The following consolidated financial statements for the three years in the period ended December 31, 2022 are filed as part of this Report:
The accompanying audited consolidated financial statements of Boyd Gaming Corporation have been prepared in accordance with the instructions to Form 10-K and Regulation S-X and include all information and footnote disclosures necessary for complete financial statements in conformity with accounting principles generally accepted in the United States.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Boyd Gaming Corporation (and together with its subsidiaries, the "Company", the "Registrant", "Boyd Gaming", "Boyd", "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 of December 31, 2022, we are a geographically diversified operator of 28 wholly owned gaming entertainment properties. Headquartered in Las Vegas, Nevada, we have gaming operations in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Ohio and Pennsylvania. For financial reporting purposes, we aggregate our gaming entertainment properties in order to present the following three reportable segments:
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 (1) | | Las Vegas, Nevada |
Aliante Casino + Hotel + Spa | | North Las Vegas, Nevada |
Cannery Casino Hotel | | North Las Vegas, Nevada |
Jokers Wild | | Henderson, Nevada |
Downtown Las Vegas | | |
California Hotel and Casino | | Las Vegas, Nevada |
Fremont Hotel & Casino | | Las Vegas, Nevada |
Main Street Station Hotel and Casino | | Las Vegas, Nevada |
Midwest & South | | |
Par-A-Dice Casino | | East Peoria, Illinois |
Belterra Casino Resort (2) | | Florence, Indiana |
Blue Chip Casino Hotel Spa | | Michigan City, Indiana |
Diamond Jo Casino | | Dubuque, Iowa |
Diamond Jo Worth | | Northwood, Iowa |
Kansas Star Casino | | Mulvane, Kansas |
Amelia Belle Casino | | Amelia, Louisiana |
Delta Downs Racetrack Hotel & Casino | | Vinton, Louisiana |
Evangeline Downs Racetrack & Casino | | Opelousas, Louisiana |
Sam's Town Shreveport | | Shreveport, Louisiana |
Treasure Chest Casino | | Kenner, Louisiana |
IP Casino Resort Spa | | Biloxi, Mississippi |
Sam's Town Hotel and Gambling Hall Tunica | | Tunica, Mississippi |
Ameristar Casino * Hotel Kansas City (2) | | Kansas City, Missouri |
Ameristar Casino * Resort * Spa St. Charles (2) | | St. Charles, Missouri |
Belterra Park (2) | | Cincinnati, Ohio |
Valley Forge Casino Resort | | King of Prussia, Pennsylvania |
(1) Eastside Cannery remains closed since March 18, 2020 due to the current levels of demand in the market.
(2) Property is subject to master lease agreement with a real estate investment trust.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
In addition to these properties, we own a travel agency and a captive insurance company that underwrites travel-related insurance, each located in Hawaii. Financial results for our travel agency and our captive insurance company are included in our Downtown Las Vegas segment, as our Downtown Las Vegas properties concentrate significant marketing efforts on gaming customers from Hawaii. Our Midwest & South segment includes the results of the following non-reportable segments and business activities: (i) Lattner Entertainment Group Illinois, LLC ("Lattner"), our Illinois distributed gaming operator; (ii) online gaming operations, which includes: (a) the operations of Pala Interactive, LLC ("Pala Interactive") and Pala Interactive Canada Inc. ("Pala Canada"), the online gaming technology company we acquired on November 1, 2022; and (b) online operations through partnerships with FanDuel Group and market access agreements with other operators in New Jersey and, as of December 31, 2022, six of the nine states in the Midwest & South segment where we operate our gaming entertainment properties; and (iii) management fees from our management agreement with Wilton Rancheria.
Impact of the COVID-19 Pandemic
In mid- March 2020, all of our gaming facilities were closed in compliance with orders issued by state officials as precautionary measures intended to slow the spread of the COVID-19 virus. As of December 31, 2022, 27 of our 28 gaming facilities are open and operating. One of our Las Vegas Locals segment properties, Eastside Cannery, remains closed to the public due to the current levels of demand in the market and our cost containment efforts. The closures of our properties in 2020 had a material impact on our business.
We currently anticipate funding our operations over the next 12 months with the cash being generated by our operations, supplemented, if necessary, by the cash we currently have available and the borrowing capacity available under our Revolving Credit Facility.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its subsidiaries.
Investments in unconsolidated affiliates, which are 50% or less owned and do not meet the controlling financial interest consolidation criteria of the authoritative accounting guidance for voting interest or variable interest entities, are accounted for under the equity method.
All intercompany accounts and transactions have been eliminated in consolidation.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
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) amounts restricted by regulation for gaming and racing purposes; (ii) amounts restricted by regulation for the value in players online casino gaming accounts; and (iii) future bookings with our Hawaiian travel agency. 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 values of these instruments approximate 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 consolidated balance sheets to the total balance shown in the consolidated statements of cash flows.
| | December 31, | | | December 31, | | | December 31, | | | December 31, | |
(In thousands) | | 2022 | | | 2021 | | | 2020 | | | 2019 | |
Cash and cash equivalents | | $ | 283,472 | | | $ | 344,557 | | | $ | 519,182 | | | $ | 249,977 | |
Restricted cash | | | 11,593 | | | | 12,571 | | | | 15,817 | | | | 20,471 | |
Total cash, cash equivalents and restricted cash | | $ | 295,065 | | | $ | 357,128 | | | $ | 534,999 | | | $ | 270,448 | |
Accounts Receivable, net
Accounts receivable consist primarily of casino, hotel and other receivables. Accounts receivable are typically non-interest bearing and are initially recorded at cost. Accounts are written off when management deems the account to be uncollectible, based upon historical collection experience, the age of the receivable and other relevant economic factors. An estimated allowance for doubtful accounts is maintained to reduce our receivables to their carrying amount. As a result, the net carrying value approximates fair value.
The activity comprising our allowance for doubtful accounts is as follows:
| | Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | | | 2020 | |
Beginning balance, January 1, | | $ | 3,338 | | | $ | 4,106 | | | $ | 4,474 | |
Additions | | | 1,557 | | | | 171 | | | | 440 | |
Deductions | | | (2,300 | ) | | | (939 | ) | | | (808 | ) |
Ending balance, December 31, | | $ | 2,595 | | | $ | 3,338 | | | $ | 4,106 | |
Inventories
Inventories consist primarily of food & beverage and retail items and are stated at the lower of cost or market. Cost is determined using the weighted-average inventory method.
Property and Equipment, net
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or, for leasehold improvements, over the shorter of the asset's useful life or term of the lease.
The estimated useful lives of our major components of property and equipment are:
Building and improvements | 3 through 40 years |
Riverboats and barges | 5 through 40 years |
Furniture and equipment | 1 through 12 years |
Gains or losses on disposals of assets are recognized as incurred. Costs of major improvements are capitalized, while costs of normal repairs and maintenance are charged to expense as incurred.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
For an asset that is held for sale, we recognize the asset at the lower of carrying value or fair market value, less costs of disposal, as estimated based on comparable asset sales, cost and income approaches. For a long-lived asset to be held and used, we review the asset for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We then compare the estimated undiscounted future cash flows of the asset to the carrying value of the asset. The asset is not impaired if the undiscounted future cash flows exceed its carrying value. If the carrying value exceeds the undiscounted future cash flows, then an impairment charge is recorded, typically measured using a discounted cash flow model, which is based on the estimated future results of the relevant reporting unit discounted using our weighted-average cost of capital and market indicators of terminal year free cash flow multiples. In certain circumstances, the sales comparison approach, which analyzes recent sales transactions of similar assets, or the cost approach, which is based on the premise that a prudent investor would pay no more for an asset of similar utility than its replacement or reproduction cost, may be used in place of the discounted cash flow model to derive fair value. All resulting recognized impairment charges are recorded as impairment of assets within operating costs and expenses.
Capitalized Interest
Interest costs associated with major construction projects are capitalized as part of the cost of the constructed assets. When no debt is incurred specifically for a project, interest is capitalized on amounts expended for the project using our weighted-average cost of borrowing. Capitalization of interest ceases when the project (or discernible portions of the project) is substantially complete. If substantially all of the construction activities of a project are suspended, capitalization of interest will cease until such activities are resumed. There was immaterial capitalized interest for the year ended December 31, 2022. There was capitalized interest of $0.1 million for both the years ended December 31, 2021 and 2020.
Investment in Available for Sale Securities
We have an investment in a single municipal bond issuance of $17.8 million aggregate principal amount of 7.5% Urban Renewal Tax Increment Revenue Bonds, Taxable Series 2007 ("City Bonds"). This investment is classified as available-for-sale and is recorded at fair value. The fair value at December 31, 2022 and 2021 was $13.7 million and $15.8 million, respectively. At December 31, 2022 and 2021, $0.7 million and $0.6 million, respectively, is included in prepaid expenses and other current assets and at December 31, 2022 and 2021, $13.0 million and $15.2 million, respectively, is included in other assets, net.
Future maturities of the City Bonds, excluding the discount, for the years ending December 31 are summarized as follows:
(In thousands) | | | | |
For the year ending December 31, | | | | |
2023 | | $ | 680 | |
2024 | | | 730 | |
2025 | | | 785 | |
2026 | | | 845 | |
2027 | | | 910 | |
Thereafter | | | 13,810 | |
Total | | $ | 17,760 | |
Intangible Assets
Intangible assets include customer relationships, host agreements, development agreements, developed technology, business-to-business ("B2B") relationships, business-to-consumer ("B2C") relationships, gaming license rights and trademarks.
Amortizing Intangible Assets
Customer relationships represent the value of repeat business associated with our customer loyalty programs and are being amortized on an accelerated method over their approximate useful life. B2B relationships and B2C relationships represent the value of our customer relationships, including those under contractual arrangements, associated with our online gaming operations and are being amortized on a straight-line basis over seven to twelve years. Host agreements represent the value associated with our host establishment relationships and are being amortized on a straight-line basis over 15 years. Development agreement is a contract between two parties establishing an agreement for development of a product or service. This agreement is being amortized over the respective cash flow period of the related seven-year agreement. Developed technology represents the value associated with our online gaming platform and is being amortized on a straight-line basis over 10 years.
Indefinite-Lived Intangible Assets
Trademarks are based on the value of our brands, which reflect the level of service and quality we provide and from which we generate repeat business. Gaming license rights represent the value of the license to conduct gaming in certain jurisdictions, which is subject to highly extensive regulatory oversight, and a limitation on the number of licenses available for issuance therein. These assets, considered indefinite-lived intangible assets, are not subject to amortization, but instead are subject to an annual impairment test, and between annual test dates in certain circumstances. If the fair value of an indefinite-lived intangible asset is less than its carrying amount, an impairment loss is recognized equal to the difference. Gaming license rights are tested for impairment using a multi-period excess earnings method, which is a specific discounted cash flow model or a qualitative assessment approach, and trademarks are tested for impairment using the relief-from-royalty method or a qualitative assessment approach.
Goodwill
Goodwill is an asset representing the future economic benefits arising from other assets in a business combination that are not individually identified and separately recognized. Goodwill is not subject to amortization, but it is subject to an annual impairment test and in between annual test dates in certain circumstances.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
We evaluate goodwill using a weighted average allocation of both the income and market approach models or a qualitative assessment approach. In the valuation of an asset, the income approach focuses on the income-producing capability of the subject asset. The underlying premise of this approach is that the value of an asset can be measured by the present worth of the net economic benefit (cash receipts less cash outlays) to be received over the life of the subject asset. The steps followed in applying this approach include estimating the expected after-tax cash flows attributable to the asset over its life and converting these after-tax cash flows to present value through "discounting." The discounting process uses a rate of return which accounts for both the time value of money and investment risk factors. Finally, the present value of the after-tax cash flows over the life of the reporting unit is totaled to arrive at an indication of the fair value of the asset. The market approach is comprised of the guideline company method, which focuses on comparing the subject company to selected reasonably similar, or "guideline", publicly-traded companies. Under this method, valuation multiples are: (i) derived from the operating data of selected guideline companies; (ii) evaluated and adjusted based on the strengths and weaknesses of the subject company relative to the selected guideline companies; and (iii) applied to the operating data of the subject company to arrive at an indication of value. In the valuation of a reporting unit, the market approach measures value based on what typical purchasers in the market have paid for assets which can be considered reasonably similar to those being valued. When the market approach is utilized, data is collected on the prices paid for reasonably comparable assets. Adjustments are made to the similar assets to compensate for differences between reasonably similar assets and the asset being valued. The application of the market approach results in an estimate of the price reasonably expected to be realized from the sale of the subject asset.
Long-Term Debt, Net
Long-term debt, net is reported as the outstanding debt amount net of unamortized cost. Any unamortized debt issuance costs, which include legal and other direct costs related to the issuance of our outstanding debt, or discount granted to the initial purchasers or lenders upon issuance of our debt instruments is recorded as a direct reduction to the face amount of our outstanding debt. The debt issuance costs and discount are accreted to interest expense using the effective interest method over the contractual term of the underlying debt. In the event that our debt is modified, repurchased or otherwise reduced prior to its original maturity date, we evaluate whether it is a debt extinguishment or debt modification under authoritative accounting guidance and for a debt extinguishment, we ratably reduce the unamortized debt issuance costs and discount and record a loss on extinguishment of debt.
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 and taxable income, 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 ("IRS") 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 consolidated balance sheets.
Self-Insurance Reserves
We are self-insured for various insurance coverages such as property, general liability, employee health and workers' compensation costs with the appropriate levels of deductibles and retentions. Insurance claims and reserves include accruals of estimated settlements for known claims, as well as accruals of estimates for claims incurred but not yet reported. In estimating these accruals, we consider historical loss experience and make judgments about the expected levels of costs per claim. Management believes the estimates of future liability are reasonable based upon our methodology; however, changes in health care costs, accident frequency and severity and other factors could materially affect the estimate for these liabilities. Certain of these claims represent obligations to make future payments; and therefore, we discount such reserves to an amount representing the present value of the claims which will be paid in the future using a blended rate, which represents the inherent risk and the average payout duration. Self-insurance reserves are included in accrued liabilities on our consolidated balance sheets.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
The activity comprising our self-insurance reserves is as follows:
| | Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | | | 2020 | |
Beginning balance, January 1, | | $ | 42,563 | | | $ | 45,436 | | | $ | 43,604 | |
Additions | | | | | | | | | | | | |
Charged to costs and expenses | | | 81,249 | | | | 88,806 | | | | 105,739 | |
Payments made | | | (86,320 | ) | | | (91,679 | ) | | | (103,907 | ) |
Ending balance, December 31, | | $ | 37,492 | | | $ | 42,563 | | | $ | 45,436 | |
Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss) and other comprehensive income (loss). Components of the Company's comprehensive income (loss) are reported in the accompanying consolidated statements of changes in stockholders' equity and consolidated statements of comprehensive income (loss). The accumulated other comprehensive income (loss) at December 31, 2022, consists of unrealized gains and losses on the investment available for sale resulting from changes in fair value and foreign currency translation adjustments.
