10-Q
 
 
 
 
 
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, 2016
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to              
Commission file number: 1-12882
___________________________________________________

BOYD GAMING CORPORATION
(Exact name of registrant as specified in its charter)
 ____________________________________________________
Nevada
 
88-0242733
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
3883 Howard Hughes Parkway, Ninth Floor, Las Vegas, NV 89169
(Address of principal executive offices) (Zip Code)
(702) 792-7200
(Registrant's telephone number, including area code)
 ____________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
  
Accelerated filer
 
o
 
 
 
 
 
 
 
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
Class
  
Outstanding as of May 2, 2016
 
 
Common stock, $0.01 par value
  
112,084,786
 






BOYD GAMING CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2016
TABLE OF CONTENTS
 
 
 
Page
No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






PART I. Financial Information

Item 1.        Financial Statements (Unaudited)

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31,
 
December 31,
(Unaudited)
2016
 
2015
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
616,201

 
$
158,821

Restricted cash
22,375

 
19,030

Accounts receivable, net
24,056

 
25,289

Inventories
15,137

 
15,462

Prepaid expenses and other current assets
34,359

 
37,250

Income taxes receivable
556

 
1,380

Total current assets
712,684

 
257,232

Property and equipment, net
2,210,482

 
2,225,342

Investment in unconsolidated subsidiary
253,598

 
244,621

Other assets, net
48,947

 
48,341

Intangible assets, net
886,062

 
890,054

Goodwill, net
685,310

 
685,310

Total assets
$
4,797,083

 
$
4,350,900

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities
 
 
 
Current maturities of long-term debt
$
27,688

 
$
29,750

Accounts payable
67,177

 
75,803

Accrued liabilities
243,117

 
249,518

Total current liabilities
337,982

 
355,071

Long-term debt, net of current maturities and debt issuance costs
3,657,911

 
3,239,799

Deferred income taxes
168,708

 
162,189

Other long-term tax liabilities
3,149

 
3,085

Other liabilities
85,734

 
82,745

Commitments and contingencies (Note 8)

 

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

 

Common stock, $0.01 par value, 200,000,000 shares authorized; 111,990,303 and 111,614,420 shares outstanding
1,120

 
1,117

Additional paid-in capital
946,914

 
945,041

Accumulated deficit
(404,691
)
 
(437,881
)
Accumulated other comprehensive income (loss)
206

 
(316
)
Total Boyd Gaming Corporation stockholders' equity
543,549

 
507,961

Noncontrolling interest
50

 
50

Total stockholders' equity
543,599

 
508,011

Total liabilities and stockholders' equity
$
4,797,083

 
$
4,350,900


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


3




BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
Three Months Ended
(In thousands, except per share data)
March 31,
(Unaudited)
2016
 
2015
Revenues
 
 
 
Gaming
$
462,551

 
$
464,757

Food and beverage
76,800

 
76,296

Room
41,875

 
39,353

Other
31,466

 
29,685

Gross revenues
612,692

 
610,091

Less promotional allowances
60,314

 
59,513

Net revenues
552,378

 
550,578

Operating costs and expenses
 
 
 
Gaming
223,525

 
226,697

Food and beverage
41,803

 
41,567

Room
10,499

 
10,047

Other
19,332

 
19,646

Selling, general and administrative
81,851

 
81,689

Maintenance and utilities
23,848

 
25,319

Depreciation and amortization
47,653

 
51,942

Corporate expense
17,907

 
19,652

Project development, preopening and writedowns
1,841

 
955

Impairments of assets
1,440

 
1,065

Other operating items, net
429

 
116

Total operating costs and expenses
470,128

 
478,695

Boyd's share of Borgata's operating income
18,836

 
11,675

Operating income
101,086

 
83,558

Other expense (income)
 
 
 
Interest income
(497
)
 
(471
)
Interest expense, net of amounts capitalized
53,065

 
56,935

Loss on early extinguishments of debt
427

 
508

Other, net
77

 
618

Boyd's share of Borgata's non-operating items, net
7,206

 
7,661

Total other expense, net
60,278

 
65,251

Income before income taxes
40,808

 
18,307

Income taxes benefit (provision)
(7,618
)
 
16,796

Net income
$
33,190

 
$
35,103

 
 
 
 
Basic net income per common share
$
0.29

 
$
0.31

Weighted average basic shares outstanding
114,109

 
111,446

 
 
 
 
Diluted net income per common share
$
0.29

 
$
0.31

Weighted average diluted shares outstanding
114,868

 
112,358


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

4




BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 
Three Months Ended
(In thousands)
March 31,
(Unaudited)
2016
 
2015
Net income
$
33,190

 
$
35,103

Other comprehensive income, net of tax:
 
 
 
Fair value of adjustments to available-for-sale securities, net of tax
522

 
271

Comprehensive income attributable to Boyd Gaming Corporation
$
33,712

 
$
35,374


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

5




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

 
Boyd Gaming Corporation Stockholders' Equity
 
 
 
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss), Net
 
Noncontrolling
Interest
 
Total
 
 
 
 
 
 
(In thousands, except share data)
 
 
 
 
 
(Unaudited)
Shares
 
Amount
 
 
 
 
 
Balances, January 1, 2016
111,614,420

 
$
1,117

 
$
945,041

 
$
(437,881
)
 
