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 June 30, 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)
| June 30, 2015 | September 30, 2014 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 70,160 | $ | 49,108 | |||
| Restricted cash | 4,786 | 675 | |||||
| Receivables, net | 30,273 | 30,640 | |||||
| Inventories | 15,516 | 14,544 | |||||
| Other current assets | 17,977 | 16,997 | |||||
| Total current assets | 138,712 | 111,964 | |||||
| Non-current assets: | |||||||
| Property and equipment, net | 1,349,997 | 1,424,068 | |||||
| Goodwill | 39,459 | 39,459 | |||||
| Other intangible assets, net | 406,856 | 405,109 | |||||
| Other assets, net | 96,322 | 75,360 | |||||
| Total assets | $ | 2,031,346 | $ | 2,055,960 | |||
| LIABILITIES AND CAPITAL | |||||||
| Current liabilities: | |||||||
| Current portion of long-term debt | $ | 19,366 | $ | 29,308 | |||
| Current portion of relinquishment liability | — | 25,194 | |||||
| Due to Mohegan Tribe | 5,875 | 2,250 | |||||
| Current portion of capital leases | 816 | 793 | |||||
| Trade payables | 14,146 | 24,086 | |||||
| Construction payables | 2,530 | 5,832 | |||||
| Accrued interest payable | 28,718 | 8,659 | |||||
| Other current liabilities | 146,735 | 127,175 | |||||
| Total current liabilities | 218,186 | 223,297 | |||||
| Non-current liabilities: | |||||||
| Long-term debt, net of current portion | 1,635,288 | 1,675,958 | |||||
| Due to Mohegan Tribe, net of current portion | 18,920 | 23,420 | |||||
| Capital leases, net of current portion | 1,730 | 2,345 | |||||
| Other long-term liabilities | 7,166 | 6,113 | |||||
| Total liabilities | 1,881,290 | 1,931,133 | |||||
| Commitments and Contingencies | |||||||
| Capital: | |||||||
| Retained earnings | 150,490 | 125,058 | |||||
| Mohegan Tribal Gaming Authority capital | 150,490 | 125,058 | |||||
| Non-controlling interests | (434 | ) | (231 | ) | |||
| Total capital | 150,056 | 124,827 | |||||
| Total liabilities and capital | $ | 2,031,346 | $ | 2,055,960 | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands)
(unaudited)
| For the | For the | For the | For the | ||||||||||||
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | ||||||||||||
| June 30, 2015 | June 30, 2014 | June 30, 2015 | June 30, 2014 | ||||||||||||
| Revenues: | |||||||||||||||
| Gaming | $ | 284,713 | $ | 284,801 | $ | 837,463 | $ | 837,954 | |||||||
| Food and beverage | 23,021 | 23,273 | 66,811 | 68,605 | |||||||||||
| Hotel | 12,700 | 12,160 | 37,199 | 34,763 | |||||||||||
| Retail, entertainment and other | 29,825 | 31,542 | 82,231 | 87,065 | |||||||||||
| Gross revenues | 350,259 | 351,776 | 1,023,704 | 1,028,387 | |||||||||||
| Less-Promotional allowances | (25,220 | ) | (25,440 | ) | (71,510 | ) | (72,545 | ) | |||||||
| Net revenues | 325,039 | 326,336 | 952,194 | 955,842 | |||||||||||
| Operating costs and expenses: | |||||||||||||||
| Gaming | 164,229 | 171,533 | 485,994 | 513,574 | |||||||||||
| Food and beverage | 10,323 | 10,359 | 31,363 | 31,207 | |||||||||||
| Hotel | 3,788 | 3,950 | 10,767 | 11,744 | |||||||||||
| Retail, entertainment and other | 12,447 | 13,318 | 34,268 | 37,446 | |||||||||||
| Advertising, general and administrative | 46,522 | 48,929 | 140,946 | 143,740 | |||||||||||
| Corporate | 7,119 | 9,259 | 23,400 | 29,551 | |||||||||||
| Depreciation and amortization | 19,086 | 20,070 | 58,703 | 60,067 | |||||||||||
| (Gain) loss on disposition of assets | 26 | (64 | ) | 845 | (12 | ) | |||||||||
| Severance | — | — | 3,370 | — | |||||||||||
| Pre-opening | — | — | — | 1,187 | |||||||||||
| Impairment of Project Horizon | — | — | 2,502 | — | |||||||||||
| Relinquishment liability reassessment | — | — | (243 | ) | — | ||||||||||
| Total operating costs and expenses | 263,540 | 277,354 | 791,915 | 828,504 | |||||||||||
| Income from operations | 61,499 | 48,982 | 160,279 | 127,338 | |||||||||||
| Other income (expense): | |||||||||||||||
| Accretion of discount to the relinquishment liability | — | (552 | ) | (227 | ) | (1,654 | ) | ||||||||
| Interest income | 1,906 | 1,701 | 5,554 | 4,947 | |||||||||||
| Interest expense, net of capitalized interest | (35,660 | ) | (36,426 | ) | (107,692 | ) | (111,692 | ) | |||||||
| Loss on early extinguishment of debt | — | (2 | ) | — | (62,277 | ) | |||||||||
| Other income (expense), net | (50 | ) | 59 | (1,260 | ) | (819 | ) | ||||||||
| Total other expense | (33,804 | ) | (35,220 | ) | (103,625 | ) | (171,495 | ) | |||||||
| Net income (loss) | 27,695 | 13,762 | 56,654 | (44,157 | ) | ||||||||||
| Loss attributable to non-controlling interests | 439 | 130 | 1,278 | 421 | |||||||||||
| Net income (loss) attributable to Mohegan Tribal Gaming Authority | $ | 28,134 | $ | 13,892 | $ | 57,932 | $ | (43,736 | ) | ||||||
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)
| Total | Mohegan Tribal Gaming Authority | Non-controlling Interests | |||||||||
| Balance, March 31, 2015 | $ | 134,861 | $ | 134,856 | $ | 5 | |||||
| Net income (loss) | 27,695 | 28,134 | (439 | ) | |||||||
| Distributions to Mohegan Tribe | (12,500 | ) | (12,500 | ) | — | ||||||
| Balance, June 30, 2015 | $ | 150,056 | $ | 150,490 | $ | (434 | ) | ||||
| Balance, September 30, 2014 | $ | 124,827 | $ | 125,058 | $ | (231 | ) | ||||
| Contributions from members | 1,075 | — | 1,075 | ||||||||
| Net income (loss) | 56,654 | 57,932 | (1,278 | ) | |||||||
| Distributions to Mohegan Tribe | (32,500 | ) | (32,500 | ) | — | ||||||
| Balance, June 30, 2015 | $ | 150,056 | $ | 150,490 | $ | (434 | ) | ||||
| Balance, March 31, 2014 | $ | 121,466 | $ | 121,608 | $ | (142 | ) | ||||
| Net income (loss) | 13,762 | 13,892 | (130 | ) | |||||||
| Distributions to Mohegan Tribe | (12,500 | ) | (12,500 | ) | — | ||||||
| Balance, June 30, 2014 | $ | 122,728 | $ | 123,000 | $ | (272 | ) | ||||
| Balance, September 30, 2013 | $ | 199,385 | $ | 199,236 | $ | 149 | |||||
| Net loss | (44,157 | ) | (43,736 | ) | (421 | ) | |||||
| Distributions to Mohegan Tribe | (32,500 | ) | (32,500 | ) | — | ||||||
| Balance, June 30, 2014 | $ | 122,728 | $ | 123,000 | $ | (272 | ) | ||||
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 Nine Months Ended | For the Nine Months Ended | ||||||
| June 30, 2015 | June 30, 2014 | ||||||
| Cash flows provided by (used in) operating activities: | |||||||
| Net income (loss) | $ | 56,654 | $ | (44,157 | ) | ||
| Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities: | |||||||
| Depreciation and amortization | 58,703 | 60,067 | |||||
| Relinquishment liability reassessment | (243 | ) | — | ||||
| Accretion of discount to the relinquishment liability | 227 | 1,654 | |||||
| Cash paid for accretion of discount to the relinquishment liability | (778 | ) | (2,071 | ) | |||
| Loss on early extinguishment of debt | — | 58,481 | |||||
| Payments of tender offer costs and discounts | — | (48,155 | ) | ||||
| Amortization of debt issuance costs and accretion of bond discounts | 5,757 | 6,164 | |||||
| Provision for losses on receivables | 3,399 | 2,953 | |||||
| Impairment of Project Horizon | 2,502 | — | |||||
| (Gain) loss on disposition of assets | 845 | (12 | ) | ||||
| Loss from unconsolidated affiliates | 1,302 | 794 | |||||
| Changes in operating assets and liabilities: | |||||||
| Increase in receivables | (282 | ) | (5,389 | ) | |||
| Increase in inventories | (972 | ) | (1,713 | ) | |||
| Increase in other assets | (6,317 | ) | (4,660 | ) | |||
| Increase (decrease) in trade payables | (9,803 | ) | 7,671 | ||||
| Increase in accrued interest | 20,059 | 7,709 | |||||
| Increase in other liabilities | 13,430 | 8,987 | |||||
| Net cash flows provided by operating activities | 144,483 | 48,323 | |||||
| Cash flows provided by (used in) investing activities: | |||||||
| Purchases of property and equipment, including decreases in construction payables of $3,302 and $4,645, respectively | (12,081 | ) | (28,901 | ) | |||
| Issuance of third-party loans and advances | (2,201 | ) | (1,392 | ) | |||
| Payments received on third-party loans | 117 | 606 | |||||
| (Increase) decrease in restricted cash, net | (782 | ) | 14,150 | ||||
| Proceeds from asset sales | 1,577 | 105 | |||||
| Investments in the New England Black Wolves | (500 | ) | — | ||||
| Investments in unconsolidated affiliates | — | (29 | ) | ||||
| Net cash flows used in investing activities | (13,870 | ) | (15,461 | ) | |||
| Cash flows provided by (used in) financing activities: | |||||||
| Prior Bank Credit Facility repayments - Term | — | (393,000 | ) | ||||
| Prior Term Loan Facility repayments, net of discount | — | (222,103 | ) | ||||
| Senior Secured Credit Facility borrowings - Revolving | 299,000 | 193,000 | |||||
| Senior Secured Credit Facility repayments - Revolving | (328,000 | ) | (173,000 | ) | |||
| Senior Secured Credit Facility borrowings - Term Loan A, net of discount | — | 124,343 | |||||
| Senior Secured Credit Facility repayments - Term Loan A | (5,469 | ) | (1,563 | ) | |||
| Senior Secured Credit Facility borrowings - Term Loan B, net of discount | — | 720,952 | |||||
| Senior Secured Credit Facility repayments - Term Loan B | (3,650 | ) | (3,650 | ) | |||
| Line of Credit borrowings | 332,124 | 258,415 | |||||
| Line of Credit repayments | (335,165 | ) | (258,415 | ) | |||
| Repayments to Mohegan Tribe | (875 | ) | (2,750 | ) | |||
| Repayments of other long-term debt | (9,900 | ) | (191,088 | ) | |||
| Principal portion of relinquishment liability payments | (24,400 | ) | (29,129 | ) | |||
| Distributions to Mohegan Tribe | (32,500 | ) | (32,500 | ) | |||
| Payments of financing fees | — | (12,631 | ) | ||||
| Payments on capital lease obligations | (726 | ) | (1,709 | ) | |||
| Net cash flows used in financing activities | (109,561 | ) | (24,828 | ) | |||
| Net increase in cash and cash equivalents | 21,052 | 8,034 | |||||
| Cash and cash equivalents at beginning of period | 49,108 | 63,624 | |||||
| Cash and cash equivalents at end of period | $ | 70,160 | $ | 71,658 | |||
| Supplemental disclosure: | |||||||
| Cash paid during the period for interest | $ | 80,600 | $ | 97,197 | |||
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 544-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 June 30, 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.
In October 2014, the Authority formed Mohegan Lacrosse as a wholly-owned unrestricted subsidiary. 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., 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, L.P. (“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 of Washington (the “Cowlitz Tribe”) and to be located in Clark County, Washington (the “Cowlitz Project”). Salishan-Mohegan holds 100% membership interests in Salishan-Mohegan Two, LLC and Interchange Development Group, LLC, both of which were 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”), an unrestricted subsidiary of the Authority. 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, an unrestricted subsidiary of the Authority, was formed to develop, finance and build Project Sunlight, a hotel and convention center located at Mohegan Sun Pocono.
Mohegan Gaming Advisors, an unrestricted subsidiary of the Authority, was formed to pursue gaming opportunities outside the State of Connecticut, including management contracts and consulting agreements for casino and entertainment
7
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
properties in the United States. Mohegan Gaming Advisors holds 100% membership interests in MGA Holding NJ, LLC ("MGA Holding NJ") and MGA Gaming NJ, LLC (collectively, the "Mohegan New Jersey Entities"). The Mohegan New Jersey Entities were formed to pursue management contracts and consulting agreements in the State of New Jersey. In October 2012, MGA Holding NJ acquired a 10% ownership interest in Resorts Casino Hotel in Atlantic City, 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 (together with MGA Holding MA, MGA Gaming MA and MGA Palmer Partners, 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.
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 2014 supplemental condensed consolidating financial statements have been reclassified to conform to the 2015 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 and nine months ended June 30, 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, 2014.
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.
8
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
Long-Term Receivables
Long-term receivables consist primarily of receivables from affiliates and others and were primarily included in other assets, net, in the accompanying condensed consolidated balance sheets. 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, March 31, 2015 (1) | $ | 91,567 | $ | 2,590 | $ | 94,157 | |||||
| Additions: | |||||||||||
| Issuance of affiliate advances and other loans, including interest receivable | 3,803 | 68 | 3,871 | ||||||||
| Deductions: | |||||||||||
| Payments received | — | (40 | ) | (40 | ) | ||||||
| Adjustments | — | (779 | ) | (779 | ) | ||||||
| Balance, June 30, 2015 (1) | $ | 95,370 | $ | 1,839 | $ | 97,209 | |||||
| Balance, September 30, 2014 (1) | $ | 66,596 | $ | 2,612 | $ | 69,208 | |||||
| Additions: | |||||||||||
| Issuance of affiliate advances and other loans, including interest receivable | 8,823 | 123 | 8,946 | ||||||||
| Cowlitz Project land value transfer (2) | 19,951 | — | 19,951 | ||||||||
| Deductions: | |||||||||||
| Payments received | — | (117 | ) | (117 | ) | ||||||
| Adjustments | — | (779 | ) | (779 | ) | ||||||
| Balance, June 30, 2015 (1) | $ | 95,370 | $ | 1,839 | $ | 97,209 | |||||
| (1) | Includes interest receivable of $41.0 million, $39.3 million and $35.7 million as of June 30, 2015, March 31, 2015 and September 30, 2014, respectively. The WTG receivables no longer accrue interest pursuant to a release and reimbursement agreement entered into in September 2010. |
| (2) | Relates to the transfer of land for the proposed Cowlitz Project site between Salishan-Mohegan and the Cowlitz Tribe (refer to Note 7). |
| Reserves for Doubtful Collection of Long-Term Receivables | |||||||||||
| Affiliates | Others | Total | |||||||||
| Balance, March 31, 2015 | $ | 28,557 | $ | 821 | $ | 29,378 | |||||
| Additions: | |||||||||||
| Charges to bad debt expense | 923 | 5 | 928 | ||||||||
| Deductions: | |||||||||||
| Adjustments | — | (781 | ) | (781 | ) | ||||||
| Balance, June 30, 2015 | $ | 29,480 | $ | 45 | $ | 29,525 | |||||
| Balance, September 30, 2014 | $ | 26,833 | $ | 796 | $ | 27,629 | |||||
| Additions: | |||||||||||
| Charges to bad debt expense | 2,647 | 35 | 2,682 | ||||||||
| Deductions: | |||||||||||
| Adjustments | — | (786 | ) | (786 | ) | ||||||
| Balance, June 30, 2015 | $ | 29,480 | $ | 45 | $ | 29,525 | |||||
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; |
| • | 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 |
9
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
| • | 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):
| June 30, 2015 | |||||||
| Carrying Value | Fair Value | ||||||
| Senior Secured Credit Facility - Revolving | $ | 8,000 | $ | 7,910 | |||
| Senior Secured Credit Facility - Term Loan A | $ | 113,654 | $ | 113,064 | |||
| Senior Secured Credit Facility - Term Loan B | $ | 712,270 | $ | 714,556 | |||
| 2013 9 3/4% Senior Unsecured Notes | $ | 500,000 | $ | 528,750 | |||
| 2012 11% Senior Subordinated Notes | $ | 272,233 | $ | 276,222 | |||
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 June 30, 2015.
Impairment of Project Horizon
In September 2008, the Authority suspended certain elements of its Project Horizon expansion due to a slowdown in business volumes and uncertainties in the financial markets. Costs incurred on the suspended elements related to excavation and foundation work for a planned podium and new hotel tower, as well as professional fees for design and architectural work. During its fourth quarter ended September 30, 2010, the Authority re-evaluated its plans with respect to the development of the new hotel element of the project, and based on a modified plan, which encompassed a smaller hotel to be located closer to the existing hotel, determined that certain assets related to the suspended elements did not have any future benefit to the Authority. Accordingly, in fiscal 2010, the Authority recorded a related $58.1 million impairment charge. During its fourth quarter ended September 30, 2014, the Authority further re-evaluated its modified plan, which included a hotel to be developed and owned by an instrumentality of the Tribe, as well as a third-party developed and owned retail center, and, based on new design plans, including the final location of the planned hotel, determined that certain design and earthwork related assets did not have any future benefit to the Authority. Accordingly, in fiscal 2014, the Authority recorded an additional $5.0 million impairment charge.
In March 2015, the Mohegan Tribal Finance Authority (“MTFA”), a wholly-owned instrumentality of the Tribe, agreed to develop the planned hotel. The Authority received approximately $1.3 million as payment for the carrying value of the remaining hotel related assets which were transferred to MTFA. Concurrent with this transaction, the Authority re-evaluated the planned third-party developed and owned retail center, including master planning costs, and determined that these elements of the project were no longer feasible at this time. Accordingly, the Authority determined that the related assets did not have any future benefit, and, during its second quarter ended March 31, 2015, the Authority recognized a related $2.5 million impairment charge, which was recorded in the accompanying condensed consolidated statement of income for the nine months ended June 30, 2015. As of March 31, 2015, there were no assets remaining related to the suspended elements of Project Horizon.
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
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MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
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 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.
In April 2015, the FASB issued an accounting standard update to clarify the required presentation of debt issuance costs. The update requires that debt issuance costs be presented in the balance sheet as a direct reduction from the carrying amount of the related debt liability rather than as an asset. This guidance will be required to be applied on a 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 plans to adopt this guidance for its annual reporting period ending September 30, 2015 and is currently evaluating the impact 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):
| June 30, 2015 | September 30, 2014 | ||||||
| Senior Secured Credit Facility - Revolving, due June 2018 | $ | 8,000 | $ | 37,000 | |||
| Senior Secured Credit Facility - Term Loan A, due June 2018, net of discount of $408 and $523, respectively | 113,654 | 119,789 | |||||
| Senior Secured Credit Facility - Term Loan B, due June 2018, net of discount of $6,780 and $8,337, respectively | 712,270 | 716,188 | |||||
| 2013 9 3/4% Senior Unsecured Notes, due September 2021 | 500,000 | 500,000 | |||||
| 2005 6 7/8% Senior Subordinated Notes, due February 2015 | — | 9,654 | |||||
| 2012 11 % Senior Subordinated Notes, due September 2018, net of discount of $2,957 and $3,506, respectively | 272,233 | 271,684 | |||||
| Line of Credit | — | 3,041 | |||||
| 2009 Mohegan Tribe Promissory Note, due September 2015 | 875 | 1,750 | |||||
| 2012 Mohegan Tribe Minor's Trust Promissory Note, due March 2017 | 16,500 | 16,500 | |||||
| 2013 Mohegan Tribe Promissory Note, due December 2018 | 7,420 | 7,420 | |||||
| Downs Lodging Credit Facility, due July 2016 | 45,000 | 45,000 | |||||
| Other | 3,497 | 2,910 | |||||
| Long-term debt, excluding capital leases | 1,679,449 | 1,730,936 | |||||
| Less: current portion of long-term debt | (25,241 | ) | (31,558 | ) | |||
| Long-term debt, net of current portion | $ | 1,654,208 | $ | 1,699,378 | |||
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 (in the case of the Term Loan B Facility).
