Boyd Gaming Reports Second Quarter Results

26 July 2006

LAS VEGAS, Nevada – (PRESS RELEASE) -- Boyd Gaming Corporation (NYSE: BYD) today reported financial results for the second quarter ended June 30, 2006. Beginning with this earnings release, we are introducing a new format to provide a better understanding of our business.

Recent Highlights

* Las Vegas Locals segment posts net revenues of $264.4 million versus $228.3 million in the second quarter 2006, an increase of 15.8% over the 2005 quarter, and Adjusted EBITDA(1) was $78.9 million, an increase of 3.7% for the quarter.

* Central Region records net revenues for the second quarter 2006 of $245.9 million versus $220.3 million in the same quarter 2005, an increase of 11.6%, and Adjusted EBITDA was $58.6 million, an increase of 10.4%, principally due to Treasure Chest's continued strength in the New Orleans market.

* Downtown Las Vegas records second best June quarter ever with net revenues of $65.1 million and Adjusted EBITDA of $12.9 million; compared to last year's record second quarter, both net revenues and Adjusted EBITDA were down 3.1% and 9.9%, respectively.

* Company announces agreement to sell South Coast Hotel and Casino.

* Company announces agreement to purchase Dania Jai Alai for $152.5 million, located near Fort Lauderdale and in close proximity to the major population centers of South Florida, and one of four facilities approved under Florida law to operate 1,500 Las Vegas-style slot machines.

* Borgata successfully opens its $200 million public space expansion on June 30, 2006.

* Board approves quarterly cash dividend of $0.135 per share, payable September 1, 2006 to shareholders of record on August 11, 2006.

Second Quarter Results

We reported second quarter 2006 net income of $10.2 million, or $0.11 per share, compared with $48.6 million, or $0.54 per share, in the same period 2005. Additionally, on January 1, 2006, we adopted Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment, resulting in $6.3 million of non-cash compensation expense in the current quarter, or $0.04 per share; there was no such expense recorded for the same period last year. Per share earnings discussed throughout this release are reported on a diluted basis.

Adjusted Earnings for the second quarter 2006 were $42.5 million, or $0.47 per share, as compared to Adjusted Earnings for the same quarter 2005 of $50.3 million, or $0.56 per share. Had we expensed stock options in the second quarter last year, pro forma Adjusted EPS would have been $0.52 in that period. During the second quarter 2006, certain pre-tax adjustments to earnings of $50.3 million ($32.3 million, net of tax, or $0.36 per share) were as follows:

* $31.2 million charge for write-downs and other charges, principally related to the retirement of the original gaming vessel at Blue Chip, which was replaced earlier this year in conjunction with our expansion project; after analysis of alternative uses for the original vessel, management decided in June 2006 to permanently retire the asset from further operations.

* $9.6 million charge for preopening expenses, including $5.3 million for the Echelon development and $1.9 million related to Borgata's public space expansion project, as well as our other projects.

* $6.7 million charge for a retroactive Illinois gaming tax assessment at Par-A-Dice.

* $2.7 million charge for accelerated depreciation at Stardust, as we expect to retire that property to develop Echelon Place.

By comparison, the second quarter 2005 included pre-tax adjustments that reduced earnings by $2.6 million ($1.7 million, net of tax, or $0.02 per share).

Net revenues increased 10.2% to $610.9 million for the second quarter 2006, largely attributable to the addition of South Coast, as well as the Blue Chip expansion, both of which were not open in last year's second quarter. Total Adjusted EBITDA was $167.3 million in the second quarter 2006 and included a $6.7 million charge for a retroactive gaming tax assessment at our Par-A-Dice property in Illinois. Total Adjusted EBITDA for the same period last year was $159.2 million.

Bill Boyd, Chairman and Chief Executive Officer of Boyd Gaming, commented, "After eight consecutive quarter-over-quarter increases in Adjusted EPS dating back to the second quarter 2004, this quarter turned out to be a transition period, as we continued to ramp-up at Blue Chip, re-introducing our new facility within that market, and to adjust operationally for a capacity increase of approximately 14% in gaming positions in the Las Vegas Locals market. We also completed our public space expansion at Borgata and added to our development plans with a near-term opportunity in Florida, further strengthening our growth pipeline. Blue Chip's new expansion demonstrated significant potential for the future, as we move past our launch phase and begin focusing on margin improvement. Additionally, Borgata's expansion, which opened on the last day of the quarter, was extremely well-received by guests, and with renowned chefs Wolfgang Puck, Bobby Flay and Michael Mina, we reinforced Borgata's leading position in the Atlantic City market."

