Mohegan Tribal Gaming Authority 10Q 2022 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

_________________________________

FORM 10-Q

_____________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			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,

06382

(Address of principal executive offices)

(Zip Code)

(860) 862-8000

(Registrant’s telephone number, including area code)

___________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each
exchange on which registered

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒*


*			The registrant is a voluntary filer of reports required to be filed by certain companies under Sections 13 or 15(d) of the Securities Exchange Act of 1934 and has filed all reports that would have been required during the preceding 12 months had it been subject to such filing requirements.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

MOHEGAN TRIBAL GAMING AUTHORITY

INDEX TO FORM 10-Q


		Page Number
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of March 31, 2022 and September 30, 2021 (unaudited)	3

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended March 31, 2022 and 2021 (unaudited)	4

	Condensed Consolidated Statements of Changes in Capital for the Three and Six Months Ended March 31, 2022 and 2021 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2022 and 2021 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23

Item 4.	Controls and Procedures	23

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	24

Item 1A.	Risk Factors	24

Item 6.	Exhibits	25

Signatures.	Mohegan Tribal Gaming Authority	26

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MOHEGAN TRIBAL GAMING AUTHORITY

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)


	March 31, 2022		September 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	167,736	$	149,822
Restricted cash and cash equivalents	6,854		5,259
Accounts receivable, net	41,238		40,772
Inventories	19,437		18,455
Due from Ontario Lottery and Gaming Corporation	18,884		16,711
Contract asset	37,944		32,665
Other current assets	35,270		56,466
Total current assets	327,363		320,150
Restricted cash and cash equivalents	366,107		9,616
Property and equipment, net	1,591,329		1,531,619
Right-of-use assets	333,739		362,008
Intangible assets, net	313,985		327,255
Contract asset, net of current portion	73,383		87,262
Notes receivable	2,514		2,514
Other assets, net	79,612		89,453
Total assets	$	3,088,032	$	2,729,877
LIABILITIES AND CAPITAL
Current liabilities:
Current portion of long-term debt	$	66,793	$	80,276
Current portion of finance lease obligations	4,685		5,836
Current portion of operating lease obligations	5,977		9,616
Trade payables	11,272		23,675
Accrued payroll	56,590		53,352
Construction payables	35,332		53,120
Accrued interest payable	39,183		37,546
Due to Ontario Lottery and Gaming Corporation	14,675		22,253
Other current liabilities	167,085		159,802
Total current liabilities	401,592		445,476
Long-term debt, net of current portion	2,243,793		1,858,478
Finance lease obligations, net of current portion	111,590		109,189
Operating lease obligations, net of current portion	388,496		410,090
Warrants and put option liabilities	90,932		—
Accrued payroll	—		3,529
Other long-term liabilities	40,574		36,357
Total liabilities	3,276,977		2,863,119
Commitments and Contingencies	0		0
Capital:
Retained deficit	(175,787)		(133,087)
Accumulated other comprehensive loss	(15,481)		(2,065)
Total capital attributable to Mohegan Tribal Gaming Authority	(191,268)		(135,152)
Non-controlling interests	2,323		1,910
Total capital	(188,945)		(133,242)
Total liabilities and capital	$	3,088,032	$	2,729,877

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

MOHEGAN TRIBAL GAMING AUTHORITY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands)

(unaudited)


	Three Months Ended				Six Months Ended
	March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
Revenues:
Gaming	$	261,494	$	209,184	$	547,223	$	382,385
Food and beverage	28,916		13,343		60,535		24,383
Hotel	24,860		17,170		54,733		33,694
Retail, entertainment and other	43,206		38,931		97,948		68,947
Net revenues	358,476		278,628		760,439		509,409
Operating costs and expenses:
Gaming, including related party transactions of $809, $808, $1,618 and $1,607, respectively	137,244		108,567		285,027		207,066
Food and beverage	23,868		11,610		50,203		23,096
Hotel, including related party transactions of $2,161, $2,161, $4,322 and $4,322, respectively	11,249		8,189		22,438		16,981
Retail, entertainment and other	13,778		6,843		35,786		14,136
Advertising, general and administrative, including related party transactions of $13,236, $6,097, $24,562 and $16,277, respectively	71,604		49,790		147,393		98,504
Corporate, including related party transactions of $2,304, $1,516, $4,020 and $3,264, respectively	13,698		12,887		35,102		23,992
Depreciation and amortization	26,145		26,388		51,568		52,362
Impairment of tangible assets	—		—		17,679		—
Impairment of intangible assets	—		—		12,869		—
Other, net	3,440		9,498		9,729		17,806
Total operating costs and expenses	301,026		233,772		667,794		453,943
Income from operations	57,450		44,856		92,645		55,466
Other income (expense):
Interest income	136		6		249		4
Interest expense, net	(52,255)		(42,442)		(97,086)		(84,327)
Loss on modification and early extinguishment of debt	—		(23,886)		—		(23,958)
Loss on fair value adjustment	(6,161)		—		(6,161)		—
Other, net	(1,887)		2,269		(2,678)		3,292
Total other expense	(60,167)		(64,053)		(105,676)		(104,989)
Loss before income tax	(2,717)		(19,197)		(13,031)		(49,523)
Income tax benefit (provision)	276		3,224		(1,019)		6,789
Net loss	(2,441)		(15,973)		(14,050)		(42,734)
(Income) loss attributable to non-controlling interests	(342)		(16)		(413)		124
Net loss attributable to Mohegan Tribal Gaming Authority	(2,783)		(15,989)		(14,463)		(42,610)
Comprehensive loss:
Foreign currency translation adjustment	(8,440)		(10,533)		(13,416)		10,444
Other comprehensive income (loss)	(8,440)		(10,533)		(13,416)		10,444
Other comprehensive income attributable to non-controlling interests	—		—		—		(1,376)
Other comprehensive income (loss) attributable to Mohegan Tribal Gaming Authority	(8,440)		(10,533)		(13,416)		9,068
Comprehensive loss attributable to Mohegan Tribal Gaming Authority	$	(11,223)	$	(26,522)	$	(27,879)	$	(33,542)

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

MOHEGAN TRIBAL GAMING AUTHORITY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL

(in thousands)

(unaudited)


	Retained Deficit		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Total Capital Attributable to Mohegan Tribal Gaming Authority		Non-controlling Interests		Total Capital
Balance, December 31, 2021	$	(159,107)	$	—	$	(7,041)	$	(166,148)	$	1,981	$	(164,167)
Net income (loss)	(2,783)		—		—		(2,783)		342		(2,441)
Foreign currency translation adjustment	—		—		(8,440)		(8,440)		—		(8,440)
Contribution from Mohegan Tribe	—		325		—		325		—		325
Distributions to Mohegan Tribe	(13,675)		(325)		—		(14,000)		—		(14,000)
Distributions to Salishan Company, LLC related to the Cowlitz Project	(222)		—		—		(222)		—		(222)