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.
11
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
As of June 30, 2015, amounts outstanding under the Revolving Facility, Term Loan A Facility and Term Loan B Facility totaled $8.0 million, $114.1 million and $719.1 million, respectively. As of June 30, 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, and after taking into account restrictive financial covenant requirements, the Authority had approximately $89.0 million of borrowing capacity under its Revolving Facility and Line of Credit as of June 30, 2015.
Borrowings under the Senior Secured Credit Facilities incur interest as follows: (i) for base rate loans under the Revolving Facility and Term Loan A Facility, 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, 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, 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, the applicable LIBOR rate (subject to a 1.0% floor) plus 450 basis points. The Authority also is 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 June 30, 2015, the $8.0 million outstanding under the Revolving Facility was comprised of a $3.0 million base rate loan based on a base rate of 3.25% plus 325 basis points and $5.0 million in Eurodollar rate loans based on a Eurodollar rate of 0.19% plus 425 basis points. The commitment fee was 0.50% as of June 30, 2015. As of June 30, 2015, the $114.1 million outstanding under the Term Loan A Facility was based on a Eurodollar rate of 0.28% plus 425 basis points. As of June 30, 2015, the $719.1 million outstanding under the Term Loan B Facility was based on the Eurodollar rate floor of 1.0% plus 450 basis points. As of June 30, 2015 and September 30, 2014, accrued interest, including commitment fees, on the Senior Secured Credit Facilities was $166,000 and $212,000, 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 also are 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 June 30, 2015, the Authority and the Tribe were in compliance with all respective covenant requirements under the Senior Secured Credit Facilities.
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 additional 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.
12
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
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 “2013 Senior Unsecured Notes”). 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 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 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 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. Interest on the 2013 Senior Unsecured Notes is payable semi-annually on March 1st and September 1st. On March 11, 2014, the Authority completed an offer to exchange the 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 June 30, 2015 and September 30, 2014, accrued interest on the 2013 Senior Unsecured Notes was $16.3 million and $4.1 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 also are 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 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 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.
Senior Subordinated Notes
2005 6 7/8% Senior Subordinated Notes
In February 2005, the Authority issued $150.0 million Senior Subordinated Notes with fixed interest payable at a rate of 6.875% per annum (the “2005 Senior Subordinated Notes”). In March 2012, the Authority completed a private exchange offer and consent solicitation for any or all of its outstanding 2005 Senior Subordinated Notes. As part of the exchange offer, the Authority solicited and received consents from tendering holders to certain amendments to the indentures governing the 2005 Senior Subordinated Notes, which eliminated certain covenants under the notes and related indenture. The aggregate principal amount of 2005 Senior Subordinated Notes tendered and exchanged was $140.3 million. Subsequent to the Authority's March 2012 private exchange offer, $9.7 million of the 2005 Senior Subordinated Notes remained outstanding, which amount, including accrued interest, was repaid at maturity on February 15, 2015 with cash on hand and drawings under the Revolving Facility. As of September 30, 2014, accrued interest on the 2005 Senior Subordinated Notes was $83,000.
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
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MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
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. An aggregate principal amount of $275.2 million 2012 Senior Subordinated Notes remains outstanding as of June 30, 2015. As of June 30, 2015 and September 30, 2014, accrued interest on the 2012 Senior Subordinated Notes was $8.9 million and $1.3 million, 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 Authority's senior subordinated notes are uncollateralized general obligations of the Authority and are subordinated to borrowings under the Senior Secured Credit Facilities and 2013 Senior Unsecured Notes. The senior subordinated notes are fully and unconditionally guaranteed, jointly and severally, by the Guarantors.
The senior and senior subordinated note indentures contain 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 June 30, 2015, the Authority and the Tribe were in compliance with all respective covenant requirements under the senior and senior subordinated note indentures.
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 margin based on the Authority's total leverage ratio, as each term is defined under the Line of Credit. As of June 30, 2015, no amount was drawn on the Line of Credit. Borrowings under the Line of Credit are uncollateralized obligations. 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 June 30, 2015, the Authority was in compliance with all covenant requirements under the Line of Credit. As of June 30, 2015 and September 30, 2014, accrued interest on the Line of Credit was $18,000 and $23,000, respectively.
2009 Mohegan Tribe Promissory Note
In September 2009, the Tribe made a $10.0 million loan to Salishan-Mohegan (the “2009 Mohegan Tribe Promissory Note”). The 2009 Mohegan Tribe Promissory Note was amended in June 2014 to extend the maturity date to September 30, 2015. The 2009 Mohegan Tribe Promissory Note accrues interest at an annual rate of 10.0%. As amended, accrued interest is payable as follows: (i) $1.2 million per quarter, commencing December 31, 2013 through March 31, 2014 and (ii) $1.3 million on June 30, 2015, with the balance of accrued and unpaid interest due at maturity. As amended, principal outstanding under the 2009 Mohegan Tribe Promissory Note amortizes as follows: (i) $1.625 million per quarter, commencing December 31, 2012 through September 30, 2013, (ii) $875,000 per quarter, commencing December 31, 2013 through March 31, 2014, (iii) $875,000 on June 30, 2015 and (iv) $875,000 at maturity. As of June 30, 2015 and September 30, 2014, accrued interest on the 2009 Mohegan Tribe Promissory Note was $1.3 million and $2.5 million, respectively.
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MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
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 accrues interest at an annual rate of 10.0%. As amended, accrued interest is 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. As amended, principal outstanding under the 2012 Mohegan Tribe Minor's Trust Promissory Note amortizes 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. As of June 30, 2015 and September 30, 2014, accrued interest on the 2012 Mohegan Tribe Minor's Trust Promissory Note was $1.7 million and $416,000, 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 promissory note in the principal amount of $7.4 million (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 June 30, 2015 and September 30, 2014, accrued interest on the 2013 Mohegan Tribe Promissory Note was $1,000.
Downs Lodging Credit Facility
In July 2012, Downs Lodging, a single purpose entity and wholly-owned unrestricted 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 matures on July 12, 2016 and accrues interest at an annual rate of 13.0%. Under the terms of the Downs Lodging Credit Facility, accrued interest of 10.0% is payable monthly in cash during the term of the loan, with the remaining 3.0% due at maturity. In addition, a 3.0% exit fee is payable upon repayment of the loan principal. The Downs Lodging Credit Facility is a senior secured obligation of Downs Lodging, collateralized by all existing and future assets of Downs Lodging. The Downs Lodging Credit Facility subjects Downs Lodging to certain covenant requirements customarily found in loan agreements for similar transactions. As of June 30, 2015, Downs Lodging was in compliance with all covenant requirements under the Downs Lodging Credit Facility. As of June 30, 2015, accrued interest on the Downs Lodging Credit Facility was $375,000. As of September 30, 2014, there was no accrued interest on the Downs Lodging Credit Facility.
NOTE 4—RELATED PARTY TRANSACTIONS:
Distributions to the Tribe totaled $12.5 million and $32.5 million for each of the three months and nine months ended June 30, 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 $7.2 million and $6.2 million for the three months ended June 30, 2015 and 2014, respectively, and $21.4 million and $20.5 million for the nine months ended June 30, 2015 and 2014, respectively.
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 $3.9 million and $4.4 million for the three months ended June 30, 2015 and 2014, respectively, and $13.3 million and $15.2 million for the nine months ended June 30, 2015 and 2014, respectively.
The Authority incurred interest expense associated with borrowings from the Mohegan Tribe totaling $529,000 and $541,000 for the three months ended June 30, 2015 and 2014, respectively, and $1.6 million and $1.7 million for the nine months ended June 30, 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 MTFA, an approximately 400-room hotel and related improvements. In connection with this transaction, effective March 5, 2015, 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
15
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
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 also will 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.
Minimum future rental expense that the Authority expects to incur under the sublease agreement is as follows (in thousands):
| Fiscal Years Ending September 30, | |||||||||||||||||||||||||||
| 2015 | 2016 | 2017 | 2018 | 2019 | Thereafter | Total | |||||||||||||||||||||
| Minimum future rental expense | $ | — | $ | — | $ | 6,327 | $ | 6,908 | $ | 7,011 | $ | 224,682 | $ | 244,928 | |||||||||||||
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 Mashantucket Pequot Tribe (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.
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 $37.0 million and $36.6 million for the three months ended June 30, 2015 and 2014, respectively, and $107.8 million and $107.6 million for the nine months ended June 30, 2015 and 2014, respectively. As of June 30, 2015 and September 30, 2014, the combined outstanding Slot Win Contribution and free promotional slot play contribution totaled $11.7 million and $11.6 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 $31.1 million and $31.4 million for the three months ended June 30, 2015 and 2014, respectively, and $88.7 million and $91.8 million for the nine months ended June 30, 2015 and 2014, respectively. As of June 30, 2015 and September 30, 2014, outstanding Pennsylvania Slot Machine Tax payments totaled $3.3 million and $4.6 million, respectively.
16
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
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 $1.8 million and $1.6 million for the three months ended June 30, 2015 and 2014, respectively, and $5.2 million and $4.6 million for the nine months ended June 30, 2015 and 2014, respectively. As of June 30, 2015 and September 30, 2014, outstanding Pennsylvania Table Game Tax payments totaled $168,000 and $156,000, 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 for each of the three months ended June 30, 2015 and 2014 and $3.4 million and $3.5 million for the nine months ended June 30, 2015 and 2014, respectively. As of June 30, 2015 and September 30, 2014, outstanding Pennsylvania Regulatory Fee payments to the PGCB totaled $147,000.
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 also are to be repaid by slot machine licensees (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 June 30, 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 $155,000 and $159,000 for the three months ended June 30, 2015 and 2014, respectively, and $468,000 and $479,000 for the nine months ended June 30, 2015 and 2014, respectively.
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, 2015. As of June 30, 2015 and September 30, 2014, outstanding payments to the PHHA for purses earned by horsemen, but not yet paid, and other fees totaled $8.3 million and $8.1 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.
17
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
The Authority reflected payments associated with the Priority Distribution Agreement totaling $10.0 million and $4.9 million for the three months ended June 30, 2015 and 2014, respectively, and $21.5 million and $14.6 million for the nine months ended June 30, 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—RELINQUISHMENT AGREEMENT:
In February 1998, the Authority and Trading Cove Associates (“TCA”) entered into a relinquishment agreement (the “Relinquishment Agreement”). Effective January 1, 2000, the Relinquishment Agreement superseded a then-existing management agreement with TCA requiring, among other things, that the Authority make certain payments to TCA out of, and determined as a percentage of, Revenues, as defined under the Relinquishment Agreement, generated by Mohegan Sun over a 15-year period. The Authority, in accordance with authoritative guidance issued by the FASB pertaining to the accounting for contingencies, recorded a $549.1 million relinquishment liability at September 30, 1998 based on the estimated present value of its obligations under the Relinquishment Agreement. The Relinquishment Agreement expired on December 31, 2014. As of June 30, 2015, no amount was outstanding under the Relinquishment Agreement. As of September 30, 2014, the carrying amount of the relinquishment liability was $25.2 million. The decrease in the relinquishment liability during the nine months ended June 30, 2015 was due to $25.2 million in relinquishment payments and a $243,000 relinquishment liability reassessment credit. This reduction in the relinquishment liability was offset by $227,000 representing the accretion of discount to the relinquishment liability.
Relinquishment payments consisted of the following (in millions):
| For the Nine Months Ended | |||||||
| June 30, 2015 | June 30, 2014 | ||||||
| Principal | $ | 24.4 | $ | 29.1 | |||
| Accretion of discount | 0.8 | 2.1 | |||||
| Total | $ | 25.2 | $ | 31.2 | |||
The accretion of discount to the relinquishment liability reflects the accretion of the discount to the present value of the relinquishment liability for the impact of the time value of money. As of June 30, 2015, no relinquishment payment was earned but unpaid. As of September 30, 2014, relinquishment payments earned but unpaid were $13.2 million.
NOTE 7—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 will assist in securing financing, as well as administer and oversee 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 will be distributed to Mohegan Ventures-NW. In 2006, pursuant to the development agreement, Salishan-Mohegan purchased an approximately 152-acre site for 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 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.
18
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
Under the terms of the development agreement, 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 and are to be distributed 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 currently accrues interest on the Salishan-Mohegan receivables at an annual rate of 10.0%.
In March 2013, two lawsuits challenging a December 2010 decision of the Assistant Secretary - Indian Affairs of the Department of the Interior to take the Cowlitz Project site into trust were dismissed on procedural grounds. In April 2013, pursuant to judicial directive, the Department of the Interior issued a new Record of Decision to take the Cowlitz Project site into trust, determining for a second time that the site will serve as the initial reservation of the Cowlitz Tribe and that the tribe may conduct gaming on such lands under the Indian Gaming Regulatory Act. In June 2013, the plaintiffs in the earlier litigation filed two new lawsuits challenging the new Record of Decision, and, in July 2013, those lawsuits were consolidated. By Notice of Trust Acquisition filed with the court on October 22, 2014, while motions for summary judgment filed by the plaintiffs and the defendants were pending, the defendants provided the court notice of the United States Department of the Interior’s planned trust acquisition of the Cowlitz Project site, which was the subject of the litigation, on the earlier of: (1) January 21, 2015 and (2) 30 days after a court order granting summary judgment in favor of the defendants. On December 12, 2014, a U.S. District Court for the District of Columbia judge entered an order granting summary judgment in favor of the defendants, thereby upholding the Record of Decision and denying the plaintiffs’ motion. In December 2014 and February 2015, the plaintiffs filed separate appeals to the Court of Appeals for the District of Columbia Circuit. In February 2015, those appeals were consolidated by the Court of Appeals.
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. The initial term of the lease is 25 years with an option to extend the term for two additional 25-year periods. Under the lease, upon financing of the Cowlitz Project, Salishan-Mohegan shall assign the lease to the Cowlitz Tribe. If the Cowlitz Project does not proceed due to a final court determination that the site is not eligible for gaming, upon payment of certain consideration, the Cowlitz Tribe may purchase the leasehold interest in the premises and terminate the lease.
The carrying value of the land totaling approximately $20.0 million, which was included in property and equipment, net, in the accompanying condensed consolidated balance sheet as of September 30, 2014, was transferred to the Cowlitz Tribe at the time the site was taken into trust. This transfer resulted in an additional long-term receivable due from the Cowlitz Tribe as permitted under the development agreement, and was included in other assets, net, in the accompanying condensed consolidated balance sheet as of June 30, 2015.
Development of the Cowlitz Project remains subject to certain remaining governmental and regulatory approvals and agreements. The Authority can provide no assurance that the remaining steps and conditions for the Cowlitz Project site to be approved for gaming will be satisfied or that necessary financing for the development of the proposed casino will be obtained. Furthermore, the Authority can provide no assurance as to the outcome of the pending federal court appeal or any future litigation relating to the Cowlitz Project. Please refer to the Authority’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014 and its other reports and filings with the SEC for further information and details regarding the Cowlitz Project.
19
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
NOTE 8—SEGMENT REPORTING:
As of June 30, 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 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 | For the Nine Months Ended | ||||||||||||||
| (in thousands) | June 30, 2015 | June 30, 2014 | June 30, 2015 | June 30, 2014 | |||||||||||
| Net revenues: | |||||||||||||||
| Mohegan Sun | $ | 246,840 | $ | 248,866 | $ | 732,903 | $ | 734,277 | |||||||
| Mohegan Sun Pocono | 77,932 | 77,194 | 218,456 | 220,863 | |||||||||||
| Corporate and other | 1,540 | 1,549 | 4,654 | 3,780 | |||||||||||
| Inter-segment revenues | (1,273 | ) | (1,273 | ) | (3,819 | ) | (3,078 | ) | |||||||
| Total | $ | 325,039 | $ | 326,336 | $ | 952,194 | $ | 955,842 | |||||||
| Income (loss) from operations: | |||||||||||||||
| Mohegan Sun | $ | 54,557 | $ | 47,088 | $ | 148,573 | $ | 127,459 | |||||||
| Mohegan Sun Pocono | 12,842 | 9,936 | 31,423 | 26,555 | |||||||||||
| Corporate and other | (5,900 | ) | (8,042 | ) | (19,717 | ) | (26,676 | ) | |||||||
| Total | 61,499 | 48,982 | 160,279 | 127,338 | |||||||||||
| Accretion of discount to the relinquishment liability | — | (552 | ) | (227 | ) | (1,654 | ) | ||||||||
| Interest income | 1,906 | 1,701 | 5,554 | 4,947 | |||||||||||
| Interest expense, net of capitalized interest | (35,660 | ) | (36,426 | ) | (107,692 | ) | (111,692 | ) | |||||||
| Loss on early extinguishment of debt | — | (2 | ) | — | (62,277 | ) | |||||||||
| Other income (expense), net | (50 | ) | 59 | (1,260 | ) | (819 | ) | ||||||||
| Net income (loss) | 27,695 | 13,762 | 56,654 | (44,157 | ) | ||||||||||
| Loss attributable to non-controlling interests | 439 | 130 | 1,278 | 421 | |||||||||||
| Net income (loss) attributable to Mohegan Tribal Gaming Authority | $ | 28,134 | $ | 13,892 | $ | 57,932 | $ | (43,736 | ) | ||||||
| For the Nine Months Ended | |||||||
| (in thousands) | June 30, 2015 | June 30, 2014 | |||||
| Capital expenditures incurred: | |||||||
| Mohegan Sun | $ | 6,899 | $ | 15,204 | |||
| Mohegan Sun Pocono | 2,087 | 2,808 | |||||
| Corporate and other | 52 | 8,972 | |||||
| Total | $ | 9,038 | $ | 26,984 | |||
| (in thousands) | June 30, 2015 | September 30, 2014 | |||||
| Total assets: | |||||||
| Mohegan Sun | $ | 1,336,702 | $ | 1,368,352 | |||
| Mohegan Sun Pocono | 554,329 | 551,655 | |||||
| Corporate and other | 140,315 | 135,953 | |||||
| Total | $ | 2,031,346 | $ | 2,055,960 | |||
20
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
NOTE 9—SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT INFORMATION:
As of June 30, 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 8 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 June 30, 2015 and September 30, 2014 and for the three months and nine months ended June 30, 2015 and 2014 is as follows (in thousands):
21
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
CONDENSED CONSOLIDATING BALANCE SHEETS
| June 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 | $ | 48,949 | $ | 20,123 | $ | 1,088 | $ | — | $ | 70,160 | |||||||||
| Restricted cash | 63 | 4,316 | 407 | — | 4,786 | ||||||||||||||
| Receivables, net | 25,337 | 4,347 | 2,025 | (1,436 | ) | 30,273 | |||||||||||||
| Inventories | 14,147 | 1,369 | — | — | 15,516 | ||||||||||||||
| Other current assets | 16,580 | 1,339 | 58 | — | 17,977 | ||||||||||||||
| Total current assets | 105,076 | 31,494 | 3,578 | (1,436 | ) | 138,712 | |||||||||||||
| Non-current assets: | |||||||||||||||||||
| Property and equipment, net | 1,096,661 | 214,402 | 38,934 | — | 1,349,997 | ||||||||||||||
| Goodwill | — | 39,459 | — | — | 39,459 | ||||||||||||||
| Other intangible assets, net | 120,309 | 284,492 | 2,055 | — | 406,856 | ||||||||||||||
| Other assets, net | 24,869 | 4,040 | 73,387 | (5,974 | ) | 96,322 | |||||||||||||
| Inter-company receivables | 247,979 | 85,486 | 44 | (333,509 | ) | — | |||||||||||||
| Investment in subsidiaries | 316,094 | — | — | (316,094 | ) | — | |||||||||||||
| Total assets | $ | 1,910,988 | $ | 659,373 | $ | 117,998 | $ | (657,013 | ) | $ | 2,031,346 | ||||||||
| LIABILITIES AND CAPITAL | |||||||||||||||||||
| Current liabilities: | |||||||||||||||||||
| Current portion of long-term debt | $ | 18,757 | $ | — | $ | 609 | $ | — | $ | 19,366 | |||||||||
| Due to Mohegan Tribe | — | — | 5,875 | — | 5,875 | ||||||||||||||
| Current portion of capital leases | 816 | 47 | — | (47 | ) | 816 | |||||||||||||
| Trade payables | 12,311 | 1,787 | 48 | — | 14,146 | ||||||||||||||
| Construction payables | 2,170 | 260 | 100 | — | 2,530 | ||||||||||||||
| Accrued interest payable | 25,347 | — | 3,371 | — | 28,718 | ||||||||||||||
| Other current liabilities | 107,025 | 37,875 | 3,224 | (1,389 | ) | 146,735 | |||||||||||||
| Total current liabilities | 166,426 | 39,969 | 13,227 | (1,436 | ) | 218,186 | |||||||||||||
| Non-current liabilities: | |||||||||||||||||||
| Long-term debt, net of current portion | 1,589,963 | — | 45,325 | — | 1,635,288 | ||||||||||||||
| Due to Mohegan Tribe, net of current portion | — | — | 18,920 | — | 18,920 | ||||||||||||||
| Capital leases, net of current portion | 1,730 | 5,781 | — | (5,781 | ) | 1,730 | |||||||||||||
| Other long-term liabilities | 2,063 | — | 5,103 | — | 7,166 | ||||||||||||||
| Inter-company payables | — | 241,094 | 92,415 | (333,509 | ) | — | |||||||||||||
| Accumulated losses in excess of investment in subsidiaries | — | 38,440 | — | (38,440 | ) | — | |||||||||||||
| Total liabilities | 1,760,182 | 325,284 | 174,990 | (379,166 | ) | 1,881,290 | |||||||||||||
| Capital: | |||||||||||||||||||
| Retained earnings | 150,806 | 334,089 | (57,390 | ) | (277,015 | ) | 150,490 | ||||||||||||
| Mohegan Tribal Gaming Authority capital | 150,806 | 334,089 | (57,390 | ) | (277,015 | ) | 150,490 | ||||||||||||
| Non-controlling interests | — | — | 398 | (832 | ) | (434 | ) | ||||||||||||
| Total capital | 150,806 | 334,089 | (56,992 | ) | (277,847 | ) | 150,056 | ||||||||||||
| Total liabilities and capital | $ | 1,910,988 | $ | 659,373 | $ | 117,998 | $ | (657,013 | ) | $ | 2,031,346 | ||||||||
(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.
