Organization and Basis of Presentation (Policies)

9 Months Ended

Jun. 30, 2020

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Impact of the COVID-19 Pandemic and Company Response

Impact of the COVID-19 Pandemic and Company Response

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic and the United States federal government declared it a national emergency. The spread of COVID-19 has affected most segments of the global economy, including the Company’s operations. On March 18, 2020, the Company announced the temporary suspension of operations at its North American owned, operated and managed properties to ensure the health and safety of its employees, guests and the surrounding communities in which the Company operates, consistent with directives from various government bodies.

The following properties subsequently reopened as follows: (i) Paragon Casino Resort on May 20, 2020, (ii) ilani Casino Resort on May 28, 2020, (iii) Mohegan Sun on June 1, 2020, (iv) Mohegan Sun Pocono on June 22, 2020 and (v) Resorts Casino Hotel on July 2, 2020. As of the date of the filing of this Quarterly Report on Form 10-Q, the MGE Niagara Resorts remain temporarily closed. Like other integrated resort operators, these business disruptions have had a material adverse impact on the Company’s financial condition, results of operations and cash flows.

While some of the Company's properties have reopened, it cannot predict when its remaining closed properties will be able to reopen or the conditions upon which additional reopenings may occur. In addition, while the Company has experienced some level of continued business disruption since the reopening of its properties, it expects this disruption to gradually dissipate, and remains confident in its ability to mitigate the impact of any such disruption through expense management. The impact of COVID-19 on the Company's operations through the date of the filing of this Quarterly Report on Form 10-Q has been significant, though the full extent of the impact will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of COVID-19 or a resurgence, the manner in which the Company’s guests, suppliers and other third parties respond to COVID-19, including perception of safety and health measures taken by the Company, new information which may emerge concerning its severity and the actions to contain it or treat its impact, as well as general economic conditions and consumer confidence. Accordingly, the Company cannot reasonably estimate the extent to which COVID-19 will further impact its future financial condition, results of operations and cash flows.

In response to COVID-19, the Company completed a series of transactions to ensure maximum financial flexibility, including (i) on March 13, 2020, it drew the remaining balance of its senior secured revolving credit facility, in the amount of approximately $125 million and (ii) on August 28, 2020, it entered into an amendment to its Senior Secured Credit Facilities which, among other things, waived non-compliance with certain of its financial covenants through June 30, 2020 and modified the financial covenants applicable to periods subsequent to June 30, 2020 (refer to Note 8).

The Company also took various actions to reduce costs in an effort to mitigate the operating and financial impact of COVID-19, including (i) furloughing approximately 98% of its workforce immediately following the closure of its properties, of which approximately 50% remain furloughed as of the date of the filing of this Quarterly Report on Form 10-Q; (ii) enacting meaningful compensation reductions to its remaining property and corporate personnel, including executive leadership, during the closure period; (iii) obtaining relief from certain threshold payments otherwise due to the OLG for the duration of the closure of the MGE Niagara Resorts, to be followed by a phased-in approach to such payments thereafter; (iv) obtaining a three month forbearance of gaming tax payments due to Connecticut and Pennsylvania; (v) deferring rental payments due under certain of MGE Niagara's lease agreements; and (vi) executing other substantial reductions in operating expenses, capital expenditures and overall costs.

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

If the Company is unable to (i) execute its business plan (ii) sufficiently offset declines in revenues with appropriate cost reductions or (iii) execute certain cost containment initiatives, it may not have sufficient liquidity to meet its existing debt obligations, distributions to the Mohegan Tribe, capital expenditures and working capital requirements. In addition, the Company may not be able to satisfy its financial covenants under the senior secured credit facilities. In such event, the Company would need to seek additional sources of liquidity and obtain waivers or amendments under the senior secured credit facilities; however, it can provide no assurance that it would be able to obtain such liquidity and waivers or amendments. If the Company is unable to obtain such liquidity and waivers or amendments, it would be in default under the senior secured credit facilities, which may result in cross-defaults under its other outstanding indebtedness. If such defaults or cross-defaults were to occur, it would allow the Company's lenders to exercise their rights and remedies as defined undertheir respective agreements, including their right to accelerate the repayment of outstanding indebtedness. If such acceleration were to occur, the Company can provide no assurance that it would be able to obtain the financing necessary to repay such accelerated indebtedness.

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In accordance with Rule 10-01, the accompanying unaudited condensed consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete consolidated financial statements. The accompanying year-end condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by US GAAP. All adjustments, including normal recurring accruals and adjustments, necessary for a fair statement of the Company's operating results for the interim period, have been included.

The Company’s results for the three months and nine months ended June 30, 2020 are not indicative of operating results expected for the entire fiscal year, particularly given the impact of COVID-19 as discussed above.

The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019. The preparation of financial statements in conformity with US GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities.

