1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 1-12168
BOYD GAMING CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0242733
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2950 SOUTH INDUSTRIAL ROAD
LAS VEGAS, NEVADA
89109
(Address of principal executive offices)
(Zip Code)
(702) 792-7200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes X No
----- -----
Shares outstanding of each of the Registrant's classes of common stock as of
April 30, 1997
Class Outstanding
----- -----------
Common stock, $.01 par value 61,363,015
2
BOYD GAMING CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1997
and June 30, 1996 3
Condensed Consolidated Statements of Operations for the three
and nine months ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended March 31, 1997 and 1996 5
Condensed Consolidated Statements of Changes in Stockholders'
Equity for the nine months ended March 31, 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 19
Signature Page 20
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) MARCH 31, JUNE 30,
(IN THOUSANDS, EXCEPT SHARE DATA) 1997 1996
- --------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 61,276 $ 48,980
Accounts receivable, net 20,827 16,040
Inventories 7,988 6,531
Prepaid expenses 17,628 15,265
Income taxes receivable 5,271 --
---------- --------
Total current assets 112,990 86,816
Property, equipment and leasehold interests, net 756,796 797,593
Other assets and deferred charges 57,858 58,489
Deferred income taxes 6,818 --
Goodwill and other intangible assets, net 125,058 10,527
---------- --------
Total assets $1,059,520 $953,425
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 1,739 $ 4,031
Accounts payable 51,127 47,193
Accrued liabilities
Payroll and related 27,062 22,956
Interest and other 39,359 20,956
Income taxes payable -- 678
---------- --------
Total current liabilities 119,287 95,814
Long-term debt, net of current maturities 753,141 590,808
Deferred income taxes -- 33,546
Commitments
Stockholders' equity
Preferred stock, $.01 par value; 5,000,000 shares authorized -- --
Common stock, $.01 par value; 200,000,000 shares authorized;
61,363,015 and 57,213,720 shares outstanding 614 572
Additional paid-in capital 137,305 102,583
Retained earnings 49,173 130,102
---------- --------
Total stockholders' equity 187,092 233,257
---------- --------
Total liabilities and stockholders' equity $1,059,520 $953,425
========== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
(UNAUDITED) ------------------------ ------------------------
(IN THOUSANDS, EXCEPT SHARE DATA) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------ ------------------------
Revenues
Casino $ 153,965 $ 143,689 $ 422,173 $ 413,097
Food and beverage 39,992 37,616 113,379 105,703
Rooms 19,360 17,978 54,809 52,308
Other 15,903 12,288 44,478 35,300
Management fees and joint venture 11,253 10,683 31,659 30,893
--------- --------- --------- ---------
Gross revenues 240,473 222,254 666,498 637,301
Less promotional allowances 20,473 20,094 60,648 55,792
--------- --------- --------- ---------
Net revenues 220,000 202,160 605,850 581,509
--------- --------- --------- ---------
Costs and expenses
Casino 78,065 72,344 223,993 203,769
Food and beverage 27,916 23,561 78,801 74,337
Rooms 6,473 5,611 18,517 17,910
Other 15,180 9,800 38,446 25,653
Selling, general and administrative 33,336 30,620 92,196 83,179
Maintenance and utilities 9,150 7,106 27,477 22,620
Depreciation and amortization 17,920 15,468 48,754 45,868
Corporate expense 5,002 5,907 15,746 16,417
Preopening expense -- -- 3,481 10,004
Impairment loss 125,698 -- 125,698 --
--------- --------- --------- ---------
Total 318,740 170,417 673,109 499,757
--------- --------- --------- ---------
Operating income (loss) (98,740) 31,743 (67,259) 81,752
--------- --------- --------- ---------
Other income (expense)
Interest income 151 200 493 987
Interest expense, net of amounts capitalized (17,352) (12,707) (44,421) (39,322)
--------- --------- --------- ---------
Total (17,201) (12,507) (43,928) (38,335)
--------- --------- --------- ---------
Income (loss) before provision (benefit) for income taxes and
extraordinary item (115,941) 19,236 (111,187) 43,417
Provision (benefit) for income taxes (38,229) 7,885 (36,327) 17,315
--------- --------- --------- ---------
Income (loss) before extraordinary item (77,712) 11,351 (74,860) 26,102
Extraordinary loss on early extinguishment of debt,
net of tax benefit of $3,268 -- -- 6,069 --
--------- --------- --------- ---------
Net income (loss) ($ 77,712) $ 11,351 ($ 80,929) $ 26,102
========= ========= ========= =========
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) before extraordinary item ($ 1.27) $ 0.20 ($ 1.25) $ 0.46
Extraordinary item -- -- (0.10) --
--------- --------- --------- ---------
Net income (loss) ($ 1.27) $ 0.20 ($ 1.35) $ 0.46
========= ========= ========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
-----------------------
(IN THOUSANDS) 1997 1996
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (80,929) $ 26,102
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 48,754 45,868
Deferred income taxes (40,364) 2,884
Extraordinary loss on early retirement of debt 6,069 --
Impairment loss 125,698 --
Other -- (31)
Changes in assets and liabilities:
Increase in accounts receivable, net (4,787) (1,223)
(Increase) decrease in inventories (1,457) 193
Increase in prepaid expenses (2,363) (3,574)
Decrease (increase) in other assets (512) (5,547)
Increase in income taxes receivable (5,271) --
