10-Q 1 bgc20220930_10q.htm FORM 10-Q bgc20220930_10q.htm
0000906553 BOYD GAMING CORP false --12-31 Q3 2022 0.01 0.01 5,000,000 5,000,000 0.01 0.01 200,000,000 200,000,000 104,375,084 111,303,140 0.15 0.15 0.15 170.1 12.6 0 0 3 Amounts in the table may not recalculate exactly due to rounding. Average repurchase price per share is calculated based on unrounded numbers. Shares repurchased reflect repurchases settled during the three and nine months ended September 30, 2022. These amounts exclude repurchases, if any, traded but not yet settled on or before September 30, 2022. 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________________________________

FORM 10-Q

 ____________________________________________________

(Mark One)

 

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

OR

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to              

Commission file number: 1-12882

___________________________________________________

 

logo1.jpg

BOYD GAMING CORPORATION

(Exact name of registrant as specified in its charter)

 ____________________________________________________

 

Nevada

88-0242733

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

6465 South Rainbow Boulevard, Las Vegas, NV 89118

(Address of principal executive offices) (Zip Code)

(702) 792-7200

(Registrant's telephone number, including area code)

 ____________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

 

 

Common stock, $0.01 par value

 

BYD

 

New York Stock Exchange

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

☒

Accelerated filer

☐

 

 

 

 

Non-accelerated filer

☐ 

Smaller reporting company

☐

 

 

 

 

 

 

Emerging growth company

☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

The number of shares outstanding of the registrant’s common stock as of October 31, 2022 was 104,375,084.

 

 
Table of Contents

 

 

 

BOYD GAMING CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2022

TABLE OF CONTENTS

 

 

 

Page

No.

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited)

3

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021

3

 

 

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021

5

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders' Equity for each of the three month quarterly periods within the nine months ended September 30, 2022 and 2021

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements

8
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 23
     

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

34

 

 

 

Item 4.

Controls and Procedures

35

 

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

36

 

 

 

Item 1A.

Risk Factors

36
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 36

 

 

 

Item 6.

Exhibits

37

 

 

 

Signature Page

38

 

 

 
Table of Contents

 

 

PART I. Financial Information

 

Item 1.        Financial Statements (Unaudited)

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

 

  

September 30,

  

December 31,

 

(In thousands, except share data)

 

2022

  

2021

 

ASSETS

        

Current assets

        

Cash and cash equivalents

 $252,344  $344,557 

Restricted cash

  17,185   12,571 

Accounts receivable, net

  86,518   89,483 

Inventories

  22,323   20,090 

Prepaid expenses and other current assets

  60,962   41,102 

Total current assets

  439,332   507,803 

Property and equipment, net

  2,355,747   2,394,184 

Operating lease right-of-use assets

  836,921   884,241 

Other assets, net

  95,365   98,234 

Intangible assets, net

  1,357,218   1,368,420 

Goodwill, net

  971,287   971,287 

Total assets

 $6,055,870  $6,224,169 

LIABILITIES AND STOCKHOLDERS' EQUITY

        

Current liabilities

        

Accounts payable

 $100,277  $102,031 

Current maturities of long-term debt

  44,275   41,673 

Accrued liabilities

  426,938   412,945 

Income taxes payable

  4,323   393 

Total current liabilities

  575,813   557,042 

Long-term debt, net of current maturities and debt issuance costs

  2,825,052   2,989,921 

Operating lease liabilities, net of current portion

  768,703   815,974 

Deferred income taxes

  291,689   264,912 

Other liabilities

  53,817   57,574 

Commitments and contingencies (Notes 5 and 6)

          

Stockholders' equity

        

Preferred stock, $0.01 par value, 5,000,000 shares authorized

  —   — 

Common stock, $0.01 par value, 200,000,000 shares authorized; 104,375,084 and 111,303,140 shares outstanding

  1,044   1,113 

Additional paid-in capital

  412,267   827,725 

Retained earnings

  1,128,619   710,088 

Accumulated other comprehensive loss

  (1,134)  (180)

Total stockholders' equity

  1,540,796   1,538,746 

Total liabilities and stockholders' equity

 $6,055,870  $6,224,169 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
3
Table of Contents

 

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

 

   

