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EX-31.2 - EXHIBIT 31.2 - MOHEGAN TRIBAL GAMING AUTHORITYa20151231ex312.htm
EX-32.1 - EXHIBIT 32.1 - MOHEGAN TRIBAL GAMING AUTHORITYa20151231ex321.htm
EX-32.2 - EXHIBIT 32.2 - MOHEGAN TRIBAL GAMING AUTHORITYa20151231ex322.htm
EX-31.1 - EXHIBIT 31.1 - MOHEGAN TRIBAL GAMING AUTHORITYa20151231ex311.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549 
_________________________________
FORM 10-Q
 _____________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2015
OR
o
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 033-80655
 __________________________________________
MOHEGAN TRIBAL GAMING AUTHORITY
(Exact name of registrant as specified in its charter)
 __________________________________________ 
Not Applicable
 
06-1436334
(State or other jurisdiction
of incorporation or organization)
 
(IRS Employer
Identification No.)
 
 
One Mohegan Sun Boulevard, Uncasville, CT
 
06382
(Address of principal executive offices)
 
(Zip Code)
(860) 862-8000
(Registrant’s telephone number, including area code)
 ___________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  o
Accelerated filer  o
Non-accelerated filer  x
Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):     Yes  ¨    No  x



MOHEGAN TRIBAL GAMING AUTHORITY
INDEX TO FORM 10-Q
 
 
Page
Number
PART I.
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 6.
 
 
 
Signatures.



PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements

MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
 
 
December 31,
2015
 
September 30,
2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
222,946

 
$
65,754

Restricted cash
555

 
1,762

Receivables, net
43,152

 
53,944

Inventories
16,154

 
15,546

Prepaid expenses
25,007

 
9,033

Other current assets
6,378

 
9,497

Total current assets
314,192

 
155,536

Non-current assets:
 
 
 
Property and equipment, net
1,340,581

 
1,352,055

Goodwill
39,459

 
39,459

Other intangible assets, net
406,579

 
406,718

Other assets, net
77,987

 
66,365

Total assets
$
2,178,798

 
$
2,020,133

LIABILITIES AND CAPITAL
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
24,748

 
$
49,194

Due to Mohegan Tribe
28,500

 
6,000

Current portion of capital leases
832

 
824

Trade payables
14,919

 
15,016

Construction payables
2,841

 
13,137

Accrued interest payable
22,787

 
12,055

Other current liabilities
167,435

 
141,280

Total current liabilities
262,062

 
237,506

Non-current liabilities:
 
 
 
Long-term debt, net of current portion
1,706,991

 
1,593,730

Due to Mohegan Tribe, net of current portion
11,420

 
17,420

Capital leases, net of current portion
1,310

 
1,521

Other long-term liabilities
2,587

 
1,915

Total liabilities
1,984,370

 
1,852,092

Commitments and Contingencies


 


Capital:
 
 
 
Retained earnings
190,771

 
169,452

Accumulated other comprehensive loss
(613
)
 

Mohegan Tribal Gaming Authority total capital
190,158

 
169,452

Non-controlling interests
4,270

 
(1,411
)
Total capital
194,428

 
168,041

Total liabilities and capital
$
2,178,798

 
$
2,020,133

The accompanying notes are an integral part of these condensed consolidated financial statements.


3


MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 
For the
 
For the
 
Three Months Ended
 
Three Months Ended
 
December 31, 2015
 
December 31, 2014
Revenues:
 
 
 
Gaming
$
292,397

 
$
277,734

Food and beverage
22,017

 
22,671

Hotel
12,337

 
12,226

Retail, entertainment and other
30,469

 
28,299

Gross revenues
357,220

 
340,930

Less-Promotional allowances
(24,034
)
 
(24,198
)
Net revenues
333,186

 
316,732

Operating costs and expenses:
 
 
 
Gaming
166,993

 
166,099

Food and beverage
10,324

 
10,811

Hotel
3,816

 
3,503

Retail, entertainment and other
9,489

 
12,244

Advertising, general and administrative
49,376

 
45,815

Corporate
4,012

 
7,639

Depreciation and amortization
19,128

 
20,053

(Gain) loss on disposition of assets
(28
)
 
739

Relinquishment liability reassessment

 
56

Total operating costs and expenses
263,110

 
266,959

Income from operations
70,076

 
49,773

Other income (expense):
 
 
 
Accretion of discount to the relinquishment liability

 
(227
)
Interest income
2,130

 
1,834

Interest expense, net of capitalized interest
(34,147
)
 
(36,255
)
Loss on early extinguishment of debt
(207
)
 

Other expense, net
(402
)
 
(728
)
Total other expense
(32,626
)
 
(35,376
)
Net income
37,450

 
14,397

(Income) loss attributable to non-controlling interests
(5,531
)
 
369

Net income attributable to Mohegan Tribal Gaming Authority
$
31,919

 
$
14,766

Other comprehensive loss:
 
 
 
Foreign currency translation
(613
)
 

Other comprehensive loss
(613
)
 

Comprehensive income
$
31,306

 
$
14,766


The accompanying notes are an integral part of these condensed consolidated financial statements.


4


MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
(in thousands)
(unaudited)
 
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Mohegan Tribal Gaming Authority Total Capital
 
Non-controlling      
Interests
 
Total Capital
Balance, September 30, 2015
$
169,452

 
$

 
$
169,452

 
$
(1,411
)
 
$
168,041

Net income
31,919

 

 
31,919

 
5,531

 
37,450

Foreign currency translation adjustment

 
(613
)
 
(613
)
 

 
(613
)
Contributions from members

 

 

 
150

 
150

Distributions to Mohegan Tribe
(10,600
)
 

 
(10,600
)
 

 
(10,600
)
Balance, December 31, 2015
$
190,771

 
$
(613
)
 
$
190,158

 
$
4,270

 
$
194,428

 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2014
$
125,058

 
$

 
$
125,058

 
$
(231
)
 
$
124,827

Net income (loss)
14,766

 

 
14,766

 
(369
)
 
14,397

Contributions from members

 

 

 
1,075

 
1,075

Distributions to Mohegan Tribe
(10,000
)
 

 
(10,000
)
 

 
(10,000
)
Balance, December 31, 2014
$
129,824

 
$

 
$
129,824

 
$
475

 
$
130,299


The accompanying notes are an integral part of these condensed consolidated financial statements.


5


MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
For the Three Months Ended
 
For the Three Months Ended
 
December 31, 2015
 
December 31, 2014
Cash flows provided by (used in) operating activities:
 
 
 
Net income
$
37,450

 
$
14,397

Adjustments to reconcile net income to net cash flows provided by operating activities:
 
 
 
Depreciation and amortization
19,128

 
20,053

Relinquishment liability reassessment

 
56

Accretion of discount to the relinquishment liability

 
227

Cash paid for accretion of discount to the relinquishment liability

 
(276
)
Loss on early extinguishment of debt
207

 

Payments of discounts
(41
)
 

Amortization of debt issuance costs, premiums and discounts
2,244

 
1,911

Provision (recovery) for losses on receivables
(6,280
)
 
794

(Gain) loss on disposition of assets
(28
)
 
739

Loss from unconsolidated affiliates
393

 
778

Changes in operating assets and liabilities:
 
 
 
Increase in receivables
(8,745
)
 
(1,047
)
Increase in inventories
(608
)
 
(1,267
)
Increase in prepaid and other assets
(17,929
)
 
(4,529
)
Decrease in trade payables
(49
)
 
(10,780
)
Increase in accrued interest
10,732

 
20,726

Increase in other liabilities
5,509

 
4,851

Net cash flows provided by operating activities
41,983

 
46,633

Cash flows provided by (used in) investing activities:
 
 
 
Purchases of property and equipment, including decreases in construction payables of $10,296 and $4,776, respectively
(17,843
)
 
(5,760
)
Issuance of third-party loans and advances
(2,556
)
 
(336
)
Payments received on third-party loans and advances
13,441

 
38

Increase in restricted cash, net
(777
)
 
(1,784
)
Proceeds from asset sales
82

 
27

Investments in unconsolidated affiliates
(500
)
 

Investments in the New England Black Wolves
(250
)
 
(500
)
Net cash flows used in investing activities
(8,403
)
 
(8,315
)
Cash flows provided by (used in) financing activities:
 
 
 
Senior Secured Credit Facility borrowings - Revolving
231,000

 
107,000

Senior Secured Credit Facility repayments - Revolving
(194,000
)
 
(103,000
)
Senior Secured Credit Facility repayments - Term Loan A
(2,331
)
 
(1,563
)
Senior Secured Credit Facility repayments - Term Loan B
(2,025
)
 
(1,825
)
Line of Credit borrowings
123,694

 
113,051

Line of Credit repayments
(123,694
)
 
(110,134
)
Proceeds from issuance of Senior Unsecured Notes
100,000

 

New Downs Lodging Credit Facility borrowings - Term Loan
25,000

 

Downs Lodging Credit Facility repayments - Term Loan
(40,516
)
 

Borrowings from Mohegan Tribe
22,500

 

Repayments of other long-term debt
(129
)
 
(103
)
Principal portion of relinquishment liability payments

 
(6,336
)
Distributions to Mohegan Tribe
(10,600
)
 
(10,000
)
Payments of financing fees
(4,621
)
 

Payments on capital lease obligations
(203
)
 
(329
)
Non-controlling interest contributions
150

 

Net cash flows provided by (used in) financing activities
124,225

 
(13,239
)
Net increase in cash and cash equivalents
157,805

 
25,079

Effect of exchange rate on cash and cash equivalents
(613
)
 

Cash and cash equivalents at beginning of period
65,754

 
49,108

Cash and cash equivalents at end of period
$
222,946

 
$
74,187

 
 
 
 
Supplemental disclosures:
 
 
 
Cash paid during the period for interest
$
21,177

 
$
13,193

Non-cash Senior Secured Credit Facility repayments - Term Loan A and Term Loan B
$
30,196

