Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________
FORM 10-Q
____________________________________________________
(Mark One)
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2018
OR
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-12882
___________________________________________________
BOYD GAMING CORPORATION
(Exact name of registrant as specified in its charter)
____________________________________________________
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Nevada | | 88-0242733 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
3883 Howard Hughes Parkway, Ninth Floor, Las Vegas, NV 89169
(Address of principal executive offices) (Zip Code)
(702) 792-7200
(Registrant's telephone number, including area code)
____________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | x | | Accelerated filer | | o |
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Non-accelerated filer | | o (Do not check if a smaller reporting company) | | Smaller reporting company | | o |
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| | | | Emerging growth company | | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
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| | | | |
| Class | | Outstanding as of August 2, 2018 | |
| Common stock, $0.01 par value | | 112,273,503 | |
BOYD GAMING CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 2018
TABLE OF CONTENTS
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| Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017 | |
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| Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017 | |
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| Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and 2017 | |
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| Condensed Consolidated Statements of Changes in Stockholders' Equity for the six months ended June 30, 2018 and 2017 | |
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| Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017 | |
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PART I. Financial Information
Item 1. Financial Statements (Unaudited)
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
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| | | | | | | |
| June 30, | | December 31, |
(In thousands, except share data) | 2018 | | 2017 |
ASSETS | | | |
Current assets | | | |
Cash and cash equivalents | $ | 632,808 |
| | $ | 203,104 |
|
Restricted cash | 26,112 |
| | 24,175 |
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Accounts receivable, net | 35,854 |
| | 40,322 |
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Inventories | 16,937 |
| | 18,004 |
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Prepaid expenses and other current assets | 34,665 |
| | 37,873 |
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Income taxes receivable | 5,204 |
| | 5,185 |
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Total current assets | 751,580 |
| | 328,663 |
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Property and equipment, net | 2,507,383 |
| | 2,539,786 |
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Other assets, net | 91,745 |
| | 81,128 |
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Intangible assets, net | 843,757 |
| | 842,946 |
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Goodwill, net | 976,018 |
| | 888,224 |
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Other long-term tax assets | 5,183 |
| | 5,183 |
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Total assets | $ | 5,175,666 |
| | $ | 4,685,930 |
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LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Current liabilities | | | |
Accounts payable | $ | 88,937 |
| | $ | 106,323 |
|
Current maturities of long-term debt | 23,981 |
| | 23,981 |
|
Accrued liabilities | 256,821 |
| | 255,146 |
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Income tax payable | — |
| | 21 |
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Total current liabilities | 369,739 |
| | 385,471 |
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Long-term debt, net of current maturities and debt issuance costs | 3,487,613 |
| | 3,051,899 |
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Deferred income taxes | 105,950 |
| | 86,657 |
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Other long-term tax liabilities | 3,541 |
| | 3,447 |
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Other liabilities | 63,663 |
| | 61,229 |
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Commitments and contingencies (Notes 3, 8 and 9) |
| |
|
Stockholders' equity | | | |
Preferred stock, $0.01 par value, 5,000,000 shares authorized | — |
| | — |
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Common stock, $0.01 par value, 200,000,000 shares authorized; 112,370,340 and 112,634,418 shares outstanding | 1,124 |
| | 1,126 |
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Additional paid-in capital | 913,096 |
| | 931,858 |
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Retained earnings | 232,080 |
| | 164,425 |
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Accumulated other comprehensive loss | (1,140 | ) | | (182 | ) |
Total stockholders' equity | 1,145,160 |
| | 1,097,227 |
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Total liabilities and stockholders' equity | $ | 5,175,666 |
| | $ | 4,685,930 |
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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 OPERATIONS (Unaudited)
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
(In thousands, except per share data) | 2018 | | 2017 | | 2018 | | 2017 |
Revenues | | | | | | | |
Gaming | $ | 447,788 |
| | $ | 437,125 |
| | $ | 888,251 |
| | $ | 881,070 |
|
Food & beverage | 87,601 |
| | 87,644 |
| | 173,000 |
| | 174,249 |
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Room | 49,434 |
| | 47,834 |
| | 97,346 |
| | 94,684 |
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Other | 31,970 |
| | 31,521 |
| | 64,314 |
| | 64,186 |
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Total revenues | 616,793 |
| | 604,124 |
| | 1,222,911 |
| | 1,214,189 |
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Operating costs and expenses | | | | | | | |
Gaming | 193,991 |
| | 189,620 |
| | 383,026 |
| | 381,553 |
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Food & beverage | 81,619 |
| | 84,427 |
| | 164,309 |
| | 168,775 |
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Room | 21,654 |
| | 21,442 |
| | 42,587 |
| | 42,749 |
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Other | 21,645 |
| | 21,119 |
| | 42,450 |
| | 42,534 |
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Selling, general and administrative | 88,041 |
| | 93,037 |
| | 175,624 |
| | 184,650 |
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Maintenance and utilities | 28,673 |
| | 25,864 |
| | 56,599 |
| | 52,263 |
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Depreciation and amortization | 53,923 |
| | 52,563 |
| | 105,199 |
| | 106,527 |
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Corporate expense | 24,063 |
| | 23,251 |
| | 49,920 |
| | 44,049 |
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Project development, preopening and writedowns | 5,801 |
| | 2,784 |
| | 9,241 |
| | 5,756 |
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Impairments of assets | 993 |
| | — |
| | 993 |
| | — |
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Other operating items, net | 132 |
| | 463 |
| | 1,931 |
| | 949 |
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Total operating costs and expenses | 520,535 |
| | 514,570 |
| | 1,031,879 |
| | 1,029,805 |
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Operating income | 96,258 |
| | 89,554 |
| | 191,032 |
| | 184,384 |
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Other expense (income) | | | | | | | |
Interest income | (522 | ) | | (455 | ) | | (979 | ) | | (915 | ) |
Interest expense, net of amounts capitalized | 44,959 |
| | 42,728 |
| | 89,218 |
| | 86,402 |
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Loss on early extinguishments and modifications of debt | — |
| | 378 |
| | 61 |
| | 534 |
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Other, net | (24 | ) | | 559 |
| | (404 | ) | | 670 |
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Total other expense, net | 44,413 |
| | 43,210 |
| | 87,896 |
| | 86,691 |
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Income from continuing operations before income taxes | 51,845 |
| | 46,344 |
| | 103,136 |
| | 97,693 |
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Income tax provision | (13,247 | ) | | (18,652 | ) | | (23,139 | ) | | (34,925 | ) |
Income from continuing operations, net of tax | 38,598 |
| | 27,692 |
| | 79,997 |
| | 62,768 |
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Income from discontinued operations, net of tax | 347 |
| | 21,017 |
| | 347 |
| | 21,392 |
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Net income | $ | 38,945 |
| | $ | 48,709 |
| | $ | 80,344 |
| | $ | 84,160 |
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Basic net income per common share | | | | | | | |
Continuing operations | $ | 0.34 |
| | $ | 0.24 |
| | $ | 0.70 |
| | $ | 0.54 |
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Discontinued operations | — |
| | 0.18 |
| | — |
| | 0.19 |
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Basic net income per common share | $ | 0.34 |
| | $ | 0.42 |
| | $ | 0.70 |
| | $ | 0.73 |
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Weighted average basic shares outstanding | 114,543 |
| | 115,225 |
| | 114,459 |
| | 115,247 |
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Diluted net income per common share | | | | | | | |
Continuing operations | $ | 0.34 |
| | $ | 0.24 |
| | $ | 0.70 |
| | $ | 0.54 |
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Discontinued operations | — |
