BYD 10Q 9.30.2012
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________
FORM 10-Q
 ____________________________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to              
Commission file number: 1-12882
____________________________________________________
BOYD GAMING CORPORATION
(Exact name of registrant as specified in its charter)
 ____________________________________________________
Nevada
 
88-0242733
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
3883 Howard Hughes Parkway, Ninth Floor, Las Vegas, NV 89169
(Address of principal executive offices) (Zip Code)
(702) 792-7200
(Registrant’s telephone number, including area code)
 ____________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
o
  
Accelerated filer
 
x
 
 
 
 
 
 
 
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
  
Outstanding as of October 31, 2012
 
 
Common stock, $0.01 par value
  
86,588,933
 
 
 
 
 
 

Table of Contents

BOYD GAMING CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2012
TABLE OF CONTENTS
 
 
 
Page
No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

PART I. Financial Information

Item 1.     Financial Statements
The accompanying unaudited condensed consolidated financial statements of Boyd Gaming Corporation (and together with its subsidiaries, the “Company,” “we” or “us”) have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and footnote disclosures necessary for complete financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”).

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

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2011, included in our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission ("SEC") on March 7, 2012.
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
as of September 30, 2012 and December 31, 2011 
______________________________________________________________________________________________________
 
September 30,
 
December 31,
 
2012
 
2011
 
(In thousands, except share data)
 
(Unaudited)
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
343,771

 
$
178,756

Restricted funds held in escrow
364,249

 
—

Restricted cash
21,555

 
15,753

Accounts receivable, net
56,354

 
58,589

Inventories
16,710

 
17,493

Prepaid expenses and other current assets
60,075

 
47,465

Income taxes receivable
6,452

 
3,268

Deferred income taxes
24,122

 
21,570

Total current assets
893,288

 
342,894

Property and equipment, net
3,498,040

 
3,542,108

Assets held for development
1,090,467

 
1,089,819

Debt financing costs, net
28,948

 
32,099

Restricted investments held by variable interest entity
21,366

 
21,367

Other assets, net
70,058

 
67,173

Intangible assets, net
569,909

 
574,018

Goodwill, net
213,576

 
213,576

Total assets
$
6,385,652

 
$
5,883,054

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities
 
 
 
Current maturities of long-term debt
$
403,028

 
$
43,230

Accounts payable
86,555

 
98,015

Accrued liabilities
345,448

 
295,459

Income taxes payable
515

 
5,630

Current maturities of non-recourse obligations of variable interest entity
32,354

 
29,686

Total current liabilities
867,900

 
472,020

Long-term debt, net of current maturities
3,462,938

 
3,347,226

Deferred income taxes
387,081

 
379,958

Other long-term tax liabilities
33,471

 
45,598

Other liabilities
68,202

 
71,193

Non-recourse obligations of variable interest entity
192,225

 
192,980

Commitments and contingencies (Note 12)

 

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

 
—

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

 
863

Additional paid-in capital
651,508

 
644,174

Retained earnings
548,088

 
557,055

Total Boyd Gaming Corporation stockholders’ equity
1,200,459

 
1,202,092

Noncontrolling interest
173,376

 
171,987

Total stockholders’ equity
1,373,835

 
1,374,079

Total liabilities and stockholders’ equity
$
6,385,652

 
$
5,883,054


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


3
Table of Contents

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands, except per share data)
 
(Unaudited)
REVENUES
 
 
 
 
 
 
 
Operating revenues:
 
 
 
 
 
 
 
Gaming
$
516,991

 
$
500,824

 
$
1,567,792

 
$
1,469,316

Food and beverage
106,722

 
99,221

 
318,123

 
285,883

Room
69,964

 
64,831

 
205,589

 
181,881

Other
38,958

 
34,105

 
110,615

 
100,412

Gross revenues
732,635

 
698,981

 
2,202,119

 
2,037,492

Less promotional allowances
119,356

 
108,766

 
340,535

 
307,928

Net revenues
613,279

 
590,215

 
1,861,584

 
1,729,564

COST AND EXPENSES
 
 
 
 
 
 
 
Operating costs and expenses:
 
 
 
 
 
 
 
Gaming
253,196

 
230,675

 
742,404

 
680,457

Food and beverage
55,014

 
50,868

 
169,451

 
148,516

Room
13,605

 
13,586

 
43,671

 
39,921

Other
29,960

 
28,617

 
82,712

 
82,191

Selling, general and administrative
113,148

 
96,301

 
333,319

 
288,872

Maintenance and utilities
38,114

 
40,925

 
116,447

 
115,113

Depreciation and amortization
50,409

 
46,034

 
151,125

 
145,106

Corporate expense
10,317

 
11,025

 
36,197

 
36,569

Preopening expense
1,618

 
1,720

 
5,488

 
5,292

Other operating items, net
(450
)
 
2,300

 
(2,399
)
 
9,269

Total operating costs and expenses
564,931

 
522,051

 
1,678,415

 
1,551,306

Operating income
48,348

 
68,164

 
183,169

 
178,258

Other expense (income):
 
 
 
 
 
 
 
Interest income
(272
)
 
(15
)
 
(684
)
 
(40
)
Interest expense, net
74,115

 
60,083

 
202,731

 
184,068

Fair value adjustment of derivative instruments
—

 
—

 
—

 
265

Loss on early retirements of debt
—

 
(54
)
 
—

 
(34
)
Other income
—

 
(1,000
)
 
—

 
(1,000
)
Total other expense, net
73,843

 
59,014

 
202,047

 
183,259

Income (loss) before income taxes
(25,495
)
 
9,150

 
(18,878
)
 
(5,001
)
Income taxes
8,413

 
(2,170
)
 
7,580

 
28

Net income (loss)
(17,082
)
 
6,980

 
(11,298
)
 
(4,973
)
Net loss (income) attributable to noncontrolling interest
1,286

 
(3,871
)
 
2,331

 
1,610

Net income (loss) attributable to Boyd Gaming Corporation
$
(15,796
)
 
$
3,109

 
$
(8,967
)
 
$
(3,363
)
Basic net income (loss) per common share
$
(0.18
)
 
$
0.04

 
$
(0.10
)
 
$
(0.04
)
Weighted average basic shares outstanding
87,643

 
87,256

 
87,587

 
87,206

Diluted net income (loss) per common share
$
(0.18
)
 
$
0.04

 
$
(0.10
)
 
