10-Q 1 bgc20230930_10q.htm FORM 10-Q bgc20230930_10q.htm
0000906553 BOYD GAMING CORP false --12-31 Q3 2023 0.01 0.01 5,000,000 5,000,000 0.01 0.01 200,000,000 200,000,000 98,386,239 102,816,110 0.16 0.16 0.16 0.15 0.15 0.15 4 0 0 16.5 0.7 3 0 Shares repurchased reflect repurchases settled during the three and six months ended June 30, 2023 and 2022. These amounts exclude repurchases, if any, traded but not yet settled on or before June 30, 2023 and 2022, respectively. Revenues for the three and six months ended June 30, 2022 have been recast to reflect the breakout of online revenue and management fee revenue from other revenue and the segment changes made during first quarter 2023. All shares repurchased have been retired and constitute authorized but unissued shares. Costs exclude 1% excise tax on corporate stock buybacks that was enacted under the Inflation Reduction Act of 2022 and became effective January 1, 2023. Amounts in the table may not recalculate exactly due to rounding. 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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, 2023

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", "non-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 30, 2023 was 97,862,123.

 

 

 

 

BOYD GAMING CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2023

TABLE OF CONTENTS

 

 

 

Page

No.

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited)

3

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022

3

 

 

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022

5

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders' Equity for each of the quarters within the nine months ended September 30, 2023 and 2022

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022

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 5. Other Information 36

 

 

 

Item 6.

Exhibits

37

 

 

 

Signature Page

38

 

 

 

 

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)

 

2023

  

2022

 

ASSETS

        

Current assets

        

Cash and cash equivalents

 $269,155  $283,472 

Restricted cash

  2,479   11,593 

Accounts receivable, net

  103,577   109,053 

Inventories

  20,640   22,173 

Prepaid expenses and other current assets

  72,174   49,379 

Income taxes receivable

  1,223   2,558 

Total current assets

  469,248   478,228 

Property and equipment, net

  2,499,725   2,394,236 

Operating lease right-of-use assets

  798,932   830,345 

Other assets, net

  97,257   147,439 

Intangible assets, net

  1,417,230   1,427,135 

Goodwill, net

  1,029,219   1,033,744 

Total assets

 $6,311,611  $6,311,127 

LIABILITIES AND STOCKHOLDERS' EQUITY

        

Current liabilities

        

Accounts payable

 $105,664  $129,946 

Current maturities of long-term debt

  44,275   44,275 

Accrued liabilities

  433,480   411,913 

Total current liabilities

  583,419   586,134 

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

  2,864,850   3,005,134 

Operating lease liabilities, net of current portion

  722,229   758,440 

Deferred income taxes

  308,608   318,609 

Other liabilities

  64,024   52,185 

Commitments and contingencies (Notes 6 and 7)

          

Stockholders' equity

        

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

      

Common stock, $0.01 par value, 200,000,000 shares authorized; 98,386,239 and 102,816,110 shares outstanding

  984   1,028 

Additional paid-in capital

  3,355   305,152 

Retained earnings

  1,765,111   1,285,827 

Accumulated other comprehensive loss

  (969)  (1,382)

Total stockholders' equity

  1,768,481   1,590,625 

Total liabilities and stockholders' equity

 $6,311,611  $6,311,127 

 

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)

 

2023

   

2022

   

2023

   

2022

 

Revenues

                               

Gaming

  $ 641,168     $ 667,975     $ 1,966,205     $ 2,020,854  

Food & beverage

    70,986       67,792       212,936       201,834  

Room

    48,720       46,672       148,546       138,985  

Online

    90,288       52,353       298,153       164,203  

Management fee

    17,153       10,159       54,629       10,159  

Other

    34,849       32,312       103,611       96,421  

Total revenues

    903,164       877,263       2,784,080       2,632,456  

Operating costs and expenses

                               

Gaming

    251,536       251,814       751,330       756,356  

Food & beverage

    59,672       58,502       177,623       169,892  

Room

    19,180       17,783       54,880       51,058  

Online

    79,080       45,827       252,478       140,715  

Other

    11,549       11,370       34,119       33,984  

Selling, general and administrative

    99,944       92,950       299,333       280,659  

Master lease rent expense

    27,236       26,828       81,163       79,788  

Maintenance and utilities

    41,720       40,789       115,337       108,196  

Depreciation and amortization

    64,797       64,956       188,577       194,191  

Corporate expense

    27,872       26,375       88,232       90,251  

Project development, preopening and writedowns

    2,405       9,645       (11,268 )     528  

Impairment of assets

          5,575       4,537       5,575  

Other operating items, net

    301       (12,610 )     959       (12,324 )

