10-Q 1 e10-q.txt FORM 10-Q QUARTERLY ENDED JUNE 30,2000. 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 June 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 July 31, 2000: Class Outstanding ---------------------------- ----------- Common stock, $.01 par value 62,234,954 2 BOYD GAMING CORPORATION QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2000 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION
Page No. -------- Item 1. Unaudited Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets at June 30, 2000 and December 31, 1999 3 Condensed Consolidated Statements of Operations for the three and six month periods ended June 30, 2000 and 1999 4 Condensed Consolidated Statement of Changes in Stockholders' Equity for the six month period ended June 30, 2000 5 Condensed Consolidated Statements of Cash Flows for the six month periods ended June 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 19 Item 3. Quantitative and Qualitative Disclosure about Market Risk 28 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 29 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
JUNE 30, DECEMBER 31, 2000 1999 ---------- ------------ Current assets Cash and cash equivalents .................................. $ 72,069 $ 86,192 Accounts receivable, net ................................... 13,075 17,585 Inventories ................................................ 5,245 6,181 Prepaid expenses and other ................................. 13,538 14,718 Income taxes receivable .................................... -- 1,108 Deferred income taxes ...................................... 8,550 16,835 ---------- ---------- Total current assets ............................... 112,477 142,619 Property and equipment, net ................................... 923,750 901,014 Other assets and deferred charges, net ........................ 48,637 45,689 Intangible assets, net ........................................ 349,982 354,659 ---------- ---------- Total assets ....................................... $1,434,846 $1,443,981 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term debt ....................... $ 1,585 $ 1,744 Trade payables ............................................. 29,482 36,531 Construction payables ...................................... 15,598 8,609 Accrued liabilities Payroll and related .................................... 29,628 31,184 Interest and other ..................................... 72,583 58,862 Income taxes payable ................................... 10,662 -- ---------- ---------- Total current liabilities .......................... 159,538 136,930 Long-term debt, net of current maturities ..................... 880,579 982,149 Deferred income taxes and other liabilities ................... 63,994 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 ........................................... 188,093 124,371 ---------- ---------- Total stockholders' equity ......................... 330,735 266,979 ---------- ---------- Total liabilities and stockholders' equity ......... $1,434,846 $1,443,981 ========== ==========
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 4 BOYD GAMING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) --------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Revenues Casino ......................................... $ 215,490 $ 178,222 $ 441,118 $ 357,755 Food and beverage .............................. 38,821 39,977 79,731 80,945 Room ........................................... 19,305 17,470 37,700 36,774 Other .......................................... 18,863 18,746 36,071 36,091 Management fee ................................. -- 10,031 3,815 20,844 Termination fee, net ........................... -- -- 70,988 -- --------- --------- --------- --------- Gross revenues .................................... 292,479 264,446 669,423 532,409 Less promotional allowances ....................... 22,760 22,510 46,997 47,215 --------- --------- --------- --------- Net revenues ........................... 269,719 241,936 622,426 485,194 --------- --------- --------- --------- Costs and expenses Casino ......................................... 106,683 89,067 216,498 179,365 Food and beverage .............................. 25,603 26,193 50,878 52,026 Room ........................................... 5,848 5,941 11,554 12,183 Other .......................................... 18,495 17,103 35,010 32,504 Selling, general and administrative ............ 42,398 35,239 84,037 70,277 Maintenance and utilities ...................... 12,100 9,891 23,806 19,545 Depreciation ................................... 19,682 17,096 38,784 34,390 Amortization of intangible license rights and acquisition costs ........................... 2,450 1,438 4,900 2,876 Corporate expense .............................. 4,769 6,587 12,107 12,689 Preopening expense ............................. 1,950 315 2,332 854 --------- --------- --------- --------- Total .................................. 239,978 208,870 479,906 416,709 --------- --------- --------- --------- Operating income .................................. 29,741 33,066 142,520 68,485 --------- --------- --------- --------- Other income (expense) Interest income ................................ 328 46 462 103 Interest expense, net of amounts capitalized ... (19,250) (16,662) (39,368) (33,793) --------- --------- --------- --------- Total .................................. (18,922) (16,616) (38,906) (33,690) --------- --------- --------- --------- Income before provision for income taxes and cumulative effect ............................. 10,819 16,450 103,614 34,795 Provision for income taxes ........................ 4,166 6,745 39,892 14,450 --------- --------- --------- --------- Income before cumulative effect ................... 6,653 9,705 63,722 20,345 Cumulative effect of a change in accounting for start-up activities, net of tax benefit of $936 -- -- -- (1,738) --------- --------- --------- --------- Net income ........................................ $ 6,653 $ 9,705 $ 63,722 $ 18,607 ========= ========= ========= ========= Basic and diluted net income per common share: Income before cumulative effect ................ $ 0.11 $ 0.16 $ 1.02 $ 0.33 Cumulative effect, net of tax .................. -- -- -- (0.03) --------- --------- --------- --------- Net income ..................................... $ 0.11 $ 0.16 $ 1.02 $ 0.30 ========= ========= ========= ========= Average basic shares outstanding .................. 62,230 62,029 62,229 62,029 Average diluted shares outstanding ................ 62,302 62,143 62,303 62,085 ========= ========= ========= =========
