BYD 10Q 9.30.2014

 
 
 
 
 
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 September 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 October 31, 2014
 
 
Common stock, $0.01 par value
  
108,424,772
 





BOYD GAMING CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 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)
September 30,
 
December 31,
(Unaudited)
2014
 
2013
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
120,910

 
$
177,838

Restricted cash
25,163

 
20,686

Accounts receivable, net
26,873

 
65,569

Inventories
16,041

 
19,719

Prepaid expenses and other current assets
37,599

 
42,460

Income taxes receivable
738

 
1,143

Deferred income taxes and current tax assets
3,127

 
7,265

Total current assets
230,451

 
334,680

Property and equipment, net
2,278,854

 
3,505,613

Investment in unconsolidated subsidiary
221,400

 
—

Debt financing costs, net
60,679

 
84,209

Other assets, net
49,977

 
61,259

Intangible assets, net
982,910

 
1,070,660

Goodwill, net
685,310

 
685,310

Total assets
$
4,509,581

 
$
5,741,731

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities
 
 
 
Current maturities of long-term debt
$
27,693

 
$
33,559

Accounts payable
68,636

 
75,478

Accrued liabilities
251,109

 
341,947

Deferred income taxes and other current tax liabilities
2,849

 
2,879

Total current liabilities
350,287

 
453,863

Long-term debt, net of current maturities
3,432,725

 
4,352,932

Deferred income taxes
154,449

 
155,218

Other long-term tax liabilities
28,706

 
42,188

Other liabilities
80,807

 
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; 108,424,772 and 108,155,002 shares outstanding
1,084

 
1,082

Additional paid-in capital
914,391

 
902,496

Accumulated deficit
(452,692
)
 
(432,074
)
Accumulated other comprehensive loss
(226
)
 
(1,517
)
Total Boyd Gaming Corporation stockholders' equity
462,557

 
469,987

Noncontrolling interest
50

 
180,450

Total stockholders' equity
462,607

 
650,437

Total liabilities and stockholders' equity
$
4,509,581

 
$
5,741,731


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


3



BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three Months Ended
 
Nine Months Ended
(In thousands, except per share data)
September 30,
 
September 30,
(Unaudited)
2014
 
2013
 
2014
 
2013
REVENUES
 
 
 
 
 
 
 
Operating revenues
 
 
 
 
 
 
 
Gaming
$
631,668

 
$
633,237

 
$
1,859,339

 
$
1,893,722

Food and beverage
115,072

 
114,397

 
332,068

 
338,975

Room
75,330

 
72,299

 
210,072

 
203,308

Other
44,441

 
43,808

 
124,574

 
125,017

Gross revenues
866,511

 
863,741

 
2,526,053

 
2,561,022

Less promotional allowances
127,668

 
125,172

 
356,327

 
348,121

Net revenues
738,843

 
738,569

 
2,169,726

 
2,212,901

COST AND EXPENSES
 
 
 
 
 
 
 
Operating costs and expenses
 
 
 
 
 
 
 
Gaming
294,118

 
302,373

 
867,506

 
887,436

Food and beverage
61,511

 
57,655

 
179,976

 
181,950

Room
14,679

 
12,556

 
42,330

 
41,611

Other
33,554

 
33,056

 
91,708

 
92,429

Selling, general and administrative
113,436

 
122,837

 
349,494

 
373,865

Maintenance and utilities
45,050

 
45,735

 
131,337

 
125,986

Depreciation and amortization
66,168

 
69,002

 
198,245

 
209,358

Corporate expense
15,064

 
12,084

 
52,605

 
42,588

Preopening expense
1,262

 
1,675

 
3,836

 
4,829

Impairments of assets
18,279

 
1,250

 
20,205

 
6,282

Asset transactions costs
3,064

 
(1,362
)
 
5,078

 
2,265

Other operating items, net
(1,116
)
 
3,386

 
(1,863
)
 
