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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 2004
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 333-113140
INN OF THE MOUNTAIN GODS RESORT AND CASINO (Exact Name
of Registrant as Specified in Its Charter)
NOT APPLICABLE 85-0098966
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
287 CARRIZO CANYON ROAD
MESCALERO, NEW MEXICO 88340
(Address of Principal Executive (Zip Code)
Offices)
(505) 464-6595
(Registrant's Telephone Number, Including Area Code)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [__] No [X]
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
As of As of
April 30, 2004 July 31, 2004
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 15,794,943 $ 19,175,856
Restricted cash and cash equivalents 133,297,243 103,827,558
Accounts receivable, net 32,566 102,561
Inventories 968,585 1,399,513
Prepaid expenses 462,054 3,802,303
Prepaid revenue sharing fees 4,218,673
Deferred financing cost, net 1,625,244 1,625,244
------------- -------------
Total current assets 156,399,308 129,933,035
NON CURRENT ASSETS:
Property, plant and equipment, net 150,329,503 171,918,310
Long term deferred financing cost, net 9,404,249 8,930,343
Other long-term assets 76,912 125,474
Total assets $ 316,209,972 $ 310,907,162
------------- -------------
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable and other short-term liabilities$ 612,873 $ 1,210,500
Construction in progress accounts payable 13,609,367 10,754,473
Accrued expenses 5,322,061 9,135,149
Accrued revenue sharing and regulatory fees 23,000,000 23,000,000
Accrued interest 12,048,378 5,200,000
Deposits and advance payments 667,100 674,201
Current portion of long-term debt 252,053 252,053
------------- -------------
Total current liabilities 55,511,832 50,226,376
NON CURRENT LIABILITIES:
Long-term debt, net of current portion 201,694,541 201,643,125
------------- -------------
Total liabilities 257,206,373 251,869,501
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 10)
EQUITY:
Contributed capital 56,113,676 56,113,676
Retained earnings (deficit) 2,889,923 2,923,985
------------- -------------
Total equity 59,003,599 59,037,661
------------- -------------
Total liabilities and equity $316,209,972 $310,907,162
============= =============
The accompanying notes are an integral part of these statements.
1
INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the Quarters Ended July 31,
2004 2003
Revenues:
Gaming $17,645,786 $15,600,450
Food and beverage 1,413,095 1,237,095
Recreation and other 3,330,898 1,241,563
------------- -------------
Gross revenue 22,389,779 18,079,108
Less - promotional allowances 262,282 254,475
------------- -------------
Net revenue 22,127,497 17,824,497
------------- -------------
Operating costs and expenses:
Gaming 5,027,678 5,410,910
Food and beverage 1,688,006 2,005,073
Rooms - 116,961
Recreation and other 3,089,733 1,584,297
General and administrative 2,251,755 2,061,713
Pension (allocated by related party) 544,539 477,836
Fees (charged by related party) 684,001 352,132
Insurance (allocated by related party) 139,656 162,833
Telecommunication (charged by related party) 54,757 37,551
Pre-opening costs and expenses 1,063,044 1,100,225
Depreciation and amortization 1,435,617 1,032,091
Total operating expenses 15,978,786 14,341,622
------------- -------------
Income from operations 6,148,711 3,483,011
Other (expenses) income:
Interest income 209,418 13,489
Interest expense, net of amounts capitalized (2,930,599) -
Other income 102,151 70,085
------------- -------------
Total other (expenses) income (2,619,030) 83,574
------------- -------------
Net income $3,529,681 $3,566,585
============= =============
The accompanying notes are an integral part of these statements.
2
INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(unaudited)
FOR THE QUARTERS ENDED JULY 31,
Retained
Contributed Earnings Total
Capital (Deficit) Equity
------------ --------- -------------
Balances, April 30, 2003 $24,844,057 $(23,684,756) $ 1,159,321
Contributed capital from Mescalero Apache
Tribe:
Construction of Resort 499,329 - 499,329
Forgiveness of allocated pension cost 477,836 - 477,836
Distributions to Mescalero Apache Tribe:
Operating transfers - (5,002,442) (5,002,442)
Net income - 3,565,585 3,566,585
Balances, July 31, 2003 $25,821,242 $(25,120,613) $ 700,629
------------ -------------- --------------
Balances, April 30, 2004 $56,113,676 $ 2,889,923 $59,003,599
------------ -------------- --------------
Distributions to Mescalero Apache Tribe:
Operating transfers - (3,495,619) (3,495,619)
Net income - 3,529,681 3,529,681
------------ -------------- --------------
Balances, July 31, 2004 $56,113,676 $ 2,923,985 $59,037,661
============ ============== ==============
The accompanying notes are an integral part of these statements.
3
INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Quarters Ended July 31,
2004 2003
-------------- -------------
Cash flows from operating activities:
Net income $3,529,681 $3,566,585
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,435,617 1,032,091
Gain on sale of property, plant and equipment - -
Changes in assets and liabilities:
Restricted cash and cash equivalents - (28,981)
Accounts receivable, net of allowance (69,995) (114,755)
Inventories (430,927) (443,742)
Prepaid revenue sharing fees 1,039,500 -
Prepaid expenses (161,075) (113,986)
Other long-term assets (48,563) -
Construction in progress accounts payable (2,854,894) (3,692,519)
Accounts payable 597,626 955,065
Accrued expenses (2,854,894) 286,455
Accrued revenue sharing and regulatory fees - 2,658,768
Accrued interest payable (6,848,378) -
Deposits and advance payments 231,206 36,156
Net cash provided in operating activities 8,781 11,526,175
Cash flows from investing activities:
Purchase of property, plant and equipment (23,024,425) (21,601,866)
-------------- -------------
Net cash used in investing activities (23,024,425) (21,601,866)
-------------- ---------------
Cash flows from financing activities:
Deferred financing costs 473,906 -
Cash held for construction payments 29,469,685 -
Advances to Mescalero Apache Tribe, net - (1,886,240)
Borrowings on revolving line-of-credit - 14,000,000
Principal borrowings (payments) on long-term debt, net (51,415) (595,738)
Distributions to Mescalero Apache Tribe (3,495,619) (4,537,460)
Contributions from Mescalero Apache Tribe - 997,165
-------------- ---------------
Net cash (used by) provided by financing activities 26,396,557 9,169,203
-------------- ---------------
Net increase (decrease) in cash and cash equivalents 3,380,913 (906,488)
-------------- ---------------
Cash and cash equivalents, beginning of year 15,794,943 9,331,922
-------------- ---------------
Cash and cash equivalents, end of year $ 19,175,856 $ 8,425,434
============== ===============
4
Supplemental cash flow information:
Cash paid for interest $ 2,833,053 $ 106,959
The accompanying notes are an integral part of these statements.
5
INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED JULY 31, 2003 AND 2004
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY AND OPERATIONS
The Inn of the Mountain Gods Resort and Casino (the "IMG Resort and
Casino"), an unincorporated enterprise of the Mescalero Apache Tribe (the
"Tribe"), was established on April 30, 2003 for the purpose of managing all
resort enterprises of the Tribe including activities of IMG Resort and
Casino and its wholly owned subsidiaries: Casino Apache, Casino Apache
Travel Center, Inn of the Mountain Gods and Ski Apache (collectively the
"Resorts"). Effective April 30, 2003, the Tribe contributed the Resorts to
the IMG Resort and Casino. Prior to such contribution to IMG Resort and
Casino, the Resorts operated as separate, unincorporated enterprises of the
Tribe. Due to common control of the Resorts and IMG Resort and Casino, the
contribution was accounted for as a reorganization of entities under common
control. The Tribe is the sole owner of the IMG Resort and Casino. The IMG
Resort and Casino is a separate legal entity from the Tribe and is managed
by a separate management board.
Casino Apache (the "Casino") offers Class III gaming as defined by the
Indian Gaming Regulatory Act ("IGRA"), on tribal land in Mescalero, New
Mexico. The Casino Apache Travel Center (the "Travel Center"), which opened
for business on May 22, 2003, also offers Class III gaming as defined by
the Indian Gaming Regulatory Act, on tribal land in Mescalero. The Inn of
the Mountain Gods (the "Inn") operated a 253-room resort hotel located on
the Tribe's reservation in Mescalero. The resort hotel has been demolished
as of April 30, 2003 and the construction of a new resort hotel and casino
(the "Resort Project") on the same site is in process and is scheduled for
completion in the fourth quarter of fiscal year 2005. Ski Apache operates a
ski resort within the Tribe's reservation in Mescalero and on the U.S.
Forest Service land. The IMG Resort and Casino's activities primarily
support the development and management efforts related to the new resorts.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the IMG Resort and Casino and its wholly-owned subsidiaries. All
significant intercompany accounts have been eliminated in consolidation.
These consolidated financial statements present only the consolidated
financial position, results of operations and cash flows of the IMG Resort
and Casino and subsidiaries and are not intended to present fairly the
financial position of the Tribe and the results of its operations and cash
flows.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting
period. Significant estimates included in the accompanying financial
statements relate to the liability associated with the unredeemed Apache
Spirit Club points and the estimated lives of depreciable assets and
pension cost. Actual results could differ from those estimates.
6
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CASH AND CASH EQUIVALENTS
Cash includes cash on hand for change drawers and in the vault for daily
casino activities and cash on deposit with financial institutions in demand
accounts, savings accounts and short-term certificates of deposit. For
purposes of the statement of cash flows all cash accounts that are not
subject to withdrawal restrictions or penalties and all highly liquid debt
instruments purchased with an original maturity of three months or less are
considered to be cash equivalents.
RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash and cash equivalents includes cash on deposit with
financial institutions in demand accounts, savings accounts and short-term
certificates of deposit that are subject to withdrawal restrictions (see
Note 3).
ACCOUNTS RECEIVABLE
Accounts receivable consists primarily of hotel and other non-gaming
receivables. The Resort maintains an allowance for doubtful accounts which
is based on management's estimate of the amount expected to be
uncollectible considering historical experience and the information
management obtains regarding the creditworthiness of the non-gaming
customer. The collectibility of these receivables could be affected by
future business or economic trends.
INVENTORIES
Inventories consist of food and beverage items, livestock and stables,
fuel, retail merchandise in the golf and pro shop, ski shop, gift shops and
other miscellaneous items, parts and supplies. All inventories are stated
at the lower of cost or market. Casino and Ski Apache inventories are
determined using the first-in, first-out method. The Inn's inventories are
determined using the average cost method.
DEFERRED FINANCING COSTS
Debt issuance costs incurred in connection with the issuance of the Project
financing are capitalized and amortized to interest expense using the
straight-line method over the stated maturity of the debt, which
approximates the effective interest method. Unamortized deferred financing
costs totaled $11,029,493 as of April 30, 2004 and $10,555,587 as of July
31, 2004.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are presented at historical cost, less
accumulated depreciation and amortization. Expenditures for additions,
improvements and replacements, including interest incurred during
construction of new facilities, are capitalized while maintenance and
repairs, which do not improve or extend the service lives of the respective
assets, are expensed as incurred. Interest incurred during the construction
period is capitalized at the borrowing rate for the related loan and is
amortized over the life of the related asset. Equipment sold, or otherwise
disposed of, is removed from the accounts with gains or losses on disposal
recorded in the statements of income.
