BOYD GAMING CORP - Quarter Report: 2020 June (Form 10-Q)
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 June 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
___________________________________________________
![](https://www.sec.gov/Archives/edgar/data/0000906553/000143774920016749/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 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 ☒ No ☐
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.
Large accelerated filer | ☒ | Accelerated filer | ☐ |
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Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
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| 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 August 3, 2020 was 111,386,881.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 2020
TABLE OF CONTENTS
Item 1. Financial Statements (Unaudited)
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, | December 31, | |||||||
(In thousands, except share data) | 2020 | 2019 | ||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 1,308,347 | $ | 249,977 | ||||
Restricted cash | 17,086 | 20,471 | ||||||
Accounts receivable, net | 35,234 | 54,864 | ||||||
Inventories | 25,013 | 22,101 | ||||||
Prepaid expenses and other current assets | 64,710 | 46,481 | ||||||
Income taxes receivable | 5,477 | 5,600 | ||||||
Total current assets | 1,455,867 | 399,494 | ||||||
Property and equipment, net | 2,573,559 | 2,672,553 | ||||||
Operating lease right-of-use assets | 946,333 | 936,170 | ||||||
Other assets, net | 93,531 | 91,750 | ||||||
Intangible assets, net | 1,395,438 | 1,466,891 | ||||||
Goodwill, net | 971,287 | 1,083,287 | ||||||
Total assets | $ | 7,436,015 | $ | 6,650,145 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 101,311 | $ | 91,003 | ||||
Current maturities of long-term debt | 27,002 | 26,994 | ||||||
Accrued liabilities | 380,161 | 438,896 | ||||||
Income tax payable | 1,418 | — | ||||||
Total current liabilities | 509,892 | 556,893 | ||||||
Long-term debt, net of current maturities and debt issuance costs | 4,893,880 | 3,738,937 | ||||||
Operating lease liabilities, net of current portion | 865,461 | 840,285 | ||||||
Deferred income taxes | 84,603 | 162,695 | ||||||
Other long-term tax liabilities | 3,935 | 3,840 | ||||||
Other liabilities | 72,766 | 82,253 | ||||||
Commitments and contingencies (Notes 6 and 8) | ||||||||
Stockholders' equity | ||||||||
Preferred stock, $ | par value, shares authorized— | — | ||||||
Common stock, $ | par value, shares authorized; and shares outstanding1,114 | 1,115 | ||||||
Additional paid-in capital | 879,373 | 883,715 | ||||||
Retained earnings | 124,839 | 380,942 | ||||||
Accumulated other comprehensive income (loss) | 152 | (530 | ) | |||||
Total stockholders' equity | 1,005,478 | 1,265,242 | ||||||
Total liabilities and stockholders' equity | $ | 7,436,015 | $ | 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 |
Six Months Ended |
|||||||||||||||
June 30, |
June 30, |
|||||||||||||||
(In thousands, except per share data) |
2020 |
2019 |
2020 |
2019 |
||||||||||||
Revenues |
||||||||||||||||
Gaming |
$ | 185,111 | $ | 633,659 | $ | 694,876 | $ | 1,253,912 | ||||||||
Food & beverage |
10,661 | 112,047 | 100,545 | 223,137 | ||||||||||||
Room |
6,918 | 61,097 | 53,645 | 118,341 | ||||||||||||
Other |
7,169 | 39,329 | 41,318 | 78,030 | ||||||||||||
Total revenues |
209,859 | 846,132 | 890,384 | 1,673,420 | ||||||||||||
Operating costs and expenses |
||||||||||||||||
Gaming |
76,761 | 282,593 | 315,461 | 559,209 | ||||||||||||
Food & beverage |
16,745 | 103,477 | 106,584 | 205,628 | ||||||||||||
Room |
5,097 | 27,799 | 28,082 | 54,681 | ||||||||||||
Other |
2,169 | 24,748 | 23,616 | 48,628 | ||||||||||||
Selling, general and administrative |
60,268 | 116,701 | 173,698 | 232,112 | ||||||||||||
Master lease rent expense |
25,413 | 24,431 | 50,078 | 48,393 | ||||||||||||
Maintenance and utilities |
21,654 | 39,707 | 54,800 | 77,807 | ||||||||||||
Depreciation and amortization |
69,213 | 68,051 | 136,178 | 135,304 | ||||||||||||
Corporate expense |
13,963 | 26,913 | 38,921 | 58,090 | ||||||||||||
Project development, preopening and writedowns |
3,825 | 4,915 | 7,333 | 8,946 | ||||||||||||
Impairment of assets |
— | — | 171,100 | — | ||||||||||||
Other operating items, net |
1,099 | 105 | 8,642 | 304 | ||||||||||||
Total operating costs and expenses |
296,207 | 719,440 | 1,114,493 | 1,429,102 | ||||||||||||
Operating income (loss) |
(86,348 | ) | 126,692 | (224,109 | ) | 244,318 | ||||||||||
Other expense (income) |
||||||||||||||||
Interest income |
(569 | ) | (816 | ) | (1,008 | ) | (922 | ) | ||||||||
Interest expense, net of amounts capitalized |
59,208 | 61,233 | 111,053 | 122,563 | ||||||||||||
Loss on early extinguishments and modifications of debt |
412 | 508 | 587 | 508 | ||||||||||||
Other, net |
115 | (455 | ) | (229 | ) | (340 | ) | |||||||||
Total other expense, net |
59,166 | 60,470 | 110,403 | 121,809 | ||||||||||||
Income (loss) before income taxes |
(145,514 | ) | 66,222 | (334,512 | ) | 122,509 | ||||||||||
Income tax benefit (provision) |
36,970 | (17,738 | ) | 78,409 | (28,574 | ) | ||||||||||
Net income (loss) |
$ | (108,544 | ) | $ | 48,484 | $ | (256,103 | ) | $ | 93,935 | ||||||
Basic net income (loss) per common share |
$ | (0.96 | ) | $ | 0.43 | $ | (2.26 | ) | $ | 0.83 | ||||||
Weighted average basic shares outstanding |
113,257 | 113,318 | 113,482 | 113,329 | ||||||||||||
Diluted net income (loss) per common share |
$ | (0.96 | ) | $ | 0.43 | $ | (2.26 | ) | $ | 0.83 | ||||||
Weighted average diluted shares outstanding |
113,257 | 113,795 | 113,482 | 113,832 |
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 |
Six Months Ended |
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June 30, |
June 30, |
|||||||||||||||
(In thousands) |
2020 |
2019 |
2020 |
2019 |
||||||||||||
Net income (loss) |
$ | (108,544 | ) | $ | 48,484 | $ | (256,103 | ) | $ | 93,935 | ||||||
Other comprehensive income (loss), net of tax: |
||||||||||||||||
Fair value adjustments to available-for-sale securities, net of tax |
(445 | ) | (12 | ) | 682 | 453 | ||||||||||
Comprehensive income (loss) |
$ | (108,989 | ) | $ | 48,472 | $ | (255,421 | ) | $ | 94,388 |
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 |
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Common Stock |
Additional |
Retained |
Comprehensive |
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(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 |
— | — | — | (147,559 | ) | — | (147,559 | ) | ||||||||||||||||
