NEW ACCOUNTING STANDARDS:

The following accounting standards were adopted during the fiscal year ended September 30, 2019:

ASU 2014-09

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 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 fiscal years ended September 30, 2018 and 2017 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 income for the fiscal year ended September 30, 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 was as follows (in thousands):



	Balance under ASC 606		Balance without ASC 606		Impact of Change
	September 30, 2019		September 30, 2019		Higher/ (Lower)
Other current liabilities	$	174,231	$	135,778	$	38,453
Retained earnings	$	137,124	$	175,577	$	(38,453	)

The impact of adopting ASC 606 on the accompanying consolidated statement of income for the fiscal year ended September 30, 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	$	936,412	$	2,688		$	(178,234	)	$	(62,678	)	$	(7,683	)	$	21,844		$	1,160,475		$	(224,063	)
Food and beverage	157,544		—			41,758			—			—			3,976			111,810			45,734
Hotel	97,235		—			24,394			—			—			676			72,165			25,070
Retail, entertainment and other	197,619		—			19,787			5,619			—			(5,785		)	177,998			19,621
Gross revenues	1,388,810		2,688			(92,295		)	(57,059		)	(7,683		)	20,711			1,522,448			(133,638		)
Less-Promotional allowances	—		—			97,343			23,505			—			2,309			(123,157		)	123,157
Net revenues	1,388,810		2,688			5,048			(33,554		)	(7,683		)	23,020			1,399,291			(10,481		)
Operating costs and expenses:
Gaming	551,738		(447		)	(21,730		)	(131,384		)	(7,683		)	22,544			690,438			(138,700		)
Food and beverage	123,814		—			26,467			41,879			—			3,926			51,542			72,272
Hotel	42,476		—			—			12,099			—			675			29,702			12,774
Retail, entertainment and other	93,335		—			311			43,852			—			(4,616		)	53,788			39,547
Advertising, general and administrative	223,716		—			—			—			—			491			223,225			491
Corporate	45,880		—			—			—			—			—			45,880			—
Depreciation and amortization	122,657		—			—			—			—			—			122,657			—
Impairment of Mohegan Sun Pocono's goodwill	39,459		—			—			—			—			—			39,459			—
Other, net	9,273		—			—			—			—			—			9,273			—
Total operating costs and expenses	1,252,348		(447		)	5,048			(33,554		)	(7,683		)	23,020			1,265,964			(13,616		)
Income from operations	$	136,462	$	3,135		$	—		$	—		$	—		$	—		$	133,327		$	3,135

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 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 recorded 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, including racing and sports betting, 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 price in sports betting is the share of the revenues the Company expect to collect as the agent. 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 recorded within 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 effects on the Company's consolidated financial statements under this approach do not 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 SSP of the goods and services.

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 primarily engaged in the ownership, operation and development of integrated entertainment facilities both domestically and internationally. The Company’s current operations are focused within Connecticut and Pennsylvania. The Company also currently manages other gaming facilities elsewhere within the United States and Canada (refer to Note 4). 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 fiscal year ended September 30, 2019 was as follows (in thousands):



	Connecticut		Pennsylvania		Canada
	(Mohegan Sun)		(Mohegan Sun Pocono)		(MGE Niagara Resorts) (1) (2)		Other
Gaming	$	654,273	$	211,800	$	70,339	$	—
Food and beverage	114,446		22,981		20,319		(202		)
Hotel	84,543		8,246		4,451		(5		)
Retail, entertainment and other	138,781		8,027		17,416		1,206
Management, development and other	—		—		—		32,429
Net revenues	$	992,043	$	251,054	$	112,525	$	33,428

_________


(1)	Represents revenues from the MGE Niagara Resorts from June 11, 2019 through September 30, 2019.


(2)	Gaming revenues represent revenues earned under the COSA (refer to Note 2).

Contract and Contract-related Assets

As of September 30, 2019, contract assets related to the COSA totaled $53.2 million (refer to Note 2).

Contract and Contract-related Liabilities

A difference may exist 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):



	September 30, 2019		October 1, 2018
Outstanding gaming chips and slot tickets liability	$	7,968	$	3,298
Loyalty points deferred revenue liability	40,968		42,314
Patron advances and other liability	22,312		17,530
Total	$	71,248	$	63,142

As of September 30, 2019, the $18.0 million in customer contract liabilities related to Mohegan Sun Pocono's revenue sharing agreement with Unibet are primarily recorded within other long-term liabilities (refer to Note 2).

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 recorded 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 increases in net cash flows used in investing activities of $28.9 million and $49.5 million for the fiscal years ended September 30, 2018 and 2017, respectively.

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 (“ROU”) asset and a lease liability for leases with terms in excess of 12 months and the disclosure of information about leasing arrangements. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” (“ASU 2018‑11”) 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.

The provisions of ASU 2016-02 are effective for the Company’s fiscal year beginning October 1, 2019, including interim periods. The Company plans to elect the package of practical expedients included in this guidance, which allows it to: (i) not reassess whether any expired or existing contracts contain leases, (ii) not reassess the lease classification for any expired or existing leases, (iii) account for a lease and non-lease component as a single component for certain classes of assets and (iv) not reassess the initial direct costs for existing leases. In addition, the Company does not plan to recognize short-term leases on its balance sheets.

ASU 2018-11 added a transition option which allows for the recognition of a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption without recasting prior period financial statements. The Company plans to elect this transition option.

The adoption of ASU 2016-02 is expected to have a material impact on the Company’s financial statements and related disclosures. Upon adoption, the Company will recognize ROU assets and related lease liabilities for each of its lessee arrangements.

The adoption of this standard will not impact the Company’s compliance with its financial covenants under its current debt agreements.

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 statement disclosures.