Business Context and Reporting Period
Company: Boyd Gaming Corporation
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three months ended March 31, 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 development of the Borgata Hotel Casino and Spa in Atlantic City, New Jersey.
Key Financial Metrics
| Metric (in thousands) | Q1 2003 | Q1 2002 |
|---|---|---|
| Net Revenues | $321,856 | $302,786 |
| Operating Income | $44,752 | $43,674 |
| Net Income | $16,439 | $7,825 |
| Diluted EPS | $0.25 | $0.12 |
| Cash Flow from Operations | $41,758 | $42,781 |
| Cash and Equivalents (End of Period) | $75,691 | $77,072 |
| Total Debt (Long-term + Current) | $1,107,798 | $1,228,811 |
| Working Capital | ($10,777) | ($29,000) |
Note: Working capital is calculated as Total Current Assets minus Total Current Liabilities. Q1 2002 Net Income included an $8.2 million cumulative effect of a change in accounting principle (goodwill write-down) which reduced reported earnings.
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 6.3% year-over-year. This was driven by Delta Downs operating with slot machines for the full quarter (up $12.0 million), Blue Chip's transition to dockside operations (up 7.5%), and increased slot wagering at Sam's Town Las Vegas (up 8.1%).
- Profitability: Operating income rose 2.5% to $44.8 million. Net income more than doubled to $16.4 million, primarily because the prior year included an $8.2 million non-cash goodwill impairment charge that did not recur.
- Debt Reduction: Total debt decreased by approximately $121 million. The company redeemed $116 million of 9.50% senior subordinated notes in January 2003 and repaid $6.1 million of other indebtedness in March 2003.
- Preopening Expenses: Decreased by $2.0 million to $4.2 million. The prior year included significant preopening costs for the Delta Downs casino expansion, whereas current costs are primarily related to the Borgata venture.
- Segment Performance: Sam's Town Tunica reported an operating loss of $0.7 million, compared to a profit of $0.8 million in the prior year, due to the recent acquisition of 225 hotel rooms from Isle of Capri which have not yet achieved expected returns.
Guidance, Outlook, and Risks
- Borgata Project: The company expects to open the Borgata Hotel Casino and Spa between June 21 and the last week of July 2003. Total project costs are estimated between $1.035 billion and $1.067 billion. Boyd expects to contribute approximately $40 million in equity during 2003, with the majority due in the third quarter.
- Tax Legislation Impact: New legislation in Indiana regarding gaming taxes for dockside operations is retroactive to July 1, 2002. The company expects to record an additional tax expense of approximately $2 million in the quarter ending June 30, 2003. Increased gaming taxes in Illinois and Indiana are expected to continue to negatively impact operating expenses.
- Liquidity: The company maintains a working capital deficit, a historical strategy to minimize borrowings. It has $259.4 million available under its bank credit facility, though $50 million must remain unused to satisfy the Borgata completion guaranty. Management intends to use $122.2 million of this availability to redeem 9.25% senior notes due in October 2003.
- Legal Contingencies: Significant litigation exists regarding the Treasure Chest Casino license (Astoria Entertainment and Alvin Copeland) and the Delta Downs building permit (Harrah's of Lake Charles). A loss in these matters could materially affect the company's financial condition.
- Stock Repurchases: The Board authorized the repurchase of up to 2 million shares. Through March 31, 2003, 862,200 shares were repurchased for $10.6 million.
Investor Verification Checklist
- Borgata Completion: Verify the timeline and cost estimates for the Borgata opening, as delays or cost overruns beyond $1.067 billion are Boyd's sole responsibility.
- Indiana Tax Liability: Confirm the exact timing and amount of the retroactive tax payment expected in Q2 2003.
- Debt Redemption: Monitor the company's ability to redeem the $122.2 million of 9.25% senior notes due in October 2003 using credit facility availability.
- Sam's Town Tunica Turnaround: Assess the performance of the newly acquired hotel rooms and the timeline for returning the property to profitability to avoid potential asset impairment charges.
- Legal Outcomes: Track the status of the Treasure Chest and Delta Downs litigation, as adverse rulings could threaten key revenue-generating assets.