BYD 10Q 3.31.2014

 
 
 
 
 
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, 2014
OR
o
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: 1-12882
____________________________________________________
BOYD GAMING CORPORATION
(Exact name of registrant as specified in its charter)
 ____________________________________________________
Nevada
 
88-0242733
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
3883 Howard Hughes Parkway, Ninth Floor, Las Vegas, NV 89169
(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 such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
o
  
Accelerated filer
 
x
 
 
 
 
 
 
 
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
  
Outstanding as of April 30, 2014
 
 
Common stock, $0.01 par value
  
108,367,736
 





BOYD GAMING CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2014
TABLE OF CONTENTS
 
 
 
Page
No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





PART I. Financial Information
Item 1.    Financial Statements (Unaudited)

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31,
 
December 31,
(Unaudited)
2014
 
2013
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
162,878

 
$
177,838

Restricted cash
30,953

 
20,686

Accounts receivable, net
61,063

 
65,569

Inventories
18,496

 
19,719

Prepaid expenses and other current assets
44,348

 
42,460

Income taxes receivable
1,177

 
1,143

Deferred income taxes and current tax assets
5,486

 
7,265

Total current assets
324,401

 
334,680

Property and equipment, net
3,465,565

 
3,505,613

Debt financing costs, net
79,744

 
84,209

Other assets, net
62,999

 
61,259

Intangible assets, net
1,062,072

 
1,070,660

Goodwill, net
685,310

 
685,310

Total assets
$
5,680,091

 
$
5,741,731

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities
 
 
 
Current maturities of long-term debt
$
31,497

 
$
33,559

Accounts payable
68,817

 
75,478

Accrued liabilities
339,369

 
341,947

Deferred income taxes and income taxes payable
2,588

 
2,879

Total current liabilities
442,271

 
453,863

Long-term debt, net of current maturities
4,301,269

 
4,352,932

Deferred income taxes
158,294

 
155,218

Other long-term tax liabilities
42,793

 
42,188

Other liabilities
88,645

 
87,093

Commitments and contingencies (Note 9)
 
 
 
Stockholders’ equity
 
 
 
Preferred stock, $0.01 par value, 5,000,000 shares authorized
—

 
—

Common stock, $0.01 par value, 200,000,000 shares authorized; 108,297,168 and 108,155,002 shares outstanding
1,083

 
1,082

Additional paid-in capital
909,533

 
902,496

Accumulated deficit
(438,256
)
 
(432,074
)
Accumulated other comprehensive loss
(978
)
 
(1,517
)
Total Boyd Gaming Corporation stockholders’ equity
471,382

 
469,987

Noncontrolling interest
175,437

 
180,450

Total stockholders’ equity
646,819

 
650,437

Total liabilities and stockholders’ equity
$
5,680,091

 
$
5,741,731


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


3



BOYD GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three Months Ended
(In thousands, except per share data)
March 31,
(Unaudited)
2014
 
2013
REVENUES
 
 
 
Operating revenues
 
 
 
Gaming
$
608,757

 
$
632,559

Food and beverage
106,643

 
111,774

Room
64,380

 
63,855

Other
38,960

 
39,311

Gross revenues
818,740

 
847,499

Less promotional allowances
110,391

 
111,915

Net revenues
708,349

 
735,584

COST AND EXPENSES
 
 
 
Operating costs and expenses
 
 
 
Gaming
285,174

 
297,262

Food and beverage
57,269

 
60,053

Room
13,170

 
13,100

Other
27,792

 
28,174

Selling, general and administrative
124,679

 
124,028

Maintenance and utilities
43,264

 
39,209

Depreciation and amortization
66,179

 
70,038

Corporate expense
19,920

 
15,356

Preopening expense
784

 
2,365

Impairments of assets
1,633

 
—

Asset transactions costs
155

 
3,013

Other operating items, net
(186
)
 
1,566

Total operating costs and expenses
639,833

 
654,164

Operating income
68,516

 
81,420

Other expense (income)
 
 
 
Interest income
(476
)
 
(656
)
Interest expense, net
75,503

 
95,682

Loss on early extinguishments of debt
154

 
—

Other, net
(288
)
 
(518
)
Total other expense, net
74,893

 
94,508

Loss from continuing operations before income taxes
(6,377
)
 
(13,088
)
Income taxes benefit (expense)
(4,848
)
 
2,424

Loss from continuing operations, net of tax
(11,225
)
 
(10,664
)
Income (loss) from discontinued operations, net of tax
—

 
(963
)
Net loss
(11,225
)
 
(11,627
)
Net loss attributable to noncontrolling interest
5,043

 
4,343

Net loss attributable to Boyd Gaming Corporation
$
(6,182
)
 
$
(7,284
)
 
 
 
 
Basic net loss per common share:
 
 
 
Continuing operations
$
(0.06
)
 
$
(0.07
)
Discontinued operations
—

 
(0.01
)
Basic net loss per common share
$
(0.06
)
 
$
(0.08
)
Weighted average basic shares outstanding
109,753

 
87,974

 
 
 
 
Diluted net loss per common share:
 
 
 
Continuing operations
$
(0.06
)
 
$
(0.07
)
Discontinued operations
—

 
(0.01
)
Diluted net loss per common share
$
(0.06
)
 
$
(0.08
)
Weighted average diluted shares outstanding
109,753

 
87,974


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

4



BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 
Three Months Ended
(In thousands)
March 31,
(Unaudited)
2014
 
2013
Net loss
$
(11,225
)
 
$
(11,627
)
Other comprehensive income, net of tax:
 
 
 
Fair value of adjustments to available-for-sale securities,
   net of tax of $370 and $0
539

 
295

Comprehensive loss
(10,686
)
 
(11,332
)
Less: net loss attributable to noncontrolling interest
(5,043
)
 
(4,343
)
Comprehensive loss attributable to Boyd Gaming
   Corporation
$
(5,643
)
 
$
(6,989
)

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

5



BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

 
Boyd Gaming Corporation Stockholders’ Equity
 
 
 
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss), Net
 
Noncontrolling
Interest
 
Total
 
 
 
 
 
 
(In thousands, except share data)
 
 
 
 
 
(Unaudited)
Shares
 
Amount
 
 
 
 
 
Balances, January 1, 2014
108,155,002

 
$
1,082

 
$
902,496

 
$
(432,074
)
 