| | 0.18 |
| | — |
| | 0.19 |
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Diluted net income per common share | $ | 0.34 |
| | $ | 0.42 |
| | $ | 0.70 |
| | $ | 0.73 |
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Weighted average diluted shares outstanding | 115,218 |
| | 115,923 |
| | 115,186 |
| | 115,911 |
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Dividends declared per common share | $ | 0.06 |
| | $ | 0.05 |
| | $ | 0.11 |
| | $ | 0.05 |
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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)
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
(In thousands) | 2018 | | 2017 | | 2018 | | 2017 |
Net income | $ | 38,945 |
| | $ | 48,709 |
| | $ | 80,344 |
| | $ | 84,160 |
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Other comprehensive (loss) income, net of tax: | | | | | | | |
Fair value adjustments to available-for-sale securities, net of tax | (306 | ) | | 535 |
| | (1,270 | ) | | 1,106 |
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Comprehensive income | $ | 38,639 |
| | $ | 49,244 |
| | $ | 79,074 |
| | $ | 85,266 |
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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 CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
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| Boyd Gaming Corporation Stockholders' Equity | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss), Net | | Noncontrolling Interest | | Total |
| | | | | |
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(In thousands, except share data) | Shares | | Amount | | | | | |
Balances, January 1, 2018 | 112,634,418 |
| | $ | 1,126 |
| | $ | 931,858 |
| | $ | 164,425 |
| | $ | (182 | ) | | $ | — |
| | $ | 1,097,227 |
|
Cumulative effect of change in accounting principle, adoption of Update 2018-02 | — |
| | — |
| | — |
| | (312 | ) | | 312 |
| | — |
| | — |
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Net income | — |
| | — |
| | — |
| | 80,344 |
| | — |
| | — |
| | 80,344 |
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Comprehensive loss attributable to Boyd, net of tax | — |
| | — |
| | — |
| | — |
| | (1,270 | ) | | — |
| | (1,270 | ) |
Stock options exercised | 241,236 |
| | 2 |
| | 2,251 |
| | — |
| | — |
| | — |
| | 2,253 |
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Release of restricted stock units, net of tax | 16,957 |
| | — |
| | (364 | ) | | — |
| | — |
| | — |
| | (364 | ) |
Release of performance stock units, net of tax | 337,537 |
| | 4 |
| | (5,274 | ) | | — |
| | — |
| | — |
| | (5,270 | ) |
Shares repurchased and retired | (859,808 | ) | | (8 | ) | | (30,324 | ) | | — |
| | — |
| | — |
| | (30,332 | ) |
Dividends declared | — |
| | — |
| | — |
| | (12,377 | ) | | — |
| | — |
| | (12,377 | ) |
Share-based compensation costs | — |
| | — |
| | 14,949 |
| | — |
| | — |
| | — |
| | 14,949 |
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Balances, June 30, 2018 | 112,370,340 |
| | $ | 1,124 |
| | $ | 913,096 |
| | $ | 232,080 |
| | $ | (1,140 | ) | | $ | — |
| | $ | 1,145,160 |
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| | | | | | | | | | | | | |
Balances, January 1, 2017 | 112,896,377 |
| | $ | 1,129 |
| | $ | 953,440 |
| | $ | (23,824 | ) | | $ | (615 | ) | | $ | 50 |
| | $ | 930,180 |
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Cumulative effect of change in accounting principle, adoption of Update 2016-09 | — |
| | — |
| | — |
| | 15,777 |
| | — |
| | — |
| | 15,777 |
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Net income | — |
| | — |
| | — |
| | 84,160 |
| | — |
| | — |
| | 84,160 |
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Comprehensive income attributable to Boyd, net of tax | — |
| | — |
| | — |
| | — |
| | 1,106 |
| | — |
| | 1,106 |
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Stock options exercised | 151,683 |
| | 1 |
| | 1,226 |
| | — |
| | — |
| | — |
| | 1,227 |
|
Release of restricted stock units, net of tax | 150,945 |
| | 1 |
| | (2,233 | ) | | — |
| | — |
| | — |
| | (2,232 | ) |
Release of performance stock units, net of tax | 173,653 |
| | 2 |
| | (1,793 | ) | | — |
| | — |
| | — |
| | (1,791 | ) |
Shares repurchased and retired | (441,586 | ) | | (4 | ) | | (11,086 | ) | | — |
| | — |
| | — |
| | (11,090 | ) |
Dividends declared | — |
| | — |
| | — |
| | (5,653 | ) | | — |
| | — |
| | (5,653 | ) |
Share-based compensation costs | — |
| | — |
| | 8,830 |
| | — |
| | — |
| | — |
| | 8,830 |
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Other | — |
| | — |
| | — |
| | — |
| | — |
| | (50 | ) | | (50 | ) |
Balances, June 30, 2017 | 112,931,072 |
| | $ | 1,129 |
| | $ | 948,384 |
| | $ | 70,460 |
| | $ | 491 |
| | $ | — |
| | $ | 1,020,464 |
|
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)
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| | | | | | | |
| Six Months Ended |
| June 30, |
(In thousands) | 2018 | | 2017 |
Cash Flows from Operating Activities | | | |
Net income | $ | 80,344 |
| | $ | 84,160 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Income from discontinued operations, net of tax | (347 | ) | | (21,392 | ) |
Depreciation and amortization | 105,199 |
| | 106,527 |
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Amortization of debt financing costs and discounts on debt | 4,368 |
| | 4,412 |
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Share-based compensation expense | 14,949 |
| | 8,830 |
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Deferred income taxes | 19,158 |
| | 32,709 |
|
Non-cash impairment of assets | 993 |
| | — |
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Loss on early extinguishments and modifications of debt | 61 |
| | 534 |
|
Other operating activities | 15 |
| | (456 | ) |
Changes in operating assets and liabilities: | | | |
Accounts receivable, net | 4,459 |
| | 539 |
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Inventories | 1,067 |
| | (555 | ) |
Prepaid expenses and other current assets | 3,282 |
| | 777 |
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Income taxes payable | (40 | ) | | 1,862 |
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Other assets, net | (2,316 | ) | | (1,642 | ) |
Accounts payable and accrued liabilities | (15,729 | ) | | (15,776 | ) |
Other long-term tax liabilities | 94 |
| | 66 |
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Other liabilities | 2,434 |
| | (209 | ) |
Net cash provided by operating activities | 217,991 |
| | 200,386 |
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Cash Flows from Investing Activities | | | |
Capital expenditures | (63,245 | ) | | (118,751 | ) |
Cash paid for acquisition, net of cash received | (100,713 | ) | | — |
|
Advances pursuant to development agreement | — |
| | (35,108 | ) |
Other investing activities | (9,240 | ) | | 492 |
|
Net cash used in investing activities | (173,198 | ) | | (153,367 | ) |
Cash Flows from Financing Activities | | | |
Borrowings under bank credit facility | 333,900 |
| | 535,900 |
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Payments under bank credit facility | (591,476 | ) | | (628,037 | ) |
Proceeds from issuance of senior notes | 700,000 |
| | — |
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Debt financing costs, net | (11,028 | ) | | (2,381 | ) |
Share-based compensation activities, net | (3,381 | ) | | (2,796 | ) |
Shares repurchased and retired | (30,332 | ) | | (11,090 | ) |
Dividends paid | (11,267 | ) | | — |
|
Other financing activities | (50 | ) | | (95 | ) |
Net cash provided by (used in) financing activities | 386,366 |
| | (108,499 | ) |
Cash Flows from Discontinued Operations | | | |
Cash flows from operating activities | — |
| | (514 | ) |
Cash flows from investing activities | 482 |
| | 36,247 |
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Cash flows from financing activities | — |
| | — |
|
Net cash provided by discontinued operations | 482 |
| | 35,733 |
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Change in cash, cash equivalents and restricted cash | 431,641 |
| | (25,747 | ) |
Cash, cash equivalents and restricted cash, beginning of period | 227,279 |
| | 210,350 |
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Cash, cash equivalents and restricted cash, end of period | $ | 658,920 |
| | $ | 184,603 |
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Supplemental Disclosure of Cash Flow Information | | | |
Cash paid for interest, net of amounts capitalized | $ | 85,090 |
| | $ | 94,600 |
|
Cash paid for income taxes | 3,447 |
| | 4,252 |
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Supplemental Schedule of Non-cash Investing and Financing Activities | | | |
Payables incurred for capital expenditures | $ | 7,082 |
| | $ | 7,729 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
as of June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017
______________________________________________________________________________________________________
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Boyd Gaming Corporation (and together with its subsidiaries, the "Company," "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 24 wholly owned gaming entertainment properties. Headquartered in Las Vegas, we have gaming operations in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana and Mississippi.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and footnote disclosures necessary for complete financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"). These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2017 included in our Current Report on Form 8-K, filed with the U.S. Securities and Exchange Commission ("SEC") on June 28, 2018. As discussed in Note 2, Summary of Significant Accounting Policies, we adopted Accounting Standards Update 2016-18 and the Revenue Standard effective January 1, 2018, by applying the full retrospective method, which has impacted previously reported results.