Three Months Ended

    

Nine Months Ended

  
   

September 30,

    

September 30,

  

(In thousands, except per share data)

  

2022

    

2021

    

2022

    

2021

  

Revenues

                                

Gaming

   $ 667,975     $ 674,227     $ 2,020,854     $ 2,019,615  

Food & beverage

     67,792       61,101       201,834       162,641  

Room

     46,672       44,317       138,985       109,384  

Other

     94,824       63,415       270,783       198,329  

Total revenues

     877,263       843,060       2,632,456       2,489,969  

Operating costs and expenses

                                

Gaming

     251,814       249,685       756,356       741,176  

Food & beverage

     58,502       50,659       169,892       136,391  

Room

     17,783       15,074       51,058       41,413  

Other

     57,197       41,644       174,699       128,038  

Selling, general and administrative

     92,950       91,159       280,659       271,639  

Master lease rent expense

     26,828       26,306       79,788       78,396  

Maintenance and utilities

     40,789       35,868       108,196       95,256  

Depreciation and amortization

     64,956       67,586       194,191       199,332  

Corporate expense

     26,375       28,264       90,251       86,295  

Project development, preopening and writedowns

     9,645       10,646       528       13,515  

Impairment of assets

     5,575       —       5,575       —  

Other operating items, net

     (12,610 )     3,023       (12,324 )     15,295  

Total operating costs and expenses

     639,804       619,914       1,898,869       1,806,746  

Operating income

     237,459       223,146       733,587       683,223  

Other expense (income)

                                

Interest income

     (2,073 )     (442 )     (2,976 )     (1,406 )

Interest expense, net of amounts capitalized

     36,001       45,171       110,125       158,192  

Loss on early extinguishments and modifications of debt

     —       42       19,809       65,517  

Other, net

     170       119       3,667       2,288  

Total other expense, net

     34,098       44,890       130,625       224,591  

Income before income taxes

     203,361       178,256       602,962       458,632  

Income tax provision

     (46,359 )     (40,082 )     (136,269 )     (104,568 )

Net income

   $ 157,002     $ 138,174     $ 466,693     $ 354,064  
                                 
                                 

Basic net income per common share

   $ 1.46     $ 1.21     $ 4.24     $ 3.11  

Weighted average basic shares outstanding

     107,743       114,095       110,002       113,835  
                                 
                                 

Diluted net income per common share

   $ 1.46     $ 1.21     $ 4.24     $ 3.10  

Weighted average diluted shares outstanding

     107,840       114,284       110,135       114,099  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4
Table of Contents

 

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 

   

Three Months Ended

    

Nine Months Ended

  
   

September 30,

    

September 30,

  

(In thousands)

  

2022

    

2021

    

2022

    

2021

  

Net income

   $ 157,002     $ 138,174     $ 466,693     $ 354,064  

Other comprehensive income (loss), net of tax:

                                

Fair value adjustments to available-for-sale securities

     (151 )     245       (954 )     (119 )

Comprehensive income

   $ 156,851     $ 138,419     $ 465,739     $ 353,945  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5
Table of Contents

 

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)

 

                  

Accumulated Other

     
  

Common Stock

  

Additional

  

Retained

  

Comprehensive

     

(In thousands, except share data)

 

Shares

  

Amount

  

Paid-in Capital

  

Earnings

  

Loss

  

Total

 

Balances, January 1, 2022

  111,303,140  $1,113  $827,725  $710,088  $(180) $1,538,746 

Net income

  —   —   —   162,928   —   162,928 

Comprehensive loss, net of tax

  —   —   —   —   (184)  (184)

Release of restricted stock units, net of tax

  115,686   1   (2,720)  —   —   (2,719)

Release of performance stock units, net of tax

  294,344   3   (8,113)  —   —   (8,110)

Shares repurchased and retired

  (2,096,660)  (21)  (131,768)  —   —   (131,789)

Dividends declared ($0.15 per share)

  —   —   —   (16,480)  —   (16,480)

Share-based compensation costs

  —   —   8,734   —   —   8,734 

Balances, March 31, 2022

  109,616,510   1,096   693,858   856,536   (364)  1,551,126 

Net income

  —   —   —   146,763   —   146,763 

Comprehensive loss, net of tax

  —   —   —   —   (619)  (619)

