PENN Entertainment, Inc. (PENN) Q4 2009 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Penn National Gaming fourth quarter 2009 conference call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions) As a reminder this conference is being recorded Thursday, February 4, 2010. I would now like to turn the conference over to Mr. Joe Jaffoni, Investor Relations; please go ahead.

Good morning and thank you, operator. Thanks to everyone for joining Penn National Gaming 2009 fourth quarter conference call. We’ll get to management’s comments momentarily as well as questions-and-answers, but first I’ll quickly review the Safe Harbor disclosure. In addition to historical facts or statements of current conditions today’s conference call will contains forward-looking statements that involve risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company’s current expectations and beliefs, but are not guarantees of future performance. As such, actual results may vary materially from expectations. The risks and uncertainties associated with the forward-looking statements are described in today’s news announcement and in the company’s filings with the Securities and Exchange Commission, including the company’s reports on Form 10-K and 10-Q. Penn National assumes no obligation to publicly update or revise any forward-looking statements. Today’s call and webcast may also include non-GAAP within the meaning of SEC Regulation G, again as when required a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are found in today’s news announcement as well as on the company’s website. With that I’ll turn the call over to Peter Carlino, the company’s Chairman and CEO. Peter?

Thanks, Joe and good morning, everyone. Well, here we are again at the end of another year and I can’t say I’m sorry to see it go. Looking forward as you can see from our guidance, we don’t see a whole lot of reason for enthusiasm in 2010, but, there are nonetheless, a tremendous number of good things on the horizon for our company, probably more than we have accumulated in our history at onetime. So it is a very, very interesting time to be in this business and we have lots to say about all of this, but consistent with our usual practice I will forego comment and let you folks lead us to where you would like to be with the absolute confidence we will cover everything that matters. Here with me today of course is our entire Senior Management Team as is our style so we can thoroughly address any issues that you might raise. So with that in mind, let’s discover who is first on the line, go ahead, operator.

(Operator Instructions) Your first question comes from Felicia Hendrix - Barclays Capital

I am going to start Q-and-A off on a really high note here. So looking at the margins at a lot of your properties a bunch of them just didn’t look terrible quite frankly Juliet Tunica Bay St. Louis, obviously the revenue environment is tough but I was hoping you could walk us through what you are seeing at some of those properties and kind of help us think through what we should expect bottom lined for, the following year.

Where would you like to start, Felicia? This is Tim.

Well, the ones that missed us the most were Juliet Tunica and Bay St. Louis but every property basically missed.

Well, Juliet, as you know, we are operating with just the casino right now. We don’t have much to sale there, and the competitive environment has increased in the fourth quarter. Labor is being managed well. We still have opportunities to be more efficient with our marketing spend there. We did open in the beginning of this week our new parking garage there. So I fully expect we’re going to see margin improvement Juliet from what you saw on the fourth quarter. In the south, let’s go to Bay St. Louis, one things we’re seeing with all consumer trends in the south, and I believe it’s because what we saw a year ago was that the recession was late hitting there and we’re now catching up to that and we continued to see more softness than anywhere in Southern Mississippi and Southern Louisiana. Specifically in Bay St. Louis the promotional spending in that market driven by our key competitor in Gulfport, is deteriorating all of our margins and we’re trying to continue to find ways to protect our share, but not overspend to protect that share. So, we’ve got a very aggressive competitor in Gulfport that’s making it very difficult for us to key business there at the spending levels that we’d like. In Tunica, it was a little different. We’ve been improving margins there we had some unusual adjustments that negatively affected the fourth quarter in excess of a million dollars of adjustments for inventory bonus and severance, some repairs remade to the building and increased health care costs. I do think those were onetime occurrences in Tunica and I don’t expect that to be a recurring theme. The promotional environment in Tunica is not like it is in Southern Mississippi.

Are there any other properties that just surprised you that you might want to highlight?

The other one continues to be Charles Town that’s one where we’re seeing some softness. We did have some weather effect in December, but even through the entire quarter, we still saw softness there, in the market. It’s an opportunity we continue to look at to improve our efficiency of our marking spend. Again, labor is being managed well. We did see in line performance in the month of January, in the Charles Town, but again we’re trying to get the right mix given the introduction of tax free promotional credits in that market to make sure that it is as efficient use of those marketing dollars as it possibly can be. That’s the theme for Charles Town as we get into to 2010 as well.

