Document
 
 
 
 
 
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, 2016
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
___________________________________________________

image0a03a01a02a12.jpg
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
 
x
 
Accelerated filer
 
o
 
 
 
 
 
 
 
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 November 3, 2016
 
 
Common stock, $0.01 par value
 
112,484,580
 





BOYD GAMING CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2016
TABLE OF CONTENTS
 
 
 
Page
No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





PART I. Financial Information

Item 1.        Financial Statements (Unaudited)

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
 
September 30,
 
December 31,
(In thousands, except share data)
2016
 
2015
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
159,688

 
$
158,821

Restricted cash
23,292

 
19,030

Accounts receivable, net
26,936

 
25,289

Inventories
15,749

 
15,462

Prepaid expenses and other current assets
43,467

 
37,250

Income taxes receivable
1,168

 
1,380

Total current assets
270,300

 
257,232

Property and equipment, net
2,262,630

 
2,225,342

Other assets, net
51,766

 
48,341

Intangible assets, net
878,105

 
890,054

Goodwill, net
993,853

 
685,310

Investment in unconsolidated subsidiary held for sale
—

 
244,621

Total assets
$
4,456,654

 
$
4,350,900

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities
 
 
 
Current maturities of long-term debt
$
30,250

 
$
29,750

Accounts payable
88,141

 
75,803

Accrued liabilities
270,712

 
249,518

Total current liabilities
389,103

 
355,071

Long-term debt, net of current maturities and debt issuance costs
2,956,998

 
3,239,799

Deferred income taxes
98,814

 
162,189

Other long-term tax liabilities
3,275

 
3,085

Other liabilities
85,438

 
82,745

Commitments and contingencies (Notes 3 and 8)

 

Stockholders' equity
 
 
 
Preferred stock, $0.01 par value, 5,000,000 shares authorized
—

 
—

Common stock, $0.01 par value, 200,000,000 shares authorized; 112,483,747 and 111,614,420 shares outstanding
1,125

 
1,117

Additional paid-in capital
953,511

 
945,041

Accumulated deficit
(32,098
)
 
(437,881
)
Accumulated other comprehensive income (loss)
438

 
(316
)
Total Boyd Gaming Corporation stockholders' equity
922,976

 
507,961

Noncontrolling interest
50

 
50

Total stockholders' equity
923,026

 
508,011

Total liabilities and stockholders' equity
$
4,456,654

 
$
4,350,900


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 (Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands, except per share data)
2016
 
2015
 
2016
 
2015
Revenues
 
 
 
 
 
 
 
Gaming
$
443,568

 
$
457,397

 
$
1,359,047

 
$
1,390,734

Food and beverage
74,257

 
76,713

 
226,955

 
230,918

Room
42,985

 
41,649

 
128,225

 
123,334

Other
29,579

 
32,379

 
90,738

 
92,706

Gross revenues
590,389

 
608,138

 
1,804,965

 
1,837,692

Less promotional allowances
58,488

 
61,825

 
175,812

 
180,934

Net revenues
531,901

 
546,313

 
1,629,153

 
1,656,758

Operating costs and expenses
 
 
 
 
 
 
 
Gaming
217,103

 
225,653

 
658,396

 
677,036

Food and beverage
40,745

 
41,900

 
124,664

 
126,380

Room
11,247

 
10,765

 
33,039

 
31,494

Other
18,660

 
21,548

 
56,819

 
60,938

Selling, general and administrative
80,833

 
79,954

 
241,686

 
242,656

Maintenance and utilities
27,854

 
29,030

 
76,711

 
80,965

Depreciation and amortization
47,928

 
51,345

 
143,831

 
155,251

Corporate expense
15,877

 
15,009

 
49,883

 
52,013

Project development, preopening and writedowns
3,735

 
1,514

 
11,473

 
4,218

Impairments of assets
—

 
—

 
1,440

 
1,065

Other operating items, net
3

 
172

 
555

 
342

Total operating costs and expenses
463,985

 
476,890

 
1,398,497

 
1,432,358

Operating income
67,916

 
69,423

 
230,656

 
224,400

Other expense (income)
 
 
 
 
 
 
 
Interest income
(1,050
)
 
(460
)
 
(2,506
)
 
(1,396
)
Interest expense, net of amounts capitalized
55,203

 
56,558

 
170,155

 
170,624

Loss on early extinguishments and modifications of debt
41,518

 
863

 
42,364

 
32,333

Other, net
1

 
1,753

 
143

 
3,641

Total other expense, net
95,672

 
58,714

 
210,156

 
205,202

Income (loss) from continuing operations before income taxes
(27,756
)
 
10,709

 
20,500

 
19,198

Income taxes benefit (provision)
189,620

 
(3,694
)
 
174,231

 
5,931

Income from continuing operations, net of tax
161,864

 
7,015

 
194,731

 
25,129

Income from discontinued operations, net of tax
180,707

 
18,410

 
211,052

 
28,974

Net income
$
342,571

 
$
25,425

 
$
405,783

 
$
54,103

 
 
 
 
 
 
 
 
Basic net income per common share
 
 
 
 
 
 
 
Continuing operations
$
1.41

 
$
0.06

 
$
1.70

 
$
0.22

Discontinued operations
1.58

 
0.17

 
1.85

 
0.26

Basic net income per common share
$
2.99

 
$
0.23

 
$
3.55

 
$
0.48

Weighted average basic shares outstanding
114,567

 
112,608

 
114,335

 
112,100

 
 
 
 
 
 
 
 
Diluted net income per common share
 
 
 
 
 
 
 
Continuing operations
$
1.40

 
$
0.06

 
$
1.69

 
$
0.22

Discontinued operations
1.57

 
0.16

 
1.84

 
0.26

Diluted net income per common share
$
2.97

 
$
0.22

 
$
3.53

 
$
0.48

Weighted average diluted shares outstanding
115,202

 
113,375

 
115,051

 
112,930


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 (Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2016
 
2015
 
2016
 
2015
Net income
$
342,571

 
$
25,425

 
$
405,783

 
$
54,103

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Fair value adjustments to available-for-sale securities, net of tax
417

 
642

 
754

 
(121
)
Comprehensive income attributable to Boyd Gaming Corporation
$
342,988

 
$
26,067

 
$
406,537

 
$
53,982


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

5



BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)

 
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)
Shares
 
Amount
 
 
 
 
 
Balances, January 1, 2016
111,614,420

 
$
1,117

 
$
945,041

 
$
(437,881
)
 
$
(316
)
 
$
50

 
$
508,011

Net income
—

 
—

 
—

 
405,783

 
—

 
—

 
405,783

Comprehensive income attributable to Boyd
—

 
—

 
—

 
—

 
754

 
—

 
754

Stock options exercised
449,065

 
4

 
2,909

 
—

 
—

 
—

 
2,913

Release of restricted stock units, net of tax
261,235

 
2

 
(695
)
 
—

 
—

 
—

 
(693
)
Release of performance stock units, net of tax
159,027

 
2

 
(869
)
 
