FC1. ANNUAL REPORT 2003 2. that’s 3. entertainment 4. Entertainment. It means something different to everyone. Concerts. Comedy. Nightclubs. Restaurants. Sports. Spas. Shopping. Or in our case, all of the above. Because now, we’re much more than a gaming destination. We’re one of the planet’s most unique entertainment companies, offering new definitions of entertainment around every corner. 5. [ LETTER TO OUR BONDHOLDERS AND EMPLOYEES ] The Mohegan Tribe’s vision has been to benefit from gaming market in New England and the remaining the growing demand in the northeastern United States northeastern United States remains underserved. With for gaming and entertainment by creating a legendary our hotel, arena, convention center and other amenities full-scale entertainment and destination resort. Our encouraging extended visits by our patrons, we also gaming and entertainment complex, Mohegan Sun, is believe our market penetration will expand and Mohegan a product of this vision. Sun will have a long-term competitive advantage in the northeastern United States gaming market. Beginning with its opening in 1996, Mohegan Sun was inspired by and deeply believed in its Core Our growth can also be attributed to our core Ideology. This guiding philosophy is a combination marketing strategies, which revolve around driving new of our Core Purpose and our four Core Values. These customers to our facility while creating brand loyalty Core Values are: through the offering of our gaming and non-gaming products. A significant rise in customer loyalty over ■ Blowing Away the Customer the last year can be evidenced through the 20% ■ Developing Passionate and Dedicated Employees increase in patrons belonging to our Mohegan Sun ■ Continuously Striving for Perfection Player’s Club. This program tracks our customers’ play ■ Bottom Line Performance and rewards them accordingly with points that can be used at all non-gaming venues offered by Mohegan Our Core Ideology is preserved while we stimulate Sun. Our Player’s Club database is a powerful tool used progress to improve results. Our revenues have to market to our patrons in various ways in order to increased each year in our short tenure as a gaming drive repeat visitation and to develop brand loyalty. We organization, culminating in a record $1.28 billion in are proud to now have over 2.4 million members in the revenues in fiscal 2003, a 14.2% increase over the prior Mohegan Sun Player’s Club database. year, despite continuing economic uncertainty. We are excited about our success to date and our The 2003 results were led by a $102.8 million, or future as an organization. The Mohegan Tribe has 10.7%, increase in gaming revenues, which included formed a solid foundation built around our Mohegan a $62.7 million, or 9.0%, increase in net slot revenues Sun property and its employees. We will continue to and a $40.3 million, or 16.6%, increase in table games focus on our Core Ideology in everything we do as an revenues. This substantial increase in revenues organization. Customer service will continue to be a contributed to a record Adjusted EBITDA of $310.7 primary directive as we look to improve operational million in 2003, a 10.8% increase over the prior year. efficiencies and enhance our bottom line performance. We expect to further distinguish Mohegan Sun as a The rapid growth of our operations directly correlates leader in the gaming and entertainment industry. with our intense focus on customer service, which is delivered “The Mohegan Sun Way.” This high level of service is provided by over 10,000 dedicated and passionate employees. We believe our employees are the core of our success. Satisfied employees provide superior customer service, which has led to the Mark F. Brown continued annual growth in the average number of Chairman patrons visiting our resort every day. Mohegan Tribal Gaming Authority Management Board December 2003 Our market place in the gaming and entertainment industry has also contributed to our success. Mohegan Sun is only one of two legally authorized gaming operations offering both traditional slot machines and table games in New England. The complex is located William J. Velardo approximately 125 miles from New York City and 100 President and Chief Executive Officer miles from Boston. Based on the rapid success of Mohegan Sun Mohegan Sun and of our competitor, we believe the December 2003 6. that’s competition 7. You’ll find 10,000 people on the edge of their seats in the Mohegan Sun Arena, home to our own Connecticut Sun WNBA team, pre-season NBA games, championship boxing, ice skating, professional bull riding and other major sporting events. 8. 