$
(0.04
)
Weighted average diluted shares outstanding
87,643

 
87,432

 
87,587

 
87,206


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2012
 
2011
 
2012
 
2011
 
 
(In thousands)
 
 
(Unaudited)
Net income (loss)
 
$
(17,082
)
 
$
6,980

 
$
(11,298
)
 
$
(4,973
)
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
   Fair value of derivative instruments, net
 
1,234

 
107

 
3,701

 
6,893

Comprehensive income (loss)
 
(15,848
)
 
7,087

 
(7,597
)
 
1,920

Less: other comprehensive income attributable to noncontrolling interest
 
1,234

 
107

 
3,701

 
(701
)
Less: net income attributable to noncontrolling interest
 
(1,286
)
 
3,871

 
(2,331
)
 
(1,610
)
Comprehensive income (loss) attributable to Boyd Gaming Corporation
 
$
(15,796
)
 
$
3,109

 
$
(8,967
)

$
4,231


BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
for the nine months ended September 30, 2012
______________________________________________________________________________________________________
 
Boyd Gaming Corporation Stockholders’ Equity
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
Total
 
Common Stock
 
Paid-in
 
Retained
 
Noncontrolling
 
Stockholders'
 
Shares
 
Amount
 
Capital
 
Earnings
 
Interest
 
Equity
 
(In thousands, except share data)
 
(Unaudited)
Balances, January 1, 2012
86,572,098

 
$
863

 
$
644,174

 
$
557,055

 
$
171,987

 
$
1,374,079

Net loss
—

 
—

 
—

 
(8,967
)
 
(2,331
)
 
(11,298
)
Capital investment attributable to noncontrolling interest
—

 
—

 
—

 
—

 
19

 
19

Comprehensive income attributable to noncontrolling interest
—

 
—

 
—

 
—

 
3,701

 
3,701

Stock options exercised
16,835

 
—

 
117

 
—

 
—

 
117

Tax effect from share-based compensation arrangements
—

 
—

 
(343
)
 
—

 
—

 
(343
)
Share-based compensation costs
—

 
—

 
7,560

 
—

 
—

 
7,560

Balances, September 30, 2012
86,588,933

 
$
863

 
$
651,508

 
$
548,088

 
$
173,376

 
$
1,373,835




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

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________ 
 
Nine Months Ended
 
September 30,
 
2012
 
2011
 
(In thousands)
 
(Unaudited)
Cash Flows from Operating Activities
 
 
 
Net income (loss)
$
(11,298
)
 
$
(4,973
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
151,125

 
145,106

Amortization of debt financing costs
11,116

 
6,673

Amortization of discounts on debt
2,746

 
2,507

Share-based compensation expense
7,560

 
7,740

Deferred income taxes
4,572

 
(3,074
)
Noncash asset write-downs
(2
)
 
6,052

Gain on insurance settlement
(6,323
)
 
—

Gain on insurance subrogation
(3,809
)
 
—

Other operating activities
6,827

 
2,541

Changes in operating assets and liabilities:
 
 
 
Restricted cash
(20,051
)
 
(3,198
)
Accounts receivable, net
7,476

 
(4,375
)
Inventories
783

 
1,710

Prepaid expenses and other current assets
(13,666
)
 
(5,997
)
Income taxes receivable
(3,184
)
 
5,264

Other long-term tax assets
521

 
—

Other assets, net
(3,843
)
 
430

Accounts payable and accrued liabilities
35,669

 
28,770

Income taxes payable
(84
)
 
(3,382
)
Other long-term tax liabilities
(17,157
)
 
2,069

Other liabilities
(3,133
)
 
(947
)
Net cash provided by operating activities
145,845

 
182,916

Cash Flows from Investing Activities
 
 
 
Capital expenditures
(101,718
)
 
(55,491
)
Deposit of acquisition financing proceeds into escrow
(350,000
)
 
—

Acquisition of assets
—

 
(34,495
)
Decrease in restricted investments
—

 
27,184

Other investing activities
4,058

 
—

Net cash used in investing activities
(447,660
)
 
(62,802
)
Cash Flows from Financing Activities
 
 
 
Borrowings under bank credit facility
642,600

 
109,650

Payments under bank credit facility
(836,375
)
 
(111,503
)
Borrowings under Borgata bank credit facility
515,300

 
574,700

Payments under Borgata bank credit facility
(541,800
)
 
(620,600
)
Payments of long-term debt
—

 
(8,198
)
Proceeds from issuance of senior notes, net of issuance costs
338,500

 
—

Proceeds from acquisition financing
350,000

 
—

Debt financing costs, net
(2,881
)
 
(1,283
)
Proceeds from issuance of non-recourse debt by variable interest entity
2,668

 
—

Payments on non-recourse debt of variable interest entity
(755
)
 
(27,000
)
Other financing activities
(427
)
 
5,615

Net cash provided by (used in) financing activities
466,830

 
(78,619
)
Change in cash and cash equivalents
165,015

 
41,495

Cash and cash equivalents, beginning of period
178,756

 
145,623

Cash and cash equivalents, end of period
$
343,771

 
$
187,118

BOYD GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
for the nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________
 
 
Nine Months Ended
 
September 30,
 
2012
 
2011
 
(In thousands)
 
(Unaudited)
Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid for interest
$
160,373

 
$
170,483

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

Supplemental Schedule of Noncash Investing and Financing Activities
 
 
 
Payables incurred for capital expenditures
$
8,707

 
$
4,871

Fair value adjustment on derivative instruments
—

 
11,931


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


4
Table of Contents

BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________

NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Boyd Gaming Corporation (and together with its subsidiaries, the “Company,” "Boyd Gaming," “we” or “us”) was incorporated in the state of Nevada in 1988 and has been operating since 1973. The Company's common stock is traded on the New York Stock Exchange under the symbol “BYD”.
We are a diversified operator of 16 wholly-owned gaming entertainment properties and one controlling interest in a limited liability company. Headquartered in Las Vegas, we have gaming operations in Nevada, Illinois, Louisiana, Mississippi, Indiana and New Jersey, which we aggregate in order to present the following four reportable segments:
Las Vegas Locals
 
Gold Coast Hotel and Casino
Las Vegas, Nevada
The Orleans Hotel and Casino
Las Vegas, Nevada
Sam's Town Hotel and Gambling Hall
Las Vegas, Nevada
Suncoast Hotel and Casino
Las Vegas, Nevada
Eldorado Casino
Henderson, Nevada
Jokers Wild Casino
Henderson, Nevada
 