Total operating costs and expenses

    685,292       639,804       2,037,300       1,898,869  

Operating income

    217,872       237,459       746,780       733,587  

Other expense (income)

                               

Interest income

    (1,585 )     (2,073 )     (22,445 )     (2,976 )

Interest expense, net of amounts capitalized

    42,352       36,001       128,933       110,125  

Loss on early extinguishments and modifications of debt

                      19,809  

Other, net

    (30 )     170       596       3,667  

Total other expense, net

    40,737       34,098       107,084       130,625  

Income before income taxes

    177,135       203,361       639,696       602,962  

Income tax provision

    (41,902 )     (46,359 )     (112,278 )     (136,269 )

Net income

  $ 135,233     $ 157,002     $ 527,418     $ 466,693  
                                 
                                 

Basic net income per common share

  $ 1.34     $ 1.46     $ 5.16     $ 4.24  

Weighted average basic shares outstanding

    100,804       107,743       102,139       110,002  
                                 
                                 

Diluted net income per common share

  $ 1.34     $ 1.46     $ 5.16     $ 4.24  

Weighted average diluted shares outstanding

    100,850       107,840       102,187       110,135  

 

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)

 

2023

   

2022

   

2023

   

2022

 

Net income

  $ 135,233     $ 157,002     $ 527,418     $ 466,693  

Other comprehensive income (loss), net of tax:

                               

Fair value adjustments to available-for-sale securities

    (119 )     (151 )     467       (954 )

Foreign currency translation adjustments

    (254 )           (54 )      

Comprehensive income

  $ 134,860     $ 156,851     $ 527,831     $ 465,739  

 

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)

 

                  

Accumulated Other

     
  

Common Stock

  

Additional

  

Retained

  

Comprehensive

     

(In thousands, except share data)

 

Shares

  

Amount

  

Paid-in Capital

  

Earnings

  

Loss

  

Total

 

Balances, January 1, 2023

  102,816,110  $1,028  $305,152  $1,285,827  $(1,382) $1,590,625 

Net income

           199,731      199,731 

Comprehensive income, net of tax

              474   474 

Foreign currency translation adjustments

              4   4 

Stock options exercised

  32,000      315         315 

Release of restricted stock units, net of tax

  45,942   1   (1,926)        (1,925)

Release of performance stock units, net of tax

  318,878   3   (12,777)        (12,774)

Shares repurchased and retired

  (1,726,308)  (17)  (106,994)        (107,011)

Dividends declared ($0.16 per share)

           (16,289)     (16,289)

Share-based compensation costs

        7,819         7,819 

Balances, March 31, 2023

  101,486,622   1,015   191,589   1,469,269   (904)  1,660,969 

Net income

           192,454      192,454 

Comprehensive income, net of tax

              112   112 

Foreign currency translation adjustments

              196   196 

Release of restricted stock units, net of tax

  17,871      (63)        (63)

Shares repurchased and retired

  (1,492,451)  (15)  (101,001)        (101,016)

Dividends declared ($0.16 per share)

           (16,041)     (16,041)

Share-based compensation costs

        12,198         12,198 

Balances, June 30, 2023

  100,012,042   1,000   102,723   1,645,682   (596)  1,748,809 

Net income

           135,233      135,233 

Comprehensive loss, net of tax

              (119)  (119)

Foreign currency translation adjustments

              (254)  (254)

Release of restricted stock units, net of tax

  1,974      (56)        (56)

Shares repurchased and retired

  (1,627,777)  (16)  (107,345)        (107,361)

Dividends declared ($0.16 per share)

           (15,804)     (15,804)

Share-based compensation costs

        8,033         8,033 

Balances, September 30, 2023

  98,386,239  $984  $3,355  $1,765,111  $(969) $1,768,481 

 

 

                  

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 

 

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)

 

2023

   

2022

 

Cash Flows from Operating Activities

               

Net income

  $ 527,418     $ 466,693  

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

               

Depreciation and amortization

    188,577       194,191  

Amortization of debt financing costs and discounts on debt

    5,854       6,307  

Non-cash operating lease expense

    59,302       46,892  

Non-cash expected credit loss (income) on note receivable

    (34,371 )      

