Boyd Gaming Corporation (BYD) Q4 2012 Earnings Report, Transcript and Summary

Good day, and welcome to the Boyd Gaming Fourth Quarter Full Year Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Hirsberg -- sorry about that, Josh Hirsberg, Senior Vice President, Chief Financial Officer. Please go ahead.

Thank you, Seth. Good morning, everyone, and welcome to our Fourth Quarter Earnings Conference Call. Joining me on the call this morning are Keith Smith, our President and Chief Executive Officer; and Paul Chakmak, our Executive Vice President and Chief Operating Officer. Our comments today will include statements relating to our estimated future results and other market, business and property trends that are forward-looking statements within the Private Securities Litigation Reform Act. All forward-looking statements in our comments are as of today's date, and we undertake no obligation to update or revise the forward-looking statements. Actual results may differ materially from those projected in any forward-looking statement as a result of certain risks and uncertainties including, but not limited to, those noted in our earnings release, our periodic reports and our other filings with the SEC. During our call today, we'll 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 8-K furnished to the SEC today, and both of which are available in the Investors section of our website at boydgaming.com. We do not provide a reconciliation of forward-looking non-GAAP financial measures due to our inability to project special charges and certain expenses. Finally, as a reminder, today's conference call is also being webcast live on our website, at boydgaming.com, and will be available for replay on the Investor Relations section of our website shortly after the completion of this call. I'd now like to turn the call over to Keith Smith, our President and Chief Executive Officer. Keith?

Thanks, Josh, and good morning, everybody. Thank you for joining us for this morning's call. I'd like to start this morning with a few comments on our announcement earlier today that we entered into a definitive agreement to sell the Echelon site on the Las Vegas Trip to the Genting Group for $350 million in cash. First, this transaction was actually completed earlier this morning and all funds have been received. Second, the sale of the Echelon site is yet another important step in the comprehensive strategy focused on achieving our number 1 priority, which is strengthening our balance sheet and improving our financial position. Whether it's through repaying debt, making strategic acquisitions or realizing improvements to our core business, we're keenly focused on this goal. As you look back over the last 18 months, we have made a number of significant steps toward this goal. One was our acquisition of the IP, a market-leading property we purchased a little more than one year ago at a multiple of less than 7x its current LTM EBITDA. Another was the acquisition of Peninsula Gaming last November, which further diversified our operations and greatly expanded our ability to generate free cash flow. And just last week, we announced an agreement to sell Dania Jai Alai in South Florida for $65.5 million in cash, further strengthening our balance sheet. The sale of the Echelon site, like these previous transactions, has compelling benefits for our company and was made only after a thoughtful analysis of our options for the site. This analysis took into account our current business strategy, the current and future direction of business on the Las Vegas Strip, anticipated return on investment and our overall financial position. In the end, we concluded that developing a large-scale project on the Strip from the ground up was not consistent with our current strategy. As a result, we made the decision to sell this site and significantly strengthened our financial position. With the sale of the Echelon site, we will realize $157 million in net proceeds or approximately $1.80 per share in equity value, value that is included in our current market valuation. We intend to use the proceeds from this sale to repay debt. In addition to the net proceeds from this sale, there are other benefits as well. With this sale, we will eliminate approximately $16 million in annual recurring costs associated with this site. That represents an additional $1.60 per share in equity value. We also expect to realize substantial long-term tax benefits against future taxable income. As noted in our press release, we will record a onetime noncash charge of $994 million in the fourth quarter related to Echelon. This charge will create a tax loss carryforward of approximately $750 million. Of course, acquisitions and divestitures represent only 1 component of our overall strategy to strengthen the financial position of the company. Improvements to our core business are also key to achieving our goal. We remain committed to constant innovation and improvement of our core business with the aim of generating both revenue and EBITDA growth. As customers have once again grown cautious with their spending in recent months, now more than ever, it is essential that we continue to improve and refresh the product we offer our customers. And during the fourth quarter, we made notable work progress on this front. On our last call, we outlined the new approach we're taking in the Las Vegas Locals market. We refined our marketing and advertising programs and made significant changes on our casino floor and we began to see the benefits of this in the fourth quarter as visitation strengthened month-by-month across our Locals business. In 2013, we will continue looking for ways to improve our core business, not just in Nevada but across our portfolio. Our success as a company begins with delivering an exceptional experience to every customer and on challenging ourselves to keep improving what we do best. Finally, we believe our portfolio of future growth opportunities will further strengthen our financial position in the long term. Our online gaming strategy is starting to pay off, as states like Nevada and New Jersey have begun to establish the framework for Internet gaming. We're in the early stages of this exciting opportunity, so we believe we have the brands, the partnerships and the infrastructure to become a major player in this market. We're optimistic that online gaming will be a compelling long-term growth opportunity for our company. Additionally, our agreements with the Wilton Rancheria Tribe in Northern California and Sunrise Sports Entertainment in South Florida could provide significant growth opportunities for our company in the next several years as well. As you look back over the last year, it is clear we have made significant progress in moving our company forward. We have an experienced and skilled management team, focused on controlling costs and improving the core business. We have employees dedicated to providing first-class service to our guests and we have high-quality assets. We have the right strategy in place, we are executing on it and I am confident that it will deliver compelling long-term results for our shareholders. Thank you for your time this morning. I'd now like to turn the call over to Paul, who will review our operating results. Paul?