Comprehensive income, net of tax |
— | — | — | — | 1,127 | 1,127 | ||||||||||||||||||
Stock options exercised |
3,000 | — | 25 | — | — | 25 | ||||||||||||||||||
Release of restricted stock units, net of tax |
76,502 | 1 | (767 | ) | — | — | (766 | ) | ||||||||||||||||
Release of performance stock units, net of tax |
241,118 | 2 | (3,372 | ) | — | — | (3,370 | ) | ||||||||||||||||
Shares repurchased and retired |
(682,596 | ) | (6 | ) | (11,114 | ) | — | — | (11,120 | ) | ||||||||||||||
Share-based compensation costs |
— | — | 8,191 | — | — | 8,191 | ||||||||||||||||||
Balances, March 31, 2020 |
111,180,132 | 1,112 | 876,678 | 233,383 | 597 | 1,111,770 | ||||||||||||||||||
Net loss | — | — | — | (108,544 | ) | — | (108,544 | ) | ||||||||||||||||
Comprehensive loss, net of tax | — | — | — | — | (445 | ) | (445 | ) | ||||||||||||||||
Stock options exercised | 1,000 | — | 8 | — | — | 8 | ||||||||||||||||||
Release of restricted stock units, net of tax | 183,741 | 2 | (6 | ) | — | — | (4 | ) | ||||||||||||||||
Release of performance stock units, net of tax | 20,082 | 1 | — | — | — | 1 | ||||||||||||||||||
Shares repurchased and retired | — | (1 | ) | — | — | — | (1 | ) | ||||||||||||||||
Share-based compensation costs | — | — | 2,693 | — | — | 2,693 | ||||||||||||||||||
Balances, June 30, 2020 | 111,384,955 | $ | 1,114 | $ | 879,373 | $ | 124,839 | $ | 152 | $ | 1,005,478 |
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 | — | — | — | 45,451 | — | 45,451 | ||||||||||||||||||
Comprehensive income, net of tax | — | — | — | — | 465 | 465 | ||||||||||||||||||
Stock options exercised | 137,063 | 1 | 1,261 | — | — | 1,262 | ||||||||||||||||||
Release of restricted stock units, net of tax | 46,958 | — | (418 | ) | — | — | (418 | ) | ||||||||||||||||
Release of performance stock units, net of tax | 270,960 | 3 | (3,768 | ) | — | — | (3,765 | ) | ||||||||||||||||
Shares repurchased and retired | (830,100 | ) | (8 | ) | (21,645 | ) | — | — | (21,653 | ) | ||||||||||||||
Dividends declared ($ per share) | — | — | — | (6,683 | ) | — | (6,683 | ) | ||||||||||||||||
Share-based compensation costs | — | — | 9,709 | — | — | 9,709 | ||||||||||||||||||
Balances, March 31, 2019 | 111,381,986 | 1,114 | 877,470 | 292,125 | (600 | ) | 1,170,109 | |||||||||||||||||
Net income | — | — | — | 48,484 | — | 48,484 | ||||||||||||||||||
Comprehensive loss, net of tax | — | — | — | — | (12 | ) | (12 | ) | ||||||||||||||||
Stock options exercised | — | — | — | — | — | — | ||||||||||||||||||
Release of restricted stock units, net of tax | 13,075 | 1 | (136 | ) | — | — | (135 | ) | ||||||||||||||||
Release of performance stock units, net of tax | — | — | — | — | — | — | ||||||||||||||||||
Shares repurchased and retired | (245,221 | ) | (4 | ) | (6,104 | ) | — | — | (6,108 | ) | ||||||||||||||
Dividends declared ($ | per share)— | — | — | (7,781 | ) | — | (7,781 | ) | ||||||||||||||||
Share-based compensation costs | — | — | 8,158 | — | — | 8,158 | ||||||||||||||||||
Balances, June 30, 2019 | 111,149,840 | $ | 1,111 | $ | 879,388 | $ | 332,828 | $ | (612 | ) | $ | 1,212,715 |
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)
Six Months Ended | ||||||||
June 30, | ||||||||
(In thousands) | 2020 | 2019 | ||||||
Cash Flows from Operating Activities | ||||||||
Net income (loss) | $ | (256,103 | ) | $ | 93,935 | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 136,178 | 135,304 | ||||||
Amortization of debt financing costs and discounts on debt | 5,307 | 4,681 | ||||||
Non-cash operating lease expense | 34,225 | 16,468 | ||||||
Share-based compensation expense | 10,884 | 17,867 | ||||||
Deferred income taxes | (78,092 | ) | 26,478 | |||||
Non-cash impairment of assets | 171,100 | — | ||||||
Loss on early extinguishments and modifications of debt | 587 | 508 | ||||||
Other operating activities | 4,738 | 303 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | 19,630 | (6,675 | ) | |||||
Inventories | (2,912 | ) | (173 | ) | ||||
Prepaid expenses and other current assets | (19,275 | ) | (574 | ) | ||||
Income taxes (receivable) payable, net | 1,541 | (1,290 | ) | |||||
Other assets, net | (1,113 | ) | (4,902 | ) | ||||
Accounts payable and accrued liabilities | (54,763 | ) | (6,583 | ) | ||||
Operating lease liabilities | (34,225 | ) | (16,468 | ) | ||||
Other long-term tax liabilities | 95 | 102 | ||||||
Other liabilities | 9,393 | 5,331 | ||||||
Net cash provided by (used in) operating activities | (52,805 | ) | 264,312 | |||||
Cash Flows from Investing Activities | ||||||||
Capital expenditures | (75,916 | ) | (126,154 | ) | ||||
Cash paid for acquisitions, net of cash received | — | (5,535 | ) | |||||
Other investing activities | — | (23,259 | ) | |||||
Net cash used in investing activities | (75,916 | ) | (154,948 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Borrowings under bank credit facility | 965,100 | 776,029 | ||||||
Payments under bank credit facility | (344,848 | ) | (851,076 | ) | ||||
Proceeds from issuance of senior notes | 600,000 | — | ||||||
Debt financing costs, net | (12,918 | ) | (60 | ) | ||||
Share-based compensation activities, net | (4,106 | ) | (3,056 | ) | ||||
Shares repurchased and retired | (11,121 | ) | (27,761 | ) | ||||
Dividends paid | (7,808 | ) | (13,389 | ) | ||||
Other financing activities | (593 | ) | (176 | ) | ||||
Net cash provided by (used in) financing activities | 1,183,706 | (119,489 | ) | |||||
Change in cash, cash equivalents and restricted cash | 1,054,985 | (10,125 | ) | |||||
Cash, cash equivalents and restricted cash, beginning of period | 270,448 | 273,202 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 1,325,433 | $ | 263,077 | ||||
Supplemental Disclosure of Cash Flow Information | ||||||||
Cash paid for interest, net of amounts capitalized | $ | 112,220 | $ | 117,985 | ||||
Cash paid for (received from) income taxes | (1,448 | ) | 3,458 | |||||
Supplemental Schedule of Non-cash Investing and Financing Activities | ||||||||
Payables incurred for capital expenditures | $ | 12,250 | $ | 2,735 | ||||
Mortgage settlement in exchange for real estate | 57,684 | — |
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 June 30, 2020 and December 31, 2019 and for the three and six months ended June 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 July 1, 2020, 26 of our 29 gaming facilities have re-opened, 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. The closures of our properties had a material impact on our business, and COVID-19, 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.
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.
We have taken significant measures in response to the impact of the COVID-19 pandemic on our business, including:
• | suspending board of director compensation and enacted significant salary reductions among our executive leadership team; |
• | suspending all non-essential spending, including non-essential capital investment; |
• | suspending our quarterly cash dividend and share repurchase programs; |
• | adjusting property and corporate staffing levels in response to operational refinements and business volumes present as we re-opened our properties; and, |
• | 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. |
On March 16, 2020, we borrowed $660 million under our Revolving Credit Facility and an additional $10 million under the Swing Loan facility of the Credit Facility (effectively utilizing the full borrowing capacity under the Revolving Credit Facility) as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets. 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. On May 21, 2020, we issued $600 million aggregate principal amount of 8.625% senior notes due 2025 to further increase our cash position.
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. 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. There were no additional impairment charges recognized in second quarter 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.
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 June 30, 2020 and December 31, 2019 and for the three and six months ended June 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.
June 30, | December 31, | June 30, | December 31, | |||||||||||||
(In thousands) | 2020 | 2019 | 2019 | 2018 | ||||||||||||
Cash and cash equivalents | $ | 1,308,347 | $ | 249,977 | $ | 239,411 | $ | 249,417 | ||||||||
Restricted cash | 17,086 | 20,471 | 23,666 | 23,785 | ||||||||||||
Total cash, cash equivalents and restricted cash | $ | 1,325,433 | $ | 270,448 | $ | 263,077 | $ | 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 June 30, 2020 and December 31, 2019 and for the three and six months ended June 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 | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Food & beverage | $ | 5,235 | $ | 53,124 | $ | 49,415 | $ | 107,041 | ||||||||
Rooms | 3,069 | 24,043 | 22,155 | 47,316 | ||||||||||||
Other | 172 | 3,764 | 3,054 | 7,229 |
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 $34.8 million and $139.1 million for the three months ended June 30, 2020 and 2019, respectively, and $144.8 million and $274.8 million for the six months ended June 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.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 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:
June 30, | December 31, | |||||||
(In thousands) | 2020 | 2019 | ||||||
Land | $ | 322,406 | $ | 324,501 | ||||
Buildings and improvements | 3,044,228 | 3,090,974 | ||||||
Furniture and equipment | 1,643,821 | 1,596,395 | ||||||
Riverboats and barges | 241,043 | 241,036 | ||||||
Construction in progress | 77,165 | 56,069 | ||||||
Total property and equipment | 5,328,663 | 5,308,975 | ||||||
Less accumulated depreciation | 2,755,104 | 2,636,422 | ||||||
Property and equipment, net | $ | 2,573,559 | $ | 2,672,553 |
Depreciation expense is as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Depreciation expense | $ | 64,368 | $ | 60,852 | $ | 126,497 | $ | 120,897 |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019
______________________________________________________________________________________________________
NOTE 3. GOODWILL AND INTANGIBLE ASSETS, NET
Intangible assets, net consist of the following:
June 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 | 3.0 | $ | 68,100 | $ | (47,330 | ) | $ | — | $ | 20,770 | |||||||||
Host agreements | 12.9 | 58,000 | (8,056 | ) | — | 49,944 | |||||||||||||
Development agreement | — | 21,373 | — | — | 21,373 | ||||||||||||||
147,473 | (55,386 | ) | — | 92,087 | |||||||||||||||
Indefinite lived intangible assets | |||||||||||||||||||
Trademarks | Indefinite | 204,000 | — | (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, June 30, 2020 | $ | 1,728,158 | $ | (89,346 | ) | $ | (243,374 | ) | $ | 1,395,438 |
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 | ) | $ | — | $ | 28,502 | |||||||||
Host agreements | 13.4 | 58,000 | (6,122 | ) | — | 51,878 | |||||||||||||
Development agreement | — | 21,373 | — | — | 21,373 | ||||||||||||||
147,473 | (45,720 | ) | — | 101,753 | |||||||||||||||
Indefinite lived intangible assets | |||||||||||||||||||
Trademarks | Indefinite | 206,687 | — | (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 | $ | — | $ | (188,079 | ) | $ | 405,488 | |||||||
Downtown Las Vegas | 6,997 | (6,134 | ) | — | 863 | |||||||||||
Midwest & South | 666,798 | — | (101,862 | ) | 564,936 | |||||||||||
Balances, June 30, 2020 | $ | 1,267,362 | $ | (6,134 | ) | $ | (289,941 | ) | $ | 971,287 |
The following table sets forth the changes in our goodwill, net, during the six months ended June 30, 2020.
(In thousands) | Goodwill, Net | |||
Balance, January 1, 2020 | $ | 1,083,287 | ||
Additions | — | |||
Impairments | (112,000 | ) | ||
Balance, June 30, 2020 | $ | 971,287 |
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. 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.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019
______________________________________________________________________________________________________
NOTE 4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
June 30, |
December 31, |
|||||||
(In thousands) |
2020 |
2019 |
||||||
Payroll and related expenses | $ | 55,719 | $ | 99,602 | ||||
Interest | 39,804 | 32,239 | ||||||
Gaming liabilities | 61,453 | 64,465 | ||||||
Player loyalty program liabilities | 36,593 | 32,983 | ||||||
Advance deposits | 13,630 | 22,854 | ||||||
Outstanding chip liabilities | 6,059 | 7,394 | ||||||
Dividend payable | — | 7,808 | ||||||
Operating lease liabilities | 91,259 | 87,686 | ||||||
Other accrued liabilities | 75,644 | 83,865 | ||||||
Total accrued liabilities |
$ | 380,161 | $ | 438,896 |
NOTE 5. LONG-TERM DEBT
Long-term debt, net of current maturities and debt issuance costs, consists of the following:
June 30, 2020 | |||||||||||||||||||
Unamortized | |||||||||||||||||||
Interest | Origination | ||||||||||||||||||
Rates at | Outstanding | Unamortized | Fees and | Long-Term | |||||||||||||||
(In thousands) | June 30, 2020 | Principal | Discount | Costs | Debt, Net | ||||||||||||||
Bank credit facility | 2.850 | % | $ | 1,925,887 | $ | (562 | ) | $ | (12,433 | ) | $ | 1,912,892 | |||||||
6.375% senior notes due 2026 | 6.375 | % | 750,000 | — | (7,609 | ) | 742,391 | ||||||||||||
6.000% senior notes due 2026 | 6.000 | % | 700,000 | — | (8,546 | ) | 691,454 | ||||||||||||
4.750% senior notes due 2027 | 4.750 | % | 1,000,000 | — | (14,610 | ) | 985,390 | ||||||||||||
8.625% senior notes due 2025 | 8.625 | % | 600,000 | — | (11,702 | ) | 588,298 | ||||||||||||
Other | 5.220 | % | 457 | — | — | 457 | |||||||||||||
Total long-term debt | 4,976,344 | (562 | ) | (54,900 | ) | 4,920,882 | |||||||||||||
Less current maturities | 27,002 | — | — | 27,002 | |||||||||||||||
Long-term debt, net | $ | 4,949,342 | $ | (562 | ) | $ | (54,900 | ) | $ | 4,893,880 |
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 | — | (8,271 | ) | 741,729 | ||||||||||||
6.000% senior notes due 2026 | 6.000 | % | 700,000 | — | (9,244 | ) | 690,756 | ||||||||||||
4.750% senior notes due 2027 | 4.750 | % | 1,000,000 | — | (15,584 | ) | 984,416 | ||||||||||||
Other | 11.138 | % | 58,322 | — | — | 58,322 | |||||||||||||
Total long-term debt | 3,813,956 | (671 | ) | (47,354 | ) | 3,765,931 | |||||||||||||
Less current maturities | 26,994 | — | — | 26,994 | |||||||||||||||
Long-term debt, net | $ | 3,786,962 | $ | (671 | ) | $ | (47,354 | ) | $ | 3,738,937 |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019
______________________________________________________________________________________________________
The outstanding principal amounts under our bank credit facility are comprised of the following:
June 30, | December 31, | |||||||
(In thousands) | 2020 | 2019 | ||||||
Revolving Credit Facility | $ | 865,000 | $ | 235,000 | ||||
Term A Loan | 227,275 | 234,300 | ||||||
Refinancing Term B Loans | 768,712 | 795,034 | ||||||
Swing Loan | 64,900 | 41,300 | ||||||
Total outstanding principal amounts under the bank credit facility | $ | 1,925,887 | $ | 1,305,634 |
With a total revolving credit commitment of $945.5 million available under the bank credit facility, $865.0 million was borrowed on the Revolving Credit Facility, $64.9 million was borrowed on the Swing Loan and $12.6 million allocated to support various letters of credit, leaving a remaining contractual availability of $3.0 million as of June 30, 2020. As a precautionary measure to increase liquidity due to the uncertainty of COVID-19, the Company increased the borrowings on its Revolving Credit Facility by $670.0 million on March 16, 2020.
