Boyd Gaming Corporation (BYD) Q3 2008 Earnings Report, Transcript and Summary

Welcome to the third quarter 2008 Boyd Gaming earnings conference call. My name is [Carissa] and I’ll be your coordinator for today. At this time all participants are in listen only mode. We will be facilitating a question and answer session towards the end of this call. (Operator Instructions) As a reminder, this call is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call Mr. Keith Smith, President and Chief Executive Officer.

Good morning everyone welcome to our third quarter conference call. Joining me on the call this morning is Paul Chakmak, our Executive Vice President and Chief Operating Officer. Before we begin I need to remind you that our comments today will include statements relating to our future results including the financial outlook and expectation for our fourth quarter 2008, our expansion and development projects and other market business and property trends that are forward-looking statements within the Private Securities Litigation Reform Act. The company undertakes no obligation to update or revise the forward-looking statements whether as a result of new information, future events or otherwise as actual results may differ materially from those projected and any forward-working statements is a result of certain risks and uncertainties including but not limited to those noted in our earnings releases, our periodic reports and our other filings with the SEC. I would also like to remind everyone that during our call today we will make reference to non-GAAP financial measures. For a complete reconciliation of historical non-GAAP to GAAP financial measures please refer to our earnings press release and our Form 8K furnished to the SEC today both of which are available in the investor section of our website at www.BoydGaming.com. We do not provide a reconciliation of forward-looking measures due to our inability to project special charges and certain expenses including pre-opening expenses. Finally, as a reminder we are broadcasting this call on our website at www.BoydGaming.com and www.StreetEvents.com. Earlier this morning we released our third quarter results. Needless to say this was a difficult quarter for us. The softness in the business that we began to see in the fourth quarter 2007 has continued to accelerate throughout the year as economic conditions have worsened. The situation was made worse by the closure of two of our Louisianan properties during the quarter as a result of Hurricane’s Gustav and Ike and by new competition in both Northern Indian and Atlantic City. Our third quarter results reflect these facts as we experienced our largest year-over-year declines during the quarter. Without questions it’s been a difficult time for the company, for the gaming industry and for consumer driven businesses generally. While the third quarter earnings are a reality of today’s economy, we have made important progress in strengthening key areas of our company. This progress has positioned us to better deal with the current environment and enhance our overall competitiveness. First, the implementation of our new loyalty one card program B Connected was completed during the quarter enhancing our brand appeal and strengthening our foundation. Second, our efforts to refresh our restaurant offerings including the recent tragic partnership with TGI Friday’s is another are where we have refined our business model looking towards the future. And, projects like the Water Club and our new hotel Blue Chip enable us to elevate our product offerings in high potential and highly competitive markets. This gives us the ability to compete more effectively today while having the product to grow the business when economic conditions normalize. Moving on to our Echelon development it was only 88 days ago that we announced the suspension of construction and begin the process of working with our contractors to suspend or terminate approximately 70 contracts for work at Echelon. When we suspended construction we had three primary objectives: bring the work to a quick, safe and logical suspension point in order to conserve as much capital