—

 
—

 
—

 
(867
)
Share-based compensation costs
—

 
—

 
7,125

 
—

 
—

 
—

 
7,125

Balances, September 30, 2016
112,483,747

 
$
1,125

 
$
953,511

 
$
(32,098
)
 
$
438

 
$
50

 
$
923,026

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances, January 1, 2015
109,277,060

 
$
1,093

 
$
922,112

 
$
(485,115
)
 
$
(53
)
 
$
50

 
$
438,087

Net income
—

 
—

 
—

 
54,103

 
—

 
—

 
54,103

Comprehensive income attributable to Boyd
—

 
—

 
—

 
—

 
(121
)
 
—

 
(121
)
Stock options exercised
1,145,302

 
11

 
8,595

 
—

 
—

 
—

 
8,606

Release of restricted stock units, net of tax
118,319

 
1

 
(286
)
 
—

 
—

 
—

 
(285
)
Release of performance stock units, net of tax
481,749

 
5

 
(2,451
)
 
—

 
—

 
—

 
(2,446
)
Share-based compensation costs
—

 
—

 
8,227

 
—

 
—

 
—

 
8,227

Balances, September 30, 2015
111,022,430

 
$
1,110

 
$
936,197

 
$
(431,012
)
 
$
(174
)
 
$
50

 
$
506,171


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 (Unaudited)


 
Nine Months Ended
 
September 30,
(In thousands)
2016
 
2015
Cash Flows from Operating Activities
 
 
 
Net income
$
405,783

 
$
54,103

Net (income) from discontinued operations
(211,052
)
 
(28,974
)
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
143,831

 
155,251

Amortization of debt financing costs and discounts on debt
12,654

 
16,576

Share-based compensation expense
7,125

 
8,227

Deferred income taxes
(177,106
)
 
17,194

Non-cash impairment of assets
1,440

 
1,065

Loss on early extinguishments and modifications of debt
42,364

 
32,333

Other operating activities
1,200

 
(341
)
Changes in operating assets and liabilities:
 
 
 
Restricted cash
(4,262
)
 
(6,626
)
Accounts receivable, net
2,045

 
2,220

Inventories
733

 
55

Prepaid expenses and other current assets
(2,919
)
 
(5,131
)
Current other tax asset
—

 
1,802

Income taxes receivable
212

 
1,243

Other assets, net
(759
)
 
2,149

Accounts payable and accrued liabilities
32,731

 
11,997

Other long-term tax liabilities
190

 
(25,580
)
Other liabilities
2,696

 
3,886

Net cash provided by operating activities
256,906

 
241,449

Cash Flows from Investing Activities
 
 
 
Capital expenditures
(117,330
)
 
(86,997
)
Cash paid for acquisition, net of cash received
(372,322
)
 
—

Other investing activities
2,719

 
3,777

Net cash used in investing activities
(486,933
)
 
(83,220
)
Cash Flows from Financing Activities
 
 
 
Borrowings under Boyd Gaming bank credit facility
1,622,075

 
627,000

Payments under Boyd Gaming bank credit facility
(1,290,800
)
 
(949,700
)
Borrowings under Peninsula bank credit facility
237,000

 
262,100

Payments under Peninsula bank credit facility
(899,750
)
 
(335,550
)
Proceeds from issuance of senior notes
750,000

 
750,000

Retirements of senior notes
(700,000
)
 
(500,000
)
Debt financing costs, net
(40,718
)
 
(14,001
)
Premium and consent fees paid
(15,750
)
 
(24,246
)
Share-based compensation activities, net
1,353

 
5,875

Other financing activities
—

 
(3
)
Net cash used in financing activities
(336,590
)
 
(178,525
)
Cash Flows from Discontinued Operations
 
 
 
Cash flows from operating activities
(26,596
)
 
—

Cash flows from investing activities
594,080

 
—

Cash flows from financing activities
—

 
—

Net cash provided by discontinued operations
567,484

 
—

Change in cash and cash equivalents
867

 
(20,296
)
Cash and cash equivalents, beginning of period
158,821

 
145,341

Cash and cash equivalents, end of period
$
159,688

 
$
125,045

Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid for interest, net of amounts capitalized
$
147,001

 
$
137,128

Cash paid (received) for income taxes, net of refunds
31,698

 
(1,246
)
Supplemental Schedule of Noncash Investing and Financing Activities
 
 
 
Payables incurred for capital expenditures
$
4,208

 
$
5,031

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, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________
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 22 wholly owned gaming entertainment properties. Headquartered in Las Vegas, we have gaming operations in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana and Mississippi.

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"). 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, 2015, as filed with the U.S. Securities and Exchange Commission ("SEC") on February 25, 2016.

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.

On September 27, 2016, we completed our previously announced acquisition of ALST Casino Holdco, LLC ("ALST"), pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated as of April 21, 2016, as amended on September 26, 2016, by and among Boyd Gaming, Boyd TCII Acquisition, LLC, a wholly-owned subsidiary of Boyd Gaming ("Merger Sub"), and ALST. The net purchase price, after adjustment for working capital and other items, was $372.3 million. The acquired assets and liabilities of ALST are included in our condensed consolidated balance sheet as of September 30, 2016, and the results of its operations and cash flows are reported in our condensed consolidated statements of operations and cash flows from September 27, 2016 through September 30, 2016. See Note 3, Acquisitions and Divestitures, for further information. We have not disclosed the pro forma impact of this acquisition to the results of operations for the three and nine months ended September 30, 2016, as the pro forma impact was deemed immaterial.

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 May 31, 2016, we announced that we had entered into an Equity Purchase Agreement (the "Purchase Agreement") to sell our 50% equity interest in Marina District Development Holding Company, LLC ("MDDHC"), the parent company of Borgata Hotel Casino & Spa ("Borgata"), to MGM Resorts International ("MGM"), and the transaction closed on August 1, 2016. (See Note 3, Acquisitions and Divestitures.) We account for our investment in Borgata applying the equity method and report its results as discontinued operations for all periods presented in these condensed consolidated financial statements.

Revisions and Reclassifications
The financial information for the three and nine months ended September 30, 2015 is derived from our condensed consolidated financial statements and footnotes included in the Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and has been revised to reflect the results of operations and cash flows of our equity investment in Borgata as discontinued operations. (See Note 3, Acquisitions and Divestitures.)

Asset transaction costs that were previously disaggregated in our condensed consolidated statement of operations for the three and nine months ended September 30, 2015 were accumulated with preopening expenses. This reclassification had no effect on our retained earnings or net income as previously reported.


8
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

Amortization of debt financing costs and amortization of discounts on debt, which were previously disaggregated in our condensed consolidated statement of cash flows for the nine months ended September 30, 2015, were combined. This reclassification had no effect on our cash provided by operating activities as previously reported.

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments, which include cash on hand and in banks, interest-bearing deposits and money market funds with maturities of three months or less at their date of purchase. The instruments are not restricted as to withdrawal or use and are on deposit with high credit quality financial institutions. Although these balances may at times exceed the federal insured deposit limit, we believe such risk is mitigated by the quality of the institution holding such deposit. The carrying values of these instruments approximate their fair values as such balances are generally available on demand.