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 5 BOYD GAMING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX MONTH PERIOD ENDED JUNE 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 .............. -- -- -- 63,722 63,722 Stock options exercised . 7,201 -- 34 -- 34 ---------- ---- -------- -------- -------- BALANCES, JUNE 30, 2000 . 62,234,954 $622 $142,020 $188,093 $330,735 ========== ==== ======== ======== ========
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 6 BOYD GAMING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, --------------------- 2000 1999 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................. $ 63,722 $ 18,607 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ......................... 43,684 37,266 Cumulative effect of a change in accounting principle . -- 2,674 Deferred income taxes ................................. 14,018 11,238 Preopening expense .................................... 2,332 854 Equity loss in unconsolidated subsidiaries ............ 678 1,157 Changes in assets and liabilities: Accounts receivable, net ............................ 4,697 4,655 Inventories ......................................... 936 1,721 Prepaid expenses and other .......................... 1,180 (364) Other assets ........................................ 290 1,333 Other current liabilities ........................... 6,748 (1,896) Other liabilities ................................... 338 388 Income taxes receivable ............................. 1,108 2,494 Income taxes payable ................................ 10,662 -- --------- -------- Net cash provided by operating activities .................. 150,393 80,127 --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, equipment and other assets ..... (55,975) (38,068) Investment in and advances to unconsolidated subsidiaries (4,514) (4,156) Preopening expense ...................................... (2,332) (854) --------- -------- Net cash used in investing activities ...................... (62,821) (43,078) --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on long-term debt .............................. (429) (977) Net payments under credit agreements .................... (101,300) (41,250) Proceeds from issuance of common stock .................. 34 1,070 --------- -------- Net cash used in financing activities ...................... (101,695) (41,157) --------- -------- Net decrease in cash and cash equivalents .................. (14,123) (4,108) Cash and cash equivalents, beginning of period ............. 86,192 75,937 --------- -------- Cash and cash equivalents, end of period ................... $ 72,069 $ 71,829 ========= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest, net of amounts capitalized ...... $ 36,612 $ 35,172 Cash paid for income taxes, net of refunds .............. 14,104 3,882 ========= ======== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Property additions acquired on construction and trade payables which were accrued, but not yet paid ......... $ 15,966 $ 2,195 ========= ========
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 7 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 six month periods ended June 30, 2000 and 1999 and cash flows for the six month periods ended June 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 six month periods ended June 30, 2000 and 1999 and cash flows for the six month periods ended June 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 six month periods ended June 30, 2000 was $1.3 million and $2.2 million, respectively. Capitalized interest during the three and six month periods ended June 30, 1999 was $0.3 million and $0.4 million, respectively. 7 8 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 six month periods ended June 30, 2000, the Company expensed $2.0 million and $2.3 million, respectively, in preopening expenses, $1.5 million of which 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 six month periods ended June 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 six month periods ended June 30, 1999, the Company expensed $0.3 million and $0.9 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 June 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 six month periods ended June 30, 2000 and 1999 is determined considering the dilutive effects of outstanding stock options. The effect of stock options outstanding to purchase approximately 5.4 million shares were not included in the diluted calculation during the three and six month periods ended June 30, 2000 and 4.5 million and 4.6 million shares, respectively, were not included in the diluted calculation during the three and six month periods ended June 30, 1999 since the exercise price of such options was greater than the average price of the Company's common shares during the period. 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, 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 8 9 BOYD GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- 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. As a result of this utilization, 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 June 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:
SIX MONTHS ENDED JUNE 30, 1999 -------------- Pro forma (in thousands, except per share data): Net revenues ................................ $565,571 Income before cumulative effect ............. $ 30,930 Net income .................................. $ 29,192 Basic and diluted net income per common share: Income before cumulative effect ............. $ 0.50 Net income .................................. $ 0.47