The results for the periods indicated are unaudited, but reflect all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation of financial position, results of operations and cash flows. Results of operations and cash flows for the interim periods presented herein are not necessarily indicative of the results that would be achieved during a full year of operations or in future periods.
The accompanying condensed consolidated financial statements include the accounts of Boyd Gaming and its wholly owned subsidiaries. Investments in unconsolidated affiliates, which do not meet the consolidation criteria of the authoritative accounting guidance for voting interest, controlling interest or variable interest entities, are accounted for under the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation.
On August 1, 2016, Boyd Gaming completed the sale of its 50% equity interest in Marina District Development Holding Company, LLC ("MDDHC"), the parent company of Borgata Hotel Casino & Spa ("Borgata"), pursuant to an Equity Purchase Agreement (the "Purchase Agreement") entered into on May 31, 2016, as amended on July 19, 2016 by and among the Company, Boyd Atlantic City, Inc., a wholly owned subsidiary of the Company, and MGM Resorts International ("MGM"). (See Note 3, Acquisitions and Divestitures.) We accounted for our investment in Borgata by applying the equity method and reported its results as discontinued operations for all periods presented in these condensed consolidated financial statements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments, which include cash on hand and in banks, interest-bearing deposits and money market funds with maturities of three months or less at their date of purchase. The instruments are not restricted as to withdrawal or use and are on deposit with high credit quality financial institutions. Although these balances may at times exceed the federal insured deposit limit, we believe such risk is mitigated by the quality of the institution holding such deposit. The carrying values of these instruments approximate their fair values as such balances are generally available on demand.
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.
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| | | | | | | | | | | | | | | |
| June 30, | | December 31, | | June 30, | | December 31, |
(In thousands) | 2018 | | 2017 | | 2017 | | 2016 |
Cash and cash equivalents | $ | 632,808 |
| | $ | 203,104 |
| | $ | 162,963 |
| | $ | 193,862 |
|
Restricted cash | 26,112 |
| | 24,175 |
| | 21,640 |
| | 16,488 |
|
Total cash, cash equivalents and restricted cash | $ | 658,920 |
| | $ | 227,279 |
| | $ | 184,603 |
| | $ | 210,350 |
|
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017
______________________________________________________________________________________________________
Revenue Recognition
The Company’s revenue contracts with customers consist of gaming wagers, hotel room sales, food & beverage offerings and other amenity transactions. The transaction price for a gaming wagering contract is the difference between gaming wins and losses, not the total amount wagered. Cash discounts, commissions and other cash incentives to customers related to gaming play are recorded as a reduction of gross gaming revenues. The transaction price for hotel, food & beverage and other contracts is the net amount collected from the customer for such goods and services. Hotel, food & beverage and other services have been determined to be separate, stand-alone performance obligations and the transaction price for such contracts is recorded as revenue as the good or service is transferred to the customer over their stay at the hotel, when the delivery is made for the food & beverage or when the service is provided for other amenity transactions.
Gaming wager contracts involve two performance obligations for those customers earning points under the Company’s player loyalty programs and a single performance obligation for customers who do not participate in the programs. The Company applies a practical expedient by accounting for its gaming contracts on a portfolio basis as such wagers have similar characteristics and the Company reasonably expects the effects on the financial statements of applying the revenue recognition guidance to the portfolio to not differ materially from that which would result if applying the guidance to an individual wagering contract. For purposes of allocating the transaction price in a wagering contract between the wagering performance obligation and the obligation associated with the loyalty points earned, the Company allocates an amount to the loyalty point contract liability based on the stand-alone selling price of the points earned, which is determined by the value of a point that can be redeemed for a hotel room stay, food & beverage or other amenities. Sales and usage-based taxes are excluded from revenues. An amount is allocated to the gaming wager performance obligation using the residual approach as the stand-alone price for wagers is highly variable and no set established price exists for such wagers. The allocated revenue for gaming wagers is recognized when the wagers occur as all such wagers settle immediately. The loyalty point contract liability amount is deferred and recognized as revenue when the customer redeems the points for a hotel room stay, food & beverage or other amenities and such goods or services are delivered to the customer. See Note 6, Accrued Liabilities, for the balance outstanding related to player loyalty programs.
The Company collects advanced deposits from hotel customers for future reservations representing obligations of the Company until the hotel room stay is provided to the customer. See Note 6, Accrued Liabilities, for the balance outstanding related to advance deposits.
The Company's outstanding chip liability represents the amounts owed in exchange for gaming chips held by a customer. Outstanding chips are expected to be recognized as revenue or redeemed for cash within one year of being purchased. See Note 6, Accrued Liabilities, for the balance outstanding related to the chip liability.
The retail value of hotel accommodations, food & beverage, and other services furnished to guests without charge is recorded as departmental revenues. Gaming revenues are net of incentives earned in our slot bonus program such as cash and the estimated retail value of goods and services (such as complimentary hotel rooms and food & beverage). We reward customers, through the use of bonus programs, with points based on amounts wagered that can be redeemed for a specified period of time for complimentary slot play, food & beverage, and to a lesser extent for other goods or services, depending upon the property.
The estimated retail value related to goods and services provided to guests without charge or upon redemption of points under our player loyalty programs, included in departmental revenues, and therefore reducing our gaming revenues, are as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
(In thousands) | 2018 | | 2017 | | 2018 | | 2017 |
Food & beverage | $ | 43,285 |
| | $ | 43,662 |
| | $ | 85,923 |
| | $ | 86,475 |
|
Rooms | 19,861 |
| | 19,053 |
| | 38,861 |
| | 37,642 |
|
Other | 2,749 |
| | 2,667 |
| | 5,329 |
| | 5,195 |
|
Gaming Taxes
We are subject to taxes based on gross gaming revenues in the jurisdictions in which we operate. These gaming taxes are recorded as a gaming expense in the condensed consolidated statements of operations. These taxes totaled approximately $80.3 million and
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017
______________________________________________________________________________________________________
$83.8 million for the three months ended June 30, 2018 and 2017, respectively, and $158.4 million and $167.0 million for the six months ended June 30, 2018 and 2017, respectively.
Income Taxes
Income taxes are recorded under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We reduce the carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence, it is more likely than not that such assets will not be realized. Use of the term "more likely than not" indicates the likelihood of occurrence is greater than 50%. Accordingly, the need to establish valuation allowances for deferred tax assets is continually assessed based on a more-likely-than-not realization threshold. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of profitability, the duration of statutory carryforward periods, our experience with the utilization of operating loss and tax credit carryforwards before expiration and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified.
