BYD 10Q 3.31.2012
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________
FORM 10-Q
 ____________________________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to              
Commission file number: 1-12882
____________________________________________________
BOYD GAMING CORPORATION
(Exact name of registrant as specified in its charter)
 ____________________________________________________
Nevada
 
88-0242733
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
3883 Howard Hughes Parkway, Ninth Floor, Las Vegas, NV 89169
(Address of principal executive offices) (Zip Code)
(702) 792-7200
(Registrant’s telephone number, including area code)
 ____________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
o
  
Accelerated filer
 
x
 
 
 
 
 
 
 
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
  
Outstanding as of April 30, 2012
 
 
Common stock, $0.01 par value
  
86,588,933
 
 
 
 
 
 


Table of Contents

BOYD GAMING CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2012
TABLE OF CONTENTS
 
 
 
Page
No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

PART I. Financial Information

Item 1.     Financial Statements
The accompanying unaudited condensed consolidated financial statements of Boyd Gaming Corporation (and together with its subsidiaries, the “Company,” “we” or “us”) have been prepared in accordance with the instructions to 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 (“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.

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, 2011, as filed with the SEC on March 7, 2012.

3

Table of Contents

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
as of March 31, 2012 and December 31, 2011 
______________________________________________________________________________________________________
 
March 31,
 
December 31,
 
2012
 
2011
 
(In thousands except per share data)
 
(Unaudited)
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
156,714

 
$
178,756

Restricted cash
14,047

 
15,753

Accounts receivable, net
57,086

 
58,589

Inventories
16,924

 
17,493

Prepaid expenses and other current assets
47,560

 
47,465

Income taxes receivable
2,361

 
3,268

Deferred income taxes
18,545

 
21,570

Total current assets
313,237

 
342,894

Property and equipment, net
3,525,904

 
3,542,108

Assets held for development
1,090,028

 
1,089,819

Debt financing costs, net
30,047

 
32,099

Restricted investments held by variable interest entity
21,367

 
21,367

Other assets, net
66,545

 
67,173

Intangible assets, net
572,712

 
574,018

Goodwill, net
213,576

 
213,576

Total assets
$
5,833,416

 
$
5,883,054

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities
 
 
 
Current maturities of long-term debt
$
53,393

 
$
43,230

Accounts payable
78,890

 
98,015

Accrued liabilities
314,748

 
295,459

Income taxes payable
5,877

 
5,630

Non-recourse obligations of variable interest entity
30,605

 
29,686

Total current liabilities
483,513

 
472,020

Long-term debt, net of current maturities
3,271,502

 
3,347,226

Deferred income taxes
385,611

 
379,958

Other long-term tax liabilities
42,379

 
45,598

Other liabilities
71,724

 
71,193

Non-recourse obligations of variable interest entity
192,730

 
192,980

Commitments and contingencies (Note 11)

 

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

 

Common stock, $0.01 par value, 200,000,000 shares authorized; 86,588,933 and 86,572,098 shares outstanding
863

 
863

Additional paid-in capital
647,137

 
644,174

Retained earnings
562,907

 
557,055

Total Boyd Gaming Corporation stockholders’ equity
1,210,907

 
1,202,092

Noncontrolling interest
175,050

 
171,987

Total stockholders’ equity
1,385,957

 
1,374,079

Total liabilities and stockholders’ equity
$
5,833,416

 
$
5,883,054


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


4

Table of Contents

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________

 
Three Months Ended
 
March 31,
 
2012
 
2011
 
(In thousands, except per share data)
 
(Unaudited)
REVENUES
 
 
 
Operating revenues:
 
 
 
Gaming
$
535,748

 
$
481,935

Food and beverage
106,132

 
92,077

Room
65,997

 
56,591

Other
35,832

 
33,031

Gross revenues
743,709

 
663,634

Less promotional allowances
110,626

 
98,688

Net revenues
633,083

 
564,946

COST AND EXPENSES
 
 
 
Operating costs and expenses:
 
 
 
Gaming
248,955

 
226,609

Food and beverage
54,078

 
47,568

Room
14,135

 
12,821

Other
26,061

 
26,239

Selling, general and administrative
109,717

 
95,788

Maintenance and utilities
38,763

 
37,415

Depreciation and amortization
50,014

 
50,584

Corporate expense
12,871

 
13,280

Preopening expenses
1,660

 
1,831

Other operating charges, net
247

 
4,707

Total operating costs and expenses
556,501

 
516,842

Operating income
76,582

 
48,104

Other expense (income):
 
 
 
Interest income
(4
)
 
(5
)
Interest expense, net
63,828

 
57,291

Fair value adjustment of derivative instruments

 
217

Gain on early retirements of debt

 
20

Total other expense, net
63,824

 
57,523

Income (loss) before income taxes
12,758

 
(9,419
)
Income taxes
(6,283
)
 
3,108

Net income (loss)
6,475

 
(6,311
)
Net (income) loss attributable to noncontrolling interest
(623
)
 
2,790

Net income (loss) attributable to Boyd Gaming Corporation
$
5,852

 
$
(3,521
)
Basic net income (loss) per common share:
$
0.07

 
$
(0.04
)
Weighted average basic shares outstanding
87,530

 
87,157

Diluted net income (loss) per common share:
$
0.07

 
$
(0.04
)
Weighted average diluted shares outstanding
87,987

 
87,157


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

5

Table of Contents

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________
 
 
Three Months Ended
 
 
March 31,
 
 
2012
 
2011
 
 
(In thousands)
 
 
(Unaudited)
Net income (loss)
 
$
6,475

 
$
(6,311
)
Other comprehensive income, net of tax:
 
 
 
 
   Fair value of derivative instruments
 
2,440

 
4,973

Other comprehensive income
 
2,440

 
4,973

Comprehensive income (loss)
 
8,915

 
(1,338
)
     Less: comprehensive income attributable to noncontrolling interest
 
2,440

 
1,265

Comprehensive income (loss) attributable to Boyd Gaming Corporation
 
$
6,475


$
(2,603
)


6

Table of Contents

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
for the three months ended March 31, 2012
______________________________________________________________________________________________________
 
Boyd Gaming Corporation Stockholders’ Equity
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
Total
 
Common Stock
 
Paid-in
 
Retained
 
Noncontrolling
 
Stockholders'
 
Shares
 
Amount
 
Capital
 
Earnings
 
Interest
 
Equity
 
(In thousands, except per share data)
 
(Unaudited)
Balances, January 1, 2012
86,572,098

 
$
863

 
$
644,174

 
$
557,055

 
$
171,987

 
$
1,374,079

Net income

 

 

 
5,852

 
623

 
6,475

Comprehensive income attributable to noncontrolling interest

 

 

 

 
2,440

 
2,440

Stock options exercised
16,835

 

 
117

 

 

 
117

Tax effect from share-based compensation arrangements

 

 
(270
)
 

 

 
(270
)
Share-based compensation costs

 

 
3,116

 

 

 
3,116

Balances, March 31, 2012
86,588,933

 
$
863

 
$
647,137

 
$
562,907

 
$
175,050

 
$
1,385,957




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


7

Table of Contents

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________ 
 
Three Months Ended
 
March 31,
 
2012
 
2011
 
(In thousands)
 
(Unaudited)
Cash Flows from Operating Activities
 
 
 
Net income (loss)
$
6,475

 
$
(6,311
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
50,014

 
50,584

Amortization of debt financing costs
3,150

 
2,031

Amortization of discounts on senior secured notes
889

 
786

Share-based compensation expense
3,116

 
3,813

Deferred income taxes
8,679

 
(4,214
)
Noncash asset write-downs
42

 
4,707

Gain on early retirements of debt

 
20

Other operating activities
3,486

 
2,808

Changes in operating assets and liabilities:
 
 
 
Restricted cash
1,706

 
2,759

Accounts receivable, net
779

 
2,882

Inventories
570

 
1,459

Prepaid expenses and other current assets
(94
)
 
5,500

Income taxes receivable
908

 
220

Other long-term tax assets
57

 
122

Other assets, net
208

 
(1,088
)
Accounts payable and accrued liabilities
(11
)
 
12,692

Income taxes
248

 
(61
)
Other long-term tax liabilities
(3,219
)
 
927

Other liabilities
485

 
(2,291
)
Net cash provided by operating activities
77,488

 
77,345

Cash Flows from Investing Activities
 
 
 