Revenue Disaggregation

Revenue Disaggregation

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

Revenue disaggregation by geographic location and revenue type for the three months ended June 30, 2020 was as follows (in thousands):

	Connecticut		Pennsylvania		Canada
	(Mohegan Sun)		(Mohegan Sun Pocono)		(MGE Niagara Resorts)		Other
Gaming	$	67,966	$	10,112	$	11,301	$	—
Food and beverage		2,779		231		—		(1	)
Hotel		2,568		21		—		—
Retail, entertainment and other		4,926		148		45		211
Management and development		—		—		—		6,546
Net revenues	$	78,239	$	10,512	$	11,346	$	6,756

Revenue disaggregation by geographic location and revenue type for the three months ended June 30, 2019 was as follows (in thousands):

	Connecticut		Pennsylvania		Canada
	(Mohegan Sun)		(Mohegan Sun Pocono)		(MGE Niagara Resorts)		Other
Gaming	$	165,968	$	55,199	$	14,251	$	—
Food and beverage		27,941		5,929		3,391		(90	)
Hotel		20,885		2,163		747		(1	)
Retail, entertainment and other		36,251		2,102		2,899		406
Management and development		—		—		—		9,626
Net revenues	$	251,045	$	65,393	$	21,288	$	9,941

Revenue disaggregation by geographic location and revenue type for the nine months ended June 30, 2020 was as follows (in thousands):

	Connecticut		Pennsylvania		Canada
	(Mohegan Sun)		(Mohegan Sun Pocono)		(MGE Niagara Resorts)		Other
Gaming	$	352,946	$	107,499	$	109,197	$	—
Food and beverage		52,734		10,899		27,544		(79	)
Hotel		40,491		3,485		6,319		(2	)
Retail, entertainment and other		57,689		3,685		24,542		519
Management and development		—		—		—		24,012
Net revenues	$	503,860	$	125,568	$	167,602	$	24,450

Revenue disaggregation by geographic location and revenue type for the nine months ended June 30, 2019 was as follows (in thousands):

	Connecticut		Pennsylvania		Canada
	(Mohegan Sun)		(Mohegan Sun Pocono)		(MGE Niagara Resorts)		Other
Gaming	$	496,281	$	158,640	$	14,251	$	—
Food and beverage		85,156		17,121		3,391		(183	)
Hotel		62,094		5,938		747		(3	)
Retail, entertainment and other		98,584		5,726		2,899		1,165
Management and development		—		—		—		23,177
Net revenues	$	742,115	$	187,425	$	21,288	$	24,156

Contract and Contract-related Assets

As of June 30, 2020 and September 30, 2019, contract assets related to the COSA totaled $127.7 million and $53.2 million, respectively.

Contract and Contract-related Liabilities

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

The following table summarizes these liabilities (in thousands):

	June 30, 2020		September 30, 2019
Outstanding gaming chips and slot tickets liability	$	6,856	$	7,968
Loyalty points deferred revenue liability		35,390		40,968
Patron advances and other liability		18,040		22,312
Total	$	60,286	$	71,248

As of June 30, 2020 and September 30, 2019, customer contract liabilities related to Mohegan Sun Pocono's revenue sharing agreement with Unibet Interactive Inc. totaled $17.1 million and $18.0 million, respectively, and were primarily recorded within other long-term liabilities.

Other Intangible Assets

Other Intangible Assets

Other intangible assets consist primarily of Mohegan Sun's trademark and Mohegan Sun Pocono's various gaming licenses. These intangible assets all have indefinite lives. Intangible assets with indefinite lives are assessed at least annually for impairment by comparing their fair value to their carrying value. However, these intangible assets may be assessed more frequently for impairment if events or changes in circumstances, such as declines in revenues, earnings and cash flows, or material adverse changes in business climate, indicate that their carrying value may be impaired.

During the second quarter of its fiscal 2020, the Company identified an indicator of impairment on Mohegan Sun Pocono's intangible assets due to COVID-19. As a result, the Company revised its cash flow projections to reflect the current business climate, including the uncertainty surrounding the nature, timing and extent of reopening Mohegan Sun Pocono. The estimated fair value of these intangible assets was determined by using discounted cash flow models, which utilized Level 3 inputs. The primary unobservable input utilized in estimating the fair value of these intangible assets was the discount rate, which was 10.5%. As a result of this interim assessment, the Company recorded an impairment charge related to Mohegan Sun Pocono’s intangible assets of $126.6 million in the second quarter of its fiscal 2020.

The evaluation of intangible assets for impairment requires the use of estimates about future cash flows. Such estimates are, by their nature, subjective. Actual results may differ materially from the Company’s estimates and could result in impairment charges in the future.

Other intangible assets, net, consisted of the following (in thousands):

	June 30, 2020			September 30, 2019
Mohegan Sun trademark	$	119,692		$	119,692
Mohegan Sun Pocono slot machine, table game, interactive gaming and sports wagering licenses		171,904			298,500
MGE Niagara Resorts Casino Operating and Services Agreement rights		16,263			16,753
Other		24,981			25,889
Subtotal		332,840			460,834
Less: accumulated amortization		(5,762	)		(5,569	)
Other intangible assets, net	$	327,078		$	455,265

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company 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 Company's estimates or assumptions that market participants would utilize in pricing such assets or liabilities.