Balance, March 31, 2022	$	(175,787)	$	—	$	(15,481)	$	(191,268)	$	2,323	$	(188,945)

Balance, September 30, 2021	$	(133,087)	$	—	$	(2,065)	$	(135,152)	$	1,910	$	(133,242)
Net income (loss)	(14,463)		—		—		(14,463)		413		(14,050)
Foreign currency translation adjustment	—		—		(13,416)		(13,416)		—		(13,416)
Contribution from Mohegan Tribe	—		325		—		325		—		325
Distributions to Mohegan Tribe	(27,675)		(325)		—		(28,000)		—		(28,000)
Distributions to Salishan Company, LLC related to the Cowlitz Project	(562)		—		—		(562)		—		(562)

Balance, March 31, 2022	$	(175,787)	$	—	$	(15,481)	$	(191,268)	$	2,323	$	(188,945)

Balance, December 31, 2020	$	(114,574)	$	—	$	19,824	$	(94,750)	$	1,148	$	(93,602)
Net income (loss)	(15,989)		—		—		(15,989)		16		(15,973)
Foreign currency translation adjustment	—		—		(10,533)		(10,533)		—		(10,533)
Distributions to Mohegan Tribe	(12,000)		—		—		(12,000)		—		(12,000)
Balance, March 31, 2021	$	(142,563)	$	—	$	9,291	$	(133,272)	$	1,164	$	(132,108)

Balance, September 30, 2020	$	(75,692)	$	—	$	223	$	(75,469)	$	7,480	$	(67,989)
Net loss	(42,610)		—		—		(42,610)		(124)		(42,734)
Foreign currency translation adjustment	—		—		9,068		9,068		1,376		10,444
Distributions to Mohegan Tribe	(24,000)		—		—		(24,000)		—		(24,000)
Distributions to Salishan Company, LLC related to the Cowlitz Project	(261)		—		—		(261)		—		(261)
Other	—		—		—		—		(7,568)		(7,568)
Balance, March 31, 2021	$	(142,563)	$	—	$	9,291	$	(133,272)	$	1,164	$	(132,108)

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

MOHEGAN TRIBAL GAMING AUTHORITY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended
	March 31, 2022		March 31, 2021
Cash flows provided by operating activities:
Net loss	$	(14,050)	$	(42,734)
Adjustments to reconcile net loss to net cash flows provided by operating activities:
Depreciation and amortization	51,568		52,362
Non-cash operating lease expense	4,408		6,208
Accretion of discounts	1,183		627
Amortization of discounts and debt issuance costs	7,340		11,182
Paid-in-kind interest	11,047		—
Loss on fair value adjustment	6,161		—
Loss on modification and early extinguishment of debt	—		23,725
Provision for losses on receivables	2,924		2,642
Deferred income taxes	1,344		(6,989)
Impairment charges	30,548		—
Other, net	2,707		(5,917)
Changes in operating assets and liabilities:
Accounts receivable, net	(3,361)		(7,457)
Inventories	(938)		(434)
Due from Ontario Lottery and Gaming Corporation	(1,717)		(3,058)
Contract asset	10,069		5,111
Other assets	26,113		691
Trade payables	(12,532)		1,982
Accrued interest payable	250		9,931
Due to Ontario Lottery and Gaming Corporation	(7,677)		4,316
Operating lease obligations	(2,397)		8,282
Other liabilities	16,254		6,721
Net cash flows provided by operating activities	129,244		67,191
Cash flows used in investing activities:
Purchases of property and equipment	(144,665)		(36,319)
Investments related to the Inspire Korea project	(5,611)		—
Other, net	(3,068)		790
Net cash flows used in investing activities	(153,344)		(35,529)
Cash flows provided by (used in) financing activities:
Proceeds from revolving credit facilities	588,775		468,051
Repayments on revolving credit facilities	(600,287)		(539,036)
Proceeds from issuance of long-term debt	537,464		1,223,108
Repayments of long-term debt	(16,298)		(1,127,271)
Payments on finance lease obligations	(3,309)		(536)
Contributions from affiliates	325		—
Distributions to affiliates	(28,562)		(24,261)
Payments of financing fees	(66,173)		(24,082)
Other, net	(2,927)		(1,000)
Net cash flows provided by (used in) financing activities	409,008		(25,027)
Net increase in cash, cash equivalents, restricted cash and restricted cash equivalents	384,908		6,635
Effect of exchange rate on cash, cash equivalents, restricted cash and restricted cash equivalents	(8,908)		1,601
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period	164,697		142,069
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	540,697	$	150,305


	Six Months Ended
	March 31, 2022		March 31, 2021
Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents to the condensed consolidated balance sheets:
Cash and cash equivalents	$	167,736	$	127,772
Restricted cash and cash equivalents, current	6,854		3,759
Restricted cash and cash equivalents, non-current	366,107		18,774
Cash, cash equivalents, restricted cash and restricted cash equivalents	$	540,697	$	150,305
Supplemental disclosures:
Cash paid for interest	$	78,602	$	63,195
Non-cash transactions:
Right-of-use assets additions (reductions)	$	(27,785)	$	24,740
Right-of-use obligations additions (reductions)	$	(27,785)	$	24,082
Paid-in-kind interest capitalized	$	5,775	$	—
Paid-in-kind interest converted to debt	$	12,077	$	—
Increase in construction payables	$	—	$	35,974
Finance lease assets and obligations	$	—	$	78,682
Prior senior secured credit facility reduction	$	—	$	3,000

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

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 — Organization and Basis of Presentation

Organization

The Mohegan Tribal Gaming Authority d/b/a Mohegan Gaming & Entertainment (the “Company,” “we,” “us,” or “our”) was established by the Mohegan Tribe of Indians of Connecticut (the “Mohegan Tribe”) in July 1995. We have the exclusive authority to conduct and regulate gaming activities for the Mohegan Tribe on tribal lands and the non-exclusive authority to conduct such activities elsewhere. The Mohegan Tribe is a sovereign Indian nation with independent legal jurisdiction over its people and land.

We are primarily engaged in the ownership, operation and development of integrated entertainment facilities. We currently own 2 facilities in the United States and operate 5 facilities in the United States and Canada. We are also currently developing a facility in South Korea, the Inspire Entertainment Resort located adjacent to the Incheon International Airport (“Inspire Korea”).

Impact of the COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic and the United States federal government declared it a national emergency. The spread of COVID-19 has affected most segments of the global economy, including our operations. In March 2020, we temporarily suspended operations at our properties in the United States and Canada to ensure the health and safety of our employees, guests and the surrounding communities in which we operate, consistent with directives from various governmental bodies. All of our properties in the United States were reopened by July 2020. Our properties in Canada reopened in July 2021, but were temporarily closed again from January 5, 2022 through January 30, 2022, due to a resurgence of COVID-19.

