BYD 10Q 6.30.2014

 
 
 
 
 
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 June 30, 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 July 31, 2014
 
 
Common stock, $0.01 par value
  
108,386,736
 

BOYD GAMING CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 2014
TABLE OF CONTENTS
 




 
 
Page
No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





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

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30,
 
December 31,
(Unaudited)
2014
 
2013
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
162,512

 
$
177,838

Restricted cash
28,513

 
20,686

Accounts receivable, net
64,619

 
65,569

Inventories
19,723

 
19,719

Prepaid expenses and other current assets
54,679

 
42,460

Income taxes receivable
1,189

 
1,143

Deferred income taxes and current tax assets
5,417

 
7,265

Total current assets
336,652

 
334,680

Property and equipment, net
3,444,449

 
3,505,613

Debt financing costs, net
74,494

 
84,209

Other assets, net
64,022

 
61,259

Intangible assets, net
1,051,484

 
1,070,660

Goodwill, net
685,310

 
685,310

Total assets
$
5,656,411

 
$
5,741,731

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities
 
 
 
Current maturities of long-term debt
$
31,496

 
$
33,559

Accounts payable
68,789

 
75,478

Accrued liabilities
341,835

 
341,947

Deferred income taxes and other current tax liabilities
5,777

 
2,879

Total current liabilities
447,897

 
453,863

Long-term debt, net of current maturities
4,261,837

 
4,352,932

Deferred income taxes
164,452

 
155,218

Other long-term tax liabilities
38,083

 
42,188

Other liabilities
88,344

 
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; 108,383,736 and 108,155,002 shares outstanding
1,084

 
1,082

Additional paid-in capital
913,102

 
902,496

Accumulated deficit
(437,587
)
 
(432,074
)
Accumulated other comprehensive loss
(907
)
 
(1,517
)
Total Boyd Gaming Corporation stockholders' equity
475,692

 
469,987

Noncontrolling interest
180,106

 
180,450

Total stockholders' equity
655,798

 
650,437

'Total liabilities and stockholders' equity
$
5,656,411

 
$
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
 
Six Months Ended
(In thousands, except per share data)
June 30,
 
June 30,
(Unaudited)
2014
 
2013
 
2014
 
2013
REVENUES
 
 
 
 
 
 
 
Operating revenues
 
 
 
 
 
 
 
Gaming
$
618,914

 
$
627,926

 
$
1,227,671

 
$
1,260,485

Food and beverage
110,353

 
112,804

 
216,996

 
224,578

Room
70,362

 
67,154

 
134,742

 
131,009

Other
41,173

 
41,898

 
80,133

 
81,209

Gross revenues
840,802

 
849,782

 
1,659,542

 
1,697,281

Less promotional allowances
118,268

 
111,034

 
228,659

 
222,949

Net revenues
722,534

 
738,748

 
1,430,883

 
1,474,332

COST AND EXPENSES
 
 
 
 
 
 
 
Operating costs and expenses
 
 
 
 
 
 
 
Gaming
288,214

 
287,801

 
573,388

 
585,063

Food and beverage
61,196

 
64,242

 
118,465

 
124,295

Room
14,481

 
15,955

 
27,651

 
29,055

Other
30,362

 
31,199

 
58,154

 
59,373

Selling, general and administrative
111,379

 
127,000

 
236,058

 
251,028

Maintenance and utilities
43,023

 
41,042

 
86,287

 
80,251

Depreciation and amortization
65,898

 
70,318

 
132,077

 
140,356

Corporate expense
17,621

 
15,148

 
37,541

 
30,504

Preopening expense
1,790

 
789

 
2,574

 
3,154

Impairments of assets
293

 
5,032

 
1,926

 
5,032

Asset transactions costs
1,859

 
614

 
2,014

 
3,627

Other operating items, net
(561
)
 
229

 
(747
)
 
1,795

Total operating costs and expenses
635,555

 
659,369

 
1,275,388

 
1,313,533

Operating income
86,979

 
79,379

 
155,495

 
160,799

Other expense (income)
 
 
 
 
 
 
 
Interest income
(470
)
 
(570
)
 
(946
)
 
