10-Q 1 byd10q9302018.htm 10-Q Document
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________
FORM 10-Q
 ____________________________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to              
Commission file number: 1-12882
___________________________________________________

image0a03a01a02a13.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)
 ____________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
 
Accelerated filer
 
o
 
 
 
 
 
 
 
Non-accelerated filer
 
o 
 
Smaller reporting company
 
o
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
Class
 
Outstanding as of November 5, 2018
 
 
Common stock, $0.01 par value
 
112,205,979
 





BOYD GAMING CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2018
TABLE OF CONTENTS
 
 
 
Page
No.
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017
 
 
 
 
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017
 
 
 
 
Condensed Consolidated Statements of Changes in Stockholders' Equity for the nine months ended September 30, 2018 and 2017
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 






PART I. Financial Information

Item 1.        Financial Statements (Unaudited)

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
 
September 30,
 
December 31,
(In thousands, except share data)
2018
 
2017
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
440,963

 
$
203,104

Restricted cash
33,596

 
24,175

Accounts receivable, net
39,701

 
40,322

Inventories
16,379

 
18,004

Prepaid expenses and other current assets
46,280

 
37,873

Income taxes receivable
5,185

 
5,185

Total current assets
582,104

 
328,663

Property and equipment, net
2,547,005

 
2,539,786

Other assets, net
94,777

 
81,128

Intangible assets, net
844,222

 
842,946

Goodwill, net
1,201,862

 
888,224

Other long-term tax assets
5,183

 
5,183

Total assets
$
5,275,153

 
$
4,685,930

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable
$
93,881

 
$
106,323

Current maturities of long-term debt
18,007

 
23,981

Accrued liabilities
313,303

 
255,146

Income tax payable
662

 
21

Total current liabilities
425,853

 
385,471

Long-term debt, net of current maturities and debt issuance costs
3,531,076

 
3,051,899

Deferred income taxes
109,508

 
86,657

Other long-term tax liabilities
3,588

 
3,447

Other liabilities
63,293

 
61,229

Commitments and contingencies (Notes 3, 8 and 9)

 

Stockholders' equity
 
 
 
Preferred stock, $0.01 par value, 5,000,000 shares authorized

 

Common stock, $0.01 par value, 200,000,000 shares authorized; 112,004,327 and 112,634,418 shares outstanding
1,120

 
1,126

Additional paid-in capital
904,521

 
931,858

Retained earnings
237,196

 
164,425

Accumulated other comprehensive loss
(1,002
)
 
(182
)
Total stockholders' equity
1,141,835

 
1,097,227

Total liabilities and stockholders' equity
$
5,275,153

 
$
4,685,930


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


3




BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands, except per share data)
2018
 
2017
 
2018
 
2017
Revenues
 
 
 
 
 
 
 
Gaming
$
446,760

 
$
428,852

 
$
1,335,011

 
$
1,309,922

Food & beverage
86,006

 
84,996

 
259,006

 
259,245

Room
47,984

 
47,600

 
145,330

 
142,284

Other
31,446

 
30,094

 
95,760

 
94,280

Total revenues
612,196

 
591,542

 
1,835,107

 
1,805,731

Operating costs and expenses
 
 
 
 
 
 
 
Gaming
197,435

 
188,044

 
580,461

 
569,597

Food & beverage
82,179

 
82,942

 
246,488

 
251,717

Room
22,288

 
21,845

 
64,875

 
64,594

Other
21,149

 
19,966

 
63,599

 
62,500

Selling, general and administrative
88,054

 
91,288

 
263,678

 
275,938

Maintenance and utilities
32,927

 
30,244

 
89,526

 
82,507

Depreciation and amortization
54,688

 
55,201

 
159,887

 
161,728

Corporate expense
25,055

 
19,339

 
74,975

 
63,388

Project development, preopening and writedowns
18,588

 
2,975

 
27,829

 
8,731

Impairments of assets

 

 
993

 

Other operating items, net
265

 
758

 
2,196

 
1,707

Total operating costs and expenses
542,628

 
512,602

 
1,574,507

 
1,542,407

Operating income
69,568

 
78,940

 
260,600

 
263,324

Other expense (income)
 
 
 
 
 
 
 
Interest income
(2,189
)
 
(452
)
 
(3,168
)
 
(1,367
)
Interest expense, net of amounts capitalized
54,670

 
43,309

 
143,888

 
129,711

Loss on early extinguishments and modifications of debt

 
319

 
61

 
853

Other, net
16

 
(139
)
 
(388
)
 
531

Total other expense, net
52,497

 
43,037

 
140,393

 
129,728

Income from continuing operations before income taxes
17,071

 
35,903

 
120,207

 
133,596

Income tax provision
(5,234
)
 
(12,746
)
 
(28,373
)
 
(47,671
)
Income from continuing operations, net of tax
11,837

 
23,157

 
91,834

 
85,925

Income from discontinued operations, net of tax

 

 
347

 
21,392

Net income
$
11,837

 
$
23,157

 
$
92,181

 
$
107,317

 
 
 
 
 
 
 
 
Basic net income per common share
 
 
 
 
 
 
 
Continuing operations
$
0.10

 
$
0.20

 
$
0.81

 
$
0.74

Discontinued operations

 

 

 
0.19

Basic net income per common share
$
0.10

 
$
0.20

 
$
0.81

 
$
0.93

Weighted average basic shares outstanding
114,410

 
114,836

 
114,443

 
115,108

 
 
 
 
 
 
 
 
Diluted net income per common share
 
 
 
 
 
 
 
Continuing operations
$
0.10

 
$
0.20

 
$
0.80

 
$
0.75

Discontinued operations

 

 

 
0.18

Diluted net income per common share
$
0.10

 
$
0.20

 
$
0.80

 
$
0.93

Weighted average diluted shares outstanding
115,070

 
115,501

 
115,147

 
115,768

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.06

 
$
0.05

 
$
0.17

 
$
0.10


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

4




BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2018
 
2017
 
2018
 
2017
Net income
$
11,837

 
$
23,157

 
$
92,181

 
$
107,317

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Fair value adjustments to available-for-sale securities, net of tax
138

 
(305
)
 
(1,132
)
 
801

Comprehensive income
$
11,975

 
$
22,852

 
$
91,049

 
$
108,118


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

5




BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)

 
Boyd Gaming Corporation Stockholders' Equity
 
 
 
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained Earnings (Accumulated
Deficit)
 
Accumulated
Other
Comprehensive
Income (Loss), Net
 
Noncontrolling
Interest
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except share data)
Shares
 
Amount
 
 
 
 
 
Balances, January 1, 2018
112,634,418

 
$
1,126

 
$
931,858

 
$
164,425

 
$
(182
)
 
$

 
$
1,097,227

Cumulative effect of change in accounting principle, adoption of Update 2018-02

 

 

 
(312
)
 
312

 

 

Net income

 

 

 
92,181

 

 

 
92,181

Comprehensive loss attributable to Boyd, net of tax

 

 

 

 
(1,132
)
 

 
(1,132
)
Stock options exercised
286,490

 
3

 
2,817

 

