Certain of our executive officers participate in a long-term management incentive plan (the "Plan"), which currently extends through December 31, 2009. Certain components of the Plan cannot be measured until the end of the performance period, as they will not be known until the end of the performance period. As such, we do not accrue for these items over the life of the Plan, but rather accrue for that portion of the Plan when it becomes measureable. Estimated possible future maximum payouts are $2.2 million in 2007, $5.2 million in 2008 and $5.2 million in 2009.

In 2006, we entered into a 50/50 joint venture agreement with Morgans as part of the development for Echelon Place. In conjunction with this joint venture agreement, we expect to contribute approximately 6.1 acres of land and Morgans will contribute approximately $91.5 million to the venture, and that the venture will arrange non-recourse project financing to develop two hotel properties, the Delano Las Vegas and the Mondrian Las Vegas.

We are required to pay to the City of Kenner, Louisiana, a boarding fee of $2.50 for each passenger boarding our Treasure Chest riverboat casino during the year. The future minimum payment due in 2007 to the City of Kenner, based upon a portion of actual passenger counts from the prior year, is approximately $2.8 million.

In 2005, the Illinois legislature passed new legislation for wagering taxes that imposes a minimum wagering tax for casinos for the next two state-based fiscal years ending June 30, 2007. Under these minimum wagering tax provisions, during each of the State's fiscal years ending June 30, 2006 and 2007, Par-A-Dice will be required to remit to the State the amount, if any, by which $43 million exceeds the wagering taxes actually paid by Par-A-Dice during each of those fiscal years. The payments, if any, are required by each of June 15, 2006 and 2007. Par-A-Dice paid $6.2 million for Illinois State wagering taxes on June 15, 2006. Effective July 1, 2005, we incorporated this minimum payment provision into the effective gaming tax rate for Par-A-Dice. In addition, Par-A-Dice paid $6.7 million on June 15, 2006 for a retroactive Illinois gaming tax assessment, which was the result of a 2006 modification by the Illinois State Legislature requiring licensees to pay an additional 5% tax on adjusted gross gaming revenues retroactive to July 1, 2005.

Off Balance Sheet Arrangements . Our off balance sheet arrangements mainly consist of investments in unconsolidated affiliates, which is primarily our investment in Borgata. We have not entered into any transactions with special purpose entities, nor have we engaged in any derivative transactions other than straightforward interest rate swaps and collars. Our joint venture investments allow us to realize the benefits of owning a full-scale resort in a manner that lessens our initial investment. We do not guarantee financing obtained by Borgata nor are there any other provisions of the venture agreements which are unusual or subject us to risks to which we would not be subjected if we had full ownership of the respective properties.

We have entered into certain agreements that contain indemnification provisions such as indemnification agreements with our executive officers and directors and provide indemnity insurance pursuant to which directors and officers are indemnified or insured against liability or loss under certain circumstances which may include liability or related loss under the Securities Act and the Exchange Act. In addition, our Restated Articles of Incorporation and Restated Bylaws contain provisions that provide for indemnification of our directors, officers, employees and other agents to the maximum extent permitted by law.

At December 31, 2006, we had outstanding letters of credit totaling $5.2 million.

In February 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities". SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The fair value option established by SFAS No. 159 permits all companies to choose to measure eligible items at fair value at specified election dates. At each subsequent reporting date, a company shall report in earnings any unrealized gains and losses on items for which the fair value option has been elected. SFAS No. 159 is effective as of the beginning of a company's first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the company also elects to apply the provisions of SFAS No. 157, "Fair Value Measurements" (see below). We are currently evaluating whether to adopt the fair value option under this SFAS No. 150 and evaluating what impact such adoption would have on our consolidated financial statements.

In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 158. "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106 and 132(R)". SFAS No. 158 requires employers to recognize the over-funded or under-funded status of a defined benefit postretirement plan as an asset or liability and to recognize changes in that funded status in the year in which the changes occur through other comprehensive income. This Statement also requires employers to measure the funded status of a plan as of the date of its year end and is effective for publicly traded companies as of the end of the fiscal year ending after December 31, 2006. The adoption of SFAS No. 158 did not have a material effect on our consolidated financial statements as we do not currently have a defined benefit postretirement plan that meets the criteria specified under SFAS No. 158.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" , which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently evaluating the impact that the adoption of SFAS No. 157 will have on our consolidated financial statements.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 ("SAB No. 108"), which adds Section N to Topic 1, "Financial Statements". Section N provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. To provide full disclosure, registrants electing not to restate prior periods should reflect the effects of initially applying the guidance in Topic 1N in their financial statements covering the first fiscal year ending after November 15, 2006. The adoption of SAB No. 108 did not have a material effect on our consolidated financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109". FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006, and applies to all tax positions accounted for in accordance with SFAS No. 109. We do not expect the adoption of FIN 48 to have a material effect on our consolidated financial statements.

In June 2006, the Emerging Issues Task Force reached a consensus on Issue No. 06-3 ("EITF 06-3"), " Disclosure Requirements for Taxes Assessed by a Governmental Authority on Revenue-Producing Transactions ." The consensus allows companies to choose between two acceptable alternatives based on their accounting policies for transactions in which the company collects taxes on behalf of a governmental authority, such as sales taxes. Under the gross method, taxes collected are accounted for as a component of sales revenue with an offsetting expense. Conversely, the net method allows a reduction to sales revenue. If such taxes are reported gross and are significant, companies should disclose the amount of those taxes. The guidance should be applied to financial reports through retrospective application for all periods presented, if amounts are significant, for interim and annual reporting beginning February 1, 2007. We have historically presented sales net of tax collected and we do not intend to change our policy; therefore, we do not expect the adoption of EITF 06-3 to have a material effect on our consolidated financial statements.

In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140" . SFAS No. 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to irrevocably account for the whole instrument on a fair value basis. SFAS No. 155 is effective for all financial instruments acquired or issued after December 31, 2006. We do not expect the adoption of SFAS No. 155 to have a material effect on our consolidated financial statements, as we do not currently have any financial instruments that meet the criteria specified under SFAS No. 155.

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make estimates and assumptions that affect the reported amounts included in our consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from the estimates. We believe the following critical accounting policies may require a higher degree of judgment and complexity.

Goodwill, Intangible and Other Long-Lived Assets. We evaluate our goodwill, intangible and other long-lived assets in accordance with the applications of SFAS No. 142 related to goodwill and other intangible assets and SFAS No. 144 related to impairment or disposal of long-lived assets. For goodwill and intangible assets, we review the carrying values on an annual basis and between annual dates in certain circumstances. For assets to be disposed of, we recognize the asset at the lower of carrying value or fair market value less costs of disposal, as estimated based on comparable asset sales, solicited offers, or a discounted cash flow model. For assets to be held and used, we review for impairment whenever indicators of impairment exist.

Inherent in the reviews of the carrying amounts of the above assets are various estimates. First, management must determine the usage of the asset. To the extent management decides that an asset will be sold or disposed of, it is more likely that an impairment may be recognized. Assets must be tested at the lowest level for which identifiable cash flows exist. This means that some assets must be grouped, and management has some discretion in the grouping of assets. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from our estimates. If our ongoing estimates of future cash flows are not met, we may have to record additional impairment charges in future accounting periods. Our estimates of cash flows are based on the current regulatory, social and economic climates, recent operating information and budgets of the various properties where we conduct operations. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, or other events affecting various forms of travel and access to our properties.

In accordance with SFAS No. 144, we have tested the assets of Sam's Town Tunica for recoverability during 2006 due to a history of operating losses. As the property's estimated undiscounted future cash flows exceed its carrying value, we do not believe these assets to be impaired at this time; however, we will continue to monitor the performance of Sam's Town Tunica as well as continue to update our asset recoverability test under SFAS No. 144. If future asset recoverability tests indicate that the assets of Sam's Town Tunica are impaired, we will be subject to a non-cash write-down of its assets which would likely have a material impact on our consolidated financial statements.

On July 25, 2006, we entered into a Unit Purchase Agreement, as amended, (the "Agreement") to sell South Coast to Michael J. Gaughan for a total purchase price of approximately $513 million. In connection with entering into the Agreement, we met all of the criteria required to classify certain of the assets and liabilities of South Coast as held for sale on our consolidated balance sheets. As such, we ceased depreciation of those assets and they were measured at the lower of their carrying amount or fair value less cost to sell. This resulted in an estimated non-cash, pretax impairment charge of $65 million in September 2006, as the fair value of the assets were less than their carrying value at that time.

We recorded a $28 million non-cash charge related to the write-off of the net book value of the original Blue Chip gaming vessel in June 2006, which was replaced with a new gaming vessel in conjunction with our expansion project. After analysis of alternative uses for the original vessel, management decided in June 2006 to permanently retire the asset from further operations.

We recorded a $3.0 million asset write-down during the year ended December 31, 2006 related to land held for sale in Pennsylvania that we previously planned to utilize as a site for a gaming operation. In September 2006, we withdrew our application for gaming approval, which led to our decision to sell the land.

We determined that the impact of Hurricanes Katrina and Rita was a triggering event requiring impairment tests for Treasure Chest and Delta Downs' assets during 2005. Our impairment tests were based upon estimated future cash flows from these properties. Based upon the results of the tests, no impairment was indicated for any of the assets tested.

Because we intend to redevelop the land on which Stardust is located and our plans include demolishing Stardust's existing buildings and abandoning other related assets, we performed an impairment test for this property. Based upon the results of this test, we recorded a $56 million non-cash impairment loss in 2005 to write down the long-lived assets of the Stardust to their estimated fair value.

Capital Expenditures and Depreciation.  We must also make estimates and assumptions when accounting for capital expenditures. Whether an expenditure is considered a maintenance expense or a capital asset is a matter of judgment. Our depreciation expense is highly dependent upon the assumptions we make about our assets' estimated useful lives. We determine the estimated useful lives based upon our experience with similar assets. Whenever events or circumstances occur which change the estimated useful life of an asset, we account for the change prospectively. In connection with the closure and demolition of Stardust, we reevaluated the estimated useful lives of the depreciable assets residing on the land associated with our Echelon Place development project, including our corporate office building, and recorded $11.2 million of accelerated depreciation expense in 2006.

Capitalized Interest . We capitalize interest costs associated with major construction projects as part of the cost of the constructed assets. When no debt is incurred specifically for a project, interest is capitalized on amounts expended for the project using our weighted average cost of borrowing. Capitalization of interest ceases when the project or discernible portions of the project are complete. We amortize capitalized interest over the estimated useful life of the related asset.

Derivative Instruments.  We utilize an investment policy for managing risks associated with our current and anticipated future borrowings, such as interest rate risk and its potential impact on our fixed and variable rate debt. Under this policy, we may utilize derivative contracts that effectively convert our borrowings from either floating rate to fixed or fixed rate to floating. The policy does not allow for the use of derivative financial instruments for trading or speculative purposes. To the extent we employ such financial instruments pursuant to this policy, and the instruments qualify for hedge accounting, we designate and account for them as hedged instruments. In order to qualify for hedge accounting, the underlying hedged item must expose us to risks associated with market fluctuations and the financial instrument used must be designated as a hedge and must reduce our exposure to market fluctuations throughout the hedged period. If these criteria are not met, a change in the market value of the financial instrument is recognized as a gain or loss in the period of change. Otherwise, gains and losses are not recognized except to the extent that the hedged debt is disposed of prior to maturity or to the extent that acceptable ranges of ineffectiveness exist in the hedge. Net interest paid or received pursuant to the financial instrument is included in interest expense in the period.

At December 31, 2006, we also had four floating-to-fixed derivative instruments and two interest rate collars with an aggregate notional amount of $300 million designated as cash flow hedges. On a quarterly basis, we monitor the effectiveness of these derivatives and record any ineffectiveness in our consolidated statements of operations. Our derivative instruments are recorded on our consolidated balance sheets at their fair value. For the six contracts discussed, we recorded a non-current asset of $6.6 million and $6.1 million as of December 31, 2006 and 2005, respectively.

In September 2006, we entered into three floating-to-fixed interest rate swaps with a forward start date of June 30, 2008, with a combined notional amount of $200 million. We determined that these derivative instruments did not meet the requirements to qualify for hedge accounting and have therefore recorded a $1.8 million charge for the change in fair value of these derivative instruments in our consolidated statements of operations for the year ended December 31, 2006.

Stock-Based Employee Compensation. On January 1, 2006, we adopted SFAS No. 123R, Share-Based Payment, using the modified prospective method and as such, results for prior periods have not been restated. This statement requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). This cost is recognized over the period during which an employee is required to provide service in exchange for the award. Under the modified prospective method, we expense the cost of share-based compensation awards issued after January 1, 2006. Additionally, we recognize compensation cost for the portion of awards outstanding on January 1, 2006 for which the requisite service has not been rendered over the period the requisite service is being rendered after January 1, 2006. Compensation expense related to stock option awards is calculated based on the fair value of each major option grant on the date of the grant using the Black-Scholes option pricing model that requires the formation of assumptions to be used in the model, such as expected stock volatility, risk-free interest rates, expected option lives and dividend yields. We formed our assumptions using historical experience and observable conditions.

Income Taxes.  We are subject to income taxes in the United States and several states in which we operate. We account for income taxes according to SFAS No. 109, Accounting for Income Taxes . SFAS No. 109 requires the recognition of deferred tax assets, net of applicable reserves, related to net operating loss carryforwards, tax credit carryforwards and certain temporary differences. A valuation allowance is recognized if, based upon the weight of the available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be recognized.

Our income tax returns are subject to examination by tax authorities. We regularly assess the potential outcome of these examinations in determining the adequacy of our provision for income taxes and our income tax liabilities. To determine necessary reserves, we must make assumptions and judgments about potential actions by taxing authorities, partially based on past experiences. Our estimate of the potential outcome for any uncertain tax issue is highly judgmental, and we believe we have adequately provided for any reasonable and foreseeable outcomes relating to uncertain tax matters. When actual results of tax examinations differ from our estimates or when potential actions are settled differently than we expected, we adjust the income tax provision and our tax reserves in the current period.

Self-Insurance Reserves. We are self-insured up to certain stop loss amounts for employee heath coverage, workers' compensation and general liability costs. Insurance claims and reserves include accruals of estimated settlements for known claims, as well as accruals of estimates for claims incurred but not yet reported. In estimating these accruals, we consider historical loss experience and make judgments about the expected levels of costs per claim. We believe our estimates of future liability are reasonable based upon our methodology; however, changes in health care costs, accident frequency and severity and other factors could materially affect the estimate for these liabilities.

Litigation, Claims and Assessments. We also utilize estimates for litigation, claims and assessments related to our business and tax matters. These estimates are based upon our knowledge and experience about past and current events and also upon reasonable assumptions about future events. Actual results could differ from these estimates.

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk, specifically long-term U.S. treasury rates and the applicable spreads in the high-yield investment market and short-term and long-term eurodollar rates, and its potential impact on our long-term debt. We attempt to limit our exposure to interest rate risk by managing the mix of our long-term fixed-rate borrowings and short-term borrowings under our bank credit facility. Borrowings under our bank credit facility are based upon the agent bank's quoted base rate or the eurodollar rate, plus applicable margins; however, the amount of outstanding borrowings is expected to fluctuate from time to time. We also attempt to manage the impact of interest rate risk on our long-term debt by utilizing derivative financial instruments in accordance with established policies and procedures. We do not utilize derivative financial instruments for trading or speculative purposes. For more information, see Note 7, " Derivative Instruments " in the notes to the consolidated financial statements.

