(Registrant’s telephone number, including area code)
___________________________________________
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
None
None
None
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐iNo☒*
*
The
registrant is a voluntary filer of reports required to be filed by certain companies under Sections 13 or 15(d) of the Securities Exchange Act of 1934 and has filed all reports that would have been required during the preceding 12 months had it been subject to such filing requirements.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
iNon-accelerated
filer
☒
Smaller reporting company
i☐
Emerging growth company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No i☒
Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents to the condensed consolidated balance sheets:
Cash and cash equivalents
$
i156,907
$
i158,406
Restricted
cash and cash equivalents, current
i4,666
i2,002
Restricted
cash and cash equivalents, non-current
i375,987
i15,204
Cash,
cash equivalents, restricted cash and restricted cash equivalents
$
i537,560
$
i175,612
Supplemental
disclosures:
Cash paid for interest
$
i107,801
$
i86,810
Non-cash
transactions:
Right-of-use assets additions (reductions)
$
(i27,363)
$
i24,787
Right-of-use
obligations additions (reductions)
$
(i27,363)
$
i24,154
Paid-in-kind
interest capitalized
$
i7,029
$
i—
Paid-in-kind
interest converted to debt
$
i23,872
$
i—
Increase
in construction payables
$
i—
$
i44,735
Finance
lease assets and obligations
$
i—
$
i79,102
Senior
secured credit facility reduction
$
i—
$
i45,000
The
accompanying notes are an integral part of these condensed consolidated financial statements.
7
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 — iOrganization
and Basis of Presentation
Organization
The Mohegan Tribal Gaming Authority (the “Company,”“we,”“us,” or “our”) was established by the Mohegan Tribe of Indians of Connecticut (the “Mohegan Tribe”) in July 1995. We have the exclusive authority to conduct and regulate gaming activities for the Mohegan Tribe on tribal lands and the non-exclusive authority to conduct such activities elsewhere. The Mohegan Tribe is a sovereign Indian nation with independent legal jurisdiction over its people and land.
We are primarily engaged in the ownership, operation and development of integrated entertainment facilities. We currently own itwo
facilities in the United States and operate ifive facilities in the United States and Canada. We are also currently developing a facility in South Korea, the Inspire Entertainment Resort located adjacent to the Incheon International Airport (“Inspire Korea”).
Impact of the COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic and the United States federal government declared it a national
emergency. The spread of COVID-19 has affected most segments of the global economy, including our operations. In March 2020, we temporarily suspended operations at our properties in the United States and Canada to ensure the health and safety of our employees, guests and the surrounding communities in which we operate, consistent with directives from various governmental bodies. All of our properties in the United States were reopened by July 2020. Our properties in Canada reopened in July 2021, but were temporarily closed again from January 5, 2022 through January 30, 2022, due to a resurgence of COVID-19 at that time.
COVID-19 has had a significant impact on our operations, the full extent of which depends on future developments which are highly uncertain and cannot be predicted with confidence. Such developments include the
following:
•the duration of COVID-19 or the extent of any resurgence or variants of COVID-19;
•the manner in which our guests, suppliers and other third parties respond to COVID-19, including the perception of safety and health measures we implemented;
•new information that may emerge concerning the severity of COVID-19 and the actions to contain or treat it;
•general economic conditions; and
•consumer confidence.
Accordingly, we cannot reasonably estimate the extent to which COVID-19 will further impact our future financial condition, results of operations and cash flows.
We
could experience other potential adverse impacts as a result of COVID-19, including, but not limited to, charges from further adjustments to the carrying value of our intangible assets, as well as other long-lived asset impairment charges. Actual results may differ materially from our current estimates as the scope of COVID-19 evolves, depending largely, but not exclusively, on the duration and extent of our business disruptions.
i
Basis of Presentation
The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In accordance with Rule 10-01, the accompanying unaudited condensed consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete consolidated financial statements. The accompanying year-end condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by US GAAP. All adjustments, including normal recurring accruals and adjustments, necessary for a fair statement of our operating results for the interim period, have been included.
Our results of operations for these interim periods are not necessarily indicative of operating results
for other interim periods, full fiscal years or any other periods, particularly given the impact of COVID-19 as discussed above.
8
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. The preparation of financial statements in conformity with US GAAP requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities.
Similar to other sovereign governments, the Mohegan Tribe and its entities, including the Company, are not subject to United States federal income taxes. However, certain of our non-tribal entities are subject to income taxes in various state and local jurisdictions within the United States and in Canada.
Inspire Korea
The initial phase of Inspire Korea primarily consists of an integrated entertainment resort. Design and construction work was temporarily paused in September 2020 while we were in the process of securing the necessary financing for the project, which was completed in November 2021 (see
Note 2). During this temporary pause in construction, Inspire Korea obtained approval to modify its development plan and adjust the timing of a future sub-phase of the initial phase of the project.
