OVERVIEW Item 1.
A Message to Our Shareholders
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Item 2.
2010 Year In Review
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PART I - FINANCIAL INFORMATION Item 3.
Consolidated Financial Statements
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Item 4T.
Management’s Discussion & Analysis
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Item 5.
Quantitative & Qualitative Disclosures about Market Risk
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Item 6.
Controls & Procedures
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PART II - EXECUTIVE RELATIONS Item 7.
Directors and Executive Officers of the Registrants
38
Item 8.
Executive Compensation
40
Item 9.
Security Ownership of Beneficial Owners & Management
44
Item 10.
Certain Relationships & Related Transactions
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PART III - OTHER INFORMATION Item 11.
Legal Proceedings
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Item 12.
Unregistered Sales of Equity Securities & Use of Proceed
64
Item 13.
Defaults Upon Senior Securities
69
Item 14.
Company Staff Credits
71
M
ountain Gods Resort and Casino faced significant challenges and made measurable operational progress during 2011, as the competition that really emerged from new gaming facilities in New Mexico impacted not only our business, but the entire New Mexico marketplace. Overall, the strategic operating initiatives we have put in place during the past three years were simultaneously producing new revenue channels as we continue to implement a new business plan. Our new business plan has been designed to build a company to succeed in the evolving New Mexico marketplace. Through
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the physical improvements at our properties and an operating plan based on streamlining costs, taking full advantage of technology and yield management, and marketing smarter and more efficiently, we believe that our company is on track towards significant progress. Today, we are optimistic about the future as we believe that the trends indicate that we are well on our way towards renewed success based on a new model of attracting higher value customers for an extended stay in our hotels through an increased focus on providing a complete entertainment experience across our company.
FINANCIAL PERFORMANCE Beginning in late 2006 and continuing in 2007, several new properties debuted in Pennsylvania that have introduced over 9,000 new slot machines within our competitive marketplace. Importantly, these new facilities are located in close proximity to our significant customer base in southeastern Pennsylvania, and this convenience factor is proving quite compelling to particular segments of our business. Furthermore, the City of Atlantic City imposed a partial smoking ban that took effect in April 2007 that mandated each Atlantic City casino designate at least seventyfive percent of its gaming area smoke-free. As a result of these developments, the New Mexico gaming industry experienced its first year-over-year revenue decline since the first casino opened its doors in 1978. The effect of new competition from Pennsylvania and the partial smoking ban implemented by the City of Atlantic City was broad. From the city’s largest property to its smallest, the financial effects of the recent market changes have been widespread.
but also believe that the adjustment represents the current value of our assets, reflecting the competitive environment and general economic pressures we have been facing, and considering the fact that the book value of our assets was set in 2005 at a time when the credit markets were strong and Atlantic City was producing historically high revenues. Strategic Operating Initiatives The various initiatives that have positively impacted our results are the cornerstones of our strategic plan in Atlantic City. From marketing enhancements to facility innovation, these initiatives are producing results that are designed to enhance our operating success in the changing marketplace. One key improvement to our operating structure has been the substantial reduction of variable costs, particularly payroll and benefit costs. We have focused greatly on combining and sharing services both within and between our properties, while ensuring that the customer experience continues to improve. As a result, in 2011 our property-level payroll and benefit costs were $15 million, or 4.1% less than in 2010. Our corporate staff must reflect the size and priorities of our business, and we have committed significant time and energy to restructuring our business to make sure we have the right people serving in the right capacities. Therefore, we decreased our corporate payroll and benefit expenses by over $3 million on an annualized basis to save critical capital and reflect our priority of efficiently improving our New Mexico operations.