Thanks, Keith. Hello, everybody. As other companies in our industry have already reported, gaming customers nationwide pulled back in the fourth quarter due largely to economic uncertainties surrounding the elections and the fiscal cliff. While we actively worked to mitigate the impacts of these trends on our business, they did affect our operations. These trends continued into the first quarter. Our customers are now adapting to the impact of higher payroll taxes that took effect January 1. Continued uncertainty from Washington over federal spending and tax is affecting consumer behavior as well. In the Las Vegas Locals segment, these issues were by compounded unusually low hold at our sports books as players enjoyed a lucky run this fall. This low hold accounted for a significant portion of the decline in our Locals business. However, we saw reasons for guarded optimism in this region later in the quarter as business trends started to improve. The declines we saw in October and November moderated in December and that positive trend has continued into the first quarter. The targeted marketing and advertising initiatives we discussed in our last call are starting to pay off, driving new visitation to our properties. Once on property casual gamers are responding positively to the new product we rolled out in our casino floors. We introduced about 1,000 new penny themes across our Las Vegas Locals properties in recent months, concentrated in high-profile areas called Penny Lane. This initiative helped drive increased slot play and visitation among casual players in the fourth quarter. We also saw significant uptick in new B Connected memberships as new customers signed up for cards to qualify for our promotions. At the same time, the promotional environment in the Locals market appears to be stabilizing as our competitors are generally adopting a more rational marketing approach. Finally, we're encouraged by signs of continued improvement in the southern Nevada economy. The unemployment rate has been declining in recent months, and home prices rose substantially throughout 2012. Las Vegas is still far from the boom years but the trend is in the right direction and we believe we will see modest improvement throughout this business in 2013. Now let's review Downtown Las Vegas, where business from our core operations was flat year-over-year. On a segment basis, revenue declined due to the recent reduction of our Hawaiian flight schedule from 5 flights per week to 4. And on the EBITDA side, results were impacted by several one-time charges. Having said this, we were pleased with the performance at the operating level. The long-term direction of this business remains positive. Visitation remains solid, especially among our Hawaiian customer base and we gained 250 basis points in market share from the third quarter to the fourth, further expanding our leading position in the Downtown market. We believe those positive trends will continue. Our Hawaiian business remains strong, and we will benefit from the ongoing redevelopment of Downtown, which continues to draw new business, new visitors and new residents into the area. Now let's move to our regional properties, including our existing Midwest and South segment and the Peninsula properties. As you know, consumers have been more cautious in recent months and our properties are not exempt from this trend. While business from our core players remain solid, we saw declines in both visitation and spending among casual players. In addition, we saw growing competitive pressure in certain markets. The Peninsula segment did report substantial growth in the fourth quarter, driven entirely by the addition of a full quarter of operation from Kansas Star. On a same-store basis, EBITDA declined modestly year-over-year in the Peninsula business segment due to softness in casual play. Despite these challenges, there were some bright spots. A number of properties grew market share during the quarter, including Delta Downs, Paradise and Blue Chip. Despite a