 
Downtown Las Vegas
 
California Hotel and Casino
Las Vegas, Nevada
Fremont Hotel and Casino
Las Vegas, Nevada
Main Street Station Casino, Brewery and Hotel
Las Vegas, Nevada
 
 
Midwest and South        
 
Sam's Town Hotel and Gambling Hall
Tunica, Mississippi
IP Casino Resort Spa
Biloxi, Mississippi
Par-A-Dice Hotel Casino
East Peoria, Illinois
Blue Chip Casino, Hotel & Spa
Michigan City, Indiana
Treasure Chest Casino
Kenner, Louisiana
Delta Downs Racetrack Casino & Hotel
Vinton, Louisiana
Sam's Town Hotel and Casino
Shreveport, Louisiana
 
 
Atlantic City                    
 
Borgata Hotel Casino & Spa
Atlantic City, New Jersey

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

Dania Jai-Alai
We also own and operate Dania Jai-Alai, which is a pari-mutuel jai-alai facility with approximately 47 acres of related land located in Dania Beach, Florida. Effective April 1, 2008, we reclassified the reporting of our Midwest and South segment to exclude the results of Dania Jai-Alai, our pari-mutuel jai-alai facility, since it does not share similar economic characteristics with our other Midwest and South operations; therefore, the results of Dania Jai-Alai are included as part of the “Other” category in our segment information.

Echelon Development
Additionally, we own 87 acres of land on the Las Vegas Strip, where our multibillion dollar Echelon development project

5
Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________



(“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 another three to five years.

Pending Acquisition of Peninsula Gaming, LLC
On May 16, 2012, Boyd Gaming Corporation (“Boyd”) announced it had entered into an agreement to acquire Peninsula Gaming, LLC ("Peninsula Gaming" or “PGL”), a direct wholly-owned subsidiary of Peninsula Gaming Partners, LLC (“PGP”). PGL owns and operates Diamond Jo casino in Dubuque, Iowa, Evangeline Downs Racetrack and Casino, in St. Landry Parish, Louisiana, various off-track betting facilities in Louisiana, Diamond Jo casino in Worth County, Iowa, Amelia Belle casino in Amelia, Louisiana, and the Kansas Star Casino, Hotel and Event Center (“Kansas Star”) near Wichita, Kansas. Boyd will acquire PGL pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) entered into on May 16, 2012, by and among, Boyd, Boyd Acquisition II, LLC, an indirect wholly-owned subsidiary of Boyd (“Holdco”), Boyd Acquisition Sub, LLC, an indirect wholly-owned subsidiary of Boyd (“Merger Sub”), PGP and PGL. The Merger Agreement provides that, pursuant to the terms and subject to the conditions set forth therein, Merger Sub will merge (the “Merger”) with and into PGL, and PGL will be the surviving entity in the Merger. Following the Merger, PGL will be an indirect, wholly-owned subsidiary of Boyd.

Upon the terms and subject to the conditions of the Merger Agreement, which was unanimously approved by the board of directors of Boyd and the board of managers of PGP, Boyd Gaming will acquire PGL for approximately $1.45 billion, net of certain expenses and adjustments, in the form of cash, debt financing and a promissory note issued by HoldCo, as described below. Of the $1.45 billion, $200 million was funded in cash from Boyd Gaming to Boyd Acquisition I, LLC, an indirect wholly-owned subsidiary of Boyd Gaming and the parent of HoldCo. At the closing of the Merger, HoldCo will issue the HoldCo Note in the approximate amount of $144 million to PGP, which amount is subject to adjustment pursuant to the Merger Agreement based on PGL's outstanding debt, cash, working capital, certain assets, liabilities and costs, and transaction expenses at the closing of the Merger. The HoldCo Note is also subject to adjustment after the closing of the Merger in connection with any indemnification claims or, at HoldCo's option, with respect to any Earnout Payment as described below, in each case, in accordance with the terms of the Merger Agreement. Boyd Gaming has secured the financing of the remaining approximately $1.10 billion with the proceeds of:

•
a new credit facility at PGL, which will consist of an $825 million term loan, which will be funded in full on the closing date of the Merger, and a $50 million revolver facility. Based on current estimates, we anticipate that upon the consummation of the Merger, there will be no loans outstanding under the revolver, and that approximately $8.9 million of letters of credit will be outstanding, with approximately $41.1 million available to be drawn under the revolver; and

•
$350 million aggregate principal amount of senior notes issued by Merger Sub (and a finance subsidiary, "Finance Sub") and will be assumed by Peninsula Gaming in connection with the consummation of the Merger.

The new credit facility and senior notes are discussed in greater detail below.

In addition, HoldCo is obligated to make an Earnout Payment in 2016 if Kansas Star's EBITDA for 2015 exceeds $105 million. The Earnout Payment would be in an amount equal to 7.5 times any Kansas Star 2015 EBITDA over $105 million. If HoldCo is obligated to make the Earnout Payment, it may make such payment in cash, or increase the principal amount of the HoldCo Note by the amount of the Earnout Payment, as determined by HoldCo in its sole discretion. Under the Merger Agreement, the definition of “EBITDA” is specific for purposes of determining the Earnout Payment, and differs from the definition of EBITDA that we use in the presentation of our financial statements.

Subject to the satisfaction of various closing conditions and receipt of required regulatory approvals, we expect the transaction to close in the fourth quarter of 2012.

The following discussion summarizes the progress of the financing activities required to consummate the Merger.

New Credit Facility
In connection with the acquisition of Peninsula Gaming, the Merger Sub has entered into a commitment for the New Credit Facility among Merger Sub, various lenders, and Bank of America, N.A., as administrative agent, collateral agent, swing line lender, and letter of credit issuer. Below is a summary of the defined terms of the New Credit Facility per this commitment. Upon consummation of the Acquisition of Peninsula Gaming (the "Acquisition"), Peninsula Gaming will assume all assets and liabilities of the Merger

6
Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________



Sub and become the borrower under the New Credit Facility.

Amount and Maturity
Prior to the consummation of the Acquisition, the Merger Sub has entered into a new commitment for a new $875 million senior secured credit facility, which will consist of (a) an $825 million Term Loan (the “Term Loan”), and (b) a $50 million Revolver (the “Revolver”). The Term Loan will be funded concurrently with the closing of the Acquisition. Based on current estimates, we anticipate that upon the consummation of the Acquisition, there will be no loans outstanding under the revolver, and that approximately $8.9 million of letters of credit will be outstanding, with approximately $41.1 million available to be drawn under the Revolver. The New Credit Facility will have a maturity date of five years after the initial funding thereunder.