During the year ended December 31, 2006, we utilized interest rate swap agreements. Interest differentials resulting from these agreements are recorded on an accrual basis as an adjustment to interest expense. Interest rate swaps related to debt are matched to specific debt obligations.

We are exposed to credit loss in the event of nonperformance by the counterparties to the interest rate swap agreements outstanding at December 31, 2006; however, we believe that this risk is minimized because we monitor the credit ratings of the counterparties to the swaps. If we had terminated our swaps as of December 31, 2006, we would have been entitled to receive a net total of $5.9 million based on the fair values of the derivative instruments.

The following table provides information about our derivative instruments and other financial instruments that are sensitive to changes in interest rates, including interest swaps and debt obligations. For our debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For our interest rate swaps, the table presents the notional amounts and weighted average interest rates by the expected (contractual) maturity dates. The notional amounts are used to calculate the contractual cash flows to be exchanged under the contracts. The weighted average variable rates are based upon prevailing interest rates.

The scheduled maturities of our long-term debt and interest rate swap agreements outstanding as of December 31, 2006 for the years ending December 31 are as follows:

                                                                     Year Ending December 31,
                                            -----------------------------------------------------------------------------
(In thousands)                               2007      2008      2009       2010        2011      Thereafter     Total
------------------------------------------  -------   -------   -------   ---------   ---------   ----------   ---------- 
Liabilities
Long-term debt (including current portion):
    Fixed-rate                             $   550   $   582   $   616   $     652   $     690   $1,161,070   $1,164,160
    Average interest rate                      5.7 %     5.7 %     5.7 %       5.7 %       5.7 %        7.5 %        7.5 %
    Variable-rate                          $ 5,000   $ 5,000   $ 5,000   $ 490,800   $ 467,500   $            $  973,300
    Average interest rate                      6.9 %     6.9 %     6.9 %       6.8 %       6.9 %         -- %        6.9 %
Interest rate derivatives
Derivative Instruments:
    Pay floating                                --        --        --          --          --   $   50,000   $   50,000
        Average receivable rate                 --        --        --          --          --          8.8 %        8.8 %
        Average est. payable rate               --        --        --          --          --          7.9 %        7.9 %
    Pay fixed                                   --        --        --   $ 200,000     200,000           --   $  400,000
        Average receivable rate                 --        --        --         5.4 %        --           --          5.4 %
        Average payable rate                    --        --        --         4.1 %       5.3 %         --          4.7 %
    Collars                                     --        --        --   $ 100,000          --           --   $  100,000
        Cap rate                                --        --        --         5.3 %        --           --          5.3 %
        Floor rate                              --        --        --         3.5 %        --           --          3.5 %

The following table provides other information about our long-term debt at December 31, 2006:

                                                                             Outstanding     Carrying     Estimated
(In thousands)                                                               Face Amount      Value       Fair Value
---------------------------------------------------------------------------  ------------  ------------  ------------
Bank credit facility                                                        $    973,300  $    973,300  $    973,300
8.75% Senior Subordinated Notes Due 2012                                         250,000       251,106       262,500
7.75% Senior Subordinated Notes Due 2012                                         300,000       300,000       310,500
6.75% Senior Subordinated Notes Due 2014                                         350,000       350,000       347,375
7.125% Senior Subordinated Notes Due 2016                                        250,000       250,000       248,125
Other                                                                             14,160        14,160        14,160
                                                                             ------------  ------------  ------------
Total                                                                       $  2,137,460  $  2,138,566  $  2,155,960
                                                                             ============  ============  ============

The information required by this item is contained in the financial statements listed in Item 15(a) of this Form 10-K under the caption "Financial Statements." In addition, audited consolidated financial statements for Marina District Development Company, LLC, d.b.a. Borgata Hotel Casino and Spa, our 50% Atlantic City joint venture, as of and for the three years in the period ended December 31, 2006 are included in Exhibit 99.2 and are incorporated herein by reference.

There were no changes in or disagreements with accountants on accounting and financial disclosures during the three years in the period ended December 31, 2006.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Based on the evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we include a report of management's assessment of the design and effectiveness of our internal controls as part of this Annual Report on Form 10-K for the fiscal year ended December 31, 2006. Our independent registered public accounting firm also attested to, and reported on, management's assessment of the effectiveness of internal control over financial reporting. Management's report and the independent registered public accounting firm's attestation report are located below.

There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of the end of the most recent fiscal year, December 31, 2006, based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment under the framework in Internal Control - Integrated Framework , our management concluded that our internal control over financial reporting was effective as of the end of our most recent fiscal year, December 31, 2006.

Our management's assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report which is included below.

To the Board of Directors and Stockholders of
Boyd Gaming Corporation and Subsidiaries:

We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that Boyd Gaming Corporation and Subsidiaries (the "Company") maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2006, of the Company, and our report dated February 28, 2007, expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph regarding the Company's adoption of Statement of Financial Accounting Standards No. 123R, Share-Based Payment .

DELOITTE & TOUCHE LLP

Las Vegas, Nevada
February 28, 2007

None.

Information regarding the members of our board of directors and our audit committee, including our audit committee financial expert, is set forth under the captions "Board Committees - Audit Committee", "Director Nominees", and "Section 16(a) Beneficial Ownership Reporting Compliance" in our definitive Proxy Statement to be filed in connection with our 2007 Annual Meeting of Stockholders and is incorporated herein by reference. Information regarding non-director executive company officers is set forth in Item 4A of Part I of this Report on Form 10-K.

Code of Ethics.  We have adopted a Code of Business Conduct and Ethics ("code of ethics") that applies to each of our directors, officers and employees. Our code of ethics is posted on our website at www.boydgaming.com. Any waivers or amendments to our code of ethics will be posted on our website.

The information required by this item is set forth under the captions "Executive Officer and Director Compensation", "Compensation and Stock Option Committee Interlocks and Insider Participation", and "Compensation and Stock Option Committee Report" in our definitive Proxy Statement to be filed in connection with our 2007 Annual Meeting of Stockholders and is incorporated herein by reference.

The information required by this item is set forth under the caption "Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" in our definitive Proxy Statement to be filed in connection with our 2007 Annual Meeting of Stockholders and is incorporated herein by reference.

The information required by this item is set forth under the captions "Related Party Transactions" and "Director Independence" in our definitive Proxy Statement to be filed in connection with our 2007 Annual Meeting of Stockholders and is incorporated herein by reference.

Information about principal accounting fees and services, as well as the audit committee's pre-approval policies appears under the caption "Audit and Non-Audit Fees" and "Audit Committee Pre-Approval of Audit and Non-Audit Services" in our definitive Proxy Statement to be filed in connection with our 2007 Annual Meeting of Stockholders and is incorporated herein by reference.

To the Board of Directors and Stockholders of
Boyd Gaming Corporation and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Boyd Gaming Corporation and Subsidiaries (the "Company") as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Boyd Gaming Corporation and Subsidiaries at December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 5 to the consolidated financial statements, in 2005, the Company changed its method of accounting for intangible assets to conform to EITF D-108, Use of the Residual Method to Value Acquired Assets Other Than Goodwill , and recorded a cumulative effect of a change in accounting principle.

As discussed in Note 1 to the consolidated financial statements, in 2006, the Company changed their method of accounting for share-based compensation to conform to Statement of Financial Accounting Standards No. 123R, Share-Based Payment .

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2007, expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

DELOITTE & TOUCHE LLP

Las Vegas, Nevada
February 28, 2007

                                                                                            December 31,
                                                                                   ------------------------------
(In thousands, except share data)                                                       2006            2005
---------------------------------------------------------------------------------  --------------  --------------
                                     ASSETS
Current assets
    Cash and cash equivalents                                                     $      169,397  $      188,406
    Restricted cash                                                                       12,604           8,412
    Accounts receivable, net                                                              26,275          24,707
    Insurance receivable                                                                      --           4,313
    Inventories                                                                           11,037          11,705
    Prepaid expenses and other current assets                                             42,417          36,408
    Assets held for sale, net of cash                                                    102,977         531,933
    Income taxes receivable                                                                8,286           7,002
    Deferred income taxes                                                                  1,685           2,683
                                                                                   --------------  --------------
            Total current assets                                                         374,678         815,569
Property and equipment, net                                                            2,129,445       2,100,276
Investments in and advances to unconsolidated subsidiaries, net                          385,751         389,492
Assets held for sale                                                                          --         107,101
Other assets, net                                                                        100,469         101,471
Intangible assets, net                                                                   506,750         506,838
Goodwill, net                                                                            404,206         404,206
                                                                                   --------------  --------------
            Total assets                                                          $    3,901,299  $    4,424,953
                                                                                   ==============  ==============
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
    Current maturities of long-term debt                                          $        5,550  $        5,729
    Accounts payable                                                                      77,532          92,537
    Construction payables                                                                 23,516         128,136
    Accrued liabilities
        Payroll and related                                                               72,162          77,390
        Interest                                                                          20,620          15,762
        Gaming                                                                            64,085          60,468
        Accrued expenses and other                                                        65,532          55,861
        Liabilities related to assets held for sale                                        2,993           3,925
                                                                                   --------------  --------------
            Total current liabilities                                                    331,990         439,808
Long-term debt, net of current maturities                                              2,133,016       2,552,795
Deferred income taxes                                                                    301,639         316,517
Other liabilities                                                                         24,702          17,829
Commitments and contingencies (Note 8)
Stockholders' equity
    Preferred stock, $.01 par value, 5,000,000 shares authorized                              --              --
    Common stock, $.01 par value, 200,000,000 shares authorized, 87,105,106
        and 89,286,491 shares outstanding                                                    871             893
    Additional paid-in capital                                                           561,298         619,852
    Retained earnings                                                                    544,080         473,964
    Accumulated other comprehensive income, net                                            3,703           3,295
                                                                                   --------------  --------------
            Total stockholders' equity                                                 1,109,952       1,098,004
                                                                                   --------------  --------------
            Total liabilities and stockholders' equity                            $    3,901,299  $    4,424,953
                                                                                   ==============  ==============

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

                                                                                       Year Ended December 31,
                                                                             ----------------------------------------
(In thousands, except per share data)                                            2006          2005          2004
---------------------------------------------------------------------------  ------------  ------------  ------------
Revenues
    Gaming                                                                  $  1,811,716  $  1,772,053  $  1,435,445
    Food and beverage                                                            304,864       311,119       241,495
    Room                                                                         172,781       172,617       120,215
    Other                                                                        145,560       146,140       104,928
                                                                             ------------  ------------  ------------
Gross revenues                                                                 2,434,921     2,401,929     1,902,083
Less promotional allowances                                                      242,287       240,844       194,876
                                                                             ------------  ------------  ------------
        Net revenues                                                           2,192,634     2,161,085     1,707,207

Costs and expenses
    Gaming                                                                       836,675       783,863       678,677
    Food and beverage                                                            187,908       193,961       147,824
    Room                                                                          55,052        51,012        36,221
    Other                                                                        110,106       128,028        98,900
    Selling, general and administrative                                          311,551       313,410       273,356
    Maintenance and utilities                                                    100,659        94,072        75,295
    Depreciation and amortization                                                188,539       170,660       134,104
    Corporate expense                                                             54,229        44,101        33,338
    Preopening expenses                                                           20,623         7,690         1,953
    Write-downs and other charges, net                                             8,838        64,615         1,225
                                                                             ------------  ------------  ------------
        Total costs and expenses                                               1,874,180     1,851,412     1,480,893
                                                                             ------------  ------------  ------------
Operating income from Borgata                                                     86,196        96,014        77,965
                                                                             ------------  ------------  ------------
Operating income                                                                 404,650       405,687       304,279
                                                                             ------------  ------------  ------------
Other income (expense)
    Interest income                                                                  112           224           186
    Interest expense, net of amounts capitalized                                (145,545)     (126,312)     (100,728)
    Decrease in value of derivative instruments                                   (1,801)           --            --
    Loss on early retirements of debt                                                 --       (17,529)       (4,344)
    Other non-operating expenses from Borgata, net                               (10,577)      (11,718)      (12,554)
                                                                             ------------  ------------  ------------
        Total                                                                   (157,811)     (155,335)     (117,440)
                                                                             ------------  ------------  ------------
Income from continuing operations before provision for income taxes
    and cumulative effect of a change in accounting principle                    246,839       250,352       186,839
Provision for income taxes                                                       (85,491)      (85,984)      (75,553)
                                                                             ------------  ------------  ------------
Income from continuing operations before cumulative effect
    of a change in accounting principle                                          161,348       164,368       111,286

Discontinued operations:
    Income (loss) from discontinued operations (including a $68,606
      loss on disposition in 2006)                                               (69,219)       (5,253)          260
    Benefit from (provision for) income taxes                                     24,649         1,934           (92)
                                                                             ------------  ------------  ------------
       Net income (loss) from discontinued operations                            (44,570)       (3,319)          168

Income before cumulative effect of a change in
    accounting principle                                                         116,778       161,049       111,454

Cumulative effect of a change in accounting for
    intangible assets, net of taxes of $8,984                                         --       (16,439)           --
                                                                             ------------  ------------  ------------
Net income                                                                  $    116,778  $    144,610  $    111,454
                                                                             ============  ============  ============

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

                                                                                                            Accumulated
                                                                                                               Other
                                                  Other           Common Stock      Additional             Comprehensive      Total
                                              Comprehensive  ---------------------   Paid-In    Retained   Income (Loss),  Stockholders'
(In thousands, except share data)                Income        Shares      Amount    Capital    Earnings        Net           Equity
--------------------------------------------  -------------  -----------  --------  ----------  ---------  --------------  ------------ 

Balances, January 1, 2004                                    64,980,970  $    650  $  162,123  $ 283,352  $       (4,872) $    441,253
Net income                                   $     111,454           --        --          --    111,454              --       111,454
Derivative instruments market adjustment,
    net of taxes of $1.7 million                     2,988           --        --          --         --           2,988         2,988
Restricted available for sale securities
    market adjustment, net of taxes                    (33)          --        --          --         --             (33)          (33)
                                              -------------
Comprehensive income                         $     114,409
                                              -------------
Stock issued in connection with merger with Coast
    Casinos, net of issuance costs of $425                   19,369,869       194     368,958         --              --       369,152
Stock options exercised, including
    taxes of $20.7 million                                    3,186,283        31      43,642         --              --        43,673
Dividends paid on common stock                                       --        --          --    (24,717)             --       (24,717)
                                                            -----------  --------  ----------  ---------  --------------  ------------
Balances, December 31, 2004                                  87,537,122  $    875  $  574,723  $ 370,089  $       (1,917) $    943,770
Net income                                   $     144,610           --        --          --    144,610              --       144,610
Derivative instruments market adjustment,
     net of taxes of $3.2 million                    5,340           --        --          --         --           5,340         5,340
Restricted available for sale securities
    market adjustment, net of taxes                   (128)          --        --          --         --            (128)         (128)
                                              -------------
Comprehensive income                         $     149,822
                                              -------------
Stock options exercised, including
    taxes of $23.1 million                                    1,749,369        18      45,129         --              --        45,147
Dividends paid on common stock                                       --        --          --    (40,735)             --       (40,735)
                                                            -----------  --------  ----------  ---------  --------------  ------------
Balances, December 31, 2005                                  89,286,491  $    893  $  619,852  $ 473,964  $        3,295  $  1,098,004
Net income                                   $     116,778           --        --          --    116,778              --       116,778
Derivative instruments market
    adjustment, net of taxes of $200                   358           --        --          --         --             358           358
Restricted available for sale securities
    market adjustment, net of taxes of $28              50           --        --          --         --              50            50
                                              -------------
Comprehensive income                         $     117,186
                                              -------------
Stock options exercised                                       1,266,116        12      19,498         --              --        19,510
Excess tax benefit from share-based
    compensation arrangements                                        --        --      12,256         --              --        12,256
Stock repurchased and retired                                (3,447,501)      (34)   (111,956)        --              --      (111,990)
Share-based compensation costs                                       --        --      21,648         --              --        21,648
Dividends paid on common stock                                       --        --          --    (46,662)             --       (46,662)
                                                             -----------  --------  ----------  ---------  --------------  ------------
Balances, December 31, 2006                                  87,105,106  $    871  $  561,298  $ 544,080  $        3,703  $  1,109,952
                                                             ===========  ========  ==========  =========  ==============  ============

