Boyd Gaming Earnings 2018-09-30

BYD 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 byd10q9302018.htm 10-Q Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________________________________

FORM 10-Q

____________________________________________________

(Mark One)



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

For the quarterly period ended September 30, 2018



o	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

___________________________________________________

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.)

3883 Howard Hughes Parkway, Ninth Floor, Las Vegas, NV 89169

(Address of principal executive offices) (Zip Code)

(702) 792-7200

(Registrant's telephone number, including area code)

____________________________________________________

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

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



Large accelerated filer	x	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	o

		Emerging growth company	o

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. o

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

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



	Class		Outstanding as of November 5, 2018
	Common stock, $0.01 par value		112,205,979

BOYD GAMING CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2018

TABLE OF CONTENTS



		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017	3

	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017	4

	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017	5

	Condensed Consolidated Statements of Changes in Stockholders' Equity for the nine months ended September 30, 2018 and 2017	6

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	40

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	54

Item 4.	Controls and Procedures	54

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	55

Item 1A.	Risk Factors	55

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55

Item 6.	Exhibits	56

Signature Page		58

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)	2018			2017
ASSETS
Current assets
Cash and cash equivalents	$	440,963		$	203,104
Restricted cash	33,596			24,175
Accounts receivable, net	39,701			40,322
Inventories	16,379			18,004
Prepaid expenses and other current assets	46,280			37,873
Income taxes receivable	5,185			5,185
Total current assets	582,104			328,663
Property and equipment, net	2,547,005			2,539,786
Other assets, net	94,777			81,128
Intangible assets, net	844,222			842,946
Goodwill, net	1,201,862			888,224
Other long-term tax assets	5,183			5,183
Total assets	$	5,275,153		$	4,685,930
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	93,881		$	106,323
Current maturities of long-term debt	18,007			23,981
Accrued liabilities	313,303			255,146
Income tax payable	662			21
Total current liabilities	425,853			385,471
Long-term debt, net of current maturities and debt issuance costs	3,531,076			3,051,899
Deferred income taxes	109,508			86,657
Other long-term tax liabilities	3,588			3,447
Other liabilities	63,293			61,229
Commitments and contingencies (Notes 3, 8 and 9)
Stockholders' equity
Preferred stock, $0.01 par value, 5,000,000 shares authorized	—			—
Common stock, $0.01 par value, 200,000,000 shares authorized; 112,004,327 and 112,634,418 shares outstanding	1,120			1,126
Additional paid-in capital	904,521			931,858
Retained earnings	237,196			164,425
Accumulated other comprehensive loss	(1,002		)	(182		)
Total stockholders' equity	1,141,835			1,097,227
Total liabilities and stockholders' equity	$	5,275,153		$	4,685,930

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

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)	2018			2017			2018			2017
Revenues
Gaming	$	446,760		$	428,852		$	1,335,011		$	1,309,922
Food & beverage	86,006			84,996			259,006			259,245
Room	47,984			47,600			145,330			142,284
Other	31,446			30,094			95,760			94,280
Total revenues	612,196			591,542			1,835,107			1,805,731
Operating costs and expenses
Gaming	197,435			188,044			580,461			569,597
Food & beverage	82,179			82,942			246,488			251,717
Room	22,288			21,845			64,875			64,594
Other	21,149			19,966			63,599			62,500
Selling, general and administrative	88,054			91,288			263,678			275,938
Maintenance and utilities	32,927			30,244			89,526			82,507
Depreciation and amortization	54,688			55,201			159,887			161,728
Corporate expense	25,055			19,339			74,975			63,388
Project development, preopening and writedowns	18,588			2,975			27,829			8,731
Impairments of assets	—			—			993			—
Other operating items, net	265			758			2,196			1,707
Total operating costs and expenses	542,628			512,602			1,574,507			1,542,407
Operating income	69,568			78,940			260,600			263,324
Other expense (income)
Interest income	(2,189		)	(452		)	(3,168		)	(1,367		)
Interest expense, net of amounts capitalized	54,670			43,309			143,888			129,711
Loss on early extinguishments and modifications of debt	—			319			61			853
Other, net	16			(139		)	(388		)	531
Total other expense, net	52,497			43,037			140,393			129,728
Income from continuing operations before income taxes	17,071			35,903			120,207			133,596
Income tax provision	(5,234		)	(12,746		)	(28,373		)	(47,671		)
Income from continuing operations, net of tax	11,837			23,157			91,834			85,925
Income from discontinued operations, net of tax	—			—			347			21,392
Net income	$	11,837		$	23,157		$	92,181		$	107,317

Basic net income per common share
Continuing operations	$	0.10		$	0.20		$	0.81		$	0.74
Discontinued operations	—			—			—			0.19
Basic net income per common share	$	0.10		$	0.20		$	0.81		$	0.93
Weighted average basic shares outstanding	114,410			114,836			114,443			115,108

Diluted net income per common share
Continuing operations	$	0.10		$	0.20		$	0.80		$	0.75
Discontinued operations	—			—			—			0.18
Diluted net income per common share	$	0.10		$	0.20		$	0.80		$	0.93
Weighted average diluted shares outstanding	115,070			115,501			115,147			115,768

Dividends declared per common share	$	0.06		$	0.05		$	0.17		$	0.10

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

BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)



	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(In thousands)	2018		2017			2018			2017
Net income	$	11,837	$	23,157		$	92,181		$	107,317
Other comprehensive income (loss), net of tax:
Fair value adjustments to available-for-sale securities, net of tax	138		(305		)	(1,132		)	801
Comprehensive income	$	11,975	$	22,852		$	91,049		$	108,118

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

BOYD GAMING CORPORATION AND SUBSIDIARIES

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



	Boyd Gaming Corporation Stockholders' Equity
	Common Stock					Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss), Net			Noncontrolling Interest			Total


