Document
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________
FORM 10-Q
 ____________________________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to              
Commission file number: 1-12882
___________________________________________________

image0a03a01a02a12.jpg
BOYD GAMING CORPORATION
(Exact name of registrant as specified in its charter)
 ____________________________________________________
Nevada
 
88-0242733
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
3883 Howard Hughes Parkway, Ninth Floor, Las Vegas, NV 89169
(Address of principal executive offices) (Zip Code)
(702) 792-7200
(Registrant's telephone number, including area code)
 ____________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
 
Accelerated filer
 
o
 
 
 
 
 
 
 
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
 
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
Class
 
Outstanding as of November 3, 2016
 
 
Common stock, $0.01 par value
 
112,484,580
 





BOYD GAMING CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2016
TABLE OF CONTENTS
 
 
 
Page
No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





PART I. Financial Information

Item 1.        Financial Statements (Unaudited)

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
 
September 30,
 
December 31,
(In thousands, except share data)
2016
 
2015
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
159,688

 
$
158,821

Restricted cash
23,292

 
19,030

Accounts receivable, net
26,936

 
25,289

Inventories
15,749

 
15,462

Prepaid expenses and other current assets
43,467

 
37,250

Income taxes receivable
1,168

 
1,380

Total current assets
270,300

 
257,232

Property and equipment, net
2,262,630

 
2,225,342

Other assets, net
51,766

 
48,341

Intangible assets, net
878,105

 
890,054

Goodwill, net
993,853

 
685,310

Investment in unconsolidated subsidiary held for sale
—

 
244,621

Total assets
$
4,456,654

 
$
4,350,900

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities
 
 
 
Current maturities of long-term debt
$
30,250

 
$
29,750

Accounts payable
88,141

 
75,803

Accrued liabilities
270,712

 
249,518

Total current liabilities
389,103

 
355,071

Long-term debt, net of current maturities and debt issuance costs
2,956,998

 
3,239,799

Deferred income taxes
98,814

 
162,189

Other long-term tax liabilities
3,275

 
3,085

Other liabilities
85,438

 
82,745

Commitments and contingencies (Notes 3 and 8)

 

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

 
—

Common stock, $0.01 par value, 200,000,000 shares authorized; 112,483,747 and 111,614,420 shares outstanding
1,125

 
1,117

Additional paid-in capital
953,511

 
945,041

Accumulated deficit
(32,098
)
 
(437,881
)
Accumulated other comprehensive income (loss)
438

 
(316
)
Total Boyd Gaming Corporation stockholders' equity
922,976

 
507,961

Noncontrolling interest
50

 
50

Total stockholders' equity
923,026

 
508,011

Total liabilities and stockholders' equity
$
4,456,654

 
$
4,350,900


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


3



BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands, except per share data)
2016
 
2015
 
2016
 
2015
Revenues
 
 
 
 
 
 
 
Gaming
$
443,568

 
$
457,397

 
$
1,359,047

 
$
1,390,734

Food and beverage
74,257

 
76,713

 
226,955

 
230,918

Room
42,985

 
41,649

 
128,225

 
123,334

Other
29,579

 
32,379

 
90,738

 
92,706

Gross revenues
590,389

 
608,138

 
1,804,965

 
1,837,692

Less promotional allowances
58,488

 
61,825

 
175,812

 
180,934

Net revenues
531,901

 
546,313

 
1,629,153

 
1,656,758

Operating costs and expenses
 
 
 
 
 
 
 
Gaming
217,103

 
225,653

 
658,396

 
677,036

Food and beverage
40,745

 
41,900

 
124,664

 
126,380

Room
11,247

 
10,765

 
33,039

 
31,494

Other
18,660

 
21,548

 
56,819

 
60,938

Selling, general and administrative
80,833

 
79,954

 
241,686

 
242,656

Maintenance and utilities
27,854

 
29,030

 
76,711

 
80,965

Depreciation and amortization
47,928

 
51,345

 
143,831

 
155,251

Corporate expense
15,877

 
15,009

 
49,883

 
52,013

Project development, preopening and writedowns
3,735

 
1,514

 
11,473

 
4,218

Impairments of assets
—

 
—

 
1,440

 
1,065

Other operating items, net
3

 
172

 
555

 
342

Total operating costs and expenses
463,985

 
476,890

 
1,398,497

 
1,432,358

Operating income
67,916

 
69,423

 
230,656

 
224,400

Other expense (income)
 
 
 
 
 
 
 
Interest income
(1,050
)
 
(460
)
 
(2,506
)
 
(1,396
)
Interest expense, net of amounts capitalized
55,203

 
56,558

 
170,155

 
170,624

Loss on early extinguishments and modifications of debt
41,518

 
863

 
42,364

 
32,333

Other, net
1

 
1,753

 
143

 
3,641

Total other expense, net
95,672

 
58,714

 
210,156

 
205,202

Income (loss) from continuing operations before income taxes
(27,756
)
 
10,709

 
20,500

 
19,198

Income taxes benefit (provision)
189,620

 
(3,694
)
 
174,231

 
5,931

Income from continuing operations, net of tax
161,864

 
7,015

 
194,731

 
25,129

Income from discontinued operations, net of tax
180,707

 
18,410

 
211,052

 
28,974

Net income
$
342,571

 
$
25,425

 
$
405,783

 
$
54,103

 
 
 
 
 
 
 
 
Basic net income per common share
 
 
 
 
 
 
 
Continuing operations
$
1.41

 
$
0.06

 
$
1.70

 
$
0.22

Discontinued operations
1.58

 
0.17

 
1.85

 
0.26

Basic net income per common share
$
2.99

 
$
0.23

 
$
3.55

 
$
0.48

Weighted average basic shares outstanding
114,567

 
112,608

 
114,335

 
112,100

 
 
 
 
 
 
 
 
Diluted net income per common share
 
 
 
 
 
 
 
Continuing operations
$
1.40

 
$
0.06

 
$
1.69

 
$
0.22

Discontinued operations
1.57

 
0.16

 
1.84

 
0.26

Diluted net income per common share
$
2.97

 
$
0.22

 
$
3.53

 
$
0.48

Weighted average diluted shares outstanding
115,202

 
113,375

 
115,051

 
112,930


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

4



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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2016
 
2015
 
2016
 
2015
Net income
$
342,571

 
$
25,425

 
$
405,783

 
$
54,103

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Fair value adjustments to available-for-sale securities, net of tax
417

 
642

 
754

 
(121
)
Comprehensive income attributable to Boyd Gaming Corporation
$
342,988

 
$
26,067

 
$
406,537

 
$
53,982


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

5



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

 
Boyd Gaming Corporation Stockholders' Equity
 
 
 
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss), Net
 
Noncontrolling
Interest
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except share data)
Shares
 
Amount
 
 
 
 
 
Balances, January 1, 2016
111,614,420

 
$
1,117

 
$
945,041

 
$
(437,881
)
 
$
(316
)
 
$
50

 
$
508,011

Net income
—

 
—

 
—

 
405,783

 
—

 
—

 
405,783

Comprehensive income attributable to Boyd
—

 
—

 
—

 
—

 
754

 
—

 
754

Stock options exercised
449,065

 
4

 
2,909

 
—

 
—

 
—

 
2,913

Release of restricted stock units, net of tax
261,235

 
2

 
(695
)
 
—

 
—

 
—

 
(693
)
Release of performance stock units, net of tax
159,027

 
2

 
(869
)
 
—

 
—

 
—

 
(867
)
Share-based compensation costs
—

 
—

 
7,125

 
—

 
—

 
—

 
7,125

Balances, September 30, 2016
112,483,747

 
$
1,125

 
$
953,511

 
$
(32,098
)
 
$
438

 
$
50

 
$
923,026

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances, January 1, 2015
109,277,060

 
$
1,093

 
$
922,112

 
$
(485,115
)
 
$
(53
)
 
$
50

 
$
438,087

Net income
—

 
—

 
—

 
54,103

 
—

 
—

 
54,103

Comprehensive income attributable to Boyd
—

 
—

 
—

 
—

 
(121
)
 
—

 
(121
)
Stock options exercised
1,145,302

 
11

 
8,595

 
—

 
—

 
—

 
8,606

Release of restricted stock units, net of tax
118,319

 
1

 
(286
)
 
—

 
—

 
—

 
(285
)
Release of performance stock units, net of tax
481,749

 
5

 
(2,451
)
 
—

 
—

 
—

 
(2,446
)
Share-based compensation costs
—

 
—

 
8,227

 
—

 
—

 
—

 
8,227

Balances, September 30, 2015
111,022,430

 
$
1,110

 
$
936,197

 
$
(431,012
)
 
$
(174
)
 
$
50

 
$
506,171


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


6
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


 
Nine Months Ended
 
September 30,
(In thousands)
2016
 
2015
Cash Flows from Operating Activities
 
 
 
Net income
$
405,783

 
$
54,103

Net (income) from discontinued operations
(211,052
)
 
(28,974
)
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
143,831

 
155,251

Amortization of debt financing costs and discounts on debt
12,654

 
16,576

Share-based compensation expense
7,125

 
8,227

Deferred income taxes
(177,106
)
 
17,194

Non-cash impairment of assets
1,440

 
1,065

Loss on early extinguishments and modifications of debt
42,364

 
32,333

Other operating activities
1,200

 
(341
)
Changes in operating assets and liabilities:
 
 
 
Restricted cash
(4,262
)
 
(6,626
)
Accounts receivable, net
2,045

 
2,220

Inventories
733

 
55

Prepaid expenses and other current assets
(2,919
)
 
(5,131
)
Current other tax asset
—

 
1,802

Income taxes receivable
212

 
1,243

Other assets, net
(759
)
 
2,149

Accounts payable and accrued liabilities
32,731

 
11,997

Other long-term tax liabilities
190

 
(25,580
)
Other liabilities
2,696

 
3,886

Net cash provided by operating activities
256,906

 
241,449

Cash Flows from Investing Activities
 
 
 
Capital expenditures
(117,330
)
 
(86,997
)
Cash paid for acquisition, net of cash received
(372,322
)
 
—

Other investing activities
2,719

 
3,777

Net cash used in investing activities
(486,933
)
 
(83,220
)
Cash Flows from Financing Activities
 
 
 
Borrowings under Boyd Gaming bank credit facility
1,622,075

 
627,000

Payments under Boyd Gaming bank credit facility
(1,290,800
)
 
(949,700
)
Borrowings under Peninsula bank credit facility
237,000

 
262,100

Payments under Peninsula bank credit facility
(899,750
)
 
(335,550
)
Proceeds from issuance of senior notes
750,000

 
750,000

Retirements of senior notes
(700,000
)
 
(500,000
)
Debt financing costs, net
(40,718
)
 
(14,001
)
Premium and consent fees paid
(15,750
)
 
(24,246
)
Share-based compensation activities, net
1,353

 
5,875

Other financing activities
—

 
(3
)
Net cash used in financing activities
(336,590
)
 
(178,525
)
Cash Flows from Discontinued Operations
 
 
 
Cash flows from operating activities
(26,596
)
 
—

Cash flows from investing activities
594,080

 
—

Cash flows from financing activities
—

 
—

Net cash provided by discontinued operations
567,484

 
—

Change in cash and cash equivalents
867

 
(20,296
)
Cash and cash equivalents, beginning of period
158,821

 
145,341

Cash and cash equivalents, end of period
$
159,688

 
$
125,045

Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid for interest, net of amounts capitalized
$
147,001

 
$
137,128

Cash paid (received) for income taxes, net of refunds
31,698

 
(1,246
)
Supplemental Schedule of Noncash Investing and Financing Activities
 
 
 
Payables incurred for capital expenditures
$
4,208

 
$
5,031

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

7



BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________
NOTE 1.    ORGANIZATION AND BASIS OF PRESENTATION
Organization
Boyd Gaming Corporation (and together with its subsidiaries, the "Company," "Boyd Gaming," "we" or "us") was incorporated in the state of Nevada in 1988 and has been operating since 1975. The Company's common stock is traded on the New York Stock Exchange under the symbol "BYD."

We are a diversified operator of 22 wholly owned gaming entertainment properties. Headquartered in Las Vegas, we have gaming operations in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana and Mississippi.

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and footnote disclosures necessary for complete financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"). These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the U.S. Securities and Exchange Commission ("SEC") on February 25, 2016.

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

On September 27, 2016, we completed our previously announced acquisition of ALST Casino Holdco, LLC ("ALST"), pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated as of April 21, 2016, as amended on September 26, 2016, by and among Boyd Gaming, Boyd TCII Acquisition, LLC, a wholly-owned subsidiary of Boyd Gaming ("Merger Sub"), and ALST. The net purchase price, after adjustment for working capital and other items, was $372.3 million. The acquired assets and liabilities of ALST are included in our condensed consolidated balance sheet as of September 30, 2016, and the results of its operations and cash flows are reported in our condensed consolidated statements of operations and cash flows from September 27, 2016 through September 30, 2016. See Note 3, Acquisitions and Divestitures, for further information. We have not disclosed the pro forma impact of this acquisition to the results of operations for the three and nine months ended September 30, 2016, as the pro forma impact was deemed immaterial.

The accompanying condensed consolidated financial statements include the accounts of Boyd Gaming and its wholly owned subsidiaries. Investments in unconsolidated affiliates, which do not meet the consolidation criteria of the authoritative accounting guidance for voting interest, controlling interest or variable interest entities, are accounted for under the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation. On May 31, 2016, we announced that we had entered into an Equity Purchase Agreement (the "Purchase Agreement") to sell our 50% equity interest in Marina District Development Holding Company, LLC ("MDDHC"), the parent company of Borgata Hotel Casino & Spa ("Borgata"), to MGM Resorts International ("MGM"), and the transaction closed on August 1, 2016. (See Note 3, Acquisitions and Divestitures.) We account for our investment in Borgata applying the equity method and report its results as discontinued operations for all periods presented in these condensed consolidated financial statements.

Revisions and Reclassifications
The financial information for the three and nine months ended September 30, 2015 is derived from our condensed consolidated financial statements and footnotes included in the Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and has been revised to reflect the results of operations and cash flows of our equity investment in Borgata as discontinued operations. (See Note 3, Acquisitions and Divestitures.)

Asset transaction costs that were previously disaggregated in our condensed consolidated statement of operations for the three and nine months ended September 30, 2015 were accumulated with preopening expenses. This reclassification had no effect on our retained earnings or net income as previously reported.


8
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

Amortization of debt financing costs and amortization of discounts on debt, which were previously disaggregated in our condensed consolidated statement of cash flows for the nine months ended September 30, 2015, were combined. This reclassification had no effect on our cash provided by operating activities as previously reported.

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

Promotional Allowances
The retail value of accommodations, food and beverage, and other services furnished to guests without charge is included in gross revenues and then deducted as a promotional allowance. Promotional allowances also include incentives earned in our slot bonus program such as cash and the estimated retail value of goods and services (such as complimentary rooms and food and beverages). We reward customers, through the use of bonus programs, with points based on amounts wagered that can be redeemed for a specified period of time for complimentary slot play, food and beverage, and to a lesser extent for other goods or services, depending upon the property.

The amounts included in promotional allowances are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2016
 
2015
 
2016
 
2015
Rooms
$
18,778

 
$
19,573

 
$
56,017

 
$
57,505

Food and beverage
36,528

 
38,139

 
109,640

 
112,984

Other
3,182

 
4,113

 
10,155

 
10,445

Total promotional allowances
$
58,488

 
$
61,825

 
$
175,812

 
$
180,934


The estimated costs of providing such promotional allowances are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2016
 
2015
 
2016
 
2015
Rooms
$
8,307

 
$
8,988

 
$
24,797

 
$
26,240

Food and beverage
32,611

 
33,925

 
96,724

 
99,874

Other
3,041

 
3,214

 
9,021

 
8,889

Total estimated cost of promotional allowances
$
43,959

 
$
46,127

 
$
130,542

 
$
135,003


Gaming Taxes
We are subject to taxes based on gross gaming revenues in the jurisdictions in which we operate. These gaming taxes are assessed based on our gaming revenues and are recorded as a gaming expense in the condensed consolidated statements of operations. These taxes totaled approximately $79.7 million and $83.2 million for the three months ended September 30, 2016 and 2015, respectively, and $243.8 million and $252.1 million for the nine months ended September 30, 2016 and 2015, respectively.

Income Taxes
Income taxes are recorded under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We reduce the carrying amounts of deferred tax assets by a valuation allowance, if after weighing all positive and negative 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

9
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

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.

In performing our third quarter valuation allowance analysis, we determined that the positive evidence in favor of releasing the valuation allowance, particularly evidence that was objectively verifiable, outweighed the negative evidence. We utilize a rolling twelve quarters of pretax income adjusted for permanent book to tax differences as a measure of cumulative results in recent years. We transitioned from a cumulative loss position to a cumulative income position over the rolling twelve quarters ended September 30, 2016. Other evidence considered in the analysis included, but was not limited to, a trend reflective of improvement in recent earnings, forecasts of profitability and taxable income and the reversal of existing temporary differences. The change in these conditions during the three months ended September 30, 2016 provided positive evidence that supported the release of the valuation allowance against a significant portion of our deferred tax assets. As such, we concluded that it was more likely than not that the benefit from our deferred tax assets would be realized. As a result, during the third quarter, we released $190.4 million of valuation allowance on our federal and unitary state income tax net operating loss carryforwards and other deferred tax assets.

For the nine months ended September 30, 2015, we computed our benefit for income taxes by applying the actual effective tax rate, under the discrete method, to year-to-date income. The discrete method was used to calculate our income tax benefit as the annual effective tax rate was not considered a reliable estimate of year-to-date income tax benefit.

Our tax rate is impacted by adjustments that are largely independent of our operating results before taxes. In the current year, such adjustments relate primarily to the release of our valuation allowance on a significant portion of our deferred tax assets. In the prior year, the adjustments relate primarily to changes in our valuation allowance and the accrual of non-cash tax expense in connection with the tax amortization of indefinite-lived intangible assets that are not available to offset existing deferred tax assets.  The deferred tax liabilities created by the tax amortization of these intangibles cannot be used to offset corresponding increases in the net operating loss deferred tax assets when determining our valuation allowance.

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 balance sheet.

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


10
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

Recently Issued Accounting Pronouncements
Accounting Standards Update 2016-15, Statement of Cash Flows ("Update 2016-15")
In August 2016, the Financial Accounting Standards Board ("FASB") issued Update 2016-15, which amends the guidance on the classification of certain cash receipts and payments in the statement of cash flows. The Accounting Standards Update ("ASU") is intended to reduce the lack of consistent principles on certain classifications such as debt prepayment, debt extinguishment costs, distributions, insurance claims and beneficial interest in securitization transactions. The standard is effective for financial statements issued for annual periods and interim periods within those annual periods beginning after December 15, 2017, and early adoption is permitted. The Company is evaluating the impact of the adoption of Update 2016-15 to the financial statements.

Accounting Standards Update 2016-13, Financial Instruments-Credit Losses ("Update 2016-13")
In June 2016, the FASB issued Update 2016-13, which amends the guidance on the impairment of financial instruments. Update 2016-13 adds to GAAP an impairment model (known as the current expected credit loss ("CECL") model) that is based on expected losses rather than incurred losses. The standard is effective for financial statements issued for annual periods and interim periods within those annual periods beginning after December 15, 2019, and early adoption is permitted. The Company is evaluating the impact of the adoption of Update 2016-13 to the financial statements.