Stock options exercised

  101,675   1   1,804   —   —   1,805 

Release of restricted stock units, net of tax

  140,899   1   (2)  —   —   (1)

Release of performance stock units, net of tax

  307   —   (8)  —   —   (8)

Shares repurchased and retired

  (3,018,031)  (30)  (167,954)  —   —   (167,984)

Dividends declared ($0.15 per share)

  —   —   —   (16,026)  —   (16,026)

Share-based compensation costs

  —   —   14,099   —   —   14,099 

Balances, June 30, 2022

  106,841,360   1,068   541,797   987,273   (983)  1,529,155 

Net income

  —   —   —   157,002   —   157,002 

Comprehensive loss, net of tax

  —   —   —   —   (151)  (151)

Release of restricted stock units, net of tax

  7,407   1   (212)  —   —   (211)

Shares repurchased and retired

  (2,473,683)  (25)  (134,971)  —   —   (134,996)

Dividends declared ($0.15 per share)

  —   —   —   (15,656)  —   (15,656)

Share-based compensation costs

  —   —   5,653   —   —   5,653 

Balances, September 30, 2022

  104,375,084  $1,044  $412,267  $1,128,619  $(1,134) $1,540,796 

 

 

                  

Accumulated Other

     
  

Common Stock

  

Additional

  

Retained

  

Comprehensive

     

(In thousands, except share data)

 

Shares

  

Amount

  

Paid-in Capital

  

Earnings

  

Income (Loss)

  

Total

 

Balances, January 1, 2021

  111,830,857  $1,118  $876,433  $246,242  $150  $1,123,943 

Net income

  —   —   —   102,161   —   102,161 

Comprehensive loss, net of tax

  —   —   —   —   (321)  (321)

Stock options exercised

  158,568   2   1,743   —   —   1,745 

Release of restricted stock units, net of tax

  29,808   —   (609)  —   —   (609)

Release of performance stock units, net of tax

  61,654   1   (1,901)  —   —   (1,900)

Share-based compensation costs

  —   —   5,701   —   —   5,701 

Balances, March 31, 2021

  112,080,887   1,121   881,367   348,403   (171)  1,230,720 

Net income

  —   —   —   113,729   —   113,729 

Comprehensive loss, net of tax

  —   —   —   —   (43)  (43)

Stock options exercised

  100,068   —   1,037   —   —   1,037 

Release of restricted stock units, net of tax

  43,036   1   —   —   —   1 

Share-based compensation costs

  —   —   12,823   —   —   12,823 

Balances, June 30, 2021

  112,223,991   1,122   895,227   462,132   (214)  1,358,267 

Net income

  —   —   —   138,174   —   138,174 

Comprehensive income, net of tax

  —   —   —   —   245   245 

Stock options exercised

  112,380   1   1,625   —   —   1,626 

Release of restricted stock units, net of tax

  8,894   —   (150)  —   —   (150)

Release of performance stock units, net of tax

  329   —   (7)  —   —   (7)

Share-based compensation costs

  —   —   9,783   —   —   9,783 

Balances, September 30, 2021

  112,345,594  $1,123  $906,478  $600,306  $31  $1,507,938 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

   

Nine Months Ended

  
   

September 30,

  

(In thousands)

  

2022

    

2021

  

Cash Flows from Operating Activities

                

Net income

   $ 466,693     $ 354,064  

Adjustments to reconcile net income to net cash provided by operating activities:

                

Depreciation and amortization

     194,191       199,332  

Amortization of debt financing costs and discounts on debt

     6,307       8,627  

Non-cash operating lease expense

     46,892       46,702  

Share-based compensation expense

     28,486       28,307  

Deferred income taxes

     26,777       99,669  

Non-cash impairment of assets

     5,575       —  

Gain on sale of assets

     (12,800 )     —  

Loss on early extinguishments and modifications of debt

     19,809       65,517  

Other operating activities

     8,422       9,765  

Changes in operating assets and liabilities:

                

Accounts receivable, net

     2,965       (2,217 )

Inventories

     (2,233 )     3,066  

Prepaid expenses and other current assets

     (19,333 )     (14,313 )

Income taxes payable, net

     3,930       85  

Other assets, net

     1,896       (4,861 )