(In thousands, except share data)	Shares		Amount
Balances, January 1, 2018	112,634,418		$	1,126		$	931,858		$	164,425		$	(182	)	$	—		$	1,097,227
Cumulative effect of change in accounting principle, adoption of Update 2018-02	—		—			—			(312		)	312			—			—
Net income	—		—			—			92,181			—			—			92,181
Comprehensive loss attributable to Boyd, net of tax	—		—			—			—			(1,132		)	—			(1,132		)
Stock options exercised	286,490		3			2,817			—			—			—			2,820
Release of restricted stock units, net of tax	18,777		—			(387		)	—			—			—			(387		)
Release of performance stock units, net of tax	337,537		4			(5,274		)	—			—			—			(5,270		)
Shares repurchased and retired	(1,272,895	)	(13		)	(44,809		)	—			—			—			(44,822		)
Dividends declared	—		—			—			(19,098		)	—			—			(19,098		)
Share-based compensation costs	—		—			20,316			—			—			—			20,316
Balances, September 30, 2018	112,004,327		$	1,120		$	904,521		$	237,196		$	(1,002	)	$	—		$	1,141,835

Balances, January 1, 2017	112,896,377		$	1,129		$	953,440		$	(23,824	)	$	(615	)	$	50		$	930,180
Cumulative effect of change in accounting principle, adoption of Update 2016-09	—		—			—			15,777			—			—			15,777
Net income	—		—			—			107,317			—			—			107,317
Comprehensive income attributable to Boyd, net of tax	—		—			—			—			801			—			801
Stock options exercised	233,964		2			2,021			—			—			—			2,023
Release of restricted stock units, net of tax	156,750		1			(2,226		)	—			—			—			(2,225		)
Release of performance stock units, net of tax	173,653		2			(1,793		)	—			—			—			(1,791		)
Shares repurchased and retired	(870,315	)	(8		)	(22,152		)	—			—			—			(22,160		)
Dividends declared	—		—			—			(11,286		)	—			—			(11,286		)
Share-based compensation costs	—		—			11,212			—			—			—			11,212
Other	—		—			640			—			—			(50		)	590
Balances, September 30, 2017	112,590,429		$	1,126		$	941,142		$	87,984		$	186		$	—		$	1,030,438

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

BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



	Nine Months Ended
	September 30,
(In thousands)	2018			2017
Cash Flows from Operating Activities
Net income	$	92,181		$	107,317
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations, net of tax	(347		)	(21,392		)
Depreciation and amortization	159,887			161,728
Amortization of debt financing costs and discounts on debt	6,779			6,957
Share-based compensation expense	20,316			11,212
Deferred income taxes	22,716			43,422
Non-cash impairment of assets	993			—
Loss on early extinguishments and modifications of debt	61			853
Other operating activities	72			(2,106		)
Changes in operating assets and liabilities:
Accounts receivable, net	2,731			(3,056		)
Inventories	2,722			753
Prepaid expenses and other current assets	(6,384		)	(2,845		)
Income taxes payable	641			2,219
Other assets, net	(5,520		)	3,626
Accounts payable and accrued liabilities	33,152			25,082
Other long-term tax liabilities	141			101
Other liabilities	2,031			(482		)
Net cash provided by operating activities	332,172			333,389
Cash Flows from Investing Activities
Capital expenditures	(107,634		)	(161,252		)
Cash paid for acquisitions, net of cash received	(367,333		)	(1,153		)
Advances pursuant to development agreement	—			(35,108		)
Other investing activities	(10,590		)	492
Net cash used in investing activities	(485,557		)	(197,021		)
Cash Flows from Financing Activities
Borrowings under bank credit facility	413,000			463,300
Payments under bank credit facility	(633,022		)	(628,211		)
Proceeds from issuance of senior notes	700,000			—
Debt financing costs, net	(14,016		)	(2,700		)
Share-based compensation activities, net	(2,837		)	(1,993		)
Shares repurchased and retired	(44,822		)	(22,160		)
Dividends paid	(18,009		)	(5,653		)
Other financing activities	(111		)	503
Net cash provided by (used in) financing activities	400,183			(196,914		)
Cash Flows from Discontinued Operations
Cash flows from operating activities	—			(514		)
Cash flows from investing activities	482			36,247
Cash flows from financing activities	—			—
Net cash provided by discontinued operations	482			35,733
Change in cash, cash equivalents and restricted cash	247,280			(24,813		)
Cash, cash equivalents and restricted cash, beginning of period	227,279			210,350
Cash, cash equivalents and restricted cash, end of period	$	474,559		$	185,537
Supplemental Disclosure of Cash Flow Information
Cash paid for interest, net of amounts capitalized	$	107,758		$	109,634
Cash paid for income taxes	4,447			5,252
Supplemental Schedule of Non-cash Investing and Financing Activities
Payables incurred for capital expenditures	$	7,620		$	3,709

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

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017

______________________________________________________________________________________________________

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

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 25 wholly owned gaming entertainment properties. Headquartered in Las Vegas, we have gaming operations in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi and Pennsylvania.

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 audited consolidated financial statements and notes for the year ended December 31, 2017 included in our Current Report on Form 8-K, filed with the U.S. Securities and Exchange Commission ("SEC") on June 28, 2018. As discussed in Note 2, Summary of Significant Accounting Policies, we adopted Accounting Standards Update 2016-18 and the Revenue Standard effective January 1, 2018, by applying the full retrospective method, which has impacted previously reported results.

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 Boyd Gaming and its wholly owned subsidiaries. Investments in unconsolidated affiliates, which do not meet the consolidation criteria of the authoritative accounting guidance for voting interest, controlling interest or variable interest entities, are accounted for under the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation.

