Business Context and Reporting Period
Company: Boyd Gaming Corporation
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2006
Overview: Boyd Gaming is a multi-jurisdictional gaming operator with 16 wholly-owned casino facilities across five states and a 50% joint venture interest in Borgata Hotel Casino and Spa in Atlantic City. The company emphasizes slot revenues and operates in the Las Vegas locals, downtown Las Vegas, and Central Region markets. Significant 2006 events included the closure of the Stardust Resort and Casino to prepare for the Echelon Place development and the sale of the South Coast Hotel and Casino.
Key Financial Metrics
| Metric (in thousands) | 2006 | 2005 | 2004 |
|---|---|---|---|
| Net Revenues | $2,192,634 | $2,161,085 | $1,707,207 |
| Operating Income | $404,650 | $405,687 | $304,279 |
| Income from Continuing Operations | $161,348 | $164,368 | $111,286 |
| Net Income | $116,778 | $144,610 | $111,454 |
| Diluted EPS (Continuing Ops) | $1.80 | $1.82 | $1.42 |
| Adjusted EBITDA | $652,325 | $654,966 | $444,876 |
| Operating Cash Flow | $419,513 | $419,908 | $259,039 |
| Total Assets | $3,901,299 | $4,424,953 | $3,919,028 |
| Long-Term Debt | $2,133,016 | $2,552,795 | $2,304,343 |
| Stockholders' Equity | $1,109,952 | $1,098,004 | $943,770 |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 1.5% to $2.19 billion in 2006 compared to 2005, driven by the full-year impact of the 2004 Coast Casinos merger and recovery at Gulf Coast properties following hurricanes.
- Discontinued Operations: The company recorded a net loss of $44.6 million from discontinued operations in 2006, primarily due to a $68.6 million loss on the disposition of the South Coast Hotel and Casino. In 2005, discontinued operations resulted in a net loss of $3.3 million.
- Non-GAAP Adjustments: 2006 results included a $36 million gain from insurance settlements for hurricane damage at Delta Downs, offset by $13.4 million in property closure costs for the Stardust and $28 million in write-offs for the old Blue Chip gaming vessel.
- Accounting Changes: The adoption of SFAS No. 123R in 2006 resulted in $21.6 million of share-based compensation expense, reducing net income by approximately $0.15 per share compared to prior periods where no such expense was recorded.
- Debt Reduction: Long-term debt decreased by approximately $420 million in 2006, largely due to the use of $401 million in cash proceeds from the South Coast sale to repay borrowings under the bank credit facility.
Guidance, Outlook, and Risks
- Development Projects: The company is focused on the Echelon Place development on the Las Vegas Strip, with construction expected to commence in Q2 2007 and an opening planned for Q3 2010. The budget for wholly-owned components was increased to $3.3 billion. A $130 million expansion at Blue Chip is also underway.
- Acquisitions: Boyd completed the acquisition of Dania Jai Alai in Florida in March 2007 (post-period), subject to regulatory approval of slot machine operations which faced legal challenges in late 2006.
- Competition: Management notes intensified competition in the Las Vegas locals market and potential adverse impacts from new Native American gaming facilities near Blue Chip (Michigan) and Sam's Town Shreveport (Oklahoma).
- Regulatory Risks: Significant risks include the potential invalidation of the Florida slot initiative affecting Dania Jai Alai, ongoing litigation regarding the Treasure Chest license in Louisiana, and changes in gaming taxes (e.g., a retroactive 5% tax increase in Illinois).
- Liquidity: The company maintains a $1.35 billion revolving credit facility with $859 million available as of year-end. Management believes cash flows and credit facilities are sufficient to fund operations and capital expenditures for the next 12 months.
Investor Verification Checklist
- Regulatory Status of Dania Jai Alai: Verify the final outcome of the Florida Supreme Court review regarding the slot machine initiative, as this determines the viability of the $77.5 million acquisition.
- Echelon Place Budget and Timeline: Monitor construction costs and schedule for the $3.3 billion Echelon Place project, given the history of cost overruns in the industry.
- Treasure Chest Litigation: Track the status of the Copeland lawsuit seeking revocation of the Treasure Chest license, which poses an existential risk to that property.
- Sam's Town Tunica Performance: Review future operating results for Sam's Town Tunica, which reported an operating loss in 2006 and is subject to ongoing asset impairment testing.
- Debt Covenants: Confirm continued compliance with financial covenants in the bank credit facility and senior subordinated notes, particularly the fixed charge coverage ratio and leverage ratios.