BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with 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 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, 2018. 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. Certain immaterial line items in the accompanying condensed consolidated financial statements for the three months and nine months ended June 30, 2018 have been reclassified to conform to fiscal 2019 presentation.

In its first quarter of fiscal 2019, the Company made an out-of-period correction, which increased depreciation and amortization expense by $6.3 million for the nine months ended June 30, 2019. This adjustment resulted from the assignment, in a prior year, of an incorrect useful life to depreciate a long lived asset related to tenant allowances.

In its second quarter of fiscal 2019, the Company committed to a plan to repurpose the recently closed Casino of the Wind section of Mohegan Sun. In connection with this decision, the Company determined that certain assets related to the Casino of the Wind had no alternative future use. Accordingly, depreciation on these assets was accelerated, which increased depreciation and amortization expense by $21.6 million for the nine months ended June 30, 2019.

Significant Accounting Policies

The significant accounting policies impacted by the acquisition of the Niagara Gaming Bundle were as follows:

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its majority and wholly-owned subsidiaries and entities. MGE Niagara is deemed to be a variable interest entity as the third-party investor has substantive participation rights and significant influence over MGE Niagara’s operations. The accounts of MGE Niagara are consolidated into the accounts of the Company as the Company is deemed to be the primary beneficiary of MGE Niagara. In consolidation, all inter-company balances and transactions were eliminated.

Acquisitions

The Company accounts for acquisitions using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at fair value as of the acquisition date. The purchase price of acquisitions is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on estimated fair values and any excess purchase price over the identifiable assets acquired and liabilities assumed, if any, is recorded as goodwill. The Company may use independent valuation specialists to assist in determining the estimated fair values of assets acquired and liabilities assumed, which could require certain significant management assumptions and estimates.

Leases

The Company accounts for leases in accordance with guidance provided by ASC 840, which requires that leases be evaluated and classified as operating leases or capital leases for financial reporting purposes. Leases that meet one or more of the capital lease criteria under this guidance are recorded as capital leases. All other leases are recorded as operating leases. Capital leases are recorded at the lower of the fair value of the leased assets or the present value of future minimum lease payments and are amortized in accordance with guidance provided by ASC Topic 840-30, “Leases - Capital Leases”.

Revenues from Casino Operating and Services Agreement

MGE Niagara operates the Niagara Gaming Bundle under the terms of the COSA. Pursuant to Canadian law, the OLG retains final legal authority over gaming operations in Canada. Accordingly, MGE Niagara is deemed to be acting as an agent with respect to gaming revenues earned under the COSA and, therefore, recognizes such revenues net of amounts due to the OLG. MGE Niagara is deemed to be acting as a principal with respect to non-gaming revenues earned under the COSA. The COSA represents a series of distinct goods and services and, therefore, is deemed to be a single performance obligation. The transaction price under the COSA includes both fixed and variable consideration. The fixed consideration is comprised of an annual service provider fee and reimbursement of permitted capital expenditures and other approved expenses. The fixed consideration is recognized as revenue on a straight line basis over the term of the COSA. The variable consideration consists of 70% of Gaming Revenues (as defined under the COSA), in excess of a guaranteed annual minimum amount payable to the OLG (the “Threshold”). Annual Threshold amounts are contractually established and vary from year to year. If Gaming Revenues are less than the Threshold for any given year, the Company is obligated to make a payment to cover the related shortfall. The variable consideration is recognized as revenue as services are rendered under the terms of the COSA. The Company measures its progress in satisfying this performance obligation based on the output method, which aligns with the benefits provided to the OLG. Projected revenues are estimated based on the most likely amount within a range of possible outcomes to the extent that a significant reversal in the amount of cumulative revenues recognized is not probable of occurring. The difference between revenues recognized and cash received is recorded as a contract asset or liability. In the event a contract asset is recorded, such asset will be assessed at least annually for impairment. As of June 30, 2019, contract assets of $541,000 and $4.1 million related to the COSA are recorded within other current assets and other assets, respectively.

Income Taxes

MGE Niagara is subject to income taxes in Canada. The Company accounts for income taxes based on the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting basis and tax basis of the assets and liabilities, and are measured using statutory rates that will be in effect when the differences are expected to reverse. For the three months and nine months ended June 30, 2019, the provision for income taxes was relatively insignificant.

iGame License

On January 25, 2019, Mohegan Sun Pocono entered into a revenue sharing agreement with Unibet Interactive Inc. (“Unibet”), pursuant to which Mohegan Sun Pocono will allow Unibet the use of its interactive gaming (“iGame”) license to operate a branded retail sportsbook at Mohegan Sun Pocono and an online gaming service in exchange for a portion of the related revenues earned by Unibet. In connection with this agreement, Unibet paid the required $8.0 million iGame license fee to the Pennsylvania Gaming Control Board on behalf of Mohegan Sun Pocono. The Company recorded the $8.0 million iGame license fee, which is reimbursable to Unibet under certain conditions, as an indefinite useful life intangible asset with a corresponding long-term contract liability. The intangible asset will be assessed at least annually for impairment.

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, including a convertible debenture and redemption note payable, approximates fair value. The estimated fair values of the Company's long-term debt were as follows (in thousands):



	June 30, 2019
	Carrying Value		Fair Value
Senior Secured Credit Facility - Revolving	$	114,000	$	107,588
Senior Secured Credit Facility - Term Loan A	$	274,370	$	267,324
Senior Secured Credit Facility - Term Loan B	$	806,627	$	766,775
2016 7 7/8% Senior Unsecured Notes	$	490,056	$	489,375
MGE Niagara Credit Facility - Term Loan	$	75,140	$	75,140

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, 2019.