Edgar Filing: BOYD GAMING CORP

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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 March 31, 2011



o	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

____________________________________________________

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 o

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 o No o

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 o 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 April 29, 2011
	Common stock, $0.01 par value		86,271,482 shares

Table of Contents

BOYD GAMING CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED MARCH 31, 2011

TABLE OF CONTENTS



		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010	4

	Condensed Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010	5

	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2011	6

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010	7

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	78

Item 4.	Controls and Procedures	78

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	79

Item 1A.	Risk Factors	79

Item 6.	Exhibits	95

Signature Page		96

Table of Contents

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, 2010 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 the interim periods presented herein are not necessarily indicative of the results that would be achieved during a full year of operations or in future periods.

When we filed our Annual Report on Form 10-K for the year ended December 31, 2010 with the Securities and Exchange Commission ("SEC") on March 15, 2011, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 with the SEC on May 7, 2010 (the “Provisional Form 10-K” or “Provisional Form 10-Q”, respectively, or collectively, the “Provisional Forms”), the initial acquisition method accounting for the effective change in control of Borgata Hotel Casino and Spa ("Borgata") was incomplete. The application of acquisition method accounting, required in accordance with the authoritative accounting guidance for business combinations, initially had the following effects on our unaudited condensed consolidated financial statements: (i) our previously held equity interest was measured at a provisional fair value at the date control was obtained; (ii) we recognized and measured the provisional fair value of the identifiable assets and liabilities in accordance with promulgated valuation recognition and measurement provisions; and (iii) we recorded the provisional fair value of the noncontrolling interest held in trust as a separate component of our stockholders' equity.

Since the filing of the Provisional Forms, we have made adjustments to the provisional fair value amounts recognized at the date of effective change in control, or March 24, 2010, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. These adjustments, referred to herein as “measurement period adjustments” materially shifted the value of certain tangible and intangible assets. We have applied the measurement period adjustments retrospectively to the condensed consolidated balance sheet reported as of December 31, 2010, as previously reported in the Provisional Form 10-K; however, the impact on the accompanying condensed consolidated statement of operations for the quarter ended March 31, 2010, as retrospectively adjusted to the statement as reported on the Provisional Form 10-Q was not material, and was therefore not adjusted for any measurement period adjustments.

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, 2010.

Table of Contents

BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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



	March 31, 2011			December 31, 2010
ASSETS
Current assets
Cash and cash equivalents	$	173,848		$	145,623
Restricted cash	16,736			19,494
Accounts receivable, net	44,300			47,942
Inventories	14,570			16,029
Prepaid expenses and other current assets	31,652			37,153
Income taxes receivable	5,043			5,249
Deferred income taxes	8,269			8,149
Total current assets	294,418			279,639
Property and equipment, net	3,352,950			3,383,371
Assets held for development	1,122,396			1,119,403
Debt financing costs, net	33,573			34,993
Restricted investments	48,080			48,168
Other assets, net	74,690			70,425
Intangible assets, net	528,755			539,714
Goodwill, net	213,576			213,576
Total assets	$	5,668,438		$	5,689,289
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current maturities of long-term debt	$	25,700		$	25,690
Non-recourse obligations of variable interest entity	247,409			243,059
Accounts payable	53,215			57,183
Income taxes payable	6,443			6,504
Accrued liabilities	291,622			278,471
Total current liabilities	624,389			610,907
Long-term debt, net of current maturities	3,161,782			3,193,065
Deferred income taxes	360,134			362,174
Other long-term tax liabilities	45,741			44,813
Other liabilities	79,124			83,589
Commitments and contingencies (Note 10)
Stockholders’ equity
Preferred stock, $0.01 par value, 5,000,000 shares authorized	—			—
Common stock, $0.01 par value, 200,000,000 shares authorized; 86,271,482 and 86,244,978 shares outstanding	862			862
Additional paid-in capital	638,893			635,028
Retained earnings	557,388			560,909
Accumulated other comprehensive loss, net	(3,886		)	(7,594		)
Total Boyd Gaming Corporation stockholders’ equity	1,193,257			1,189,205
Noncontrolling interest	204,011			205,536
Total stockholders’ equity	1,397,268			1,394,741
Total liabilities and stockholders’ equity	$	5,668,438		$	5,689,289

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

Table of Contents

BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share data)



	Three Months Ended
	March 31,
	2011			2010
REVENUES
Operating revenues:
Gaming	$	481,935		$	350,405
Food and beverage	92,077			59,982
Room	56,591			31,434
Other	33,031			23,822
Gross revenues	663,634			465,643
Less promotional allowances	98,688			50,508
Net revenues	564,946			415,135
COST AND EXPENSES
Operating costs and expenses:
Gaming	226,609			168,105
Food and beverage	47,568			32,642
Room	12,821			10,050
Other	26,239			19,238
Selling, general and administrative	95,788			70,278
Maintenance and utilities	37,415			24,139
Depreciation and amortization	50,584			40,046
Corporate expense	13,280			12,089
Preopening expenses	1,831			1,063
Write-downs and other items, net	4,707			1,601
Total operating costs and expenses	516,842			379,251
Operating income from Borgata	—			8,146
Operating income	48,104			44,030
Other expense (income):
Interest income	(5		)	(4		)
Interest expense	57,291			29,007
Fair value adjustment of derivative instruments	217			—
Loss (gain) on early retirements of debt	20			(2,037		)
Other non-operating expenses from Borgata, net	—			3,133
Total other expense, net	57,523			30,099
Income (loss) before income taxes	(9,419		)	13,931
Income taxes	3,108			(4,249		)
Net income (loss)	(6,311		)	9,682
Net (income) loss attributable to noncontrolling interest	2,790			(1,247		)
Net income (loss) attributable to Boyd Gaming Corporation	$	(3,521	)	$	8,435
Basic net income (loss) per common share:	$	(0.04	)	$	0.10
Weighted average basic shares outstanding	87,157			86,430
Diluted net income (loss) per common share:	$	(0.04	)	$	0.10
Weighted average diluted shares outstanding	87,157			86,601

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

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BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2011

(Unaudited and in thousands, except share data)



