Edgar Filing: BOYD GAMING CORP

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-12882

LOGO

BOYD GAMING CORPORATION

(Exact name of registrant as specified in its charter)

Nevada

88-0242733

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

3883 Howard Hughes Parkway, Ninth Floor, Las Vegas, NV 89169

(Address of principal executive offices) (Zip Code)

(702) 792-7200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding as of July 30, 2010
Common stock, $0.01 par value		86,226,640 shares

BOYD GAMING CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED JUNE 30, 2010

TABLE OF CONTENTS


		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009	4

	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009	5

	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the six months ended June 30, 2010	6

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009	7

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	58

Item 4.	Controls and Procedures	58

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	59

Item 1A.	Risk Factors	59

Item 6.	Exhibits	74

Signature Page		75

PART I. Financial Information

Item 1.

Financial Statements

The accompanying unaudited condensed consolidated financial statements of Boyd Gaming Corporation (and together with its subsidiaries, the “Company,” “we” or “us”) have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and footnote disclosures necessary for complete financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”). The results for the periods indicated are unaudited, however, our condensed consolidated balance sheet as of December 31, 2009 has been derived from our audited financial statements, but reflect all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation of financial position, results of operations and cash flows.

Results of operations for interim periods are not necessarily indicative of the results that would be achieved during a full year of operations or in future periods. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009 and our unaudited condensed consolidated financial statements and notes thereto included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.

BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands, except share and per share data)


	June 30, 2010			December 31, 2009
ASSETS
Current assets
Cash and cash equivalents	$	100,173		$	93,202
Restricted cash		15,614			16,168
Accounts receivable, net		44,044			18,584
Inventories		16,108			11,392
Prepaid expenses and other current assets		36,259			24,818
Income taxes receivable		3,105			20,807
Deferred income taxes		8,868			7,766

Total current assets		224,171			192,737
Property and equipment, net		4,463,436			3,159,177
Investments in and advances to unconsolidated subsidiaries, net		5,041			394,220
Other assets, net		108,757			78,121
Intangible assets, net		422,126			422,126
Goodwill, net		213,576			213,576

Total assets	$	5,437,107		$	4,459,957

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current maturities of long-term debt	$	670		$	652
Current maturities of Borgata bank credit facility		626,872			—
Accounts payable		50,582			39,127
Construction payables		3,714			34,128
Note payable		—			46,875
Accrued liabilities		252,922			174,577

Total current liabilities		934,760			295,359
Long-term debt, net of current maturities		2,519,072			2,576,911
Deferred income taxes		355,863			335,159
Other long-term tax liabilities		44,104			32,703
Other liabilities		73,020			63,456
Commitments and contingencies (Note 6)
Stockholders’ equity
Preferred stock, $0.01 par value, 5,000,000 shares authorized		—			—
Common stock, $0.01 par value, 200,000,000 shares authorized; 86,226,641 and 86,130,454 shares outstanding		862			861
Additional paid-in capital		629,347			623,035
Retained earnings		562,416			550,599
Accumulated other comprehensive loss, net		(13,716	)		(18,126	)

Total Boyd Gaming Corporation stockholders’ equity		1,178,909			1,156,369
Noncontrolling interest		331,379			—

Total stockholders’ equity		1,510,288			1,156,369

Total liabilities and stockholders’ equity	$	5,437,107		$	4,459,957

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share data)


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
REVENUES
Operating revenues:
Gaming	$	490,132		$	353,597		$	840,537		$	719,660
Food and beverage		94,020			58,688			154,002			117,729
Room		58,671			32,548			90,105			63,189
Other		33,813			24,486			57,635			51,421

Gross revenues		676,636			469,319			1,142,279			951,999
Less promotional allowances		98,190			46,369			148,698			94,204

Net revenues		578,446			422,950			993,581			857,795

COST AND EXPENSES
Operating costs and expenses:
Gaming		229,755			167,427			397,860			340,339
Food and beverage		49,149			32,114			81,791			63,498
Room		13,056			10,069			23,106			20,026
Other		27,006			19,553			46,244			38,867
Selling, general and administrative		99,666			72,618			169,944			146,591
Maintenance and utilities		37,970			22,973			62,109			45,359
Depreciation and amortization		55,408			42,093			95,454			84,745
Corporate expense		13,526			11,036			25,615			23,721
Preopening expenses		1,243			4,054			2,306			9,893
Write-downs and other charges, net		1,991			(1,835	)		3,592			27,128

Total operating costs and expenses		528,770			380,102			908,021			800,167

Operating income from Borgata		—			13,310			8,146			25,732

Operating income		49,676			56,158			93,706			83,360

Other expense (income):
Interest income		—			—			(4	)		(4	)
Interest expense, net of amounts capitalized		34,650			36,235			63,657			81,506
Gain on early retirements of debt		(1,912	)		(6,057	)		(3,949	)		(8,457	)
Other non-operating expenses from Borgata, net		—			4,504			3,133			9,026

Total other expense, net		32,738			34,682			62,837			82,071

Income before income taxes		16,938			21,476			30,869			1,289
Income taxes		(4,912	)		(8,698	)		(9,161	)		(2,339	)

Net income (loss)		12,026			12,778			21,708			(1,050	)
Net income attributable to noncontrolling interest		(8,644	)		—			(9,891	)		—

Net income (loss) attributable to Boyd Gaming Corporation	$	3,382		$	12,778		$	11,817		$	(1,050	)

Basic net income (loss) per common share:	$	0.04		$	0.15		$	0.14		$	(0.01	)

Weighted average basic shares outstanding		86,511			86,254			86,471			86,591

Diluted net income (loss) per common share:	$	0.04		$	0.15		$	0.14		$	(0.01	)

Weighted average diluted shares outstanding		86,942			86,291			86,743			86,591

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2010

(Unaudited and in thousands, except share data)


	Boyd Gaming Corporation Stockholders’ Equity
									Accumulated Other Comprehensive Loss, Net
				Additional Paid-in Capital			Retained Earnings							Total Stockholders’ Equity
	Common Stock											Noncontrolling Interest
	Shares	Amount										Noncontrolling Interest
Balances, January 1, 2010	86,130,454	$	861	$	623,035		$	550,599	$	(18,126	)	$	—	$	1,156,369
Net income attributable to Boyd Gaming Corporation	—		—		—			11,817		—			—		11,817
Derivative instruments fair value adjustment, net of taxes of $2,408	—		—		—			—		4,410			—		4,410
Stock options exercised	96,187		1		605			—		—			—		606
Tax effect from share-based compensation arrangements	—		—		(21	)		—		—			—		(21	)
Share-based compensation costs	—		—		5,728			—		—			—		5,728
Noncontrolling interest in Borgata	—		—		—			—		—			331,379		331,379

Balances, June 30, 2010	86,226,641	$	862	$	629,347		$	562,416	$	(13,716	)	$	331,379	$	1,510,288

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)


	Six Months Ended June 30,
	2010			2009
Cash Flows from Operating Activities
Net income (loss)	$	21,708		$	(1,050	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		95,454			84,745
Amortization of debt issuance costs		2,917			2,241
Share-based compensation expense		5,728			7,942
Deferred income taxes		4,503			(3,642	)
Operating and non-operating income from Borgata		(5,013	)		(16,706	)
Distributions of earnings received from Borgata		1,910			12,581
Noncash asset write-downs		—			28,476
Gain on early retirements of debt		(3,949	)		(8,457	)
Other operating activities		712			(2,776	)
Changes in operating assets and liabilities:
Restricted cash		554			(2,292	)
Accounts receivable, net		2,628			172
Inventories		(598	)		976
Prepaid expenses and other current assets		(2,004	)		(3,969	)
Income taxes receivable		12,102			5,816
Other assets, net		1,293			1,433
Accounts payable and accrued liabilities		9,622			(10,928	)
Other long-term tax liabilities		1,159			2,988
Other liabilities		1,031			1,963

Net cash provided by operating activities		149,757			99,513

Cash Flows from Investing Activities
Capital expenditures		(47,481	)		(128,804	)
Net cash effect upon change in controlling interest of Borgata		26,025			—
Investments in and advances to unconsolidated subsidiaries, net		(387	)		(500	)
Net additional cash paid for Dania Jai-Alai		—			(9,375	)
Other investing activities		223			1,669

Net cash used in investing activities		(21,620	)		(137,010	)

Cash Flows from Financing Activities
Payments on retirements of long-term debt		(28,861	)		(36,088	)
Borrowings under bank credit facility		374,800			371,935
Payments under bank credit facility		(399,300	)		(285,238	)
Borrowings under Borgata bank credit facility		190,983			—
Payments under Borgata bank credit facility		(196,400	)		—
Payments under note payable		(46,875	)		(9,375	)
Repurchase and retirement of common stock		—			(7,950	)
Noncontrolling interest distributions by Borgata		(15,602	)		—
Other financing activities		89			(293	)

Net cash provided by (used in) financing activities		(121,166	)		32,991

Increase (decrease) in cash and cash equivalents		6,971			(4,506	)
Cash and cash equivalents, beginning of period		93,202			98,152

Cash and cash equivalents, end of period	$	100,173		$	93,646

BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

(Unaudited and in thousands)


	Six Months Ended June 30,
	2010			2009
Supplemental Disclosure of Cash Flow Information
Cash paid for interest, net of amounts capitalized	$	69,109		$	80,818
Cash received for income taxes, net of income taxes paid		(9,761	)		(1,946	)
Supplemental Schedule of Noncash Investing and Financing Activities
Payables incurred for capital expenditures	$	6,965		$	39,194
Increase (decrease) in fair value of derivative instruments		7,884			(3,014	)
Changes in Assets and Liabilities Due to Change in Controlling Interest of Borgata
Accounts receivable, net	$	29,099		$	—
Inventories		4,118			—
Prepaid expenses and other current assets		9,437			—
Deferred income taxes		1,290			—
Property and equipment, net		1,352,321			—
Investments in and advances to unconsolidated subsidiaries, net		5,135			—
Other assets, net		34,964			—

Provisional value of assets	$	1,436,364		$	—

Current maturities of long-term debt	$	632,289		$	—
Accounts payable		6,822			—
Income taxes payable		5,699			—
Accrued liabilities		71,949			—
Deferred income taxes		13,982			—
Other long-term tax liabilities		10,242			—
Other liabilities		16,418			—

Provisional value of liabilities	$	757,401		$	—

Acquisition of Dania Jai-Alai
Fair value of noncash assets acquired	$	—		$	28,352
Additional cash paid		—			(9,375	)
Termination of contingent liability		—			46,648
Note payable issued		—			(65,625	)

Liabilities assumed	$	—		$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. Summary of Significant Accounting Policies

Organization

Boyd Gaming Corporation was incorporated in the state of Nevada in 1988 and has been operating since 1973. The Company’s common stock is traded on the New York Stock Exchange under the symbol “BYD”.

We are a diversified operator of 15 wholly-owned gaming entertainment properties and one 50% interest in a limited liability company that operates Borgata Hotel Casino & Spa (“Borgata”) in Atlantic City, New Jersey. Headquartered in Las Vegas, we have gaming operations in Nevada, Illinois, Louisiana, Mississippi, Indiana and New Jersey, which we aggregate in order to present four Reportable Segments: (i) Las Vegas Locals, (ii) Downtown Las Vegas, (iii) Midwest and South, and (iv) Atlantic City.

On March 24, 2010, as a result of the amendment to our operating agreement with MGM Resorts International (the successor in interest to MGM MIRAGE) (“MGM”) (our original 50% partner in Borgata), which provided, among other things, for the termination of MGM’s participating rights in the operations of Borgata, we effectively obtained control of Borgata. The amendment to the operating agreement was related to MGM’s divestiture of its interest pursuant to a regulatory settlement, as discussed further in Note 3, Investments in and Advances to Unconsolidated Subsidiaries, Net. This resulting change in control required acquisition method accounting in accordance with the authoritative accounting guidance for business combinations. As a result, we measured our previously held equity interest at a provisional fair value during the three months ended March 31, 2010. As discussed further in Note 3, Investments in and Advances to Unconsolidated Subsidiaries, Net, no remeasurement amounts were identified and recorded through June 30, 2010. Additionally, the financial position of Borgata is consolidated in our condensed consolidated balance sheet as of June 30, 2010; its results of operations for the period from April 1 through June 30, 2010 are included in our condensed consolidated statement of operations for the three months ended June 30, 2010; and its results of operations for the period from March 24 through June 30, 2010 are included in our condensed consolidated statements of operations and cash flows for the six months ended June 30, 2010. Prior period amounts were not restated or recasted as a result of this change; however, detailed proforma financial information is presented in Note 3, Investments in and Advances to Unconsolidated Subsidiaries, Net for the three and six month periods ended June 30, 2009. We also recorded the noncontrolling interest held in trust for the benefit of MGM as a separate component of our stockholders’ equity.

We also own and operate Dania Jai-Alai, which is a pari-mutuel jai-alai facility with approximately 47 acres of related land located in Dania Beach, Florida, a travel agency in Hawaii, and a captive insurance company, also in Hawaii, that underwrites travel-related insurance.

Additionally, we own 85 acres on the Las Vegas Strip, where our Echelon development project is located. On August 1, 2008, due to the difficult environment in the capital markets, as well as weak economic conditions, we announced the delay of our multibillion dollar Echelon development project on the Las Vegas Strip. At such time, we did not anticipate the long-term effects of the current economic downturn, evidenced by lower occupancy rates, declining room rates and reduced consumer spending across the country, but particularly in the Las Vegas geographical area; nor did we predict that the incremental supply becoming available on the Las Vegas Strip would face such depressed demand levels, thereby elongating the time for absorption of this additional supply into the market. As we do not yet believe that a significant level of economic recovery has occurred along the Las Vegas Strip, we still do not expect to resume construction for three to five years. We also believe financing for a development project like Echelon continues to be unavailable.

Basis of Presentation

As permitted by the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, although we believe that the disclosures made are adequate to make the information reliable. These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009 and our unaudited condensed consolidated financial statements and notes thereto included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly our financial position as of June 30, 2010 and December 31, 2009, the results of our operations for the three and six months ended June 30, 2010 and 2009, and our cash flows for the six months ended June 30, 2010 and 2009. Our operating results for the three and six months ended June 30, 2010 and 2009 and our cash flows for the six months ended June 30, 2010 and 2009 are not necessarily indicative of the results that would be achieved during a full year of operations or in future periods.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Boyd Gaming Corporation and its subsidiaries. In addition, as discussed above, the financial position of Borgata is consolidated in our condensed consolidated balance sheet as of June 30, 2010, its results of operations for the period from April 1 through June 30, 2010 are included in our condensed consolidated statement of operations for the three months ended June 30, 2010, and its results of operations for the period from March 24 through June 30, 2010 are included in our condensed consolidated statements of operations and cash flows for the six months ended June 30, 2010.