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 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.
We have established a player loyalty point program to encourage repeat business from frequent and active slot machine customers and other patrons. Members earn points based on gaming activity and such points can be redeemed for complimentary slot play, food & beverage, hotel rooms and other free goods and services.
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, excluding race and sports wagers, is recognized when the wagers occur as all such wagers settle immediately. The allocated revenue for race and sports wagers is recognized when the specific event or game occurs. 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.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
The Company collects advance deposits from hotel customers for future hotel reservations and other future events such as banquets and ticketed events. These advance deposits represent obligations of the Company until the hotel room stay is provided to the customer or the banquet or ticketed event occurs. 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 related to outstanding chips.
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 player loyalty programs such as cash and the estimated retail value of goods and services (such as complimentary rooms and food & beverages). 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:
| | Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | | | 2020 | |
Food & beverage | | $ | 116,364 | | | $ | 104,309 | | | $ | 90,714 | |
Rooms | | | 65,485 | | | | 60,536 | | | | 46,841 | |
Other | | | 8,818 | | | | 6,599 | | | | 5,508 | |
Gaming Taxes
We are subject to taxes based on gross gaming revenues in the jurisdictions in which we operate. These gaming taxes are assessed based on our gaming revenues and are recorded as a gaming expense in the consolidated statements of operations. In addition, we are responsible for the payment of gaming taxes owed for online gaming activities conducted by third-party operators under certain collaborative arrangements. We are reimbursed for these taxes by the third-party operators. We report these gaming taxes paid as other expense and the reimbursements we receive as other revenues. Gaming taxes totaled approximately $718.8 million, $676.8 million and $388.0 million for the years ended December 31, 2022, 2021 and 2020, respectively, including taxes deposited pursuant to the online collaborative agreements of $195.6 million, $140.5 million and $61.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Advertising Expense
Direct advertising costs are expensed the first time such advertising appears. Advertising costs are included in selling, general and administrative expenses on the consolidated statements of operations and totaled $18.7 million, $16.1 million and $20.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Corporate Expense
Corporate expense represents unallocated payroll, professional fees, aircraft costs and various other expenses that are not directly related to our casino hotel operations.
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; (iii) asset writedowns; and (iv) realized gains arising from asset dispositions.
Share-Based Compensation
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 requisite service period can be impacted by the provisions of the Company’s stock compensation programs that provide for automatic vesting acceleration upon retirement (including as a result of death or disability) for those long-service participants achieving defined age and years of service criteria. These acceleration provisions do not apply to stock grants and awards issued within six months of the employee’s retirement. Compensation costs related to stock option awards are calculated based on the fair value of each major option grant on the date of the grant using the Black-Scholes option pricing model, which requires the following assumptions: expected stock price volatility, risk-free interest rates, expected option lives and dividend yields. We form our assumptions using historical experience and observable market conditions.
Other, Net
In 2020, the Company realized a nonrecurring gain of $40.0 million related to the property closures.
Currency Translation
The Company translates the financial statements of its foreign subsidiary that are not denominated in U.S. dollars. Balance sheet accounts are translated at the exchange rate in effect at each balance sheet date. Income statement accounts are translated at the average rate of exchange prevailing during the period. If a material income statement event occurs, the transaction would be translated at the exchange rate in effect on the date of occurrence. Translation adjustments resulting from this process are recorded in other comprehensive income (loss). Gains or losses from foreign currency remeasurements are recorded as other non-operating income (expense).
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the additional dilution for all potentially-dilutive securities, such as stock options.
Collaborative Arrangements
We hold a five percent equity ownership in and have a strategic partnership with FanDuel Group ("FanDuel"), one of the nation's leaders in sports-betting, to pursue sports-betting opportunities, across the country, both at our properties and online. Subject to state law and regulatory approvals, we have established a presence in the sports wagering industry, both at our properties and online, by leveraging FanDuel's technology and related services. We offer online sports wagering under the FanDuel brand or under market access agreements with other companies in Illinois, Indiana, Iowa, Kansas, Louisiana, Pennsylvania and, as of January 1, 2023, Ohio. We also operate sportsbooks under the FanDuel brand at one of our Downtown Las Vegas properties, our properties in Mississippi and all of the properties in the states where we offer online sports wagering. In addition, we offer online casino gaming in Pennsylvania and New Jersey through our partnership with FanDuel. The activities related to these collaborative arrangements are recorded in other revenue and other expense on the consolidated statements of operations.
Concentration of Credit Risk
Financial instruments that subject us to credit risk consist of cash equivalents and accounts receivable.
Our policy is to limit the amount of credit exposure to any one financial institution, and place investments with financial institutions evaluated as being creditworthy, or in short-term money market and tax-free bond funds which are exposed to minimal interest rate and credit risk. We have bank deposits that may at times exceed federally insured limits.
Concentration of credit risk, with respect to gaming receivables, is limited through our credit evaluation process. We issue markers to approved gaming customers only following credit checks and investigations of creditworthiness.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Recently Adopted Accounting Pronouncements
Accounting Standards Update ("ASU") 2021-08, Business Combinations, Topic 805 ("Update 2021-08")
In October 2021, the Financial Accounting Standards Board ("FASB") issued Update 2021-08 to improve the accounting for acquired revenue contracts with customers in a business combination. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination at fair value on the acquisition date. ASU 2021-08 requires acquiring entities to apply Topic 606, Revenue Recognition, to recognize and measure contract assets and liabilities in a business combination. Update 2021-08 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted Update 2021-08 during third quarter 2022, and the guidance was applied in accounting for the Pala Interactive and Pala Canada acquisition as discussed in Note 2, Acquisitions and Divestitures.
ASU 2021-05, Leases, Topic 842 ("Update 2021-05")
In July 2021, the FASB issued Update 2021-05 to clarify guidance for lessors with lease contracts that have variable lease payments that do not depend on a reference index or rate and would have resulted in the recognition of a selling loss at lease commencement if classified as sales-type or direct financing. Update 2021-05 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company adopted Update 2021-05 during first quarter 2022, and the impact of the adoption to its consolidated financial statements was not material.
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 adopted Update 2020-01 during first quarter 2021 and the impact of the adoption to its consolidated financial statements was not material.
ASU 2019-12, Income Taxes, Topic 740, Simplifying the Accounting for Income Taxes ("Update 2019-12")
In December 2019, the FASB issued Update 2019-12 to simplify the accounting for income taxes by removing certain exceptions and clarifying the guidance in certain areas of Topic 740. Update 2019-12 is effective for financial statements issued for annual periods and interim periods beginning after December 15, 2020. The Company adopted Update 2019-12 on January 1, 2021 and the impact of the adoption to its consolidated financial statements was not material.
ASU 2020-09, Debt, Topic 470 ("Update 2020-09")
In October 2020, the FASB issued Update 2020-09 which supersedes various SEC paragraphs in Topic 470, pursuant to the issuance of the SEC Release to amend Rules 3-10 and 3-16 of Regulation S-X, as discussed below.
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 was effective January 4, 2021 with early adoption permitted. The Company elected to early adopt this rule during the three months ended June 30, 2020.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
ASU 2020-04, 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 did not have a material impact on the consolidated financial statements.
ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("Update 2018-13")
In August 2018, 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 consolidated financial statements was not material.
Recently Issued Accounting Pronouncements
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. ACQUISITIONS AND DIVESTITURES
Pala Interactive
On
November 1, 2022, Boyd Interactive Gaming Inc. ("Boyd Interactive"), a wholly-owned subsidiary of the Company, completed its previously announced acquisition of Pala Interactive and its subsidiaries, including its Canadian subsidiary Pala Canada, pursuant to a Purchase Agreement and Plan of Merger (the "Merger Agreement"), entered into on
March 28, 2022, by and among Boyd Interactive, Boyd Phoenix Acquisition, LLC, a wholly-owned subsidiary of Boyd Interactive ("Merger Sub"), Boyd Phoenix Canada Inc., a wholly-owned subsidiary of Boyd Gaming, Pala Interactive, Pala Canada Holdings, LLC and Shareholder Representative Services LLC as representative of the holders of the membership interests of Pala Interactive. Pursuant to the Merger Agreement, Merger Sub merged with and into Pala Interactive (the "Merger"), with Pala Interactive surviving the Merger. Pala Interactive is now a wholly-owned subsidiary of Boyd Interactive.
Pala Interactive is an innovative online gaming technology company that provides proprietary solutions on both a
B2B and
B2C basis in regulated markets across the United States and Canada. This acquisition is an important step forward in our online growth strategy as it provides us with the talent and technology to begin building our regional online casino business. While online casinos are now limited to just a few states, over the long term we believe there is growth and additional profit potential for our Company from online gaming. By owning and operating an online gaming business, we will be able to leverage our nationwide portfolio and extensive customer database to grow in the online casino space. The acquired company is aggregated into our
Midwest & South segment (See Note
14,
Segment Information).
Consideration Transferred
The fair value of the consideration transferred on the date of the Merger Agreement included the purchase price of the net assets transferred. The total gross cash consideration was
$175.2 million (with
$7.3 million of cash acquired, for total cash paid for acquisitions, net of cash received of
$167.9 million).
Status of Purchase Price Allocation
The Company is following the acquisition method of accounting pursuant to FASB Accounting Standards Codification Topic
805 ("ASC
805"). For purposes of these 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 with the assistance from
third-party specialists. 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 has recognized the assets acquired and liabilities assumed in the acquisition based on fair value estimates as of the date of the Merger. The determination of the fair values of the acquired intangible assets and the related determination of their estimated lives is currently in process. This determination requires significant judgment and 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 intangible assets acquired, along with the related allocation of goodwill. The final fair value determinations are expected to be completed dur
ing second quarter 2023. The final fair value determinations
may be significantly different than those reflected in the consolidated financial statements at
December
31,
2022.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
The following table summarizes the preliminary allocation of the purchase price:
(In thousands) | | As Recorded | |
Current assets | | $ | 10,456 | |
Property and equipment | | | 445 | |
Other assets | | | 740 | |
Intangible assets | | | 77,000 | |
Total acquired assets | | | 88,641 | |
| | | | |
Current liabilities | | | 4,462 | |
Other liabilities | | | 3,007 | |
Total liabilities assumed | | | 7,469 | |
Net identifiable assets acquired | | | 81,172 | |
Goodwill | | | 94,037 | |
Net assets acquired | | $ | 175,209 | |
The following table summarizes the values assigned to acquired property and equipment and estimated useful lives:
| | Useful Lives | | | | | |
(In thousands) | | (in years) | | | As Recorded | |
Buildings and improvements | | 5 | | | $ | 22 | |
Furniture and equipment | | 2 - 5 | | | | 423 | |
Property and equipment acquired | | | | | | $ | 445 | |
The following table summarizes the preliminary values assigned to acquired intangible assets and preliminary weighted average useful lives of definite-lived intangible assets:
| | Useful Lives | | | | | |
(In thousands) | | (in years) | | | As Recorded | |
Developed technology | | 10 | | | $ | 36,000 | |
B2B relationships | | 7 - 10 | | | | 28,000 | |
B2C relationships | | 12 | | | | 13,000 | |
Total intangible assets acquired | | | | | | $ | 77,000 | |
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 reporting units included in non-reportable segments currently aggregated in the Midwest & South reportable segment. All of the goodwill, except $2.9 million allocated to Pala Canada, is expected to be deductible for income tax purposes.
The Company recognized $5.5 million of acquisition related costs that were expensed for the year ended December 31, 2022. These costs are included in project development, preopening and writedowns on the consolidated statements of operations.
The revenue and earnings from the Merger are not material for the period subsequent to acquisition through December 31, 2022. The pro-forma revenue and earnings from the Merger assuming all impacts as if it had been completed on January 1, 2022, are not material through December 31, 2022.
Divestiture of Eldorado
On December 10, 2020, Boyd Gaming completed the sale of the Eldorado Casino in Henderson, Nevada. The gain from the sale of this property is included in the project development, preopening and writedowns line in the consolidated statement of operations.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
NOTE 3. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
| | December 31, | |
(In thousands) | | 2022 | | | 2021 | |
Land | | $ | 334,368 | | | $ | 343,963 | |
Buildings and improvements | | | 3,172,676 | | | | 3,146,697 | |
Furniture and equipment | | | 1,707,212 | | | | 1,653,451 | |
Riverboats and barges | | | 241,898 | | | | 241,447 | |
Construction in progress | | | 87,612 | | | | 912 | |
Total property and equipment | | | 5,543,766 | | | | 5,386,470 | |
Less accumulated depreciation | | | (3,149,530 | ) | | | (2,992,286 | ) |
Property and equipment, net | | $ | 2,394,236 | | | $ | 2,394,184 | |
Construction in progress primarily relates to costs capitalized in conjunction with major improvements that have not yet been placed into service, and accordingly, such costs are not currently being depreciated.
Depreciation expense for the years ended December 31, 2022, 2021 and 2020 was $248.4 million, $255.2 million and $261.7 million, respectively.