COVID-19 has had a significant impact on our operations, the full extent of which depends on future developments which are highly uncertain and cannot be predicted with confidence. Such developments include the following:

•the duration of COVID-19 or the extent of any resurgence or variants of COVID-19;

•the manner in which our guests, suppliers and other third parties respond to COVID-19, including the perception of safety and health measures we implemented;

•new information that may emerge concerning the severity of COVID-19 and the actions to contain or treat it;

•general economic conditions; and

•consumer confidence.

Accordingly, we cannot reasonably estimate the extent to which COVID-19 will further impact our future financial condition, results of operations and cash flows.

We could experience other potential adverse impacts as a result of COVID-19, including, but not limited to, charges from further adjustments to the carrying value of our intangible assets, as well as other long-lived asset impairment charges. Actual results may differ materially from our current estimates as the scope of COVID-19 evolves, depending largely, but not exclusively, on the duration and extent of our business disruptions.

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 (“US GAAP”) 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 US GAAP 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 US GAAP. All adjustments, including normal recurring accruals and adjustments, necessary for a fair statement of our operating results for the interim period, have been included.

Our results of operations for these interim periods are not necessarily indicative of the operating results for other quarters, for the full fiscal year or any other period, particularly given the impact of COVID-19 as discussed above.

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. The preparation of financial statements in conformity with US GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities.

Similar to other sovereign governments, the Mohegan Tribe and its entities, including the Company, are not subject to United States federal income taxes. However, certain of our non-tribal entities are subject to income taxes in various state and local jurisdictions within the United States and in Canada.

Inspire Korea

The initial phase of Inspire Korea primarily consists of an integrated entertainment resort. Design and construction work was temporarily paused in September 2020 while we were in the process of securing the necessary financing for the project, which was completed in November 2021 (see Note 2). During this temporary pause in construction, Inspire Korea obtained approval to modify its development plan and adjust the timing of a future sub-phase of this initial phase of the project.

On December 27, 2021, Inspire Korea elected to terminate a licensing arrangement for a previously-planned sub-phase and discontinue related design work. As a result, we recognized an intangible asset impairment of $12.9 million related to the licensing arrangement and a tangible asset impairment of $17.7 million on the related construction in progress.

Recently Issued Accounting Pronouncements

ASU 2019-12

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which simplifies various aspects related to the accounting for income taxes. This new standard removes certain exceptions to the general principles in ASU 2019-12 and clarifies and amends existing guidance to improve consistent application. ASU 2019-12 was effective for annual reporting periods beginning after December 15, 2020. There was no effect on the Company’s financial statements from adopting this new standard.

ASU 2021-10

In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance” (“ASU 2021-10”), which requires business entities to provide certain disclosures about government transactions that are accounted for by applying a grant or contribution accounting model by analogy to other accounting guidance. ASU 2021-10 is effective for annual reporting periods beginning after December 15, 2021. The Company is currently evaluating the effect ASU 2021-10 will have on its disclosures.

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

Note 2 — Long-Term Debt


	March 31, 2022			September 30, 2021
(in thousands)	Final Maturity	Face Value		Book Value		Book Value
New Senior Secured Credit Facility	2023	$	40,000	$	40,000	$	27,000
Line of Credit	2023	—		—		20,227
2021 8% Senior Secured Notes	2026	1,175,000		1,159,406		1,157,731
2016 7 7/8% Senior Unsecured Notes	2024	500,000		494,545		493,599
MGE Niagara Credit Facility
Revolving	2024	15,990		15,990		27,534
Swingline	2024	12,252		12,252		4,333
Term Loan	2024	68,957		68,253		68,965
MGE Niagara Convertible Debenture	2040	31,980		31,980		31,468
Inspire Korea Credit Facility	2025	257,367		199,726		—
MGE Korea Term Loan	2027	287,077		191,718		—
Mohegan Expo Credit Facility (1)	2022	24,662		24,662		25,697
Guaranteed Credit Facility	2023	26,468		26,042		27,208
Redemption Note Payable	2024	50,360		44,440		53,130
Other	Varies	1,572		1,572		1,862
Long-term debt		2,491,685		2,310,586		1,938,754
Current portion of long-term debt		(66,793)		(66,793)		(80,276)
Long-term debt, net of current portion		$	2,424,892	$	2,243,793	$	1,858,478

Fair value		$	2,379,096
Unamortized discounts and debt issuance costs		$	181,099	$	34,022

__________

(1) Repaid at maturity on April 1, 2022.

Inspire Korea Financing

Inspire Korea Credit Facility

On September 24, 2021, Inspire Korea entered into a loan agreement providing for a loan commitment of up to 1.04 trillion Korean won (“KRW”) in 2 tranches (the “Inspire Korea Credit Facility”), comprised of a 740.0 billion KRW credit facility (the “Tranche A Facility”) and a 300.0 billion KRW credit facility (the “Tranche B Facility”). The Inspire Korea Credit Facility is being used to pay for the construction, operation, financial and other project costs in connection with Inspire Korea (see Note 1). All obligations under the Inspire Korea Credit Facility are secured by liens on substantially all assets of, and equity interests in, Inspire Korea (subject to certain exceptions and limitations). The Inspire Korea Credit Facility matures 48 months after the date of the first draw, which was November 29, 2021.


Inspire Korea Credit Facility Summary

	September 30, 2021				March 31, 2022
	Total Capacity				Outstanding Borrowings (Face Value)
(in millions)	KRW		USD		KRW		USD
Tranche A Facility	₩	740,000.0	$	625.1	₩	222,000.0	$	183.1
Tranche B Facility	₩	300,000.0	$	253.4	₩	90,000.0	$	74.3
Total	₩	1,040,000.0	$	878.5	₩	312,000.0	$	257.4

Mandatory prepayments are required under the Inspire Korea Credit Facility in connection with certain specified asset dispositions or receipt of insurance proceeds, without a prepayment fee. The Inspire Korea Credit Facility may not be voluntarily prepaid in whole or in part until one year after the date of the first draw. After such date, any voluntary prepayment requires a prepayment fee as defined in the Inspire Korea Credit Facility agreement.

Loans outstanding under the Tranche A Facility bear interest at a fixed rate of 5.4% per annum or a floating rate equal to the sum of a base rate and an applicable margin (as defined in the Inspire Korea Credit Facility agreement). Loans outstanding under the Tranche B Facility bear interest at a fixed rate of 7.0% per annum or a floating rate equal to the sum of a base rate and

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

an applicable margin (as defined in the Inspire Korea Credit Facility agreement). The Inspire Korea Credit Facility includes an interest reserve whereby a portion of loan proceeds is reserved for payment of interest. Interest on Tranche A Facility loans is fully reserved and interest on Tranche B Facility loans is reserved for 36 months. If any portion of the Inspire Korea Credit Facility is undrawn, Inspire Korea is required to pay a 0.3% commitment fee on the undrawn amount.

