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BYD Boyd Gaming

Filed: 5 Nov 20, 4:28pm
 

 

Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________________________________

FORM 10-Q

 ____________________________________________________

(Mark One)

 

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

 

For the quarterly period ended September 30, 2020

OR

 

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

 

For the transition period from             to              

Commission file number: 1-12882

___________________________________________________

 

logo1.jpg

BOYD GAMING CORPORATION

(Exact name of registrant as specified in its charter)

 ____________________________________________________

 

Nevada

88-0242733

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

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)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 ____________________________________________________

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

 

 

Common stock, $0.01 par value

 

BYD

 

New York Stock Exchange

 

 

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

 

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

 

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

☐ 

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

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

 

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

 

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

 

The number of shares outstanding of the registrant’s common stock as of November 2, 2020 was 111,540,103.

 

 

 

 

BOYD GAMING CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2020

TABLE OF CONTENTS

 

 

 

Page

No.

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited)

3

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

3

 

 

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2020 and 2019

5

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders' Equity for each of the quarters within the nine months ended September 30, 2020 and 2019

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements

8

   
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations23
   

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

34

 

 

 

Item 4.

Controls and Procedures

35

 

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

36

 

 

 

Item 1A.

Risk Factors

36

 

 

 

Item 6.

Exhibits

37

 

 

 

Signature Page

38

 

 

 

 

PART I. Financial Information

 

Item 1.        Financial Statements (Unaudited)

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

 

  

September 30,

  

December 31,

 

(In thousands, except share data)

 

2020

  

2019

 

ASSETS

        

Current assets

        

Cash and cash equivalents

 $506,046  $249,977 

Restricted cash

  15,024   20,471 
Accounts receivable, net  43,778   54,864 
Inventories  22,769   22,101 
Prepaid expenses and other current assets  52,665   46,481 
Income taxes receivable  340   5,600 

Total current assets

  640,622   399,494 
Property and equipment, net  2,533,897   2,672,553 

Operating lease right-of-use assets

  931,797   936,170 
Other assets, net  99,435   91,750 
Intangible assets, net  1,390,605   1,466,891 
Goodwill, net  971,287   1,083,287 

Total assets

 $6,567,643  $6,650,145 

LIABILITIES AND STOCKHOLDERS' EQUITY

        

Current liabilities

        
Accounts payable $67,383  $91,003 
Current maturities of long-term debt  29,165   26,994 
Accrued liabilities  424,626   438,896 

Total current liabilities

  521,174   556,893 
Long-term debt, net of current maturities and debt issuance costs  3,958,367   3,738,937 
Operating lease liabilities, net of current portion  855,559   840,285 
Deferred income taxes  121,901   162,695 
Other long-term tax liabilities  0   3,840 
Other liabilities  66,731   82,253 

Commitments and contingencies (Notes 6 and 8)

          

Stockholders' equity

        
Preferred stock, $0.01 par value, 5,000,000 shares authorized  0   0 
Common stock, $0.01 par value, 200,000,000 shares authorized; 111,539,603 and 111,542,108 shares outstanding  1,115   1,115 
Additional paid-in capital  879,450   883,715 
Retained earnings  162,955   380,942 
Accumulated other comprehensive income (loss)  391   (530)

Total stockholders' equity

  1,043,911   1,265,242 

Total liabilities and stockholders' equity

 $6,567,643  $6,650,145 

 

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

 

 

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands, except per share data)

 

2020

  

2019

  

2020

  

2019

 

Revenues

                

Gaming

 $565,965  $613,487  $1,260,841  $1,867,399 

Food & beverage

  38,778   108,069   139,323   331,206 

Room

  26,925   60,705   80,570   179,046 

Other

  20,570   37,307   61,888   115,337 

Total revenues

  652,238   819,568   1,542,622   2,492,988 

Operating costs and expenses

                

Gaming

  214,984   276,302   530,445   835,511 

Food & beverage

  38,691   101,981   145,275   307,609 

Room

  12,931   28,393   41,013   83,074 

Other

  5,809   23,526   29,425   72,154 

Selling, general and administrative

  86,983   116,899   260,681   349,011 

Master lease rent expense

  25,914   24,665   75,992   73,058 

Maintenance and utilities

  33,751   41,351   88,551   119,158 

Depreciation and amortization

  69,320   65,092   205,498   200,396 

Corporate expense

  19,605   21,411   58,526   79,501 

Project development, preopening and writedowns

  2,249   5,297   9,582   14,243 

Impairment of assets

  0   0   171,100   0 

Other operating items, net

  14,928   1,260   23,570   1,564 

Total operating costs and expenses

  525,165   706,177   1,639,658   2,135,279 

Operating income (loss)

  127,073   113,391   (97,036)  357,709 

Other expense (income)

                

Interest income

  (468)  (434)  (1,476)  (1,356)

Interest expense, net of amounts capitalized

  62,387   59,661   173,440   182,224 

Loss on early extinguishments and modifications of debt

  413   242   1,000   750 

Other, net

  (4,977)  113   (5,206)  (227)

Total other expense, net

  57,355   59,582   167,758   181,391 

Income (loss) before income taxes

  69,718   53,809   (264,794)  176,318 

Income tax benefit (provision)

  (31,602)  (14,404)  46,807   (42,978)

Net income (loss)

 $38,116  $39,405  $(217,987) $133,340 
                 
                 

Basic net income (loss) per common share

 $0.34  $0.35  $(1.92) $1.18 

Weighted average basic shares outstanding

  113,520   113,526   113,495   113,395 
                 
                 

Diluted net income (loss) per common share

 $0.33  $0.35  $(1.92) $1.17 

Weighted average diluted shares outstanding

  113,862   113,971   113,495   113,879 

 

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

 

 

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands)

 

2020

  

2019

  

2020

  

2019

 

Net income (loss)

 $38,116  $39,405  $(217,987) $133,340 

Other comprehensive income (loss), net of tax:

                

Fair value adjustments to available-for-sale securities, net of tax

  239   543   921   996 

Comprehensive income (loss)

 $38,355  $39,948  $(217,066) $134,336 

 

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

  

Income (Loss), Net

  

Total

 

Balances, January 1, 2020

  111,542,108  $1,115  $883,715  $380,942  $(530) $1,265,242 

Net loss

     0   0   (147,559)  0   (147,559)

Comprehensive income, net of tax

     0   0   0   1,127   1,127 

Stock options exercised

  3,000   0   25   0   0   25 

Release of restricted stock units, net of tax

  76,502   1   (767)  0   0   (766)

Release of performance stock units, net of tax

  241,118   2   (3,372)  0   0   (3,370)

Shares repurchased and retired

  (682,596)  (6)  (11,114)  0   0   (11,120)

Share-based compensation costs

     0   8,191   0   0   8,191 

Balances, March 31, 2020

  111,180,132   1,112   876,678   233,383   597   1,111,770 
Net loss     0   0   (108,544)  0   (108,544)
Comprehensive loss, net of tax     0   0   0   (445)  (445)
Stock options exercised  1,000   0   8   0   0   8 
Release of restricted stock units, net of tax  183,741   2   (6)  0   0   (4)
Release of performance stock units, net of tax  20,082   1   0   0   0   1 
Shares repurchased and retired     (1)  0   0   0   (1)
Share-based compensation costs     0   2,693   0   0   2,693 
Balances, June 30, 2020  111,384,955   1,114   879,373   124,839   152   1,005,478 
Net income     0   0   38,116   0   38,116 
Comprehensive income, net of tax     0   0   0   239   239 
Stock options exercised  139,065   1   1,159   0   0   1,160 
Release of restricted stock units, net of tax  15,583   0   (224)  0   0   (224)
Release of performance stock units, net of tax     0   0   0   0   0 
Shares repurchased and retired     0   0   0   0   0 
Share-based compensation costs     0   (858)  0   0   (858)
Balances, September 30, 2020  111,539,603  $1,115  $879,450  $162,955  $391  $1,043,911 

 

 

                  

Accumulated Other

     
  

Common Stock

  

Additional

  

Retained

  

Comprehensive

     

(In thousands, except share data)

 

Shares

  

Amount

  

Paid-in Capital

  

Earnings

  

Income (Loss), Net

  

Total

 

Balances, January 1, 2019

  111,757,105  $1,118  $892,331  $253,357  $(1,065) $1,145,741 

Net income

     0   0   45,451   0   45,451 

Comprehensive income, net of tax

     0   0   0   465   465 

Stock options exercised

  137,063   1   1,261   0   0   1,262 

Release of restricted stock units, net of tax

  46,958   0   (418)  0   0   (418)

Release of performance stock units, net of tax

  270,960   3   (3,768)  0   0   (3,765)

Shares repurchased and retired

  (830,100)  (8)  (21,645)  0   0   (21,653)

Dividends declared ($0.06 per share)

     0   0   (6,683)  0   (6,683)

Share-based compensation costs

     0   9,709   0   0   9,709 

Balances, March 31, 2019

  111,381,986   1,114   877,470   292,125   (600)  1,170,109 
Net income     0   0   48,484   0   48,484 
Comprehensive loss, net of tax     0   0   0   (12)  (12)
Stock options exercised     0   0   0   0   0 
Release of restricted stock units, net of tax  13,075   1   (136)  0   0   (135)
Release of performance stock units, net of tax     0   0   0   0   0 
Shares repurchased and retired  (245,221)  (4)  (6,104)  0   0   (6,108)
Dividends declared ($0.07 per share)     0   0   (7,781)  0   (7,781)
Share-based compensation costs     0   8,158   0   0   8,158 
Balances, June 30, 2019  111,149,840   1,111   879,388   332,828   (612)  1,212,715 
Net income     0   0   39,405   0   39,405 
Comprehensive income, net of tax     0   0   0   543   543 
Stock options exercised  3,416   0   27   0   0   27 
Release of restricted stock units, net of tax  2,878   0   (38)  0   0   (38)
Release of performance stock units, net of tax  0   0   0   0   0   0 
Shares repurchased and retired  (11,354)  0   (284)  0   0   (284)
Dividends declared ($0.07 per share)     0   0   (7,780)  0   (7,780)
Share-based compensation costs     0   3,559   0   0   3,559 
Balances, September 30, 2019  111,144,780  $1,111  $882,652  $364,453  $(69) $1,248,147 

 

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

 

 

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

  

Nine Months Ended

 
  

September 30,

 

(In thousands)

 

2020

  

2019

 

Cash Flows from Operating Activities

        
Net income (loss) $(217,987) $133,340 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

        
Depreciation and amortization  205,498   200,396 
Amortization of debt financing costs and discounts on debt  9,066   6,974 
Non-cash operating lease expense  43,806   23,972 
Share-based compensation expense  10,026   21,426 
Deferred income taxes  (40,794)  40,279 
Non-cash impairment of assets  171,100   0 
Loss on early extinguishments and modifications of debt  1,000   750 
Other operating activities  (27)  1,363 

Changes in operating assets and liabilities:

        
Accounts receivable, net  11,086   3,710 
Inventories  (668)  9 
Prepaid expenses and other current assets  (7,560)  (10,436)
Income taxes (receivable) payable, net  5,260   (532)
Other assets, net  (1,788)  (3,546)
Accounts payable and accrued liabilities  (29,316)  16,840 
Operating lease liabilities  (43,806)  (23,972)
Other long-term tax liabilities  (3,840)  153 
Other liabilities  12,957   4,663 

Net cash provided by operating activities

  124,013   415,389 

Cash Flows from Investing Activities

        
Capital expenditures  (105,077)  (166,797)
Cash paid for acquisitions, net of cash received  (11,201)  (5,535)
Other investing activities  0   (23,259)

Net cash used in investing activities

  (116,278)  (195,591)

Cash Flows from Financing Activities

        
Borrowings under bank credit facility  965,100   1,061,929 
Payments under bank credit facility  (1,281,421)  (1,240,950)
Proceeds from issuance of senior notes  600,000   0 
Debt financing costs, net  (17,142)  (44)
Share-based compensation activities, net  (3,170)  (3,067)
Shares repurchased and retired  (11,121)  (28,045)
Dividends paid  (7,808)  (21,169)
Other financing activities  (1,551)  (215)

Net cash provided by (used in) financing activities

  242,887   (231,561)

Change in cash, cash equivalents and restricted cash

  250,622   (11,763)
Cash, cash equivalents and restricted cash, beginning of period  270,448   273,202 

Cash, cash equivalents and restricted cash, end of period

 $521,070  $261,439 

Supplemental Disclosure of Cash Flow Information

        
Cash paid for interest, net of amounts capitalized $131,568  $161,028 
Cash paid for (received from) income taxes  (6,846)  3,458 

Supplemental Schedule of Non-cash Investing and Financing Activities

        
Payables incurred for capital expenditures $3,774  $1,586 
Mortgage settlement in exchange for real estate  57,684   0 

 

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, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019

______________________________________________________________________________________________________

 

 

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

 

Going Concern Matters and Management's Assessment

As a result of the COVID-19 global pandemic, all of our gaming facilities were closed in mid- March 2020 in compliance with orders issued by state officials as precautionary measures intended to slow the spread of the COVID-19 virus. As of September 30, 2020, 26 of our 29 gaming facilities have re-opened and are operating, subject to various health and safety measures, including occupancy limitations. Three of our properties in Las Vegas remain closed to the public due to the current levels of the demand in the market and our cost containment efforts. No dates have been set for re-opening these properties. We cannot predict whether we will be required to temporarily close some or all of our re-opened casinos in the future. Further, we cannot currently predict the ongoing impact of the pandemic on consumer demand and the negative effects on our workforce, suppliers, contractors and other partners. In responding to these circumstances, the safety and well-being of our team members and customers is our utmost priority. We have developed and implemented a broad range of safety protocols at our properties to ensure the health and safety of our team members and our customers.