Increase in other current liabilities 22,368 16,870
Decrease (increase) in income taxes payable (678) 3,286
--------- --------
Net cash provided by operating activities 66,528 84,828
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash paid for acquisition of Par-A-Dice Hotel and Casino (170,725) --
Acquisition of property, equipment and other assets (88,784) (81,616)
Proceeds from sale of riverboat 20,000 --
--------- --------
Net cash used in investing activities (239,509) (81,616)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Early retirement of long-term debt (157,500) --
Proceeds from issuance of long-term debt 200,000 1,074
Net borrowings under credit agreements 129,000 (10,000)
Payments on long-term debt (20,802) (26,687)
Proceeds from issuance of common stock 34,579 1,150
--------- --------
Net cash provided by (used in) financing activities 185,277 (34,463)
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,296 (31,251)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 48,980 83,169
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 61,276 $ 51,918
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest, net of amounts capitalized $ 44,928 $ 40,320
========= ========
Cash paid for income taxes $ 7,317 $ 10,991
========= ========
Acquisition of Par-A-Dice Hotel and Casino
Fair value of assets acquired $ 174,800 $ --
Cash paid to seller 170,725 --
========= ========
Liabilities assumed $ 4,075 $ --
========= ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL TOTAL
------------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
-----------------------------------------------------------------
BALANCES, JULY 1, 1996 57,213,720 $ 572 $102,583 $130,102 $233,257
NET LOSS FOR THE NINE MONTHS
ENDED MARCH 31, 1997 (80,929) (80,929)
ISSUANCE OF COMMON STOCK 4,000,000 40 33,493 33,533
STOCK ISSUED IN CONNECTION WITH
EMPLOYEE STOCK PURCHASE PLAN 149,295 2 1,229 1,231
----------- -------- -------- -------- --------
BALANCES, MARCH 31, 1997 61,363,015 $ 614 $137,305 $ 49,173 $187,092
=========== ======== ======== ======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying condensed consolidated financial statements include
the accounts of Boyd Gaming Corporation and its wholly-owned
subsidiaries, collectively referred to herein as the "Company". The
Company owns and operates seven casino entertainment facilities in Las
Vegas, Nevada, one in Tunica, Mississippi, one in Kansas City, Missouri
which opened in September 1995 and one in East Peoria, Illinois which
was acquired in December 1996. The Company manages a casino
entertainment facility in Philadelphia, Mississippi, for which it has
a seven year management contract that expires in July 2001. The
Company is also part owner of and manages a riverboat gaming operation
in Kenner, Louisiana which opened in September 1994. The Company has
recently entered into an agreement to sell its interest in the entity
which owns the Kenner gaming operation (see Note 3). All material
intercompany accounts and transactions have been eliminated.
Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the
results of its operations for the three and nine month periods ended
March 31, 1997 and 1996 and its cash flows for the nine month period
ended March 31, 1997 and 1996. It is suggested that this report be read
in conjunction with the Company's audited consolidated financial
statements included in the Annual Report on Form 10-K for the fiscal
year ended June 30, 1996. The operating results for the three and nine
month periods ended March 31, 1997 and cash flows for the nine month
period ended March 31, 1997 are not necessarily indicative of the
results that will be achieved for the full fiscal year or for future
periods.
Net Income (Loss) Per Common Share
Net income (loss) per common share is based upon the weighted average
number of common stock and common stock equivalents outstanding during
the period, which were 61,363,015 and 57,115,365 for the three month
periods ended March 31, 1997 and 1996, respectively, and 59,876,442 and
57,037,941 for the nine month periods ended March 31, 1997 and 1996,
respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Goodwill and Other Intangible Assets
The excess of total acquisition costs over the fair value of assets
acquired is amortized using the straight-line method over 40 years.
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Recently Adopted Accounting Standards
On July 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long Lived Assets to Be Disposed Of. SFAS No. 121
requires that long-lived assets be reviewed whenever events or changes
in circumstances indicate that the carrying amount of an asset may not
be recoverable. During the quarter ended March 31, 1997, the Company
recorded an impairment loss of approximately $126 million in accordance
with SFAS No. 121. (See Note 2).
On July 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation.
SFAS No. 123 requires certain disclosures about the impact on results
of operations of the fair value of stock based employee compensation
arrangements. Management intends to continue to account for stock based
employee compensation arrangements in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and accordingly believes that adoption of SFAS No. 123 will
not have a significant effect on the financial position or results of
operations of the Company. The Company will include the pro forma
effects of this statement in its consolidated notes to financial
statements for the fiscal year ending June 30, 1997.