Guarantees and Collateral
Following the consummation of the Acquisition, Peninsula Gaming's obligations under the New Credit Facility, subject to certain exceptions, will be guaranteed by its subsidiaries and secured by the capital stock of its subsidiaries. In addition, subject to certain exceptions, Peninsula Gaming and each of the guarantors will grant the collateral agent first priority liens and security interests on substantially all of its real and personal property (other than gaming licenses and subject to certain other exceptions) as additional security for the performance of the obligations under the New Credit Facility. The obligations under the Revolver will rank senior in right of payment to the obligations under the Term Loan.

Interest
The interest rate that will be charged on the outstanding balance from time to time under the New Credit Facility is based upon, at the borrower's option, either: (i) the Eurodollar rate plus an applicable margin, or (ii) the base rate plus an applicable margin. The “base rate” under the New Credit Facility will be the highest of (x) Bank of America's publicly-announced prime rate, (y) the federal funds rate plus 0.50%, or (z) the Eurodollar Rate plus 1.00%. The applicable margin on the outstanding balance on the Revolver will be 3.00% with respect to base rate loans and 4.00% with respect to Eurodollar rate loans. The applicable margin on the outstanding balance of Term Loans will be 3.50% with respect to base rate loans and 4.50% with respect to Eurodollar rate loans, with a minimum Eurodollar rate for any interest period of 1.25%. The New Credit Facility will require us to pay commitment fees equal to 0.50% of the unused portion of the revolving facility.

Optional and Mandatory Prepayments
The New Credit Facility will require the borrower to prepay the loans with proceeds of any significant asset sale or event of loss. In addition, the New Credit Facility will require the borrower to use a portion of its excess cash flow to prepay the loans as well as fixed quarterly amortization. The borrower has the right to terminate the Revolver without premium or penalty, upon payment of the outstanding amounts owed with respect thereto.

Certain Covenants
The New Credit Facility will contain customary affirmative and negative covenants (subject to customary exceptions) for financings of its type. The borrower will be required to maintain (i) a maximum consolidated leverage ratio over each twelve-month period ending on the last day of each fiscal quarter, (ii) a minimum consolidated interest coverage ratio as of the end of each calendar quarter, and (iii) a maximum amount of capital expenditures for each fiscal year. Other covenants will, among other things, limit the borrower's ability to do the following (in each case, subject to certain exceptions):

•
incur additional debt;
•
pay dividends and make other distributions;
•
make certain investments;
•
make certain restricted payments;
•
create liens;
•
enter into transactions with affiliates;
•
make certain dispositions;
•
merge or consolidate; and
•
engage in unrelated business activities.

In addition, the New Credit Facility will require that the borrower take certain actions, including maintaining adequate insurance, and will require that the borrower cause its subsidiaries to take certain actions.


7
Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________



Events of Default
The New Credit Facility will contain customary events of default, including but not limited to:

•
non-payment of principal, interest or fees;
•
violations of certain covenants;
•
certain bankruptcy-related events;
•
unsatisfied judgments against us in excess of a specified threshold;
•
inaccuracy of representations and warranties in any material respect; and
•
cross defaults with certain other indebtedness.

The closing of the New Credit Facility is conditioned upon the satisfaction of typical conditions precedent for a senior secured credit facility. Additionally, the initial funding under the New Credit Facility will be conditioned upon the consummation of the Acquisition.

Senior Notes
On August 16, 2012, through our Merger Sub and Finance Sub, we issued senior notes. The aggregate principal amount of notes to be issued in the offering is $350 million.  The notes bear interest at a rate of 8.375% per annum, payable semi-annually on February 15 and August 15 of each year, commencing February 15, 2013.  The senior notes mature on February 15, 2018.  Pending the consummation of the Acquisition, an amount equal to 100% of the issue price of the notes plus an amount that equals the amount of interest that will accrue on the notes from the issue date to, but not including, February 1, 2013 (the “Outside Date”) has been deposited into an escrow account. If the acquisition is not consummated by the Outside Date, or upon the occurrence of certain other events, the notes will be subject to a special mandatory redemption. The special mandatory redemption price will be equal to 100% of the initial issue price of the notes, plus accrued and unpaid interest from the issue date of the notes up to, but not including, the payment date of such mandatory redemption. From and after the release of the escrow funds from the escrow account, the notes will be unsecured.

The notes are fully and unconditionally guaranteed, on a joint and several basis, by the current and future domestic restricted subsidiaries of the issuer, and upon consummation of the Acquisition, the current domestic subsidiaries of Peninsula Gaming. The indenture governing the notes contain certain restrictive covenants regarding, among other things, incurrence of debt and liens, investments, sales of assets, mergers and consolidations and dividends and distributions by the issuer and its restricted subsidiaries.

The senior notes have not been, and will not be, registered under the Securities Act of 1933, as amended, (the “Securities Act”) and will be offered only to: (i) qualified institutional buyers as defined in Rule 144A under the Securities Act; and (ii) outside the United States to non-U.S. persons in compliance with Regulation S under the Securities Act.

Basis of Presentation
Interim Condensed Consolidated Financial Statements
As permitted by the rules and regulations of the Securities and Exchange Commission ("SEC"), certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been condensed or omitted, although we believe that the disclosures made are adequate to make the information reliable. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2011.

In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments of normal recurring nature necessary to fairly present our financial position as of September 30, 2012, the results of our operations for the three and nine months ended September 30, 2012 and 2011, and our cash flows for the nine months ended September 30, 2012 and 2011. The condensed consolidated balance sheet as of September 30, 2012 is unaudited; however, the condensed consolidated balance sheet presented as of December 31, 2011 has been derived from our audited financial statements as of such date. Our operating results for the three and nine months ended September 30, 2012 and 2011, and our cash flows for the nine months ended September 30, 2012 and 2011, are unaudited, and are not necessarily indicative of the results that would be achieved for the full year or future periods.

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

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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________



subsidiaries.

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.