highly competitive market, Blue Chip has grown its share of the market for 10 of the last 12 months and it was the only property in northern Indiana to show year-over-year gaming revenue growth in 2012. In fact, the market would've declined by 3% year-over-year without Blue Chip. To the South, Delta Downs continues to be one of our strongest performers. The property grew EBITDA by more than 10% in 2012, setting all-time annual records for both EBITDA and coin-in. And in Kansas, the Kansas Star opened its hotel, permanent casino and 5 new food and beverage outlets in mid-December. Thanks to hard work and great planning, the transition from the temporary to permanent casino was flawless, with very little disruption to our business. With the permanent casino open, the property is now on track to open a 4,200-seat arena by midyear. Looking ahead to the first quarter, Kansas Star will be comparing to a strong introductory period when it was able to generate robust visitation with very little marketing spend. That is obviously not sustainable and customer reinvestment has increased to more realistic levels. Winter weather has presented more of a challenge in the first quarter of 2013 as well. But we remain quite optimistic about Kansas Star's long-term potential and we expect that Kansas Star's margins will remain the highest in the Peninsula portfolio and project that the property will generate about $100 million in annual EBITDA, going forward. Finally, I'll conclude with Borgata, which was severely impacted by super storm Sandy and its aftermath. We began seeing an impact from Sandy a week before landfall, and we were forced to close from October 28 to November 2. Shortly after we reopened, business was once again disrupted by a second nor'easter. The impact of the closure and lost business was substantial. We recorded more than 5,000 room night cancellations in October and November [ph] and saw business levels decline sharply in both months. We did see some stabilization in December and the property has been successful in rebooking much of its lost group business. However, it's difficult for us to estimate how this year's summer season will be impacted. Many of our summer customers stay in vacation homes along the Jersey shore. While many shore homes around Atlantic City sustained significant damage, there was less damage in communities to the south. And we understand the booking pace for available shore homes has been brisk. The availability of nearby vacation homes will have an impact on our second and third quarter results but is impossible to say how significant that will be at this time. Despite these challenges, Borgata continues to maintain its long-standing leadership role in Atlantic City, growing its market share by 160 basis points in the fourth quarter and achieving a 23% market share in January. So to recap, we encountered some headwinds in consumer spending in the fourth quarter and based on what we've seen so far in the first quarter, customers have had to adapt to the impact of higher payroll taxes that took effect January 1. Our regional operations saw the most significant year-over-year impact as they faced more challenging comparisons. That trend's likely to continue, especially in markets facing heightened competition. These issues are affecting Las Vegas as well, but we are encouraged by the trends we are seeing in our Locals and Downtown business. Our refocused marketing strategy is starting to pay off in our Locals business and Downtown should continue to benefit from a vibrant economy in Hawaii. In Atlantic City, we remain the market's dominant operator and expect to benefit in the coming months as the area recovers from Sandy. We cannot control external factors like the economy or the competitive environment. But we can control how well we execute our operations and our core business and we remain keenly focused on finding new, innovative and cost-effective ways to drive new visitation to our properties. Thanks for your time today and now I'll turn it over to Josh.