Recently Issued Accounting Standards
The Financial Accounting Standards Board recently issued SFAS No. 128
"Earnings per Share". This statement establishes standards for
computing and presenting earnings per share and is effective for
financial statements issued for periods ending after December 15, 1997.
Earlier application of this statement is not permitted and upon
adoption requires restatement (as applicable) of all prior-period
earnings per share data presented. Management believes that the
implementation of this standard will not have a significant impact on
earnings per share.
2. IMPAIRMENT LOSS
During the quarter ended March 31, 1997, the Company wrote-down the
carrying value of its fixed and intangible assets in the Missouri
gaming market to fair value, which resulted in a $126 million
impairment loss. The impairment loss was recorded due to a significant
change in the competitive environment with the January 1997 addition of
a significantly larger competitor in the Kansas City gaming market and
a history of operating losses at the Company's Sam's Town Kansas City
gaming establishment. The fair value of the impaired assets was
primarily determined through a discounted cash flow analysis of the
operations of Sam's Town Kansas City.
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3. ADDITIONAL INFORMATION
Debt and Equity Offerings
On October 4, 1996, the Company issued $200 million of 9.25% Senior
Notes and sold 4.0 million shares of the Company's common stock in two
registered public offerings. The net proceeds of these offerings of
approximately $230 million were used to reduce outstanding indebtedness
under the Company's bank credit facility.
The $200 million in Senior Notes are guaranteed by all existing
significant subsidiaries of the Company. The guaranties are full,
unconditional, and joint and several. All of the Company's significant
subsidiaries are wholly-owned. Assets, equity, income and cash flows of
all other subsidiaries of the Company that do not guaranty the Senior
Notes are less than 3% of the respective consolidated amounts and are
inconsequential, individually and in the aggregate, to the Company. The
Company has not included separate financial information of the
guarantors, since the Company believes that such information is not
material to investors.
On November 4, 1996, the Company redeemed its $150 million, 10.75%
Notes with borrowings under its bank credit facility. As a result, the
Company recognized an extraordinary loss of $6.1 million, net of tax
benefit of $3.3 million, related to the early extinguishment of the
debt.
The Company, through its wholly-owned subsidiary, California Hotel
Finance Company, has $185 million principal amount of 11% senior
subordinated notes due December 2002. The notes contain certain
covenants regarding incurrence of debt, sales and disposition of
assets, mergers or consolidations and limitations on restricted
payments (as defined in the indenture to the notes). As a result of
these restrictions, at March 31, 1997 California Hotel and Casino (a
wholly-owned subsidiary of the Company) had a portion of its retained
earnings and its net assets in the amounts of $32.7 million and $87.8
million, respectively, that were not available for distribution as
dividends to the Company.
Amendment to Bank Credit Facility
The Company's bank credit facility was amended as of March 28, 1997.
This amendment included, among other things, modifications to its
financial covenants as well as the pricing structure of the debt, which
is based upon a specified financial ratio. As such, this amended
pricing structure results in slightly higher interest costs to the
Company, the duration of which depends upon the Company's future
operating results and financial condition. Management believes the
Company is in compliance with the modified covenants, as well as other
debt covenants, at March 31, 1997.
Treasure Chest Casino
The Company has agreed to sell its 15% interest in Treasure Chest
Casino L.L.C., owner of the Treasure Chest Casino in Kenner, Louisiana.
The interest is being purchased by both Treasure Chest Casino L.L.C.
and its majority owner for a purchase price of $15.2 million. The sale,
which is pending various governmental and regulatory approvals, is not
expected to result in a material gain or loss to the Company. At this
time, the Company is unable to determine an expected closing date for
this transaction. The Company, through its wholly-owned subsidiary,
Boyd Kenner, Inc., expects to manage Treasure Chest Casino until
approximately October 1997.
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Par-A-Dice Acquisition
On December 5, 1996, the Company completed the acquisition of
Par-A-Dice Gaming Corporation, owner and operator of the Par-A-Dice
riverboat casino in East Peoria, Illinois, and East Peoria Hotel, Inc.,
the general partner of a partnership which recently opened a 204-room
hotel adjacent to the Par-A-Dice casino. The purchase price for the
acquisition was approximately $175 million, subject to certain
adjustments as set forth in the stock purchase agreement. The purchase
price exceeded the fair value of the net assets by approximately $116
million. The Company's pro-forma consolidated results of operations, as
if the acquisition had occurred on July 1, 1995, are as follows:
Nine Months Ended
March 31,
1997 1996
---- ----
Proforma (In thousands, except share data)
Net revenues $ 648,998 $608,141
Income (loss) before extraordinary item (71,852) 30,424
Net income (loss) (77,921) 30,424
-----------------------
Net income (loss) per common share
Net income (loss) before extraordinary item $ (1.20) $ 0.53
Net income (loss) (1.30) 0.53
-----------------------
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- ---------------------
1997 1996 1997 1996
--------- -------- -------- --------
(IN THOUSANDS) (In thousands)
NET REVENUES
Stardust $ 45,959 $ 49,930 $137,249 $146,336
Boulder Strip Properties 48,892 49,629 145,649 143,033
Downtown Properties 44,817 37,245 123,188 106,795
Central Region 80,332 65,356 199,764 185,345
--------- -------- -------- --------
TOTAL PROPERTIES $ 220,000 $202,160 $605,850 $581,509
========= ======== ======== ========
OPERATING INCOME (LOSS)
Stardust $ 5,495 $ 9,247 $ 13,887 $ 22,164
Boulder Strip Properties 8,126 7,816 19,544 17,382
Downtown Properties (114) 3,731 5,508(a) 12,605
Central Region 19,133 (b) 17,745 40,916(b) 58,632(a)
--------- -------- -------- --------
TOTAL PROPERTIES $ 32,640 $ 38,539 $ 79,855 $110,783
========= ======== ======== ========
-------------------
(a) Before preopening expense.