(1,226
)
Interest expense, net
75,296

 
88,126

 
150,799

 
183,808

Loss on early extinguishments of debt
904

 
2,372

 
1,058

 
2,372

Other, net
670

 
47

 
382

 
(471
)
Total other expense, net
76,400

 
89,975

 
151,293

 
184,483

Income (loss) from continuing operations before income taxes
10,579

 
(10,596
)
 
4,202

 
(23,684
)
Income taxes benefit (expense)
(5,241
)
 
4,102

 
(10,089
)
 
6,526

Income (loss) from continuing operations, net of tax
5,338

 
(6,494
)
 
(5,887
)
 
(17,158
)
Income from discontinued operations, net of tax
—

 
11,753

 
—

 
10,790

Net income (loss)
5,338

 
5,259

 
(5,887
)
 
(6,368
)
Net (income) loss attributable to noncontrolling interest
(4,669
)
 
6,368

 
374

 
10,711

Net income (loss) attributable to Boyd Gaming Corporation
$
669

 
$
11,627

 
$
(5,513
)
 
$
4,343

 
 
 
 
 
 
 
 
Basic net income (loss) per common share:
 
 
 
 
 
 
 
Continuing operations
$
0.01

 
$
—

 
$
(0.05
)
 
$
(0.07
)
Discontinued operations
—

 
0.13

 
—

 
0.12

Basic net income (loss) per common share
$
0.01

 
$
0.13

 
$
(0.05
)
 
$
0.05

Weighted average basic shares outstanding
109,884

 
89,230

 
109,819

 
88,606

 
 
 
 
 
 
 
 
Diluted net income (loss) per common share:
 
 
 
 
 
 
 
Continuing operations
$
0.01

 
$
—

 
$
(0.05
)
 
$
(0.07
)
Discontinued operations
—

 
0.13

 
—

 
0.12

Diluted net income (loss) per common share
$
0.01

 
$
0.13

 
$
(0.05
)
 
$
0.05

Weighted average diluted shares outstanding
110,813

 
90,265

 
109,819

 
89,447


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
 
Six Months Ended
(In thousands)
June 30,
 
June 30,
(Unaudited)
2014
 
2013
 
2014
 
2013
Net income (loss)
$
5,338

 
$
5,259

 
$
(5,887
)
 
$
(6,368
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Fair value of adjustments to available-for-sale securities, net of tax
(298
)
 
(179
)
 
610

 
116

Comprehensive income (loss)
5,040

 
5,080

 
(5,277
)
 
(6,252
)
Less: net income (loss) attributable to noncontrolling interest
4,669

 
(6,368
)
 
(374
)
 
(10,711
)
Comprehensive income (loss) attributable to Boyd Gaming
   Corporation
$
371

 
$
11,448

 
$
(4,903
)
 
$
4,459


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
—

 
—

 
—

 
(5,513
)
 
—

 
(374
)
 
(5,887
)
Comprehensive income attributable to Boyd
—

 
—

 
—

 
—

 
610

 
—

 
610

Stock options exercised
121,329

 
2

 
902

 
—

 
—

 
—

 
904

Release of restricted stock units, net of tax
107,405

 
—

 
(201
)
 
—

 
—

 
—

 
(201
)
Share-based compensation costs
—

 
—

 
9,905

 
—

 
—

 
—

 
9,905

Noncontrolling interests contribution
—

 
—

 
—

 
—

 
—

 
30

 
30

Balances, June 30, 2014
108,383,736

 
$
1,084

 
$
913,102

 
$
(437,587
)
 
$
(907
)
 
$
180,106

 
$
655,798

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances, January 1, 2013
86,871,977

 
$
869

 
$
655,694

 
$
(351,810
)
 
$
(962
)
 
$
163,336

 
$
467,127

Net income (loss)
—

 
—

 
—

 
4,343

 
—

 
(10,711
)
 
(6,368
)
Unrealized gain on investment available for sale
—

 
—

 
—

 
—

 
116

 
—

 
116

Stock options exercised
1,765,037

 
18

 
13,127

 
—

 
—

 
—

 
13,145

Restricted stock units released/settled
130,597

 
1

 
(351
)
 
