Enterprise and effective July 8, 2002, the Tribe contributed the Geyser Falls
Water Theme Park (the "Geyser Falls"), to the Enterprise. No consideration was
or is intended to be given to the Tribe for such contributions.
The Silver Star Hotel and Casino
The Silver Star is a full service gaming and entertainment complex
located on a 32-acre site on the Tribe's reservation on Highway 16 West
approximately 70 miles northeast of Jackson, Mississippi. The Silver Star, along
3
with the Golden Moon, are currently the only land-based casinos in the state and
the casinos closest to Birmingham and Tuscaloosa, Alabama. Also, currently there
are no legally authorized casinos in Alabama or Georgia.
The Silver Star opened in July 1994 at a total cost of approximately
$32 million. The Silver Star originally opened with 100 hotel rooms and has
increased its size through three major expansions, increasing the number of
rooms to 496 and adding additional gaming space and conference facilities.
The Silver Star is an approximately 518,000 square foot facility that,
as of September 30, 2002, featured: a 12-story hotel with 496 rooms, including
89 suites; approximately 82,500 square feet of gaming space with 3,094 slot
machines, 82 table games and 11 poker tables; approximately 30,000 square feet
of meeting and convention space, which also serves as a 2,000 seat live
entertainment and sports venue with sky boxes; 2,740 parking spaces, including
an approximately 1,100 space parking garage; seven restaurants with a total of
925 seats; three lounges; three retail outlets; an arcade; an outdoor swimming
pool; a full-service spa; fitness facilities; and guest access to the adjacent
Dancing Rabbit Golf Club and Geyser Falls.
The Golden Moon Hotel & Casino
The Golden Moon is a full service gaming and entertainment complex
located on a 15 acre site that opened on August 26, 2002 at a cost of $254.1
million incurred through September 30, 2002. The Golden Moon, located on
directly across from the Silver Star, is connected to the Silver Star via an
enclosed walkway bridge that spans the highway separating the two casinos. The
bridge is enclosed and climate controlled and features moving ramps to ease
movement from one casino to the other.
The Golden Moon is an approximately 843,000 square foot facility that,
as of September 30, 2002, featured: a 28-story hotel with 571 rooms, including
112 suites and 32 VIP luxury suites; approximately 90,000 square feet of gaming
and related circulation area space with 1,754 slot machines and 52 table games;
approximately 11,600 square feet of meeting space; 2,593 parking spaces; seven
restaurants with a total of 905 seats; five lounges; approximately 8,000 square
feet of retail space; a 315-foot tower topped by an 80-foot geodesic sphere
housing a restaurant and lounge; an aqua-scape, including fountains and other
water effects; an indoor/outdoor swimming pool; fitness facilities; and guest
access to the nearby Dancing Rabbit Golf Club and Geyser Falls.
The Dancing Rabbit Golf Club
Adjoining the Silver Star is Dancing Rabbit, a 750-acre property
containing two 18-hole championship golf courses designed by golf course
designer Tom Fazio and PGA veteran Jerry Pate. Each 18-hole golf course spans
over 7,000 yards and offers five tee locations on each hole. The golf club also
contains a full-service golf shop, a teaching and practice facility, eight
guestrooms, event coordinators and a restaurant and bar. The Dancing Rabbit was
ranked 35th in Golf Magazine's 2002 list of the "Top 100 You Can Play" courses,
up from 37th in 2000. Additionally, the Dancing Rabbit was listed among Golf
Digest's "America's Top 75 Golf Courses" in May 2002 and ranked 25th in Golf
Week's "America's Top 40 Resort Courses" in November 2002. Effective July 1,
2001, the Tribe contributed the Dancing Rabbit to the Enterprise. No
consideration was or is intended to be given to the Tribe for such contribution.
The Geyser Falls Water Theme Park
Geyser Falls opened July 8, 2002 at a cost of $17.6 million incurred
through September 30, 2002. This modern water park spans 15 acres and is capable
of accommodating 5,000 guests per day. The park consists of 12 water slides, a
wave pool and a lazy river. There is over 1,000 square feet of retail outlet
space and numerous food and beverage carts located throughout the park. The
nearest competitor is Rapids on the Reservoir, located approximately 70 miles
away in Jackson, MS, a 15-year old park that is similar in size to Geyser Falls.
The park was contributed to the Enterprise by the Tribe effective July 8, 2002.
No consideration was or is intended to be given to the Tribe for such
contribution.
The Choctaw Hospitality Institute
The primary purpose of the Choctaw Hospitality Institute ("CHI") is to
provide training and education for current and new employees of the Enterprise.
CHI and its staff provide classroom and hands-on training for gaming,
4
hospitality and professional employees of the Enterprise. CHI operates from an
approximately 27,000 square foot facility located near the Golden Moon and
includes classroom space, computer laboratories, slot and table games training
areas, a culinary training laboratory and a gift shop. CHI has contracts with
various public agencies that provide for reimbursement of certain costs incurred
in connection with its training activities and these reimbursements are
recognized as revenue when received. CHI officially opened November 9, 2001 at a
cost of approximately $2,250,000.
Pearl River Resort
The Tribe markets the Silver Star, Golden Moon, Dancing Rabbit and
Geyser Falls under the Pearl River Resort trade name and intends to establish
these collective properties as a premier regional entertainment and destination
resort.
Market
According to the Mississippi Gaming Commission, the Mississippi gaming
market, excluding the Silver Star, generated $2.7 billion of annual gaming
revenues in 2001. Including the Silver Star and Golden Moon, there are currently
31 casinos operating in Mississippi, covering 1.46 million square feet of gaming
space and offering approximately 40,000 slot machines and 1,100 table games. Of
the 31 casinos, the Silver Star and Golden Moon are the only land-based casinos
in the state. Other casinos in the State must operate as dockside casinos and
are moored on either the Mississippi River or the Mississippi Gulf Coast. The
Silver Star and Golden Moon are separated by an approximately two and one-half
hour drive from its nearest significant competitor.
Competition
The Tribe is currently the only legally authorized operator of
land-based casinos in Mississippi. The primary competitors of the Silver Star
and Golden Moon are the 29 casinos concentrated in Mississippi's three regional
gaming markets: the North River Region, the South River Region and the Coastal
Region. The Silver Star and Golden Moon currently draw most of their customers
from within a 150-mile radius, including Jackson, Mississippi, and also have
established customer bases in Birmingham, Montgomery and Tuscaloosa, Alabama.
The North River Region is located in Tunica County, approximately 180
miles northwest of the Silver Star and Golden Moon, and currently has ten
dockside casinos along the Mississippi River. Major operators in this market
include Boyd Gaming Corporation, Harrah's Entertainment, Inc., Hollywood Casino
Corporation, Horseshoe Gaming, LLC, Mandalay Resort Group and Park Place
Entertainment, Inc. Casinos in the North River Region attract a significant
number of their customers from nearby Memphis, Tennessee and Little Rock,
Arkansas.
The South River Region is located along the southern portion of the
Mississippi River, approximately 125 miles west of the Silver Star and Golden
Moon, and currently has seven dockside casinos in the cities of Vicksburg,
Greenville and Natchez. Major operators in this market include Ameristar
Casinos, Inc., Harrah's Entertainment, Inc. and Isle of Capri Casinos, Inc. The
South River market customer base is primarily regional, with most customers
coming from within a 50-mile radius.
The Coastal Region is located approximately 200 miles south of the
Silver Star and Golden Moon along the Mississippi Gulf Coast and is the largest
gaming market in Mississippi with dockside and riverboat casinos in Biloxi,
Gulfport and Bay St. Louis. Major operators in this market include Park Place
Entertainment Corporation, Pinnacle Entertainment, Inc., Penn National Gaming,
Inc. and Isle of Capri Casinos, Inc. MGM Mirage entered the market in March 1999
with the opening of the Beau Rivage in Biloxi, Mississippi. In addition to
attracting gaming customers from the local area, Gulf Coast casinos,
particularly the Beau Rivage, which is located in a traditional regional beach
resort area, tend to draw a significant number of customers from greater
Mississippi and from outside the State.
5
Description of Material Agreements
Tribal-State Compact
The Tribe entered into the Tribal-State Compact for Regulation of Class
III Gaming on the Mississippi Band of Choctaw Indians Reservation (the
"Compact") in Mississippi on December 4, 1992, which became effective on January
4, 1993 and was subsequently amended on August 26, 1994 and May 24, 1996. The
Compact by its terms remains in effect until terminated by mutual consent of the
parties or by Act of Congress. The Compact does not require the Tribe to make
any contribution to the State of Mississippi except for reimbursement of
expenses incurred by the State.
Under the Compact, the Tribe is permitted to operate all Class III
gaming allowed by Mississippi law and under the IGRA. This allows the Tribe to
conduct most forms of Class III gaming, including slot machines. The Tribe
currently has no Class II gaming operations.
The Tribe is authorized to own and operate one or more casinos on its
reservation. Reservation lands are land which are held in trust by the United
States for the benefit of the Tribe as of October 17, 1988. The Tribe may not
conduct Class III gaming on lands acquired by the United States in trust for the
benefit of the Tribe after October 17, 1988, unless such lands are located
within or contiguous to the boundaries of the Tribe's reservation as of October
17, 1988 and the Secretary of the Interior and the Governor of the State of
Mississippi determine that gaming on such lands would be in the Tribe's best
interest and not be detrimental to the surrounding community. The Silver Star
and Golden Moon are wholly located on the Tribe's reservation.
Other provisions of the Compact provide as follows:
(1) The Tribe, the United States and the State of Mississippi
exercise concurrent civil jurisdiction over Class III gaming activities
at the Tribe's casinos. The Tribe exercises exclusive criminal and
civil jurisdiction over Tribal members and all other Indians to the
extent allowed by federal law, the United States retains its criminal
jurisdiction over all of the Class III gaming on the reservation, and
the State of Mississippi exercises exclusive or concurrent criminal
jurisdiction over non-Indians as to some crimes to the extent allowed
by federal law.
(2) No person under the age of 21 is permitted to play any
Class III game.
(3) Net revenues to the Tribe from Class III gaming will be
used only in accordance with budgets adopted by resolution of the
Tribal Council and to fund tribal government operations and programs,
to provide for the general welfare of the members of the Tribe, to
promote economic development, to donate to charitable organizations and
to help fund the operations of local government agencies. Per capita
payments to tribal members from gaming revenues are limited to $1,000
per year.
(4) The Choctaw Gaming Commission, as established by the
tribal government, has primary regulatory authority over the gaming
activities of the Tribe. The Mississippi Gaming Commission cooperates
with the Choctaw Gaming Commission and its agents have the right to
inspect the operations of Class III gaming on reservation lands upon
the presentation of appropriate identification to the on-site Choctaw
Gaming Commission official without any further notice to the Choctaw
Gaming Commission during normal business hours.
(5) The Tribe and the State of Mississippi shall mutually
agree upon a budget for necessary and actual expenses that may be
reasonably incurred by the State during the calendar year in connection
with the gaming activities for regulation, enforcement and state-funded
capital improvements that benefit the Tribe's casinos. The Tribe shall
reimburse actual expenses specified in such budget incurred by the
State within 30 days after the State submits a quarterly payment
request. The Tribe and the State shall separately provide
6
$250,000 each year in matching funds to be used for the advertising
and promotion of tourism. The Tribe's contribution shall be paid in
quarterly installments, conditioned on the Tribe receiving profits of
at least $62,500 for the preceding quarter.
(6) The sale of alcoholic beverages on reservation lands
designated by the Tribal Council as a resort area is permitted by the
State of Mississippi. The Tribe is required to purchase alcoholic
beverages exclusively from the State warehouse.
(7) All management officials and key employees and any other
person who enters into a management contract with the Tribe is required
to have a Class III gaming license or work permit issued by the Choctaw
Gaming Commission.
Government Regulation
General
The Enterprise is subject to special federal, state and tribal laws
applicable to both commercial relationships with Indians generally and to Indian
gaming and the management and financing of casinos owned by an Indian tribe
specifically. In addition, the Enterprise is regulated by federal and state laws
applicable to the gaming industry generally and to the distribution of gaming
equipment. The following description of the regulatory environment in which
Indian gaming takes place and in which the Enterprise operates is only a summary
and not a complete recitation of all applicable law. Moreover, this particular
regulatory environment is very susceptible to changes in public policy. It is
impossible to predict how particular provisions will be interpreted from time to
time or whether they will remain intact. Changes in such laws could have a
material adverse effect on the Enterprise's business, results of operations and
financial position.
Possible Changes in Federal Law
Several bills have been introduced in Congress which would amend IGRA.
While there have been a number of technical amendments to the law, to date there
have been no material changes to the IGRA. Any amendment of IGRA could change
the governmental structure and requirements within which the Tribe could conduct
gaming, and may have a material adverse effect on our results of operations or
impose additional regulatory or operational burdens.
Tribal Law and Legal Systems
Applicability of Federal Law. Federally recognized Indian tribes are
independent governments, subordinate to the United States, with sovereign
powers, except as those powers may have been limited by treaty or by the United
States Congress. The power of Indian tribes to enact their own laws to regulate
gaming, subject to Federal laws, derives from the exercise of tribal
sovereignty. Indian tribes maintain their own governmental systems and often
their own judicial systems. Indian tribes have the right to tax persons and
businesses conducting business on Indian lands, and also have the right to
require licenses and to impose other forms of regulations and regulatory fees on
persons and businesses operating on their lands.
Waiver of Sovereign Immunity; Jurisdiction; Exhaustion of Tribal Remedies.
Indian tribes enjoy sovereign immunity from unconsented suit similar to that of
the states and the United States. In order to sue an Indian tribe (or an agency
or instrumentality of an Indian tribe such as the Enterprise), the tribe must
have effectively waived its sovereign immunity with respect to the matter in
dispute. Further, in most commercial disputes with Indian tribes, the
jurisdiction of the federal courts, which are courts of limited jurisdiction,
may be difficult or impossible to obtain. A commercial dispute is unlikely to
present a federal question, and some courts have ruled that an Indian tribe as a
party is not a citizen of any state for purposes of establishing diversity
jurisdiction in the federal courts. The remedies available against an Indian
tribe also depend, at least in part, upon the rules of comity requiring initial
exhaustion of remedies of tribal tribunals and, as to some judicial remedies,
the tribe's consent to jurisdictional provisions contained in the disputed
agreements. The United States Supreme Court has held that where a tribal court
exists, the jurisdiction in that forum must first be exhausted before any
dispute arising on or involving the affected tribe's reservation and to which
the tribe, a tribal entity such as the Enterprise or a tribal member is a party,
can be properly heard by federal courts which would otherwise have jurisdiction.
Generally, where a dispute as to the existence of jurisdiction in the tribal
forum exists, the
7
tribal court must first rule as to the limits of its own jurisdiction,
subject to specific limited exceptions enumerated by the United States Supreme
Court.
The Indian Gaming Regulatory Act of 1988
Regulatory Authority. The operation of casinos and of all gaming on Indian land
are subject to the Indian Gaming Regulatory Act of 1988. IGRA is administered by
the National Indian Gaming Commission, or NIGC, an independent agency within the
U.S. Department of Interior, which exercises primary federal regulatory
responsibility over Indian gaming. The NIGC has exclusive authority to issue
regulations governing tribal gaming activities, approve tribal ordinances for
regulating Class II and Class III Gaming (as described below), approve
management agreements for gaming facilities, conduct investigations and
generally monitor tribal gaming. Certain responsibilities under IGRA (such as
the approval of per capita distribution plans to tribal members and the approval
of transfer of lands into trust status for gaming) are retained by the Bureau of
Indian Affairs, or BIA, which is a bureau of the United States Department of the
Interior. The BIA also has responsibility to review and approve land leases and
other agreements relating to Indian lands. Criminal enforcement is a shared
responsibility of the United States Department of Justice, the state in which
the Tribe is located and the Tribe, in accordance with federal law.