22
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
| September 30, 2014 | |||||||||||||||||||
| Authority | Total Guarantor Subsidiaries (1) | Total Non-Guarantor Subsidiaries and Entities (2) | Consolidating/ Eliminating Adjustments | Consolidated | |||||||||||||||
| ASSETS | |||||||||||||||||||
| Current assets: | |||||||||||||||||||
| Cash and cash equivalents | $ | 33,939 | $ | 14,767 | $ | 402 | $ | — | $ | 49,108 | |||||||||
| Restricted cash | 47 | 628 | — | — | 675 | ||||||||||||||
| Receivables, net | 27,537 | 2,637 | 1,287 | (821 | ) | 30,640 | |||||||||||||
| Inventories | 13,339 | 1,205 | — | — | 14,544 | ||||||||||||||
| Other current assets | 15,559 | 1,182 | 256 | — | 16,997 | ||||||||||||||
| Total current assets | 90,421 | 20,419 | 1,945 | (821 | ) | 111,964 | |||||||||||||
| Non-current assets: | |||||||||||||||||||
| Property and equipment, net | 1,142,363 | 222,425 | 59,280 | — | 1,424,068 | ||||||||||||||
| Goodwill | — | 39,459 | — | — | 39,459 | ||||||||||||||
| Other intangible assets, net | 120,395 | 284,714 | — | — | 405,109 | ||||||||||||||
| Other assets, net | 28,625 | 3,970 | 49,077 | (6,312 | ) | 75,360 | |||||||||||||
| Inter-company receivables | 228,122 | 65,981 | — | (294,103 | ) | — | |||||||||||||
| Investment in subsidiaries | 325,651 | — | — | (325,651 | ) | — | |||||||||||||
| Total assets | $ | 1,935,577 | $ | 636,968 | $ | 110,302 | $ | (626,887 | ) | $ | 2,055,960 | ||||||||
| LIABILITIES AND CAPITAL | |||||||||||||||||||
| Current liabilities: | |||||||||||||||||||
| Current portion of long-term debt | $ | 28,893 | $ | — | $ | 415 | $ | — | $ | 29,308 | |||||||||
| Current portion of relinquishment liability | 25,194 | — | — | — | 25,194 | ||||||||||||||
| Due to Mohegan Tribe | — | — | 2,250 | — | 2,250 | ||||||||||||||
| Current portion of capital leases | 793 | 58 | — | (58 | ) | 793 | |||||||||||||
| Trade payables | 18,893 | 5,181 | 12 | — | 24,086 | ||||||||||||||
| Construction payables | 4,411 | 794 | 627 | — | 5,832 | ||||||||||||||
| Accrued interest payable | 5,725 | — | 2,934 | — | 8,659 | ||||||||||||||
| Other current liabilities | 90,684 | 29,504 | 7,750 | (763 | ) | 127,175 | |||||||||||||
| Total current liabilities | 174,593 | 35,537 | 13,988 | (821 | ) | 223,297 | |||||||||||||
| Non-current liabilities: | |||||||||||||||||||
| Long-term debt, net of current portion | 1,630,958 | — | 45,000 | — | 1,675,958 | ||||||||||||||
| Due to Mohegan Tribe, net of current portion | — | — | 23,420 | — | 23,420 | ||||||||||||||
| Capital leases, net of current portion | 2,345 | 6,111 | — | (6,111 | ) | 2,345 | |||||||||||||
| Other long-term liabilities | 2,307 | — | 3,806 | — | 6,113 | ||||||||||||||
| Inter-company payables | — | 225,269 | 68,834 | (294,103 | ) | — | |||||||||||||
| Accumulated losses in excess of investment in subsidiaries | — | 31,680 | — | (31,680 | ) | — | |||||||||||||
| Total liabilities | 1,810,203 | 298,597 | 155,048 | (332,715 | ) | 1,931,133 | |||||||||||||
| Capital: | |||||||||||||||||||
| Retained earnings | 125,374 | 338,371 | (44,746 | ) | (293,941 | ) | 125,058 | ||||||||||||
| Mohegan Tribal Gaming Authority capital | 125,374 | 338,371 | (44,746 | ) | (293,941 | ) | 125,058 | ||||||||||||
| Non-controlling interests | — | — | — | (231 | ) | (231 | ) | ||||||||||||
| Total capital | 125,374 | 338,371 | (44,746 | ) | (294,172 | ) | 124,827 | ||||||||||||
| Total liabilities and capital | $ | 1,935,577 | $ | 636,968 | $ | 110,302 | $ | (626,887 | ) | $ | 2,055,960 | ||||||||
(1) Includes the Pocono Subsidiaries, MBC, Mohegan Golf, Mohegan Ventures-NW, MVW, WTG and MTGA Gaming.
(2) Includes 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)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME (LOSS)
| For the Three Months Ended June 30, 2015 | |||||||||||||||||||
| Authority | Total Guarantor Subsidiaries (1) | Total Non-Guarantor Subsidiaries and Entities (2) | Consolidating/ Eliminating Adjustments | Consolidated | |||||||||||||||
| Revenues: | |||||||||||||||||||
| Gaming | $ | 213,199 | $ | 71,514 | $ | — | $ | — | $ | 284,713 | |||||||||
| Food and beverage | 15,378 | 7,615 | 28 | — | 23,021 | ||||||||||||||
| Hotel | 11,222 | 1,478 | — | — | 12,700 | ||||||||||||||
| Retail, entertainment and other | 24,556 | 4,716 | 1,826 | (1,273 | ) | 29,825 | |||||||||||||
| Gross revenues | 264,355 | 85,323 | 1,854 | (1,273 | ) | 350,259 | |||||||||||||
| Less-Promotional allowances | (19,386 | ) | (5,095 | ) | (6 | ) | (733 | ) | (25,220 | ) | |||||||||
| Net revenues | 244,969 | 80,228 | 1,848 | (2,006 | ) | 325,039 | |||||||||||||
| Operating costs and expenses: | |||||||||||||||||||
| Gaming | 113,712 | 50,517 | — | — | 164,229 | ||||||||||||||
| Food and beverage | 7,981 | 2,342 | — | — | 10,323 | ||||||||||||||
| Hotel | 3,517 | 1,484 | — | (1,213 | ) | 3,788 | |||||||||||||
| Retail, entertainment and other | 10,475 | 2,027 | 678 | (733 | ) | 12,447 | |||||||||||||
| Advertising, general and administrative | 37,970 | 8,809 | 3,653 | (3,910 | ) | 46,522 | |||||||||||||
| Corporate | 3,269 | — | — | 3,850 | 7,119 | ||||||||||||||
| Depreciation and amortization | 15,496 | 3,306 | 284 | — | 19,086 | ||||||||||||||
| Loss on disposition of assets | 26 | — | — | — | 26 | ||||||||||||||
| Total operating costs and expenses | 192,446 | 68,485 | 4,615 | (2,006 | ) | 263,540 | |||||||||||||
| Income (loss) from operations | 52,523 | 11,743 | (2,767 | ) | — | 61,499 | |||||||||||||
| Other income (expense): | |||||||||||||||||||
| Interest income | 10 | 1,663 | 1,961 | (1,728 | ) | 1,906 | |||||||||||||
| Interest expense, net of capitalized interest | (23,563 | ) | (9,956 | ) | (3,869 | ) | 1,728 | (35,660 | ) | ||||||||||
| Loss on interests in subsidiaries | (832 | ) | (1,819 | ) | — | 2,651 | — | ||||||||||||
| Other expense, net | (4 | ) | — | (46 | ) | — | (50 | ) | |||||||||||
| Total other expense | (24,389 | ) | (10,112 | ) | (1,954 | ) | 2,651 | (33,804 | ) | ||||||||||
| Net income (loss) | 28,134 | 1,631 | (4,721 | ) | 2,651 | 27,695 | |||||||||||||
| Loss attributable to non-controlling interests | — | — | 217 | 222 | 439 | ||||||||||||||
| Net income (loss) attributable to Mohegan Tribal Gaming Authority | $ | 28,134 | $ | 1,631 | $ | (4,504 | ) | $ | 2,873 | $ | 28,134 | ||||||||
(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)
| For the Three Months Ended June 30, 2014 | |||||||||||||||||||
| Authority | Total Guarantor Subsidiaries (1) | Total Non-Guarantor Subsidiaries and Entities (2) | Consolidating/ Eliminating Adjustments | Consolidated | |||||||||||||||
| Revenues: | |||||||||||||||||||
| Gaming | $ | 213,600 | $ | 71,201 | $ | — | $ | — | $ | 284,801 | |||||||||
| Food and beverage | 15,512 | 7,761 | — | — | 23,273 | ||||||||||||||
| Hotel | 10,855 | 1,305 | — | — | 12,160 | ||||||||||||||
| Retail, entertainment and other | 24,888 | 6,359 | 1,568 | (1,273 | ) | 31,542 | |||||||||||||
| Gross revenues | 264,855 | 86,626 | 1,568 | (1,273 | ) | 351,776 | |||||||||||||
| Less-Promotional allowances | (18,959 | ) | (5,500 | ) | (6 | ) | (975 | ) | (25,440 | ) | |||||||||
| Net revenues | 245,896 | 81,126 | 1,562 | (2,248 | ) | 326,336 | |||||||||||||
| Operating costs and expenses: | |||||||||||||||||||
| Gaming | 120,236 | 51,297 | — | — | 171,533 | ||||||||||||||
| Food and beverage | 7,921 | 2,438 | — | — | 10,359 | ||||||||||||||
| Hotel | 3,809 | 1,354 | — | (1,213 | ) | 3,950 | |||||||||||||
| Retail, entertainment and other | 11,961 | 2,309 | — | (952 | ) | 13,318 | |||||||||||||
| Advertising, general and administrative | 39,261 | 9,709 | 5,703 | (5,744 | ) | 48,929 | |||||||||||||
| Corporate | 3,598 | — | — | 5,661 | 9,259 | ||||||||||||||
| Depreciation and amortization | 16,397 | 3,420 | 253 | 20,070 | |||||||||||||||
| (Gain) loss on disposition of assets | (66 | ) | 2 | — | (64 | ) | |||||||||||||
| Total operating costs and expenses | 203,117 | 70,529 | 5,956 | (2,248 | ) | 277,354 | |||||||||||||
| Income (loss) from operations | 42,779 | 10,597 | (4,394 | ) | — | 48,982 | |||||||||||||
| Other income (expense): | |||||||||||||||||||
| Accretion of discount to the relinquishment liability | (552 | ) | — | — | — | (552 | ) | ||||||||||||
| Interest income | 20 | 1,300 | 1,763 | (1,382 | ) | 1,701 | |||||||||||||
| Interest expense, net of capitalized interest | (23,953 | ) | (10,392 | ) | (3,463 | ) | 1,382 | (36,426 | ) | ||||||||||
| Loss on early extinguishment of debt | (2 | ) | — | — | — | (2 | ) | ||||||||||||
| Loss on interests in subsidiaries | (4,426 | ) | (5,022 | ) | — | 9,448 | — | ||||||||||||
| Other income, net | 26 | — | 33 | — | 59 | ||||||||||||||
| Total other expense | (28,887 | ) | (14,114 | ) | (1,667 | ) | 9,448 | (35,220 | ) | ||||||||||
| Net income (loss) | 13,892 | (3,517 | ) | (6,061 | ) | 9,448 | 13,762 | ||||||||||||
| Loss attributable to non-controlling interests | — | — | — | 130 | 130 | ||||||||||||||
| Net income (loss) attributable to Mohegan Tribal Gaming Authority | $ | 13,892 | $ | (3,517 | ) | $ | (6,061 | ) | $ | 9,578 | $ | 13,892 | |||||||
| (1) | Includes the Pocono Subsidiaries, MBC, Mohegan Golf, Mohegan Ventures-NW, MVW, WTG and MTGA Gaming. |
| (2) | Includes 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 Nine Months Ended June 30, 2015 | |||||||||||||||||||
| Authority | Total Guarantor Subsidiaries (1) | Total Non-Guarantor Subsidiaries and Entities (2) | Consolidating/ Eliminating Adjustments | Consolidated | |||||||||||||||
| Revenues: | |||||||||||||||||||
| Gaming | $ | 635,777 | $ | 201,686 | $ | — | $ | — | $ | 837,463 | |||||||||
| Food and beverage | 45,708 | 20,983 | 120 | — | 66,811 | ||||||||||||||
| Hotel | 33,141 | 4,058 | — | — | 37,199 | ||||||||||||||
| Retail, entertainment and other | 71,169 | 9,167 | 5,714 | (3,819 | ) | 82,231 | |||||||||||||
| Gross revenues | 785,795 | 235,894 | 5,834 | (3,819 | ) | 1,023,704 | |||||||||||||
| Less-Promotional allowances | (55,536 | ) | (14,892 | ) | (9 | ) | (1,073 | ) | (71,510 | ) | |||||||||
| Net revenues | 730,259 | 221,002 | 5,825 | (4,892 | ) | 952,194 | |||||||||||||
| Operating costs and expenses: | |||||||||||||||||||
| Gaming | 341,772 | 144,222 | — | — | 485,994 | ||||||||||||||
| Food and beverage | 25,191 | 6,172 | — | — | 31,363 | ||||||||||||||
| Hotel | 10,248 | 4,158 | — | (3,639 | ) | 10,767 | |||||||||||||
| Retail, entertainment and other | 29,322 | 3,653 | 2,366 | (1,073 | ) | 34,268 | |||||||||||||
| Advertising, general and administrative | 116,711 | 24,698 | 10,646 | (11,109 | ) | 140,946 | |||||||||||||
| Corporate | 12,471 | — | — | 10,929 | 23,400 | ||||||||||||||
| Depreciation and amortization | 47,739 | 10,113 | 851 | — | 58,703 | ||||||||||||||
| Loss on disposition of assets | 843 | 2 | — | — | 845 | ||||||||||||||
| Severance | 3,244 | 126 | — | — | 3,370 | ||||||||||||||
| Impairment of Project Horizon | 2,502 | — | — | — | 2,502 | ||||||||||||||
| Relinquishment liability reassessment | (243 | ) | — | — | — | (243 | ) | ||||||||||||
| Total operating costs and expenses | 589,800 | 193,144 | 13,863 | (4,892 | ) | 791,915 | |||||||||||||
| Income (loss) from operations | 140,459 | 27,858 | (8,038 | ) | — | 160,279 | |||||||||||||
| Other income (expense): | |||||||||||||||||||
| Accretion of discount to the relinquishment liability | (227 | ) | — | — | — | (227 | ) | ||||||||||||
| Interest income | 32 | 4,636 | 5,813 | (4,927 | ) | 5,554 | |||||||||||||
| Interest expense, net of capitalized interest | (71,260 | ) | (30,055 | ) | (11,304 | ) | 4,927 | (107,692 | ) | ||||||||||
| Loss on interests in subsidiaries | (11,079 | ) | (6,760 | ) | — | 17,839 | — | ||||||||||||
| Other income (expense), net | 7 | — | (1,267 | ) | — | (1,260 | ) | ||||||||||||
| Total other expense | (82,527 | ) | (32,179 | ) | (6,758 | ) | 17,839 | (103,625 | ) | ||||||||||
| Net income (loss) | 57,932 | (4,321 | ) | (14,796 | ) | 17,839 | 56,654 | ||||||||||||
| Loss attributable to non-controlling interests | — | — | 677 | 601 | 1,278 | ||||||||||||||
| Net income (loss) attributable to Mohegan Tribal Gaming Authority | $ | 57,932 | $ | (4,321 | ) | $ | (14,119 | ) | $ | 18,440 | $ | 57,932 | |||||||
(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. |
26
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
| For the Nine Months Ended June 30, 2014 | |||||||||||||||||||
| Authority | Total Guarantor Subsidiaries (1) | Total Non-Guarantor Subsidiaries and Entities (2) | Consolidating/ Eliminating Adjustments | Consolidated | |||||||||||||||
| Revenues: | |||||||||||||||||||
| Gaming | $ | 632,604 | $ | 205,350 | $ | — | $ | — | $ | 837,954 | |||||||||
| Food and beverage | 46,881 | 21,724 | — | — | 68,605 | ||||||||||||||
| Hotel | 31,870 | 2,893 | — | — | 34,763 | ||||||||||||||
| Retail, entertainment and other | 75,835 | 10,484 | 3,824 | (3,078 | ) | 87,065 | |||||||||||||
| Gross revenues | 787,190 | 240,451 | 3,824 | (3,078 | ) | 1,028,387 | |||||||||||||
| Less-Promotional allowances | (56,186 | ) | (15,367 | ) | (15 | ) | (977 | ) | (72,545 | ) | |||||||||
| Net revenues | 731,004 | 225,084 | 3,809 | (4,055 | ) | 955,842 | |||||||||||||
| Operating costs and expenses: | |||||||||||||||||||
| Gaming | 364,858 | 148,716 | — | — | 513,574 | ||||||||||||||
| Food and beverage | 24,660 | 6,547 | — | — | 31,207 | ||||||||||||||
| Hotel | 11,435 | 3,207 | — | (2,898 | ) | 11,744 | |||||||||||||
| Retail, entertainment and other | 34,149 | 4,251 | — | (954 | ) | 37,446 | |||||||||||||
| Advertising, general and administrative | 117,579 | 26,240 | 19,604 | (19,683 | ) | 143,740 | |||||||||||||
| Corporate | 10,071 | — | — | 19,480 | 29,551 | ||||||||||||||
| Depreciation and amortization | 49,091 | 10,318 | 658 | — | 60,067 | ||||||||||||||
| (Gain) loss on disposition of assets | (15 | ) | 3 | — | — | (12 | ) | ||||||||||||
| Pre-opening | — | 1,187 | — | — | 1,187 | ||||||||||||||
| Total operating costs and expenses | 611,828 | 200,469 | 20,262 | (4,055 | ) | 828,504 | |||||||||||||
| Income (loss) from operations | 119,176 | 24,615 | (16,453 | ) | — | 127,338 | |||||||||||||
| Other income (expense): | |||||||||||||||||||
| Accretion of discount to the relinquishment liability | (1,654 | ) | — | — | — | (1,654 | ) | ||||||||||||
| Interest income | 65 | 3,397 | 5,100 | (3,615 | ) | 4,947 | |||||||||||||
| Interest expense, net of capitalized interest | (73,242 | ) | (32,597 | ) | (9,468 | ) | 3,615 | (111,692 | ) | ||||||||||
| Loss on early extinguishment of debt | (62,277 | ) | — | — | — | (62,277 | ) | ||||||||||||
| Loss on interests in subsidiaries | (25,945 | ) | (17,439 | ) | — | 43,384 | — | ||||||||||||
| Other income (expense), net | 141 | — | (960 | ) | — | (819 | ) | ||||||||||||
| Total other expense | (162,912 | ) | (46,639 | ) | (5,328 | ) | 43,384 | (171,495 | ) | ||||||||||
| Net income (loss) | (43,736 | ) | (22,024 | ) | (21,781 | ) | 43,384 | (44,157 | ) | ||||||||||
| Loss attributable to non-controlling interests | — | — | — | 421 | 421 | ||||||||||||||
| Net income (loss) attributable to Mohegan Tribal Gaming Authority | $ | (43,736 | ) | $ | (22,024 | ) | $ | (21,781 | ) | $ | 43,805 | $ | (43,736 | ) | |||||
| (1) | Includes the Pocono Subsidiaries, MBC, Mohegan Golf, Mohegan Ventures-NW, MVW, WTG and MTGA Gaming. |
| (2) | Includes MGA and subsidiaries, Downs Lodging, Salishan-Mohegan, MG&H and Mohegan Resorts and subsidiaries. |
27
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
| For the Nine Months Ended June 30, 2015 | |||||||||||||||||||
| Authority | Total Guarantor Subsidiaries (1) | Total Non-Guarantor Subsidiaries and Entities (2) | Consolidating/ Eliminating Adjustments | Consolidated | |||||||||||||||
| Cash flows provided by (used in) operating activities: | |||||||||||||||||||
| Net income (loss) | $ | 57,932 | $ | (4,321 | ) | $ | (14,796 | ) | $ | 17,839 | $ | 56,654 | |||||||
| Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities: | |||||||||||||||||||
| Depreciation and amortization | 47,739 | 10,113 | 851 | — | 58,703 | ||||||||||||||
| Relinquishment liability reassessment | (243 | ) | — | — | — | (243 | ) | ||||||||||||
| Accretion of discount to the relinquishment liability | 227 | — | — | — | 227 | ||||||||||||||
| Cash paid for accretion of discount to the relinquishment liability | (778 | ) | — | — | — | (778 | ) | ||||||||||||
| Amortization of debt issuance costs and accretion of bond discounts | 5,518 | — | 239 | — | 5,757 | ||||||||||||||
| Provision for losses on receivables | 447 | 270 | 2,682 | — | 3,399 | ||||||||||||||
| Impairment of Project Horizon | 2,502 | — | — | — | 2,502 | ||||||||||||||
| Loss on disposition of assets | 843 | 2 | — | — | 845 | ||||||||||||||
| Loss from unconsolidated affiliates | 38 | — | 1,264 | — | 1,302 | ||||||||||||||