$
(316
)
 
$
50

 
$
508,011

Net income

 

 

 
33,190

 

 

 
33,190

Comprehensive income attributable to Boyd

 

 

 

 
522

 

 
522

Stock options exercised
53,013

 

 
321

 

 

 

 
321

Release of restricted stock units, net of tax
163,843

 
2

 
(842
)
 

 

 

 
(840
)
Release of performance stock units, net of tax
159,027

 
1

 
(869
)
 

 

 

 
(868
)
Share-based compensation costs

 

 
3,263

 

 

 

 
3,263

Other

 

 

 

 

 

 

Balances, March 31, 2016
111,990,303

 
$
1,120

 
$
946,914

 
$
(404,691
)
 
$
206

 
$
50

 
$
543,599

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances, January 1, 2015
109,277,060

 
$
1,093

 
$
922,112

 
$
(485,115
)
 
$
(53
)
 
$
50

 
$
438,087

Net income

 

 

 
35,103

 

 

 
35,103

Comprehensive income attributable to Boyd

 

 

 

 
271

 

 
271

Stock options exercised
610,274

 
6

 
4,413

 

 

 

 
4,419

Release of performance stock units, net of tax
477,204

 
5

 
(2,451
)
 

 

 

 
(2,446
)
Share-based compensation costs

 

 
3,441

 

 

 

 
3,441

Balances, March 31, 2015
110,364,538

 
$
1,104

 
$
927,515

 
$
(450,012
)
 
$
218

 
$
50

 
$
478,875


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


6

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


 
Three Months Ended
(In thousands)
March 31,
(Unaudited)
2016
 
2015
Cash Flows from Operating Activities
 
 
 
Net income
$
33,190

 
$
35,103

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
47,653

 
51,942

Amortization of debt financing costs and discounts on debt
4,594

 
5,326

Share-based compensation expense
3,263

 
3,441

Deferred income taxes
6,519

 
5,394

Non-cash impairment of assets
1,440

 
1,065

Distribution from unconsolidated subsidiary
2,654

 

Loss on early extinguishments of debt
427

 
508

Boyd's share of Borgata's net income
(11,631
)
 
(4,014
)
Other operating activities
486

 
(1,559
)
Changes in operating assets and liabilities:
 
 
 
Restricted cash
(3,345
)
 
(3,358
)
Accounts receivable, net
1,330

 
1,440

Inventories
326

 
968

Prepaid expenses and other current assets
2,890

 
(615
)
Current other tax asset

 
1,802

Income taxes receivable
824

 
(4
)
Other assets, net
(654
)
 
1,581

Accounts payable and accrued liabilities
(9,990
)
 
(19,725
)
Other long-term tax liabilities
64

 
(23,002
)
Other liabilities
2,990

 
3,345

Net cash provided by operating activities
83,030

 
59,638

Cash Flows from Investing Activities
 
 
 
Capital expenditures
(35,297
)
 
(19,269
)
Other investing activities
5

 
2,316

Net cash used in investing activities
(35,292
)
 
(16,953
)
Cash Flows from Financing Activities
 
 
 
Borrowings under Boyd Gaming bank credit facility
223,900

 
203,700

Payments under Boyd Gaming bank credit facility
(530,350
)
 
(245,675
)
Borrowings under Peninsula bank credit facility
95,200

 
91,400

Payments under Peninsula bank credit facility
(114,725
)
 
(108,625
)
Proceeds from issuance of senior notes
750,000

 

Debt financing costs
(12,996
)
 

Payments on retirements of long-term debt

 
(2
)
Share-based compensation activities, net
(1,387
)
 
1,973

Net cash provided by (used in) financing activities
409,642

 
(57,229
)
Change in cash and cash equivalents
457,380

 
(14,544
)
Cash and cash equivalents, beginning of period
158,821

 
145,341

Cash and cash equivalents, end of period
$
616,201

 
$
130,797

Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid for interest, net of amounts capitalized
$
50,600

 
$
52,239

Cash paid (received) for income taxes, net of refunds
204

 
(1,656
)
Supplemental Schedule of Noncash Investing and Financing Activities
 
 
 
Payables incurred for capital expenditures
$
6,610

 
$
7,333

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

7




BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
as of March 31, 2016 and December 31, 2015 and for the three months ended March 31, 2016 and 2015
______________________________________________________________________________________________________

NOTE 1.    ORGANIZATION AND BASIS OF PRESENTATION
Organization
Boyd Gaming Corporation (and together with its subsidiaries, the "Company," "Boyd Gaming," "we" or "us") was incorporated in the state of Nevada in 1988 and has been operating since 1975. The Company's common stock is traded on the New York Stock Exchange under the symbol "BYD."

We are a diversified operator of 21 wholly owned gaming entertainment properties and one property, Borgata Hotel Casino & Spa ("Borgata"), in which we hold a non-controlling 50% equity interest in the limited liability company. Headquartered in Las Vegas, we have gaming operations in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi and New Jersey.

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and footnote disclosures necessary for complete financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"). These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the U.S. Securities and Exchange Commission ("SEC") on February 25, 2016.

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

The accompanying condensed consolidated financial statements include the accounts of Boyd Gaming and its wholly owned subsidiaries. Investments in unconsolidated affiliates, which do not meet the consolidation criteria of the authoritative accounting guidance for voting interest, controlling interest or variable interest entities, are accounted for under the equity method. (See Note 3, Investment in Borgata.) All significant intercompany accounts and transactions have been eliminated in consolidation.

