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New Accounting Pronouncements | 6 Months Ended
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Jun. 30, 2018
New Accounting Pronouncements |
New Accounting Pronouncements | 2. New Accounting Pronouncements Accounting Pronouncements Implemented in 2018 ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” - On January 1, 2018, the Company adopted the new revenue standard ASC 606, “Revenue from Contracts with Customers (Topic 606),” and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method. As part of the adoption, the Company utilized a practical expedient that permits the evaluation of incomplete contracts (such as our loyalty point obligations) as completed contracts. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company does not expect the adoption of the new revenue standard to have a material impact to its net income on a continuing basis and did not have a material effect for the three and six months ended June 30, 2018. In accordance with the new revenue standard requirement, the disclosure of the impact of adoption on our condensed consolidated statements of income and condensed consolidated balance sheets at and for the period ended June 30, 2018 are as follows (in thousands):
|  | Three Months Ended June 30, 2018 As Reported |  | Loyalty Point Impact (1) |  | Promotional Allowance (Discretionary Comps) Impact (2) |  | Promotional Allowance (Point Redemptions) Impact (2) |  | Reimbursable Expense - Casino Rama Impact (3) |  | Racing Reveue Impact (4) |  | Balances Without Adoption of ASC 606 |  | Effect of Change Higher / (Lower)
Income Statement |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gaming |  | $ | 665,094 |  | $ | (563) |  | $ | 35,424 |  | $ | - |  | $ | - |  | $ | - |  | $ | 699,955 |  | $ | (34,861)
Food, beverage, hotel and other |  |  | 133,664 |  |  | (29) |  |  | - |  |  | 6,730 |  |  | - |  |  | 9,866 |  |  | 150,231 |  |  | (16,567)
Management service fees |  |  | 2,968 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 2,968 |  |  | -
Reimbursable management costs |  |  | 25,187 |  |  | - |  |  | - |  |  | - |  |  | (21,068) |  |  | - |  |  | 4,119 |  |  | 21,068
Revenues |  |  | 826,913 |  |  | (592) |  |  | 35,424 |  |  | 6,730 |  |  | (21,068) |  |  | 9,866 |  |  | 857,273 |  |  | (30,360)
Less: promotional allowances |  |  | - |  |  | - |  |  | (35,424) |  |  | (6,730) |  |  | - |  |  | - |  |  | (42,154) |  |  | 42,154
Net Revenue |  |  | 826,913 |  |  | (592) |  |  | - |  |  | - |  |  | (21,068) |  |  | 9,866 |  |  | 815,119 |  |  | 11,794
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gaming |  |  | 350,694 |  |  | (408) |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 350,286 |  |  | 408
Food, beverage, hotel and other |  |  | 95,112 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 9,866 |  |  | 104,978 |  |  | (9,866)
General and administrative |  |  | 132,659 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 132,659 |  |  | -
Reimbursable management costs |  |  | 25,187 |  |  | - |  |  | - |  |  | - |  |  | (21,068) |  |  | - |  |  | 4,119 |  |  | 21,068
Depreciation and amortization |  |  | 58,559 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 58,559 |  |  | -
Recovery for loan loss and unfunded commitments to the JIVDC |  |  | (16,985) |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | (16,985) |  |  | -
Insurance recoveries |  |  | (68) |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | (68) |  |  | -
Total operating expenses |  |  | 645,158 |  |  | (408) |  |  | - |  |  | - |  |  | (21,068) |  |  | 9,866 |  |  | 633,548 |  |  | 11,610
Income from operations |  |  | 181,755 |  |  | (184) |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 181,571 |  |  | 184
Income from operations before income taxes |  |  | 69,230 |  |  | (184) |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 69,046 |  |  | 184
Income tax provision (benefit) |  |  | 15,242 |  |  | (40) |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 15,202 |  |  | 40
Net income |  | $ | 53,988 |  | $ | (144) |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | 53,844 |  | $ | 144
|  | Six Months Ended June 30, 2018 As Reported |  | Loyalty Point Impact (1) |  | Promotional Allowance (Discretionary Comps) Impact (2) |  | Promotional Allowance (Point Redemptions) Impact (2) |  | Reimbursable Expense - Casino Rama Impact (3) |  | Racing Reveue Impact (4) |  | Balances Without Adoption of ASC 606 |  | Effect of Change Higher / (Lower)
