CONSOLIDATION OF CERTAIN INTERESTS

Controlling Interest

Borgata Hotel Casino and Spa

Overview

The Company and MGM each originally held a 50% interest in Marina District Development Holding Co., LLC (“Holding Company”). The Holding Company owns all the equity interests in Marina District Development Company, LLC, d.b.a. Borgata Hotel Casino and Spa.

In February 2010, we entered into an agreement with MGM to amend the operating agreement to, among other things, facilitate the transfer of MGM's interest in the Holding Company ("MGM Interest") to a divestiture trust (“Divestiture Trust”) established for the purpose of selling the MGM Interest to a third party. The proposed sale of the MGM Interest through the Divestiture Trust was a part of a then-proposed settlement agreement between MGM and the New Jersey Department of Gaming Enforcement (the “NJDGE”). Pursuant to the terms of the amended operating agreement, in connection with the refinancing of the Borgata bank credit facility on August 6, 2010, the Holding Company made a $135.4 million one-time distribution to us, of which $30.8 million was a priority distribution equal to the excess prior capital contributions made by us.

On March 17, 2010, MGM announced that its settlement agreement with the NJDGE had been approved by the New Jersey Casino Control Commission ("NJCCC"). Under the terms of the settlement agreement, MGM agreed to transfer the MGM Interest into the Divestiture Trust and further agreed to sell such interest within a 30-month period. During the first 18 months of such period, MGM has the power to direct the trustee to sell the MGM Interest, subject to the approval of the NJCCC. If the sale has not occurred by such time, the trustee will be solely responsible for the sale of the MGM Interest. The MGM Interest was transferred to the Divestiture Trust on March 24, 2010.

MGM has subsequently announced that it has entered into an amendment with respect to its settlement agreement with the NJDGE, as approved by the NJCCC. The amendment provides that the mandated sale of the MGM Interest be increased by an additional 18 months to a total of 48 months. During the first 36 months (or until March 24, 2013), MGM has the right to direct the Divestiture Trust to sell the MGM Interest. If a sale is not concluded by that time, the Divestiture Trust will be responsible for selling MGM's Interest during the following 12-month period.

Effective Change in Control

In connection with the amendments to the operating agreements MGM relinquished all of its specific participating rights under the operating agreement, and we retained all authority to manage the day-to-day operations of Borgata. MGM's relinquishment of its participating rights effectively provided us with direct control of Borgata. This resulting change in control required acquisition method accounting in accordance with the authoritative accounting guidance for business combinations.

Acquisition Method Accounting

The application of the acquisition method accounting guidance had the following effects on our condensed consolidated financial statements: (i) our previously held equity interest was measured at a provisional fair value at the date control was obtained; (ii) we recognized and measured the identifiable assets and liabilities in accordance with promulgated valuation recognition and measurement provisions; and (iii) we recorded the noncontrolling interest held in trust for the economic benefit of MGM as a separate component of our stockholders' equity. The provisional fair value measurements and estimates of these items were estimated as of the date we effectively obtained control.

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

Retrospective Adjustment to Condensed Consolidated Balance Sheet

We have retrospectively adjusted the provisional values to reflect the fair valuation, and therefore, the condensed consolidated balance sheet as of December 31, 2010 presented herein reflects the adjustments above.



			December 31, 2010
	As Originally Reported		Acquisition Method Accounting Adjustments			As Retrospectively Adjusted
	(In thousands)
ASSETS
Current assets
Cash and cash equivalents	$	145,623	$	—		$	145,623
Restricted cash	19,494		—			19,494
Accounts receivable, net	47,942		—			47,942
Inventories	16,029		—			16,029
Prepaid expenses and other current assets	37,390		(237		)	37,153
Income taxes receivable	5,249		—			5,249
Deferred income taxes	8,149		—			8,149
Total current assets	279,876		(237		)	279,639
Property and equipment, net	3,471,933		(88,562		)	3,383,371
Assets held for development	1,119,403		—			1,119,403
Debt financing costs, net	38,451		(3,458		)	34,993
Restricted investments	48,168		—			48,168
Other assets, net	70,425		—			70,425
Intangible assets, net	460,714		79,000			539,714
Goodwill, net	213,576		—			213,576
Total assets	$	5,702,546	$	(13,257	)	$	5,689,289
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt	$	25,690	$	—		$	25,690
Non-recourse obligations of variable interest entity	243,059		—			243,059
Accounts payable	57,183		—			57,183
Income taxes payable	6,504		—			6,504



Accrued liabilities	279,779			(1,310		)	278,469
Total current liabilities	612,215			(1,310		)	610,905
Long-term debt, net of current maturities	3,193,065			—			3,193,065
Deferred income taxes	360,342			1,832			362,174
Other long-term tax liabilities	44,813			—			44,813
Other liabilities	85,859			(2,270		)	83,589
Stockholders' equity
Preferred stock	—			—			—
Common stock	862			—			862
Additional paid-in-capital	635,028			—			635,028
Retained earnings	560,909			—			560,909
Accumulated other comprehensive loss, net	(7,594		)	—			(7,594		)
Total Boyd Gaming Corporation stockholders' equity	1,189,205			—			1,189,205
Noncontrolling interest	217,047			(11,509		)	205,538
Total stockholders' equity	1,406,252			(11,509		)	1,394,743
Total liabilities and stockholders' equity	$	5,702,546		$	(13,257	)	$	5,689,289

Bargain Purchase Gain

The fair valuation resulted in the recording of a bargain purchase gain, due to the excess fair value of Borgata over the historical basis of our equity interest in Borgata. Recorded in write-downs and other items, net on the condensed consolidated statement of operations, this gain was recorded as a cumulative adjustment during the nine months ended September 30, 2011.

