Filed On 7/28/05 4:29pm ET · SEC File 333-113140 · Accession Number 1011438-5-182
As Of Filer Filing As/For/On Docs:Pgs Issuer Agent
7/28/05 Inn of the Mountain Gods...Casino 10-K 4/30/05 5:80 1011438
Document/Exhibit Description Pages Size
1: 10-K Annual Report 71 381K
2: EX-10 Material Contract 4 20K
3: EX-31 Certification per Sarbanes-Oxley Act (Section 302) 2± 10K
4: EX-31 Certification per Sarbanes-Oxley Act (Section 302) 2± 10K
5: EX-32 Certification per Sarbanes-Oxley Act (Section 906) 1 7K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 30, 2005
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 75-3158926
(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 Offices) (Zip Code)
(505) 464-7004
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of Each Exchange
TITLE OF EACH CLASS ON WHICH REGISTERED
None None
Securities registered under Section
12(G) OF THE ACT:
(Title of Class)
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers, pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [__] No [X]
REFERENCES IN THIS ANNUAL REPORT ON FORM 10-K (THIS "FORM 10-K" 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," "RESORT" AND "US" REFER TO IMG RESORT AND CASINO.
FORWARD-LOOKING STATEMENTS
THIS FORM 10-K 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 HEADINGS "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," "BUSINESS" AND ELSEWHERE IN THIS FORM 10-K
ARE FORWARD-LOOKING STATEMENTS. IN ADDITION, IN THOSE AND OTHER PORTIONS OF THIS
FORM 10-K, 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-K 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) RESTRICTIVE COVENANTS IN OUR DEBT INSTRUMENTS; (D)
REALIZING THE BENEFITS OF OUR BUSINESS PLAN AND BUSINESS STRATEGIES; (E) CHANGES
IN GAMING LAWS OR REGULATIONS, INCLUDING POTENTIAL LEGALIZATION OF GAMING IN
CERTAIN JURISDICTIONS; (F) THE IMPACT OF COMPETITION IN OUR MARKETS; (F) OUR
ABILITY TO ATTRACT INCREASING NUMBERS OF CUSTOMERS; (G) GENERAL LOCAL, DOMESTIC
AND GLOBAL ECONOMIC CONDITIONS; AND (H) OTHER FACTORS DISCUSSED UNDER "RISK
FACTORS" OR ELSEWHERE IN THIS FORM 10-K.
YOU ARE URGED TO CONSIDER THESE FACTORS CAREFULLY IN EVALUATING THE
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FORM 10-K. 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-K ARE MADE ONLY AS OF
THE DATE OF THIS FORM 10-K. WE DO NOT INTEND, AND UNDERTAKE NO OBLIGATION, TO
UPDATE THESE FORWARD-LOOKING STATEMENTS.
ITEM 1. BUSINESS
OVERVIEW
IMG RESORT AND CASINO
IMG Resort and Casino, established on April 2, 2003, is a wholly owned
enterprise of the Tribe with the exclusive power to conduct and regulate gaming
activities on the Tribe's reservation. We operate New Mexico's only all-season
gaming destination resort on the Tribe's 725 square mile reservation in
south-central New Mexico. We are located in the forests of the Sacramento
Mountains and our operations include: a full- service casino, the Travel Center,
offering 17,000 square feet of gaming space including 503 slot machines and 15
table games as of April 30, 2005; a new resort hotel and casino on the banks of
Lake Mescalero; offering 38,000 square feet of gaming space including 1,000 slot
machines and 41 table games as of April 30, 2005; the second largest ski resort
in New Mexico; a championship golf course; big-game hunting and various other
outdoor recreational activities. We are located approximately 120 miles north of
El Paso, Texas and the Mexican border, approximately 200 miles south of
Albuquerque, New Mexico and approximately 10 miles west of the resort town of
Ruidoso. Ruidoso and its surrounding area offers tourists a variety of
year-round activities, including skiing, golfing, hunting, boating, fishing,
camping, swimming, horseback riding and cultural events. The neighboring town of
Ruidoso Downs features the Ruidoso Downs Race Track and Casino, offering quarter
horse and thoroughbred racing throughout the summer months and is home of the
world's richest quarter horse race, the All-American Futurity. White Sands
National Monument, which attracts in excess of 500,000 visitors a year, is
located approximately 60 miles away from our properties.
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Our casinos and resort hotel are conveniently located off of a heavily
traveled four-lane highway, U.S. Highway 70. According to the New Mexico State
Highway and Transportation Department, approximately 5.9 million vehicles travel
across U.S. Highway 70 each year. We are the only full-service casino operator
within our primary market area, encompassing southern New Mexico, including the
cities of Ruidoso, Alamogordo, Las Cruces and Roswell and western Texas,
including the cities of El Paso, Lubbock and Odessa, and northern Mexico,
including Ciudad Juarez.
THE PROJECT
We have completed a two-phase construction project, which we refer to as
the Project. We successfully completed Phase I of the Project, construction of
our new Casino Apache Travel Center in May 2003, at a cost of $16.0 million. We
have completed construction of Phase II of the Project, the Inn of the Mountain
Gods Resort and Casino, on March 15, 2005. Total construction cost to complete
Phase II of the Project was $143.9 million. In March 2005, the contractor was
issued a certificate of substantial completion and the Resort started commercial
operation on March 15, 2005. A final certificate of completion and acceptance
will be issued following the successful completion of identified incomplete
items. At April 30, 2005, a total of $8.1 million in retainage remains
outstanding in restricted cash account with the trustee and will be disbursed
following the issuance of the final completion certificate.
Management believes the Project has positioned us as the "Southwest's Best
All-Season Resort" by expanding and modernizing our gaming and hotel facilities
to meet customer demand and address the limitations of our old casino, Casino
Apache, and our old hotel, the Inn of the Mountain Gods. Casino Apache operated
at capacity on weekends, holidays and during promotional events even though it
was originally designed as a two-floor convention space and not a high-traffic
casino. Casino Apache was also affected by poor ventilation and limited parking
and gaming space. Although it was opened in 1975 as a luxury resort hotel, by
2002, the Inn of the Mountain Gods hotel was an aging and dated facility that
required significant modernization to serve the needs of our customers. These
capacity and design issues have limited our ability to attract additional gaming
and resort customers from both within and beyond our primary market area.
Nevertheless, our gaming revenues have continued to grow, experiencing a
compound annual growth rate of approximately 12.7% from our fiscal year ended
April 30, 2000 through April 30, 2005.
PHASE I -- TRAVEL CENTER
In May 2003, we successfully completed Phase I of the Project, construction
of the Travel Center, on time and on budget. The Travel Center targets locals
and casual day-trip visitors and complements our gaming operations at Inn of the
Mountain Gods. The Tribe funded the entire construction cost of the Travel
Center with equity contributions to us from cash on hand. The 14-acre Travel
Center, which includes a 30,000 square foot main building, is located on U.S.
Highway 70, and at April 30, 2005 featured:
o 17,000 square feet of gaming space including 503 slot machines and 15
table games, including blackjack and roulette;
o two video poker bars -- a 12-seat circular bar located in the center
of the facility, which features video poker at all 12 seats, and an
11-seat full-service bar, which features video poker at five seats;
o "Smokey-B's Grill," a 2,300 square foot, 135-seat casual dining
restaurant;
o a 2,500 square foot convenience store, which carries food, candy, hot
and cold beverages and travel and sundry items;
o an 800 square foot tax-free smoke shop, which offers a variety of
brand-name carton cigarettes at discounted prices;
o a Conoco-branded fuel station with 12 gasoline and eight diesel
pumping stations;
o a 2,000 square foot shower and laundry facility;
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o 700 on-site parking spaces, including a separate parking area for
semi-trucks, with over 24 over-sized spaces; and
o shuttle service to the Inn of the Mountain Gods.
PHASE II -- INN OF THE MOUNTAIN GODS RESORT AND CASINO
In March 2005, we successfully completed Phase II of the Project,
construction of IMG Resort and Casino, on time and on budget. The Resort is
designed to be a premier gaming resort destination hotel and casino, targeting
the mature, affluent gaming and entertainment patron, as well as middle market
clientele. IMG Resort and Casino offers higher table gaming and slot machine
limits and a broader mix of table games than the Travel Center. IMG Resort and
Casino, as of April 30, 2005, featured:
o a casino featuring 38,000 square feet of gaming space, 1,000 slot
machines (and capacity for 1,500 machines) and 41 table games,
including craps, blackjack, roulette, three-card poker and "Let it
Ride";
o a 273-room hotel, featuring over-sized deluxe guest rooms, with a
balcony view of Lake Mescalero and either Sierra Blanca Mountain or
the forest-lines golf course, an indoor swimming pool and fitness
center including a yoga and aerobics workout area, steam and sauna
facilities for both men and women and a family locker area;
o food and beverage venues including a 158-seat indoor/outdoor casual
and fine dining restaurant; a 250-seat buffet style restaurant; a
100-seat spots bar, a 75-seat night club featuring live entertainment
and dancing and a "quiet" lounge featuring an oversized fireplace;
o a 37,000 square foot events center, which can accommodate a wide
variety of activities, including entertainment and sports events, such
as concerts, comedy shows and boxing, as well as trade shows and
exhibitions; and
o a 1,700 space underground parking structure and 500 spaces of surface
parking.
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OUR BUSINESS ACTIVITIES
IMG Resort and Casino was formed by the Tribe on April 2, 2003 to be the
holding company for all of the Tribe's gaming and resort enterprises. Prior to
the formation of IMG Resort and Casino, the Tribe operated all of its gaming and
resort activities through four separate tribal enterprises: Casino Apache, which
owned and operated the Tribe's original casino, Casino Apache, since the
commencement of its operations in 1992; Ski Apache, which owned and operated the
Tribe's ski resort, since the commencement of its operations in 1964; Inn of the
Mountain Gods, which owned and operated the Tribe's resort hotel, the Inn of the
Mountain Gods, since the commencement of its operations in 1975; and the Travel
Center, which owned and operated the Tribe's second gaming facility, Casino
Apache Travel Center, since the commencement of its operations in April 2003. On
April 2, 2003, each of the Tribe's gaming and resort enterprises - the Travel
Center, Casino Apache, Ski Apache and Inn of the Mountain Gods - were
contributed to IMG Resort and Casino by the Tribe and are wholly-owned
subsidiaries of IMG Resort and Casino.
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GAMING
We currently operate two gaming facilities, the Travel Center and IMG
Resort and Casino. The Travel Center, opened on May 21, 2003, is located
directly on U.S. Highway 70 and is highly visible to drivers in both directions.
As of April 30, 2005, the Travel Center featured 17,000 square feet of gaming
space, 503 slot machines and 15 table games, including blackjack and roulette.
IMG Resort and Casino opened on March 15, 2005, and is located two miles off of
U.S. Highway 70, adjacent to the site of our old casino, Casino Apache. As of
April 30, 2005, IMG Resort and Casino featured 38,000 square feet of gaming
space, 1,000 slot machines and 41 table games, including craps, blackjack,
roulette, three-card poker and "Let it Ride;" a 100-seat buffet restaurant; a
gift shop and approximately 2,200 customer parking spaces.
Our gaming operations have experienced continued growth since fiscal 2000.
Gaming revenues have increased from $35.4 million for the twelve months ended
April 30, 2000 to $64.3 million for the twelve months ended April 30, 2005, a
compound annual growth rate of 12.7%. Gaming revenues for the twelve months
ended April 30, 2004 and 2003 were $60.3 million and $46.9 million,
respectively. On May 21, 2003, we opened the Travel Center with approximately
500 slot machines, comprised of approximately 200 slot machines moved from
Casino Apache and approximately 300 new slot machines. On March 15, 2005, we
opened the IMG Resort and Casino with 1,000 slots and 41 table games.
RESORT AMENITIES
Since opening the original 118-room hotel as a five-star resort facility in
1975, we have built a strong reputation as a leading destination resort in our
region. Our cool mountain climate and resort amenities typically attract
capacity crowds from May through September. Our resort amenities include our
championship golf course, rated the 35th "Best Golf Resort" in the country in
2002 by Golf Week(TM), a golf pro shop, big game hunts, shooting ranges,
horseback riding, boating, fishing and a casual dining restaurant and bar.
SKIING
We have owned and operated Ski Apache since 1964. Ski Apache has 750-acres
of ski area and is the second largest snow ski area (based upon acres of ski
area) in the State of New Mexico. Our ski resort is located on U.S. Forest and
Tribal land on the 12,003-foot Sierra Blanca Mountain, on the southern tip of
the Rocky Mountains, approximately 20 miles from the site of the Resort.
Approximately 200,000 skiers, primarily from New Mexico, Texas, Arizona and
Mexico, visited Ski Apache during each of our last three ski seasons, which
typically run from Thanksgiving to Easter. At April 30, 2005, Ski Apache
featured:
o 11 lifts providing the largest lift capacity in New Mexico (over
16,500 people per hour), which include a four-passenger gondola (the
only one in New Mexico), two quad chair lifts, five triple chairs, one
double chair lift and two surface lifts;
o a base elevation of 9,600 feet and a vertical drop of 1,900 feet;
o 55 ski trails, of which 20 percent are beginner, 35 percent are
intermediate and 45 percent are advanced, as well as Apache Bowl, an
expert open bowl ski area;
o a Professional Ski Instructors of America ski and snowboarding school;
and
o a sport shop with ski rental, offering top quality ski and
snowboarding equipment.
Although Ski Apache typically averages over 15 feet of snowfall each year,
Ski Apache features a multi-million dollar snowmaking system, which covers 1,000
feet of vertical drop, trails for all ability levels and the use of 8 of its 11
lifts.
BUSINESS STRATEGY
We are the only full-service casino operator offering both slot machines
and table games within our primary market area, which encompasses southern New
Mexico, including the cities of Ruidoso, Alamogordo, Las Cruces and Roswell,
western Texas, including the cities of El Paso, Lubbock and Odessa and northern
Mexico, including Ciudad Juarez. Our primary feeder markets include cities over
200 miles away. We have identified this market based on information we have
obtained from our approximately 118,630 member customer loyalty program, the
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Apache Spirit Club. We believe that our facilities will continue to be
attractive to these customers because of our location. Within our primary market
area we are the closest gaming facility to offer both slot machines and table
games and we are the closest resort destination offering all-season amenities,
including skiing and championship golf.
We believe that as a result of completing the Project, we will be able to
increase penetration within our existing primary market and expand our market to
include a greater number of customers from New Mexico, Mexico, Texas, Oklahoma,
Colorado, Arizona, and California. We intend to fully implement a comprehensive
business and marketing strategy to enhance operations at our facilities. Key
measures include:
o CROSS MARKET OUR RESORT FACILITIES - Cross market all of our resort
facilities to increase market penetration and expand our market by
highlighting our diverse range of attractive all-season activities;
o INTEGRATE MANAGEMENT - Further expand our management team and
consolidate our management structure across our resort enterprises,
which were formerly operated as separate businesses, to drive greater
operating efficiencies and economies of scale for our resort
enterprises as a whole;
o BROADEN CUSTOMER BASE - Offer different gaming and slot machine
limits, mixes of table games, and non-gaming amenities across our
casino and new resort to broaden our customer base;
o IMPLEMENT PREMIUM PRICING - Capitalize on our new resort facilities,
including luxury accommodations, to implement premium pricing to
target a more affluent customer base;
o SHOULDER AND OFF-PEAK MARKETING - Create targeted promotions to
achieve higher utilization during shoulder and off-peak periods; and
o EXPAND CUSTOMER LOYALTY PROGRAM - Continue to expand the Apache Spirit
Club across all of our resort facilities, to recognize gaming and
non-gaming spending habits and create individually targeted promotions
for our customers. We have increased memberships in the Apache Spirit
Club by approximately 61.0% from March 2003 through April 2005.
The Project is part of our business strategy to develop an integrated
resort, increase our market reach and realize operating benefits from business
synergies. We may not be able to fully implement this strategy if we experience
changes in general or local economic conditions, increased competition, other
changes in our industry, or our plan to promote our customers' utilization of
our various resort amenities, including our gaming, hotel, entertainment and
other amenities does not achieve its intended results.
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GAMING IN NEW MEXICO
COMPETITION
Our primary market area encompasses southern New Mexico, including the
cities of Ruidoso, Alamogordo, Las Cruces and Roswell, western Texas, including
the cities of El Paso, Lubbock and Odessa and northern Mexico, including Ciudad
Juarez. According to the U.S. Census Bureau and Desarrollo Economico de Ciudad
Juarez/INEGI there are approximately 3.1 million people in our primary market
area and 1.8 million adults.
Currently, we are the only full-service casino operator within our primary
market area. We currently face competition in our primary market area from two
racinos, Ruidoso Downs, 10 miles away in Ruidoso and Sunland Park Racetrack and
Casino, 125 miles away in Sunland Park, New Mexico. Ruidoso Downs offers quarter
horse and thoroughbred racing from May through September, as well as a 20,000
square foot casino featuring 300 slot machines and a buffet restaurant. Sunland
Park offers quarter horse and thoroughbred racing from mid-November to
early-April, a 36,000 square foot casino facility, 700 slot machines and five
restaurants. Both of these facilities lack table games and lodging facilities.
In addition, we compete with 11 other New Mexico Indian casinos and one racino
located in and around Albuquerque and Santa Fe, New Mexico, which is outside of
our primary market area.
7
We also compete with other forms of legal gaming in New Mexico, Texas and
Northern Mexico, including horse racing, Class II gaming, pari-mutuel wagering,
the New Mexico State Lottery, the Texas State Lottery, as well as non-gaming
leisure activities. We intend to expand our existing geographic market and
increase the percentage of our overnight and larger spending customers who tend
to live greater distances from us. We hope that with the completion of the
Project, we will be able to compete more directly for regional overnight and
national customers with casinos and resorts located in other parts of the
country.
MESCALERO APACHE TRIBE
TRIBAL ADMINISTRATION
The Tribe is a federally recognized Indian tribe located on a 750 square
mile reservation in south-central New Mexico and has approximately 4,100
members. The Indian Reorganization Act of 1934 and subsequent federal
legislation govern the relationship between the Tribe and the United States
government. The Tribe operates under a constitution approved by the United
States Secretary of the Interior on March 25, 1936, revised on January 12, 1965,
and amended on May 31, 1985.