$
(1,517
)
 
$
180,450

 
$
650,437

Net loss
—

 
—

 
—

 
(6,182
)
 
—

 
(5,043
)
 
(11,225
)
Comprehensive income attributable to Boyd
—

 
—

 
—

 
—

 
539

 
—

 
539

Stock options exercised
102,663

 
1

 
756

 
—

 
—

 
—

 
757

Release of restricted stock units, net of tax
39,503

 
—

 
(200
)
 
—

 
—

 
—

 
(200
)
Share-based compensation costs
—

 
—

 
6,481

 
—

 
—

 
—

 
6,481

Noncontrolling interests contribution
—

 
—

 
—

 
—

 
—

 
30

 
30

Balances, March 31, 2014
108,297,168

 
$
1,083

 
$
909,533

 
$
(438,256
)
 
$
(978
)
 
$
175,437

 
$
646,819


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


6
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


 
Three Months Ended
(In thousands)
March 31,
(Unaudited)
2014
 
2013
Cash Flows from Operating Activities
 
 
 
Net loss
$
(11,225
)
 
$
(11,627
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Loss on discontinued operations, net of tax
—

 
963

Depreciation and amortization
66,179

 
70,038

Amortization of debt financing costs
4,829

 
4,009

Amortization of discounts on debt
1,257

 
4,505

Loss on early extinguishments of debt
154

 
—

Share-based compensation expense
6,481

 
4,091

Deferred income taxes
4,143

 
8,920

Noncash impairments of assets
1,633

 
19

Other operating activities
(199
)
 
982

Changes in operating assets and liabilities:
 
 
 
Restricted cash
(10,267
)
 
(2,105
)
Accounts receivable, net
3,830

 
458

Inventories
1,223

 
213

Prepaid expenses and other current assets
(1,891
)
 
(4,718
)
Current other tax asset
50

 
(618
)
Income taxes receivable
(33
)
 
1,377

Other long-term tax assets
—

 
9,863

Other assets, net
(1,504
)
 
(6,407
)
Accounts payable and accrued liabilities
(9,695
)
 
22,950

Other long-term tax liabilities
605

 
(20,292
)
Other liabilities
1,599

 
6,283

Net cash provided by operating activities
57,169

 
88,904

Cash Flows from Investing Activities
 
 
 
Capital expenditures
(18,306
)
 
(22,558
)
Proceeds from sale of Echelon, net
—

 
343,750

Cash paid for exercise of LVE option
—

 
(187,000
)
Other investing activities
1,112

 
(103
)
Net cash provided by (used in) investing activities
(17,194
)
 
134,089

Cash Flows from Financing Activities
 
 
 
Borrowings under Boyd Gaming bank credit facility
188,500

 
202,200

Payments under Boyd Gaming bank credit facility
(224,275
)
 
(232,025
)
Borrowings under Peninsula bank credit facility
75,000

 
68,200

Payments under Peninsula bank credit facility
(90,525
)
 
(78,863
)
Borrowings under Borgata bank credit facility
116,200

 
103,600

Payments under Borgata bank credit facility
(119,400
)
 
(109,600
)
Debt financing costs, net
(71
)
 
694

Payments on long-term debt
(952
)
 
(10,814
)
Stock options exercised
757

 
—

Restricted stock units released, net
(200
)
 
—

Other financing activities
31

 
(50
)
Net cash used in financing activities
(54,935
)
 
(56,658
)
Cash Flows from Discontinued Operations
 
 
 
Cash flows from operating activities
—

 
(786
)
Cash flows from investing activities
—

 
(23
)
Cash flows from financing activities
—

 
—

Net cash used in discontinued operations
—

 
(809
)
Change in cash and cash equivalents
(14,960
)
 
165,526

Cash and cash equivalents, beginning of period
177,838

 
192,545

Change in cash classified as discontinued operations
—

 
36

Cash and cash equivalents, end of period
$
162,878

 
$
358,107

Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid for interest, net of amounts capitalized
$
80,541

 
$
88,261

Cash paid (received) for income taxes, net of refunds
84

 
(1,313
)
Supplemental Schedule of Noncash Investing and Financing Activities
 
 
 
Payables incurred for capital expenditures
$
12,478

 
$
18,445


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

7



BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013
______________________________________________________________________________________________________
NOTE 1.    ORGANIZATION AND BASIS OF PRESENTATION
Organization
Boyd Gaming Corporation (and together with its subsidiaries, the “Company,” "Boyd Gaming," “we” or “us”) was incorporated in the state of Nevada in 1988 and has been operating for almost 40 years. The Company's common stock is traded on the New York Stock Exchange under the symbol “BYD”.
We are a diversified operator of 21 wholly owned gaming entertainment properties and one property, Borgata Hotel Casino & Spa, in which we have a controlling interest in the limited liability company. Headquartered in Las Vegas, we have gaming operations in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi and New Jersey.

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and footnote disclosures necessary for complete financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The results for the periods indicated are unaudited, but reflect all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation of financial position, results of operations and cash flows. Results of operations and cash flows for the interim periods presented herein are not necessarily indicative of the results that would be achieved during a full year of operations or in future periods.

The accompanying condensed consolidated financial statements include the accounts of Boyd Gaming and its subsidiaries. Investments in unconsolidated affiliates, which are less than 50% owned and do not meet the consolidation criteria of the authoritative accounting guidance for voting interest, controlling interest or variable interest entities, are accounted for under the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the U.S. Securities and Exchange Commission ("SEC") on March 14, 2014.

Revisions and Reclassifications
The financial information for the three months ended March 31, 2013 is derived from our condensed consolidated financial statements and footnotes included in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 and has been revised to reflect the results of operations and cash flows of our Dania Jai-Alai property as discontinued operations. See Note 3, Disposition, for further discussion.

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Promotional Allowances
The retail value of accommodations, food and beverage, and other services furnished to guests without charge is included in gross revenues and then deducted as a promotional allowance. Promotional allowances also include incentives earned in our slot bonus program such as cash, complimentary play, and the estimated retail value of goods and services (such as complimentary rooms and food and beverages). We reward customers, through the use of bonus programs, with points based on amounts wagered that can be redeemed for a specified period of time, principally for complimentary play, and to a lesser extent for goods or services, depending upon the property.