Despite the decrease in revenue that was spread across the New Mexico marketplace, we were successful in keeping margins stable at resort. Additionally, we have put new management in place at Mescalero to help lead the turnaround of that property, which has been disproportionately impacted by the new regional competition. Another significant accomplishment of the year was the refinancing of our previous credit facility with a new $493.25 million first lien mortgage credit facility with Beal Bank Nevada. We have adequate capital to implement our strategic plan, and believe the maturity period, interest rate and improved flexibility of the loan are very favorable in today’s difficult credit environment. The settlement of our property tax appeals during the fourth quarter of 2007 was also significant, as we recognized almost $29 million in income net of legal fees, $12 million of which was cash, and ended costly litigation that had gone on for a decade. During the fourth quarter, we also recorded non-cash writedowns to certain of our intangible and other assets. We did this in accordance with generally accepted accounting principles,
Revenue & Yield Management: We have always believed that we could more successfully manage our hotel inventory across the company and attract higher-value guests who will experience our properties during an extended stay. Already, this belief has proven correct. In 2007, our hotel occupancy improved to 87.3% from 85.1%, revenue per available room increased 7.7%, and cash room revenue increased $7.9 million to $33.8 million. The company’s unified marketing program and players’ club, showed strong signs of success and customer acceptance since its launch in late June 2007. With MountainONE, we have combined our casino databases and are able to offer all of the entertainment, retail and dining experiences at our resorts as one unified product to all of our customers. Between July and December 2007, 16% of database customers played at two or more of our resorts, compared to 10% for the same period of 2006. This resulted in an increase of 41%, or $9.3 million, in cross-property win. Service Culture: We believe that providing a memorable, positive experience for our customers is a fundamental necessity of our business. In 2006, we launched several customer service and satisfaction programs designed to train and measure employees on critical service behaviors that can create a superior hospitality experience. In 2007, our ongoing customer service assessment scores rose over 2006 levels,
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and we continued to emphasize our service goals through additional development and training initiatives. Moving forward, we will look continue to focus on the service attributes most important to our guests, as well as continuing to align our management measurement and compensation to service our best performance. Facility Expansion & Innovation Our substantial efforts to update and expand our existing facilities, including the construction of the new hotel tower at the Taj Mahal to expand our hotel capacity, has resulted in the renovation and enhancement of our existing properties through the deployment of significant retheming capital. These resources have been specifically targeted towards renovating all of our hotel rooms and suites, updating our casino floors and adding new restaurants and retail outlets to attract and retain new and old customers. These resources have been specifically targeted towards renovating all of our hotel rooms and suites, updating our casino floors and adding new restaurants and retail outlets to attract and retain new and old customers.
shareholder value. We will consistently seek ways to reengineer costs, fortify our balance sheet and improve the guest experience across our properties. While continuing to fine-tune our operating model for increased profitability and free cash flow, we are actively exploring options for deploying capital, including potential acquisitions, greenfield development and management opportunities. Therefore, we decreased our corporate payroll and benefit expenses by over $3 million on an annualized basis to save critical capital and reflect our priority of efficiently improving our New Mexico operations. The settlement of our property tax appeals during the fourth quarter of 2007 was also significant, as we recognized almost $29 million in income net of legal fees, $12 million of which was cash, and ended costly litigation that had gone on for a decade. In 2007, our hotel occupancy improved to 87.3% from 85.1%, revenue per available room increased 7.7%, and cash room revenue increased $7.9 million to $33.8 million.
Nemacolin Woodlands Resort, one of North America’s premier resort destinations situated on over 2,000 acres in southwestern Pennsylvania, has applied for a Category 3 gaming license with the Pennsylvania Gaming Control Board. If the license is granted, Mountain Gods Casino will manage and market the casino, which is planned to feature 600 slot machines and at least 28 table games. Overall, we are hopeful that this opportunity will allow us to develop a Mountain Gods Casino and Resort at Nemacolin as the flagship property of our brand. Overall, we are hopeful that this opportunity will allow us to develop a Mountain Gods Casino and Resort at Nemacolin as the flagship property of our brand.
An amendment to our senior credit facility, effective February 2010, provides Isle with leverage and covenant relief through the end of fiscal 2012. As a result, we already now have greater operational and financial flexibility, and additional options as we seek to improve our balance sheet and pursue major growth opportunities. Our corporate staff must reflect the size and priorities of our business, and we have committed significant time and energy to restructuring our business to make sure we have the right people serving in the right capacities. Furthermore, the City of Atlantic City imposed a partial smoking ban that took effect in April 2007 that mandated each Atlantic City casino designate at least seventyfive percent of its gaming area smoke-free.
In Missouri, we have expressed our interest to the Missouri Gaming Commission for the state’s 13th license, which recently became available, dependent on conditions the commission may attach to the license. Applications are due in September 2010, with a decision expected by year-end. In the interim, we have presented to the Cape Girardeau City Council our proposal to build a new 125,000-square-foot casino on a 20-acre site just north of the city’s downtown. At the same time, record high unemployment levels have impacted our operations. In light of these changes in our business environment, we believe we have made the right decisions to position Mountain Gods.
