-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OBhJxu9sgI/ofRe+iIT+9ByFxRIiEjxQtwNvxxzJib0ufw3wHHYqN1TGb6pYjDIu KBUghim3FcDq34iYaNaWCw== 0000892569-96-000686.txt : 19960702 0000892569-96-000686.hdr.sgml : 19960702 ACCESSION NUMBER: 0000892569-96-000686 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOYD GAMING CORP CENTRAL INDEX KEY: 0000906553 STANDARD INDUSTRIAL CLASSIFICATION: 7011 IRS NUMBER: 880242733 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12168 FILM NUMBER: 96566687 BUSINESS ADDRESS: STREET 1: 2950 S INDUSTRIAL RD CITY: LAS VEGAS STATE: NV ZIP: 89109 BUSINESS PHONE: 7027927200 MAIL ADDRESS: STREET 1: 2950 SOUTH INDUSTRIAL ROAD CITY: LAS VEGAS STATE: NV ZIP: 89109 FORMER COMPANY: FORMER CONFORMED NAME: BOYD GROUP DATE OF NAME CHANGE: 19941130 10-Q 1 QUARTERLY REPORT FOR THE QUARTER ENDED 3/31/96 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, 1996 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, 1996
Class Outstanding ----- ----------- Common stock, $.01 par value 57,115,365
2 BOYD GAMING CORPORATION FORM 10-Q QUARTER ENDED MARCH 31, 1996 INDEX Page No. -------- Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets at March 31, 1996 and June 30, 1995 3 Consolidated Statements of Income for the three and nine months ended March 31, 1996 and 1995 4 Consolidated Statements of Cash Flows for the nine months ended March 31, 1996 and 1995 5 Consolidated Statements of Changes in Stockholders' Equity for the nine months ended March 31, 1996 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II. Other Information 15 Item 3. Other Information 15 Business Considerations Item 6. Exhibits and Reports on Form 8-K 20 Signatures 21
-2- 3 Part I. Financial Information Item 1. Financial Statements BOYD GAMING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31, JUNE 30, (IN THOUSANDS, EXCEPT SHARE DATA) 1996 1995 - - ---------------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 51,918 $ 83,169 Accounts receivable, net 17,358 16,135 Inventories 6,455 6,648 Prepaid expenses 17,039 13,465 ---------- Total current assets 92,770 119,417 Property, equipment and leasehold interests, net 782,754 765,799 Other assets and deferred charges 55,810 53,686 Goodwill, net 10,619 10,611 --------- Total assets $ 941,953 $ 949,513 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term debt $ 40,657 $ 36,347 Accounts payable 40,066 50,432 Accrued liabilities Payroll and related 21,491 21,133 Interest and other 25,229 20,792 Income taxes payable 3,882 596 ---------- --------- Total current liabilities 131,325 129,300 Long-term debt, net of current maturities 548,034 587,957 Deferred income taxes 32,527 29,643 Commitments Stockholders' equity Preferred stock, $.01 par value; - - 5,000,000 shares authorized Common stock, $.01 par value; 200,000,000 shares authorized; 57,115,365 and 56,999,018 shares outstanding 571 570 Additional paid-in capital 101,436 100,085 Retained earnings 128,060 101,958 ---------- --------- Total stockholders' equity 230,067 202,613 ---------- --------- Total liabilities and stockholders' equity $ 941,953 $ 949,513 ========== =========
The accompanying notes are an integral part of these consolidated financial statements -3- 4 BOYD GAMING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, ----------------------- ----------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1996 1995 - - ------------------------------------------------------------------------------------------------- Revenues Casino $ 143,689 $ 116,475 $ 413,097 $ 348,296 Food and beverage 37,616 30,942 105,703 92,575 Rooms 17,978 16,514 52,308 45,212 Other 12,288 8,557 35,300 27,881 Management fees and joint venture 10,683 10,278 30,893 24,969 ---------- ---------- ---------- ---------- Gross revenues 222,254 182,766 637,301 538,933 Less promotional allowances 20,094 16,009 55,792 46,548 ---------- ---------- ---------- ---------- Net revenues 202,160 166,757 581,509 492,385 ---------- ---------- ---------- ---------- Costs and expenses Casino 72,344 55,367 203,769 166,479 Food and beverage 23,561 22,557 74,337 68,064 Rooms 5,611 6,151 17,910 18,093 Other 9,800 6,060 25,653 19,275 Selling, general and administrative 30,620 18,696 83,179 60,038 Maintenance and utilities 7,106 6,717 22,620 21,638 Depreciation and amortization 15,468 13,909 45,868 40,953 Corporate expense 5,907 5,091 16,417 17,027 Preopening expense - - 10,004 - ---------- ---------- ---------- ---------- Total 170,417 134,548 499,757 411,567 ---------- ---------- ---------- ---------- Operating income 31,743 32,209 81,752 80,818 ---------- ---------- ---------- ---------- Other income (expense) Interest income 200 531 987 1,682 Interest expense, net of amounts capitalized (12,707) (13,162) (39,322) (37,940) ---------- ---------- ---------- ---------- Total (12,507) (12,631) (38,335) (36,258) ---------- ---------- ---------- ---------- Income before provision for income taxes 19,236 19,578 43,417 44,560 Provision for income taxes 7,885 8,096 17,315 20,265 ---------- ---------- ---------- ---------- Net income $ 11,351 $ 11,482 $ 26,102 $ 24,295 ========== ========== ========== ========== Net income per common share $ 0.20 $ 0.20 $ 0.46 $ 0.43 ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. -4- 5 BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED MARCH 31, ---------------------------- (IN THOUSANDS) 1996 1995 - - ----------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 26,102 $ 24,295 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 45,868 40,953 Deferred income taxes 2,884 8,666 Other (31) (29) Changes in assets and liabilities: Increase in accounts receivable, net (1,223) (5,270) (Increase) decrease in inventories 193 (22) (Increase) decrease in prepaid expenses (3,574) 1,614 (Increase) decrease in other assets (5,547) 6,504 Increase (decrease) in other current liabilities 16,870 (18,390) Increase in income taxes payable 3,286 - ---------- ----------- Net cash provided by operating activities 