Capital expenditures
(32,796
)
 
(20,858
)
Decrease in restricted investments

 
88

Other investing activities
28

 

Net cash used in investing activities
(32,768
)
 
(20,770
)
Cash Flows from Financing Activities
 
 
 
Borrowings under bank credit facility
134,800

 
35,900

Payments under bank credit facility
(184,425
)
 
(35,900
)
Borrowings under Borgata bank credit facility
182,900

 
51,500

Payments under Borgata bank credit facility
(200,600
)
 
(83,700
)
Debt financing costs, net
(44
)
 
(511
)
Proceeds from issuance of non-recourse debt
919

 
4,428

Payments on loans to variable interest entity's members
(250
)
 
(79
)
Other financing activities
(62
)
 
12

Net cash used in financing activities
(66,762
)
 
(28,350
)
Change in cash and cash equivalents
(22,042
)
 
28,225

Cash and cash equivalents, beginning of period
178,756

 
145,623

Cash and cash equivalents, end of period
$
156,714

 
$
173,848


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Table of Contents

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________
 
 
Three Months Ended
 
March 31,
 
2012
 
2011
 
(In thousands)
 
(Unaudited)
Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid for interest
$
49,173

 
$
49,889

Cash paid (received) for income taxes, net
(137
)
 
35

Supplemental Schedule of Noncash Investing and Financing Activities
 
 
 
Payables incurred for capital expenditures
$
6,311

 
$
3,983

Fair value adjustment on derivative instruments

 
5,965


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


9

Table of Contents

BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________


NOTE 1.
    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 1973. The Company's common stock is traded on the New York Stock Exchange under the symbol “BYD”.
We are a diversified operator of 16 wholly-owned gaming entertainment properties and one controlling interest in a limited liability company. Headquartered in Las Vegas, we have gaming operations in Nevada, Illinois, Louisiana, Mississippi, Indiana and New Jersey, which we aggregate in order to present the following four reportable segments:
Las Vegas Locals
 
Gold Coast Hotel and Casino
Las Vegas, Nevada
The Orleans Hotel and Casino
Las Vegas, Nevada
Sam's Town Hotel and Gambling Hall
Las Vegas, Nevada
Suncoast Hotel and Casino
Las Vegas, Nevada
Eldorado Casino
Henderson, Nevada
Jokers Wild Casino
Henderson, Nevada
 
 
Downtown Las Vegas
 
California Hotel and Casino
Las Vegas, Nevada
Fremont Hotel and Casino
Las Vegas, Nevada
Main Street Station Casino, Brewery and Hotel
Las Vegas, Nevada
 
 
Midwest and South        
 
Sam's Town Hotel and Gambling Hall
Tunica, Mississippi
IP Casino Resort Spa
Biloxi, Mississippi
Par-A-Dice Hotel Casino
East Peoria, Illinois
Blue Chip Casino, Hotel & Spa
Michigan City, Indiana
Treasure Chest Casino
Kenner, Louisiana
Delta Downs Racetrack Casino & Hotel
Vinton, Louisiana
Sam's Town Hotel and Casino
Shreveport, Louisiana
 
 
Atlantic City                    
 
Borgata Hotel Casino & Spa
Atlantic City, New Jersey

Hawaiian Operations
In addition to these properties, we own and operate a travel agency in Hawaii, that operates our Hawaiian charter and a captive insurance company, also in Hawaii, that underwrites travel-related insurance. Results for our travel agency and our captive insurance company are included in our Downtown Las Vegas segment, as our Downtown Las Vegas properties concentrate significant marketing efforts on gaming customers from Hawaii.

Dania Jai-Alai
We also own and operate Dania Jai-Alai, which is a pari-mutuel jai-alai facility with approximately 47 acres of related land located in Dania Beach, Florida.

Echelon Development
Additionally, we own 87 acres of land on the Las Vegas Strip, where our multibillion dollar Echelon development project (“Echelon”) is located. On August 1, 2008, due to the difficult environment in the capital markets, as well as weak economic conditions, we announced the delay of Echelon. As we do not believe that a significant level of economic recovery has occurred along the Las Vegas Strip, or that financing for a development project like Echelon is currently available on terms satisfactory to

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Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



us, we do not expect to resume construction of Echelon for three to five years.

Basis of Presentation
Interim Condensed Consolidated Financial Statements
As permitted by the rules and regulations of the SEC, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, although we believe that the disclosures made are adequate to make the information reliable. 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, 2011.

In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments of normal recurring nature necessary to fairly present our financial position as of March 31, 2012, the results of our operations for the three months ended March 31, 2012 and 2011, and our cash flows for the three months ended March 31, 2012 and 2011. The condensed consolidated balance sheet as of March 31, 2012 is unaudited; however the condensed consolidated balance sheet presented as of December 31, 2011 has been derived from our audited financial statements as of such date. Our operating results for the three months ended March 31, 2012 and 2011, and our cash flows for the three months ended March 31, 2012 and 2011, are unaudited, and are not necessarily indicative of the results that would be achieved for the full year or future periods.

Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Boyd Gaming Corporation and its subsidiaries.

Acquisition of IP
On October 4, 2011, we consummated the acquisition of IP Casino Resort Spa ("IP") in Biloxi, Mississippi pursuant to an Agreement for Purchase and Sale, under which the seller agreed to sell and transfer, and the Company agreed to purchase and assume, certain assets and liabilities, respectively, related to the IP, on an as-is basis. The net purchase price, after adjustment for working capital and other items, was approximately $280.6 million.

In addition, as discussed above, the financial position of Borgata is consolidated in our condensed consolidated balance sheets as of March 31, 2012 and December 31, 2011; its results of operations and cash flows are consolidated in our statements of operations and cash flows for the three months ended March 31, 2012 and 2011. At March 31, 2012 and December 31, 2011, approximately $1.42 billion and $1.44 billion, respectively, of our consolidated total assets are related to Borgata.

Additionally, the financial position of LVE is consolidated in our condensed consolidated balance sheets as of March 31, 2012 and December 31, 2011, and its results of operations and cash flow are included in our condensed consolidated statements of operations and cash flows for the three months ended March 31, 2012 and 2011. At March 31, 2012, and December 31, 2011, approximately $190.6 million and $189.9 million, respectively, of our consolidated total assets related to LVE, however, certain of these assets, approximating $163.8 million at both respective dates are pledged as security on LVE's outstanding construction loan advances, and an additional $21.4 million of such assets are held in restricted escrow funds in accordance with the underlying terms of LVE's tax-exempt bond financing.

Consolidation of Borgata
The financial position of Borgata is included in our condensed consolidated balance sheets as of March 31, 2012 and December 31, 2011; its results of operations and cash flows are included in our condensed consolidated statements of operations and cash flows for the three months ended March 31, 2012 and 2011.

Consolidation of LVE
We presently believe that substantially all activities of our variable interest in an energy and sales agreement ("ESA") with Las Vegas Energy Partners, LLC ("LVE") are presently performed for our benefit. Pursuant to the terms of the ESA, we are obligated to purchase substantially all of its thermal output at a fixed and variable pricing arrangement that protects LVE from commodity risk. This agreement is long-term in duration, terming for 25 years from the commencement of the commercial operations of Echelon. Additionally, during the period of suspension, we are obligated to pay fees to LVE to subsidize the holding costs of the facility. We have a fixed price put option to purchase the assets of LVE, but have no future obligation to absorb any operating losses or otherwise provide financial support, except as contractually provided as described above. We do not hold any equity interest in LVE and have not guaranteed any of its outstanding debt obligations, nor would such debt have recourse to any of our

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Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



lenders, note holders or general creditors. However, accounting guidance requires us to consolidate LVE for financial statement purposes. Thus, the financial position of LVE is consolidated in our condensed consolidated balance sheets as of March 31, 2012 and December 31, 2011, and its results of operations and cash flow are included in our condensed consolidated statements of operations and cash flows for the three months ended March 31, 2012 and 2011.

All material intercompany accounts and transactions have been eliminated in consolidation.

Investments in unconsolidated affiliates, which are less than 50% owned and do not meet the consolidation criteria of the authoritative accounting guidance for voting interest, controlling interest or variable interest entities, are accounted for under the equity method.
Property and Equipment, Net
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or, for leasehold improvements, over the shorter of the asset's useful life or term of the lease.

