10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________
FORM 10-Q
____________________________________________________
(Mark One)
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| |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2015
OR
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-12882
___________________________________________________
BOYD GAMING CORPORATION
(Exact name of registrant as specified in its charter)
____________________________________________________
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| | |
Nevada | | 88-0242733 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
3883 Howard Hughes Parkway, Ninth Floor, Las Vegas, NV 89169
(Address of principal executive offices) (Zip Code)
(702) 792-7200
(Registrant's telephone number, including area code)
____________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | x | | Accelerated filer | | o |
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Non-accelerated filer | | o (Do not check if a smaller reporting company) | | Smaller reporting company | | o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
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| | | | |
| Class | | Outstanding as of November 2, 2015 | |
| Common stock, $0.01 par value | | 111,048,812 | |
BOYD GAMING CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2015
TABLE OF CONTENTS
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
| | | | | | | |
(In thousands, except share data) | September 30, | | December 31, |
(Unaudited) | 2015 | | 2014 |
ASSETS | | | |
Current assets | | | |
Cash and cash equivalents | $ | 125,045 |
| | $ | 145,341 |
|
Restricted cash | 24,734 |
| | 18,107 |
|
Accounts receivable, net | 25,176 |
| | 27,235 |
|
Inventories | 15,106 |
| | 15,161 |
|
Prepaid expenses and other current assets | 38,107 |
| | 32,944 |
|
Income taxes receivable | — |
| | 1,243 |
|
Deferred income taxes and current tax assets | — |
| | 1,919 |
|
Total current assets | 228,168 |
| | 241,950 |
|
Property and equipment, net | 2,225,643 |
| | 2,286,108 |
|
Investment in unconsolidated subsidiary | 251,133 |
| | 222,717 |
|
Debt financing costs, net | 54,946 |
| | 56,540 |
|
Other assets, net | 49,724 |
| | 52,050 |
|
Intangible assets, net | 914,228 |
| | 934,249 |
|
Goodwill, net | 685,310 |
| | 685,310 |
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Total assets | $ | 4,409,152 |
| | $ | 4,478,924 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Current liabilities | | | |
Current maturities of long-term debt | $ | 27,688 |
| | $ | 29,753 |
|
Accounts payable | 59,837 |
| | 85,089 |
|
Accrued liabilities | 262,923 |
| | 239,266 |
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Deferred income taxes and other current tax payable | 3,098 |
| | 3,087 |
|
Total current liabilities | 353,546 |
| | 357,195 |
|
Long-term debt, net of current maturities | 3,302,687 |
| | 3,431,638 |
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Deferred income taxes | 159,421 |
| | 142,263 |
|
Other long-term tax liabilities | 3,071 |
| | 28,651 |
|
Other liabilities | 84,256 |
| | 81,090 |
|
Commitments and contingencies (Note 8) | | | |
Stockholders' equity | | | |
Preferred stock, $0.01 par value, 5,000,000 shares authorized | — |
| | — |
|
Common stock, $0.01 par value, 200,000,000 shares authorized; 111,022,430 and 109,277,060 shares outstanding | 1,110 |
| | 1,093 |
|
Additional paid-in capital | 936,197 |
| | 922,112 |
|
Accumulated deficit | (431,012 | ) | | (485,115 | ) |
Accumulated other comprehensive income (loss) | (174 | ) | | (53 | ) |
Total Boyd Gaming Corporation stockholders' equity | 506,121 |
| | 438,037 |
|
Noncontrolling interest | 50 |
| | 50 |
|
Total stockholders' equity | 506,171 |
| | 438,087 |
|
Total liabilities and stockholders' equity | $ | 4,409,152 |
| | $ | 4,478,924 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands, except per share data) | September 30, | | September 30, |
(Unaudited) | 2015 | | 2014 | | 2015 | | 2014 |
Revenues | | | | | | | |
Gaming | $ | 457,397 |
| | $ | 631,668 |
| | $ | 1,390,734 |
| | $ | 1,859,339 |
|
Food and beverage | 76,713 |
| | 115,072 |
| | 230,918 |
| | 332,068 |
|
Room | 41,649 |
| | 75,330 |
| | 123,334 |
| | 210,072 |
|
Other | 32,379 |
| | 44,441 |
| | 92,706 |
| | 124,574 |
|
Gross revenues | 608,138 |
| | 866,511 |
| | 1,837,692 |
| | 2,526,053 |
|
Less promotional allowances | 61,825 |
| | 127,668 |
| | 180,934 |
| | 356,327 |
|
Net revenues | 546,313 |
| | 738,843 |
| | 1,656,758 |
| | 2,169,726 |
|
Operating costs and expenses | | | | | | | |
Gaming | 225,653 |
| | 294,118 |
| | 677,036 |
| | 867,506 |
|
Food and beverage | 41,900 |
| | 61,511 |
| | 126,380 |
| | 179,976 |
|
Room | 10,765 |
| | 14,679 |
| | 31,494 |
| | 42,330 |
|
Other | 21,548 |
| | 33,554 |
| | 60,938 |
| | 91,708 |
|
Selling, general and administrative | 79,954 |
| | 113,436 |
| | 242,656 |
| | 349,494 |
|
Maintenance and utilities | 29,030 |
| | 45,050 |
| | 80,965 |
| | 131,337 |
|
Depreciation and amortization | 51,345 |
| | 66,168 |
| | 155,251 |
| | 198,245 |
|
Corporate expense | 15,009 |
| | 15,064 |
| | 52,013 |
| | 52,605 |
|
Preopening expenses | 1,434 |
| | 1,262 |
| | 2,769 |
| | 3,836 |
|
Impairments of assets | — |
| | 18,279 |
| | 1,065 |
| | 20,205 |
|
Asset transactions costs | 80 |
| | 3,064 |
| | 1,449 |
| | 5,078 |
|
Other operating items, net | 172 |
| | (1,116 | ) | | 342 |
| | (1,863 | ) |
Total operating costs and expenses | 476,890 |
| | 665,069 |
| | 1,432,358 |
| | 1,940,457 |
|
Boyd's share of Borgata's operating income | 31,107 |
| | — |
| | 57,870 |
| | — |
|
Operating income | 100,530 |
| | 73,774 |
| | 282,270 |
| | 229,269 |
|
Other expense (income) | | | | | | | |
Interest income | (460 | ) | | (466 | ) | | (1,396 | ) | | (1,412 | ) |
Interest expense, net of amounts capitalized | 56,558 |
| | 75,420 |
| | 170,624 |
| | 226,219 |
|
Loss on early extinguishments of debt | 863 |
| | 71 |
| | 32,333 |
| | 1,129 |
|
Other, net | 1,753 |
| | 116 |
| | 3,641 |
| | 498 |
|
Boyd's share of Borgata's non-operating items, net | 12,681 |
| | — |
| | 29,454 |
| | — |
|
Total other expense, net | 71,395 |
| | 75,141 |
| | 234,656 |
| | 226,434 |
|
Income (loss) before income taxes | 29,135 |
| | (1,367 | ) | | 47,614 |
| | 2,835 |
|
Income taxes benefit (provision) | (3,710 | ) | | (1,961 | ) | | 6,489 |
| | (12,050 | ) |
Net income (loss) | 25,425 |
| | (3,328 | ) | | 54,103 |
| | (9,215 | ) |
Net income attributable to noncontrolling interest | — |
| | (11,777 | ) | | — |