In accordance with its Constitution, the Tribe is governed by and enacts
laws through ordinances and resolutions of the Mescalero Apache Tribal Council,
or the Tribal Council, which is comprised of a President, Vice President and
eight Council Members, each of whom is elected by a majority vote of the
eligible adult enrolled members of the Tribe. The President is a non-voting
member of the Tribal Council and the Vice President only votes if necessary to
break a tie. Each member of the Tribal Council serves a two-year term, with the
terms of the voting members staggered so that each year four of those eight
positions are up for election. The Tribal Council has the power, by ordinance,
to establish the principles and policies governing the operation and control of
all enterprises of the Tribe. The Tribal President has the power to contract for
the Tribe upon authorization from the Tribal Council.
The Tribal Executive Committee, or the Executive Committee, has
responsibility for oversight of all business activities on behalf of the Tribal
Council. The Executive Committee is comprised of the President and Vice
President as well as a Secretary and Treasurer, both of whom are appointed by
the President.
TRIBAL COURT SYSTEM
The Constitution and Tribal Code provides for the establishment of the
tribal court known as the Mescalero Apache Tribal Court, or Tribal Court. The
jurisdiction of the Tribal Court extends to all matters, criminal and civil,
except where prohibited by the Constitution, laws or treaties of the United
States of America, and except as this jurisdiction may be otherwise limited from
time to time by ordinance of the Tribal Council. The criminal offenses over
which the Tribal Court has jurisdiction may be embodied in a Code of Laws,
adopted by ordinance of the Tribal Council, and subject to review by the
Secretary of the Interior. The duties and procedures of the Tribal Court are
determined by ordinance of the Tribal Council.
The Tribal Court consists of a chief judge and two associate judges,
appointed by the President of the Tribe, with the concurrence of not less than a
three-fourths majority vote of the whole membership of the Tribal Council. The
Tribal Council also sits as a court of appeals whenever necessary and may hear
appeals at any regular or special meeting. The tenure and salary of tribal
judges is established by resolution of the Tribal Council.
A judge of the Tribal Court must be an Indian as defined in the Tribal
Code, not less than thirty-five years or more than seventy years of age; and
cannot have been convicted of a felony, or, within one year, of a misdemeanor.
The Tribal Code defines an "Indian" as someone who possesses at least
one-quarter Indian blood, and is a member of any federally recognized tribe,
nation, or band of Indians, or is an Eskimo, Aleut, or other Alaskan.
The Tribe has adopted its own rules of procedure and evidence, which are
found in the Tribal Code. In determining cases, a tribal court judge relies on
the applicable laws in the following order of precedence: (a) Tribal
Constitution, Tribal Code, ordinances, traditions and customs and (b) federal
laws not in conflict with tribal laws and customs.
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MESCALERO APACHE TRIBAL GAMING COMMISSION
On August 20, 1999, the Tribe formed the Mescalero Apache Tribal Gaming
Commission as a governmental subdivision of the Tribe. The Mescalero Apache
Tribal Gaming Commission consists of 4 members, including a Chairman, Vice
Chairman and Secretary-Treasurer and Commissioner. The Mescalero Apache Tribal
Gaming Commission is vested with the authority to regulate all licenses and
gaming activity conducted on tribal lands, including licensing persons, vendors,
financial sources and contractors employed by the casino, ensuring compliance
with internal control standards established by the National Indian Gaming
Commission, or the NIGC, an independent agency within the U.S. Department of the
Interior and establishing technical specifications for gaming devices. The
Mescalero Apache Tribal Gaming Commission is responsible for carrying out the
Tribe's regulatory responsibilities under federal, state and tribal law and the
2001 Compact.
GOVERNMENT REGULATION
GENERAL
We are subject to federal, state and tribal laws governing commercial
relationships with Indians, Indian gaming and the management and financing of
casinos owned by an Indian tribe. In addition, we are regulated by federal and
state laws applicable to the gaming industry generally and to the distribution
of gaming equipment. The following description of the regulatory environment in
which Indian gaming takes place and in which we operate our casinos is only a
summary and not a complete recitation of all applicable law. Moreover, this
particular regulatory environment is more susceptible to changes in public
policy considerations than others. We cannot predict how certain provisions will
be interpreted from time to time or whether they will remain intact. Changes in
these laws could have a material adverse impact on our business and results of
operations and our ability to meet our debt service obligations.
TRIBAL LAW AND LEGAL SYSTEMS
APPLICABILITY OF FEDERAL LAW. Federally recognized Indian tribes are
independent governments, subordinate to the United States, with sovereign
powers, except as those powers may have been limited by treaty or by the U.S.
Congress. The power of Indian tribes to enact their own laws to regulate gaming
derives from the exercise of tribal sovereignty and is subject to federal law.
Indian tribes maintain their own governmental systems and often their own
judicial systems. Indian tribes have the right to tax persons and businesses
operating on Indian lands, and also have the right to require licenses and to
impose other forms of regulations and regulatory fees on persons and businesses
operating on their lands.
WAIVER OF SOVEREIGN IMMUNITY; JURISDICTION; EXHAUSTION OF TRIBAL REMEDIES.
Indian tribes enjoy sovereign immunity from unconsented suit similar to that of
the states and the United States. To sue an Indian tribe (or an enterprise,
agency or instrumentality of an Indian tribe, such as us), the tribe must have
effectively waived its sovereign immunity with respect to the matter in dispute.
Further, in most commercial disputes with Indian tribes, the jurisdiction of the
federal courts, which are courts of limited jurisdiction, may be difficult or
impossible to obtain. A commercial dispute is unlikely to present a federal
question, and courts have ruled that an Indian tribe as a party is not a citizen
of any state for purposes of establishing diversity jurisdiction in the federal
courts. The remedies available against an Indian tribe also depend, at least in
part, on the rules of comity requiring initial exhaustion of remedies of tribal
tribunals and, as to some judicial remedies, the tribe's consent to
jurisdictional provisions contained in the disputed agreements. Under U.S.
Supreme Court case law, where a tribal court exists, the remedies in that forum
first may have to be exhausted before any dispute arising on or involving the
affected tribe's reservation and to which the tribe, a tribal enterprise such as
us or a tribal member is a party, can be properly heard by federal or state
courts which would otherwise have jurisdiction. Generally, where a dispute as to
the existence of jurisdiction in the tribal forum exists, the tribal court first
may need to rule as to the limits of its own jurisdiction, subject to certain
limited exceptions enumerated by the U.S. Supreme Court.
THE INDIAN GAMING REGULATORY ACT OF 1988
REGULATORY AUTHORITY. The operation of casinos and of all gaming on Indian
land is subject to IGRA. IGRA is administered by the NIGC which exercises
primary federal regulatory responsibility over Indian gaming. The NIGC
9
has exclusive authority to issue regulations governing tribal gaming activities,
approve tribal ordinances for regulating Class II and Class III gaming (as
described below), approve management agreements for gaming facilities, and
conduct investigations and generally monitor tribal gaming. The Bureau of Indian
Affairs, or the BIA, which is a bureau of the Department of the Interior,
retains certain responsibilities under IGRA (such as the approval of per capita
distribution plans to tribal members and the approval of transfers of lands into
trust status for gaming). The BIA also has responsibility to review and approve
land leases and other agreements relating to Indian lands. Criminal enforcement
is a shared responsibility of the U.S. Department of Justice, the state in which
the Tribe is located and the Tribe, in accordance with federal law.
The NIGC is empowered to impose civil penalties for violations of IGRA.
IGRA also provides for federal criminal penalties for illegal gaming on Indian
land and for theft from Indian gaming facilities. The NIGC has adopted rules
implementing certain provisions of IGRA. These rules govern, among other things,
the submission and approval of tribal gaming ordinances or resolutions and
require an Indian tribe to have the sole proprietary interest in and
responsibility for the conduct of any gaming on its lands. Tribes are required
to issue gaming licenses only under articulated standards, conduct or commission
financial audits of their gaming enterprises, perform or commission background
investigations for primary management officials and key employees and maintain
facilities in a manner that adequately protects the environment and the public
health and safety. These rules also set out review and reporting procedures for
tribal licensing of gaming operation employees.
CLASSES OF GAMING. IGRA classifies games that may be conducted on Indian
lands into three categories. Class I gaming includes social games solely for
prizes of minimal value or traditional forms of Indian gaming engaged in by
individuals as part of, or in connection with, tribal ceremonies or
celebrations. Class II gaming includes bingo, pulltabs, lotto, punch boards,
non-banked card games, tip jars, instant bingo and other games similar to bingo,
if those games are played at the same location as bingo is played. Class III
gaming includes all other forms of gaming, such as slot machines, video casino
games, banked table games and other commercial gaming, such as sports betting
and pari-mutuel wagering.
Class I gaming on Indian lands is within the exclusive jurisdiction of the
Indian tribes and is not subject to IGRA. Class II gaming is permitted on Indian
lands if:
o the state in which the Indian lands lie permits that gaming for any
purpose by any person, organization or entity;
o the gaming is not otherwise specifically prohibited on Indian lands by
federal law;
o the gaming is conducted in accordance with a tribal ordinance or
resolution which has been approved by the NIGC;
o an Indian tribe has sole proprietary interest and responsibility for
the conduct of the gaming;
o the primary management officials and key employees are tribally
licensed; and
o several other requirements are met.
Class III gaming is permitted on Indian lands if the conditions applicable
to Class II gaming are met and, in addition, the gaming is conducted in
conformity with the terms of a tribal-state compact, which is a written
agreement between the tribal government and the government of the state within
whose boundaries the tribe's lands lie. IGRA requires Indian tribes to enter
into tribal-state compacts in order to conduct Class III gaming.
TRIBAL-STATE COMPACTS. Tribal-state compacts may include provisions for the
allocation of criminal and civil jurisdiction between the state and the Indian
tribe necessary for the enforcement of these laws and regulations, taxation by
the Indian tribe of the Class III gaming activity in amounts comparable to those
amounts assessed by the state for comparable activities, remedies for breach,
standards for the operation of the Class III gaming activity and maintenance of
the gaming facility, including licensing and any other subjects that are
directly related to the operation of gaming activities. While the terms of
tribal-state compacts vary from state to state, compacts within one state tend
to be substantially similar. Tribal-state compacts usually specify the types of
permitted games, establish technical standards for video gaming machines, set
maximum and minimum machine payout percentages,
10
entitle the state to inspect casinos, require background investigations and
licensing of casino employees and may require the tribe to pay a portion of the
state's expenses for establishing and maintaining regulatory agencies. Some
tribal-state compacts are for set terms, while others are for indefinite
duration.
TRIBAL ORDINANCES. Under IGRA, except to the extent otherwise provided in a
tribal-state compact as described below, Indian tribal governments have primary
regulatory authority over Class III gaming on land within a tribe's
jurisdiction. Therefore, a tribe's gaming operations, and persons engaged in
gaming activities, are guided by and subject to the provisions of that tribe's
ordinances and regulations regarding gaming.
IGRA requires that the NIGC review tribal gaming ordinances and authorizes
the NIGC to approve these ordinances only if they meet requirements relating to:
o the ownership, security, personnel background, recordkeeping and
auditing of a tribe's gaming enterprises;
o the use of the revenues from that gaming; and
o the protection of the environment and the public health and safety.
POSSIBLE CHANGES IN FEDERAL LAW
Several bills have been introduced in Congress that would amend IGRA. While
there have been a number of technical amendments to the law, to date there have
been no material changes to IGRA. Any amendment of IGRA could change the
governmental structure and requirements within which we could conduct gaming,
and may have an adverse effect on our business and results of operations or
impose additional regulatory or operational burdens.
EMPLOYEE AND LABOR RELATIONS
As of April 30, 2005, we had 1,627 full-time team members, excluding
approximately 400 additional full-time team members which will be hired during
the ski season at Ski Apache, which typically runs from Thanksgiving to Easter.
We hired approximately 450 additional full-time team members in connection with
the opening of the Resort. We have developed and implemented training programs
for our hotel and resort team members and believe that we will be able to hire
and train a sufficient number of employees for the operation of the Resort. Our
team members are not covered by any collective bargaining agreements. We believe
we have good labor relations with our team members.
WEBSITE AVAILABILITY OF OUR REPORTS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION
We maintain a website with the address www.innofthemountaingods.com. We are not
including the information contained on our website as a part of, or
incorporating it by reference into, this annual report on Form 10-K. We intend
to make available free of charge through our website our annual reports on Form
10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and
amendments to these reports, as soon as reasonably practicable after we
electronically file that material with, or furnish such material to, the
Securities and Exchange Commission.
ITEM 2. PROPERTIES
We do not currently, and will not, own the land on which our gaming and
resort enterprises are located, including the IMG Resort and Casino, the Travel
Center and a portion of Ski Apache. The U.S. government holds all of the land in
trust for the benefit of the Tribe. The use of tribal land is provided to us
rent-free. In addition, we have a special use permit from the United States
Department of Agriculture, Forest Service for the operation of the remaining
portion of Ski Apache. The special use permit expires on December 31, 2014.
ITEM 3. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
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.
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
The Resort has not issued or sold any equity securities.
12
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
The selected financial data set forth below for each of the five fiscal
years ended April 30, 2001, 2002, 2003, 2004, and 2005 have been derived from
our audited financial statements. You should read the following financial data
in conjunction with the section in this Form 10-K entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with our financial statements and the related notes included in this Form 10-K
beginning on page F-1. Our financial statements for each of the fiscal years
ended April 30, 2001, 2002, 2003 and 2004 were audited by Grant Thornton LLP.
Our financial statements for the year ended April 30, 2005, were audited by BDO
Seidman LLP, an independent registered public accounting firm, and are included
in this Form 10-K.
· Enlarge/Download Table
FISCAL YEAR ENDED
APRIL 30,
-----------------------------------------------------------------------
2001 2002 2003 2004 2005
(DOLLARS IN THOUSANDS)
STATEMENTS OF INCOME DATA:
Revenues:
Gaming....................... $ 39,655 $ 41,845 $ 46,942 $ 60,277 $ 64,254
Food and beverage............ 5,152 5,287 4,894 5,615 6,369
Rooms........................ 4,777 4,608 3,394 -- 1,168
Recreation and other......... 11,713 11,229 11,953 16,472 23,013
--------- -------- -------- --------- ---------
Gross revenues................ 61,297 62,969 67,183 82,364 94,804
Less: promotional allowances. 408 783 931 1,437 1,770
--------- -------- -------- --------- ---------
Net revenues.................. $ 60,889 $ 62,186 $ 66,252 $ 80,927 $ 93,034
Operating expenses: --------- -------- -------- --------- ---------
Gaming....................... 17,512 17,962 19,458 25,406 25,765
Reversal of accrued fees - - - (27,136) -
Food and beverage............ 5,310 5,067 4,955 6,587 7,274
Rooms........................ 2,517 2,219 1,552 120 651
Recreation and other......... 5,335 5,245 5,757 10,702 15,435
General and administrative... 6,529 5,672 6,500 9,038 9,841
Intercompany allocations
and charges................. - 2,726 3,183 4,271 5,544
Pre-opening costs and expenses - - 1,390 3,072 8,324
Depreciation and amortization 4,077 3,916 9,213 4,930 7,270
--------- -------- -------- --------- ---------
Total operating expenses..... 41,280 42,807 52,008 36,990 80,104
--------- -------- -------- --------- ---------
Income from operations........ 19,609 19,379 14,244 43,937 12,930
Interest income............... 1,545 288 190 802 657
Interest expense, net of amounts
capitalized.................. (497) (196) - (5,252) (11,544)
Other non-operating income.... 198 75 171 258 97
--------- -------- -------- --------- ---------
Net income.................... $ 20,855 $ 19,546 $ 14,605 $ 39,745 $ 2,140
========= ======== ======== ========= ========
OTHER FINANCIAL DATA:
EBITDA(1)..................... $ 23,884 $ 23,370 $ 23,628 $ 49,125 $ 20,200
Capital expenditures.......... 928 1,633 30,735 107,003 88,661
Cash provided by (used in) operating
activities................... 26,614 57,783 32,021 38,113 (3,135)
13
· Enlarge/Download Table
AS OF APRIL 30,
--------------------------------------------------------------------
2001 2002 2003 2004 2005
(DOLLARS IN THOUSANDS, EXCEPT PROPERTY DATA)
PROPERTY DATA (AS OF END OF PERIOD EXCEPT
WIN PER DAY DATA,
UNAUDITED):
Gross slot win per day........... $ 125 $ 134 $ 155 $ 140 $ 147
Table game win per day........... $ 550 $ 505 $ 632 $ 580 $ 646
Number of slot machines.......... 827 839 803 1,180 1,503
Number of table games............ 25 25 25 38 56
Number of hotel rooms............ 252 252 -- -- 273
Number of restaurant seats....... 450 450 200 200 803
Gaming square footage............ 22,600 22,600 22,600 39,600 55,000
BALANCE SHEET DATA:
Cash and cash equivalents........ $ 15,188 $21,810 $ 9,332 $15,795 $ 13,718
Total assets..................... 74,438 82,506 96,595 316,210 293,694
Total debt and capital lease obligations 2,729 2,104 7,453 201,947 201,528
Total equity..................... 37,609 6,098 1,159 59,004 58,143
---------------
<FN>
(1) We define EBITDA as earnings before interest, taxes, depreciation and
amortization. We are instrumentalities of a sovereign Indian nation and are
not subject to federal or state income tax. Below is a quantitative
reconciliation of EBITDA to the most directly comparable GAAP financial
performance measure, which is net income:
</FN>
· Enlarge/Download Table
FISCAL YEAR ENDED
APRIL 30,
---------------------------------------------------------
2001 2002 2003 2004 2005
(DOLLARS IN THOUSANDS)
Net income...................... $ 20,855 $ 19,546 $ 14,605 $ 39,745 $ 2,140
Interest expense (income), net. (1,048) (92) (190) 4,450 10,790
Depreciation and amortization.. 4,077 3,916 9,213 4,930 7,270
-------- -------- -------- -------- ---------
EBITDA.......................... $ 23,884 $ 23,370 $ 23,628 $ 49,125 $ 20,200
======== ======== ======== ======== =========
We caution you that amounts presented in accordance with our definition of
EBITDA may not be comparable to similar measures disclosed by other issues
because not all issuers and analysts calculate EBITDA in the same manner. EBITDA
is presented in this Form 10-K because management believes it is a useful
supplement to income from operations and cash provided by operating activities
in understanding cash flows available for debt service, capital expenditures and
Tribal distributions. Accordingly, our management utilizes EBITDA along with net
income, income from operations and other GAAP measures in evaluating our
operations and performance. EBITDA should not be considered as an alternative
measure of our net income, income from operations, cash flow or liquidity.