 
$

Non-cash repayments - Mohegan Tribe
$
6,000

 
$

 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

6


MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 1—ORGANIZATION:
The Mohegan Tribe of Indians of Connecticut (the “Mohegan Tribe” or the “Tribe”) established the Mohegan Tribal Gaming Authority (the “Authority”) in July 1995 with the exclusive authority to conduct and regulate gaming activities for the Tribe on Tribal lands and the non-exclusive authority to conduct such activities elsewhere. The Tribe is a federally-recognized Indian tribe with an approximately 595-acre reservation situated in Southeastern Connecticut, adjacent to Uncasville, Connecticut. Under the Indian Gaming Regulatory Act of 1988, federally-recognized Indian tribes are permitted to conduct full-scale casino gaming operations on tribal lands, subject to, among other things, the negotiation of a compact with the affected state. The Tribe and the State of Connecticut entered into a compact (the “Mohegan Compact”), which was approved by the United States Secretary of the Interior. The Authority is primarily engaged in the ownership, operation and development of gaming facilities. In October 1996, the Authority opened Mohegan Sun, a gaming and entertainment complex situated on an approximately 185-acre site on the Tribe's reservation. The Authority is governed by a nine-member Management Board, whose members also comprise the Mohegan Tribal Council, the governing body of the Tribe. Any change in the composition of the Mohegan Tribal Council results in a corresponding change in the Authority's Management Board.
As of December 31, 2015, the following subsidiaries were wholly-owned by the Authority: Mohegan Basketball Club, LLC (“MBC”), Mohegan Golf, LLC (“Mohegan Golf”), Mohegan Lacrosse, LLC (“Mohegan Lacrosse”), Mohegan Commercial Ventures-PA, LLC (“MCV-PA”), Mohegan Ventures-Northwest, LLC (“Mohegan Ventures-NW”), Mohegan Ventures Wisconsin, LLC (“MVW”), MTGA Gaming, LLC (“MTGA Gaming”), Downs Lodging, LLC ("Downs Lodging") and Mohegan Gaming Advisors, LLC ("Mohegan Gaming Advisors").
MBC owns and operates the Connecticut Sun, a professional basketball team in the Women's National Basketball Association (the “WNBA”). MBC currently owns a 4.2% membership interest in WNBA, LLC.
Mohegan Golf owns and operates the Mohegan Sun Golf Club in Southeastern Connecticut.
Mohegan Lacrosse holds a 50% membership interest in New England Black Wolves, LLC (“NEBW”), which was formed with an unrelated third-party to own and operate the New England Black Wolves, a professional indoor lacrosse team in the National Lacrosse League.
MCV-PA holds a 0.01% general partnership interest in each of Downs Racing, L.P. (“Downs Racing”), Backside, L.P., Mill Creek Land, L.P. and Northeast Concessions, L.P. (collectively, along with MCV-PA, the “Pocono Subsidiaries”), while the Authority holds the remaining 99.99% limited partnership interest in each entity. Downs Racing owns and operates Mohegan Sun Pocono, a gaming and entertainment facility situated on an approximately 400-acre site in Plains Township, Pennsylvania, and several off-track wagering facilities located elsewhere in Pennsylvania (collectively, the “Pennsylvania Facilities”). The Authority views Mohegan Sun and the Pennsylvania Facilities as two separate operating segments.
Mohegan Ventures-NW and a subsidiary of the Tribe hold 49.15% and 10.85% membership interests in Salishan-Mohegan, LLC (“Salishan-Mohegan”), respectively. Salishan-Mohegan was formed with an unrelated third-party to participate in the development and management of a proposed casino to be owned by the federally-recognized Cowlitz Indian Tribe (the “Cowlitz Tribe”) and to be located on the Cowlitz reservation in Clark County, Washington (the “Cowlitz Project”). Salishan-Mohegan holds a 100% membership interest in Salishan-Mohegan Two, LLC, which was formed to acquire certain property related to the Cowlitz Project.
MVW holds a 100% membership interest in Wisconsin Tribal Gaming, LLC (“WTG”), which was formed to participate in the development of a proposed casino to be owned by the federally-recognized Menominee Indian Tribe of Wisconsin (the “Menominee Tribe”) and to be located in Kenosha, Wisconsin (the “Menominee Project”).
MTGA Gaming holds a 100% membership interest in Mohegan Gaming & Hospitality, LLC (“MG&H”). MG&H holds a 100% membership interest in Mohegan Resorts, LLC (“Mohegan Resorts”). Mohegan Resorts holds a 100% membership interest in Mohegan Resorts Mass, LLC, which was formed to pursue potential gaming opportunities in the Commonwealth of Massachusetts.
Downs Lodging was formed to develop, finance and build Project Sunlight, a hotel and convention center located at Mohegan Sun Pocono.
Mohegan Gaming Advisors was formed to pursue gaming opportunities outside the State of Connecticut, including management contracts and consulting agreements for casino and entertainment properties. Mohegan Gaming Advisors holds 100%

7

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

membership interests in MGA Holding NJ, LLC ("MGA Holding NJ") and MGA Gaming NJ, LLC (collectively, the "Mohegan NJ Entities"). The Mohegan NJ Entities were formed to pursue management contracts and consulting agreements in the State of New Jersey. MGA Holding NJ holds a 10% ownership interest in Resorts Casino Hotel in Atlantic City and its associated gaming activities, including on-line gaming in the State of New Jersey.
Mohegan Gaming Advisors also holds 100% membership interests in MGA Holding MA, LLC (“MGA Holding MA”) and MGA Gaming MA, LLC (“MGA Gaming MA”). MGA Holding MA holds a 100% membership interest in MGA Palmer Partners, LLC (“MGA Palmer Partners”). MGA Palmer Partners holds a 100% membership interest in Mohegan Sun Massachusetts, LLC ("Mohegan Sun Massachusetts"; Mohegan Sun Massachusetts, MGA Holding MA, MGA Gaming MA and MGA Palmer Partners are referred to collectively as the “Mohegan MA Entities”). The Mohegan MA Entities were formed to pursue potential gaming opportunities in the Commonwealth of Massachusetts.
In addition, Mohegan Gaming Advisors holds a 100% membership interest in Inspire Integrated Resort Co., Ltd ("Inspire Integrated Resort"). Inspire Integrated Resort was formed to pursue potential gaming opportunities in South Korea.
Mohegan Gaming Advisors also holds 100% membership interests in MGNV, LLC ("MGNV"). MGNV was formed to pursue potential gaming, hospitality and entertainment opportunities in the State of Nevada.
The Authority also holds 50% of the membership interests in MMCT Venture, LLC, which was formed with the Mashantucket Pequot Tribe (the "MPT") to pursue potential additional gaming opportunities in the State of Connecticut.

NOTE 2—BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In accordance with Rule 10-01, the accompanying unaudited condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The accompanying year-end condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In management's opinion, all adjustments, including normal recurring accruals and adjustments, necessary for a fair statement of the Authority's operating results for the interim period, have been included. In addition, certain amounts in the accompanying 2015 condensed consolidated financial statements and supplemental condensed consolidating financial statements have been reclassified to conform to the 2016 presentation.
The gaming market in the Northeastern United States is seasonal in nature, with peak gaming activities often occurring at Mohegan Sun and Mohegan Sun Pocono during the months of May through August. Accordingly, the Authority's operating results for the three months ended December 31, 2015 are not necessarily indicative of operating results for other interim periods or an entire fiscal year.
The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Authority's Annual Report on Form 10-K for the fiscal year ended September 30, 2015.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Authority and its majority and wholly-owned subsidiaries and entities. In accordance with authoritative guidance issued by the Financial Accounting Standards Board (the “FASB”) pertaining to consolidation of variable interest entities, the accounts of Salishan-Mohegan are consolidated into the accounts of Mohegan Ventures-NW and the accounts of NEBW are consolidated into the accounts of Mohegan Lacrosse as Mohegan Ventures-NW and Mohegan Lacrosse are deemed to be the primary beneficiaries. In consolidation, all inter-company balances and transactions were eliminated.
Long-Term Receivables
Long-term receivables consist primarily of receivables from affiliates and others.
Receivables from affiliates, which are included in receivables, net, and other assets, net, in the accompanying condensed consolidated balance sheets, consist of reimbursable costs and expenses advanced by Salishan-Mohegan on behalf of the Cowlitz Tribe for the Cowlitz Project (refer to Note 6) and WTG on behalf of the Menominee Tribe for the Menominee Project.

8

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

The Salishan-Mohegan receivables are payable upon: (1) the related property being taken into trust by the United States Department of the Interior and (2) the receipt of necessary financing for the development of the proposed casino. The Authority maintains a reserve for doubtful collection of the Salishan-Mohegan receivables, which is based on the Authority's estimate of the probability that the receivables will be collected. The Authority assesses the reserve for doubtful collection of the Salishan-Mohegan receivables for adequacy on a quarterly basis. In March 2015, the Cowlitz Project site was taken into trust by the United States Department of the Interior for the benefit of the Cowlitz Tribe. In addition, on December 4, 2015, the Cowlitz Tribal Gaming Authority (the “CTGA”) closed on its financing for the Cowlitz Project. The financing provided funding for construction of the Cowlitz Project and a partial repayment of the Salishan-Mohegan receivables. In connection with this transaction, the Authority reduced the reserve for doubtful collection of the Salishan-Mohegan receivables. Future developments in the construction and opening of the proposed casino or other matters affecting the Cowlitz Project could affect the collectability of the Salishan-Mohegan receivables and the related reserve. The WTG receivables, which were fully reserved, were written-off following the expiration of a release and reimbursement agreement on December 31, 2015.
Receivables from others, which are primarily included in other assets, net, in the accompanying condensed consolidated balance sheets, consist of funds loaned to a third-party in connection with the Cowlitz Project and a loan to a tenant of Mohegan Sun.
The following table presents a reconciliation of long-term receivables, including current portions, and the related reserves for doubtful collection of these long-term receivables (in thousands):
 
Long-Term Receivables
 
Affiliates
 
Others
 
Total
Balance, September 30, 2015 (1)
$
100,527

 
$
1,811

 
$
102,338

Additions:
 
 
 
 
 
   Advances and other loans, including interest receivable
1,810

 
513

 
2,323

   Development fees
4,459

 

 
4,459

Deductions:
 
 
 
 
 
   Payments (2)
(19,400
)
 
(41
)
 
(19,441
)
   Adjustments (3)
(9,793
)
 

 
(9,793
)
Balance, December 31, 2015 (1)
$
77,603

 
$
2,283

 
$
79,886

__________
(1)
Includes interest receivable of $43.7 million and $43.4 million as of December 31, 2015 and September 30, 2015, respectively.
(2)
Payments of receivables from affiliates represent a partial repayment of the Salishan-Mohegan receivables.
(3)
Adjustments represent the write-off of the WTG receivables.
 