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

                                                                                        Year ended December 31,
                                                                              ----------------------------------------
(In thousands)                                                                    2006          2005          2004
----------------------------------------------------------------------------  ------------  ------------  ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                   $    116,778  $    144,610       111,454
Adjustments to reconcile net income to net cash provided by
  operating activities:
    Depreciation and amortization                                                 208,187       174,939       136,126
    Amortization of debt issuance costs                                             4,486         4,784         4,741
    Deferred income taxes                                                         (14,108)      (18,253)       30,630
    Operating and non-operating income from Borgata                               (75,618)      (84,296)      (65,411)
    Distributions of earnings received from Borgata                                82,603        29,338            --
    Share-based compensation expense                                               21,648            --            --
    Change in value of derivative intstruments                                      1,801            --            --
    Asset write-downs                                                             101,592        56,000            --
    Gain from insurance recoveries for property damage                            (33,450)           --            --
    Tax benefit from stock options exercised                                           --        23,148        20,694
    Excess tax benefit from share-based compensation arrangements                 (12,256)           --            --
    Cumulative effect of a change in accounting principle                              --        25,423            --
    Loss on early retirements of debt                                                  --        17,529         4,344
    Gain on sales of undeveloped land and certain other assets                         --          (659)      (10,309)
    Non-cash hurricane expenses                                                        --         2,091            --
    Changes in operating assets and liabilities:
        Restricted cash                                                            (4,192)       (1,011)          954
        Accounts receivable, net                                                     (983)        3,552        (8,313)
        Insurance receivable                                                        4,313           372            --
        Inventories                                                                 3,052        (1,805)       (1,663)
        Prepaid expenses and other                                                 (5,180)       (4,507)       (2,113)
        Other assets                                                                4,237        (8,343)       (2,184)
        Other current liabilities                                                     559        41,290        37,410
        Other liabilities                                                           5,072         6,704         3,137
        Income taxes receivable                                                    10,972         9,002          (458)
                                                                              ------------  ------------  ------------
Net cash provided by operating activities                                         419,513       419,908       259,039
                                                                              ------------  ------------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures                                                             (436,464)     (618,444)     (268,848)
Insurance recoveries for replacement assets                                        34,450         6,000            --
Net proceeds from sale of South Coast                                             401,430            --            --
Net proceeds from sale of undeveloped land and other assets                         3,198         4,001        31,398
Net cash paid for Coast Casinos acquisition                                            --            --      (909,245)
Net cash paid for Shreveport acquisition                                               --            --      (187,220)
Investments in and advances to unconsolidated subsidiaries                         (2,966)           --       (30,807)
                                                                              ------------  ------------  ------------
Net cash used in investing activities                                                (352)     (608,443)   (1,364,722)
                                                                              ------------  ------------  ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt                                                        (16,074)         (684)         (482)
Payments under bank credit facility                                            (1,150,450)     (518,600)     (777,950)
Borrowings under bank credit facility                                             496,950       965,400     1,622,750
Net proceeds from issuance of long-term debt                                      246,300            --       344,596
Retirement of long-term debt                                                           --      (209,325)           --
Proceeds from exercise of stock options                                            19,510        21,999        22,979
Excess tax benefit from share-based compensation arrangements                      12,256            --            --
Dividends paid on common stock                                                    (46,662)      (40,735)      (24,717)
Other                                                                                  --        (1,837)       (8,983)
                                                                              ------------  ------------  ------------
Net cash (used in) provided by financing activities                              (438,170)      216,218     1,178,193
                                                                              ------------  ------------  ------------
Net (decrease) increase in cash and cash equivalents                              (19,009)       27,683        72,510
Cash and cash equivalents, beginning of year                                      188,406       160,723        88,213
                                                                              ------------  ------------  ------------
Cash and cash equivalents, end of year                                       $    169,397  $    188,406  $    160,723
                                                                              ============  ============  ============

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

The accompanying consolidated financial statements include the accounts of Boyd Gaming Corporation and its wholly-owned subsidiaries. As of December 31, 2006, we wholly-owned and operated 16 gaming entertainment facilities located in Nevada, Mississippi, Illinois, Louisiana and Indiana. In addition, we own and operate two travel agencies, a Hawaiian-based insurance company that underwrites travel-related insurance, and an offsite sports book located in Las Vegas. We are also developing Echelon Place on land that we own on the Las Vegas Strip. We are also a 50% partner in a joint venture that owns a limited liability company that operates Borgata Hotel Casino and Spa in Atlantic City, New Jersey, which commenced operations on July 3, 2003. Investments in 50% or less owned subsidiaries over which we have the ability to exercise significant influence, including joint ventures such as Borgata, are accounted for using the equity method. All material intercompany accounts and transactions have been eliminated.

In January 2006, we entered into a 50/50 joint venture agreement associated with Echelon Place. See Note 8, " Commitments and Contingencies ," for more information.

Cash and cash equivalents include highly liquid investments with maturities of three months or less at their date of purchase. The carrying value of these investments approximates their fair value due to their short maturities.

Restricted cash consists primarily of customer payments related to advanced bookings with our Hawaiian travel agency and amounts on deposit for horse racing purses.

Accounts receivable consist primarily of casino, hotel and other receivables, net of an allowance for doubtful accounts of $4.6 million and $5.5 million at December 31, 2006 and 2005, respectively. The allowance for doubtful accounts is estimated based upon our collection experience and the age of the receivables.

Inventories consist primarily of food and beverage and retail items and are stated at the lower of cost or market. Cost is determined using the first-in, first-out and retail inventory methods.

Restricted investments consist primarily of customer payments related to advanced bookings with our Hawaiian travel agency that are invested generally in fixed income bonds. Investments are stated at fair value based on readily determinable market values using the specific identification method. We classify our investments as available-for-sale and record our investments at their fair market values. The unrealized gains or losses, net of income tax effects, of our restricted available-for-sale investments are reported as a component of accumulated other comprehensive income (losses). See Note 2, " Restricted Investments ," for more information.

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 life of the lease. Gains or losses on disposal of assets are recognized as incurred. Costs of major improvements are capitalized, while costs of normal repairs and maintenance are charged to expense as incurred.

We evaluate our long-lived assets in accordance with Statement of Financial Accounting Standards No. 144, or SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets . For assets to be disposed of, we recognize the asset at the lower of carrying value or fair market value less costs of disposal, as estimated based on comparable asset sales, solicited offers, or a discounted cash flow model. For assets to be held and used, we review for impairment whenever indicators of impairment exist. We then compare the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then an impairment is recorded based on the fair value of the asset, typically measured using a discounted cash flow model. All recognized impairment losses, whether for assets to be disposed of or for assets to be held and used, are recorded as operating losses. See Notes 10 and 11 for information related to impairment charges for long-lived assets recognized in 2006 and 2005. There were no such write-downs for the year ended December 31, 2004.

Sam's Town Tunica reported an operating loss of $1.6 million for the year ended December 31, 2006. Due to a history of operating losses at Sam's Town Tunica, we continue to test the assets of Sam's Town Tunica for recoverability pursuant to SFAS No. 144 . The asset recoverability test requires estimating Sam's Town Tunica's undiscounted future cash flows and comparing that aggregate total to the property's carrying value. As the property's estimated undiscounted future cash flows exceed its carrying value, we do not believe Sam's Town Tunica's assets to be impaired at this time; however, we will continue to monitor the performance of Sam's Town Tunica and, if necessary, continue to update our asset recoverability test under SFAS No. 144. If future asset recoverability tests indicate that the assets of Sam's Town Tunica are impaired, we will be subject to a write-down of its assets which may have a material impact on our consolidated statement of operations.

Goodwill and indefinite-lived intangible assets are not subject to amortization, but are reviewed for impairment at least annually and between annual test dates in certain circumstances. In September 2004, new accounting literature was introduced related to impairment testing of indefinite-lived intangible assets. Refer to Note 5, " Intangible Assets and Goodwill" for additional information relating to its effect on our consolidated financial statements.

Interest costs associated with major construction projects are capitalized as part of the cost of the constructed assets. When no debt is incurred specifically for a project, interest is capitalized on amounts expended for the project using our weighted average cost of borrowing. Capitalization of interest ceases when the project or discernible portions of the project are substantially complete. We amortize capitalized interest over the estimated useful life of the related asset. Capitalized interest for the years ended December 31, 2006, 2005 and 2004 was $7.5 million, $23 million and $5.5 million, respectively.

Debt issuance costs incurred in connection with the issuance of long-term debt are capitalized and amortized to interest expense over the expected terms of the related debt agreements.

Gaming revenue represents the net win from gaming activities, which is the difference between gaming wins and losses. All other revenue is recognized as the service is provided. The majority of our gaming revenue is counted in the form of cash, chips and tokens and therefore is not subject to any significant or complex estimation procedures. Gross revenues include the estimated retail value of rooms, food and beverage, and other goods and services provided to customers on a complimentary basis. Such amounts are then deducted as promotional allowances. The estimated costs and expenses of providing these promotional allowances are charged to the gaming department in the following amounts:

                                                                                     Year Ended December 31,
                                                                             ----------------------------------------
(In thousands)                                                                   2006          2005          2004
---------------------------------------------------------------------------  ------------  ------------  ------------
Room                                                                        $     24,189  $     21,400  $     18,997
Food and beverage                                                                128,360       126,147       101,177
Other                                                                              6,568         5,617         7,738
                                                                             ------------  ------------  ------------
Total                                                                       $    159,117  $    153,164  $    127,912
                                                                             ============  ============  ============

Promotional allowances also include incentives such as cash, goods and services (such as complimentary rooms and food and beverages) earned in our slot club and other gaming loyalty programs. We reward customers, through the use of loyalty programs, with points based on amounts wagered or won 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 casino property. We record the estimated retail value of these goods and services as revenue and then deduct them as a promotional allowance.

Generally accepted accounting principles, or GAAP, require all derivative instruments to be recognized on the balance sheet at fair value. Derivatives that are not designated as hedges for accounting purposes must be adjusted to fair value through income. If the derivative qualifies and is designated as a hedge, depending on the nature of the hedge, changes in its fair value will either be offset against the change in fair value of the hedged item through earnings or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. During the three years in the period ended December 31, 2006, we utilized derivative instruments to manage interest rate risk on certain of our borrowings. In addition, Borgata, our joint venture, utilized derivative financial instruments to comply with the requirements of its bank credit agreement. For further information, see Note 7, " Derivative Instruments ."

On January 1, 2006, we adopted SFAS No. 123R, Share-Based Payment, using the modified prospective method and as such, results for prior periods have not been restated. This statement requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). This cost is recognized over the period during which an employee is required to provide service in exchange for the award. Under the modified prospective method, we expense the cost of share-based compensation awards issued after January 1, 2006. Additionally, we recognize compensation cost for the portion of awards outstanding on January 1, 2006 for which the requisite service has not been rendered over the period the requisite service is being rendered after January 1, 2006. Compensation expense related to stock option awards is calculated based on the fair value of each option grant on the date of the grant using the Black-Scholes option pricing model.

For the year ended December 31, 2006, we recorded $22 million of compensation costs related to our share-based employee compensation plans in our consolidated financial statements in the following categories:

                                                                                        Year Ended
                                                                                       December 31,
                                                                                           2006
                                                                                       -------------  
Gaming                                                                                $         732
Food and beverage                                                                               103
Room                                                                                             50
Selling, general and administrative                                                           4,212
Corporate expense                                                                            14,248
Preopening expenses                                                                           1,268
                                                                                       -------------
Total share-based compensation expense from continuing operations                     $      20,613

Discontinued Operations                                                                         205
                                                                                       -------------
Total share-based compensation expense                                                       20,818

Capitalized share-based compensation                                                            830
                                                                                       -------------
Total share-based compensation costs                                                  $      21,648
                                                                                       =============

The total income tax benefit recognized in income resulting from share-based compensation expense was $7.4 million for the year ended December 31, 2006.

The effect of the adoption of SFAS No. 123R resulted in a reduction of $0.15 per basic and diluted share for both income from continuing operations before cumulative effect of a change in accounting principle and net income, respectively, for the year ended December 31, 2006.

Prior to the adoption of SFAS No. 123R, we presented the benefit of all tax deductions resulting from the exercise of stock options as an operating activity in our consolidated statements of cash flows. SFAS No. 123R requires the excess tax benefit from stock option exercises (tax deduction in excess of compensation costs recognized) to be reported as a financing activity on our consolidated statement of cash flows. Excess tax benefits of $12.3 million recorded during the year ended December 31, 2006 would have been classified as an operating activity if we had not adopted SFAS No. 123R.

For more information related to our share-based employee compensation plans, including our weighted average assumptions used in estimating the fair value of each option grant, see Note 9, "Stockholder's Equity and Stock Incentive Plans. "

For periods prior to January 1, 2006, we accounted for employee stock options in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees , and related Interpretations. No share-based employee compensation cost was reflected in net income for those periods as all options granted under our plans had an exercise price equal to the market value of the common stock on the date of grant.

The following table illustrates the effect on our income from continuing operations before cumulative effect of a change in accounting principle and net income and the related per share amounts as if we had applied the fair value recognition provisions of SFAS No. 123R to share-based employee compensation for the years ended December 31, 2005 and 2004.

                                                                                          Year Ended December 31,
                                                                                       ----------------------------
(In thousands, except per share data)                                                      2005           2004
-------------------------------------------------------------------------------------  ----------------------------
Income from continuing operations before cumulative effect of a change in
     accounting principle
     As reported                                                                      $     164,368  $     111,286
     Pro forma share-based compensation expense, net of tax                                 (13,378)        (6,982)
                                                                                       -------------  -------------
     Pro forma                                                                        $     150,990  $     104,304
                                                                                       =============  =============
Net income
     As reported                                                                      $     144,610  $     111,454
     Pro forma share-based compensation expense, net of tax                                 (13,513)        (6,982)
                                                                                       -------------  -------------
     Pro forma                                                                        $     131,097  $     104,472
                                                                                       =============  =============
Basic income per share from continuing operations before cumulative effect of a
   change in accounting principle
     As reported                                                                      $        1.86  $        1.45
     Pro forma                                                                                 1.71           1.36
Diluted income per share from continuing operations before cumulative effect of a
   change in accounting principle
     As reported                                                                      $        1.82  $        1.42
     Pro forma                                                                                 1.67           1.34
Basic net income per share
     As reported                                                                      $        1.63  $        1.46
     Pro forma                                                                                 1.48           1.36
Diluted net income per share
     As reported                                                                      $        1.60  $        1.42
     Pro forma                                                                                 1.45           1.34

In February 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities". SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The fair value option established by SFAS No. 159 permits all companies to choose to measure eligible items at fair value at specified election dates. At each subsequent reporting date, a company shall report in earnings any unrealized gains and losses on items for which the fair value option has been elected. SFAS No. 159 is effective as of the beginning of a company's first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the company also elects to apply the provisions of SFAS No. 157, "Fair Value Measurements" (see below). We are currently evaluating whether to adopt the fair value option under this SFAS No. 150 and evaluating what impact such adoption would have on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106 and 132(R)". SFAS No. 158 requires employers to recognize the over-funded or under-funded status of a defined benefit postretirement plan as an asset or liability and to recognize changes in that funded status in the year in which the changes occur through other comprehensive income. This Statement also requires employers to measure the funded status of a plan as of the date of its year end and is effective for publicly traded companies as of the end of the fiscal year ending after December 31, 2006. The adoption of SFAS No. 158 did not have a material effect on our consolidated financial statements as we do not currently have a defined benefit postretirement plan that meets the criteria specified under SFAS No. 158.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" , which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently evaluating the impact that the adoption of SFAS No. 157 will have on our consolidated financial statements.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 ("SAB No. 108"), which adds Section N to Topic 1, "Financial Statements". Section N provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. To provide full disclosure, registrants electing not to restate prior periods should reflect the effects of initially applying the guidance in Topic 1N in their financial statements covering the first fiscal year ending after November 15, 2006. The adoption of SAB No. 108 did not have a material effect on our consolidated financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109". FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006, and applies to all tax positions accounted for in accordance with SFAS No. 109. We do not expect the adoption of FIN 48 to have a material effect on our consolidated financial statements.