NOTE 5. SUBSEQUENT EVENT 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. 9 10 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. 10 11 BOYD GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) --------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- --------------------- 2000 1999 2000 1999 -------- -------- -------- --------- (IN THOUSANDS) Casino Revenue Stardust ............................. $ 24,172 $ 23,038 $ 49,868 $ 50,570 Sam's Town Las Vegas ................. 26,506 30,557 57,466 60,464 Eldorado and Jokers Wild ............. 7,099 7,476 14,855 15,168 Downtown Properties .................. 34,109 32,829 67,688 66,182 Sam's Town Tunica .................... 20,140 25,553 42,533 50,559 Par-A-Dice ........................... 32,327 27,066 64,531 52,242 Treasure Chest ....................... 25,926 31,703 52,971 62,570 Blue Chip ............................ 45,211 -- 91,206 -- -------- -------- -------- --------- Total casino revenue ......... $215,490 $178,222 $441,118 $ 357,755 ======== ======== ======== ========= EBITDA(1) Stardust ............................. $ 4,044 $ 4,015 $ 8,801 $ 10,229 Sam's Town Las Vegas ................. 5,353 7,874 14,080 15,769 Eldorado and Jokers Wild ............. 1,468 2,127 3,388 4,381 Downtown Properties .................. 11,511 9,584 21,598 18,930 Sam's Town Tunica .................... 1,002 6,411 4,005 13,454 Par-A-Dice ........................... 12,132 9,662 24,314 18,282 Treasure Chest ....................... 4,224 9,257 9,929 18,324 Silver Star .......................... -- 9,572 74,803 19,925 Blue Chip ............................ 18,858 -- 39,725 -- -------- -------- -------- --------- Property EBITDA .................... 58,592 58,502 200,643 119,294 -------- -------- -------- --------- Other Costs and Expenses Corporate expense .................... 4,769 6,587 12,107 12,689 Depreciation and amortization ........ 22,132 18,534 43,684 37,266 Preopening expense ................... 1,950 315 2,332 854 Other expense, net ................... 18,922 16,616 38,906 33,690 -------- -------- -------- --------- Total other costs and expenses 47,773 42,052 97,029 84,499 -------- -------- -------- --------- Income before provision for income taxes and other items ....................... 10,819 16,450 103,614 34,795 Provision for income taxes ............. 4,166 6,745 39,892 14,450 -------- -------- -------- --------- Income before cumulative effect ........ 6,653 9,705 63,722 20,345 Cumulative effect, net of tax .......... -- -- -- (1,738) -------- -------- -------- --------- Net income ............................. $ 6,653 $ 9,705 $ 63,722 $ 18,607 ======== ======== ======== =========
(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. 11 12 BOYD GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- NOTE 7. GUARANTOR INFORMATION The Company's 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 June 30, 2000 and December 31, 1999 and for the three and six month periods ended June 30, 2000 and 1999. CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION AS OF JUNE 30, 2000
COMBINED COMBINED NON- ELIMINATION PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED ---------- ---------- ---------- ----------- ------------ (IN THOUSANDS) ASSETS Current assets ............................. $ 2,319 $ 79,804 $ 30,684 $ (330)(1) $ 112,477 Property and equipment, net ................ 40,550 729,903 153,297 -- 923,750 Other assets and deferred charges, net ..... 1,152,194 (475,994) 521,532 (1,149,095)(1)(2) 48,637 Intangible assets, net ..................... -- 114,478 235,504 -- 349,982 ---------- --------- -------- ----------- ---------- Total assets ........................... $1,195,063 $ 448,191 $941,017 $(1,149,425) $1,434,846 ========== ========= ======== =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities ........................ $ 35,619 $ 73,125 $ 50,944 $ (150)(1) $ 159,538 Long-term debt, net of current maturities .. 822,700 57,879 -- -- 880,579 Deferred income taxes and other liabilities 6,009 52,103 5,882 -- 63,994 Stockholders' equity ....................... 330,735 265,084 884,191 (1,149,275)(2) 330,735 ---------- --------- -------- ----------- ---------- Total liabilities and stockholders' equity ............................ $1,195,063 $ 448,191 $941,017 $(1,149,425) $1,434,846 ========== ========= ======== =========== ==========
---------- 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 JUNE 30, 2000
COMBINED COMBINED NON- ELIMINATION PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED -------- ---------- ---------- ----------- ------------ (IN THOUSANDS) Revenues Casino .............................. $ -- $ 144,353 $ 71,137 $ -- $ 215,490 Food and beverage ................... -- 34,476 4,345 -- 38,821 Room ................................ -- 18,525 780 -- 19,305 Other ............................... 2,999 7,222 12,388 (3,746)(1) 18,863 Management fee and equity income .... 30,797 708 17,152 (48,657)(1) -- -------- --------- -------- -------- --------- Gross revenues ........................ 33,796 205,284 105,802 (52,403) 292,479 Less promotional allowances ........... -- 19,906 2,854 -- 22,760 -------- --------- -------- -------- --------- Net revenues ................ 33,796 185,378 102,948 (52,403) 269,719 -------- --------- -------- -------- --------- Costs and expenses Casino .............................. -- 79,706 26,977 -- 106,683 Food and beverage ................... -- 20,607 4,996 -- 25,603 Room ................................ -- 5,465 383 -- 5,848 Other ............................... -- 9,603 17,103 (8,211)(1) 18,495 Selling, general and administrative . -- 27,969 14,429 -- 42,398 Maintenance and utilities ........... -- 8,759 3,341 -- 12,100 Depreciation and amortization ....... 624 16,182 5,326 -- 22,132 Corporate expense ................... 8,059 31 425 (3,746)(1) 4,769 Preopening expense .................. 1,549 133 268 -- 1,950 -------- --------- -------- -------- --------- Total ....................... 10,232 168,455 73,248 (11,957) 239,978 -------- --------- -------- -------- --------- Operating income ...................... 23,564 16,923 29,700 (40,446) 29,741 Other income (expense), net ........... (17,823) (1,264) 165 -- (18,922) -------- --------- -------- -------- --------- Income before income taxes ............ 5,741 15,659 29,865 (40,446) 10,819 Provision (benefit) for income taxes .. (912) 2,771 2,307 -- 4,166 -------- --------- -------- -------- --------- Net income ............................ $ 6,653 $ 12,888 $ 27,558 $(40,446) $ 6,653 ======== ========= ======== ======== =========
---------- 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 JUNE 30, 1999
