Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BYD > SEC Filings for BYD > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for BOYD GAMING CORP

Form 10-Q for BOYD GAMING CORP


8-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Executive Overview
Boyd Gaming Corporation (the "Company," "Boyd Gaming," "we" or "us") is a
multi-jurisdictional gaming company that has been operating for approximately 36
years.

We are a diversified operator of 16 wholly-owned gaming entertainment properties
and one controlling interest in a limited liability company. Headquartered in
Las Vegas, we have gaming operations in Nevada, Illinois, Louisiana,
Mississippi, Indiana and New Jersey, which we aggregate in order to present the
following four reportable segments:
Las Vegas Locals
Gold Coast Hotel and Casino                   Las Vegas, Nevada
The Orleans Hotel and Casino                  Las Vegas, Nevada
Sam's Town Hotel and Gambling Hall            Las Vegas, Nevada
Suncoast Hotel and Casino                     Las Vegas, Nevada
Eldorado Casino                               Henderson, Nevada
Jokers Wild Casino                            Henderson, Nevada

Downtown Las Vegas
California Hotel and Casino                   Las Vegas, Nevada
Fremont Hotel and Casino                      Las Vegas, Nevada
Main Street Station Casino, Brewery and Hotel Las Vegas, Nevada

Midwest and South
Sam's Town Hotel and Gambling Hall            Tunica, Mississippi
IP Casino Resort Spa                          Biloxi, Mississippi
Par-A-Dice Hotel Casino                       East Peoria, Illinois
Blue Chip Casino, Hotel & Spa                 Michigan City, Indiana
Treasure Chest Casino                         Kenner, Louisiana
Delta Downs Racetrack Casino & Hotel          Vinton, Louisiana
Sam's Town Hotel and Casino                   Shreveport, Louisiana

Atlantic City
Borgata Hotel Casino & Spa                    Atlantic City, New Jersey

Hawaiian Operations
In addition to these properties, we own and operate a travel agency in Hawaii, that operates our Hawaiian charter and a captive insurance company, also in Hawaii, that underwrites travel-related insurance. Results for our travel agency and our captive insurance company are included in our Downtown Las Vegas segment, as our Downtown Las Vegas properties concentrate significant marketing efforts on gaming customers from Hawaii.

Dania Jai-Alai
We also own and operate Dania Jai-Alai, which is a pari-mutuel jai-alai facility located on approximately 47 acres of related land in Dania Beach, Florida. Effective April 1, 2008, we reclassified the reporting of our Midwest and South segment to exclude the results of Dania Jai-Alai, our pari-mutuel jai-alai facility, since it does not share similar economic characteristics with our other Midwest and South operations; therefore, the results of Dania Jai-Alai are included as part of the "Other" category in our segment information.

Echelon Development
Additionally, we own 87 acres of land on the Las Vegas Strip, where our multibillion dollar Echelon development project ("Echelon") is located. On August 1, 2008, due to the difficult environment in the capital markets, as well as weak economic conditions, we announced the delay of Echelon. As we do not believe that a significant level of economic recovery has occurred along the Las Vegas Strip, or that financing for a development project like Echelon is currently available on terms satisfactory to us, we do not expect to resume construction of Echelon for another three to five years.


Table of Contents

Our Properties
We operate gaming entertainment properties, most of which also include hotel, dining, retail and other amenities. Our main business emphasis is on slot revenues, which are highly dependent upon the volume and spending levels of customers at our properties, which affects our operating results.

Our properties have historically generated significant operating cash flow, with the majority of our revenue being cash-based. While we do provide casino credit, subject to certain gaming regulations and jurisdictions, most of our customers wager with cash and pay for non-gaming services by cash or credit card.

Our Industry
Our industry is capital intensive; we rely heavily on the ability of our properties to generate operating cash flow in order to fund maintenance capital expenditures, fund acquisitions, provide excess cash for future development, repay debt financing and associated interest costs, purchase our debt or equity securities, pay income taxes and pay dividends.

Our Key Performance Indicators
We use several key performance indicators to evaluate the operations of our
wholly owned properties and Borgata. These key performance indicators include
the following:

 Gaming revenue indicators:


?            Slot handle means the dollar amount wagered in slot machines and
             table game drop means the total amount of cash deposited in table
             games drop boxes, plus the sum of markers issued at all table games.
             Slot handle and table game drop are indicators of volume and/or
             market share.