5,181

Total operating costs and expenses
665,069

 
660,247

 
1,940,457

 
1,973,780

Operating income
73,774

 
78,322

 
229,269

 
239,121

Other expense (income)
 
 
 
 
 
 
 
Interest income
(466
)
 
(553
)
 
(1,412
)
 
(1,779
)
Interest expense, net
75,420

 
83,145

 
226,219

 
266,953

Loss on early extinguishments of debt
71

 
27,141

 
1,129

 
29,513

Other, net
116

 
136

 
498

 
(335
)
Total other expense, net
75,141

 
109,869

 
226,434

 
294,352

Income (loss) from continuing operations before income taxes
(1,367
)
 
(31,547
)
 
2,835

 
(55,231
)
Income taxes benefit (expense)
(1,961
)
 
(3,048
)
 
(12,050
)
 
3,478

Loss from continuing operations, net of tax
(3,328
)
 
(34,595
)
 
(9,215
)
 
(51,753
)
Income from discontinued operations, net of tax
—

 
—

 
—

 
10,790

Net loss
(3,328
)
 
(34,595
)
 
(9,215
)
 
(40,963
)
Net (income) loss attributable to noncontrolling interest
(11,777
)
 
(2,672
)
 
(11,403
)
 
8,039

Net loss attributable to Boyd Gaming Corporation
$
(15,105
)
 
$
(37,267
)
 
$
(20,618
)
 
$
(32,924
)
 
 
 
 
 
 
 
 
Basic net income (loss) per common share:
 
 
 
 
 
 
 
Continuing operations
$
(0.14
)
 
$
(0.37
)
 
$
(0.19
)
 
$
(0.47
)
Discontinued operations
—

 
—

 
—

 
0.12

Basic net loss per common share
$
(0.14
)
 
$
(0.37
)
 
$
(0.19
)
 
$
(0.35
)
Weighted average basic shares outstanding
109,923

 
101,555

 
109,854

 
93,122

 
 
 
 
 
 
 
 
Diluted net income (loss) per common share:
 
 
 
 
 
 
 
Continuing operations
$
(0.14
)
 
$
(0.37
)
 
$
(0.19
)
 
$
(0.47
)
Discontinued operations
—

 
—

 
—

 
0.12

Diluted net loss per common share
$
(0.14
)
 
$
(0.37
)
 
$
(0.19
)
 
$
(0.35
)
Weighted average diluted shares outstanding
109,923

 
101,555

 
109,854

 
93,122


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
 
Nine Months Ended
(In thousands)
September 30,
 
September 30,
(Unaudited)
2014
 
2013
 
2014
 
2013
Net loss
$
(3,328
)
 
$
(34,595
)
 
$
(9,215
)
 
$
(40,963
)
Other comprehensive loss, net of tax:
 
 
 
 
 
 
 
Fair value of adjustments to available-for-sale securities, net of tax
681

 
52

 
1,291

 
167

Comprehensive loss
(2,647
)
 
(34,543
)
 
(7,924
)
 
(40,796
)
Less: net income (loss) attributable to noncontrolling interest
11,777

 
2,672

 
11,403

 
(8,039
)
Comprehensive loss attributable to Boyd Gaming
   Corporation
$
(14,424
)
 
$
(37,215
)
 
$
(19,327
)
 
$
(32,757
)

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 income (loss)
—

 
—

 
—

 
(20,618
)
 
—

 
11,403

 
(9,215
)
Comprehensive income attributable to Boyd
—

 
—

 
—

 
—

 
1,291

 
—

 
1,291

Stock options exercised
131,229

 
2

 
982

 
—

 
—

 
—

 
984

Release of restricted stock units, net of tax
138,541

 
—

 
(326
)
 
—

 
—

 
—

 
(326
)
Share-based compensation costs
—

 
—

 
11,239

 
—

 
—

 
—

 
11,239

Noncontrolling interests contribution
—

 
—

 
—

 
—

 
—

 
30

 
30

Deconsolidation of Borgata on September 30, 2014
—

 
—

 
—

 
—

 
—

 
(191,833
)
 
