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 period ended September 30, 2000
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 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
October 31, 2000:
Class Outstanding
Common stock, $.01 par value 62,234,954
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BOYD GAMING CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at September 30, 2000
and December 31, 1999 3
Condensed Consolidated Statements of Operations for the
three and nine month periods ended September 30, 2000 and 1999 4
Condensed Consolidated Statement of Changes in
Stockholders' Equity for the nine month period ended
September 30, 2000 5
Condensed Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
Item 3. Quantitative and Qualitative Disclosure about Market Risk 29
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 30
Signature Page 31
2
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
ASSETS
SEPTEMBER 30, DECEMBER 31,
2000 1999
---------- ----------
Current assets
Cash and cash equivalents ........................ $ 77,969 $ 86,192
Accounts receivable, net ......................... 14,783 17,585
Inventories ...................................... 4,607 6,181
Prepaid expenses and other ....................... 12,190 14,718
Income taxes receivable .......................... -- 1,108
Deferred income taxes ............................ 2,382 16,835
---------- ----------
Total current assets ..................... 111,931 142,619
Property and equipment, net ......................... 949,665 901,014
Other assets and deferred charges, net .............. 50,666 45,689
Intangible assets, net .............................. 347,643 354,659
---------- ----------
Total assets ............................. $1,459,905 $1,443,981
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt ............. $ 1,552 $ 1,744
Trade payables ................................... 24,816 36,531
Construction payables ............................ 25,560 8,609
Accrued liabilities
Payroll and related .......................... 36,754 31,184
Interest and other ........................... 73,571 58,862
Income taxes payable ......................... 2,083 --
---------- ----------
Total current liabilities ................ 164,336 136,930
Long-term debt, net of current maturities ........... 892,622 982,149
Deferred income taxes and other liabilities ......... 68,512 57,923
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value; 5,000,000 shares
authorized ............................... -- --
Common stock, $.01 par value; 200,000,000 shares
authorized; 62,234,954 and 62,227,753 shares
outstanding .. ................................ 622 622
Additional paid-in capital ........................ 142,020 141,986
Retained earnings ................................. 191,793 124,371
---------- ----------
Total stockholders' equity ............... 334,435 266,979
---------- ----------
Total liabilities and stockholders' equity $1,459,905 $1,443,981
========== ==========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Revenues
Casino ...................................... $ 218,985 $ 175,778 $ 660,103 $ 533,533
Food and beverage ........................... 39,260 37,834 118,991 118,779
Room ........................................ 19,217 17,038 56,917 53,812
Other ....................................... 18,358 17,469 54,429 53,560
Management fee .............................. -- 13,976 3,815 34,820
Termination fee, net ........................ -- -- 70,988 --
--------- --------- --------- ---------
Gross revenues ................................. 295,820 262,095 965,243 794,504
Less promotional allowances .................... 25,015 22,580 72,012 69,795
--------- --------- --------- ---------
Net revenues ........................ 270,805 239,515 893,231 724,709
--------- --------- --------- ---------
Costs and expenses
Casino ...................................... 113,528 89,412 330,026 268,777
Food and beverage ........................... 25,549 25,216 76,427 77,242
Room ........................................ 5,301 5,795 16,855 17,978
Other ....................................... 18,080 16,339 53,090 48,843
Selling, general and administrative ......... 42,854 34,375 126,891 104,652
Maintenance and utilities ................... 12,452 11,429 36,258 30,974
Depreciation ................................ 20,237 16,040 59,021 50,430
Amortization of intangible license rights and
acquisition costs ........................ 2,451 1,438 7,351 4,314
Corporate expense ........................... 5,440 5,409 17,547 18,098
Preopening expense .......................... 811 354 3,143 1,208
--------- --------- --------- ---------
Total ............................... 246,703 205,807 726,609 622,516
--------- --------- --------- ---------
Operating income ............................... 24,102 33,708 166,622 102,193
--------- --------- --------- ---------
Other income (expense)
Interest income ............................. 1,345 137 1,807 240
Interest expense, net of amounts capitalized (19,432) (16,539) (58,800) (50,332)
--------- --------- --------- ---------
Total ............................... (18,087) (16,402) (56,993) (50,092)
--------- --------- --------- ---------
Income before provision for income taxes and
cumulative effect .......................... 6,015 17,306 109,629 52,101
Provision for income taxes ..................... 2,315 6,969 42,207 21,419
--------- --------- --------- ---------
Income before cumulative effect ................ 3,700 10,337 67,422 30,682
Cumulative effect of a change in accounting for
start-up activities, net of tax benefit
of $936 .................................... -- -- -- (1,738)
--------- --------- --------- ---------
Net income ..................................... $ 3,700 $ 10,337 $ 67,422 $ 28,944
========= ========= ========= =========
Basic and diluted net income per common share:
Income before cumulative effect ............. $ 0.06 $ 0.17 $ 1.08 $ 0.50
Cumulative effect, net of tax ............... -- -- -- (0.03)
--------- --------- --------- ---------
Net income .................................. $ 0.06 $ 0.17 $ 1.08 $ 0.47
========= ========= ========= =========
Average basic shares outstanding ............... 62,235 62,213 62,231 62,091
Average diluted shares outstanding ............. 62,272 62,431 62,293 62,201
========= ========= ========= =========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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5
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL TOTAL
-------------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ---------- ---------- ---------- ----------
Balances, January 1, 2000 .. 62,227,753 $ 622 $ 141,986 $ 124,371 $ 266,979
Net income ................. -- -- -- 67,422 67,422
Stock options exercised .... 7,201 -- 34 -- 34
---------- ---------- ---------- ---------- ----------
BALANCES, SEPTEMBER 30, 2000 62,234,954 $ 622 $ 142,020 $ 191,793 $ 334,435
========== ========== ========== ========== ==========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................... $ 67,422 $ 28,944
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ....................... 66,372 54,744
Cumulative effect of a change in accounting principle -- 2,674
Deferred income taxes ............................... 24,689 17,074
Preopening expense .................................. 3,143 1,208
Equity loss in unconsolidated subsidiaries .......... 352 47
Changes in assets and liabilities:
Accounts receivable, net .......................... 3,248 1,640
Inventories ....................................... 1,574 2,289
Prepaid expenses and other ........................ 2,528 (2,290)
Other assets ...................................... 1,651 (1,105)
Other current liabilities ......................... 10,085 548
Other liabilities ................................. 353 400
Income taxes receivable ........................... 1,108 10,418
Income taxes payable .............................. 2,083 --
--------- ---------
Net cash provided by operating activities ................ 184,608 116,591
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, equipment and other assets ... (91,964) (65,449)
Investment in and advances to unconsolidated
subsidiaries ....................................... (8,039) (4,329)
Proceeds from sale of Sam's Town Kansas City's
assets ............................................. -- 2,000
Preopening expense .................................... (3,143) (1,208)
--------- ---------
Net cash used in investing activities .................... (103,146) (68,986)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt ............................ (569) (1,464)
Net payments under credit agreements .................. (89,150) (59,250)
Proceeds from issuance of common stock ................ 34 1,118
--------- ---------
Net cash used in financing activities .................... (89,685) (59,596)
--------- ---------
Net decrease in cash and cash equivalents ................ (8,223) (11,991)
Cash and cash equivalents, beginning of period ........... 86,192 75,937
--------- ---------
Cash and cash equivalents, end of period ................. $ 77,969 $ 63,946
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest, net of amounts capitalized .... $ 55,415 $ 50,986
Cash paid for income taxes, net of refunds ............ 14,327 4,182
========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Property additions acquired on construction and trade
payables which were accrued, but not yet paid ....... $ 26,039 $ 1,851
========= =========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 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
eleven casino entertainment facilities located in Las Vegas, Nevada, Tunica,
Mississippi, East Peoria, Illinois, Kenner, Louisiana, and Michigan City,
Indiana as well as a travel agency located in Honolulu, Hawaii. In addition, the
Company managed a casino entertainment facility in Philadelphia, Mississippi for
which it had a management contract that expired on January 31, 2000 (see Note
3). All material intercompany accounts and transactions have been eliminated.