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 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.

The amounts included in promotional allowances are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2016
 
2015
 
2016
 
2015
Rooms
$
18,778

 
$
19,573

 
$
56,017

 
$
57,505

Food and beverage
36,528

 
38,139

 
109,640

 
112,984

Other
3,182

 
4,113

 
10,155

 
10,445

Total promotional allowances
$
58,488

 
$
61,825

 
$
175,812

 
$
180,934


The estimated costs of providing such promotional allowances are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2016
 
2015
 
2016
 
2015
Rooms
$
8,307

 
$
8,988

 
$
24,797

 
$
26,240

Food and beverage
32,611

 
33,925

 
96,724

 
99,874

Other
3,041

 
3,214

 
9,021

 
8,889

Total estimated cost of promotional allowances
$
43,959

 
$
46,127

 
$
130,542

 
$
135,003


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 $79.7 million and $83.2 million for the three months ended September 30, 2016 and 2015, respectively, and $243.8 million and $252.1 million for the nine months ended September 30, 2016 and 2015, 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. We reduce the carrying amounts of deferred tax assets by a valuation allowance, if after weighing all positive and negative evidence, it is more likely than not that such assets will not be realized. Use of the term "more likely than not" indicates the likelihood of occurrence is greater than 50%. 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

9
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of profitability and taxable income, 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 making such judgments, significant weight is given to evidence that can be objectively verified.

In performing our third quarter valuation allowance analysis, we determined that the positive evidence in favor of releasing the valuation allowance, particularly evidence that was objectively verifiable, outweighed the negative evidence. We utilize a rolling twelve quarters of pretax income adjusted for permanent book to tax differences as a measure of cumulative results in recent years. We transitioned from a cumulative loss position to a cumulative income position over the rolling twelve quarters ended September 30, 2016. Other evidence considered in the analysis included, but was not limited to, a trend reflective of improvement in recent earnings, forecasts of profitability and taxable income and the reversal of existing temporary differences. The change in these conditions during the three months ended September 30, 2016 provided positive evidence that supported the release of the valuation allowance against a significant portion of our deferred tax assets. As such, we concluded that it was more likely than not that the benefit from our deferred tax assets would be realized. As a result, during the third quarter, we released $190.4 million of valuation allowance on our federal and unitary state income tax net operating loss carryforwards and other deferred tax assets.

For the nine months ended September 30, 2015, we computed our benefit for income taxes by applying the actual effective tax rate, under the discrete method, to year-to-date income. The discrete method was used to calculate our income tax benefit as the annual effective tax rate was not considered a reliable estimate of year-to-date income tax benefit.

Our tax rate is impacted by adjustments that are largely independent of our operating results before taxes. In the current year, such adjustments relate primarily to the release of our valuation allowance on a significant portion of our deferred tax assets. In the prior year, the adjustments relate primarily to changes in our valuation allowance and 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.

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.

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.


10
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

Recently Issued Accounting Pronouncements
Accounting Standards Update 2016-15, Statement of Cash Flows ("Update 2016-15")
In August 2016, the Financial Accounting Standards Board ("FASB") issued Update 2016-15, which amends the guidance on the classification of certain cash receipts and payments in the statement of cash flows. The Accounting Standards Update ("ASU") is intended to reduce the lack of consistent principles on certain classifications such as debt prepayment, debt extinguishment costs, distributions, insurance claims and beneficial interest in securitization transactions. The standard is effective for financial statements issued for annual periods and interim periods within those annual periods beginning after December 15, 2017, and early adoption is permitted. The Company is evaluating the impact of the adoption of Update 2016-15 to the financial statements.

Accounting Standards Update 2016-13, Financial Instruments-Credit Losses ("Update 2016-13")
In June 2016, the FASB issued Update 2016-13, which amends the guidance on the impairment of financial instruments. Update 2016-13 adds to GAAP an impairment model (known as the current expected credit loss ("CECL") model) that is based on expected losses rather than incurred losses. The standard is effective for financial statements issued for annual periods and interim periods within those annual periods beginning after December 15, 2019, and early adoption is permitted. The Company is evaluating the impact of the adoption of Update 2016-13 to the financial statements.

Accounting Standards Update 2016-12, Revenue from Contracts with Customers - Narrow-Scope Improvements and Practical Expedients ("Update 2016-12"); Accounting Standards Update 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting ("Update 2016-11"); Accounting Standards Update 2016-10, Revenue from Contracts with Customers - Identifying Performance Obligations and Licensing ("Update 2016-10"); and Accounting Standards Update 2016-08, Revenue from Contracts with Customers - Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("Update 2016-08")
In March 2016 through May 2016, the FASB issued Update 2016-08, Update 2016-10, Update 2016-11 and Update 2016-12, which amend and further clarify the new revenue standard, Accounting Standards Update 2014-09, Revenue from Contracts with Customers ("Update 2014-09"), which was subsequently amended and deferred in Accounting Standards Update 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date ("Update 2015-14", and collectively with the original standard, Update 2014-09, and subsequent amendments, Update 2016-08, Update 2016-10, Update 2016-11 and Update 2016-12, the "Revenue Standard"). The Revenue Standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Earlier application is permitted only for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company is evaluating the impact of the Revenue Standard on its consolidated financial statements.

Accounting Standards Update 2016-09, Compensation - Stock Compensation ("Update 2016-09")
In March 2016, the FASB issued Update 2016-09 which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The standard is effective for financial statements issued for annual periods and interim periods within those annual periods beginning after December 15, 2016, and early adoption is permitted. The Company is evaluating the impact of the adoption of Update 2016-09 to the financial statements.

Accounting Standards Update 2016-07, Investments - Equity Method and Joint Ventures ("Update 2016-07")
In March 2016, the FASB issued Update 2016-07 which simplifies the equity method of accounting by eliminating the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. The standard is effective for financial statements issued for annual periods and interim periods within those annual periods beginning after December 15, 2016, and early adoption is permitted. The Company determined that the impact of the new standard on its consolidated financial statements will not be material.

Accounting Standards Update 2016-02, Leases ("Update 2016-02")
In February 2016, the FASB issued Update 2016-02 which requires the recognition of lease assets and lease liabilities on the balance sheet and the disclosure of key information about leasing arrangements. The standard is effective for financial statements issued for annual periods and interim periods within those annual periods beginning after December 15, 2018, and early adoption is permitted. The Company is evaluating the impact of the adoption of Update 2016-02 to the financial statements.

11
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________


Accounting Standards Update 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities ("Update 2016-01")
In January 2016, the FASB issued Update 2016-01, which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted only if explicit early adoption guidance is applied. The Company is evaluating the impact of the new standard on its consolidated financial statements.