Accounts payable and accrued liabilities

     (3,932 )     27,913  

Operating lease liabilities

     (46,892 )     (46,702 )

Other liabilities

     1,281       2,762  

Net cash provided by operating activities

     728,034       777,716  

Cash Flows from Investing Activities

                

Capital expenditures

     (173,032 )     (139,176 )

Insurance proceeds received from hurricane losses

     530       44,480  

Proceeds received from disposition of assets

     21,350       —  

Other investing activities

     —       5,472  

Net cash used in investing activities

     (151,152 )     (89,224 )

Cash Flows from Financing Activities

                

Borrowings under credit facilities

     1,554,400       —  

Payments under credit facilities

     (1,412,897 )     (18,175 )

Proceeds from issuance of senior notes

     —       900,000  

Retirements of senior notes

     (300,000 )     (1,450,000 )

Premium fees

     (12,939 )     (51,863 )

Debt financing costs

     (15,315 )     (14,596 )

Share-based compensation activities

     (9,244 )     1,743  

Shares repurchased and retired

     (434,769 )     —  

Dividends paid

     (32,506 )     —  

Other financing activities

     (1,211 )     (2,282 )

Net cash used in financing activities

     (664,481 )     (635,173 )

Change in cash, cash equivalents and restricted cash

     (87,599 )     53,319  

Cash, cash equivalents and restricted cash, beginning of period

     357,128       534,999  

Cash, cash equivalents and restricted cash, end of period

   $ 269,529     $ 588,318  

Supplemental Disclosure of Cash Flow Information

                

Cash paid for interest, net of amounts capitalized

   $ 102,553     $ 150,675  

Cash paid for income taxes

     105,158       4,774  

Supplemental Schedule of Non-cash Investing and Financing Activities

                

Payables incurred for capital expenditures

   $ 3,786     $ 4,070  

Dividends declared not yet paid

     15,656       —  

Operating lease right-of-use asset and liability remeasurements

     (11,224 )     —  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

as of September 30, 2022 and December 31, 2021 and for the three and nine months ended September 30, 2022 and 2021

______________________________________________________________________________________________________

 

 

NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Boyd Gaming Corporation (and together with its subsidiaries, the "Company", "Boyd", "Boyd Gaming", "we" or "us") was incorporated in the state of Nevada in 1988 and has been operating since 1975. The Company's common stock is traded on the New York Stock Exchange under the symbol "BYD".

 

We are a geographically diversified operator of 28 wholly owned gaming entertainment properties. Headquartered in Las Vegas, we have gaming operations in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Ohio and Pennsylvania. We also manage the Sky River Casino located in California under a management agreement with Wilton Rancheria. The Sky River Casino opened on August 15, 2022.

 

Impact of the COVID-19 Pandemic

In mid- March 2020, all of our gaming facilities were closed in compliance with orders issued by state officials as precautionary measures intended to slow the spread of COVID-19. As of September 30, 2022, 27 of our 28 gaming facilities are open and operating. One of our properties in Las Vegas remains closed due to the current levels of demand in the market. We cannot predict whether we will be required to temporarily close some or all of our open casinos in the future. Further, we cannot currently predict the ongoing impact of the pandemic on consumer demand and any potential negative effects on our workforce, suppliers, contractors and other partners.

 

The closures of our properties in 2020 had a material impact on our business, and the COVID-19 pandemic, the associated impacts on customer behavior and the requirements of health and safety protocols may further impact our business in the future. The severity and duration of such potential business impacts cannot currently be estimated, and the ultimate impact of the COVID-19 pandemic on our operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, potential resurgences or new variants of the virus, the logistics of distribution, level of participation and overall efficacy of vaccine programs and treatments, change in consumer behavior and demand and the related impact on economic activity, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in additional business disruptions, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time.

 

We currently anticipate funding our operations over the next 12 months with the cash being generated by our operations, supplemented, if necessary, by the cash we currently have available and the borrowing capacity available under our Revolving Credit Facility. We assessed the recoverability of our assets as of the end of the first quarter, second quarter and third quarter. See further discussion in Note 3, Goodwill and Intangible Assets, Net. If our expectations regarding projected revenues and cash flows related to our assets are not achieved, we may be subject to impairment charges in the future, which could have a material adverse impact on our consolidated financial statements. 