NOTE 4. INTANGIBLE ASSETS
Intangible assets consist of the following:
| | December 31, 2022 | |
| | Weighted | | | | | | | | | | |
| | Useful Life | | | Gross | | | | | | | Accumulated | | | Effect of Foreign | | | | | |
| | Remaining (in | | | Carrying | | | Accumulated | | | Impairment | | | Currency | | | Intangible | |
(In thousands) | | years) | | | Value | | | Amortization | | | Losses | | | Exchange | | | Assets, Net | |
Amortizing intangibles | | | | | | | | | | | | | | | | | | | | | | | | |
Customer relationships | | | 0.6 | | | $ | 63,050 | | | $ | (62,070 | ) | | $ | — | | | $ | — | | | $ | 980 | |
Host agreements | | | 10.4 | | | | 58,000 | | | | (17,722 | ) | | | — | | | | — | | | | 40,278 | |
Development agreement | | | 6.6 | | | | 21,373 | | | | (1,145 | ) | | | — | | | | — | | | | 20,228 | |
Developed technology | | | 9.8 | | | | 36,445 | | | | (600 | ) | | | — | | | | 53 | | | | 35,898 | |
B2B relationships | | | 7.0 | | | | 28,000 | | | | (652 | ) | | | — | | | | 12 | | | | 27,360 | |
B2C relationships | | | 11.8 | | | | 13,000 | | | | (181 | ) | | | — | | | | — | | | | 12,819 | |
| | | | | | | 219,868 | | | | (82,370 | ) | | | — | | | | 65 | | | | 137,563 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Indefinite lived intangible assets | | | | | | | | | | | | | | | | | | | | | | | | |
Trademarks | | Indefinite | | | | 204,000 | | | | — | | | | (36,375 | ) | | | — | | | | 167,625 | |
Gaming license rights | | Indefinite | | | | 1,378,081 | | | | (33,960 | ) | | | (222,174 | ) | | | — | | | | 1,121,947 | |
| | | | | | | 1,582,081 | | | | (33,960 | ) | | | (258,549 | ) | | | — | | | | 1,289,572 | |
Balances, December 31, 2022 | | | | | | $ | 1,801,949 | | | $ | (116,330 | ) | | $ | (258,549 | ) | | $ | 65 | | | $ | 1,427,135 | |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
| | December 31, 2021 | |
| | Weighted | | | Gross | | | | | | | Accumulated | | | | | |
| | Useful Life | | | Carrying | | | Accumulated | | | Impairment | | | Intangible | |
(In thousands) | | Remaining (in years) | | | Value | | | Amortization | | | Losses | | | Assets, Net | |
Amortizing intangibles | | | | | | | | | | | | | | | | | | | |
Customer relationships | | 1.5 | | | $ | 68,100 | | | $ | (63,798 | ) | | $ | — | | | $ | 4,302 | |
Host agreements | | 11.4 | | | | 58,000 | | | | (13,856 | ) | | | — | | | | 44,144 | |
Development agreement | | — | | | | 21,373 | | | | — | | | | — | | | | 21,373 | |
| | | | | | 147,473 | | | | (77,654 | ) | | | — | | | | 69,819 | |
| | | | | | | | | | | | | | | | | | | |
Indefinite lived intangible assets | | | | | | | | | | | | | | | | | | | |
Trademarks | | Indefinite | | | | 204,000 | | | | — | | | | (27,200 | ) | | | 176,800 | |
Gaming license rights | | Indefinite | | | | 1,377,935 | | | | (33,960 | ) | | | (222,174 | ) | | | 1,121,801 | |
| | | | | | 1,581,935 | | | | (33,960 | ) | | | (249,374 | ) | | | 1,298,601 | |
Balances, December 31, 2021 | | | | | $ | 1,729,408 | | | $ | (111,614 | ) | | $ | (249,374 | ) | | $ | 1,368,420 | |
Amortizing Intangible Assets
Customer Relationships
Customer relationships represent the value of repeat business associated with our customer loyalty programs. The value of customer relationships is determined using a multi-period excess earnings method, which is a specific discounted cash flow model. The value is determined at an amount equal to the present value of the incremental after-tax cash flows attributable only to these customers, discounted to present value at a risk-adjusted rate of return. With respect to the application of this methodology, we used the following significant projections of future cash flows, assumptions and estimates: revenue of our rated customers, based on expected level of play; promotional allowances provided to these existing customers; attrition rate related to these customers; operating expenses; general and administrative expenses; trademark expense; discount rate; and the present value of tax benefit.
Host Agreements
Host agreements represent the value associated with the host establishment relationships of our distributed gaming operator. The value of host agreements is determined using a multi-period excess earnings method, which is a specific discounted cash flow model. The value is determined at an amount equal to the present value of the incremental after-tax cash flows attributable only to these establishments, discounted to present value at a risk-adjusted rate of return.
Development Agreement
Development agreement is an acquired contract with Wilton Rancheria under which the Company developed the Sky River Casino on the Wilton Rancheria's land. Amortization of this asset began on August 15, 2022, upon the opening of Sky River Casino.
Developed Technology
Developed technology represents the value associated with our online gaming platform. The value is determined using the relief from royalty method, which presumes that without ownership of such technology, we would have to make a stream of payments to a technology owner in return for the right to use their technology. By virtue of this asset, we avoid any such payments and record the related intangible value of our ownership of the technology. We used the following significant projections of future cash flows, assumptions and estimates to determine value under the relief from royalty method: revenue from online gaming activities; royalty rate; tax expense; obsolescence rate; discount rate; and present value of tax benefit.
B2B Relationships and B2C Relationships
B2B relationships and B2C relationships represent the value of our customer relationships, including those under contractual arrangements, associated with our online gaming operations. The value of B2B and B2C relationships are determined using a multi-period excess earnings method, which is a specific discounted cash flow model. The value is determined at an amount equal to the present value of the incremental after-tax cash flows attributable only to those customer relationships, discounted to present value at a risk-adjusted rate of return. With respect to the application of this methodology, we used the following significant projections of cash flows, assumptions and estimates: revenue of those customers, based on expected level of play and the specific contractual arrangement; promotional allowances and attrition rate related to these relationships; operating expenses; general and administrative expenses; contributory asset charge; discount rate; and the present value of tax benefit.
Indefinite Lived Intangible Assets
Trademarks
Trademarks are based on the value of our brands, which reflect the level of service and quality we provide and from which we generate repeat business. Trademarks are valued using the relief from royalty method, which presumes that without ownership of such trademark, we would have to make a stream of payments to a brand or franchise owner in return for the right to use their name. By virtue of this asset, we avoid any such payments and record the related intangible value of our ownership of the trade name. We used the following significant projections of future cash flows, assumptions and estimates to determine value under the relief from royalty method: revenue from gaming and hotel activities; royalty rate; tax expense; terminal growth rate; discount rate; and the present value of tax benefit.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Gaming License Rights
Gaming license rights represent the value of the license to conduct gaming in certain jurisdictions, which is subject to highly extensive regulatory oversight, and a limitation on the number of licenses available for issuance therein. In the majority of cases, the value of our gaming licenses is determined using a multi-period excess earnings method, which is a specific discounted cash flow model. The value is determined at an amount equal to the present value of the incremental after-tax cash flows attributable only to future gaming revenue, discounted to present value at a risk-adjusted rate of return. With respect to the application of this methodology, we used the following significant projections of future cash flows, assumptions and estimates: gaming revenues; gaming operating expenses; general and administrative expenses; tax expense; terminal value; and discount rate. In two instances, we determine the value of our gaming licenses by applying a cost approach. Our primary consideration in the application of this methodology is the initial statutory fee associated with acquiring a gaming license in the jurisdiction.
Activity for the Years Ended December 31, 2022, 2021 and 2020
The following table sets forth the changes in these intangible assets:
(In thousands) | | Customer Relationships | | | Host Agreements | | | Development Agreement | | | Developed Technology | | | B2B Relationships | | | B2C Relationships | | | Trademarks | | | Gaming License Rights | | | Intangible Assets, Net | |
Balance, January 1, 2020 | | $ | 28,502 | | | $ | 51,878 | | | $ | 21,373 | | | $ | — | | | $ | — | | | $ | — | | | $ | 202,387 | | | $ | 1,162,751 | | | $ | 1,466,891 | |
Impairments | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (20,500 | ) | | | (42,200 | ) | | | (62,700 | ) |
Amortization | | | (15,464 | ) | | | (3,867 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (19,331 | ) |
Other (1) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,687 | ) | | | — | | | | (2,687 | ) |
Balance, December 31, 2020 | | | 13,038 | | | | 48,011 | | | | 21,373 | | | | — | | | | — | | | | — | | | | 179,200 | | | | 1,120,551 | | | | 1,382,173 | |
Additions | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,250 | | | | 1,250 | |
Impairments | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,400 | ) | | | — | | | | (2,400 | ) |
Amortization | | | (8,736 | ) | | | (3,867 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (12,603 | ) |
Balance, December 31, 2021 | | | 4,302 | | | | 44,144 | | | | 21,373 | | | | — | | | | — | | | | — | | | | 176,800 | | | | 1,121,801 | | | | 1,368,420 | |
Additions | | | — | | | | — | | | | — | | | | 36,445 | | | | 28,000 | | | | 13,000 | | | | — | | | | 146 | | | | 77,591 | |
Impairments | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (9,175 | ) | | | — | | | | (9,175 | ) |
Amortization | | | (3,322 | ) | | | (3,866 | ) | | | (1,145 | ) | | | (600 | ) | | | (652 | ) | | | (181 | ) | | | — | | | | — | | | | (9,766 | ) |
Effect of foreign currency exchange | | | — | | | | — | | | | — | | | | 53 | | | | 12 | | | | — | | | | — | | | | — | | | | 65 | |
Balance, December 31, 2022 | | $ | 980 | | | $ | 40,278 | | | $ | 20,228 | | | $ | 35,898 | | | $ | 27,360 | | | $ | 12,819 | | | $ | 167,625 | | | $ | 1,121,947 | | | $ | 1,427,135 | |
(1) A domain rights asset was written off in second quarter 2020.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Future Amortization
Customer relationships are being amortized on an accelerated basis over a weighted average original useful life of five years. Host agreements are being amortized on a straight-line basis over an original life of 15 years. The development agreement is being amortized on a straight-line basis over an original life of seven years. Developed technology is being amortized on a straight-line basis over an original life of 10 years. B2B relationships are being amortized on a straight-line basis over an original life of 7 years and 10 years. B2C relationships are being amortized on a straight-line basis over an original life of 12 years. Future amortization is as follows:
(In thousands) | | Customer Relationships | | | Host Agreements | | | Development Agreement | | | Developed Technology | | | B2B Relationships | | | B2C Relationships | | | Total | |
For the year ending December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2023 | | $ | 940 | | | $ | 3,867 | | | $ | 3,053 | | | $ | 3,689 | | | $ | 3,914 | | | $ | 1,083 | | | $ | 16,546 | |
2024 | | | 40 | | | | 3,867 | | | | 3,053 | | | | 3,689 | | | | 3,914 | | | | 1,083 | | | | 15,646 | |
2025 | | | — | | | | 3,867 | | | | 3,053 | | | | 3,689 | | | | 3,914 | | | | 1,083 | | | | 15,606 | |
2026 | | | — | | | | 3,867 | | | | 3,053 | | | | 3,689 | | | | 3,914 | | | | 1,083 | | | | 15,606 | |
2027 | | | — | | | | 3,867 | | | | 3,053 | | | | 3,689 | | | | 3,914 | | | | 1,083 | | | | 15,606 | |
Thereafter | | | — | | | | 20,943 | | | | 4,963 | | | | 17,453 | | | | 7,790 | | | | 7,404 | | | | 58,553 | |
Total future amortization | | $ | 980 | | | $ | 40,278 | | | $ | 20,228 | | | $ | 35,898 | | | $ | 27,360 | | | $ | 12,819 | | | $ | 137,563 | |
Trademarks and gaming license rights are not subject to amortization, as we have determined that they have an indefinite useful life; however, these assets are subject to an annual impairment test each year and between annual test dates in certain circumstances.
Impairment Considerations
As a result of our third quarter 2022 impairment review, the Company recorded an impairment charge of $5.6 million for a trademark related to a property in our Midwest & South segment. As a result of our annual 2022 impairment test and our fourth quarter 2022 impairment review, the Company recorded additional impairment charges of $3.6 million for trademarks related to our Midwest & South segment.
As a result of our annual 2021 impairment test, the Company recorded impairment charges of $2.4 million for trademarks related to our Las Vegas Locals segment.
As a result of the first quarter 2020 impairment review, the Company recorded impairment charges of $16.9 million for trademarks, of which $8.0 million related to our Las Vegas Locals segment and $8.9 million related to our Midwest & South segment, and $42.2 million for gaming license rights related to our Midwest & South segment. An additional trademark impairment charge of $3.6 million, of which $2.5 million related to the Las Vegas Locals segment and $1.1 million related to the Midwest & South segment, was recorded as part of the annual 2020 impairment test.
NOTE 5. GOODWILL
Goodwill consists of the following:
(In thousands) | | Gross Carrying Value | | | Accumulated Amortization | | | Accumulated Impairment Losses | | | Effect of Foreign Currency Exchange | | | Goodwill, 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 | | | 760,835 | | | | — | | | | (133,462 | ) | | | 20 | | | | 627,393 | |
Balance, December 31, 2022 | | $ | 1,361,399 | | | $ | (6,134 | ) | | $ | (321,541 | ) | | $ | 20 | | | $ | 1,033,744 | |
Changes in Goodwill
During the year ended December 31, 2022, we recorded $94.0 million of goodwill, in our Midwest & South segment related to our acquisition of Pala Interactive and Pala Canada, and impairment charges of $31.6 million related to our Midwest & South segment. During the year ended December 31, 2021, there were no changes in goodwill. During the year ended December 31, 2020, we recorded impairment charges of $22.6 million related to our Las Vegas Locals segment and $89.4 million related to our Midwest & South segment.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
The following table sets forth the changes in our goodwill, net, during the years ended December 31, 2022, 2021 and 2020.
(In thousands) | | Goodwill, Net | |
Balance, January 1, 2020 | | $ | 1,083,287 | |
Impairments | | | (112,000 | ) |
Balance, December 31, 2020 | | | 971,287 | |
Account activity | | | — | |
Balance, December 31, 2021 | | | 971,287 | |
Additions | | | 94,037 | |
Effect of foreign currency exchange | | | 20 | |
Impairments | | | (31,600 | ) |
Balance, December 31, 2022 | | $ | 1,033,744 | |
NOTE 6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
| | December 31, | | | December 31, | |
(In thousands) | | 2022 | | | 2021 | |
Payroll and related | | $ | 73,619 | | | $ | 99,880 | |
Interest | | | 17,864 | | | | 19,210 | |
Gaming | | | 77,638 | | | | 78,552 | |
Player loyalty program | | | 25,852 | | | | 28,430 | |
Advance deposits | | | 20,792 | | | | 15,320 | |
Outstanding chips | | | 7,704 | | | | 7,407 | |
Dividends payable | | | 15,476 | | | | — | |
Operating leases | | | 88,776 | | | | 84,884 | |
Other | | | 84,192 | | | | 79,262 | |
Total accrued liabilities | | $ | 411,913 | | | $ | 412,945 | |
NOTE 7. LONG-TERM DEBT
Long-term debt, net of current maturities and debt issuance costs, consists of the following:
| | December 31, 2022 | |
| | Interest | | | | | | | | | | | Unamortized | | | | | |
| | Rates at | | | | | | | | | | | Origination | | | | | |
| | December 31, | | | Outstanding | | | Unamortized | | | Fees and | | | Long-Term | |
(In thousands) | | 2022 | | | Principal | | | Discount | | | Costs | | | Debt, Net | |
Credit Facility | | 6.166 | % | | $ | 1,187,800 | | | $ | — | | | $ | (17,865 | ) | | $ | 1,169,935 | |
4.750% senior notes due 2027 | | 4.750 | % | | | 1,000,000 | | | | — | | | | (9,740 | ) | | | 990,260 | |
4.750% senior notes due 2031 | | 4.750 | % | | | 900,000 | | | | — | | | | (11,460 | ) | | | 888,540 | |
Other | | 5.208 | % | | | 674 | | | | — | | | | — | | | | 674 | |
Total long-term debt | | | | | | 3,088,474 | | | | — | | | | (39,065 | ) | | | 3,049,409 | |
Less current maturities | | | | | | 44,275 | | | | — | | | | — | | | | 44,275 | |
Long-term debt, net | | | | | $ | 3,044,199 | | | $ | — | | | $ | (39,065 | ) | | $ | 3,005,134 | |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
| | December 31, 2021 | |
| | Interest | | | | | | | | | | | Unamortized | | | | | |
| | Rates at | | | | | | | | | | | Origination | | | | | |
| | December 31, | | | Outstanding | | | Unamortized | | | Fees and | | | Long-Term | |
(In thousands) | | 2021 | | | Principal | | | Discount | | | Costs | | | Debt, Net | |
Prior Credit Facility | | 2.286 | % | | $ | 867,897 | | | $ | (293 | ) | | $ | (8,498 | ) | | $ | 859,106 | |
4.750% senior notes due 2027 | | 4.750 | % | | | 1,000,000 | | | | — | | | | (11,688 | ) | | | 988,312 | |
8.625% senior notes due 2025 | | 8.625 | % | | | 300,000 | | | | — | | | | (4,066 | ) | | | 295,934 | |
4.750% senior notes due 2031 | | 4.750 | % | | | 900,000 | | | | — | | | | (13,254 | ) | | | 886,746 | |
Other | | 5.932 | % | | | 1,496 | | | | — | | | | — | | | | 1,496 | |
Total long-term debt | | | | | | 3,069,393 | | | | (293 | ) | | | (37,506 | ) | | | 3,031,594 | |
Less current maturities | | | | | | 41,673 | | | | — | | | | — | | | | 41,673 | |
Long-term debt, net | | | | | $ | 3,027,720 | | | $ | (293 | ) | | $ | (37,506 | ) | | $ | 2,989,921 | |
Credit Facility
Credit Agreement
On March 2, 2022 (the "Closing Date"), the Company entered into a credit agreement (the "Credit Agreement") among the Company, certain direct and indirect subsidiaries of the Company as guarantors (the "Guarantors"), Bank of America, N.A., as administrative agent, collateral agent and letter of credit issuer, Wells Fargo Bank, National Association, as swingline lender, and certain other financial institutions party thereto as lenders. The Credit Agreement replaced the Third Amended and Restated Credit Agreement, dated as of August 14, 2013 (the "Prior Credit Facility"), among the Company, certain direct and indirect subsidiaries of the Company as guarantors, Bank of America, N.A., as administrative agent and letter of credit issuer, Wells Fargo Bank, National Association, as swingline lender, and certain other financial institutions party thereto as lenders.