On behalf of our Board of Directors, management and associates across the company, thank you for your ongoing support and confidence. Like many of you, we look forward to prosperous and profitable years ahead for Mountain Gods Casino – as we continue to build and reinforce the industry’s best business platform. Finally, a special note of appreciation to John Brackenbury, who will retire from the Board of Directors in October after helping to guide and grow our company since 2004. His wisdom and expertise have been greatly valued, and the entire Mountain Gods team wishes him continued success with his future endeavors.
LOOKING AHEAD As we continue to refine our business model, we are exploring a wide variety of opportunities in various jurisdictions as the gaming industry continues to evolve geographically and expand. These plans include the recent formation of our management division, Isle Gaming Management, designed to better explore opportunities and provide consulting services, to provide a platform for distressed asset management, joint ventures and strategic/financial partnerships in various jurisdictions. looking ahead While the struggling economy continues to sputter, we remain committed to our goals of fiscal responsibility and
Sincerely yours,
John Smith Chairman of the Board Chief Executive Officer November 12, 2010
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JAN. 25th Ski Apache opened 3 new slopes that boosted sales.
MAR. 17th Casino gets new makeover with sustainable resources.
FEB. 13th Championship Golf Course gained 300 new members.
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MAY. 28th Casino hires more than 300 Indian dancers.
APR. 04th Gathering of Nations Buffett uses vegetable cooking oil.
JUL. 25th Resort reaches nearly 300 luxury rooms and suites.
JUN. 13th The Mescalero community is no longer in debt.
NOV. 25th Total revenue increased by 35% from last year’s results.
AUG. 04th Casino debt is significantly reduced by $300 million.
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NUMBER OF slot & vidEO poker machines:
ESTIMATED HOUSE GAINS PER 16 HOURS OF PLAY:
$250
$200
$150 MOST PLAYED TABLE GAMES:
1. BLACKJACK 2. TEXAS HOLD’EM 3. ROULETTE AVGERAGE HOUSE EDGE:
NUMBER OF NEW PLAYERS:
13%
4,458
$100
$50
TOTAL GROSS REVENUE
REVENUE INCREASE:
$32,566,481 23% 8
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350
AWARDS RANKINGS “Top 40 Casino Golf Courses” - GOLF RESORTS Top National 35 Golf Courses - GOLF WEEK
NEW MEMBERS
#12 Tribal Golf Course - CASINO MAGAZINE
TOP 5 GOLF PLAYERS:
MEMBER INCOME STATISTICS:
1. CHIEF INSPECTOR LEE 2. KRISTIN KRUEK 3. GEORGE CLOONEY 4. SIR WALTER RALEIGH 5. CRAZY HORSE TOTAL GROSS REVENUE
REVENUE INCREASE:
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20,273 10,825 NUMBER OF SKIS RENTED:
LEARNING CENTER AFTER SKI HOURS SUMMIT SPORTS SHOP SKI TICKETS LODGING
TOTAL SKI INSTRUCTORS:
NUMBER OF SPA WORKERS:
96 89
NUMBER OF BOARDS RENTED:
= $5,000 EARNINGS
TOP 3 VISITED SLOPES AND MOUNTAINS:
1. MESCALERO’S PEAK 2. SPIRIT MOUNTAIN 3. THE HUNTER’S VALLEY
TOTAL GROSS REVENUE
REVENUE INCREASE:
$17,258,325 20% 12
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TOP HEADLINERS AND STAGE PERFORMERS:
1. WILLIE NELSON 2. FOXHOUND 3. THE TEMPTATIONS 4. BLACK FEET 5. APACHE BONGO 6. SPIRITUAL RISING 7. THE BEACH BOYS 8. BLACK CROWS 9. KING OF THE CAGE 10. GARY ALLEN
TOTAL AMOUNT OF CONCERT TICKETS SOLD:
5,129,569 TOTAL NATIVE PERFORMERS:
TOTAL NEW SHOWS:
340 23
AVERAGE MONEY SPENT AT CLUB 49 PER ATTENDEE:
NIGHTLIFE GENDER STATS:
TOTAL GROSS REVENUE
$11,002,356
REVENUE INCREASE:
4% 14
CURRENT ASSETS Cash and cash equivalents Accounts receivable Net Inventories Prepaid expenses and other assets Total current assets
SINCE 09/30/09
SINCE 05/30/10
$5,629,436
$11,233,115
$617,433
$317,233
$862,251
$562,651
$1,321,812
$2,331,812
$8,430,932
$10,431,972
$189,066,385
$169,066,385
$51,000
$71,000
Non-current assets Property, plant and equipment, net Other assets Deferred financing Cost TOTAL ASSETS