EBITDA is not a measurement of financial performance or liquidity in accordance
with GAAP. Although we believe EBITDA enhances your understanding of our
financial condition and results of operations, this non-GAAP financial measure,
when viewed individually, is not necessarily a better indicator of any trend as
compared to GAAP financial measures (E.G., income from operations, net revenues,
cash provided by operating activities) conventionally computed in accordance
with GAAP.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
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 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 April 30,
2005, we had 55,000-square feet of combined gaming space featuring 1,503 slot
machines and 56 table games between our facilities at IMG Resort and Casino,
opened in March 2005, and the Travel Center, opened in May 2003.
FOOD AND BEVERAGE. IMG Resort and Casino operates Wendell's, a 158-seat
casual and fine dining restaurant; Gathering of the Nations Buffet, a 250-seat
buffet style restaurant; a 100-seat sports bar; a 75-seat night club featuring
live entertainment and dancing, Wendell's Lounge, a "piano" lounge featuring an
oversized fireplace and the Apache Summit BBQ restaurant, a 85-seat casual
restaurant in the golf clubhouse. The Travel Center features Smoky `Bs, a
135-seat casual dining restaurant and two sports type bars. Ski Apache operates
one main restaurant and five satellite food and beverage outlets.
ROOMS. On March 15, 2005, we opened IMG Resort and Casino which includes
273 luxury hotel rooms. The hotel varies between four and eight stories in
height, depending upon the location along the hotel corridor, and allows for
easy traveling distance to and from the casino and events center. Our over-sized
deluxe guest rooms are either 480 square feet or 610 square feet and our suites
are 1,200 square feet (with the ability to connect to a 480 square foot deluxe
guest room, providing a total of 1,680 square feet in that configuration).
In-room amenities include high-speed Internet access, coffee makers, ironing
boards and irons, mini-bars, toiletries, free and pay-per-view movies and other
standard and premium channels. All rooms feature a balcony view of Lake
Mescalero and either Sierra Blanca Mountain or the forest-lined golf course. The
hotel also features an indoor swimming pool and fitness center including a yoga
and aerobics workout area, steam and sauna facilities for both men and women and
a family locker area.
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
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-K. 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
15
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. The
retail value of these promotional allowances are recognized by the Casino as a
reduction from gross revenue.
DISPOSAL OF LONG-LIVED ASSETS. Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," or
SFAS 144, 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.
CAPITALIZATION OF INTEREST. In accordance with Statement of Financial
Accounting Standards No. 34, "Capitalization of Interest Cost" ("SFAS 34"),
interest cost associated with major development and construction projects is
capitalized as part of the cost of the project. Interest is capitalized on
amounts expended on the project using the weighted-average cost of our
outstanding borrowings. Capitalization of interest started with the construction
of the project began in January 2004 and ended with the completion of the
project in March 2005. Interest capitalized on the Resort project totaled $14.3
million for the twelve months ended April 30, 2005.
PRE-OPENING AND DEVELOPMENT COST. Pre-opening and development cost are
expensed as incurred, consistent with Statement of Position 98-5 "REPORTING ON
THE COST OF START-UP ACTIVITIES." Pre-opening cost for the IMG Resort and Casino
were $8.3 million for the fiscal year ended April 30, 2005 and consisted
principally of personnel costs, training costs, marketing cost and payroll costs
for retaining the former employees of the Inn.
DISAGREEMENTS WITH THE STATE OF NEW MEXICO. The Tribe challenged the
legality of the revenue sharing prescribed by the 1997 Compact, claiming them to
be an illegal tax on Indian gaming under the IGRA. 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. The settlement agreement
provided 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. 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 Resort began accruing 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, the Resort began accruing regulatory fees, at the rate of $100,000
per year, from the date the approval of the 2001 Compact is published in the
Federal Register with our first payment for regulatory fees under the 2001
Compact due on the first day of the first full calendar quarter thereafter. As a
result of the compact settlement, the Resort reversed approximately $27.1
million
16
of previously recorded revenue sharing expenses. 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. The Resort made the remaining
$23.0 million payment required under the settlement agreement in August 2004.
Following the payment of the $25.0 million settlement amount, the additional
$3.0 million we had reserved to pay for our accrued liability relating to the
1997 Compact, held in a restricted account, became unrestricted cash. The
settlement with the State of New Mexico was reflected in operating costs and
expenses as a settlement of revenue sharing and regulatory fees in the
consolidated statements of income and regulatory fees paid in advance through
2005 and recorded as a prepaid expense in the consolidated balance sheets.
The terms of the 2001 Compact are substantially similar to the terms of the
1997 Compact and revenue sharing agreement, except for the following material
differences:
o revenue sharing fees under the 2001 Compact are 8% of "net win" from
gaming, rather than 16% as provided by the 1997 Compact;
o regulatory fees under the 2001 Compact are $100,000 per year, while
the 1997 Compact requires quarterly regulatory fees (subject to an
annual increase of 5% beginning on January 1, 1999) of $6,250 per
gaming facility, $300 per gaming machine and $750 per gaming table;
o the 2001 Compact expires June 30, 2015, while the 1997 Compact expires
on August 29, 2006, subject to an automatic one year extension; and
o insurance coverage required by the 2001 Compact to insure the Tribe,
IMG and its employees and agents from claims against liability for
bodily injury and property damages by a visitor is required to be at
least $50 million, while the 1997 Compact requires $10.0 million of
such coverage.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED APRIL 30, 2005 COMPARED TO FISCAL YEAR ENDED APRIL 30, 2004
NET REVENUES. Net revenues increased $12.1 million, or 15.0%, to $93.0
million for the fiscal year ended April 30, 2005 from $80.9 million for the
fiscal year ended April 30, 2004. The increase was due to increases in gaming
revenues, food and beverage revenue, recreation and retail revenue, and revenue
from our new hotel. Player reward redemptions are included in gross revenues but
are deducted as a promotional allowance to arrive at net revenues.
GAMING. Gaming revenues increased $4 million, or 6.6%, to $64.3 million for
the fiscal year ended April 30, 2005 from $60.3 million at the fiscal year ended
April 30, 2004. Slot revenues led the increase, growing to $55.2 million for the
fiscal year ended April 30, 2005 from $64.3 million for the fiscal year ended
April 30, 2004, an increase of $2.5 million, or 4.7%. Gross slot win per unit
was $147 for the fiscal year 2005 compared to $140 for the fiscal year 2004; in
this period the weighted average number of units increased by 323, or 27.4%.
Table games revenue increased $1.5 million, or 19.7%, to $9.1 million for the
fiscal year ended April 30, 2005 from $7.6 million for the fiscal year ended
April 30, 2004. The increase was the result of the increase in the table game
hold to 22.5% for the fiscal year ended April 30, 2005 from 18.7% for the fiscal
year ended April 30, 2000, while drop remained relatively stable increasing $0.2
million to $40.5 million for fiscal year 2005 from $40.2 million for fiscal year
2004.
FOOD AND BEVERAGE. Food and beverage revenues increased $0.8 million, or
14.3%, to $6.4 million for the fiscal year ended April 30, 2005 from $5.6
million for the fiscal year ended April 30, 2004. The increase was due to the
opening of IMG Resort and Casino in March 2005 and increased sales at Smokey
B's, our casual dining restaurant at the Travel Center.
17
Smokey B's, our casual dining restaurant at the Travel Center in May 2003 and
the opening of the new resort in March 2005.
ROOMS. Room revenues totaled $1.2 million for the fiscal year ended April
30, 2005 following the opening of the new resort in March 2005.
RECREATION AND OTHER. Recreation and other revenues increased $6.5 million,
or 39.4%, to $23.0 million for the fiscal year ended April 30, 2005 from $16.5
million for the fiscal year ended April 30, 2004. The increase was due to
increases in revenues at Ski Apache as a result of additional skiers due to a
much better then average snowfall and increased retail revenues at the Travel
Center.
PROMOTIONAL ALLOWANCES. Promotional allowances increased $0.4 million, or
28.6%, to $1.8 million for the fiscal year ended April 30, 2005 from $1.4
million for the fiscal year ended April 30, 2004. The increase in gaming
revenues and the opening of IMG Resort and Casino have resulted in an increase
in promotional allowances.
TOTAL OPERATING EXPENSES. Total operating expenses increased $43.1 million,
or 116.5%, to $80.1 million for the fiscal year ended April 30, 2005 from $37.0
million for the fiscal year ended April 30, 2004. The increase was primarily due
to the reversal of previously recorded revenue sharing and State regulatory fees
as a result of the settlement of the Compact dispute offset by an increase in
our gaming and pre-opening expenses and depreciation expense associated with the
opening of IMG Resort and Casino in March 2005.
GAMING. Gaming expenses increased $0.4 million, or 1.6%, to $25.8 million
for the fiscal year ended April 30, 2005 from $25.4 million for the fiscal year
ended April 30, 2004. The increase was primarily due to the addition of team
members at IMG Resort and Casino which opened in March 2005.
FOOD AND BEVERAGE. Food and beverage expenses increased $0.7 million or
0.7%, to $7.3 million for the fiscal year ended April 30, 2005 from $6.6 million
for the fiscal year ended April 30, 2004, primarily due to the addition of food
and beverage team members at IMG Resort and Casino which opened in March 2005.
ROOMS. Costs and expenses associated with hotel rooms increased $0.6
million, or 600.0%, to $0.7 for the fiscal year ended April 30, 2005 from $0.1
million for the fiscal year ended April 30, 2004, due to the opening of IMG
Resort and Casino in March 2005.
RECREATION AND OTHER. Recreation and other costs increased $4.7 million, or
43.9%, to $15.4 million for the fiscal year ended April 30, 2005 from $10.7
million for the fiscal year ended April 30, 2004. The increase was primarily
attributable to the increased cost of sales and related expenses for the
convenience store, smoke shop, refueling center and laundry and shower
facilities and additional expenses at Ski Apache to support the additional skier
visits during the year ended April 30, 2005.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$0.8 million, or 8.9%, to $9.8 million for the fiscal year ended April 30, 2005
from $9.0 million for the fiscal year ended April 30, 2004. 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.
PENSION EXPENSES. Pension expenses allocated by the Tribe decreased $0.6
million, or 31.6%, to $1.3 million for the fiscal year ended April 30, 2005 from
$1.9 million for the fiscal year ended April 30, 2004. The decrease was
primarily due to the decision by the Tribe to curtail the retirement plan on
November 30, 2004, resulting in our ability to cease making contributions to the
retirement plan as of that date.
GAMING REGULATORY COMMISSION EXPENSES. Gaming and regulatory commission
expenses allocated by the Tribe increased $1.4 million, or 116.7%, to $2.6
million for the fiscal year ended April 30, 2005 from $1.2 million for the
fiscal year ended April 30, 2004. The increase was primarily due to an increase
in expenses due to the addition of staff in response to the needs of IMG Resort
and Casino.
MEDICAL INSURANCE EXPENSES. Medical and health insurance expenses
administered by the Tribe increased $0.5 million, or 55.6%, to $1.4 million for
the fiscal year ended April 30, 2005 from $0.9 million for the fiscal year ended
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April 30, 2004. The increase was primarily due to an increase in expenses due to
the addition of staff in response to the needs of IMG Resort and Casino.
TELECOMMUNICATIONS EXPENSES. Telecommunications expenses charge by the
Mescalero Apache Telecommunications decreased $0.1 million, or 33.3%, to $0.2
million for the fiscal year ended April 30, 2005 from $0.3 million for the
fiscal year ended April 30, 2004. The decrease was primarily due to use of
advanced technology at IMG Resort and Casino.
PRE-OPENING COSTS AND EXPENSES. Pre-opening expenses were $8.3 million for
the fiscal year ended April 30, 2005 compared to $3.1 million for the fiscal
year ended April 30, 2004, 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 $2.4
million to $7.3 million for the fiscal year ended April 30, 2005 from $4.9
million for the fiscal year ended April 30, 2004. The increase was primarily the
result of the opening of IMG Resort and Casino in March 2005.
OPERATING INCOME. Operating income decreased $31.0 million, or 70.6%, to
$12.9 million for the fiscal year ended April 30, 2005 from $43.9 million for
the fiscal year ended April 30, 2004. The decrease in operating income was
primarily due to the reversal of previously recorded revenue sharing and State
regulatory fees as a result of the settlement of the Compact dispute in the
prior year and increase in pre-opening expenses and depreciation expenses
associated with the opening of IMG Resort and Casino in March 2005.
OTHER INCOME (EXPENSES). Other income (expenses) increased $6.6 million to
$(10.8) million for the fiscal year ended April 30, 2005 from $(4.2) million for
the fiscal year ended April 30, 2004. The increase was primarily due to interest
expense, net of amounts capitalized, in an amount equal to $11.5 million during
the period. Other income (expenses) is comprised of interest income and other
income minus interest expense and other expense.
FISCAL YEAR ENDED APRIL 30, 2004 COMPARED TO FISCAL YEAR ENDED APRIL 30, 2003
NET REVENUES. Net revenues increased $14.6 million, or 22.0%, to $80.9
million for the fiscal year ended April 30, 2004 from $66.3 million for the
fiscal year ended April 30, 2003. The increase was due to an increase in gaming
revenues offset by a decrease in room revenue and a decrease in food and
beverage revenue due to the closure of the Inn in January 2003. Player reward
redemptions are included in gross revenues but are deducted as a promotional
allowance to arrive at net revenues.
GAMING. Gaming revenues increased $13.4 million, or 28.6%, to $60.3 million
for the fiscal year ended April 30, 2004 from $46.9 million at the fiscal year
ended April 30, 2003. Slot revenues led the increase, growing to $52.7 million
for the fiscal year ended April 30, 2004 from $41.2 million for the fiscal year
ended April 30, 2003, an increase of $11.5 million, or 27.9%. Gross slot win per
unit was $134 for the fiscal year 2004 compared to $155 for the fiscal year
2002; in this period the weighted average number of units increased by 552, or
87.9%. Table games revenue increased $1.8 million, or 31.0%, to $7.6 million for
the fiscal year ended April 30, 2004 from $5.8 million for the fiscal year ended
April 30, 2003. The increase was the result of the increase in the table game
drop of $11.7 million, or 40.9%, to $40.3 million for the fiscal year ended
April 30, 2004 from $28.6 million for the fiscal year ended April 30, 2003,
combined with a reduction in hold percentage to 18.7% for the fiscal year ended
April 30, 2004 from 20.2% for the fiscal year ended April 30, 2003.
FOOD AND BEVERAGE. Food and beverage revenues increased $.7 million, or
14.3%, to $5.6 million for the fiscal year ended April 30, 2004 from $4.9
million for the fiscal year ended April 30, 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. Room revenues decreased $3.4 million, or 100%, for the fiscal year
ended April 30, 2004 due to the closure of the Inn in January 2003.
RECREATION AND OTHER. Recreation and other revenues increased $4.5 million,
or 37.5%, to $16.5 million for the fiscal year ended April 30, 2004 from $12.0
million for the fiscal year ended April 30, 2003. The increase was due
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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 increased $0.5 million, or
55.6%, to $1.4 million for the fiscal year ended April 30, 2004 from $0.9
million for the fiscal year ended April 30, 2003. The increase in gaming
revenues and the opening of the Travel Center have resulted in an increase in
promotional allowances.
TOTAL OPERATING EXPENSES. Total operating expenses decreased $15.0 million,
or 28.8%, to $37.0 million for the fiscal year ended April 30, 2004 from $52.0
million for the fiscal year ended April 30, 2003. The decrease was primarily due
to the reversal of previously recorded revenue sharing and State regulatory fees
as a result of the settlement of the Compact dispute offset by an increase in
our gaming and pre-opening expenses associated with the opening of the Travel
Center in May 2003.
GAMING. Gaming expenses increased $5.9 million, or 30.3%, to $25.4 million
for the fiscal year ended April 30, 2004 from $19.5 million for the fiscal year
ended April 30, 2003. The increase was primarily due to the addition of team
members at the Travel Center which opened in May 2003.
FOOD AND BEVERAGE. Food and beverage expenses increased $1.6 million or
32.0%, to $6.6 million for the fiscal year ended April 30, 2004 from $5.0
million for the fiscal year ended April 30, 2003, primarily due to the addition
of food and beverage team members at the Travel Center coupled with an increase
in the cost of sales due to increased food covers.
ROOMS. Costs and expenses associated with hotel rooms decreased $1.5
million, or 93.8%, to $0.1 for the fiscal year ended April 30, 2004 from $1.6
million for the fiscal year ended April 30, 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 $4.9 million, or
84.5%, to $10.7 million for the fiscal year ended April 30, 2004 from $5.8
million for the fiscal year ended April 30, 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
$2.5 million, or 38.5%, to $9.0 million for the fiscal year ended April 30, 2004
from $6.5 million for the fiscal year ended April 30, 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. This increase in expenses was
partially offset by a reduction in utilities and other expenses related to the
closure of the Inn in January 2003.
PENSION EXPENSES. Pension expenses allocated by the Tribe increased $0.3
million, or 18.8%, to $1.9 million for the fiscal year ended April 30, 2004 from
$1.6 million for the fiscal year ended April 30, 2003. The increase was
primarily due to an increase in expenses due to the addition of staff in
response to the needs of the Travel Center.
GAMING REGULATORY COMMISSION EXPENSES. Gaming and regulatory commission
expenses allocated by the Tribe increased $0.4 million, or 50.0%, to $1.2
million for the fiscal year ended April 30, 2004 from $0.8 million for the
fiscal year ended April 30, 2003. The increase was primarily due to an increase
in expenses due to the addition of staff in response to the needs of the Travel
Center.
MEDICAL INSURANCE EXPENSES. Medical and health insurance expenses
administered by the Tribe increased $0.3 million, or 50.0%, to $0.9 million for
the fiscal year ended April 30, 2004 from $0.6 million for the fiscal year ended
April 30, 2003. The increase was primarily due to an increase in expenses due to
the addition of staff in response to the needs of the Travel Center.
