Boyd Gaming Corporation — FY2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; filed February 27, 2015. This is an annual report, not a standalone quarterly filing. Boyd operated 21 wholly owned gaming properties and held a 50% interest in Borgata in Atlantic City.
Financial performance
| Metric | FY2014 | FY2013 |
|---|---|---|
| Net revenue | $2.701 billion | $2.894 billion |
| Operating income | $251.5 million | $278.3 million |
| Net loss attributable to Boyd | $53.0 million | $80.3 million |
| Operating cash flow | $322.9 million | $277.0 million |
| Capital expenditures | $149.4 million | $144.5 million |
| Cash and equivalents at year-end | $145.3 million | $177.8 million |
| Long-term debt, net of current maturities | $3.432 billion | $4.353 billion |
Gross revenue was $3.118 billion, less $416.9 million of promotional allowances. Gaming supplied approximately 74% of gross revenue. Gaming margin was 52.86%, compared with 52.77% in 2013; food and beverage margin was 45.52%, down from 46.21%. Operating margin was approximately 9.3%, versus 9.6% in 2013. Segment Adjusted EBITDA was $664.7 million, up from $657.0 million; this is a non-GAAP measure.
Fourth-quarter 2014 net revenue was $531.6 million, operating income $22.2 million, and net loss attributable to Boyd $32.4 million. Borgata was consolidated through September 30, 2014, then reported under the equity method; consequently, the fourth quarter and annual revenue comparisons are not fully comparable.
Material changes and unusual items
- Net revenue fell 6.7% year over year, primarily because Borgata was deconsolidated for the fourth quarter, reducing reported revenue by $157.1 million relative to 2013. Lower slot activity also reduced revenue in the Midwest and South and Peninsula segments.
- Boyd recorded $60.8 million of 2014 impairment and related asset charges, including $40.1 million of gaming-license and trademark impairments, an $8.7 million write-down of non-operating assets, and a $12.1 million loss on Borgata deconsolidation.
- Operating income declined $26.8 million despite lower selling, general and administrative and maintenance costs; management cited cost controls and improved operating margins as partial offsets to impairments and weaker revenues.
- Interest expense, net, declined to $281.5 million from $342.2 million, principally because of Borgata’s deconsolidation, debt repayment, and lower borrowing costs. FY2014 also included a $1.5 million loss on early debt extinguishment, versus $54.2 million in 2013.
- Boyd repaid $177.2 million of debt in 2014, using operating cash flow. Cash declined by $32.5 million overall, reflecting investing and financing outflows as well as Borgata deconsolidation.
Liquidity, debt, and capital allocation
At year-end, Boyd and Peninsula had $3.482 billion of outstanding principal debt, excluding Borgata debt after deconsolidation. Boyd’s credit facility had approximately $267.8 million of availability; Peninsula’s had approximately $36.4 million. Variable-rate borrowings represented 64.4% of Boyd debt and 68.0% of Peninsula debt. Management estimated that a 100-basis-point rate increase would raise annual interest costs by approximately $13.9 million and $7.4 million, respectively.
Scheduled principal maturities are concentrated: $747.4 million in 2017 and $1.520 billion in 2018. The company reported working-capital deficits of $88.1 million at Boyd and $22.9 million at Peninsula, and stated that cash flows and credit availability should cover projected operating and maintenance needs for at least twelve months, subject to covenants and facility availability.
Boyd suspended dividends in 2008 and paid none in 2014. It made no share repurchases in 2014. Management estimated 2015 capital expenditures of approximately $160 million, primarily maintenance and repositioning of non-gaming amenities.
Outlook, risks, and contingencies
No specific revenue, earnings, or other quantitative operating guidance is provided. Management’s stated priorities are improving operating efficiency and margins, strengthening the balance sheet and reducing debt, and pursuing acquisitions or development opportunities only when they fit strategically and offer appropriate returns. It cited a recovering economy and improving consumer confidence, while noting that customers continued to spend less per visit and shifted spending toward non-gaming amenities.
- Key business risks include discretionary-spending sensitivity, intense competition from casinos and online gaming, and possible expansion of gaming near existing properties. New competition opened in Shreveport in 2013 and Lake Charles in December 2014.
- High leverage, covenant restrictions, substantial 2017–2018 maturities, refinancing needs, and exposure to variable interest rates could constrain investment and liquidity. Management reported Boyd and Peninsula were in covenant compliance at year-end.
- Gaming operations face extensive licensing, regulatory and tax requirements. Weather, flooding, hurricanes, riverboat inspection requirements, labor negotiations, leased-property exposure, and cybersecurity or data-security failures may disrupt operations.
- The company reported $30.2 million of unrecognized tax benefits and ongoing federal and state examinations. It expected the 2005–2009 IRS appeals settlement to produce a refund of approximately $2.7 million plus estimated interest of $0.45 million, to be recorded in Q1 2015.
- Management said pending ordinary-course legal claims were not expected to have a material adverse effect. The filing reports no unresolved SEC staff comments. The auditor issued an unqualified opinion on the financial statements and internal controls.
Most important facts for investors to verify
- Separate underlying property performance from the accounting effect of Borgata’s September 2014 deconsolidation; review Boyd’s continuing 50% investment and Borgata’s distributions and results.
- Assess whether operating cash flow can sustain capital spending and debt service, particularly with large 2017 and 2018 maturities and limited working capital.
- Track slot-volume trends and competitive pressure in the Midwest and South and Peninsula segments, as well as the performance of Borgata’s online-gaming business.
- Review impairment assumptions and the risk of further write-downs; FY2014 included material gaming-license impairments, while Diamond Jo Worth and Amelia Belle goodwill fair values were less than 5% above carrying values.
- Confirm progress on planned 2015 capital expenditures, refinancing plans, covenant headroom, and resolution of tax examinations and the Kansas Star contingent earnout.