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New Accounting Pronouncements | 9 Months Ended
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Sep. 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 it did not have a material effect for the three and nine months ended September 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 September 30, 2018 are as follows (in thousands):
|  | Three Months Ended September 30, 2018 As Reported |  | Loyalty Point Impact (1) |  | Promotional Allowance Impact (2) |  | Reimbursable Expense - Casino Rama Impact (3) |  | Racing Revenue Impact (4) |  | Balances Without Adoption of ASC 606 |  | Effect of Change Higher / (Lower)
Income Statement |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gaming |  | $ | 646,335 |  | $ | (88) |  | $ | 42,744 |  | $ | - |  | $ | - |  | $ | 688,991 |  | $ | (42,656)
Food, beverage, hotel and other |  |  | 138,769 |  |  | (52) |  |  | 4,794 |  |  | - |  |  | 8,323 |  |  | 151,834 |  |  | (13,065)
Management service fees |  |  | 637 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 637 |  |  | -
Reimbursable management costs |  |  | 3,910 |  |  | - |  |  | - |  |  | (3,910) |  |  | - |  |  | - |  |  | 3,910
Revenues |  |  | 789,651 |  |  | (140) |  |  | 47,538 |  |  | (3,910) |  |  | 8,323 |  |  | 841,462 |  |  | (51,811)
Less: promotional allowances |  |  | - |  |  | - |  |  | (47,538) |  |  | - |  |  | - |  |  | (47,538) |  |  | 47,538
Net Revenue |  |  | 789,651 |  |  | (140) |  |  | - |  |  | (3,910) |  |  | 8,323 |  |  | 793,924 |  |  | (4,273)
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gaming |  |  | 351,995 |  |  | (97) |  |  | - |  |  | - |  |  | - |  |  | 351,898 |  |  | 97
Food, beverage, hotel and other |  |  | 95,967 |  |  | - |  |  | - |  |  | - |  |  | 8,323 |  |  | 104,290 |  |  | (8,323)
General and administrative |  |  | 125,084 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 125,084 |  |  | -
Reimbursable management costs |  |  | 3,910 |  |  | - |  |  | - |  |  | (3,910) |  |  | - |  |  | - |  |  | 3,910
Depreciation and amortization |  |  | 56,852 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 56,852 |  |  | -
Total operating expenses |  |  | 633,808 |  |  | (97) |  |  | - |  |  | (3,910) |  |  | 8,323 |  |  | 638,124 |  |  | (4,316)
Income from operations |  |  | 155,843 |  |  | (43) |  |  | - |  |  | - |  |  | - |  |  | 155,800 |  |  | 43
Income from operations before income taxes |  |  | 45,195 |  |  | (43) |  |  | - |  |  | - |  |  | - |  |  | 45,152 |  |  | 43
Income tax provision (benefit) |  |  | 9,070 |  |  | (9) |  |  | - |  |  | - |  |  | - |  |  | 9,061 |  |  | 9
Net income |  | $ | 36,125 |  | $ | (34) |  | $ | - |  | $ | - |  | $ | - |  | $ | 36,091 |  | $ | 34
|  | Nine Months Ended September 30, 2018 As Reported |  | Loyalty Point Impact (1) |  | Promotional Allowance Impact (2) |  | Reimbursable Expense - Casino Rama Impact (3) |  | Racing Revenue Impact (4) |  | Balances Without Adoption of ASC 606 |  | Effect of Change Higher / (Lower)
Income Statement |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gaming |  | $ | 1,965,923 |  | $ | (2,070) |  | $ | 111,807 |  | $ | - |  | $ | - |  | $ | 2,075,660 |  | $ | (109,737)
Food, beverage, hotel and other |  |  | 403,402 |  |  | (150) |  |  | 27,884 |  |  | - |  |  | 27,149 |  |  | 458,285 |  |  | (54,883)
Management service fees |  |  | 6,043 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 6,043 |  |  | -
Reimbursable management costs |  |  | 57,281 |  |  | - |  |  | - |  |  | (46,822) |  |  | - |  |  | 10,459 |  |  | 46,822
Revenues |  |  | 2,432,649 |  |  | (2,220) |  |  | 139,691 |  |  | (46,822) |  |  | 27,149 |  |  | 2,550,447 |  |  | (117,798)
Less: promotional allowances |  |  | - |  |  | - |  |  | (139,691) |  |  | - |  |  | - |  |  | (139,691) |  |  | 139,691
Net Revenue |  |  | 2,432,649 |  |  | (2,220) |  |  | - |  |  | (46,822) |  |  | 27,149 |  |  | 2,410,756 |  |  | 21,893
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gaming |  |  | 1,043,205 |  |  | (1,532) |  |  | - |  |  | - |  |  | - |  |  | 1,041,673 |  |  | 1,532
Food, beverage, hotel and other |  |  | 284,059 |  |  | - |  |  | - |  |  | - |  |  | 27,149 |  |  | 311,208 |  |  | (27,149)
General and administrative |  |  | 379,006 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 379,006 |  |  | -
Reimbursable management costs |  |  | 57,281 |  |  | - |  |  | - |  |  | (46,822) |  |  | - |  |  | 10,459 |  |  | 46,822