Depreciation and amortization is provided over the estimated service lives
of the respective assets, using the straight-line method based on the
following useful lives:
Non-gaming equipment, furniture and other 3 - 15 years
Gaming equipment 5 - 7 years
Leasehold and land improvements, lake and golf course 5 - 30 years
Buildings, lifts and snowmaking equipment 10 - 50 years
7
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
IMPAIRMENT OF LONG LIVED ASSETS
Management reviews long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of such assets may
not be recoverable. In August 2001, the Financial Accounting Standards
Board issued during the year ended April 30, 2003, the Inn demolished a
substantial portion of the existing hotel building and began construction
of a new resort hotel and casino facility. Under the provisions of
Statement of Accounting Standards No. 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS ("SFAS 144"), a long-lived asset to be
abandoned is disposed of when it ceases to be used. If an entity commits to
a plan to abandon a long-lived asset before the end of its previously
estimated useful life, depreciation estimates shall be revised to reflect
the use of the asset over its shortened useful life.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, restricted cash, accounts
receivable, accounts payable and accrued expenses, bank financing
facilities and capital lease obligations approximate fair value. The IMG
Resort and Casino's senior notes fair value at April 30, 2004 was
approximately $216.0 million and $222.0 million at July 31, 2004, based
on quoted market prices.
CONTRIBUTED CAPITAL
Contributed capital represents contributions from the Tribe and consists of
(i) cash to fund certain construction and development of the Resort
Project, (ii) forgiveness of debt from the Inn to the Tribe and (iii)
allocated pension costs related to the Mescalero Apache Tribe Defined
Benefit Plan (see Note 8).
REVENUES
In accordance with gaming industry practice, the Casino recognizes casino
revenue as the net win from gaming activities, which is the difference
between gaming wins and losses. Gaming revenues are net of accruals for
anticipated payouts of progressive slot jackpots and table games. Such
anticipated jackpot payments are reflected as current liabilities in the
accompanying consolidated balance sheets.
Revenues from food and beverage, rooms, recreation and other are recognized
at the time the related service or sale is completed. Revenues include the
retail value of food and beverages and other items which are provided to
customers on a reward basis.
PROMOTIONAL ALLOWANCES
The Casino periodically rewards rooms and other promotions, including
Apache Spirit Club points and gift certificates, to their customers. The
retail value of these promotional allowances are recognized by the Casino
as a reduction from gross revenue. The total promotional allowances
recognized by the Casino were approximately $254,000 and $262,000 for the
quarters ended July 31, 2003 and 2004, respectively.
The Casino Apache Spirit Club program allows customers to earn "points"
based on the volume of their gaming activity. These points are redeemable
for certain complimentary services or merchandise. Points are accrued based
upon their historical redemption rate multiplied by the cash value or the
cost of providing the applicable complimentary services. The related
liability is included in accrued expenses and totaled approximately
$380,000 at April 30, 2004 and $260,000 at July 31, 2004.
8
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Emerging Issues Task Force ("EITF") Issue No. 00-14, ACCOUNTING FOR CERTAIN
SALES INCENTIVES requires that discounts which result in a reduction in or
refund of the selling price of a product or service in a single exchange
transaction be recorded as a reduction of revenues. The Resorts adopted
EITF 00-14 on April 30, 2001. The Casino's accounting policy related to
free or discounted food and beverage and other services already complies
with EITF 00-14, and those free or discounted services are generally
deducted from gross revenues as "promotional allowances."
In January 2001, the EITF reached a consensus on certain issues related to
Issue No. 00-22, ACCOUNTING FOR "POINTS" AND CERTAIN OTHER TIME-BASED OR
VOLUME-BASED SALES INCENTIVE OFFERS, AND OFFERS FOR PREPRODUCTS, OR
SERVICES TO BE DELIVERED IN THE FUTURE. On October 1, 2001, the Resorts
adopted EITF 00-22, which requires that cash or equivalent amounts provided
or returned to customers as part of a transaction not be shown as an
expense, but instead as an offset to the related revenue. The Resorts offer
cash equivalent rewards in certain circumstances and has reflected
approximately $254,000 and $262,000 for the quarters ended July 31, 2003
and 2004, respectively, in the promotional allowance as an offset to gaming
revenues for these incentives.
The estimated cost of providing such complimentary allowances, as they
relate to the Resorts, was included in gaming expenses as follows:
Quarter Ended July 31,
2004 2003
---------- ---------
Food and beverage $ 12,480 $ 92,078
Other - 27,902
---------- ---------
$ 12,480 $ 119,980
============ ==========
COMPENSATED ABSENCES
Compensated absences are included in accrued expenses. The personnel
policies allow the workforce to accrue annual leave as follows:
o One week of annual leave after one year of employment.
o Two weeks of annual leave after two years of employment.
o Three weeks of annual leave after three years of employment.
o Four weeks of annual leave after fifteen years of employment.
Except for personnel at Ski Apache, annual leave may be accumulated by all
personnel up to a maximum of 120 hours or 160 hours for fifteen-year
employees. Any annual leave accrued above these limits is forfeited. Due to
the seasonality of the Ski Apache's business, Ski Apache's policy requires
all accrued annual leave to be taken by the end of the Tribe's fiscal
year-end, or it is forfeited. Personnel may be compensated for accrued
annual leave only upon termination.
Sick leave is accrued at 2.1 hours per pay period after 90 days of
employment and 3.1 hours after three years of employment. Personnel are not
compensated for accrued sick leave on termination. Accordingly, the
compensated absence accrual does not include a provision for sick leave.
PRE-OPENING COSTS AND EXPENSES
Pre-opening costs and expenses consist principally of direct incremental
personnel costs, training costs and payroll costs for retaining the
employees of the Inn during the construction period of the Resort. In
accordance with the American Institute of Certified Public Accountants'
Statement of Position 98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES,
pre-opening costs and expenses are expensed as incurred.
9
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
ADVERTISING COSTS
The IMG Resort and Casino's advertising costs are expensed as incurred and
are included as general and administrative expenses in the accompanying
consolidated statements of income. Advertising costs for the quarters ended
July 31, 2003 and 2004 were approximately $376,000 and $434,000,
respectively.
TRIBAL TAXES
The Resorts are subject to tribal taxes as long as the enterprises are not
subject to New Mexico Gross Receipts Tax. Ski Apache is subject to New
Mexico Gross Receipts Tax. A tribal tax charge of 10.75% of room revenue,
6.75% of food and beverage revenue, and 6.5% of other revenue is accrued
monthly and is payable to the Tribe. The Tribe uses these funds to
reimburse the Inn for advertising costs. The Resorts have recorded
approximately and $200,000 for taxes payable to the Tribe as of April 30,
2004 and July 31, 2004, respectively. The amounts are recorded as an
accrued expense in the accompanying consolidated balance sheets.
INCOME TAXES
As an unincorporated enterprise of the Tribe, the IMG Resort and Casino and
the Resorts are exempt from federal and state income taxes.
NEW ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145, "RESCISSION OF FASB STATEMENTS
4, 44 AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL
CORRECTIONS" ("SFAS 145"). The key provision of SFAS 145, which may affect
IMG Resort and Casino and the Resorts, rescinds the existing rule that all
gains or losses from the extinguishments of debt should be classified as
extraordinary items. Instead, such gains and losses must be analyzed to
determine if they meet the criteria for extraordinary item classification
based on the event being both unusual and infrequent. Prior period gains
and losses must be analyzed to determine if they meet the criteria to be
classified as extraordinary items. If they fail the criteria, prior period
gains and losses must be reclassified. IMG Resort and Casino and the
Resorts adopted SFAS 145 on May 1, 2003 and they did not have a material
impact on the consolidated financial position, results of operations or
cash flows.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES,
INCLUDING INDIRECT GUARANTEES AND INDEBTEDNESS OF OTHERS." FIN 45
elaborates on the disclosures to be made by the guarantor in its interim
and annual financial statements about its obligations under certain
guarantees that it has issued. It also requires that a guarantor recognize,
at the inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial recognition and
measurement provisions of this interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002;
while the provisions of the disclosure requirements are effective for
financial statements of interim or annual reports ending after December 15,
2002. At July 31, 2004, the IMG Resort and Casino had no indirect
guarantees outstanding. The IMG Resort and Casino has adopted FIN 45, which
has no material effect on the consolidated financial statements.
NOTE 2 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Resorts maintain an allowance for doubtful accounts for estimated
losses resulting from the inability of customers to make required payments,
which results in bad debt expense. The Resorts determine the adequacy of
this allowance by periodically evaluating individual non-gaming customer
receivables and considering the Resorts' non-gaming customers financial
condition, credit history and current economic conditions. If the financial
condition of non-gaming customers were to deteriorate, resulting in an
impairment of their ability to make payments, the Resorts may increase the
allowance.
10
The allowance for doubtful accounts and bad debt expense is as follows at
July 31:
2004 2003
----------- -----------
Allowance, beginning of year $ 3,448 $ 3,448
Bad debt expense - -
Write-offs - -
----------- -----------
Allowance, end of period $ 3,448 $ 3,448
=========== ===========
NOTE 3 - RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash consists of the Compulsive Gambler Fund and various funds
held for the construction project. The balances were $133,297,243 for the
fiscal year ended April 30, 2004 and $533,514 for the quarter ended July
31, 2004.
NOTE 4 - INVENTORIES
Inventories consist of the following at:
April 30, July 31,
2004 2004
----------- -----------
Food and beverage $ 219,628 $ 560,087
Golf and pro shop 132,936 438,493
Gift shops, fuel and other 616,021 400,933
----------- -----------
Total inventories $ 968,585 $1,399,513
============ ============
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment is summarized as follows at:
April 30, July 31,
2003 2004
----------- -----------
Land $ 538,894 $ 538,894
Buildings, lifts and snowmaking equipment 39,287,564 39,287,564
Non-gaming equipment, furniture and other 25,498,837 25,906,164
Gaming equipment 11,370,236 11,389,174
Leasehold and land improvements, lake and
golf course 6,480,058 6,480,058
----------- ------------
Subtotal 83,175,589 83,601,854
Less accumulated depreciation and amortization (46,281,098) (47,716,716)
Property, plant and equipment, net 36,894,491 35,885,138
Construction in progress 113,435,012 136,033,172
------------- ------------
$150,329,503 $171,918,310
The IMG Resort and Casino capitalized $7,892,314 and $3,475,712 of interest
cost related to construction of the Travel Center and Resort Project during
the fiscal year ended April 30, 2004 and the quarter ended July 31, 2004,
respectively.
NOTE 6 - LONG-TERM DEBT
On November 3, 2003, IMG Resort and Casino issued $200.0 million of its 12%
Senior Notes (the "Notes"). IMG Resort and Casino used proceeds of these
notes to pay a $19.0 million revolving credit agreement with Citicorp North
America, Inc. and to pay the costs of the offering, and is using the
remaining proceeds to pay, in part, construction costs of the Resort
Project. The Notes bear interest at 12% per year, payable on May 15 and
November 15 of each year, beginning on May 15, 2004. The Notes will mature
on November 15, 2010. The Notes may be redeemed at any time on or after
November 15, 2007 at fixed redemption prices plus accrued and unpaid
interest, if any. If a change in control occurs,
11
NOTE 6 - LONG-TERM DEBT (CONTINUED)
holders of the notes will have the right to require the repurchase of their
Notes at a price equal at 101% of the principal amount thereof, plus
accrued and unpaid interest, if any. The Notes are guaranteed by the
Resorts.
Until completion of the Resort Project, the Notes and guarantees are
secured by a first priority security interest in certain collateral
accounts and bank accounts of IMG Resort and the guarantors, which had an
aggregate balance of approximately $103.8 million at July 31, 2004. The
Notes will, after completion of the Resort Project, be the general
unsecured obligations of IMG Resort and Casino and will rank equal in
rights of payment to all of its existing future and senior unsecured
obligations and senior in right of payment to any obligations that are by
their terms subordinated to the Notes and are effectively subordinated to
its secured obligations to the extent of the assets securing those
obligations.