The Inspire Korea Credit Facility contains certain customary covenants applicable to Inspire Korea, including covenants governing: incurrence of indebtedness, incurrence of liens, investments, mergers or consolidations, asset sales, acquisitions of assets, the payment of dividends and other distributions and affiliate transactions. In addition, the Inspire Korea Credit Facility includes other covenants, representations and warranties and events of default that are customary for financing transactions of this type.

In connection with the Inspire Korea Credit Facility, the Company entered into a credit enhancement support agreement to provide up to $100.0 million credit enhancement support for Inspire Korea’s payment of principal, interest and other sums due under the Inspire Korea Credit Facility.

The Company incurred $59.1 million in costs in connection with this transaction during fiscal 2022. These debt issuance costs were reflected as a debt discount and are being amortized over the term of the Inspire Korea Credit Facility using the effective interest method.

MGE Korea Term Loan

On November 4, 2021, MGE Korea Limited (“MGE Korea”), an indirect wholly-owned subsidiary of the Company and parent company of Inspire Korea, entered into a $275.0 million secured term loan facility agreement (the “MGE Korea Term Loan”). MGE Korea received funding from the MGE Korea Term Loan on November 24, 2021 (the “Utilisation Date”). The MGE Korea Term Loan was primarily used to make a capital contribution to Inspire Korea in order to partially fund construction-related costs for Inspire Korea. The MGE Korea Term Loan matures 66 months after the Utilisation Date.

The MGE Korea Term Loan bears payment-in-kind interest at a rate of 17.0% per annum, to be compounded and capitalized at the end of each quarter, or paid in cash if so elected by MGE Korea.

If the MGE Korea Term Loan is voluntarily prepaid, if certain mandatory prepayment events are triggered or if it is repaid following a notice of acceleration, MGE Korea must pay a prepayment fee (as defined in the MGE Korea Term Loan agreement). The MGE Korea Term Loan is secured by a fixed charge over 100% of MGE Korea’s share capital and a debenture over the assets of MGE Korea (subject to certain exceptions and limitations).

The MGE Korea Term Loan contains certain customary covenants, including covenants governing: incurrence of indebtedness, incurrence of liens, payment of dividends and other distributions, disposals, acquisitions and investments, arm’s length transactions, mergers and the development and management of Inspire Korea. In addition, the MGE Korea Term Loan includes financial maintenance covenants pertaining to net leverage and debt service coverage of MGE Korea and Inspire Korea, and contains a requirement that Inspire Korea maintain a minimum cash balance in the amounts set forth in the MGE Korea Term Loan. The MGE Korea Term Loan also contains customary events of default relating to, among other things, failure to make payments, breach of covenants and breach of representations.

The Company incurred $10.0 million in costs in connection with the MGE Korea Term Loan during fiscal 2022. These debt issuance costs were capitalized and are being amortized over the term of the MGE Korea Term Loan. In addition, the allocation of proceeds to the issuance of warrants and associated put option (see below) resulted in an original issue discount on the MGE Korea Term Loan of $84.8 million, which will also be amortized over the term of the MGE Korea Term Loan using the effective interest method.

MGE Korea Warrant Agreement

In connection with the MGE Korea Term Loan, on November 4, 2021, MGE Korea Holding III Limited (“MGE Korea Holding III”), the parent company of MGE Korea, entered into a warrant agreement (the “Warrant Agreement”) to issue detachable warrants (the “Warrants”). The Warrants can be converted into up to a total of 4,400 shares of capital in MGE Korea Holding III at an initial exercise price of $0.01 per share. At the time of issuance, the Warrants represented 22.0% of the fully-diluted share capital of MGE Korea Holding III.

The Warrants are generally exercisable at any time after the third anniversary of the Utilisation Date (November 2024) until the tenth anniversary of the Utilisation Date (November 2031), but may be exercised earlier upon certain triggering events defined in the Warrant Agreement. Upon the earlier of (i) the tenth anniversary of the Utilisation Date (November 2031) and (ii) the consummation of an Exit Event (as defined in the Warrant Agreement), all unexercised Warrants will expire.

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

Warrant holders do not have any rights held by holders of shares in the capital of MGE Korea Holding III to vote or to receive dividends and other distributions (other than as set forth in the Warrant Agreement). Warrant holders and shareholders of MGE Korea Holding III have certain preemptive rights in relation to any proposed issuance of equity securities by MGE Korea Holding III or certain affiliates (as defined in the Warrant Agreement), subject to customary exceptions.

Holders of unexercised Warrants have the right to require the parent of MGE Korea Holding III (the “Parent”) to purchase all of the unexercised Warrants that they hold at certain relevant times (the “Put Option”). In turn, the Parent has the right to require the holders of unexercised Warrants to sell all of the unexercised Warrants they hold at certain relevant times (the “Call Option”). Both the Put Option and the Call Option are exercisable at any time in the period from (and including) the date six years and six months after the Utilisation Date (May 2028) until the tenth anniversary of the Utilisation Date (November 2031). The aggregate cash purchase price for both the Put Option and the Call Option equals the higher of: (i) the fair market value of the relevant unexercised Warrants and (ii) $110.0 million, multiplied by a fraction, the numerator of which is the number of the relevant unexercised Warrants and the denominator of which is the total number of Warrants.

The Warrants and the Put Option are classified as long-term liabilities and are re-measured at their estimated fair values at each reporting date. The estimated fair value of the Warrants and the Put Option was determined by utilizing the income approach (discounted cash flow method) and a binomial lattice model. This valuation approach utilized Level 3 inputs. The primary unobservable inputs utilized were the discount rate, which was 10.5%, and the expected volatility of the underlying stock price, which was 50.0%.

Debt issuance costs incurred during fiscal 2022 and allocated to the Warrants and the Put Option totaling $4.2 million were expensed on the Utilisation Date and recorded within Corporate costs and expenses.


Warrants and Put Option

(in thousands)
Balance, December 31, 2021	$	84,771
Additions	—
Unrealized losses	6,161
Balance, March 31, 2022	$	90,932

Balance, September 30, 2021	$	—
Additions	84,771
Unrealized losses	6,161
Balance, March 31, 2022	$	90,932

Note 3 — Revenue Recognition

Revenue Disaggregation

The Company is primarily engaged in the ownership, operation, management and development of integrated entertainment facilities both domestically and internationally. The Company’s current wholly-owned operations are primarily focused within Connecticut and Pennsylvania. The Company also currently operates and manages other gaming facilities elsewhere within the United States and Canada. The Company generates revenues by providing the following types of goods and services: gaming, food and beverage, hotel and retail, entertainment and other, which includes management and development fees earned.