8
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013
______________________________________________________________________________________________________



The amounts included in promotional allowances are as follows:
 
Three Months Ended
 
March 31,
(In thousands)
2014
 
2013
Rooms
$
35,424

 
$
35,120

Food and beverage
49,872

 
50,780

Other
25,095

 
26,015

Total promotional allowances
$
110,391

 
$
111,915


The estimated costs of providing such promotional allowances are as follows:
 
Three Months Ended
 
March 31,
(In thousands)
2014
 
2013
Rooms
$
14,134

 
$
14,711

Food and beverage
43,561

 
45,059

Other
5,014

 
5,126

Total cost of promotional allowances
$
62,709

 
$
64,896


Gaming Taxes
We are subject to taxes based on gross gaming revenues in the jurisdictions in which we operate. These gaming taxes are assessed based on our gaming revenues and are recorded as a gaming expense in the condensed consolidated statements of operations. These taxes totaled approximately $100.4 million and $102.3 million for the three months ended March 31, 2014 and 2013, respectively.

Income Taxes
Income taxes are recorded under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and attributable to operating loss and tax credit carryforwards. We reduce the carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on a more-likely-than-not realization threshold. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with the utilization of operating loss and tax credit carryforwards before expiration and tax planning strategies.

In accordance with GAAP, we have computed our provision for income taxes by applying the actual effective tax rate, under the discrete method, to quarter-to-date income. The discrete method was used to calculate the income tax expense or benefit as the annual effective tax rate was not considered a reliable estimate of year-to-date income tax expense or benefit. We believe this method provides the most reliable estimate of year-to-date income tax expense.

Our current rate is impacted by adjustments that are largely independent of our operating results before taxes.  Such adjustments relate primarily to the accrual of non-cash tax expense in connection with the tax amortization of indefinite-lived intangible assets that are not available to offset existing deferred tax assets.  The deferred tax liabilities created by the tax amortization of these intangibles cannot be used to offset corresponding increases in the net operating loss deferred tax assets when determining our valuation allowance.

Other Long Term Tax Liabilities
The Company's income tax returns are subject to examination by the Internal Revenue Service (“IRS”) and other tax authorities in the locations where it operates. The Company assesses potentially unfavorable outcomes of such examinations based on accounting standards for uncertain income taxes, which prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.


9
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013
______________________________________________________________________________________________________



Uncertain tax position accounting standards apply to all tax positions related to income taxes. These accounting standards utilize a two-step approach for evaluating tax positions. Recognition occurs when the Company concludes that a tax position, based on its technical merits, is more likely than not to be sustained upon examination. Measurement is only addressed if the position is deemed to be more likely than not to be sustained. The tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon settlement. Use of the term “more likely than not” indicates the likelihood of occurrence is greater than 50%.

Tax positions failing to qualify for initial recognition are recognized in the first subsequent interim period that they meet the “more likely than not” standard. If it is subsequently determined that a previously recognized tax position no longer meets the “more likely than not” standard, it is required that the tax position is derecognized. Accounting standards for uncertain tax positions specifically prohibit the use of a valuation allowance as a substitute for derecognition of tax positions. As applicable, the Company will recognize accrued penalties and interest related to unrecognized tax benefits in the provision for income taxes. Accrued interest and penalties are included in the related tax long term liability balance.

Net Loss per Share
Basic net income (loss) per share is computed by dividing net income (loss) applicable to Boyd Gaming Corporation stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the additional dilution for all potentially-dilutive securities, such as stock options.

Due to the net losses for the three months ended March 31, 2014 and 2013, the effect of all potential common share equivalents was anti-dilutive, and therefore all such shares, 942,141 and 379,593, respectively, were excluded from the computation of diluted weighted average shares outstanding.

Use of Estimates
The preparation of financial statements in conformity with GAAP 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. Actual results could differ from these estimates.

Recently Issued Accounting Pronouncements
A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of such proposed standards would have on our consolidated financial statements.

Accounting Standards Update 2013-11 Income Taxes (Topic 740) Presentation of an Unrecognized Tax Benefit ("UTB") When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("Update 2013-11")
In July 2013, the FASB issued ASU 2013-11. The objective of Update 2013-11 is to provide guidance on the financial statement presentation of an Unrecognized Tax Benefit (“UTB”) when a net operating loss ("NOL") carryforward, a similar tax loss, or a tax credit carryforward exists. The Company is required to present an UTB in the financial statements as a reduction to a deferred tax asset for a NOL carryforward, a similar tax loss, or a tax credit carryforward.

Update 2013-11 is effective for interim and annual periods beginning after December 15, 2013. The adoption of Update 2013-11 did not have a material effect on our consolidated financial statements.

NOTE 3.    DISPOSITION
Discontinued Operations - Disposition of Dania Jai-Alai
On May 22, 2013, we consummated the sale of certain assets and liabilities of the Dania pari-mutuel facility ("Dania Jai-Alia"), located in Broward County, Florida, for a sales price of $65.5 million. The sale was pursuant to an asset agreement (the "New Dania Agreement") that we entered into with Dania Entertainment Center, LLC ("Dania Entertainment"). As part of the New Dania Agreement, the $5 million non-refundable deposit and $2 million fees paid to us in 2011 by Dania Entertainment were applied to the sales price, and we received $58.5 million in cash and recorded a pre-tax gain of $18.9 million in second quarter 2013. We have presented the results of Dania Jai-Alai Business as discontinued operations for all periods presented in these condensed consolidated financial statements. There were no assets and liabilities of the discontinued operation as of March 31, 2014 and December 31, 2013.


10
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013
______________________________________________________________________________________________________



NOTE 4.    CONSOLIDATION OF CERTAIN INTERESTS
Controlling Interest
Borgata Hotel Casino and Spa
Overview
The Company and MGM Resorts International ("MGM") each originally held a 50% interest in Marina District Development Holding Co., LLC (“Holding Company”). Holding Company owns all the equity interests in Marina District Development Company, LLC, d.b.a. Borgata Hotel Casino and Spa. We are the managing member of Holding Company, and we are responsible for the day-to-day operations of Borgata, including the improvement of the facility and business. As a result, we consolidate the Borgata into our financial statements.

In February 2010, we entered into an agreement with MGM to amend the operating agreement to, among other things, facilitate the transfer of MGM's interest in the Holding Company ("MGM Interest") to a divestiture trust (the "Divestiture Trust") established for the purpose of selling the MGM Interest to a third party. The proposed sale of the MGM Interest through the Divestiture Trust was part of a then-proposed settlement agreement between MGM and the New Jersey Department of Gaming Enforcement (the “NJDGE”).