Other Long-Term Tax Liabilities
The Company's income tax returns are subject to examination by the Internal Revenue Service and other tax authorities in the locations where it operates. The Company assesses potentially unfavorable outcomes of such examinations based on accounting standards for uncertain income taxes, which prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.
Uncertain tax position accounting standards apply to all tax positions related to income taxes. These accounting standards utilize a two-step approach for evaluating tax positions. Recognition occurs when the Company concludes that a tax position, based on its technical merits, is more likely than not to be sustained upon examination. Measurement is only addressed if the position is deemed to be more likely than not to be sustained. The tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon settlement.
Tax positions failing to qualify for initial recognition are recognized in the first subsequent interim period that they meet the "more likely than not" standard. If it is subsequently determined that a previously recognized tax position no longer meets the "more likely than not" standard, it is required that the tax position is derecognized. Accounting standards for uncertain tax positions specifically prohibit the use of a valuation allowance as a substitute for derecognition of tax positions. As applicable, the Company will recognize accrued penalties and interest related to unrecognized tax benefits in the provision for income taxes. Accrued interest and penalties are included in other long-term tax liabilities on the condensed consolidated balance sheets.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Recently Adopted Accounting Pronouncements
Accounting Standards Update ("ASU") 2018-06, Compensation - Stock Compensation ("Update 2018-06")
In June 2018, the Financial Accounting Standards Board ("FASB") issued Update 2018-06 which expands Accounting Standards Codification ("ASC") 718, to include share-based payment transactions for acquiring goods and services from nonemployees. The standard is effective for financial statements issued for annual periods and interim periods within those annual periods, beginning after December 15, 2018, and early adoption is permitted. The Company determined that the impact of the new standard to its consolidated financial statements will not be material.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017
______________________________________________________________________________________________________
ASU 2018-05, Income Taxes ("Update 2018-05")
In March 2018, the FASB issued Update 2018-05, which amends the guidance to SEC Staff Accounting Bulletin No. 118 ("SAB 118") by adding income tax accounting implications of the Tax Cuts and Jobs Act (the "Tax Act"). The SEC staff issued SAB 118 to provide guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes ("ASC 740"). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. We have recorded an adjustment as a result of the Tax Act as described above in fourth quarter 2017. We believe our analysis to be complete and do not anticipate any material future changes to financial statements as a result of the impact of the Tax Act. However, if any changes are determined, we will record those as part of the measurement period.
ASU 2018-02, Income Statement - Reporting Comprehensive Income ("Update 2018-02")
In first quarter 2018, the Company adopted ASU 2018-02 which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. The effect of this change in accounting principle is to record an other comprehensive income tax effect of $0.3 million as a reduction in retained earnings on the condensed consolidated statement of changes in stockholders' equity for the six months ended June 30, 2018.
ASU 2016-18, Statement of Cash Flows ("Update 2016-18")
In November 2016, the FASB issued Update 2016-18, which amends ASC 230 to add or clarify the guidance on the classification and presentation of restricted cash in the statement of cash flows. Update 2016-18 requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts on the statement of cash flows. The Company adopted Update 2016-18 effective January 1, 2018 using the retrospective approach. We adjusted our condensed consolidated statement of cash flows from amounts previously reported due to the adoption of Update 2016-18. The effects of adopting Update 2016-18 on our condensed consolidated statement of cash flows for the six months ended June 30, 2017 were as follows:
|
| | | | | | | | | | | |
| Six Months Ended June 30, 2017 |
(In thousands) | As Previously Reported | | Adoption of Update 2016-18 | | As Adjusted |
Net cash provided by operating activities | $ | 195,234 |
| | $ | 5,152 |
| | $ | 200,386 |
|
| | | | | |
Cash, cash equivalents and restricted cash, beginning of period | $ | 193,862 |
| | $ | 16,488 |
| | $ | 210,350 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash | (30,899 | ) | | 5,152 |
| | (25,747 | ) |
Cash, cash equivalents and restricted cash, end of period | $ | 162,963 |
| | $ | 21,640 |
| | $ | 184,603 |
|
ASU 2016-15, Statement of Cash Flows ("Update 2016-15")
In August 2016, the FASB issued Update 2016-15, which amends the guidance on the classification of certain cash receipts and payments in the statement of cash flows. Update 2016-15 is intended to reduce the lack of consistent principles on certain classifications such as debt prepayment, debt extinguishment costs, distributions, insurance claims and beneficial interest in securitization transactions. The Company adopted Update 2016-15 effective January 1, 2018. The Company determined that the impact of the new standard on its consolidated financial statements is not material.
ASU 2016-09, Compensation - Stock Compensation ("Update 2016-09")
In first quarter 2017, the Company adopted Update 2016-09, which simplified several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Update 2016-09 requires excess tax benefits and deficiencies to be recorded in income tax expense instead of equity. The cumulative effect of this change in accounting principle was to record the benefit of previously unrecognized excess tax deductions as an increase in retained earnings of $15.8 million on the condensed consolidated statement of changes in stockholders' equity for the six months ended June 30, 2017.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017
______________________________________________________________________________________________________
ASU 2014-09, Revenue from Contracts with Customers ("Update 2014-09"); ASU 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date ("Update 2015-14" ); ASU 2016-08, Revenue from Contracts with Customers - Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("Update 2016-08"); ASU 2016-10, Revenue from Contracts with Customers - Identifying Performance Obligations and Licensing ("Update 2016-10"); ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting ("Update 2016-11"); and ASU 2016-12, Revenue from Contracts with Customers - Narrow-Scope Improvements and Practical Expedients ("Update 2016-12"); (collectively, the “Revenue Standard”)
The Revenue Standard prescribes a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The Company adopted the Revenue Standard by applying the full retrospective approach in first quarter 2018 and has adjusted the prior periods presented.
The guidance changed the presentation of net revenues as the historical presentation reflected revenues gross for goods and services provided to our customers as an inducement to play with us, with an offsetting reduction for promotional allowances to derive net revenues. Under the new guidance, revenues are allocated among our departmental classifications based on the relative standalone selling prices of the goods and services provided to the customer. Our reporting of amounts paid to operators of wide area progressive games has changed as a result of the adoption of the Revenue Standard. We previously reported these payments as contra-revenues. Under the Revenue Standard, these payments are reported as an operating expense. The accounting for our frequent player programs was also impacted, with changes to the timing and/or classification of certain transactions between revenues and operating expenses.