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated 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 September 30, 2000 and
1999 and cash flows for the nine month periods ended September 30, 2000 and
1999. 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 year ended December 31, 1999. The operating results for the three
and nine month periods ended September 30, 2000 and 1999 and cash flows for the
nine month periods ended September 30, 2000 and 1999 are not necessarily
indicative of the results that will be achieved for the full year or future
periods.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts in
the condensed consolidated financial statements and accompanying notes.
Significant estimates used by the Company include the estimated useful lives for
depreciable and amortizable assets, the estimated allowance for doubtful
accounts receivable, the estimated valuation allowance for deferred tax assets,
and estimated cash flows in assessing the recoverability of long-lived assets.
Actual results could differ from those estimates.
Capitalized Interest
Interest costs associated with major construction projects are
capitalized. When no debt is incurred specifically for a project, interest is
capitalized on amounts expended for the project using the Company's weighted
average cost of borrowing. Capitalization of interest ceases when the project or
discernible portions of the project are substantially complete. Capitalized
interest during the three and nine month periods ended September 30, 2000 was
$1.9 million and $4.1 million, respectively. Capitalized interest during the
three and nine month periods ended September 30, 1999 was $0.5 million and $0.9
million, respectively.
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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
Preopening Expenses
The Company expenses certain costs of start-up activities as incurred.
During the three and nine month periods ended September 30, 2000, the Company
expensed $0.8 million and $3.1 million, respectively, in preopening expenses,
$1.5 million of the year to date total relates to the Company's unsuccessful
efforts to assist in the development and operation of a Rhode Island Indian
casino with the Narragansett Indian Tribe. The remainder of the preopening
expenses incurred during the three and nine month periods ended September 30,
2000 relate primarily to the Company's share of preopening expense in The
Borgata, the Company's Atlantic City joint venture. During the three and nine
month periods ended September 30, 1999, the Company expensed $0.4 million and
$1.2 million in preopening costs that related primarily to the Company's share
of preopening expense in The Borgata.
Reclassifications
Certain prior period amounts in the condensed consolidated financial
statements have been reclassified to conform to the September 30, 2000
presentation. These reclassifications had no effect on the Company's net income.
Recently Issued Accounting Standards
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 clarifies existing accounting principles related to revenue
recognition in financial statements. The Company is required to comply with the
provisions of SAB 101 by the fourth quarter of 2000. Due to the nature of the
Company's operations, management does not believe that SAB 101 will have a
significant impact on the Company's financial statements.
NOTE 2. NET INCOME PER COMMON SHARE
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share" that requires the presentation of basic
and diluted net income per share. Basic per share amounts are computed by
dividing net income by the average shares outstanding during the period. Diluted
per share amounts are computed by dividing net income by average shares
outstanding plus the dilutive effects of common share equivalents. Diluted net
income per share during the three and nine month periods ended September 30,
2000 and 1999 is determined considering the dilutive effects of outstanding
stock options. The effect of stock options outstanding to purchase approximately
5.3 million and 5.4 million shares, respectively, were not included in the
diluted calculation during the three and nine month periods ended September 30,
2000 and 2.6 million and 4.6 million shares, respectively, were not included in
the diluted calculation during the three and nine month periods ended September
30, 1999 since the exercise price of such options was greater than the average
price of the Company's common shares during the periods.
NOTE 3. TERMINATION OF MANAGEMENT CONTRACT
On October 20, 1999, the Company signed an agreement with the
Mississippi Band of Choctaw Indians (the "Tribe") to terminate the Company's
management of the Silver Star Resort and Casino in Philadelphia,
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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
Mississippi. Under the agreement, the Company continued to manage Silver Star
under the terms of the management contract through January 31, 2000, at which
time the Tribe made a $72 million termination payment to the Company and the
Company recorded the termination fee, net of certain expenses. The agreement
with the Tribe terminated the Company's original management contract 17 months
prior to its scheduled maturity date. The one-time payment will accelerate the
utilization of the Company's tax credits and net operating losses carried
forward from prior years. The majority of the Company's deferred tax assets are
classified as part of current assets on the accompanying condensed consolidated
balance sheets as of September 30, 2000 and December 31, 1999.
NOTE 4. ACQUISITION
On November 10, 1999, the Company acquired Blue Chip Casino, L.L.C.
("Blue Chip") for approximately $261 million in net cash, including $10.3
million for a hotel and parking facility that was under construction and
attached to the existing casino complex. Intangible license rights, representing
the excess of the purchase price over the fair value of the net assets acquired,
was approximately $158 million. The purchase price excludes a contingent
purchase price payment of $5.0 million. The contingent purchase price payment
will be made to the former owners of Blue Chip Casino, Inc. in the event that,
over a period of 36 months, Blue Chip's aggregate earnings before interest,
taxes, depreciation and amortization and certain other qualified expenses
exceeds a specified amount. The Company's pro forma condensed consolidated
results of operations, as if the acquisition had occurred on January 1, 1999,
are as follows:
NINE MONTHS
ENDED SEPTEMBER 30,
1999
-------------------
Pro forma (in thousands, except per share data):
Net revenues ................................ $850,281
Income before cumulative effect ............. $ 47,065
Net income .................................. $ 45,327
Basic and diluted net income per common share:
Income before cumulative effect ............. $ 0.76
Net income .................................. $ 0.73
NOTE 5. BANK CREDIT FACILITY
Effective July 28, 2000, the Company amended its bank credit facility
primarily to allow for an increase of up to $225 million in its joint venture
investment in The Borgata and to reduce and modify the Company's capital raising
requirements for The Borgata. In addition, on October 5, 2000, the Company
increased the term loan commitment portion of its bank credit facility by $100
million to fund a portion of the investment in The Borgata. On October 24, 2000,
the Company borrowed $100 million of the term loan commitment (the "Term Loan
C") and paid down $100 million of the revolver portion of the bank credit
facility pending the Company's capital contribution to The Borgata. Term Loan C
is subject to all terms and provisions of the term loans in the existing bank
credit facility. Term Loan C expires in June 2003 and will be repaid in
increments of $0.25 million per quarter beginning on December 31, 2000 and
continuing through March 31, 2003. The interest rate on Term Loan C is based
upon either the agent bank's quoted base rate or the Eurodollar rate plus an
applicable margin that is determined by the level of a predefined leverage
ratio.
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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 6. SEGMENT INFORMATION
The Company's management reviews the results of operations based on the
following distinct geographic gaming market segments: the Stardust Resort and
Casino on the Las Vegas Strip; Sam's Town Hotel and Gambling Hall, the Eldorado
Casino and Jokers Wild Casino on the Boulder Strip; the Downtown Properties;
Sam's Town Hotel and Gambling Hall in Tunica, Mississippi; Par-A-Dice Hotel and
Casino in East Peoria, Illinois; Treasure Chest Casino in Kenner, Louisiana;
Blue Chip Casino in Michigan City, Indiana (acquired November 10, 1999); and
management fee income from Silver Star Resort and Casino located near
Philadelphia, Mississippi (through January 31, 2000). As used herein, "Downtown
Properties" consist of the California Hotel and Casino, the Fremont Hotel and
Casino, Main Street Station Casino, Brewery and Hotel and Vacations Hawaii.