| Inter-company transactions | (18,858 | ) | 31,889 | 4,800 | (17,831 | ) | — | ||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||||
| (Increase) decrease in receivables | 1,856 | (1,980 | ) | (810 | ) | 652 | (282 | ) | |||||||||||
| Increase in inventories | (808 | ) | (164 | ) | — | — | (972 | ) | |||||||||||
| Increase in other assets | (876 | ) | (237 | ) | (5,170 | ) | (34 | ) | (6,317 | ) | |||||||||
| Increase (decrease) in trade payables | (6,448 | ) | (3,394 | ) | 39 | — | (9,803 | ) | |||||||||||
| Increase in accrued interest | 19,622 | — | 437 | — | 20,059 | ||||||||||||||
| Increase (decrease) in other liabilities | 13,501 | 5,399 | (4,844 | ) | (626 | ) | 13,430 | ||||||||||||
| Net cash flows provided by (used in) operating activities | 122,214 | 37,577 | (15,308 | ) | — | 144,483 | |||||||||||||
| Cash flows provided by (used in) investing activities: | |||||||||||||||||||
| Purchases of property and equipment, including change in construction payables | (8,799 | ) | (2,698 | ) | (584 | ) | — | (12,081 | ) | ||||||||||
| Issuance of third-party loans and advances | — | — | (2,201 | ) | — | (2,201 | ) | ||||||||||||
| Payments received on third-party loans | 117 | — | — | — | 117 | ||||||||||||||
| Increase in restricted cash, net | (27 | ) | (716 | ) | (39 | ) | — | (782 | ) | ||||||||||
| Proceeds from asset sales | 1,577 | — | — | — | 1,577 | ||||||||||||||
| Investments in the New England Black Wolves | — | — | (500 | ) | — | (500 | ) | ||||||||||||
| Inter-company transactions | 8,558 | (14,915 | ) | 37 | 6,320 | — | |||||||||||||
| Net cash flows provided by (used in) investing activities | 1,426 | (18,329 | ) | (3,287 | ) | 6,320 | (13,870 | ) | |||||||||||
| Cash flows provided by (used in) financing activities: | |||||||||||||||||||
| Senior Secured Credit Facility borrowings - Revolving | 299,000 | — | — | — | 299,000 | ||||||||||||||
| Senior Secured Credit Facility repayments - Revolving | (328,000 | ) | — | — | — | (328,000 | ) | ||||||||||||
| Senior Secured Credit Facility repayments - Term Loan A | (5,469 | ) | — | — | — | (5,469 | ) | ||||||||||||
| Senior Secured Credit Facility repayments - Term Loan B | (3,650 | ) | — | — | — | (3,650 | ) | ||||||||||||
| Line of Credit borrowings | 332,124 | — | — | — | 332,124 | ||||||||||||||
| Line of Credit repayments | (335,165 | ) | — | — | — | (335,165 | ) | ||||||||||||
| Repayments to Mohegan Tribe | — | — | (875 | ) | — | (875 | ) | ||||||||||||
| Repayments of other long-term debt | (9,844 | ) | — | (56 | ) | — | (9,900 | ) | |||||||||||
| Principal portion of relinquishment liability payments | (24,400 | ) | — | — | — | (24,400 | ) | ||||||||||||
| Distributions to Mohegan Tribe | (32,500 | ) | — | — | — | (32,500 | ) | ||||||||||||
| Payments on capital lease obligations | (726 | ) | (37 | ) | — | 37 | (726 | ) | |||||||||||
| Inter-company transactions | — | (13,855 | ) | 20,212 | (6,357 | ) | — | ||||||||||||
| Net cash flows provided by (used in) financing activities | (108,630 | ) | (13,892 | ) | 19,281 | (6,320 | ) | (109,561 | ) | ||||||||||
| Net increase in cash and cash equivalents | 15,010 | 5,356 | 686 | — | 21,052 | ||||||||||||||
28
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
| Cash and cash equivalents at beginning of period | 33,939 | 14,767 | 402 | — | 49,108 | ||||||||||||||
| Cash and cash equivalents at end of period | $ | 48,949 | $ | 20,123 | $ | 1,088 | $ | — | $ | 70,160 | |||||||||
(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. |
| For the Nine Months Ended June 30, 2014 | |||||||||||||||||||
| Authority | Total Guarantor Subsidiaries (1) | Total Non-Guarantor Subsidiaries and Entities (2) | Consolidating/ Eliminating Adjustments | Consolidated | |||||||||||||||
| Cash flows provided by (used in) operating activities: | |||||||||||||||||||
| Net loss | $ | (43,736 | ) | $ | (22,024 | ) | $ | (21,781 | ) | $ | 43,384 | $ | (44,157 | ) | |||||
| Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities: | |||||||||||||||||||
| Depreciation and amortization | 49,091 | 10,318 | 658 | — | 60,067 | ||||||||||||||
| Accretion of discount to the relinquishment liability | 1,654 | — | — | — | 1,654 | ||||||||||||||
| Cash paid for accretion of discount to the relinquishment liability | (2,071 | ) | — | — | — | (2,071 | ) | ||||||||||||
| Loss on early extinguishment of debt | 58,481 | — | — | — | 58,481 | ||||||||||||||
| Payments of tender offer costs and discounts | (48,155 | ) | — | — | — | (48,155 | ) | ||||||||||||
| Amortization of debt issuance costs and accretion of bond discounts | 5,925 | — | 239 | — | 6,164 | ||||||||||||||
| Provision for losses on receivables | 877 | 183 | 1,893 | — | 2,953 | ||||||||||||||
| (Gain) loss on disposition of assets | (15 | ) | 3 | — | — | (12 | ) | ||||||||||||
| (Gain) loss from unconsolidated affiliates | (154 | ) | — | 948 | — | 794 | |||||||||||||
| Inter-company transactions | (6,466 | ) | 46,421 | 3,423 | (43,378 | ) | — | ||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||||
| Increase in receivables | (3,409 | ) | (1,849 | ) | (688 | ) | 557 | (5,389 | ) | ||||||||||
| Increase in inventories | (1,342 | ) | (371 | ) | — | — | (1,713 | ) | |||||||||||
| (Increase) decrease in other assets | 992 | (229 | ) | (5,387 | ) | (36 | ) | (4,660 | ) | ||||||||||
| Increase in trade payables | 6,288 | 1,382 | 1 | — | 7,671 | ||||||||||||||
| Increase (decrease) in accrued interest | 9,114 | — | (1,405 | ) | — | 7,709 | |||||||||||||
| Increase in other liabilities | 1,231 | 2,562 | 5,749 | (555 | ) | 8,987 | |||||||||||||
| Net cash flows provided by (used in) operating activities | 28,305 | 36,396 | (16,350 | ) | (28 | ) | 48,323 | ||||||||||||
| Cash flows provided by (used in) investing activities: | |||||||||||||||||||
| Purchases of property and equipment, including change in construction payables | (14,680 | ) | (3,382 | ) | (10,839 | ) | — | (28,901 | ) | ||||||||||
| Issuance of third-party loans and advances | — | — | (1,392 | ) | — | (1,392 | ) | ||||||||||||
| Payments received on third-party loans | 606 | — | — | — | 606 | ||||||||||||||
| Decrease in restricted cash, net | 44 | 2,063 | 12,043 | — | 14,150 | ||||||||||||||
| Proceeds from asset sales | 105 | — | — | — | 105 | ||||||||||||||
| Investments in unconsolidated affiliates | — | — | (29 | ) | — | (29 | ) | ||||||||||||
| Inter-company transactions | 19,812 | (21,079 | ) | — | 1,267 | — | |||||||||||||
| Net cash flows provided by (used in) investing activities | 5,887 | (22,398 | ) | (217 | ) | 1,267 | (15,461 | ) | |||||||||||
| Cash flows provided by (used in) financing activities: | |||||||||||||||||||
| Prior Bank Credit Facility repayments - Term | (393,000 | ) | — | — | — | (393,000 | ) | ||||||||||||
| Prior Term Loan Facility repayments, net of discount | (222,103 | ) | — | — | — | (222,103 | ) | ||||||||||||
| Senior Secured Credit Facility borrowings - Revolving | 193,000 | — | — | — | 193,000 | ||||||||||||||
| Senior Secured Credit Facility repayments - Revolving | (173,000 | ) | — | — | — | (173,000 | ) | ||||||||||||
| Senior Secured Credit Facility borrowings - Term Loan A, net of discount | 124,343 | — | — | — | 124,343 | ||||||||||||||
| Senior Secured Credit Facility repayments - Term Loan A | (1,563 | ) | — | — | — | (1,563 | ) | ||||||||||||
| Senior Secured Credit Facility borrowings - Term Loan B, net of discount | 720,952 | — | — | — | 720,952 | ||||||||||||||
| Senior Secured Credit Facility repayments - Term Loan B | (3,650 | ) | — | — | — | (3,650 | ) | ||||||||||||
29
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
| Line of Credit borrowings | 258,415 | — | — | — | 258,415 | ||||||||||||||
| Line of Credit repayments | (258,415 | ) | — | — | — | (258,415 | ) | ||||||||||||
| Repayments to Mohegan Tribe | — | — | (2,750 | ) | — | (2,750 | ) | ||||||||||||
| Repayments of other long-term debt | (191,049 | ) | — | (39 | ) | — | (191,088 | ) | |||||||||||
| Principal portion of relinquishment liability payments | (29,129 | ) | — | — | — | (29,129 | ) | ||||||||||||
| Distributions to Mohegan Tribe | (32,500 | ) | — | — | — | (32,500 | ) | ||||||||||||
| Payments of financing fees | (12,631 | ) | — | — | — | (12,631 | ) | ||||||||||||
| Payments on capital lease obligations | (1,709 | ) | (28 | ) | — | 28 | (1,709 | ) | |||||||||||
| Inter-company transactions | — | (20,728 | ) | 21,995 | (1,267 | ) | — | ||||||||||||
| Net cash flows provided by (used in) financing activities | (22,039 | ) | (20,756 | ) | 19,206 | (1,239 | ) | (24,828 | ) | ||||||||||
| Net increase (decrease) in cash and cash equivalents | 12,153 | (6,758 | ) | 2,639 | — | 8,034 | |||||||||||||
| Cash and cash equivalents at beginning of period | 44,060 | 18,655 | 909 | — | 63,624 | ||||||||||||||
| Cash and cash equivalents at end of period | $ | 56,213 | $ | 11,897 | $ | 3,548 | $ | — | $ | 71,658 | |||||||||
| (1) | Includes the Pocono Subsidiaries, MBC, Mohegan Golf, Mohegan Ventures-NW, MVW, WTG and MTGA Gaming. |
| (2) | Includes MGA and subsidiaries, Downs Lodging, Salishan-Mohegan, MG&H and Mohegan Resorts and subsidiaries. |
30
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
NOTE 10—SUBSEQUENT EVENTS:
Refinancing Transactions
On August 11, 2015, the Authority completed several financing transactions relating to the refinancing of certain of its outstanding indebtedness, as set forth below:
Amendment to Loan Agreement and Borrowing of Increase Term B Loans
On August 11, 2015, the Authority entered into an increase joinder and amendment agreement (the “Amendment Agreement”) among the Authority, the Tribe, the guarantors party thereto, Citizens Bank, N.A., as administrative agent, and the lenders party thereto, amending the loan agreement for its Senior Secured Credit Facilities. Pursuant to the Amendment Agreement, the Authority borrowed $90.0 million of increase term B loans (the “Increase Term B Loans”) on the same terms as the Authority’s existing term B loans. The net proceeds of the Increase Term B Loans will be used by the Authority to redeem outstanding 2012 Senior Subordinated Notes, as further described below.
Issuance of Additional 2013 Senior Unsecured Notes
On August 11, 2015, the Authority closed its previously announced private placement of an additional $85.0 million of its 2013 Senior Unsecured Notes (the “Additional 2013 Senior Unsecured Notes”). Subsequent to this transaction, the aggregate principal amount of 2013 Senior Unsecured Notes outstanding, including the Additional 2013 Senior Unsecured Notes, is $585.0 million. The net proceeds of the sale of the Additional 2013 Senior Unsecured Notes will be used by the Authority to redeem outstanding 2012 Senior Subordinated Notes, as further described below.
Registration Rights Agreement
On August 11, 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. Under certain circumstances set forth in the registration rights agreement, the Authority also may be obligated to file a shelf registration statement with respect to the Additional 2013 Senior Unsecured Notes.
Redemption of 2012 Senior Subordinated Notes
On August 11, 2015, the Authority called for redemption of $175.0 million of its 2012 Senior Subordinated Notes (the “Redemption Notes”). The Redemption Notes will be redeemed on September 10, 2015 (the “Redemption Date”) at a redemption price equal to $1,053.47 per $1,000 principal amount thereof, which represents 100% of the aggregate principal amount of the Redemption Notes, plus accrued and unpaid interest thereon to the Redemption Date. After giving effect to the redemption, the aggregate principal amount of the Authority’s 2012 Senior Subordinated Notes outstanding will be approximately $100.2 million.
Prepayment of Downs Lodging Credit Facility
On July 16, 2015, Downs Lodging prepaid a portion of the Downs Lodging Credit Facility in the amount of approximately $4.5 million plus accrued interest and fees through the date of the prepayment (the “Downs Lodging Credit Facility Prepayment”). The Downs Lodging Credit Facility Prepayment was funded through an investment by the Authority.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Some information included in this Quarterly Report on Form 10-Q and other materials filed by us with the Securities and Exchange Commission, or the SEC, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. Such statements include information relating to business development activities, as well as capital spending, financing sources and the effects of regulation, including gaming and tax regulation, and increased competition. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect” or “intend” and similar expressions. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated future results, and accordingly, such results may differ materially from those expressed in any forward-looking statements made by or on our behalf. These risks and uncertainties include, but are not limited to, those relating to the following:
| • | the financial performance of Mohegan Sun and Mohegan Sun Pocono and our Pennsylvania off-track wagering facilities; |
| • | the local, regional, national or global economic climate, including the lingering effects of the most recent economic recession, which negatively affected our revenues and earnings; |
| • | increased competition, including the expansion of gaming in New England, New York, New Jersey or Pennsylvania; |
| • | our leverage and ability to meet our debt service obligations and maintain compliance with financial debt covenants; |
| • | the continued availability of financing; |
| • | our dependence on existing management; |
| • | our ability to integrate new amenities from expansions to our facilities into our current operations and manage the expanded facilities; |
| • | changes in federal or state tax laws or the administration of such laws; |
| • | changes in gaming laws or regulations, including the limitation, denial or suspension of licenses required under gaming laws and regulations; |
| • | changes in applicable laws pertaining to the service of alcohol, smoking or other amenities offered at our facilities; |
| • | our ability to successfully implement our diversification strategy; |
| • | an act of terrorism on the United States; |
| • | our customers' access to inexpensive transportation to our facilities and changes in oil, fuel or other transportation-related expenses; and |
| • | unfavorable weather conditions. |
Additional information concerning potential factors that could affect our financial results is included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2014, as well as our other reports and filings with the SEC. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this report. We do not undertake any obligation to update or supplement any forward-looking statements to reflect subsequent events or circumstances, except as required by law. We cannot assure you that projected results or events will be achieved or will occur.
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes beginning on page 3 of this Quarterly Report on Form 10-Q.
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Overview
The Tribe and the Authority
The Mohegan Tribe of Indians of Connecticut, or the Mohegan Tribe or the Tribe, is a federally-recognized Indian tribe with an approximately 544-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. We were established as an instrumentality of the Tribe, 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. Our gaming operation at Mohegan Sun is one of only two legally authorized gaming operations in southern New England offering traditional slot machines and table games. Through our subsidiary, Downs Racing, L.P., or Downs Racing, we also own and operate Mohegan Sun Pocono, a gaming and entertainment facility located in Plains Township, Pennsylvania, and several off-track wagering facilities, or OTW facilities, located elsewhere in Pennsylvania, collectively the Pennsylvania facilities. We are 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 our Management Board.
Mohegan Sun
In October 1996, we opened a gaming and entertainment complex known as Mohegan Sun. Mohegan Sun is located on an approximately 185-acre site on the Tribe's reservation overlooking the Thames River with direct access from Interstate 395 and Connecticut Route 2A. Mohegan Sun is approximately 125 miles from New York City, New York, and approximately 100 miles from Boston, Massachusetts. In 2002, we completed a major expansion of Mohegan Sun known as Project Sunburst, which included increased gaming, restaurant and retail space, an entertainment arena, an approximately 1,200-room luxury Sky Hotel Tower and approximately 100,000 square feet of convention space. In 2007, we opened Sunrise Square, and, in 2008, we opened Casino of the Wind, both components of Mohegan Sun's Project Horizon expansion.