Reserves for Doubtful Collection of Long-Term Receivables
 
Affiliates        
 
Others        
 
Total             
Balance, September 30, 2015
$
31,028

 
$
42

 
$
31,070

Additions:
 
 
 
 
 
   Charges to bad debt expense
709

 

 
709

Deductions:
 
 
 
 
 
   Adjustments (1)
(17,108
)
 
(3
)
 
(17,111
)
Balance, December 31, 2015
$
14,629

 
$
39

 
$
14,668

__________.
(1)
Adjustments to reserves for doubtful collection of receivables from affiliates include $7.3 million related to the Salishan-Mohegan receivables and $9.8 million related to the WTG receivables.
Fair Value of Financial Instruments
The fair value amounts presented below are reported to satisfy disclosure requirements pursuant to authoritative guidance issued by the FASB pertaining to disclosures about fair values of financial instruments and are not necessarily indicative of amounts that the Authority could realize in a current market transaction.
The Authority applies the following fair value hierarchy, which prioritizes the inputs utilized to measure fair value into three levels:
Level 1 - Quoted prices for identical assets or liabilities in active markets;

9

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets or valuations based on models where the significant inputs are observable or can be corroborated by observable market data; and
Level 3 - Valuations based on models where the significant inputs are unobservable. The unobservable inputs reflect the Authority's estimates or assumptions that market participants would utilize in pricing such assets or liabilities.
The Authority's assessment of the significance of a particular input requires judgment and may affect the valuation of financial assets and liabilities and their placement within the fair value hierarchy.
The carrying amount of cash and cash equivalents, receivables, trade payables and promissory notes and certain credit facilities approximates fair value. The estimated fair value of the Authority's financing facilities and notes were as follows (in thousands):
 
December 31, 2015
 
Carrying Value         
 
Fair Value         
Senior Secured Credit Facility - Revolving
$
58,000

 
$
55,626

Senior Secured Credit Facility - Term Loan A
$
104,346

 
$
103,316

Senior Secured Credit Facility - Term Loan B
$
768,666

 
$
763,561

2013 9 3/4% Senior Unsecured Notes
$
577,985

 
$
595,969

2015 Senior Unsecured Notes
$
97,348

 
$
94,625

2012 11% Senior Subordinated Notes
$
99,029

 
$
100,941

The estimated fair values of the Authority's financing facilities and notes were based on Level 2 inputs (quoted market prices or prices of similar instruments) on or about December 31, 2015.
Additional Cash Flow Information
On December 31, 2015, the debt service provider for the Authority’s Senior Secured Credit Facilities made required principal payments to the lenders of the Authority’s Term Loan A Facility and Term Loan B Facility totaling $30.2 million. As of December 31, 2015, the Authority reflected this transaction as a reduction to current portion of long-term debt and a corresponding increase to other current liabilities. On the following banking day, the debt service provider withdrew the $30.2 million from the Authority’s bank account, resulting in a reduction to the Authority’s cash and cash equivalents and other current liabilities. Accordingly, the Authority classified the payments made by the debt service provider to the lenders of the Authority’s Term Loan A Facility and Term Loan B Facility as non-cash financing outflows and the related amounts owed to the debt service provider as non-cash financing inflows in the accompanying condensed consolidated statement of cash flows.
In addition, in connection with the financing for the Cowlitz Project, the Cowlitz Tribe repaid $6.0 million of principal outstanding under the 2012 Mohegan Tribe Minor's Trust Promissory Note on behalf of Salishan-Mohegan. Accordingly, the Authority classified this payment as a non-cash financing outflow with a corresponding non-cash investing inflow for the related reduction to the Salishan-Mohegan receivables in the accompanying condensed consolidated statement of cash flows.
New Accounting Standards
In May 2014, the FASB issued an accounting standard update on revenue recognition that will be applied to all contracts with customers. The update requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. It also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This guidance will be required to be applied on a retrospective basis, using one of two methodologies, and was to be effective for annual reporting periods beginning after December 15, 2016, with early application not being permitted. However, in July 2015, the FASB deferred the effective date by one year. This guidance will now be effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods thereafter. Entities are permitted to adopt the guidance as of the original effective date. The Authority is currently evaluating the impact that this guidance will have on its financial position and results of operations.
In August 2014, the FASB issued an accounting standard update which provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. The update requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. It also requires management to provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern. This guidance will be required for annual reporting periods ending after December 15, 2016, and

10

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

interim reporting periods thereafter, with early application permitted. The Authority is currently evaluating the impact that this guidance will have on its financial position and results of operations.
In February 2015, the FASB issued an accounting standards update which amends existing requirements applicable to reporting entities that are required to evaluate whether certain legal entities should be consolidated. This guidance will be required to be applied either on a retrospective or modified retrospective basis and will be effective for annual reporting periods beginning after December 15, 2015, and interim reporting periods thereafter, with early application permitted. The Authority is currently evaluating the impact that this guidance will have on its financial position and results of operations.
NOTE 3—LONG-TERM DEBT:
Long-term debt consisted of the following (in thousands, including current maturities):
 
December 31,
2015
 
September 30,
2015
Senior Secured Credit Facility - Revolving, due June 2018
$
58,000

 
$
21,000

Senior Secured Credit Facility - Term Loan A, due June 2018, net of discount and debt issuance costs of $1,892 and $2,106 as of December 31, 2015 and September 30, 2015, respectively
104,346

 
109,613

Senior Secured Credit Facility - Term Loan B, due June 2018, net of discount and debt issuance costs of $13,615 and $14,918 as of December 31, 2015 and September 30, 2015, respectively
768,666

 
792,078

2013 9 3/4% Senior Unsecured Notes, due September 2021, net of premium and debt issuance costs of $7,015 and $7,333 as of December 31, 2015 and September 30, 2015, respectively
577,985

 
577,667

2015 Senior Unsecured Notes, due December 2017, net of debt issuance costs of $2,652 as of December 31, 2015
97,348

 

2012 11 % Senior Subordinated Notes, due September 2018, net of discount and debt issuance costs of $1,161 and $1,251 as of December 31, 2015 and September 30, 2015, respectively
99,029

 
98,939

Downs Lodging Credit Facility, due July 2016, net of debt issuance costs of $254 as of September 30, 2015

 
40,262

New Downs Lodging Credit Facility, due November 2019, net of debt issuance costs of $1,621 as of December 31, 2015
23,379

 

2012 Mohegan Tribe Minor's Trust Promissory Note, due March 2017
10,000

 
16,000

2013 Mohegan Tribe Promissory Note, due December 2018
7,420

 
7,420

2015 Mohegan Tribe Promissory Note, due April 2016
22,500

 

Other
2,986

 
3,365

Long-term debt, excluding capital leases
1,771,659

 
1,666,344

Less: current portion of long-term debt
(53,248
)
 
(55,194
)
Long-term debt, net of current portion
$
1,718,411

 
$
1,611,150


Maturities of long-term debt are as follows, excluding unamortized debt issuance costs, premiums and discounts (in thousands, including current maturities):
Less than 1 year
$
53,248

1-3 years
1,144,493

3-5 years
16,278

More than 5 years
585,596

Total
$
1,799,615

Senior Secured Credit Facilities
In November 2013, the Authority entered into a loan agreement among the Authority, the Tribe, the Guarantors as defined below, RBS Citizens, N.A., as Administrative and Collateral Agent and the other lenders and financial institutions party thereto, providing for $955.0 million in aggregate principal amount of senior secured credit facilities (the “Senior Secured Credit Facilities”), comprised of a $100.0 million senior secured revolving credit facility (the “Revolving Facility”), a $125.0 million senior secured term loan A facility (the “Term Loan A Facility”) and a $730.0 million senior secured term loan B facility (the “Term Loan B Facility"). The Senior Secured Credit Facilities mature on June 15, 2018, subject to extension based on the satisfaction of certain conditions to November 19, 2018 (in the case of the Revolving Facility and the Term Loan A Facility) and November 19, 2019

11

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

(in the case of the Term Loan B Facility).
In August 2015, the Authority entered into an increase joinder and amendment agreement among the Authority, the Tribe, the Guarantors as defined below, Citizens Bank, N.A., as Administrative Agent, and the lenders party thereto, amending the Senior Secured Credit Facilities. Pursuant to the amendment, the Authority borrowed $90.0 million of increase term B loans on the same terms as the existing term B loans under the Term Loan B Facility. The net proceeds from this transaction were used to redeem outstanding 2012 Senior Subordinated Notes (further discussed below).
The Term Loan A Facility amortizes in equal quarterly installments in an aggregate annual amount equal to 5.0% of the original principal amount for the first year after the closing date, 7.5% of the original principal amount for the second year after the closing date and 10.0% of the original principal amount in each year thereafter, with the balance payable on the maturity date of the Term Loan A Facility. The Term Loan B Facility amortizes in equal quarterly installments in an aggregate annual amount equal to 1.0% of the original principal amount. Amortization of the Term Loan A Facility and Term Loan B Facility began with the first full fiscal quarter after the closing date.
As of December 31, 2015, amounts outstanding under the Revolving Facility, Term Loan A Facility and Term Loan B Facility totaled $58.0 million, $106.2 million and $782.3 million, respectively. As of December 31, 2015, letters of credit issued under the Revolving Facility totaled $3.0 million, of which no amount was drawn. Inclusive of letters of credit, which reduce borrowing availability under the Revolving Facility, the Authority had approximately $39.0 million of borrowing capacity under its Revolving Facility and Line of Credit as of December 31, 2015.
Borrowings under the Senior Secured Credit Facilities accrue interest as follows: (i) for base rate loans under the Revolving Facility and Term Loan A Facility, at a base rate equal to the highest of (a) the prime rate, (b) the federal funds rate plus 50 basis points and (c) the one-month LIBOR rate plus 100 basis points (the highest of (a), (b) and (c), the “base rate”), plus a leverage-based margin of 250 to 350 basis points; (ii) for Eurodollar rate loans under the Revolving Facility and Term Loan A Facility, at the applicable LIBOR rate plus a leverage-based margin of 350 to 450 basis points; (iii) for base rate loans under the Term Loan B Facility, at the base rate (subject to a 2.0% floor) plus 350 basis points; and (iv) for Eurodollar rate loans under the Term Loan B Facility, at the applicable LIBOR rate (subject to a 1.0% floor) plus 450 basis points. The Authority is also required to pay a leverage-based commitment fee of between 37.5 and 50 basis points for unused commitments under the Revolving Facility. Interest on base rate loans is payable quarterly in arrears. Interest on Eurodollar rate loans of three months or less is payable at the end of each applicable interest period and for Eurodollar rate loans of more than three months, interest is payable at intervals of three months duration after the beginning of such interest period.
As of December 31, 2015, interest on the $58.0 million outstanding under the Revolving Facility was based on a base rate of 3.50% plus 300 basis points. The commitment fee was 0.50% as of December 31, 2015. As of December 31, 2015, interest on the $106.2 million outstanding under the Term Loan A Facility was based on a Eurodollar rate of 0.42% plus 400 basis points. As of December 31, 2015, interest on the $782.3 million outstanding under the Term Loan B Facility was based on the Eurodollar rate floor of 1.0% plus 450 basis points. As of December 31, 2015, the effective interest rates for amounts outstanding under the Term Loan A Facility and Term Loan B Facility, after taking into account discounts and debt issuance costs, were 5.30% and 6.24%, respectively. As of December 31, 2015 and September 30, 2015, accrued interest, including commitment fees, on the Senior Secured Credit Facilities was $176,000 and $195,000, respectively.
The Authority's obligations under the Senior Secured Credit Facilities are fully and unconditionally guaranteed, jointly and severally, by the Pocono Subsidiaries, MBC, Mohegan Golf, Mohegan Ventures-NW, MVW, WTG and MTGA Gaming (collectively, the “Guarantors”). The Senior Secured Credit Facilities are collateralized by a first priority lien on substantially all of the Authority's property and assets and those of the Guarantors (other than MBC), including the assets that comprise Mohegan Sun Pocono and a leasehold mortgage on the land and improvements that comprise Mohegan Sun (the Authority and the Guarantors, other than MBC, are collectively referred to herein as the “Grantors”). The Grantors are also required to pledge additional assets as collateral for the Senior Secured Credit Facilities as they and future guarantor subsidiaries acquire them.
The Senior Secured Credit Facilities contain customary covenants applicable to the Authority and its restricted subsidiaries, including covenants governing: incurrence of indebtedness, incurrence of liens, payment of dividends and other distributions, investments, asset sales, affiliate transactions, mergers or consolidations and capital expenditures. Additionally, the Senior Secured Credit Facilities include financial maintenance covenants pertaining to total leverage, secured leverage and minimum fixed charge coverage.
As of December 31, 2015, the Authority and the Tribe were in compliance with all respective covenant requirements under the Senior Secured Credit Facilities.