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

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

8

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


The amounts included in promotional allowances are as follows:
 
Three Months Ended
 
March 31,
(In thousands)
2016
 
2015
Rooms
$
18,945

 
$
18,744

Food and beverage
37,452

 
37,714

Other
3,917

 
3,055

Total promotional allowances
$
60,314

 
$
59,513


The estimated costs of providing such promotional allowances are as follows:
 
Three Months Ended
 
March 31,
(In thousands)
2016
 
2015
Rooms
$
8,569

 
$
8,782

Food and beverage
33,271

 
33,552

Other
2,981

 
2,787

Total estimated cost of promotional allowances
$
44,821

 
$
45,121


Gaming Taxes
We are subject to taxes based on gross gaming revenues in the jurisdictions in which we operate. These gaming taxes are assessed based on our gaming revenues and are recorded as a gaming expense in the condensed consolidated statements of income. These taxes totaled approximately $82.6 million and $83.4 million for the three months ended March 31, 2016 and 2015, respectively.

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

As of March 31, 2016, we concluded that it was not more likely than not that the benefit from our deferred tax assets would be realized. As a result of our analysis, a valuation allowance of $240.4 million has been recorded on our federal and state income tax net operating loss carryforwards and other deferred tax assets. Valuation allowances are evaluated periodically and subject to change in future reporting periods as a result of changes in the factors noted above. Based on recent earnings, there is a reasonable possibility that, within the next year, sufficient positive evidence may become available to reach a conclusion that all or a portion of the valuation allowance will no longer be needed. As such, the Company may release a significant portion of its valuation allowance against its deferred tax assets within the next 12 months. However, the exact timing will be dependent on the levels of income achieved and management's visibility into future period results. The release of our valuation allowance would result in the recognition of certain deferred tax assets and a non-cash income tax benefit in the period in which the release is recorded.

For the three months ended March 31, 2016 and 2015, we have computed our provision for income taxes by applying the actual effective tax rate, under the discrete method, to year-to-date income. The discrete method was used to calculate income tax expense or benefit as the annual effective tax rate was not considered a reliable estimate of year-to-date income tax expense or benefit. We believe this method provides the most reliable estimate of year-to-date income tax expense.

Our tax rate is impacted by adjustments that are largely independent of our operating results before taxes.  Such adjustments relate primarily to changes in our valuation allowance and the accrual of non-cash tax expense in connection with the tax amortization

9

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

of indefinite-lived intangible assets that are not available to offset existing deferred tax assets.  The deferred tax liabilities created by the tax amortization of these intangibles cannot be used to offset corresponding increases in the net operating loss deferred tax assets when determining our valuation allowance.

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

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

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

Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Reclassifications
Asset transaction costs that were previously disaggregated in our condensed consolidated statement of income for the three months ended March 31, 2015 were accumulated with preopening expenses. This reclassification had no effect on our retained earnings or net income as previously reported.

Amortization of debt financing costs and amortization of discounts on debt, which were previously disaggregated in our condensed consolidated statement of cash flows for the three months ended March 31, 2015, were combined. This reclassification had no effect on our cash provided by operating activities as previously reported.

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

Accounting Standards Update 2016-08, Revenue from Contracts with Customers ("Update 2016-08")
In March 2016, the FASB issued Update 2016-08 which amends the principal-versus agent implementation guidance and illustrations in Accounting Standards Update 2014-09, Revenue from Contracts with Customers ("Update 2014-09"). The standard is effective for financial statements issued for annual periods and interim periods within those annual periods beginning after December 15, 2017, and early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is evaluating the impact of the adoption of Updates 2016-08 and 2014-09 to the financial statements.


10

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

Accounting Standards Update 2016-07, Investments - Equity Method and Joint Ventures ("Update 2016-07")
In March 2016, the FASB issued Update 2016-07 which simplifies the equity method of accounting by eliminating the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. The standard is effective for financial statements issued for annual periods and interim periods within those annual periods beginning after December 15, 2016, and early adoption is permitted. The Company is evaluating the impact of the adoption of Update 2016-07 to the financial statements.

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

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

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

NOTE 3.    INVESTMENT IN BORGATA
The Company and MGM Resorts International each hold a 50% interest in Marina District Development Holding Co., LLC ("Holding Company"). Holding Company owns all the equity interests in Marina District Development Company, LLC, d.b.a. Borgata. We are the managing member of Holding Company, and we are responsible for the day-to-day operations of Borgata. We account for our investment in Borgata by applying the equity method of accounting.