				Boyd Gaming Corporation Stockholders’ Equity
													Accumulated
	Other						Additional						Other						Total
	Comprehensive			Common Stock			Paid-in			Retained			Comprehensive			Noncontrolling			Stockholders'
	Income (loss)			Shares	Amount		Capital			Earnings			Loss, Net			Interest			Equity
Balances, January 1, 2011				86,244,978	$	862	$	635,028		$	560,909		$	(7,594	)	$	205,536		$	1,394,741
Net loss	$	(3,521	)	—	—		—			(3,521		)	—			—			(3,521		)
Derivative instruments fair value adjustment, net of taxes of $2,053	4,973			—	—		—			—			3,708			1,265			4,973
Comprehensive income	1,452
Comprehensive loss attributable to noncontrolling interest	(1,265		)	—	—		—			—			—			(1,265		)	(1,265		)
Comprehensive income attributable to Boyd Gaming Corporation	$	187
Stock options exercised				26,504	—		163			—			—			—			163
Tax effect from share-based compensation arrangements				—	—		(111		)	—			—			—			(111		)
Share-based compensation costs				—	—		3,813			—			—			—			3,813
Change in noncontrolling interest in Borgata and LVE				—	—		—			—			—			(1,525		)	(1,525		)
Balances, March 31, 2011				86,271,482	$	862	$	638,893		$	557,388		$	(3,886	)	$	204,011		$	1,397,268

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

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BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)



	Three Months Ended
	March 31,
	2011			2010
Cash Flows from Operating Activities
Net income (loss)	$	(6,311	)	$	9,682
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	50,584			40,046
Amortization of debt financing costs	2,031			901
Amortization of discounts on senior secured notes	786			—
Share-based compensation expense	3,813			2,856
Deferred income taxes	(4,214		)	684
Operating and non-operating income from Borgata	—			(4,689		)
Distributions of earnings received from Borgata	—			1,910
Noncash asset write-downs	4,707			—
(Gain) loss on early retirements of debt	20			(2,037		)
Other operating activities	2,808			(96		)
Changes in operating assets and liabilities:
Restricted cash	2,759			2,152
Accounts receivable, net	2,882			1,032
Inventories	1,459			1,034
Prepaid expenses and other current assets	5,500			772
Income taxes receivable	220			17,838
Other long-term tax assets	122			—
Other assets, net	(1,088		)	(78		)
Accounts payable and accrued liabilities	12,692			(116		)
Income taxes payable	(61		)	(519		)
Other long-term tax liabilities	927			490
Other liabilities	(2,291		)	1,212
Net cash provided by operating activities	77,345			73,074
Cash Flows from Investing Activities
Capital expenditures	(20,858		)	(31,067		)
Net cash effect upon change in controlling interest of Borgata	—			26,025
Decrease in restricted investments	88			—
Other investing activities	—			(745		)
Net cash used in investing activities	(20,770		)	(5,787		)
Cash Flows from Financing Activities
Payments on retirements of long-term debt	—			(13,396		)
Borrowings under bank credit facility	35,900			208,100
Payments under bank credit facility	(35,900		)	(197,900		)
Borrowings under Borgata bank credit facility	51,500			29,300
Payments under Borgata bank credit facility	(83,700		)	(31,300		)
Debt financing costs, net	(511		)	(145		)
Payments under note payable	—			(46,875		)
Proceeds from variable interest entity's issuance of debt	4,428			—
Payments on loans to variable interest entity's members	(79		)	—
Other financing activities	12			(71		)
Net cash used in financing activities	(28,350		)	(52,287		)
Increase in cash and cash equivalents	28,225			15,000
Cash and cash equivalents, beginning of period	145,623			93,202
Cash and cash equivalents, end of period	$	173,848		$	108,202

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BOYD GAMING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

(Unaudited and in thousands)



	Three Months Ended
	March 31,
	2011		2010
Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	49,889	$	27,639
Cash paid (received) for income taxes, net	35		(12,613		)
Supplemental Schedule of Noncash Investing and Financing Activities
Payables incurred for capital expenditures	$	3,983	$	4,395
Fair value adjustment on derivative instruments	5,965		2,462
Assets and Liabilities Recorded at Fair Value (net of Cash Received) Due to Change in Controlling Interest of Borgata
Accounts receivable, net	$	—	$	29,099
Inventories	—		4,118
Prepaid expenses and other current assets	—		9,201
Deferred income taxes	—		1,290
Property and equipment, net	—		1,293,792
Intangibles	—		14,000
Indefinite lived intangibles	—		65,000
Other assets, net	—		36,641
Fair value of assets	$	—	$	1,453,141
Current maturities of long-term debt	$	—	$	632,289
Accounts payable	—		8,729
Income taxes payable	—		7,579
Accrued liabilities	—		66,854
Other long-term liabilities	—		40,204
Fair value of liabilities	$	—	$	755,655

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

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BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Boyd Gaming Corporation (and together with its subsidiaries, the “Company,” “we” or “us”) 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 controlling interest in a limited liability company. 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.

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. As discussed in Note 17, Subsequent Events, on April 29, 2011, we and Dania Entertainment Center, LLC entered into an asset purchase agreement for the sale of certain assets and liabilities of Dania Jai-Alai.

Additionally, we own 85 acres of land on the Las Vegas Strip, where our multibillion dollar Echelon development project (“Echelon”) 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 Echelon. At such time, however, we did not anticipate the severity or 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 believe that a significant level of economic recovery has occurred along the Las Vegas Strip, we do not expect to resume construction of Echelon for three to five years, as previously disclosed. We also do not believe that financing for a development project like Echelon is currently available.

Basis of Presentation

Interim Condensed Consolidated Financial Statements

As permitted by the rules and regulations of the 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, 2010.

In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly our financial position as of March 31, 2011 and December 31, 2010, and the results of our operations and cash flows for the three months ended March 31, 2011 and 2010. Our operating results and cash flows for the three months ended March 31, 2011 and 2010 are not necessarily indicative of the results that would be achieved for the full year or future periods.

Effective Control of Borgata

On March 24, 2010, as a result of the amendment to our operating agreement with MGM Resorts International (“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 2, Consolidation of Certain Interests. 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 as of March 24, 2010, the date we effectively obtained control.

