Business Context and Reporting Period
Company: Boyd Gaming Corporation
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 31, 2010
Overview: Boyd Gaming operates 15 wholly-owned gaming properties and holds a controlling interest in Borgata Hotel Casino & Spa. A material event during the quarter was the effective consolidation of Borgata on March 24, 2010, following an amendment to the operating agreement with MGM Mirage that terminated MGM's participating rights. The company operates in four reportable segments: Las Vegas Locals, Downtown Las Vegas, Midwest and South, and Atlantic City.
Key Financial Metrics
| Metric (in thousands) | Q1 2010 | Q1 2009 |
|---|---|---|
| Net Revenues | $415,135 | $434,845 |
| Operating Income | $44,030 | $27,202 |
| Net Income (Loss) | $9,682 | $(13,828) |
| Net Income Attributable to Boyd | $8,435 | $(13,828) |
| Diluted EPS | $0.10 | $(0.16) |
| Cash from Operating Activities | $72,929 | $52,058 |
| Total Assets | $5,479,489 | $4,459,957 |
| Total Debt (Long-term + Current) | $3,202,393 | $2,577,563 |
| Cash and Cash Equivalents | $108,202 | $98,168 |
Liquidity: The company reported a working capital deficit of approximately $702.1 million as of March 31, 2010, primarily due to the classification of Borgata's revolving credit facility as a current liability. The company maintains approximately $1.1 billion in remaining availability under its $3.0 billion bank credit facility.
Material Changes vs. Prior Period
- Profitability Turnaround: The company returned to profitability with net income of $9.7 million, compared to a net loss of $13.8 million in Q1 2009. This improvement is largely attributed to the non-recurrence of a $28.4 million non-cash impairment charge related to Dania Jai-Alai goodwill recorded in the prior year.
- Revenue Decline: Net revenues decreased 4.5% year-over-year to $415.1 million. Excluding the partial quarter of Borgata consolidation, revenues from wholly-owned properties declined 8.1% due to challenging economic conditions, lower consumer spending, and reduced visitor volumes.
- Debt Structure: Total debt increased significantly due to the consolidation of Borgata's $630.3 million credit facility. The company retired $15.5 million of senior subordinated notes during the quarter, realizing a gain of $2.0 million.
- Segment Performance:
- Las Vegas Locals: Gross revenues declined 8.4% and Adjusted EBITDA decreased 10.8%.
- Downtown Las Vegas: Gross revenues decreased 7.0% and Adjusted EBITDA dropped 37.3%, impacted by lower Hawaiian charter ticket prices and fuel costs.
- Midwest and South: Gross revenues decreased 8.1% and Adjusted EBITDA fell 19.2%.
- Atlantic City: Results reflect only the period from March 24 to March 31, 2010, following consolidation.
Outlook, Risks, and Contingencies
- Borgata Consolidation: Boyd now consolidates Borgata's financials. MGM's 50% interest is held in a divestiture trust. Boyd has a right of first refusal to purchase this interest. Borgata's credit facility matures in January 2011 and is being evaluated for refinancing.
- Echelon Project: 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 capital market conditions. Capitalized costs stand at approximately $925 million, with recurring annual costs of $10-$12 million.
- Legal Proceedings:
- Copeland Litigation: Ongoing litigation regarding the Treasure Chest Casino license. A loss could result in the revocation of the license, significantly impacting operations.
- Nevada Use Tax: The company is disputing a $12.3 million sales tax assessment (plus interest) from the Nevada Department of Taxation regarding complimentary meals, while seeking a refund of $16.5-$18.7 million.
- Blue Chip Property Taxes: The company has accrued $22.8 million in property tax liability for Blue Chip Casino, though final assessments for 2007-2009 remain pending.
- Debt Covenants: The company is in compliance with its bank credit facility covenants, including a Total Leverage Ratio of 6.51 to 1.00 (maximum permitted 6.75 to 1.00).
Investor Verification Checklist
- Borgata Refinancing: Verify the status of Borgata's $630 million credit facility maturing in January 2011 and the potential impact of refinancing terms on liquidity.
- Echelon Asset Impairment: Monitor the recoverability of the $925 million in capitalized costs for the Echelon project, as prolonged delays could trigger future impairment charges.
- Treasure Chest License: Track the status of the Copeland litigation, as the potential loss of the Treasure Chest license represents a significant operational risk.
- Working Capital: Assess the sustainability of the $702 million working capital deficit and the company's reliance on its revolving credit facility for daily operations.
- Tax Contingencies: Review the resolution of the Nevada use tax dispute and the final property tax assessments for Blue Chip Casino to determine potential cash outflows.