?            Slot win and table game hold means the difference between customer
             wagers and customer winnings on slot machines and table games,
             respectively. Slot win and table game hold percentages represent the
             relationship between slot handle and table game drop to gaming wins
             and losses.

Food and beverage revenue indicators: average guest check is the average amount spent per customer visit and is an indicator of volume and product offerings; number of guests served is an indicator of volume; and the cost per guest served is an indicator of operating margin.

Room revenue indicators: hotel occupancy rate is an indicator of volume measuring the utilization of our available rooms; and average daily rate ("ADR") is a price indicator.

Our Strategy
Our overriding strategy is to increase shareholder value. We follow several strategic initiatives on which we are focused to improve and grow our business.

Strengthening our Balance Sheet
We remain committed to finding opportunities to strengthen our balance sheet through diversifying and increasing cash flows to provide for deleveraging.

Operating Efficiently
We also remain committed to operating more efficiently, and endeavor to prevent unneeded expense in our business. The efficiencies of our business model position us to flow a substantial portion of revenue gains directly to the bottom line.

Evaluating Acquisition Opportunities
We evaluate potential transactions and acquisition in a way that is strategic, deliberate, and disciplined. Our intention is to pursue opportunities that are a good fit for our business, deliver a solid return for shareholders, and are available at the right price.

On May 16, 2012, we entered into a definitive agreement to acquire Peninsula Gaming, LLC, for total consideration of $1.45 billion, net of certain expenses and adjustments. The pending Acquisition will complement Boyd Gaming's existing portfolio by adding five properties in some of the nation's strongest growth regions: Kansas Star Casino near Wichita, Kansas; Diamond Jo Casino in Dubuque, Iowa; Diamond Jo Worth in Northwood, Iowa; Evangeline Downs Racetrack & Casino in Opelousas, Louisiana; and Amelia Belle Casino in Amelia, Louisiana. Subject to the satisfaction of various closing conditions and receipt of required regulatory approvals, we expect the Acquisition to close in the fourth quarter of this year.

On October 4, 2011, we consummated the acquisition of IP Casino Resort Spa ("IP") in Biloxi, Mississippi pursuant to an Agreement for Purchase and Sale, under which the seller agreed to sell and transfer, and the Company agreed to purchase and assume, certain


Table of Contents

assets and liabilities, respectively, related to the Imperial Palace Biloxi, on an as-is basis. The net purchase price was approximately $280.6 million. The financial position of IP is included in our consolidated balance sheet as of September 30, 2012 and December 31, 2011; and its results of operations are included in our condensed consolidated statements of operations and cash flows during all of the three and nine months ended September 30, 2012.

Maintaining our Brand
The ability of our employees to deliver great customer service remains a key differentiator for our Company and our brands. Our employees are a big reason that our customers continue to choose our properties over the competition across the country.

Our Focus
Our focus has been, and will continue to remain on: (i) ensuring our existing operations are managed as efficiently as possible and remain positioned for growth; (ii) our capital structure and strengthening our balance sheet, not just by paying down debt, but also by strengthening our operations and diversifying our asset base; and (iii) our growth strategy, which is built on finding those assets that are a good strategic fit and provide an appropriate return to our shareholders.

Overall Outlook
We believe that our key operating results for the nine months ended September 30, 2012 demonstrate some recovering trends in our business with certain regions showing more favorable operating results. Although over the course of the past several years, the severe economic recession has had a profound effect on consumer confidence, and has shifted spending away from discretionary items, such as leisure, hospitality, gaming and entertainment activities, in recent quarterly results we have realized some recoverability in our business, as we saw several consecutive quarters of encouraging trends in the business, and anticipated this would continue. However, starting in May 2012, we began to experience weakness in economic trends locally, nationally and globally, due to a variety of factors. We believe the economic recovery slowed and consumer confidence had retracted during the second quarter and as a result, our results for the second quarter did not meet expectations, which also impacted our results for the nine months ended September 30, 2012. However, trends began stabilizing in the latter half of the quarter.