The implementation of the Revenue Standard resulted in an increase to the player point liability due to the change in our accounting method for this liability from an estimated cost of redemption model to a deferred revenue model. As of the effective date of our adoption (January 1, 2015), the cumulative effect adjustment decreased beginning Retained earnings by $3.8 million (after tax), resulted in a deferred tax asset reduction of $2.4 million and increased Accrued liabilities by approximately $6.2 million on the condensed consolidated balance sheet. The impact to the condensed consolidated statement of cash flows for the three and six months ended June 30, 2017 was not material. The impact of this change in accounting for these programs is not expected to be material to any annual accounting period.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017
______________________________________________________________________________________________________
The effects of the adoption of the Revenue Standard on our results for the three months ended June 30, 2017 are as follows:
|
| | | | | | | | | | | |
| Three Months Ended June 30, 2017 |
(In thousands, except per share data) | As Previously Reported | | Adoption of Revenue Standard | | As Adjusted |
Revenues | | | | | |
Gaming | $ | 495,056 |
| | $ | (57,931 | ) | | $ | 437,125 |
|
Food & beverage | 88,342 |
| | (698 | ) | | 87,644 |
|
Room | 48,270 |
| | (436 | ) | | 47,834 |
|
Other | 32,915 |
| | (1,394 | ) | | 31,521 |
|
Gross revenues | 664,583 |
| | (60,459 | ) | | 604,124 |
|
Less promotional allowances | 64,715 |
| | (64,715 | ) | | — |
|
Net revenues | 599,868 |
| | 4,256 |
| | 604,124 |
|
Operating costs and expenses | | | | | |
Gaming | 229,912 |
| | (40,292 | ) | | 189,620 |
|
Food & beverage | 49,533 |
| | 34,894 |
| | 84,427 |
|
Room | 13,469 |
| | 7,973 |
| | 21,442 |
|
Other | 19,631 |
| | 1,488 |
| | 21,119 |
|
Selling, general and administrative | 93,037 |
| | — |
| | 93,037 |
|
Maintenance and utilities | 25,864 |
| | — |
| | 25,864 |
|
Depreciation and amortization | 52,563 |
| | — |
| | 52,563 |
|
Corporate expense | 23,251 |
| | — |
| | 23,251 |
|
Project development, preopening and writedowns | 2,784 |
| | — |
| | 2,784 |
|
Other operating items, net | 463 |
| | — |
| | 463 |
|
Total operating costs and expenses | 510,507 |
| | 4,063 |
| | 514,570 |
|
Operating income | 89,361 |
| | 193 |
| | 89,554 |
|
Other expense (income) | | | | | |
Interest income | (455 | ) | | — |
| | (455 | ) |
Interest expense, net of amounts capitalized | 42,728 |
| | — |
| | 42,728 |
|
Loss on early extinguishments and modifications of debt | 378 |
| | — |
| | 378 |
|
Other, net | 559 |
| | — |
| | 559 |
|
Total other expense, net | 43,210 |
| | — |
| | 43,210 |
|
Income from continuing operations before income taxes | 46,151 |
| | 193 |
| | 46,344 |
|
Income tax provision | (18,590 | ) | | (62 | ) | | (18,652 | ) |
Income from continuing operations, net of tax | 27,561 |
| | 131 |
| | 27,692 |
|
Income from discontinued operations, net of tax | 21,017 |
| | — |
| | 21,017 |
|
Net income | $ | 48,578 |
| | $ | 131 |
| | $ | 48,709 |
|
| | | | | |
Basic net income per common share | | | | | |
Continuing operations | $ | 0.24 |
| | $ | — |
| | $ | 0.24 |
|
Discontinued operations | 0.18 |
| | — |
| | 0.18 |
|
Basic net income per common share | $ | 0.42 |
| | $ | — |
| | $ | 0.42 |
|
Weighted average basic shares outstanding | 115,225 |
| | — |
| | 115,225 |
|
| | | | | |
Diluted net income per common share | | | | | |
Continuing operations | $ | 0.24 |
| | $ | — |
| | $ | 0.24 |
|
Discontinued operations | 0.18 |
| | — |
| | 0.18 |
|
Diluted net income per common share | $ | 0.42 |
| | $ | — |
| | $ | 0.42 |
|
Weighted average diluted shares outstanding | 115,923 |
| | — |
| | 115,923 |
|
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017
______________________________________________________________________________________________________
The effects of the adoption of the Revenue Standard on our results for the six months ended June 30, 2017 are as follows:
|
| | | | | | | | | | | |
| Six Months Ended June 30, 2017 |
(In thousands, except per share data) | As Previously Reported | | Adoption of Revenue Standard | | As Adjusted |
Revenues | | | | | |
Gaming | $ | 995,055 |
| | $ | (113,985 | ) | | $ | 881,070 |
|
Food & beverage | 175,785 |
| | (1,536 | ) | | 174,249 |
|
Room | 95,596 |
| | (912 | ) | | 94,684 |
|
Other | 66,953 |
| | (2,767 | ) | | 64,186 |
|
Gross revenues | 1,333,389 |
| | (119,200 | ) | | 1,214,189 |
|
Less promotional allowances | 128,179 |
| | (128,179 | ) | | — |
|
Net revenues | 1,205,210 |
| | 8,979 |
| | 1,214,189 |
|
Operating costs and expenses | | | | | |
Gaming | 461,543 |
| | (79,990 | ) | | 381,553 |
|
Food & beverage | 99,051 |
| | 69,724 |
| | 168,775 |
|
Room | 26,583 |
| | 16,166 |
| | 42,749 |
|
Other | 39,610 |
| | 2,924 |
| | 42,534 |
|
Selling, general and administrative | 184,650 |
| | — |
| | 184,650 |
|
Maintenance and utilities | 52,263 |
| | — |
| | 52,263 |
|
Depreciation and amortization | 106,527 |
| | — |
| | 106,527 |
|
Corporate expense | 44,049 |
| | — |
| | 44,049 |
|
Project development, preopening and writedowns | 5,756 |
| | — |
| | 5,756 |
|
Other operating items, net | 949 |
| | — |
| | 949 |
|
Total operating costs and expenses | 1,020,981 |
| | 8,824 |
| | 1,029,805 |
|
Operating income | 184,229 |
| | 155 |
| | 184,384 |
|
Other expense (income) | | | | | |
Interest income | (915 | ) | | — |
| | (915 | ) |
Interest expense, net of amounts capitalized | 86,402 |
| | — |
| | 86,402 |
|
Loss on early extinguishments and modifications of debt | 534 |
| | — |
| | 534 |
|
Other, net | 670 |
| | — |
| | 670 |
|
Total other expense, net | 86,691 |
| | — |
| | 86,691 |
|
Income from continuing operations before income taxes | 97,538 |
| | 155 |
| | 97,693 |
|
Income tax provision | (34,863 | ) | | (62 | ) | | (34,925 | ) |
Income from continuing operations, net of tax | 62,675 |
| | 93 |
| | 62,768 |
|
Income from discontinued operations, net of tax | 21,392 |
| | — |
| | 21,392 |
|
Net income | $ | 84,067 |
| | $ | 93 |
| | $ | 84,160 |
|
| | | | | |
Basic net income per common share | | | | | |
Continuing operations | $ | 0.54 |
| | $ | — |
| | $ | 0.54 |
|
Discontinued operations | 0.19 |
| | — |
| | 0.19 |
|
Basic net income per common share | $ | 0.73 |
| | $ | — |
| | $ | 0.73 |
|
Weighted average basic shares outstanding | 115,247 |
| | — |
| | 115,247 |
|
| | | | | |
Diluted net income per common share | | | | | |
Continuing operations | $ | 0.54 |
| | $ | — |
| | $ | 0.54 |
|
Discontinued operations | 0.19 |
| | — |
| | 0.19 |
|
Diluted net income per common share | $ | 0.73 |
| | $ | — |
| | $ | 0.73 |
|
Weighted average diluted shares outstanding | 115,911 |
| | — |
| | 115,911 |
|
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017
______________________________________________________________________________________________________
Recently Issued Accounting Pronouncements
ASU 2016-02, Leases ("Update 2016-02")
In February 2016, the FASB issued Update 2016-02 which requires the recognition of lease assets and lease liabilities on the balance sheet and the disclosure of key information about leasing arrangements. The standard is effective for financial statements issued for annual periods and interim periods within those annual periods beginning after December 15, 2018, and early adoption is permitted. The Company has begun planning its assessment and implementation process, including determining the completeness of its lease population, and is currently evaluating the practical expedients and accounting policy elections and assessing the overall financial statement impact. While the Company’s evaluation of this guidance is in the early stages, adoption is expected to have a significant impact on the consolidated balance sheet due to recognition of right-of-use assets and lease liabilities, but will likely have an insignificant impact on its consolidated statements of operations and comprehensive income. The Company also anticipates expanded footnote disclosures related to its leases under the new guidance. The Company’s evaluation of Update 2016-02 is ongoing and may identify additional impacts on its consolidated financial statements and related disclosures prior to adoption.
A variety of proposed or otherwise potential accounting standards are currently being studied by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of such proposed standards would have on our consolidated financial statements.