The estimated useful lives of our major components of property and equipment are:
Building and improvements
10 through 40 years
Riverboats and barges
10 through 40 years
Furniture and equipment
3 through 10 years

Gains or losses on disposals of assets are recognized as incurred, using the specific identification method. Costs of major improvements are capitalized, while costs of normal repairs and maintenance are charged to expense as incurred.

Assets Held for Development
The costs incurred relative to projects under development are carried at cost. Development costs clearly associated with the acquisition, development, and construction of a project are capitalized as a cost of that project, during the periods in which activities necessary to get the property ready for its intended use are in progress. Certain pre-acquisition costs, not qualifying for capitalization, are charged to preopening or other operating expense as incurred.

Interest costs associated with major construction projects are capitalized as part of the cost of the constructed assets. When no debt is incurred specifically for a project, interest is capitalized on amounts expended for the project using our weighted-average cost of borrowing. Capitalization of interest ceases when the project (or discernible portions of the project) is substantially complete. If substantially all of the construction activities of a project are suspended, capitalization of interest will cease until such activities are resumed. Interest capitalized during the three months ended March 31, 2012 was $0.4 million. There was no interest capitalized during the three months ended March 31, 2011.
Debt Financing Costs
Debt financing costs, which include legal, and other direct costs related to the issuance of our outstanding debt, are deferred and amortized to interest expense over the contractual term of the underlying long-term debt using the effective interest method. In the event that our debt is modified, repurchased or otherwise reduced prior to its original maturity date, we ratably reduce the unamortized debt financing costs.
Restricted Investments
In accordance with the terms of the tax-exempt loan agreements, which are the obligations of LVE, unused proceeds are required to be held in escrow pending approval of construction expenditures. These investments are held in an interest-bearing account.
Intangible Assets
Intangible assets include customer relationships, favorable lease rates, development agreements, gaming license rights and trademarks.
 
Amortizing Intangible Assets
Customer relationships represent the value of repeat business associated with our customer loyalty programs. These intangible assets are being amortized on an accelerated method over their approximate useful life. Favorable lease rates represent the amount

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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



by which acquired lease rental rates are favorable to market terms. These favorable lease values are amortized over the remaining lease term, primarily on leasehold land interests, originally ranging in duration from 41 to 52 years. Development agreements are contracts between two parties establishing an agreement for development of a product or service. These agreements are amortized over the respective cash flow period of the related agreement.

Indefinite-Lived Intangible Assets
Trademarks are based on the value of our brand, which reflects the level of service and quality we provide and from which we generate repeat business. Gaming license rights represent the value of the license to conduct gaming in certain jurisdictions, which is subject to highly extensive regulatory oversight, and a limitation on the number of licenses available for issuance with these certain jurisdictions. These assets, considered indefinite-lived intangible assets, are not subject to amortization, but instead are subject to an annual impairment test, performed in the second quarter of each year, and between annual test dates in certain circumstances. If the fair value of an indefinite-lived intangible asset is less than its carrying amount, an impairment loss is recognized equal to the difference. License rights are tested for impairment using a discounted cash flow approach, and trademarks are tested for impairment using the relief-from-royalty method.

Goodwill
Goodwill is an asset representing the future economic benefits arising from other assets in a business combination that are not individually identified and separately recognized. Goodwill is not subject to amortization, but it is subject to an annual impairment test in the second quarter of each year and between annual test dates in certain circumstances.
Goodwill for relevant reporting units is tested for impairment using a weighted discounted cash flow analysis and an earnings multiple valuation technique based on the estimated future results of our reporting units discounted using our weighted-average cost of capital and market indicators of terminal year capitalization rates. The implied fair value of a reporting unit's goodwill is compared to the carrying value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to its assets and liabilities and the amount remaining, if any, is the implied fair value of goodwill. If the implied fair value of the goodwill is less than its carrying value then it must be written down to its implied fair value.

In January 2012, the Company adopted accounting guidance simplifying how entities test goodwill for impairment. The guidance permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the second step of the goodwill impairment test. If it is determined the fair value of a reporting unit is less than its carrying amount, then the entity must perform the test to measure the amount of the impairment loss, if any. An entity is no longer required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.

Long-Term Debt, Net
Long-term debt is reported at amortized cost. The discount on the senior secured notes and the transaction costs paid to the initial purchasers upon issuance of the senior and senior secured notes are recorded as an adjustment to the face amount of our outstanding debt. This resulting difference between the net proceeds upon issuance of the senior and senior secured notes and the face amount of the senior and senior secured notes is accreted to interest expense using the effective interest method over the related time of the senior or senior subordinated notes.

Noncontrolling Interest
Noncontrolling interests includes the portion of the ownership in Borgata not directly attributable to Boyd Gaming Corporation, as well as the ownership of LVE, none of which is attributable to Boyd Gaming Corporation, and is reported as a separate component of our stockholders' equity in our condensed consolidated financial statements. Our consolidated net income is reported at amounts that include the amounts attributable to both us and the noncontrolling interest. At March 31, 2012 and December 31, 2011, noncontrolling interests are comprised of: (i) the 50% interest in Borgata, held by the Divestiture Trust for the economic benefit of MGM; and (ii) all 100% of the members' equity interest in LVE, the variable interest entity, which is consolidated in our condensed financial statements, but in which we hold no equity interest.

Revenue Recognition
Gaming revenue represents the net win from gaming activities, which is the aggregate difference between gaming wins and losses. The majority of our gaming revenue is counted in the form of cash and chips and therefore is not subject to any significant or complex estimation procedures. Cash discounts, commissions and other cash incentives to customers related to gaming play are recorded as a reduction of gross gaming revenues. Race revenue recognition criteria are met at the time the results of the event are official.

13

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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



Room revenue recognition criteria are met at the time of occupancy.
Food and beverage revenue recognition criteria are met at the time of service.

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 promotional allowances. Promotional allowances also include incentives such as cash, goods and services (such as complimentary rooms and food and beverages) earned in our slot bonus point program. We reward customers, through the use of bonus programs, with points based on amounts wagered that can be redeemed for a specified period of time, principally for cash, and to a lesser extent for goods or services, depending upon the property. We record the estimated retail value of these goods and services as revenue and then deduct them as promotional allowances.
The amounts included in promotional allowances for the three months ended March 31, 2012 and 2011 are as follows:
 
Three Months Ended
 
March 31,
 
2012
 
2011
 
(In thousands)
Rooms
$
34,682

 
$
30,104

Food and beverage
48,298

 
42,494

Other
27,646

 
26,090

Total promotional allowances
$
110,626

 
$
98,688


The estimated costs of providing such promotional allowances for the three months ended March 31, 2012 and 2011 are as follows:
 
Three Months Ended
 
March 31,
 
2012
 
2011
 
(In thousands)
Rooms
$
14,827

 
$
13,073

Food and beverage
44,851

 
38,485

Other
5,806

 
3,797

Total cost of promotional allowances
$
65,484

 
$
55,355


Gaming Taxes
We are subject to taxes based on gross gaming revenues in the jurisdictions in which we operate. These gaming taxes are an assessment of our gaming revenues and are recorded as a gaming expense on the condensed consolidated statements of operations. These taxes totaled approximately $71.3 million and $63.8 million for the three months ended March 31, 2012 and 2011, respectively.

Earnings per Share
Basic earnings per share is computed by dividing net income applicable to Boyd Gaming Corporation stockholders, excluding net income attributable to noncontrolling interests, 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.
The weighted average number of common and common share equivalent shares used in the calculations of basic and diluted earnings per share for the three months ended March 31, 2012 and 2011, consisted of the following amounts:

14

Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



 
Three Months Ended
 
March 31,
 
2012
 
2011
 
(In thousands)
Earnings per share:
 
 
 
Basic weighted average shares outstanding
87,530

 
87,157

Potential dilutive effect
457

 

Diluted weighted average shares outstanding
87,987

 
87,157


Due to the net loss for the three months ended March 31, 2011, the effect of all potential common share equivalents was anti-dilutive, and therefore all such shares were excluded from the computation of diluted earnings per share. Anti-dilutive options totaling 8.1 million have been excluded from the computation of diluted earnings per share as these shares were out of the money during the three months ended March 31, 2012.

Comprehensive Income
In January 2012, the Company adopted guidance requiring the presentation of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Comprehensive income includes net income and all other non-stockholder changes in equity, or other comprehensive income. Components of the Company's comprehensive income are reported in the accompanying condensed consolidated statements of comprehensive income. The cumulative balance of other comprehensive income consists solely of fair value adjustments related to hedged derivative instruments.