 

The closures of our properties had a material impact on our business, and the COVID-19 pandemic, the associated impacts on customer behavior and the requirements of health and safety protocols are expected to continue to have a material impact on our business. The severity and duration of such business impacts cannot currently be estimated and the ultimate impact of the COVID-19 pandemic on our operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, its impact on the economy and consumer behavior and demand, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in additional business disruptions, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition and results of operations.

 

We have taken significant measures in response to the impact of the COVID-19 pandemic on our business, including (i) reducing the offering of certain amenities (because such amenities must remain closed) and otherwise limiting the availability of certain offerings, such as deactivating a substantial number of gaming devices to maintain social distancing and substantially limiting restaurant seating, as well as substantially limiting the number of customers permitted to be in a property at any time; (ii) adjusting property and corporate staffing levels in response to operational refinements and business volumes present as we re-opened our properties; (iii) suspending our quarterly cash dividend and share repurchase programs; and (iv) suspending all non-essential spending, including non-essential capital investment. 

 

On May 8, 2020, we amended the Boyd Credit Agreement to, among other things, waive the financial covenants for the period beginning on March 30, 2020 through the earlier of (x) the date on which the Company delivers to the administrative agent a covenant relief period termination notice, (y) the date on which the administrative agent receives a compliance certificate with respect to the Company’s fiscal quarter ending June 30, 2021, and (z) the date on which the Company fails to satisfy the conditions to covenant relief set forth in the amendment. On May 21, 2020, we issued $600 million aggregate principal amount of 8.625% senior notes due 2025 to further increase our cash position. In August 2020, the Company further amended the Boyd Credit Agreement to increase the Revolving Credit Facility capacity by $88.2 million and extend the Revolving Credit Facility and Term A Loan to September 2023. (See Note 5, Long-Term Debt, for further discussion of these events.)

 

Due to the adverse impacts of COVID-19 on our business, we currently anticipate funding our operations over the next 12 months with the cash being generated by our re-opened properties, supplemented, if necessary, by the cash we currently have available and the borrowing capacity available under our Revolving Credit Facility. We assessed the recoverability of our assets as of the end of first quarter considering our then current expectations of the timing of re-openings and the expected level of operations to be achieved post re-opening. Based on this review, we recognized pre-tax, non-cash impairment charges of $171.1 million in the first quarter of 2020. If our expectations regarding projected revenues and cash flows related to our assets are not achieved, we may be subject to additional impairment charges in the future, which could have a material adverse impact on our consolidated financial statements. Our conclusions based on our reviews as of the end of second quarter and third quarter of 2020 were that no additional impairment charges were required.

 

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, 2019, as filed with the U.S. Securities and Exchange Commission ("SEC") on February 27, 2020.

 

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019

______________________________________________________________________________________________________

 

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.

 

Cash and Cash Equivalents

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

 

Restricted Cash

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

 

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)

 

2020

  

2019

  

2019

  

2018

 
Cash and cash equivalents $506,046  $249,977  $235,084  $249,417 
Restricted cash  15,024   20,471   26,355   23,785 

Total cash, cash equivalents and restricted cash

 $521,070  $270,448  $261,439  $273,202 

 

Leases

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

 

Revenue Recognition

The Company’s revenue contracts with customers consist of gaming wagers, hotel room sales, food & beverage offerings and other amenity transactions. The transaction price for a gaming wagering contract is the difference between gaming wins and losses, not the total amount wagered. Cash discounts, commissions and other cash incentives to customers related to gaming play are recorded as a reduction of 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 4, Accrued Liabilities, for the balance outstanding related to player loyalty programs.

 

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019

______________________________________________________________________________________________________

 

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 4, Accrued Liabilities, for the balance outstanding related to advance deposits.

 

The Company's outstanding chip liability represents the amounts owed in exchange for gaming chips held by a customer. Outstanding chips are expected to be recognized as revenue or redeemed for cash within one year of being purchased. See Note 4, Accrued Liabilities, for the balance 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 customers without charge or upon redemption of points under our player loyalty programs, included in departmental revenues and therefore reducing our gaming revenues, are as follows:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands)

 

2020

  

2019

  

2020

  

2019

 

Food & beverage

 $20,055  $52,924  $69,470  $159,966 

Rooms

  12,007   24,482   34,162   71,798 

Other

  1,211   3,753   4,265   10,983 

 

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 $114.8 million and $136.2 million for the three months ended September 30, 2020 and 2019, respectively, and $259.7 million and $411.0 million for the nine months ended September 30, 2020 and 2019, 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, especially given that the full impact of COVID-19 is not yet known, and could have a material adverse impact on our consolidated financial statements.

 

10

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019

______________________________________________________________________________________________________

 

Recently Adopted Accounting Pronouncement

In March 2020, the SEC amended Rules 3-10 and 3-16 of Regulation S-X, narrowing the circumstances that require separate financial statements of subsidiary issuers and guarantors and streamlines the alternative disclosures required in lieu of those separate statements. The final rule also allows us to replace the condensed consolidating financial information for our subsidiary guarantors and non-guarantors that had been provided in the footnotes of our previous filings with the simplified disclosure that is now included within our Management’s Discussion and Analysis. This rule is effective January 4, 2021 with early adoption permitted. The Company elected to early adopt this rule during the three months ended June 30, 2020.

 

Accounting Standards Update ("ASU") Reference Rate Reform, Topic 848 ("Update 2020-04")

In March 2020, the FASB issued Update 2020-04 to provide optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. Update 2020-04 was effective upon issuance and may be applied prospectively through December 31, 2022. The application of Update 2020-04 is not expected to have a material impact on the condensed consolidated financial statements.

 

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

In August 2018, the Financial Accounting Standards Board ("FASB") issued Update 2018-13 to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The standard is effective for financial statements issued for annual periods and interim periods within those annual periods beginning after December 15, 2019. The Company adopted Update 2018-13 during first quarter 2020 and the impact of the adoption to its condensed consolidated financial statements was not material.

 

Recently Issued Accounting Pronouncements

ASU 2020-01, Investments - Equity Securities, Topic 321, Investments - Equity Method and Joint Ventures, Topic 323, and Derivative and Hedging, Topic 815 ("Update 2020-01")

In January 2020, the FASB issued Update 2020-01 to clarify guidance in accounting for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative. Update 2020-01 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is evaluating the impact of the adoption of Update 2020-01 to the condensed consolidated financial statements.

 

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

 

 

NOTE 2.    PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following:

 

  

September 30,

  

December 31,

 

(In thousands)

 

2020

  

2019

 
Land $322,406  $324,501 
Buildings and improvements  3,053,179   3,090,974 
Furniture and equipment  1,650,189   1,596,395 
Riverboats and barges  241,043   241,036 
Construction in progress  72,936   56,069 

Total property and equipment

  5,339,753   5,308,975 
Less accumulated depreciation  2,805,856   2,636,422 

Property and equipment, net

 $2,533,897  $2,672,553 

 

Depreciation expense is as follows:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands)

 

2020

  

2019

  

2020

  

2019

 

Depreciation expense

 $64,478  $57,278  $190,975  $178,175 

 

11

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019

______________________________________________________________________________________________________

 

 

NOTE 3.    GOODWILL AND INTANGIBLE ASSETS, NET

Intangible assets, net consist of the following:

 

  

September 30, 2020

 
  

Weighted

  

Gross

      

Accumulated

     
  

Useful Life

  

Carrying

  

Accumulated

  

Impairment

  

Intangible

 

(In thousands)

 

Remaining (in years)

  

Value

  

Amortization

  

Losses

  

Assets, Net

 

Amortizing intangibles

                   

Customer relationships

 2.7  $68,100  $(51,197) $0  $16,903 

Host agreements

 12.7   58,000   (9,022)  0   48,978 

Development agreement

    21,373   0   0   21,373 
      147,473   (60,219)  0   87,254 
                    

Indefinite lived intangible assets

                   

Trademarks

 Indefinite   204,000   0   (21,200)  182,800 

Gaming license rights

 Indefinite   1,376,685   (33,960)  (222,174)  1,120,551 
      1,580,685   (33,960)  (243,374)  1,303,351 

Balances, September 30, 2020

    $1,728,158  $(94,179) $(243,374) $1,390,605 

 

  

December 31, 2019

 
  

Weighted

  

Gross

      

Accumulated

     
  

Useful Life

  

Carrying

  

Accumulated

  

Impairment

  

Intangible

 

(In thousands)

 

Remaining (in years)

  

Value

  

Amortization

  

Losses

  

Assets, Net

 

Amortizing intangibles

                   

Customer relationships

 3.5  $68,100  $(39,598) $0  $28,502 

Host agreements

 13.4   58,000   (6,122)  0   51,878 

Development agreement

    21,373   0   0   21,373 
      147,473   (45,720)  0   101,753 
                    

Indefinite lived intangible assets

                   

Trademarks

 

Indefinite

   206,687   0   (4,300)  202,387 

Gaming license rights

 

Indefinite

   1,376,685   (33,960)  (179,974)  1,162,751 
      1,583,372   (33,960)  (184,274)  1,365,138 

Balances, December 31, 2019

    $1,730,845  $(79,680) $(184,274) $1,466,891 

 

Goodwill, net consists of the following:

 

  

Gross

      

Accumulated

     
  

Carrying

  

Accumulated

  

Impairment

  

Goodwill,

 

(In thousands)

 

Value

  

Amortization

  

Losses

  

Net

 

Goodwill, net by Reportable Segment

                

Las Vegas Locals

 $593,567  $0  $(188,079) $405,488 

Downtown Las Vegas

  6,997   (6,134)  0   863 

Midwest & South

  666,798   0   (101,862)  564,936 

Balances, September 30, 2020

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

 

The following table sets forth the changes in our goodwill, net, during the nine months ended September 30, 2020.

 

(In thousands)

 

Goodwill, Net

 

Balance, January 1, 2020

 $1,083,287 

Additions

  0 

Impairments

  (112,000)

Balance, September 30, 2020

 $971,287 

 

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019

______________________________________________________________________________________________________

 

The Company has evaluated whether events or circumstances had occurred that would indicate it is more likely than not that any of our goodwill or other intangible assets were impaired. Factors considered in this evaluation included, among other things, the amount of the fair value over carrying value from the annual impairment testing performed as of October 1, 2019, changes in discount rates, and the expected impact of the COVID-19 pandemic on future revenues and cash flows. Based on this evaluation, we concluded that triggering events had occurred, and we reviewed our assets for impairment as of the end of first quarter 2020. For purposes of this review, we updated the discount rates to reflect the increased uncertainty of the cash flows and also updated revenue and cash flow forecasts. As a result of this review, we recorded impairment charges in our first quarter 2020 results totaling $171.1 million. Of this total, $112.0 million was for impairments of goodwill, $42.2 million for impairments of gaming license rights and $16.9 million for the impairments of trademarks. Our conclusions based on our reviews as of the end of second quarter and third quarter of 2020 were that no additional impairment charges were required.