| | (11,403 | ) |
Net income (loss) attributable to Boyd Gaming Corporation | $ | 25,425 |
| | $ | (15,105 | ) | | $ | 54,103 |
| | $ | (20,618 | ) |
| | | | | | | |
Basic net income (loss) per common share | $ | 0.23 |
| | $ | (0.14 | ) | | $ | 0.48 |
| | $ | (0.19 | ) |
Weighted average basic shares outstanding | 112,608 |
| | 109,923 |
| | 112,100 |
| | 109,854 |
|
| | | | | | | |
Diluted net income (loss) per common share | $ | 0.22 |
| | $ | (0.14 | ) | | $ | 0.48 |
| | $ | (0.19 | ) |
Weighted average diluted shares outstanding | 113,375 |
| | 109,923 |
| | 112,930 |
| | 109,854 |
|
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 (LOSS)
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands) | September 30, | | September 30, |
(Unaudited) | 2015 | | 2014 | | 2015 | | 2014 |
Net income (loss) | $ | 25,425 |
| | $ | (3,328 | ) | | $ | 54,103 |
| | $ | (9,215 | ) |
Other comprehensive income (loss), net of tax: | | | | | | | |
Fair value of adjustments to available-for-sale securities, net of tax | 642 |
| | 681 |
| | (121 | ) | | 1,291 |
|
Comprehensive income (loss) | 26,067 |
| | (2,647 | ) | | 53,982 |
| | (7,924 | ) |
Less: net income attributable to noncontrolling interest | — |
| | 11,777 |
| | — |
| | 11,403 |
|
Comprehensive income (loss) attributable to Boyd Gaming Corporation | $ | 26,067 |
| | $ | (14,424 | ) | | $ | 53,982 |
| | $ | (19,327 | ) |
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
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| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Boyd Gaming Corporation Stockholders' Equity | | | | |
| Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income (Loss), Net | | Noncontrolling Interest | | Total |
| | | | | |
(In thousands, except share data) | | | | | |
(Unaudited) | Shares | | Amount | | | | | |
Balances, January 1, 2015 | 109,277,060 |
| | $ | 1,093 |
| | $ | 922,112 |
| | $ | (485,115 | ) | | $ | (53 | ) | | $ | 50 |
| | $ | 438,087 |
|
Net income | — |
| | — |
| | — |
| | 54,103 |
| | — |
| | — |
| | 54,103 |
|
Comprehensive income attributable to Boyd | — |
| | — |
| | — |
| | — |
| | (121 | ) | | — |
| | (121 | ) |
Stock options exercised | 1,145,302 |
| | 11 |
| | 8,595 |
| | — |
| | — |
| | — |
| | 8,606 |
|
Release of restricted stock units, net of tax | 118,319 |
| | 1 |
| | (286 | ) | | — |
| | — |
| | — |
| | (285 | ) |
Release of performance stock units, net of tax | 481,749 |
| | 5 |
| | (2,451 | ) | | — |
| | — |
| | — |
| | (2,446 | ) |
Share-based compensation costs | — |
| | — |
| | 8,227 |
| | — |
| | — |
| | — |
| | 8,227 |
|
Balances, September 30, 2015 | 111,022,430 |
| | $ | 1,110 |
| | $ | 936,197 |
| | $ | (431,012 | ) | | $ | (174 | ) | | $ | 50 |
| | $ | 506,171 |
|
| | | | | | | | | | | | | |
Balances, January 1, 2014 | 108,155,002 |
| | $ | 1,082 |
| | $ | 902,496 |
| | $ | (432,074 | ) | | $ | (1,517 | ) | | $ | 180,450 |
| | $ | 650,437 |
|
Net loss | — |
| | — |
| | — |
| | (20,618 | ) | | — |
| | 11,403 |
| | (9,215 | ) |
Comprehensive income attributable to Boyd | — |
| | — |
| | — |
| | — |
| | 1,291 |
| | — |
| | 1,291 |
|
Stock options exercised | 131,229 |
| | 2 |
| | 982 |
| | — |
| | — |
| | — |
| | 984 |
|
Release of restricted stock units, net of tax | 138,541 |
| | — |
| | (326 | ) | | — |
| | — |
| | — |
| | (326 | ) |
Share-based compensation costs | — |
| | — |
| | 11,239 |
| | — |
| | — |
| | — |
| | 11,239 |
|
Noncontrolling interests contribution | — |
| | — |
| | — |
| | — |
| | — |
| | 30 |
| | 30 |
|
Deconsolidation of Borgata on September 30, 2014 | — |
| | — |
| | — |
| | — |
| | — |
| | (191,833 | ) | | (191,833 | ) |
Balances, September 30, 2014 | 108,424,772 |
| | $ | 1,084 |
| | $ | 914,391 |
| | $ | (452,692 | ) | | $ | (226 | ) | | $ | 50 |
| | $ | 462,607 |
|
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
|
| | | | | | | |
| Nine Months Ended |
(In thousands) | September 30, |
(Unaudited) | 2015 | | 2014 |
Cash Flows from Operating Activities | | | |
Net income (loss) | $ | 54,103 |
| | $ | (9,215 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation and amortization | 155,251 |
| | 198,245 |
|
Amortization of debt financing costs | 13,091 |
| | 14,498 |
|
Amortization of discounts on debt | 3,485 |
| | 5,860 |
|
Loss on early extinguishments of debt | 32,333 |
| | 1,129 |
|
Share-based compensation expense | 8,227 |
| | 11,239 |
|
Deferred income taxes | 16,636 |
| | 11,690 |
|
Operating and non-operating income from Borgata | (28,416 | ) | | — |
|
Impairments of assets | 1,065 |
| | 20,205 |
|
Other operating activities | (341 | ) | | 2,370 |
|
Changes in operating assets and liabilities: | | | |
Restricted cash | (6,626 | ) | | (10,299 | ) |
Accounts receivable, net | 2,220 |
| | 788 |
|
Inventories | 55 |
| | (655 | ) |
Prepaid expenses and other current assets | (5,131 | ) | | (18,041 | ) |
Current other tax asset | 1,802 |
| | 3,575 |
|
Income taxes receivable | 1,243 |
| | 396 |
|
Other assets, net | 2,149 |
| | (650 | ) |
Accounts payable and accrued liabilities | 11,997 |
| | 7,651 |
|
Other long-term tax liabilities | (25,580 | ) | | (3,843 | ) |
Other liabilities | 3,886 |
| | (2,442 | ) |
Net cash provided by operating activities | 241,449 |
| | 232,501 |
|
Cash Flows from Investing Activities | | | |
Capital expenditures | (86,997 | ) | | (94,617 | ) |
Deconsolidation of Borgata | — |
| | (26,891 | ) |
Other investing activities | 3,777 |
| | 3,187 |
|
Net cash used in investing activities | (83,220 | ) | | (118,321 | ) |
Cash Flows from Financing Activities | | | |
Borrowings under Boyd Gaming bank credit facility | 627,000 |
| | 605,000 |
|
Payments under Boyd Gaming bank credit facility | (949,700 | ) | | (698,400 | ) |
Borrowings under Peninsula bank credit facility | 262,100 |
| | 242,100 |
|
Payments under Peninsula bank credit facility | (335,550 | ) | | (283,350 | ) |
Borrowings under Borgata bank credit facility | — |
| | 410,900 |
|
Payments under Borgata bank credit facility | — |
| | (444,900 | ) |
Payments on retirements of long-term debt | (500,000 | ) | | (2,850 | ) |
Premium and consent fees paid | (24,246 | ) | | — |
|
Proceeds from issuance of senior secured notes | 750,000 |
| | — |
|
Debt issue costs | (14,001 | ) | | (289 | ) |
Share-based compensation activities, net | 5,875 |
| | 783 |
|
Other financing activities | (3 | ) | | (102 | ) |
Net cash used in financing activities | (178,525 | ) | | (171,108 | ) |
Change in cash and cash equivalents | (20,296 | ) | | (56,928 | ) |
Cash and cash equivalents, beginning of period | 145,341 |