—

 
—

 
—

 
(350
)
Share-based compensation costs
—

 
—

 
6,984

 
—

 
—

 
—

 
6,984

Deconsolidation of LVE
—

 
—

 
—

 
—

 
—

 
45,404

 
45,404

Balances, June 30, 2013
88,767,611

 
$
888

 
$
675,454

 
$
(347,467
)
 
$
(846
)
 
$
198,029

 
$
526,058


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


 
Six Months Ended
(In thousands)
June 30,
(Unaudited)
2014
 
2013
Cash Flows from Operating Activities
 
 
 
Net loss
$
(5,887
)
 
$
(6,368
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Loss (Gain) on discontinued operations, net of tax
—

 
(10,790
)
Depreciation and amortization
132,077

 
140,356

Amortization of debt financing costs
9,662

 
11,425

Amortization of discounts on debt
3,528

 
9,156

Loss on early extinguishments of debt
1,058

 
2,372

Share-based compensation expense
9,905

 
6,984

Deferred income taxes
10,439

 
4,732

Noncash impairments of assets
1,926

 
5,089

Other operating activities
2,230

 
1,535

Changes in operating assets and liabilities:
 
 
 
Restricted cash
(7,827
)
 
(675
)
Accounts receivable, net
(131
)
 
23

Inventories
(5
)
 
(1,030
)
Prepaid expenses and other current assets
(12,195
)
 
249

Current other tax asset
3,541

 
(17
)
Income taxes receivable
(46
)
 
577

Other assets, net
(2,786
)
 
3,818

Accounts payable and accrued liabilities
(4,493
)
 
14,970

Other long-term tax liabilities
(4,105
)
 
(19,939
)
Other liabilities
1,438

 
3,303

Net cash provided by operating activities
138,329

 
165,770

Cash Flows from Investing Activities
 
 
 
Capital expenditures
(53,509
)
 
(58,456
)
Proceeds from sale of Echelon, net
—

 
343,750

Cash paid for exercise of LVE option
—

 
(187,000
)
Other investing activities
1,124

 
214

Net cash provided by (used in) investing activities
(52,385
)
 
98,508

Cash Flows from Financing Activities
 
 
 
Borrowings under Boyd Gaming bank credit facility
365,700

 
490,400

Payments under Boyd Gaming bank credit facility
(424,925
)
 
(557,250
)
Borrowings under Peninsula bank credit facility
155,900

 
161,100

Payments under Peninsula bank credit facility
(189,887
)
 
(182,725
)
Borrowings under Borgata bank credit facility
248,700

 
200,000

Payments under Borgata bank credit facility
(255,500
)
 
(215,600
)
Debt financing costs
(88
)
 
(11,333
)
Payments on long-term debt
(4
)
 
(10,816
)
Payments on retirements of long-term debt
(1,900
)
 
(215,668
)
Stock options exercised
904

 
13,145

Restricted stock units released, net
(201
)
 
(350
)
Other financing activities
31

 
(4
)
Net cash used in financing activities
(101,270
)
 
(329,101
)
Cash Flows from Discontinued Operations
 
 
 
Cash flows from operating activities
—

 
(2,144
)
Cash flows from investing activities
—

 
56,751

Cash flows from financing activities
—

 
—

Net cash used in discontinued operations
—

 
54,607

Change in cash and cash equivalents
(15,326
)
 
(10,216
)
Cash and cash equivalents, beginning of period
177,838

 
192,545

Change in cash classified as discontinued operations
—

 
283

Cash and cash equivalents, end of period
$
162,512

 
$
182,612

Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid for interest, net of amounts capitalized
$
136,245

 
$
164,551

Cash paid (received) for income taxes, net of refunds
232

 
(2,136
)
Supplemental Schedule of Noncash Investing and Financing Activities
 
 
 
Payables incurred for capital expenditures
$
14,023

 
$
12,600


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 June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 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 since 1975. 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 ("Borgata"), 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.

