UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________
FORM
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(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
___________________________________________________
BOYD GAMING CORPORATION
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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.
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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
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
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
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 | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Income taxes receivable | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other assets, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Current maturities of long-term debt | ||||||||
| Accrued liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net of current maturities and debt issuance costs | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Deferred income taxes | ||||||||
| Other liabilities | ||||||||
| Commitments and contingencies (Notes 6 and 7) | ||||||||
| Stockholders' equity | ||||||||
| Preferred stock, $ par value, shares authorized | ||||||||
| Common stock, $ par value, shares authorized; and shares outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
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 |
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| September 30, |
September 30, |
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| (In thousands, except per share data) |
2023 |
2022 |
2023 |
2022 |
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| Revenues |
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| Gaming |
$ | $ | $ | $ | ||||||||||||
| Food & beverage |
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| Room |
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| Online |
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| Management fee |
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| Other |
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| Total revenues |
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| Operating costs and expenses |
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| Gaming |
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| Food & beverage |
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| Room |
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| Online |
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| Other |
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| Selling, general and administrative |
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| Master lease rent expense |
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| Maintenance and utilities |
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| Depreciation and amortization |
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| Corporate expense |
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| Project development, preopening and writedowns |
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| Impairment of assets |
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| Other operating items, net |
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| Total operating costs and expenses |
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| Operating income |
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| Other expense (income) |
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| Interest income |
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| Interest expense, net of amounts capitalized |
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| Loss on early extinguishments and modifications of debt |
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| Other, net |
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| Total other expense, net |
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| Income before income taxes |
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| Income tax provision |
( |
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) | ( |
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| Net income |
$ | $ | $ | $ | ||||||||||||
| Basic net income per common share |
$ | $ | $ | $ | ||||||||||||
| Weighted average basic shares outstanding |
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| Diluted net income per common share |
$ | $ | $ | $ | ||||||||||||
| Weighted average diluted shares outstanding |
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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 |
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| September 30, |
September 30, |
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| (In thousands) |
2023 |
2022 |
2023 |
2022 |
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| Net income |
$ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss), net of tax: |
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| Fair value adjustments to available-for-sale securities |
( |
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| Foreign currency translation adjustments |
( |
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| Comprehensive income |
$ | $ | $ | $ | ||||||||||||
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 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Comprehensive income, net of tax | — | |||||||||||||||||||||||
| Foreign currency translation adjustments | — | |||||||||||||||||||||||
| Stock options exercised | ||||||||||||||||||||||||
| Release of restricted stock units, net of tax | ( | ) | ( | ) | ||||||||||||||||||||
| Release of performance stock units, net of tax | ( | ) | ( | ) | ||||||||||||||||||||
| Shares repurchased and retired | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Dividends declared ($ per share) | — | ( | ) | ( | ) | |||||||||||||||||||
| Share-based compensation costs | — | |||||||||||||||||||||||
| Balances, March 31, 2023 | ( | ) | ||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Comprehensive income, net of tax | — | |||||||||||||||||||||||
| Foreign currency translation adjustments | — | |||||||||||||||||||||||
| Release of restricted stock units, net of tax | ( | ) | ( | ) | ||||||||||||||||||||
| Shares repurchased and retired | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Dividends declared ($ per share) | — | ( | ) | ( | ) | |||||||||||||||||||
| Share-based compensation costs | — | |||||||||||||||||||||||
| Balances, June 30, 2023 | ( | ) | ||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Comprehensive loss, net of tax | — | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation adjustments | — | ( | ) | ( | ) | |||||||||||||||||||
| Release of restricted stock units, net of tax | ( | ) | ( | ) | ||||||||||||||||||||
| Shares repurchased and retired | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Dividends declared ($ per share) | — | ( | ) | ( | ) | |||||||||||||||||||
| Share-based compensation costs | — | |||||||||||||||||||||||
| Balances, September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Accumulated Other | ||||||||||||||||||||||||
| Common Stock | Additional | Retained | Comprehensive | |||||||||||||||||||||
| (In thousands, except share data) | Shares | Amount | Paid-in Capital | Earnings | Loss | Total | ||||||||||||||||||
| Balances, January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Comprehensive loss, net of tax | — | ( | ) | ( | ) | |||||||||||||||||||
| Release of restricted stock units, net of tax | ( | ) | ( | ) | ||||||||||||||||||||
| Release of performance stock units, net of tax | ( | ) | ( | ) | ||||||||||||||||||||
| Shares repurchased and retired | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Dividends declared ($ per share) | — | ( | ) | ( | ) | |||||||||||||||||||
| Share-based compensation costs | — | |||||||||||||||||||||||
| Balances, March 31, 2022 | ( | ) | ||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Comprehensive loss, net of tax | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock options exercised | ||||||||||||||||||||||||
| Release of restricted stock units, net of tax | ( | ) | ( | ) | ||||||||||||||||||||
| Release of performance stock units, net of tax | ( | ) | ( | ) | ||||||||||||||||||||
| Shares repurchased and retired | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Dividends declared ($ per share) | — | ( | ) | ( | ) | |||||||||||||||||||
