Business Context and Reporting Period
Company: Boyd Gaming Corp
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 1999
Operations: The Company owns and operates ten casino entertainment facilities in Nevada, Mississippi, Illinois, and Louisiana, plus a travel agency in Hawaii. It also manages a facility in Philadelphia, Mississippi.
Key Financial Metrics
| Metric (in thousands) | Q2 1999 | Q2 1998 | 6 Months 1999 | 6 Months 1998 |
|---|---|---|---|---|
| Net Revenues | $241,936 | $245,485 | $485,194 | $495,527 |
| Operating Income | $33,066 | $25,733 | $68,485 | $60,968 |
| Net Income | $9,705 | $4,034 | $18,607 | $13,358 |
| Diluted EPS | $0.16 | $0.07 | $0.30 | $0.22 |
| Cash from Operations (6mo) | -- | $75,117 | $67,052 | |
| Cash & Equivalents (End Period) | $71,829 | $76,657 | $71,829 | $76,657 |
| Total Debt (Current + Long-term) | $734,624 | $776,851 | $734,624 | $776,851 |
| Working Capital | $12,166 | $24,092 | $12,166 | $24,092 |
Note: Working Capital calculated as Total Current Assets minus Total Current Liabilities.
Material Changes vs. Prior Period
- Revenue Decline: Consolidated net revenues decreased 1.4% in Q2 1999 and 2.1% for the six-month period compared to 1998. Casino revenue declined 1.9% (Q2) and 2.7% (6 months).
- Profitability Increase: Despite revenue declines, Net Income increased 141% in Q2 and 39% for the six months. This was driven by a 28% reduction in interest expense (due to lower debt levels and rates) and the absence of a $5.9 million restructuring charge recorded in Q2 1998.
- Segment Performance:
- Stardust (Las Vegas): Net revenues dropped 12.8% (Q2) due to increased competition, construction disruption, and the temporary closure of 550 motor inn rooms.
- Downtown Properties: Net revenues increased 5.5% (Q2) and operating income rose 65%, driven by efficiencies and the Honolulu travel agency.
- Central Region: Operating income increased 16.0% (Q2) primarily due to the closure of the loss-making Sam's Town Kansas City property in July 1998.
- Accounting Change: A $1.7 million charge (net of tax) was recorded in the first half of 1999 as a cumulative effect of a change in accounting for start-up activities (expense vs. capitalization).
Guidance, Outlook, and Risks
- Acquisition: On June 27, 1999, the Company agreed to acquire Blue Chip Casino in Indiana for $255 million in cash, expected to close in Q4 1999. Funding will come from a new credit facility.
- Debt Restructuring: On July 21, 1999, the Company replaced its credit facility with a new $600 million facility ($500M revolver, $100M term loan) maturing in June 2003.
- Capital Projects:
- Stardust Renovation: $25 million project expected to complete by end of 1999.
- Sam's Town Las Vegas Expansion: $80 million project expected to complete by Dec 31, 2000.
- Borgata Joint Venture: Planning stages for a new Atlantic City property with Mirage Resorts; expected opening in 2002.
- Customer Information System (CIS): $14 million project for 1999 to standardize customer tracking.
- Year 2000 (Y2K): The Company is in the implementation phase of Y2K remediation. Estimated total cost is $8 million. Risks include potential system failures or delays in obtaining waivers for manual gaming operations in the Central Region.
- Risks: Forward-looking statements are subject to risks including construction delays, regulatory approvals (specifically for the Blue Chip acquisition), competition, and economic conditions.
Investor Verification Checklist
- Blue Chip Acquisition: Verify the status of the Indiana Gaming Commission approval required to close the $255 million deal.
- Stardust Renovation Impact: Monitor the completion of the renovation and the decision regarding the 550 closed motor inn rooms (refurbish vs. demolish).
- Debt Covenants: Confirm continued compliance with the new $600 million credit facility covenants, particularly leverage ratios and interest coverage.
- Y2K Compliance: Verify the successful completion of testing and remediation for critical gaming and non-gaming systems before January 1, 2000.
- Borgata Funding: Track the ability to secure the $450 million non-recourse financing and the $150 million equity contribution for the Atlantic City joint venture.