84,828 58,321 ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, equipment and other assets (81,616) (104,172) Decrease in short-term investments - 5,000 ---------- ----------- Net cash used in investing activities (81,616) (99,172) ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt 1,074 7,850 Net borrowings under credit agreements (10,000) 18,000 Payments on long-term debt (26,687) (16,650) Proceeds from issuance of common stock 1,150 1,132 ---------- ----------- Net cash provided by (used in) financing activities (34,463) 10,332 ---------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (31,251) (30,519) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 83,169 66,964 ---------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 51,918 $ 36,445 ========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest, net of amounts capitalized $ 40,320 $ 38,521 ========== =========== Cash paid for income taxes $ 10,991 $ 12,465 ========== =========== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Property additions acquired on contracts and trade payables which were accrued, but not yet paid $ 1,646 $ 8,109 ========== ===========
The accompanying notes are an integral part of these consolidated financial statements. -5- 6 BOYD GAMING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA) - - --------------------------------------------------------------------------------------------------------- ADDITIONAL TOTAL COMMON STOCK PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS EQUITY ------------------------------------------------------------------- BALANCES, JULY 1, 1995 56,999,018 $570 $100,085 $101,958 $202,613 Net income for the nine months ended March 31, 1996 26,102 26,102 Stock issued in connection with employee stock purchase plan 116,347 1 1,351 1,352 ------------------------------------------------------------------- BALANCES, MARCH 31, 1996 57,115,365 $571 $101,436 $128,060 $230,067 ===================================================================
The accompanying notes are an integral part of these consolidated financial statements. -6- 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies Principles of Consolidation The accompanying 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 six casino entertainment facilities in Las Vegas, Nevada, one in Tunica, Mississippi and one in Kansas City, Missouri which opened in September 1995. The Company manages a casino entertainment facility in Philadelphia, Mississippi, which opened on July 1, 1994, for which it has a seven year management contract. The Company is also part owner of and manages a riverboat gaming operation in Kenner, Louisiana which opened on September 5, 1994 for which it has a five year management contract with certain renewal options. All material intercompany accounts and transactions have been eliminated. Basis of Presentation In the opinion of the Company, the accompanying unaudited Consolidated Financial Statements contain all adjustments necessary, consisting of only normal recurring adjustments, to present fairly the results of its operations for the three and nine months ended March 31, 1996 and 1995 and its cash flows for the nine months ended March 31, 1996 and 1995. This report should be read in conjunction with the Company's audited financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 1995. The operating results for the three and nine months ended March 31, 1996 and cash flows for the nine months ended March 31, 1996 are not necessarily indicative of the results that will be achieved for the full fiscal year or for future periods. Net Income Per Common Share Net income per common share is based upon the weighted average number of common stock and common stock equivalents outstanding during the period which were 57,115,365 and 56,922,164 for the three months ended March 31, 1996 and 1995, respectively, and 57,037,941 and 56,851,857 for the nine months ended March 31, 1996 and 1995, respectively. Note 2. Long-term Debt In April 1996, the Company and its wholly owned subsidiary California Hotel and Casino received a commitment for a new $500 million five-year Reducing Revolving Credit Facility. This facility will replace the Company's and its subsidiaries' current bank credit facilities. Availability under the new facility will reduce semiannually starting in the third year. The Company is currently negotiating the closing of this transaction which is expected to be completed in the next several weeks. -7- 8 Note 3. Capital Stock Two hundred million shares of common stock with a par value of $.01 per share are authorized, of which 57,115,365 shares were issued at March 31, 1996 and 56,999,018 were issued at June 30, 1995, including no treasury shares at March 31, 1996 and June 30, 1995. The Company has authorized 5,000,000 shares of $.01 par value preferred stock of which no shares were issued at March 31, 1996 and June 30, 1995. Note 4. Subsequent Event On April 26, 1996, the Company entered into a stock purchase agreement to acquire 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 constructing a 204-room hotel adjacent to the Par-a-Dice casino. Closing of the transaction is conditioned upon, among other things, approval of the Illinois Gaming Board. The total purchase price is $175 million and includes the riverboat casino facility, the 204-room hotel and a vacant potential gaming site in Missouri. -8- 9 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 Income Statement Data for the Company's properties. As used herein, "Boulder Strip Properties" consist of Sam's Town Las Vegas, the Eldorado Casino and Jokers Wild Casino; "Downtown Properties" consist of the California Hotel and Casino and the Fremont Hotel and Casino; and the "Central Region" consists of Sam's Town Tunica, Sam's Town Kansas City (opened September 1995), management fee income from Silver Star Hotel and Casino, and management fee and joint venture income from Treasure Chest Casino (opened September 1994).