NOTE 3. ACQUISITIONS AND DIVESTITURES
Lattner Entertainment Group Illinois
On June 1, 2018, we completed the acquisition of Lattner Entertainment Group Illinois, LLC ("Lattner"), a distributed gaming operator headquartered in Ottawa, Illinois, pursuant to an Agreement and Plan of Merger (the "Lattner Merger Agreement") dated as of May 1, 2018, by and among Boyd, Boyd TCVI Acquisition, LLC, a wholly owned subsidiary of Boyd ("Boyd TCVI"), Lattner, and Lattner Capital, LLC, solely in its capacity as the representative of the equity holders of Lattner.
Pursuant to the Lattner Merger Agreement, Boyd TCVI merged with and into Lattner (the "Lattner Merger"), with Lattner surviving the Lattner Merger and becoming a wholly owned subsidiary of Boyd. Lattner currently operates nearly 1,000 gaming units in approximately 220 locations across the state of Illinois and is aggregated into our Midwest & South segment (See Note 11, Segment Information). The net purchase price was $100.7 million.
Consideration Transferred
The fair value of the consideration transferred on the acquisition date included the purchase price of the net assets transferred. The total gross consideration was $110.5 million.
Status of Purchase Price Allocation
The Company is following the acquisition method of accounting per ASC 805 guidance. For purposes of these condensed consolidated financial statements, we have allocated the purchase price to the assets acquired and the liabilities assumed based on preliminary estimates of fair value as determined by management based on its judgment. The excess of the purchase price over the preliminary estimated fair value of the assets acquired and liabilities assumed has been recorded as goodwill. The Company will recognize the assets acquired and liabilities assumed in the acquisition based on fair value estimates as of the date of the Lattner Merger. The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) is currently in process. This determination requires significant judgment. As such, management has not completed its valuation analysis and calculations in sufficient detail necessary to finalize the determination of the fair value of the assets acquired and liabilities assumed, along with the related allocations of goodwill and intangible assets. The final fair value determinations are expected to be completed by the end of the year. The final fair value determinations may be significantly different than those reflected in the condensed consolidated financial statements at June 30, 2018.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017
______________________________________________________________________________________________________
The following table summarizes the preliminary allocation of the purchase price:
|
| | | |
(In thousands) | As Recorded |
Current assets | $ | 9,889 |
|
Property and equipment | 9,063 |
|
Intangible and other assets | 4,033 |
|
Total acquired assets | 22,985 |
|
| |
Current liabilities | 1,062 |
|
Total liabilities assumed | 1,062 |
|
Net identifiable assets acquired | 21,923 |
|
Goodwill | 88,615 |
|
Net assets acquired | $ | 110,538 |
|
The following table summarizes the preliminary values assigned to acquired property and equipment and estimated useful lives:
|
| | | | | |
(In thousands) | Useful Lives | | As Recorded |
Buildings and improvements | 10 - 45 years | | $ | 14 |
|
Furniture and equipment | 3 - 7 years | | 9,049 |
|
Property and equipment acquired | | | $ | 9,063 |
|
The goodwill recognized is the excess of the purchase price over the preliminary values assigned to the assets acquired and liabilities assumed. All of the goodwill was assigned to the Midwest & South reportable segment. All of the goodwill is expected to be deductible for income tax purposes.
The Company recognized $0.5 million of acquisition related costs that were expensed for both the three and six months ended June 30, 2018. These costs are included in the condensed consolidated statements of operations in the line item entitled "Project development, preopening and writedowns".
Condensed Consolidated Statement of Operations for the period from June 1, 2018 through June 30, 2018
The following supplemental information presents the financial results of Lattner included in the Company's condensed consolidated statement of operations for the three and six months ended June 30, 2018:
|
| | | |
| Period from |
| June 1 to |
(In thousands) | June 30, 2018 |
Net revenues | $ | 3,481 |
|
Net income | $ | 438 |
|
Pending Acquisitions
On December 18, 2017, we announced that we had entered into a definitive agreement with Penn National Gaming, Inc. ("Penn National," and such agreement, the "Penn National Purchase Agreement"), to acquire the operations of four properties, which include Ameristar St. Charles and Ameristar Kansas City, both in Missouri, along with Belterra Casino Resort in Florence, Indiana, and Belterra Park in Cincinnati, Ohio, for total net cash consideration of $575.0 million, subject to adjustments based on (a) the adjusted 2017 EBITDA of each property (as determined per the agreement), and (b) working capital, cash and indebtedness of the combined properties at closing and transaction expenses (the "Penn National Purchase").
On December 20, 2017, we announced that we had entered into a definitive agreement with Valley Forge Convention Center Partners, L.P. (the "Valley Forge Merger Agreement"), to acquire Valley Forge Casino Resort ("Valley Forge") in King of Prussia, Pennsylvania, for total cash consideration of $280.5 million, subject to adjustment based on working capital, cash and indebtedness of Valley Forge at closing and transaction expenses (the "Valley Forge Merger").
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017
______________________________________________________________________________________________________
The completion of the Penn National Purchase and the Valley Forge Merger are each subject to customary conditions and the receipt of all required regulatory approvals, including, among others, approval by the required state gaming commissions and the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. In addition, the Penn National Purchase is also contingent upon the successful completion of Penn National’s proposed acquisition of Pinnacle Entertainment, Inc. Subject to the satisfaction or waiver of the respective conditions in each of the Penn National Purchase Agreement and the Valley Forge Merger Agreement, we currently expect each of the transactions to close during the second half of 2018.
Investment in and Divestiture of Borgata
On August 1, 2016, Boyd Gaming completed the sale of its 50% equity interest in MDDHC, the parent company of Borgata in Atlantic City, New Jersey, to MGM pursuant to the Purchase Agreement entered into on May 31, 2016, as amended on July 19, 2016, by and among the Company, Boyd Atlantic City, Inc., a wholly owned subsidiary of the Company, and MGM (the "Transaction").
Prior to the sale of our equity interest, the Company and MGM each held a 50% interest in MDDHC, which owned all the equity interests in Borgata. Until the closing of the sale, we were the managing member of MDDHC, and we were responsible for the day-to-day operations of Borgata. Following the Transaction, MDDHC became a wholly owned subsidiary of MGM.
In consideration for the Transaction, MGM paid Boyd Gaming $900 million. The initial net cash proceeds were approximately $589 million, net of certain expenses and adjustments on the closing date, including outstanding indebtedness, cash and working capital. These initial proceeds did not include our 50% share of any future property tax settlement benefits related to the time period during which we held a 50% ownership in MDDHC to which Boyd Gaming retained the right to receive upon payment. On February 15, 2017, Borgata entered into a settlement agreement with Atlantic City, the terms of which provided for $72 million to be paid to Borgata to resolve the remaining property tax issues. For the three and six months ended June 30, 2017, we recognized $35.6 million and $36.2 million, respectively, in income for the cash we received for our share of property tax benefits realized by Borgata subsequent to the closing of the sale. These payments, net of tax of $14.6 million and $14.8 million for the three and six months ended June 30, 2017, respectively, are included in discontinued operations in the condensed consolidated financial statements. During the three and six months ended June 30, 2018, we recognized $0.3 million in income, net of tax, for the cash we received for our share of miscellaneous recoveries realized by Borgata during that period. This payment is included in discontinued operations in the condensed consolidated financial statements.
