<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 period ended March 31, 1998
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, 1998:
Class Outstanding
----- -----------
Common stock, $.01 par value 61,669,628
<PAGE> 2
BOYD GAMING CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1998
and December 31, 1997 3
Condensed Consolidated Statements of Operations for the three
months ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signature Page 17
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) MARCH 31, DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE DATA) 1998 1997
- ------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 77,881 $ 78,277
Accounts receivable, net 19,066 19,372
Inventories 8,681 9,906
Prepaid expenses 14,559 14,357
Income taxes receivable --- 2,787
---------- ----------
Total current assets 120,187 124,699
Property and equipment, net 761,530 771,235
Other assets and deferred charges 44,517 41,912
Deferred income taxes 4,474 6,558
Goodwill and other intangible assets, net 206,660 208,011
---------- ----------
Total assets $1,137,368 $1,152,415
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 1,757 $ 1,828
Accounts payable 32,084 28,535
Accrued liabilities
Payroll and related 28,851 26,100
Interest and other 55,540 55,879
Income taxes payable 1,183 ---
---------- ----------
Total current liabilities 119,415 112,342
Long-term debt, net of current maturities 811,488 842,932
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; 61,669,628 shares
outstanding 617 617
Additional paid-in capital 139,054 139,054
Retained earnings 66,794 57,470
---------- ----------
Total stockholders' equity 206,465 197,141
---------- ----------
Total liabilities and stockholders'
equity $1,137,368 $1,152,415
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE> 4
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(UNAUDITED) MARCH 31,
------------------
(IN THOUSANDS, EXCEPT SHARE DATA) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Casino $185,864 $153,965
Food and beverage 42,262 39,992
Room 18,514 19,360
Other 18,267 15,057
Management fees and joint venture 10,796 11,253
-------- --------
Gross revenues 275,703 239,627
Less promotional allowances 25,661 20,473
-------- --------
Net revenues 250,042 219,154
-------- --------
Costs and expenses
Casino 95,408 78,065
Food and beverage 26,137 27,916
Room 5,774 6,473
Other 15,899 14,334
Selling, general and administrative 38,583 33,336
Maintenance and utilities 9,495 9,150
Depreciation and amortization 18,611 17,920
Corporate expense 4,900 5,002
Impairment loss -- 125,698
-------- --------
Total 214,807 317,894
-------- --------
Operating income (loss) 35,235 (98,740)
-------- --------
Other income (expense)
Interest income 113 151
Interest expense, net of amounts capitalized (19,272) (17,352)
-------- --------
Total (19,159) (17,201)
-------- --------
Income (loss) before provision (benefit) for
income taxes 16,076 (115,941)
Provision (benefit) for income taxes 6,752 (38,229)
-------- --------
Net income (loss) $ 9,324 ($77,712)
======== ========
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE
- ----------------------------------------------------
Net income (loss) $ 0.15 ($1.27)
======== ========
Average basic shares outstanding 61,670 61,363
Average diluted shares outstanding 61,922 61,363
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 5
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(UNAUDITED) MARCH 31,
-----------------------
(IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 9,324 $(77,712)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 18,611 17,920
Deferred income taxes 2,084 (40,535)
Impairment loss -- 125,698
Changes in assets and liabilities:
Accounts receivable, net 306 5,049
Inventories 1,225 862
Prepaid expenses (202) 1,492
Income taxes receivable 2,787 1,873
Other assets (2,955) 1,630
Other current liabilities 7,077 (10,981)
Income taxes payable 1,183 --
-------- --------
Net cash provided by operating activities 39,440 25,296
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES-
Acquisition of property, equipment and
other assets (8,321) (11,971)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under bank credit facility (31,000) (21,850)
Payments on long-term debt (515) (625)
-------- --------
Net cash used in financing activities (31,515) (22,475)
-------- --------
Net decrease in cash and cash equivalents (396) (9,150)
Cash and cash equivalents, beginning of period 78,277 70,426
-------- --------
Cash and cash equivalents, end of period $ 77,881 $ 61,276
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest, net of amounts
capitalized $ 19,825 $ 14,978
======== ========
Cash paid for income taxes $ 698 $ 2,402
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE> 6
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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, Kansas City, Missouri, East Peoria, Illinois, and Kenner, Louisiana
as well as a travel agency located in Honolulu, Hawaii. In addition, the Company
manages a casino entertainment facility in Philadelphia, Mississippi, for which
it has a seven year management contract that expires in 2001. 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
and cash flows for the three month periods ended March 31, 1998 and 1997. 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 transition period ended December 31, 1997. The operating results and cash
flows for the three month period ended March 31, 1998 are not necessarily
indicative of the results that will be achieved for the full year or for future
periods.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Significant estimates used by the Company included 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 used in assessing the
recoverability of long-lived assets. Actual results could differ from those
estimates.