The financial position of Borgata is presented in our condensed consolidated balance sheets as of March 31, 2011 and December 31, 2010; its results of operations for the three months ended March 31, 2011 and for the period from March 24 through March 31, 2010 are included in our condensed consolidated statements of operations and cash flows for the three months ended March 31, 2011 and 2010, respectively. We also recorded the noncontrolling interest held in trust for the economic benefit of MGM as a separate component of our stockholders' equity.

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BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Consolidation of Variable Interest Entity

LVE Energy Partners, LLC (“LVE”) is a joint venture between Marina Energy LLC and DCO ECH Energy, LLC. Through our wholly-owned subsidiary, Echelon Resorts LLC ("Echelon Resorts"), we have entered into an Energy Sales Agreement ("ESA") with LVE to design, build, own (other than the underlying real property which is leased from Echelon Resorts) and operate a central energy center and related distribution system for our planned Echelon resort development. In April 2007, we entered into an ESA with LVE to provide chilled and hot water, electricity and emergency electricity generation to Echelon and potentially other joint venture entities associated with the Echelon development project or other third parties.

LVE began construction of the facility in 2007 and expected to provide full energy services to Echelon in 2010, when we originally expected to open. However, LVE suspended construction in January 2009, after our announcement of the delay of Echelon. On April 3, 2009, LVE notified us that, in its view, Echelon Resorts would be in breach of the ESA unless it recommences and proceeds with construction of the Echelon development project by May 6, 2009. We believe that LVE's position is without merit; however, in the event of litigation, we cannot state with certainty the eventual outcome nor estimate the possible loss or range of loss, if any, associated with this matter.

On March 7, 2011, Echelon Resorts and LVE entered into both a purchase option agreement (the "Purchase Option Agreement") and a periodic fee agreement (the "Periodic Fee Agreement"). LVE has agreed not to initiate any litigation with respect to its April 3, 2009 claim of an alleged breach of the ESA and both Echelon Resorts and LVE have mutually agreed that neither LVE nor Echelon Resorts would give notice of, file or otherwise initiate any claim or cause of action, in or before any court, administrative agency, arbitrator, mediator or other tribunal, that arises under the ESA, subject to certain exceptions, and that any statute of limitations or limitation periods for defenses, claims, causes of actions and counterclaims shall be tolled while the Periodic Fee Agreement is in effect. Under the Periodic Fee Agreement, Echelon Resorts has agreed to pay LVE, beginning March 4, 2011, a monthly periodic fee (the “Periodic Fee”) and an operation and maintenance fee until Echelon Resorts either (i) resumes construction of the project or (ii) exercises its option to purchase LVE's assets pursuant to the terms of the Purchase Option Agreement. The amount of the Periodic Fee is fixed at $11.9 million annually through November 2013. Thereafter, the amount of the Periodic Fee is estimated to be approximately $10.8 million annually. The operation and maintenance fee cannot exceed $0.6 million per annum without Echelon Resorts' prior approval.

Under the Purchase Option Agreement, Echelon Resorts has the right, at its sole discretion, upon written notice to LVE, to purchase the assets of LVE including the central energy center and the related distribution system for a price of $195.1 million, subject to certain possible adjustments. The ESA will be terminated concurrent with the purchase of the LVE assets.

New consolidation guidance regarding the variable interest model became effective on January 1, 2010. Under this new qualitative model, the primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the variable interest entity that most significantly impacts the entity's economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. Upon adoption, this guidance required us to consolidate LVE for financial statement purposes, as we determined that we are presently the primary beneficiary of the executory contract, the ESA, giving rise to the variable interest.

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 sheets as of March 31, 2011 and December 31, 2010, and its results of operations for the three months ended March 31, 2011 and the period from March 24 through March 31, 2010 are included in our condensed consolidated statements of operations and cash flows for the three months ended March 31, 2011 and 2010, respectively. At March 31, 2011 and December 31, 2010, approximately $1.42 billion and $1.45 billion, respectively, of our consolidated total assets related to Borgata.

Additionally, the financial position of LVE is consolidated in our condensed consolidated balance sheets as of March 31, 2011 and December 31, 2010, and its results of operations for the three months ended March 31, 2011 are included in our condensed consolidated statements of operations and cash flows during such period. At March 31, 2011, approximately $252.8 million of our consolidated total assets related to LVE, however, certain of these assets, approximating $198.7 million, are pledged as security on LVE's outstanding construction loan advances, and an additional $48.1 million of such assets are held in restricted escrow funds in accordance with the underlying terms of LVE's tax-exempt bond financing. At December 31, 2010, approximately $249.7

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BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

million of our consolidated total assets related to LVE, however, certain of these assets, approximating $196.4 million, were pledged as security on LVE's outstanding construction loan advances, and an additional $48.2 million of such assets were held in restricted escrow funds in accordance with the underlying terms of LVE's tax-exempt bond financing.

All material intercompany accounts and transactions have been eliminated in consolidation.

Investments in unconsolidated affiliates, which are less than 50% owned and do not meet the consolidation criteria of the authoritative accounting guidance for voting interest, controlling interest or variable interest entities, are accounted for under the equity method. See Note 2, Consolidation of Certain Interests.

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.

The estimated useful lives of our major components of property and equipment are:



Building and improvements	10 through 40 years
Riverboats and barges	10 through 40 years
Furniture and equipment	3 through 10 years

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.

Assets Held for Development

The costs incurred relative to projects under development are carried at cost. Development costs clearly associated with the acquisition, development, and construction of a project are capitalized as a cost of that project, during the periods in which activities necessary to get the property ready for its intended use are in progress. Certain pre-acquisition costs, not qualifying for capitalization, are charged to preopening or other operating expense as incurred.

Debt Financing Costs

Debt financing costs, which include legal, and other direct costs related to the issuance of our outstanding debt, are deferred and amortized to interest expense over the contractual term of the underlying long-term debt using the effective interest method. In the event that our debt is modified, repurchased or otherwise reduced prior to its original maturity date, we ratably reduce the unamortized debt financing costs.

Restricted Investments

In accordance with the terms of the tax-exempt loan agreements, which are the obligations of LVE, unused proceeds are required to be held in escrow pending approval of construction expenditures. These investments are held in an interest-bearing account.

