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 its wholly-owned subsidiaries. We wholly-own and operate seventeen gaming entertainment facilities located in Nevada, Mississippi, Illinois, Louisiana and Indiana. In addition, we own and operate a travel agency located in Hawaii and an offsite sports book located in Las Vegas. All material intercompany accounts and transactions have been eliminated. We are also a 50% partner in a joint venture that owns a limited liability company that operates Borgata Hotel Casino & Spa in Atlantic City, New Jersey. 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 and cash flows for the three-month periods ended March 31, 2005 and 2004. 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, 2004. 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 and cash flows for the three-month periods ended March 31, 2005 and 2004 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, goodwill and intangible assets, stock option values for pro forma information related to stock options, estimated liabilities for our self-insured reserves, 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 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) is substantially complete. We amortize capitalized interest over the estimated useful life of the related asset. Capitalized interest for the three-month period ended March 31, 2005 was $3.8 million related mainly to our expansion projects at Delta Downs and Blue Chip as well as the construction of South Coast. Capitalized interest for the three-month period ended March 31, 2004 was $0.4 million.

Preopening Expenses

We expense certain costs of start-up activities as incurred. During the three-month period ended March 31, 2005, we expensed $1.9 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. There were no preopening expenses during the three-month period ended March 31, 2004.

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-month periods ended March 31, 2005 and 2004, 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, or APB 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 our income before cumulative effect and net income and the related per share amounts as if we had applied the fair value recognition provisions of Statement of Financial Accounting Standards, or SFAS, No. 123, Accounting for Stock-Based Compensation , 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 March 31, 2005 presentation. These reclassifications had no effect on our net income as previously reported.

Note 2. Restricted Investments

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 generally 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 March 31, 2005 and December 31, 2004, our restricted investments consisted primarily of fixed income bonds maturing through January 2008 and November 2007, respectively. We have classified these investments

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We have classified the fair market value of these restricted investments on our accompanying 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 losses have been recorded in other comprehensive losses, net of taxes, on the accompanying condensed consolidated balance sheets.

During the three months ended March 31, 2005, we sold certain of our restricted investments and recorded proceeds of approximately $1.5 million, which approximated our cost basis in these investments as determined by specific identification. We recorded the decrease in fair values of these restricted investments of $0.1 million for the three months ended March 31, 2005 in accumulated other comprehensive losses.

Note 3. Intangible Assets

In September 2004, the Emerging Issues Task Force, or EITF, of the Financial Accounting Standards Board 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 commencing 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. For the transition testing in 2005 as well as annually thereafter, we intend to 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 three-month period ended March 31, 2005, we recorded a non-cash charge of $25.4 million ($16.4 million, net of taxes), or $0.18 per share, 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 condensed consolidated statements of operations.

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License rights are intangible assets acquired from the purchase of gaming entities that operate in gaming jurisdictions where competition is limited, such as when only a limited number of gaming operators are allowed. License rights and trademarks are not currently 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 three months ended March 31, 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. Accumulated amortization at each of March 31, 2005 and December 31, 2004 was less than $0.1 million.

Nearly all outstanding options were included in the diluted calculation for the each of the three-month periods ended March 31, 2005 and 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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BOYD GAMING CORPORATION AND SUBSIDIARIES

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

Note 5. Shreveport and Coast Casinos Acquisitions

On May 19, 2004, we acquired all of the outstanding limited and general partnership interests of the partnership that owns 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 the Shreveport acquisition had occurred on January 1, 2004, are as follows:

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. In order to assist us in assigning values of assets acquired and liabilities assumed in this transaction, we have obtained a third party valuation of significant identifiable intangible assets acquired as well as other assets acquired and certain liabilities assumed. We are still in the process of valuing certain other liabilities, which we expect to complete by the end of the second quarter of 2005.

The pro forma consolidated results of operations, as if the acquisition of Coast Casinos had occurred on January 1, 2004, are as follows:

The pro forma consolidated results of operations, as if both the Coast Casinos and Shreveport acquisitions had occurred on January 1, 2004, are as follows:

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

Note 6. Borgata

We are a 50% partner in Borgata Hotel Casino and Spa located at Renaissance Pointe in Atlantic City, New Jersey. We use the equity method to account for our investment in Borgata.

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS INFORMATION

Our share of Borgata’s results is included in our accompanying condensed consolidated statements of operations for the following periods on the following lines (in thousands):

Borgata Tax Credits . Based on New Jersey state income tax rules, Borgata is eligible for refundable state tax credits under the New Jersey New Jobs Investment Tax Credit because Borgata made a qualified investment in a new business facility that created new jobs. The total estimated available tax credits are approximately $75 million over a five-year period, subject to annual conditions. Borgata received a refund of approximately $9.3 million related to the year ended December 31, 2003, expects to receive refund credits of approximately $17 million for the year ended December 31, 2004 and expects to receive refund credits for each of the years ending December 31, 2005 through December 31, 2007, ranging from approximately $14 million to $18 million per year. For the three months ended March 31, 2005, Borgata recorded approximately $4 million in related tax credits which offset its provision for taxes and caused it to record a net

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

tax benefit of $0.4 million for the period.