Investments in unconsolidated affiliates, which are less than 50% owned and do not meet the consolidation criteria of the authoritative accounting guidance for controlled or variable interest entities, are accounted for under the equity method. See Note 3, Investments in and Advances to Unconsolidated Subsidiaries, Net. All material intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates incorporated into our condensed consolidated financial statements include the estimated allowance for doubtful accounts receivable, estimated useful lives for depreciable and amortizable assets, measurement of our equity interest in Borgata, fair values of acquired assets and liabilities, estimated cash flows in assessing the recoverability of long-lived assets, assumptions relative to the valuation of goodwill and intangible assets, estimated valuation allowance for deferred tax assets, certain tax liabilities, self-insured liability reserves, slot bonus point programs, share-based payment valuation assumptions, fair values of assets and liabilities measured at fair value, fair values of assets and liabilities disclosed at fair value, fair values of derivative instruments, contingencies and litigation, claims and assessments. Actual results could differ from these estimates.

Property and Equipment, Net

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or, for leasehold improvements, over the shorter of the asset’s useful life or term of the lease. Gains or losses on disposals of assets are recognized as incurred using the specific identification method. Costs of major improvements are capitalized, while costs of normal repairs and maintenance are charged to expense as incurred.

Investments In and Advances to Unconsolidated Subsidiaries, Net

We and Borgata have investments in unconsolidated subsidiaries accounted for under the equity method. Under the equity method, carrying value is adjusted for our share of the investees’ earnings and losses, as well as capital contributions to and distributions from these entities.

As discussed above, due to our controlling interest in Borgata, we measured our previously held equity interest at a provisional fair value during the three months ended March 31, 2010. Additionally, the financial position of Borgata is consolidated in our condensed consolidated balance sheet as of June 30, 2010, its results of operations for the period from April 1 through June 30, 2010 are included in our condensed consolidated statement of operations for the three months ended June 30, 2010, and its results of operations for the period from March 24 through June 30, 2010 are included in our condensed consolidated statements of operations and cash flows for the six months ended June 30, 2010.

We evaluate our investments in unconsolidated subsidiaries for impairment when events or changes in circumstances indicate that the carrying value of such investment may have experienced an other-than-temporary decline in value. If such conditions exist, we compare the estimated fair value of the investment to its carrying value to determine if an impairment is indicated and determine whether such impairment is other-than-temporary based on our assessment of all relevant factors. Estimated fair value is determined using a discounted cash flow analysis based on estimated future results of the investee.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

Intangible Assets

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.

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.

The results of our annual scheduled impairment test of indefinite-lived intangible assets did not require us to record an impairment charge during the three and six months ended June 30, 2010; 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. 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.

The gross amount of intangible assets recorded at June 30, 2010 and December 31, 2009 was $1,010.0 million, respectively, which has been reduced by aggregate impairment losses of $187.9 million and accumulated amortization of $400.0 million at each date. Our customer lists were fully amortized in 2009 and, accordingly, only indefinite-lived intangible assets remain at June 30, 2010. Amortization expense was $0.02 million and $0.04 million for the three and six months ended June 30, 2009, respectively.

As discussed in Note 3, Investments in and Advances to Unconsolidated Subsidiaries, Net, no remeasurement amounts were identified and recorded through June 30, 2010 in connection with the provisional fair values of the assets and liabilities we recognized in connection with our consolidation of Borgata. Accordingly, our intangible assets and amortization expense recorded do not include amortization expense on the provisional values of any amortizable intangible assets in connection with our consolidation of Borgata, pending finalization of the fair value allocation; however, such amounts are not expected to be material.

Goodwill

Goodwill represents the excess of purchase price over fair market value of net assets acquired in business combinations. Goodwill is not subject to amortization, but it is subject to an annual impairment test in the second quarter of each year and between annual test dates in certain circumstances.

Goodwill for relevant reporting units is tested for impairment using a weighted discounted cash flow analysis and an earnings multiple valuation technique based on the estimated future results of our reporting units discounted using our weighted-average cost of capital and market indicators of terminal year capitalization rates. The implied fair value of a reporting unit’s goodwill is compared to the carrying value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to its assets and liabilities and the amount remaining, if any, is the implied fair value of goodwill. If the implied fair value of the goodwill is less than its carrying value, then it must be written down to its implied fair value.

The results of our annual scheduled impairment test of goodwill did not require us to record an impairment charge during the three and six months ended June 30, 2010; however, if our estimates of projected cash flows related to goodwill 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.

The gross amount of goodwill recorded at June 30, 2010 and December 31, 2009 was $429.7 million, which has been reduced by aggregate impairment losses of $216.2 million at each of those dates.

Noncontrolling Interest

Noncontrolling interest is the portion of the ownership in Borgata not attributable, directly or indirectly, to Boyd, and is reported as a separate component of our stockholders’ equity in our consolidated financial statements. Our consolidated net income is reported at amounts that include the amounts attributable to both us and the noncontrolling interest. At June 30, 2010, we recorded a noncontrolling interest of $331.4 million associated with the portion of ownership in Borgata that is not attributable to Boyd. Borgata distributed $17.5 million to us during the six months ended June 30, 2010. As discussed above, we effectively obtained control of Borgata on March 24, 2010 and, accordingly, no such noncontrolling interest was recorded during the six months ended June 30, 2009.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

Preopening Expenses

Certain costs of start-up activities are expensed as incurred. During the three months ended June 30, 2010 and 2009, we expensed $1.2 million and $4.1 million, respectively, in preopening costs that related primarily to our Echelon development project. Such costs consisted primarily of security, storage, property taxes and insurance. During the six months ended June 30, 2010 and 2009, we expensed $2.3 million and $9.9 million, respectively, in preopening costs that related primarily to our Echelon development project in both periods and our hotel at Blue Chip in 2009.

Recently Issued Accounting Pronouncements

Accruals for Casino Jackpot Liabilities - In April 2010, the Financial Accounting Standards Board issued authoritative accounting guidance for companies that generate revenue from gaming activities that involve base jackpots, which requires companies to accrue for a liability at the time the company has the obligation to pay the jackpot and record such obligation as a reduction of gaming revenue accordingly. The guidance is effective for interim and annual reporting periods beginning on or after December 15, 2010. Base jackpots are currently not accrued for by the Company until it has the obligation to pay such jackpots. As such, the application of this guidance will not have a material effect on the Company’s financial condition, results of operations or cash flows.

A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of such proposed standards would have on our consolidated financial statements.

Subsequent Events

We have evaluated all events or transactions that occurred after June 30, 2010. During this period, the Company had the following subsequent events, the effects of which did not require adjustment to the Company’s financial position or results of operations as of and for the three and six months ended June 30, 2010.

Borgata Facility

On August 4, 2010, Borgata received approval from the New Jersey Casino Control Commission (“NJCCC”) for a proposed financing involving the issuance of high yield debt and the entry into a new credit facility. The NJCCC also approved the proposed use of proceeds from such financing, which would include, if the financing is consummated, a distribution to us of approximately $125 million. We expect the financing to close in August 2010, subject to closing conditions and settlement procedures.

Discontinuation of Efforts to Purchase Station Casinos Assets

On July 30, 2010, we discontinued our efforts to pursue the acquisition of certain assets of Station Casinos given current bidding procedures in place and our current view of the limited potential value of the operating and development assets.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

Note 2. Property and Equipment, Net

Property and equipment, net consists of the following.


	Estimated Life (Years)	June 30, 2010		December 31, 2009
		(In thousands)
Land	—	$	774,017	$	686,716
Buildings and improvements	10-40		3,403,015		1,980,086
Furniture and equipment	3-10		1,144,732		863,854
Riverboats and barges	10-40		167,424		167,427
Construction in progress	—		734,129		721,990

Total property and equipment			6,223,317		4,420,073
Less accumulated depreciation			1,759,881		1,260,896

Property and equipment, net		$	4,463,436	$	3,159,177

Depreciation expense for the three months ended June 30, 2010 and 2009 was $55.4 million and $42.1 million, respectively, and was $95.5 million and $84.7 million for the six months ended June 30, 2010 and 2009, respectively.

Construction in progress primarily relates to the costs capitalized in conjunction with our Echelon project, and such costs are not currently being depreciated.

Note 3. Investments in and Advances to Unconsolidated Subsidiaries, Net

Investments in and advances to unconsolidated subsidiaries, net consist of the following:


	June 30, 2010		December 31, 2009
	(In thousands)
Net investment in and advances to Borgata (50%)	$	—	$	394,220
Net investment in and advances to Atlantic City Express Service, LLC (33.3%)		5,041		—

Investments in and advances to unconsolidated subsidiaries, net	$	5,041	$	394,220

Borgata Hotel Casino and Spa

We 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.

By letter of July 27, 2009 (the “Letter”), the New Jersey Department of Gaming Enforcement (the “NJDGE”) made a formal request to the NJCCC that the NJCCC reopen the gaming license held by Borgata. In June 2005, the NJCCC had renewed Borgata’s gaming license for a five-year term. The Letter indicated that the NJDGE’s reopening request was for the exclusive purpose of examining the qualifications of MGM, in light of the issues raised by the Special Report of the NJDGE to the NJCCC on its investigation of MGM’s joint venture in Macau, Special Administrative Region, People’s Republic of China. The Letter noted that the NJDGE had found that neither we nor the Holding Company had any involvement with MGM’s development activities in Macau and also expressed the NJDGE’s confidence that the NJCCC could thoroughly examine the issues raised in the Special Report as to MGM’s qualifications without negatively affecting the casino license, the operation of Borgata or us.

The NJCCC informed us that, pursuant to Section 88(a) of the New Jersey Casino Control Act (the “Casino Control Act”), the MDDC gaming license was reopened on July 27, 2009, the date of the Letter. This was a procedural step required by the Casino Control Act that does not represent a finding as to the issues raised by the NJDGE.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

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 (“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 NJDGE. The agreement includes the following provisions, among others, that became effective on March 24, 2010 (the date of the transfer of the MGM Interest to the Divestiture Trust): (i) in the event of a refinancing of the Borgata credit facility under terms and in circumstances that permit the Holding Company to make a one-time distribution to members of at least $31 million: (a) we will receive a priority distribution of approximately $31 million (equal to the excess prior capital contributions made by us), and (b) if concurrently with or after such distribution, the Divestiture Trust receives a cash distribution of at least $10 million from the Holding Company (the “Trust Distribution”), the Divestiture Trust agrees to pay us $10 million; and (ii) upon the sale of the MGM Interest, we will receive a payment from the Divestiture Trust in the following amount: (x) if the Trust Distribution has not occurred, an amount equal to the greater of $10 million and 3% of the proceeds from the sale; or (y) if the Trust Distribution has occurred, an amount (if any) equal to the excess of 3% of the proceeds from the sale over $10 million.

On March 17, 2010, MGM announced that its settlement agreement with the NJDGE had been approved by the 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.

Pursuant to certain of the amended terms of the operating agreement, we have a right of first refusal to purchase the MGM Interest from the Divestiture Trust on the same terms as any proposed third-party buyer.

In addition, in connection with the amendments to the operating agreements, MGM relinquished all of its specific participating rights under the operating agreements, 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. The application of this accounting guidance had the following effects on our condensed consolidated financial statements during the three months ended March 31, 2010: (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 benefit of MGM as a separate component of our stockholders’ equity. The provisional fair value measurements and estimates of these items approximated their historical carrying values as of the date we effectively obtained control, and through June 30, 2010. We have provisionally recorded these fair values using an earnings valuation multiple model. No remeasurement amounts were identified and recorded through June 30, 2010; however, we will continue to refine our valuation modeling as information regarding the tangible and intangible assets and liabilities is obtained, which may result in a possible change to these provisional fair value measurements and estimates in future periods.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

The following table summarizes the estimated fair values of the assets and liabilities, provisionally, as of the date we obtained control. We will retrospectively adjust these amounts to reflect refined valuation information in future periods when available.


Condensed Balance Sheet	March 24, 2010
	(In thousands)
ASSETS
Cash	$	26,025
Current assets		43,944
Property and equipment, net		1,352,321
Other assets, net		40,099

Provisional value of assets	$	1,462,389

LIABILITIES
Current maturities of long-term debt	$	632,289
Other current liabilities		84,470
Deferred income taxes		13,982
Other liabilities		26,660

Provisional value of liabilities	$	757,401

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

The results of Borgata have been included in the accompanying condensed consolidated statements of operations from the date we effectively obtained control, March 24, 2010, through June 30, 2010 (specifically, for the period from April 1 through June 30, 2010 for the three months ended June 30, 2010, and from March 24 through June 30, 2010 for the six months ended June 30, 2010), and are comprised of the following:


Condensed Statements of Operations	Three Months Ended June 30, 2010			Six Months Ended June 30, 2010
	(In thousands)
REVENUES
Operating revenues:
Gaming	$	164,530		$	180,475
Food and beverage		35,994			39,140
Room		27,704			29,952
Other		10,696			11,360

Gross revenues		238,924			260,927
Less promotional allowances		52,032			57,259

Net revenues		186,892			203,668

COSTS AND EXPENSES
Operating costs and expenses:
Gaming		66,948			71,073
Food and beverage		17,423			19,893
Room		3,459			4,224
Other		8,615			9,193
Selling, general and administrative		31,841			33,300
Maintenance and utilities		15,646			18,122
Depreciation and amortization		18,236			19,861
Write-downs and other charges, net		12			12

Total operating costs and expenses		162,180			175,678

Operating income		24,712			27,990

Other expense:
Interest expense		5,588			6,072

Total other expense		5,588			6,072

Income before income taxes		19,124			21,918
Income taxes		(1,837	)		(2,137	)

Net income	$	17,287		$	19,781

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

The following supplemental pro forma information presents the financial results as if the effective control of Borgata had occurred on January 1, 2010 for the six months ended June 30, 2010 and on January 1, 2009 for the three and six months ended June 30, 2009. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what the actual results would have been had the consolidation of Borgata been completed as of the earlier dates, nor are they indicative of any future results.