Thanks, Paul. During the quarter, we completed bank amendments for each of Boyd and Borgata's credit facilities and provided additional flexibility with respect to covenants. We appreciate the continued support we have received from our lenders as we have managed through this challenging economic environment as well as the more recent impacts of super storm Sandy. As you know, during the quarter, we closed the Peninsula transaction. Our financial statements reflect Peninsula's property results for the stub [ph] period since November 20, the date of the transaction closing. We have provided this additional information GAAP income statements for the full quarter and year in the back of our earnings release. The preliminary purchase price accounting for this acquisition has been completed and the impacts are reflected primarily in 2 places: Depreciation and amortization; and interest expense. I will point out the impacts as we discuss these line items in more detail in a few minutes. Additionally, we are required to present Peninsula going forward consistently with our reporting methods. One change you will note relates to corporate expense. Peninsula will now allocate a portion of their corporate expense to property operations. Previously, Peninsula did not allocate any of their corporate overhead. We expect about $3 million to be allocated to the Peninsula properties in 2013 that would have previously shown up at Peninsula as corporate expense. Now let's move to the balance sheet and then I will discuss items from the income statement and provide guidance. Our total debt balance at the end of the year was approximately $4 billion, which includes $1.2 billion related to Peninsula. $1.5 billion was outstanding through our credit facility, providing approximately $250 million of incremental availability. The cash balance at year end was $158 million, of which $32 million was related to Peninsula. From a financial covenant perspective, as calculated under the terms of our credit agreement, secured leverage was approximately 3.89x, compared to a covenant of 4.25x. In total, leverage was approximately 7.35x versus a covenant of 7.75x. The transactions to dispose of the Echelon site and Dania will result in our leverage improving by over half a turn this year. Borgata's debt balance was $811 million at year-end, of which $20 million was outstanding under their $60 million credit facility. Their cash balance at the end of the quarter was $34 million. Moving to the income statement. Corporate expense, excluding share-based compensation expense, was $10.2 million in the quarter compared to $10.4 million last year in the quarter. This corporate expense number includes $375,000 for Peninsula. For 2013, we expect corporate expense to be approximately $46 million, which includes about $4.5 million for Peninsula. Peninsula's 2013 corporate expense reflects a reduction of about $4.5 million from 2012 levels. Depreciation expense in the quarter was $63.2 million, an increase of about $13 million over last year due to the inclusion of Peninsula. Peninsula's depreciation expense is greater than its historical run rate due to purchase price accounting affect. As a result, Peninsula's depreciation expense in 2013 is going to be higher than you probably expected at approximately $90 million. $46 million of this is related to purchase price accounting. Boyd's depreciation expense should be similar to 2012 levels at about $137 million, and Borgata's should be around $60 million. Excluding the impact of Las Vegas Energy, our interest expense was $63 million, which includes $10 million for the stub period that we own Peninsula. Borgata's interest expense was $21 million, about $700,000 below prior year. For 2013, Boyd's interest expense, including about $86 million for Peninsula, should run about $285 million. This may be higher than you were expecting as this estimate also includes about $15 million related to purchase price accounting for the Peninsula seller note. Borgata's interest expense should be about $84 million. Our capital expenditures in the quarter were approximately $17 million. In 2013, we are budgeting a little over $100 million of CapEx, which we will modify depending on how the business environment develops this year. At Peninsula, we expect to spend about $15 million on maintenance and about $11 million related to the continued expansion of the Kansas property. Borgata's capital expenditure should approximate $20 million. In the fourth quarter, we incurred write-downs of approximately $1.1 billion related to our land on the Strip, a land that the company had acquired for potential developments and charges related to our annual impairment testing. These were all noncash charges that are not included in the calculation of adjusted earnings per share. In terms of guidance, in addition to the information I have provided above, we'll provide separate quarterly EBITDA guidance for Boyd and Borgata. Boyd's guidance will include Peninsula. We will provide adjusted EPS for the consolidated business which includes our wholly-owned segment, Peninsula and Borgata. So with that, we expect wholly-owned EBITDA after the deduction for corporate expense to be in the range of $125 million to $130 million. We expect Borgata to generate EBITDA of $25 million to $27 million in the first quarter. Assuming a 35% tax rate and with this range of EBITDA guidance, adjusted EPS for the first quarter is expected to range from a loss of $0.05 to a loss of $0.10. This guidance includes $15 million of purchase price adjustments that represent about $0.11 per share. Operator, that concludes our remarks, and we're now ready for any questions from participants on the call.