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.    ACQUISITIONS AND DIVESTITURES
Acquisition - Aliante Casino + Hotel + Spa
Overview
On September 27, 2016, Boyd Gaming completed its previously announced acquisition of ALST, the holding company of Aliante Gaming, LLC ("Aliante"), the owner and operator of the Aliante Casino + Hotel + Spa, pursuant to the Merger Agreement. Pursuant to the Merger Agreement, Merger Sub merged (the "Merger") with and into ALST, with ALST surviving the Merger. ALST and Aliante are now wholly-owned subsidiaries of Boyd Gaming. Aliante is an upscale, resort-style casino and hotel situated in North Las Vegas and offering premium accommodations, gaming, dining, entertainment and retail, and is aggregated into our Las Vegas Locals segment (See Note 11, Segment Information.) The acquired assets and liabilities of ALST and Aliante are included in our condensed consolidated balance sheet as of September 30, 2016, and the results of its operations and cash flows are reported in our condensed consolidated statements of operations and cash flows from September 27, 2016 through September 30, 2016. The net purchase price was $372.3 million.

Consideration Transferred
The fair value of the consideration transferred on the acquisition date included the purchase price of the net assets transferred. The total gross consideration was $399.1 million.

Status of Purchase Price Allocation
For purposes of these financial statements, we have allocated the purchase price to the assets acquired and the liabilities assumed based on their respective net book values as reflected in the accounting records of ALST. The excess of the purchase price over the net book value of the assets acquired and liabilities assumed has been recorded as goodwill. The Company will recognize the assets acquired and liabilities assumed in the Merger based on fair value estimates as of the date of the Merger. The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) is currently in process. This determination requires significant judgment. As such, management has not completed its valuation analysis and calculations in sufficient detail necessary to arrive at estimates of the fair value of the assets acquired and liabilities assumed, along with the related allocations of goodwill and intangible assets. The final fair value determinations are expected to be completed during the fourth quarter of 2016. The final fair value determinations may be significantly different than those reflected in the consolidated financial statements at September 30, 2016.

Acquisition Method of Accounting
The Company is following the acquisition method of accounting per Accounting Standards Codification ("ASC") 805 guidance. In accordance with ASC 805, the Company will allocate the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their fair values, which will be determined primarily by management with assistance from third-party appraisals. The excess of the purchase price over those fair values will be recorded as goodwill.


12
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

The following table summarizes the preliminary allocation of the purchase price:
(In thousands)
As Recorded
Current assets
$
31,886

Property and equipment, net
60,618

Other assets
4,441

Total acquired assets
96,945

Current liabilities
5,693

Other liabilities
636

Total liabilities assumed
6,329

Net identifiable assets acquired
90,616

Goodwill
308,530

Net assets acquired
$
399,146


The following table summarizes the preliminary values assigned to acquired property and equipment and estimated useful lives:
(In thousands)
Useful Lives
 
As Recorded
Land
 
 
$
6,200

Buildings and improvements
10 - 45 years
 
47,945

Furniture and equipment
3 - 7 years
 
5,831

Construction in progress
 
 
642

Property and equipment acquired
 
 
$
60,618


The goodwill recognized is the excess of the purchase price over the preliminary values assigned to the assets acquired and liabilities assumed. All of the goodwill was assigned to the Las Vegas Locals reportable segment. All of the goodwill is expected to be deductible for income tax purposes.

The Company recognized $0.9 million and $1.9 million of acquisition related costs that were expensed for the three and nine months ended September 30, 2016, respectively. These costs are included in the condensed consolidated statements of operations in the line item entitled "Project development, preopening and writedowns".

Condensed Consolidated Statement of Operations for the period from September 27, 2016 through September 30, 2016
The following supplemental information presents the financial results of Aliante included in the Company's condensed consolidated statement of operations for the three and nine months ended September 30, 2016:
 
Period from
 
September 27 to
(In thousands)
September 30, 2016
Net revenues
$
1,040

Net income
$
248


Pending Acquisition - Cannery Casino Hotel and Nevada Palace, LLC
On April 25, 2016, Boyd Gaming announced it has entered into a definitive agreement to acquire The Cannery Hotel and Casino, LLC ("Cannery"), the owner and operator of Cannery Casino Hotel located in North Las Vegas, and Nevada Palace, LLC ("Eastside"), the owner and operator of Eastside Cannery Casino and Hotel located in the eastern part of the Las Vegas Valley, comprising the Las Vegas assets of Cannery Casino Resorts, LLC ("CCR"), for total cash consideration of $230 million, subject to adjustment based on the working capital, including cash and less indebtedness of the acquired assets and less any transaction expenses.

Boyd Gaming will acquire Cannery and Eastside pursuant to a Membership Interest Purchase Agreement (the "Cannery Purchase Agreement") entered into on April 25, 2016, by and among, Boyd Gaming, CCR, Cannery and Eastside. The Cannery Purchase Agreement provides that, pursuant to the terms and subject to the conditions set forth therein, Boyd Gaming will acquire from

13
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

CCR all of the issued and outstanding membership interests of Cannery and Eastside (the "Cannery Purchase"), such that, following the Cannery Purchase, Cannery and Eastside will be wholly-owned subsidiaries of Boyd Gaming.

The Cannery Purchase Agreement contains customary representations, warranties, covenants and termination rights. In addition, $20 million of the cash consideration will be placed in escrow to satisfy the indemnification obligations of CCR.

On October 28, 2016, Boyd Gaming, Cannery, Eastside and CCR entered into an amendment to the Cannery Purchase Agreement (the "Cannery Purchase Amendment") to extend the outside date for the Closing (as defined in the Cannery Purchase Agreement) from October 31, 2016 to December 31, 2016.

The completion of the Cannery Purchase is subject to customary conditions and the receipt of all required regulatory approvals, including, among others, approval by the Nevada Gaming Commission and the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Subject to the satisfaction or waiver of the respective conditions in the Cannery Purchase Agreement, we currently expect the Cannery Purchase to close before the end of 2016.

Investment in and Divestiture of Borgata
On August 1, 2016, Boyd Gaming completed its previously announced sale of its 50% equity interest in MDDHC, the parent company of Borgata in Atlantic City, New Jersey ("Borgata"), to MGM Resorts International ("MGM") pursuant to an Equity Purchase Agreement (the "Purchase Agreement") entered into on May 31, 2016, as amended on July 19, 2016, by and among Boyd, Boyd Atlantic City, Inc., a wholly-owned subsidiary of Boyd ("Seller"), and MGM.

Prior to the sale of our equity interest, the Company and MGM each held a 50% interest in MDDHC, which owns all the equity interests in Borgata. Until the closing of the sale, we were the managing member of MDDHC, and we were responsible for the day-to-day operations of Borgata.

Pursuant to the Purchase Agreement, MGM acquired from Boyd Gaming 49% of its 50% membership interest in MDDHC and, immediately thereafter, MDDHC redeemed Boyd Gaming’s remaining 1% membership interest in MDDHC (collectively, the "Transaction"). Following the Transaction, MDDHC became a wholly-owned subsidiary of MGM.

In consideration for the Transaction, MGM paid Boyd Gaming $900 million. The initial net cash proceeds were approximately $589 million, net of certain expenses and adjustments on the closing date, including outstanding indebtedness, cash and working capital. These initial proceeds do not include our 50% share of any future property tax settlement benefits, from the time period during which we held a 50% ownership in MDDHC, to which Boyd Gaming retains the right to receive upon payment. During third quarter 2016, we recognized $4.3 million in income for the cash we received for our share of property tax benefits realized by Borgata subsequent to the closing of the sale. Borgata estimates that it is entitled to additional property tax refunds totaling between $140 million and $160 million, including amounts due under court decisions rendered in its favor and estimates for open tax appeals.