TELECOMMUNICATIONS EXPENSES. Telecommunications expenses charge by the
Mescalero Apache Telecommunications increased $0.1 million, or 50.0%, to $0.3
million for the fiscal year ended April 30, 2004 from $0.2 million for the
fiscal year ended April 30, 2003. The increase was primarily due to an increase
in expenses due to the opening of the Travel Center.
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PRE-OPENING COSTS AND EXPENSES. Pre-opening expenses were $3.1 million for
the fiscal year ended April 30, 2004 compared to $1.4 million for the fiscal
year ended April 30, 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 decreased $4.3
million to $4.9 million for the fiscal year ended April 30, 2004 from $9.2
million for the fiscal year ended April 30, 2003. The decrease was primarily the
result of the demolition of the Inn in January 2003.
OPERATING INCOME. Operating income increased $29.7 million, or 209.2%, to
$43.9 million for the fiscal year ended April 30, 2004 from $14.2 million for
the fiscal year ended April 30, 2003. The increase in operating income was
primarily due to the reversal of previously recorded revenue sharing and State
regulatory fees as a result of the settlement of the Compact dispute offset by
an increase in our gaming and pre-opening expenses associated with the opening
of the Travel Center in May 2003.
OTHER INCOME (EXPENSES). Other income (expenses) increased $4.6 million to
$(4.2) million for the fiscal year ended April 30, 2004 from $0.4 million for
the fiscal year ended April 30, 2003. The increase was primarily due to interest
expense, net of amounts capitalized, in an amount equal to $5.3 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, 2005 and 2004, we had cash and cash equivalents (net of
amounts in restricted accounts) of $13.7 million and $15.8 million,
respectively. Our principal sources of liquidity for fiscal year 2005 consisted
of net cash provided by financing activities of $95.2 million and for fiscal
2004 consisted of net cash provided in operating activities of $38.1 million.
Net cash used in operating activities for fiscal 2005 were primarily a payment
of revenue sharing expenses of $23.0 million as a result of the compact
settlement. Net cash provided by operating activities for fiscal 2004 increased
$6.1 million over fiscal 2003. Cash flows from operating activities was $38.1
million for the fiscal year ended April 30, 2004 compared to $32.0 million for
the fiscal year ended April 30, 2003. The $6.1 million increase included net
income of $39.7 million in net income with increases in interest payable of
$12.0 million offset by a reduction of accrued revenue sharing and regulatory
fees of $16.8 million and an increase in prepaid revenue sharing fees as a
result of the Compact settlement.
Cash used in investing activities for fiscal year 2005 and 2004 was $94.1
million and $100.5 million, respectively, and primarily relates to construction
costs for the Project. Cash used in investing activities for fiscal year 2003
was $23.5 and primarily relates to construction costs for the Travel Center.
Cash provided from financing activities for fiscal year 2005 was $95.2
million and primarily related to the use of restricted cash to pay construction
payables of $96.9 million along with $10.0 million in contributions by the Tribe
offset by $13.0 million in Tribal distributions. Cash provided from financing
activities was $68.9 million for the fiscal year ended April 30, 2004 compared
to $20.9 million used by financing activities for the fiscal year ended April
30, 2003. The $89.8 million increase in cash provided from financing activities
is primarily due to the issuance of $200.0 million in senior notes offset by
$10.9 million in deferred financing costs, $4.7 million in debt payments, and
$151.6 million of cash held for use in paying construction expenditures for the
construction of the Project. Cash used from financing activities for fiscal year
2003 was $21.0 million and primarily related to distributions and payments to
the Tribe offset by equity contributions to fund the Travel Center and other
costs related to the Project.
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We believe that existing cash balances and operating cash flows will
provide adequate funds for our working capital needs, planned capital
expenditures, including equipment and furnishings for the Resort 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.
At April 30, 2005 accrued interest payable on the Notes was $11.2 million. 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 April 30, 2005, the balance in
the interest reserve account was $11.9 million;
o a construction disbursement account, which was funded at the time the
Notes were sold with approximately $94.3 million and was used to fund
completion of the Resort. As of April 30, 2005, the balance in the
construction disbursement account was $1,180;
o a construction reserve account, which was funded at the time the Notes
were sold approximately $53.6 million and was 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 April 30, 2005, the balance in the construction reserve account
was $15.6 million; and
o a construction retainage account. As of April 30, 2005, the balance in
the construction retainage account was $8.2 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.
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 April 30, 2005, there was approximately $1.5 million outstanding on
the BIA Note.
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., one of the nation's
largest financial services firms. The fixed rate loan is fully
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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. At April 30, 2005 no funds
had been drawn against this facility. During May and June 2005, we drew $14.9
million against this facility to finance purchases of furniture, fixtures and
equipment for the Project.
OFF-BALANCE SHEET ARRANGEMENTS
As of April 30, 2005, 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 April 30, 2005, our scheduled
principal, interest and other contractual annual cash obligations due by us for
each of the periods indicated below (Dollars in thousands):
· Enlarge/Download Table
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.. $201,660 $278 $592 $646 $200,144
Other Contractual Obligations 1,328 428 200 200 500
Total....................... $202,988 $706 $792 $846 $200,644
Under the 2001 state compact, the Resort is obligated to pay revenue
sharing expenses based on 8% of slot revenue and also a state regulatory fee of
$100,000 per year.
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.
Occupancy fee for the years ended April 30, 2003, 2004 and 2005 totaled
approximately $121,000, $130,000 and 137,200 respectively.
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 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
fiscal years ended April 30, 2003, 2004 or 2005 , 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.
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NEW ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards, or SFAS, No. 151, "Inventory Costs," ("SFAS
151"), an amendment of Accounting Research Bulletin No. 43, Chapter 4. SFAS No.
151 is the result of a broader effort by the FASB working with the International
Accounting Standards Board to reduce differences between United States and
international accounting standards. SFAS No. 151 eliminates the "so abnormal"
criterion in ARB 43 and companies will no longer be permitted to capitalize
inventory costs on their balance sheets when the production defect rate varies
significantly from the expected rate. It also makes clear that fixed overhead
should be allocated based on "normal capacity." SFAS 151 is effective for
inventory costs incurred during fiscal periods beginning after June 15, 2005.
The Company does not believe that the adoption of SFAS 151 will have a material
effect on our results of operations or consolidated financial position.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair value
measurement for nonmonetary exchanges of similar productive assets in paragraph
21(b) of APB Opinion No. 29, "Accounting for Nonmonetary Transactions," and
replaces it with an exception for exchanges that do not have commercial
substance. SFAS 153 specifies that a nonmonetary exchange have commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS 153 is effective for fiscal
periods beginning after June 15, 2005. The Company does not believe that the
adoption of SFAS 153 will have a material effect on our results of operations or
consolidated financial position.
In May 2005, the Financial Accounting Standards Board, issued Statement of
Financial Accounting Standards SFAS No. 154, "Accounting Changes and Error
Corrections"("SFAS 154"). SFAS 154 replaces APB No. 20, "Accounting Changes" and
SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements" and
establishes retrospective application as the required method for reporting a
change in accounting principle. SFAS 154 provides guidance for determining
whether retrospective application of a change in accounting principle is
impracticable and for reporting a change when retrospective application is
impracticable. The reporting of a correction of an error by restating previously
issued financial statements is also addressed. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The Company does not believe that the adoption of SFAS
154 will have a material effect on our results of operations or consolidated
financial position
RISK FACTORS
SEVERAL OF THE MATTERS DISCUSSED IN THIS REPORT CONTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. FACTORS ASSOCIATED WITH THE
FORWARD-LOOKING STATEMENTS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM THOSE
PROJECTED OR FORECASTED IN THIS REPORT ARE INCLUDED IN THE STATEMENTS BELOW. IN
ADDITION TO OTHER INFORMATION CONTAINED IN THIS REPORT, YOU SHOULD CAREFULLY
CONSIDER THE FOLLOWING CAUTIONARY STATEMENTS AND RISK FACTORS. THE RISKS AND
UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY RISKS AND UNCERTAINTIES WE FACE.
ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE
CURRENTLY DEEM IMMATERIAL ALSO MAY IMPAIR OUR BUSINESS OPERATIONS. IF ANY OF THE
FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION, AND RESULTS
OF OPERATIONS COULD SUFFER. THE RISKS DISCUSSED BELOW ALSO INCLUDE
FORWARD-LOOKING STATEMENTS AND OUR ACTUAL RESULTS MAY DIFFER SUBSTANTIALLY FROM
THOSE DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS
RISKS RELATING TO OUR BUSINESS
WE HAVE A SUBSTANTIAL AMOUNT OF INDEBTEDNESS, WHICH COULD ADVERSELY AFFECT OUR
FINANCIAL CONDITION.
As of April 30, 2005, we had an aggregate of approximately $201.5 million
of indebtedness outstanding, which includes $200.0 million of debt on the notes
issued on November 3, 2003. This substantial indebtedness could have important
consequences to you and significant effects on our business and future
operations. For example, it could:
o make it more difficult for us to satisfy our debt service obligations;
o increase our vulnerability to general adverse economic and industry
conditions or a downturn in our business;
24
o limit our ability to fund future working capital, capital expenditures
and other general operating requirements;
o require us to dedicate a substantial portion of our cash flow from
operations to service our outstanding indebtedness, thereby reducing
the availability of our cash flow to fund working capital, capital
expenditures, the Project and other general operating requirements;
o place us at a competitive disadvantage compared to our competitors
that have less debt; and
o limit our ability to borrow additional funds.
Our indebtedness could result in a material adverse effect on our business,
financial condition and results of operations. If we incur additional debt in
the future, these adverse consequences could intensify.
OUR FAILURE TO GENERATE SUFFICIENT CASH FLOW FROM OUR GAMING AND OTHER RESORT
OPERATIONS COULD ADVERSELY AFFECT OUR ABILITY TO MEET OUR DEBT SERVICE
OBLIGATIONS.
Our ability to make payments on and repay or refinance our debt will depend
on our ability to generate cash flow from the operations of our gaming and other
resort operations. Our ability to generate sufficient cash flow from operations
to satisfy our obligations will depend on our future operating performance,
which is subject to many economic, competitive, regulatory and other business
factors that are beyond our control. If we are not able to generate sufficient
cash flow to service our debt obligations, we may need to refinance or
restructure our debt, sell assets, reduce or delay capital investments, or seek
to raise additional capital. For the following reasons, among others, these
alternatives may not be available to us on reasonable terms or at all, or, if
available, they may not be available in amounts adequate to enable us to satisfy
our debt service obligations:
o unlike non-governmental businesses, we are prohibited by law from
generating cash through an offering of equity securities;
o our ability to incur additional debt is limited by the covenants of
the indenture governing the notes; and
o the indenture governing the notes includes covenants which limit our
ability to create liens on or sell our assets.
If our cash flow is insufficient and we are unable to raise additional
capital, we may not be able meet our debt service obligations.
RESTRICTIVE COVENANTS IN THE INDENTURE GOVERNING THE NOTES MAY LIMIT OUR ABILITY
TO EXPAND OUR OPERATIONS AND CAPITALIZE ON OUR BUSINESS OPPORTUNITIES.
The indenture governing the notes includes covenants which limit our
ability to borrow money, make investments, create liens, sell assets, engage in
transactions with affiliates, engage in other businesses and engage in mergers
or consolidations. These restrictive covenants may limit our ability to expand
our operations and capitalize on business opportunities. If we are unable to
expand our operation or otherwise capitalize on our business opportunities, our
business, financial condition and results of operations could be materially
adversely affected and we may not be able to meet our debt service obligations.
WE MAY NOT BE ABLE TO REALIZE THE BENEFITS OF OUR BUSINESS STRATEGY.
The Project is part of our business strategy to develop an integrated
resort, increase our market reach and realize operating benefits from business
synergies. We may not be able to fully implement this strategy or may not fully
realize these anticipated benefits. Implementation of our business strategy
could be adversely affected by a number of factors beyond our control, including
general or local economic conditions, increased competition or other changes in
our industry. In particular, we may not be able to attract a sufficient number
of guests, gaming customers and other visitors in order to achieve our
performance goals. Furthermore, we may not be successful in our plan to promote
our customers' utilization of our various resort amenities, including our
gaming, hotel, entertainment and other amenities as anticipated or to a degree
that will allow us to achieve our performance goals. Additionally, our business
strategy, intended to capitalize on the spending levels of our patrons, attract
customers from new target
25
markets and reduce seasonality, may not achieve its intended results. A failure
to effectively implement our business strategy could have a material adverse
effect on our business, financial condition, results of operations and our
ability to meet our debt service obligations.
FEDERAL, STATE AND TRIBAL LAWS AND REGULATIONS, AND OUR GAMING COMPACT, REGULATE
OUR GAMING OPERATIONS AND NONCOMPLIANCE WITH THESE LAWS AND REGULATIONS BY US OR
THE TRIBE, AS WELL AS CHANGES IN THESE LAWS AND REGULATIONS (WHICH ARE
SUSCEPTIBLE TO CHANGES IN PUBLIC POLICY) OR FUTURE INTERPRETATIONS THEREOF,
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR ABILITY TO CONDUCT GAMING, AND THUS
ON OUR ABILITY TO MEET OUR DEBT SERVICE OBLIGATIONS.
Federal, state and Tribal laws and regulations, and our gaming compact,
regulate our gaming operations. For example, various regulatory bodies,
including the NIGC, the Mescalero Apache Tribal Gaming Commission and the New
Mexico Gaming Control Board have oversight of our gaming operations. In
addition, Congress has regulatory authority over Indian affairs and can
establish and change the terms upon which Indian tribes may conduct gaming. The
operation of all gaming on Indian lands is subject to IGRA.
The legal and regulatory environment governing our activities, which
involve gaming and commercial relations with Indian tribes, is susceptible to
changes in public policy regarding these matters. For example, over the past
several years, legislation has been introduced in Congress designed to address a
myriad of perceived problems with IGRA, including proposed legislation repealing
many of the provisions of IGRA and prohibiting the operation of gaming on Indian
reservations in states where gaming is not otherwise allowed on a commercial
basis. While none of the substantive proposed amendments to IGRA have proceeded
out of committee hearings to a vote by either house of the U.S. Congress, we
cannot predict the ramifications of future legislative acts. Changes in
applicable laws or regulations, or a change in the interpretation of these laws
or regulations or our gaming compact with the State of New Mexico could limit or
materially affect the types of gaming, if any, that we may offer. Any
restrictions with respect to gaming could have a material adverse effect on our
business, financial condition, results of operations and our ability to meet our
debt service obligations.
WE COMPETE WITH CASINOS, OTHER FORMS OF GAMING AND OTHER RESORT PROPERTIES. IF
WE ARE NOT ABLE TO SUCCESSFULLY COMPETE, WE WILL NOT BE ABLE TO GENERATE
SUFFICIENT CASH FLOW TO MEET OUR DEBT SERVICE OBLIGATIONS..
Currently, we compete with 15 tribal gaming casinos and non-tribal racinos
operated within 200 miles of our location, one of which, Ruidoso Downs, is
approximately 10 miles away from us in Ruidoso, and another, Sunland Park
Racetrack and Casino, is approximately 125 miles away from us in Sunland Park,
New Mexico. Ruidoso Downs offers quarter horse and thoroughbred racing from May
through September, as well as a 20,000 square foot casino featuring
approximately 300 slot machines and a buffet restaurant. Sunland Park offers
quarter horse and thoroughbred racing from mid-November to early-April, a 36,000
square foot casino featuring approximately 700 slot machines and five
restaurants. The other 11 tribal gaming casinos and one racino are located in
and around Albuquerque and Santa Fe, New Mexico, all which are outside of our
primary market area. We also compete with other forms of legal gaming in New
Mexico, Texas and Northern Mexico, including horse racing, Class II gaming,
pari-mutuel wagering, the New Mexico State Lottery, the Texas State Lottery, as
well as non-gaming leisure activities. We intend to expand our existing
geographic market and increase the percentage of our overnight and larger
spending customers who tend to live greater distances from us. The Project will
allow us to compete more directly for regional overnight and national customers
with casinos and resorts located in other parts of the country. Many of our
competitors in this expanded geographical market have substantially greater
resources and name recognition than we do or are in a more convenient location,
which is closer to a major population center or transportation hub. If we are
unable to compete successfully, our business, financial condition and results of
operations could be materially adversely affected and we may not be able to meet
our debt service obligations.
WE ARE HIGHLY DEPENDENT ON OUR SURROUNDING MARKET AREA. AS A RESULT, WE FACE
GREATER RISKS THAN A GEOGRAPHICALLY DIVERSE COMPANY.
We rely primarily on drive-in customers living within our primary market
area consisting of southern New Mexico, western Texas and northern Mexico for
the majority of our revenues. We expect to increase our market reach, but if our
marketing strategy is not successful, our primary customer base will continue to
be a predominately local one. Therefore, we are subject to greater risks than
more geographically diversified gaming or resort
26
operations. Among others, the following conditions could have a material adverse
effect on our results of operations:
o a decline in the economies of our primary market area or a decline in
the number of gaming customers from these areas for any reason;
o an increase in competition in our primary market area or the
surrounding area;
o inaccessibility due to road construction or closures of primary access
routes; and
o natural and other disasters in the surrounding area including forest
fires and floods.
These factors may cause a disruption in our business and as a result have a
material adverse effect on our business, financial condition, result of
operations and our ability to meet our debt service obligations.
OUR BUSINESS IS SUBJECT TO CONTINGENCIES BEYOND OUR CONTROL, INCLUDING THE
AFTERMATH OF TERRORIST ACTS AND WARS, WHICH MAY SIGNIFICANTLY AND ADVERSELY
AFFECT OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND ABILITY TO
MEET OUR DEBT SERVICE OBLIGATIONS.
We hope to attract customers from beyond our primary market who will have
to travel by air to our property. The recent war with Iraq, the terrorist
attacks of September 11, 2001, the United States' ongoing military campaign
against terrorism, and continued violence, conflicts and instability in other
areas of the world have created many economic and political uncertainties, some
of which may affect our ability to attract customers outside our current primary
market as well as our operations and profitability. The potential short-term and
long-term effects that these and similar other situations and events may have
for our customers, our primary and secondary markets and the U.S. economy in
general are uncertain. These and similar other future events could have a
significant impact on the number of customers visiting the Travel Center and the
Resort and, as a result, may have a material adverse effect on our business,
financial condition, results of operations and ability to meet our debt service
obligations.