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, ----------------------- ----------------------- 1996 1995 1996 1995 --------- --------- -------- --------- (IN THOUSANDS) (IN THOUSANDS) INCOME STATEMENT DATA NET REVENUES Stardust $ 49,930 $ 48,274 $ 146,336 $ 147,011 Boulder Strip Properties 49,629 42,321 143,033 125,682 Downtown Properties 35,025 32,878 103,787 100,977 Central Region 65,356 43,284 185,345 118,715 -------- -------- ------- -------- Total Properties 199,940 166,757 578,501 492,385 -------- -------- ------- -------- OPERATING INCOME Stardust 9,247 7,861 22,164 22,677 Boulder Strip Properties 7,816 5,280 17,382 10,687 Downtown Properties 4,280 4,906 13,259 16,305 Central Region 17,744 19,795 58,632 49,650 Preopening expense - - (10,004) - -------- -------- ------- -------- Total Properties 39,087 37,842 101,433 99,319 -------- -------- ------- --------
-9- 10 Consolidated net revenues increased 21.2% and 18.1%, respectively, for the three and nine-month periods ended March 31, 1996 compared to the comparable periods in the prior fiscal year. The Company's Central Region properties, which consist of Sam's Town Tunica, Sam's Town Kansas City, Silver Star Hotel and Casino, and Treasure Chest Casino, accounted for the majority of the increase in revenues for both the third fiscal quarter and for the first nine months of the current fiscal year with Central Region revenues increasing 51% and 56%, respectively. These increases are primarily attributable to the opening of Sam's Town Kansas City in September 1995 and increases at Sam's Town Tunica of 0.5% and 16.1%, respectively, for the three and nine month periods. Management fees and joint venture income related to the Silver Star Hotel and Casino and Treasure Chest Casino also increased, up 3.9% and 23.7%, respectively, for the three and nine-month periods ending March 31, 1996. In the Company's Nevada Region, which consists of the Stardust Resort and Casino, Sam's Town Las Vegas, the Eldorado Casino, Jokers Wild Casino, the California Hotel and Casino and the Fremont Hotel and Casino, revenues increased 9.0% and 5.2%, respectively, for the three and nine-month periods ended March 31, 1996 versus the comparable periods in the prior fiscal year. Revenues at the Boulder Strip properties increased 17.3% and 13.8%, respectively, for the three and nine-month periods, while Stardust revenues increased 3.4% and declined 0.5%, respectively, and revenues at the Downtown Properties increased 6.5% and 2.8%, respectively. Revenue growth on a consolidated basis was achieved in all major revenue categories of the Company's operations for both the three and nine-month periods ended March 31, 1996, with casino revenue up 23.4% and 18.6%, respectively, food and beverage revenue up 3.1% and 6.5%, respectively, and room revenue up 39.2% and 24.4%, respectively. Slot revenue, which currently accounts for more than 70% of casino revenue, increased 28% and 23%, respectively, for the three and nine-month periods ended March 31, 1996 versus comparable periods in the prior fiscal year. Table games revenue, the only other significant component of casino revenue, increased 9.4% and 9.1%, respectively, for the three and nine-month periods. The Company's hotel rooms posted an overall occupancy rate of 97% and 95% for the three and nine-month periods ended March 31, 1996. Company-wide occupied rooms increased 4.9% and 6.9%, respectively, in the three and nine-month periods primarily as a result of Sam's Town Tunica rooms expansion (300 rooms, opened in December 1994) and the California Hotel and Casino rooms expansion (146 rooms, opened in December 1994) both of which were open for the full nine month period ending March 31, 1996. In addition, the Company's average room rate rose 4.1% and 8.7%, respectively, for the three and nine-month periods ended March 31, 1996, primarily as a result of an increase in average room rate at the Stardust of 5.6% and 12.0%, respectively. Occupancy statistics do not include Main Street Station Hotel and Casino rooms. The Company purchased Main Street Station Hotel and Casino in December 1993 as a closed casino/hotel facility and has been using its rooms to augment the rooms base at the California and Fremont. The Main Street Station property is currently undergoing an extensive renovation and expansion project and the Company expects to open the property in fiscal 1997 as a complete Casino/Hotel facility. Consolidated operating income was $31.7 million and $81.8 million, respectively, for the three and nine-month periods ended March 31, 1996 compared to $32.2 million and $80.8 million, respectively, in the comparable periods of the prior fiscal year. Included in this year's results is a charge of $10.0 million recorded in the first quarter of the current fiscal year related to the opening of Sam's Town Kansas City on September 13, 1995. The decline in consolidated operating income for the three month period ended March 31, 1996 was primarily the result of -10- 11 increased operating income at the Stardust and at the Boulder Strip Properties offset by declines at the Downtown Properties and in the Central Region. The increase in consolidated operating income for the nine month period ended March 31, 1996 was primarily the result of increased operating income at the Boulder Strip Properties partially offset by declines at the Stardust, Downtown Properties and the Central Region. Operating income in the Central Region includes management fees and joint venture income related to the Company's Silver Star Hotel and Casino and Treasure Chest Casino operations. For the three months ended March 31, 1996, consolidated operating income margin was 15.7% versus 19.3% for the comparable period in the prior fiscal year. The decline in operating income margin is primarily related to an operating loss at Sam's Town Kansas City and a decline in operating income margin at Sam's Town Tunica offsetting increases in operating income margins at the Stardust and the Boulder Strip Properties. For the nine-months ended March 31, 1996 consolidated operating income margin was 14.1% versus 16.4% in the comparable period of the prior fiscal year, primarily as a result of preopening expenses related to the opening of Sam's Town Kansas City in September 1995, an operating loss at Sam's Town Kansas City for the nine month period and a decline in operating income margins at the Downtown Properties offsetting operating income margin gains at the Boulder Strip Properties. Net