Depreciation and amortization |  |  | 175,801 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 175,801 |  |  | -
Recovery for loan loss and unfunded commitments to the JIVDC and impairment losses |  |  | (16,367) |  |  | - |  |  | - |  |  | - |  |  | - |  |  | (16,367) |  |  | -
Insurance recoveries |  |  | (68) |  |  | - |  |  | - |  |  | - |  |  | - |  |  | (68) |  |  | -
Total operating expenses |  |  | 1,922,917 |  |  | (1,532) |  |  | - |  |  | (46,822) |  |  | 27,149 |  |  | 1,901,712 |  |  | 21,205
Income from operations |  |  | 509,732 |  |  | (688) |  |  | - |  |  | - |  |  | - |  |  | 509,044 |  |  | 688
Income from operations before income taxes |  |  | 175,551 |  |  | (688) |  |  | - |  |  | - |  |  | - |  |  | 174,863 |  |  | 688
Income tax provision (benefit) |  |  | 40,001 |  |  | (157) |  |  | - |  |  | - |  |  | - |  |  | 39,844 |  |  | 157
Net income |  | $ | 135,550 |  | $ | (531) |  | $ | - |  | $ | - |  | $ | - |  | $ | 135,019 |  | $ | 531
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, which expired during the third quarter of 2018. 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 September 30, 2018 |  | Balances Without the Adoption of ASC 606 |  | Effect of Change Higher (Lower)
Balance Sheet |  |  |  |  |  |
Other assets |  |  |  |  |  |
Deferred income taxes | $ | 385,108 | $ | 383,447 | $ | 1,661
Current liabilities |  |  |  |  |  |
Accrued expenses |  | 126,874 |  | 115,868 |  | 11,006
Shareholders' equity |  |  |  |  |  |
Retained deficit |  | (925,918) |  | (916,799) |  | (9,119)
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 September 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. 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.” 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. The Company anticipates taking advantage of the practical expedient options which allow an entity to not reassess whether any existing or expired contracts contain leases, not reassess lease classifications for existing or expired leases, and an entity does not need to reassess initial direct costs for any existing leases, and we are further evaluating other optional practical expedients and policy elections. The Company is in the process of implementing changes to its systems and processes in conjunction with its review of existing lease agreements. 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 new guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The adoption of this standard is expected to have a material impact on the Company’s consolidated financial statements as the Company has significant operating lease commitments that are off-balance sheet in accordance with current U.S. GAAP. In June 2018, the FASB issued ASU No. 2018-07 “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments expand the scope of Topic 718, Compensation - Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. This new standard supersedes Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. The guidance is effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2018 with early adoption permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company does not expect the adoption to have a material impact to its consolidated financial statements. New Accounting Pronouncements to be Implemented in Fiscal Year 2020 In August 2018, the FASB issued ASU No. 2018-15 “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” These amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contact with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. The guidance is effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company does not expect the adoption to have a material impact to its consolidated financial statements. 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.” The ASU removes the requirement to disclose: (a) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (b) the policy for timing of transfers between levels; and (c) the valuation processes for Level 3 fair value measurements. This new standard requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The guidance is effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating this guidance to determine the impact on its disclosures.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -URI http://asc.fasb.org/topic&trid=2122394 + Details
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