Business Context and Reporting Period
Company: Boyd Gaming Corporation
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2009
Operations: The Company operates 15 wholly-owned casino entertainment facilities in Nevada, Mississippi, Illinois, Louisiana, and Indiana, plus a pari-mutuel facility in Florida. It holds a 50% interest in Borgata Hotel Casino and Spa in Atlantic City, New Jersey. The Company operates four reportable segments: Las Vegas Locals, Downtown Las Vegas, Midwest and South, and Borgata.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 |
|---|---|---|
| Net Revenues | $398,243 | $1,256,038 |
| Operating Income | $46,912 | $130,272 |
| Net Income | $6,315 | $5,265 |
| Diluted EPS | $0.07 | $0.06 |
| Operating Cash Flow (9mo) | $159,097 | |
| Total Assets | $4,540,448 | |
| Total Debt (Long-term + Current) | $2,645,271 | |
| Cash and Cash Equivalents | $89,061 | |
| Working Capital Deficit | ($114,684) |
Material Changes vs. Prior Period
- Revenue Decline: Net revenues decreased 6.6% for the three months and 7.5% for the nine months ended September 30, 2009, compared to 2008. The Las Vegas Locals segment saw significant declines (18.0% and 17.8% respectively) due to the economic downturn and reduced consumer spending.
- Profitability Improvement: Despite revenue declines, Operating Income increased 2.5% for the quarter and 39.2% for the nine-month period. This was driven by cost containment measures and a $28.7 million gain on an insurance settlement at Borgata related to a 2007 fire.
- Asset Write-downs: The Company recorded $14.3 million in write-downs for the quarter and $41.4 million for the nine months. Key items included a $13.5 million impairment of the Morgans/LV Investment LLC joint venture and a $28.4 million write-off of Dania Jai-Alai goodwill.
- Debt Reduction: The Company retired $74.3 million in principal of senior subordinated notes during the nine months, resulting in a $12.1 million gain on early retirement.
Outlook, Risks, and Contingencies
- Echelon Project Suspension: Construction on the multibillion-dollar Echelon project in Las Vegas remains suspended. The Company does not expect to resume construction for 3 to 5 years due to difficult capital markets and weak economic conditions. Capitalized costs related to the project are approximately $925 million. The Company expects recurring annual costs of approximately $15 million during the suspension.
- Liquidity and Debt Covenants: The Company maintains a $4.0 billion bank credit facility with approximately $2.0 billion available. The Total Leverage Ratio was 5.76 to 1.00 at September 30, 2009, well within the covenant limit of 6.50 to 1.00.
- Legal Proceedings: The Company is defending a lawsuit by the estate of Alvin C. Copeland seeking the revocation of the Treasure Chest Casino license. An adverse outcome could have a significant adverse effect on operations.
- Tax Refund Claims: The Company is pursuing a use tax refund of $16.1 million to $18.2 million from the State of Nevada based on a Supreme Court decision, though the state is pursuing an alternative legal theory.
- Dividends: The quarterly dividend was suspended in July 2008 and no dividends were declared during the nine months ended September 30, 2009.
Investor Verification Checklist
- Echelon Asset Recoverability: Verify the Company's assessment that the $925 million in capitalized Echelon assets are not impaired, given the indefinite suspension of the project.
- Debt Refinancing Risk: Assess the ability to refinance the $2.6 billion in debt as it matures, particularly given the volatility in credit markets and the Company's high leverage ratio.
- Las Vegas Locals Performance: Monitor the trend of consumer spending and occupancy rates in the Las Vegas Locals segment, which has been the hardest hit by the economic downturn.
- Borgata Insurance Gain: Confirm the non-recurring nature of the $28.7 million insurance gain included in Borgata's operating income.
- Treasure Chest License Litigation: Track the status of the Copeland lawsuit, as a loss could result in the revocation of a key operating license.