Reclassifications
Certain amounts in the 1997 condensed consolidated financial statements have
been reclassified to conform to the 1998 presentation. These reclassifications
had no net effect on the Company's net income.
Recently Adopted Accounting Standards
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which
is effective for fiscal years beginning after December 15, 1997. This statement
requires businesses to disclose comprehensive income and its components in their
financial statements. The adoption of SFAS No. 130 did not affect the Company's
condensed consolidated financial statements for the periods ended March 31, 1998
and 1997.
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<PAGE> 7
The American Institute of Certified Public Accountants' Accounting Standards
Executive Committee issued Statement of Position ("SOP") 98-5, "Reporting on the
Costs of Start-up Activities." This standard provides guidance on the financial
reporting for start-up costs and organization costs. This standard requires
costs of start-up activities and organization costs to be expensed as incurred.
This standard is effective for fiscal years beginning after December 15, 1998,
though earlier application is encouraged. Management believes that this SOP
could have a material impact on the consolidated financial statements depending
on the status of the Company's current and future expansion projects at the time
of adoption of this standard.
NOTE 2. - IMPAIRMENT LOSS
During the quarter ended March 31, 1997, the Company wrote-down the carrying
value of its fixed and intangible assets in the Missouri gaming market to fair
value, which resulted in a $126 million impairment loss. The impairment loss was
recorded due to a significant change in the competitive environment with the
January 1997 addition of a significantly larger competitor in the Kansas City
gaming market and a history of operating losses at the Company's Sam's Town
Kansas City gaming establishment. The fair value of the impaired assets was
primarily determined through a discounted cash flow analysis of the operations
of Sam's Town Kansas City.
NOTE 3. - ACQUISITION
On October 27, 1997, the Company acquired the remaining 85% equity interest in
Treasure Chest Casino, L.L.C. ("Treasure Chest") that was not owned by the
Company for approximately $103 million, plus the assumption of debt. Intangible
license rights, representing the excess of the purchase price over the fair
value of the net assets acquired, was approximately $85 million. Treasure Chest
owns the Treasure Chest Casino, a riverboat casino operation on Lake
Pontchartrain in Kenner, Louisiana. The Company has managed the Treasure Chest
since its opening in September 1994. The Company funded the acquisition and the
repayment of Treasure Chest's debt with borrowings under its bank credit
facility. The Company's pro forma consolidated results of operations, as if the
acquisition had occurred on January 1, 1997, are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997
-------------------------
<S> <C>
Pro forma (in thousands, except per share data):
Net revenues $ 246,142
Net loss (76,152)
-------------------------
Basic and diluted net loss per common share:
Net loss $ (1.24)
-------------------------
</TABLE>
NOTE 4. - GUARANTOR INFORMATION
The Company's $200 million of 9.25% Senior Notes (the "9.25% Notes") are
guaranteed by all existing significant subsidiaries of the Company. The
guaranties are full, unconditional, and joint and several. All of the Company's
significant subsidiaries are wholly-owned. Assets, equity, income and cash flows
of all other subsidiaries of the Company that do not guaranty the 9.25% Notes
are less than 3% of the respective consolidated amounts and are inconsequential,
individually and in the aggregate, to the Company. The Company has not included
separate financial information of the guarantors since such information is not
material to investors.
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<PAGE> 8
NOTE 5. - NET INCOME (LOSS) PER COMMON SHARE
During the six month period ended December 31, 1997, the Company adopted SFAS
No. 128, "Earnings per Share". SFAS No. 128 requires the presentation of basic
and diluted net income (loss) per share. Basic per share amounts are computed by
dividing net income (loss) by the average shares outstanding during the period.