The indenture governing the Notes contains covenants that limit, among
other things, IMG Resort and Casino and the guarantors' ability to pay
dividends and make distributions to the Tribe; make investments; incur
additional debt or types of debt; create liens; sell equity interests in
subsidiaries; enter into transactions with affiliates; enter into sale and
leaseback transactions; engage in other businesses; transfer or sell
assets; and merge or consolidate with or into other entities.
On June 15, 2004, we entered into a $15.0 million credit facility with Key
Equipment Finance, a Division of Key Corporate Capital Inc., one of the
nation's largest financial services firms. The fixed rate loan is fully
amortizable over five years and bears an interest rate indexed off the
3-year Treasury Interest Rate Swaps. Proceeds from the loan will be used to
fund furniture, fixtures and equipment for the Project.
Long-term debt is summarized as of:
April 30, July 31,
2004 2004
----------- ------------
Senior Notes, bearing interest at a fixed rate
of 12%, maturing in 2010 $200,000,000 $200,000,000
Bureau of Indian Affairs, unsecured notes payable
with payments of $27,100 per month, including
interest at 8.5%, maturing in 2011. $ 1,744,651 $ 1,771,785
Citicorp North America Inc., revolving
credit agreement of $50 million, bearing
interest at the 12 month LIBOR (2.42% as
of April 30, 2003) plus 1%, maturing on
December 31, 2003. - -
Various notes payable with payments ranging from
$3,603 to $21,900 per month, plus accrued interest
ranging from 4.25% to 10%, maturing between 2001 and 2004. 201,943 123,393
----------- ------------
201,946,594 201,895,178
Less current portion (252,053) (252,053)
------------ -------------
Long-term portion $201,644,541 $201,643,125
============ =============
The maturities of long-term debt as of July 31, 2004 are as follows:
Quarter Ending July 31:
2005 $ 252,053
2006 268,396
2007 231,519
2008 273,478
2009 275,462
Thereafter 200,865,271
-----------
$201,895,178
============
12
Total interest costs were $13,144,001 and $6,035,191 for the fiscal year
ended April 30, 2004 and the quarter ended July 31, 2004, respectively, of
which $7,892,314 and $3,475,712 was capitalized as of April 30, 2004 and
July 31, 2004, respectively.
NOTE 7 - GAMING REVENUE SHARING AND REGULATORY FEES
The Tribe regulates the Resort's gaming activities through the Mescalero
Apache Tribe Gaming Regulatory Commission, an agency of the Tribe (the
"Commission"). The Commission reports directly to the Tribal Council. A
regulatory fee is paid to the Tribe as reimbursement for the cost of
regulating the gaming activities. The Casino also pays a federal regulatory
fee. All tribal and federal regulatory fees have been paid when due.
On August 29, 1997, the Tribe and the State of New Mexico (the "State")
entered into a Tribal-State Compact (the "Compact") to govern gaming on the
Mescalero Apache Reservation. The terms of the Compact subject the Casino
to various regulatory fees and revenues sharing payable to the State. Among
the provisions of the Compact are requirements for quarterly revenues
sharing payments consisting of 16% of the net win from video gaming and
quarterly regulatory fees assessed on the number of gaming facilities, the
number of gaming machines and the number of gaming tables and other
devices. The Tribe challenged the legality of these fee arrangements,
claiming them to be an illegal tax on Indian gaming under the Indian Gaming
Regulatory Act. On April 20, 2004, the Tribe and the State of New Mexico
entered into a settlement agreement which resolved all of their disputes
regarding the 1997 Compact. Under the settlement agreement, the State of
New Mexico and the Tribe agreed that they would enter into a new gaming
compact, the 2001 Compact, and that the Tribe would pay the State of New
Mexico $25.0 million in full settlement of all revenue sharing and
regulatory fees payable under the 1997 Compact as well as all revenue
sharing fees payable under the 2001 Compact through March 2005. On April
20, 2004, the Resorts paid an initial payment of $2.0 million pursuant to
the terms of the settlement agreement.
The 2001 Compact provides for a revenue sharing amount equal to 8% of "net
win" from gaming machines, payable no later than 25 days after the last day
of each calendar quarter and an annual regulatory fee of $100,000, paid in
quarterly installments of $25,000 on the first day of each calendar
quarter. Pursuant to the terms of the settlement agreement, the IMG Resort
and Casino will begin incurring revenue sharing payments to the State of
New Mexico at the rate of 8% of "net win" pursuant to the 2001 Compact in
March 2005, with the first revenue sharing payment under the 2001 Compact
due in July 2005. In addition, pursuant to the terms of the settlement
agreement, we will begin incurring regulatory fees, at the rate of $100,000
per year, from July 22, 2004, the date the approval of the 2001 Compact was
published in the Federal Register. The IMG Resort and Casino's first
payment for regulatory fees under the 2001 Compact was paid on September 1,
2004, the first day of the first full calendar quarter after publication of
approval of the 2001 Compact in the Federal Register. On June 1, 2004, the
Tribe and the State of New Mexico entered into the 2001 Compact. On July
22, 2004, the Department of Interior approved the 2001 Compact. On August
10, 2004, the IMG Resort and Casino made the remaining $23.0 million
payment required under the settlement agreement. As a result of the
settlement with the State, expense and the liability for accrued revenue
sharing and regulatory fees has been reduced by $1.5 million for the
quarter ended July 31, 2004.
13
NOTE 8 - DEFINED BENEFIT PENSION PLAN
IMG Resort and Casino and the Resorts participate in the Mescalero Apache
Tribe Defined Benefit Plan (the "Plan"), a single-employer defined benefit
pension plan that covers substantially all full-time employees of the
Tribe. Individuals who provide services to IMG Resort and Casino and the
Resorts are employees of the Tribe and participate in the Plan. The Tribe
is the Plan sponsor and handles all administration and funding of the Plan.
The Tribe reserves the right to amend any or all provisions of the Plan.
Changes to Plan provisions and contribution requirements must be approved
by the Tribal Council. The Plan provides retirement, disability and death
benefits to plan members and beneficiaries.
The Tribe, upon advice from legal counsel, has determined that the Plan is
a "governmental plan" as described in Section 414(d) of the Internal
Revenue Code ("IRC"). As such, the Plan is exempt from many of the
requirements placed on qualified plans, including (but not limited to) the
reporting and disclosure requirements of ERISA, coverage under the Pension
Benefit Guaranty Corporation ("PBGC") and the minimum and maximum funding
requirements of IRC Sections 412 and 404.
No separately prepared financial statements of the plan are available.
EFFECTIVE DATE AND PLAN YEAR
The Plan was established effective January 1, 1976, with the latest plan
restatement effective January 1, 1998. The Plan year end is December 31,
while IMG Resort and Casino and the Resort's fiscal year ends April 30 and
the Tribe's fiscal year ends September 30.
ELIGIBILITY
Each employee is eligible to become a participant in the plan on January
1st or July 1st immediately following completion of one year of service in
which the employee completes at least 1,000 hours of service.
SERVICE
Service credited for benefit and vesting purposes is defined as the number
of the plan years in which the employee completes at least 1,000 hours of
service, subject to certain break in service rules. Service prior to the
1976 plan year shall be based on continuous service, with a full year
credited for each year in which the participant was employed for at least
one hour.
COMPENSATION
Compensation for a plan purposes is defined as W-2 compensation paid to an
employee by the employer. A participant's annual compensation for plan
purposes is limited consistent with Internal Revenue Code Section
401(a)(17).
NORMAL RETIREMENT
CONDITION
The normal retirement date is the January 1 coincident with or next
following the participant's 65th birthday.
BENEFIT
The normal retirement benefit, 1/12th of which is payable monthly for the
life of the participant, is equal to the sum of the following:
14
NOTE 8 - DEFINED BENEFIT PENSION PLAN (CONTINUED)
o 1.20% of average earnings multiplied by the participant's years of
benefit service limited to 30 years, plus
o .65% of average earnings in excess of $9,996, multiplied by the
participant's years of benefit service not in excess of 30 years.
"Average earnings" is the average annual compensation of a participant for
the five consecutive plan years that produce the highest average.
ACCRUED BENEFIT
The accrued benefit is the monthly benefit with payments beginning at
normal retirement, which has been earned due to compensation and benefit
service as of any determination date. The accrued benefit is payable for
the life of the participant and is computed in the same manner as for
normal retirement, using the participant's average earnings and benefit
service as of the date of determination.
LATE RETIREMENT
CONDITION
A participant may choose to postpone their retirement beyond their normal
retirement date, in which event no benefit shall be payable until actual
retirement.
BENEFIT
The participant's benefit, commencing on the January 1 following the actual
date of retirement, shall be greater of the actuarial equivalent of the
benefit the participant would have received at their normal retirement
date, and the benefit computed using the participant's compensation and the
benefit service earned after the normal retirement date.
DISABILITY RETIREMENT
CONDITION
If a participant becomes totally and permanently disabled, as demonstrated
by the receipt of Social Security benefits, the employee will be entitled
to receive a disability retirement benefit.
BENEFIT
The participant shall receive the single sum actuarial equivalent value of
their accrued benefit determined as of the January 1 following the
participant's termination of employment due to disability.
DEATH BEFORE RETIREMENT
CONDITION
In the event of death of a participant after becoming eligible for a vested
benefit under the Plan, and while either (i) actively employed by the
employer, or (ii) on deferred vested status but prior to receiving any
retirement benefits, a death benefit shall be payable to the participant's
named beneficiary.
BENEFIT
The death benefit shall be the single sum actuarial equivalent of the
participants accrued benefit determined as of the participant's date of
death.
15
NOTE 8 - DEFINED BENEFIT PENSION PLAN (CONTINUED)
MINIMUM DEATH BENEFIT
A monthly benefit is payable on the first day of the calendar month
following the participant's date of death or the earliest date the
participant could have elected benefit payments to commence, whichever is
later, and continuing for the lifetime of the surviving spouse. The benefit
is determined as 50% of the benefit the participant would have received if
the participant had terminated employment the day before his death (or on
his actual date of termination if earlier), had lived to the benefit
commencement date, and elected an immediate joint and 50% to survivor
benefit. The value of any other death benefit provided under the Plan shall
be reduced by the value of this surviving spouse benefit.
TERMINATION OF EMPLOYMENT
CONDITION
If a participant terminates employment after completing 3 or more years of
vesting service, participant is entitled to a deferred vested benefit with
payment commencing on their normal retirement date.
BENEFIT
The amount of the benefit is calculated as the product of a vesting
percentage and the accrued benefit determined as of the participant's date
of termination. The vesting percentage is determined from the following
table:
Years of Vesting Vesting
Service Percentage
--------------------- -------------
Less than 3 0%
3 20
4 40
5 60
6 80
7 or more 100
If employment is otherwise terminated before retirement, no benefits are
provided under the Plan.
ACTUARIAL EQUIVALENCE
Actuarial equivalent values shall be computed based on the 1971 Individual
Annuitant Mortality Table, male rates offset 2 years, with a pre-retirement
interest rate of 5.5% and a post-retirement interest rate of 5%. For lump
sum amounts only, the PBGC interest rates in effect as of the first date of
the Plan year in which the calculation is made are used if a higher benefit
results. Notwithstanding the foregoing, if a lump sum amount is greater
than $25,000, the lump sum shall be determined using 120% of the PBGC rates
in effect as of the first day of the plan year in which the calculation is
made, but shall be no less than $25,000.
PLAN EXPENSES
All expenses of the Plan are paid by the Tribe. Allocated pension expenses
totaled $477,830 and $544,539, for the quarters ended July 31, 2003 and
2004, respectively. Until September 2003, such costs were not required to
be reimbursed to the Tribe and therefore have been accounted for as
contributed capital.