We reflect the results of operations and cash flows from our investment in Borgata as discontinued operations for all periods presented in these condensed consolidated financial statements.

The after-tax gain on the sale of Borgata was $181.7 million and is included in discontinued operations in the three and nine months ended September 30, 2016.

14
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________


Summarized income statement information for Borgata is as follows:
 
Period from
 
Period from
 
July 1 to
 
January 1 to
 
July 31,
 
July 31,
(In thousands)
2016
 
2016
Net revenues
$
91,870

 
$
485,510

Operating expenses
63,997

 
366,812

Operating income
27,873

 
118,698

Non-operating expenses
6,104

 
36,280

Net income
$
21,769

 
$
82,418

 
Three Months
 
Nine Months
 
Ended
 
Ended
 
September 30,
 
September 30,
(In thousands)
2015
 
2015
Net revenues
$
237,461

 
$
611,213

Operating expenses
175,248

 
495,473

Operating income
62,213

 
115,740

Non-operating expenses
25,363

 
58,909

Net income
$
36,850

 
$
56,831


NOTE 4.    PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
 
September 30,
 
December 31,
(In thousands)
2016
 
2015
Land
$
234,186

 
$
229,857

Buildings and improvements
2,618,837

 
2,539,578

Furniture and equipment
1,212,038

 
1,152,277

Riverboats and barges
238,846

 
238,743

Construction in progress
68,735

 
42,497

Other
5,388

 
7,404

Total property and equipment
4,378,030

 
4,210,356

Less accumulated depreciation
2,115,400

 
1,985,014

Property and equipment, net
$
2,262,630

 
$
2,225,342


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 2013 sale of the Echelon development project. Such assets are not in service and are not currently being depreciated.

Depreciation expense is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2016
 
2015
 
2016
 
2015
Depreciation expense
$
44,010

 
$
44,643

 
$
131,832

 
$
134,904



15
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

NOTE 5.    INTANGIBLE ASSETS
Intangible assets consist of the following:
 
September 30, 2016
 
Weighted
 
Gross
 
 
 
Cumulative
 
 
 
Average Life
 
Carrying
 
Cumulative
 
Impairment
 
Intangible
(In thousands)
Remaining
 
Value
 
Amortization
 
Losses
 
Assets, Net
Amortizing intangibles
 
 
 
 
 
 
 
 
 
Customer relationships
1.1 years
 
$
136,300

 
$
(121,147
)
 
$
—

 
$
15,153

Favorable lease rates
31.7 years
 
45,370

 
(12,779
)
 
—

 
32,591

Development agreement
—
 
21,373

 
—

 
—

 
21,373

 
 
 
203,043

 
(133,926
)
 
—

 
69,117

 
 
 
 
 
 
 
 
 
 
Indefinite lived intangible assets
 
 
 
 
 
 
 
 
 
Trademarks
Indefinite
 
129,487

 
—

 
(3,500
)
 
125,987

Gaming license rights
Indefinite
 
873,335

 
(33,960
)
 
(156,374
)
 
683,001

 
 
 
1,002,822

 
(33,960
)
 
(159,874
)
 
808,988

Balance, September 30, 2016
 
 
$
1,205,865

 
$
(167,886
)
 
$
(159,874
)
 
$
878,105


 
December 31, 2015
 
Weighted
 
Gross
 
 
 
Cumulative
 
 
 
Average Life
 
Carrying
 
Cumulative
 
Impairment
 
Intangible
(In thousands)
Remaining
 
Value
 
Amortization
 
Losses
 
Assets, Net
Amortizing intangibles
 
 
 
 
 
 
 
 
 
Customer relationships
1.9 years
 
$
136,300

 
$
(109,994
)
 
$
—

 
$
26,306

Favorable lease rates
32.4 years
 
45,370

 
(11,997
)
 
—

 
33,373

Development agreement
—
 
21,373

 
—

 
—

 
21,373

 
 
 
203,043

 
(121,991
)
 
—

 
81,052

 
 
 
 
 
 
 
 
 
 
Indefinite lived intangible assets
 
 
 
 
 
 
 
 
 
Trademarks
Indefinite
 
129,501

 
—

 
(3,500
)
 
126,001

Gaming license rights
Indefinite
 
873,335

 
(33,960
)
 
(156,374
)
 
683,001

 
 
 
1,002,836

 
(33,960
)
 
(159,874
)
 
809,002

Balance, December 31, 2015
 
 
$
1,205,879

 
$
(155,951
)
 
$
(159,874
)
 
$
890,054


NOTE 6.    ACCRUED LIABILITIES
Accrued liabilities consist of the following:
 
September 30,
 
December 31,
(In thousands)
2016
 
2015
Payroll and related expenses
$
64,242

 
$
71,815

Interest
44,080

 
35,337

Gaming liabilities
42,268

 
37,496

Player loyalty program liabilities
18,280

 
18,491

Other accrued liabilities
101,842

 
86,379

Total accrued liabilities
$
270,712

 
$
249,518



16
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

NOTE 7.    LONG-TERM DEBT
Long-term debt, net of current maturities consists of the following:
 
 
 
September 30, 2016
 
Interest
 
 
 
 
 
Unamortized
 
 
 
Rates at
 
Outstanding
 
Unamortized
 
Origination
 
Long-Term
(In thousands)
Sept. 30, 2016
 
Principal
 
Discount
 
Fees and Costs
 
Debt, Net
Bank credit facility
3.54
%
 
$
1,541,000

 
$
(1,986
)
 
$
(28,483
)
 
$
1,510,531

6.875% senior notes due 2023
6.88
%
 
750,000

 
—

 
(11,648
)
 
738,352

6.375% senior notes due 2026
6.38
%
 
750,000

 
—

 
(12,270
)
 
737,730

Other
5.80
%
 
635

 
—

 
—

 
635

Total long-term debt
 
 
3,041,635

 
(1,986
)
 
(52,401
)
 
2,987,248

Less current maturities
 
 
30,250

 
—

 
—

 
30,250

Long-term debt, net
 
 
$
3,011,385

 
$
(1,986
)
 
$
(52,401
)
 
$
2,956,998


 
 
 
December 31, 2015
 
Interest
 
 
 
 
 
Unamortized
 
 
 
Rates at
 
Outstanding
 
Unamortized
 
Origination
 
Long-Term
(In thousands)
Dec. 31, 2015
 
Principal
 
Discount
 
Fees and Costs
 
Debt, Net
Boyd Gaming Corporation Debt
 
 
 
 
 
 
 
 
 
Bank credit facility
3.75
%
 
$
1,209,725

 
$
(2,702
)
 
$
(9,746
)
 
$
1,197,277

9.00% senior notes due 2020
9.00
%
 
350,000

 
—

 
(7,044
)
 
342,956

6.875% senior notes due 2023
6.88
%
 
750,000

 
—

 
(12,934
)
 