 

 

 
2,820

Release of restricted stock units, net of tax
18,777

 

 
(387
)
 

 

 

 
(387
)
Release of performance stock units, net of tax
337,537

 
4

 
(5,274
)
 

 

 

 
(5,270
)
Shares repurchased and retired
(1,272,895
)
 
(13
)
 
(44,809
)
 

 

 

 
(44,822
)
Dividends declared

 

 

 
(19,098
)
 

 

 
(19,098
)
Share-based compensation costs

 

 
20,316

 

 

 

 
20,316

Balances, September 30, 2018
112,004,327

 
$
1,120

 
$
904,521

 
$
237,196

 
$
(1,002
)
 
$

 
$
1,141,835

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances, January 1, 2017
112,896,377

 
$
1,129

 
$
953,440

 
$
(23,824
)
 
$
(615
)
 
$
50

 
$
930,180

Cumulative effect of change in accounting principle, adoption of Update 2016-09

 

 

 
15,777

 

 

 
15,777

Net income

 

 

 
107,317

 

 

 
107,317

Comprehensive income attributable to Boyd, net of tax

 

 

 

 
801

 

 
801

Stock options exercised
233,964

 
2

 
2,021

 

 

 

 
2,023

Release of restricted stock units, net of tax
156,750

 
1

 
(2,226
)
 

 

 

 
(2,225
)
Release of performance stock units, net of tax
173,653

 
2

 
(1,793
)
 

 

 

 
(1,791
)
Shares repurchased and retired
(870,315
)
 
(8
)
 
(22,152
)
 

 

 

 
(22,160
)
Dividends declared

 

 

 
(11,286
)
 

 

 
(11,286
)
Share-based compensation costs

 

 
11,212

 

 

 

 
11,212

Other

 

 
640

 

 

 
(50
)
 
590

Balances, September 30, 2017
112,590,429

 
$
1,126

 
$
941,142

 
$
87,984

 
$
186

 
$

 
$
1,030,438


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


6

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


 
Nine Months Ended
 
September 30,
(In thousands)
2018
 
2017
Cash Flows from Operating Activities
 
 
 
Net income
$
92,181

 
$
107,317

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Income from discontinued operations, net of tax
(347
)
 
(21,392
)
Depreciation and amortization
159,887

 
161,728

Amortization of debt financing costs and discounts on debt
6,779

 
6,957

Share-based compensation expense
20,316

 
11,212

Deferred income taxes
22,716

 
43,422

Non-cash impairment of assets
993

 

Loss on early extinguishments and modifications of debt
61

 
853

Other operating activities
72

 
(2,106
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
2,731

 
(3,056
)
Inventories
2,722

 
753

Prepaid expenses and other current assets
(6,384
)
 
(2,845
)
Income taxes payable
641

 
2,219

Other assets, net
(5,520
)
 
3,626

Accounts payable and accrued liabilities
33,152

 
25,082

Other long-term tax liabilities
141

 
101

Other liabilities
2,031

 
(482
)
Net cash provided by operating activities
332,172

 
333,389

Cash Flows from Investing Activities
 
 
 
Capital expenditures
(107,634
)
 
(161,252
)
Cash paid for acquisitions, net of cash received
(367,333
)
 
(1,153
)
Advances pursuant to development agreement

 
(35,108
)
Other investing activities
(10,590
)
 
492

Net cash used in investing activities
(485,557
)
 
(197,021
)
Cash Flows from Financing Activities
 
 
 
Borrowings under bank credit facility
413,000

 
463,300

Payments under bank credit facility
(633,022
)
 
(628,211
)
Proceeds from issuance of senior notes
700,000

 

Debt financing costs, net
(14,016
)
 
(2,700
)
Share-based compensation activities, net
(2,837
)
 
(1,993
)
Shares repurchased and retired
(44,822
)
 
(22,160
)
Dividends paid
(18,009
)
 
(5,653
)
Other financing activities
(111
)
 
503

Net cash provided by (used in) financing activities
400,183

 
(196,914
)
Cash Flows from Discontinued Operations
 
 
 
Cash flows from operating activities

 
(514
)
Cash flows from investing activities
482

 
36,247

Cash flows from financing activities

 

Net cash provided by discontinued operations
482

 
35,733

Change in cash, cash equivalents and restricted cash
247,280

 
(24,813
)
Cash, cash equivalents and restricted cash, beginning of period
227,279

 
210,350

Cash, cash equivalents and restricted cash, end of period
$
474,559

 
$
185,537

Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid for interest, net of amounts capitalized
$
107,758

 
$
109,634

Cash paid for income taxes
4,447

 
5,252

Supplemental Schedule of Non-cash Investing and Financing Activities
 
 
 
Payables incurred for capital expenditures
$
7,620

 
$
3,709

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

7




BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017
______________________________________________________________________________________________________
NOTE 1.    ORGANIZATION AND BASIS OF PRESENTATION
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 25 wholly owned gaming entertainment properties. Headquartered in Las Vegas, we have gaming operations in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi and Pennsylvania.

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and footnote disclosures necessary for complete financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"). These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2017 included in our Current Report on Form 8-K, filed with the U.S. Securities and Exchange Commission ("SEC") on June 28, 2018. As discussed in Note 2, Summary of Significant Accounting Policies, we adopted Accounting Standards Update 2016-18 and the Revenue Standard effective January 1, 2018, by applying the full retrospective method, which has impacted previously reported results.

The results for the periods indicated are unaudited, but reflect all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation of financial position, results of operations and cash flows. Results of operations and cash flows for the interim periods presented herein are not necessarily indicative of the results that would be achieved during a full year of operations or in future periods.

The accompanying condensed consolidated financial statements include the accounts of Boyd Gaming and its wholly owned subsidiaries. Investments in unconsolidated affiliates, which do not meet the consolidation criteria of the authoritative accounting guidance for voting interest, controlling interest or variable interest entities, are accounted for under the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation.

On August 1, 2016, Boyd Gaming completed the sale of its 50% equity interest in Marina District Development Holding Company, LLC ("MDDHC"), the parent company of Borgata Hotel Casino & Spa ("Borgata"), pursuant to an Equity Purchase Agreement (the "Purchase Agreement") entered into on May 31, 2016, as amended on July 19, 2016, by and among the Company, Boyd Atlantic City, Inc., a wholly owned subsidiary of the Company, and MGM Resorts International ("MGM"). (See Note 3, Acquisitions and Divestitures.) We accounted for our investment in Borgata by applying the equity method and reported its results as discontinued operations for all periods presented in these condensed consolidated financial statements.

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments, which include cash on hand and in banks, interest-bearing deposits and money market funds with maturities of three months or less at their date of purchase. The instruments are not restricted as to withdrawal or use and are on deposit with high credit quality financial institutions. Although these balances may at times exceed the federal insured deposit limit, we believe such risk is mitigated by the quality of the institution holding such deposit. The carrying values of these instruments approximate their fair values as such balances are generally available on demand.

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.