Acquisition of IP
On October 4, 2011, we consummated the acquisition of IP Casino Resort Spa ("IP") in Biloxi, Mississippi pursuant to an Agreement for Purchase and Sale, under which the seller agreed to sell and transfer, and the Company agreed to purchase and assume, certain assets and liabilities, respectively, related to the IP, on an as-is basis. The net purchase price, after adjustment for working capital and other items, was approximately $280.6 million. Our condensed consolidated financial statements include the financial position of IP at September 30, 2012 and December 31, 2011, the results of its operations for the three and nine months ended September 30, 2012 and its cash flows for the nine months ended September 30, 2012. At September 30, 2012 and December 31, 2011, approximately $306.3 million and $309.5 million, respectively, of our consolidated total assets are related to IP.

Consolidation of Borgata
Our condensed consolidated financial statements include the financial position of Borgata at September 30, 2012 and December 31, 2011, its results of operations for the three and nine months ended September 30, 2012 and 2011 and its cash flows for the nine months ended September 30, 2012 and 2011. At September 30, 2012 and December 31, 2011, approximately $1.42 billion and $1.44 billion, respectively, of our consolidated total assets are related to Borgata.

Consolidation of LVE
Additionally, our condensed consolidated financial statements include the financial position of Las Vegas Energy Partners, LLC("LVE" ) at September 30, 2012 and December 31, 2011, its results of operations for the three and nine months ended September 30, 2012 and 2011 and its cash flows for the nine months ended September 30, 2012 and 2011. At September 30, 2012, and December 31, 2011, approximately $189.2 million and $189.9 million, respectively, of our consolidated total assets related to LVE, however, certain of these assets, approximating $163.8 million at both respective dates, are pledged as security on LVE's outstanding construction loan advances, and an additional $21.4 million at both respective dates of such assets are held in restricted escrow funds in accordance with the underlying terms of LVE's tax-exempt bond financing.

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


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Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________



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

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.

We evaluate our investment in assets held for development in accordance with the authoritative accounting guidance on impairment or disposal of long lived assets. For a long-lived asset to be held and used, such as these assets under development, we review the asset for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We then compare the estimated undiscounted future cash flows of the asset to the carrying value of the asset. The asset is not impaired if the undiscounted future cash flows exceed its carrying value. If the carrying value exceeds the undiscounted future cash flows, then an impairment charge is recorded, typically measured using an undiscounted cash flow model, which is based on the estimated future results of the relevant reporting unit discounted using our weighted-average cost of capital and market indicators of terminal year free cash flow multiples. For these assets under development, future cash flows include remaining construction costs.

Capitalized Interest
Interest costs associated with major construction projects are capitalized as part of the cost of the constructed assets. When no debt is incurred specifically for a project, interest is capitalized on amounts expended for the project using our weighted-average cost of borrowing. Capitalization of interest ceases when the project (or discernible portions of the project) is substantially complete. If substantially all of the construction activities of a project are suspended, capitalization of interest will cease until such activities are resumed. Interest capitalized during the three and nine months ended September 30, 2012 was $0.1 million and $0.7 million, respectively.
Debt Financing Costs
Debt financing costs, which include legal and other direct costs related to the issuance of our outstanding debt, are deferred and amortized to interest expense over the contractual term of the underlying long-term debt using the effective interest method. In the event that our debt is modified, repurchased or otherwise reduced prior to its original maturity date, we ratably reduce the unamortized debt financing costs.
Restricted Investments
In accordance with the terms of the tax-exempt loan agreements, which are the obligations of LVE, unused proceeds are required to be held in escrow pending approval of construction expenditures. These investments are held in an interest-bearing account.
Restricted funds held in escrow
Restricted funds held in escrow consists of the $364.2 million aggregate principal amount of senior notes, plus accrued interest, issued by Merger Sub and will be assumed by Peninsula Gaming in connection with the consummation of the Merger.
Intangible Assets
Intangible assets include customer relationships, favorable lease rates, development agreements, gaming license rights, and trademarks.
 
Amortizing Intangible Assets
Customer relationships represent the value of repeat business associated with our customer loyalty programs. These intangible assets are being amortized on an accelerated method over their approximate useful life. Favorable lease rates represent the amount by which acquired lease rental rates are favorable to market terms. These favorable lease values are amortized over the remaining

10
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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________



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

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

In September 2012, the Company adopted accounting guidance simplifying how entities test indefinite-lived intangible assets for impairment. The guidance permits an entity to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value to its carrying value. If the fair value is less than the carrying value, the entity must record an impairment.

An entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The adoption of this guidance did not have any impact on the consolidated financial statements of the Company.

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

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

Long-Term Debt, Net
Long-term debt is reported at amortized cost. Any discount and underwriting or other transaction costs paid to the initial purchasers or lenders upon issuance of our debt instruments are recorded as an adjustment to the face amount of our outstanding debt. This resulting difference between the net proceeds upon issuance and the face amount of the underlying debt is accreted to interest expense using the effective interest method over the term of the underlying debt.

Noncontrolling Interest
At September 30, 2012 and December 31, 2011, noncontrolling interests are comprised of: (i) the 50% interest in Borgata, held in trust for the economic benefit of another 50% interest holder; and (ii) all 100% of the members' equity interest in LVE, the variable interest entity, which is consolidated in our condensed financial statements, but in which we hold no equity interest.

11
Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________



Noncontrolling interests includes the portion of the ownership in Borgata not directly attributable to Boyd Gaming Corporation, as well as the ownership of LVE, none of which is attributable to Boyd Gaming Corporation, which are reported as a separate component of our stockholders' equity in our condensed consolidated balance sheet. Our consolidated net income is reported at amounts that include the amounts attributable to both us and the noncontrolling interest.

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

Race revenue recognition criteria are met at the time the results of the event are official.
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 a promotional allowance. 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 play, 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 a promotional allowance.
The amounts included in promotional allowances for the three and nine months ended September 30, 2012 and 2011 are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Rooms
$
39,737

 
$
33,989

 
$
110,411

 
$
94,811

Food and beverage
48,975

 
44,464

 
144,094

 
128,028

Other
30,644

 
30,313

 
86,030

 
85,089

Total promotional allowances
$
119,356

 
$
108,766

 
$
340,535

 
$
307,928


The estimated costs of providing such promotional allowances for the three and nine months ended September 30, 2012 and 2011 are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Rooms
$
16,980

 
$
14,192

 
$
46,079

 
$
40,309

Food and beverage
46,364

 
40,591

 
131,871

 
116,828

Other
6,931

 
4,870

 
18,817

 
12,856

Total cost of promotional allowances
$
70,275

 
$
59,653

 
$
196,767

 
$
169,993


Gaming Taxes
We are subject to taxes based on gross gaming revenues in the jurisdictions in which we operate. These gaming taxes are assessed based on our gaming revenues and are recorded as a gaming expense in the condensed consolidated statements of operations. These taxes totaled approximately $67.8 million and $65.3 million for the three months ended September 30, 2012 and 2011, respectively, and $206.8 million and $192.6 million for the nine months ended September 30, 2012 and 2011, respectively.