 

 

NOTE 4.    ACCRUED LIABILITIES

Accrued liabilities consist of the following:

 

  

September 30,

  

December 31,

 

(In thousands)

 

2020

  

2019

 
Payroll and related expenses $67,523  $99,602 
Interest  65,102   32,239 
Gaming liabilities  63,812   64,465 
Player loyalty program liabilities  34,210   32,983 
Advance deposits  15,214   22,854 
Outstanding chip liabilities  6,049   7,394 
Dividend payable  0   7,808 
Operating lease liabilities  87,402   87,686 
Other accrued liabilities  85,314   83,865 

Total accrued liabilities

 $424,626  $438,896 

 

 

NOTE 5.    LONG-TERM DEBT

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

 

  

September 30, 2020

 
             

Unamortized

     
  

Interest

          

Origination

     
  

Rates at

  

Outstanding

  

Unamortized

  

Fees and

  

Long-Term

 

(In thousands)

 

September 30, 2020

  

Principal

  

Discount

  

Costs

  

Debt, Net

 

Bank credit facility

 2.558% $989,313  $(517) $(14,703) $974,093 

6.375% senior notes due 2026

 6.375%  750,000   0   (7,278)  742,722 

6.000% senior notes due 2026

 6.000%  700,000   0   (8,197)  691,803 

4.750% senior notes due 2027

 4.750%  1,000,000   0   (14,123)  985,877 
8.625% senior notes due 2025 8.625%  600,000   0   (11,108)  588,892 

Other

 6.124%  4,145   0   0   4,145 

Total long-term debt

     4,043,458   (517)  (55,409)  3,987,532 

Less current maturities

     29,165   0   0   29,165 

Long-term debt, net

    $4,014,293  $(517) $(55,409) $3,958,367 

 

  

December 31, 2019

 
             

Unamortized

     
  

Interest

          

Origination

     
  

Rates at

  

Outstanding

  

Unamortized

  

Fees and

  

Long-Term

 

(In thousands)

 

December 31, 2019

  

Principal

  

Discount

  

Costs

  

Debt, Net

 

Bank credit facility

 3.753% $1,305,634  $(671) $(14,255) $1,290,708 

6.375% senior notes due 2026

 6.375%  750,000   0   (8,271)  741,729 

6.000% senior notes due 2026

 6.000%  700,000   0   (9,244)  690,756 

4.750% senior notes due 2027

 4.750%  1,000,000   0   (15,584)  984,416 

Other

 11.138%  58,322   0   0   58,322 

Total long-term debt

     3,813,956   (671)  (47,354)  3,765,931 

Less current maturities

     26,994   0   0   26,994 

Long-term debt, net

    $3,786,962  $(671) $(47,354) $3,738,937 

 

13

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019

______________________________________________________________________________________________________

 

The outstanding principal amounts under our bank credit facility are comprised of the following:

 

  

September 30,

  

December 31,

 

(In thousands)

 

2020

  

2019

 
Revolving Credit Facility $0  $235,000 
Term A Loan  223,762   234,300 
Refinancing Term B Loans  765,551   795,034 
Swing Loan  0   41,300 

Total outstanding principal amounts under the bank credit facility

 $989,313  $1,305,634 

 

With a total revolving credit commitment of $945.5 million available under the bank credit facility, no borrowings on the Revolving Credit Facility and the Swing Loan and $12.6 million allocated to support various letters of credit, there is a remaining contractual availability of $932.9 million as of September 30, 2020

 

Bank Credit Agreement Amendments

The Company is party to a Third Amended and Restated Credit Agreement, dated as of August 14, 2013 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Boyd Credit Agreement"), governing its senior secured revolving credit facility (the "Revolving Credit Facility"), senior secured term loan A facility (the "Term A Loan") and senior secured term loan B facility (collectively with the Revolving Credit Facility and the Term A Loan, the "Credit Facilities"). The Boyd Credit Agreement includes, for the benefit of the Revolving Credit Facility and the Term A Loan, certain financial covenants, including a maximum total net leverage ratio covenant, a maximum secured net leverage ratio covenant and a minimum interest coverage ratio covenant (collectively, the "Financial Covenants").

 

The calculations used to determine the Company’s compliance with the Financial Covenants are dependent on its Consolidated EBITDA, as defined by the Boyd Credit Agreement. Due to the closure in first quarter 2020 of the Company’s properties due to the COVID pandemic, the Company’s Consolidated EBITDA was significantly affected whereby it became reasonably possible that the Company may be unable to maintain compliance with the Financial Covenants.

 

On May 8, 2020 (the "Amendment Effective Date"), the Company entered into an Amendment No. 3 to the Boyd Credit Agreement (the "Credit Agreement Amendment"), by and among the Company, the subsidiaries of the Company party thereto, the administrative agent and the lenders party thereto.

 

The Credit Agreement Amendment provides that during the period (the "Covenant Relief Period") beginning on March 30, 2020 and ending on the earlier of (x) the date on which the Company delivers to the administrative agent a covenant relief period termination notice, (y) the date on which the administrative agent receives a compliance certificate with respect to the Company’s fiscal quarter ending June 30, 2021, and (z) the date on which the Company fails to satisfy the conditions to covenant relief set forth in the Credit Agreement Amendment, the Financial Covenants under the Boyd Credit Agreement will not be tested. Instead, during the Covenant Relief Period, the Company will be required to maintain a minimum level of liquidity (calculated to include unrestricted cash and cash equivalents and unused commitments under the Revolving Credit Facility) of $250.0 million and, through the later of the end of the Covenant Relief Period and the date on which the company achieves a total net leverage ratio of no greater than 6.00 to 1.00, the Company will be subject to limitations on its ability to incur debt and liens, make investments and restricted payments and certain other transactions. In addition, the Credit Agreement Amendment, among other things, (i) amends the Financial Covenant levels that are applicable after the Covenant Relief Period and permits the Company to annualize Consolidated EBITDA for certain periods for purposes of the Financial Covenants, (ii) provides that, during the Covenant Relief Period, loans under the Revolving Credit Facility and the Term Loan A Facility shall bear interest at either (a) a base rate or (b) an adjusted LIBOR rate, in each case, plus an applicable margin, in the case of base rate loans, of 1.75%, and in the case of adjusted LIBOR rate loans, of 2.75%, (iii) provides for a 0.50% LIBOR floor and a 1.50% base rate floor, in each case, applicable to LIBOR rate loans and base rate loans under the Revolving Credit Facility and the Term Loan A Facility, (iv) provides that, for purposes of determining compliance with the conditions to credit extensions under the Revolving Credit Facility during the Covenant Relief Period, the definition of "Material Adverse Effect" shall not include effects, events, occurrences, facts, conditions or changes arising out of or resulting from or in connection with the COVID-19 pandemic and (v) makes certain other changes to the covenants and other provisions of the Existing Credit Agreement.

 

On August 6, 2020, the Company entered into an Amendment No. 4 to the Boyd Credit Agreement ("Amendment No. 4"), by and among the Company, certain direct and indirect subsidiary guarantors of the Company, the administrative agent and lenders party thereto. Amendment No. 4 modifies the existing Boyd Credit Agreement and provides for (i) certain amendments to the covenants and other provisions of the existing Boyd Credit Agreement as described in the amendment, (ii) an extension of the maturity dates of the Company’s existing Revolving Credit Facility and Term A Loan and (iii) a replacement of non-consenting lenders with the Replacement Lender and consenting lenders and a reallocation of a portion of the Term A Loan to commitments under the Revolving Credit Facility. Upon effectiveness of Amendment No. 4, (i) the Term A Loan will have quarterly amortization payments equal to 5% per annum, increasing to 10% per annum for the fiscal quarters ended June 30, 2021 and September 30, 2021 and 20% per annum for the fiscal quarters ended December 31, 2021 and thereafter and (ii) both facilities will mature on September 15, 2023, provided that if the maturity date of the Company’s existing Refinancing Term B Loans is not extended, then such facilities will mature 91 days before the maturity date of the Refinancing Term B Loans. The existing Revolving Credit Facility and Term A Loan will remain "Covenant Facilities" under the Boyd Credit Agreement and will be subject to minimum interest coverage ratio, maximum total leverage ratio and secured leverage ratio financial covenants as set forth in the Boyd Credit Agreement. Amendment No. 4 became effective on October 8, 2020.

 

 

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019

______________________________________________________________________________________________________

 

Belterra Park Agreement

On May 6, 2020 we entered into an agreement with Gold Merger Sub, LLC ("Gold Merger Sub"), a wholly owned subsidiary of Gaming and Leisure Properties, Inc. ("GLP"), for the acquisition of Boyd (Ohio) PropCo, LLC ("BP PropCo"), the entity that owns the real estate of Belterra Park (the "Real Estate"), with the merger consummated and the transaction closed at the time of the execution of the merger agreement. That agreement provided that Gold Merger Sub would acquire BP PropCo via a merger (the "Merger"), which would be treated for income tax purposes as a taxable asset acquisition consisting of the exchange of the Real Estate by us in satisfaction of the $57.7 million promissory note (the "Note") and mortgage executed in connection with GLP’s initial financing of our acquisition of the Real Estate in October 2018. 

 

Prior to the Merger, PNK (Ohio), LLC ("BP OpCo"), which owns the business operations of Belterra Park, leased the Real Estate from BP PropCo pursuant to a master lease that is the same in all material respects as the Master Lease between Boyd TCIV, LLC and Gold Merger Sub (the "BP Master Lease" and "GLP Master Lease," respectively). Rent paid under the BP Master Lease to BP PropCo by BP OpCo was then paid by BP PropCo to Gold Merger Sub as interest on the Note. As a result of the Merger, Gold Merger Sub has become the Landlord under the BP Master Lease and now receives rent payable under the BP Master Lease (equal to, and in lieu of, the interest payments on the Note received prior to consummation of the Merger). As an additional step in connection with the Merger, we expect to add BP OpCo as a subtenant to the GLP Master Lease (in connection with the termination of the BP Master Lease), resulting in a single Master Lease with GLP, subject to the prior receipt of all required governmental approvals. As a result of the transaction, the Company recorded an operating lease right-of-use-asset and operating lease liability of $40.9 million on the condensed consolidated balance sheet as of the transaction date. The operating lease right-of-use asset and operating lease liability were valued by utilizing a discount rate of 11.1% and a maturity date of April 30, 2031. For the nine months ended September 30, 2020, the cost and operating cash flow outflow related to the lease was $2.7 million.

 

8.625% Senior Notes due June 2025

On May 21, 2020, we issued $600 million aggregate principal amount of 8.625% senior notes due June 2025 (the "8.625% Notes"). The 8.625% Notes require semi-annual interest payments on June 1 and December 1 of each year, commencing on December 1, 2020. The 8.625% Notes will mature on June 1, 2025 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 net proceeds from the 8.625% Notes were used for general corporate purposes, including working capital and to pay fees and expenses related to the offering.

 

In conjunction with the issuance of the 8.625% Notes, we incurred approximately $12.0 million in debt financing costs that have been deferred and are being amortized over the term of the 8.625% Notes using the effective interest method.

 

At any time prior to June 1, 2022, we may redeem the 8.625% 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. After June 1, 2022, we may redeem all or a portion of the 8.625% Notes at redemption prices (expressed as percentages of the principal amount) ranging from 104.313% in 2022 to 100% in 2024 and thereafter, plus accrued and unpaid interest and Additional Interest.

 

4.750% Senior Notes due December 2027

On December 3, 2019, we issued $1.0 billion aggregate principal amount of 4.750% senior notes due December 2027 (the "4.750% Notes").  In connection with the private placement of the 4.750% Notes, we entered into a registration 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 4.750% Notes. We filed the required registration statement and commenced the exchange offer in July 2020. The exchange offer was completed on August 20, 2020 and our obligations under the registration agreement have been fulfilled.

 

Covenant Compliance

As of September 30, 2020, we believe that we were in compliance with the covenants of our debt instruments.

 

 

NOTE 6.    COMMITMENTS AND CONTINGENCIES

Commitments
As of September 30, 2020, 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, 2019, as filed with the SEC on February 27, 2020.

 

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 7.    STOCKHOLDERS' EQUITY AND STOCK INCENTIVE PLANS

Share Repurchase Program
On December 12, 2018, our Board of Directors authorized a share repurchase program of $100 million, which as of September 30, 2020, had  $61.4 million remaining under the plan. On March 16, 2020, the Company suspended share repurchases under the program in order to preserve liquidity due to the COVID- 19 pandemic.
 
15

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019

______________________________________________________________________________________________________

 

The following table provides information regarding share repurchases during the referenced periods.

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands, except per share data)

 

2020

  

2019

  

2020

  

2019

 

Shares repurchased (1)

  0   11   683   1,087 

Total cost, including brokerage fees

 $0  $284  $11,121  $28,044 

Average repurchase price per share (2)

 $0  $25.01  $16.29  $25.81 

 

(1) All shares repurchased have been retired and constitute authorized but unissued shares.

(2) Amounts in the table may not recalculate exactly due to rounding. Average repurchase price per share is calculated based on unrounded numbers.

 

Dividends

The dividends declared by the Board of Directors and reflected in the periods presented are:

 

Declaration date

 

Record date

 

Payment date

 Amount per share 

December 7, 2018

 

December 28, 2018

 

January 15, 2019

 $0.06 

March 4, 2019

 

March 15, 2019

 

April 15, 2019

  0.06 
June 7, 2019 June 17, 2019 July 15, 2019  0.07 
September 17, 2019 September 27, 2019 October 15, 2019  0.07 

December 17, 2019

 

December 27, 2019

 

January 15, 2020

  0.07 

 

On March 25, 2020, the Company announced that the cash dividend program has been suspended to help mitigate the financial impact of the COVID-19 pandemic.

 

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 is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense, net of estimated forfeitures, over the employee's requisite service period.

 

The following table provides classification detail of the total costs related to our share-based employee compensation plans reported in our condensed consolidated statements of operations.

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands)

 

2020

  

2019

  

2020

  

2019

 

Gaming

 $92  $127  $445  $488 

Food & beverage

  18   24   85   93 

Room

  8   12   40   45 

Selling, general and administrative

  466   644   2,262   2,481 

Corporate expense

  (1,442)  2,752   7,194   18,319 

Total share-based compensation expense

 $(858) $3,559  $10,026  $21,426 

 

The share-based compensation credit for the three months ended September 30, 2020 is due to a decline in the estimated achievement levels for Performance Share Units ("PSU") as a result of the impact of the COVID-19 pandemic on Company performance.

 

Performance Shares

Our stock incentive plan provides for the issuance of PSU grants which may be earned, in whole or in part, upon passage of time and the attainment of performance criteria. We periodically review our estimates of performance against the defined criteria to assess the expected payout of each outstanding PSU grant and adjust our stock compensation expense accordingly.

 

The PSU grants awarded in fourth quarter 2016 and 2015 vested during first quarter 2020 and 2019, respectively. Common shares were issued based on the determination by the Compensation Committee of the Board of Directors of our actual achievement of net revenue growth, Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") growth and customer service scores for the three-year performance period of each grant. As provided under the provisions of our stock incentive plan, certain of the participants elected to surrender a portion of the shares to be received to pay the withholding and other payroll taxes payable on the compensation resulting from the vesting of the PSUs.