Mohegan Sun currently operates in an approximately 3.1 million square-foot facility, which includes the following:
Casino of the Earth
As of June 30, 2015, Casino of the Earth offered:
| • | approximately 188,000 square feet of gaming space; |
| • | approximately 2,640 slot machines and 140 table games, including blackjack, roulette and craps; |
| • | Sunrise Square, a 9,800-square-foot Asian-themed gaming area; |
| • | an approximately 9,000-square-foot simulcasting Racebook facility; |
| • | food and beverage amenities, including: Seasons Buffet, a 784-seat multi-station buffet with live cooking stations, a Hong Kong-style food outlet offering authentic Southeast Asian cuisine, Bobby Flay's Bobby's Burger Palace, Bow & Arrow Sports Bar and multiple service bars, all operated by us, as well as Ballo Italian Restaurant & Social Club, Frank Pepe Pizzeria Napoletana, Hash House a Go Go and Fidelia's Market, an approximately 290-seat multi-station food court, operated by third-parties, for a total restaurant seating of approximately 2,125; |
| • | four Mohegan Sun-owned retail shops, offering products ranging from Mohegan Sun logo souvenirs to cigars; and |
| • | the Wolf Den, an approximately 10,000-square-foot, 275-seat lounge featuring live entertainment seven days a week. |
Casino of the Sky
As of June 30, 2015, Casino of the Sky offered:
| • | approximately 119,000 square feet of gaming space; |
| • | approximately 2,000 slot machines and 120 table games, including blackjack, roulette and craps; |
| • | food and beverage amenities, including: Todd English's Tuscany, Bobby Flay's Bar Americain, a 24-hour coffee shop and three lounges and bars, all operated by us, as well as four full-service restaurants, three quick-service restaurants and a multi-station food court operated by third-parties, for a total restaurant seating of approximately 1,865; |
| • | The Shops at Mohegan Sun containing 29 retail shops, six of which we own; |
| • | the Mohegan Sun Arena with seating for up to 10,000; |
| • | a 350-seat Cabaret theatre; |
| • | an approximately 1,200-room luxury Sky Hotel Tower, including a private high-limit table games suite; |
| • | Lansdowne Irish Pub and Music House with restaurant seating of approximately 205, Avalon Nightclub and Vista Lounge, all operated by a third-party; |
| • | an approximately 20,000-square-foot spa operated by a third-party; |
| • | approximately 100,000 square feet of convention space; and |
| • | a child care facility and an arcade-style entertainment area operated by a third-party. |
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Casino of the Wind
As of June 30, 2015, Casino of the Wind offered:
| • | approximately 45,000 square feet of gaming space; |
| • | approximately 525 slot machines, 30 table games, including blackjack, roulette and craps, and a 42-table themed poker room; |
| • | food and beverage amenities, including: a two-level, 16,000-square-foot Jimmy Buffett's Margaritaville Restaurant and a casual dining restaurant operated by third-parties, for a total restaurant seating of approximately 475; |
| • | Mist, a nightlife entertainment venue operated by us; and |
| • | a retail shop operated by a third-party. |
Mohegan Sun offers parking for approximately 13,000 patrons and 3,600 employees. We also operate an approximately 3,600-square-foot, 20-pump gasoline and convenience center for patrons, as well as a 10-pump gasoline center for employees, both located adjacent to Mohegan Sun. In addition, Mohegan Sun is a CT Lottery retailer.
Connecticut Sun
Through Mohegan Basketball Club, LLC, or MBC, we own and operate the Connecticut Sun franchise, a professional basketball team in the Women's National Basketball Association. The team plays its home games in the Mohegan Sun Arena.
New England Black Wolves
Through Mohegan Lacrosse, LLC, we have partnered with an unrelated third-party to own and operate the New England Black Wolves franchise, a professional lacrosse team in the National Lacrosse League. The team plays its home games in the Mohegan Sun Arena.
Mohegan Sun Golf Club
Through Mohegan Golf, LLC, or Mohegan Golf, we own and operate the Mohegan Sun Golf Club, a private 18-hole championship golf course, restaurant and bar located in Sprague and Franklin, Connecticut.
Mohegan Sun Pocono
Through Downs Racing, we own and operate a gaming and entertainment facility known as Mohegan Sun Pocono located on an approximately 400-acre site in Plains Township, Pennsylvania, and OTW facilities located in Carbondale, East Stroudsburg and Lehigh Valley, Pennsylvania. In November 2006, Mohegan Sun Pocono became the first location to offer slot machine gaming in the Commonwealth of Pennsylvania when Phase I of its gaming and entertainment facility opened. In July 2008, we completed a major expansion of Mohegan Sun Pocono known as Project Sunrise, which included increased gaming, restaurant and retail space, and, in July 2010, we opened our table game and poker operations, including additional non-smoking sections and a high-limit gaming area. We recently completed Project Sunlight, a hotel and convention center expansion located adjacent to the Mohegan Sun Pocono casino.
Mohegan Sun Pocono currently operates in an approximately 400,000-square-foot facility, which includes the following as of June 30, 2015:
| • | approximately 94,000 square feet of gaming space; |
| • | approximately 2,330 slot machines, 75 table games, including blackjack, roulette and craps, and an 18-table poker room; |
| • | live harness racing and simulcast and off-track wagering; |
| • | a 238-room hotel, including a spa and fitness center; |
| • | approximately 20,000 square feet of convention space; |
| • | food and beverage amenities, including: Ruth's Chris Steakhouse, Rustic Kitchen Bistro and Bar, which features dining and a live cooking show, Bar Louie, a casual bar and restaurant, Timbers Buffet, a 300-seat Mohegan Indian cultural heritage themed multi-station buffet, and a food court, including: Johnny Rockets, Wok 8, Puck Express by Wolfgang Puck and Ben & Jerry's Ice Cream, for a total seating of approximately 1,800; |
| • | five retail shops, one of which we own, offering products ranging from Mohegan Sun Pocono logo souvenirs to fine apparel; and |
| • | three bars/lounges: Sunburst Bar, featured in the center of the gaming floor, Breakers Night Club and Pearl Sushi Bar. |
Market and Competition from Other Gaming Operations
Our gaming operation at Mohegan Sun is one of only two current gaming operations in southern New England offering traditional slot machines and table games, with the other operation being our sole gaming competitor in the State of Connecticut, Foxwoods Resort Casino, or Foxwoods, owned by the Mashantucket Pequot Tribe and located approximately 10 miles from
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Mohegan Sun. We also face competition from gaming facilities in the states of Rhode Island, New York and New Jersey. In addition, we face competition in and from the Northeastern Pennsylvania gaming market. Please refer to “Part I. Item 1. Business-Market and Competition from Other Gaming Operations” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2014 and our other reports and filings with the SEC for further details regarding current and potential competition from other gaming operations.
Explanation of Key Financial Statement Captions
There has been no material change from the explanation of key financial statement captions previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2014.
Results of Operations
Summary Operating Results
As of June 30, 2015, we own and operate, either directly or through wholly-owned subsidiaries, Mohegan Sun, the Connecticut Sun franchise and the Mohegan Sun Golf Club, and have partnered with an unrelated third-party to own and operate the New England Black Wolves franchise, or collectively, the Connecticut facilities, and the Pennsylvania facilities. Substantially all of our 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. Our 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, we have 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. Our operations related to investments in unconsolidated affiliates and certain other Corporate 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.
The following table summarizes our results on a property basis (in thousands, except where noted):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | 2015 | 2014 | Variance | Percentage Variance | ||||||||||||||||||||||
| Net revenues: | |||||||||||||||||||||||||||||
| Mohegan Sun | $ | 246,840 | $ | 248,866 | $ | (2,026 | ) | (0.8 | )% | $ | 732,903 | $ | 734,277 | $ | (1,374 | ) | (0.2 | )% | |||||||||||
| Mohegan Sun Pocono | 77,932 | 77,194 | 738 | 1.0 | % | 218,456 | 220,863 | (2,407 | ) | (1.1 | )% | ||||||||||||||||||
| Corporate and other | 1,540 | 1,549 | (9 | ) | (0.6 | )% | 4,654 | 3,780 | 874 | 23.1 | % | ||||||||||||||||||
| Inter-segment revenues | (1,273 | ) | (1,273 | ) | — | — | (3,819 | ) | (3,078 | ) | (741 | ) | (24.1 | )% | |||||||||||||||
| Total | $ | 325,039 | $ | 326,336 | $ | (1,297 | ) | (0.4 | )% | $ | 952,194 | $ | 955,842 | $ | (3,648 | ) | (0.4 | )% | |||||||||||
| Income (loss) from operations: | |||||||||||||||||||||||||||||
| Mohegan Sun | $ | 54,557 | $ | 47,088 | $ | 7,469 | 15.9 | % | $ | 148,573 | $ | 127,459 | $ | 21,114 | 16.6 | % | |||||||||||||
| Mohegan Sun Pocono | 12,842 | 9,936 | 2,906 | 29.2 | % | 31,423 | 26,555 | 4,868 | 18.3 | % | |||||||||||||||||||
| Corporate and other | (5,900 | ) | (8,042 | ) | 2,142 | 26.6 | % | (19,717 | ) | (26,676 | ) | 6,959 | 26.1 | % | |||||||||||||||
| Total | $ | 61,499 | $ | 48,982 | $ | 12,517 | 25.6 | % | $ | 160,279 | $ | 127,338 | $ | 32,941 | 25.9 | % | |||||||||||||
| Net income (loss) attributable to Mohegan Tribal Gaming Authority | $ | 28,134 | $ | 13,892 | $ | 14,242 | 102.5 | % | $ | 57,932 | $ | (43,736 | ) | $ | 101,668 | N.M. | |||||||||||||
| Operating margin: | |||||||||||||||||||||||||||||
| Mohegan Sun | 22.1 | % | 18.9 | % | 3.2 | % | 16.9 | % | 20.3 | % | 17.4 | % | 2.9 | % | 16.7 | % | |||||||||||||
| Mohegan Sun Pocono | 16.5 | % | 12.9 | % | 3.6 | % | 27.9 | % | 14.4 | % | 12.0 | % | 2.4 | % | 20.0 | % | |||||||||||||
| Total | 18.9 | % | 15.0 | % | 3.9 | % | 26.0 | % | 16.8 | % | 13.3 | % | 3.5 | % | 26.3 | % | |||||||||||||
_________
N.M. - Not meaningful.
The most significant factors and trends that we believe impacted our operating and financial performance were as follows:
| • | various strategic operational and marketing and promotional changes designed to lower operating costs and expenses, enhance operating efficiency and improve profitability; |
| • | relatively flat net revenues at both Mohegan Sun and Mohegan Sun Pocono; |
| • | the continued ramp-up of hotel and convention center operations at Mohegan Sun Pocono; |
| • | a prolonged sluggish regional economic environment and its impact on consumer discretionary spending; |
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| • | competitive gaming markets; |
| • | lower Corporate expenses; |
| • | lower interest expense; and |
| • | a non-recurring $62.3 million non-operating loss on early extinguishment of debt. |
Net revenues for the three months and nine months ended June 30, 2015 compared to the same periods in the prior year were relatively flat.
Income from operations for the three months and nine months ended June 30, 2015 compared to the same periods in the prior year increased primarily due to lower operating costs and expenses at both Mohegan Sun and Mohegan Sun Pocono, combined with reduced Corporate expenses.
Net income attributable to the Authority for the three months ended June 30, 2015 compared to the same period in the prior year increased primarily as a result of the growth in income from operations. Net income attributable to the Authority for the nine months ended June 30, 2015 compared to the same period in the prior year increased primarily due to the non-recurring non-operating loss on early extinguishment of debt, combined with the increase in income from operations. The growth in net income attributable to the Authority for the three months and nine months ended June 30, 2015 also reflected lower interest expense.
Mohegan Sun
Revenues
Revenues consisted of the following (in thousands):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | 2015 | 2014 | Variance | Percentage Variance | ||||||||||||||||||||||
| Gaming | $ | 213,199 | $ | 213,600 | $ | (401 | ) | (0.2 | )% | $ | 635,777 | $ | 632,604 | $ | 3,173 | 0.5 | % | ||||||||||||
| Food and beverage | 15,653 | 15,799 | (146 | ) | (0.9 | )% | 46,139 | 47,229 | (1,090 | ) | (2.3 | )% | |||||||||||||||||
| Hotel | 11,222 | 10,855 | 367 | 3.4 | % | 33,141 | 31,870 | 1,271 | 4.0 | % | |||||||||||||||||||
| Retail, entertainment and other | 26,876 | 28,532 | (1,656 | ) | (5.8 | )% | 74,424 | 79,697 | (5,273 | ) | (6.6 | )% | |||||||||||||||||
| Gross revenues | 266,950 | 268,786 | (1,836 | ) | (0.7 | )% | 789,481 | 791,400 | (1,919 | ) | (0.2 | )% | |||||||||||||||||
| Less-Promotional allowances | 20,110 | 19,920 | 190 | 1.0 | % | 56,578 | 57,123 | (545 | ) | (1.0 | )% | ||||||||||||||||||
| Net revenues | $ | 246,840 | $ | 248,866 | $ | (2,026 | ) | (0.8 | )% | $ | 732,903 | $ | 734,277 | $ | (1,374 | ) | (0.2 | )% | |||||||||||
The following table summarizes the percentage of gross revenues from each of the four revenue sources:
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||
| Gaming | 79.9 | % | 79.5 | % | 80.5 | % | 79.9 | % | |||
| Food and beverage | 5.8 | % | 5.9 | % | 5.9 | % | 6.0 | % | |||
| Hotel | 4.2 | % | 4.0 | % | 4.2 | % | 4.0 | % | |||
| Retail, entertainment and other | 10.1 | % | 10.6 | % | 9.4 | % | 10.1 | % | |||
| Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||
Promotional Allowances
The retail value of providing promotional allowances was included in gross revenues as follows (in thousands):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | 2015 | 2014 | Variance | Percentage Variance | ||||||||||||||||||||||
| Food and beverage | $ | 6,895 | $ | 6,802 | $ | 93 | 1.4 | % | $ | 19,461 | $ | 19,387 | $ | 74 | 0.4 | % | |||||||||||||
| Hotel | 3,266 | 3,242 | 24 | 0.7 | % | 10,126 | 9,777 | 349 | 3.6 | % | |||||||||||||||||||
| Retail, entertainment and other | 9,949 | 9,876 | 73 | 0.7 | % | 26,991 | 27,959 | (968 | ) | (3.5 | )% | ||||||||||||||||||
| Total | $ | 20,110 | $ | 19,920 | $ | 190 | 1.0 | % | $ | 56,578 | $ | 57,123 | $ | (545 | ) | (1.0 | )% | ||||||||||||
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The estimated cost of providing promotional allowances was included in gaming costs and expenses as follows (in thousands):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | 2015 | 2014 | Variance | Percentage Variance | ||||||||||||||||||||||
| Food and beverage | $ | 6,362 | $ | 6,682 | $ | (320 | ) | (4.8 | )% | $ | 18,391 | $ | 19,257 | $ | (866 | ) | (4.5 | )% | |||||||||||
| Hotel | 1,421 | 1,597 | (176 | ) | (11.0 | )% | 4,447 | 5,006 | (559 | ) | (11.2 | )% | |||||||||||||||||
| Retail, entertainment and other | 8,866 | 8,408 | 458 | 5.4 | % | 24,788 | 25,252 | (464 | ) | (1.8 | )% | ||||||||||||||||||
| Total | $ | 16,649 | $ | 16,687 | $ | (38 | ) | (0.2 | )% | $ | 47,626 | $ | 49,515 | $ | (1,889 | ) | (3.8 | )% | |||||||||||
The following table presents data related to gaming operations (in thousands, except where noted):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | 2015 | 2014 | Variance | Percentage Variance | ||||||||||||||||||||||
| Slots: | |||||||||||||||||||||||||||||
| Handle | $ | 1,786,356 | $ | 1,783,186 | $ | 3,170 | 0.2 | % | $ | 5,200,649 | $ | 5,267,951 | $ | (67,302 | ) | (1.3 | )% | ||||||||||||
| Gross revenues | $ | 147,906 | $ | 143,698 | $ | 4,208 | 2.9 | % | $ | 431,188 | $ | 426,779 | $ | 4,409 | 1.0 | % | |||||||||||||
| Net revenues | $ | 142,178 | $ | 138,304 | $ | 3,874 | 2.8 | % | $ | 414,478 | $ | 411,669 | $ | 2,809 | 0.7 | % | |||||||||||||
| Free promotional slot plays (1) | $ | 14,463 | $ | 18,279 | $ | (3,816 | ) | (20.9 | )% | $ | 41,705 | $ | 49,116 | $ | (7,411 | ) | (15.1 | )% | |||||||||||
| Weighted average number of machines (in units) | 5,249 | 5,448 | (199 | ) | (3.7 | )% | 5,313 | 5,483 | (170 | ) | (3.1 | )% | |||||||||||||||||
| Hold percentage (gross) | 8.3 | % | 8.1 | % | 0.2 | % | 2.5 | % | 8.3 | % | 8.1 | % | 0.2 | % | 2.5 | % | |||||||||||||
| Win per unit per day (gross) (in dollars) | $ | 310 | $ | 290 | $ | 20 | 6.9 | % | $ | 297 | $ | 285 | $ | 12 | 4.2 | % | |||||||||||||
| Table games: | |||||||||||||||||||||||||||||
| Drop | $ | 432,156 | $ | 437,992 | $ | (5,836 | ) | (1.3 | )% | $ | 1,312,299 | $ | 1,378,655 | $ | (66,356 | ) | (4.8 | )% | |||||||||||
| Revenues | $ | 67,520 | $ | 71,384 | $ | (3,864 | ) | (5.4 | )% | $ | 210,710 | $ | 209,254 | $ | 1,456 | 0.7 | % | ||||||||||||
| Weighted average number of games (in units) | 283 | 292 | (9 | ) | (3.1 | )% | 283 | 288 | (5 | ) | (1.7 | )% | |||||||||||||||||
| Hold percentage (2) | 15.6 | % | 16.3 | % | (0.7 | )% | (4.3 | )% | 16.1 | % | 15.2 | % | 0.9 | % | 5.9 | % | |||||||||||||
| Win per unit per day (in dollars) | $ | 2,625 | $ | 2,685 | $ | (60 | ) | (2.2 | )% | $ | 2,724 | $ | 2,657 | $ | 67 | 2.5 | % | ||||||||||||
| Poker: | |||||||||||||||||||||||||||||
| Revenues | $ | 2,336 | $ | 2,262 | $ | 74 | 3.3 | % | $ | 7,504 | $ | 7,367 | $ | 137 | 1.9 | % | |||||||||||||
| Weighted average number of tables (in units) | 42 | 42 | — | — | 42 | 42 | — | — | |||||||||||||||||||||
| Revenue per unit per day (in dollars) | $ | 611 | $ | 592 | $ | 19 | 3.2 | % | $ | 654 | $ | 644 | $ | 10 | 1.6 | % | |||||||||||||
_________
| (1) | Free promotional slot plays are included in slot handle, but not reflected in slot revenues. |
| (2) | Table game hold percentage is relatively predictable over longer periods of time, but can significantly fluctuate over shorter periods. |
Gaming revenues for the three months and nine months ended June 30, 2015 compared to the same periods in the prior year were relatively flat. Gaming revenues for the three months and nine months ended June 30, 2015 reflected increased slot revenues which benefited from higher year over year hold percentages. The improvements in hold percentages were driven by the reductions in free promotional slot plays. Gaming revenues for the three months ended June 30, 2015 were negatively impacted by lower table game revenues primarily driven by lower year over year hold percentage, while gaming revenues for the nine months ended June 30, 2015 benefited from higher table game revenues due to higher year over year hold percentage.
The following table presents data related to food and beverage operations (in thousands, except where noted):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | 2015 | 2014 | Variance | Percentage Variance | ||||||||||||||||||||||
| Meals served | 743 | 767 | (24 | ) | (3.1 | )% | 2,154 | 2,210 | (56 | ) | (2.5 | )% | |||||||||||||||||
| Average price per meal served (in dollars) | $ | 15.95 | $ | 15.75 | $ | 0.20 | 1.3 | % | $ | 15.94 | $ | 16.03 | $ | (0.09 | ) | (0.6 | )% | ||||||||||||
Food and beverage revenues for the three months and nine months ended June 30, 2015 compared to the same periods in the prior year declined primarily as a result of changes in our promotional programs designed to improve profitability.