| | 177,838 |
|
Cash and cash equivalents, end of period | $ | 125,045 |
| | $ | 120,910 |
|
Supplemental Disclosure of Cash Flow Information | | | |
Cash paid for interest, net of amounts capitalized | $ | 137,128 |
| | $ | 218,499 |
|
Cash paid (received) for income taxes, net of refunds | (1,246 | ) | | 232 |
|
Supplemental Schedule of Noncash Investing and Financing Activities | | | |
Payables incurred for capital expenditures | $ | 5,031 |
| | $ | 10,005 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014
______________________________________________________________________________________________________
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Boyd Gaming Corporation (and together with its subsidiaries, the "Company," "Boyd Gaming," "we" or "us") was incorporated in the state of Nevada in 1988 and has been operating since 1975. The Company's common stock is traded on the New York Stock Exchange under the symbol "BYD".
We are a diversified operator of 21 wholly owned gaming entertainment properties and one property, Borgata Hotel Casino & Spa ("Borgata"), in which we hold a non-controlling 50% equity interest in the limited liability company. Headquartered in Las Vegas, we have gaming operations in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi and New Jersey.
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").
The results for the periods indicated are unaudited, but reflect all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation of financial position, results of operations and cash flows. Results of operations and cash flows for the interim periods presented herein are not necessarily indicative of the results that would be achieved during a full year of operations or in future periods.
The accompanying condensed consolidated financial statements include the accounts of Boyd Gaming and its wholly owned subsidiaries. Investments in unconsolidated affiliates, which do not meet the consolidation criteria of the authoritative accounting guidance for voting interest, controlling interest or variable interest entities, are accounted for under the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation.
On September 30, 2014, our Atlantic City partner reacquired its ownership interest in, and its substantive participation rights in, the management of Borgata. As a result, we deconsolidated Borgata as of the close of business on September 30, 2014, eliminating the assets, liabilities and non-controlling interests from our balance sheet. We are accounting for our investment in Borgata applying the equity method for periods subsequent to the deconsolidation. (See Note 3, Deconsolidation of Borgata.)
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the U.S. Securities and Exchange Commission ("SEC") on February 27, 2015.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Promotional Allowances
The retail value of accommodations, food and beverage, and other services furnished to guests without charge is included in gross revenues and then deducted as a promotional allowance. Promotional allowances also include incentives earned in our slot bonus program such as cash and the estimated retail value of goods and services (such as complimentary rooms and food and beverages). 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 and beverage, and to a lesser extent for other goods or services, depending upon the property.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014
______________________________________________________________________________________________________
The amounts included in promotional allowances are as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In thousands) | 2015 | | 2014 | | 2015 | | 2014 |
Rooms | $ | 19,573 |
| | $ | 40,420 |
| | $ | 57,505 |
| | $ | 112,825 |
|
Food and beverage | 38,139 |
| | 53,247 |
| | 112,984 |
| | 152,462 |
|
Other | 4,113 |
| | 34,001 |
| | 10,445 |
| | 91,040 |
|
Total promotional allowances | $ | 61,825 |
| | $ | 127,668 |
| | $ | 180,934 |
| | $ | 356,327 |
|
The estimated costs of providing such promotional allowances are as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In thousands) | 2015 | | 2014 | | 2015 | | 2014 |
Rooms | $ | 8,988 |
| | $ | 15,371 |
| | $ | 26,240 |
| | $ | 43,956 |
|
Food and beverage | 33,925 |
| | 46,841 |
| | 99,874 |
| | 133,889 |
|
Other | 3,214 |
| | 6,512 |
| | 8,889 |
| | 17,199 |
|
Total estimated cost of promotional allowances | $ | 46,127 |
| | $ | 68,724 |
| | $ | 135,003 |
| | $ | 195,044 |
|
Gaming Taxes
We are subject to taxes based on gross gaming revenues in the jurisdictions in which we operate. These gaming taxes are assessed based on our gaming revenues and are recorded as a gaming expense in the condensed consolidated statements of operations. These taxes totaled approximately $83.2 million and $96.8 million for the three months ended September 30, 2015 and 2014, respectively, and $252.1 million and $289.4 million for the nine months ended September 30, 2015 and 2014, 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, and attributable to operating loss and tax credit carryforwards. 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. 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 future 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 accordance with GAAP, we have computed our provision for income taxes by applying the actual effective tax rate, under the discrete method, to quarter-to-date income. The discrete method was used to calculate the income tax expense or benefit as the annual effective tax rate was not considered a reliable estimate of year-to-date income tax expense or benefit. We believe this method provides the most reliable estimate of year-to-date income tax expense.
Our current rate is impacted by adjustments that are largely independent of our operating results before taxes. Such adjustments relate primarily to the accrual of non-cash tax expense in connection with the tax amortization of indefinite-lived intangible assets that are not available to offset existing deferred tax assets. The deferred tax liabilities created by the tax amortization of these intangibles cannot be used to offset corresponding increases in the net operating loss deferred tax assets when determining our valuation allowance. Our current rate is also impacted by the resolution of federal and state income tax examinations and changes in accruals established for potentially unfavorable outcomes in connection with these examinations.
Other Long Term Tax Liabilities
The Company's income tax returns are subject to examination by the Internal Revenue Service ("IRS") and other tax authorities in the locations where it operates. The Company assesses potentially unfavorable outcomes of such examinations based on
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014
______________________________________________________________________________________________________
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. Use of the term "more likely than not" indicates the likelihood of occurrence is greater than 50%.
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 balance sheet.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
| | | |
| Nine Months Ended |
| September 30, |
(In thousands) | 2015 |
Unrecognized tax benefit as of January 1, 2015 | $ | 30,198 |
|
Reductions: | |
Tax positions related to prior years | (27,717 | ) |
Unrecognized tax benefit as of September 30, 2015 | $ | 2,481 |
|
The entire $2.5 million balance of unrecognized tax benefits at September 30, 2015, if recognized, would impact the effective tax rate. We recognize accrued interest related to unrecognized tax benefits in our income tax provision. During the quarter ended September 30, 2015 we recognized an interest-related benefit of $0.5 million in our tax provision. We have accrued interest and penalties of $0.6 million as of September 30, 2015, in our consolidated balance sheet.
During the first quarter of 2015, we received Joint Committee approval on our IRS appeals agreement, effectively settling our 2005 through 2009 examination. As a result of the settlement, we received an approximate $2.4 million refund and reduced our unrecognized tax benefits by $25.7 million, of which $17.6 million impacted our effective tax rate. Additionally, as a result of the settlement, we reduced the interest accrued on our unrecognized tax benefits by $5.8 million and recorded a benefit to our tax provision.
During the third quarter of 2015, we received a final audit determination in connection with our New Jersey examination, effectively settling years 2003 through 2009. As a result of the determination, we reduced our unrecognized tax benefits by $2.0 million, all of which impacted our effective tax rate. Additionally, as a result of the settlement, we reduced the interest accrued on our unrecognized tax benefits by $0.5 million and recorded a benefit to our tax provision.
Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing net income (loss) applicable to Boyd Gaming Corporation stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the additional dilution for all potentially-dilutive securities, such as stock options.
Due to the net losses for the three months and nine months ended September 30, 2014, the effect of all potential common share equivalents was anti-dilutive, and therefore all such shares were excluded from the computation of diluted weighted average shares outstanding for this period. The amount of potential common share equivalents were as follows:
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014
______________________________________________________________________________________________________
|
| | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In thousands) | 2014 | | 2014 |
Potential dilutive effect | 904.6 |
| | 926.1 |
|
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Recently Issued Accounting Pronouncements
Accounting Standards Update 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements ("Update 2015-15")
In August 2015, the Financial Accounting Standards Board ("FASB") issued Update 2015-15, which further clarifies the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. Debt issuance costs related to line-of-credit of arrangements can be recorded as an asset and subsequently amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, for interim periods within those fiscal years, and early adoption is permitted. The Company determined that the impact of the new standard on its consolidated financial statements will not be material.
Accounting Standards Update 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date ("Update 2015-14")
In August 2015, the FASB issued Update 2015-14, which defers the implementation of Accounting Standards Update 2014-09, Revenue from Contracts with Customers ("Update 2014-09") for one year from the initial effective date. The initial effective date of Update 2014-09 was for annual reporting periods beginning after December 15, 2016, and early adoption was not permitted. Update 2015-14 extends the effective date to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is evaluating the impact of the adoption of Update 2015-14 and 2014-09 to the consolidated financial position or results of operations.
Accounting Standards Update 2015-11, Simplifying the Measurement of Inventory ("Update 2015-11")
In July 2015, the FASB issued Update 2015-11, which provides guidance on inventory measurement. Inventory, excluding inventory that is measured using last-in, first-out (LIFO) or the retail inventory method, should be measured at the lower of cost and net realizable value. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company determined that the impact of the new standard on its consolidated financial statements will not be material.
Accounting Standards Update 2015-08 Business Combinations ("Update 2015-08")
In May 2015, the FASB issued Update 2015-08, which provides updates to guidance related to pushdown accounting and is effective immediately. The Company determined that the impact of the new standard on its financial reporting will not be material.
Accounting Standards Update 2015-05 Customers Accounting for Fees Paid in a Cloud Computing Arrangement (Topic 350) ("Update 2015-05")
In April 2015, the FASB issued Update 2015-05, which provides guidance on a customer's accounting for cloud computing costs. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015, and early adoption is permitted. The Company determined that the impact of the new standard on its consolidated financial statements will not be material.
Accounting Standards Update 2015-03, Simplifying the Presentation of Debt Issuance Costs ("Update 2015-03")
In April 2015, the FASB issued Update 2015-03, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, for interim periods
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014
______________________________________________________________________________________________________
within those fiscal years, and early adoption is permitted. The Company determined that the impact of the new standard on its financial reporting will not be material.
Accounting Standards Update 2015-02, Amendments to the Consolidation Analysis ("Update 2015-02")
Update 2015-02, issued by the FASB in February 2015, amends the consolidation requirements in ASC 810 and changes the consolidation analysis required under GAAP. The standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, with early adoption permitted. The Company determined that the impact of the new standard on its financial reporting will not be material.
Accounting Standards Update 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items ("Update 2015-01")
In January 2015, the FASB issued Update 2015-01 eliminating from GAAP the concept of an extraordinary item, which is an event or transaction that is both (1) unusual in nature and (2) infrequently occurring. Under Update 2015-01, an entity will no longer (1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; or (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 with early adoption permitted. The Company determined that the impact of the new standard on its consolidated financial statements will not be material.
A variety of proposed or otherwise potential accounting standards are currently being studied by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of such proposed standards would have on our consolidated financial statements.
NOTE 3. DECONSOLIDATION OF BORGATA
The Company and MGM Resorts International ("MGM") each originally held a 50% interest in Marina District Development Holding Co., LLC ("Holding Company"). Holding Company owns all the equity interests in Marina District Development Company, LLC, d.b.a. Borgata. We are the managing member of Holding Company, and we are responsible for the day-to-day operations of Borgata.
In February 2010, we entered into an agreement with MGM to amend the operating agreement to, among other things, facilitate the transfer of MGM's interest in Holding Company ("MGM Interest") to a divestiture trust (the "Divestiture Trust") established for the purpose of selling the MGM Interest to a third party. The proposed sale of the MGM Interest through the Divestiture Trust was part of a then-proposed settlement agreement between MGM and the New Jersey Department of Gaming Enforcement (the "NJDGE").
