ACQUISITIONS AND DIVESTITURES

Acquisition - Cannery Casino Hotel and Nevada Palace, LLC

Overview

On December 20, 2016, Boyd Gaming completed its previously announced acquisitions of Cannery, the owner and operator of Cannery Casino Hotel, and Eastside Cannery, the owner and operator of Eastside Cannery Casino and Hotel, pursuant to a Membership Interest Purchase Agreement (the “Purchase Agreement”) dated as of April 25, 2016, as amended on October 28, 2016, by and among Boyd, Cannery Casino Resorts, LLC (“Seller”), Cannery and Eastside Cannery.

Pursuant to the terms of the Purchase Agreement, Boyd acquired from Seller all of the issued and outstanding membership interests of Cannery and Eastside Cannery (the “Acquisitions”). With the closing of the Acquisitions, each of Cannery and Eastside Cannery became wholly-owned subsidiaries of Boyd. The Cannery and Eastside Cannery are modern casinos and hotels in the Las Vegas Valley that offer premium accommodations, gaming, dining, entertainment and retail, and are aggregated into our Las Vegas Locals segment (See Note 1, Summary of Significant Accounting Policies.) The net purchase price was $228.2 million.

Consideration Transferred

The fair value of the consideration transferred on the acquisition date included the purchase price of the net assets transferred. The total gross consideration was $238.6 million.

Status of Purchase Price Allocation

The Company is following the acquisition method of accounting per ASC 805 guidance. For purposes of these financial statements, we have allocated the purchase price to the assets acquired and the liabilities assumed based on preliminary estimates of fair value as determined by management based on its judgment with assistant from preliminary third party appraisals. The excess of the purchase price over the net book value of the assets acquired and liabilities assumed has been recorded as goodwill. The Company will recognize the assets acquired and liabilities assumed in the Acquisitions based on fair value estimates as of the date of the Acquisitions. The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) is currently in process. This determination requires significant judgment. As such, management has not completed its valuation analysis and calculations in sufficient detail necessary to finalize the determination of the fair value of the assets acquired and liabilities assumed, along with the related allocations of goodwill and intangible assets. The final fair value determinations are expected to be completed no later than third quarter of 2017. The final fair value determinations may be significantly different than those reflected in the consolidated financial statements at December 31, 2016.

The following table summarizes the preliminary allocation of the purchase price:



(In thousands)	As Recorded
Current assets	$	29,929
Property and equipment	181,757
Intangible assets	16,330
Total acquired assets	228,016
Current liabilities	15,850
Total liabilities assumed	15,850
Net identifiable assets acquired	212,166
Goodwill	26,401
Net assets acquired	$	238,567

The following table summarizes the preliminary values assigned to acquired property and equipment and estimated useful lives:



(In thousands)	Useful Lives	As Recorded
Land		$	6,650
Buildings and improvements	10 - 40 years	167,208
Furniture and equipment	3 - 7 years	7,264
Construction in progress		635
Property and equipment acquired		$	181,757

The goodwill was assigned to the Las Vegas Locals reportable segment. All of the goodwill is expected to be deductible for income tax purposes.

The Company recognized $10.5 million of acquisition related costs that were expensed for the year ended December 31, 2016. These costs are included in the consolidated statements of operations in the line item entitled "Project development, preopening and writedowns".

Acquisition - Aliante Casino + Hotel + Spa

Overview

On September 27, 2016, Boyd Gaming completed the acquisition of ALST, the holding company of Aliante, the owner and operator of the Aliante Casino + Hotel + Spa. Pursuant to the Merger Agreement, Merger Sub merged (the "Merger") with and into ALST, with ALST surviving the Merger. ALST and Aliante are now wholly-owned subsidiaries of Boyd Gaming. Aliante is an upscale, resort-style casino and hotel situated in North Las Vegas offering premium accommodations, gaming, dining, entertainment and retail, and is aggregated into our Las Vegas Locals segment (See Note 1, Summary of Significant Accounting Policies.) The net purchase price was $372.3 million.

Consideration Transferred

The fair value of the consideration transferred on the acquisition date included the purchase price of the net assets transferred. The total gross consideration was $399.1 million.

Status of Purchase Price Allocation

The Company is following the acquisition method of accounting per ASC 805 guidance. In accordance with ASC 805, the Company allocated the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, which was determined primarily by management with assistance from third-party appraisals. The excess of the purchase price over those fair values has been recorded as goodwill.