If you’re just pretending we’re in a normalized environment in Charles Town, I mean, obviously with the tables it would pull your margins down a bit. I mean so it’s been a robust margin for generating property. How should we think about in a normalized environment, what margins might look like with tables?

With tables?

Yes.

That table tax rate is going to be 35%. So I don’t think it’s going to be enhancing our margins in Charles Town given our labor component there. I think net-net we’re probably in the 27%, 28% area.

Just moving on, in the release, you said that, you guys have been doing a lot of studies or poling or just trying to kind of get a gauge of where consumer sentiment is going forward. It seems slightly cautiously optimistic, but more favorable than what you’ve been seeing. I was wondering if you could touch upon that maybe what you’ve been seeing in January.

Basically, that was the middle of that term. If we gave you a sense that we think it’s favorable, probably made a mistake. I’m being cute about that, but look the trends you can take the view that things are, or the deterioration is slowing, and maybe we can say that, but, this is guess work looking forward. We said that to you on calls before. We don’t have a clue. We really don’t have a clue where this year is going to go. We had some optimism looking back more than a year ago that ‘09 by the latter part of the year was going to be more positive, but now, having been chase by the results of 2009, we don’t see a lot of reason for enthusiasm in 2010. Now, putting aside a lot of the good things we’re doing that are going to be very, very positive for earnings and growth for the company. I mean that’s new start and if you look at our core properties, core business, customer behavior, I think I speak for most of the folks around this table. We really don’t have a clue. Bill will probably spend a little time talking about kind of what we’re currently seeing maybe that we can spend a little time with that. We think it is kind of in line with what we’re telling you. Now, we welcome anybody who wants to call us with a more robust and hopeful view of where this is going. We’re trying this always to be realistic to be able to give you our best sense based on what this early feel. That kind of leads us to what we presented for the year going forward, so it’s not, it’s a bit science, but it’s a lot of art and maybe a smidgen of prayer.

This is Bill. What we’ve done is a lot of internal trend analysis for lack of a better description of it, which is indicating that the latest decline is slowing, but rate of decline is slowing is not good news, what that just means is, it is getting bad slower and we’re not on the pace to 0 that we were before. So what we’ve done is, taken those trends on a yearly and quarterly basis. In the fourth quarter, it was clearly another leg down. Some of that in December, and I don’t want to take a lot of comfort with this, but some of that in December was weather related, but if we look out at January, which quite candidly there wasn’t really a weather problem, at least aggregate basis and snow days. We were down in total roughly 3%, but if you take out both Penn National, yet which we’re doing for internal purposes at the close last year. January’s numbers revenue numbers were down 5.3%. If there’s good news relative to a liability forecast, one thing we were able to do is, we put together these numbers in December before January started, and candidly we were behind our own internal forecast up until the last weekend of the month and we then we can roaring back. So if there’s any good news, the only good news I have that the last week of January was exceptionally strong. I think that’s a combination of the fact that for the most part all of our properties we had good weather and we had no football. So, it was a pretty boring weekend for people to do. So they seem to come out and enjoy our facilities. Looking forward, I will tell you that one month is a lot easier to get a handle on in three months and three months is easier than six and six easier than nine and etc. So, when Peter says, we don’t have a clue, he’s absolutely correct, what we’ve got is historical data and trend for which we’re going to try and look forward. I don’t see anything out there that gives me a lot of comfort that all of the fund we’re going to see in some kind of a major up tick in the employment rate or anything else that would cause our customers to get all of the sudden have a change of heart relative to their outlook today. Look, beyond that, there’s a political overlay to all of this that we all are watching as we pick up the news papers everyday. It is not a very positive one. I am going to tell you as we look ahead and look at what government is up to these days, it is one small moment on that subject. There’s not a lot as a citizen or a business person in this country to give me a lot of comfort. There’s a lot of stuff that overlays all of this. So we have a very conservative, we hope for 2010. Tim, do you have something want to add?

Yes, one thing, Bill said just a correction. Empress was not closed last year. The up tick for January was just really Lawrenceburg, and Penn National. I didn’t know those numbers were right. I just wanted to make the minor correction.

Tim, can you make a comment about Lawrenceburg last weekend?