as possible; protect the value of the assets that were already in place; and preserve the positive relationships that we built with our construction partners. I’m pleased to report that we have accomplished each of these goals for substantially of the contracts and commitments and are quickly coming to a resolution on the few that remain. In addition, the joint venture agreement for the retail promenade with General Growth Properties dissolved earlier this month and neither party has any further cash obligations under that agreement. Similarly Morgan’s Hotel Group and Echelon have amended the joint venture agreement for two hotels at Echelon. Each party remains a 50% partner on the deal though only nominal future contributions are required from either party. The amendment offers both partners the flexibility to exit the venture should their circumstances change. With respect to capital expenditures on the Echelon development, as of September 30th we have spent approximately $525 million and expect to spend an additional $150 million over the next two quarters on items primarily related to steel fabrication. These figures represent cash expenditures not accounting accruals. As a result of the continued spend we expect to continue capitalizing interest on the project through December 31st. Given what has happened in the market since we announced the suspension of our Echelon project on August 1st, it is unlikely that we will resume construction in 2009. Nonetheless, we remain committed to having a meaningful presence on the Las Vegas strip. We will use this time during 2009 to prepare alternative development options to consider for Echelon. These options will include developing the project in phases, exploring alternative capital structures for the project, scope modifications to the project and additional strategic partnerships. It will take several months to develop and consider the full range of options and it will take several more months to properly evaluate these options against the back drop of the conditions in the credit markets and the conditions in the broader economy. We will update you when we have a more definitive strategy on how and when we will move forward. With respect to our capital structure, Boyd Gaming is fortunate to be one of the few gaming companies to have a strong balance sheet during these extremely turbulent economic times. We recognize that one of our most valuable assets is our bank credit facility. This credit facility provides us access to capital and the flexibility we need in this environment to take advantage of unique opportunities that may become available. Our leverage under the credit facility at the end of the third quarter is less than 5.5 times. We are currently in compliance with all of our covenants under the credit facility and we expect to remain in compliance. Last quarter we announced that our board approved a $100 million share repurchase program. However, given the extreme volatility we have seen in our operations, our focus has shifted to managing our debt levels and maintaining a comfortable cushion under our leverage covenant. As such, we did not purchase any shares in the third quarter. At the same time the deep discount on our bonds not only offer an attractive return to our shareholders but they serve the additional purpose of allowing us to reduce over overall debt and increase earnings per share. As a result of these advantageous market conditions we purchased approximately $8 million of our bonds in the third quarter and an additional $93 over the last several weeks. There is no doubt that we are going through a turbulent period. The prudent management of our capital and operating expenses are providing us with the resources and the flexibility that we need to deal with this economic downturn. However, we are not satisfied to merely survive these difficult times. We are continuing our efforts to build a stronger company, one that will enable us to capitalize on growth opportunities when we finally emerge from this downturn. Now, I’d like to turn the call over to Paul Chakmak, our Chief Operating Officer to provide some additional details on the quarter.

