Boyd Gaming Corporation — FY2013 Form 10-K
Reporting period: Year ended December 31, 2013. This is an annual filing, not a standalone fourth-quarter report. Boyd operated 21 wholly owned gaming properties and controlled Borgata, a 50%-owned Atlantic City joint venture whose results are consolidated.
Key financial results
| Metric | FY2013 | FY2012 | Change or context |
|---|---|---|---|
| Net revenue | $2.894 billion | $2.483 billion | Up 16.6%; Peninsula contributed $463.4 million of incremental revenue. |
| Operating income (loss) | $278.3 million | $(850.3) million | FY2012 included $1.05 billion of impairment charges, chiefly Echelon. |
| Adjusted EBITDA | $657.0 million | $492.1 million | Up 33.5%; non-GAAP measure. |
| Net loss attributable to Boyd | $(80.3) million | $(908.9) million | FY2013 included $54.2 million of debt-extinguishment losses and $10.4 million of pretax impairment charges. |
| Net cash from operations | $277.0 million | $147.2 million | Up $129.9 million. |
| Cash capital expenditures | $144.5 million | $125.6 million | Operating cash flow exceeded cash capex by about $132.5 million. |
| Cash and cash equivalents | $177.8 million | $192.5 million | Down $14.7 million. |
| Debt, face amount | $4.426 billion | $4.956 billion | Down about $530 million; management described an approximately $525 million reduction in overall debt. |
| Interest expense, net | $344.3 million | $290.0 million | Higher mainly because FY2013 included a full year of Peninsula debt. |
Gaming generated about 74% of gross revenue in 2013. Gaming margin was 52.8%, versus 52.2% in 2012; food and beverage margin declined to 46.2% from 47.4%. Boyd reported a continuing-operations loss of $119.3 million and discontinued-operations income of $10.8 million; consolidated net loss was $108.6 million.
Fourth-quarter 2013 net revenue was $681.5 million, operating income was $39.2 million, and net loss attributable to Boyd was $47.3 million. Fourth-quarter 2012 operating and net losses were heavily affected by impairment charges.
Material changes and developments
- Peninsula, acquired in November 2012, contributed a full year of results in 2013. Its segment revenue was $520.3 million and Adjusted EBITDA was $185.3 million.
- Midwest and South revenue fell $60.0 million, mainly reflecting lower gaming volume. Excluding Peninsula, company-wide slot handle declined 4.0%.
- Boyd sold the Echelon site for $350 million gross proceeds and reported about $157 million net proceeds after the power-plant asset transaction and related costs. The sale also eliminated an estimated $16–$17 million of annual recurring expenses.
- Boyd sold Dania Jai-Alai for $65.5 million and recorded an $18.9 million pretax gain; its results are presented as discontinued operations.
- Boyd issued 18.975 million shares in an offering that generated $216.5 million net proceeds. It redeemed its 2014 and 2016 subordinated notes.
- Boyd refinanced its credit facility; Peninsula amended its facility to reduce loan margins; Borgata refinanced its 2015 notes with a $380 million incremental term loan. These transactions extended or restructured maturities but generated $54.2 million of debt-extinguishment losses.
- Borgata launched real-money online gaming in New Jersey in November 2013 and reported a 30% market share through February 2014. Online gaming contributed $2.2 million to Borgata’s 2013 gaming revenue increase.
Liquidity, debt and outlook
At year-end, Boyd reported $4.386 billion of debt on a carrying-value basis, including current maturities, and $177.8 million of consolidated cash. The businesses manage cash and working capital separately: Boyd, Peninsula and Borgata each reported working-capital deficits. Credit facilities provide operating liquidity, but availability is subject to covenants and is not freely interchangeable among the businesses. The filing reports differing Boyd and Borgata facility-availability figures in separate sections, so the precise available amounts should be verified against the debt disclosures.
Management said each business’s cash flows and credit-facility capacity were expected to cover projected operating and maintenance capital expenditures for at least the next 12 months, subject to restrictive covenants. The filing does not provide formal revenue or earnings guidance. Estimated 2014 capital spending was approximately $120 million excluding Borgata, including about $20 million for the final Kansas Star phase; Borgata expected to spend $25 million. Kansas Star’s remaining contracted development was expected to be completed by January 14, 2015.
Management emphasized cost control, operational efficiency, debt reduction and selective growth. It reported covenant compliance at December 31, 2013. Boyd paid no dividend and made no share repurchases in 2013.
Risks, contingencies and unusual items
- Leverage and refinancing: Significant debt, floating-rate exposure, covenant limits and large maturities remain central risks. The maturity schedule shows about $803 million due in 2017 and $2.320 billion in 2018. A 100-basis-point rate increase was estimated to raise annual interest costs by about $14.8 million at Boyd, $8.0 million at Peninsula and $4.2 million at Borgata.
- Competition and demand: Consumer spending, regional gaming expansion and competition from tribal, nearby-state and online operators can pressure visitation, revenue and margins. Midwest and South and Borgata experienced market pressures.
- Construction and regulation: Kansas Star’s remaining development carries cost, timing, approval and contract-compliance risks. Missing the final contractual deadline could expose the company to remedies, including cancellation of its Kansas management contract.
- Borgata ownership and property taxes: MGM’s 50% interest remained in a divestiture trust while its New Jersey licensure status was under review; Boyd lacked general control over selection of a new partner. Borgata’s favorable 2009–2010 property-tax decision is under appeal. Estimated refunds and statutory interest total about $57 million, but no gain was recorded pending a final, non-appealable outcome; 2011–2013 appeals remained unresolved.
- Impairments and taxes: FY2013 included $10.4 million of pretax impairment charges. The company had a $1.1 billion federal NOL carryforward but recorded valuation allowances against deferred tax assets. Unrecognized tax benefits were $37.1 million.
- Other exposures: Risks include weather and flood disruption, insurance adequacy, environmental liabilities, leased-property arrangements, gaming-license requirements, and multiemployer pension obligations. Borgata’s share of unfunded vested pension liability was reported as $61 million as of January 1, 2013.
Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective as of year-end. The filing states ordinary-course legal claims were not expected to have a material adverse effect.
Important facts for investors to verify
- Reconcile debt and liquidity figures across the filing, particularly credit-facility availability and the timing and funding of the 2017–2018 maturities.
- Assess operating performance excluding Peninsula’s acquisition contribution and the prior-year Echelon impairment, including the continued weakness in Midwest and South.
- Track Kansas Star’s remaining construction costs, completion schedule and compliance with the January 2015 contract deadline.
- Follow the Borgata ownership/licensure process and the appeals affecting estimated property-tax refunds.
- Evaluate Borgata online gaming economics and market share alongside New Jersey taxes, regulatory costs and competitive changes.
- Review the sensitivity of cash flow and covenant headroom to interest rates, operating trends, and any additional capital needs.