Note 7. Derivative Instruments

During the three-month periods ended March 31, 2005 and 2004, we utilized interest rate swaps with members of our bank group to manage risk on certain of our fixed-rate borrowings. The interest rate swaps convert a portion of our fixed-rate debt to a floating rate. At March 31, 2005, the total notional amount of the swaps was $250 million upon which we expect to pay an estimated weighted average floating rate of approximately 8.6% and which we expect to receive a weighted average fixed rate of approximately 9.2%. The variable interest rates on these swaps are set in arrears. As such, we estimate the variable rates based upon the prevailing interest rates and the implied forward rates in the yield curve. These variable rate estimates are used to record the effect of the swaps until the variable rates are set, at which time any further adjustments between our estimates and the actual rates are recorded. The net effect of our interest rate swaps resulted in a reduction of interest expense of $0.4 million and $2.0 million for the three-month periods ended March 31, 2005 and 2004, respectively. We can provide no assurances that such rates will be obtained or that the actual rate will be higher or lower than our estimates.

Our interest rate swaps qualify 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 the hedging instruments. Instead, the fair value of the instrument is recorded as an asset or liability on our condensed consolidated balance sheet with an offsetting adjustment to the carrying value of the related debt. As such, we recorded an asset of $1.9 million in other assets and a liability of $7.5 million in other long-term liabilities on the accompanying condensed consolidated balance sheet, representing the fair market values of the swaps at March 31, 2005. At December 31, 2004, we recorded an asset of $2.9 million in other assets and a liability of $3.8 million in other long-term liabilities on the accompanying condensed consolidated balance sheet, representing the fair market values of the swaps at December 31, 2004.

In April 2005, we paid $1.7 million to terminate a swap with a notional amount of $50 million.

In addition, Borgata, our joint venture, has entered into derivative financial instruments that are designated as cash flow hedges to either fix or maintain, within a certain range, interest rates on its floating rate debt to comply with the requirements of its bank credit agreement. The following table reports our share of the effects of Borgata’s derivative instruments for the periods indicated. Our share of the increase or decrease in fair value of certain hedges deemed to be ineffective is reported on our accompanying condensed consolidated statements of operations. Our share of the increase or decrease in fair value of certain hedges deemed to be effective is reported in other comprehensive income on the accompanying condensed consolidated balance sheets.

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Note 8. Commitments and Contingencies

Immediately after the merger of Coast Casinos, Inc. with Boyd Gaming Corporation (“Boyd”), the Local Joint Executive Board of Las Vegas (Culinary Union and Bartenders Union) (“the Union”) demanded that its collective bargaining agreement (“CBA”) with Mare-Bear, Inc. d.b.a. Stardust Resort and Casino (“Stardust CBA”), be extended to the Coast’s Barbary Coast Hotel and Casino, which has a current and different CBA with the Union, and also to other Coast properties: Gold Coast, The Orleans and Suncoast. This demand was based on a “neutrality agreement” and other provisions of the Stardust CBA. This demand of the Union was rejected. On August 12, 2004, the Union filed a lawsuit in the U. S. District Court for the District of Nevada against Boyd and Mare-Bear, Inc., seeking to compel arbitration of alleged violations of the Stardust neutrality agreement. On September 1, 2004, Boyd filed a motion to dismiss the Union’s lawsuit as to Boyd. On March 23, 2005, the Court dismissed this motion. Mare-Bear filed an answer to the complaint on September 2, 2004. In April 2005, Boyd filed a timely answer to the complaint. Discovery is now underway. On September 23, 2004, Boyd, Coast Casinos, Inc. and its subsidiary, Coast Hotels and Casinos, Inc., filed a complaint for declaratory relief in the U. S. District Court against the Union, seeking a judgment that the Barbary Coast CBA continued in effect and was binding upon Boyd, the Barbary Coast and the Union. On December 15, 2004, a judgment for declaratory relief was granted on behalf of Boyd and the Barbary Coast, affirming that the Barbary Coast CBA remains in effect and is binding on Boyd, the Barbary Coast and the Union. On December 22, 2004, Boyd filed unfair labor practice charges against the Union with the National Labor Relations Board (“NLRB”), alleging that the Union’s lawsuit was filed for an illegal purpose and that the provisions of the Stardust agreement on which the Union relies are unlawful. Coast Hotels and Casinos, Inc. also filed similar unfair labor practice charges against the Union with the NLRB on December 22, 2004. There are currently many cases pending before the NLRB challenging the legality of neutrality agreements similar to the provisions in the Stardust agreement. On February 8, 2005, Boyd filed additional unfair labor practice charges against the Union with the NLRB, challenging the legality of the Stardust neutrality agreement. On December 15, 2004, the Union produced a document in its lawsuit, indicating that it is seeking damages of over $1.9 million dollars a month. Boyd believes these alleged damages are speculative. Boyd and Mare-Bear intend to vigorously defend the lawsuit filed by the Union. Boyd does not anticipate that these matters will be finally resolved for a period of months or years. In the event Boyd, Mare-Bear and/or Coast are ultimately unsuccessful, monetary damages, if any, are impossible to estimate at this time.

