BYD 10Q 9.30.11
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________
FORM 10-Q
 ____________________________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to              
Commission file number: 1-12882
____________________________________________________
BOYD GAMING CORPORATION
(Exact name of registrant as specified in its charter)
 ____________________________________________________
Nevada
 
88-0242733
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
3883 Howard Hughes Parkway, Ninth Floor, Las Vegas, NV 89169
(Address of principal executive offices) (Zip Code)
(702) 792-7200
(Registrant’s telephone number, including area code)
 ____________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
o
  
Accelerated filer
 
x
 
 
 
 
 
 
 
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
  
Outstanding as of October 31, 2011
 
 
Common stock, $0.01 par value
  
86,317,735
 
 
 
 
 
 

Table of Contents

BOYD GAMING CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2011
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.

When we filed our Annual Report on Form 10-K for the year ended December 31, 2010 with the Securities and Exchange Commission ("SEC") on March 15, 2011, and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 with the SEC on October 27, 2010 (the “Provisional Form 10-K” or “Provisional Form 10-Q”, respectively, or collectively, the “Provisional Forms”), the initial acquisition method accounting for the effective change in control of Borgata Hotel Casino and Spa ("Borgata") was incomplete. The application of acquisition method accounting, required in accordance with the authoritative accounting guidance for business combinations, initially had the following effects on our unaudited 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 provisional fair value of the identifiable assets and liabilities in accordance with promulgated valuation recognition and measurement provisions; and (iii) we recorded the provisional fair value of the noncontrolling interest held in trust as a separate component of our stockholders' equity.

Since the filing of the Provisional Forms, we have made adjustments to the provisional fair value amounts recognized at the date of effective change in control, or March 24, 2010, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. These adjustments, referred to herein as “measurement period adjustments” materially shifted the value of certain tangible and intangible assets. We have applied the measurement period adjustments retrospectively to the condensed consolidated balance sheet reported as of December 31, 2010, as previously reported in the Provisional Form 10-K; however, the impact on the accompanying condensed consolidated statement of operations for the three and nine months ended September 30, 2010, as retrospectively adjusted to the statement as reported in the Provisional Form 10-Q was not material, and was therefore not adjusted for any measurement period adjustments.

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, 2010. The Provisional Form 10-K, as originally filed with the SEC on March 15, 2011, was subsequently revised on a Form 8-K filed on September 2, 2011 (the "Retrospective Form 8-K"). This Retrospective Form 8-K updated the audited consolidated financial statements and certain other items of the Provisional Form 10-K, specifically and primarily related to the recasting of the consolidated balance sheet as of December 31, 2010, and related notes thereto. The updated historical financial statements, and other conforming changes to the Provisional Form 10-K are filed as Exhibit 99.1 to the Retrospective Form 8-K and have been updated, solely to include the retrospective measurement period adjustments and new footnote disclosure. All other information provided in the Provisional Form 10-K, unless otherwise provided, remain unchanged and the Retrospective Form 8-K does not modify or update such other disclosures in the Provisional Form 10-K in any other way.


3

Table of Contents

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share and per share data)
 
 
September 30,
2011
 
December 31,
2010
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
187,118

 
$
145,623

Restricted cash
22,692

 
19,494

Accounts receivable, net
47,145

 
47,942

Inventories
14,321

 
16,029

Prepaid expenses and other current assets
53,151

 
37,153

Income taxes receivable

 
5,249

Deferred income taxes
9,113

 
8,149

Total current assets
333,540

 
279,639

Property and equipment, net
3,296,396

 
3,383,371

Assets held for development
1,119,845

 
1,119,403

Debt financing costs, net
30,322

 
34,993

Restricted investments
20,984

 
48,168

Other assets, net
77,084

 
70,425

Intangible assets, net
547,075

 
539,714

Goodwill, net
213,576

 
213,576

Total assets
$
5,638,822

 
$
5,689,289

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities
 
 
 
Current maturities of long-term debt
$
363,598

 
$
25,690

Non-recourse obligations of variable interest entity
221,912

 
243,059

Accounts payable
55,227

 
57,183

Income taxes payable
3,122

 
6,504

Accrued liabilities
305,450

 
278,469

Total current liabilities
949,309

 
610,905

Long-term debt, net of current maturities
2,802,075

 
3,193,065

Deferred income taxes
364,295

 
362,174

Other long-term tax liabilities
46,882

 
44,813

Other liabilities
72,369

 
83,589

Commitments and contingencies (Note 10)

 

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

 

Common stock, $0.01 par value, 200,000,000 shares authorized; 86,290,986 and 86,244,978 shares outstanding
863

 
862

Additional paid-in capital
642,243

 
635,028

Retained earnings
557,546

 
560,909

Accumulated other comprehensive loss, net

 
(7,594
)
Total Boyd Gaming Corporation stockholders’ equity
1,200,652

 
1,189,205

Noncontrolling interest
203,240

 
205,538

Total stockholders’ equity
1,403,892

 
1,394,743

Total liabilities and stockholders’ equity
$
5,638,822

 
$
5,689,289


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
(Unaudited and in thousands, except per share data)

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2011
 
2010
 
2011
 
2010
REVENUES
 
 
 
 
 
 
 
Operating revenues:
 
 
 
 
 
 
 