Yes, as Bill said, it’s the good weather and not much TV to occupy people’s times on weekends. We continue to see reasonably good growth from our capital investment in Lawrenceburg, 8% to 9% in the fourth quarter and we had record attendance levels on Saturday. In fact onetime in the boat, we had near 6500 customers, which is all time attendance record and very strong volumes in Lawrenceburg and this is the time of year in our regional markets, especially in the Midwest and east, if we have good weather, and on weekend that’s really where we get peak volumes, and Lawrenceburg is just one example of being bale to peak-to-peak when those conditions exist.

Yes. So we will take that as a data point, too early to say it is a trend or it’s nice to have a data point like that Felicia. Look the margin issue raised is one that’s always in our consciousness, one that we will continue to work at very, very hard especially as we have a view about where 2010 is going. So it’s a very serious issue. I think you’ve got our view of the year. Has that come close to answering your question?

It has, and then just finally, is New York totally dead or is there anything hope there?

Well, we had, I’ll say it to everybody obviously, that we had a robust discussion about New York before this call. We usually come together about 45 minutes before and decide what’s important, what’s not important, what we can say candidly. So New York came, up as you might guess. You’ve read the headlines; I should get our shippers to read some of the headlines that we follow at New York, Eric, why don’t you read that, we kind of like that one.

Yes, I think it was in New York daily news. It said something, that it’s not that sable.

We have been mystified by the process that has gone on in New York. I mean it speaks for itself. Finally in frustration as I think many know, I did letter to the Governor, asking we’re pleased to tell us what it takes this being result. There was a process that began quite a long time ago. We were one of a few bidders, by every measures look it’s very clear. We were the winning bidder. Apparently, some people didn’t like that result, so what they did was reopen the bid and we won the bid again. So, on a dollar point of view we are so far ahead of whoever is in second place, that it’s laughable. So more than that nobody does more of this in the United States or does it better than we period, so we scratch our head and say, “What is this all about?” It’s intriguing for us to note that the conditions laid upon the quote winner who was the loser, were match Penn National bid and maybe you can get there. There were a lot as you might guess rumor spread around New York, suggesting that somehow we couldn’t fund this transaction or we didn’t adequately support our unions and all kinds of silly stuff, that was just [chap] thrown in the way of our bid. We’d answered all of that. When the question of money came up, we said fine we’ll put the money up front. We’ll get it in your budget this year, we put it in escrow, put it aside, nobody has matched that or come close to that. We simply said, “Governor, please tell us what it takes to get this resolved”. Then you saw the results. Now, the Governor clearly is not the only party to this choice and selection. Enough said on that, but we really do scratch our heads. Eric you want to make a comment.

I just want to add, there is another rumor that appears to be out there now that somehow our [Safeway] conditions are passed all that and that is not the case, our was $301 million in cash up front, not condition on any kind of tax relief.

So I leave that all to conclude, whatever you can conclude about the process in New York. We are the winner, we are the best qualified, there is no number two period there just isn’t. So why we are not there today, I cannot tell you. I leave to New York or whatever other investigations will probably follow from this process to decide. So I can’t say anything else about that. We’re frustrated, we’re discouraged, but it is what it is.

We weren’t the winner obviously, but we had the best bid.

We are the winner. We leave it to you all to determine what’s going to happen there.

Your next question comes from Larry Klatzkin - Chapdelaine.

You guys have a hell-of-a-lot of projects ahead of you, its pretty exiting. A couple of regulatory questions, the slot vote, do you think that’s going to get voted on when you see the outcome. Of course you actually have a track possibility here. So, it could be a good thing for you, too. What do you guys view on that?

Where Larry?

In Ohio, the slot vote…?

Who wants to take that, Eric?

You’re talking about the May election on the relocation…

The slot vote in November.

I’m not real sure, how you would handicap it given that you’ve now got issued three out there, which is you’re going to have the four casino in the State, its anybody’s guess at this point, but there has not been a correlation that has formed yet to try to support or oppose it. I’m not real sure, how you would handicap it given that you’ve now got issued three out there, which is you’re going to have the four casino in the State, its anybody’s guess at this point, but there has not been a correlation that has formed yet to try to support or oppose it.

We’ll get in the past to be clear, we’ve always supported slots at the racetrack, and we’re not opposed today. But this is an issue, obviously we are now focused on the next thing that we have in front of us that is [productively] in hand. So, where this all goes and whether the tracks, they’ve always struggled to kind of bring themselves together to make a coherent case. We’ll be able to get this together. We’re track owner, and look for racetrack people.