(191,833
)
Balances, September 30, 2014
108,424,772

 
$
1,084

 
$
914,391

 
$
(452,692
)
 
$
(226
)
 
$
50

 
$
462,607

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances, January 1, 2013
86,871,977

 
$
869

 
$
655,694

 
$
(351,810
)
 
$
(962
)
 
$
163,336

 
$
467,127

Net income (loss)
—

 
—

 
—

 
(32,924
)
 
—

 
(8,039
)
 
(40,963
)
Unrealized gain on investment available for sale
—

 
—

 
—

 
—

 
167

 
—

 
167

Equity offering
18,975,000

 
190

 
216,277

 
—

 
—

 
—

 
216,467

Stock options exercised
1,827,723

 
18

 
13,573

 
—

 
—

 
—

 
13,591

Restricted stock units released/settled
130,597

 
1

 
(355
)
 
—

 
—

 
—

 
(354
)
Share-based compensation costs
—

 
—

 
9,033

 
—

 
—

 
—

 
9,033

Deconsolidation of LVE
—

 
—

 
—

 
—

 
—

 
45,404

 
45,404

Balances, September 30, 2013
107,805,297

 
$
1,078

 
$
894,222

 
$
(384,734
)
 
$
(795
)
 
$
200,701

 
$
710,472


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


 
Nine Months Ended
(In thousands)
September 30,
(Unaudited)
2014
 
2013
Cash Flows from Operating Activities
 
 
 
Net loss
$
(9,215
)
 
$
(40,963
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Gain on discontinued operations, net of tax
—

 
(10,790
)
Depreciation and amortization
198,245

 
209,358

Amortization of debt financing costs
14,498

 
16,726

Amortization of discounts on debt
5,860

 
13,862

Loss on early extinguishments of debt
1,129

 
29,513

Share-based compensation expense
11,239

 
9,033

Deferred income taxes
11,690

 
7,027

Noncash impairments of assets
20,205

 
8,198

Other operating activities
2,370

 
2,455

Changes in operating assets and liabilities:
 
 
 
Restricted cash
(10,299
)
 
(4,291
)
Accounts receivable, net
788

 
1,529

Inventories
(655
)
 
375

Prepaid expenses and other current assets
(18,041
)
 
(1,489
)
Current other tax asset
3,575

 
4,062

Income taxes receivable
396

 
584

Other assets, net
(650
)
 
22,519

Accounts payable and accrued liabilities
7,651

 
(19,093
)
Other long-term tax liabilities
(3,843
)
 
(19,569
)
Other liabilities
(2,442
)
 
4,737

Net cash provided by operating activities
232,501

 
233,783

Cash Flows from Investing Activities
 
 
 
Capital expenditures
(94,617
)
 
(100,618
)
Proceeds from sale of Echelon, net
—

 
343,750

Cash paid for exercise of LVE option
—

 
(187,000
)
Proceeds from sale of other assets, net
—

 
4,875

Deconsolidation of Borgata
(26,891
)
 
—

Other investing activities
3,187

 
198

Net cash provided by (used in) investing activities
(118,321
)
 
61,205

Cash Flows from Financing Activities
 
 
 
Borrowings under Boyd Gaming bank credit facility
605,000

 
2,711,375

Payments under Boyd Gaming bank credit facility
(698,400
)
 
(2,738,325
)
Borrowings under Peninsula bank credit facility
242,100

 
268,500

Payments under Peninsula bank credit facility
(283,350
)
 
(296,688
)
Borrowings under Borgata bank credit facility
410,900

 
297,100

Payments under Borgata bank credit facility
(444,900
)
 
(300,800
)
Debt financing costs
(289
)
 
(36,396
)
Payments on long-term debt
(7
)
 
(10,818
)
Payments on retirements of long-term debt
(2,850
)
 