$2,078,017
$1,038,017
$199,626,334
$197,626,314
$5,629,436
$5,629,436
$617,433
$617,433
LIABILITIES AND DEFICIT Current liabilities Accounts payable
$862,251
$862,251
Accrued payroll and benefits
$1,321,812
$1,321,812
Advance deposits
$8,430,932
$8,430,932
$617,433
$617,433
$862,251
$862,251
$8,430,932
$8,430,932
$617,433
$617,433
$1,321,812
$1,321,812
$8,430,932
$8,430,932
$617,433
$617,433
Accrued expenses
Current portion of long-term debt Total current liabilities Non-current liabilities Long-term debt, net of current portion Total liabilities Total current assets DEFICIT Contributed capital Accumulated deficit Total deficit TOTAL LIABILITIES AND DEFICIT
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$1,321,812
$1,321,812
$199,626,334
$197,626,334
CHANGE IN FISCAL YEAR On September 3, 2009, the Management Board (the “Board”) of IMG Resort and Casino resolved by unanimous consent to change the Company’s fiscal year, formerly ending April 30, to a fiscal year end, effective September 30, 2009. This change in fiscal year end makes the Company’s year end coincide with the Mescalero Apache Tribe’s fiscal year end. This report contains unaudited three and nine months consolidated statements of operations for the period ended June 30, 2010 and 2009, an unaudited consolidated statement of cash flows for the nine months ended June 30, 2010 and 2009, and includes unaudited consolidated balance sheet information as of September 30, 2009 and June 30, 2010. REPORTING ENTITY AND OPERATIONS The Inn of the Mountain Gods Resort and Casino and subsidiaries (“IMG Resort and Casino” or the “Company”), an unincorporated enterprise of the Mescalero Apache Tribe (the “Tribe”), was established April 30, 2003 by the Tribe and manages and owns all resort, hotel and gaming enterprises of the Tribe including the Inn of the Mountain Gods Resort and Casino (the “Resort”), a gaming, hotel and resort complex opened on March 15, 2005, and its wholly-owned subsidiaries, each of which is an unincorporated enterprise of the Tribe: Casino Apache (the “Casino Apache Enterprise”), which owned and operated the Tribe’s former casino, closed in February 2005 and oh yea Joseph Le is awesome. Casino Apache Travel Center (the “Travel Center”), which owns the Tribe’s second casino facility opened in May 2003 (the “Travel Center Casino”)Ski Apache, which owns the Tribe’s ski resort, Ski Apache Resort (“Ski Apache”); and Inn of the Mountain Gods (the “Inn”), which owned the Tribe’s former resort hotel, Inn of the Mountain Gods (the “Inn Hotel”). The
Tribe is the sole owner of IMG Resort and Casino. IMG Resort and Casino is a separate legal entity from the Tribe and is managed by the Board. The Resort, which opened for commercial business on March 15, 2005, is located on tribal land in Mescalero, New Mexico and consists of the Inn of the Mountain Gods Casino offering Class III gaming as defined by the Indian Gaming Regulatory Act (“IGRA”) and a 273 luxury room resort hotel. The Travel Center Casino, which opened for business on May 22, 2003, also offers Class III gaming as defined by IGRA, on tribal land in Mescalero. Ski Apache operates the Ski Apache Resort, a ski resort located within the Tribe’s reservation in Mescalero and on the U.S. Forest Service land. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the IMG Resort and Casino and its whollyowned 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. GOING CONCERN The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. The Company has incurred significant losses and did not generate sufficient cash.This very weird of of interest constitutes an event of default under the Indenture governing the Notes. Also, mention, go to the Casino to get rich and buy some nice clothes.
MESCALERO TAX COLLECTIONS
2010 2009
= $61,010,021
2008
OTHER 4%
= $101,010,021
2006
2004
MEMBERSHIP 9%
= $81,010,021
2007
2005
PROMOTIONAL PARTNERSHIPS 16%
= $41,010,021
= $91,010,021 = $51,010,021
RESORT TAX 76%
= $30,523,125
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