Business Context and Reporting Period
Company: Boyd Gaming Corporation
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2005
Operations: The company operates 17 wholly-owned gaming entertainment facilities in Nevada, Mississippi, Illinois, Louisiana, and Indiana, plus a travel agency in Hawaii. It also holds a 50% equity interest in the Borgata Hotel Casino & Spa in Atlantic City, New Jersey.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2005 |
Three Months Ended June 30, 2004 |
Six Months Ended June 30, 2005 |
Six Months Ended June 30, 2004 |
|---|---|---|---|---|
| Net Revenues | $554,250 | $341,895 | $1,121,140 | $671,933 |
| Operating Income | $110,818 | $52,785 | $234,286 | $108,499 |
| Net Income | $48,638 | $15,533 | $88,718 | $28,998 |
| Diluted EPS | $0.54 | $0.23 | $0.98 | $0.43 |
| Adjusted EBITDA | $159,181 | $85,279 | $329,614 | $165,967 |
| Cash from Operations | N/A | N/A | $198,157 | $90,485 |
| Total Debt (Long-term + Current) | $2,357,804 | N/A | N/A | N/A |
| Cash & Equivalents | $148,821 | N/A | N/A | N/A |
Note: Debt figures represent Long-term debt ($2,352,099) plus Current maturities ($5,705) as of June 30, 2005.
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 62% for the three months and 67% for the six months ended June 30, 2005, compared to the prior year. This growth is primarily attributed to the full inclusion of Coast Casinos (acquired July 2004) and a full quarter of results from Sam's Town Shreveport (acquired May 2004).
- Profitability: Operating income increased 110% for the quarter and 116% for the six-month period. Adjusted EBITDA rose 87% and 99% respectively.
- Accounting Change: The six-month 2004 net income included a $16.4 million charge (net of tax) representing the cumulative effect of a change in accounting principle for intangible assets (Delta Downs license rights). This non-cash charge reduced 2004 comparables.
- Segment Performance: Excluding acquisitions, organic growth was driven by increased slot revenues at Boulder Strip and Downtown Properties, and the opening of a new hotel at Delta Downs.
Guidance, Outlook, Risks, and Unusual Items
- Expansion Projects: Significant capital expenditures are ongoing for the South Coast development (expected to open early 2006, total cost ~$600 million) and the Blue Chip expansion (expected completion Q1 2006, total cost ~$170 million).
- Debt Redemption (Subsequent Event): On August 1, 2005, the company redeemed $200 million of 9.25% senior notes due in 2009. This will result in an approximate $17.5 million loss on early retirement of debt to be recorded in the quarter ending September 30, 2005.
- Legal Proceedings: A collective bargaining agreement dispute with the Las Vegas Culinary Union remains unresolved, with the Union seeking damages over $1.9 million per month. The company believes damages are speculative and intends to defend vigorously.
- Asset Impairment Risks: Sam's Town Tunica reported operating losses; the company continues to test assets for recoverability. Additionally, potential redevelopment of the Stardust and Barbary Coast sites could trigger impairment charges if demolition is approved.
- Stock Option Expense: The company expects to adopt SFAS 123R effective January 1, 2006, which will result in estimated stock option expenses of approximately $8 million in 2006 and $3 million in 2007.
Investor Verification Checklist
- Debt Covenants: Verify compliance with the amended bank credit facility covenants, specifically the fixed charge coverage and leverage ratios, given the high debt load ($2.35 billion).
- Capital Expenditure Funding: Confirm the availability of funds under the $1.35 billion revolving credit facility to support the $600 million South Coast and $170 million Blue Chip projects.
- Intangible Asset Valuation: Review the methodology used for the direct value method impairment test on Delta Downs license rights that resulted in the $25.4 million charge.
- Legal Exposure: Monitor the status of the Union lawsuit and the potential financial impact of the $1.9 million/month damage claim.
- Future Earnings Impact: Assess the impact of the $17.5 million debt redemption loss and the new stock-based compensation expense starting in 2006 on future earnings per share.