In June 2006, the Emerging Issues Task Force reached a consensus on Issue No. 06-3 ("EITF 06-3"), " Disclosure Requirements for Taxes Assessed by a Governmental Authority on Revenue-Producing Transactions ." The consensus allows companies to choose between two acceptable alternatives based on their accounting policies for transactions in which the company collects taxes on behalf of a governmental authority, such as sales taxes. Under the gross method, taxes collected are accounted for as a component of sales revenue with an offsetting expense. Conversely, the net method allows a reduction to sales revenue. If such taxes are reported gross and are significant, companies should disclose the amount of those taxes. The guidance should be applied to financial reports through retrospective application for all periods presented, if amounts are significant, for interim and annual reporting beginning February 1, 2007. We have historically presented sales net of tax collected and we do not intend to change our policy; therefore, we do not expect the adoption of EITF 06-3 to have a material effect on our consolidated financial statements.

In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140" . SFAS No. 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to irrevocably account for the whole instrument on a fair value basis. SFAS No. 155 is effective for all financial instruments acquired or issued after December 31, 2006. We do not expect the adoption of SFAS No. 155 to have a material effect on our consolidated financial statements, as we do not currently have any financial instruments that meet the criteria specified under SFAS No. 155.

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 consolidated financial statements include the estimated useful lives for depreciable and amortizable assets, the estimated allowance for doubtful accounts receivable, the estimated valuation allowance for deferred tax assets, estimated cash flows in assessing the recoverability of long-lived assets, asset impairments, goodwill and related intangible assets, share-based payment values, fair value of derivative instruments, property closure costs, our self-insured liability reserves, slot bonus point programs, contingencies, and litigation, claims and assessments. Actual results could differ from those estimates.

Certain prior period amounts in the consolidated financial statements, including the discontinued operations presentation on the consolidated statements of operations and assets and liabilities held for sale related to discontinued operations on the consolidated balance sheets, have been reclassified to conform to the December 31, 2006 presentation due to the sale of our South Coast Hotel and Casino on October 25, 2006, and the exchange agreement that we entered into on September 29, 2006, to exchange our Barbary Coast Hotel and Casino for certain real property. These reclassifications had no effect on our net income as previously reported. For further information, see Note 11, "Assets and Liabilities Held for Sale - Discontinued Operations" .

Pursuant to an investment policy related to customer payments for advanced bookings with our Hawaiian travel agency, we invest in certain financial instruments. Hawaiian regulations require us to maintain a separate charter tour client trust account solely for the purpose of the travel agency's charter tour business. Our investment policy allows us to invest these restricted funds in investments with a maximum maturity of three years and with certain credit ratings as determined by specified rating agencies.

At December 31, 2006 and 2005, our restricted investments consist of domestic fixed income U.S Treasury bonds maturing through November 2008. We have classified these investments as available for sale. The table below sets forth certain information about our restricted investments(in thousands).

                                                   Gross Unrealized
                                               -------------------------     Market
                                     Cost         Gains        Losses         Value
                                  -----------  -----------  ------------  -------------
December 31, 2005                $     9,773  $        --  $       (246) $       9,527
                                  ===========  ===========  ============  =============

December 31, 2006                $    10,029  $         5  $       (174) $       9,860
                                  ===========  ===========  ============  =============

We have classified the portions of the fair market value of these restricted investments on our accompanying consolidated balance sheets based upon the maturities of the investments. Investments maturing in less than one year have been presented in prepaid expenses and other, while all other long-term investments have been presented in other assets. Net unrealized holding gains and losses have been recorded in other comprehensive income, net of taxes, on the accompanying consolidated balance sheets.

During the year ended December 31, 2005, we sold certain of our restricted investments and recorded restricted cash proceeds of approximately $4.5 million, which approximated our cost basis in these investments as determined by specific identification. There were no sales of our restricted investments during the year ended December 31, 2006.

Property and equipment consists of the following:

                                                                                                  December 31,
                                                                           Estimated Life  ------------------------
(In thousands)                                                                 (Years)         2006          2005
---------------------------------------------------------------------------  ------------  ------------  ------------
Land                                                                             --       $    261,428  $    215,815
Buildings and improvements                                                      10-40        1,939,611     1,675,070
Furniture and equipment                                                          3-10          718,647       643,686
Riverboats and barges                                                           10-40          165,362       107,180
Construction in progress                                                         --             95,556       202,606
                                                                             ------------  ------------  ------------
Total                                                                                        3,180,604     2,844,357
Less accumulated depreciation                                                                1,051,159       744,081
                                                                                           ------------  ------------
Property and equipment, net                                                               $  2,129,445  $  2,100,276
                                                                                           ============  ============

Major items included in construction in progress at December 31, 2006 consisted principally of our new corporate office building and construction related to Echelon Place.

In connection with the closing of the Stardust on November 1, 2006, we reevaluated the useful lives of all of the depreciable assets residing on the land associated with our Echelon Place development project, including our corporate office building, and recorded an additional $11.2 million in accelerated depreciation related to these assets during 2006.

We and MGM MIRAGE, through wholly-owned subsidiaries, each have a 50% interest in Marina District Development Holding Co., LLC, or Holding Company. Holding Company owns all the equity interests in Marina District Development Company, LLC, d.b.a. Borgata Hotel Casino and Spa. On July 3, 2003, Borgata, located at Renaissance Pointe in Atlantic City, New Jersey, commenced operations. As the managing venturer, we are responsible for the day-to-day operations of Borgata, including the operation and improvement of the facility and business. Borgata employs a management team and full staff to perform these services for the property. We maintain the oversight responsibility for the operations, but do not directly operate Borgata. As such, we do not receive a management fee from Borgata. Borgata's bank credit agreement is secured by substantially all of its real and personal property and is non-recourse to MGM MIRAGE and us.

Summarized financial information of Borgata is as follows:

                                                                                             December 31,
                                                                                   ------------------------------
(In thousands)                                                                          2006            2005
---------------------------------------------------------------------------------  --------------  --------------
Assets                                                                                                           
Current assets                                                                    $      126,446  $      110,355
Property and equipment, net                                                            1,201,607       1,013,744
Other assets,  net                                                                        23,155          16,876
                                                                                   --------------  --------------
     Total assets                                                                 $    1,351,208  $    1,140,975
                                                                                   ==============  ==============
Liabilities and Member Equity
Current liabilities                                                               $      114,125  $      109,296
Long-term debt                                                                           554,600         341,700
Other liabilities                                                                         15,750          11,872
Member equity                                                                            666,733         678,107
                                                                                   --------------  --------------
     Total liabilities and member equity                                          $    1,351,208  $    1,140,975
                                                                                   ==============  ==============

                                                                                       Year Ended December 31,
                                                                             ----------------------------------------
(In thousands)                                                                   2006          2005          2004
---------------------------------------------------------------------------  ------------  ------------  ------------
Gaming revenue                                                              $    735,145  $    696,965  $    623,400
Non-gaming revenue                                                               273,879       247,740       228,881
                                                                             ------------  ------------  ------------
    Gross revenues                                                             1,009,024       944,705       852,281
Less promotional allowances                                                      195,759       180,722       175,862
                                                                             ------------  ------------  ------------
Net revenues                                                                     813,265       763,983       676,419
Expenses                                                                         566,252       512,249       460,852
Depreciation and amortization                                                     63,088        56,951        56,811
Preopening expenses                                                                6,519            --            --
Loss on asset disposals                                                            2,418           160           184
                                                                             ------------  ------------  ------------
    Operating income                                                             174,988       194,623       158,572
                                                                             ------------  ------------  ------------
Interest and other expenses, net                                                 (23,271)      (24,738)      (34,896)
Benefit from income taxes                                                          2,116         1,303         9,789
                                                                             ------------  ------------  ------------
    Total non-operating expenses                                                 (21,155)      (23,435)      (25,107)
                                                                             ------------  ------------  ------------
Net income                                                                  $    153,833  $    171,188  $    133,465
                                                                             ============  ============  ============

Our share of Borgata's results has been included in our accompanying consolidated statements of operations for the following periods on the following lines:

                                                                                       Year Ended December 31,
                                                                             ----------------------------------------
(In thousands)                                                                   2006          2005          2004
---------------------------------------------------------------------------  ------------  ------------  ------------
Our share of Borgata's operating income                                     $     87,494  $     97,312  $     79,286
Net amortization expense related to our investment in Borgata                     (1,298)       (1,298)       (1,321)
                                                                             ------------  ------------  ------------
Our share of Borgata's operating income, as reported                        $     86,196  $     96,014  $     77,965
                                                                             ============  ============  ============
Our share of Borgata's non-operating expenses, net                          $    (10,577) $    (11,718) $    (12,554)
                                                                             ============  ============  ============

Borgata Tax Credits . Based on New Jersey state income tax rules, Borgata is eligible for state tax credits under the New Jersey New Jobs Investment Tax Credit ("New Jobs Tax Credit") because Borgata made a qualified investment in a new business facility that created new jobs. The total estimated available credit related to Borgata's original investment is approximately $75 million over a five-year period, subject to certain annual conditions. An incremental credit related to Borgata's public space expansion is estimated to be approximately $1.8 million over a five-year period. Borgata began receiving refunds related to this tax credit in early 2005. As such, Borgata recorded approximately $23 million of net New Jobs Tax Credits in 2004, comprised of New Jobs Tax Credits generated from the years ended December 31, 2004 and 2003. Borgata has recorded approximately $16.9 million and $18.7 million of net New Jobs Tax Credits in 2006 and 2005, respectively. Borgata expects to generate net New Jobs Tax Credits of approximately $17 million for 2007 and approximately $0.3 million per annum for the years 2008 through 2010. Borgata may be entitled to incremental New Jersey New Jobs Investment Tax Credits as a result of its second hotel project.

Additionally, Borgata is eligible to receive tax credits in an amount equal to 50% of its New Jersey Adjusted Net Profits Tax ("ANP Tax"), subject to capital expenditure requirements, for the state's fiscal years ended June 30, 2004 through 2006. In 2003, Borgata placed a valuation allowance of approximately $0.5 million on the credit because it had not made any qualifying capital expenditures, nor did Borgata have any definitive expansion plans. In December 2004, Borgata commenced the public space expansion and submitted the appropriate applications for reimbursement of this tax. As such, Borgata released the $0.5 million valuation allowance on the 2003 credit and realized an additional credit of $2.4 million, representing 50% of the ANP Tax paid in 2004. This $2.9 million aggregate state tax benefit is included in Borgata's statement of operations for the year ended December 31, 2004 and a state tax benefit of $1.0 million and $1.9 million, respectively, representing 50% of the ANP Tax paid in 2006 and 2005 is included in Borgata's statements of operations for the years ended December 31, 2006 and 2005.

Borgata Expansions . Borgata is in the process of its second expansion that will add a second hotel, The Water Club, which will include an 800-room hotel, five swimming pools, a state-of-the-art spa and additional meeting room space. This expansion project is estimated to cost approximately $400 million and is expected to be completed in early 2008. Borgata completed its $200 million public space expansion in June 2006 which added both gaming and non-gaming amenities, including additional slot machines, table games, poker tables, restaurants and a nightclub. Borgata expects to finance the expansions from its cash flow from operations and from its bank credit agreement. We do not expect to make further capital contributions to Borgata for these projects.

Borgata Distributions.  Borgata began distributions of its earnings to us in 2005 and distributed a total of $83 million and $29 million in 2006 and 2005, respectively. Both the joint venture agreement related to Borgata and Borgata's bank credit agreement allow for certain limited distributions to be made to its partners. In February 2006, Borgata amended its bank credit agreement, which increased the amount of allowable distributions to us. Borgata has significant uses for its cash flows, including maintenance and expansion capital expenditures, interest payments, state income taxes and debt principal payments. Borgata's cash flows are primarily used for its business needs and are not generally available (except to the extent distributions are paid to us) to service our indebtedness.

Other Unconsolidated Entities  

In January 2006, we announced plans to develop the acreage that we own on the Las Vegas Strip into Echelon Place. Plans for Echelon Place include a wholly-owned resort hotel, casino and spa and additional hotel and retail joint ventures between us and strategic partners. We expect that, in conjunction with our joint venture with Morgans Hotel Group LLC, or Morgans, we will contribute approximately 6.1 acres of land and Morgans will contribute approximately $91.5 million to the venture, and that the venture will arrange non-recourse project financing to develop the two hotel properties. We can provide no assurances that our developement plans will be completed successfully, or at all. As of December 31, 2006, we had made advances for capital expenditures to the Morgans joint venture of $3.0 million, which is presented in investments in and advances to unconsolidated subsidiaries, net, on our consolidated balance sheets.

We also have a one-third investment in Tunica Golf Course, L.L.C. (d.b.a. River Bend Links) located in Tunica, Mississippi. We account for our share of the golf course's net loss under the equity method of accounting. At December 31, 2006 and 2005, our net investment in and advances to the golf course were $0.6 million and $0.8 million, respectively, and are presented in investments in and advances to unconsolidated subsidiaries, net on the accompanying consolidated balance sheets.

The following table reconciles our investments in and advances to our unconsolidated subsidiaries.

                                                                                            December 31,
                                                                                   ------------------------------
(In thousands)                                                                          2006            2005
---------------------------------------------------------------------------------  --------------  --------------
Investment in and advances to Borgata:
  Cash Contributions                                                              $      254,157  $      254,157
  Accumulated amortization of 50% of our unilateral equity contribution                   (1,155)           (770)
  Deferred gain on sale of asset to Borgata, net                                            (383)           (405)
  Capitalized interest, net                                                               34,155          35,090
  Equity income                                                                          206,554         129,638
  Distributed earnings                                                                  (111,941)        (29,338)
  Other advances, net                                                                        805             355
                                                                                   --------------  --------------
Net investment in Borgata                                                                382,192         388,727

Investment in and advances to Morgans joint venture                                        2,966              --
Investment in and advances to Tunica Golf Course, L.L.C.                                     593             765
                                                                                   --------------  --------------
  Total investments in and advances to unconsolidated subsidiairies, net          $      385,751  $      389,492
                                                                                   ==============  ==============

Our net investment in Borgata differs from our share of the underlying equity in Borgata. In 2004, pursuant to an agreement with MGM MIRAGE related to the funding of Borgata's project costs, we made a unilateral capital contribution to Borgata of approximately $31 million. We are ratably amortizing $15.4 million (50% of the unilateral contribution which corresponds to our ownership percentage of Borgata) over 40 years. Also, during Borgata's initial development, construction and preopening phases, we capitalized interest on our investment and are ratably amortizing our capitalized interest over 40 years. Additionally, we are ratably accreting a deferred gain related to the sale of our airplane to Borgata over the plane's remaining useful life.