On August 1, 2016, Boyd Gaming completed the sale of its 50% equity interest in Marina District Development Holding Company, LLC ("MDDHC"), the parent company of Borgata Hotel Casino & Spa ("Borgata"), pursuant to an Equity Purchase Agreement (the "Purchase Agreement") entered into on May 31, 2016, as amended on July 19, 2016, by and among the Company, Boyd Atlantic City, Inc., a wholly owned subsidiary of the Company, and MGM Resorts International ("MGM"). (See Note 3, Acquisitions and Divestitures.) We accounted for our investment in Borgata by applying the equity method and reported its results as discontinued operations for all periods presented in these condensed consolidated financial statements.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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) future bookings with our Hawaiian travel agency; and (ii) amounts restricted by regulation for gaming and racing purposes. 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 value of these instruments approximates their fair value due to their short maturities.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017

______________________________________________________________________________________________________

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)	2018		2017		2017		2016
Cash and cash equivalents	$	440,963	$	203,104	$	158,832	$	193,862
Restricted cash	33,596		24,175		26,705		16,488
Total cash, cash equivalents and restricted cash	$	474,559	$	227,279	$	185,537	$	210,350

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 gross 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 is recognized when the wagers occur as all such wagers settle immediately. 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 6, Accrued Liabilities, for the balance outstanding related to player loyalty programs.

The Company collects advanced deposits from hotel customers for future reservations representing obligations of the Company until the hotel room stay is provided to the customer. See Note 6, 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 6, Accrued Liabilities, for the balance outstanding related to the chip liability.

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

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017

______________________________________________________________________________________________________

The estimated retail value 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)	2018		2017		2018		2017
Food & beverage	$	43,599	$	43,351	$	129,522	$	129,826
Rooms	19,437		19,554		58,298		57,197
Other	3,061		2,653		8,389		7,848

Gaming Taxes

We are subject to taxes based on gross gaming revenues in the jurisdictions in which we operate. These gaming taxes are recorded as a gaming expense in the condensed consolidated statements of operations. These taxes totaled approximately $83.1 million and $81.5 million for the three months ended September 30, 2018 and 2017, respectively, and $241.5 million and $248.5 million for the nine months ended September 30, 2018 and 2017, 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, 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. Accrued interest and penalties are included in other long-term tax liabilities on the condensed consolidated balance sheets.

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.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017

______________________________________________________________________________________________________

Recently Adopted Accounting Pronouncements

Accounting Standards Update ("ASU") 2018-07, Compensation - Stock Compensation ("Update 2018-07")

In June 2018, the Financial Accounting Standards Board ("FASB") issued Update 2018-07 which expands Accounting Standards Codification ("ASC") 718, to include share-based payment transactions for acquiring goods and services from nonemployees. The standard is effective for financial statements issued for annual periods and interim periods within those annual periods, beginning after December 15, 2018, and early adoption is permitted. The Company determined that the impact of the new standard to its consolidated financial statements will not be material.

ASU 2018-05, Income Taxes ("Update 2018-05")

In March 2018, the FASB issued Update 2018-05, which amends the guidance to SEC Staff Accounting Bulletin No. 118 ("SAB 118") by adding income tax accounting implications of the Tax Cuts and Jobs Act (the "Tax Act"). The SEC staff issued SAB 118 to provide guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes ("ASC 740"). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. We recorded an adjustment as a result of the Tax Act as described above in fourth quarter 2017. We believe our analysis to be complete and do not anticipate any material future changes to financial statements as a result of the impact of the Tax Act. However, if any changes are determined, we will record those as part of the measurement period.

ASU 2018-02, Income Statement - Reporting Comprehensive Income ("Update 2018-02")

In first quarter 2018, the Company adopted ASU 2018-02 which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. The effect of this change in accounting principle is to record an other comprehensive income tax effect of $0.3 million as a reduction in retained earnings on the condensed consolidated statement of changes in stockholders' equity for the nine months ended September 30, 2018.

ASU 2016-18, Statement of Cash Flows ("Update 2016-18")

In November 2016, the FASB issued Update 2016-18, which amends ASC 230 to add or clarify the guidance on the classification and presentation of restricted cash in the statement of cash flows. Update 2016-18 requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts on the statement of cash flows. The Company adopted Update 2016-18 effective January 1, 2018 using the retrospective approach. We adjusted our condensed consolidated statement of cash flows from amounts previously reported due to the adoption of Update 2016-18. The effects of adopting Update 2016-18 on our condensed consolidated statement of cash flows for the nine months ended September 30, 2017 were as follows:



	Nine Months Ended September 30, 2017
(In thousands)	As Previously Reported			Adoption of Update 2016-18		As Adjusted
Net cash provided by operating activities	$	323,172		$	10,217	$	333,389

Cash, cash equivalents and restricted cash, beginning of period	$	193,862		$	16,488	$	210,350
Net increase (decrease) in cash, cash equivalents and restricted cash	(35,030		)	10,217		(24,813		)
Cash, cash equivalents and restricted cash, end of period	$	158,832		$	26,705	$	185,537

ASU 2016-15, Statement of Cash Flows ("Update 2016-15")

In August 2016, the FASB issued Update 2016-15, which amends the guidance on the classification of certain cash receipts and payments in the statement of cash flows. Update 2016-15 is intended to reduce the lack of consistent principles on certain classifications such as debt prepayment, debt extinguishment costs, distributions, insurance claims and beneficial interest in securitization transactions. The Company retrospectively adopted Update 2016-15 effective January 1, 2018. The Company determined that the impact of the new standard on its consolidated financial statements is not material.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017

______________________________________________________________________________________________________

ASU 2016-09, Compensation - Stock Compensation ("Update 2016-09")

In first quarter 2017, the Company adopted Update 2016-09, which simplified several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Update 2016-09 requires excess tax benefits and deficiencies to be recorded in income tax expense instead of equity. The cumulative effect of this change in accounting principle was to record the benefit of previously unrecognized excess tax deductions as an increase in retained earnings of $15.8 million on the condensed consolidated statement of changes in stockholders' equity for the nine months ended September 30, 2017.