37
The following table presents data related to hotel operations (in thousands, except where noted):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | 2015 | 2014 | Variance | Percentage Variance | ||||||||||||||||||||||
| Rooms occupied | 105 | 104 | 1 | 1.0 | % | 314 | 311 | 3 | 1.0 | % | |||||||||||||||||||
| Occupancy rate | 97.8 | % | 97.8 | % | — | — | 97.8 | % | 97.0 | % | 0.8 | % | 0.8 | % | |||||||||||||||
| Average daily room rate (in dollars) | $ | 101 | $ | 97 | $ | 4 | 4.1 | % | $ | 99 | $ | 97 | $ | 2 | 2.1 | % | |||||||||||||
| Revenue per available room (in dollars) | $ | 98 | $ | 95 | $ | 3 | 3.2 | % | $ | 97 | $ | 94 | $ | 3 | 3.2 | % | |||||||||||||
Hotel revenues for the three months and nine months ended June 30, 2015 compared to the same periods in the prior year increased primarily as a result of increases in hotel occupancy by higher paying transient guests.
The following table presents data related to entertainment operations (in thousands, except where noted):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | 2015 | 2014 | Variance | Percentage Variance | ||||||||||||||||||||||
| Arena events (in events) | 31 | 29 | 2 | 6.9 | % | 85 | 78 | 7 | 9.0 | % | |||||||||||||||||||
| Arena tickets | 173 | 178 | (5 | ) | (2.8 | )% | 492 | 484 | 8 | 1.7 | % | ||||||||||||||||||
| Average price per arena ticket (in dollars) | $ | 58.68 | $ | 55.28 | $ | 3.40 | 6.2 | % | $ | 53.61 | $ | 57.08 | $ | (3.47 | ) | (6.1 | )% | ||||||||||||
Retail, entertainment and other revenues for the three months and nine months ended June 30, 2015 compared to the same periods in the prior year decreased primarily due to lower gasoline revenues driven by declines in average price per gallon of gasoline sold at both our patron and employee gasoline and convenience centers. The decreases in retail, entertainment and other revenues also reflected lower entertainment revenues.
Operating Costs and Expenses
Operating costs and expenses consisted of the following (in thousands):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | 2015 | 2014 | Variance | Percentage Variance | ||||||||||||||||||||||
| Gaming | $ | 113,712 | $ | 120,236 | $ | (6,524 | ) | (5.4 | )% | $ | 341,772 | $ | 364,858 | $ | (23,086 | ) | (6.3 | )% | |||||||||||
| Food and beverage | 8,134 | 8,066 | 68 | 0.8 | % | 25,412 | 24,902 | 510 | 2.0 | % | |||||||||||||||||||
| Hotel | 3,517 | 3,809 | (292 | ) | (7.7 | )% | 10,248 | 11,435 | (1,187 | ) | (10.4 | )% | |||||||||||||||||
| Retail, entertainment and other | 11,899 | 12,484 | (585 | ) | (4.7 | )% | 32,904 | 35,582 | (2,678 | ) | (7.5 | )% | |||||||||||||||||
| Advertising, general and administrative | 39,138 | 40,525 | (1,387 | ) | (3.4 | )% | 118,825 | 120,011 | (1,186 | ) | (1.0 | )% | |||||||||||||||||
| Depreciation and amortization | 15,857 | 16,722 | (865 | ) | (5.2 | )% | 48,823 | 50,043 | (1,220 | ) | (2.4 | )% | |||||||||||||||||
| (Gain) loss on disposition of assets | 26 | (64 | ) | 90 | N.M. | 843 | (13 | ) | 856 | N.M. | |||||||||||||||||||
| Severance | — | — | — | — | 3,244 | — | 3,244 | 100.0 | % | ||||||||||||||||||||
| Impairment of Project Horizon | — | — | — | — | 2,502 | — | 2,502 | 100.0 | % | ||||||||||||||||||||
| Relinquishment liability reassessment | — | — | — | — | (243 | ) | — | (243 | ) | (100.0 | )% | ||||||||||||||||||
| Total | $ | 192,283 | $ | 201,778 | $ | (9,495 | ) | (4.7 | )% | $ | 584,330 | $ | 606,818 | $ | (22,488 | ) | (3.7 | )% | |||||||||||
_________
N.M. - Not meaningful.
Gaming costs and expenses for the three months and nine months ended June 30, 2015 compared to the same periods in the prior year declined primarily as a result of various strategic operational and marketing and promotional changes designed to enhance operating efficiency and improve profitability. These initiatives resulted in lower payroll costs and reduced casino marketing and promotional expenses. The reductions in gaming costs and expenses also resulted from lower costs related to coupon redemptions at third-party outlets. Expenses associated with the combined slot win and free promotional slot play contributions totaled $37.0 million and $107.8 million for the three months and nine months ended June 30, 2015, respectively, and $36.6 million and $107.6 million for the three months and nine months ended June 30, 2014, respectively. Gaming costs and expenses as a percentage of gaming revenues were 53.3% and 53.8% for the three months and nine months ended June 30, 2015, respectively, and 56.3% and 57.7% for the three months and nine months ended June 30, 2014, respectively.
38
Food and beverage costs and expenses for the three months and nine months ended June 30, 2015 compared to the same periods in the prior year increased primarily due to reduced costs of food and beverage complimentaries, resulting in lower amounts of food and beverage costs being allocated to gaming costs and expenses. These results were partially offset by lower payroll costs.
Hotel costs and expenses for the three months and nine months ended June 30, 2015 compared to the same periods in the prior year declined primarily as a result of lower payroll costs, partially offset by reduced costs of hotel complimentaries, resulting in lower amounts of hotel costs being allocated to gaming costs and expenses.
Retail, entertainment and other costs and expenses for the three months and nine months ended June 30, 2015 compared to the same periods in the prior year decreased primarily due to lower gasoline cost of goods sold commensurate with the declines in gasoline revenues. The decline in retail, entertainment and other costs and expenses for the nine months ended June 30, 2015 also reflected lower direct entertainment costs.
Advertising, general and administrative costs and expenses for the three months and nine months ended June 30, 2015 compared to the same periods in the prior year declined primarily as a result of lower utility costs, combined with our overall focus on managing expenses, including expenditures associated with services provided by third-party providers. The reduction in advertising, general and administrative costs and expenses for the nine months ended June 30, 2015 was partially offset by higher payroll costs.
Severance for the nine months ended June 30, 2015 reflected charges related to a February 2015 workforce reduction to better align certain staffing levels with current business volumes. The costs associated with related post-employment severance benefits were expensed at the time the termination was communicated to the employees. We do not anticipate incurring any additional severance charges in connection with this workforce reduction, other than charges that may arise from adjustments to the initial estimates utilized under the plan. Cash payments commenced in March 2015 and are anticipated to be completed in November 2015.
Impairment of Project Horizon for the nine months ended June 30, 2015 resulted from a further re-evaluation of the planned third-party developed and owned retail center element of the project, including master planning costs, following an agreement with a wholly-owned instrumentality of the Tribe to develop the planned third-party hotel element of the project. Based on our re-evaluation, we determined that these elements of the project were no longer feasible at this time, and, accordingly, the related $2.5 million in assets did not have any future benefit resulting in the impairment charge. There are no remaining assets related to the suspended elements of Project Horizon.
Mohegan Sun Pocono
Revenues
Revenues consisted of the following (in thousands):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | 2015 | 2014 | Variance | Percentage Variance | ||||||||||||||||||||||
| Gaming | $ | 71,514 | $ | 71,201 | $ | 313 | 0.4 | % | $ | 201,686 | $ | 205,350 | $ | (3,664 | ) | (1.8 | )% | ||||||||||||
| Food and beverage | 7,368 | 7,474 | (106 | ) | (1.4 | )% | 20,672 | 21,376 | (704 | ) | (3.3 | )% | |||||||||||||||||
| Hotel (1) | 1,478 | 1,305 | 173 | 13.3 | % | 4,058 | 2,893 | 1,165 | 40.3 | % | |||||||||||||||||||
| Retail, entertainment and other | 2,662 | 2,708 | (46 | ) | (1.7 | )% | 6,922 | 6,596 | 326 | 4.9 | % | ||||||||||||||||||
| Gross revenues | 83,022 | 82,688 | 334 | 0.4 | % | 233,338 | 236,215 | (2,877 | ) | (1.2 | )% | ||||||||||||||||||
| Less-Promotional allowances | 5,090 | 5,494 | (404 | ) | (7.4 | )% | 14,882 | 15,352 | (470 | ) | (3.1 | )% | |||||||||||||||||
| Net revenues | $ | 77,932 | $ | 77,194 | $ | 738 | 1.0 | % | $ | 218,456 | $ | 220,863 | $ | (2,407 | ) | (1.1 | )% | ||||||||||||
___________
| (1) | Hotel operations commenced on November 15, 2013. |
The following table summarizes the percentage of gross revenues from each of the four revenue sources:
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||
| Gaming | 86.1 | % | 86.1 | % | 86.4 | % | 86.9 | % | |||
| Food and beverage | 8.9 | % | 9.0 | % | 8.9 | % | 9.1 | % | |||
| Hotel | 1.8 | % | 1.6 | % | 1.7 | % | 1.2 | % | |||
| Retail, entertainment and other | 3.2 | % | 3.3 | % | 3.0 | % | 2.8 | % | |||
| Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||
39
Promotional Allowances
The retail value of providing promotional allowances was included in gross revenues as follows (in thousands):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | 2015 | 2014 | Variance | Percentage Variance | ||||||||||||||||||||||
| Food and beverage | $ | 4,109 | $ | 4,333 | $ | (224 | ) | (5.2 | )% | $ | 11,890 | $ | 12,847 | $ | (957 | ) | (7.4 | )% | |||||||||||
| Hotel | 419 | 441 | (22 | ) | (5.0 | )% | 1,290 | 983 | 307 | 31.2 | % | ||||||||||||||||||
| Retail, entertainment and other | 562 | 720 | (158 | ) | (21.9 | )% | 1,702 | 1,522 | 180 | 11.8 | % | ||||||||||||||||||
| Total | $ | 5,090 | $ | 5,494 | $ | (404 | ) | (7.4 | )% | $ | 14,882 | $ | 15,352 | $ | (470 | ) | (3.1 | )% | |||||||||||
The estimated cost of providing promotional allowances was included in gaming costs and expenses as follows (in thousands):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | 2015 | 2014 | Variance | Percentage Variance | ||||||||||||||||||||||
| Food and beverage | $ | 2,746 | $ | 3,038 | $ | (292 | ) | (9.6 | )% | $ | 8,016 | $ | 8,969 | $ | (953 | ) | (10.6 | )% | |||||||||||
| Hotel | 570 | 682 | (112 | ) | (16.4 | )% | 1,925 | 1,633 | 292 | 17.9 | % | ||||||||||||||||||
| Retail, entertainment and other | 599 | 676 | (77 | ) | (11.4 | )% | 1,752 | 1,504 | 248 | 16.5 | % | ||||||||||||||||||
| Total | $ | 3,915 | $ | 4,396 | $ | (481 | ) | (10.9 | )% | $ | 11,693 | $ | 12,106 | $ | (413 | ) | (3.4 | )% | |||||||||||
The following table presents data related to gaming operations (in thousands, except where noted):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | 2015 | 2014 | Variance | Percentage Variance | ||||||||||||||||||||||
| Slots: | |||||||||||||||||||||||||||||
| Handle | $ | 673,523 | $ | 693,303 | $ | (19,780 | ) | (2.9 | )% | $ | 1,910,296 | $ | 1,975,300 | $ | (65,004 | ) | (3.3 | )% | |||||||||||
| Gross revenues | $ | 55,781 | $ | 56,235 | $ | (454 | ) | (0.8 | )% | $ | 158,058 | $ | 163,905 | $ | (5,847 | ) | (3.6 | )% | |||||||||||
| Net revenues | $ | 55,728 | $ | 56,237 | $ | (509 | ) | (0.9 | )% | $ | 157,696 | $ | 163,862 | $ | (6,166 | ) | (3.8 | )% | |||||||||||
| Free promotional slot plays (1) | $ | 11,909 | $ | 13,502 | $ | (1,593 | ) | (11.8 | )% | $ | 33,801 | $ | 36,664 | $ | (2,863 | ) | (7.8 | )% | |||||||||||
| Weighted average number of machines (in units) | 2,330 | 2,330 | — | — | 2,331 | 2,331 | — | — | |||||||||||||||||||||
| Hold percentage (gross) | 8.3 | % | 8.1 | % | 0.2 | % | 2.5 | % | 8.3 | % | 8.3 | % | — | — | |||||||||||||||
| Win per unit per day (gross) (in dollars) | $ | 263 | $ | 265 | $ | (2 | ) | (0.8 | )% | $ | 248 | $ | 258 | $ | (10 | ) | (3.9 | )% | |||||||||||
| Table games: | |||||||||||||||||||||||||||||
| Drop | $ | 56,668 | $ | 55,751 | $ | 917 | 1.6 | % | $ | 172,078 | $ | 154,968 | $ | 17,110 | 11.0 | % | |||||||||||||
| Revenues | $ | 11,758 | $ | 10,514 | $ | 1,244 | 11.8 | % | $ | 34,503 | $ | 30,328 | $ | 4,175 | 13.8 | % | |||||||||||||
| Weighted average number of games (in units) | 73 | 69 | 4 | 5.8 | % | 73 | 67 | 6 | 9.0 | % | |||||||||||||||||||
| Hold percentage (2) | 20.7 | % | 18.9 | % | 1.8 | % | 9.5 | % | 20.1 | % | 19.6 | % | 0.5 | % | 2.6 | % | |||||||||||||
| Win per unit per day (in dollars) | $ | 1,768 | $ | 1,675 | $ | 93 | 5.6 | % | $ | 1,738 | $ | 1,655 | $ | 83 | 5.0 | % | |||||||||||||
| Poker: | |||||||||||||||||||||||||||||
| Revenues | $ | 738 | $ | 870 | $ | (132 | ) | (15.2 | )% | $ | 2,329 | $ | 2,636 | $ | (307 | ) | (11.6 | )% | |||||||||||
| Weighted average number of tables (in units) | 18 | 18 | — | — | 18 | 18 | — | — | |||||||||||||||||||||
| Revenue per unit per day (in dollars) | $ | 451 | $ | 531 | $ | (80 | ) | (15.1 | )% | $ | 474 | $ | 536 | $ | (62 | ) | (11.6 | )% | |||||||||||
_________
| (1) | Free promotional slot plays are included in slot handle, but not reflected in slot revenues. |
| (2) | Table games hold percentage is relatively predictable over longer periods of time, but can significantly fluctuate over shorter periods. |
Gaming revenues for the three months ended June 30, 2015 compared to the same period in the prior year were relatively flat primarily reflecting increased table game revenues, partially offset by lower slot revenues. Gaming revenues for the nine months ended June 30, 2015 compared to the same period in the prior year declined primarily due to lower slot revenues, partially offset by increased table game revenue. We believe slot revenues continued to be pressured by a sluggish regional economic environment. Table game revenues benefited from higher year over year hold percentages and increased volumes driven by the addition of our hotel and convention center.
40
The following table presents data related to food and beverage operations (in thousands, except where noted):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | 2015 | 2014 | Variance | Percentage Variance | ||||||||||||||||||||||
| Meals served | 192 | 207 | (15 | ) | (7.2 | )% | 509 | 573 | (64 | ) | (11.2 | )% | |||||||||||||||||
| Average price per meal served (in dollars) | $ | 17.27 | $ | 16.54 | $ | 0.73 | 4.4 | % | $ | 18.13 | $ | 17.19 | $ | 0.94 | 5.5 | % | |||||||||||||
Food and beverage revenues for the three months and nine months ended June 30, 2015 compared to the same periods in the prior year decreased primarily as a result of the reductions in meals served due, in part, to changes in our promotional programs designed to improve profitability.
The following table presents data related to hotel operations (in thousands, except where noted):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | 2015 | 2014 | Variance | Percentage Variance | ||||||||||||||||||||||
| Rooms occupied | 21 | 20 | 1 | 5.0 | % | 61 | 47 | 14 | 29.8 | % | |||||||||||||||||||
| Occupancy rate | 96.1 | % | 94.9 | % | 1.2 | % | 1.3 | % | 94.0 | % | 90.4 | % | 3.6 | % | 4.0 | % | |||||||||||||
| Average daily room rate (in dollars) | $ | 66 | $ | 62 | $ | 4 | 6.5 | % | $ | 62 | $ | 59 | $ | 3 | 5.1 | % | |||||||||||||
| Revenue per available room (in dollars) | $ | 63 | $ | 58 | $ | 5 | 8.6 | % | $ | 58 | $ | 53 | $ | 5 | 9.4 | % | |||||||||||||
Hotel revenues for the three months ended June 30, 2015 compared to the same period in the prior year increased primarily due to the continued ramp-up of our hotel operations. Hotel revenues for the nine months ended June 30, 2015 compared to the same period in the prior year increased primarily as a result of a full period of hotel operations.
Retail, entertainment and other revenues for the three months ended June 30, 2015 compared to the same period in the prior year were relatively flat. Retail, entertainment and other revenues for the nine months ended June 30, 2015 compared to the same period in the prior year increased primarily due to higher retail revenues resulting from changes in our promotional programs.
Operating Costs and Expenses
Operating costs and expenses consisted of the following (in thousands):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | 2015 | 2014 | Variance | Percentage Variance | ||||||||||||||||||||||
| Gaming | $ | 50,517 | $ | 51,297 | $ | (780 | ) | (1.5 | )% | $ | 144,222 | $ | 148,716 | $ | (4,494 | ) | (3.0 | )% | |||||||||||
| Food and beverage | 2,189 | 2,293 | (104 | ) | (4.5 | )% | 5,951 | 6,305 | (354 | ) | (5.6 | )% | |||||||||||||||||
| Hotel (1) | 1,484 | 1,354 | 130 | 9.6 | % | 4,158 | 3,207 | 951 | 29.7 | % | |||||||||||||||||||
| Retail, entertainment and other | 548 | 834 | (286 | ) | (34.3 | )% | 1,364 | 1,864 | (500 | ) | (26.8 | )% | |||||||||||||||||
| Advertising, general and administrative | 7,384 | 8,404 | (1,020 | ) | (12.1 | )% | 22,121 | 23,729 | (1,608 | ) | (6.8 | )% | |||||||||||||||||
| Depreciation and amortization | 2,968 | 3,076 | (108 | ) | (3.5 | )% | 9,089 | 9,299 | (210 | ) | (2.3 | )% | |||||||||||||||||
| Loss on disposition of assets | — | — | — | — | 2 | 1 | 1 | 100.0 | % | ||||||||||||||||||||
| Severance | — | — | — | — | 126 | — | 126 | 100.0 | % | ||||||||||||||||||||
| Pre-opening | — | — | — | — | — | 1,187 | (1,187 | ) | (100.0 | )% | |||||||||||||||||||
| Total | $ | 65,090 | $ | 67,258 | $ | (2,168 | ) | (3.2 | )% | $ | 187,033 | $ | 194,308 | $ | (7,275 | ) | (3.7 | )% | |||||||||||
___________
| (1) | Hotel operations commenced on November 15, 2013. |
Gaming costs and expenses for the three months and nine months ended June 30, 2015 compared to the same periods in the prior year declined primarily due to lower Pennsylvania slot machine tax expenses commensurate with the reductions in slot revenues and reduced payroll costs. The decline in gaming costs and expenses for the three months ended June 30, 2015 also resulted from lower costs related to momentum dollar redemptions at Mohegan Sun Pocono-owned outlets. Expenses associated with the Pennsylvania slot machine tax totaled $31.1 million and $88.7 million for the three months and nine months ended June 30, 2015, respectively, and $31.4 million and $91.8 million for the three months and nine months ended June 30, 2014, respectively. Expenses associated with the Pennsylvania table game tax totaled $1.8 million and $5.2 million for the three months and nine months ended June 30, 2015, respectively, and $1.6 million and $4.6 million for the three months and nine months ended June 30, 2014, respectively. Gaming costs and expenses as a percentage of gaming revenues were 70.6% and 71.5% for the three months
41
and nine months ended June 30, 2015, respectively, and 72.0% and 72.4% for the three months and nine months ended June 30, 2014, respectively.