During 2004, we acquired Sam's Town Shreveport and Coast Casinos. For more information, see Note 12, "Acquisitions" . In connection with those transactions, we recorded significant amounts of intangible assets and goodwill that are included in the tables below. In 2005, as further described below, we wrote-down Delta Downs license rights by $25.4 million.

Intangible assets consist of the following (in thousands):

                                                                    December 31,
                                                            ---------------------------
                                                                2006          2005
                                                            ------------  -------------
Las Vegas Locals trademarks                                $     54,400  $      54,400
Las Vegas Locals customer lists                                     350            350
Central Region license rights                                   486,064        486,064
Central Region customer lists                                       100            100
                                                            ------------  -------------
Total intangible assets                                         540,914        540,914
Less accumulated amortization:
    License rights                                               33,939         33,939
    Customer lists                                                  225            137
                                                            ------------  -------------
Total accumulated amortization                                   34,164         34,076
                                                            ------------  -------------
    Intangible assets, net                                 $    506,750  $     506,838
                                                            ============  =============

License rights are intangible assets acquired from the purchase of gaming entities that are located in gaming jurisdictions where competition is limited to a specified number of licensed gaming operators. License rights and trademarks are not subject to amortization as we have determined that they have an indefinite useful life.

Customer lists are being ratably amortized over a five-year period. For the years ended December 31, 2006 and 2005, amortization expense for the customer lists was less than $0.1 million. For each year in the period ending December 31, 2009, amortization expense related to the customer lists is expected to be approximately $0.1 million, at which time the assets are expected to be fully amortized.

Included in intangible assets, net, on our consolidated balance sheets as of December 31, 2006 and 2005, is the Barbary Coast trademark with a carrying value of $3.7 million. This trademark was excluded from the February 27, 2007 exchange transaction pursuant to the terms of the Exchange Agreement entered into between Coast Hotels and Casinos, Inc., a subsidiary of the Company, and Harrah's Operating Company, Inc., a subsidiary of Harrah's Entertainment, Inc., or Harrah's, (see Note. 11 "Asset and Liabilities Held for Sale - Discontinued Operations: Barbary Coast" for information related to the transaction); however, as we do not have any intended future use for this trademark, it will be written off during the quarter ending March 31, 2007 upon the completion of the exchange transaction, as the underlying cash flows of the Barbary Coast would no longer support its carrying value.

In September 2004, the Emerging Issues Task Force, or EITF, of the FASB issued EITF D-108, Use of the Residual Method to Value Acquired Assets Other Than Goodwill, which requires the application of the direct value method for intangible assets acquired in business combinations completed after September 29, 2004. In addition, EITF D-108 requires companies that have applied the residual method to the valuation of intangible assets acquired prior to such date for purposes of impairment testing to perform an impairment test using the direct value method beginning with their fiscal year beginning after December 15, 2004. Impairments of intangible assets recognized upon application of a direct value method should be reported as a cumulative effect of a change in accounting principle.

We have utilized a residual cash flow methodology in performing our annual impairment tests for all of our indefinite-lived intangible assets acquired prior to 2004. Beginning with the transition testing in 2005 as well as annually thereafter, we utilize the direct value method to perform our impairment tests on such indefinite-lived intangible assets. Effective January 1, 2005, we completed this transition testing for all our intangible license rights and determined that the fair value of our Delta Downs intangible license rights was less than its book value. Accordingly, for the year ended December 31, 2005, we recorded a non-cash charge of $25.4 million, $16.4 million, net of taxes, to reduce the balance of this asset to its fair value. This charge has been reflected as a cumulative effect of a change in accounting principle, net of taxes, in the accompanying consolidated statement of operations.

Goodwill represents the excess of total acquisition costs over the fair market value of net assets acquired in a business combination and consists of the following (in thousands):

                                                                    December 31,
                                                            ---------------------------
                                                                2006          2005
                                                            ------------  -------------
Las Vegas Locals goodwill                                  $    381,024  $     381,024
Downtown Las Vegas goodwill                                       6,997          6,997
Central Region goodwill                                          22,319         22,319
                                                            ------------  -------------
Total goodwill                                                  410,340        410,340
Less accumulated amortization                                     6,134          6,134
                                                            ------------  -------------
     Goodwill, net                                         $    404,206  $     404,206
                                                            ============  =============

Goodwill and indefinite-lived assets must be tested for impairment at least annually and between annual test dates in certain circumstances. We perform our annual impairment test for goodwill and indefinite-lived assets in the second quarter of each year. No impairments were indicated as a result of the annual impairment reviews for goodwill and indefinite-lived assets for 2006, 2005 or 2004. During 2005, we performed impairment tests on our license rights at Treasure Chest and Delta Downs pursuant to triggering events related to hurricanes. For more information, see Note 13, "Insurance Coverage Related to Hurricane Impacts."

Long-term debt consists of the following:

                                                                                            December 31,
                                                                                   ------------------------------
(In thousands)                                                                          2006            2005
---------------------------------------------------------------------------------  --------------  --------------
Bank credit facility                                                              $      973,300  $    1,626,800
8.75% Senior Subordinated Notes Due 2012                                                 250,000         250,000
7.75% Senior Subordinated Notes Due 2012                                                 300,000         300,000
6.75% Senior Subordinated Notes Due 2014                                                 350,000         350,000
7.125% Senior Subordinated Notes Due 2016                                                250,000              --
Other                                                                                     14,160          30,235
                                                                                   --------------  --------------
Total long-term debt                                                                   2,137,460       2,557,035
Less current maturities                                                                   (5,550)         (5,729)
Market value adjustment related to interest rate swaps                                     1,106           1,489
                                                                                   --------------  --------------
     Total                                                                        $    2,133,016  $    2,552,795
                                                                                   ==============  ==============

In connection with our fair value hedging transactions (see Note 7, " Derivative Instruments" ), as of December 31, 2006 and 2005 we increased the carrying value of certain of our long-term debt instruments by $1.1 million and $1.5 million, respectively, and also recorded a corresponding asset on the accompanying consolidated balance sheets, representing the fair market value of the derivative instrument at those dates.

Bank Credit Facility . On July 1, 2004 and concurrent with the consummation of the merger with Coast Casinos, Inc., the $1.6 billion bank credit facility (the "Bank Credit Facility") among Boyd Gaming, Bank of America, N.A and certain other financial institutions became effective. The Bank Credit Facility replaced our old bank credit facility, and as such, we recorded a $4.3 million non-cash loss on early retirement of debt for the year ended December 31, 2004 for the write-off of unamortized debt fees associated with our old bank credit facility.

On June 30, 2005, we entered into a First Amendment to Credit Agreement which amended certain terms of our bank credit facility. Among other changes, the amendment increased the revolving portion of the existing bank credit facility by $250 million and extended the maturity date of the revolving portion of the bank credit facility by one year. The amendment did not change the amount or maturity date of the term loan portion of the bank credit facility.

On July 25, 2006, we entered into a Second Amendment to Credit Agreement which amended certain terms of our bank credit facility. Among other changes, the amendment permitted us to transfer our interest in the South Coast and excluded the purchase of the Company's common stock from Michael J. Gaughan in connection with the sale of South Coast from the calculation of the fixed charge coverage ratio.

The Bank Credit Facility consists of a $1.35 billion revolving credit facility and a $500 million term loan. The revolving credit facility matures in June 2010 and the term loan matures in June 2011. The term loan is required to be repaid in increments of $1.25 million per quarter that began on September 30, 2004 and will continue through March 31, 2011. Amounts repaid under the term loan may not be reborrowed. The interest rate on the term loan is based upon the agent bank's quoted base rate or the eurodollar rate, plus a fixed margin. The interest rate on the revolving credit facility is based upon the agent bank's quoted base rate or the eurodollar rate, plus an applicable margin that is determined by the level of a predefined financial leverage ratio. In addition, we incur commitment fees on the unused portion of the revolving credit facility that ranges from 0.25% to 0.50% per annum. The Bank Credit Facility is secured by substantially all of Boyd Gaming's real and personal property (other than stock and other equity interests), including each of its wholly-owned casino properties.

On October 25, 2006, pursuant to the terms of the Unit Purchase Agreement that we entered into to sell South Coast to Michael J. Gaughan, we received approximately $401 million, which was used to repay a portion of the outstanding balance on our revolving credit facility. See Note 11, "Assets and Liabilities Held for Sale - Discontinued Operations: South Coast" for more information related to the sale.

The blended interest rates for outstanding borrowings under the bank credit facility at December 31, 2006 and 2005 were 6.8% and 5.7%, respectively. At December 31, 2006, approximately $488 million was outstanding under the term loan, $486 million was outstanding under our revolving credit facility, and $5.2 million was allocated to support various letters of credit, leaving availability under the Bank Credit Facility of approximately $859 million.

The Bank Credit Facility contains certain financial and other covenants, including, without limitation, various covenants (i) requiring the maintenance of a minimum fixed charge coverage ratio, (ii) establishing a maximum permitted total leverage ratio and senior leverage ratio, (iii) imposing limitations on the incurrence of additional secured indebtedness and (iv) imposing restrictions on investments, dividends and certain other payments. We believe we are in compliance with the Bank Credit Facility covenants as of December 31, 2006.

8.75% Senior Subordinated Notes due April 2012.  On April 8, 2002, we issued $250 million principal amount of 8.75% senior subordinated notes due April 2012. The notes require semi-annual interest payments on April 15th and October 15th of each year through April 2012, at which time the entire principal balance becomes due and payable. The notes contain certain restrictive covenants regarding, among other things, incurrence of debt, sales of assets, mergers and consolidations and limitations on restricted payments (as defined in the indenture governing the notes). We believe we are in compliance with these covenants as of December 31, 2006. On or after April 15, 2007, we may redeem all or a portion of the notes at redemption prices ranging from 104.375% in 2007 to 100% in 2010 and thereafter , plus accrued and unpaid interest.

7.75% Senior Subordinated Notes due December 2012.  On December 30, 2002, we issued $300 million principal amount of 7.75% senior subordinated notes due December 2012. The notes require semi-annual interest payments on June 15th and December 15th of each year that began in June 2003 and will continue through December 2012, at which time the entire principal balance becomes due and payable. The notes contain certain restrictive covenants regarding, among other things, incurrence of debt, sales of assets, mergers and consolidations and limitations on restricted payments (as defined in the indenture governing the notes). We believe we are in compliance with these covenants as of December 31, 2006. On or after December 15, 2007, we may redeem all or a portion of the exchange notes at redemption prices ranging from 103.875% in 2007 to 100% in 2010 and thereafter, plus accrued and unpaid interest.

6.75% Senior Subordinated Notes due April 2014.  On April 15, 2004, we issued, through a private placement, $350 million principal amount of 6.75% senior subordinated notes due April 2014. In July 2004, all but $50,000 in aggregate principal amount of these notes were exchanged for substantially similar notes that were registered with the Securities and Exchange Commission. The notes require semi-annual interest payments on April 15 and October 15 of each year, that began in October 2004 and will continue through April 2014, at which time the entire principal balance becomes due and payable. The notes contain certain restrictive covenants regarding, among other things, incurrence of debt, sales of assets, mergers and consolidations and limitations on restricted payments (as defined in the indenture governing the notes). We believe we are in compliance with these covenants as of December 31, 2006. At any time prior to April 15, 2007, we may redeem up to 35% of the aggregate principal amount of the outstanding notes with the net proceeds from equity offerings at a redemption price of 106.75% of the principal amount, plus accrued and unpaid interest, subject to certain conditions. On or after April 15, 2009, we may redeem all or a portion of the notes at redemption prices (expressed as percentages of the principal amount) ranging from 103.375% in 2009 to 100% in 2012 and thereafter, plus accrued and unpaid interest.

9.25% Senior Notes Originally due August 2009.  On August 1, 2005, we redeemed all $200 million principal amount of our 9.25% senior notes originally due in 2009 at a redemption price of $1.046.25 per $1,000.00 principal amount of notes. The redemption was funded by availability under our bank credit facility. A loss on early retirement of debt of $17.5 million, comprised of the premium related to the call for redemption of these notes, unamortized deferred loan costs for the notes and the notes' market adjustments from fair value hedges, was recorded on our consolidated statement of operations during 2005.

Other Debt.  In November 2004, in connection with the acquisition of certain real estate, we assumed a mortgage with a balance of $15.8 million that was secured by the real property. The mortgage was payable in equal monthly installments of principal and interest at the rate of 8.8% per annum through May 1, 2007, when the remaining balance was to become due and payable. We paid the remaining balance of approximately $15.4 million in October 2006.

In February 2003, we issued a note in the amount of $16 million to finance the purchase of a company airplane. The note bears interest at the rate of 5.7% per annum. The note is payable in 120 equal monthly installments of principal and interest until March 2013, when the remaining balance becomes due and payable. The note is secured by the airplane.

The scheduled maturities of long-term debt for the years ending December 31 are as follows (in thousands):

2007           $        5,550
2008                    5,582
2009                    5,616
2010                  491,452
2011                  468,190
Thereafter          1,161,070
                --------------
     Total     $    2,137,460
                ==============

We utilize derivative instruments to manage certain interest rate risk. The net effect of our interest rate swaps resulted in a reduction in interest expense of $2.2 million, $0.6 million and $5.1 million, respectively, as compared to the contractual rate of the underlying hedged debt for the years ended December 31, 2006, 2005 and 2004.

Fixed-to-Floating Interest Rate Swaps . During 2005, we paid a total of $4.7 million to terminate four fixed-to-floating interest rate swaps with a total notional amount of $200 million. At December 31, 2006, the total notional amount of the remaining fixed- to-floating interest rate swap was $50 million. This interest rate swap converts a portion of our fixed-rate debt to a floating rate. The variable interest rate on this swap is set in arrears. As such, we estimate the variable rate based upon the prevailing interest rates and the implied forward rates in the yield curve. This variable rate estimate is used to record the effect of the interest rate swap until the variable rate is set, at which time any further adjustments between our estimate and the actual rate are recorded. At December 31, 2006, we estimated the floating rate to be 7.9% and our fixed rate was 8.8%.

The interest rate swap that converts a portion of our fixed-rate debt to a floating rate is designated as a fair value hedge and qualifies for the "shortcut" method allowed under GAAP, which allows for an assumption of no ineffectiveness. Thus, there is no income statement impact from changes in the fair value of this hedging instrument. Instead, the fair value of this instrument is recorded as an asset or liability on our consolidated balance sheets with an offsetting adjustment to the carrying value of the related debt. As such, we recorded an asset of $1.1 million and $1.5 million as of December 31, 2006 and 2005, respectively, in other assets on our accompanying consolidated balance sheets, representing the fair market values of the interest rate swap at those dates.

Floating-to-Fixed Interest Rate Swaps . In June 2005, we entered into four swaps with a total notional amount of $200 million. These swaps convert the eurodollar-based interest rate on a portion of our floating rate debt to a fixed rate and qualify as cash flow hedges. At December 31, 2006 and 2005, these swaps had a weighted average fixed rate of 4.1% and a floating rate of 5.4% and 4.0%, respectively. At December 31, 2006 and 2005, we recorded an asset of $5.9 million and $5.4 million, respectively, in other assets on the accompanying consolidated balance sheets, representing the fair market values of these swaps. The offsetting entry for these swap values was an increase to other comprehensive income of $3.7 million, net of $2.3 million in taxes and $3.3 million, net of $2.1 million in taxes, for the years ended December 31, 2006 and 2005, respectively, as these cash flow hedges were deemed to be effective.