The gain was computed as follows:



	Bargain Purchase Gain
	(In thousands)
Fair value of controlling equity interest	$	397,931
Carrying value of equity investment in Borgata	397,622
Bargain purchase gain	$	309

The fair value of our controlling interest included a $72.4 million control premium, which is reflected in the fair value of the enterprise, and included in the calculation of the bargain purchase gain. A control premium of 10% was applied to the enterprise value members' equity, excluding interest bearing debt, to calculate an indicated value of equity on a controlling basis. While the value of control is somewhat below prevailing market rates, we believe the control premium reflects the value of our influence, mitigated by only a 50% interest and return.

Results of Operations of Borgata

(for the period from March 24, 2010 through September 30, 2010)

reflecting amounts included on a consolidated basis

The results of Borgata, as included in the accompanying condensed consolidated statements of operations from the date we effectively obtained control, March 24, 2010, (specifically, for the period from March 24 through September 30, 2010) for the nine months ended September 30, 2010) are presented below. These results of operations do not reflect the retrospective impact from the measurement period adjustments discussed above, as such amounts were not material to either the three and nine months ended September 30, 2010.



	Nine Months Ended September 30, 2010
	(In thousands)
REVENUES
Operating revenues:
Gaming	$	357,314
Food and beverage	82,372
Room	64,042
Other	24,047
Gross revenues	527,775
Less promotional allowances	116,420
Net revenues	411,355

COSTS AND EXPENSES
Operating costs and expenses:
Gaming	141,649
Food and beverage	39,593
Room	8,593
Other	19,528
Selling, general and administrative	64,473
Maintenance and utilities	35,337
Depreciation and amortization	36,313
Write-downs and other items, net	8
Total operating costs and expenses	345,494
Operating income	65,861
Other expense
Interest expense	23,347
Total other expense, net	23,347
Income before income taxes	42,514
Income taxes	(4,183		)
Net income	$	38,331

Supplemental Pro Forma Information

Pro Forma Condensed Consolidated Statement of Operations

for the nine months ended September 30, 2010

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



	Nine Months Ended September 30, 2010
	Boyd Gaming Corp			Borgata						Boyd Gaming Corp
	As Reported			Stub Period			Adjustments			Pro Forma
	(In thousands)
Revenues
Gaming	$	1,344,283		$	137,831		$	—		$	1,482,114
Food and beverage	255,166			31,217			—			286,383
Room	154,247			24,154			—			178,401
Other	91,595			9,179			—			100,774
Gross revenues	1,845,291			202,381			—			2,047,672
Less promotional allowances	256,332			44,091			—			300,423
Net revenues	1,588,959			158,290			—			1,747,249
Costs and expenses
Gaming	635,461			59,861			—			695,322
Food and beverage	132,481			13,500			—			145,981
Room	36,767			2,185			—			38,952
Other	74,333			7,127			—			81,460
Selling, general and administrative	270,641			28,981			—			299,622
Maintenance and utilities	104,770			13,522			—			118,292
Depreciation and amortization	147,905			16,754			—			164,659
Corporate expense	36,636			—			—			36,636
Preopening expenses	4,990			—			—			4,990
Write-downs and other items, net	4,932			68			—			5,000
Total costs and expenses	1,448,916			141,998			—			1,590,914
Operating income from Borgata	8,146			—			(8,146		)	—
Operating income	148,189			16,292			(8,146		)	156,335
Other expense (income)
Interest income	(4		)	—			—			(4		)
Interest expense, net	109,438			5,060			—			114,498
Other income	(10,000		)	—						(10,000		)
Gain on early retirements of debt	(3,949		)	—			—			(3,949		)
Gain on equity distribution	(2,535		)	—			—			(2,535		)
Other non-operating expenses from Borgata, net	3,133			—			(3,133		)	—
Total other expense, net	96,083			5,060			(3,133		)	98,010

Income (loss) before income taxes	52,106			11,232			(5,013		)	58,325
Income taxes	(15,532		)	(1,207		)	—			(16,739		)
Net income (loss)	36,574			10,025			(5,013		)	41,586
Net loss attributable to noncontrolling interest	(19,166		)	—			(5,012		)	(24,178		)
Net income attributable to Boyd Gaming Corporation	$	17,408		$	10,025		$	(10,025	)	$	17,408

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

Variable Interest

LVE Energy Partners, LLC

The effects of the consolidation of LVE on our financial position as of September 30, 2011 and December 31, 2010, and its impact on our results of operations for the three and nine months ended September 30, 2011 are reconciled by respective line items to amounts as reported in our condensed consolidated balance sheets and condensed consolidated statements of operations are presented below.