Revenue Disaggregation by Geographic Location

	Three Months Ended March 31, 2022
(in thousands)	Connecticut		Pennsylvania		Canada		Other
Gaming	$	152,023	$	55,804	$	41,762	$	11,905
Food and beverage	20,877		3,376		3,634		1,029
Hotel	20,553		1,367		2,941		(1)
Retail, entertainment and other	22,031		1,617		3,923		15,635
Net revenues	$	215,484	$	62,164	$	52,260	$	28,568

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)


Revenue Disaggregation by Geographic Location (Continued)

	Three Months Ended March 31, 2021
(in thousands)	Connecticut		Pennsylvania		Canada		Other
Gaming	$	145,965	$	49,019	$	12,685	$	1,515
Food and beverage	12,047		1,132		—		164
Hotel	16,088		1,093		—		(11)
Retail, entertainment and other	14,922		1,132		1,131		21,198
Net revenues	$	189,022	$	52,376	$	13,816	$	22,866

	Six Months Ended March 31, 2022
(in thousands)	Connecticut		Pennsylvania		Canada		Other
Gaming	$	321,364	$	113,279	$	92,010	$	20,570
Food and beverage	43,654		7,014		7,722		2,145
Hotel	45,444		2,930		6,362		(3)
Retail, entertainment and other	56,594		3,156		8,998		29,200
Net revenues	$	467,056	$	126,379	$	115,092	$	51,912

	Six Months Ended March 31, 2021
(in thousands)	Connecticut		Pennsylvania		Canada		Other
Gaming	$	270,990	$	84,661	$	25,219	$	1,515
Food and beverage	22,252		1,973		—		158
Hotel	31,808		1,897		—		(11)
Retail, entertainment and other	29,863		1,930		1,594		34,749
Net revenues	$	354,913	$	90,461	$	26,813	$	36,411


Lease Revenue

	Three Months Ended
	March 31, 2022				March 31, 2021
(in thousands)	Hotel		Retail, Entertainment and Other		Hotel		Retail, Entertainment and Other
Fixed rent	$	14,448	$	1,615	$	11,104	$	1,317
Variable rent	—		2,554		—		935
Total	$	14,448	$	4,169	$	11,104	$	2,252

	Six Months Ended
	March 31, 2022				March 31, 2021
(in thousands)	Hotel		Retail, Entertainment and Other		Hotel		Retail, Entertainment and Other
Fixed rent	$	32,014	$	3,443	$	21,502	$	2,884
Variable rent	—		4,674		—		1,445
Total	$	32,014	$	8,117	$	21,502	$	4,329

Contract and Contract-related Assets

As of March 31, 2022 and September 30, 2021, contract assets related to the MGE Niagara Resorts Casino Operating and Services Agreement with the Ontario Lottery and Gaming Corporation totaled $111.3 million and $119.9 million, respectively.

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)


Accounts Receivable, Net

(in thousands)	March 31, 2022		September 30, 2021
Gaming	$	37,220	$	37,921
Food and beverage	14		13
Hotel	3,098		3,106
Retail, entertainment and other	22,472		19,099

Accounts receivable	62,804		60,139
Allowance for doubtful accounts	(21,566)		(19,367)
Accounts receivable, net	$	41,238	$	40,772

Contract and Contract-related Liabilities

A difference may exist between the timing of cash receipts from patrons and the recognition of revenues, resulting in a contract or contract-related liability. In general, the Company has 3 types of such liabilities: (1) outstanding gaming chips and slot tickets liability, which represents amounts owed in exchange for outstanding gaming chips and slot tickets held by patrons, (2) loyalty points deferred revenue liability and (3) patron advances and other liability, which primarily represents funds deposited in advance by patrons for gaming and advance payments by patrons for goods and services such as advance ticket sales, deposits on rooms and convention space and gift card purchases. These liabilities are generally expected to be recognized as revenues within one year and are recorded within other current liabilities.


(in thousands)	March 31, 2022		September 30, 2021
Outstanding gaming chips and slot tickets liability	$	9,161	$	9,632
Loyalty points deferred revenue liability	41,093		42,663
Patron advances and other liability	34,268		30,166
Total	$	84,522	$	82,461

As of March 31, 2022 and September 30, 2021, customer contract liabilities related to Mohegan Sun Pocono's revenue sharing agreement with Unibet Interactive Inc. totaled $15.0 million and $15.8 million, respectively, and were primarily recorded within other long-term liabilities.

Note 4 — Segment Reporting

The Company, either directly or through subsidiaries, operates Mohegan Sun, along with its other Connecticut operations (the “Connecticut Facilities”), Mohegan Sun Pocono, along with its other Pennsylvania operations (the “Pennsylvania Facilities”) and the MGE Niagara Resorts. Certain other properties that are managed or under development by the Company are identified as the management, development and other reportable segment.

The Company's chief operating decision maker currently reviews and assesses the performance and operating results and determines the proper allocation of resources to the Connecticut Facilities, the Pennsylvania Facilities, the MGE Niagara Resorts and the properties managed or under development on a separate basis. Accordingly, the Company has 4 separate reportable segments: (i) Mohegan Sun, which includes the operations of the Connecticut Facilities, (ii) Mohegan Sun Pocono, which includes the operations of the Pennsylvania Facilities, (iii) the MGE Niagara Resorts and (iv) management, development and other. Certain other gaming and entertainment operations (“all other”), which are not individually reportable segments, the Company's corporate functions and inter-segment activities are each disclosed separately in the following segment disclosures to reconcile to consolidated results.

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)


Net Revenues
	Three Months Ended				Six Months Ended
(in thousands)	March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
Mohegan Sun	$	215,484	$	189,022	$	467,056	$	354,913
Mohegan Sun Pocono	62,164		52,376		126,379		90,461
MGE Niagara Resorts	52,260		13,816		115,092		26,813
Management, development and other	15,627		20,309		29,517		33,624
All other	13,290		—		23,455		—
Corporate	241		2,557		386		2,787
Inter-segment	(590)		548		(1,446)		811
Total	$	358,476	$	278,628	$	760,439	$	509,409

Income (Loss) from Operations
	Three Months Ended				Six Months Ended
(in thousands)	March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
Mohegan Sun	$	44,650	$	51,765	$	106,344	$	79,012
Mohegan Sun Pocono	10,235		6,441		21,724		7,797
MGE Niagara Resorts	2,735		(11,277)		9,604		(23,798)
Management, development and other	8,757		5,473		(25,214)		7,546
All other	135		—		(258)		—
Corporate	(9,039)		(7,547)		(19,541)		(15,085)
Inter-segment	(23)		1		(14)		(6)
Total	$	57,450	$	44,856	$	92,645	$	55,466

Capital Expenditures Incurred
					Six Months Ended
(in thousands)					March 31, 2022		March 31, 2021
Mohegan Sun					$	17,243	$	8,694
Mohegan Sun Pocono					4,445		2,679
MGE Niagara Resorts					8,304		7,538
Management, development and other					105,078		97,303
All other					(262)		—
Corporate					12		300
Total					$	134,820	$	116,514

Total Assets

(in thousands)					March 31, 2022		September 30, 2021
Mohegan Sun					$	1,248,940	$	1,267,538
Mohegan Sun Pocono					405,217		408,187
MGE Niagara Resorts					528,201		561,812
Management, development and other					810,135		407,831
All other					101,132		98,945
Corporate					1,027,762		996,040
Inter-segment					(1,033,355)		(1,010,476)
Total					$	3,088,032	$	2,729,877

Note 5 — Commitments and Contingencies

The Company is a defendant in various claims and legal actions resulting from its normal course of business, primarily relating to personal injuries to patrons and damages to patrons' personal assets. The Company estimates litigation claims expense and accrues for such liabilities based upon historical experience. In management's opinion, the aggregate liability, if any, arising from such legal actions will not have a material impact on the Company's financial position, results of operations or cash flows.