Intangible Assets

Intangible assets include customer relationships, favorable lease rates, gaming license rights and trademarks.

Amortizing intangible assets: Customer relationships represent the value of repeat business associated with our customer loyalty programs. These intangible assets are being amortized on an accelerated method over their approximate useful life. Favorable lease rates represent the amount by which acquired lease rental rates are favorable to market terms. These favorable lease values are amortized over the remaining lease term, primarily on leasehold land interests, ranging in remaining duration from 41 to 52 years.

Indefinite lived intangible assets: Trademarks are based on the value of our brand, which reflects the level of service and quality we provide and from which we generate repeat business. Gaming license rights represent the value of the license to conduct gaming in certain jurisdictions, which is subject to highly extensive regulatory oversight, and a limitation on the number of licenses available for issuance with these certain jurisdictions. These assets, considered indefinite-lived intangible assets, are not subject to amortization, but instead are subject to an annual impairment test, performed in the second quarter of each year, and between annual test dates in certain circumstances. 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. License rights are tested for impairment using a discounted cash flow

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BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

approach, and trademarks are tested for impairment using the relief-from-royalty method.

Long-Term Debt, Net

Long-term debt is reported at amortized cost. The discount on the senior secured notes and the transaction costs paid to the initial purchasers upon issuance of the senior and senior secured notes are recorded as an adjustment to the face amount of our outstanding debt. This resulting difference between the net proceeds upon issuance of the senior and senior secured notes and the face amount of the senior and senior secured notes is accreted to interest expense using the effective interest method.

Noncontrolling Interest

Noncontrolling interest is the portion of the ownership in Borgata not directly attributable to Boyd, as well as the ownership of LVE, none of which is attributable to Boyd, and is reported as a separate component of our stockholders' equity in our condensed consolidated financial statements. Our consolidated net income is reported at amounts that include the amounts attributable to both us and the noncontrolling interest. At March 31, 2011 and December 31, 2010, there was a noncontrolling interest of $214.8 million and $219.3 million, respectively, associated with the portion of ownership in Borgata that is not attributable to the stockholders of Boyd Gaming Corporation. As discussed above, we effectively obtained control of Borgata on March 24, 2010 and began consolidating its financial statements at that date. At March 31, 2011 and December 31, 2010, there was a noncontrolling interest loss of $10.8 million and $13.7 million, respectively, associated with the ownership in LVE that is not attributable to the stockholders of Boyd Gaming Corporation.

Revenue Recognition

Gaming revenue represents the net win from gaming activities, which is the aggregate difference between gaming wins and losses. The majority of our gaming revenue is counted in the form of cash and chips and therefore is not subject to any significant or complex estimation procedures. Cash discounts, commissions and other cash incentives to customers related to gaming play are recorded as a reduction of gross gaming revenues.

Room revenue recognition criteria are met at the time of occupancy.

Food and beverage revenue recognition criteria are met at the time of service.

Promotional Allowances

The retail value of accommodations, food and beverage, and other services furnished to guests without charge is included in gross revenues and then deducted as promotional allowances. Promotional allowances also include incentives such as cash, goods and services (such as complimentary rooms and food and beverages) earned in our slot bonus point program. We reward customers, through the use of bonus programs, with points based on amounts wagered that can be redeemed for a specified period of time, principally for cash, and to a lesser extent for goods or services, depending upon the property. We record the estimated retail value of these goods and services as revenue and then deduct them as promotional allowances

The amounts included in promotional allowances for the three months ended March 31, 2011 and 2010 are as follows:



	Three Months Ended
	March 31,
	2011		2010
	(In thousands)
Rooms	$	30,104	$	14,639
Food and beverage	42,494		29,914
Other	26,090		5,955
Total promotional allowances	$	98,688	$	50,508

The estimated costs of providing such promotional allowances for the three months ended March 31, 2011 and 2010 are as follows:

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BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)



	Three Months Ended
	March 31,
	2011		2010
	(In thousands)
Rooms	$	13,073	$	7,960
Food and beverage	38,485		29,607
Other	3,797		1,568
Total	$	55,355	$	39,135

Gaming Taxes

We are subject to taxes based on gross gaming revenues in the jurisdictions in which we operate. These gaming taxes are an assessment of our gaming revenues and are recorded as a gaming expense on the condensed consolidated statements of operations. These taxes totaled approximately $63.8 million and $53.9 million for the three months ended March 31, 2011 and 2010, respectively.

Earnings per Share

Basic earnings per share is computed by dividing net income applicable to Boyd Gaming Corporation stockholders, excluding net income attributable to noncontrolling interests, by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the additional dilution for all potentially-dilutive securities, such as stock options.

The weighted average number of common and common share equivalent shares used in the calculations of basic and diluted earnings per share for the three months ended March 31, 2011 and 2010, consisted of the following amounts:



	Three Months Ended
	March 31,
	2011	2010
	(In thousands)
Earnings per share:
Basic weighted average shares outstanding	87,157	86,430
Potential dilutive effect	—	171
Diluted weighted average shares outstanding	87,157	86,601

Due to the net loss for the three months ended March 31, 2011, the effect of all potential common shares was anti-dilutive, and therefore were not included in the computation of diluted earnings per share. Anti-dilutive options totaling 7.8 million and 8.2 million have been excluded from the computation of diluted earnings per share for the three months ended March 31, 2011 and 2010, respectively.

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, the estimated useful lives for depreciable and amortizable assets, recoverability of assets held for development, measurement of the fair value of our controlling interest and the noncontrolling interest in Borgata, fair values of acquired assets and liabilities, estimated cash flows in assessing the recoverability of long-lived assets and assumptions relative to the valuation and impairment of goodwill and intangible assets, estimated valuation allowances for deferred tax assets, slot bonus point programs, certain tax liabilities and uncertain tax positions, self-insured liability reserves, 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.

Recently Issued Accounting Pronouncements

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

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BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

the effect, if any, that the implementation of such proposed standards would have on our consolidated financial statements.