CONTRIBUTIONS TO THE PLAN
Upon retirement, the Tribe contributes actuarially determined amounts to
fund retirement benefits. No contributions by participating employees are
required.
16
NOTE 8 - DEFINED BENEFIT PENSION PLAN (CONTINUED)
FUNDING POLICY
The Plan provides that Guaranteed Retirement Annuity Contracts (guaranteed
interest contracts) are purchased to provide retirement benefits to
participants. Funding to purchase contracts is based upon actuarially
determined deposits made by the Tribe.
Although the Tribe has determined that it is not subject to Internal
Revenue Code Section ("IRC") 412 regarding funding, the annual funding
according to the latest actuarial valuation at January 1, 2000, was based
on this criteria. The contribution rate is based on a pay-as-you-go basis
and, therefore, there is no set contract contribution rate. No
contributions have been made by the Tribe, or billed to any of the
enterprises, for the quarters ended July 31, 2003 and 2004.
The Plan requires an actuarial valuation every three years. The latest full
actuarial valuation was performed as of January 1, 2000 and was updated
with current assumptions by the actuary as of January 1, 2001, 2002 and
2003. Census data from the January 1, 2000 actuarial valuation was used for
these projections. Liabilities were then projected to the end of each
disclosure year, taking into account additional liabilities for new
participants based on the liability for participants first considered in
the 2000 actuarial valuation.
The Tribe has the ability to request reimbursement for costs related to the
periodic pension cost from IMG Resort and Casino and the Resorts if it
should choose to do so; however, no such requests have been made. The Tribe
has also represented that a request for reimbursement of such costs would
not be made in the future related to prior years.
FUNDING STATUS AND PROGRESS
The amount shown below as the "pension benefit obligation" is a
standardized disclosure measure of the present value of pension benefits
adjusted for the effects of projected salary increases estimated to be
payable in the future as a result of employee service to date. The measure
is intended to help users assess the funding status of the Plan on a
going-concern basis, and to assess progress made in accumulating sufficient
assets to pay benefits when due. The measure is the actuarial present value
of credited projected benefits and is independent of the funding method
used to determine contributions to the Plan. The amounts may be
significantly different up on the next full actuarial valuation.
The Plan's funded status as of January 1 consist of:
2002 2003
------------- -------------
Actuarial present value of accumulated
plan benefits:
Vested $ 14,050,989 $ 18,318,552
Nonvested 1,394,597 2,069,634
------------- -------------
$ 15,445,586 $ 20,388,186
============= =============
2002 2003
------------- -------------
Accrued pension costs:
Projected benefit obligation $(20,852,106) $(26,893,541)
Plan assets at fair value 1,882,774 1,434,904
------------- -------------
Funded status (18,969,332) (25,458,637)
Unrecognized net loss 8,224,899 11,200,615
------------- -------------
Accrued pension cost $ (10,744,433)$(14,258,022)
============= =============
2002 2003
------------- -------------
The net pension expense consists of:
Service cost $ 1,563,881 $ 1,776,505
Interest cost 1,256,082 1,503,361
Expected return on plan assets (188,960) (141,334)
Amortization of net loss 297,271 375,057
------------- -------------
Periodic pension cost $ 2,928,274 $ 3,513,589
============= =============
Pension cost allocated to IMG Resort
and Casino $ 1,331,088 $ 1,631,829
============= =============
17
Under the terms of an agreement with the Tribe executed in 2003, the Resort
pays a fixed amount of 9.75% of salaries and wages as a fixed contribution
to the retirement plan. The total pension expense under this agreement for
quarter ended July 31, 2004 was $544,539.
Significant assumptions used in the January 1, 2002 and 2003 valuation are
as follows: the weighted average discount rates used in determining the
actuarial present value of accumulated plan benefits were 7.25%, 6.75%,
respectively; the rate of compensation increase used to measure the
projected benefit obligation was 3% for both years; the weighted average
expected long-term rate of return on plan assets was 8% for both years.
NOTE 9 - RISK MANAGEMENT
The IMG Resort and Casino manages the exposure to the risk of most losses
through various commercial insurance policies. There have been no
reductions in insurance coverage. Settlement amounts have not exceeded
insurance coverage for the quarters ended July 31, 2003 and 2004,
respectively.
The Tribe is self-insured for employee health and accident insurance. The
IMG Resort and Casino's employees are covered by this plan and remit
amounts to the Tribe for their share of the self-insurance costs. The total
amount reimbursed to the Tribe were approximately $163,000 and $140,000 for
the quarters ended July 31, 2003 and 2004, respectively.
The Tribe maintains worker's compensation insurance coverage under a
retrospective rated policy whereby premiums are accrued based on the loss
experience of the Tribe and its various enterprises. The IMG Resort and
Casino's and the Resorts' employees are covered under this plan. Under this
policy, premiums may be adjusted at the end of the coverage period based on
loss experience for the coverage period. Management of the Tribe, the IMG
Resort and Casino and the Resorts have not provided an estimate for losses
that may result in premium adjustments at the end of the coverage period.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
LEGAL MATTERS
The IMG Resort and Casino and the Resorts are involved in various legal
actions incident to their operations that, in the opinion of management,
will not materially affect the IMG Resort and Casino's financial position
or the results of its operations.
18
OCCUPANCY FEE
A special use permit was obtained from the United States Department of
Agriculture Forest Service for Ski Apache's use of 80 acres of land in
Lincoln National Forest. The permit is dated April 23, 1985, and has a term
of 30 years with a quarterly occupancy fee based on revenue and gross fixed
assets.
CONSTRUCTION AGREEMENT
In September 2003, the IMG Resort and Casino entered into a construction
agreement for the development of the Travel Center and the new Resort
Project. Estimated construction cost is approximately $135.0 million, and
as of July 31, 2004, the IMG Resort and Casino had outstanding construction
commitments of approximately $27.0 million.
NOTE 11 - RELATED-PARTY TRANSACTIONS
The Tribe operates other entities and enterprises in various industries,
including telecommunication, timber and forest products, gas and
convenience store; in addition, the Tribe has a housing authority, school
and nursing facility. Financial results of the Tribe and its other
enterprises and entities are not included in these consolidated financial
statements.
The IMG Resort and Casino uses Mescalero Apache Telecommunications for some
its telecommunications related services. The IMG Resort and Casino paid
Mescalero Apache Telecommunications approximately $38,000 and $55,000 for
the quarters ended July 31, 2003 and 2004, respectively, for such services.
In addition to the amounts due to the Casino from the Tribe in connection
with revenues sharing and regulatory fees (see Note 7), there were no
amounts due to the Tribe from the Resorts at July 31, 2003 and 2004.
NOTE 12 - OPERATING SEGMENTS
The IMG Resort and Casino has five operating segments. Gaming, Hotel, Ski,
Resort Management and Travel Center. The Gaming segment information includes
the activities of the Casino. The Hotel segment information includes the
activities of the Inn, hunting, golf, fishing and horseback riding. The Ski
Apache segment includes the activities of Ski Apache. Resort/Holding Company
Operations includes the activities of the IMG Resort and Casino and the
pre-opening activities of the Casino and the Inn. The Travel Center which
opened in May 2003 includes the pre-opening activities. These operating
segments represent distinct business activities, which are managed
separately.
JULY 31, 2003
Resort
Holding Travel
Gaming Hotel Ski Co. Center
Operations Operations Operations Operations Operations Eliminations Total
--------------------------------------------------------------------------------------------
Net revenue $10,250,441 $ 575,448 $ 1,130 $ - $ 6,997,614 $ - $ 17,824,633
Income from
operations 3,960,786 (489,172) (987,134) (2,591,365) 3,589,896 - 3,483,011
Segment assets 51,164,023 10,541,076 11,165,852 49,075,038 22,769,983 (25,870,048) 118,845,924
19
JULY 31, 2004
Resort
Holding Travel
Gaming Hotel Ski Co. Center
Operations Operations Operations Operations Operations Eliminations Total
--------------------------------------------------------------------------------------------
Net revenue $ 7,979,154 $ - $ - $ 1,608 14,146,735 - 22,127,497
Income (loss)
from operations 1,371,814 (10,168) (821,636) (1,901,386) 7,510,086 - 6,148,711
Segment assets 29,782,977 10,719,568 12,808,187 299,512,464 44,580,603 (86,496,637) 310,907,162
NOTE 13 - CONSOLIDATING INFORMATION
In connection with the IMG Resort and Casino's issuance in November 2003 of
$200,000,000 of 12% senior notes, the IMG Resort and Casino and the Resorts
(the "wholly-owned Guarantors") have, jointly and severally, fully and
unconditionally guaranteed the 12% senior notes. These guarantees are
secured only until the completion of the Resort Project and thereafter
unsecured and subordinated in right of payment to all existing and future
indebtedness outstanding and any other indebtedness permitted to be
incurred by IMG Resort and Casino under the terms of the indenture
agreement for the 12% senior subordinated notes.
Pursuant to Rule 3-10 of Regulation S-X, the following consolidating
information is for the IMG Resort and Casino and the wholly owned
Guarantors of the 12% senior notes. This consolidating financial
information has been prepared from the books and records maintained by the
IMG Resort and Casino and the wholly-owned Guarantors. The consolidating
financial information may not necessarily be indicative of results of
operations or financial position had the wholly owned Guarantors operated
as independent entities. The separate financial statements of the
wholly-owned Guarantors are not presented because management has determined
they would not be material to investors.
The Resorts are wholly owned subsidiaries of the IMG Resort and Casino. The
IMG Resort and Casino was established on April 2, 2003 for the purpose of
managing the Resorts. The following consolidating information is presented
as of and for the quarters ended July 31, 2003 and 2004.