 

The PSU grant awarded in November 2016 resulted in a total of 364,810 shares being issued during first quarter 2020, representing approximately 1.53 shares per PSU. Of the 364,810 shares issued, a total of 126,465 were surrendered by the participants for payroll taxes, resulting in a net issuance of 238,345 shares due to the vesting of the 2016 grant. The actual achievement level under the award metrics equaled the estimated performance as of year-end 2019; therefore, the vesting of the PSUs did not impact compensation costs in our 2020 condensed consolidated statement of operations.

 

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019

______________________________________________________________________________________________________

 

The PSU grant awarded in October 2015 resulted in a total of 395,964 shares being issued during first quarter 2019, representing approximately 1.67 shares per PSU. Of the 395,964 shares issued, a total of 125,004 were surrendered by the participants for payroll taxes, resulting in a net issuance of 270,960 shares due to the vesting of the 2015 grant. The actual achievement level under the award metrics equaled the estimated performance as of year-end 2018; therefore, the vesting of the PSUs did not impact compensation costs in our 2019 condensed consolidated statement of operations.

 

 

NOTE 8.     FAIR VALUE MEASUREMENTS

The authoritative accounting guidance for fair value measurements specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These inputs create the following fair value hierarchy:

 

Level 1: Quoted prices for identical instruments in active markets.

 

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

 

Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Thus, assets and liabilities categorized as Level 3 may be measured at fair value using inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Management's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy levels.

 

Balances Measured at Fair Value

The following tables show the fair values of certain of our financial instruments:

 

  

September 30, 2020

 

(In thousands)

 

Balance

  

Level 1

  

Level 2

  

Level 3

 

Assets

                

Cash and cash equivalents

 $506,046  $506,046  $0  $0 

Restricted cash

  15,024   15,024   0   0 

Investment available for sale

  17,227   0   0   17,227 
                 

Liabilities

                

Contingent payments

 $1,146  $0  $0  $1,146 

 

  

December 31, 2019

 

(In thousands)

 

Balance

  

Level 1

  

Level 2

  

Level 3

 

Assets

                

Cash and cash equivalents

 $249,977  $249,977  $0  $0 

Restricted cash

  20,471   20,471   0   0 

Investment available for sale

  16,151   0   0   16,151 
                 

Liabilities

                

Contingent payments

 $1,712  $0  $0  $1,712 

 

Cash and Cash Equivalents and Restricted Cash

The fair values of our cash and cash equivalents and restricted cash, classified in the fair value hierarchy as Level 1, are based on statements received from our banks at September 30, 2020 and December 31, 2019.

 

Investment Available for Sale

We have an investment in a single municipal bond issuance of $19.0 million aggregate principal amount of 7.5% Urban Renewal Tax Increment Revenue Bonds, Taxable Series 2007 with a maturity date of June 1, 2037 that is classified as available for sale. We are the only holder of this instrument and there is no quoted market price for this instrument. As such, the fair value of this investment is classified as Level 3 in the fair value hierarchy. The fair value of the instrument is estimated using a discounted cash flows approach and the significant unobservable input used in the valuation at September 30, 2020 and December 31, 2019 is a discount rate of 9.4% and 10.5%, respectively. Unrealized gains and losses on this instrument resulting from changes in the fair value of the instrument are not charged to earnings, but rather are recorded as other comprehensive income (loss) in the stockholders' equity section of the condensed consolidated balance sheets. At both September 30, 2020 and December 31, 2019$0.6 million of the carrying value of the investment available for sale is included as a current asset in prepaid expenses and other current assets, and at September 30, 2020 and December 31, 2019, $16.6 million and $15.6 million, respectively, is included in other assets on the condensed consolidated balance sheets. The discount associated with this investment of $2.5 million and $2.7 million, as of September 30, 2020 and December 31, 2019, respectively, is netted with the investment balance and is being accreted over the life of the investment using the effective interest method. The accretion of such discount is included in interest income on the condensed consolidated statements of operations.

 

17

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019

______________________________________________________________________________________________________

 

Contingent Payments

In connection with the development of the Kansas Star Casino ("Kansas Star"), Kansas Star agreed to pay a former casino project promoter 1% of Kansas Star's EBITDA each month for a period of ten years commencing on December 20, 2011. The liability is recorded at the estimated fair value of the contingent payments using a discounted cash flows approach and the significant unobservable input used in the valuation at both September 30, 2020 and December 31, 2019, is a discount rate of 6.2%. At both September 30, 2020 and December 31, 2019, there was a current liability of $0.9 million, related to this agreement, which is recorded in accrued liabilities on the respective condensed consolidated balance sheets, and long-term obligation at September 30, 2020 and December 31, 2019, of $0.2 million and $0.8 million, respectively, which is included in other liabilities on the respective condensed consolidated balance sheets.

 

The following tables summarize the changes in fair value of the Company's Level 3 assets and liabilities:

 

  

Three Months Ended

 
  

September 30, 2020

  

September 30, 2019

 
  

Assets

  

Liability

  

Assets

  

Liability

 

(In thousands)

 

Investment Available for Sale

  

Contingent Payments

  

Investment Available for Sale

  

Contingent Payments

 

Balance at beginning of reporting period

 $16,867  $(1,275) $15,963  $(2,072)

Total gains (losses) (realized or unrealized):

                

Included in interest income (expense)

  38   (18)  37   (33)

Included in other comprehensive income (loss)

  322   0   751   0 

Included in other items, net

  0   (59)  0   40 

Purchases, sales, issuances and settlements:

                

Settlements

  0   206   0   207 

Balance at end of reporting period

 $17,227  $(1,146) $16,751  $(1,858)

 

  

Nine Months Ended

 
  

September 30, 2020

  

September 30, 2019

 
  

Assets

  

Liability

  

Assets

  

Liability

 

(In thousands)

 

Investment Available for Sale

  

Contingent Payments

  

Investment Available for Sale

  

Contingent Payments

 

Balance at beginning of reporting period

 $16,151  $(1,712) $15,772  $(2,407)

Total gains (losses) (realized or unrealized):

                

Included in interest income (expense)

  116   (66)  112   (109)

Included in other comprehensive income (loss)

  1,510   0   1,377   0 

Included in other items, net

  0   162   0   (21)

Purchases, sales, issuances and settlements:

                

Settlements

  (550)  470   (510)  679 

Balance at end of reporting period

 $17,227  $(1,146) $16,751  $(1,858)

 

We are exposed to valuation risk on our Level 3 financial instruments. We estimate our risk exposure using a sensitivity analysis of potential changes in the significant unobservable inputs of our fair value measurements. Our Level 3 financial instruments are most susceptible to valuation risk caused by changes in the discount rate. If the discount in our fair value measurements increased or decreased by 100 basis points, the change would not cause the value of our fair value measurements to change significantly.

 

Balances Disclosed at Fair Value

The following tables provide the fair value measurement information about our obligation under minimum assessment agreements and other financial instruments:

 

  

September 30, 2020

(In thousands)

 

Outstanding Face Amount

  

Carrying Value

  

Estimated Fair Value

 

Fair Value Hierarchy

Liabilities

             

Obligation under assessment arrangements

 $26,654  $22,310  $27,087 

Level 3

 

 

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019

______________________________________________________________________________________________________

 

  

December 31, 2019

(In thousands)

 

Outstanding Face Amount

  

Carrying Value

  

Estimated Fair Value

 

Fair Value Hierarchy

Liabilities

             

Obligation under assessment arrangements

 $28,118  $23,300  $28,780 

Level 3

 

The following tables provide the fair value measurement information about our long-term debt:

 

  

September 30, 2020

(In thousands)

 

Outstanding Face Amount

  

Carrying Value

  

Estimated Fair Value

 

Fair Value Hierarchy

Bank credit facility

 $989,313  $974,093  $962,990 

Level 2

6.375% senior notes due 2026

  750,000   742,722   778,125 

Level 1

6.000% senior notes due 2026

  700,000   691,803   722,750 

Level 1

4.750% senior notes due 2027

  1,000,000   985,877   978,750 

Level 1

8.625% senior notes due 2025  600,000   588,892   655,500 Level 1

Other

  4,145   4,145   4,145 

Level 3

Total debt

 $4,043,458  $3,987,532  $4,102,260  

 

  

December 31, 2019

(In thousands)

 

Outstanding Face Amount

  

Carrying Value

  

Estimated Fair Value

 

Fair Value Hierarchy

Bank credit facility

 $1,305,634  $1,290,708  $1,308,846 

Level 2

6.375% senior notes due 2026

  750,000   741,729   806,250 

Level 1

6.000% senior notes due 2026

  700,000   690,756   750,750 

Level 1

4.750% senior notes due 2027

  1,000,000   984,416   1,038,750 

Level 1

Other

  58,322   58,322   58,322 

Level 3

Total debt

 $3,813,956  $3,765,931  $3,962,918  

 

The estimated fair value of our bank credit facility is based on a relative value analysis performed on or about September 30, 2020 and December 31, 2019. The estimated fair values of our Senior Notes are based on quoted market prices as of September 30, 2020 and December 31, 2019. The other debt is fixed-rate debt consisting of the following: (i) Belterra Park Mortgage payable in 96 monthly installments, of which began in 2018 and was extinguished in May 2020; (2) finance leases with various maturity dates from 2020 to 2026; and (3) a purchase obligation with quarterly payments maturing in July 2022. The other debt is not traded and does not have an observable market input; therefore, we have estimated its fair value to be equal to the carrying value.

 

There were no transfers between Level 1, Level 2 and Level 3 measurements during the nine months ended September 30, 2020 and 2019.

 

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019

______________________________________________________________________________________________________

 

 

NOTE 9.    SEGMENT INFORMATION

We aggregate certain of our gaming entertainment properties in order to present 3 Reportable Segments: (i) Las Vegas Locals; (ii) Downtown Las Vegas; and (iii) Midwest & South. The table below lists the classification of each of our properties.

 

Las Vegas Locals

  

Gold Coast Hotel and Casino

 

Las Vegas, Nevada

The Orleans Hotel and Casino

 

Las Vegas, Nevada

Sam's Town Hotel and Gambling Hall

 

Las Vegas, Nevada

Suncoast Hotel and Casino

 

Las Vegas, Nevada

Eastside Cannery Casino and Hotel

 

Las Vegas, Nevada

Aliante Casino + Hotel + Spa

 

North Las Vegas, Nevada

Cannery Casino Hotel

 

North Las Vegas, Nevada

Eldorado Casino

 

Henderson, Nevada

Jokers Wild Casino

 

Henderson, Nevada

Downtown Las Vegas

  

California Hotel and Casino

 

Las Vegas, Nevada

Fremont Hotel and Casino

 

Las Vegas, Nevada

Main Street Station Casino, Brewery and Hotel

 

Las Vegas, Nevada

Midwest & South

  

Par-A-Dice Hotel Casino

 

East Peoria, Illinois

Belterra Casino Resort

 

Florence, Indiana

Blue Chip Casino, Hotel & Spa

 

Michigan City, Indiana

Diamond Jo Dubuque

 

Dubuque, Iowa

Diamond Jo Worth

 

Northwood, Iowa

Kansas Star Casino

 

Mulvane, Kansas

Amelia Belle Casino

 

Amelia, Louisiana

Delta Downs Racetrack Casino & Hotel

 

Vinton, Louisiana

Evangeline Downs Racetrack and Casino

 

Opelousas, Louisiana

Sam's Town Hotel and Casino

 

Shreveport, Louisiana

Treasure Chest Casino

 

Kenner, Louisiana

IP Casino Resort Spa

 

Biloxi, Mississippi

Sam's Town Hotel and Gambling Hall

 

Tunica, Mississippi

Ameristar Casino Hotel Kansas City

 

Kansas City, Missouri

Ameristar Casino Resort Spa St. Charles

 

St. Charles, Missouri

Belterra Park

 

Cincinnati, Ohio

Valley Forge Casino Resort

 

King of Prussia, Pennsylvania

 

Total Reportable Segment Departmental Revenues and Adjusted EBITDAR

We evaluate each of our property's profitability based upon Property Adjusted EBITDAR, which represents each property's earnings before interest expense, income taxes, depreciation and amortization, deferred rent, share-based compensation expense, project development, preopening and writedowns expenses, impairments of assets, other operating items, net, gain or loss on early retirements of debt, and master lease rent expense, as applicable. Total Reportable Segment Adjusted EBITDAR is the aggregate sum of the Property Adjusted EBITDAR for each of the properties included in our Las Vegas Locals, Downtown Las Vegas, and Midwest & South segments. Results for Downtown Las Vegas include the results of our Hawaii-based travel agency and captive insurance company. Results for Lattner, our Illinois distributed gaming operator, are included in our Midwest & South segment.

