BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its majority and wholly-owned subsidiaries and entities. The accounts of MGE Niagara are consolidated into the accounts of the Company as MGE Niagara is a variable interest entity and the Company is deemed to be the primary beneficiary of MGE Niagara. In consolidation, all inter-company balances and transactions are eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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.

Cash and Cash Equivalents

Cash and cash equivalents consist of deposits that can be redeemed on demand and investments with original maturities of less than three months. Cash and cash equivalents include all operating cash and in-house funds.

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents consist of deposits that are restricted as to their withdrawal or use. Restricted cash and cash equivalents primarily include cash intended to be used for the development and construction of Project Inspire.

Accounts Receivable

Accounts receivable consists of casino receivables, which represent credit extended to approved casino patrons, and hotel and other non-gaming receivables. The Company maintains a reserve for doubtful collection of these receivables, which primarily relates to casino receivables.

Inventories

Inventories are stated at the lower of cost or net realizable value and consist primarily of food and beverage, retail, hotel and operating supplies. Cost is determined using the average cost method.

Property and Equipment

Property and equipment are stated at cost. Depreciation is recognized over the estimated useful lives of the assets, other than land, on a straight-line basis. Leasehold improvements are amortized over the shorter of the lease terms or the estimated useful lives of the improvements. Estimated useful lives by asset categories are as follows:



Buildings and land improvements	40 years
Furniture and equipment	3 - 7 years

The costs of significant improvements are capitalized. Costs of normal repairs and maintenance are expensed as incurred.

Property and equipment are assessed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. If it is determined that the carrying amounts may not be recoverable based on current and future levels of income and cash flows, as well as other factors, an impairment loss will be recognized at such time.

Goodwill

Goodwill related to the acquisition of Mohegan Sun Pocono and was not subject to amortization, but was assessed at least annually for impairment by comparing its fair value to its carrying value. As of September 30, 2018, the Company assessed the goodwill, which totaled $39.5 million, for impairment and determined that its fair value exceeded its carrying value. The fair value was estimated utilizing the income approach (discounted cash flow method).

As of September 30, 2019, the Company assessed the goodwill for impairment and determined that its fair value was less than its carrying value. The fair value was estimated utilizing a combination of the income approach (discounted cash flow method) and the market approach (guideline public company method). Accordingly, the Company determined that the goodwill was fully impaired and recorded an impairment charge of $39.5 million in its fourth quarter of fiscal 2019. The amount of the impairment loss was calculated as the excess of the asset’s carrying value over its fair value. The impairment was primarily driven by a continued decline in gaming revenues, a higher weighted average cost of capital utilized for the cash flow valuation and lower operating income growth rates.

Other Intangible Assets

Other intangible assets consist primarily of Mohegan Sun's trademark and Mohegan Sun Pocono's slot machine, table game, interactive gaming and sports wagering licenses. These intangible assets all have indefinite lives.

Pursuant to a five-year, extendable agreement between Mohegan Sun Pocono and Unibet Interactive Inc. (“Unibet”), a subsidiary of the Kindred Group, Unibet paid an $8.0 million interactive gaming license fee in January 2019 and a $10.0 million sports wagering license fee in July 2019 to the Pennsylvania Gaming Control Board (the “PGCB”) on behalf of Mohegan Sun Pocono and became licensed as a sports wagering and interactive gaming operator by the PGCB in association with operating certificates issued to Mohegan Sun Pocono. The Company recorded these license fees, which are reimbursable to Unibet under certain conditions, as intangible assets with corresponding customer contract liabilities as Unibet is deemed to be a customer of Mohegan Sun Pocono with respect to these gaming activities.

Other intangible assets also include certain rights acquired under the COSA, which include, among other things, the rights to use trade names, player databases and licenses, as well as the rights to operate a parking lot and to use a parking garage adjacent to Casino Niagara. The COSA rights intangible asset and the parking rights intangible asset are being amortized over the term of the COSA on a straight-line basis.

Intangible assets with indefinite lives are assessed at least annually for impairment by comparing their fair value to their carrying value. As of September 30, 2019 and 2018, the Company assessed its indefinite live intangible assets for impairment and determined that no impairment existed.

Intangible assets with finite lives are assessed for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. If necessary, an impairment loss is recognized when the carrying amount of the asset exceeds the estimated undiscounted cash flows used in determining the fair value of the asset. The amount of the impairment loss is calculated as the excess of the asset’s carrying value over its fair value. Fair value is estimated utilizing a discounted cash flow model. As of September 30, 2019, the Company assessed its finite life intangible assets for impairment and determined that no impairment existed.

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.

Debt Issuance Costs

Debt issuance costs are amortized to interest expense based on the effective interest method.

Self-insurance Reserves

The Company is self-insured up to certain limits for costs associated with workers’ compensation, general liability and employee medical coverage. Insurance claims and reserves include estimated settlements of known claims, as well as estimates of incurred but not reported claims. These reserves are recorded within other current liabilities. In estimating self-insurance reserves, the Company considers historical loss experiences and expected levels of costs per claim. Claims are accounted for based on estimates of undiscounted claims, including claims incurred but not reported.

Leases

The Company accounts for leases in accordance with guidance provided by Accounting Standards Codification (“ASC”) Topic 840, “Leases” (“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 initially 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”.