Today it is clear that we’re enduring the most difficult economic conditions in a generation and our third quarter results reflect that reality. We were acting aggressively to manage the business through this difficult period. We continue to work to make our properties more competitive and to control costs wherever possible and as Keith noted, we have the balance sheet and cash flow needed to guide this company through these challenging times. Generally our core businesses remain intact and we’ve actually shown increases in our rated play from our two top tiers, Emerald and Sapphire in both the Las Vegas locals and Midwest and South regions. This bodes well for how players value our new B Connected loyalty program. Unfortunately, this increase has been over shadowed by the significant declines we experienced from our lower tier Ruby and those customers who are not members of our program. This provided to be a prevailing driver in our Q3 results. Few communities have been hit as hard by the economic downturn as the Las Vegas valley. Housing prices in Las Vegas have fallen significantly and severe cut backs in the construction and service sectors are not providing the valley with the job growth that it’s use to. As a result, August marked the first month of unemployment in excess of 7% further impacting consumer confidence and discretionary spending. On a brighter note, and as you may be aware, we have been working on a number of strategic changes to our restaurant offerings. By the end of November, our lineup will include well known national brands such as TGI Fridays, Dunkin Donuts, Baskin Robbins, Fuddruckers and Sbarro. By expanding and refreshing our restaurant offerings we are giving our customers more reasons than ever before to visit a coast casino. We believe this ongoing evolution is critical to improving our market share in this challenging environment. In downtown Las Vegas we are not only being affected by the current state of the economy but also by reduced airline capacity as two major carriers that ran Hawaiian routes ceased operations. As a result the ability for Hawaiians to get to Las Vegas has become more difficult as scheduled filing capacity has been significantly reduced. The Midwest and South region dealt with its own challenges during the quarter. Blue Chip felt the ongoing impact of the increases competition from both the north and the south as well as construction disruption associates with its expansion projects. In Louisiana the two Gulf Coast hurricanes forced the closure of Treasure Chest and Delta Downs for 10 days and 13 days respectively. This was particularly impactful as it included two weekends, one of them being the traditionally strong Labor Day holiday weekend. Including the market disruption before and after the storms the two properties were severely impacted for over a half of month. Without these storms we estimate that adjusted EBITDA would have been $7 million to $8 million higher resulting in an additional $0.05 to $0.06 in adjusted EPS. Despite all the challenges in the Midwest and South there’s still some bright spots both Treasure Chest and Delta Downs have recovered well and business has already returned to pre hurricane levels at the properties. At Blue Chip we are nearing completion on our $130 million expansion and have scheduled the grand opening of our new 300 room hotel, spa, restaurants and meeting space on Thursday, January 22nd. We look forward to offering Blue Chip’s patrons a destination gaming experience that will be unique to the region. The economic downturn has been particularly severe in the Northeast. The entire Atlantic City market has felt the impact with gaming revenues down 6.7% for the quarter. This down turn has been exacerbated by new competition from Pennsylvania casinos which continues to cut in to Atlantic City’s market share. Borgata continued to outperform the rest of the market but it was not immune to these factors which we expect to continue in 2009. There’s little doubt that the opening of the Water Club further reinforced Borgata’s marketing leading position. There is no question that Borgata’s revenues benefited from the new hotel. Weekend business at the Water Club has been very strong and we are generating a significant premium in both cash ADR and in gaming contribution per guest compared to already strong results at Borgata. Midweek business at the Water Club has been softer than we anticipated as current economic conditions and a more competitive environment in the Atlantic City marketplace have made it difficult to fill these additional rooms midweek. Overall higher promotion expense due to a more competitive environment as well as launch expenses associated with the addition of the new hotel negatively impacted profitability for Borgata. Lastly, on a positive note, as you may have heard the Atlantic City, City Council voted yesterday to suspend the new smoking ban. We are supportive the City Council’s decision as we felt implementing the ban would have led to substantial declines in the market. In the end we believe that it best serves our customers and employees. Earlier I mentioned the importance of maintaining a competitive product during these difficult economic times. We took a big step forward in that direction during the quarter when we completed the roll out of B Connected at our nationwide player loyalty program. With the launch of B Connected at our three downtown properties we have completed the nationwide rollout of the program. Our customers can now use a single card to earn and redeem points. With the nationwide network in place we are now working to leverage B Connected to increase customer loyalty across the country. An example is play your way to Vegas, a new marketing initiative that we have launched throughout the Midwest and South region. The goal is to encourage our Midwest and South customers to consolidate their play with Boyd Gaming with the goal of earning a trip to one of our seven major Las Vegas properties. In fact, initial results of our new players’ card program in the MSR region showed a meaningful increase in gross property play compared to the prior year. By connecting our downtown properties with the coast casinos we also believe that there’s a new opportunity to further drive cross property play throughout the Las Vegas valley. Now, before we open it up for questions I wanted to take a second to discuss our thoughts on the current quarter. Keith provided guidance related to Echelon however, you’re all aware that it has become increasingly difficult to accurate forecast financial results in the current economic climate. As a result, we will not be providing a forecast of adjusted EBITDA or adjusted EPS for the current quarter. We hope to resume providing more specific guidance once we have more clarity relative to the business trend in the markets where we operate. With that I’ll take some questions at this time.

