CONSOLIDATION OF CERTAIN INTERESTS

Controlling Interest

Borgata Hotel Casino and Spa

Overview

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

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

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

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

Effective Change in Control

In connection with the amendments to the operating agreements MGM relinquished all of its specific participating rights under the operating agreement, and we retained all authority to manage the day-to-day operations of Borgata. MGM's relinquishment of its participating rights effectively provided us with direct control of Borgata. This resulting change in control required acquisition method accounting in accordance with the authoritative accounting guidance for business combinations. Accordingly, on March 24, 2010, as a result of the amendment to our operating agreement with MGM, which provided, among other things, for the termination of MGM's participating rights in the operation of Borgata, we effectively obtained control of Borgata.

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.

Bargain Purchase Gain

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

The gain was computed as follows:



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

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

Variable Interest

LVE Energy Partners, LLC

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.

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 impact 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. The primary beneficiary is required to consolidate the variable interest entity unless specific exceptions or exclusions are met. The authoritative literature on consolidations provides the following guidance related to variable interest entities.


•	a qualitative approach for identifying the primary beneficiary of a variable interest entity based on (i) the power to direct activities that most significantly impact the economic performance of the entity, and (ii) the obligation to absorb losses or right to receive benefits that could be significant to the entity; and


•	ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; and separate disclosure by the primary beneficiary on the face of the balance sheet to identify (i) assets that can only be used to settle obligations of the variable interest entity, and (ii) liabilities for which creditors do not have recourse to the primary beneficiary.

For the following quantitative and qualitative reasons, we presently believe that substantially all of LVE's activities are presently performed for our benefit. Pursuant to the terms of the ESA, we are obligated to purchase substantially all of its thermal output at a fixed and variable pricing arrangement that protects LVE from commodity risk. This agreement is long-term in duration, terming for 25 years from the commencement of the commercial operations of Echelon. Additionally, during the period of suspension, we are obligated to pay fees to LVE to subsidize the holding costs of the facility. We have a fixed price purchase option to purchase the assets of LVE, subject to certain possible adjustments, but have no future obligation to absorb any operating losses or otherwise provide financial support, except as contractually provided as described above. We do not hold any equity interest in LVE and have not guaranteed any of its outstanding debt obligations, nor would such debt have recourse to any of our lenders, note holders or general creditors.

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.

The effects of the consolidation of LVE on our financial position as of June 30, 2012 and December 31, 2011, and its impact on our results of operations for the three and six months ended June 30, 2012 and 2011 are reconciled by respective line items to amounts as reported in our condensed consolidated balance sheets and condensed consolidated statements of operations are presented below.

The impact on our condensed consolidated balance sheets as of June 30, 2012 and December 31, 2011 was as follows:



	June 30, 2012
	Boyd Gaming
	Corporation							Boyd Gaming
	(as historically							Corporation
	presented)		LVE, LLC			Eliminations		(as consolidated)
	(In thousands)
ASSETS
Current assets	$	525,062	$	1,817		$	—	$	526,879
Property and equipment, net	3,520,408		—			—		3,520,408
Assets held for development	926,392		163,806			—		1,090,198
Debt financing costs, net	25,809		2,500			—		28,309
Restricted investments	—		21,367			—		21,367
Other assets	66,837		—			—		66,837
Intangible assets, net	571,374		—			—		571,374
Goodwill, net	213,576		—			—		213,576
Total Assets	$	5,849,458	$	189,490		$	—	$	6,038,948

LIABILITIES
Current maturities of long-term debt	$	53,211	$	—		$	—	$	53,211
Accounts payable	88,700		89			—		88,789
Accrued and other liabilities	316,456		859			—		317,315
Income taxes payable	867		—			—		867
Non-recourse obligations of variable interest entity	—		31,621			—		31,621
Long-term debt, net of current maturities	3,480,965		—			—		3,480,965
Deferred income taxes	384,143		—			—		384,143
Long-term tax and other liabilities	89,861		11,597			—		101,458
Non-recourse obligations of variable interest entity	—		192,479			—		192,479

STOCKHOLDERS' EQUITY
Common stock	863		—			—		863
Additional paid-in capital	649,944		—			—		649,944
Retained earnings	563,884		—			—		563,884
Noncontrolling interest	220,564		(47,155		)	—		173,409
Total Liabilities and Stockholders' Equity	$	5,849,458	$	189,490		$	—	$	6,038,948



	December 31, 2011
	Boyd Gaming
	Corporation							Boyd Gaming
	(as historically							Corporation
	presented)		LVE, LLC			Eliminations		(as consolidated)
	(In thousands)
ASSETS
Current assets	$	340,762	$	2,132		—		$	342,894
Property and equipment, net	3,542,108		—			—		3,542,108
Assets held for development	926,013		163,806			—		1,089,819
Debt financing costs, net	29,544		2,555			—		32,099
Restricted investments	—		21,367			—		21,367
Other assets	67,173		—			—		67,173
Intangible assets, net	574,018		—			—		574,018
Goodwill, net	213,576		—			—		213,576
Total Assets	$	5,693,194	$	189,860		$	—	$	5,883,054