Bank Credit Agreement Amendment
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 Loan A Facility") and senior secured term loan B facility (collectively with the Revolving Credit Facility and the Term Loan A Facility, the "Credit Facilities"). The Boyd Credit Agreement includes, for the benefit of the Revolving Credit Facility and the Term Loan A Facility, 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 respective Financial Covenants are dependent on its Consolidated EBITDA, as defined by the Boyd Credit Agreement. Due to the closure of the Company’s properties, 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.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 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
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 six months ended June 30, 2020, the cost and operating cash flow outflow related to the lease was $1.1 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.
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. The exchange offer commenced on July 15, 2020 and will expire on August 14, unless we extend the offer.
Covenant Compliance
As of June 30, 2020, we believe that we were in compliance with the covenants of our debt instruments.
NOTE 6. COMMITMENTS AND CONTINGENCIES
NOTE 7. STOCKHOLDERS' EQUITY AND STOCK INCENTIVE PLANS
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019
______________________________________________________________________________________________________
The following table provides information regarding share repurchases during the referenced periods.
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(In thousands, except per share data) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Shares repurchased (1) | — | 245 | 683 | 1,075 | ||||||||||||
Total cost, including brokerage fees | $ | — | $ | 6,107 | $ | 11,121 | $ | 27,760 | ||||||||
Average repurchase price per share (2) | $ | — | $ | 24.90 | $ | 16.29 | $ | 25.82 |
(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 | |||||
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 | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Gaming | $ | 141 | $ | 167 | $ | 353 | $ | 361 | ||||||||
Food & beverage | 27 | 32 | 67 | 69 | ||||||||||||
Room | 13 | 15 | 32 | 33 | ||||||||||||
Selling, general and administrative | 720 | 849 | 1,796 | 1,837 | ||||||||||||
Corporate expense | 1,792 | 7,095 | 8,636 | 15,567 | ||||||||||||
Total share-based compensation expense | $ | 2,693 | $ | 8,158 | $ | 10,884 | $ | 17,867 |
Performance Shares
Our stock incentive plan provides for the issuance of Performance Share Unit ("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.
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.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019
______________________________________________________________________________________________________
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:
June 30, 2020 | ||||||||||||||||
(In thousands) | Balance | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | $ | 1,308,347 | $ | 1,308,347 | $ | — | $ | — | ||||||||
Restricted cash | 17,086 | 17,086 | — | — | ||||||||||||
Investment available for sale | 16,867 | — | — | 16,867 | ||||||||||||
Liabilities | ||||||||||||||||
Contingent payments | $ | 1,275 | $ | — | $ | — | $ | 1,275 |
December 31, 2019 | ||||||||||||||||
(In thousands) | Balance | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | $ | 249,977 | $ | 249,977 | $ | — | $ | — | ||||||||
Restricted cash | 20,471 | 20,471 | — | — | ||||||||||||
Investment available for sale | 16,151 | — | — | 16,151 | ||||||||||||
Liabilities | ||||||||||||||||
Contingent payments | $ | 1,712 | $ | — | $ | — | $ | 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 June 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 June 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 June 30, 2020 and December 31, 2019,
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 June 30, 2020 and December 31, 2019, $16.3 million and $15.6 million, respectively, is included in other assets on the condensed consolidated balance sheets. The discount associated with this investment of $2.6 million and $2.7 million, as of June 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.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 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 June 30, 2020 and December 31, 2019, is a discount rate of 6.2%. At both June 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 June 30, 2020 and December 31, 2019, of $0.4 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 | ||||||||||||||||
June 30, 2020 | June 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 | $ | 17,745 | $ | (1,520 | ) | $ | 16,452 | $ | (2,280 | ) | ||||||
Total gains (losses) (realized or unrealized): | ||||||||||||||||
Included in interest income (expense) | 39 | (22 | ) | 37 | (36 | ) | ||||||||||
Included in other comprehensive income (loss) | (367 | ) | — | (16 | ) | — | ||||||||||
Included in other items, net | — | 238 | — | 4 | ||||||||||||
Purchases, sales, issuances and settlements: | ||||||||||||||||
Settlements | (550 | ) | 29 | (510 | ) | 240 | ||||||||||
Balance at end of reporting period | $ | 16,867 | $ | (1,275 | ) | $ | 15,963 | $ | (2,072 | ) |
Six Months Ended | ||||||||||||||||
June 30, 2020 | June 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) | 78 | (48 | ) | 75 | (76 | ) | ||||||||||
Included in other comprehensive income (loss) | 1,188 | — | 626 | — | ||||||||||||
Included in other items, net | — | 221 | — | (61 | ) | |||||||||||
Purchases, sales, issuances and settlements: | ||||||||||||||||
Settlements | (550 | ) | 264 | (510 | ) | 472 | ||||||||||
Balance at end of reporting period | $ | 16,867 | $ | (1,275 | ) | $ | 15,963 | $ | (2,072 | ) |
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:
June 30, 2020 | |||||||||||||
(In thousands) | Outstanding Face Amount | Carrying Value | Estimated Fair Value | Fair Value Hierarchy | |||||||||
Liabilities | |||||||||||||
Obligation under assessment arrangements | $ | 27,196 | $ | 22,695 | $ | 27,651 | Level 3 |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 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:
June 30, 2020 | |||||||||||||
(In thousands) | Outstanding Face Amount | Carrying Value | Estimated Fair Value | Fair Value Hierarchy | |||||||||
Bank credit facility | $ | 1,925,887 | $ | 1,912,892 | $ | 1,873,297 | Level 2 | ||||||
6.375% senior notes due 2026 | 750,000 | 742,391 | 712,500 | Level 1 | |||||||||
6.000% senior notes due 2026 | 700,000 | 691,454 | 652,750 | Level 1 | |||||||||
4.750% senior notes due 2027 | 1,000,000 | 985,390 | 860,000 | Level 1 | |||||||||
8.625% senior notes due 2025 | 600,000 | 588,298 | 625,500 | Level 1 | |||||||||
Other | 457 | 457 | 457 | Level 3 | |||||||||
Total debt | $ | 4,976,344 | $ | 4,920,882 | $ | 4,724,504 |
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 June 30, 2020 and December 31, 2019. The estimated fair values of our Senior Notes are based on quoted market prices as of June 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; and (2) finance leases with various maturity dates from 2020 to 2026. 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 six months ended June 30, 2020 and 2019.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019
______________________________________________________________________________________________________
NOTE 9. SEGMENT INFORMATION
We aggregate certain of our gaming entertainment properties in order to present three 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.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019
______________________________________________________________________________________________________
The following tables set forth, for the periods indicated, departmental revenues for our Reportable Segments:
Three Months Ended June 30, 2020 | ||||||||||||||||||||
(In thousands) | Gaming Revenue | Food & Beverage Revenue | Room Revenue | Other Revenue | Total Revenue | |||||||||||||||
Revenues | ||||||||||||||||||||
Las Vegas Locals | $ | 40,846 | $ | 3,367 | $ | 2,383 | $ | 2,095 | $ | 48,691 | ||||||||||
Downtown Las Vegas | 3,140 | 882 | 327 | 315 | 4,664 | |||||||||||||||
Midwest & South | 141,125 | 6,412 | 4,208 | 4,759 | 156,504 | |||||||||||||||
Total Revenues | $ | 185,111 | $ | 10,661 | $ | 6,918 | $ | 7,169 | $ | 209,859 |
Three Months Ended June 30, 2019 | ||||||||||||||||||||
(In thousands) | Gaming Revenue | Food & Beverage Revenue | Room Revenue | Other Revenue | Total Revenue | |||||||||||||||
Revenues | ||||||||||||||||||||
Las Vegas Locals | $ | 142,754 | $ | 38,970 | $ | 26,445 | $ | 12,777 | $ | 220,946 | ||||||||||
Downtown Las Vegas | 34,816 | 14,435 | 7,103 | 8,114 | 64,468 | |||||||||||||||
Midwest & South | 456,089 | 58,642 | 27,549 | 18,438 | 560,718 | |||||||||||||||
Total Revenues | $ | 633,659 | $ | 112,047 | $ | 61,097 | $ | 39,329 | $ | 846,132 |
Six Months Ended June 30, 2020 | ||||||||||||||||||||
(In thousands) | Gaming Revenue | Food & Beverage Revenue | Room Revenue | Other Revenue | Total Revenue | |||||||||||||||
Revenues | ||||||||||||||||||||
Las Vegas Locals | $ | 157,164 | $ | 34,538 | $ | 24,364 | $ | 13,389 | $ | 229,455 | ||||||||||
Downtown Las Vegas | 32,985 | 12,607 | 6,475 | 6,710 | 58,777 | |||||||||||||||
Midwest & South | 504,727 | 53,400 | 22,806 | 21,219 | 602,152 | |||||||||||||||
Total Revenues | $ | 694,876 | $ | 100,545 | $ | 53,645 | $ | 41,318 | $ | 890,384 |
Six Months Ended June 30, 2019 | ||||||||||||||||||||
(In thousands) | Gaming | Food & Beverage Revenue | Room | Other | Total | |||||||||||||||
Revenues | ||||||||||||||||||||
Las Vegas Locals | $ | 286,397 | $ | 78,026 | $ | 52,649 | $ | 26,724 | $ | 443,796 | ||||||||||
Downtown Las Vegas | 68,755 | 28,538 | 14,301 | 15,900 | 127,494 | |||||||||||||||
Midwest & South | 898,760 | 116,573 | 51,391 | 35,406 | 1,102,130 | |||||||||||||||
Total Revenues | $ | 1,253,912 | $ | 223,137 | $ | 118,341 | $ | 78,030 | $ | 1,673,420 |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 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 | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Adjusted EBITDAR | ||||||||||||||||
Las Vegas Locals | $ | 2,858 | $ | 71,449 | $ | 49,620 | $ | 145,683 | ||||||||
Downtown Las Vegas | (7,220 | ) | 15,902 | 2,736 | 30,927 | |||||||||||
Midwest & South | 32,655 | 165,064 | 138,484 | 321,535 | ||||||||||||
Total Reportable Segment Adjusted EBITDAR | 28,293 | 252,415 | 190,840 | 498,145 | ||||||||||||
Corporate expense | (12,171 | ) | (19,819 | ) | (30,285 | ) | (42,524 | ) | ||||||||
Adjusted EBITDAR | 16,122 | 232,596 | 160,555 | 455,621 | ||||||||||||
Other operating costs and expenses | ||||||||||||||||
Deferred rent | 227 | 244 | 449 | 489 | ||||||||||||
Master lease rent expense | 25,413 | 24,431 | 50,078 | 48,393 | ||||||||||||
Depreciation and amortization | 69,213 | 68,051 | 136,178 | 135,304 | ||||||||||||
Share-based compensation expense | 2,693 | 8,158 | 10,884 | 17,867 | ||||||||||||
Project development, preopening and writedowns | 3,825 | 4,915 | 7,333 | 8,946 | ||||||||||||
Impairment of assets | — | — | 171,100 | — | ||||||||||||
Other operating items, net | 1,099 | 105 | 8,642 | 304 | ||||||||||||
Total other operating costs and expenses | 102,470 | 105,904 | 384,664 | 211,303 | ||||||||||||
Operating income (loss) | $ | (86,348 | ) | $ | 126,692 | $ | (224,109 | ) | $ | 244,318 |
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:
June 30, | December 31, | |||||||
(In thousands) | 2020 | 2019 | ||||||
Assets | ||||||||
Las Vegas Locals | $ | 1,726,520 | $ | 1,804,476 | ||||
Downtown Las Vegas | 208,291 | 212,936 | ||||||
Midwest & South | 4,009,151 | 4,229,174 | ||||||
Total Reportable Segment Assets | 5,943,962 | 6,246,586 | ||||||
Corporate | 1,492,053 | 403,559 | ||||||
Total Assets | $ | 7,436,015 | $ | 6,650,145 |
NOTE 10. SUBSEQUENT EVENTS
We have evaluated all events or transactions that occurred after June 30, 2020. During this period, up to the filing date, we did not identify any additional subsequent events, other than the filing of the required registration statement and commencement of the exchange offer for the 4.750% Notes disclosed in Note 5, Long-Term Debt, the effects of which would require disclosure or adjustment to our financial position or results of operations.
