MOHEGAN TRIBAL GAMING AUTHORITY - FORM 10-Q - February 21, 2017

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549 
_________________________________
FORM 10-Q
 _____________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2016
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  ¨    No  x*
*
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 and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  o
Accelerated filer  o
Non-accelerated filer  x
Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):     Yes  ¨    No  x


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


PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements

MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
 
 
December 31,
2016
 
September 30,
2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
114,746

 
$
83,743

Restricted cash
309

 
1,232

Receivables, net
43,555

 
42,783

Inventories
15,444

 
15,312

Other current assets
18,300

 
22,409

Total current assets
192,354

 
165,479

Non-current assets:
 
 
 
Restricted cash
184,464

 
205,833

Property and equipment, net
1,319,054

 
1,326,544

Goodwill
39,459

 
39,459

Other intangible assets, net
404,187

 
404,289

Other assets, net
91,769

 
86,358

Total assets
$
2,231,287

 
$
2,227,962

LIABILITIES AND CAPITAL
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
56,472

 
$
24,259

Due to Mohegan Tribe
—

 
5,500

Current portion of capital leases
—

 
856

Trade payables
11,493

 
13,690

Construction payables
3,407

 
8,462

Accrued interest payable
8,880

 
5,512

Other current liabilities
154,422

 
149,361

Total current liabilities
234,674

 
207,640

Non-current liabilities:
 
 
 
Long-term debt, net of current portion
1,715,081

 
1,647,988

Due to Mohegan Tribe, net of current portion
—

 
7,420

Capital leases, net of current portion
—

 
665

Other long-term liabilities
1,431

 
1,597

Total liabilities
1,951,186

 
1,865,310

Commitments and Contingencies


 


Capital:
 
 
 
Retained earnings
185,480

 
249,102

Accumulated other comprehensive income (loss)
(3,791
)
 
5,106

Mohegan Tribal Gaming Authority total capital
181,689

 
254,208

Non-controlling interests
98,412

 
108,444

Total capital
280,101

 
362,652

Total liabilities and capital
$
2,231,287

 
$
2,227,962

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


3

MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
 
 
For the
 
For the
 
Three Months Ended
 
Three Months Ended
 
December 31, 2016
 
December 31, 2015
Revenues:
 
 
 
Gaming
$
285,075

 
$
292,397

Food and beverage
23,056

 
22,017

Hotel
14,703

 
12,337

Retail, entertainment and other
34,465

 
30,469

Gross revenues
357,299

 
357,220

Less-Promotional allowances
(26,307
)
 
(24,034
)
Net revenues
330,992

 
333,186

Operating costs and expenses:
 
 
 
Gaming*
169,382

 
166,993

Food and beverage
10,329

 
10,324

Hotel*
6,203

 
3,816

Retail, entertainment and other
15,387

 
9,489

Advertising, general and administrative*
50,396

 
49,376

Corporate*
11,188

 
4,012

Depreciation and amortization
18,212

 
19,128

(Gain) loss on disposition of assets
20

 
(28
)
Pre-opening
455

 
—

Total operating costs and expenses
281,572

 
263,110

Income from operations
49,420

 
70,076

Other income (expense):
 
 
 
Interest income
2,900

 
2,130

Interest expense
(30,035
)
 
(34,147
)
Loss on modification and early extinguishment of debt
(73,796
)
 
(207
)
Loss from unconsolidated affiliates
(731
)
 
(393
)
Other income (expense), net
1

 
(9
)
Total other expense
(101,661
)
 
(32,626
)
Net income (loss)
(52,241
)
 
37,450

(Income) loss attributable to non-controlling interests
619

 
(5,531
)
Net income (loss) attributable to Mohegan Tribal Gaming Authority
$
(51,622
)
 
$
31,919

Comprehensive income (loss):
 
 
 
Foreign currency translation
(18,310
)
 
(613
)
Other comprehensive loss
(18,310
)
 
(613
)
Other comprehensive loss attributable to non-controlling interests
9,413

 
—

Other comprehensive loss attributable to Mohegan Tribal Gaming Authority
(8,897
)
 
(613
)
Comprehensive income (loss) attributable to Mohegan Tribal Gaming Authority
$
(60,519
)
 
$
31,306


The accompanying notes are an integral part of these condensed consolidated financial statements.
* These financial statement line items include costs and expenses associated with related party transactions (refer to Note 4).


4

MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
(in thousands)
(unaudited)
 
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Mohegan Tribal Gaming Authority Total Capital
 
Non-controlling      
Interests
 
Total Capital
Balance, September 30, 2016
$
249,102

 
$
5,106

 
$
254,208

 
$
108,444

 
$
362,652

Net loss
(51,622
)
 
—

 
(51,622
)
 
(619
)
 
(52,241
)
Foreign currency translation adjustment
—

 
(8,897
)
 
(8,897
)
 
(9,413
)
 
(18,310
)
Distributions to Mohegan Tribe
(12,000
)
 
—

 
(12,000
)
 
—

 
(12,000
)
Balance, December 31, 2016
$
185,480

 
$
(3,791
)
 
$
181,689

 
$
98,412

 
$
280,101

 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2015
$
169,452

 
$
—

 
$
169,452

 
$
(1,411
)
 
$
168,041

Net income
31,919

 
—

 
31,919

 
5,531

 
37,450

Foreign currency translation adjustment
—

 
(613
)
 
(613
)
 
—

 
(613
)
Contributions from members
—

 
—

 
—

 
150

 
150

Distributions to Mohegan Tribe
(10,600
)
 
—

 
(10,600
)
 
—

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

 
$
(613
)
 
$
190,158

 
$
4,270

 
$
194,428


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


5

MOHEGAN TRIBAL GAMING AUTHORITY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
 
For the Three Months Ended
 
For the Three Months Ended
 
December 31, 2016
 
December 31, 2015
Cash flows provided by (used in) operating activities:
 
 
 
Net income (loss)
$
(52,241
)
 
$
37,450

Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:
 
 
 
Depreciation and amortization
18,212

 
19,128

Loss on modification and early extinguishment of debt, net
65,218

 
207

Amortization of debt issuance costs, premiums and discounts
1,843

 
2,244

Provision (recovery) for losses on receivables
653

 
(6,280
)
(Gain) loss on disposition of assets
20

 
(28
)
Loss from unconsolidated affiliates
731

 
393

Loss on foreign currency exchange rate
3

 
—

Changes in operating assets and liabilities:
 
 
 
Increase in receivables
(942
)
 
(8,745
)
Increase in inventories
(132
)
 
(608
)
Increase in prepaid and other assets
(4,062
)
 
(17,929
)
Decrease in trade payables
(2,196
)
 
(49
)
Increase in accrued interest
3,368

 
10,732

Increase (decrease) in other liabilities
(3,302
)
 
5,509

Net cash flows provided by operating activities
27,173

 
42,024

Cash flows provided by (used in) investing activities:
 
 
 
Purchases of property and equipment, including decreases in construction payables of $5,055 and $10,296, respectively
(15,702
)
 
(17,843
)
Issuance of third-party loans and advances
(446
)
 
(2,556
)
Payments received on third-party loans and advances
43

 
13,441

(Increase) decrease in restricted cash, net
2,681

 
(777
)
Proceeds from asset sales
29

 
82

Investments in unconsolidated affiliates
(325
)
 
(500
)
Investments in the New England Black Wolves
—

 
(250
)
Net cash flows used in investing activities
(13,720
)
 
(8,403
)
Cash flows provided by (used in) financing activities:
 
 
 
Prior Senior Secured Credit Facility borrowings - Revolving
35,000

 
231,000

Prior Senior Secured Credit Facility repayments - Revolving
(48,000
)
 
(194,000
)
Prior Senior Secured Credit Facility repayments - Term Loan A
(99,986
)
 
(2,344
)
Prior Senior Secured Credit Facility repayments - Term Loan B
(778,175
)
 
(2,053
)
Senior Secured Credit Facility borrowings - Revolving
210,000

 
—

Senior Secured Credit Facility repayments - Revolving
(111,000
)
 
—

Senior Secured Credit Facility borrowings - Term Loan A, net of discount
441,965

 
—

Senior Secured Credit Facility borrowings - Term Loan B, net of discount
777,150

 
—

Prior Line of Credit borrowings
9,735

 
123,694

Prior Line of Credit repayments
(9,735
)
 
(123,694
)
Line of Credit borrowings
138,613

 
—

Line of Credit repayments
(138,613
)
 
—

Proceeds from issuance of Senior Unsecured Notes, net of discount
496,355

 
100,000

Prior Downs Lodging Credit Facility repayments - Term Loan
—

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

 
25,000

Downs Lodging Credit Facility repayments - Term Loan
(21,656
)
 
—

Borrowings from Mohegan Tribe
—

 
22,500

Repayments to Mohegan Tribe
(12,920
)
 
—

Repayments of other long-term debt
(785,259
)
 
(129
)
Payments on capital lease obligations
(1,521
)
 
(203
)
Distributions to Mohegan Tribe
(12,000
)
 
(10,600
)
Payments of tender offer and repurchase costs
(50,308
)
 
—

Payments of financing fees
(22,092
)
 
(4,621
)
Non-controlling interest contributions
—

 
150

Net cash flows provided by financing activities
17,553

 
124,184

Net increase in cash and cash equivalents
31,006

 
157,805

Effect of exchange rate on cash and cash equivalents
(3
)
 
(613
)
Cash and cash equivalents at beginning of period
83,743

 
65,754

Cash and cash equivalents at end of period
$
114,746

 
$
222,946

 
 
 
 
Supplemental disclosures:
 
 
 
Cash paid during the period for interest
$
24,826

 
$
21,177

Non-cash Senior Secured Credit Facility repayments - Term Loan A and Term Loan B
$
18,651

 
$
30,196

Non-cash payments received - Cowlitz Tribal Gaming Authority
$
—

 
$
6,000

Non-cash repayments - Mohegan Tribe
$
—

 
$
6,000

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

6

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

NOTE 1—ORGANIZATION:
The Mohegan Tribe of Indians of Connecticut (the “Mohegan Tribe” or the “Tribe”) established the Mohegan Tribal Gaming Authority (the “Authority”) in July 1995 with the exclusive authority to conduct and regulate gaming activities for the Tribe on Tribal lands and the non-exclusive authority to conduct such activities elsewhere. The Tribe is a federally-recognized Indian tribe with an approximately 595-acre reservation situated in Southeastern Connecticut, adjacent to Uncasville, Connecticut. Under the Indian Gaming Regulatory Act of 1988, federally-recognized Indian tribes are permitted to conduct full-scale casino gaming operations on tribal lands, subject to, among other things, the negotiation of a compact with the affected state. The Tribe and the State of Connecticut entered into a compact (the “Mohegan Compact”), which was approved by the United States Secretary of the Interior. The Authority is primarily engaged in the ownership, operation and development of gaming facilities. In October 1996, the Authority opened Mohegan Sun, a gaming and entertainment complex situated on an approximately 185-acre site on the Tribe's reservation. The Authority is governed by a nine-member Management Board, whose members also comprise the Mohegan Tribal Council, the governing body of the Tribe. Any change in the composition of the Mohegan Tribal Council results in a corresponding change in the Authority's Management Board.
As of December 31, 2016, 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”) and Mohegan Gaming Advisors, LLC ("Mohegan Gaming Advisors").
MBC owns and operates the Connecticut Sun, a professional basketball team in the Women's National Basketball Association (the “WNBA”). MBC currently owns a 4.2% membership interest in WNBA, LLC.
Mohegan Golf owns and operates the Mohegan Sun Golf Club in Southeastern Connecticut.
Mohegan Lacrosse holds a 50% membership interest in New England Black Wolves, LLC (“NEBW”). NEBW owns and operates the New England Black Wolves, a professional indoor lacrosse team in the National Lacrosse League.
MCV-PA holds a 0.01% general partnership interest in each of Downs Racing, L.P. (“Downs Racing”), Backside, L.P., Mill Creek Land, L.P. and Northeast Concessions, L.P. (collectively, along with MCV-PA, the “Pocono Subsidiaries”), while the Authority holds the remaining 99.99% limited partnership interest in each entity. Downs Racing owns and operates Mohegan Sun Pocono, a gaming and entertainment facility situated on an approximately 400-acre site in Plains Township, Pennsylvania, and several off-track wagering facilities located elsewhere in Pennsylvania (collectively, the “Pennsylvania Facilities”).
The Authority views the operations of Mohegan Sun, MBC, Mohegan Golf and Mohegan Lacrosse (collectively, the “Connecticut Facilities”) 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 to participate in the development and management of ilani Casino Resort, a gaming and entertainment facility owned by the federally-recognized Cowlitz Indian Tribe (the “Cowlitz Tribe”), which is currently being constructed on the Cowlitz reservation in Clark County, Washington (the “Cowlitz Project”).
Mohegan Gaming Advisors was formed to pursue gaming opportunities outside the State of Connecticut, including management contracts and consulting agreements for casino and entertainment properties. The subsidiary and investment interests held by Mohegan Gaming Advisors include the following:
•
a 100% membership interest in MGA Holding NJ, LLC (“MGA Holding NJ”) and MGA Gaming NJ, LLC (collectively, the “Mohegan NJ Entities”). The Mohegan NJ Entities were formed to pursue management contracts and consulting agreements in the State of New Jersey. MGA Holding NJ holds a 10% ownership interest in Resorts Casino Hotel in Atlantic City, New Jersey, and its associated gaming activities, including on-line gaming in the State of New Jersey.
•
a 100% membership interest in MGA Holding MA, LLC (“MGA Holding MA”) and MGA Gaming MA, LLC (“MGA Gaming MA”). MGA Holding MA holds a 100% membership interest in MGA Palmer Partners, LLC (“MGA Palmer Partners”). MGA Palmer Partners holds a 100% membership interest in Mohegan Sun Massachusetts, LLC (“Mohegan Sun Massachusetts” and, together with MGA Holding MA, MGA Gaming MA and MGA Palmer Partners, collectively referred to herein as the “Mohegan MA Entities”). The Mohegan MA Entities were formed to pursue gaming opportunities in the Commonwealth of Massachusetts.