Income Statement |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gaming |  | $ | 1,319,588 |  | $ | (1,982) |  | $ | 69,063 |  | $ | - |  | $ | - |  | $ | - |  | $ | 1,386,669 |  | $ | (67,081)
Food, beverage, hotel and other |  |  | 264,633 |  |  | (98) |  |  | - |  |  | 13,354 |  |  | - |  |  | 18,826 |  |  | 296,715 |  |  | (32,082)
Management service fees |  |  | 5,406 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 5,406 |  |  | -
Reimbursable management costs |  |  | 53,371 |  |  | - |  |  | - |  |  | - |  |  | (42,912) |  |  | - |  |  | 10,459 |  |  | 42,912
Revenues |  |  | 1,642,998 |  |  | (2,080) |  |  | 69,063 |  |  | 13,354 |  |  | (42,912) |  |  | 18,826 |  |  | 1,699,249 |  |  | (56,251)
Less: promotional allowances |  |  | - |  |  | - |  |  | (69,063) |  |  | (13,354) |  |  | - |  |  | - |  |  | (82,417) |  |  | 82,417
Net Revenue |  |  | 1,642,998 |  |  | (2,080) |  |  | - |  |  | - |  |  | (42,912) |  |  | 18,826 |  |  | 1,616,832 |  |  | 26,166
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gaming |  |  | 691,210 |  |  | (1,436) |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 689,774 |  |  | 1,436
Food, beverage, hotel and other |  |  | 188,092 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 18,826 |  |  | 206,918 |  |  | (18,826)
General and administrative |  |  | 253,922 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 253,922 |  |  | -
Reimbursable management costs |  |  | 53,371 |  |  | - |  |  | - |  |  | - |  |  | (42,912) |  |  | - |  |  | 10,459 |  |  | 42,912
Depreciation and amortization |  |  | 118,949 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 118,949 |  |  | -
Recovery for loan loss and unfunded commitments to the JIVDC and impairment losses |  |  | (16,367) |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | (16,367) |  |  | -
Insurance recoveries |  |  | (68) |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | (68) |  |  | -
Total operating expenses |  |  | 1,289,109 |  |  | (1,436) |  |  | - |  |  | - |  |  | (42,912) |  |  | 18,826 |  |  | 1,263,587 |  |  | 25,522
Income from operations |  |  | 353,889 |  |  | (644) |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 353,245 |  |  | 644
Income from operations before income taxes |  |  | 130,356 |  |  | (644) |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 129,712 |  |  | 644
Income tax provision (benefit) |  |  | 30,931 |  |  | (153) |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 30,778 |  |  | 153
Net income |  | $ | 99,425 |  | $ | (491) |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | 98,934 |  | $ | 491
As a result of the adoption of the new revenue standard, the following areas resulted in significant changes to the Company’s accounting:
| (1) |  | The new revenue standard changed the accounting for loyalty points earned by our customers. The Company’s loyalty reward programs allow members to utilize their reward membership cards to earn loyalty points that are redeemable for slot play and complimentaries such as food and beverage at our restaurants, lodging at our hotels, and products offered at our retail stores across the vast majority of the Company’s casino properties. Under the new revenue standard, the Company is required to utilize a deferred revenue model and defer revenue at the estimated fair value when the loyalty points are earned by our customers and recognize revenue when the loyalty points are redeemed. The deferred revenue liability is based on the estimated standalone selling price of the loyalty points earned after factoring in the likelihood of redemption. Prior to the adoption of the new revenue standard, the estimated liability for unredeemed points was accrued based on expected redemption rates and the estimated costs of the service or merchandise to be provided.
| (2) |  | The new revenue standard changed the accounting for promotional allowances. Under the new revenue standard, the Company will no longer be permitted to report revenue for goods and services provided to customers for free as an inducement to gamble as gross revenue with a corresponding reduction in promotional allowances to arrive at net revenues. The new revenue standard requires complimentaries related to an inducement to gamble to be recorded as a reduction to gaming revenues, and as such promotional allowances provided to customers as an inducement to gamble is no longer netted on our condensed consolidated statements of income.