The Credit Agreement provides for (i) a $1,450.0 million senior secured revolving credit facility (the "Revolving Credit Facility") and (ii) an $880.0 million senior secured term A loan (the "Term A Loan," collectively with the Revolving Credit Facility, the "Credit Facility"). The Revolving Credit Facility and the Term A Loan mature on the fifth anniversary of the Closing Date (or earlier upon the occurrence or non-occurrence of certain events). The Term A Loan was fully funded on the Closing Date. Proceeds from the Credit Agreement were used to refinance all outstanding obligations under the Prior Credit Facility, including a senior secured term loan A facility (the "Prior Term A Loan") and senior secured term loan B facility (the "Prior Refinancing Term B Loan"), to fund transaction costs in connection with the Credit Agreement, and for general corporate purposes.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Amounts Outstanding
The outstanding principal amounts under the Credit Facility and Prior Credit Facility are comprised of the following:
| | December 31, | | | December 31, | |
(In thousands) | | 2022 | | | 2021 | |
Revolving Credit Facility | | $ | 285,000 | | | $ | — | |
Term A Loan | | | 847,000 | | | | — | |
Prior Term A Loan | | | — | | | | 118,153 | |
Prior Refinancing Term B Loan | | | — | | | | 749,744 | |
Swing Loan | | | 55,800 | | | | — | |
Total outstanding principal amounts | | $ | 1,187,800 | | | $ | 867,897 | |
The Revolving Credit Facility and the Term A Loan mature on March 2, 2027 (or earlier upon occurrence or non-occurrence of certain events).
With a total revolving credit commitment of $1,450.0 million available under the Credit Facility, $285.0 million and $55.8 million in borrowings outstanding on the Revolving Credit Facility and on the Swing Loan, respectively, and $13.8 million allocated to support various letters of credit, there is a remaining contractual availability under the Credit Facility of $1,095.4 million at December 31, 2022.
Interest and Fees
The interest rate on the outstanding balance of the Revolving Credit Facility and the Term A Loan is based upon, at the Company’s option, either: (i) a rate based on the Secured Overnight Financing Rate ("SOFR") administered by the Federal Reserve Bank of New York, or (ii) the base rate, in each case, plus an applicable margin. Such applicable margin is a percentage per annum determined in accordance with a specified pricing grid based on the Consolidated Total Net Leverage Ratio and ranges from 1.25% to 2.25% (if using SOFR) and from 0.25% to 1.25% (if using the base rate). A fee of a percentage per annum (which ranges from 0.20% to 0.35% and is determined in accordance with a specified pricing grid based on the Consolidated Total Net Leverage Ratio) will be payable on the unused portions of the Revolving Credit Facility. The rates based on SOFR will be determined based upon, at the Company’s option, either: (i) a forward-looking SOFR term rate administered by CME Group Benchmark Administration Limited or any successor administrator, and based on interest periods of one, three or six months or such other interest period that is twelve months or less subject to the consent of lenders and the administrative agent, or (ii) a daily SOFR rate published by the Federal Reserve Bank of New York, and will include credit spread adjustments as set forth in the Credit Agreement. The "base rate" under the Credit Agreement is the highest of (x) Bank of America’s publicly-announced prime rate, (y) the federal funds rate published by the Federal Reserve Bank of New York plus 0.50%, or (z) the SOFR rate for a one month interest period plus 1.00%.
Optional and Mandatory Prepayments
Pursuant to the terms of the Credit Agreement (i) the loans under the Term A Loan will amortize in an annual amount equal to 5.00% of the original principal amount thereof, commencing June 30, 2022, payable on a quarterly basis, and (ii) the Company is required to use a portion of its annual excess cash flow to prepay loans outstanding under the Credit Agreement if the Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) exceeds certain thresholds set forth in the Credit Agreement.
Amounts outstanding under the Credit Agreement may be prepaid without premium or penalty, and the unutilized portion of the commitments may be terminated without penalty, subject to certain conditions.
Subject to certain exceptions, the Company may be required to repay the amounts outstanding under the Credit Agreement in connection with certain asset sales and issuances of certain additional non-permitted or refinancing indebtedness.
Guarantees and Collateral
The Company’s obligations under the Credit Agreement, subject to certain exceptions, are guaranteed by certain of the Company’s subsidiaries and are secured by the capital stock of certain subsidiaries. In addition, subject to certain exceptions, the Company and each of the guarantors granted the administrative agent first priority liens and security interests on substantially all of their real and personal property (other than gaming licenses and subject to certain other exceptions) as additional security for the performance of the secured obligations under the Credit Agreement.
The Credit Agreement includes an accordion feature which permits the incurrence of one or more new tranches of revolving credit commitments or term loans and increases to the Revolving Credit Facility and Term A Loan in an aggregate amount up to the sum of (i) $1,000.0 million, (ii) the amount of certain voluntary prepayments of senior secured indebtedness of the Company, and (iii) the maximum amount of incremental commitments which, after giving effect thereto, would not cause the Consolidated First Lien Net Leverage Ratio (as defined in the Credit Agreement) to exceed 3.00 to 1.00 on a pro forma basis, in each case, subject to the satisfaction of certain conditions.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Financial and Other Covenants
The Credit Agreement contains certain financial and other covenants, including, without limitation, various covenants (i) requiring the maintenance of a minimum consolidated interest coverage ratio on a quarterly basis of 2.50 to 1.00, (ii) requiring the maintenance of a maximum Consolidated Total Net Leverage Ratio on a quarterly basis, (iii) imposing limitations on the incurrence of indebtedness and liens, (iv) imposing limitations on transfers, sales and other dispositions, and (v) imposing restrictions on investments, dividends and certain other payments.
The maximum permitted Consolidated Total Net Leverage Ratio is calculated as Consolidated Net Indebtedness to twelve-month trailing Consolidated EBITDA, as defined by the Credit Agreement. The maximum Consolidated Total Net Leverage Ratio for the fiscal quarter ending December 31, 2022 through the fiscal quarter ending June 30, 2023 must be no higher than 5.00 to 1.00 and for the fiscal quarter ending September 30, 2023 and each fiscal quarter thereafter, 4.50 to 1.00.
Current Maturities of Our Indebtedness
We classified certain non-extending balances under our Credit Facility as a current maturity, as such amounts come due within the next twelve months.
Senior Notes
4.750% Senior Notes due June 2031
On June 8, 2021, we issued $900.0 million aggregate principal amount of 4.750% senior notes due June 2031 (the "4.750% Senior Notes due 2031"). The 4.750% Senior Notes due 2031 require semi-annual interest payments on March 15 and September 15 of each year. The 4.750% Senior Notes due 2031 will mature on June 15, 2031 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 4.750% Senior Notes due 2031 and cash on hand were used to finance the redemption of our outstanding 6.375% senior notes due April 2026 ("6.375% Senior Notes") and 6.000% senior notes due August 2026 ("6.000% Senior Notes").
In conjunction with the issuance of the 4.750% Senior Notes due 2031, we incurred approximately $13.5 million in debt financing costs that have been deferred and are being amortized over the term of the 4.750% Senior Notes due 2031 using the effective interest method.
The 4.750% Senior Notes due 2031 contain covenants that, subject to exceptions and qualifications, among other things, limit the Company’s ability and the ability of its Restricted Subsidiaries (as defined in the Indenture governing the 4.750% Senior Notes due 2031, the "4.750% Senior Notes due 2031 Indenture") to (i) incur additional indebtedness or liens; (ii) pay dividends or make distributions or repurchase the Company’s capital stock; (iii) make certain investments; and (iv) sell or merge with other companies. Upon the occurrence of a change of control (as defined in the 4.750% Senior Notes due 2031 Indenture), the Company will be required, unless certain conditions are met, to offer to repurchase the 4.750% Senior Notes due 2031 at a price equal to 101% of the principal amount of the 4.750% Senior Notes due 2031, plus any accrued and unpaid interest and Additional Interest, if any, up to, but not including, the date of purchase. If the Company sells assets, it will be required under certain circumstances to offer to purchase the 4.750% Senior Notes due 2031.
At any time prior to June 15, 2026, we may redeem the 4.750% Senior Notes due 2031, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and Additional Interest, if any, up to, but excluding, the applicable redemption date, plus a make whole premium. In addition, at any time prior to June 15, 2024, we may redeem up to 40% of the aggregate principal amount of the 4.750% Senior Notes due 2031 at a redemption price (expressed as percentages of the principal amount) equal to 104.750%, plus accrued and unpaid interest and Additional Interest.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
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% Senior Notes due
2027"). The
4.750% Senior Notes due
2027 require semi-annual interest payments on
June 1 and
December 1 of each year. The
4.750% Senior Notes due
2027 will mature on
December 1, 2027 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
4.750% Senior Notes due
2027 were used to finance the redemption of all of our outstanding
6.875% senior notes due in
2023 and prepay a portion of our Prior Refinancing Term B Loan.
In conjunction with the issuance of the
4.750% Senior Notes due
2027, we incurred approximately
$15.7 million in debt financing costs that have been deferred and are being amortized over the term of the
4.750% Senior Notes due
2027 using the effective interest method.
The
4.750% Senior Notes due
2027 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
4.750% Senior Notes due
2027, the "
4.750% Senior Notes due
2027 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
4.750% Senior Notes due
2027 Indenture), we will be required, unless certain conditions are met, to offer to repurchase the
4.750% Senior Notes due
2027 at a price equal to
101% of the principal amount of the
4.750% Senior Notes due
2027, plus accrued and unpaid interest and Additional Interest (as defined in the
4.750% Senior Notes due
2027 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
4.750% Senior Notes due
2027.
At any time after December 1, 2022, we may redeem all or a portion of the 4.750% Senior Notes due 2027 at redemption prices (expressed as percentages of the principal amount) ranging from 102.375% to 100% in 2024 and thereafter, plus accrued and unpaid interest and Additional Interest.
In connection with the private placement of the 4.750% Senior Notes due 2027, we entered into a registration rights agreement with the initial purchasers in which we agreed to file a registration statement with the Securities and Exchange Commission (the "SEC") to permit the holders to exchange or resell the 4.750% Senior Notes due 2027. We filed the required registration statement and commenced the exchange offer in July 2020. The exchange offer was completed on August 20, 2020 and our obligations under the registration agreement have been fulfilled.
Redemption of 8.625% Senior Notes due June 2025
On November 5, 2021, we redeemed $300.0 million of our 8.625% Senior Notes due June 2025 (the "8.625% Senior Notes") at a redemption price that was calculated pursuant to the formula set forth in the 8.625% Indenture governing the 8.625% Senior Notes. The redemption including the redemption premium, accrued and unpaid interest, fees, expenses and commissions related to this redemption, was funded with cash on hand. On June 1, 2022, we redeemed the remaining $300.0 million outstanding 8.625% Senior Notes at a redemption price of 104.313% plus accrued and unpaid interest to the redemption date. The redemptions, including the redemption premium, accrued and unpaid interest, fees, expenses and commissions related to this redemption, was funded through a combination of cash on hand and borrowings under our Revolving Credit Facility.
Redemption of 6.000% Senior Notes due August 2026
On June 9, 2021, we redeemed all our $700.0 million aggregate principal amount of 6.000% senior notes due 2026 ("6.000% Senior Notes") at a redemption price of 103.993% plus accrued and unpaid interest to the redemption date. The redemption was funded through the issuance of the 4.750% Senior Notes due 2031 and cash on hand. The Company used operating cash to pay the redemption premium, accrued and unpaid interest, fees, expenses and commissions related to this redemption.
Redemption of 6.375% Senior Notes due April 2026
On June 9, 2021, we redeemed all our $750.0 million aggregate principal amount of 6.375% senior notes due 2026 ("6.375% Senior Notes") at a redemption price of 103.188% plus accrued and unpaid interest to the redemption date. The redemption was funded through the issuance of the 4.750% Senior Notes due 2031. The Company used operating cash to pay the redemption premium, accrued and unpaid interest, fees, expenses and commissions related to this redemption.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Loss on Early Extinguishments and Modifications of Debt
The components of the loss on early extinguishments and modifications of debt are as follows:
| | Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | | | 2020 | |
6.375% Senior Notes premium fees paid | | $ | — | | | $ | 23,910 | | | $ | — | |
6.375% Senior Notes deferred finance charges written off | | | — | | | | 6,370 | | | | — | |
6.000% Senior Notes premium fees paid | | | — | | | | 27,953 | | | | — | |
6.000% Senior Notes deferred finance charges written off | | | — | | | | 7,240 | | | | — | |
8.625% Senior Notes premium fees paid | | | 12,939 | | | | 25,873 | | | | — | |
8.625% Senior Notes deferred finance charges written off | | | 3,570 | | | | 3,732 | | | | — | |
Prior Credit Facility deferred finance charges written off | | | 3,306 | | | | — | | | | — | |
Prior Credit Facility debt modification fees paid | | | | | | | 77 | | | | 1,791 | |
Total loss on early extinguishments and modifications of debt | | $ | 19,815 | | | $ | 95,155 | | | $ | 1,791 | |
Covenant Compliance
As of December 31, 2022, we were in compliance with the financial and other covenants of our debt instruments.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
The indentures governing the notes issued by the Company contain provisions that allow for the incurrence of additional indebtedness, if after giving effect to such incurrence, the coverage ratio (as defined in the respective indentures, essentially a ratio of the Company's consolidated EBITDA to fixed charges, including interest) for the Company's 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, the Company may still borrow under its existing credit facility. At December 31, 2022, the available borrowing capacity under our Credit Facility was $1,095.4 million.