 

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and footnote disclosures necessary for complete financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"). These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2021, as filed with the U.S. Securities and Exchange Commission ("SEC") on February 28, 2022.

 

The results for the periods indicated are unaudited but reflect all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation of financial position, results of operations and cash flows. Results of operations and cash flows for the interim periods presented herein are not necessarily indicative of the results that would be achieved during a full year of operations or in future periods.

 

The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Investments in unconsolidated affiliates, which are 50% or less owned and do not meet the controlling financial interest consolidation criteria of the authoritative accounting guidance for voting interest or variable interest entities, are accounted for under the equity method. All intercompany accounts and transactions have been eliminated in consolidation.

 

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BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

as of  September 30, 2022 and  December 31, 2021 and for the three and nine months ended September 30, 2022 and 2021

______________________________________________________________________________________________________

 

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments, which include cash on hand and in banks, interest-bearing deposits and money market funds with maturities of three months or less at their date of purchase. The instruments are not restricted as to withdrawal or use and are on deposit with high credit quality financial institutions. Although these balances may at times exceed the federal insured deposit limit, we believe such risk is mitigated by the quality of the institution holding such deposit. The carrying values of these instruments approximate their fair values as such balances are generally available on demand.

 

Restricted Cash

Restricted cash consists primarily of advance payments related to: (i) amounts restricted by regulation for gaming and racing purposes; and (ii) future bookings with our Hawaiian travel agency. These restricted cash balances are invested in highly liquid instruments with a maturity of 90 days or less. These restricted cash balances are held by high credit quality financial institutions. The carrying values of these instruments approximate their fair values due to their short maturities.

 

The following table provides a reconciliation of cash, cash equivalents and restricted cash balances reported within the condensed consolidated balance sheets to the total balance shown in the condensed consolidated statements of cash flows.

 

  

September 30,

  

December 31,

  

September 30,

  

December 31,

 

(In thousands)

 

2022

  

2021

  

2021

  

2020

 

Cash and cash equivalents

 $252,344  $344,557  $570,926  $519,182 

Restricted cash

  17,185   12,571   17,392   15,817 

Total cash, cash equivalents and restricted cash

 $269,529  $357,128  $588,318  $534,999 

 

Leases

Management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset. Operating lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. For our operating leases for which the rate implicit in the lease is not readily determinable, we generally use an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease payments. Operating right-of-use ("ROU") assets and finance lease assets are recognized based on the amount of the initial measurement of the lease liability. Lease expense is recognized on a straight-line basis over the lease term. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease and non-lease components are accounted for separately.

 

Revenue Recognition

The Company’s revenue contracts with customers consist of gaming wagers, hotel room sales, food & beverage offerings and other amenity transactions. The transaction price for a gaming wagering contract is the difference between gaming wins and losses, not the total amount wagered. Cash discounts, commissions and other cash incentives to customers related to gaming play are recorded as a reduction of gaming revenues. The transaction price for hotel, food & beverage and other contracts is the net amount collected from the customer for such goods and services. Hotel, food & beverage and other services have been determined to be separate, stand-alone performance obligations and the transaction price for such contracts is recorded as revenue as the good or service is transferred to the customer over their stay at the hotel, when the delivery is made for the food & beverage or when the service is provided for other amenity transactions.

 

Gaming wager contracts involve two performance obligations for those customers earning points under the Company’s player loyalty programs and a single performance obligation for customers who do not participate in the programs. The Company applies a practical expedient by accounting for its gaming contracts on a portfolio basis as such wagers have similar characteristics and the Company reasonably expects the effects on the financial statements of applying the revenue recognition guidance to the portfolio to not differ materially from that which would result if applying the guidance to an individual wagering contract. For purposes of allocating the transaction price in a wagering contract between the wagering performance obligation and the obligation associated with the loyalty points earned, the Company allocates an amount to the loyalty point contract liability based on the stand-alone selling price of the points earned, which is determined by the value of a point that can be redeemed for a hotel room stay, food & beverage or other amenities. Sales and usage-based taxes are excluded from revenues. An amount is allocated to the gaming wager performance obligation using the residual approach as the stand-alone price for wagers is highly variable and no set established price exists for such wagers. The allocated revenue for gaming wagers, excluding race and sports wagers, is recognized when the wagers occur as all such wagers settle immediately. The allocated revenue for race and sports wagers is recognized when the specific event or game occurs. The loyalty point contract liability amount is deferred and recognized as revenue when the customer redeems the points for a hotel room stay, food & beverage or other amenities and such goods or services are delivered to the customer. See Note 4, Accrued Liabilities, for the balance outstanding related to player loyalty programs.