	Condensed Consolidated Statement of Operations Six Months Ended June 30, 2010
	Boyd Gaming Corp As Presented Herein			MDDC LLC			Adjustments			Boyd Gaming Corp Pro Forma
	Boyd Gaming Corp As Presented Herein			1/1/10 to 3/23/10			Adjustments			Boyd Gaming Corp Pro Forma
	(In thousands, except per share data)
REVENUES
Gaming revenue	$	840,537		$	137,831		$	—		$	978,368
Nongaming revenue		301,742			64,551			—			366,293

Gross revenues		1,142,279			202,382			—			1,344,661
Less promotional allowances		148,698			44,093			—			192,791

Net revenues		993,581			158,289			—			1,151,870

COSTS AND EXPENSES
Operating expenses		781,054			125,176			—			906,230
Depreciation and amortization		95,454			16,754			—			112,208
Corporate expense		25,615			—			—			25,615
Preopening expenses		2,306			—			—			2,306
Write-downs and other charges, net		3,592			68			—			3,660

Total costs and expenses		908,021			141,998			—			1,050,019

Operating income from Borgata		8,146			—			(8,146	)		—

Operating income		93,706			16,291			(8,146	)		101,851

Other expense (income):
Interest expense, net		63,653			5,060			—			68,713
Gain on early retirements of debt		(3,949	)		—			—			(3,949	)
Other non-operating expenses from Borgata, net		3,133			—			(3,133	)		—

Total other expense, net		62,837			5,060			(3,133	)		64,764

Income before income taxes		30,869			11,231			(5,013	)		37,087
Income taxes		(9,161	)		(1,206	)		—			(10,367	)

Net income		21,708			10,025			(5,013	)		26,720
Net income attributable to noncontrolling interest		(9,891	)		—			(5,012	)		(14,903	)

Net income attributable to Boyd Gaming Corporation	$	11,817		$	10,025		$	(10,025	)	$	11,817

Basic net income per common share:	$	0.14								$	0.14

Weighted average basic shares outstanding		86,471									86,471

Diluted net income per common share:	$	0.14								$	0.14

Weighted average diluted shares outstanding		86,743									86,743

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 statements of operations between the Boyd entities and Borgata which would require elimination during the three and six months ended June 30, 2010.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)


	Condensed Consolidated Statement of Operations Three Months Ended June 30, 2009
	Boyd Gaming Corp As Presented Herein			MDDC LLC			Adjustments			Boyd Gaming Corp Pro Forma
	(In thousands, except per share data)
REVENUES
Gaming revenue	$	353,597		$	173,837		$	—		$	527,434
Nongaming revenue		115,722			71,915			—			187,637

Gross revenues		469,319			245,752			—			715,071
Less promotional allowances		46,369			54,239			—			100,608

Net revenues		422,950			191,513			—			614,463

COSTS AND EXPENSES
Operating expenses		324,754			143,787			—			468,541
Depreciation and amortization		42,093			20,040			325			62,458
Corporate expense		11,036			—			—			11,036
Preopening expenses		4,054			346			—			4,400
Write-downs and other charges, net		(1,835	)		71			—			(1,764	)

Total costs and expenses		380,102			164,244			325			544,671

Operating income from Borgata		13,310			—			(13,310	)		—

Operating income		56,158			27,269			(13,635	)		69,792

Other expense (income):
Interest expense, net		36,235			7,447			—			43,682
Gain on early retirements of debt		(6,057	)		—			—			(6,057	)
Other non-operating expenses from Borgata, net		4,504			—			(4,504	)		—

Total other expense, net		34,682			7,447			(4,504	)		37,625

Income before income taxes		21,476			19,822			(9,131	)		32,167
Income taxes		(8,698	)		(1,561	)		—			(10,259	)

Net income		12,778			18,261			(9,131	)		21,908
Net income attributable to noncontrolling interest		—			—			(9,130	)		(9,130	)

Net income attributable to Boyd Gaming Corporation	$	12,778		$	18,261		$	(18,261	)	$	12,778

Basic net income per common share:	$	0.15								$	0.15

Weighted average basic shares outstanding		86,254									86,254

Diluted net income per common share:	$	0.15								$	0.15

Weighted average diluted shares outstanding		86,291									86,291

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)


	Condensed Consolidated Statement of Operations Six Months Ended June 30, 2009
	Boyd Gaming Corp As Presented Herein			MDDC LLC			Adjustments			Boyd Gaming Corp Pro Forma
	(In thousands, except per share data)
REVENUES
Gaming revenue	$	719,660		$	342,686		$	—		$	1,062,346
Nongaming revenue		232,339			141,254			—			373,593

Gross revenues		951,999			483,940			—			1,435,939
Less promotional allowances		94,204			104,537			—			198,741

Net revenues		857,795			379,403			—			1,237,198

COSTS AND EXPENSES
Operating expenses		654,680			285,751			—			940,431
Depreciation and amortization		84,745			40,131			649			125,525
Corporate expense		23,721			—			—			23,721
Preopening expenses		9,893			699			—			10,592
Write-downs and other charges, net		27,128			61			—			27,189

Total costs and expenses		800,167			326,642			649			1,127,458

Operating income from Borgata		25,732			—			(25,732	)		—

Operating income		83,360			52,761			(26,381	)		109,740

Other expense (income):
Interest expense, net		81,502			15,458			—			96,960
Gain on early retirements of debt		(8,457	)		—			—			(8,457	)
Other non-operating expenses from Borgata, net		9,026			—			(9,026	)		—

Total other expense, net		82,071			15,458			(9,026	)		88,503

Income before income taxes		1,289			37,303			(17,355	)		21,237
Income taxes		(2,339	)		(2,593	)		—			(4,932	)

Net income (loss)		(1,050	)		34,710			(17,355	)		16,305
Net income attributable to noncontrolling interest		—			—			(17,355	)		(17,355	)

Net income (loss) attributable to Boyd Gaming Corporation	$	(1,050	)	$	34,710		$	(34,710	)	$	(1,050	)

Basic and diluted net loss per common share:	$	(0.01	)							$	(0.01	)

Weighted average basic and diluted shares outstanding		86,591									86,591

In addition to the pro forma adjustments reflecting the differences resulting from the conversion of the equity method of accounting to a fully consolidated presentation, there is a $0.3 million and $0.6 million adjustment during the three and six months ended June 30, 2009, respectively, representing the amortization of our additional investment in Borgata. Historically, we reduced this amount from our operating income from Borgata. There were no significant transactions affecting the statements of operations requiring elimination between the Boyd entities and Borgata during the three and six months ended June 30, 2009.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

Summarized unaudited financial information from the condensed consolidated statements of operations of Borgata is as follows:


Condensed Statements of Operations	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(In thousands)
Gaming revenue	$	164,530		$	173,837		$	318,306		$	342,686
Nongaming revenue		74,394			71,915			145,002			141,254

Gross revenues		238,924			245,752			463,308			483,940
Less promotional allowances		52,032			54,239			101,350			104,537

Net revenues		186,892			191,513			361,958			379,403

Operating expenses		143,932			143,787			280,981			285,751
Depreciation and amortization		18,236			20,040			36,615			40,131
Preopening expenses		—			346			—			699
Write-downs and other items, net		12			71			80			61

Operating income		24,712			27,269			44,282			52,761

Interest expense, net		(5,588	)		(7,447	)		(11,132	)		(15,458	)
State income taxes		(1,837	)		(1,561	)		(3,343	)		(2,593	)

Net income	$	17,287		$	18,261		$	29,807		$	34,710

Our share of Borgata’s results is included in our accompanying condensed consolidated statements of operations for the following periods:


	Three Months Ended June 30,					Six Months Ended June 30,
	2010		2009			2010		2009
	(In thousands)
Our share of Borgata’s operating income	$	—	$	13,635		$	8,146	$	26,381
Net amortization expense related to our investment in Borgata		—		(325	)		—		(649	)

Operating income from Borgata, as reported on our condensed consolidated financial statements (1)	$	—	$	13,310		$	8,146	$	25,732

Other non-operating expenses from Borgata, as reported on our condensed consolidated financial statements	$	—	$	4,504		$	3,133	$	9,026

(1)	Our share of Borgata’s operating income for the six months ended June 30, 2010 is reported as less than 50% of Borgata’s operating income in the table above due to our consolidation of Borgata effective March 24, 2010.

Our historical net investment in Borgata differs from our share of the underlying equity in Borgata. In 2004, pursuant to an agreement with MGM related to the funding of Borgata’s original project costs, we made a unilateral capital contribution to Borgata of approximately $31 million. We are ratably amortizing $15.4 million (50% of the unilateral contribution, which corresponds to our ownership percentage of Borgata) over 40 years. Also, during Borgata’s initial development, construction and preopening phases, we capitalized the interest on our investment and are ratably amortizing our capitalized interest over 40 years. We recorded $0.4 million and $0.7 million of such amortization during the three and six months ended June 30, 2010, respectively, and such amounts were reclassified to depreciation and amortization upon our consolidation of Borgata due to the incremental asset value related to our unilateral contribution.

Atlantic City Express Service, LLC

In 2006, Borgata entered into an agreement with two other Atlantic City casinos to form Atlantic City Express Service, LLC (“ACES”). With each member having a 33.3% interest, this New Jersey limited liability company was formed for the purpose of contracting with New Jersey Transit to operate express rail service between Manhattan and Atlantic City. Each member has guaranteed, jointly and severally, liability for all terms, covenants and conditions of the ACES agreement with New Jersey Transit consisting primarily of the necessary operating and capital expenses of ACES. The responsibilities of the managing member will rotate annually among the members. Borgata’s investment in ACES was $5.0 million at June 30, 2010.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

Note 4. Accrued Liabilities

Accrued liabilities consist of the following:


	June 30, 2010		December 31, 2009
	(In thousands)
Gaming liabilities	$	64,301	$	50,009
Payroll and related expenses		81,584		54,620
Accrued expenses and other liabilities		95,078		55,425
Interest		11,959		14,523

Total accrued liabilities	$	252,922	$	174,577

Note 5. Long-Term Debt, Net of Current Maturities

Long-term debt, net of current maturities consists of the following:


	June 30, 2010		December 31, 2009
	(In thousands)
Bank credit facility	$	1,892,400	$	1,916,900
7.75% Senior Subordinated Notes due 2012		158,832		158,832
6.75% Senior Subordinated Notes due 2014		215,668		248,668
7.125% Senior Subordinated Notes due 2016		240,750		240,750
Borgata bank credit facility		626,872		—
Other		12,092		12,413

Total long-term debt		3,146,614		2,577,563
Less current maturities of long-term debt		670		652
Less current maturities of Borgata bank credit facility		626,872		—

Long-term debt, net of current maturities	$	2,519,072	$	2,576,911

Bank Credit Facility

We entered into a bank credit facility on May 24, 2007 and subsequently amended such facility on December 21, 2009. Our bank credit facility currently consists of a $3 billion revolving credit facility that matures on May 24, 2012. The interest rate on the bank credit facility is based, at our option, upon either the London Interbank Offered Rate (“LIBOR”) or the “base rate,” plus, in each case, an applicable margin. The applicable margin is a percentage per annum (which ranges from 0.625% to 1.625% if we elect to use LIBOR, and 0.0% to 0.375% if we elect to use the base rate) determined in accordance with a specified pricing grid based upon our predefined total leverage ratio. In addition, we incur commitment fees on the unused portion of the bank credit facility that range from 0.200% to 0.350% per annum. The bank credit facility is guaranteed by our material subsidiaries and is secured by the capital stock of those subsidiaries.

The blended interest rates for outstanding borrowings under our bank credit facility at June 30, 2010 and December 31, 2009 were 2.0% and 1.9%, respectively. At June 30, 2010, approximately $1.9 billion was outstanding under our revolving credit facility, with $16.5 million allocated to support various letters of credit, leaving remaining availability of approximately $1.1 billion.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

The bank credit facility contains certain financial and other covenants, including: (i) requiring the maintenance of a minimum interest coverage ratio of 2.00 to 1.00 (discussed below); (ii) establishing a maximum total leverage ratio (discussed below); (iii) imposing limitations on the incurrence of indebtedness and liens; (iv) imposing limitations on transfers, sales and other dispositions; and (v) imposing restrictions on investments, dividends and certain other payments.

The minimum Interest Coverage Ratio (as defined in our bank credit facility) is calculated as (a) twelve-month trailing Consolidated EBITDA (as defined in our bank credit facility) to (b) consolidated interest expense (as also defined in our bank credit facility).

The maximum permitted Total Leverage Ratio (as defined in our bank credit facility) is calculated as Consolidated Funded Indebtedness to twelve-month trailing Consolidated EBITDA (all capitalized terms are defined in the bank credit facility). The following table provides our maximum Total Leverage Ratio during the remaining term of the bank credit facility:


For the Trailing Four Quarters Ending		Maximum Total Leverage Ratio
June 30, 2010		7.00 to 1.00
September 30, 2010		7.25 to 1.00
December 31, 2010		7.25 to 1.00
March 31, 2011		7.00 to 1.00
June 30, 2011		6.75 to 1.00
September 30, 2011		6.50 to 1.00
December 31, 2011		6.00 to 1.00
March 31, 2012		5.50 to 1.00

We believe that we were in compliance with the bank credit facility covenants at June 30, 2010, including the Interest Coverage Ratio and Total Leverage Ratio, which, at June 30, 2010, were 2.97 to 1.00 and 6.91 to 1.00, respectively. At September 30, 2010, assuming our current level of Consolidated Funded Indebtedness remains constant, we estimate that a 4.7% or greater decline in our twelve-month trailing Consolidated EBITDA, as compared to June 30, 2010, would cause us to exceed our maximum Total Leverage Ratio covenant for that period. However, in the event that we project our Consolidated EBITDA may decline by 4.7% or more, we could implement certain actions in an effort to minimize the possibility of a breach of the Total Leverage Ratio covenant. These actions may include, among others, reducing payroll, benefits and certain other operating costs, deferring or eliminating certain maintenance, expansion or other capital expenditures, reducing our outstanding indebtedness through repurchases or redemption, and/or increasing cash by selling assets or issuing equity.

Senior Subordinated Notes

7.75% Senior Subordinated Notes due December 2012. On December 30, 2002, we issued $300 million principal amount of 7.75% senior subordinated notes due December 2012. The notes require semi-annual interest payments on June 15 and December 15 of each year, through December 2012, at which time the entire principal balance becomes due and payable. The notes contain certain restrictive covenants regarding, among other things, incurrence of debt, sales of assets, mergers and consolidations, and limitations on restricted payments (as defined in the indenture governing the notes). We believe that we are in compliance with these covenants at June 30, 2010. Effective December 15, 2007, we may redeem all or a portion of the notes at redemption prices (expressed as percentages of the principal amount) ranging from 103.875% in 2007 to 100% in 2010 and thereafter, plus accrued and unpaid interest.