7
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

•
a 50.19% membership interest in Inspire Integrated Resort Co., Ltd. (“Inspire Integrated Resort”). Inspire Integrated Resort was formed to pursue gaming opportunities in South Korea ("Project Inspire").
•
a 100% membership interest in MGNV, LLC (“MGNV”). MGNV was formed to pursue gaming, hospitality and entertainment opportunities in the State of Nevada.
•
a 100% membership interest in MGLA, LLC (“MGLA”). MGLA was formed to pursue gaming, hospitality and entertainment opportunities in the State of Louisiana.
•
a 100% membership interest in MGBR, LLC (“MGBR”). MGBR was formed to pursue gaming, hospitality and entertainment opportunities in South America. MGBR holds a 7.4% membership interest in an unaffiliated third-party limited liability company.
The Authority holds a 50% membership interest in MMCT Venture, LLC (“MMCT”). MMCT was formed with the Mashantucket Pequot Tribe (the “MPT”) to pursue additional gaming opportunities in the State of Connecticut.

NOTE 2—BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In accordance with Rule 10-01, the accompanying unaudited condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The accompanying year-end condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In management's opinion, all adjustments, including normal recurring accruals and adjustments, necessary for a fair statement of the Authority's operating results for the interim period, have been included. In addition, certain amounts in the accompanying 2016 condensed consolidated financial statements have been reclassified to conform to the 2017 presentation.
The gaming market in the Northeastern United States is seasonal in nature, with peak gaming activities often occurring at Mohegan Sun and Mohegan Sun Pocono during the months of May through August. Accordingly, the Authority's operating results for the three months ended December 31, 2016 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, 2016.
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 ("VIE"), the accounts of Salishan-Mohegan are consolidated into the accounts of Mohegan Ventures-NW, the accounts of Inspire Integrated Resort are consolidated into the accounts of Mohegan Gaming Advisors and the accounts of NEBW are consolidated into the accounts of Mohegan Lacrosse as Mohegan Ventures-NW, Mohegan Gaming Advisors and Mohegan Lacrosse are deemed to be the primary beneficiaries. A primary beneficiary is defined as the party that has both the power to direct the activities that most significantly impact the VIE's economic performance and the obligation to absorb losses of or the right to receive benefits from the VIE that could potentially be significant to the VIE. To determine whether the Authority's interest in a VIE could potentially be significant to the VIE, the Authority considers both qualitative and quantitative factors regarding the nature, size and form of its involvement in the VIE. The Authority assesses whether it is the primary beneficiary of a VIE or the holder of a significant variable interest in a VIE on an on-going basis. In consolidation, all inter-company balances and transactions were eliminated.
Long-Term Receivables
Long-term receivables consist primarily of receivables from affiliates and others.
Receivables from affiliates, which are included in receivables, net, and other assets, net, in the accompanying condensed consolidated balance sheets, consist of reimbursable costs and expenses advanced by Salishan-Mohegan on behalf of the Cowlitz Tribe for the Cowlitz Project (refer to Note 6). The Salishan-Mohegan receivables are payable upon: (1) the related property being taken into trust by the United States Department of the Interior and (2) the receipt of necessary financing for the development of the planned casino. In March 2015, the Cowlitz Project site was taken into trust by the United States Department of the Interior

8
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

for the benefit of the Cowlitz Tribe. In addition, in December 2015, the Cowlitz Tribal Gaming Authority (the “CTGA”) obtained financing for the Cowlitz Project. The financing provided funding for construction of the Cowlitz Project and a partial repayment of the Salishan-Mohegan receivables. The Authority maintains a reserve for doubtful collection of the remaining Salishan-Mohegan receivables, which is based on the Authority's estimate of the probability that the receivables will be collected. The Authority assesses the reserve for doubtful collection of the Salishan-Mohegan receivables for adequacy on a quarterly basis. In fiscal 2016, following the financing of the Cowlitz Project, the Authority reduced the reserve for doubtful collection of the Salishan-Mohegan receivables. Future developments in the construction and opening of the casino, cash flows generated by the casino and other matters affecting the Cowlitz Project could affect the collectability of the Salishan-Mohegan receivables and the related reserve.
Receivables from others, which are primarily included in other assets, net, in the accompanying condensed consolidated balance sheets, consist of funds loaned to a third-party in connection with the Cowlitz Project and a loan to a tenant of Mohegan Sun. The Authority maintains a reserve for doubtful collection of receivables from others, which is based on the Authority's estimate of the probability that these receivables will be collected considering historical experience, creditworthiness of the related third-party and tenant and all other available information. A receivable is charged off against the reserve when the Authority believes it is probable the receivable will not be recovered. The Authority believes that there is no concentration of credit risk for which a reserve has not been established. 
The following table presents a reconciliation of long-term receivables, including current portions, and the related reserves for doubtful collection of these long-term receivables (in thousands):
 
Long-Term Receivables
 
Affiliates
 
Others
 
Total
Balance, September 30, 2016 (1)
$
86,851

 
$
3,373

 
$
90,224

Additions:
 
 
 
 
 
   Advances and other loans, including interest receivable
2,372

 
445

 
2,817

   Development fees, including interest receivable
1,961

 
—

 
1,961

Deductions:
 
 
 
 
 
   Payments (2)
(1,409
)
 
(43
)
 
(1,452
)
Balance, December 31, 2016 (1)
$
89,775

 
$
3,775

 
$
93,550

__________
(1)
Includes current portions of $3.9 million and $4.9 million as of December 31, 2016 and September 30, 2016, respectively. Also, includes interest receivable of $53.6 million and $51.0 million as of December 31, 2016 and September 30, 2016, respectively.
(2)
Payments of receivables from affiliates represent payments of development fees earned.
 
Reserves for Doubtful Collection of Long-Term Receivables
 
Affiliates        
 
Others        
 
Total             
Balance, September 30, 2016
$
16,385

 
$
—

 
$
16,385

Additions:
 
 
 
 
 
   Charges to bad debt expense
474

 
—

 
474

Balance, December 31, 2016
$
16,859

 
$
—

 
$
16,859

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
•
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.

9
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

The carrying amount of cash and cash equivalents, restricted cash, receivables, trade payables and promissory notes and certain credit facilities approximates fair value. The estimated fair value of the Authority's financing facilities and notes were as follows (in thousands):
 
December 31, 2016
 
Carrying Value         
 
Fair Value         
Senior Secured Credit Facility - Revolving
$
99,000

 
$
98,876

Senior Secured Credit Facility - Term Loan A
$
419,648

 
$
429,919

Senior Secured Credit Facility - Term Loan B
$
764,010

 
$
787,931

2016 7 7/8% Senior Unsecured Notes
$
486,675

 
$
508,125

The estimated fair values of the Authority's financing facilities and notes were based on Level 2 inputs (quoted market prices or prices of similar instruments) on or about December 31, 2016.
Additional Cash Flow Information
On December 31, 2016 and 2015, the bank that administers the Authority’s debt service payments for its senior secured credit facilities made required principal payments on behalf of the Authority totaling $18.7 million and $30.2 million, respectively, but did not accordingly debit the Authority’s bank account for these payments. As of December 31, 2016 and 2015, the Authority reflected these transactions as reductions to current portion of long-term debt and corresponding increases to other current liabilities. On the respective following banking days, the bank withdrew the payments from the Authority’s bank account, resulting in reductions to the Authority’s cash and cash equivalents and other current liabilities. Accordingly, the Authority classified the payments made by the bank as non-cash financing outflows and the related amounts owed to the bank as non-cash financing inflows in the accompanying condensed consolidated statements of cash flows for the three months ended December 31, 2016 and 2015.
New Accounting Standards
In May 2014, the FASB issued an accounting standards 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 FASB has since issued several accounting standards updates to further clarify this guidance including: (1) principal versus agent considerations, (2) identifying performance obligations and licensing, (3) narrow-scope improvements and practical expedients and (4) technical corrections and improvements. The Authority is currently evaluating the impact that this guidance will have on its financial statements.
In August 2014, the FASB issued an accounting standards update which provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. The update requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. It also requires management to provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern. This guidance will be required for annual reporting periods ending after December 15, 2016, and interim reporting periods thereafter, with early application permitted. The Authority adopted this guidance in its first quarter of fiscal 2017 and its adoption did not impact the Authority's financial statements.
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 adopted this guidance in its first quarter of fiscal 2017 and its adoption did not impact the Authority's financial statements.
In February 2016, the FASB issued new guidance pertaining to leases based on the principle that entities should recognize assets and liabilities arising from leases. This guidance does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standards. Leases are classified as operating or financing. The primary change in the guidance is the requirement for entities to recognize a right-of-use asset representing the right to use

10
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

the leased asset and a lease liability for payments during the term of operating lease arrangements. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. Lessors’ accounting is largely unchanged from the previous accounting standard. In addition, the guidance expands disclosure requirements of lease arrangements. This guidance will be required to be applied on a modified retrospective basis, which includes a number of practical expedients, and will be effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods thereafter, with early application permitted. The Authority is currently evaluating the impact that this guidance will have on its financial statements.
    
In August 2016, the FASB issued an accounting standards update which clarifies the treatment of several cash flow categories in an attempt to reduce the current diversity in practice. The update also clarifies that when cash receipts and cash payments have aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source or use. This guidance will be required to be applied on a retrospective basis and will be effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods thereafter, with early application permitted. The Authority adopted this guidance in its first quarter of fiscal 2017, and as a result, payments of tender offer and repurchase costs totaling $50.3 million and payments of discounts totaling $15.5 million are classified within cash flows provided by financing activities rather than cash flows provided by operating activities in the accompanying condensed consolidated statement of cash flows for the three months ended December 31, 2016. The adoption of this guidance did not materially impact the accompanying condensed consolidated statement of cash flows for the three months ended December 31, 2015.
In October 2016, the FASB issued an accounting standards update which modifies existing guidance with respect to how a decision maker that holds an indirect interest in a VIE through a common control party determines whether it is the primary beneficiary of the VIE as part of its analysis of whether the VIE should be consolidated. This guidance will be required for annual reporting periods beginning after December 15, 2016, and interim reporting periods thereafter. The Authority is currently evaluating the impact that this guidance will have on its financial statements.
    