The NIGC is empowered to inspect and audit all Indian gaming
facilities, to conduct background checks on all persons associated with Indian
gaming, to hold hearings, issue subpoenas, take depositions, adopt regulations
and assess fees and impose civil penalties for violations of IGRA. IGRA also
provides for federal criminal penalties for illegal gaming on Indian land and
for theft from Indian gaming facilities. The NIGC has adopted rules implementing
specific provisions of IGRA. These rules govern, among other things, the
submission and approval of tribal gaming ordinances or resolutions and require
an Indian tribe to have the sole proprietary interest in and responsibility for
the conduct of any gaming. Tribes are required to issue gaming licenses only
under articulated standards, to conduct or commission financial audits of their
gaming enterprises, to perform or commission background investigations for
primary management officials and key employees and to maintain facilities in a
manner that adequately protects the environment and the public health and
safety. These rules also set out review and reporting procedures for tribal
licensing of gaming operation employees.
Classes of Gaming. IGRA classifies games that may be conducted on Indian lands
into three categories. "Class I Gaming" includes social games solely for prizes
of minimal value or traditional forms of Indian gaming engaged in by individuals
as part of, or in connection with, tribal ceremonies or celebrations. "Class II
Gaming" includes bingo, pulltabs, lotto, punch boards, non-banked card games,
tip jars, instant bingo and other games similar to bingo, if those games are
played at the same location as bingo is played. "Class III Gaming" includes all
other forms of gaming, such as slot machines, video casino games, table games
and other commercial gaming, such as sports betting and pari-mutuel wagering.
Class I Gaming on Indian lands is within the exclusive jurisdiction of
the Indian tribes and is not subject to IGRA. Class II Gaming is permitted on
Indian lands if: the state in which the Indian lands lie permits such gaming for
any purpose by any person, organization or entity; the gaming is not otherwise
specifically prohibited on Indian lands by federal law; the gaming is conducted
in accordance with a tribal ordinance or resolution which has been approved by
the NIGC; an Indian tribe has sole proprietary interest and responsibility for
the conduct of gaming; the primary management officials and key employees are
tribally licensed; and several other requirements are met.
Class III Gaming is permitted on Indian lands if the conditions
applicable to Class II Gaming are met and, in addition, the gaming is conducted
in conformity with the terms of a tribal-state compact, which is a written
agreement between the tribal government and the government of the state within
whose boundaries the tribe's lands lie.
Tribal-State Compacts. IGRA requires Indian tribes to enter into tribal-state
compacts in order to conduct Class III Gaming. Such tribal-state compacts may
include provisions for the allocation of criminal and civil jurisdiction between
the state and the Indian tribe necessary for the enforcement of such laws and
regulations, taxation by the Indian tribe of such activity in amounts comparable
to those amounts assessed by the state for comparable activities, remedies for
breach, standards for the operation of such activity and maintenance of the
gaming facility, including licensing and any other subjects that are directly
related to the operation of gaming activities. While the terms of tribal-state
compacts vary from state to state, compacts within one state tend to be
substantially similar. Tribal-state compacts usually specify the types of
permitted games, establish technical standards for video gaming machines, set
maximum and minimum
8
machine payout percentages, entitle the state to inspect casinos, require
background investigations and licensing of casino employees and may require the
tribe to pay a portion of the state's expenses for establishing and maintaining
regulatory agencies. Some tribal-state compacts are for set terms, while others
are for indefinite duration. The Tribe's Compact has no fixed termination date
and will continue in force until terminated by mutual agreement of the State of
Mississippi and the Tribe or by Act of Congress.
There has been litigation challenging the authority of governors, under
state law, to enter into tribal-state compacts. Federal courts have upheld the
authority of the governors of Louisiana and Mississippi to enter into compacts,
while the highest state courts of New Mexico and Kansas have held that the
governors of those states did not have authority to enter into such compacts
without the consent or authorization of the legislatures of those states. In the
New Mexico and Kansas cases, the courts held that compacting is a legislative
function under the respective state constitutions. The court in the New Mexico
case also held that then existing state law did not permit casino-style gaming.
The Enterprise's operation of gaming is subject to the requirements and
restrictions contained in the Compact. The Compact authorizes the Tribe to
conduct most forms of Class III gaming. For additional information, see
"Description of Material Agreements-The Compact".
Tribal Ordinances. Under IGRA, except to the extent otherwise provided in a
tribal-state compact as described below, Indian tribal governments have primary
regulatory authority over Class III Gaming on land within a tribe's
jurisdiction. Therefore, the Enterprise's gaming operations, and persons engaged
in gaming activities, are guided by and subject to the provisions of the Tribe's
ordinances and regulations regarding gaming.
IGRA requires that the NIGC review tribal gaming ordinances and
authorizes the NIGC to approve such ordinances only if they meet specific
requirements relating to (1) the ownership, security, personnel background,
recordkeeping and auditing of a tribe's gaming enterprises; (2) the use of the
revenues from such gaming; and (3) the protection of the environment and the
public health and safety.
Employee and Labor Relations
As of September 30, 2002, the Enterprise had 4,695 full-time employees.
The number of employees has increased from September 30, 2001 due to the
openings of the Golden Moon and Geyser Falls. Pursuant to the ordinance
establishing the Enterprise, we are required to extend preferential treatment to
qualified members of the Tribe in recruitment, employment and promotion. Our
employees are not covered by any collective bargaining agreements. The
Enterprise believes that our labor relations with our employees are good.
Item 2. Properties
The Enterprise currently operates the Silver Star, the Golden Moon, the
Dancing Rabbit, Geyser Falls and Choctaw Hospitality Institute. Effective July
1, 2001 and July 8, 2002, the Tribe contributed the Dancing Rabbit and Geyser
Falls, respectively, to the Enterprise. No consideration was or is intended to
be given to the Tribe for such contributions. The Enterprise, however, does not
and will not own the real property comprising the Silver Star, Golden Moon,
Dancing Rabbit and Geyser Falls. Instead, the United States government holds and
will continue to hold all of the Enterprise's real property in trust for the
benefit of the Tribe.
Item 3. Legal Proceedings
The Enterprise is subject to various claims and litigation in the
normal course of business. In the opinion of management, all pending legal
matters are either adequately covered by insurance or, if not insured, will not
have a material adverse effect on the Enterprise's financial condition, results
of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
None
9
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The Enterprise has not issued or sold any equity securities.
Item 6. Selected Financial Data
Selected Historical Financial and Other Data
Prior to the establishment of the Enterprise, the Silver Star operated
as a separate operating business entity of the Tribe. On October 12, 1999, the
Tribe contributed the Silver Star to the Enterprise in a reorganization. This
reorganization was accounted for as a reorganization of entities under common
control. Effective July 1, 2001, the Tribe contributed the Dancing Rabbit to the
Enterprise. Prior to its contribution to the Enterprise, the Dancing Rabbit
operated as a separate, wholly-owned business enterprise of the Tribe. This
reorganization has also been accounted for as a reorganization of entities under
common control. Accordingly, the financial statements of the Enterprise for all
periods are presented as if the reorganizations occurred at the beginning of the
earliest period presented and include the accounts of the Enterprise, the Silver
Star, and the Dancing Rabbit on a historical cost basis, in a manner similar to
the treatment found in a pooling of interests transaction. On July 8, 2002 and
August 26, 2002, the Enterprise began operating Geyser Falls and Golden Moon,
respectively. All intercompany balances and transactions have been eliminated.
You should read the following financial data in conjunction with the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our financial statements and the related notes
included in this Form 10-K.
Fiscal Year Ended September 30,
--------------------------------------------------------
2002 2001 2000 1999 1998
----- ----- ----- ---- ----
(in thousands)
Statement of Income Data:
Net Revenues....................... $248,248 $237,619 $248,227 $244,224 $233,411
Operating Income (a)................ 97,014 109,315 40,050 87,310 92,622
Net Income (a)........................ 90,262 98,042 36,894 87,629 92,928
Balance Sheet Data:
Cash and cash equivalents.......... $ 72,783 $ 81,823 $ 34,780 $ 21,286 $ 20,732
Restricted cash........................ 2,618 2,568 2,443 2,295 2,186
Total assets......................... 502,028 386,847 195,698 175,704 179,122
Total debt (b)....................... 275,300 200,300 62,800 1,633 3,333
Total owner's equity................ 170,216 145,226 114,775 153,027 154,875
(a) In December 1993, the Enterprise entered into a management agreement with
Boyd Mississippi, Inc. ("Boyd"), a wholly owned subsidiary of Boyd Gaming
Corporation, to finance the construction and operate the Silver Star. The
term of the management agreement was seven years, commencing upon the
opening of the Silver Star on July 1, 1994. The Enterprise effected an
early termination of the management agreement on January 31, 2000. Pursuant
to the provisions of the termination agreement, the Enterprise made a
termination payment to Boyd in the amount of $72.0 million on February 1,
2000. The termination payment is reflected in the second quarter for the
fiscal year ended September 30, 2000. No further management fee payments
are required to be made to Boyd under the management agreement.
(b) Proceeds from a $75 million term loan were used to make the termination
payment referred to above on January 31, 2000. To finance the construction
of the Golden Moon, the Enterprise issued $200 million in unsecured senior
notes in March 2001 and entered into a $125 million revolving credit
facility. At September 30, 2002, $75,000,000 was outstanding under the
revolving credit facility.
10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Enterprise is a business enterprise of the Tribe. The Tribe
established the Enterprise on October 12, 1999 for the purpose of operating the
Silver Star and developing and operating the Golden Moon and related businesses.
Effective July 1, 2001, the Tribe contributed the Dancing Rabbit to the
Enterprise in a reorganization. On October 12, 1999, the Tribe contributed the
Silver Star to the Enterprise in a reorganization. No consideration was or is
intended to be given to the Tribe for such contribution. Prior to the
establishment of the Enterprise, the Silver Star operated as a separate,
wholly-owned business entity of the Tribe. Both reorganizations were accounted
for as reorganizations of entities under common control. Accordingly, the
financial statements of the Enterprise for all periods are presented as if the
reorganizations occurred at the beginning of the earliest period presented and
include the accounts of the Enterprise, the Silver Star and the Dancing Rabbit
on a historical cost basis, in a manner similar to the treatment found in a
pooling of interests transaction.
- - On July 1, 1994, the Silver Star commenced operations as a hotel and casino
on the Tribe's reservation in east-central Mississippi. At its opening, the
Silver Star had approximately 1,300 gaming positions, 100 hotel rooms and
three restaurants.
- - Hotel, convention and casino expansions and other major renovations were
undertaken at the Silver Star in fiscal years 1995, 1996 and 1997.
- - At the beginning of fiscal 1998, the Silver Star had approximately 2,800
slot machines, 84 table games, 473 hotel rooms, five restaurants and a spa
and fitness facility.
- - In November 2000, a 1,100 space parking garage was completed adjacent to
the Silver Star.
- - On November 9, 2001, CHI commenced operations from an approximately 27,000
square foot facility located near the Golden Moon. The CHI facility
includes classroom space, computer laboratories, slot and table game
training areas, a culinary training laboratory and a gift shop.
- - As of September 30, 2002, the Silver Star had approximately 82,500 square
feet of gaming space, 3,094 slot machines, 82 table games, 11 poker tables,
496 hotel rooms, 30,000 square feet of meeting and convention space and
seven restaurants.
- - On July 8, 2002, Geyser Falls commenced operations. This modern water park
spans 15 acres and is capable of accommodating 5,000 guests per day. The
park consists of 12 water slides, a wave pool and a lazy river. There is
over 1,000 square feet of retail outlet space and numerous food and
beverage carts located throughout the park.
- - On August 26, 2002, the Golden Moon commenced operations. This 28 floor
full-service hotel and casino has approximately 90,000 square feet of
gaming and related circulation space, 1,754 slot machines, 52 table games,
571 hotel rooms and seven restaurants as of September 30, 2002.
Fiscal Year Ended September 30, 2002 Compared to Fiscal Year September 30,
2001
Net Revenues. Net revenues for the fiscal year ended September 30, 2002 were
$248.2 million compared to $237.6 million for the fiscal year ended September
30, 2001. The $10.6 million, or 4.5%, increase in net revenues was primarily due
to an increase in gaming revenues attributable to the opening of the Golden Moon
on August 26, 2002.
11
Complimentary revenues are included in gross revenues but
are deducted as a promotional allowance to arrive at net revenues.
Casino. Casino revenues were $227.7 million for fiscal 2002 compared to $221.3
million for fiscal 2001, an increase of $6.4 million, or 2.9%. The increase in
casino revenue for the fiscal year is discussed below.
Table game drop was $167.4 million for fiscal 2002 compared to table
game drop of $171.4 million for fiscal 2001, a decrease of $4.0 million, or
2.3%. Table game revenue was $31.3 million for fiscal 2002 compared to $33.4
million for fiscal 2001, a decrease of $2.1 million, or 6.3%. The decrease in
revenue is the result of lower table drop and a lower hold percentage. Table
game hold percentage was 18.7% for fiscal 2002 compared to 19.5% for fiscal
2001.
Slot revenues were $195.0 million for fiscal 2002, compared to $186.6
million for fiscal 2001, an increase of $8.4 million, or 4.5%. This increase is
primarily due to the increase in coin-in for fiscal 2002, compared to fiscal
2001. The increase in coin-in is due primarily to the opening of the Golden Moon
in 2002.
Food and beverage. Food and beverage revenues increased $1.6 million, or 7.6%,
from $21.0 million in fiscal 2001 to $22.6 million in fiscal 2002. Complimentary
food and beverage revenues totaled $16.0 million for fiscal 2002 compared to
$14.9 million for fiscal 2001, an increase of 7.4%. During fiscal 2002, the
resort turned 1,401,900 restaurant covers with an average revenue per cover of
$12.75 compared to 1,357,700 restaurant covers with an average revenue per cover
of $11.72 for fiscal 2001.
Rooms. Room revenues were $9.4 million for fiscal 2002 compared to $8.5 million
for fiscal 2001, an increase of $0.9 million, or 10.6%. This reflects an
increase in average daily room rate to $56.25 for fiscal 2002 from $52.67 for
fiscal 2001. Our occupancy rate decreased to 87.9% for fiscal 2002 compared to
89.6% for fiscal 2001. During fiscal 2002, 55.3% of our hotel revenue was
attributable to rooms occupied by resort customers on a complimentary basis.
These complimentary revenues totaled $5.2 million for fiscal 2002 compared to
$5.1 million for fiscal 2001, an increase of 2.0%.
Other. Other revenues were $11.3 million and $9.5 million for fiscal 2002 and
2001, respectively, representing an $1.8 million, or 19.0% increase. Other
revenues are comprised of revenue from the casino's various retail outlets, the
convention center, fees earned from cash advances to customers, other
miscellaneous items, the Dancing Rabbit, Geyser Falls and the Choctaw
Hospitality Institute. The increase in other revenue is directly attributable to
an increase in golf revenue, water park revenues and revenues generated by
Choctaw Hospitality Institute. Convention center revenues were $2.2 million for
fiscal 2002 compared to $2.3 million for fiscal 2001, a decrease of $0.1 million
or 4.3%. Golf revenues were $3.8 million for fiscal 2002 compared to $3.6
million for fiscal 2001, an increase of $0.2 million or 5.6%. The increase in
golf revenue is attributable to increased golf rounds due to the combined
marketing efforts of the Dancing Rabbit, Silver Star and Golden Moon. Fiscal
2002 revenues from Geyser Falls, which opened on July 8, 2002, were $1.2
million, while revenue generated by Choctaw Hospitality Institute totaled $0.4
million compared to none for both facilities in fiscal 2001.
Promotional Allowances. Promotional allowances were $22.8 million for fiscal
2002 compared to $22.6 million for fiscal 2001, an increase of $0.2 million, or
0.9%. During fiscal 2002, promotional allowances decreased to 10.0% of casino
revenues from 10.2% during fiscal 2001.
Costs and Expenses. Total costs and expenses were $151.2 million for fiscal
2002 compared to $128.4 million for fiscal 2001, an increase of $22.8 million,
or 17.8%. The increase is primarily attributable to preopening costs incurred
related to the opening of the Golden Moon and Geyser Falls as well as additional
operating costs associated with operations of the Golden Moon and Geyser Falls.
Included in total costs and expenses for fiscal 2002 are $9.7 million and $0.8
million of preopening costs related to Golden Moon and Geyser Falls,
respectively.
Casino. Casino costs and expenses were $61.0 million for fiscal 2002, compared
to $60.1 million for fiscal 2001, an increase of $0.9 million, or 1.5%. This
increase is primarily attributable to the additional operating costs incurred in
connection with operation of Golden Moon.