(500,272
)
Stock options exercised
984

 
13,591

Restricted stock units released, net
(201
)
 
(354
)
Proceeds from sale of common stock
—

 
216,467

Other financing activities
(95
)
 
—

Net cash used in financing activities
(171,108
)
 
(376,620
)
Cash Flows from Discontinued Operations
 
 
 
Cash flows from operating activities
—

 
(2,144
)
Cash flows from investing activities
—

 
56,751

Net cash used in discontinued operations
—

 
54,607

Change in cash and cash equivalents
(56,928
)
 
(27,025
)
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
$
120,910

 
$
165,803

Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid for interest, net of amounts capitalized
$
218,499

 
$
248,862

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

 
(6,424
)
Supplemental Schedule of Noncash Investing and Financing Activities
 
 
 
Payables incurred for capital expenditures
$
10,005

 
$
7,849

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 September 30, 2014 and December 31, 2013 and for the three and nine months ended September 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 hold a non-controlling 50% equity 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 wholly owned subsidiaries. Investments in unconsolidated affiliates, which 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.

On September 30, 2014, our Atlantic City partner reacquired its ownership interest in and its substantive participation rights in the management of Borgata. As a result, we deconsolidated Borgata as of the close of business on September 30, 2014, eliminating the assets, liabilities and non-controlling interests from our balance sheet. We will account for our investment in Borgata applying the equity method for periods subsequent to the deconsolidation. (See Note 4.)

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 for complimentary slot play, food and beverage, and to a lesser extent for other goods or services, depending upon the property.

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



The amounts included in promotional allowances are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2014
 
2013
 
2014
 
2013
Rooms
$
40,420

 
$
39,296

 
$
112,825

 
$
109,737

Food and beverage
53,247

 
52,708

 
152,462

 
153,361

Other
34,001

 
33,168

 
91,040

 
85,023

Total promotional allowances
$
127,668

 
$
125,172

 
$
356,327

 
$
348,121


The estimated costs of providing such promotional allowances are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2014
 
2013
 
2014
 
2013
Rooms
$
15,371

 
$
15,361

 
$
43,956

 
$
44,505

Food and beverage
46,841

 
47,252

 
133,889

 
136,435

Other
6,512

 
6,499

 
17,199

 
17,058

Total cost of promotional allowances
$
68,724

 
$
69,112

 
$
195,044

 
$
197,998


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 $96.8 million and $99.2 million for the three months ended September 30, 2014 and 2013, respectively, and $289.4 million and $303.3 million for the nine months ended September 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.


9
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 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 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 nine months ended September 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 potential common share equivalents were as follows:

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2014
 
2013
 
2014
 
2013
Potential dilutive effect
904.6

 
952.8

 
926.1

 
942.4


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
Accounting Standards Update 2014-15 Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern ("Update 2014-15")
In August 2014, the FASB issued Update 2014-15, which provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The pronouncement is effective for annual periods ending after December 15, 2016, and interim periods thereafter, and early adoption is permitted. The impact of the adoption of Update 2014-15 is currently under evaluation.

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 Update 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.


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



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 Update 2013-11. The objective of Update 2013-11 is to provide guidance on the financial statement presentation of an 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.

Accounting Standards Update 2014-09 Revenue from Contracts with Customers (Topic 606) ("Update 2014-09")
In May 2014, the FASB issued Update 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 Update 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.

A variety of proposed or otherwise potential accounting standards are currently being studied 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.

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 September 30, 2014 and December 31, 2013.

NOTE 4.    DECONSOLIDATION OF CERTAIN INTERESTS
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 ("MDDC"), d.b.a. Borgata Hotel Casino and Spa ("Borgata"). We are the managing member of Holding Company, and we are responsible for the day-to-day operations of Borgata.

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 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"). Upon the transfer of MGM's ownership interest into the Divestiture Trust on March 24, 2010,

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



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.  Subsequent to a Joint Petition of MGM, the Company and Holding Company, on February 13, 2013, the NJCCC approved amendments to the settlement agreement which permitted MGM to file an application for a statement of compliance, which, if approved, would permit MGM to reacquire its interest in Holding Company.