[Operator Instructions] Our first question comes from Shaun Kelley with Bank of America.

It's actually Matt in for Shaun today. I just wanted to start with Atlantic City real quick. With all the recent news of the online gaming developments there, I'm getting quite a few questions on market size and timing. Do you mind commenting on your expectations for the market there and the timeline going forward, and/or the ability to enter that market through a partnership with bwin or under the Borgata brand there?

Sure, Matt. With respect to kind of timing, where the market really is up to the regulators to decide that. We know that they're anxious to get the process going and to get online gaming started in New Jersey. Our job really's to be ready to launch a product once the regulators approve it and we will be ready. We'll be leveraging up our relationship bwin to do that. And so we look forward to the opportunity to participate there. But I don't have an exact date for you because regulators haven't shared that with us. With respect to market size, I think it's been reported of being anywhere from $200 million to north of $1 billion in New Jersey. We certainly, with our brands and our partnership with bwin, would expect to get more than our fair share of the market. So we're excited about the opportunity and we look forward to it.

And then back on Kansas Star, I was hoping you could revisit your expectation for Peninsula after 3 full months since the transaction closed and with the expansion fully opened now, I was trying to get an idea of what you're seeing there if -- it slowed a bit or if it's more of a general consumer trends you've seen across the other regions. Just trying to get an idea where you're head's at going forward.

I think as it relates to Kansas Star and maybe Peninsula more broadly, I mean, these certainly are impacted by the same issues we're kind of seen throughout the Midwest and South. With that said, the Kansas operation near Wichita is a very, very strong business. The expansion added a necessary component as they were part of the overall bid that Peninsula ultimately was successful in obtaining that license that are not efficient from the standpoint of EBITDA margin, EBITDA generation necessarily. And food and beverage outlets have a very different contribution, for example, than the gaming operation, which opened very, very successfully and very strong. So we'll need to drive more revenue to achieve similar results. And that's really the trend we're seeing. Very, very nice product, but with that said, a property that had already developed a very, very strong following.

Alright, the next question comes from Felicia Hendrix with Barclays.

Wondering first if you could just give us the -- help us or quantify for us the impact that -- of the EBITDA from the sports book? I'm just trying to kind of parse that out from what the flow-through might have been from your new initiative.

Hey, Felicia, it's Paul. I think as it relates to sports, I think everybody in the fourth quarter talked about the kind of luck of the consumer and football in particular. And if you look at the year-over-year comparison, I think my comment was a substantial portion, it was near 1/2 of the difference year-over-year in EBITDA.

Okay. Great. And then should we expect to see a pickup in flow-through from your initiatives? I mean, does it -- should it ramp or are you kind of all implemented now?

Well, I think it'll ramp relative to the prior year comparison. We are fully implemented in Nevada. We think it gives us certainly opportunities outside of Nevada as well and we're kind of formulating those plans. But whether you look at it from a year-over-year perspective, we believe it's an important part of our marketing initiatives for 2013.

Yes, clear. I was kind of thinking, obviously adjusting for any seasonality on a sequential basis, but you answered my question there. And then just with Echelon sold, just wondering if we should think about any kind of long-term strategy you might have for Las Vegas Strip offering for your regional customers?

Well, right now, our current strategy really is focused on the financial position of the company and shoring that up. Long-term, we certainly are committed in Las Vegas. We have 2 large businesses here, both in the Downtown area and the Las Vegas Locals market. They have over 9,000 team members sharing the market. So we're very committed to Las Vegas. And longer-term, we do see ourselves back on the Strip, just in the current process, in the current term, it's not the right move for us.

Okay. Great. And then just finally, for Josh, you guys you talked a little bit in your prepared remarks, some of the things you've obviously -- you guys have done a lot to improve your balance sheet so far but just kind of going forward, can help us think through some other things you might do to continue to reduce the debt other than just growing EBITDA?

Yes, sure. Thanks, Felicia. I think we're not going to lay out the specific plans just like we would on a historical basis do that. I think we continue to be very focused on improving the balance sheet, we have a lot of initiatives that we are considering implementing over the near-term future that will accomplish that. And so that's what we're going to really focus on and we'll let you guys know as we kind of accomplish those rather than lay them out today.

The next question comes from Joe Greff with JPMorgan. Joseph Greff - JP Morgan Chase & Co, Research Division: Paul, you made some encouraging commentary about the trends in the Las Vegas Locals market. And just to make sure I understood them correctly, you're talking more about visitation and customer counts. Can you talk about what you're seeing on a spend-per-visitor or spend-per-trip basis? And then I have a follow-up.