Share-based compensation expense

    28,050       28,486  

Deferred income taxes

    (9,995 )     26,777  

Non-cash impairment of assets

    4,537       5,575  

Gain on sale of assets

          (12,800 )

Loss on early extinguishments and modifications of debt

          19,809  

Other operating activities

    (516 )     8,422  

Changes in operating assets and liabilities:

               

Accounts receivable, net

    5,473       2,965  

Inventories

    1,533       (2,233 )

Prepaid expenses and other current assets

    (22,086 )     (19,333 )

Income taxes (receivable) payable, net

    1,335       3,930  

Other assets, net

    3,262       1,896  

Accounts payable and accrued liabilities

    (2,876 )     (3,932 )

Operating lease liabilities

    (59,302 )     (46,892 )

Other liabilities

    1,057       1,281  

Net cash provided by operating activities

    697,252       728,034  

Cash Flows from Investing Activities

               

Capital expenditures

    (279,023 )     (173,032 )

Payments received on note receivable

    82,459        

Insurance proceeds received from hurricane losses

          530  

Proceeds received from disposition of assets

          21,350  

Other investing activities

    (3,022 )      

Net cash used in investing activities

    (199,586 )     (151,152 )

Cash Flows from Financing Activities

               

Borrowings under credit facilities

    1,086,700       1,554,400  

Payments under credit facilities

    (1,232,700 )     (1,412,897 )

Retirements of senior notes

          (300,000 )

Premium fees

          (12,939 )

Debt financing costs

          (15,315 )

Share-based compensation activities

    (14,503 )     (9,244 )

Shares repurchased and retired

    (312,656 )     (434,769 )

Dividends paid

    (47,805 )     (32,506 )

Other financing activities

    (138 )     (1,211 )

Net cash used in financing activities

    (521,102 )     (664,481 )

Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash

    5        

Change in cash, cash equivalents and restricted cash

    (23,431 )     (87,599 )

Cash, cash equivalents and restricted cash, beginning of period

    295,065       357,128  

Cash, cash equivalents and restricted cash, end of period

  $ 271,634     $ 269,529  

Supplemental Disclosure of Cash Flow Information

               

Cash paid for interest, net of amounts capitalized

  $ 124,132     $ 102,553  

Cash received for interest

    10,804        

Cash paid for income taxes

    120,449       105,158  

Supplemental Schedule of Non-cash Investing and Financing Activities

               

Payables incurred for capital expenditures

  $ 8,091     $ 3,786  

Dividends declared not yet paid

    15,804       15,656  

Expected credit loss (income) on note receivable

    (34,371 )      

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.

 

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022

______________________________________________________________________________________________________

 

 

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, Nevada, we have gaming operations in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Ohio and Pennsylvania. In addition, we own and operate Boyd Interactive, a business-to-business ("B2B") and business-to-consumer ("B2C") online casino gaming business. We also manage the Sky River Casino located in California under a management agreement with Wilton Rancheria.

 

 

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, 2022, as filed with the U.S. Securities and Exchange Commission ("SEC") on February 24, 2023.

 

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.

 

Recasted Condensed Consolidated Statements of Operations (Unaudited)

In the first quarter of 2023, the Company separated out online revenue and management fee revenue from other revenue. This change was a result of increased contributions to the Company in these two areas and related update to our reportable segments discussed in Note 10, Segment Information. Revenue for the three and nine months ended September 30, 2022 has been recast to conform to this presentation. The disaggregation of online revenue and management fee revenue from other revenue did not impact the Company's total revenues, net income or earnings per share as previously reported for the three and nine months ended September 30, 2022.

 

Additionally, during the first quarter of 2023, the Company evaluated its reportable segments and changed them to the following four reportable segments: (i) Las Vegas Locals; (ii) Downtown Las Vegas; (iii) Midwest & South; and (iv) Online. To reconcile to the condensed consolidated information, the Company has aggregated nonreportable operating segments into a Managed & Other category. These changes reflect the growth of the Company beyond its traditional wholly owned gaming entertainment properties and the increasing importance to the Company of other growth sources. Segment information for the three and nine months ended September 30, 2022 has been recast to conform to this presentation. See Note 10, Segment Information, for additional information.