On December 27, 2021, Inspire Korea elected to terminate a licensing arrangement for a previously-planned sub-phase and discontinue related design work. As a result, we recognized an intangible asset impairment of $i12.9 million related
to the licensing arrangement and a tangible asset impairment of $i17.7 million on the related construction in progress.
i
Recently Issued Accounting Pronouncements
ASU
2019-12
In December 2019, the Financial Accounting Standards Board (the “FASB”) issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which simplifies various aspects related to the accounting for income taxes. This new standard removes certain exceptions to the general principles in ASU 2019-12 and clarifies and amends existing guidance to improve consistent application. ASU 2019-12 was effective for annual reporting periods beginning after December 15, 2020. There was no effect on the Company’s financial statements from adopting this new standard.
ASU 2021-10
In November 2021, the FASB issued ASU 2021-10, “Government Assistance
(Topic 832): Disclosures by Business Entities about Government Assistance” (“ASU 2021-10”), which requires business entities to provide certain disclosures about government transactions that are accounted for by applying a grant or contribution accounting model by analogy to other accounting guidance. ASU 2021-10 is effective for annual reporting periods beginning after December 15, 2021. The Company is currently evaluating the effect ASU 2021-10 will have on its disclosures.
9
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
On May 31, 2022, the Company entered into a first amendment to its Senior Secured Credit Facility. Among other things, the amendment extended the maturity date of the Senior Secured Credit Facility from April 14, 2023 to April 12, 2024 and replaced the interest rate based on the London Interbank Offered Rate with an interest rate based on a secured overnight
financing rate (“SOFR”).
Borrowings under the Senior Secured Credit Facility bear interest as follows: (i) for base rate loans, a base rate equal to the highest of (x) the prime rate, (y) the federal funds rate plus i50 basis points and (z) the daily SOFR rate plus a i0.10%
credit spread adjustment (subject to a i0.75% floor) plus i100 basis points, plus a leverage-based margin of i100
to i275 basis points and (ii) for SOFR loans, the applicable SOFR rate plus a i0.10% credit spread adjustment (subject to a i0.75%
floor), plus a leverage-based margin of i200 to i375 basis points.
The
Company incurred $i0.7 million in costs in connection with this transaction during fiscal 2022. These debt issuance costs were reflected as an asset and are being amortized over the term of the Senior Secured Credit Facility using the effective interest method.
Amendment to Line of Credit
On May 31, 2022, in connection
with the amendment to the Company’s Senior Secured Credit Facility, the Company also entered into a first amendment to its Line of Credit. This amendment extended the maturity date of the Line of Credit from April 14, 2023 to April 12, 2024 and replaced the interest rate based on the London Interbank Offered Rate with a rate based on SOFR.
Inspire Korea Financing
Inspire Korea Credit Facility
On September 24, 2021, Inspire Korea entered into a loan agreement providing for a loan commitment of
up to i1.04 trillion Korean won (“KRW”) in itwo tranches (the “Inspire Korea Credit Facility”), comprised of a i740.0
billion KRW credit facility (the “Tranche A Facility”) and a i300.0 billion KRW credit facility (the “Tranche B Facility”). The Inspire Korea Credit Facility
10
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
is
being used to pay for the construction, operation, financial and other project costs in connection with Inspire Korea (see Note 1). All obligations under the Inspire Korea Credit Facility are secured by liens on substantially all assets of, and equity interests in, Inspire Korea (subject to certain exceptions and limitations). The Inspire Korea Credit Facility matures i48 months after the date of the first draw, which was November 29, 2021.
Mandatory
prepayments are required under the Inspire Korea Credit Facility in connection with certain specified asset dispositions or receipt of insurance proceeds, without a prepayment fee. The Inspire Korea Credit Facility may not be voluntarily prepaid in whole or in part until ione year after the date of the first draw. After such date, any voluntary prepayment requires a prepayment fee as defined in the Inspire Korea Credit Facility agreement.
Loans outstanding under the Tranche A Facility bear interest at a fixed rate of i5.4%
per annum or a floating rate equal to the sum of a base rate and an applicable margin (as defined in the Inspire Korea Credit Facility agreement). Loans outstanding under the Tranche B Facility bear interest at a fixed rate of i7.0% per annum or a floating rate equal to the sum of a base rate and an applicable margin (as defined in the Inspire Korea Credit Facility agreement). The Inspire Korea Credit Facility includes an interest reserve whereby a portion of loan proceeds is reserved for payment of interest. Interest on Tranche A Facility loans is fully reserved and interest
on Tranche B Facility loans is reserved for i36 months. If any portion of the Inspire Korea Credit Facility is undrawn, Inspire Korea is required to pay a i0.3% commitment fee on the undrawn amount.
The
Inspire Korea Credit Facility contains certain customary covenants applicable to Inspire Korea, including covenants governing: incurrence of indebtedness, incurrence of liens, investments, mergers or consolidations, asset sales, acquisitions of assets, the payment of dividends and other distributions and affiliate transactions. In addition, the Inspire Korea Credit Facility includes other covenants, representations and warranties and events of default that are customary for financing transactions of this type.
In connection with the Inspire Korea Credit Facility, the Company entered into a credit enhancement support agreement to provide up to $i100.0
million credit enhancement support for Inspire Korea’s payment of principal, interest and other sums due under the Inspire Korea Credit Facility.
