Business Context and Reporting Period
Company: Boyd Gaming Corporation
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Overview: Boyd Gaming is a multi-jurisdictional operator of 15 wholly-owned casino entertainment facilities in Nevada, Mississippi, Illinois, Louisiana, and Indiana, plus a pari-mutuel jai-alai facility in Florida. The company also holds a 50% interest in the Borgata Hotel Casino and Spa in Atlantic City, New Jersey. The reporting period was significantly impacted by the global economic recession, resulting in reduced consumer spending, lower occupancy rates, and declining room rates across all segments.
Key Financial Metrics
| Metric | 2009 | 2008 | 2007 |
|---|---|---|---|
| Net Revenues | $1,640,986 | $1,780,967 | $1,997,119 |
| Operating Income (Loss) | $156,193 | $(153,429) | $354,232 |
| Net Income (Loss) | $4,241 | $(223,005) | $303,035 |
| Diluted EPS (Continuing Ops) | $0.05 | $(2.54) | $1.36 |
| Operating Cash Flow | $241,031 | $220,479 | $283,189 |
| Total Assets | $4,459,957 | $4,605,427 | $4,487,596 |
| Long-Term Debt (Net) | $2,576,911 | $2,647,058 | $2,265,929 |
| Stockholders' Equity | $1,156,369 | $1,143,522 | $1,385,406 |
Note: All figures in thousands except per share data.
Material Changes vs. Prior Period
- Revenue Decline: Net revenues decreased 7.9% to $1.64 billion in 2009 compared to 2008, driven by an 8.6% decrease in slot handle and a 9.6% decrease in table games drop due to the economic downturn.
- Profitability Recovery: The company returned to profitability with a net income of $4.2 million, a significant improvement from the $223 million net loss in 2008. This was aided by a reduction in non-cash impairment charges.
- Impairment Charges: Write-downs and other charges dropped significantly to $41.8 million in 2009 from $385.5 million in 2008. The 2009 charges included a $28.4 million goodwill impairment related to Dania Jai-Alai and a $13.5 million impairment of the Morgans joint venture investment.
- Debt Management: The company retired $105.3 million of senior subordinated notes in 2009, realizing a gain of $15.3 million. The bank credit facility was amended in December 2009, reducing commitments from $4.0 billion to $3.0 billion.
- Segment Performance: Las Vegas Locals revenue declined 16.9%, while Downtown Las Vegas declined 4.6%. The Midwest and South segment remained relatively flat, down only 0.6%.
Guidance, Outlook, and Risks
- Echelon Project Delay: Construction on the multibillion-dollar Echelon development project on the Las Vegas Strip remains delayed. The company does not expect to resume construction for three to five years due to difficult capital market conditions and weak economic demand. Capitalized costs for the project totaled approximately $928 million as of year-end.
- Borgata Joint Venture: Following an investigation by the New Jersey Division of Gaming Enforcement into partner MGM Mirage, an agreement was reached in February 2010 to transfer MGM's 50% interest into a divestiture trust. Boyd Gaming expects to receive a priority distribution of approximately $31 million upon refinancing and a payment of the greater of $10 million or 3% of proceeds from the sale of MGM's interest.
- Liquidity and Debt Covenants: The company maintains a $3.0 billion revolving credit facility with approximately $1.0 billion in availability. The Total Leverage Ratio was 6.18 to 1.00 at year-end, within the covenant limit of 6.50 to 1.00. Management believes cash flows and credit facility availability are sufficient for the next 12 months.
- Key Risks:
- Economic Sensitivity: Continued weakness in consumer discretionary spending and the housing market.
- Asset Impairment: Risk of future write-downs if cash flow estimates for Echelon or other assets are not met.
- Legal Proceedings: Ongoing litigation regarding the Treasure Chest Casino license (Copeland case) and a Nevada use tax refund claim dispute.
- Competition: Intensified competition, particularly from Native American gaming facilities near Blue Chip Casino.
Investor Verification Checklist
- Echelon Asset Recoverability: Verify the assumptions used in the undiscounted cash flow analysis that concluded no impairment was necessary for the $928 million Echelon asset base.
- Debt Covenant Compliance: Monitor the Total Leverage Ratio closely, as an 8.5% decline in trailing EBITDA could trigger a covenant breach.
- Borgata Divestiture Timeline: Track the progress of MGM's divestiture trust and the potential for Boyd Gaming to consolidate Borgata's financials.
- Treasure Chest License Status: Review updates on the Copeland litigation, which poses an existential risk to the Treasure Chest property.
- Property Tax Liabilities: Assess the final resolution of the Blue Chip property tax assessment, where the company has accrued $20.9 million but estimates a range of $10.7 million to $22.5 million.