 

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: (i) amounts restricted by regulation for gaming and racing purposes; (ii) amounts restricted by regulation for the value in players' online casino gaming accounts; and (iii) advance payments received for 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)

 

2023

  

2022

  

2022

  

2021

 

Cash and cash equivalents

 $269,155  $283,472  $252,344  $344,557 

Restricted cash

  2,479   11,593   17,185   12,571 

Total cash, cash equivalents and restricted cash

 $271,634  $295,065  $269,529  $357,128 

 

 

8

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of  September 30, 2023 and  December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022

______________________________________________________________________________________________________

 

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. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. 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. The incremental borrowing rate is determined based on the weighted average incremental borrowing rate at the lease commencement or modification date that is commensurate with the rate of interest in a similar economic environment that we would have to pay to borrow an amount equal to our future lease payments on a collateralized basis over a similar term, including reasonably certain options to extend or terminate. The determination of the incremental borrowing rate could materially impact our lease liabilities. Operating right-of-use ("ROU") assets and finance lease assets are generally 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. Lease and non-lease components are accounted for separately.

 

Revenue Recognition

The Company’s revenue contracts with customers consist of gaming wagers (including both those made at our gaming entertainment properties and online B2C wagers), hotel room sales, food & beverage offerings and other amenity transactions. See Collaborative Arrangements below for further discussion of revenues earned under our online collaborative arrangements. 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.

 

We have established a player loyalty program to encourage repeat business from frequent and active slot machine customers and other patrons. Members earn points based on gaming activity and such points can be redeemed for complimentary slot play, food & beverage, hotel rooms and other free goods and services.

 

Gaming wager contracts involve two performance obligations for those customers earning points under the Company’s player loyalty program and a single performance obligation for customers who do not participate in the program. 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 player loyalty 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 player loyalty 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 5, Accrued Liabilities, for the balance outstanding related to the player loyalty program.

 

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 5, 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 5, 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 program such as cash and the estimated retail value of goods and services (such as complimentary rooms and food & beverage). The estimated retail values related to goods and services provided to customers without charge or upon redemption of points under our player loyalty program 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)

 

2023

  

2022

  

2023

  

2022

 

Food & beverage

 $29,978  $29,062  $87,573  $85,970 

Room

  15,873   16,879   46,367   48,668 

Other

  2,328   2,371   6,265   6,718 

 

9

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of  September 30, 2023 and  December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022

______________________________________________________________________________________________________

 

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 in the condensed consolidated statements of operations as a gaming expense for gaming entertainment properties and online expense for Boyd Interactive operations. Gaming taxes recorded as gaming expense totaled approximately $128.1 million and $130.9 million for the three months ended September 30, 2023 and 2022, respectively, and were $387.8 million and $397.8 million for the nine months ended September 30, 2023 and 2022, respectively. Gaming taxes recorded as online expense, excluding taxes paid under collaborative arrangements (see Collaborative Arrangements below for further discussion), totaled $2.1 million and $3.9 million for the three and nine months ended September 30, 2023, respectively. There was not any gaming tax recorded as online expense for the three and nine months ended September 30, 2022.

 

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, as facts and circumstances change, and at a minimum quarterly, 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.

 

In performing our second quarter valuation allowance analysis, we determined that the positive evidence in favor of releasing a portion of our valuation allowance for certain state jurisdictions, outweighed the negative evidence. We utilize a rolling twelve quarters of pre-tax income adjusted for permanent book to tax differences as a measure of cumulative results in recent years. We transitioned from a cumulative loss position to a cumulative income position over the rolling twelve quarters ended June 30, 2023. Other evidence considered in the analysis included, but was not limited to, a trend reflective of improvement in recent earnings, forecasts of profitability and taxable income and the reversal of existing temporary differences. The change in these conditions during the three months ended June 30, 2023 provided positive evidence that supported the release of the valuation allowance against a significant portion of our state deferred tax assets. As such, we concluded that it was more likely than not that the benefit from our deferred tax assets would be realized. As a result, during the second quarter of 2023, we released $35.9 million of valuation allowance on our state income tax net operating loss carryforwards and other deferred tax assets. During the three months ended September 30, 2023, we determined that there were not any adjustments necessary to our valuation allowance.

 

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. If applicable, accrued interest and penalties would be included in other long-term tax liabilities on the condensed consolidated balance sheets.