NOTE 4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
|
| | | | | | | |
| June 30, | | December 31, |
(In thousands) | 2018 | | 2017 |
Land | $ | 293,540 |
| | $ | 294,533 |
|
Buildings and improvements | 2,948,779 |
| | 2,935,539 |
|
Furniture and equipment | 1,379,460 |
| | 1,311,704 |
|
Riverboats and barges | 239,713 |
| | 238,926 |
|
Construction in progress | 43,658 |
| | 59,538 |
|
Total property and equipment | 4,905,150 |
| | 4,840,240 |
|
Less accumulated depreciation | 2,397,767 |
| | 2,300,454 |
|
Property and equipment, net | $ | 2,507,383 |
| | $ | 2,539,786 |
|
Depreciation expense is as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
(In thousands) | 2018 | | 2017 | | 2018 | | 2017 |
Depreciation expense | $ | 51,357 |
| | $ | 47,771 |
| | $ | 101,503 |
| | $ | 97,165 |
|
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017
______________________________________________________________________________________________________
NOTE 5. INTANGIBLE ASSETS
Intangible assets consist of the following:
|
| | | | | | | | | | | | | | | | | |
| June 30, 2018 |
| Weighted | | Gross | | | | Cumulative | | |
| Average Life | | Carrying | | Cumulative | | Impairment | | Intangible |
(In thousands) | Remaining | | Value | | Amortization | | Losses | | Assets, Net |
Amortizing intangibles | | | | | | | | | |
Customer relationships | 4.7 years | | $ | 9,400 |
| | $ | (4,616 | ) | | $ | — |
| | $ | 4,784 |
|
Favorable lease rates | 37.5 years | | 11,730 |
| | (3,189 | ) | | — |
| | 8,541 |
|
Development agreement | — | | 21,373 |
| | — |
| | — |
| | 21,373 |
|
Other intangibles | 5.0 years | | 2,169 |
| | (98 | ) | | — |
| | 2,071 |
|
| | | 44,672 |
| | (7,903 | ) | | — |
| | 36,769 |
|
| | | | | | | | | |
Indefinite lived intangible assets | | | | | | | | | |
Trademarks | Indefinite | | 151,887 |
| | — |
| | (4,300 | ) | | 147,587 |
|
Gaming license rights | Indefinite | | 873,335 |
| | (33,960 | ) | | (179,974 | ) | | 659,401 |
|
| | | 1,025,222 |
| | (33,960 | ) | | (184,274 | ) | | 806,988 |
|
Balance, June 30, 2018 | | | $ | 1,069,894 |
| | $ | (41,863 | ) | | $ | (184,274 | ) | | $ | 843,757 |
|
|
| | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| Weighted | | Gross | | | | Cumulative | | |
| Average Life | | Carrying | | Cumulative | | Impairment | | Intangible |
(In thousands) | Remaining | | Value | | Amortization | | Losses | | Assets, Net |
Amortizing intangibles | | | | | | | | | |
Customer relationships | 5.2 years | | $ | 9,400 |
| | $ | (3,470 | ) | | $ | — |
| | $ | 5,930 |
|
Favorable lease rates | 38.0 years | | 11,730 |
| | (3,075 | ) | | — |
| | 8,655 |
|
Development agreement | — | | 21,373 |
| | — |
| | — |
| | 21,373 |
|
| | | 42,503 |
| | (6,545 | ) | | — |
| | 35,958 |
|
| | | | | | | | | |
Indefinite lived intangible assets | | | | | | | | | |
Trademarks | Indefinite | | 151,887 |
| | — |
| | (4,300 | ) | | 147,587 |
|
Gaming license rights | Indefinite | | 873,335 |
| | (33,960 | ) | | (179,974 | ) | | 659,401 |
|
| | | 1,025,222 |
| | (33,960 | ) | | (184,274 | ) | | 806,988 |
|
Balance, December 31, 2017 | | | $ | 1,067,725 |
| | $ | (40,505 | ) | | $ | (184,274 | ) | | $ | 842,946 |
|
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017
______________________________________________________________________________________________________
NOTE 6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
|
| | | | | | | |
| June 30, | | December 31, |
(In thousands) | 2018 | | 2017 |
Payroll and related expenses | $ | 62,580 |
| | $ | 70,724 |
|
Interest | 19,618 |
| | 19,858 |
|
Gaming liabilities | 53,522 |
| | 55,961 |
|
Player loyalty program liabilities | 23,391 |
| | 24,489 |
|
Advance deposits | 20,190 |
| | 18,922 |
|
Outstanding chip liability | 4,701 |
| | 4,928 |
|
Dividend payable | 6,742 |
| | 5,632 |
|
Other accrued liabilities | 66,077 |
| | 54,632 |
|
Total accrued liabilities | $ | 256,821 |
| | $ | 255,146 |
|
NOTE 7. LONG-TERM DEBT
Long-term debt, net of current maturities and debt issuance costs, consists of the following:
|
| | | | | | | | | | | | | | | | | | |
| | | June 30, 2018 |
| | | | | | | Unamortized | | |
| Interest | | | | | | Origination | | |
| Rates at | | Outstanding | | Unamortized | | Fees and | | Long-Term |
(In thousands) | June 30, 2018 | | Principal | | Discount | | Costs | | Debt, Net |
Bank credit facility | 4.450 | % | | $ | 1,363,477 |
| | $ | (1,428 | ) | | $ | (21,091 | ) | | $ | 1,340,958 |
|
6.875% senior notes due 2023 | 6.875 | % | | 750,000 |
| | — |
| | (8,578 | ) | | 741,422 |
|
6.375% senior notes due 2026 | 6.375 | % | | 750,000 |
| | — |
| | (10,213 | ) | | 739,787 |
|
6.000% senior notes due 2026 | 6.000 | % | | 700,000 |
| | — |
| | (11,027 | ) | | 688,973 |
|
Other | 5.800 | % | | 454 |
| | — |
| | — |
| | 454 |
|
Total long-term debt | | | 3,563,931 |
| | (1,428 | ) | | (50,909 | ) | | 3,511,594 |
|
Less current maturities | | | 23,981 |
| | — |
| | — |
| | 23,981 |
|
Long-term debt, net | | | $ | 3,539,950 |
| | $ | (1,428 | ) | | $ | (50,909 | ) | | $ | 3,487,613 |
|
|
| | | | | | | | | | | | | | | | | | |
| | | December 31, 2017 |
| | | | | | | Unamortized | | |
| Interest | | | | | | Origination | | |
| Rates at | | Outstanding | | Unamortized | | Fees and | | Long-Term |
(In thousands) | Dec. 31, 2017 | | Principal | | Discount | | Costs | | Debt, Net |
Bank credit facility | 3.882 | % | | $ | 1,621,054 |
| | $ | (1,556 | ) | | $ | (23,795 | ) | | $ | 1,595,703 |
|
6.875% senior notes due 2023 | 6.875 | % | | 750,000 |
| | — |
| | (9,455 | ) | | 740,545 |
|
6.375% senior notes due 2026 | 6.375 | % | | 750,000 |
| | — |
| | (10,872 | ) | | 739,128 |
|
Other | 5.800 | % | | 504 |
| | — |
| | — |
| | 504 |
|
Total long-term debt | | | 3,121,558 |
| | (1,556 | ) | | (44,122 | ) | | 3,075,880 |
|
Less current maturities | | | 23,981 |
| | — |
| | — |
| | 23,981 |
|
Long-term debt, net | | | $ | 3,097,577 |
| | $ | (1,556 | ) | | $ | (44,122 | ) | | $ | 3,051,899 |
|
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017
______________________________________________________________________________________________________
The outstanding principal amounts under our existing bank credit facility are comprised of the following:
|
| | | | | | | |
| June 30, | | December 31, |
(In thousands) | 2018 | | 2017 |
Revolving Credit Facility | $ | — |
| | $ | 170,000 |
|
Term A Loan | 204,475 |
| | 210,938 |
|
Refinancing Term B Loans | 1,159,002 |
| | 1,170,016 |
|
Swing Loan | — |
| | 70,100 |
|
Total outstanding principal amounts under the bank credit facility | $ | 1,363,477 |
| | $ | 1,621,054 |
|
At June 30, 2018, approximately $1.4 billion was outstanding under the bank credit facility. As such, with a total revolving credit commitment of $775.0 million available under the bank credit facility, no borrowings on the Revolving Credit Facility and the Swing Loan, and $12.7 million allocated to support various letters of credit, the remaining contractual availability on the revolving credit commitment is $762.3 million.