(Operator Instructions) Our first question comes from Joseph Greff – J.P. Morgan. Joseph Greff – J.P. Morgan: Paul, in the third quarter Las Vegas locals market I guess the operating leverage there was worse than what you saw in the first two quarters. Obviously the year-over-year revenue change was greater. Is that a function of the revenue performance? Is that a function of you spending more in front of a competitor opening? Is it just that you’ve done a good job the first half in terms of taking out expenses? And I guess, how do we think about the operating leverage going forward.

Well Joe we’ve worked very hard this year refining the expense profile with the shear fact that obviously revenues are down. As you saw a continued decline in the Las Vegas local revenue base we were still able to certainly preserve some of that profitability but to your point, margins did erode in the third quarter based on the higher decline in the quarter than in previous quarters. We continue to work very hard at adjusting the operating expense side of the overall plan. I think the fact of the matter is there is a significant amount of competition that’s been created obviously in the Las Vegas locals market as a result of just competitive pressure between companies and certainly some new openings so certainly a part of that was associated with being strong and competitive in the wake of those events. So, it’s a little bit of both. Joseph Greff – J.P. Morgan: I know you’re not going to give operating items for the 4Q but can you walk through what you think the cap ex will be outside of the Echelon spend? And, you mentioned that you’re going to be capitalizing interest on Echelon through the end of December. Is there a chance that you capitalize some of it through the first quarter of next year if you’re spending slips in to the first quarter?

On the Echelon question first, it is probably unlikely that it will go in to the first quarter, this is really driven by different account rules and the magnitude of that spend to the extent we do spend what we anticipate in the fourth quarter the smaller amount that will trail in to the first quarter, the number Keith gave probably would not allow us to capitalize in the first quarter. But, if that timing changes certainly we will be forced to revisit that decision. As it relates to capital outside of Echelon for the fourth quarter, as you would expect the numbers are relatively small with really them coming in the combination of two fronts, one would be our typical ongoing I’ll call it maintenance program including finishing up what is really more than maintenance and that’s the repositioning of certain restaurant outlets that we have throughout the Las Vegas valley. That will run about $20 million in total and then the balance would be the Blue Chip spend itself which right now we are forecasting for the fourth quarter to be about $15 million. Joseph Greff – J.P. Morgan: Do you think you maintenance is sub $100 million right now or can you get away with spending $80 million a year in maintenance.

We can probably at this point run the business sub $100 albeit some of the things that we opportunistically put off we will deal with in future quarters or in the following year. Joseph Greff – J.P. Morgan: Then my final question and I’ll let somebody else go, Penn National yesterday talked about different performance in October and mentioned sort of the Southeast performing a bit better. Can you just comment what trends you are seeing October maybe relative to September’s performance by market?

Well I think generally speaking I think we’d probably echo maybe what Penn said per your comments but I didn’t listen to their call. The middle part of the country is performing well particularly the southern section of our region, the Midwest and South relative to prior year results. Probably not surprising given there is still a substantial amount of economic activity in the south particularly in the Texas Louisiana corridor. Obviously I don’t think there’s any different view relative to my comments for the Las Vegas valley.

Our next question comes from the line of Celeste Brown – Morgan Stanley. Celeste Brown – Morgan Stanley: Paul can you discuss a little bit further the new restaurants you’re putting in to the coast properties? Does it help save money or is it just a brand name? It sounds like they’re mostly national chains, is it just that they draw in additional patrons more than what you’d normally get.

It’s a little bit of both. I think we made a strategic decision to target some national brands because we think that is exactly what the consumer today, our customer wants and so providing them that experience as opposed to a standalone restaurant separate to a casino that they may choice. And, the integration associated with that is very strong driver for us on kind of both sides of the equation, the non-gaming and the gaming revenue piece. Generally speaking the TGI Fridays restaurants in particular have replaced in the case of the Gold Coast and Sam’s Town coffee shop operations that the company owned and operated and the economic tradeoff between those two models is substantially in our favor so it certainly becomes a profit center for us in a relatively material way given the dynamics of how that business runs. The other outlets that I mentioned are generally adds to existing properties where we felt that additional food capacity was warranted given volume drivers in those properties and we’ll continue to do more of this both with national brand as well as some very well known local restaurant organizations that we’ve added to our properties as well. Celeste Brown – Morgan Stanley: Do these national chains help in terms of marketing? Do they have signs up, “TGI Fridays at Gold Coast Casinos.” So that it saves you some money there? Then finally, this question is for Josh, how much cash do you need to run your business in terms of cage cash, etc.?

