Boyd Gaming Corporation — FY2016 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2016; quarterly figures below include the fourth quarter. Boyd operated 24 wholly owned gaming properties across seven states, reported in Las Vegas Locals, Downtown Las Vegas, and Midwest and South segments. The filing was signed February 23, 2017.
Financial performance
| Metric | FY2016 | FY2015 | Change / context |
|---|---|---|---|
| Net revenue | $2,184.0 million | $2,199.4 million | Down 0.7% |
| Operating income | $260.6 million | $271.2 million | Down 3.9%; includes $38.3 million of impairment charges |
| Adjusted EBITDA | $536.3 million | $527.4 million | Up 1.7%; company-defined non-GAAP measure |
| Income from continuing operations, net | $205.5 million | $10.7 million | FY2016 benefited from a $201.5 million tax valuation-allowance release |
| Discontinued-operations income, net | $212.5 million | $36.5 million | Includes $181.7 million after-tax gain on Borgata sale |
| Net income attributable to Boyd | $418.0 million | $47.2 million | Diluted EPS was $3.63 versus $0.42 |
| Operating cash flow | $302.9 million | $325.8 million | Down $22.9 million |
| Capital expenditures | $160.4 million | $131.2 million | Operating cash flow less capex was approximately $142.5 million, versus $194.6 million |
Revenue and margins. Gaming generated about 75% of gross revenue. Gaming revenue declined 1.5% to $1,820.2 million; food and beverage revenue was $306.1 million, room revenue $170.8 million, and other revenue $122.4 million. Reported departmental margins were gaming 51.61% (51.23% in 2015), food and beverage 44.45% (45.32%), rooms 74.10% (74.74%), and other 37.33% (35.05%).
Balance sheet and liquidity. At year-end, cash and cash equivalents were $193.9 million, total assets $4.671 billion, total stockholders’ equity $934.1 million, and long-term debt net of current maturities $3.199 billion. Principal long-term debt was $3.283 billion, compared with $3.322 billion a year earlier. Working capital deficit improved to $57.6 million from $97.4 million. The company reported $471.9 million of undrawn Credit Facility availability after letters of credit and said cash flow and available credit were expected to cover projected operating and maintenance needs for at least 12 months, subject to covenants.
About 54.3% of debt was variable-rate; management estimated a 100-basis-point rate change would alter annual interest costs by approximately $17.8 million. The company stated it was in compliance with debt covenants at year-end.
Material changes versus the prior period
- Midwest and South revenue fell $55.4 million, or 4.1%, with gaming revenue down $58.3 million; management cited soft markets and increased gaming capacity. Las Vegas Locals revenue rose $37.8 million, partly reflecting the late-2016 acquisitions of Aliante, Cannery, and Eastside Cannery. Downtown Las Vegas revenue increased $2.2 million.
- Operating income decreased despite lower maintenance, utilities, and depreciation expense, as impairment charges rose $19.7 million and development, preopening, and writedown costs increased $15.2 million.
- Boyd sold its 50% Borgata interest to MGM on August 1 for $900 million gross consideration; initial net pretax cash proceeds were approximately $589 million. It acquired Aliante on September 27 for a net purchase price of $372.3 million and Cannery and Eastside Cannery on December 20 for $228.2 million.
- The company issued $750 million of 6.375% senior notes due 2026 and amended its credit facility, including a new $1.0 billion term B-2 loan. It redeemed its 9.00% notes due 2020 and 8.375% notes due 2018 and repaid the Peninsula credit facility. Debt-extinguishment and modification losses totaled $42.4 million.
- 2016 included $36.9 million of impairment charges for a Par-A-Dice gaming license, Amelia Belle goodwill, and Midwest and South trademarks. Total reported impairment expense was $38.3 million, including other asset write-downs.
Outlook, management commentary, risks, and unusual items
- Management expects approximately $248 million of capital expenditures in 2017, primarily including $78 million for land purchases and maintenance spending. Its non-gaming amenity investment initiative, begun in 2014, was expected to exceed $100 million through 2017.
- Boyd’s priorities are operating efficiency, strengthening the balance sheet and reducing debt, reinvesting in non-gaming amenities, and pursuing disciplined acquisitions and development. No specific revenue or earnings guidance was provided.
- The Wilton Rancheria development remained conditional: land was placed into trust in February 2017, but a tribal-state compact and regulatory approval of the management contract were still required; timing was undetermined.
- Key risks include intense competition and market weakness, dependence on discretionary consumer spending, gaming regulation and taxation, high leverage and refinancing needs, interest-rate exposure, acquisition integration, potential impairments, construction risks, and severe weather. The filing also discusses cybersecurity, environmental compliance, and insurance limitations.
- Boyd expects to receive 50% of Borgata’s $72 million property-tax settlement payments when Borgata receives them from the city. Legal proceedings were described as ordinary-course matters that management did not expect to have a material adverse effect.
- Quarterly results were uneven: fourth-quarter revenue was $554.8 million and operating income $30.0 million, versus $542.7 million and $46.8 million in fourth-quarter 2015. Fourth-quarter net income attributable to Boyd was $12.2 million.
- The financial-statement and internal-control audits received unqualified opinions. Management and the auditor excluded the three 2016 acquisitions from the internal-control assessment; those acquired businesses represented approximately 14.1% of year-end assets.
Most important facts for investors to verify
- Whether underlying performance in Midwest and South stabilizes, and how much Las Vegas Locals growth reflects acquisitions rather than comparable-property trends.
- The recurring earnings and cash-tax implications after the $201.5 million valuation-allowance release; FY2016 net income also includes the Borgata sale gain.
- Debt reduction, covenant headroom, refinancing capacity, and exposure to variable interest rates; reconcile stated debt availability with future capital spending and scheduled maturities.
- Acquisition integration and final purchase-price allocations, which were preliminary for Cannery and Eastside Cannery and expected to be completed by the third quarter of 2017.
- Execution, approvals, costs, and timing for 2017 capital projects and the Wilton Rancheria development, including the outstanding compact and management-contract approvals.