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. Significant estimates incorporated into our condensed consolidated financial statements include the estimated allowance for doubtful accounts receivable, the estimated useful lives for depreciable and amortizable assets, recoverability of assets held for development, measurement of the fair value of our controlling interest and the noncontrolling interest in Borgata, fair values of acquired assets and liabilities, estimated cash flows in assessing the recoverability of long-lived assets and assumptions relative to the valuation and impairment of goodwill and intangible assets, estimated valuation allowances for deferred tax assets, slot bonus point programs, certain tax liabilities and uncertain tax positions, self-insured liability reserves, share-based payment valuation assumptions, fair values of assets and liabilities measured at fair value, fair values of assets and liabilities disclosed at fair value, fair values of derivative instruments, contingencies and litigation, claims and assessments. Actual results could differ from these estimates.


NOTE 2.    ASSET ACQUISITIONS
IP Casino Resort Spa
Overview
On October 4, 2011, we consummated the acquisition of the IP in Biloxi, Mississippi pursuant to an Agreement for Purchase and Sale, under which the seller agreed to sell and transfer, and the Company agreed to purchase and assume, certain assets and liabilities, respectively, related to the IP, on an as-is basis. The net purchase price, after adjustment for working capital and other items, was approximately $280.6 million. The business combination resulted in the recording of a bargain purchase gain of approximately $4.6 million, due to the excess fair value of net identifiable assets over the total consideration. The bargain purchase gain was reported in other income in our consolidated statement of operations during the year ended December 31, 2011.

The IP is one of the premier resorts on the Mississippi Gulf Coast. Completely remodeled in 2005, the property features nearly 1,100 hotel rooms and suites; a 70,000-square-foot casino with 1,900 slot machines and 62 table games; 73,000 square feet of convention and meeting space; a spa and salon; a 1,400-seat theater offering regular headline entertainment; six lounges and bars; and eight restaurants, including Thirty-Two, a steak and seafood restaurant, and Tien, an upscale Asian restaurant, both AAA Four Diamond-recognized.

In addition to this total consideration, the Company is in the process of performing certain capital improvement projects with

15

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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



respect to the property at an estimated cost of $44 million. Pursuant to the terms of the agreement, to the extent that the costs of the capital improvements exceed the original cost estimate, the Company will be solely responsible for the additional costs; however, to the extent that costs are less than the original cost estimate, the Company is obligated to pay the seller an amount equal to one-half of the difference between the actual costs and the original estimated costs. The Company has not recorded any contingent consideration as a result; however, as it is presently likely that these capital improvements will require the entire $44 million spend. As of March 31, 2012, the Company has incurred $3.3 million in capital improvement expenditures related to these projects.

Condensed Statement of Operations
The following supplemental information presents the financial results of IP included in the Company's consolidated statement of operations for the three months ended March 31, 2012.
 
 
Three Months Ended
 
 
March 31, 2012
 
 
(In thousands)
Condensed Statement of Operations
 
 
Net revenues
 
$
49,011

 
 
 
Operating income
 
$
7,839


Other Acquisitions
Development Agreement
In September 2011, the Company acquired the membership interests of a limited liability company (the "LLC") for a purchase price of $24.5 million. The primary asset of the LLC is a previously executed development agreement (the "Development Agreement") with a Native American Tribe (the "Tribe"). The Development Agreement establishes the terms between the LLC and the Tribe under which a gaming facility will be developed on the Tribe's land. The Development Agreement provides a fee of 5% of gross revenues of the gaming operations, (subject to a maximum percentage capped by Indian Gaming Regulation), upon completion of development, and for a subsequent period of seven years.
 
The fair value of the assets of the LLC was allocated in our consolidated financial statements as follows:
 
 
 
March 31, 2012
 
 
 
(In thousands)
Assets acquired:
 
 
 
Intangible value of Development Agreement
 
 
$
21,373

Note receivable from Tribe (at present value)
 
3,077
 
Purchase price
 
 
$
24,450


Other than the obligation under the Development Agreement to develop the gaming facility, there were no liabilities assumed in connection with the acquisition of the LLC. In addition to approximately $4.5 million expended by the prior owners of the LLC related to pre-development efforts, we are obligated to fund certain pre-development costs, which are estimated to be approximately $1 million to $2 million annually, for the next several years. These costs are reimbursable to us with future cash flows from the operations of the gaming facility and are evidenced by a note receivable from the Tribe. As of March 31, 2012, we have not funded any pre-development costs.

NOTE 3.    CONSOLIDATION OF CERTAIN INTERESTS
Controlling Interest
Borgata Hotel Casino and Spa
Overview
The Company and MGM Resorts International ("MGM") each originally held a 50% interest in Marina District Development Holding Co., LLC (“Holding Company”). The Holding Company owns all the equity interests in Marina District Development Company, LLC, d.b.a. Borgata Hotel Casino and Spa.

In February 2010, we entered into an agreement with MGM to amend the operating agreement to, among other things, facilitate

16

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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



the transfer of MGM's interest in the Holding Company ("MGM Interest") to a divestiture trust (“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 a part of a then-proposed settlement agreement between MGM and the New Jersey Department of Gaming Enforcement (the “NJDGE”). Pursuant to the terms of the amended operating agreement, in connection with the refinancing of the Borgata bank credit facility on August 6, 2010, the Holding Company made a $135.4 million one-time distribution to us, of which $30.8 million was a priority distribution equal to the excess prior capital contributions made by us.

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

MGM has subsequently announced that it has entered into an amendment with respect to its settlement agreement with the NJDGE, as approved by the NJCCC. The amendment provides that the mandated sale of the MGM Interest be increased by an additional 18 months to a total of 48 months.  During the first 36 months (or until March 24, 2013), MGM has the right to direct the Divestiture Trust to sell the MGM Interest. If a sale is not concluded by that time, the Divestiture Trust will be responsible for selling MGM's Interest during the following 12-month period.

Effective Change in Control
In connection with the amendments to the operating agreements MGM relinquished all of its specific participating rights under the operating agreement, and we retained all authority to manage the day-to-day operations of Borgata. MGM's relinquishment of its participating rights effectively provided us with direct control of Borgata. This resulting change in control required acquisition method accounting in accordance with the authoritative accounting guidance for business combinations. Accordingly, on March 24, 2010, as a result of the amendment to our operating agreement with MGM, which provided, among other things, for the termination of MGM's participating rights in the operation of Borgata, we effectively obtained control of Borgata.

Acquisition Method Accounting
The application of the acquisition method accounting guidance had the following effects on our condensed consolidated financial statements: (i) our previously held equity interest was measured at a provisional fair value at the date control was obtained; (ii) we recognized and measured the identifiable assets and liabilities in accordance with promulgated valuation recognition and measurement provisions; and (iii) we recorded the noncontrolling interest held in trust for the economic benefit of MGM as a separate component of our stockholders' equity. The provisional fair value measurements and estimates of these items were estimated as of the date we effectively obtained control.
 
Bargain Purchase Gain
The fair valuation resulted in the recording of a bargain purchase gain, due to the excess fair value of Borgata over the historical basis of our equity interest in Borgata. Recorded in other operating charges, net on the condensed consolidated statement of operations, this gain was recorded as a cumulative adjustment during the three months ended March 31, 2011.

The gain was computed as follows:
 
Bargain
Purchase Gain
 
(In thousands)
Fair value of controlling equity interest
$
397,931

Carrying value of equity investment in Borgata
397,622

Bargain purchase gain
$
309


The fair value of our controlling interest included a $72.4 million control premium, which was reflected in the fair value of the enterprise, and included in the calculation of the bargain purchase gain. A control premium of 10% was applied to the enterprise value members' equity, excluding interest bearing debt, to calculate an indicated value of equity on a controlling basis. While the value of control is somewhat below prevailing market rates, we believe the control premium reflects the value of our influence, mitigated by only a 50% interest and return.