8

BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017
______________________________________________________________________________________________________

The following table provides a reconciliation of cash, cash equivalents and restricted cash balances reported within the condensed consolidated balance sheets to the total balance shown in the condensed consolidated statements of cash flows.
 
September 30,
 
December 31,
 
September 30,
 
December 31,
(In thousands)
2018
 
2017
 
2017
 
2016
Cash and cash equivalents
$
440,963

 
$
203,104

 
$
158,832

 
$
193,862

Restricted cash
33,596

 
24,175

 
26,705

 
16,488

Total cash, cash equivalents and restricted cash
$
474,559

 
$
227,279

 
$
185,537

 
$
210,350


Revenue Recognition
The Company’s revenue contracts with customers consist of gaming wagers, hotel room sales, food & beverage offerings and other amenity transactions. The transaction price for a gaming wagering contract is the difference between gaming wins and losses, not the total amount wagered. Cash discounts, commissions and other cash incentives to customers related to gaming play are recorded as a reduction of gross gaming revenues. The transaction price for hotel, food & beverage and other contracts is the net amount collected from the customer for such goods and services. Hotel, food & beverage and other services have been determined to be separate, stand-alone performance obligations and the transaction price for such contracts is recorded as revenue as the good or service is transferred to the customer over their stay at the hotel, when the delivery is made for the food & beverage or when the service is provided for other amenity transactions.

Gaming wager contracts involve two performance obligations for those customers earning points under the Company’s player loyalty programs and a single performance obligation for customers who do not participate in the programs. The Company applies a practical expedient by accounting for its gaming contracts on a portfolio basis as such wagers have similar characteristics and the Company reasonably expects the effects on the financial statements of applying the revenue recognition guidance to the portfolio to not differ materially from that which would result if applying the guidance to an individual wagering contract. For purposes of allocating the transaction price in a wagering contract between the wagering performance obligation and the obligation associated with the loyalty points earned, the Company allocates an amount to the loyalty point contract liability based on the stand-alone selling price of the points earned, which is determined by the value of a point that can be redeemed for a hotel room stay, food & beverage or other amenities. Sales and usage-based taxes are excluded from revenues. An amount is allocated to the gaming wager performance obligation using the residual approach as the stand-alone price for wagers is highly variable and no set established price exists for such wagers. The allocated revenue for gaming wagers is recognized when the wagers occur as all such wagers settle immediately. The loyalty point contract liability amount is deferred and recognized as revenue when the customer redeems the points for a hotel room stay, food & beverage or other amenities and such goods or services are delivered to the customer. See Note 6, Accrued Liabilities, for the balance outstanding related to player loyalty programs.

The Company collects advanced deposits from hotel customers for future reservations representing obligations of the Company until the hotel room stay is provided to the customer. See Note 6, Accrued Liabilities, for the balance outstanding related to advance deposits.

The Company's outstanding chip liability represents the amounts owed in exchange for gaming chips held by a customer. Outstanding chips are expected to be recognized as revenue or redeemed for cash within one year of being purchased. See Note 6, Accrued Liabilities, for the balance outstanding related to the chip liability.

The retail value of hotel accommodations, food & beverage, and other services furnished to guests without charge is recorded as a reduction of 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.

9

BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017
______________________________________________________________________________________________________


The estimated retail value related to goods and services provided to customers without charge or upon redemption of points under our player loyalty programs, included in departmental revenues, and therefore reducing our gaming revenues, are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2018
 
2017
 
2018
 
2017
Food & beverage
$
43,599

 
$
43,351

 
$
129,522

 
$
129,826

Rooms
19,437

 
19,554

 
58,298

 
57,197

Other
3,061

 
2,653

 
8,389

 
7,848


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 $83.1 million and $81.5 million for the three months ended September 30, 2018 and 2017, respectively, and $241.5 million and $248.5 million for the nine months ended September 30, 2018 and 2017, respectively.

Income Taxes
Income taxes are recorded under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. Use of the term "more likely than not" indicates the likelihood of occurrence is greater than 50%. Accordingly, the need to establish valuation allowances for deferred tax assets is continually assessed based on a more-likely-than-not realization threshold. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of profitability, the duration of statutory carryforward periods, our experience with the utilization of operating loss and tax credit carryforwards before expiration and tax planning strategies. In making such judgments, significant weight is given to evidence that can be objectively verified.

Other Long-Term Tax Liabilities
The Company's income tax returns are subject to examination by the Internal Revenue Service and other tax authorities in the locations where it operates. The Company assesses potentially unfavorable outcomes of such examinations based on accounting standards for uncertain income taxes, which prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.

Uncertain tax position accounting standards apply to all tax positions related to income taxes. These accounting standards utilize a two-step approach for evaluating tax positions. Recognition occurs when the Company concludes that a tax position, based on its technical merits, is more likely than not to be sustained upon examination. Measurement is only addressed if the position is deemed to be more likely than not to be sustained. The tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon settlement.

Tax positions failing to qualify for initial recognition are recognized in the first subsequent interim period that they meet the "more likely than not" standard. If it is subsequently determined that a previously recognized tax position no longer meets the "more likely than not" standard, it is required that the tax position is derecognized. Accounting standards for uncertain tax positions specifically prohibit the use of a valuation allowance as a substitute for derecognition of tax positions. As applicable, the Company will recognize accrued penalties and interest related to unrecognized tax benefits in the provision for income taxes. Accrued interest and penalties are included in other long-term tax liabilities on the condensed consolidated balance sheets.

Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.


10

BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017
______________________________________________________________________________________________________

Recently Adopted Accounting Pronouncements
Accounting Standards Update ("ASU") 2018-07, Compensation - Stock Compensation ("Update 2018-07")
In June 2018, the Financial Accounting Standards Board ("FASB") issued Update 2018-07 which expands Accounting Standards Codification ("ASC") 718, to include share-based payment transactions for acquiring goods and services from nonemployees. The standard is effective for financial statements issued for annual periods and interim periods within those annual periods, beginning after December 15, 2018, and early adoption is permitted. The Company determined that the impact of the new standard to its consolidated financial statements will not be material.

ASU 2018-05, Income Taxes ("Update 2018-05")
In March 2018, the FASB issued Update 2018-05, which amends the guidance to SEC Staff Accounting Bulletin No. 118 ("SAB 118") by adding income tax accounting implications of the Tax Cuts and Jobs Act (the "Tax Act"). The SEC staff issued SAB 118 to provide guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes ("ASC 740"). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. We recorded an adjustment as a result of the Tax Act as described above in fourth quarter 2017. We believe our analysis to be complete and do not anticipate any material future changes to financial statements as a result of the impact of the Tax Act. However, if any changes are determined, we will record those as part of the measurement period.

ASU 2018-02, Income Statement - Reporting Comprehensive Income ("Update 2018-02")
In first quarter 2018, the Company adopted ASU 2018-02 which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. The effect of this change in accounting principle is to record an other comprehensive income tax effect of $0.3 million as a reduction in retained earnings on the condensed consolidated statement of changes in stockholders' equity for the nine months ended September 30, 2018.