On March 17, 2010, MGM announced that its settlement agreement with the NJDGE had been approved by the New Jersey Casino Control Commission ("NJCCC"). Under the terms of the settlement agreement, MGM agreed to transfer the MGM Interest into the Divestiture Trust and further agreed to sell such interest within a 30-month period. During the first 18 months of such period, MGM had the power to direct the trustee to sell the MGM Interest, subject to the approval of the NJCCC. If the sale was not completed by such time, the trustee would have been solely responsible for the sale of the MGM Interest. The MGM Interest was transferred to the Divestiture Trust on March 24, 2010.

MGM has subsequently announced that it has entered into an amendment with respect to its settlement agreement with the NJDGE, as approved by the NJCCC. The amended agreement provided that until March 24, 2013, MGM had the right to direct the Divestiture Trust to sell the MGM Interest. If a sale was not concluded by that time, the Divestiture Trust was to be responsible for selling MGM's Interest during the following 12-month period, or not later than March 24, 2014. Subsequent to a Joint Petition of MGM, Boyd and Marina District Development Company, LLC ("MDDC"), the NJCCC, on February 13, 2013, approved amendments to the Stipulation of Settlement and Trust Agreement which permits MGM to file an application for a statement of compliance, which, if approved, could permit MGM to reacquire its interest in MDDC. The deadline requiring MGM and the Divestiture Trust to sell the MGM Interest has been tolled to allow the NJCCC to complete a review of the application. The Company has a right of first refusal on any sale of the MGM Interest.

Deconsolidation of Variable Interest
LVE Energy Partners, LLC
LVE Energy Partners, LLC ("LVE") was a joint venture between Marina Energy LLC and DCO ECH Energy, LLC. Through our wholly-owned subsidiary, Echelon Resorts, LLC ("Echelon Resorts"), we had entered into an Energy Sales Agreement ("ESA") with LVE to design, build, own and operate a central energy center and related distribution system for our planned Echelon resort development.

Accounting guidance required us to consolidate LVE for financial statement purposes, as we determined that we were the primary beneficiary of the executory contract, the ESA, giving rise to the variable interest.

In connection with the disposition of Echelon on March 4, 2013, we exercised an option to acquire the central energy center assets from LVE for $187.0 million. We immediately sold these assets to the buyer of Echelon and the ESA was terminated. As a result, we ceased consolidation of LVE as of that date.


11
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013
______________________________________________________________________________________________________



NOTE 5.    PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
 
 
 
 
 
March 31,
 
December 31,
(In thousands)
2014
 
2013
Land
$
334,746

 
$
336,079

Buildings and improvements
3,854,230

 
3,852,039

Furniture and equipment
1,359,670

 
1,332,090

Riverboats and barges
189,569

 
189,175

Construction in progress
60,677

 
72,141

Other
21,450

 
21,750

Total property and equipment
5,820,342

 
5,803,274

Less accumulated depreciation
2,354,777

 
2,297,661

Property and equipment, net
$
3,465,565

 
$
3,505,613


Other property and equipment presented in the table above relates to the estimated net realizable value of construction materials inventory that was not disposed of with the sale of the Echelon project. Such assets are not in service and are not currently being depreciated.

Depreciation expense for the three months ended March 31, 2014 and 2013 was $57.7 million and $58.2 million, respectively.

NOTE 6.    INTANGIBLE ASSETS
Intangible assets consist of the following:
 
March 31, 2014
 
Weighted
 
Gross
 
 
 
Cumulative
 
 
 
Average Life
 
Carrying
 
Cumulative
 
Impairment
 
Intangible
(In thousands)
Remaining
 
Value
 
Amortization
 
Losses
 
Assets, Net
Amortizing intangibles:
 
 
 
 
 
 
 
 
 
Customer relationships
3.3 years
 
$
154,000

 
$
(77,060
)
 
$
—

 
$
76,940

Favorable lease rates
34.1 years
 
45,370

 
(10,173
)
 
—

 
35,197

Development agreement
—
 
21,373

 
—

 
—

 
21,373

 
 
 
220,743

 
(87,233
)
 
—

 
133,510

 
 
 
 
 
 
 
 
 
 
Indefinite lived intangible assets:
 
 
 
 
 
 
 
 
 
Trademarks and other
Indefinite
 
196,487

 
—

 
(8,200
)
 
188,287

Gaming license rights
Indefinite
 
955,135

 
(33,960
)
 
(180,900
)
 
740,275

 
 
 
1,151,622

 
(33,960
)
 
(189,100
)
 
928,562

Balance, March 31, 2014
 
 
$
1,372,365

 
$
(121,193
)
 
$
(189,100
)
 
$
1,062,072



12
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013
______________________________________________________________________________________________________



 
December 31, 2013
 
Weighted
 
Gross
 
 
 
Cumulative
 
 
 
Average Life
 
Carrying
 
Cumulative
 
Impairment
 
Intangible
(In thousands)
Remaining
 
Value
 
Amortization
 
Losses
 
Assets, Net
Amortizing intangibles:
 
 
 
 
 
 
 
 
 
Customer relationships
3.6 years
 
$
154,000

 
$
(68,733
)
 
$
—

 
$
85,267

Non-competition agreement
—
 
3,200

 
(3,200
)
 
—

 
—

Favorable lease rates
34.4 years
 
45,370

 
(9,912
)
 
—

 
35,458

     Development agreement
—
 
21,373

 
—

 
—

 
21,373

 
 
 
223,943

 
(81,845
)
 
—

 
142,098

 
 
 
 
 
 
 
 
 
 
Indefinite lived intangible assets:
 
 
 
 
 
 
 
 
 
Trademarks and other
Indefinite
 
196,487

 
—

 
(8,200
)
 
188,287

Gaming license rights
Indefinite
 
955,135

 
(33,960
)
 
(180,900
)
 
740,275

 
 
 
1,151,622

 
(33,960
)
 
(189,100
)
 
928,562

Balance, December 31, 2013
 
 
$
1,375,565

 
$
(115,805
)
 
$
(189,100
)
 
$
1,070,660


NOTE 7.    ACCRUED LIABILITIES
Accrued liabilities consist of the following:
 