17

Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



 
Variable Interest
LVE Energy Partners, LLC
LVE Energy Partners, LLC (“LVE”) is a joint venture between Marina Energy LLC and DCO ECH Energy, LLC. Through our wholly-owned subsidiary, Echelon Resorts LLC ("Echelon Resorts"), we have entered into an Energy Sales Agreement ("ESA") with LVE to design, build, own (other than the underlying real property which is leased from Echelon Resorts) and operate a central energy center and related distribution system for our planned Echelon resort development. In April 2007, we entered into an ESA with LVE to provide chilled and hot water, electricity and emergency electricity generation to Echelon and potentially other joint venture entities associated with the Echelon development project or other third parties.

New consolidation guidance regarding the variable interest model became effective on January 1, 2010. Under this new qualitative model, the primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the variable interest entity that most significantly impact the entity's economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. The primary beneficiary is required to consolidate the variable interest entity unless specific exceptions or exclusions are met. The authoritative literature on consolidations provides guidance related to variable interest entities.

a qualitative approach for identifying the primary beneficiary of a variable interest entity based on (i) the power to direct activities that most significantly impact the economic performance of the entity, and (ii) the obligation to absorb losses or right to receive benefits that could be significant to the entity;

ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; and separate disclosure by the primary beneficiary on the face of the balance sheet to identify (i) assets that can only be used to settle obligations of the variable interest entity, and (ii) liabilities for which creditors do not have recourse to the primary beneficiary.

For the following quantitative and qualitative reasons, we presently believe that substantially all of LVE's activities are presently performed for our benefit. Pursuant to the terms of the ESA, we are obligated to purchase substantially all of its thermal output at a fixed and variable pricing arrangement that protects LVE from commodity risk. This agreement is long-term in duration, terming for 25 years from the commencement of the commercial operations of Echelon. Additionally, during the period of suspension, we are obligated to pay fees to LVE to subsidize the holding costs of the facility. We have a fixed price put option to purchase the assets of LVE, but have no future obligation to absorb any operating losses or otherwise provide financial support, except as contractually provided as described above. We do not hold any equity interest in LVE and have not guaranteed any of its outstanding debt obligations, nor would such debt have recourse to any of our lenders, note holders or general creditors.

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

The effects of the consolidation of LVE on our financial position as of March 31, 2012 and December 31, 2011, and its impact on our results of operations for the three months ended March 31, 2012 and 2011 are reconciled by respective line items to amounts as reported in our condensed consolidated balance sheets and condensed consolidated statements of operations are presented below.

The primary impact on our condensed consolidated balance sheets as of March 31, 2012 and December 31, 2011 was as follows:

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Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



 
March 31, 2012
 
Boyd Gaming
 
 
 
 
 
 
 
Corporation
 
 
 
 
 
Boyd Gaming
 
(as historically
 
 
 
 
 
Corporation
 
presented)
 
LVE, LLC
 
Eliminations
 
(as consolidated)
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
Current assets
$
310,305

 
$
2,932

 
$

 
$
313,237

Property and equipment, net
3,525,904

 

 

 
3,525,904

Assets held for development
926,222

 
163,806

 

 
1,090,028

Debt financing costs, net
27,519

 
2,528

 

 
30,047

Restricted investments

 
21,367

 

 
21,367

Other assets
66,545

 

 

 
66,545

Intangible assets, net
572,712

 

 

 
572,712

Goodwill, net
213,576

 

 

 
213,576

Total Assets
$
5,642,783

 
$
190,633

 
$

 
$
5,833,416

 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Current maturities of long-term debt
$
53,393

 
$

 
$

 
$
53,393

Accounts payable
78,824

 
66

 

 
78,890

Accrued and other liabilities
313,883

 
865

 

 
314,748

Non-recourse obligations of variable interest entity

 
30,605

 

 
30,605

Long-term debt, net of current maturities
3,271,502

 

 

 
3,271,502

Deferred income taxes
385,611

 

 

 
385,611

Long-term tax and other liabilities
106,361

 
13,619

 

 
119,980

Non-recourse obligations of variable interest entity

 
192,730

 

 
192,730

 
 
 
 
 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Common stock
863

 

 

 
863

Additional paid-in capital
647,137

 

 

 
647,137

Retained earnings
562,907

 

 

 
562,907

Noncontrolling interest
222,302

 
(47,252
)
 

 
175,050

Total Liabilities and Stockholders' Equity
$
5,642,783

 
$
190,633

 
$

 
$
5,833,416

 
 
 
 
 
 
 
 


19

Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



 
December 31, 2011
 
Boyd Gaming
 
 
 
 
 
 
 
Corporation
 
 
 
 
 
Boyd Gaming
 
(as historically
 
 
 
 
 
Corporation
 
presented)
 
LVE, LLC
 
Eliminations
 
(as consolidated)
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
Current assets
$
340,762

 
$
2,132

 
$

 
$
342,894

Property and equipment, net
3,542,108

 

 

 
3,542,108

Assets held for development
926,013

 
163,806

 

 
1,089,819

Debt financing costs, net
29,544

 
2,555

 

 
32,099

Restricted investments

 
21,367

 

 
21,367

Other assets
67,173

 

 

 
67,173

Intangible assets, net
574,018

 

 

 
574,018

Goodwill, net
213,576

 

 

 
213,576

Total Assets
$
5,693,194

 
$
189,860

 
$

 
$
5,883,054

 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Current maturities of long-term debt
$
43,230

 
$

 
$

 
$
43,230

Accounts payable
97,727

 
288

 

 
98,015

Accrued and other liabilities
294,578

 
881

 

 
295,459

Non-recourse obligations of variable interest entity

 
29,686

 

 
29,686

Long-term debt, net of current maturities
3,347,226

 

 

 
3,347,226

Deferred income taxes
379,958

 

 

 
379,958

Long-term tax and other liabilities
107,377

 
15,044

 

 
122,421

Non-recourse obligations of variable interest entity

 
192,980

 

 
192,980

 
 
 
 
 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Common stock
863

 

 

 
863

Additional paid-in capital
644,174

 

 

 
644,174

Retained earnings
557,055

 

 

 
557,055

Noncontrolling interest
221,006

 
(49,019
)
 

 
171,987

Total Liabilities and Stockholders' Equity
$
5,693,194

 
$
189,860

 
$

 
$
5,883,054





20

Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



The impact on our condensed consolidated statement of operations for the three months ended March 31, 2012 was as follows:


 
Three Months Ended March 31, 2012
 
Boyd Gaming
 
 
 
 
 
 
 
Corporation
 
 
 
 
 
Boyd Gaming
 
(as historically
 
 
 
 
 
Corporation
 
presented)
 
LVE, LLC
 
Eliminations
 
(as consolidated)
 
(In thousands)
REVENUES
 
 
 
 
 
 
 
Other revenue
$
35,832

 
$
2,724

 
$
(2,724
)
 
$
35,832

 
 
 
 
 
 
 
 
COSTS AND EXPENSES
 
 
 
 
 
 
 
Preopening expenses
4,384

 

 
(2,724
)
 
1,660

 
 
 
 
 
 
 
 
Operating income
$
73,861

 
$
2,721

 
$

 
$
76,582

 
 
 
 
 
 
 
 
Other expense
 
 
 
 
 
 
 
Interest expenses, net
$
60,431

 
$
3,393

 
$

 
$
63,824

 
 
 
 
 
 
 
 
Income (loss) before income taxes
$
13,430

 
$
(672
)
 
$

 
$
12,758

Income taxes
(6,283
)
 

 

 
(6,283
)
Net income (loss)
7,147

 
(672
)
 

 
6,475

Net (income) loss attributable to noncontrolling interest
(1,295
)
 
672

 

 
(623
)
Net income (loss) attributable to Boyd Gaming Corporation
$
5,852

 
$

 
$

 
$
5,852




21

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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



 
Three Months Ended March 31, 2011
 
Boyd Gaming
 
 
 
 
 
 
 
Corporation
 
 
 
 
 
Boyd Gaming
 
(as historically
 
 
 
 
 
Corporation
 
presented)
 
LVE, LLC
 
Eliminations
 
(as consolidated)
 
(In thousands)
REVENUES
 
 
 
 
 
 
 
Other revenue
$
33,031

 
$
2,641

 
$
(2,641
)
 
$
33,031

 
 
 
 
 
 
 
 
COSTS AND EXPENSES
 
 
 
 
 
 
 
Maintenance and utilities
36,518

 
897

 

 
37,415

Preopening expenses
4,472

 

 
(2,641
)
 
1,831

 
 
 
 
 
 
 
 
Operating income
$
46,360

 
$
1,744

 
$

 
$
48,104

 
 
 
 
 
 
 
 
Other expense
 
 
 
 
 
 
 
Interest expense, net
$
57,159

 
$
127

 
$

 
$
57,286

 
 
 
 
 
 
 
 
Income (loss) before income taxes
$
(11,036
)
 
$
1,617

 
$

 
$
(9,419
)
Income taxes
3,108

 

 

 
3,108

Net income (loss)
(7,928
)
 
1,617

 

 
(6,311
)
Net (income) loss attributable to noncontrolling interest
4,407

 
(1,617
)
 

 
2,790

Net loss attributable to Boyd Gaming Corporation
$
(3,521
)
 
$

 
$

 
$
(3,521
)

The reduction in other revenue and preopening expenses reflects the elimination of the Periodic Fee paid by Boyd Gaming to LVE. Such fee is recognized as revenue by LVE, but eliminated in consolidation completely, thereby having no impact on our consolidated other revenues. Although this Periodic Fee is eliminated in this consolidation, it is actually paid to LVE directly on a monthly basis.