COMBINED COMBINED NON- ELIMINATION PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED -------- ---------- ---------- ----------- ------------ (IN THOUSANDS) Revenues Casino .............................. $ -- $ 146,519 $31,703 $ -- $ 178,222 Food and beverage ................... -- 37,259 2,718 -- 39,977 Room ................................ -- 17,470 -- -- 17,470 Other ............................... 2,846 8,298 11,147 (3,545)(1) 18,746 Management fee and equity income .... 34,726 11,910 5,238 (41,843)(1) 10,031 -------- --------- ------- -------- --------- Gross revenues ........................ 37,572 221,456 50,806 (45,388) 264,446 Less promotional allowances ........... -- 20,583 1,927 -- 22,510 -------- --------- ------- -------- --------- Net revenues ................ 37,572 200,873 48,879 (45,388) 241,936 -------- --------- ------- -------- --------- Costs and expenses Casino .............................. -- 77,745 11,322 -- 89,067 Food and beverage ................... -- 23,510 2,683 -- 26,193 Room ................................ -- 5,941 -- -- 5,941 Other ............................... -- 17,938 11,601 (12,436)(1) 17,103 Selling, general and administrative . -- 27,925 7,314 -- 35,239 Maintenance and utilities ........... -- 8,470 1,421 -- 9,891 Depreciation and amortization ....... 471 15,820 2,243 -- 18,534 Corporate expense ................... 9,629 66 437 (3,545)(1) 6,587 Preopening expense .................. 18 -- 297 -- 315 -------- --------- ------- -------- --------- Total ....................... 10,118 177,415 37,318 (15,981) 208,870 -------- --------- ------- -------- --------- Operating income ...................... 27,454 23,458 11,561 (29,407) 33,066 Other income (expense), net ........... (15,427) (1,462) 273 -- (16,616) -------- --------- ------- -------- --------- Income before income taxes ............ 12,027 21,996 11,834 (29,407) 16,450 Provision for income taxes ............ 2,322 4,423 -- -- 6,745 -------- --------- ------- -------- --------- Net income ............................ $ 9,705 $ 17,573 $11,834 $(29,407) $ 9,705 ======== ========= ======= ======== =========
--------- 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 SIX MONTHS ENDED JUNE 30, 2000
COMBINED COMBINED NON- ELIMINATION PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED -------- ---------- ---------- ----------- ------------ (IN THOUSANDS) Revenues Casino .............................. $ -- $ 296,941 $144,177 $ -- $ 441,118 Food and beverage ................... -- 70,950 8,781 -- 79,731 Room ................................ -- 36,584 1,116 -- 37,700 Other ............................... 5,998 14,426 23,140 (7,493)(1) 36,071 Management fee and equity income .... 135,430 5,598 37,612 (174,825)(1) 3,815 Termination fee, net ................ -- 70,988 -- -- 70,988 --------- --------- -------- --------- --------- Gross revenues ........................ 141,428 495,487 214,826 (182,318) 669,423 Less promotional allowances ........... -- 41,607 5,390 -- 46,997 --------- --------- -------- --------- --------- Net revenues ................ 141,428 453,880 209,436 (182,318) 622,426 --------- --------- -------- --------- --------- Costs and expenses Casino .............................. -- 162,355 54,143 -- 216,498 Food and beverage ................... -- 41,188 9,690 -- 50,878 Room ................................ -- 10,974 580 -- 11,554 Other ............................... -- 69,553 33,448 (67,991)(1) 35,010 Selling, general and administrative . -- 56,427 27,610 -- 84,037 Maintenance and utilities ........... -- 17,157 6,649 -- 23,806 Depreciation and amortization ....... 1,128 32,142 10,414 -- 43,684 Corporate expense ................... 18,628 93 879 (7,493)(1) 12,107 Preopening expense .................. 1,563 161 608 -- 2,332 --------- --------- -------- --------- --------- Total ....................... 21,319 390,050 144,021 (75,484) 479,906 --------- --------- -------- --------- --------- Operating income ...................... 120,109 63,830 65,415 (106,834) 142,520 Other income (expense), net ........... (36,634) (2,625) 353 -- (38,906) --------- --------- -------- --------- --------- Income before income taxes ............ 83,475 61,205 65,768 (106,834) 103,614 Provision for income taxes ............ 19,753 15,252 4,887 -- 39,892 --------- --------- -------- --------- --------- Net income ............................ $ 63,722 $ 45,953 $ 60,881 $(106,834) $ 63,722 ========= ========= ======== ========= =========
---------- 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 SIX MONTHS ENDED JUNE 30, 1999
COMBINED COMBINED NON- ELIMINATION PARENT GUARANTORS GUARANTORS ENTRIES CONSOLIDATED -------- ---------- ---------- ----------- ------------ (IN THOUSANDS) Revenues Casino .............................. $ -- $ 295,185 $62,570 $ -- $ 357,755 Food and beverage ................... -- 75,737 5,208 -- 80,945 Room ................................ -- 36,774 -- -- 36,774 Other ............................... 5,692 17,091 20,396 (7,088)(1) 36,091 Management fee and equity income .... 71,685 24,561 10,350 (85,752)(1) 20,844 -------- --------- ------- -------- --------- Gross revenues ........................ 77,377 449,348 98,524 (92,840) 532,409 Less promotional allowances ........... -- 43,451 3,764 -- 47,215 -------- --------- ------- -------- --------- Net revenues ................ 77,377 405,897 94,760 (92,840) 485,194 -------- --------- ------- -------- --------- Costs and expenses Casino .............................. -- 156,434 22,931 -- 179,365 Food and beverage ................... -- 46,832 5,194 -- 52,026 Room ................................ -- 12,183 -- -- 12,183 Other ............................... -- 36,256 21,701 (25,453)(1) 32,504 Selling, general and administrative . -- 56,429 13,848 -- 70,277 Maintenance and utilities ........... -- 16,573 2,972 -- 19,545 Depreciation and amortization ....... 917 31,877 4,472 -- 37,266 Corporate expense ................... 18,850 95 832 (7,088)(1) 12,689 Preopening expense .................. 63 -- 791 -- 854 -------- --------- ------- -------- --------- Total ....................... 19,830 356,679 72,741 (32,541) 416,709 -------- --------- ------- -------- --------- Operating income ...................... 57,547 49,218 22,019 (60,299) 68,485 Other income (expense), net ........... (31,243) (3,002) 555 -- (33,690) -------- --------- ------- -------- --------- Income before income taxes ............ 26,304 46,216 22,574 (60,299) 34,795 Provision for income taxes ............ 5,959 8,491 -- -- 14,450 -------- --------- ------- -------- --------- Income before cumulative effect ....... 20,345 37,725 22,574 (60,299) 20,345 Cumulative effect, net of taxes ....... (1,738) -- -- -- (1,738) -------- --------- ------- -------- --------- Net income ............................ $ 18,607 $ 37,725 $22,574 $(60,299) $ 18,607 ======== ========= ======= ======== =========