 

20

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019

______________________________________________________________________________________________________

 

The following tables set forth, for the periods indicated, departmental revenues for our Reportable Segments:

 

  

Three Months Ended September 30, 2020

 

(In thousands)

 

Gaming Revenue

  Food & Beverage Revenue  

Room Revenue

  

Other Revenue

  

Total Revenue

 

Revenues

                    

Las Vegas Locals

 $141,143  $12,501  $10,914  $6,518  $171,076 

Downtown Las Vegas

  12,678   2,992   1,350   519   17,539 

Midwest & South

  412,144   23,285   14,661   13,533   463,623 

Total Revenues

 $565,965  $38,778  $26,925  $20,570  $652,238 

 

  

Three Months Ended September 30, 2019

 

(In thousands)

 

Gaming Revenue

  Food & Beverage Revenue  

Room Revenue

  

Other Revenue

  

Total Revenue

 

Revenues

                    

Las Vegas Locals

 $137,839  $37,415  $25,809  $12,223  $213,286 

Downtown Las Vegas

  32,054   13,925   7,240   7,405   60,624 

Midwest & South

  443,594   56,729   27,656   17,679   545,658 

Total Revenues

 $613,487  $108,069  $60,705  $37,307  $819,568 

 

  

Nine Months Ended September 30, 2020

 

(In thousands)

 Gaming Revenue  

Food & Beverage Revenue

  Room Revenue  Other Revenue  Total Revenue 

Revenues

                    

Las Vegas Locals

 $298,307  $47,039  $35,278  $19,907  $400,531 

Downtown Las Vegas

  45,663   15,599   7,825   7,229   76,316 

Midwest & South

  916,871   76,685   37,467   34,752   1,065,775 

Total Revenues

 $1,260,841  $139,323  $80,570  $61,888  $1,542,622 

 

  

Nine Months Ended September 30, 2019

 

(In thousands)

 

Gaming
Revenue

  

Food & Beverage Revenue

  

Room
Revenue

  

Other
Revenue

  

Total
Revenue

 

Revenues

                    

Las Vegas Locals

 $424,238  $115,441  $78,458  $38,947  $657,084 

Downtown Las Vegas

  100,807   42,463   21,541   23,305   188,116 

Midwest & South

  1,342,354   173,302   79,047   53,085   1,647,788 

Total Revenues

 $1,867,399  $331,206  $179,046  $115,337  $2,492,988 

 

21

 

BOYD GAMING CORPORATION AND SUBSIDIARIES

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

as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019

______________________________________________________________________________________________________

 

The following table reconciles, for the periods indicated, Total Reportable Segment Adjusted EBITDAR to operating income, as reported in our accompanying condensed consolidated statements of operations:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In thousands)

 

2020

  

2019

  

2020

  

2019

 

Adjusted EBITDAR

                

Las Vegas Locals

 $78,900  $64,062  $128,520  $209,745 

Downtown Las Vegas

  (1,511)  11,903   1,225   42,830 

Midwest & South

  182,502   156,202   320,986   477,737 

Corporate expense

  (21,048)  (18,658)  (51,333)  (61,182)

Adjusted EBITDAR

  238,843   213,509   399,398   669,130 
                 

Other operating costs and expenses

                

Deferred rent

  217   245   666   734 

Master lease rent expense

  25,914   24,665   75,992   73,058 

Depreciation and amortization

  69,320   65,092   205,498   200,396 

Share-based compensation expense

  (858)  3,559   10,026   21,426 

Project development, preopening and writedowns

  2,249   5,297   9,582   14,243 

Impairment of assets

  0   0   171,100   0 

Other operating items, net

  14,928   1,260   23,570   1,564 

Total other operating costs and expenses

  111,770   100,118   496,434   311,421 

Operating income (loss)

 $127,073  $113,391  $(97,036) $357,709 

 

For purposes of this presentation, corporate expense excludes its portion of share-based compensation expense. Corporate expense represents unallocated payroll, professional fees, aircraft expenses and various other expenses not directly related to our casino and hotel operations.

 

Total Reportable Segment Assets

The Company's assets by Reportable Segment consisted of the following amounts:

 

  

September 30,

  

December 31,

 

(In thousands)

 

2020

  

2019

 

Assets

        
Las Vegas Locals $1,707,799  $1,804,476 
Downtown Las Vegas  202,311   212,936 
Midwest & South  3,974,476   4,229,174 

Total Reportable Segment Assets

  5,884,586   6,246,586 
Corporate  683,057   403,559 

Total Assets

 $6,567,643  $6,650,145 

 

 

NOTE 10.    SUBSEQUENT EVENTS

We have evaluated all events or transactions that occurred after September 30, 2020. During this period, up to the filing date, we did not identify any subsequent events, other than the Boyd Credit Agreement Amendment No. 4 disclosed in Note 5, Long-Term Debt, the effects of which would require disclosure or adjustment to our financial position or results of operations.

 

22

 
 

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

Executive Overview

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."

 

As a result of the COVID-19 global pandemic, all of our gaming facilities were closed in mid-March 2020 in compliance with orders issued by state officials as precautionary measures intended to slow the spread of the COVID-19 virus. As of September 30, 2020, and as reflected in the table below, 26 of our 29 gaming facilities have re-opened and are operating, subject to various health and safety measures, including occupancy limitations. Three of our properties in Las Vegas remain closed to the public due to the current levels of the demand in the market and our cost containment efforts. No dates have been set for re-opening these properties. We cannot predict whether we will be required to temporarily close some or all of our re-opened casinos in the future. Further, we cannot currently predict the ongoing impact of the pandemic on consumer demand and the negative effects on our workforce, suppliers, contractors and other partners. In responding to these circumstances, the safety and well-being of our team members and customers is our utmost priority. We have developed and implemented a broad range of safety protocols at our properties to ensure the health and safety of our team members and our customers.

 

The closures of our properties had a material impact on our business, and the COVID-19 pandemic, the associated impacts on customer behavior and the requirements of health and safety protocols are expected to continue to have a material impact on our business. The severity and duration of such business impacts cannot currently be estimated and the ultimate impact of the COVID-19 pandemic on our operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, its impact on the economy and consumer behavior and demand, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in additional business disruptions, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition and results of operations.

 

We have taken significant measures in response to the impact of the COVID-19 pandemic on our business, including (i) reducing the offering of certain amenities (because such amenities must remain closed) and otherwise limiting the availability of certain offerings, such as deactivating a substantial number of gaming devices to maintain social distancing and substantially limiting restaurant seating, as well as substantially limiting the number of customers permitted to be in a property at any time; (ii) adjusting property and corporate staffing levels in response to operational refinements and business volumes present as we re-opened our properties; (iii) suspending our quarterly cash dividend and share repurchase programs; and (iv) suspending all non-essential spending, including non-essential capital investment. 

 

On May 8, 2020, we amended the Boyd Credit Agreement to, among other things, waive the financial covenants for the period beginning on March 30, 2020 through the earlier of (x) the date on which the Company delivers to the administrative agent a covenant relief period termination notice, (y) the date on which the administrative agent receives a compliance certificate with respect to the Company’s fiscal quarter ending June 30, 2021, and (z) the date on which the Company fails to satisfy the conditions to covenant relief set forth in the amendment. In August 2020, the Company further amended the Boyd Credit Agreement to increase the Revolving Credit Facility by $88.2 million and extend the Revolving Credit Facility and Term A Loan to September 2023. (See Note 5, Long-Term Debt, in the notes to the condensed consolidated financial statements (unaudited).)

 

We currently anticipate funding our operations over the next 12 months with the cash generated from property operations, to the extent our properties remain open, supplemented, as necessary, by the cash we currently have available. To increase our cash position and preserve financial flexibility in light of uncertainty in the global markets, on May 21, 2020, we issued $600 million aggregate principal amount of 8.625% senior notes due 2025 to further increase our cash position. 

 

 

We are a geographically diversified operator of 29 gaming entertainment properties. Headquartered in Las Vegas, Nevada, we have gaming operations in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Ohio and Pennsylvania. We view each operating property as an operating segment. For financial reporting purposes, we aggregate our properties into the following three reportable segments:

 

    

Closure Date

 

Re-open Date

Las Vegas Locals

      

Gold Coast Hotel and Casino

 

Las Vegas, Nevada

 

3/18/2020

 

6/4/2020

The Orleans Hotel and Casino

 

Las Vegas, Nevada

 

3/18/2020

 

6/4/2020

Sam's Town Hotel and Gambling Hall

 

Las Vegas, Nevada

 

3/18/2020

 

6/4/2020

Suncoast Hotel and Casino

 

Las Vegas, Nevada

 

3/18/2020

 

6/4/2020

Eastside Cannery Casino and Hotel

 

Las Vegas, Nevada

 

3/18/2020

 

TBD

Aliante Casino + Hotel + Spa

 

North Las Vegas, Nevada

 

3/18/2020

 

6/4/2020

Cannery Casino Hotel

 

North Las Vegas, Nevada

 

3/18/2020

 

6/4/2020

Eldorado Casino

 

Henderson, Nevada

 

3/18/2020

 

TBD

Jokers Wild Casino

 

Henderson, Nevada

 

3/18/2020

 

6/4/2020

Downtown Las Vegas

      

California Hotel and Casino

 

Las Vegas, Nevada

 

3/18/2020

 

6/4/2020

Fremont Hotel and Casino

 

Las Vegas, Nevada

 

3/18/2020

 

6/4/2020

Main Street Station Casino, Brewery and Hotel

 

Las Vegas, Nevada

 

3/18/2020

 

TBD

Midwest & South

      

Par-A-Dice Hotel and Casino

 

East Peoria, Illinois

 

3/16/2020

 

7/1/2020

Belterra Casino Resort

 

Florence, Indiana

 

3/16/2020

 

6/15/2020

Blue Chip Casino, Hotel & Spa

 

Michigan City, Indiana

 

3/16/2020

 

6/15/2020

Diamond Jo Dubuque

 

Dubuque, Iowa

 

3/17/2020

 

6/1/2020

Diamond Jo Worth

 

Northwood, Iowa

 

3/17/2020

 

6/1/2020

Kansas Star Casino

 

Mulvane, Kansas

 

3/18/2020

 

5/23/2020

Amelia Belle Casino

 

Amelia, Louisiana

 

3/17/2020

 

5/27/2020

Delta Downs Racetrack Casino & Hotel

 

Vinton, Louisiana

 

3/17/2020

 

5/20/2020

Evangeline Downs Racetrack and Casino

 

Opelousas, Louisiana

 

3/17/2020

 

5/20/2020

Sam's Town Hotel and Casino

 

Shreveport, Louisiana

 

3/17/2020

 

5/27/2020

Treasure Chest Casino

 

Kenner, Louisiana

 

3/17/2020

 

5/20/2020

IP Casino Resort Spa

 

Biloxi, Mississippi

 

3/17/2020

 

5/21/2020

Sam's Town Hotel and Gambling Hall

 

Tunica, Mississippi

 

3/17/2020

 

5/21/2020

Ameristar Casino Hotel Kansas City

 

Kansas City, Missouri

 

3/17/2020

 

6/1/2020

Ameristar Casino Report Spa St. Charles

 

St. Charles, Missouri

 

3/17/2020

 

6/1/2020

Belterra Park

 

Cincinnati, Ohio

 

3/14/2020

 

6/19/2020

Valley Forge Casino Resort

 

King of Prussia, Pennsylvania

 

3/13/2020

 

6/26/2020

 

We also own and operate a travel agency and a captive insurance company that underwrites travel-related insurance, each located in Hawaii. Financial results for these operations are included in our Downtown Las Vegas segment, as our Downtown Las Vegas properties concentrate their marketing efforts on gaming customers from Hawaii.

 

Results for Lattner Entertainment Group Illinois, LLC ("Lattner"), our Illinois distributed gaming operator, are included in our Midwest & South segment. Lattner's operations were suspended on March 16, 2020 and resumed on July 1, 2020. The Midwest & South segment also includes our online sportsbook and gaming business, including those developed in partnership with FanDuel Group.

 

Most of our gaming entertainment properties also include hotel, dining, retail and other amenities. Our main business emphasis is on slot revenues, which are highly dependent upon the number of visits and spending levels of customers at our properties.

 

Our properties have historically generated significant operating cash flow, with the majority of our revenue being cash-based. While we do provide casino credit, subject to certain gaming regulations and jurisdictions, most of our customers wager with cash and pay for non-gaming services with cash or by credit card.

 

Our industry is capital intensive, and we rely heavily on the ability of our properties to generate operating cash flow in order to fund maintenance capital expenditures, fund acquisitions, provide excess cash for future development, repay debt financing and associated interest costs, repurchase our debt or equity securities, and pay income taxes and dividends.

 

Our Strategy

Our strategy is to increase shareholder value by pursuing strategic initiatives that improve and grow our business.

 

Strengthening Our Balance Sheet

We are committed to finding opportunities to strengthen our balance sheet through diversifying and increasing cash flow to reduce our debt.

 

Operating Efficiently

We are committed to operating more efficiently, and endeavor to prevent unneeded expense in our business. As we re-opened our properties and adjust our operations to address the impacts of the COVID-19 pandemic, the efficiencies of our business model position us to flow a substantial portion of the revenue to the bottom line.

 

 

Evaluating Acquisition Opportunities

Our evaluations of potential transactions and acquisitions are strategic, deliberate, and disciplined. Our goal is to identify and pursue opportunities that are a good fit for our business, deliver a solid return for shareholders, and are available at the right price.

 

Maintaining Our Brand

The ability of our employees to deliver great customer service helps distinguish our Company and our brands from our competitors. Our employees are an important reason that our customers continue to choose our properties over the competition across the country.