 

Collaborative Arrangements

We hold a five percent equity ownership in and have a strategic partnership with FanDuel Group ("FanDuel"), the nation's leading sports-betting operator, to pursue sports-betting opportunities across the country, both at our properties and online. Subject to state law and regulatory approvals, we have established a presence in the sports wagering industry, both at our gaming entertainment properties and online, by leveraging FanDuel's technology and related services. We offer online sports wagering under the FanDuel brand or under market access agreements with other companies in Illinois, Indiana, Iowa, Kansas, Louisiana, Ohio and Pennsylvania. We also operate sportsbooks under the FanDuel brand at one of our Downtown Las Vegas gaming entertainment properties, our gaming entertainment properties in Mississippi and all of the gaming entertainment properties in the states noted above where we offer online sports wagering. In addition, we offer online casino gaming in Pennsylvania through our partnership with FanDuel. Under our online collaborative arrangements, we receive a revenue share from the third-party operator based on actual wagering wins and losses. The activities under these collaborative arrangements related to online wagering, are recorded in online revenue and online expense on the condensed consolidated statements of operations. The activities under these collaborative arrangements related to sportsbooks at our gaming entertainment properties, are recorded in gaming revenue and gaming expense.

 

Under certain of our collaborative arrangements, we are the primary obligor and are responsible for paying gaming taxes and other license payments owed as the gaming licensee for the related online gaming activities. We are reimbursed for these taxes and other payments by the third-party operators. We report these gaming taxes and other expenses paid as online expense and the reimbursements we receive as online revenues. These taxes and other payments totaled approximately $71.4 million and $45.2 million for the three months ended September 30, 2023 and 2022, respectively, and $230.6 million and $135.1 million for the nine months ended September 30, 2023 and 2022, respectively.

 

 

10

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of  September 30, 2023 and  December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022

______________________________________________________________________________________________________

 

Currency Translation

The Company translates the financial statements of its foreign subsidiary that are not denominated in U.S. dollars. Balance sheet accounts are translated at the exchange rate in effect at each balance sheet date. Income statement accounts are translated at the average rate of exchange prevailing during the period. If a material income statement event occurs, the transaction would be translated at the exchange rate in effect on the date of occurrence. Translation adjustments resulting from this process are recorded in other comprehensive income (loss). Gains or losses from foreign currency transaction remeasurements are recorded as other non-operating income (expense).

 

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 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 condensed consolidated financial statements.

 

NOTE 2.    ACQUISITION

Pala Interactive

On November 1, 2022, Boyd Interactive Gaming Inc. ("Boyd Interactive Inc."), a wholly owned subsidiary of the Company, completed its previously announced acquisition of Pala Interactive, LLC ("Pala Interactive") and its subsidiaries, including its Canadian subsidiary Pala Interactive Canada Inc. ("Pala Canada"), pursuant to a Purchase Agreement and Plan of Merger (the "Merger Agreement"), entered into on March 28, 2022, by and among Boyd Interactive Inc., Boyd Phoenix Acquisition, LLC ("Merger Sub"), a wholly owned subsidiary of Boyd Interactive Inc., Boyd Phoenix Canada Inc., a wholly owned subsidiary of Boyd Gaming, Pala Interactive, Pala Canada Holdings, LLC and Shareholder Representative Services LLC as representative of the holders of the membership interests of Pala Interactive. Pursuant to the Merger Agreement, Merger Sub merged with and into Pala Interactive (the "Merger"), with Pala Interactive surviving the Merger. Pala Interactive is now a wholly owned subsidiary of Boyd Interactive Inc.

 

Pala Interactive is an innovative online gaming technology company that provides proprietary solutions on both a B2B and B2C basis in regulated markets across the United States and Canada. We view this acquisition as an important step forward in our online growth strategy as it provides us with the talent and technology to begin building our regional online casino business. While online casinos are now limited to just a few states, over the long term, we believe there is growth and additional profit potential for our Company from online gaming. By owning and operating an online gaming business, we are able to leverage our nationwide portfolio and extensive customer database to grow in the online casino space. The acquired company is aggregated into our Online segment (See Note 10, Segment Information).

 

Consideration Transferred

The fair value of the consideration transferred on the date of the Merger included the purchase price of the net assets transferred. The total gross cash consideration was $175.2 million (with $7.3 million of cash acquired, for total cash paid for acquisitions, net of cash received of $167.9 million).

