Overview

Boyd Gaming Corporation (the "Company," "we," or "us") is a diversified operator of 15 wholly-owned gaming entertainment properties and one joint-venture property. 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: Las Vegas Locals, Downtown Las Vegas, Midwest and South, and our 50% joint venture that owns the limited liability company operating Borgata Hotel Casino & Spa in Atlantic City, New Jersey. In addition, on March 1, 2007, we acquired Dania Jai-Alai, where we operate a pari-mutuel jai alai facility, and approximately 47 acres of related land located in Dania Beach, Florida. Furthermore, we own 85 acres of land on the Las Vegas Strip, where our Echelon project is located.

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

Overall Outlook

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

Due to a number of factors affecting consumers, including the declining global economy, constricting credit markets, reduced consumer spending, depressed home prices and new U.S. political leadership, the outlook for the gaming industry remains highly unpredictable. Because of these uncertain conditions, we have increasingly focused on managing our operating margins. Our present objective is to manage our cost and expense structure in order to endure the current deterioration in business volumes and maintain compliance with our debt covenants. Nonetheless, we intend to maintain a flexible capital structure for potential strategic transactions that we may undertake in the future.

On August 1, 2008, due to the difficult environment in the capital markets, as well as weak economic conditions, we announced the delay of our multibillion dollar Echelon development project on the Las Vegas Strip. At such time, we did not anticipate the long-term effects of the economic recession and continued economic downturn, evidenced by lower occupancy rates, declining room rates and reduced consumer spending across the country, but particularly in the Las Vegas Locals region; nor did we predict that the incremental supply becoming available on the Las Vegas Strip would face such depressed demand levels, thereby elongating the time for absorption of this additional supply into the market. The credit markets have yet to show significant recovery, thereby rendering financing for this type of development unavailable. Based on our current outlook, we do not expect to resume construction for 3 to 5 years.

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

As of September 30, 2009, we have incurred approximately $925 million in capitalized costs related to the Echelon project, including land. As part of our wind-down procedures related to the project, we expect to incur approximately $6 million of capitalized costs, principally related to the offsite fabrication of escalators, curtain wall and a skylight. In addition, we expect recurring project costs, consisting primarily of security, property taxes, rent and insurance, of approximately $15 million per annum 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 material commitments.

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

Results of Operations

Three and Nine Months ended September 30, 2009 and 2008

Gross Revenues

During the three and nine months ended September 30, 2009, we continued to contend with a weak economy and a very cautious consumer, specifically in the Las Vegas Locals region. While visitation has remained relatively flat at most of our properties during the quarter, we continue to experience significant year-over-year declines in spend per visitor.

The following table presents our gross revenues, by region, for the three and nine months ended September 30, 2009 and 2008.

                                         Three Months Ended         Nine Months Ended
                                           September 30,              September 30,
                                          2009        2008         2009          2008
                                                         (In thousands)
   Gross Revenues
   Las Vegas Locals                    $  166,647   $ 203,155   $   540,321   $   657,038
   Downtown Las Vegas                      60,202      60,966       187,556       196,441
   Midwest and South                      213,896     206,306       660,736       654,151

   Reportable Segment Gross Revenues      440,745     470,427     1,388,613     1,507,630
   Other                                    1,788       2,214         5,919         6,772

   Gross Revenues                      $  442,533   $ 472,641   $ 1,394,532   $ 1,514,402

Significant events that affected our revenues, by region, for the three and nine months ended September 30, 2009, as compared to the same periods in 2008, are described below:

• Las Vegas Locals - The economic downturn has caused significant declines in consumer spending, which negatively impacted our gross revenues by 18.0% and 17.8% during the three and nine months ended September 30, 2009, respectively, as compared to the prior period. This trend is anticipated to continue for the foreseeable future. The three months ended September 30, 2009 was one of the toughest quarters in the Las Vegas Locals region's history. High unemployment and depressed housing prices have greatly impacted consumer discretionary spending, resulting in lower spend per visit at our Las Vegas Locals casinos.

• Downtown Las Vegas - Gross revenue during the three and nine months ended September 30, 2009, declined by 1.3% and 4.5%, respectively, as compared to the prior period. This region benefitted from strong visitor volume from our Hawaiian customer base driven by refinements in our targeted marketing efforts.