In November 2016, the FASB issued an accounting standards update which clarifies the classification and presentation of restricted cash in the statement of cash flows. The update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. This guidance will be required to be applied on a retrospective basis and will be effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods thereafter, with early application permitted. The Authority is currently evaluating the impact that this guidance will have on its financial statements.

In January 2017, the FASB issued an accounting standards update which eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit's goodwill. Instead, an entity would recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The guidance will be required to be applied to goodwill impairment tests conducted for annual reporting periods beginning after December 15, 2019, and interim reporting periods thereafter, with early adoption permitted. The Authority is currently evaluating the impact that this guidance will have on its financial statements.



















11
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

NOTE 3—LONG-TERM DEBT:
Long-term debt consisted of the following (in thousands, including current maturities):
 
December 31,
2016
 
September 30,
2016
Prior Senior Secured Credit Facility - Revolving, due June 2018
$
—

 
$
13,000

Prior Senior Secured Credit Facility - Term Loan A, due June 2018, net of discount and debt issuance costs of $1,464 as of September 30, 2016
—

 
95,399

Prior Senior Secured Credit Facility - Term Loan B, due June 2018, net of discount and debt issuance costs of $11,119 as of September 30, 2016
—

 
765,002

Senior Secured Credit Facility - Revolving, due October 2021
99,000

 
—

Senior Secured Credit Facility - Term Loan A, due October 2021, net of discount and debt issuance costs of $8,664 as of December 31, 2016
419,648

 
—

Senior Secured Credit Facility - Term Loan B, due October 2023, net of discount and debt issuance costs of $19,027 as of December 31, 2016
764,010

 
—

2013 9 3/4% Senior Unsecured Notes, due September 2021, net of premium and debt issuance costs of $6,475 as of September 30, 2016
—

 
578,525

2016 7 7/8% Senior Unsecured Notes, due October 2024, net of discount and debt issuance costs of $13,325 as of December 31, 2016
486,675

 
—

2015 Senior Unsecured Notes, due December 2017, net of debt issuance costs of $1,679 as of September 30, 2016
—

 
98,321

2012 11% Senior Subordinated Notes, due September 2018, net of discount and debt issuance costs of $875 as of September 30, 2016
—

 
99,315

Downs Lodging Credit Facility, due November 2019, net of debt issuance costs of $1,260 as of September 30, 2016
—

 
20,396

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

 
5,500

2013 Mohegan Tribe Promissory Note, due December 2018
—

 
7,420

Other
2,220

 
2,289

Long-term debt, excluding capital leases
1,771,553

 
1,685,167

Less: current portion of long-term debt
(56,472
)
 
(29,759
)
Long-term debt, net of current portion
$
1,715,081

 
$
1,655,408


Maturities of long-term debt, excluding unamortized debt issuance costs and discounts, are as follows (in thousands, including current maturities):
Less than 1 year
$
56,472

1-3 years
127,720

3-5 years
382,340

More than 5 years
1,246,037

Total
$
1,812,569


On October 14, 2016, the Authority completed a comprehensive refinancing of its outstanding indebtedness, including the repayment, repurchase and redemption of its Prior Senior Secured Credit Facilities, 2013 Senior Unsecured Notes, 2015 Senior Unsecured Notes and 2012 Senior Subordinated Notes, with proceeds from new senior secured credit facilities and new senior notes (all further discussed below).

The Authority incurred approximately $95.6 million in costs in connection with these refinancing transactions. Previously deferred debt issuance costs and debt discounts totaling $14.9 million, as well as $58.9 million in new transaction costs were expensed and recorded as a loss on modification and early extinguishment of debt. New debt issuance costs totaling $2.5 million were capitalized as an asset and will be amortized over the term of the related debt. The remaining $34.2 million in new debt issuance costs was reflected as debt discount and will be amortized over the term of the related debt.
Prior Senior Secured Credit Facilities
In November 2013, the Authority entered into a loan agreement providing for $855.0 million of term loans and a revolving loan with a letter of credit and borrowing capacity of up to $100.0 million from certain lenders and financial institutions, with RBS Citizens, N.A., serving as Administrative and Collateral Agent (the “Prior Senior Secured Credit Facilities”). On October 14, 2016, the Authority repaid and terminated the Prior Senior Secured Credit Facilities with proceeds from new Senior Secured

12
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

Credit Facilities (further discussed below). As of September 30, 2016, accrued interest, including commitment fees, on the Prior Senior Secured Credit Facilities was $179,000.
Senior Secured Credit Facilities
On October 14, 2016 (the “Closing Date”), the Authority entered into a credit agreement among the Authority, the Tribe, Citizens Bank, N.A., as Administrative and Collateral Agent, and the other lenders and financial institutions party thereto, providing for $1.4 billion in aggregate principal amount of senior secured credit facilities (the “Senior Secured Credit Facilities”), comprised of a $170.0 million senior secured revolving credit facility (the “Revolving Facility”), a $445.0 million senior secured term loan A facility (the “Term Loan A Facility”) and a $785.0 million senior secured term loan B facility (the “Term Loan B Facility). The Senior Secured Credit Facilities mature on October 13, 2021 (in the case of the Revolving Facility and the Term Loan A Facility) and October 13, 2023 (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 15.0% of the initial aggregate principal amount of the Term Loan A Facility for the first two years after the Closing Date, 10.0% of the initial aggregate principal amount of the Term Loan A Facility for the third year after the Closing Date and 7.5% of the initial aggregate principal amount of the Term Loan A Facility 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 initial aggregate principal amount of the Term Loan B Facility. Amortization of the Term Loan A Facility and Term Loan B Facility began with the first full fiscal quarter after the Closing Date.
The proceeds from the Term Loan A Facility and Term Loan B Facility, together with a drawing under the Revolving Facility and proceeds from the 2016 Senior Unsecured Notes (as defined below), were used to: (i) repurchase the Authority’s 2013 Senior Unsecured Notes and 2012 Senior Subordinated Notes, (ii) to satisfy in full all amounts outstanding under the Authority’s Prior Senior Secured Credit Facilities, (iii) to prepay all amounts outstanding under the Authority’s 2015 Senior Unsecured Notes and (iv) to satisfy certain other obligations and to pay related fees and expenses. The Revolving Facility is otherwise available for general corporate purposes.
Borrowings under the Senior Secured Credit Facilities accrue interest as follows: (i) for base rate loans under the Revolving Facility and Term Loan A Facility, at a base rate equal to the highest of (a) the prime rate, (b) the federal funds rate plus 50 basis points and (c) the one-month LIBOR rate plus 100 basis points (the highest of (a), (b) and (c), the “base rate”), plus a total leverage-based margin of 150 to 325 basis points; (ii) for Eurodollar rate loans under the Revolving Facility and Term Loan A Facility, at the applicable LIBOR rate (subject to a 0.0% LIBOR floor) plus a total leverage-based margin of 250 to 425 basis points; (iii) for base rate loans under the Term Loan B Facility, at the base rate plus 350 basis points; and (iv) for Eurodollar rate loans under the Term Loan B Facility, at the applicable LIBOR rate (subject to a 1.0% LIBOR floor) plus 450 basis points. The Authority is also required to pay a total leverage-based undrawn commitment fee of between 37.5 and 50 basis points under the Revolving Facility. Interest on base rate loans is payable quarterly in arrears. Interest on Eurodollar rate loans is payable at the end of each applicable interest period in arrears, but not less frequently than quarterly.
As of December 31, 2016, the $99.0 million outstanding under the Revolving Facility was comprised of a $44.0 million base rate loan based on a base rate of 3.75% plus 325 basis points, a $30.0 million Eurodollar rate loan based on a Eurodollar rate of 0.68% plus 425 basis points and a $25.0 million Eurodollar rate loan based on a Eurodollar rate of 0.74%plus 425 basis points. The commitment fee was 0.50% as of December 31, 2016. As of December 31, 2016, interest on the $428.3 million outstanding under the Term Loan A Facility was based on a Eurodollar rate of 0.77% plus 425 basis points. As of December 31, 2016, interest on the $783.0 million outstanding under the Term Loan B Facility was based on the Eurodollar rate floor of 1.0% plus 450 basis points. As of December 31, 2016, accrued interest, including commitment fees, on the Senior Secured Credit Facilities was $496,000.
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 and Mohegan Ventures-NW (collectively, the “Guarantors”; and the Guarantors other than MBC, collectively, the “Grantors”). The collateral securing the Senior Secured Credit Facilities constitutes substantially all of the Authority’s and the Grantors’ property and assets. In the future, certain other subsidiaries of the Authority may be required to become Guarantors and/or Grantors in accordance with the terms of the Senior Secured Credit Facilities.
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 and mergers or consolidations. The Senior Secured Credit Facilities also include financial maintenance covenants pertaining to total leverage, secured leverage and fixed charge coverage. The Senior Secured

13
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

Credit Facilities also contain customary events of default relating to, among other things, failure to make required payments, breach of covenants and breach of representations.
As of December 31, 2016, the Authority and the Tribe were in compliance with all respective covenant requirements under the Senior Secured Credit Facilities.
Senior Unsecured Notes
2013 9 3/4% Senior Unsecured Notes
In August 2013, the Authority issued $500.0 million senior unsecured notes with fixed interest payable at a rate of 9.75% per annum (the “Initial 2013 Senior Unsecured Notes”). In August 2015, the Authority issued an additional $85.0 million of senior unsecured notes under the Initial 2013 Senior Unsecured Notes indenture (the “Additional 2013 Senior Unsecured Notes” and, together with the Initial 2013 Senior Unsecured Notes, the “2013 Senior Unsecured Notes”). On October 14, 2016, the Authority called for redemption of all of its outstanding 2013 Senior Unsecured Notes. The 2013 Senior Unsecured Notes were redeemed on November 14, 2016. As of September 30, 2016, accrued interest on the 2013 Senior Unsecured Notes was $4.8 million.
2016 7 7/8% Senior Unsecured Notes
On October 14, 2016, the Authority issued $500.0 million senior unsecured notes with fixed interest payable at a rate of 7.875% per annum (the “2016 Senior Unsecured Notes”). The 2016 Senior Unsecured Notes mature on October 15, 2024. Interest on the 2016 Senior Unsecured Notes is payable semi-annually in arrears on April 15 and October 15, with the first interest payment scheduled for April 15, 2017. As of December 31, 2016, accrued interest on the 2016 Senior Unsecured Notes was $8.4 million.
At any time prior to October 15, 2019, the Authority may redeem the 2016 Senior Unsecured Notes, in whole or in part, at a price equal to 100% of the principal amount of the 2016 Senior Unsecured Notes redeemed plus accrued and unpaid interest, if any, to the date of redemption and a make-whole premium. The 2016 Senior Unsecured Notes are redeemable at the Authority’s option, in whole or in part, at any time on or after October 15, 2019, at specified redemption prices, together with accrued and unpaid interest, if any, to the date of redemption. If the Authority experiences specific kinds of change-of-control triggering events, it is required to make an offer to repurchase the 2016 Senior Unsecured Notes at a purchase price of 101% of the principal amount, plus accrued and unpaid interest, if any. Additionally, if the Authority undertakes specific kinds of asset sales and does not use the related sale proceeds for specified purposes, the Authority may be required to offer to repurchase the 2016 Senior Unsecured Notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest, if any. In certain circumstances, if any gaming regulatory authority requires a holder or beneficial owner of the 2016 Senior Unsecured Notes to be licensed, qualified or found suitable under applicable gaming laws, and such holder or beneficial owner does not obtain such license, qualification or finding of suitability within a specified time, the Authority can require such holder or beneficial owner to dispose of its 2016 Senior Unsecured Notes or call for redemption of the 2016 Senior Unsecured Notes held by such holder or beneficial owner at a purchase price equal to accrued and unpaid interest, if any, plus the lesser of 100% of the principal amount thereof or the price paid for such notes by such holder or beneficial owner.
The 2016 Senior Unsecured Notes are unsecured, unsubordinated obligations of the Authority. The 2016 Senior Unsecured Notes are guaranteed by the Guarantors and will be guaranteed by any restricted subsidiary of the Authority that becomes a guarantor in accordance with the terms of the 2016 Senior Unsecured Notes indenture.
The 2016 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 2016 Senior Unsecured Notes indenture also includes customary events of default, including, but not limited to, failure to make required payments, failure to comply with certain agreements or covenants, failure to pay certain other 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.
As of December 31, 2016, the Authority and the Tribe were in compliance with all respective covenant requirements under the 2016 Senior Unsecured Notes indenture.
The 2016 Senior Unsecured Notes and guarantees have not been and will not be registered under the Securities Act of 1933 or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from such registration requirements.

