v2.4.0.6
Fair Value Measurements
 12 Months Ended
Dec. 31, 2012
Fair Value Disclosures [Abstract]  
Fair Value Measurements
FAIR VALUE MEASUREMENTS
We have adopted the authoritative accounting guidance for fair value measurements, which does not determine or affect the circumstances under which fair value measurements are used, but defines fair value, expands disclosure requirements around fair value and specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions.

These inputs create the following fair value hierarchy:

Level 1: Quoted prices for identical instruments in active markets.
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

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

Balances Measured at Fair Value
The following tables show the fair values of certain of our financial instruments.
 
December 31, 2012
 
Balance
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
192,828

 
$
192,828

 
$
—

 
$
—

Restricted cash
22,900

 
22,900

 
—

 
—

CRDA deposits
28,464

 
—

 
—

 
28,464

Investment available for sale
17,907

 
—

 
—

 
17,907

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Merger earnout
$
9,800

 
$
—

 
$
—

 
$
9,800



 
December 31, 2011
 
Balance
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
178,756

 
$
178,756

 
$
—

 
$
—

Restricted cash
15,753

 
15,753

 
—

 
—

CRDA deposits
25,905

 
—

 
—

 
25,905



Cash and Restricted Cash
The fair value of our cash and cash equivalents, classified in the fair value hierarchy as Level 1, is based on statements received from our banks at December 31, 2012 and 2011.

The fair value of Borgata's CRDA deposits, classified in the fair value hierarchy as Level 3, is based on estimates of the realizable value applied to balances on statements received from the CRDA at December 31, 2012 and 2011.

Investment Available for Sale
Peninsula Gaming has an investment in a single municipal bond issuance of $22.4 million aggregate principal amount of 7.5% Urban Renewal Tax Increment Revenue Bonds, Taxable Series 2007 ("City Bonds"). Peninsula Gaming is the only holder of this instrument and there is no quoted market price for this instrument. As such, the fair value of this investment is classified as Level 3 in the fair value hierarchy. The estimate of the fair value of such investment was determined using a combination of current market rates and estimates of market conditions for instruments with similar terms, maturities, and degrees of risk and an estimate from an independent source of what market participants would use in pricing the bonds. Unrealized gains and losses on this instrument resulting from changes in the fair value of the instrument are not charged to earnings, but rather are recorded as other comprehensive income (loss) in the stockholders' equity section of the Company's balance sheets. The carrying value of the investment available for sale is included in Other assets, net, on the consolidated balance sheets. The discount associated with this investment is netted with the investment on the consolidated balance sheets and is being accreted over the life of the investment using the effective interest method. The accretion of such discount is included in Interest income on the consolidated statements of operations.

Merger Earnout
Under the terms of the Merger Agreement, Boyd Acquisition II, LLC, an indirect wholly-owned subsidiary of Boyd, is obligated to make an additional payment to PGP in 2016 if KSC's EBITDA, as defined in the Merger Agreement, for 2015 exceeds $105.0 million. The additional payment would be in an amount equal to 7.5 times the amount by which KSC's 2015 EBITDA exceeds $105.0 million. The actual payout will be determined based on actual EBITDA of KSC for calendar year 2015, and payments are not limited by a maximum value. If the actual 2015 EBITDA of KSC is less than the target, the Company is not required to make any additional consideration payment. The liability was initially recorded upon consummation of the Merger, at the estimated fair value of the earnout using the modified Black-Scholes option pricing model, which requires the following assumptions: expected EBITDA volatility, forecasted 2015 EBITDA, risk-free interest rates and risk adjusted discount rate. We formed our assumptions using historical experience in the gaming industry and observable market conditions. The contingent consideration agreement will be fair valued periodically with updated assumptions and any change in the fair value of the obligation will be included in the Consolidated Statements of Comprehensive Income (Loss). At December 31, 2012, the Company recorded a liability of $9.8 million related to the earnout which is included in Other Liabilities on the Consolidated Balance Sheet.

Contingent Payments
In connection with KSC’s acquisition of a land purchase option to purchase land upon which KSC’s casino is currently being developed, KSC is required to pay a former casino project developer and option holder 1% of KSC’s EBITDA each month for a period of 10 years commencing December 20, 2011. The liability was initially recorded upon consummation of the Merger, at the estimated fair value of the contingent land purchase price using a discounted cash flows approach. At December 31, 2012, the Company recorded a current liability of $0.9 million related to this agreement which was recorded in Accrued liabilities on the Consolidated Balance Sheet and a long term obligation of $3.6 million which is included in Other liabilities on the Consolidated Balance Sheet.

The following table summarizes the changes in fair value of the Company’s Level 3 assets and liabilities for the year ended December 31, 2012.
 
Period from November 20, 2012 through December 31, 2012
 
Assets
 
Liabilities
 
Investment available for sale
 
Merger earnout and Contingent land purchase price
 
(In thousands)
Balance at November 20, 2012
$
18,853

 
$
(14,304
)
Total gains (losses) (realized or unrealized):
 
 
 
     Included in earnings
16

 
(86
)
     Included in other comprehensive income (loss)
(962
)
 
—

Transfers in or out of Level 3
—

 
—

Purchases, sales, issuances and settlements:
 
 
 
     Settlements
—

 
27

Ending balance at December 31, 2012
$
17,907

 
$
(14,363
)
 
 
 
 
 
Included in interest income
 
Included in interest expense
Gains (losses) included in earnings attributable to the change in unrealized gains relating to assets and liabilities still held at the reporting date
$
16

 
$
(86
)


Balances Disclosed at Fair Value
The following tables provide the fair value measurement information about our note receivable, obligation under minimum assessment agreements and other financial instruments at December 31, 2012.
 