12
Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________




Earnings per Share
Basic earnings per share is computed by dividing net income applicable to Boyd Gaming Corporation stockholders, by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the additional dilution for all potentially-dilutive securities, such as stock options.
The weighted average number of common and common equivalent shares used in the calculations of basic and diluted earnings per share calculations for the three and nine months ended September 30, 2012 and 2011, consisted of the following amounts:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
87,643

 
87,256

 
87,587

 
87,206

Potential dilutive effect
—

 
176

 
—

 
—

Diluted
87,643

 
87,432

 
87,587

 
87,206


Due to the net losses for the three and nine months ended September 30, 2012 and the nine months ended September 30, 2011, the effect of all potential common share equivalents was anti-dilutive, and therefore all such shares were excluded from the computation of diluted weighted average shares outstanding. Such exclusion included anti-dilutive options totaling 10.5 million, 9.4 million, and 7.8 million, for the three and nine months ended September 30, 2012 and the nine months ended September 30, 2011, respectively, have been excluded from the computation of diluted earnings per share, as these shares were out of the money. Anti-dilutive options totaling 9.0 million have been excluded during the three months ended September 30, 2011 as these shares were out of the money.

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

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 valuations of acquired assets and assumed 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, accruals for slot bonus point programs, estimates of certain tax liabilities and uncertain tax positions, determination of self-insured liability reserves, computation of share-based payment valuation assumptions, estimates of fair values of assets and liabilities measured at fair value, estimates of fair values of assets and liabilities disclosed at fair value, fair values of derivative instruments and assessments of contingencies and litigation and claims. Actual results could differ from these estimates.

Correction
Subsequent to the issuance of the September 30, 2011 condensed consolidated financial statements, we identified an error in the disclosure of cash paid for interest. We corrected the supplemental disclosure of cash paid for interest for the nine months ended September 30, 2011 from $220 million to $170.5 million. We believe this correction is not material.

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

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

In addition to this total consideration, the Company is in the process of performing certain capital improvement projects with respect to the property at an estimated cost of $44.0 million. Pursuant to the terms of the agreement, to the extent that the costs of the capital improvements exceed the original cost estimate, the Company will be solely responsible for the additional costs; however, to the extent that costs are less than the original cost estimate, the Company is obligated to pay the seller an amount equal to one-half of the difference between the actual costs and the original estimated costs. The Company has not recorded any contingent consideration as a result; however, as it is presently likely that these capital improvements will require the entire $44.0 million spend. During the three and nine months ended September 30, 2012, the Company has incurred $5.4 million and $17.1 million, respectively, in capital improvement expenditures related to these projects. Cumulative total project expenditures were $18.6 million through September 30, 2012.

Condensed Statements of Operations
The following supplemental information presents the financial results of IP included in the Company's condensed consolidated statement of operations for the three and nine months ended September 30, 2012.
 
 
Three Months
 
Nine Months
 
 
Ended
 
Ended
 
 
September 30, 2012
 
September 30, 2012
 
 
(In thousands)
Condensed Statements of Operations
 
 
 
 
Net revenues
 
$
49,094

 
$
145,444

Operating income
 
$
4,410

 
$
18,875


Other Acquisitions
Development Agreements
In September 2011, the Company acquired the membership interests of a limited liability company (the "LLC") for a purchase price of $24.5 million. The primary asset of the LLC is a previously executed development agreement (the "Development Agreement") with Wilton Rancheria, a federally recognized tribe (the "Tribe"). The Development Agreement establishes the terms between the LLC and the Tribe under which a gaming facility will be developed on the Tribe's land. The Development Agreement provides a fee of 5% of gross revenues of the gaming operations, (subject to a maximum percentage capped by Indian Gaming Regulation), upon completion of development, and for a subsequent period of seven years.
 
The fair value of the assets of the LLC was allocated in our consolidated financial statements as follows:
 
 
 
September 30,
 
December 31,
 
 
 
2012
 
2011
 
 
 
(In thousands)
Assets acquired (at initial fair value):
 
 
 
 
 
Intangible value of Development Agreement
 
 
$
21,373

 
$
21,373

Note receivable from Tribe (at present value)
 
 
4,297

 
3,077

Net value of assets
 
 
$
25,670

 
$
24,450


Other than the obligation under the Development Agreement to develop the gaming facility, there were no liabilities assumed in connection with the acquisition of the LLC. In addition to approximately $4.5 million expended by the prior owners of the LLC related to pre-development efforts, we are obligated to fund certain pre-development costs, which are estimated to be approximately $1 million to $2 million annually, for the next several years. These costs are reimbursable to us with future cash flows from the operations of the gaming facility and are evidenced by a note receivable from the Tribe, which was discounted to fair value, thereby resulting in an accretion of interest on the outstanding balance. As of September 30, 2012, we have funded $0.5 million in pre-development costs that are included in note receivable from the tribe.

On July 24, 2012, we announced a new development agreement entered into with Sunrise Sports Entertainment, LLP, the operator of the BB&T Center, a major entertainment venue in South Florida and home to the NHL's Florida Panthers. The agreement provides the Company the opportunity to take advantage of the potential to expand gaming in South Florida at the site of the BB&T Center.

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

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

13
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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________



method accounting in accordance with the authoritative accounting guidance for business combinations. Accordingly, on March 24, 2010, as a result of the amendment to our operating agreement with MGM, which provided, among other things, for the termination of MGM's participating rights in the operation of Borgata, we effectively obtained control of Borgata.

Acquisition Method Accounting
The application of the acquisition method accounting guidance had the following effects on our condensed consolidated financial statements: (i) our previously held equity interest was measured at a provisional fair value at the date control was obtained; (ii) we recognized and measured the identifiable assets and liabilities in accordance with promulgated valuation recognition and measurement provisions; and (iii) we recorded the noncontrolling interest held in trust for the economic benefit of MGM as a separate component of our stockholders' equity. The provisional fair value measurements and estimates of these items were estimated as of the date we effectively obtained control.
 