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.
The amounts included in promotional allowances are as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(In thousands)
2014
 
2013
 
2014
 
2013
Rooms
$
36,981

 
$
35,321

 
$
72,405

 
$
70,441

Food and beverage
49,343

 
49,875

 
99,215

 
100,653

Other
31,944

 
25,838

 
57,039

 
51,855

Total promotional allowances
$
118,268

 
$
111,034

 
$
228,659

 
$
222,949



8
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013
______________________________________________________________________________________________________



The estimated costs of providing such promotional allowances are as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(In thousands)
2014
 
2013
 
2014
 
2013
Rooms
$
14,451

 
$
14,432

 
$
28,585

 
$
29,143

Food and beverage
43,487

 
44,123

 
87,048

 
89,182

Other
5,673

 
5,404

 
10,687

 
10,559

Total cost of promotional allowances
$
63,611

 
$
63,959

 
$
126,320

 
$
128,884


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 $97.3 million and $101.8 million for the three months ended June 30, 2014 and 2013, respectively, and $192.6 million and $204.1 million for the six months ended June 30, 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 continually assessed 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.

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

9
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013
______________________________________________________________________________________________________



will recognize accrued penalties and interest related to unrecognized tax benefits in the provision for income taxes. Accrued interest and penalties are included in other long-term tax liabilities on the balance sheet.

Net Income (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 loss for the six months ended June 30, 2014, the effect of all potential common share equivalents was anti-dilutive, and therefore all such shares were excluded from the computation of diluted weighted average shares outstanding for this period. The amount of all potential common share equivalents were 935,474 for the six months ended June 30, 2014.

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 2014-12 Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period ("Update 2014-12")
In June 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-12. Update 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. The standard is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. The Company is evaluating the potential impacts of the new standard on its existing stock-based compensation plans.

Accounting Standards Update 2014-09 Revenue from Contracts with Customers (Topic 606) ("Update 2014-09")
In May 2014, the FASB issued ASU 2014-09. Update 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is not permitted. The impact of the adoption of Update 2014-09 to the Company's consolidated financial position or results of operations is currently under evaluation.

Accounting Standards Update 2014-08 Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("Update 2014-08")
In April 2014, the FASB issued ASU 2014-08. Update 2014-08 raises the threshold for determining which disposals are required to be presented as discontinued operations and modifies related disclosure requirements. The standard is applied prospectively and is effective in 2015 with early adoption permitted. The Company is currently assessing the potential impact that the adoption of this guidance will have on its financial position and results of operations.

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.


10
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013
______________________________________________________________________________________________________



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 June 30, 2014 and December 31, 2013.

NOTE 4.    CONSOLIDATION OF CERTAIN INTERESTS
Controlling Interest
Borgata Hotel Casino and Spa
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.

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.
 
Upon the transfer of MGM's ownership interest into the Divestiture Trust on March 24, 2010, we determined that we had control, as defined in the relevant accounting literature, of Holding Company and commenced consolidating the business as of that date. Should MGM's application be approved, it is expected that the Divestiture Trust will be dissolved and MGM will reacquire its ownership interest in Holding Company and its substantive participation rights in management of Holding Company. If MGM's application is not approved, it is expected that the Divestiture Trust would resume the process of selling the MGM Interest. Upon the occurrence of MGM reacquiring its ownership interest or the Divestiture Trust selling the MGM Interest to another party, we would re-evaluate our accounting for Holding Company and potentially deconsolidate Holding Company as of the date of the event. If we determine that we should deconsolidate, we will determine the fair value of our investment in Holding Company as of the date of deconsolidation, eliminate the assets, liabilities and non-controlling interests recorded for Holding Company, record an investment equal to the fair value of our investment and recognize a gain or loss due to the deconsolidation.  We would account for the investment on the equity method for periods subsequent to the date of deconsolidation.


11
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013
______________________________________________________________________________________________________



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.

NOTE 5.    PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
 
 
 
 
 
June 30,
 
December 31,
(In thousands)
2014
 
2013
Land
$
333,564

 
$
336,079

Buildings and improvements
3,859,100

 
3,852,039

Furniture and equipment
1,373,411

 
1,332,090

Riverboats and barges
189,557

 
189,175

Construction in progress
71,110

 
72,141

Other
21,054

 
21,750

Total property and equipment
5,847,796

 
5,803,274

Less accumulated depreciation
2,403,347

 
2,297,661

Property and equipment, net
$
3,444,449

 
$
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 June 30, 2014 and 2013 was $57.3 million and $58.5 million, respectively.
Depreciation expense for the six months ended June 30, 2014 and 2013 was $115.0 million and $116.7 million, respectively.


