Boyd Gaming Corporation — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013; unaudited. Boyd operated 21 wholly owned gaming properties and a controlling interest in Borgata. Results include Peninsula Gaming, acquired in November 2012, so reported year-over-year growth is not fully comparable.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Net revenue | $738.7 million | $614.1 million | $1,474.3 million | $1,245.7 million |
| Operating income | $79.4 million | $59.3 million | $160.8 million | $137.1 million |
| Income (loss) from continuing operations, net | $(6.5) million | $(0.0) million | $(17.2) million | $7.3 million |
| Net income attributable to Boyd | $11.6 million | $1.0 million | $4.3 million | $6.8 million |
| Operating cash flow | Not separately stated | Not separately stated | $165.8 million | $109.8 million |
- Q2 net revenue rose 20.3% and operating income rose 33.9%; six-month increases were 18.3% and 17.3%, respectively. Peninsula contributed $135.8 million of Q2 and $269.7 million of six-month net revenue.
- Operating margin was approximately 10.7% in Q2 versus 9.7% a year earlier. Despite higher operating income, continuing operations reported losses, primarily reflecting increased interest and depreciation and amortization expense.
- Boyd-attributable Q2 earnings included a $12.2 million after-tax gain on the Dania sale. Six-month earnings fell from 2012, partly because prior-year results included insurance-related gains.
- Six-month capital expenditures were $58.5 million. Cash and cash equivalents were $182.6 million at June 30, 2013, down from $192.5 million at year-end 2012. Current assets were $343.1 million and current liabilities $531.0 million.
- Gross debt principal was approximately $4.63 billion at June 30, 2013; reported debt net of discounts and financing costs was $4.57 billion, including $50.8 million of current maturities. Debt principal was approximately $4.96 billion at December 31, 2012. Boyd’s credit facility had $304.8 million of availability; Peninsula’s had $32.3 million. Management said the companies were in compliance with their respective covenants.
Changes and operating trends
- Peninsula drove consolidated growth, while same-segment trends were generally weaker. Excluding Peninsula, six-month gaming revenue declined across the other segments; same-segment slot drop and win fell 3.7% and 3.3%, and table-game drop and win fell 4.1% and 4.4%.
- Midwest and South revenue declined 4.0% in Q2 and 5.0% for six months, with lower gaming activity, hotel occupancy and food covers. Atlantic City revenue fell 1.4% and 3.7%, respectively, amid regional competition. Las Vegas Locals revenue was broadly flat in Q2 and slightly lower for six months.
- Reported consolidated revenue growth should be considered alongside the acquisition: Peninsula contributed $252.5 million of incremental six-month gaming revenue, partly offset by declines in other markets.
- Boyd redeemed all $215.7 million of its 6.75% notes due 2014 during the first half. Net debt reduction also reflected repayments under Boyd, Peninsula and Borgata credit facilities.
Outlook, notable items and risks
- Management described a slight recovery but cited reduced discretionary spending, cautious casual players, consumer-confidence concerns and difficult regional competition. It emphasized cost control, operational efficiency, balance-sheet strengthening and deleveraging. The filing gives no quantified earnings or revenue guidance.
- The Echelon site was sold for $350 million; after transaction costs and the $187 million LVE option exercise/payment, Boyd reported approximately $157 million of net proceeds. Management estimated annual savings of $16–$17 million from eliminating related recurring costs.
- Dania was sold for $65.5 million, with $58.5 million cash received and a $18.9 million pretax gain. Its results are presented as discontinued operations.
- A $5.0 million impairment related to Borgata’s CRDA deposits was recorded. A CRDA agreement provided for a 50% donation and 50% refund of $45.1 million of deposits; Borgata received approximately $22.5 million in July 2013.
- Blue Chip had an approximately $17.0 million accrued property-tax liability; final assessments could change the amount. The Nevada use-tax settlement ended the company’s refund claims in exchange for prospective meal-tax exemptions, subject to a claw-back provision if the exemption is reversed before February 1, 2019.
- The Copeland litigation could threaten the Treasure Chest gaming license if ultimately successful; the company stated it was defending the case. Other disclosed risks include high leverage and refinancing needs, covenant restrictions, competition, economic sensitivity, severe weather, regulatory changes and construction risks at Kansas Star, whose overall project deadline is January 14, 2015.
- Subsequent events: Boyd sold 18.975 million shares on August 7, 2013, receiving $216.7 million net of underwriting discount but before expenses, and announced full redemption of its $240.8 million 7.125% notes due 2016. These events occurred after quarter-end and are not included in June 30 cash or debt balances.
Investor verification priorities
- Separate Peninsula’s acquired contribution from same-property performance and assess whether operating trends improved after quarter-end.
- Reconcile Boyd-attributable earnings with continuing-operations losses and the Dania disposal gain; review the assumptions behind adjusted earnings measures.
- Confirm debt balances, available revolver capacity, covenant headroom, maturity/refinancing plans and how the August equity proceeds were applied.
- Track Borgata and regional competition, CRDA refunds and note redemptions, Blue Chip tax assessments, and the status and potential impact of the Copeland litigation.
- Monitor Kansas Star completion costs and deadlines, and evaluate whether management’s expected Echelon-related annual savings are realized.