14
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

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.
Facility Agreement for Senior Unsecured Notes
In November 2015, the Authority entered into an agreement (the “Facility Agreement”) by and among the Authority, the Tribe and UBS AG, London Branch (“UBS”). Pursuant to the Facility Agreement, the Authority may issue, from time to time, to UBS or its designee, senior unsecured notes in an aggregate principal amount of up to $100.0 million (after taking into account borrowings described below), in varying amounts and with varying borrowing dates, maturities and interest rates, as agreed with UBS or its designee.
In November 2015, in accordance with the Facility Agreement, the Authority entered into a note purchase agreement pursuant to which it issued floating rate senior notes in an aggregate principal amount of $100.0 million (the “2015 Senior Unsecured Notes”). On October 14, 2016, the Authority repaid and terminated the 2015 Senior Unsecured Notes. As of September 30, 2016, prepaid interest on the 2015 Senior Unsecured Notes was $1.1 million.
Senior Subordinated Notes
2012 11% Senior Subordinated Notes
In March 2012, the Authority issued $344.2 million Senior Subordinated Toggle Notes with fixed interest payable at a rate of 11% per annum (the “2012 Senior Subordinated Notes”). On October 14, 2016, the Authority called for redemption of all of its outstanding 2012 Senior Subordinated Notes. The 2012 Senior Subordinated Notes were redeemed on November 14, 2016. As of September 30, 2016, accrued interest on the 2012 Senior Subordinated Notes was $490,000.
Line of Credit
On October 14, 2016, in connection with the new Senior Secured Credit Facilities, the Authority entered into a $25.0 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 December 31, 2016, no amount was drawn on the Line of Credit. Borrowings under the Line of Credit are uncollateralized general obligations of the Authority. The Line of Credit contains negative covenants and financial maintenance covenants that are substantially the same as those contained in the Senior Secured Credit Facilities. As of December 31, 2016, the Authority was in compliance with all covenant requirements under the Line of Credit. As of December 31, 2016 and September 30, 2016, accrued interest on the Line of Credit was $22,000 and $14,000, respectively.
Downs Lodging Credit Facility
In July 2012, Downs Lodging, LLC ("Downs Lodging"), a single purpose entity and wholly-owned subsidiary of the Authority, entered into a credit agreement providing for a $45.0 million term loan from a third-party lender (the “Prior Downs Lodging Credit Facility”). The proceeds from the Prior Downs Lodging Credit Facility were used by Downs Lodging to fund Project Sunlight, a hotel and convention center expansion project at Mohegan Sun Pocono.
In November 2015, the Prior Downs Lodging Credit facility was refinanced with proceeds from a new credit agreement, providing for a $25.0 million term loan from a third-party lender (the “Downs Lodging Credit Facility”), and a cash payment of the remaining amount. On October 14, 2016, the Authority repaid and terminated the Downs Lodging Credit Facility, and simultaneously merged Downs Lodging into Downs Racing, with Downs Racing being the surviving entity. As of September 30, 2016, accrued interest on the Downs Lodging Credit Facility was $73,000.
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”). On October 14, 2016, the Authority repaid the remaining outstanding principal amount of the 2012 Mohegan Tribe Minor’s Trust Promissory Note. As of September 30, 2016, accrued interest on the 2012 Mohegan Tribe Minor's Trust Promissory Note was $2,000.


15
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

2013 Mohegan Tribe Promissory Note
In March 2013, MG&H purchased and acquired all of the Tribe's membership interest in MG&H in exchange for a $7.4 million promissory note (the “2013 Mohegan Tribe Promissory Note”). On October 14, 2016, the Authority repaid the 2013 Mohegan Tribe Promissory Note. As of September 30, 2016, accrued interest on the 2013 Mohegan Tribe Promissory Note was $1,000.
2015 Mohegan Tribe Promissory Note
In November 2015, the Tribe made a $22.5 million loan to Mohegan Gaming Advisors (the “2015 Mohegan Tribe Promissory Note”). The remaining outstanding principal amount of the 2015 Mohegan Tribe Promissory Note was repaid at maturity in April 2016.


NOTE 4—RELATED PARTY TRANSACTIONS:
Distributions to the Tribe totaled $12.0 million and $10.6 million for the three months ended December 31, 2016 and 2015, respectively.
The Tribe provides certain governmental and administrative services in connection with the operation of Mohegan Sun. Expenses incurred for such services were recorded within operating costs and expenses in the accompanying condensed consolidated statements of income (loss) and comprehensive income (loss) as follows (in millions):
 
For the Three Months Ended
 
December 31, 2016
 
December 31, 2015
Gaming
$
1.1

 
$
1.0

Advertising, general and administrative
5.3

 
5.0

Corporate
1.6

 
1.5

Total
$
8.0

 
$
7.5

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 $4.2 million and $3.8 million for the three months ended December 31, 2016 and 2015, respectively.
The Authority incurred interest expense associated with borrowings from the Mohegan Tribe totaling $32,000 and $599,000 for the three months ended December 31, 2016 and 2015, respectively.

The Authority leases the land on which Mohegan Sun is located from the Tribe under a long-term lease agreement. In July 2008, the Authority entered into an additional land lease agreement with the Tribe relating to property located adjacent to the Tribe's reservation that is utilized by Mohegan Sun for employee parking. This agreement required the Authority to make monthly payments equaling $75,000 until maturity on June 30, 2018. The Authority classified this lease as a capital lease for financial reporting purposes due to the existence of a bargain purchase option at the expiration of the lease. This land lease was paid off and terminated on October 14, 2016 and the property was merged into the land under the long-term lease agreement.
In March 2015, the Authority entered into a sublease agreement with the Mohegan Tribal Finance Authority to sublease the Earth Hotel Tower and related improvements for the purpose of operating the hotel on a triple net basis for a term of 28 years and 4 months. The Authority also entered into a similar sublease agreement with the Tribe to sublease a related connector which connects the Earth Hotel Tower to the Sky Hotel lobby. Rental payments under these subleases commenced with the opening of the Earth Hotel Tower, which occurred in November 2016. The Authority classified these subleases as operating leases for financial reporting purposes in accordance with authoritative guidance issued by the FASB pertaining to the accounting for leases. The Authority incurred lease expenses associated with these subleases totaling $1.7 million for the three months ended December 31, 2016, which were recorded within hotel operating costs and expenses in the accompanying condensed consolidated statement of loss and comprehensive loss.
As of December 31, 2016 and September 30, 2016, funds loaned, including accrued interest, to Salishan Company, LLC and its owner in connection with the Cowlitz Project totaled $3.3 million and $2.8 million, respectively.
    




16
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

NOTE 5—COMMITMENTS AND CONTINGENCIES:
Slot Win and Free Promotional Slot Play Contributions
In May 1994, the Tribe and the State of Connecticut entered into a Memorandum of Understanding (“MOU”), which sets forth certain matters regarding implementation of the Mohegan Compact. The MOU stipulates that a portion of revenues from slot machines must be paid to the State of Connecticut (“Slot Win Contribution”). Slot Win Contribution payments are not required if the State of Connecticut legalizes any other gaming operation with slot machines, video facsimiles of games of chance or other commercial casino games within the State of Connecticut, except those consented to by the Tribe and the MPT. For each 12-month period commencing July 1, 1995, Slot Win Contribution payments shall be the lesser of: (1) 30% of gross revenues from slot machines or (2) the greater of (a) 25% of gross revenues from slot machines or (b) $80.0 million.
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 $35.8 million for the three months ended December 31, 2016 and 2015, respectively. As of December 31, 2016 and September 30, 2016, the combined outstanding Slot Win Contribution and free promotional slot play contribution totaled $12.5 million and $12.3 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 State Horse Racing Commission (the “PSHRC”). The Pennsylvania Slot Machine Tax is currently 55% of gross revenues from slot machines. By statute, 2% of the Pennsylvania Slot Machine Tax 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. However, on September 28, 2016, the Pennsylvania Supreme Court declared this provision to be unconstitutional and imposed a deadline of 120 days before its ruling will take effect. 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 $27.7 million and $30.4 million for the three months ended December 31, 2016 and 2015, respectively. As of December 31, 2016 and September 30, 2016, outstanding Pennsylvania Slot Machine Tax payments totaled $7.1 million and $4.8 million, respectively.
Pennsylvania Table Game Tax
In January 2010, the Commonwealth of Pennsylvania amended the Pennsylvania Race Horse Development and Gaming Act to allow slot machine operators in the Commonwealth of Pennsylvania to obtain a table game operation certificate and operate certain table games, including poker. Under the amended law, holders of table game operation certificates must pay a portion of revenues from table games to the PGCB on a weekly basis (“Pennsylvania Table Game Tax”). The Pennsylvania Table Game Tax was 12%, plus 2% in local share assessments. Effective August 1, 2016, the Pennsylvania Table Game Tax was increased to 14%, 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 December 31, 2016 and 2015, respectively. As of December 31, 2016 and September 30, 2016, outstanding Pennsylvania Table Game Tax payments totaled $161,000 and $93,000, respectively.

17
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

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”). The Pennsylvania Regulatory Fee was 1.5% of gross revenues from slot machines and table games. Effective August 1, 2016, the Pennsylvania Regulatory Fee was increased to 1.7% 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 December 31, 2016 and 2015. As of December 31, 2016 and September 30, 2016, outstanding Pennsylvania Regulatory Fee payments to the PGCB totaled $157,000 and $112,000, respectively.
Pennsylvania Gaming Control Board Loans
The PGCB was initially granted $36.1 million in loans to fund start-up costs for gaming in the Commonwealth of Pennsylvania, which are to be repaid by slot machine licensees (the "Initial Loans"). The PGCB was subsequently granted an additional $63.8 million in loans to fund ongoing gaming oversight costs, which are also to be repaid by slot machine licensees (the "Subsequent Loans"). Repayment of the Initial Loans will commence when all 14 authorized gaming facilities are opened in the Commonwealth of Pennsylvania. Currently, 12 of the 14 authorized gaming facilities have commenced operations. As of December 31, 2016, 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 $152,000 and $157,000 for the three months ended December 31, 2016 and 2015, respectively.
Horsemen’s Agreement
Downs Racing and the PSHRC are parties to an agreement that governs all live harness racing and simulcasting and account wagering at the Pennsylvania Facilities through December 31, 2017. As of December 31, 2016 and September 30, 2016, outstanding payments to the PSHRC for purses earned by horsemen, but not yet paid, totaled $5.0 million.
Priority Distribution Agreement
In August 2001, the Authority and the Tribe entered into an agreement (the “Priority Distribution Agreement”), which stipulates that the Authority must make monthly payments to the Tribe to the extent of the Authority's Net Cash Flow as defined under the Priority Distribution Agreement. The Priority Distribution Agreement was amended as of December 31, 2014. As amended, the Priority Distribution Agreement, which has a perpetual term, limits the minimum aggregate priority distribution payments in each calendar year to $40.0 million. Payments under the Priority Distribution Agreement: (1) do not reduce the Authority's obligations to reimburse the Tribe for governmental and administrative services provided by the Tribe or to make payments under any other agreements with the Tribe, (2) are limited obligations of the Authority and are payable only to the extent of the Authority's Net Cash Flow as defined under the Priority Distribution Agreement and (3) are not secured by a lien or encumbrance on any of the Authority's assets or properties.