Gaming
$
500,824

 
$
503,746

 
$
1,469,316

 
$
1,344,283

Food and beverage
99,221

 
101,164

 
285,883

 
255,166

Room
64,831

 
64,142

 
181,881

 
154,247

Other
34,105

 
33,960

 
100,412

 
91,595

Gross revenues
698,981

 
703,012

 
2,037,492

 
1,845,291

Less promotional allowances
108,766

 
107,634

 
307,928

 
256,332

Net revenues
590,215

 
595,378

 
1,729,564

 
1,588,959

COST AND EXPENSES
 
 
 
 
 
 
 
Operating costs and expenses:
 
 
 
 
 
 
 
Gaming
230,675

 
237,601

 
680,457

 
635,461

Food and beverage
50,868

 
50,690

 
148,516

 
132,481

Room
13,586

 
13,661

 
39,921

 
36,767

Other
28,617

 
28,089

 
82,191

 
74,333

Selling, general and administrative
96,301

 
100,697

 
288,872

 
270,641

Maintenance and utilities
40,925

 
42,661

 
115,113

 
104,770

Depreciation and amortization
46,034

 
52,451

 
145,106

 
147,905

Corporate expense
11,025

 
11,021

 
36,569

 
36,636

Preopening expenses
1,720

 
2,684

 
5,292

 
4,990

Write-downs and other items, net
2,300

 
1,340

 
9,269

 
4,932

Total operating costs and expenses
522,051

 
540,895

 
1,551,306

 
1,448,916

Operating income from Borgata

 

 

 
8,146

Operating income
68,164

 
54,483

 
178,258

 
148,189

Other expense (income):
 
 
 
 
 
 
 
Interest income
(15
)
 

 
(40
)
 
(4
)
Interest expense
60,083

 
45,781

 
184,068

 
109,438

Fair value adjustment of derivative instruments

 

 
265

 

Gain on early retirements of debt
(54
)
 

 
(34
)
 
(3,949
)
Gain on distribution from Borgata

 
(2,535
)
 

 
(2,535
)
Other income
(1,000
)
 
(10,000
)
 
(1,000
)
 
(10,000
)
Other non-operating expenses from Borgata, net

 

 

 
3,133

Total other expense, net
59,014

 
33,246

 
183,259

 
96,083

Income (loss) before income taxes
9,150

 
21,237

 
(5,001
)
 
52,106

Income tax (expense) benefit
(2,170
)
 
(6,371
)
 
28

 
(15,532
)
Net income (loss)
6,980

 
14,866

 
(4,973
)
 
36,574

Net (income) loss attributable to noncontrolling interest
(3,871
)
 
(9,275
)
 
1,610

 
(19,166
)
Net income (loss) attributable to Boyd Gaming Corporation
$
3,109

 
$
5,591

 
$
(3,363
)
 
$
17,408

Basic net income (loss) per common share:
$
0.04

 
$
0.06

 
$
(0.04
)
 
$
0.20

Weighted average basic shares outstanding
87,256

 
86,582

 
87,206

 
86,508

Diluted net income (loss) per common share:
$
0.04

 
$
0.06

 
$
(0.04
)
 
$
0.20

Weighted average diluted shares outstanding
87,432

 
86,684

 
87,206

 
86,724


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 STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Nine Months Ended September 30, 2011
(Unaudited and in thousands)
 
 
Boyd Gaming Corporation Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
Other
 
 
 
 
Additional
 
 
 
Other
 
 
 
Total
 
Comprehensive
Common Stock
 
Paid-in
 
Retained
 
Comprehensive
 
Noncontrolling
 
Stockholders'
 
Income (loss)
Shares
 
Amount
 
Capital
 
Earnings
 
Loss, Net
 
Interest
 
Equity
Balances, January 1, 2011
 
86,244,978

 
$
862

 
$
635,028

 
$
560,909

 
$
(7,594
)
 
$
205,538

 
$
1,394,743

Net loss
$
(3,363
)


 

 

 
(3,363
)
 

 

 
(3,363
)
Derivative instruments fair value adjustment, net of taxes of $4,230
7,594



 

 

 

 
7,594

 

 
7,594

Comprehensive income
4,231

 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive loss attributable to noncontrolling interest
(688
)

 

 

 

 

 
(688
)
 
(688
)
Comprehensive income attributable to Boyd Gaming Corporation
$
3,543



 


 


 


 


 


 


Stock options exercised
 
46,008

 
1

 
275

 

 

 

 
276

Tax effect from share-based compensation arrangements
 

 

 
(800
)
 

 

 

 
(800
)
Share-based compensation costs
 

 

 
7,740

 

 

 

 
7,740

Change in noncontrolling interest in Borgata and LVE
 

 

 

 

 

 
(1,610
)
 
(1,610
)
Balances, September 30, 2011
 
86,290,986

 
$
863

 
$
642,243

 
$
557,546

 
$

 
$
203,240

 
$
1,403,892


Nine Months Ended September 30, 2010
(Unaudited and in thousands)
 
 
Boyd Gaming Corporation Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
Other
 
 
 
 
Additional
 
 
 
Other
 
 
 
Total
 
Comprehensive
Common Stock
 
Paid-in
 
Retained
 
Comprehensive
 
Noncontrolling
 
Stockholders'
 
Income (loss)
Shares
 
Amount
 
Capital
 
Earnings
 
Loss, Net
 
Interest
 
Equity
Balances, January 1, 2010
 
86,130,454

 
$
861

 
$
623,035

 
$
550,599

 
$
(18,126
)
 
$

 
$
1,156,369

Net income
$
17,408


 

 

 
17,408

 

 

 
17,408

Derivative instruments fair value adjustment, net of taxes of $3,756
6,842


 