ASU 2014-09, Revenue from Contracts with Customers ("Update 2014-09"); ASU 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date ("Update 2015-14" ); ASU 2016-08, Revenue from Contracts with Customers - Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("Update 2016-08"); ASU 2016-10, Revenue from Contracts with Customers - Identifying Performance Obligations and Licensing ("Update 2016-10"); ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting ("Update 2016-11"); and ASU 2016-12, Revenue from Contracts with Customers - Narrow-Scope Improvements and Practical Expedients ("Update 2016-12"); (collectively, the “Revenue Standard”)

The Revenue Standard prescribes a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The Company adopted the Revenue Standard by applying the full retrospective approach in first quarter 2018 and has adjusted the prior periods presented.

The guidance changed the presentation of net revenues as the historical presentation reflected revenues gross for goods and services provided to our customers as an inducement to play with us, with an offsetting reduction for promotional allowances to derive net revenues. Under the new guidance, revenues are allocated among our departmental classifications based on the relative standalone selling prices of the goods and services provided to the customer. Our reporting of amounts paid to operators of wide area progressive games has changed as a result of the adoption of the Revenue Standard. We previously reported these payments as contra-revenues. Under the Revenue Standard, these payments are reported as an operating expense. The accounting for our frequent player programs was also impacted, with changes to the timing and/or classification of certain transactions between revenues and operating expenses.

The implementation of the Revenue Standard resulted in an increase to the player point liability due to the change in our accounting method for this liability from an estimated cost of redemption model to a deferred revenue model. As of the effective date of our adoption (January 1, 2015), the cumulative effect adjustment decreased beginning Retained earnings by $3.8 million (after tax), resulted in a deferred tax asset reduction of $2.4 million and increased Accrued liabilities by approximately $6.2 million on the condensed consolidated balance sheet. The impact to the condensed consolidated statement of cash flows for the three and nine months ended September 30, 2017 was not material. The impact of this change in accounting for these programs is not expected to be material to any annual accounting period.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017

______________________________________________________________________________________________________

The effects of the adoption of the Revenue Standard on our results for the three months ended September 30, 2017 are as follows:



	Three Months Ended September 30, 2017
(In thousands, except per share data)	As Previously Reported			Adoption of Revenue Standard			As Adjusted
Revenues
Gaming	$	487,372		$	(58,520	)	$	428,852
Food & beverage	85,640			(644		)	84,996
Room	48,073			(473		)	47,600
Other	31,639			(1,545		)	30,094
Gross revenues	652,724			(61,182		)	591,542
Less promotional allowances	65,059			(65,059		)	—
Net revenues	587,665			3,877			591,542
Operating costs and expenses
Gaming	229,667			(41,623		)	188,044
Food & beverage	47,487			35,455			82,942
Room	13,475			8,370			21,845
Other	18,566			1,400			19,966
Selling, general and administrative	91,288			—			91,288
Maintenance and utilities	30,244			—			30,244
Depreciation and amortization	55,201			—			55,201
Corporate expense	19,339			—			19,339
Project development, preopening and writedowns	2,975			—			2,975
Other operating items, net	758			—			758
Total operating costs and expenses	509,000			3,602			512,602
Operating income	78,665			275			78,940
Other expense (income)
Interest income	(452		)	—			(452		)
Interest expense, net of amounts capitalized	43,309			—			43,309
Loss on early extinguishments and modifications of debt	319			—			319
Other, net	(139		)	—			(139		)
Total other expense, net	43,037			—			43,037
Income from continuing operations before income taxes	35,628			275			35,903
Income tax provision	(12,652		)	(94		)	(12,746		)
Income from continuing operations, net of tax	22,976			181			23,157
Income from discontinued operations, net of tax	—			—			—
Net income	$	22,976		$	181		$	23,157

Basic net income per common share
Continuing operations	$	0.20		$	—		$	0.20
Discontinued operations	—			—			—
Basic net income per common share	$	0.20		$	—		$	0.20
Weighted average basic shares outstanding	114,836			—			114,836

Diluted net income per common share
Continuing operations	$	0.20		$	—		$	0.20
Discontinued operations	—			—			—
Diluted net income per common share	$	0.20		$	—		$	0.20
Weighted average diluted shares outstanding	115,501			—			115,501

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017

______________________________________________________________________________________________________

The effects of the adoption of the Revenue Standard on our results for the nine months ended September 30, 2017 are as follows:



	Nine Months Ended September 30, 2017
(In thousands, except per share data)	As Previously Reported			Adoption of Revenue Standard			As Adjusted
Revenues
Gaming	$	1,482,427		$	(172,505	)	$	1,309,922
Food & beverage	261,425			(2,180		)	259,245
Room	143,669			(1,385		)	142,284
Other	98,592			(4,312		)	94,280
Gross revenues	1,986,113			(180,382		)	1,805,731
Less promotional allowances	193,238			(193,238		)	—
Net revenues	1,792,875			12,856			1,805,731
Operating costs and expenses
Gaming	691,210			(121,613		)	569,597
Food & beverage	146,538			105,179			251,717
Room	40,058			24,536			64,594
Other	58,176			4,324			62,500
Selling, general and administrative	275,938			—			275,938
Maintenance and utilities	82,507			—			82,507
Depreciation and amortization	161,728			—			161,728
Corporate expense	63,388			—			63,388
Project development, preopening and writedowns	8,731			—			8,731
Other operating items, net	1,707			—			1,707
Total operating costs and expenses	1,529,981			12,426			1,542,407
Operating income	262,894			430			263,324
Other expense (income)
Interest income	(1,367		)	—			(1,367		)
Interest expense, net of amounts capitalized	129,711			—			129,711
Loss on early extinguishments and modifications of debt	853			—			853
Other, net	531			—			531
Total other expense, net	129,728			—			129,728
Income from continuing operations before income taxes	133,166			430			133,596
Income tax provision	(47,515		)	(156		)	(47,671		)
Income from continuing operations, net of tax	85,651			274			85,925
Income from discontinued operations, net of tax	21,392			—			21,392
Net income	$	107,043		$	274		$	107,317