Would you spend any money on at Penn National?

I don’t think we’d spend any significant money. Whatever the group would that come together, yes that says it best. We will of course spend our fair share.

It would be a 210 or 209 like issue three campaign though.

Tracks don’t have lot of money, that’s been a struggle all along for the racetrack.

Unless MTR want to step up and pay for it again. Second thing on table games potentials in Maryland and Maine, what do you see the possibilities on that timing and outlook?

In terms of Maine, there was a hearing yesterday, in the Legal and Veterans Affairs Committee where we did discuss the issue of table games legislation that the challenges that would require our two thirds, both of the legislature to get it approved in a way that it would not have to appear on the balance and it’s kind of complicated technical issue, but there’s another Oxford County referendum is out there and it could be viewed that a standalone table game is the competing measure, and has to be on the balance. So, we’re kind of working through that. The Committee has asked for more information on it and so we’re putting together a numbers for them, about how table games could create jobs in Maine and help build some of their budget. So we will see how that plays out over the coming week, so that’s just a comeback to the Committee as they continued to discuss that. In Maryland, on table games, the Governor has said he would like to see the facilities get up and running first. There has been a bill that’s been introduced. However, I’ll note that it did not have a tax rate attached to it and we don’t see it necessarily going anywhere this session. It would have to notably go back to state white voters and there just hasn’t appeared to be the appetite for that to happen. In the legislature, there doesn’t appear to be the appetite. Whether it would statewide ballot is anybody’s guess at this point.

By the way in Maryland, we are moving very swiftly with our construction there and we will open on time and looks like by the way as we look at cost on budget. So we look forward to being the first major facility open in the States, really good news.

That would be fantastic.

I mean the fourth quarter of this year.

Peter, are you still interested in Las Vegas and would you consider even affixed rap link the Riviera or something little better than that?

. : I think all have found that we were exactly right. We spent a fair amount of time and money by the way. A team of people really, really analyze that project and costs. I could give a lot more detail, but at the end we knew what this was going to take and size Mr. Icon wanted it, that he really should have it and now he’s got it and good luck, because it will take $1.5 billion to finish it all in. I don’t care what you do, if you won’t to have a project that’s going to be competitive, so in this market good luck. So let’s put that aside. We continue to look for other opportunities in Las Vegas. We’re fully engaged on that as we speak and we’ll continue to be. So its one of those things again, we get the right thing we’ll do something, if you don’t we wont.

Will you manage something like takeover Deutsche’s property and manage it for them instead of buying it?

I’d rather not say too much about that, I’m we’ve been asked through a lot of things, but we think what we’ve got is something very valuable that is extensive data base of folks who go to Las Vegas on a regular basis, and we want to be very careful how we use that. So only for the right opportunity would we do that I don’t think that, well let’s leave it at that.

Your next question comes from David Katz - Oppenheimer.

I wanted to just take a quick pass through with the items or the assumptions that you have on your guidance. Obviously, it’s in the interest of trying to reconcile if you look sort of a consensus EBITDA estimate out there versus what you’re guiding? My sense is that there are a number of items that are baked into that difference in conjunction with perhaps a little more conservative outlook, right. So some of us might have West Virginia table games in there for a certain amount, some of us might have some Pennsylvania table games in there. We probably wouldn’t have had pre-opening expenses in there for eight-eight, but on the corporate side, right in terms on that has been a variable number, the last year or so. Now, that sort of the goings on in Ohio are happening, how do we think about what your corporate expense should run like as we head into next year, and are there other sort of item that is you think we should call out that we should consider in baking it. You’re getting to that difference a reconciling the two versus your conservatism on the properties, why don’t you work on that?

I think what we’ve got for our corporate overhead numbers next year is around $69 million. Obviously, we continue to expect, it doesn’t really have any significant amounts for allowing and you may have certain amounts that we recognize with we’ll be spending, but it’s certainly much reduced in the current level. The other items, I mean obviously, we don’t have table games in here, because quite candidly, we don’t really have a good day for when we think it will be up and running. The state regulatory process in Pennsylvania historically has proven to be incredibly lengthy for those of you who weren’t around certainly a year to figure out whether they wanted slot distributors. So, until we get polling for Pennsylvania has got all the ductile line and they’ve got some appropriate cost structure on the regulatory side four table gains, where you can actually make money operating table gain. I think we’re just going to hold off in terms of our expectations and that doesn’t mean that in anyway that we don’t think it’s coming. We do. We’re just not sure which quarter it’s going to show up and then it could be if there’s any kind of hitches, you could flip into fourth quarter or into next year.