The Authority reflected payments associated with the Priority Distribution Agreement totaling $10.0 million for each of the three months ended December 31, 2016 and 2015.
Litigation and Legal Proceedings
On February 2, 2017, the Authority was informed by a representative of the PGCB’s Office of Enforcement Counsel (“OEC”) that OEC is nearing completion of a review of possible operational control deficiencies at Mohegan Sun Pocono, and that based on OEC’s preliminary findings, OEC anticipates that Mohegan Sun Pocono will be subject to disciplinary action including a fine and undertakings to remediate the issues identified by OEC. The operational control deficiencies, which the Authority is presently in the process of remediating, relate to, among other things, its system of tracking and reporting the issuance of certain customer incentives such as free promotional slot play.
On February 14, 2017, the Authority informed OEC that, in connection with the Authority’s ongoing review of Mohegan Sun Pocono’s operations, the Authority terminated in January 2017 Mohegan Sun Pocono’s business relationship with ReferLocal,

18
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

a marketing and advertising company with which Mohegan Sun Pocono did business since 2011 and in which the Authority’s former President and Chief Executive Officer has a 5% equity interest, which equity interest had not previously been disclosed to the Authority’s Management Board. On February 3, 2017, the Authority received a letter from counsel to ReferLocal asserting, among other things, that ReferLocal had suffered damages in connection with the termination of this business relationship and may seek recovery of such damages from the Authority and its former President and Chief Executive Officer. ReferLocal is not registered with the PGCB as a gaming service provider, and the Authority cannot predict whether OEC will conclude that such registration was required or that one or more other aspects of Mohegan Sun Pocono’s prior business relationship with ReferLocal was not in compliance with applicable gaming regulations.
The outcome of the foregoing matters is uncertain and the Authority cannot estimate the extent of materiality or the amount or range of reasonably possible loss that may result from them.
The Authority is also a defendant in various claims and legal actions resulting from its normal course of business. Some of these matters relate to personal injuries to patrons and damages to patrons' personal assets. The Authority estimates guest claims expense and accrues for such liabilities based upon historical experience. 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—MOHEGAN VENTURES-NORTHWEST, LLC (COWLITZ PROJECT):
Mohegan Ventures-NW, a wholly-owned subsidiary of the Authority, is one of three current members in Salishan-Mohegan. Salishan-Mohegan was formed to participate in the development and management of ilani Casino Resort, a gaming and entertainment facility owned by the federally-recognized Cowlitz Tribe and its gaming authority, CTGA, which is currently being constructed on the Cowlitz reservation in Clark County, Washington. Mohegan Ventures-NW, Salishan Company, LLC, an unrelated entity, and a subsidiary of the Tribe hold membership interests in Salishan-Mohegan of 49.15%, 40% and 10.85%, respectively. Salishan-Mohegan is not a restricted entity of the Authority, and therefore, is not a guarantor of the Authority’s debt obligations.
In September 2004, Salishan-Mohegan entered into development and management agreements with the Cowlitz Tribe in connection with the Cowlitz Project, which agreements have been amended from time to time.
Under the terms of the development agreement, Salishan-Mohegan assists in securing financing, as well as administration and oversight of the planning, designing, development, construction and furnishing of the 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 earned by Salishan-Mohegan are distributed to Mohegan Ventures-NW. In 2006, pursuant to the development agreement, Salishan-Mohegan purchased an approximately 152-acre site for the casino.
In addition, certain receivables contributed to Salishan-Mohegan and amounts advanced by Salishan-Mohegan on behalf of the Cowlitz Tribe are reimbursable to Salishan-Mohegan by the Cowlitz Tribe, subject to appropriate approvals defined under the development agreement.
Under the terms of the management agreement, Salishan-Mohegan will manage, operate and maintain the 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. The Cowlitz Tribe’s Class III Tribal-State gaming compact with the State of Washington became effective in August 2014 and was amended in April 2015. As amended, the compact authorizes the operation of up to 3,000 total gaming machines and 75 table games in a single facility, through the Cowlitz Tribe’s direct allocation of 1,075 gaming machines and 60 table games and the ability to lease additional units from other tribes. The compact is in effect until terminated by written agreement of both parties.
In March 2013, litigation commenced challenging the decision of the Assistant Secretary—Indian Affairs of the Department of the Interior to take the Cowlitz Project site into trust. In December 2014, the U.S. District Court for the District of Columbia granted summary judgment in favor of the federal government and Cowlitz Tribe, upholding the Record of Decision to take the site into trust. The plaintiffs appealed to the U.S. Court of Appeals for the District of Columbia Circuit. In July 2016, the Circuit Court of Appeals affirmed the judgment of the District Court in its entirety. In November 2016, certain of the plaintiffs filed a petition to the U.S. Supreme Court for a writ of certiorari to overturn the Circuit Court of Appeals ruling and that petition remains pending. The Authority can provide no assurance as to the outcome of that petition or any future litigation.

19
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

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 carrying value of the land totaling approximately $20.0 million was transferred to the Cowlitz Tribe at the time the site was taken into trust. This transfer resulted in additional receivables due from the Cowlitz Tribe. In April 2016, the remaining land totaling approximately $686,000 was transferred to CTGA. In connection with this transfer, Salishan-Mohegan assigned the outstanding balance of the promissory note that funded the acquisition of this portion of the land totaling approximately $342,000 to CTGA. The remaining $344,000 was recorded as an additional receivable due from the Cowlitz Tribe.
Construction of the Cowlitz Project commenced in September 2015 and is anticipated to be completed in late spring of 2017. The Authority can provide no assurance that remaining permits or approvals related to construction and opening or other remaining steps and conditions for the Cowlitz Project site to be approved for gaming will be satisfied.
In December 2015, the CTGA obtained financing for the Cowlitz Project. The financing provided funding for construction of the Cowlitz Project and a partial repayment of the Salishan-Mohegan receivables. In connection with this transaction, Salishan-Mohegan was repaid $19.4 million of the Salishan-Mohegan receivables, a portion of which was used to repay certain outstanding debt of Salishan-Mohegan. Under the terms of the development agreement, the remaining outstanding Salishan-Mohegan receivables are to be repaid in equal monthly installments over a seven-year period commencing the first month following the opening of the Cowlitz Project. The remaining outstanding Salishan-Mohegan receivables accrue interest at an annual rate equal to 1.0% above the Cowlitz Project financing rate, or 12.5%. Pursuant to the development agreement, repayment of the remaining outstanding Salishan-Mohegan receivables may accelerate depending on the level of available cash at the end of each fiscal year, subject to certain conditions as set forth in the development agreement, including conditions of the Cowlitz financing. Also in connection with the Cowlitz financing, Salishan-Mohegan assigned the lease for the Cowlitz Project site to CTGA.
The Authority maintains a reserve for doubtful collection of the Salishan-Mohegan receivables, which is based on the Authority's estimate of the probability that the receivables will be collected. The Authority assesses the reserve for doubtful collection of the Salishan-Mohegan receivables for adequacy on a quarterly basis. In fiscal 2016, following the financing of the Cowlitz Project, the Authority reduced the reserve for doubtful collection of the Salishan-Mohegan receivables. Future developments in the construction and opening of the casino, cash flows generated by the casino and other matters affecting the Cowlitz Project could affect the collectability of the Salishan-Mohegan receivables and the related reserve. As of December 31, 2016 and September 30, 2016, the Salishan-Mohegan receivables, including accrued interest, totaled $84.3 million and $81.9 million, respectively. As of December 31, 2016 and September 30, 2016, related reserves for doubtful collection totaled $16.9 million and $16.4 million, respectively. The Salishan-Mohegan receivables were included in other assets, net, in the accompanying condensed consolidated balance sheets.
The Authority earned development fees, including accrued interest, totaling $1.8 million and $4.5 million for the three months ended December 31, 2016 and 2015, respectively.

NOTE 7—MOHEGAN GAMING ADVISORS, LLC (PROJECT INSPIRE):
Mohegan Gaming Advisors, a wholly-owned subsidiary of the Authority, currently holds a 50.19% membership interest in Inspire Integrated Resort, which was formed to pursue gaming opportunities in South Korea. The remaining 49.81% membership interest in Inspire Integrated Resort is held by an unrelated third-party and its affiliates. Inspire Integrated Resort is not a restricted entity of the Authority, and therefore, is not a guarantor of the Authority’s debt obligations.
In February 2016, Inspire Integrated Resort was awarded pre-approval for a gaming license to be issued upon the completion of construction of Project Inspire, a proposed integrated resort and casino to be located at Incheon International Airport in South Korea. In August 2016, Inspire Integrated Resort entered into an implementation agreement with the Incheon International Airport Authority for the long-term lease and development of land at the project site adjacent to the airport.
Mohegan Gaming Advisors and its partner have each contributed approximately $100.0 million in cash into Project Inspire. As of December 31, 2016, unused contributions, after factoring in the effect of the exchange rate, totaled approximately $184.5 million and were included in non-current assets - restricted cash in the accompanying condensed consolidated balance sheet.







20
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)

NOTE 8—SEGMENT REPORTING:
As of December 31, 2016, the Authority owns and operates, either directly or through subsidiaries, the Connecticut Facilities and the Pennsylvania Facilities. Substantially all of the Authority's revenues are derived from these operations. The Connecticut Sun franchise, the Mohegan Sun Golf Club and the New England Black Wolves franchise are aggregated with the Mohegan Sun operating segment because these operations all share similar economic characteristics, which is to generate gaming and entertainment revenues by attracting patrons to Mohegan Sun. The Authority's executive officers review and assess the performance and operating results and determine the proper allocation of resources to the Connecticut Facilities and the Pennsylvania Facilities on a separate basis. Accordingly, the Authority has two separate reportable segments: (1) Mohegan Sun, which includes the operations of the Connecticut Facilities and (2) Mohegan Sun Pocono, which includes the operations of the Pennsylvania Facilities. The Authority's operations related to investments in unconsolidated affiliates and certain other Corporate development and management operations have not been identified as separate reportable segments; therefore, these operations are included in Corporate and other in the following segment disclosures to reconcile to consolidated results.
 
For the Three Months Ended
(in thousands)
December 31, 2016
 
December 31, 2015
Net revenues:
 
 
 
Mohegan Sun
$
259,203

 
$
255,083

Mohegan Sun Pocono
68,418

 
73,024

Corporate and other
3,431

 
6,352

Inter-segment revenues
(60
)
 
(1,273
)
Total
$
330,992

 
$
333,186

Income (loss) from operations:
 
 
 
Mohegan Sun
$
49,349

 
$
59,054

Mohegan Sun Pocono
7,910

 
9,006

Corporate and other
(7,839
)
 
2,016

Total
49,420

 
70,076

Interest income
2,900

 
2,130

Interest expense
(30,035
)
 
(34,147
)
Loss on modification and early extinguishment of debt
(73,796
)
 
(207
)
Loss from unconsolidated affiliates
(731
)
 
(393
)
Other income (expense), net
1

 
(9
)
Net income (loss)
(52,241
)
 
37,450

(Income) loss attributable to non-controlling interests
619

 
(5,531
)
Net income (loss) attributable to Mohegan Tribal Gaming Authority
$
(51,622
)
 
$
31,919

Comprehensive income (loss):
 
 
 
Foreign currency translation
(18,310
)
 
(613
)
Other comprehensive loss
(18,310
)
 
(613
)
Other comprehensive loss attributable to non-controlling interests
9,413

 
—

Other comprehensive loss attributable to Mohegan Tribal Gaming Authority
(8,897
)
 
(613
)
Comprehensive income (loss) attributable to Mohegan Tribal Gaming Authority
$
(60,519
)
 
$
31,306


 
For the Three Months Ended
(in thousands)
December 31, 2016
 
December 31, 2015
Capital expenditures incurred:
 
 
 
Mohegan Sun
$
6,894

 
$
6,086

Mohegan Sun Pocono
1,255

 
1,374

Corporate and other
2,498

 
87

Total
$
10,647

 
$
7,547

 
 
 
 
(in thousands)
December 31, 2016
 
September 30, 2016
Total assets:
 
 
 
Mohegan Sun
$
1,347,381

 
$
1,332,231

Mohegan Sun Pocono
585,162

 
551,116

Corporate and other
298,744

 
344,615

Total
$
2,231,287

 
$
2,227,962


21

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 us 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;
•
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;
•
the fact that our former President and Chief Executive Officer resigned from those positions on February 14, 2017 and we are currently under the leadership of an interim Chief Executive Officer pending our ability to retain an executive in that capacity on a permanent basis;
•
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;
•
unfavorable weather conditions;
•
risks associated with operations in foreign territories;
•
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 Annual Report on Form 10-K for the fiscal year ended September 30, 2016, 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.