In the third quarter 2006, we entered into three floating-to-fixed interest rate swaps with a forward start date of June 30, 2008, with a combined notional amount of $200 million. We determined that these derivative instruments did not meet the requirements for hedge accounting during 2006 and have therefore recorded a $1.8 million charge for the change in fair value of these derivative instruments in our consolidated statements of operations for year ended December 31, 2006. We have also recorded a corresponding liability of $1.8 million included as part of other liabilities on our accompanying consolidated balance sheet at December 31, 2006. Effective January 1, 2007, these forward starting swaps met the requirements to qualify for hedge accounting.

Interest Rate Collars . In August 2005, we paid $0.6 million to enter into two interest rate collars with a total notional amount of $100 million. These collars are designated as cash flow hedges and limit the eurodollar-based interest rate between 5.3% and 3.5% on a portion of our floating rate debt. At December 31, 2006 and 2005, we recorded an asset of $0.6 million and $0.7 million, respectively, in other assets on the accompanying consolidated balance sheets. Approximately $0.1 million was recorded in the consolidated statements of operations for each of the years ended December 31, 2006 and 2005, representing the ineffective portion of the collars during the period.

We are exposed to credit loss in the event of nonperformance by the counterparties to the interest rate swap agreements; however, we believe that this risk is minimized because we monitor the credit ratings of the counterparties to the agreements. If we had terminated our swaps as of December 31, 2006, we would have been entitled to receive a net total of $5.9 million based on the fair values of the derivative instruments.

Borgata Derivative Instruments. In addition, Borgata, our joint venture, utilized derivative financial instruments designated as cash flow hedges, the last of which expired in December 2005. Our share of the increase or decrease in fair value of certain financial instruments related to hedges deemed to be ineffective was a net loss of $0.4 million in 2005 and a net gain of $0.1 million in 2004, respectively, and is reported on our accompanying consolidated statements of operations. Our share of the net increase in the fair value of certain financial instruments related to hedges deemed to be effective was $1.9 million and $3.0 million in 2005 and 2004, respectively, and is reported in other comprehensive income on the accompanying consolidated balance sheets.

In connection with the July 1, 2004 merger with Coast Casinos, we assumed certain land leases. The Orleans is situated on approximately 77 acres of leased land. The lease had an effective commencement date of October 1, 1995, an initial term of 50 years, and includes an option, exercisable by us, to extend the initial term for an additional 25 years. The lease provides for monthly rental payments of $0.2 million through February 2006 and $0.3 million during the 60-month period thereafter. In March 2011, annual rental payments will increase in a compounding basis at a rate of 3.0% per annum. In addition, we have an option to purchase the real property during the two-year period commencing in February 2016.

Suncoast is situated on approximately 49 acres of leased land. The initial term of the land lease expires in December 2055. The lease contains three options to extend the term of the lease for 10 years each. The lease provides for monthly rental payments of approximately $0.2 million in 2004 that increase slightly each year. The landlord has the option to require us to purchase the property at the end of 2014 and each year-end through 2018, at the fair market value of the real property at the time the landlord exercises the option, subject to certain pricing limitations. Based on the terms of the lease, the potential purchase price commitment ranges from approximately $31 million to approximately $51 million in the years 2014 through 2018. If we do not purchase the property if and when required, we would be in default of the lease agreement.

In addition, we have other land leases related primarily to the California, the Fremont, Sam's Town Tunica, Treasure Chest and Sam's Town Shreveport. Future minimum lease payments required under noncancelable operating leases (primarily for land leases) as of December 31, 2006 are as follows (in thousands):

2007           $       17,285
2008                   15,649
2009                   13,598
2010                   11,762
2011                   11,226
Thereafter            472,562
                --------------
     Total     $      542,082
                ==============

State of Illinois Wagering Tax. In 2005, the Illinois legislature passed new legislation for wagering taxes that imposes a minimum wagering tax for casinos for the next two state-based fiscal years ending June 30, 2007. Under these minimum wagering tax provisions, during each of the State's fiscal years ending June 30, 2006 and 2007, Par-A-Dice will be required to remit to the State the amount, if any, by which $43 million exceeds the wagering taxes actually paid by Par-A-Dice during each of those fiscal years. The payments, if any, are required by each of June 15, 2006 and 2007. Effective July 1, 2005, we incorporated this minimum payment provision into the effective gaming tax rate for Par-A-Dice. Par-A-Dice paid $6.2 million for Illinois State wagering taxes on June 15, 2006. In addition, Par-A-Dice paid $6.7 million on June 15, 2006 for a retroactive Illinois gaming tax assessment, which was the result of a 2006 modification by the Illinois State Legislature requiring licensees to pay an additional 5% tax on adjusted gross gaming revenues retroactive to July 1, 2005.

Treasure Chest. We are required to pay to the City of Kenner, Louisiana, a boarding fee of $2.50 for each passenger boarding our Treasure Chest riverboat casino during the year. The future minimum payment due in 2007 to the City of Kenner, based upon a portion of actual passenger counts from the prior year, is approximately $2.8 million.

Dania Jai Alai. On June 5, 2006, we entered into a purchase agreement to acquire Dania Jai Alai and approximately 47 acres of related land located in Dania Beach, Florida. Dania Jai Alai is one of four pari-mutuel facilities approved under Florida law to operate 1,500 Class III slot machines. We expect to finance the acquisition through availability under our bank credit facility.

On August 8, 2006, a three-judge panel of the First District Court of Appeals in Broward County, Florida overturned a lower court decision which in turn could lead to the invalidation of a November 2004 initiative approved by Florida voters to operate slot machines at certain pari-mutuel gaming facilities in Broward County. This decision was essentially reaffirmed by the First District Court of Appeals on November 30, 2006, with two questions being certified to the Florida Supreme Court. If the initiative is invalidated, we may not be able to operate slot machines at the Dania Jai Alai facility, which would materially affect any potential revenue and cash flow expected from the Dania Jai Alai facility.

In February 2007, we received our slot license for our acquisition of Dania Jai Alai. We also modified our agreement to purchase this operation. Under the revised agreement, we are required to pay an aggregate of $77.5 million upon closing of this transaction, and we will be required to pay an additional $75 million in March 2010, or earlier, if certain conditions are satisfied. We will not record a liability for the additional $75 million obligation until the contingency has been resolved and the consideration is distributable. At that time, the $75 million payment will be added to the cost of the acquisition. We closed the transaction on March 1, 2007 and we plan to begin construction in the second half of 2007 with a grand opening of the casino operation around the end of 2008.

Echelon Place. In January 2006, we formed a joint venture with Morgans Hotel Group LLC, or Morgans, whereby we will contribute approximately 6.1 acres of land and Morgans will contribute approximately $91.5 million to the venture, and that the venture will arrange non-recourse project financing to develop two hotel properties, the Delano Las Vegas and the Mondrian Las Vegas.

Management Incentive Plan. Certain of our executive officers participate in a long-term management incentive plan (the "Plan"), which currently extends through December 31, 2009. Certain components of the Plan cannot be measured until the end of the performance period. As such, we do not accrue for these items over the life of the Plan, but rather accrue for that portion of the Plan when it becomes measurable. Estimated possible future maximum payouts are $2.2 million in 2007, $5.2 million in 2008 and $5.2 million in 2009.

Copeland. Alvin C. Copeland is the sole shareholder of an entity that applied in 1993 for a riverboat license at the location of our Treasure Chest Casino. Copeland was unsuccessful in the application process and has made several attempts to have the Treasure Chest license revoked and awarded to his company. In 1999, Copeland filed a direct action against Treasure Chest and certain other parties seeking the revocation of Treasure Chest's license, an award of the license to him and monetary damages. The suit was dismissed by the trial court citing that Copeland failed to state a claim on which relief could be granted. The dismissal was appealed by Copeland to the Louisiana First Circuit Court of Appeal. On June 21, 2002, the First Circuit Court of Appeal reversed the trial court's decision and remanded the matter to the trial court. On January 14, 2003, we filed a motion to dismiss the matter and that motion was denied. The Court of Appeal refused to reverse the denial of the motion to dismiss. In May 2004, we filed additional motions to dismiss on other grounds, which motions are currently pending. It is not possible to determine the likely date of trial, if any, at this time. We intend to vigorously defend the lawsuit. If this matter ultimately results in the Treasure Chest license being revoked, it could have a significant adverse effect on our business, financial condition and results of operations.

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

As of December 31, 2006, we had two stock option plans in effect, both of which have been approved by our shareholders. Stock options awarded under these plans are granted to our employees and directors. The number of shares of common stock authorized for issuance under these plans is approximately 21.6 million shares.

Options granted under the plans generally become exercisable ratably over a three-year period from the date of grant. Options that have been granted under the plans had an exercise price equal to the market price of our common stock on the date of grant and will expire no later than ten years after the date of grant.

Summarized stock option plan activity for the years ended December 31, 2006, 2005 and 2004 is as follows:

                                                                                          Weighted     Aggregate
                                                                          Range of         Average     Intrinsic
                                                                          Options          Option        Value
                                                          Options          Prices           Price    (In thousands)
                                                        -----------  ------------------   ---------  -------------- 
Options outstanding at January 1, 2004                   7,516,405     $ 4.35 - $17.21   $   10.57
Options granted                                          2,497,000       16.37 - 36.76       34.20
Options canceled                                          (189,611)       4.55 - 17.21       14.23
Options exercised                                       (3,186,283)       4.35 - 17.21        7.21
                                                        -----------
Options outstanding at December 31, 2004                 6,637,511     $ 4.35 - $36.76   $   20.97
Options granted                                          1,895,000       39.96 - 52.35       40.14
Options canceled                                          (195,913)       4.56 - 36.76       20.88
Options exercised                                       (1,749,369)       4.50 - 36.76       12.58
                                                        -----------
Options outstanding at December 31, 2005                 6,587,229     $ 4.35 - $52.35   $   28.71
Options granted                                          1,694,000       39.00 - 48.40       39.18
Options canceled                                          (463,326)       4.56 - 39.96       37.08
Options exercised                                       (1,266,116)       4.50 - 39.96       15.42
                                                        -----------
Options outstanding at December 31, 2006                 6,551,787     $ 4.35 - $52.35   $   33.40  $       78,280
                                                        ===========  ==================   =========  ==============

Options exercisable at December 31, 2004                 2,408,918                       $   11.42  $       72,826
                                                        ===========                       =========  ==============
Options exercisable at December 31, 2005                 2,562,482                       $   19.74  $       71,544
                                                        ===========                       =========  ==============
Options exercisable at December 31, 2006                 3,139,713                       $   27.75  $       55,194
                                                        ===========                       =========  ==============

Shares available for grant at December 31, 2006          3,953,483
                                                        ===========

The following table summarizes the information about stock options outstanding at December 31, 2006:

                                  Options Outstanding            Options Exercisable
                          ------------------------------------ -----------------------
                                         Weighted
                                         Average     Weighted                Weighted
                                        Remaining     Average                 Average
                             Number    Contractual   Exercise     Number     Exercise
Range of Exercise Prices  Outstanding  Life (Years)    Price   Exercisable     Price
------------------------- ------------ ------------  --------- ------------  ---------
$  4.35 -  $25.75           1,466,626         5.72  $   15.11    1,361,047  $   14.50
  36.76 -   36.76           1,740,661         7.47      36.76    1,186,032      36.76
  39.00 -   39.00           1,639,000         9.82      39.00           --         --
  39.96 -   52.35           1,705,500         8.42      40.31      592,634      40.14
                          ------------                         ------------
                            6,551,787         7.91      33.40    3,139,713      27.75
                          ============                         ============

Effective January 1, 2006, we adopted SFAS No. 123R. The total intrinsic value of in-the-money options exercised during the year ended December 31, 2006 was $35 million. The total fair value of options vested during the year ended December 31, 2006 was approximately $21 million. As of December 31, 2006, there was approximately $29 million of total unrecognized share-based compensation costs related to unvested stock options, which is expected to be recognized over approximately two years, the weighted average remaining requisite service period.

On May 18, 2006, our board of directors amended and restated our 2002 Stock Incentive Plan to provide for the grant of Restricted Stock Units ("RSUs"). An RSU is an award which may be earned in whole or in part upon the passage of time or the attainment of performance criteria and which may be settled for cash, shares or other securities or a combination of cash, shares or other securities. The RSUs do not contain voting rights and are not entitled to dividends. We awarded to certain members of our board of directors a total of 17,500 RSUs with a grant date fair value of $43.17 per unit each fully vested upon grant and to be paid in shares of common stock upon cessation of service on the board of directors.

In January 2007, we issued 26,000 Career Shares to certain of our executive management employees. The Career Shares reward eligible executives with annual grants of Boyd Gaming stock units, to be paid out at retirement. The payout at retirement is dependent upon the respective executive's age at retirement and the number of years of service with the Company. Executives must be at least 60 years old and have at least 15 years of service to receive a payout at retirement. We recorded $0.3 million in January 2007 for expenses related to the issuance of these Career Shares.

On November 11, 2002, we announced that our Board of Directors had authorized the repurchase of up to two million shares of our common stock. Depending upon market conditions, shares may be repurchased from time to time at prevailing market prices through open market or negotiated transactions. No date was established for the completion of the share repurchase program. We are not obligated to purchase any shares. Subject to applicable corporate securities laws, repurchases may be made at such times and in such amounts as management deems appropriate. Purchases under the program can be discontinued at any time management feels additional purchases are not warranted. We will finance the purchases with funds from our operations. We did not repurchase any stock during the years ended December 31, 2005 or 2004. During the year ended December 31, 2003, we repurchased an aggregate of approximately 1.1 million shares of our common stock for a total cost of $13.4 million, leaving a remainder of approximately 0.9 million shares of our common stock available to be repurchased under the plan.

During the year ended December 31, 2006, we repurchased approximately 3.4 million shares of our common stock at a price per share of $32.4844. These shares were repurchased pursuant to the terms of the Unit Purchase Agreement that we entered into with Michael J. Gaughan in connection with the sale of South Coast and were not purchased as a part of the aforementioned repurchase program. See Note 11, "Assets and Liabilities Held for Sale: - Discontinued Operations: South Coast" for more information related to this sale.

In July 2003, our Board of Directors instituted a policy of quarterly cash dividends on our common stock. Dividends are declared at our Board's discretion. We are subject to certain limitations regarding the payment of dividends, such as restricted payment limitations related to our outstanding notes and our bank credit facility. The following table sets forth the cash dividends declared and paid in 2006 and 2005.

                                              Dividend
                                                Per
Payment Date              Record Date          Share
------------------        ------------------ ---------
March 1, 2005             February 11, 2005  $  0.085
June 1, 2005              May 13, 2005          0.125
September 1, 2005         August 12, 2005       0.125
December 1, 2005          November 10, 2005     0.125
March 1, 2006             February 10, 2006     0.125
June 1, 2006              May 12, 2006          0.135
September 1, 2006         August 11, 2006       0.135
December 1, 2006          November 10, 2006     0.135

Dividends paid in 2006 and 2005 totaled $47 million and $41 million, respectively. On January 25, 2007, our board of directors declared a quarterly cash dividend of $0.135 per share of our common stock, payable March 1, 2007 to shareholders of record on February 9, 2007.