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 July 1, 2020, 26 of our 29 gaming facilities have re-opened, 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. The closures of our properties had a material impact on our business, and COVID-19, 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.
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.
We have taken significant measures in response to the impact of the COVID-19 pandemic on our business, including:
• |
suspending board of director compensation and enacted significant salary reductions among our executive leadership team; |
• |
suspending all non-essential spending, including non-essential capital investment; |
• |
suspending our quarterly cash dividend and share repurchase programs; |
• |
adjusting property and corporate staffing levels in response to operational refinements and business volumes present as we re-opened our properties; and, |
• |
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. |
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 March 16, 2020, we borrowed $660 million under our Revolving Credit Facility and an additional $10 million under the Swing Loan facility of the Credit Facility (effectively utilizing the full borrowing capacity under the Revolving Credit Facility). 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.
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 |
Six Months Ended |
|||||||||||||||
June 30, |
June 30, |
|||||||||||||||
(In millions) |
2020 |
2019 |
2020 |
2019 |
||||||||||||
Total revenues |
$ | 209.9 | $ | 846.1 | $ | 890.4 | $ | 1,673.4 | ||||||||
Operating income (loss) |
(86.3 | ) | 126.7 | (224.1 | ) | 244.3 | ||||||||||
Net income (loss) |
(108.5 | ) | 48.5 | (256.1 | ) | 93.9 |
Total Revenues
Total revenues decreased $636.3 million, or 75.2% and $783.0 million, or 46.8% during the three and six months ended June 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").
Operating Income (Loss)
Operating income (loss) decreased $213.0 million and $468.4 million for the three and six months ended June 30, 2020, respectively, 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) decreased $157.0 million for the three months ended June 30, 2020, compared to the prior year comparable period. The decline is attributable to the operating income decrease of $213.0 million, as discussed above. The decline is offset by a decrease in the income tax provision of $54.7 million, which is primarily due to the Company's net loss.
Net income (loss) decreased $350.0 million for the six months ended June 30, 2020, compared to the prior year comparable period. The decline is primarily attributable to the operating income decrease of $468.4 million, as discussed above. The decline is offset by a decrease in the income tax provision of $107.0 million, due to the Company's net loss, along with a $11.5 million decrease in interest expense, net of amounts capitalized. A decrease of 0.9 percentage points in the weighted average interest rate was the primary driver for the decrease in interest expense, net of amounts capitalized.
Operating Revenues
We derive the majority of our revenues from our gaming operations, which produced approximately 88% and 75% of revenues for the three months ended June 30, 2020 and 2019, respectively, and 78% and 75% for the six months ended June 30, 2020 and 2019, respectively. Food & beverage revenues represent our next most significant revenue source, generating approximately 5% and 13% of revenues for the three months ended June 30, 2020 and 2019, respectively, and 11% and 13% for the six months ended June 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 |
Six Months Ended |
|||||||||||||||
June 30, |
June 30, |
|||||||||||||||
(In millions) |
2020 |
2019 |
2020 |
2019 |
||||||||||||
REVENUES |
||||||||||||||||
Gaming |
$ | 185.1 | $ | 633.7 | $ | 694.9 | $ | 1,253.9 | ||||||||
Food & beverage |
10.7 | 112.0 | 100.5 | 223.1 | ||||||||||||
Room |
6.9 | 61.1 | 53.6 | 118.3 | ||||||||||||
Other |
7.2 | 39.3 | 41.4 | 78.1 | ||||||||||||
Total revenues |
$ | 209.9 | $ | 846.1 | $ | 890.4 | $ | 1,673.4 | ||||||||
COSTS AND EXPENSES |
||||||||||||||||
Gaming |
$ | 76.8 | $ | 282.6 | $ | 315.5 | $ | 559.2 | ||||||||
Food & beverage |
16.7 | 103.5 | 106.6 | 205.6 | ||||||||||||
Room |
5.1 | 27.8 | 28.1 | 54.7 | ||||||||||||
Other |
2.2 | 24.7 | 23.6 | 48.6 | ||||||||||||
Total costs and expenses |
$ | 100.8 | $ | 438.6 | $ | 473.8 | $ | 868.1 | ||||||||
MARGINS |
||||||||||||||||
Gaming |
58.5 | % | 55.4 | % | 54.6 | % | 55.4 | % | ||||||||
Food & beverage |
-56.1 | % | 7.6 | % | -6.1 | % | 7.8 | % | ||||||||
Room |
26.1 | % | 54.5 | % | 47.6 | % | 53.8 | % | ||||||||
Other |
69.4 | % | 37.2 | % | 43.0 | % | 37.8 | % |
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 $448.5 million, or 70.8% and $559.0 million, or 44.6% during the three and six months ended June 30, 2020, respectively, as compared to the corresponding periods of the prior year, was due primarily to the Property Closures.
Food & Beverage
Room revenues decreased$54.2 million, or 88.7% and $64.7 million, or 54.7% during the three and six months ended June 30, 2020, respectively, as compared to the corresponding period of the prior year due primarily to the Property Closures. Overall room margins declined, due primarily to a significant increase in cost per room along with a decline in the average daily rate for both comparison periods.
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 $32.2 million, or 81.8% and $36.7 million, or 47.0% during the three and six months ended June 30, 2020, respectively, as compared to the corresponding period of the prior year, due primarily to the Property Closures.
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 |
Six Months Ended |
|||||||||||||||
June 30, |
June 30, |
|||||||||||||||
(In millions) |
2020 |
2019 |
2020 |
2019 |
||||||||||||
Total revenues |
||||||||||||||||
Las Vegas Locals |
$ | 48.7 | $ | 220.9 | $ | 229.5 | $ | 443.8 | ||||||||
Downtown Las Vegas |
4.7 | 64.5 | 58.8 | 127.5 | ||||||||||||
Midwest & South |
156.5 | 560.7 | 602.1 | 1,102.1 | ||||||||||||
Total revenues |
$ | 209.9 | $ | 846.1 | $ | 890.4 | $ | 1,673.4 | ||||||||
Adjusted EBITDA (1) |
||||||||||||||||
Las Vegas Locals |
$ | 2.9 | $ | 71.4 | $ | 49.6 | $ | 145.7 | ||||||||
Downtown Las Vegas |
(7.2 | ) | 15.9 | 2.7 | 30.9 | |||||||||||
Midwest & South |
32.6 | 165.1 | 138.5 | 321.5 | ||||||||||||
Total Reportable Segment Adjusted EBITDAR |
28.3 | 252.4 | 190.8 | 498.1 | ||||||||||||
Corporate expense |
(12.2 | ) | (19.8 | ) | (30.3 | ) | (42.5 | ) | ||||||||
Adjusted EBITDAR |
$ | 16.1 | $ | 232.6 | $ | 160.5 | $ | 455.6 |
(1) Refer to Note 9, Segment Information, in the notes to the condensed consolidated financial statements (unaudited) for a reconciliation of Total Reportable Segment Adjusted EBITDAR to operating income, as reported in accordance with GAAP in our accompanying condensed consolidated statements of operations.