Bargain Purchase Gain
The fair valuation resulted in the recording of a bargain purchase gain due to the excess fair value of Borgata over the historical basis of our equity interest in Borgata. Recorded in other operating charges, net, on the condensed consolidated statement of operations, this gain was recorded as a cumulative adjustment during the 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 was reflected in the fair value of the enterprise, and included in the calculation of the bargain purchase gain. A control premium of 10% was applied to the enterprise value members' equity, excluding interest bearing debt, to calculate an indicated value of equity on a controlling basis. While the value of control is somewhat below prevailing market rates, we believe the control premium reflects the value of our influence, mitigated by only a 50% interest and return.
 
Variable Interest
LVE Energy Partners, LLC
LVE Energy Partners, LLC (“LVE”) is a joint venture between Marina Energy LLC and DCO ECH Energy, LLC. Through our wholly owned subsidiary, Echelon Resorts LLC ("Echelon Resorts"), we have entered into an Energy Sales Agreement ("ESA") with LVE to design, build, own (other than the underlying real property, which is leased from Echelon Resorts) and operate a central energy center and related distribution system for our planned Echelon resort development. In April 2007, we entered into an ESA with LVE to provide chilled and hot water, electricity and emergency electricity generation to Echelon and potentially other joint venture entities associated with the Echelon development project or other third parties.

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

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

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

14
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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________



beneficiary.

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

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

The effects of the consolidation of LVE on our financial position as of September 30, 2012 and December 31, 2011, and its impact on our results of operations for the three and nine months ended September 30, 2012 and 2011 are reconciled by respective line items to amounts as reported in our condensed consolidated balance sheets and condensed consolidated statements of operations are presented below.

The impact on our condensed consolidated balance sheets as of September 30, 2012 and December 31, 2011 was as follows:

15
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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________



 
September 30, 2012
 
Boyd Gaming
 
 
 
 
 
 
 
Corporation
 
 
 
 
 
Boyd Gaming
 
(as historically
 
 
 
 
 
Corporation
 
presented)
 
LVE, LLC
 
Eliminations
 
(as consolidated)
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
Current assets
$
891,778

 
$
1,510

 
$
—

 
$
893,288

Property and equipment, net
3,498,040

 
—

 
—

 
3,498,040

Assets held for development
926,661

 
163,806

 
—

 
1,090,467

Debt financing costs, net
26,474

 
2,474

 
—

 
28,948

Restricted investments
—

 
21,366

 
—

 
21,366

Other assets
70,058

 
—

 
—

 
70,058

Intangible assets, net
569,909

 
—

 
—

 
569,909

Goodwill, net
213,576

 
—

 
—

 
213,576

Total Assets
$
6,196,496

 
$
189,156

 
$
—

 
$
6,385,652

 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Current maturities of long-term debt
$
403,028

 
$
—

 
$
—

 
$
403,028

Accounts payable
86,463

 
92

 
—

 
86,555

Accrued liabilities
344,599

 
849

 
—

 
345,448

Income taxes payable
515

 
—

 
—

 
515

Non-recourse obligations of variable interest entity
—

 
32,354

 
—

 
32,354

Long-term debt, net of current maturities
3,462,938

 
—

 
—

 
3,462,938

Deferred income taxes
387,081

 
—

 
—

 
387,081

Long-term tax and other liabilities
91,855

 
9,818

 
—

 
101,673

Non-recourse obligations of variable interest entity
—

 
192,225

 
—

 
192,225

 
 
 
 
 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Common stock
863

 
—

 
—

 
863

Additional paid-in capital
651,508

 
—

 
—

 
651,508

Retained earnings
548,088

 
—

 
—

 
548,088

Noncontrolling interest
219,558

 
(46,182
)
 
—

 
173,376

Total Liabilities and Stockholders' Equity
$
6,196,496

 
$
189,156

 
$
—

 
$
6,385,652

 
 
 
 
 
 
 
 


16
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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________



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

 
$
2,132

 
$
—

 
$
342,894

Property and equipment, net
3,542,108

 
—

 
—

 
3,542,108

Assets held for development
926,013

 
163,806

 
—

 
1,089,819

Debt financing costs, net
29,544

 
2,555

 
—

 
32,099

Restricted investments
—

 
21,367

 
—

 
21,367

Other assets
67,173

 
—

 
—

 
67,173

Intangible assets, net
574,018

 
—

 
—

 
574,018

Goodwill, net
213,576

 
—

 
—

 
213,576

Total Assets
$
5,693,194

 
$
189,860

 
$
—

 
$
5,883,054

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

 
$
—

 
$
—

 
$
43,230

Accounts payable
97,727

 
288

 
—

 
98,015

Accrued and other liabilities
294,578

 
881

 
—

 
295,459

Income taxes payable
5,630

 
—

 
—

 
5,630

Non-recourse obligations of variable interest entity
—

 
29,686

 
—

 
29,686

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

 
—

 
—

 
3,347,226

Deferred income taxes
379,958

 
—

 
—

 
379,958

Long-term tax and other liabilities
101,747

 
15,044

 
—

 
116,791

Non-recourse obligations of variable interest entity
—

 
192,980

 
—

 
192,980

 
 
 
 
 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Common stock
863

 
—

 
—

 
863

Additional paid-in capital
644,174

 
—

 
—

 
644,174

Retained earnings
557,055

 
—

 
—

 
557,055

Noncontrolling interest
221,006

 
(49,019
)
 
—

 
171,987

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

 
$
189,860

 
$
—

 
$
5,883,054





17
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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________



The summarized impact on our condensed consolidated statement of operations for the three and nine months ended September 30, 2012 and 2011 was as follows:
 
Three Months Ended September 30, 2012
 
Boyd Gaming
 
 
 
 
 
 
 
Corporation
 
 
 
 
 
Boyd Gaming
 
(as historically
 
 
 
 
 
Corporation
 
presented)
 
LVE, LLC
 
Eliminations
 
(as consolidated)
 
(In thousands)
REVENUES
 
 
 
 
 
 
 
Other revenue
$
38,958

 
$
2,724

 
$
(2,724
)
 
$
38,958

 
 
 
 
 
 
 
 
COSTS AND EXPENSES
 
 
 
 
 
 
 
Selling, general and administrative
$
113,144

 
$
4

 
$
—

 
$
113,148

Preopening expenses
$
4,342

 
$
—

 
$
(2,724
)
 
$
1,618

 
 
 
 
 
 
 
 
Operating income
$
45,628

 
$
2,720

 
$
—

 
$
48,348

 
 