Scheduled Maturities of Long-Term Debt
The scheduled maturities of long-term debt are as follows:
(In thousands) | | Total | |
For the year ending December 31, | | | | |
2023 | | $ | 44,275 | |
2024 | | | 44,399 | |
2025 | | | 44,000 | |
2026 | | | 44,000 | |
2027 | | | 2,011,800 | |
Thereafter | | | 900,000 | |
Total outstanding principal of long-term debt | | $ | 3,088,474 | |
NOTE 8. INCOME TAXES
Deferred Income Tax Assets and Liabilities
Deferred income tax assets and liabilities are provided to record the effects of temporary differences between the tax basis of an asset or liability and its amount as reported in our consolidated balance sheets. These temporary differences result in taxable or deductible amounts in future years.
The components comprising our deferred income tax assets and liabilities are as follows:
| | December 31, | |
(In thousands) | | 2022 | | | 2021 | |
Deferred income tax assets | | | | | | | | |
State net operating loss carryforwards | | $ | 53,889 | | | $ | 73,884 | |
Operating lease liability | | | 178,014 | | | | 189,180 | |
Share-based compensation | | | 13,119 | | | | 13,811 | |
Other | | | 40,144 | | | | 66,378 | |
Gross deferred income tax assets | | | 285,166 | | | | 343,253 | |
Valuation allowance | | | (59,398 | ) | | | (67,525 | ) |
Deferred income tax assets, net of valuation allowance | | | 225,768 | | | | 275,728 | |
| | | | | | | | |
Deferred income tax liabilities | | | | | | | | |
Difference between book and tax basis of property and intangible assets | | | 328,062 | | | | 307,194 | |
State tax liability | | | 32,720 | | | | 40,216 | |
Right-of-use asset | | | 174,373 | | | | 185,691 | |
Other | | | 9,222 | | | | 7,539 | |
Gross deferred income tax liabilities | | | 544,377 | | | | 540,640 | |
Deferred income tax liabilities, net | | $ | 318,609 | | | $ | 264,912 | |
At December 31, 2022, we have state income tax net operating loss carryforwards of approximately $906.2 million, which may be used to reduce future state income taxes. The majority of the state net operating loss carryforwards will expire in various years ranging from 2023 to 2041, if not fully utilized, and the remaining may be used indefinitely.
Valuation Allowance on Deferred Tax Assets
Management assesses available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. In evaluating our ability to recover deferred tax assets, we consider whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and results of recent operations.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
We have maintained a valuation allowance against certain federal and state deferred tax assets as of December 31, 2022 due to uncertainties related to our ability to realize the tax benefits associated with these assets. The balance of this valuation allowance is $59.4 million as of December 31, 2022. This is a decrease of $8.1 million from the prior year primarily due to a reduction in state tax rates which lowered our underlying state tax deferred assets in certain states. In assessing the need to establish a valuation allowance, we consider, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of profitability and taxable income, the duration of statutory carryforward periods, our experience with the utilization of operating loss and tax credit carryforwards before expiration and tax planning strategies. Valuation allowances are evaluated periodically and subject to change in future reporting periods as a result of changes in the factors noted above.
Provision (Benefit) for Income Taxes
A summary of the provision (benefit) for income taxes is as follows:
| | Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | | | 2020 | |
Current | | | | | | | | | | | | |
Federal | | $ | 129,424 | | | $ | — | | | $ | — | |
State | | | 10,843 | | | | 6,100 | | | | (58 | ) |
Total current taxes provision (benefit) | | | 140,267 | | | | 6,100 | | | | (58 | ) |
Deferred | | | | | | | | | | | | |
Federal | | | 44,115 | | | | 122,796 | | | | (35,231 | ) |
State | | | 5,047 | | | | 11,197 | | | | (1,025 | ) |
Total deferred taxes provision (benefit) | | | 49,162 | | | | 133,993 | | | | (36,256 | ) |
Provision (benefit) for income taxes | | $ | 189,429 | | | $ | 140,093 | | | $ | (36,314 | ) |
The following table provides a reconciliation between the federal statutory rate and the effective income tax rate, expressed as a percentage of income (loss) before income taxes:
| | Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | | | 2020 | |
Tax at federal statutory rate | | | 21.0 | % | | | 21.0 | % | | | 21.0 | % |
State income taxes, net of federal benefit | | | 1.5 | % | | | 2.3 | % | | | 0.5 | % |
Compensation-based credits | | | (0.3 | )% | | | (0.1 | )% | | | 0.6 | % |
Nondeductible expenses | | | 0.2 | % | | | 0.1 | % | | | (0.4 | )% |
Tax exempt interest | | | — | % | | | (0.1 | )% | | | 0.2 | % |
Company provided benefits | | | 0.4 | % | | | (0.1 | )% | | | (1.3 | )% |
Other, net | | | 0.1 | % | | | 0.1 | % | | | 0.6 | % |
Effective tax rate | | | 22.9 | % | | | 23.2 | % | | | 21.2 | % |
Our tax provision for the year ended December 31, 2022 was unfavorably impacted by state taxes and certain nondeductible expenses, including nondeductible compensation and employee benefit expenses, which were partially offset by tax credits and the inclusion of excess tax benefits related to equity compensation as a component of the provision for income taxes.
Our tax provision for the year ended December 31, 2021 was favorably impacted by benefits related to equity compensation and tax credits and unfavorably impacted by state taxes, nondeductible expenses including nondeductible compensation and employee benefit expenses.
Our tax benefit for the year ended December 31, 2020 was favorably impacted by state audit settlements in connection with our Louisiana tax examinations and the realization of certain unrecognized tax benefits, inclusive of the reversal of related accrued interest. Our tax benefit was also favorably impacted by benefits related to equity compensation and tax credits and unfavorably impacted by nondeductible expenses.
Status of Examinations
We generated net operating losses on our federal income tax returns for years 2011 through 2013 and in 2020. These returns remain subject to federal examination until the statute of limitations expires for the year in which the net operating losses are utilized. We utilized all our federal net operating losses in 2021.
As it relates to our material state tax returns, we are subject to examination for tax years ended on or after December 31, 2013. The statute of limitations will expire over the period October 2023 through November 2026.
We believe that we have adequately reserved for any tax liability; however, the ultimate resolution of these examinations may result in an outcome that is different than our current expectation. We do not believe the ultimate resolution of these examinations will have a material impact on our consolidated financial statements.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Other Long-Term Tax Liabilities
The impact of an uncertain income tax position taken in our income tax return is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position is not recognized if it has less than a 50% likelihood of being sustained. Our liability for uncertain tax positions is recorded as other long-term tax liabilities in our consolidated balance sheets.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| | Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | | | 2020 | |
Unrecognized tax benefit, beginning of year | | $ | — | | | $ | — | | | $ | 2,482 | |
Additions: | | | | | | | | | | | | |
Tax positions related to current year | | | — | | | | — | | | | — | |
Reductions: | | | | | | | | | | | | |
Tax positions related to prior years | | | — | | | | — | | | | (2,482 | ) |
Unrecognized tax benefit, end of year | | $ | — | | | $ | — | | | $ | — | |
During the third quarter of 2020, we settled our Louisiana tax audits for the years ended 2001 through 2009. As a result of the resolution of theses audits, we reduced our unrecognized tax benefits by $2.5 million of which $2.0 million impacted our effective tax rate. We reversed the accrual of interest related to unrecognized tax benefits in our income tax provision. There is no accrual required for interest and penalties at both December 31, 2022 and 2021 in our consolidated balance sheets.
We do not anticipate any material changes to our unrecognized tax benefits over the next twelve-month period.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Commitments
Capital Spending and Development
We continually perform on-going refurbishment and maintenance at our facilities to maintain our standards of quality. Certain of these maintenance costs are capitalized, if such improvement or refurbishment extends the life of the related asset, while other maintenance costs that do not so qualify are expensed as incurred. The commitment of capital and the related timing thereof are contingent upon, among other things, negotiation of final agreements and receipt of approvals from the appropriate regulatory bodies. We must also comply with covenants and restrictions set forth in our debt agreements.
Kansas Management Contract
As part of Kansas Star's Contract to Serve as Lottery Gaming Facility Manager for the South Central Gaming Zone on behalf of the Kansas Lottery (the "Kansas Management Contract"), approved by the Kansas Racing and Gaming Commission on January 11, 2011, Kansas Star committed to donate $1.5 million each year to support education in the local area in which Kansas Star operates for the duration of the Kansas Management Contract. We have made all distributions under this commitment as scheduled and such related expenses are recorded in selling, general and administrative expenses on the consolidated statements of operations.
Mulvane Development Agreement
On March 7, 2011, Kansas Star entered into a Development Agreement with the City of Mulvane ("Mulvane Development Agreement") related to the provision of water, sewer, and electrical utilities to the Kansas Star site. This agreement sets forth certain parameters governing the use of public financing for the provision of such utilities, through the issuance of general obligation bonds by the City of Mulvane, paid for through the imposition of a special tax assessment on the Kansas Star site payable over 15 years in an amount equal to the City’s full obligations under the general obligation bonds.
All infrastructure improvements to the Kansas Star site under the Mulvane Development Agreement are complete and the City of Mulvane issued $19.7 million in general obligation bonds related to these infrastructure improvements. At both December 31, 2022 and 2021, under the Mulvane Development Agreement, Kansas Star recorded $1.6 million, which is included in accrued liabilities on the consolidated balance sheets and at December 31, 2022 and 2021, $4.1 million, net of a $1.1 million discount, and $5.0 million, net of a $1.6 million discount, respectively, which is recorded as a long-term obligation in other liabilities on the consolidated balance sheets. Interest costs are expensed as incurred and the discount will be amortized to interest expense over the term of the special tax assessment ending in 2028. Kansas Star's special tax assessment related to these bonds is approximately $1.6 million annually. Payments under the special tax assessment are secured by irrevocable letters of credit of $5.0 million issued by the Company in favor of the City of Mulvane, representing an amount equal to three times the annual special assessment tax imposed on Kansas Star.
Minimum Assessment Agreement
In 2007, Diamond Jo Dubuque entered into a Minimum Assessment Agreement with the City of Dubuque (the "City"). Under the Minimum Assessment Agreement, Diamond Jo Dubuque and the City agreed to a minimum taxable value related to the new casino of $57.9 million. Diamond Jo Dubuque agreed to pay property taxes to the City based on the actual taxable value of the casino, but not less than the minimum taxable value. Scheduled payments of principal and interest on the City Bonds will be funded through Diamond Jo Dubuque's payment obligations under the Minimum Assessment Agreement. Diamond Jo Dubuque is also obligated to pay any shortfall should property taxes be insufficient to fund the principal and interest payments on the City Bonds.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Interest costs under the Minimum Assessment Agreement obligation are expensed as incurred. As of December 31, 2022 and 2021, the remaining obligation under the Minimum Assessment Agreement was $1.9 million at each date, which was recorded in accrued liabilities on the consolidated balance sheets and $11.7 million, net of a $1.8 million discount, and $12.2 million, net of a $2.0 million discount, respectively, which was recorded as a long-term obligation in other liabilities on the consolidated balance sheets. The discount will be amortized to interest expense over the life of the Minimum Assessment Agreement. Total minimum payments by Diamond Jo Dubuque under the Minimum Assessment Agreement are approximately $1.9 million per year through 2036.
Public Parking Facility Agreement
Diamond Jo Dubuque has an agreement with the City for use of the public parking facility adjacent to Diamond Jo Dubuque's casino and owned and operated by the City (the "Parking Facility Agreement"). The Parking Facility Agreement calls for: (i) the payment by the Company for the reasonable and necessary actual operating costs incurred by the City for the operation, security, repair and maintenance of the public parking facility; and (ii) the payment by the Company to the City of $80 per parking space in the public parking facility per year, subject to annual increases based on any increase in the Consumer Price Index, which funds will be deposited into a special sinking fund and used by the City for capital expenditures necessary to maintain the public parking facility. Operating costs of the parking facility incurred by Diamond Jo Dubuque are expensed as incurred. Deposits to the sinking fund are recorded as other assets. When the sinking fund is used for capital improvements, such amounts are capitalized and amortized over their remaining useful life.
Iowa Qualified Sponsoring Organization Agreements
Diamond Jo Dubuque and Diamond Jo Worth are required to pay their respective qualified sponsoring organization, who hold a joint gaming license with Diamond Jo Dubuque and Diamond Jo Worth, a certain percentage of the casino’s adjusted gross receipts on an ongoing basis. Diamond Jo Dubuque pays 4.50% on slot and table game revenues and 0.75% on sports wagering revenue. Diamond Jo Worth pays 5.76% on slot and table game revenues and 0.75% on sports wagering revenue. Diamond Jo Dubuque expensed $3.3 million, $3.5 million and $2.3 million, during the years ended December 31, 2022, 2021 and 2020, respectively, related to its agreement. Diamond Jo Worth expensed $5.9 million, $6.0 million and $3.8 million during the years ended December 31, 2022, 2021 and 2020, respectively, related to its agreement. The Diamond Jo Dubuque agreement expires on December 31, 2030. The Diamond Jo Worth agreement expires on March 31, 2025, and is subject to automatic ten-year renewal periods.
Development Agreement
In September 2011, the Company acquired the membership interests of a limited liability company (the "LLC") for a purchase price of $24.5 million. The primary asset of the LLC was a previously executed development agreement (the "Development Agreement") with Wilton Rancheria. The purchase price was allocated primarily to an intangible asset associated with the Company's rights under the agreement to assist Wilton Rancheria in the development and management of a gaming facility on Wilton Rancheria's land.
In July 2012, the Company and Wilton Rancheria amended and replaced the agreement with a new development agreement and a management agreement (the "Agreements"). The Agreements obligate us to fund certain pre-development costs, which were estimated to be approximately $1 million to $2 million annually, and to assist Wilton Rancheria in its development and oversight of the gaming facility construction. In the current year, pre-development costs were approximately $0.7 million. In addition, in 2022, the Company funded the construction of a parking lot associated with the project totaling $6.5 million. In January 2017, the Company funded the acquisition of land that is the site of the Wilton Rancheria casino and, in February 2017, the land was placed into trust by the U.S. Bureau of Indian Affairs for the benefit of Wilton Rancheria. The pre-development costs financed by us, the cost of the land and the cost of the parking lot are to be repaid under the terms of a note receivable with Wilton Rancheria bearing interest at 12.5% and payment timing and the amount are subject to an excess cash flow waterfall payment prioritization and maintenance of a certain leverage ratio, among other restrictions under Wilton Rancheria's third-party credit agreement that provided funding for the construction project. Given the significant barriers of the project, a majority of advances made during the 10-year period were historically reserved in full when advanced.