Write-downs and other charges, net include the following:

                                                                                      Year Ended December 31,
                                                                             ----------------------------------------
(In thousands)                                                                   2006          2005          2004
---------------------------------------------------------------------------  ------------  ------------  ------------
Asset write-downs, net                                                      $     31,778  $     56,000  $         --
Hurricane and related items                                                      (36,294)        9,274            --
Property closure costs                                                            13,354            --            --
Gain on sales of undeveloped land and other assets                                    --          (659)      (10,309)
Merger, acquisition and transition related expenses                                   --            --         6,534
Blue Chip consulting termination fee                                                  --            --         5,000
                                                                             ------------  ------------  ------------
    Total write-downs and other charges, net                                $      8,838  $     64,615  $      1,225
                                                                             ============  ============  ============

Asset write-downs during the year ended December 31, 2006 include $28 million related to the write-off of the net book value of the original Blue Chip gaming vessel, which was replaced with a new gaming vessel in conjunction with our expansion project. After analysis of alternative uses for the original vessel, management decided in June 2006 to permanently retire the asset from further operations, resulting in the write-off. In addition, we recorded a $3.0 million asset write-down during the year ended December 31, 2006 related to land held for sale in Pennsylvania that we previously planned to utilize as a site for a gaming operation. In September 2006, we withdrew our application for gaming approval, which led to our decision to sell the land (see Note 11, "Assets and Liabilities Held for Sale - Land Held for Sale" ).

During the year ended December 31, 2005, we recorded a $56 million non-cash impairment loss to write down the long-lived assets at Stardust to their estimated fair value. Because we intend to redevelop the land on which Stardust is located and our plans include demolishing Stardust's existing buildings and abandoning other related assets, we performed an impairment test for this property. This non-cash charge was the result of our calculation of the estimated remaining net cash flows for Stardust compared to the net book value of the assets expected to be demolished or abandoned.

On August 27, 2005, Treasure Chest Casino in Kenner, Louisiana closed as a result of Hurricane Katrina. The property suffered minor damage from the hurricane and reopened for business on October 10, 2005. On September 22, 2005, Delta Downs Racetrack Casino & Hotel closed as a result of Hurricane Rita. Delta Downs reopened for business on November 3, 2005 with limited hours of operation and limited food and beverage outlets. Delta Downs resumed normal operating hours beginning in December 2005 and horse racing resumed in April 2006. During the year ended December 31, 2005, we recorded $9.3 million of net hurricane related expenses. In December 2006, we reached a final settlement with our insurance carrier for our coverage at Delta Downs and recognized a gain of $36 million during the year ended December 31, 2006. See Note 13, " Insurance Coverage Related to Hurricane Impacts" for additional information.

In connection with our Echelon Place development project, we closed the Stardust Hotel and Casino on November 1, 2006 and expect to demolish the property in March 2007. During the year ended December 31, 2006, we recorded $13.4 million in property closure costs, the majority of which represents exit and disposal costs related to one-time employee termination benefits and contract termination costs.

During 2004, we incurred $5.9 million and $0.6 million for expenses related to our purchase of Sam's Town Shreveport on May 19, 2004 and Coast Casinos on July 1, 2004, respectively.

A consulting agreement signed in connection with Blue Chip's purchase agreement provided for a $5.0 million contingent payment if certain tribal gaming facilities had not commenced gaming operations near our Blue Chip casino by a specified date. As tribal gaming facilities had not commenced by the specified date, we expensed and paid the $5.0 million fee during 2004.

In September 2006, we made the decision to sell land that we own in Pennsylvania that we previously planned to utilize as a site for a gaming operation. We withdrew our application for gaming approval, which led to our decision to sell the land and recorded a $3.0 million non-cash write-down of the land to its fair value less estimated costs to sell. The remaining $23 million carrying value of the land is classified as held for sale on our accompanying consolidated balance sheets.

On July 25, 2006, we entered into a Unit Purchase Agreement, as amended, (the "Agreement") to sell South Coast to Michael J. Gaughan for a total purchase price of approximately $513 million. This transaction closed on October 25, 2006.

As consideration for South Coast, Mr. Gaughan:

• paid us the net proceeds from the public offering of his 12,342,504 shares of our common stock and
• applied the principal amount of the term note described below to the purchase price.

A total of 12,342,504 shares of our common stock owned by Mr. Gaughan were sold to a group of underwriters in a registered public offering for $32.4844 per share, or an aggregate of approximately $401 million.

Pursuant to the terms of the Agreement, on August 7, 2006, we repurchased 3,447,501 shares of our common stock from Mr. Gaughan directly. As consideration for the repurchase, we issued a term note to Mr. Gaughan in the aggregate amount of approximately $112 million. In connection with the closing of the transaction, the term note was cancelled on October 25, 2006.

Pursuant to the terms of the Agreement, Mr. Gaughan resigned from his position as a member of our board of directors on September 6, 2006 and ceased to be a Boyd Gaming employee on October 25, 2006. In addition, on August 4, 2006, Mr. Gaughan surrendered all of his options to acquire Boyd Gaming common stock, effectively canceling his vested options to purchase 88,334 shares and forfeiting his unvested options to purchase 176,666 shares.

In connection with the sale of South Coast, we recorded a loss on the sale of approximately $69 million during the year ended December 31, 2006, which is included in the loss from discontinued operations on our consolidated statement of operations.

On September 29, 2006, we entered into an exchange agreement (the "Exchange Agreement") with Harrah's, whereby we agreed to exchange the Barbary Coast and its related 4.2 acres of land for a total of approximately 24 acres located north of and contiguous to our Echelon Place development project on the Las Vegas Strip in a nonmonetary, tax-free transaction, which closed on February 27, 2007. Harrah's purchased the 24-acre site in October 2006 from unrelated third parties for aggregate cash consideration of approximately $364 million.

In connection with entering into the Exchange Agreement during the year ended December 31, 2006, we met all of the criteria required to classify certain of the assets and liabilities of Barbary Coast as held for sale on our consolidated balance sheets. As such, we ceased depreciation of those assets in September 2006. Upon the closing of the transaction, during the quarter ending March 31, 2007, we expect to record a non-cash, pre-tax gain of approximately $280 million including the write-off of the $3.7 million carrying value of the Barbary Coast trademark as we will retain the trademark but no longer have underlying cash flows to support its value.

The operating results of South Coast and Barbary Coast for the years ended December 31, 2006, 2005 and 2004 are presented as net income (loss) from discontinued operations on our consolidated statements of operations. The assets held for sale and liabilities related to assets held for sale for South Coast and Barbary Coast are separately presented on our consolidated balance sheets as of December 31, 2006 and 2005. Included in the income (loss) from discontinued operations is an allocation of interest expense related to the $401 million of debt repaid as a result of the South Coast disposal transaction, as well as other consolidated interest based on the ratio of: (i) the net assets of our discontinued operations less the debt repaid as a result of the South Coast disposal transaction, to (ii) the sum of total consolidated net assets and consolidated debt of the Company, other than the debt repaid as a result of the disposal transaction. The amount of interest expense that was allocated to discontinued operations was $26 million, $2.7 million and $1.3 million for the years ended December 31, 2006, 2005 and 2004, respectively.

Summary operating results for the discontinued operations are as follows:

                                                                                        Year Ended December 31,
                                                                             ----------------------------------------
(In thousands)                                                                   2006          2005          2004
---------------------------------------------------------------------------  ------------  ------------  ------------
Net revenues                                                                $    204,819  $     61,935  $     26,851
Loss on disposition of South Coast                                               (68,606)           --            --
Operating income (loss)                                                          (42,972)       (2,542)        1,559
Income (loss) from discontinued operations                                       (69,219)       (5,253)          260
Benefit from (provision for) income taxes                                         24,649         1,934           (92)
Net income (loss) from discontinued operations                                   (44,570)       (3,319)          168

The major classes of assets and liabilities classified as held for sale are as follows:

                                                                                     December 31,
                                                                             --------------------------
(In thousands)                                                                   2006          2005
---------------------------------------------------------------------------  ------------  ------------
Accounts receivable, net                                                    $         40  $        625
Inventories                                                                          312         2,697
Prepaid expenses and other current assets                                             --           829
Property and equipment, net                                                      102,625       634,210
Other assets, net                                                                     --           673
Accrued liabilities                                                                2,993         3,925

On July 1, 2004, we consummated a $1.3 billion merger with Coast Casinos, Inc., or Coast, pursuant to which Coast became a wholly-owned subsidiary of Boyd Gaming Corporation. The Coast stockholders received approximately $482 million in cash, and the Coast stock and option holders received approximately 19.4 million shares of our common stock. In connection with the merger, we refinanced substantially all of Coast's debt.

On May 19, 2004, we acquired all of the outstanding limited and general partnership interests of the partnership that owned the Shreveport Hotel and Casino in Shreveport, Louisiana for approximately $197 million. After the acquisition, we renamed the property Sam's Town Hotel and Casino and refer to the property as Sam's Town Shreveport.

The pro forma consolidated results of operations, as if both the Sam's Town Shreveport and Coast acquisitions had occurred on January 1, 2004, are as follows (in thousands, except per share data):

                                                                                        Year Ended
                                                                                       December 31,
                                                                                           2004
Pro Forma                                                                              -------------  
    Net revenues                                                                      $   2,071,771
    Income from continuing operations before a cumulative effect of a
      change in accounting principle                                                        124,963
    Basic income per common share from continuing operations before
      cumulative effect of a change in accounting principle                                    1.45
    Diluted income per common share from continuing operations before
      cumulative effect of a change in accounting principle                                    1.42

Treasure Chest Casino. On August 27, 2005, Treasure Chest Casino in Kenner, Louisiana closed as a result of Hurricane Katrina. The property suffered minor damage from the hurricane and reopened for business on October 10, 2005.

Delta Downs Racetrack Casino & Hotel. On September 22, 2005, Delta Downs Racetrack Casino & Hotel closed as a result of Hurricane Rita. Delta Downs reopened for business on November 3, 2005 with limited hours of operation and limited food and beverage outlets. Delta Downs resumed normal operating hours beginning in December 2005 and horse racing resumed in April 2006.

Property Damage - Delta Downs. Our insurance policy carried on Delta Downs for the policy year ended June 30, 2006 included coverage for replacement costs related to property damage with an associated deductible of $1.0 million and certain other limitations. We have submitted insurance claims for the property damage sustained by Delta Downs from the hurricane because the damage exceeded the related insurance deductible.

During 2006, we completed substantially all of the hurricane reconstruction work at Delta Downs and incurred approximately $42 million of capital expenditures related to this reconstruction project. As of December 31, 2006, we have received insurance advances related to property damage at Delta Downs of $40 million. In December 2006, we reached a final settlement with our insurance carrier and recognized a gain of $36 million on our consolidated statement of operations for the year ended December 31, 2006, $33 million of which represents the amount of insurance advances related to property damage in excess of the $7.0 million net book value of assets damaged or destroyed by the hurricane.

Business Interruption-Delta Downs. For the policy year ended June 30, 2006, Delta Downs maintained business interruption insurance that covers lost profits and continuing normal operating expenses, up to a maximum of $1 million per day. As of December 31, 2006, we have received advances of $11.7 million related to business interruption coverage as part of the final settlement from our insurance carrier, approximately $9.1 million of which relates to recoveries of post-closing costs and $2.6 million of which related to lost profits at Delta Downs. The $2.6 million of insurance recoveries related to lost profits has been included in our gain of $36 million on our consolidated statement of operations for the year ended December 31, 2006.

Business Interruption-Treasure Chest. For the policy year ended June 30, 2006, Treasure Chest maintained business interruption insurance that covers lost profits and continuing normal operating expenses, up to a maximum amount of $10 million. This coverage pertains to business interruption due to civil authority, ingress/egress or off-premise utility interruption. Our insurance carrier has notified us that they are denying our business interruption claim. Therefore, we have not recorded a receivable from our insurance carrier for post-closing expenses as recovery of these amounts currently does not appear to be probable. We intend to vigorously pursue our claims under Treasure Chest's insurance policy.

We contribute to multi-employer pension plans under various union agreements. Contributions, based on wages paid to covered employees, totaled approximately $2.2 million, $2.5 million and $2.5 million, respectively, for the years ended December 31, 2006, 2005 and 2004. Our share of the unfunded liability related to multi-employer plans, if any, is not determinable.

We have retirement savings plans under Section 401(k) of the Internal Revenue Code covering our non-union employees. The plans allow employees to defer up to the lesser of the Internal Revenue Code prescribed maximum amount or 100% of their income on a pre-tax basis through contributions to the plans. We expensed our voluntary contributions to the 401(k) profit-sharing plans and trusts of $11.7 million, $10.5 million and $7.9 million for the years ended December 31, 2006, 2005 and 2004, respectively.

A summary of the provision for income taxes is as follows:

                                                                                       Year Ended December 31,
                                                                             ----------------------------------------
(In thousands)                                                                   2006          2005          2004
---------------------------------------------------------------------------  ------------  ------------  ------------
Current
   Federal                                                                  $     81,737  $     90,930  $     19,880
   State                                                                            (310)        1,059        27,398
                                                                             ------------  ------------  ------------
                                                                                  81,427        91,989        47,278
                                                                             ------------  ------------  ------------
Deferred
   Federal                                                                         1,821        (5,093)       40,082
   State                                                                           2,243          (912)      (11,807)
                                                                             ------------  ------------  ------------
                                                                                   4,064        (6,005)       28,275
                                                                             ------------  ------------  ------------
Provision for taxes related to continuing operations                        $     85,491  $     85,984  $     75,553
                                                                             ============  ============  ============
Income tax provision (benefit) included on the consolidated
  statements of operations
   Provision for taxes related to continuing operations                     $     85,491  $     85,984  $     75,553
   Provision (benefit) related to discontinued operations                        (24,649)       (1,934)           92
   Tax benefit related to cumulative change in accounting principle                   --        (8,984)           --
                                                                             ------------  ------------  ------------
     Total                                                                  $     60,842  $     75,066  $     75,645
                                                                             ============  ============  ============

The following table provides a reconciliation between the federal statutory rate and the effective income tax rate from continuing operations where both are expressed as a percentage of income.

                                                                December 31,
                                                           ----------------------
                                                            2006    2005    2004
---------------------------------------------------------  ------  ------  ------ 
Tax provision at statutory rate                             35.0 %  35.0 %  35.0 %
Increase (decrease) resulting from:
  State income taxes, net of federal benefit                 0.5      --     5.4
  Other, net                                                (0.9)   (0.7)     --
                                                           ------  ------  ------
     Total                                                  34.6 %  34.3 %  40.4 %
                                                           ======  ======  ======

The tax items comprising our net deferred tax liabilities are as follows:

                                                                                            December 31,
                                                                                   ------------------------------
(In thousands)                                                                          2006            2005
---------------------------------------------------------------------------------  --------------  --------------
Deferred tax liabilities:                                                         $               $
  Difference between book and tax basis of property                                      207,120         231,432
  Difference between book and tax basis of intangible assets                              99,675          78,833
  State tax liability, net of federal effect                                              11,339          13,493
  Reserve differential for gaming activities                                               2,965           3,077
  Derivative instruments market adjustment                                                 2,298           2,071
  Prepaid services and supplies                                                            2,177           2,203
  Other                                                                                    2,169           1,868
                                                                                   --------------  --------------
  Gross deferred tax liabilities                                                         327,743         332,977
                                                                                   --------------  --------------
Deferred tax assets:
  Reserve for employee benefits                                                            9,509           9,491
  Share-based compensation                                                                 6,999              --
  State net operating loss carryforwards, net of federal effect                            5,110           4,975
  Provision for doubtful accounts                                                          2,888           3,115
  Preopening expenses                                                                      2,038           3,050
  Other                                                                                    2,873             393
                                                                                   --------------  --------------
  Gross deferred tax assets                                                               29,417          21,024
     Valuation allowance                                                                  (1,628)         (1,881)
                                                                                   --------------  --------------
     Deferred tax assets, net of valuation allowance                                      27,789          19,143
                                                                                   --------------  --------------
       Net deferred tax liabilities                                               $      299,954  $      313,834
                                                                                   ==============  ==============

The items comprising our deferred income taxes as presented on the consolidated balance sheets are as follows:

                                                                                            December 31,
                                                                                   ------------------------------
(In thousands)                                                                          2006            2005
---------------------------------------------------------------------------------  --------------  --------------
Net deferred tax liabilities                                                      $      299,954  $      313,834
Current deferred tax asset seperately presented                                            1,685           2,683
                                                                                   --------------  --------------
Deferred income taxes                                                             $      301,639  $      316,517
                                                                                   ==============  ==============

The 2005 provision for taxes includes a net tax benefit of $1.5 million for tax retention credits related to the hurricanes that impacted our Louisiana operations in 2005.