NOTE 4.    PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
 
 
March 31,
 
December 31,
 
2012
 
2011
 
(In thousands)
Land
$
614,697

 
$
614,697

Buildings and improvements
3,520,660

 
3,513,230

Furniture and equipment
1,204,550

 
1,185,737

Riverboats and barges
168,273

 
168,204

Other
43,103

 
37,368

Total property and equipment
5,551,283

 
5,519,236

Less accumulated depreciation
2,025,379

 
1,977,128

Property and equipment, net
$
3,525,904

 
$
3,542,108


Depreciation expense for the three months ended March 31, 2012 and 2011 was $48.9 million and $45.8 million, respectively.


22

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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



Other property and equipment presented in the table above primarily relates to costs capitalized in conjunction with major improvements, including construction in process, that have not yet been placed into service, and accordingly, such costs are not currently being depreciated.

We test certain of these property and equipment assets for recoverability if a recent operating or cash flow loss, combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses, is associated with the use of a long-lived asset. Impairment is the condition that exists when the carrying amount of a long-lived asset exceeds its fair value. An impairment loss shall be recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. That assessment shall be based on the carrying amount of the asset at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

NOTE 5.    ASSETS HELD FOR DEVELOPMENT
Assets held for development, which is comprised of assets associated with our Echelon development project, consists of the following:
 
March 31,
 
December 31,
 
2012
 
2011
 
(In thousands)
Echelon Project Infrastructure
 
 
 
Land
$
215,969

 
$
215,969

Construction and development costs
500,996

 
500,787

Project management and other costs
115,712

 
115,712

Professional and design fees
93,545

 
93,545

 
 
 
 
Central Energy Facility
 
 
 
Construction and development costs
163,806

 
163,806

Total assets held for development
$
1,090,028

 
$
1,089,819


Echelon Project Infrastructure
At March 31, 2012, the capitalized costs related to the Echelon project included land and construction in progress. The construction and development costs consist primarily of site preparation work, underground utility installation and infrastructure and common area development. Professional and design fees include architectural design, development and permitting fees, inspections, consulting and legal fees.

We expect to capitalize certain costs of $4.2 million, principally related to site beautification during the year ending December 31, 2012. Additionally we expect to incur recurring costs ranging from $0.3 million to $1.0 million annually, principally related to such items as site preparation work, underground utility installation, infrastructure and consulting.

In addition, we expect recurring project costs, consisting primarily of monthly charges related to construction of the central energy center, site security, property taxes, rent and insurance, ranging from $15.5 million to $17.0 million per annum that will be charged to preopening or other expense as incurred during the project's suspension period.

As referenced in Note 11, Commitments and Contingencies, these capitalized costs and recurring project costs are in addition to other contingencies with respect to our various commitments, including commitments and contingencies with respect to the ESA entered into between Echelon and LVE.

We evaluate our investment in assets held for development in accordance with the authoritative accounting guidance on impairment or disposal of long lived assets. For a long-lived asset to be held and used, such as these assets under development, we review the asset for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We then compare the estimated undiscounted future cash flows of the asset to the carrying value of the asset. The asset is not impaired if the undiscounted future cash flows exceed its carrying value. If the carrying value exceeds the undiscounted future cash flows,

23

Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



then an impairment charge is recorded, typically measured using a discounted cash flow model, which is based on the estimated future results of the relevant reporting unit discounted using our weighted-average cost of capital and market indicators of terminal year free cash flow multiples. For these assets under development, future cash flows include remaining construction costs.

The further delay of the suspension of development on the Echelon project implied that the carrying amounts of the assets related to the development may not be recoverable; therefore, at the time, we performed an impairment test of these assets. These impairment tests were comprised of an appraisal of the development and an analysis of its future undiscounted cash flow, and contemplated several viable alternative plans for the future development of Echelon. The cash inflows related to the revenue projections for the individual components associated with each planned construction scenario, offset by outflows for estimated costs to complete the development and ongoing maintenance and operating costs. Because no specific strategic plan can be determined with certainty at this time, the analysis considered the net cash flows related to each alternative, weighted against its projected likelihood.
We initially performed this evaluation during the year ended December 31, 2009, when the continued suspension was announced, and have reconsidered our assumptions on a regular basis since such date. However, due to the degradation in economic conditions in the intervening period, we re-performed these analyses during the year ended December 31, 2011 to evaluate any further depression in real estate or land values as well as any deterioration in our initial cash flow assumptions. The outcome of this evaluation did not result in an impairment of Echelon's assets, as the estimated weighted net undiscounted cash flows from the project exceed the current carrying value of the assets of approximately $1.0 billion at December 31, 2011. As we further develop and explore the viability of alternatives for the project, we will continue to monitor these assets for recoverability.
Our analysis is predicated on the most viable options for the conversion of this development. One such scenario includes the outright sale of the project as is, which is primarily based upon land value. We considered the land value by analyzing recent sales transactions of sites with similar characteristics such as location, zoning, access, and visibility, to establish a general understanding of the potential comparable sales. The recoverability under this option represented any excess sales price, net of estimated selling costs, from the land over the carrying value of the assets, including land, held for development.
Another scenario is the full development of the project, as designed, at a later date. The cash inflows related to this option represent the revenue projections for the individual components associated with each planned construction element (casino, hotel, food and beverage, retail, convention and other), based upon the estimated respective dates of completion and particular graduated absorption rates. These projections are offset by outflows for incurred and estimated costs to complete the development. For costs already incurred, and to compensate for potential losses due to the delay, we adjusted for (i) physical deterioration; (ii) functional obsolescence; and (iii) economic obsolescence. Physical deterioration is impairment to the condition of the asset brought about by “wear and tear,” disintegration, and/or the action of the elements. Functional obsolescence is the impairment in the efficiency of the asset brought about by such factors as inadequacy or change in technology that affect the asset. Economic obsolescence is the impairment in the desirability of the asset arising from external economic forces, building code enhancements or changes in supply and demand relationships. For estimated costs to complete, we applied selected construction expense growth rates to our present cost analysis. In addition to these hard and soft construction costs, we estimated outflows for preservation costs that are intended and required to maintain the development site and the existing structures as well as development materials for future use. These net outflows were incrementally added to our estimated operating and ongoing maintenance costs, to establish the undiscounted net cash flow of the project.
Our final scenario is a scaled-down version of the full project, whereby only certain components would be developed. This cash flow projection considered the inflows and outflows discussed above, with relevant curtailment for revenue from, and costs related to, the amenities not completed.
Because no specific strategic plan can be determined with certainty at this time, the analysis considered the net cash flows related to each alternative, weighted against its projected likelihood. The outcome of this evaluation resulted in the determination that there was no impairment of the assets held for development, as the estimated weighted net undiscounted cash flows from the project exceed the current carrying value of the assets held for development. As we further explore the viability of alternatives for the project, we will continue to monitor these assets for recoverability.
Central Energy Facility
The capitalized construction costs of the central energy facility include labor, materials, construction overhead and capitalized interest, all of which has been directly incurred by LVE. Depreciation is generally recorded on a straight line basis over useful lives of property ranging from 5 to 50 years, but has not commenced on the components of the facility, as it has not been placed into service. The costs of repairs, maintenance, including planned major maintenance activities and minor replacements of property are charged to maintenance expense as incurred.