We continually work to position our Company for greater success by strengthening our existing operations and growing through capital investment and other strategic initiatives. We have established a nationwide branding initiative and loyalty program. Previously, players were able to use their "Club Coast" or "B Connected" cards to earn and redeem points at nearly all of our wholly owned Boyd Gaming properties in Nevada, Illinois, Indiana, Louisiana and Mississippi. In June 2010, we launched an enhanced, multi-property player loyalty program under the "B Connected" brand, which replaced the "Club Coast" program. Customers under the "Club Coast" program were able to keep all earned benefits and club points they had previously earned under the program. The new "B Connected" club, among other benefits, extends the time period over which players may qualify for promotion and increases the credits awarded to reel slot and table games players.
In addition to the "B Connected" player loyalty program, we launched the "B Connected Mobile" program in July 2010. "B Connected Mobile," the first multi-property, loyalty-program-based iPhone application of its kind in the gaming industry, is a personalized mobile application that delivers customized offers and information directly to a customer's iPhone, iPad or Android device, making "B Connected Mobile" the first application of its kind available on multiple platforms. The application further expands the benefits of the "B Connected" program. "B Connected Mobile" provides real-time personalized information when a customer visits a Boyd property, including hotel, dining and gaming offers, such as "Best Rates Available" on hotel rooms for "B Connected" members, instant access to event information, schedules and special offers at all Boyd Gaming properties using a search engine which allows customers to find Boyd Gaming casinos that have their favorite machines and displays the games' locations on a casino floor map, the ability to track "B Connected" point balances in real time, and the ability to make immediate hotel or restaurant reservations. These tools help customers get the greatest value out of their B Connected membership, and ensure that our marketing is as effective as possible.

We have continued to improve our B Connected loyalty program with the introduction of "B Connected Social" in the first quarter of 2012, which rewards users for using B Connected Online, B Connected Mobile, or sharing offers and events on social networks. B Connected Social is a dynamic network loyalty program that allows B Connected members to share offers with friends, connect to their favorite social networks, check in online via certain social networks, as well as, participate in a variety of online activities including interfacing with B Connected Online or B Connected Mobile, participate in online contests, and register for alerts to deliver targeted information specific to the B Connected member.

Development Activities
Pending Acquisition of Peninsula Gaming, LLC On May 16, 2012, we entered into a definitive agreement to acquire Peninsula Gaming, for total consideration of $1.45 billion, net of certain expenses and adjustments. The pending Acquisition will complement Boyd Gaming's existing portfolio by adding five properties in some of the nation's strongest growth regions: Kansas Star Casino near Wichita, Kansas; Diamond Jo Casino in


Table of Contents

Dubuque, Iowa; Diamond Jo Worth in Northwood, Iowa; Evangeline Downs Racetrack & Casino in Opelousas, Louisiana; and Amelia Belle Casino in Amelia, Louisiana.

The Company continues to make progress toward closing the Acquisition. In early June, the Federal Trade Commission granted us an early termination of the waiting period required under Hart Scott Rodino. In addition, we have already received approvals from gaming regulators in Iowa and Louisiana, and the Kansas Racing and Gaming Commission is scheduled to consider the transaction on November 16, 2012. Subject to the satisfaction of various closing conditions, we anticipate this transaction will close in the fourth quarter of this year.

South Florida Development Opportunity
On July 24, 2012, we announced a new development agreement entered into with Sunrise Sports Entertainment, LLP, the operator of the BB&T Center, a major entertainment venue in South Florida and home to the NHL's Florida Panthers. Subject to Florida passing enabling legislation, this agreement provides the Company the opportunity to take advantage of the potential of expanded gaming in South Florida at the site of the BB&T Center.

Sacramento County Development Opportunity We previously entered into an agreement with Wilton Rancheria, a federally recognized tribe, to develop and manage a gaming entertainment complex about 30 miles southeast of Sacramento, California. The agreement is subject to receipt of all required local, state and federal approvals.

Acquisition of IP
On October 4, 2011, we consummated the acquisition of the IP Casino Resort Spa ("IP") in Biloxi, Mississippi pursuant to an Agreement for Purchase and Sale, under which the seller agreed to sell and transfer, and the Company agreed to purchase and assume, certain assets and liabilities, respectively, related to the IP, on an as-is basis. The net purchase price, after adjustment for working capital and other items, was approximately $280.6 million. The business combination resulted in the recording of a bargain purchase gain of approximately $4.6 million, due to the excess fair value of net identifiable assets over the total consideration. The bargain purchase gain was reported in other income in our consolidated statement of operations during the year ended December 31, 2011.

Development of Echelon
In August 2008, due to the difficult environment in the capital markets, as well as weak economic conditions, we announced the delay of our multibillion dollar Echelon development project on the Las Vegas Strip, as discussed above. Nonetheless, we remain committed to having a significant presence on the Las Vegas Strip. During the suspension period, we continue to consider alternative development options for Echelon, which may include developing the project in phases, alternative capital structures for the project, scope modifications to the project, or additional strategic partnerships, among others. We can provide no assurances as to when, or if, construction will resume on the project, or if we will be able to obtain alternative sources of financing for the project. As we develop and explore the viability of alternatives for the project, we will monitor these assets for recoverability. If we are subject to a non-cash write-down of these assets, it could have a material adverse impact on our consolidated financial statements.