 

 

 
6,842

 

 
6,842

Comprehensive income attributable to Boyd Gaming Corporation
$
24,250


 

 

 

 

 

 

Stock options exercised
 
100,186

 
1

 
622

 

 

 

 
623

Tax effect from share-based compensation arrangements
 

 

 
(22
)
 

 

 

 
(22
)
Share-based compensation costs
 

 

 
8,124

 

 

 

 
8,124

Change in noncontrolling interest in Borgata
 

 

 

 

 

 
236,080

 
236,080

Balances, September 30, 2010
 
86,230,640

 
$
862

 
$
631,759

 
$
568,007

 
$
(11,284
)
 
$
236,080

 
$
1,425,424


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


6

Table of Contents

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
 
 
Nine Months Ended
 
September 30,
 
2011
 
2010
Cash Flows from Operating Activities
 
 
 
Net income (loss)
$
(4,973
)
 
$
36,574

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
145,106

 
147,905

Amortization of debt financing costs
6,673

 
6,149

Amortization of discounts on senior secured notes
2,507

 
484

Share-based compensation expense
7,740

 
8,124

Deferred income taxes
(3,074
)
 
14,814

Operating and non-operating income from Borgata

 
(5,013
)
Distributions of earnings received from Borgata

 
1,910

Gain on equity distributions

 
(2,535
)
Noncash asset write-downs
6,052

 

Gain on early retirements of debt
(34
)
 
(3,949
)
Other operating activities
2,575

 
1,983

Changes in operating assets and liabilities:
 
 
 
Restricted cash
(3,198
)
 
(4,734
)
Accounts receivable, net
(4,375
)
 
1,382

Inventories
1,710

 
439

Prepaid expenses and other current assets
(5,997
)
 
(7,250
)
Income taxes receivable
5,264

 
9,961

Other assets, net
430

 
236

Accounts payable and accrued liabilities
28,770

 
30,697

Income taxes payable
(3,382
)
 

Other long-term tax liabilities
2,069

 
1,519

Other liabilities
(947
)
 
2,265

Net cash provided by operating activities
182,916

 
240,961

Cash Flows from Investing Activities
 
 
 
Capital expenditures
(55,491
)
 
(64,069
)
Acquisition of assets
(34,495
)
 

Decrease in restricted investments
27,184

 

Net cash effect upon change in controlling interest of Borgata

 
26,025

Other investing activities

 
(731
)
Net cash used in investing activities
(62,802
)
 
(38,775
)
Cash Flows from Financing Activities
 
 
 
Payments on retirements of long-term debt
(8,198
)
 
(28,861
)
Borrowings under bank credit facility
109,650

 
525,700

Payments under bank credit facility
(111,503
)
 
(714,800
)
Borrowings under Borgata bank credit facility
574,700

 
369,773

Payments under Borgata bank credit facility
(620,600
)
 
(954,962
)
Proceeds from issuance of Borgata senior secured notes

 
773,176

Debt financing costs, net
(1,283
)
 

Payments under note payable

 
(46,875
)
Payments on obligations of variable interest entity
(27,000
)
 

Distributions to noncontrolling interests in Borgata

 
(120,176
)
Other financing activities
5,615

 
(5,688
)
Net cash used in financing activities
(78,619
)
 
(202,713
)
Increase in cash and cash equivalents
41,495

 
(527
)
Cash and cash equivalents, beginning of period
145,623

 
93,202

Cash and cash equivalents, end of period
$
187,118

 
$
92,675


7

Table of Contents

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
(Unaudited and in thousands)
 
 
Nine Months Ended
 
September 30,
 
2011
 
2010
Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid for interest
$
220,971

 
$
97,366

Cash paid (received) for income taxes, net
1,221

 
(9,143
)
Supplemental Schedule of Noncash Investing and Financing Activities
 
 
 
Payables incurred for capital expenditures
$
4,871

 
$
4,409

Fair value adjustment on derivative instruments
11,931

 
11,777

Extinguishment of previous Borgata credit facility with advance from new Borgata credit facility

 
73,010

Assets and Liabilities Recorded at Fair Value (net of Cash Received) Due to Change in Controlling Interest of Borgata
 
 
 
Accounts receivable, net
$

 
$
29,099

Inventories

 
4,118

Prepaid expenses and other current assets

 
9,437

Deferred income taxes

 
1,290

Property and equipment, net

 
1,352,321

Investments in and advances to unconsolidated subsidiaries, net

 
5,135

Intangibles

 

Indefinite lived intangibles

 

Other assets, net

 
34,964

Fair value of assets
$

 
$
1,436,364

Current maturities of long-term debt
$

 
$
632,289

Accounts payable

 
6,822

Income taxes payable

 
5,699

Accrued liabilities

 
71,949

Deferred income taxes

 
13,982

Other long-term tax liabilities

 
10,242

Other long-term liabilities

 
16,418

Fair value of liabilities
$

 
$
757,401


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


8

Table of Contents

BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 15 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
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, 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 their 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. On April 29, 2011, we and Dania Entertainment Center, LLC (the “Buyer”) entered into an Asset Purchase Agreement (the “Agreement”) for the sale of certain assets and liabilities of the Dania Jai-Alai Business (as defined below).

Pursuant to the terms of the Agreement, we agreed to sell and transfer, and the Buyer agreed to purchase and assume, certain assets and liabilities (“Assets and Liabilities”) related to our Dania Jai-Alai pari-mutuel facility, located in Dania Beach, Broward County, Florida at which jai-alai and related gaming operations are conducted, including poker and inter-track wagering (the “Dania Jai-Alai Business”), for a purchase price of $80.0 million (the “Purchase Price”).