6.75% Senior Subordinated Notes due April 2014. On April 15, 2004, we issued, through a private placement, $350 million principal amount of 6.75% senior subordinated notes due April 2014. In July 2004, all, except for $50,000 in aggregate principal amount of these notes, were exchanged for substantially similar notes that were registered with the SEC. The notes require semi-annual interest payments on April 15 and October 15 of each year, through April 2014, at which time the entire principal balance becomes due and payable. The notes contain certain restrictive covenants regarding, among other things, incurrence of debt, sales of assets, mergers and consolidations, and limitations on restricted payments (as defined in the indenture governing the notes). We believe that we are in compliance with these covenants at June 30, 2010. Effective April 15, 2009, we may redeem all or a portion of the notes at redemption prices (expressed as percentages of the principal amount) ranging from 103.375% in 2009 to 100% in 2012 and thereafter, plus accrued and unpaid interest.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

7.125% Senior Subordinated Notes due February 2016. On January 30, 2006, we issued $250 million principal amount of 7.125% senior subordinated notes due February 2016. The notes require semi-annual interest payments on February 1 and August 1 of each year, through February 2016, at which time the entire principal balance becomes due and payable. The notes contain certain restrictive covenants regarding, among other things, incurrence of debt, sales of assets, mergers and consolidations, and limitations on restricted payments (as defined in the indenture governing the notes). We believe that we are in compliance with these covenants at June 30, 2010. At any time subsequent to February 1, 2009 and prior to February 1, 2011, we may redeem the notes, in whole or in part, pursuant to a “make-whole” call as provided in the indenture governing the notes, plus accrued and unpaid interest. On or after February 1, 2011, we may redeem all or a portion of the notes at redemption prices (expressed as percentages of the principal amount) ranging from 103.563% in 2011 to 100% in 2014 and thereafter, plus accrued and unpaid interest.

During the three months ended June 30, 2010 and 2009, we purchased and retired $17.5 million and $34.2 million, respectively, principal amount of our senior subordinated notes. The total purchase price of the notes was $15.5 million and $28.0 million, respectively, resulting in a gain of $1.9 million and $6.1 million, respectively, net of associated deferred financing fees, which is recorded on our condensed consolidated statement of operations for the respective periods. The transactions were funded by availability under our bank credit facility.

During the six months ended June 30, 2010 and 2009, we purchased and retired $33.0 million and $44.7 million, respectively, principal amount of our senior subordinated notes. The total purchase price of the notes was $28.9 million and $36.1 million, respectively, resulting in a gain of $3.9 million and $8.5 million, respectively, net of associated deferred financing fees, which is recorded on our condensed consolidated statement of operations for the respective periods. The transactions were funded by availability under our bank credit facility.

Borgata Bank Credit Facility

Borgata’s First Amended and Restated Credit Agreement currently consists of a $740 million revolving credit facility, with the availability of such revolving credit facility subject to quarterly reductions of $10 million, thereby reducing availability under the revolving credit facility to $720 million on December 31, 2010. At June 30, 2010, the outstanding balance under Borgata’s credit facility was $626.9 million, leaving availability under the facility of $113.1 million at June 30, 2010. The revolving credit facility matures on January 31, 2011, but can be prepaid at Borgata’s discretion and, as Borgata is refinancing such facility, the outstanding balance has been recorded in current maturities of long-term debt on the condensed consolidated balance sheet at June 30, 2010. On August 4, 2010, Borgata received approval from the NJCCC for a proposed financing, as well as the proposed use of proceeds from such financing. We expect the financing to close in August 2010, subject to closing conditions and settlement procedures.

The interest rate on the revolving credit facility is based, at Borgata’s option, upon either the “base rate” or the Eurodollar rate, plus, in each case, an applicable margin. The applicable margin is a percentage per annum (which ranges from 1.00% to 2.50% if Borgata elects to use the base rate, and 2.25% to 3.75% if Borgata elects to use the Eurodollar rate) determined in accordance with a specified pricing grid based upon Borgata’s predefined total leverage ratio. In addition, Borgata incurs commitment fees on the unused portion of the revolving credit facility that range from 0.25% to 0.50% per annum. The revolving credit facility is secured by substantially all of Borgata’s real and personal property and is non-recourse to us and the MGM Divestiture Trust.

The blended interest rates for outstanding borrowings under the revolving credit facility at June 30, 2010 and December 31, 2009 were 2.8% and 2.7%, respectively.

The Borgata bank credit agreement contains certain financial and other covenants, including, without limitation, (i) establishing a maximum permitted Total Leverage Ratio (as defined in Borgata’s bank credit agreement) of 4.25 to 1.00, (ii) establishing a minimum required Fixed Charge Coverage Ratio (as defined in Borgata’s bank credit agreement) of 1.75 to 1.00, (iii) imposing limitations on the incurrence of additional secured indebtedness, and (iv) imposing restrictions on investments, dividends and certain other payments. We believe that Borgata was in compliance with its bank credit facility covenants at June 30, 2010, including the Total Leverage Ratio and Fixed Charge Coverage Ratio, which, at June 30, 2010, were 2.91 to 1.00 and 3.00 to 1.00, respectively.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

Note 6. Commitments and Contingencies

Commitments

There have been no material changes to our commitments described under Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 5, 2010, other than those related to Borgata and Echelon, as discussed below.

Borgata

Leases

We estimate that Borgata’s future minimum lease payments required under noncancelable operating leases (principally for land) are $6.7 million for the year ended December 31, 2010.

Utility Contract

In 2005, Borgata amended its executory contracts with a wholly-owned subsidiary of a local utility company, extending the end of the terms to 20 years from the opening of its rooms expansion. The utility company provides Borgata with electricity and thermal energy (hot water and chilled water). Obligations under the thermal energy executory contract contain both fixed fees and variable fees based upon usage rates. The fixed fee components under the thermal energy executory contract are currently estimated at approximately $11.3 million per annum. Borgata also committed to purchase a certain portion of its electricity demand at essentially a fixed rate, which is estimated at approximately $4.8 million per annum. Electricity demand in excess of the commitment is subject to market rates based on Borgata’s tariff class.

Investment Alternative Tax

The New Jersey Casino Control Act provides, among other things, for an assessment of licensees equal to 1.25% of their gross gaming revenues in lieu of an investment alternative tax equal to 2.5% of gross gaming revenues. Generally, Borgata may satisfy this investment obligation by investing in qualified eligible direct investments, by making qualified contributions or by depositing funds with the New Jersey Casino Reinvestment Development Authority (“CRDA”). Funds deposited with the CRDA may be used to purchase bonds designated by the CRDA or, under certain circumstances, may be donated to the CRDA in exchange for credits against future CRDA investment obligations. CRDA bonds have terms up to fifty years and bear interest at below market rates.

Borgata’s CRDA obligations for the six months ended June 30, 2010 and 2009 were $4.0 million and $4.3 million, respectively, of which valuation provisions of $2.3 million and $2.4 million, respectively, were recorded due to the respective underlying agreements.

Purse Enhancement Agreement

In August 2008, Borgata and the ten other casinos in the Atlantic City market (collectively, the “Casinos”) entered into a Purse Enhancement Agreement (the “Agreement”) with the New Jersey Sports & Exposition Authority (the “NJSEA”) and the Casino Reinvestment Development Authority in the interest of further deferring or preventing the proliferation of competitive gaming at New Jersey racing tracks through December 31, 2011. In addition to the continued prohibition of casino gaming in New Jersey outside of Atlantic City, legislation was enacted to provide for the deduction of certain promotional gaming credits from the calculation of the tax on casino gross revenue.

Under the terms of the Agreement, the Casinos are required to make scheduled payments to the NJSEA totaling $90 million to be used for certain authorized purposes (the “Authorized Uses”) as defined by the Agreement. In the event any of the $90 million is not used by NJSEA for the Authorized Uses by January 1, 2012, the unused funds shall be returned by NJSEA to the Casinos pro rata based upon the share each casino contributed. For each year, each casino’s share of the scheduled payments will equate to a percentage representing its gross gaming revenue for the prior calendar year compared to the gross gaming revenues for that period for all Casinos. Each casino, solely and individually, shall be responsible for its respective share of the scheduled amounts due. In the event that any casino shall fail to make its payment as required, the remaining Casinos shall have the right, but not the obligation, to cure a payment delinquency. As a result, Borgata expenses its pro rata share of the $90 million, estimated to be approximately $14.9 million based on its actual and forecasted market share of gross gaming revenue, on a straight-line basis over the applicable term of the Agreement. Borgata recorded expense of $1.3 million and $1.2 million during the three months ended June 30, 2010 and 2009, respectively, and recorded expense of $2.6 million and $2.4 million during the six months ended June 30, 2010 and 2009, respectively.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

Echelon

As of June 30, 2010, we have incurred approximately $926 million in capitalized costs related to the Echelon project, including land. As part of our delay of the project, we expect to additionally incur approximately $5 million to $6 million of capitalized costs annually, principally related to the offsite fabrication of escalators, curtain wall and a skylight. In addition, we expect annual recurring project costs, consisting primarily of security, storage, property taxes, rent and insurance, of approximately $7 million to $10 million that will be charged to preopening or other expense as incurred during the project’s suspension period. These capitalized costs and recurring project costs are in addition to other contingencies with respect to our various commitments, as discussed in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 5, 2010.

Contingencies

Copeland

Alvin C. Copeland, the sole shareholder (deceased) of an unsuccessful applicant for a riverboat license at the location of our Treasure Chest Casino (“Treasure Chest”), has made several attempts to have the Treasure Chest license revoked and awarded to his company. In 1999 and 2000, Copeland unsuccessfully opposed the renewal of the Treasure Chest license and has brought two separate legal actions against Treasure Chest. In November 1993, Copeland objected to the relocation of Treasure Chest from the Mississippi River to its current site on Lake Pontchartrain. The predecessor to the Louisiana Gaming Control Board allowed the relocation over Copeland’s objection. Copeland then filed an appeal of the agency’s decision with the Nineteenth Judicial District Court. Through a number of amendments to the appeal, Copeland unsuccessfully attempted to transform the appeal into a direct action suit and sought the revocation of the Treasure Chest license. Treasure Chest intervened in the matter in order to protect its interests. The appeal/suit, as it related to Treasure Chest, was dismissed by the District Court and that dismissal was upheld on appeal by the First Circuit Court of Appeal. Additionally, in 1999, Copeland filed a direct action against Treasure Chest and certain other parties seeking the revocation of Treasure Chest’s license, an award of the license to him, and monetary damages. The suit was dismissed by the trial court, citing that Copeland failed to state a claim on which relief could be granted. The dismissal was appealed by Copeland to the Louisiana First Circuit Court of Appeal. On September 21, 2002, the First Circuit Court of Appeal reversed the trial court’s decision and remanded the matter to the trial court. On January 14, 2003, we filed a motion to dismiss the matter and that motion was partially denied. The Court of Appeal refused to reverse the denial of the motion to dismiss. In May 2004, we filed additional motions to dismiss on other grounds. There was no activity regarding this matter during 2005 and 2006, and the case was set to be dismissed by the court for failure to prosecute by the plaintiffs in mid-May 2007; however on May 1, 2007, the plaintiff filed a motion to set a hearing date related to the motions to dismiss. The hearing was scheduled for September 10, 2007, at which time all parties agreed to postpone the hearing indefinitely. The hearing has not yet been rescheduled. Mr. Copeland has since passed away and his son, the executor of his estate, has petitioned the court to be substituted as plaintiff in the case. On June 9, 2009, the plaintiff filed to have the exceptions set for hearing. The parties decided to submit the exceptions to the court on the previously filed briefs. The court has yet to issue a ruling. We currently are vigorously defending the lawsuit. If this matter ultimately results in the Treasure Chest license being revoked, it could have a significant adverse effect on our business, financial condition and results of operations.

Nevada Use Tax Refund Claims

On March 27, 2008, the Nevada Supreme Court issued a decision in Sparks Nugget, Inc. vs. The State of Nevada Department of Taxation (the “Department”), holding that food purchased for subsequent use in the provision of complimentary and/or employee meals was exempt from use tax. On April 14, 2008, the Department filed a Petition for Rehearing (the “Petition”) on the decision. Additionally, on the same date the Nevada Legislature filed an Amicus Curiae brief in support of the Department’s position. The Nevada Supreme Court denied the Department’s Petition on July 17, 2008. We paid use tax, over the period November 2000 through May 2008, on food purchased for subsequent use in complimentary and employee meals at our Nevada casino properties and estimate the refund to be in the range of $16.7 million to $18.9 million, including interest. In late 2009, the Department audited our refund claim and subsequently issued a $12.3 million sales tax assessment, plus interest of $7.5 million. The Department continues to deny our refund claim and issued the assessment based on their position that the complimentary and employee meals at issue are now subject to sales tax. We do not believe the Department’s arguments have any merit and intend to file a motion to dismiss the assessment on both a procedural and technical basis. We are currently in the discovery and deposition stage of the legal proceeding and expect our hearing before the Nevada Administrative Law Judge to occur in September 2010. Due to uncertainty surrounding the judge’s decision, we will not record any gain until the tax refund is realized. For periods subsequent to May 2008, although we have received an assessment from the Department, we have not accrued a liability for sales tax on complimentary and employee meals at our Nevada casino properties, as it is not probable, based on both procedural issues and the technical merits of the Department’s arguments, that we will owe this tax.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

Blue Chip Property Taxes

In May 2007, Blue Chip received a valuation notice indicating an unanticipated increase of nearly 400% to its assessed property value as of January 1, 2006. At that time, we estimated that the increase in assessed property value could result in a property tax assessment ranging between $4 million and $11 million for the eighteen-month period ended June 30, 2007. We recorded an additional charge of $3.2 million during the three months ended June 30, 2007 to increase our property tax liability to $5.8 million at June 30, 2007 as we believed that was the most likely amount to be assessed within the range. We subsequently received a property tax bill related to our 2006 tax assessment for $6.2 million in December 2007. As we have appealed the assessment, Indiana statutes allow for a minimum required payment of $1.9 million, which was paid against the $6.2 million assessment in January 2008. In February 2009, we received a notice of revaluation, which reduced the property’s assessed value by $100 million and the tax assessment by approximately $2.2 million per year. We have subsequently paid the minimum required payment of $1.9 million against 2007 and 2008 provisional bills and, in July 2010, paid $0.9 million on the first provisional bill for 2009, all of which were based on the 2006 valuation notice. We have not received valuation notices for years 2007 through 2009. We believe the assessment for the fifty four-month period ended June 30, 2010 could result in a property tax assessment ranging between $12.7 million and $26.6 million. We have accrued, net of the payments discussed above, approximately $19.0 million of property tax liability as of June 30, 2010, based on what we believe to be the most likely assessment within our range, once all appeals have been exhausted; however, we can provide no assurances that the estimated amount will approximate the actual amount. The final 2006 assessment, post appeals, as well as the March 1, 2007, 2008 and 2009 assessment notices, which have not been received as of June 30, 2010, could result in further adjustment to our estimated property tax liability at Blue Chip.