(b) Before impairment loss.
The above table sets forth, for the periods indicated, certain
operating data for the Company's properties. As used herein, "Boulder
Strip Properties" consist of Sam's Town Las Vegas, the Eldorado and
Jokers Wild; "Downtown Properties" consist of the California, the
Fremont, Main Street Station (opened November 1996) and Vacations
Hawaii, the Company's wholly-owned travel agency which operates for the
benefit of the Downtown casino properties; and "Central Region"
consists of Sam's Town Tunica, Sam's Town Kansas City (opened September
1995), Par-A-Dice (acquired December 1996), management fee income from
Silver Star Hotel and Casino, and management fee and joint venture
income from Treasure Chest Casino. Net revenues displayed in this table
and discussed in this section are net of promotional allowances; as
such, references to rooms revenue and food and beverage revenue do not
agree to the amounts on the Statement of Operations. Operating income
from properties for the purposes of this table exclude corporate
expense, including related depreciation and amortization, preopening
expense and the impairment loss.
Revenues
Consolidated net revenues increased 8.8% during the quarter ended March 31, 1997
compared to the same quarter in the prior fiscal year. Company-wide casino
revenue increased 7.2%, food and beverage revenue increased 9.3% and room
revenue increased 9.7%. The increase in net revenues is primarily attributable
to the first full quarter of operations for both Main Street Station Casino,
Brewery and Hotel ("Main Street Station") which opened in November 1996 and
Par-A-Dice Hotel and Casino (acquired in December 1996), partially offset by
declines in net revenues experienced principally at Sam's Town Kansas City
(43.8%) and the California and Fremont (16.2%). Revenues at the Stardust and
Sam's Town Tunica for the three months ended March 31, 1997 also declined, 8.0%
and 10.8%, respectively, while management fee and joint venture income increased
5.3%. The current quarter's decline in net revenues at the Company's properties
which have been open for more than one year is attributable, in each case, to
increased competition including, in the
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case at the Downtown properties, competition from Main Street Station.
Consolidated net revenues increased 4.2% during the nine-month period ended
March 31, 1997 compared to the same period in the prior fiscal year.
Company-wide casino revenue increased 2.2%, food and beverage revenue increased
7.6% and room revenue increased .6%. The increase in consolidated net revenues
for the nine months ended March 31, 1997 is primarily attributable to the
November 1996 opening of Main Street Station, the December 1996 acquisition of
Par-A-Dice Hotel and Casino and the revenues associated with Vacations Hawaii.
These increases in revenues were partially offset by declines in revenues which
occurred primarily at the Stardust (6.2%), California (13.8%) and Sam's Town
Tunica (20%). The declines in revenues at both the Stardust and Sam's Town
Tunica for the nine months ended March 31, 1997 were primarily the result of
increased competition and in the case of Sam's Town Tunica, construction
disruption related to the construction of a new 350 room hotel tower which
opened in December 1996.
OPERATING INCOME (LOSS)
Consolidated operating loss for the quarter ended March 31, 1997 was $98.7
million compared to consolidated operating income of $31.7 million from the same
quarter in the prior fiscal year. Consolidated operating loss for the nine
months ended March 31, 1997 was $67.3 million compared to operating income of
$81.8 million for the comparable period in the prior year. The majority of the
decline in consolidated operating income for both the three and nine month
periods was the result of a $126 million impairment loss recorded in accordance
with SFAS No. 121 to write-down the carrying value of the Company's fixed and
intangible assets in the Missouri gaming market to fair value. See further
discussion under Impairment Loss later in this section.
Consolidated operating income before impairment loss declined by 15.1% from
$31.7 million to $27.0 million during the quarter ended March 31, 1997 compared
to the same quarter in the prior fiscal year, while consolidated operating
margins declined from 15.7% to 12.3% during the same time periods. Operating
income in the Nevada Region declined 35.0% as a result of declines in operating
income at the Stardust and Downtown Properties partially offset by increased
operating income at the Boulder Strip Properties. Main Street Station posted an
operating loss of $1.1 million in its first full quarter of operation. In the
Company's Central Region, operating income increased 7.8% primarily as a result
of the acquisition of Par-A-Dice partially offset by declines in operating
income at Sam's Town Tunica and Sam's Town Kansas City.