9

Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



The closing of the transactions contemplated by the Agreement is subject to certain closing conditions.

On September 15, 2011, the Buyer elected to extend the closing date of the pending acquisition of Dania Jai-Alai Business. The terms of the extension provide that sale will close on or before November 28, 2011; however, we have no assurance that the Buyer can or will be in a position to close on such date. As permitted under the terms of the definitive sale agreement, the Buyer made an additional, non-refundable payment of $2 million to us in exchange for the extension of the closing date. Of the $2 million payment, $1 million will be applied to the $80 million purchase price. We previously received a $5 million non-refundable deposit upon execution of the definitive agreement.

Echelon Development
Additionally, we own 85 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 us, we do not expect to resume construction of Echelon for three to five years.

IP Casino Resort Spa
On October 4, 2011, we completed our previously announced acquisition of the assets of the IP Casino Resort Spa in Biloxi, Mississippi, for a purchase price of $278 million in cash. Following the closing of the transaction, we also made a charitable contribution to the Engelstad Family Foundation equal to an aggregate of $10 million, which funds are intended to be distributed on behalf of, and in the name of, Boyd Gaming over five years to charitable organizations to be designated by Boyd Gaming. In addition, following the closing, we intend to perform certain capital improvement projects with respect to the IP Casino Resort Spa with costs estimated to be $44 million.

We will apply acquisition method accounting to this business combination at the transaction date, which requires acquired assets and assumed liabilities to be recorded at their respective fair values. Due to the limited time since the acquisition date, the initial accounting for the business combination is incomplete at this time. Prospectively, however, the acquired assets and liabilities will be recorded in our consolidated balance sheet at fair value as of the closing date; the results of operations of the IP will be included in our consolidated statements of operations and cash flows beginning in the fourth quarter of 2011; and all other disclosures pursuant to the guidance for business combinations will be provided in our Annual Report on Form 10-K for the year ended December 31, 2011. The IP Casino Resport Spa will be reported in our Midwest and South business segment.
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, 2010. Our Form 10-K, as originally filed with the SEC on March 15, 2011, (the "Provisional Form 10-K")was subsequently revised on a Form 8-K filed on September 2, 2011 (the "Retrospective Form 8-K"). This Retrospective Form 8-K updated the audited consolidated financial statements and certain other items of the Provisional Form 10-K, specifically and primarily related to the recasting of the consolidated balance sheet as of December 31, 2010, and related notes thereto. The updated historical financial statements, and other conforming changes to the Provisional Form 10-K are filed as Exhibit 99.1 to the Retrospective Form 8-K and have been updated, solely to include the retrospective measurement period adjustments and new footnote disclosure. All other information provided in the Provisional Form 10-K, unless otherwise provided, remain unchanged and the Retrospective Form 8-K does not modify or update such other disclosures in the Provisional Form 10-K in any other way.

In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present our financial position as of September 30, 2011 and December 31, 2010, the results of our operations for the three and nine months ended September 30, 2011 and 2010, and the results of our cash flows for the nine months ended September 30, 2011 and 2010. The condensed consolidated balance sheet as of September 30, 2011 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 and nine months ended September 30, 2011 and 2010, and our cash flows for the nine months ended September 30, 2011 and 2010, are unaudited, and are not necessarily indicative of the results that would be achieved for the full year or future periods.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Effective Control of Borgata
On March 24, 2010, as a result of the amendment to our operating agreement with MGM Resorts International (“MGM”) (our original 50% partner in Borgata), which provided, among other things, for the termination of MGM's participating rights in the operations of Borgata, we effectively obtained control of Borgata. The amendment to the operating agreement was related to MGM's divestiture of its interest pursuant to a regulatory settlement, as discussed further in Note 2, Consolidation of Certain Interests. This resulting change in control required acquisition method accounting in accordance with the authoritative accounting guidance for business combinations. As a result, we measured our previously held equity interest at a provisional fair value as of March 24, 2010, the date we effectively obtained control.

The financial position of Borgata is presented in our condensed consolidated balance sheets as of September 30, 2011 and December 31, 2010; its results of operations for the three months ended September 30, 2011 and 2010 are included in our condensed consolidated statement of operations for the three months ended September 30, 2011 and 2010; its results of operations for the nine months ended September 30, 2011 are included in our condensed consolidated statements of operations and cash flows for the nine months ended September 30, 2011; and its results of operations for the period from March 24 through September 30, 2010 are included in our condensed consolidated statements of operations and cash flows for the nine months ended September 30, 2010.

Consolidation of Variable Interest Entity
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.
 
LVE began construction of the facility in 2007 and expected to provide full energy services to Echelon in 2010, when we originally expected to open. However, LVE suspended construction in January 2009, after our announcement of the delay of Echelon. On April 3, 2009, LVE notified us that, in its view, Echelon Resorts would be in breach of the ESA unless it recommenced and proceeded with construction of the Echelon development project by May 6, 2009. We believe that LVE's position is without merit; however, in the event of litigation, we cannot state with certainty the eventual outcome nor estimate the possible loss or range of loss, if any, associated with this matter.
 