WE MAY FACE DIFFICULTIES IN RECRUITING, TRAINING AND RETAINING QUALIFIED
EMPLOYEES.
The operation of our resort requires us to continuously recruit and retain
a substantial number of qualified professionals, employees, executives and
managers with gaming, hospitality, management and financial reporting
experience. There can be no assurances that we will be able to recruit, train
and retain a sufficient number of qualified employees. A failure to be able to
recruit and retain qualified personnel could result in management, operating and
financial reporting difficulties or affect the experience and enjoyment of our
patrons, either of which could have a material adverse effect on our business,
financial condition, results of operations or ability to meet our debt service
obligations.
WE DO NOT HAVE A HISTORY OF OPERATING ON AS LARGE OF A SCALE AS CONTEMPLATED BY
THE PROJECT.
As a result of the Project, our business operations is significantly
expanded in size and diversity. Our gaming space grew by more than 32,000 square
feet (including the addition of a second casino location) and our gaming
positions by approximately 700 slot machines and 22 table games. In addition, we
have significantly expanded restaurant, lounge and bar operations, a fuel
station and a number of additional retail facilities. The expansion of our
resort operations places a significant demand on our management resources which
may affect our ability to effectively manage our growth. These increased demands
on our management could distract them from the operation of our business, which
could have a material adverse effect on our business, financial condition,
results of operations and ability to meet our debt service obligations.
A CHANGE IN OUR CURRENT NON-TAXABLE STATUS COULD HAVE A MATERIAL ADVERSE EFFECT
ON OUR CASH FLOW AND OUR ABILITY TO FULFILL OUR DEBT SERVICE OBLIGATIONS.
Based on current interpretations of federal and state tax laws, we are not
a taxable entity for federal and state income tax purposes. If these
interpretations are reversed or modified, or if the applicable tax law changes
in this regard, our cash flow and ability fulfill our debt service obligations
may be adversely affected.
27
Efforts have been made in Congress over the past several years to tax the
income of tribal business enterprises. These have included a House of
Representatives bill that would have taxed gaming income earned by Indian tribes
as business income subject to corporate tax rates. Although that legislation has
not been enacted, similar legislation could be enacted in the future. Any future
legislation permitting the taxation of the Tribe or our businesses could have a
material adverse effect on our business, financial condition, results of
operations or ability to meet our debt service obligations.
THE TERMS OF FOUR OF THE EIGHT VOTING MEMBERS OF THE TRIBAL COUNCIL EXPIRE EACH
YEAR AND THE TERMS OF THE TRIBE'S PRESIDENT AND VICE PRESIDENT EXPIRE EVERY TWO
YEARS; CHANGES IN THE TRIBAL COUNCIL OR ITS POLICIES COULD AFFECT THE PROJECT OR
OTHER ASPECTS OF OUR BUSINESS.
The Tribe is governed by a ten member Tribal Council, consisting of the
President and Vice President of the Tribe and eight voting Tribal Council
members. The President is a non-voting member of the Tribal Council and the
Tribe's Vice President only votes in the event of a tie in the voting of the
eight voting members of the Tribal Council. Terms of all Tribal Council members
(including the President and Vice President of the Tribe) are two years, with
members elected on a staggered basis so that four Tribal Council members are
elected each year. The terms of four of the voting members of the Tribal Council
expire in January 2006. If there is a significant change in the composition of
the Tribal Council, the new Tribal Council may not have the same agenda or goals
as the current government, in particular with respect to the Project. In
addition, the Tribal Council acts by majority vote and with respect to any issue
or policy, a change in views by one or more members could result in a change in
the policy adopted by the Tribal Council. Changes in the Tribal Council or its
policies could result in significant changes in our structure or operations or
in the Project, which could adversely affect our business plan or otherwise
result in a material adverse effect in our business, financial condition,
results of operations or ability to meet our debt service obligations.
ITEM 7A. 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 debt. As of April 30, 2005, 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 April 30, 2005, the Resort held no derivative instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
28
Our Consolidated Financial Statements and notes thereto appear on pages F-3
through F-30.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES.
As of the end of the period covered by this annual 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.
ITEM 9B. OTHER INFORMATION.
None.
29
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Tribe has established IMG Resort and Casino as an unincorporated
enterprise of the Tribe to operate its gaming, hotel, resort and ski businesses.
IMG Resort and Casino is governed by a Management Board comprised of between
seven to nine members, including: the four members of the Executive Committee of
the Tribe (including the President of the Tribe who serves as Chairperson, as
well as the Vice President, Secretary and Treasurer of the Tribe); the Chief
Operating Officer of IMG Resort and Casino, and at least one, and up to three,
independent members. The Management Board designates officers to administer the
economic and business affairs of IMG Resort and Casino.
The following are our current officers and members of the Management Board
of IMG Resort and Casino:
· Enlarge/Download Table
NAME AGE POSITION
--------------------------------------------------------------------------------------
Mark Chino........... 51 Management Board Member (Chairperson),
President of the Tribe
Frederick Chino, Sr. 60 Management Board Member,
Vice President of the Tribe
Alfred LaPaz 57 Management Board Member,
Treasurer of the Tribe
Naomi Sainz 49 Management Board Member,
Secretary of the Tribe
Manuel Lujan, Jr. ... 77 Management Board Member
R. Miles Ledgerwood 50 Management Board Member
Brian Parrish........ 43 Management Board Member,
Chief Operating Officer of IMG Resort and Casino
Richard Williams..... 60 Chief Financial Officer of IMG Resort and Casino
Wayne Marks.......... 59 Director of Finance of IMG Resort and Casino
There are no family relationships between any Management Board Member and/or any executive officer.
MARK CHINO has served as Chairperson of the Management Board of IMG Resort
and Casino and President of the Tribe since January 2004. Mr. Chino's term on
the Tribal Council and Executive Committee expires in January 2006. Prior to his
election as President of the Tribe, Mr. Chino was employed by the Bureau of
Indian Affairs for nearly 30 years, serving as a Police Officer, Lead Police
Officer (Sergeant) and Supervisory Police Officer (Lieutenant) from 1975 to
1988, and then as a Criminal Investigator from 1988 to 2004. Mr. Chino received
a Bachelor of Police Science degree from New Mexico State University in 1977.
FREDERICK CHINO, SR. has served as a member of the Management Board of IMG
Resort and Casino since January 2005 and Vice President of the Tribe since
January 2005. Mr. Chino retired from the Public Health Service in 1993 following
23 years of service and has been active in Tribal activities.
ALFRED LAPAZ has served as a member of the Management Board of IMG Resort
and Casino since June 2004. Mr. LaPaz also serves as Treasurer of the Tribal
Council and as Chairperson of the Programs Committee. Mr. LaPaz's term on the
Tribal Council and Executive Committee expires in January 2005. Since 2000, Mr.
LaPaz has been employed by IMG Resort and Casino as Director of Security. Prior
to his experience at IMG Resort and Casino, Mr. LaPaz was employed with the
Federal Law Enforcement and retired as Captain after 30 years service.
NAOMI SAINZ was appointed to the Mescalero Apache Tribal Council in August
of 2004. She serves as Secretary to the Tribal Council and as Chairperson of the
Audit Committee of the Management Board. Ms. Sainz has also worked with the
Mescalero Fire Department since 2003. Prior to working with the Fire Department,
Ms. Sainz worked as a grant writer for the Tribe from 2001-2003.
MANUEL LUJAN JR. has served as an independent member of the Management
Board of IMG Resort and Casino since January 2004. Mr. Lujan also currently
serves as the Chairman of the board of directors of Laguna Construction Company,
which is owned by the Pueblo of Laguna in New Mexico. Mr. Lujan served as U.S.
30
Congressman representing the State of New Mexico from January 1969 to January
1989 and as Secretary of the Interior under the Bush Administration from 1989 to
1993. Since 1993, Mr. Lujan has served as a lobbyist in Washington, D.C. through
his company Manuel Lujan Associates, a consulting firm dealing with matters
involving federal agencies.
R. MILES LEDGERWOOD has served as a member of the Management Board of IMG
Resort and Casino since March 2004. Mr. Ledgerwood has also served as President
and CEO of Alamogordo Federal Savings and Loan Association since 1983. Mr.
Ledgerwood also currently serves as a member of the Board of Directors of
Alamogordo Financial Corporation, Alamogordo Federal Savings and Loan
Association and Space Age City Service Corporation.
BRIAN PARRISH has served as a member of the Management Board of IMG Resort
and Casino and as acting Chief Operating Officer since July 2005. Prior to
serving as acting Chief Operating Officer, Mr. Parrish served as the Director of
Marketing of IMG Resort and Casino since January 2003. Mr. Parrish has over 15
years of marketing experience, recently at the Venetian Resort Hotel Casino in
Las Vegas, Nevada, where he was Vice President of Marketing from 2000 to 2002.
Prior to his experience at the Venetian, Mr. Parrish served as Vice President of
Hotel Operations and Regional Marketing of the Boyd Gaming Corporation from 1999
to 2000 and as Regional Vice President of Marketing from 1997 to 1999. Mr.
Parrish also served as Director of Casino Marketing for the Flamingo Hilton in
Las Vegas, Nevada from 1993 to 1995. Mr. Parrish also worked in the U.S. Defense
Intelligence Industry from 1983 to 1988.
RICHARD WILLIAMS has served as Chief Financial Officer of IMG Resort and
Casino since September 2003. Mr. Williams has over 30 years of financial
management experience in public and private companies, and has significant
experience in the casino and development industries, most recently as Chief
Financial Officer at the East Valley Tourist Development Authority, an
instrumentality of the Cabazon Band of Mission Indians near Palm Springs,
California, from July 2002 to September 2003. Mr. Williams also served as Chief
Financial Officer of the Cabazon Tribe from September 2001 to June 2002. Prior
to his experiences at the Cabazon Tribe and the Authority, from 1996 to 2001,
Mr. Williams was Senior Vice President of Finance for Herbalife International,
Inc. and The Irvine Company from 1985 to 1995. Mr. Williams also served as Vice
President and Controller at Caesars World, Inc., Wickes Companies, Inc. and
Trusthouse Forte, Inc., and as an Adjunct Professor of Finance for the Executive
M.B.A. Program of the University of Southern California, or USC, Chairman of the
Board of Advisors for USC's School of Accounting and member of the Real Estate
Committee of the AICPA. Mr. Williams is a certified public accountant.
WAYNE MARKS has served as Director of Finance of IMG Resort and Casino
since March 2004. Previously, Mr. Marks served as a Financial Consultant of IMG
Resort and Casino from December 2003 to March 2004. Mr. Marks has over 35 years
of financial management and consulting experience in public and private
companies, and has significant experience in the casino and financial services
industries, most recently as Director of Finance at the East Valley Tourist
Development Authority (Fantasy Springs Resort and Casino), an instrumentality of
the Cabazon Band of Mission Indians near Palm Springs, California, from January
2000 to December 2003. Prior to his experiences at the Authority, Mr. Marks was
General Manager of Fiesta Slots and Bingo in Lima, Peru from July 1997 to
December 1999 and served as Chief Financial Officer of sureBET Casino, Inc. the
parent company of Fiesta Slots and Bingo. Mr. Marks also worked and held senior
financial positions in the Federal Farm Credit System for 18 years.
AUDIT COMMITTEE FINANCIAL EXPERT
On behalf of the Board, the Audit Committee is responsible for providing an
independent, objective review of our auditing, accounting and financial
reporting process, public reports and disclosures, and system of internal
controls regarding financial accounting. Currently, R. Miles Ledgerwood serves
as the audit committee financial expert.
CODE OF ETHICS
We have adopted a Code of Business Conduct and Ethics applicable to all of
our employees, including our Chief Executive Officer, Chief Financial Officer,
Principal Accounting Officer and all other senior financial executives, and to
our directors when acting in their capacity as directors. Our Code of Business
Conduct and Ethics
31
is designed to set the standards of business conduct and ethics and to help
directors and employees resolve ethical issues. The purpose of our Code of
Business Conduct and Ethics is to ensure to the greatest possible extent that
our business is conducted in a consistently legal and ethical manner. Employees
may submit concerns or complaints regarding audit, accounting, internal controls
or other ethical issues on a confidential basis by means of a toll-free
telephone call or an anonymous email. We investigate all concerns and
complaints. Copies of our Code of Business Conduct and Ethics are available to
investors upon written request. Any such request should be sent by mail to Inn
of the Mountain Gods Resort and Casino, 287 Carrizo Canyon Road, Mescalero, New
Mexico 88340, Attn: Chief Operating Officer or should be made by telephone by
calling (505) 464-7004.
We intend to disclose on our website amendments to, or waivers from, any
provision of our Code of Business Conduct and Ethics that apply to our Chief
Executive Officer, Chief Financial Officer, Principal Accounting Officer and
persons performing similar functions and amendments to, or waivers from, any
provision which relates to any element of our Code of Business Conduct and
Ethics described in Item 406(b) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, as to the Chief Operating Officer and as to
each of the other four most highly compensated executive officers whose
compensation exceeded $100,000 during fiscal 2005 (referred to as the named
executive officers), information concerning all compensation paid for services
to us in all capacities for each of the three years ended April 30 indicated
below.
· Enlarge/Download Table
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
NAME AND PRINCIPAL AWARDS PAYOUTS
POSITION(1) ------ -------
-----------
YEAR SALARY BONUS OTHER RESTRICTED SECURITIES LTIP ALL
---- ------ ----- ---------- ---------- ---------- ---- ---
ANNUAL STOCK UNDERLYING PAYOUTS OTHER
---------- ---------- ---------- ------- -----
COMPENSATION AWARD(S) OPTIONS/SARS COMPENSATION
------------- ---------- ------------ ------------
Brian Parrish,
Chief Operating
Officer(2)............... 2005 $181,105 $76,524(3) $ 24,000(4) $ -- $ -- $ -- $ --
2004 $175,072 $ -- $ 24,000(4) $ -- $ -- $ -- $ --
2003 $ 72,947 $19,500 $ 10,000(4) $ -- $ -- $ -- $ --
Michael French,
Former Chief Operating
Officer(5)............... 2005 $267,634 $76,524(3) $ 36,000(6) $ -- $ -- $ -- $ --
2004 $250,000 $23,238 $ 36,000(6) $ -- $ -- $ -- $ --
2003 $107,958 $ -- $ 15,000(6) $ -- $ -- $ -- $ --
Richard Williams,
Chief Financial
Officer(7)............... 2005 $207,000 $76,524(3) $ 24,000(9) $ -- $ -- $ -- $ --
2004 $121,667 $50,000(8) $ 16,000(9) $ -- $ -- $ -- $ --
2003 $ -- $ -- $ -- $ -- $ -- $ -- $ --
Wayne Marks(10)
Director of Finance.... 2005 $125,000 $ -- $ -- $ -- $ -- $ -- $ --
2004 $ 10,417 $ -- $ -- $ -- $ -- $ -- $ --
2003 $ -- $ -- $ -- $ -- $ -- $ -- $ --
<FN>
------------------
(1) Other than as set forth below, none of our other officers received
compensation in excess of $100,000 during the last fiscal year.
(2) Effective July 22, 2005, Brian Parrish was appointed Chief Operating
Officer and member of the Management Board of IMG Resort and Casino. Mr.
Parrish was initially hired on December 12, 2002 to serve as Director of
Marketing of IMG Resort and Casino and receives an annual salary of
$175,072 and certain other compensation. IMG Resort and Casino has not
entered into a new employment agreement with Mr. Parrish.
(3) Consists of a bonus as per employment contract.
(4) Consists of a housing allowance of $2,000 per month, calculated from
December 2003 to April 2005.
(5) Michael French was hired on December 5, 2002 and received an annual salary
of $267,634 and certain other compensation. Effective July 22, 2005, Mr.
French resigned as Chief Operating Officer and member of the Management
Board of IMG Resort and Casino and terminated his employment agreement with
IMG Resort and Casino. In connection with his resignation, IMG Resort and
Casino entered into a resignation agreement with Mr. French, which provides
for Mr. French to receive a lump sum payment equal to Mr. French's current
annual salary, housing allowance and automobile allowance for a period of
twelve months.
(6) Consists of a housing allowance of $3,000 per month, calculated from
December 2002 to April 2005.
32
(7) Richard Williams, our Chief Financial Officer, was hired in September 2003
and receives an annual salary of $207,000 and certain other compensation.
(8) Consists of a signing bonus.
(9) Consists of a housing allowance of $2,000 per month, calculated from
September 2003 to April 2005.
(10) Wayne Marks, our Director of Finance, was hired in March 2004 and receives
an annual salary of $130,000.
</FN>
COMPENSATION OF THE MANAGEMENT BOARD AND AUDIT COMMITTEE
Members of the Management Board who are officers of the Resort but are not
Tribal members do not receive any additional compensation or fees for attending
Management Board or Audit Committee meetings. Tribal members serving on the
Management Board and Audit Committee receive $200 per meeting. Independent
members serving on the Management Board and Audit Committee receive $500 per
meeting and an additional $1,000 per quarter.
EMPLOYMENT AGREEMENTS
BRIAN PARRISH. Effective July 22, 2005, Mr. Parrish was appointed acting
Chief Operating Officer of IMG Resort and Casino. Pursuant to an employment
agreement dated December 2002, Mr. Parrish provides services to the IMG Resort
and Casino as its Director of Marketing until April 30, 2008. The agreement
provides that either Mr. Parrish or IMG Resort and Casino may terminate the
agreement for any reason whatsoever. If either Mr. Parrish or IMG Resort and
Casino terminates the agreement involuntarily, IMG Resort and Casino is
obligated to pay Mr. Parrish the then current monthly base salary, benefits and
allowance continuation for a period of six months or until Mr. Parrish has
secured employment with another employer. IMG Resort and Casino is not required
to pay any compensation if Mr. Parrish terminates the agreement voluntarily. Mr.
Parrish receives an annual salary of $181,105, as well as a bonus based on
one-quarter of one percent (.25%) of the adjusted net profits of IMG Resort and
Casino's resort operations.
RICHARD WILLIAMS. Pursuant to an employment agreement dated September 22,
2003, Mr. Williams provides services to the IMG Resort and Casino as its Chief
Financial Officer until April 30, 2006. The agreement provides that either Mr.
