BOYD GAMING CORP - 2002 10-K Summary
Business Context and Reporting Period
This Annual Report on Form 10-K covers the fiscal year ended December 31, 2002. Boyd Gaming Corporation is a multi-jurisdictional gaming company operating twelve casino facilities across eight markets in five states (Nevada, Mississippi, Illinois, Louisiana, Indiana). The company derives the majority of its revenue from gaming operations (77% in 2002). A significant portion of the company's strategy involves a unique niche marketing approach targeting Hawaiian tourists for its downtown Las Vegas properties. The company is also a 50% partner in the development of the Borgata Hotel Casino and Spa in Atlantic City, New Jersey, with an expected opening in summer 2003.
Key Financial Metrics
| Metric | 2002 | 2001 | Change |
|---|---|---|---|
| Net Revenues | $1,228.9 million | $1,102.3 million | +11.5% |
| Operating Income | $164.5 million | $115.9 million | +42.0% |
| Net Income | $40.0 million | $25.0 million | +60.0% |
| Diluted EPS | $0.61 | $0.40 | +52.5% |
| Operating Cash Flow | $178.2 million | $158.1 million | +12.7% |
| Long-Term Debt (excl. current) | $1,227.3 million | $1,143.4 million | +7.3% |
| Total Assets | $1,913.0 million | $1,754.9 million | +9.0% |
Liquidity: As of December 31, 2002, the company held $191.4 million in cash and cash equivalents and had $245.1 million in availability under its $500 million bank credit facility. Working capital improved to $86 million from a deficit of $36 million in 2001.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated net revenues increased 11.5%, driven primarily by the commencement of slot operations at Delta Downs Racetrack and Casino (February 2002) and the transition to dockside operations at Blue Chip Casino (August 2002). Gaming revenues increased 15.0%.
- Operating Income: Operating income rose 42% to $164.5 million. This was aided by significant cost reductions in marketing and payroll at Nevada properties and the cessation of amortization expense for goodwill and intangible license rights following the adoption of SFAS No. 142.
- Accounting Changes: The company recorded an $8.2 million cumulative effect charge related to the write-down of goodwill associated with the Stardust acquisition under new accounting standards (SFAS No. 142).
- Debt Restructuring: The company issued $300 million of 7.75% senior subordinated notes in December 2002 and $250 million of 8.75% notes in April 2002. Proceeds were used to redeem $250 million of 9.50% notes due 2007 and repay bank credit facility borrowings. A $15.1 million loss was recorded on early retirements of debt.
Guidance, Outlook, Risks, and Contingencies
Outlook and Projects: The company expects the Borgata project in Atlantic City to open in summer 2003, with total project costs estimated between $1.035 billion and $1.067 billion. Boyd Gaming has provided an unlimited completion guaranty for the project. Management anticipates continued pressure on operating expenses due to increased gaming taxes in Illinois and Indiana, higher labor costs in Nevada, and increased insurance costs.
Key Risks and Contingencies:
- Legal Proceedings: Significant litigation exists regarding the Delta Downs property. Harrah's of Lake Charles has sued to revoke the building permit, claiming the renovation exceeds approved specifications. A loss could materially reduce the value of the acquisition and cash flow. Additionally, lawsuits by Astoria Entertainment and Alvin Copeland challenge the Treasure Chest Casino license in Louisiana.
- Regulatory Risks: The company faces extensive regulation in all jurisdictions. Recent legislative changes in Illinois and Indiana increased gaming tax rates. In Mississippi, there is a risk that voters could prohibit gaming via initiative. In Louisiana, the company's license at Delta Downs was temporarily suspended in early 2002 for internal control failures.
- Competition: Intense competition exists in all markets, including potential new tribal gaming facilities near Blue Chip (Michigan) and new riverboat licenses in Louisiana.
- Concentration Risk: Downtown Las Vegas properties rely heavily on the Hawaiian market (approx. 50-63% of room nights). Economic downturns or travel disruptions in Hawaii could significantly impact results.
Investor Verification Checklist
- Delta Downs Litigation: Verify the status of the Harrah's lawsuit regarding the building permit and the potential impact on slot machine counts and facility size.
- Borgata Completion: Monitor construction progress and cost overruns for the Borgata joint venture, given the unlimited completion guaranty provided by Boyd.
- Tax Rate Changes: Assess the financial impact of the graduated tax rates in Indiana and increased taxes in Illinois on future margins.
- Debt Maturities: Review the plan to redeem the remaining $122.2 million of 9.25% senior notes due in October 2003 using the bank credit facility.
- Property Performance: Evaluate the turnaround strategy for Sam's Town Tunica, which reported an operating loss in 2002, and the Stardust, which narrowly returned to profitability.