Before we leave that, I just want to make sure, when I heard you right. You have said 69-ish?

Yes.

Million.

Yes.

And that sounds like, if there is a meaningful up tick in corporate expenses as a result of lobbying etc. that’s really not baked into what you have here.

No. That’s right. Certainly, if we were to enter into a major effort and some new jurisdictions area, that’s not on the drawing board similar to what kind of happened last year with Ohio, which we didn’t expect for a whole bunch of reasons. When we started off the ‘09, Ohio wasn’t we thought that last year to happen and then things started to unfold, we got involved and obviously it ends up incredibly fantastic result, but we’re not baking in some effort one look like. Eric, we got nothing to add, looking at the table, right. I can’ think of what state would cause us so I think we can rest it at that. Other than that I think it’s I’m not really trail with point out. Perryville, we don’t have any results there. I mean, again expect those in the fourth quarter traditionally your first month or two of operations on that they take some time to work through you labor efficiencies and other cost structures. So, your first month or typically aren’t less profitable. Anyway so we’ve left those up and we’d say we only have a month or two potentially a result. We’ll see what that ends up. Other than that I’d say just generally looking at where we see trends developing from ’09 and it’s looking forward to ’10, again expecting that its going to be rough year.

So there’s nothing particularly on the cost side, because if I just take it one step further my sense is that people are more likely closer to where your revenue is than they are to where your EBITDA guidance is. There’s no sort of items on the cost side or particular, across the portfolio profit pressure that we can point to?

No, except that, as I stated in declining revenue environment. I think we currently focused on margin and we currently focused on controlling labor costs. I think the reality is that we have extracted the easy stuff [Inaudible] pulled out of our cost structure and I think as we go forward we’re going to struggle to keep or basically we reduce cost with the revenue decline that we’re starting to get point where we’re just not as effective as we can being able to match the revenue decline in operating cost declines.

We’re still not willing to give up the kind of customer experience that we think is important. So, I think Bill said it best we are going to close it when -- that cost point of view about where we need to be.

If I can ask a quick follow-up about Ohio, we’ve had a couple of discussions about sort of the goings on and potentially moving the site. Is there an outcome on the spectrum, whereby you put this thing back to a vote and the whole thing goes away entirely, where there is neither site?

David, this question is going to go to the voters in early May, is just about the location. If there’s going to be gambling in the City of Columbus, if either Downtown Arena District site or the west site, Dolphite location site. It is just the location question. There will be a casino in Columbus. It’s just a matter of where.

Is one site more expensive to you than the other?

No, we’re neutral on the sites quite honestly, we’re neutral. This is simply a matter of trying to accommodate local wishes. By the way for the record we did talk about up front, and before this whole process started, it didn’t protect any of this opposition, but it has arisen. We have worked, as you would have guess to be cooperative. All hands kind of got together and actually got this to the legislature which is very positive with a lot of support and we got on a single issue. So, I think there is real reason for optimism that this will pass, but if it doesn’t we just fall back to the original site. So this is good and good, there’s no bad news for us.

Your next question comes from Joe Greff - JP Morgan Asset Management.

You talked about most of things that I wanted to take about this morning. I just have a follow-up on the 2010 EBITDA guidance and round numbers for the first quarter, your EBITDA, you targeting to decline about $20 million and then for the full year, you’re targeting flat EBITDA that obviously implies EBITDA growth in the last three quarters of the year. Can you talk about what’s driving the last three quarters of year? Is that pre-opening expenses or hitting in the first quarter? Do you have some contributions from West Virginia table games in the back half of the year? Can you help us understand the dichotomy between the Q1 and the rest of the year?

A big chunk of that is the fact that in February or racially the entire second quarter till its closed on a year-over-year basis, and then the rest of that is relative to the pre-opening. Most of that candidly back end loaded. We’re picking up some revenues obviously that will continue to grow. Lawrenceburg should be doing better than second quarter obviously and the third quarter it will be year-over-year flat comparison. When we said, there is some assumption that we are not expecting 5.3% revenue declines throughout the whole year, and as we’ve seen a trend that shows revenue declines are getting a little better. So by the end of the year, we should start to see year-over-year, where the revenues are more inline with last year reflect our hope. If the trend line holds true by the fourth quarter we should see some period were it flat and maybe even slight up tick hopefully in that trend line we’re indicating.