Williams or IMG Resort and Casino may terminate the agreement for any reason
whatsoever. If either Mr. Williams or IMG Resort and Casino terminates the
agreement involuntarily, IMG Resort and Casino is obligated to pay Mr. Williams
the then current monthly base salary, benefits and allowance continuation for a
period of six months or until Mr. Williams has secured employment with another
employer. IMG Resort and Casino is not
33
required to pay any compensation if Mr. Williams terminates the agreement
voluntarily. Mr. Williams receives an annual salary of $207,000, as well as a
signing bonus, housing allowance and a bonus equal to the greater of $25,000 per
year or one-quarter of one percent (.25%) of the adjusted net profits of IMG
Resort and Casino's resort operations.
WAYNE E. MARKS. Pursuant to an employment agreement dated March 2004, Mr.
Marks provides services to the IMG Resort and Casino as its Director of Finance
and Chief Accounting Officer until March 2007. The agreement provides that
either Mr. Marks or IMG Resort and Casino may terminate the agreement for any
reason whatsoever. If either Mr. Marks or the IMG Resort and Casino terminates
the agreement involuntarily, IMG Resort and Casino is obligated to pay Mr. Marks
the then current monthly base salary, benefits and allowance continuation for a
period of six months. IMG Resort and Casino is not required to pay any
compensation if Mr. Marks terminates the agreement voluntarily. Mr. Marks
receives an annual salary of $130,000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
DISTRIBUTIONS TO THE TRIBE WITH OTHER PAYMENTS
Distributions to the Tribe were $45.7 million, $13.2 and $13.0 million for
the fiscal years ended April 30, 2003, 2004 and 2005, respectively. We make
distributions to the Tribe under the terms of an annual Tribal budget resolution
passed at the discretion of the Tribal Council. We intend to continue to make
distributions to the Tribe subject to the restrictions set forth in the
indenture, which generally provide we can make no distributions unless we meet
certain debt leverage tests, other than the following: (a) $5.0 million in
aggregate at any one time, (b) $8.0 million a year for government services and
(c) amounts to fund a resolution of the Tribe's dispute with the State of New
Mexico regarding the 1997 Compact.
The Tribe provides health insurance to IMG Resort and Casino, which
reimburses the Tribe for all costs and expenses associated with this insurance.
IMG Resort and Casino paid the Tribe approximately $0.6 million, $0.9 million
and $1.4 million for the fiscal years ended April 30, 2003, 2004 and 2005,
respectively.
The Tribe provides pension benefits to IMG Resort and Casino. No
contributions have been made to the Tribe for any period through October 2003.
Beginning in November 2003, IMG Resort and Casino began making payments equal to
our pro-rata share of the Tribe's periodic pension cost. The pro-rata periodic
pension cost related to IMG Resort and Casino has been $1.6 million, $1.9
million and $1.3 million for the fiscal years ended April 30, 2003, 2004 and
2005, respectively. On November 30, 2004, the Tribe elected to curtail the
retirement plan, resulting in IMG Resort and Casino's ability to cease making
contributions to the retirement plan as of that date.
TRIBAL TAXES
The Tribal Code provides for the imposition of a gross receipts tax on the
sale of food, beverages, retail sales and services and the rental of rooms on
the Mescalero Reservation. The rate of the tax is comparable to the cumulative
state and local sales or use tax imposed on identical transactions taking place
outside the reservation and within the State of New Mexico. This tax applies to
sales at our current operations and will apply to sales on future operations.
IMG Resort and Casino collects and remits the gross receipts tax to the Tribe on
a monthly basis.
The Tribal Code also provides for the collection of an excise tax on
gasoline sold at retail on the Mescalero Reservation. The rate of the tax is
equivalent to the same tax imposed by the State of New Mexico on identical
transactions taking place outside the reservation and within the State of New
Mexico. IMG Resort and Casino collects and remits the excise tax to the Tribe on
a monthly basis.
The Tribal Code also provides for the imposition of a special assessment
school tax on the resort enterprises to provide a source of funds to service
debt incurred to construct the Tribe's K-12 School. The rate of the tax, for
each month, is equal to the difference between $200,000 and all taxes imposed on
or collected by and remitted by the resort enterprises to the Tribe for that
month. If the total taxes imposed on us by the Tribe for any month is greater
than $200,000, then the special assessment tax for that month is zero.
34
SHARED SERVICES AND COST ALLOCATIONS
In connection with the issuance of the original notes, IMG Resort and
Casino and the Tribe entered into a service and cost allocation agreement,
provides that the Tribe or its enterprises will continue to provide IMG Resort
and Casino and its resort enterprises the following services in accordance with
past practice: (i) insurance; (ii) telecommunications; (iii) propane; (iv)
payroll processing; and (v) gaming regulation, and that IMG Resort and Casino
and its resort enterprises will pay, on behalf of the Tribe, for (a) revenue
sharing and regulatory fee obligations required under the 1997 Compact or any
new compact, (b) federal regulatory fees required by IGRA, (c) an amount equal
to the monthly payments required under the BIA Note and (d) amounts for certain
other miscellaneous liabilities.
EMPLOYEE BENEFITS COST ALLOCATIONS
In connection with the issuance of the original notes, IMG Resort and
Casino and the Tribe entered into an employee benefits cost allocation
agreement, which provides that the Tribe will continue to provide IMG Resort and
Casino and its resort enterprises with certain employee benefits in accordance
with past practice, including group health benefits, worker's compensation
insurance, disability insurance, unemployment benefits and pension benefits.
ATM FEES
IMG Resort and Casino does not receive revenues from the use by our
customers of the ATM machines provided at our business locations. Pursuant to
agreements with third party ATM providers, the Tribe receives a portion of the
transaction fees paid by ATM users. The Tribe will continue to receive payments
related to the ATM services provided in our new facilities under similar
arrangements, and we will receive no revenue from these services.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The following table sets forth the aggregate fees billed to IMG Resort and
Casino for fiscal 2005 by BDO Seidman, LLP and Grant Thornton LLP and 2004 by
Grant Thornton LLP:
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PERCENTAGE
YEAR ENDED APRIL 30, OF SERVICES
2004 2005 2004 2005
---- ---- ---- ----
Audit Fees $307,241 $333,235 93.23% 96.67%
Audit-Related Fees 22,293 6,203 6.77% 1.80%
Tax Fees - - - -
All Other Fees - 5,281 - 1.53%
Total Fees $329,534 $344,719 100% 100%
"Audit Fees" billed during fiscal 2004 and 2005 were for professional
services rendered for the audit of our financial statements. "Audit-Related
Fees" were for services related to accounting consultation and review of
documents filed with the Securities and Exchange Commission. "All Other Fees"
consist of fees for products and services other than the services reported
above.
The Audit Committee has adopted a policy for the pre-approval of all audit
and non-audit services to be performed for IMG Resort and Casino by its
independent auditor. The Audit Committee has considered the role of BDO Seidman,
LLP and Grant Thornton LLP in providing audit and audit-related services to IMG
Resort and Casino and has concluded that such services are compatible with BDO
Seidman, LLP and in the prior year Grant Thornton LLP's role as IMG Resort and
Casino's independent auditor. For the twelve months ended April 30, 2005 BDO
Seidman, LLP rendered services totaling $257,971 and Grant Thornton LLP rendered
services totaling $86,748.
35
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) FINANCIAL STATEMENTS - See Index to Consolidated Financial
Statements of this Annual Report on Form 10-K.
(2) FINANCIAL STATEMENT SCHEDULES - All financial statement schedules have
been omitted because they are not applicable or are not required, or
because the information required to be set forth therein is included
in the Consolidated Financial Statements or Notes thereto.
(3) EXHIBITS - See Exhibit Index on pages 36-37 of this Annual Report on
Form 10-K.
(b) None.
(c) See Exhibit Index on pages 36-37 of this Annual Report on Form 10-K.
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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.
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 September 22, 2003, between the Mescalero Apache Tribe and
Richard Williams.
10.5*** Employment Agreement dated December 12, 2002 between the Mescalero Apache Tribe and
Brian Parrish.
10.6 Resignation Agreement dated July 21, 2005, between IMG Resort and Casino and
Michael French (filed herewith).
36
10.7*** 2001 Compact between the Mescalero Apache Tribe and the State of New Mexico, entered
into June 1, 2004.
14.1*** Code of Business Conduct and Ethics of Inn of the Mountain Gods Resort and Casino
14.2*** Code of Ethics for Principal Executive Officer and Senior Financial Officer.
21.1* Subsidiaries of the Registrant.
24.1 Power of Attorney (Included with Signature Page)
31.1 Certification of Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
31.2 Certification of Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
32.1 Certification of Principal Executive Officer and Principal Financial Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
* 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 registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on the Reservation of the Mescalero
Apache Tribe, State of New Mexico, on July 28, 2005.
INN OF THE MOUNTAIN GODS RESORT AND CASINO
By /s/ Brian D. Parrish
------------------------------------
Brian D. Parrish
Its: Chief Operating Officer and
Management Board Member
Each person whose signature appears below constitutes and appoints Brian
Parrish and Richard Williams, and each of them, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and his name, place and stead, in any and all capacities, to sign any or
all amendments to this Annual Report on Form 10-K and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
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SIGNATURE TITLE DATE
/s/ Mark Chino
--------------------------- Management Board Member (Chairperson) July 28, 2005
Mark Chino
/s/ Frederick Chino, Sr.
--------------------------- Management Board Member July 28, 2005
Frederick Chino, Sr.
/s/ Alfred LaPaz
-------------------------- Management Board Member July 28, 2005
Alfred LaPaz
/s/ Naomi Sainz
-------------------------- Management Board Member July 28, 2005
Naomi Sainz
/s/ Manuel Lujan, Jr.
-------------------------- Management Board Member July 28, 2005
Manuel Lujan, Jr.
/s/ Brian D. Parrish Chief Operating Officer and Management July 28, 2005
-------------------------- Board Member
Brian D. Parrish (Chief Executive Officer)
/s/ Richard Williams
-------------------------- Chief Financial Officer July 28, 2005
Richard Williams
/s/ Wayne Marks
-------------------------- Director of Finance JULY 28, 2005
Wayne Marks (Chief Accounting Officer)
INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
UNINCORPORATED BUSINESS ENTERPRISES OF THE MESCALERO APACHE TRIBE
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Registered Public Accounting Firms.......... F-2
Audited Financial Statements
Consolidated Balance Sheets as of April 30, 2004 and 2005....... F-4
Consolidated Statements of Income for the Years ended
April 30, 2003, 2004 and 2005................................ F-5
Consolidated Statements of Changes in Equity for the Years
ended April 30, 2003, 2004 and 2005.......................... F-6
Consolidated Statements of Cash Flows for the Years ended
April 30, 2003, 2004 and 2005................................ F-7
Notes to Consolidated Financial Statements...................... F-9
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Management Board
Inn of the Mountain Gods Resort and Casino and subsidiaries
Mescalero, New Mexico
We have audited the accompanying consolidated balance sheet of Inn of the
Mountain Gods Resort and Casino and subsidiaries (the "Company"), an
unincorporated enterprise of the Mescalero Apache Tribe, as of April 30, 2005,
and the related statements of income, changes in equity, and cash flows for the
year ended April 30, 2005. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
controls over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Inn of the Mountain
Gods Resort and Casino and subsidiaries as of April 30, 2005 and the results of
its operations and its cash flows for the year ended April 30, 2005, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ BDO Seidman, LLP
Los Angeles, California
July 1, 2005
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Management Board
Inn of the Mountain Gods Resort and Casino and subsidiaries
Mescalero, New Mexico
We have audited the accompanying consolidated balance sheets of the Inn of the
Mountain Gods Resort and Casino and subsidiaries, an unincorporated enterprise
of the Mescalero Apache Tribe, as of April 30, 2004 and the related consolidated
statements of income, changes in equity, and cash flows for each of the two
years in the period ended April 30, 2004. These financial statements are the
responsibility of the Inn of the Mountain Gods Resort and Casino and
subsidiaries management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Inn of the
Mountain Gods Resort and Casino and subsidiaries, as of April 30, 2004 and the
results of their operations and their cash flows for the each of the two years
in the period ended April 30, 2004, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Grant Thornton LLP
Albuquerque, New Mexico
June 25, 2004
F-3
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INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF APRIL 30,
2004 2005
----------------- -------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 15,794,943 $ 13,718,521
Restricted cash and cash equivalents 133,297,243 35,870,686
Accounts receivable, net Inventories 32,566 577,476
Prepaid expenses 968,585 1,429,506
Prepaid revenue sharing fees 462,054 860,189
4,218,673 -
----------------- -------------------
Total current assets 154,774,064 52,456,378
NON CURRENT ASSETS:
Property, plant and equipment, net 150,329,503 231,721,074
Long term deferred financing cost, net 11,029,493 9,321,141
Other long-term assets 76,912 195,213
----------------- -------------------
Total assets $ 316,209,972 $ 293,693,806
================= ===================
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable and other short-term liabilities $ 612,873 $ 2,673,507
Construction accounts payable 13,609,367 8,145,734
Accrued expenses 5,322,061 11,005,212
Accrued revenue sharing and regulatory fees 23,000,000 -
Accrued interest 12,048,378 11,200,450
Deposits and advance payments 667,100 997,365
Current portion of long-term debt 252,053 254,007
----------------- -------------------
Total current liabilities 55,511,832 34,276,275
NON CURRENT LIABILITIES:
Long-term debt, net of current portion 201,694,541 201,274,181
----------------- -------------------
Total liabilities 257,206,373 235,550,456
----------------- -------------------
COMMITMENTS AND CONTINGENCIES (Note 10)
EQUITY:
Contributed capital
56,113,676 58,143,350
Retained earnings (deficit) 2,889,923 -
----------------- -------------------
Total equity 59,003,599 58,143,350
----------------- -------------------
Total liabilities and equity $ 316,209,972 $ 293,693,806
================= ===================
The accompanying notes are an integral part of these statements.
F-4
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INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED APRIL 30,
2003 2004 2005
---- ---- ----
Revenues:
Gaming $ 46,942,180 $ 60,277,052 $ 64,254,312
Food and beverage 4,893,997 5,614,672 6,368,994
Rooms 3,394,434 - 1,168,484
Recreation and other 11,952,860 16,471,890 23,012,602
---------- ----------- ----------
Gross revenue 67,183,471 82,363,614 94,804,392
Less - promotional allowances 931,160 1,437,129 1,770,462
---------- ----------- ----------
Net revenue 66,252,311 80,926,485 93,033,930
---------- ----------- ----------
Operating costs and expenses:
Gaming 19,457,655 25,405,661 25,765,169
Reversal of accrued fees - (27,136,255) -
Food and beverage 4,955,537 7,273,668
6,587,472
Rooms 1,552,133 651,118
119,722
Recreation and other 5,757,452 10,701,499 15,434,816
General and administrative 6,500,909 9,037,815 9,840,983
Pension (allocated by related party) 1,631,828 1,886,333 1,289,615
Gaming regulatory commission
fees (charged by related party) 750,821 1,193,011 2,615,775
Insurance (allocated by related party) 647,000 902,621 1,408,164
Telecommunication (charged by related party) 152,200 289,182 231,592
Pre-opening costs and expenses 1,389,967 3,071,982 8,323,930
Depreciation and amortization 9,213,224 4,930,236 7,269,578
---------- ----------- ----------
Total operating expenses 52,008,726 36,989,279 80,104,408
---------- ----------- ----------
Income from operations 14,243,585 43,937,206 12,929,522
Other income (expenses):
Interest income 190,120 801,266 657,110
Interest expense, net of amounts capitalized - (5,251,687) (11,543,860)
Other income 170,984 258,098 97,020
Total other income (expenses) 361,104 (4,192,323) (10,789,730)
Net income $ 14,604,689 $ 39,744,883 $ 2,139,792
============ ============ ===========
The accompanying notes are an integral part of these statements
F-5
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INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEARS ENDED APRIL 30,
Retained
Contributed Earnings Total
Capital (Deficit) Equity
--------------- ---------------- ----------------
Balances, April 30, 2002 $ 3,826,099 $ 2,272,257 $ 6,098,356
Contributed capital from Mescalero Apache Tribe:
Construction of the Resort 14,389,215 - 14,389,215
Forgiveness of due from Inn 9,443,716 - 9,443,716
Forgiveness of allocated pension cost 1,631,828 - 1,631,828
Distributions to Mescalero Apache Tribe:
State revenue sharing fee accrual transfer (4,446,781) - (4,446,781)
Forgiveness of due to Casino - (13,405,098) (13,405,098)
Forgiveness of due to Ski - (1,193,833) (1,193,833)
Operating transfers - (25,962,771) (25,962,771)
Net Income - 14,604,689 14,604,689
--------------- ---------------- ----------------
Balances, April 30, 2003 24,844,077 (23,684,756) 1,159,321
Contributed capital from Mescalero Apache Tribe:
Construction of the Resort 29,960,298 - 29,960,298
Forgiveness of allocated pension cost 1,309,301 - 1,309,301
Distributions to Mescalero Apache Tribe:
Operating transfers - (13,170,204) (13,170,204)
Net income - 39,744,883 39,744,883
--------------- ---------------- ---------------
Balances, April 30, 2004 56,113,676 2,889,923 59,003,599
Contributed capital from Mescalero Apache Tribe:
Construction of Resort 9,999,959 - 9,999,959
Distributions to Mescalero Apache Tribe:
Capital Distribution/Operating Transfers (7,970,285) ( 5,029,715) (13,000,000)
Net Income - 2,139,792 2,139,792
--------------- ---------------- ---------------
Balances, April 30, 2005 $ 58,143,350 $ - $58,143,350
=============== ================ ===============
These accompanying notes are an integral part of these statements.