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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS)
Casino Revenue
Stardust ............................. $ 23,632 $ 21,285 $ 73,500 $ 71,855
Sam's Town Las Vegas ................. 26,614 27,700 84,080 88,164
Eldorado and Jokers Wild ............. 7,301 7,407 22,156 22,575
Downtown Properties .................. 31,564 32,386 99,252 98,568
Sam's Town Tunica .................... 23,308 25,277 65,841 75,836
Par-A-Dice ........................... 33,229 31,362 97,760 83,604
Treasure Chest ....................... 25,387 30,361 78,358 92,931
Blue Chip ............................ 47,950 -- 139,156 --
-------- -------- -------- --------
Total casino revenue ......... $218,985 $175,778 $660,103 $533,533
======== ======== ======== ========
EBITDA(1)
Stardust ............................. $ 3,021 $ 106 $ 11,822 $ 10,335
Sam's Town Las Vegas ................. 2,664 5,001 16,744 20,770
Eldorado and Jokers Wild ............. 1,205 1,712 4,593 6,093
Downtown Properties .................. 9,422 9,389 31,020 28,319
Sam's Town Tunica .................... 631 6,568 4,636 20,022
Par-A-Dice ........................... 12,343 12,340 36,657 30,622
Treasure Chest ....................... 3,370 8,316 13,299 26,640
Silver Star .......................... -- 13,517 74,803 33,442
Blue Chip ............................ 20,385 -- 60,110 --
-------- -------- -------- --------
Property EBITDA .................... 53,041 56,949 253,684 176,243
-------- -------- -------- --------
Other Costs and Expenses
Corporate expense .................... 5,440 5,409 17,547 18,098
Depreciation and amortization ........ 22,688 17,478 66,372 54,744
Preopening expense ................... 811 354 3,143 1,208
Other expense, net ................... 18,087 16,402 56,993 50,092
-------- -------- -------- --------
Total other costs and expenses 47,026 39,643 144,055 124,142
-------- -------- -------- --------
Income before provision for income taxes
and other items ....................... 6,015 17,306 109,629 52,101
Provision for income taxes ............. 2,315 6,969 42,207 21,419
-------- -------- -------- --------
Income before cumulative effect ........ 3,700 10,337 67,422 30,682
Cumulative effect, net of tax .......... -- -- -- (1,738)
-------- -------- -------- --------
Net income ............................. $ 3,700 $ 10,337 $ 67,422 $ 28,944
======== ======== ======== ========
(1) EBITDA is earnings before interest, taxes, depreciation, amortization
and preopening expense. The Company believes that EBITDA is a useful
financial measurement for assessing the operating performances of its
properties. EBITDA does not represent net income or cash flows from
operating, investing or financing activities as defined by accounting
principles generally accepted in the United States of America.
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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 7. GUARANTOR INFORMATION
The Company's $200 million of 9.25% Senior Notes due October 1, 2003 (the
"9.25% Notes") are guaranteed by a majority of the Company's wholly-owned
existing significant subsidiaries. These guaranties are full, unconditional, and
joint and several. The Company has significant subsidiaries that do not
guarantee the 9.25% Notes. As such, the following consolidating schedules
present separate condensed financial statement information on a combined basis
for the parent only, as well as the Company's guarantor subsidiaries and
non-guarantor subsidiaries, as of September 30, 2000 and December 31, 1999 and
for the three and nine month periods ended September 30, 2000 and 1999.
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
AS OF SEPTEMBER 30, 2000
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
ASSETS
Current assets ..................... $ 3,686 $ 75,916 $ 33,480 $ (1,151)(1) $ 111,931
Property and equipment, net ........ 42,059 757,592 150,014 -- 949,665
Other assets and deferred
charges, net ................... 1,164,968 (495,957) 557,963 (1,176,308)(1)(2) 50,666
Intangible assets, net ............. -- 113,663 233,980 -- 347,643
----------- ----------- ----------- ----------- -----------
Total assets ................... $ 1,210,713 $ 451,214 $ 975,437 $(1,177,459) $ 1,459,905
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ................ $ 34,576 $ 68,664 $ 62,352 $ (1,256)(1) $ 164,336
Long-term debt, net of current
maturities ...................... 834,850 57,772 -- -- 892,622
Deferred income taxes and other
liabilities ..................... 6,852 53,275 8,385 -- 68,512
Stockholders' equity ............... 334,435 271,503 904,700 (1,176,203)(2) 334,435
----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity ...... $ 1,210,713 $ 451,214 $ 975,437 $(1,177,459) $ 1,459,905
=========== =========== =========== =========== ===========
- ----------
Elimination Entries
(1) To eliminate intercompany payables and receivables.
(2) To eliminate investment in subsidiaries and subsidiaries' equity.
12
13
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
AS OF DECEMBER 31, 1999
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
ASSETS
Current assets ..................... $ 17,583 $ 100,696 $ 26,599 $ (2,259)(1) $ 142,619
Property and equipment, net ........ 43,559 708,072 149,383 -- 901,014
Other assets and deferred charges,
net ............................. 1,163,857 (524,688) 464,362 (1,057,842)(1)(2) 45,689
Intangible assets, net ............. -- 116,107 238,552 -- 354,659
----------- ----------- ----------- ----------- -----------
Total assets ................... $ 1,224,999 $ 400,187 $ 878,896 $(1,060,101) $ 1,443,981
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ................ $ 36,470 $ 62,993 $ 39,640 $ (2,173)(1) $ 136,930
Long-term debt, net of current
maturities ..................... 914,028 68,088 33 -- 982,149
Deferred income taxes and other
liabilities ...................... 7,522 49,059 1,342 -- 57,923
Stockholders' equity ............... 266,979 220,047 837,881 (1,057,928)(2) 266,979
----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity ........ $ 1,224,999 $ 400,187 $ 878,896 $(1,060,101) $ 1,443,981
=========== =========== =========== =========== ===========
- ----------
Elimination Entries
(1) To eliminate intercompany payables and receivables.
(2) To eliminate investment in subsidiaries and subsidiaries' equity.
13
14
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
--------- --------- --------- --------- ---------
(IN THOUSANDS)
Revenues
Casino ......................... $ -- $ 145,647 $ 73,338 $ -- $ 218,985
Food and beverage .............. -- 34,920 4,340 -- 39,260
Room ........................... -- 18,396 821 -- 19,217
Other .......................... 3,000 6,925 12,175 (3,742)(1) 18,358
Management fee and equity income 24,080 491 17,800 (42,371)(1) --
--------- --------- --------- --------- ---------
Gross revenues ................... 27,080 206,379 108,474 (46,113) 295,820
Less promotional allowances ...... -- 22,507 2,508 -- 25,015
--------- --------- --------- --------- ---------
Net revenues ........... 27,080 183,872 105,966 (46,113) 270,805
--------- --------- --------- --------- ---------
Costs and expenses
Casino ......................... -- 84,559 28,969 -- 113,528
Food and beverage .............. -- 20,473 5,076 -- 25,549
Room ........................... -- 4,912 389 -- 5,301
Other .......................... -- 9,164 17,078 (8,162)(1) 18,080
Selling, general and
administrative .............. -- 28,167 14,687 -- 42,854
Maintenance and utilities ...... -- 9,503 2,949 -- 12,452
Depreciation and amortization .. 716 16,400 5,572 -- 22,688
Corporate expense .............. 8,675 28 479 (3,742)(1) 5,440
Preopening expense ............. 32 173 606 -- 811
--------- --------- --------- --------- ---------
Total .................. 9,423 173,379 75,805 (11,904) 246,703
--------- --------- --------- --------- ---------
Operating income ................. 17,657 10,493 30,161 (34,209) 24,102
Other income (expense), net ...... (17,006) (1,246) 165 -- (18,087)
--------- --------- --------- --------- ---------
Income before income taxes ....... 651 9,247 30,326 (34,209) 6,015
Provision (benefit) for income
taxes .......................... (3,049) 2,829 2,535 -- 2,315
--------- --------- --------- --------- ---------
Net income ....................... $ 3,700 $ 6,418 $ 27,791 $ (34,209) $ 3,700
========= ========= ========= ========= =========
- ----------
Elimination Entries
(1) To eliminate intercompany revenue and expense.