12
Food and Beverage. Food and beverage costs were $8.3 million for fiscal 2002,
compared to $7.7 million for fiscal 2001, an increase of $0.6 million, or 7.8%.
This increase is primarily attributable to the increase in the number of
restaurant covers and the additional operating costs incurred in connection with
operation of Golden Moon.
Other. Other costs and expenses were $9.2 million and $7.4 million for fiscal
2002 and 2001, respectively, representing a $1.8 million, or 24.3% increase.
Other expenses are comprised of the costs related to the operation of retail
outlets and the convention center and the operating expenses of the Dancing
Rabbit and Geyser Falls. Golf operating expenses were $5.1 million for fiscal
2002 compared to $4.2 million for fiscal 2001, an increase of $0.9 million or
21.4%. The increase in golf operating expenses is attributable to increased golf
rounds. Water park operating expenses were $0.7 million for fiscal 2002.
Selling, General and Administrative. Selling, general and administrative costs
and expenses were $40.2 million for fiscal 2002 compared to $33.6 million for
fiscal 2001, an increase of $6.6 million, or 19.6%. Approximately $1.0 million
of this increase is due to the payment during the year ended September 30, 2002,
as required by the "Settlement and General Release Agreement" with the former
Chief Executive Officer of the Silver Star. The balance of the increase is due
to additional administrative costs incurred related to the opening of the Golden
Moon.
Preopening Expense. Preopening expense was $10.5 million and $0.4 million for
the fiscal years ended September 30, 2002 and 2001, respectively. Preopening
expense is comprised primarily of salaries and wages, materials and supplies and
other costs incurred in connection with the construction of the Golden Moon and
Geyser Falls. During fiscal 2002, the Enterprise incurred preopening expense of
$9.7 million and $0.8 million related to Golden Moon and Geyser Falls
respectively. During fiscal 2001, all preopening expense incurred was related to
the Golden Moon.
Operating Income (loss). Operating income was $97.0 million for fiscal 2002
compared to operating income of $109.3 million for fiscal 2001, a decrease of
$12.3 million. The decrease was due primarily to preopening costs incurred
related to Golden Moon, and to a lesser extent, the revenue and expense
variations previously discussed.
Other Income (Expense). Other expense was $6.8 million for fiscal 2002 compared
to other expense of $11.3 million for fiscal 2001, representing a decrease of
$4.5 million, which is primarily attributable to a decrease in interest expense
of $0.7 million, offset by a decrease in interest income of $2.0 million, the
recognition of $3.0 million other income due to the insurance settlement
described below and a $1.0 million increase in other income related to the
effect of interest rate changes on the interest swap agreement. Other income
(expense) is comprised of interest income minus interest expense (net of
capitalized interest) and other expense. Interest capitalized during the year
ended September 30, 2002 was $10.0 million compared to $1.2 million for the year
ended September 30, 2001. The decrease in interest income is due to decreased
cash and investment balances that were used to fund Golden Moon construction. On
January 10, 2002 a $3.0 million settlement agreement for the insurance claim
related to the April 2000 flood was entered into between the Enterprise and the
insurance carriers. The Enterprise received the entire amount of the settlement
during the quarter ended March 31, 2002 and recognized $2.5 million of other
income and $0.5 million as a gain on disposal of assets.
Effective October 1, 2000, the Enterprise adopted Statement of
Financial Accounting Standards No. 133 ("SFAS 133") "Accounting for Derivative
Instruments and Hedging Activities", as amended by Statement of Financial
Accounting Standards No. 138. The interest rate swap agreement referred to above
is defined as a derivative instrument under SFAS 133. Although the Enterprise
had designated this interest rate swap agreement as a hedge since its inception
on February 1, 2000, the Enterprise did not elect to seek hedge accounting for
this agreement upon adoption of SFAS 133. Accordingly, the Enterprise recognized
other income of $1.0 million and other expense of $1.8 million for 2002 and
2001, respectively, due to the effect of interest rate changes on the interest
rate swap agreement.
Fiscal Year Ended September 30, 2001 Compared to Fiscal Year Ended September 30,
2000
Net Revenues. Net revenues for the fiscal year ended September 30, 2001 were
$237.7 million compared to $248.2 million for the fiscal year ended September
30, 2000. The $10.5 million, or 4.2%, decrease in net revenues was primarily due
to a decrease in gaming revenues. Complimentary revenues are included in gross
revenues but are deducted as a promotional allowance to arrive at net revenues.
Revenues were adversely affected by flooding that occurred during the
quarter ended June 30, 2001. On April 4, 2001, the local community was
devastated by heavy rains, resulting in widespread flash flooding which
13
enveloped approximately one-half of the Silver Star's casino area. As a result,
as many as 2,110 slot machines and six table games were inactivated for periods
ranging from several hours to several days. The effect of the closing of a
portion of the gaming floor, some retail outlets and restaurants, along with the
related clean up, was a significant decrease in overall casino traffic during
these periods. Additionally, the clean up and restoration process continued to
significantly affect casino revenue for several weeks. Revenues for the month of
April 2001 were significantly lower than those of April 2000 due to the affect
of the flooding and related clean up. September 2001 revenues were also affected
due to the disruption caused by the replacement of the carpeting on the casino
floor. The carpet replacement was a direct result of the flooding experienced in
April 2001.
Revenues for the latter part of September 2001 were also negatively
affected by the events of September 11, 2001. Although the affect was not as
significant as reported by other jurisdictions, we did experience a decline in
casino traffic.
Casino. Casino revenues were $221.3 million for fiscal 2001 compared to $231.8
million for fiscal 2000, a decrease of $10.5 million, or 4.5%. The decline in
casino revenue for the fiscal year is discussed below.
Table game drop was $171.4 million for fiscal 2001 compared to table
game drop of $176.1 million for fiscal 2000, a decrease of $4.7 million, or
2.7%. Table games revenue was $33.4 million for fiscal 2001 compared to $38.3
million for fiscal 2000, a decrease of $4.9 million, or 12.8%. The decrease in
revenue is the result of the lower table drop combined with a lower hold
percentage for fiscal 2001 as compared to fiscal 2000. Table game hold
percentage was 19.5% for fiscal 2001 compared to 21.7% for fiscal 2000.
Slot revenues were $186.6 million for fiscal 2001, compared to $192.0
million for fiscal 2000, a decrease of $5.4 million, or 2.8%. This decrease is
primarily due to a decline in coin-in for fiscal 2001, compared to fiscal 2000.
The decrease in coin-in is due in part to the effects of the flooding noted
earlier as well as the decline in customer traffic described above.
Food and beverage. Food and beverage revenues increased $1.4 million, or 7.1%,
from $19.6 million in fiscal 2000 to $21.0 million in fiscal 2001. Complimentary
revenues totaled $14.9 million for fiscal 2001 compared to $13.3 million for
fiscal 2000, an increase of 12.0%. The increase in complimentary food and
beverages was consistent with our plan to improve rewards to the Silver Star's
frequent customers. During fiscal 2001, the Silver Star turned 1,357,700 covers
with an average revenue per cover of $11.72 compared to 1,262,500 covers with an
average revenue per cover of $10.89 for fiscal 2000.
Rooms. Room revenues were $8.5 million for fiscal 2001 compared to $8.8 million
for fiscal 2000, a decrease of $300,000, or 3.4%. This reflects a slight
decrease in average daily room rate to $52.67 for fiscal 2001 from $53.73 for
fiscal 2000. Our occupancy rate increased to 89.6% for fiscal 2001 compared to
88.6% for fiscal 2000. During fiscal 2001, 60.0% of our hotel revenue was
attributable to rooms occupied by Silver Star customers on a complimentary
basis. These complimentary revenues totaled $5.1 million for fiscal 2001
compared to $5.2 million for fiscal 2000, a decrease of 1.9%.
Other. Other revenues were $9.5 million and $8.3 million for fiscal 2001 and
2000, respectively, representing an $1.2 million, or 14.5% increase. Other
revenues are comprised primarily of revenue from the casino's various retail
outlets, the convention center, fees earned from cash advances to customers and
other miscellaneous items. Also included in other revenue is the revenue from
the Dancing Rabbit. The increase in other revenue is directly attributable to
the increase in convention center revenue and golf revenue. Convention center
revenues were $2.3 million for fiscal 2001 compared to $1.5 million for fiscal
2000, an increase of $800,000, or 53.3%. The increase in convention center
revenue is attributable to the quantity and quality of headline entertainment.
Golf revenues were $3.6 million for fiscal 2001 compared to $3.2 million for
fiscal 2000, an increase of $400,000, or 12.5%. The increase in golf revenue is
attributable to increased golf rounds due to the combined marketing efforts of
the Dancing Rabbit and the casino.
Promotional Allowances. Promotional allowances were $22.6 million for fiscal
2001 compared to $20.2 million for fiscal 2000, an increase of $2.4 million, or
11.9%. During fiscal 2001, promotional allowances increased to 8.7% of gross
revenues from 7.5% during fiscal 2000. This increase is attributable to our
efforts to attract new customers as well as to our plan to improve rewards for
frequent customers.
14
Costs and Expenses. Total costs and expenses were $128.4 million for fiscal
2001 compared to $208.2 million for fiscal 2000, a decrease of $79.8 million, or
38.3%. The decrease is primarily due to our payment of the $72 million
termination fee to Boyd in February 2000 and a decrease in management fees,
offset by an increase in casino, selling, general and administrative costs, some
of which reflect costs that Boyd historically had paid.
Casino. Casino costs and expenses were $60.1 million for fiscal 2001, compared
to $59.0 million for fiscal 2000, an increase of $1.1 million, or 1.9%. This
increase was largely attributable to an increase in the cost of complimentaries
provided to the casino department.
Food and Beverage. Food and beverage costs were $7.7 million for fiscal 2001,
compared to $6.9 million for fiscal 2000, an increase of $800,000, or 11.6%.
This increase was a direct result of costs incurred to improve food quality,
primarily in the buffet and Terrace Cafe, improvements in the quality of service
provided and the increased volume in our restaurants.
Other. Other costs and expenses were $7.4 million and $7.2 million for fiscal
2001 and 2000, respectively, representing an $200,000, or 2.8% increase. Other
expenses are comprised of the costs related to the operation of retail outlets
and the convention center. Also included in other expenses are the operating
expenses of the Dancing Rabbit. Golf operating expenses were $4.2 million for
fiscal 2001 compared to $4.1 million for fiscal 2000, an increase of $100,000,
or 2.4%. The increase in golf operating expenses is attributable to increased
golf rounds as noted earlier.
Selling, General and Administrative. Selling, general and administrative costs
and expenses were $33.9 million for fiscal 2001 compared to $28.3 million for
fiscal 2000, an increase of $5.6 million, or 19.8%. This increase was largely
the result of incurring costs that previously had been paid by Boyd as a result
of assuming management responsibilities of the Silver Star.
Management Fee. No management fee was paid for fiscal 2001 compared to $16.4
million for fiscal 2000. The decrease is due to the termination agreement with
Boyd effective February 1, 2000.
Management Agreement Termination Fee. In connection with the termination of the
management agreement, we paid a $72.0 million one time payment to Boyd on
February 1, 2000 resulting in the elimination of all future management fees
under the management agreement. The $72.0 million payment was made from the
proceeds of a $75.0 million term loan.
Operating Income (loss). Operating income was $109.3 million for fiscal 2001
compared to operating income of $40.1 million for fiscal 2000, an increase of
$69.2 million. The increase was due to the elimination of the management fee
paid to Boyd and the payment of termination fee and, to a lesser extent, the
revenue and expense variations previously discussed.
Other Income (Expense). Other expense was $11.3 million for fiscal 2001
compared to other expense of $3.2 million for fiscal 2000, representing an
increase of $8.1 million, which is attributed to the effect of interest rate
changes on our interest rate swap arrangement of $1.8 million and an increase in
interest expense of $9.1 million, offset by an increase in interest income of
$2.9 million. Other income (expense) is comprised of interest income minus
interest expense and other expense.
Effective October 1, 2000, the Enterprise adopted Statement of
Financial Accounting Standards No. 133 ("SFAS 133") "Accounting for Derivative
Instruments and Hedging Activities", as amended by Statement of Financial
Accounting Standards No. 138. The interest rate swap agreement referred to above
is defined as a derivative instrument under SFAS 133. Although the Enterprise
had designated this interest rate swap agreement as a hedge since its inception
on February 1, 2000, the Enterprise did not elect to seek hedge accounting for
this agreement upon adoption of SFAS 133. Accordingly, during fiscal 2001, the
Enterprise recognized other expense of $1.8 million due to the effect of
interest rate changes on the interest rate swap agreement.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the recorded amount of assets and liabilities
15
at the date of the financial statements and revenues and expenses during the
period. Significant accounting policies employed by the Enterprise, including
the use of estimates and assumptions are presented in the Notes to the
Consolidated Financial Statements. Management bases its estimates on it
historical experience, together with other relevant factors, in order to form
the basis for making judgments which will affect the carrying value of assets
and liabilities. On an ongoing basis, management evaluates its estimates and
makes changes to carrying values as deemed necessary and appropriate. The
Enterprise believes that estimates related to the following areas involve a high
degree of judgment and/or complexity: the allowance for doubtful accounts
receivable, estimated accruals for jackpots and slot club bonus points, self
insurance related to employee health plans and contingencies related to customer
claims in the ordinary course of business.
The Enterprise maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments, which
results in bad debt expense. The Enterprise determines the adequacy of this
allowance by periodically evaluating individual customer receivables and
considering the customer's financial condition, credit history and current
economic conditions. If the financial condition of customers were to
deteriorate, resulting in an impairment of their ability to make payments, the
Enterprise may increase the allowance.
The Enterprise maintains accruals for health and workers compensation
self-insurance and slot club point redemption, which are classified as accrued
liabilities in the balance sheets. The Enterprise determines the adequacy of
these accruals by periodically evaluating the historical experience and
projected trends related to these accruals. If such information indicates that
these accruals are overstated or understated, the Enterprise will adjust the
assumptions utilized in the methodologies and reduce or provide for additional
accruals as appropriate.
The Enterprise is subject to various claims and legal actions in the ordinary
course of business. Some of these matters include personal injuries to customers
and damage to customers' personal assets. The Enterprise estimates guest claims
and accrues for such liability based on historical experience in accrued
liabilities in the balance sheets.
Liquidity and Capital Resources
As of September 30, 2002, 2001, and 2000, the Enterprise held cash and
cash equivalents of $72.8 million, $81.8 million, and $34.8 million,
respectively. Our principal sources of liquidity have consisted of cash provided
by operating activities and debt financing. Cash provided by operating
activities was $111.5 million in fiscal 2002 compared to $117.2 million in
fiscal 2001. The decrease of $5.7 million was due primarily to the decrease in
net income to $90.3 million in fiscal 2002 from $98.0 million in fiscal 2001.
Cash provided by operating activities was $46.5 million in fiscal 2000. The
$51.5 million increase in cash provided by operating activities in 2001 over
2000 reflects the $72 million termination fee paid on February 1, 2000,
partially offset by a $16.4 million decrease in management fees.
Cash used in investing activities in the fiscal year ended September
30, 2002 for capital expenditures totaled $201.8 million. The Enterprise also
received $82.5 million from the sale of short-term investments in the fiscal
year ended September 30, 2002. Cash used in investing activities in the fiscal
year ended September 30, 2001 for capital expenditures totaled $47.6 million.
The Enterprise also purchased $103.3 million in short term investments and
received $21.4 million from the sale of short term investments in the fiscal
year ended September 30, 2001. Cash used in investing activities and capital
expenditures were $6.0 and $5.9 million, respectively, for fiscal 2000. The
source of cash for the majority of investing activities noted above was from the
proceeds of debt financing activities related to construction of Golden Moon.
The Enterprise's outstanding revolving credit facility restricts our
ability to make capital expenditures. The Enterprise may not spend more than $10
million on maintenance capital expenditures and improvements in any fiscal year
for each of the Silver Star and Golden Moon. In addition, the Enterprise is
limited to a maximum construction expenditure, exclusive of the Golden Moon
project, which includes the parking garage adjacent to the Silver Star, of $25
million during the term of this revolving credit facility. In the ordinary
course of business, the Enterprise will continue to maintain and improve the
Silver Star and Golden Moon as necessary to continue to provide a competitive
and attractive facility to our customers. The Enterprise intends to make capital
expenditures up to the amounts permitted under our credit facilities to maintain
the property.