Diluted per share amounts are computed by dividing net income (loss) by average
shares outstanding plus the dilutive effect of common share equivalents. Since
the Company incurred a net loss during the quarter ended March 31, 1997, both
basic and diluted per share calculations are based upon average shares
outstanding of 61,363,000 during the period. The effect of options outstanding
to purchase 5,083,000 shares was not included in the diluted calculation during
the period. Diluted net income per share during the quarter ended March 31, 1998
is determined considering the dilutive effect of outstanding stock options. The
effect of stock options outstanding to purchase 2,711,000 shares was not
included in the diluted calculation during the quarter ended March 31, 1998
since the exercise price of such options was greater than the average price of
the Company's common shares.
-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 operating
data for the Company's properties. As used herein, "Boulder Strip Properties"
consist of Sam's Town Las Vegas, the Eldorado and Jokers Wild; "Downtown
Properties" consist of the California, the Fremont, Main Street Station 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 Tunica, Sam's Town Kansas City, Par-A-Dice, management fee
income from Silver Star Hotel and Casino, and management fee and joint venture
income from Treasure Chest Casino through October 27, 1997, at which time the
Company acquired the remaining 85% equity interest in Treasure Chest that it did
not already own to make it a wholly-owned subsidiary. 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 purposes of this table exclude corporate expense,
including related depreciation and amortization, and impairment loss.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1998 1997
------------ -----------
<S> <C> <C>
(In thousands)
- --------------
Net revenues
Stardust $ 41,333 $ 45,959
Boulder Strip Properties 48,057 48,892
Downtown Properties (a) 50,829 43,971
Central Region 109,823 80,332
-------- --------
Total properties $250,042 $219,154
======== ========
Operating income (loss)
Stardust $ 3,251 $ 5,495
Boulder Strip Properties 7,107 8,126
Downtown Properties 2,072 (114)
Central Region 28,087 19,133 (b)
-------- --------
Total properties $ 40,517 $ 32,640
======== ========
</TABLE>
(a) Includes revenues related to Vacations Hawaii, a Honolulu travel agency, of
$7,757 and $4,701, respectively, for the quarters ended March 31, 1998 and
1997.
(b) Before impairment loss.
-9-
<PAGE> 10
REVENUES
- --------
Consolidated net revenues increased 14.1% during the quarter ended March 31,
1998 compared to the quarter ended March 31, 1997. Company-wide casino revenue
increased 21%, food and beverage revenue increased 5.8% and room revenue
decreased 12.3%. Net revenues from the Stardust, Boulder Strip Properties and
Downtown Properties (the "Nevada Region") increased 1.0% during the quarter
ended March 31, 1998 compared to the quarter ended March 31, 1997 primarily as a
result of increased operating volume at each of the three Downtown casino
properties, as well as enhanced utilization of the Company's wholly-owned travel
agency, Vacations Hawaii. These increases were partially offset by declines in
net revenues experienced principally at the Stardust (10.1%), due to the
competitive environment along the Las Vegas Strip. Net revenues in the Central
Region increased 37% during the quarter ended March 31, 1998 compared to the
quarter ended March 31, 1997 primarily as a result of the acquisition of
Treasure Chest in October 1997, as well as a 14.1% increase in management fees
from Silver Star. These increases were partially offset by a 15.3% decline in
net revenues experienced at Sam's Town Kansas City.
OPERATING INCOME (LOSS)
- -----------------------
Consolidated operating income before impairment loss increased by 31% to $35.2
million during the quarter ended March 31, 1998 from $27.0 million during the
quarter ended March 31, 1997. Operating income in the Nevada Region declined
8.0% due to declines experienced at the Stardust and Boulder Strip Properties,
offset by the gains experienced at each of the Downtown Properties. In the
Central Region, operating income increased 47% due primarily to the acquisition
of Treasure Chest in October 1997, as well as an increase in management fee
income (net of expenses) from Silver Star and a 73% reduction in the operating
loss at Sam's Town Kansas City.