On March 7, 2011, Echelon Resorts and LVE entered into both a purchase option agreement (the "Purchase Option Agreement") and a periodic fee agreement (the "Periodic Fee Agreement"). LVE has agreed not to initiate any litigation with respect to its April 3, 2009 claim of an alleged breach of the ESA and both Echelon Resorts and LVE have mutually agreed that neither LVE nor Echelon Resorts would give notice of, file or otherwise initiate any claim or cause of action, in or before any court, administrative agency, arbitrator, mediator or other tribunal, that arises under the ESA, subject to certain exceptions, and that any statute of limitations or limitation periods for defenses, claims, causes of actions and counterclaims shall be tolled while the Periodic Fee Agreement is in effect. Under the Periodic Fee Agreement, Echelon Resorts has agreed to pay LVE, beginning March 4, 2011, a monthly periodic fee (the “Periodic Fee”) and an operation and maintenance fee until Echelon Resorts either (i) resumes construction of the project or (ii) exercises its option to purchase LVE's assets pursuant to the terms of the Purchase Option Agreement. The amount of the Periodic Fee is fixed at $11.9 million annually through November 2013. Thereafter, the amount of the Periodic Fee is estimated to be approximately $10.8 million annually. The operation and maintenance fee cannot exceed $0.6 million per annum without Echelon Resorts' prior approval.
 
Under the Purchase Option Agreement, Echelon Resorts has the right, at its sole discretion, upon written notice to LVE, to purchase the assets of LVE including the central energy center and the related distribution system for a price of $195.1 million, subject to certain possible adjustments. The ESA will be terminated concurrent with the purchase of the LVE assets.
 
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 impacts 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. Upon adoption, 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.
 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



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

In addition, as discussed above, the financial position of Borgata is consolidated in our condensed consolidated balance sheets as of September 30, 2011 and December 31, 2010; its results of operations for the three and nine months ended September 30, 2011 are included in our condensed consolidated statements of operations for the three and nine months ended September 30, 2011; its results of operations for the period from July 1 through September 30, 2010 are included in our condensed consolidated statements of operations for the three months ended September 30, 2010; and its results of operations for the period from March 24 through September 30, 2010 are included in our condensed consolidated statements of operations and cash flows for the nine months ended September 30, 2010. At September 30, 2011 and December 31, 2010, approximately $1.42 billion and $1.45 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 September 30, 2011 and December 31, 2010, and its results of operations for the three and nine months ended September 30, 2011 are included in our condensed consolidated statements of operations and cash flows during such periods. At September 30, 2011, approximately $220.4 million of our consolidated total assets related to LVE, however, certain of these assets, approximating $196.1 million, are pledged as security on LVE's outstanding construction loan advances, and an additional $21.0 million of such assets are held in restricted escrow funds in accordance with the underlying terms of LVE's tax-exempt bond financing. At December 31, 2010, approximately $249.7 million of our consolidated total assets related to LVE, however, certain of these assets, approximating $196.4 million, were pledged as security on LVE's outstanding construction loan advances, and an additional $48.2 million of such assets were held in restricted escrow funds in accordance with the underlying terms of LVE's tax-exempt bond financing.

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. See Note 2, Consolidation of Certain Interests.
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.
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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



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, 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 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, ranging in remaining 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.

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.

Noncontrolling Interest
Noncontrolling interest is 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 September 30, 2011 and December 31, 2010, there was a noncontrolling interest of $220.9 million and $219.3 million, respectively, associated with the portion of ownership in Borgata that is not attributable to the stockholders of Boyd Gaming Corporation. As discussed above, we effectively obtained control of Borgata on March 24, 2010 and began consolidating its financial statements at that date. At September 30, 2011 and December 31, 2010, there was a deficit in the noncontrolling interest of LVE of $17.7 million and $13.7 million, respectively, associated with the entire ownership in LVE that is not attributable to the stockholders of Boyd Gaming Corporation.

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.
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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



The amounts included in promotional allowances for the three and nine months ended September 30, 2011 and 2010 are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands)
Rooms
$
33,989

 
$
35,775

 
$
94,811

 
$
82,387

Food and beverage
44,464

 
45,477

 
128,028

 
118,191

Other
30,313

 
26,382

 
85,089

 
55,754

Total promotional allowances
$
108,766

 
$
107,634

 
$
307,928

 
$
256,332

The estimated costs of providing such promotional allowances for the three and nine months ended September 30, 2011 and 2010 are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands)
Rooms
$
14,192

 
$
14,287

 
$
40,309

 
$
40,483

Food and beverage
40,591

 
41,852

 
116,828

 
119,915

Other
4,870

 
4,807

 
12,856

 
12,792

Total cost of promotional allowances
$
59,653

 
$
60,946

 
$
169,993

 
$
173,190


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 $65.3 million and $66.2 million for the three months ended September 30, 2011 and 2010, respectively, and totaled approximately $192.6 million and $195.9 million for the nine months ended September 30, 2011 and 2010, 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 and nine months ended September 30, 2011 and 2010, consisted of the following amounts:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands)
Earnings per share:
 
 
 
 
 
 
 
Basic weighted average shares outstanding
87,256

 
86,582

 
87,206

 
86,508

Potential dilutive effect
176

 
102

 

 
216

Diluted weighted average shares outstanding
87,432

 
86,684

 
87,206

 
86,724


Due to the net loss for the nine months ended September 30, 2011, the effect of all potential common shares was anti-dilutive, and therefore was not included in the computation of diluted earnings per share. Anti-dilutive options totaling 9.0 million and 8.1 million have been excluded from the computation of diluted earnings per share for the three months ended September 30, 2011, and 2010, respectively. Anti-dilutive options totaling 7.8 million and 8.1 million have been excluded from the computation of

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



diluted earnings per share for the nine months ended September 30, 2011 and 2010, respectively.