16
During the years ended September 30, 2002, 2001, and 2000, the Tribe
made contributions of property and equipment to the Enterprise of $11.4 million,
$3.2 million, and $7.3 million, respectively. Contributions of property and
equipment to the Enterprise are made at the Tribe's discretion and the Tribe is
not legally obligated to continue making any such contributions in the future.
The revolving credit facility does not limit the Tribe's ability to make
contributions of property and equipment to the Enterprise, and any such
contribution would not impact the Enterprise's $10 million capital expenditure
limitation described above.
The Enterprise had $2.6 million of restricted cash at both September
30, 2002 and 2001. The balances are required by the Boyd management agreement
for employment, workers compensation and other third party claims not otherwise
covered by insurance proceeds that may be filed or become due after the date the
management agreement was terminated. The claims reserve will survive until
January 31, 2003, and any unused portion of the claims reserve will become
unrestricted after such date.
Cash used in financing activities was $1.9 million in the fiscal year
ended September 30, 2002 compared to cash provided by financing activities of
$59.6 million in the fiscal year ended September 30, 2001. The primary use of
cash in each period was distributions to the Tribe of $83.8 million and $96.9
million in the fiscal years ended September 30, 2002 and 2001, respectively, and
the repayment of the term loan in the amount $62.5 million in the fiscal year
ended September 30, 2001. The primary source of funds provided by financing
activities was $75.0 million drawn on the revolving credit facility in 2002,
issuance of $200.0 million in notes and contributions of $24.7 million from the
Tribe in 2001, and the term loan to buyout the Boyd management contract in the
amount of $75.0 million in 2000. Cash provided by financing activities was $27.0
million in fiscal 2000. The primary use of cash for fiscal 2000 was
distributions to the Tribe of $89.9 million and payments of $12.5 million on the
term loan.
Pursuant to the indenture dated March 30, 2001, the Enterprise used a
portion of the proceeds from the offering of the notes to repay the remaining
outstanding balance under the term loan and has used the remaining proceeds to
finance the construction of the Golden Moon.
On December 19, 2000, the Enterprise entered into a $125.0 million
reducing senior secured revolving credit facility. At September 30, 2002, a
total of $75.0 million was drawn on this facility and the term loan was paid in
full. On November 1, 2002, the Enterprise drew an additional $25.0 million on
the facility. The Facility has a maturity date of December 28, 2005. Borrowings
available under the Facility will reduce quarterly beginning on the earlier of
December 31, 2002 or the last day of the first full fiscal quarter following the
completion of the Golden Moon, in the amount of $6.25 million per quarter, until
the amount of the facility has been reduced to $40 million.
The terms of the notes and the revolving credit facility restrict the
Enterprise's ability to sell or dispose of assets, incur additional debt or
contingent obligations, extend credit, make investments, commingle our assets
with the assets of other Tribal business enterprises, require us to maintain
certain financial ratios, limit our ability to make distributions to the Tribe
and limit the amount of capital expenditures we may incur related to the Silver
Star and Golden Moon.
The notes contain specific covenants that restrict our ability to
borrow additional money, pay dividends or make other distributions, make
investments, create liens, enter into specific transactions with affiliates, and
sell specific assets or merge with or into another person. Under limited
circumstances, the covenant limiting our ability to make specific payments,
distributions and investments will be suspended. The indenture prescribes that
the Enterprise may make an annual distribution to the Tribe (the "Annual Service
Payment") in the amount of $55 million per year (payable in equal monthly
installments), which amount is increased annually on each September 30,
commencing with September 30, 2001, by 5% per annum. Any distributions to the
Tribe are made at the Tribe's discretion, but distributions other than the
Annual Service Payment (referred to as "Restricted Payments") are limited by the
covenants of the indenture. The most significant of such covenants limit
Restricted Payments such that the cumulative Restricted Payments from inception
of the indenture shall not exceed 50% of the Enterprise's cumulative net income
(with measurement commencing on January 1, 2001) plus $75 million. Restricted
Payments are further limited by the Indenture's requirement for the Enterprise
to maintain a minimum Fixed Charge Coverage Ratio (as defined) of 2.5 to 1
(increasing to 3.0 to 1 after December 31, 2001), and thus limiting the
Enterprise's ability to incur additional debt to make Restricted Payments.
17
As of September 30, 2002 the Tribe had outstanding liabilities of $2.4
million under credit facilities with $3.2 million available in borrowings, which
did not preclude recourse to assets held by the Enterprise.
The Enterprise believes that existing cash balances, short-term
investments, operating cash flow and anticipated borrowings under the credit
facility and the proceeds from the notes will provide sufficient resources to
fund operations and to meet our debt payment obligations and expected
distributions to the Tribe, foreseeable capital expenditure requirements at the
Silver Star and Golden Moon.
The following table presents the long-term debt maturities, future minimum lease
payments under non-cancellable leases, and the Annual Service Payment to the
Tribe under the indenture governing the Notes as of September 30, 2002:
Fiscal Year Ending September 30,
----------------------------------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 Thereafter Total
-------------- -------------- -------------- --------------- --------------- --------------- ---------------
Long-term debt $ 300,000 $ 25,000,000 $ 25,000,000 $ 25,000,000 $ - $200,000,000 $275,300,000
Operating leases 357,704 14,778 - - - - 372,482
Annual Service Payment 60,637,500 63,669,375 66,852,844 70,195,486 73,705,260 77,390,523 412,450,988
-------------- -------------- -------------- --------------- --------------- --------------- ---------------
$ 61,295,204 $ 88,684,153 $ 91,852,844 $ 95,195,486 $ 73,705,260 $277,390,523 $688,123,470
============== ============== ============== =============== =============== =============== ===============
Additionally and in accordance with Tribal Code, the Enterprise is required to
remit to the Choctaw Gaming Commission a monthly fee equal to 1% of gaming
revenues. Also, and in accordance with the Compact the Enterprise is required to
provide $250,000 annually to the State of Mississippi to be used for advertising
and tourism promotional activities.
Insurance Proceeds
On January 10, 2002 a settlement agreement for the insurance claim
related to the April 2001 flood was entered into between the Enterprise and the
insurance carriers. The Enterprise received $3,023,322, which represents the
entire amount of the settlement, during the quarter ended March 31, 2002. During
the quarter ended March 31, 2002 the Enterprise recognized $2,473,293 of other
income and $550,029 as a gain on disposal of assets related to the insurance
settlement.
Recently Issued Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB")
approved SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." The Statement requires that long-lived assets to be disposed of other
than by sale be accounted for under the requirements of SFAS No. 121, which
requires that such assets be measured at the lower of carrying amounts or fair
value less cost to sell and to cease depreciation. SFAS No. 144 requires a
probability-weighted cash flow estimation approach with situations in which
alternative courses of action to recover the carrying amount of a long-lived
asset are under consideration or a range of possible future cash flow amounts
are estimated. As a result, discontinued operations will no longer be measured
on a net realizable basis, and future operating losses will no longer be
recognized before they occur. Additionally, goodwill will be removed from the
scope of SFAS No. 144 and as a result will no longer be required to be allocated
to long-lived assets to be tested for impairment. The Statement is effective for
financial statements issued for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years. The adoption of SFAS No. 144 has
had no impact on the Enterprise's financial statements.
On April 30, 2002 the FASB issued SFAS No. 145 (SFAS 145), Rescission
of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. In rescinding FASB Statement No. 4 (SFAS 4), Reporting
Gains and Losses from Extinguishment of Debt, and FASB Statement 64 (SFAS 64),
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements, SFAS 145
eliminates the requirement that gains and losses from the extinguishment of debt
be aggregated and, if material, classified as an extraordinary item, net of the
related income tax effect. However, pursuant to SFAS 145, an entity would not be
prohibited for classifying such gains and losses as extraordinary items so long
as they meet the criteria in paragraph 20 of Accounting Principles Board Opinion
No. 30 (APB 30), Reporting the Results of Operations, Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions. SFAS 145 is effective for transactions
occurring after May 15, 2002 and is effective for financial statements issued on
or after May 15, 2002. The Enterprise has adopted the provisions of SFAS 145
which have had no effect on the financial statements.
18
Regulation and Taxes
The Silver Star and Golden Moon are subject to extensive regulation by
the Choctaw Gaming Commission. Changes in applicable laws or regulations could
have a significant impact on our operations.
The Enterprise is owned by the Tribe, a federally recognized Indian
tribe located on reservation land held in trust by the United States of America;
therefore, the Enterprise was not subject to federal or state income taxes for
the years ended September 30, 2002, 2001, or 2000, nor is it anticipated that
the Enterprise will be subject to such taxes for the foreseeable future. Various
efforts have been made in Congress over the past several years to enact
legislation that would subject the income of tribal business entities, such as
the Enterprise, to federal income tax. Although no such legislation has been
enacted, similar legislation could be passed in the future. A change in our
non-taxable status could have a material adverse affect on our business, cash
flows from operations and financial condition.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Impact of Inflation
Absent changes in competitive and economic conditions or in specific
prices affecting the hotel and casino industry, the Enterprise does not expect
that inflation will have a significant impact on our operations. Changes in
specific prices, such as fuel and transportation prices, relative to the general
rate of inflation may have a material adverse effect on the hotel and casino
industry in general.
Market Risk
Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates and
commodity prices. The Enterprise's primary exposure to market risk is interest
rate risk, which was initially associated with our long-term debt. The
Enterprise had previously entered into a interest rate swap agreement to fix the
interest rate on our term loan at 8.25%. Pursuant to the indenture, the
Enterprise used a portion of the proceeds from the offering of the notes to
repay the remaining outstanding balance under our term loan. Upon the prepayment
of the term loan, the Enterprise did not settle the existing interest rate swap
agreement, which will terminate on January 31, 2004. At September 30, 2002, the
interest rate swap agreement had a notional amount of $26.6 million. The
notional amount does not represent amounts exchanged by the parties, and thus is
not a measure of exposure to the Enterprise. The amount exchanged is based on
the notional amount. The fair value liability of our interest rate swap is based
on the cash termination value of the agreement using quotes from our
counter-party and was approximately $1.1 million at September 30, 2002. If the
floating rate increased 25 basis points, interest expense under the swap
agreement for the year ended September 30, 2002 would have been lower by
$88,292. Additionally, current borrowings under the revolving credit facility
bear interest at the LIBOR base rate plus a margin rate of 2.5%. If the LIBOR
base rate had increased 25 basis points, interest expense under the revolving
credit facility would been higher by $29,306 during the year ended September 30,
2002.
Management has and will continue to limit our exposure to interest rate
risk by maintaining a conservative ratio of fixed rate, long-term debt to total
debt such that variable rate exposure is kept at an acceptable level and fixing
long-term variable rate debt through the use of interest rate swaps or interest
rate caps with appropriately matching maturities.
19
Item 8. Financial Statements and Supplementary Data
Report of Independent Accountants
Mr. Phillip Martin, Chief
Mississippi Band of Choctaw Indians
Board of Directors
Choctaw Resort Development Enterprise
In our opinion, the accompanying balance sheets and the related statements of
operations, owner's equity, and cash flows present fairly, in all material
respects, the financial position of the Choctaw Resort Development Enterprise
(the "Enterprise"), an unincorporated business enterprise of the Mississippi
Band of Choctaw Indians, at September 30, 2002 and 2001, and the results of its
operations and its cash flows for each of the three years in the period ended
September 30, 2002 in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Enterprise's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Las Vegas, Nevada
November 15, 2002, except for Note 12, as to which the date is December 11, 2002
20
Choctaw Resort Development Enterprise
Balance Sheets
September 30, 2002 and 2001
- -------------------------------------------------------------------------------------------------------------------
September 30, September 30,
Assets 2002 2001
------------------- -------------------
Current assets:
Cash and cash equivalents $ 72,783,499 $ 81,822,543
Short term investments - 81,949,037
Accounts receivable (net of allowance of $2,411,237
and $1,685,009) 3,961,599 3,085,106
Inventories 2,120,422 1,517,052
Prepaid expenses and other 1,403,550 1,784,209
------------------- -------------------
Total current assets 80,269,070 170,157,947
Property and equipment, net 410,892,145 206,222,932
Restricted cash 2,617,915 2,568,256
Deferred loan costs, net 5,617,005 6,595,249
Other assets 2,631,964 1,302,131
------------------- -------------------
Total assets $ 502,028,099 $ 386,846,515
------------------- -------------------
Liabilities and Owner's Equity
Current liabilities:
Current maturities of long-term debt $ 300,000 $ 300,000
Accounts payable 8,209,279 2,519,767
Construction accounts payable 17,375,937 15,883,132
Due to Tribe 3,875,465 81,401
Accrued liabilities:
Accrued payroll and related 8,195,759 5,247,757
Accrued expenses and other liabilities 9,047,224 7,991,053
Accrued interest expense 9,808,719 9,597,633
------------------- -------------------
Total current liabilities 56,812,383 41,620,743
Long-term debt, less current maturities 275,000,000 200,000,000
Commitments and contingencies - -
Owner's equity:
Contributed capital 199,888,916 181,552,126
Retained earnings (deficit) (29,439,139) (35,932,309)
Accumulated other comprehensive loss (234,061) (394,045)
------------------- -------------------
Total owner's equity 170,215,716 145,225,772
------------------- -------------------
Total liabilities and owner's equity $ 502,028,099 $ 386,846,515
------------------- -------------------
The accompanying notes are an integral part of these financial statements
21
Choctaw Resort Development Enterprise
Statements of Operations
For the years ended September 30, 2002, 2001 and 2000
- -------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
2002 2001 2000
-------------------- -------------------- ----------------
Revenue:
Casino $ 227,725,191 $ 221,262,983 $ 231,764,213
Food and beverage 22,622,518 20,983,807 19,566,492
Rooms 9,435,982 8,463,478 8,763,236
Other 11,253,652 9,521,734 8,340,032
-------------------- -------------------- ----------------
Gross revenue 271,037,343 260,232,002 268,433,973
Less promotional allowances (22,789,333) (22,612,559) (20,206,918)
-------------------- -------------------- ----------------
Net revenue 248,248,010 237,619,443 248,227,055
-------------------- -------------------- ----------------
Costs and expenses:
Casino 61,000,541 60,086,718 58,990,590
Food and beverage 8,289,854 7,680,105 6,912,038
Rooms 1,769,729 1,500,193 1,404,184
Other 9,156,762 7,363,497 7,170,758
Selling, general and administrative 40,192,773 33,559,800 28,272,380
Maintenance and utilities 6,089,228 5,370,512 4,800,747
Preopening expense 10,498,580 375,206 -
Management fee - - 16,413,592
Depreciation 14,236,527 12,368,395 12,212,702
Management agreement termination fee - - 72,000,000
-------------------- -------------------- ----------------
Total 151,233,994 128,304,426 208,176,991
-------------------- -------------------- ----------------
Operating income 97,014,016 109,315,017 40,050,064
-------------------- -------------------- ----------------
Other income (expense):
Interest income 1,718,595 3,682,974 796,614
Interest expense (12,387,369) (13,117,655) (3,953,040)
Other income (expense) 3,916,425 (1,838,801) -
-------------------- -------------------- ----------------
Total (6,752,349) (11,273,482) (3,156,426)
-------------------- -------------------- ----------------
Net income 90,261,667 98,041,535 36,893,638
Other comprehensive income (loss) 159,984 (394,045) -
-------------------- -------------------- ----------------
Comprehensive income $ 90,421,651 $ 97,647,490 $ 36,893,638
-------------------- -------------------- ----------------
The accompanying notes are an integral part of these financial statements
22
Choctaw Resort Development Enterprise
