Business Context and Reporting Period
Company: Boyd Gaming Corp
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2001
Operations: The company owns and operates twelve gaming facilities in Nevada, Mississippi, Illinois, Louisiana, and Indiana, plus a travel agency in Hawaii. It is also a 50% partner in The Borgata joint venture in Atlantic City, expected to open in summer 2003.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended June 30, 2001 |
6 Months Ended June 30, 2001 |
|---|---|---|
| Net Revenues | $281,281 | $561,702 |
| Operating Income | $33,063 | $63,718 |
| Net Income | $8,409 | $14,466 |
| Diluted EPS | $0.14 | $0.23 |
| Cash from Operations | N/A | $72,153 |
| Cash and Equivalents | $83,938 | $83,938 |
| Total Debt (Current + Long-term) | $1,108,063 | $1,108,063 |
| Working Capital | ($31,329) | ($31,329) |
Note: Working capital is negative due to current liabilities of $153,960 exceeding current assets of $122,631.
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 6.2% for the quarter and 3.8% (excluding the prior year's termination fee) for the six months ended June 30, 2001, compared to the prior year. Gaming revenues rose 6.5% (quarter) and 4.0% (six months).
- Profitability Decline: Net income for the six months ended June 30, 2001, was $14.5 million, a significant decrease from $63.7 million in the same period in 2000. This decline is primarily due to the absence of a one-time $72 million termination fee received from Silver Star in the prior year.
- Operating Income: Consolidated operating income for the six months decreased 13.2% to $63.7 million (excluding the termination fee impact). The Nevada Region saw a 21% decline in operating income due to competitive pressures at Sam's Town Las Vegas.
- Acquisition: On May 31, 2001, the company acquired Delta Downs Racetrack in Louisiana for $125 million, funded by debt and a seller note.
Guidance, Outlook, and Risks
- Expansion Projects:
- Delta Downs: Expected to open a casino in October 2001. Requires $35 million in improvements. Purchase price is subject to adjustment based on slot machine approvals and performance targets.
- The Borgata: Joint venture with MGM Mirage in Atlantic City. Total project cost is $1.035 billion. Expected opening is summer 2003. Boyd has invested $107 million to date.
- Financing Activity: On July 26, 2001 (subsequent to period end), the company issued $200 million of 9.25% Senior Notes due 2009 to reduce bank credit facility indebtedness.
- Liquidity: The company maintains a working capital deficit to minimize borrowings. It relies on operating cash flow and a $700 million bank credit facility (with $111.1 million availability as of June 30, 2001) to fund operations and capital expenditures.
- Risks:
- Regulatory approval for slot machines at Delta Downs is required for full purchase price realization and casino opening.
- Construction and operational risks associated with The Borgata and Delta Downs.
- Competitive environment in Nevada (Boulder Strip) and Mississippi (Tunica) impacting operating margins.
- Significant debt service obligations; ability to service debt depends on future performance.
Investor Verification Checklist
- Delta Downs Licensing: Verify the status of regulatory approvals for slot machines in Louisiana, as this impacts the final purchase price and revenue timeline.
- Debt Covenants: Review compliance with the bank credit facility covenants, particularly the requirement to maintain $50 million of unused availability for The Borgata.
- Sam's Town Las Vegas Performance: Monitor operating income trends at Sam's Town Las Vegas, which has faced significant competitive pressure following its renovation.
- The Borgata Funding: Track equity contribution requirements and construction progress for the Atlantic City joint venture.
- Interest Rate Exposure: Assess the impact of variable interest rates on the $700 million bank credit facility, given the company's high leverage.