Year-To-Date Results

Net income for the six months ended June 30, 2006 was $73.4 million, or $0.81 per share, as compared to $88.7 million, or $0.98 per share for the six months ended June 30, 2005, which included a $16.4 million net of tax charge, or $0.19 per share, for the cumulative effect of a change in accounting principle. Pursuant to the adoption of SFAS No. 123R on January 1, 2006, we have recorded $12.1 million of share-based compensation expense in the 2006 year-to-date period, or $0.09 per share; there was no such expense recorded for the same period last year.

Adjusted Earnings for the six months ended June 30, 2006 were $113.5 million, or $1.25 per share, as compared to $107.8 million, or $1.19 per share for the six months ended June 30, 2005. Had we expensed stock options in the prior year, pro forma Adjusted EPS would have been $1.13 per share in that period.

Net revenues were $1.3 billion and $1.1 billion for the six months ended June 30, 2006 and 2005, respectively. Total Adjusted EBITDA was $382.2 million for the six months ended June 30, 2006 and included a $6.7 million charge for a retroactive gaming tax assessment at our Par-A-Dice property in Illinois. Total Adjusted EBITDA for the 2005 period was $329.6 million.

Key Operations Review

Our Las Vegas Locals segment was principally impacted by additional competition, as well as continued softness at South Coast. Second quarter net revenues were $264.4 million, an increase of 15.8% over the same period in 2005. Suncoast's performance was impacted by a new competitor in the Summerlin area, recording a 23.3% Adjusted EBITDA decline on net revenues that decreased 11.1%. At The Orleans, new competition as well as roadway construction disruption contributed to a 10.2% Adjusted EBITDA decline on slightly lower net revenues. Sam's Town Las Vegas and Gold Coast combined for a second quarter 2006 Adjusted EBITDA decrease of 4.2%.

In the Central Region, Treasure Chest continued to post solid year-over-year results, increasing net revenues by 30.9% and Adjusted EBITDA by an impressive 191.6% over the 2005 second quarter. In Indiana, Blue Chip net revenues increased 20.9%, while Adjusted EBITDA increased 3.1%, primarily because of higher than normal marketing and promotional expenses related to the expansion launch. We are refining our marketing programs in an effort to return these costs to more normal levels for the third quarter. In Illinois, net revenues for Par-A-Dice remained essentially flat for the second quarter, while Adjusted EBITDA declined 78.4%, mainly attributable to the retroactive gaming tax assessment of $6.7 million. The assessment was the result of a recent modification by the Illinois State Legislature requiring licensees to pay an additional 5% tax on adjusted gross gaming revenues retroactive to July 1, 2005.

In Atlantic City, Borgata Hotel Casino and Spa continued its strong performance in the second quarter 2006, despite operating with approximately 400 fewer slot machines due to the public space expansion project, which was completed on June 30. Borgata reported gaming revenue of $172.9 million, an increase of 1.9%, and non-gaming revenue of $64.3 million, an increase of 5.5% over the same period last year. Net income was $34.8 million for the quarter, versus $36.4 million in the same quarter 2005. Borgata reported Adjusted EBITDA for the second quarter of $57.6 million, a 1.5% increase over the same period last year.

Keith Smith, Boyd Gaming's President and Chief Operating Officer, noted, "Borgata's performance has been impressive, and with the new amenities that we opened as part of the public space expansion, demand for Borgata continues to thrive. Based on our experience at Borgata, we believe there's additional opportunity for an upscale boutique hotel experience that will extend the Borgata brand. The Water Club, Borgata's second hotel at the property, will combine the familiar elements of Borgata style, while delivering a unique personality of its own."