Select balance sheet information for Borgata is as follows:
 
March 31,
 
December 31,
(In thousands)
2016
 
2015
Cash and cash equivalents
$
29,838

 
$
44,134

 
 
 
 
Outstanding Principal Balance of Long-term Debt
 
 
 
Bank Credit Facility
$
11,600

 
$
37,700

2018 Term Loan
223,000

 
240,900

2023 Term Loan
416,850

 
418,950

 
$
651,450

 
$
697,550



11

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

Summarized income statement information for Borgata is as follows:
 
Three Months Ended
 
March 31,
(In thousands)
2016
 
2015
Net revenues
$
190,293

 
$
182,589

Operating expenses
152,620

 
159,239

Operating income
37,673

 
23,350

Non-operating expenses
14,412

 
15,322

Net income
$
23,261

 
$
8,028


NOTE 4.    PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
 
March 31,
 
December 31,
(In thousands)
2016
 
2015
Land
$
228,417

 
$
229,857

Buildings and improvements
2,553,426

 
2,539,578

Furniture and equipment
1,173,338

 
1,152,277

Riverboats and barges
238,730

 
238,743

Construction in progress
36,668

 
42,497

Other
7,404

 
7,404

Total property and equipment
4,237,983

 
4,210,356

Less accumulated depreciation
2,027,501

 
1,985,014

Property and equipment, net
$
2,210,482

 
$
2,225,342


Other property and equipment presented in the table above relates to the estimated net realizable value of construction materials inventory that was not disposed of with the 2013 sale of the Echelon development project. Such assets are not in service and are not currently being depreciated.

Depreciation expense is as follows:
 
Three Months Ended
 
March 31,
(In thousands)
2016
 
2015
Depreciation expense
$
43,556

 
$
45,102



12

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

NOTE 5.    INTANGIBLE ASSETS
Intangible assets consist of the following:
 
March 31, 2016
 
Weighted
 
Gross
 
 
 
Cumulative
 
 
 
Average Life
 
Carrying
 
Cumulative
 
Impairment
 
Intangible
(In thousands)
Remaining
 
Value
 
Amortization
 
Losses
 
Assets, Net
Amortizing intangibles
 
 
 
 
 
 
 
 
 
Customer relationships
1.6 years
 
$
136,300

 
$
(113,711
)
 
$

 
$
22,589

Favorable lease rates
32.2 years
 
45,370

 
(12,272
)
 

 
33,098

Development agreement
 
21,373

 

 

 
21,373

 
 
 
203,043

 
(125,983
)
 

 
77,060

 
 
 
 
 
 
 
 
 
 
Indefinite lived intangible assets
 
 
 
 
 
 
 
 
 
Trademarks and other
Indefinite
 
129,501

 

 
(3,500
)
 
126,001

Gaming license rights
Indefinite
 
873,335

 
(33,960
)
 
(156,374
)
 
683,001

 
 
 
1,002,836

 
(33,960
)
 
(159,874
)
 
809,002

Balance, March 31, 2016
 
 
$
1,205,879

 
$
(159,943
)
 
$
(159,874
)
 
$
886,062


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

 
$
(109,994
)
 
$

 
$
26,306

Favorable lease rates
32.4 years
 
45,370

 
(11,997
)
 

 
33,373

Development agreement
 
21,373

 

 

 
21,373

 
 
 
203,043

 
(121,991
)
 

 
81,052

 
 
 
 
 
 
 
 
 
 
Indefinite lived intangible assets
 
 
 
 
 
 
 
 
 
Trademarks
Indefinite
 
129,501

 

 
(3,500
)
 
126,001

Gaming license rights
Indefinite
 
873,335

 
(33,960
)
 
(156,374
)
 
683,001

 
 
 
1,002,836

 
(33,960
)
 
(159,874
)
 
809,002

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

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


NOTE 6.    ACCRUED LIABILITIES
Accrued liabilities consist of the following:
 
March 31,
 
December 31,
(In thousands)
2016
 
2015
Payroll and related expenses
$
61,815

 
$
71,815

Interest
32,546

 
35,337

Gaming liabilities
33,104

 
37,496

Player loyalty program liabilities
18,464

 
18,491

Accrued liabilities
97,188

 
86,379

Total accrued liabilities
$
243,117

 
$
249,518



13

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

NOTE 7.    LONG-TERM DEBT
Long-term debt, net of current maturities consists of the following:
 
 
 
March 31, 2016
 
Interest
 
 
 
 
 
Unamortized
 
 
 
Rates at
 
Outstanding
 
Unamortized
 
Origination
 
Long-Term
(In thousands)
Mar. 31, 2016
 
Principal
 
Discount
 
Fees and Costs
 
Debt, Net
Boyd Gaming Corporation Debt
 
 
 
 
 
 
 
 
 
Bank credit facility
3.88
%
 
$
903,275

 
$
(2,288
)
 
$
(8,894
)
 
$
892,093

9.00% senior notes due 2020
9.00
%
 
350,000

 

 
(6,647
)
 
343,353

6.875% senior notes due 2023
6.88
%
 
750,000

 

 
(12,525
)
 
737,475

6.375% senior notes due 2026
6.38
%
 
750,000

 

 
(12,935
)
 
737,065

 
 
 
2,753,275

 
(2,288
)
 
(41,001
)
 
2,709,986

 
 
 
 
 
 
 
 
 
 
Peninsula Segment Debt
 
 
 
 
 
 
 
 
 
Bank credit facility
4.25
%
 
643,225

 

 
(11,939
)
 
631,286

8.375% senior notes due 2018
8.38
%
 
350,000

 

 
(5,673
)
 
344,327

 
 
 
993,225

 

 
(17,612
)
 
975,613

Total long-term debt
 
 
3,746,500

 
(2,288
)
 
(58,613
)
 
3,685,599

Less current maturities
 
 
27,688

 

 

 
27,688

Long-term debt, net
 
 
$
3,718,812

 
$
(2,288
)
 