LIABILITIES
Current maturities of long-term debt	$	43,230	$	—		$	—	$	43,230
Accounts payable	97,727		288			—		98,015
Accrued and other liabilities	294,578		881			—		295,459
Income taxes payable	5,630		—			—		5,630
Non-recourse obligations of variable interest entity	—		29,686			—		29,686
Long-term debt, net of current maturities	3,347,226		—			—		3,347,226
Deferred income taxes	379,958		—			—		379,958
Long-term tax and other liabilities	101,747		15,044			—		116,791
Non-recourse obligations of variable interest entity	—		192,980			—		192,980

STOCKHOLDERS' EQUITY
Common stock	863		—			—		863
Additional paid-in capital	644,174		—			—		644,174
Retained earnings	557,055		—			—		557,055
Noncontrolling interest	221,006		(49,019		)	—		171,987
Total Liabilities and Stockholders' Equity	$	5,693,194	$	189,860		$	—	$	5,883,054

The summarized impact on our condensed consolidated statement of operations for the three and six months ended June 30, 2012 and 2011 was as follows:



	Three Months Ended June 30, 2012
	Boyd Gaming
	Corporation								Boyd Gaming
	(as historically								Corporation
	presented)			LVE, LLC		Eliminations			(as consolidated)
	(In thousands)
REVENUES
Other revenue	$	35,825		$	2,724	$	(2,724	)	$	35,825

COSTS AND EXPENSES
Selling, general and administrative	$	110,448		$	6	$	—		$	110,454
Preopening expenses	$	4,934		$	—	$	(2,724	)	$	2,210

Operating income	$	55,521		$	2,718	$	—		$	58,239

Other expense
Interest expense, net	62,139			2,649		—			64,788

Income (loss) before income taxes	$	(6,210	)	$	69	$	—		$	(6,141	)
Income taxes	5,450			—		—			5,450
Net income (loss)	$	(760	)	$	69	$	—		$	(691	)
Net (income) loss attributable to noncontrolling interest	1,737			—		(69		)	1,668
Net income (loss) attributable to Boyd Gaming Corporation	$	977		$	69	$	(69	)	$	977



	Three Months Ended June 30, 2011
	Boyd Gaming
	Corporation									Boyd Gaming
	(as historically									Corporation
	presented)			LVE, LLC			Eliminations			(as consolidated)
	(In thousands)
REVENUES
Other revenue	$	33,276		$	2,769		$	(2,769	)	$	33,276

COSTS AND EXPENSES
Maintenance and utilities	$	36,739		$	34		$	—		$	36,773
Preopening expenses	$	4,510		$	—		$	(2,769	)	$	1,741

Operating income	$	59,255		$	2,735		$	—		$	61,990

Other expense
Interest expense, net	61,387			5,307			—			66,694

Income (loss) before income taxes	$	(2,160	)	$	(2,572	)	$	—		$	(4,732	)
Income taxes	(911		)	—			—			(911		)
Net income (loss)	$	(3,071	)	$	(2,572	)	$	—		$	(5,643	)
Net (income) loss attributable to noncontrolling interest	120			—			2,572			2,692
Net income (loss) attributable to Boyd Gaming Corporation	$	(2,951	)	$	(2,572	)	$	2,572		$	(2,951	)



	Six Months Ended June 30, 2012
	Boyd Gaming
	Corporation									Boyd Gaming
	(as historically									Corporation
	presented)			LVE, LLC			Eliminations			(as consolidated)
	(In thousands)
REVENUES
Other revenue	$	71,657		$	5,448		$	(5,448	)	$	71,657

COSTS AND EXPENSES
Selling, general and administrative	$	220,162		$	9		$	—		$	220,171
Preopening expenses	$	9,318		$	—		$	(5,448	)	$	3,870

Operating income	$	129,382		$	5,439		$	—		$	134,821

Other expense
Interest expenses, net	122,574			6,042			—			128,616

Income (loss) before income taxes	$	7,220		$	(603	)	$	—		$	6,617
Income taxes	(833		)	—			—			(833		)
Net loss	$	6,387		$	(603	)	$	—		$	5,784
Net (income) loss attributable to noncontrolling interest	442			—			603			1,045
Net income (loss) attributable to Boyd Gaming Corporation	$	6,829		$	(603	)	$	603		$	6,829



	Six Months Ended June 30, 2011
	Boyd Gaming
	Corporation									Boyd Gaming
	(as historically									Corporation
	presented)			LVE, LLC			Eliminations			(as consolidated)
	(In thousands)
REVENUES
Other revenue	$	66,307		$	5,410		$	(5,410	)	$	66,307

COSTS AND EXPENSES
Maintenance and utilities	$	73,257		$	931		$	—		$	74,188
Preopening expenses	$	8,982		$	—		$	(5,410	)	$	3,572

Operating income	$	105,615		$	4,479		$	—		$	110,094

Other expense
Interest expense, net	118,551			5,434			—			123,985

Income (loss) before income taxes	$	(13,196	)	$	(955	)	$	—		$	(14,151	)
Income taxes	2,197			—			—			2,197
Net income (loss)	$	(10,999	)	$	(955	)	$	—		$	(11,954	)
Net (income) loss attributable to noncontrolling interest	4,527			—			955			5,482
Net income (loss) attributable to Boyd Gaming Corporation	$	(6,472	)	$	(955	)	$	955		$	(6,472	)

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