For the nine months ended March 31, 1997, consolidated operating income before
impairment loss and preopening expense declined by 32.5% from $91.8 million to
$61.9 million compared to the same period in the prior fiscal year, while
consolidated operating margins declined from 15.8% to 10.2% during the same time
periods. Operating income in the Nevada Region declined 25.4% with an operating
income increase at the Boulder Strip properties offset by declines in operating
income at the Stardust and Downtown Properties. In the Central Region, operating
income declined 30.2% with operating income from Par-A-Dice offset by declines
in operating income at Sam's Town Kansas City and Sam's Town Tunica. Management
fee and joint venture income from Silver Star and Treasure Chest increased
slightly for the nine month period ended March 31, 1997 versus the comparable
period in the prior year.
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STARDUST
Net revenues at the Stardust declined by 8.0% during the quarter ended March 31,
1997 versus the comparable quarter in the prior fiscal year. Casino revenues
declined by 8.8% primarily due to a decline in slot wagering combined with flat
table game wagering offset by lower net winnings. Revenues from
rooms, food and beverage also declined by approximately 7.6% during the period.
Operating income for the three months ended March 31, 1997 declined 40.6% to
$5.5 million, and operating income margin declined from 18.5% to 12.0% during
the comparable quarters ended March 31, 1996 and 1997, respectively. These
declines in operating income and operating income margin are a primary result of
the declines in revenues.
For the nine months ended March 31, 1997, net revenues at the Stardust declined
by 6.2% versus the comparable period in the prior fiscal year. The majority of
the decline is attributable to a 7.0% reduction in casino revenues, as a result
of a lower win percentage in the sports book and a decline in slot wagering.
Revenues from rooms, food and beverage also declined by approximately 6.7%
during the period. Operating income declined by 37.6% to $13.8 million, and
operating income margin declined from 15.1% to 10.1% during the comparable
nine-month periods ended March 31, 1996 and 1997, respectively. These declines
in operating income and operating income margin are primarily the result of the
decline in revenues.
BOULDER STRIP PROPERTIES
Net revenues at the Boulder Strip Properties declined by 1.5% during the quarter
ended March 31, 1997 versus the comparable quarter in the prior fiscal year.
Casino revenue declined by 1.6% primarily as a result of lower win percentages
from table games and race and sports book. Rooms revenue increased 6.3% and food
and beverage revenues decreased 1.3% for the quarter ended March 31, 1997 versus
the comparable quarter in the prior fiscal year. Operating income margin
increased to 16.6% during the quarter ended March 31, 1997, primarily as a
result of improved operating margins in the rooms and food and beverage
departments at Sam's Town Las Vegas.
Net revenues at the Boulder Strip Properties increased 1.8% during the
nine-month period ended March 31, 1997 compared to the same period in the prior
fiscal year. The increase is primarily attributable to a 2.3% increase in casino
revenue as a result of increased wagering volume in table games and slots at
Sam's Town Las Vegas. Rooms revenues and food and beverage revenue increased
8.4% and .9%, respectively, for the nine-month period ended March 31, 1997
compared to the same period in the prior fiscal year. Operating income margin
increased from 12.2% to 13.4% during the comparable nine-month periods ended
March 31, 1996 and 1997, respectively, due to the increase in net revenues as
well as improved operating margins in the rooms and food and beverage
departments at Sam's Town Las Vegas.
DOWNTOWN PROPERTIES
Net revenues at the Downtown Properties increased 20.3% during the quarter ended
March 31, 1997 compared to the same quarter in the prior fiscal year. The
increase is attributable to the first full quarter of operations for Main Street
Station (opened November 1996) as well as increased revenues from the Company's
Honolulu travel agency, Vacations Hawaii. These increases were partially offset
by declines in net revenues of 19.8% and 12.6%, respectively, at the
California and Fremont. These two properties have been adversely affected by
the opening of Main Street Station, which has attracted patrons from their
customer
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bases. Operating income margin for the Downtown Properties decreased from 10.0%
to (.3%) during the quarters ended March 31, 1996 and 1997, respectively. The
decline in margin is attributable to the decline in net revenues at the
California and Fremont, in addition to the $1.1 million operating loss generated
by Main Street Station. In response to the recent operating results of the
Downtown Properties, management has implemented various programs to improve
performance. These programs include both the consolidation of certain functions
and improved management structure, including the appointment of a senior
manager to oversee all Downtown operations; increased use of direct marketing
programs in the Hawaiian market; increased utilization of Vacations Hawaii
charter operations to improve occupancies; aggressive pursuit of Fremont Street
Experience customers through enhanced marketing programs; and consolidation of
both front and back of the house operations to improve efficiency and decrease
overall operating costs.