$
(58,613
)
 
$
3,657,911


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

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

9.00% senior notes due 2020
9.00
%
 
350,000

 

 
(7,044
)
 
342,956

6.875% senior notes due 2023
6.88
%
 
750,000

 

 
(12,934
)
 
737,066

 
 
 
2,309,725

 
(2,702
)
 
(29,724
)
 
2,277,299

 
 
 
 
 
 
 
 
 
 
Peninsula Segment Debt
 
 
 
 
 
 
 
 
 
Bank credit facility
4.25
%
 
662,750

 

 
(14,143
)
 
648,607

8.375% senior notes due 2018
8.38
%
 
350,000

 

 
(6,357
)
 
343,643

 
 
 
1,012,750

 

 
(20,500
)
 
992,250

Total long-term debt
 
 
3,322,475

 
(2,702
)
 
(50,224
)
 
3,269,549

Less current maturities
 
 
29,750

 

 

 
29,750

Long-term debt, net
 
 
$
3,292,725

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



14

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

Boyd Gaming Debt
Boyd Bank Credit Facility
The outstanding principal amounts under the Third Amended and Restated Credit Agreement (the "Boyd Gaming Credit Facility") are comprised of the following:
 
March 31,
 
December 31,
(In thousands)
2016
 
2015
Revolving Credit Facility
$

 
$
240,000

Term A Loan
177,025

 
183,275

Term B Loan
726,250

 
730,750

Swing Loan

 
55,700

Total outstanding principal amounts under the Boyd Gaming Credit Facility
$
903,275

 
$
1,209,725


At March 31, 2016, approximately $0.9 billion was outstanding under the Boyd Gaming Credit Facility and $7.1 million was allocated to support various letters of credit, leaving remaining contractual availability of $592.9 million.

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

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

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

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

In connection with the private placement of the 6.375% Notes, we entered into a registration rights agreement with the initial purchasers in which we agreed to file a registration statement with the SEC to permit the holders to exchange or resell the 6.375% Notes. We must use commercially reasonable efforts to file a registration statement and to consummate an exchange offer within 365 days after the issuance of the 6.375% Notes, subject to certain suspension and other rights set forth in the registration rights agreement. Under certain circumstances, including our determination that we cannot complete an exchange offer, we are required to file a shelf registration statement for the resale of the 6.375% Notes and to cause such shelf registration statement to be declared effective as soon as reasonably practicable (but in no event later than the 365th day following the issuance of the 6.375% Notes) after the occurrence of such circumstances. Subject to certain suspension and other rights, in the event that the registration statement is not filed or declared effective within the time periods specified in the registration rights agreement, the exchange offer is not consummated within 365 days after the issuance of the 6.375% Notes, or the registration statement is filed and declared effective

15

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

but thereafter ceases to be effective or is unusable for its intended purpose for a period in excess of 30 days without being succeeded immediately by a post-effective amendment that cures such failure, the agreement provides that additional interest will accrue on the principal amount of the 6.375% Notes at a rate of 0.25% per annum during the 90-day period immediately following any of these events and will increase by 0.25% per annum at the end of each subsequent 90-day period, but in no event will the penalty rate exceed 1.00% per annum, until the default is cured. There are no other alternative settlement methods and, other than the 1.00% per annum maximum penalty rate, the agreement contains no limit on the maximum potential amount of consideration that could be transferred in the event we do not meet the registration statement filing requirements. We currently intend to file a registration statement, have it declared effective and consummate any exchange offer within these time periods. Accordingly, we do not believe that payment of additional interest under the registration payment arrangement is probable and, therefore, no related liability has been recorded in the consolidated financial statements.

Peninsula Segment Debt
Bank Credit Facility
The outstanding principal amounts under the Peninsula senior secured credit facility (the "Peninsula Credit Facility") are comprised of the following:
 
March 31,
 
December 31,
(In thousands)
2016
 
2015
Term Loan
$
621,625

 
$
647,750

Revolving Facility
14,000

 
9,000

Swing Loan
7,600

 
6,000

Total outstanding principal amounts under the Peninsula Credit Facility
$
643,225

 
$
662,750


At March 31, 2016, approximately $643.2 million was outstanding under the Peninsula Credit Facility and $5.0 million was allocated to support various letters of credit, leaving remaining contractual availability of $23.4 million.

Early Extinguishments of Debt
We incurred non-cash charges of $0.4 million and $0.5 million during the three months ended March 31, 2016 and 2015, respectively, for deferred debt financing costs written off related to the Peninsula Credit Facility, which represents the ratable reduction in borrowing capacity due to optional prepayments made during these periods.

Covenant Compliance
As of March 31, 2016, we believe that Boyd Gaming and Peninsula were in compliance with the financial and other covenants of their respective debt instruments.

NOTE 8.    COMMITMENTS AND CONTINGENCIES
Commitments
There have been no material changes to our commitments described under Note 10, Commitments and Contingencies, in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on February 25, 2016, except for the pending acquisitions of ALST Casino Holdco, LLC, and the Las Vegas assets of Cannery Casino Resorts, LLC, as discussed in Note 13, Subsequent Events.

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

NOTE 9.    STOCKHOLDERS' EQUITY AND STOCK INCENTIVE PLANS
Share-Based Compensation
We account for share-based awards exchanged for employee services in accordance with the authoritative accounting guidance for share-based payments. Under the guidance, share-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense, net of estimated forfeitures, over the employee's requisite service period.