At Blue Chip, construction is underway for an expansion of gaming operations. All of the necessary permits are in place for the construction of this project. However, one of our permits is being challenged by third

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BOYD GAMING CORPORATION AND SUBSIDIARIES

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

parties as described below. The Blue Chip expansion project, which includes constructing a new boat, is expected to cost approximately $163 million and be completed near the end of 2005. As of March 31, 2005, we have incurred approximately $80 million in costs related to this project, including related construction payables, since its inception in 2003.

On October 15, 2004, a complaint for declaratory and injunctive relief was filed against the United States Army Corps of Engineers (the “Corps”) and others in their official capacities on behalf of the Corps, challenging the Corps’ issuance of a permit to Blue Chip Casino, LLC under Section 404 of the Clean Water Act, 33 U.S.C. § 1344, and Section 10 of the Rivers and Harbors Appropriation Act, 33 U.S.C. § 403, authorizing certain work related to Blue Chip’s expansion of gaming operations. The plaintiffs are the Pokagon Band of Potawatomi Indians, New Buffalo Township, Michigan, and nine individuals. The litigation was filed in the United States District Court for the District of Columbia and is now pending in the United States District Court for the Eastern District of Michigan. Blue Chip has been granted leave to intervene in the litigation as a defendant. The plaintiffs generally allege that the Corps acted arbitrarily and capriciously and contrary to law and its own guidance and policies in issuing the permit to Blue Chip. The plaintiffs have moved for a preliminary injunction prohibiting further work under the permit until final resolution of the litigation and a declaratory judgment and a permanent injunction declaring the permit invalid and unenforceable, revoking the permit and requiring the Corps to prepare an environmental impact statement before considering Blue Chip’s permit application. The preliminary injunction hearing was held on January 7, 2005, and on March 10, 2005, the Court issued its order denying the plaintiffs’ motion for preliminary injunction. On April 12, 2005, some of the plaintiffs filed a notice of appeal and a motion for injunction pending appeal and for expedited consideration of appeal, requesting the United States Court of Appeals for the Sixth Circuit to reverse the District Court’s denial of plaintiffs’ motion for preliminary injunction. (New Buffalo Township filed its unopposed motion to withdraw from the litigation on April 15, 2005.) Blue Chip and the Corps have responded to plaintiffs’ motion for injunction pending appeal and we await the Court’s ruling. At this time, there is no schedule for proceeding on the merits of the litigation and it is not possible to predict the schedule or if the plaintiffs will appeal the denial of their motion for preliminary injunction. We intend to vigorously defend the litigation along with the Corps. If we are not ultimately successful in defending this litigation, the Blue Chip expansion may be delayed, which may cause a significant increase in project costs, or the expansion may not be completed, all of which would have a significant adverse effect on our business, financial condition and results of operations. Due to the nature of potential losses in this matter, we cannot estimate the amount of any potential loss.

We are also parties to various legal proceedings arising in the ordinary course of business. We believe that, except for the Copeland matter previously disclosed in our annual report on Form 10-K for the year ended December 31, 2004, and 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.

Note 9. Related Party Transactions

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 March 31, 2005. Michael J. Gaughan, the Chief Executive Officer of Coast Casinos, Inc., a subsidiary of Boyd Gaming, beneficially owned approximately 17% of our outstanding shares of common stock as of March 31, 2005. As a result, the Boyd family and/or Mr. Gaughan have the ability to significantly influence our affairs, including the election of our directors and, except as otherwise provided by law, to approve or disapprove other matters

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

submitted to a vote of our stockholders, including a merger, consolidation or sale of assets. For the three-month periods ended March 31, 2005 and 2004, there were no material related party transactions between us and the Boyd family.

We utilize services from Las Vegas Dissemination Company, Inc., or LVDC, in connection with our Nevada race book operations. LVDC is wholly-owned by John Gaughan, son of Michael J. Gaughan, and as such, became a related party on July 1, 2004, the date of the merger with Coast Casinos. We pay to LVDC a monthly fee for race wire services as well as a percentage of wagers, ranging from 3% to 5%, on wagers we accept for races held at certain racetracks. The terms on which the dissemination services are provided are regulated by the Nevada Gaming Authorities. For the three-month period ended March 31, 2005, we paid a total of $1.0 million to LVDC.

Note 10. Segment Information

We have aggregated certain of our wholly-owned properties in order to present five reportable segments: Boulder Strip, Coast Casinos, Stardust, Downtown Properties and Central Region. Prior to the July 1, 2004 acquisition of Coast Casinos, we presented our reporting segments differently. In order to conform to this new presentation, we have reclassified the results for the three-month period ended March 31, 2004. The table below lists the classification of each of our properties. On May 19, 2004, we completed our acquisition of Sam’s Town Shreveport. Results for Coast Casinos also include the results of an offsite sports book.

In addition, our results of operations include our share of the results from Borgata, our Atlantic City joint venture that is accounted for using the equity method.

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