Business Context and Reporting Period
Company: Boyd Gaming Corp
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2003
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 Borgata Hotel Casino and Spa in Atlantic City, which commenced operations on July 3, 2003.
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 2003 |
Six Months Ended June 30, 2002 |
|---|---|---|
| Net Revenues | $634,359 | $614,802 |
| Operating Income | $69,292 | $89,929 |
| Net Income | $20,883 | $24,859 |
| Diluted EPS | $0.32 | $0.38 |
| Cash from Operating Activities | $84,863 | $105,345 |
| Cash and Cash Equivalents (End of Period) | $76,784 | $77,046 |
| Total Debt (Long-term + Current) | $1,094,459 | $1,228,811 |
| Working Capital | ($9,424) | ($86,596) |
Note: Working capital is calculated as Total Current Assets minus Total Current Liabilities. The company historically operates with minimal or negative working capital to minimize borrowings.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated net revenues increased 3.2% year-over-year for the six-month period. This was driven by Delta Downs operating with slot machines for the full period (adding $11.9 million) and Blue Chip's dockside operations (9.6% increase). These gains were partially offset by declines at Treasure Chest and Stardust due to lower business volumes.
- Operating Income Decline: Operating income decreased 23% to $69.3 million. Key factors included:
- Increased Taxes: New legislation in Indiana and Illinois increased gaming taxes and admission fees. Blue Chip recorded a one-time $3.5 million retroactive tax charge.
- Preopening Expenses: Corporate expenses rose $12.0 million, primarily due to $16.1 million in preopening expenses for the Borgata project (compared to $4.1 million in the prior year).
- Property Performance: Sam's Town Tunica reported an operating loss of $2.2 million for the six-month period, compared to income of $1.4 million in the prior year.
- Debt Reduction: Total debt decreased by approximately $134 million. The company redeemed $116 million of 9.50% senior subordinated notes in January 2003 and repaid $29 million of its bank credit facility.
- Stock Repurchases: The company repurchased 991,100 shares of common stock for $12.2 million during the period.
Guidance, Outlook, and Risks
- Borgata Project: The $1.1 billion joint venture with MGM MIRAGE opened July 3, 2003. The company expects this to have a material effect on future results. However, the company bears the risk of funding any project costs exceeding $1.073 billion. New Jersey tax legislation enacted in July 2003 is expected to adversely impact Borgata's results.
- Expansion Plans: The company announced a $50 million expansion at Delta Downs (casino expansion and hotel addition) and plans for a new boat at Blue Chip to increase gaming positions.
- Dividends: On July 25, 2003, the Board instituted a quarterly cash dividend policy and declared an initial dividend of $0.075 per share.
- Legal Risks:
- License Challenges: Ongoing litigation by Alvin C. Copeland seeks to revoke the Treasure Chest Casino license. A loss could have a significant adverse effect on the business.
- Building Permit Dispute: Harrah's of Lake Charles is suing to revoke the building permit at Delta Downs, claiming the facility exceeds approved square footage and slot machine counts.
- Regulatory Risks: New tax laws in Illinois (effective July 1, 2003) and Nevada (effective August 1, 2003) are expected to increase annual tax liabilities by approximately $15 million and $3 million, respectively.
Investor Verification Checklist
- Borgata Funding: Verify the final project cost estimates and the company's ability to fund any overages beyond the $1.073 billion threshold without dilution.
- Tax Liability: Confirm the actual impact of the new Indiana retroactive tax and the new Illinois/Nevada tax rates on future margins.
- Sam's Town Tunica: Monitor the turnaround plan for Sam's Town Tunica; continued losses could trigger an asset impairment writedown under SFAS No. 144.
- Legal Proceedings: Track the status of the Copeland lawsuit regarding the Treasure Chest license and the Harrah's lawsuit regarding Delta Downs permits.
- Debt Covenants: Review compliance with the bank credit facility covenants, particularly the requirement to maintain $50 million of unused availability until Borgata is complete.