16

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


The following table provides classification detail of the total costs related to our share-based employee compensation plans reported in our condensed consolidated statements of income.
 
Three Months Ended
 
March 31,
(In thousands)
2016
 
2015
Gaming
$
85

 
$
68

Food and beverage
16

 
13

Room
8

 
6

Selling, general and administrative
432

 
344

Corporate expense
2,722

 
3,010

Total share-based compensation expense
$
3,263

 
$
3,441


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

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

NOTE 10.     FAIR VALUE MEASUREMENTS
The authoritative accounting guidance for fair value measurements specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These inputs create the following fair value hierarchy:

Level 1: Quoted prices for identical instruments in active markets.

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

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

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

17

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


Balances Measured at Fair Value
The following tables show the fair values of certain of our financial instruments:
 
March 31, 2016
(In thousands)
Balance
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
616,201

 
$
616,201

 
$

 
$

Restricted cash
22,375

 
22,375

 

 

Investment available for sale
18,394

 

 

 
18,394

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Contingent payments
$
3,560

 
$

 
$

 
$
3,560


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

 
$
158,821

 
$

 
$

Restricted cash
19,030

 
19,030

 

 

Investment available for sale
17,839

 

 

 
17,839

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Contingent payments
$
3,632

 
$

 
$

 
$
3,632


Cash and Cash Equivalents and Restricted Cash
The fair value of our cash and cash equivalents and restricted cash, classified in the fair value hierarchy as Level 1, are based on statements received from our banks at March 31, 2016 and December 31, 2015.

Investment Available for Sale
We have an investment in a single municipal bond issuance of $21.4 million aggregate principal amount of 7.5% Urban Renewal Tax Increment Revenue Bonds, Taxable Series 2007 that is classified as available for sale. We are the only holder of this instrument and there is no quoted market price for this instrument. As such, the fair value of this investment is classified as Level 3 in the fair value hierarchy. The estimate of the fair value of such investment was determined using a combination of current market rates and estimates of market conditions for instruments with similar terms, maturities, and degrees of risk and a discounted cash flows analysis as of March 31, 2016 and December 31, 2015. Unrealized gains and losses on this instrument resulting from changes in the fair value of the instrument are not charged to earnings, but rather are recorded as other comprehensive income in the stockholders' equity section of the condensed consolidated balance sheets. At both March 31, 2016 and December 31, 2015, $0.4 million of the carrying value of the investment available for sale is included as a current asset in prepaid expenses and other current assets, and at March 31, 2016 and December 31, 2015, $18.0 million and $17.4 million, respectively, is included in other assets on the condensed consolidated balance sheets. The discount associated with this investment of $3.2 million at both March 31, 2016 and December 31, 2015, is netted with the investment balance and is being accreted over the life of the investment using the effective interest method. The accretion of such discount is included in interest income on the condensed consolidated statements of income.

Contingent Payments
In connection with the development of the Kansas Star Casino ("KSC"), KSC agreed to pay a former casino project developer and option holder 1% of KSC's EBITDA each month for a period of ten years commencing on December 20, 2011. The liability is recorded at the estimated fair value of the contingent payments using a discounted cash flows approach and the significant unobservable input used in the valuation at both March 31, 2016 and December 31, 2015, is a discount rate of 18.5%. At both March 31, 2016 and December 31, 2015, there was a current liability of $0.9 million related to this agreement, which is recorded in accrued liabilities on the respective condensed consolidated balance sheets, and long-term obligation at both March 31, 2016 and December 31, 2015, of $2.7 million, which is included in other liabilities on the respective condensed consolidated balance sheets.

18

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


The following table summarizes the changes in fair value of the Company's Level 3 assets and liabilities:
 
Three Months Ended
 
March 31, 2016
 
Assets
 
Liability
(In thousands)
Investment
Available for
Sale
 
Contingent
Payments
Balance at January 1, 2016
$
17,839

 
$
(3,632
)
Total gains (losses) (realized or unrealized):
 
 
 
Included in earnings
33

 
(154
)
Included in other comprehensive income
522

 

Transfers in or out of Level 3

 

Purchases, sales, issuances and settlements:
 
 
 
Settlements

 
226

Balance at March 31, 2016
$
18,394

 
$
(3,560
)
 
 
 
 
Gains (losses) included in earnings attributable to the change in unrealized gains relating to assets and liabilities still held at the reporting date:
 
 
 
Included in interest income
$
33

 
$

Included in interest expense

 
(154
)
 
Three Months Ended March 31, 2015
 
Assets
 
Liabilities
(In thousands)
Investment
Available for
Sale
 
Merger
Earnout
 
Contingent
Payments
Balance at January 1, 2015
$
18,357

 
$
(75
)
 
$
(3,792
)
Total gains (losses) (realized or unrealized):
 
 
 
 
 
Included in earnings
31

 
75

 
(159
)
Included in other comprehensive income
270

 

 

Transfers in or out of Level 3

 

 

Purchases, sales, issuances and settlements:
 
 
 
 
 
Settlements

 

 
230

Balance at March 31, 2015
$
18,658

 
$

 
$
(3,721
)
 
 
 
 
 