The following table summarizes the preliminary allocation of the purchase price:



(In thousands)	As Recorded
Current assets	$	31,886
Property and equipment	226,309
Intangible and other assets	20,791
Total acquired assets	278,986
Current liabilities	5,693
Other liabilities	636
Total liabilities assumed	6,329
Net identifiable assets acquired	272,657
Goodwill	126,489
Net assets acquired	$	399,146

The following table summarizes the preliminary values assigned to acquired property and equipment and estimated useful lives:



(In thousands)	Useful Lives	As Recorded
Land		$	16,680
Buildings and improvements	10 - 45 years	200,770
Furniture and equipment	3 - 7 years	8,217
Construction in progress		642
Property and equipment acquired		$	226,309

All of the goodwill was assigned to the Las Vegas Locals reportable segment. All of the goodwill is expected to be deductible for income tax purposes.

The Company recognized $2.2 million of acquisition related costs that were expensed for the year ended December 31, 2016, respectively. These costs are included in the consolidated statements of operations in the line item entitled "Project development, preopening and writedowns".

We have not provided the amount of revenue and earnings included in our consolidated financial results from the Aliante or Cannery acquisitions for the period subsequent to their respective acquisitions as such amounts are not material for the twelve months ended December 31, 2016.

Investment in and Divestiture of Borgata

On August 1, 2016, Boyd Gaming completed the sale of its 50% equity interest in Marina District Development Holding Company, LLC ("MDDHC"), the parent company of Borgata, to MGM, pursuant to an Equity Purchase Agreement ("Purchase Agreement") entered into on May 31, 2016, as amended on July 19, 2016, by and among Boyd, Boyd Atlantic City, Inc., a wholly-owned subsidiary of Boyd ("Seller"), and MGM. Pursuant to the Purchase Agreement, MGM acquired from Boyd Gaming 49% of its 50% membership interest in MDDHC and, immediately thereafter, MDDHC redeemed Boyd Gaming’s remaining 1% membership interest in MDDHC (collectively, the "Transaction"). Following the Transaction, MDDHC became a wholly-owned subsidiary of MGM.

In consideration for the Transaction, MGM paid Boyd Gaming $900 million. The initial net cash proceeds were approximately $589 million, net of certain expenses and adjustments on the closing date, including outstanding indebtedness, cash and working capital. The after-tax gain on the sale of Borgata was $181.7 million and is included in discontinued operations in the year ended December 31, 2016. The initial proceeds do not include our 50% share of any future property tax settlement benefits, from the time period during which we held a 50% ownership in MDDHC, to which Boyd Gaming retains the right to receive upon payment. During 2016, we recognized $9.1 million in income, which is included in discontinued operations, for the cash we received for our share of property tax benefits realized by Borgata subsequent to the closing of the sale. On February 15, 2017, Borgata announced that it had entered into a settlement agreement under which it will receive payments totaling $72 million to resolve the property tax issues. We will receive 50% of those payments once Borgata receives the payments from the city.

Prior to the sale of our equity interest, the Company and MGM each held a 50% interest in MDDHC, which owns all the equity interests in Borgata. Until the closing of the sale, we were the managing member of MDDHC, and we were responsible for the day-to-day operations of Borgata. On September 30, 2014, MGM reacquired its ownership interest in and its substantive participation rights in the management of Borgata. As a result, we deconsolidated Borgata as of the close of business on September 30, 2014, eliminating the assets, liabilities and non-controlling interests from our balance sheet.

As a result of the deconsolidation, we adjusted the book value of our investment to equal fair value. We determined the fair value of our investment in Borgata as of the date of deconsolidation using a weighted average allocation of both the income and market approach models. Using these models, we determined that the fair value of our investment in Borgata at September 30, 2014, was $221.4 million and recognized a loss due to the deconsolidation of $12.1 million in our third quarter 2014 results, which was recorded in impairments of assets on our consolidated statement of operations. We accounted for our investment in Borgata applying the equity method for periods subsequent to the deconsolidation, through the date of the sale, and, as a result of the sale, we reported the results as discontinued operations for all periods presented in these consolidated financial statements.

The table below summarizes the results of operations information for periods subsequent to the September 30, 2014 deconsolidation of Borgata through the date of divestiture:



	Seven Months Ended		Twelve Months Ended			Three Months Ended
(In thousands)	July 31, 2016		December 31, 2015			December 31, 2014
Net revenues	$	485,510	$	804,166		$	179,147
Operating expenses	366,812		657,324			157,896
Operating income	118,698		146,842			21,251
Interest expense	26,378		59,681			17,431
Loss on early extinguishments of debt	1,628		18,895			740
State income tax expense (benefit)	8,274		(3,731		)	446
Net income	$	82,418	$	71,997		$	2,634