20
CONSOLIDATING BALANCE SHEETS
AS OF JULY 31, 2004
Guarantor
IMGRC Subsidiaries Eliminations Consolidated
-------------- ------------ ------------ --------------
Cash and cash equivalents $ - $ 19,175,856 $ - $ 19,175,856
Restricted cash and cash equivalents 103,294,043 533,514 - 103,827,558
Accounts receivable 2,774 99,788 - 102,561
Inventories 5,056 1,394,456 - 1,399,513
Prepaid expenses 321,103 3,481,200 - 3,802,303
Deferred financing cost, net 1,625,244 24,684,814 - 1,625,244
Total current assets 105,248,220 24,684,814 - 129,933,035
--------------- ------------- -------------- -------------
Advances to Affiliates 14,259,370 36,809,050 (51,068,420) -
Net fixed assets 124,278,286 36,104,030 - 160,382,316
NON CURRENT ASSETS
Other Assets - 125,474 - 125,474
Capitalized interest 11,368,026 167,968 - 11,535,994
Deferred financing costs 8,930,343 - - 8,930,343
Investment in subsidiaries 35,428,218 - (35,428,218) -
Total Assets 299,512,463 97,891,336 (86,496,638) 310,907,162
-------------- ------------ ------------- --------------
Accounts Payable and other short term $ 1,148,131 $ 62,369 $ - $ 1,210,500
liabilities
Construction in progress accounts payable 10,754,473 - - 10,754,473
Accrued expenses
Accrued revenue sharing and regulatory fees 7,786,296 30,223,054 - 38,009,350
Current portion of long-term debt - 252,053 - 252,053
Total current liabilities 19,688,900 30,537,476 - 50,226,376
-------------- ------------ ------------- --------------
NON CURRENT LIABILITIES:
Advances from affiliates 20,785,902 30,282,518 (51,068,420) -
Notes payable 200,000,000 1,643,125 - 201,643,376
Long-term debt, net of current portion 220,785,902 31,925,643 (51,068,420) 201,643,125
Total liabilities 240,785,902 62,463,119 (51,068,420) 251,869,501
Contributed Capital 55,994,175 20,046,661 (20,046,661) 55,994,175
Current Year 3,529,681 8,057,078 (8,057,078) 3,529,681
Retained earnings (486,195) 7,324,479 (7,324,479) (486,194)
Total equity 59,037,661 35,428,218 (35,428,218) 59,037,661)
-------------- ------------ ------------ --------------
Total liabilities and equity $ 299,512,463 $97,891,337 $(86,496,638) $310,907,162
--------------- ------------- -------------- -------------
21
CONSOLIDATING STATEMENTS OF INCOME
QUARTER ENDED JULY 31, 2004
IMG Resort Guarantor
and Casino Subsidiaries Eliminations Consolidated
------------ ------------- ------------- -------------
Revenues:
Gaming $ - $ 17,645,786 $ - $ 17,645,786
Food and Beverage 1,608 1,411,487 - 1,413,095
Recreation and other - 3,330,898 - 3,330,898
------------ ------------- ------------- -------------
Gross Revenue 1,608 22,388,171 - 22,389,779
Less -Promotional Allowances - 262,282 - 262,282
------------ ------------- ------------- -------------
Net Revenue 1,608 22,125,889 - 22,127,497
Operating Expenses
Gaming 64,934 4,962,744 - 5,027,678
Hotel expenses - - - -
Food and beverage 85,257 1,602,749 - 1.688,006
Recreation and other 113 3,089,620 - 3,089,733
General and administrative 486,760 1,764,995 - 2,251,755
Health Insurance - Medical 23,944 115,711 - 139,656
Pension 155,686 388,853 - 544,539
Mescalero Apache 54,757 - - 54,757
Telecommunication
Tribal Regulatory Fees 24,952 659,049 - 684,001
Pre-opening costs and expenses 1,006,590 56,455 - 1,063,044
Depreciation and amortization - 1,435,617 - 1,435,617
------------ ------------- ------------- -------------
Total Operating Expenses 1,902,993 14,075,793 - 15,978,786
------------ ------------- ------------- -------------
Operating Income (1,901,385) 8,050,096 - 6,148,711
Other Income (Expense)
Interest Income 205,283 4,136 - 209,418
Interest Expense (2,930,599) - - (2,930,599)
Income from subsidiaries 8,057,078 - (8,057,078) -
Other income (expense) 99,304 2,847 - 102,151
------------ ------------- ------------- -------------
Total Other Income 5,431,066 6,983 (8,057,078) (2,619,030)
------------ ------------- ------------- -------------
Net Income $ 3,529,681 $ 8,057,078 $(8,057,078 $ 3,529,681
=========== ============= ============= =============
22
CONSOLIDATING STATEMENTS OF CASH FLOWS
QUARTER ENDED JULY 31, 2004
Guarantor
IMGRC Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------
Cash flows from operating activities:
Net income $ 3,529,681 $ 8,057,078 $(8,057,078) $ 3,529,681
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization - 1,435,617 - 1,435,617
Changes in assets and liabilities:
Restricted cash and cash equivalents - - - -
Accounts receivable, net of allowance (2,776) (67,220) - (69,996)
Inventories (187) (430,740) - (430,927)
Prepaid revenue sharing fees - 1,039,500 - 1,039,500
Prepaid expenses (265,298) 104,223 - 104,223
Other long term assets - (48,563) - (48,563)
Accounts payable 1,148,131 (550,505) - 597,626
Construction in progress accounts payable (2,854,894) - - (2,854,894)
Accrued expenses 1,608,990 1,979,993 - 3,588,983
Accrued revenue sharing and regulatory - - - -
fees
Accrued interest payable (6,800,000) (48,378) - (6,848,378)
Deposits and advance payments - 231,206 - 231,206
------------ ------------ ------------ ------------
Net cash provided by operating (3,636,352) 11,702,211 (8,057,078) 8,781
activities ------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (22,534,015) (490,410) - (23,024,425)
Investment in subsidiaries (8,057,078) - 8,057,078 -
------------ ------------ ------------ ------------
Net cash used by investing activities (30,591,093) (490,410) 8,057,078 (23,024,425)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Deferred financing costs 473,906 - - 473,906
Cash held for construction payments 29,469,685 - - 29,469,685
Advances from Mescalero Apache Tribe - - - -
Advances to (from) affiliates 5,509,854 (5,509,854) - -
Borrowings on revolving line-of-credit - - - -
Principal borrowings (payments) on - (51,415) - (51,415)
long-term debt, net
Distributions to Mescalero Apache Tribe (1,226,000) (2,269,617) - (3,495,617)
Contributions from Mescalero Apache Tribe - - - -
------------ ------------ ------------ ------------
Net cash used by (provided by) 34,227,445 (7,830,886) - 26,396,556
financing activities ------------ ------------ ------------ ------------
Net (decrease) increase in cash and cash - 3,380,913 3,380,913
equivalents
Cash and cash equivalents, beginning of year - 19,175,856 - 19,175,856
------------ ------------ ------------ ------------
Cash and cash equivalents, end of year $ - 27,232,934 $ - 27,232,934
============ ============ ============ ============
Supplemental cash flow information:
Cash paid for interest $12,800,000 $ 33,053 $ - $12,833,053
============ ============ ============ ============
23
CONSOLIDATING BALANCE SHEETS
AS OF APRIL 30, 2004
Guarantor
IMGRC Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------
Cash and cash equivalents - $ 15,794,943 $ - $ 15,794,943
Restricted cash and cash equivalents 132,763,729 533,514 - 133,297,243
Accounts receivable, net - 32,566 - 32,566
Inventories 4,869 963,716 - 968,585
Prepaid Revenue Sharing - 4,218,673 - 4,218,673
Prepaid other 55,805 406,249 - 462,054
Deferred financing cost, net 1,625,244 - - 1,625,244
------------ ----------- ----------- -------------
Total current assets 134,449,647 21,949,661 - 156,399,308
Advances to Affiliates 12,869,591 10,982,198 (23,851,790) -
Property, plant and equipment, net 113,112,297 37,217,206 - 150,329,503
Long-term deferred financing expenses 9,404,249 - - 9,404,249
Other long term assets - 76,912 - 76,912
Investment in subsidiaries 29,640,717 - (29,640,717) -
------------ ----------- ----------- -------------
Total Assets $299,476,501 $70,225,977 $(53,492,507) $316,209,972
============ =========== =========== =============
Accounts Payable and other short term
liabilities $ - 612,873 $ - 612,873
Construction in progress accounts payable 13,609,367 - - 13,609,367
Accrued expenses 977,306 4,342,424 2,331 5,322,061
Accrued revenue sharing and regulatory
fees - 23,000,000 - 23,000,000
Accrued interest 12,000,000 48,378 - 12,048,378
Deposits and advance payments - 667,100 - 667,100
Current portion of long-term debt - 252,053 - 252,053
------------ ----------- ----------- -------------
Total current liabilities 26,586,673 28,922,828 2,331 55,511,832
Advances from affiliates 13,886,229 9,967,892 (23,854,121) -
Long-term debt, net of current portion 200,000,000 1,694,541 - 201,694,541
------------ ----------- ----------- -------------
Total liabilities 240,472,902 40,585,258 (23,851,790) 257,206,371
Contributed Capital 56,113,676 20,166,161 (20,166,161) 56,113,676
Current Year Net income (Loss) 39,744,883 56,404,793 (56,404,793) 39,744,883
Retained equity (36,854,960) (46,930,237) 46,930,237 (36,854,960)
------------ ------------ ----------- ------------
Total equity 59,003,599 29,640,717 (29,640,717) 59,003,599
------------ ----------- ----------- -------------
Total liabilities and equity 299,476,501 70,225,975 (53,492,507) 316,209,970
============ =========== =========== =============
24
CONSOLIDATING STATEMENTS OF INCOME
(UNAUDITED)
QUARTER ENDED JULY 31, 2003
Guarantor
IMGRC Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------
Revenues:
Gaming $ - $ 15,600,450 $ - $15,600,450
Food and beverage - 1,237,095 - 1,237,095
Recreation and other - 1,241,563 - 1,241,563
------------- ------------ ------------ -------------
Gross revenues - 18,079,108 - 18,079,108
Less - promotional allowances 36,440 218,035 - 254,475
------------- ------------ ------------ -------------
Net revenue (36,440) 17,861,073 - 17,824,633
------------- ------------ ------------ -------------
Operating costs and expenses:
Gaming - 5,410,910 - 5,410,910
Hotel expenses - 116,961 - 116,961
Food and beverage 192,310 1,812,763 - 2,005,073
Recreation and other 471,800 1,112,497 - 1,584,297
General and administrative 1,148,506 914,572 - 2,063,078
Health insurance - Medical 24,355 138,479 - 162,834
Pension 100,434 377,402 - 477,836
Mescalero Apache Telecommunication - 37,551 - 37,551
Tribal Regulatory Fees 55 352,078 - 352,133
Pre-opening costs and expenses 456,729 646,256 - 1,102,985
Depreciation and amortization - 1,027,964 - 1,027,964
------------- ------------ ------------ -------------
Total operating expenses 2,394,189 11,947,433 - 14,341,622
------------- ------------ ------------ -------------
Income from operations (2,430,629) 5,913,640 - 3,483,011
------------- ------------ ------------ -------------
Other income:
Interest income - 13,489 - 13,489
Interest expense - - - -
Income from subsidiaries 5,997,214 - (5,997,214) -
Other income (expense) - 70,085 - 70,085
------------- ------------ ------------ -------------
Total other income 5,997,214 83,574 (5,997,214) 83,574
------------- ------------ ------------ -------------
Net Income $ 3,566,585 $ 5,997,214 $(5,997,214) $3,566,585
============= ============ =========== =============
25
CONSOLIDATING STATEMENTS OF CASH FLOWS
(UNAUDITED)
QUARTER ENDED JULY 31, 2003
Guarantor
IMGRC Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------
Cash flows from operating activities:
Net income $3,566,585 $ 5,997,214 $(5,997,214) $ 3,566,585
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization - 1,032,091 - 1,032,091
Changes in assets and liabilities:
Restricted cash and cash equivalents (11,271) (17,710) - (28,981)
Accounts receivable, net of allowance (10,305) (104,450) - (114,755)
Inventories 111 (443,853) - (443,742)
Prepaid revenue sharing - - - -
Prepaid expenses 25,360 (139,346) - (113,986)
Interest receivable - - - -
Other long-term assets - - - -
Accounts payable - 955,065 - 955,065
Construction in progress accounts payable 3,692,519 - - 3,692,519
Accrued expenses (43,790) 330,245 - 286,455
Accrued revenue sharing and regulatory - 2,658,768 - 2,658,768
fees
Accrued interest payable - - - -
Deposits and advance payments - 36,156 - 36,156
------------ ------------ ------------ ------------
Net cash provided by operating 7,219,209 10,304,180 (5,997,214) 11,526,175
activities
============ ============ ============ ============
Cash flows from investing activities:
Purchase of property, plant and equipment (1,494,675) (20,107,191) - (21,601,866)
Investment in subsidiaries (5,997,214) - 5,997,214 -
------------ ------------ ------------ ------------
Net cash used by investing activities (7,491,889) 20,107,191) 5,997,214 (21,601,866)
============ ============ ============ ============
Cash flows from financing activities:
Advances to (from) affiliates 14,081,016 (14,081,016) - -
Advances from Mescalero Apache Tribe - (1,886,240) - (1,886,240)
Borrowings on revolving line of credit 14,000,000 - - 14,000,000
Principal borrowings (payments) on 353,696 242,042 - 595,738
long-term debt, net
Distributions to Mescalero Apache Tribe - (4,537,460) - (4,537,460)
Contributions from Mescalero Apache Tribe - 997,165 - 997,165
------------ ------------ ------------ ------------
Net cash used by financing activities 28,434,712 (19,265,509) - 9,169,203
============ ============ ============ ============
Net (decrease) increase in cash and cash 28,162,032 (29,068,520) - (906,488)
equivalents
Cash and cash equivalents, beginning of year - 9,331,922 - 9,331,922
------------ ------------ ------------ ------------
Cash and cash equivalents, end of year 28,162,032 (19,736,598) - 8,425,434
============ ============ ============ ============
Supplemental cash flow information:
Cash paid for interest - 106,959 - 106,959
============ ============ ============ ============
26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
REFERENCES IN THIS QUARTERLY REPORT ON FORM 10-Q (THIS "FORM 10-Q" OR THIS
"REPORT") TO (A) THE "TRIBE" REFERS TO THE MESCALERO APACHE TRIBE, A FEDERALLY
RECOGNIZED INDIAN TRIBE, (B) "IMG RESORT AND CASINO" REFERS TO INN OF THE
MOUNTAIN GODS RESORT AND CASINO, A BUSINESS ENTERPRISE OF THE TRIBE, (C) "CASINO
APACHE" REFERS TO CASINO APACHE, A BUSINESS ENTERPRISE OF THE TRIBE, (D) THE
"INN" REFERS TO INN OF THE MOUNTAIN GODS, A BUSINESS ENTERPRISE OF THE TRIBE,
(E) THE "TRAVEL CENTER" REFERS TO CASINO APACHE TRAVEL CENTER, A BUSINESS
ENTERPRISE OF THE TRIBE AND (F) "SKI APACHE" REFERS TO SKI APACHE, A BUSINESS
ENTERPRISE OF THE TRIBE. EACH OF CASINO APACHE, THE INN, THE TRAVEL CENTER AND
SKI APACHE IS A WHOLLY-OWNED SUBSIDIARY OF IMG RESORT AND CASINO." REFERENCES IN
THIS FORM 10-K TO "WE," "OUR," "OUR" AND "US" REFER TO IMG RESORT AND CASINO.