Sure. Customer counts are up. Spend per visitor is down. And I think that ties back to really my opening comments about the economy, broadly speaking. Same exact trends we've seen in prior quarters, the higher end of our database, we refer to as emeralds and sapphires, continues to do very well, and more challenging as people with certainly less disposable income or less propensity to see a casino as a form of entertainment are impacted by kind of the broader economic issues. Joseph Greff - JP Morgan Chase & Co, Research Division: And then it might be early but going back to the New Jersey online topic, can you give us a sense of what you estimate the set up cost might be and then what might your proportionate share of those costs would be?

Well, in New Jersey, the license will be held by Borgata and they will incur the cost. We don't have a handle right now. I guess we're not prepared to discuss kind of set up cost. They will not be significant. Most of the costs will come in the launch of that and the marketing of that product as opposed to the set up itself. And so once again, we're just preparing ourselves to be ready as soon as the regulators get everything approved and are ready to welcome us to offer a product.

Joe, I would add to that just briefly, and say that the setup that you may be thinking about really comes from the relationship with bwin. They provide all of the technology and the "back of the house" infrastructure and then it becomes a marketing business after that.

Next question comes from David Farber with Crédit Suisse.

I got a couple of questions. On the Peninsula acquisition, I was just curious, can you guys remind us the management fee structure you have with that entity? And then I have a couple of follow-ups.

Sure. The management fee is structured as 2% of net revenues and 5% of EBITDA.

And did that come in the quarter post the closing, just the partial quarter?

Yes, it's come since the day we closed the transaction. You can actually see it on the financial statements in the elimination section of the deconsolidated income statement that shows the amount of the management fee.

Okay. That's helpful. And then on the Echelon sale, congratulations there. I was just trying to get some understanding around the numbers you provided. So you sold it for $350 million with net proceeds of $157 million. Can you just sort of walk us through the math there that gets you to $157 million, given how the LVE Energy entity works? That would be helpful for me. And then I think I just have one other.

Sure. There are a lot of components to it. I think I'd break it down into basically -- I mean, the biggest component is obviously, LVE. They will receive basically $187 million. And then the remaining portion is just bits and pieces of transaction costs. That as simple as it is.

Okay. Maybe I'll follow-up with you off-line. And then you mentioned there was $16 million of costs that are going to be eliminated. Can you just sort of parse us through what of that $16 million shows up the cash flow statement and then maybe what shows up in the income statement?

Well, the $16 million was all recorded as preopening, recurring preopening cost. So they represented the storage cost, security, insurance, property taxes, things of that nature that we will no longer be required to cover owning that asset.

Okay. So that sounds like all income statement.

The next question comes from Thomas Allen with Morgan Stanley.

On the Echelon sale, how did you come up with the sale price? I think it was around $4 million per acre. And were there other bidders?

Sure. Well, look, we're very excited by this sale and being able to monetize this as a non-core, nonstrategic asset. We think a lot of transactions -- sale price is always a process of negotiation and at the end of day, we think it's a very fair price for the site, allows us to deleverage, pay down some debt and it's going to offload some recurring maintenance costs that we have on the site and focuses us on our number 1 goal of improving our balance sheet. So overall, we're very pleased with the transaction.

And then I think some other companies have been talking about how delays to tax refunds really impacted them January. Are you saying -- I mean, do you think you felt that impact and are you seeing any recovery now that refunds are coming back?

I think tax refunds do definitely spur some spending by the consumer, a little bit like found money. Clearly, they came in or started to come in much later this year and I think it does filter through to everyone in our business as well as frankly other areas like retail as those refund checks come in. It is a positive and it was delayed. It was not in January at all this year.

The next question comes from Kevin Coyne with Goldman Sachs.

Just one on the Borgata regarding business interruption insurance. I was wondering if you could put an estimate around what you expect to receive and the timing of cash proceeds.

Sure, Kevin. As we all learned with respect to these hurricanes and storms, these are very long, complicated processes. The reality is, we just settled up in the fourth quarter of 2012 from the hurricane that struck that area in August of 2011. So we're just in the beginning processes of assembling the data, talking to the insurance companies and working through that. We'd expect it will be probably into next year before anything happens. It's, once again, a very long, complicated process that we've all come to learn.

Okay. Regarding the sale of LVE, Josh, I know you mentioned that the $16 million of Echelon cost savings. But I guess with LVE, there was a $11 million annual projected fee. Is that included in the $16 million or maybe you could give a little color as to whether that will be in other cost savings?