 

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BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

as of  September 30, 2022 and  December 31, 2021 and for the three and nine months ended September 30, 2022 and 2021

______________________________________________________________________________________________________

 

The Company collects advance deposits from hotel customers for future hotel reservations and other future events such as banquets and ticketed events. These advance deposits represent obligations of the Company until the hotel room stay is provided to the customer or the banquet or ticketed event occurs. See Note 4, Accrued Liabilities, for the balance outstanding related to advance deposits.

 

The Company's outstanding chip liability represents the amounts owed in exchange for gaming chips held by a customer. Outstanding chips are expected to be recognized as revenue or redeemed for cash within one year of being purchased. See Note 4, Accrued Liabilities, for the balance related to outstanding chips.

 

The retail value of hotel accommodations, food & beverage, and other services furnished to guests without charge is recorded as departmental revenues. Gaming revenues are net of incentives earned in our player loyalty programs such as cash and the estimated retail value of goods and services (such as complimentary rooms and food & beverage). We reward customers through the use of player loyalty programs, with points based on amounts wagered that can be redeemed for a specified period of time for complimentary slot play, food & beverage, hotel rooms and to a lesser extent for other goods or services, depending on the property.

 

The estimated retail values related to goods and services provided to customers without charge or upon redemption of points under our player loyalty programs included in departmental revenues, and therefore reducing our gaming revenues, are as follows:

 

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands)

 

2022

  

2021

  

2022

  

2021

 

Food & beverage

 $29,062  $26,380  $85,970  $75,284 

Room

  16,879   15,721   48,668   43,970 

Other

  2,371   1,904   6,718   4,469 

 

Gaming Taxes

We are subject to taxes based on gross gaming revenues in the jurisdictions in which we operate. These gaming taxes are assessed based on our gaming revenues and are recorded as a gaming expense in the condensed consolidated statements of operations. In addition, we are responsible for the payment of gaming taxes owed for the online gaming activities conducted by third party operators under certain collaborative arrangements. We are reimbursed for these taxes by the third-party operators. We report these gaming taxes paid as other expense and the reimbursements we receive as other revenues. Gaming taxes totaled approximately $175.3 million and $162.2 million for the three months ended September 30, 2022 and 2021, respectively, including taxes deposited pursuant to the online collaborative agreements of $44.5 million and $29.1 million for the three months ended September 30, 2022 and 2021, respectively. Gaming taxes totaled approximately $527.5 million and $498.6 million for the nine months ended September 30, 2022 and 2021, respectively, including taxes deposited pursuant to the online collaborative agreements of $129.8 million and $98.1 million for the nine months ended September 30, 2022 and 2021, respectively.

 

Income Taxes

Income taxes are recorded under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. Use of the term "more likely than not" indicates the likelihood of occurrence is greater than 50%. Accordingly, the need to establish valuation allowances for deferred tax assets is continually assessed based on a more-likely-than-not realization threshold. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of profitability and taxable income, the duration of statutory carryforward periods, our experience with the utilization of operating loss and tax credit carryforwards before expiration and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified.

 

Other Long-Term Tax Liabilities

The Company's income tax returns are subject to examination by the Internal Revenue Service and other tax authorities in the locations where it operates. The Company assesses potentially unfavorable outcomes of such examinations based on accounting standards for uncertain income taxes, which prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.

 

Uncertain tax position accounting standards apply to all tax positions related to income taxes. These accounting standards utilize a two-step approach for evaluating tax positions. Recognition occurs when the Company concludes that a tax position, based on its technical merits, is more likely than not to be sustained upon examination. Measurement is only addressed if the position is deemed to be more likely than not to be sustained. The tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon settlement.