Development Update

Our growth pipeline includes both short and long term developments. In the short term, with Borgata's public space expansion completed, management will shift its construction resources to the property's second hotel, which is on schedule for a fourth quarter 2007 opening. Additionally, the partnership has increased the hotel project's budget to $400 million, mainly due to higher construction material costs, vendor consolidation, and demand for contractors in the Atlantic City region. We believe The Water Club at Borgata will further position the property as a leading destination in the Atlantic City market and offer a trade-up proposition to the popular Borgata brand. Predevelopment work for the Echelon Place project on the Las Vegas Strip is progressing, and we expect to begin construction in the second quarter 2007. Subject to the satisfaction of certain closing conditions, we anticipate completing the Dania Jai Alai acquisition in the fourth quarter and are finalizing plans relative to future development of the 47-acre site. In addition, we continue to work on design and development plans for our North Las Vegas project.

South Coast Sale

Boyd Gaming also announced that it has reached an agreement to sell the South Coast Hotel and Casino to Michael Gaughan for a purchase price equal to the net proceeds from the sale of approximately 15.8 million shares of Boyd Gaming stock owned by Mr. Gaughan. A minimum of 75% of the purchase price will be paid to the Company in cash. The agreement further allows the Company to purchase a maximum of 25% of Mr. Gaughan's shares, which amounts to approximately 4.4% of the Company's outstanding shares.

Cash proceeds from the sale of South Coast will be used to repay a portion of the outstanding balance on the Company's revolving credit facility. The Company plans to use the additional capital to fund its ongoing development initiatives. The transaction, which is expected to be completed by the end of the year, is subject to a minimum purchase price, the deposit by Mr. Gaughan of the cash portion of the purchase price in escrow within 60 days of today's date, customary licensing and regulatory approvals, and other closing conditions.

Following the stock sale, Michael Gaughan will shift his focus from the Company's Coast Casinos division to managing the day-to-day operations of the South Coast Hotel and Casino, and following the close of the transaction, Mr. Gaughan plans to operate the property independently. After the sale to Mr. Gaughan, Boyd Gaming will retain all Coast Casino brands and the South Coast will change its name shortly after the transaction is completed. Moreover, the South Coast cannot be sold for a period of five years, other than to Boyd Gaming, and Boyd Gaming retains the first right of refusal on the future sale for an additional three years.

On a historical basis, the pro forma disposition of the South Coast would have had an accretive effect on earnings of approximately $0.14 per share, or 17%, during the six months ended June 30, 2006. On a prospective basis, the Company believes the transaction will be immediately accretive to earnings upon closing. Beginning in the third quarter 2006, the Company expects to report the results of operations from the South Coast in "discontinued operations" on our consolidated financial statements.

William S. Boyd, Chairman and Chief Executive Officer of Boyd Gaming, commented on the agreement, "Our merger in 2004 with Coast Casinos was one of our most successful transactions ever, positioning our Company as a leading Las Vegas locals operator. While I will miss working with Michael on a daily basis, I certainly understand his desire to return to the day-to-day operations of a casino property, something he has done most of his professional life. In the end, I believe this will be a win-win for both Michael and our Company."

Michael Gaughan noted, "Our merger with Boyd Gaming two years ago proved to be a very successful transaction for both companies. Our Las Vegas Locals business experienced unprecedented growth during that time. That said, I now have a desire to return to an entrepreneurial role as a casino operator. I have been friends with Bill Boyd for over 40 years and look forward to continuing our friendship in the future."


We also announced that our Board of Directors declared a quarterly dividend of $0.135 per share, payable September 1, 2006 to shareholders of record on August 11, 2006.

Key Financial Statistics

The following is additional information as of and for the three months ended June 30, 2006:

*  June 30 debt balance: $2.61 billion
    *  June 30 cash: $169.3 million
    *  Dividends paid in the quarter: $12.1 million
    *  Maintenance capital expenditures during the quarter (excluding Delta
       Downs restoration costs covered by insurance): $31.5 million
    *  Expansion capital expenditures during the quarter:
      -  South Coast          $  13.1 million
      -  Other                    3.9 million
           Total              $  17.0 million

    *  Number of shares outstanding on June 30, 2006:  89.8 million
    *  Capitalized interest during the quarter: $2.0 million
    *  Cash distribution to the Company from Borgata in the quarter: $22.4
    *  June 30 debt balance at Borgata: $475.2 million

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