The NJCCC approved MGM’s application for licensure on September 10, 2014. On September 30, 2014, the Divestiture Trust was dissolved and MGM reacquired its Borgata interest and its substantive participation rights in the management of Holding Company. As a result, we deconsolidated Borgata as of the close of business on September 30, 2014, eliminating the assets, liabilities and non-controlling interests recorded for Holding Company from our balance sheet, and will account for our investment in Borgata applying the equity method for periods subsequent to the deconsolidation. As a result of the deconsolidation, we adjusted the book value of our investment to equal fair value and recognized a loss due to the deconsolidation of $12.1 million in our third quarter 2014 results, which was recorded in impairments of assets on our condensed consolidated statement of operations. We will account for our investment in Borgata applying the equity method for periods subsequent to the deconsolidation.

We determined the fair value of our investment in Borgata as of the date of deconsolidation using a weighted average allocation of both the income and market approach models. The income approach is based upon a discounted cash flow method, whereas the market approach uses the guideline public company method. Specifically, the income approach focuses on the expected cash flows of the Borgata for a finite period of years and discounting them to present value. The market approach focuses on comparing the Borgata to selected reasonable similar (or “guideline”) publicly-traded companies. Under this method, valuation multiples are: (i) derived from the operating data of selected guideline companies; (ii) evaluated and adjusted based on the strengths and weaknesses of Borgata relative to the selected guideline companies; and (iii) applied to the operating data of Borgata to arrive at an indication of value. The application of the market approach results in an estimate of the price reasonably expected to be realized from a sale of Borgata.  Using these models, we determined that the fair value of our investment in Borgata at September 30, 2014, was $221.4 million.

The following table presents the carrying values of the major categories of assets and liabilities of Borgata, immediately preceding its deconsolidation on September 30, 2014, which are excluded from our consolidated balance sheet as of September 30, 2014:
 
 
September 30,
(In thousands)
 
2014
ASSETS
 
 
Current assets
 
$
98,119

Long-term assets
 
1,220,036

Total Assets
 
$
1,318,155

 
 
 
LIABILITIES AND NONCONTROLLING INTERESTS
 
 
Current liabilities
 
$
106,666

Long-term liabilities
 
786,278

Noncontrolling interests
 
191,833

Total Liabilities and Noncontrolling Interests
 
$
1,084,777


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.


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



NOTE 5.    PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
 
 
 
 
 
September 30,
 
December 31,
(In thousands)
2014
 
2013
Land
$
229,684

 
$
336,079

Buildings and improvements
2,508,826

 
3,852,039

Furniture and equipment
1,067,571

 
1,332,090

Riverboats and barges
189,536

 
189,175

Construction in progress
82,493

 
72,141

Other
14,555

 
21,750

Total property and equipment
4,092,665

 
5,803,274

Less accumulated depreciation
1,813,811

 
2,297,661

Property and equipment, net
$
2,278,854

 
$
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 September 30, 2014 and 2013 was $57.5 million and $56.9 million, respectively. Depreciation expense for the nine months ended September 30, 2014 and 2013 was $172.6 million and $173.6 million, respectively.

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

 
$
(93,715
)
 
$
—

 
$
60,285

Favorable lease rates
32.7 years
 
45,370

 
(10,694
)
 
—

 
34,676

Development agreement
—
 
21,373

 
—

 
—

 
21,373

 
 
 
220,743

 
(104,409
)
 
—

 
116,334

 
 
 
 
 
 
 
 
 
 
Indefinite lived intangible assets:
 
 
 
 
 
 
 
 
 
Trademarks and other
Indefinite
 
129,501

 
—

 
(3,200
)
 
126,301

Gaming license rights
Indefinite
 
955,135

 
(33,960
)
 
(180,900
)
 
740,275

 
 
