Boyd Gaming Corporation — FY 2012 Form 10-K
Business context and reporting period
Annual report for the fiscal year ended December 31, 2012; filed March 16, 2013. Boyd operated 21 wholly owned gaming properties and controlled Borgata, across eight states, with five reportable segments. The filing covers the full year, not only Q4. Peninsula Gaming was acquired on November 20, 2012, so its results are included only from that date.
Financial results and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Gross revenue | $2.938 billion | $2.756 billion |
| Net revenue, after promotional allowances | $2.487 billion | $2.336 billion |
| Operating income (loss) | $(854.9) million | $233.1 million |
| Net income (loss) attributable to Boyd | $(908.9) million | $(3.9) million |
| Operating cash flow | $142.4 million | $253.5 million |
| Cash and cash equivalents at year-end | $192.8 million | $178.8 million |
| Long-term debt, net of current maturities | $4.828 billion | $3.347 billion |
| Total stockholders’ equity | $467.1 million | $1.374 billion |
Net revenue increased 6.5%, mainly reflecting the full-year contribution from IP Casino and a partial-period contribution from Peninsula; promotional allowances rose to $450.7 million from $419.9 million. Segment Adjusted EBITDA was $492.1 million, down from $506.3 million. Gaming generated about 72% of gross revenue. Gaming margin declined to 52.1% from 53.5%; room margin improved to 79.0% from 77.2%.
The operating loss primarily reflects $1.054 billion of non-cash impairments: $993.9 million for Echelon, $39.4 million for undeveloped land, $17.5 million for the Sam’s Town Shreveport gaming license, and $2.8 million for a Borgata parking project. The company reported a $220.8 million income-tax benefit, affected by a valuation allowance on deferred tax assets.
Year-end principal debt was approximately $4.956 billion across Boyd, Peninsula Gaming and Borgata; this includes debt at subsidiaries and is distinct from the balance-sheet net long-term debt figure. Boyd’s credit facility had $253.1 million of remaining availability; Peninsula’s facility had $12.7 million and Borgata’s had $40.0 million. Reported working-capital deficit was $195.3 million. Management said it believed the relevant facilities and operating cash flows would cover projected operating and maintenance needs for at least 12 months, subject to covenants.
Material changes versus the prior comparable period
- Peninsula Gaming added five properties and materially increased consolidated debt. Its acquisition consideration was approximately $1.477 billion; purchase-price allocations remained preliminary. It contributed $56.9 million of net revenue and a $5.2 million net loss from acquisition through year-end.
- IP, acquired in October 2011, contributed $187.9 million of net revenue in 2012 versus $44.6 million in its 2011 stub period.
- Operating cash flow fell $111.1 million, while net interest expense rose to $288.8 million from $250.7 million.
- Atlantic City net revenue fell 6.0% to $686.2 million amid regional competition and Borgata’s storm-related closure. Las Vegas Locals revenue fell 2.3%; Downtown Las Vegas was nearly flat.
- The 2012 loss sharply reduced equity, largely due to the Echelon impairment. Prior-period comparisons are also affected by IP’s acquisition and the earlier consolidation of Borgata.
Outlook, commentary, risks and unusual items
Management described recovery as uneven and the consumer-spending outlook as unpredictable. It cited sequential improvement in Las Vegas Locals during Q4, while noting weakness beginning in May 2012 and continued pressure in Atlantic City. Priorities include cost control, margin improvement, cash generation and strengthening the balance sheet. No specific revenue or earnings guidance was provided.
- Management estimated 2013 capital expenditures of approximately $153 million, including maintenance, gaming equipment, room renovations and IP improvements. The company had no present future expansion project commitments, but was evaluating development opportunities.
- After deciding not to resume Echelon, Boyd sold the site on March 4, 2013 for $350 million gross and reported approximately $157 million net proceeds after related payments and fees. This is a subsequent event, not FY 2012 operating cash flow.
- A planned Dania Jai-Alai asset sale for $65.5 million was expected to close by May 24, 2013, subject to conditions; it had not closed when the filing was made.
- Debt and covenant risk is significant. Boyd amended its credit facility in December 2012 to adjust financial covenant thresholds. The filing cites substantial refinancing needs, including significant scheduled maturities in 2015 and 2017. A $150 million redemption of Boyd’s 6.75% notes was announced for April 6, 2013.
- Key operating risks include discretionary consumer spending, intense competition (including tribal and nearby-market gaming), gaming regulation and taxation, severe weather, and the capital needs of casino properties. Borgata’s bank facility matures in August 2014; its ownership partner’s interest was subject to a regulatory divestiture process, with MGM’s relicensing efforts potentially affecting that process.
- Contingencies include the Treasure Chest license litigation; a Nevada meal-tax refund dispute with an estimated refund claim of $17.9–$20.3 million, not recognized as a gain; and Blue Chip property-tax assessments, for which $14.1 million was accrued. Borgata also disclosed substantial multiemployer pension exposure, including estimated withdrawal liabilities.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls. Management and the auditor excluded Peninsula Gaming from the 2012 internal-control assessment; Peninsula represented approximately 25.3% of total assets at year-end.
Important facts for investors to verify
- Whether post-acquisition Peninsula results, final purchase accounting, integration costs and debt service support the expected strategic benefits.
- Whether operating cash flow, covenant headroom and available liquidity can support upcoming maturities, capital spending and refinancing needs.
- The assumptions underlying the Echelon and other impairment valuations, and the final net cash impact of the site sale and related LVE obligations.
- The status and financial outcome of the Dania sale, Treasure Chest litigation, Nevada tax appeals and Blue Chip property-tax assessments.
- How competition, storm exposure and Borgata’s ownership and refinancing developments affect segment performance and cash available to Boyd.