14
15
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
--------- --------- --------- --------- ---------
(IN THOUSANDS)
Revenues
Casino ......................... $ -- $ 145,417 $ 30,361 $ -- $ 175,778
Food and beverage .............. -- 35,149 2,685 -- 37,834
Room ........................... -- 17,038 -- -- 17,038
Other .......................... 2,846 7,632 10,533 (3,542)(1) 17,469
Management fee and equity income 33,052 15,641 4,574 (39,291)(1) 13,976
--------- --------- --------- --------- ---------
Gross revenues ................... 35,898 220,877 48,153 (42,833) 262,095
Less promotional allowances ...... -- 20,641 1,939 -- 22,580
--------- --------- --------- --------- ---------
Net revenues ........... 35,898 200,236 46,214 (42,833) 239,515
--------- --------- --------- --------- ---------
Costs and expenses
Casino ......................... -- 77,992 11,420 -- 89,412
Food and beverage .............. -- 22,482 2,734 -- 25,216
Room ........................... -- 5,795 -- -- 5,795
Other .......................... -- 19,612 11,621 (14,894)(1) 16,339
Selling, general and
administrative .............. -- 27,916 6,459 -- 34,375
Maintenance and utilities ...... -- 9,911 1,518 -- 11,429
Depreciation and amortization .. 495 14,800 2,183 -- 17,478
Corporate expense .............. 8,523 35 393 (3,542)(1) 5,409
Preopening expense ............. 123 -- 231 -- 354
--------- --------- --------- --------- ---------
Total .................. 9,141 178,543 36,559 (18,436) 205,807
--------- --------- --------- --------- ---------
Operating income ................. 26,757 21,693 9,655 (24,397) 33,708
Other income (expense), net ...... (15,055) (1,597) 250 -- (16,402)
--------- --------- --------- --------- ---------
Income before income taxes ....... 11,702 20,096 9,905 (24,397) 17,306
Provision for income taxes ....... 1,365 5,604 -- -- 6,969
--------- --------- --------- --------- ---------
Net income ....................... $ 10,337 $ 14,492 $ 9,905 $ (24,397) $ 10,337
========= ========= ========= ========= =========
Elimination Entries
(1) To eliminate intercompany revenue and expense.
15
16
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
--------- --------- --------- --------- ---------
(IN THOUSANDS)
Revenues
Casino ...................... $ -- $ 442,588 $ 217,515 $ -- $ 660,103
Food and beverage ........... -- 105,870 13,121 -- 118,991
Room ........................ -- 54,980 1,937 -- 56,917
Other ....................... 8,998 21,351 35,315 (11,235)(1) 54,429
Management fee and equity
income ................... 159,510 6,089 55,412 (217,196)(1) 3,815
Termination fee, net ........ -- 70,988 -- -- 70,988
--------- --------- --------- --------- ---------
Gross revenues ................ 168,508 701,866 323,300 (228,431) 965,243
Less promotional allowances ... -- 64,114 7,898 -- 72,012
--------- --------- --------- --------- ---------
Net revenues ........ 168,508 637,752 315,402 (228,431) 893,231
--------- --------- --------- --------- ---------
Costs and expenses
Casino ...................... -- 246,914 83,112 -- 330,026
Food and beverage ........... -- 61,661 14,766 -- 76,427
Room ........................ -- 15,886 969 -- 16,855
Other ....................... -- 78,717 50,526 (76,153)(1) 53,090
Selling, general and
administrative ........... -- 84,594 42,297 -- 126,891
Maintenance and utilities ... -- 26,660 9,598 -- 36,258
Depreciation and amortization 1,844 48,542 15,986 -- 66,372
Corporate expense ........... 27,303 121 1,358 (11,235)(1) 17,547
Preopening expense .......... 1,595 334 1,214 -- 3,143
--------- --------- --------- --------- ---------
Total ............... 30,742 563,429 219,826 (87,388) 726,609
--------- --------- --------- --------- ---------
Operating income .............. 137,766 74,323 95,576 (141,043) 166,622
Other income (expense), net ... (53,640) (3,871) 518 -- (56,993)
--------- --------- --------- --------- ---------
Income before income taxes .... 84,126 70,452 96,094 (141,043) 109,629
Provision for income taxes .... 16,704 18,081 7,422 -- 42,207
--------- --------- --------- --------- ---------
Net income .................... $ 67,422 $ 52,371 $ 88,672 $(141,043) $ 67,422
========= ========= ========= ========= =========
- ----------
Elimination Entries
(1) To eliminate intercompany revenue and expense.
16
17
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
COMBINED
COMBINED NON- ELIMINATION
PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED
--------- --------- --------- --------- ---------
(IN THOUSANDS)
Revenues
Casino ......................... $ -- $ 440,602 $ 92,931 $ -- $ 533,533
Food and beverage .............. -- 110,886 7,893 -- 118,779
Room ........................... -- 53,812 -- -- 53,812
Other .......................... 8,538 24,723 30,929 (10,630)(1) 53,560
Management fee and equity income 104,737 40,202 14,924 (125,043)(1) 34,820
--------- --------- --------- --------- ---------
Gross revenues ................... 113,275 670,225 146,677 (135,673) 794,504
Less promotional allowances ...... -- 64,092 5,703 -- 69,795
--------- --------- --------- --------- ---------
Net revenues ........... 113,275 606,133 140,974 (135,673) 724,709
--------- --------- --------- --------- ---------
Costs and expenses
Casino ......................... -- 234,426 34,351 -- 268,777
Food and beverage .............. -- 69,314 7,928 -- 77,242
Room ........................... -- 17,978 -- -- 17,978
Other .......................... -- 55,868 33,322 (40,347)(1) 48,843
Selling, general and
administrative .............. -- 84,345 20,307 -- 104,652
Maintenance and utilities ...... -- 26,484 4,490 -- 30,974
Depreciation and amortization .. 1,412 46,677 6,655 -- 54,744
Corporate expense .............. 27,373 130 1,225 (10,630)(1) 18,098
Preopening expense ............. 186 -- 1,022 -- 1,208
--------- --------- --------- --------- ---------
Total .................. 28,971 535,222 109,300 (50,977) 622,516
--------- --------- --------- --------- ---------
Operating income ................. 84,304 70,911 31,674 (84,696) 102,193
Other income (expense), net ...... (46,298) (4,599) 805 -- (50,092)
--------- --------- --------- --------- ---------
Income before income taxes ....... 38,006 66,312 32,479 (84,696) 52,101
Provision for income taxes ....... 7,324 14,095 -- -- 21,419
--------- --------- --------- --------- ---------
Income before cumulative effect .. 30,682 52,217 32,479 (84,696) 30,682
Cumulative effect, net of taxes .. (1,738) -- -- -- (1,738)
--------- --------- --------- --------- ---------
Net income ....................... $ 28,944 $ 52,217 $ 32,479 $ (84,696) $ 28,944
========= ========= ========= ========= =========
- ----------
Elimination Entries
(1) To eliminate intercompany revenue and expense.