The primary impact on our condensed consolidated balance sheets as of September 30, 2011 and December 31, 2010 was as follows:



	September 30, 2011
	Boyd Gaming Corporation (as historically presented)		LVE, LLC			Eliminations			Boyd Gaming Corporation (as consolidated)
	(In thousands)
ASSETS
Current assets	$	334,501	$	1,185		$	(2,146	)	$	333,540
Property and equipment, net	3,296,396		—			—			3,296,396
Assets held for development	923,793		196,052			—			1,119,845
Debt financing costs, net	30,322		—			—			30,322
Restricted investments	—		20,984			—			20,984
Other assets	72,733		4,351			—			77,084
Intangible assets, net	547,075		—			—			547,075
Goodwill, net	213,576		—			—			213,576
Total Assets	$	5,418,396	$	222,572		$	(2,146	)	$	5,638,822

LIABILITIES
Current maturities of long-term debt	$	363,598	$	—		$	—		$	363,598
Non-recourse obligations of variable interest entity	—		221,912			—			221,912
Accounts payable	55,192		35			—			55,227
Accrued and other liabilities	304,579		871			—			305,450
Long-term debt, net of current maturities	2,802,075		—			—			2,802,075
Deferred income taxes	364,295		—			—			364,295
Other liabilities	107,096		17,423			(2,146		)	122,373

STOCKHOLDERS' EQUITY
Common stock	$	863	$	—		$	—		$	863
Additional paid-in capital	642,243		—			—			642,243
Retained earnings	557,546		—			—			557,546
Noncontrolling interest	220,909		(17,669		)	—			203,240
Total Liabilities and Stockholders' Equity	$	5,418,396	$	222,572		$	(2,146	)	$	5,638,822



	December 31, 2010
	Boyd Gaming Corporation (as historically presented)			LVE, LLC			Eliminations		Boyd Gaming Corporation (as consolidated)
	(In thousands)
ASSETS
Current assets	$	278,902		$	737		$	—	$	279,639
Property and equipment, net	3,383,371			—			—		3,383,371
Assets held for development	923,038			196,365			—		1,119,403
Debt financing costs, net	34,993			—			—		34,993
Restricted investments	—			48,168			—		48,168
Other assets	65,963			4,462			—		70,425
Intangible assets, net	539,714			—			—		539,714
Goodwill, net	213,576			—			—		213,576
Total Assets	$	5,439,557		$	249,732		$	—	$	5,689,289

LIABILITIES
Current maturities of long-term debt	$	25,690		$	—		$	—	$	25,690
Non-recourse obligations of variable interest entity	—			243,059			—		243,059
Accounts payable	56,790			393			—		57,183
Accrued and other liabilities	277,429			1,040			—		278,469
Long-term debt, net of current maturities	3,193,065			—			—		3,193,065
Deferred income taxes	362,174			—			—		362,174
Other liabilities	115,948			18,958			—		134,906

STOCKHOLDERS' EQUITY
Common stock	862			—			—		862
Additional paid-in capital	635,028			—			—		635,028
Retained earnings	560,909			—			—		560,909
Accumulated other comprehensive loss, net	(7,594		)	—			—		(7,594		)
Noncontrolling interest	219,256			(13,718		)	—		205,538
Total Liabilities and Stockholders' Equity	$	5,439,557		$	249,732		$	—	$	5,689,289

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

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



	Three Months Ended September 30, 2011
	Boyd Gaming Corporation (as historically presented)			LVE, LLC			Eliminations			Boyd Gaming Corporation (as consolidated)
	(In thousands)
REVENUES
Other revenue	$	34,105		$	2,724		$	(2,724	)	$	34,105

COSTS AND EXPENSES
Maintenance and utilities	$	40,906		$	19		$	—		$	40,925
Preopening expenses	4,444			—			(2,724		)	1,720

Operating income	$	65,459		$	2,705		$	—		$	68,164

Other expense
Interest expense, net	$	55,081		$	5,002		$	—		$	60,083

Income before income taxes	$	11,447		$	(2,297	)	$	—		$	9,150
Income taxes	(2,170		)	—			—			(2,170		)
Net income	9,277			(2,297		)	—			6,980
Net (income) loss attributable to noncontrolling interest	(6,168		)	2,297			—			(3,871		)
Net income attributable to Boyd Gaming Corporation	$	3,109		$	—		$	—		$	3,109

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



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

Loss before income taxes	$	(1,749	)	$	(3,252	)	$	—		$	(5,001	)
Income tax benefit	28			—			—			28
Net loss	(1,721		)	(3,252		)	—			(4,973		)
Net (income) loss attributable to noncontrolling interest	(1,642		)	3,252			—			1,610
Net loss attributable to Boyd Gaming Corporation	$	(3,363	)	$	—		$	—		$	(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.