Convergence Project

The Financial Accounting Standards Board ("FASB") and the International Accounting Standards Board (“IASB”) have each committed to develop high quality, compatible accounting standards that could be used for both domestic and cross-border financial reporting through a convergence of the presently separate standards. The FASB believes that the ultimate goal of convergence is a single set of high-quality, international accounting standards that companies worldwide would use for both domestic and cross-border financial reporting, which would require the convergence of GAAP and International Financial Reporting Standards ("IFRS").

The FASB's mission is to improve U.S. financial accounting standards for the benefit of present and potential investors, lenders, donors, and other creditors. The FASB believes that pursuing convergence of accounting standards is consistent with that mission. That is because investors, companies, auditors, and other participants in the U.S. financial reporting system should benefit from the increased comparability that would result from internationally converged accounting standards.

The FASB and IASB are working towards a work plan to address the significant differences in existence today; however, converged standards may be issued in 2011. While the ultimate timing of adoption of IFRS in the United States has not been committed, we will continue to evaluate the potential impact of the convergence standards on our consolidated financial statements.

NOTE 2. CONSOLIDATION OF CERTAIN INTERESTS

Controlling Interest

Borgata Hotel Casino and Spa

Overview

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 New Jersey Casino Control Commission ("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.

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

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

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Effective Change in Control

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

Acquisition Method Accounting

The application of the acquisition method accounting guidance had the following effects on our condensed consolidated financial statements: (i) our previously held equity interest was measured at a provisional fair value at the date control was obtained; (ii) we recognized and measured the identifiable assets and liabilities in accordance with promulgated valuation recognition and measurement provisions; and (iii) we recorded the noncontrolling interest held in trust for the economic benefit of MGM as a separate component of our stockholders' equity. The provisional fair value measurements and estimates of these items were estimated as of the date we effectively obtained control, and through March 31, 2010.

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

Measurement Period Adjustments

The revisions to the provisional values of assets consists of reallocations of certain tangible assets and the recordation of other intangible assets; the accrual of certain liabilities including the recording of the deferred tax effect of the appreciated asset values; and the resulting effect on the fair value of the controlling and noncontrolling interests.

The results as reported herein will differ from the stand alone results as separately reported by Borgata, as these measurement period adjustments have not been pushed down to Borgata.

More specifically, the provisional assets and liabilities, as initially recorded as of March 24, 2010, were impacted by the valuation as follows:

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	Fair Value		Provisional Value		Adjustment
	(In thousands)
ASSETS
Cash	$	26,025	$	26,025	$	—
Current assets	43,708		43,945		(237		)
Property and equipment, net	1,293,792		1,352,320		(58,528		)
Other assets, net	36,641		40,099		(3,458		)
Customer lists	14,000		—		14,000
Trademark	65,000		—		65,000
Value of assets	$	1,479,166	$	1,462,389	$	16,777

LIABILITES
Current maturities of long-term debt	$	632,289	$	632,289	$	—
Other current liabilities	83,162		84,470		(1,308		)
Other long-term liabilities	40,204		40,642		(438		)
Value of liabilities	$	755,655	$	757,401	$	(1,746	)

CONTROLLING INTEREST	$	397,931	$	367,897	$	30,034

NONCONTROLLING INTEREST	$	325,580	$	337,091	$	(11,511	)

Retrospective Adjustment to Condensed Consolidated Balance Sheet

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



	As Orignally Reported		Aquisition Method Accounting Adjustments			As Retrospectively Adjusted
	(In thousands)
ASSETS
Current assets
Cash and cash equivalents	$	145,623	$	—		$	145,623
Restricted cash	19,494		—			19,494
Accounts receivable, net	47,942		—			47,942
Inventories	16,029		—			16,029
Prepaid expenses and other curent assets	37,390		(237		)	37,153
Income taxes receivable	5,249		—			5,249
Deferred income taxes	8,149		—			8,149
Total current assets	279,876		(237		)	279,639
Property and equipment, net	3,471,933		(88,562		)	3,383,371
Assets held for development	1,119,403		—			1,119,403
Debt financing costs, net	38,451		(3,458		)	34,993
Restricted investments	48,168		—			48,168
Other assets, net	70,425		—			70,425
Intangible assets, net	460,714		79,000			539,714
Goodwill, net	213,576		—			213,576

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Total assets	$	5,702,546		$	(13,257	)	$	5,689,289
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt	$	25,690		$	—		$	25,690
Non-recourse obligations of variable interest entity	243,059			—			243,059
Accounts payable	57,183			—			57,183
Income taxes payalbe	6,504			—			6,504
Accrued liabilites	279,779			(1,308		)	278,471
Total current liabilities	612,215			(1,308		)	610,907
Long-term debt, net of current maturities	3,193,065			—			3,193,065
Deferred income taxes	360,342			1,832			362,174
Other long-term tax liabilities	44,813			—			44,813
Other liabilities	85,859			(2,270		)	83,589
Stockholders' equity
Preferred stock	—			—			—
Common stock	862			—			862
Additional paid-in-capital	635,028			—			635,028
Retained earnings	560,909			—			560,909
Accumulated other comprehensive loss, net	(7,594		)	—			(7,594		)
Total Boyd Gaming Corporation stockholders' equity	1,189,205			—			1,189,205
Noncontrolling interest	217,047			(11,511		)	205,536
Total stockholders' equity	1,406,252			(11,511		)	1,394,741
Total liablities and stockholders' equity	$	5,702,546		$	(13,257	)	$	5,689,289

Condensed Consolidated Statements of Operations

We have not applied the measurement period adjustments retrospectively to the condensed consolidated statements of operations for the quarters ended March 31, June 30 or September 30, 2010, as previously reported in the Provisional Form 10-Qs, because the impact on such, as retrospectively adjusted to the statements as reported was not material. The measurement period adjustments were instead recorded as a cumulative adjustment to the quarter ended March 31, 2011. Had the measurement period adjustments been retrospectively adjusted, the results of operations would have reflected the following impact as if the adjustment had been recorded on the date of effective control, in the following amounts, for the following periods throughout the year ended December 31, 2010:



	First Quarter 2010		Second Quarter 2010			Third Quarter 2010			Fourth Quarter 2010			First Quarter 2011		Cumulative Impact to First Quarter 2011
	(In thousands)
Maintenance and utilities	$	—	$	47		$	47		$	47		$	47	$	188
Depreciation and amortization	55		703			926			537			354		2,575
Write downs and other items, net	—		(23		)	(10		)	(28		)	5,000		4,939
Total operating costs and expenses	55		727			963			556			5,401		7,702
Interest expense	—		(1,019		)	(2,439		)	—			—		(3,458		)
Total other expense, net	—		(1,019		)	(2,439		)	—			—		(3,458		)
Income (loss) before income taxes	$	55	$	(292	)	$	(1,476	)	$	556		$	5,401	$	4,244

Bargain Purchase Gain

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The fair valuation resulted in the recording of a bargain purchase gain, due to the excess fair value of Borgata over the historical basis of our equity interest in Borgata. Recorded in write-downs and other items, net on the condensed consolidated statement of operations, this gain was recorded as a cumulative adjustment during the three months ended March 31, 2011. The gain was computed as follows:



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

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

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Results of Operations of Borgata

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

reflecting amounts included on a consolidated basis

The results of Borgata, as included in the accompanying condensed consolidated statement of operations from the date we effectively obtained control, March 24, 2010, through March 31, 2010 are presented below. These results of operations do not reflect the retrospective impact from the measurement period adjustments discussed above, as such amounts were not material to the three months ended March 31, 2010.



	March 24 through March 31, 2010
	(In thousands)
REVENUES
Operating revenues:
Gaming	$	15,945
Food and beverage	3,146
Room	2,248
Other	664
Gross revenues	22,003
Less promotional allowances	5,227
Net revenues	16,776

COSTS AND EXPENSES
Operating costs and expenses:
Gaming	4,125
Food and beverage	2,470
Room	765
Other	578
Selling, general and administrative	1,459
Maintenance and utilities	2,476
Depreciation and amortization	1,625
Total operating costs and expenses	13,498

Operating income	3,278

Other expense
Interest expense	484
Total other expense, net	484

Income before income taxes	2,794
Income taxes	(300		)
Net income	$	2,494

Supplemental Pro Forma Information

Pro Forma Condensed Consolidated Statement of Operations

for the three months ended March 31, 2010

The following supplemental pro forma information presents the financial results as if the effective control of Borgata had occurred as of the beginning of the earliest period presented herein, or on January 1, 2010. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what the actual results for the quarter ended March 31, 2010 would have been had the consolidation of Borgata been completed as of the earlier date, nor are they indicative of any future results.

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	Three Months Ended March 31, 2010
	Boyd Gaming Historical			Borgata			Eliminations			Boyd Gaming Pro Forma
	(In thousands)
REVENUES
Operating revenues:
Gaming	$	334,460		$	153,776		$	—		$	488,236
Food and beverage	56,836			34,363			—			91,199
Room	29,186			26,402			—			55,588
Other	23,158			9,843			—			33,001
Gross revenues	443,640			224,384			—			668,024
Less promotional allowances	45,281			49,318			—			94,599
Net revenues	398,359			175,066			—			573,425
COSTS AND EXPENSES
Operating costs and expenses:
Gaming	163,980			63,986			—			227,966
Food and beverage	30,172			15,970			—			46,142
Room	9,285			2,950			—			12,235
Other	18,660			7,705			—			26,365
Selling, general and administrative	68,819			30,440			—			99,259
Maintenance and utilities	21,663			15,998			—			37,661
Depreciation and amortization	38,421			18,379			—			56,800
Corporate expense	12,089			—			—			12,089
Preopening expenses	1,063			—			—			1,063
Write-downs and other items, net	1,601			68			—			1,669
Total operating costs and expenses	365,753			155,496			—			521,249
Operating income from Borgata	9,785			—			(9,785		)	—
Operating income	42,391			19,570			(9,785		)	52,176
Other expense (income):
Interest income	(4		)	—			—			(4		)
Interest expense, net of amounts capitalized	28,523			5,544			—			34,067
Gain on early retirements of debt	(2,037		)	—			—			(2,037		)
Other non-operating expenses from Borgata, net	3,525			—			(3,525		)	—
Total other expense, net	30,007			5,544			(3,525		)	32,026
Income before income taxes	12,384			14,026			(6,260		)	20,150
Income taxes	(3,949		)	(1,506		)	—			(5,455		)
Net income	8,435			12,520			(6,260		)	14,695
Noncontrolling interest	—			—			(6,260		)	(6,260		)
Net income attributable to Boyd Gaming Corporation	$	8,435		$	12,520		$	(12,520	)	$	8,435
Basic net income per common share	$	0.10								$	0.10
Weighted average basic shares outstanding	86,430									86,430
Diluted net income per common share	$	0.10								$	0.10
Weighted average diluted shares outstanding	86,601									86,601

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

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consolidated presentation. There were no significant intercompany transactions affecting the statement of operations between the Boyd wholly-owned entities and Borgata which would require elimination during the quarter ended March 31, 2010.

Variable Interest

Las Vegas Energy Partners, LLC

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

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



	HISTORICAL Boyd Gaming Corporation		LVE, LLC			CONSOLIDATED Boyd Gaming Corporation
	(In thousands)
as of March 31, 2011
ASSETS
Restricted cash	$	16,138	$	598		$	16,736
Prepaid expenses and other current assets	30,747		905			31,652
Assets held for development	923,701		198,695			1,122,396
Restricted investments	—		48,080			48,080
Other assets	70,264		4,426			74,690

LIABILITIES
Non-recourse obligations of variable interest entity	$	—	$	247,409		$	247,409
Accounts payable	52,908		307			53,215
Accrued liabilities	290,593		1,029			291,622
Other liabilities	61,612		17,512			79,124

STOCKHOLDERS' EQUITY
Noncontrolling interest	$	214,848	$	(10,837	)	$	204,011

as of December 31, 2010
ASSETS
Assets held for development	$	923,038	$	196,365		$	1,119,403
Restricted investments	—		48,168			48,168
Other assets	65,963		4,462			70,425

LIABILITIES
Non-recourse obligations of variable interest entity	$	—	$	243,059		$	243,059
Accounts payable	56,790		393			57,183
Accrued liabilities	277,431		1,040			278,471
Other liabilities	64,631		18,958			83,589