STARDUST
- --------
Net revenues at the Stardust declined by 10.1% during the quarter ended March
31, 1998 compared to the quarter ended March 31, 1997 due to the competitive
environment on the Las Vegas Strip. The majority of the decline is attributable
to a 7.8% reduction in casino revenue as a result of a decline in slot and table
game wagering. In addition, room revenue declined by 14.5% due to a decline in
the number of occupied rooms. Operating income declined by 41% or $2.2 million
during the quarter ended March 31, 1998 compared to the quarter ended March 31,
1997, and operating income margin declined to 7.9% during the quarter ended
March 31, 1998 from 12.0% during the quarter ended March 31, 1997. These
declines in operating income and operating income margin are primarily the
result of the reduction in net revenues coupled with an increase in marketing
expenses.
BOULDER STRIP PROPERTIES
- ------------------------
Net revenues at the Boulder Strip Properties decreased 1.7% during the quarter
ended March 31, 1998 compared to the quarter ended March 31, 1997 due to
increased competition with the recent openings of two new properties along the
Boulder Strip. Casino revenue remained flat as a result of an increase in gaming
win percentages being offset by a decline in wagering volume. Food and beverage
revenue decreased 8.9% from the prior period's levels due primarily to a
reduction in the average check per food cover. Operating income at the Boulder
Strip Properties declined by 12.5% or $1.0 million during the quarter ended
March 31, 1998 compared to the quarter ended March 31, 1997, and operating
income margin declined to 14.8% during the quarter ended March 31, 1998 from
16.6% during the quarter ended March 31, 1997. These declines are primarily
attributable to the reduction in net revenues as well as an increase in
marketing expenses.
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<PAGE> 11
DOWNTOWN PROPERTIES
- -------------------
Net revenues at the Downtown Properties increased 15.6% during the quarter ended
March 31, 1998 compared to the quarter ended March 31, 1997, and operating
income increased to $2.1 million during the quarter ended March 31, 1998 from a
$.1 million operating loss reported in the comparable quarter in 1997. Each of
the four Downtown Properties recorded improvements in both net revenues and
operating results from the implementation of various marketing and cost
reduction programs initiated by management during the second quarter of calendar
1997. However, despite the improvement, Main Street Station reported a slight
operating loss of $.7 million during the quarter ended March 31, 1998.
CENTRAL REGION
- --------------
Net revenues from the Central Region increased 37% during the quarter ended
March 31, 1998 compared to the quarter ended March 31, 1997. The majority of the
increase is attributable to the acquisition of the remaining interest in
Treasure Chest on October 27, 1997. Treasure Chest produced net revenues for the
Company of $31.7 million during the quarter ended March 31, 1998 compared to
$1.8 million during the quarter ended March 31, 1997. Prior to the acquisition
of Treasure Chest, the Company accounted for its 15% minority interest under the
equity method. However, since the acquisition of the remaining 85% equity
interest in Treasure Chest, the revenues and expenses generated by that property
are now included in the Company's consolidated statement of operations. The
increase in net revenues during the March 31, 1998 quarter was partially offset
by a 15.3% decline in net revenues at Sam's Town Kansas City due to a reduction
in market share caused by the competitive environment in Kansas City. In light
of the historical operating performance at Sam's Town Kansas City, management is
considering various strategic alternatives to mitigate its impact on the
Company, which may include, among other things, the possible sale of the
property. Operating income and operating margin for the Central Region increased
to $28.1 million and 26%, respectively, during the quarter ended March 31, 1998
from $19.1 million and 24%, respectively, during the comparable quarter in 1997.
These increases are due to the acquisition of Treasure Chest, as well as a 73%
reduction in the operating loss at Sam's Town Kansas City due to the
implementation of cost reduction programs. In addition, management fee income
(net of expenses) from Silver Star increased 9.6% during the quarter ended March
31, 1998 versus the comparable quarter in 1997. This increase is primarily due
to the completion of a guest room expansion project and a golf course project in
July 1997.
IMPAIRMENT LOSS
- ---------------
During fiscal 1997, the Company, in accordance with SFAS No. 121, recorded an
impairment loss of $126 million to adjust the carrying value of its fixed and
intangible assets in the Missouri gaming market to fair value. The impairment
loss was recorded due to a significant change in the competitive environment
with the January 1997 addition of a significantly larger facility in the Kansas
City gaming market and a history of operating losses at the Company's Sam's Town
Kansas City gaming establishment. In addition, the restrictive nature of the
Missouri gaming regulations with respect to wagering limits and simulated cruise
requirements has not been conducive to profitable operations, and based upon
currently available information, management does not believe that any
significant regulatory relief is forthcoming.