The Company incurred $i59.1 million in costs in connection with this transaction during fiscal 2022. These debt issuance costs were reflected as a debt discount and are being amortized over the term of the Inspire Korea Credit Facility
using the effective interest method.
MGE Korea Term Loan
On November 4, 2021, MGE Korea Limited (“MGE Korea”), an indirect wholly-owned subsidiary of the Company and parent company of Inspire Korea, entered into a $i275.0 million secured term loan facility agreement (the “MGE Korea Term Loan”). MGE Korea received
funding from the MGE Korea Term Loan on November 24, 2021 (the “Utilisation Date”). The MGE Korea Term Loan was primarily used to make a capital contribution to Inspire Korea in order to partially fund construction-related costs for Inspire Korea. The MGE Korea Term Loan matures i66 months after the Utilisation Date.
The MGE Korea Term Loan bears payment-in-kind interest at a rate of i17.0%
per annum, to be compounded and capitalized at the end of each quarter, or paid in cash if so elected by MGE Korea.
If the MGE Korea Term Loan is voluntarily prepaid, if certain mandatory prepayment events are triggered or if it is repaid following a notice of acceleration, MGE Korea must pay a prepayment fee (as defined in the MGE Korea Term Loan agreement). The MGE Korea Term Loan is secured by a fixed charge over i100% of MGE Korea’s share capital and a debenture over the assets of MGE Korea (subject to certain exceptions and limitations).
The
MGE Korea Term Loan contains certain customary covenants, including covenants governing: incurrence of indebtedness, incurrence of liens, payment of dividends and other distributions, disposals, acquisitions and investments, arm’s length transactions, mergers and the development and management of Inspire Korea. In addition, the MGE Korea Term Loan includes
11
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
financial maintenance covenants pertaining to net leverage and debt service coverage of MGE Korea and Inspire Korea, and contains a requirement that Inspire Korea
maintain a minimum cash balance in the amounts set forth in the MGE Korea Term Loan. The MGE Korea Term Loan also contains customary events of default relating to, among other things, failure to make payments, breach of covenants and breach of representations.
The Company incurred $i10.0 million in costs in connection with the MGE Korea Term Loan during fiscal 2022. These debt issuance costs were reflected as
a debt discount and are being amortized over the term of the MGE Korea Term Loan using the effective interest method. In addition, the allocation of proceeds to the issuance of warrants and associated put option (see below) resulted in an original issue discount on the MGE Korea Term Loan of $i84.8 million, which will also be amortized over the term of the MGE Korea Term Loan using the effective interest method.
MGE Korea Warrant Agreement
In
connection with the MGE Korea Term Loan, on November 4, 2021, MGE Korea Holding III Limited (“MGE Korea Holding III”), the parent company of MGE Korea, entered into a warrant agreement (the “Warrant Agreement”) to issue detachable warrants (the “Warrants”). The Warrants can be converted into up to a total of i4,400 shares of capital in MGE Korea Holding III at an initial exercise price of $i0.01
per share. At the time of issuance, the Warrants represented i22.0% of the fully-diluted share capital of MGE Korea Holding III.
The Warrants are generally exercisable at any time after the third anniversary of the Utilisation Date (November 2024) until the tenth anniversary of the Utilisation Date (November 2031), but may be exercised earlier upon certain triggering events defined in the Warrant Agreement. Upon the earlier of (i) the tenth anniversary of the Utilisation Date (November 2031) and (ii) the
consummation of an Exit Event (as defined in the Warrant Agreement), all unexercised Warrants will expire.
Warrant holders do not have any rights held by holders of shares in the capital of MGE Korea Holding III to vote or to receive dividends and other distributions (other than as set forth in the Warrant Agreement). Warrant holders and shareholders of MGE Korea Holding III have certain preemptive rights in relation to any proposed issuance of equity securities by MGE Korea Holding III or certain affiliates (as defined in the Warrant Agreement), subject to customary exceptions.
Holders of unexercised Warrants have the right to require the parent of MGE Korea Holding III (the “Parent”) to purchase all of the unexercised Warrants that they hold at certain relevant times (the “Put Option”). In turn, the Parent has the right to require the holders of unexercised Warrants
to sell all of the unexercised Warrants they hold at certain relevant times (the “Call Option”). Both the Put Option and the Call Option are exercisable at any time in the period from (and including) the date isix years and isix months after the Utilisation
Date (May 2028) until the tenth anniversary of the Utilisation Date (November 2031). The aggregate cash purchase price for both the Put Option and the Call Option equals the higher of: (i) the fair market value of the relevant unexercised Warrants and (ii) $i110.0 million, multiplied by a fraction, the numerator of which is the number of the relevant unexercised Warrants and the denominator of which is the total number of Warrants.
The Warrants and the Put Option are classified as long-term
liabilities and are re-measured at their estimated fair values at each reporting date. The estimated fair value of the Warrants and the Put Option was determined by utilizing the income approach (discounted cash flow method) and a binomial lattice model. This valuation approach utilized Level 3 inputs. The primary unobservable inputs utilized were the discount rate, which was i11.5%, and the expected volatility of the underlying stock price, which was i55.0%.