| Share-based compensation costs | — | |||||||||||||||||||||||
| Balances, June 30, 2022 | ( | ) | ||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Comprehensive loss, net of tax | — | ( | ) | ( | ) | |||||||||||||||||||
| Release of restricted stock units, net of tax | ( | ) | ( | ) | ||||||||||||||||||||
| Shares repurchased and retired | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Dividends declared ($ per share) | — | ( | ) | ( | ) | |||||||||||||||||||
| Share-based compensation costs | — | |||||||||||||||||||||||
| Balances, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
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 |
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| September 30, |
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| (In thousands) |
2023 |
2022 |
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| Cash Flows from Operating Activities |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
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| Depreciation and amortization |
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| Amortization of debt financing costs and discounts on debt |
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| Non-cash operating lease expense |
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| Non-cash expected credit loss (income) on note receivable |
( |
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| Share-based compensation expense |
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| Deferred income taxes |
( |
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| Non-cash impairment of assets |
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| Gain on sale of assets |
( |
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| Loss on early extinguishments and modifications of debt |
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| Other operating activities |
( |
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| Changes in operating assets and liabilities: |
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| Accounts receivable, net |
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| Inventories |
( |
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| Prepaid expenses and other current assets |
( |
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| Income taxes (receivable) payable, net |
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| Other assets, net |
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| Accounts payable and accrued liabilities |
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| Operating lease liabilities |
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| Other liabilities |
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| Net cash provided by operating activities |
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| Cash Flows from Investing Activities |
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| Capital expenditures |
( |
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| Payments received on note receivable |
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| Insurance proceeds received from hurricane losses |
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| Proceeds received from disposition of assets |
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| Other investing activities |
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| Net cash used in investing activities |
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| Cash Flows from Financing Activities |
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| Borrowings under credit facilities |
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| Payments under credit facilities |
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| Retirements of senior notes |
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| Premium fees |
( |
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| Debt financing costs |
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| Share-based compensation activities |
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| Shares repurchased and retired |
( |
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| Dividends paid |
( |
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| Other financing activities |
( |
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| Net cash used in financing activities |
( |
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| Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash |
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| Change in cash, cash equivalents and restricted cash |
( |
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| Cash, cash equivalents and restricted cash, beginning of period |
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| Cash, cash equivalents and restricted cash, end of period |
$ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information |
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| Cash paid for interest, net of amounts capitalized |
$ | $ | ||||||
| Cash received for interest |
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| Cash paid for income taxes |
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| Supplemental Schedule of Non-cash Investing and Financing Activities |
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| Payables incurred for capital expenditures |
$ | $ | ||||||
| Dividends declared not yet paid |
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| Expected credit loss (income) on note receivable |
( |
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| Operating lease right-of-use asset and liability remeasurements |
( |
) | ||||||
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
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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
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 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 | $ | $ | $ | $ | ||||||||||||
| Restricted cash | ||||||||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | $ | $ | ||||||||||||
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 | $ | $ | $ | $ | ||||||||||||
| Room | ||||||||||||||||
| Other | ||||||||||||||||
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 $
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 $
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 $
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
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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 $
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 | $ | |||
| Property and equipment | ||||
| Other assets | ||||
| Intangible assets | ||||
| Total acquired assets | ||||
| Current liabilities | ||||
| Other liabilities | ||||
| Total liabilities assumed | ||||
| Net identifiable assets acquired | ||||
| Goodwill | ||||
| Net assets acquired | $ | |||
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
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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 | $ | |||||||
| Furniture and equipment | ||||||||
| Property and equipment acquired | $ | |||||||
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 | $ | |||||||
| B2B relationships | ||||||||
| B2C relationships | ||||||||
| Total intangible assets acquired | $ | |||||||
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 $
The Company expensed acquisition related costs of less than $
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 | $ | $ | ||||||
| Buildings and improvements | ||||||||
| Furniture and equipment | ||||||||
| Riverboats and barges | ||||||||
| Construction in progress | ||||||||
| Total property and equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense is as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (In thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Depreciation expense | $ | $ | $ | $ | ||||||||||||
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
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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 | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||
| Host agreements | ( | ) | ||||||||||||||||||||||
| Development agreement | ( | ) | ||||||||||||||||||||||
| Developed technology | ( | ) | ||||||||||||||||||||||
| B2B relationships | ( | ) | ||||||||||||||||||||||
| B2C relationships | ( | ) | ||||||||||||||||||||||
| ( | ) | |||||||||||||||||||||||