Food and beverage costs and expenses for the three months and nine months ended June 30, 2015 compared to the same periods in the prior year decreased primarily as a result of lower payroll costs and cost of goods sold commensurate with the declines in food and beverage revenues. These results were partially offset by reduced costs of food and beverage complimentaries, resulting in lower amounts of food and beverage costs being allocated to gaming costs and expenses.
Hotel costs and expenses for the three months ended June 30, 2015 compared to the same period in the prior year increased primarily due to reduced costs of hotel complimentaries, resulting in lower amounts of hotel costs being allocated to gaming costs and expenses. Hotel costs and expenses for the nine months ended June 30, 2015 compared to the same period in the prior year increased primarily as a result of a full period of hotel operations.
Retail, entertainment and other costs and expenses for the three months and nine months ended June 30, 2015 compared to the same periods in the prior year declined primarily as a result of lower entertainment costs driven by fewer shows held at the new 1,500-seat entertainment venue and non-recurring costs associated with the January 2014 grand opening festivities for the hotel. The decline in retail, entertainment and other costs and expenses for the nine months ended June 30, 2015 also reflected increased costs of retail, entertainment and other complimentaries, resulting in higher amounts of retail, entertainment and other complimentaries costs being allocated to gaming costs and expenses, partially offset by higher payroll costs and retail cost of goods sold.
Advertising, general and administrative costs and expenses for the three months and nine months ended June 30, 2015 compared to the same periods in the prior year declined primarily due to our overall focus on managing expenses resulting in reduced payroll and advertising costs.
Corporate and Other
Corporate and other consisted of the following (in thousands):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | 2015 | 2014 | Variance | Percentage Variance | ||||||||||||||||||||||
| Corporate and other: | |||||||||||||||||||||||||||||
| Gross revenues (1) | $ | 1,560 | $ | 1,575 | $ | (15 | ) | (1.0 | )% | $ | 4,704 | $ | 3,850 | $ | 854 | 22.2 | % | ||||||||||||
| Less-Promotional allowances | 20 | 26 | (6 | ) | (23.1 | )% | 50 | 70 | (20 | ) | (28.6 | ) | |||||||||||||||||
| Net revenues | $ | 1,540 | $ | 1,549 | $ | (9 | ) | (0.6 | )% | $ | 4,654 | $ | 3,780 | $ | 874 | 23.1 | % | ||||||||||||
| Expenses | $ | 7,179 | $ | 9,319 | $ | (2,140 | ) | (23.0 | )% | $ | 23,580 | $ | 29,731 | $ | (6,151 | ) | (20.7 | )% | |||||||||||
| Depreciation and amortization | 261 | 272 | (11 | ) | (4.0 | )% | 791 | 725 | 66 | 9.1 | % | ||||||||||||||||||
| Total expenses | $ | 7,440 | $ | 9,591 | $ | (2,151 | ) | (22.4 | )% | $ | 24,371 | $ | 30,456 | $ | (6,085 | ) | (20.0 | )% | |||||||||||
___________
(1) | Primarily represented inter-segment revenues which are eliminated in consolidation. |
Corporate and other expenses for the three months and nine months ended June 30, 2015 compared to the same periods in the prior year declined primarily due to reduced expenditures associated with our pursuit of a Massachusetts casino license, partially offset by additional expenditures related to our pursuit of a casino license in South Korea. The reduction in Corporate and other expenses for the nine months ended June 30, 2015 was partially offset by higher payroll costs.
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Other Income (Expense)
Other income (expense) consisted of the following (in thousands):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | 2015 | 2014 | Variance | Percentage Variance | ||||||||||||||||||||||
| Accretion of discount to the relinquishment liability (1) | $ | — | $ | (552 | ) | $ | 552 | 100.0 | % | $ | (227 | ) | $ | (1,654 | ) | $ | 1,427 | 86.3 | % | ||||||||||
| Interest income (2) | 1,906 | 1,701 | 205 | 12.1 | % | 5,554 | 4,947 | 607 | 12.3 | % | |||||||||||||||||||
| Interest expense, net of capitalized interest | (35,660 | ) | (36,426 | ) | 766 | 2.1 | % | (107,692 | ) | (111,692 | ) | 4,000 | 3.6 | % | |||||||||||||||
| Loss on early extinguishment of debt (3) | — | (2 | ) | 2 | 100.0 | % | — | (62,277 | ) | 62,277 | 100.0 | % | |||||||||||||||||
| Other income (expense), net (4) | (50 | ) | 59 | (109 | ) | N.M. | (1,260 | ) | (819 | ) | (441 | ) | (53.8 | )% | |||||||||||||||
| Total other expense | $ | (33,804 | ) | $ | (35,220 | ) | $ | 1,416 | 4.0 | % | $ | (103,625 | ) | $ | (171,495 | ) | $ | 67,870 | 39.6 | % | |||||||||
_________
| (1) | Represented accretion of the discount to the present value of the relinquishment liability for the impact of the time value of money. |
| (2) | Primarily represented interest earned on long-term receivables. |
| (3) | Primarily represented financing fees expensed in connection with our November 2013 refinancing transactions. |
| (4) | Primarily represented loss from unconsolidated affiliates. |
N.M. - Not meaningful.
Interest expense for the three months and nine months ended June 30, 2015 compared to the same periods in the prior year declined primarily as a result of lower weighted average outstanding debt. Weighted average outstanding debt was $1.72 billion and $1.74 billion for the three months and nine months ended June 30, 2015, respectively, compared to $1.78 billion and $1.76 billion for the three months and nine months ended June 30, 2014, respectively. Weighted average interest rate was 8.3% for each of the three months and nine months ended June 30, 2015, respectively, compared to 8.2% and 8.5% for the three months and nine months ended June 30, 2014, respectively.
Seasonality
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, our operating results for the three months and nine months ended June 30, 2015 are not necessarily indicative of operating results for other interim periods or an entire fiscal year.
Liquidity and Capital Resources
Our cash flows consisted of the following (in thousands):
| For the Nine Months Ended June 30, | ||||||||||||||
| 2015 | 2014 | Variance | Percentage Variance | |||||||||||
| Net cash provided by operating activities | $ | 144,483 | $ | 48,323 | $ | 96,160 | 199.0 | % | ||||||
| Net cash used in investing activities | (13,870 | ) | (15,461 | ) | 1,591 | 10.3 | % | |||||||
| Net cash used in financing activities | (109,561 | ) | (24,828 | ) | (84,733 | ) | (341.3 | )% | ||||||
| Net increase in cash and cash equivalents | $ | 21,052 | $ | 8,034 | $ | 13,018 | 162.0 | % | ||||||
As of June 30, 2015 and September 30, 2014, we held cash and cash equivalents of $70.2 million and $49.1 million, respectively. As a result of the cash-based nature of our business, operating cash flow levels tend to follow trends in our operating income, excluding the effects of non-cash charges, such as depreciation and amortization, accretion of discounts, relinquishment liability reassessments and gains and losses on early extinguishment of debt.
The increase in cash provided by operating activities for the nine months ended June 30, 2015 compared to the same period in the prior year resulted from increased net income and lower working capital requirements. Cash provided by operating activities for the nine months ended June 30, 2014 were negatively impacted by approximately $52.0 million as a result of our November 2013 refinancing transactions, including payments of tender and consent fees.
Operating activities are a significant source of our cash flows. We utilize cash flows from operations for scheduled interest payments, relinquishment payments, planned capital expenditures, distributions to the Tribe, projected working capital needs and
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debt reduction, as well as to make investments, from time to time. There are numerous factors which may cause a substantial reduction in the amount of such cash flows, including, but not limited to, the following:
| • | reduced discretionary spending by patrons on activities such as gaming, leisure and hospitality; |
| • | increased competition, including the legalization or expansion of gaming in New England, New York, New Jersey, Pennsylvania or other states in the mid-Atlantic region, or the expansion of on-line gaming in the United States; |
| • | unfavorable weather conditions; |
| • | changes in applicable laws or policies regarding smoking or alcohol service at Mohegan Sun or Mohegan Sun Pocono; |
| • | an infrastructure or transportation disruption, such as the closure of a major highway near Mohegan Sun or Mohegan Sun Pocono, for an extended period of time; and |
| • | an act of terrorism on the United States. |
The decrease in cash used in investing activities for the nine months ended June 30, 2015 compared to the same period in the prior year was primarily due to lower capital expenditures after factoring in related restricted cash. The increase in cash used in financing activities for the nine months ended June 30, 2015 compared to the same period in the prior year was driven by debt repayments.
External Sources of Liquidity
Senior Secured Credit Facilities
In November 2013, we entered into a loan agreement among us, 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, or the senior secured credit facilities, comprised of a $100.0 million senior secured revolving credit facility, or the revolving facility, a $125.0 million senior secured term loan A facility, or the term loan A facility, and a $730.0 million senior secured term loan B facility, or 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 (in the case of the term loan B facility).
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 June 30, 2015, amounts outstanding under the revolving facility, term loan A facility and term loan B facility totaled $8.0 million, $114.1 million and $719.1 million, respectively. As of June 30, 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, and after taking into account restrictive financial covenant requirements, we had approximately $89.0 million of borrowing capacity under the revolving facility and line of credit as of June 30, 2015.
Borrowings under the senior secured credit facilities incur interest as follows: (i) for base rate loans under the revolving facility and term loan A facility, 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, 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, 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, the applicable LIBOR rate (subject to a 1.0% floor) plus 450 basis points. We also are 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 June 30, 2015, the $8.0 million outstanding under the revolving facility was comprised of a $3.0 million base rate loan based on a base rate of 3.25% plus 325 basis points and $5.0 million in Eurodollar rate loans based on a Eurodollar rate of 0.19% plus 425 basis points. The commitment fee was 0.50% as of June 30, 2015. As of June 30, 2015, the $114.1 million outstanding under the term loan A facility was based on a Eurodollar rate of 0.28% plus 425 basis points. As of June 30, 2015, the $719.1 million outstanding under the term loan B facility was based on the Eurodollar rate floor of 1.0% plus 450 basis points.
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Our 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, or collectively, the guarantors. The senior secured credit facilities are collateralized by a first priority lien on substantially all of our 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 (we and the guarantors, other than MBC, are collectively referred to herein as the grantors). The grantors also are 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 us and our 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.
Maximum total leverage ratio covenant, or ratio of total debt to annualized EBITDA, as such terms are defined under the senior secured credit facilities:
| Fiscal Quarters Ending: | |
| June 30, 2015 | 6.25:1.00 |
| September 30, 2015 and thereafter | 6.00:1.00 |
Maximum secured leverage ratio covenant, or ratio of secured debt to annualized EBITDA, as such terms are defined under the senior secured credit facilities:
| Fiscal Quarters Ending: | |
| June 30, 2015 | 3.50:1.00 |
| September 30, 2015 through June 30, 2016 | 3.25:1.00 |
| September 30, 2016 and thereafter | 3.00:1.00 |
Minimum fixed charge coverage ratio covenant, as defined under the senior secured credit facilities:
| Fiscal Quarters Ending: | |
| June 30, 2015 and thereafter | 1.05:1.00 |
As of June 30, 2015, we and the Tribe were in compliance with all respective covenant requirements under the senior secured credit facilities.
We continue to monitor revenues and manage expenses and enhance operating efficiencies to ensure continued compliance with our financial covenant requirements under the senior secured credit facilities. While we anticipate that we will remain in compliance with all covenant requirements under the senior secured credit facilities for all periods prior to maturity, we may need to increase revenues or offset any future declines in revenues by implementing additional cost saving and other initiatives to ensure compliance with these financial covenant requirements. If we are unable to satisfy our financial covenant requirements, we would need to obtain waivers or consents under the senior secured credit facilities; however, we can provide no assurance that we would be able to obtain such waivers or consents. If we are unable to obtain such waivers or consents, we would be in default under the senior secured credit facilities, which may result in cross-defaults under our other outstanding indebtedness and allow our lenders and creditors to exercise their rights and remedies as defined under their respective agreements, including their right to accelerate the repayment of our outstanding indebtedness. If such acceleration were to occur, we can provide no assurance that we 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, we issued $500.0 million senior unsecured notes with fixed interest payable at a rate of 9.75% per annum, or the 2013 senior unsecured notes. The 2013 senior unsecured notes mature on September 1, 2021. We 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 to the date of redemption. On or after September 1, 2016, we may redeem the 2013 senior unsecured notes, in whole or in part, at specified redemption prices, together with accrued interest to the date of redemption. If we experience specific kinds of change of control triggering events, we must offer to repurchase the 2013 senior unsecured notes at a price equal to 101% of the principal amount thereof, plus accrued interest to the purchase date. In addition, if we undertake certain types of asset sales and do not use the related sale proceeds for specified purposes, we 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. Interest
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on the 2013 senior unsecured notes is payable semi-annually on March 1st and September 1st. On March 11, 2014, we completed an offer to exchange the 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.
The 2013 senior unsecured notes are uncollateralized general obligations and are effectively subordinated to all of our 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 also are effectively subordinated to any indebtedness and other liabilities (including trade payables) of our subsidiaries that do not guarantee the 2013 senior unsecured notes. The 2013 senior unsecured notes rank equally in right of payment with our 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, our 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 and sell assets. The 2013 senior unsecured notes indenture 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 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.
Senior Subordinated Notes
2005 6 7/8% Senior Subordinated Notes
In February 2005, we issued $150.0 million senior subordinated notes with fixed interest payable at a rate of 6.875% per annum, or the 2005 senior subordinated notes. In March 2012, we completed a private exchange offer and consent solicitation for any or all of our outstanding 2005 senior subordinated notes. As part of the exchange offer, we solicited and received consents from tendering holders to certain amendments to the indentures governing the 2005 senior subordinated notes, which eliminated certain covenants under the notes and related indenture. The aggregate principal amount of 2005 senior subordinated notes tendered and exchanged was $140.3 million. Subsequent to our March 2012 private exchange offer, $9.7 million of the 2005 senior subordinated notes remained outstanding, which amount, including accrued interest, was repaid at maturity on February 15, 2015 with cash on hand and drawings under the revolving facility.
2012 11% Senior Subordinated Notes
In March 2012, we issued $344.2 million senior subordinated toggle notes with fixed interest payable at a rate of 11% per annum, or the 2012 senior subordinated notes, in exchange for $203.8 million of our 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. We 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 occurs, we 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 we undertake certain types of asset sales or suffer events of loss, and we do not use the related sale or insurance proceeds for specified purposes, we 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, we may, at our 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, or PIK interest. If we elect 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, we repurchased an aggregate principal amount of $69.0 million 2012 senior subordinated notes. An aggregate principal amount of $275.2 million 2012 senior subordinated notes remains outstanding as of June 30, 2015.
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.
Our senior subordinated notes are uncollateralized general obligations and are subordinated to borrowings under the senior secured credit facilities and 2013 senior unsecured notes. The senior subordinated notes are fully and unconditionally guaranteed, jointly and severally, by the guarantors.
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The senior and senior subordinated note indentures contain certain non-financial and financial covenant requirements with which we 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 our continued existence. The financial covenant requirements include, among other things, subject to certain exceptions, limitations on our 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 June 30, 2015, we and the Tribe were in compliance with all respective covenant requirements under the senior and senior subordinated note indentures.
We or our 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 our liquidity and covenant requirement restrictions, among other factors.
Line of Credit
In November 2013, we entered into a $16.5 million revolving credit facility with Bank of America, N.A., or 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 margin based on our total leverage ratio, as each term is defined under the line of credit. As of June 30, 2015, no amount was drawn on the line of credit. Borrowings under the line of credit are uncollateralized obligations. 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 June 30, 2015, we were in compliance with all covenant requirements under the line of credit.
2009 Mohegan Tribe Promissory Note
In September 2009, the Tribe made a $10.0 million loan to Salishan-Mohegan, LLC, or Salishan-Mohegan, referred to herein as the 2009 Mohegan Tribe promissory note. The 2009 Mohegan Tribe promissory note was amended in June 2014 to extend the maturity date to September 30, 2015. The 2009 Mohegan Tribe promissory note accrues interest at an annual rate of 10.0%. As amended, accrued interest is payable as follows: (i) $1.2 million per quarter, commencing December 31, 2013 through March 31, 2014 and (ii) $1.3 million on June 30, 2015, with the balance of accrued and unpaid interest due at maturity. As amended, principal outstanding under the 2009 Mohegan Tribe promissory note amortizes as follows: (i) $1.625 million per quarter, commencing December 31, 2012 through September 30, 2013, (ii) $875,000 per quarter, commencing December 31, 2013 through March 31, 2014, (iii) $875,000 on June 30, 2015 and (iv) $875,000 at maturity.
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, referred to herein as 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 accrues interest at an annual rate of 10.0%. As amended, accrued interest is 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. As amended, principal outstanding under the 2012 Mohegan Tribe Minor's Trust promissory note amortizes 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.
2013 Mohegan Tribe Promissory Note
In March 2013, Mohegan Gaming & Hospitality, LLC, or MG&H, purchased and acquired all of the Tribe's membership interest in MG&H in exchange for a promissory note in the principal amount of $7.4 million, or 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.
Downs Lodging Credit Facility
In July 2012, Downs Lodging, a single purpose entity and wholly-owned unrestricted subsidiary, entered into a credit agreement providing for a $45.0 million term loan from a third-party lender, or 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
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expansion project at Mohegan Sun Pocono. The Downs Lodging credit facility matures on July 12, 2016 and accrues interest at an annual rate of 13.0%. Under the terms of the Downs Lodging credit facility, accrued interest of 10.0% is payable monthly in cash during the term of the loan, with the remaining 3.0% due at maturity. In addition, a 3.0% exit fee is payable upon repayment of the loan principal. The Downs Lodging credit facility is a senior secured obligation of Downs Lodging, collateralized by all existing and future assets of Downs Lodging. The Downs Lodging credit facility subjects Downs Lodging to certain covenant requirements customarily found in loan agreements for similar transactions. As of June 30, 2015, Downs Lodging was in compliance with all covenant requirements under the Downs Lodging credit facility.
Capital Expenditures
The following table presents data related to capital expenditures (in millions):
| Capital Expenditures | |||||||||||
| Nine Months Ended | Remaining Forecasted | Total Forecasted | |||||||||
| June 30, 2015 | Fiscal Year 2015 | Fiscal Year 2015 | |||||||||
| Mohegan Sun: | |||||||||||
| Maintenance | $ | 6.6 | $ | 23.4 | $ | 30.0 | |||||
| Development | 0.3 | — | 0.3 | ||||||||
| Subtotal | 6.9 | 23.4 | 30.3 | ||||||||
| Mohegan Sun Pocono: | |||||||||||
| Maintenance | 1.8 | 3.2 | 5.0 | ||||||||
| Development | 0.2 | — | 0.2 | ||||||||
| Subtotal | 2.0 | 3.2 | 5.2 | ||||||||
| Corporate: | |||||||||||
| Expansion - Project Sunlight | 0.1 | — | 0.1 | ||||||||
| Subtotal | 0.1 | — | 0.1 | ||||||||
| Total | $ | 9.0 | $ | 26.6 | $ | 35.6 | |||||
We primarily rely on cash flows provided by operating activities to fund maintenance capital expenditures at Mohegan Sun and Mohegan Sun Pocono. We plan to fund any development or expansion capital expenditures at Mohegan Sun and Mohegan Sun Pocono through a combination of existing cash, cash flows provided by operating activities and draws under our revolving facility.