I don’t know if you gave this cash debt CapEx for the quarter and what CapEx is by quarter for 2010?

Total cash at 12/31 was $713.1 million of which $555.9 million of that is in the unrestricted subsidiary debt and breaks out between the two revolver pieces, $85 million of the revolver, which is LIBOR of $1.25 million and $152.4 million of LIBOR plus $275 million and then on the B tranche, we’ve got a $1.518 billion and LIBOR plus $175 million. Capital lease is $1.4 million, bonds issue is $2.335 billion due to total debt. CapEx for the quarter was $61.9 million or $62 million if I round it off, representing $39 million of project CapEx and maintenance CapEx of roughly $23 million. Looking forward in the first quarter, we expect CapEx in the first quarter to be $139.5 million, which is made up of $100 million of project CapEx with roughly $38 million of maintenance CapEx and then for the year, we expect project CapEx to be $128 million, maintenance CapEx of roughly $196 million. Some of that is carryover from last year about in terms of lasting higher run rate.

I was just going to add something, Joe. Yes, we just haven’t touched on yet completely, that is this facility is still dramatically limited, it’s just open. Not a single amenity really except what is on the vessel and we have yet to open a pretty exciting new facility there that we think in total upon arise new facility and so forth. We will begin to have a pretty strong impact. So even though it is open and operating, we’ve not seen the full result yet until we deliver the full product. So we’re excited about that, which is not expected to come online until the very end of this year early 2011.

Your next question comes from Steve Wieczynski - Stifel Nicolaus.

Just one question really for Tim, Tim, just trying to get a sense of, if looks at your broad portfolio right now, what type of customer is walking through your door today? Just basically trying to get a feel for rated versus non-rated player?

Steve, it’s essentially the same customer that’s been coming through our door over the past couple of years. It’s about 65% rated on average and it up slightly, but not materially. If the same customers coming, trips continue to be flat, and the continued trend of spend per visit is down. If you look at place like Lawrenceburg that used to do $130 win per admission, that’s number from the three to four years back, it’s not doing about a $100 win per admission. Volumes were up there with the new capital, but just generally what we’re seeing across the entire portfolio properties and that’s a trend that has been rung through 2009. Customers continue to save more, and are more prudent at spending their discretionary dollars, but they’re still coming to game or they’re just gambling at the lower threshold and you see it too and how they’re playing the slot product. You see continued trend to play the low denomination slots, you see forward dollar players that are now playing $0.01, $0.02 games. That is just again reflective of them tightening their budgets.

Maybe one more if I could, in terms of West Virginia and what you guys are incorporating in your guidance for table game. If you could just give us some, not looking for a hard number, but just try to get more directional guidance of how you’re going to building up, what you expect in terms of results out there, in terms of when table games do hit?

The math we’re using is typically what we see across our properties, and roughly 15% of slot and material markets where they have both been existing towards similar periods of time. The obviously the Charlestown what we’re expecting it takes some time to ramp to that level. So we have to built it, start off in obviously it will take a little bit of time to built up to those were you generally giving to that range. We’re expecting some margins that are not too far off our general property margin, because of lower tax rate. We got 25% tax advantage, which should help offset a good chunk of labor difference.

Your next question comes from Dennis Forst - Keybanc.

I had a couple of questions on the totally different subject. The write-down of $520 million build, can you give us the break down of that and what is Lawrenceburg on the books now for?

Lawrenceburg, digital value is about 700 million. The challenge obviously here is that the accounting rules require if you look. When we first acquired the property, we went through still effect all the way back to when required argosy we did in allocation to first argosy in allocated that across all of the assets that we’re buying and we assign certain value based on our best guesses effect. Then what’s required is that every year we have to go through and reevaluate on an asset by asset basis, but we take through digital value of the asset is relative to its fair value and then make an adjustment to goodwill and licensing intangible. What’s ironic here is that the Ohio initiative which is basically, in my view anyway incredibly positive event for the company, in a positive event for shareholders, and translates into when you don’t with the accounting rules because you got an impairment at Ohio you have to recognize the impairment which are not allowed to recognize the value creation from a very same events its creating the first impairment. So ironically, we have a situation here where we are actually going to improving the value the company, but the accounting results say we have done an enormous charge we have to take for $500 million. This is just my personal pet peeve and will probably get me in trouble with all of the conscious certainly me friends at the accounting group. Which is into the good reason this is a perfect example of why the income statement is becoming more and more meaningless across corporate America because you simply can’t use common sense, and you have to follow the rules that are put in place.