March 31,
 
December 31,
(In thousands)
2014
 
2013
Payroll and related expenses
$
83,133

 
$
90,602

Interest
35,941

 
47,497

Gaming liabilities
83,109

 
83,304

Accrued liabilities
137,186

 
120,544

Total accrued liabilities
$
339,369

 
$
341,947



13
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013
______________________________________________________________________________________________________



NOTE 8.    LONG-TERM DEBT
Long-term debt, net of current maturities consists of the following:
 
 
 
March 31, 2014
 
 
 
 
 
 
 
Unamortized
 
 
 
Rates at
 
Outstanding
 
Unamortized
 
Origination
 
Long-Term
(In thousands)
Mar. 31, 2014
 
Principal
 
Discount
 
Fees
 
Debt, Net
Boyd Debt:
 
 
 
 
 
 
 
 
 
Boyd Gaming Debt:
 
 
 
 
 
 
 
 
 
Bank credit facility
3.67
%
 
$
1,431,950

 
$
(4,073
)
 
$
—

 
$
1,427,877

9.125% senior notes due 2018
9.13
%
 
500,000

 
—

 
(5,773
)
 
494,227

9.00% senior notes due 2020
9.00
%
 
350,000

 
—

 
—

 
350,000

HoldCo Note
6.00
%
 
143,030

 
(16,677
)
 
—

 
126,353

 
 
 
2,424,980

 
(20,750
)
 
(5,773
)
 
2,398,457

 
 
 
 
 
 
 
 
 
 
Peninsula Segment Debt:
 
 
 
 
 
 
 
 
 
Bank credit facility
4.20
%
 
786,625

 
—

 
—

 
786,625

8.375% senior notes due 2018
8.38
%
 
350,000

 
—

 
—

 
350,000

Other
various

 
11

 
—

 
—

 
11

 
 
 
1,136,636

 
—

 
—

 
1,136,636

Total Boyd Debt
 
 
3,561,616

 
(20,750
)
 
(5,773
)
 
3,535,093

 
 
 
 
 
 
 
 
 
 
Borgata Debt:
 
 
 
 
 
 
 
 
 
Bank credit facility
3.86
%
 
36,700

 
—

 
—

 
36,700

Incremental term loan
6.75
%
 
379,050

 
(3,563
)
 
—

 
375,487

9.875% senior secured notes due 2018
9.88
%
 
393,500

 
(1,733
)
 
(6,281
)
 
385,486

Total Borgata Debt
 
 
809,250

 
(5,296
)
 
(6,281
)
 
797,673

Less current maturities
 
 
31,497

 
—

 
—

 
31,497

Long-term debt, net
 
 
$
4,339,369

 
$
(26,046
)
 
$
(12,054
)
 
$
4,301,269



14
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013
______________________________________________________________________________________________________



 
 
 
December 31, 2013
 
 
 
 
 
 
 
Unamortized
 
 
 
Rates at
 
Outstanding
 
Unamortized
 
Origination
 
Long-Term
(In thousands)
Dec. 31, 2013
 
Principal
 
Discount
 
Fees
 
Debt, Net
Boyd Debt:
 
 
 
 
 
 
 
 
 
Boyd Gaming Debt:
 
 
 
 
 
 
 
 
 
Bank credit facility
3.66
%
 
$
1,467,725

 
$
(4,233
)
 
$
—

 
$
1,463,492

9.125% senior notes due 2018
9.13
%
 
500,000

 
—

 
(6,082
)
 
493,918

9.00% senior notes due 2020
9.00
%
 
350,000

 
—

 
—

 
350,000

HoldCo Note and other
6.00
%
 
143,030

 
(17,371
)
 
—

 
125,659

 
 
 
2,460,755

 
(21,604
)
 
(6,082
)
 
2,433,069

 
 
 
 
 
 
 
 
 
 
Peninsula Segment Debt:
 
 
 
 
 
 
 
 
 
Bank credit facility
4.20
%
 
802,150

 
—

 
—

 
802,150

8.375% senior notes due 2018
8.38
%
 
350,000

 
—

 
—

 
350,000

Other
various

 
12

 
—

 
—

 
12

 
 
 
1,152,162

 
—

 
—

 
1,152,162

Total Boyd Debt
 
 
3,612,917

 
(21,604
)
 
(6,082
)
 
3,585,231

 
 
 
 
 
 
 
 
 
 
Borgata Debt:
 
 
 
 
 
 
 
 
 
Bank credit facility
3.86
%
 
39,900

 
—

 
—

 
39,900

Incremental term loan
6.75
%
 
380,000

 
(3,766
)
 
—

 
376,234

9.875% senior secured notes due 2018
9.88
%
 
393,500

 
(1,811
)
 
(6,563
)
 
385,126

Total Borgata Debt
 
 
813,400

 
(5,577
)
 
(6,563
)
 
801,260

Less current maturities
 
 
33,559

 
—

 
—

 
33,559

Long-term debt, net
 
 
$
4,392,758

 
$
(27,181
)
 
$
(12,645
)
 
$
4,352,932


Boyd Gaming Debt
Boyd Bank Credit Facility
The net amounts outstanding under the Third Amended and Restated Credit Agreement (the "Boyd Gaming Credit Facility") were:
(In thousands)
March 31, 2014
 
December 31, 2013
Revolving Credit Facility
$
280,000

 
$
295,000

Term A Loan
243,750

 
246,875

Term B Loan
895,500

 
897,750

Swing Loan
8,627

 
23,867

Total outstanding borrowings under the Boyd Gaming Credit Facility
$
1,427,877

 
$
1,463,492


At March 31, 2014, approximately $1.4 billion was outstanding under the Boyd Gaming Credit Facility and $7.8 million was allocated to support various letters of credit, leaving remaining contractual availability of $299.5 million.

Peninsula Segment Debt
Bank Credit Facility
At March 31, 2014, approximately $786.6 million was outstanding under the Peninsula $875.0 million senior secured credit facility (the "Peninsula Credit Facility") and $5.2 million was allocated to support various letters of credit, leaving remaining contractual availability of $34.8 million.


15
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013
______________________________________________________________________________________________________



Borgata Debt
Borgata Bank Credit Facility
At March 31, 2014, approximately $36.7 million was outstanding under the Marina District Finance Company Inc. ("MDFC") Amended and Restated Credit Agreement (the “Borgata Credit Facility”) and $3.2 million was allocated to support a letter of credit, leaving remaining contractual availability of $20.1 million.