Legal Matters

We are also parties to various legal proceedings arising in the ordinary course of business. We believe that, except for the Copeland matter discussed above, all pending claims, if adversely decided, would not have a material adverse effect on our business, financial position or results of operations.

Note 7. Stockholders’ Equity and Stock Incentive Plans

Share Repurchase Program

Subject to applicable corporate securities laws, repurchases under our stock repurchase program may be made at such times and in such amounts as we deem appropriate. We are subject to certain limitations regarding the repurchase of common stock, such as restricted payment limitations related to our outstanding notes and our bank credit facility. Purchases under our stock repurchase program can be discontinued at any time that we feel additional purchases are not warranted. We intend to fund the repurchases under the stock repurchase program with existing cash resources and availability under our bank credit facility.

In July 2008, our Board of Directors authorized an amendment to our existing share repurchase program to increase the amount of common stock available to be repurchased to $100 million. We are not obligated to purchase any shares under our stock repurchase program.

During the six months ended June 30, 2010, we did not repurchase any shares of our common stock. During the three and six months ended June 30, 2009, we repurchased and retired 0.2 million and 1.7 million shares, respectively, of our common stock at an average price of $5.23 and $4.61 per share, respectively. We are currently authorized to repurchase up to an additional $92.1 million in shares of our common stock under the share repurchase program.

We have in the past, and may in the future, acquire our debt or equity securities, through open market purchases, privately negotiated transactions, tender offers, exchange offers, redemptions or otherwise, upon such terms and at such prices as we may determine from time to time.

Dividends

Dividends are declared at our Board of Director’s discretion. We are subject to certain limitations regarding payment of dividends, such as restricted payment limitations related to our outstanding notes and our bank credit facility. In July 2008, our Board of Directors suspended the quarterly dividend for the current and future periods; therefore, we did not declare a dividend during the six months ended June 30, 2010 or 2009.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

Share-Based Compensation

We account for share-based awards exchanged for employee services in accordance with the authoritative accounting guidance for share-based payments. Under the guidance, share-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense, net of estimated forfeitures, over the employee’s requisite service period.

The following table provides classification detail of the total costs related to our share-based employee compensation plans reported in our condensed consolidated statements of operations.


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
	(In thousands)
Gaming	$	74	$	31	$	148	$	61
Food and beverage		14		3		28		6
Room		7		1		13		2
Selling, general and administrative		422		651		845		1,304
Corporate expense		2,355		2,820		4,694		5,525
Preopening expenses		—		523		—		1,044

Total share-based compensation expense	$	2,872	$	4,029	$	5,728	$	7,942

Note 8. Other Comprehensive Income and Derivative Instruments

Total comprehensive income consisted of the following (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,
	2010		2009			2010		2009
Net income (loss)	$	12,026	$	12,778		$	21,708	$	(1,050	)
Derivative instruments market adjustment, net of tax		3,145		(2,730	)		4,410		1,304

Comprehensive income	$	15,171	$	10,048		$	26,118	$	254

We utilize derivative instruments to manage interest rate risk. At June 30, 2010 and December 31, 2009, we were a party to certain floating-to-fixed interest rate swap agreements with an aggregate notional amount of $500 million at each date, whereby we receive payments based upon the three-month LIBOR and make payments based upon a stipulated fixed rate. We record all derivative instruments on our consolidated balance sheets at fair value. Derivatives that are not designated as hedges for accounting purposes must be adjusted to fair value through income. We have designated all of our current interest rate swaps as cash flow hedges and measure their effectiveness using the long-haul method. If the derivative qualifies and is designated as a hedge, depending on the nature of the hedge, changes in its fair value will either be offset against the change in fair value of the hedged item through earnings or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. The effective portion of any gain or loss on our interest rate swaps is recorded in other comprehensive income (loss). We use the hypothetical derivative method to measure the ineffective portion of our interest rate swaps. The ineffective portion of a derivative’s change in fair value will be immediately recognized in earnings.

The net effect of our floating-to-fixed interest rate swaps resulted in an increase in interest expense of $5.6 million and $6.6 million for the three months ended June 30, 2010 and 2009, respectively, and an increase in interest expense of $11.2 million and $12.6 million for the six months ended June 30, 2010 and 2009, respectively, as compared to the contractual rate of the underlying hedged debt, for these periods.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

The following table reports the effects of the changes in the fair value of our derivative instruments.


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(In thousands)
Derivative instruments fair value adjustment	$	4,869		$	(4,260	)	$	6,818		$	1,993
Tax effect of derivative instruments fair value adjustment		(1,724	)		1,530			(2,408	)		(689	)

Net derivative instruments fair value adjustment, as reported on our condensed consolidated statement of stockholders’ equity	$	3,145		$	(2,730	)	$	4,410		$	1,304

A portion of the net derivative instruments market adjustment included in accumulated other comprehensive loss, net, at June 30, 2010 relates to certain derivative instruments that we de-designated as cash flow hedges in connection with breaking certain LIBOR contracts under our previous bank credit facility during the three months ended June 30, 2007. As a result, we expect $0.4 million of deferred net gain related to these derivative instruments, included in accumulated other comprehensive loss, net, at June 30, 2010, will be accreted as a reduction of interest expense on our consolidated statements of operations during the next twelve months.

Note 9. Write-Downs and Other Charges, Net

Write-downs and other charges, net are comprised of the following:


	Three Months Ended June 30,					Six Months Ended June 30,
	2010		2009			2010		2009
	(In thousands)
Acquisition related expenses	$	1,979	$	177		$	3,580	$	247
Asset write-downs		12		41			12		28,872
Hurricane and related items		—		(2,053	)		—		(1,991	)

Total write-downs and other charges, net	$	1,991	$	(1,835	)	$	3,592	$	27,128

During the three and six months ended June 30, 2010, we recorded $2.0 million and $3.6 million, respectively, of direct expenses related to evaluating various acquisition opportunities and other business development activities.

During the six months ended June 30, 2009, we recorded a $28.4 million non-cash impairment charge related to the write-off of Dania Jai-Alai’s goodwill, which was recorded as an additional cost of the acquisition in connection with the January 2009 amendment to the purchase agreement to settle the contingent payment prior to the satisfaction of certain legal conditions (see Note 11, Acquisition of Dania Jai-Alai). The goodwill was subsequently written-off in connection with our impairment test for recoverability during the three months ended June 30, 2009.

Note 10. 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.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

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 table shows the fair values of certain of our financial instruments, required to be measured at fair value at June 30, 2010 and December 31, 2009.


	June 30, 2010
	Balance		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	100,173	$	100,173	$	—	$	—
Liabilities
Derivative instruments	$	21,472	$	—	$	21,472	$	—

	December 31, 2009
	Balance		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	93,202	$	93,202	$	—	$	—
Liabilities
Derivative instruments	$	29,356	$	—	$	29,356	$	—

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 June 30, 2010 and December 31, 2009.

Our derivative instruments are classified in the fair value hierarchy as Level 2 as the LIBOR swap rate is observable at commonly quoted intervals for the full term of the interest rate swaps. If we had terminated our interest rate swaps as of June 30, 2010 or December 31, 2009, we would have been required to pay a total of $22.3 million or $31.0 million, respectively, based on the settlement values of such derivative instruments, for which the principal terms are presented below (dollars in thousands).


	Notional Amount		Fixed Rate Paid		Fair Value of Liability				Maturity Date
Effective Date	Notional Amount		Fixed Rate Paid		June 30, 2010		December 31, 2009		Maturity Date
September 28, 2007	$	100,000	5.13	%	$	4,295	$	5,872	June 30, 2011
September 28, 2007		200,000	5.14	%		8,593		11,749	June 30, 2011
June 30, 2008		200,000	5.13	%		8,584		11,735	June 30, 2011

	$	500,000			$	21,472	$	29,356

The fair values of our derivative instruments at June 30, 2010 and December 31, 2009 include $0.8 million and $1.6 million, respectively, of credit valuation adjustments to reflect the impact of the credit ratings of both the Company and our counterparties, based primarily upon the market value of the credit default swaps of the respective parties. These credit valuation adjustments resulted in a reduction in the fair values of our derivative instruments as compared to their settlement values.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

Balances Disclosed at Fair Value

The following table provides the fair value measurement information about our long-term debt at June 30, 2010 and December 31, 2009.


	June 30, 2010
	Outstanding Face Amount		Carrying Value		Estimated Fair Value		Fair Value Hierarchy
	(In thousands)
Bank credit facility	$	1,892,400	$	1,892,400	$	1,665,312	Level 2
7.75% Senior Subordinated Notes Due 2012		158,832		158,832		158,435	Level 1
6.75% Senior Subordinated Notes Due 2014		215,668		215,668		192,268	Level 1
7.125% Senior Subordinated Notes Due 2016		240,750		240,750		202,230	Level 1
Borgata bank credit facility		626,872		626,872		626,872	Level 2
Other		12,092		12,092		11,487	Level 3

Total long-term debt	$	3,146,614	$	3,146,614	$	2,856,604


	December 31, 2009
	Outstanding Face Amount		Carrying Value		Estimated Fair Value		Fair Value Hierarchy
	(In thousands)
Bank credit facility	$	1,916,900	$	1,916,900	$	1,686,872	Level 2
7.75% Senior Subordinated Notes Due 2012		158,832		158,832		160,420	Level 1
6.75% Senior Subordinated Notes Due 2014		248,668		248,668		223,801	Level 1
7.125% Senior Subordinated Notes Due 2016		240,750		240,750		206,925	Level 1
Other		12,413		12,413		11,792	Level 3

Total long-term debt	$	2,577,563	$	2,577,563	$	2,289,810

The estimated fair value of the bank credit facility is based on a relative value analysis performed on or about June 30, 2010 and December 31, 2009, respectively. The estimated fair value of Borgata’s bank credit facility at June 30, 2010 approximates its carrying value as such amounts carry variable rates of interest and mature within one year. The estimated fair values of our senior subordinated notes are based on quoted market prices as of June 30, 2010 and December 31, 2009, respectively. 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. There were no transfers between Level 1 and Level 2 measurements during the six months ended June 30, 2010.

Note 11. Acquisition of Dania Jai-Alai

In March 2007, we acquired Dania Jai-Alai and approximately 47 acres of related land located in Dania Beach, Florida. Dania Jai-Alai is one of four pari-mutuel facilities in Broward County approved under Florida law to operate 2,000 Class III slot machines. In March 2007, we paid approximately $81 million to close this transaction, and agreed to pay, in March 2010 or earlier, a contingent payment of an additional $75 million to the seller, plus interest accrued at the prime rate (the “contingent payment”), if certain legal conditions were satisfied.

In January 2009, we amended the purchase agreement to settle the contingent payment prior to the satisfaction of the legal conditions. The principal terms of the amendment are as follows.

•

We paid $9.4 million to the seller in January 2009, plus $9.1 million of interest accrued from the March 1, 2007 date of the acquisition.

•

We issued an 8% promissory note to the seller in the amount of $65.6 million, plus accrued interest. The terms of the note required principal payments of $9.4 million, plus accrued interest, in April 2009 and July 2009, and a final principal payment of $46.9 million, plus accrued interest, due in January 2010. The promissory note was secured by a letter of credit under our bank credit facility, and we have made all scheduled payments on the promissory note, including the final payment in January 2010.

In conjunction with this amendment, we recorded the remaining $28.4 million of the $75 million contingent liability as an additional cost of the acquisition (goodwill) during the three months ended June 30, 2009. During the six months ended June 30, 2009, we tested the goodwill for recoverability, which resulted in a non-cash impairment charge of $28.4 million (see Note 9, Write-downs and Other Charges, Net).

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

Note 12. Earnings per Share

Net income (loss) and the weighted average number of common shares and common share equivalents used in the calculation of basic and diluted earnings per share consist of the following:


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
	(In thousands)
Net income (loss) attributable to Boyd Gaming Corporation	$	3,382	$	12,778	$	11,817	$	(1,050	)

Weighted average common shares outstanding		86,511		86,254		86,471		86,591
Potential dilutive effect		431		37		272		—

Weighted average common and potential shares outstanding		86,942		86,291		86,743		86,591

Basic net income (loss) per common share	$	0.04	$	0.15	$	0.14	$	(0.01	)

Diluted net income (loss) per common share	$	0.04	$	0.15	$	0.14	$	(0.01	)

Due to the net loss for the six months ended June 30, 2009, all potential common shares were anti-dilutive, and therefore were not included in the computation of diluted earnings per share.

Note 13. Related Party Transactions

Boyd Ownership

William S. Boyd, our Executive Chairman of the Board of Directors, together with his immediate family, beneficially owned approximately 38% of the Company’s outstanding shares of common stock as of June 30, 2010. As such, the Boyd family has the ability to significantly influence our affairs, including the election of members of our Board of Directors and, except as otherwise provided by law, approving or disapproving other matters submitted to a vote of our stockholders, including a merger, consolidation, or sale of assets. For the six months ended June 30, 2010 and 2009, there were no related party transactions between the Company and the Boyd family.

Compensation of Certain Borgata Employees

Borgata reimburses Boyd for compensation paid to employees performing services for Borgata on a full-time basis and for out-of-pocket costs and expenses incurred related to travel. Boyd is also reimbursed for various payments made on Borgata’s behalf, primarily related to third party insurance premiums. The related amounts due to Boyd for these types of expenditures paid by Boyd were $0.1 million and $0.8 million for the six months ended June 30, 2010 and for the year ended December 31, 2009, respectively. Reimbursable expenditures during the three months ended June 30, 2010 and 2009 were $1.2 million and $1.7 million, respectively, and were $1.6 million and $4.0 million during the six months ended June 30, 2010 and 2009, respectively, and were included in selling, general and administrative on the condensed consolidated statements of operations.

Use of Corporate Plane

Boyd provides Borgata with periodic use of its corporate aircraft for business purposes. Borgata reimbursed Boyd $0 and $0.1 million pursuant to this arrangement during the six months ended June 30, 2010 and during the year ended December 31, 2009, respectively.

In addition, from time to time Borgata has made its aircraft available for business purposes to members of Boyd’s directors and officers, who are also directors and officers of Borgata. Boyd reimbursed Borgata $0.05 million and less than $0.01 million pursuant to this arrangement during the six months ended June 30, 2010 and the year ended December 31, 2009, respectively.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

Remediation to Borgata Site

Pursuant to the operating agreement between MGM and Borgata, MGM is solely responsible for any investigation, analyses, clean-up, detoxification, testing, monitoring, or remediation related to Renaissance Pointe, the site at which Borgata is located. MGM is also responsible for their allocable share of expenses related to master plan and government improvements at Renaissance Pointe. The related amounts due from MGM for these types of expenditures incurred by Borgata were less than $0.1 million at each June 30, 2010 and December 31, 2009, respectively. Reimbursable expenditures incurred were $0.1 million for each of the three months ended June 30, 2010 and 2009, respectively, and were $0.3 million for each of the six months ended June 30, 2010 and 2009, respectively.