FORWARD-LOOKING STATEMENTS
THIS FORM 10-Q INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE FEDERAL SECURITIES LAWS. STATEMENTS REGARDING OUR EXPECTED FINANCIAL
CONDITION, RESULTS OF OPERATIONS, BUSINESS, STRATEGIES AND FINANCING PLANS UNDER
THE HEADING "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS FORM 10-Q ARE FORWARD-LOOKING
STATEMENTS. IN ADDITION, IN THOSE AND OTHER PORTIONS OF THIS FORM 10-Q, THE
WORDS "ANTICIPATE," "EXPECT," "PLAN," "INTEND," "WILL," "DESIGNED," "ESTIMATE,"
"ADJUST" AND SIMILAR EXPRESSIONS, AS THEY RELATE TO US OR OUR MANAGEMENT,
INDICATE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS MAY PROVE
TO BE INCORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS DISCLOSED IN THIS FORM 10-Q
INCLUDE, WITHOUT LIMITATION, RISKS RELATING TO THE FOLLOWING: (A) OUR LEVELS OF
LEVERAGE AND ABILITY TO MEET OUR DEBT SERVICE OBLIGATIONS; (B) OUR FINANCIAL
PERFORMANCE; (C) CONTINGENCIES ASSOCIATED WITH THE CONSTRUCTION OF OUR TWO-PHASE
CONSTRUCTION PROJECT, WHICH WE REFER TO AS THE PROJECT, AND DISRUPTIONS CAUSED
THEREBY; (D) RESTRICTIVE COVENANTS IN OUR DEBT INSTRUMENTS; (E) REALIZING THE
BENEFITS OF OUR BUSINESS PLAN AND BUSINESS STRATEGIES; (F) CHANGES IN GAMING
LAWS OR REGULATIONS, INCLUDING POTENTIAL LEGALIZATION OF GAMING IN CERTAIN
JURISDICTIONS; (G) THE IMPACT OF COMPETITION IN OUR MARKETS; (H) OUR ABILITY TO
ATTRACT INCREASING NUMBERS OF CUSTOMERS ONCE THE PROJECT IS COMPLETE; AND (I)
GENERAL LOCAL, DOMESTIC AND GLOBAL ECONOMIC CONDITIONS.
YOU ARE URGED TO CONSIDER THESE FACTORS CAREFULLY IN EVALUATING THE
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FORM 10-Q. ALL SUBSEQUENT WRITTEN
AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR PERSONS ACTING ON OUR
BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY OUR CAUTIONARY STATEMENTS.
THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-Q ARE MADE ONLY AS OF
THE DATE OF THIS FORM 10-Q. WE DO NOT INTEND, AND UNDERTAKE NO OBLIGATION, TO
UPDATE THESE FORWARD-LOOKING STATEMENTS.
OVERVIEW
IMG Resort and Casino is an unincorporated enterprise of the Tribe. The
Tribe formed IMG Resort and Casino to operate its resort enterprises, comprised
of Casino Apache, Casino Apache Travel Center, Ski Apache and Inn of the
Mountain Gods, each of which is an unincorporated Tribal enterprise wholly-owned
by IMG Resort and Casino. The combined activities of these enterprises comprise
the operations of IMG Resort and Casino. Our four primary areas of operation
are:
GAMING. Our gaming activities are authorized by IGRA, our gaming compact
with the State of New Mexico and a Tribal gaming ordinance. As of July 31, 2004,
we had 39,600-square feet of combined gaming space featuring 1,180 slot machines
and 38 table games between our facilities at Casino Apache, opened in 1992, and
the Travel Center, opened in May 2003.
FOOD AND BEVERAGE. Our current food and beverage operations consist
primarily of casual dining fare, including: a 100-seat casual restaurant
adjacent to Casino Apache; a 100-seat buffet-style restaurant in Casino Apache;
a 135-seat casual dining restaurant in the Travel Center; two video poker bars
in the Travel Center; and two bars in Casino Apache. Until we demolished the Inn
in January 2003, we also operated a 250-seat fine dining restaurant located in
the Inn.
ROOMS. Until we demolished the Inn in January 2003, our room operations
included 252 rooms at the Inn. During the construction period, we have continued
to maintain a minimal operations staff to service our "Tower" building that is
primarily used for office space.
RECREATION AND OTHER. Our all-season recreational operations include a
750-acre, 55-trail ski resort, the second largest in New Mexico, an 18-hole
championship golf course, seasonal big-game hunts, a shooting range, horseback
27
riding, boating and fishing. Our ski resort is typically open from Thanksgiving
until Easter, while our golf course generally operates from March through
October. Our retail outlets include a gift shop, golf and pro shop, ski shop, a
2,500-square foot convenience store, an 800-square foot smoke shop, a
Conoco-branded fuel station with 12 gasoline and eight diesel pumping stations
and laundry and shower facilities.
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 at the date of the financial statements and revenues and expenses
during the period. Significant accounting policies employed by us, including the
use of estimates and assumptions, are presented in the notes to our consolidated
financial statements included elsewhere in this Form 10-Q. Management bases its
estimates on its historical experience, together with other relevant factors, in
order to form the basis for making judgments that 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. We believe that estimates related to the following areas involve a
high degree of judgment and/or complexity: the liability associated with
unredeemed Apache Spirit Club points, the estimated lives of depreciable assets
and pension costs. Actual results could differ from those estimates.
REVENUE RECOGNITION. In accordance with gaming industry practice, we
recognize gaming revenues as the net win from gaming activities, which is the
difference between gaming wins and losses. Gaming revenues are net of accruals
for anticipated payouts of progressive slot jackpots and table games. These
anticipated jackpot payments are reflected as current liabilities on our balance
sheets. Net slot win represents all amounts played in the slot machines reduced
by both (1) the winnings paid out and (2) all amounts we deposit into slot
machines to ensure there are a sufficient number of coins to pay out the
winnings. Table games net win represents the difference between table game wins
and losses. The table games historical win percentage is reasonably predictable
over time, but may vary considerably during shorter periods. Revenues from food,
beverage, rooms, recreation, retail and other are recognized at the time the
related service or sale is completed. Player reward redemptions for food and
beverage, hotel rooms and other items are included in gross revenue at full
retail value.
PROMOTIONAL ALLOWANCES. We reward our customers with "points" based on the
volume of their gaming activity through our customer loyalty program, the Apache
Spirit Club. These points are redeemable for player reward services or
merchandise. Points are accrued and reflected as current liabilities on our
consolidated balance sheets. We determine the adequacy of these accruals by
periodically evaluating the historical experience and projected trends related
to these accruals. If such information indicates that the accruals are
overstated or understated, we will adjust the assumptions utilized in the
methodologies and reduce or provide for additional accruals as appropriate.
CLASSIFICATION OF DEPARTMENTAL COSTS. Gaming direct costs are comprised of
all costs of the Resort's gaming operations, including labor costs for
casino-based personnel (including personnel supporting the food and beverage
operations located in the casinos), facilities rent, occupancy costs, supply
costs, certain marketing, advertising and promotional expenses (including costs
of operating our players' club) and other direct operating costs of the casinos.
Food and beverage direct costs are comprised of all costs of the Resort's food
and beverage operations, including labor costs for personnel employed by the
Resort's restaurants and other food outlets (but not including personnel
supporting the food and beverage operations located in the casinos), facilities
rent, occupancy costs, supply costs for all food and beverages served in the
casinos or sold in the Resort's restaurants and other food outlets and other
direct operating costs of the food and beverage operations. Recreation and other
expenses include direct labor and operating expenses related to the activities.
General and administrative direct costs are comprised of administrative expense
at our headquarters, including the salaries of corporate officers, rent,
accounting, finance, legal and other professional expense and occupancy costs
and other indirect costs not included in the direct costs of our operating
departments.
DISPOSAL OF LONG-LIVED ASSETS. On May 1, 2002, we adopted Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," or SFAS 144, which provides for the treatment of
the disposal of long-lived assets. SFAS 144 provides that if an entity commits
to a plan to abandon a long-lived asset before the end of its previously
estimated useful life, depreciation estimates shall be revised to reflect the
use of the asset over its shortened useful life. In January 2003, we demolished
a substantial portion of the Inn to allow for the construction of the Resort. As
a result of the demolition, the adoption of SFAS 144 for the fiscal year ended
April 30, 2003 had the effect of increasing depreciation in fiscal 2003 by $5.4
million.
28
DEFERRED FINANCING COSTS. Debt issuance costs incurred in connection with
the issuance of the Resort Project financing are capitalized and amortized to
interest expense using the straight-line method over the stated maturity of the
debt, which approximates the effective interest method. Unamortized deferred
financing costs totaled approximately $10.6 million as of July 31, 2004.
DISAGREEMENTS WITH THE STATE OF NEW MEXICO. The Tribe challenged the
legality of the revenue sharing fees prescribed by the compact entered into
between the Tribe and the State of New Mexico in 1997, which we refer to as the
1997 Compact, claiming them to be an illegal tax on Indian gaming under the
Indian Gaming Regulatory Act. The Tribe invoked its right to seek a resolution
of the disagreements through the arbitration process provided for in the 1997
Compact and no revenue sharing or regulatory fees were remitted to the State.
