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BYD > SEC Filings for BYD > Form 10-Q on 8-Nov-2013All Recent SEC Filings

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Form 10-Q for BOYD GAMING CORP


8-Nov-2013

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 37
years.

We are a diversified operator of 21 wholly owned gaming entertainment properties
and one controlling interest in a limited liability company. Headquartered in
Las Vegas, Nevada, we have gaming operations in Nevada, Illinois, Indiana, Iowa,
Kansas, Louisiana, Mississippi, and New Jersey which we aggregate in order to
present the following five 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

Peninsula
Diamond Jo Dubuque                            Dubuque, Iowa
Diamond Jo Worth                              Northwood, Iowa
Evangeline Downs Racetrack and Casino         Opelousas, Louisiana
Amelia Belle Casino                           Amelia, Louisiana
Kansas Star Casino                            Mulvane, Kansas

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

Our Emphasis
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 number 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 jurisdiction imposed restrictions, most of our customers wager with cash and pay for non-gaming services by cash or credit card.

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 cash for future development, repay debt financing and associated interest costs, purchase our debt or equity securities, pay income taxes and pay dividends.


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Our Key Performance Indicators
We use several key performance indicators to evaluate the operations of our
properties. 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 means the average amount spent per customer visit and is an indicator of volume and product offerings; and number of guests served ("food covers") 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") which is a price indicator.

Our Strategy
Our overriding strategy is to increase shareholder value and grow our business by focusing on the following strategic initiatives:

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

Operating Efficiently
We also are 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. Margin improvements will remain a driver of profit growth for the Company going forward.

Evaluating Acquisition Opportunities
Our evaluations of potential transactions and acquisitions are strategic, deliberate, and disciplined. Our goal is to identify and pursue opportunities that are a good fit for our business, deliver a solid return for shareholders, and are available at the right price.

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) improving our capital structure and strengthening our balance sheet, including paying down debt and strengthening our operations and diversifying our asset base; and (iii) successfully implementing our growth strategy, which is built on identifying and acquiring 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 three and nine months ended September 30, 2013 are the result of an uneven economic recovery that has resulted in reduced discretionary spending, particularly among our casual players. We believe discretionary spending decreased as a result of higher payroll taxes and uncertainties regarding future expectations that included potential higher unemployment and lower incomes. Over the course of the past several years, the severe economic recession has had a profound effect on consumer confidence, and has generally shifted spending away from discretionary items, such as leisure, hospitality, gaming and entertainment activities. As a result of the challenging macroeconomic environment, we continue to look for opportunities to strengthen our balance sheet and reduce our debt.

On May 22, 2013, we completed the sale of certain assets and liabilities of our Dania Jai-Alai pari-mutuel facility, located in Dania Beach, Broward County, Florida, received cash proceeds of $58.5 million and recognized a pre-tax gain from the sale of $18.9 million. In addition, on March 1, 2013, we entered into a definitive agreement to sell the Echelon site and related site improvements


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for $350.0 million in cash. The transaction was completed on March 4, 2013, and we realized approximately $157.0 million in net proceeds from the sale. In addition to the benefit of monetizing the Echelon assets, we will realize savings benefits of approximately $16 million to $17 million per year due to the elimination of annually recurring expenses related to contractual obligations and site preservation. The monetization of Echelon and Dania reflect our commitment to strengthen our balance sheet and improve our long-term financial position.

Positioning
We continually work to position our Company for greater success by strengthening our existing operations and growing through capital investment and other strategic initiatives.

Boyd Brand Awareness
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 and Android 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 by providing real-time personalized information on hotel, dining and gaming offers when a customer visits a Boyd property, instant access to event information, schedules and special offers. and a search engine that 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 allow our customers to receive the greatest value from their "B Connected" membership, and ensure that our marketing is as effective as possible.

We 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.

Borgata Brand Awareness
Borgata sponsors its own program to expand its brand awareness and leverage its strong loyalty card program, predicated on efforts to use marketing and promotional programs to serve an important role: to retain existing customers, maintain trip frequency and acquire new customers. Borgata offers its guests comprehensive, competitive and targeted marketing and promotion programs. The "My Borgata Rewards" program, for example, offers players a hassle-free way of earning slot dollars, comp dollars and other rewards and benefits based on game play, with convenient on-line access of account balances and other program information. In addition, Borgata strives to differentiate its casino with high-quality guest services to further enhance overall brand and customer experience to position Borgata as the must visit property in Atlantic City.