 

Status of Purchase Price Allocation

The Company followed the acquisition method of accounting pursuant to FASB Accounting Standards Codification Topic 805 ("ASC 805"). For purposes of these condensed consolidated financial statements, we have allocated the purchase price to the assets acquired and the liabilities assumed based on their fair values as determined by management with the assistance from third-party specialists. The excess of the purchase price over the fair value of the assets acquired and liabilities assumed has been recorded as goodwill. The Company has recognized the assets acquired and liabilities assumed in the acquisition based on fair value estimates as of the date of the Merger. In the second quarter of 2023, the Company finalized its determination of the fair value of the intangible assets acquired, along with the related allocation of goodwill. There was no change in the fair value of the intangible assets acquired or the related allocation of goodwill from the preliminary values included in the consolidated financial statements at December 31, 2022, to the final fair value determination included in the condensed consolidated financial statements at  September 30, 2023

 

The following table summarizes the purchase price allocation as of the acquisition date of November 1, 2022, December 31, 2022 and   September 30, 2023:

 

(In thousands)

 

As Recorded

 

Current assets

 $10,456 

Property and equipment

  445 

Other assets

  740 

Intangible assets

  77,000 

Total acquired assets

  88,641 
     

Current liabilities

  4,462 

Other liabilities

  3,007 

Total liabilities assumed

  7,469 

Net identifiable assets acquired

  81,172 

Goodwill

  94,037 

Net assets acquired

 $175,209 

 

11

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of  September 30, 2023 and  December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022

______________________________________________________________________________________________________

 

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

 

  

Useful Lives

     

(In thousands)

 

(in years)

  

As Recorded

 

Buildings and improvements

 5  $22 

Furniture and equipment

 2 - 5   423 

Property and equipment acquired

     $445 

 

The following table summarizes the values assigned to acquired intangible assets and weighted average useful lives of definite-lived intangible assets:

 

  

Useful Lives

     

(In thousands)

 

(in years)

  

As Recorded

 

Developed technology

 10  $36,000 

B2B relationships

 7 - 10   28,000 

B2C relationships

 12   13,000 

Total intangible assets acquired

     $77,000 

 

The goodwill recognized is the excess of the purchase price over the values assigned to the assets acquired and liabilities assumed. All of the goodwill was assigned to reporting units included in the Online reportable segment. All of the goodwill, except $7.8 million allocated to Pala Canada, is expected to be deductible for income tax purposes.

 

The Company expensed acquisition related costs of less than $0.1 million and $0.3 million for the three months ended September 30, 2023 and 2022, respectively, and $0.1 million and $2.6 million for the nine months ended September 30, 2023 and 2022, respectively. These costs are included in project development, preopening and writedowns on the condensed consolidated statements of operations.

 

The revenue and earnings from the Merger are not material for the period subsequent to acquisition through December 31, 2022. The pro-forma revenue and earnings from the Merger assuming all impacts as if it had been completed on January 1, 2022 are not material through December 31, 2022.

 

NOTE 3.    PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following:

 

  

September 30,

  

December 31,

 

(In thousands)

 

2023

  

2022

 

Land

 $333,899  $334,368 

Buildings and improvements

  3,213,915   3,172,676 

Furniture and equipment

  1,823,169   1,707,212 

Riverboats and barges

  241,980   241,898 

Construction in progress

  174,964   87,612 

Total property and equipment

  5,787,927   5,543,766 

Less accumulated depreciation

  (3,288,202)  (3,149,530)

Property and equipment, net

 $2,499,725  $2,394,236 

 

Depreciation expense is as follows:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands)

 

2023

  

2022

  

2023

  

2022

 

Depreciation expense

 $60,586  $62,771  $176,051  $188,399 

   

12

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of  September 30, 2023 and  December 31, 2022 and for the three and nine months ended September 30, 2023 and 2022

______________________________________________________________________________________________________

 

 

NOTE 4.    GOODWILL AND INTANGIBLE ASSETS, NET

Intangible assets, net consist of the following:

 

  

September 30, 2023

 
  

Weighted

                     
  

Useful Life

  

Gross

      

Accumulated

  

Effect of Foreign

     
  

Remaining

  

Carrying

  

Accumulated

  

Impairment

  

Currency

  

Intangible

 

(In thousands)

 

(in years)

  

Value

  

Amortization

  

Losses

  

Exchange

  

Assets, Net

 

Amortizing intangibles

                        

Customer relationships

  0.4  $35,050  $(34,776) $  $  $274 

Host agreements

  9.7   58,000   (20,622)        37,378 

Development agreement

  5.9   21,373   (3,434)        17,939 

Developed technology

  8.8   39,068   (3,464)     35   35,639 

B2B relationships

  6.3   28,000   (3,588)     9   24,421 

B2C relationships

  11.1   13,000   (993)        12,007 
       194,491   (66,877)     44   127,658