Covenant Compliance
As of March 31, 2014, we believe that Boyd Gaming, Peninsula and Borgata were in compliance with the financial and other covenants of their respective debt instruments.

NOTE 9.    COMMITMENTS AND CONTINGENCIES
Commitments
There have been no material changes to our commitments described under Note 13, Commitments and Contingencies, in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 14, 2014.

Borgata Property Taxes
Borgata has filed tax appeal complaints, in connection with its property tax assessments for tax years 2009 through 2014, in New Jersey Tax Court (“Court”). The trial for tax years 2009 and 2010 was held during the second quarter of 2013 and a decision was issued on October 18, 2013. The assessor valued Borgata’s real property at approximately $2.3 billion. The Court found in favor of the Borgata and reduced the real property valuation to $880 million and $870 million for tax years 2009 and 2010, respectively. The City of Atlantic City filed an appeal in the New Jersey Superior Court - Appellate Division in November 2013. Borgata has paid its property tax obligations consistent with the assessor’s valuation and based on the Court’s decision, we estimate the 2009 and 2010 property tax refunds and related statutory interest will be approximately $48.0 million and $9.0 million, respectively. The trial date for tax years 2011 through 2013 was extended and the trial is scheduled to be held in September 2014. We filed an appeal complaint in connection with our 2014 valuation in February 2014 and continue to pay our property tax obligations in accordance with the assessor’s valuation. A trial date for the 2014 appeal has not been scheduled. We can provide no assurances that the Court’s decision will be upheld at the appellate level, nor can we be certain that we will receive a favorable decision in the 2011 through 2014 appeals. Due to the uncertainty surrounding the ultimate resolution of the City’s appeal, we will not record any gain until a final, non-appealable decision has been rendered. The final resolution of our appeals for the period January 1, 2009 through March 31, 2014 could result in adjustment to our estimated property tax liability at Borgata.

Contingencies
Legal Matters
We are parties to various legal proceedings arising in the ordinary course of business. We believe that all pending claims, if adversely decided, would not have a material adverse effect on our business, financial position or results of operations.

NOTE 10.    STOCKHOLDERS' EQUITY AND STOCK INCENTIVE PLANS
Share-Based Compensation
We account for share-based awards exchanged for employee services in accordance with the authoritative accounting guidance for share-based payments. Under the guidance, share-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense, net of estimated forfeitures, over the employee's requisite service period.


16
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013
______________________________________________________________________________________________________



The following table provides classification detail of the total costs related to our share-based employee compensation plans reported in our condensed consolidated statements of operations.
 
Three Months Ended
 
March 31,
(In thousands)
2014
 
2013
Gaming
$
115

 
$
59

Food and beverage
22

 
11

Room
10

 
5

Selling, general and administrative
584

 
298

Corporate expense
5,750

 
3,718

Total shared-based compensation expense
$
6,481

 
$
4,091


NOTE 11.    NONCONTROLLING INTEREST
Noncontrolling interest represents (i) the 50% interest in Holding Company held by the Divestiture Trust for the economic benefit of MGM, which was initially recorded at fair value at the March 24, 2010 date of the effective change in control, on March 24, 2010; and (ii) until the Echelon sale, which closed on March 4, 2013, all 100% of the members' equity interest in LVE, the variable interest entity which had been consolidated in our financial statements, but in which we hold no equity interest.

Changes in the noncontrolling interest are as follows:
 
Three Months Ended March 31, 2014
(In thousands)
Holding Company
 
Other
 
Total
Balance, January 1, 2014
$
180,430

 
$
20

 
$
180,450

     Attributable net loss
(5,043
)
 
—

 
(5,043
)
Capital contributions
—

 
30

 
30

Balance, March 31, 2014
$
175,387

 
$
50

 
$
175,437

 
Three Months Ended March 31, 2013
(In thousands)
Holding Company
 
LVE
 
Other
 
Total
Balance, January 1, 2013
$
208,277

 
$
(44,961
)
 
$
20

 
$
163,336

     Attributable net loss
(3,900
)
 
(443
)
 
—

 
(4,343
)
Deconsolidation of LVE on March 4, 2013
—

 
45,404

 
—

 
45,404

Balance, March 31, 2013
$
204,377

 
$
—

 
$
20

 
$
204,397


NOTE 12.     FAIR VALUE MEASUREMENTS
We have adopted the authoritative accounting guidance for fair value measurements, which does not determine or affect the circumstances under which fair value measurements are used, but defines fair value, expands disclosure requirements around fair value and specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions.

These inputs create the following fair value hierarchy:

Level 1: Quoted prices for identical instruments in active markets.
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

17
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013
______________________________________________________________________________________________________



Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

As required by the guidance for fair value measurements, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Thus, assets and liabilities categorized as Level 3 may be measured at fair value using inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Management's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy levels.

Balances Measured at Fair Value
The following tables show the fair values of certain of our financial instruments.
 
March 31, 2014
(In thousands)
Balance
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
162,878

 
$
162,878

 
$
—

 
$
—

Restricted cash
30,953

 
30,953

 
—

 
—

CRDA deposits
5,547

 
—

 
—

 
5,547

Investment available for sale
18,067

 
—

 
—

 
18,067

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Merger earnout
$
750

 
$
—

 
$
—

 
$
750

Contingent payments
4,330

 
—

 
—

 
4,330


 
December 31, 2013
(In thousands)
Balance
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
177,838

 
$
177,838

 
$
—

 
$
—

Restricted cash
20,686

 
20,686

 
—

 
—

CRDA deposits
4,613

 
—

 
—

 
4,613

Investment available for sale
17,128

 
—

 
—

 
17,128

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Merger earnout
$
1,125

 
$
—

 
$
—

 
$
1,125

Contingent payments
4,343

 
—

 
—

 
4,343


Cash and Cash Equivalents and Restricted Cash
The fair value of our cash and cash equivalents and restricted cash, classified in the fair value hierarchy as Level 1, are based on statements received from our banks at March 31, 2014 and December 31, 2013.

CRDA Deposits
The fair value of Borgata's CRDA deposits, classified in the fair value hierarchy as Level 3, is based on estimates of the realizable value applied to the balances on statements received from the CRDA at March 31, 2014 and December 31, 2013.