Debt
issuance costs incurred during fiscal 2022 and allocated to the Warrants and the Put Option totaling $i4.2 million were expensed on the Utilisation Date and recorded within Corporate costs and expenses.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
Note 3 — iRevenue Recognition
Revenue Disaggregation
The Company is primarily engaged in the ownership, operation,
management and development of integrated entertainment facilities both domestically and internationally. The Company’s current wholly-owned operations are primarily focused within Connecticut and Pennsylvania. The Company also currently operates and manages other gaming facilities elsewhere within the United States and Canada. The Company generates revenues by providing the following types of goods and services: gaming, food and beverage, hotel and retail, entertainment and other, which includes management and development fees earned.
As of June 30, 2022 and September 30, 2021, contract assets related to the MGE Niagara Resorts Casino Operating and Services Agreement with the Ontario Lottery and Gaming Corporation totaled $i101.6 million and $i119.9
million, respectively.
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 ithree 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.
Outstanding gaming chips and slot tickets liability
$
i11,908
$
i9,632
Loyalty
points deferred revenue liability
i40,962
i42,663
Patron
advances and other liability
i32,515
i30,166
Total
$
i85,385
$
i82,461
/
As
of June 30, 2022 and September 30, 2021, customer contract liabilities related to Mohegan Sun Pocono's revenue sharing agreement with Unibet Interactive Inc. totaled $i14.7 million and $i15.8
million, respectively, and were primarily recorded within other long-term liabilities.
14
MOHEGAN TRIBAL GAMING AUTHORITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(unaudited)
Note 4 — iSegment
Reporting
The Company, either directly or through subsidiaries, operates Mohegan Sun, along with its other Connecticut operations (the “Connecticut Facilities”), Mohegan Sun Pocono, along with its other Pennsylvania operations (the “Pennsylvania Facilities”) and the MGE Niagara Resorts. Certain other properties that are managed or under development by the Company are identified as the management, development and other reportable segment.
The Company's chief operating decision maker currently reviews and assesses
the performance and operating results and determines the proper allocation of resources to the Connecticut Facilities, the Pennsylvania Facilities, the MGE Niagara Resorts and the properties managed or under development on a separate basis. iAccordingly, the Company has ifour
separate reportable segments: (i) Mohegan Sun, which includes the operations of the Connecticut Facilities, (ii) Mohegan Sun Pocono, which includes the operations of the Pennsylvania Facilities, (iii) the MGE Niagara Resorts and (iv) management, development and other. Certain other gaming and entertainment operations (“all other”), which are not individually reportable segments, the Company's corporate functions and inter-segment activities are each disclosed separately in the following segment disclosures to reconcile to consolidated results./
The Company is a defendant in various claims and legal actions resulting from its normal course of business, primarily relating to personal injuries to patrons and damages to patrons' personal assets. The Company estimates litigation claims expense and accrues for such liabilities based upon historical experience.
In management's opinion, the aggregate liability, if any, arising from such legal actions will not have a material impact on the Company's financial position, results of operations or cash flows.
16
In this filing, the words “Company,”“we,”“our” and “us” refer to the Mohegan Tribal Gaming Authority, inclusive of its consolidated subsidiaries, unless otherwise stated or the context otherwise requires.
We also
refer to: (i) our Condensed Consolidated Financial Statements as our “Financial Statements,” (ii) our Condensed Consolidated Balance Sheets as our “Balance Sheets” and (iii) our Condensed Consolidated Statements of Operations and Comprehensive Income (or Loss) as our “Statements of Operations,” where applicable. Note references are to the notes to the condensed consolidated financial statements included within our Financial Statements.
The following discussion and analysis of the financial position and operating results of the Company for the three and nine months ended June 30, 2022 and 2021 should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto and other financial
information included elsewhere in this Quarterly Report on Form 10-Q, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) presented in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021 (the “September 30, 2021 10-K”).
The statements in this discussion regarding our expectations related to our future performance, liquidity and capital resources, and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties. Our actual results may differ materially from those contained in or implied by any forward-looking statements. See “Cautionary Statements Regarding Forward-Looking Statements” within this Quarterly Report on Form 10-Q.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Overview
We were established by the Mohegan Tribe of Indians of Connecticut (the “Mohegan Tribe”) in July 1995. We have the exclusive authority to conduct and regulate gaming activities for the Mohegan Tribe on tribal lands and the non-exclusive authority to conduct such activities elsewhere. The Mohegan Tribe is a sovereign Indian nation with independent legal jurisdiction over its people and land.
We are primarily engaged in the ownership, operation and development of integrated entertainment facilities. We currently own two facilities in the United States and operate five facilities in the United States and Canada. We are also currently
developing a facility in South Korea, the Inspire Entertainment Resort located adjacent to the Incheon International Airport (“Inspire Korea”).