ASU 2016-18, Statement of Cash Flows ("Update 2016-18")
In November 2016, the FASB issued Update 2016-18, which amends ASC 230 to add or clarify the guidance on the classification and presentation of restricted cash in the statement of cash flows. Update 2016-18 requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts on the statement of cash flows. The Company adopted Update 2016-18 effective January 1, 2018 using the retrospective approach. We adjusted our condensed consolidated statement of cash flows from amounts previously reported due to the adoption of Update 2016-18. The effects of adopting Update 2016-18 on our condensed consolidated statement of cash flows for the nine months ended September 30, 2017 were as follows:
 
Nine Months Ended September 30, 2017
(In thousands)
As Previously Reported
 
Adoption of Update 2016-18
 
As Adjusted
Net cash provided by operating activities
$
323,172

 
$
10,217

 
$
333,389

 
 
 
 
 
 
Cash, cash equivalents and restricted cash, beginning of period
$
193,862

 
$
16,488

 
$
210,350

Net increase (decrease) in cash, cash equivalents and restricted cash
(35,030
)
 
10,217

 
(24,813
)
Cash, cash equivalents and restricted cash, end of period
$
158,832

 
$
26,705

 
$
185,537


ASU 2016-15, Statement of Cash Flows ("Update 2016-15")
In August 2016, the FASB issued Update 2016-15, which amends the guidance on the classification of certain cash receipts and payments in the statement of cash flows. Update 2016-15 is intended to reduce the lack of consistent principles on certain classifications such as debt prepayment, debt extinguishment costs, distributions, insurance claims and beneficial interest in securitization transactions. The Company retrospectively adopted Update 2016-15 effective January 1, 2018. The Company determined that the impact of the new standard on its consolidated financial statements is not material.

11

BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017
______________________________________________________________________________________________________


ASU 2016-09, Compensation - Stock Compensation ("Update 2016-09")
In first quarter 2017, the Company adopted Update 2016-09, which simplified several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Update 2016-09 requires excess tax benefits and deficiencies to be recorded in income tax expense instead of equity. The cumulative effect of this change in accounting principle was to record the benefit of previously unrecognized excess tax deductions as an increase in retained earnings of $15.8 million on the condensed consolidated statement of changes in stockholders' equity for the nine months ended September 30, 2017.

ASU 2014-09, Revenue from Contracts with Customers ("Update 2014-09"); ASU 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date ("Update 2015-14" ); ASU 2016-08, Revenue from Contracts with Customers - Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("Update 2016-08"); ASU 2016-10, Revenue from Contracts with Customers - Identifying Performance Obligations and Licensing ("Update 2016-10"); ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting ("Update 2016-11"); and ASU 2016-12, Revenue from Contracts with Customers - Narrow-Scope Improvements and Practical Expedients ("Update 2016-12"); (collectively, the “Revenue Standard”)
The Revenue Standard prescribes a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The Company adopted the Revenue Standard by applying the full retrospective approach in first quarter 2018 and has adjusted the prior periods presented.

The guidance changed the presentation of net revenues as the historical presentation reflected revenues gross for goods and services provided to our customers as an inducement to play with us, with an offsetting reduction for promotional allowances to derive net revenues. Under the new guidance, revenues are allocated among our departmental classifications based on the relative standalone selling prices of the goods and services provided to the customer. Our reporting of amounts paid to operators of wide area progressive games has changed as a result of the adoption of the Revenue Standard. We previously reported these payments as contra-revenues. Under the Revenue Standard, these payments are reported as an operating expense. The accounting for our frequent player programs was also impacted, with changes to the timing and/or classification of certain transactions between revenues and operating expenses.

The implementation of the Revenue Standard resulted in an increase to the player point liability due to the change in our accounting method for this liability from an estimated cost of redemption model to a deferred revenue model. As of the effective date of our adoption (January 1, 2015), the cumulative effect adjustment decreased beginning Retained earnings by $3.8 million (after tax), resulted in a deferred tax asset reduction of $2.4 million and increased Accrued liabilities by approximately $6.2 million on the condensed consolidated balance sheet. The impact to the condensed consolidated statement of cash flows for the three and nine months ended September 30, 2017 was not material. The impact of this change in accounting for these programs is not expected to be material to any annual accounting period.


12

BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017
______________________________________________________________________________________________________

The effects of the adoption of the Revenue Standard on our results for the three months ended September 30, 2017 are as follows:
 
Three Months Ended September 30, 2017
(In thousands, except per share data)
As Previously Reported
 
Adoption of Revenue Standard
 
As Adjusted
Revenues
 
 
 
 
 
Gaming
$
487,372

 
$
(58,520
)
 
$
428,852

Food & beverage
85,640

 
(644
)
 
84,996

Room
48,073

 
(473
)
 
47,600

Other
31,639

 
(1,545
)
 
30,094

Gross revenues
652,724

 
(61,182
)
 
591,542

Less promotional allowances
65,059

 
(65,059
)
 

Net revenues
587,665

 
3,877

 
591,542

Operating costs and expenses
 
 
 
 
 
Gaming
229,667

 
(41,623
)
 
188,044

Food & beverage
47,487

 
35,455

 
82,942

Room
13,475

 
8,370

 
21,845

Other
18,566

 
1,400

 
19,966

Selling, general and administrative
91,288

 

 
91,288

Maintenance and utilities
30,244

 

 
30,244

Depreciation and amortization
55,201

 

 
55,201

Corporate expense
19,339

 

 
19,339

Project development, preopening and writedowns
2,975

 

 
2,975

Other operating items, net
758

 

 
758

Total operating costs and expenses
509,000

 
3,602

 
512,602

Operating income
78,665

 
275

 
78,940

Other expense (income)
 
 
 
 
 
Interest income
(452
)
 

 
(452
)
Interest expense, net of amounts capitalized
43,309

 

 
43,309

Loss on early extinguishments and modifications of debt
319

 

 
319

Other, net
(139
)
 

 
(139
)
Total other expense, net
43,037

 

 
43,037

Income from continuing operations before income taxes
35,628

 
275

 
35,903

Income tax provision
(12,652
)
 
(94
)
 
(12,746
)
Income from continuing operations, net of tax
22,976

 
181

 
23,157

Income from discontinued operations, net of tax

 

 

Net income
$
22,976

 
$
181

 
$
23,157

 
 
 
 
 
 
Basic net income per common share
 
 
 
 
 
Continuing operations
$
0.20

 
$

 
$
0.20

Discontinued operations

 

 

Basic net income per common share
$
0.20

 
$

 
$
0.20

Weighted average basic shares outstanding
114,836

 

 
114,836

 
 
 
 
 
 
Diluted net income per common share
 
 
 
 
 
Continuing operations
$
0.20

 
$

 
$
0.20

Discontinued operations

 

 

Diluted net income per common share
$
0.20

 
$

 
$
0.20

Weighted average diluted shares outstanding
115,501

 

 
115,501






13

BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017
______________________________________________________________________________________________________

The effects of the adoption of the Revenue Standard on our results for the nine months ended September 30, 2017 are as follows:
 
Nine Months Ended September 30, 2017
(In thousands, except per share data)
As Previously Reported
 
