Business Context and Reporting Period
Company: Boyd Gaming Corp
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 31, 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. The Company announced the indefinite delay of its multibillion-dollar Echelon development project on the Las Vegas Strip in August 2008 due to difficult capital market conditions.
Key Financial Metrics
| Metric (in thousands) | Q1 2009 | Q1 2008 |
|---|---|---|
| Net Revenues | $434,845 | $471,118 |
| Operating Income (Loss) | $27,202 | $(16,285) |
| Net Loss | $(13,828) | $(32,587) |
| Diluted EPS | $(0.16) | $(0.37) |
| Operating Cash Flow | $52,058 | $77,450 |
| Capital Expenditures | $(88,316) | $(168,155) |
| Cash and Equivalents | $98,168 | $152,528 |
| Total Debt (Long-term + Current) | $2,698,498 | $2,647,674 |
| Reportable Segment Adjusted EBITDA | $120,179 | $141,911 |
Material Changes vs. Prior Period
- Revenue Decline: Net revenues decreased 7.7% year-over-year, driven by the economic recession and reduced consumer spending, particularly in the Las Vegas Locals segment (down 32.0%).
- Improved Operating Income: Despite revenue declines, Operating Income improved from a loss of $16.3 million to a profit of $27.2 million. This was primarily due to a significant reduction in "Write-downs and other charges" from $90.3 million in Q1 2008 to $29.0 million in Q1 2009.
- Net Loss Reduction: Net loss narrowed significantly to $13.8 million from $32.6 million, aided by lower impairment charges and a gain on early debt retirements.
- Interest Expense: Interest expense increased to $45.3 million from $30.3 million, largely due to $8.9 million of prior period interest expense recognized related to the Dania Jai-Alai acquisition amendment.
- Dividends Suspended: The Company suspended quarterly dividends in July 2008; no dividends were declared in Q1 2009 compared to $0.15 per share in Q1 2008.
Guidance, Outlook, and Risks
- Echelon Project: Construction remains delayed with no resumption expected in 2009. The Company expects to incur approximately $27 million in additional capitalized costs and $15 million annually in ongoing project costs (preopening expenses) during the suspension.
- Outlook: Management anticipates the economic recession will continue to negatively impact gross revenues. The focus is on managing cost structures to maintain debt covenant compliance.
- Debt Covenants: The Company is in compliance with its bank credit facility covenants. The Total Leverage Ratio was 5.97 to 1.00 at March 31, 2009, well within the maximum permitted ratio of 6.50 to 1.00 for the period.
- Legal Contingencies:
- Treasure Chest License: Ongoing litigation by the estate of Alvin C. Copeland seeks revocation of the Treasure Chest Casino license. A loss could have a significant adverse effect.
- Nevada Use Tax: The Company is pursuing a refund of $15.7 million to $17.8 million based on a Nevada Supreme Court decision, though the state Department of Taxation is pursuing alternative legal theories.
- Dania Jai-Alai: A lawsuit challenging the Florida slot initiative was dismissed with prejudice in March 2009, removing a major legal risk to the facility's slot operations.
- Impairment Risks: The Company continues to monitor assets for impairment, specifically regarding Sam's Town Tunica and Blue Chip, due to operating losses and increased competition.
Investor Verification Checklist
- Debt Covenant Compliance: Verify the Company's ability to maintain the Total Leverage Ratio and Interest Coverage Ratio given the economic downturn and reduced operating cash flows.
- Echelon Project Costs: Monitor the $15 million annual run-rate of preopening expenses and the potential for further capitalized costs or impairment charges related to the suspended Echelon project.
- Asset Impairments: Assess the risk of future non-cash write-downs for goodwill and intangible assets, particularly at properties with operating losses like Sam's Town Tunica.
- Litigation Outcomes: Track the status of the Copeland lawsuit regarding the Treasure Chest license and the administrative process for the Nevada use tax refund.
- Refinancing Needs: Evaluate the Company's ability to refinance maturing debt (Senior Subordinated Notes due 2012-2016) in a constrained credit market.