Statements of Owner's Equity
For the years ended September 30, 2002, 2001 and 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Retained Accumulated
Contributed Earnings Other Total
Capital (Deficit) Comprehensive Less Owner's Equity
------------------- ------------------- ---------------------------- ---------------------
Balances, September 30, 1999 $ 142,406,946 $ 10,620,291 $ - $ 153,027,237
Net income - 36,893,638 - 36,893,638
Contributed capital 9,437,138 - - 9,437,138
Distributions - (84,582,761) - (84,582,761)
------------------- ------------------- ---------------------------- ---------------------
Balances, September 30, 2000 151,844,084 (37,068,832) - 114,775,252
Net income 98,041,535 - 98,041,535
Contributed capital 29,708,042 - 29,708,042
Distributions (96,905,012) - (96,905,012)
Cumulative transition effect
of adopting SFAS 133 (541,847) (541,847)
Reclassification adjustment
under SFAS 133 147,802 147,802
------------------- ------------------- ---------------------------- ---------------------
Balances, September 30, 2001 181,552,126 (35,932,309) (394,045) 145,225,772
Net income 90,261,667 90,261,667
Contributed capital 18,336,790 18,336,790
Distributions (83,768,497) (83,768,497)
Reclassification adjustment
under SFAS 133 159,984 159,984
------------------- ------------------- ---------------------------- ---------------------
Balances, September 30, 2002 $ 199,888,916 $ (29,439,139) $ (234,061) $ 170,215,716
------------------- ------------------- ---------------------------- ---------------------
The accompanying notes are an integral part of these financial statements
23
Choctaw Resort Development Enterprise
Statements of Cash Flows
For the years ended September 30, 2002, 2001 and 2000
- -------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
2002 2001 2000
----------------- ----------------- ----------------
Cash flows from operating activities:
Net income $ 90,261,667 $ 98,041,535 $ 36,893,638
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change - (541,847) -
Depreciation and amortization 14,850,104 13,806,760 12,272,518
(Gain) loss on disposal of property and equipment (425,778) 102,454 71,634
Change in operating assets and liabilities:
Accounts receivable, net (876,493) 177,415 295,087
Inventories (603,370) (99,731) (405,058)
Prepaid expenses and other 380,659 (869,535) 561,548
Other assets (1,329,833) (656,790) (41,764)
Accounts payable and due to Tribe 4,982,361 (5,229,254) (253,613)
Accrued liabilities 4,215,259 12,462,857 (2,909,774)
----------------- ----------------- ----------------
Net cash provided by operating activities 111,454,576 117,193,864 46,484,216
----------------- ----------------- ----------------
Cash flows from investing activities:
Acquisitions of property and equipment, net of amounts in
construction accounts payable (201,770,447) (47,610,281) (5,926,546)
Proceeds from disposal of property and equipment 689,915 - 50,709
Proceeds from sale of short term investments 82,513,481 21,392,039 -
Purchase of short term investments - (103,391,616) -
Restricted cash (49,659) (124,912) (148,295)
----------------- ----------------- ----------------
Net cash used in investing activities (118,616,710) (129,734,770) (6,024,132)
----------------- ----------------- ----------------
Cash flows from financing activities:
Borrowings on credit facility 75,000,000 - -
Proceeds from issuance of long-term debt - 200,000,000 75,000,000
Repayment of long-term debt - (62,500,000) (12,500,000)
Contribution of cash from Tribe 6,931,380 24,707,375 2,128,224
Distributions to the Tribe (83,768,497) (96,905,012) (89,902,518)
Repayment of note payable to Boyd - - (1,333,240)
Loan fees paid (39,793) (5,718,834) (358,898)
----------------- ----------------- ----------------
Net cash provided by (used in) financing activities (1,876,910) 59,583,529 (26,966,432)
----------------- ----------------- ----------------
Net increase in cash and cash equivalents (9,039,044) 47,042,623 13,493,652
Cash and cash equivalents at beginning of period 81,822,543 34,779,920 21,286,268
----------------- ----------------- ----------------
Cash and cash equivalents at end of period $ 72,783,499 $ 81,822,543 $ 34,779,920
----------------- ----------------- ----------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 21,176,781 $ 3,596,449 $ 3,863,151
----------------- ----------------- ----------------
Cash received for interest $ 2,414,678 $ 2,986,891 $ -
----------------- ----------------- ----------------
Supplemental disclosure of non-cash investing and financing activities:
Contributions of property and equipment from
the Tribe $ 11,405,410 $ 3,156,740 $ 7,308,914
----------------- ----------------- ----------------
Write-off of fully depreciated property and equipment $ - $ 78,983 $ 18,493
----------------- ----------------- ----------------
Disposals of equipment $ - $ 312,553 $ -
----------------- ----------------- ----------------
Due to Tribe for property and equipment $ - $ 81,401 $ 5,562,108
----------------- ----------------- ----------------
Contributions of other assets from the Tribe $ - $ 1,843,927 $ -
----------------- ----------------- ----------------
Accounts payable for construction $ 17,375,937 $ 15,883,132 $ -
----------------- ----------------- ----------------
Exchange of property and equipment for a
a note due to the tribe $ 4,501,215 $ - $ -
----------------- ----------------- ----------------
The accompanying notes are an integral part of these financial statements
24
Note 1 - Summary of Significant Accounting Policies
Description of Operations
The Choctaw Resort Development Enterprise (the "Enterprise") is an enterprise of
the Mississippi Band of Choctaw Indians (the "Tribe"). The Enterprise was
established on October 12, 1999 by the Tribe for the purpose of managing the
existing and future Tribal gaming and other resort operations at the Tribe's
Pearl River Community. The operations of the Enterprise are collectively
referred to as the Pearl River Resort. Prior to July 1, 2001, the Silver Star
Hotel and Casino (the "Silver Star") was the sole operating entity of the
Enterprise. The Silver Star commenced operations of a gaming, hotel, conference
center and restaurant complex near Philadelphia, Mississippi on trust lands of
the Tribe on July 1, 1994. In addition, the Enterprise has opened the Golden
Moon Hotel and Casino (the "Golden Moon") which commenced operations on August
26, 2002. The Golden Moon operates a gaming, hotel and restaurant complex
directly across the highway from Silver Star. The Enterprise also operates
Geyser Falls Water Theme Park ("Geyser Falls"), which opened July 8, 2002, and
the Choctaw Hospitality Institute, which opened November 9, 2001, for the
training of Pearl River Resort employees. Geyser Falls and the Choctaw
Hospitality Institute were contributed to the Enterprise at the Tribe's
historical cost.
Effective July 1, 2001, the Tribe contributed Dancing Rabbit Golf Club (the
"Dancing Rabbit") to the Enterprise. Prior to its contribution to the
Enterprise, the Dancing Rabbit operated as a separate, wholly owned
unincorporated business enterprise of the Tribe. Due to common control of the
Dancing Rabbit and the Enterprise, the contribution was accounted for as a
reorganization of entities under common control. The financial statements of the
Enterprise for all periods are presented as if the contributions described above
occurred at the beginning of the earliest period presented and include the
accounts of the Enterprise, the Silver Star, and the Dancing Rabbit on a
historical cost basis, in a manner similar to a pooling of interests.
In connection with the development of the Silver Star, the Tribe entered into a
seven-year management agreement (the "Management Agreement") with Boyd
Mississippi, Inc., a subsidiary of Boyd Gaming Corporation ("Boyd"), to
construct and operate the Silver Star. The Tribe entered into a termination
agreement (the "Termination Agreement") with Boyd to terminate the Management
Agreement on January 31, 2000. Pursuant to the provisions of the Termination
Agreement, the Enterprise made a termination payment to Boyd in the amount of
$72 million on February 1, 2000.
Basis of Presentation
Prior to the establishment of the Enterprise, the Silver Star operated as a
separate, wholly owned unincorporated business of the Tribe. On October 12,
1999, the Tribe contributed the Silver Star to the Enterprise. Due to the common
control of the Silver Star and the Enterprise, the contribution was accounted
for as a reorganization of entities under common control.
The consolidated financial statements include the accounts of the Enterprise,
the Silver Star, the Golden Moon, Geyser Falls, the Dancing Rabbit and the
Choctaw Hospitality Institute. All necessary eliminating entries have been
recorded.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and on deposit with banks and
other financial institutions. The Enterprise considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.
Short-term Investments
Short-term investments include debt securities and other investments, which
mature within one year but do not qualify as cash equivalents. All short-term
investments are classified as held-to-maturity because the Enterprise has the
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost. The fair value of short-term
investments at September 30, 2001 was $82,163,939 and the unrealized holding
gain was $214,912.
25
Allowance for Doubtful Accounts
The Enterprise maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments, which
results in bad debt expense. The Enterprise determines the adequacy of this
allowance by periodically evaluating individual customer receivables and
considering the customer's financial condition, credit history and current
economic conditions. If the financial condition of customers were to
deteriorate, resulting in an impairment of their ability to make payments, the
Enterprise may increase the allowance.
The allowance for doubtful accounts and bad debt expense is as follows:
September 30, September 30, September 30,
2002 2001 2000
-------------------- -------------------- --------------------
Allowance, beginning of year $ 1,685,009 $ 845,259 $ 672,960
Bad debt expense 889,025 1,266,516 514,890
Write-offs (162,797) (426,766) (342,591)
-------------------- -------------------- --------------------
Allowance, end of year $ 2,411,237 $ 1,685,009 $ 845,259
-------------------- -------------------- --------------------
Inventories
Inventories, consisting primarily of food, beverage and gift shop merchandise,
are stated at the lower of cost or market. Cost is determined using the
first-in, first-out inventory method.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Costs of
major construction, including interest incurred during construction of new
facilities, are capitalized; costs of normal repairs and maintenance are charged
to expense as incurred. Gains or losses on disposals of assets are recognized as
incurred. The Enterprise periodically reviews the carrying value of property and
equipment to determine if circumstances exist indicating impairment in carrying
value of the property and equipment. If impairment is indicated, an adjustment
will be made to the carrying value of the property and equipment.
Deferred Loan Costs
Deferred loan costs consist of costs incurred in the issuance of long-term debt.
Amortization of deferred loan costs is computed using the interest method over
the stated maturity of long-term debt. Accumulated amortization of the deferred
loan costs is $1,583,978 and $565,941 at September 30, 2002 and 2001,
respectively.
Accounting for Derivative Instruments and Hedging Activities
On October 1, 2000, the Enterprise adopted Statement of Financial Accounting
Standards No. 133 ("SFAS 133") "Accounting for Derivative Instruments and
Hedging Activities", as amended by Statements of Financial Standards No. 138.
See Note 4.
26
Contributed Capital
Contributed capital consists of (i) equipment and facilities related primarily
to various construction and expansion projects since the Silver Star opened
which have been funded by the Tribe and contributed upon their completion at the
Tribe's cost, (ii) certain development costs for the Golden Moon, also funded by
the Tribe and contributed at the Tribe's cost, (iii) cash to fund Golden Moon
construction and development and (iv) cash to fund construction and development
of Geyser Falls.
Casino and Other Revenue
Casino revenue is net win from gaming activities, which is the difference
between gaming wins and losses. Gross revenues include the estimated retail
value of rooms, food and beverage, and other goods and services provided to
customers on a complimentary basis. Such amounts are then deducted as
promotional allowances. The estimated cost of providing these promotional
allowances is charged to the casino department in the following amounts:
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
2002 2001 2000
-------------------- -------------------- --------------------
Food and beverage $ 16,116,466 $ 15,329,781 $ 13,104,757
Rooms 3,284,313 3,465,643 3,134,430
Other 2,254,116 2,815,409 1,783,529
-------------------- -------------------- --------------------
Total $ 21,654,895 $ 21,610,833 $ 18,022,716
-------------------- -------------------- --------------------
Complimentary revenues have been earned in the following casino departments as
follows:
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
2002 2001 2000
-------------------- -------------------- --------------------
Food and beverage $ 15,441,434 $ 14,930,850 $ 13,343,244
Rooms 5,234,296 5,078,394 5,195,611
Other 2,113,603 2,603,315 1,668,063
-------------------- -------------------- --------------------
Total $ 22,789,333 $ 22,612,559 $ 20,206,918
-------------------- -------------------- --------------------
Income Taxes
The Enterprise is an unincorporated business enterprise owned by the Tribe, a
federally recognized Indian tribe located on reservation land held in trust by
the United States of America; therefore, the Enterprise was not subject to
Federal or state income taxes for the years ended September 30, 2002, 2001 and
2000.
Advertising Expense
Advertising is expensed as incurred and is included in selling, general, and
administrative expense and casino costs and expenses. Advertising expense was
$4,812,520, $5,285,965, and $4,896,757 for the years ended September 30, 2002,
2001 and 2000, respectively.
27
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates used by the Enterprise include the estimated useful lives
of depreciable assets and the estimated allowance for doubtful accounts
receivable. Actual results could differ from those estimates.
Preopening Expenses
Preopening costs are expensed as incurred. Preopening costs incurred during the
years ended September 30, 2002, 2001 and 2000, were $10,498,580, $375,206 and
$0, respectively. Preopening expense is comprised primarily of salaries and
wages, materials and supplies and other costs incurred in connection with the
construction of the Golden Moon and Geyser Falls. During Fiscal 2002, the
Enterprise incurred preopening expense of $9,664,211 and $834,369 related to
Golden Moon and Geyser Falls respectively. During fiscal 2001, all preopening
expense incurred was related to the Golden Moon.
Reclassifications
Certain amounts in the fiscal 2001 financial statements have been reclassified
to conform with the fiscal 2002 presentation. These reclassifications had no
effect on the Enterprise's net income or financial position.
Note 2 - Property and Equipment
Property and equipment consists of the following:
Useful Lives September 30, September 30,
(Years) 2002 2001
------------------ -------------------- --------------------
Land improvements $ 16,799,809 $ 16,799,809
Buildings and improvements 20-40 346,831,079 124,375,524
Golf course improvements 5-15 2,740,271 2,723,984
Furniture and equipment 5-10 115,798,611 63,447,006
Aircraft 10 4,551,215 -
Vehicles 3 1,293,396 928,407
-------------------- --------------------
488,014,381 208,274,730
Less accumulated depreciation 77,122,236 65,804,004
-------------------- --------------------
410,892,145 142,470,726
Construction in progress - 63,752,206
-------------------- --------------------
$ 410,892,145 $ 206,222,932
-------------------- --------------------
During the years ended September 30, 2002 and 2001 and in connection with
development of the Golden Moon, the Enterprise capitalized interest totaling
$10,018,536 and $1,225,772, respectively. At September 30, 2001, construction in
progress consists of $63,752,206 incurred related to the development of the
Golden Moon.
Note 3 - Restricted Cash
The Enterprise had $2,617,915 and $2,568,256 of restricted cash classified as a
non-current asset as of September 30, 2002 and 2001, respectively. The balances
represent cash reserve funds required by the Management Agreement for
employment, workers compensation, and other third party claims not otherwise
covered by insurance proceeds (the "Claims Reserve") that may be filed or become
due after the Management Agreement termination date. The Claims Reserve will
survive until January 31, 2003 and is governed by the terms of the Management
Agreement. Any unused portion of the claims reserve after January 31, 2003 will
become unrestricted.
28
Note 4 - Long-Term Debt
In March 2001, the Enterprise issued unsecured senior notes (the "Notes") in the
amount of $200,000,000. The proceeds of the offering were used to retire a $75
million term loan (the "Loan") and the construction of the Golden Moon. The
Notes bear interest at 9.25% and require semiannual payments of interest
beginning with the first payment on October 1, 2001 with the Notes maturing on
April 1, 2009. The indenture governing the Notes (the "Indenture") contains
certain financial covenants which restrict the Enterprise's ability to borrow
money, pay dividends or make distributions, make investments, create liens,
enter into certain transactions with affiliates and sell specific assets or
merge with or into another entity. Under specific circumstances, the covenant
limiting the Enterprise's ability to make certain payments, distributions and
investments will be suspended.
After April 1, 2005, the Enterprise may redeem all or part of the Notes at
specified redemption prices plus accrued and unpaid interest on the redemption
date. The Notes are subject to redemption requirements imposed by certain gaming
laws and regulations.