Adoption of Revenue Standard
 
As Adjusted
Revenues
 
 
 
 
 
Gaming
$
1,482,427

 
$
(172,505
)
 
$
1,309,922

Food & beverage
261,425

 
(2,180
)
 
259,245

Room
143,669

 
(1,385
)
 
142,284

Other
98,592

 
(4,312
)
 
94,280

Gross revenues
1,986,113

 
(180,382
)
 
1,805,731

Less promotional allowances
193,238

 
(193,238
)
 

Net revenues
1,792,875

 
12,856

 
1,805,731

Operating costs and expenses
 
 
 
 
 
Gaming
691,210

 
(121,613
)
 
569,597

Food & beverage
146,538

 
105,179

 
251,717

Room
40,058

 
24,536

 
64,594

Other
58,176

 
4,324

 
62,500

Selling, general and administrative
275,938

 

 
275,938

Maintenance and utilities
82,507

 

 
82,507

Depreciation and amortization
161,728

 

 
161,728

Corporate expense
63,388

 

 
63,388

Project development, preopening and writedowns
8,731

 

 
8,731

Other operating items, net
1,707

 

 
1,707

Total operating costs and expenses
1,529,981

 
12,426

 
1,542,407

Operating income
262,894

 
430

 
263,324

Other expense (income)
 
 
 
 
 
Interest income
(1,367
)
 

 
(1,367
)
Interest expense, net of amounts capitalized
129,711

 

 
129,711

Loss on early extinguishments and modifications of debt
853

 

 
853

Other, net
531

 

 
531

Total other expense, net
129,728

 

 
129,728

Income from continuing operations before income taxes
133,166

 
430

 
133,596

Income tax provision
(47,515
)
 
(156
)
 
(47,671
)
Income from continuing operations, net of tax
85,651

 
274

 
85,925

Income from discontinued operations, net of tax
21,392

 

 
21,392

Net income
$
107,043

 
$
274

 
$
107,317

 
 
 
 
 
 
Basic net income per common share
 
 
 
 
 
Continuing operations
$
0.74

 
$

 
$
0.74

Discontinued operations
0.19

 

 
0.19

Basic net income per common share
$
0.93

 
$

 
$
0.93

Weighted average basic shares outstanding
115,108

 

 
115,108

 
 
 
 
 
 
Diluted net income per common share
 
 
 
 
 
Continuing operations
$
0.74

 
$
0.01

 
$
0.75

Discontinued operations
0.18

 

 
0.18

Diluted net income per common share
$
0.92

 
$
0.01

 
$
0.93

Weighted average diluted shares outstanding
115,768

 

 
115,768







14

BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017
______________________________________________________________________________________________________

Recently Issued Accounting Pronouncements
ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("Update 2018-03")
In August 2018, the FASB issued Update 2018-03 to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The standard is effective for financial statements issued for annual periods and interim periods within those annual periods beginning after December 15, 2019, and early adoption is permitted. The Company is evaluating the impact of Update 2018-13 to the consolidated financial statements.

ASU 2016-02, Leases ("Update 2016-02"); ASU 2018-10, Targeted Improvements ("Update 2018-10"); ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842 ("Update ASU 2018-01"); ASU 2018-11, Codification Improvements to Topic 842, Leases ("Update 2018-11"); (collectively, the “Lease Standard”)
The Lease Standard allows for transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet for leases with terms in excess of 12 months and the disclosure of key information about leasing arrangements. Under the Lease Standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We are also required to recognize and measure leases existing at, or entered into after, the beginning of the earliest comparative period presented using a modified retrospective approach, with certain practical expedients available.

The Lease Standard is effective for financial statements issued for annual periods and interim periods within those annual periods beginning after December 15, 2018, and early adoption is permitted. We will adopt the Lease Standard in the first quarter of 2019 and apply an optional transition method that will allow us to continue to apply the current guidance of the ASC 840 in the comparative periods in the year of adoption. Our assessment and implementation process is underway. As we prepare to adopt the Lease Standard, we have identified our lease population that will be impacted, acquired software to support the new accounting requirements and evaluated the practical expedients and accounting policy elections to be made. While we have not yet quantified the impact on our financial statements of implementation of the Lease Standard, our adoption is expected to have a significant impact on the consolidated balance sheet due to recognition of right-of-use assets and lease liabilities, but will likely have an insignificant impact on our consolidated statements of operations and comprehensive income. The Company also anticipates expanded footnote disclosures related to its leases under the new guidance. The Company’s evaluation of the Lease Standard is ongoing and may identify additional impacts on its consolidated financial statements and related disclosures prior to adoption.

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

NOTE 3.    ACQUISITIONS AND DIVESTITURES
Valley Forge Convention Center Partners
On September 17, 2018, we completed the acquisition of Valley Forge Convention Center Partners, L.P. ("Valley Forge"), the owner and operator of Valley Forge Casino Resort, pursuant to an Agreement and Plan of Merger (as amended, the "Valley Forge Merger Agreement"), dated as of December 20, 2017, as amended as of September 17, 2018, in each case by and among Boyd, Boyd TCV, LP, a Pennsylvania limited partnership and a wholly owned subsidiary of Boyd (“Boyd TCV”), Valley Forge, and VFCCP SR LLC, a Pennsylvania limited liability company, solely in its capacity as the representative of Valley Forge’s limited partners.

Pursuant to the Valley Forge Merger Agreement, Boyd TCV merged with and into Valley Forge (the "Valley Forge Merger"), with Valley Forge surviving the merger. Valley Forge is now a wholly owned subsidiary of Boyd. Valley Forge is a modern casino and hotel in King of Prussia, Pennsylvania that offers premium accommodations, gaming, dining, entertainment and retail services, and is aggregated into our Midwest & South segment (See Note 11, Segment Information). The net purchase price was $266.6 million.

Consideration Transferred
The fair value of the consideration transferred on the date of the Valley Forge Merger included the purchase price of the net assets transferred. The total gross consideration was $291.4 million.


15

BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017
______________________________________________________________________________________________________

Status of Purchase Price Allocation
The Company is following the acquisition method of accounting per ASC 805 guidance. For purposes of these condensed consolidated financial statements, we have allocated the purchase price to the assets acquired and the liabilities assumed based on preliminary estimates of fair value as determined by management based on its judgment. The excess of the purchase price over the preliminary estimated fair value of the assets acquired and liabilities assumed has been recorded as goodwill. The Company will recognize the assets acquired and liabilities assumed in the acquisition based on fair value estimates as of the date of the Valley Forge Merger. The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) is currently in process. This determination requires significant judgment. As such, management has not completed its valuation analysis and calculations in sufficient detail necessary to finalize the determination of the fair value of the assets acquired and liabilities assumed, along with the related allocations of goodwill and intangible assets. The final fair value determinations are expected to be completed during first quarter 2019. The final fair value determinations may be significantly different than those reflected in the condensed consolidated financial statements at September 30, 2018.