12

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

The Authority continues to monitor revenues and manage expenses and enhance operating efficiencies to ensure continued compliance with its financial covenant requirements under the Senior Secured Credit Facilities. While the Authority anticipates that it will remain in compliance with all covenant requirements under its Senior Secured Credit Facilities for all periods prior to maturity, it may need to increase revenues or offset any future declines in revenues by implementing cost saving and other initiatives to ensure compliance with these financial covenant requirements. If the Authority is unable to satisfy its financial covenant requirements, it would need to obtain waivers or consents under the Senior Secured Credit Facilities; however, the Authority can provide no assurance that it would be able to obtain such waivers or consents. If the Authority is unable to obtain such waivers or consents, it would be in default under its Senior Secured Credit Facilities, which may result in cross-defaults under its other outstanding indebtedness and allow its lenders and creditors to exercise their rights and remedies as defined under their respective agreements, including their right to accelerate the repayment of the Authority's outstanding indebtedness. If such acceleration were to occur, the Authority can provide no assurance that it would be able to obtain the financing necessary to repay such accelerated indebtedness.
Senior Unsecured Notes
2013 9 3/4% Senior Unsecured Notes
In August 2013, the Authority issued $500.0 million Senior Unsecured Notes with fixed interest payable at a rate of 9.75% per annum (the “Initial 2013 Senior Unsecured Notes”). In August 2015, the Authority issued an additional $85.0 million of senior unsecured notes under the Initial 2013 Senior Unsecured Notes indenture (the “Additional 2013 Senior Unsecured Notes” and, together with the Initial 2013 Senior Unsecured Notes, the “2013 Senior Unsecured Notes”). Subsequent to this transaction, an aggregate principal amount of $585.0 million 2013 Senior Unsecured Notes is outstanding. As of December 31, 2015, the effective interest rate for the 2013 Senior Unsecured Notes, after taking into account premiums, discounts and debt issuance costs, was 10.03%. The net proceeds from the Additional 2013 Senior Unsecured Notes were used to redeem outstanding 2012 Senior Subordinated Notes (further discussed below).
The 2013 Senior Unsecured Notes mature on September 1, 2021. The Authority may redeem the 2013 Senior Unsecured Notes, in whole or in part, at any time prior to September 1, 2016 at a price equal to 100% of the principal amount plus a make-whole premium and accrued interest (and additional interest in the case of the Additional 2013 Senior Unsecured Notes, if any, pursuant to the registration rights agreement described below) to the date of redemption. On or after September 1, 2016, the Authority may redeem the 2013 Senior Unsecured Notes, in whole or in part, at specified redemption prices, together with accrued interest (and additional interest in the case of the Additional 2013 Senior Unsecured Notes, if any) to the date of redemption. If the Authority experiences specific kinds of change of control triggering events, the Authority must offer to repurchase the 2013 Senior Unsecured Notes at a price equal to 101% of the principal amount thereof, plus accrued interest (and additional interest in the case of the Additional 2013 Senior Unsecured Notes, if any) to the purchase date. In addition, if the Authority undertakes certain types of asset sales and does not use the related sale proceeds for specified purposes, the Authority may be required to offer to repurchase the 2013 Senior Unsecured Notes at a price equal to 100% of the principal amount, plus accrued interest (and additional interest in the case of the Additional 2013 Senior Unsecured Notes, if any). Interest on the 2013 Senior Unsecured Notes is payable semi-annually on March 1st and September 1st.
In March 2014, the Authority completed an offer to exchange the Initial 2013 Senior Unsecured Notes for a new issue of substantially identical debt securities registered under the Securities Act of 1933, with all outstanding notes being exchanged.
As of December 31, 2015 and September 30, 2015, accrued interest on the 2013 Senior Unsecured Notes was $19.0 million and $4.8 million, respectively.
The 2013 Senior Unsecured Notes are uncollateralized general obligations of the Authority and are effectively subordinated to all of the Authority’s and the Guarantors' and future guarantor subsidiaries' senior secured indebtedness, including the Senior Secured Credit Facilities, to the extent of the value of the collateral securing such indebtedness. The 2013 Senior Unsecured Notes are also effectively subordinated to any indebtedness and other liabilities (including trade payables) of the Authority’s subsidiaries that do not guarantee the 2013 Senior Unsecured Notes. The 2013 Senior Unsecured Notes rank equally in right of payment with the Authority’s other unsecured, unsubordinated indebtedness, including trade payables. The 2013 Senior Unsecured Notes are fully and unconditionally guaranteed, jointly and severally, by the Guarantors.
The 2013 Senior Unsecured Notes indenture contains certain covenants that, subject to certain significant exceptions, limit, among other things, the Authority’s and Guarantors’ ability to incur additional debt, pay dividends or distributions, make certain investments, create liens on assets, enter into transactions with affiliates, merge or consolidate with another company or transfer and sell assets. The 2013 Senior Unsecured Notes indenture also includes customary events of default, including, but not limited to, failure to make required payments, failure to comply with certain agreements or covenants, failure to pay certain other

13

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

indebtedness, the occurrence of which is caused by a failure to pay principal, premium or interest or results in the acceleration of such indebtedness, certain events of bankruptcy and insolvency and certain judgment defaults.
Registration Rights Agreement
In August 2015, the Authority and the Guarantors of the Additional 2013 Senior Unsecured Notes entered into a registration rights agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated and RBS Securities Inc., as representatives of the several initial purchasers of the Additional 2013 Senior Unsecured Notes. Upon the terms and subject to the conditions of this agreement, the Authority agreed to offer to exchange the Additional 2013 Senior Unsecured Notes, pursuant to a registration statement effective within 270 days of issuance, for a new issue of substantially identical debt securities registered under the Securities Act of 1933, as amended (the "Exchange Offer"). Under certain circumstances set forth in the registration rights agreement, the Authority may also be obligated to file a shelf registration statement with respect to the Additional 2013 Senior Unsecured Notes. On February 9, 2016, the Authority commenced the Exchange Offer.
Facility Agreement for Senior Unsecured Notes
On November 18, 2015, the Authority entered into an agreement (the “Facility Agreement”) by and among the Authority, the Tribe and UBS AG, London Branch (“UBS”). Pursuant to the Facility Agreement, the Authority may issue, from time to time, to UBS or its designee, senior unsecured notes in an aggregate principal amount of up to $200.0 million, in varying amounts and with varying borrowing dates, maturities and interest rates, as agreed with UBS or its designee.
On November 20, 2015, pursuant to the Facility Agreement, the Authority entered into a note purchase agreement (the “Note Purchase Agreement”) by and among the Authority, the Tribe and the purchaser named therein (the “Purchaser”). In accordance with the Note Purchase Agreement, the Authority issued floating rate senior notes in an aggregate principal amount of $100.0 million (the “2015 Senior Unsecured Notes”) to the Purchaser in a private offering that closed on November 20, 2015. The net proceeds from the 2015 Senior Unsecured Notes were used to pursue new development opportunities and for general corporate purposes. The 2015 Senior Unsecured Notes are senior unsecured obligations. Pursuant to a guarantee agreement dated November 20, 2015, certain of the Authority's subsidiaries, which are the same Guarantors that guarantee the Authority's Senior Secured Credit Facilities and other senior unsecured and senior subordinated notes, have guaranteed the 2015 Senior Unsecured Notes. The 2015 Senior Unsecured Notes mature on December 15, 2017. The 2015 Senior Unsecured Notes accrue interest at an annual rate equal to the LIBOR rate plus 4.45%, payable quarterly. As of December 31, 2015, interest on the 2015 Senior Unsecured Notes was based on a LIBOR rate of 0.51% plus 4.45%. As of December 31, 2015, the effective interest rate for the 2015 Senior Unsecured Notes, after taking into account debt issuance costs, was 6.39%. As of December 31, 2015, prepaid interest on the 2015 Senior Unsecured Notes was $1.0 million.
The Authority may redeem the 2015 Senior Unsecured Notes at any time, in whole or in part, at a price equal to 100% of the principal amount redeemed plus accrued interest to the date of redemption, customary breakage costs, a “make-whole amount,” and, if redeemed within one year of the date of issuance, a premium of 0.25%. If the Authority experiences specific kinds of change of control events, undertakes certain types of asset sales or experiences certain swap-related credit determinations, it will be required to make an offer to purchase the 2015 Senior Unsecured Notes at purchase prices set forth in the Note Purchase Agreement. In addition, if any gaming regulatory authority requires a holder of the 2015 Senior Unsecured Notes to be licensed, qualified or found suitable under applicable gaming laws, and such holder does not obtain such license, qualification or finding of suitability within a specified time, the Authority can call for redemption of the 2015 Senior Unsecured Notes held by such holder.
The 2015 Senior Unsecured Notes and guarantees have not been and will not be registered under the Securities Act of 1933 or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from such registration requirements.
The 2015 Senior Unsecured Notes are uncollateralized general obligations of the Authority and are effectively subordinated to all of the Authority’s and the Guarantors’ and future guarantor subsidiaries’ senior secured indebtedness, including the Senior Secured Credit Facilities, to the extent of the value of the collateral securing such indebtedness. The 2015 Senior Unsecured Notes are also effectively subordinated to any indebtedness and other liabilities (including trade payables) of the Authority’s subsidiaries that do not guarantee the 2015 Senior Unsecured Notes. The 2015 Senior Unsecured Notes rank equally in right of payment with the Authority’s other unsecured, unsubordinated indebtedness, including trade payables. The 2015 Senior Unsecured Notes are fully and unconditionally guaranteed, jointly and severally, by the Guarantors.
The Note Purchase Agreement contains certain covenants that, subject to certain significant exceptions, limit, among other things, the Authority’s and the Guarantors’ ability to incur additional debt, pay dividends or distributions, make certain investments, create liens on assets, enter into transactions with affiliates, merge or consolidate with another company or transfer