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.

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

Accounting Standards Update 2011-08 Intangibles, Goodwill and Other ("Update 2011-08")
In September 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2011-08 Intangible, Goodwill and Other, which is an amendment to Topic 350 of the Accounting Standards Codification ("ASC").

The objective of Update 2011-08 is to simplify how entities, both public and nonpublic, test goodwill for impairment. The amendments in the Update 2011-08 permit 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 two-step goodwill impairment test described in Topic ASC 350. (the more-likely-than-not threshold is defined as having a likelihood of more than 50 percent). Previous guidance under Topic ASC 350 required an entity to test goodwill for impairment, on at least an annual basis, by comparing the fair value of a reporting unit with its carrying amount, including goodwill (step one). If the fair value of a reporting unit is less than its carrying amount, then the second step of the test must be performed to measure the amount of the impairment loss, if any. Under the amendments in Update 2011-08, an entity is not 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.

The amendment will be effective for our fiscal year, and interim periods within the fiscal year beginning January 1, 2012, although early adoption is permitted. Update 2011-08 will not have a material impact on the computation of the impairment of goodwill or other intangibles.

Accounting Standards Update 2011-05 Presentation of Comprehensive Income ("Update 2011-05")
In June 2011, the FASB issued Accounting Standards Update 2011-05 Presentation of Comprehensive Income, which is an amendment to Topic ASC 220.

The objective of Update 2011-05 is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. Update 2011-05 provides an entity with the option to present the total 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. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Update 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income, nor does Update 2011-05 affect how earnings per share is calculated or presented. Update 2011-05 should be applied retrospectively and will be effective for our fiscal year, and interim periods within the fiscal year beginning January 1, 2012. Update 2011-05 will not have a material impact on the computation of comprehensive income, but will require a revised presentation thereof.

Accounting Standards Update 2011-04 Fair Value Measurement ("Update 2011-04")
In May 2011, the FASB issued Accounting Standards Update 2011-04 Fair Value Measurement, which is an amendment to Topic ASC 820.

The objective of Update 2011-04 is to more clearly explain how to measure fair value to allow for better comparability between GAAP and International Financial Reporting Standards ("IFRS"). It is not intended to result in a change in the application of the requirements in Topic ASC 820, but instead is intended to amend a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.

Update 2011-04 does not change the items that must be reported as fair value measurements under Topic ASC 820 but simply how to measure these items and how they should be disclosed. Update 2011-04 should be applied prospectively. Early adoption is not permitted. Update 2011-04 will be effective for our fiscal year, and interim periods within the fiscal year beginning January 1, 2012. Update 2011-04 will not have a material impact on our financial statements.

NOTE 2.    CONSOLIDATION OF CERTAIN INTERESTS

Controlling Interest
Borgata Hotel Casino and Spa
Overview
The Company and 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 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.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



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.
 
The provisional fair value measurements and estimates of these items have been subsequently refined. We had provisionally recorded these fair values using an earnings valuation multiple model, because, at the time of the preliminary estimate, we had not completed our procedures with respect to the independent valuation of the business enterprise and Borgata's tangible and intangible assets. Our subsequent valuation procedures have necessitated a revision of the valuation of the provisional assets and liabilities. Thus, upon finalization of our valuation, certain measurement adjustments were identified and retrospectively recorded in the condensed consolidated balance sheet as of December 31, 2010, and certain disclosures were updated to reflect the measurement period adjustments, as reflected herein.

Retrospective Adjustment to Condensed Consolidated Balance Sheet
We have retrospectively adjusted the provisional values to reflect the fair valuation, and therefore, the condensed consolidated balance sheet as of December 31, 2010 presented herein reflects the adjustments above.
 
 
 
December 31, 2010
 
 
 
As Originally Reported
 
Acquisition Method Accounting Adjustments
 
As Retrospectively Adjusted
 
(In thousands)
ASSETS
 
 
 
 
 
Current assets
 
 
 
 
 
Cash and cash equivalents
$
145,623

 
$

 
$
145,623

Restricted cash
19,494

 

 
19,494

Accounts receivable, net
47,942

 

 
47,942

Inventories
16,029

 

 
16,029

Prepaid expenses and other current assets
37,390

 
(237
)
 
37,153

Income taxes receivable
5,249

 

 
5,249

Deferred income taxes
8,149

 

 
8,149

Total current assets
279,876

 
(237
)
 
279,639

Property and equipment, net
3,471,933

 
(88,562
)
 
3,383,371

Assets held for development
1,119,403

 

 
1,119,403

Debt financing costs, net
38,451

 
(3,458
)
 
34,993

Restricted investments
48,168

 

 
48,168

Other assets, net
70,425

 

 
70,425

Intangible assets, net
460,714

 
79,000

 
539,714

Goodwill, net
213,576

 

 
213,576

Total assets
$
5,702,546

 
$
(13,257
)
 
$
5,689,289

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
Current liabilities
 
 
 
 
 
Current maturities of long-term debt
$
25,690

 
$

 
$
25,690

Non-recourse obligations of variable interest entity
243,059

 

 
243,059

Accounts payable
57,183

 

 
57,183

Income taxes payable
6,504

 

 
6,504


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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Accrued liabilities
279,779

 
(1,310
)
 
278,469

Total current liabilities
612,215

 
(1,310
)
 
610,905

Long-term debt, net of current maturities
3,193,065

 