737,066

 
 
 
2,309,725

 
(2,702
)
 
(29,724
)
 
2,277,299

 
 
 
 
 
 
 
 
 
 
Peninsula Gaming Debt
 
 
 
 
 
 
 
 
 
Bank credit facility
4.25
%
 
662,750

 
—

 
(14,143
)
 
648,607

8.375% senior notes due 2018
8.38
%
 
350,000

 
—

 
(6,357
)
 
343,643

 
 
 
1,012,750

 
—

 
(20,500
)
 
992,250

Total long-term debt
 
 
3,322,475

 
(2,702
)
 
(50,224
)
 
3,269,549

Less current maturities
 
 
29,750

 
—

 
—

 
29,750

Long-term debt, net
 
 
$
3,292,725

 
$
(2,702
)
 
$
(50,224
)
 
$
3,239,799


Boyd Gaming Debt
Credit Facility
On September 15, 2016, the Company entered into an Amendment No. 1 and Joinder Agreement (the "Amendment") among the Company, certain financial institutions, Bank of America, N.A., as administrative agent and letter of credit issuer, and Wells Fargo Bank, National Association, as swing line lender. The Amendment modified the Third Amended and Restated Credit Agreement (the "Prior Credit Facility"), dated August 14, 2013, together referred to as the "Credit Facility" or the "Credit Agreement".

As modified by the Amendment, the Credit Facility provides for: (i) increased commitments under the existing senior secured revolving credit facility (the "Revolving Credit Facility") to an amount equal to $775.0 million, (ii) commitments under the existing senior secured term A loan (the "Term A Loan") in an amount equal to $225.0 million, and (iii) a new $1.0 billion senior secured term B-2 loan (the "Term B-2 Loan"). The maturity dates of the Revolving Credit Facility and the Term A Loan have been extended to September 15, 2021 (or earlier upon the occurrence or non-occurrence of certain events); the Term B-2 Loan matures on September 15, 2023 (or earlier upon the occurrence or non-occurrence of certain events); the maturity date of the existing senior secured term B-1 loan (the "Term B-1 Loan"), under which $274.0 million in aggregate principal is outstanding, remains August 14, 2020. The increase to the Term A Loan and the new Term B-2 Loan were fully funded on the effective date of the Amendment. Proceeds from the Credit Facility were used to refinance all outstanding obligations under the Prior Credit Facility and to fund transaction costs in connection with the Credit Facility and may be used for working capital and other general corporate purposes.

17
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________


The Credit Facility includes an accordion feature which permits an increase in the Revolving Credit Facility and the issuance and increase of senior secured term loans in an amount up to (i) $550.0 million, plus (ii) certain voluntary permanent reductions of the Revolving Credit Facility and certain voluntary prepayments of the senior secured term loans, plus (iii) certain reductions in the outstanding principal amounts under the term loans or the Revolving Credit Facility, plus (iv) any additional amount if, after giving effect thereto, the First Lien Leverage Ratio (as defined in the Credit Agreement) would not exceed 4.25 to 1.00 on a pro forma basis, less (v) any Incremental Equivalent Debt (as defined in the Credit Agreement), in each case, subject to the satisfaction of certain conditions.

Pursuant to the terms of the Credit Facility (i) the loans under the Term A Loan will amortize in an annual amount equal to 5.00% of the original principal amount thereof, commencing December 31, 2016, payable on a quarterly basis, (ii) the loans under the Term B-2 Loan will amortize in an annual amount equal to 1.00% of the original principal amount thereof, commencing December 31, 2016, payable on a quarterly basis, and (iii) beginning with the fiscal year ending December 31, 2016, the Company is required to use a portion of its annual Excess Cash Flow, as defined in the Credit Agreement, to prepay loans outstanding under the Credit Facility.

The outstanding principal amounts under the Credit Facility are comprised of the following:
 
September 30,
 
December 31,
(In thousands)
2016
 
2015
Revolving Credit Facility
$
—

 
$
240,000

Term A Loan
225,000

 
183,275

Term B-1 Loan
274,000

 
730,750

Term B-2 Loan
1,000,000

 
—

Swing Loan
42,000

 
55,700

Total outstanding principal amounts under the Credit Facility
$
1,541,000

 
$
1,209,725


At September 30, 2016, approximately $1.5 billion was outstanding under the Credit Facility and $12.0 million was allocated to support various letters of credit, leaving remaining contractual availability of $721.0 million.

Interest and Fees
The interest rate on the outstanding balance from time to time of the Revolving Credit Facility and the Term A Loan is based upon, at the Company’s option, either: (i) the Eurodollar rate or (ii) the base rate, in each case, plus an applicable margin. Such applicable margin is a percentage per annum determined in accordance with a specified pricing grid based on the total leverage ratio and ranges from 1.75% to 2.75% (if using the Eurodollar rate) and from 0.75% to 1.75% (if using the base rate). A fee of a percentage per annum (which ranges from 0.25% to 0.50% determined in accordance with a specified pricing grid based on the total leverage ratio) will be payable on the unused portions of the Revolving Credit Facility.

The interest rate on the outstanding balance from time to time of the Term B-1 Loan is based upon, at the Company’s option, either: (i) the Eurodollar rate (subject to a 1.00% minimum) plus 3.00%, or (ii) the base rate plus 2.00%. The interest rate on the outstanding balance from time to time of the Term B-2 Loan is based upon, at the Company’s option, either: (i) the Eurodollar rate (subject to a 0.00% minimum) plus 3.00%, or (ii) the base rate plus 2.00%.

The "base rate" under the Credit Agreement remains the highest of (x) Bank of America’s publicly-announced prime rate, (y) the federal funds rate plus 0.50%, or (z) the Eurodollar rate for a one-month period plus 1.00%.

Optional and Mandatory Prepayments
Amounts outstanding under the Credit Agreement may be prepaid without premium or penalty, and the unutilized portion of the commitments may be terminated without penalty, subject to certain exceptions, including a 1.00% prepayment premium for any prepayment of the Term B-2 Loan prior to March 15, 2017 that is accompanied by a repricing of the Term B-2 Loan.

The Credit Agreement contains certain financial and other covenants, including, without limitation, various covenants (i) requiring the maintenance of a minimum consolidated interest coverage ratio, (ii) establishing a maximum permitted consolidated total leverage ratio, (iii) establishing a maximum permitted secured leverage ratio, (iv) imposing limitations on the incurrence of

18
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

indebtedness, (v) imposing limitations on transfers, sales and other dispositions and (vi) imposing restrictions on investments, dividends and certain other payments. Subject to certain exceptions, the Company may be required to repay the amounts outstanding under the Amended Credit Agreement in connection with certain asset sales and issuances of certain additional secured indebtedness. In addition, it requires fixed quarterly amortization of principal and requires that the Company use a portion of its annual excess cash flow as defined in the agreement to prepay the loans.

The Company’s obligations under the Credit Agreement, subject to certain exceptions, are guaranteed by certain of the Company’s subsidiaries and are secured by the capital stock of certain subsidiaries. In addition, subject to certain exceptions, the Company and each of the guarantors will grant the administrative agent first priority liens and security interests on substantially all of their real and personal property (other than gaming licenses and subject to certain other exceptions) as additional security for the performance of the secured obligations under the Credit Agreement.