14

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

and sell assets. The Note Purchase Agreement also includes customary events of default, including, but not limited to, failure to make required payments, failure to comply with certain agreements or covenants, certain cross-defaults, certain events of bankruptcy and insolvency and certain judgment defaults.
Senior Subordinated Notes
2012 11% Senior Subordinated Notes
In March 2012, the Authority issued $344.2 million Senior Subordinated Toggle Notes with fixed interest payable at a rate of 11% per annum (the “2012 Senior Subordinated Notes”) in exchange for $203.8 million of the Authority's then outstanding 2004 7 1/8% Senior Subordinated Notes and $140.3 million of 2005 Senior Subordinated Notes. The 2012 Senior Subordinated Notes mature on September 15, 2018. The Authority may redeem the 2012 Senior Subordinated Notes, in whole or in part, at any time, at a price equal to 100% of the principal amount plus accrued interest. If a change of control of the Authority occurs, the Authority must offer to repurchase the 2012 Senior Subordinated Notes at a price equal to 101% of the principal amount, plus accrued interest. In addition, if the Authority undertakes certain types of asset sales or suffers events of loss, and the Authority does not use the related sale or insurance proceeds for specified purposes, the Authority may be required to offer to repurchase the 2012 Senior Subordinated Notes at a price equal to 100% of the principal amount, plus accrued interest. Interest on the 2012 Senior Subordinated Notes is payable semi-annually on March 15th and September 15th. The initial interest payment on the 2012 Senior Subordinated Notes was payable entirely in cash. For any subsequent interest payment period through March 15, 2018, the Authority may, at its option, elect to pay interest on the 2012 Senior Subordinated Notes either entirely in cash or by paying up to 2% in 2012 Senior Subordinated Notes (“PIK Interest”). If the Authority elects to pay PIK Interest, such election will increase the principal amount of the 2012 Senior Subordinated Notes in an amount equal to the amount of PIK Interest for the applicable interest payment period to holders of 2012 Senior Subordinated Notes on the relevant record date.
In August 2013, the Authority repurchased an aggregate principal amount of $69.0 million 2012 Senior Subordinated Notes. In September 2015, the Authority redeemed an additional aggregate principal amount of $175.0 million of 2012 Senior Subordinated Notes. An aggregate principal amount of approximately $100.2 million 2012 Senior Subordinated Notes remains outstanding as of December 31, 2015. As of December 31, 2015, the effective interest rate for the 2012 Senior Subordinated Notes, after taking into account discounts and debt issuance costs, was 11.50%. As of December 31, 2015 and September 30, 2015, accrued interest on the 2012 Senior Subordinated Notes was $3.2 million and $490,000, respectively.
The 2012 Senior Subordinated Notes and guarantees have not been and will not be registered under the Securities Act of 1933 or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from such registration requirements.

The 2012 Senior Subordinated Notes are uncollateralized general obligations of the Authority and are subordinated to borrowings under the Senior Secured Credit Facilities and the 2013 and 2015 Senior Unsecured Notes. The 2012 Senior Subordinated Notes are fully and unconditionally guaranteed, jointly and severally, by the Guarantors.
The 2012 Senior Subordinated Notes indenture contains certain non-financial and financial covenant requirements with which the Authority and the Tribe must comply. The non-financial covenant requirements include, among other things, reporting obligations, compliance with laws and regulations, maintenance of licenses and insurances and continued existence of the Authority. The financial covenant requirements include, among other things, subject to certain exceptions, limitations on the Authority's and the Guarantors' ability to incur additional indebtedness, pay dividends or distributions, make certain investments, create liens on assets, enter into transactions with affiliates, merge or consolidate with another company, transfer or sell assets or impair assets constituting collateral.
As of December 31, 2015, the Authority and the Tribe were in compliance with all respective covenant requirements under the senior and senior subordinated note indentures and other debt agreements.
The Authority or its affiliates may, from time to time, seek to purchase or otherwise retire outstanding indebtedness for cash in open market purchases, privately negotiated transactions or otherwise. Any such transaction will depend on prevailing market conditions and the Authority's liquidity and covenant requirement restrictions, among other factors.
Line of Credit
In November 2013, the Authority entered into a $16.5 million revolving credit facility with Bank of America, N.A. (the “Line of Credit”). The Line of Credit is coterminous with the Senior Secured Credit Facilities. Pursuant to provisions of the Senior Secured Credit Facilities, under certain circumstances, the Line of Credit may be converted into loans under the Senior Secured Credit Facilities. Under the Line of Credit, each advance accrues interest on the basis of a one-month LIBOR rate plus an applicable

15

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

margin based on the Authority's total leverage ratio, as each term is defined under the Line of Credit. As of December 31, 2015, no amount was drawn on the Line of Credit. Borrowings under the Line of Credit are uncollateralized general obligations of the Authority. The Line of Credit contains negative covenants and financial maintenance covenants that are substantially the same as those contained in the Senior Secured Credit Facilities. As of December 31, 2015, the Authority was in compliance with all covenant requirements under the Line of Credit. As of December 31, 2015 and September 30, 2015, accrued interest on the Line of Credit was $17,000 and $23,000, respectively.
Downs Lodging Credit Facility
In July 2012, Downs Lodging, a single purpose entity and wholly-owned subsidiary of the Authority, entered into a credit agreement providing for a $45.0 million term loan from a third-party lender (the “Downs Lodging Credit Facility”). The proceeds from the Downs Lodging Credit Facility were used by Downs Lodging to fund Project Sunlight, a hotel and convention center expansion project at Mohegan Sun Pocono. The Downs Lodging Credit Facility accrued interest at an annual rate of 13.0%.

In July 2015, Downs Lodging prepaid approximately $4.5 million of the Downs Lodging Credit Facility, plus accrued interest and fees. On November 25, 2015, Downs Lodging repaid the remaining $40.5 million outstanding under the Downs Lodging Credit Facility, plus accrued interest and fees, with proceeds from a new credit agreement providing for a $25.0 million term loan from a third-party lender (the “New Downs Lodging Credit Facility”) and a cash payment of the remaining amount, and terminated the prior Downs Lodging Credit Facility.
The New Downs Lodging Credit Facility matures in November 2019, subject to earlier maturity in the event that 5.0% or more of the Authority’s total funded indebtedness matures prior to that date, in which case the New Downs Lodging Credit Facility matures six months prior to such date. Principal outstanding under the New Downs Lodging Credit Facility amortizes in equal monthly amounts of approximately $260,000 commencing January 1, 2016, with the remaining balance due at maturity. The New Downs Lodging Credit Facility accrues interest as follows: (i) for base rate loans, at a base rate equal to the greater of (a) the prime rate and (b) the federal funds rate plus 50 basis points (the greater of (a) and (b), the “base rate”), plus 250 basis points and (ii) for Eurodollar rate loans, at the applicable LIBOR rate plus 350 basis points. Interest on base rate loans is payable monthly. Interest on Eurodollar rate loans is payable at the end of each applicable interest period.
As of December 31, 2015, interest on the $25.0 million outstanding under the New Downs Lodging Credit Facility was based on a Eurodollar rate of 0.25% plus 350 basis points. As of December 31, 2015, the effective interest rate for the New Downs Lodging Credit Facility, after taking into account debt issuance costs, was 6.24%. As of December 31, 2015, accrued interest on the New Downs Lodging Credit Facility was $96,000. As of September 30, 2015, accrued interest, including deferred interest and exit fee, on the prior Downs Lodging Credit Facility was $5.3 million.
The New Downs Lodging Credit Facility is a senior secured obligation of Downs Lodging, collateralized by all existing and future assets of Downs Lodging. The New Downs Lodging Credit Facility subjects Downs Lodging to certain covenant requirements customarily found in loan agreements for similar transactions. Additionally, the New Downs Lodging Credit Facility includes a financial maintenance covenant pertaining to minimum debt service coverage. As of December 31, 2015, Downs Lodging was in compliance with all covenant requirements under the New Downs Lodging Credit Facility.
2012 Mohegan Tribe Minor's Trust Promissory Note
In March 2012, Comerica Bank & Trust, N.A., Trustee f/b/o The Mohegan Tribe of Indians of Connecticut Minor's Trust, made a $20.0 million loan to Salishan-Mohegan (the “2012 Mohegan Tribe Minor's Trust Promissory Note”). The 2012 Mohegan Tribe Minor's Trust Promissory Note was amended in June 2014 to extend the maturity date to March 31, 2017. The 2012 Mohegan Tribe Minor's Trust Promissory Note accrued interest at an annual rate of 10.0%, payable as follows: (i) quarterly, commencing June 30, 2012 through March 31, 2014, (ii) on July 1, 2014 on the unpaid balance for the period April 1, 2014 through June 30, 2014, (iii) $800,000 per quarter, commencing September 30, 2015 through March 31, 2016 and (iv) quarterly, thereafter on the unpaid balance. In addition, principal outstanding under the 2012 Mohegan Tribe Minor's Trust Promissory Note amortized as follows: (i) $500,000 per quarter, commencing December 31, 2012 through March 31, 2014, (ii) $500,000 on July 1, 2014 and September 30, 2015, (iii) $1.5 million per quarter, commencing December 31, 2015 through September 30, 2016 and (iv) $10.0 million at maturity.
The 2012 Mohegan Tribe Minor’s Trust Promissory Note was further amended on December 4, 2015, pursuant to which the interest rate was adjusted to an annual rate of 12.5% and accrued interest was adjusted to be payable quarterly, commencing March 31, 2016. In addition, as amended, principal outstanding under the 2012 Mohegan Tribe Minor's Trust Promissory Note amortizes in equal quarterly amounts of $1.5 million, commencing March 31, 2016 through December 31, 2016, with the remaining principal amount due at maturity.