17
18
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
COMBINED
COMBINED NON-
PARENT GUARANTORS GUARANTORS CONSOLIDATED
--------- --------- --------- ---------
(IN THOUSANDS)
Cash flows from operating activities ......... $ 82,463 $ 68,320 $ 33,825 $ 184,608
--------- --------- --------- ---------
Cash flows from investing activities
Acquisition of property, equipment and other
assets .................................. (6,202) (73,717) (12,045) (91,964)
Investment in and advances to unconsolidated
subsidiaries .............................. -- -- (8,039) (8,039)
Preopening expense .......................... (1,595) (334) (1,214) (3,143)
--------- --------- --------- ---------
Net cash used in investing activities ........ (7,797) (74,051) (21,298) (103,146)
--------- --------- --------- ---------
Cash flows from financing activities
Net payments under credit agreements ....... (89,150) -- -- (89,150)
Proceeds from issuance of common stock ..... 34 -- -- 34
Receipt/(payment) of dividends ............. 4,729 1,824 (6,553) --
Receipt/(payments) on long-term debt ....... 9,725 (10,294) -- (569)
--------- --------- --------- ---------
Net cash used in financing activities ........ (74,662) (8,470) (6,553) (89,685)
--------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents ............................... 4 (14,201) 5,974 (8,223)
Cash and cash equivalents, beginning of period 138 62,755 23,299 86,192
--------- --------- --------- ---------
Cash and cash equivalents, end of period ..... $ 142 $ 48,554 $ 29,273 $ 77,969
========= ========= ========= =========
18
19
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
COMBINED
COMBINED NON-
PARENT GUARANTORS GUARANTORS CONSOLIDATED
--------- --------- --------- ---------
(IN THOUSANDS)
Cash flows from operating activities .......... $ 53,002 $ 50,029 $ 13,560 $ 116,591
--------- --------- --------- ---------
Cash flows from investing activities
Acquisition of property, equipment and other
assets ..................................... (4,409) (56,137) (4,903) (65,449)
Investment in and advances to unconsolidated
subsidiaries ............................... -- (144) (4,185) (4,329)
Proceeds from sale of Sam's Town Kansas City's
assets ..................................... -- 2,000 -- 2,000
Preopening expense ........................... (186) -- (1,022) (1,208)
--------- --------- --------- ---------
Net cash used in investing activities ......... (4,595) (54,281) (10,110) (68,986)
--------- --------- --------- ---------
Cash flows from financing activities
Net payments under credit agreements ........ (59,250) -- -- (59,250)
Receipt/(payment) of dividends .............. 11,791 (5,242) (6,549) --
Other ....................................... (41) (305) -- (346)
--------- --------- --------- ---------
Net cash used in financing activities ......... (47,500) (5,547) (6,549) (59,596)
--------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents ................................ 907 (9,799) (3,099) (11,991)
Cash and cash equivalents, beginning of period 1,054 55,492 19,391 75,937
--------- --------- --------- ---------
Cash and cash equivalents, end of period ...... $ 1,961 $ 45,693 $ 16,292 $ 63,946
========= ========= ========= =========
19
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following 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 Hotel and Gambling Hall ("Sam's Town Las
Vegas"), the Eldorado Casino (the "Eldorado") and Jokers Wild Casino ("Jokers
Wild"); "Downtown Properties" consist of the California Hotel and Casino (the
"California"), the Fremont Hotel and Casino (the "Fremont"), Main Street
Station, Casino, Brewery and Hotel ("Main Street Station") and Vacations Hawaii,
the Company's wholly-owned travel agency which operates for the benefit of the
Downtown casino properties; and "Central Region Properties" consist of Sam's
Town Hotel and Gambling Hall in Tunica, Mississippi ("Sam's Town Tunica"),
Par-A-Dice Hotel and Casino ("Par-A-Dice"), Treasure Chest Casino ("Treasure
Chest"), Blue Chip Casino ("Blue Chip") (acquired in November 1999), and
management fee income from Silver Star Resort and Casino (through January 31,
2000). Net revenues displayed in this table and discussed in this section are
net of promotional allowances; as such, references to room revenue and food and
beverage revenue do not agree to the amounts on the Condensed Consolidated
Statements of Operations. Operating income from properties for the purpose of
this table excludes corporate expense, including related depreciation and
amortization, preopening expense and the termination fee.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(IN THOUSANDS)
Net revenues
Stardust ........................ $ 36,995 $ 32,239 $ 114,219 $ 109,360
Boulder Strip Properties ........ 40,587 44,008 129,076 140,555
Downtown Properties (a) ......... 54,331 53,824 167,002 163,427
Central Region Properties ....... 138,892 109,444 411,946 311,367
--------- --------- --------- ---------
Total properties ......... $ 270,805 $ 239,515 $ 822,243 $ 724,709
========= ========= ========= =========
Operating income (loss)
Stardust ........................ $ (816) $ (2,946) $ 457 $ 1,422
Boulder Strip Properties ........ 86 3,506 10,514 16,176
Downtown Properties ............. 5,329 5,379 18,716 16,525
Central Region Properties ....... 26,828 34,332 89,715 89,650
--------- --------- --------- ---------
Total properties ......... $ 31,427 $ 40,271 $ 119,402 $ 123,773
========= ========= ========= =========
- ---------
(a) Includes revenues related to Vacations Hawaii, a Honolulu Travel Agency,
of $10,920 and $9,760, respectively, for the three month periods ended
September 30, 2000 and 1999 and revenues of $31,600 and $28,633,
respectively, for the nine month periods ended September 30, 2000 and
1999.
REVENUES
Consolidated net revenues increased 13.1% during the quarter ended September 30,
2000 compared to the quarter ended September 30, 1999. Company-wide casino
revenue increased 25%, food and beverage revenue increased 1.8% and room revenue
increased 3.2%. The increase in net revenues is due primarily to the
20
21
acquisition of Blue Chip in November 1999. Blue Chip contributed $50 million in
revenue during the quarter ended September 30, 2000. Partially offsetting the
increase related to Blue Chip were declines in net revenues at Sam's Town Las
Vegas, Sam's Town Tunica and Treasure Chest of 9.3%, 12.1% and 15.9%,
respectively. The declines in net revenues at both Sam's Town operations are
primarily due to significant construction disruption as well as the competitive
environment in their respective gaming markets. The decline in net revenues at
Treasure Chest is due primarily to intense promotional competition from its
land-based competitor. Also offsetting the increase in net revenues from Blue
Chip is the January 2000 termination of the management contract for Silver Star
which contributed $14.0 million of revenue during the quarter ended September
30, 1999.
Consolidated net revenues before the termination fee increased 13.5%
during the nine month period ended September 30, 2000 compared to the same
period in the prior year. Company-wide casino revenue increased 24%, food and
beverage revenue decreased 1.5% and room revenue increased 1.1%. The increase in
net revenues is due primarily to the acquisition of Blue Chip in November 1999.
Blue Chip contributed $145 million in revenue during the nine month period ended
September 30, 2000. Partially offsetting the increase related to Blue Chip were
declines in net revenues at Sam's Town Las Vegas, Sam's Town Tunica and Treasure
Chest of 9.6%, 14.8% and 15.2%, respectively. The declines in net revenues at
both Sam's Town operations are primarily due to significant construction
disruption as well as the competitive environment in their respective gaming
markets. The decline in net revenues at Treasure Chest is due primarily to
intense promotional competition from its land-based competitor. Also offsetting
the increase in net revenues from Blue Chip is the January 2000 termination of
the management contract for Silver Star which contributed $3.8 million in
revenue during the nine month period ended September 30, 2000 compared to $35
million during the same period in the prior year.
OPERATING INCOME (LOSS)
Consolidated operating income before preopening expense decreased 27% to
$25 million during the quarter ended September 30, 2000 from $34 million during
the quarter ended September 30, 1999. The acquisition of Blue Chip contributed
$16.9 million of operating income during the quarter ended September 30, 2000.
Operating income for the quarter ended September 30, 1999 includes $13.5 million
from the management contract from Silver Star which terminated in January 2000.