The following table summarizes the preliminary allocation of the purchase price:
(In thousands)
As Recorded
Current assets
$
29,909

Property and equipment
47,762

Other assets
483

Total acquired assets
78,154

 
 
Current liabilities
12,028

Other liabilities
606

Total liabilities assumed
12,634

Net identifiable assets acquired
65,520

Goodwill
225,844

Net assets acquired
$
291,364


The following table summarizes the preliminary values assigned to acquired property and equipment and estimated useful lives:
(In thousands)
Useful Lives
 
As Recorded
Land
 
 
$
650

Buildings and improvements
15 - 40 years
 
32,883

Furniture and equipment
5 - 7 years
 
13,800

Construction in progress
 
 
429

Property and equipment acquired
 
 
$
47,762


The goodwill recognized is the excess of the purchase price over the preliminary values assigned to the assets acquired and liabilities assumed. All of the goodwill was assigned to the Midwest & South reportable segment. All of the goodwill is expected to be deductible for income tax purposes.

The Company recognized $2.9 million and $3.4 million of acquisition related costs that were expensed for the three and nine months ended September 30, 2018, respectively. These costs are included in the condensed consolidated statements of operations in the line item entitled "Project development, preopening and writedowns".

Condensed Consolidated Statement of Operations for the period from September 17, 2018 through September 30, 2018
The following supplemental information presents the financial results of Valley Forge included in the Company's condensed consolidated statement of operations for the three and nine months ended September 30, 2018:

16

BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017
______________________________________________________________________________________________________

 
Period from
 
September 17 to
(In thousands)
September 30, 2018
Net revenues
$
5,840

Net income
$
780


Lattner Entertainment Group Illinois
On June 1, 2018, we completed the acquisition of Lattner Entertainment Group Illinois, LLC ("Lattner"), a distributed gaming operator headquartered in Ottawa, Illinois, pursuant to an Agreement and Plan of Merger (the "Lattner Merger Agreement") dated as of May 1, 2018, by and among Boyd, Boyd TCVI Acquisition, LLC, a wholly owned subsidiary of Boyd ("Boyd TCVI"), Lattner, and Lattner Capital, LLC, solely in its capacity as the representative of the equity holders of Lattner.

Pursuant to the Lattner Merger Agreement, Boyd TCVI merged with and into Lattner (the "Lattner Merger"), with Lattner surviving the Lattner Merger and becoming a wholly owned subsidiary of Boyd. Lattner currently operates nearly 1,000 gaming units in approximately 220 locations across the state of Illinois and is aggregated into our Midwest & South segment (See Note 11, Segment Information). The net purchase price was $100.7 million.

Consideration Transferred
The fair value of the consideration transferred on the date of the Lattner Merger included the purchase price of the net assets transferred. The total gross consideration was $110.5 million.

Status of Purchase Price Allocation
The Company is following the acquisition method of accounting per ASC 805 guidance. For purposes of these condensed consolidated financial statements, we have allocated the purchase price to the assets acquired and the liabilities assumed based on preliminary estimates of fair value as determined by management based on its judgment. The excess of the purchase price over the preliminary estimated fair value of the assets acquired and liabilities assumed has been recorded as goodwill. The Company will recognize the assets acquired and liabilities assumed in the acquisition based on fair value estimates as of the date of the Lattner Merger. The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) is currently in process. This determination requires significant judgment. As such, management has not completed its valuation analysis and calculations in sufficient detail necessary to finalize the determination of the fair value of the assets acquired and liabilities assumed, along with the related allocations of goodwill and intangible assets. The final fair value determinations are expected to be completed by the end of the year. The final fair value determinations may be significantly different than those reflected in the condensed consolidated financial statements at September 30, 2018.

The following table summarizes the preliminary allocation of the purchase price:
(In thousands)
As Recorded
Current assets
$
9,889

Property and equipment
9,063

Intangible and other assets
4,033

Total acquired assets
22,985

 
 
Current liabilities
1,062

Total liabilities assumed
1,062

Net identifiable assets acquired
21,923

Goodwill
88,615

Net assets acquired
$
110,538



17

BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017
______________________________________________________________________________________________________

The following table summarizes the preliminary values assigned to acquired property and equipment and estimated useful lives:
(In thousands)
Useful Lives
 
As Recorded
Buildings and improvements
10 - 45 years
 
$
14

Furniture and equipment
3 - 7 years
 
9,049

Property and equipment acquired
 
 
$
9,063


The goodwill recognized is the excess of the purchase price over the preliminary values assigned to the assets acquired and liabilities assumed. All of the goodwill was assigned to the Midwest & South reportable segment. All of the goodwill is expected to be deductible for income tax purposes.

The Company recognized $0.1 million and $0.6 million of acquisition related costs that were expensed for the three and nine months ended September 30, 2018, respectively. These costs are included in the condensed consolidated statements of operations in the line item entitled "Project development, preopening and writedowns".

Pro Forma Revenue and Net Income
The following supplemental pro forma revenues and net income presents the financial results of the Company as if the acquisitions of Lattner and Valley Forge had occurred on January 1, 2017. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what the actual results for the year ended December 31, 2017 and for the nine months ended September 30, 2018 would have been had the acquisitions been completed on January 1, 2017, nor are they indicative of any future results.
 
Nine Months Ended
 
Year Ended
(In millions)
September 30, 2018
 
December 31, 2017
Pro forma total revenues
$
1,983

 
$
2,589

Pro forma net income
89

 
186


Ameristar Casino Hotel Kansas City; Ameristar Casino Resort Spa St. Charles; Belterra Casino Resort; Belterra Park
On October 15, 2018, the Company completed its previously announced acquisition of Ameristar Casino Kansas City, LLC ("Ameristar Kansas City"), the owner and operator of Ameristar Casino Hotel Kansas City; Ameristar Casino St. Charles, LLC ("Ameristar St. Charles"), the owner and operator of Ameristar Casino Resort Spa St. Charles; Belterra Resort Indiana LLC ("Belterra Resort"), the owner and operator of Belterra Casino Resort located in Florence, Indiana; and PNK (Ohio) LLC ("Belterra Park"), the owner and operator of Belterra Park, located in Cincinnati, Ohio (Ameristar Kansas City, Ameristar St. Charles, Belterra Resort and Belterra Park are collectively referred to as the "Acquired Companies"), for total net cash consideration of $569.9 million, subject to adjustments based on final working capital, cash and indebtedness of the combined properties at closing and transaction expenses.

Boyd Gaming acquired the Acquired Companies pursuant to a Membership Interest Purchase Agreement (as amended, the "Pinnacle Purchase Agreement"), made and entered into on December 17, 2017, by and among Boyd Gaming, Boyd TCIV, LLC, a wholly owned subsidiary of Boyd Gaming ("Boyd TCIV"), Penn National Gaming, Inc. ("Penn"), and, solely following the execution and delivery of a joinder to the Pinnacle Purchase Agreement, Pinnacle Entertainment, Inc. ("Pinnacle Entertainment") and its wholly owned subsidiary, Pinnacle MLS, LLC (collectively with Pinnacle Entertainment, "Pinnacle"), as amended as of January 29, 2018 ("Amendment No. 1") and October 15, 2018 ("Amendment No. 2"). Pursuant to the Pinnacle Purchase Agreement, Boyd Gaming acquired from Pinnacle all of the issued and outstanding membership interests of the Acquired Companies as well as certain other assets (and assumed certain other liabilities) of Pinnacle related to the Acquired Companies (collectively, the "Pinnacle Acquisition"). Each of the Acquired Companies is now a wholly owned subsidiary of Boyd Gaming.

