Business Context and Reporting Period
Company: Boyd Gaming Corporation
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2005
Overview: Boyd Gaming is a multi-jurisdictional gaming operator with 18 wholly-owned casino facilities across nine markets in five states (Nevada, Mississippi, Illinois, Louisiana, Indiana). The company also holds a 50% interest in the Borgata Hotel Casino and Spa in Atlantic City, New Jersey. The 2005 fiscal year was significantly impacted by the full-year integration of the Coast Casinos merger (completed July 2004) and the acquisition of Sam's Town Shreveport (completed May 2004).
Key Financial Metrics
| Metric | 2005 | 2004 | 2003 |
|---|---|---|---|
| Gross Revenues | $2,471.0 million | $1,932.1 million | $1,394.5 million |
| Net Revenues | $2,223.0 million | $1,734.1 million | $1,253.1 million |
| Operating Income | $402.5 million | $296.0 million | $148.8 million |
| Net Income | $144.6 million | $111.5 million | $40.9 million |
| Diluted EPS | $1.60 | $1.42 | $0.62 |
| Operating Cash Flow | $419.9 million | $259.0 million | $172.7 million |
| Capital Expenditures | $694.6 million | $329.3 million | $86.8 million |
| Total Assets | $4,425.0 million | $3,919.0 million | $1,873.0 million |
| Long-Term Debt (excl. current) | $2,552.8 million | $2,304.3 million | $1,097.6 million |
| Stockholders' Equity | $1,098.0 million | $943.8 million | $441.3 million |
Liquidity: As of December 31, 2005, the company held $188.4 million in cash and cash equivalents. The company reported a working capital deficit of $152 million, which is consistent with its strategy of minimizing borrowings by utilizing its bank credit facility for daily operations. Availability under the $1.35 billion revolving credit facility was approximately $162 million.
Material Changes vs. Prior Period
- Revenue Growth: Gross revenues increased 27.9% from 2004 to 2005. This growth is primarily attributed to the inclusion of a full year of operations from the Coast Casinos properties (acquired July 2004) and the opening of the South Coast Hotel and Casino in December 2005.
- Operating Income: Operating income increased 36.3% to $402.5 million. However, this figure includes a $56 million non-cash impairment charge related to the Stardust Resort and Casino redevelopment plans and $9.3 million in net hurricane-related expenses.
- Segment Performance:
- Coast Casinos: Adjusted EBITDA increased significantly due to the full-year contribution.
- Central Region: Impacted by Hurricanes Katrina and Rita, which closed Treasure Chest Casino for 44 days and Delta Downs for 42 days. Despite closures, Treasure Chest revenues increased 4.0% due to reduced competition in the New Orleans area.
- Stardust: Reported an operating loss in 2005 primarily due to the $56 million impairment charge.
- Accounting Changes: The company adopted EITF D-108, resulting in a $16.4 million (net of tax) cumulative effect charge to write down Delta Downs intangible license rights.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Projects
- Echelon Place: Announced plans to redevelop the Stardust site into a $4.0 billion destination resort (Echelon Place), expected to open in early 2010. The Stardust will operate through 2006 before demolition.
- Expansions: Completed the Blue Chip expansion (January 2006) and South Coast opening (December 2005). A second hotel tower at South Coast is expected to open in Q2 2006.
- Dividends: The company expects to continue paying quarterly dividends, though subject to debt covenants.
Risks and Contingencies
- Legal Proceedings: Ongoing litigation by Alvin C. Copeland seeking revocation of the Treasure Chest Casino license. A loss could materially adversely affect operations.
- Competition: Intense competition in existing markets, including a new casino expected to open near Suncoast in April 2006 and potential tribal gaming near Blue Chip.
- Weather: Properties in Louisiana (Treasure Chest, Delta Downs) are subject to hurricane risks. Insurance claims for business interruption at Treasure Chest were denied, while Delta Downs claims are being processed.
- Debt Service: Significant indebtedness ($2.6 billion long-term) requires substantial cash flow for interest and principal payments. Refinancing will be necessary at maturity.
Unusual Items
- Impairment Loss: $56 million non-cash charge for Stardust assets.
- Hurricane Expenses: $9.3 million net expense related to Katrina and Rita.
- Debt Retirement: $17.5 million loss on early retirement of $200 million in senior notes.
Investor Verification Checklist
- Insurance Recoveries: Verify the status of insurance claims for Delta Downs property damage and business interruption, and the denial of Treasure Chest business interruption claims.
- Stardust Redevelopment: Monitor progress on Echelon Place permitting, design, and the timeline for Stardust closure/demolition.
- Debt Covenants: Confirm continued compliance with bank credit facility covenants (fixed charge coverage, leverage ratios) given high capital expenditure plans.
- Legal Status: Track the outcome of the Copeland litigation regarding the Treasure Chest license.
- Stock-Based Compensation: Note the adoption of SFAS 123R in 2006, which is expected to result in approximately $20 million in stock option expense.