---------- 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 SIX MONTHS ENDED JUNE 30, 2000
COMBINED COMBINED NON- PARENT GUARANTORS GUARANTORS CONSOLIDATED --------- ---------- ---------- ------------ (IN THOUSANDS) Cash flows from operating activities ............... $ 93,614 $ 39,392 $ 17,387 $ 150,393 --------- -------- -------- --------- Cash flows from investing activities Acquisition of property, equipment and other assets (3,866) (47,818) (4,291) (55,975) Investment in and advances to unconsolidated subsidiaries .................................... -- -- (4,514) (4,514) Preopening expense ................................ (1,563) (161) (608) (2,332) --------- -------- -------- --------- Net cash used in investing activities .............. (5,429) (47,979) (9,413) (62,821) --------- -------- -------- --------- Cash flows from financing activities Net payments under credit agreements ............. (101,300) -- -- (101,300) Proceeds from issuance of common stock ........... 34 -- -- 34 Receipt/(payment) of dividends ................... 3,459 911 (4,370) -- Receipt/ (payments) on long-term debt ............ 9,766 (10,195) -- (429) --------- -------- -------- --------- Net cash used in financing activities .............. (88,041) (9,284) (4,370) (101,695) --------- -------- -------- --------- Net increase (decrease) in cash and cash equivalents 144 (17,871) 3,604 (14,123) Cash and cash equivalents, beginning of period ..... 138 62,755 23,299 86,192 --------- -------- -------- --------- Cash and cash equivalents, end of period ........... $ 282 $ 44,884 $ 26,903 $ 72,069 ========= ======== ======== =========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999
COMBINED COMBINED NON- PARENT GUARANTORS GUARANTORS CONSOLIDATED --------- ---------- ---------- ------------ (IN THOUSANDS) Cash flows from operating activities ............... $ 37,991 $ 25,975 $ 16,161 $ 80,127 -------- -------- -------- -------- Cash flows from investing activities Acquisition of property, equipment and other assets (2,916) (31,323) (3,829) (38,068) Investment in and advances to unconsolidated subsidiaries .................................... -- (172) (3,984) (4,156) Preopening expense ................................ (63) -- (791) (854) -------- -------- -------- -------- Net cash used in investing activities .............. (2,979) (31,495) (8,604) (43,078) -------- -------- -------- -------- Cash flows from financing activities Net payments under credit agreements ............. (41,250) -- -- (41,250) Receipt/(payment) of dividends ................... 7,670 (3,304) (4,366) -- Other ............................................ 293 (200) -- 93 -------- -------- -------- -------- Net cash used in financing activities .............. (33,287) (3,504) (4,366) (41,157) -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents 1,725 (9,024) 3,191 (4,108) Cash and cash equivalents, beginning of period ..... 1,054 55,492 19,391 75,937 -------- -------- -------- -------- Cash and cash equivalents, end of period ........... $ 2,779 $ 46,468 $ 22,582 $ 71,829 ======== ======== ======== ========
18 19 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 SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- --------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (IN THOUSANDS) Net revenues Stardust ................ $ 37,883 $ 35,831 $ 77,224 $ 77,121 Boulder Strip Properties 41,291 47,968 88,489 96,547 Downtown Properties (a) . 57,632 55,610 112,671 109,603 Central Region Properties 132,913 102,527 273,054 201,923 -------- -------- -------- -------- Total properties . $269,719 $241,936 $551,438 $485,194 ======== ======== ======== ======== Operating income Stardust ................ $ 205 $ 1,073 $ 1,273 $ 4,368 Boulder Strip Properties 3,290 6,280 10,428 12,670 Downtown Properties ..... 7,392 5,649 13,387 11,146 Central Region Properties 26,630 27,710 62,887 55,318 -------- -------- -------- -------- Total properties . $ 37,517 $ 40,712 $ 87,975 $ 83,502 ======== ======== ======== ========
-------- (a) Includes revenues related to Vacations Hawaii, a Honolulu Travel Agency, of $11,029 and $10,401, respectively, for the three month periods ended June 30, 2000 and 1999 and revenues of $20,680 and $18,873, respectively, for the six month periods ended June 30, 2000 and 1999. REVENUES Consolidated net revenues increased 11.5% during the quarter ended June 30, 2000 compared to the quarter ended June 30, 1999. Company-wide casino revenue increased 21%, food and beverage revenue decreased 3.9% and room revenue increased 8.3%. The increase in net revenues is due primarily to the acquisition of 19 20 Blue Chip in November 1999. Blue Chip contributed $47 million in revenue during the quarter ended June 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 15.9%, 21% and 17.8%, 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 $10.0 million of revenue during the quarter ended June 30, 1999. Consolidated net revenues before the termination fee increased 13.7% during the six month period ended June 30, 2000 compared to the same period in the prior year. Company-wide casino revenue increased 23%, food and beverage revenue decreased 3.0% and room revenue remained virtually unchanged. The increase in net revenues is due primarily to the acquisition of Blue Chip in November 1999. Blue Chip contributed $95 million in revenue during the six month period ended June 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 9.7%, 16.2% and 14.8%, 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 six month period ended June 30, 2000 compared to $21 million during the same period in the prior year. OPERATING INCOME Consolidated operating income before preopening expense decreased 5.1% to $32 million during the quarter ended June 30, 2000 from $33 million during the quarter ended June 30, 1999. The acquisition of Blue Chip contributed $15.5 million of operating income during the quarter ended June 30, 2000. Operating income for the quarter ended June 30, 1999 includes $9.6 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 six month period ended June 30, 2000, consolidated operating income before