Business Context and Reporting Period
Company: Boyd Gaming Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2007
Operations: Diversified operator of 16 wholly-owned gaming entertainment facilities and a 50% joint venture (Borgata Hotel Casino and Spa) across Nevada, Mississippi, Illinois, Louisiana, Indiana, Florida, and New Jersey. The company is actively developing the Echelon project on the Las Vegas Strip.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2007 |
Six Months Ended June 30, 2007 |
|---|---|---|
| Net Revenues | $511,391 | $1,028,421 |
| Operating Income | $87,168 | $182,444 |
| Income from Continuing Operations | $22,941 | $58,046 |
| Net Income (including discontinued ops) | $22,112 | $239,978 |
| Adjusted EBITDA | $143,700 | $299,120 |
| Cash and Cash Equivalents | $159,382 | $159,382 |
| Long-Term Debt (net of current) | $2,214,124 | $2,214,124 |
| Net Cash Provided by Operating Activities | N/A | $129,103 |
Note: Net income for the six months ended June 30, 2007, includes a significant non-cash gain of $285 million from the disposition of the Barbary Coast Hotel and Casino, classified as discontinued operations.
Material Changes vs. Prior Period
- Revenue Decline: Net revenues decreased 7.3% for the three months and 9.9% for the six months ended June 30, 2007, compared to the same periods in 2006. This was driven by the closure of the Stardust (Nov 2006), increased competition in Las Vegas Locals, and normalization of results at Treasure Chest following Hurricane Katrina.
- Operating Income Increase: Despite revenue declines, operating income from continuing operations increased 51.7% for the quarter and decreased 6.9% for the six months. The quarterly increase was largely due to a $31.2 million write-down charge in the prior year (Blue Chip vessel) that did not recur in 2007.
- Discontinued Operations: The six-month net income was significantly boosted by a $285 million pre-tax gain from the exchange of the Barbary Coast property for land on the Las Vegas Strip. Without this item, income from continuing operations would have been lower than the prior year.
- Debt Restructuring: The company entered a new $4.0 billion revolving credit facility in May 2007, replacing a $1.85 billion facility. It also redeemed $250 million of 8.75% senior subordinated notes, incurring a $16.9 million loss on early retirement.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Development Projects: Construction on the Echelon project (Las Vegas Strip) commenced in June 2007, with an estimated opening in Q3 2010. The company estimates the wholly-owned portion will cost $3.3 billion. A new hotel tower at Blue Chip is expected to open in late 2008.
- Acquisition: Acquired Dania Jai-Alai in Florida for approximately $81 million, with a contingent additional payment of $75 million pending regulatory conditions.
- Cash Flow: Management anticipates 2007 operating cash flows will decline from 2006 levels due to the absence of results from South Coast, Stardust, and Barbary Coast. Liquidity is expected to be maintained through operating cash flows and the new credit facility.
Risks and Contingencies
- Legal Proceedings: Ongoing litigation by Alvin C. Copeland seeking revocation of the Treasure Chest Casino license. A hearing is scheduled for August 27, 2007. Loss of this license would have a significant adverse effect.
- Regulatory Risk (Dania Jai-Alai): The Florida Supreme Court is reviewing the validity of the 2004 voter initiative allowing slot machines at Dania Jai-Alai. If invalidated, the facility may not operate slots, materially affecting expected revenue.
- Property Taxes: Blue Chip received a notice of a nearly 400% increase in assessed property value. The company recorded a $3.2 million charge, with a total estimated liability of $5.8 million, though the final assessment could range up to $11 million.
- Competition: Intense competition in Las Vegas and the opening of the Four Winds Casino near Blue Chip in August 2007 pose risks to market share.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the sustainability of earnings by excluding the $285 million non-cash gain from the Barbary Coast exchange when analyzing core profitability.
- Debt Covenants: Confirm compliance with the new $4.0 billion credit facility covenants, specifically the minimum consolidated interest coverage ratio and maximum total leverage ratio.
- Dania Jai-Alai Viability: Monitor the Florida Supreme Court's decision regarding the slot initiative, as this determines the revenue potential of the recent $81 million acquisition.
- Blue Chip Tax Liability: Track the final property tax assessment for Blue Chip, as the current $5.8 million accrual may be adjusted upward to $11 million.
- Echelon Cost Estimates: Review updates on the Echelon project budget, which recently increased from $2.9 billion to $3.3 billion, to assess potential capital expenditure overruns.