18
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013
______________________________________________________________________________________________________



Investment Available for Sale
We have an investment in a single municipal bond issuance of $22.1 million aggregate principal amount of 7.5% Urban Renewal Tax Increment Revenue Bonds, Taxable Series 2007 that is classified as available for sale. We are the only holder of this instrument and there is no quoted market price for this instrument. As such, the fair value of this investment is classified as Level 3 in the fair value hierarchy. The estimate of the fair value of such investment was determined using a combination of current market rates and estimates of market conditions for instruments with similar terms, maturities, and degrees of risk and a discounted cash flows analysis as of March 31, 2014 and December 31, 2013. Unrealized gains and losses on this instrument resulting from changes in the fair value of the instrument are not charged to earnings, but rather are recorded as other comprehensive income (loss) in the stockholders' equity section of the condensed consolidated balance sheets. At March 31, 2014 and December 31, 2013, $0.4 million and $0.3 million, respectively, of the carrying value of the investment available for sale is included as a current asset in prepaid expenses and other current assets, and at March 31, 2014 and December 31, 2013, $17.7 million and $16.8 million, respectively, is included in other assets on the condensed consolidated balance sheets. The discount associated with this investment of $3.4 million and $3.5 million as of March 31, 2014 and December 31, 2013, respectively, is netted with the investment balance and is being accreted over the life of the investment using the effective interest method. The accretion of such discount is included in interest income on the consolidated statements of operations.

Merger Earnout
Under the terms of the Merger Agreement, Boyd Acquisition II, LLC, an indirect wholly owned subsidiary of Boyd, is obligated to make an additional payment to PGP in 2016 if Kansas Star Casino's ("KSC") EBITDA, as defined in the Merger Agreement, for 2015 exceeds $105.0 million. The additional payment would be equal to 7.5 times the amount by which KSC's 2015 EBITDA exceeds $105.0 million. The actual payout will be determined based on actual EBITDA of KSC for calendar year 2015, and payments are not limited by a maximum value. If the actual 2015 EBITDA of KSC is less than the target, the Company is not required to make any additional consideration payment. The liability was initially recorded upon consummation of the Merger, at the estimated fair value of the earnout determined in conjunction with the preliminary purchase price allocation using the modified Black-Scholes option pricing model, which requires the following assumptions: expected EBITDA volatility, forecasted 2015 EBITDA, risk-free interest rates and risk adjusted discount rate. The fair value of the earnout liability is not yet finalized and is therefore subject to change. We formed our preliminary valuation assumptions using historical experience in the gaming industry and observable market conditions. The contingent consideration agreement will be fair valued periodically with updated assumptions and any change in the fair value of the obligation will be included in the consolidated statements of comprehensive income (loss). At March 31, 2014 and December 31, 2013, there were outstanding liabilities of $0.8 million and $1.1 million, respectively, related to the merger earnout which are included in other liabilities on the condensed consolidated balance sheets.

Contingent Payments
In connection with the development of the Kansas Star Casino, KSC agreed to pay a former casino project developer and option holder 1% of KSC’s EBITDA each month for a period of ten years commencing December 20, 2011. The liability was initially recorded upon consummation of the Merger, at the estimated fair value of the contingent land purchase price using a discounted cash flows approach. At both March 31, 2014 and December 31, 2013, there was a current liability of $0.9 million related to this agreement, which was recorded in accrued liabilities on the respective condensed consolidated balance sheets, and long-term obligations of $3.4 million, which were included in other liabilities on the respective condensed consolidated balance sheets.

19
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013
______________________________________________________________________________________________________




The following table summarizes the fair value of the Company's Level 3 assets and liabilities:
 
Three Months Ended March 31, 2014
 
Assets
 
Liabilities
(In thousands)
Investment
Available for
Sale
 
CRDA
Deposits
 
Merger
Earnout
 
Contingent
Payments
Balance at January 1, 2014
$
17,128

 
$
4,613

 
$
(1,125
)
 
$
(4,343
)
Deposits
—

 
1,747

 
—

 
—

Total gains (losses) (realized or unrealized):
 
 
 
 
 
 
 
Included in earnings
30

 
(554
)
 
375

 
(185
)
Included in other comprehensive income (loss)
909

 
—

 
—

 
—

Transfers in or out of Level 3
—

 
—

 
—

 
—

Purchases, sales, issuances and settlements:
 
 
 
 
 
 
 
Settlements
—

 
(259
)
 
—

 
198

Ending balance at March 31, 2014
$
18,067

 
$
5,547

 
$
(750
)
 
$
(4,330
)
 
 
 
 
 
 
 
 
Gains (losses) included in earnings attributable to the change in unrealized gains relating to assets and liabilities still held at the reporting date:
 
 
 
 
 
 
 
Included in interest income
$
30

 
$
—

 
$
—

 
$
—

Included in interest expense
—

 
—

 
—

 
(185
)

 
Three Months Ended March 31, 2013
 
Assets
 
Liabilities
(In thousands)
Investment
Available for
Sale
 
CRDA
Deposits
 
Merger
Earnout
 
Contingent
Payments
Balance at January 1, 2013
$
17,907

 
$
28,464

 
$
(9,800
)
 
$
(4,563
)
Deposits
—

 
1,682

 
—

 
—

Total gains (losses) (realized or unrealized):
 
 
 
 
 
 
 
Included in earnings
21

 
(1,045
)
 
817

 
(194
)
Included in other comprehensive income (loss)
295

 
—

 
—

 
—

Transfers in or out of Level 3
—

 
—

 
—

 
—

Purchases, sales, issuances and settlements:
 
 
 
 
 
 
 
Settlements
—

 
—

 
—

 
235

Ending balance at March 31, 2013
$
18,223

 
$
29,101

 
$
(8,983
)
 
$
(4,522
)
 
 
 
 
 
 
 
 
Gains (losses) included in earnings attributable to the change in unrealized gains relating to assets and liabilities still held at the reporting date:
 
 
 
 
 
 
 
Included in interest income
$
21

 
$
—

 
$
—

 
$
—

Included in interest expense
—

 
—

 
—

 
(194
)
Included in non-operating income
—

 
—

 
817

 
—




20
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013
______________________________________________________________________________________________________



The table below summarizes the significant unobservable inputs used in calculating fair value for our Level 3 assets and liabilities:
 