22

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 595-acre reservation situated in Southeastern Connecticut, adjacent to Uncasville, Connecticut. Under the Indian Gaming Regulatory Act of 1988, federally-recognized Indian tribes are permitted to conduct full-scale casino gaming operations on tribal lands, subject to, among other things, the negotiation of a compact with the affected state. The Tribe and the State of Connecticut entered into a compact, the Mohegan Compact, which was approved by the United States Secretary of the Interior. 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 5.0 million square-foot facility, which includes the following:
Casino of the Earth
As of December 31, 2016, Casino of the Earth offered:
•
approximately 180,000 square feet of gaming space;
•
approximately 2,545 slot machines and 145 traditional and electronic table games;
•
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, Bobby Flay's Bobby's Burger Palace, Bean and Vine Café & Wine Bar, Bow & Arrow Sports Bar and multiple service bars, all operated by us, as well as Ballo Italian Restaurant & Social Club, Jumbo Oriental, a full-service Asian restaurant and food court, Chick-Fil-A, Frank Pepe Pizzeria Napoletana, Hash House a Go Go, Fidelia's Market, an approximately 290-seat multi-station food court, and Carlo's Bakery operated by third-parties, for a total restaurant seating of approximately 2,245;
•
five Mohegan Sun-owned retail shops, offering products ranging from Mohegan Sun logo souvenirs to cigars;
•
an approximately 400-room Earth Hotel Tower;
•
COMIX, an approximately 415-seat comedy club and craft beer bar operated by a third-party; 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 December 31, 2016, Casino of the Sky offered:
•
approximately 119,000 square feet of gaming space;
•
approximately 2,005 slot machines and 105 traditional and electronic table games;
•
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 additional full-service restaurants, four quick-service restaurants and a multi-station food court operated by third-parties, for a total restaurant seating of approximately 2,200;
•
The Shops at Mohegan Sun containing 33 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;

23

•
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.
Casino of the Wind
As of December 31, 2016, Casino of the Wind offered:
•
approximately 45,000 square feet of gaming space;
•
approximately 520 slot machines, 25 traditional table games 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.
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. In November 2013, we 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 December 31, 2016:
•
approximately 90,000 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, Elixir Bistro Bar, 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 2,100;
•
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.

24

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 Mohegan Sun. We also face competition from gaming facilities in the states of Rhode Island, Massachusetts, 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, 2016 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, 2016.

Results of Operations
Summary Operating Results
As of December 31, 2016, we own and operate, either directly or through subsidiaries: (1) Mohegan Sun, the Connecticut Sun franchise, the Mohegan Sun Golf Club and the New England Black Wolves franchise, or collectively, the Connecticut facilities, and (2) Mohegan Sun Pocono and its off-track wagering facilities, or collectively, 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 development and management operations have not been identified as separate reportable segments; therefore, these operations are included in Corporate and other in the following segment disclosures to reconcile to consolidated results.
The following table summarizes our results on a property basis (in thousands, except where noted):
 
For the Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
Variance    
Net revenues:
 
 
 
 
 
 
 
Mohegan Sun
$
259,203

 
$
255,083

 
$
4,120

 
1.6
 %
Mohegan Sun Pocono
68,418

 
73,024

 
(4,606
)
 
(6.3
)%
Corporate and other
3,431

 
6,352

 
(2,921
)
 
(46.0
)%
Inter-segment revenues
(60
)
 
(1,273
)
 
1,213

 
(95.3
)%
Total
$
330,992

 
$
333,186

 
$
(2,194
)
 
(0.7
)%
Income (loss) from operations:
 
 
 
 
 
 
 
Mohegan Sun
$
49,349

 
$
59,054

 
$
(9,705
)
 
(16.4
)%
Mohegan Sun Pocono
7,910

 
9,006

 
(1,096
)
 
(12.2
)%
Corporate and other
(7,839
)
 
2,016

 
(9,855
)
 
N.M.

Total
$
49,420

 
$
70,076

 
$
(20,656
)
 
(29.5
)%
Net income (loss) attributable to Mohegan Tribal Gaming Authority
$
(51,622
)
 
$
31,919

 
$
(83,541
)
 
N.M.

Operating margin:
 
 
 
 
 
 
 
Mohegan Sun
19.0
%
 
23.2
%
 
(4.2
)%
 
(18.1
)%
Mohegan Sun Pocono
11.6
%
 
12.3
%
 
(0.7
)%
 
(5.7
)%
Total
14.9
%
 
21.0
%
 
(6.1
)%
 
(29.0
)%
_________
N.M. - Not meaningful.

The most significant factors and trends that we believe impacted our operating and financial performance were as follows:
•
strong overall business volumes at Mohegan Sun;

25

•
higher slot and non-gaming revenues at Mohegan Sun driven by the property's 20th anniversary festivities and the opening of its new 400-room Earth Hotel Tower;
•
lower table game revenues at Mohegan Sun due to lower table game hold percentage;
•
higher entertainment and other promotional expenses associated with Mohegan Sun’s 20th anniversary festivities;
•
lower slot revenues at Mohegan Sun Pocono;
•
higher Corporate expenses;
•
competitive gaming markets;
•
lower interest expense; and
•
a $73.8 million non-operating loss on modification and early extinguishment of debt.
Net revenues for the three months ended December 31, 2016 compared to the same period in the prior year decreased primarily as a result of lower table game revenues at Mohegan Sun and lower slot revenues at Mohegan Sun Pocono, combined with a reduction in Corporate revenues. These results were partially offset by higher slot and non-gaming revenues at Mohegan Sun.
Income from operations for the three months ended December 31, 2016 compared to the same period in the prior year declined primarily due to higher overall operating costs and expenses, combined with the decrease in net revenues.
Net income attributable to the Authority for the three months ended December 31, 2016 compared to the same period in the prior year decreased primarily as a result of the loss on modification and early extinguishment of debt, combined with the reduction in income from operations. These results were partially offset by lower interest expense.
Mohegan Sun
Revenues
Revenues consisted of the following (in thousands):
 
For the Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
Variance    
Gaming
$
222,180

 
$
224,570

 
$
(2,390
)
 
(1.1
)%
Food and beverage
16,123

 
14,994

 
1,129

 
7.5
 %
Hotel (1)
13,342

 
10,981

 
2,361

 
21.5
 %
Retail, entertainment and other
28,619

 
23,172

 
5,447

 
23.5
 %
Gross revenues
280,264

 
273,717

 
6,547

 
2.4
 %
Less-Promotional allowances
21,061

 
18,634

 
2,427

 
13.0
 %
Net revenues
$
259,203

 
$
255,083

 
$
4,120

 
1.6
 %
_________
(1)
The new 400-room Earth Hotel Tower opened on November 10, 2016.
The following table summarizes the percentage of gross revenues from each of the four revenue sources:
 
For the Three Months Ended December 31,
 
2016
 
2015
Gaming
79.3
%
 
82.0
%
Food and beverage
5.7
%
 
5.5
%
Hotel
4.8
%
 
4.0
%
Retail, entertainment and other
10.2
%
 
8.5
%
Total
100.0
%
 
100.0
%











26

Promotional Allowances
The retail value of providing promotional allowances was included in gross revenues as follows (in thousands):
 
For the Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
Variance    
Food and beverage
$
6,376

 
$
5,857

 
$
519

 
8.9
%
Hotel
3,717

 
3,380

 
337

 
10.0
%
Retail, entertainment and other
10,968

 
9,397

 
1,571

 
16.7
%
Total
$
21,061

 
$
18,634

 
$
2,427

 
13.0
%
The estimated cost of providing promotional allowances was included in gaming costs and expenses as follows (in thousands):
 
For the Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
Variance    
Food and beverage
$
5,470

 
$
5,403

 
$
67

 
1.2
%
Hotel
2,175

 
1,594

 
581

 
36.4
%
Retail, entertainment and other
10,943

 
8,894

 
2,049

 
23.0
%
Total
$
18,588

 
$
15,891

 
$
2,697

 
17.0
%
The following table presents data related to gaming operations (in thousands, except where noted):
 
For the Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
Variance    
Slots:
 
 
 
 
 
 
 
Handle
$
1,795,730

 
$
1,765,802

 
$
29,928

 
1.7
 %
Gross revenues
$
148,181

 
$
142,947

 
$
5,234

 
3.7
 %
Net revenues
$
141,935

 
$
138,402

 
$
3,533

 
2.6
 %
Free promotional slot plays (1)
$
14,566

 
$
14,760

 
$
(194
)
 
(1.3
)%
Weighted average number of machines (in units)
5,096

 
5,146

 
(50
)
 
(1.0
)%
Hold percentage (gross)
8.3
%
 
8.1
%
 
0.2
 %
 
2.5
 %
Win per unit per day (gross) (in dollars)
$
316

 
$
302

 
$
14

 
4.6
 %
Table games:
 
 
 
 
 
 
 
Drop
$
515,285

 
$
464,860

 
$
50,425

 
10.8
 %
Revenues
$
77,198

 
$
82,820

 
$
(5,622
)
 
(6.8
)%
Weighted average number of games (in units)
273

 
267

 
6

 
2.2
 %
Hold percentage (2)
15.0
%
 
17.8
%
 
(2.8
)%
 
(15.7
)%
Win per unit per day (in dollars)
$
3,072

 
$
3,370

 
$
(298
)
 
(8.8
)%
Poker:
 
 
 
 
 
 
 
Revenues
$
2,167

 
$
2,417

 
$
(250
)
 
(10.3
)%
Weighted average number of tables (in units)
42

 
42

 
—

 
—

Revenue per unit per day (in dollars)
$
561

 
$
625

 
$
(64
)
 
(10.2
)%
_________
(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 ended December 31, 2016 compared to the same period in the prior year declined primarily due to a reduction in table game revenues driven by lower hold percentage. These results were partially offset by higher slot revenues. Gaming revenues for the three months ended December 31, 2016 benefited from strong overall business volumes driven by Mohegan Sun’s 20th anniversary festivities during the month of October 2016 and additional available hotel room capacity at the property following the opening of our new 400-room Earth Hotel Tower on November 10, 2016.




27

The following table presents data related to food and beverage operations (in thousands, except where noted):
 
For the Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
Variance    
Meals served
696

 
651

 
45

 
6.9
 %
Average price per meal served (in dollars)
$
16.36

 
$
16.54

 
$
(0.18
)
 
(1.1
)%

Food and beverage revenues for the three months ended December 31, 2016 compared to the same period in the prior year increased primarily as a result of the increase in meals served. The increase in meals served was primarily driven by Mohegan Sun’s 20th anniversary festivities during the month of October 2016 and additional available hotel room capacity at the property following the opening of our new 400-room Earth Hotel Tower on November 10, 2016.
The following table presents data related to hotel operations (in thousands, except where noted): 
 
For the Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
Variance    
Rooms occupied
122

 
106

 
16

 
15.1
 %
Occupancy rate
96.4
%
 
98.2
%
 
(1.8
)%
 
(1.8
)%
Average daily room rate (in dollars)
$
105

 
$
96

 
$
9

 
9.4
 %
Revenue per available room (in dollars)
$
102

 
$
94

 
$
8

 
8.5
 %

Hotel revenues for the three months ended December 31, 2016 compared to the same period in the prior year increased primarily due to additional revenues generated by our new 400-room Earth Hotel Tower, which opened on November 10, 2016.
The following table presents data related to entertainment operations (in thousands, except where noted):
 
For the Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
Variance    
Arena events (in events)
30

 
26

 
4

 
15.4
%
Arena tickets
209

 
150

 
59

 
39.3
%
Average price per arena ticket (in dollars)
$
58.70

 
$
49.95

 
$
8.75

 
17.5
%

Retail, entertainment and other revenues for the three months ended December 31, 2016 compared to the same period in the prior year increased primarily as a result of higher entertainment revenues reflecting the increase in the number of shows held at the Mohegan Sun Arena, including additional headliner shows driven by Mohegan Sun’s 20th anniversary festivities during the month of October 2016.
Operating Costs and Expenses
Operating costs and expenses consisted of the following (in thousands):
 
For the Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
Variance    
Gaming
$
122,952

 
$
117,743

 
$
5,209

 
4.4
 %
Food and beverage
8,469

 
8,533

 
(64
)
 
(0.8
)%
Hotel (1)
5,657

 
3,635

 
2,022

 
55.6
 %
Retail, entertainment and other
14,915

 
9,077

 
5,838

 
64.3
 %
Advertising, general and administrative
42,245

 
41,245

 
1,000

 
2.4
 %
Depreciation and amortization
15,141

 
15,835

 
(694
)
 
(4.4
)%
(Gain) loss on disposition of assets
20

 
(39
)
 
59

 
N.M.

