INTANGIBLE ASSETS

Intangible assets consist of the following:



	June 30, 2012
	Weighted	Gross					Cumulative
	Average Life	Carrying		Cumulative			Impairment			Intangible
	Remaining	Value		Amortization			Losses			Assets, Net
		(In thousands)
Amortizing intangibles:
Customer relationships	1.7 years	$	17,700	$	(12,149	)	$	—		$	5,551
Favorable lease rates	35.9 years	45,370		(8,346		)	—			37,024
Development agreement	9.3 years	21,373		—			—			21,373
		84,443		(20,495		)	—			63,948

Indefinite lived intangible assets:
Trademarks	Indefinite	141,000		—			(5,000		)	136,000
Gaming license rights	Indefinite	567,886		(33,960		)	(162,500		)	371,426
		708,886		(33,960		)	(167,500		)	507,426
Balance, June 30, 2012		$	793,329	$	(54,455	)	$	(167,500	)	$	571,374



	December 31, 2011
	Weighted	Gross					Cumulative
	Average Life	Carrying		Cumulative			Impairment			Intangible
	Remaining	Value		Amortization			Losses			Assets, Net
		(In thousands)
Amortizing intangibles:
Customer relationships	2.2 years	$	17,700	$	(10,026	)	$	—		$	7,674
Favorable lease rates	36.4 years	45,370		(7,825		)	—			37,545
Development agreement	9.8 years	21,373		—			—			21,373
		84,443		(17,851		)	—			66,592

Indefinite lived intangible assets:
Trademarks	Indefinite	141,000		—			(5,000		)	136,000
Gaming license rights	Indefinite	567,886		(33,960		)	(162,500		)	371,426
		708,886		(33,960		)	(167,500		)	507,426
Balance, December 31, 2011		$	793,329	$	(51,811	)	$	(167,500	)	$	574,018

Amortizing Intangible Assets

Customer Relationships

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

Favorable Lease Rates

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

Development Agreements

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

Indefinite Lived Intangible Assets

Trademarks

Trademarks are based on the value of our brand, which reflects the level of service and quality we provide and from which we generate repeat business. Trademarks are valued using the relief from royalty method, which presumes that without ownership of such trademark, we would have to make a stream of payments to a brand or franchise owner in return for the right to use their name. By virtue of this asset, we avoid any such payments and record the related intangible value of our ownership of the Borgata name. We used the following significant projections and assumptions to determine value under the relief from royalty method: revenue from gaming and hotel activities; royalty rate; general and administrative expenses; tax expense; terminal growth rate; discount rate; and the present value of tax benefit. The projections underlying this discounted cash flow model were forecasted for 15 years.

Gaming License Rights

Gaming license rights represent the value of the license to conduct gaming in certain jurisdictions, which is subject to highly extensive regulatory oversight, and a limitation on the number of licenses available for issuance therein. The value of gaming licenses is determined using a multi-period excess earnings method, which is a specific discounted cash flow model. The value is determined at an amount equal to the present value of the incremental after-tax cash flows attributable only to future gaming revenue, discounted to present value at a risk-adjusted rate of return. With respect to the application of this methodology, we used the following significant projections and assumptions: gaming revenues; gaming operating expenses; general and administrative expenses; tax expense; terminal value; and discount rate. These projections are modeled for a five year period.

Activity For the Six Months Ended June 30, 2012 and 2011

The following table sets forth the changes in these intangible assets during the six months ended June 30, 2012 and 2011:



	Customer Relationships				Favorable Lease Rates			Development Agreements		Trademarks			Gaming License Rights		Intangible Assets, Net
	(In thousands)
Six Months Ended June 30, 2012
Balance, December 31, 2011	$	7,674			$	37,545		$	21,373	$	136,000		$	371,426	$	574,018
Additions	—				—			—		—			—		—
Impairments	—				—			—		—			—		—
Amortization	(2,123		)		(521		)	—		—			—		(2,644		)
Balance, June 30, 2012	$	5,551			$	37,024		$	21,373	$	136,000		$	371,426	$	571,374

Six Months Ended June 30, 2011
Balance, December 31, 2010	$	14,000			$	38,588		$	—	$	115,700		$	371,426	$	539,714
Additions	—				—			—		—			—		—
Impairments	—				—			—		(5,000		)	—		(5,000		)
Amortization	(6,871		)	—	(521		)	—		—			—		(7,392		)
Balance, June 30, 2011	$	7,129			$	38,067		$	—	$	110,700		$	371,426	$	527,322

Future Amortization

Customer relationships are being amortized on an accelerated basis over an approximate remaining two-year period. Favorable lease rates are being amortized on a straight-line basis over a weighted-average original useful life of 43.8 years. Future amortization is as follows:



	Customer Relationships		Favorable Lease Rates		Development Agreement		Total
	(In thousands)
For the year or partial year ending December 31,
Remainder of 2012	$	2,960	$	522	$	—	$	3,482
2013	2,591		1,043		—		3,634
2014	—		1,043		1,053		2,096
2015	—		1,043		2,401		3,444
2016	—		1,043		2,689		3,732
Thereafter	—		32,330		15,230		47,560
Total future amortization	$	5,551	$	37,024	$	21,373	$	63,948

Trademarks and gaming license rights are not subject to amortization, as we have determined that they have an indefinite useful life; however, these assets are subject to an annual impairment test.

Impairment Considerations

Intangible assets include gaming license rights, trademarks and customer lists. Indefinite lived intangible assets are not subject to amortization, but they are subject to an annual impairment test in the second quarter of each year and between annual test dates in certain circumstances.

Interim Testing

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

Our analyses consisted of a valuation of the Borgata trademark, using the relief from royalty method, as discussed above. The only significant change in our assumptions from the initial fair valuation were revised revenue and profitability projections, reflecting the impact of the changed present and forecasted circumstances. The impairment test consisted of a comparison of the fair value of trademark with its carrying amount. As a result of the impairment test, we did not record any impairment in the first quarter of 2012 and recorded a $5.0 million impairment in the first quarter of 2011, representing the amount by which the carrying amount exceeded its fair value.

Annual Testing

The results of our annual scheduled impairment test of indefinite-lived intangible assets, performed during the second quarters of 2012 and 2011, did not require us to record an impairment charge; however, if our estimates of projected cash flows related to these assets are not achieved, or if any other significant assumptions are changed, we may be subject to an interim impairment test prior to our next annual scheduled impairment test. Such test could result in a future impairment charge, which could have a material adverse impact on our consolidated financial statements.

Gaming license rights are tested for impairment using a discounted cash flow approach, and trademarks are tested for impairment using the relief-from-royalty method. If the fair value of an indefinite-lived intangible asset is less than its carrying amount, an impairment loss is recognized equal to the difference. If our estimates of projected cash flows related to these assets are not achieved, or if any other significant assumptions are changed, we may be subject to an interim impairment test prior to our next annual scheduled impairment test. As a result of such test, we may be subject to a future impairment charge, which could have a material adverse impact on our consolidated financial statements.