On March 17, 2010, MGM announced that its settlement agreement with the NJDGE had been approved by the New Jersey Casino Control Commission ("NJCCC"). Upon the transfer of MGM's ownership interest into the Divestiture Trust on March 24, 2010, we determined that we had control, as defined in the relevant accounting literature, of Holding Company and commenced consolidating the business as of that date. After submission of a Joint Petition of MGM, the Company and Holding Company, on February 13, 2013, the NJCCC approved amendments to the settlement agreement which permitted MGM to file an application for a statement of compliance, which, if approved, would permit MGM to reacquire its interest in Holding Company.
The NJCCC approved MGM’s application for licensure on September 10, 2014. On September 30, 2014, the Divestiture Trust was dissolved and MGM reacquired its Borgata interest and its substantive participation rights in the management of Holding Company. As a result, we deconsolidated Borgata as of the close of business on September 30, 2014, eliminating the assets, liabilities and non-controlling interests recorded for Holding Company from our balance sheet, and are accounting for our investment in Borgata applying the equity method for periods subsequent to the deconsolidation.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014
______________________________________________________________________________________________________
Summarized income statement information for Borgata is as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In thousands) | 2015 | | 2014 | | 2015 | | 2014 |
Net revenues | $ | 237,461 |
| | $ | 209,946 |
| | $ | 611,213 |
| | $ | 559,064 |
|
Operating expenses | 175,248 |
| | 166,509 |
| | 495,473 |
| | 481,709 |
|
Operating income | 62,213 |
| | 43,437 |
| | 115,740 |
| | 77,355 |
|
Non-operating expenses | 25,363 |
| | 20,460 |
| | 58,909 |
| | 56,280 |
|
Net income | $ | 36,850 |
| | $ | 22,977 |
| | $ | 56,831 |
| | $ | 21,075 |
|
NOTE 4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
|
| | | | | | | |
| September 30, | | December 31, |
(In thousands) | 2015 | | 2014 |
Land | $ | 229,431 |
| | $ | 229,684 |
|
Buildings and improvements | 2,533,795 |
| | 2,534,618 |
|
Furniture and equipment | 1,137,757 |
| | 1,079,878 |
|
Riverboats and barges | 238,731 |
| | 239,669 |
|
Construction in progress | 29,158 |
| | 35,675 |
|
Other | 8,078 |
| | 11,502 |
|
Total property and equipment | 4,176,950 |
| | 4,131,026 |
|
Less accumulated depreciation | 1,951,307 |
| | 1,844,918 |
|
Property and equipment, net | $ | 2,225,643 |
| | $ | 2,286,108 |
|
Other property and equipment presented in the table above relates to the estimated net realizable value of construction materials inventory that was not disposed of with the sale of the Echelon project. Such assets are not in service and are not currently being depreciated.
Depreciation expense for the three and nine months ended September 30, 2015 and 2014 is as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In thousands) | 2015 | | 2014 | | 2015 | | 2014 |
Depreciation expense | $ | 44,643 |
| | $ | 57,536 |
| | $ | 134,904 |
| | $ | 172,561 |
|
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014
______________________________________________________________________________________________________
NOTE 5. INTANGIBLE ASSETS
Intangible assets consist of the following:
|
| | | | | | | | | | | | | | | | | |
| September 30, 2015 |
| Weighted | | Gross | | | | Cumulative | | |
| Average Life | | Carrying | | Cumulative | | Impairment | | Intangible |
(In thousands) | Remaining | | Value | | Amortization | | Losses | | Assets, Net |
Amortizing intangibles: | | | | | | | | | |
Customer relationships | 2.1 years | | $ | 136,300 |
| | $ | (103,582 | ) | | $ | — |
| | $ | 32,718 |
|
Favorable lease rates | 32.8 years | | 45,370 |
| | (11,737 | ) | | — |
| | 33,633 |
|
Development agreement | — | | 21,373 |
| | — |
| | — |
| | 21,373 |
|
| | | 203,043 |
| | (115,319 | ) | | — |
| | 87,724 |
|
| | | | | | | | | |
Indefinite lived intangible assets: | | | | | | | | | |
Trademarks and other | Indefinite | | 129,501 |
| | — |
| | (3,500 | ) | | 126,001 |
|
Gaming license rights | Indefinite | | 873,335 |
| | (33,960 | ) | | (138,872 | ) | | 700,503 |
|
| | | 1,002,836 |
| | (33,960 | ) | | (142,372 | ) | | 826,504 |
|
Balance, September 30, 2015 | | | $ | 1,205,879 |
| | $ | (149,279 | ) | | $ | (142,372 | ) | | $ | 914,228 |
|
|
| | | | | | | | | | | | | | | | | |
| December 31, 2014 |
| Weighted | | Gross | | | | Cumulative | | |
| Average Life | | Carrying | | Cumulative | | Impairment | | Intangible |
(In thousands) | Remaining | | Value | | Amortization | | Losses | | Assets, Net |
Amortizing intangibles: | | | | | | | | | |
Customer relationships | 2.9 years | | $ | 139,600 |
| | $ | (87,642 | ) | | $ | — |
| | $ | 51,958 |
|
Favorable lease rates | 33.4 years | | 45,370 |
| | (10,956 | ) | | — |
| | 34,414 |
|
Development agreement | — | | 21,373 |
| | — |
| | — |
| | 21,373 |
|
| | | 206,343 |
| | (98,598 | ) | | — |
| | 107,745 |
|
| | | | | | | | | |
Indefinite lived intangible assets: | | | | | | | | | |
Trademarks | Indefinite | | 129,501 |
| | — |
| | (3,500 | ) | | 126,001 |
|
Gaming license rights | Indefinite | | 873,335 |
| | (33,960 | ) | | (138,872 | ) | | 700,503 |
|
| | | 1,002,836 |
| | (33,960 | ) | | (142,372 | ) | | 826,504 |
|
Balance, December 31, 2014 | | | $ | 1,209,179 |
| | $ | (132,558 | ) | | $ | (142,372 | ) | | $ | 934,249 |
|
Annual Impairment Test
We perform our annual test of goodwill and other indefinite-lived intangible assets as of October 1. The annual test for 2015 is currently in process. The test is in the preliminary stages and it is not yet possible to determine the amount, if any, of impairment charges that may result from the current year test. The annual test performed in fourth quarter 2014 resulted in the recognition of a non-cash impairment charge of $40.0 million.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014
______________________________________________________________________________________________________
NOTE 6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
|
| | | | | | | |
| September 30, | | December 31, |