16

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

On December 4, 2015, the Cowlitz Tribe repaid $6.0 million of principal outstanding under the 2012 Mohegan Tribe Minor's Trust Promissory Note on behalf of Salishan-Mohegan. An aggregate principal amount of $10.0 million of the 2012 Mohegan Tribe Minor’s Trust Promissory Note remains outstanding as of December 31, 2015. As of December 31, 2015 and September 30, 2015, accrued interest on the 2012 Mohegan Tribe Minor's Trust Promissory Note was $98,000 and $1.3 million, respectively.
2013 Mohegan Tribe Promissory Note
In March 2013, MG&H purchased and acquired all of the Tribe's membership interest in MG&H in exchange for a $7.4 million promissory note (the “2013 Mohegan Tribe Promissory Note”). The 2013 Mohegan Tribe Promissory Note matures on December 31, 2018. The 2013 Mohegan Tribe Promissory Note accrues interest at an annual rate of 4.0%, payable quarterly. As of December 31, 2015 and September 30, 2015, accrued interest on the 2013 Mohegan Tribe Promissory Note was $1,000.
2015 Mohegan Tribe Promissory Note
On November 16, 2015, the Tribe made a $22.5 million loan to Mohegan Gaming Advisors (the “2015 Mohegan Tribe Promissory Note”). The 2015 Mohegan Tribe Promissory Note matures on April 15, 2016. The 2015 Mohegan Tribe Promissory Note accrues interest at an annual rate of 5.0% and required a principal payment of $8.5 million, plus accrued interest, on January 15, 2016, with the remaining principal amount, plus accrued interest, due at maturity. The $8.5 million principal payment, plus accrued interest, was paid on January 15, 2016 with cash on hand. As of December 31, 2015, accrued interest on the 2015 Mohegan Tribe Promissory Note was $142,000.


NOTE 4—RELATED PARTY TRANSACTIONS:
Distributions to the Tribe totaled $10.6 million and $10.0 million for the three months ended December 31, 2015 and 2014, respectively.
The Tribe provides certain governmental and administrative services in connection with the operation of Mohegan Sun. The Authority incurred expenses for such services totaling $7.5 million and $7.1 million for the three months ended December 31, 2015 and 2014, respectively. As of December 31, 2015, prepaid governmental and administrative services totaled $14.1 million. As of September 30, 2015, there were no prepaid governmental and administrative services.
The Authority purchases most of its utilities, including electricity, gas, water and waste water services, from an instrumentality of the Tribe, the Mohegan Tribal Utility Authority. The Authority incurred costs for such utilities totaling $3.8 million and $4.3 million for the three months ended December 31, 2015 and 2014, respectively.
The Authority incurred interest expense associated with borrowings from the Mohegan Tribe totaling $599,000 and $535,000 for the three months ended December 31, 2015 and 2014, respectively.
The Authority leases the land on which Mohegan Sun is located from the Tribe under a long-term lease agreement. In February 2015, the Authority entered into a fourth amendment to the land lease pursuant to which it released from the land lease an approximately 1.2-acre site to be used by the Tribe to finance, develop and own, through the Mohegan Tribal Finance Authority ("MTFA"), a 400-room hotel and related improvements. In connection with this transaction, the Authority entered into a sublease agreement with MTFA to sublease the site and the completed hotel and related improvements for the purpose of operating the hotel on a triple net basis for a term of 28 years and 4 months, commencing upon the completion of the project. Rental payments under the sublease agreement will also commence upon the completion of the project. Completion and opening of the project is anticipated to occur in the fall of 2016. The Authority classified the sublease as an operating lease for financial reporting purposes in accordance with authoritative guidance issued by the FASB pertaining to the accounting for leases.

NOTE 5—COMMITMENTS AND CONTINGENCIES:
Slot Win and Free Promotional Slot Play Contributions
In May 1994, the Tribe and the State of Connecticut entered into a Memorandum of Understanding (“MOU”), which sets forth certain matters regarding implementation of the Mohegan Compact. The MOU stipulates that a portion of revenues from slot machines must be paid to the State of Connecticut (“Slot Win Contribution”). Slot Win Contribution payments are not required if the State of Connecticut legalizes any other gaming operation with slot machines, video facsimiles of games of chance or other commercial casino games within the State of Connecticut, except those consented to by the Tribe and the MPT. For each 12-month period commencing July 1, 1995, Slot Win Contribution payments shall be the lesser of: (1) 30% of gross revenues from slot machines or (2) the greater of (a) 25% of gross revenues from slot machines or (b) $80.0 million.

17

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

In September 2009, the Authority entered into a settlement agreement with the State of Connecticut regarding contribution payments on the Authority's free promotional slot play program. Under the terms of the settlement agreement, effective July 1, 2009, the State of Connecticut agreed that no value shall be attributed to free promotional slot plays utilized by patrons at Mohegan Sun for purposes of calculating monthly contribution payments, provided that the aggregate amount of free promotional slot plays during any month does not exceed a certain threshold of gross revenues from slot machines for such month. In the event free promotional slot plays granted by the Authority exceed such threshold, contribution payments are required on such excess face amount of free promotional slot plays at the same rate as Slot Win Contribution payments, or 25%. The threshold before contribution payments on free promotional slot plays are required is currently 11% of gross revenues from slot machines.
The Authority reflected expenses associated with the combined Slot Win Contribution and free promotional slot play contribution totaling $35.8 million and $36.5 million for the three months ended December 31, 2015 and 2014, respectively. As of December 31, 2015 and September 30, 2015, the combined outstanding Slot Win Contribution and free promotional slot play contribution totaled $11.8 million and $11.9 million, respectively.
Pennsylvania Slot Machine Tax
Downs Racing holds a Category One slot machine license issued by the Pennsylvania Gaming Control Board (the “PGCB”) for the operation of slot machines at Mohegan Sun Pocono. This license permits Downs Racing to install and operate up to 3,000 slot machines at Mohegan Sun Pocono, expandable to up to a total of 5,000 slot machines upon request and approval of the PGCB.
The Pennsylvania Race Horse Development and Gaming Act stipulates that holders of Category One slot machine licenses must pay a portion of revenues from slot machines to the PGCB on a daily basis (“Pennsylvania Slot Machine Tax”), which includes local share assessments to be paid to the cities and municipalities hosting Mohegan Sun Pocono and amounts to be paid to the Pennsylvania Harness Horsemen's Association, Inc. (the “PHHA”). The Pennsylvania Slot Machine Tax is currently 55% of gross revenues from slot machines, 2% of which is subject to a $10.0 million minimum annual threshold to ensure that the host cities and municipalities receive an annual minimum of $10.0 million in local share assessments. Downs Racing maintains a $1.5 million escrow deposit in the name of the Commonwealth of Pennsylvania for Pennsylvania Slot Machine Tax payments, which was included in other assets, net in the accompanying condensed consolidated balance sheets.
    
The Authority reflected expenses associated with the Pennsylvania Slot Machine Tax totaling $30.4 million and $29.2 million for the three months ended December 31, 2015 and 2014, respectively. As of December 31, 2015 and September 30, 2015, outstanding Pennsylvania Slot Machine Tax payments totaled $6.7 million and $4.7 million, respectively.
Pennsylvania Table Game Tax
In January 2010, the Commonwealth of Pennsylvania amended the Pennsylvania Race Horse Development and Gaming Act to allow slot machine operators in the Commonwealth of Pennsylvania to obtain a table game operation certificate and operate certain table games, including poker. Under the amended law, holders of table game operation certificates must pay a portion of revenues from table games to the PGCB on a weekly basis (“Pennsylvania Table Game Tax”). The Pennsylvania Table Game Tax is currently 12%, plus the 2% local share assessments.
The Authority reflected expenses associated with the Pennsylvania Table Game Tax totaling $1.6 million for each of the three months ended December 31, 2015 and 2014. As of December 31, 2015 and September 30, 2015, outstanding Pennsylvania Table Game Tax payments totaled $229,000 and $148,000, respectively.
Pennsylvania Regulatory Fee
Slot machine licensees in the Commonwealth of Pennsylvania are required to reimburse state gaming regulatory agencies for various administrative and operating expenses (“Pennsylvania Regulatory Fee”) at a rate of 1.5% of gross revenues from slot machines and table games.
The Authority reflected expenses associated with the Pennsylvania Regulatory Fee totaling $1.2 million and $1.1 million for the three months ended December 31, 2015 and 2014, respectively. As of December 31, 2015 and September 30, 2015, outstanding Pennsylvania Regulatory Fee payments to the PGCB totaled $115,000 and $70,000, respectively.
Pennsylvania Gaming Control Board Loans
The PGCB was initially granted $36.1 million in loans to fund start-up costs for gaming in the Commonwealth of Pennsylvania, which are to be repaid by slot machine licensees (the "Initial Loans"). The PGCB was subsequently granted an additional $63.8 million in loans to fund ongoing gaming oversight costs, which are also to be repaid by slot machine licensees

18

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

(the "Subsequent Loans"). Repayment of the Initial Loans will commence when all 14 authorized gaming facilities are opened in the Commonwealth of Pennsylvania. Currently, 12 of the 14 authorized gaming facilities have commenced operations. As of December 31, 2015, the Authority has concluded that a repayment contingency for the Initial Loans is probable but not reasonably estimable since the PGCB has not yet established a method of assessment of repayment for the Initial Loans and, as such, the Authority has not recorded a related accrual for such repayment. In June 2011, the PGCB adopted a method of assessment of repayment for the Subsequent Loans pursuant to which repayment commenced on January 1, 2012 and will continue over a 10-year period in accordance with a formula based on a combination of a single fiscal year and cumulative gross revenues from slot machines for each operating slot machine licensee.
The Authority reflected expenses associated with this repayment schedule totaling $157,000 for each of the three months ended December 31, 2015 and 2014.
Horsemen’s Agreement
Downs Racing and the PHHA are parties to an agreement that governs all live harness racing and simulcasting and account wagering at the Pennsylvania Facilities through December 31, 2016. As of December 31, 2015 and September 30, 2015, outstanding payments to the PHHA for purses earned by horsemen, but not yet paid, and other fees totaled $5.7 million and $7.4 million, respectively.
Priority Distribution Agreement
In August 2001, the Authority and the Tribe entered into an agreement (the “Priority Distribution Agreement”), which stipulates that the Authority must make monthly payments to the Tribe to the extent of the Authority's Net Cash Flow as defined under the Priority Distribution Agreement. The Priority Distribution Agreement was amended as of December 31, 2014. As amended, the Priority Distribution Agreement, which has a perpetual term, limits the minimum aggregate priority distribution payments in each calendar year to $40.0 million. Payments under the Priority Distribution Agreement: (1) do not reduce the Authority's obligations to reimburse the Tribe for governmental and administrative services provided by the Tribe or to make payments under any other agreements with the Tribe, (2) are limited obligations of the Authority and are payable only to the extent of the Authority's Net Cash Flow as defined under the Priority Distribution Agreement and (3) are not secured by a lien or encumbrance on any of the Authority's assets or properties.