Accounting Standards Update 2016-12, Revenue from Contracts with Customers - Narrow-Scope Improvements and Practical Expedients ("Update 2016-12"); Accounting Standards Update 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting ("Update 2016-11"); Accounting Standards Update 2016-10, Revenue from Contracts with Customers - Identifying Performance Obligations and Licensing ("Update 2016-10"); and Accounting Standards Update 2016-08, Revenue from Contracts with Customers - Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("Update 2016-08")
In March 2016 through May 2016, the FASB issued Update 2016-08, Update 2016-10, Update 2016-11 and Update 2016-12, which amend and further clarify the new revenue standard, Accounting Standards Update 2014-09, Revenue from Contracts with Customers ("Update 2014-09"), which was subsequently amended and deferred in Accounting Standards Update 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date ("Update 2015-14", and collectively with the original standard, Update 2014-09, and subsequent amendments, Update 2016-08, Update 2016-10, Update 2016-11 and Update 2016-12, the "Revenue Standard"). The Revenue Standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Earlier application is permitted only for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company is evaluating the impact of the Revenue Standard on its consolidated financial statements.

Accounting Standards Update 2016-09, Compensation - Stock Compensation ("Update 2016-09")
In March 2016, the FASB issued Update 2016-09 which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The standard is effective for financial statements issued for annual periods and interim periods within those annual periods beginning after December 15, 2016, and early adoption is permitted. The Company is evaluating the impact of the adoption of Update 2016-09 to the financial statements.

Accounting Standards Update 2016-07, Investments - Equity Method and Joint Ventures ("Update 2016-07")
In March 2016, the FASB issued Update 2016-07 which simplifies the equity method of accounting by eliminating the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. The standard is effective for financial statements issued for annual periods and interim periods within those annual periods beginning after December 15, 2016, and early adoption is permitted. The Company determined that the impact of the new standard on its consolidated financial statements will not be material.

Accounting Standards Update 2016-02, Leases ("Update 2016-02")
In February 2016, the FASB issued Update 2016-02 which requires the recognition of lease assets and lease liabilities on the balance sheet and the disclosure of key information about leasing arrangements. The standard is effective for financial statements issued for annual periods and interim periods within those annual periods beginning after December 15, 2018, and early adoption is permitted. The Company is evaluating the impact of the adoption of Update 2016-02 to the financial statements.

11
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________


Accounting Standards Update 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities ("Update 2016-01")
In January 2016, the FASB issued Update 2016-01, which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted only if explicit early adoption guidance is applied. The Company is evaluating the impact of the new standard on its consolidated financial statements.

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

NOTE 3.    ACQUISITIONS AND DIVESTITURES
Acquisition - Aliante Casino + Hotel + Spa
Overview
On September 27, 2016, Boyd Gaming completed its previously announced acquisition of ALST, the holding company of Aliante Gaming, LLC ("Aliante"), the owner and operator of the Aliante Casino + Hotel + Spa, pursuant to the Merger Agreement. Pursuant to the Merger Agreement, Merger Sub merged (the "Merger") with and into ALST, with ALST surviving the Merger. ALST and Aliante are now wholly-owned subsidiaries of Boyd Gaming. Aliante is an upscale, resort-style casino and hotel situated in North Las Vegas and offering premium accommodations, gaming, dining, entertainment and retail, and is aggregated into our Las Vegas Locals segment (See Note 11, Segment Information.) The acquired assets and liabilities of ALST and Aliante are included in our condensed consolidated balance sheet as of September 30, 2016, and the results of its operations and cash flows are reported in our condensed consolidated statements of operations and cash flows from September 27, 2016 through September 30, 2016. The net purchase price was $372.3 million.

Consideration Transferred
The fair value of the consideration transferred on the acquisition date included the purchase price of the net assets transferred. The total gross consideration was $399.1 million.

Status of Purchase Price Allocation
For purposes of these financial statements, we have allocated the purchase price to the assets acquired and the liabilities assumed based on their respective net book values as reflected in the accounting records of ALST. The excess of the purchase price over the net book value of the assets acquired and liabilities assumed has been recorded as goodwill. The Company will recognize the assets acquired and liabilities assumed in the Merger based on fair value estimates as of the date of the Merger. The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) is currently in process. This determination requires significant judgment. As such, management has not completed its valuation analysis and calculations in sufficient detail necessary to arrive at estimates of the fair value of the assets acquired and liabilities assumed, along with the related allocations of goodwill and intangible assets. The final fair value determinations are expected to be completed during the fourth quarter of 2016. The final fair value determinations may be significantly different than those reflected in the consolidated financial statements at September 30, 2016.

Acquisition Method of Accounting
The Company is following the acquisition method of accounting per Accounting Standards Codification ("ASC") 805 guidance. In accordance with ASC 805, the Company will allocate the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their fair values, which will be determined primarily by management with assistance from third-party appraisals. The excess of the purchase price over those fair values will be recorded as goodwill.


12
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

The following table summarizes the preliminary allocation of the purchase price:
(In thousands)
As Recorded
Current assets
$
31,886

Property and equipment, net
60,618

Other assets
4,441

Total acquired assets
96,945

Current liabilities
5,693

Other liabilities
636

Total liabilities assumed
6,329

Net identifiable assets acquired
90,616

Goodwill
308,530

Net assets acquired
$
399,146


The following table summarizes the preliminary values assigned to acquired property and equipment and estimated useful lives:
(In thousands)
Useful Lives
 
As Recorded
Land
 
 
$
6,200

Buildings and improvements
10 - 45 years
 
47,945

Furniture and equipment
3 - 7 years
 
5,831

Construction in progress
 
 
642

Property and equipment acquired
 
 
$
60,618


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

The Company recognized $0.9 million and $1.9 million of acquisition related costs that were expensed for the three and nine months ended September 30, 2016, respectively. These costs are included in the condensed consolidated statements of operations in the line item entitled "Project development, preopening and writedowns".

Condensed Consolidated Statement of Operations for the period from September 27, 2016 through September 30, 2016
The following supplemental information presents the financial results of Aliante included in the Company's condensed consolidated statement of operations for the three and nine months ended September 30, 2016:
 
Period from
 
September 27 to
(In thousands)
September 30, 2016
Net revenues
$
1,040

Net income
$
248


Pending Acquisition - Cannery Casino Hotel and Nevada Palace, LLC
On April 25, 2016, Boyd Gaming announced it has entered into a definitive agreement to acquire The Cannery Hotel and Casino, LLC ("Cannery"), the owner and operator of Cannery Casino Hotel located in North Las Vegas, and Nevada Palace, LLC ("Eastside"), the owner and operator of Eastside Cannery Casino and Hotel located in the eastern part of the Las Vegas Valley, comprising the Las Vegas assets of Cannery Casino Resorts, LLC ("CCR"), for total cash consideration of $230 million, subject to adjustment based on the working capital, including cash and less indebtedness of the acquired assets and less any transaction expenses.

Boyd Gaming will acquire Cannery and Eastside pursuant to a Membership Interest Purchase Agreement (the "Cannery Purchase Agreement") entered into on April 25, 2016, by and among, Boyd Gaming, CCR, Cannery and Eastside. The Cannery Purchase Agreement provides that, pursuant to the terms and subject to the conditions set forth therein, Boyd Gaming will acquire from

13
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

CCR all of the issued and outstanding membership interests of Cannery and Eastside (the "Cannery Purchase"), such that, following the Cannery Purchase, Cannery and Eastside will be wholly-owned subsidiaries of Boyd Gaming.

The Cannery Purchase Agreement contains customary representations, warranties, covenants and termination rights. In addition, $20 million of the cash consideration will be placed in escrow to satisfy the indemnification obligations of CCR.

On October 28, 2016, Boyd Gaming, Cannery, Eastside and CCR entered into an amendment to the Cannery Purchase Agreement (the "Cannery Purchase Amendment") to extend the outside date for the Closing (as defined in the Cannery Purchase Agreement) from October 31, 2016 to December 31, 2016.

The completion of the Cannery Purchase is subject to customary conditions and the receipt of all required regulatory approvals, including, among others, approval by the Nevada Gaming Commission and the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Subject to the satisfaction or waiver of the respective conditions in the Cannery Purchase Agreement, we currently expect the Cannery Purchase to close before the end of 2016.

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

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

Pursuant to the Purchase Agreement, MGM acquired from Boyd Gaming 49% of its 50% membership interest in MDDHC and, immediately thereafter, MDDHC redeemed Boyd Gaming’s remaining 1% membership interest in MDDHC (collectively, the "Transaction"). Following the Transaction, MDDHC became a wholly-owned subsidiary of MGM.

In consideration for the Transaction, MGM paid Boyd Gaming $900 million. The initial net cash proceeds were approximately $589 million, net of certain expenses and adjustments on the closing date, including outstanding indebtedness, cash and working capital. These initial proceeds do not include our 50% share of any future property tax settlement benefits, from the time period during which we held a 50% ownership in MDDHC, to which Boyd Gaming retains the right to receive upon payment. During third quarter 2016, we recognized $4.3 million in income for the cash we received for our share of property tax benefits realized by Borgata subsequent to the closing of the sale. Borgata estimates that it is entitled to additional property tax refunds totaling between $140 million and $160 million, including amounts due under court decisions rendered in its favor and estimates for open tax appeals.

We reflect the results of operations and cash flows from our investment in Borgata as discontinued operations for all periods presented in these condensed consolidated financial statements.

The after-tax gain on the sale of Borgata was $181.7 million and is included in discontinued operations in the three and nine months ended September 30, 2016.

14
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________


Summarized income statement information for Borgata is as follows:
 
Period from
 
Period from
 
July 1 to
 
January 1 to
 
July 31,
 
July 31,
(In thousands)
2016
 
2016
Net revenues
$
91,870

 
$
485,510

Operating expenses
63,997

 
366,812

Operating income
27,873

 
118,698

Non-operating expenses
6,104

 
36,280

Net income
$
21,769

 
$
82,418

 
Three Months
 
Nine Months
 
Ended
 
Ended
 
September 30,
 
September 30,
(In thousands)
2015
 
2015
Net revenues
$
237,461

 
$
611,213

Operating expenses
175,248

 
495,473

Operating income
62,213

 
115,740

Non-operating expenses
25,363

 
58,909

Net income
$
36,850

 
$
56,831


NOTE 4.    PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
 
September 30,
 
December 31,
(In thousands)
2016
 
2015
Land
$
234,186

 
$
229,857

Buildings and improvements
2,618,837

 
2,539,578

Furniture and equipment
1,212,038

 
1,152,277

Riverboats and barges
238,846

 
238,743

Construction in progress
68,735

 
42,497

Other
5,388

 
7,404

Total property and equipment
4,378,030

 
4,210,356

Less accumulated depreciation
2,115,400

 
1,985,014

Property and equipment, net
$
2,262,630

 
$
2,225,342


Other property and equipment presented in the table above relates to the estimated net realizable value of construction materials inventory that was not disposed of with the 2013 sale of the Echelon development project. Such assets are not in service and are not currently being depreciated.

Depreciation expense is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2016
 
2015
 
2016
 
2015
Depreciation expense
$
44,010

 
$
44,643

 
$
131,832

 
$
134,904



15
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

NOTE 5.    INTANGIBLE ASSETS
Intangible assets consist of the following:
 
September 30, 2016
 
Weighted
 
Gross
 
 
 
Cumulative
 
 
 
Average Life
 
Carrying
 
Cumulative
 
Impairment
 
Intangible
(In thousands)
Remaining
 
Value
 
Amortization
 
Losses
 
Assets, Net
Amortizing intangibles
 
 
 
 
 
 
 
 
 
Customer relationships
1.1 years
 
$
136,300

 
$
(121,147
)
 
$
—

 
$
15,153

Favorable lease rates
31.7 years
 
45,370

 
(12,779
)
 
—

 
32,591

Development agreement
—
 
21,373

 
—

 
—

 
21,373

 
 
 
203,043

 
(133,926
)
 
—

 
69,117

 
 
 
 
 
 
 
 
 
 
Indefinite lived intangible assets
 
 
 
 
 
 
 
 
 
Trademarks
Indefinite
 
129,487

 
—

 
(3,500
)
 
125,987

Gaming license rights
Indefinite
 
873,335

 
(33,960
)
 
(156,374
)
 
683,001

 
 
 
1,002,822

 
(33,960
)
 
(159,874
)
 
808,988

Balance, September 30, 2016
 
 
$
1,205,865

 
$
(167,886
)
 
$
(159,874
)
 
$
878,105


 
December 31, 2015
 
Weighted
 
Gross
 
 
 
Cumulative
 
 
 
Average Life
 
Carrying
 
Cumulative
 
Impairment
 
Intangible
(In thousands)
Remaining
 
Value
 
Amortization
 
Losses
 
Assets, Net
Amortizing intangibles
 
 
 
 
 
 
 
 
 
Customer relationships
1.9 years
 
$
136,300

 
$
(109,994
)
 
$
—

 
$
26,306

Favorable lease rates
32.4 years
 
45,370

 
(11,997
)
 
—

 
33,373

Development agreement
—
 
21,373

 
—

 
—

 
21,373

 
 
 
203,043

 
(121,991
)
 
—

 
81,052

 
 
 
 
 
 
 
 
 
 
Indefinite lived intangible assets
 
 
 
 
 
 
 
 
 
Trademarks
Indefinite
 
129,501

 
—

 
(3,500
)
 
126,001

Gaming license rights
Indefinite
 
873,335

 
(33,960
)
 
(156,374
)
 
683,001

 
 
 
1,002,836

 
(33,960
)
 
(159,874
)
 
809,002

Balance, December 31, 2015
 
 
$
1,205,879

 
$
(155,951
)
 
$
(159,874
)
 
$
890,054


NOTE 6.    ACCRUED LIABILITIES
Accrued liabilities consist of the following:
 
September 30,
 
December 31,
(In thousands)
2016
 
2015
Payroll and related expenses
$
64,242

 
$
71,815

Interest
44,080

 
35,337

Gaming liabilities
42,268

 
37,496

Player loyalty program liabilities
18,280

 
18,491

Other accrued liabilities
101,842

 
86,379

Total accrued liabilities
$
270,712

 
$
249,518



16
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

NOTE 7.    LONG-TERM DEBT
Long-term debt, net of current maturities consists of the following:
 
 
 
September 30, 2016
 
Interest
 
 
 
 
 
Unamortized
 
 
 
Rates at
 
Outstanding
 
Unamortized
 
Origination
 
Long-Term
(In thousands)
Sept. 30, 2016
 
Principal
 
Discount
 
Fees and Costs
 
Debt, Net
Bank credit facility
3.54
%
 
$
1,541,000

 
$
(1,986
)
 
$
(28,483
)
 
$
1,510,531

6.875% senior notes due 2023
6.88
%
 
750,000

 
—

 
(11,648
)
 
738,352

6.375% senior notes due 2026
6.38
%
 
750,000

 
—

 
(12,270
)
 
737,730

Other
5.80
%
 
635

 
—

 
—

 
635

Total long-term debt
 
 
3,041,635

 
(1,986
)
 
(52,401
)
 
2,987,248

Less current maturities
 
 
30,250

 
—

 
—

 
30,250

Long-term debt, net
 
 
$
3,011,385

 
$
(1,986
)
 
$
(52,401
)
 
$
2,956,998


 
 
 
December 31, 2015
 
Interest
 
 
 
 
 
Unamortized
 
 
 
Rates at
 
Outstanding
 
Unamortized
 
Origination
 
Long-Term
(In thousands)
Dec. 31, 2015
 
Principal
 
Discount
 
Fees and Costs
 
Debt, Net
Boyd Gaming Corporation Debt
 
 
 
 
 
 
 
 
 
Bank credit facility
3.75
%
 
$
1,209,725

 
$
(2,702
)
 
$
(9,746
)
 
$
1,197,277

9.00% senior notes due 2020
9.00
%
 
350,000

 
—

 
(7,044
)
 
342,956

6.875% senior notes due 2023
6.88
%
 
750,000

 
—

 
(12,934
)
 
737,066

 
 
 
2,309,725

 
(2,702
)
 
(29,724
)
 
2,277,299

 
 
 
 
 
 
 
 
 
 
Peninsula Gaming Debt
 
 
 
 
 
 
 
 
 
Bank credit facility
4.25
%
 
662,750

 
—

 
(14,143
)
 
648,607

8.375% senior notes due 2018
8.38
%
 
350,000

 
—

 
(6,357
)
 
343,643

 
 
 
1,012,750

 
—

 
(20,500
)
 
992,250

Total long-term debt
 
 
3,322,475

 
(2,702
)
 
(50,224
)
 
3,269,549

Less current maturities
 
 
29,750

 
—

 
—

 
29,750

Long-term debt, net
 
 
$
3,292,725

 
$
(2,702
)
 
$
(50,224
)
 
$
3,239,799


Boyd Gaming Debt
Credit Facility
On September 15, 2016, the Company entered into an Amendment No. 1 and Joinder Agreement (the "Amendment") among the Company, certain financial institutions, Bank of America, N.A., as administrative agent and letter of credit issuer, and Wells Fargo Bank, National Association, as swing line lender. The Amendment modified the Third Amended and Restated Credit Agreement (the "Prior Credit Facility"), dated August 14, 2013, together referred to as the "Credit Facility" or the "Credit Agreement".

As modified by the Amendment, the Credit Facility provides for: (i) increased commitments under the existing senior secured revolving credit facility (the "Revolving Credit Facility") to an amount equal to $775.0 million, (ii) commitments under the existing senior secured term A loan (the "Term A Loan") in an amount equal to $225.0 million, and (iii) a new $1.0 billion senior secured term B-2 loan (the "Term B-2 Loan"). The maturity dates of the Revolving Credit Facility and the Term A Loan have been extended to September 15, 2021 (or earlier upon the occurrence or non-occurrence of certain events); the Term B-2 Loan matures on September 15, 2023 (or earlier upon the occurrence or non-occurrence of certain events); the maturity date of the existing senior secured term B-1 loan (the "Term B-1 Loan"), under which $274.0 million in aggregate principal is outstanding, remains August 14, 2020. The increase to the Term A Loan and the new Term B-2 Loan were fully funded on the effective date of the Amendment. Proceeds from the Credit Facility were used to refinance all outstanding obligations under the Prior Credit Facility and to fund transaction costs in connection with the Credit Facility and may be used for working capital and other general corporate purposes.

17
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________


The Credit Facility includes an accordion feature which permits an increase in the Revolving Credit Facility and the issuance and increase of senior secured term loans in an amount up to (i) $550.0 million, plus (ii) certain voluntary permanent reductions of the Revolving Credit Facility and certain voluntary prepayments of the senior secured term loans, plus (iii) certain reductions in the outstanding principal amounts under the term loans or the Revolving Credit Facility, plus (iv) any additional amount if, after giving effect thereto, the First Lien Leverage Ratio (as defined in the Credit Agreement) would not exceed 4.25 to 1.00 on a pro forma basis, less (v) any Incremental Equivalent Debt (as defined in the Credit Agreement), in each case, subject to the satisfaction of certain conditions.

Pursuant to the terms of the Credit Facility (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 December 31, 2016, payable on a quarterly basis, (ii) the loans under the Term B-2 Loan will amortize in an annual amount equal to 1.00% of the original principal amount thereof, commencing December 31, 2016, payable on a quarterly basis, and (iii) beginning with the fiscal year ending December 31, 2016, the Company is required to use a portion of its annual Excess Cash Flow, as defined in the Credit Agreement, to prepay loans outstanding under the Credit Facility.

The outstanding principal amounts under the Credit Facility are comprised of the following:
 
September 30,
 
December 31,
(In thousands)
2016
 
2015
Revolving Credit Facility
$
—

 
$
240,000

Term A Loan
225,000

 
183,275

Term B-1 Loan
274,000

 
730,750

Term B-2 Loan
1,000,000

 
—

Swing Loan
42,000

 
55,700

Total outstanding principal amounts under the Credit Facility
$
1,541,000

 
$
1,209,725


At September 30, 2016, approximately $1.5 billion was outstanding under the Credit Facility and $12.0 million was allocated to support various letters of credit, leaving remaining contractual availability of $721.0 million.

Interest and Fees
The interest rate on the outstanding balance from time to time of the Revolving Credit Facility and the Term A Loan is based upon, at the Company’s option, either: (i) the Eurodollar rate 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 total leverage ratio and ranges from 1.75% to 2.75% (if using the Eurodollar rate) and from 0.75% to 1.75% (if using the base rate). A fee of a percentage per annum (which ranges from 0.25% to 0.50% determined in accordance with a specified pricing grid based on the total leverage ratio) will be payable on the unused portions of the Revolving Credit Facility.

The interest rate on the outstanding balance from time to time of the Term B-1 Loan is based upon, at the Company’s option, either: (i) the Eurodollar rate (subject to a 1.00% minimum) plus 3.00%, or (ii) the base rate plus 2.00%. The interest rate on the outstanding balance from time to time of the Term B-2 Loan is based upon, at the Company’s option, either: (i) the Eurodollar rate (subject to a 0.00% minimum) plus 3.00%, or (ii) the base rate plus 2.00%.

The "base rate" under the Credit Agreement remains the highest of (x) Bank of America’s publicly-announced prime rate, (y) the federal funds rate plus 0.50%, or (z) the Eurodollar rate for a one-month period plus 1.00%.

Optional and Mandatory Prepayments
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 exceptions, including a 1.00% prepayment premium for any prepayment of the Term B-2 Loan prior to March 15, 2017 that is accompanied by a repricing of the Term B-2 Loan.

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, (ii) establishing a maximum permitted consolidated total leverage ratio, (iii) establishing a maximum permitted secured leverage ratio, (iv) imposing limitations on the incurrence of

18
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

indebtedness, (v) imposing limitations on transfers, sales and other dispositions and (vi) imposing restrictions on investments, dividends and certain other payments. Subject to certain exceptions, the Company may be required to repay the amounts outstanding under the Amended Credit Agreement in connection with certain asset sales and issuances of certain additional secured indebtedness. In addition, it requires fixed quarterly amortization of principal and requires that the Company use a portion of its annual excess cash flow as defined in the agreement to prepay the loans.

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 will grant 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.

Senior Notes
6.375% Senior Notes due April 2026
Significant Terms
On March 28, 2016, we issued $750 million aggregate principal amount of 6.375% senior notes due April 2026 (the "6.375% Notes"). The 6.375% Notes require semi-annual interest payments on April 1 and October 1 of each year, commencing on October 1, 2016. The 6.375% Notes will mature on April 1, 2026 and are fully and unconditionally guaranteed, on a joint and several basis, by certain of our current and future domestic restricted subsidiaries, all of which are 100% owned by us. Net proceeds from the 6.375% Notes were used to pay down the outstanding amount under the Revolving Credit Facility and the balance was deposited in money market funds and classified as cash equivalents on the condensed consolidated balance sheets.

In conjunction with the issuance of the 6.375% Notes, we incurred approximately $13.0 million in debt financing costs that have been deferred and are being amortized over the term of the 6.375% Notes using the effective interest method.

The 6.375% Notes contain certain restrictive covenants that, subject to exceptions and qualifications, among other things, limit our ability and the ability of our restricted subsidiaries (as defined in the base and supplemental indentures governing the 6.375% Notes, together, the "Indenture") to incur additional indebtedness or liens, pay dividends or make distributions or repurchase our capital stock, make certain investments, and sell or merge with other companies. In addition, upon the occurrence of a change of control (as defined in the Indenture), we will be required, unless certain conditions are met, to offer to repurchase the 6.375% Notes at a price equal to 101% of the principal amount of the 6.375% Notes, plus accrued and unpaid interest and Additional Interest (as defined in the Indenture), if any, to, but not including, the date of purchase. If we sell assets or experience an event of loss, we will be required under certain circumstances to offer to purchase the 6.375% Notes.

At any time prior to April 1, 2021, we may redeem the 6.375% Notes, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and Additional Interest, if any, up to, but excluding, the applicable redemption date, plus a make whole premium. After April 1, 2021, we may redeem all or a portion of the 6.375% Notes at redemption prices (expressed as percentages of the principal amount) ranging from 103.188% in 2021 to 100% in 2024 and thereafter, plus accrued and unpaid interest and Additional Interest.

In connection with the private placement of the 6.375% Notes, we entered into a registration rights agreement with the initial purchasers in which we agreed to file a registration statement with the SEC to permit the holders to exchange or resell the 6.375% Notes. We must use commercially reasonable efforts to file a registration statement and to consummate an exchange offer within 365 days after the issuance of the 6.375% Notes, subject to certain suspension and other rights set forth in the registration rights agreement. Under certain circumstances, including our determination that we cannot complete an exchange offer, we are required to file a shelf registration statement for the resale of the 6.375% Notes and to cause such shelf registration statement to be declared effective as soon as reasonably practicable (but in no event later than the 365th day following the issuance of the 6.375% Notes) after the occurrence of such circumstances. Subject to certain suspension and other rights, in the event that the registration statement is not filed or declared effective within the time periods specified in the registration rights agreement, the exchange offer is not consummated within 365 days after the issuance of the 6.375% Notes, or the registration statement is filed and declared effective but thereafter ceases to be effective or is unusable for its intended purpose for a period in excess of 30 days without being succeeded immediately by a post-effective amendment that cures such failure, the agreement provides that additional interest will accrue on the principal amount of the 6.375% Notes at a rate of 0.25% per annum during the 90-day period immediately following any of these events and will increase by 0.25% per annum at the end of each subsequent 90-day period, but in no event will the penalty rate exceed 1.00% per annum, until the default is cured. There are no other alternative settlement methods and, other than the

19
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

1.00% per annum maximum penalty rate, the agreement contains no limit on the maximum potential amount of consideration that could be transferred in the event we do not meet the registration statement filing requirements. We currently intend to file a registration statement, have it declared effective and consummate any exchange offer within these time periods. Accordingly, we do not believe that payment of additional interest under the registration payment arrangement is probable and, therefore, no related liability has been recorded in the consolidated financial statements.

Senior Notes
9.00% Senior Notes due July 2020
On September 6, 2016 we redeemed all of our 9.00% senior notes due July 2020 (the "9.00% Notes") at a redemption price of 104.50% plus accrued and unpaid interest to the redemption date. The redemption was funded using cash on hand.

As a result of this redemption, the 9.00% Notes have been fully extinguished.

Peninsula Gaming Debt
Bank Credit Facility
On September 2, 2016, Peninsula repaid all of the outstanding amounts, including all principal and accrued interest amounts, under the Peninsula senior secured credit facility (the "Peninsula Credit Facility") pursuant to the Peninsula Credit Agreement. In connection with the repayment in full of the Peninsula Credit Facility (the "Repayment"), the Peninsula Credit Agreement was terminated.

At December 31, 2015, the outstanding principal amount under the Peninsula Credit Facility was comprised of the following:
(In thousands)
 
Term Loan
$
647,750

Revolving Facility
9,000

Swing Loan
6,000

Total outstanding principal amount under the Peninsula Credit Facility
$
662,750


Peninsula Senior Notes
8.375% Senior Notes due February 2018
On September 2, 2016 we redeemed all of our 8.375% senior notes due February 2018 (the "8.375% Notes") at a redemption price of 100.0% plus accrued and unpaid interest to the redemption date. The redemption was funded using cash on hand.

Loss on Early Extinguishments and Modifications of Debt
The components of the loss on early extinguishments and modifications of debt, are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2016
 
2015
 
2016
 
2015
9.00% Senior Notes premium and consent fees
$
15,750

 
$
—

 
$
15,750

 
$
—

9.00% Senior Notes deferred finance charges
5,976

 
—

 
5,976

 
—

8.375% Senior Notes deferred finance charges
4,497

 
—

 
4,497

 
—

9.125% Senior Notes premium and consent fees
—

 
—

 
—

 
23,962

9.125% Senior Notes deferred finance charges
—

 
—

 
—

 
4,888

Boyd Gaming Credit Facility deferred finance charges
6,629

 
444

 
6,629

 
1,602

Peninsula Credit Facility deferred finance charges
8,666

 
419

 
9,512

 
1,881

Total loss on early extinguishments and modifications of debt
$
41,518

 
$
863

 
$
42,364

 
$
32,333


Covenant Compliance
As of September 30, 2016, we believe that we were in compliance with the financial and other covenants of our debt instruments.


20
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

NOTE 8.    COMMITMENTS AND CONTINGENCIES
Commitments
There have been no material changes to our commitments described under Note 10, Commitments and Contingencies, in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on February 25, 2016, except for the pending acquisitions of the Las Vegas assets of CCR as discussed in Note 3, Acquisitions and Divestitures.

Contingencies
Legal Matters
We are parties to various legal proceedings arising in the ordinary course of business. In our opinion, all pending legal matters are either adequately covered by insurance, or, if not insured, will not have a material adverse impact on our financial position, results of operations or cash flows.

NOTE 9.    STOCKHOLDERS' EQUITY AND STOCK INCENTIVE PLANS
Share-Based Compensation
We account for share-based awards exchanged for employee services in accordance with the authoritative accounting guidance for share-based payments. Under the guidance, share-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense, net of estimated forfeitures, over the employee's requisite service period.

The following table provides classification detail of the total costs related to our share-based employee compensation plans reported in our condensed consolidated statements of operations.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2016
 
2015
 
2016
 
2015
Gaming
$
86

 
$
68

 
$
251

 
$
191

Food and beverage
17

 
12

 
48

 
36

Room
8

 
6

 
23

 
17

Selling, general and administrative
437

 
345

 
1,274

 
969

Corporate expense
994

 
1,429

 
5,529

 
7,014

Total share-based compensation expense
$
1,542

 
$
1,860

 
$
7,125

 
$
8,227


Performance Shares Vesting
The Performance Share Unit ("PSU") grants awarded in December 2012 and 2011 vested during first quarters of 2016 and 2015, respectively. Common shares were issued based on the determination by the Compensation Committee of the Board of Directors of our actual achievement of net revenue growth, Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") growth and customer service scores for the three-year performance period of the 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 2012 resulted in a total of 213,365 shares issued, representing approximately 0.59 shares per PSU. Of the 213,365 shares issued, a total of 54,338 were surrendered by the participants for payroll taxes, resulting a net issuance of 159,027 shares due to the vesting of the 2012 grant. The actual achievement level under the award metrics equaled the estimated performance as of year-end 2015; therefore, the vesting of the PSUs did not impact compensation costs in our 2016 condensed consolidated statement of operations.

The PSU grant awarded in December 2011 resulted in a total of 654,478 shares issued, representing approximately 1.67 shares per PSU. Of the 654,478 shares issued, a total of 177,274 were surrendered by the participants for payroll taxes, resulting a net issuance of 477,204 shares due to the vesting of the 2011 grant. The actual achievement level under the award metrics equaled the estimated performance as of year-end 2014; therefore, the vesting of the PSUs did not impact compensation costs in our 2015 condensed consolidated statement of operations.


21
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

NOTE 10.     FAIR VALUE MEASUREMENTS
The authoritative accounting guidance for fair value measurements specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These inputs create the following fair value hierarchy:

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

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

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

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

Balances Measured at Fair Value
The following tables show the fair values of certain of our financial instruments:
 
September 30, 2016
(In thousands)
Balance
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
159,688

 
$
159,688

 
$
—

 
$
—

Restricted cash
23,292

 
23,292

 
—

 
—

Investment available for sale
18,279

 
—

 
—

 
18,279

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Contingent payments
$
3,435

 
$
—

 
$
—

 
$
3,435


 
December 31, 2015
(In thousands)
Balance
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
158,821

 
$
158,821

 
$
—

 
$
—

Restricted cash
19,030

 
19,030

 
—

 
—

Investment available for sale
17,839

 
—

 
—

 
17,839

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Contingent payments
$
3,632

 
$
—

 
$
—

 
$
3,632


Cash and Cash Equivalents and Restricted Cash
The fair value of our cash and cash equivalents and restricted cash, classified in the fair value hierarchy as Level 1, are based on statements received from our banks at September 30, 2016 and December 31, 2015.

Investment Available for Sale
We have an investment in a single municipal bond issuance of $21.0 million aggregate principal amount of 7.5% Urban Renewal Tax Increment Revenue Bonds, Taxable Series 2007 that is classified as available for sale. We are the only holder of this instrument and there is no quoted market price for this instrument. As such, the fair value of this investment is classified as Level 3 in the fair

22
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

value hierarchy. The estimate of the fair value of such investment was determined using a combination of current market rates and estimates of market conditions for instruments with similar terms, maturities, and degrees of risk and a discounted cash flows analysis as of September 30, 2016 and December 31, 2015. Unrealized gains and losses on this instrument resulting from changes in the fair value of the instrument are not charged to earnings, but rather are recorded as other comprehensive income (loss) in the stockholders' equity section of the condensed consolidated balance sheets. At both September 30, 2016 and December 31, 2015, $0.4 million of the carrying value of the investment available for sale is included as a current asset in prepaid expenses and other current assets, and at September 30, 2016 and December 31, 2015, $17.8 million and $17.4 million, respectively, is included in other assets on the condensed consolidated balance sheets. The discount associated with this investment of $3.1 million and $3.2 million at September 30, 2016 and December 31, 2015, respectively, is netted with the investment balance and is being accreted over the life of the investment using the effective interest method. The accretion of such discount is included in interest income on the condensed consolidated statements of operations.

Contingent Payments
In connection with the development of the Kansas Star Casino ("KSC"), KSC agreed to pay a former casino project developer and option holder 1% of KSC's EBITDA each month for a period of ten years commencing on December 20, 2011. The liability is recorded at the estimated fair value of the contingent payments using a discounted cash flows approach and the significant unobservable input used in the valuation at both September 30, 2016 and December 31, 2015, is a discount rate of 18.5%. At both September 30, 2016 and December 31, 2015, there was a current liability of $0.9 million related to this agreement, which is recorded in accrued liabilities on the respective condensed consolidated balance sheets, and long-term obligation at September 30, 2016 and December 31, 2015, of $2.5 million and $2.7 million, respectively, which is included in other liabilities on the respective condensed consolidated balance sheets.

The following table summarizes the changes in fair value of the Company's Level 3 assets and liabilities:
 
Three Months Ended
 
September 30, 2016
 
September 30, 2015
 
Assets
 
Liability
 
Assets
 
Liability
(In thousands)
Investment
Available for
Sale
 
Contingent
Payments
 
Investment
Available for
Sale
 
Contingent
Payments
Balance at beginning of reporting period
$
17,832

 
$
(3,488
)
 
$
17,276

 
$
(3,642
)
Total gains (losses) (realized or unrealized):
 
 
 
 
 
 
 
Included in interest income (expense)
30

 
(147
)
 
31

 
(156
)
Included in other comprehensive income (loss)
417

 
—

 
642

 
—

Transfers in or out of Level 3
—

 
—

 
—

 
—

Purchases, sales, issuances and settlements:
 
 
 
 
 
 
 
Settlements
—

 
200

 
—

 
211

Balance at end of reporting period
$
18,279

 
$
(3,435
)
 
$
17,949

 
$
(3,587
)


23
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

 
Nine Months Ended
 
September 30, 2016
 
September 30, 2015
 
Assets
 
Liability
 
Assets
 
Liability
(In thousands)
Investment
Available for
Sale
 
Contingent
Payments
 
Investment
Available for
Sale
 
Merger Earnout
 
Contingent
Payments
Balance at beginning of reporting period
$
17,839

 
$
(3,632
)
 
$
18,357

 
$
(75
)
 
$
(3,792
)
Total gains (losses) (realized or unrealized):
 
 
 
 
 
 
 
 
 
Included in interest income (expense)
96

 
(452
)
 
93

 
75

 
(476
)
Included in other comprehensive income (loss)
754

 
—

 
(121
)
 
—

 
—

Transfers in or out of Level 3
—

 
—

 
—

 
—

 
—

Purchases, sales, issuances and settlements:
 
 
 
 
 
 
 
 
 
Settlements
(410
)
 
649

 
(380
)
 
—

 
681

Balance at end of reporting period
$
18,279

 
$
(3,435
)
 
$
17,949

 
$
—

 
$
(3,587
)

The table below summarizes the significant unobservable inputs used in calculating fair value for our Level 3 assets and liabilities:
 
Valuation
Technique
 
Unobservable
Input
 
Rate
Investment available for sale
Discounted cash flow
 
Discount rate
 
9.7
%
Contingent payments
Discounted cash flow
 
Discount rate
 
18.5
%

Balances Disclosed at Fair Value
The following tables provide the fair value measurement information about our obligation under minimum assessment agreements and other financial instruments:
 
September 30, 2016
(In thousands)
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
Liabilities
 
 
 
 
 
 
 
Obligation under assessment arrangements
$
33,823

 
$
26,858

 
$
28,118

 
Level 3
Other financial instruments
100

 
95

 
95

 
Level 3

 
December 31, 2015
(In thousands)
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
Liabilities
 
 
 
 
 
 
 
Obligation under assessment arrangements
$
35,126

 
$
27,660

 
$
28,381

 
Level 3
Other financial instruments
200

 
186

 
186

 
Level 3

The following tables provide the fair value measurement information about our long-term debt:
 
September 30, 2016
(In thousands)
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
Bank credit facility
$
1,541,000

 
$
1,510,531

 
$
1,548,060

 
Level 2
6.875% senior notes due 2023
750,000

 
738,352

 
811,875

 
Level 1
6.375% senior notes due 2026
750,000

 
737,730

 
802,500

 
Level 1
Other
635

 
635

 
635

 
Level 3
Total debt
$
3,041,635

 
$
2,987,248

 
$
3,163,070

 
 


24
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

 
December 31, 2015
(In thousands)
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
Boyd Gaming Debt
 
 
 
 
 
 
 
Bank credit facility
$
1,209,725

 
$
1,197,277

 
$
1,202,870

 
Level 2
9.00% senior notes due 2020
350,000

 
342,956

 
372,750

 
Level 1
6.875% senior notes due 2023
750,000

 
737,066

 
772,500

 
Level 1
 
2,309,725

 
2,277,299

 
2,348,120

 
 
 
 
 
 
 
 
 
 
Peninsula Gaming Debt
 
 
 
 
 
 
 
Bank credit facility
662,750

 
648,607

 
661,131

 
Level 2
8.375% senior notes due 2018
350,000

 
343,643

 
357,000

 
Level 2
 
1,012,750

 
992,250

 
1,018,131

 

Total debt
$
3,322,475

 
$
3,269,549

 
$
3,366,251

 


The estimated fair values of our Credit Facility is based on a relative value analysis performed on or about September 30, 2016 and December 31, 2015. The estimated fair value of the Peninsula Credit Facility is based on a relative value analysis performed on or about December 31, 2015. The estimated fair values of our senior notes are based on quoted market prices as of September 30, 2016 and December 31, 2015. The other debt is a fixed-rate debt that is payable in 32 semi-annual installments, beginning in 2008. It is not traded and does not have an observable market input; therefore, we have estimated its fair value to be equal to the carrying value.

There were no transfers between Level 1, Level 2 and Level 3 measurements during the nine months ended September 30, 2016 or 2015.


25
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

NOTE 11.    SEGMENT INFORMATION
We have aggregated certain of our properties in order to present three Reportable Segments: (i) Las Vegas Locals; (ii) Downtown Las Vegas; and (iii) Midwest and South. The table below lists the classification of each of our properties.
Las Vegas Locals
 
Gold Coast Hotel and Casino
Las Vegas, Nevada
The Orleans Hotel and Casino
Las Vegas, Nevada
Sam's Town Hotel and Gambling Hall
Las Vegas, Nevada
Suncoast Hotel and Casino
Las Vegas, Nevada
Aliante Casino + Hotel + Spa
North Las Vegas, Nevada
Eldorado Casino
Henderson, Nevada
Jokers Wild Casino
Henderson, Nevada
Downtown Las Vegas
 
California Hotel and Casino
Las Vegas, Nevada
Fremont Hotel and Casino
Las Vegas, Nevada
Main Street Station Casino, Brewery and Hotel
Las Vegas, Nevada
Midwest and South
 
Par-A-Dice Hotel Casino
East Peoria, Illinois
Blue Chip Casino, Hotel & Spa
Michigan City, Indiana
Diamond Jo Dubuque
Dubuque, Iowa
Diamond Jo Worth
Northwood, Iowa
Kansas Star Casino
Mulvane, Kansas
Amelia Belle Casino
Amelia, Louisiana
Delta Downs Racetrack Casino & Hotel
Vinton, Louisiana
Evangeline Downs Racetrack and Casino
Opelousas, Louisiana
Sam's Town Hotel and Casino
Shreveport, Louisiana
Treasure Chest Casino
Kenner, Louisiana
IP Casino Resort Spa
Biloxi, Mississippi
Sam's Town Hotel and Gambling Hall
Tunica, Mississippi

As a result of the agreement to sell our equity interest in Borgata (see Note 3, Acquisitions and Divestitures), we no longer report our interest in Borgata as a Reportable Segment.

In third quarter 2016, the Peninsula debt was refinanced, eliminating the financing structure that restricted our ability to transfer cash from Peninsula to Boyd Gaming. As a result of the elimination of this restriction, management has concluded that the properties previously comprising the Peninsula segment will be aggregated into the Midwest and South reportable segment, and has retrospectively adjusted the presentation for all periods presented.

Also, as of September 27, 2016, our Las Vegas Locals segment includes our wholly-owned subsidiary, Aliante (see Note 3, Acquisitions and Divestitures).

Results of Operations - Total Reportable Segment Net Revenues and Adjusted EBITDA
We evaluate each of our property's profitability based upon Property EBITDA, 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, and gain or loss on early retirements of debt, as applicable. Total Reportable Segment Adjusted EBITDA is the aggregate sum of the Property EBITDA for each of the properties included in our Las Vegas Locals, Downtown Las Vegas, and Midwest and South segments. Results for Downtown Las Vegas include the results of our Hawaii-based travel agency and captive insurance company.


26
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

The following table sets forth, for the periods indicated, certain operating data for our Reportable Segments, and reconciles Total Reportable Segment Adjusted EBITDA to operating income, as reported in our accompanying condensed consolidated statements of operations:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2016
 
2015
 
2016
 
2015
Net Revenues
 
 
 
 
 
 
 
Las Vegas Locals
$
148,879

 
$
148,022

 
$
462,213

 
$
451,356

Downtown Las Vegas
56,606

 
56,685

 
174,423

 
171,723

Midwest and South
326,416

 
341,606

 
992,517

 
1,033,679

Total Reportable Segment Net Revenues
$
531,901

 
$
546,313

 
$
1,629,153

 
$
1,656,758

 
 
 
 
 
 
 
 
Adjusted EBITDA
 
 
 
 
 
 
 
Las Vegas Locals
$
36,173

 
$
32,261

 
$
123,617

 
$
113,313

Downtown Las Vegas
10,018

 
10,144

 
36,962

 
33,128

Midwest and South
90,633

 
96,347

 
281,305

 
294,635

Total Reportable Segment Adjusted EBITDA
136,824

 
138,752

 
441,884

 
441,076

Corporate expense
(14,884
)
 
(13,581
)
 
(44,355
)
 
(45,000
)
Adjusted EBITDA
121,940

 
125,171

 
397,529

 
396,076

 
 
 
 
 
 
 
 
Other operating costs and expenses
 
 
 
 
 
 
 
Deferred rent
816

 
857

 
2,449

 
2,573

Depreciation and amortization
47,928

 
51,345

 
143,831

 
155,251

Share-based compensation expense
1,542

 
1,860

 
7,125

 
8,227

Project development, preopening and writedowns
3,735

 
1,514

 
11,473

 
4,218

Impairments of assets
—

 
—

 
1,440

 
1,065

Other operating items, net
3

 
172

 
555

 
342

Total other operating costs and expenses
54,024

 
55,748

 
166,873

 
171,676

Operating income
$
67,916

 
$
69,423

 
$
230,656

 
$
224,400


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

Total Reportable Segment Assets
The Company's assets by Reportable Segment consisted of the following amounts:
 
September 30,
 
December 31,
(In thousands)
2016
 
2015
Assets
 
 
 
Las Vegas Locals
$
1,535,515

 
$
1,155,224

Downtown Las Vegas
149,172

 
138,159

Midwest and South
2,597,024

 
2,634,742

Total Reportable Segment Assets
4,281,711

 
3,928,125

Corporate
174,943

 
422,775

Total Assets
$
4,456,654

 
$
4,350,900


27
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

NOTE 12.    CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Separate condensed consolidating financial information for our subsidiary guarantors and non-guarantors of our 6.875% Senior Notes due May 2023 ("6.875% Notes") and our 6.375% Notes is presented below. Each of these notes is 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 non-guarantors primarily represent special purpose entities, tax holding companies, our less significant operating subsidiaries and our less than wholly owned subsidiaries.

On September 2, 2016, we notified the trustees of our 6.875% Notes and our 6.375% Notes of our designation of the following additional subsidiaries as "Restricted Subsidiaries": Boyd Acquisition I, LLC, Boyd Acquisition II, LLC, Peninsula Gaming, LLC, Belle of Orleans, L.L.C., Diamond Jo, LLC, Diamond Jo Worth, LLC, Kansas Star Casino, LLC, and The Old Evangeline Downs, L.L.C.

The tables below present the condensed consolidating balance sheets as of September 30, 2016, and December 31, 2015, the condensed consolidating statements of operations for the three and nine months ended September 30, 2016 and 2015, and the condensed consolidating statements of cash flows for the nine months ended September 30, 2016 and 2015. We have reclassified certain prior year amounts in the current year presentation to reflect the designation of the additional Restricted Subsidiaries listed above as subsidiary guarantors.

Condensed Consolidating Balance Sheets

 
September 30, 2016
 
 
 
 
 
Non-
 
Non-
 
 
 
 
 
 
 
 
 
Guarantor
 
Guarantor
 
 
 
 
 
 
 
 
 
Subsidiaries
 
Subsidiaries
 
 
 
 
 
 
 
Guarantor
 
(100%
 
(Not 100%
 
 
 
 
(In thousands)
Parent
 
Subsidiaries
 
Owned)
 
Owned)
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,705

 
$
145,570

 
$
12,413

 
$
—

 
$
—

 
$
159,688

Other current assets
16,023

 
88,533

 
15,764

 
—

 
(9,708
)
 
110,612

Property and equipment, net
68,118

 
2,099,977

 
94,535

 
—

 
—

 
2,262,630

Investments in subsidiaries
4,509,550

 
—

 
—

 
—

 
(4,509,550
)
 
—

Intercompany receivable
—

 
1,489,652

 
—

 
—

 
(1,489,652
)
 
—

Other assets, net
13,336

 
30,165

 
21,497

 
—

 
(13,232
)
 
51,766

Intangible assets, net
—

 
854,046

 
24,059

 
—

 
—

 
878,105

Goodwill, net
—

 
684,529

 
309,324

 
—

 
—

 
993,853

Total assets
$
4,608,732

 
$
5,392,472

 
$
477,592

 
$
—

 
$
(6,022,142
)
 
$
4,456,654

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
Current maturities of long-term debt
$
30,250

 
$
—

 
$
—

 
$
—

 
$
—

 
$
30,250

Other current liabilities
127,456

 
190,831

 
40,799

 
—

 
(233
)
 
358,853

Accumulated losses of subsidiaries in excess of investment
—

 
169,906

 
265

 
—

 
(170,171
)
 
—

Intercompany payable
534,902

 
—

 
963,992

 
254

 
(1,499,148
)
 
—

Long-term debt, net of current maturities and debt issuance costs
2,956,362

 
—

 
636

 
—

 
—

 
2,956,998

Other long-term liabilities
36,786

 
163,973

 
—

 
—

 
(13,232
)
 
187,527

 
 
 
 
 
 
 
 
 
 
 
 
Boyd Gaming Corporation stockholders' equity (deficit)
922,976

 
4,867,762

 
(528,100
)
 
(254
)
 
(4,339,408
)
 
922,976

Noncontrolling interest
—

 
—

 
—

 
—

 
50

 
50

Total stockholders' equity (deficit)
922,976

 
4,867,762

 
(528,100
)
 
(254
)
 
(4,339,358
)
 
923,026

Total liabilities and stockholders' equity
$
4,608,732

 
$
5,392,472

 
$
477,592

 
$
—

 
$
(6,022,142
)
 
$
4,456,654


28
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

Condensed Consolidating Balance Sheets - continued

 
December 31, 2015
 
 
 
 
 
Non-
 
Non-
 
 
 
 
 
 
 
 
 
Guarantor
 
Guarantor
 
 
 
 
 
 
 
 
 
Subsidiaries
 
Subsidiaries
 
 
 
 
 
 
 
Guarantor
 
(100%
 
(Not 100%
 
 
 
 
(In thousands)
Parent
 
Subsidiaries
 
Owned)
 
Owned)
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
2

 
$
156,116

 
$
2,482

 
$
221

 
$
—

 
$
158,821

Other current assets
14,602

 
74,402

 
10,415

 
—

 
(1,008
)
 
98,411

Property and equipment, net
68,515

 
2,120,455

 
36,372

 
—

 
—

 
2,225,342

Investments in subsidiaries
3,547,690

 
—

 
—

 
—

 
(3,547,690
)
 
—

Intercompany receivable
—

 
1,701,817

 
—

 
—

 
(1,701,817
)
 
—

Other assets, net
12,521

 
30,755

 
18,293

 
—

 
(13,228
)
 
48,341

Intangible assets, net
—

 
865,995

 
24,059

 
—

 
—

 
890,054

Goodwill, net
—

 
684,529

 
781

 
—

 
—

 
685,310

Investment in unconsolidated subsidiary held for sale
—

 
244,621

 
—

 
—

 
—

 
244,621

Total assets
$
3,643,330

 
$
5,878,690

 
$
92,402

 
$
221

 
$
(5,263,743
)
 
$
4,350,900

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
Current maturities of long-term debt
$
21,500

 
$
8,250

 
$
—

 
$
—

 
$
—

 
$
29,750

Other current liabilities
102,946

 
198,590

 
24,071

 
—

 
(286
)
 
325,321

Accumulated losses of subsidiaries in excess of investment
—

 
4,507

 
302

 
—

 
(4,809
)
 
—

Intercompany payable
720,400

 
—

 
981,688

 
475

 
(1,702,563
)
 
—

Long-term debt, net of current maturities and debt issuance costs
2,255,800

 
983,999

 
—

 
—

 
—

 
3,239,799

Other long-term liabilities
34,723

 
226,524

 
—

 
—

 
(13,228
)
 
248,019

 
 
 
 
 
 
 
 
 
 
 

Boyd Gaming Corporation stockholders' equity (deficit)
507,961

 
4,456,820

 
(913,659
)
 
(254
)
 
(3,542,907
)
 
507,961

Noncontrolling interest
—

 
—

 
—

 
—

 
50

 
50

Total stockholders' equity (deficit)
507,961

 
4,456,820

 
(913,659
)
 
(254
)
 
(3,542,857
)
 
508,011

Total liabilities and stockholders' equity
$
3,643,330

 
$
5,878,690

 
$
92,402

 
$
221

 
$
(5,263,743
)
 
$
4,350,900


29
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

Condensed Consolidating Statements of Operations

 
Three Months Ended September 30, 2016
 
 
 
 
 
Non-
 
Non-
 
 
 
 
 
 
 
 
 
Guarantor
 
Guarantor
 
 
 
 
 
 
 
 
 
Subsidiaries
 
Subsidiaries
 
 
 
 
 
 
 
Guarantor
 
(100%
 
(Not 100%
 
 
 
 
(In thousands)
Parent
 
Subsidiaries
 
Owned)
 
Owned)
 
Eliminations
 
Consolidated
Net revenues
$
29,708

 
$
523,904

 
$
13,252

 
$
—

 
$
(34,963
)
 
$
531,901

Operating costs and expenses
 
 
 
 
 
 
 
 
 
 
 
Operating
300

 
275,916

 
11,539

 
—

 
—

 
287,755

Selling, general and administrative
12,491

 
66,491

 
1,849

 
—

 
2

 
80,833

Maintenance and utilities
—

 
27,463

 
391

 
—

 
—

 
27,854

Depreciation and amortization
2,355

 
44,597

 
976

 
—

 
—

 
47,928

Corporate expense
14,247

 
471

 
1,159

 
—

 
—

 
15,877

Project development, preopening and writedowns
7,213

 
(5,646
)
 
2,168

 
—

 
—

 
3,735

Other operating items, net
—

 
3

 
—

 
—

 
—

 
3

Intercompany expenses
301

 
34,299

 
365

 
—

 
(34,965
)
 
—

Total operating costs and expenses
36,907

 
443,594

 
18,447

 
—

 
(34,963
)
 
463,985

Equity in earnings of subsidiaries
230,669

 
(607
)
 
—

 
—

 
(230,062
)
 
—

Operating income (loss)
223,470

 
79,703

 
(5,195
)
 
—

 
(230,062
)
 
67,916

Other expense (income)
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
41,778

 
12,369

 
6

 
—

 
—

 
54,153

Loss on early extinguishments and modifications of debt
28,356

 
13,162

 
—

 
—

 
—

 
41,518

Other, net
—

 
20

 
(19
)
 
—

 
—

 
1

Total other expense, net
70,134

 
25,551

 
(13
)
 
—

 
—

 
95,672

Income (loss) from continuing operations before income taxes
153,336

 
54,152

 
(5,182
)
 
—

 
(230,062
)
 
(27,756
)
Income taxes benefit (provision)
189,235

 
363

 
22

 
—

 
—

 
189,620

Income (loss) from continuing operations, net of tax
342,571

 
54,515

 
(5,160
)
 
—

 
(230,062
)
 
161,864

Income from discontinued operations, net of tax
—

 
180,707

 
—

 
—

 
—

 
180,707

Net income (loss)
$
342,571

 
$
235,222

 
$
(5,160
)
 
$
—

 
$
(230,062
)
 
$
342,571

Comprehensive income (loss)
$
342,988

 
$
235,639

 
$
(5,160
)
 
$
—

 
$
(230,479
)
 
$
342,988


30
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

Condensed Consolidating Statements of Operations - continued

 
Three Months Ended September 30, 2015
 
 
 
 
 
Non-
 
Non-
 
 
 
 
 
 
 
 
 
Guarantor
 
Guarantor
 
 
 
 
 
 
 
 
 
Subsidiaries
 
Subsidiaries
 
 
 
 
 
 
 
Guarantor
 
(100%
 
(Not 100%
 
 
 
 
(In thousands)
Parent
 
Subsidiaries
 
Owned)
 
Owned)
 
Eliminations
 
Consolidated
Net revenues
$
28,946

 
$
539,768

 
$
12,048

 
$
—

 
$
(34,449
)
 
$
546,313

Operating costs and expenses
 
 
 
 
 
 
 
 
 
 
 
Operating
450

 
288,296

 
11,120

 
—

 
—

 
299,866

Selling, general and administrative
11,083

 
67,227

 
1,644

 
—

 
—

 
79,954

Maintenance and utilities
—

 
28,614

 
416

 
—

 
—

 
29,030

Depreciation and amortization
1,657

 
48,758

 
930

 
—

 
—

 
51,345

Corporate expense
13,503

 
526

 
980

 
—

 
—

 
15,009

Project development, preopening and writedowns
5

 
318

 
1,183

 
8

 
—

 
1,514

Other operating items, net
136

 
36

 
—

 
—

 
—

 
172

Intercompany expenses
301

 
33,827

 
321

 
—

 
(34,449
)
 
—

Total operating costs and expenses
27,135

 
467,602

 
16,594

 
8

 
(34,449
)
 
476,890

Equity in earnings of subsidiaries
57,937

 
(665
)
 
(8
)
 
—

 
(57,264
)
 
—

Operating income (loss)
59,748

 
71,501

 
(4,554
)
 
(8
)
 
(57,264
)
 
69,423

Other expense (income)
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
33,883

 
22,209

 
6

 
—

 
—

 
56,098

Loss on early extinguishments of debt
444

 
419

 
—

 
—

 
—

 
863

Other, net
(2
)
 
1,775

 
(20
)
 
—

 
—

 
1,753

Total other expense, net
34,325

 
24,403

 
(14
)
 
—

 
—

 
58,714

Income (loss) from continuing operations before income taxes
25,423

 
47,098

 
(4,540
)
 
(8
)
 
(57,264
)
 
10,709

Income taxes benefit (provision)
2

 
(3,692
)
 
(4
)
 
—

 
—

 
(3,694
)
Income (loss) from continuing operations, net of tax
25,425

 
43,406

 
(4,544
)
 
(8
)
 
(57,264
)
 
7,015

Income from discontinued operations, net of tax
—

 
18,410

 
—

 
—

 
—

 
18,410

Net income (loss)
$
25,425

 
$
61,816

 
$
(4,544
)
 
$
(8
)
 
$
(57,264
)
 
$
25,425

Comprehensive income (loss)
$
26,067

 
$
62,458

 
$
(4,544
)
 
$
(8
)
 
$
(57,906
)
 
$
26,067



31
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

Condensed Consolidating Statements of Operations - continued

 
Nine Months Ended September 30, 2016
 
 
 
 
 
Non-
 
Non-
 
 
 
 
 
 
 
 
 
Guarantor
 
Guarantor
 
 
 
 
 
 
 
 
 
Subsidiaries
 
Subsidiaries
 
 
 
 
 
 
 
Guarantor
 
(100%
 
(Not 100%
 
 
 
 
(In thousands)
Parent
 
Subsidiaries
 
Owned)
 
Owned)
 
Eliminations
 
Consolidated
Net revenues
$
91,901

 
$
1,607,719

 
$
37,646

 
$
—

 
$
(108,113
)
 
$
1,629,153

Operating costs and expenses
 
 
 
 
 
 
 
 
 
 
 
Operating
1,200

 
838,837

 
32,881

 
—

 
—

 
872,918

Selling, general and administrative
37,203

 
199,308

 
5,171

 
—

 
4

 
241,686

Maintenance and utilities
—

 
75,675

 
1,036

 
—

 
—

 
76,711

Depreciation and amortization
6,375

 
134,487

 
2,969

 
—

 
—

 
143,831

Corporate expense
45,121

 
1,380

 
3,382

 
—

 
—

 
49,883

Project development, preopening and writedowns
11,205

 
(4,382
)
 
4,650

 
—

 
—

 
11,473

Impairments of assets
1,440

 
—

 
—

 
—

 
—

 
1,440

Other operating items, net
106

 
449

 
—

 
—

 
—

 
555

Intercompany expenses
903

 
106,119

 
1,095

 
—

 
(108,117
)
 
—

Total operating costs and expenses
103,553

 
1,351,873

 
51,184

 
—

 
(108,113
)
 
1,398,497

Equity in earnings of subsidiaries
372,953

 
(1,375
)
 
—

 
—

 
(371,578
)
 
—

Operating income (loss)
361,301

 
254,471

 
(13,538
)
 
—

 
(371,578
)
 
230,656

Other expense (income)
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
116,245

 
51,386

 
18

 
—

 
—

 
167,649

Loss on early extinguishments and modifications of debt
28,356

 
14,008

 
—

 
—

 
—

 
42,364

Other, net
1

 
196

 
(54
)
 
—

 
—

 
143

Total other expense, net
144,602

 
65,590

 
(36
)
 
—

 
—

 
210,156

Income (loss) from continuing operations before income taxes
216,699

 
188,881

 
(13,502
)
 
—

 
(371,578
)
 
20,500

Income taxes benefit (provision)
189,084

 
(14,845
)
 
(8
)
 
—

 
—

 
174,231

Income (loss) from continuing operations, net of tax
405,783

 
174,036

 
(13,510
)
 
—

 
(371,578
)
 
194,731

Income from discontinued operations, net of tax
—

 
211,052

 
—

 
—

 
—

 
211,052

Net income (loss)
$
405,783

 
$
385,088

 
$
(13,510
)
 
$
—

 
$
(371,578
)
 
$
405,783

Comprehensive income (loss)
$
406,537

 
$
385,842

 
$
(13,510
)
 
$
—

 
$
(372,332
)
 
$
406,537


32
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

Condensed Consolidating Statements of Operations - continued

 
Nine Months Ended September 30, 2015
 
 
 
 
 
Non-
 
Non-
 
 
 
 
 
 
 
 
 
Guarantor
 
Guarantor
 
 
 
 
 
 
 
 
 
Subsidiaries
 
Subsidiaries
 
 
 
 
 
 
 
Guarantor
 
(100%
 
(Not 100%
 
 
 
 
(In thousands)
Parent
 
Subsidiaries
 
Owned)
 
Owned)
 
Eliminations
 
Consolidated
Net revenues
$
91,048

 
$
1,637,995

 
$
35,568

 
$
—

 
$
(107,853
)
 
$
1,656,758

Operating costs and expenses
 
 
 
 
 
 
 
 
 
 
 
Operating
1,350

 
861,418

 
33,080

 
—

 
—

 
895,848

Selling, general and administrative
35,828

 
201,857

 
4,971

 
—

 
—

 
242,656

Maintenance and utilities
—

 
79,809

 
1,156

 
—

 
—

 
80,965

Depreciation and amortization
4,446

 
147,900

 
2,905

 
—

 
—

 
155,251

Corporate expense
48,032

 
1,435

 
2,546

 
—

 
—

 
52,013

Project development, preopening and writedowns
(36
)
 
1,253

 
2,923

 
78

 
—

 
4,218

Impairments of assets
—

 
—

 
1,065

 
—

 
—

 
1,065

Other operating items, net
136

 
206

 
—

 
—

 
—

 
342

Intercompany expenses
903

 
105,899

 
1,051

 
—

 
(107,853
)
 
—

Total operating costs and expenses
90,659

 
1,399,777

 
49,697

 
78

 
(107,853
)
 
1,432,358

Equity in earnings of subsidiaries
163,319

 
(1,778
)
 
(78
)
 
—

 
(161,463
)
 
—

Operating income (loss)
163,708

 
236,440

 
(14,207
)
 
(78
)
 
(161,463
)
 
224,400

Other expense (income)
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
101,302

 
67,908

 
18

 
—

 
—

 
169,228

Loss on early extinguishments of debt
30,452

 
1,881

 
—

 
—

 
—

 
32,333

Other, net
415

 
2,886

 
340

 
—

 
—

 
3,641

Total other expense, net
132,169

 
72,675

 
358

 
—

 
—

 
205,202

Income (loss) from continuing operations before income taxes
31,539

 
163,765

 
(14,565
)
 
(78
)
 
(161,463
)
 
19,198

Income taxes benefit (provision)
22,564

 
(16,593
)
 
(40
)
 
—

 
—

 
5,931

Income (loss) from continuing operations, net of tax
54,103

 
147,172

 
(14,605
)
 
(78
)
 
(161,463
)
 
25,129

Income from discontinued operations, net of tax
—

 
28,974

 
—

 
—

 
—

 
28,974

Net income (loss)
$
54,103

 
$
176,146

 
$
(14,605
)
 
$
(78
)
 
$
(161,463
)
 
$
54,103

Comprehensive income (loss)
$
53,982

 
$
176,025

 
$
(14,605
)
 
$
(78
)
 
$
(161,342
)
 
$
53,982



33
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

Condensed Consolidating Statements of Cash Flows

 
Nine Months Ended September 30, 2016
 
 
 
 
 
Non-
 
Non-
 
 
 
 
 
 
 
 
 
Guarantor
 
Guarantor
 
 
 
 
 
 
 
 
 
Subsidiaries
 
Subsidiaries
 
 
 
 
 
 
 
Guarantor
 
(100%
 
(Not 100%
 
 
 
 
(In thousands)
Parent
 
Subsidiaries
 
Owned)
 
Owned)
 
Eliminations
 
Consolidated
Cash flows from operating activities
 
 
 
 
 
 
 
 
 
 
 
Net cash from operating activities
$
(87,625
)
 
$
309,530

 
$
26,251

 
$
—

 
$
8,750

 
$
256,906

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
(29,012
)
 
(87,679
)
 
(639
)
 
—

 
—

 
(117,330
)
Cash paid for acquisition, net of cash received
(372,322
)
 
—

 
—

 
—

 
—

 
(372,322
)
Net activity with affiliates
—

 
212,165

 
—

 
—

 
(212,165
)
 
—

Other investing activities
—

 
704

 
2,015

 
—

 
—

 
2,719

Net cash from investing activities
(401,334
)
 
125,190

 
1,376

 
—

 
(212,165
)
 
(486,933
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
Borrowings under bank credit facility
1,622,075

 
237,000

 
—

 
—

 
—

 
1,859,075

Payments under bank credit facility
(1,290,800
)
 
(899,750
)
 
—

 
—

 
—

 
(2,190,550
)
Proceeds from issuance of senior notes
750,000

 
—

 
—

 
—

 
—

 
750,000

Retirements of senior notes
(350,000
)
 
(350,000
)
 
—

 
—

 
—

 
(700,000
)
Debt financing costs, net
(40,718
)
 
—

 
—

 
—

 
—

 
(40,718
)
Premium and consent fees paid
(15,750
)
 
—

 
—

 
—

 
—

 
(15,750
)
Net activity with affiliates
(185,498
)
 
—

 
(17,696
)
 
(221
)
 
203,415

 
—

Share-based compensation activities, net
1,353

 
—

 
—

 
—

 
—

 
1,353

Net cash from financing activities
490,662

 
(1,012,750
)
 
(17,696
)
 
(221
)
 
203,415

 
(336,590
)
Cash flows from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
—

 
(26,596
)
 
—

 
—

 
—

 
(26,596
)
Cash flows from investing activities
—

 
594,080

 
—

 
—

 
—

 
594,080

Cash flows from financing activities
—

 
—

 
—

 
—

 
—

 
—

Net cash from discontinued operations
—

 
567,484

 
—

 
—

 
—

 
567,484

Net change in cash and cash equivalents
1,703

 
(10,546
)
 
9,931

 
(221
)
 
—

 
867

Cash and cash equivalents, beginning of period
2

 
156,116

 
2,482

 
221

 
—

 
158,821

Cash and cash equivalents, end of period
$
1,705

 
$
145,570

 
$
12,413

 
$
—

 
$
—

 
$
159,688


34
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

Condensed Consolidating Statements of Cash Flows - continued

 
Nine Months Ended September 30, 2015
 
 
 
 
 
Non-
 
Non-
 
 
 
 
 
 
 
 
 
Guarantor
 
Guarantor
 
 
 
 
 
 
 
 
 
Subsidiaries
 
Subsidiaries
 
 
 
 
 
 
 
Guarantor
 
(100%
 
(Not 100%
 
 
 
 
(In thousands)
Parent
 
Subsidiaries
 
Owned)
 
Owned)
 
Eliminations
 
Consolidated
Cash flows from operating activities
 
 
 
 
 
 
 
 
 
 
 
Net cash from operating activities
$
(38,073
)
 
$
281,845

 
$
(16,309
)
 
$
(78
)
 
$
14,064

 
$
241,449

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
(38,068
)
 
(48,832
)
 
(97
)
 
—

 
—

 
(86,997
)
Net activity with affiliates
—

 
(181,674
)
 
—

 
—

 
181,674

 
—

Other investing activities
2,618

 
1,159

 
—

 
—

 
—

 
3,777

Net cash from investing activities
(35,450
)
 
(229,347
)
 
(97
)
 
—

 
181,674

 
(83,220
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
Borrowings under bank credit facility
627,000

 
262,100

 
—

 
—

 
—

 
889,100

Payments under bank credit facility
(949,700
)
 
(335,550
)
 
—

 
—

 
—

 
(1,285,250
)
Proceeds from issuance of senior notes, net
750,000

 
—

 
—

 
—

 
—

 
750,000

Debt financing costs, net
(14,001
)
 
—

 
—

 
—

 
—

 
(14,001
)
Retirements of senior notes
(500,000
)
 
—

 
—

 
—

 
—

 
(500,000
)
Premium and consent fees paid
(24,246
)
 
—

 
—

 
—

 
—

 
(24,246
)
Net activity with affiliates
178,596

 
—

 
17,064

 
78

 
(195,738
)
 
—

Share-based compensation activities, net
5,875

 
—

 
—

 
—

 
—

 
5,875

Other financing activities
—

 
(3
)
 
—

 
—

 
—

 
(3
)
Net cash from financing activities
73,524

 
(73,453
)
 
17,064

 
78

 
(195,738
)
 
(178,525
)
Cash flows from discontinued operations
 
 
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
—

 
—

 
—

 
—

 
—

 
—

Cash flows from investing activities
—

 
—

 
—

 
—

 
—

 
—

Cash flows from financing activities
—

 
—

 
—

 
—

 
—

 
—

Net cash from discontinued operations
—

 
—

 
—

 
—

 
—

 
—

Net change in cash and cash equivalents
1

 
(20,955
)
 
658

 
—

 
—

 
(20,296
)
Cash and cash equivalents, beginning of period
2

 
143,580

 
1,540

 
219

 
—

 
145,341

Cash and cash equivalents, end of period
$
3

 
$
122,625

 
$
2,198

 
$
219

 
$
—

 
$
125,045


NOTE 13.    SUBSEQUENT EVENTS
We have evaluated all events or transactions that occurred after September 30, 2016. During this period, up to the filing date, we did not identify any additional subsequent events, other than the Cannery Purchase Amendment disclosed in Note 3, Acquisitions and Divestitures, the effects of which would require disclosure or adjustment to our financial position or results of operations.


35



Item 2.         Management's Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
Boyd Gaming Corporation (and together with its subsidiaries, the "Company," "Boyd Gaming," "we" or "us") was incorporated in the state of Nevada in 1988 and has been operating since 1975. The Company's common stock is traded on the New York Stock Exchange under the symbol "BYD."

We are a diversified operator of 22 wholly-owned gaming entertainment properties. Headquartered in Las Vegas, Nevada, we have gaming operations in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana and Mississippi. We view each operating property as an operating segment. For financial reporting purposes, we aggregate our wholly-owned properties into 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
Aliante Casino + Hotel + Spa
North Las Vegas, Nevada
Eldorado Casino
Henderson, Nevada
Jokers Wild Casino
Henderson, Nevada
Downtown Las Vegas
 
California Hotel and Casino
Las Vegas, Nevada
Fremont Hotel and Casino
Las Vegas, Nevada
Main Street Station Casino, Brewery and Hotel
Las Vegas, Nevada
Midwest and South
 
Par-A-Dice Hotel Casino
East Peoria, Illinois
Blue Chip Casino, Hotel & Spa
Michigan City, Indiana
Diamond Jo Dubuque
Dubuque, Iowa
Diamond Jo Worth
Northwood, Iowa
Kansas Star Casino
Mulvane, Kansas
Amelia Belle Casino
Amelia, Louisiana
Delta Downs Racetrack Casino & Hotel
Vinton, Louisiana
Evangeline Downs Racetrack and Casino
Opelousas, Louisiana
Sam's Town Hotel and Casino
Shreveport, Louisiana
Treasure Chest Casino
Kenner, Louisiana
IP Casino Resort Spa
Biloxi, Mississippi
Sam's Town Hotel and Gambling Hall
Tunica, Mississippi

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

On May 31, 2016, we announced that we had entered into an Equity Purchase Agreement to sell our 50% equity interest in the parent company of Borgata Hotel Casino and Spa ("Borgata") to MGM Resorts International ("MGM"), and this transaction closed on August 1, 2016. We account for our investment in Borgata by applying the equity method and report its results as discontinued operations for all periods presented in this Quarterly Report on Form 10-Q.

In third quarter 2016, the Peninsula Gaming, LLC ("Peninsula") debt was refinanced, eliminating the financing structure that restricted our ability to transfer cash from Peninsula to Boyd Gaming. As a result of the elimination of this restriction, management has concluded that the properties previously comprising the Peninsula segment will be aggregated into the Midwest and South reportable segment.

Also, as of September 27, 2016, our Las Vegas Locals segment includes our wholly-owned subsidiary, Aliante Casino + Hotel + Spa ("Aliante") (see Note 3, Acquisitions and Divestitures).

36




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

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

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

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

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

Operating Efficiently
We are committed to operating more efficiently and endeavor to prevent unneeded expense in our business. As we continue to experience revenue growth in both our gaming and non-gaming operations, the efficiencies of our business model position us to flow a substantial portion of the revenue growth directly to the bottom line.

Evaluating Acquisition Opportunities
Our evaluations of potential transactions and acquisitions are strategic, deliberate, and disciplined. Our goal is to identify and pursue opportunities that are a good fit for our business, deliver a solid return for shareholders, and are available at the right price, such as the recent acquisition of Aliante Casino + Hotel + Spa, and the pending acquisition of Cannery Casino and Hotel and Eastside Cannery Casino and Hotel.

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

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

•
Gaming revenue measures:
•
Slot handle, which means the dollar amount wagered in slot machines, and table game drop, which means the total amount of cash deposited in table game drop boxes, plus the sum of markers issued at all table games. Slot handle and table game drop are measures of volume and/or market share.
•
Slot win and table game hold, which mean the difference between customer wagers and customer winnings on slot machines and table games, respectively. Slot win and table game hold percentages represent the relationship between slot handle and table game drop to gaming wins and losses.

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

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


37



RESULTS OF OPERATIONS
Overview
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions)
2016
 
2015
 
2016
 
2015
Net revenues
$
531.9

 
$
546.3

 
$
1,629.2

 
$
1,656.8

Operating income
67.9

 
69.4

 
230.7

 
224.4

Income from continuing operations, net of tax
161.9

 
7.0

 
194.7

 
25.1

Income from discontinued operations, net of tax
180.7

 
18.4

 
211.1

 
29.0

Net income
342.6

 
25.4

 
405.8

 
54.1


Net Revenues
Net revenues decreased $14.4 million, or 2.6%, for the three months ended September 30, 2016, compared to the prior year period due to a $15.2 million decrease in net revenues in the Midwest and South segment, primarily at IP, Evangeline Downs and Par-A-Dice. The three states in which these casinos operate continue to struggle with soft markets and an increased gaming capacity. Partially offsetting these decreases was an increase of $0.9 million in the Las Vegas Locals segment net revenues.

Net revenues decreased $27.6 million, or 1.7%, for the nine months ended September 30, 2016, compared to the prior year period due to a $41.2 million decrease in net revenues in the Midwest and South segment, primarily due to decreases in net revenues at Par-A-Dice, IP and Evangeline Downs. The three states in which these casinos operate continue to struggle with increased gaming capacity in their markets. These decreases were partially offset by increases of $10.9 million and $2.7 million in Las Vegas Locals and Downtown Las Vegas segments, respectively.

Operating Income
The $1.5 million, or 2.2%, decrease in operating income during the three months ended September 30, 2016, compared to the corresponding period of the prior year reflects a $2.2 million increase in project development, preopening and writedowns costs over the prior year period, related primarily to costs surrounding our pending acquisitions, as well as the impact of decreased net revenues in our Midwest and South segment.

Operating income increased $6.3 million, or 2.8%, during the nine months ended September 30, 2016, compared to the corresponding period of the prior year. Operating margins in gaming, food and beverage and rooms did not change significantly. The increase is primarily a result of a decrease in gaming operating cost in the Midwest and South segment and is partially offset by a $7.3 million increase in project development, preopening and writedowns costs over the prior year period, associated with the acquisition of Aliante and the pending acquisition of Cannery Casino Hotel and Nevada Palace, LLC (the "Cannery Properties").

Income from continuing operations, net of tax
Income from continuing operations for the three months ended September 30, 2016 was $161.9 million, as compared to income from continuing operations of $7.0 million in the comparable prior year period. The three months ended September 30, 2016 included an income tax benefit of $190.4 million related to the release of a valuation allowance on our federal and unitary state income tax net operating loss carryforwards and other deferred tax assets. Partially offsetting the benefit is $40.7 million of additional loss on early extinguishment of debt compared to the prior year period due to the modification of the Boyd Gaming Bank Credit Facility, redemption of our 9.0% senior notes due 2018 and Peninsula's 8.375% senior notes due 2018, and the extinguishment of the Peninsula Bank Credit Facility. Interest expense, net of amounts capitalized, for the three months ended September 30, 2016, decreased $1.4 million compared to the corresponding period of the prior year primarily due to interest rate effects of the same debt transactions.

The $169.6 million increase in income from continuing operations during the nine months ended September 30, 2016, compared to the corresponding period of the prior year reflects an income tax benefit of $190.4 million related to the release of a valuation allowance on our federal and unitary state income tax net operating loss carryforwards and other deferred tax assets. Partially offsetting the benefit is a $10.0 million increase of loss on early extinguishment of debt.
 