Senior Notes
6.000% Senior Notes due August 2026
Significant Terms
On June 25, 2018, we issued $700.0 million aggregate principal amount of 6.000% senior notes due August 2026 (the "6.000% Notes"). The 6.000% Notes require semi-annual interest payments on February 15 and August 15 of each year, commencing on August 15, 2018. The 6.000% Notes will mature on August 15, 2026 and are fully and unconditionally guaranteed, on a joint and several basis, by certain of our current and future domestic restricted subsidiaries, all of which are 100% owned by us.
The Company utilized the net proceeds from the debt issuance to pay down the outstanding amounts under the Revolving Credit Facility and Swing Loan and invested the balance of the net proceeds in cash equivalents and short-term marketable securities at a qualified institution.
The 6.000% Notes contain certain restrictive covenants that, subject to exceptions and qualifications, among other things, limit our ability and the ability of our restricted subsidiaries (as defined in the indenture governing the 6.000% Notes, the "Indenture") to incur additional indebtedness or liens, pay dividends or make distributions or repurchase our capital stock, make certain investments, and sell or merge with other companies. In addition, upon the occurrence of a change of control (as defined in the Indenture), we will be required, unless certain conditions are met, to offer to repurchase the 6.000% Notes at a price equal to 101% of the principal amount of the 6.000% Notes, plus accrued and unpaid interest and Additional Interest (as defined in the Indenture), if any, to, but not including, the date of purchase. If we sell assets, we will be required under certain circumstances to offer to purchase the 6.000% Notes.
At any time prior to August 15, 2021, we may redeem the 6.000% Notes, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and Additional Interest, if any, up to, but excluding, the applicable redemption date, plus a make whole premium. Subsequent to August 15, 2021, we may redeem all or a portion of the 6.000% Notes at redemption prices (expressed as percentages of the principal amount) ranging from 103% in 2021 to 100% in 2024 and thereafter, plus accrued and unpaid interest and Additional Interest.
In connection with the private placement of the 6.000% Notes, we entered into a registration rights agreement with the initial purchasers in which we agreed to file a registration statement with the SEC to permit the holders to exchange or resell the 6.000% Notes. We must use commercially reasonable efforts to file a registration statement and to consummate an exchange offer within 365 days after the issuance of the 6.000% Notes, subject to certain suspension and other rights set forth in the registration rights agreement. Under certain circumstances, including our determination that we cannot complete an exchange offer, we are required to file a shelf registration statement for the resale of the 6.000% Notes and to cause such shelf registration statement to be declared effective as soon as reasonably practicable (but in no event later than the 365th day following the issuance of the 6.000% Notes) after the occurrence of such circumstances. Subject to certain suspension and other rights, in the event that the registration statement is not filed or declared effective within the time periods specified in the registration rights agreement, the exchange offer is not consummated within 365 days after the issuance of the 6.000% Notes, or the registration statement is filed and declared effective but thereafter ceases to be effective or is unusable for its intended purpose for a period in excess of 30 days without being succeeded immediately by a post-effective amendment that cures such failure, the agreement provides that additional interest will accrue on
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017
______________________________________________________________________________________________________
the principal amount of the 6.000% Notes at a rate of 0.25% per annum during the 90-day period immediately following any of these events and will increase by 0.25% per annum at the end of each subsequent 90-day period, but in no event will the penalty rate exceed 1.00% per annum, until the default is cured. There are no other alternative settlement methods and, other than the 1.00% per annum maximum penalty rate, the agreement contains no limit on the maximum potential amount of consideration that could be transferred in the event we do not meet the registration statement filing requirements. We filed the required registration statement and commenced the exchange offer on July 12, 2018. The exchange offer will expire, unless extended or terminated in accordance with its terms, on August 10, 2018. Accordingly, we do not believe that payment of additional interest under the registration payment arrangement is probable and, therefore, no related liability has been recorded in the consolidated financial statements.
Debt Financing Costs
In conjunction with the issuance of the 6.000% Notes, we incurred approximately $11.0 million in debt financing costs that have been deferred and are being amortized over the term of the 6.000% Notes using the effective interest method.
Credit Facility
On August 2, 2018, we entered into a Joinder Agreement (the "Joinder Agreement") to the Third Amended and Restated Credit Agreement, as amended (the "Credit Agreement"), among the Company, certain financial institutions and Bank of America, N.A., as administrative agent.
The Joinder Agreement modifies the Credit Agreement solely to join additional financial institutions as lenders and to provide for (i) increased commitments under the senior secured revolving credit facility under the Credit Agreement (the “Revolving Credit Facility”) by an amount equal to $170.5 million resulting in total availability under the Revolving Credit Facility of an amount equal to $945.5 million and (ii) commitments from lenders to make additional Term A Loans (as defined in the Credit Agreement) in an amount equal to $49.5 million resulting in aggregate outstanding Term A Loans under the Credit Agreement in an amount equal to approximately $248.4 million.
Covenant Compliance
As of June 30, 2018, we believe that we were in compliance with the financial and other covenants of our debt instruments.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Commitments
There have been no material changes to our commitments described under Note 9, Commitments and Contingencies, in our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC on February 26, 2018, which was superseded by our Current Report on Form 8-K filed with the SEC on June 28, 2018.
Contingencies
Legal Matters
We are parties to various legal proceedings arising in the ordinary course of business. We believe that all pending claims, if adversely decided, would not have a material adverse effect on our business, financial position or results of operations.
NOTE 9. STOCKHOLDERS' EQUITY AND STOCK INCENTIVE PLANS
Share Repurchase Program
On May 2, 2017, the Company announced that its Board of Directors had reaffirmed the Company’s existing share repurchase program, which as of June 30, 2018, had $29.8 million remaining. The Company intends to make purchases of its common stock from time to time under this program through open market purchases, privately negotiated transactions, tender offers, exchange offers, redemptions or otherwise, upon such terms and at such prices as we may determine.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017
______________________________________________________________________________________________________
The following table provides information regarding share repurchases during the referenced periods.(1)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
(In thousands, except per share data) | 2018 | | 2017 | | 2018 | | 2017 |
Shares repurchased (2) | 301 |
| | 442 |
| | 860 |
| | 442 |
|
Total cost, including brokerage fees | $ | 10,530 |
| | $ | 11,090 |
| | $ | 30,332 |
| | $ | 11,090 |
|
Average repurchase price per share (3) | $ | 35.02 |
| | $ | 25.11 |
| | $ | 35.28 |
| | $ | 25.11 |
|
(1) Shares repurchased reflect repurchases settled during the three and six months ended June 30, 2018. These amounts exclude repurchases traded but not yet settled on or before June 30, 2018.
(2) All shares repurchased have been retired and constitute authorized but unissued shares.
(3) Amounts in the table may not recalculate exactly due to rounding. Average repurchase price per share is calculated based on unrounded numbers.
Dividends
On May 2, 2017, the Company announced that its Board of Directors had authorized the reinstatement of the Company’s cash dividend program.
The dividends declared by the Board under this program and reflected in the periods presented are:
|
| | | | | | |
Declaration date | | Record date | | Payment date | | Amount per share |
December 7, 2017 | | December 28, 2017 | | January 15, 2018 | | $0.05 |
March 2, 2018 | | March 16, 2018 | | April 15, 2018 | | 0.05 |
June 8, 2018 | | June 29, 2018 | | July 15, 2018 | | 0.06 |
Share-Based Compensation
We account for share-based awards exchanged for employee services in accordance with the authoritative accounting guidance for share-based payments. Under the guidance, share-based compensation expense