ORGANIZATION AND BASIS OF PRESENTATION:

Organization

The Mohegan Tribe of Indians of Connecticut (the “Mohegan Tribe”) established the Mohegan Tribal Gaming Authority in July 1995 with 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. In June 2017, the Mohegan Tribal Gaming Authority announced a corporate effort to align its brand image with its expanding business, and accordingly rebranded, and is now doing business as Mohegan Gaming & Entertainment (the “Company”).

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. In management's opinion, 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 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, 2017.

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. Actual results could differ from these estimates.

Certain line items in the accompanying 2017 condensed consolidated financial statements have been combined to conform to the 2018 presentation.

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, trade payables and certain promissory notes approximates fair value. The estimated fair values of the Company's long-term debt were as follows (in thousands):



	June 30, 2018
	Carrying Value		Fair Value
Senior Secured Credit Facility - Revolving	$	84,000	$	80,016
Senior Secured Credit Facility - Term Loan A	$	327,480	$	323,431
Senior Secured Credit Facility - Term Loan B	$	811,711	$	784,431
2016 7 7/8% Senior Unsecured Notes	$	488,639	$	472,500

The estimated fair values of the Company's long-term debt were based on Level 2 inputs (quoted market prices or prices of similar instruments) on or about June 30, 2018.

Promotional Allowances

The retail value of accommodations, food and beverage and other services furnished to guests without charge is included in gross revenues and then deducted as promotional allowances to arrive at net revenues. The estimated cost of providing such promotional allowances totaled $20.0 million and $59.5 million for the three months and nine months ended June 30, 2018, respectively, and $21.3 million and $62.1 million for the three months and nine months ended June 30, 2017, respectively. These costs were primarily recorded within gaming costs and expenses in the accompanying condensed consolidated statements of income.

Non-cash Senior Secured Credit Facility Reductions

On June 30, 2018 and 2017, the bank that administers the Company's debt service payments for its senior secured credit facilities made required principal payments on behalf of the Company totaling $18.9 million and $18.6 million, respectively, but did not accordingly debit the Company's bank account for these payments. As of June 30, 2018 and 2017, the Company reflected these non-cash 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 Company's bank account, resulting in reductions to the Company's cash and cash equivalents and other current liabilities.

New Accounting Standards

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued an accounting standards update on revenue recognition (“ASC 606”) pertaining 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 revenues and cash flows arising from contracts with customers. This guidance is 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 is now effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods. 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 Company is currently assessing the impact the adoption of this guidance will have on its consolidated financial statements and accompanying notes. The Company believes that under the new guidance it will no longer be permitted to recognize revenues for complimentary goods and services that are provided to patrons to incentivize gaming activities as gross revenues with a corresponding offset to promotional allowances to arrive at net revenues. Instead, the Company expects that a majority of such revenues will be recorded as an offset to gaming revenues. Under the new guidance, the accounting for Momentum Dollars awarded under the Company’s loyalty rewards program will also change. Momentum Dollars earned by patrons through past revenue transactions will be identified as separate performance obligations and recorded as reductions to gaming revenues when earned at the retail value of such benefits owed to the patrons (less estimated breakage). Upon redemption of these benefits by patrons and the fulfillment of the related performance obligations by the Company, revenues will be recorded within the revenue segment that provided the goods or services (food and beverage, hotel or retail, entertainment and other). In addition, this guidance provides substantial revision to annual and interim financial statement disclosures. This guidance allows for either full retrospective adoption, meaning that the guidance should be applied to all periods presented, or modified retrospective adoption, meaning that the guidance should be applied only to the most current period presented with the cumulative effect of its adoption recognized at the date of initial application. The Company previously disclosed its intention to adopt this guidance on a full retrospective basis. However, the Company now expects to adopt this guidance in its first quarter of fiscal 2019 on a modified retrospective basis.

In February 2016, the FASB issued new guidance pertaining to leases (“ASC 842”) based on the principle that entities should recognize assets and liabilities arising from leases. This guidance does not significantly change lessees’ recognition, measurement and presentation of expenses and cash flows from previous accounting standards. Leases are classified as operating or financing. The primary change in the guidance is the requirement for entities to recognize right-of-use assets representing the right to use leased assets and lease liabilities for payments during the term of operating lease arrangements. Lessees are permitted to make an accounting policy election to not recognize assets and liabilities for leases with terms of twelve months or less. Lessors' treatment of leases under this guidance is largely unchanged from previous accounting standards. In addition, the guidance expands disclosure requirements for lease arrangements. This guidance is required to be applied on a modified retrospective basis, which includes a number of practical expedients, and is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods, with early application permitted. In July 2018, the FASB issued an accounting standard update (“ASU 2018-11”) which provides for another transition method, in addition to the existing transition method, by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company expects to adopt this guidance in its first quarter of fiscal 2020, but has not yet decided on its method of adoption. The Company has not yet completed its assessment of the impact of this guidance on the Company’s financial statements; however, the Company has numerous operating leases which, under the new guidance, will need to be reported as an asset and a liability on its balance sheet. The precise amount of this asset and liability will be determined based on the operating leases that exist on the date of adoption. The adoption of this guidance is expected to have a material impact on the Company's financial statements as the Company has significant operating lease commitments that are off-balance sheet under current US GAAP.

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 (“ASC 230”). The update requires that a statement of cash flows explain the total change during the period in cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. This guidance is required to be applied on a retrospective basis and is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods, with early application permitted. The Company expects to adopt this guidance in its first quarter of fiscal 2019 on a retrospective basis. Transfers between cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents will no longer be part of operating, investing and financing activities, and, as such, the details of such transfers will not be reported as cash flow activities in the statements of cash flows. Previously disclosed cash flows provided by (used in) investing activities will be restated upon initial adoption of this guidance.

In January 2017, the FASB issued an accounting standards update which eliminates the second step in the goodwill impairment test that requires an entity to determine the implied fair value of the reporting unit's goodwill (“ASC 350”). 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. This guidance is required to be applied to goodwill impairment tests conducted for annual reporting periods beginning after December 15, 2019, including interim reporting periods, with early adoption permitted. The Company expects to adopt this guidance in connection with its annual impairment testing for fiscal 2021.