Business Context and Reporting Period
Company: Boyd Gaming Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2002
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 casino resort in Atlantic City, New Jersey, expected to open in summer 2003.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2002 | Nine Months Ended Sep 30, 2002 |
|---|---|---|
| Net Revenues | $308,003 | $922,805 |
| Operating Income | $39,727 | $129,656 |
| Net Income | $11,273 | $36,132 |
| Diluted EPS | $0.17 | $0.55 |
| Cash from Operating Activities | N/A | $139,085 |
| Cash and Cash Equivalents (Sep 30, 2002) | $69,841 | |
| Total Debt (Long-term + Current) | $1,100,978 | |
| Working Capital | Deficit of $48,498 |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 12.7% for the quarter and 10.5% for the nine-month period compared to 2001. Gaming revenues rose 16.5% (quarter) and 14.3% (nine months), driven primarily by the commencement of slot operations at Delta Downs (Feb 2002) and dockside operations at Blue Chip (Aug 2002).
- Profitability: Operating income increased 53% for the quarter and 45% for the nine-month period. This was achieved despite declines in Nevada region revenues, due to significant cost containment in marketing and payroll.
- Accounting Changes: The company adopted SFAS No. 142, ceasing the amortization of goodwill and intangible license rights. This resulted in an $8.2 million cumulative effect charge (non-cash) recorded in Q1 2002 related to the Stardust acquisition.
- Debt Restructuring: The company issued $250 million in 8.75% senior subordinated notes due 2012 and repurchased approximately $77.8 million of its 9.25% senior notes due 2003, incurring a $3.4 million loss on early retirement.
Guidance, Outlook, Risks, and Unusual Items
- Borgata Project: The company is a 50% partner in the Borgata. MGM Mirage temporarily suspended development of its adjacent resort in October 2002, potentially causing an impairment charge for the Borgata's $50 million in intangible assets related to joint access. Boyd expects to open the Borgata in summer 2003.
- Regulatory Risks: Gaming tax rates increased in Indiana (Blue Chip) and Illinois (Par-A-Dice) in 2002. Management expects operating expenses to remain negatively impacted by these tax increases, higher labor costs in Nevada, and increased insurance costs.
- Unusual Items: Preopening expenses increased significantly ($12.2 million for nine months) due to the Borgata venture, unsuccessful efforts to develop a Rhode Island casino, and Delta Downs expansion.
- Share Repurchase: On November 11, 2002, the Board authorized the repurchase of up to 2,000,000 shares of common stock.
Investor Verification Checklist
- Borgata Impairment: Verify if the temporary suspension of MGM Mirage's project results in a material impairment charge in Q4 2002.
- Debt Maturities: Confirm the company's ability to redeem the remaining $122.2 million of 9.25% senior notes due in October 2003 using available credit facility liquidity.
- Delta Downs Performance: Monitor if Delta Downs can improve margins given high marketing expenses relative to revenue expectations.
- Working Capital: Assess the sustainability of the $48 million working capital deficit and reliance on the bank credit facility.
- Tax Impact: Evaluate the long-term impact of graduated tax scales in Indiana and Illinois on future operating margins.