Net revenues at the Downtown Properties increased 15.3% during the nine-month
period ended March 31, 1997 compared to the same period in the prior fiscal
year. The increase is attributable to the November 1996 opening of Main Street
Station as well as increased revenues from Vacations Hawaii. These increases in
net revenues were partially offset by declines of 13.8% and 1.9%, respectively,
at the California and Fremont. These two properties have been adversely affected
by the opening of Main Street Station, which has attracted patrons from their
customer bases. In addition, each component of the California's net revenues
was adversely impacted by a rooms remodel project which reduced its room
availability by approximately 15% during the first fiscal quarter of 1997.
Aggregate operating income margin decreased from 11.8% to 4.5% during the
nine-month periods ended March 31, 1997 and 1996, respectively. The decline is a
result of the reduction in net revenues at the California and Fremont, as well
as a $1.5 million operating loss before preopening expense generated by Main
Street Station since its opening in November 1996.
CENTRAL REGION
Net revenues from the Central Region increased 22.9% during the quarter ended
March 31, 1997 compared to the same quarter in the prior fiscal year. The
majority of the increase is due to the first full quarter of operations of
Par-A-Dice Hotel and Casino, which was acquired on December 5, 1996. In
addition, management fees and joint venture income from Silver Star and Treasure
Chest increased by 5.3%. These increases in net revenues for the three months
ended March 31, 1997 were partially offset by declines in net revenues at Sam's
Town Tunica and Sam's Town Kansas City of 10.8% and 43.8%, respectively. The
Central Region results include the full revenues and income from Sam's Town
Tunica, Sam's Town Kansas City (opened September 1995), Par-A-Dice Hotel and
Casino (acquired December 5, 1996), management fee income from Silver Star Hotel
and Casino and management fee and joint venture income from Treasure Chest
Casino. Operating income and operating income margin in the Central Region,
before the impairment loss, were $19.1 million and 23.8%, respectively, for the
third quarter of fiscal 1997 versus $17.7 million and 27.2% in the comparable
period in the prior fiscal year. The increase in operating income is
attributable to the first full quarter of Par-A-Dice offset by a continuing
operating loss at Sam's Town Kansas City. Sam's Town Kansas City posted a $3.4
million operating loss (before impairment loss) for the current quarter versus a
$1.1 million operating loss in the comparable quarter in the prior year. The
increase in operating losses is attributable to increased market competition,
including the recent opening of a significantly larger casino. For this reason,
the Company recorded an impairment loss of approximately $126 million related to
its investment in the Missouri gaming market. See further discussion below
regarding this write-down under Impairment Loss.
The Company has agreed to sell its 15% interest in Treasure Chest Casino,
L.L.C., owner of the Treasure Chest Casino, for a purchase price of $15.2
million. The sale, which was originally expected to close during the quarter
ended March 31, 1997, is still awaiting various governmental and regulatory
approvals. Accordingly, at this point in time management can not predict the
timing of the closing of this transaction. However, management does not expect
to incur a material gain or loss at the time the sale is
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consummated. The Company, through its wholly-owned subsidiary Boyd Kenner, Inc.,
expects to manage the Treasure Chest until approximately October 1997.
Net revenues from the Central Region increased 7.8% during the nine-month period
ended March 31, 1997 compared to the same period in the prior fiscal year. The
majority of the increase is attributable to Par-A-Dice Hotel and Casino which
generated net revenues of $34.9 million since it was acquired on December 5,
1996. This increase was partially offset by a 20.0% decline in net revenues at
Sam's Town Tunica. Operating income and operating income margin, before
preopening expense and impairment loss, were $40.9 million and 20.5%,
respectively, for the nine-month period ended March 31, 1997 versus $58.6
million and 31.6% in the comparable period in the prior fiscal year. The
decrease in operating income is due to the decline in net revenues at Sam's Town
Tunica and the continued operating losses at Sam's Town Kansas City, offset by
the positive impact from the operating results at Par-A-Dice Hotel and Casino.
Sam's Town Tunica's operating margin declined from 26.2% to 13.7% during the
comparable periods as a result of increased competition in that market
as well as the construction disruption from the 350-room hotel tower and the
additional 1,000 space parking garage which were completed in December 1996.
Sam's Town Kansas City posted a $10.0 million operating loss (before impairment
loss) during the nine-month period ended March 31, 1997 compared to a $.8
million operating loss in the comparable period from the prior fiscal year.
Depreciation and amortization expense increased by $2.5 million and $2.9
million, respectively, during the three and nine-month periods ended March 31,
1997 compared to the comparable periods in the prior fiscal year. The increase
is primarily attributable to the opening of Main Street Station in November 1996
and the acquisition of Par-A-Dice Hotel and Casino in December 1996. As
discussed below under Impairment Loss, the write-down of the fixed and
intangible assets related to Sam's Town Kansas City is expected to reduce future
depreciation and amortization expense by approximately $7 million on an annual
basis.
Corporate expenses decreased by $.9 million and $.7 million, respectively,
during the three and nine-month periods ended March 31, 1997 compared to the
same periods from the prior fiscal year. The reduction is primarily due to a
decline in development related expenses.
During the nine-month periods ended March 31, 1997 and 1996, the Company
recorded a preopening charge of $3.5 million and $10.0 million, respectively,
upon the opening of Main Street Station in November 1996 and Sam's Town Kansas
City in September 1995.