Pre-opening
455

 
—

 
455

 
100.0
 %
Total
$
209,854

 
$
196,029

 
$
13,825

 
7.1
 %
_________
(1)
The new 400-room Earth Hotel Tower opened on November 10, 2016.
N.M. - Not meaningful.


28

Gaming costs and expenses for the three months ended December 31, 2016 compared to the same period in the prior year increased primarily due to higher promotional expenses driven by Mohegan Sun’s 20th anniversary festivities during the month of October 2016. The increase in gaming costs and expenses for the three months ended December 31, 2016 also resulted from higher combined slot win and free promotional slot play contribution expenses commensurate with the increase in slot revenues. Expenses associated with the combined slot win and free promotional slot play contributions totaled $37.0 million and $35.8 million for the three months ended December 31, 2016 and 2015, respectively. Gaming costs and expenses as a percentage of gaming revenues were 55.3% and 52.4% for the three months ended December 31, 2016 and 2015, respectively.
Food and beverage costs and expenses for the three months ended December 31, 2016 compared to the same period in the prior year were relatively flat.
Hotel costs and expenses for the three months ended December 31, 2016 compared to the same period in the prior year increased primarily as a result of additional costs and expenses, including lease expenses, associated with our new 400-room Earth Hotel Tower and related connector which are subleased from an instrumentality of the Tribe.
Retail, entertainment and other costs and expenses for the three months ended December 31, 2016 compared to the same period in the prior year increased primarily due to higher direct entertainment costs resulting from the increase in the number of headliner shows held at the Mohegan Sun Arena, including additional headliner shows driven by Mohegan Sun’s 20th anniversary festivities during the month of October 2016. These results were partially offset by higher amounts of retail, entertainment and other complimentaries related costs being allocated to gaming costs and expenses.
Advertising, general and administrative costs and expenses for the three months ended December 31, 2016 compared to the same period in the prior year increased primarily as a result of higher costs related to governmental and consulting services, combined with higher insurance and utility costs.
Pre-opening costs and expenses for the three months ended December 31, 2016 were comprised of personnel costs associated with preparation for the opening of our new 400-room Earth Hotel Tower.
Mohegan Sun Pocono
Revenues
Revenues consisted of the following (in thousands):
 
For the Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
Variance    
Gaming
$
62,895

 
$
67,827

 
$
(4,932
)
 
(7.3
)%
Food and beverage
6,933

 
7,023

 
(90
)
 
(1.3
)%
Hotel
1,361

 
1,356

 
5

 
0.4
 %
Retail, entertainment and other
2,427

 
2,195

 
232

 
10.6
 %
Gross revenues
73,616

 
78,401

 
(4,785
)
 
(6.1
)%
Less-Promotional allowances
5,198

 
5,377

 
(179
)
 
(3.3
)%
Net revenues
$
68,418

 
$
73,024

 
$
(4,606
)
 
(6.3
)%
The following table summarizes the percentage of gross revenues from each of the four revenue sources:
 
For the Three Months Ended December 31,
 
2016
 
2015
Gaming
85.4
%
 
86.5
%
Food and beverage
9.4
%
 
9.0
%
Hotel
1.9
%
 
1.7
%
Retail, entertainment and other
3.3
%
 
2.8
%
Total
100.0
%
 
100.0
%




29

Promotional Allowances
The retail value of providing promotional allowances was included in gross revenues as follows (in thousands):
 
For the Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
Variance    
Food and beverage
$
4,077

 
$
4,318

 
$
(241
)
 
(5.6
)%
Hotel
448

 
455

 
(7
)
 
(1.5
)%
Retail, entertainment and other
673

 
604

 
69

 
11.4
 %
Total
$
5,198

 
$
5,377

 
$
(179
)
 
(3.3
)%

The estimated cost of providing promotional allowances was included in gaming costs and expenses as follows (in thousands):
 
For the Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
Variance    
Food and beverage
$
2,644

 
$
2,841

 
$
(197
)
 
(6.9
)%
Hotel
264

 
698

 
(434
)
 
(62.2
)%
Retail, entertainment and other
496

 
602

 
(106
)
 
(17.6
)%
Total
$
3,404

 
$
4,141

 
$
(737
)
 
(17.8
)%
The following table presents data related to gaming operations (in thousands, except where noted):
 
For the Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
Variance    
Slots:
 
 
 
 
 
 
 
Handle
$
617,579

 
$
666,840

 
$
(49,261
)
 
(7.4
)%
Gross revenues
$
49,645

 
$
54,554

 
$
(4,909
)
 
(9.0
)%
Net revenues
$
49,636

 
$
54,460

 
$
(4,824
)
 
(8.9
)%
Free promotional slot plays (1)
$
10,600

 
$
11,659

 
$
(1,059
)
 
(9.1
)%
Weighted average number of machines (in units)
2,244

 
2,329

 
(85
)
 
(3.6
)%
Hold percentage (gross)
8.0
%
 
8.2
%
 
(0.2
)%
 
(2.4
)%
Win per unit per day (gross) (in dollars)
$
240

 
$
254

 
$
(14
)
 
(5.5
)%
Table games:
 
 
 
 
 
 
 
Drop
$
51,245

 
$
55,969

 
$
(4,724
)
 
(8.4
)%
Revenues
$
10,564

 
$
10,509

 
$
55

 
0.5
 %
Weighted average number of games (in units)
73

 
73

 
—

 
—

Hold percentage (2)
20.6
%
 
18.8
%
 
1.8
 %
 
9.6
 %
Win per unit per day (in dollars)
$
1,573

 
$
1,566

 
$
7

 
0.4
 %
Poker:
 
 
 
 
 
 
 
Revenues
$
678

 
$
725

 
$
(47
)
 
(6.5
)%
Weighted average number of tables (in units)
18

 
18

 
—

 
—

Revenue per unit per day (in dollars)
$
409

 
$
438

 
$
(29
)
 
(6.6
)%
_________
(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 December 31, 2016 compared to the same period in the prior year decreased primarily as a result of lower slot revenues driven by the declines in both volumes and hold percentage.
The following table presents data related to food and beverage operations (in thousands, except where noted):
 
For the Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
Variance    
Meals served
144

 
158

 
(14
)
 
(8.9
)%
Average price per meal served (in dollars)
$
22.50

 
$
19.78

 
$
2.72

 
13.8
 %

30

Food and beverage revenues for the three months ended December 31, 2016 compared to the same period in the prior year declined primarily due to lower complimentary food and beverage revenues resulting from changes in our promotional offers.
The following table presents data related to hotel operations (in thousands, except where noted): 
 
For the Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
Variance    
Rooms occupied
20

 
21

 
(1
)
 
(4.8
)%
Occupancy rate
92.5
%
 
96.0
%
 
(3.5
)%
 
(3.6
)%
Average daily room rate (in dollars)
$
64

 
$
60

 
$
4

 
6.7
 %
Revenue per available room (in dollars)
$
59

 
$
58

 
$
1

 
1.7
 %

Hotel revenues for the three months ended December 31, 2016 compared to the same period in the prior year were relatively flat.
Retail, entertainment and other revenues for the three months ended December 31, 2016 compared to the same period in the prior year increased primarily as a result of higher entertainment revenues driven by an increase in the number of shows held at our 1,500-seat entertainment venue.
Operating Costs and Expenses
Operating costs and expenses consisted of the following (in thousands):
 
For the Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
Variance    
Gaming
$
46,430

 
$
49,250

 
$
(2,820
)
 
(5.7
)%
Food and beverage
1,860

 
1,791

 
69

 
3.9
 %
Hotel
546

 
1,394

 
(848
)
 
(60.8
)%
Retail, entertainment and other
472

 
412

 
60

 
14.6
 %
Advertising, general and administrative
8,151

 
8,131

 
20

 
0.2
 %
Depreciation and amortization
3,049

 
3,029

 
20

 
0.7
 %
Loss on disposition of assets
—

 
11

 
(11
)
 
(100.0
)%
Total
$
60,508

 
$
64,018

 
$
(3,510
)
 
(5.5
)%
Gaming costs and expenses for the three months ended December 31, 2016 compared to the same period in the prior year declined primarily as a result of lower Pennsylvania slot machine tax expenses commensurate with the decrease in slot revenues and lower costs related to Momentum Dollar redemptions at Mohegan Sun Pocono-owned outlets. Expenses associated with the Pennsylvania slot machine tax totaled $27.7 million and $30.4 million for the three months ended December 31, 2016 and 2015, respectively. Expenses associated with the Pennsylvania table game tax totaled $1.8 million and $1.6 million for the three months ended December 31, 2016 and 2015, respectively. Gaming costs and expenses as a percentage of gaming revenues were 73.8% and 72.6% for the three months ended December 31, 2016 and 2015, respectively.
Food and beverage costs and expenses for the three months ended December 31, 2016 compared to the same period in the prior year increased primarily due to lower amounts of food and beverage complimentaries related costs being allocated to gaming costs and expenses and higher payroll costs. These results were partially offset by lower cost of goods sold commensurate with the decline in food and beverage revenues.
Hotel costs and expenses for the three months ended December 31, 2016 compared to the same period in the prior year declined primarily as a result of the elimination of lease expenses due to the merger of Downs Lodging, LLC into Mohegan Sun Pocono. Downs Lodging, LLC financed and built the hotel and convention center operated by Mohegan Sun Pocono.
Retail, entertainment and other costs and expenses for the three months ended December 31, 2016 compared to the same period in the prior year increased primarily due to higher entertainment costs driven by the increase in the number of shows held at our 1,500-seat entertainment venue. The increase in retail, entertainment and other costs and expenses for the three months ended December 31, 2016 also resulted from lower amounts of retail, entertainment and other complimentaries related costs being allocated to gaming costs and expenses.
Advertising, general and administrative costs and expenses for the three months ended December 31, 2016 compared to the same period in the prior year were relatively flat.

31

Corporate and Other
Corporate and other consisted of the following (in thousands):
 
For the Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
Variance    
Gross revenues
$
3,479

  
$
6,375

 
$
(2,896
)
 
(45.4
)%
Less-Promotional allowances
48

 
23

 
25

 
108.7
 %
Net revenues
$
3,431

 
$
6,352

 
$
(2,921
)
 
(46.0
)%
 
 
 
 
 
 
 
 
Expenses
$
11,248

  
$
4,072

 
$
7,176

 
176.2
 %
Depreciation and amortization
22

  
264

 
(242
)
 
(91.7
)%
Total expenses
$
11,270

  
$
4,336

  
$
6,934

 
159.9
 %

Corporate and other revenues for the three months ended December 31, 2016 compared to the same period in the prior year decreased primarily as a result of a one-time “catch up” on development fees earned on the Cowlitz Project that was recorded in the three months ended December 31, 2015 following the completion of the project’s financing. The reduction in Corporate and other revenues for the three months ended December 31, 2016 also resulted from the elimination of lease revenues due to the merger of Downs Lodging, LLC into Mohegan Sun Pocono. Downs Lodging, LLC financed and built the hotel and convention center operated by Mohegan Sun Pocono.
Corporate and other expenses for the three months ended December 31, 2016 compared to the same period in the prior year increased primarily due to a reduction in the reserve against reimbursable costs and expenses advanced by us to the Cowlitz Project that was recorded in the three months ended December 31, 2015 following the completion of the project’s financing.
Other Income (Expense)
Other income (expense) consisted of the following (in thousands):
 
For the Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
Variance    
Interest income (1)
$
2,900

 
$
2,130

 
$
770

 
36.2
 %
Interest expense
(30,035
)
 
(34,147
)
 
4,112

 
12.0
 %
Loss on modification and early extinguishment of debt
(73,796
)
 
(207
)
 
(73,589
)
 
N.M.

Loss from unconsolidated affiliates
(731
)
 
(393
)
 
(338
)
 
(86.0
)%
Other income (expense), net
1

 
(9
)
 
10

 
N.M.

Total other expense
$
(101,661
)
 
$
(32,626
)
 
$
(69,035
)
 
(211.6
)%
_________
(1)
Primarily represented interest earned on long-term receivables.
N.M. - Not meaningful.
Interest expense for the three months ended December 31, 2016 compared to the same period in the prior year declined as a result of lower weighted average interest rate. Weighted average interest rate was 6.7% for the three months ended December 31, 2016 compared to 7.8% for the three months ended December 31, 2015. Weighted average outstanding debt was $1.79 billion for the three months ended December 31, 2016 compared to $1.75 billion for the three months ended December 31, 2015.

Loss on modification and early extinguishment of debt for the three months ended December 31, 2016 represented financing fees expensed in connection with our October 2016 refinancing transactions. We incurred approximately $95.6 million in costs in connection with these refinancing transactions. Previously deferred debt issuance costs and debt discounts totaling $14.9 million, as well as $58.9 million in new transaction costs were expensed and recorded as a loss on modification and early extinguishment of debt. New debt issuance costs totaling $2.5 million were capitalized as an asset and will be amortized over the term of the related debt. The remaining $34.2 million in new debt issuance costs was reflected as debt discount and will be amortized over the term of the related debt.
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

32

three months ended December 31, 2016 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 Three Months Ended December 31,
 
2016
 
2015
 
Variance    
 
Percentage
    Variance    
Net cash provided by operating activities
$
27,173

 
$
42,024

 
$
(14,851
)
 
(35.3
)%
Net cash used in investing activities
(13,720
)
 
(8,403
)
 
(5,317
)
 
(63.3
)%
Net cash provided by financing activities
17,553

 
124,184

 
(106,631
)
 
(85.9
)%
Net increase in cash and cash equivalents
$
31,006

 
$
157,805

 
$
(126,799
)
 
(80.4
)%
_________
N.M. - Not meaningful.

As of December 31, 2016 and September 30, 2016, we held cash and cash equivalents of $114.7 million and $83.7 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, amortization of debt issuance costs, premiums and discounts and provisions and recoveries for losses on receivables.
The decline in cash provided by operating activities for the three months ended December 31, 2016 compared to the same period in the prior year resulted from the reduction in income from operations, partially offset by lower working capital requirements. Cash provided by operating activities for the three months ended December 31, 2016 were also negatively impacted by approximately $8.6 million as a result of our October 2016 refinancing transactions.
Operating activities are a significant source of our cash flows. We utilize cash flows from operations for scheduled interest payments, debt reduction, distributions to the Tribe, capital expenditures and projected working capital needs, 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 increase in cash used in investing activities for the three months ended December 31, 2016 compared to the same period in the prior year was primarily due to a partial repayment of reimbursable costs and expenses advanced by us to the Cowlitz Project that was received in the three months ended December 31, 2015 following the completion of the project’s financing.
The decline in cash provided by financing activities for the three months ended December 31, 2016 compared to the same period in the prior year was primarily driven by payments of tender offer and repurchase costs and financing fees in connection with our October 2016 refinancing transactions, combined with decreased borrowings.
External Sources of Liquidity
As of December 31, 2016, our outstanding indebtedness was as follows (excluding unamortized debt issuance costs and discounts):
•
$99.0 million Senior Secured Credit Facility - Revolving, due October 2021;
•
$428.3 million Senior Secured Credit Facility - Term Loan A, due October 2021;
•
$783.0 million Senior Secured Credit Facility - Term Loan B, due October 2023;
•
$500.0 million Senior Unsecured Notes, due October 2024; and
•
$2.2 million in other indebtedness.

33

Please refer to “Part I. Item 1. Note 3—Long-Term Debt” in this Quarterly Report on Form 10-Q which summarizes the terms of our debt agreements as of December 31, 2016.
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, senior secured leverage and minimum fixed charge coverage.

Maximum total leverage ratio covenant, or ratio of total debt to Consolidated EBITDA for the Test Period, as such terms are defined under the senior secured credit facilities:
Fiscal Quarters Ending:
 
December 31, 2016 through June 30, 2017

6.00:1.00
September 30, 2017 and December 31, 2017

5.75:1.00
March 31, 2018 and June 30, 2018

5.50:1.00
September 30, 2018 and December 31, 2018

5.25:1.00
March 31, 2019 and June 30, 2019

5.00:1.00
September 30, 2019 and each fiscal quarter ending thereafter

4.75:1.00
Maximum senior secured leverage ratio covenant, or ratio of secured debt to Consolidated EBITDA for the Test Period, as such terms are defined under the senior secured credit facilities:
Fiscal Quarters Ending:
 
December 31, 2016 and March 31, 2017

4.50:1.00
June 30, 2017 and September 30, 2017

4.25:1.00
December 31, 2017

4.00:1.00
March 31, 2018 and June 30, 2018

3.75:1.00
September 30, 2018 and December 31, 2018

3.50:1.00
March 31, 2019 and June 30, 2019

3.25:1.00
September 30, 2019 and each fiscal quarter ending thereafter

3.00:1.00
Minimum fixed charge coverage ratio covenant, as defined under the senior secured credit facilities:
Fiscal Quarters Ending:
 
December 31, 2016 and thereafter
1.05:1.00
As of December 31, 2016, we and the Tribe were in compliance with all respective covenant requirements under all relevant credit facilities and note indentures.













34

Capital Expenditures
The following table presents data related to capital expenditures (in millions):
 
Capital Expenditures
 
Three Months Ended
 
Remaining Forecasted
 
Total Forecasted
 
December 31, 2016
 
Fiscal Year 2017 (1)
 
Fiscal Year 2017 (1)
Mohegan Sun:
 
 
 
 
 
Maintenance
$
6.1

 
$
28.9

 
$
35.0

Development
0.8

 
0.1

 
0.9

Subtotal
6.9

 
29.0

 
35.9

Mohegan Sun Pocono:
 
 
 
 
 
Maintenance
1.3

 
6.0

 
7.3

Development
(0.1
)
 
0.8

 
0.7

Subtotal
1.2

 
6.8

 
8.0

Corporate:
 
 
 
 
 
Maintenance
—

 
0.2

 
0.2

Development
—

 
0.7

 
0.7

Other - Project Inspire
2.5

 
—

 
2.5

Subtotal
2.5

 
0.9

 
3.4

Total
$
10.6

 
$
36.7

 
$
47.3

_________
(1)
Excludes forecasted capital expenditures for Project Inspire.
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.
Interest Expense
The following table presents our interest expense (in thousands):
 
For the Three Months Ended December 31,
 
2016
 
2015
Prior senior secured credit facility - revolving
$
29

 
$
411

Prior senior secured credit facility - term loan A
204

 
1,450

Prior senior secured credit facility - term loan B
1,840

 
12,642

Senior secured credit facility - revolving
904

 
—

Senior secured credit facility - term loan A
5,236

 
—

Senior secured credit facility - term loan B
9,908

 
—

2013 9 3/4% senior unsecured notes
2,252

 
14,487

2016 7 7/8% senior unsecured notes
8,620

 
—

2015 senior unsecured notes
237

 
725

2012 11% senior subordinated notes
417

 
2,845

Prior line of credit
7

 
50

Line of credit
83

 
—

Prior Downs Lodging credit facility
—

 
625

Downs Lodging credit facility
70

 
149

2012 Mohegan Tribe Minor's Trust promissory note
23

 
382

2013 Mohegan Tribe promissory note
10

 
75

2015 Mohegan Tribe promissory note
—

 
142

Capital leases
2

 
22

Amortization of debt issuance costs on revolving credit facilities
193

 
142

Total interest expense
$
30,035

 
$
34,147



35

Contractual Obligations
The following table presents estimated future payment obligations related to our debt and the timing of those payments as of December 31, 2016 (in thousands):
 
 
 
Payments due by period
Contractual Obligations
Total
 
Less than
1 year (1)
 
1-3 years
 
3-5 years
 
More than
5 years
Long-term debt, including current portions (excludes unamortized debt issuance costs and discounts)
$
1,812,569

 
$
56,472

 
$
127,720

 
$
382,340

 
$
1,246,037

Interest payments on long-term debt
772,067

 
111,012

 
227,149

 
221,982

 
211,924

Total
$
2,584,636

 
$
167,484

 
$
354,869

 
$
604,322

 
$
1,457,961

 ________________________
(1)
Represents payment obligations from January 1, 2017 to December 31, 2017.
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, 2016.
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, distributions to the Tribe and foreseeable capital expenditures 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, 2016 for further details regarding risks relating to our sufficiency of resources. Inclusive of letters of credit, which reduce borrowing availability under the revolving facility, we had approximately $68.5 million of borrowing capacity under the revolving facility and line of credit as of December 31, 2016. Distributions to the Tribe are anticipated to total approximately $60.0 million for fiscal 2017.
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, 2016.
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.

36

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 December 31, 2016, 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 senior secured credit facilities.
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 December 31, 2016 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 December 31, 2016.
 
Expected Maturity Date
 
Total
 
Fair Value
 
2017
 
2018
 
2019
 
2020
 
2021
 
Thereafter
 
Liabilities (in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, including current portions (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate
$
342

 
$
422

 
$
422

 
$
348

 
$
322

 
$
500,363

 
$
502,219

 
$
510,345

Average interest rate
—

 
—

 
—

 
—

 
—

 
7.9
%
 
7.8
%
 
 
Variable rate
$
37,300

 
$
74,600

 
$
57,913

 
$
44,006

 
$
41,225

 
$
1,055,306

 
$
1,310,350

 
$
1,316,726

Average interest rate (2)
5.2
%
 
5.7
%
 
6.1
%
 
6.4
%
 
6.6
%
 
6.9
%
 
6.3
%
 
 
_________
(1)
Excludes unamortized debt issuance costs and discounts.
(2)
A 100 basis point change in average interest rate would impact annual interest expense by approximately $13.1 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 December 31, 2016. 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 December 31, 2016, 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 December 31, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

37

PART II. OTHER INFORMATION

Item 1.
Legal Proceedings
For information regarding the Authority’s legal proceedings please refer to “Part I. Item 1—Notes to Condensed Consolidated Financial Statements, Note 5—Commitments and Contingencies” in this Quarterly Report on Form 10-Q.

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, 2016, except for the following:
We anticipate being subject to disciplinary action by the Pennsylvania Gaming Control Board.
As disclosed in more detail in “Part I. Item 1—Notes to Condensed Consolidated Financial Statements, Note 5—Commitments and Contingencies” in this Quarterly Report on Form 10-Q, we anticipate being subject to disciplinary action by the Pennsylvania Gaming Control Board including a fine and undertakings to remediate certain operational control deficiencies. The outcome of these matters is uncertain and we cannot estimate the extent of materiality or the amount or range of reasonably possible loss that may result from them.

We depend on the continued services of key management and employees. An inability to retain our key personnel or attract and retain other highly skilled employees could have a material adverse effect on our business.
Our ability to maintain our competitive position is dependent to a large degree on the services of our senior management team. Our Chief Executive Officer, Mitchell Grossinger Etess, is currently serving in that capacity on an interim basis pending our ability to retain a permanent replacement. The loss of the services of one or more of our senior executives, or the inability to attract and retain a permanent replacement for Mr. Etess, could have a material adverse effect on our business.

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.



38

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:
February 21, 2017
By:
/S/    KEVIN P. BROWN         
 
 
 
Kevin P. Brown
Chairman and Member, Management Board
 
 
 
 
Date:
February 21, 2017
By:
      /S/  MITCHELL GROSSINGER ETESS        
 
 
 
Mitchell Grossinger Etess
Chief Executive Officer,
Mohegan Tribal Gaming Authority
(Principal Executive Officer)
 
 
 
 
Date:
February 21, 2017
By:
 /S/    MARIO C. KONTOMERKOS        
 
 
 
Mario C. Kontomerkos
Chief Financial Officer,
Mohegan Tribal Gaming Authority
(Principal Financial and Accounting Officer)


39

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 and incorporated by reference herein).



40

Exhibit No.
  
Description
3.18
  
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).
 
 
 
3.19
 
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).
 
 
 
4.1
 
Indenture, dated as of October 14, 2016, among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut, the Guarantors party thereto and U.S. Bank National Association, as Trustee, relating to the 7.875% Senior Notes due 2024 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.1 to the Authority’s Form 8-K, filed with the SEC on October 20, 2016 and incorporated by reference herein).

 
 
 
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.

 

41

MOHEGAN TRIBAL GAMING AUTHORITY Reports