Basic net income per common share
Continuing operations	$	0.74		$	—		$	0.74
Discontinued operations	0.19			—			0.19
Basic net income per common share	$	0.93		$	—		$	0.93
Weighted average basic shares outstanding	115,108			—			115,108

Diluted net income per common share
Continuing operations	$	0.74		$	0.01		$	0.75
Discontinued operations	0.18			—			0.18
Diluted net income per common share	$	0.92		$	0.01		$	0.93
Weighted average diluted shares outstanding	115,768			—			115,768

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017

______________________________________________________________________________________________________

Recently Issued Accounting Pronouncements

ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("Update 2018-03")

In August 2018, the FASB issued Update 2018-03 to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The standard is effective for financial statements issued for annual periods and interim periods within those annual periods beginning after December 15, 2019, and early adoption is permitted. The Company is evaluating the impact of Update 2018-13 to the consolidated financial statements.

ASU 2016-02, Leases ("Update 2016-02"); ASU 2018-10, Targeted Improvements ("Update 2018-10"); ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842 ("Update ASU 2018-01"); ASU 2018-11, Codification Improvements to Topic 842, Leases ("Update 2018-11"); (collectively, the “Lease Standard”)

The Lease Standard allows for transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet for leases with terms in excess of 12 months and the disclosure of key information about leasing arrangements. Under the Lease Standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We are also required to recognize and measure leases existing at, or entered into after, the beginning of the earliest comparative period presented using a modified retrospective approach, with certain practical expedients available.

The Lease Standard is effective for financial statements issued for annual periods and interim periods within those annual periods beginning after December 15, 2018, and early adoption is permitted. We will adopt the Lease Standard in the first quarter of 2019 and apply an optional transition method that will allow us to continue to apply the current guidance of the ASC 840 in the comparative periods in the year of adoption. Our assessment and implementation process is underway. As we prepare to adopt the Lease Standard, we have identified our lease population that will be impacted, acquired software to support the new accounting requirements and evaluated the practical expedients and accounting policy elections to be made. While we have not yet quantified the impact on our financial statements of implementation of the Lease Standard, our adoption is expected to have a significant impact on the consolidated balance sheet due to recognition of right-of-use assets and lease liabilities, but will likely have an insignificant impact on our consolidated statements of operations and comprehensive income. The Company also anticipates expanded footnote disclosures related to its leases under the new guidance. The Company’s evaluation of the Lease Standard is ongoing and may identify additional impacts on its consolidated financial statements and related disclosures prior to adoption.

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 3. ACQUISITIONS AND DIVESTITURES

Valley Forge Convention Center Partners

On September 17, 2018, we completed the acquisition of Valley Forge Convention Center Partners, L.P. ("Valley Forge"), the owner and operator of Valley Forge Casino Resort, pursuant to an Agreement and Plan of Merger (as amended, the "Valley Forge Merger Agreement"), dated as of December 20, 2017, as amended as of September 17, 2018, in each case by and among Boyd, Boyd TCV, LP, a Pennsylvania limited partnership and a wholly owned subsidiary of Boyd (“Boyd TCV”), Valley Forge, and VFCCP SR LLC, a Pennsylvania limited liability company, solely in its capacity as the representative of Valley Forge’s limited partners.

Pursuant to the Valley Forge Merger Agreement, Boyd TCV merged with and into Valley Forge (the "Valley Forge Merger"), with Valley Forge surviving the merger. Valley Forge is now a wholly owned subsidiary of Boyd. Valley Forge is a modern casino and hotel in King of Prussia, Pennsylvania that offers premium accommodations, gaming, dining, entertainment and retail services, and is aggregated into our Midwest & South segment (See Note 11, Segment Information). The net purchase price was $266.6 million.

Consideration Transferred

The fair value of the consideration transferred on the date of the Valley Forge Merger included the purchase price of the net assets transferred. The total gross consideration was $291.4 million.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017

______________________________________________________________________________________________________

Status of Purchase Price Allocation

The Company is following the acquisition method of accounting per ASC 805 guidance. For purposes of these condensed consolidated financial statements, we have allocated the purchase price to the assets acquired and the liabilities assumed based on preliminary estimates of fair value as determined by management based on its judgment. The excess of the purchase price over the preliminary estimated fair value of the assets acquired and liabilities assumed has been recorded as goodwill. The Company will recognize the assets acquired and liabilities assumed in the acquisition based on fair value estimates as of the date of the Valley Forge Merger. The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) is currently in process. This determination requires significant judgment. As such, management has not completed its valuation analysis and calculations in sufficient detail necessary to finalize the determination of the fair value of the assets acquired and liabilities assumed, along with the related allocations of goodwill and intangible assets. The final fair value determinations are expected to be completed during first quarter 2019. The final fair value determinations may be significantly different than those reflected in the condensed consolidated financial statements at September 30, 2018.