F-6
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INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30,
2003 2004 2005
Cash flows from operating activities: ------------- ----------------- -----------------
Net income $ 14,604,689 $ 39,744,883 $ 2,139,792
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 9,213,224 4,930,236 7,269,578
Gain on sale of property, plant and equipment (13,741) - -
Changes in assets and liabilities:
Restricted cash and cash equivalents (114,304) (58,265) 533,514
Accounts receivable, net of allowance (58,908) 143,096 (544,910)
Inventories (267,736) (113,056) (460,921)
Prepaid revenue sharing fees - (4,218,673) 4,218,673
Prepaid expenses (77,586) (173,056) (398,135)
Other long-term assets (1,000) (60,911) (118,301)
Accounts payable 583,895 (797,598) 2,060,634
Accrued expenses 454,795 3,571,823 5,255,709
Accrued revenue sharing and regulatory fees 7,717,219 (16,821,082) (22,572,558)
Accrued interest payable - 12,048,378 (847,928)
Deposits and advance payments (20,034) (82,408) 330,265
------------- ----------------- -----------------
Net cash provided by (used in) in operating
activities 32,020,513 38,113,367 (3,134,588)
------------- ----------------- -----------------
Cash flows from investing activities:
Purchase of property, plant and equipment (30,734,563) (107,003,099) (88,661,149)
Construction accounts payable 7,155,922 6,453,445 (5,463,633)
Proceeds from sale of property, plant and equipment 35,198 - -
------------- ----------------- -----------------
Net cash used in investing activities (23,543,443) (100,549,654) (94,124,782)
------------- ----------------- -----------------
Cash flows from financing activities:
Deferred financing costs (100,000) (10,929,493) 1,708,352
Cash held for construction payments - (132,763,729) 96,893,043
Cash proceeds from the issuance of notes - 200,000,000 -
Advances from Mescalero Apache Tribe, net (6,660,807) - -
Borrowings on revolving line-of-credit 5,000,000 - -
Principal borrowings (payments) on long-term debt,
net 349,764 (5,506,865) (418,406)
Distributions to Mescalero Apache Tribe (45,008,483) (13,170,204) (13,000,000)
Contributions from Mescalero Apache Tribe 25,464,759 31,269,599 9,999,959
------------- ----------------- -----------------
F-7
Net cash (used in) provided by financing activities (20,954,767) 68,899,308 95,182,948
------------- ----------------- -----------------
Net increase (decrease) in cash and cash equivalents (12,477,697) 6,463,021 (2,076,422)
Cash and cash equivalents, beginning of year 21,809,619 9,331,922 15,794,943
------------- ----------------- -----------------
Cash and cash equivalents, end of year $ 9,331,922 15,794,943 13,718,521
Supplemental cash flow information: ============= ================= =================
Cash paid for interest $ 173,407 60,115 24,250,669
============= ================= =================
Non-cash investing and financing activities:
Distributions to Mescalero Apache Tribe $ 1,193,833 $ 38,981,173 $ -
============= ================= =================
Property, plant and equipment acquired through
increase of payable, net $ 7,155,922 $ 6,453,445 $ -
Contributions from Mescalero Apache Tribe $ 7,820,274 $ 1,309,301 $ -
============= ================= =================
The accompanying notes are an integral part of these statements
F-8
INN OF THE MOUNTAIN GODS RESORT AND CASINO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2003, 2004 AND 2005
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.
Inn of the Mountain Gods (the "Casino") offers Class III gaming as defined
by the Indian Gaming Regulatory Act, on the 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 was opened for commercial business
on March 15, 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.
F-9
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 IMG Resort and Casino 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, 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 $9,321,141 as of April
30, 2005. The amortization related to this deferred financing cost was
$791,812 and $1,708,352 for the years ended April 30, 2004 and 2005,
respectively.
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:
F-10
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NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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
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 Statement of Accounting Standards No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS ("SFAS 144"), which established
the approach to be used in the determination of impairment.
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 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. As
a result of the demolition of the hotel, the adoption of SFAS 144 for the
year ended April 30, 2003 resulted in an impairment of the demolished
portion of the Inn's hotel related property, plant and equipment of
approximately $5,391,000, which was recorded as depreciation expense in the
accompanying consolidated statements of income during fiscal 2003 (see Note
5).
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 was $216.0 million at April 30, 2005,
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.
F-11
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 $931,000, $1,437,000 and
$1,770,000 for the years ended April 30, 2003, 2004 and 2005, respectively.
The Casino's Apache Spirit Club 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 players club
points liability is included in accrued expenses and totaled approximately
$380,000 and $931,000 at April 30, 2004 and 2005, respectively.
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 $837,000, $1,288,000 and $641,000 for the fiscal years ended
April 30, 2003, 2004 and 2005, 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 Casino, was included in casino expenses as follows:
· Download Table
Year Ended April 30,
2003 2004 2005
------------ ------------ ------------
Rooms $ 175,133 $ - $ 46,607
Food and beverage 231,131 40,475 200,099
Other 17,617 22,169 31,439
------------ ------------ ------------
$ 423,881 $ 62,644 $ 278,145
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.
F-12
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 fiscal year 2005 and 2004 construction
period. 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.
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 years ended
April 30, 2003, 2004 and 2005 were approximately $696,000, $1,426,000 and
$3,171,000 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 $200,000 and $200,000 for tax payable to the Tribe as of
April 30, 2004 and 2005. The amounts are recorded as an accrued expense in
the accompanying consolidated balance sheets. The Tribe re-classified
approximately $2,553,000 of tax payable from the Inn to equity contribution
to the Inn as of April 30, 2003 to reflect the forgiveness of the tax
payable.
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 November 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards, or SFAS, No. 151, "Inventory Costs,"
("SFAS 151"), an amendment of Accounting Research Bulletin No. 43, Chapter
4. SFAS No. 151 is the result of a broader effort by the FASB working with
the International Accounting Standards Board to reduce differences between
United States and international
F-13
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
accounting standards. SFAS No. 151 eliminates the "so abnormal" criterion
in ARB 43 and companies will no longer be permitted to capitalize inventory
costs on their balance sheets when the production defect rate varies
significantly from the expected rate. It also makes clear that fixed
overhead should be allocated based on "normal capacity." SFAS 151 is
effective for inventory costs incurred during fiscal periods beginning
after June 15, 2005. The Company does not believe that the adoption of SFAS
151 will have a material effect on our results of operations or
consolidated financial position.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair
value measurement for nonmonetary exchanges of similar productive assets in
paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary
Transactions," and replaces it with an exception for exchanges that do not
have commercial substance. SFAS 153 specifies that a nonmonetary exchange
have commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. SFAS 153 is
effective for fiscal periods beginning after June 15, 2005. The Company
does not believe that the adoption of SFAS 153 will have a material effect
on our results of operations or consolidated financial position.
In May 2005, the Financial Accounting Standards Board, issued Statement of
Financial Accounting Standards SFAS No. 154, "Accounting Changes and Error
Corrections"("SFAS 154"). SFAS 154 replaces APB No. 20, "Accounting
Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim Financial
Statements" and establishes retrospective application as the required
method for reporting a change in accounting principle. SFAS 154 provides
guidance for determining whether retrospective application of a change in
accounting principle is impracticable and for reporting a change when
retrospective application is impracticable. The reporting of a correction
of an error by restating previously issued financial statements is also
addressed. SFAS 154 is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005. The Company
does not believe that the adoption of SFAS 154 will have a material effect
on our results of operations or consolidated financial position
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.
The allowance for doubtful accounts and bad debt expense is as follows at
April 30:
2004 2005
------------ -----------
Allowance, beginning of year $ 3,448 $ 3,448
Bad debt expense - -
Write-offs - -
Allowance, end of year ------------ -----------
$ 3,448 $ 3,448
============ ===========
F-14
NOTE 3 - RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash consists of the following at April 30:
2004 2005
-------------- ----------------
Interest reserve $ 36,630,866 $ 11,919,101
Construction reserve 53,763,014 15,628,691
Construction retainage 7,481,741 8,238,351
Construction funding 34,888,108 84,543
Gamblers Fund 533,514 -
-------------- -----------------
Total restricted cash $ 133,297,243 $ 35,870,686
============== =================
NOTE 4 - INVENTORIES
Inventories consist of the following at April 30:
2004 2005
-------------- ----------------
Food and beverage $ 219,628 $ 370,924
Golf and pro shop 132,936 547,802
Gift shops, fuel and other 616,021 510,780
-------------- ----------------
Total inventories $ 968,585 $ 1,429,506
============== =================
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment is summarized as follows at April 30:
2004 2005
--------------- ----------------
Land $ 538,894 $ 538,894
Buildings, lifts and snowmaking equipment 39,287,564 221,150,464
Non-gaming equipment, furniture and other 25,498,837 42,975,371
Gaming equipment 11,370,236 14,490,064
Leasehold and land improvements, lake and
golf course 6,480,058 6,163,235
--------------- ----------------
Subtotal 83,175,589 285,318,028
Less accumulated depreciation and
amortization 46,281,098 53,641,404
Property, plant and equipment, net 36,894,491 231,676,624
Construction in progress 113,435,012 44,450
--------------- ----------------
$ 150,329,503 $ 231,721,074
The IMG Resort and Casino capitalized $7,892,314 and $14,348,017 of
interest cost related to construction of the Travel Center and the Resort
Project during fiscal years 2004 and 2005, respectively.
F-15
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 is using the proceeds of
these Notes to pay, in part, construction cost
of the Resort Project, to repay a $19.0 million revolving credit agreement
with Citicorp North America, Inc. and to pay the costs of the offering. 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, 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 the issuance of a final certificate of 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 $35 million
at April 30, 2005. The Notes will, after issuance of a final certificate of
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. For the
fiscal years 2004 and 2005 the IMG Resort and Casino was in compliance with
all covenants required in the Notes.
F-16
Long-term debt is summarized as of April 30 as follows:
· Enlarge/Download Table
2004 2005
---------------- --------------
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 $ 1,528,188
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 -
---------------- --------------
201,946,594 201,528,188
Less current portion 252,053 254,007
---------------- --------------
Long-term portion $ 201,694,541 $201,274,181
=============== ================
The maturities of long-term debt as of April 30, 2005 are as follows:
· Download Table
Year Ending April 30:
2006 $ 254,007
2007 266,058
2008 278,684
2009 291,908
2010 305,762
Thereafter 200,131,769
---------------
$ 201,528,188
===============
Total interest costs were $167,968, 13,144,001, and $25,891,877 for the
years ended April 30, 2003, 2004 and 2005, respectively, of which $167,968,
$7,892,314 and $14,348,017 was capitalized as of April 30, 2003, 2004 and
2005, respectively.
On June 15, 2004, the IMG Resort and Casino 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. During May and
June 2005, the IMG Resort and Casino drew approximately $14.9 million from
the loan and used the funds to fund furniture, fixtures and equipment
purchased for the Project.
F-17
NOTE 7 - GAMING REVENUES SHARING AND REGULATORY FEES
The Tribe regulates the IMG Resort and Casino'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 has 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 IMG Resort and Casino
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 began 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,
the IMG Resort and Casino began incurring regulatory fees, at the rate of
$100,000 per year, from the date the approval of the 2001 Compact is
published in the Federal Register with the first payment for regulatory
fees under the 2001 Compact due on the first day of the first full calendar
quarter thereafter. 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. The IMG Resort and Casino made the remaining
$23.0 million payment required under the settlement agreement in August
2004. As a result of the settlement with the State, expense and the
liability for accrued revenue sharing and regulatory fees has been reduced
by $27,136,255 for the year ended and as of April 30, 2004.
NOTE 8 - PENSION PLAN
IMG Resort and Casino and the Resorts employees participated in the
Mescalero Apache Tribe Defined Benefit Plan (the "Plan"), a defined benefit
pension plan that also covers substantially all full-time employees of the
Tribe. Although the IMG Resort and Casino employees participate in the
Plan, they are not employees of the Tribe and were not employees of the
Tribe for all periods during which they participated in the Plan. The Tribe
is the Plan sponsor and handles all administration and funding of the Plan.
Changes to the 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.
F-18
NOTE 8 - PENSION PLAN (CONTINUED)
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 minimum and maximum funding requirements
of IRC Sections 412 404.
Under the terms of an agreement with the Tribe executed in 2003, the IMG
Resort and Casino paid a fixed amount of 9.75% of salaries and wages as a
fixed contribution to the retirement Plan. The total pension expenses
recorded under this agreement were $1,289,615 and $1,886,333 for the fiscal
years ended April 30, 2005 and 2004.
The Tribe curtailed the Plan as of November 30, 2004, and will pay benefits
in the future only on the services that had been rendered by that date. The
IMG Resort and Casino has made contributions to the Plan for employee
services through November 30, 2004, and the IMG Resort and Casino will be
required to make no further payments to the Plan in the future. No gain or
loss was recorded because there was no pension assets or liability related
to the Plan recorded on the financial statements of the IMG Resort and
Casino and no future payments will be made or credits received by the IMG
Resort and Casino. The IMG Resort and Casino has not instituted any other
pension arrangement with its employees and the Tribe has not established
and alternative pension plan.
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 2003, 2004 and 2005, 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
amounts reimbursed to the Tribe were approximately $647,000, $902,000 and
$1,408,000 for 2003, 2004 and 2005, 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.
F-19
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
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. Occupancy fee for the years ended April 30, 2003, 2004 and 2005
totaled approximately $121,000, $130,000 and $137,200 respective1y.
CONSTRUCTION AGREEMENT
In February 2002, the Tribe entered into a construction agreement for the
development of the Travel Center and the new resort on behalf of the IMG
Resort and Casino. Construction cost under the contract was approximately
$149,720,000. In March 2005, the contractor issued a certificate of
substantial completion and the IMG Resort and Casino started commercial
operation on March 15, 2005. A final certificate of completion and
acceptance will be issued following the successful completion of identified
incomplete items. At April 30, 2005 a total of $8.1 million in retainage
remains outstanding in a reserve cash account with the trustee and will be
disbursed following the issuance of the final completion certificate.
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 $152,200, $289,000 and
$231,000 for the years ended April 30, 2003, 2004 and 2005, 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 April 30, 2004 and 2005. The
Tribe reclassified $6,890,716 due from the Resorts as an equity
contribution and $1,193,833 due to Ski Apache from the Tribe as an equity
distribution as of April 30, 2003, in connection with the reorganization
(see Note 1).
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.
F-20
· Enlarge/Download Table
Resort/ Travel
Gaming Hotel Ski Holding Co. Center
2003 Operations Operations Operations Operations Operations Eliminations Total
---- ------------ ------------- ----------- ------------- ----------- -------------- ------------
Net revenue $47,636,772 $ 13,261,039 $ 10,604,500 $ - $ - $ (5,250,000) 66,252,311
Income (loss)
from 13,056,515 (1,682,758) 2,932,412 - (62,584) - 14,243,585
Operations
Segment assets 4,829,867 10,882,615 14,032,654 29,814,295 - (59,430) 59,500,001
Resort/ Travel
Gaming Hotel Ski Holding Co. Center
2004 Operations Operations Operations Operations Operations Eliminations Total
----------------------------------------------------------------------------------------------------
Net revenue $33,136,364 $ 2,146,082 $ 8,138,252 $ (750,941) $38,256,728 $ - $80,926,485
Income (loss)
from operations 36,176,134 (1,254,844) 1,371,554 (12,327,251) 19,971,613 - 43,937,206
operations
Segment assets 16,903,688 8,985,424 13,506,463 299,476,501 30,830,402 (53,492,506) 316,209,972
Hotel Resort/ Travel
Gaming Operations Ski Holding Co. Center
2005 Operations Operations Operations Operations Eliminations Total
----------------------------------------------------------------------------------------------------
Net revenue $33,874,092 $ - $10,025,955 $ (10,212) $49,144,095 $ - $93,033,930
Income (loss)
from
operations (2,228,808) (9,461) 2,205,763 (8,581,642) 21,543,670 - 12,929,522
Segment assets 213,944,354 10,619,714 15,730,818 296,124,000 38,927,284 (281,652,369) 293,693,806
F-21
NOTE 13 - CONSOLIDATING INFORMATION
In connection with IMG Resort and Casino's issuance in November 2003 of
$200,000,000 of 12% senior notes, 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. A final certificate of
completion and acceptance has not been issued pending the successful
completion of identified incomplete items
Pursuant to Rule 3-10 of Regulation S-X, the following consolidating
information is for 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 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 IMG Resort and
Casino.