Pursuant to the Pinnacle Purchase Agreement, Boyd TCIV entered into a Master Lease, dated October 15, 2018 (the "Master Lease"), with Gold Merger Sub, LLC ("Gold Merger Sub"), as landlord, and Boyd TCIV, as tenant, pursuant to which the landlord agreed to lease to Boyd TCIV the facilities associated with Ameristar Kansas City, Ameristar St. Charles, Belterra Resort and Ogle Haus, LLC, a wholly owned subsidiary of Belterra Resort ("Ogle Haus"), commencing on October 15, 2018 and ending on April 30, 2026 as the initial term, with options for renewal.

The Pinnacle Acquisition occurred substantially concurrently with the acquisition of Pinnacle Entertainment by Penn pursuant to

18

BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017
______________________________________________________________________________________________________

the Merger Agreement, dated December 17, 2017, by and among Pinnacle Entertainment, Penn and Franchise Merger Sub, Inc., a wholly owned subsidiary of Penn.

Concurrently with the Pinnacle Acquisition, Boyd (Ohio) PropCo, LLC, a wholly owned subsidiary of Boyd Sub ("Boyd PropCo"), acquired the real estate associated with Belterra Park in Cincinnati, Ohio (the "Belterra Park Real Property Sale") utilizing mortgage financing from a subsidiary of Gaming and Leisure Properties, Inc. ("GLPI"), pursuant to a purchase agreement, dated December 17, 2017 ("Belterra Park Purchase Agreement), by and among Penn, Gold Merger Sub, a wholly owned subsidiary of GLPI, Belterra Park and Pinnacle Entertainment, and a Novation and Amendment Agreement, dated October 15, 2018 (the "Novation Agreement"), by and among Penn, Gold Merger Sub, Boyd PropCo, Belterra Park and Pinnacle Entertainment. Pursuant to the Novation Agreement, Gold Merger Sub, the original purchaser under the Belterra Park Purchase Agreement, assigned, transferred and conveyed to Boyd PropCo and Boyd PropCo accepted Gold Merger Sub’s rights, title and interest in the Belterra Park Purchase Agreement.

The initial accounting for this acquisition is not complete as the determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) is currently in process. This determination requires significant judgment. As such, management has not completed its valuation analysis and calculations in sufficient detail necessary to determine the fair value of the assets acquired and liabilities assumed, along with the related allocations of goodwill and intangible assets and required disclosures under ASC 805.

Investment in and Divestiture of Borgata
On August 1, 2016, Boyd Gaming completed the sale of its 50% equity interest in MDDHC, the parent company of Borgata in Atlantic City, New Jersey, to MGM pursuant to the Purchase Agreement entered into on May 31, 2016, as amended on July 19, 2016, by and among the Company, Boyd Atlantic City, Inc., a wholly owned subsidiary of the Company, and MGM (the "Transaction").

Prior to the sale of our equity interest, the Company and MGM each held a 50% interest in MDDHC, which owned all the equity interests in Borgata. Until the closing of the sale, we were the managing member of MDDHC, and we were responsible for the day-to-day operations of Borgata. Following the Transaction, MDDHC became a wholly owned subsidiary of MGM.

In consideration for the Transaction, MGM paid Boyd Gaming $900 million. The initial net cash proceeds were approximately $589 million, net of certain expenses and adjustments on the closing date, including outstanding indebtedness, cash and working capital. These initial proceeds did not include our 50% share of any future property tax settlement benefits related to the time period during which we held a 50% ownership in MDDHC to which Boyd Gaming retained the right to receive upon payment. On February 15, 2017, Borgata entered into a settlement agreement with Atlantic City, the terms of which provided for $72 million to be paid to Borgata to resolve the remaining property tax issues. For the nine months ended September 30, 2017, we recognized $36.2 million, in income for the cash we received for our share of property tax benefits realized by Borgata subsequent to the closing of the sale. These payments, net of tax of $14.8 million for the nine months ended September 30, 2017, are included in discontinued operations in the condensed consolidated financial statements. During the nine months ended September 30, 2018, we recognized $0.3 million in income, net of tax, for the cash we received for our share of miscellaneous recoveries realized by Borgata during that period. This payment is included in discontinued operations in the condensed consolidated financial statements.

NOTE 4.    PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
 
September 30,
 
December 31,
(In thousands)
2018
 
2017
Land
$
294,189

 
$
294,533

Buildings and improvements
2,988,853

 
2,935,539

Furniture and equipment
1,416,271

 
1,311,704

Riverboats and barges
239,745

 
238,926

Construction in progress
52,330

 
59,538

Total property and equipment
4,991,388

 
4,840,240

Less accumulated depreciation
2,444,383

 
2,300,454

Property and equipment, net
$
2,547,005

 
$
2,539,786


Depreciation expense is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2018
 
2017
 
2018
 
2017
Depreciation expense
$
53,067

 
$
51,109

 
$
154,570

 
$
148,274



19

BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017
______________________________________________________________________________________________________

NOTE 5.    INTANGIBLE ASSETS
Intangible assets consist of the following:
 
September 30, 2018
 
Weighted
 
Gross
 
 
 
Cumulative
 
 
 
Average Life
 
Carrying
 
Cumulative
 
Impairment
 
Intangible
(In thousands)
Remaining
 
Value
 
Amortization
 
Losses
 
Assets, Net
Amortizing intangibles
 
 
 
 
 
 
 
 
 
Customer relationships
4.5 years
 
$
9,400

 
$
(5,188
)
 
$

 
$
4,212

Favorable lease rates
37.3 years
 
11,730

 
(3,246
)
 

 
8,484

Development agreement
 
21,373

 

 

 
21,373

Other intangibles
4.8 years
 
2,169

 
(354
)
 

 
1,815

 
 
 
44,672

 
(8,788
)
 

 
35,884

 
 
 
 
 
 
 
 
 
 
Indefinite lived intangible assets
 
 
 
 
 
 
 
 
 
Trademarks
Indefinite
 
151,887

 

 
(4,300
)
 
147,587

Gaming license rights
Indefinite
 
874,685

 
(33,960
)
 
(179,974
)
 
660,751

 
 
 
1,026,572

 
(33,960
)
 
(184,274
)
 
808,338

Balance, September 30, 2018
 
 
$
1,071,244

 
$
(42,748
)
 
$
(184,274
)
 
$
844,222


 
December 31, 2017
 
Weighted
 
Gross
 
 
 
Cumulative
 
 
 
Average Life
 
Carrying
 
Cumulative
 
Impairment
 
Intangible
(In thousands)
Remaining
 
Value
 
Amortization
 
Losses
 
Assets, Net
Amortizing intangibles
 
 
 