On December 29, 2000, the Enterprise entered into a $125 million reducing
revolving credit facility (the "Facility"). The Facility will be used by the
Enterprise to (i) finance the construction of the Golden Moon, (ii) provide
working capital, (iii) finance permitted capital expenditures, and (iv) for
general purposes of the Enterprise. As of September 30, 2002, a total of
$75,000,000 had been drawn and outstanding on the Facility. The Enterprise pays
commitment fees based on 0.5% of the available balance of the Facility. For the
year ended September 30, 2002, the Enterprise paid commitment fees totaling
$559,124 on the Facility. Advances on the Facility bear interest at LIBOR plus a
margin rate of 2.5%. At September 30, 2002, outstanding advances on the facility
bore LIBOR interest at rates ranging from 1.77% to 1.85%. During the year ended
September 30, 2002 the Enterprise recorded interest expense totaling $509,358 on
the outstanding balance of the facility.
The Facility is collateralized by the personal property of and the revenue
generated by the Silver Star and the Golden Moon. The Facility has a maturity
date of December 28, 2005. Borrowings available under the Facility will reduce
quarterly beginning on the earlier of December 31, 2002 or the last day of the
first full fiscal quarter following the completion of the Golden Moon, in the
amount of $6.25 million per quarter, until the amount of the facility has been
reduced to $40 million. The interest rate on the facility varies based upon the
Enterprise's total recourse debt to gaming EBITA ratio, as defined. The Facility
contains certain affirmative and negative covenants, including limiting the
Enterprise's Total Leverage Ratio and Fixed Charge Coverage Ratio, as defined,
during the term of the agreement.
On October 26, 1999, the Enterprise, entered into a note agreement with MBCI
Resort and Capital Fund, a related party, in the amount of $300,000 that is
payable on demand with annual interest of 6% due monthly.
As of September 30, 2002, management believes that the Enterprise is in
compliance with all debt covenants under the Notes and the Facility.
Maturities of long-term debt at September 30, 2002 are as follows:
2003 $ 300,000
2004 25,000,000
2005 25,000,000
2006 25,000,000
2007 -
Thereafter 200,000,000
-----------
Total $ 275,300,000
==============
29
The Enterprise entered into an interest rate swap agreement with a major
financial institution for the purpose of fixing interest rates on a term loan,
thus reducing exposures to interest rate fluctuations. At September 30, 2002,
the Enterprise's interest rate swap had a notional amount of $26,562,500. This
agreement effectively fixed the interest rate on the term loan at 8.25%. The
notional amount does not represent amounts exchanged by the parties, and thus is
not a measure of exposure to the Enterprise. The amount exchanged is based on
the notional amount. The term of the interest rate swap agreement is through
January 31, 2004. The term loan was repaid on April 24, 2001, however, the
Enterprise did not concurrently settle the interest rate swap agreement. The
differences to be paid or received by the Enterprise under the interest swap
agreement are recognized as an adjustment to interest expense.
Effective October 1, 2000, the Enterprise adopted SFAS 133. The interest rate
swap agreement described above is defined as a derivative instrument under SFAS
133. In accordance with the transition provisions of SFAS 133, the Enterprise
recorded a cumulative-effect-type transition adjustment of $541,847 in other
comprehensive loss and in accrued expenses and other liabilities to recognize
the fair value of the Enterprise's liability under this swap agreement on
October 1, 2000. Although the Enterprise had designated this swap agreement as a
hedge since its inception on February 1, 2000, the Enterprise did not elect to
seek hedge accounting for this agreement upon adoption of SFAS 133. Accordingly,
during the period from October 1, 2001 through September 30, 2002, the
Enterprise recognized other income of $995,515 and a related decrease in accrued
expenses and other liabilities representing the effect during this period of
interest rate changes. Reclassifications to other comprehensive income during
the period from October 1, 2001 through September 30, 2002 are $159,984. During
the period from October 1, 2000 through September 30, 2001, the Enterprise
recognized other expense of $1,838,801 and a related increase in accrued
expenses and other liabilities. Reclassifications from other comprehensive
income during the period October 1, 2000 through September 30, 2001 are
$147,802.
Note 5 - Fair Value of Financial Instruments
The carrying values of the Enterprise's cash and cash equivalents, short-term
investments, accounts receivable, note payable, and accounts payable approximate
fair value because of the short maturity of those instruments. Estimated fair
value of the Notes is $209,000,000 and $198,000,000 at September 30, 2002 and
2001, respectively, based on quoted market prices on or about September 30, 2002
and 2001, respectively.
Fair value of the Enterprise's interest rate swap agreement is based on the
termination value of the agreement using quotes from the Enterprise's counter
party. The fair value liability of the Enterprise's interest rate swap at
September 30, 2002 and 2001 was $1,077,347 and $2,232,846, respectively, and is
included in accrued expenses and other liabilities.
Note 6 - Leases
The Enterprise leases various equipment and advertising billboards under
operating leases. The initial terms of these leases range from one to five
years. Future minimum lease payments required under the operating leases as of
September 30, 2002 are as follows:
2003 $ 357,704
2004 14,778
Thereafter -
---------------
Total $ 372,482
---------------
Rent expense incurred under operating leases was $599,088, $652,006 and $697,621
for the years ended September 30, 2002, 2001 and 2000, respectively.
Note 7 - Management Agreement and Other Transactions with Boyd
In December 1993 the Tribe received the necessary approvals from the National
Indian Gaming Commission to construct and operate the Silver Star and entered
into the seven-year Management Agreement. The Tribe contracted with Boyd to
finance the original construction of the Silver Star property and to manage the
Silver Star. Boyd paid the Tribe a fee of $1,000,000 for the Management
Agreement. The Management Agreement provided for a management fee payable
monthly to Boyd equal to 30% of the operating profits (as defined) of the Silver
Star in the first five years of the Agreement, and 40% in the sixth and seventh
years. The Termination Agreement discontinued the payment of management fees to
Boyd for operating profits earned subsequent to January 31, 2000. Certain
termination adjustments were recorded by the Enterprise for which the management
fee was adjusted based upon terms agreed upon by the Tribe and Boyd pursuant to
the provisions of the Termination Agreement.
30
Management fees paid to Boyd for the year ended September 30, 2000 totaled
$16,413,592. No amounts were paid for management fees for the years ended
September 30, 2002 or 2001. Boyd paid certain expenses including customer
airfare, legal fees, and other administrative expenses, which were reimbursed by
the Enterprise. The Enterprise paid, $1,054,684 under this arrangement for the
year ended September 30, 2000. No amounts were paid under this arrangement for
the years ended September 30, 2002 and 2001. Prior to February 1, 2000, the
Enterprise provided for employee health coverage after a pre-determined waiting
period through a self-insured plan administered by Boyd. Administration fees
related to this plan were $36,000 for the year ended September 30, 2000. No
amounts were paid related to administration fees for the years ended September
30, 2002 and 2001.
Note 8 - Enterprise Licensing and Regulation
The Tribe, by vote of the Tribal members, authorized casino gaming on Tribal
lands located in Mississippi. In accordance with the Indian Gaming Regulatory
Act, the Tribe signed a Tribal-State Compact with the State of Mississippi on
December 4, 1992 and enacted ordinances authorizing bingo (Class II) and
casino-type (Class III) gaming. The Tribal Council created the Choctaw Gaming
Commission and authorized it as the regulatory agency responsible for the
licensing of the Casino and the on-site regulation of the gaming operations. The
Choctaw Gaming Commission has promulgated regulations that govern the gaming
operations.
Note 9 - Related Party Transactions
Distributions to the Tribe were $83,768,497, $96,905,012 and $84,582,761 for the
years ended September 30, 2002, 2001 and 2000, respectively. Subsequent to
January 31, 2000, the Enterprise makes distributions to the Tribe at the Tribe's
discretion, subject to certain distribution restrictions.
The Indenture prescribes that the Enterprise may make an annual distribution to
the Tribe (the "Annual Service Payment") in the amount of $55 million per year
(payable in equal monthly installments), which amount is increased annually on
each September 30, commencing with September 30, 2001, by 5% per annum. Any
distributions to the Tribe are made at the Tribe's discretion, but distributions
other than the Annual Service Payment (referred to as "Restricted Payments") are
limited by the covenants of the indenture. The most significant of such
covenants limit Restricted Payments such that the cumulative Restricted Payments
from inception of the indenture shall not exceed 50% of the Enterprise's
cumulative net income (with measurement commencing on January 1, 2001) plus $75
million. Restricted Payments are further limited by the Indenture's requirement
for the Enterprise to maintain a minimum Fixed Charge Coverage Ratio (as
defined) of 2.5 to 1 (increasing to 3.0 to 1 after December 31, 2001), and thus
limiting the Enterprise's ability to incur additional debt to make Restricted
Payments.
Future Annual Service Payments under the Indenture are as follows:
2003 $ 60,637,500
2004 63,669,375
2005 66,852,844
2006 70,195,486
2007 73,705,260
Thereafter 77,390,523
-----------------
Total $ 412,450,988
-----------------
31
Employees of the Enterprise are provided health coverage through the Tribe's
health plan. The Enterprise and its employees paid $8,589,282, $7,856,211 and
$4,549,759 to the Tribe under this arrangement for the years ended September 30,
2002, 2001 and 2000, respectively.
The Enterprise collects and remits to the Tribe a 7% sales tax to the Tribe on
rooms, food, beverage, sundry and entertainment revenue. The total sales tax
paid was $1,004,041, $778,561 and $816,761 for the years ended September 30,
2002, 2001 and 2000, respectively. For the years ended September 30, 2002, 2001
and 2000, the Enterprise paid rent for office space and purchased certain goods
and services from the Tribe and its businesses in the amount of $4,360,359,
$3,276,271 and $9,218,753 (which includes $5,562,108 payable to the Tribe at
September 30, 2000 for the construction of the parking garage) respectively.
The Enterprise purchases coarse paper and janitorial supplies from Choctaw Paper
Company, Inc. in the ordinary course of business. Choctaw Paper Company, Inc. is
majority owned by a member of the Enterprises' board of directors. For the years
ended September 30, 2002, 2001 and 2000, the Enterprise made purchases of
$923,553, $465,000 and $7,378 respectively, from Choctaw Paper Company, Inc.
The Enterprise paid $250,000 to the Tribal/State Tourism Fund for the promotion
of tourism in Mississippi for each of the years ended September 30, 2002, 2001,
and 2000, as required under the Tribal-State Compact. The Choctaw Gaming
Commission was paid $2,245,995, $2,281,082, $2,317,642 for the years ended
September 30, 2002, 2001, and 2000, respectively, for fees assessed at 1% of
gaming revenues per the Tribal Code. Amounts paid to the Choctaw Gaming
Commission along with amounts paid to the Tribal/State Tourism fund are included
in selling, general and administrative expense for the years ended September 30,
2002, 2001 and 2000.
The Enterprise paid $1,021,202 to the Choctaw Development Enterprise for the
construction of administrative offices and a hospitality institute and $57,000
for construction related to the Golden Moon project during the year ended
September 30, 2002.
During the years ended September 30, 2002, 2001 and 2000, the Tribe contributed
property and equipment to the Enterprise at the Tribe's cost of $11,405,410,
$3,156,740 and $7,308,914, respectively. During the year ended September 30,
2001, the Tribe contributed other assets to the Enterprise at the Tribe's cost
of $1,843,927. During the year ended September 30, 2002, the Tribe contributed
$6,931,380 in cash to the Enterprise to fund construction and development of
Geyser Falls. During the years ended September 30, 2001 and 2000 the Tribe
contributed $24,707,375 and $2,128,224, respectively, in cash to the Enterprise.
During November 2001, the Tribe purchased on behalf of the Enterprise a 2000
model King Air aircraft. The total purchase price of this aircraft was
$4,551,215, of which $4,501,215 was paid by the Tribe. At the time of purchase,
the aircraft was contributed to the Enterprise and a corresponding non-interest
bearing payable to the Tribe was established. Repayment to the Tribe is to occur
in 12 equal monthly installments commencing in December 2001. For the year ended
September 30, 2002 the Enterprise made payments to the Tribe totaling $2,625,750
in connection with this purchase.
On October 26, 1999, the Enterprise, entered into a note agreement with MBCI
Resort and Capital Fund, a related party, in the amount of $300,000 that is
payable on demand with annual interest of 6% due monthly.
As of September 30, 2002 the Tribe had outstanding liabilities of $2.4 million
under credit facilities with $3.2 million available in borrowings, which did not
preclude recourse to assets held by the Enterprise.
Note 10 - Employee Benefit Plans
Employees of the Enterprise are eligible to participate in the Tribe's 401(k)
plan. The Enterprise expensed contributions to this plan of $2,017,725,
$1,780,837 and $1,137,653 for the years ended September 30, 2002, 2001 and 2000,
respectively.
The Enterprise has no formal commitments to provide post-retirement health care
benefits to retirees.
32
Note 11 - Contingencies
The Enterprise is subject to various claims and litigation in the normal course
of business. In the opinion of management, all pending legal matters are either
adequately covered by insurance or, if not insured, will not have a material
adverse effect on the Enterprise's financial position, results of operation or
cash flows.
Note 12 - Subsequent Events
On October 8, 2002, November 4, 2002 and December 11, 2002 the Enterprise
distributed $8,567,956, $11,998,309 and $3,300,000 to the Tribe, respectively.
Also, on October 8, 2002, the Enterprise made repayments to the Tribe totaling
$750,204 related to purchase of the aircraft discussed in Note 9.
On November 1, 2002 the Enterprise drew an additional $25,000,000 on the
Facility referred to in Note 4.
Note 13 - Insurance Proceeds
On January 10, 2002 a settlement agreement for the insurance claim related to
the April 2001 flood was entered into between the Enterprise and the insurance
carriers. The Enterprise received $3,023,322, which represents the entire amount
of the settlement, during the quarter March 31, 2002. During the quarter ended
March 31, 2002 the Enterprise recognized $2,473,293 of other income and $550,029
as a gain on disposal of assets related to the insurance settlement.
Note 14 - Recently Issued Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB") approved SFAS
No. 144. "Accounting for the Impairment or Disposal of Long-Lived Assets." The
Statement requires that long-lived assets to be disposed of other than by sale
be accounted for under the requirements of SFAS No. 121 which requires that such
assets be measured at the lower of carrying amounts or fair value less cost to
sell and to cease depreciation. SFAS No. 144 requires a probability-weighted
cash flow estimation approach with situations in which alternative courses of
action to recover the carrying amount of a long-lived asset are under
consideration or a range of possible future cash flow amounts are estimated. As
a result, discontinued operations will no longer be measured on a net realizable
basis, and future operating losses will no longer be recognized before they
occur. Additionally, goodwill will be removed from the scope of SFAS No. 144 and
as a result will no longer be required to be allocated to long-lived assets to
be tested for impairment. The Statement is effective for financial statements
issued for fiscal years beginning after December 15, 2001, and interim periods
within those fiscal years. The adoption of SFAS No. 144 has had no impact on the
Enterprise's financial statements.
On April 30, 2002 the FASB issued SFAS No. 145 (SFAS 145), Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. In rescinding FASB Statement No. 4 (SFAS 4), Reporting Gains and
Losses from Extinguishment of Debt, and FASB Statement 64 (SFAS 64),
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements, SFAS 145
eliminates the requirement that gains and losses from the extinguishment of debt
be aggregated and, if material, classified as an extraordinary item, net of the
related income tax effect. However, pursuant to SFAS 145, an entity would not be
prohibited for classifying such gains and losses as extraordinary items so long
as they meet the criteria in paragraph 20 of Accounting Principles Board Opinion
No. 30 (APB 30), Reporting the Results of Operations, Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions. SFAS 145 is effective for transactions
occurring after May 15, 2002, and is effective for financial statements issued
on or after May 15, 2002. The Enterprise has adopted the provisions of SFAS 145
which have had no effect on the financial statements.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
33
PART III
Item 10. Directors and Executive Officers of the Registrant
The Choctaw Resort Development Enterprise
The Tribe established the Enterprise on October 12, 1999, as an
unincorporated business enterprise of the Tribe, to operate the Silver Star and
to develop and operate the Golden Moon. The Enterprise is governed by a
five-member Board of Directors, which consists of the Tribal Chief, the
Secretary-Treasurer of the Tribal Council and three other members appointed by
the Tribal Council. The Tribal Chief and the Secretary-Treasurer serve on the
Board of Directors during their term of office on the Tribal Council. The other
members of the Board of Directors serve staggered four-year terms. To establish
staggered terms, the initial terms of such members are either two years or four
years as determined by the Tribal Council.