Other Promotional Activities
From time to time, we offer other promotional offers and discounts targeted towards new customers, frequent customers, inactive customers, customers of various levels of play, and prospective customers who have not yet visited our properties, as well as mid-week and other promotional activities that seek to generate visits to our properties during slower periods. Comp dollars, generally in the form of monetary discounts, and other rewards generally can only be redeemed at our restaurants, retail and spa facilities.

Development Activities
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.

Other Events
6.75% Senior Subordinated Notes Redemption On April 6, 2013, we redeemed $150.0 million of our 6.75% Senior Subordinated Notes due 2014 (the "6.75% Notes"). On May


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30, 2013, we redeemed $65.7 million, all of the remaining 6.75% Notes. Both redemptions were at a redemption price of 100% plus accrued and unpaid interest to the redemption date.

7.125% Senior Subordinated Notes due February 2016 On August 7, 2013, we issued a notice we would redeem $240.8 million notes at a redemption price of 101.188% plus accrued and unpaid interest to the redemption date. The redemption was completed on August 7, 2013 and resulted in a write-off of unamortized debt fees of $1.0 million, which was recognized in our third quarter 2013 financial results.

As a result of this redemption, these notes have been fully extinguished.

Borgata 9.5% Senior Notes Partial Redemption During August 2013, MDFC redeemed a total of $39.8 million of its 9.5% Senior Notes at a premium of 103.00% and recognized a loss on early extinguishments of debt of approximately $2.0 million.

Issuance of Common Stock
On August 1, 2013, we entered into an underwriting agreement with Deutsche Bank Securities and J.P. Morgan Securities, LLC (the "Representatives") and the other underwriters of the party thereto (together with the Representatives, the "Underwriters"), pursuant to which we sold 18,975,000 shares of our common stock (the "Shares") to the Underwriters, which included the full exercise of the Underwriters' option to purchase additional shares of common stock. All of the Shares were sold by the Company on August 7, 2013. The net proceeds received by the Company after the underwriting discount, but before expenses, were approximately $216.7 million.

RESULTS OF OPERATIONS

The results for the three and nine months ended September 30, 2013 reflect the results of Peninsula Gaming, LLC ("Peninsula Gaming"), which we acquired (the "Peninsula Acquisition") on November 20, 2012.

Overview of Key Operating Results
Three and Nine Months Ended September 30, 2013 and 2012
The following provides a summary of certain key operating results:
                                           Three Months Ended              Nine Months Ended
                                              September 30,                  September 30,
                                           2013           2012           2013            2012
(In thousands)
Net revenues                           $  738,569     $  612,390     $ 2,212,901     $ 1,858,129
Operating income                           78,322         49,387         239,121         186,464
Income (loss) from continuing
operations, net of tax                    (34,595 )      (16,406 )       (51,753 )        (9,156 )
Income (loss) from discontinued
operation, net of tax                           -           (676 )        10,790          (2,142 )
Net loss attributable to Boyd Gaming
Corporation                               (37,267 )      (15,796 )       (32,924 )        (8,967 )

Net Revenues
Net revenues were $738.6 million for the three months ended September 30, 2013, compared to $612.4 million for the comparable period in the prior year. Overall, we experienced mixed results among our segments. The $126.2 million increase in net revenues was due to $130.7 million of net revenues attributable to the Peninsula Acquisition, offset by decreases in our Midwest and South segment.While Downtown Las Vegas net revenues were relatively flat, net revenues for our Las Vegas Locals and Atlantic City segments grew 1.1% and 6.9% respectively, compared to the same period in the prior year. However, the Midwest and South segment experienced a 7.8% decrease in net revenues due to competitive pressures and reduced discretionary spending.