Borgata Ground Leases

Borgata entered into a series of ground lease agreements with MGM totaling 19.0 acres that provides the land on which Borgata’s existing employee parking garage, public space expansion, rooms expansion, and modified surface parking lot reside. The lease terms extend until December 31, 2070 with the exception of the surface parking lot lease which could be terminated by either party upon 30 days written notice. The related amounts due to MGM for these types of expenditures were $0 at each June 30, 2010 and December 31, 2009. Related rent incurred was $1.6 million for each of the three months ended June 30, 2010 and 2009, respectively, and was $2.9 million and $3.2 million for the six months ended June 30, 2010 and 2009, respectively, which was included in selling, general and administrative on the condensed consolidated statements of operations.

Pursuant to the ground lease agreements, Borgata is responsible for reimbursing MGM for related property taxes paid on its behalf. The related amounts due to MGM for these types of expenditures were $0 at each June 30, 2010 and December 31, 2009. Related property tax incurred was $3.0 million and $3.2 million for the three months ended June 30, 2010 and 2009, respectively, and was $6.0 million and $6.3 million for the six months ended June 30, 2010 and 2009, respectively, which were included in selling, general and administrative on the condensed consolidated statements of operations.

Note 14. Segment Information

We have aggregated certain of our properties in order to present four Reportable Segments: (i) Las Vegas Locals, (ii) Downtown Las Vegas, (iii) Midwest and South, and (iv) Atlantic City, which consists of our 50% investment in Borgata.

The table below lists the classification of each of our properties within our Reportable Segments.


Las Vegas Locals		Midwest and South

Gold Coast Hotel and Casino	Las Vegas, NV	Sam’s Town Hotel and Gambling Hall	Tunica, MS
The Orleans Hotel and Casino	Las Vegas, NV	Par-A-Dice Hotel Casino	East Peoria, IL
Sam’s Town Hotel and Gambling Hall	Las Vegas, NV	Treasure Chest Casino	Kenner, LA
Suncoast Hotel and Casino	Las Vegas, NV	Blue Chip Casino, Hotel & Spa	Michigan City, IN
Eldorado Casino	Henderson, NV	Delta Downs Racetrack Casino & Hotel	Vinton, LA
Jokers Wild Casino	Henderson, NV	Sam’s Town Hotel and Casino	Shreveport, LA

Downtown Las Vegas		Atlantic City

California Hotel and Casino	Las Vegas, NV	Borgata Hotel Casino and Spa	Atlantic City, NJ
Fremont Hotel and Casino	Las Vegas, NV
Main Street Station Casino, Brewery and Hotel	Las Vegas, NV

Results for Downtown Las Vegas include the results of our travel agency and captive insurance company.

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

The following table sets forth, for the periods indicated, certain operating data for our reportable segments.


	Three Months Ended June 30,					Six Months Ended June 30,
	2010		2009			2010		2009
	(In thousands)
Gross Revenues
Las Vegas Locals	$	169,658	$	183,738		$	343,555	$	373,674
Downtown Las Vegas		61,007		63,159			120,720		127,354
Midwest and South		205,466		220,460			413,522		446,840
Atlantic City		238,924		—			260,927		—

Reportable Segment Gross Revenues		675,055		467,357			1,138,724		947,868
Other (1)		1,581		1,962			3,555		4,131

Gross Revenues	$	676,636	$	469,319		$	1,142,279	$	951,999

Reportable Segment Adjusted EBITDA (2)
Las Vegas Locals	$	36,810	$	43,917		$	77,223	$	89,237
Downtown Las Vegas		9,310		11,800			17,682		25,154
Midwest and South		35,590		45,010			74,869		93,598
Atlantic City		42,960		—			47,863		—
Our share of Borgata’s operating income before net amortization, preopening and other items (2)		—		13,844			8,180		26,761

Reportable Segment Adjusted EBITDA		124,670		114,571			225,817		234,750

Other operating costs and expenses
Depreciation and amortization (3)		55,408		42,418			95,454		85,394
Corporate expense (4)		13,526		11,036			25,615		23,721
Preopening expenses		1,243		4,054			2,306		9,893
Our share of Borgata’s preopening expenses		—		173			—		349
Our share of Borgata’s write-downs and other items		—		36			34		31
Write-downs and other charges, net		1,991		(1,835	)		3,592		27,128
Other (5)		2,826		2,531			5,110		4,874

Total other operating costs and expenses		74,994		58,413			132,111		151,390

Operating income	$	49,676	$	56,158		$	93,706	$	83,360

(1)	Other gross revenues are generated from Dania Jai-Alai.

(2)

We determine each of our wholly-owned properties’ profitability based upon Property EBITDA, which represents each property’s earnings before interest expense, income taxes, depreciation and amortization, preopening expenses, write-downs and other charges, share-based compensation expense, and deferred rent, as applicable. Reportable Segment Adjusted EBITDA is the aggregate sum of the Property EBITDA for each of the properties included in our Las Vegas Locals, Downtown Las Vegas, Midwest and South, and Atlantic City segments, and also includes our share of Borgata’s operating income, during the period in which it was accounted for under the equity method of accounting, before net amortization, preopening and other items. We calculate our profitability for Borgata, our 50% joint venture, as follows:

BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
	(In thousands)
Operating income from Borgata, as reported on our condensed consolidated statements of operations	$	—	$	13,310	$	8,146	$	25,732
Add back:
Net amortization expense related to our investment in Borgata		—		325		—		649
Our share of Borgata’s preopening expenses		—		173		—		349
Our share of Borgata’s write-downs and other items, net		—		36		34		31

Our share of Borgata’s operating income before net amortization, preopening and other items as reported on the accompanying table	$	—	$	13,844	$	8,180	$	26,761

(3)	The following table reconciles the presentation of depreciation and amortization on our condensed consolidated statements of operations to the presentation on the accompanying table.


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
	(In thousands)
Depreciation and amortization as reported on our condensed consolidated statements of operations	$	55,408	$	42,093	$	95,454	$	84,745
Net amortization expense related to our investment in Borgata		—		325		—		649

Depreciation and amortization as reported on the accompanying table	$	55,408	$	42,418	$	95,454	$	85,394

(4)	Corporate expense represents unallocated payroll, professional fees, aircraft expenses and various other expenses not directly related to our casino and hotel operations, in addition to the corporate portion of share-based compensation expense.

(5)	Other operating costs and expenses include Property EBITDA from Dania Jai-Alai, deferred rent, and share-based compensation expense charged to our Reportable Segments.

As presented above, the results of Borgata for the period from April 1 through June 30, 2010 are included in our condensed consolidated statement of operations for the three months ended June 30, 2010, and its results for the period from March 24 through June 30, 2010 are included in our condensed consolidated statements of operations for the six months ended June 30, 2010. For the periods from January 1, 2010 through March 23, 2010 and for each of the three and six months ended June 30, 2009, the operating results of Borgata are reflected only at our 50% share in ownership.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with, and is qualified in its entirety by, the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Unless the context otherwise requires, all references herein to the “Company,” “we,” “us” or “our,” or similar terms, refer to Boyd Gaming Corporation and its consolidated subsidiaries.

Important Information Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information included in this Quarterly Report on Form 10-Q contains statements that are forward-looking, including, but not limited to, statements relating to our business strategy and development activities as well as other capital spending, financing sources, the effects of regulation (including gaming and tax regulations), expectations concerning future operations, margins, profitability and competition. Any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, in some cases you can identify forward-looking statements by terminology containing works such as “may,” “will,” “might,” “expect,” “believe,” “anticipate,” “outlook,” “could,” “would,” “estimate,” “continue,” “pursue,” “target,” “project,” “intend,” “plan,” “seek,” “estimate,” “should,” “may,” “assume,” and “continue,” or the negative thereof or comparable terminology.

Forward-looking statements involve certain risks and uncertainties, and actual results may differ materially from those discussed in any such statement. Factors that could cause actual results to differ materially from such forward-looking statements include:

•

The effects of intense competition that exists in the gaming industry.

•

The current economic downturn and its effect on consumer spending.

•

The fact that our expansion, development and renovation projects (including enhancements to improve property performance) are subject to many risks inherent in expansion, development or construction of a new or existing project, including:

•

design, construction, regulatory, environmental and operating problems and lack of demand for our projects;

•

delays and significant cost increases, shortages of materials, shortages of skilled labor or work stoppages;

•

poor performance or nonperformance of any of our partners or other third parties upon whom we are relying in connection with any of our projects;

•

construction scheduling, engineering, environmental, permitting, construction or geological problems, weather interference, floods, fires or other casualty losses;

•

failure by us, our partners, or Borgata to obtain financing on acceptable terms, or at all; and

•

failure to obtain necessary government or other approvals on time, or at all.

•

The risk that our ongoing suspension of construction at Echelon may result in adverse affects on our business, results of operations or financial condition, including with respect to our joint venture participants and other resulting liabilities.

•

The risk that any of our projects may not be completed, if at all, on time or within established budgets, or that any project will result in increased earnings to us.

•

The risk that significant delays, cost overruns, or failures of any of our projects to achieve market acceptance could have a material adverse effect on our business, financial condition and results of operations.

•

The risk that our projects may not help us compete with new or increased competition in our markets.

•

The risk that new gaming licenses or jurisdictions become available (or offer different gaming regulations or taxes) that results in increased competition to us.

•

The risk that the actual fair value for assets acquired and liabilities assumed from any of our acquisitions differ materially from our preliminary estimates.

•

The risk that negative industry or economic trends, including the market price of our common stock trading below its book value, reduced estimates of future cash flows, disruptions to our business, slower growth rates or lack of growth in our business, may result in significant write-downs or impairments in future periods.

•

The risks associated with growth and acquisitions, including our ability to identify, acquire, develop or profitably manage additional companies or operations or successfully integrate such companies or operations into our existing operations without substantial costs, delays or other problems.

•

The risk that we may not receive gaming or other necessary licenses for new projects.

•

The risk that we may be unable to finance our expansion, development and renovation projects, including cost overruns on any particular project, as well as other capital expenditures through cash flow, borrowings under our bank credit facility and additional financings, which could jeopardize our expansion, development and renovation efforts.

•

The risk that we may be unable to refinance our outstanding indebtedness as it comes due, or that if we do refinance, the terms are not favorable to us.

•

Risks associated with our ability to comply with the Total Leverage Ratio covenant, and our belief that any distributions from Borgata could further alleviate risks.

•

The risk that we ultimately may not be successful in dismissing the action filed against Treasure Chest Casino and may lose our ability to operate that property, which result could adversely affect our business, financial condition and results of operations.

•

The effects of the extensive governmental gaming regulation and taxation policies that we are subject to, as well as any changes in laws and regulations, including increased taxes, which could harm our business.

•

The effects of extreme weather conditions or natural disasters on our facilities and the geographic areas from which we draw our customers, and our ability to recover insurance proceeds (if any).

•

The risks relating to mechanical failure and regulatory compliance at any of our facilities.

•

The risk that the instability in the financial condition of our lenders could have a negative impact on our credit facility.

•

The effects of events adversely impacting the economy or the regions from which we draw a significant percentage of our customers, including the effects of the current economic recession, war, terrorist or similar activity or disasters in, at, or around our properties.

•

The effects of energy price increases on our cost of operations and our revenues.

•

Financial community and rating agency perceptions of our Company, and the effect of economic, credit and capital market conditions on the economy and the gaming and hotel industry.

•

The risk that Borgata may be unable to refinance its amended credit facility on its expected terms, or at all.

•

The risk that Borgata’s proposed transaction will not close in August 2010.

•

Borgata’s expected customer base.

•

The effect of the expansion of legalized gaming in the mid-Atlantic region.

•

Borgata’s expected liability under the multiemployer pension in which it participates.

Additional factors that could cause actual results to differ are discussed in Part II. Item 1A. Risk Factors of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 and in other current and periodic reports filed from time to time with the SEC. All forward-looking statements in this document are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement.

Executive Overview

Boyd Gaming Corporation (the “Company,” “Boyd Gaming,” “we,” or “us”) is a diversified operator of 15 wholly-owned gaming entertainment properties and one 50% interest in a limited liability company that operates Borgata Hotel Casino & Spa (“Borgata”) in Atlantic City, New Jersey. Headquartered in Las Vegas, we have gaming operations in Nevada, Illinois, Louisiana, Mississippi, Indiana and New Jersey, which we aggregate in order to present four Reportable Segments: (i) Las Vegas Locals, (ii) Downtown Las Vegas, (iii) Midwest and South, and (iv) Atlantic City.

through June 30, 2010 are included in our condensed consolidated statement of operations for the three months ended June 30, 2010; and its results of operations for the period from March 24 through June 30, 2010 are included in our condensed consolidated statements of operations and cash flows for the six months ended June 30, 2010.

In addition, we own 85 acres of land on the Las Vegas Strip, where our Echelon development project is located. Furthermore, on March 1, 2007, we acquired Dania Jai-Alai, where we operate a pari-mutuel jai-alai facility, and approximately 47 acres of related land located in Dania Beach, Florida.

Overall Outlook

Our main business emphasis is on slot revenues, which are highly dependent upon the volume and spending levels of customers at our properties, which affects our operating results. Gross revenues are one of the main performance indicators of our properties. Our properties have historically generated significant operating cash flow, with the majority of our revenue being cash-based. Our industry is capital intensive; we rely heavily on the ability of our properties to generate operating cash flow in order to fund maintenance capital expenditures, fund acquisitions, provide excess cash for future development, repay debt financing and associated interest costs, purchase our debt or equity securities, pay income taxes and pay dividends.

Due to a number of factors affecting consumers, including the increasing Federal deficit, volatility in the stock market, the European debt crisis and high unemployment levels, all of which have resulted in reduced levels of consumer spending, the outlook for the gaming industry remains highly unpredictable. We believe the severity and length of this economic recession has had a profound effect on consumer behavior and has led to a shift in spending from discretionary items. Because of these uncertain conditions, we have increasingly focused on managing our operating margins. Our present objective is to manage our cost and expense structure to address the current deterioration in business volumes and generate strong and stable cash flow.