OTHER EXPENSES
- --------------
Depreciation and amortization expense increased by $.7 million during the
quarter ended March 31, 1998 versus the comparable quarter in 1997 due to the
increase in intangible assets related to the acquisition of Treasure Chest
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<PAGE> 12
in October 1997, offset by the reduction in fixed and intangible assets related
to the impairment loss recorded during the quarter ended March 1997. In
addition, corporate expense declined slightly from $5.0 million during the
quarter ended March 31, 1997 to $4.9 million during the comparable quarter in
1998.
OTHER INCOME (EXPENSE)
- ----------------------
Other income and expense is primarily comprised of interest expense. Interest
expense increased by $1.9 million during the quarter ended March 31, 1998
compared to the corresponding quarter in 1997. The increase is primarily
attributable to higher levels of debt outstanding due to the October 1997
acquisition of Treasure Chest.
PROVISION (BENEFIT) FOR INCOME TAXES
- ------------------------------------
The Company's effective tax rates were 42% and (33%), respectively, during the
quarters ended March 31, 1998 and 1997. The fluctuation in the rates is
primarily attributable to the impairment loss recorded during the quarter ended
March 31, 1997.
NET INCOME (LOSS)
- -----------------
As a result of these factors, the Company reported net income of $9.3 million
during the quarter ended March 31, 1998 compared to a net loss of $78 million
during the quarter ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW AND WORKING CAPITAL
- -----------------------------
During the quarter ended March 31, 1998, the Company generated operating cash
flows of $39 million compared to $25 million during the quarter ended March 31,
1997. The increase in operating cash flows is primarily attributable to the
operations of Treasure Chest, which was acquired in October 1997. As of March
31, 1998 and 1997, the Company had balances of cash and cash equivalents of $78
million and $61 million, respectively, and working capital of $.8 million and a
working capital deficit of $6.3 million, respectively. The Company has
historically operated with minimal or negative levels of working capital in
order to minimize borrowings and related interest costs under its five-year,
$500 million reducing revolving credit facility (the "Bank Credit Facility").
The working capital deficits, if any, are funded through cash generated from
operations as well as borrowings under the Bank Credit Facility.
CAPITAL EXPENDITURES
- --------------------
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 space and by providing the latest slot machines for
its customers. The Company's capital expenditures for these purposes were
approximately $8.3 million and $12.0 million, respectively, during the quarters
ended March 31, 1998 and 1997.
DEBT FACILITIES AND EQUITY FINANCING
- ------------------------------------
Much of the funding for the Company's renovation and expansion projects has come
from debt and equity financings, as well as cash flows from existing operations.
Cash flows used for financing activities totaled $32 million during the quarter
ended March 31, 1998 compared to $22 million during the corresponding period in
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<PAGE> 13
1997 as the Company paid down outstanding debt with its free cash flow generated
from operations. At March 31, 1998, outstanding borrowings and unused
availability under the Bank Credit Facility were $359 million and $141 million,
respectively. Interest on the Bank Credit Facility is based upon the agent
bank's quoted reference rate or the London Interbank Offered Rate, at the
discretion of the Company. The blended rate under the Bank Credit Facility at
March 31, 1998 was 8.1%.
The Bank Credit Facility contains certain financial and other covenants,
including, without limitation, various covenants (i) requiring the maintenance
of a minimum tangible net worth, (ii) requiring the maintenance of a minimum
fixed charge coverage ratio, (iii) establishing a maximum permitted funded debt
to EBITDA ratio, (iv) imposing limitations on the incurrence of additional
indebtedness and the creation of liens, (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 the term of the Bank Credit Facility, and (vii) imposing
restrictions in investments, the purchase or redemption of subordinated debt
prior to its stated maturity, dividends and other distributions, and the
redemption or purchase of capital stock of the Company.
