<PAGE> 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
<TABLE>
<CAPTION>
Class Outstanding
----- -----------
<S> <C> <C>
Common stock, $.01 par value 57,115,365
</TABLE>
<PAGE> 2
BOYD GAMING CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
INDEX
Page No.
--------
<TABLE>
<S> <C>
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
</TABLE>
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<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
(IN THOUSANDS, EXCEPT SHARE DATA) 1996 1995
- - ----------------------------------------------------------------------------------
<S> <C> <C>
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
========== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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<PAGE> 4
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1996 1995
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE> 5
BOYD GAMING CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED
MARCH 31,
----------------------------
(IN THOUSANDS) 1996 1995
- - -----------------------------------------------------------------------------------
<S> <C> <C>
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
========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE> 6
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
- - ---------------------------------------------------------------------------------------------------------
ADDITIONAL TOTAL
COMMON STOCK PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
===================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-6-
<PAGE> 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.
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<PAGE> 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-
<PAGE> 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).
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
1996 1995 1996 1995
--------- --------- -------- ---------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
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
-------- -------- ------- --------
</TABLE>
-9-
<PAGE> 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
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<PAGE> 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%
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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-
<PAGE> 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
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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-
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