revenues at the Stardust increased 3.4% and declined 0.5%, respectively, for the third fiscal quarter and for the first nine months of the current fiscal year versus the comparable periods in the prior fiscal year. Slot revenue increased 4.4% in the third quarter and declined 1.5% for the nine months ended March 31, 1996 versus the comparable periods in the prior fiscal year. Table games revenue for the three and nine-month periods ended March 31, 1996 was down 6.9% and 6.6%, respectively, versus comparable periods in the prior fiscal year as a result of flat wagering and lower net winnings. Room revenue at the Stardust for the three and nine-months ended March 31, 1996 increased 4.0% and 8.2%, respectively. For the three months ended March 31, 1996 occupied rooms increased 1.7% and the average daily room rate rose 5.6% versus the comparable period in the prior fiscal year. For the nine months ended March 31, 1996 a decline of 2.8% in occupied rooms was offset by increases in the average room rate of 12.0% versus the comparable period in the prior fiscal year. Operating income margin for the three and nine-month periods ended March 31, 1996 were 18.5% and 15.1%, respectively, versus 16.3% and 15.4%, respectively, in the comparable periods in the prior fiscal year. The increase in operating income and operating margin for the three month period ended March 31, 1996 is primarily attributable to increased revenues and operating income in the casino and rooms departments. The decline in operating income and operating income margin for the nine-month period is primarily attributable to decreased casino and food and beverage revenues and higher advertising and promotional expenses partially offset by increased operating income and operating income margins in the rooms department. Net revenues at the Boulder Strip Properties increased 17.3% and 13.8%, respectively, for the three and nine-month periods ended March 31, 1996 versus the comparable periods in the prior fiscal year. Net revenues at Sam's Town increased 20.7% and 15.5%, respectively, for the three and nine-month periods ended March 31, 1996 versus the comparable periods in the prior fiscal year while revenues for the other Boulder Strip Properties (the Eldorado Casino and Jokers Wild Casino) increased slightly for both the three and nine month periods ended March 31, 1996. Casino revenues at the Boulder Strip Properties increased 20.0% and 17.5%, respectively, for the three and nine-month periods ended March 31, 1996, while rooms revenue increased 7.7% -11- 12 and 10.3%, respectively, and food and beverage revenue increased 13.6% and 7.1%, respectively. Operating income margins at the Boulder Strip Properties increased to 15.7% and 12.2%, respectively, for the three and nine-month periods ended March 31, 1996 versus 12.5% and 8.5%, respectively, in the comparable periods of the prior year. Sam's Town posted increases in operating income margin of 5.2 and 4.7 percentage points, respectively, for the three and nine month periods ended March 31, 1996. Operating income margins at the Eldorado and Jokers Wild declined 3.7 and 5.1 percentage points, respectively, for the three months and increased 0.6 percentage points at the Eldorado and declined 1.5 percentage points at the Jokers Wild for the nine month period. Declines in operating income margins at the Eldorado and Jokers Wild are primarily a result of lower net winnings in the casino department. The significant increases in revenues, operating income and operating income margins for both the three and nine-month periods at Sam's Town are primarily attributable to the implementation of successful aggressive marketing programs creating increased customer awareness and visitation. Net revenues at the Downtown Properties increased 6.5% and 2.8%, respectively, for the three and nine-month periods ended March 31, 1996 versus the comparable periods in the prior fiscal year. Slot revenue increased 4.9% and 1.7%, respectively, while table games revenue decreased 13.4% and 6.8%, respectively, for the third quarter and first nine months ended March 31, 1996. Net revenues at the Fremont increased 13.6% and 3.2% for the three and nine-month periods ended March 31, 1996 versus the comparable periods in the prior fiscal year. Net revenues at the California increased 0.1% and 2.4%, respectively, for the three and nine-month periods ended March 31, 1996 versus the comparable period in the prior fiscal year. Operating income margins at the Downtown Properties were 12.2% and 12.8%, respectively, for the three and nine-month periods ended March 31, 1996 versus 14.9% and 16.1%, respectively, in the comparable period of the prior year. The Fremont operating income margin was 12.8% and 12.1%, respectively, for the three and nine-month periods ended March 31, 1996 versus 14.6% and 15.4%, respectively, in the comparable three and nine-month periods in the prior fiscal year. The decline in operating income margins at the Fremont Hotel and Casino were primarily a result of lower net winnings and increased marketing and promotional costs for the three and nine-month periods ended March 31, 1996. The California had operating income margins of 11.6% and 13.4%, respectively, for the three and nine-month periods ended March 31, 1996 versus 15.2% and 16.9%, respectively, in the comparable three and nine-month periods in the prior fiscal year. The decline in operating income margins at the California Hotel and Casino were primarily a result of lower net winnings for the three and nine-month periods ended March 31, 1996. Construction of the Fremont Street Experience project, which was completed and opened to the public in December 1995, negatively impacted the Downtown Properties for the majority of the first and second fiscal quarters. The Fremont Street Experience which was open for the entire third fiscal quarter drew additional visitors to the downtown area. The Fremont benefited from increased walk-in visitor traffic due to its proximity to the Fremont Street Experience. Net revenues in the Central Region increased 51% and 56%, respectively, for the three and nine-month periods ended March 31, 1996. The opening of Sam's Town Kansas City on September 13, 1995 accounted for the majority of the increase for both the three and nine-month periods. Sam's Town Tunica revenues increased 0.5% and 16.1%, respectively, for the three and nine-month periods versus comparable periods in the prior fiscal year while management fees and joint venture