 
 
 
 
 
 
Other expense
 
 
 
 
 
 
 
Interest expense, net
$
71,134

 
$
2,981

 
$
—

 
$
74,115

 
 
 
 
 
 
 
 
Income (loss) before income taxes
$
(25,234
)
 
$
(261
)
 
$
—

 
$
(25,495
)
Income taxes
8,413

 
—

 
—

 
8,413

Net income (loss)
(16,821
)
 
(261
)
 
—

 
(17,082
)
Net (income) loss attributable to noncontrolling interest
1,025

 
—

 
261

 
1,286

Net income (loss) attributable to Boyd Gaming Corporation
$
(15,796
)
 
$
(261
)
 
$
261

 
$
(15,796
)




18
Table of Contents
BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________



 
Three Months Ended September 30, 2011
 
Boyd Gaming
 
 
 
 
 
 
 
Corporation
 
 
 
 
 
Boyd Gaming
 
(as historically
 
 
 
 
 
Corporation
 
presented)
 
LVE, LLC
 
Eliminations
 
(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

 
$
5,002

 
$
—

 
$
60,083

 
 
 
 
 
 
 
 
Income (loss) before income taxes
$
11,447

 
$
(2,297
)
 
$
—

 
$
9,150

Income taxes
(2,170
)
 
—

 
—

 
(2,170
)
Net income (loss)
9,277

 
(2,297
)
 
—

 
6,980

Net (income) loss attributable to noncontrolling interest
(6,168
)
 
—

 
2,297

 
(3,871
)
Net income (loss) attributable to Boyd Gaming Corporation
$
3,109

 
$
(2,297
)
 
$
2,297

 
$
3,109






19
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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________



 
Nine Months Ended September 30, 2012
 
Boyd Gaming
 
 
 
 
 
 
 
Corporation
 
 
 
 
 
Boyd Gaming
 
(as historically
 
 
 
 
 
Corporation
 
presented)
 
LVE, LLC
 
Eliminations
 
(as consolidated)
 
(In thousands)
REVENUES
 
 
 
 
 
 
 
Other revenue
$
110,615

 
$
8,172

 
$
(8,172
)
 
$
110,615

 
 
 
 
 
 
 
 
COSTS AND EXPENSES
 
 
 
 
 
 
 
Selling, general and administrative
$
333,306

 
$
13

 
$
—

 
$
333,319

Preopening expenses
$
13,660

 
$
—

 
$
(8,172
)
 
$
5,488

 
 
 
 
 
 
 
 
Operating income
$
175,010

 
$
8,159

 
$
—

 
$
183,169

 
 
 
 
 
 
 
 
Other expense
 
 
 
 
 
 
 
Interest expenses, net
$
193,708

 
$
9,023

 
$
—

 
$
202,731

 
 
 
 
 
 
 
 
Income (loss) before income taxes
$
(18,014
)
 
$
(864
)
 
$
—

 
$
(18,878
)
Income taxes
7,580

 
—

 
—

 
7,580

Net loss
(10,434
)
 
(864
)
 
—

 
(11,298
)
Net (income) loss attributable to noncontrolling interest
1,467

 
—

 
864

 
2,331

Net income (loss) attributable to Boyd Gaming Corporation
$
(8,967
)
 
$
(864
)
 
$
864

 
$
(8,967
)



20
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BOYD GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011
______________________________________________________________________________________________________



 
Nine Months Ended September 30, 2011
 
Boyd Gaming
 
 
 
 
 
 
 
Corporation
 
 
 
 
 
Boyd Gaming
 
(as historically
 
 
 
 
 
Corporation
 
presented)
 
LVE, LLC
 
Eliminations
 
(as consolidated)
 
(In thousands)
REVENUES
 
 
 
 
 
 
 
Other revenue
$
100,412

 
$
8,134

 
$
(8,134
)
 
$
100,412

 
 
 
 
 
 
 
 
COSTS AND EXPENSES
 
 
 
 
 
 
 
Maintenance and utilities
$
114,163

 
$
950

 
$
—

 
$
115,113

Preopening expenses
$
13,426

 
$
—

 
$
(8,134
)
 
$
5,292

 
 
 
 
 
 
 
 
Operating income
$
171,074

 
$
7,184

 
$
—

 
$
178,258

 
 
 
 
 
 
 
 
Other expense
 
 
 
 
 
 
 
Interest expense, net
$
173,632

 
$
10,436

 
$
—

 
$
184,068

 
 
 
 
 
 
 
 
Income (loss) before income taxes
$
(1,749
)
 
$
(3,252
)
 
$
—

 
$
(5,001
)
Income taxes
28

 
—

 
—

 
28

Net income (loss)
(1,721
)
 
(3,252
)
 
—

 
(4,973
)
Net (income) loss attributable to noncontrolling interest
(1,642
)
 
—

 
3,252

 
1,610

Net income (loss) attributable to Boyd Gaming Corporation
$
(3,363
)
 
$
(3,252
)
 
$
3,252

 
$
(3,363
)

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

NOTE 4.    PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
 
 
September 30,
 
December 31,
 
2012
 
2011
 
(In thousands)
Land
$
618,697

 
$
614,697

Buildings and improvements
3,534,887

 
3,513,230

Furniture and equipment
1,227,050

 
1,185,737

Riverboats and barges
168,231

 
168,204

Other
49,728

 
37,368

Total property and equipment
5,598,593

 
5,519,236

Less accumulated depreciation
2,100,553

 
1,977,128

Property and equipment, net
$
3,498,040

 
$
3,542,108


Depreciation expense for the three months ended September 30, 2012 and 2011 was $48.9 million and $46.2 million, respectively. Depreciation expense for the nine months ended September 30, 2012 and 2011 was $147.3 million and $138.4 million, respectively. The amounts recorded during the nine months ended September 30, 2011 include the effect of certain measurement period adjustments related to the consolidation of Borgata.

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

NOTE 5.    ASSETS HELD FOR DEVELOPMENT
Assets held for development, which is comprised of assets associated with our Echelon development project, consists of the following:
 
September 30,
 
December 31,
 
2012
 
2011
 
(In thousands)
Echelon Project Infrastructure
 
 
 
Land
$
215,969

 
$
215,969

Construction and development costs
501,435

 
500,787

Project management and other costs
115,712

 
115,712

Professional and design fees
93,545

 
93,545

 
 
 
 
Central Energy Facility
 
 
 
Construction and development costs