I think on the Fridays example, or for that matter Fuddruckers or any others the national marketing that these companies do is clearly a benefit to us both in TV and in print media. So, that just clearly is additive to the marketing that we normally and already do for those outlets that are part of our company. To save a little time I’ll just answer the question on cash, I think you saw at the end of the third quarter our number was about $123 million or so. Year-end cash balances typically run a little bit higher simply because of the New Year’s Eve holiday weekend that obviously hits at the end of the year so you can add a bip to it. I think we ran about $165 last year so probably somewhere in between Celeste is the answer of where your expectation should be.

Your next question comes from the line of Lawrence Klatzkin – Jefferies & Co. Lawrence Klatzkin – Jefferies & Co.: As far as Cannery how has that affected Sam’s Town? And, what are you seeing as far as promotional competition?

When Cannery initially opened we certainly saw an impact. I think when a competitor opens next door you always see your customers go over and visit. The unfortunately part about the opening of the Cannery was I don’t think it brought anything particularly compelling to the area and so it didn’t drive a tremendous amount of new traffic so we have seen an impact at Sam’s Town. Lawrence Klatzkin – Jefferies & Co.: This is a question about the debt repurchases, can you [inaudible] booked for the fourth quarter the profit you’re talking about, which issues did you buy and what price did you buy them at?

Larry, I’ll take that. I think as Keith mentioned, we repurchased about $93 million of debt so far in the current quarter. That was predominately associated with the 7.75 bonds we have been relatively and systematically buying at opportune times really you go back to even the first and second quarter of the year in much smaller amounts. Those bonds now trade in the 70s. We had been a buyer up in the 90s as well earlier in the year and so as a result of that based on recent trading levels I think you can kind of do the math and see that it’s 20 plus percent per dollar pick up on the gain and then any additional bonds, the other two issues obviously be substantially more than that. Lawrence Klatzkin – Jefferies & Co.: But you don’t have amounts so we can figure out interest expense and everything else?

Well, in all told for the quarter, interest expense you’ve got to keep in fact the LIBOR substantially higher than it was in the third quarter as well. Interest expense could actually be up a little bit quarter-over-quarter, if nothing else flat quarter-over-quarter assuming that LIBOR is substantially higher than it was for most of the third quarter. Lawrence Klatzkin – Jefferies & Co.: As far as you bank covenants go what’s your tightest covenant right now and I guess since you’re not spending a lot there shouldn’t be a lot of concern going forward but how tight are you?

Well, Keith mentioned that we’re under 5.5 times. We only practically have one covenant and that is total debt to EBITDA as defined and we are under 5.5 times as of the third quarter. The covenant is 6 times through the end of the year so we’ll obviously work to stay inside of 6 times at the end of the year. The covenant goes up to 6.5 times in the first quarter of next year. Lawrence Klatzkin - Jefferies & Co.: As far as the Atlantic City competitive environment, is promotional spending pretty aggressive right now? Do you think everyone’s going to reverse and undo their smoking areas or do you think some people are just going to keep it like it is?

I think from a promotional standpoint it has been fairly aggressive all year. The Borgata launched what is probably one of our most aggressive promotions of five times promotion in anticipation of the smoking ban going into effect so the market is very competitive and continues to be very competitive, I think partially to offset smoking and partially to offset the impact of the Pennsylvania casinos which continued to cut into the business. On the smoking issue with respect to the vote last night, people have taken different positions in terms of building the smoking lounges. They think they still exist. Whether the patrons use them or not I think will be up to the patrons. My guess is the patrons will find a place to smoke on the floors as they did prior to the ban.

Our next question comes from Steven Kent - Goldman Sachs.

Could you talk about two issues? One is what other opportunities do you have out there to reduce your costs in a more meaningful way? With some of your properties since you don’t have the negative operating leverage of a significant lodging component, what can you do to reduce the expense structure? And separately, any buyers or any discussion of buyers for Echelon? Have people been talking about it or thinking about it or have you entertained any other ideas on it?