9. that’s rhythm Music becomes magnificent at Mohegan Sun, featuring an endless run of top acts like Shania Twain, Simon & Garfunkel and David Bowie in the Mohegan Sun Arena and countless legendary performers in more intimate venues like the Cabaret Theatre and the Wolf Den. 10. that’s sophistication 11. The Sun burns bright at night in Mohegan After Dark, a unique world of nightlife featuring Lucky’s Lounge, The Dubliner, an Irish pub, and Ultra 88, the ultimate in late-night dancing and mingling. Other exclusive nightlife offerings include Leffingwell’s, the martini bar in the sky, late-night comedy performances and Taughannick Falls Bar at the base of our amazing 7-story indoor waterfall. 12. 13. Hearts pound and pulses race in not one, but two of the world’s largest casinos, offering 300,000 square feet filled with hundreds of table games, thousands of slots and out-of-this-world gaming environments. 14. 15. that’s action 16. that’s anticipation 17. Anticipating your next memorable meal isn’t easy at Mohegan Sun. And neither is deciding where to find it, with 28 different dining choices from gourmet dining to casual cafes to endless buffets. 18. 19. Our towering 34-story hotel sends the senses soaring with luxurious guest rooms and suites – then soothes them with a spectacular spa, salon, pool, indoor solarium and fitness center. Our hotel also offers stunning, state-of-the-art facilities and services for meetings and conventions. 20. that’s relaxation 21. 22. There’s something new around every corner at The Shops At Mohegan Sun, featuring 29 one-of-a-kind stores and boutiques in an even more distinctive environment of roaring waterfalls and softly glowing glass. 23. that’s discovery 24. 25. 26. that’s mohegan sun 27. financial highlights $1,250 $1,000 $750 NET REVENUES AND ADJUSTED EBITDA* GROWTH (IN THOUSANDS) $500 ■ ADJUSTED EBITDA* $250 ■ NET REVENUES $0 2001 2002 2003 For the Fiscal Year Ended September 30, 2001 2002 2003 (in thousands) Operating Results: Gross revenues $ 859,608 $1,121,060 $1,280,514 Promotional allowances 71,372 77,050 91,712 Net revenues 788,236 1,044,010 1,188,802 Income from operations 267,935 213,680 241,333 Net income 213,941 100,032 95,685 Other Data: Adjusted EBITDA(*) 256,164 280,525 310,746 Interest expense, net of capitalized interest 20,375 76,635 83,492 Capital expenditures 728,742 224,743 30,277 Net cash flows provided by operating activities 201,338 183,699 195,484 Balance Sheet Data: Total assets 1,554,693 1,714,055 1,658,511 Long-term debt and capital lease obligations 908,000 1,052,173 1,101,649 * A discussion of Adjusted EBITDA and reconciliation of Adjusted EBITDA to net income is included on page 28 of this annual report. 28. financial highlights CONTINUED Reconciliation of Adjusted EBITDA to Net Income A reconciliation of Adjusted EBITDA to net income, a financial measure determined in accordance with accounting principles generally accepted in the United States of America, or GAAP, is shown below (in thousands): For the Fiscal Year Ended September 30, 2001 2002 2003 Adjusted EBITDA $ 256,164 $ 280,525 $ 310,746 Pre-opening costs and expenses (31,344) (7,755) — Depreciation and amortization (31,295) (78,721) (92,123) Relinquishment liability reassessment 74,410 19,631 22,710 Accretion of discount to the relinquishment liability (35,833) (36,333) (33,592) Interest income 2,920 418 269 Interest expense, net of capitalized interest (20,375) (76,635) (83,492) Loss on early extinguishment of debt ——(27,396) Write-off of debt issuance costs — (826) (403) Other expense, net (115) (272) (1,034) Loss from discontinued operations (591) — — Net income $ 213,941 $ 100,032 $ 95,685 Adjusted EBITDA Explanation Earnings before interest, income taxes, depreciation and amortization, or EBITDA, is a commonly used measure of performance in our industry. EBITDA is not a measure of performance calculated in accordance with accounting principles generally accepted in the United States of America, or GAAP. The Authority has historically evaluated its operating performance with the non-GAAP measure Adjusted EBITDA, which as used in this annual report represents earnings before interest, income taxes, depreciation and amortization, pre-opening costs and expenses, accretion of discount to the relinquishment liability and relinquishment liability reassessment adjustment on the relinquishment liability to Trading Cove Associates pursuant to the Relinquishment Agreement, write-off of debt issuance costs, loss on early extinguishment of debt, loss from discontinued operations and other non-operating income/expense. Adjusted EBITDA provides an additional way to view our operations that, when viewed with both our GAAP results and the reconciliation to net income, the Authority believes provides a more complete understanding of our business than could be obtained absent this disclosure. Adjusted EBITDA is