Business Context and Reporting Period
Company: Boyd Gaming Corp
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2001
Operations: The company owns and operates twelve gaming facilities across Nevada, Mississippi, Illinois, Louisiana, and Indiana, plus a travel agency in Hawaii. It is also a 50% partner in the development of The Borgata in Atlantic City, expected to open in summer 2003.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2001 | Nine Months Ended Sep 30, 2001 | Units |
|---|---|---|---|
| Net Revenues | $273,415 | $835,117 | Thousands |
| Operating Income | $25,898 | $89,616 | Thousands |
| Net Income | $4,113 | $18,579 | Thousands |
| Diluted EPS | $0.07 | $0.30 | Per Share |
| Cash from Operating Activities | N/A | $107,610 | Thousands |
| Cash and Equivalents (End of Period) | $82,122 | $82,122 | Thousands |
| Total Debt (Current + Long-term) | $1,113,822 | $1,113,822 | Thousands |
| Working Capital | ($32,479) | ($32,479) | Thousands |
Note: Working capital is negative due to current liabilities of $152,774 exceeding current assets of $120,295.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated net revenues increased 3.4% for the quarter and 3.7% (excluding termination fees) for the nine months compared to 2000. Gaming revenues rose 3.9% (quarter) and 4.0% (nine months).
- Profitability Decline: Net income for the nine months dropped significantly to $18.6 million from $67.4 million in the prior year. This decline is primarily attributed to the absence of a one-time $72 million termination fee received from Silver Star in the prior year.
- Operating Income: Operating income for the quarter increased 7.5% to $25.9 million, despite a slowdown following the September 11 attacks. However, nine-month operating income decreased 46% to $89.6 million due to the lack of the prior year's termination fee.
- Regional Performance: The Central Region (Mississippi, Illinois, Louisiana, Indiana) saw net revenue increases of 5.9% (quarter) and 5.1% (nine months). The Nevada Region saw modest growth of 0.9% (quarter) and 2.2% (nine months), with the Stardust property reporting an operating loss of $2.7 million for the quarter due to post-9/11 tourism declines.
Guidance, Outlook, Risks, and Unusual Items
Expansion and Projects
- Delta Downs Acquisition: Acquired on May 31, 2001, for $125 million. Slot operations are expected to commence in December 2001. The purchase price is subject to adjustment based on regulatory approval of slot machine counts and future income targets.
- The Borgata: A 50% joint venture with MGM Mirage. Total project cost is $1.035 billion. Boyd has invested approximately $121 million as of September 30, 2001, with additional capital calls expected.
Debt and Liquidity
- New Debt Issuance: On July 26, 2001, the company issued $200 million of 9.25% Senior Notes due August 2009. Proceeds were used to reduce bank credit facility borrowings.
- Credit Facility: The company maintains a $700 million bank credit facility. Availability was permanently reduced by $69 million following the note issuance. As of September 30, 2001, $235.7 million remained available.
Risks and Contingencies
- Legal Challenge: Isle of Capri Casinos filed a lawsuit seeking to revoke Delta Downs' gaming license. A successful injunction could delay the December 2001 opening; a successful trial could revoke the license entirely.
- Accounting Standards: The company anticipates adopting SFAS No. 142 (Goodwill) on January 1, 2002. This will cease amortization of goodwill but requires impairment testing. Management expects a potential writedown of a portion of goodwill and intangible assets upon adoption.
- Derivative Instruments: The Borgata joint venture holds interest rate protection agreements. Boyd recorded other comprehensive losses of $2.6 million (net of tax) for the nine months ended September 30, 2001, related to the fair value decrease of these instruments.
Investor Verification Checklist
- Delta Downs Regulatory Status: Verify the final number of approved slot machines and the status of the Isle of Capri lawsuit, as these directly impact the $125 million acquisition value and future cash flows.
- Goodwill Impairment: Monitor the impact of SFAS No. 142 adoption in 2002, specifically the potential writedown of goodwill and intangible assets which could materially affect future earnings.
- Debt Covenants: Confirm continued compliance with the bank credit facility covenants, particularly the requirement to maintain $50 million of unused availability until The Borgata opens.
- Post-9/11 Recovery: Assess the sustainability of revenue recovery in the Nevada region, specifically the Stardust and Sam's Town Las Vegas properties, which were heavily impacted by the September 11 attacks.
- Capital Expenditures: Track the $35 million in expected improvements for Delta Downs and the remaining equity contributions for The Borgata to ensure adequate liquidity.