The Company's assessment of the significance of a particular input requires judgment and may affect the valuation of financial assets and liabilities and their placement within the fair value hierarchy.

The carrying amount of cash and cash equivalents, restricted cash and cash equivalents, receivables and trade payables approximates fair value. The estimated fair values of the Company's long-term debt were as follows (in thousands):

	June 30, 2020
	Carrying Value		Fair Value
Senior secured credit facility - revolving (1)	$	247,000	$	202,540
Senior secured credit facility - term loan A (1)		237,664		201,812
Senior secured credit facility - term loan B (1)		801,752		665,904
2016 7 7/8% senior unsecured notes (1)		491,618		416,250
MGE Niagara Resorts credit facility - revolving (1)		25,655		25,655
MGE Niagara Resorts credit facility - term loan (1)		68,822		69,635
MGE Niagara Resorts convertible debenture (2)		29,320		29,320
Mohegan Expo credit facility (3)		28,368		29,033
Guaranteed credit facility (3)		30,108		31,063
Redemption note payable (3)		76,629		76,629
Other (3)		3,904		3,904
Long-term debt	$	2,040,840	$	1,751,745

(1) Estimated fair values were based on Level 2 inputs (quoted market prices or prices of similar instruments) as of June 30, 2020.

(2) Estimated fair value was based on Level 3 inputs (changes in market conditions) from date of issuance (June 11, 2019) to June 30, 2020.

(3) Estimated fair values were based on Level 3 inputs (present value of future payments discounted to carrying value) as of June 30, 2020.

New Accounting Standards

NEW ACCOUNTING STANDARDS

The following accounting standard was adopted during the three months and nine months ended June 30, 2020:

ASU 2016-02

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which requires, among other things, lessees to recognize a right-of-use (“ROU”) asset and a lease liability for leases with terms in excess of 12 months and the disclosure of information about leasing arrangements. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” and ASU No. 2018-10, “Codification Improvements to Topic 842, Leases”, which clarify various aspects of ASU 2016-02.

Effective October 1, 2019, the Company adopted ASU 2016-02 under a modified retrospective transition approach. Accordingly, comparative information as of September 30, 2019 and for the three months and nine months ended June 30, 2019 has not been restated and continues to be reported under accounting standards in effect for those periods. The Company elected the package of practical expedients included in ASU 2016-02, which allowed it to: (i) not reassess whether any expired or existing contracts contain leases, (ii) not reassess the lease classification for any expired or existing leases and (iii) not reassess the initial direct costs for existing leases. The Company also made an accounting policy election to not recognize leases with an initial term of 12 months or less on its balance sheet. In addition, the Company elected to not separate lease and non-lease components for all significant classes of underlying assets for which the Company is the lessee. For instances in which the Company is the lessor, and the class of underlying asset represents retail space, the Company accounts for both the lease and non-lease components as a single lease component. In all other instances, non-lease components are accounted for separately in accordance with applicable guidance, most commonly ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”.

As of October 1, 2019, the adoption of ASU 2016-02 resulted in the recognition of ROU operating lease assets of  $359.2 million and related ROU operating lease liabilities of $366.8 million, as well as the derecognition of a previously recognized build-to-suit asset and related liability of $90.3 million. The difference between the ROU operating lease assets and liabilities reflects the reclassification of historical prepaid and deferred rent balances. The adoption of ASU 2016-02 did not impact the Company's retained earnings or the Company’s compliance with its financial covenants under its current debt agreements.

The following accounting standards will be adopted in future reporting periods:

ASU 2016-13

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments” (“ASU 2016-13”), which sets forth a current expected credit loss model which requires a company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This model replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods, and must be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating the impact ASU 2016-13 will have on its financial statements, but does not expect its adoption to have a material impact.

ASU 2018-13

In August 2018, the FASB issued ASU 2018-13,“Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which adds, amends and removes certain disclosure requirements related to fair value measurements. ASU 2018-13 requires enhanced disclosures on valuation techniques and inputs that a reporting entity uses to determine its measures of fair value, including judgments and assumptions that the entity makes and the uncertainties in the fair value measurements as of the reporting date. ASU 2018-13 is effective for annual reporting periods beginning after December 15, 2019. Certain amended or eliminated disclosure requirements may be adopted earlier, while certain additional disclosure requirements can be adopted on its effective date. In addition, certain changes required by this new standard require retrospective adoption, while other changes must be adopted prospectively. The Company is currently evaluating the impact ASU 2018-13 will have on its financial statement disclosures.

ASU 2019-12

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which simplifies various aspects related to the accounting for income taxes. This new standard removes certain exceptions to the general principles in ASU 2019-12 and clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020. The Company is currently evaluating the impact ASU 2019-12 will have on its financial statements, but does not expect its adoption to have a material impact.