 

Tax positions failing to qualify for initial recognition are recognized in the first subsequent interim period that they meet the "more likely than not" standard. If it is subsequently determined that a previously recognized tax position no longer meets the "more likely than not" standard, it is required that the tax position is derecognized. Accounting standards for uncertain tax positions specifically prohibit the use of a valuation allowance as a substitute for derecognition of tax positions. As applicable, the Company will recognize accrued penalties and interest related to unrecognized tax benefits in the provision for income taxes. 

 

Collaborative Arrangements

We hold a five percent equity ownership in and have a strategic partnership with FanDuel Group ("FanDuel"), one of the nation's leaders in online sports-betting, to pursue sports-betting opportunities, both at our properties and online, across the country. Subject to state law and regulatory approvals, we have established a presence in the sports wagering industry, both at our properties and online, by leveraging FanDuel's technology and related services. We offer online sports wagering in Illinois, Indiana, Iowa, Kansas, Louisiana and Pennsylvania under either the FanDuel brand or under market access agreements with other companies. We also operate sportsbooks under the FanDuel brand at our properties in Mississippi and the states where we offer online sports wagering. In addition, we offer real money online casino gaming in Pennsylvania and New Jersey under the Stardust brand through our partnership with FanDuel. The activities related to these collaborative arrangements are recorded in other revenue and other expense on the condensed consolidated statements of operations.

 

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BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

as of  September 30, 2022 and  December 31, 2021 and for the three and nine months ended September 30, 2022 and 2021

______________________________________________________________________________________________________

 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

 

Recently Adopted Accounting Pronouncements

ASU 2021-08, Business Combinations, Topic 805 ("Update 2021-08")

In October 2021, the Financial Accounting Standards Board ("FASB") issued Update 2021-08 to improve the accounting for acquired revenue contracts with customers in a business combination. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination at fair value on the acquisition date. ASU 2021-08 requires acquiring entities to apply Topic 606, Revenue Recognition, to recognize and measure contract assets and liabilities in a business combination. Update 2021-08 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted Update 2021-08 during third quarter 2022, and the guidance will be applied to the accounting for the Pala acquisition.

 

ASU 2021-05, Leases, Topic 842 ("Update 2021-05")

In July 2021, the FASB issued Update 2021-05 to clarify guidance for lessors with lease contracts that have variable lease payments that do not depend on a reference index or rate and would have resulted in the recognition of a selling loss at lease commencement if classified as sales-type or direct financing. Update 2021-05 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company adopted Update 2021-05 during first quarter 2022, and the impact of the adoption to its condensed consolidated financial statements was not material.

 

Recently Issued Accounting Pronouncements

A variety of proposed or otherwise potential accounting standards are currently being studied by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of such proposed standards would have on our consolidated financial statements.

 

 

NOTE 2.    PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following:

 

   

September 30,

    

December 31,

  

(In thousands)

  

2022

    

2021

  

Land

   $ 335,234     $ 343,963  

Buildings and improvements

     3,152,464       3,146,697  

Furniture and equipment

     1,728,254       1,653,451  

Riverboats and barges

     241,599       241,447  

Construction in progress

     62,649       912  

Total property and equipment

     5,520,200       5,386,470  

Less accumulated depreciation

     (3,164,453 )     (2,992,286 )

Property and equipment, net

   $ 2,355,747     $ 2,394,184  

 

Depreciation expense is as follows:

 

   

Three Months Ended

    

Nine Months Ended

  
   

September 30,

    

September 30,

  

(In thousands)

  

2022

    

2021

    

2022

    

2021

  

Depreciation expense

   $ 62,771     $ 64,429     $ 188,399     $ 189,861  

 

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BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

as of September 30, 2022 and December 31, 2021 and for the three and nine months ended September 30, 2022 and 2021

______________________________________________________________________________________________________

 

 

NOTE 3.    GOODWILL AND INTANGIBLE ASSETS, NET

Intangible assets, net consist of the following:

 

  

September 30, 2022

 
  

Weighted

  

Gross

      

Accumulated

     
  

Useful Life

  

Carrying

  

Accumulated

  

Impairment

  

Intangible

 

(In thousands)

 

Remaining (in years)

  

Value

  

Amortization

  

Losses

  