In this filing, the words “Mohegan Gaming & Entertainment,” “MGE,” “Company,” “we,” “our” and “us” refer to the Mohegan Tribal Gaming Authority, inclusive of its consolidated subsidiaries, unless otherwise stated or the context otherwise requires.

We also refer to (i) our Condensed Consolidated Financial Statements as our “Financial Statements,” (ii) our Condensed Consolidated Balance Sheets as our “Balance Sheets” and (iii) our Condensed Consolidated Statements of Operations and Comprehensive Income (or Loss) as our “Statements of Operations,” where applicable. Note references are to the notes to the condensed consolidated financial statements included in Item 1. Financial Statements.

The following discussion and analysis of the financial position and operating results of Mohegan Gaming & Entertainment for the three and six months ended March 31, 2022 and 2021 should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto and other financial information included elsewhere in this Quarterly Report on Form 10-Q, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) presented in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021 (the “September 30, 2021 10-K”).

The statements in this discussion regarding our expectations related to our future performance, liquidity and capital resources, and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties. Our actual results may differ materially from those contained in or implied by any forward-looking statements. See “Cautionary Statements Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Mohegan Gaming & Entertainment was established by the Mohegan Tribe of Indians of Connecticut (the “Mohegan Tribe”) in July 1995. We have the exclusive authority to conduct and regulate gaming activities for the Mohegan Tribe on tribal lands and the non-exclusive authority to conduct such activities elsewhere. The Mohegan Tribe is a sovereign Indian nation with independent legal jurisdiction over its people and land.

We are primarily engaged in the ownership, operation and development of integrated entertainment facilities. We currently own two facilities in the United States and operate five facilities in the United States and Canada. We are also currently developing a facility in South Korea, the Inspire Entertainment Resort located adjacent to the Incheon International Airport (“Inspire Korea”).

Impact of the COVID-19 Pandemic

•the duration of COVID-19 or the extent of any resurgence or variants of COVID-19;

•the manner in which our guests, suppliers and other third parties respond to COVID-19, including the perception of safety and health measures we implemented;

•new information that may emerge concerning the severity of COVID-19 and the actions to contain or treat it;

•general economic conditions; and

•consumer confidence.

Accordingly, we cannot reasonably estimate the extent to which COVID-19 will further impact our future financial condition, results of operations and cash flows.

Discussion of Consolidated Operating Results

The most significant factors and trends that impacted our operating and financial performance were as follows:

•full periods of operations at most of our properties;

•a return to relatively normal operating conditions at most of our properties;

•a temporary resurgence of COVID-19 during January 2022;

•higher interest expense; and

•impairment charges related to Inspire Korea.


Consolidated Operating Results

	Three Months Ended March 31,				Variance				Six Months Ended March 31,				Variance
(in thousands)	2022		2021		$		%		2022		2021		$		%
Net revenues:
Gaming	$	261,494	$	209,184	$	52,310	25.0	%	$	547,223	$	382,385	$	164,838	43.1	%
Food and beverage	28,916		13,343		15,573		116.7	%	60,535		24,383		36,152		148.3	%
Hotel	24,860		17,170		7,690		44.8	%	54,733		33,694		21,039		62.4	%
Retail, entertainment and other revenue	43,206		38,931		4,275		11.0	%	97,948		68,947		29,001		42.1	%
Total	$	358,476	$	278,628	79,848		28.7	%	$	760,439	$	509,409	251,030		49.3	%

Operating costs and expenses:
Gaming	$	137,244	$	108,567	$	28,677	26.4	%	$	285,027	$	207,066	$	77,961	37.7	%
Food and beverage	23,868		11,610		12,258		105.6	%	50,203		23,096		27,107		117.4	%
Hotel	11,249		8,189		3,060		37.4	%	22,438		16,981		5,457		32.1	%
Retail, entertainment and other revenue	13,778		6,843		6,935		101.3	%	35,786		14,136		21,650		153.2	%
Advertising, general and administrative	71,604		49,790		21,814		43.8	%	147,393		98,504		48,889		49.6	%
Corporate	13,698		12,887		811		6.3	%	35,102		23,992		11,110		46.3	%
Depreciation and amortization	26,145		26,388		(243)		(0.9)	%	51,568		52,362		(794)		(1.5)	%
Impairment of tangible assets	—		—		—		—		17,679		—		17,679		N.M.
Impairment of intangible assets	—		—		—		—		12,869		—		12,869		N.M.
Other, net	3,440		9,498		(6,058)		(63.8)	%	9,729		17,806		(8,077)		(45.4)	%
Total	$	301,026	$	233,772	67,254		28.8	%	$	667,794	$	453,943	213,851		47.1	%

__________

N.M. - Not Meaningful.


Segment Operating Results

	Three Months Ended March 31,				Variance				Six Months Ended March 31,				Variance
(in thousands)	2022		2021		$		%		2022		2021		$		%
Net revenues:
Mohegan Sun	$	215,484	$	189,022	$	26,462	14.0	%	$	467,056	$	354,913	$	112,143	31.6	%
Mohegan Sun Pocono	62,164		52,376		9,788		18.7	%	126,379		90,461		35,918		39.7	%
MGE Niagara Resorts	52,260		13,816		38,444		278.3	%	115,092		26,813		88,279		329.2	%
Management, development and other	15,627		20,309		(4,682)		(23.1)	%	29,517		33,624		(4,107)		(12.2)	%
All other	13,290		—		13,290		N.M.		23,455		—		23,455		N.M.
Corporate	241		2,557		(2,316)		(90.6)	%	386		2,787		(2,401)		(86.1)	%
Inter-segment	(590)		548		(1,138)		N.M.		(1,446)		811		(2,257)		N.M.
Total	$	358,476	$	278,628	79,848		28.7	%	$	760,439	$	509,409	251,030		49.3	%

Operating costs and expenses:
Mohegan Sun	$	170,834	$	137,257	$	33,577	24.5	%	$	360,712	$	275,901	$	84,811	30.7	%
Mohegan Sun Pocono	51,929		45,935		5,994		13.0	%	104,655		82,664		21,991		26.6	%
MGE Niagara Resorts	49,525		25,093		24,432		97.4	%	105,488		50,611		54,877		108.4	%
Management, development and other	6,870		14,836		(7,966)		(53.7)	%	54,731		26,078		28,653		109.9	%
All other	13,155		—		13,155		N.M.		23,713		—		23,713		N.M.
Corporate	9,280		10,104		(824)		(8.2)	%	19,927		17,872		2,055		11.5	%
Inter-segment	(567)		547		(1,114)		N.M.		(1,432)		817		(2,249)		N.M.
Total	$	301,026	$	233,772	67,254		28.8	%	$	667,794	$	453,943	213,851		47.1	%

__________

N.M. - Not Meaningful.