The Agreements provide that the Company will receive future revenue for its services to Wilton Rancheria contingent upon successful development of the gaming facility and based on future revenues of the gaming facility. In September 2017, the California State Legislature unanimously approved, and the Governor of California executed, a tribal-state gaming compact with Wilton Rancheria allowing the development of the casino. In October 2018, the National Indian Gaming Commission approved the Company's management contract with Wilton Rancheria. On August 15, 2022, Sky River Casino opened and we began earning a management fee. In 2022, we recognized revenue of $31.9 million, inclusive of a one-time $5.0 million development fee, which is included in other revenue on the consolidated statement of operations.
With the opening of Sky River Casino and cash flow from operations, the Company evaluated its expected losses on the note receivable and reduced its allowance by $35.1 million. The allowance on the note represented a reserve on both the development advances and interest on the note. As such, the allowance reduction is allocated accordingly and $20.4 million is recorded in project development, preopening and writedowns and $14.7 million in interest income, both reflected in the consolidated statement of operations for the year ended December 31, 2022. As of December 31, 2022 and 2021, the net note receivable balance was $83.8 million and $31.8 million, respectively.
Master Lease Agreements
A Boyd subsidiary, Boyd TCIV, entered into the Master Lease 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, commencing on October 15, 2018 and ending on April 30, 2026 as the initial term, with options for renewal. The term of this Master Lease may be extended for five separate renewal terms of five years each. The monthly lease payment consists of the following, (i) the building base rent, as defined in the Master Lease agreement, plus (ii) the land base rent, as defined in the Master Lease agreement, plus (iii) the percentage rent, as defined in the Master Lease agreement. Each and every other lease year commencing with the third lease year, the percentage rent will reset based on a calculation defined in the Master Lease agreement.
On May 6, 2020 we entered into an agreement with Gold Merger Sub, a wholly owned subsidiary of GLPI, for its acquisition of Boyd PropCo (the "Merger"), the entity that owns the Belterra Park 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 Boyd PropCo via a 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 mortgage executed in connection with GLPI’s initial financing of our acquisition of the real estate in October 2018.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended Decemb
er 31, 2022, 2021 and 2020
Prior to the Merger, PNK (Ohio), LLC ("BP OpCo"), which owns the business operations of Belterra Park, leased the real estate from Boyd 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 "GLPI Master Lease," respectively). Rent paid under the BP Master Lease to Boyd PropCo by BP OpCo was then paid by Boyd PropCo to Gold Merger Sub as interest on the mortgage. 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 mortgage received prior to consummation of the Merger).
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.
Hurricane Laura Insurance Recovery
On August 27, 2020, Hurricane Laura made landfall in Vinton, Louisiana, which caused the closure of our Delta Downs property for approximately three weeks. The Company maintains insurance, subject to certain deductibles, that covers business interruption, including lost profits. As the Company deemed it probable that insurance recoveries would exceed any loss incurred, the Company accounted for the proceeds in excess of the loss incurred as a gain contingency in the period received in accordance with authoritative accounting guidance. During third quarter 2022, we settled our business interruption and lost profits claim with our insurance carriers and received payments totaling $13.2 million. After consideration of expenses incurred related to the claim, included in other operating items, net for the year ended December 31, 2022, is a $12.6 million gain representing business interruption insurance for lost profits from the closure of Delta Downs in 2020 due to Hurricane Laura.
NOTE 10. LEASES
We have operating and finance leases primarily for four casino hotel properties, corporate offices, parking ramps, gaming and other equipment. Our leases have remaining lease terms of one year to 54 years, some of which include options to extend the leases for up to 63 years, and some of which include options to terminate the leases within one year. Certain of our lease agreements, including the Master Leases, include provisions for variable lease payments, which represent lease payments that vary due to changes in facts or circumstances occurring after the commencement date other than the passage of time. Such variable lease payments are expensed in the period in which the obligation for these payments is incurred. Variable lease expense recognized in the years ended December 31, 2022 and 2021 was $22.4 million and $20.1 million, respectively.
As part of our annual 2021 impairment test, the Company recorded impairment charges of $5.8 million for operating lease right-of-use assets related to our Las Vegas Locals segment.
The components of lease expense were as follows:
| | Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | |
Operating lease cost | | $ | 153,961 | | | $ | 125,693 | |
Short-term lease cost | | | (685 | ) | | | (1,667 | ) |
Supplemental cash flow information related to leases was as follows:
| | Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | |
Operating cash flows from operating leases | | $ | 155,085 | | | $ | 129,053 | |
| | | | | | | | |
Right-of-use assets obtained in exchange for lease obligations: | | | | | | | | |
Operating leases | | | 32,080 | | | | 55,673 | |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Supplemental balance sheet information related to leases was as follows:
| | December 31, | |
(In thousands, except lease term and discount rate) | | 2022 | | | 2021 | |
Operating Leases | | | | | | | | |
Operating lease right-of-use assets, including favorable lease rates asset | | $ | 830,345 | | | $ | 884,241 | |
| | | | | | | | |
Current lease liabilities (included in accrued liabilities) | | $ | 88,776 | | | $ | 84,884 | |
Operating lease liabilities | | | 758,440 | | | | 815,974 | |
Total operating lease liabilities | | $ | 847,216 | | | $ | 900,858 | |
| | | | | | | | |
Weighted Average Remaining Lease Term | | | | | | | | |
Operating leases (in years) | | | 15.5 | | | | 16.1 | |
| | | | | | | | |
Weighted Average Discount Rate | | | | | | | | |
Operating leases | | | 8.7 | % | | | 8.6 | % |
Maturities of lease liabilities are as follows:
(In thousands) | | Operating Leases | |
For the period ending December 31, | | | | |
2023 | | $ | 152,487 | |
2024 | | | 152,398 | |
2025 | | | 120,710 | |
2026 | | | 120,833 | |
2027 | | | 119,928 | |
Thereafter | | | 910,315 | |
Total lease payments | | | 1,576,671 | |
Less imputed interest | | | (729,455 | ) |
Less current portion (included in accrued liabilities) | | | (88,776 | ) |
Long-term portion of operating lease liabilities | | $ | 758,440 | |
Future minimum rental income, which is primarily related to retail and restaurant facilities located within our properties, is as follows:
(In thousands) | | Minimum Rental Income | |
For the Year Ended December 31, | | | | |
2023 | | $ | 3,260 | |
2024 | | | 2,417 | |
2025 | | | 1,018 | |
2026 | | | 338 | |
2027 | | | 245 | |
Thereafter | | | 930 | |
Total | | $ | 8,208 | |
NOTE 11. STOCKHOLDERS' EQUITY AND STOCK INCENTIVE PLANS
Share Repurchase Program
We have in the past, and may in the future, acquire our 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 from time to time. On December 12, 2018, our Board of Directors authorized a share repurchase program of $100.0 million (the "2018 Program"). On March 16, 2020, at which time $61.4 million remained available under the 2018 Program, the Company suspended share repurchases under the program in order to preserve liquidity due to the COVID-19 pandemic. On October 21, 2021, our Board of Directors authorized an additional share repurchase program of $300.0 million (the "Share Repurchase Program") and repurchases under this program and the 2018 Program resumed. On June 1, 2022, our Board of Directors authorized a $500.0 million increase to the Share Repurchase Program. There were 9.4 million shares, 1.3 million shares and 0.7 million shares repurchased during the years ended December 31, 2022, 2021 and 2020, respectively. The 2018 Program was fully depleted in 2021. As of December 31, 2022, $239.0 million remained available under the Share Repurchase Program.
We are not obligated to repurchase any shares under these programs. Repurchases of common stock may also be made under Rule 10b5-1 plans, which would permit common stock to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. The timing, volume and nature of share repurchases will be at the sole discretion of management, dependent on market conditions, applicable securities laws and other factors, and may be suspended or discontinued at any time.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
The following table provides information regarding share repurchases during the referenced periods.(1)
| | For the Year Ended December 31, | |
(In thousands, except per share data) | | 2022 | | | 2021 | | | 2020 | |
Shares repurchased (2) | | | 9,424 | | | | 1,310 | | | | 683 | |
Total cost, including brokerage fees | | $ | 541,642 | | | $ | 80,782 | | | $ | 11,121 | |
Average repurchase price per share (3) | | $ | 57.48 | | | $ | 61.67 | | | $ | 16.29 | |
(1) Shares repurchased reflect repurchases settled during the twelve months ended December 31, 2022, 2021 and 2020. These amounts exclude repurchases, if any, traded but not yet settled on or before December 31 of each year.
(2) All shares repurchased have been retired and constitute authorized but unissued shares.
(3) Amounts in the table may not recalculate exactly due to rounding. Average repurchase price per share is calculated based on unrounded numbers.
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. Repurchases can be discontinued at any time that we feel additional purchases are not warranted. We intend to fund the repurchases under the Share Repurchase Program with existing cash resources, cash flow from operations and availability under our Credit Facility. We are subject to certain limitations regarding the repurchase of common stock, such as restricted payment limitations under the indentures to our outstanding senior notes and in our Credit Agreement.
Dividends
Dividends are declared at the discretion of our Board of Directors. We are subject to certain limitations regarding the payment of dividends, such as restricted payment limitations contained in our Credit Agreement and the indentures for our outstanding senior notes.
On May 2, 2017, the Company announced that its Board of Directors had authorized the reinstatement of the Company’s cash dividend program. On March 25, 2020, the Company announced that the cash dividend program had been suspended to help mitigate the financial impact of the COVID-19 pandemic. On February 3, 2022, the Company announced that its Board of Directors had authorized the reinstatement of the Company’s cash dividend program. The dividends declared by the Board of Directors under this program as of December 31, 2022 are:
Declaration date | | Record date | | Payment date | | Amount per share | |
December 17, 2019 | | December 27, 2019 | | January 15, 2020 | | $ | 0.07 | |
February 3, 2022 | | March 15, 2022 | | April 15, 2022 | | | 0.15 | |
June 1, 2022 | | June 30, 2022 | | July 15, 2022 | | | 0.15 | |
September 15, 2022 | | September 30, 2022 | | October 15, 2022 | | | 0.15 | |
December 8, 2022 | | December 19, 2022 | | January 15, 2023 | | | 0.15 | |
Stock Incentive Plan
In April 2020, the Company's stockholders approved the 2020 Stock Incentive Plan (the "2020 Plan"), which amended and restated the Company's 2012 Stock Incentive Plan (the "2012 Plan") to (a) provide for a term ending ten years from the date of stockholder approval at the Annual Meeting, (b) state the number of shares of the Company's common stock authorized for issuance over the term of the 2020 Plan to be 3.3 million shares plus the aggregate number of shares remaining available for future awards under the 2012 Plan and the number of shares subject to outstanding awards under the 2012 Plan that would have again become available for issuance pursuant to new awards under the 2012 Plan, whether because the outstanding awards under the 2012 Plan are forfeited or canceled, expire or are settled in cash, or because the shares covered by such awards under the 2012 Plan are surrendered or withheld in payment of the award exercise or purchase price in satisfaction of tax withholding obligations, (c) remove the individual award limit and set an annual grant limit for non-employee directors, and (d) make certain other changes. Under our 2020 Plan, approximately 7.1 million shares remain available for grant at December 31, 2022. The number of authorized but unissued shares of common stock under this 2020 Plan as of December 31, 2022 was approximately 9.5 million shares.
Grants made under the 2020 Plan include provisions that entitle the grantee to automatic vesting acceleration in the event of a grantee’s separation from service (including as a result of retirement, death or disability), other than for cause (as defined), after reaching the defined age and years of service thresholds. These provisions result in the accelerated recognition of the stock compensation expense for those grants issued to employees who have met the stipulated thresholds.
Stock Options
Options granted under the 2020 Plan generally become exercisable ratably over a three-year period from the date of grant. Options that have been granted under the 2012 Plan and will be granted under the 2020 Plan have an exercise price equal to the market price of our common stock on the date of grant and will expire no later than ten years after the date of grant. The Company did not issue any stock option grants in 2022, 2021 and 2020.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Summarized stock option plan activity is as follows:
| | | | | | | | | | Weighted- | | | | | |
| | | | | | Weighted- | | | Average | | | | | |
| | | | | | Average | | | Remaining | | | Aggregate | |
| | Options | | | Option Price | | | Term | | | Intrinsic Value | |
| | | | | | | | | | (In years) | | | (In thousands) | |
Outstanding at January 1, 2020 | | | 887,728 | | | $ | 12.48 | | | | | | | | | |
Granted | | | — | | | | — | | | | | | | | | |
Canceled | | | (2,000 | ) | | | 8.34 | | | | | | | | | |
Exercised | | | (240,380 | ) | | | 8.23 | | | | | | | | | |
Outstanding at December 31, 2020 | | | 645,348 | | | | 14.07 | | | | | | | | | |
Granted | | | — | | | | — | | | | | | | | | |
Canceled | | | — | | | | — | | | | | | | | | |
Exercised | | | (371,016 | ) | | | 11.88 | | | | | | | | | |
Outstanding at December 31, 2021 | | | 274,332 | | | | 17.02 | | | | | | | | | |
Granted | | | — | | | | — | | | | | | | | | |
Canceled | | | — | | | | — | | | | | | | | | |
Exercised | | | (165,951 | ) | | | — | | | | | | | | | |
Outstanding at December 31, 2022 | | | 108,381 | | | $ | 14.58 | | | | 2.3 | | | $ | 4,329 | |
| | | | | | | | | | | | | | | | |
Exercisable at December 31, 2021 | | | 274,332 | | | $ | 17.02 | | | | 4.0 | | | $ | 13,318 | |
| | | | | | | | | | | | | | | | |
Exercisable at December 31, 2022 | | | 108,381 | | | $ | 14.58 | | | | 2.3 | | | $ | 4,329 | |
Share-based compensation costs related to stock option awards are calculated based on the fair value of each option grant on the date of the grant using the Black-Scholes option pricing model.