12
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013
______________________________________________________________________________________________________



NOTE 6.    INTANGIBLE ASSETS
Intangible assets consist of the following:
 
June 30, 2014
 
Weighted
 
Gross
 
 
 
Cumulative
 
 
 
Average Life
 
Carrying
 
Cumulative
 
Impairment
 
Intangible
(In thousands)
Remaining
 
Value
 
Amortization
 
Losses
 
Assets, Net
Amortizing intangibles:
 
 
 
 
 
 
 
 
 
Customer relationships
3.0 years
 
$
154,000

 
$
(85,388
)
 
$
—

 
$
68,612

Favorable lease rates
33.8 years
 
45,370

 
(10,433
)
 
—

 
34,937

Development agreement
—
 
21,373

 
—

 
—

 
21,373

 
 
 
220,743

 
(95,821
)
 
—

 
124,922

 
 
 
 
 
 
 
 
 
 
Indefinite lived intangible assets:
 
 
 
 
 
 
 
 
 
Trademarks and other
Indefinite
 
194,487

 
—

 
(8,200
)
 
186,287

Gaming license rights
Indefinite
 
955,135

 
(33,960
)
 
(180,900
)
 
740,275

 
 
 
1,149,622

 
(33,960
)
 
(189,100
)
 
926,562

Balance, June 30, 2014
 
 
$
1,370,365

 
$
(129,781
)
 
$
(189,100
)
 
$
1,051,484


 
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:
 
June 30,
 
December 31,
(In thousands)
2014
 
2013
Payroll and related expenses
$
84,374

 
$
90,602

Interest
48,005

 
47,497

Gaming liabilities
56,752

 
58,145

Player loyalty program liabilities
24,489

 
25,159

Accrued liabilities
128,215

 
120,544

Total accrued liabilities
$
341,835

 
$
341,947


13
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013
______________________________________________________________________________________________________




NOTE 8.    LONG-TERM DEBT
Long-term debt, net of current maturities consists of the following:
 
 
 
June 30, 2014
 
Interest
 
 
 
 
 
Unamortized
 
 
 
Rates at
 
Outstanding
 
Unamortized
 
Origination
 
Long-Term
(In thousands)
June 30, 2014
 
Principal
 
Discount
 
Fees
 
Debt, Net
Boyd Debt:
 
 
 
 
 
 
 
 
 
Boyd Gaming Debt:
 
 
 
 
 
 
 
 
 
Bank credit facility
3.67
%
 
$
1,408,500

 
$
(3,910
)
 
$
—

 
$
1,404,590

9.125% senior notes due 2018
9.13
%
 
500,000

 
—

 
(5,464
)
 
494,536

9.00% senior notes due 2020
9.00
%
 
350,000

 
—

 
—

 
350,000

HoldCo Note
6.00
%
 
147,320

 
(14,979
)
 
—

 
132,341

 
 
 
2,405,820

 
(18,889
)
 
(5,464
)
 
2,381,467

 
 
 
 
 
 
 
 
 
 
Peninsula Segment Debt:
 
 
 
 
 
 
 
 
 
Bank credit facility
4.25
%
 
768,163

 
—

 
—

 
768,163

8.375% senior notes due 2018
8.38
%
 
350,000

 
—

 
—

 
350,000

Other
various

 
8

 
—

 
—

 
8

 
 
 
1,118,171

 
—

 
—

 
1,118,171

Total Boyd Debt
 
 
3,523,991

 
(18,889
)
 
(5,464
)
 
3,499,638

 
 
 
 
 
 
 
 
 
 
Borgata Debt:
 
 
 
 
 
 
 
 
 
Bank credit facility
4.12
%
 
33,100

 
—

 
—

 
33,100

Incremental term loan
6.75
%
 
378,100

 
(3,359
)
 
—

 
374,741

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

 
(1,654
)
 
(5,992
)
 
385,854

Total Borgata Debt
 
 
804,700

 
(5,013
)
 
(5,992
)
 
793,695

Less current maturities
 
 
31,496

 
—

 
—

 
31,496

Long-term debt, net
 
 
$
4,297,195

 
$
(23,902
)
 
$
(11,456
)
 
$
4,261,837



14
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013
______________________________________________________________________________________________________



 
 
 
December 31, 2013
 
Interest
 
 
 
 
 
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)
June 30, 2014
 
December 31, 2013
Revolving Credit Facility
$
296,090

 
$
295,000

Term A Loan
237,500

 
246,875

Term B Loan
871,000

 
897,750

Swing Loan
—

 
23,867

Total outstanding borrowings under the Boyd Gaming Credit Facility
$
1,404,590

 
$
1,463,492


At June 30, 2014, approximately $1.4 billion was outstanding under the Boyd Gaming Credit Facility and $7.7 million was allocated to support various letters of credit, leaving remaining contractual availability of $292.3 million.