income related to the Silver Star and Treasure Chest operations increased 3.9% and 23.7%, respectively. Operating income in the Central Region declined 10.4% to $17.7 -12- 13 million for the third fiscal quarter as a result of a $1.1 million operating loss at Sam's Town Kansas City and a 14.0% decline in operating income at Sam's Town Tunica, partially offset by a 3.9% increase in operating income from management fees and joint venture income. Results from Sam's Town Tunica were weakened due to severe winter weather during the quarter. The operating loss at Sam's Town Kansas City is primarily attributable to revenues not sufficient to cover the high level of fixed costs associated with the operation of the facility, higher advertising and promotional expenses and a lower than expected win per customer. The Company is in the process of developing and implementing new marketing programs and making certain physical and equipment changes in an effort to improve revenues. Since opening, Sam's Town Kansas City has produced a slight operating loss, net of preopening expense. For the nine-month period ended March 31, 1996, operating income in the Central Region increased 18.1% to $58.6 million with Sam's Town Tunica operating income increasing 15.6% and management fees and joint venture operating income increasing 24%. Interest expense, net of amounts capitalized was $12.7 million and $39.3 million, respectively, for the three and nine-month periods ended March 31, 1996, respectively, versus $13.2 million and $37.9 million, respectively, in the comparable periods in the prior fiscal year. The Company incurred increased interest expense for both the three and nine month periods ended March 31, 1996 as a result of less capitalized interest related to projects under development versus the comparable periods in the prior year. Depreciation expense increased $1.6 million and $4.9 million, respectively, for the three and nine-month periods ended March 31, 1996 primarily as a result of the opening of Sam's Town Kansas City, in September 1995, the California Hotel and Casino rooms addition and the Sam's Town Tunica rooms addition, both of which opened in late December 1994. As a result of these factors, net income declined $0.1 million and increased $1.8 million, respectively, for the three and nine-month periods ended March 31, 1996 compared to the same periods in the prior fiscal year. FINANCIAL CONDITION AND CAPITAL RESOURCES For the nine months ended March 31, 1996 the Company's net cash provided by operating activities was $84.8 million compared to $58.3 million in the first nine months of the prior fiscal year. Net cash provided by operating activities in the prior fiscal year was negatively impacted by significant reductions in accounts payable and increases in other assets related to the opening of new properties and the timing of payments related to the opening of those projects. As of March 31, 1996 the Company had balances of cash and cash equivalents of approximately $51.9 million and had approximately $52.0 million of credit available under bank credit agreements. In April 1996, the Company and its wholly owned subsidiary California Hotel and Casino received a commitment for a new $500 million five-year Reducing Revolving Credit Facility. This facility will replace the Company's and its subsidiaries' current bank credit facilities which currently have a total availability of $277 million. Availability under the new facility will reduce semiannually starting in the third year. The Company is currently negotiating the closing of this transaction which is expected to be completed in the next several weeks. Upon closing of this transaction, the Company and California Hotel and Casino expect to have approximately $270 million in unused availability. -13- 14 The Company is currently involved in several projects to expand its operations. On April 26, 1996 the Company entered into a stock purchase agreement to acquire 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 constructing a 204-room hotel adjacent to the Par-a-Dice casino. Closing of the transaction is conditioned upon, among other things, approval by the Illinois Gaming Board. The total purchase price is approximately $175 million subject to certain adjustments as set forth in the stock purchase agreement. The Company currently expects to assign its rights under the stock purchase agreement to its wholly owned subsidiary California Hotel and Casino. The Company recently began construction of a $40 million expansion at Sam's Town Tunica. This project will include a 350-room hotel tower and a 1,000-space parking garage. The Company recently began the renovation and expansion of the Main Street Station Hotel and Casino. This project, which is expected to cost approximately $45 million, will include a redesign of the property's public space, expanded restaurant facilities, a refurbishment of the property's 400-hotel rooms, acquisition of all new gaming equipment and increased parking. The Company has identified a casino/hotel site in Reno, Nevada and is currently negotiating for the purchase of the land. Upon acquisition of the land, the Company plans to develop Sam's Town Reno on the site at a cost of approximately $90 million. The Company has been selected by the City of Cape Girardeau, Missouri to be the developer and operator of a riverboat casino facility in downtown Cape Girardeau. There can be no assurance that any of the above mentioned projects will go forward and ultimately become operational. The source of funds required to meet the Company's working capital needs (including maintenance capital expenditures) and those required to complete the above mentioned projects is expected to be cash on hand, cash flow from operations, availability under bank credit agreements, new borrowings to the extent permitted under existing debt agreements, the issuance of additional equity and vendor and other financing. There is no assurance that required financing strategies can be effected on satisfactory terms. -14- 15 PART II. OTHER INFORMATION ITEM 3. OTHER INFORMATION BUSINESS CONSIDERATIONS The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. From time to time the Company may report, through its press releases, discussions with analysts, Securities and Exchange Commission filings, or through other oral or written statements, certain matters that could be characterized as forward-looking statements such as statements relating to plans for future expansion