We continually work to position our Company for greater success by strengthening our existing operations and growing through capital investment and other strategic initiatives. For instance, in January 2009, we opened our 22-story hotel at Blue Chip Casino, Hotel & Spa, which includes 300 guest rooms, a spa and fitness center, additional meeting and event space, as well as new dining and nightlife venues. In addition, Borgata’s second hotel, The Water Club, opened in June 2008. The Water Club is an 800-room hotel, featuring five swimming pools, a state-of-the-art spa, and additional meeting room space.

In addition, we have established a nationwide branding initiative and loyalty program. Previously, players were able to use their “Club Coast” or “B Connected” cards to earn and redeem points at nearly all of our wholly-owned Boyd Gaming properties in Nevada, Illinois, Indiana, Louisiana and Mississippi. In June 2010, we launched an enhanced, multi-property player loyalty program under the “B Connected” brand, which replaces the “Club Coast” program. Customers under the “Club Coast” program will keep all earned benefits and club points they’ve previously earned under the program. The new “B Connected” club, among other benefits, extends the time period over which players may qualify for promotion from player level to level and increases the credits awarded to reel slot and table games players.

In addition to the “B Connected” player loyalty program, we launched the “B Connected Mobile” program in July 2010. “B Connected Mobile,” the first multi-property, loyalty program-based iPhone application of its kind in the gaming industry, is a personalized mobile application that delivers customized offers and information directly to a customer’s iPhone, iPod Touch or iPad. The application also further expands the benefits of the “B Connected” program. “B Connected Mobile” provides personalized information, including hotel, dining and gaming offers, including “Best Rates Available” on hotel rooms for “B Connected” members; instant access to event information, schedules and special offers at all Boyd Gaming properties using “B Connected;” a GPS-powered feature that provides additional real-time information when a customer visits a specific Boyd Gaming property; a search engine that allows customers to find Boyd Gaming casinos that have their favorite machines, and displays the games’ locations on a casino floor map; the ability to track “B Connected” point balances in real time; and the ability to make immediate hotel or restaurant reservations.

Development Activities

On August 1, 2008, due to the difficult environment in the capital markets, as well as weak economic conditions, we announced the delay of our multibillion dollar Echelon development project on the Las Vegas Strip. At such time, we did not anticipate the long-term effects of the economic recession and continued economic downturn, evidenced by lower occupancy rates, declining room rates and reduced consumer spending across the country, but particularly in the Las Vegas Locals region; nor did we predict that the incremental supply becoming available on the Las Vegas Strip would face such depressed demand levels, thereby elongating the time for absorption of this additional supply into the market. As we do not yet believe that a significant level of economic recovery has occurred along the Las Vegas Strip, we still do not expect to resume construction for three to five years. We also believe financing for a development project like Echelon continues to be unavailable.

Nonetheless, we remain committed to having a significant presence on the Las Vegas Strip. During the suspension period, we continue to consider alternative development options for Echelon, which may include developing the project in phases, alternative capital structures for the project, scope modifications to the project, or additional strategic partnerships, among others. We can provide no assurances as to when, or if, construction will resume on the project, or if we will be able to obtain alternative sources of financing for the project. As we develop and explore the viability of alternatives for the project, we will monitor these assets for recoverability. If we are subject to a non-cash write-down of these assets, it could have a material adverse impact on our consolidated financial statements.

In addition to the expansion projects mentioned above, we regularly evaluate opportunities for growth through the development of gaming operations in existing or new markets, along with opportunities associated with acquiring other gaming entertainment facilities.

RESULTS OF OPERATIONS

Three and Six Months ended June 30, 2010 and 2009

Summary of Operating Results

We believe that our operating results for each of the three and six months ended June 30, 2010 and 2009 have been adversely impacted, to some extent, by the weakened global economy. The increasing Federal deficit, volatility in the stock market, European debt crisis and high unemployment levels have resulted in reduced levels of consumer spending that have negatively impacted our financial results. We believe the severity and length of this economic recession has had a profound effect on consumer behavior and has led to a shift in spending from discretionary items. Despite these negative impacts and the difficulty we have experienced in predicting consumer behavior, we have seen some recent stabilizing trends in our business. In addition to positive national economic growth over the past year, Las Vegas visitor counts have been increasing or stable in recent months and Las Vegas convention attendance has also increased in recent months. Although we see some recent improvement in our business trends, our results continue to be impacted by increases in unemployment; depressed discretionary spending; ongoing volatility in the equity markets; and a weak housing market and significant declines in housing prices and related home equity.

The following provides a summary of certain key operating results:


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
	(In thousands)
Net revenues	$	578,446	$	422,950	$	993,581	$	857,795
Operating income		49,676		56,158		93,706		83,360
Net income (loss)		12,026		12,778		21,708		(1,050	)

Significant specific events that affected our results for the three months ended June 30, 2010, as compared to the three months ended June 30, 2009, or that may affect our future results, are described below:

•

Excluding the consolidation of Borgata, net revenues were $391.6 million for the three months ended June 30, 2010, a 7.4% decline as compared to the corresponding period of the prior year. The decline was primarily due to lower levels of consumer spending, room rate pressures experienced in our Las Vegas Locals region and lower visitor volumes in our Downtown region. In addition, net revenues at our Louisiana properties continued to decline as market conditions normalize in that region from the strong and, in some cases, record levels in the prior year.

•

Including the consolidation of Borgata, operating income and net income (loss) decreased during the three months ended June 30, 2010 compared to the corresponding period of the prior year primarily due to the factors described in “Adjusted EBITDA by Reportable Segment” and “Other Costs and Expenses” below.

Significant specific events that affected our results for the six months ended June 30, 2010, as compared to the six months ended June 30, 2009, or that may affect our future results, are described below:

•

Excluding the consolidation of Borgata, net revenues were $789.9 million for the six months ended June 30, 2010, a 7.9% decline as compared to the corresponding period of the prior year. The decline was primarily due to lower levels of consumer spending, room rate pressures experienced in our Las Vegas Locals region, lower visitor volumes in our Downtown region and lower pricing associated with our Hawaiian charter operation. In addition, net revenues at our Louisiana properties continued to decline as market conditions normalize in that region from the strong and, in some cases, record levels in the prior year; however, such declines were partially offset by improved results at our Blue Chip property.

•

Including the consolidation of Borgata, operating income and net income (loss) increased during the six months ended June 30, 2010 compared to the corresponding period of the prior year primarily due to the non-recurrence of write-downs and other charges of $29.0 million during the six months ended June 30, 2009, related to the write-off of Dania Jai-Alai’s goodwill.

Operating Revenues

We derive the majority of our gross revenues from our gaming operations, which produced approximately 72% and 75% of gross revenues for the three months ended June 30, 2010 and 2009, respectively, and which produced approximately 74% and 76% of gross revenues for the six months ended June 30, 2010 and 2009, respectively. Food and beverage gross revenues, which produced approximately 14% and 13% of gross revenues for the three months ended June 30, 2010 and 2009, respectively, and which produced approximately 13% and 12% of gross revenues for the six months ended June 30, 2010 and 2009, respectively, represent the next most significant revenue source, followed by room and other, which separately contributed less than 10% of gross revenues during each of these periods.


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(In thousands)
REVENUES
Gaming	$	490,132		$	353,597		$	840,537		$	719,660
Food and beverage		94,020			58,688			154,002			117,729
Room		58,671			32,548			90,105			63,189
Other		33,813			24,486			57,635			51,421

	$	676,636		$	469,319		$	1,142,279		$	951,999

COSTS AND EXPENSES
Gaming	$	229,755		$	167,427		$	397,860		$	340,339
Food and beverage		49,149			32,114			81,791			63,498
Room		13,056			10,069			23,106			20,026
Other		27,006			19,553			46,244			38,867

	$	318,966		$	229,163		$	549,001		$	462,730

MARGINS
Gaming		53.12	%		52.65	%		52.67	%		52.71	%
Food and beverage		47.72	%		45.28	%		46.89	%		46.06	%
Room		77.75	%		69.06	%		74.36	%		68.31	%
Other		20.13	%		20.15	%		19.76	%		24.41	%

The results for the three months ended June 30, 2010, as reported above, reflect the consolidation of Borgata for the period from April 1 through June 30, 2010, and the results for the six months ended June 30, 2010, as reported above, reflect the consolidation of Borgata for the period from March 24 through June 30, 2010, each of which are not comparable to the amounts as reported in the prior year. As such, the following table reflects the operating results of the Company, excluding such results of Borgata, for comparability to the prior period. The results of Borgata are separately addressed below as well.

Comparative Results of Boyd Gaming (Without Giving Effect to the Consolidation of Borgata)


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(In thousands)
REVENUES
Gaming	$	325,602		$	353,597		$	660,062		$	719,660
Food and beverage		58,026			58,688			114,862			117,729
Room		30,967			32,548			60,153			63,189
Other		23,117			24,486			46,275			51,421

	$	437,712		$	469,319		$	881,352		$	951,999

COSTS AND EXPENSES
Gaming	$	162,807		$	167,427		$	326,787		$	340,339
Food and beverage		31,726			32,114			61,898			63,498
Room		9,597			10,069			18,882			20,026
Other		18,391			19,553			37,051			38,867

	$	222,521		$	229,163		$	444,618		$	462,730

MARGINS
Gaming		50.00	%		52.65	%		50.49	%		52.71	%
Food and beverage		45.32	%		45.28	%		46.11	%		46.06	%
Room		69.01	%		69.06	%		68.61	%		68.31	%
Other		20.44	%		20.15	%		19.93	%		24.41	%

Three Months ended June 30, 2010 and 2009

Gaming

Gaming revenues are significantly comprised of the net win from our slot machine operations and to a lesser extent from table games win. Overall, the $28.0 million, or 7.9%, decrease in gaming revenues during the three months ended June 30, 2010 as compared to the corresponding period of the prior year is due to a 7.1% decrease in slot handle, which was offset by a slight increase of 0.09 percentage points in slot win percentage, and a 4.6% decrease in our table games drop in addition to a decline of 0.78 percentage points in our table games win percentage. Correspondingly, the number of slot machines and table games at our properties were down approximately 1.4% and 2.6%, respectively, at June 30, 2010 as compared to the comparable date in the prior year. As noted earlier, we believe the decrease in gaming volumes reflect the ongoing constraints in consumer spending resulting from the weakened economy.

Food and Beverage

Food and beverage revenues decreased slightly during the three months ended June 30, 2010 as compared to the corresponding period of the prior year, as the continuation of reduced spend per visitor impacted our business.

Room

Room revenues have declined during the three months ended June 30, 2010 as compared to the corresponding period of the prior year, due to increased competition, the additional supply of available rooms, decreased occupancy and lower average room rates. Consistent with our experience in recent quarters, the average daily rates and occupancy percentages have continued to trend downward.

Other

Other revenues have declined during the three months ended June 30, 2010 as compared to the corresponding period of the prior year, primarily due to a reduction in the number of shows held at our entertainment venues as well as a reduction in ticket prices.

Six Months ended June 30, 2010 and 2009

Gaming

As noted above, gaming revenues are significantly comprised of the net win from our slot machine operations and to a lesser extent from table games win. Overall, the $59.6 million, or 8.3%, decrease in gaming revenues during the six months ended June 30, 2010 as compared to the corresponding period of the prior year is due to an 8.0% decrease in slot handle, which was offset by a slight increase of 0.12 percentage points in slot win percentage, and a 5.3% decrease in our table games drop in addition to a decline of 0.94 percentage points in our table games win percentage. Correspondingly, the number of slot machines and table games at our properties were down approximately 1.4% and 2.6%, respectively, at June 30, 2010 as compared to the comparable date in the prior year. As noted earlier, we believe the decrease in gaming volumes reflect the ongoing constraints in consumer spending resulting from the weakened economy.

Food and Beverage

Food and beverage revenues decreased during the six months ended June 30, 2010 as compared to the corresponding period of the prior year, as the continuation of reduced spend per visitor impacted our business during this six month period.

Room

Room revenues have declined during the six months ended June 30, 2010 as compared to the corresponding period of the prior year, due to increased competition, the additional supply of available rooms, decreased occupancy and lower average room rates. Consistent with our experience in recent quarters, the average daily rates and occupancy percentages have continued to trend downward.

Other

Other revenues have declined during the six months ended June 30, 2010 as compared to the corresponding period of the prior year, primarily due to a reduction in the number of shows held at our entertainment venues as well as a reduction in ticket prices.

Revenues by Reportable Segment

The following table presents our gross revenues, by Reportable Segment (region), for the three and six months ended June 30, 2010 and 2009.


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
	(In thousands)
Gross revenues
Las Vegas Locals	$	169,658	$	183,738	$	343,555	$	373,674
Downtown Las Vegas		61,007		63,159		120,720		127,354
Midwest and South		205,466		220,460		413,522		446,840
Atlantic City		238,924		—		260,927		—

Reportable Segment Gross Revenues		675,055		467,357		1,138,724		947,868
Other		1,581		1,962		3,555		4,131

Gross revenues	$	676,636	$	469,319	$	1,142,279	$	951,999

Three Months ended June 30, 2010 and 2009

Significant factors that affected our Reportable Segment Gross Revenues for the three months ended June 30, 2010, as compared to the corresponding period of the prior year, are listed below:

•

Las Vegas Locals – declined 7.7% during the three months ended June 30, 2010, as compared to the corresponding period of the prior year, due primarily to lower consumer spending and room rate pressures throughout the entire market.

•

Downtown Las Vegas – decreased 3.4% during the three months ended June 30, 2010, as compared to the corresponding period of the prior year, due primarily to lower consumer spending and reduced visitor volumes.

•

Midwest and South – decreased 6.8% during the three months ended June 30, 2010, as compared to the corresponding period of the prior year, primarily due to lower consumer spending and the effects of a normalization of visitation at our Louisiana properties from the strong and, in some cases, record levels in the prior year.

•

Atlantic City – see further discussion of Borgata’s separate operating results below.

Six Months ended June 30, 2010 and 2009

Significant factors that affected our Reportable Segment Gross Revenues for the six months ended June 30, 2010, as compared to the corresponding period of the prior year, are listed below:

•

Las Vegas Locals – declined 8.1% during the six months ended June 30, 2010, as compared to the corresponding period of the prior year, due primarily to lower consumer spending and room rate pressures throughout the entire market.

•

Downtown Las Vegas – decreased 5.2% during the six months ended June 30, 2010, as compared to the corresponding period of the prior year, due primarily to lower consumer spending, reduced visitor volumes, lower ticket prices on our Hawaiian charter operation and lower visitation from our Hawaiian customers.

•

Midwest and South – decreased 7.5% during the six months ended June 30, 2010, as compared to the corresponding period of the prior year, primarily due to lower consumer spending and the effects of a normalization of visitation at our Louisiana properties from the strong and, in some cases, record levels in the prior year.