With respect to further cost reductions, I think Paul indicated it’s something we look at frankly every single day and we look to refine the business as we go. As we see revenues ebb and flow we’re always looking at it whether it’s consolidation of departments of consolidation of functions between properties or whatever it is, we have standards that we try and keep, staffing standards and customer service standards, so it is something that we look at daily. It takes up a large amount of our time these days. I don’t think there’s any silver bullet out there. There’s no one big idea that’s going to solve a problem. It’s just something that is a constant review. Your second question with respect to Echelon we talked about the fact we’re looking at and we’re going to take 2009 to look at the various alternatives. We as I said still feel like having a significant presence on the strip is where we want to be. We have opportunities there. We will take 2009 and look at the different options for the Echelon site. And we don’t have anything else to say right now.

Our next question comes from [Justin Sabintino] - J.P. Morgan. [Justin Sabintino] - J.P. Morgan: What percentage of your player database is at the ruby level?

I think as you’d expect a large amount in terms of people, call it 80%+, a relatively small amount relative to dollars of play, call it less than 20%, so I think it’s your pretty typical 80/20 rule going both directions t here. [Justin Sabintino] - J.P. Morgan: The two Hawaiian airlines that stopped flying into Vegas. When did they stop exactly?

The two airlines were Aloha and ATA both of which offered either non-stop or a one-stop refueling stop back into Vegas. We believe in both cases substantially all of the people on those planes were Las Vegas inbound customers. They both stopped during the third quarter. The exact date I couldn’t give you but it was early in the third quarter, maybe very end of the second quarter. [Justin Sabintino] - J.P. Morgan: So it’s not like it came in partially and we could expect a bigger drop in the fourth quarter? It’s probably similar decline basically as far as the number of people that won’t be coming in?

I’d agree with that. [Justin Sabintino] - J.P. Morgan: The promotional expenses at Borgata, that was I think the highest ever at that property and completely understandable considering opening the Water Club. But as far as the levels where you are now or through the fourth quarter, do you think it’ll come off of that $60+ million or are we going to probably stay up around those levels through the end of the year?

Given the current promotion that we have going on, which is once again one of the most aggressive that we have ever had at the Borgata, you’ll see it continue to remain at a fairly high level. [Justin Sabintino] - J.P. Morgan: You guys had talked about economic data out of Las Vegas, unemployment rate, the housing market, the glut still remains there. Is there any optimistic data point that you guys can give us regarding the locals market?

Relative to unemployment, which we’ve always said we think is a key driver to our locals business, you do have some additional casino openings that will occur over the course of the next few months with a couple of our competitors opening large facilities. That provides a significant amount of job creation on their own so that is certainly a positive and we’ll just have to watch and see how that plays out over the end of this year, very beginning of next year as those facilities open. That’s certainly a positive. As far as the housing market is concerned, as you would expect really across the country, the amount of new homes being built is down substantially so it is simply a matter of working off this inventory of new and existing houses that are for sale. There’s been some positive signs of that very recently here in Las Vegas with real people moving into real houses but it’s going to take some time for that to work through. [Justin Sabintino] - J.P. Morgan: The debt level, should we just basically take it down by $93 million in this quarter or do you think you’re going to continue to pair that number down?

It’s really just a business decision. We’ll continue to make calls on how we look at the business and the capital structure on an everyday basis.

Our next question comes from Dennis Forst - Keybanc Capital Markets.

I have a few unrelated questions. First, on the closures during the third quarter because of the hurricanes, do you have business interruption insurance or is that going to all fall under deductible?

The deductible will not be met in any of the four instances so there are no insurance claims that will result.

Moving to Borgata, besides the promotional staying high was there any unusual costs of just the opening or the first couple of months overstaffing at the Water Club that we might see that $180 million quarterly operating expense come down in future quarters as you get more efficient?

With respect to the Water Club you have to remember it actually formally opened in late June, around June 27, and there were a tremendous amount of launch expenses and inefficiencies built into that first quarter as we were trying to launch it properly, staff it properly, and provide the right experience for the guests. So I think what you saw in the first full quarter of operation of the Water Club were very high operating expenses and you should expect those to come down going forward. I think they will probably still be somewhat elevated in the fourth quarter and as we move into next year they will normalize.