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Interest Expense
The following table presents our interest expense (in thousands, net of capitalized interest):
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | ||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||
| Prior bank credit facility | $ | — | $ | — | $ | — | $ | 3,199 | |||||||
| Prior term loan facility (1) | — | — | — | 2,924 | |||||||||||
| Senior secured credit facility - revolving | 451 | 507 | 1,591 | 976 | |||||||||||
| Senior secured credit facility - term loan A (1) | 1,369 | 1,464 | 4,288 | 3,591 | |||||||||||
| Senior secured credit facility - term loan B (1) | 10,547 | 10,625 | 31,699 | 26,183 | |||||||||||
| 2009 11 1/2% second lien senior secured notes (1) | — | — | — | 5 | |||||||||||
| 2012 11 1/2% second lien senior secured notes (1) | — | — | — | 3,285 | |||||||||||
| 2013 9 3/4% senior unsecured notes | 12,188 | 12,188 | 36,563 | 36,563 | |||||||||||
| 2004 7 1/8% senior subordinated notes | — | 377 | — | 1,131 | |||||||||||
| 2005 6 7/8% senior subordinated notes | — | 166 | 249 | 498 | |||||||||||
| 2012 11% senior subordinated notes (1) | 7,756 | 7,736 | 23,252 | 23,193 | |||||||||||
| Line of credit | 50 | 60 | 174 | 170 | |||||||||||
| 2009 Mohegan Tribe promissory note | 44 | 44 | 131 | 196 | |||||||||||
| 2012 Mohegan Tribe Minor's Trust promissory note | 411 | 424 | 1,234 | 1,309 | |||||||||||
| 2013 Mohegan Tribe promissory note | 73 | 73 | 221 | 221 | |||||||||||
| Downs Lodging credit facility | 1,557 | 1,557 | 4,671 | 4,808 | |||||||||||
| Capital leases | 25 | 50 | 83 | 184 | |||||||||||
| Amortization of debt issuance costs | 1,189 | 1,155 | 3,536 | 3,991 | |||||||||||
| Capitalized interest | — | — | — | (735 | ) | ||||||||||
| Total interest expense, net of capitalized interest | $ | 35,660 | $ | 36,426 | $ | 107,692 | $ | 111,692 | |||||||
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(1) | Includes accretion of discount. |
Contractual Obligations
Effective March 5, 2015, we entered into a sublease agreement with the Mohegan Tribal Finance Authority, a wholly-owned instrumentality of the Tribe, to sublease an approximately 1.2-acre site upon which will be built an approximately 400-room hotel and related improvements for a term of 28 years and 4 months, commencing upon the completion of the project. Rental payments under the sublease also will commence upon the completion of the project, which is anticipated to occur in the fall of 2016. We classified the sublease as an operating lease for financial reporting purposes. Minimum future rental expense that we expect to incur under the sublease agreement is as follows (in thousands):
| Fiscal Years Ending September 30, | |||||||||||||||||||||||||||
| 2015 | 2016 | 2017 | 2018 | 2019 | Thereafter | Total | |||||||||||||||||||||
| Minimum future rental expense | $ | — | $ | — | $ | 6,327 | $ | 6,908 | $ | 7,011 | $ | 224,682 | $ | 244,928 | |||||||||||||
There has been no material change to the other contractual obligations previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2014.
Sufficiency of Resources
We believe that existing cash balances, financing arrangements and operating cash flows will provide us with sufficient resources to meet our existing debt obligations, foreseeable capital expenditure requirements and distributions to the Tribe for at least the next twelve months; however, we can provide no assurance in this regard. Please refer to “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2014 for further details regarding risks relating to our sufficiency of resources. Inclusive of letters of credit, which reduce borrowing availability under the revolving facility, and after taking into account restrictive financial covenant requirements, we had approximately $89.0 million of borrowing capacity under the revolving facility and line of credit as of June 30, 2015. Distributions to the Tribe are anticipated to total approximately $50 million for fiscal 2015.
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Critical Accounting Policies and Estimates
There has been no material change from the critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2014.
Impact of Inflation
Absent changes in competitive and economic conditions or in specific prices affecting the hospitality and gaming industry, we do not expect that inflation will have a significant impact on our operations. Changes in specific prices, such as fuel and transportation prices, relative to the general rate of inflation may have a material adverse effect on the hospitality and gaming industry in general.
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| Item 3. | Quantitative and Qualitative Disclosures about Market Risk. |
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. As of June 30, 2015, our primary exposure to market risk was interest rate risk associated with our senior secured credit facilities which accrued interest on the basis of a base rate formula or a Eurodollar rate formula, plus applicable rates, as defined under the respective facility.
We attempt to manage our interest rate risk through a controlled combination of long-term fixed rate borrowings and variable rate borrowings in accordance with established policies and procedures. We do not hold or issue financial instruments for speculative or trading purposes.
The following table presents information about our debt obligations as of June 30, 2015 that were sensitive to changes in interest rates. The table presents principal payments and related weighted average interest rates by expected maturity dates. Weighted average variable interest rates were based on implied forward rates in respective yield curves, which should not be considered to be precise indicators of actual future interest rates. Fair values for our debt obligations were based on quoted market prices or prices of similar instruments as of June 30, 2015.
| Expected Maturity Date | Total | Fair Value | |||||||||||||||||||||||||||||
| 2015 | 2016 | 2017 | 2018 | 2019 | Thereafter | ||||||||||||||||||||||||||
| Liabilities (in thousands) | |||||||||||||||||||||||||||||||
| Long-term debt and capital lease obligations (including current portions): | |||||||||||||||||||||||||||||||
| Fixed rate | $ | 1,714 | $ | 52,944 | $ | 11,267 | $ | 276,265 | $ | 7,831 | $ | 501,007 | $ | 851,028 | $ | 880,811 | |||||||||||||||
| Average interest rate | 8.5 | % | 12.3 | % | 9.2 | % | 11.0 | % | 3.8 | % | 9.7 | % | 10.2 | % | |||||||||||||||||
| Variable rate | $ | 4,168 | $ | 19,019 | $ | 19,800 | $ | 798,125 | — | — | $ | 841,112 | $ | 835,530 | |||||||||||||||||
| Average interest rate (1) | 5.0 | % | 5.1 | % | 5.8 | % | 6.5 | % | — | — | 5.8 | % | |||||||||||||||||||
| (1) | A 100 basis point change in average interest rate would impact annual interest expense by approximately $8.4 million. |
| Item 4. | Controls and Procedures |
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2015. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures. Management recognizes that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on an evaluation of our disclosure controls and procedures as of June 30, 2015, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended June 30, 2015, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
| Item 1. | Legal Proceedings |
We are subject to various claims and legal actions resulting from our normal course of business. Some of these matters relate to personal injuries to patrons and damages to patrons' personal assets. We estimate guest claims expense and accrue for such liabilities based upon historical experience.
| Item 1A. | Risk Factors |
There has been no material change from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2014.
| Item 6. | Exhibits |
The exhibits to this Quarterly Report on Form 10-Q are listed on the Exhibit Index, which appears elsewhere herein and is incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Mohegan Tribal Gaming Authority has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
| MOHEGAN TRIBAL GAMING AUTHORITY | |||
| Date: | August 14, 2015 | By: | /S/ KEVIN P. BROWN |
Kevin P. Brown Chairman and Member, Management Board | |||
| Date: | August 14, 2015 | By: | /S/ MITCHELL GROSSINGER ETESS |
Mitchell Grossinger Etess Chief Executive Officer, Mohegan Tribal Gaming Authority (Principal Executive Officer) | |||
| Date: | August 14, 2015 | By: | /S/ MARIO C. KONTOMERKOS |
Mario C. Kontomerkos Chief Financial Officer, Mohegan Tribal Gaming Authority (Principal Financial and Accounting Officer) | |||
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EXHIBIT INDEX
| Exhibit No. | Description | |
| 3.1 | Constitution of the Mohegan Tribe of Indians of Connecticut, as amended (filed as Exhibit 3.1 to the Authority’s Registration Statement on Form S-4, filed with the SEC on January 27, 2014 (the “2014 Form S-4”) and incorporated by reference herein). | |
| 3.2 | Ordinance No. 95-2 of the Tribe for Gaming on Tribal Lands, enacted on July 15, 1995 (filed as Exhibit 3.2 to the Authority’s Amendment No. 1 to its Registration Statement on Form S-1, filed with the SEC on February 29, 1996 and incorporated by reference herein). | |
| 3.3 | Articles of Organization of Mohegan Basketball Club, LLC, dated as of January 27, 2003 (filed as Exhibit 3.3 to the Authority’s Registration Statement on Form S-4, filed with the SEC on September 23, 2003 (the “2003 Form S-4”) and incorporated by reference herein). | |
| 3.4 | Operating Agreement of Mohegan Basketball Club, LLC, a Mohegan Tribe of Indians of Connecticut limited liability company, dated as of January 24, 2003 (filed as Exhibit 3.4 to the 2003 Form S-4 and incorporated by reference herein). | |
| 3.5 | Certificate of Organization of Mohegan Commercial Ventures PA, LLC, dated as of January 5, 2005, as amended (filed as Exhibit 3.5 to the Authority’s Registration Statement on Form S-4, filed with the SEC on June 7, 2005 (the “2005 Form S-4”) and incorporated by reference herein). | |
| 3.6 | Operating Agreement of Mohegan Commercial Ventures PA, LLC, a Commonwealth of Pennsylvania limited liability company, dated as of December 15, 2004 (filed as Exhibit 3.6 to the 2005 Form S-4 and incorporated by reference herein). | |
| 3.7 | Certificate of Limited Partnership of Downs Racing, L.P., dated as of January 5, 2005, as amended (filed as Exhibit 3.7 to the 2005 Form S-4 and incorporated by reference herein). | |
| 3.8 | Amended and Restated Limited Partnership Agreement of Downs Racing, L.P., dated as of January 25, 2005 (filed as Exhibit 3.8 to the 2005 Form S-4 and incorporated by reference herein). | |
| 3.9 | Certificate of Limited Partnership of Backside, L.P., dated as of January 5, 2005, as amended (filed as Exhibit 3.9 to the 2005 Form S-4 and incorporated by reference herein). | |
| 3.10 | Amended and Restated Limited Partnership Agreement of Backside, L.P., dated as of January 25, 2005 (filed as Exhibit 3.10 to the 2005 Form S-4 and incorporated by reference herein). | |
| 3.11 | Certificate of Limited Partnership of Mill Creek Land, L.P., dated as of January 5, 2005, as amended (filed as Exhibit 3.11 to the 2005 Form S-4 and incorporated by reference herein). | |
| 3.12 | Amended and Restated Limited Partnership Agreement of Mill Creek Land, L.P., dated as of January 25, 2005 (filed as Exhibit 3.12 to the 2005 Form S-4 and incorporated by reference herein). | |
| 3.13 | Certificate of Limited Partnership of Northeast Concessions, L.P., dated as of January 5, 2005, as amended (filed as Exhibit 3.13 to the 2005 Form S-4 and incorporated by reference herein). | |
| 3.14 | Amended and Restated Limited Partnership Agreement of Northeast Concessions, L.P., dated as of January 25, 2005 (filed as Exhibit 3.14 to the 2005 Form S-4 and incorporated by reference herein). | |
| 3.15 | Articles of Organization of Mohegan Ventures-Northwest, LLC, dated as of July 23, 2004 (filed as Exhibit 3.15 to the Authority’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006, filed with the SEC on August 10, 2006 (the “June 2006 Form 10-Q”) and incorporated by reference herein). | |
| 3.16 | Operating Agreement of Mohegan Ventures-Northwest, LLC, a Mohegan Tribe of Indians of Connecticut limited liability company, dated as of July 23, 2004 (filed as Exhibit 3.16 to the June 2006 Form 10-Q and incorporated by reference herein). | |
| 3.17 | Articles of Organization of Mohegan Golf, LLC, dated as of November 20, 2006 (filed as Exhibit 3.17 to the Authority’s Annual Report on Form 10-K for the fiscal year ended September 30, 2006, filed with the SEC on December 21, 2006 (the “2006 Form 10-K”) and incorporated by reference herein). | |
| 3.18 | Certificate of Formation of Wisconsin Tribal Gaming, LLC, dated as of February 27, 2007 (filed as Exhibit 3.18 to the Authority’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007, filed with the SEC on May 15, 2007 (the “March 2007 Form 10-Q”) and incorporated by reference herein). | |
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| Exhibit No. | Description | |
| 3.19 | Articles of Organization of Mohegan Ventures Wisconsin, LLC, dated as of March 1, 2007 (filed as Exhibit 3.19 to the March 2007 Form 10-Q and incorporated by reference herein). | |
| 3.20 | Certificate of Formation of MTGA Gaming, LLC, dated as of July 27, 2007 (filed as Exhibit 3.20 to the Authority’s Annual Report on Form 10-K for the fiscal year ended September 30, 2007, filed with the SEC on December 21, 2007 (the “2007 Form 10-K”) and incorporated by reference herein). | |
| 3.21 | Articles of Amendment of Mohegan Golf, LLC, dated as of April 8, 2008 (filed as Exhibit 3.18 to the Authority’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008, filed with the SEC on May 15, 2008 and incorporated by reference herein). | |
| 3.22 | Operating Agreement of Mohegan Golf, LLC, dated as of April 8, 2008 (filed as Exhibit 3.22 to the 2014 Form S-4 and incorporated by reference herein). | |
| 3.23 | Operating Agreement of Mohegan Ventures Wisconsin, LLC, dated as of March 1, 2007 (filed as Exhibit 3.23 to the 2014 Form S-4 and incorporated by reference herein). | |
| 3.24 | Certificate of Amendment to Certificate of Formation of Wisconsin Tribal Gaming, LLC, dated as of May 20, 2009 (filed as Exhibit 3.24 to the 2014 Form S-4 and incorporated by reference herein). | |
| 3.25 | Operating Agreement of Wisconsin Tribal Gaming, LLC, dated as of March 1, 2007 (filed as Exhibit 3.25 to the 2014 Form S-4 and incorporated by reference herein). | |
| 3.26 | Certificate of Amendment to Certificate of Formation of MTGA Gaming, LLC, dated as of May 20, 2009 (filed as Exhibit 3.26 to the 2014 Form S-4 and incorporated by reference herein). | |
| 3.27 | Operating Agreement of MTGA Gaming, LLC, dated as of August 1, 2007 (filed as Exhibit 3.27 to the 2014 Form S-4 and incorporated by reference herein). | |
| 4.1 | Relinquishment Agreement, dated as of February 7, 1998, between the Mohegan Tribal Gaming Authority, The Mohegan Tribe of Indians of Connecticut and Trading Cove Associates (filed as Exhibit 10.14 to the Authority’s Form 10-K405 for the fiscal year ended September 30, 1998, filed with the SEC on December 29, 1998 and incorporated by reference herein). | |
| 4.2 | Indenture, dated as of February 8, 2005, between the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut, the Subsidiary Guarantors (as defined under the Indenture) and U.S. Bank National Association, as Trustee, relating to the 6 7/8% Senior Subordinated Notes Due 2015 (filed as Exhibit 4.28 to the Authority’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2004, filed with the SEC on February 14, 2005 (the “December 2004 Form 10-Q”) and incorporated by reference herein). | |
| 4.3 | Supplemental Indenture No. 1, dated as of August 4, 2006, between the Mohegan Tribal Gaming Authority, Mohegan Ventures-Northwest, LLC (as the Subsidiary Guarantor), the other Subsidiary Guarantors (as defined under the Indenture) and U.S. Bank National Association, as Trustee, relating to the 6 7/8% Senior Subordinated Notes Due 2015 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.23 to the June 2006 Form 10-Q and incorporated by reference herein). | |
| 4.4 | Supplemental Indenture No. 2, dated as of December 18, 2006, between the Mohegan Tribal Gaming Authority, Mohegan Golf, LLC (as the Subsidiary Guarantor), the other Subsidiary Guarantors (as defined under the Indenture) and U.S. Bank National Association, as Trustee, relating to the 6 7/8% Senior Subordinated Notes Due 2015 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.27 to the 2006 Form 10-K and incorporated by reference herein). | |
| 4.5 | Supplemental Indenture No. 3, dated as of March 28, 2007, between the Mohegan Tribal Gaming Authority, Wisconsin Tribal Gaming, LLC and Mohegan Ventures Wisconsin, LLC (each a Subsidiary Guarantor), the other Subsidiary Guarantors (as defined under the Indenture) and U.S. Bank National Association, as Trustee, relating to the 6 7/8% Senior Subordinated Notes Due 2015 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.31 to the March 2007 Form 10-Q and incorporated by reference herein). | |
| 4.6 | Supplemental Indenture No. 4, dated as of August 27, 2007, between the Mohegan Tribal Gaming Authority, MTGA Gaming, LLC (as the Subsidiary Guarantor), the other Subsidiary Guarantors (as defined under the Indenture) and U.S. Bank National Association, as Trustee, relating to the 6 7/8% Senior Subordinated Notes Due 2015 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.35 to the 2007 Form 10-K and incorporated by reference herein). | |
| 4.7 | Supplemental Indenture No. 5, dated as of March 5, 2012, between the Mohegan Tribal Gaming Authority, The Mohegan Tribe of Indians of Connecticut, the Subsidiary Guarantors (as defined under the Indenture) and U.S. Bank National Association, as Trustee, relating to the 6 7/8% Senior Subordinated Notes Due 2015 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.26 to the Authority’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012, filed with the SEC on May 14, 2012 (the “March 2012 Form 10-Q”) and incorporated by reference herein). | |
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| Exhibit No. | Description | |
| 4.8 | Form of Global 6 7/8% Senior Subordinated Notes Due 2015 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.29 to the December 2004 Form 10-Q and incorporated by reference herein). | |
| 4.9 | Indenture, dated as of March 6, 2012, between the Mohegan Tribal Gaming Authority, The Mohegan Tribe of Indians of Connecticut, the Guarantors (as defined under the Indenture) and U.S. Bank National Association, as Trustee, relating to the 11% Senior Subordinated Notes Due 2018 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.42 to the March 2012 Form 10-Q and incorporated by reference herein). | |
| 4.10 | Form of Global 11% Senior Subordinated Notes Due 2018 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.43 to the March 2012 Form 10-Q and incorporated by reference herein). | |
| 4.11 | Indenture, dated as of August 15, 2013, between the Mohegan Tribal Gaming Authority, The Mohegan Tribe of Indians of Connecticut, the Guarantors (as defined under the Indenture) and U.S. Bank National Association, as Trustee, relating to the 9 3/4% Senior Notes Due 2021 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.29 to the Authority’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013, filed with the SEC on December 27, 2013 (the “2013 Form 10-K”) and incorporated by reference herein). | |
| 4.12 | Form of Global 9 3/4% Senior Notes Due 2021 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.30 to the 2013 Form 10-K and incorporated by reference herein). | |
| 4.13 | Registration Rights Agreement, dated August 11, 2015, between the Mohegan Tribal Gaming Authority, the subsidiary guarantors party thereto, Merrill Lynch, Pierce, Fenner & Smith Incorporated and RBS Securities Inc., as representatives of the several initial purchasers, relating to the $85,000,000 Principal Amount of 9 3/4% Senior Notes Due 2021 of the Mohegan Tribal Gaming Authority (filed herewith). | |
| 10.1 | First Amendment to the Priority Distribution Agreement, dated as of December 31, 2014, by and between the Mohegan Tribal Gaming Authority and the Mohegan Tribe of Indians of Connecticut (filed as Exhibit 10.1 to the Authority’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2014, filed with the SEC on February 17, 2015 and incorporated by reference herein). | |
| 10.2 | Amendment to the Land Lease, dated as of February 27, 2015, between the Mohegan Tribe of Indians of Connecticut and the Mohegan Tribal Gaming Authority (filed as Exhibit 10.2 to the Authority’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015, filed with the SEC on May 15, 2015 and incorporated by reference herein). | |
| 10.3 | Increase Joinder and Amendment Agreement, dated as of August 11, 2015, among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut, Citizens Bank, N.A., as administrative agent, and the lenders party thereto (filed herewith). | |
| 31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith). | |
| 31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (filed herewith). | |
| 32.1 | Section 1350 Certification of Chief Executive Officer (filed herewith). | |
| 32.2 | Section 1350 Certification of Chief Financial Officer (filed herewith). | |
| 101.INS* | XBRL Instance Document (filed herewith). | |
| 101.SCH* | XBRL Taxonomy Extension Schema (filed herewith). | |
| 101.CAL* | XBRL Taxonomy Calculation Linkbase (filed herewith). | |
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase (filed herewith). | |
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase (filed herewith). | |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase (filed herewith). | |
_____________
| * | Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed to be "filed" for purposes of Section 18 of the Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing. |
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