Thanks for pointing that out, Kevin. That is part of the $16 million. It's the biggest part of it.

Okay. And then the -- can you give a sense as to the sale of Dania, what that will have on run rate EBITDA going forward so that we can normalize that out?

Yes, Dania was running at a loss of about $4 million per year, so that will be eliminated.

Okay. That's helpful. And I know, Josh, you mentioned in the past that you wanted to perhaps address the near-dated sub notes in terms of refinancing. Is that something we should expect in the near term?

Might be a reasonable assumption.

Okay. And then just a bigger picture. With some recent announcements in addition to your Echelon project with MGM building the arena, any sense you have as to when the Locals market will start seeing the benefit of these jobs that could potentially pick up? Is it something we could start to see in '13 or would there be more an inflection in '14?

Well, certainly, a lot of positive news out there with respect to Las Vegas, whether it's the sale of the Echelon site and a buyer who's going to start a project in the near-term and create thousands of construction jobs or whether it's MGM building an arena, whether it's record visitation to Las Vegas in 2012 or the convention authority announcing a $2.5 billion project. There's an awful lot going on that will all serve to strengthen the economy here and the strengthen the local market. And so we're looking forward to that. If those projects start in 2013, and we certainly hope that they do, then I think we'll see an immediate benefit. And if those projects start in '14 then the benefit will be delayed until '14 but there's an awful lot of positive momentum here in Las Vegas with projects I just talked about, so we're excited.

Great. And if I could just squeeze one more in on online gaming. If MGM is able to get its license back in New Jersey, how does it work? Is there only -- does Borgata only have 1 online license where you would collectively operate a website and share in the earnings of that? Or could you each individually operate a website? I'll listen to the answer.

I'm not exactly sure of your question, Kevin, but there could be multiple websites through that license would be the contemplation.

Yes, Borgata will have the license. As the operator of Borgata, we will operate that product. There could be multiple brands as part of that or multiple sites but it will be operated under the Borgata license and we will head that up.

So to the extent that MGM obviously, owns 50% of Borgata and Borgata's the licensee, and MGM participates in that site.

Next question comes from Lawrence Haverty with GAMCO. Lawrence J. Haverty - Gabelli Entertainment & Telecommunications Acquisition Corp.: Josh, I'm just thinking, what is the total of all your NOLs as you go forward?

Well, they could be quite large. I believe the number related to Echelon is about $750 million. We will also have a loss, a tax loss related to Dania as well, and I think that number is on the order of $60 million. So those are obviously, going to be the 2 big components of any tax loss going forward -- tax loss carryforwards going forward. Lawrence J. Haverty - Gabelli Entertainment & Telecommunications Acquisition Corp.: And were they all against operating EBITDA?

Well, yes, in effect, yes. Lawrence J. Haverty - Gabelli Entertainment & Telecommunications Acquisition Corp.: And then what's the average interest cost on the Borgata notes or the Borgata debt?

Well, about 1/2. There's $800 million round numbers, about $400 million at 9 1/2%, and about $400 million 9 3/4%. Lawrence J. Haverty - Gabelli Entertainment & Telecommunications Acquisition Corp.: So I mean, just casually looking at Borgata, it's very, very hard to see that there's a whole lot of equity value in the situation. Do you contemplate perhaps a resolution of the partnership or now with the -- because I guess that is going into a trustee or something or other and now with MGM's licensing, that's all stirred up the pot, if you will?

Well, I guess our view would be that there is in fact equity value there and we would view that it's only enhanced going forward, not only by the operations of the asset and the position of Borgata relative to the market in general but the opportunity with online gaming also further provides benefits to that asset. So -- but absent that, even the online benefit, we would say that there's equity value there. We believe there's equity value there, and we have stated our view that we would be willing to buy the other 1/2 of Borgata had MGM had to sell it. Now they're a great partner of ours and have the opportunity to potentially come back in as our partner and we welcome them in. And so that for the long-term kind of positioning perspective of Borgata, we continue to like its position in the market and our ownership of it and continue to be supportive of that asset. Lawrence J. Haverty - Gabelli Entertainment & Telecommunications Acquisition Corp.: So but currently, their share is in a trusteeship or something or other?