The Authority reflected payments associated with the Priority Distribution Agreement totaling $10.0 million and $4.9 million for the three months ended December 31, 2015 and 2014, respectively.
Litigation
The Authority is a defendant in various litigation matters resulting from its normal course of business. In management's opinion, the aggregate liability, if any, arising from such litigations will not have a material impact on the Authority's financial position, results of operations or cash flows.

NOTE 6—COWLITZ PROJECT:
In September 2004, Salishan-Mohegan entered into development and management agreements with the Cowlitz Tribe in connection with the Cowlitz Project, which agreements have been amended from time to time.
Under the terms of the development agreement, Salishan-Mohegan assists in securing financing, as well as administration and oversight of the planning, designing, development, construction and furnishing of the proposed casino. The development agreement provides for development fees of 3% of total project costs, as defined under the development agreement. Under the terms of Salishan-Mohegan's operating agreement, development fees are distributed to Mohegan Ventures-NW. In 2006, pursuant to the development agreement, Salishan-Mohegan purchased an approximately 152-acre site for the proposed casino.
In addition, certain receivables contributed to Salishan-Mohegan and amounts advanced by Salishan-Mohegan on behalf of the Cowlitz Tribe are reimbursable to Salishan-Mohegan by the Cowlitz Tribe, subject to appropriate approvals defined under the development agreement. Reimbursements are contingent upon: (1) the related property being taken into trust by the United States Department of the Interior and (2) the receipt of necessary financing for the development of the proposed casino.
Under the terms of the management agreement, Salishan-Mohegan will manage, operate and maintain the proposed casino for a period of seven years following its opening. The management agreement provides for management fees of 24% of net revenues, as defined under the management agreement, which approximates net income earned from the Cowlitz Project. Under the terms of Salishan-Mohegan’s operating agreement, management fees will be allocated to the members of Salishan-Mohegan

19

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

based on their respective membership interests. The management agreement is subject to approval by the National Indian Gaming Commission. In August 2014, the Cowlitz Tribe’s Class III Tribal-State gaming compact with the State of Washington became effective with notice of federal approval published in the Federal Register. According to the notice, the compact allows for two gaming facilities, allocates 975 gaming machines for leasing, authorizes the operation of up to 3,000 gaming machines and 125 table games, and is in effect until terminated by written agreement of both parties.
In March 2013, litigation commenced challenging the decision of the Assistant Secretary—Indian Affairs of the Department of the Interior to take the Cowlitz Project site into trust. In December 2014, the U.S. District Court for the District of Columbia granted summary judgment in favor of the defendants in the case, thereby upholding the Record of Decision to take the site into trust. The matter was subsequently appealed and such appeal remains pending before the Court of Appeals for the District of Columbia Circuit. The Authority can provide no assurance as to the outcome of the appeal or any future litigation.
In March 2015, the Cowlitz Project site was taken into trust by the United States Department of the Interior for the benefit of the Cowlitz Tribe. In connection with this event, the Cowlitz Tribe leased a substantial portion of the Cowlitz Project site back to Salishan-Mohegan for a nominal rental fee.
Construction of the Cowlitz Project commenced in September 2015 and is anticipated to be completed in late spring of 2017. The Authority can provide no assurance that remaining permits or approvals related to construction and opening or other remaining steps and conditions for the Cowlitz Project site to be approved for gaming will be satisfied.
On December 4, 2015, the CTGA closed on its financing for the Cowlitz Project. The financing provided funding for construction of the Cowlitz Project and a partial repayment of the Salishan-Mohegan receivables. In connection with this transaction, Salishan-Mohegan was repaid $19.4 million of the Salishan-Mohegan receivables, a portion of which was used to repay certain outstanding debt of Salishan-Mohegan. Under the terms of the development agreement, the remaining outstanding Salishan-Mohegan receivables are to be repaid in equal monthly installments over a seven-year period commencing the first month following the opening of the Cowlitz Project. The remaining outstanding Salishan-Mohegan receivables accrue interest at an annual rate equal to 1.0% above the Cowlitz Project financing rate, or 12.5%. Pursuant to the development agreement, repayment of the remaining Salishan-Mohegan receivables may accelerate depending on the level of available cash at the end of each fiscal year, subject to certain conditions as set forth in the development agreement, including conditions of the Cowlitz financing. Also in connection with the Cowlitz financing, Salishan-Mohegan assigned the lease for the Cowlitz Project site to CTGA.
The Authority maintains a reserve for doubtful collection of the Salishan-Mohegan receivables, which is based on the Authority's estimate of the probability that the receivables will be collected. The Authority assesses the reserve for doubtful collection of the Salishan-Mohegan receivables for adequacy on a quarterly basis. Following the Cowlitz financing, the Authority reduced the reserve for doubtful collection of the Salishan-Mohegan receivables. Future developments in the construction and opening of the proposed casino or other matters affecting the Cowlitz Project could affect the collectability of the Salishan-Mohegan receivables and the related reserve. As of December 31, 2015 and September 30, 2015, the Salishan-Mohegan receivables, including accrued interest, totaled $73.1 million and $90.7 million, respectively. As of December 31, 2015 and September 30, 2015, related reserves for doubtful collection totaled $14.6 million and $21.2 million, respectively. The Salishan-Mohegan receivables were included in receivables, net, and other assets, net, in the accompanying condensed consolidated balance sheets.
The Authority earned $4.5 million in development fees for the three months ended December 31, 2015.



















20

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

NOTE 7—SEGMENT REPORTING:
As of December 31, 2015, the Authority owns and operates, either directly or through wholly-owned subsidiaries, Mohegan Sun, the Connecticut Sun franchise and the Mohegan Sun Golf Club, and has partnered with an unrelated third-party to own and operate the New England Black Wolves franchise (collectively, the “Connecticut Facilities”), and the Pennsylvania Facilities. Substantially all of the Authority's revenues are derived from these operations. The Connecticut Sun franchise, the Mohegan Sun Golf Club and the New England Black Wolves franchise are aggregated with the Mohegan Sun operating segment because these operations all share similar economic characteristics, which is to generate gaming and entertainment revenues by attracting patrons to Mohegan Sun. The Authority's executive officers review and assess the performance and operating results and determine the proper allocation of resources to the Connecticut Facilities and the Pennsylvania Facilities on a separate basis. Accordingly, the Authority has two separate reportable segments: (1) Mohegan Sun, which includes the operations of the Connecticut Facilities and (2) Mohegan Sun Pocono, which includes the operations of the Pennsylvania Facilities. The Authority's operations related to investments in unconsolidated affiliates and certain other Corporate development and management operations have not been identified as separate reportable segments; therefore, these operations are included in Corporate and other in the following segment disclosures to reconcile to consolidated results.
 
For the Three Months Ended
(in thousands)
December 31, 2015
 
December 31, 2014
Net revenues:
 
 
 
Mohegan Sun
$
255,083

 
$
245,778

Mohegan Sun Pocono
73,024

 
70,396

Corporate and other
6,352

 
1,831

Inter-segment revenues
(1,273
)
 
(1,273
)
Total
$
333,186

 
$
316,732

Income (loss) from operations:
 
 
 
Mohegan Sun
$
59,054

 
$
47,418

Mohegan Sun Pocono
9,006

 
8,479

Corporate and other
2,016

 
(6,124
)
Total
70,076

 
49,773

Accretion of discount to the relinquishment liability

 
(227
)
Interest income
2,130

 
1,834

Interest expense, net of capitalized interest
(34,147
)
 
(36,255
)
Loss on early extinguishment of debt
(207
)
 

Other expense, net
(402
)
 
(728
)
Net income
37,450

 
14,397

(Income) loss attributable to non-controlling interests
(5,531
)
 
369

Net income attributable to Mohegan Tribal Gaming Authority
$
31,919

 
$
14,766

Other comprehensive loss:
 
 
 
Foreign currency translation
(613
)
 

Other comprehensive loss
(613
)
 

Comprehensive income
$
31,306

 
$
14,766


 
For the Three Months Ended
(in thousands)
December 31, 2015
 
December 31, 2014
Capital expenditures incurred:
 
 
 
Mohegan Sun
$
6,086

 
$
352

Mohegan Sun Pocono
1,374

 
613

Corporate and other
87

 
19

Total
$
7,547

 
$
984

 
 
 
 
(in thousands)
December 31, 2015
 
September 30, 2015
Total assets:
 
 
 
Mohegan Sun
$
1,377,135

 
$
1,332,458

Mohegan Sun Pocono
551,426

 
555,449

Corporate and other
250,237

 
132,226

Total
$
2,178,798

 
$
2,020,133


21

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)



NOTE 8—SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT INFORMATION:
As of December 31, 2015, substantially all of the Authority's outstanding debt is fully and unconditionally guaranteed, on a joint and several basis, by the following 100% owned subsidiaries of the Authority: the Pocono Subsidiaries, MBC, Mohegan Golf, Mohegan Ventures-NW, MVW, WTG and MTGA Gaming. Separate financial statements and other disclosures concerning the Pocono Subsidiaries, MBC, Mohegan Golf, Mohegan Ventures-NW, MVW, WTG and MTGA Gaming are not presented below because the Authority believes that the summarized financial information provided below and in Note 7 are adequate for investor analysis of these subsidiaries. Condensed consolidating financial statement information for the Authority, its 100% owned guarantor subsidiaries and its non-guarantor subsidiaries and entities as of December 31, 2015 and September 30, 2015 and for the three months ended December 31, 2015 and 2014 is as follows (in thousands):

































22

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)


CONDENSED CONSOLIDATING BALANCE SHEETS
 
December 31, 2015
 
Authority
 
Total
Guarantor
Subsidiaries (1)
 
Total  Non-Guarantor
Subsidiaries and Entities (2)
 
Consolidating/
Eliminating
Adjustments
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
149,446

 
$
21,566

 
$
51,934

 
$

 
$
222,946

Restricted cash
15

 
540

 

 

 
555

Receivables, net
36,208

 
2,866

 
5,934

 
(1,856
)
 
43,152

Inventories
15,011

 
1,143

 

 

 
16,154

Prepaid expenses
22,720

 
2,247

 
40

 

 
25,007

Other current assets
6,335

 
43

 

 

 
6,378

Total current assets
229,735

 
28,405

 
57,908

 
(1,856
)
 
314,192

Non-current assets:
 
 
 
 
 
 
 
 
 
Property and equipment, net
1,089,265

 
212,877

 
38,439

 

 
1,340,581

Goodwill

 
39,459

 

 

 
39,459

Other intangible assets, net
120,251

 
284,345

 
1,983

 