IMPAIRMENT LOSS
During the quarter ended March 31, 1997, the Company, in accordance with SFAS
No. 121, wrote-down the carrying value of its fixed and intangible assets in the
Missouri gaming market to fair value, which resulted in a $126 million
impairment loss. The impairment loss was recorded due to a significant change in
the competitive environment with the January 1997 addition of a significantly
larger competitor in the Kansas City gaming market and a history of operating
losses at the Company's Sam's Town Kansas City gaming establishment. In
addition, the
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restrictive nature of the Missouri gaming regulations with respect to wagering
limits and simulated cruise requirements has not been conducive to profitable
operations, and based upon currently available information, management does not
believe that any significant regulatory relief is forthcoming. However,
management currently intends to continue operating Sam's Town Kansas City while
continuing to focus on cost control measures and pursue future legislative and
regulatory relief.
OTHER INCOME (EXPENSE)
Other income and expense is primarily comprised of interest expense, which
increased by $4.6 million and $5.1 million, respectively, during the three and
nine-month periods ended March 31, 1997 compared to the same periods from the
prior fiscal year. The increase is attributable to higher levels of average debt
outstanding due primarily to the December 1996 acquisition of Par-A-Dice Hotel
and Casino for approximately $175 million.
PROVISION (BENEFIT) FOR INCOME TAXES
The Company's tax rate was (33.0%) and (32.7%), respectively, for the three and
nine-month period ended March 31, 1997, compared to 40.1% and 39.9%,
respectively, for the same periods from the prior fiscal year. The fluctuation
in the rates during fiscal 1997 versus fiscal 1996 is primarily attributable to
the impairment loss recorded during the quarter ended March 31, 1997.
EXTRAORDINARY ITEM
In connection with the redemption of the Company's $150 million, 10.75% Notes,
the Company recognized an extraordinary loss of $6.1 million, net of tax, during
the second fiscal quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended March 31, 1997, the Company's principal source of
funds was net cash provided by operating activities and financing activities.
Net cash provided by operating activities was $69 million versus $85 million
during the comparable period in the prior fiscal year. This decline is primarily
attributable to the reduction in income before the effect of the impairment
loss. Net cash provided by financing activities for the nine months ended March
31, 1997 was $185 million which is primarily attributed to the issuance of $200
million, 9.25% Senior Notes offset by the redemption of the $150 million, 10.75%
Notes, as well as proceeds received from the issuance of 4.0 million shares of
common stock, offset by the retirement and paydown of other debt. As of March
31, 1997, the Company had balances of cash and cash equivalents of approximately
$61 million, a working capital deficit of $2.8 million, and approximately $136
million available under its $500 million revolving bank credit facility (the
"Bank Credit Facility"). The Company has historically operated with negative
working capital in order to minimize borrowings (and related interest costs)
under its long-term Bank Credit Facility. The working capital deficits are
funded through cash generated from operations as well as fluctuating borrowings
under the Bank Credit Facility.
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The Company's principal use of cash during the nine months ended March 31, 1997
was for investing activities of $242 million. This amount primarily consists of
the $171 million acquisition of Par-A-Dice Hotel and Casino, as well as capital
expenditures. Included in capital expenditures are $32 million related to the
Main Street Station project, and $32 million related to a new 350-room hotel
tower and a 1,000 space parking garage project at Sam's Town Tunica.
On December 5, 1996 the Company completed the acquisition of Par-A-Dice Gaming
Corporation, owner and operator of the Par-A-Dice riverboat casino in East
Peoria, Illinois, and East Peoria Hotel, Inc., the general partner of a
partnership which recently opened a 208-room hotel adjacent to the Par-A-Dice
casino. The purchase price was approximately $175 million. The acquisition was
funded with borrowings under the Company's Bank Credit Facility.
The Company, as part of its ongoing strategic planning process, has recently
completed a review of its current growth opportunities. Based on this review,
the Company expects to be focusing its growth efforts in two areas. In Nevada,
the Company has decided to refocus its efforts on the Stardust Resort & Casino.