Mohegan Sun

Revenues

Net revenues increased $26.5 million, or 14.0%, for the three months ended March 31, 2022 compared with the same period in the prior year. Net revenues increased $112.1 million, or 31.6%, for the six months ended March 31, 2022 compared with the same period in the prior year. The growth in net revenues was due to increased non-gaming revenues, combined with higher slot and table game revenues. In general, these results were driven by strong overall business volumes reflecting a return to relatively normal operating conditions compared with the same periods in the prior year, which were negatively impacted by various COVID-19 restrictions. Overall non-gaming revenues also benefited from a full entertainment calendar compared with the same periods in the prior year in which the Mohegan Sun Arena was closed due to COVID-19. Slot revenues increased principally due to higher slot handle, while the growth in table game revenues reflected higher hold percentage. Net revenues for the three and six months ended March 31, 2022 were negatively impacted by a temporary resurgence of COVID-19 during January 2022.

Operating Costs and Expenses

Operating costs and expenses increased $33.6 million, or 24.5%, for the three months ended March 31, 2022 compared with the same period in the prior year. Operating costs and expenses increased $84.8 million, or 30.7%, for the six months ended March 31, 2022 compared with the same period in the prior year. These increases primarily reflected higher overall operating costs and expenses commensurate with the increases in net revenues and return to relatively normal operating conditions, including increased payroll costs, cost of goods sold, slot win contribution and direct entertainment expenses, as well as higher costs related to utilities and certain other administrative services.

Mohegan Sun Pocono

Revenues

Net revenues increased $9.8 million, or 18.7%, for the three months ended March 31, 2022 compared with the same period in the prior year. Net revenues increased $35.9 million, or 39.7%, for the six months ended March 31, 2022 compared with the same period in the prior year. The growth in net revenues was primarily due to higher slot revenues driven by increased slot handle, as well as higher non-gaming revenues. In general, these results were driven by strong overall business volumes reflecting a return to relatively normal operating conditions compared to the same periods in the prior year, which were negatively impacted by various COVID-19 restrictions and the temporary closure of Mohegan Sun Pocono from December 12, 2020, through January 3, 2021. Net revenues for the three and six months ended March 31, 2022 were negatively impacted by a temporary resurgence of COVID-19 during January 2022.

Operating Costs and Expenses

Operating costs and expenses increased $6.0 million, or 13.0%, for the three months ended March 31, 2022 compared with the same period in the prior year. Operating costs and expenses increased $22.0 million, or 26.6%, for the six months ended March 31, 2022 compared with the same period in the prior year. These increases primarily reflected higher Pennsylvania slot machine tax expenses driven by the increases in slot revenues, combined with higher overall operating costs and expenses commensurate with the return to relatively normal operating conditions.

MGE Niagara Resorts

Revenues

Net revenues increased $38.4 million, or 278.3%, for the three months ended March 31, 2022 compared with the same period in the prior year. Net revenues increased $88.3 million, or 329.2%, for the six months ended March 31, 2022 compared with the same period in the prior year. These results reflect relatively full periods of operations compared with the same periods in the prior year. The MGE Niagara Resorts were temporarily closed effective March 18, 2020, following the outbreak of COVID-19, and reopened on July 23, 2021 under various COVID-19 related restrictions. The MGE Niagara Resorts were temporarily closed again from January 5, 2022, through January 30, 2022, due to a resurgence of COVID-19 at that time. Net revenues for the three and six months ended March 31, 2021 primarily reflect fixed service provider fees pursuant to the terms of our Casino Operating and Services Agreement with the Ontario Lottery and Gaming Corporation.

Operating Costs and Expenses

Operating costs and expenses increased $24.4 million, or 97.4%, for the three months ended March 31, 2022 compared with the same period in the prior year. Operating costs and expenses increased $54.9 million, or 108.4%, for the six months ended March 31, 2022 compared with the same period in the prior year. These increases primarily reflected higher operating costs and expenses commensurate with the growth in net revenues, combined with higher overall costs and expenses associated with relatively full periods of operations.

Management, Development and Other

Revenues

Net revenues decreased $4.7 million, or 23.1%, for the three months ended March 31, 2022 compared with the same period in the prior year. Net revenues decreased $4.1 million, or 12.2%, for the six months ended March 31, 2022 compared with the same period in the prior year. The declines in net revenues were primarily driven by lower management fees from ilani Casino Resort.

Operating Costs and Expenses

Operating costs and expenses decreased $8.0 million, or 53.7%, for the three months ended March 31, 2022 compared with the same period in the prior year. The decrease in operating costs and expenses for the three months ended March 31, 2022 primarily reflected lower pre-opening costs and expenses related to Inspire Korea. Operating costs and expenses increased $28.7 million, or 109.9%, for the six months ended March 31, 2022 compared with the same period in the prior year. As described in Note 1, the increase in operating costs and expenses for the six months ended March 31, 2022 was primarily driven by $30.5 million in impairment charges related to Inspire Korea.

All Other

Revenues

Net revenues totaled $13.3 million for the three months ended March 31, 2022. Net revenues totaled $23.5 million for the six months ended March 31, 2022. These results represent revenues generated by Mohegan Sun Las Vegas, which opened in March 2021, and our online casino gaming and sports wagering operations, which launched in October 2021.

Operating Costs and Expenses

Operating costs and expenses totaled $13.2 million for the three months ended March 31, 2022. Operating costs and expenses totaled $23.7 million for the six months ended March 31, 2022. These results represent operating costs and expenses associated with Mohegan Sun Las Vegas and our online casino gaming and sports wagering operations.

Corporate

Revenues

Net revenues decreased $2.3 million, or 90.6%, for the three months ended March 31, 2022 compared with the same period in the prior year. Net revenues decreased $2.4 million, or 86.1%, for the six months ended March 31, 2022 compared with the same period in the prior year. The declines in net revenues reflected the impact of non-recurring revenues generated by our construction group in the same periods in the prior year.

Operating Costs and Expenses

Operating costs and expenses decreased $0.8 million, or 8.2%, for the three months ended March 31, 2022 compared with the same period in the prior year. This decrease primarily reflected the impact of non-recurring construction related expenses. Operating costs and expenses increased $2.1 million, or 11.5%, for the six months ended March 31, 2022 compared with the

same period in the prior year. This increase was primarily driven by higher payroll costs, as well as higher costs related to certain other administrative services.


