BOYD GAMING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Boyd Gaming Corporation and our wholly-owned subsidiaries. We own and operate seventeen gaming facilities located in Nevada, Mississippi, Illinois, Louisiana and Indiana. In addition, we own and operate a travel agency in Hawaii. All material intercompany accounts and transactions have been eliminated. We are also a 50% partner in a holding company 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.

Basis of Presentation

In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the results of our operations for the three and nine month periods ended September 30, 2004 and 2003 and our cash flows for the nine month periods ended September 30, 2004 and 2003. We suggest reading this report in conjunction with our audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2003. As permitted by the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles, or GAAP, have been condensed or omitted. The operating results for the three and nine month periods ended September 30, 2004 and 2003 and our cash flows for the nine month periods ended September 30, 2004 and 2003 are not necessarily indicative of the results that will be achieved for the full year or future periods.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates incorporated into our condensed consolidated financial statements include the estimated 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, estimated liabilities for our self-insured medical plans, slot bonus point programs, and litigation, claims and assessments. Actual results could differ from those estimates.

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

Capitalized Interest

Interest costs associated with major projects, including our investment in the Borgata project, are capitalized. 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 three and nine month periods ended September 30, 2004 was $1.9 million and $2.9 million, respectively, and related mainly to our Delta Downs, Blue Chip, and The Orleans expansion projects as well as the construction of South Coast. Capitalized interest for the three and nine month periods ended September 30, 2003 was $0.1 million and $9.1 million, respectively, and related primarily to our investment in the Borgata project that was in its construction and preopening phases during the periods.

Preopening Expenses

We expense certain costs of start-up activities as incurred. There were no preopening expenses during the three and nine month periods ended September 30, 2003. During the three month period ended September 30, 2004, we expensed $0.6 million in preopening costs that primarily relate to casino development opportunities in other jurisdictions and also relate, to a lesser extent, to preopening activities at the South Coast development project.

Derivative Instruments and Other Comprehensive Income (Loss)

GAAP requires 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 and nine month periods ended September 30, 2004 and 2003, we utilized interest rate swaps, designated as fair value hedges, to manage risk on certain of our fixed-rate borrowings. In addition, Borgata, our joint venture, utilizes derivative financial instruments to comply with the requirements of its bank credit agreement. For further information, see Note 7, “ Derivative Instruments .”

Stock Based Employee Compensation Plans

We account for employee stock options in accordance with Accounting Principle Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income 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 net income and net income per share if we had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 148, or SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure , to stock-based employee compensation.

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Reclassifications

Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform to the September 30, 2004 presentation. These reclassifications had no effect on our net income as previously reported.

Weighted average options to purchase approximately 2.7 million and 2.8 million shares, respectively, were not included in the diluted calculation for the three and nine month periods ended September 30, 2003, since the grant prices of such options were greater than the average price of our common shares during the periods. Nearly all outstanding options were included in the diluted calculation for the three and nine month periods September 30, 2004, since the grant prices of such options were less than the average price of our common shares during the periods.

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

Note 3. Shreveport Acquisition

On May 19, 2004, we acquired all of the outstanding limited and general partnership interests of the partnership that owns Harrah’s 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. Harrah’s sold the property as part of an agreement to acquire Horseshoe Gaming Holding Corp. to avoid overexposure in the Shreveport market. The amount of consideration paid to Harrah’s was determined in arm’s-length negotiations and was generally based upon a multiple of expected cash flows from the operations. As the amount paid to Harrah’s exceeded the fair value of net assets acquired, we recorded goodwill of approximately $22 million related to the purchase.

We obtained a third party valuation of significant identifiable intangible assets acquired as well as other assets acquired and liabilities assumed. We assigned the following values to the assets acquired and liabilities assumed, based upon our review of the third party valuation:

The intangible assets that we acquired are comprised of an intangible gaming license right valued at approximately $29 million and a customer list valued at $0.1 million. The intangible gaming license right is not subject to amortization as it has an indefinite useful life. The customer list is being ratably amortized over a five year period. The $22 million goodwill balance arising from the transaction, that is not subject to amortization, and the other intangible assets described above are expected to be fully deductible, over time, for tax purposes.