Yes. Lawrence J. Haverty - Gabelli Entertainment & Telecommunications Acquisition Corp.: Is there a clock ticking? I mean, does the trustee have to act before perhaps MGM could recoup its license and then can MGM do something to get the thing back from the trustee? I'm just thoroughly confused.

I think we really need to ask those questions to MGM but their plan is to get relicensed and it's my understanding that any clock that was ticking has stopped while they go through that process.

The next question comes from John Maxwell with Jefferies. John Maxwell - Jefferies & Company, Inc. Fixed Income Research: Paul, I was just wondering, the estimates that you've kind of factored in for Borgata going forward, obviously, Revel didn't have -- seem to have any impact on you in '12, but any thoughts as to what you would think the -- if obviously, they step up marketing now that they're going through a restructuring, does that -- has that been factored into your thoughts on how Borgata will perform in '13?

I would say that first up, Revel opened in April and it absolutely had an impact on Borgata and the entire Atlantic City market. It wasn't terribly successful in growing overall gaming revenue in the market but it certainly had an impact on taking away and impacting efficiencies that all the properties had. Obviously, as they go through their second early restructuring, the first was during the construction phase, they will come out of it and I'm sure that team there is a good team. They found a lot of different ways to market that property. They obviously have some challenges and they're not going to go away. And we expect they will continue to be as competitive as they possibly can, both before and after the restructuring. John Maxwell - Jefferies & Company, Inc. Fixed Income Research: Okay. And then maybe just on the Delta Downs a little bit, you had a nice pop there in 2012. Was that anything specific to what you were doing there or do you just saw the overall growth because it does seem to be one of the outperformers this past year.

Well, the team at Delta Downs is really an outstanding team and we were able to continue to ratchet up very, very effective marketing strategy to drive gaming revenue. And as you can see in the cost structures that we've developed in our properties, when we can achieve some -- even to some extent modest gaming revenue growth, it really flows through on the EBITDA side. Now the south, southern Louisiana in particular, has been frankly the strongest market in the country, and that is based on broader economic things that are happening in Texas and Louisiana are related to oil and gas and I think it is a foreshadowing of what an expectation can be on our business to the extent we can get some help from the macroeconomic issue around the country. John Maxwell - Jefferies & Company, Inc. Fixed Income Research: Okay. Appreciate it. And Josh, I'm not sure if you are going to answer, but in the press release, you break out what IP provided for the 3 months of December of '11. Do you have 2012 numbers that we can comp that to?

No, we don't, John. Sorry.

The next question comes from Dennis Farrell with Wells Fargo.

Two questions. One, in regards to Borgata, can you could provide us an update on the property tax appeal and the potential outcomes there? And my second question is in regards to capital allocation of free cash flow the next couple of years, what are your thoughts on debt pay down, incremental acquisitions or greenfield opportunities?

So regarding the property tax appeal on the Borgata, I think the only thing I can really say is that it's going to trial in late March and we won't provide any commentary other than the fact it's going to trial in late March and we're hopeful of a positive outcome. So we will see what happens when we go to trial. With respect to I think capital allocation going forward over the next of several years, I think you'll see us use our free cash flow in 2 main areas: One is maintenance capital and we usually provide some guidance on what we think maintenance capital is but beyond that, it will be debt prepayment to continue to strengthen the financial position of the company. I think acquisitions are probably a little further in the future as we once again continue to look to shore up our financial positions.

I think your last question about greenfield development probably is the furthest down that list, given this current dynamics.

Okay. And then just a follow-up. In regards to some of the other players in Atlantic City, I mean, what has been the outcome of their property tax bills?

The other players in Atlantic City, I think, have all settled with the city in some form or fashion and received substantial tax credits, if you will, or substantial reductions in their overall valuations. We are certainly expecting or hopeful that we will receive something similar. But once again, this is going to trial in late March and it wouldn't be appropriate to comment given the fact that it's going to go to trial.

This concludes our question-and-answer session. I would now like to turn the conference back over to Josh Hirsberg for any closing remarks.

Thank you for participating in the call today. If you have any follow-up questions, feel free to reach out to the company. Have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.