The following table summarizes the preliminary allocation of the purchase price:



(In thousands)	As Recorded
Current assets	$	29,909
Property and equipment	47,762
Other assets	483
Total acquired assets	78,154

Current liabilities	12,028
Other liabilities	606
Total liabilities assumed	12,634
Net identifiable assets acquired	65,520
Goodwill	225,844
Net assets acquired	$	291,364

The following table summarizes the preliminary values assigned to acquired property and equipment and estimated useful lives:



(In thousands)	Useful Lives	As Recorded
Land		$	650
Buildings and improvements	15 - 40 years	32,883
Furniture and equipment	5 - 7 years	13,800
Construction in progress		429
Property and equipment acquired		$	47,762

The goodwill recognized is the excess of the purchase price over the preliminary values assigned to the assets acquired and liabilities assumed. All of the goodwill was assigned to the Midwest & South reportable segment. All of the goodwill is expected to be deductible for income tax purposes.

The Company recognized $2.9 million and $3.4 million of acquisition related costs that were expensed for the three and nine months ended September 30, 2018, respectively. These costs are included in the condensed consolidated statements of operations in the line item entitled "Project development, preopening and writedowns".

Condensed Consolidated Statement of Operations for the period from September 17, 2018 through September 30, 2018

The following supplemental information presents the financial results of Valley Forge included in the Company's condensed consolidated statement of operations for the three and nine months ended September 30, 2018:

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017

______________________________________________________________________________________________________



	Period from
	September 17 to
(In thousands)	September 30, 2018
Net revenues	$	5,840
Net income	$	780

Lattner Entertainment Group Illinois

On June 1, 2018, we completed the acquisition of Lattner Entertainment Group Illinois, LLC ("Lattner"), a distributed gaming operator headquartered in Ottawa, Illinois, pursuant to an Agreement and Plan of Merger (the "Lattner Merger Agreement") dated as of May 1, 2018, by and among Boyd, Boyd TCVI Acquisition, LLC, a wholly owned subsidiary of Boyd ("Boyd TCVI"), Lattner, and Lattner Capital, LLC, solely in its capacity as the representative of the equity holders of Lattner.

Pursuant to the Lattner Merger Agreement, Boyd TCVI merged with and into Lattner (the "Lattner Merger"), with Lattner surviving the Lattner Merger and becoming a wholly owned subsidiary of Boyd. Lattner currently operates nearly 1,000 gaming units in approximately 220 locations across the state of Illinois and is aggregated into our Midwest & South segment (See Note 11, Segment Information). The net purchase price was $100.7 million.

Consideration Transferred

The fair value of the consideration transferred on the date of the Lattner Merger included the purchase price of the net assets transferred. The total gross consideration was $110.5 million.

Status of Purchase Price Allocation

The Company is following the acquisition method of accounting per ASC 805 guidance. For purposes of these condensed consolidated financial statements, we have allocated the purchase price to the assets acquired and the liabilities assumed based on preliminary estimates of fair value as determined by management based on its judgment. The excess of the purchase price over the preliminary estimated fair value of the assets acquired and liabilities assumed has been recorded as goodwill. The Company will recognize the assets acquired and liabilities assumed in the acquisition based on fair value estimates as of the date of the Lattner Merger. The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) is currently in process. This determination requires significant judgment. As such, management has not completed its valuation analysis and calculations in sufficient detail necessary to finalize the determination of the fair value of the assets acquired and liabilities assumed, along with the related allocations of goodwill and intangible assets. The final fair value determinations are expected to be completed by the end of the year. The final fair value determinations may be significantly different than those reflected in the condensed consolidated financial statements at September 30, 2018.

The following table summarizes the preliminary allocation of the purchase price:



(In thousands)	As Recorded
Current assets	$	9,889
Property and equipment	9,063
Intangible and other assets	4,033
Total acquired assets	22,985

Current liabilities	1,062
Total liabilities assumed	1,062
Net identifiable assets acquired	21,923
Goodwill	88,615
Net assets acquired	$	110,538

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017

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The following table summarizes the preliminary values assigned to acquired property and equipment and estimated useful lives:



(In thousands)	Useful Lives	As Recorded
Buildings and improvements	10 - 45 years	$	14
Furniture and equipment	3 - 7 years	9,049
Property and equipment acquired		$	9,063

The Company recognized $0.1 million and $0.6 million of acquisition related costs that were expensed for the three and nine months ended September 30, 2018, respectively. These costs are included in the condensed consolidated statements of operations in the line item entitled "Project development, preopening and writedowns".

Pro Forma Revenue and Net Income

The following supplemental pro forma revenues and net income presents the financial results of the Company as if the acquisitions of Lattner and Valley Forge had occurred on January 1, 2017. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what the actual results for the year ended December 31, 2017 and for the nine months ended September 30, 2018 would have been had the acquisitions been completed on January 1, 2017, nor are they indicative of any future results.



	Nine Months Ended		Year Ended
(In millions)	September 30, 2018		December 31, 2017
Pro forma total revenues	$	1,983	$	2,589
Pro forma net income	89		186

Ameristar Casino Hotel Kansas City; Ameristar Casino Resort Spa St. Charles; Belterra Casino Resort; Belterra Park

On October 15, 2018, the Company completed its previously announced acquisition of Ameristar Casino Kansas City, LLC ("Ameristar Kansas City"), the owner and operator of Ameristar Casino Hotel Kansas City; Ameristar Casino St. Charles, LLC ("Ameristar St. Charles"), the owner and operator of Ameristar Casino Resort Spa St. Charles; Belterra Resort Indiana LLC ("Belterra Resort"), the owner and operator of Belterra Casino Resort located in Florence, Indiana; and PNK (Ohio) LLC ("Belterra Park"), the owner and operator of Belterra Park, located in Cincinnati, Ohio (Ameristar Kansas City, Ameristar St. Charles, Belterra Resort and Belterra Park are collectively referred to as the "Acquired Companies"), for total net cash consideration of $569.9 million, subject to adjustments based on final working capital, cash and indebtedness of the combined properties at closing and transaction expenses.