(In thousands) | 2015 | | 2014 |
Payroll and related expenses | $ | 70,355 |
| | $ | 69,672 |
|
Interest | 36,244 |
| | 33,985 |
|
Gaming liabilities | 38,990 |
| | 35,698 |
|
Player loyalty program liabilities | 18,545 |
| | 19,058 |
|
Accrued liabilities | 98,789 |
| | 80,853 |
|
Total accrued liabilities | $ | 262,923 |
| | $ | 239,266 |
|
NOTE 7. LONG-TERM DEBT
Long-term debt, net of current maturities consists of the following:
|
| | | | | | | | | | | | | | | | | | |
| | | September 30, 2015 |
| Interest | | | | | | Unamortized | | |
| Rates at | | Outstanding | | Unamortized | | Origination | | Long-Term |
(In thousands) | Sept. 30, 2015 | | Principal | | Discount | | Fees | | Debt, Net |
Boyd Gaming Corporation Debt: | | | | | | | | | |
Bank credit facility | 3.77 | % | | $ | 1,064,725 |
| | $ | (2,853 | ) | | $ | — |
| | $ | 1,061,872 |
|
9.00% senior notes due 2020 | 9.00 | % | | 350,000 |
| | — |
| | — |
| | 350,000 |
|
6.875% senior notes due 2023 | 6.88 | % | | 750,000 |
| | — |
| | — |
| | 750,000 |
|
HoldCo Note | 8.00 | % | | 157,810 |
| | (8,257 | ) | | — |
| | 149,553 |
|
| | | 2,322,535 |
| | (11,110 | ) | | — |
| | 2,311,425 |
|
| | | | | | | | | |
Peninsula Segment Debt: | | | | | | | | | |
Bank credit facility | 4.25 | % | | 668,950 |
| | — |
| | — |
| | 668,950 |
|
8.375% senior notes due 2018 | 8.38 | % | | 350,000 |
| | — |
| | — |
| | 350,000 |
|
| | | 1,018,950 |
| | — |
| | — |
| | 1,018,950 |
|
Total long-term debt | | | 3,341,485 |
| | (11,110 | ) | | — |
| | 3,330,375 |
|
Less current maturities | | | 27,688 |
| | — |
| | — |
| | 27,688 |
|
Long-term debt, net | | | $ | 3,313,797 |
| | $ | (11,110 | ) | | $ | — |
| | $ | 3,302,687 |
|
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014
______________________________________________________________________________________________________
|
| | | | | | | | | | | | | | | | | | |
| | | December 31, 2014 |
| Interest | | | | | | Unamortized | | |
| Rates at | | Outstanding | | Unamortized | | Origination | | Long-Term |
(In thousands) | Dec. 31, 2014 | | Principal | | Discount | | Fees | | Debt, Net |
Boyd Gaming Corporation Debt: | | | | | | | | | |
Bank credit facility | 3.66 | % | | $ | 1,387,425 |
| | $ | (3,589 | ) | | $ | — |
| | $ | 1,383,836 |
|
9.125% senior notes due 2018 | 9.13 | % | | 500,000 |
| | — |
| | (4,845 | ) | | 495,155 |
|
9.00% senior notes due 2020 | 9.00 | % | | 350,000 |
| | — |
| | — |
| | 350,000 |
|
HoldCo Note | 8.00 | % | | 151,740 |
| | (11,743 | ) | | — |
| | 139,997 |
|
| | | 2,389,165 |
| | (15,332 | ) | | (4,845 | ) | | 2,368,988 |
|
| | | | | | | | | |
Peninsula Segment Debt: | | | | | | | | | |
Bank credit facility | 4.25 | % | | 742,400 |
| | — |
| | — |
| | 742,400 |
|
8.375% senior notes due 2018 | 8.38 | % | | 350,000 |
| | — |
| | — |
| | 350,000 |
|
Other | various |
| | 3 |
| | — |
| | — |
| | 3 |
|
| | | 1,092,403 |
| | — |
| | — |
| | 1,092,403 |
|
Total long-term debt | | | 3,481,568 |
| | (15,332 | ) | | (4,845 | ) | | 3,461,391 |
|
Less current maturities | | | 29,753 |
| | — |
| | — |
| | 29,753 |
|
Long-term debt, net | | | $ | 3,451,815 |
| | $ | (15,332 | ) | | $ | (4,845 | ) | | $ | 3,431,638 |
|
Boyd Gaming Debt
Boyd Bank Credit Facility
The outstanding principal amounts under the Third Amended and Restated Credit Agreement (the "Boyd Gaming Credit Facility") are comprised of the following:
|
| | | | | | | |
(In thousands) | September 30, 2015 | | December 31, 2014 |
Revolving Credit Facility | $ | 70,000 |
| | $ | 300,000 |
|
Term A Loan | 195,275 |
| | 221,375 |
|
Term B Loan | 778,750 |
| | 840,750 |
|
Swing Loan | 20,700 |
| | 25,300 |
|
Total outstanding principal amounts under the Boyd Gaming Credit Facility | $ | 1,064,725 |
| | $ | 1,387,425 |
|
At September 30, 2015, approximately $1.1 billion was outstanding under the Boyd Gaming Credit Facility and $7.1 million was allocated to support various letters of credit, leaving remaining contractual availability of $502.2 million.
Senior Notes
6.875% Senior Notes due May 2023
Significant Terms
On May 21, 2015, we issued $750 million aggregate principal amount of 6.875% senior notes due May 2023 (the "2023 Notes"). The 2023 Notes require semi-annual interest payments on May 15 and November 15 of each year, commencing on November 15, 2015. The 2023 Notes will mature on May 15, 2023 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 2023 Notes contain certain restrictive covenants that, subject to exceptions and qualifications, among other things, limit our ability and the ability of our restricted subsidiaries (as defined in the base and supplemental indentures governing the 2023 Notes, together, the "Indenture") to incur additional indebtedness or liens, pay dividends or make distributions or repurchase our capital stock, make certain investments, and sell or merge with other companies. In addition, upon the occurrence of a change of control (as defined in the Indenture), we will be required, unless certain conditions are met, to offer to repurchase the 2023 Notes at a price equal to 101% of the principal amount of the 2023 Notes, plus accrued and unpaid interest and Additional Interest (as defined
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014
______________________________________________________________________________________________________
in the Indenture), if any, to, but not including, the date of purchase. If we sell assets or experience an event of loss, we will be required under certain circumstances to offer to purchase the 2023 Notes.
At any time prior to May 15, 2018, we may redeem the 2023 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and Additional Interest, if any, up to, but excluding, the applicable redemption date, plus a make whole premium. Subsequent to May 15, 2018, we may redeem all or a portion of the 2023 Notes at redemption prices (expressed as percentages of the principal amount) ranging from 105.156% in 2018 to 100% in 2021 and thereafter, plus accrued and unpaid interest and Additional Interest.
Debt Financing Costs
In conjunction with the issuance of the 2023 Notes, we incurred approximately $14.0 million in debt financing costs that have been deferred and are being amortized over the term of the 2023 Notes using the effective interest method.
Senior Notes
9.125% Senior Notes due December 2018
During second quarter 2015 we redeemed all of our 9.125% Senior Notes due December 2018 (the "2018 Notes") at a redemption price of 104.563% plus accrued and unpaid interest and Additional Interest (as defined in the indenture governing the 2018 Notes) to the redemption date. The redemption resulted in premium and consent fees paid of $24.0 million and a write-off of unamortized debt financing costs of $4.9 million, all of which were recognized as loss on early extinguishments of debt in our second quarter 2015 financial results.
As a result of this redemption, the 2018 Notes have been fully extinguished.
Peninsula Segment Debt
Bank Credit Facility
The outstanding principal amounts under the Peninsula senior secured credit facility (the "Peninsula Credit Facility") are comprised of the following:
|
| | | | | | | |
(In thousands) | September 30, 2015 | | December 31, 2014 |
Term Loan | $ | 656,750 |
| | $ | 734,000 |
|
Revolving Facility | 5,000 |
| | 2,000 |
|
Swing Loan | 7,200 |
| | 6,400 |
|
Total outstanding principal amounts under the Peninsula Credit Facility | $ | 668,950 |
| | $ | 742,400 |
|
At September 30, 2015, approximately $669.0 million was outstanding under the Peninsula Credit Facility and $5.2 million was allocated to support various letters of credit, leaving remaining contractual availability of $32.6 million.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014
______________________________________________________________________________________________________
Early Extinguishments of Debt
In addition to the redemption of the 2018 Notes, optional prepayments of the Term Loans under the Boyd Gaming Credit Facility and Peninsula Credit Facility have been made resulting in the write-off of a ratable amount of deferred finance charges. The components of the loss on early extinguishments of debt are as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In thousands) | 2015 | | 2014 | | 2015 | | 2014 |
9.125% Senior Notes premium and consent fees | $ | — |
| | $ | — |
| | $ | 23,962 |
| | $ | — |
|
9.125% Senior Notes deferred finance charges | — |
| | — |
| | 4,888 |
| | — |
|
Boyd Gaming Credit Facility deferred finance charges | 444 |
| | — |
| | 1,602 |
| | — |
|
Peninsula Credit Facility deferred finance charges | 419 |
| | 71 |
| | 1,881 |
| | 1,129 |
|
Total loss on early extinguishments of debt | $ | 863 |
| | $ | 71 |
| | $ | 32,333 |
| | $ | 1,129 |
|
Covenant Compliance
As of September 30, 2015, we believe that Boyd Gaming and Peninsula were in compliance with the financial and other covenants of their respective debt instruments.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Commitments
There have been no material changes to our commitments described under Note 10, Commitments and Contingencies, in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on February 27, 2015.
Contingencies
Legal Matters
We are parties to various legal proceedings arising in the ordinary course of business. In our opinion, all pending legal matters are either adequately covered by insurance, or, if not insured, will not have a material adverse impact on our financial position, results of operations or cash flows.
NOTE 9. STOCKHOLDERS' EQUITY AND STOCK INCENTIVE PLANS
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) | 2015 | | 2014 | | 2015 | | 2014 |
Gaming | $ | 68 |
| | $ | 49 |
| | $ | 191 |
| | $ | 231 |
|
Food and beverage | 12 |
| | 9 |
| | 36 |
| | 44 |
|
Room | 6 |
| | 4 |
| | 17 |
| | 21 |
|
Selling, general and administrative | 345 |
| | 247 |
| | 969 |
| | 1,173 |
|
Corporate expense | 1,429 |
| | 1,217 |
| | 7,014 |
| | 9,962 |
|
Other operating items, net | — |
| | (192 | ) | | — |
| | (192 | ) |
Total share-based compensation expense | $ | 1,860 |
| | $ | 1,334 |
| | $ | 8,227 |
| | $ | 11,239 |
|
Performance Shares Vesting
The Performance Share Unit ("PSU") grant awarded in December 2011 vested during first quarter 2015. A total of 654,478 common shares, representing approximately 1.67 shares per PSU, were issued based on the determination by the Compensation Committee
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014
______________________________________________________________________________________________________
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 the grant. The actual achievement level under these award metrics equaled the estimated performance as of year-end 2014; therefore, the vesting of the PSUs did not impact compensation costs in our 2015 condensed consolidated statement of operations.
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. Of the 654,478 shares issued, a total of 177,274 shares were surrendered by the participants for this purpose, resulting in a net issuance of 477,204 shares due to the vesting of the 2011 grant.
NOTE 10. NONCONTROLLING INTEREST
Noncontrolling interest primarily represents, until the deconsolidation of Borgata on September 30, 2014, the 50% interest in Holding Company held by the Divestiture Trust for the economic benefit of MGM, which was initially recorded at fair value at the March 24, 2010 date of the effective change in control.
There were no changes in the noncontrolling interest during the nine months ended September 30, 2015. Changes in the noncontrolling interest for the nine months ended September 30, 2014, are as follows:
|
| | | | | | | | | | | |
| Nine Months Ended September 30, 2014 |
(In thousands) | Holding Company | | Other | | Total |
Balance, January 1, 2014 | $ | 180,430 |
| | $ | 20 |
| | $ | 180,450 |
|
Attributable net loss | 11,403 |
| | — |
| | 11,403 |
|
Capital contributions | — |
| | 30 |
| | 30 |
|
Deconsolidation of Borgata on September 30, 2014 | (191,833 | ) | | — |
| | (191,833 | ) |
Balance, September 30, 2014 | $ | — |
| | $ | 50 |
| | $ | 50 |
|
NOTE 11. 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.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014
______________________________________________________________________________________________________
Balances Measured at Fair Value
The following tables show the fair values of certain of our financial instruments:
|
| | | | | | | | | | | | | | | |
| September 30, 2015 |
(In thousands) | Balance | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | |
Cash and cash equivalents | $ | 125,045 |
| | $ | 125,045 |
| | $ | — |
| | $ | — |
|
Restricted cash | 24,734 |
| | 24,734 |
| | — |
| | — |
|
Investment available for sale | 17,949 |
| | — |
| | — |
| | 17,949 |
|
| | | | | | | |
Liabilities | | | | | | | |
Contingent payments | $ | 3,587 |
| | $ | — |
| | $ | — |
| | $ | 3,587 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2014 |
(In thousands) | Balance | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | |
Cash and cash equivalents | $ | 145,341 |
| | $ | 145,341 |
| | $ | — |
| | $ | — |
|
Restricted cash | 18,107 |
| | 18,107 |
| | — |
| | — |
|
Investment available for sale | 18,357 |
| | — |
| | — |
| | 18,357 |
|
| | | | | | | |
Liabilities | | | | | | | |
Merger earnout | $ | 75 |
| | $ | — |
| | $ | — |
| | $ | 75 |
|
Contingent payments | 3,792 |
| | — |
| | — |
| | 3,792 |
|
Cash and Cash Equivalents and Restricted Cash
The fair value 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, 2015 and December 31, 2014.
