Business Context and Reporting Period
Company: Boyd Gaming Corp
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 1998
Operations: The Company owned and operated eleven casino entertainment facilities in Nevada, Mississippi, Missouri, Illinois, and Louisiana, plus a travel agency in Hawaii. It also managed a facility in Philadelphia, Mississippi.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Jun 30, 1998 |
6 Months Ended Jun 30, 1998 |
6 Months Ended Jun 30, 1997 |
|---|---|---|---|
| Net Revenues | $245,485 | $495,527 | $435,101 |
| Operating Income | $25,733 | $60,968 | $(75,907) |
| Net Income (Loss) | $4,034 | $13,358 | $(74,275) |
| Diluted EPS | $0.07 | $0.22 | $(1.21) |
| Cash from Operations | N/A | $67,052 | $39,594 |
| Cash & Equivalents | $76,657 | $76,657 | $55,220 |
| Total Debt (Current + Long-term) | $797,766 | $797,766 | $844,760 |
| Working Capital | $588 | $588 | $(3,500) |
Note: 1997 six-month operating loss and net loss were significantly impacted by a $126 million impairment charge recorded in Q1 1997.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated net revenues increased 13.7% for the quarter and 13.9% for the six months compared to the prior year. This was driven primarily by the full consolidation of Treasure Chest Casino (acquired Oct 1997) and growth in Downtown Las Vegas properties.
- Profitability Turnaround: The Company returned to profitability with $13.4 million net income for the six months ended June 30, 1998, compared to a $74.3 million net loss in the same period in 1997. The prior year loss was largely due to a $126 million impairment charge related to the Kansas City market.
- Regional Performance:
- Central Region: Revenues increased 34% (quarter) and 35% (six months) due to the Treasure Chest acquisition, offset by declines at Sam's Town Kansas City and Tunica.
- Nevada Region: Revenues were relatively flat (2.1% increase for the quarter) due to declines at the Stardust and Boulder Strip properties offset by gains in Downtown properties.
- Restructuring: A $5.9 million restructuring charge was recorded in Q2 1998 to cease operations at Sam's Town Kansas City, including $2.6 million in termination benefits.
Guidance, Outlook, and Risks
- Strategic Initiatives: The Company is exploring expansion opportunities, including a joint venture with Mirage Resorts for a $750 million casino project in Atlantic City (requiring at least $150 million in capital contributions from Boyd).
- Asset Disposition: Operations at Sam's Town Kansas City ceased in July 1998. The Company sold substantially all tangible assets for $12.5 million, approximating net book value. This sale is expected to unlock approximately $35 million in deferred tax assets, benefiting future cash flows.
- Liquidity: The Company maintains a $500 million revolving credit facility. As of June 30, 1998, $345 million was outstanding with $155 million available. Management expects to fund working capital and expansion projects through operating cash flow and this facility.
- Risks:
- Competition: Intense competition in Las Vegas (Strip and Boulder Strip) and Tunica markets continues to pressure revenues and margins.
- Year 2000 Compliance: Estimated costs for Y2K conversion are approximately $16 million, with $2.7 million incurred by June 30, 1998. There is no assurance systems will be converted on schedule.
- Debt Covenants: The Company is subject to various financial covenants regarding tangible net worth, fixed charge coverage, and debt-to-EBITDA ratios.
Investor Verification Checklist
- Deferred Tax Asset Realization: Verify the timing and amount of the $35 million deferred tax asset benefit expected from the Kansas City asset sale.
- Atlantic City Joint Venture: Confirm the status of the $150 million capital commitment and funding sources for the Mirage Resorts joint venture.
- Y2K Costs: Monitor actual expenditures against the $16 million estimate for Year 2000 compliance.
- Debt Servicing: Review compliance with debt covenants, particularly the funded debt to EBITDA ratio, given the high leverage ($798 million total debt).
- Stardust Remodel: Assess the impact of the $9 million suite remodel project on room occupancy and revenue once completed in Q3 1998.