Income from discontinued operations, net of tax
Income from discontinued operation, net of tax, reflects the results of our equity method investment in Borgata. The increase in both the three and nine months ended September 30, 2016 compared to the corresponding periods of the prior year is primarily a result of the $181.7 million after-tax gain on the sale of our equity interest in Borgata and the property tax refund received of $4.3

38



million received subsequent to the sale, both of which are included in discontinued operations in the three and nine months ended September 30, 2016.

Net Income (Loss)
Net income for the three months ended September 30, 2016 was $342.6 million, compared with net income of $25.4 million for the corresponding period of the prior year. The $317.1 million change is primarily due to the $162.3 million increase of income from discontinued operations, which includes the gain on the sale of our equity interest in Borgata on August 1, 2016, and the $193.3 million increase in income tax benefit due to the release of the valuation allowance. These increases were offset by a $40.7 million increase in loss on early extinguishments and modifications of debt in the three months ended September 30, 2016 compared to the prior year period.

Net income for the nine months ended September 30, 2016 was $405.8 million, compared with net income of $54.1 million for the corresponding period of the prior year. The $351.7 million increase over the prior year period is primarily due to the sale of Boyd Gaming's equity interest in Borgata, which is classified as income from discontinued operations, as well as the $168.3 million increase in income tax benefit due to the release of the valuation allowance. These increases were offset by a $42.4 million loss on early extinguishments and modifications of debt.

Operating Revenues
We derive the majority of our gross revenues from our gaming operations, which produced approximately 75% of gross revenues for each of the three months ended September 30, 2016 and 2015, and 75% and 76% of gross revenues for the nine months ended September 30, 2016 and 2015, respectively. Food and beverage gross revenues represent our next most significant revenue source, generating approximately 13% of gross revenues for each of the three months ended September 30, 2016 and 2015 and the nine months ended September 30, 2016 and 2015. Room revenues and other revenues separately contributed less than 10% of gross revenues during these periods.

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions)
2016
 
2015
 
2016
 
2015
REVENUES
 
 
 
 
 
 
 
Gaming
$
443.6

 
$
457.4

 
$
1,359.0

 
$
1,390.7

Food and beverage
74.3

 
76.7

 
227.0

 
230.9

Room
43.0

 
41.6

 
128.2

 
123.3

Other
29.5

 
32.4

 
90.8

 
92.8

Gross revenues
590.4

 
608.1

 
1,805.0

 
1,837.7

Less promotional allowances
58.5

 
61.8

 
175.8

 
180.9

Net revenues
$
531.9

 
$
546.3

 
$
1,629.2

 
$
1,656.8

 
 
 
 
 
 
 
 
COSTS AND EXPENSES
 
 
 
 
 
 
 
Gaming
$
217.1

 
$
225.7

 
$
658.4

 
$
677.0

Food and beverage
40.7

 
41.9

 
124.7

 
126.4

Room
11.2

 
10.8

 
33.0

 
31.5

Other
18.7

 
21.5

 
56.8

 
60.9

Total costs and expenses
$
287.7

 
$
299.9

 
$
872.9

 
$
895.8

 
 
 
 
 
 
 
 
MARGINS
 
 
 
 
 
 
 
Gaming
51.1
%
 
50.7
%
 
51.6
%
 
51.3
%
Food and beverage
45.1
%
 
45.4
%
 
45.0
%
 
45.3
%
Room
74.0
%
 
74.2
%
 
74.2
%
 
74.6
%
Other
36.9
%
 
33.7
%
 
37.4
%
 
34.5
%

Gaming
Gaming revenues are comprised primarily of the net win from our slot machine operations and table games. The $13.8 million, or 3.0%, decrease in gaming revenues during the three months ended September 30, 2016 as compared to the corresponding period of the prior year, was due to a decrease of $16.0 million in the Midwest and South segment. In the Midwest and South segment,

39



the decrease in gaming revenues was concentrated at IP, Evangeline and Par-A-Dice, all three of which continue to contend with increased gaming capacity in their markets. The Midwest and South segment experienced a 4.5% decrease in slot handle and a 5.8% decrease in table game drop. The decline was partially offset by an increase in gaming revenue of $2.3 million in the Las Vegas Locals segment, attributable primarily to a 0.2 percentage point increase in both table game hold and slot hold. Gaming expenses decreased by $8.6 million, or 3.8%, reflective of the overall reduction in gaming revenues.

The $31.7 million, or 2.3%, decrease in gaming revenues during the nine months ended September 30, 2016 as compared to the corresponding period of the prior year, was due to a decrease of $43.0 million in the Midwest and South segment. In the Midwest and South segment, the decrease in gaming revenues was concentrated at IP, Evangeline and Par-A-Dice, all three of which continue to contend with increased gaming capacity in their markets. Offsetting these decreases was a 4.7% increase in Blue Chip's gaming revenue resulting from their continued increase in market share. The Midwest and South segment experienced a 4.5% decrease in slot handle and a 5.0% decrease in table game drop. These declines in gaming revenue were partially offset by increases in gaming revenue of $8.8 million and $2.5 million in the Las Vegas Locals and Downtown Las Vegas segments, respectively, attributable primarily to increased table game hold and slot win percentages. Gaming expenses decreased by $18.6 million, or 2.8%, reflective of the overall reduction in gaming revenues.

Food and Beverage
Food and beverage revenues decreased $2.5 million, or 3.2%, during the three months ended September 30, 2016, as compared to the corresponding period of the prior year. The decrease in revenues was due to decreases in food covers of 7.6% and 6.3% in the Las Vegas Locals and Midwest and South segments, respectively. The effect of these changes was partially offset by increases in average guest check of 2.5% in the Downtown Las Vegas segment. Food and beverage expenses decreased by $1.2 million and margin remained consistent as compared to last year.

Food and beverage revenues decreased $4.0 million, or 1.7%, during the nine months ended September 30, 2016, as compared to the corresponding period of the prior year. The decrease in revenues was due to a decrease in food covers of 6.8%, 2.5% and 1.9% in the Midwest and South, the Downtown Las Vegas and the Las Vegas Locals segments, respectively. The effect of these changes was partially offset by increases in average guest check of 2.7% and 1.8% in the Downtown Las Vegas and Midwest and South segments, respectively. Food and beverage expenses decreased $1.7 million and margin remained consistent as compared to last year.

Room
Room revenues increased by $1.3 million, or 3.2%, during the three months ended September 30, 2016, as compared to the corresponding period of the prior year due to increases in average daily rate of 4.9%, 2.8% and 2.2% in the Downtown Las Vegas, Las Vegas Locals and Midwest and South segments, respectively. The increase in average daily rate was offset by 3.5% decreases in hotel occupancy over the prior year period in the Midwest and South segment. Room expenses and margin remained consistent as compared to last year.

Room revenues increased by $4.9 million, or 4.0%, during the nine months ended September 30, 2016, as compared to the corresponding period of the prior year due to increases in average daily rate of 3.1%, 2.2% and 1.9% in the Las Vegas Locals, Downtown Las Vegas and Midwest and South segments, respectively. Additionally, the increase in average daily rate was offset by 2.4% decrease in hotel occupancy over the prior year period in the Midwest and South segment. Room expenses increased $1.5 million and margin remained consistent as compared to last year.

Other
Other revenues relate to patronage visits at the amenities at our properties, including entertainment and nightclub revenues, retail sales, theater tickets and other venues. Other revenues decreased $2.8 million, or 8.6%, during the three months ended September 30, 2016, as compared to the prior year as a result of lower consumption of property amenities and decreased visitor spending.

Other revenues decreased $2.0 million, or 2.1%, during the nine months ended September 30, 2016, as compared to the prior year as a result of lower consumption of property amenities and decreased visitor spending during the year.

Revenues and Adjusted EBITDA by Reportable Segment
We determine each of our properties' profitability based upon Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), which represents earnings before interest expense, income taxes, depreciation and amortization, deferred rent, share-based compensation expense, project development, preopening and writedowns expenses, impairments of assets and other operating items, net, as applicable. Reportable Segment Adjusted EBITDA is the aggregate sum of the Adjusted EBITDA for each of the properties comprising our Las Vegas Locals, Downtown Las Vegas, Midwest and South segments before net amortization, preopening and other items. Results for Downtown Las Vegas include the results of our travel agency and captive insurance company in Hawaii. Corporate expense represents unallocated payroll, professional fees, aircraft expenses and various

40



other expenses not directly related to our casino and hotel operations. Furthermore, corporate expense excludes its portion of share-based compensation expense.

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

The following table presents our net revenues and Adjusted EBITDA by Reportable Segment:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions)
2016
 
2015
 
2016
 
2015
Net revenues
 
 
 
 
 
 
 
Las Vegas Locals
$
148.9

 
$
148.0

 
$
462.2

 
$
451.4

Downtown Las Vegas
56.6

 
56.7

 
174.4

 
171.7

Midwest and South
326.4

 
341.6

 
992.6

 
1,033.7

Net revenues
$
531.9

 
$
546.3

 
$
1,629.2

 
$
1,656.8

 
 
 
 
 
 
 
 
Adjusted EBITDA (1)
 
 
 
 
 
 
 
Las Vegas Locals
$
36.2

 
$
32.3

 
$
123.6

 
$
113.3

Downtown Las Vegas
10.0

 
10.1

 
37.0

 
33.1

Midwest and South
90.6

 
96.4

 
281.3

 
294.7

Total Reportable Segment Adjusted EBITDA
136.8

 
138.8

 
441.9

 
441.1

Corporate expense
(14.9
)
 
(13.6
)
 
(44.4
)
 
(45.0
)
Adjusted EBITDA
$
121.9

 
$
125.2

 
$
397.5

 
$
396.1

(1) Refer to Note 11, Segment Information, in the notes to the condensed consolidated financial statements (unaudited) for a reconciliation of Total Reportable Segment Adjusted EBITDA to operating income, as reported in accordance with GAAP in our accompanying condensed consolidated statements of operations.

Las Vegas Locals
Net revenues increased $.9 million, or 0.6%, during the three months ended September 30, 2016, as compared to the corresponding period of the prior year. Gaming revenue increased $2.3 million resulting from a 0.2 percentage point increase in table game hold percentage and a 0.2 percentage point increase in slot hold, offset by a 4.8% decrease in slot handle. Room revenues increased $1.4 million due to average daily rate and hotel occupancy increasing 2.8% and 0.5%, respectively. These increases were offset by a $1.2 million decrease in food and beverage revenue, resulting primarily from a 7.6% decrease in food covers, and a $2.5 million decrease in other revenues.

Net revenues increased $10.9 million, or 2.4%, during the nine months ended September 30, 2016, as compared to the corresponding period of the prior year, due primarily to an $8.8 million increase in gaming revenue and a $4.7 million increase in room revenue. The gaming revenue increase resulted from a 2.2% increase in table game drop and a 0.3 percentage point increase in table game hold percentage, and the room revenue increase related to a 1.3% increase in hotel occupancy and a 3.1% increase in average daily rate. Offsetting these increases is a $2.0 million decrease in other revenue.

Adjusted EBITDA increased by 12.1% and 9.1% for the three and nine months ended September 30, 2016, respectively, over the comparable prior year period due to the flow-through effects of higher revenues and our on-going cost control efforts.

Downtown Las Vegas
Net revenues decreased 0.1%, during the three months ended September 30, 2016, as compared to the corresponding period of the prior year. Gaming revenue was consistent with the prior year, however, promotional allowances increased $0.4 million. Additionally, food and beverage revenue and room revenues had modest increases of approximately $0.3 million each related to a 2.5% increase in average guest check and a 4.9% increase in average daily rate, respectively. We continue to tailor our marketing programs in the Downtown segment to cater to our Hawaiian market. During the three month periods ended September 30, 2016 and 2015, our Hawaiian market represented approximately 47% and 49% of our occupied rooms in this segment, respectively.

41




Net revenues increased $2.7 million, or 1.6%, during the nine months ended September 30, 2016, as compared to the corresponding period of the prior year, due primarily to a $2.5 million increase in gaming revenues resulting from a 0.9% increase in slot handle and a 0.4 percentage point increase in table game hold percentage. Additionally, food and beverage revenue and room revenues had modest increases of approximately $0.5 million each related to a 2.7% increase in average guest check and a 2.2% increase in average daily rate, respectively. During both the nine month periods ended September 30, 2016 and 2015, our Hawaiian market represented approximately 51% of our occupied rooms in this segment.

Adjusted EBITDA remained relatively flat for the three months ended September 30, 2016 and increased $3.8 million for the nine months ended September 30, 2016, over the comparable prior year period due to revenue gains coupled with our cost control efforts.

Midwest and South
Net revenues decreased $15.2 million, or 4.4%, during the three months ended September 30, 2016, as compared to the corresponding period of the prior year, primarily due to a gaming revenue decrease of $16.0 million, resulting from a 4.5% decrease in slot handle and a 5.8% decrease in table game drop. Food and beverage revenues decreased 3.9% from the prior year despite a 1.3% increase in average guest check due to a 6.3% decrease in food covers. Room revenues remained consistent with the prior year. The results for the segment were impacted by the short-term impact of the recent opening of a new competitor in the Biloxi market and increased gaming capacity in Illinois.

Net revenues decreased $41.2 million, or 4.0%, during the nine months ended September 30, 2016, as compared to the corresponding period of the prior year, primarily due to a gaming revenue decrease of $43.0 million, resulting from a 4.5% decrease in slot handle and a 5.0% decrease in table game drop. Food and beverage revenues decreased 4.6% from prior year despite an 1.8% increase in average guest check due to a 6.8% decrease in food covers. Room revenues remained consistent with the prior year. The results for the segment were impacted by severe flooding that affected operations in portions of Louisiana and Mississippi in the early months of the year, the short-term impact of the recent opening of a new competitor in the Biloxi market and increased gaming capacity in Illinois. Overall net revenues for the Midwest and South segment were positively impacted by increased market share achieved by both Treasure Chest and Blue Chip.

The segment reported decreases of $5.7 million and $13.3 million in Adjusted EBITDA for the three and nine months ended September 30, 2016, respectively, as compared to the corresponding prior year period due to the decrease in revenues.

Other Operating Costs and Expenses
The following costs and expenses, as presented in our condensed consolidated statements of operations, are further discussed below:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions)
2016
 
2015
 
2016
 
2015
Selling, general and administrative
$
80.8

 
$
80.0

 
$
241.7

 
$
242.7

Maintenance and utilities
27.9

 
29.0

 
76.7

 
81.0

Depreciation and amortization
47.9

 
51.3

 
143.8

 
155.3

Corporate expense
15.9

 
15.0

 
49.9

 
52.0

Project development, preopening and writedowns
3.7

 
1.5

 
11.5

 
4.2

Impairments of assets
—

 
—

 
1.4

 
1.1

Other operating items, net
—

 
0.2

 
0.6

 
0.3


Selling, General and Administrative
Selling, general and administrative expenses, as a percentage of gross revenues, were 13.7% during the three months ended September 30, 2016 and 13.1% during the three months ended September 30, 2015. The percentage of gross revenues for selling, general and administrative during the nine months ended September 30, 2016 was 13.4% and 13.2% for the nine months ended September 30, 2015. We continue to focus on disciplined and targeted marketing spend, and our ongoing cost containment efforts.

Maintenance and Utilities
Maintenance and utilities expenses, as a percentage of gross revenues, were 4.7% and 4.8% during the three months ended September 30, 2016 and 2015, respectively, and 4.2% and 4.4% during the nine months ended September 30, 2016 and 2015,

42



respectively. The decrease between the periods is primarily due to cost reductions associated with the Company's energy savings initiatives.

Depreciation and Amortization
Depreciation and amortization expenses, as a percentage of gross revenues, were 8.1% and 8.4% during the three months ended September 30, 2016 and 2015, respectively, and 8.0% and 8.5% during the nine months September 30, 2016 and 2015, respectively. Depreciation and amortization expense decreased $3.4 million for the three months ended September 30, 2016 and $11.4 million for the nine months ended September 30, 2016, compared to the respective prior year periods. The overall decreases are primarily due to the decrease in intangible asset amortization for the Midwest and South segment as its customer relationships are amortized using an accelerated method over their approximate useful life of five years.

Corporate Expense
Corporate expense represents unallocated payroll, professional fees, rent and various other administrative expenses that are not directly related to our casino and/or hotel operations, in addition to the corporate portion of share-based compensation expense. Corporate expense represented 2.7% and 2.5% of gross revenues during the three months ended September 30, 2016 and 2015, respectively, and 2.8% of gross revenues for both of the nine months ended September 30, 2016 and 2015.

Project Development, Preopening and Writedowns
Project development, preopening and writedowns represent: (i) certain costs incurred and recoveries realized related to the activities associated with various acquisition opportunities, strategic initiatives, dispositions and other business development activities in the ordinary course of business; (ii) certain costs of start-up activities that are expensed as incurred in our ongoing efforts to develop gaming activities in new jurisdictions and expenses related to other new business development activities that do not qualify as capital costs; and (iii) asset write-downs. The increase in such costs in the current year periods as compared to the prior year is primarily due to the costs incurred related to the recently announced acquisitions. Offsetting these costs for the three and nine months ended September 30, 2016, is a $6.3 million gain from the sale of non-operating assets.

Impairments of Assets
Impairments of assets for the nine months ended September 30, 2016 and 2015, included non-cash impairment charges related to non-operating assets.

Other Operating Items, net
Other operating items, net, is generally comprised of miscellaneous non-recurring operating charges, including direct and non-reimbursable costs associated with natural disasters and severe weather, including hurricane and flood expenses and subsequent recoveries of such costs, as applicable.

Other Expenses
Interest Expense, net
The following table summarizes information with respect to our interest expense on outstanding indebtedness:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions)
2016
 
2015
 
2016
 
2015
Interest Expense, net
$
54.2

 
$
56.1

 
$
167.6

 
$
169.2

Loss on Early Extinguishments and Modifications of Debt
41.5

 
0.9

 
42.4

 
32.3

Average Long-Term Debt Balance (1)
3,194.2

 
3,342.5

 
3,425.9

 
3,421.4

Weighted Average Interest Rates
5.6
%
 
5.8
%
 
5.3
%
 
5.8
%
(1) Average debt balance calculation does not include the related discounts or deferred finance charges.

Interest expense, net of capitalized interest and interest income, for the three months ended September 30, 2016, decreased $1.9 million, or 3.5%, over the prior year due to the redemption of the Peninsula 8.375% senior notes due February 2018, on September 2, 2016, and a reduction in average long-term debt balance of $148.4 million. The offset to the decreasing interest expense compared to the corresponding period in the prior year was due primarily to our $750 million senior notes at 6.375% due 2026, which we issued on March 28, 2016.

Interest expense, net of capitalized interest and interest income, for the nine months ended September 30, 2016, decreased $1.6 million, or 0.9%, over the prior year due to the redemption of the Peninsula 8.375% senior notes due February 2018, on September 2, 2016. The offset to the decreasing interest expense compared to the corresponding period in the prior year due primarily to $750 million of senior notes at 6.375% due 2026 which we issued on March 28, 2016. While the proceeds were partially used to pay

43



down the outstanding amount under the Boyd Gaming Revolving Credit Facility, the newly issued debt increased our average long-term debt balance of $4.6 million for the nine months ended September 30, 2016 compared to the prior year period.