preopening expense and termination fee increased 6.5% to $74 million from $69 million during the same period in the prior year. The acquisition of Blue Chip contributed $33 million of operating income during the six month period ended June 30, 2000 and Silver Star (which terminated in January 2000) contributed $3.8 million in operating income during the six month period ended June 30, 2000 compared to $20 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. STARDUST For the quarter ended June 30, 2000, net revenues at the Stardust increased 5.7% versus the same period in the prior year. Casino revenue increased 4.9% due primarily to an increase in slot wagering. Room revenue 20 21 increased 6.0% mainly due to an increase in occupied rooms. Operating income at the Stardust declined $0.9 million or 81% and operating income margin declined to 0.5% during the quarter ended June 30, 2000 as compared to 3.0% during the quarter ended June 30, 1999. These declines in operating income and operating income margin are due to the competitive environment on the Las Vegas Strip causing an increase in higher marketing and showroom expenses. For the six month period ended June 30, 2000, net revenues at the Stardust remained virtually unchanged versus the comparable period in the prior year. Casino revenue declined 1.4% as an increase in slot wagering did not offset a decline in table game wagering. Room revenue declined 7.1% due mainly to an 11% decline in available rooms as a result of the closure of the motor inn rooms in 1999. Operating income declined 71% to $1.3 million during the six month period ended June 30, 2000 compared to $4.4 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. BOULDER STRIP PROPERTIES Net revenues at the Boulder Strip Properties declined 13.9% during the quarter ended June 30, 2000 compared to the quarter ended June 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 11.6% due to declines in slot and table game wagering. Non-gaming revenue at the Boulder Strip Properties declined 23% 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 June 30, 2000, operating income declined 48% to $3.3 million from $6.3 million during the quarter ended June 30, 1999. Operating income margin declined to 8.0% for the quarter ended June 30, 2000 from 13.1% during the quarter ended June 30, 1999. The declines in operating income and operating income margin are due primarily to the decline in net revenues. During the six month period ended June 30, 2000, net revenues at the Boulder Strip Properties declined 8.3% 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 declined 4.4% 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 17.7% during the six month period ended June 30, 2000 and operating income margin declined from 13.1% during the six month period ended June 30, 1999 to 11.8% for the six month period ended June 30, 2000. The declines in operating income and operating income margin are primarily attributable to the decline in net revenues partially offset by a decline in marketing expenses. DOWNTOWN PROPERTIES Net revenues at the Downtown Properties increased 3.6% during the quarter ended June 30, 2000 compared to the quarter ended June 30, 1999 due primarily to a 3.9% increase in casino revenues that is attributable to an increase in slot and table game wagering. Non-gaming revenue increased 3.2% due mainly to a 6.0% increase in net revenues at Vacations Hawaii, the Company's Honolulu travel agency. Operating income at 21 22 the Downtown Properties increased 31% to $7.4 million during the quarter ended June 30, 2000 from $5.6 million during the quarter ended June 30, 1999 as a result of the increase in revenues as well as cost consolidation efforts and more effective marketing at the Downtown casino properties. Net revenues at the Downtown Properties increased 2.8% during the six month period ended June 30, 2000 compared to the same period in the prior year. The increase is attributable to a 9.6% increase in net revenues at Vacations Hawaii as well as a 2.3% increase in casino revenue due to increased slot and table game wagering. Operating income at the Downtown Properties increased $2.2 million or 20% during the six month period ended June 30, 2000 compared to the same period in the prior year. Operating income margin increased to 11.9% during the six month period ended June 30, 2000 versus 10.2% in the comparable period of the prior year. The increase in operating income and operating income margin is primarily attributable to the increase in net revenues as well as cost consolidation efforts and more effective marketing at the Downtown casino properties. CENTRAL REGION Net revenues from the Central Region increased $30 million or 30% during the quarter ended June 30, 2000 compared to the quarter ended June 30, 1999. The majority of the increase is due to the November 1999 acquisition of Blue Chip, which earned $47 million in net revenues during the quarter ended June 30, 2000. Also contributing to the increase in net revenues was a 17.6% 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 21% and 17.8%, 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 $10.0 million as the management contract was terminated on January 31, 2000. Operating income in the Central Region declined 3.9% to $27 million during the quarter ended June 30, 2000 from $28 million during the quarter ended June 30, 1999 as Blue Chip and Par-A-Dice's increases in operating income did not offset Treasure Chest and Silver Star's declines in operating income or the operating loss of $1.4 million experienced at Sam's Town Tunica. During the six month period ended June 30, 2000, net revenues from the Central Region increased 35% 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 $95 million in net revenues during the six month period ended June 30, 2000. Also contributing to the increase in net revenues was a 22% 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 16.2% and 14.8%, 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 $17.0 million as the management contract was terminated on January 31, 2000. Operating income in the Central Region increased 13.7% to $63 million during the six month period ended June 30, 2000 from $55 million during the same period in the prior year. The increase in operating income is due mainly to the acquisition of Blue Chip as well as the increase in net revenues at Par-A-Dice, partially offset by declines in operating income related to the reduction in net revenues from Treasure Chest and management fee income from Silver Star and the operating loss of $0.8 million experienced at Sam's Town Tunica. 