Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

     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 than the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Shares outstanding of each of the Registrant’s classes of common stock as of October 31, 2002:

BOYD GAMING CORPORATION

QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2002

TABLE OF CONTENTS

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation

     The accompanying condensed consolidated financial statements include the accounts of Boyd Gaming Corporation and our wholly-owned subsidiaries.  We own and operate twelve gaming facilities located in Las Vegas, Nevada; Tunica, Mississippi; East Peoria, Illinois; Kenner and Vinton, Louisiana; and Michigan City, Indiana as well as a travel agency located in Honolulu, Hawaii.  All material intercompany accounts and transactions have been eliminated.  We are also a 50% partner in a venture operating as a limited liability company that is developing the Borgata in Atlantic City, New Jersey, which is currently expected to open in the summer of 2003.  Investments in 50% or less owned subsidiaries over which we have the ability to exercise significant influence, including ventures such as the Borgata, are accounted for using the equity method.

Basis of Presentation

     In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the results of our operations for the three and nine month periods ended September 30, 2002 and 2001 and cash flows for the nine month periods ended September 30, 2002 and 2001.  We suggest reading this report in conjunction with our audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2001.  The operating results for the three and nine month periods ended September 30, 2002 and 2001 and cash flows for the nine month periods ended September 30, 2002 and 2001 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 of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates incorporated into our condensed consolidated financial statements 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, estimated cash flows in assessing the recoverability of long-lived assets, estimated liabilities for our self-insured medical plan, slot bonus point programs, and litigation, claims and assessments. Actual results could differ from those estimates.

8

Capitalized Interest

     Interest costs associated with major construction projects, including our investment in the Borgata project, are capitalized. When no debt is incurred specifically for a project, interest is capitalized on amounts expended for the project using our weighted average cost of borrowing. Capitalization of interest ceases when the project or discernible portions of the project are substantially complete. We amortize capitalized interest over the estimated useful life of the related asset.  Capitalized interest during the three and nine month periods ended September 30, 2002 was $3.9 million and $13.4 million, respectively.  Capitalized interest during the three and nine month periods ended September 30, 2001 was $5.5 million and $12.0 million, respectively.

Preopening Expenses

     We expense certain costs of start-up activities as incurred.  During the three and nine month periods ended September 30, 2001, we expensed $2.4 million and $2.8 million, respectively, in preopening costs that related to our share of preopening expense in the Borgata, our venture project, as well as preopening expense at Delta Downs where we were in the process of expanding the property and equipping it for a new casino.  During the three month period ended September 30, 2002, we expensed $2.7 million in preopening costs, most of which related to our share of preopening expense in the Borgata. During the nine month period ended September 30, 2002, we expensed $12.2 million in preopening costs that primarily related to our share of preopening expense in the Borgata, our unsuccessful efforts to assist in the development and operation of a Rhode Island casino with the Narragansett Indian Tribe, and preopening expense at Delta Downs where we were in the process of expanding the property and equipping it for a new casino.  The casino at Delta Downs commenced operations on February 13, 2002. 

Derivative Instruments and Other Comprehensive Income (Loss)

     The Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 133, or SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities which requires all derivative instruments to be recognized on the balance sheet at fair value.  Derivatives that are not designated as hedges must be adjusted to fair value through income.  If the derivative qualifies and is designated as a hedge, depending on the nature of the hedge, changes in its fair value will either be offset against the change in fair value of the hedged item through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings.  The ineffective portion of a derivative’s change in fair value will be immediately recognized in earnings.   During the quarter ended June 30, 2002, we entered into three interest rate swaps (each designated as a fair value hedge) to manage risk on certain of our fixed-rate borrowings.  In addition, the Borgata, our venture project, has entered into derivative financial instruments to comply with the requirements of its bank credit agreement.  For further information, see Note 5,  “Derivative Instruments.”

     We account for our comprehensive income (loss) in accordance with SFAS No. 130, Reporting Comprehensive Income.  Such amounts of accumulated other comprehensive loss related to the Borgata’s derivative financial instruments will reverse through our consolidated statements of operations over the term of the Borgata’s derivative instruments.