On September 15, 2016, Boyd Gaming Corporation refinanced its Credit Facility. The Boyd Gaming Credit Facility provides for increased commitments under the existing senior secured revolving credit facility to an amount equal to $775.0 million, a commitment under the existing senior secured Term A Loan in an amount equal to $225.0 million, and a new $1.0 billion senior secured Term B-2 Loan. (See Note 7, Long-Term Debt.)

Loss on Early Extinguishments and Modifications of Debt
The components of the loss on early extinguishments and modifications of debt, are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions)
2016
 
2015
 
2016
 
2015
9.00% Senior Notes premium and consent fees
$
15.7

 
$
—

 
$
15.8

 
$
—

9.00% Senior Notes deferred finance charges
6.0

 
—

 
6.0

 
—

8.375% Senior Notes deferred finance charges
4.5

 
—

 
4.5

 
—

9.125% Senior Notes premium and consent fees
—

 
—

 
—

 
23.9

9.125% Senior Notes deferred finance charges
—

 
—

 
—

 
4.9

Boyd Gaming Credit Facility deferred finance charges
6.6

 
0.5

 
6.6

 
1.6

Peninsula Credit Facility deferred finance charges
8.7

 
0.4

 
9.5

 
1.9

Total loss on early extinguishments and modifications of debt
$
41.5

 
$
0.9

 
$
42.4

 
$
32.3


Income Taxes
As part of our review in determining the need for a valuation allowance, we assess the potential release of existing valuation allowances. In performing our analysis during the third quarter of 2016, we determined that the positive evidence in favor of releasing the valuation allowance, particularly evidence that was objectively verifiable, outweighed the negative evidence. We utilize a rolling twelve quarters of pretax income adjusted for permanent book to tax differences as a measure of cumulative results in recent years. We transitioned from a cumulative loss position to a cumulative income position over the rolling twelve quarters ended September 30, 2016. Other evidence considered in the analysis included, but was not limited to, a trend reflective of improvement in recent earnings, forecasts of profitability and taxable income and the reversal of existing temporary differences. The change in these conditions during the three months ended September 30, 2016 provided positive evidence that supported the release of the valuation allowance against a significant portion of our deferred tax assets. As such, we concluded that it was more likely than not that the benefit from these deferred tax assets would be realized. As a result, during the third quarter, we released $190.4 million of valuation allowance on our federal and unitary state income tax net operating loss carryforwards and other deferred tax assets.

The effective tax rates on income from continuing operations during the three months ended September 30, 2016 and 2015 were 683.2% and 34.5%, respectively. The effective tax rates on income from continuing operations during the nine months ended September 30, 2016 and 2015 were (849.9%) and (30.9%), respectively. Our effective tax rate is impacted by adjustments that are largely independent of our operating results before taxes. During the nine months ended September 30, 2016, the tax benefit was favorably impacted by the release of a valuation allowance on our federal and unitary state net operating loss carryforwards and other deferred tax assets. During the nine months ended September 30, 2015, the adjustments relate primarily to changes in our valuation allowance and the accrual of non-cash tax expense in connection with the tax amortization of indefinite-lived intangible assets that are not available to offset existing deferred tax assets. The deferred tax liabilities created by the tax amortization of these intangibles cannot be used to offset corresponding increases in the net operating loss deferred tax assets when determining our valuation allowance. Additionally, in the prior year, our tax benefit was favorably impacted, as a result of an effective settlement in connection with our 2005 - 2009 IRS audit, by the realization of unrecognized tax benefits and reversal of related accrued interest.

For the nine months ended September 30, 2015, we computed our benefit for income taxes by applying the actual effective tax rate, under the discrete method, to year-to-date income. The discrete method was used to calculate our income tax benefit as the annual effective tax rate was not considered a reliable estimate of year-to-date income tax benefit.

We have maintained a valuation allowance of $56.0 million against certain federal and state deferred tax assets as of September 30, 2016 due to uncertainties related to our ability to realize the tax benefits associated with these assets. In assessing the need to establish a valuation allowance, we consider, among other matters, the nature, frequency and severity of current and cumulative

44



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.

Income from Discontinued Operations, Net of tax
Income from discontinued operations reflects the $181.7 million after-tax gain on the August 1, 2016, sale of our equity interest in Borgata, our share of the results of Borgata through the date of sale and our portion of a property tax refund received in September 2016. The Company applied the equity method of accounting to its 50% investment in Borgata.

LIQUIDITY AND CAPITAL RESOURCES
Financial Position
Due to our debt structure, prior to the retirement of the Peninsula 8.375% senior notes due 2018 on September 2, 2016, we separately managed the working capital positions of Boyd Gaming and Peninsula, including their levels of cash and indebtedness. We operate with minimal or negative levels of working capital in order to minimize borrowings and related interest costs. The cash balances and working capital deficits are as follows:

 
September 30,
 
December 31,
(In millions)
2016
 
2015
Cash balance
 
 
 
Boyd Gaming
$
159.7

 
$
129.3

Peninsula (1)
 
 
29.6

 
 
 
 
Working capital surplus (deficit)
 
 
 
Boyd Gaming
$
(118.8
)
 
$
(79.5
)
Peninsula (1)
 
 
(17.9
)
(1) Peninsula 8.375% senior notes due 2018 were retired on September 2, 2016. Subsequent to that date, Peninsula cash and working capital is combined with Boyd Gaming.

Our bank credit facilities generally provide all necessary funds for the day-to-day operations, interest and tax payments, as well as capital expenditures. On a daily basis, we evaluate our cash position and adjust the balance under our bank credit facility as necessary, by either borrowing or paying down debt with excess cash. We also plan the timing and the amounts of capital expenditures. We believe that the borrowing capacity under the bank credit facility, subject to restrictive covenants, and cash flows from operating activities will be sufficient to meet our projected operating and maintenance capital expenditures for at least the next twelve months. The source of funds available to us for repayment of debt or to fund development projects is derived primarily from cash flows from operations and availability under our bank credit facility, to the extent availability exists after we meet working capital needs, and subject to restrictive covenants. See "Indebtedness", below, for further detail regarding funds available through our credit facility.
 
The Company could also seek to secure additional working capital, repay respective current debt maturities, or fund respective development projects, in whole or in part, through incremental bank financing and additional debt or equity offerings.


45



Cash Flows Summary
 
Nine Months Ended
 
September 30,
(In millions)
2016
 
2015
Net cash provided by operating activities
$
256.9

 
$
241.4

 
 
 
 
Cash flows from investing activities
 
 
 
Capital expenditures
(117.3
)
 
(87.0
)
Cash paid for acquisition, net of cash received
(372.3
)
 
—

Other investing activities
2.7

 
3.8

Net cash used in investing activities
(486.9
)
 
(83.2
)
 
 
 
 
Cash flows from financing activities
 
 
 
Net borrowings (payments) under Boyd Gaming bank credit facility
331.3

 
(322.7
)
Net payments under Peninsula bank credit facility
(662.8
)
 
(73.5
)
Retirements of senior notes
(700.0
)
 
(500.0
)
Proceeds from issuance of senior notes
750.0

 
750.0

Other financing activities
(55.1
)
 
(32.3
)
Net cash used in financing activities
(336.6
)
 
(178.5
)
Net cash provided by discontinued operations
567.5

 
—

Increase (decrease) in cash and cash equivalents
$
0.9

 
$
(20.3
)

Cash Flows from Operating Activities
During the nine months ended September 30, 2016 and 2015, we generated net operating cash flow of $256.9 million and $241.4 million, respectively. Generally, operating cash flows increased during 2016 as compared to the prior year period due to the flow through effect of higher revenues and the timing of working capital spending.

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

During the nine months ended September 30, 2016 and 2015, we incurred net cash outflows for investing activities of $486.9 million and $83.2 million, respectively. The increase in outflows as compared to the prior year period is primarily due to the acquisition of Aliante, which closed on September 27, 2016. The increase in our capital spending as compared to the prior year was due to our ongoing non-gaming amenities initiative and the hotel expansion project at our Delta Downs property.

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

The net cash outflows for financing activities in the nine months ended September 30, 2016 reflect primarily the net retirement of senior notes and the Peninsula bank credit facility during the period using the net cash proceeds from the sale of our equity interest in Borgata and cash flow from the amended Boyd Gaming Credit bank credit facility.

Cash Flows from Discontinued Operations
On May 31, 2016, we announced that we had entered into an Equity Purchase Agreement (the "Purchase Agreement") to sell our 50% equity interest in the parent company of Borgata to MGM. During the nine months ended September 30, 2016, net cash from discontinued operations activities primarily represents cash proceeds from the sale of Borgata of approximately $589 million.


46



Indebtedness
The outstanding principal balances of long-term debt, before unamortized discounts and fees, and the changes in those balances are as follows:
(In millions)
September 30, 2016
 
December 31, 2015
 
Increase/ (Decrease)
Boyd Gaming Debt
 
 
 
 
 
Bank credit facility
$
1,541.0

 
$
1,209.7

 
$
331.3

9.00% senior notes due 2020
—

 
350.0

 
(350.0
)
6.875% senior notes due 2023
750.0

 
750.0

 
—

6.375% senior notes due 2026
750.0

 
—

 
750.0

Other
0.6

 
—

 
0.6

 
3,041.6

 
2,309.7

 
731.9

 
 
 
 
 

Peninsula Gaming Debt
 
 
 
 

Bank credit facility
—

 
662.8

 
(662.8
)
8.375% senior notes due 2018
—

 
350.0

 
(350.0
)
 
—

 
1,012.8

 
(1,012.8
)
Total long-term debt
3,041.6

 
3,322.5

 
(280.9
)
Less current maturities
30.3

 
29.8

 
0.5

Long-term debt, net
$
3,011.3

 
$
3,292.7

 
$
(281.4
)

The amount of current maturities includes certain non-extending balances scheduled to be repaid within the next twelve months under the bank credit facilities.

Boyd Gaming Debt
Credit Facility
On September 15, 2016, the Company entered into an Amendment No. 1 and Joinder Agreement (the "Amendment") among the Company, certain financial institutions, Bank of America, N.A., as administrative agent and letter of credit issuer, and Wells Fargo Bank, National Association, as swing line lender. The Amendment modified the Third Amended and Restated Credit Agreement (the "Prior Credit Facility"), dated August 14, 2013, together referred to as the "Credit Facility" or the "Credit Agreement".

As modified by the Amendment, the Credit Facility provides for: (i) increased commitments under the existing senior secured revolving credit facility (the "Revolving Credit Facility") to an amount equal to $775.0 million, (ii) commitments under the existing senior secured term A loan (the "Term A Loan") in an amount equal to $225.0 million, and (iii) a new $1.0 billion senior secured term B-2 loan (the "Term B-2 Loan"). The maturity dates of the Revolving Credit Facility and the Term A Loan have been extended to September 15, 2021 (or earlier upon the occurrence or non-occurrence of certain events); the Term B-2 Loan matures on September 15, 2023 (or earlier upon the occurrence or non-occurrence of certain events); the maturity date of the existing senior secured term B-1 loan (the "Term B-1 Loan"), under which $274.0 million in aggregate principal is outstanding, remains August 14, 2020. The increase to the Term A Loan and the new Term B-2 Loan were fully funded on the effective date of the Amendment. Proceeds from the Credit Facility were used to refinance all outstanding obligations under the Prior Credit Facility and to fund transaction costs in connection with the Credit Facility and may be used for working capital and other general corporate purposes.

The Credit Facility includes an accordion feature which permits an increase in the Revolving Credit Facility and the issuance and increase of senior secured term loans in an amount up to (i) $550.0 million, plus (ii) certain voluntary permanent reductions of the Revolving Credit Facility and certain voluntary prepayments of the senior secured term loans, plus (iii) certain reductions in the outstanding principal amounts under the term loans or the Revolving Credit Facility, plus (iv) any additional amount if, after giving effect thereto, the First Lien Leverage Ratio (as defined in the Credit Agreement) would not exceed 4.25 to 1.00 on a pro forma basis, less (v) any Incremental Equivalent Debt (as defined in the Credit Agreement), in each case, subject to the satisfaction of certain conditions.

Pursuant to the terms of the Credit Facility (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 December 31, 2016, payable on a quarterly basis, (ii) the loans under the Term B-2 Loan will amortize in an annual amount equal to 1.00% of the original principal amount thereof, commencing December 31, 2016, payable on a quarterly basis, and (iii) beginning with the fiscal year ending December 31, 2016, the Company is required

47



to use a portion of its annual Excess Cash Flow, as defined in the Credit Agreement, to prepay loans outstanding under the Credit Facility.

The blended interest rate for outstanding borrowings under the Credit Facility was 3.5% at September 30, 2016 and 3.8% at December 31, 2015.

Amounts Outstanding
The principal amounts under the Credit Facility are comprised of the following:

 
September 30,
 
December 31,
(In millions)
2016
 
2015
Revolving Credit Facility
$
—

 
$
240.0

Term A Loan
225.0

 
183.3

Term B-1 Loan
274.0

 
730.8

Term B-2 Loan
1,000.0

 
—

Swing Loan
42.0

 
55.6

Total outstanding principal amounts under the Credit Facility
$
1,541.0

 
$
1,209.7


At September 30, 2016, approximately $1.5 billion was outstanding under the Credit Facility and $12.0 million was allocated to support various letters of credit, leaving remaining contractual availability of $721.0 million.

Interest and Fees
The interest rate on the outstanding balance from time to time of the Revolving Credit Facility and the Term A Loan is based upon, at the Company’s option, either: (i) the Eurodollar rate 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 total leverage ratio and ranges from 1.75% to 2.75% (if using the Eurodollar rate) and from 0.75% to 1.75% (if using the base rate). A fee of a percentage per annum (which ranges from 0.25% to 0.50% determined in accordance with a specified pricing grid based on the total leverage ratio) will be payable on the unused portions of the Revolving Credit Facility.

The interest rate on the outstanding balance from time to time of the Term B-1 Loan is based upon, at the Company’s option, either: (i) the Eurodollar rate (subject to a 1.00% minimum) plus 3.00%, or (ii) the base rate plus 2.00%. The interest rate on the outstanding balance from time to time of the Term B-2 Loan is based upon, at the Company’s option, either: (i) the Eurodollar rate (subject to a 0.00% minimum) plus 3.00%, or (ii) the base rate plus 2.00%.

The "base rate" under the Credit Agreement remains the highest of (x) Bank of America’s publicly-announced prime rate, (y) the federal funds rate plus 0.50%, or (z) the Eurodollar rate for a one-month period plus 1.00%.

Optional and Mandatory Prepayments
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 exceptions, including a 1.00% prepayment premium for any prepayment of the Term B-2 Loan prior to March 15, 2017 that is accompanied by a repricing of the Term B-2 Loan.

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, (ii) establishing a maximum permitted consolidated total leverage ratio, (iii) establishing a maximum permitted secured leverage ratio, (iv) imposing limitations on the incurrence of indebtedness, (v) imposing limitations on transfers, sales and other dispositions and (vi) imposing restrictions on investments, dividends and certain other payments. Subject to certain exceptions, the Company may be required to repay the amounts outstanding under the Amended Credit Agreement in connection with certain asset sales and issuances of certain additional secured indebtedness. In addition, it requires fixed quarterly amortization of principal and requires that the Company use a portion of its annual excess cash flow as defined in the agreement to prepay the loans.

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 will grant 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.

48




Senior Notes
6.375% Senior Notes due April 2026
Significant Terms
On March 28, 2016, we issued $750 million aggregate principal amount of 6.375% senior notes due April 2026 (the "6.375% Notes"). The 6.375% Notes require semi-annual interest payments on April 1 and October 1 of each year, commencing on October 1, 2016. The 6.375% Notes will mature on April 1, 2026 and are fully and unconditionally guaranteed, on a joint and several basis, by certain of our current and future domestic restricted subsidiaries, all of which are 100% owned by us. Net proceeds from the 6.375% Notes were used to pay down the outstanding amount under the Boyd Gaming Revolving Credit Facility and the balance was deposited in money market funds and classified as cash equivalents on the condensed consolidated balance sheet.

In conjunction with the issuance of the 6.375% Notes, we incurred approximately $13.0 million in debt financing costs that have been deferred and are being amortized over the term of the 6.375% Notes using the effective interest method.

The 6.375% Notes contain certain restrictive covenants that, subject to exceptions and qualifications, among other things, limit our ability and the ability of our restricted subsidiaries (as defined in the base and supplemental indentures governing the 6.375% Notes, together, the "Indenture") to incur additional indebtedness or liens, pay dividends or make distributions or repurchase our capital stock, make certain investments, and sell or merge with other companies. In addition, upon the occurrence of a change of control (as defined in the Indenture), we will be required, unless certain conditions are met, to offer to repurchase the 6.375% Notes at a price equal to 101% of the principal amount of the 6.375% Notes, plus accrued and unpaid interest and Additional Interest (as defined in the Indenture), if any, to, but not including, the date of purchase. If we sell assets or experience an event of loss, we will be required under certain circumstances to offer to purchase the 6.375% Notes.

At any time prior to April 1, 2021, we may redeem the 6.375% Notes, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and Additional Interest, if any, up to, but excluding, the applicable redemption date, plus a make whole premium. Subsequent to April 1, 2021, we may redeem all or a portion of the 6.375% Notes at redemption prices (expressed as percentages of the principal amount) ranging from 103.188% in 2021 to 100% in 2024 and thereafter, plus accrued and unpaid interest and Additional Interest.

In connection with the private placement of the 6.375% Notes, we entered into a registration rights agreement with the initial purchasers in which we agreed to file a registration statement with the SEC to permit the holders to exchange or resell the 6.375% Notes. We must use commercially reasonable efforts to file a registration statement and to consummate an exchange offer within 365 days after the issuance of the 6.375% Notes, subject to certain suspension and other rights set forth in the registration rights agreement. Under certain circumstances, including our determination that we cannot complete an exchange offer, we are required to file a shelf registration statement for the resale of the 6.375% Notes and to cause such shelf registration statement to be declared effective as soon as reasonably practicable (but in no event later than the 365th day following the issuance of the 6.375% Notes) after the occurrence of such circumstances. Subject to certain suspension and other rights, in the event that the registration statement is not filed or declared effective within the time periods specified in the registration rights agreement, the exchange offer is not consummated within 365 days after the issuance of the 6.375% Notes, or the registration statement is filed and declared effective but thereafter ceases to be effective or is unusable for its intended purpose for a period in excess of 30 days without being succeeded immediately by a post-effective amendment that cures such failure, the agreement provides that additional interest will accrue on the principal amount of the 6.375% Notes at a rate of 0.25% per annum during the 90-day period immediately following any of these events and will increase by 0.25% per annum at the end of each subsequent 90-day period, but in no event will the penalty rate exceed 1.00% per annum, until the default is cured. There are no other alternative settlement methods and, other than the 1.00% per annum maximum penalty rate, the agreement contains no limit on the maximum potential amount of consideration that could be transferred in the event we do not meet the registration statement filing requirements. We currently intend to file a registration statement, have it declared effective and consummate any exchange offer within these time periods. Accordingly, we do not believe that payment of additional interest under the registration payment arrangement is probable and, therefore, no related liability has been recorded in the consolidated financial statements.