Enterprise Management
The table below sets forth the names, ages and positions of the
executive officers of the Enterprise.
Name Age Position
- ---- --- --------
Jay Dorris..............38 President
Michael Donald..........38 Vice President of Resort Finance
James Angus.............58 Vice President of Construction Operations
Donna Brolick...........39 Vice President of Human Relations
Anthony Taeubel.........39 VP/ COO Gaming Operations
Andrew HeLal............52 VP/ COO Hospitality Operations
Dick Stewart............51 Vice President of Resort Operations
Kim Beranek.............35 VP/COO Water Park Operations
Patrick O'Keefe.........43 VP/COO Golf Operations
Ruth Allison Dover......31 General Counsel
Jay Dorris assumed the position of President for the Enterprise in
August 2001. Mr. Dorris has over 10 years experience in architectural and
project development. For over 10 years, Mr. Dorris has worked directly and
indirectly for the Tribe developing various projects, including most recently
serving as Tribal Project Manager for the Golden Moon project and the Tribe's
recreational lake project.
Michael Donald assumed the position of Vice President of Resort Finance
for the Enterprise in August 2001. Mr. Donald is a Certified Public Accountant
with over 13 years experience in accounting and financial management. For the
past three years, Mr. Donald has served as Director of Tribal Gaming Audit and
Financial Compliance for the Tribe. Mr. Donald began his career with KPMG Peat
Marwick and spent eight years in public accounting before joining the Tribe as
Senior Internal Auditor in May 1996.
James Angus assumed the position of Vice President of Construction
Operations for the Enterprise in August 2001. Mr. Angus has over 32 years
experience in the construction industry. For the previous four years, Mr. Angus
worked as a Vice President of Operations and Construction for Boyken
International, Inc. From the end of 1994 until mid-1997, he worked as a general
contractor for Precept Builders.
Donna Brolick assumed the position of Vice President of Human Relations
for the Enterprise on October 1, 2001. Prior to joining the Enterprise, Ms.
Brolick served as Human Resources Director with the Mississippi Department of
Education for over 8 years. Ms. Brolick has approximately 14 years experience in
the field of Human Resources.
34
Anthony Taeubel assumed the position of Vice President/ Chief Operating
Officer of Gaming for the Enterprise in March 2002. Mr. Taeubel has over 17
years of experience in the gaming industry. Prior to joining the Enterprise, Mr.
Tauebel was employed by Ameristar Casino Council Bluffs where he worked for
nearly seven years and was Senior VP and General Manager. Prior to Ameristar,
Mr. Taeubel spent six years as an agent with the Nevada Gaming Control Board and
five years in operations at Reno, NV casinos.
Andrew HeLal assumed the position of Vice President/ Chief Operating
Officer of Hospitality for the Enterprise on May 1, 2002. Mr. HeLal has over 20
years of experience in resort, convention, gaming, and conference hotel
industries. Mr. HeLal most recently served as Vice President, Managing Director
of Marriott Frenchman's Reef & Morning Star Beach Resorts in St. Thomas, U.S.
Virgin Islands, where he served as Vice President of Marketing & Operations. He
has also worked as the General Manager of Wyndham Resorts in The Bahamas and
Jamaica, Tropicana Resort & Casino in Las Vegas, NV and the Playboy Resort &
Country Club in Lake Geneva, WI.
Dick Stewart assumed the position as Vice President of Resort
Operations in December 2001. Mr. Stewart has over 25 years experience in the
gaming industry. He was hired at the Silver Star in 1996 as marketing director
and remained in that position following the management transition from Boyd
Gaming. Prior to joining the Silver Star, Mr. Stewart was the marketing director
for Boomtown Casino based in Reno, Nevada from 1993 to 1996.
Kim Beranek assumed the position of Vice President/ Chief Operating
Officer of the Water Park for the Enterprise in January 2002. Ms. Beranek has
over 15 years of experience in the amusement and recreation industry. She was
most recently employed as Park Director for a Six Flags water park in
California.
Patrick O'Keefe assumed the position of Vice President/ Chief Operating
Officer of Golf Operations for the Enterprise on February 12, 2002. From
December 1998 until February 2002 Mr. O'Keefe was employed as CEO of Choctaw
Golf Enterprise (Dancing Rabbit) prior to its contribution to the Enterprise
from the Tribe. Mr. O'Keefe was employed from 1989 until 1998 as General
Manager/Head Golf Pro at Green Meadow Golf Club and Golf Operations Manager for
Friel Management Company located in Hudson, New Hampshire. Mr. O'Keefe has over
20 years experience in the golf industry and is a member of the Professional
Golfers Association of America and the Club Managers Association of America.
Ruth Allison Dover assumed the position of the Enterprise's General
Counsel on April 22, 2002. Ms. Dover came to the Enterprise from the Mississippi
Band of Choctaw Indians Office of the Attorney General. At the Attorney
General's Office, she served as the Deputy Attorney General for the Tribe for
approximately six (6) years. In that capacity she represented the Tribe in both
the Government Services Division as well as the Business Enterprise Division.
She is licensed to practice law in Mississippi and Arkansas and has been
admitted to practice before the Mississippi Band of Choctaw Indians Tribal
Court.
Board of Directors
The table below sets forth the names, ages and positions of our
directors and the year in which their current term expires.
Name Age Position Current Term Expires
Phillip Martin....76 Chairman 2003
Harrison Ben......67 Secretary-Treasurer 2003
Rufus Tubby.......49 Vice-Chairman 2003
Gerald Stoliby....34 Director 2005
Billy Chickaway...52 Director 2005
35
Set forth below is a description of the current business experience
during the past five years of each of the directors listed above.
Chief Phillip Martin has been elected to six four-year terms as Tribal
Chief and has served as a leader of the Tribe for over 40 years. After returning
from a ten-year tour in the Air Force, Chief Martin is credited with introducing
the Tribe into various industries including the production of wire harnesses for
automobiles, greeting cards, electronic components, plastics, printing and
publishing and casino gaming. As a result, unemployment on the Tribe's
reservation has dropped from 75% in the 1970s to approximately 2.6% today.
Harrison Ben has been a member of Tribal Council for six years.
Rufus Tubby has been a member of the Tribal Council for approximately
11 years.
Gerald Stoliby has been a member of the Tribal Council for five years.
Mr. Stoliby is the President, Chief Executive Officer and majority owner of
Choctaw Paper Company, Inc., a private coarse paper and janitorial supply
company which does business with the Enterprise.
Billy Chickaway has been a member of the Tribal Council for five years.
Compensation of Directors
Members of our Board of Directors do not receive any compensation from
the Enterprise or the Tribe for their services as members of our board or any
committee thereof.
The Tribe
The Tribe is a federally recognized, self governing Indian tribe with
approximately 9,100 enrolled members, most of whom live on or near the Tribe's
31,000-acre reservation in east-central Mississippi. Pursuant to the Tribe's
Constitution, an elected Tribal Chief and a 16-member Tribal Council govern the
Tribe and oversee all Tribal government operations and services. The Tribe's
Constitution vests all executive powers of the Tribe in the Tribal Chief and all
legislative powers in the Tribal Council, including the power to establish
unincorporated business enterprises of the Tribe. The Tribal Chief is the
principal executive officer of the Tribe. The Tribal government has functions
similar to local, state and federal governments and is responsible for providing
Tribal members with education, healthcare, job training, housing, police and
fire protection, Tribal courts, utilities and other community infrastructure.
The Tribe operates the one of the largest unified reservation school systems in
the United States, with more than 1,700 students enrolled in kindergarten
through grade twelve.
The Tribe is one of the ten largest employers in Mississippi with more
than 8,000 permanent, full-time employees and an annual payroll of approximately
$138 million. The Tribe has nine manufacturing plants on its reservation, which
provide supplies to the automotive industry and other companies, including
Caterpillar. In addition, the Tribe operates the Silver Star, Golden Moon,
Geyser Falls and the Dancing Rabbit through the Enterprise.
Tribal Council
The Tribe is governed by the Tribal Chief and a 16-member Tribal
Council that is responsible for passing all tribal laws and regulations on the
reservation. Tribal Council members are elected for staggered four-year terms
from the seven communities comprising the Tribe's reservation.
36
The table below sets forth information about the Tribal Council.
Name Position Age Experience
- ---- -------- --- ----------
Phillip Martin...Tribal Chief 76 Over 40 years
Harrison Ben.....Tribal Secretary/Treasurer 67 6 years
Gerald Stoliby...Tribal Councilman 34 5 years
Bobby Thompson...Tribal Councilman 56 5 years
Billy Chickaway..Tribal Councilman 52 5 years
Richard Isaac....Tribal Councilman 36 2 years
Brenda Stephens..Tribal Councilman 41 5 years
Dorothy Farve....Tribal Councilman 48 3 years
Linda Farve......Tribal Councilman 52 3 years
Woodlin Lewis....Tribal Councilman 61 8 years
Edward Wesley....Tribal Councilman 44 6 years
Rufus Tubby......Tribal Councilman 49 11 years
Birdie Steve.....Tribal Councilman 51 3 years
Beasley Denson...Tribal Councilman 52 5 years
Roger Anderson...Tribal Councilman 55 15 years
Ronnie Henry, Sr.Tribal Councilman 43 1 year
Claude Johnson...Tribal Councilman 45 1 year
37
Item 11. Executive Compensation
Summary Compensation Table
This section provides certain summary information concerning
compensation paid by the Enterprise to its senior executive officers.
Fiscal Annual Other Annual
Name and Principal Position Year Salary (1) Salary (1) Bonus (2) Compensation
---------------------------- ------ ------- ------ ----- -------------
Jay Dorris, President and CEO 2002 212,500 212,500 - -
2001 212,500 24,519 (6) - -
2000 - - - -
Anthony Taeubel, Vice President and 2002 260,000 143,000 - 26,765 (3)
Chief Operating Officer of Gaming Operations 2001 - - - -
2000 - - - -
James Angus, Vice President of 2002 210,000 210,000 - -
Construction Operations 2001 210,000 18,577 (6) - 28,159 (4)
2000 - - - -
Andrew HeLal, Vice President and 2002 200,000 84,615 - 4,895 (7)
Chief Operating Officer of Hospitality Operations2001 - - - -
2000 - - - -
Dick Stewart, Vice President of Resort Operations 2002 175,000 164,039 - -
2001 120,000 116,423 26,058 -
2000 110,000 73,616 (5) 22,499 -
Doug Pattison, Chief Executive Officer 2002 - 843,638 (9) 25,000 -
Silver Star 2001 400,000 400,000 122,600 (8) -
2000 400,000 333,333 102,267 40,000 (10)
(1) Prior to February 1, 2000, all employees of the Enterprise were employed by
Boyd and as such, the salaries were paid by Boyd and charged to Silver Star
for periods prior to February 1, 2000.
(2) Enterprise employees are eligible to receive a performance based bonus at
the annual discretion of the Board of Directors. As of the date of the
filing of this annual report, bonuses had not been authorized by the
Enterprise's Board of Directors for fiscal 2002.
(3) Mr. Taeubel was provided with a relocation allowance of $26,765 that was
paid in fiscal 2002.
(4) Mr. Angus received a one-time payment of $25,000 upon employment with the
Enterprise. Mr. Angus was provided with a relocation allowance of $3,159
that was paid in fiscal 2001.
(5) Mr. Stewart was employed by Boyd prior to February 1, 2000, and as such,
had salaries paid by Boyd and charged to Silver Star for the period October
1, 1999 through January 31, 2000.
(6) Mr. Dorris was employed by the Tribe prior to August 6, 2001, and as such,
had salaries paid by the Tribe for the period October 1, 2000 through
August 6, 2001. Mr. Angus began his employment on August 6, 2001. Prior to
that time he was not employed by the Tribe or any of its enterprises.
38
(7) Mr. HeLal was provided with a relocation allowance of $4,895 that was paid
in fiscal 2002.
(8) The Enterprise's Board of Directors authorized the bonus for Doug Pattison
for the fiscal year 2001 as part of the Settlement and General Release
Agreement dated December 31, 2001.
(9) On December 13, 2001 a Settlement and General Release Agreement was entered
into between Mr. Pattison and the Enterprise. This agreement terminates the
employment of Mr. Pattison effective December 13, 2001. Pursuant to the
agreement the Enterprise paid Mr. Pattison a gross sum of $800,000 as
severance pay, as well as $122,600 for bonuses earned for fiscal 2001,
$25,000 for bonuses earned for fiscal 2002 up to and until the effective
date of termination, and $43,638 of accrued and unused vacation time.
(10) Mr. Pattison was provided with a relocation allowance of $40,000 that was
paid in fiscal 2000.
39
Employment Contracts
Jay Dorris
An agreement to employ Mr. Dorris as the President was executed on
August 6, 2001. The employment agreement provides for a term ending August 5,
2005, renewing automatically for one-year periods after the end of the initial
four-year term.
Mr. Dorris will receive a base salary of $212,500 which amount was
pro-rated for the two months he was employed in fiscal year 2001. Mr. Dorris
also has the opportunity to receive an incentive bonus based on the bonus
program approved by the Board of Directors on May 3, 2001.
Mr. Dorris is entitled to all amounts due under the agreement, unless
he resigns or is terminated by the Enterprise for cause or under other limited
circumstances, in which case he will only be entitled to payments of salary and
bonus earned but unpaid to the date of resignation or termination, as the case
may be. Mr. Dorris may be terminated by the Enterprise without cause, in which
event he will be entitled to payment of one year base salary in effect on the
date of termination plus $25,000 for relocation expense.
Michael Donald
An agreement to employ Mr. Donald as the Enterprise's Vice President of
Resort Finance was executed on August 2, 2001. Mr. Donald has an initial
four-year contract through August 2005, with an annual salary of $135,000. Mr.
Donald will also receive the typical fringe benefits of tribal employees.
James Angus
An agreement to employ Mr. Angus as the Enterprise's Vice President of
Construction Operations was executed on August 2, 2001. Mr. Angus has an initial
four-year contract through August 2005, with an annual salary of $210,000. Mr.
Angus will receive typical moving expenses, temporary living quarters, the use
of an automobile and other typical fringe benefits of tribal employees. Mr.
Angus will also receive a one-time payment of $25,000.
Anthony Taeubel
An agreement to employ Mr. Taeubel as the Enterprise's Chief Operating
Officer of Gaming Operations was executed on March 20, 2002. The employment
agreement provides for a term ending March 19, 2006, renewing upon mutual
agreement after the end of the initial four-year term.
Mr. Taeubel will receive an annual base salary of $260,000. Mr. Taeubel
also has the opportunity to receive an incentive bonus based on the bonus
program approved by the Board of Directors on May 3, 2001.
Mr. Taeubel is entitled to all amounts due under the agreement, unless
he resigns or is terminated by the Enterprise for cause or under other limited
circumstances, in which case he will only be entitled to payments of salary and
bonus earned but unpaid to the date of resignation or termination, as the case
may be. Mr. Taeubel may be terminated without cause, in which event he will be
entitled to payment of one year base salary in effect at the date of
termination.
Andrew HeLal
An arrangement to employ Mr. HeLal as the Enterprise's Chief Operating
Officer of Hospitality Operations was executed on April 18, 2002. Mr. HeLal has
an annual base salary of $200,000 and will also receive typical moving expenses
and other typical fringe benefits of tribal employees. In the event Mr. HeLal is
terminated without cause, he will be entitled to payment of six months base
salary in effect at the date of termination.
40
Ruth Allison Dover
The Enterprise reached an arrangement to employ Ms. Dover as the
Enterprise's General Counsel on April 22, 2002. The employment agreement has an
initial term of six months and automatically renews for an additional six month
period unless either party gives notice of intent not to renew. Ms. Dover
receives an annual base salary of $125,000 and will also receive typical fringe
benefits of tribal employees. In the event Ms. Dover is terminated without
cause, she will be entitled to payment of three months base salary in effect at
the date of termination.
Doug Pattison
An agreement to employ Mr. Pattison as the Chief Executive Officer of
the Silver Star was executed on December 1, 1999. The employment agreement
provides for a term ending September 30, 2005, renewing automatically for
one-year periods after the end of the initial five-year term.