As shown in the table above, each segment had significant declines in both net revenue and EBITDAR during the three and six months ended June 30, 2020, as compared to the corresponding periods of the prior year, due to the Property Closures.
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 |
Six Months Ended |
|||||||||||||||
June 30, |
June 30, |
|||||||||||||||
(In millions) |
2020 |
2019 |
2020 |
2019 |
||||||||||||
Selling, general and administrative |
$ | 60.3 | $ | 116.7 | $ | 173.7 | $ | 232.1 | ||||||||
Master lease rent expense |
25.4 | 24.4 | 50.1 | 48.4 | ||||||||||||
Maintenance and utilities |
21.7 | 39.7 | 54.8 | 77.8 | ||||||||||||
Depreciation and amortization |
69.2 | 68.1 | 136.2 | 135.3 | ||||||||||||
Corporate expense |
14.0 | 26.9 | 38.9 | 58.1 | ||||||||||||
Project development, preopening and writedowns |
3.8 | 4.9 | 7.3 | 8.9 | ||||||||||||
Impairment of assets |
— | — | 171.1 | — | ||||||||||||
Other operating items, net |
1.1 | 0.1 | 8.6 | 0.3 |
Selling, General and Administrative
Selling, general and administrative expenses, as a percentage of revenues, were 28.7% and 13.8% during the three months ended June 30, 2020 and 2019, respectively, and 19.5% and 13.9% during the six months ended June 30, 2020 and 2019, respectively. The 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 12.1% and 2.9% during the three months ended June 30, 2020 and 2019, respectively, and 5.6% and 2.9% during the six months ended June 30, 2020 and 2019, respectively.
Maintenance and Utilities
Maintenance and utilities expenses, as a percentage of revenues, were 10.3% and 4.7% during the three months ended June 30, 2020 and 2019, respectively, and 6.2% and 4.6% during the six months ended June 30, 2020 and 2019, respectively.
Depreciation and Amortization
Depreciation and amortization expenses, as a percentage of revenues, were 33.0% and 8.0% during the three months ended June 30, 2020 and 2019, respectively, and 15.3% and 8.1% during the six months ended June 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 6.7% and 3.2% of revenues during the three months ended June 30, 2020 and 2019, respectively, and 4.4% and 3.5% during the six months ended June 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 six months ended June 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, natural disasters and severe weather, including hurricane and flood expenses, and subsequent recoveries of such costs, as applicable. During the six months ended June 30, 2020, $6.7 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 |
Six Months Ended |
|||||||||||||||
June 30, |
June 30, |
|||||||||||||||
(In millions) |
2020 |
2019 |
2020 |
2019 |
||||||||||||
Interest Expense, net |
$ | 58.6 | $ | 60.4 | $ | 110.0 | $ | 121.6 | ||||||||
Average Long-Term Debt Balance (1) |
4,671.9 | 3,989.8 | 4,277.6 | 4,014.6 | ||||||||||||
Weighted Average Interest Rates |
4.6 | % | 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 six months ended June 30, 2020, decreased $1.8 million, or 2.9% and $11.6 million, or 9.5%, 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 1.1 and 0.9 for the three and six months ended June 30, 2020, respectively, as the underlying Eurodollar declined. The decline in interest rate is offset by an increase in the average long-term debt balance of $682.1 million and $263.1 million for the three and six months ended June 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) an increase on our revolving credit facility due to a draw down of $670.0 million on March 16, 2020; (iii) issuance in May 2020 of the $600.0 million aggregate principal amount of 8.625% senior notes due June 2025; offset by (iv) the retirement of our $750.0 million aggregate principal amount of 6.875% senior notes due May 2023; and (v) the early repayments of the Refinancing Term B Loans.
Income Taxes
The effective tax rate on income during the six months ended June 30, 2020 and 2019 were 23.4% and 23.3%, respectively. The tax benefit for the six months ended June 30, 2020 was adversely impacted 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 six months ended June 30, 2020 was unfavorably impacted by certain nondeductible expenses. Our tax rates for the six months ended June 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 six months ended June 30, 2019 was unfavorably impacted by state taxes and certain nondeductible expenses.
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 six months ended June 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 June 30, 2020 and December 31, 2019, we had balances of cash and cash equivalents of $1,308.3 million and $250.0 million, respectively. In addition, we held restricted cash balances of $17.1 million and $20.5 million at June 30, 2020 and December 31, 2019, respectively. On March 16, 2020 the Company drew down $670.0 million under our revolving credit facility leaving availability of $3.0 million as of June 30, 2020, effectively utilizing the full borrowing capacity under the revolving credit facility. The June 30, 2020, cash balance also includes the $588.0 million in net proceeds from the offering of the 8.625% Notes which closed on May 21, 2020.
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 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
Six Months Ended |
||||||||
June 30, |
||||||||
(In millions) |
2020 |
2019 |
||||||
Net cash provided by (used in) operating activities |
$ | (52.8 | ) | $ | 264.3 | |||
Cash flows from investing activities |
||||||||
Capital expenditures |
(75.9 | ) | (126.2 | ) | ||||
Cash paid for acquisitions, net of cash received | — | (5.5 | ) | |||||
Other investing activities |
— | (23.3 | ) | |||||
Net cash used in investing activities |
(75.9 | ) | (155.0 | ) | ||||
Cash flows from financing activities |
||||||||
Net borrowings (payments) under bank credit facility |
620.3 | (75.0 | ) | |||||
Proceeds from issuance of senior notes | 600.0 | — | ||||||
Debt issuance costs |
(12.9 | ) | (0.1 | ) | ||||
Dividends paid |
(7.8 | ) | (13.4 | ) | ||||
Shares repurchased and retired |
(11.1 | ) | (27.8 | ) | ||||
Other financing activities |
(4.8 | ) | (3.1 | ) | ||||
Net cash provided by (used in) financing activities |
1,183.7 | (119.4 | ) | |||||
Increase (decrease) in cash, cash equivalents and restricted cash |
$ | 1,055.0 | $ | (10.1 | ) |
Cash Flows from Operating Activities
During the six months ended June 30, 2020 and 2019, we utilized net operating cash flow of $52.8 million and generated operating cash flow $264.3 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 six months ended June 30, 2020 and 2019, we incurred net cash outflows for investing activities of $75.9 million and $155.0 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 six months ended June 30, 2020, reflect primarily the additional borrowings under our Revolving Credit Facility and senior note issuance to preserve liquidity during the closure period. The outflows in 2020 reflect the use of cash flow to 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 six months ended June 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) |
June 30, 2020 | December 31, 2019 | Increase / (Decrease) | |||||||||
Bank credit facility |
$ | 1,925.9 | $ | 1,305.7 | $ | 620.2 | ||||||
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 |
0.4 | 58.3 | (57.9 | ) | ||||||||
Total long-term debt |
4,976.3 | 3,814.0 | 1,162.3 | |||||||||
Less current maturities |
27.0 | 27.0 | — | |||||||||
Long-term debt, net of current maturities |
$ | 4,949.3 | $ | 3,787.0 | $ | 1,162.3 |
Amounts Outstanding
The principal amounts under the bank credit facility are comprised of the following:
June 30, |
December 31, |
|||||||
(In millions) |
2020 |
2019 |
||||||
Revolving Credit Facility |
$ | 865.0 | $ | 235.0 | ||||
Term A Loan |
227.3 | 234.3 | ||||||
Refinancing Term B Loans |
768.7 | 795.0 | ||||||
Swing Loan |
64.9 | 41.4 | ||||||
Total outstanding principal amounts under the bank credit facility |
$ | 1,925.9 | $ | 1,305.7 |
With a total revolving credit commitment of $945.5 million available under the bank credit facility, $865.0 million was borrowed on the Revolving Credit Facility, $64.9 million was borrowed on the Swing Loan and $12.6 million allocated to support various letters of credit, leaving a remaining contractual availability of $3.0 million as of June 30, 2020. As discussed in the Overview section above, as a precautionary measure to increase liquidity during the uncertainty of COVID-19, the Company has increased the borrowings on its Revolving Credit Facility by $670.0 million on March 16, 2020.