STOCKHOLDERS' EQUITY
Noncontrolling interest	$	219,254	$	(13,718	)	$	205,536

The impact on our condensed consolidated statement of operations for the three months ended March 31, 2011 was as follows:

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	HISTORICAL Boyd Gaming Corporation			LVE, LLC			CONSOLIDATED Boyd Gaming Corporation
				(In thousands)
COSTS AND EXPENSES
Maintenance and utilities	$	36,518		$	897		$	37,415
Preopening expenses	4,472			(2,641		)	1,831

Operating income	$	46,360		$	1,744		$	48,104

Other expense
Interest expense	$	57,164		$	127		$	57,291

Income (loss) before income taxes	$	(11,035	)	$	1,616		$	(9,419	)
Income taxes	3,108			—			3,108
Net income (loss)	(7,927		)	1,616			(6,311		)
Net income (loss) attributable to noncontrolling interest	4,406			(1,616		)	2,790
Net loss attributable to Boyd Gaming Corporation	$	(3,521	)	$	—		$	(3,521	)

The reduction in preopening expense, the most significant adjustment noted in the table above, reflects the elimination of the Periodic Fee paid by Boyd Gaming to LVE. Such fee is recognized as revenue by LVE, but eliminated in consolidation completely, thereby having no impact on our consolidated other revenues. Although this Periodic Fee is eliminated in this consolidation, it is actually paid to LVE directly on a monthly basis.

NOTE 3. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following.



	March 31, 2011		December 31, 2010
	(In thousands)
Land	$	578,779	$	578,779
Buildings and improvements	3,308,760		3,307,674
Furniture and equipment	1,136,881		1,131,837
Riverboats and barges	167,420		167,420
Other	27,853		25,423
Total property and equipment	5,219,693		5,211,133
Less accumulated depreciation	1,866,743		1,827,762
Property and equipment, net	$	3,352,950	$	3,383,371

Depreciation expense for the three months ended March 31, 2011 and 2010 was $45.8 million and $40.0 million, respectively. The amounts recorded during the three months ended March 31, 2011 include the effect of certain measurement period adjustments.

Other property and equipment presented in the table above primarily relates to costs capitalized in conjunction with major improvements and that have not yet been placed into service, and accordingly, such costs are not currently being depreciated.

We test certain of these property and equipment assets for recoverability if a recent operating or cash flow loss, combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses, is associated with the use of a long-lived asset. Impairment is the condition that exists when the carrying amount of a long-lived asset exceeds its fair value. An impairment loss shall be recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected

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to result from the use and eventual disposition of the asset. That assessment shall be based on the carrying amount of the asset at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

NOTE 4. ASSETS HELD FOR DEVELOPMENT

Assets held for development, which is comprised of assets associated with our Echelon development project, consists of the following.



	March 31, 2011		December 31, 2010
	(In thousands)
Echelon Project Infrastructure
Land	$	213,649	$	213,649
Construction and development costs	500,795		500,132
Project management and other costs	115,712		115,712
Professional and design fees	93,545		93,545

Central Energy Facility
Construction and development costs	198,695		196,365
Total assets held for development	$	1,122,396	$	1,119,403

Echelon Project Infrastructure

At March 31, 2011 and December 31, 2010, the capitalized costs related to the Echelon project included land and construction in progress. The construction and development costs consist primarily of site preparation work, underground utility installation and infrastructure and common area development. Professional and design fees include architectural design, development and permitting fees, inspections, consulting and legal fees. We expect to additionally incur approximately $0.3 million to $3.0 million of capitalized costs annually, principally related to such items as offsite fabrication of a skylight and curtain wall as well as offsite improvements.

In addition, we expect annual recurring project costs, consisting primarily of monthly charges related to construction of the central energy center, site security, property taxes, rent and insurance, of approximately $13.0 million to $17.0 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, including commitments and contingencies with respect to the ESA entered into between Echelon Resorts and LVE.

We evaluate our investment in assets held for development in accordance with the authoritative accounting guidance on impairment or disposal of long lived assets. For a long-lived asset to be held and used, such as these assets under development, we review the asset for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We then compare the estimated undiscounted future cash flows of the asset to the carrying value of the asset. The asset is not impaired if the undiscounted future cash flows exceed its carrying value. If the carrying value exceeds the undiscounted future cash flows, then an impairment charge is recorded, typically measured using a discounted cash flow model, which is based on the estimated future results of the relevant reporting unit discounted using our weighted-average cost of capital and market indicators of terminal year free cash flow multiples. For these assets under development, future cash flows include remaining construction costs.

The suspension of development on the Echelon project implied that the carrying amounts of the assets related to the development may not be recoverable; therefore, at the time, we performed an impairment test of these assets, which occurred during the three months ended September 30, 2009. This impairment test was comprised of a future undiscounted cash flow analysis, and contemplated several viable alternative plans for the future development of Echelon.

One such scenario includes the outright sale of the project as is, which is primarily based upon land value. We considered the land value by analyzing recent sales transactions of sites with similar characteristics such as location, zoning, access, and visibility, to establish a general understanding of the potential comparable sales. The recoverability under this option represented any excess sales price, net of estimated selling costs, from the land over the carrying value of the assets, including land, held for development.

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Another scenario is the full development of the project, as designed, at a later date. The cash inflows related to this option represent the revenue projections for the individual components associated with each planned construction element (casino, hotel, food and beverage, retail, convention and other), based upon the estimated respective dates of completion and particular graduated supply absorption rates. These projections are offset by outflows for incurred and estimated costs to complete the development. For costs already incurred, and to compensate for potential losses due to the delay, we adjusted for (i) physical deterioration; (ii) functional obsolescence; and (iii) economic obsolescence. Physical deterioration is impairment to the condition of the asset brought about by “wear and tear,” disintegration, and/or the action of the elements. Functional obsolescence is the impairment in the efficiency of the asset brought about by such factors as inadequacy or change in technology that affect the asset. Economic obsolescence is the impairment in the desirability of the asset arising from external economic forces, building code enhancements or changes in supply and demand relationships. For estimated costs to complete, we applied selected construction expense growth rates to our present cost analysis. In addition to these hard and soft construction costs, we estimated outflows for preservation costs that are intended and required to maintain the development site and the existing structures as well as development materials for future use. These net outflows were incrementally added to our estimated operating and ongoing maintenance costs, to establish the undiscounted net cash flow of the project.