On April 20, 2004, the Tribe settled with the State of New Mexico all of
its obligations under the 1997 Compact. Under the settlement agreement, the
State of New Mexico and the Tribe agreed that the Tribe would pay the State of
New Mexico $25.0 million and enter into a new compact, which we refer to as the
2001 Compact. On April 20, 2004, we paid an initial payment of $2.0 million
pursuant to the terms of the settlement agreement. On June 1, 2004, the Tribe
and the State of New Mexico entered into the 2001 Compact. On August 10, 2004,
we made the final $23.0 million payment to the State required by the settlement
agreement which was paid out of the Trustee held Construction Reserve Account.
RESULTS OF OPERATIONS
QUARTER ENDED JULY 31, 2004 COMPARED TO QUARTER ENDED JULY 31, 2003
NET REVENUES. Net revenues increased $4.3 million, or 24.2%, to $22.1
million for the quarter ended July 31, 2004 from $17.8 million for the quarter
ended July 31, 2004. The increase was due to an increase in gaming revenues,
food and beverage revenues and retail revenues. Player reward redemptions are
included in gross revenues but are deducted as a promotional allowance to arrive
at net revenues.
GAMING. Gaming revenues increased $2.0 million, or 12.8%, to $17.6 million
for the quarter ended July 31, 2004 from $15.6 million for the quarter ended
July 31, 2003. Slot revenues led the increase, growing to $15.4 million for the
quarter ended July 31, 2004 from $13.8 million for the quarter ended July 31,
2003, an increase of $1.6 million, or 11.6%. Gross slot win per unit was $157
for the quarter ended July 31, 2004 compared to $166 for the quarter ended July
31, 2003; in this period the weighted average number of units increased by 181,
or 18.1% and slot handle increased by $28.6 million or 12.8% while hold remained
constant at 6.2%. Table games revenue increased $0.4 million, or 22.2%, to $2.2
million for the quarter ended July 31, 2004 from $1.8 million for the quarter
ended July 31, 2003. The increase was the result of the increase in the table
game drop of $0.2 million, or 2.0%, to $11.5 million for the quarter ended July
31, 2004 from $11.3 million for the quarter ended July 31, 2003, combined with
an increase in hold percentage to 19.3% for the quarter ended July 31, 2004 from
16% for the quarter ended July 31, 2003.
FOOD AND BEVERAGE. Food and beverage revenues increased $0.2 million, or
16.7%, to $1.4million for the quarter ended July 31, 2004 from $1.2 million for
the quarter ended July 31, 2003. While there was a loss of revenue due to the
closing of the restaurants located at the Inn in January 2003, this loss was
offset by the opening of Smokey B's, our casual dining restaurant at the Travel
Center in May 2003.
ROOMS. We had no room revenues for the quarters ended July 31, 2003 and
2004 due to the closure of the Inn in January 2003.
RECREATION AND OTHER. Recreation and other revenues increased $2.1 million,
or 17.5%, to $3.3 million for the quarter ended July 31, 2004 from $1.2 million
for the quarter ended July 31, 2003. The increase was due to the opening of our
Travel Center in May 2003, which resulted in increased revenues from the
convenience store, smoke shop, and gasoline and diesel sales located at the
facility.
PROMOTIONAL ALLOWANCES. Promotional allowances remained constant at $0.3
million for the quarter ended July 31, 2004 compared to the quarter ended July
31, 2003.
TOTAL OPERATING EXPENSES. Total operating expenses increased $1.6 million,
or 11.2%, to $16.0 million for the quarter ended July 31, 2004 from $14.3
million for the quarter ended July 31, 2003. The increase was primarily due to
an increase of $0.4 million in depreciation and $1.5 million in retail expenses
associated with greater sales in the full quarter of operation of the Travel
Center as compared to the prior year.
29
GAMING. Gaming expenses decreased $0.4 million, or 7.4%, to $5.0 million
for the quarter ended July 31, 2004 from $6.0 million for the quarter ended July
31, 2003. The decrease was primarily due to a reduction in revenue sharing
expenses associated with the Compact settlement.
FOOD AND BEVERAGE. Food and beverage expenses increased $0.3 million or
15.0%, to $1.7 million for the quarter ended July 31, 2004 from $2.1 million for
the quarter ended July 31, 2003, primarily due to a decrease in the cost of
sales at both the Travel Center and Casino Apache.
ROOMS. Costs and expenses associated with hotel rooms decreased $0.1
million, or 100%, to $0.0 for the quarter ended July 31, 2004 from $0.1 million
for the quarter ended July 31, 2003, primarily due to a reassignment of team
members as a result of closure of the Inn in January 2003.
RECREATION AND OTHER. Recreation and other costs increased $1.5 million, or
93.8%, to $3.1 million for the quarter ended July 31, 2004 from $1.6 million for
the quarter ended July 31, 2003. The increase was primarily attributable to the
addition of new team members at the Travel Center and increased cost of sales
and related expenses for the convenience store, smoke shop, refueling center and
laundry and shower facilities.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$0.2 million, or 9.5%, to $2.3 million for the quarter ended July 31, 2004 from
$2.1 million for the quarter ended July 31, 2003. The increase was primarily due
to an increase in expenses due to the addition of executive staff in response to
the needs of our new resort complex and increased reporting requirements
associated with the issuance of the Notes as well as an increase in marketing,
advertising and promotional activities.
PRE-OPENING COSTS AND EXPENSES. Pre-opening expenses were $1.1 million for
the quarter ended July 31, 2004 compared to $1.1 million for the quarter ended
July 31, 2003, and consisted principally of personnel costs, training costs and
payroll costs for retaining the former employees of the Inn. Pre-opening costs
and expenses are expensed as incurred.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $0.4
million to $1.4 million for the quarter ended July 31, 2004 from $1.0 million
for the quarter ended July 31, 2003. The increase was primarily the result of
the addition of the Travel Center in May 2003.
OPERATING INCOME. Operating income increased $2.7 million, or 77.1%, to
$6.1 million for the quarter ended July 31, 2004 from $3.5 million for the
quarter ended July 31, 2003. The increase in operating income was primarily due
to improved operating margins in gaming, food and beverage, and operations in
Casino Apache and the Travel Center.
OTHER INCOME (EXPENSES). Other non-operating expenses increased $2.7 million to
$2.6 million for the quarter ended July 31, 2004 from $0.1 million for the
quarter ended July 31, 2003. The increase was primarily due to interest expense,
net of amounts capitalized, in an amount equal to $2.7 million during the
period. Other income (expenses) is comprised of interest income and other income
minus interest expense and other expense.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2004 and July 31, 2004, we had cash and cash equivalents
(net of amounts in restricted accounts) of $15.8 million and $19.2 million
respectively. Our principal sources of liquidity for the quarters ended July 31,
2004 and 2003 consisted of cash flows from operating activities, which was $8.8
million for the quarter ended July 31, 2004 compared to $11.5 million for the
quarter ended July 31, 2003. The $2.7 million decrease included net income of
$3.5 million in net income with decreases in interest payable of $6.8 million
offset by a reduction of accrued revenue sharing and regulatory fees of $2.7
million and an increase in prepaid revenue sharing fees as a result of the
Compact settlement. Under the terms of the indenture pursuant to which our notes
were issued, we are required o "sweep" excess cash above the established
thresholds from our operating accounts to restricted accounts on a monthly
basis. During the quarter ended July 31, 2004, we deposited $6.3 million from
our operating accounts to restricted accounts pursuant to these requirements.
Cash used in investing activities for the quarter ended July 31, 2004 was
$23.0 million and primarily relates to construction costs for the Project. Cash
used in investing activities for the quarter ended July 31, 2003 was $21.6 and
primarily relates to construction costs for the Travel Center.
30
Cash used in financing activities was $26.4 million for the quarter ended
July 31, 2004 compared to $9.2 million used by financing activities for the
quarter ended July 31, 2003. The $17.2 million increase in cash provided from
financing activities is primarily due to $29.5 million of cash held for use in
paying construction expenditures for the construction project offset by $3.5
million in distributions to the Tribe.
Construction of the Resort, which began in January 2003, is expected to be
completed in April 2005. As of July 31, 2004, we paid $113.0 million designing,
developing, constructing, equipping and opening the Resort. We expect to incur
an additional $27.0 million under our fixed price contract to complete the
Project during fiscal 2005 (the Resort is expected to be completed by the April
2005). At July 31, 2004 we had balances in restricted accounts in the aggregate
amount of $104.0, of which $23.0 million was used to fund our settlement of our
compact dispute with the State of New Mexico, $24.0 million will be available
for the next two payments on the notes and $57.0 of which will be available for
completion of the Project, including amounts remaining under our fixed price
contract, furniture, fixtures and equipment and construction contingencies.
Additional funds needed to complete the Project are expected to be provided by
funds from operations and equipment financing (permitted by the indenture).
Capital expenditures in fiscal year 2005, other than those related to the
Project, are not expected to be significant.
We believe that existing cash balances, operating cash flows and proceeds
from our recent high yield offering, or the offering, as well as contemplated
equipment leasing lines (permitted by the indenture) will provide adequate funds
for completion of construction of the Resort, our working capital needs, planned
capital expenditures, including the new resort equipment and furnishings,
settlement of our compact dispute with the State of New Mexico and debt service
requirements for the foreseeable future. However, our ability to fund our
operations, make planned capital expenditures, make scheduled payments and
refinance our indebtedness depends on our future operating performance and cash
flow, which, in turn, are subject to prevailing economic conditions and to
financial, business and other factors, some of which are beyond our control.
Additionally, as a result of the offering, our ability to incur additional
indebtedness is limited under the terms of the indenture governing the 12%
Senior Notes due 2010, or the notes.
DESCRIPTION OF INDEBTEDNESS
THE NOTES
On November 3, 2003, we issued $200.0 million senior notes, with fixed
interest payable at a rate of 12% per annum. Interest on the notes is payable
semi-annually on May 15 and November 15. The notes mature on November 15, 2010.
The notes are secured until completion of the Resort, by first priority security
interests in the following accounts:
o an interest reserve account, which was funded at the time the notes
were sold with approximately $36.4 million, which, together with
interest earned thereon, will be used to make the first three (3)
interest payments on the notes. As of July 31, 2004, the balance in
the interest reserve account is $23.8 million;
o a construction disbursement account, which was funded at the time the
notes were sold with approximately $94.3 million and will be used to
fund completion of the Resort. As of July 31, 2004, the balance in the
construction disbursement account was $22.3 million;
o a construction reserve account, which was funded at the time the notes
were sold approximately $53.6 million and will be used to (i) fund
contingencies related to the construction of the Resort and (ii) fund
a resolution of the Tribe's disagreement relating to the 1997 Compact.
As of July 31, 2004, the balance in the construction reserve account
was $51.9 million, which reflects the $25.0 million payment made to
settle all disputes with the State of New Mexico related to the 1997
Compact; and
o a construction retainage account. As of July 31, 2004, the balance the
construction retainage accounts was $5.2 million.
The notes rank senior in right of payment to all of our future indebtedness
or other obligations that are, by their terms, expressly subordinated in right
of payment to the notes. In addition, the notes rank equal in right of payment
to all of our existing and future senior unsecured indebtedness and other
obligations that are not, by their terms, expressly subordinated in right of
payment to the notes. Casino Apache, Inn of the Mountain Gods, Casino Apache
Travel Center and Ski Apache are guarantors of the notes.
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GENERAL INDEBTEDNESS
The Tribe, for the benefit of the Inn, executed a promissory note dated
September 1, 1982, which we refer to as the BIA Note in favor of the Department
of Interior, Bureau of Indian Affairs in the amount of approximately $3.5
million. The BIA Note accrues interest at the rate of 8.5% per annum payable
annually from the date of the BIA Note until paid in full on September 1, 2011.