The following table summarizes the information about stock options outstanding and exercisable at December 31, 2022:
| | | Options Outstanding | | | Options Exercisable | |
| | | | | | | Weighted- | | | | | | | | | | | | | |
| | | | | | | Average | | | | | | | | | | | | | |
| | | | | | | Remaining | | | Weighted- | | | | | | | Weighted- | |
| | | Number | | | Contractual | | | Average | | | Number | | | Average | |
Range of Exercise Prices | | | Outstanding | | | Life (Years) | | | Exercise Price | | | Exercisable | | | Exercise Price | |
$9.86 | | | | 32,000 | | | | 0.9 | | | $ | 9.86 | | | | 32,000 | | | $ | 9.86 | |
11.57 | | | | 23,431 | | | | 1.9 | | | | 11.57 | | | | 23,431 | | | | 11.57 | |
17.75 | | | | 28,708 | | | | 3.9 | | | | 17.75 | | | | 28,708 | | | | 17.75 | |
19.98 | | | | 24,242 | | | | 2.8 | | | | 19.98 | | | | 24,242 | | | | 19.98 | |
$9.86-$19.98 | | | | 108,381 | | | | 2.3 | | | | 14.58 | | | | 108,381 | | | | 14.58 | |
The total intrinsic value of in-the-money options exercised during the years ended December 31, 2022, 2021 and 2020 was $6.8 million, $17.9 million, and $5.7 million, respectively. No options vested during the years ended December 31, 2022, 2021 and 2020 and there were no unrecognized share-based compensation costs related to unvested stock options as of December 31, 2022.
Restricted Stock Units
Our 2020 Plan provides for the grant of Restricted Stock Units ("RSUs"). An RSU is an award that may be earned in whole, or in part, upon the passage of time, and that may be settled for cash, shares, other securities or a combination thereof. The RSUs do not contain voting rights and are not entitled to dividends. The RSUs are subject to the terms and conditions contained in the applicable award agreement and the 2020 Plan. Share-based compensation costs related to RSU awards are calculated based on the market price on the date of the grant.
We grant RSUs to certain members of management of the Company, which represents a contingent right to receive one share of our common stock upon vesting. An RSU generally vests on the third anniversary of its issuance and the share-based compensation expense is amortized to expense over the requisite service period.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
We also annually award RSUs to certain members of our Board of Directors. RSU grants issued in 2020 and prior years are to be paid in shares of common stock upon the director’s cessation of service to the Company. Commencing with the 2021 grant, the shares are issued to the director when the RSU is granted. These RSUs are issued for past service; therefore, they are expensed on the date of issuance.
Summarized RSU activity is as follows:
| | | | | | Weighted- | |
| | Restricted | | | Average Grant | |
| | Stock Units | | | Date Fair Value | |
Outstanding at January 1, 2020 | | | 1,768,757 | | | | | |
Granted | | | 45,150 | | | $ | 29.17 | |
Canceled | | | (54,752 | ) | | | | |
Awarded | | | (531,402 | ) | | | | |
Outstanding at December 31, 2020 | | | 1,227,753 | | | | | |
Granted | | | 456,492 | | | $ | 52.59 | |
Canceled | | | (27,782 | ) | | | | |
Awarded | | | (466,633 | ) | | | | |
Outstanding at December 31, 2021 | | | 1,189,830 | | | | | |
Granted | | | 259,030 | | | $ | 67.73 | |
Canceled | | | (29,273 | ) | | | | |
Awarded | | | (501,339 | ) | | | | |
Outstanding at December 31, 2022 | | | 918,248 | | | | | |
As of December 31, 2022, there was approximately $6.8 million of total unrecognized share-based compensation costs related to unvested RSUs, which is expected to be recognized over approximately 1.7 years.
Performance Stock Units
Our 2020 Plan provides for the grant of Performance Stock Units ("PSUs"). A PSU is an award which may be earned in whole, or in part, upon the passage of time, and the attainment of performance criteria, and which may be settled for cash, shares, other securities or a combination thereof. The PSUs do not contain voting rights and are not entitled to dividends. The PSUs are subject to the terms and conditions contained in the applicable award agreement and our 2020 Plan. We annually award PSUs to certain members of management.
Each PSU represents a contingent right to receive a share of Boyd Gaming Corporation common stock; however, the actual number of common shares awarded is dependent upon the occurrence of: (i) a requisite service period; and (ii) an evaluation of specific performance conditions. The performance conditions are based on Company metrics such as net revenue growth, Earnings Before Interest, Taxes, Depreciation, Amortization and Rent ("EBITDAR") growth, EBITDAR margin growth and return on invested capital, all of which are determined over a period of time as defined in the grant agreement. Based upon actual and combined achievement, the number of shares awarded could range from zero, if no conditions are met, a 50% payout if only threshold performance is achieved, a payout of 100% for target performance, or a payout of up to 200% of the original award for achievement of maximum performance. Each condition weighs equally and separately in determining the payout and, based upon management's estimates at the service inception date, the Company is expected to meet the target for each performance condition. Therefore, the related compensation cost of these PSUs assumes all units granted will be awarded. Share-based compensation costs related to PSU awards are calculated based on the market price on the date of the grant.
These PSUs will vest three years from the service inception date, during which time achievement of the related performance conditions is periodically evaluated, and the number of shares expected to be awarded, and resulting compensation expense, is adjusted accordingly.
Performance Shares Vesting
The PSU grants awarded in fourth quarter 2018, 2017 and 2016 vested during first quarter 2022, 2021 and 2020, respectively. Common shares under the 2018 grant were issued based on the determination by the Compensation Committee of the Board of Directors of our actual achievement of net revenue growth and EBITDAR growth for the three-year performance of the grant. Common shares under the 2017 and 2016 grants were issued based on the determination by the Compensation Committee of the Board of Directors of our actual achievement of net revenue growth, 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 December 2018 resulted in a total of 408,609 shares being issued during first quarter 2022, representing approximately 1.58 shares per PSU. Of the 408,609 shares issued, a total of 114,265 were surrendered by the participants for payroll taxes, resulting in a net issuance of 294,344 shares due to the vesting of the 2018 grant. The actual achievement level under the award metrics equaled the estimated performance as of year-end 2021; therefore, the vesting of the PSUs did not impact compensation costs in our 2022 consolidated statement of operations.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
The PSU grant awarded in November 2017 resulted in a total of 90,444 shares being issued during first quarter 2021, representing approximately 0.33 shares per PSU. Of the 90,444 shares issued, a total of 30,129 were surrendered by the participants for payroll taxes, resulting in a net issuance of 60,315 shares due to the vesting of the 2017 grant. The actual achievement level under the award metrics equaled the estimated performance as of year-end 2020; therefore, the vesting of the PSUs did not impact compensation costs in our 2021 consolidated statement of operations.
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 the year-end 2019; therefore, the vesting of the PSUs did not impact compensation costs in our 2020 consolidated statement of operations.
Summarized PSU activity is as follows:
| | | | | | Weighted- | |
| | Performance | | | Average Grant | |
| | Stock Units | | | Date Fair Value | |
Outstanding at January 1, 2020 | | | 1,069,809 | | | | | |
Granted | | | — | | | $ | — | |
Performance Adjustment | | | 126,375 | | | | | |
Canceled | | | (11,328 | ) | | | | |
Awarded | | | (388,611 | ) | | | | |
Outstanding at December 31, 2020 | | | 796,245 | | | | | |
Granted | | | 127,250 | | | $ | 55.25 | |
Performance Adjustment | | | (180,861 | ) | | | | |
Canceled | | | (2,071 | ) | | | | |
Awarded | | | (92,774 | ) | | | | |
Outstanding at December 31, 2021 | | | 647,789 | | | | | |
Granted | | | 128,003 | | | $ | 68.41 | |
Performance Adjustment | | | 150,009 | | | | | |
Canceled | | | (2,466 | ) | | | | |
Awarded | | | (409,045 | ) | | | | |
Outstanding at December 31, 2022 | | | 514,290 | | | | | |
As of December 31, 2022, there was approximately $2.4 million of total unrecognized share-based compensation costs related to unvested PSUs, which is expected to be recognized over approximately 1.7 years. Based on the current estimates of performance compared to the targets set for the respective PSU grants, the Company estimates that approximately 0.9 million shares will be issued to settle the PSUs outstanding at December 31, 2022.
Career Shares
Our Career Shares Program is a stock incentive award program for certain executive officers to provide for additional capital accumulation opportunities for retirement. The program incentivizes and rewards executives for their period of service. Our Career Shares Program was adopted in December 2006, and modified in October 2010, as part of the overall update of our compensation programs. The Career Shares Program rewards eligible executives with annual grants of Boyd Gaming Corporation stock units, to be paid out at retirement. The payout at retirement is dependent upon the executive's age at such retirement and the number of years of service with the Company. Executives must be at least 55 years old and have at least 10 years of service to receive any payout at retirement. Career Shares do not contain voting rights and are not entitled to dividends. Career Shares are subject to the terms and conditions contained in the applicable award agreement and our 2020 Plan. The Career Share awards are tranched by specific term, in the following periods: 10 years, 15 years and 20 years of service. These grants vest over the remaining period of service required to fulfill the requisite years in each of these tranches, and compensation expense is recorded in accordance with the specific vesting provisions. Share-based compensation costs related to Career Shares awards are calculated based on the market price on the date of the grant.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Summarized Career Shares activity is as follows:
| | | | | | Weighted- | |
| | Restricted | | | Average Grant | |
| | Stock Units | | | Date Fair Value | |
Outstanding at January 1, 2020 | | | 1,062,311 | | | | | |
Granted | | | 51,262 | | | $ | 30.05 | |
Canceled | | | (5,816 | ) | | | | |
Awarded | | | (70,437 | ) | | | | |
Outstanding at December 31, 2020 | | | 1,037,320 | | | | | |
Granted | | | 36,123 | | | $ | 42.12 | |
Canceled | | | (1,295 | ) | | | | |
Awarded | | | (23,510 | ) | | | | |
Outstanding at December 31, 2021 | | | 1,048,638 | | | | | |
Granted | | | 24,388 | | | $ | 64.93 | |
Canceled | | | (2,251 | ) | | | | |
Awarded | | | (138,954 | ) | | | | |
Outstanding at December 31, 2022 | | | 931,821 | | | | | |
As of December 31, 2022, there was approximately $1.4 million of total unrecognized share-based compensation costs related to unvested Career Shares.
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 summarizes our share-based compensation costs by award type:
| | For the Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | | | 2020 | |
Restricted Stock Units | | $ | 16,210 | | | $ | 21,599 | | | $ | 11,131 | |
Performance Stock Units | | | 16,432 | | | | 14,883 | | | | (3,166 | ) |
Career Shares | | | 1,424 | | | | 1,291 | | | | 1,237 | |
Total share-based compensation costs | | $ | 34,066 | | | $ | 37,773 | | | $ | 9,202 | |
The PSU share based compensation credit for the year ended December 31, 2020 is due to a decline in the estimated achievement level as a result of the COVID-19 pandemic on Company performance.
The following table provides classification detail of the total costs related to our share-based employee compensation plans reported in our consolidated statements of operations:
| | For the Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | | | 2020 | |
Gaming | | $ | 909 | | | $ | 873 | | | $ | 539 | |
Food & beverage | | | 174 | | | | 167 | | | | 103 | |
Room | | | 82 | | | | 79 | | | | 49 | |
Selling, general and administrative | | | 4,618 | | | | 4,437 | | | | 2,738 | |
Corporate expense | | | 28,283 | | | | 32,217 | | | | 5,773 | |
Total share-based compensation expense | | $ | 34,066 | | | $ | 37,773 | | | $ | 9,202 | |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
NOTE 12. FAIR VALUE MEASUREMENTS
We have adopted the authoritative accounting guidance for fair value measurements, which does not determine or affect the circumstances under which fair value measurements are used, but defines fair value, expands disclosure requirements around fair value and 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.
As required by the guidance for fair value measurements, 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:
| | December 31, 2022 | |
(In thousands) | | Balance | | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 283,472 | | | $ | 283,472 | | | $ | — | | | $ | — | |
Restricted cash | | | 11,593 | | | | 11,593 | | | | — | | | | — | |
Investment available for sale | | | 13,670 | | | | — | | | | — | | | | 13,670 | |
| | December 31, 2021 | |
(In thousands) | | Balance | | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 344,557 | | | $ | 344,557 | | | $ | — | | | $ | — | |
Restricted cash | | | 12,571 | | | | 12,571 | | | | — | | | | — | |
Investment available for sale | | | 15,822 | | | | — | | | | — | | | | 15,822 | |
| | | | | | | | | | | | | | | | |
Liability | | | | | | | | | | | | | | | | |
Contingent payments | | $ | 62 | | | $ | — | | | $ | — | | | $ | 62 | |
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 December 31, 2022 and 2021.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Investment Available for Sale
We have an investment in a single municipal bond issuance of $17.8 million aggregate principal amount of 7.5% Urban Renewal Tax Increment Revenue Bonds, Taxable Series 2007 that is classified as available for sale with a maturity date of June 1, 2037. We are the only holder of this instrument and there is no quoted market price for this instrument. As such, the fair value of this investment is classified as Level 3 in the fair value hierarchy. The estimate of the fair value of such investment was determined using a combination of current market rates and estimates of market conditions for instruments with similar terms, maturities, and degrees of risk and a discounted cash flows analysis as of December 31, 2022 and 2021. The fair value of the investment is estimated using a discounted cash flows approach and the significant unobservable input used in the valuation as of December 31, 2022 and 2021 is a discount rate of 12.4% and 10.1%, 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 consolidated balance sheets and in the statement of other comprehensive income (loss). At December 31, 2022 and 2021, $0.7 million and $0.6 million, respectively, 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 December 31, 2022 and 2021, $13.0 million and $15.2 million, respectively, is included in other assets, net on the consolidated balance sheets. The discount associated with this investment of $2.2 million and $2.3 million as of December 31, 2022 and 2021, 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 consolidated statements of operations.
Contingent Payments
In connection with securing the Kansas Management Contract, Kansas Star agreed to pay a former casino project promoter 1% of Kansas Star’s EBITDA each month for a period of 10 years, which ended December 20, 2021. The liability was recorded at the estimated fair value of the contingent payments using a discounted cash flows approach. There was no liability at December 31, 2022 and at December 31, 2021, there was a current liability of $0.1 million, related to this agreement, which was recorded in accrued liabilities on the consolidated balance sheet.
The following tables summarize the changes in fair value of the Company’s Level 3 assets and liabilities:
| | December 31, 2022 | |
| | Asset | | | Liability | |
(In thousands) | | Investment Available for Sale | | | Contingent Payments | |
Balance at beginning of reporting period | | $ | 15,822 | | | $ | (62 | ) |
Total gains (losses) (realized or unrealized): | | | | | | | | |
Included in interest income (expense) | | | 167 | | | | — | |
Included in other comprehensive income (loss) | | | (1,684 | ) | | | — | |
Included in other items, net | | | — | | | | — | |
Purchases, sales, issuances and settlements: | | | | | | | | |
Settlements | | | (635 | ) | | | 62 | |
Balance at end of reporting period | | $ | 13,670 | | | $ | — | |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
| | December 31, 2021 | |
| | Asset | | | Liability | |
(In thousands) | | Investment Available for Sale | | | Contingent Payments | |
Balance at beginning of reporting period | | $ | 16,692 | | | $ | (924 | ) |
Total gains (losses) (realized or unrealized): | | | | | | | | |
Included in interest income (expense) | | | 161 | | | | (29 | ) |
Included in other comprehensive income (loss) | | | (441 | ) | | | — | |
Included in other items, net | | | — | | | | 52 | |
Purchases, sales, issuances and settlements: | | | | | | | | |
Settlements | | | (590 | ) | | | 839 | |
Balance at end of reporting period | | $ | 15,822 | | | $ | (62 | ) |
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 rate 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.