Net revenues were $2.2 billion for the nine months ended September 30, 2013, compared to $1.9 billion for the comparable period in the prior year. Overall net revenue growth was flat in our Las Vegas Locals and Atlantic City segments, and we experienced a decrease in net revenues in our Downtown Las Vegas and Midwest and South segments of 2.2% and 5.9%, respectively. Although Atlantic City net revenues were flat during the nine months ended September 30, 2013, compared to the same period in the prior year, Borgata remains the leader in table game drop and slot handle in Atlantic City. The Peninsula Acquisition contributed $400.4 million in incremental net revenues for the nine months ended September 30, 2013.


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Operating Income
Operating income increased by $28.9 million, or 58.6%, to $78.3 million, during the three months ended September 30, 2013, compared to the corresponding period of the prior year, due to the Peninsula Acquisition, partially offset by the effect of a decrease in net revenues in our Midwest and South segment.

Operating income increased by $52.7 million, or 28.2%, to $239.1 million, during the nine months ended September 30, 2013, compared to the corresponding period of the prior year, due to the Peninsula Acquisition, partially offset by the effect of a decrease in net revenues in our Midwest and South segment.

Income (Loss) from Continuing Operations, Net of Tax Loss from continuing operations, net of tax was $34.6 million, during the three months ended September 30, 2013. Loss from continuing operations, net of tax was $51.8 million during the nine months ended September 30, 2013. The loss from operations during the three and nine months ended September 30, 2013, compared to the corresponding periods of the prior year, is due to an increase in selling, general and administrative expense, interest expense and depreciation and amortization, that was not offset by the increase in net revenues.

Income (Loss) from Discontinued Operation, Net of Tax Income (loss) from discontinued operation, net of tax, reflects the operating results of Dania, which was sold during the second quarter of 2013. Results of the nine months ended September 30, 2013, included an after-tax gain of $12.2 million that was realized upon the completion of the sale.

Net income (loss) attributable to Boyd Gaming Corporation Net loss attributable to Boyd Gaming was $37.3 million for the three months ended September 30, 2013, compared to net loss attributable to Boyd Gaming of $15.8 million for the corresponding period of the prior year. The increase in net loss attributable to Boyd Gaming for the three months ended September 30, 2013 compared to the prior year was due to an increase in selling, general and administrative expense, interest expense and depreciation and amortization, that was not offset by the increase in net revenues.

Net loss attributable to Boyd Gaming was $32.9 million for the nine months ended September 30, 2013, compared to net loss of $9.0 million in the prior year. The increase in net loss attributable to Boyd Gaming was due to the factors stated above and a change in other operating charges to $5.2 million during the nine months ended September 30, 2013, compared to gains from business interruption insurance proceeds and insurance subrogation of $6.1 million and $3.8 million, net of recoveries, respectively, for the corresponding period of the prior year.

Operating Revenues
Three and Nine Months Ended September 30, 2013 and 2012 The following analysis discusses our operating revenues, on a consolidated basis, which is further supplemented by operating segment detail below.

We derive the majority of our gross revenues from our gaming operations, which produced approximately 73% and 71% of gross revenues for the three months ended September 30, 2013 and 2012, respectively, and 74% and 72% of gross revenues for the nine months ended September 30, 2013 and 2012, respectively. Food and beverage gross revenues, which produced approximately 13% and 15% of gross revenues for the three months ended September 30, 2013 and 2012, respectively, and 13% and 14% of gross revenues for the nine months ended September 30, 2013 and 2012, respectively, represent the next most significant revenue source, followed by room and other, each of which separately contributed less than 10% of gross revenues during these respective periods.


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The following table presents our gross revenues and expenses for the three and nine months ended September 30, 2013 and 2012.

                            Three Months Ended           Nine Months Ended
                              September 30,                September 30,
                            2013          2012          2013           2012
(In thousands)
GROSS REVENUES
Gaming                   $  633,237    $ 516,206    $ 1,893,722    $ 1,564,760
Food and beverage           114,397      106,658        338,975        317,876
Room                         72,299       69,964        203,308        205,589
Other                        43,808       38,911        125,017        110,416
Total Gross Revenues     $  863,741    $ 731,739    $ 2,561,022    $ 2,198,641

COSTS AND EXPENSES
Gaming                   $  302,373    $ 252,300    $   887,436    $   739,242
Food and beverage            57,655       54,920        181,950        169,129
Room                         12,556       13,605         41,611         43,671
Other                        33,056       29,947         92,429         82,643
Total Costs and Expenses $  405,640    $ 350,772    $ 1,203,426    $ 1,034,685