Also as pertaining to Borgata, depreciation was only up modestly sequentially. That surprised me with the Water Club coming on. I would have thought that depreciation would have gone up more dramatically than it did. Is the $19.5 million a reasonable run rate and why is it not higher?

I think you have to recall that we celebrated our five-year anniversary in June, the opening of that property and we had a lot of five-year assets that were put on when the property opened so you had the effect of assets rolling off and depreciation falling off and new assets coming on and depreciation rolling on. So the level you saw for the quarter is about right.

I need a clarification on the bond repurchase. You said $93 million in October so far. Is that face amount or is that how much cash you used to purchase bonds?

The $93 million is the face amount of the bonds purchased.

Our next question comes from Rachael Rothman - Merrill Lynch.

If I could follow up one more time on the bond repurchase, did you say that post third quarter or the bond repurchase the $93 million was roughly $0.70 on the dollar? And then did you guys use cash or did you draw down on the revolver to buy the bonds?

The comment I made about the bond repurchases was that the 7.75 had been trading in the high 70s really for the month of October and obviously we’re buying just at market as bonds are offered to us by different investment houses. You can just assume by looking at the historical trending levels that those were bought at those types of market prices. As it relates to the source of capital to repurchase bonds, we really don’t run with excess cash so to speak. The cash that you see on our balance sheet is related to our casino operations and is needed to run the business. So practically speaking for any type of operating need including this particular one, there’s use of the bank credit facility to fund the repurchases.

Given where your bonds are trading, how are you guys thinking about the trade-off between repurchasing your common equity currently and buying in the debt? I know that you guys issued $100 million share repurchase authorization last quarter but it seems from the release as though you didn’t use it. Is that correct or are you viewing the debt as a better value at this point?

As I said in my earlier comments, no we have not purchased any equity back during the quarter. Given the trading levels of the bonds, we thought that was the right opportunity. We’re also concerned about the volatility in our business levels and feel like managing our debt levels is better for us today and is more prudent for us to be doing than repurchasing our equity. So that’s where our focus is at this point.

I think on that front it’s really a constant decision between the two. The fact of the matter given where the discounts or bonds or for that matter anybody in the sector is you reduce debt, reduce interest expense, increase EPS all at the same time by repurchasing bonds that frankly in the case of the 7.75 are practically coterminous with our existing bank credit facility. So there’s not a maturity trade-off between the two issues. But with that said, as we get more visibility and become more comfortable with the operations, certainly don’t be surprised if we start to execute under the share repurchase plan.

For modeling purposes, for the fourth quarter will you be showing the gain on the buy-in of the debt below the line or above the line?

It goes below the line just as it’s been shown for the past few quarters.

In Vegas, can you talk a little bit about any opportunities you may have to cut costs further? In the second quarter from a margin perspective it looked like you guys had done a pretty terrific job of holding the line on costs. Is it that revenues have gotten to a point now where there are no more costs to cut or do you feel it’s prudent to just continue to spend at the rate that you have or should we think about further opportunities for margin in the fourth quarter and in 2009?

It’s certainly a balance when you look at the margins in the business between the revenue decline and how much we can manage the expense side of the business. I think in the first six months we did take a significant amount of expense out of the business and we saw less of a revenue decline and that’s why the margins in the second quarter were as strong as they were. What you saw in the third quarter was a stronger revenue decline and there wasn’t as much expense to take out of the business. The expense load actually was lower in the third quarter. It’s just not overall reflected in the results because of the decline in revenues. We’ll continue to look at it. We’ll continue to look for ways to cut expenses. But once again there’s no silver bullet, there’s no one big idea out there that’s going to reduce expenses. The new restaurants, the new TGI Friday’s operations that are in our Las Vegas locals’ properties will help and that will help trade off some expense from our coffee shop operations. We’ll continue to manage the payroll and the marketing expenses as we go and run the business as efficiently as we can. It’s an everyday conversation.

Our next question comes from [Lee Olive] - Citigroup. [Lee Olive] - Citigroup: First on Borgata, I noticed there was a debt pay-down in the quarter of the nonrecourse debt there. Was that a schedule amortization or did you guys decide to prepay the loan?