After the effects of Blue Chip and Silver Star, the decline in operating income
is due primarily to the declines in net revenue at Sam's Town Las Vegas, Sam's
Town Tunica and Treasure Chest.
For the nine month period ended September 30, 2000, consolidated
operating income before preopening expense and termination fee decreased 4.5% to
$99 million from $103 million during the same period in the prior year. The
acquisition of Blue Chip contributed $50 million of operating income during the
nine month period ended September 30, 2000 and Silver Star (which terminated in
January 2000) contributed $3.8 million in operating income during the nine month
period ended September 30, 2000 compared to $33 million during the same period
in the prior year. Offsetting the effects of Blue Chip were declines in
operating income at Sam's Town Las Vegas, Sam's Town Tunica and Treasure Chest
mainly related to their decline in revenues.
21
22
STARDUST
For the quarter ended September 30, 2000, net revenues at the Stardust
increased 14.8% versus the same period in the prior year. Casino revenue
increased 11.0% due primarily to an increase in slot wagering. Room revenue
increased 9.8% mainly due to an increase in occupied rooms. Food and beverage
revenue increased 11.3%. The operating loss at the Stardust was $0.8 million
during the quarter ended September 30, 2000 as compared to an operating loss of
$2.9 million during the quarter ended September 30, 1999. Results for the
quarter ended September 30, 1999 were adversely impacted by a renovation project
that was completed at the end of 1999. The current quarterly results for the
Stardust were affected by the competitive environment on the Las Vegas Strip as
well as an increase in showroom expenses.
For the nine month period ended September 30, 2000, net revenues at the
Stardust increased 4.4% compared to the same period in the prior year. Casino
revenue increased 2.3% due primarily to an increase in slot wagering. Room
revenue declined 2.3% due mainly to a 13% decline in available rooms as a result
of the closure of the motor inn rooms in 1999. Operating income declined 68% to
$0.5 million during the nine month period ended September 30, 2000 compared to
$1.4 million during the same period of the prior year due to the competitive
environment on the Las Vegas Strip as well as an increase in showroom expenses.
Results for the nine month period ended September 30, 1999 were impacted by a
renovation project that was completed at the end of 1999.
BOULDER STRIP PROPERTIES
Net revenues at the Boulder Strip Properties declined 7.8% during the
quarter ended September 30, 2000 compared to the quarter ended September 30,
1999 due primarily to construction disruption related to the ongoing $86 million
renovation and expansion project at Sam's Town Las Vegas, which began during the
last half of 1999, as well as increased competition. Casino revenue at the
Boulder Strip Properties declined 3.4% due to declines in slot and table game
wagering. Non-gaming revenue at the Boulder Strip Properties declined 25%
primarily due to the permanent closure of Sam's Town's Western Emporium retail
store in September 1999 as part of the property's renovation and expansion
project. For the quarter ended September 30, 2000, operating income declined 98%
to a nearly breakeven level from $3.5 million during the quarter ended September
30, 1999. The decline in operating income is due primarily to the decline in net
revenues.
During the nine month period ended September 30, 2000, net revenues at
the Boulder Strip Properties declined 8.2% compared to the same period in the
prior year. The decline is mainly attributable to construction disruption
related to Sam's Town Las Vegas' renovation and expansion project as well as
increased competition. Casino revenue at the Boulder Strip Properties declined
4.1% due to declines in slot and table game wagering and non-gaming revenue
declined 23% due mainly to the permanent closure of Sam's Town Las Vegas'
Western Emporium. Operating income at the Boulder Strip Properties declined 35%
during the nine month period ended September 30, 2000 as compared to the nine
month period ended September 30, 1999. The decline in operating income is
primarily attributable to the decline in net revenues.
22
23
DOWNTOWN PROPERTIES
Net revenues at the Downtown Properties remained relatively stable
during the quarter ended September 30, 2000 compared to the quarter ended
September 30, 1999 as an 11.9% increase in net revenues at Vacations Hawaii, the
Company's Honolulu travel agency, was offset by a 2.5% decline in casino
revenue. Casino revenue was adversely impacted by a decline in table game hold
percentage. Operating income at the Downtown Properties remained relatively
stable during the quarter ended September 30, 2000 as compared to the quarter
ended September 30, 1999 due to the stable net revenues.
Net revenues at the Downtown Properties increased 2.2% during the nine
month period ended September 30, 2000 compared to the same period in the prior
year. The increase is attributable to a 10.4% increase in net revenues at
Vacations Hawaii. Operating income at the Downtown Properties increased $2.2
million or 13.3% during the nine month period ended September 30, 2000 compared
to the same period in the prior year. The increase in operating income is
primarily attributable to cost consolidation efforts and more effective
marketing at the Downtown casino properties.
CENTRAL REGION
Net revenues from the Central Region increased $29 million or 27% during
the quarter ended September 30, 2000 compared to the quarter ended September 30,
1999. The majority of the increase is due to the November 1999 acquisition of
Blue Chip, which earned $50 million in net revenues during the quarter ended
September 30, 2000. Sam's Town Tunica and Treasure Chest experienced declines in
net revenues of 12.1% and 15.9%, respectively, due to their highly competitive
environments as well as significant construction disruption at Sam's Town Tunica
involving its main entry, casino and restaurant operations. Management fees from
Silver Star declined $14.0 million as the management contract was terminated on
January 31, 2000. Operating income in the Central Region declined 22% to $27
million during the quarter ended September 30, 2000 from $34 million during the
quarter ended September 30, 1999 as the increase in operating income from the
acquisition of Blue Chip did not offset Treasure Chest and Silver Star's
declines in operating income or the operating loss of $1.9 million experienced
at Sam's Town Tunica.
During the nine month period ended September 30, 2000, net revenues from
the Central Region increased 32% compared to the same period in the prior year.
The majority of the increase is due to the November 1999 acquisition of Blue
Chip, which earned $145 million in net revenues during the nine month period
ended September 30, 2000. Also contributing to the increase in net revenues was
a 15.5% increase at Par-A-Dice due mainly to the change to dockside operations
in June 1999. Sam's Town Tunica and Treasure Chest experienced declines in net
revenues of 14.8% and 15.2%, respectively, due to their highly competitive
environments as well as significant construction disruption at Sam's Town Tunica
involving its main entry, casino and restaurant operations. Management fees from
Silver Star declined $31 million as the management contract was terminated on
January 31, 2000. Operating income in the Central Region remained relatively
stable during the nine month period ended September 30, 2000 as compared to the
same period in the prior year. The increase in operating income from the
acquisition of Blue Chip as well as the increase in net revenues at Par-A-Dice
was offset by declines in operating income related to the reduction in net
revenues
23
24
from Treasure Chest and termination of the management contract and related fee
income from Silver Star and the operating loss of $2.7 million experienced at
Sam's Town Tunica.
TERMINATION FEE
On October 20, 1999, the Company agreed to terminate its management
contract with the Mississippi Band of Choctaw Indians (the "Tribe") prior to the
contract's expiration date in June 2001 in exchange for a one-time payment of
$72 million. Pursuant to that agreement, the Company continued to manage Silver
Star under the terms of the management contract through January 31, 2000, at
which time the Tribe made the one-time termination payment and the Company
recorded the termination fee, net of certain expenses.
OTHER EXPENSES
Depreciation and amortization expense increased 30% during the quarter
ended September 30, 2000 compared to the quarter ended September 30, 1999 and
21% during the nine month period ended September 30, 2000 compared to the same
period in the prior year primarily as a result of depreciation and amortization
expense related to the fixed assets, intangible license rights and deferred
acquisition costs of Blue Chip (acquired in November 1999).