 
Gains (losses) included in earnings attributable to the change in unrealized gains relating to assets and liabilities still held at the reporting date:
 
 
 
 
 
Included in interest income
$
31

 
$

 
$

Included in interest expense

 

 
(159
)

The table below summarizes the significant unobservable inputs used in calculating fair value for our Level 3 assets and liabilities:
 
Valuation
Technique
 
Unobservable
Input
 
Rate
Investment available for sale
Discounted cash flow
 
Discount rate
 
9.9
%
Contingent payments
Discounted cash flow
 
Discount rate
 
18.5
%


19

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

Balances Disclosed at Fair Value
The following tables provide the fair value measurement information about our obligation under minimum assessment agreements and other financial instruments:
 
March 31, 2016
(In thousands)
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
Liabilities
 
 
 
 
 
 
 
Obligation under assessment arrangements
$
34,655

 
$
27,357

 
$
28,282

 
Level 3
Other financial instruments
200

 
189

 
189

 
Level 3

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

 
$
27,660

 
$
28,381

 
Level 3
Other financial instruments
200

 
186

 
186

 
Level 3

The following tables provide the fair value measurement information about our long-term debt:
 
March 31, 2016
(In thousands)
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
Boyd Gaming Corporation Debt
 
 
 
 
 
 
 
Bank credit facility
$
903,275

 
$
892,093

 
$
901,204

 
Level 2
9.00% senior notes due 2020
350,000

 
343,353

 
370,125

 
Level 1
6.875% senior notes due 2023
750,000

 
737,475

 
798,750

 
Level 1
6.375% senior notes due 2026
750,000

 
737,065

 
778,125

 
Level 1
 
2,753,275

 
2,709,986

 
2,848,204

 
 
 
 
 
 
 
 
 
 
Peninsula Segment Debt
 
 
 
 
 
 
 
Bank credit facility
643,225

 
631,286

 
642,479

 
Level 2
8.375% Senior Notes due 2018
350,000

 
344,327

 
357,000

 
Level 2
 
993,225

 
975,613

 
999,479

 
 
Total debt
$
3,746,500

 
$
3,685,599

 
$
3,847,683

 
 


20

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

 
December 31, 2015
(In thousands)
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
Boyd Gaming Corporation Debt
 
 
 
 
 
 
 
Bank credit facility
$
1,209,725

 
$
1,197,277

 
$
1,202,870

 
Level 2
9.00% senior notes due 2020
350,000

 
342,956

 
372,750

 
Level 1
6.875% senior notes due 2023
750,000

 
737,066

 
772,500

 
Level 1
 
2,309,725

 
2,277,299

 
2,348,120

 
 
 
 
 
 
 
 
 
 
Peninsula Segment Debt
 
 
 
 
 
 
 
Bank credit facility
662,750

 
648,607

 
661,131

 
Level 2
8.375% senior notes due 2018
350,000

 
343,643

 
357,000

 
Level 2
 
1,012,750

 
992,250

 
1,018,131

 

Total debt
$
3,322,475

 
$
3,269,549

 
$
3,366,251

 


The estimated fair values of the Boyd Gaming Credit Facility and the Peninsula Credit Facility are based on a relative value analysis performed on or about March 31, 2016 and December 31, 2015. The estimated fair values of Boyd Gaming's senior notes and Peninsula's senior notes are based on quoted market prices as of March 31, 2016 and December 31, 2015. Debt included in the "Other" category is fixed-rate debt that is not traded and does not have an observable market input; therefore, we have estimated its fair value based on a discounted cash flow approach, after giving consideration to the changes in market rates of interest, creditworthiness of both parties, and credit spreads.

There were no transfers between Level 1, Level 2 and Level 3 measurements during the three months ended March 31, 2016 or 2015.


21

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

NOTE 11.    SEGMENT INFORMATION
We have aggregated certain of our properties in order to present five Reportable Segments: (i) Las Vegas Locals; (ii) Downtown Las Vegas; (iii) Midwest and South; (iv) Peninsula; and (v) Borgata. The table below lists the classification of each of our properties.
Las Vegas Locals
 
Gold Coast Hotel and Casino
Las Vegas, Nevada
The Orleans Hotel and Casino
Las Vegas, Nevada
Sam's Town Hotel and Gambling Hall
Las Vegas, Nevada
Suncoast Hotel and Casino
Las Vegas, Nevada
Eldorado Casino
Henderson, Nevada
Jokers Wild Casino
Henderson, Nevada
Downtown Las Vegas
 
California Hotel and Casino
Las Vegas, Nevada
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
Peninsula
 
Diamond Jo Dubuque
Dubuque, Iowa
Diamond Jo Worth
Northwood, Iowa
Evangeline Downs Racetrack and Casino
Opelousas, Louisiana
Amelia Belle Casino
Amelia, Louisiana
Kansas Star Casino
Mulvane, Kansas
Borgata
 