•

Atlantic City – reflects only a partial period during the six months ended June 30, 2010, therefore comparability is not meaningful. See further discussion of Borgata’s separate operating results below.

Adjusted EBITDA by Reportable Segment

We determine each of our wholly-owned properties’ profitability based upon Property Adjusted EBITDA, which represents each property’s earnings before interest expense, income taxes, depreciation and amortization, deferred rent, preopening expenses, share-based compensation expense, and write-downs and other charges, as applicable. Reportable Segment Adjusted EBITDA is the aggregate sum of the Property Adjusted EBITDA for each of the properties included in our Las Vegas Locals, Downtown Las Vegas, Midwest and South and Atlantic City segments and also includes our share of Borgata’s operating income, during the period in which it was accounted for under the equity method of accounting, before net amortization, preopening and other items.

We have aggregated certain of our properties in order to present the Reportable Segments shown in the table below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
	(In thousands)
Reportable Segment Adjusted EBITDA
Las Vegas Locals	$	36,810	$	43,917	$	77,223	$	89,237
Downtown Las Vegas		9,310		11,800		17,682		25,154
Midwest and South		35,590		45,010		74,869		93,598
Atlantic City		42,960		—		47,863		—
Our share of Borgata’s operating income before net amortization, preopening and other items		—		13,844		8,180		26,761

Three Months ended June 30, 2010 and 2009

Significant factors that affected our Reportable Segment Adjusted EBITDA for the three months ended June 30, 2010, as compared to the corresponding period of the prior year, are further discussed below:

•

Las Vegas Locals – decreased 16.2% during the three months ended June 30, 2010, as compared to the corresponding period of the prior year, due primarily to the impact of lower levels of consumer spending and room rate pressures throughout the entire market.

•

Downtown Las Vegas – decreased 21.1% during the three months ended June 30, 2010, as compared to the corresponding period of the prior year, due primarily to lower consumer spending as well as lower Downtown visitor volumes.

•

Midwest and South – decreased 20.9% during the three months ended June 30, 2010, as compared to the corresponding period of the prior year, primarily due to declines at our Louisiana properties as market conditions continue to normalize in that region from the strong and, in some cases, record levels in the prior year.

•

Atlantic City – see further discussion of Borgata’s separate operating results below.

Six Months ended June 30, 2010 and 2009

Significant factors that affected our Reportable Segment Adjusted EBITDA for the six months ended June 30, 2010, as compared to the corresponding period of the prior year, are further discussed below:

•

Las Vegas Locals – decreased 13.5% during the six months ended June 30, 2010, as compared to the corresponding period of the prior year, due primarily to the impact of lower levels of consumer spending and room rate pressures throughout the entire market.

•

Downtown Las Vegas – decreased 29.7% during the six months ended June 30, 2010, as compared to the corresponding period of the prior year, due primarily to lower consumer spending, lower Downtown visitor volumes and lower ticket pricing and higher fuel costs associated with our Hawaiian charter operation.

•

Midwest and South – decreased 20.0% during the six months ended June 30, 2010, as compared to the corresponding period of the prior year, primarily due to declines at our Louisiana properties as market conditions continue to normalize in that region from the strong and, in some cases, record levels in the prior year.

•

Other Costs and Expenses

The following costs and expenses, as presented in our condensed consolidated statements of operations, are further discussed below:


	Three Months Ended June 30,					Six Months Ended June 30,
	2010		2009			2010		2009
	(In thousands)
Selling, general and administrative	$	99,666	$	72,618		$	169,944	$	146,591
Maintenance and utilities		37,970		22,973			62,109		45,359
Depreciation and amortization		55,408		42,093			95,454		84,745
Corporate expense		13,526		11,036			25,615		23,721
Preopening expenses		1,243		4,054			2,306		9,893
Write-downs and other charges, net		1,991		(1,835	)		3,592		27,128

The results for the three months ended June 30, 2010, as reported above, reflect the consolidation of Borgata for the period from April 1 through June 30, 2010, and the results for the six months ended June 30, 2010, as reported above, reflect the consolidation of Borgata for the period from March 24 through June 30, 2010, each of which are not comparable to the amounts as reported in the prior year. As such, the following table reflects the operating results of the Company, excluding such results, for comparability to the prior period. The results of Borgata are addressed below as well. The following costs and expenses are further discussed below:


	Three Months Ended June 30,					Six Months Ended June 30,
	2010		2009			2010		2009
	(In thousands)
Selling, general and administrative	$	67,825	$	72,618		$	136,644	$	146,591
Maintenance and utilities		22,324		22,973			43,987		45,359
Depreciation and amortization		37,172		42,093			75,593		84,745
Corporate expense		13,526		11,036			25,615		23,721
Preopening expenses		1,243		4,054			2,306		9,893
Write-downs and other charges, net		1,979		(1,835	)		3,580		27,128

Three Months ended June 30, 2010 and 2009

Selling, general and administrative

Selling, general and administrative expenses, as a percentage of gross revenues, were fairly consistent at 15.5% during each of the three months ended June 30, 2010 and 2009 due to our ongoing cost containment efforts, the effects of which were slightly mitigated by increased marketing expenses.

Maintenance and Utilities

Maintenance and utilities expenses were relatively consistent during the three months ended June 30, 2010 and 2009, respectively, as no major maintenance projects were undertaken in either period. The incremental increase in maintenance and utilities, as a percentage of gross revenues of 5.1% and 4.9%, during the three months ended June 30, 2010 and 2009, respectively, reflects an overall increase in energy consumption.

Depreciation and Amortization

Depreciation and amortization expense declined during the three months ended June 30, 2010 and 2009, as there were no significant expansion capital expenditures that were placed into service during 2009 or the second quarter of 2010 and as certain property and equipment became fully depreciated.

Corporate Expense

Corporate expense represents unallocated payroll, professional fees, and various other expenses that are not directly related to our casino hotel operations, in addition to the corporate portion of share-based compensation expense. The incremental increase in corporate expense, as a percentage of gross revenues of 3.1% and 2.4%, during the three months ended June 30, 2010 and 2009, respectively, reflects timing differences in when certain expenses were recorded during the period.

Preopening Expenses

We expense certain costs of start-up activities as incurred. During the three months ended June 30, 2010 and 2009, our preopening expenses related to our Echelon development project. For the three months ended June 30, 2010 and 2009, we expensed $1.2 million and $4.1 million of such costs, respectively.

Write-downs and Other Charges, Net

During the three months ended June 30, 2010, write-downs and other charges, net primarily consisted of $2.0 million of expenses directly related to evaluating various acquisition opportunities and other business development activities. During the three months ended June 30, 2009, we recorded a gain of $2.1 million, net of hurricane related charges, from the recovery and settlement of our business interruption insurance claim related to the closure of Treasure Chest due to the effects of Hurricane Katrina in 2005.

Six Months ended June 30, 2010 and 2009

Selling, general and administrative

Selling, general and administrative expenses, as a percentage of gross revenues, were fairly consistent at 15.5% and 15.4% during the six months ended June 30, 2010 and 2009, respectively, due to our ongoing cost containment efforts, offset by increased marketing expenses.

Maintenance and Utilities

Maintenance and utilities expenses were relatively consistent during the six months ended June 30, 2010 and 2009, respectively, as no major maintenance projects were undertaken in either period. The incremental increase in maintenance and utilities, as a percentage of gross revenues of 5.0% and 4.8%, during the six months ended June 30, 2010 and 2009, respectively, reflects an overall increase in energy consumption.

Depreciation and Amortization

Depreciation and amortization expense declined during the six months ended June 30, 2010 and 2009, as there were no significant expansion capital expenditures that were placed into service during 2009 or the first half of 2010 and as certain property and equipment became fully depreciated.

Corporate Expense

Corporate expense represents unallocated payroll, professional fees, and various other expenses that are not directly related to our casino hotel operations, in addition to the corporate portion of share-based compensation expense. The incremental increase in corporate expense, as a percentage of gross revenues of 2.9% and 2.5%, during the six months ended June 30, 2010 and 2009, respectively, reflects timing differences in when certain expenses were recorded during the period.

Preopening Expenses

We expense certain costs of start-up activities as incurred. During the six months ended June 30, 2010, we expensed $2.3 million in preopening costs that related primarily to our Echelon development project. During the six months ended June 30, 2009, we expensed $9.9 million in preopening costs that related primarily to our Echelon development project and our hotel at Blue Chip.

Write-downs and Other Charges, Net

During the six months ended June 30, 2010, write-downs and other charges, net primarily consisted of direct expenses related to evaluating various acquisition opportunities and other business development activities. During the six months ended June 30, 2009, write-downs and other charges of $27.1 million principally related to the write-off of Dania Jai-Alai’s goodwill, which was recorded as an additional cost of the acquisition in connection with the January 2009 amendment to the purchase agreement. The goodwill was written-off in connection with our impairment test for recoverability during the six months ended June 30, 2009. In addition, during the six months ended June 30, 2009, we recorded a gain of $2.1 million, net of hurricane related charges, from the recovery and settlement of our business interruption insurance claim related to the closure of Treasure Chest due to the effects of Hurricane Katrina in 2005.

Other Expenses (Income)

Interest Expense


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(In thousands)
Interest costs	$	29,084		$	29,658		$	52,500		$	69,237
Effects of interest rate swaps		5,566			6,577			11,157			12,647
Less:
Capitalized interest		—			—			—			378
Interest income		—			—			4			4

Interest expense, net	$	34,650		$	36,235		$	63,653		$	81,502

Boyd Gaming average note payable and debt balance	$	2,567,973		$	2,763,071		$	2,604,377		$	2,754,215

Borgata average debt balance	$	628,581		$	683,357		$	653,246		$	703,657

Boyd Gaming average interest rate		4.5	%		5.2	%		4.4	%		5.9	%

Borgata average interest rate		2.9	%		3.9	%		2.8	%		3.8	%

Three Months ended June 30, 2010 and 2009

Excluding the consolidation of Borgata, interest expense, net was $29.1 million for the three months ended June 30, 2010, a 19.8% decline as compared to the corresponding period of the prior year. The decline was due to lower average interest rates, lower effects of our interest rate swaps and lower average note payable and outstanding debt balances. At each June 30, 2010 and 2009, 55% of our debt was based upon variable rates of interest. See further discussion of Borgata’s interest expense below.

As of June 30, 2010, we are a party to certain floating-to-fixed interest rate swap agreements with an aggregate notional amount of $500 million, whereby we receive payments based upon the three-month LIBOR and make payments based upon a stipulated fixed rate. During the three months ended June 30, 2010, the effect of our swaps increased our interest expense by $5.6 million, as market interest rates during the period were significantly lower than the 5.1% weighted-average fixed rate associated with these swaps as of June 30, 2010.

Six Months ended June 30, 2010 and 2009

Excluding the consolidation of Borgata, interest expense, net was $57.6 million for the six months ended June 30, 2010, a 29.4% decline as compared to the corresponding period the prior year. The decline was due to lower average interest rates, lower effects of our interest rate swaps and lower average note payable and outstanding debt balances. There was no interest capitalized during the six months ended June 30, 2010, as compared to $0.4 million during the six months ended June 30, 2009, as the Blue Chip addition was completed in January 2009, and our development efforts at Echelon had been suspended since August 2008. Additionally, interest expense during the six months ended June 30, 2009 was increased by $8.9 million, representing the interest portion of the contingent payment for the January 2009 amendment to the purchase agreement resulting in the finalization of our purchase price for Dania Jai-Alai. See further discussion of Borgata’s interest expense below.

During the six months ended June 30, 2010, the effect of our swaps increased our interest expense by $11.2 million, as market interest rates during the period were significantly lower than the 5.1% weighted-average fixed rate associated with these swaps as of June 30, 2010.

Gain on Early Retirements of Debt

Three Months ended June 30, 2010 and 2009

During the three months ended June 30, 2010 and 2009, we purchased and retired $17.5 million and $34.2 million, respectively, principal amount of our senior subordinated notes. The total purchase price of the notes was $15.5 million and $28.0 million, respectively, resulting in a gain of $1.9 million and $6.1 million, respectively, net of associated deferred financing fees. The transactions were funded by availability under our bank credit facility.

Six Months ended June 30, 2010 and 2009

During the six months ended June 30, 2010 and 2009, we purchased and retired $33.0 million and $44.7 million, respectively, principal amount of our senior subordinated notes. The total purchase price of the notes was $28.9 million and $36.1 million, respectively, resulting in a gain of $3.9 million and $8.5 million, respectively, net of associated deferred financing fees. The transactions were funded by availability under our bank credit facility.

Income Taxes

The effective tax rate during the three months ended June 30, 2010 was 29.0%, as compared to 40.5% during the three months ended June 30, 2009. The effective tax rate during the six months ended June 30, 2010 was 29.7%, as compared to 181.5% during the six months ended June 30, 2009. The 2010 tax provision was favorably impacted by tax adjustments related to the consolidation of Borgata. We consolidate Borgata’s income for financial statement purposes; however, under federal partnership income tax statutes, we are only subject to federal income tax on our fifty percent share of partnership income. The favorable federal tax adjustment is offset, to a lesser degree, by the inclusion of Borgata’s entire state income tax provision in our consolidated tax provision. The 2009 tax provision, for the six months ended June 30, 2009, was adversely impacted by recurring permanent tax differences that are not measured or impacted by the level of pretax income for the period.

Results of Operations for Borgata

The following table sets forth, for the periods indicated, certain operating data for Borgata. As discussed above, we effectively obtained control of Borgata effective March 24, 2010 and its results of operations for the period from April 1 through June 30, 2010 are included in our condensed consolidated statement of operations for the three months ended June 30, 2010 and its results of operations for the period from March 24 through June 30, 2010 are included in our condensed consolidated statement of operations for the six months ended June 30, 2010. While the following table discusses the results of Borgata on a stand-alone basis for the entire respective periods presented, subsequent tables reconcile the effect of their results on our condensed consolidated statements of operations for the three and six months ended June 30, 2010 and 2009.


	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
	(In thousands)
Revenues:
Gaming	$	164,530	$	173,837	$	318,306	$	342,686
Food and beverage		35,994		34,490		70,357		68,483
Room		27,704		27,123		54,106		53,164
Other		10,696		10,302		20,539		19,607

Gross Revenues		238,924		245,752		463,308		483,940
Less promotional allowances		52,032		54,239		101,350		104,537

Net revenues		186,892		191,513		361,958		379,403

Cost and expenses:
Gaming		66,948		69,814		130,934		140,542
Food and beverage		17,423		15,290		33,393		30,077
Room		3,459		2,798		6,409		5,262
Other		8,615		9,192		16,320		16,080
Selling and administrative		31,841		32,864