 
3,193,065

Deferred income taxes
360,342

 
1,832

 
362,174

Other long-term tax liabilities
44,813

 

 
44,813

Other liabilities
85,859

 
(2,270
)
 
83,589

Stockholders' equity
 
 
 
 
 
Preferred stock

 

 

Common stock
862

 

 
862

Additional paid-in-capital
635,028

 

 
635,028

Retained earnings
560,909

 

 
560,909

Accumulated other comprehensive loss, net
(7,594
)
 

 
(7,594
)
Total Boyd Gaming Corporation stockholders' equity
1,189,205

 

 
1,189,205

Noncontrolling interest
217,047

 
(11,509
)
 
205,538

Total stockholders' equity
1,406,252

 
(11,509
)
 
1,394,743

Total liabilities and stockholders' equity
$
5,702,546

 
$
(13,257
)
 
$
5,689,289


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 write-downs and other items, net on the condensed consolidated statement of operations, this gain was recorded as a cumulative adjustment during the nine months ended September 30, 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 is 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.
 

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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Results of Operations of Borgata
(for the period from March 24, 2010 through September 30, 2010)
reflecting amounts included on a consolidated basis
The results of Borgata, as included in the accompanying condensed consolidated statements of operations from the date we effectively obtained control, March 24, 2010, (specifically, for the period from March 24 through September 30, 2010) for the nine months ended September 30, 2010) are presented below. These results of operations do not reflect the retrospective impact from the measurement period adjustments discussed above, as such amounts were not material to either the three and nine months ended September 30, 2010.
 
 
Nine Months Ended September 30, 2010
 
 
(In thousands)
REVENUES
 
 
Operating revenues:
 
 
Gaming
 
$
357,314

Food and beverage
 
82,372

Room
 
64,042

Other
 
24,047

Gross revenues
 
527,775

Less promotional allowances
 
116,420

Net revenues
 
411,355

 
 
 
COSTS AND EXPENSES
 
 
Operating costs and expenses:
 
 
Gaming
 
141,649

Food and beverage
 
39,593

Room
 
8,593

Other
 
19,528

Selling, general and administrative
 
64,473

Maintenance and utilities
 
35,337

Depreciation and amortization
 
36,313

Write-downs and other items, net
 
8

Total operating costs and expenses
 
345,494

Operating income
 
65,861

Other expense
 
 
Interest expense
 
23,347

Total other expense, net
 
23,347

Income before income taxes
 
42,514

Income taxes
 
(4,183
)
Net income
 
$
38,331



19

Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Supplemental Pro Forma Information
Pro Forma Condensed Consolidated Statement of Operations
for the nine months ended September 30, 2010
The following supplemental pro forma information presents the financial results as if the effective control of Borgata had occurred as of the beginning of the earliest period presented herein, or on January 1, 2010. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what the actual results for the nine months ended September 30, 2010 would have been had the consolidation of Borgata been completed as of the earlier date, nor are they indicative of any future results.
 

20

Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



 
Nine Months Ended September 30, 2010
 
Boyd Gaming Corp
 
Borgata
 
 
 
Boyd Gaming Corp
 
As Reported
 
Stub Period
 
Adjustments
 
Pro Forma
 
(In thousands)
Revenues
 
 
 
 
 
 
 
Gaming
$
1,344,283

 
$
137,831

 
$

 
$
1,482,114

Food and beverage
255,166

 
31,217

 

 
286,383

Room
154,247

 
24,154

 

 
178,401

Other
91,595

 
9,179

 

 
100,774

Gross revenues
1,845,291

 
202,381

 

 
2,047,672

Less promotional allowances
256,332

 
44,091

 

 
300,423

Net revenues
1,588,959

 
158,290

 

 
1,747,249

Costs and expenses
 
 
 
 
 
 
 
Gaming
635,461

 
59,861

 

 
695,322

Food and beverage
132,481

 
13,500

 

 
145,981

Room
36,767

 
2,185

 

 
38,952

Other
74,333

 
7,127

 

 
81,460

Selling, general and administrative
270,641

 
28,981

 

 
299,622

Maintenance and utilities
104,770

 
13,522

 

 
118,292

Depreciation and amortization
147,905

 
16,754

 

 
164,659

Corporate expense
36,636

 

 

 
36,636

Preopening expenses
4,990

 

 

 
4,990

Write-downs and other items, net
4,932

 
68

 

 
5,000

Total costs and expenses
1,448,916

 
141,998

 

 
1,590,914

Operating income from Borgata
8,146

 

 
(8,146
)
 

Operating income
148,189

 
16,292

 
(8,146
)
 
156,335

Other expense (income)
 
 
 
 
 
 
 
Interest income
(4
)
 

 

 
(4
)
Interest expense, net
109,438

 
5,060

 

 
114,498

Other income
(10,000
)
 

 
 
 
(10,000
)
Gain on early retirements of debt
(3,949
)
 

 

 
(3,949
)
Gain on equity distribution
(2,535
)
 

 

 
(2,535
)
Other non-operating expenses from Borgata, net
3,133

 

 
(3,133
)
 

Total other expense, net
96,083

 
5,060

 
(3,133
)
 
98,010

 
 
 
 
 
 
 
 
Income (loss) before income taxes
52,106

 
11,232

 
(5,013
)
 
58,325

Income taxes
(15,532
)
 
(1,207
)
 

 
(16,739
)
     Net income (loss)
36,574

 
10,025

 
(5,013
)
 
41,586

Net loss attributable to noncontrolling interest
(19,166
)
 

 
(5,012
)
 
(24,178
)
Net income attributable to Boyd Gaming Corporation
$
17,408

 
$
10,025

 
$
(10,025
)
 
$
17,408


The pro forma adjustments reflect the differences resulting from the conversion of the equity method of accounting to a fully consolidated presentation. There were no significant intercompany transactions affecting the statement of operations between the Boyd wholly-owned entities and Borgata which would require elimination during the nine months ended September 30, 2010.