Senior Notes
6.375% Senior Notes due April 2026
Significant Terms
On March 28, 2016, we issued $750 million aggregate principal amount of 6.375% senior notes due April 2026 (the "6.375% Notes"). The 6.375% Notes require semi-annual interest payments on April 1 and October 1 of each year, commencing on October 1, 2016. The 6.375% Notes will mature on April 1, 2026 and are fully and unconditionally guaranteed, on a joint and several basis, by certain of our current and future domestic restricted subsidiaries, all of which are 100% owned by us. Net proceeds from the 6.375% Notes were used to pay down the outstanding amount under the Revolving Credit Facility and the balance was deposited in money market funds and classified as cash equivalents on the condensed consolidated balance sheets.

In conjunction with the issuance of the 6.375% Notes, we incurred approximately $13.0 million in debt financing costs that have been deferred and are being amortized over the term of the 6.375% Notes using the effective interest method.

The 6.375% Notes contain certain restrictive covenants that, subject to exceptions and qualifications, among other things, limit our ability and the ability of our restricted subsidiaries (as defined in the base and supplemental indentures governing the 6.375% Notes, together, the "Indenture") to incur additional indebtedness or liens, pay dividends or make distributions or repurchase our capital stock, make certain investments, and sell or merge with other companies. In addition, upon the occurrence of a change of control (as defined in the Indenture), we will be required, unless certain conditions are met, to offer to repurchase the 6.375% Notes at a price equal to 101% of the principal amount of the 6.375% Notes, plus accrued and unpaid interest and Additional Interest (as defined in the Indenture), if any, to, but not including, the date of purchase. If we sell assets or experience an event of loss, we will be required under certain circumstances to offer to purchase the 6.375% Notes.

At any time prior to April 1, 2021, we may redeem the 6.375% Notes, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and Additional Interest, if any, up to, but excluding, the applicable redemption date, plus a make whole premium. After April 1, 2021, we may redeem all or a portion of the 6.375% Notes at redemption prices (expressed as percentages of the principal amount) ranging from 103.188% in 2021 to 100% in 2024 and thereafter, plus accrued and unpaid interest and Additional Interest.

In connection with the private placement of the 6.375% Notes, we entered into a registration rights agreement with the initial purchasers in which we agreed to file a registration statement with the SEC to permit the holders to exchange or resell the 6.375% Notes. We must use commercially reasonable efforts to file a registration statement and to consummate an exchange offer within 365 days after the issuance of the 6.375% Notes, subject to certain suspension and other rights set forth in the registration rights agreement. Under certain circumstances, including our determination that we cannot complete an exchange offer, we are required to file a shelf registration statement for the resale of the 6.375% Notes and to cause such shelf registration statement to be declared effective as soon as reasonably practicable (but in no event later than the 365th day following the issuance of the 6.375% Notes) after the occurrence of such circumstances. Subject to certain suspension and other rights, in the event that the registration statement is not filed or declared effective within the time periods specified in the registration rights agreement, the exchange offer is not consummated within 365 days after the issuance of the 6.375% Notes, or the registration statement is filed and declared effective but thereafter ceases to be effective or is unusable for its intended purpose for a period in excess of 30 days without being succeeded immediately by a post-effective amendment that cures such failure, the agreement provides that additional interest will accrue on the principal amount of the 6.375% Notes at a rate of 0.25% per annum during the 90-day period immediately following any of these events and will increase by 0.25% per annum at the end of each subsequent 90-day period, but in no event will the penalty rate exceed 1.00% per annum, until the default is cured. There are no other alternative settlement methods and, other than the

19
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

1.00% per annum maximum penalty rate, the agreement contains no limit on the maximum potential amount of consideration that could be transferred in the event we do not meet the registration statement filing requirements. We currently intend to file a registration statement, have it declared effective and consummate any exchange offer within these time periods. Accordingly, we do not believe that payment of additional interest under the registration payment arrangement is probable and, therefore, no related liability has been recorded in the consolidated financial statements.

Senior Notes
9.00% Senior Notes due July 2020
On September 6, 2016 we redeemed all of our 9.00% senior notes due July 2020 (the "9.00% Notes") at a redemption price of 104.50% plus accrued and unpaid interest to the redemption date. The redemption was funded using cash on hand.

As a result of this redemption, the 9.00% Notes have been fully extinguished.

Peninsula Gaming Debt
Bank Credit Facility
On September 2, 2016, Peninsula repaid all of the outstanding amounts, including all principal and accrued interest amounts, under the Peninsula senior secured credit facility (the "Peninsula Credit Facility") pursuant to the Peninsula Credit Agreement. In connection with the repayment in full of the Peninsula Credit Facility (the "Repayment"), the Peninsula Credit Agreement was terminated.

At December 31, 2015, the outstanding principal amount under the Peninsula Credit Facility was comprised of the following:
(In thousands)
 
Term Loan
$
647,750

Revolving Facility
9,000

Swing Loan
6,000

Total outstanding principal amount under the Peninsula Credit Facility
$
662,750


Peninsula Senior Notes
8.375% Senior Notes due February 2018
On September 2, 2016 we redeemed all of our 8.375% senior notes due February 2018 (the "8.375% Notes") at a redemption price of 100.0% plus accrued and unpaid interest to the redemption date. The redemption was funded using cash on hand.

Loss on Early Extinguishments and Modifications of Debt
The components of the loss on early extinguishments and modifications of debt, are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2016
 
2015
 
2016
 
2015
9.00% Senior Notes premium and consent fees
$
15,750

 
$
—

 
$
15,750

 
$
—

9.00% Senior Notes deferred finance charges
5,976

 
—

 
5,976

 
—

8.375% Senior Notes deferred finance charges
4,497

 
—

 
4,497

 
—

9.125% Senior Notes premium and consent fees
—

 
—

 
—

 
23,962

9.125% Senior Notes deferred finance charges
—

 
—

 
—

 
4,888

Boyd Gaming Credit Facility deferred finance charges
6,629

 
444

 
6,629

 
1,602

Peninsula Credit Facility deferred finance charges
8,666

 
419

 
9,512

 
1,881

Total loss on early extinguishments and modifications of debt
$
41,518

 
$
863

 
$
42,364

 
$
32,333


Covenant Compliance
As of September 30, 2016, we believe that we were in compliance with the financial and other covenants of our debt instruments.


20
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

NOTE 8.    COMMITMENTS AND CONTINGENCIES
Commitments
There have been no material changes to our commitments described under Note 10, Commitments and Contingencies, in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on February 25, 2016, except for the pending acquisitions of the Las Vegas assets of CCR as discussed in Note 3, Acquisitions and Divestitures.

Contingencies
Legal Matters
We are parties to various legal proceedings arising in the ordinary course of business. In our opinion, all pending legal matters are either adequately covered by insurance, or, if not insured, will not have a material adverse impact on our financial position, results of operations or cash flows.