 
406,579

Other assets, net
10,067

 
28,900

 
68,304

 
(29,284
)
 
77,987

Inter-company receivables
268,625

 
87,738

 

 
(356,363
)
 

Investment in subsidiaries
356,561

 

 

 
(356,561
)
 

Total assets
$
2,074,504

 
$
681,724

 
$
166,634

 
$
(744,064
)
 
$
2,178,798

LIABILITIES AND CAPITAL
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
21,179

 
$

 
$
3,569

 
$

 
$
24,748

Due to Mohegan Tribe

 

 
28,500

 

 
28,500

Current portion of capital leases
832

 
49

 

 
(49
)
 
832

Trade payables
12,303

 
2,576

 
40

 

 
14,919

Construction payables
2,348

 
493

 

 

 
2,841

Accrued interest payable
22,450

 

 
337

 

 
22,787

Other current liabilities
135,284

 
31,687

 
2,271

 
(1,807
)
 
167,435

Total current liabilities
194,396

 
34,805

 
34,717

 
(1,856
)
 
262,062

Non-current liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt, net of current portion
1,686,512

 

 
20,479

 

 
1,706,991

Due to Mohegan Tribe, net of current portion

 

 
11,420

 

 
11,420

Capital leases, net of current portion
1,310

 
5,757

 

 
(5,757
)
 
1,310

Other long-term liabilities
1,812

 
775

 
23,340

 
(23,340
)
 
2,587

Inter-company payables

 
259,010

 
97,353

 
(356,363
)
 

Accumulated losses in excess of investment in subsidiaries

 
36,484

 

 
(36,484
)
 

Total liabilities
1,884,030

 
336,831

 
187,309

 
(423,800
)
 
1,984,370

Capital:
 
 
 
 
 
 
 
 
 
Retained earnings
191,087

 
344,893

 
(20,206
)
 
(325,003
)
 
190,771

Accumulated other comprehensive loss
(613
)
 

 
(613
)
 
613

 
(613
)
Mohegan Tribal Gaming Authority total capital
190,474

 
344,893

 
(20,819
)
 
(324,390
)
 
190,158

Non-controlling interests

 

 
144

 
4,126

 
4,270

Total capital
190,474

 
344,893

 
(20,675
)
 
(320,264
)
 
194,428

Total liabilities and capital
$
2,074,504

 
$
681,724

 
$
166,634

 
$
(744,064
)
 
$
2,178,798

___________
(1)   Includes the Pocono Subsidiaries, MBC, Mohegan Golf, Mohegan Ventures-NW, MVW, WTG and MTGA Gaming.
(2)   Includes Mohegan Lacrosse, MGA and subsidiaries, Downs Lodging, Salishan-Mohegan, MG&H and Mohegan Resorts and subsidiaries.

23

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

 
September 30, 2015
 
Authority
 
Total
Guarantor
Subsidiaries (1)
 
Total  Non-Guarantor
Subsidiaries and Entities (2)
 
Consolidating/
Eliminating
Adjustments
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
42,093

 
$
22,167

 
$
1,494

 
$

 
$
65,754

Restricted cash
62

 
1,661

 
39

 

 
1,762

Receivables, net
29,134

 
3,585

 
22,871

 
(1,646
)
 
53,944

Inventories
14,401

 
1,145

 

 

 
15,546

Prepaid expenses
6,123

 
2,877

 
33

 

 
9,033

Other current assets
9,446

 
51

 

 

 
9,497

Total current assets
101,259

 
31,486

 
24,437

 
(1,646
)
 
155,536

Non-current assets:
 
 
 
 
 
 
 
 
 
Property and equipment, net
1,098,588

 
214,778

 
38,689

 

 
1,352,055

Goodwill

 
39,459

 

 

 
39,459

Other intangible assets, net
120,281

 
284,418

 
2,019

 

 
406,718

Other assets, net
10,711

 
4,017

 
57,597

 
(5,960
)
 
66,365

Inter-company receivables
254,348

 
94,033

 

 
(348,381
)
 

Investment in subsidiaries
328,462

 

 

 
(328,462
)
 

Total assets
$
1,913,649

 
$
668,191

 
$
122,742

 
$
(684,449
)
 
$
2,020,133

LIABILITIES AND CAPITAL
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
46,248

 
$

 
$
2,946

 
$

 
$
49,194

Due to Mohegan Tribe

 

 
6,000

 

 
6,000

Current portion of capital leases
824

 
48

 

 
(48
)
 
824

Trade payables
12,365

 
2,564

 
87

 

 
15,016

Construction payables
11,149

 
1,888

 
100

 

 
13,137

Accrued interest payable
5,461

 

 
6,594

 

 
12,055

Other current liabilities
108,911

 
29,699

 
4,268

 
(1,598
)
 
141,280

Total current liabilities
184,958

 
34,199

 
19,995

 
(1,646
)
 
237,506

Non-current liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt, net of current portion
1,555,487

 

 
38,243

 

 
1,593,730

Due to Mohegan Tribe, net of current portion

 

 
17,420

 

 
17,420

Capital leases, net of current portion
1,521

 
5,770

 

 
(5,770
)
 
1,521

Other long-term liabilities
1,915

 

 

 

 
1,915

Inter-company payables

 
246,380

 
102,001

 
(348,381
)
 

Accumulated losses in excess of investment in subsidiaries

 
40,873

 

 
(40,873
)
 

Total liabilities
1,743,881

 
327,222

 
177,659

 
(396,670
)
 
1,852,092

Capital:
 
 
 
 
 
 
 
 
 
Retained earnings
169,768

 
340,969

 
(55,157
)
 
(286,128
)
 
169,452

Mohegan Tribal Gaming Authority total capital
169,768

 
340,969

 
(55,157
)
 
(286,128
)
 
169,452

Non-controlling interests

 

 
240

 
(1,651
)
 
(1,411
)
Total capital
169,768

 
340,969

 
(54,917
)
 
(287,779
)
 
168,041

Total liabilities and capital
$
1,913,649

 
$
668,191

 
$
122,742

 
$
(684,449
)
 
$
2,020,133

___________
(1)   Includes the Pocono Subsidiaries, MBC, Mohegan Golf, Mohegan Ventures-NW, MVW, WTG and MTGA Gaming.
(2)   Includes Mohegan Lacrosse, MGA and subsidiaries, Downs Lodging, Salishan-Mohegan, MG&H and Mohegan Resorts and subsidiaries.


24

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
 
For the Three Months Ended December 31, 2015
 
Authority  
 
Total
Guarantor
Subsidiaries (1)
 
Total  Non-Guarantor
Subsidiaries and Entities (2)
 
Consolidating/
Eliminating
Adjustments
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Gaming
$
224,570

 
$
67,827

 
$

 
$

 
$
292,397

Food and beverage
14,903

 
7,114

 

 

 
22,017

Hotel
10,981

 
1,356

 

 

 
12,337

Retail, entertainment and other
23,211

 
2,377

 
6,154

 
(1,273
)
 
30,469

Gross revenues
273,665

 
78,674

 
6,154

 
(1,273
)
 
357,220

Less-Promotional allowances
(18,650
)
 
(5,378
)
 
(2
)
 
(4
)
 
(24,034
)
Net revenues
255,015

 
73,296

 
6,152

 
(1,277
)
 
333,186

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
Gaming
117,743

 
49,250

 

 

 
166,993

Food and beverage
8,468

 
1,856

 

 

 
10,324

Hotel
3,635

 
1,394

 

 
(1,213
)
 
3,816

Retail, entertainment and other
8,184

 
891

 
418

 
(4
)
 
9,489

Advertising, general and administrative
40,659

 
8,954

 
(2,888
)
 
2,651

 
49,376

Corporate
6,723

 

 

 
(2,711
)
 
4,012

Depreciation and amortization
15,467

 
3,375

 
286

 

 
19,128

(Gain) loss on disposition of assets
(39
)
 
11

 

 

 
(28
)
Total operating costs and expenses
200,840

 
65,731

 
(2,184
)
 
(1,277
)
 
263,110

Income from operations
54,175

 
7,565

 
8,336

 

 
70,076

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest income
11

 
2,190

 
2,232

 
(2,303
)
 
2,130

Interest expense, net of capitalized interest
(22,508
)
 
(10,248
)
 
(3,694
)
 
2,303

 
(34,147
)
Loss on early extinguishment of debt

 

 
(207
)
 

 
(207
)
Income (loss) on interests in subsidiaries
(369
)
 
4,389

 

 
(4,020
)
 

Other income (expense), net
(3
)
 
181

 
(580
)
 

 
(402
)
Total other expense
(22,869
)
 
(3,488
)
 
(2,249
)
 
(4,020
)
 
(32,626
)
Net income
31,306

 
4,077

 
6,087

 
(4,020
)
 
37,450

(Income) loss attributable to non-controlling interests

 

 
246

 
(5,777
)
 
(5,531
)
Net income attributable to Mohegan Tribal Gaming Authority
$
31,306

 
$
4,077

 
$
6,333

 
$
(9,797
)
 
$
31,919

Other comprehensive loss:
 
 
 
 
 
 
 
 
 
Foreign currency translation

 

 
(613
)
 

 
(613
)
Other comprehensive loss

 

 
(613
)
 

 
(613
)
Comprehensive income
$
31,306

 
$
4,077

 
$
5,720

 
$
(9,797
)
 
$
31,306

___________
(1)
Includes the Pocono Subsidiaries, MBC, Mohegan Golf, Mohegan Ventures-NW, MVW, WTG and MTGA Gaming.
(2)
Includes Mohegan Lacrosse, MGA and subsidiaries, Downs Lodging, Salishan-Mohegan, MG&H and Mohegan Resorts and subsidiaries.



25

MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

 
For the Three Months Ended December 31, 2014
 
Authority  
 
Total
Guarantor
Subsidiaries (1)
 
Total  Non-Guarantor
Subsidiaries and Entities (2)
 
Consolidating/
Eliminating
Adjustments
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
Gaming
$
212,543

 
$
65,191

 
$

 
$

 
$
277,734

Food and beverage
15,826

 
6,845

 

 

 
22,671

Hotel
10,989

 
1,237

 

 

 
12,226

Retail, entertainment and other
25,368

 
2,362

 
1,842

 
(1,273
)
 
28,299

Gross revenues
264,726

 
75,635

 
1,842

 
(1,273
)
 
340,930

Less-Promotional allowances
(19,203
)
 
(4,990
)
 
(3
)
 
(2
)
 
(24,198
)
Net revenues
245,523

 
70,645

 
1,839

 
(1,275
)
 
316,732

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
Gaming
118,427

 
47,672

 

 

 
166,099

Food and beverage
8,729

 
2,082

 

 

 
10,811