21

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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Variable Interest
LVE Energy Partners, LLC
The effects of the consolidation of LVE on our financial position as of September 30, 2011 and December 31, 2010, and its impact on our results of operations for the three and nine months ended September 30, 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 September 30, 2011 and December 31, 2010 was as follows:
 
September 30, 2011
 
Boyd Gaming Corporation (as historically presented)
 
LVE, LLC
 
Eliminations
 
Boyd Gaming Corporation (as consolidated)
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
Current assets
$
334,501

 
$
1,185

 
$
(2,146
)
 
$
333,540

Property and equipment, net
3,296,396

 

 

 
3,296,396

Assets held for development
923,793

 
196,052

 

 
1,119,845

Debt financing costs, net
30,322

 

 

 
30,322

Restricted investments

 
20,984

 

 
20,984

Other assets
72,733

 
4,351

 

 
77,084

Intangible assets, net
547,075

 

 

 
547,075

Goodwill, net
213,576

 

 

 
213,576

Total Assets
$
5,418,396

 
$
222,572

 
$
(2,146
)
 
$
5,638,822

 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Current maturities of long-term debt
$
363,598

 
$

 
$

 
$
363,598

Non-recourse obligations of variable interest entity

 
221,912

 

 
221,912

Accounts payable
55,192

 
35

 

 
55,227

Accrued and other liabilities
304,579

 
871

 

 
305,450

Long-term debt, net of current maturities
2,802,075

 

 

 
2,802,075

Deferred income taxes
364,295

 

 

 
364,295

Other liabilities
107,096

 
17,423

 
(2,146
)
 
122,373

 
 
 
 
 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Common stock
$
863

 
$

 
$

 
$
863

Additional paid-in capital
642,243

 

 

 
642,243

Retained earnings
557,546

 

 

 
557,546

Noncontrolling interest
220,909

 
(17,669
)
 

 
203,240

Total Liabilities and Stockholders' Equity
$
5,418,396

 
$
222,572

 
$
(2,146
)
 
$
5,638,822

 
 
 
 
 
 
 
 

22

Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



 
December 31, 2010
 
Boyd Gaming Corporation (as historically presented)
 
LVE, LLC
 
Eliminations
 
Boyd Gaming Corporation (as consolidated)
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
Current assets
$
278,902

 
$
737

 
$

 
$
279,639

Property and equipment, net
3,383,371

 

 

 
3,383,371

Assets held for development
923,038

 
196,365

 

 
1,119,403

Debt financing costs, net
34,993

 

 

 
34,993

Restricted investments

 
48,168

 

 
48,168

Other assets
65,963

 
4,462

 

 
70,425

Intangible assets, net
539,714

 

 

 
539,714

Goodwill, net
213,576

 

 

 
213,576

Total Assets
$
5,439,557

 
$
249,732

 
$

 
$
5,689,289

 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Current maturities of long-term debt
$
25,690

 
$

 
$

 
$
25,690

Non-recourse obligations of variable interest entity

 
243,059

 

 
243,059

Accounts payable
56,790

 
393

 

 
57,183

Accrued and other liabilities
277,429

 
1,040

 

 
278,469

Long-term debt, net of current maturities
3,193,065

 

 

 
3,193,065

Deferred income taxes
362,174

 

 

 
362,174

Other liabilities
115,948

 
18,958

 

 
134,906

 
 
 
 
 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Common stock
862

 

 

 
862

Additional paid-in capital
635,028

 

 

 
635,028

Retained earnings
560,909

 

 

 
560,909

Accumulated other comprehensive loss, net
(7,594
)
 

 

 
(7,594
)
Noncontrolling interest
219,256

 
(13,718
)
 

 
205,538

Total Liabilities and Stockholders' Equity
$
5,439,557

 
$
249,732

 
$

 
$
5,689,289


The reduction in accounts receivable, net and other liabilities reflects the elimination of the Periodic Fee booked as a receivable by LVE, which mirrors the payable recorded on Boyd's general ledger. Both the receivable and payable are eliminated in consolidation completely, thereby having no impact on our consolidated balance sheet.

The impact on our condensed consolidated statement of operations for the three months ended September 30, 2011 was as follows:



23

Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



 
Three Months Ended September 30, 2011
 
Boyd Gaming Corporation (as historically presented)
 
LVE, LLC
 
Eliminations
 
Boyd Gaming Corporation (as consolidated)
 
(In thousands)
REVENUES
 
 
 
 
 
 
 
Other revenue
$
34,105

 
$
2,724

 
$
(2,724
)
 
$
34,105

 
 
 
 
 
 
 
 
COSTS AND EXPENSES
 
 
 
 
 
 
 
Maintenance and utilities
$
40,906

 
$
19

 
$

 
$
40,925

Preopening expenses
4,444

 

 
(2,724
)
 
1,720

 
 
 
 
 
 
 
 
Operating income
$
65,459

 
$
2,705

 
$

 
$
68,164

 
 
 
 
 
 
 
 
Other expense
 
 
 
 
 
 
 
Interest expense, net
$
55,081
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