Borgata benefits from an all revolving credit facility structure so there are no scheduled repayments. That was simply management of cash balances and opportunistically reducing debt based on cash that had been generated since the opening. [Lee Olive] - Citigroup: As a corollary to that, how much cash did you guys receive from the JV in the quarter?

We didn’t take out any money from the JV during the quarter. [Lee Olive] - Citigroup: On the revolver again, I know you guys have the ability to delay or defer the covenant step-ups for one or two quarters by the end of this year. Do you have the ability to pull them forward if you need to?

No. It is simply a one-time call by the end of the year to push them out one or two quarters. [Lee Olive] - Citigroup: One definitional issue. Are you able to use the Blue Chip project cash flow and call that or classify that in new venture EBITDA?

No. [Lee Olive] - Citigroup: Because it’s existing property?

That is correct.

Our next question comes from Dennis Farrell - Wachovia Capital Markets LLC.

In regards to the cash distributions, when do you think they’ll get up to the levels that they were previous Borgata opening?

The cash distributions from the Borgata?

Yes. That would flow back to Boyd.

We don’t have a forecast for that right now.

In regard to the bond repurchases, the actual gain on the extinguishment of debt. Can you add that back to cash flow for the covenant purposes of the bank debt?

It is a cash gain so cash gains and for that matter cash losses are added back to EBITDA. On the flip side of that, we had certainly losses related to the hurricane in the third quarter of some $3+ million that are losses that negatively impact EBITDA as well.

In regard to buying debt and potentially other companies, there’s a lot of distressed value in the industry right now. Is that something that the company is potentially set up to do now or is that something that could be an opportunity in the future?

We like the value of our securities really better than anything else out there right now so we’re focused on the existing business and managing our debt and equity appropriately based on valuation.

The [Dania] payment, I know in the Q it said 2010 potentially $75 million. Is there any chance that could fall to ’09 or is that still TBD?

It’s to be determined. There’s certainly a possibility it could fall into 2009.

Our final question comes from William Lerner - Deutsche Bank Securities.

Just a strategic question. Why not write down the roughly $600 million for Echelon and delever even more aggressively than you’re planning in 2009 and 2010? Obviously you’re generating good free cash flow and you fix your equity that way without taking on return risks or supply risks, however you want to think about it here in Vegas. I’d just love to get your thoughts on why not?

I think the write-down of the Echelon is not necessarily one of those management options. We don’t just wake up and say we’ve got to write down Echelon. I think the accountants have a lot to say about that and given our desire as I stated earlier to have a significant presence on the Las Vegas strip, there’s no write-down of the Echelon project. As a matter of fact we’re spending an extra $150 million over the next several quarters to finish off some steel fabrication and other things. I really think the write-down is not something we’re looking at and we’ll continue to explore having the presence on the strip and what form that presence should take. We think that serves the shareholders in the company best for the long term is having that presence.

Write-downs of any asset whether it’s Echelon or any part of the existing business are based off of accounting pronouncements that are driven by some fairly technical valuation tools. So to Keith’s point it’s not like we can come in today and say, “Let’s write something down” and reduce the amount of assets on the balance sheet and reduce whatever it is, depreciation or anything else accordingly. It’s just not the way it works. Our focus relative to leverage is obviously on the financial leverage more commonly looked at as debt-to-EBITDA and as we work on ways to obviously get EBITDA going in the right direction we’re being as prudent as we possibly can on managing that debt number.

What I meant really instead was why not just stop the project permanently? I exchanged write-down for that. But you answered the question.

The amounts that Keith referred to that are due are based off of decisions and contracts that we have in honoring certainly our obligations under those contracts.

There are no further questions in the queue. I’d like to turn the call back over to Mr. Keith Smith for closing remarks.

Thank you for joining us this morning. We look forward to speaking to you again next quarter. Thank you.

Thank you for your participation in today’s conference. This concludes your presentation. You may now disconnect. Good day.