Borgata Hotel Casino & Spa
Atlantic City, New Jersey

Results of Operations - Total Reportable Segment Net Revenues and Adjusted EBITDA
We evaluate each of our wholly owned property's profitability based upon Property EBITDA, which represents each property's earnings before interest expense, income taxes, depreciation and amortization, deferred rent, share-based compensation expense, project development, preopening and writedowns expenses, impairments of assets, other operating items, net, and gain or loss on early retirements of debt, as applicable. Total Reportable Segment Adjusted EBITDA is the aggregate sum of the Property EBITDA for each of the properties included in our Las Vegas Locals, Downtown Las Vegas, and Midwest and South, and Peninsula segments, and also includes Borgata's operating income before net amortization, preopening and other items. Results for Downtown Las Vegas include the results of our Hawaii-based travel agency and captive insurance company. EBITDA is a commonly used measure of performance in our industry that we believe, when considered with measures calculated in accordance with GAAP, provides our investors a more complete understanding of our operating results before the impact of investing and financing transactions and income taxes and facilitates comparisons between us and our competitors. Management has historically adjusted EBITDA when evaluating operating performance because we believe that the inclusion or exclusion of certain recurring and non-recurring items is necessary to provide the most accurate measure of our core operating results and as a means to evaluate period-to-period results.

We reclassify the reporting of corporate expense on the accompanying table in order to exclude it from our subtotal for Total Reportable Segment Adjusted EBITDA and include it as part of total other operating costs and expenses. Furthermore, corporate expense excludes its portion of share-based compensation expense. Corporate expense represents unallocated payroll, professional fees, aircraft expenses and various other expenses not directly related to our casino and hotel operations.

22

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


The following table sets forth, for the periods indicated, certain operating data for our Reportable Segments, and reconciles Total Reportable Segment Adjusted EBITDA to operating income, as reported in our accompanying condensed consolidated statements of income:
 
Three Months Ended
 
March 31,
(In thousands)
2016
 
2015
Net Revenues
 
 
 
Las Vegas Locals
$
158,398

 
$
150,302

Downtown Las Vegas
58,605

 
56,603

Midwest and South
209,185

 
217,764

Peninsula
126,190

 
125,909

Total Reportable Segment Net Revenues
$
552,378

 
$
550,578

 
 
 
 
Adjusted EBITDA
 
 
 
Las Vegas Locals
$
44,271

 
$
38,877

Downtown Las Vegas
12,681

 
10,677

Midwest and South
48,813

 
50,984

Peninsula
47,112

 
46,363

Borgata
22,668

 
18,913

Total Reportable Segment Adjusted EBITDA
175,545

 
165,814

Corporate expense
(15,185
)
 
(16,642
)
Adjusted EBITDA
160,360

 
149,172

 
 
 
 
Other operating costs and expenses
 
 
 
Deferred rent
817

 
857

Depreciation and amortization
47,653

 
51,942

Share-based compensation expense
3,263

 
3,441

Project development, preopening and writedowns
1,841

 
955

Impairments of assets
1,440

 
1,065

Other operating items, net
429

 
116

Our share of Borgata's other operating costs and expenses
3,831

 
7,238

Total other operating costs and expenses
59,274

 
65,614

Operating income
$
101,086

 
$
83,558


Total Reportable Segment Assets
The Company's assets by Reportable Segment consisted of the following amounts:
 
March 31,
 
December 31,
(In thousands)
2016
 
2015
Assets
 
 
 
Las Vegas Locals
$
1,139,016

 
$
1,155,224

Downtown Las Vegas
134,937

 
138,159

Midwest and South
1,238,370

 
1,263,751

Peninsula
1,361,437

 
1,370,991

Total Reportable Segment Assets
3,873,760

 
3,928,125

Corporate
923,323

 
422,775

Total Assets
$
4,797,083

 
$
4,350,900


23

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


NOTE 12.    CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Separate condensed consolidating financial information for our subsidiary guarantors and non-guarantors of our 9.00% Senior Notes due July 2020, our 6.875% Senior Notes due May 2023 and our 6.375% Senior Notes due April 2026 is presented below. The notes are fully and unconditionally guaranteed, on a joint and several basis, by certain of our current and future domestic restricted subsidiaries, all of which are 100% owned by us. The non-guarantors primarily represent those entities comprising our Peninsula segment, special purpose entities, tax holding companies, our less significant operating subsidiaries and our less than wholly owned subsidiaries.

Condensed Consolidating Balance Sheets

 
March 31, 2016
 
 
 
 
 
Non-
 
Non-
 
 
 
 
 
 
 
 
 
Guarantor
 
Guarantor
 
 
 
 
 
 
 
 
 
Subsidiaries
 
Subsidiaries
 
 
 
 
 
 
 
Guarantor
 
(100%
 
(Not 100%
 
 
 
 
(In thousands)
Parent
 
Subsidiaries
 
Owned)
 
Owned)
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
502,247

 
$
84,304

 
$
29,429

 
$
221

 
$

 
$
616,201

Other current assets
12,635

 
56,330

 
28,564

 

 
(1,046
)
 
96,483

Property and equipment, net
64,989

 
1,740,847

 
404,646

 

 

 
2,210,482

Investments in subsidiaries
3,616,657

 
174,761

 

 

 
(3,537,820
)
 
253,598

Intercompany receivable

 
1,974,486

 

 

 
(1,974,486
)
 

Other assets, net
13,033

 
9,180

 
26,734

 

 

 
48,947

Intangible assets, net

 
406,265

 
479,797

 

 

 
886,062

Goodwill, net

 
212,794

 
472,516

 

 

 
685,310

Total assets
$
4,209,561

 
$
4,658,967

 
$
1,441,686

 
$
221

 
$
(5,513,352
)
 
$
4,797,083

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 </