Peninsula Gaming Debt
Bank Credit Facility
On September 2, 2016, Peninsula repaid all of the outstanding amounts, including all principal and accrued interest amounts, under the Peninsula senior secured credit facility (the "Peninsula Credit Facility") pursuant to the Peninsula Credit Agreement. In connection with the repayment in full of the Peninsula Credit Facility (the "Repayment"), the Peninsula Credit Agreement was terminated.


49



Debt Redemption
On September 2, 2016 we redeemed all of our 8.375% senior notes due February 2018 (the "8.375% Notes") at a redemption price of 100.0% plus accrued and unpaid interest to the redemption date. The redemption was funded using cash on hand.
 
On September 6, 2016 we redeemed all of our 9.00% senior notes due July 2020 (the "9.00% Notes") at a redemption price of 104.50% plus accrued and unpaid interest to the redemption date. The redemption was funded using cash on hand. (See Note 7, Long-Term Debt.)

Debt Service Requirements
Debt service requirements under our current outstanding senior notes consist of semi-annual interest payments (based upon fixed annual interest rates ranging from 6.375% to 6.875%) and principal repayments of our 6.875% senior notes due May 21, 2023, and our 6.375% senior notes due April 1, 2026.

Covenant Compliance
As of September 30, 2016, we believe that we were in compliance with the financial and other covenants of our debt instruments.

The indentures governing the senior notes contain provisions that allow for the incurrence of additional indebtedness, if after giving effect to such incurrence, the fixed charge coverage ratio (as defined in the respective indentures, essentially a ratio of our consolidated EBITDA to fixed charges, including interest) for the trailing four quarter period on a pro forma basis would be at least 2.0 to 1.0. Should this provision prohibit the incurrence of additional debt, we may still borrow under our existing credit facility. At September 30, 2016, the available borrowing capacity under our credit facility was $721.0 million.

Share Repurchase Program
Subject to applicable corporate securities laws, repurchases under our stock repurchase program may be made at such times and in such amounts as we deem appropriate. We are subject to certain limitations regarding the repurchase of common stock, such as restricted payment limitations related to our outstanding notes and Credit Facility. Purchases under our stock repurchase program can be discontinued at any time that we feel additional purchases are not warranted. We intend to fund the repurchases under the stock repurchase program with existing cash resources and availability under our Credit Facility. In July 2008, our Board of Directors authorized an amendment to our existing share repurchase program to increase the amount of common stock available to be repurchased to $100 million. We are not obligated to purchase any shares under our stock repurchase program. During the nine months ended September 30, 2016 and 2015, we did not repurchase any shares of our common stock. We are currently authorized to repurchase up to an additional $92.1 million in shares of our common stock under the share repurchase program.

We have in the past, and may in the future, acquire our debt or equity securities, through open market purchases, privately negotiated transactions, tender offers, exchange offers, redemptions or otherwise, upon such terms and at such prices as we may determine.

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

Commitments
Capital Spending and Development
Our estimated total capital expenditures for 2016, excluding the acquisition of Aliante and the pending acquisition discussed below, are expected to be approximately $225 million, primarily comprised of projects to reposition non-gaming amenities, the hotel expansion project at our Delta Downs property, and various maintenance capital expenditures across our properties. We intend to fund such capital expenditures through our credit facility and operating cash flows.

In addition to the capital spending discussed above, we also continue to pursue other potential development projects that may require us to invest significant amounts of capital. We continue to work with Wilton Rancheria, a federally-recognized tribe located about 30 miles southeast of Sacramento, California, to develop and manage a gaming entertainment complex.

Pending Acquisition
On April 25, 2016, we announced that we had entered into a definitive agreement (the "Cannery Purchase Agreement") to acquire The Cannery Hotel and Casino, LLC ("Cannery"), the owner and operator of Cannery Casino Hotel, located in North Las Vegas, and Nevada Palace, LLC ("Eastside"), the owner and operator of Eastside Cannery Casino and Hotel, located in the eastern part of the Las Vegas Valley, comprising the Las Vegas assets of Cannery Casino Resorts, LLC ("CCR"), for total cash consideration

50



of $230 million, subject to adjustment based on the working capital, including cash and less indebtedness of the acquired assets and less any transaction expenses (the "Cannery Purchase").

The completion of the Cannery Purchase is subject to customary conditions and the receipt of all required regulatory approvals, including, among others, approval by the Nevada Gaming Commission and the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Subject to the satisfaction or waiver of the respective conditions in the Cannery Purchase Agreement, we currently expect the transaction to close by the end of 2016. The acquisition will be funded with cash on hand and available revolver capacity under our Bank Credit Facility.

Divestiture of Borgata
Prior to the sale of our equity interest, which closed on August 1, 2016, the Company and MGM each held a 50% interest in Marina District Development Holding Company, LLC ("MDDHC"), which owns all the equity interests in Borgata. Until the closing of the sale, we were the managing member of MDDHC, and we were responsible for the day-to-day operations of Borgata.

Pursuant to the Purchase Agreement, on August 1, 2016, MGM acquired from Boyd Gaming 49% of its 50% membership interest in MDDHC and, immediately thereafter, MDDHC redeemed Boyd Gaming’s remaining 1% membership interest in MDDHC (collectively, the "Transaction"). Following the Transaction, MDDHC became a wholly-owned subsidiary of MGM.

In consideration for the Transaction, MGM paid Boyd Gaming $900 million. The initial net cash proceeds were approximately $589 million, net of certain expenses and adjustments on the closing date, including outstanding indebtedness, cash and working capital. These initial proceeds do not include our 50% share of any future property tax settlement benefits, from the time period during which we held a 50% ownership in MDDHC, to which Boyd Gaming retains the right to receive upon payment. Borgata estimates that it is entitled to property tax refunds totaling between $140 million and $160 million, including amounts due under court decisions rendered in its favor and estimates for open tax appeals.

The after-tax gain on the sale of Borgata was $181.7 million and is included in discontinued operations in the three and nine months ended September 30, 2016.

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.

Other Opportunities
We regularly investigate and pursue additional expansion opportunities in markets where casino gaming is currently permitted. We also pursue expansion opportunities in jurisdictions where casino gaming is not currently permitted in order to be prepared to develop projects upon approval of casino gaming. Such expansions will be affected and determined by several key factors, which may include the following:
 
•
the outcome of gaming license selection processes;
•
the approval of gaming in jurisdictions where we have been active but where casino gaming is not currently permitted;
•
identification of additional suitable investment opportunities in current gaming jurisdictions; and
•
availability of acceptable financing.
 
Additional projects may require us to make substantial investments or may cause us to incur substantial costs related to the investigation and pursuit of such opportunities, which investments and costs we may fund through cash flow from operations or availability under our Credit Facility. To the extent such sources of funds are not sufficient, we may also seek to raise such additional funds through public or private equity or debt financings or from other sources.

Off Balance Sheet Arrangements
There have been no material changes to our off balance sheet arrangements as defined in Item 303(a)(4)(ii) and described under Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on February 25, 2016.

Critical Accounting Policies
There have been no material changes to our critical accounting policies described under Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the period ended December 31, 2015, as filed with the SEC on February 25, 2016.


51



Recently Issued Accounting Pronouncements
For information with respect to recent accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, see Note 2, Summary of Significant Accounting Policies - Recently Issued Accounting Pronouncements, in the notes to the condensed consolidated financial statements (unaudited).

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

•
The effects of intense competition that exists in the gaming industry.
•
The risk that our acquisitions and other expansion opportunities divert management’s attention or incur substantial costs, or that we are otherwise unable to develop, profitably manage or successfully integrate the businesses we acquire.
•
The risk that we fail to receive all required governmental approvals, including clearance from the Federal Trade Commission ("FTC") and approval of the Nevada Gaming Commission, regarding our acquisition of the Cannery Properties.
•
The fact that our expansion, development and renovation projects (including enhancements to improve property performance) are subject to many risks inherent in expansion, development or construction of a new or existing project.
•
The risk that any of our projects may not be completed, if at all, on time or within established budgets, or that any project will result in increased earnings to us.
•
The risk that significant delays, cost overruns, or failures of any of our projects to achieve market acceptance could have a material adverse effect on our business, financial condition and results of operations.
•
The risk that new gaming licenses or jurisdictions become available (or offer different gaming regulations or taxes) that results in increased competition to us.
•
The risk that negative industry or economic trends, reduced estimates of future cash flows, disruptions to our business, slower growth rates or lack of growth in our business, may result in significant write-downs or impairments in future periods.
•
The risk that regulatory authorities may revoke, suspend, condition or limit our gaming or other licenses, impose substantial fines and take other adverse actions against any of our casino operations.
•
The risk that we may be unable to refinance our respective outstanding indebtedness as it comes due, or that if we do refinance, the terms are not favorable to us.
•
The effects of the extensive governmental gaming regulation and taxation policies that we are subject to, as well as any changes in laws and regulations, including increased taxes and imposition of smoking bans, which could harm our business.
•
The effects of federal, state and local laws affecting our business such as the regulation of smoking, the regulation of directors, officers, key employees and partners and regulations affecting business in general.
•
The effects of extreme weather conditions or natural disasters on our facilities and the geographic areas from which we draw our customers, and our ability to recover insurance proceeds (if any).
•
The effects of events adversely impacting the economy or the regions from which we draw a significant percentage of our customers, including the effects of the recent economic recession, war, terrorist or similar activity or disasters in, at, or around our properties.
•
The risk that we fail to adapt our business and amenities to changing customer preferences.
•
Financial community and rating agency perceptions of us, and the effect of economic, credit and capital market conditions on the economy and the gaming and hotel industry.
•
The effect of the expansion of legalized gaming in the regions in which we operate.
•
The risk of failing to maintain the integrity of our information technology infrastructure and our business and customer data.
•
Our estimated effective income tax rates, estimated tax benefits, and merits of our tax positions.
•
Risks relating to our realization and estimates of our 50% share of any future property tax settlement benefits from Borgata.
•
Our ability to utilize our net operating loss carryforwards and certain other tax attributes.
•
The risks relating to owning our equity, including price and volume fluctuations of the stock market that may harm the market price of our common stock and the potential of certain of our stockholders owning large interest in our capital stock to significantly influence our affairs.
•
Other statements regarding our future operations, financial condition and prospects, and business strategies.


52



Additional factors that could cause actual results to differ are discussed in Part I. Item 1A. Risk Factors of our Annual Report on Form 10-K for the period ended December 31, 2015, and in other current and periodic reports filed from time to time with the SEC. All forward-looking statements in this document are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement.

Item 3.        Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. We do not hold any market risk sensitive instruments for trading purposes. Our primary exposure to market risk is interest rate risk, specifically long-term U.S. treasury rates and the applicable spreads in the high-yield investment market, short-term and long-term LIBOR rates, and short-term Eurodollar rates, and their potential impact on our long-term debt. We attempt to limit our exposure to interest rate risk by managing the mix of our long-term fixed-rate borrowings and short-term borrowings under our and Peninsula's bank credit facilities. We do not currently utilize derivative financial instruments for trading or speculative purposes.

As of September 30, 2016, our long-term variable-rate borrowings represented approximately 50.7% of total long-term debt. Based on September 30, 2016 debt levels, a 100 basis point change in the Eurodollar rate or the base rate would cause our annual interest costs to change by approximately $15.4 million.

See also "Liquidity and Capital Resources" above.

Item 4.          Controls and Procedures
As of the end of the period covered by this Report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report.

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

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PART II. Other Information

Item 1.        Legal Proceedings
We are parties to various legal proceedings arising in the ordinary course of business. We believe that all pending claims, if adversely decided, would not have a material adverse effect on our business, financial position or results of operations.

Item 1A.    Risk Factors
Set forth below are certain risk factors related to our business that include material changes to, or discuss risks in addition to, the risks previously disclosed in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2015.

We encourage investors to review the risks and uncertainties relating to our business disclosed in that Annual Report on Form 10-K, as well as those contained in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Important Information Regarding Forward-Looking Statements.

If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our securities, including our common stock, and senior notes, could decline significantly, and investors could lose all or part of their investment.

This report is qualified in its entirety by these risk factors.

Risks Related to our Business
We face risks associated with growth and acquisitions.
As part of our business strategy, we regularly evaluate opportunities for growth through development of gaming operations in existing or new markets, through acquiring other gaming entertainment facilities or through redeveloping our existing gaming facilities. For example, on April 25, 2016 we announced that we had entered into a definitive agreement to acquire the Cannery Casino Hotel and Eastside Cannery Hotel (the "Cannery Properties" and such pending acquisition, the "Cannery Purchase"), and on September 27, 2016 we acquired Aliante (the acquisition of Aliante, together with the Cannery Purchase, the "Acquisitions"). The Acquisitions are discussed in detail in Note 3 to the financial statements, Acquisitions and Divestitures.

In the future, we may also pursue expansion opportunities, including joint ventures, in jurisdictions where casino gaming is not currently permitted in order to be prepared to develop projects upon approval of casino gaming. The expansion of our operations, including as a result of the Acquisitions, development or internal growth, could divert management's attention and could also cause us to incur substantial costs, including legal, professional and consulting fees. There can be no assurance that we will be able to identify, acquire, develop or profitably manage additional companies or operations or successfully integrate such companies or operations into our existing operations without substantial costs, delays or other problems. Additionally, there can be no assurance that we will receive gaming or other necessary licenses or approvals for new projects that we pursue or that gaming will be approved in jurisdictions where it is not currently approved.

We may face integration difficulties and may be unable to integrate Aliante Casino + Hotel + Spa ("Aliante") and the Cannery Properties into Boyd Gaming's business successfully or realize the anticipated benefits of the Acquisitions. The acquisition of Aliante on September 27, 2016, and consummation of the pending Cannery Purchase will require the successful integration of three additional properties into Boyd Gaming’s operating structure in order to realize the anticipated benefits of the Acquisitions. We will be required to devote significant management attention and resources to ensure that such integration is successfully completed. Potential difficulties we may encounter as part of the integration process include the following:

•
the inability to successfully assume management of the new properties in a manner that permits the us to achieve the full revenue and other benefits anticipated to result from the Acquisitions;
•
complexities associated with managing the new properties, including difficulty addressing possible differences in corporate cultures and management philosophies and the challenge of integrating complex systems, technology, networks and other assets of each of the properties in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies; and
•
potential unknown liabilities and unforeseen increased expenses associated with the Acquisitions.

In addition, it is possible that the integration process could result in:

•
diversion of the attention of Boyd Gaming’s management; and

54



•
the disruption of, or the loss of momentum in, each property’s ongoing businesses or inconsistencies in standards, controls, procedures and policies,

any of which could adversely affect our ability to maintain relationships with customers, suppliers, employees and other constituencies or our ability to achieve the anticipated benefits of the Acquisitions, or could reduce our earnings or otherwise adversely affect our business and financial results.

Our ability to consummate the Cannery Purchase is contingent upon the receipt of governmental approvals and satisfaction of certain closing conditions.
The consummation of the Cannery Purchase is subject to customary conditions and the receipt of all required regulatory approvals, including, among others, approval by the Nevada Gaming Commission and the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR"), as amended. We have received a request from the FTC for additional information regarding our acquisition of the Cannery Properties and the FTC’s review is ongoing with respect to that acquisition. Further, the review of the Cannery Purchase by the Nevada Gaming Control Board is currently ongoing, and we have not yet received approval for from the Nevada Gaming Commission. If we fail to receive all such required regulatory approvals, or otherwise fail to satisfy a required closing condition, we will be unable to consummate the Cannery Purchase and our business will be negatively affected. Such effects could include, but are not limited to, the failure to recognize the anticipated benefits of the Cannery Purchase, the loss of management’s time and the expense expended with respect to investigating, entering into, and attempting to consummate such acquisition, as well as other related costs to Boyd Gaming’s business.


55



Item 6.
Exhibits
Exhibit Number
 
Document of Exhibit
 
Method of Filing
2.1
 
Agreement and Plan of Merger entered into as of April 21, 2016, by and among Boyd Gaming Corporation, Boyd TCII Acquisition, LLC, and ALST Casino Holdco, LLC. †
 
Incorporated by reference to Exhibit 2.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.
 
 
 
 
 
2.2
 
Membership Interest Purchase Agreement entered into as of April 25, 2016, by and among Boyd Gaming Corporation, The Cannery Hotel and Casino, LLC, Nevada Palace, LLC, and Cannery Casino Resorts, LLC. †
 
Incorporated by reference to Exhibit 2.2 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.
 
 
 
 
 
2.3
 
Equity Purchase Agreement entered into as of May 31, 2016, by and among MGM Resorts International, Boyd Atlantic City, Inc., and Boyd Gaming Corporation. †
 
Incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K filed with the SEC on June 2, 2016.
 
 
 
 
 
2.4
 
First amendment to Equity Purchase Agreement entered into as of July 19, 2016, by and among MGM Resorts International, Boyd Atlantic City, Inc., and Boyd Gaming Corporation.
 
Incorporated by reference to Exhibit 2.2 of the Registrant's Current Report on Form 8-K filed with the SEC on August 5, 2016.
 
 
 
 
 
2.5
 
First Amendment to Agreement and Plan of Merger, dated as of September 26, 2016, by and among Boyd Gaming Corporation, Boyd TCII Acquisition, LLC, and ALST Casino Holdco, LLC.
 
Incorporated by reference to Exhibit 2.2 of the Registrant's Current Report on Form 8-K filed with the SEC on September 27, 2016.
 
 
 
 
 
3.1
 
Amended and Restated By-Laws of Boyd Gaming Corporation, effective October 20, 2016.
 
Incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed with the SEC on October 26, 2016.
 
 
 
 
 
10.1
 
Amendment No. 1 and Joinder Agreement, dated as of September 15, 2016, among the Company, certain financial institutions, Bank of America, N.A., as administrative agent and letter of credit issuer, and Wells Fargo Bank, National Association, as swing line lender.
 
Incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed with the SEC on September 19, 2016.
 
 
 
 
 
10.2
 
First Amendment to Membership Interest Purchase Agreement, dated October 28, 2016, by and among Boyd Gaming Corporation, Cannery Casino Resorts, LLC, the Cannery Hotel and Casino, LLC, and Nevada Palace, LLC.
 
Incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed with the SEC on November 3, 2016.
 
 
 
 
 
31.1
 
Certification of the Chief Executive Officer of the Registrant pursuant to Exchange Act rule 13a-14(a).
 
Filed electronically herewith
 
 
 
 
 
31.2
 
Certification of the Chief Financial Officer of the Registrant pursuant to Exchange Act rule 13a-14(a).
 
Filed electronically herewith
 
 
 
 
 
32.1
 
Certification of the Chief Executive Officer of the Registrant pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. § 1350.
 
Filed electronically herewith
 
 
 
 
 
32.2
 
Certification of the Chief Financial Officer of the Registrant pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. § 1350.
 
Filed electronically herewith
 
 
 
 
 
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The following materials from Boyd Gaming Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015, (iii) Condensed Consolidated Statements of Changes in Stockholders' Equity for the nine months ended September 30, 2016 and 2015, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015, and (vi) Notes to Condensed Consolidated Financial Statements.
 
Filed electronically herewith

† Exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the SEC.


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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 8, 2016.
 
 
 
BOYD GAMING CORPORATION
 
 
 
 
By:
/s/ Anthony D. McDuffie
 
 
Anthony D. McDuffie
 
 
Vice President and Chief Accounting Officer



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