Boyd Gaming acquired the Acquired Companies pursuant to a Membership Interest Purchase Agreement (as amended, the "Pinnacle Purchase Agreement"), made and entered into on December 17, 2017, by and among Boyd Gaming, Boyd TCIV, LLC, a wholly owned subsidiary of Boyd Gaming ("Boyd TCIV"), Penn National Gaming, Inc. ("Penn"), and, solely following the execution and delivery of a joinder to the Pinnacle Purchase Agreement, Pinnacle Entertainment, Inc. ("Pinnacle Entertainment") and its wholly owned subsidiary, Pinnacle MLS, LLC (collectively with Pinnacle Entertainment, "Pinnacle"), as amended as of January 29, 2018 ("Amendment No. 1") and October 15, 2018 ("Amendment No. 2"). Pursuant to the Pinnacle Purchase Agreement, Boyd Gaming acquired from Pinnacle all of the issued and outstanding membership interests of the Acquired Companies as well as certain other assets (and assumed certain other liabilities) of Pinnacle related to the Acquired Companies (collectively, the "Pinnacle Acquisition"). Each of the Acquired Companies is now a wholly owned subsidiary of Boyd Gaming.

Pursuant to the Pinnacle Purchase Agreement, Boyd TCIV entered into a Master Lease, dated October 15, 2018 (the "Master Lease"), with Gold Merger Sub, LLC ("Gold Merger Sub"), as landlord, and Boyd TCIV, as tenant, pursuant to which the landlord agreed to lease to Boyd TCIV the facilities associated with Ameristar Kansas City, Ameristar St. Charles, Belterra Resort and Ogle Haus, LLC, a wholly owned subsidiary of Belterra Resort ("Ogle Haus"), commencing on October 15, 2018 and ending on April 30, 2026 as the initial term, with options for renewal.

The Pinnacle Acquisition occurred substantially concurrently with the acquisition of Pinnacle Entertainment by Penn pursuant to

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017

______________________________________________________________________________________________________

the Merger Agreement, dated December 17, 2017, by and among Pinnacle Entertainment, Penn and Franchise Merger Sub, Inc., a wholly owned subsidiary of Penn.

Concurrently with the Pinnacle Acquisition, Boyd (Ohio) PropCo, LLC, a wholly owned subsidiary of Boyd Sub ("Boyd PropCo"), acquired the real estate associated with Belterra Park in Cincinnati, Ohio (the "Belterra Park Real Property Sale") utilizing mortgage financing from a subsidiary of Gaming and Leisure Properties, Inc. ("GLPI"), pursuant to a purchase agreement, dated December 17, 2017 ("Belterra Park Purchase Agreement), by and among Penn, Gold Merger Sub, a wholly owned subsidiary of GLPI, Belterra Park and Pinnacle Entertainment, and a Novation and Amendment Agreement, dated October 15, 2018 (the "Novation Agreement"), by and among Penn, Gold Merger Sub, Boyd PropCo, Belterra Park and Pinnacle Entertainment. Pursuant to the Novation Agreement, Gold Merger Sub, the original purchaser under the Belterra Park Purchase Agreement, assigned, transferred and conveyed to Boyd PropCo and Boyd PropCo accepted Gold Merger Sub’s rights, title and interest in the Belterra Park Purchase Agreement.

The initial accounting for this acquisition is not complete as the determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) is currently in process. This determination requires significant judgment. As such, management has not completed its valuation analysis and calculations in sufficient detail necessary to determine the fair value of the assets acquired and liabilities assumed, along with the related allocations of goodwill and intangible assets and required disclosures under ASC 805.

Investment in and Divestiture of Borgata

On August 1, 2016, Boyd Gaming completed the sale of its 50% equity interest in MDDHC, the parent company of Borgata in Atlantic City, New Jersey, to MGM pursuant to the Purchase Agreement entered into on May 31, 2016, as amended on July 19, 2016, by and among the Company, Boyd Atlantic City, Inc., a wholly owned subsidiary of the Company, and MGM (the "Transaction").

Prior to the sale of our equity interest, the Company and MGM each held a 50% interest in MDDHC, which owned all the equity interests in Borgata. Until the closing of the sale, we were the managing member of MDDHC, and we were responsible for the day-to-day operations of Borgata. Following the Transaction, MDDHC became a wholly owned subsidiary of MGM.

In consideration for the Transaction, MGM paid Boyd Gaming $900 million. The initial net cash proceeds were approximately $589 million, net of certain expenses and adjustments on the closing date, including outstanding indebtedness, cash and working capital. These initial proceeds did not include our 50% share of any future property tax settlement benefits related to the time period during which we held a 50% ownership in MDDHC to which Boyd Gaming retained the right to receive upon payment. On February 15, 2017, Borgata entered into a settlement agreement with Atlantic City, the terms of which provided for $72 million to be paid to Borgata to resolve the remaining property tax issues. For the nine months ended September 30, 2017, we recognized $36.2 million, in income for the cash we received for our share of property tax benefits realized by Borgata subsequent to the closing of the sale. These payments, net of tax of $14.8 million for the nine months ended September 30, 2017, are included in discontinued operations in the condensed consolidated financial statements. During the nine months ended September 30, 2018, we recognized $0.3 million in income, net of tax, for the cash we received for our share of miscellaneous recoveries realized by Borgata during that period. This payment is included in discontinued operations in the condensed consolidated financial statements.