Our final scenario is a scaled-down version of the full project, whereby only certain components would be developed. This cash flow projection considered the inflows and outflows discussed above, with relevant curtailment for revenue from, and costs related to, the amenities not completed.

Because no specific strategic plan can be determined with certainty at this time, the analysis considered the net cash flows related to each alternative, weighted against its projected likelihood. The outcome of this evaluation resulted in the determination that there was no impairment of the assets held for development, as the estimated weighted net undiscounted cash flows from the project exceed the current carrying value of the assets held for development. As we further explore the viability of alternatives for the project, we will continue to monitor these assets for recoverability.

Central Energy Facility

The capitalized construction costs of the central energy facility include labor, materials, construction overhead and capitalized interest, all of which has been directly incurred by LVE. Depreciation is generally recorded on a straight line basis over useful lives of property ranging from 5 to 50 years, but has not commenced on the components of the facility, as it has not been placed in service. The costs of repairs, maintenance, including planned major maintenance activities and minor replacements of property are charged to maintenance expense as incurred.

These assets are tested for recoverability whenever events or changes in circumstances indicate that such amounts may not be recoverable. Impairment is the condition that exists when the carrying amount of a long-lived asset exceeds its fair value. An impairment loss shall be recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. That assessment shall be based on the carrying amount of the asset at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

The assets of the central energy facility are pledged as collateral to the outstanding debt obligations of LVE, as further discussed in Note 6, Non-recourse Obligations of Variable Interest Entity below.

NOTE 5. INTANGIBLE ASSETS

Intangible assets consist of the following:

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	Weighted Average Life	Gross Carrying Value		Cumulative Amortization			Cumulative Impairment Losses			Intangible Assets, Net
	(In thousands)
Amortizing Intangibles:
Customer relationships	3.9 years	$	14,400	$	(6,098	)	$	—		$	8,302
Favorable lease rates	43.8 years	45,370		(7,043		)	—			38,327
		59,770		(13,141		)	—			46,629

Non-amortizing intangible assets:
Trademarks	Indefinite	115,700		—			(5,000		)	110,700
Gaming license rights	Indefinite	567,886		(33,960		)	(162,500		)	371,426
		683,586		(33,960		)	(167,500		)	482,126
March 31, 2011		$	743,356	$	(47,101	)	$	(167,500	)	$	528,755

Amortizing Intangibles:
Customer relationships	5 years	$	14,400	$	(400	)	$	—		14,000
Favorable lease rates	43.8 years	45,370		(6,782		)	—			38,588
		59,770		(7,182		)	—			52,588
Non-amortizing intangible assets:
Trademarks	Indefinite	115,700		—			—			115,700
Gaming license rights	Indefinite	567,886		(33,960		)	(162,500		)	371,426
		683,586		(33,960		)	(162,500		)	487,126
December 31, 2010		$	743,356	$	(41,142	)	$	(162,500	)	$	539,714

Customer Relationships

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

Favorable Lease Rates

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

Trademarks

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

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for fifteen years.

Gaming License Rights

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

Activity For the Three Months Ended March 31, 2011 and 2010

The following table sets forth the changes in these intangible assets during the three months ended March 31, 2011 and 2010:



	Customer Relationships				Favorable Lease Rates			Trademarks			Gaming License Rights		Intangible Assets, Net
	(In thousands)
Three Months Ended March 31, 2011
Balance December 31, 2010	$	14,000			$	38,588		$	115,700		$	371,426	$	539,714
Additions	—				—			—			—		—
Impairments	—				—			(5,000		)	—		(5,000		)
Amortization	(5,698		)		(261		)	—			—		(5,959		)
Balance March 31, 2011	$	8,302			$	38,327		$	110,700		$	371,426	$	528,755

Three Months Ended March 31, 2010
Balance December 31, 2009	$	—			$	39,632		$	50,700		$	371,426	$	461,758
Additions	14,000				—			65,000			—		79,000
Amortization	—			—	(262		)	—			—		(262		)
Balance March 31, 2010	$	14,000			$	39,370		$	115,700		$	371,426	$	540,496

Future Amortization

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



For the Year Ending December 31,	Customer Relationships		Favorable Lease Rates		Total
	(In thousands)
2011 (remainder)	$	3,564	$	783	$	4,347
2012	3,174		1,043		4,217
2013	1,564		1,043		2,607
2014	—		1,043		1,043
2015	—		1,043		1,043
Therafter	—		33,372		33,372
	$	8,302	$	38,327	$	46,629

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

Impairment Testing

We perform an annual impairment test of our indefinite lived intangible assets in the second quarter of each year, and between

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annual test dates in certain circumstances.

During the three months ended March 31, 2011, we performed an interim impairment test over the trademark we recorded in connection with the valuation of Borgata due to our consideration of certain facts and circumstances surrounding an adverse change in the business climate in Atlantic City. We believe our actual results have been adversely impacted by increased regional competition, and that in addition, our projected future results will be further impacted by cannibalization of our business upon the opening of a new property in Atlantic City, which was announced during the three months ended March 31, 2011. We also believe the refinancing of Borgata's debt and recapitalization of its member equity contributed to the results of this impairment test.

Our analysis consisted of a valuation of the trademark, using the relief from royalty method, as discussed above. The only significant change in our assumptions from the initial fair valuation were revised revenue and profitability projections, reflecting the impact of the changed present and forecasted circumstances. The impairment test shall consist of a comparison of the fair value of trademark with its carrying amount. As a result, we recorded a $5.0 million impairment to the trademark, representing the amount by which the carrying amount exceeded its fair value.

We did not record any impairment charges during the three months ended March 31, 2010.

NOTE 6. NON-RECOURSE OBLIGATIONS OF VARIABLE INTEREST ENTITY

The non-recourse obligations of variable interest entity represent the outstanding debt of LVE, all of which is classified as current, and is comprised of the following:



	March 31, 2011		December 31, 2010
	(In thousands)
Construction and term loan facility	$	120,494	$	120,572
Tax-exempt variable rate bonds	100,000