Central Energy Facility
LVE Energy Partners, LLC ("LVE") is a joint venture between Marina Energy LLC and DCO ECH Energy, LLC. Through our wholly owned subsidiary, Echelon Resorts LLC ("Echelon Resorts"), we have entered into an Energy Sales Agreement ("ESA") with LVE, to design, build, own (other than the underlying real property which is leased from Echelon Resorts) and operate a central energy center and related distribution system for our planned Echelon resort development. Pursuant to the ESA, LVE will provide chilled and hot water, electricity and emergency electricity generation to Echelon Resorts and potentially other joint venture entities associated with the Echelon development project or other third parties. However, since we are obligated to purchase substantially all of the output of the central energy center, we are the primary beneficiary under the terms of the ESA.

LVE has suspended construction of the central energy center while the Echelon development project is delayed. On April 3, 2009, LVE notified us that, in its view, Echelon Resorts would be in breach of the ESA unless it recommenced and proceeded with construction of the Echelon development project by May 6, 2009. We believe that LVE's position is without merit; however, in the event of litigation, we cannot state with certainty the eventual outcome nor estimate the possible loss or range of loss, if any, associated with this matter.

On March 7, 2011, Echelon Resorts and LVE entered into both a purchase option agreement (the "Purchase Option Agreement") and a periodic fee agreement (the "Periodic Fee Agreement"). Under the Periodic Fee Agreement, Echelon Resorts and LVE have mutually agreed that neither LVE nor Echelon Resorts would give notice of, file or otherwise initiate any claim or cause of action,


Table of Contents

in or before any court, administrative agency, arbitrator, mediator or other tribunal, that arises under the ESA, subject to certain exceptions, and any statute of limitations or limitation periods for defenses, claims, causes of actions and counterclaims shall be tolled while the Periodic Fee Agreement is in effect. The prohibition on the initiation of litigation and the tolling of the statute of limitations provided for in the Periodic Fee Agreement is applicable to any litigation with respect to LVE's April 3, 2009 claim of an alleged breach of the ESA. Under the Periodic Fee Agreement, Echelon Resorts agreed to pay LVE, beginning on March 4, 2011, a monthly periodic fee, (the "Periodic Fee") and an operation and maintenance fee until either (i) Echelon Resorts notifies LVE that it has resumed construction of a portion of the Echelon development project that it owns in fee simple and Echelon Resorts and LVE have mutually agreed to changes to the dates in their respective construction milestones under the ESA, or (ii) Echelon Resorts exercises its option to purchase LVE's assets pursuant to the terms of the Purchase Option Agreement. The amount of the Periodic Fee is fixed at $11.9 million annually through November 2013. Thereafter, the amount of the Periodic Fee is estimated to be approximately $10.8 million annually. The operation and maintenance fee cannot exceed $0.6 million per annum without Echelon Resorts' prior approval. We have posted a letter of credit in the amount of $6 million to secure Echelon Resorts' obligation to pay the Periodic Fee and the operation and maintenance fee.
Under the Purchase Option Agreement, Echelon Resorts has the right, at its sole discretion, upon written notice to LVE, to purchase the assets of LVE including the central energy center and related distribution system for a price of $195.1 million, subject to certain possible adjustments. Both the ESA and the Periodic Fee Agreement would be terminated concurrent with the purchase of the LVE assets pursuant to the Purchase Option Agreement.
As of September 30, 2012, we have incurred approximately $926.6 million in capitalized costs related to the Echelon project, including land, and not including approximately $163.8 million associated with the construction costs of the central energy facility. As part of the delay of the project, we expect to additionally incur approximately $0.3 million to $0.5 million of capitalized costs annually, principally related to sit preparation work, underground utility installation, infrastructure and consulting. We expect to capitalize approximately $1.1 million and $3.4 million, principally related to site beautification, during the year ending December 31, 2012, and 2013, respectively. In addition, we expect annual recurring project costs, consisting primarily of monthly charges related to construction of the central energy center, site security, property taxes, rent and insurance, of approximately $15.5 million to $17.0 million that will be charged to preopening or other expense as incurred during the project's suspension period.