15
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013
______________________________________________________________________________________________________



HoldCo Note
In accordance with its terms, $4.3 million of accrued and unpaid interest was added to the principal balance of the HoldCo Note during the second quarter of 2014.

Peninsula Segment Debt
Bank Credit Facility
At June 30, 2014, approximately $768.2 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 $27.2 million.

Borgata Debt
Borgata Bank Credit Facility
At June 30, 2014, approximately $33.1 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 $23.7 million.

Covenant Compliance
As of June 30, 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.

Contingencies
Borgata Property Taxes
Borgata filed tax appeal complaints, in connection with its property tax assessments for tax years 2009 through 2014, in New Jersey Tax Court ("Tax 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 Tax Court found in favor of 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 ("City") filed an appeal in the New Jersey Superior Court - Appellate Division ("Appellate Court") in November 2013. No trial date has been set for the Appellate Court hearing. Borgata has paid its property tax obligations consistent with the assessor's valuation and based on the Tax 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. We can provide no assurances that the Tax Court’s decision in the 2009-2010 appeal will be upheld at the appellate level. Due to the uncertainty surrounding the ultimate resolution of the City’s appeal, we will not recognize any gain until a final, non-appealable decision has been rendered.

On June 5, 2014, Borgata entered into a settlement agreement with the City of Atlantic City. The agreement resolved the tax appeal complaints filed by Borgata in connection with property tax assessments for tax years 2011 through 2014. Under the terms of the agreement, Borgata is entitled to receive a tax refund of $88.25 million for tax years 2011 through 2013, as well as an estimated tax credit of $17.85 million for tax year 2014. Additionally, the City of Atlantic City has agreed to a defined property tax valuation for tax year 2015. Although the tax rate for 2015 is unknown, Borgata believes that the revised valuation will result in significantly lower real estate taxes as compared to 2013. In exchange, Borgata has agreed to relinquish its right to further contest the property tax assessments for tax years 2011 through 2015, contingent upon the City fulfilling its obligations under the agreement. The agreement does not affect the pending appeals of the property tax assessments for tax years 2009 and 2010. Per the terms of the agreement, the City intends to fulfill its obligation to pay the refund to Borgata through a bond issuance; however, such bond issuance is subject to additional state and local agency approvals and general market conditions at the time of the proposed issuance. In the event that the City does not issue bonds, or otherwise fails to pay the refund, Borgata retains its right to compel a trial on the filed appeals., We cannot be certain that the City will issue bonds or fund their obligations under the agreement through other sources. Due to this uncertainty, we will not record the recovery of the $88.25 million in previously paid property taxes until the City has successfully issued bonds or obtained other dedicated sources of funding in an amount sufficient to pay the refund for tax years 2011-2013 per the terms of the agreement.

16
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013
______________________________________________________________________________________________________




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.

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
 
Six Months Ended
 
June 30,
 
June 30,
(In thousands)
2014
 
2013
 
2014
 
2013
Gaming
$
67

 
$
58

 
$
182

 
$
117

Food and beverage
13

 
11

 
35

 
22

Room
7

 
6

 
17

 
11

Selling, general and administrative
342

 
298

 
926

 
596

Corporate expense
2,995

 
2,520

 
8,745

 
6,238

Total share-based compensation expense
$
3,424

 
$
2,893

 
$
9,905

 
$
6,984


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:
 
Six Months Ended June 30, 2014
(In thousands)
Holding Company
 
Other
 
Total
Balance, January 1, 2014
$
180,430

 
$
20

 
$
180,450

     Attributable net loss
(374
)
 