MARGINS
Gaming                      52.2%        51.1%         53.1%          52.8%
Food and beverage           49.6%        48.5%         46.3%          46.8%
Room                        82.6%        80.6%         79.5%          78.8%
Other                       24.5%        23.0%         26.1%          25.2%

Three Months Ended September 30, 2013 and 2012 Gaming
Gaming revenues are significantly comprised of the net win from our slot machine operations and table games. The $117.0 million, or 22.7%, increase in gaming revenues during the three months ended September 30, 2013 as compared to the corresponding period of the prior year, was due primarily to $121.4 million of incremental gaming revenues from the Peninsula Acquisition, and a $14.6 million increase in Atlantic City gaming revenues, that were offset by a $17.5 million decrease in gaming revenues among our Midwest and South segment. Consolidated same segment table game drop, excluding Peninsula, decreased 1.9% during the three months ended September 30, 2013, compared to the same period in the prior year. Consolidated same segment slot drop decreased 3.8% during the three months ended September 30, 2013 compared to the same period in the prior year. Gaming expense increased during the three months ended September 30, 2013 primarily due to the addition of the Peninsula segment, offset by decreases in variable expenses associated with reduced gaming volume among our same segments compared to the same period in the prior year.

Food and Beverage
Food and beverage revenues increased $7.7 million, or 7.3%, during the three months ended September 30, 2013, as compared to the corresponding period of the prior year, and included $9.8 million earned by the Peninsula segment during the three months ended September 30, 2013. The incremental food and beverage revenues earned by the Peninsula segment during the three months ended September 30, 2013 were offset by a 3.2% decrease in the number of guests served among our same store segments during the comparable period in the prior year. The $2.7 million increase in food and beverage costs was due to $6.6 million incremental costs associated with the Peninsula segment, that were offset by decreases in variable expenses due to the 3.2% decrease in number of guests served.


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Room
Room revenues increased by $2.3 million, or 3.3%, during the three months ended September 30, 2013, due to a less than 1.0% increase in the hotel occupancy rate while the ADR remained relatively flat, compared to the corresponding period of the prior year. Room expenses decreased slightly due to a 4.8% decrease in the cost per room during the three months ended September 30, 2013, compared to the same period in the prior year.

Other
Other revenues increased $4.9 million and other expenses increased $3.1 million during the three months ended September 30, 2013, as compared to the corresponding period of the prior year, primarily due to the incremental revenues and expenses associated with the Peninsula Acquisition. Other revenues relate to patronage visits at the amenities at our properties, including entertainment and nightclub revenues, retail sales, theater tickets and other venues.

Nine Months Ended September 30, 2013 and 2012 Gaming
Gaming revenues are significantly comprised of the net win from our slot machine operations and table games. The $329.0 million, or 21.0%, increase in gaming revenues during the nine months ended September 30, 2013 as compared to the corresponding period of the prior year, was due primarily to $373.9 million of incremental gaming revenues from the Peninsula Acquisition, partially offset by a $44.5 million decrease in gaming revenues among our Midwest and South segment. Consolidated same segment table game drop, excluding Peninsula, decreased 3.4% during the nine months ended September 30, 2013, compared to the same period in the prior year. Consolidated same segment slot drop and slot win decreased 3.7% and 3.4%, respectively, during the nine months ended September 30, 2013 compared to the same period in the prior year. Gaming expense increased during the nine months ended September 30, 2013 primarily due to the addition of the Peninsula segment, offset by decreases in variable expenses associated with reduced gaming volume among our same segment comparison compared to the same period in the prior year.

Food and Beverage
Food and beverage revenues increased $21.1 million, or 6.6%, during the nine months ended September 30, 2013, as compared to the corresponding period of the prior year, and included $29.5 million earned by the Peninsula segment during the nine months ended September 30, 2013. The incremental food and beverage revenues earned by the Peninsula segment during the nine months ended September 30, 2013 were offset by a 3.4% decrease in the number of guests served among our other segments during the comparable period in the prior year. The $12.8 million increase in food and beverage costs was due to $20.1 million incremental costs . . .

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