The blended interest rate for outstanding borrowings under the bank credit facility was 2.9% at June 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 June 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 | |||||||||||||||
June 30, |
December 31, |
June 30, |
December 31, |
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(In millions) |
2020 |
2019 |
2020 |
2019 |
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Current assets |
$ | 1,444.7 | $ | 372.0 | $ | 1,444.7 | $ | 371.9 | ||||||||
Noncurrent assets |
9,403.5 | 9,733.2 | 9,403.5 | $ | 9,733.2 | |||||||||||
Current liabilities |
483.7 | 518.5 | 483.7 | $ | 518.5 | |||||||||||
Noncurrent liabilities |
5,947.7 | 4,766.2 | 5,946.8 | $ | 4,765.3 |
Summarized combined results of operations for the parent company and the Guarantors are as follows:
6.375% Notes | Other Notes | |||||||
Six Months Ended |
Six Months Ended |
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(In millions) |
June 30, 2020 |
June 30, 2020 |
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Revenues |
$ | 892.1 | $ | 892.1 | ||||
Costs and expenses |
1,083.7 | 1,083.7 | ||||||
Operating loss |
(342.0 | ) | (342.0 | ) | ||||
Loss before income taxes |
(450.2 | ) | (450.2 | ) | ||||
Net loss |
(374.5 | ) | (374.5 | ) |
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 six months ended June 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 | |||||
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 $115 million and $125 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:
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the outcome of gaming license selection processes; |
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the approval of gaming in jurisdictions where we have been active but where casino gaming is not currently permitted; |
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identification of additional suitable investment opportunities in current gaming jurisdictions; and |
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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. | |
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The effects of intense competition that exists in the gaming industry. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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). |
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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. |
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The risk that we fail to adapt our business and amenities to changing customer preferences. |
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• | 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. | |
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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. |
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The effect of the expansion of legalized gaming in the regions in which we operate. |
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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. |
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Our estimated effective income tax rates, estimated tax benefits, and merits of our tax positions. |
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Our ability to utilize our net operating loss carryforwards and certain other tax attributes. |
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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. |
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Other statements regarding our future operations, financial condition and prospects, and business strategies. |
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The risk that we may be unable to retain our key management and personnel, including key employees of the acquired companies. |
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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 June 30, 2020, our long-term variable-rate borrowings represented approximately 38.7% of total long-term debt. Based on June 30, 2020 debt levels, a 100 basis point change in the interest rate would cause our annual interest costs to change by approximately $19.3 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.
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.
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 August 1, 2020, 26 of our 29 casino properties have reopened, 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 will continue to be, negatively affected as a result of the COVID-19 pandemic.
Our properties that have reopened are subject to various health and safety measures, 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. The ongoing COVID-19 pandemic is having a negative impact on our business, operations, financial condition and results and such negative impacts will likely persist until we are able to safely operate our facilities at normal capacity.
The extent to which our customers are willing to return to our facilities is dependent upon, among other factors, the public perception of continuing health risks associated with public gatherings and the impact on the customer experience of necessary health and safety measures implemented at the direction of State and local governments and gaming regulators. For example, 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 would 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 will negatively affect demand for our facilities.
In addition, to the extent that the impact of the COVID-19 pandemic and public response on the economy continues to negatively affect discretionary spending patterns, we may continue to 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 furloughed substantially all of our 25,000 employees during the shutdown of our properties, as have many other businesses in the gaming and hospitality industries. As a result, we, and many of our peer companies in the gaming industry, delivered Worker Adjustment and Retraining Notification Act ("WARN Act") notices to many of our furloughed employees, and based on business demand following reopening, we have had to make the difficult decision to lay off a substantial number of employees. Similar measures 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) is likely to 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.
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 generated from property operations, to the extent our properties remain open, supplemented, as necessary, by the cash we currently have available. We have estimated that our average monthly cash requirements (including operating expenses, capital expenditures, rent expense and required loan amortization, but excluding interest expense) for the remainder of 2020 (assuming our properties remained closed for the entire period) would be approximately $44 million per month. Our average monthly cash interest expense would be approximately $21 million. We cannot ensure that our revenues will exceed our cash expenses, nor can we assure you that our estimates of monthly cash expenditures will be accurate. The consequences of the foregoing on our expectations of our future earnings has caused us to recognize impairments with respect to our intangible assets and in the future may cause us to recognize additional impairments or other negative accounting outcomes.
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.
Exhibits |
Exhibit Number |
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Document of Exhibit |
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Method of Filing |
2.1 | Agreement and Plan of Merger entered into as of May 6, 2020, by and among Gold Merger Sub, LLC, Boyd (Ohio) PropCo, LLC and Boyd TCIV, LLC. | Incorporated by reference to Exhibit 2.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the SEC on May 11, 2020. | ||
4.1 | Indenture governing the Company's 8.625% Senior Notes due 2025, dated May 21, 2020, by and among the Company, the guarantors named therein and Wilmington Trust, National Association, as trustee | Incorporated by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K filed May 22, 2020. | ||
10.1 | Amendment No. 3 dated as of May 8, 2020 among the Company and certain financial institutions and Bank of America, N.A., as administrative agent and letter of credit issuer, and Wells Fargo Bank, National Association, as swing line lender. | Incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the SEC on May 11, 2020. | ||
10.2 | Master Lease, dated October 15, 2018, by and between Boyd (Ohio) PropCo, LLC and PNK (Ohio),LLC | File electronically herewith | ||
22 | List of Guarantor Subsidiaries of Boyd Gaming Corporation | File electronically herewith | ||
31.1 |
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Filed electronically herewith |
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31.2 |
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Filed electronically herewith |
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32.1 |
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Filed electronically herewith |
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32.2 |
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Filed electronically herewith |
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101 |
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The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019, (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019, (iii) Condensed Consolidated Statements of Changes in Stockholders' Equity for each of the quarters within the six months ended June 30, 2020 and 2019, iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019, and (vi) Notes to Condensed Consolidated Financial Statements. |
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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 |
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 August 6, 2020.
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BOYD GAMING CORPORATION |
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By: |
/s/ Anthony D. McDuffie |
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Anthony D. McDuffie |
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Vice President and Chief Accounting Officer |