22 23 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 19.4% during the quarter ended June 30, 2000 compared to the quarter ended June 30, 1999 and 17.2% during the six month period ended June 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 acquisition costs of Blue Chip (acquired in November 1999). Preopening expense increased $1.6 million during the quarter ended June 30, 2000 compared to the quarter ended June 30, 1999 due primarily to $1.5 million incurred as the result of unsuccessful efforts to assist in the development and operation of a Rhode Island Indian casino with the Narragansett Indian Tribe. Preopening expense increased $1.4 million during the six month period ended June 30, 2000 compared to the same period in the prior year as a result of the Rhode Island preopening expense. OTHER INCOME (EXPENSE) Other income and expense is primarily comprised of interest expense, net of capitalized interest. Net interest expense increased by $2.6 million during the quarter ended June 30, 2000 as compared to the quarter ended June 30, 1999. The increase is 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 $1.3 million in capitalized interest costs during the quarter ended June 30, 2000 compared to $0.3 million during the quarter ended June 30, 1999. For the six month period ended June 30, 2000, net interest expense increased $5.6 million as compared to the same period of the prior year. The increase is 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 $2.2 million in capitalized interest costs during the six month period ended June 30, 2000 compared to $0.4 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 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. 23 24 NET INCOME As a result of these factors, the Company reported net income of $6.7 million and $9.7 million, respectively, during the quarters ended June 30, 2000 and 1999 and $63.7 million and $18.6 million, respectively, during the six month periods ended June 30, 2000 and 1999. LIQUIDITY AND CAPITAL RESOURCES CASH FLOW 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 six month period ended June 30, 2000, the Company generated operating cash flow of $150 million compared to $80 million during the six month period ended June 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 at Sam's Town Tunica and Treasure Chest. As of June 30, 2000 and 1999, the Company had balances of cash and cash equivalents of $72 million and a working capital deficit of $47 million at June 30, 2000 compared to working capital of $12.2 million at June 30, 1999. Much of the working capital deficit at June 30, 2000 is attributable to the decrease in cash and cash equivalents as well as $10.7 million in income taxes payable principally related to the income generated from the $72 million termination payment and $15.6 million in construction payables mainly associated with the Sam's Town Las Vegas renovation and expansion project. The Company has historically operated with minimal or negative levels of working capital in order to minimize borrowings and related interest costs under its $600 million bank credit facility (the "Bank Credit Facility"). 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 $26 million and $31 million, respectively, during the six month periods ended June 30, 2000 and 1999. The Company also incurred approximately $30 million in capital expenditures during the six months ended June 30, 2000 for the renovation and expansion of Sam's Town Las Vegas and the renovation of Sam's Town Tunica. During the six month period ended June 30, 1999, the Company incurred approximately $6.9 million in capital expenditures for the renovation of the Stardust. 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 six month period ended June 30, 2000, the Company paid down debt by $102 million as compared to $42 million during the six month period ended June 30, 1999. The termination payment accounted for $72 million of the debt reduction during the six month period ended June 30, 2000. At June 30, 2000, outstanding borrowings and unused availability under the Bank Credit Facility were $425 million and $174.3 million, respectively. 24 25 The Company's Bank Credit Facility consists of a $500 million revolver component (the "Revolver") and a term loan component (the "Term Loan") with an original principal balance of $100 million, 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. The Term Loan 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 June 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 June 30, 2000 was 8.4%. 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. 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. 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. Management believes the Company and its subsidiaries are in compliance with the Bank Credit Facility covenants. 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 June 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. 25 26 EXPANSION AND OTHER PROJECTS The Company continues to explore development opportunities in the Las Vegas locals market. The Company is in the midst 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 and a new 650 seat buffet. The renovation project includes the remodeling of the casino and restaurants and a reconfigured and remodeled porte cochere and valet parking area to improve access to the property. As of June 30, 2000, the Company had incurred $58 million in cumulative costs associated with the Sam's Town Las Vegas expansion and renovation project. The renovation portion of the project is expected to continue through the summer of 2000 and the expansion is expected to be completed by mid November 2000. There can be no assurances that the Sam's Town Las Vegas renovation and 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 locals 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, the parties reaching a definitive agreement and 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 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 into an amended and restated joint venture agreement (the "Agreement") on July 14, 1998. While the Company is in discussions to amend the Agreement, the Agreement