The fair value of indefinite-lived intangible assets, classified in the fair value hierarchy as Level 3, is utilized in performing the Company's impairment analyses (see Note 4, Intangible Assets).
Balances Disclosed at Fair Value
The following tables provide the fair value measurement information about our note receivable, our obligation under minimum assessment agreements and other financial instruments:
| | December 31, 2022 | |
| | Outstanding Face | | | Carrying | | | Estimated | | Fair Value | |
(In thousands) | | Amount | | | Value | | | Fair Value | | Hierarchy | |
Asset | | | | | | | | | | | | | | |
Note receivable | | $ | 118,162 | | | $ | 83,791 | | | $ | 82,338 | | Level 3 | |
Liabilities | | | | | | | | | | | | | | |
Obligation under assessment arrangements | | | 22,293 | | | | 19,304 | | | | 25,738 | | Level 3 | |
| | December 31, 2021 | |
| | Outstanding Face | | | Carrying | | | Estimated | | Fair Value | |
(In thousands) | | Amount | | | Value | | | Fair Value | | Hierarchy | |
Asset | | | | | | | | | | | | | | |
Note receivable | | $ | 103,574 | | | $ | 31,766 | | | $ | 35,108 | | Level 3 | |
Liabilities | | | | | | | | | | | | | | |
Obligation under assessment arrangements | | $ | 24,306 | | | $ | 20,734 | | | $ | 26,908 | | Level 3 | |
The following tables provide the fair value measurement information about our long-term debt:
| | December 31, 2022 | |
| | Outstanding Face | | | Carrying | | | Estimated | | Fair Value | |
(In thousands) | | Amount | | | Value | | | Fair Value | | Hierarchy | |
Credit Facility | | $ | 1,187,800 | | | $ | 1,169,935 | | | $ | 1,183,565 | | Level 2 | |
4.750% senior notes due 2027 | | | 1,000,000 | | | | 990,260 | | | | 928,750 | | Level 1 | |
4.750% senior notes due 2031 | | | 900,000 | | | | 888,540 | | | | 784,125 | | Level 1 | |
Other | | | 674 | | | | 674 | | | | 674 | | Level 3 | |
Total debt | | $ | 3,088,474 | | | $ | 3,049,409 | | | $ | 2,897,114 | | | |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
| | December 31, 2021 | |
| | Outstanding Face | | | Carrying | | | Estimated | | Fair Value | |
(In thousands) | | Amount | | | Value | | | Fair Value | | Hierarchy | |
Prior Credit Facility | | $ | 867,897 | | | $ | 859,106 | | | $ | 866,812 | | Level 2 | |
4.750% senior notes due 2027 | | | 1,000,000 | | | | 988,312 | | | | 1,023,750 | | Level 1 | |
8.625% senior notes due 2025 | | | 300,000 | | | | 295,934 | | | | 320,250 | | Level 1 | |
4.750% senior notes due 2031 | | | 900,000 | | | | 886,746 | | | | 915,750 | | Level 1 | |
Other | | | 1,496 | | | | 1,496 | | | | 1,496 | | Level 3 | |
Total debt | | $ | 3,069,393 | | | $ | 3,031,594 | | | $ | 3,128,058 | | | |
The estimated fair values of our note receivable and our obligation under assessment arrangements are based on a discounted cash flow approach after giving consideration to the changes in market rates of interest, creditworthiness of both parties and credit spreads. The estimated fair values of our Credit Facility and the Prior Credit Facility are based on a relative value analysis performed on or about December 31, 2022 and 2021. The estimated fair values of our senior notes are based on quoted market prices as of December 31, 2022 and 2021. The other debt is fixed-rate debt consisting of: (i) finance leases with various maturity dates from 2024 to 2025, and (ii) a purchase obligation that matured in July 2022. These other debt obligations are not traded and do not have observable market inputs; therefore, we have estimated fair value to be equal to the carrying value for these obligations.
Other than the retirement of the 8.625% Senior Notes (Level 1) in June 2022, that was funded through a combination of cash on hand and borrowings under the Credit Facility (Level 2), there were no transfers between Level 1, Level 2 and Level 3 measurements during the years ended December 31, 2022 and 2021.
NOTE 13. EMPLOYEE BENEFIT PLANS
We contribute to multiemployer pension defined benefit plans under terms of collective-bargaining agreements that cover our union-represented employees. Contributions, based on wages paid to covered employees, totaled approximately $1.2 million, $0.9 million and $1.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. These aggregate contributions were not individually significant to any of the respective plans. Our share of the unfunded vested liability related to multi-employer plans, if any, is not determinable and our participation is not individually significant on an individual multiemployer plan basis.
We have retirement savings plans under Section 401(k) of the Internal Revenue Code covering our non-union employees. The plans allow employees to defer up to the lesser of the Internal Revenue Code prescribed maximum amount or 100% of their income on a pre-tax basis through contributions to the plans. The expense of our voluntary contributions to the 401(k) profit-sharing plans and trusts, net of realized forfeitures, was $5.1 million, $3.4 million and $4.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.
NOTE 14. SEGMENT INFORMATION
We view each gaming entertainment property as an operating segment and have aggregated these operating segments in order to present three Reportable Segments: (i) Las Vegas Locals; (ii) Downtown Las Vegas; and (iii) Midwest & South. The table in Note 1, Summary of Significant Accounting Policies, lists the classification of each of our 28 gaming entertainment properties.
Results of Operations - Total Reportable Segment 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 extinguishments and modifications of debt, other items, net 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 gaming entertainment properties included in our Las Vegas Locals, Downtown Las Vegas, and Midwest & South segments. We aggregate non-reportable segments and other business activities with our Reportable Segments. Results for our Downtown Las Vegas segment include the results of our Hawaii-based travel agency and captive insurance company as our Downtown Las Vegas properties cater to the Hawaiian market. Our Midwest & South segment includes the results of the following non-reportable segments and business activities: (i) Lattner, our Illinois distributed gaming operator, whose operations were suspended on March 16, 2020, resumed on July 1, 2020, temporarily closed on November 20, 2020 and subsequently reopened on January 16, 2021; (ii) online gaming operations, which includes the operations of Pala Interactive, the online gaming technology company we acquired on November 1, 2022, and through our partnership with FanDuel Group and market access agreements with other operators, includes online operations in New Jersey, and as of December 31, 2022, six of the nine states in the Midwest & South segment where we operate our gaming entertainment properties; and (iii) management fees from our management agreement with Wilton Rancheria.
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
The following tables set forth, for the periods indicated, departmental revenues for our Reportable Segments:
| | Year Ended December 31, 2022 | |
| | | | | Food & | | | | | | | | | | | | | |
| | Gaming | | | Beverage | | | Room | | | Other | | | Total | |
(In thousands) | | Revenue | | | Revenue | | | Revenue | | | Revenue | | | Revenue | |
Revenues | | | | | | | | | | | | | | | | | | | | |
Las Vegas Locals | | $ | 700,230 | | | $ | 88,219 | | | $ | 87,726 | | | $ | 54,555 | | | $ | 930,730 | |
Downtown Las Vegas | | | 139,115 | | | | 41,578 | | | | 24,950 | | | | 9,689 | | | | 215,332 | |
Midwest & South | | | 1,835,385 | | | | 146,182 | | | | 76,395 | | | | 351,353 | | | | 2,409,315 | |
Total Revenues | | $ | 2,674,730 | | | $ | 275,979 | | | $ | 189,071 | | | $ | 415,597 | | | $ | 3,555,377 | |
| | Year Ended December 31, 2021 | |
| | | | | | Food & | | | | | | | | | | | | | |
| | Gaming | | | Beverage | | | Room | | | Other | | | Total | |
(In thousands) | | Revenue | | | Revenue | | | Revenue | | | Revenue | | | Revenue | |
Revenues | | | | | | | | | | | | | | | | | | | | |
Las Vegas Locals | | $ | 695,635 | | | $ | 74,771 | | | $ | 71,586 | | | $ | 44,062 | | | $ | 886,054 | |
Downtown Las Vegas | | | 105,539 | | | | 28,149 | | | | 15,042 | | | | 7,076 | | | | 155,806 | |
Midwest & South | | | 1,904,349 | | | | 127,125 | | | | 67,552 | | | | 228,924 | | | | 2,327,950 | |
Total Revenues | | $ | 2,705,523 | | | $ | 230,045 | | | $ | 154,180 | | | $ | 280,062 | | | $ | 3,369,810 | |
| | Year Ended December 31, 2020 | |
| | | | | | Food & | | | | | | | | | | | | | |
| | Gaming | | | Beverage | | | Room | | | Other | | | Total | |
(In thousands) | | Revenue | | | Revenue | | | Revenue | | | Revenue | | | Revenue | |
Revenues | | | | | | | | | | | | | | | | | | | | |
Las Vegas Locals | | $ | 430,303 | | | $ | 59,564 | | | $ | 45,446 | | | $ | 26,676 | | | $ | 561,989 | |
Downtown Las Vegas | | | 58,468 | | | | 18,647 | | | | 9,369 | | | | 8,019 | | | | 94,503 | |
Midwest & South | | | 1,286,587 | | | | 100,667 | | | | 50,153 | | | | 84,591 | | | | 1,521,998 | |
Total Revenues | | $ | 1,775,358 | | | $ | 178,878 | | | $ | 104,968 | | | $ | 119,286 | | | $ | 2,178,490 | |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
The following table reconciles, for the periods indicated, Total Reportable Segment Adjusted EBITDAR to net income, as reported in our accompanying consolidated statements of operations:
| | Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | | | 2020 | |
Adjusted EBITDAR | | | | | | | | | | | | |
Las Vegas Locals | | $ | 481,643 | | | $ | 473,187 | | | $ | 198,744 | |
Downtown Las Vegas | | | 86,049 | | | | 51,300 | | | | 1,075 | |
Midwest & South | | | 911,541 | | | | 926,955 | | | | 480,446 | |
Corporate expense | | | (88,724 | ) | | | (85,457 | ) | | | (70,371 | ) |
Adjusted EBITDAR | | | 1,390,509 | | | | 1,365,985 | | | | 609,894 | |
| | | | | | | | | | | | |
Other operating costs and expenses | | | | | | | | | | | | |
Deferred rent | | | 768 | | | | 828 | | | | 888 | |
Master lease rent expense | | | 106,616 | | | | 104,702 | | | | 101,907 | |
Depreciation and amortization | | | 258,179 | | | | 267,787 | | | | 281,031 | |
Share-based compensation expense | | | 34,066 | | | | 37,773 | | | | 9,202 | |
Project development, preopening and writedowns | | | (18,936 | ) | | | 31,815 | | | | (661 | ) |
Impairment of assets | | | 40,775 | | | | 8,200 | | | | 174,700 | |
Other operating items, net | | | (12,183 | ) | | | 14,776 | | | | 28,564 | |
Total other operating costs and expenses | | | 409,285 | | | | 465,881 | | | | 595,631 | |
Operating income | | | 981,224 | | | | 900,104 | | | | 14,263 | |
Other expense (income) | | | | | | | | | | | | |
Interest income | | | (21,530 | ) | | | (1,819 | ) | | | (1,900 | ) |
Interest expense, net of amounts capitalized | | | 151,249 | | | | 199,442 | | | | 230,484 | |
Loss on early extinguishments and modifications of debt | | | 19,815 | | | | 95,155 | | | | 1,791 | |
Other, net | | | 2,884 | | | | 3,387 | | | | (45,098 | ) |
Total other expense, net | | | 152,418 | | | | 296,165 | | | | 185,277 | |
Income before income taxes | | | 828,806 | | | | 603,939 | | | | (171,014 | ) |
Income tax provision | | | (189,429 | ) | | | (140,093 | ) | | | 36,314 | |
Net income | | $ | 639,377 | | | $ | 463,846 | | | $ | (134,700 | ) |
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:
| | December 31, | | | December 31, | |
(In thousands) | | 2022 | | | 2021 | |
Assets | | | | | | | | |
Las Vegas Locals | | $ | 1,613,553 | | | $ | 1,641,409 | |
Downtown Las Vegas | | | 265,876 | | | | 228,161 | |
Midwest & South | | | 4,040,681 | | | | 3,947,076 | |
Total Reportable Segment Assets | | | 5,920,110 | | | | 5,816,646 | |
Corporate | | | 391,017 | | | | 407,523 | |
Total Assets | | $ | 6,311,127 | | | $ | 6,224,169 | |
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020
Capital Expenditures
The Company's capital expenditures by Reportable Segment consisted of the following:
| | Year Ended December 31, | |
(In thousands) | | 2022 | | | 2021 | | | 2020 | |
Capital Expenditures | | | | | | | | | | | | |
Las Vegas Locals | | $ | 37,339 | | | $ | 24,724 | | | $ | 23,936 | |
Downtown Las Vegas | | | 52,423 | | | | 36,954 | | | | 15,150 | |
Midwest & South | | | 114,041 | | | | 90,994 | | | | 68,933 | |
Total Reportable Segment Capital Expenditures | | | 203,803 | | | | 152,672 | | | | 108,019 | |
Corporate | | | 67,874 | | | | 49,953 | | | | 66,767 | |
Total Capital Expenditures | | | 271,677 | | | | 202,625 | | | | 174,786 | |
Change in Accrued Capital Expenditure Additions | | | (2,522 | ) | | | (3,173 | ) | | | 244 | |
Cash-Based Capital Expenditures | | $ | 269,155 | | | $ | 199,452 | | | $ | 175,030 | |
The Company utilizes the Corporate entities to centralize the development of major renovation and other capital development projects that are included as construction in progress. After the project is complete, the corporate entities transfer the projects to the segment subsidiaries.
NOTE 15. RELATED PARTY TRANSACTIONS
Boyd Percentage Ownership
William S. Boyd, our Co-Executive Chair of the Board of Directors, together with his immediate family, beneficially owned approximately 27% of our outstanding shares of common stock as of December 31, 2022. As such, the Boyd family has the ability to significantly influence our affairs, including the election of members of our Board of Directors and, except as otherwise provided by law, approving or disapproving other matters submitted to a vote of our stockholders, including a merger, consolidation or sale of assets. For each of the years ended December 31, 2022, 2021 and 2020, there were no related party transactions between the Company and the Boyd family other than compensation, including salary and equity incentives.
NOTE 16. SUBSEQUENT EVENTS
We have evaluated all events or transactions that occurred after December 31, 2022. During this period, up to the filing date, other than the payment of the cash dividend disclosed in Note 11, Stockholders' Equity and Stock Incentive Plans, and the $0.16 per share cash dividend declared by the Board of Directors on February 14, 2023 and payable April 15, 2023 to shareholders of record on March 15, 2023, we did not identify any additional subsequent events, the effects of which would require disclosure or adjustment to our financial position or results of operations.