Assets, Net

 

Amortizing intangibles

                   

Customer relationships

 0.8  $68,100  $(66,289) $—  $1,811 

Host agreements

 10.7   58,000   (16,756)  —   41,244 

Development agreement (1)

 6.9   21,373   (382)  —   20,991 
      147,473   (83,427)  —   64,046 
                    

Indefinite lived intangible assets

                   

Trademarks

 Indefinite   204,000   —   (32,775)  171,225 

Gaming license rights

 Indefinite   1,378,081   (33,960)  (222,174)  1,121,947 
      1,582,081   (33,960)  (254,949)  1,293,172 

Balances, September 30, 2022

    $1,729,554  $(117,387) $(254,949) $1,357,218 

 

(1) Amortization of the development agreement began on August 15, 2022 upon the opening of the Sky River Casino.

 

  

December 31, 2021

 
  

Weighted

  

Gross

      

Accumulated

     
  

Useful Life

  

Carrying

  

Accumulated

  

Impairment

  

Intangible

 

(In thousands)

 

Remaining (in years)

  

Value

  

Amortization

  

Losses

  

Assets, Net

 

Amortizing intangibles

                   

Customer relationships

 1.5  $68,100  $(63,798) $—  $4,302 

Host agreements

 11.4   58,000   (13,856)  —   44,144 

Development agreement

 —   21,373   —   —   21,373 
      147,473   (77,654)  —   69,819 
                    

Indefinite lived intangible assets

                   

Trademarks

 

Indefinite

   204,000   —   (27,200)  176,800 

Gaming license rights

 

Indefinite

   1,377,935   (33,960)  (222,174)  1,121,801 
      1,581,935   (33,960)  (249,374)  1,298,601 

Balances, December 31, 2021

    $1,729,408  $(111,614) $(249,374) $1,368,420 

 

The following table presents the future amortization expense for our amortizing intangible assets as of  September 30, 2022:

 

(In thousands)

 

Customer Relationships

  

Host Agreements

  

Development Agreement

  

Total

 

For the year ending December 31,

                

2022 (excluding nine months ended September 30, 2022)

 $831  $967  $763  $2,561 

2023

  940   3,867   3,053   7,860 

2024

  40   3,867   3,053   6,960 

2025

  —   3,867   3,053   6,920 

2026

  —   3,867   3,053   6,920 

Thereafter

  —   24,809   8,016   32,825 

Total future amortization

 $1,811  $41,244  $20,991  $64,046 

 

As a result of our third quarter 2022 impairment review, the Company recorded an impairment charge of $5.6 million for a trademark related to a property in our Midwest & South segment, which is included in impairment of assets for the three and nine months ended September 30, 2022. To the extent gaming volumes deteriorate in the near future, discount rates continue to increase significantly, or we do not meet our projected performance, we may recognize further impairments, and such impairments could be material.

 

 

12
Table of Contents

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)

as of  September 30, 2022 and  December 31, 2021 and for the three and nine months ended September 30, 2022 and 2021

______________________________________________________________________________________________________

 

Goodwill consists of the following:

 

  

Gross

      

Accumulated

     
  

Carrying

  

Accumulated

  

Impairment

  

Goodwill,

 

(In thousands)

 

Value

  

Amortization

  

Losses

  

Net

 

Goodwill, net by Reportable Segment

                

Las Vegas Locals

 $593,567  $—  $(188,079) $405,488 

Downtown Las Vegas

  6,997   (6,134)  —   863 

Midwest & South

  666,798   —   (101,862)  564,936 

Balances, September 30, 2022

 $1,267,362  $(6,134) $(289,941) $971,287 

 

There have been no changes in goodwill, net, during the nine months ended September 30, 2022.
 

NOTE 4.    ACCRUED LIABILITIES

Accrued liabilities consist of the following:

 

   

September 30,

    

December 31,

  

(In thousands)

  

2022

    

2021

  

Payroll and related

   $ 75,773     $ 99,880  

Interest

     20,514       19,210  

Gaming

     83,555       78,552  

Player loyalty program

     24,471       28,430  

Advance deposits

     16,939       15,320  

Outstanding chips

     8,087       7,407  

Dividends payable

     15,656       —  

Operating leases

     85,787       84,884