Investment Available for Sale
We have an investment in a single municipal bond issuance of $21.4 million aggregate principal amount of 7.5% Urban Renewal Tax Increment Revenue Bonds, Taxable Series 2007 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 estimate of the fair value of such investment was determined using a combination of current market rates and estimates of market conditions for instruments with similar terms, maturities, and degrees of risk and a discounted cash flows analysis as of September 30, 2015 and December 31, 2014. 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, 2015 and December 31, 2014, $0.4 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, 2015 and December 31, 2014, $17.5 million and $18.0 million, respectively, is included in other assets on the condensed consolidated balance sheets. The discount associated with this investment of $3.2 million and $3.3 million as of September 30, 2015 and December 31, 2014, 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.
Merger Earnout
Under the terms of the agreement (the "Merger Agreement") under which the Company acquired Peninsula Gaming, LLC ("Peninsula"), Boyd Acquisition II, LLC, an indirect wholly owned subsidiary of Boyd Gaming, is obligated to make an additional payment to Peninsula Gaming Partners, LLC, in 2016 if Kansas Star Casino's ("KSC") EBITDA, as defined in the Merger Agreement, for 2015 exceeds $105.0 million. The additional payment would be equal to 7.5 times the amount by which KSC's 2015 EBITDA exceeds $105.0 million. The actual payout will be determined based on actual EBITDA of KSC for calendar year 2015, and payments are not limited by a maximum value. If the actual 2015 EBITDA of KSC is less than the target, the Company
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014
______________________________________________________________________________________________________
is not required to make any additional consideration payment. The value of this contingency was calculated using a probability-based model. This model requires estimates of forecasted 2015 EBITDA and of the probability of exceeding the threshold at which a payment would be made. We formed our valuation assumptions using historical experience in the gaming industry and observable market conditions. The assumptions will be reviewed periodically and any change in the value of the obligation will be included in the consolidated statements of operations. At December 31, 2014, there were outstanding liabilities of $0.1 million, related to the merger earnout which are included in other liabilities on the condensed consolidated balance sheets. There was no outstanding liability at September 30, 2015.
Contingent Payments
In connection with the development of the Kansas Star Casino, KSC agreed to pay a former casino project developer and option holder 1% of KSC's EBITDA each month for a period of ten years commencing on December 20, 2011. The liability was initially recorded upon consummation of the Merger at the estimated fair value of the contingent payments using a discounted cash flows approach. At both September 30, 2015 and December 31, 2014, 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, 2015 and December 31, 2014, of $2.7 million and $2.9 million, respectively, which was included in other liabilities on the respective condensed consolidated balance sheets.
The following table summarizes the changes in fair value of the Company's Level 3 assets and liabilities:
|
| | | | | | | |
| Three Months Ended |
| September 30, 2015 |
| Assets | | Liability |
(In thousands) | Investment Available for Sale | | Contingent Payments |
Balance at July 1, 2015 | $ | 17,276 |
| | $ | (3,642 | ) |
Total gains (losses) (realized or unrealized): | | | |
Included in earnings | 31 |
| | (156 | ) |
Included in other comprehensive income (loss) | 642 |
| | — |
|
Transfers in or out of Level 3 | — |
| | — |
|
Purchases, sales, issuances and settlements: | | | |
Settlements | — |
| | 211 |
|
Balance at September 30, 2015 | $ | 17,949 |
| | $ | (3,587 | ) |
| | | |
Gains (losses) included in earnings attributable to the change in unrealized gains relating to assets and liabilities still held at the reporting date: | | | |
Included in interest income | $ | 31 |
| | $ | — |
|
Included in interest expense | — |
| | (156 | ) |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014
______________________________________________________________________________________________________
|
| | | | | | | | | | | |
| Three Months Ended September 30, 2014 |
| Assets | | Liabilities |
(In thousands) | Investment Available for Sale | | Merger Earnout | | Contingent Payments |
Balance at July 1, 2014 | $ | 17,443 |
| | $ | (450 | ) | | $ | (4,278 | ) |
Total gains (losses) (realized or unrealized): | | | | | |
Included in earnings | 29 |
| | 225 |
| | (181 | ) |
Included in other comprehensive income (loss) | 681 |
| | — |
| | — |
|
Transfers in or out of Level 3 | — |
| | — |
| | — |
|
Purchases, sales, issuances and settlements: | | | | | |
Settlements | — |
| | — |
| | 201 |
|
Balance at September 30, 2014 | $ | 18,153 |
| | $ | (225 | ) | | $ | (4,258 | ) |
| | | | | |
Gains (losses) included in earnings attributable to the change in unrealized gains relating to assets and liabilities still held at the reporting date: | | | | | |
Included in interest income | $ | 29 |
| | $ | — |
| | $ | — |
|
Included in interest expense | — |
| | — |
| | (181 | ) |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, 2015 |
| Assets | | Liabilities |
(In thousands) | Investment Available for Sale | | Merger Earnout | | Contingent Payments |
Balance at January 1, 2015 | $ | 18,357 |
| | $ | (75 | ) | | $ | (3,792 | ) |
Total gains (losses) (realized or unrealized): | | | | | |
Included in earnings | 93 |
| | 75 |
| | (476 | ) |
Included in other comprehensive income (loss) | (121 | ) | | — |
| | — |
|
Transfers in or out of Level 3 | — |
| | — |
| | — |
|
Purchases, sales, issuances and settlements: | | | | | |
Settlements | (380 | ) | | — |
| | 681 |
|
Balance at September 30, 2015 | $ | 17,949 |
| | $ | — |
| | $ | (3,587 | ) |
| | | | | |
Gains (losses) included in earnings attributable to the change in unrealized gains relating to assets and liabilities still held at the reporting date: | | | | | |
Included in interest income | $ | 93 |
| | $ | — |
| | $ | — |
|
Included in interest expense | — |
| | — |
| | (476 | ) |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014
______________________________________________________________________________________________________
|
| | | | | | | | | | | |
| Nine Months Ended September 30, 2014 |
| Assets | | Liabilities |
(In thousands) | Investment Available for Sale | | Merger Earnout | | Contingent Payments |
Balance at January 1, 2014 | $ | 17,128 |
| | $ | (1,125 | ) | | $ | (4,343 | ) |
Total gains (losses) (realized or unrealized): | | | | | |
Included in earnings | 89 |
| | 900 |
| | (549 | ) |
Included in other comprehensive income (loss) | 1,291 |
| | — |
| | — |
|
Transfers in or out of Level 3 | — |
| | — |
| | — |
|
Purchases, sales, issuances and settlements: | | | | | |
Settlements | (355 | ) | | — |
| | 634 |
|
Balance at September 30, 2014 | $ | 18,153 |
| | $ | (225 | ) | | $ | |