Other Growth Opportunities
In addition to the expansion projects mentioned above, we regularly evaluate opportunities for growth through the development of gaming operations in existing or new markets, along with opportunities associated with acquiring other gaming entertainment facilities.

RESULTS OF OPERATIONS
Summary
Three and Nine Months Ended September 30, 2012 and 2011 We believe that our key operating results for the nine months ended September 30, 2012, demonstrate some recovering trends in our business with certain regions showing more favorable operating results. Although over the course of the past several years, the severe economic recession has had a profound effect on consumer confidence, and has shifted spending away from discretionary items, such as leisure, hospitality, gaming and entertainment activities, in recent quarterly results we have realized some recoverability in our business, as we saw several consecutive quarters of encouraging trends in the business, and anticipated this would continue. However, starting in May 2012, we began to experience weakness in economic trends locally and nationally, that were further amplified by global macro-economic issues, due to a variety of factors. We believe the economic recovery slowed and consumer confidence had retracted during the second quarter and as a result, our results for the second quarter did not meet our expectations, which also impacted our results for the nine months ended September 30, 2012.

Overview of Key Operating Results
Three and Nine Months Ended September 30, 2012 and 2011
The following provides a summary of certain key operating results:
                                             Three Months Ended             Nine Months Ended
                                                September 30,                 September 30,
                                             2012          2011           2012            2011
                                                               (In thousands)
Net revenues                              $ 613,279     $ 590,215     $ 1,861,584     $ 1,729,564
Operating income                          $  48,348     $  68,164     $   183,169     $   178,258
Net income (loss) attributable to Boyd
Gaming Corporation                        $ (15,796 )   $   3,109     $    (8,967 )   $    (3,363 )


Table of Contents

Net revenues
Net revenues were $613.3 million for the three months ended September 30, 2012, compared to $590.2 million for the comparable period in the prior year. We saw the strongest operating results from our properties in our Midwest and South region. In addition, IP contributed $49.1 million in net revenues during the three months ended September 30, 2012. We saw a decrease in net revenues of 4.9% in our Las Vegas Locals market while the Downtown Las Vegas market remained relatively unchanged as the Las Vegas economy evidences ongoing difficulties in recovery from the recession. For the three months ended September 30, 2012, Borgata's net revenues decreased 7.4% from the same period in the prior year. Despite the decrease in net revenues, Borgata remained the leader in table game drop and slot handle in Atlantic City.

Net revenues were $1.86 billion for the nine months ended September 30, 2012, compared to $1.73 billion for the comparable period in the prior year. The Midwest and South region, excluding IP, saw a 2.0% increase in net revenue growth, driven by strong performance at our Delta Downs property which reported a $7.9 million, or 6.2% increase in net revenues. In addition, IP contributed $145.4 million in net revenues during the nine months ended September 30, 2012. We saw a decrease in net revenues of 2.2% in our Las Vegas Locals market while the Downtown Las Vegas market remained relatively unchanged compared to the corresponding period of the prior year as the Las Vegas economy improves, yet still shows the vulnerability of the weakened economic state. Net revenues in our Atlantic City segment decreased 2.7% for the nine months ended September 30, 2012, compared to the same period in the prior year due to increased competition in the local and regional market.

Operating income
Operating income decreased by $19.8 million, or 29.1%, to $48.3 million, during the three months ended September 30, 2012, compared to the corresponding period of the prior year, primarily due to increases in gaming expenses, and selling, general and administrative expenses due to IP that were not included in the corresponding period of the prior year. These increases were partially offset by a decrease in acquisition expenses and gains on insurance settlements related to the fire at Borgata.

Operating income increased by $4.9 million, or 2.8%, to $183.2 million, during the nine months ended September 30, 2012, compared to the corresponding period of the prior year, primarily due to the flow through effect of incremental net revenues, as well as an increase in other operating items, net, from gains on insurance settlements at Tunica and Borgata. During the nine months ended September 30, 2011, we had non-recurring operating items, net, of $7.5 million that included $5.0 million of the Borgata trademark impairment charge, $1.6 million of insurance costs related to the temporary closure of Tunica, and $0.9 million of asset disposal costs. We also had slightly higher acquisition costs during the nine months ended September 30, 2011 compared to the same period in the current year due to the timing of the IP acquisition.

Net income (loss) attributable to Boyd Gaming Corporation Net loss attributable to Boyd Gaming was $15.8 million for the three months ended September 30, 2012, which reflected a loss before income taxes of $25.5 . . .

  Add BYD to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BYD - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.