 

Our Key Performance Indicators

We use several key performance measures to evaluate the operations of our properties. These key performance measures include the following:

 

Gaming revenue measures: slot handle, which means the dollar amount wagered in slot machines, and table game drop, which means the total amount of cash deposited in table games drop boxes, plus the sum of markers issued at all table games, are measures of volume and/or market share.  Slot win and table game hold, which mean the difference between customer wagers and customer winnings on slot machines and table games, respectively, represent the amount of wagers retained by us and recorded as gaming revenues. Slot win percentage and table game hold percentage, which are not fully controllable by us, represent the relationship between slot handle to slot win and table game drop to table game hold, respectively.

  

Food & beverage revenue measures: average guest check, which means the average amount spent per customer visit and is a measure of volume and product offerings; number of guests served ("food covers"), which is an indicator of volume; and the cost per guest served, which is a measure of operating margin.

  

Room revenue measures: hotel occupancy rate, which measures the utilization of our available rooms; and average daily rate ("ADR"), which is a price measure.

 

RESULTS OF OPERATIONS

Overview

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In millions)

 

2020

  

2019

  

2020

  

2019

 

Total revenues

 $652.2  $819.6  $1,542.6  $2,493.0 

Operating income (loss)

  127.1   113.4   (97.0)  357.7 

Net income (loss)

  38.1   39.4   (218.0)  133.3 

 

Total Revenues

Total revenues decreased $167.3 million, or 20.4% and $950.4 million, or 38.1% during the three and nine months ended September 30, 2020, respectively, as compared to the corresponding prior year periods due primarily to the COVID-19 property closures that began in mid-March 2020 and lasted through May and June 2020, depending on the specific property's re-open date (the "Property Closures") and the decline in visitation after re-opening reflecting the limited capacity and reduced amenities offered to comply with restrictions dictated by the jurisdictions in which we operate.

 

Operating Income (Loss)

Operating income increased $13.7 million for the three months ended September 30, 2020, compared to the prior year comparable period, primarily due to improved gaming margins coupled with a reduction in operating expenses. Also contributing to the favorable change is a reduction of project development, preopening and writedown expense of $3.0 million as prior year included acquisition-related costs.

 

Operating income (loss) decreased $454.7 million for the nine months ended September 30, 2020, compared to the prior year comparable period primarily due to the Property Closures, along with a $171.1 million impairment charge recorded in the first quarter of 2020.

 

Net Income (Loss)

Net income remained relatively consistent for the three months ended September 30, 2020, compared to the prior year comparable period, declining by $1.3 million or 3.3%. 

 

Net income (loss) decreased $351.3 million for the nine months ended September 30, 2020, compared to the prior year comparable period. The decline is primarily attributable to the operating income decrease of $454.7 million, as discussed above. The decline is offset by (i) a change in the income tax provision from $43.0 million to a benefit of $46.8 million due to the Company's net loss and (ii) a $8.8 million decrease in interest expense, net of amounts capitalized, primarily attributable to a 0.9 percentage point decline in the weighted average interest rate. 

 

 

Operating Revenues

We derive the majority of our revenues from our gaming operations, which produced approximately 87% and 75% of revenues for the three months ended September 30, 2020 and 2019, respectively, and 82% and 75% for the nine months ended September 30, 2020 and 2019, respectively. Food & beverage revenues represent our next most significant revenue source, generating approximately 6% and 13% of revenues for the three months ended September 30, 2020 and 2019, respectively, and 9% and 13% for the nine months ended September 30, 2020 and 2019, respectively. Room revenues and other revenues separately contributed less than 10% of revenues during these periods. The shift in revenues from the non-gaming departments to gaming in the 2020 periods reflects the reduction in offerings of non-gaming amenities as properties re-opened following the Property Closures.

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In millions)

 

2020

  

2019

  

2020

  

2019

 

REVENUES

                

Gaming

 $566.0  $613.5  $1,260.8  $1,867.4 

Food & beverage

  38.8   108.1   139.3   331.2 

Room

  26.9   60.7   80.6   179.1 

Other

  20.5   37.3   61.9   115.3 

Total revenues

 $652.2  $819.6  $1,542.6  $2,493.0 
                 

COSTS AND EXPENSES

                

Gaming

 $215.0  $276.3  $530.4  $835.5 

Food & beverage

  38.7   102.0   145.3   307.6 

Room

  12.9   28.4   41.0   83.1��

Other

  5.8   23.5   29.4   72.2 

Total costs and expenses

 $272.4  $430.2  $746.1  $1,298.4 
                 

MARGINS

                
Gaming  62.0%  55.0%  57.9%  55.3%
Food & beverage  0.3%  5.6%  -4.3%  7.1%
Room  52.0%  53.2%  49.1%  53.6%
Other  71.7%  37.0%  52.5%  37.4%

 

Gaming

Gaming revenues are comprised primarily of the net win from our slot machine operations and to a lesser extent from table games win. The decrease in gaming revenues of $47.5 million, or 7.7%, and $606.6 million, or 32.5%, during the three and nine months ended September 30, 2020, respectively, as compared to the corresponding periods of the prior year, was due primarily to the Property Closures and capacity limitations after re-opening.

 

Food & Beverage

Food & beverage revenues de creased $69.3 million, or 64.1% , and $191.9 million, or  57.9%, during th e three and nine months ended September 30, 2020 , respectively, as compared to the corresponding periods of the prior year, due primarily to the Property Closures and reduced food & beverage offerings available as the properties re-opened. Overall food & beverage margins declined during th e three and nine months ended September 30, 2020 , as compared to the corresponding periods of the prior year, due primarily to a 25.9% and 25.7% increase in cost per cover offset by a 16.5% and 12.7% increase in average check, respectively.
 
Room

Room revenues decreased$33.8 million, or 55.6%, and $98.5 million, or 55.0%, during the three and nine months ended September 30, 2020, respectively, as compared to the corresponding period of the prior year due primarily to the Property Closures and reduced visitation after the properties re-opened. Overall room margins declined during the three and nine months ended September 30, 2020, as compared to the corresponding periods of the prior year, due primarily to a 7.5% and 15.8% increase in cost per room along with a 1.4% and 2.7% decline in the average daily rate, respectively.

 

Other

Other revenues relate to patronage visits at the amenities at our properties, including entertainment and nightclub revenues, retail sales, theater tickets and other venues. Other revenues decreased $16.7 million, or 44.9%, and $53.4 million, or 46.3%, during the three and nine months ended September 30, 2020, respectively, as compared to the corresponding period of the prior year, due primarily to the Property Closures along with limited entertainment offerings after property re-openings.

 

 

Revenues and Adjusted EBITDAR by Reportable Segment

We determine each of our properties' profitability based upon Adjusted Earnings Before Interest, Taxes, Depreciation, Amortization and Rent expense related to the master lease ("Adjusted EBITDAR"), which represents earnings before interest expense, income taxes, depreciation and amortization, deferred rent, master lease rent expense, share-based compensation expense, project development, preopening and writedowns expenses, impairments of assets and other operating items, net, as applicable. Reportable Segment Adjusted EBITDAR is the aggregate sum of the Adjusted EBITDAR for each of the properties comprising our Las Vegas Locals, Downtown Las Vegas and Midwest & South segments before net amortization, preopening and other items. Results for Downtown Las Vegas include the results of our travel agency and captive insurance company in Hawaii. Results for our Illinois distributed gaming operator are included in our Midwest & South segment. Corporate expense represents unallocated payroll, professional fees, aircraft expenses and various other expenses not directly related to our casino and hotel operations. Furthermore, corporate expense excludes its portion of share-based compensation expense.

 

EBITDAR is a commonly used measure of performance in our industry that we believe, when considered with measures calculated in accordance with GAAP, provides our investors a more complete understanding of our operating results before the impact of investing and financing transactions and income taxes and facilitates comparisons between us and our competitors. Management has historically adjusted EBITDAR when evaluating operating performance because we believe that the exclusion of certain recurring and non-recurring items is necessary to provide a full understanding of our core operating results and as a means to evaluate period-to-period results.

 

The following table presents our total revenues and Adjusted EBITDAR by Reportable Segment:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In millions)

 

2020

  

2019

  

2020

  

2019

 

Total revenues

                

Las Vegas Locals

 $171.1  $213.3  $400.5  $657.1 

Downtown Las Vegas

  17.5   60.6   76.3   188.1 

Midwest & South

  463.6   545.7   1,065.8   1,647.8 

Total revenues

 $652.2  $819.6  $1,542.6  $2,493.0 
                 

Adjusted EBITDA (1)

                

Las Vegas Locals

 $78.9  $64.1  $128.5  $209.8 

Downtown Las Vegas

  (1.5)  11.9   1.2   42.8 

Midwest & South

  182.5   156.2   321.0   477.7 

Corporate expense

  (21.0)  (18.7)  (51.3)  (61.2)

Adjusted EBITDAR

 $238.9  $213.5  $399.4  $669.1 

 

(1) Refer to Note 9, Segment Information, in the notes to the condensed consolidated financial statements (unaudited) for a reconciliation of Adjusted EBITDAR to operating income, as reported in accordance with GAAP in our accompanying condensed consolidated statements of operations.

 

Las Vegas Locals 

The Las Vegas Locals segment had significant declines in net revenue during the three and nine months ended September 30, 2020 and EBITDAR during the nine months ended September 30, 2020, as compared to the corresponding periods of the prior year, due to the Property Closures.  For the three months ended September 30, 2020, EBITDAR increased by $14.8 million as a result of our adjusting our operating and marketing costs in response to the post re-opening operating environment.

 

Downtown Las Vegas 

The Downtown Las Vegas segment experienced significant declines in both net revenue and EBITDAR during the three and nine months ended September 30, 2020, as compared to the corresponding periods of the prior year, due to the Property Closures and, given that our Downtown properties cater to the Hawaiian market, restrictions on travel in Hawaii since re-opening. 

 

Midwest & South 

The Midwest & South segment had significant declines in net revenue during the three and nine months ended September 30, 2020 and EBITDAR during the nine months ended September 30, 2020, as compared to the corresponding periods of the prior year, due to the Property Closures.  For the three months ended September 30, 2020, EBITDAR increased by $26.3 million as a result of our adjusting our operating and marketing costs in response to the post re-opening operating environment.

 

 

Other Operating Costs and Expenses 

The following costs and expenses, as presented in our condensed consolidated statements of operations, are further discussed below:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In millions)

 

2020

  

2019

  

2020

  

2019

 

Selling, general and administrative

 $87.0  $116.9  $260.7  $349.0 

Master lease rent expense

  25.9   24.7   76.0   73.1 

Maintenance and utilities

  33.8   41.4   88.6   119.2 

Depreciation and amortization

  69.3   65.1   205.5   200.4 

Corporate expense

  19.6   21.4   58.5   79.5 

Project development, preopening and writedowns

  2.2   5.3   9.6   14.2 

Impairment of assets

        171.1    

Other operating items, net

  14.9   1.3   23.6   1.6 

 

Selling, General and Administrative

Selling, general and administrative expenses, as a percentage of revenues, were 13.3% and 14.3% during the three months ended September 30, 2020 and 2019, respectively, and 16.9% and 14.0% during the nine months ended September 30, 2020 and 2019, respectively. The year over year increase is due to the reduction of revenues as a result of Property Closures along with the continued fixed costs incurred during the closure period. 

 

Master Lease Rent Expense

Master lease rent expense represents rent expense incurred by those properties that we acquired in October 2018 which are subject to two master lease agreements with a real estate investment trust. Master lease rent expense, as a percentage of revenues, was 4.0% and 3.0% during the three months ended September 30, 2020 and 2019, respectively, and 4.9% and 2.9% during the nine months ended September 30, 2020 and 2019, respectively.

 

Maintenance and Utilities

Maintenance and utilities expenses, as a percentage of revenues, were 5.2% and 5.0% during the three months ended September 30, 2020 and 2019, respectively, and 5.7% and 4.8% during the nine months ended September 30, 2020 and 2019, respectively.

 

Depreciation and Amortization

Depreciation and amortization expenses, as a percentage of revenues, were 10.6% and 7.9% during the three months ended September 30, 2020 and 2019, respectively, and 13.3% and 8.0% during the nine months ended September 30, 2020 and 2019. The dollar amount of depreciation and amortization expense remained consistent from period to period therefore the percentage increase is attributable to the revenue decline as a result of the Property Closures.

 

Corporate Expense

Corporate expense represents unallocated payroll, professional fees, rent and various other administrative expenses that are not directly related to our casino and/or hotel operations, in addition to the corporate portion of share-based compensation expense. Corporate expense represented 3.0% and 2.6% of revenues during the three months ended September 30, 2020 and 2019, respectively, and 3.8% and 3.2% during the nine months ended September 30, 2020 and 2019, respectively.

 

Project Development, Preopening and Writedowns

Project development, preopening and writedowns represent: (i) certain costs incurred and recoveries realized related to the activities associated with various acquisition opportunities, strategic initiatives, dispositions and other business development activities in the ordinary course of business; (ii) certain costs of start-up activities that are expensed as incurred in our ongoing efforts to develop gaming activities in new jurisdictions and expenses related to other new business development activities that do not qualify as capital costs; and (iii) asset write-downs. 