Valuation
Technique
 
Unobservable
Input
 
Rate
Investment available for sale
Discounted cash flow
 
Discount rate
 
10.5
%
CRDA deposits
Valuation allowance
 
Reserves
 
33.3
%
Merger earnout
Probability-based model
 
Estimated probability
 
5.0
%
Contingent payments
Discounted cash flow
 
Discount rate
 
18.5
%

Balances Disclosed at Fair Value
The following tables provide the fair value measurement information about our obligation under minimum assessment agreements and other financial instruments:
 
March 31, 2014
(In thousands)
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
Liabilities
 
 
 
 
 
 
 
Obligation under assessment arrangements
$
37,620

 
$
28,983

 
$
28,663

 
Level 3
Other financial instruments
400

 
350

 
350

 
Level 3

 
December 31, 2013
(In thousands)
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
Liabilities
 
 
 
 
 
 
 
Obligation under assessment arrangements
$
37,783

 
$
28,980

 
$
27,608

 
Level 3
Other financial instruments
400

 
343

 
343

 
Level 3

The following tables provide the fair value measurement information about our long-term debt:
 
March 31, 2014
(In thousands)
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
Boyd Debt:
 
 
 
 
 
 
 
Boyd Gaming Debt:
 
 
 
 
 
 
 
Bank credit facility
$
1,431,950

 
$
1,427,877

 
$
1,446,547

 
Level 2
9.125% Senior Notes due 2018
500,000

 
494,227

 
540,000

 
Level 1
9.00% Senior Notes due 2020
350,000

 
350,000

 
385,000

 
Level 1
HoldCo Note
143,030

 
126,353

 
135,879

 
Level 3
 
2,424,980

 
2,398,457

 
2,507,426

 
 
 
 
 
 
 
 
 
 
Peninsula Segment Debt:
 
 
 
 
 
 
 
Bank credit facility
786,625

 
786,625

 
799,284

 
Level 2
8.375% Senior Notes due 2018
350,000

 
350,000

 
377,125

 
Level 2
Other
11

 
11

 
11

 
Level 3
 
1,136,636

 
1,136,636

 
1,176,420

 
 
Total Boyd Debt
3,561,616

 
3,535,093

 
3,683,846

 
 
 
 
 
 
 
 
 
 
Borgata Debt:
 
 
 
 
 
 
 
Bank credit facility
36,700

 
36,700

 
36,700

 
Level 2
Incremental term loan
379,050

 
375,487

 
384,421

 
Level 2
9.875% senior secured notes due 2018
393,500

 
385,486

 
421,045

 
Level 1
Total Borgata debt
809,250

 
797,673

 
842,166

 
 
Total debt
$
4,370,866

 
$
4,332,766

 
$
4,526,012

 
 

21
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013
______________________________________________________________________________________________________




 
December 31, 2013
(In thousands)
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
Boyd Debt:
 
 
 
 
 
 
 
Boyd Gaming Debt:
 
 
 
 
 
 
 
Bank credit facility
$
1,467,725

 
$
1,463,492

 
$
1,469,969

 
Level 2
9.125% Senior Notes due 2018
500,000

 
493,918

 
543,750

 
Level 1
9.00% Senior Notes due 2020
350,000

 
350,000

 
383,250

 
Level 1
HoldCo Note
143,030

 
125,659

 
125,659

 
Level 3
 
2,460,755

 
2,433,069

 
2,522,628

 
 
 
 
 
 
 
 
 
 
Peninsula Segment Debt:
 
 
 
 
 
 
 
Bank credit facility
802,150

 
802,150

 
814,941

 
Level 2
8.375% Senior Notes due 2018
350,000

 
350,000

 
381,500

 
Level 2
Other
12

 
12

 
12

 
Level 3
 
1,152,162

 
1,152,162

 
1,196,453

 

Total Boyd Debt
3,612,917

 
3,585,231

 
3,719,081

 

 
 
 
 
 
 
 
 
Borgata Debt:
 
 
 
 
 
 
 
Bank credit facility
39,900

 
39,900

 
39,900

 
Level 2
Incremental term loan
380,000

 
376,234

 
381,900

 
Level 2
9.875% senior secured notes due 2018
393,500

 
385,126

 
425,472

 
Level 1
Total Borgata debt
813,400

 
801,260

 
847,272

 
 
Total debt
$
4,426,317

 
$
4,386,491

 
$
4,566,353

 
 

The estimated fair value of the Boyd Gaming Credit Facility is based on a relative value analysis performed on or about March 31, 2014 and December 31, 2013. The estimated fair value of the Peninsula Credit Facility is based on a relative value analysis performed on or about March 31, 2014 and December 31, 2013. The estimated fair value of the Borgata Credit Facility at March 31, 2014 and December 31, 2013 approximates its carrying value due to the short-term nature and variable repricing of the underlying Eurodollar loans comprising the Borgata Credit Facility. The estimated fair values of our senior notes, Peninsula's senior notes and Borgata's senior secured notes are based on quoted market prices as of March 31, 2014 and December 31, 2013. Debt included in the “Other” category is fixed-rate debt that is not traded and does not have an observable market input; therefore, we have estimated its fair value based on a discounted cash flow approach, after giving consideration to the changes in market rates of interest, creditworthiness of both parties, and credit spreads.

There were no transfers between Level 1, Level 2 and Level 3 measurements during the three months ended March 31, 2014 or 2013.



22
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2014 and December 31, 2013 and for the three months ended March 31, 2014 and 2013
______________________________________________________________________________________________________



NOTE 13.    SEGMENT INFORMATION
We have aggregated certain of our properties in order to present five Reportable Segments: (i) Las Vegas Locals; (ii) Downtown Las Vegas; (iii) Midwest and South; (iv) Peninsula; and (v) Borgata. The table below lists the classification of each of our properties.
Las Vegas Locals
 
Gold Coast Hotel and Casino
Las Vegas, Nevada
The Orleans Hotel and Casino
Las Vegas, Nevada
Sam's Town Hotel and Gambling Hall
Las Vegas, Nevada
Suncoast Hotel and Casino
Las Vegas, Nevada
Eldorado Casino
Henderson, Nevada
Jokers Wild Casino
Henderson, Nevada
Downtown Las Vegas
 
California Hotel and Casino
Las Vegas, Nevada
Fremo