Impact of the COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic and the United States federal government declared it a national emergency. The spread of COVID-19 has affected most segments of the global economy, including our operations. In March 2020, we temporarily suspended operations at our properties in the United States and Canada to ensure the health and safety of our employees, guests and the surrounding communities in which we operate, consistent with directives from various governmental bodies. All of our properties in the United States were reopened by July 2020. Our properties in Canada reopened in July 2021, but were temporarily closed again from January
5, 2022 through January 30, 2022 due to a resurgence of COVID-19 at that time.
COVID-19 has had a significant impact on our operations, the full extent of which depends on future developments which are highly uncertain and cannot be predicted with confidence. Such developments include the following:
•the duration of COVID-19 or the extent of any resurgence or variants of COVID-19;
•the manner in which our guests, suppliers and other third parties respond to COVID-19, including the perception of safety and health measures we implemented;
•new information that may emerge concerning the severity of COVID-19 and the actions to contain or treat it;
•general
economic conditions; and
•consumer confidence.
Accordingly, we cannot reasonably estimate the extent to which COVID-19 will further impact our future financial condition, results of operations and cash flows.
We could experience other potential adverse impacts as a result of COVID-19, including, but not limited to, charges from further adjustments to the carrying value of our intangible assets, as well as other long-lived asset impairment charges. Actual results may differ materially from our current estimates as the scope of COVID-19 evolves, depending largely, but not exclusively, on the duration and extent of our business disruptions.
17
Discussion
of Consolidated Operating Results
The most significant factors and trends that impacted our operating and financial performance were as follows:
•relatively full periods of operations at our properties;
•a return to relatively normal operating conditions at our properties; and
•impairment charges related to Inspire Korea.
Consolidated
Operating Results
Three Months Ended June 30,
Variance
Nine Months Ended June 30,
Variance
(in
thousands)
2022
2021
$
%
2022
2021
$
%
Net revenues:
Gaming
$
293,973
$
241,289
$
52,684
21.8
%
$
841,196
$
623,674
$
217,522
34.9
%
Food
and beverage
35,622
20,826
14,796
71.0
%
96,157
45,209
50,948
112.7
%
Hotel
30,256
22,188
8,068
36.4
%
84,989
55,882
29,107
52.1
%
Retail,
entertainment and other
57,227
43,886
13,341
30.4
%
155,175
112,833
42,342
37.5
%
Total
$
417,078
$
328,189
88,889
27.1
%
$
1,177,517
$
837,598
339,919
40.6
%
Operating
costs and expenses:
Gaming
$
139,760
$
122,326
$
17,434
14.3
%
$
424,787
$
329,392
$
95,395
29.0
%
Food
and beverage
29,521
17,544
11,977
68.3
%
79,724
40,640
39,084
96.2
%
Hotel
12,354
8,926
3,428
38.4
%
34,792
25,907
8,885
34.3
%
Retail,
entertainment and other revenue
20,571
10,276
10,295
100.2
%
56,357
24,412
31,945
130.9
%
Advertising,
general and administrative
79,377
55,661
23,716
42.6
%
226,770
154,165
72,605
47.1
%
Corporate
15,278
11,238
4,040
35.9
%
50,380
35,230
15,150
43.0
%
Depreciation
and amortization
26,085
27,140
(1,055)
(3.9)
%
77,653
79,502
(1,849)
(2.3)
%
Impairment
of tangible assets
—
—
—
—
17,679
—
17,679
N.M.
Impairment of intangible assets
—
—
—
—
12,869
—
12,869
N.M.
Other,
net
4,006
11,037
(7,031)
(63.7)
%
13,735
28,843
(15,108)
(52.4)
%
Total
$
326,952
$
264,148
62,804
23.8
%
$
994,746
$
718,091
276,655
38.5
%
__________
N.M.
- Not Meaningful.
18
Segment
Operating Results
Three Months Ended June 30,
Variance
Nine Months Ended June 30,
Variance
(in
thousands)
2022
2021
$
%
2022
2021
$
%
Net revenues:
Mohegan
Sun
$
236,465
$
220,061
$
16,404
7.5
%
$
703,521
$
574,974
$
128,547
22.4
%
Mohegan
Sun Pocono
66,783
62,931
3,852
6.1
%
193,162
153,392
39,770
25.9
%
MGE Niagara Resorts
79,627
14,380
65,247
453.7
%
194,719
41,193
153,526
372.7
%
Management, development
and other
16,817
21,782
(4,965)
(22.8)
%
46,334
53,691
(7,357)
(13.7)
%
All other
18,776
8,362
10,414
124.5
%
42,231
10,077
32,154
319.1
%
Corporate
85
162
(77)
(47.5)
%
471
2,949
(2,478)
(84.0)
%
Inter-segment
(1,475)
511
(1,986)
N.M.
(2,921)
1,322
(4,243)
N.M.
Total
$
417,078
$
328,189
88,889
27.1
%
$
1,177,517
$
837,598
339,919
40.6
%
Operating
costs and expenses:
Mohegan Sun
$
177,721
$
154,878
$
22,843
14.7
%
$
538,433
$
430,779
$
107,654
25.0
%
Mohegan
Sun Pocono
54,866
50,612
4,254
8.4
%
159,521
133,276
26,245
19.7
%
MGE Niagara Resorts
64,665
26,135
38,530
147.4
%
170,153
76,746
93,407
121.7
%
Management, development
and other
8,548
16,071
(7,523)
(46.8)
%
63,279
40,980
22,299
54.4
%
All other
11,978
9,407
2,571
27.3
%
35,691
10,576
25,115
237.5
%
Corporate
10,719
6,536
4,183
64.0
%
30,646
24,408
6,238
25.6
%
Inter-segment
(1,545)
509
(2,054)
N.M.
(2,977)
1,326
(4,303)
N.M.
Total
$
326,952
$
264,148
62,804
23.8
%
$
994,746
$
718,091
276,655
38.5
%
__________
N.M.
- Not Meaningful.
Mohegan Sun
Revenues
Net revenues increased $16.4 million, or 7.5%, for the three months ended June 30, 2022 compared with the same period in the prior year. Net revenues increased $128.5 million, or 22.4%, for the nine months ended June 30, 2022 compared with the same period in the prior year. These increases were primarily driven by higher non-gaming revenues which benefited from strong overall business volumes reflecting a return to relatively normal operating conditions compared with the same periods in the prior year, which were negatively impacted by various COVID-19 restrictions. Overall non-gaming revenues also benefited from a full entertainment calendar compared with the same periods in the prior year in which
the Mohegan Sun Arena was partially closed due to COVID-19. The growth in net revenues for the nine months ended June 30, 2022 also reflected higher gaming revenues. Slot revenues increased principally due to higher slot handle, while the growth in table game revenues reflected higher hold percentage.
Operating Costs and Expenses
Operating costs and expenses increased $22.8 million, or 14.7%, for the three months ended June 30, 2022 compared with the same period in the prior year. Operating costs and expenses increased $107.7 million, or 25.0%, for the nine months ended June 30, 2022 compared with the same period in the prior year. These increases primarily reflected higher overall operating costs and expenses commensurate with the
increases in net revenues and return to relatively normal operating conditions, including increased payroll costs, cost of goods sold and direct entertainment expenses, as well as higher costs related to advertising, utilities and certain other administrative services. The increase in operating costs and expenses for the nine months ended June 30, 2022 was also driven by higher slot win contribution.
Mohegan Sun Pocono
Revenues
Net revenues increased $3.9 million, or 6.1%, for the three months ended June 30, 2022 compared with the same period in the prior year. Net revenues increased $39.8 million, or 25.9%, for the nine months ended June 30, 2022 compared with the same period in the prior
year. These increases were primarily due to higher slot revenues driven by increased slot handle, as well as higher non-gaming revenues. In general, these results were driven by strong overall business volumes reflecting a return to relatively normal operating conditions compared to the same periods in the prior year, which were negatively impacted by various COVID-19 restrictions and the temporary closure of Mohegan Sun Pocono from December 12, 2020, through January 3, 2021.
19
Operating Costs and Expenses
Operating costs and expenses increased $4.3 million, or 8.4%, for the three months ended June
30, 2022 compared with the same period in the prior year. Operating costs and expenses increased $26.2 million, or 19.7%, for the nine months ended June 30, 2022 compared with the same period in the prior year. These increases primarily reflected higher Pennsylvania slot machine tax expenses driven by the increases in slot revenues, combined with higher overall operating costs and expenses commensurate with the return to relatively normal operating conditions.
MGE Niagara Resorts
Revenues
Net revenues increased $65.2 million, or 453.7%, for the three months ended June 30, 2022 compared with the same period in the prior year. Net revenues increased $153.5 million, or 372.7%, for the nine months ended June 30, 2022
compared with the same period in the prior year. These results reflect relatively full periods of operations and a return to fairly normal operating conditions compared with the same periods in the prior year. The MGE Niagara Resorts were temporarily closed effective March 18, 2020, following the outbreak of COVID-19, and reopened on July 23, 2021 under various COVID-19 related restrictions. The MGE Niagara Resorts were temporarily closed again from January 5, 2022, through January 30, 2022, due to a resurgence of COVID-19 at that time. Net revenues for the three and nine months ended June 30, 2021 primarily reflect fixed service provider fees pursuant to the terms of our Casino Operating and Services Agreement with the Ontario
Lottery and Gaming Corporation.
Operating Costs and Expenses
Operating costs and expenses increased $38.5 million, or 147.4%, for the three months ended June 30, 2022 compared with the same period in the prior year. Operating costs and expenses increased $93.4 million, or 121.7%, for the nine months ended June 30, 2022 compared with the same period in the prior year. These increases primarily reflected higher operating costs and expenses commensurate with the growth in net revenues, combined with higher overall costs and expenses associated with relatively full periods of operations.
Management, Development and Other
Revenues
Net revenues decreased
$5.0 million, or 22.8%, for the three months ended June 30, 2022 compared with the same period in the prior year. Net revenues decreased $7.4 million, or 13.7%, for the nine months ended June 30, 2022 compared with the same period in the prior year. These declines were primarily driven by lower management fees from ilani Casino Resort, combined with the impact of non-recurring management fees associated with our prior management agreement with Paragon Casino Resort.
Operating Costs and Expenses
Operating costs and expenses decreased $7.5 million, or 46.8%, for the three months ended June 30, 2022 compared with the same period in the prior year. This decrease primarily reflected lower pre-opening costs and expenses related to Inspire
Korea. Operating costs and expenses increased $22.3 million, or 54.4%, for the nine months ended June 30, 2022 compared with the same period in the prior year. As described in Note 1, the increase in operating costs and expenses for the nine months ended June 30, 2022 was primarily driven by $30.5 million in impairment charges related to Inspire Korea. These results were partially offset by lower pre-opening costs and expenses related to Inspire Korea.
All Other
Revenues
Net revenues increased $10.4 million, or 124.5%, for the three months ended June 30, 2022 compared with the same period in the prior year. Net revenues increased $32.2 million, or 319.1%, for the nine months ended June 30, 2022
compared with the same period in the prior year. These increases were driven by incremental revenues generated by Mohegan Sun Las Vegas, which opened in March 2021, and our online casino gaming and sports wagering operations, which commenced in October 2021.
Operating Costs and Expenses
Operating costs and expenses increased $2.6 million, or 27.3%, for the three months ended June 30, 2022 compared with the same period in the prior year. Operating costs and expenses increased $25.1 million, or 237.5%, for the nine months ended June 30, 2022 compared with the same period in the prior year. These results reflect incremental operating costs and expenses associated with Mohegan Sun Las Vegas and our online casino gaming and sports wagering operations.
Corporate
Revenues
Net
revenues decreased $0.1 million, or 47.5%, for the three months ended June 30, 2022 compared with the same period in the prior year. This decrease was primarily driven by lower revenues generated by our “Play 4 Fun” online gaming operations. Net revenues decreased $2.5 million, or 84.0%, for the nine months ended June 30, 2022 compared with the same period in the prior
20
year. This decline principally reflected the impact of non-recurring revenues generated by our construction group in the same period in the prior year.
Operating Costs and Expenses
Operating costs and expenses
increased $4.2 million, or 64.0%, for the three months ended June 30, 2022 compared with the same period in the prior year. Operating costs and expenses increased $6.2 million, or 25.6%, for the nine months ended June 30, 2022 compared with the same period in the prior year. These increases were primarily driven by higher payroll costs, as well as higher costs related to certain other professional and administrative services. The increase in operating costs and expenses for the nine months ended June 30, 2022 was partially offset by non-recurring construction related expenses.
Other
Income (Expense)
Three Months Ended June 30,
Variance
Nine Months Ended June 30,
Variance
(in
thousands)
2022
2021
$
%
2022
2021
$
%
Interest income
$
64
$
125
$
(61)
(48.8)
%
$
313
$
129
$
184
142.6
%
Interest
expense, net
(53,969)
(43,929)
(10,040)
(22.9)
%
(151,055)
(128,256)
(22,799)
(17.8)
%
Loss
on modification and early extinguishment of debt
(3)
(20)
17
85.0
%
(3)
(23,978)
23,975
100.0
%
Gain
on fair value adjustment
26,796
—
26,796
N.M.
20,635
—
20,635
N.M.
Other, net
83
2,373
(2,290)
(96.5)
%
(2,595)
5,665
(8,260)
N.M.
Income
tax benefit (provision)
(3,534)
3,312
(6,846)
N.M.
(4,553)
10,101
(14,654)
N.M.
__________
N.M. - Not Meaningful.
Interest
Expense
Interest expense increased $10.0 million, or 22.9%, for the three months ended June 30, 2022 compared with the same period in the prior year. Interest expense increased $22.8 million, or 17.8%, for the nine months ended June 30, 2022 compared with the same period in the prior year. These increases were partially offset by $6.0 million and $15.7 million in capitalized interest related to the Inspire Korea construction during the three and nine months ended June 30, 2022, respectively. The increases in interest expense were due to higher weighted average interest rate and weighted average outstanding debt. See Note 2 for additional information.
Loss on Modification and Early Extinguishment of Debt
Loss
on modification and early extinguishment of debt primarily represents transaction costs expensed in connection with our January 2021 refinancing transactions.
Gain on Fair Value Adjustment
Gain on fair value adjustment is driven by changes in the estimated fair value of the warrants and put option related to Inspire Korea. See Note 2 for additional information.
Income Tax
Income tax benefit or provision is primarily driven by taxable losses incurred or taxable income generated by the MGE Niagara Resorts.
Seasonality
The gaming markets in the Northeastern United States and Niagara Falls, Canada, are seasonal in nature, with peak gaming activities often occurring during the months of May through August.
Accordingly, our operating results for the three and nine months ended June 30, 2022 and 2021 are not necessarily indicative of operating results for other interim periods or an entire fiscal year.