Preopening expense increased $0.5 million during the quarter ended
September 30, 2000 compared to the quarter ended September 30, 1999 due
primarily to an increase in the Company's share of preopening expense in The
Borgata, the Company's Atlantic City joint venture. Preopening expense increased
$1.9 million during the nine month period ended September 30, 2000 compared to
the same period in the prior year primarily as a result of unsuccessful efforts
to assist in the development and operation of a Rhode Island Indian casino with
the Narragansett Indian Tribe.
OTHER INCOME (EXPENSE)
Other income and expense is primarily comprised of interest expense, net
of capitalized interest. Net interest expense increased by $2.9 million during
the quarter ended September 30, 2000 as compared to the quarter ended September
30, 1999. The increase is primarily attributable to higher average debt levels
as a result of the borrowings related to the November 1999 acquisition of Blue
Chip. Net interest expense was partially offset by $1.9 million in capitalized
interest costs during the quarter ended September 30, 2000 compared to $0.5
million during the quarter ended September 30, 1999.
For the nine month period ended September 30, 2000, net interest expense
increased $8.5 million as compared to the same period of the prior year. The
increase is primarily attributable to higher average debt levels as a result of
the borrowings related to the November 1999 acquisition of Blue Chip. Net
interest expense was partially offset by $4.1 million in capitalized interest
costs during the nine month period ended September 30, 2000 compared to $0.9
million during the comparable period in the prior year.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR START-UP ACTIVITIES
During the quarter ended March 31, 1999, the Company reported a charge
of $1.7 million, net of $0.9 million in tax benefit, as the cumulative effect of
a change in accounting for start-up activities. The American
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Institute of Certified Public Accountants issued Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" that required the Company to
expense certain previously capitalized costs of start-up activities as a
cumulative effect of change in accounting principle.
NET INCOME
As a result of these factors, the Company reported net income of $3.7
million and $10.3 million, respectively, during the quarters ended September 30,
2000 and 1999 and $67.4 million and $28.9 million, respectively, during the nine
month periods ended September 30, 2000 and 1999.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES AND WORKING CAPITAL
The Company's policy is to use operating cash flow in combination with
debt financing to fund renovations and expansion of its business.
During the nine month period ended September 30, 2000, the Company
generated operating cash flow of $185 million compared to $117 million during
the nine month period ended September 30, 1999. The increase in operating cash
flow is primarily attributable to the $72 million termination payment received
from Silver Star as well as the incremental earnings from Blue Chip, which was
acquired in November 1999, partially offset by declines in earnings principally
at Sam's Town Tunica and Treasure Chest. As of September 30, 2000 and 1999, the
Company had balances of cash and cash equivalents of $78 million and $64
million, respectively. The Company had a working capital deficit of $52 million
at September 30, 2000 compared to working capital of $10.8 million at September
30, 1999. Much of the working capital deficit at September 30, 2000 is
attributable to construction payables mainly associated with the Sam's Town Las
Vegas renovation and expansion project and Sam's Town Tunica renovation project
as well as a decrease in current deferred tax assets. The Company has
historically operated with minimal or negative levels of working capital in
order to minimize borrowings and related interest costs under its bank credit
facility (the "Bank Credit Facility"). Management believes that the Company's
Bank Credit Facility and cash flows from operating activities will be sufficient
to meet the Company's operating and capital expenditure requirements for the
next twelve months. In the longer term, or if the Company experiences a decline
in revenue, or in the event of other unforeseen circumstances, the Company may
require additional funds and may seek to raise such funds through public or
private equity or debt financing, bank lines of credit, or other sources. No
assurance can be given that additional financing will be available or, if
available, will be on terms favorable to the Company.
CASH FLOWS FROM INVESTING ACTIVITIES
The Company is committed to continually maintaining and enhancing its
existing facilities, most notably by upgrading and remodeling its casinos, hotel
rooms, restaurants, and other public spaces and by providing the latest slot
machines for its customers. The Company's capital expenditures primarily related
to these purposes were approximately $35 million and $50 million, respectively,
during the nine month periods ended September 30, 2000 and 1999. The Company
also incurred approximately $57 million in capital expenditures during the nine
months ended September 30, 2000 for the renovation and expansion of Sam's Town
Las Vegas and the renovation of Sam's Town Tunica. During the nine month period
ended September 30, 1999, the Company incurred approximately $15.8 million in
capital expenditures for the renovation of the Stardust.
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CASH FLOWS FROM FINANCING ACTIVITIES
Substantially all of the funding for the Company's acquisitions and
renovation and expansion projects comes from cash flows from existing operations
as well as debt financing. During the nine month period ended September 30,
2000, the Company paid down debt by $90 million as compared to $61 million
during the nine month period ended September 30, 1999. The application of the
Silver Star management contract termination payment to pay down debt accounted
for $72 million of the debt reduction during the nine month period ended
September 30, 2000. At September 30, 2000, outstanding borrowings and unused
availability under the Bank Credit Facility were $437 million and $161.9
million, respectively.
At September 30, 2000, the Company's Bank Credit Facility consisted of a
$500 million revolver component (the "Revolver") and a term loan component with
an original principal balance of $100 million (the "Term Loan B"), both of which
mature in June 2003. Availability under the Revolver will be reduced by $15.6
million on December 31, 2001 and at the end of each quarter thereafter until
March 31, 2003. Term Loan B is being repaid in increments of $0.25 million per
quarter which began on September 30, 1999 and will continue through March 31,
2003, bringing the September 30, 2000 outstanding balance to $99 million. The
interest rate on the Bank Credit Facility is based upon either the agent bank's
quoted base rate or the Eurodollar rate, plus an applicable margin that is
determined by the level of a predefined financial leverage ratio. In addition,
the Company incurs a commitment fee on the unused portion of the Revolver which
ranges from 0.375% to 0.50% per annum. The blended rate on outstanding
borrowings under the Bank Credit Facility as of September 30, 2000 was 8.7%. The
Bank Credit Facility is secured by substantially all of the real and personal
property of the Company and its subsidiaries, including eleven casino
properties. The obligations of the Company under the Bank Credit Facility are
guaranteed by the significant subsidiaries of the Company.
On October 5, 2000, the Company increased the term loan commitment
portion of its Bank Credit Facility by $100 million to fund a portion of the
investment in The Borgata. On October 24, 2000, the Company borrowed $100
million of the term loan commitment (the "Term Loan C") and paid down $100
million of the revolver portion of the Bank Credit Facility pending the
Company's capital contribution to The Borgata. Term Loan C is subject to all
terms and provisions of the term loans in the existing Bank Credit Facility.
Term Loan C expires in June 2003 and will be repaid in increments of $0.25
million per quarter beginning on December 31, 2000 and continuing through March
31, 2003. The interest rate on Term Loan C is based upon either the agent bank's
quoted base rate or the Eurodollar rate plus an applicable margin that is
determined by the level of a predefined leverage ratio.
The Bank Credit Facility contains certain financial and other covenants,
including, without limitation, various covenants (i) requiring the maintenance
of a minimum net worth, (ii) requiring the maintenance of a minimum interest
coverage ratio, (iii) establishing a maximum permitted total leverage ratio and
senior secured leverage ratio, (iv) imposing limitations on the incurrence of
additional indebtedness, (v) imposing limitations on the maximum permitted
expansion capital expenditures during the term of the Bank Credit Facility, (vi)
imposing limits on the maximum permitted maintenance capital expenditures during
each year of the term of the Bank Credit Facility, and (vii) imposing
restrictions on investments, dividends and certain other payments. As of
September 30, 2000, management believes the Company and its subsidiaries are in
compliance with the Bank Credit Facility covenants.