In addition, the new revenue standard changed the accounting for promotional allowances with respect to non-discretionary complimentaries (i.e., a customer’s redemption of loyalty points). Under the new revenue standard, the Company is no longer permitted to report revenue for goods and services provided to a customer resulting from loyalty point redemption with a corresponding reduction in promotional allowances to arrive at net revenue, as the new revenue standard requires the utilization of a deferred revenue model in which previously deferred revenue is recognized as revenue when the loyalty points are redeemed. As such, promotional allowances related to a customer’s redemption of loyalty points is no longer netted on our condensed consolidated statements of income.
| (3) |  | The Company revised its accounting for reimbursable costs associated with our management service contract for Casino Rama. Under the new revenue standard, reimbursable costs, which primarily consist of payroll costs, must be recognized as revenue on a gross basis, with an offsetting amount charged to reimbursable management costs within operating expenses, as we are the controlling entity to the arrangement. Prior to this revision, the Company recorded these reimbursable amounts on a net basis.
| (4) |  | The new revenue standard changed the accounting for racing revenues. Under the new revenue standard, we concluded that the Company is not the controlling entity to the arrangement(s), but rather functions as an agent to the pari-mutuel pool. As such, fees and obligations related to the Company’s share of purse funding requirements, simulcasting fees, tote fees, certain pari-mutuel taxes and other fees directly related to the Company’s racing operations must be reported on a net basis and included as a deduction to food, beverage, hotel and other revenue. Prior to the adoption of the new revenue standard, the Company recorded these fees and obligations in food, beverage, hotel and other expense.
|  | As Reported At June 30, 2018 |  | Balances Without the Adoption of ASC 606 |  | Effect of Change Higher (Lower)
Balance Sheet |  |  |  |  |  |
Other assets |  |  |  |  |  |
Deferred income taxes |  | 384,777 |  | 383,092 |  | 1,685
Current liabilities |  |  |  |  |  |
Accrued expenses |  | 132,589 |  | 121,539 |  | 11,050
Shareholders' equity |  |  |  |  |  |
Retained deficit |  | (962,043) |  | (953,505) |  | (8,538)
The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” were as follows (in thousands):
| Balance at December 31, 2017 |  | Adjustment Due to ASU 2014-09 |  | Balance at January 1, 2018
Balance Sheet |  |  |  |  |
Other assets |  |  |  |  |
Deferred income taxes | 390,943 |  | 2,044 |  | 392,987
Current liabilities |  |  |  |  |
Accrued expenses | 125,688 |  | 11,694 |  | 137,382
Shareholders' (deficit) |  |  |  |  |
Retained deficit | (1,051,818) |  | (9,650) |  | (1,061,468)
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Clarification of Certain Cash Receipts and Cash Payments.” The amendments are intended to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on the following specific cash flow issues: (a) debt prepayment or debt extinguishment costs; (b) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (c) contingent consideration payments made after a business combination; (d) proceeds from the settlement of insurance claims; (e) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (f) distributions received from equity method investees; (g) beneficial interest in securitization transactions; and (h) separately identifiable cash flows and application of the predominance principle. The new guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The Company adopted this new guidance on January 1, 2018 on a retrospective basis. As a result of adopting this new guidance, the impact to the comparative period ended June 30, 2017 was an increase to net cash provided by operating activities and an increase to net cash used in financing activities of $18.0 million, respectively, within the Company’s Condensed Consolidated Statement of Cash Flows. New Accounting Pronouncements to be Implemented in Fiscal Year 2019 In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which will require, among other items, lessees to recognize a right-of-use asset and a lease liability for most leases. Extensive quantitative and qualitative disclosures, including significant judgments made by management, will be required to provide greater insight into the extent of expenses recognized and expected to be recognized from existing contracts. The accounting applied by a lessor is largely unchanged from that applied under the current standard. The standard must be adopted using a modified retrospective transition approach and provides for certain practical expedients. In January 2018, the FASB issued ASU No. 2018-1, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842,” that provides an optional transitional practical expedient regarding land easements. The new guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. Management has not yet completed its assessment of the impact of the new standard on the Company’s consolidated financial statements, however, the Company has numerous operating leases which, under the new standard, will need to be reported as an asset and a liability on our consolidated balance sheet. The precise amount of this asset and liability will be determined based on the leases that exist at the Company on the date of adoption. The adoption of this standard is expected to have a material impact on our consolidated financial statements as the Company has significant operating lease commitments that are off-balance sheet in accordance with current U.S. GAAP.

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- Definition The entire disclosure of changes in accounting principles, including adoption of new accounting pronouncements, that describes the new methods, amount and effects on financial statement line items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -URI http://asc.fasb.org/topic&trid=2122394 + Details
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