24

Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



These assets are tested for recoverability whenever events or changes in circumstances indicate that such amounts may be recoverable. Impairment is the condition that exists when the carrying amount of a long-lived asset exceeds its fair value. An impairment loss shall be recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. That assessment shall be based on the carrying amount of the asset at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value. There was no identified impairment of these assets during the years ended December 31, 2011.
 
The assets of the central energy facility are pledged as collateral to the outstanding debt obligations of LVE, as further discussed in Note 8, Non-recourse Obligations of Variable Interest Entity.


NOTE 6.    INTANGIBLE ASSETS
Intangible assets consist of the following:
 
March 31, 2012
 
Weighted
 
Gross
 
 
 
Cumulative
 
 
 
Average
 
Carrying
 
Cumulative
 
Impairment
 
Intangible
 
Life
 
Value
 
Amortization
 
Losses
 
Assets, Net
 
 
 
(In thousands)
Amortizing intangibles:
 
 
 
 
 
 
 
 
 
Customer relationships
3.9 years
 
$
17,700

 
$
(11,071
)
 
$

 
$
6,629

Favorable lease rates
43.8 years
 
45,370

 
(8,086
)
 

 
37,284

Development agreement
10.0 years
 
21,373

 

 

 
21,373

 
 
 
84,443

 
(19,157
)
 

 
65,286

 
 
 
 
 
 
 
 
 
 
Indefinite lived intangible assets:
 
 
 
 
 
 
 
 
 
Trademarks
Indefinite
 
141,000

 

 
(5,000
)
 
136,000

Gaming license rights
Indefinite
 
567,886

 
(33,960
)
 
(162,500
)
 
371,426

 
 
 
708,886

 
(33,960
)
 
(167,500
)
 
507,426

March 31, 2012
 
 
$
793,329

 
$
(53,117
)
 
$
(167,500
)
 
$
572,712



25

Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



 
December 31, 2011
 
Weighted
 
Gross
 
 
 
Cumulative
 
 
 
Average
 
Carrying
 
Cumulative
 
Impairment
 
Intangible
 
Life
 
Value
 
Amortization
 
Losses
 
Assets, Net
 
 
 
(In thousands)
Amortizing intangibles:
 
 
 
 
 
 
 
 
 
Customer relationships
3.7 years
 
$
17,700

 
$
(10,026
)
 
$

 
$
7,674

Favorable lease rates
43.8 years
 
45,370

 
(7,825
)
 

 
37,545

     Development agreement
10 years
 
21,373

 

 

 
21,373

 
 
 
84,443

 
(17,851
)
 

 
66,592

 
 
 
 
 
 
 
 
 
 
Indefinite lived intangible assets:
 
 
 
 
 
 
 
 
 
Trademarks
Indefinite
 
141,000

 

 
(5,000
)
 
136,000

Gaming license rights
Indefinite
 
567,886

 
(33,960
)
 
(162,500
)
 
371,426

 
 
 
708,886

 
(33,960
)
 
(167,500
)
 
507,426

December 31, 2011
 
 
$
793,329

 
$
(51,811
)
 
$
(167,500
)
 
$
574,018


Amortizing Intangible Assets
Customer Relationships
Customer relationships represent the value of repeat business associated with our customer loyalty programs. The value of customer relationships is determined using a multi-period excess earnings method, which is a specific discounted cash flow model. The value is determined at an amount equal to the present value of the incremental after-tax cash flows attributable only to these customers, discounted to present value at a risk-adjusted rate of return. With respect to the application of this methodology, we used the following significant projections and assumptions: revenue of our rated customers, based on expected level of play; promotional allowances provided to these existing customers; attrition rate related to these customers; operating expenses; general and administrative expenses; trademark expense; discount rate; and the present value of tax benefit.

Favorable Lease Rates
Favorable lease rates represent the rental rates for assumed land leases that are favorable to comparable market rates. The fair value is determined on a technique whereby the difference between the lease rate and the then current market rate for the remaining contractual term is discounted to present value. The assumptions underlying this computation include the actual lease rates, the expected remaining lease term, including renewal options, based on the existing lease; current rates of rent for leases on comparable properties with similar terms obtained from market data and analysis; and an assumed discount rate. The estimates underlying the result covered a term of 41 to 52 years.

Development Agreements
Development agreements are contracts between two parties establishing an agreement for development of a product or service. The value of development agreements are determined using a multi-period excess earnings method, which is a specific discounted cash flow model. The fair value of the development agreement is determined at an amount equal to the present value of the incremental cash flows attributable only to future development revenue, discounted to the present value at a risk-adjusted rate of return. With respect to the application of this methodology, we used the following significant assumptions: future development revenues; general and administrative expenses; and discount rate. The projections are modeled for a ten year period, representing the cash flow earnings period pursuant to the development agreement.

Indefinite Lived Intangible Assets
Trademarks
Trademarks are based on the value of our brand, which reflects the level of service and quality we provide and from which we generate repeat business. Trademarks are valued using the relief from royalty method, which presumes that without ownership of such trademark, we would have to make a stream of payments to a brand or franchise owner in return for the right to use their name. By virtue of this asset, we avoid any such payments and record the related intangible value of our ownership of the Borgata name. We used the following significant projections and assumptions to determine value under the relief from royalty method:

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Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



revenue from gaming and hotel activities; royalty rate; general and administrative expenses; tax expense; terminal growth rate; discount rate; and the present value of tax benefit. The projections underlying this discounted cash flow model were forecasted for fifteen years.
 
Gaming License Rights
Gaming license rights represent the value of the license to conduct gaming in certain jurisdictions, which is subject to highly extensive regulatory oversight, and a limitation on the number of licenses available for issuance therein. The value of gaming licenses is determined using a multi-period excess earnings method, which is a specific discounted cash flow model. The value is determined at an amount equal to the present value of the incremental after-tax cash flows attributable only to future gaming revenue, discounted to present value at a risk-adjusted rate of return. With respect to the application of this methodology, we used the following significant projections and assumptions: gaming revenues; gaming operating expenses; general and administrative expenses; tax expense; terminal value; and discount rate. These projections are modeled for a five year period.
 
Activity For the Three Months Ended March 31, 2012 and 2011
The following table sets forth the changes in these intangible assets during the three months ended March 31, 2012 and 2011:
 
Customer Relationships
 
Favorable Lease Rates
 
Development Agreements
 
Trademarks
 
 Gaming License Rights
 
 Intangible Assets, Net
 
(In thousands)
Three Months Ended March 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2011
$
7,674

 
$
37,545

 
$
21,373

 
$
136,000

 
$
371,426

 
$
574,018

Additions

 

 

 

 

 

Impairments

 

 

 

 

 

Amortization
(1,045
)
 
(261
)
 

 

 

 
(1,306
)
Balance, March 31, 2012
$
6,629

 
$
37,284

 
$
21,373

 
$
136,000

 
$
371,426

 
$
572,712

 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2011
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2010
$
14,000

 
$
38,588

 
$

 
$
115,700

 
$
371,426

 
$
539,714

Additions

 

 

 

 

 

Impairments

 

 

 
(5,000
)
 

 
(5,000
)
Amortization
(5,698
)

(261
)
 

 

 

 
(5,959
)
Balance, March 31, 2011
$
8,302

 
$
38,327

 
$

 
$
110,700

 
$
371,426

 
$
528,755



Future Amortization
Customer relationships are being amortized on an accelerated basis over an approximate remaining two-year period. Favorable lease rates are being amortized on a straight-line basis over a weighted-average original useful life of 43.8 years. Future amortization is as follows:
 
 
Customer Relationships
 
Favorable Lease Rates
 
Development Agreement
 
Total
 
 
(In thousands)
For the year ending December 31,
 
 
 
 
 
 
 
 
2012 (remainder)
 
$
4,038

 
$
782

 

 
$
4,820

2013
 
2,591

 
1,043

 

 
3,634

2014
 

 
1,043

 
1,053

 
2,096

2015
 

 
1,043

 
2,401

 
3,444

2016
 

 
1,043

 
2,689

 
3,732

Thereafter
 

 
32,330

 
15,230

 
47,560

 
 
$
6,629

 
$
37,284

 
21,373

 
$
65,286


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Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________




Trademarks and gaming license rights are not subject to amortization, as we have determined that they have an indefinite useful life; however, these assets are subject to an annual impairment test.
 