As of March 31, 1998, the Company had outstanding $200 million principal amount
of 9.25% Senior Notes (the "9.25% Notes") due October 1, 2003 and $250 million
principal amount of 9.50% Senior Subordinated Notes (the "9.50% Notes") due July
2007. The 9.25% and 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 all
covenants contained in its long-term debt agreements at March 31, 1998.
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.
NEW EXPANSION PROJECTS
- ----------------------
The Company, as part of its ongoing strategic planning process, is currently
establishing its priorities for future growth. In Nevada, the Company has
intensified its efforts to develop alternatives for the enhancement and
development of the 61-acre Stardust site on the Las Vegas Strip and is exploring
opportunities that may exist in the locals market for expansion of its Sam's
Town concept.
Outside of Nevada, the Company continues to monitor acquisition opportunities in
many of the newer gaming markets as the industry continues to consolidate. In
addition, on May 29, 1996, the Company, through a wholly-owned subsidiary,
executed a joint venture agreement (the "Joint Venture Agreement") with Mirage
Resorts, Incorporated ("Mirage") to jointly develop and own a casino hotel
entertainment facility in Atlantic City, New Jersey (the "Mirage Joint
Venture"). The Mirage Joint Venture contemplates a hotel of at least 1,000 rooms
and a casino and related amenities (the "Atlantic City Project") adjacent and
connected to Mirage's planned wholly-owned resort. The Joint Venture Agreement
provides for at least $100 million in capital contributions by the Company.
Funding of the Company's Mirage Joint Venture capital contributions would come
from cash flow from operations and availability under the Company's Bank Credit
Facility.
-13-
<PAGE> 14
In January 1998, Mirage attempted to unilaterally terminate the Joint Venture
Agreement. On February 2, 1998, the Company filed a lawsuit against Mirage
alleging, among other things, that Mirage attempted to unilaterally terminate
the Joint Venture Agreement and misappropriate the Mirage Joint Venture's
business opportunity for its own benefit. As a result, there can be no assurance
that the Atlantic City Project will be completed according to the terms
contemplated by the Joint Venture Agreement, or at all.
Substantial funds would be required for the expansion projects discussed above.
There are no assurances that any of the above mentioned projects will go forward
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, 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.
YEAR 2000 PROJECT
- -----------------
The Company is conducting a review of its computer systems to identify those
areas that could be affected by the "Year 2000" issue and is in the process of
replacing many of its existing systems to improve overall business performance
and to accommodate business for the "Year 2000". However, given the inherent
risks for a project of this magnitude and the resources required, the timing and
costs involved could differ materially from that anticipated by the Company. The
Company expects its "Year 2000" date conversion project to be completed on a
timely basis. However, there can be no assurance that the conversion project
will be completed on schedule, and that the systems of other companies on which
the Company may rely also will be timely converted or that such failure to
convert by another company would not have an adverse impact on the Company's
systems. The estimated costs directly or indirectly associated with the
conversion project is currently expected to be approximately $16 million. At
March 31, 1998, the Company had incurred costs of $1.9 million which were
directly or indirectly related to the "Year 2000" project.
RECENTLY ISSUED ACCOUNTING STANDARDS
- ------------------------------------
See Note 1 to Notes to Condensed Consolidated Financial Statements for a
discussion of recently issued accounting standards and their expected impact on
the Company's consolidated financial statements.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward looking statements. Certain information included in this Form 10-Q
and other materials filed or to be filed by the Company with the Securities and
Exchange Commission (as well as information included in oral statements or other
written statements made or to be made by the Company) contains statements that
are forward looking, such as statements relating to plans for future expansion
and other business development activities as well as other capital spending,
financing sources, and the effects of regulation (including gaming and tax
regulation) and competition. Such forward looking statements involve important
risks and uncertainties that could significantly affect anticipated results in
the future, and accordingly, actual results may differ materially from those
expressed in any
-14-
<PAGE> 15
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, risks related to the "Year 2000"
project and other factors described from time to time in the Company's reports
filed with the Securities and Exchange Commission, including the Company's
Transition Report on Form 10-K for the transition year ended December 31, 1997.
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.
-15-
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
(i) None.
-16-
<PAGE> 17
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 12, 1998 By /s/ KEITH E. SMITH
--------------------------------
Keith E. Smith
Senior Vice President and
Controller (Chief Accounting
Officer)
-17-
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