Liquidity and Capital Resources
Liquidity
As of June 30, 2022 and September 30, 2021, we held cash and cash equivalents of $156.9 million and $149.8 million, respectively, of which the MGE Niagara Resorts held $30.1 million and $25.1 million, respectively. As a result of the cash-based nature of our business, operating cash flow
levels tend to follow trends in our operating income, excluding the effects of non-cash charges, such as depreciation and amortization and impairment charges. Inclusive of letters of credit, which reduce borrowing availability, we had $261.0 million of borrowing capacity under our senior secured credit facility and line of credit as of June 30, 2022. In addition, inclusive of letters of credit, which reduce borrowing availability, the MGE Niagara Resorts
21
had $113.6 million of borrowing capacity under the MGE Niagara revolving facility and MGE Niagara swingline facility as of June 30, 2022.
Cash provided by operating activities
increased $83.4 million, or 57.5%, to $228.5 million for the nine months ended June 30, 2022 compared with $145.1 million in the same period in the prior year. The increase in cash provided by operating activities was driven by higher net income, after factoring in non-cash items, reflecting a return to relatively normal operating conditions at our properties. See “Discussion of Consolidated Operating Results” for additional information.
Cash used in investing activities increased $177.0 million, or 550.6%, to $209.2 million for the nine months ended June 30, 2022 compared with $32.2 million in the same period in the prior year. The increase in cash used in investing activities was primarily driven by higher capital expenditures related to Inspire Korea.
Cash provided by financing
activities totaled $387.4 million for the nine months ended June 30, 2022 compared with cash used in financing activities of $81.1 million in the same period in the prior year. The increase in cash provided by financing activities was primarily driven by additional borrowings to fund the development of Inspire Korea.
Sufficiency of Resources
We believe that existing cash balances, financing arrangements and operating cash flows will provide us with sufficient resources to meet our existing debt obligations, finance and right-of-use operating lease obligations, distributions to the Mohegan Tribe, capital expenditures and working capital requirements for the next twelve months; however, we can provide no assurance in this regard.
Critical Accounting Policies and Estimates
There
has been no material change from the critical accounting policies and estimates previously disclosed in our September 30, 2021 10-K.
22
Cautionary Statements Regarding Forward-Looking Information
Some information included in this Quarterly Report on Form 10-Q and other materials filed by us with the Securities and Exchange Commission (the “SEC”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such
statements include information relating to business development activities, as well as capital spending, financing sources, the effects of regulation, including gaming and tax regulation and increased competition. These statements can sometimes be identified by our use of forward-looking words such as “may,”“will,”“anticipate,”“estimate,”“expect” or “intend” and similar expressions. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated future results, and accordingly, such results may differ materially from those expressed in any forward-looking statements made by us or on our behalf. These risks and uncertainties include, but are not limited to, those relating to the following:
•the COVID-19 pandemic and the related social and economic disruptions;
•the
financial performance of our various operations;
•the local, regional, national or global economic climate;
•increased competition, including the expansion of gaming in jurisdictions in which we own or operate gaming facilities;
•our leverage and ability to meet our debt service obligations and maintain compliance with financial debt covenants;
•the continued availability of financing;
•our dependence on existing management;
•our ability to integrate new amenities from expansions to our facilities into our current operations and manage the expanded facilities;
•changes in federal or state tax laws or the administration of such laws;
•changes in gaming laws or regulations, including the limitation, denial or suspension of licenses required under gaming laws and regulations;
•cyber security risks relating to our information technology and other systems, including misappropriation of patron information or other breaches of information security;
•changes in applicable laws pertaining to the service of alcohol, smoking or other amenities offered at our facilities;
•our ability to successfully implement our diversification strategy;
•an
act of terrorism;
•our customers' access to inexpensive transportation to our facilities and changes in oil, fuel or other transportation-related expenses;
•unfavorable weather conditions;
•risks associated with operations in foreign jurisdictions;
•failure by our employees, agents, affiliates, vendors or businesses to comply with applicable laws, rules and regulations, including state gaming laws and regulations and anti-bribery laws such as the United States Foreign Corrupt Practices Act, and similar anti-bribery laws in other jurisdictions; and
•fluctuations in foreign currency exchange rates.
Additional
information concerning potential factors that could affect our financial results is included in our September 30, 2021 10-K, as well as our other reports and filings with the SEC. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this report. We do not undertake any obligation to update or supplement any forward-looking statements to reflect subsequent events or circumstances, except as required by law. We cannot assure you that projected results or events will be achieved or will occur.
23
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Market
risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. As of June 30, 2022, our primary exposure to market risk was interest rate risk associated with our credit facilities which accrued interest on the basis of base rate, secured overnight financing rate and Bankers’ Acceptance rate formulas, plus applicable rates, as defined under the credit facilities. Based on our variable rate outstanding debt as of June 30, 2022, a 100 basis point change in average interest rate would impact annual interest expense by approximately $1.8 million.
Item 4. Controls and Procedures
Disclosure
Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed
by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures. Management recognizes that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on an evaluation of our disclosure controls and procedures as of June 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes
in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
24
PART II. OTHER INFORMATION
Item
1. Legal Proceedings
There has been no material change from the legal proceedings previously disclosed in our September 30, 2021 10-K.
Item 1A. Risk Factors
There has been no material change from the risk factors previously disclosed in our September 30, 2021 10-K.
Cover
Page Interactive Data File (formatted as Inline XBRL).
26
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.