Other Income (Expense)

	Three Months Ended March 31,				Variance				Six Months Ended March 31,				Variance
(in thousands)	2022		2021		$		%		2022		2021		$		%
Interest income	$	136	$	6	$	130	N.M.		$	249	$	4	$	245	N.M.
Interest expense, net	(52,255)		(42,442)		(9,813)		(23.1)	%	(97,086)		(84,327)		(12,759)		(15.1)	%
Loss on modification and early extinguishment of debt	—		(23,886)		23,886		N.M.		—		(23,958)		23,958		N.M.
Loss on fair value adjustment	(6,161)		—		(6,161)		N.M.		(6,161)		—		(6,161)		N.M.
Other, net	(1,887)		2,269		(4,156)		N.M.		(2,678)		3,292		(5,970)		N.M.
Income tax benefit (provision)	276		3,224		(2,948)		(91.4)	%	(1,019)		6,789		(7,808)		N.M.

__________

N.M. - Not Meaningful.

Interest Expense

Interest expense increased $9.8 million, or 23.1%, for the three months ended March 31, 2022 compared with the same period in the prior year. Interest expense increased $12.8 million, or 15.1%, for the six months ended March 31, 2022 compared with the same period in the prior year. These increases were partially offset by $5.7 million and $9.7 million in capitalized interest related to the Inspire Korea construction during the three and six months ended March 31, 2022, respectively. The increases in interest expense were due to higher weighted average interest rate and weighted average outstanding debt. See Note 2 for additional information.

Loss on Modification and Early Extinguishment of Debt

Loss on modification and early extinguishment of debt represents transaction costs expensed in connection with our January 2021 refinancing transactions.

Loss on Fair Value Adjustment

Loss on fair value adjustment is driven by changes in the estimated fair value of the warrants and put option related to Inspire Korea. See Note 2 for additional information.

Income Tax

Income tax benefit or provision is primarily driven by taxable losses incurred or taxable income generated by the MGE Niagara Resorts.

Seasonality

The gaming markets in the Northeastern United States and Niagara Falls, Canada, are seasonal in nature, with peak gaming activities often occurring during the months of May through August. Accordingly, our operating results for the three and six months ended March 31, 2022 and 2021 are not necessarily indicative of operating results for other interim periods or an entire fiscal year.

Liquidity and Capital Resources

Liquidity

As of March 31, 2022 and September 30, 2021, we held cash and cash equivalents of $167.7 million and $149.8 million, respectively, of which MGE Niagara Resorts held $26.8 million and $25.1 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 and impairment charges. Inclusive of letters of credit, which reduce borrowing availability, we had $220.8 million of borrowing capacity under our senior secured credit facility and line of credit as of March 31, 2022. In addition, inclusive of letters of credit, which reduce borrowing availability, the MGE Niagara Resorts had $103.7 million of borrowing capacity under the MGE Niagara revolving facility and MGE Niagara swingline facility as of March 31, 2022.

Cash provided by operating activities increased $62.1 million, or 92.4%, to $129.2 million for the six months ended March 31, 2022 compared with $67.2 million in the same period in the prior year. The increase in cash provided by operating activities was driven by higher net income, after factoring in non-cash items, reflecting a return to relatively normal operating conditions at our properties. See “Discussion of Consolidated Operating Results” for additional information.

Cash used in investing activities increased $117.8 million, or 331.6%, to $153.3 million for the six months ended March 31, 2022 compared with $35.5 million in the same period in the prior year. The increase in cash used in investing activities was primarily driven by higher capital expenditures related to Inspire Korea.

Cash provided by financing activities totaled $409.0 million for the six months ended March 31, 2022 compared with cash used in financing activities of $25.0 million in the same period in the prior year. The increase in cash provided by financing activities was primarily driven by additional borrowings to fund the development of Inspire Korea.

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, finance and right-of-use operating lease obligations, distributions to the Mohegan Tribe, capital expenditures and working capital requirements for the next twelve months; however, we can provide no assurance in this regard.

Critical Accounting Policies and Estimates

There has been no material change from the critical accounting policies and estimates previously disclosed in our September 30, 2021 10-K.

Cautionary Statements Regarding Forward-Looking Information

Some information included in this Quarterly Report on Form 10-Q and other materials filed by us with the Securities and Exchange Commission (the “SEC”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include information relating to business development activities, as well as capital spending, financing sources, 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 us or on our behalf. These risks and uncertainties include, but are not limited to, those relating to the following:

•the COVID-19 pandemic and the related social and economic disruptions;

•the financial performance of our various operations;

•the local, regional, national or global economic climate;

•increased competition, including the expansion of gaming in jurisdictions in which we own or operate gaming facilities;

•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;

•cyber security risks relating to our information technology and other systems, including misappropriation of patron information or other breaches of information security;

•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;

•our customers' access to inexpensive transportation to our facilities and changes in oil, fuel or other transportation-related expenses;

•unfavorable weather conditions;

•risks associated with operations in foreign jurisdictions;

•failure by our employees, agents, affiliates, vendors or businesses to comply with applicable laws, rules and regulations, including state gaming laws and regulations and anti-bribery laws such as the United States Foreign Corrupt Practices Act, and similar anti-bribery laws in other jurisdictions; and

•fluctuations in foreign currency exchange rates.

Additional information concerning potential factors that could affect our financial results is included in our September 30, 2021 10-K, 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.

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 March 31, 2022, our primary exposure to market risk was interest rate risk associated with our credit facilities which accrued interest on the basis of base rate, Eurodollar rate and Bankers’ Acceptance rate formulas, plus applicable rates, as defined under the credit facilities. Based on our variable rate outstanding debt as of March 31, 2022, a 100 basis point change in average interest rate would impact annual interest expense by approximately $2.6 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 March 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (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 March 31, 2022, 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 have been no changes 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 March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There has been no material change from the legal proceedings previously disclosed in our September 30, 2021 10-K.

Item 1A. Risk Factors

There has been no material change from the risk factors previously disclosed in our September 30, 2021 10-K.

Item 6. Exhibits


Exhibit No.						Description
4.1						Third Supplemental Indenture, dated as of April 1, 202 2 , among M ohegan Expo Center , LLC , the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and U.S. Bank Trust Company , National Association, as trustee, relating to the 8.000% Second Priority Senior Secured Notes due 2026 (filed herewith ).

4.2						Third Supplemental Indenture, dated as of April 1, 2022, among Mohegan Expo Center, LLC, the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and U.S. Bank National Association, as trustee, relating to the 7.875% Senior Notes due 2024 (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 (furnished herewith).

32.2						Section 1350 Certification of Chief Financial Officer (furnished 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).

104						Cover Page Interactive Data File (formatted as Inline XBRL).

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:	May 12, 2022	By:	/S/ RAYMOND PINEAULT
			Raymond Pineault Chief Executive Officer, Mohegan Tribal Gaming Authority (Principal Executive Officer)

Date:	May 12, 2022	By:	/S/ CAROL K. ANDERSON
			Carol K. Anderson Chief Financial Officer, Mohegan Tribal Gaming Authority (Principal Financial Officer)

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Mohegan Tribal Gaming Authority 10-Q2022 Q2 Quarterly report

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