and other business development activity, as well as other capital spending, financing sources and the effects of regulation and competition. Such forward-looking statements involve important risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. The Company believes that such forward-looking statements should be considered in light of certain important cautionary factors, risks and uncertainties that may affect the Company's actual business, results of operations or financial condition, many of which are beyond management s control. Such factors, risks and uncertainties include, among others, the following: EXPANSION OF BUSINESS The Company regularly evaluates sites in new locations and in new gaming jurisdictions for possible expansion of its gaming operations. However, the Company's ability to expand will depend upon a number of factors, including: the identification and availability of suitable locations; negotiation of acceptable purchase, management, joint venture or other agreements; the securing of required state and local, or federal (and, if applicable, Indian) licenses, permits and approvals; in the case of construction of new facilities (or renovation of existing facilities) the risks typically associated with any new construction; hiring, training and retention of skilled management and other personnel; availability of adequate financing on acceptable terms; and other factors including changes in the competitive and regulatory environment, many of which are beyond the Company's control. As a result, there can be no assurance that the Company will be able to expand into new locations or new gaming jurisdictions, that delays in a planned expansion may not occur or, if such an expansion occurs, that it will be successful. The Company is currently engaged in several projects to expand its operations. The Company recently announced plans for and began construction on an expansion project at Sam's Town Tunica. The Company has recently started the renovation and expansion of Main Street Station Hotel and Casino which is expected to be completed, by the end of calendar 1996. This project includes a redesign of the property's public space, expanded restaurant facilities, a refurbishment of the property's 400 hotel rooms, acquisition of all new gaming equipment, and increased parking capacity. The Company has also identified a casino/hotel site in Reno, Nevada and is currently negotiating for the purchase of the land. Upon acquisition of the land, the Company plans to develop Sam's Town Reno on the site at a cost of approximately $90 million. The Company has been Selected by the City of Cape Girardeau, Missouri to be the developer and operator of a riverboat casino facility in downtown Cape Girardeau. In addition, the Company has submitted proposals for, and/or is investigating sites in, a number of other jurisdictions. No -15- 16 assurance can be given that the Company will develop the potential facilities discussed above or undertake activities in any other jurisdictions currently under considerations. On April 26, 1996, the Company entered into a Stock Purchase Agreement to acquire all of the capital stock of (i) Par-a-Dice Gaming Corporation, owner and operator of the Par-a-Dice riverboat casino in East Peoria, Illinois and (ii) East Peoria Hotel, Inc. (collectively the Par-a-Dice Acquisition). Each of the projects will be subject to the risks inherent in the establishment of a new business enterprise or the expansion of an existing business enterprise including unanticipated design, construction, regulatory, environmental and operating problems. There can be no assurance that any of these projects will become operational within the time frame and budgets currently contemplated or at all. The Par-a-Dice Acquisition is expected to cost approximately $175 million while the renovation and expansion of Main Street Station Hotel and Casino is expected to cost approximately $45 million, the Sam's Town Tunica expansion is expected to cost approximately $40 million, and the Reno project is expected to cost $90 million. The Company intends to finance the Par-a-Dice Acquisition, the Main Street Station renovation, the Sam's Town Tunica expansion, and the Reno project with borrowings under the Company's bank credit facilities. Continued access to funds under those credit facilities is dependent on compliance with financial and other covenants. PENDING ACQUISITION On April 26, 1996, the Company entered into a Stock Purchase Agreement for the Par-a-Dice Acquisition. The Par-A-Dice Acquisition is subject to a number of regulatory approvals including the approval of the Mississippi Gaming Commission and the Illinois Gaming Commission. No assurance can be given that the necessary approvals will be received. In addition, the Company has no experience in Illinois and no assurance can be given that the Company will be able to compete successfully in this new market. Furthermore, the acquisition is subject to certain closing conditions and there can be no assurance that the acquisition will be completed according to the terms currently contemplated. ADDITIONAL FINANCING REQUIREMENTS; LEVERAGE AND DEBT SERVICE The Company intends to finance future expansion primarily with existing cash balances, cash flow from operations, borrowings under its bank credit facilities and vendor and other financing, which may include additional borrowings and funds obtained through public offerings or private placements of equity and debt securities. No assurance can be given that the aforementioned sources of funds will be sufficient to finance the Company's expansion or that other financing will be available on acceptable terms, in a timely manner or at all. In addition, the Company's outstanding indebtedness contains certain restrictions on the ability of the Company and its subsidiaries to incur additional indebtedness. The Company's ability to service its debt will be dependent on its future performance, which will be affected by prevailing economic conditions and financial, business and other factors, certain of which are beyond the Company's control. Accordingly, no assurance can be given that the Company will maintain a level of operating cash flow that will permit it to service its obligations. In the event the Company is unable to generate sufficient cash flow to service its -16- 17 debt obligations it will have to adopt one or more alternatives, such as reducing or delaying planned expansion and capital expenditures, selling