Friday, April 04, 2008

Too Much Respect Shown to Boyd Gaming Elders?

Management of Boyd Gaming Corp (BYD-$21.23) recently intimated on its fourth-quarter conference call that its operating performance would continue to be adversely impacted by a challenging economy (and its effect on consumer spending), disruption from new construction, and increased competition for the foreseeable future.

Shareholders have not dismissed the effects of the current market environment on the Company’s operating results, exhibited in the 52-week loss of 56 percent in the stock price.

William S. Boyd, Executive Chairman as of December 31, 2007, together with his immediate family, beneficially owns approximately 36% of the outstanding shares of common stock. Mr. Boyd is the father of Marianne Boyd Johnson and William R. Boyd, who are both directors and officers of the Company.

Given such influence, it is easy to deal oneself a hand of 'blackjack.' In 2007, Mr. Boyd still managed to bring home bonus compensation of $1.7 million, only 10.5% less than the $1.9 bonus rewarded to him the prior year.

In the aggregate, Boyd’s compensation in 2007 was $6.8 million, including a salary of $1.5 million, stock and option awards valued at $3.2 million, and perks worth $71,586, according to the casino’s proxy filing with the Securities and Exchange Commission.

Defer to Your Elders

As a show of respect for their elders, the Japanese celebrate 'Respect for the Aged Day' on September 15th each year.

Japanese business culture values its elders for the wisdom and experience they provide to the company. William S. Boyd, 76, is well respected by the Company—witness the extraordinary monies he continues to make even in a down-cycle year.

However, must shareholders pay for a special bonus that he receives each year, too? In the amount of $250,000, the bonus is paid to him "in recognition of the loss of a benefit" that Mr. Boyd previously received under certain split-dollar life insurance arrangements, which were terminated by the Company in December 2003.

The Compensation Committee expects to extend the $250,000 special bonus to Mr. Boyd in 2008, too.

Legacy Debts

In 2004, the Company elected Perry B. Whitt, a former member of the board, to serve as director emeritus. As such, Mr. Whitt is invited to attend board of director meetings.

Albeit Mr. Whitt does not have any voting rights, he receives compensation from the Company for serving as director emeritus in the amount of $35,000 per annum. He also receives medical reimbursements under the Director’s Medical Reimbursement Plan (in the amount of $21,329 for 2007). Mr. Whitt also maintains an office at corporate offices.

Mr. Whitt has more than 57 years of experience in the gaming industry, most of it with the Boyd family; first working under the clan’s patriarch, Sam Boyd, at the Flamingo in 1947.

Mr. Whitt, 81, is not exactly waiting at the mailbox, living from one social security check to the next. According to SEC filings, Whitt sold more than $16.5 million in common stock of Boyd Gaming from 2003 –to- 2005.

A youth who does not respect his elders will achieve nothing when he grows up. ~ Confucius (551 BC – 479 BC)

The last year Boyd Gaming reported free cash flow growth Y/Y was 2005.

It is too bad that Confucian teachings on respect for elders do not extend to deference for common stockholders, too.

Editor David J. Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

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