| NEW ACCOUNTING STANDARDS | NEW ACCOUNTING STANDARDS: The following accounting standards were adopted during the three months and six months ended March 31, 2019: ASU 2014-09 In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASC 606”), which outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Effective October 1, 2018, the Company adopted ASC 606, on a modified retrospective basis, for all contracts at the date of initial adoption. The Company recognized the cumulative-effect of initially adopting ASC 606 as a decrease to retained earnings and a corresponding increase to other current liabilities. Comparative information for the three months and six months ended March 31, 2018 has not been restated and continues to be reported under accounting standards in effect for those periods. The adoption of ASC 606 did not have a material effect on the Company’s net loss for the three months and six months ended March 31, 2019. The cumulative-effect of initially adopting ASC 606 was as follows (in thousands): September 30, 2018 ASC 606 Adjustment October 1, 2018 Other current liabilities $ 123,303 $ 41,575 $ 164,878 Retained earnings $ 250,707 $ (41,575 ) $ 209,132 The impact of adopting ASC 606 on the accompanying condensed consolidated balance sheet as of March 31, 2019 was as follows (in thousands): Balance under ASC 606 Balance without ASC 606 Impact of Change March 31, 2019 March 31, 2019 Higher/ (Lower) Other current liabilities $ 165,741 $ 126,285 $ 39,456 Retained earnings $ 174,053 $ 213,509 $ (39,456 ) The impact of adopting ASC 606 on the accompanying condensed consolidated statement of loss for the three months ended March 31, 2019 was as follows (in thousands): Promotional Promotional Gross vs. Net Impact of Balance Loyalty Allowances Allowances Cash Presentation Balance Change under Points (Discretionary) (Non-Discretionary) Giveaways and Other without Higher/ ASC 606 (1) (2) (2) (3) (4) ASC 606 (Lower) Revenues: Gaming $ 211,819 $ 296 $ (38,947 ) $ (15,330 ) $ (1,580 ) $ 5,525 $ 261,855 $ (50,036 ) Food and beverage 33,508 — 10,897 — — 825 21,786 11,722 Hotel 22,005 — 6,076 — — 168 15,761 6,244 Retail, entertainment and other 40,365 — 6,825 1,284 — (1,624 ) 33,880 6,485 Gross revenues 307,697 296 (15,149 ) (14,046 ) (1,580 ) 4,894 333,282 (25,585 ) Less-Promotional allowances — — 16,357 6,179 — 811 (23,347 ) 23,347 Net revenues 307,697 296 1,208 (7,867 ) (1,580 ) 5,705 309,935 (2,238 ) Operating costs and expenses: Gaming 125,970 (516 ) (1,720 ) (26,652 ) (1,580 ) 5,837 150,601 (24,631 ) Food and beverage 26,084 — 2,928 7,564 — 825 14,767 11,317 Hotel 10,026 — — 2,391 — 168 7,467 2,559 Retail, entertainment and other 19,507 — — 8,830 — (1,266 ) 11,943 7,564 Advertising, general and administrative 47,112 — — — — 141 46,971 141 Corporate 12,464 — — — — — 12,464 — Depreciation and amortization 42,782 — — — — — 42,782 — Other, net 1,526 — — — — — 1,526 — Total operating costs and expenses 285,471 (516 ) 1,208 (7,867 ) (1,580 ) 5,705 288,521 (3,050 ) Income from operations $ 22,226 $ 812 $ — $ — $ — $ — $ 21,414 $ 812 The impact of adopting ASC 606 on the accompanying condensed consolidated statement of loss for the six months ended March 31, 2019 was as follows (in thousands): Promotional Promotional Gross vs. Net Impact of Balance Loyalty Allowances Allowances Cash Presentation Balance Change under Points (Discretionary) (Non-Discretionary) Giveaways and Other without Higher/ ASC 606 (1) (2) (2) (3) (4) ASC 606 (Lower) Revenues: Gaming $ 433,754 $ 1,515 $ (69,683 ) $ (33,177 ) $ (4,259 ) $ 11,175 $ 528,183 $ (94,429 ) Food and beverage 68,314 — 20,998 — — 1,974 45,342 22,972 Hotel 44,982 — 12,074 — — 332 32,576 12,406 Retail, entertainment and other 80,147 — 6,977 2,889 — (3,586 ) 73,867 6,280 Gross revenues 627,197 1,515 (29,634 ) (30,288 ) (4,259 ) 9,895 679,968 (52,771 ) Less-Promotional allowances — — 32,007 12,560 — 1,517 (46,084 ) 46,084 Net revenues 627,197 1,515 2,373 (17,728 ) (4,259 ) 11,412 633,884 (6,687 ) Operating costs and expenses: Gaming 254,634 (611 ) (3,431 ) (56,281 ) (4,259 ) 11,589 307,627 (52,993 ) Food and beverage 52,531 — 5,804 14,919 — 1,974 29,834 22,697 Hotel 19,829 — — 4,982 — 332 14,515 5,314 Retail, entertainment and other 40,269 — — 18,652 — (2,733 ) 24,350 15,919 Advertising, general and administrative 96,130 — — — — 250 95,880 250 Corporate 24,889 — — — — — 24,889 — Depreciation and amortization 69,872 — — — — — 69,872 — Other, net 3,447 — — — — — 3,447 — Total operating costs and expenses 561,601 (611 ) 2,373 (17,728 ) (4,259 ) 11,412 570,414 (8,813 ) Income from operations $ 65,596 $ 2,126 $ — $ — $ — $ — $ 63,470 $ 2,126 The items most significantly impacted by the adoption of ASC 606 were as follows: (1) ASC 606 modified the accounting related to loyalty points. The Company’s loyalty reward programs allow patrons to utilize their reward membership cards to earn loyalty points that are redeemable for complimentary items such as food and beverage, lodging and retail products. Under ASC 606, the Company is required to utilize a deferred revenue model to reduce gaming revenues by the estimated fair value of loyalty points earned by patrons and recognize 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. Prior to the adoption of ASC 606, the liability for unredeemed loyalty points was estimated based on expected redemption rates and estimated costs of the goods and services to be provided. (2) ASC 606 modified the accounting related to promotional allowances. The Company no longer recognizes revenues for complimentary items provided to patrons or for goods and services provided to patrons in connection with loyalty point redemptions as gross revenues with a corresponding offset to promotional allowances to arrive at net revenues. The majority of such amounts previously included within promotional allowances now offset gaming revenues based on an allocation of revenues to performance obligations utilizing SSP. These changes resulted in the elimination of promotional allowances and the reclassification of revenues between the various revenue line items. (3) ASC 606 modified the accounting related to cash giveaways. The Company now records cash giveaways as a reduction to gaming revenues. Prior to the adoption of ASC 606, the Company recorded cash giveaways as expenses. This change resulted in decreases in both gaming revenues and expenses. (4) ASC 606 modified gross versus net presentation related to certain fees. The Company now records mandatory service charges on food and beverage items and wide area progressive operator fees on a gross basis, with amounts received from patrons recorded as revenues and the corresponding amounts paid recorded as expenses. This change resulted in increases in both revenues and expenses. The Company’s revenues from contracts with customers consist of gaming, food and beverage, hotel, retail, entertainment and convention related transactions, as well as management and development services related to management and development contracts with third-party facilities. The transaction price in a gaming contract is the difference between gaming wins and losses, not the total amount wagered. The transaction price in a racing contract, inclusive of live racing at the Company’s facilities, as well as import and export arrangements, is the commission received from the pari-mutuel pool less contractual fees and obligations, which primarily consist of purse funding requirements, simulcasting fees, tote fees and certain pari-mutuel taxes that are directly related to racing operations. The transaction prices in food and beverage, hotel, retail, entertainment and convention contracts are the net amounts collected for such goods and services. Sales and other taxes collected on behalf of governmental authorities are accounted for on a net basis and are not included in revenues or expenses. The transaction prices in management and development service contracts are the amounts collected for services rendered in accordance with contractual terms, inclusive of reimbursable costs and expenses. Gaming transactions involve two performance obligations for patrons participating in the Company’s loyalty reward programs and a single performance obligation for patrons that do not participate. The Company applies a practical expedient by accounting for gaming contracts on a portfolio basis, as such contracts share similar characteristics. The Company does not expect the effects on its condensed consolidated financial statements under this approach to differ materially versus under an individual contract basis. Revenues allocated to gaming performance obligations are recognized when gaming occurs as such activities are settled immediately. Revenues allocated to the loyalty points deferred revenue liability are recognized when loyalty points are redeemed. The deferred revenue liability is based on the estimated SSP of the loyalty points earned after factoring in the likelihood of redemption. Food and beverage, hotel, retail, entertainment and convention transactions have been determined to be separate, stand-alone performance obligations and revenues for such contracts are recognized when the related goods and services are transferred to patrons. Revenues from contracts which include a combination of these transactions are allocated on a pro rata basis based on the goods' and services' SSP. Management and development services have been determined to be separate, stand-alone performance obligations and revenues for such contracts are recognized when the related services are performed. Revenue Disaggregation The Company is a geographically diversified, multi-jurisdictional owner, operator and manager of gaming facilities. The Company’s current operations are focused within Connecticut and Pennsylvania. The Company also currently manages other gaming facilities elsewhere within the United States. The Company generates revenues by providing the following types of goods and services: gaming, food and beverage, hotel, retail, entertainment and other and management and development. Revenue disaggregation by geographic location and revenue type for the three months ended March 31, 2019 was as follows (in thousands): Connecticut Pennsylvania Other (Mohegan Sun) (Mohegan Sun Pocono) (Corporate and Other) Gaming $ 159,831 $ 51,988 $ — Food and beverage 