We also reported $5.9 million of indirect and general expenses related to this business combination, which consist principally of incremental advertising and promotional expenses as well as operating supply expenses incurred prior to the consummation of the acquisition and through our transition period ended June 30, 2004. These expenses are included in merger, acquisition and transition related expenses on the accompanying condensed consolidated statement of operations for the nine month period ended September 30, 2004.

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Note 4. Coast Casinos Merger

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 valued at $19.08 per share. The $19.08 per share value of the common stock issued was determined in accordance with generally accepted accounting principles under the guidance of Emerging Issues Task Force 99-12, “ Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination, ” and was based upon the closing stock prices of Boyd Gaming for a reasonable period of time (i.e., three days) before and after the merger was agreed to and announced.

In connection with the merger, we refinanced substantially all of Coast’s debt, including $325 million principal amount of 9.50% senior subordinated notes due in April 2009. On July 1, 2004, we accepted and paid for approximately $301 million in aggregate principal amount of these notes pursuant to a tender offer and consent solicitation which offered a tender price of $1,031.25 and a consent solicitation fee of $20.00 per $1,000 principal amount of notes accepted for payment by a specified date. We paid approximately $323 million of total consideration, including accrued interest, for these notes. Also on July 1, 2004, we called for the redemption of the remaining $24 million principal amount of notes outstanding at that date. On August 2, 2004, we paid approximately $26 million for the remaining notes based upon a redemption price of $1,047.50 per $1,000 principal amount of notes, plus accrued interest to the date of redemption. In addition to Coast’s senior subordinated notes that we refinanced, we also repaid the outstanding balance on Coast’s bank credit facility, which totaled $105 million on July 1, 2004. The total amount paid to retire all of Coast’s outstanding debt, including premiums and interest, represents a portion of the $1.3 billion total merger consideration.

We financed the cash portion of the consideration in the merger, including merger related costs, and refinanced both Coast’s debt and our old bank credit facility with availability under our new bank credit facility that became effective on July 1, 2004. For more information on the new bank credit facility, see Note 6, “ Debt – New Bank Credit Facility. ” The amount of the consideration we paid in the merger, including the debt refinanced, was determined in arm’s-length negotiations between the parties to the merger. As the $1.3 billion merger value was generally based upon a multiple of expected cash flows from operations and exceeded the estimated fair value of identifiable net assets acquired, we recorded the difference as goodwill.

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

The following is a summary of the total consideration in the Coast Casinos merger.

We obtained a preliminary version of a third party valuation of significant identifiable intangible assets acquired as well as other assets acquired and liabilities assumed. The table below lists the estimated fair values of the assets acquired and liabilities assumed, each of which is subject to change based upon our review of the third party valuation. In addition, we recorded an estimate for the deferred tax liability arising from the merger due to the difference between the fair value and the tax basis of the net assets acquired. This deferred tax liability estimate of approximately $142 million increased the estimated amount of goodwill recorded in the merger. As the deferred tax liability is an estimate, it is subject to change as we finalize our tax analyses. Changes to this estimate, if any, will also affect goodwill and will not have an impact on our statement of operations.

The intangible assets that we acquired are comprised of trademarks estimated at approximately $54 million and customer lists estimated at $0.4 million. The trademarks are not subject to amortization as they have an indefinite useful life. The customer lists are being ratably amortized over a five year period. The $380 million estimated goodwill balance arising from the transaction, that is not subject to amortization, and the other intangible assets described above are not expected to be amortized for tax purposes. We can provide no assurances that the actual amount of goodwill, other intangible assets or other assets and liabilities that we ultimately record will be more or less than that of our current estimates.

The pro forma consolidated results of operations, as if the merger with Coast Casinos had occurred on January 1, 2003, are as follows:

We reported $0.6 million of indirect, general and incremental expenses related to this business combination. These expenses are included in merger, acquisition and transition related expenses on the accompanying condensed consolidated statements of operations for the three and nine month periods ended September 30, 2004.

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Note 5. Borgata

On July 3, 2003, Borgata Hotel Casino and Spa, our $1.1 billion joint venture located at Renaissance Pointe in Atlantic City, New Jersey, commenced operations. We use the equity method to account for our investment in Borgata.

Summarized financial information of Borgata is as follows (in thousands):