The Inn has been making payments of approximately $27,000 on the BIA Note each
month. As of July 31, 2004, there is approximately $1.8 million outstanding on
the BIA Note.
In addition, as of July 31, 2004, we have approximately $0.1 million of
equipment financing of unsecured debt with Kronos Incorporated.
CREDIT FACILITY
On June 15, 2004, we entered into a $15.0 million credit facility with Key
Equipment Finance, a Division of Key Corporate Capital Inc. The fixed rate loan
is fully amortizable over five years and bears an interest rate indexed off the
3-year Treasury Interest Rate Swaps. Proceeds from the loan will be used to fund
furniture, fixtures and equipment for the Project. As of July 31, 2004 there
were no funds drawn under this facility.
OFF-BALANCE SHEET ARRANGEMENTS
As of July 31, 2004, we have no off-balance sheet arrangements that affect
our financial condition, liquidity and results of operation. We have certain
contractual obligations including long-term debt, operating leases and
employment contracts.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following table sets forth, as of July 31, 2004, our scheduled
principal, interest and other contractual annual cash obligations due by us for
each of the periods indicated below (Dollars in thousands):
PAYMENTS DUE BY PERIOD
LESS THAN 1-3 3-5 MORE THAN
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR YEARS YEARS 5 YEARS
---------------------------------- --------- --------- ------- ----------
Long-Term Debt
Obligations............ $201,895 $ 264 $ 500 $ 549 $ 200,582
-------- ------- --------- ------- ----------
Purchase Obligations (1) 27.0 27,000 - - -
-------- ------- --------- ------- ----------
Total.................. $228,895 $27,264 $ 500 $ 549 $ 200,582
========= ========= ========= ======= ==========
- ----------
(1) Amounts remaining to be paid pursuant to the $135.2 million fixed price
design and build contract with Centex/Worthgroup for construction of the
Resort Project.
In addition, under a settlement agreement entered into with the State of
New Mexico on April 20, 2004, we paid $25.0 million on behalf of the Tribe with
respect to its settlement of its dispute with the State of New Mexico with
respect to the 1997 Compact. This settlement payment was funded out of the
construction reserve account provided for by the indenture.
IMPACT OF INFLATION
Absent changes in competitive and economic conditions or in specific prices
affecting the industry, we do 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.
REGULATION AND TAXES
We are subject to extensive regulation by the Mescalero Apache Tribal
Gaming Commission, the NIGC and, to a lesser extent, the New Mexico Gaming
Control Board. Changes in applicable laws or regulations could have a
significant impact on our operations. We are unincorporated Tribal enterprises,
directly or indirectly owned by the
32
Tribe, a federally recognized Indian tribe, and are located on reservation land
held in trust by the United States of America; therefore, we were not subject to
federal or state income taxes for the quarters ended July 31, 2003 or 2004, nor
is it anticipated we will be subject to such taxes for the foreseeable future.
Various efforts have been made in the U.S. Congress over the past several years
to enact legislation that would subject the income of tribal business entities,
such as us, 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 cash flows from
operations.
NEW ACCOUNTING PRONOUNCEMENTS
On April 30, 2002, the FASB issued Statement of Financial Accounting
Standards No. 145, or 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, "Reporting Gains and Losses from Extinguishment
of Debt," and FASB Statement 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 from
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,
"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." The adoption of this standard has no impact on our
consolidated financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45, or FIN 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." This interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies (for guarantees issued after January 1, 2003) that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligations undertaken in issuing the guarantee. At July 31, 2004,
we do not have any outstanding guarantees and accordingly, the adoption of FIN
45 did not have any impact on our financial position, results of operations or
cash flows.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, or FIN 46, "Consolidation of Variable Interest Entities."
This interpretation addresses the requirements for business enterprises to
consolidate related entities in which they are determined to be the primary
economic beneficiary as a result of their variable economic interests, and is
intended to provide guidance in judging multiple economic interests in an entity
and in determining the primary beneficiary. The interpretation outlines
disclosure requirements for variable interest entities created after January 31,
2003. We have reviewed the interpretations related to our major relationships
and overall economic interests with other companies consisting of related
parties and other suppliers to determine the extent of its variable economic
interest in these parties. The adoption of this standard has no impact on our
consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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 Resort's primary exposure to market risk is interest rate
risk associated with our short term variable rate debt. As of July 31, 2004, we
had no variable rate debt outstanding.
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
certain long-term variable rate debt through the use of interest rate swaps or
interest rate caps with appropriately matching maturities.
As of July 31, 2004, the Resort held no derivative instruments.
33
ITEM 4. CONTROLS AND PROCEDURES.
As of the end of the period covered by this quarterly report, we conducted
an evaluation, under the supervision and with the participation of IMG Resort
and Casino's management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective at the reasonable
assurance level and designed to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Commission's rules and forms. There were no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
Our management, including our Chief Executive Officer and our Chief
Financial Officer, does not expect that our disclosure controls or our internal
controls will prevent all error and all fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance
that the control system's objectives will be met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within IMG Resort and Casino have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more
people or by management override of the controls. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer, along with the
other members of management, evaluate our disclosure controls and procedures as
of the end of the period covered by our reports filed pursuant to the Exchange
Act. Our Chief Executive Officer and Chief Financial Officer have concluded that
the disclosure controls and procedures are effective in alerting the Chief
Executive Officer and Chief Financial Officer on a timely basis to material
information relating to IMG Resort and Casino and its consolidated subsidiaries
required to be included in our periodic and other filings with the Commission.
34
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
LEGAL PROCEEDINGS
SETTLEMENT OF COMPACT DISPUTE
In 1997, the Tribe entered into a compact with the State of New Mexico,
which we refer to as the 1997 Compact, which permits Class III gaming on the
Tribe's reservation pursuant to IGRA. The Tribe, along with other tribes and
pueblos who entered into the 1997 Compact disputed the legality of the State of
New Mexico's imposition of revenue sharing fees and regulatory fees pursuant to
the 1997 Compact. On April 20, 2004, the Tribe and the State of New Mexico
entered into a settlement agreement which resolved their disputes regarding the
1997 Compact.
Under the settlement agreement, the State of New Mexico and the Tribe
agreed that the Tribe would pay the State of New Mexico $25.0 million and that
they would enter into the 2001 Compact. The settlement agreement with the State
of New Mexico provides that the $25.0 million payment settles all revenue
sharing and regulatory fees payable under the 1997 Compact as well as all
revenue sharing fees payable under the 2001 Compact through March 2005. On April
20, 2004, we paid an initial payment of $2.0 million pursuant to the terms of
the settlement agreement. On June 1, 2004, the Tribe and the State of New Mexico
entered into the 2001 Compact. On August 10, 2004 we made the remaining $23.0
million payment required under the settlement agreement.
OTHER MATTERS
In addition to the matter described above, we are involved in litigation
incurred in the normal course of business; however, we are not currently a party
to any material pending claim or legal action.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
35
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS - See Exhibit Index on pages 36-37 of this Quarterly Report on
Form 10-Q.
(b) (1) On June 15, 2004, we filed a report on Form 8-K reporting information
under Item 5 announcing that we had entered into a $15.0 million credit
facility with Key Equipment Finance, a Division of Key Corporate Capital
Inc., to fund furniture, fixtures and equipment as part of our resort
project.
(2) On June 25, 2004, we filed a report on Form 8-K reporting information
under Item 5 announcing that we would discuss our operating results
for the fourth quarter and fiscal year ended April 30, 2004 on a
conference call.
(3) On July 1, 2004, we filed a report on Form 8-K reporting information
under Items 7 and 12 announcing our operating results for the fourth
quarter and fiscal year ended April 30, 2004.
(4) On July 12, 2004, we filed a report on Form 8-K reporting information
under Items 5 and 7 announcing that we had completed our exchange
offer to the holders of our $200.0 million aggregate principal amount
of our original 12% senior notes due 2010 for an equal amount of our
newly issued 12% senior notes due 2010 that are registered under the
Securities Act.
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION
3.1* Mescalero Apache Tribe Resolutions 03-05, 03-28 and
03-29 establishing and governing the Inn of the
Mountain Gods Resort and Casino adopted and approved
April 2, 2003, July 15, 2003 and July 15, 2003,
respectively.
3.2* Charter of the Management Board of IMG Resort and Casino.
4.1* Indenture, dated as of November 3, 2003, among the Mescalero Apache
Tribe, Inn of the Mountain Gods Resort and Casino,
Casino Apache, Inn of the Mountain Gods, Casino Apache
Travel Center, Ski Apache and U.S. Bank National
Association, as Trustee, relating to the 12% Senior
Notes due 2010 of the Inn of the Mountain Gods Resort
and Casino.
4.2* Form of 12% Senior Note Due 2010 of the Inn of the Mountain Gods
Resort and Casino.
4.3* Registration Rights Agreement, dated as of November 3,
2003, among the Mescalero Apache Tribe, Inn of the
Mountain Gods Resort and Casino, Casino Apache, Inn of
the Mountain Gods, Casino Apache Travel Center, Ski
Apache and Citigroup Global Markets Inc, as the Initial
Purchaser.
10.1* Second Amended Design/Build Construction Contract, by and among Inn of
the Mountain Gods Resort and Casino, Centex/WorthGroup, LLC, as
Design/Builder, and Rider Hunt Levett & Bailey, as Construction
Manager, dated as of September 6, 2003, and Change Order No. 9
thereto, dated October 24, 2003.
36
10.2* Cash Collateral and Disbursement Agreement, dated as of
November 3, 2003, among Inn of the Mountain Gods Resort
and Casino, Casino Apache, Inn of the Mountain Gods,
Casino Apache Travel Center, Ski Apache, U.S. Bank
National Association, as Disbursement Agent,
Professional Associates Construction Services, Inc., as
Independent Construction Consultant and U.S. Bank
National Association, as Trustee.
10.3* Ski Apache Special Use Permit received from the United States
Department of Agriculture, Forest Service dated April 23, 1985.
10.4* Employment Agreement dated December 5, 2002, between the Mescalero
Apache Tribe and Michael French.
10.5* Employment Agreement dated September 22, 2003, between the Mescalero
Apache Tribe and Richard Williams.
10.6*** Employment Agreement dated December 12, 2002 between the Mescalero
Apache Tribe and Brian Parrish.
10.7*** 2001 Compact between the Mescalero Apache Tribe and the State of New
Mexico, entered into June 1, 2004.
31.1 Certification of Michael French, Principal Executive
Officer, pursuant to Rule 13a-14 and 15d-14 of the
Securities Exchange Act of 1934.
31.2 Certification of Richard Williams, Principal Financial Officer,
pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of
1934.
32.1 Certification of Michael French, Principal Financial
Officer and Richard Williams, Principal Financial
Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
* Incorporated by reference to IMG Resort and Casino's Registration
Statement on Form S-4 filed with the SEC on February 27, 2004 (SEC File No.
333-113140).
** Incorporated by reference to IMG Resort and Casino's Amendment No. 1 to
Registration Statement on Form S-4 filed with the SEC on April 22, 2004 (SEC
File No. 333-113140).
*** Incorporated by reference to IMG Resort and Casino's Annual Report on
Form 10-K filed with the SEC on July 29, 2004.
37
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this quarterly report to be signed on its behalf by the undersigned,
thereunto duly authorized
INN OF THE MOUNTAIN GODS RESORT AND CASINO
Date: September 14, 2004 By /s/ Michael French
----------------------------------
Michael French
Its: Chief Executive Officer
(Principal Executive Officer
and Authorized Signatory)
Date: September 14, 2004 By /s/ Richard Williams
-----------------------------------
Richard William
Its: Chief Financial Officer
(Principal Financial Officer)
38