currently provides for a hotel of at least 1,200 rooms and a casino and related amenities (collectively named "The Borgata") and contemplates a total cost of $750 million. Any project costs exceeding the $750 million budget shall be funded by the Company without any proportionate increase in the ownership of the joint venture by the Company. The Agreement provides for each party to make an equity contribution of $150 million with the Company contributing $90 million when MGM MIRAGE contributes land to the venture. The Agreement further provides for the venture to arrange $450 million in non-recourse financing for the project. The Company's ongoing discussions with MGM MIRAGE include increasing the size of The Borgata to at least 2,000 rooms and increasing the budget to $1.035 billion. Pursuant to these discussions, any project costs exceeding the $1.035 billion increased budget shall be funded by the Company without any proportionate increase in the ownership of the joint venture by the Company. Under these discussions, cash equity contributions by the Company would increase to $207 million, while MGM MIRAGE's cash equity contributions would increase to $117 million. MGM MIRAGE would also contribute land to the venture, valued at $90 million. In addition, it is contemplated that the joint venture would obtain $621 million in non-recourse financing. 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 26 27 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 June 30, 2000 has contributed or advanced total funds of $10.2 million to The Borgata. 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, permits are obtained and financing is arranged. Such date is expected to be early in the fourth quarter of this year. Also, if The Borgata is increased in size pursuant to the discussions, it will result in a longer construction period and would move the expected completion date from late 2002 to the middle 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 June 30, 2000, the Company had incurred $3.6 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 June 30, 2000, the Company had incurred $16.7 million in cumulative costs associated with the CIS project, $4.9 million of which was incurred during the six month period ended June 30, 2000. Substantially all of these costs have been capitalized. The Company expects to spend approximately $10 million during the last half 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 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 27 28 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. 28 29 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting was held on May 25, 2000. The stockholders re-elected Robert L. Boughner, Marianne Boyd Johnson and Maj. Gen. Billy G. McCoy, Ret. USAF to three year terms, ending on the date of the Company's Annual Meeting in 2003. The number of shares voting as to the election of each nominee, the ratification of the appointment of Deloitte & Touche LLP to serve as independent auditors for the year ending December 31, 2000, the approval of a proposed amendment to the Company's Articles of Incorporation in order to comply with the New Jersey Casino Control Act and the Indiana Riverboat Gaming Act, the approval of the 2000 Executive Management Incentive Plan and certain Performance Units Granted under the 1996 Stock Incentive Plan, and the approval of an amendment to the 1996 Stock Incentive Plan to increase the number of shares subject to the plan from 3,000,000 to 5,500,000 is set forth below:
Votes ------------------------- Election of Class III Directors For Withheld ------------------------------------- ---------- --------- Robert L. Boughner 57,749,989 1,005,224 Marianne Boyd Johnson 58,124,690 630,523 Maj. Gen. Billy G. McCoy, Ret. USAF 58,066,107 689,106
The Stockholders ratified the selection of Deloitte & Touche LLP as independent auditors for the Company for the year ending December 31, 2000 with voting as follows: 58,588,233 for; 114,082 against; 52,898 non-votes. The Stockholders approved the amendment to the Company's Articles of Incorporation with voting as follows: 58,395,451 for; 237,411 against; 122,351 non-votes. The Stockholders approved the 2000 Executive Management Incentive Plan and certain Performance Units Granted under the 1996 Stock Incentive Plan with voting as follows: 57,287,051 for; 1,328,094 against; 140,068 non-votes. The Stockholders approved the amendment to the 1996 Stock Incentive Plan with voting as follows: 52,990,918 for; 5,572,023 against; 192,272 non-votes. 29 30 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 10.32 First Amendment to First Amended and Restated Credit Agreement, dated as of July 26, 2000, by and among the Company as the Borrower, Certain Commercial Lending Institutions, as the Lenders, Canadian Imperial Bank of Commerce, as letter of credit issuer and administrative Agent, Wells Fargo Bank, N.A., as Swingline Lender and Syndication Agent, and Bank of America, N.A., as Documentation Agent. 10.33 2000 Executive Management Incentive Plan (incorporated by reference to Appendix A of the Registrant's Proxy Statement for its Annual Meeting on May 25, 2000). 10.34 Certificate of Amendment of Articles of Incorporation. 10.35 1996 Stock Incentive Plan (as amended on May 25, 2000). 27 Financial Data Schedule (b) Reports on Form 8-K. (i) None 30 31 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 August 11, 2000. BOYD GAMING CORPORATION By: /s/ ELLIS LANDAU -------------------------------------- Ellis Landau Executive Vice President, Chief Financial Officer, Treasurer (Principal Financial Officer) 31 32 EXHIBIT INDEX Exhibit Number Description -------------- ----------- 10.32 First Amendment to First Amended and Restated Credit Agreement, dated as of July 26, 2000, by and among the Company as the Borrower, Certain Commercial Lending Institutions, as the Lenders, Canadian Imperial Bank of Commerce, as letter of credit issuer and administrative Agent, Wells Fargo Bank, N.A., as Swingline Lender and Syndication Agent, and Bank of America, N.A., as Documentation Agent. 10.33 2000 Executive Management Incentive Plan (incorporated by reference to Appendix A of the Registrant's Proxy Statement for its Annual Meeting on May 25, 2000). 10.34 Certificate of Amendment of Articles of Incorporation. 10.35 1996 Stock Incentive Plan (as amended on May 25, 2000). 27 Financial Data Schedule