 

 

Impairment of Assets

Impairment of assets for the nine months ended September 30, 2020 include non-cash impairment charges of $8.0 million for trademarks and $22.6 million for goodwill in our Las Vegas Locals segment and non-cash impairment charges of $8.9 million for trademarks, $42.2 million for gaming license rights and $89.4 million for goodwill in our Midwest & South segment.

 

Other Operating Items, net

Other operating items, net, is generally comprised of miscellaneous non-recurring operating charges, including direct costs associated with the Property Closures, including severance payments to separated employees, natural disasters and severe weather, including hurricane and flood expenses, and subsequent recoveries of such costs, as applicable. During the nine months ended September 30, 2020, $22.0 million of other operating items, net, related to incremental, nonrecurring costs associated with the Property Closures.

 

Other Expenses

Interest Expense, net

The following table summarizes information with respect to our interest expense on outstanding indebtedness:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(In millions)

 

2020

  

2019

  

2020

  

2019

 

Interest Expense, net

 $61.9  $59.2  $172.0  $180.9 

Average Long-Term Debt Balance (1)

  4,436.0   3,917.2   4,332.0   3,981.8 

Weighted Average Interest Rates

  5.0%  5.7%  4.8%  5.7%

(1) Average debt balance calculation does not include the related discounts or deferred finance charges.

 

Interest expense, net of capitalized interest and interest income, for the three and nine months ended September 30, 2020, increased $2.7 million, or 4.5%, and decreased $8.9 million, or 4.9%, respectively, as compared to the prior year respective period. The impact is attributable to a decrease in the weighted average interest rate percentage point of 0.7 and 0.9 for the three and nine months ended September 30, 2020, respectively, as the underlying Eurodollar rate declined. The decline in interest rate is offset by an increase in the average long-term debt balance of $518.8 million and $350.2 million for the three and nine months ended September 30, 2020, respectively, which is driven by the following: (i) issuance in December 2019 of the $1.0 billion aggregate principal amount of 4.750% senior notes due December 2027; (ii) issuance in May 2020 of the $600.0 million aggregate principal amount of 8.625% senior notes due June 2025; offset by (iii) the retirement of our $750.0 million aggregate principal amount of 6.875% senior notes due May 2023; and (iv) the early repayments of the Refinancing Term B Loans.

 

Income Taxes 

The effective tax rates during the nine months ended September 30, 2020 and 2019 were 17.7% and 24.4%, respectively. The tax benefit for the nine months ended September 30, 2020 was favorably impacted by the settlement of a state audit offset by the creation of a valuation allowance applied to certain state deferred tax assets, including state net operating loss carryforwards. Certain state operations forecasted losses for the year have resulted in negative evidence that tax attributes may expire before utilization or the jurisdiction no longer has recent cumulative earnings to support an objective and verifiable source of income. In addition, the provision for the nine months ended September 30, 2020 was unfavorably impacted by certain nondeductible expenses. Our tax rates for the nine months ended September 30, 2020 and 2019 were favorably impacted by the inclusion of excess tax benefits, related to equity compensation, as a component of the provision for income taxes. The tax provision for the nine months ended September 30, 2019 was unfavorably impacted by state taxes and certain nondeductible expenses. The state audit settlement has resulted in a reduction to our unrecognized tax benefit.  As of September 30, 2020, there is no remaining unrecognized tax benefit.  We do not expect any significant change in our unrecognized tax benefit in the next year.

 

As a result of and response to the COVID-19 pandemic, the U.S. government enacted Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and it was signed into law on March 27, 2020. Included in the CARES Act are provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, interest expense deductions, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property. Our financial results for the nine months ended September 30, 2020, include the estimated payroll tax credits we will receive under the CARES Act, partially offsetting the expenses incurred during this period for compensation and benefits provided to qualifying employees.

 

 

LIQUIDITY AND CAPITAL RESOURCES

Financial Position

At September 30, 2020 and December 31, 2019, we had balances of cash and cash equivalents of $506.0 million and $250.0 million, respectively. In addition, we held restricted cash balances of $15.0 million and $20.5 million at September 30, 2020 and December 31, 2019, respectively. 

 

During the Property Closures, the Company used cash on hand to fund day-to-day operational expenses, interest and tax payments, as well as other necessary business expenditures. We believe that current cash balances together with the available borrowing capacity under our Revolving Credit Facility and cash flows from operating activities following the reopening of our facilities will be sufficient to meet our liquidity and capital resource needs for the next twelve months, including our projected operating requirements and maintenance capital expenditures. See "Indebtedness", below, for further detail regarding the bank credit facility.

 

The Company may seek to secure additional working capital, repay respective current debt maturities, or fund respective development projects, in whole or in part, through incremental bank financing and additional debt or equity offerings, to the extent such offerings are allowed under our debt agreements.

 

Cash Flows Summary

 

  

Nine Months Ended

 
  

September 30,

 

(In millions)

 

2020

  

2019

 

Net cash provided by operating activities

 $124.0  $415.4 
         

Cash flows from investing activities

        

Capital expenditures

  (105.1)  (166.8)
Cash paid for acquisitions, net of cash received  (11.2)  (5.5)

Other investing activities

     (23.3)

Net cash used in investing activities

  (116.3)  (195.6)
         

Cash flows from financing activities

        

Net borrowings (payments) under bank credit facility

  (316.3)  (179.0)
Proceeds from issuance of senior notes  600.0    

Debt issuance costs

  (17.1)   

Dividends paid

  (7.8)  (21.2)

Shares repurchased and retired

  (11.1)  (28.0)

Other financing activities

  (4.8)  (3.4)

Net cash provided by (used in) financing activities

  242.9   (231.6)

Increase (decrease) in cash, cash equivalents and restricted cash

 $250.6  $(11.8)

 

Cash Flows from Operating Activities

During the nine months ended September 30, 2020 and 2019, we generated operating cash flow of $124.0 million and $415.4 million, respectively. Generally, operating cash flows decreased during 2020 as compared to the prior year period due to the Property Closures in March through June 2020 and timing of working capital spending.

 

Cash Flows from Investing Activities

Our industry is capital intensive and we use cash flows for acquisitions, facility expansions, investments in future development or business opportunities and maintenance capital expenditures.

 

During the nine months ended September 30, 2020 and 2019, we incurred net cash outflows for investing activities of $116.3 million and $195.6 million, respectively, related primarily to the purchase of real estate, information technology purchases for new software and acquisition-related costs. 

 

Cash Flows from Financing Activities

We rely upon our financing cash flows to provide funding for investment opportunities, repayments of obligations and ongoing operations.

 

The net cash inflows from financing activities in the nine months ended September 30, 2020, reflect primarily the senior note issuance to preserve liquidity during the closure period. The outflows in 2020 reflect the use of cash flow to paydown our Revolving Credit Facility, pay debt financing costs, repurchase outstanding common stock under our share repurchase program and pay cash dividends to our shareholders. The net cash outflows from financing activities in the nine months ended September 30, 2019, reflect primarily the use of excess cash to reduce our outstanding debt, repurchase outstanding common stock under our share repurchase program and pay dividends to our shareholders.

 

 

Indebtedness

The outstanding principal balances of long-term debt, before unamortized discounts and fees, and the changes in those balances are as follows:

 

(In millions)

 September 30, 2020  December 31, 2019  Increase / (Decrease) 

Bank credit facility

 $989.3  $1,305.7  $(316.4)

6.375% senior notes due 2026

  750.0   750.0    

6.000% senior notes due 2026

  700.0   700.0    

4.750% senior notes due 2027

  1,000.0   1,000.0    
8.625% senior notes due 2025  600.0      600.0 

Other

  4.2   58.3   (54.1)

Total long-term debt

  4,043.5   3,814.0   229.5 

Less current maturities

  29.2   27.0   2.2 

Long-term debt, net of current maturities

 $4,014.3  $3,787.0  $227.3 

 

Amounts Outstanding

The principal amounts under the bank credit facility are comprised of the following:

 

  

September 30,

  

December 31,

 

(In millions)

 

2020

  

2019

 

Revolving Credit Facility

 $  $235.0 

Term A Loan

  223.8   234.3 

Refinancing Term B Loans

  765.5   795.0 

Swing Loan

     41.4 

Total outstanding principal amounts under the bank credit facility

 $989.3  $1,305.7 

 

With a total revolving credit commitment of $945.5 million available under the bank credit facility, no borrowings on the Revolving Credit Facility and the Swing Loan and $12.6 million allocated to support various letters of credit, there is a remaining contractual availability of $932.9 million as of September 30, 2020. 

 

The blended interest rate for outstanding borrowings under the bank credit facility was 2.6% at September 30, 2020 and 3.8% at December 31, 2019.

 

Debt Service Requirements

Debt service requirements under our current outstanding senior notes consist of semi-annual interest payments (based upon fixed annual interest rates ranging from 4.750% to 8.625%) and principal repayments of our 8.625% Notes due in June 2025, our 6.375% Notes due in April 2026, our 6.000% Notes due in August 2026 and our 4.750% Notes due in December 2027.

 

Covenant Compliance

On May 8, 2020, we amended our credit facility to, among other things, waive the financial covenants  for the period beginning on March 30, 2020 through the earlier of (x) the date on which the Company delivers to the administrative agent a covenant relief period termination notice, (y) the date on which the administrative agent receives a compliance certificate with respect to the Company’s fiscal quarter ending June 30, 2021, and (z) the date on which the Company fails to satisfy the conditions to covenant relief set forth in the amendment. 

 

As of September 30, 2020, we believe that we were in compliance with the covenants contained in our debt instruments.

 

The indentures governing the senior notes contain provisions that allow for the incurrence of additional indebtedness, if after giving effect to such incurrence, the fixed charge coverage ratio (as defined in the respective indentures, essentially a ratio of our consolidated EBITDA to fixed charges, including interest) for the trailing four quarter period on a pro forma basis would be at least 2.0 to 1.0. Should this provision prohibit the incurrence of additional debt, we may still borrow under our existing bank credit facility, to the extent that borrowing capacity remains under that agreement, as well as from other funding sources as provided under our debt agreements.

 

 

Guarantor Financial Information

In connection with the issuance of our 6.375% senior notes due April 2026 ("6.375% Notes"), our 6.000% senior notes due August 2026 ("6.000% Notes"), our 4.750% senior notes due December 2027 ("4.750% Notes") and our 8.625% senior notes due June 2025 ("8.625% Notes") (collectively, the "Guaranteed Notes"), certain of the Company's wholly owned subsidiaries (the "Guarantors") provide guarantees of those indentures. These Guaranteed Notes are fully and unconditionally guaranteed, on a joint and several basis, by certain our current and future domestic restricted subsidiaries, all of which are 100% owned by us. With the exception of one subsidiary, the guarantors of the 6.375% Notes are the same as for our 6.000% Notes, 4.750% Notes and 8.625% Notes (collectively, the "Other Notes").

 

Summarized combined balance sheet information for the parent company and the Guarantors are as follows:

 

  6.375% Notes  Other Notes 
  

September 30,

  

December 31,

  

September 30,

  

December 31,

 

(In millions)

 

2020

  

2019

  

2020

  

2019

 

Current assets

 $624.6  $372.0  $624.6  $371.9 

Noncurrent assets

  9,470.1   9,733.2   9,470.1   9,733.2 

Current liabilities

  503.1   518.5   503.1   518.5 

Noncurrent liabilities

  5,022.0   4,766.2   5,021.1   4,765.3 

 

Summarized combined results of operations for the parent company and the Guarantors are as follows:

 

  6.375% Notes  Other Notes 
  

Nine Months Ended

  

Nine Months Ended

 

(In millions)

 

September 30, 2020

  

September 30, 2020

 

Revenues

 $1,548.6  $1,548.6 

Costs and expenses

  1,611.3   1,611.3 

Operating loss

  (92.1)  (92.1)

Loss before income taxes

  (257.8)  (257.8)

Net loss

  (214.2)  (214.2)

 

Share Repurchase Program

Subject to applicable corporate securities laws, repurchases under our stock repurchase program may be made at such times and in such amounts as we deem appropriate. We are subject to certain limitations regarding the repurchase of common stock, such as restricted payment limitations related to our outstanding notes and bank credit facility. Purchases under our stock repurchase program can be discontinued at any time at our sole discretion. On December 12, 2018, our Board of Directors authorized a share repurchase program of $100 million. During the nine months ended September 30, 2020 and 2019, we repurchased 0.7 million and 1.1 million shares, respectively, of our common stock. We are currently authorized to repurchase up to an additional $61.4 million in shares of our common stock under the share repurchase program. We are not obligated to purchase any shares under our stock repurchase program. We suspended share repurchases in March 2020 in order to preserve liquidity due to the Property Closures.

 

We have in the past, and may in the future, acquire our debt or equity securities, 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.

 

Quarterly Dividend Program

The dividends declared by the Board of Directors under this program and reflected in the periods presented are:

 

Declaration date

 

Record date

 

Payment date

 Amount per share 

December 7, 2018

 

December 28, 2018

 

January 15, 2019

 $0.06 

March 4, 2019

 

March 15, 2019

 

April 15, 2019

  0.06 
June 7, 2019 June 17, 2019 July 15, 2019  0.07 
September 17, 2019 September 27, 2019 October 15, 2019  0.07 

December 17, 2019

 

December 27, 2019

 

January 15, 2020

  0.07 

 

On March 25, 2020, the Company announced that the cash dividend program has been suspended to help mitigate the financial impact of the COVID-19 pandemic.