In 2003, we received a proposed assessment from the Indiana Department of Revenue based upon its position that our Indiana gaming revenue tax is not deductible for Indiana state income tax purposes. An unrelated third party had been litigating the issue in the Indiana Tax Court for several years under a similar fact pattern. Due to the uncertainty of the outcome of the Tax Court litigation, we had been accruing a portion of the proposed assessment and our estimate of potential future assessments based on our estimate of the probability of loss. On April 19, 2004, the Indiana Tax Court ruled against the third party. On September 28, 2004, the Indiana Supreme Court denied the third party's petition for review, affirming the Tax Court's earlier decision.

After the April 2004 ruling, we determined that it was probable that we had incurred a liability for the entire assessment and estimated future assessments and have recorded the related remaining amounts. As such, we recorded a $5.7 million charge, net of federal income tax benefit, to our provision for income taxes during the year ended December 31, 2004. As of December 31, 2004, we have settled all outstanding tax assessments related to this issue.

Income from continuing operations before cumulative effect of a change in accounting principle and the weighted average number of common shares and common share equivalents used in the calculation of basic and diluted earnings per share consisted of the following:

                                                                                      Year Ended December 31,
                                                                             ----------------------------------------
(In thousands)                                                                   2006          2005          2004
---------------------------------------------------------------------------  ------------  ------------  ------------
Income from continuing operations before cumulative effect of
   a change in accounting principle                                         $    161,348  $    164,368  $    111,286
                                                                             ============  ============  ============

Weighted average common shares outstanding                                        88,380        88,528        76,586
Dilutive effect of stock options                                                   1,213         1,979         1,649
                                                                             ------------  ------------  ------------
Weighted average common and potential shares outstanding                          89,593        90,507        78,235
                                                                             ============  ============  ============

Nearly all of the options outstanding during 2006 and 2005 were included in the computation of diluted earnings per share as the grant prices of those options were less than the average market price of our common stock during those periods. Weighted average options to purchase approximately 0.1 million shares of our common stock at December 31, 2004 at a price of $36.76 were outstanding during the period but were not included in the computation of diluted earnings per share because their exercise price was in excess of the average market price of our common stock for that period.

William S. Boyd, our Chairman and Chief Executive Officer, together with his immediate family, beneficially owned approximately 36% of our outstanding shares of common stock as of December 31, 2006. As a result, the Boyd family has the ability to significantly influence our affairs, including the election of our directors and, except as otherwise provided by law, approving or disapproving other matters submitted to a vote of our stockholders, including a merger, consolidation or sale of assets. For the three years in the period ended December 31, 2006, there were no material related party transactions between us and the Boyd family.

On July 25, 2006, we entered into the Agreement to sell South Coast to Mr. Gaughan, who at the time was an Officer and a member of our Board of Directors, for a purchase price equal to the net proceeds from the sale of all 15,790,005 shares of Boyd Gaming stock owned by Mr. Gaughan. The transaction closed on October 25, 2006. See Note 11, " Assets and Liabilities Held For Sale - Discontinued Operations: South Coast Sale" for additional information related to the South Coast sale. Pursuant to the terms of the Agreement, for a period of five years following the closing of the sale of South Coast, Mr. Gaughan cannot sell South Coast to any party other than us, or an affiliate of ours, and for three additional years thereafter we will have a right of first refusal on any potential sale of South Coast.

In February 2006, we purchased a 40-acre, fully entitled casino site in North Las Vegas for approximately $35 million from a group that included the father of Michael J. Gaughan. At the time of the purchase, Michael J. Gaughan was an Officer and a member of our Board of Directors.

In August 2004, we sold an airplane to Borgata, our 50% joint venture, for use in Borgata's business, for the airplane's appraised value of $5.8 million. In connection with this sale, we recorded a net gain of $0.4 million that is recorded in corporate expense on the accompanying consolidated statement of operations during the year ended December 31, 2004. During 2004, Robert L. Boughner, a member of our board of directors, was the Chief Executive Officer of Marina District Development Company, L.L.C., d.b.a. Borgata Hotel Casino and Spa.

We have aggregated certain of our properties in order to present five reportable segments: Las Vegas Locals, Stardust, Downtown Las Vegas, Central Region and Borgata, our 50% joint venture in Atlantic City, New Jersey. The table below lists the classification of each of our properties. Beginning in 2006, we have reclassified the reporting of our Coast Casinos and Boulder Strip properties so that they are now included together as part of the Las Vegas Locals segment due to their similar market characteristics. We have reclassified the results for the years ended December 31, 2005 and 2004 to conform to the current presentation. Due to the disposition of Barbary Coast and South Coast, the operating results from these two properties are classified as discontinued operations in our consolidated statements of operations for all periods presented and are excluded from our presentation in the Las Vegas Locals segment. In addition, we ceased operations at the Stardust on November 1, 2006. Results for the Las Vegas Locals segment also include the results of an offsite sports book. Results for Downtown Las Vegas include the results of our two travel agencies and our Hawaiian-based insurance company.

                                                                                     Year Ended December 31,
                                                                             ----------------------------------------
(In thousands)                                                                   2006          2005          2004
---------------------------------------------------------------------------  ------------  ------------  ------------
Gross Revenues
    Las Vegas Locals                                                        $    946,176  $    969,165  $    554,275
    Stardust (2)                                                                 135,019       183,020       174,579
    Downtown Las Vegas                                                           278,737       282,363       260,377
    Central Region                                                             1,074,989       967,381       912,852
                                                                             ------------  ------------  ------------
            Total gross revenues                                            $  2,434,921  $  2,401,929  $  1,902,083
                                                                             ============  ============  ============
Adjusted EBITDA (1)
    Las Vegas Locals                                                        $    273,797  $    299,913  $    150,976
    Stardust (2)                                                                  15,403        24,651        18,016
    Downtown Las Vegas                                                            53,573        52,295        38,738
    Central Region (3)                                                           257,570       224,816       191,198
                                                                             ------------  ------------  ------------
        Wholly-owned property adjusted EBITDA                                    600,343       601,675       398,928
        Corporate expense (7)                                                    (39,981)      (44,101)      (33,338)
                                                                             ------------  ------------  ------------
            Wholly-owned adjusted EBITDA                                         560,362       557,574       365,590
        Our share of Borgata's operating income before net
          amortization, preopening and other expenses (8)                         91,963        97,392        79,286
                                                                             ------------  ------------  ------------
            Total Adjusted EBITDA                                                652,325       654,966       444,876
                                                                             ------------  ------------  ------------
Other operating costs and expenses
    Deferred rent                                                                  4,630         4,936         1,994
    Depreciation and amortization (9)                                            189,837       171,958       135,425
    Preopening expenses (4)                                                       20,623         7,690         1,953
    Our share of Borgata's preopening expenses                                     3,260            --            --
    Our share of Borgata's loss on asset disposals                                 1,209            80            --
    Share-based compensation expense (4)                                          19,278            --            --
    Write-downs and other charges, net                                             8,838        64,615         1,225
                                                                             ------------  ------------  ------------
            Total other operating costs and expenses                             247,675       249,279       140,597
                                                                             ------------  ------------  ------------
Operating income                                                                 404,650       405,687       304,279
                                                                             ------------  ------------  ------------
Other non-operating costs and expenses
    Interest expense, net (5)                                                    145,433       126,088       100,542
    Decrease in value of derivative instruments                                    1,801            --            --
    Loss on early retirements of debt                                                 --        17,529         4,344
    Our share of Borgata's non-operating expenses, net                            10,577        11,718        12,554
                                                                             ------------  ------------  ------------
            Total other non-operating costs and expenses                         157,811       155,335       117,440
                                                                             ------------  ------------  ------------
Income from continuing operations before provision for income taxes
    and cumulative effect of a change in accounting principle                    246,839       250,352       186,839
Provision for income taxes                                                       (85,491)      (85,984)      (75,553)
                                                                             ------------  ------------  ------------
Income from continuing operations before cumulative effect of
    a change in accounting principle                                        $    161,348  $    164,368  $    111,286
                                                                             ============  ============  ============

                                                                                           December 31,
                                                                                   ------------------------------
(In thousands)                                                                          2006            2005
---------------------------------------------------------------------------------  --------------  --------------
Property and Equipment, Intangible Assets and Goodwill
  Las Vegas Locals                                                                $    1,474,955  $    1,497,890
  Stardust                                                                                45,859          62,886
  Downtown Las Vegas                                                                     134,124         128,917
  Central Region                                                                       1,194,812       1,216,953
                                                                                   --------------  --------------
    Total properties' assets                                                           2,849,750       2,906,646
  Corporate entities                                                                     190,651         104,674
                                                                                   --------------  --------------
    Total assets (6)                                                              $    3,040,401  $    3,011,320
                                                                                  ==============  ==============

                                                                                      Year Ended December 31,
                                                                             ----------------------------------------
(In thousands)                                                                   2006          2005          2004
---------------------------------------------------------------------------  ------------  ------------  ------------
Additions to Property and Equipment and Other Assets
   Las Vegas Locals                                                         $     48,716  $     39,677  $     41,566
   Stardust                                                                          222         6,928         5,850
   Downtown Las Vegas                                                             22,877        15,297        12,444
   Central Region                                                                 82,059       173,650       136,382
   Discontinued operations                                                        59,778       423,845        84,960
                                                                             ------------  ------------  ------------
      Total properties' additions                                                213,652       659,397       281,202
   Corporate entities                                                            113,614        35,216        48,059
                                                                             ------------  ------------  ------------
      Total additions to property and equipment and other assets                 327,266       694,613       329,261
      Change in accrued property additions                                       109,198       (76,169)      (44,649)
      Debt assumed in connection with acquisition of land                             --            --       (15,764)
                                                                             ------------  ------------  ------------
      Cash-based property additions                                         $    436,464  $    618,444  $    268,848
                                                                             ============  ============  ============

                                                                                     Year Ended December 31,
                                                                             ----------------------------------------
(In thousands)                                                                   2006          2005          2004
-------------------------------------------------------------------------    ------------  ------------  ------------
Corporate expense as reported on our consolidated statements of operations  $     54,229  $     44,101  $     33,338
Corporate share-based compensation expense                                       (14,248)           --            --
                                                                             ------------  ------------  ------------
Corporate expense as reported on accompanying table                         $     39,981  $     44,101  $     33,338
                                                                             ============  ============  ============

                                                                                     Year Ended December 31,
                                                                             ----------------------------------------
(In thousands)                                                                   2006          2005          2004
-------------------------------------------------------------------------    ------------  ------------  ------------
Operating income from Borgata, as reported on our
  consolidated statements of operations                                     $     86,196  $     96,014  $     77,965
Add back:
    Net amortization expense related to our
        investment in Borgata                                                      1,298         1,298         1,321
    Our share of Borgata's preopening expenses                                     3,260            --            --
    Our share of Borgata's loss on asset disposals                                 1,209            80            --
                                                                             ------------  ------------  ------------
Our share of Borgata's operating income before net
    amortization, preopening and other expenses                             $     91,963  $     97,392  $     79,286
                                                                             ============  ============  ============

                                                                                      Year Ended December 31,
                                                                             ----------------------------------------
(In thousands)                                                                   2006          2005          2004
-------------------------------------------------------------------------    ------------  ------------  ------------
Depreciation and amortization as reported on our
    consolidated statements of operations                                   $    188,539  $    170,660  $    134,104
Net amortization expense related to our
    investment in Borgata                                                          1,298         1,298         1,321
                                                                             ------------  ------------  ------------
Depreciation and amortization as reported on
    accompanying table                                                      $    189,837  $    171,958  $    135,425
                                                                             ============  ============  ============

                                                                        Year Ended December 31, 2006
                                                  --------------------------------------------------------------------
(In thousands, except per share data)                First         Second        Third         Fourth        Total
------------------------------------------------  ------------  ------------  ------------  ------------  ------------
Net revenues                                     $    589,622  $    551,490  $    530,686  $    520,836  $  2,192,634
Operating income                                      138,382        57,476        85,692       123,100       404,650
Income from continuing operations before
  cumulative effect of a change
  in accounting principle                              65,269        12,366        28,076        55,637       161,348
Net income (loss) from discontinued operations         (2,029)       (2,206)      (41,006)          671       (44,570)
Net income (loss)                                      63,240        10,160       (12,930)       56,308       116,778
                                                  ------------  ------------  ------------  ------------  ------------
Basic and diluted net income per common share:
Income from continuing operations before
  cumulative effect of a change
  in accounting principle - basic                $       0.73  $       0.14  $       0.32  $       0.64  $       1.83
Income from continuing operations before
  cumulative effect of a change
  in accounting principle - diluted                      0.72          0.14          0.32          0.63          1.80
Income (loss) from discontinued operations - basic      (0.02)        (0.03)        (0.47)         0.01         (0.51)
Income (loss) from discontinued operations - diluted    (0.02)        (0.03)        (0.47)         0.01         (0.50)
Net income (loss) - basic                                0.71          0.11         (0.15)         0.65          1.32
Net income (loss) - diluted                              0.70          0.11         (0.15)         0.64          1.30
                                                  ------------  ------------  ------------  ------------  ------------

                                                                         Year Ended December 31, 2005
                                                  --------------------------------------------------------------------
(In thousands, except per share data)                First         Second        Third         Fourth        Total
------------------------------------------------  ------------  ------------  ------------  ------------  ------------
Net revenues                                     $    552,784  $    540,890  $    523,479  $    543,932  $  2,161,085
Operating income                                      122,501       110,329       102,620        70,237       405,687
Income from continuing operations before
  cumulative effect of a change
  in accounting principle                              56,038        48,704        33,863        25,763       164,368
Net income (loss) from discontinued operations            481           (66)         (915)       (2,819)       (3,319)
Net income                                             40,080        48,638        32,948        22,944       144,610
                                                  ------------  ------------  ------------  ------------  ------------
Basic and diluted net income per common share:
Income from continuing operations before
  cumulative effect of a change
  in accounting principle - basic                $       0.64  $       0.55  $       0.38  $       0.29  $       1.86
Income from continuing operations before
  cumulative effect of a change
  in accounting principle - diluted                      0.62          0.54          0.37          0.28          1.82
Income (loss) from discontinued operations - basic       0.01            --         (0.01)        (0.03)        (0.04)
Income (loss) from discontinued operations - diluted     0.01            --         (0.01)        (0.03)        (0.04)
Net Income - basic                                       0.46          0.55          0.37          0.26          1.63
Net Income - diluted                                     0.45          0.54          0.36          0.25          1.60
                                                  ------------  ------------  ------------  ------------  ------------