assets, restructuring debt or obtaining additional equity capital. There is no assurance that any of these financing strategies could be effected on satisfactory terms. In addition, certain states' laws contain restrictions on the ability of companies engaged in the gaming business to undertake certain financing transactions. Such restrictions could cause delays in obtaining necessary capital. COMPETITION The gaming industry is highly competitive. Gaming activities include: traditional land-based casinos; riverboat and dockside gaming; casino gaming on Indian land; state-sponsored lotteries and video poker in restaurants, bars and hotels; pari-mutuel betting on horse racing, dog racing and jai-alai; sports bookmaking and card rooms. The casinos owned, managed and being developed by the Company compete and will in the future compete with all these forms of gaming, and will compete with any new forms of gaming that may be legalized in additional jurisdictions, as well as with other types of entertainment. The Company also competes with other gaming companies for opportunities to acquire legal gaming sites in emerging and established gaming jurisdictions and for the opportunity to manage casinos on Indian land. Some of the competitors of the Company have more personnel and greater financial and other resources than the Company. Such competition in the gaming industry could adversely affect the Company's ability to attract customers and thus adversely affect its operating results. In addition, further expansion of gaming into new jurisdictions could also adversely affect the Company's business by diverting its customers to competitors in such new jurisdictions. In particular, the expansion of casino gaming in or near any geographic area from which the Company attracts or expects to attract a significant number of its customers, such as Hawaii, California, Arizona, Alabama, Tennessee, Arkansas or Kansas, could have a material adverse effect on the Company's business. GOVERNMENTAL REGULATION; ENVIRONMENTAL RISKS The ownership and operation of the Company's gaming facilities and the Par-a-Dice Casino are subject to extensive regulation by state and local regulatory authorities. Nevada, Mississippi, Missouri, Louisiana and Illinois have each promulgated detailed regulations governing gaming operations. Regulatory authorities in these states have broad powers with respect to the licensing of casino operations, and may revoke, suspend, condition or limit the Company's gaming licenses, impose substantial fines and take other actions, any one of which could have a material adverse effect on the Company's business. Directors, officers and certain key employees of the Company must also be approved by certain state regulatory authorities. If state regulatory authorities were to find a person occupying any such position unsuitable, the Company would be required to sever its relationship with that person. Certain public issuances of securities and certain other transactions by the Company also require the approval of certain state regulatory authorities. In addition, Mississippi gaming authorities must approve any future expansion of the Company's gaming operations outside of Mississippi. -17- 18 The Company operates the Silver Star Hotel and Casino pursuant to a management agreement with the Mississippi Band of Choctaw Indians. The operation and management of Silver Star is subject to the regulating authority of the National Indian Gaming Commission ("NIGC") and the Choctaw Gaming Commission. Under the Indian Gaming Regulatory Act of 1988 ("IGRA"), management contracts for Indian gaming facilities must be approved by the NIGC. In addition, the Company, its directors, persons with management responsibility, certain owners of the Company and certain persons with a financial interest in the management agreement as determined by the NIGC and the Choctaw Gaming Commission must provide background information and be investigated by the NIGC and the Choctaw Gaming Commission and be approved in connection with the approval of a management contract by the NIGC and issuance of a license to the Company to operate a gaming facility by the Choctaw Gaming Commission. Persons who acquire beneficial ownership of the Company's stock may be subject to certain reporting and qualification procedures established by the NIGC and the Choctaw Gaming Commission. Such limitations could adversely affect the marketability of the Common Stock or could affect or prevent certain corporate transactions, including mergers or other business combinations. The Company is subject to a variety of regulations in the states in which it operates. If additional gaming regulations are adopted in a state in which the Company operates, such regulations could impose restrictions or costs that could have a material adverse effect on the Company. From time to time, various proposals have been introduced in some of the legislatures of states in which the Company has existing or planned operations that, if enacted, would affect the tax, regulatory, operational or other aspects of the gaming industry and the Company. No assurance can be given that such legislation will not be introduced and/or enacted. The federal government has also previously considered a federal tax on casino revenues and may consider such tax in the future. In addition, gaming companies are currently subject to significant state and local taxes and fees in addition to normal federal and state corporate income taxes, and such taxes and fees are subject to increase at any time. Any material increase in these taxes or fees could adversely affect the Company. The Company is subject to certain federal, state and local safety and health laws, regulations and ordinances that apply to non-gaming businesses generally, such as the Clean Air Act, Clean Water Act, Occupational Safety and Health Act, Resource Conservation Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act. The Company has not made, and does not anticipate making, material expenditures with respect to such environmental laws and regulations. However, the coverage and attendant compliance costs associated with such laws, regulations and ordinances may result in future additional costs to the Company s operations. For example, in 1990 the U.S. Congress enacted the Oil Pollution Act to consolidate and rationalize mechanisms under various oil spill response laws. The Department of Transportation has proposed regulations requiring owners and operators of