28,080 5,479 (51 ) Hotel 19,989 2,017 (1 ) Retail, entertainment and other 30,491 1,757 338 Management and development — — 7,839 Net revenues $ 238,391 $ 61,241 $ 8,125 Revenue disaggregation by geographic location and revenue type for the six months ended March 31, 2019 was as follows (in thousands): Connecticut Pennsylvania Other (Mohegan Sun) (Mohegan Sun Pocono) (Corporate and Other) Gaming $ 330,313 $ 103,441 $ — Food and beverage 57,215 11,192 (93 ) Hotel 41,209 3,775 (2 ) Retail, entertainment and other 62,333 3,624 759 Management and development — — 13,551 Net revenues $ 491,070 $ 122,032 $ 14,215 Contract and Contract-Related Liabilities There may exist a difference between the timing of cash receipts from patrons and the recognition of revenues, resulting in a contract or contract-related liability. In general, the Company has three types of such liabilities: (1) outstanding gaming chips and slot tickets liability, which represents amounts owed in exchange for outstanding gaming chips and slot tickets held by patrons, (2) loyalty points deferred revenue liability, as discussed above, and (3) patron advances and other liability, which primarily represents funds deposited in advance by patrons for gaming and advance payments by patrons for goods and services such as advance ticket sales, deposits on rooms and convention space and gift card purchases. These liabilities are generally expected to be recognized as revenues within one year and are recorded within other current liabilities. The following table summarizes these liabilities (in thousands): March 31, 2019 October 1, 2018 Increase/ (Decrease) Outstanding gaming chips and slot tickets liability $ 6,751 $ 3,298 $ 3,453 Loyalty points deferred revenue liability $ 40,533 $ 42,314 $ (1,781 ) Patron advances and other liability $ 25,747 $ 17,530 $ 8,217 As of March 31, 2019, an $8.0 million contract liability related to Mohegan Sun Pocono's recent revenue sharing agreement with Unibet is recorded within other long-term liabilities (refer to Note 1). ASU 2016-18 In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”). ASU 2016-18 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. The Company adopted ASU 2016-18 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 are no longer included within investing activities and, as such, the details of such transfers are not reported as cash flow activities in the statement of cash flows. This resulted in a $16.7 million change to net cash flows used in investing activities for the six months ended March 31, 2018. The following accounting standards will be adopted in future reporting periods: ASU 2016-02 In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016‑02”), which will require, among other things, lessees to recognize a right-of-use asset and a lease liability for leases with terms in excess of 12 months and the disclosure of key information about leasing arrangements. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” and ASU No. 2018-10, “Codification Improvements to Topic 842, Leases”, which clarified various aspects of the new standard. ASU 2016‑02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. ASU 2016-02 provides various optional practical expedients in transition, which the Company continues to evaluate. In July 2018, the FASB issued ASU 2018-11, “Leases - Targeted Improvements,” as an update to ASU 2016-02. This update added an optional transition method of adoption which allows for the recognition of the cumulative-effect of initially adopting ASU 2016-02 as an adjustment to retained earnings in the period of adoption without recasting prior periods' financial statements. The Company will adopt ASU 2016-02 in its first quarter of fiscal 2020, on a modified retrospective basis, and will recognize the cumulative-effect of its initial adoption as an adjustment to retained earnings as of October 1, 2019. While the Company continues to evaluate the impact ASU 2016-02 will have on its financial statements and related disclosures, the actual impact of this new standard will be dependent upon the Company’s lease portfolio at the time of adoption. The adoption of ASU 2016-02 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 accounting standards. ASU 2018-13 In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which adds, amends and removes certain disclosure requirements related to fair value measurements. ASU 2018-13 requires enhanced disclosures on valuation techniques and inputs that a reporting entity uses to determine its measures of fair value, including judgments and assumptions that the entity makes and the uncertainties in the fair value measurements as of the reporting date. ASU 2018-13 is effective for annual reporting periods beginning after December 15, 2019. Certain amended or eliminated disclosure requirements may be adopted earlier, while certain additional disclosure requirements can be adopted on its effective date. In addition, certain changes required by this new standard require retrospective adoption, while other changes must be adopted prospectively. The Company is currently evaluating the impact ASU 2018-13 will have on its financial statements. |