 
1,084,636

 
(33,960
)
 
(184,100
)
 
866,576

Balance, September 30, 2014
 
 
$
1,305,379

 
$
(138,369
)
 
$
(184,100
)
 
$
982,910



13
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 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:
 
September 30,
 
December 31,
(In thousands)
2014
 
2013
Payroll and related expenses
$
67,371

 
$
90,602

Interest
28,290

 
47,497

Gaming liabilities
38,880

 
58,145

Player loyalty program liabilities
19,360

 
25,159

Accrued liabilities
97,208

 
120,544

Total accrued liabilities
$
251,109

 
$
341,947



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



NOTE 8.    LONG-TERM DEBT
Long-term debt, net of current maturities consists of the following:
 
 
 
September 30, 2014
 
Interest
 
 
 
 
 
Unamortized
 
 
 
Rates at
 
Outstanding
 
Unamortized
 
Origination
 
Long-Term
(In thousands)
Sept. 30, 2014
 
Principal
 
Discount
 
Fees
 
Debt, Net
Boyd Debt:
 
 
 
 
 
 
 
 
 
Boyd Gaming Debt:
 
 
 
 
 
 
 
 
 
Bank credit facility
3.67
%
 
$
1,374,325

 
$
(3,750
)
 
$
—

 
$
1,370,575

9.125% senior notes due 2018
9.13
%
 
500,000

 
—

 
(5,155
)
 
494,845

9.00% senior notes due 2020
9.00
%
 
350,000

 
—

 
—

 
350,000

HoldCo Note
6.00
%
 
147,320

 
(13,228
)
 
—

 
134,092

 
 
 
2,371,645

 
(16,978
)
 
(5,155
)
 
2,349,512

 
 
 
 
 
 
 
 
 
 
Peninsula Segment Debt:
 
 
 
 
 
 
 
 
 
Bank credit facility
4.25
%
 
760,900

 
—

 
—

 
760,900

8.375% senior notes due 2018
8.38
%
 
350,000

 
—

 
—

 
350,000

Other
various

 
6

 
—

 
—

 
6

 
 
 
1,110,906

 
—

 
—

 
1,110,906

Total long-term debt
 
 
3,482,551

 
(16,978
)
 
(5,155
)
 
3,460,418

Less current maturities
 
 
27,693

 
—

 
—

 
27,693

Long-term debt, net
 
 
$
3,454,858

 
$
(16,978
)
 
$
(5,155
)
 
$
3,432,725



15
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 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
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)
September 30, 2014
 
December 31, 2013
Revolving Credit Facility
$
266,250

 
$
295,000

Term A Loan
234,375

 
246,875

Term B Loan
858,750

 
897,750

Swing Loan
11,200

 
23,867

Total outstanding borrowings under the Boyd Gaming Credit Facility
$
1,370,575

 
$
1,463,492


At September 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 $311.1 million.


16
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 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 September 30, 2014, approximately $760.9 million was outstanding under the Peninsula senior secured credit facility (the "Peninsula Credit Facility") and $5.6 million was allocated to support various letters of credit, leaving remaining contractual availability of $30.0 million.

Under the First Amendment to the Credit Agreement entered into on May 1, 2013 (the "Amendment"), Peninsula is allowed to pay its quarterly amortization installments prior to the last day of the applicable quarter. As of September 30, 2014, Peninsula has voluntarily paid its quarterly amortization installment due on or before December 31, 2014. As such, current maturities of long-term debt and leases on the condensed consolidated balance sheet as of September 30, 2014, reflect only three quarterly amortization installments for those installment payments due on or before March 31, 2015, June 30, 2015, and September 30, 2015.

Loss on Debt Extinguishments and Modifications
During the three and nine months ended September 30, 2014, Peninsula incurred non-cash charges of $0.1 million and $1.1 million, respectively, for deferred debt financing costs written off, which represents the ratable reduction in borrowing capacity due to optional prepayments made during these periods.