9

Recently Adopted or Issued Accounting Standards

     The Emerging Issues Task Force of the FASB, or EITF, reached a consensus in EITF No. 01-09, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products).  EITF No. 01-09 codifies and reconciles certain issues related to the consideration given by a vendor to a customer that were previously addressed in EITF No. 00-14, Accounting for Certain Sales Incentives,  EITF No. 00-22, Accounting for ‘Points’ and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future, and EITF No. 00-25, Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor’s Products.  Generally, EITF 01-09 became effective for the Company on January 1, 2002 and our adoption did not have a material effect on our consolidated financial statements.

     In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.    See Note 3, “Intangible Assets and Goodwill” for more information.

     In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.   The most significant provisions of this statement relate to the rescission of Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt and it also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions.  Under this new statement, any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods that does not meet certain defined criteria must be reclassified.  We adopted this statement during the quarter ended September 30, 2002 and retroactively applied this statement back to January 1, 2001, the earliest period presented in our condensed consolidated statement of operations.  Pursuant to the early adoption of this statement, we reported a loss on early retirement of debt in the non-operating section of the income statement for the three month period ended September 30, 2002.  See Note 4, “Debt” for more information related to the debt retirement. There were no early retirements of debt in previous periods and, as such, there were no prior period reclassifications recorded. 

Reclassifications

     Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform to the September 30, 2002 presentation.  These reclassifications had no effect on our net income as previously reported.

Note 2. Earnings per Share

     Basic per share amounts are computed by dividing net income by the average shares outstanding during the period.  Diluted per share amounts are computed by dividing net income by average shares outstanding plus the dilutive effects of common share equivalents.  Diluted net income per share during the three and nine month periods ended September 30, 2002 and 2001 is determined considering the dilutive effects of outstanding stock options.  The effect of stock options outstanding to purchase approximately 1.5 million and 1.4 million shares, respectively, were not included in the diluted calculation during the three and nine month periods ended September 30, 2002 and approximately 4.1 million and 5.2 million shares, respectively, were

10

not included in the diluted calculation during the three and nine month periods ended September 30, 2001, since the exercise prices of such options were greater than the average price of our common shares during each of the periods.

     The table below reconciles weighted average shares outstanding used to calculate basic earnings per share with the weighted average shares outstanding used to calculate diluted earnings per share.  There were no reconciling items for income before cumulative effect.

11

Note 3.  Intangible Assets and Goodwill

     Intangible assets, which consist of intangible license rights and goodwill, represent the excess of total acquisition costs over the fair market value of net tangible assets acquired in a business combination.  In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.   We adopted both statements on January 1, 2002.  The adoption of SFAS No. 141 had no material impact on our consolidated financial statements.  In connection with the initial application of SFAS No. 142, we ceased the amortization of our goodwill and also ceased the amortization of our intangible license rights as we have determined that the intangible license rights have an indefinite life.  During the quarter ended March 31, 2002, we completed the impairment testing of all our goodwill and intangible license rights balances and recorded an $8.2 million charge as a cumulative effect of a change in accounting principle in order to write down the remaining goodwill balance related to the 1985 acquisition of the Stardust.   This write down had no tax effect on our condensed consolidated statement of operations.  The fair value of Stardust’s goodwill was derived through the use of an independent appraisal.

     The following table reconciles previously reported net income and earnings per share for the three and nine month periods ended September 30, 2001 to net income and earnings per share as adjusted for the cessation of amortization expense related to our intangible asset and goodwill balances.

12

Note 4.  Debt

     During the three month period ended June 30, 2002, we refinanced our bank credit facility and issued $250 million principal amount of 8.75% senior subordinated notes due April 2012.  In July 2002, through privately negotiated transactions, we purchased and cancelled approximately $77.8 million original principal amount of our 9.25% senior notes due 2003, leaving a current outstanding principal balance of approximately $122.2 million.  We utilized borrowings from our bank credit facility to repurchase the notes at prices ranging from 103.4% to 104.2% plus accrued interest.  The premium paid to repurchase the notes and the pro-rata portion of the unamortized deferred loan costs, together totaling $3.4 million, was recorded as a loss during the three month period ended September 30, 2002 in the non-operating section of the income statement.

     The carrying value of long-term debt at September 30, 2002 as compared to December 31, 2001 consists of the following: