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. Accordingly, on March 24, 2010, we effectively obtained control of Borgata. This resulting change in control required acquisition method of accounting in accordance with the authoritative accounting guidance for business combinations.

Acquisition Method of Accounting

The application of the acquisition method of accounting guidance had the following effects on our 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 items, net on the consolidated statement of operations, this gain was recorded as a cumulative adjustment during the year ended December 31, 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.

Consolidated Statement of Operations

We have not applied the measurement period adjustments retrospectively to the consolidated statement of operations for the year ended December 31, 2010, because the impact on such, as retrospectively adjusted to the statements as reported was not material. Had the measurement period adjustments been retrospectively adjusted, the results of operations would have reflected the following impact as if the adjustments had been recorded on the date of effective control for the year ended December 31, 2010.



	Year Ended
	December 31, 2010
	(In thousands)
Maintenance and utilities	$	141
Depreciation and amortization	2,221
Other operating items, net	(61		)
Total operating costs and expenses	2,301
Interest expense	3,458
Total other expense, net	3,458
Income (loss) before income taxes	$	(1,157	)

Results of Borgata

(for the period from March 24, 2010 through December 31, 2010)

reflected on a fully consolidated basis

The results of Borgata, as included in the accompanying consolidated statements of operations from the date we effectively obtained control, March 24, 2010 through December 31, 2010, are comprised of the following. These results do not reflect the retrospective impact from the measurement period adjustments discussed above, as such amounts were not material to the year ended December 31, 2010.



	March 24, through
	December 31, 2010
	(In thousands)
Statement of Operations
Revenues
Gaming	$	506,073
Food and beverage	116,534
Room	91,045
Other	33,752
Gross revenues	747,404
Less promotional allowances	167,264
Net revenues	580,140

Costs and expenses
Gaming	203,962
Food and beverage	55,989
Room	11,806
Other	27,209
Selling, general and administrative	94,983
Maintenance and utilities	49,913
Depreciation and amortization	52,886
Other operating items, net	(8		)
Total costs and expenses	496,740

Operating income	83,400

Other expense
Interest expense	45,139
Total other expense, net	45,139

Income before provision for state income taxes	38,261
Provision for state income taxes	(4,067		)
Net income	$	34,194

Supplemental Pro Forma Information

Pro Forma Consolidated Statement of Operations for the year ended December 31, 2010

(unaudited)

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 year ended December 31, 2010 would have been had the consolidation of Borgata been completed as of the earlier date, nor are they indicative of any future results.



	Year Ended December 31, 2010
										Boyd Gaming
	Boyd Gaming			Borgata Stub						Corporation
	Corporation			Period			Adjustments			Pro Forma
Revenues
Gaming	$	1,812,487		$	137,831		$	—		$	1,950,318
Food and beverage	347,588			31,218			—			378,806
Room	211,046			24,154			—			235,200
Other	123,603			9,179			—			132,782
Gross revenues	2,494,724			202,382			—			2,697,106
Less promotional allowances	353,825			44,093			—			397,918
Net revenues	2,140,899			158,289			—			2,299,188
Costs and expenses
Gaming	859,818			59,861			—			919,679
Food and beverage	180,840			13,500			—			194,340
Room	49,323			2,185			—			51,508
Other	99,458			7,127			—			106,585
Selling, general and administrative	369,217			28,981			—			398,198
Maintenance and utilities	140,722			13,522			—			154,244
Depreciation and amortization	199,275			16,754			—			216,029
Corporate expense	48,861			—			—			48,861
Preopening expenses	7,459			—			—			7,459
Impairments and other operating items	736			—			—			736
Other operating items, net	3,977			68			—			4,045
Total costs and expenses	1,959,686			141,998			—			2,101,684
Operating income from Borgata	8,146			—			(8,146		)	—
Operating income	189,359			16,291			(8,146		)	197,504
Other expense (income)
Interest income	(5		)	—			—			(5		)
Interest expense, net of amounts capitalized	180,558			5,060			—			185,618
Other income	(9,520		)	—			—			(9,520		)
Gain on early retirements of debt	(2,758		)	—			—			(2,758		)
Gain on controlling interest in Borgata	(2,535		)	—			—			(2,535		)
Other non-operating expenses from Borgata, net	3,133			—			(3,133		)	—
Total other expense, net	168,873			5,060			(3,133		)	170,800
Income (loss) before income taxes	20,486			11,231			(5,013		)	26,704
Income taxes	(8,236		)	(1,206		)	—			(9,442		)
Net income (loss)	12,250			10,025			(5,013		)	17,262
Net income attributable to noncontrolling interests	(1,940		)	—			(5,012		)	(6,952		)
Net income attributable to Boyd Gaming Corporation	$	10,310		$	10,025		$	(10,025	)	$	10,310

The pro forma adjustments reflect the differences resulting from the conversion of the equity method of accounting to a fully consolidated presentation.

Borgata Distributions

Borgata's bank credit facility allows for certain limited distributions to be made to its joint venture partners. Excluding the $135.4 million one-time distribution we received from Borgata in connection with their debt refinancing, as discussed above, our distributions from Borgata were $20.8 million for the year ended December 31, 2010.

Variable Interest

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, we had 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 and 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.

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

As discussed in Note 5, Assets Held for Development, and Note 24, Subsequent Events, on March 1, 2013, we entered into a definitive agreement to sell the Echelon site for $350 million in cash. In connection with this transaction, on March 4, 2013, we exercised an option to acquire the central energy center assets from LVE for $187.0 million and immediately sold these assets to the buyer of Echelon. The ESA agreement was terminated. As a result, we will cease consolidation of LVE as of March 4, 2013.

The effects of the consolidation of LVE on our financial position as of December 31, 2012 and 2011, and its impact on our results of operations for the years ended December 31, 2012, 2011 and 2010 are reconciled by respective line items to amounts as reported in our consolidated balance sheets and consolidated statements of operations are presented below.

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



	December 31, 2012
									Boyd Gaming
	Boyd Gaming								Corporation
	Corporation			LVE, LLC			Eliminations		(as consolidated)
	(In thousands)
ASSETS
Current assets	$	354,140		$	1,453		$	—	$	355,593
Property and equipment, net	3,624,988			—			—		3,624,988
Assets held for development	168,251			163,519			—		331,770
Debt financing costs, net	83,020			2,448			—		85,468
Restricted investments	—			21,382			—		21,382
Other assets	98,425			—			—		98,425
Intangible assets, net	1,119,638			—			—		1,119,638
Goodwill, net	694,929			—			—		694,929
Total Assets	$	6,143,391		$	188,802		$	—	$	6,332,193

LIABILITIES
Current maturities of long-term debt	$	61,570		$	—		$	—	$	61,570
Accounts payable	91,046			164			—		91,210
Accrued and other liabilities	356,056			8,486			—		364,542
Income taxes payable	8,129			—			—		8,129
Current non-recourse obligations of variable interest entity	—			225,113			—		225,113
Long-term debt, net of current maturities	4,827,853			—			—		4,827,853
Deferred income taxes	139,943			—			—		139,943
Long-term tax and other liabilities	146,706			—			—		146,706

STOCKHOLDERS' EQUITY
Common stock	869			—			—		869
Additional paid-in capital	655,694			—			—		655,694
Retained earnings, including accumulated other comprehensive income (loss)	(352,772		)	—			—		(352,772		)
Noncontrolling interest	208,297			(44,961		)	—		163,336
Total Liabilities and Stockholders' Equity	$	6,143,391		$	188,802		$	—	$	6,332,193



	December 31, 2011
								Boyd Gaming
	Boyd Gaming							Corporation
	Corporation		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
Current 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
Long-term 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

The summarized impact on our consolidated statement of operations for the years ended December 31, 2012, 2011 and 2010 was as follows:



	Year Ended December 31, 2012
										Boyd Gaming
	Boyd Gaming									Corporation
	Corporation			LVE, LLC			Eliminations			(as consolidated)
	(In thousands)
REVENUES
Other revenue	$	145,460		$	10,896		$	(10,896	)	$	145,460

COSTS AND EXPENSES
Selling, general and administrative	$	452,872		$	54		$	—		$	452,926
Preopening expenses	22,437			—			(10,896		)	11,541

Operating income	$	(865,717	)	$	10,842		$	—		$	(854,875	)

Other expense
Interest expense, net of amounts capitalized	$	277,681		$	12,323		$	—		$	290,004

Income (loss) before income taxes	$	(1,142,366	)	$	(1,481	)	$	—		$	(1,143,847	)
Income taxes	220,772			—			—			220,772
Net income (loss)	(921,594		)	(1,481		)	—			(923,075		)
Net (income) loss attributable to noncontrolling interest	12,729			—			1,481			14,210
Net income (loss) attributable to Boyd Gaming Corporation	$	(908,865	)	$	(1,481	)	$	1,481		$	(908,865	)



	Year Ended December 31, 2011
										Boyd Gaming
	Boyd Gaming									Corporation
	Corporation			LVE, LLC			Eliminations			(as consolidated)
	(In thousands)
REVENUES
Other revenue	$	135,176		$	10,858		$	(10,858	)	$	135,176

COSTS AND EXPENSES
Selling, general and administrative	$	394,991		$	—		$	—		$	394,991
Maintenance and utilities	153,512			—			—			153,512
Preopening expenses	17,492			—			(10,858		)	6,634

Operating income	$	222,246		$	10,858		$	—		$	233,104

Other expense
Interest expense, net of amounts capitalized	$	233,978		$	16,753		$	—		$	250,731

Income (loss) before income taxes	$	(383	)	$	(5,895	)	$	—		$	(6,278	)
Income taxes	(1,721		)	—			—			(1,721		)
Net loss	(2,104		)	(5,895		)	—			(7,999		)
Net (income) loss attributable to noncontrolling interest	(1,750		)	—			5,895			4,145
Net income (loss) attributable to Boyd Gaming Corporation	$	(3,854	)	$	(5,895	)	$	5,895		$	(3,854	)



	Year Ended December 31, 2010
										Boyd Gaming
	Boyd Gaming									Corporation
	Corporation			LVE, LLC			Eliminations			(as consolidated)
	(In thousands)
REVENUES
Other revenue	$	123,603		$	—		$	—		$	123,603

COSTS AND EXPENSES
Selling, general and administrative	$	369,217		$	—		$	—		$	369,217
Maintenance and utilities	140,722			—			—			140,722
Preopening expenses	8,405			—			(946		)	7,459

Operating income	$	188,413		$	—		$	946		$	189,359

Other expense
Interest expenses, net of amounts capitalized	$	164,454		$	16,104		$	—		$	180,558

Income (loss) before income taxes	$	35,644		$	(16,104	)	$	946		$	20,486
Income taxes	(8,236		)	—			—			(8,236		)
Net income (loss)	27,408			(16,104		)	946			12,250
Net (income) loss attributable to noncontrolling interest	(17,098		)	—			15,158			(1,940		)
Net income (loss) attributable to Boyd Gaming Corporation	$	10,310		$	(16,104	)	$	16,104		$	10,310