The Company is considering implementing the next phase of its master plan for
the Stardust, which calls for, among other things, as many as two additional
hotel towers. In addition, the Company has determined that the 61-acre Stardust
site is capable of accommodating the development of an entirely new casino
entertainment facility adjacent to the existing Stardust and is continuing to
explore the feasibility of such a project. Outside Nevada, the Company is
focusing its efforts on its joint venture with Mirage Resorts, Inc. On May 29,
1996, the Company, through a wholly-owned subsidiary, executed a joint venture
agreement with Mirage Resorts, Inc., (the "Mirage Joint Venture") to jointly
develop and own a casino hotel entertainment facility in the Marina district of
Atlantic City, New Jersey (the "Atlantic City Project"). In that regard, the
Company recently submitted its application for a gaming license with the New
Jersey Casino Control Commission. The Atlantic City Project is expected to
include a hotel of at least 1,000 rooms and is expected to be adjacent and
connected to Mirage's planned wholly-owned resort. The Company believes that
certain highway improvements to permit greater access to the Marina District of
Atlantic City will be necessary to support the multi-facility casino
entertainment development master-planned by Mirage. On January 10, 1997 Mirage
and the State of New Jersey and South Jersey Transportation Authority entered
into a definitive agreement by which the highway improvements can be funded and
built. The Company's joint venture agreement with Mirage provides for $100
million in capital contributions by the Company during the course of the
construction of the Atlantic City Project. The Company plans to fund its capital
contributions primarily from cash flow from operations and availability under
its bank credit facility. During the first quarter of fiscal 1997, the Company
purchased a casino hotel site in Reno, Nevada with plans to develop Sam's Town
Reno on the site. The Company has determined that further development of the
Stardust site and the Atlantic City Project should take priority over the Sam's
Town Reno project at this time.
There can be no assurance that any of the above mentioned projects will go
forward and ultimately become operational. The sources of funds required to meet
the Company's working capital needs (including maintenance capital expenditures)
and those required to complete the above mentioned projects are expected to be
cash on hand, cash flow from operations, availability under its bank credit
facility, new borrowings to the extent permitted under existing debt agreements,
the issuance of additional equity and vendor and other financing. No assurance
can be given that required financing strategies can be effected on satisfactory
terms.
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The Bank Credit Facility was amended as of March 28, 1997 to provide the Company
with greater flexibility. This amendment included, among other things,
modifications to its financial covenants as well as the pricing structure of the
debt, which is based upon a specified financial ratio. As such, this amended
pricing structure results in slightly higher interest costs to the Company, the
duration of which depends upon the Company's future operating results and
financial condition. Management believes the Company is in compliance with the
modified covenants, as well as other debt covenants, at March 31, 1997.
The Company, through its wholly-owned subsidiary, California Hotel Finance
Company, has $185 million principal amount of 11% Senior Subordinated Notes due
December 2002. The Notes contain certain covenants, including but not limited to
limitations on restricted payments (as defined in the indenture related to the
notes). As a result of these restrictions, at March 31, 1997 California Hotel
and Casino (a wholly-owned subsidiary of the Company) had a portion of its
retained earnings and net assets, in the amounts of $32.7 million and $87.8
million, respectively, that were not available for distribution as dividends to
the Company.
On October 4, 1996, the Company issued $200 million of 9.25% Senior Notes and
sold 4.0 million shares of the Company's common stock. The net proceeds of these
offerings of approximately $230 million were used to reduce outstanding
indebtedness under the Company's Bank Credit Facility. On November 4, 1996, the
Company redeemed its $150 million, 10.75% Notes with borrowings under its Bank
Credit Facility. Also, on August 23, 1996, the Company sold its riverboat Mary's
Prize for $20 million and retired debt of $17.6 million in connection therewith.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward looking statements. Certain information included in this Form 10-Q
and other materials filed or to be filed by the Company with the Securities and
Exchange Commission (as well as information included in oral statements or other
written statements made or to be made by the Company) contains statements that
are forward looking, such as statements relating to plans for future expansion
and other business development activities as well as other capital spending,
financing sources, and the effects of regulation (including gaming and tax
regulation) and competition. Such forward looking statements involve important
risks and uncertainties that could significantly affect anticipated results in
the future, and accordingly, actual results may differ materially from those
expressed in any forward looking statements made by or on behalf of the Company.
These risks and uncertainties include, but are not limited to, those related to
construction and development activities, economic conditions, changes in tax
laws, changes in laws or regulations affecting gaming licenses, changes in
competition, and factors affecting leverage and debt service including
sensitivity to fluctuation in interest rates, and other factors described from
time to time in the Company's reports filed with the Securities and Exchange
Commission, including the Company's Form 10-K for the year ended June 30, 1996
and its Registration Statements (File Nos. 333- 05555 and 333-05521) related to
its recent offerings of 9.25% Senior Notes and common stock. Any forward looking
statements are made pursuant to the Private Securities Litigation Reform Act of
1995 and, as such, speak only as of the date made.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10.59 First Amendment to Credit Agreement, dated as of March
28, 1997, among Boyd Gaming Corporation and California
Hotel and Casino, and Wells Fargo Bank, N.A., as Swing
line Lender, Canadian Imperial Bank of Commerce,
("CIBC") as letter of credit issuer, Bank of America
National Trust and Saving Association and Wells Fargo
Bank, N.A., as co-managing agents, Bankers Trust
Company, Credit Lyonnais Los Angeles Branch and
Societe Generale as co-agents, and CIBC as
administrative agent and collateral agent.
27. Financial Data Schedule
(b) Reports on Form 8-K:
(i) The Company filed a current report on Form 8-K dated
April 24, 1997 related to a change in fiscal year.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOYD GAMING CORPORATION
(Registrant)
Date: May 15, 1997 By Keith Smith
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Keith Smith
Senior Vice President and
Controller (Chief Accounting Officer)
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