—

 
(374
)
Capital contributions
—

 
30

 
30

Balance, June 30, 2014
$
180,056

 
$
50

 
$
180,106

 
Six Months Ended June 30, 2013
(In thousands)
Holding Company
 
LVE
 
Other
 
Total
Balance, January 1, 2013
$
208,277

 
$
(44,961
)
 
$
20

 
$
163,336

     Attributable net loss
(10,268
)
 
(443
)
 
—

 
(10,711
)
Deconsolidation of LVE on March 4, 2013
—

 
45,404

 
—

 
45,404

Balance, June 30, 2013
$
198,009

 
$
—

 
$
20

 
$
198,029



17
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013
______________________________________________________________________________________________________



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.
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.
 
June 30, 2014
(In thousands)
Balance
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
162,512

 
$
162,512

 
$
—

 
$
—

Restricted cash
28,513

 
28,513

 
—

 
—

CRDA deposits
6,728

 
—

 
—

 
6,728

Investment available for sale
17,443

 
—

 
—

 
17,443

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Merger earnout
$
450

 
$
—

 
$
—

 
$
450

Contingent payments
4,278

 
—

 
—

 
4,278


 
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


18
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013
______________________________________________________________________________________________________




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 June 30, 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 June 30, 2014 and December 31, 2013.

Investment Available for Sale
We have an investment in a single municipal bond issuance of $21.7 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 June 30, 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 June 30, 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 June 30, 2014 and December 31, 2013, $17.0 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 June 30, 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 Peninsula Gaming Partners, LLC, 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 value of this contingency was calculated using a probability-based model. This model requires estimates of forecasted 2015 EBITDA and of probability of exceeding the threshold at which a payment would be made. We formed our valuation assumptions using historical experience in the gaming industry and observable market conditions. The assumptions will be reviewed periodically and any change in the value of the obligation will be included in the consolidated statements of operations. At June 30, 2014 and December 31, 2013, there were outstanding liabilities of $0.5 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 June 30, 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 June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013
______________________________________________________________________________________________________




The following table summarizes the changes in fair value of the Company's Level 3 assets and liabilities:
 
Three Months Ended June 30, 2014
 
Assets
 
Liabilities
(In thousands)
Investment
Available for
Sale
 
CRDA
Deposits
 
Merger
Earnout
 
Contingent
Payments
Balance at April 1, 2014
$
18,067

 
$
5,547

 
$
(750
)
 
$
(4,330
)
Deposits
—

 
1,771

 
—

 
—

Total gains (losses) (realized or unrealized):
 
 
 
 
 
 
 
Included in earnings
29

 
(590
)
 
300

 
(183
)
Included in other comprehensive income (loss)
(298
)
 
—

 
—

 
—

Transfers in or out of Level 3
—

 
—

 
—

 
—

Purchases, sales, issuances and settlements:
 
 
 
 
 
 
 
Settlements
(355
)
 
—

 
—

 
235

Ending balance at June 30, 2014
$
17,443

 
$
6,728

 
$
(450
)
 
$
(4,278
)
 
 
 
 
 
 
 
 
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
$
29

 
$
—

 
$
—

 
$
—

Included in interest expense
—

 
—

 
—

 
(183
)
 
Three Months Ended June 30, 2013
 
Assets
 
Liabilities
(In thousands)
Investment
Available for
Sale
 
CRDA
Deposits
 
Merger
Earnout
 
Contingent
Payments
Balance at April 1, 2013
$
18,223

 
$
29,101

 
$
(8,983
)
 
$
(4,522
)
Deposits
—

 
1,874

 
—

 
—

Total gains (losses) (realized or unrealized):
 
 
 
 
 
 
 
Included in earnings
28

 
(5,861
)
 
—

 
(193
)
Included in other comprehensive income (loss)
(179
)
 
—

 
—

 
—

Transfers in or out of Level 3
—

 
—

 
—

 
—

Purchases, sales, issuances and settlements:
 
 
 
 
 
 
 
Settlements
(330
)
 
—

 
—

 
245

Ending balance at June 30, 2013
$
17,742

 
$
25,114

 
$
(8,983
)
 
$
(4,470
)
 
 
 
 
 
 
 
 
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
$
28

 
$
—

 
$
—

 
$
—

Included in interest expense
—