Revenue Recognition

The Company recognizes gaming revenues as amounts wagered less prizes paid out. The Company utilizes a deferred revenue model to reduce gaming revenues by the estimated fair value of loyalty points earned by patrons and recognizes the related revenues when such loyalty points are redeemed. The deferred revenue liability is based on the estimated stand-alone selling price (“SSP”) of loyalty points earned after factoring in the likelihood of redemption. Revenues from food and beverage, hotel, retail, entertainment and other services, including revenues associated with loyalty point redemptions, are recognized at the time such service is performed. Minimum rental revenues are recognized on a straight-line basis over the terms of the related leases. Percentage rental revenues are recognized in the periods in which the tenants exceed their respective percentage rent thresholds. The Company recognizes development fees pursuant to the respective development agreement, typically as a percentage of construction costs incurred during the period. Management fees are recognized pursuant to the respective management agreement, usually as a percentage of the related project's earnings during the period. Development and management fees are recorded within retail, entertainment and other revenues.

MGE Niagara operates the MGE Niagara Resorts under the terms of the COSA. Pursuant to the laws of Canada and Ontario, the OLG retains legal authority to conduct and manage lottery schemes on behalf of the Ontario government. MGE Niagara is acting as a service provider to the OLG under the COSA and, therefore, recognizes gaming revenues net of amounts due to the OLG. MGE Niagara retains all non-gaming revenues and recognizes these amounts on a gross basis. 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 additional consideration for permitted capital expenditures up to an annual cap. 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 an asset or a liability and classified as short-term or long-term based upon the anticipated timing of reversal. In the event an asset is recorded, such asset is assessed at least annually for impairment.

Due from/to Ontario Lottery and Gaming Corporation

On a bi-weekly basis, the OLG remits estimated amounts due to MGE Niagara pursuant to the terms of the COSA. Any such remittance that is due but not yet received is recorded within due from Ontario Lottery and Gaming Corporation. Differences between actual and estimated amounts due are separately settled with the OLG on an annual basis, however, a quarterly interim reconciliation process is available. As of September 30, 2019, the settlement amount owed to the OLG is recorded within due to Ontario Lottery and Gaming Corporation.

Gaming Costs and Expenses

Gaming costs and expenses primarily represent portions of gaming revenues that must be paid to the State of Connecticut and the PGCB. Gaming costs and expenses also include, among other things, payroll costs, expenses associated with the operation of slot machines, table games, poker, live harness racing, racebook and sportsbook, certain marketing expenditures and promotional expenses related to certain loyalty point and coupon redemptions.

Advertising Costs and Expenses

Production costs are expensed the first time the advertisement takes place. Prepaid rental fees associated with billboard advertisements are capitalized and amortized over the terms of the related rental agreements. Advertising costs and expenses totaled $27.7 million, $27.5 million and $27.4 million for the fiscal years ended September 30, 2019, 2018 and 2017, respectively.

Pre-opening Costs and Expenses

Costs of start-up activities, pre-opening costs and expenses are expensed as incurred. Pre-opening costs and expenses totaled $8.5 million, $5.5 million and $2.2 million for the fiscal years ended September 30, 2019, 2018 and 2017, respectively, and were recorded within other, net.

Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes” (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities, and are measured at the prevailing enacted tax rates that will be in effect when these differences are settled or realized. ASC 740 requires that deferred tax assets be reduced by a valuation allowance if it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized.

ASC 740 also creates a single model to address uncertainty in tax positions and clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the entity's financial statements. In addition, ASC 740 provides guidance with respect to de-recognition, measurement, classification, interest and penalties, accounting in interim periods and disclosure requirements. As of September 30, 2019, the Company’s uncertain tax positions were insignificant.

Foreign Currency

The financial position and operating results of foreign operations are consolidated using the local currency as the functional currency. Local currency assets and liabilities are translated at the end-of-period rates, while local currency revenue and expenses are translated at average rates in effect during the period. Local currency equity is translated at historical rates and the resulting cumulative translation adjustments are recorded as a component of accumulated other comprehensive income.

Business Acquisitions

The Company accounts for business 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 business 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 tangible and 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.

Fair Value of Financial Instruments

The fair value amounts presented below are reported to satisfy disclosures about fair values of financial instruments and are not necessarily indicative of amounts that the Company could realize in a current market transaction.

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):



	September 30, 2019
	Carrying Value		Fair Value
Senior secured credit facility - revolving (1)	$	102,000	$	96,645
Senior secured credit facility - term loan A (1)	263,829		257,342
Senior secured credit facility - term loan B (1)	805,394		759,618
2016 7 7/8% senior unsecured notes (1)	490,435		481,250
MGE Niagara Resorts credit facility - term loan (1)	73,564		74,566
MGE Niagara Resorts convertible debenture (2)	30,204		30,204
Mohegan Expo credit facility (3)	29,357		30,282
Guaranteed credit facility (3)	31,840		33,031
Redemption note payable (3)	81,329		81,329
Other (3)	1,205		1,205
Long-term debt	$	1,909,157	$	1,845,472

________


(1)	Estimated fair values were based on Level 2 inputs (quoted market prices or prices of similar instruments) on or about September 30, 2019.


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


(3)	Estimated fair values were based on Level 3 inputs (present value of future payments discounted to carrying value) as of September 30, 2019.