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The Company's $200 million principal amount of Senior Notes (the "9.25%
Notes") and $250 million principal amount of Senior Subordinated Notes (the
"9.50% Notes") contain limitations on, among other things, (a) the ability of
the Company and its Restricted Subsidiaries (as defined in the Indenture
Agreements) to incur additional indebtedness, (b) the payment of dividends and
other distributions with respect to the capital stock of the Company and its
Restricted Subsidiaries and the purchase, redemption or retirement of capital
stock of the Company and its Restricted Subsidiaries, (c) the making of certain
investments, (d) asset sales, (e) the incurrence of liens, (f) transactions with
affiliates, (g) payment restrictions affecting restricted subsidiaries and (h)
certain consolidations, mergers and transfers of assets. Management believes the
Company and its subsidiaries are in compliance with the covenants related to the
9.25% and 9.50% Notes at September 30, 2000.
The Company's ability to service its debt will be dependent on its
future performance, which will be affected by, among other things, prevailing
economic conditions and financial, business and other factors, certain of which
are beyond the Company's control.
EXPANSION AND OTHER PROJECTS
The Company continues to explore development opportunities in the Las
Vegas locals market. The Company is nearing completion of an $86 million
expansion and renovation project at Sam's Town Las Vegas. The expansion project
includes, among other things, an 18 screen state-of-the-art movie theatre
complex, childcare facilities, an arcade, additional casino space for 500 slot
machines, an 11,200 square foot multi-purpose events center for concerts and
meetings, a new 650 seat buffet, and a 1,200 space parking garage. The
renovation project included the remodeling of the casino and restaurants and a
reconfigured and remodeled porte cochere and valet parking area to improve
access to the property and was substantially complete by September 30, 2000. The
expansion portion of the project is expected to be completed by mid November
2000. As of September 30, 2000, the Company had incurred $81 million in
cumulative costs associated with the Sam's Town Las Vegas expansion and
renovation project. There can be no assurances that the Sam's Town Las Vegas
expansion project will be completed on time or within budget. In addition, in
January 2000, the Company reached an agreement in principle with Nevso, L.L.C.
to purchase approximately 18 acres of land in western Las Vegas to develop a
local's hotel and casino. The purchase of the land and development of the
project is subject to a number of contingencies, including but not limited to,
securing various regulatory and development approvals. The zoning to allow the
construction of the project and its use as a locals resort casino was reversed
upon administrative appeal and is the subject of litigation. The Company can
make no assurances that this project will go forward or that if the project goes
forward that it will be successful.
The Company's primary expansion project is the development of an
Atlantic City casino resort. On May 29, 1996, the Company, through a
wholly-owned subsidiary, entered into a joint venture agreement with MAC, Corp.,
which is a wholly-owned subsidiary of Mirage Resorts, Inc. which has become a
wholly-owned subsidiary of MGM MIRAGE, to jointly develop and own a casino hotel
entertainment facility in Atlantic City, New Jersey. Certain aspects of the
joint venture agreement were subsequently modified in an amended and restated
joint venture agreement on July 14, 1998 and again modified in a second amended
and restated joint venture agreement (the "Agreement") on August 31, 2000. The
Agreement provides for a hotel of at least 2,000 rooms and a casino and related
amenities (collectively named "The Borgata") and contemplates a total cost of
$1.035 billion. Certain project costs exceeding the $1.035 billion budget are to
be funded by the Company without any proportionate increase in the ownership of
the joint venture by the Company. The Agreement
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provides for each party to make an equity contribution of $207 million, with the
Company contributing $90 million when MGM MIRAGE contributes land and related
assets to the venture. The Agreement further provides for the Company to arrange
$621 million in non-recourse financing for the venture. Funding of the Company's
capital contributions to The Borgata is expected to be derived from cash flow
from operations, availability under the Company's Bank Credit Facility,
incremental bank financing, or additional debt offerings. The Borgata is subject
to the many risks inherent in the development and operation of a new business
enterprise, including potential unanticipated design, construction, regulatory,
environmental and operating problems, increased project costs, timing delays,
lack of adequate financing and the significant risks commonly associated with
implementing a marketing strategy in a new market. Once construction begins, if
The Borgata does not become operational within the time frame and budget
currently contemplated or does not compete successfully in its new market, it
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company is in the planning stages of
this development and as of September 30, 2000 has contributed or advanced total
funds of $12.8 million to The Borgata. In addition to the $12.8 million of
contributions and advances, the Company expects to contribute its $90 million
capital contribution contemporaneously with MGM MIRAGE's contribution of the
land, which is expected to occur when a significant portion of the building
plans are complete, necessary permits are obtained and financing is arranged.
Such date is expected to be in the fourth quarter of this year. The Borgata's
expected completion date is during the summer of 2003.
The Company recently began a $21 million renovation project at Sam's
Town Tunica to reconfigure and remodel the casino, redesign and enhance its
restaurant product, remodel the atrium and build an RV park adjacent to the
property. The renovation project is expected to be completed by December 31,
2000, although there can be no assurances that the project will be completed on
time or within budget. As of September 30, 2000, the Company had incurred $16.8
million in total costs associated with the Sam's Town Tunica renovation project.
The Company has undertaken a Customer Information System ("CIS") project
that will standardize the Company's customer tracking systems. The purpose of
the CIS project is to link all points of customer contact at a particular
property to enable the Company to better monitor customer activity in order to
enhance and direct marketing efforts. As of September 30, 2000, the Company had
incurred $19.1 million in cumulative costs associated with the CIS project, $7.3
million of which was incurred during the nine month period ended September 30,
2000. Substantially all of these costs have been capitalized. The Company
expects to spend approximately $9 million during the last quarter of 2000 on the
CIS project. The Company has never undertaken a technology project of this
magnitude and may experience difficulties in the integration and implementation
of this project. In addition, given the inherent difficulties of a project of
this magnitude and the resources required, the timing and costs involved could
differ materially from those anticipated by the Company. There can be no
assurance that the CIS project will be completed successfully, on schedule, or
within budget.
Substantial funds are required for The Borgata, the other projects
discussed above, and for other future expansion projects. There are no
assurances that any of the above mentioned projects will go forward on a timely
basis, if at all, or ultimately become operational. The source of funds required
to meet the Company's working capital needs (including maintenance capital
expenditures) is expected to be cash flow from operations and availability under
the Company's Bank Credit Facility. The source of funds for the Company's
expansion projects may come from cash flow from operations and availability
under the Company's Bank
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Credit Facility, incremental bank financing, additional debt or equity
offerings, joint venture partners or other sources. No assurance can be given
that additional financing will be available or that, if available, such
financing will be obtainable on terms favorable to the Company or its
stockholders.
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
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, expansion 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 Annual
Report on Form 10-K for the year ended December 31, 1999. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates and
commodity prices. The Company's primary exposure to market risk is interest rate
risk associated with its long-term debt. The Company attempts to limit its
exposure to interest rate risk by managing the mix of its long-term fixed-rate
borrowings and short-term borrowings under the Bank Credit Facility. Borrowings
under the Bank Credit Facility bear interest, at the Company's option, at the
agent bank's quoted base rate or at a specified premium over the Eurodollar
rate. However, the amount of outstanding borrowings is expected to fluctuate and
may be reduced from time to time. The Company currently does not utilize hedging
instruments.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.36 Second Amended and Restated Joint Venture Agreement of Marina
District Development Company dated as of August 31, 2000.
27. Financial Data Schedule
(b) Reports on Form 8-K.
(i) None
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on November 13, 2000.
BOYD GAMING CORPORATION
By: /s/ ELLIS LANDAU
---------------------------------
Ellis Landau
Executive Vice President,
Chief Financial Officer,
Treasurer
(Principal Financial Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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10.36 Second Amended and Restated Joint Venture Agreement of Marina
District Development Company dated as of August 31, 2000.
27. Financial Data Schedule