Business Context and Reporting Period
Company: Boyd Gaming Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2006
Operations: Diversified operator of 16 wholly-owned gaming entertainment facilities in Nevada, Mississippi, Illinois, Louisiana, and Indiana, plus a 50% joint venture interest in Borgata Hotel Casino and Spa in Atlantic City, New Jersey.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2006 | Nine Months Ended Sep 30, 2006 |
|---|---|---|
| Net Revenues | $530,686 | $1,671,798 |
| Operating Income | $85,692 | $281,550 |
| Net Income (Loss) | $(12,930) | $60,470 |
| Diluted EPS (Net) | $(0.15) | $0.67 |
| Adjusted EBITDA | $149,900 | $506,024 |
| Cash and Cash Equivalents | $170,235 | $170,235 |
| Long-Term Debt (net of current) | $2,554,200 | $2,554,200 |
| Working Capital | $444,657 | $444,657 |
Note: Working Capital calculated as Total Current Assets ($961,517) minus Total Current Liabilities ($516,860).
Material Changes vs. Prior Period
- Net Income Decline (Q3): The company reported a net loss of $12.9 million for the three months ended September 30, 2006, compared to net income of $32.9 million in the same period in 2005. This was primarily driven by a $65 million impairment charge related to discontinued operations (South Coast) and increased operating expenses.
- Discontinued Operations: Results for South Coast and Barbary Coast are now classified as discontinued operations. This includes a $65 million non-cash impairment charge for South Coast assets held for sale.
- Revenue Growth: Net revenues increased to $530.7 million (Q3 2006) from $523.5 million (Q3 2005), driven by the Blue Chip expansion and recovery at Treasure Chest following Hurricane Katrina, partially offset by increased competition in Las Vegas.
- Share-Based Compensation: Adoption of SFAS No. 123R resulted in $5.0 million of non-cash share-based compensation expense in Q3 2006, compared to zero in the prior year.
- Debt Structure: Issued $250 million in 7.125% senior subordinated notes in January 2006, proceeds used to repay bank credit facility borrowings.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Expansion Projects: Major focus on the Echelon Place development on the Las Vegas Strip (expected opening mid-2010), a $130 million expansion at Blue Chip (opening late 2008), and a new North Las Vegas locals casino.
- Discontinued Operations Impact: Management anticipates operating cash flows will decline in future periods due to the sale of South Coast (closed Oct 2006) and the closure of the Stardust (Nov 2006).
- Barbary Coast Exchange: Entered an agreement to exchange the Barbary Coast for 24 acres on the Las Vegas Strip. Expects to record a non-cash, pretax gain of approximately $280 million upon closing (expected Jan 2007).
Risks and Contingencies
- Legal Proceedings: Ongoing litigation by Alvin C. Copeland seeking revocation of the Treasure Chest Casino license. A loss could have a significant adverse effect on operations.
- Regulatory Risk (Florida): Pending acquisition of Dania Jai Alai faces risk if a Florida court invalidates the 2004 voter initiative allowing slot machines at parimutuel facilities.
- Competition: Intensifying competition in Las Vegas and potential impact from a new Native American casino near Blue Chip in Michigan.
- Insurance Claims: Ongoing negotiations with insurers regarding Hurricane Katrina and Rita damages at Treasure Chest and Delta Downs. Final settlement amounts are uncertain.
Investor Verification Checklist
- Discontinued Operations Accounting: Verify the final impairment charge for South Coast and the timing of the $280 million gain recognition on the Barbary Coast exchange.
- Insurance Recoveries: Monitor the status of the $28 million deferred gain related to Delta Downs property damage and business interruption claims.
- Legal Status of Treasure Chest: Track the progress of the Copeland lawsuit regarding the Treasure Chest license revocation.
- Florida Slot Initiative: Confirm the outcome of the appellate court ruling regarding the validity of the slot machine initiative affecting the Dania Jai Alai acquisition.
- Capital Expenditures: Review actual spending versus budget for the Echelon Place and Blue Chip expansion projects, noting potential cost overruns.