F-22
· Enlarge/Download Table
NOTE 13 - CONSOLIDATING INFORMATION (CONTINUED)
CONSOLIDATING BALANCE SHEETS
AS OF APRIL 30, 2005
Guarantor
IMGRC Subsidiaries Eliminations Consolidated
-------------- --------------- ---------------- ---------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 524,959 13,193,562 $ - $ 13,718,521
Restricted cash and cash equivalents 35,870,686 - - 35,870,686
Accounts receivable, net 380,867 196,609 - 577,476
Inventories - 1,429,506 - 1,429,506
Prepaid expenses 765,487 94,702 - 860,189
-------------- --------------- ---------------- ---------------
Total current assets 37,541,999 14,914,379 - 52,456,378
NON CURRENT ASSETS:
Advanced to affiliates 205,038,001 32,516,495 (237,554,496) -
Property, plant and equipment, net - 231,721,074 - 231,721,074
Other Assets 124,991 70,222 - 195,213
Deferred Financing Costs 9,321,141 - - 9,321,141
Investments in affiliates 44,097,873 - (44,097,873) -
-------------- --------------- ---------------- ---------------
Total non current assets 258,582,006 264,307,791 (281,652,369) 241,237,428
-------------- --------------- ---------------- ---------------
TOTAL ASSETS $296,124,005 $279,222,170 $(281,652,369) $293,693,806
============== =============== ================ ===============
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable and other short-term liabilities $ 2,673,507 $ - $ - $ 2,673,507
Construction Payables 8,145,734 - - 8,145,734
Accrued payables 6,916,507 4,088,705 - 11,005,212
Accrued interest 11,200,000 450 - 11,200,450
Deposits and advance payments - 997,365 - 997,365
Current portion of long-term debt - 254,007 - 254,007
-------------- --------------- ---------------- ---------------
Current liabilities 28,935,748 5,340,527 - 34,276,275
LONG TERM DEBT AND NOTES
Advances from affiliates 9,043,808 228,510,688 (237,554,496) -
Long-term debt, net of current portion 200,001,099 1,273,082 - 201,274,181
-------------- --------------- ---------------- ---------------
Long Term Liabilities 209,044,907 229,783,770 (237,554,496) 201,274,181
Total Liabilities 237,980,655 235,124,297 (237,554,496) 235,124,297
EQUITY:
Contributed capital 58,143,350 20,166,161 (20,166,161) 58,143,350
Retained Earnings (2,139,792) 2,790,556 (2,790,556) (2,139,792)
Current year net income 2,139,792 21,141,156 (21,141,156) 2,139,792
-------------- --------------- ---------------- ---------------
TOTAL EQUITY - 44,097,873 (44,097,873) 58,143,350
-------------- --------------- ---------------- ---------------
TOTAL LIABILITIES AND EQUITY $ 296,124,005 $ 279,222,170 $ (281,652,369) $293,693,806
============== =============== ================ ===============
F-23
· Enlarge/Download Table
CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED APRIL 30, 2005
Guarantor
(Dollars) IMGRC Subsidiaries Eliminations Consolidated
------------------ -------------- --------------- ---------------
Revenues:
Gaming $ - $ 64,254,312 $ - $ 64,254,312
Food and beverage 1,608 6,367,386 - 6,368,994
Rooms - 1,168,484 - 1,168,484
Recreation and other - 23,012,602 - 23,012,602
------------------ -------------- --------------- ---------------
Gross revenues 1,608 94,802,784 - 94,804,392
Less - promotional allowances 11,820 1,758,642 - 1,770,462
------------------ -------------- --------------- ---------------
Net revenue (10,212) 93,044,142 - 93,033,930
------------------ -------------- --------------- ---------------
Operating costs and expenses:
Gaming 257,934 25,507,235 - 25,765,169
Food and beverage 202,922 7,070,746 - 7,273,668
Hotel Expenses - 651,118 - 651,118
Recreation and other 760 15,434,056 - 15,434,816
General and administrative 7,649,370 - 9,840,983
2,191,613
Pension (allocated by related party) 275,675 1,013,940 - 1,289,615
Gaming regulatory commission
fees (charged by related party) 24,952 2,590,823 - 2,615,775
Insurance (allocated by related party) 178,660 1,229,504 1,408,164
Telecommunication (charged by related party) 173,056 58,536 - 231,592
Pre-opening costs and expenses 3,095,662 - 8,323,930
5,228,268
Depreciation and amortization 7,231,988 - 7,269,578
37,590
------------------ -------------- --------------- ---------------
Total operating expenses 8,571,430 71,532,978 - 80,104,408
------------------ -------------- --------------- ---------------
Income from operations 21,511,164 - 12,929,522
(8,581,642)
------------------ -------------- --------------- ---------------
Other income:
Interest income 640,139 16,971 - 657,110
Interest expense (11,154,441) (389,419) - (11,543,860)
Other income 94,580 2,440 - 97,020
Income from affiliates 21,141,156 - (21,141,156) -
------------------ -------------- --------------- ---------------
Non Operating Income (Expenses) 10,721,434 (370,008) (21,141,156) (10,789,730)
------------------ -------------- --------------- ---------------
Net Income $ 2,139,792 $ 21,141,156 $ (21,141,156) $ 2,139,792
================== ============== =============== ===============
F-24
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CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED APRIL 30, 2005
Guarantor
IMGRC Subsidiaries Eliminations Consolidated
------------------- ----------------- --------------- -------------
Cash flows from operating activities:
Net income $ 2,139,792 $ 21,141,156 $(21,141,156) $2,139,792
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization - 7,269,578 - 7,269,578
Gain on sale of property, plant and equipment
Changes in assets and liabilities:
Restricted cash and cash equivalents - 533,514 - 533,514
Accounts receivable, net of allowance (380,867) (164,043) - (544,910)
Inventories 4,869 (465,790) - (460,921)
Prepaid revenue sharing fees 4,218,673 - 4,218,673
Prepaid expenses (709,682) 311,547 - (398,135)
Other long term assets (124,991) 6,690 - (118,301)
Accounts payable 2,673,507 (612,873) - 2,060,634
Accrued expenses 5,939,201 (683,492) - 5,255,709
Accrued revenue sharing and regulatory fees - (22,572,558) - (22,572,558)
Accrued interest payable (800,000) (47,928) - (847,928)
Deposits and advance payments - 330,265 - 330,265
----------------- ----------------- --------------- -------------
Net cash provided by operating activities 8,741,829 9,264,739 (21,141,156) (3,134,588)
----------------- ----------------- --------------- -------------
Cash flows from investing activities:
Investment in subsidiaries (21,141,156) 21,141,156 -
Construction in progress accounts payable (5,463,633) (5,463,633)
Purchase of property, plant and equipment 113,112,297 (201,773,446) -
----------------- ----------------- --------------- -------------
Net cash used by investing activities 86,507,508 (201,773,446) 21,141,156 (94,124,782)
----------------- ----------------- --------------- -------------
Cash flows from financing activities:
Deferred financing costs 1,708,352 - - 1,708,352
Cash held for construction payments 96,893,043 - - 96,893,043
Advances to (from) affiliates (197,010,831) 197,010,831 -
Principal borrowings (payments) on long-term debt, net 1,099 (419,505) - (418,406)
Distributions to Mescalero Apache Tribe - (6,684,000) - (13,000,000)
Contributions from Mescalero Apache Tribe 9,999,959 - - 9,999,959
----------------- ----------------- --------------- -------------
Net cash used by (provided by) financing
activities (94,724,378) 189,907,326 - 95,182,948
----------------- ----------------- --------------- -------------
Net increase (decrease) in cash and cash equivalents 524,959 (2,601,381) - (2,076,422)
Cash and cash equivalents, beginning of year - 15,794,943 - 15,794,943
----------------- ----------------- --------------- -------------
Cash and cash equivalents, end of year 524,959 $ 13,193,562 $ - $13,718,521
================= ================= =============== =============
Non-cash investing and financing activities:
Distributions to Mescalero Apache Tribe $ - $ - $ - $ -
================= ================= =============== =============
F-25
CONSOLIDATING BALANCE SHEETS
AS OF APRIL 30, 2004
· Enlarge/Download Table
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 10,982,199 (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 - $(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 40,585,261 (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)
----------------- -------------- ------------- -----------------
59,003,599 29,640,717 (29,640,717) 59,003,599
----------------- -------------- ------------- -----------------
Total liabilities and equity $299,476,501 $ 70,225,978 $(53,492,507) $316,209,972
================== ================ ================= ==================
F-26
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CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED APRIL 30, 2004
IMG
Resort Guarantor
Revenues: and Casino Subsidiaries Eliminations Consolidated
------------ ------------- -------------- ----------------
Gaming $ - $ 60,277,052 $ - $ 60,277,052
Food and Beverage 5,691 5,608,982 - 5,614,672
Rooms - - - -
Recreation and other 70 16,471,820 - 16,471,820
------------ ------------- -------------- ----------------
Gross Revenue 5,761 82,357,854 - 82,363,614
Less -Promotional Allowances 756,701 680,428 - 1,437,129
------------ ------------- -------------- ----------------
Net Revenue (750,940) 81,677,426 - 80,926,485
Operating Expenses
Gaming 2,157,633 23,248,028 - 25,405,661
Reversal of accrued fees - (27,136,255) - (27,136,255)
Food and beverage 704,864 5,882,608 - 6,587,472
Rooms - 119,722 - 119,722
Recreation and other 471,800 10,229,699 - 10,701,499
General and administrative 5,866,274 3,171,541 - 9,037,815
Insurance (allocated by related party) 157,333 745,288 - 902,621
Pension (allocated by related party) 410,231 1,476,102 - 1,886,333
Gaming regulatory commission
fees (charged by related party) 505,032 687,979 - 1,193,011
Telecommunication (charged by related party) 40,006 249,176 - 289,182
Pre-opening 1,263,138 1,808,844 - 3,071,982
Depreciation - 4,930,236 - 4,930,236
------------ ------------- -------------- ----------------
Total Operating Expenses 11,576,311 25,412,968 - 36,989,279
------------ ------------- -------------- ----------------
Operating Income (12,327,251) 56,264,458 - 43,937,206
Other Income (Expense)
Interest Income 767,698 33,567 - 801,266
Interest Expense (5,100,317) (151,370) - (5,251,687)
Income from subsidiaries 56,404,753 - (56,404,753) -
Other Income - 258,098 - 258,098
------------ ------------- -------------- ----------------
Total Other Income (Expense) 52,072,134 140,295 (56,404,753) (4,192,323)
------------ ------------- -------------- ----------------
Net Income 39,744,883 $ 56,404,753 (56,404,753) 39,744,883
============ ============= ============== ================
F-27
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CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED APRIL 30, 2004
Guarantor
IMGRC Subsidiaries Eliminations Consolidated
--------------- -------------- --------------- ---------------
Cash flows from operating activities:
Net income $39,744,883 $ 56,404,753 $ (56,404,753) $ 39,744,833
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization - 4,930,236 - 4,930,236
Gain on sale of property, plant and equipment
Changes in assets and liabilities:
Restricted cash and cash equivalents - (58,265) - (58,265)
Accounts receivable, net of allowance 75,635 67,461 - 143,096
Inventories (4,869) (108,187) - (113,056)
Prepaid revenue sharing fees 4,448 (4,223,121) - (4,218,673)
Prepaid expenses - (173,056) - (173,056)
Other long term assets - (60,911) - (60,911)
Accounts payable - (797,598) - (797,598)
Accrued expenses - 3,571,823 - 3,571,823
Accrued revenue sharing and regulatory fees - (16,821,082) - (16,821,082)
Accrued interest payable 12,000,000 48,378 - 12,048,378
Deposits and advance payments - (82,408) - (82,408)
--------------- -------------- --------------- ---------------
Net cash provided by operating activities 51,820,097 42,698,023 (56,404,753) 38,113,367
--------------- -------------- --------------- ---------------
Cash flows from investing activities:
Investment in subsidiaries (56,404,753) - 56,404,753 -
Construction in progress accounts payable 6,453,445 - - 6,453,445
Purchase of property, plant and equipment (107,003,099) 752,297 - (107,003,099)
--------------- -------------- --------------- ---------------
Net cash used by investing activities (157,706,704) 752,297 56,404,753 (100,549.654)
--------------- -------------- --------------- ---------------
Cash flows from financing activities:
Deferred financing costs (10,929,493) - - (10,929,493)
Cash held for construction payments (132,763,729) - - (132,763,729)
Cash proceeds from the issuance of notes 200,000,000 - - 200,000,000
Principal borrowings (payments) on long-term debt, net - (5,506,865) - (5,506,865)
Distributions to Mescalero Apache Tribe - (13,170,204) - (13,170,204)
Contributions from Mescalero Apache Tribe 49,568,542 (18,298,943) - 31,269,599
--------------- -------------- --------------- ---------------
Net cash used by (provided by) financing
activities 105,875,320 (36,976,012) - 68,899,308
--------------- -------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents (11,287) 6,474,308 - 6,463,021
Cash and cash equivalents, beginning of year 11,287 9,320,635 - 9,331,922
--------------- -------------- --------------- ---------------
Cash and cash equivalents, end of year $ - $ 15,794,943 $ - $ 15,794,943
=============== ============== =============== ===============
Supplemental cash flow information:
Cash paid for interest $ 60,115 $ - $ - $ 60,115
=============== ============== =============== ===============
Non-cash investing and financing activities:
Distributions to Mescalero Apache Tribe $ - $ 38,981,173 $ - $ 38,981,173
=============== ============== =============== ===============
Property, plant and equipment acquired through
increase of payables, net $ - $ 6,453,445 $ - $ 6,453,445
=============== ============== =============== ===============
Contribution from Mescalero Apache Tribe $ 328,618 $ 980,683 $ - $ 1,309,301
=============== ============== =============== ===============
F-28
CONSOLIDATING BALANCE SHEETS
AS OF APRIL 30, 2003
· Enlarge/Download Table
Guarantor
IMGRC Subsidiaries Eliminations Consolidated
-------------- --------------- ---------------- ---------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 29,221 $ 9,302,701 $ - $ 9,331,922
Restricted cash and cash equivalents - 475,249 - 475,249
Accounts receivable, net - 175,662 - 175,662
Inventories 208,466 647,063 - 855,529
Prepaid expenses 15,785 273,214 - 288,999
Deferred financing costs 100,000 - - 100,000
-------------- --------------- ---------------- ---------------
Total current assets 353,472 10,873,889 - 11,227,361
NON CURRENT ASSETS:
Liquor license - 16,000 - 16,000
Property, plant and equipment, net 29,460,823 18,795,817 - 48,256,640
Investment in affiliates (15,782,894) - 15,782,894 -
-------------- --------------- ---------------- ---------------
Total assets $ 14,031,401 $ 29,685,706 $ 15,782,894 $ 59,500,001
============== =============== ================ ===============
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable and other short term liabilities $ - $ 1,410,471 $ - $ 1,410,471
Construction in Progress Accounts Payable 7,155,922 - - 7,155,922
Accrued expenses 136,062 1,614,176 - 1,750,238
Accrued revenue sharing and regulatory fees - 39,821,082 - 39,821,082
Deposits and advance payments - 749,508 - 749,508
Current portion of long-term debt 5,580,096 185,331 - 5,765,427
-------------- --------------- ---------------- ---------------
Total current liabilities 12,872,080 43,780,568 - 56,652,648
NON CURRENT LIABILITIES:
Long-term debt, net of current portion - 1,688,032 - 1,688,032
-------------- --------------- ---------------- ---------------
Total long-term debt - 1,688,032 - 1,688,032
Total liabilities 12,872,080 45,468,600 - 58,340,680
EQUITY:
Contributed capital 24,844,077 7,901,862 (7,901,862) 24,844,077
Retained deficit (23,684,756) (23,684,756) 23,684,756 (23,684,756)
-------------- --------------- ---------------- ---------------
Total equity 1,159,321 (15,782,894) 15,782,894 1,159,321
-------------- --------------- ---------------- ---------------
Total liabilities and equity $ 14,031,401 $ 29,685,706 $ 15,782,894 $ 59,500,001
============== =============== ================ ===============
F-29
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CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED APRIL 30, 2003
Guarantor
IMGRC Subsidiaries Eliminations Consolidated
-------------- ---------------- -------------- ---------------
Revenues:
Gaming $ - $ 46,942,180 $ - $ 46,942,180
Food and beverage - 4,893,997 - 4,893,997
Rooms - 3,394,434 - 3,394,434
Recreation and other - 11,952,860 - 11,952,860
-------------- ---------------- -------------- ---------------
Gross revenues - 67,183,471 - 67,183,471
Less - promotional allowances - 931,160 - 931,160
-------------- ---------------- -------------- ---------------
Net revenue - 66,252,311 - 66,252,311
-------------- ---------------- -------------- ---------------
Operating costs and expenses:
Gaming - 19,457,655 - 19,457,655
Food and beverage - 4,955,537 - 4,955,537
Rooms - 1,552,133 - 1,552,133
Recreation and other - 5,757,452 - 5,757,452
General and administrative - 6,500,909 - 6,500,909
Pension (allocated by related party) - 1,631,828 - 1,631,828
Gaming regulatory commission
fees (charged by related party) - 750,821 - 750,821
Insurance (allocated by related party) - 647,000 - 647,000
Telecommunication (charged by related party) - 152,200 - 152,200
Pre-opening costs and expenses - 1,389,967 - 1,389,967
Depreciation and amortization - 9,213,224 - 9,213,224
-------------- ---------------- -------------- ---------------
Total operating expenses - 52,008,726 - 52,008,726
-------------- ---------------- -------------- ---------------
Income from operations - 14,243,585 - 14,243,585
-------------- ---------------- -------------- ---------------
Other income:
Interest income - 190,120 - 190,120
Other income - 170,984 - 170,984
-------------- ---------------- -------------- ---------------
Total other income - 361,104 - 361,104
-------------- ---------------- -------------- ---------------
Net Income $ - $ 14,604,689 $ - $ 14,604,689
============== ================ ============== ===============
F-30
· Enlarge/Download Table
CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED APRIL 30, 2003
Guarantor
IMGRC Subsidiaries Eliminations Consolidated
--------------- -------------- --------------- --------------
Cash flows from operating activities:
Net income $ - $14,604,689 $ - $ 14,604,689
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization - 9,213,224 - 9,213,224
Gain on sale of property, plant and equipment - (13,741) - (13,741)
Changes in assets and liabilities:
Restricted cash and cash equivalents - (114,304) - (114,304)
Accounts receivable, net of allowance - (58,908) - (58,908)
Inventories (208,466) (59,270) - (267,736)
Prepaid expenses (15,785) (61,801) - (77,586)
Liquor license - (1,000) - (1,000)
Accounts payable - 583,895 - 583,895
Accrued expenses 136,062 318,733 - 454,795
Accrued revenue sharing and regulatory fees - 7,717,219 - 7,717,219
Deposits and advance payments - (20,034) - (20,034)
--------------- -------------- --------------- -------------
Net cash provided by operating activities (88,189) 32,108,702 - 32,020,513
--------------- -------------- --------------- -------------
Cash flows from investing activities:
Investment in subsidiaries 15,782,894 - (15,782,894) -
Purchase of property, plant and equipment (29,460,823) (1,273,740) - (30,734,563)
Construction in progress accounts payable 7,155,922 - - 7,155,922
Proceeds from sale of property, plant and equipment - 35,198 - 35,198
--------------- -------------- --------------- -------------
Net cash used by investing activities (6,522,007) (1,238,542) (15,782,894) (23,543,443)
--------------- -------------- --------------- -------------
Cash flows from financing activities:
Deferred financing costs (100,000) - - (100,000)
Advances from Mescalero Apache Tribe - (11,107,588) - (11,107,588)
Borrowings on revolving line of credit 5,000,000 - - 5,000,000
Principal borrowings (payments) on long-term debt, net 580,096 (230,332) - 349,764
Distributions to Mescalero Apache Tribe - (40,561,702) - (40,561,702)
Contributions from Mescalero Apache Tribe 1,159,321 8,522,544 15,782,894 25,464,759
--------------- -------------- --------------- -------------
Net cash used by financing activities 6,639,417 (43,377,078) 15,782,894 (20,954,767)
--------------- -------------- --------------- -------------
Net (decrease) increase in cash and cash equivalents 29,221 (12,506,918) - (12,477,697)
Cash and cash equivalents, beginning of year - 21,809,619 - 21,809,619
--------------- -------------- --------------- -------------
Cash and cash equivalents, end of year $ 29,221 $ 9,302,701 $ - $ 9,331,922
=============== ============== =============== =============
Supplemental cash flow information:
Cash paid for interest $ 5,439 $ 167,968 $ - $ 173,407
=============== ============== =============== =============
Non-cash financing activities:
Distributions to Mescalero Apache Tribe $ - $ 1,193,833 $ - $ 1,193,833
=============== ============== =============== =============
Contribution from Mescalero Apache Tribe $ - $ 7,820,274 $ - $ 7,820,274
=============== ============== =============== =============
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