NOTE 9.    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
 
Nine Months Ended
 
September 30,
 
September 30,
(In thousands)
2016
 
2015
 
2016
 
2015
Gaming
$
86

 
$
68

 
$
251

 
$
191

Food and beverage
17

 
12

 
48

 
36

Room
8

 
6

 
23

 
17

Selling, general and administrative
437

 
345

 
1,274

 
969

Corporate expense
994

 
1,429

 
5,529

 
7,014

Total share-based compensation expense
$
1,542

 
$
1,860

 
$
7,125

 
$
8,227


Performance Shares Vesting
The Performance Share Unit ("PSU") grants awarded in December 2012 and 2011 vested during first quarters of 2016 and 2015, respectively. Common shares were issued based on the determination by the Compensation Committee of the Board of Directors of our actual achievement of net revenue growth, Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") growth and customer service scores for the three-year performance period of the grant. As provided under the provisions of our stock incentive plan, certain of the participants elected to surrender a portion of the shares to be received to pay the withholding and other payroll taxes payable on the compensation resulting from the vesting of the PSUs.
The PSU grant awarded in December 2012 resulted in a total of 213,365 shares issued, representing approximately 0.59 shares per PSU. Of the 213,365 shares issued, a total of 54,338 were surrendered by the participants for payroll taxes, resulting a net issuance of 159,027 shares due to the vesting of the 2012 grant. The actual achievement level under the award metrics equaled the estimated performance as of year-end 2015; therefore, the vesting of the PSUs did not impact compensation costs in our 2016 condensed consolidated statement of operations.

The PSU grant awarded in December 2011 resulted in a total of 654,478 shares issued, representing approximately 1.67 shares per PSU. Of the 654,478 shares issued, a total of 177,274 were surrendered by the participants for payroll taxes, resulting a net issuance of 477,204 shares due to the vesting of the 2011 grant. The actual achievement level under the award metrics equaled the estimated performance as of year-end 2014; therefore, the vesting of the PSUs did not impact compensation costs in our 2015 condensed consolidated statement of operations.


21
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

NOTE 10.     FAIR VALUE MEASUREMENTS
The authoritative accounting guidance for fair value measurements 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.

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, 2016
(In thousands)
Balance
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
159,688

 
$
159,688

 
$
—

 
$
—

Restricted cash
23,292

 
23,292

 
—

 
—

Investment available for sale
18,279

 
—

 
—

 
18,279

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Contingent payments
$
3,435

 
$
—

 
$
—

 
$
3,435


 
December 31, 2015
(In thousands)
Balance
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
158,821

 
$
158,821

 
$
—

 
$
—

Restricted cash
19,030

 
19,030

 
—

 
—

Investment available for sale
17,839

 
—

 
—

 
17,839

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Contingent payments
$
3,632

 
$
—

 
$
—

 
$
3,632


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, 2016 and December 31, 2015.

Investment Available for Sale
We have an investment in a single municipal bond issuance of $21.0 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

22
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

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, 2016 and December 31, 2015. 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 both September 30, 2016 and December 31, 2015, $0.4 million 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, 2016 and December 31, 2015, $17.8 million and $17.4 million, respectively, is included in other assets on the condensed consolidated balance sheets. The discount associated with this investment of $3.1 million and $3.2 million at September 30, 2016 and December 31, 2015, 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.

Contingent Payments
In connection with the development of the Kansas Star Casino ("KSC"), 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 on December 20, 2011. The liability is recorded at the estimated fair value of the contingent payments using a discounted cash flows approach and the significant unobservable input used in the valuation at both September 30, 2016 and December 31, 2015, is a discount rate of 18.5%. At both September 30, 2016 and December 31, 2015, there was a current liability of $0.9 million related to this agreement, which is recorded in accrued liabilities on the respective condensed consolidated balance sheets, and long-term obligation at September 30, 2016 and December 31, 2015, of $2.5 million and $2.7 million, respectively, which is included in other liabilities on the respective condensed consolidated balance sheets.

The following table summarizes the changes in fair value of the Company's Level 3 assets and liabilities:
 
Three Months Ended
 
September 30, 2016
 
September 30, 2015
 
Assets
 
Liability
 
Assets
 
Liability
(In thousands)
Investment
Available for
Sale
 
Contingent
Payments
 
Investment
Available for
Sale
 
Contingent
Payments
Balance at beginning of reporting period
$
17,832

 
$
(3,488
)
 
$
17,276

 
$
(3,642
)
Total gains (losses) (realized or unrealized):
 
 
 
 
 
 
 
Included in interest income (expense)
30

 
(147
)
 
31

 
(156
)
Included in other comprehensive income (loss)
417

 
—

 
642

 
—

Transfers in or out of Level 3
—

 
—

 
—

 
—

Purchases, sales, issuances and settlements:
 
 
 
 
 
 
 
Settlements
—

 
200

 
—

 
211

Balance at end of reporting period
$
18,279

 
$
(3,435
)
 
$
17,949

 
$
(3,587
)


23
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015
______________________________________________________________________________________________________

 
Nine Months Ended
 
September 30, 2016
 
September 30, 2015
 
Assets
 
Liability
 
Assets
 
Liability
(In thousands)
Investment
Available for
Sale
 
Contingent
Payments
 
Investment
Available for
Sale
 
Merger Earnout
 
Contingent
Payments
Balance at beginning of reporting period
$
17,839

 
$
(3,632
)
 
$
18,357

 
$
(75
)
 
$
(3,792
)
Total gains (losses) (realized or unrealized):
 
 
 
 
 
 
 
 
 
Included in interest income (expense)
96

 
(452
)
 
93

 
75

 
(476
)
Included in other comprehensive income (loss)
754

 
—

 
(121
)
 
—

 
—

Transfers in or out of Level 3
—

 
—

 
—

 
—

 
—

Purchases, sales, issuances and settlements:
 
 
 
 
 
 
 
 
 
Settlements
(410
)
 
649

 
(380
)
 
—

 
681

Balance at end of reporting period
$
18,279

 
$
(3,435
)
 
$
17,949

 
$
—

 
$
(3,587
)

The table below summarizes the significant unobservable inputs used in calculating fair value for our Level 3 assets and liabilities:
 
Valuation
Technique
 
Unobservable
Input
 
Rate
Investment available for sale
Discounted cash flow
 
Discount rate
 
9.7
%
Contingent payments
Discounted cash flow
 
Discount rate
 
18.5
%

Balances Disclosed at Fair Value
The following tables provide the fair value measurement information about our obligation under minimum assessment agreements and other financial instruments:
 
September 30, 2016
(In thousands)
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
Liabilities
 
 
 
 
 
 
 
Obligation under assessment arrangements
$
33,823

 
$
26,858

 
$
28,118

 
Level 3
Other financial instruments
100

 
95

 
95

 
Level 3

 
December 31, 2015
(In thousands)
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
Liabilities
 
 
 
 
 
 
 
Obligation under assessment arrangements
$
35,126

 
$
27,660

 
$
28,381

 
Level 3
Other financial instruments
200

 
186

 
186

 
Level 3

The following tables provide the fair value measu