December 31, 2012
 
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
 
(In thousands)
Assets
 
 
 
 
 
 
 
     Note receivable
$
2,470

 
$
2,470

 
$
2,470

 
Level 3
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
     Obligation under assessment arrangements
$
38,787

 
$
29,335

 
$
29,113

 
Level 3
     Other financial instruments
500

 
413

 
413

 
Level 3



The following table provides the fair value measurement information about our long-term debt at December 31, 2012 and December 31, 2011.
 
December 31, 2012
 
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
 
(In thousands)
Boyd Gaming Debt:
 
 
 
 
 
 
 
Bank credit facility
$
1,474,850

 
$
1,466,635

 
$
1,508,516

 
Level 2
9.125% Senior Notes due 2018
500,000

 
492,680

 
523,995

 
Level 1
9.00% Senior Notes due 2020
350,000

 
350,000

 
347,158

 
Level 1
6.75% Senior Subordinated Notes due 2014
215,668

 
215,668

 
216,460

 
Level 1
7.125% Senior Subordinated Notes due 2016
240,750

 
240,750

 
236,537

 
Level 1
Other
158,141

 
125,475

 
123,424

 
Level 3
 
2,939,409

 
2,891,208

 
2,956,090

 
 
 
 
 
 
 
 
 
 
Peninsula Gaming Financing
 
 
 
 
 
 
 
Bank credit facility
854,400

 
854,400

 
868,838

 
Level 2
8.375% Senior Notes due 2018
350,000

 
350,000

 
367,721

 
Level 1
Other
494

 
491

 
494

 
Level 3
 
1,204,894

 
1,204,891

 
1,237,053

 
 
Total Boyd debt
4,144,303

 
4,096,099

 
4,193,143

 
 
 
 
 
 
 
 
 
 
Borgata Debt:
 
 
 
 
 
 
 
Borgata bank credit facility
20,000

 
20,000

 
20,000

 
Level 2
Borgata 9.50% Senior Secured Notes due 2015
398,000

 
389,547

 
402,275

 
Level 1
Borgata 9.875% Senior Secured Notes due 2018
393,500

 
383,777

 
373,825

 
Level 1
 
811,500

 
793,324

 
796,100

 
 
     Total debt
$
4,955,803

 
$
4,889,423

 
$
4,989,243

 
 










 
December 31, 2011
 
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
 
(In thousands)
Boyd Gaming Debt:
 
 
 
 
 
 
 
Bank credit facility
$
1,632,750

 
$
1,621,715

 
$
1,388,630

 
Level 2
9.125% Senior Notes due 2018
500,000

 
491,444

 
471,000

 
Level 1
6.75% Senior Subordinated Notes due 2014
215,668

 
215,668

 
208,120

 
Level 1
7.125% Senior Subordinated Notes due 2016
240,750

 
240,750

 
208,249

 
Level 1
Other
11,071

 
11,071

 
10,517

 
Level 3
Total Boyd debt
2,600,239

 
2,580,648

 
2,286,516

 
 
 
 
 
 
 
 
 
 
Borgata Debt:
 
 
 
 
 
 
 
Borgata bank credit facility
40,200

 
40,200

 
40,200

 
Level 2
Borgata 9.50% Senior Secured Notes due 2015
398,000

 
387,049

 
378,100

 
Level 1
Borgata 9.875% Senior Secured Notes due 2018
393,500

 
382,559

 
358,085

 
Level 1
Total Borgata debt
831,700

 
809,808

 
776,385

 
 
 
 
 
 
 
 
 
 
     Total debt
$
3,431,939

 
$
3,390,456

 
$
3,062,901

 
 

The following table provides the fair value measurement information on other liabilities at December 31, 2012.

 
December 31, 2012
 
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
 
(In thousands)
Contingent liability
$
9,800

 
$
—

 
$
9,800

 
Level 3


The estimated fair value of the Boyd bank credit facility is based on a relative value analysis performed on or about December 31, 2012 and December 31, 2011. The estimated fair value of PGL's credit facility is based on a relative value analysis performed on or about December 31, 2012. The estimated fair value of Borgata's bank credit facility at December 31, 2012 and December 31, 2011 approximates its carrying value due to the short-term nature and variable repricing of the underlying Eurodollar loans comprising the Borgata bank credit facility. The estimated fair values of our senior subordinated and senior notes, PGL's senior notes and Borgata's senior secured notes are based on quoted market prices as of December 31, 2012 and December 31, 2011. Debt included in the “Other” category is fixed-rate debt that is due March 2013 and is not traded and does not have an observable market input; therefore, we have estimated its fair value based on a discounted cash flow approach, after giving consideration to the changes in market rates of interest, creditworthiness of both parties, and credit spreads.

Fair Value of Non-Recourse Obligations of Variable Interest Entity
At December 31, 2012 and December 31, 2011, the carrying value of LVE's long-term debt approximates its fair value due to the prevailing interest rates on the debt, which are comparable to market.

There were no transfers between Level 1, Level 2 and Level 3 measurements during the years ended December 31, 2012 or the year ended December 31, 2011. All Level I, Level 2 and Level 3 additions were due to the acquisition of Peninsula Gaming on November 20, 2011, which included the Peninsula Gaming 8.375% Senior Notes due 2018 (Level I), the Peninsula Gaming credit facility (Level 2) and the available for sale city bonds (Level 3).