NOTE 4. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following:



	September 30,		December 31,
(In thousands)	2018		2017
Land	$	294,189	$	294,533
Buildings and improvements	2,988,853		2,935,539
Furniture and equipment	1,416,271		1,311,704
Riverboats and barges	239,745		238,926
Construction in progress	52,330		59,538
Total property and equipment	4,991,388		4,840,240
Less accumulated depreciation	2,444,383		2,300,454
Property and equipment, net	$	2,547,005	$	2,539,786

Depreciation expense is as follows:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2018		2017		2018		2017
Depreciation expense	$	53,067	$	51,109	$	154,570	$	148,274

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017

______________________________________________________________________________________________________

NOTE 5. INTANGIBLE ASSETS

Intangible assets consist of the following:



	September 30, 2018
	Weighted	Gross					Cumulative
	Average Life	Carrying		Cumulative			Impairment			Intangible
(In thousands)	Remaining	Value		Amortization			Losses			Assets, Net
Amortizing intangibles
Customer relationships	4.5 years	$	9,400	$	(5,188	)	$	—		$	4,212
Favorable lease rates	37.3 years	11,730		(3,246		)	—			8,484
Development agreement	—	21,373		—			—			21,373
Other intangibles	4.8 years	2,169		(354		)	—			1,815
		44,672		(8,788		)	—			35,884

Indefinite lived intangible assets
Trademarks	Indefinite	151,887		—			(4,300		)	147,587
Gaming license rights	Indefinite	874,685		(33,960		)	(179,974		)	660,751
		1,026,572		(33,960		)	(184,274		)	808,338
Balance, September 30, 2018		$	1,071,244	$	(42,748	)	$	(184,274	)	$	844,222



	December 31, 2017
	Weighted	Gross					Cumulative
	Average Life	Carrying		Cumulative			Impairment			Intangible
(In thousands)	Remaining	Value		Amortization			Losses			Assets, Net
Amortizing intangibles
Customer relationships	5.2 years	$	9,400	$	(3,470	)	$	—		$	5,930
Favorable lease rates	38.0 years	11,730		(3,075		)	—			8,655
Development agreement	—	21,373		—			—			21,373
		42,503		(6,545		)	—			35,958

Indefinite lived intangible assets
Trademarks	Indefinite	151,887		—			(4,300		)	147,587
Gaming license rights	Indefinite	873,335		(33,960		)	(179,974		)	659,401
		1,025,222		(33,960		)	(184,274		)	806,988
Balance, December 31, 2017		$	1,067,725	$	(40,505	)	$	(184,274	)	$	842,946

NOTE 6. ACCRUED LIABILITIES

Accrued liabilities consist of the following:



	September 30,		December 31,
(In thousands)	2018		2017
Payroll and related expenses	$	70,601	$	70,724
Interest	49,209		19,858
Gaming liabilities	59,140		55,961
Player loyalty program liabilities	21,649		24,489
Advance deposits	23,917		18,922
Outstanding chip liabilities	4,845		4,928
Dividend payable	6,720		5,632
Other accrued liabilities	77,222		54,632
Total accrued liabilities	$	313,303	$	255,146

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017

______________________________________________________________________________________________________

NOTE 7. LONG-TERM DEBT

Long-term debt, net of current maturities and debt issuance costs, consists of the following:



			September 30, 2018
								Unamortized
	Interest							Origination
	Rates at		Outstanding		Unamortized			Fees and			Long-Term
(In thousands)	Sept. 30, 2018		Principal		Discount			Costs			Debt, Net
Bank credit facility	4.417	%	$	1,401,030	$	(1,357	)	$	(22,566	)	$	1,377,107
6.875% senior notes due 2023	6.875	%	750,000		—			(8,139		)	741,861
6.375% senior notes due 2026	6.375	%	750,000		—			(9,883		)	740,117
6.000% senior notes due 2026	6.000	%	700,000		—			(10,972		)	689,028
Other	5.042	%	970		—			—			970
Total long-term debt			3,602,000		(1,357		)	(51,560		)	3,549,083
Less current maturities			18,007		—			—			18,007
Long-term debt, net			$	3,583,993	$	(1,357	)	$	(51,560	)	$	3,531,076



			December 31, 2017
								Unamortized
	Interest							Origination
	Rates at		Outstanding		Unamortized			Fees and			Long-Term
(In thousands)	Dec. 31, 2017		Principal		Discount			Costs			Debt, Net
Bank credit facility	3.882	%	$	1,621,054	$	(1,556	)	$	(23,795	)	$	1,595,703
6.875% senior notes due 2023	6.875	%	750,000		—			(9,455		)	740,545
6.375% senior notes due 2026	6.375	%

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$28.40	112	$3,190

10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31

8-K	2019-02-21	Earnings, Exhibits
8-K	2018-12-12	Other Events, Exhibits
8-K	2018-10-25	Earnings, Exhibits
8-K	2018-10-15	M&A, Regulation FD, Exhibits, Exhibits
8-K	2018-09-20	M&A, Regulation FD, Exhibits
8-K	2018-08-02	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2018-07-26	Earnings, Exhibits
8-K	2018-06-28	Other Events, Exhibits
8-K	2018-06-28	Other Events, Exhibits
8-K	2018-06-25	Enter Agreement, Off-BS Arrangement, Shareholder Rights, Exhibits
8-K	2018-06-11	Other Events, Exhibits
8-K	2018-06-11	Other Events, Exhibits
8-K	2018-06-08	Other Events, Exhibits
8-K	2018-06-01	Regulation FD, Other Events, Exhibits
8-K	2018-05-01	Enter Agreement, Other Events, Exhibits
8-K	2018-04-26	Earnings, Regulation FD, Exhibits
8-K	2018-04-16	Officers, Shareholder Vote
8-K	2018-02-20	Earnings, Exhibits

LVS	Las Vegas Sands
MLCO	Melco Resorts & Entertainment
HTHT	Huazhu Group
PLNT	Planet Fitness
CHH	Choice Hotels
RRR	Red Rock Resorts
PENN	Penn National Gaming
BEL	Belmond
CVEO	Civeo
FLL	Full House Resorts

EX-31.1	q32018exhibit311-ceo.htm
EX-31.2	q32018exhibit312-cfo.htm
EX-32.1	q32018exhibit321-ceo.htm
EX-32.2	q32018exhibit322-cfo.htm