 

Other Items Affecting Liquidity

We anticipate funding our capital requirements using cash on hand, cash flows from operations following the reopening of our facilities and availability under our Revolving Credit Facility, to the extent borrowing capacity exists after we meet our working capital needs for the next twelve months. Any additional financing that is needed may not be available to us or, if available, may not be on terms favorable to us. The outcome of the specific matters discussed herein, including our commitments and contingencies, may also affect our liquidity.

 

Commitments

Capital Spending and Development

We currently estimate that our annual cash capital requirements to perform on-going refurbishment and maintenance at our properties ranges from between $125 million and $135 million. We fund our capital expenditures through cash on hand, our bank credit facility and operating cash flows.

 

 

In addition to the capital spending discussed above, we continue to pursue other potential development projects that may require us to invest significant amounts of capital. For example, we continue to work with the Wilton Rancheria Tribe (the "Tribe"), a federally-recognized Native American tribe, to develop and manage a gaming entertainment complex to be located about 15 miles southeast of Sacramento, California. In September 2017, the California State Legislature unanimously approved, and the Governor of California executed, a tribal-state gaming compact with the tribe allowing the development of the casino. In October 2018, the National Indian Gaming Commission approved the Company's management contract with the Tribe. Working with the Tribe, we are in the process of finalizing the project budget, design and construction planning. The project will be constructed using third-party financing. Once commenced and project financing put in place, the construction timeline is expected to span 18 to 24 months.

 

Other Opportunities

We regularly investigate and pursue additional expansion opportunities in markets where casino gaming is currently permitted. We also pursue expansion opportunities in jurisdictions where casino gaming is not currently permitted in order to be prepared to develop projects upon approval of casino gaming. Such expansions will be affected and determined by several key factors, which may include the following:

 

 

the outcome of gaming license selection processes;

 

the approval of gaming in jurisdictions where we have been active but where casino gaming is not currently permitted;

 

identification of additional suitable investment opportunities in current gaming jurisdictions; and

 

availability of acceptable financing.

 

Additional projects may require us to make substantial investments or may cause us to incur substantial costs related to the investigation and pursuit of such opportunities, which investments and costs we may fund through cash flow from operations or availability under our bank credit facility. To the extent such sources of funds are not sufficient, we may also seek to raise such additional funds through public or private equity or debt financings or from other sources, to the extent such financing is available.

 

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.

 

Off Balance Sheet Arrangements 

There have been no material changes to our off balance sheet arrangements as defined in Item 303(a)(4)(ii) and described under Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on February 27, 2020.

 

Critical Accounting Policies

There have been no material changes to our critical accounting policies described under Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the period ended December 31, 2019, as filed with the SEC on February 27, 2020.

 

Recently Issued Accounting Pronouncements

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, see Note 1, Summary of Significant Accounting Policies - Recently Issued Accounting Pronouncements, in the notes to the condensed consolidated financial statements (unaudited).

 

Important Information Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such statements contain words such as "may," "will," "might," "expect," "believe," "anticipate," "could," "would," "estimate," "pursue," "target," "project," "intend," "plan," "seek," "should," "assume," and "continue," or the negative thereof or comparable terminology. Forward-looking statements involve certain risks and uncertainties, and actual results may differ materially from those discussed in any such statement. Factors that could cause actual results to differ materially from such forward-looking statements include:

 

 The future closure of our facilities as a result of the COVID-19 pandemic, including the duration of such closures and business impacts following reopening.
 The continued impact of COVID-19 on the gaming industry generally, including changes in customer behavior and preferences.
 The continuing impact of temporary and ongoing unemployment as a result of the closure of non-essential business in response to COVID-19.
 

The effects of intense competition that exists in the gaming industry.

 

The risk that our acquisitions and other expansion opportunities divert management’s attention or incur substantial costs, or that we are otherwise unable to develop, profitably manage or successfully integrate the businesses we acquire.

 

The fact that our expansion, development, maintenance and renovation projects (including enhancements to improve property performance) are subject to many risks inherent in expansion, development or construction of a new or existing project.

 

The risk that any of our projects may not be completed, if at all, on time or within established budgets, or that any project will not result in increased earnings to us.

 

The risk that significant delays, cost overruns, or failures of any of our projects to achieve market acceptance could have a material adverse effect on our business, financial condition and results of operations.

 

Our ability to take advantage of, and to realize the anticipated benefits of, any past or future financing, mergers and acquisitions, dispositions, partnerships, and other corporate opportunities, and the risks associated with such or similar transactions, arrangements or opportunities.

 

 

 

The risk that new gaming licenses or jurisdictions become available (or implement new or different gaming regulations or increased or additional taxes) that results in increased competition or cost to us.

 

The risk that negative industry or economic trends, reduced estimates of future cash flows, disruptions to our business, slower growth rates or lack of growth in our business, may result in significant write-downs or impairments in future periods.

 

The risk that regulatory authorities may revoke, suspend, condition or limit our gaming or other licenses, certificates and concessions, impose substantial fines and take other adverse actions against any of our casino operations or any current or future online gaming and sports wagering operations.

 

The risk that we may be unable to refinance our respective outstanding indebtedness as it comes due, or that if we do refinance, the terms are not favorable to us.

 

The effects of the extensive governmental gaming regulation and taxation policies to which we are subject and the costs of compliance or failure to comply with such regulations, as well as any changes in laws and regulations, including increased taxes, which could harm our business.

 

The effects of federal, state and local laws affecting our business such as the regulation of smoking, the regulation of directors, officers, key employees and partners and regulations affecting business in general.

 

The effects of extreme weather conditions or natural disasters on our facilities and the geographic areas from which we draw our customers, and our ability to recover insurance proceeds (if any).

 

The effects of events adversely impacting the economy or the regions from which we draw a significant percentage of our customers, including the effects of economic recession, pandemic, war, terrorist or similar activity or natural or man-made disasters in, at, or around our properties.

 

The risk that we fail to adapt our business and amenities to changing customer preferences.

 Our ability to continue to negotiate collective bargaining agreements with the unions that represent certain of our employees.
 The effect of unusual gaming hold percentages in any given period.
 

Financial community and rating agency perceptions of us, and the effect of economic, credit and capital market conditions on the economy and the gaming and hotel industry.

 

The effect of the expansion of legalized gaming in the regions in which we operate.

 

The risk of failing to maintain the integrity of our information technology infrastructure causing unintended distribution to third parties of, or access by third parties to, our customer or company data, and any litigation, fines, disruption to our operations or reputational harm resulting from such loss of data integrity.

 

Our estimated effective income tax rates, estimated tax benefits, and merits of our tax positions.

 

Our ability to utilize our net operating loss carryforwards and certain other tax attributes.

 

The risks relating to owning our equity, including price and volume fluctuations of the stock market that may harm the market price of our common stock and the potential of certain of our stockholders owning large interest in our capital stock to significantly influence our affairs.

 

Other statements regarding our future operations, financial condition and prospects, and business strategies.

 

The risk that we may be unable to retain our key management and personnel, including key employees of the acquired companies.

 

Our current and future insurance coverage levels, including the risk we have not obtained sufficient coverage, may not be able to obtain sufficient coverage in the future, or will only be able to obtain additional coverage at significantly increased rates.

 

Additional factors that could cause actual results to differ are discussed in Part I. Item 1A. Risk Factors of our Annual Report on Form 10-K for the period ended December 31, 2019, and in other current and periodic reports filed from time to time with the SEC. All forward-looking statements in this document are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement.

 

Item 3.        Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. We do not hold any market risk sensitive instruments for trading purposes. Our primary exposure to market risk is interest rate risk, specifically long-term U.S. treasury rates and the applicable spreads in the high-yield investment market, short-term and long-term LIBOR rates, and short-term Eurodollar rates, and their potential impact on our long-term debt. We attempt to limit our exposure to interest rate risk by managing the mix of our long-term fixed-rate borrowings and short-term borrowings under our bank credit facility. We do not currently utilize derivative financial instruments for trading or speculative purposes.

 

As of September 30, 2020, our long-term variable-rate borrowings represented approximately 24.5% of total long-term debt. Based on September 30, 2020 debt levels, a 100 basis point change in the interest rate would cause our annual interest costs to change by approximately $9.9 million.

 

See also "Liquidity and Capital Resources" above.

 

 

Item 4.        Controls and Procedures

As of the end of the period covered by this Report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report.

 

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

 

 

PART II. Other Information

 

Item 1.        Legal Proceedings

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.

 

Item 1A.     Risk Factors

The outbreak of the novel coronavirus (“COVID-19”) and the public response has had and will likely continue to have an adverse effect on our business, operations, financial condition and results.

As a result of the COVID-19 global pandemic and related measures to prevent its spread, all of our gaming facilities were closed in mid-March 2020 in response to orders from public officials and government regulations. As of November 1, 2020, 26 of our 29 casino properties are re-opened and operating, while 3 properties remain closed as a result of business demand and cost containment measures. We cannot predict when we will reopen our remaining properties, or whether some or all of our properties may be required to temporarily close in the future. Our business, operations, financial condition and results have been, and could again be, negatively affected as a result of the COVID-19 pandemic.

 

Our properties are subject to various health and safety measures instituted in response to the COVID-19 pandemic, including substantial limitations on occupancy. We cannot predict how long current health and safety protocols will be necessary. Decisions by public officials in this regard will depend on many factors beyond our control and that remain uncertain in light of on-going developments related to the pandemic, including development of preventative or treatment protocols.

 

We have been required to reduce the offering of certain amenities (because such amenities must remain closed) and otherwise limit the availability of certain offerings, such as deactivating a substantial number of gaming devices to maintain social distancing and limiting restaurant seating, as well as substantially limiting the number of customers we are permitted to admit at any time. Such measures necessarily impact business volume and may impact customer behavior and business demand, and the duration of such potential impact is unknown at this time. Our business, operations, financial condition and results may be materially, negatively affected to the extent demand for our casinos and customer preference and behavior is altered as a result of the COVID-19 pandemic and public response. We cannot predict the extent to which the global pandemic and public response may negatively affect business operating results in the future.

 

In addition, to the extent that the impact of the COVID-19 pandemic and public response on the economy negatively affects discretionary spending patterns, we may be negatively affected.  The COVID-19 pandemic has had and is expected to continue to have lingering impacts with respect to unemployment and discretionary spending. For example, as a result of the COVID-19 pandemic, we have laid-off a substantial number of our employees, as have many other businesses in the gaming and hospitality industries.  Similar actions throughout the U.S. economy have significantly increased economic and demand uncertainty and may potentially cause regional, national or global recessions. Significant increases in unemployment (and the lingering impacts of temporary unemployment after certain furloughed workers return to work) may have a negative impact on demand for gaming facilities, and these impacts could exist for an extensive period of time. Demand for gaming facilities may further be negatively impacted by the adverse changes in the perceived or actual economic climate and declines in income levels and loss of personal wealth.

 

The foregoing may also negatively affect our workforce, suppliers, contractors and other partners. We cannot predict the extent to which the above factors will cause our costs to increase, supply chain disruptions, labor shortages, logistics constraints or business failures or inability to provide services or products for our partners.

 

The current and future impact of the COVID-19 pandemic and public response is expected to continue to impact our results, operations, outlooks, plans, goals, growth, reputation, cash flows and liquidity. To the extent the COVID-19 pandemic and public response adversely affects our business, operations, financial condition and operating results, it may also exacerbate many of the other risks described in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31.

 

There were no other material changes from the risk factors previously disclosed in Part I. Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019.

 

 

Item 6.

Exhibits

 

Exhibit Number

 

Document of Exhibit

 

Method of Filing

10.1 Amendment No.4 to Third Amended and Restated Credit Agreement dated August 14, 2013 Incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed August 11, 2020.
     
10.2 Amendment No.4 - Revised Schedule A Incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K/A filed August 17, 2020.
     
22 List of Guarantor Subsidiaries of Boyd Gaming Corporation File electronically herewith
     

31.1

 

Certification of the Chief Executive Officer of the Registrant pursuant to Exchange Act rule 13a-14(a).

 

Filed electronically herewith

 

 

 

 

 

31.2

 

Certification of the Chief Financial Officer of the Registrant pursuant to Exchange Act rule 13a-14(a).

 

Filed electronically herewith

 

 

 

 

 

32.1

 

Certification of the Chief Executive Officer of the Registrant pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. § 1350.

 

Filed electronically herewith

 

 

 

 

 

32.2

 

Certification of the Chief Financial Officer of the Registrant pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. § 1350.

 

Filed electronically herewith

 

 

 

 

 

101

 

The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019, (iii) Condensed Consolidated Statements of Changes in Stockholders' Equity for each of the quarters within the nine months ended September 30, 2020 and 2019, iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019, and (vi) Notes to Condensed Consolidated Financial Statements.

 

Filed electronically herewith

     
104 

Inline XBRL for cover page of the Company's Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set.

 Filed electronically herewith

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 5, 2020.

 

 

 

BOYD GAMING CORPORATION

 

 

 

 

By:

/s/ Anthony D. McDuffie

 

 

Anthony D. McDuffie

 

 

Vice President and Chief Accounting Officer

 

 

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