Mr. Pattison received a pro-rated annual base salary of $333,333 for
the ten months he was employed in fiscal year 2000, and received a base salary
of $400,000 in fiscal year 2001. Mr. Pattison also had the opportunity to
receive an incentive bonus based on the bonus program approved by the Board of
Directors on May 3, 2001.
On December 13, 2001 a Settlement and General Release Agreement was
entered into between Mr. Pattison and the Enterprise. This agreement terminates
the employment of Mr. Pattison effective December 13, 2001. Pursuant to the
agreement the Enterprise paid Mr. Pattison a gross sum of $800,000 as severance
pay, as well as $122,600 for bonuses earned for fiscal 2001, $25,000 for bonuses
earned for fiscal 2002 up to and until the effective date of termination, and
$43,638 of accrued and unused vacation time.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Enterprise has no outstanding equity securities.
Item 13. Certain Relationships and Related Transactions
Recourse Liabilities
As of September 30, 2002, the Tribe had outstanding liabilities of $2.4
million under credit facilities with $3.2 million available in borrowings, which
do not preclude recourse to assets held by the Enterprise. If other assets of
the Tribe are insufficient to repay this existing debt, then our creditors may
deem these obligations to be liabilities of the Enterprise. Under the indenture
relating to the notes, the Tribe has agreed that it will not incur indebtedness
in the future that would give such creditors recourse to the assets of the
Enterprise, except as may be incurred by the Enterprise under the indenture.
Payments to the Tribe
Net distributions to the Tribe were $83,768,497, $96,905,012 and
$84,582,761 for the years ended September 30, 2002, 2001 and 2000, respectively.
Subsequent to January 31, 2000, the Enterprise makes distributions to the Tribe
at the Tribe's discretion, subject to the distribution restrictions under the
Notes described in Note 4.
Employees of the Enterprise are provided health coverage through the
Tribe's health plan. The Enterprise and its employees paid $8,589,282,
$7,856,211 and $4,549,759 to the Tribe under this arrangement for the years
ended September 30, 2002, 2001 and 2000, respectively.
The Enterprise collects and remits to the Tribe a 7% sales tax to the
Tribe on rooms, food, beverage, sundry and entertainment revenue. The total
sales tax paid was $1,004,041, $778,561 and $816,761 for the years ended
September 30, 2002, 2001 and 2000, respectively. For the years ended September
30, 2002, 2001 and 2000, the Enterprise paid rent for office space and purchased
certain goods and services from the Tribe and its businesses in the amount of
$4,360,359, $3,276,271 and $9,218,753 (which includes $5,562,108 payable to the
Tribe at September 30, 2000 for the construction of the parking garage)
respectively.
41
The Enterprise purchases coarse paper and janitorial supplies from
Choctaw Paper Company, Inc. in the ordinary course of business. Choctaw Paper
Company, Inc. is majority owned by a member of the Enterprises' board of
directors. For the years ended September 30, 2002, 2001 and 2000, the Enterprise
made purchases of $923,553, $465,000 and $7,378 respectively, from Choctaw Paper
Company, Inc.
The Enterprise paid $250,000 to the Tribal/State Tourism Fund for the
promotion of tourism in Mississippi for each of the years ended September 30,
2002, 2001, and 2000 under the Tribal-State Compact. The Choctaw Gaming
Commission was paid $2,245,995, $2,281,082, $2,317,642 for the years ended
September 30, 2002, 2001, and 2000, respectively, for fees assessed at 1% of
gaming revenues per the Tribal Code. Amounts paid to the Choctaw Gaming
Commission along with amounts paid to the Tribal/State Tourism fund are included
in selling, general and administrative expense for the years ended September 30,
2002, 2001 and 2000.
The Enterprise paid $1,021,202 to the Choctaw Development Enterprise
for the construction of administrative offices and a hospitality institute and
$57,000 for construction related to the Golden Moon project during the year
ended September 30, 2002.
During the years ended September 30, 2002, 2001 and 2000, the Tribe
contributed property and equipment to the Enterprise at the Tribe's cost of
$11,405,410, $3,156,740 and $7,308,914, respectively. During the year ended
September 30, 2001, the Tribe contributed other assets to the Enterprise at the
Tribe's cost of $1,843,927. During the year ended September 30, 2002, the Tribe
contributed $6,931,380 in cash to the Enterprise to fund construction and
development of Geyser Falls. During the years ended September 30, 2001 and 2000
the Tribe contributed $24,707,375 and $2,128,224, respectively, in cash to the
Enterprise.
During November 2001, the Tribe purchased on behalf of the Enterprise a
2000 model King Air aircraft. The total purchase price of this aircraft was
$4,551,215, of which $4,501,215 was paid by the Tribe. At the time of purchase,
the aircraft was contributed to the Enterprise and a corresponding non-interest
bearing payable to the Tribe was established. Repayment to the Tribe is to occur
in 12 equal monthly installments commencing in December 2001. For the year ended
September 30, 2002 the Enterprise made payments to the Tribe totaling $2,625,750
in connection with this purchase.
As of September 30, 2002 the Tribe had outstanding liabilities of $2.4
million under credit facilities with $3.2 million available in borrowings, which
did not preclude recourse to assets held by the Enterprise.
42
Affiliate Transactions
Gerald Stoliby, a member of our board of directors and a Tribal Council
Member, owns a majority interest in and is the President and Chief Executive
Officer of Choctaw Paper Company, Inc. The Enterprise purchases coarse paper and
janitorial products from Choctaw Paper Company, Inc. in the ordinary course of
its business. For the fiscal years ended September 30, 2002, 2001 and 2000 the
Enterprise had purchased approximately $924,000, $465,000 and $7,000 in goods
from the Choctaw Paper Company, Inc.
Item 14. Controls and Procedures
The Enterprise maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Enterprise's
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and that such information
is accumulated and communicated to the Enterprise's management, including its
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
Within 90 days prior to the date of this report, the Enterprise carried
out an evaluation, under the supervision and with the participation of the
Enterprise's management, including the Enterprise's Chief Executive Officer and
the Enterprise's Chief Financial Officer, of the effectiveness of the design and
operation of the Enterprise's disclosure controls and procedures. Based on the
foregoing, the Enterprise's Chief Executive Officer and Chief Financial Officer
concluded that the Enterprise's disclosure controls and procedures were
effective.
There have been no significant changes in the Enterprise's internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date the Enterprise completed its evaluation.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Financial Statements
The following financial statements are filed as part of this Report under "Item
8 - Financial Statements and Supplementary Data":
Report of Independent Accountants
Consolidated Balance Sheets at September 30, 2002 and 2001
Consolidated Statements of Operations for the Three Fiscal Years
in the Period Ended September 30, 2002
Consolidated Statements of Changes in Owners' Equity for the Three
Fiscal Years in the Period Ended September 30, 2002
Consolidated Statements of Cash Flows for the Three Fiscal Years in
the Period Ended September 30, 2002
Notes to Consolidated Financial Statements
Reports on Form 8-K
None
43
Exhibits
The following exhibits are filed as a part of this Report:
Exhibit
No. Description of Exhibit
------- ----------------------
3.1* Revised Constitution and Bylaws of the Mississippi Band of Choctaw
Indians, as approved by the Commissioner of Indian Affairs on March
28, 1975 (ratified by Tribe on December 17, 1974).
3.2* Ordinance 56 by the Mississippi Band of Choctaw Indians, an
ordinance providing for classification, regulation, and creation of
wholly-owned Tribal business enterprises and establishment of
business enterprise division of the Tribal Government Executive
Branch, dated November 20, 1997.
3.3* Resolution CHO 00-010 by the Mississippi Band of Choctaw Indians, a
resolution to establish the Choctaw Resort Development Enterprise
under Ordinance 56, dated October 12, 1999.
3.6* Title XXV, Choctaw Tort Claims Act, added by Tribal Ordinance
16-CCC to the Choctaw Tribal Code on January 19, 2000.
4.1* Indenture, dated March 30, 2001, among the Mississippi Band of
Choctaw Indians d/b/a Choctaw Resort Development Enterprise, the
Mississippi Band of Choctaw Indians and Firstar Bank, N.A., as
Trustee, relating to the 9 1/4% Senior Notes due 2009 of the
Choctaw Resort Development Enterprise.
4.2* Form of 144A Global 9 1/4% Senior Note due 2009 of the Mississippi
Band of Choctaw Indians d/b/a Choctaw Resort Development Enterprise
(contained in the Indenture, filed as Exhibit 4.1).
4.3* Form of Regulation S Global 9 1/4% Senior Note due 2009 of the
Mississippi Band of Choctaw Indians d/b/a Choctaw Resort
Development Enterprise (contained in the Indenture, filed as
Exhibit 4.1).
4.4* Form of registered Global 9 1/4% Senior Note due 2009 of the
Mississippi Band of Choctaw Indians d/b/a Choctaw Resort
Development Enterprise.
4.5* Registration Rights Agreement, dated March 30, 2001, among the
Choctaw Resort Development Enterprise, Banc of America Securities
LLC, as Representative of the Initial Purchasers.
10.1* Tribal-State Compact for Regulation of Class III Gaming on the
Mississippi Band of Choctaw Indians Reservation in Mississippi,
dated December 4, 1992, between the Mississippi Band of Choctaw
Indians and the State of Mississippi.
10.2* First Amendment to the Tribal-State Compact for Regulation of Class
III Gaming on the Mississippi Band of Choctaw Indians Reservation
in Mississippi, dated August 26, 1994, between the Mississippi Band
of Choctaw Indians and the State of Mississippi.
10.3* Second Amendment to the Tribal-State Compact for Regulation of
Class III Gaming on the Mississippi Band of Choctaw Indians
Reservation in Mississippi, dated May 24, 1996, between the
Mississippi Band of Choctaw Indians and the State of Mississippi.
10.4* Contractor's Agreement, dated January 24, 2001, between the
Mississippi Band of Choctaw Indians dba Choctaw Resort Development
Enterprise and W.G. Yates & Sons Construction Company.
10.5* Basic Architectural Services Contract, dated October 13, 1999,
between the Mississippi Band of Choctaw Indians and Arquitectonica
International Corp.
10.6* Loan Agreement, dated December 19, 2000, between the Mississippi
Band of Choctaw Indians d/b/a Choctaw Resort Development
Enterprise, the Mississippi Band of Choctaw Indians and Bank of
America, N.A., as leader of syndicate of lenders.
10.7* Consent Letter of the Administrative Agent under the Amended and
Restated Term Loan Agreement and the Loan Agreement, dated March
30, 2001
44
Exhibit
No. Description of Exhibit
------- ----------------------
10.8* Employment Agreement of Douglas Pattison, dated December 1, 1999,
between the Mississippi Band of Choctaw Indians d/b/a Choctaw
Resort Development Enterprise and Douglas Pattison.
10.9* Amendment No. 1 to Employment Agreement of Douglas Pattison, dated
July 18, 2001, between the Mississippi Band of Choctaw Indians
d/b/a Choctaw Resort Development Enterprise and Douglas Pattison.
10.10* Employment Agreement of Mike Donald, dated August 2, 2001, between
the Mississippi Band of Choctaw Indians d/b/a Choctaw Resort
Development Enterprise and Mike Donald.
10.11* Employment Agreement of Jim Angus, dated August 2, 2001, between
the Mississippi Band of Choctaw Indians d/b/a Choctaw Resort
Development Enterprise and Jim Angus.
10.12** Employment Agreement of Jay Dorris, dated August 6, 2001, between
the Mississippi Band of Choctaw Indians d/b/a Choctaw Resort
Development Enterprise and Jay Dorris.
10.13** Employment Agreement of Donna Brolick, dated September 14, 2001,
between the Mississippi Band of Choctaw Indians d/b/a Choctaw
Resort Development Enterprise and Donna Brolick.
10.14** Settlement and General Release Agreement, dated December 13, 2001,
between the Mississippi Band of Choctaw Indians d/b/a Choctaw
Resort Development Enterprise and Douglas Pattison.
10.15 Employment Agreement of Anthony Taeubel, dated March 20, 2002,
between the Mississippi Band of Choctaw Indians d/b/a Choctaw
Resort Development Enterprise and Anthony Taeubel.
10.16 Employment Agreement of Andew Helal, dated April 18, 2002, between
the Mississippi Band of Choctaw Indians d/b/a Choctaw Resort
Development Enterprise and Andrew Helal.
10.17 Employment Agreement of Ruth Allison Dover, dated April 22, 2002,
between the Mississippi Band of Choctaw Indians d/b/a Choctaw
Resort Development Enterprise and Ruth Allison Dover.
23.1* Consent of Latham & Watkins (contained in Exhibit 5.1).
24.1* Power of attorney (included on the signature page).
* Filed by the Enterprise with its Registration Statement on Form S-4 (file
no. 333-63348), and incorporated herein by reference
** Filed by the Enterprise with its Annual Report on Form 10-K (file no.
333-63348) for the year ended September 30, 2001, and incorporated herein
by reference.
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this annual
report to be signed on its behalf by the undersigned, thereunto duly authorized,
on the Mississippi Band of Choctaw Indian's reservation in the city of Choctaw,
state of Mississippi, on December 24, 2002.
CHOCTAW RESORT DEVELOPMENT ENTERPRISE
By: /s/ Phillip Martin
--------------------------------------------
Phillip Martin
Chairman of the Board
By: /s/ Harrison Ben
--------------------------------------------
Harrison Ben
Secretary-Treasurer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the
registrant and in the capacities and as of the dates indicated.
/s/ Phillip Martin Chairman of the Board December 24, 2002
- -------------------------
Phillip Martin
/s/ Jay Dorris President December 24, 2002
- ---------------------------- (Principal Executive Officer)
Jay Dorris
/s/ Michael A. Donald Vice President of Resort December 24, 2002
- ---------------------------- Finance (Principal Financial
Michael A. Donald and Accounting Officer)
/s/ Harrison Ben Secretary-Treasurer December 24, 2002
- ----------------------------
Harrison Ben
/s/ Rufus Tubby Vice-Chairman December 24, 2002
- ----------------------------
Rufus Tubby
/s/ Gerald Stoliby Director December 24, 2002
- ----------------------------
Gerald Stoliby
/s/ Billy Chickaway Director December 24, 2002
- ----------------------------
Billy Chickaway
46
CERTIFICATION OF PRESIDENT
I, Jay Dorris, certify that:
1. I have reviewed this annual report on Form 10-K of Choctaw Resort Development
Enterprise;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
December 24, 2002 /s/ Jay Dorris
_______________________________
Jay Dorris
President (Principal Executive Officer)
47
CERTIFICATION OF VICE PRESIDENT OF RESORT FINANCE
I, Michael A. Donald, certify that:
1. I have reviewed this annual report on Form 10-K of Choctaw Resort Development
Enterprise;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
December 24, 2002 /s/ Michael A. Donald
_________________________
Michael A. Donald
Vice President of Resort Finance
(Principal Financial and Accounting Officer)
48
CERTIFICATION OF PRESIDENT
Pursuant to 18 U.S.C. ss. 1350, as created by Section 906 of the Sarbanes-Oxley
Act of 2002, the undersigned officer of Choctaw Resort Development Enterprise
(the "Enterprise) hereby certifies, to the best of such officer's knowledge,
that:
(i) the Annual Report on Form 10-K of the Enterprise for the quarterly
period ended June 30, 2002 (the "Report") fully complies with the requirements
of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of
1934, as amended; and
(ii) the information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Enterprise.
December 24, 2002 /s/ Jay Dorris
_________________
Jay Dorris
President (Principal Executive Officer)
49
CERTIFICATION OF VICE PRESIDENT OF RESORT FINANCE
Pursuant to 18 U.S.C. ss. 1350, as created by Section 906 of the Sarbanes-Oxley
Act of 2002, the undersigned officer of Choctaw Resort Development Enterprise
(the "Enterprise) hereby certifies, to the best of such officer's knowledge,
that:
(i) the Quarterly Report on Form 10-Q of the Enterprise for the
quarterly period ended June 30, 2002 (the "Report") fully complies with the
requirements of Section 13(a) or 15(d), as applicable, of the Securities
Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Enterprise.
December 24, 2002 /s/ Michael A. Donald
______________________
Michael A. Donald
Vice President of Resort Finance
(Principal Financial and Accounting Officer)
50