 
 
 
 
 
 
Customer relationships
5.2 years
 
$
9,400

 
$
(3,470
)
 
$

 
$
5,930

Favorable lease rates
38.0 years
 
11,730

 
(3,075
)
 

 
8,655

Development agreement
 
21,373

 

 

 
21,373

 
 
 
42,503

 
(6,545
)
 

 
35,958

 
 
 
 
 
 
 
 
 
 
Indefinite lived intangible assets
 
 
 
 
 
 
 
 
 
Trademarks
Indefinite
 
151,887

 

 
(4,300
)
 
147,587

Gaming license rights
Indefinite
 
873,335

 
(33,960
)
 
(179,974
)
 
659,401

 
 
 
1,025,222

 
(33,960
)
 
(184,274
)
 
806,988

Balance, December 31, 2017
 
 
$
1,067,725

 
$
(40,505
)
 
$
(184,274
)
 
$
842,946


NOTE 6.    ACCRUED LIABILITIES
Accrued liabilities consist of the following:
 
September 30,
 
December 31,
(In thousands)
2018
 
2017
Payroll and related expenses
$
70,601

 
$
70,724

Interest
49,209

 
19,858

Gaming liabilities
59,140

 
55,961

Player loyalty program liabilities
21,649

 
24,489

Advance deposits
23,917

 
18,922

Outstanding chip liabilities
4,845

 
4,928

Dividend payable
6,720

 
5,632

Other accrued liabilities
77,222

 
54,632

Total accrued liabilities
$
313,303

 
$
255,146



20

BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017
______________________________________________________________________________________________________

NOTE 7.    LONG-TERM DEBT
Long-term debt, net of current maturities and debt issuance costs, consists of the following:
 
 
 
September 30, 2018
 
 
 
 
 
 
 
Unamortized
 
 
 
Interest
 
 
 
 
 
Origination
 
 
 
Rates at
 
Outstanding
 
Unamortized
 
Fees and
 
Long-Term
(In thousands)
Sept. 30, 2018
 
Principal
 
Discount
 
Costs
 
Debt, Net
Bank credit facility
4.417
%
 
$
1,401,030

 
$
(1,357
)
 
$
(22,566
)
 
$
1,377,107

6.875% senior notes due 2023
6.875
%
 
750,000

 

 
(8,139
)
 
741,861

6.375% senior notes due 2026
6.375
%
 
750,000

 

 
(9,883
)
 
740,117

6.000% senior notes due 2026
6.000
%
 
700,000

 

 
(10,972
)
 
689,028

Other
5.042
%
 
970

 

 

 
970

Total long-term debt
 
 
3,602,000

 
(1,357
)
 
(51,560
)
 
3,549,083

Less current maturities
 
 
18,007

 

 

 
18,007

Long-term debt, net
 
 
$
3,583,993

 
$
(1,357
)
 
$
(51,560
)
 
$
3,531,076


 
 
 
December 31, 2017
 
 
 
 
 
 
 
Unamortized
 
 
 
Interest
 
 
 
 
 
Origination
 
 
 
Rates at
 
Outstanding
 
Unamortized
 
Fees and
 
Long-Term
(In thousands)
Dec. 31, 2017
 
Principal
 
Discount
 
Costs
 
Debt, Net
Bank credit facility
3.882
%
 
$
1,621,054

 
$
(1,556
)
 
$
(23,795
)
 
$
1,595,703

6.875% senior notes due 2023
6.875
%
 
750,000

 

 
(9,455
)
 
740,545

6.375% senior notes due 2026
6.375
%
 
750,000

 

 
(10,872
)
 
739,128

Other
5.800
%
 
504

 

 

 
504

Total long-term debt
 
 
3,121,558

 
(1,556
)
 
(44,122
)
 
3,075,880

Less current maturities
 
 
23,981

 

 

 
23,981

Long-term debt, net
 
 
$
3,097,577

 
$
(1,556
)
 
$
(44,122
)
 
$
3,051,899


The outstanding principal amounts under our existing bank credit facility are comprised of the following:
 
September 30,
 
December 31,
(In thousands)
2018
 
2017
Revolving Credit Facility
$

 
$
170,000

Term A Loan
248,351

 
210,938

Refinancing Term B Loans
1,152,679

 
1,170,016

Swing Loan

 
70,100

Total outstanding principal amounts under the bank credit facility
$
1,401,030

 
$
1,621,054


At September 30, 2018, approximately $1.4 billion was outstanding under the bank credit facility. The total revolving credit commitment available under the bank credit facility is $945.5 million. There were no borrowings on the Revolving Credit Facility and the Swing Loan outstanding at that date. After consideration of $12.7 million allocated to support various letters of credit, the remaining contractual availability on the revolving credit commitment is $932.8 million.

Under the Amendment No. 2 and Refinancing Amendment, dated March 29, 2017, to the Third Amended and Restated Credit Agreement, dated as of August 14, 2013 (as amended, the "Credit Agreement"), the Company is allowed to pay its quarterly amortization installments under the Term Loans prior to the last day of the applicable quarter. As of September 30, 2018, the Company has voluntarily paid its quarterly amortization installment due on or before December 31, 2018 on the Term A Loan and

21

BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017
______________________________________________________________________________________________________

Refinancing Term B Loans. As such, current maturities of long-term debt on the condensed consolidated balance sheet as of September 30, 2018, reflect only three quarterly amortization installments for those installment payments due on or before March 31, 2019, June 30, 2019 and September 30, 2019.

Senior Notes
6.000% Senior Notes due August 2026
Significant Terms
On June 25, 2018, we issued $700.0 million aggregate principal amount of 6.000% senior notes due August 2026 (the "6.000% Notes"). The 6.000% Notes require semi-annual interest payments on February 15 and August 15 of each year, commencing on August 15, 2018. The 6.000% Notes will mature on August 15, 2026 and are fully and unconditionally guaranteed, on a joint and several basis, by certain of our current and future domestic restricted subsidiaries, all of which are 100% owned by us.

The Company utilized the net proceeds from the debt issuance to pay down the outstanding amounts under the Revolving Credit Facility and Swing Loan and to fund the acquisition of Valley Forge. The balance of the net proceeds are invested in cash equivalents and short-term marketable securities at a qualified institution.

The 6.000% Notes contain certain restrictive covenants that, subject to exceptions and qualifications, among other things, limit our ability and the ability of our restricted subsidiaries (as defined in the indenture governing the 6.000% Notes, the "Indenture") to incur additional indebtedness or liens, pay dividends or make distributions or repurchase our capital stock, make certain investments, and sell or merge with other companies. In addition, upon the occurrence of a change of control (as defined in the Indenture), we will be required, unless certain conditions are met, to offer to repurchase the 6.000% Notes at a price equal to 101% of the principal amount of the 6.000% Notes, plus accrued and unpaid interest and Additional Interest (as defined in the Indenture), if any, to, but not including, the date of purchase. If we sell assets, we will be required under certain circumstances to offer to purchase the 6.000% Notes.

At any time prior to August 15,