• Midwest and South - Gross revenues in our Midwest and South region improved by 3.7% and 1.0% during the three and nine month months ended September 30, 2009, respectively, over the same periods in 2008. The strong performance is reflective of both the revenues that our Blue Chip expansion contributed over the peak summer months, as well as growth in market share at Delta Downs.

Reportable Segment Adjusted EBITDA

We determine each of our wholly-owned properties' profitability based upon Property EBITDA, which represents each property's earnings before interest expense, income taxes, depreciation and amortization, deferred rent, preopening expenses, share-based compensation expense, write-downs and other charges, net, change in value of derivative instruments, gain/loss on early retirements of debt, and our share of Borgata's non-operating expenses, preopening expenses and other items and write-downs, net, as applicable. For the three months ended September 30, 2009, Borgata's other items and write-downs, net, include a $28.7 million gain on an insurance settlement related to the fire at The Water Club construction site in 2007. Reportable Segment Adjusted EBITDA is the aggregate sum of the Property EBITDA for each of the properties included in our Las Vegas Locals, Downtown Las Vegas, and Midwest and South segments and also includes our share of Borgata's operating income before net amortization, preopening and other items.

During the three and nine months ended September 30, 2009, we continued to refine our cost structure, developing a more cost-efficient business model to compete more effectively in these economic conditions. We saw positive results from these efforts, as operating margins show improvements over the prior year in both the three and nine months ended September 30, 2009.

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

                                                    Three Months Ended         Nine Months Ended
                                                       September 30,             September 30,
                                                     2009          2008        2009         2008
                                                                   (In thousands)
Reportable Segment Adjusted EBITDA
Las Vegas Locals                                  $    31,363    $ 45,681    $ 120,600    $ 174,763
Downtown Las Vegas                                      8,701       6,900       33,855       27,393
Midwest and South                                      42,567      39,716      136,165      131,905
Our share of Borgata's operating income before
net amortization, preopening and other items           24,174      20,167       50,935       52,416

Significant factors that affected our Reportable Segment Adjusted EBITDA for the three and nine months ended September 30, 2009, as compared to the same period in 2008, are listed below:

• Las Vegas Locals - declined 31.3% and 31.0% during the three and nine months ended September 30, 2009, respectively, as compared to the same periods in 2008, due primarily to lower consumer spending and room rate pressures throughout the entire market, as the overall Las Vegas economy remains one of the hardest-hit metropolitan areas during this economic downturn.

• Downtown Las Vegas - increased 26.1% and 23.6% during the three and nine months ended September 30, 2009, respectively, as compared to the same periods in 2008, primarily due to cost control and containment measures.

• Midwest and South - increased 7.2% and 3.2% during the three and nine months ended September 30, 2009, respectively, as compared to the same periods in 2008, primarily due to corresponding performance at our recently expanded Blue Chip property, as well as continued growth in gross revenues at Delta Downs and also to aggressive efforts to control costs throughout the region.

• Our share of Borgata - See further discussion below.

Operating Results for Borgata

The following table sets forth, for the periods indicated, certain operating
data for Borgata, our 50% joint venture in Atlantic City. We use the equity
method to account for our investment in Borgata.



                                      Three Months Ended            Nine Months Ended
                                        September 30,                 September 30,
                                     2009           2008           2009           2008
                                                       (In thousands)
    Gross revenues                 $ 284,766      $ 302,395      $ 768,706      $ 801,945
    Operating income                  77,028         39,506        129,789         98,828
    Total non-operating expenses     (14,409 )      (10,307 )      (32,460 )      (25,778 )
    Net income                        62,619         29,199         97,329         73,050

Borgata's operating income increased during the three months and nine months ended September 30, 2009 in part due to a $28.7 million gain on an insurance settlement related to the fire at The Water Club construction site in 2007. While gross revenues were adversely impacted by the economic downturn and an increasingly competitive regional environment, Borgata continued to expand its leading market share during these periods, while improved efficiencies and cost-containment initiatives helped the property grow its operating income.

The following table reconciles the presentation of our share of Borgata's operating income.