Impairment Testing
Intangible assets include gaming license rights, trademarks and customer lists. Indefinite lived intangible assets are not subject to amortization, but they are subject to an annual impairment test in the second quarter of each year and between annual test dates in certain circumstances.

Interim Testing
During the first quarter of 2011, we performed an interim impairment test over the trademark we recorded in connection with the valuation of Borgata due to our consideration of certain facts and circumstances surrounding an adverse change in the business climate in Atlantic City. We believe our actual results have been adversely impacted by increased regional competition, and that in addition, our projected future results will be further impacted by cannibalization of our business upon the opening of a new property in Atlantic City, which was announced in February 2011. We also believe the refinancing of Borgata's debt and recapitalization of its member equity contributed to the results of this impairment test. Having performed an initial interim impairment test related to the Borgata trademark during the first quarter of 2011, we have established the first quarter as its prospective annual impairment test date as well, and we performed an interim impairment test over the Borgata trademark at January 1, 2012.

Our analyses consisted of a valuation of the Borgata trademark, using the relief from royalty method, as discussed above. The only significant change in our assumptions from the initial fair valuation were revised revenue and profitability projections, reflecting the impact of the changed present and forecasted circumstances. The impairment test consisted of a comparison of the fair value of trademark with its carrying amount. As a result of the impairment test, we did not record any impairment in the first quarter of 2012 and recorded a $5.0 million impairment in the first quarter of 2011, representing the amount by which the carrying amount exceeded its fair value.
Gaming license rights are tested for impairment using a discounted cash flow approach, and trademarks are tested for impairment using the relief-from-royalty method. If the fair value of an indefinite-lived intangible asset is less than its carrying amount, an impairment loss is recognized equal to the difference. If our estimates of projected cash flows related to these assets are not achieved, or if any other significant assumptions are changed, we may be subject to an interim impairment test prior to our next annual scheduled impairment test. As a result of such test, we may be subject to a future impairment charge, which could have a material adverse impact on our consolidated financial statements.
The results of our annual scheduled impairment test of indefinite-lived intangible assets, performed during the second quarter of 2011, did not require us to record an impairment charge; however, if our estimates of projected cash flows related to these assets are not achieved, or if any other significant assumptions are changed, we may be subject to an interim impairment test prior to our next annual scheduled impairment test. Such test could result in a future impairment charge, which could have a material adverse impact on our consolidated financial statements.


NOTE 7.    ACCRUED LIABILITIES
Accrued liabilities consist of the following:
 
March 31,
 
December 31,
 
2012
 
2011
 
(In thousands)
Payroll and related expenses
$
84,098

 
$
80,720

Interest
48,645

 
41,344

Gaming liabilities
76,940

 
76,591

Accrued expenses and other liabilities
105,065

 
96,804

Total accrued liabilities
$
314,748

 
$
295,459




28

Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



NOTE 8.    NON-RECOURSE OBLIGATIONS OF VARIABLE INTEREST ENTITY
The non-recourse obligations of variable interest entity represent the outstanding debt of LVE and is comprised of the following:
 
March 31
 
December 31,
 
2012
 
2011
 
(In thousands)
Non-recourse obligations of variable interest entity, current:
 
 
 
     Notes payable to members
$
30,605

 
$
29,686

 
 
 
 
Non-recourse obligations of variable interest entity, long-term:
 
 
 
Construction and term loan facility
$
119,730

 
$
119,980

Tax-exempt variable rate bonds
73,000

 
73,000

 
192,730

 
192,980

 
$
223,335

 
$
222,666

 
Assets serving as collateral for these debt obligations, primarily consist of certain assets held for development, with a carrying value of $163.8 million at both March 31, 2012 and December 31, 2011, and restricted investments of $21.4 million at both March 31, 2012 and December 31, 2011. The condensed consolidated statements of operations for the three months ended March 31, 2012 and 2011 include losses of $0.7 million and income of $1.6 million, respectively, and the condensed consolidated statements of cash flows for the three months ended March 31, 2012 and 2011 reflect $0.5 million and $2.4 million of net operating cash outflows, respectively, related to this consolidated variable interest entity; however, none of the offsetting consolidated income or operating cash inflows are available to service this debt, which is non-recourse and non-guaranteed by Boyd.
 
Construction and Term Loan Facility
In December 2007, LVE entered into a construction and term loan facility with two commercial banks with a committed amount of up to $143.5 million, of which $119.7 million and $120.0 million were outstanding at March 31, 2012 and December 31, 2011, respectively. Proceeds from the construction loan were used to finance the construction of the central energy center and district energy system. The loan is secured by the assets of LVE and does not contain financial covenants. The original loan maturities were as follows: $4.2 million in 2011; $83.1 million in 2012 and the remainder in 2013.
 
The construction loan bears interest at a variable rate based on the London InterBank Offered Rate ("LIBOR"). LVE entered into an interest rate swap with scheduled increases in the notional amount designed to fix the LIBOR portion of the interest rate on this debt until its maturity in November 2013, which was hedged against the outstanding debt. However, due to the construction delays, the outstanding amount of debt did not increase as fast as the contractual increases in notional amount of the swap, which rendered a portion of the swap ineffective, and as a result the swap was de-designated in July 2011.
 
Tax-exempt Variable Rate Bonds
In December 2007, LVE issued $100.0 million of tax-exempt variable rate bonds through the State of Nevada Department of Business and Industry, which mature in October 2035. Unused proceeds from the tax-exempt, variable rate bonds are required to be escrowed pending approved construction expenditures. Such unused funds are reported as restricted investments on our consolidated balance sheet.
 
The tax-exempt variable rate bonds bear interest at rates that are determined by a remarketing agent on a weekly basis. LVE entered into an interest rate swap with a total notional amount of $100.0 million that effectively fixes the underlying interest rate index on these bonds until November 2013. Investors in these bonds receive liquidity and credit support provided by a letter of credit from a commercial bank. This letter of credit expires in November 2013, but can be accelerated by the bank in the event of a default under the construction and term loan facility.

In July 2011, LVE retired $27.0 million of these tax-exempt bonds, using funds in its restricted investment account, which is held in escrow.
 


29

Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011
______________________________________________________________________________________________________



Events of Default
The central energy center and district energy system are being financed by LVE with debt that is non-recourse to us. The outstanding balance of LVE's bank debt is $192.7 million and $193.0 million consisting of borrowing under the construction and term loan facility of $119.7 million and $120.0 million, and outstanding tax-exempt bonds of $73.0 million and $73.0 million, as of March 31, 2012 and December 31, 2011, respectively.

The construction loan was to be converted to a term loan in the fourth quarter of 2010 assuming the district energy system and central energy center were completed. The district energy system and central energy center were not completed by the fourth quarter of 2010 and consequently, the full amount of the construction loan became due and payable in December 2010. However, in March 2011, the banks that are financing the energy facilities agreed not to exercise their rights under the financing agreements resulting from the event of default discussed above through December 2013, provided that no additional events of default occur. The members of LVE have provided a total of $10 million in letters of credit to the banks to support LVE’s obligations. Under the March 2011 agreement, LVE is obligated to use any excess funds, after paying fees and interest on the tax-exempt bonds and the construction loan, to reduce the outstanding balance of the construction loan. The banks have waived all existing defaults under the financing agreements and were relieved of their commitment to provide additional funding.

LVE intends to seek additional financing to complete the facility once construction of the resort resumes.
 

NOTE 9.    LONG-TERM DEBT
Long-term debt, net of current maturities consists of the following:
 
March 31, 2012
 
 
 
 
 
Unamortized
 
 
 
Outstanding
 
Unamortized
 
Origination
 
Long-Term
 
Principal
 
Discount
 
Fees
 
Debt, Net
 
(In thousands)
Boyd Gaming Long-Term Debt:
 
 
 
 
 
 
 
Bank credit facility
$
1,583,125

 
$
(6,264
)
 
$
(4,027
)
 
$
1,572,834

9.125% senior notes due 2018
500,000

 

 
(8,247
)
 
491,753

6.75% senior subordinated notes due 2014
215,668

 

 

 
215,668

7.125% senior subordinated notes due 2016
240,750

 

 

 
240,750

Other
10,893

 

 

 
10,893

 
$
2,550,436

 
$
(6,264
)
 
$
(12,274
)
 
$
2,531,898

 
 
 
 
 
 
 
 
Borgata Debt:
 
 
 
 
 
 
 
Bank credit facility
$
22,500