certain vessels to establish through the U.S. Coast Guard evidence of financial responsibility in the amount of $5.5 million for clean up of oil pollution. This requirement would be satisfied by either proof of adequate insurance (including self-insurance) or the posting of a surety bond or guaranty. -18- 19 The riverboats operated by the Company must comply with U.S. Coast Guard requirements as to boat design, on-board facilities, equipment, personnel and safety. Each of them must hold a Certificate of Seaworthiness or must be approved by the American Bureau of Shipping ("ABS") for stabilization and flotation, and may also be subject to local zoning and building codes. The U.S. Coast Guard requirements establish design standards, set limits on the operation of the vessels and require individual licensing of all personnel involved with the operation of the vessels. Loss of a vessel's Certificate of Seaworthiness or ABS approval would preclude its use as a floating casino. In addition, U.S. Coast Guard regulations require a hull inspection at a U.S. Coast Guard-approved dry docking facility for all cruising riverboats at five-year intervals. Currently, the closest such facility to Sam's Town Kansas City is located in St. Louis, Missouri, and the travel to and from such docking facility, as well as the time required for inspections of the Sam's Town Kansas City and Treasure Chest riverboats and, if the Par-a-Dice Acquisition is consummated, the Par-a-Dice riverboat and any necessary repairs, could be significant. The Company's dockside and riverboat casinos are subject to other types of risks as compared to those associated with land-based casinos, including loss of service due to casualty, mechanical failures, extended or extraordinary maintenance, flood, hurricane or other severe weather conditions. The loss of a dockside casino or riverboat casino from service for any period of time could adversely affect the Company s operating results. MANAGEMENT CONTRACT OF LIMITED DURATION The management contract for the Silver Star Hotel and Casino, which is owned by the Mississippi Band of Choctaw Indians, expires in July 2001. The Company must submit any renewal of the management contract to the NIGC, which has the right to review management contracts. There can be no assurance that the current management contract will be renewed upon expiration or approved by the NIGC upon any such review. The failure to renew the Company's management contract would result in the loss of revenues to the Company derived from the Silver Star management contract which could have an adverse effect on the Company. The NIGC also has the right to review contracts and has the authority to reduce the term of a management contract or the management fee or otherwise require modification of the contract, which could have an adverse effect on the Company. RELIANCE ON CERTAIN MARKETS The California Hotel and Casino and Fremont Hotel and Casino derive a substantial portion of their customers from the Hawaiian market. In fiscal 1995, patrons from Hawaii made up over 90% of the room nights at the California and over 60% at the Fremont. An increase in fuel costs or transportation prices, a decrease in airplane seat availability or a deterioration of relations with tour and travel agents, as they affect travel between the Hawaii markets and the Company's facilities, could materially adversely affect the Company's results. The Company's Las Vegas properties also draw a substantial number of customers from certain other specific geographic areas, including Southern California, Arizona, Las Vegas, and the Midwest. Sam's Town Tunica draws patrons from northern Mississippi, western Tennessee (principally Memphis) and Arkansas. The Treasure Chest Casino appeals primarily to local market patrons and attracts patrons from the western suburbs of New Orleans. The Silver Star Hotel and Casino draws customers from Central Mississippi, including the greater Jackson area, and Central Alabama, including Birmingham, Montgomery and Tuscaloosa. Sam's Town Kansas City draws -19- 20 customers from the greater Kansas City metropolitan area, as well as from other parts of Missouri and Kansas. The Par-a-Dice Casino draws customers from the greater Peoria area as well as from Chicago and from Indiana, Iowa and Missouri. Adverse economic conditions in any of these markets, or the failure of the Company's facilities to continue to attract customers from these geographic markets as a result of increased competition in those markets, could have a material adverse effect on the Company's operating results. VOLATILITY OF STOCK PRICE The market prices of securities of companies whose future operating results are highly dependent on specific developments, such as passage or defeat of relevant gaming legislation or related initiatives, are often highly volatile. Announcements concerning legislation approving or defeating gaming, other governmental actions, developments in the gaming industry generally, announcements by the Company or by competitors, results of the Company's operations and stock market conditions generally may have a significant impact on the market price of the Common Stock. In addition, sales of substantial amounts of Common Stock in the public market by the Company's major stockholders could have an adverse effect on the price of the Common Stock. CONCENTRATION OF OWNERSHIP William S. Boyd, Chairman and Chief Executive Officer of the Company, together with his immediate family owned, as of May 1, 1996, approximately 56% of the Common Stock of the Company. Therefore, the Boyd family has the ability to elect all of the directors of the Company and approve or disapprove any other matters submitted to a vote of the Company's stockholders, including a merger, consolidation or sale of assets. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. The Company filed a Form 8-K on May 13, 1996 reporting under Item 5, its entering into the Stock Purchase Agreement for the Par-a-Dice Acquisition. -20- 21 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, 1996 By: Keith Smith ------------------------------ Keith Smith Vice President and Controller (Chief and Accounting Officer) -21- EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS JUN-30-1996 MAR-31-1996 51,918 0 17,358 0 6,455 92,770 1,102,908 320,154 941,953 131,325 0 0 0 571 229,496 941,953 0 581,509 0 0 499,757 0 39,322 43,417 17,315 26,102 0 0 0 26,102 .46 .46
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