Covenant Compliance
As of September 30, 2014, we believe that Boyd Gaming and Peninsula 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
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.


17
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 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
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2014
 
2013
 
2014
 
2013
Gaming
$
49

 
$
59

 
$
231

 
$
176

Food and beverage
9

 
12

 
44

 
34

Room
4

 
5

 
21

 
16

Selling, general and administrative
247

 
298

 
1,173

 
894

Corporate expense
1,217

 
1,675

 
9,962

 
7,913

Other operating items, net
(192
)
 
—

 
(192
)
 
—

Total share-based compensation expense
$
1,334

 
$
2,049

 
$
11,239

 
$
9,033


NOTE 11.    NONCONTROLLING INTEREST
Noncontrolling interest primarily represents (i) until the deconsolidation of Borgata on September 30, 2014, 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; 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 held no equity interest.

Changes in the noncontrolling interest are as follows:
 
Nine Months Ended September 30, 2014
(In thousands)
Holding Company
 
Other
 
Total
Balance, January 1, 2014
$
180,430

 
$
20

 
$
180,450

     Attributable net income
11,403

 
—

 
11,403

Capital contributions
—

 
30

 
30

Deconsolidation of Borgata on September 30, 2014
(191,833
)
 
—

 
(191,833
)
Balance, September 30, 2014
$
—

 
$
50

 
$
50

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

 
$
(44,961
)
 
$
20

 
$
163,336

     Attributable net loss
(7,596
)
 
(443
)
 
—

 
(8,039
)
Deconsolidation of LVE on March 4, 2013
—

 
45,404

 
—

 
45,404

Balance, September 30, 2013
$
200,681

 
$
—

 
$
20

 
$
200,701


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.

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



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.
 
September 30, 2014
(In thousands)
Balance
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
120,910

 
$
120,910

 
$
—

 
$
—

Restricted cash
25,163

 
25,163

 
—

 
—

Investment available for sale
18,153

 
—

 
—

 
18,153

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Merger earnout
$
225

 
$
—

 
$
—

 
$
225

Contingent payments
4,258

 
—

 
—

 
4,258


 
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 September 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 December 31, 2013.


19
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 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 September 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 September 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 September 30, 2014 and December 31, 2013, $17.8 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 September 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 condensed 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 September 30, 2014 and December 31, 2013, there were outstanding liabilities of $0.2 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 September 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.

20
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 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 September 30, 2014
 
Assets
 
Liabilities
(In thousands)
Investment
Available for
Sale
 
Merger
Earnout
 
Contingent
Payments
Balance at July 1, 2014
$
17,443

 
$
(450
)
 
$
(4,278
)
Deposits
—

 
—

 
—

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

 
225

 
(181
)
Included in other comprehensive income (loss)
681

 
—

 
—

Transfers in or out of Level 3
—

 
—

 
—

Purchases, sales, issuances and settlements:
 
 
 
 
 
Settlements
—

 
—

 
201

Ending balance at September 30, 2014
$
18,153

 
$
(225
)
 
$
(4,258
)
 
 
 
 
 
 
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
—

 
—

 
(181
)
 
Three Months Ended September 30, 2013
 
Assets
 
Liabilities
(In thousands)
Investment
Available for
Sale
 
CRDA
Deposits
 
Merger
Earnout
 
Contingent
Payments
Balance at July 1, 2013
$
17,742

 
$
25,114

 
$
(8,983
)
 
$
(4,470
)
Deposits
—

 
1,738

 
—

 
—

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

 
(581
)
 
—

 
(191
)
Included in other comprehensive income (loss)
167

 
—

 
—

 
—

Transfers in or out of Level 3
—

 
—

 
—

 
—

Purchases, sales, issuances and settlements:
 
 
 
 
 
 
 
Settlements
—

 
(22,545
)
 
—

 
214

Ending balance at September 30, 2013
$
17,937

 
$
3,726

 
$
(8,983
)
 
$
(4,447
)