Business Context and Reporting Period
Company: Boyd Gaming Corporation
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2009
Operations: Operator of 15 wholly-owned casino entertainment facilities in Nevada, Mississippi, Illinois, Louisiana, and Indiana, plus a pari-mutuel facility in Florida. The company holds a 50% interest in Borgata Hotel Casino and Spa in Atlantic City, New Jersey.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 |
|---|---|---|
| Net Revenues | $422,950 | $857,795 |
| Operating Income | $56,158 | $83,360 |
| Net Income (Loss) | $12,778 | $(1,050) |
| Diluted EPS | $0.15 | $(0.01) |
| Cash and Cash Equivalents | $93,646 | $93,646 |
| Total Debt (Long-term + Current) | $2,689,370 | $2,689,370 |
| Operating Cash Flow (6 months) | N/A | $99,513 |
Material Changes vs. Prior Period
- Revenue Decline: Net revenues decreased 8.2% for the three months and 7.9% for the six months ended June 30, 2009, compared to the same periods in 2008, primarily due to the economic recession and reduced consumer spending.
- Profitability: Operating income declined 12.4% (three months) and increased 74.4% (six months) year-over-year. The six-month increase is largely due to a significant reduction in non-cash impairment charges compared to 2008.
- Impairment Charges: The company recorded $28.9 million in write-downs and other charges for the six months ended June 30, 2009, primarily related to the write-off of Dania Jai-Alai goodwill. This compares to $91.5 million in charges for the same period in 2008.
- Segment Performance:
- Las Vegas Locals: Adjusted EBITDA declined 29.7% (three months) and 30.9% (six months) due to the local housing market downturn and rising unemployment.
- Downtown Las Vegas: Adjusted EBITDA increased 14.3% (three months) and 22.7% (six months) due to improved margins and lower fuel costs.
- Midwest and South: Adjusted EBITDA was relatively flat, declining 2.4% (three months) and increasing 1.5% (six months).
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 in 2009 due to credit market instability. Capitalized costs incurred to date are approximately $950 million. Ongoing suspension costs are estimated at $12 million to $16 million per annum.
- Liquidity and Debt: The company maintains a $4.0 billion bank credit facility with approximately $1.9 billion available as of June 30, 2009. The Total Leverage Ratio was 6.05 to 1.00, within the covenant limit of 6.50 to 1.00 for the period.
- Dividends: The quarterly dividend was suspended in July 2008 and no dividends were declared during the six months ended June 30, 2009.
- Share Repurchases: The company repurchased and retired approximately 1.7 million shares during the six months ended June 30, 2009, at an average price of $4.61 per share.
- Legal Contingencies:
- Copeland Litigation: Ongoing legal challenge regarding the Treasure Chest Casino license. A loss could result in the revocation of the license.
- Nevada Use Tax: The company is pursuing a refund of $15.8 million to $18.0 million based on a Nevada Supreme Court decision, though the state Department of Taxation is pursuing alternative legal theories.
Investor Verification Checklist
- Verify the status and potential timeline for the resumption of the Echelon project and associated financing requirements.
- Monitor the outcome of the Copeland litigation regarding the Treasure Chest Casino license.
- Review the company's ability to maintain compliance with debt covenants, specifically the Total Leverage Ratio, given the economic downturn.
- Assess the impact of the suspended dividend and share repurchase program on shareholder returns.
- Track the resolution of the Nevada use tax refund claim and potential cash flow impact.