Look. I will be clear, Bill, this is another stupid Sarbanes requirement. So it all that of that its stupid so, but it is what it is. Dennis Forst – Keybanc: On the books at $700 million is that can change your quarterly depreciation of Lawrenceburg

Goodwill and license. Dennis Forst – Keybanc: Okay and then just moving on the 8.8 million projected pre-opening expenses, you don’t have a separate line item for pre-opening. Is that just buried in G&A?

It is buried it is not included in that 69 million number I gave on the corporate. It will run through gaming expenses. We will show for those properties up and running it will get buried in side those properties results. For properties such as Maryland, Toledo and Columbus you will see a separate line item. Dennis Forst – Keybanc: That $69 million number is equivalent to what was it, past year $84 million is that right?

$84 million, yes. Dennis Forst – Keybanc: So, and the $69 million could be ratably throughout let’s say $70 million split fairly, evenly throughout the year?

That’s our expectation. Dennis Forst – Keybanc: So that’s not that far off from where you were in the first half of the year before you started spending in Ohio?

Right. Dennis Forst – Keybanc: How much did you end up spending in Ohio?

About $27 million total so that we going to get reimbursed from it’s around 24. Dennis Forst – Keybanc: There was a little item of $2.5 million loss on non-controlling interest, I guess add back for you, and look like it was 10% of Toledo and Columbus you do not add on.

Correct. Dennis Forst – Keybanc: Who owns those 10% interests? Like is your partner there?

Yes.

Your next question comes from Steven Ruggiero - CRT Capital.

Just one follow up question on CapEx, can you give us a better sense of the timing of your 2010 project CapEx by quarter or at least how much front end loaded that would be?

Well, we have 100 on the project side, of $427 million we got roughly $126 million the first quarter, I mean this stuff I am happy to give you the numbers here but I will tell you that our ability to forecast exactly by quarter is a little challenged. We are looking at $75 million in the second, $170 million in the third and another $80 million in the fourth over that tight back to the number, but little more loaded in the third quarter.

Your next question comes from Betsy Gordon - Goldman Sachs.

Could you just remind us in total what lobbying spend was in 2009 versus 2008?

Not much different. We didn’t spend a lot more than what we spend in allow expense 2.5 million in West Virginia, and I think that’s it, I mean maybe 11 million across the Board.

Okay and then 2008?

I’d have to get back to you on that one that was a big number. That was 38 in Ohio.

Then what are your expectations for any impact in Illinois from the VLTs being rolled out?

Well we don’t expect in 2010 to have any impact from VLTs, its going to take the regulators I think that long and then some to try a license fees operators. So there is no effect on it in we had other states that had VLTs and we don’t think there’s a material effect it generated for casino operations. There’s still a question in Illinois as different communities and different counties are voting to of out on whether they have these in, that’s still being played out right now.

We are already there and in fact that may result in gray machines being there once they legalize them.

A good comparable is West Virginia where reputedly or reportedly there was something close to 50,000. We were there operating for a number of years, and someone and this gray machine if you came up and I said what is gray machine and where is it. Somebody dragged me of our facility and pointed to a bar across right there. I had no idea. The basement and these things were everywhere that they license them as you know in West Virginia. The impact was zero, actually zero. So, because was going on anyway we expected Illinois should be similar.

On Kansas, just from the modeling perspective, is there any difference and how we should be thinking about it given the state ownership structure or will that be non-apparent from our perspective?

Even with the state ownership structure it should be just viewed as any other property performance are the laws in Kansas are such they own the facility everything, but everything is our capital, and if all the profits and revenues, hit our P&L just like they would any other property.

Your next question comes from John Maxwell - Jefferies and Co.

Just another quick follow up on Ohio. Depending on the vote in May, is it still your choice at which property you want to develop?

It is very clear that if the new site, the Delphi site is approved by voters we will go there. Remember this was a part of an agreement with local folks to consider moving the site if you can see improve. So, we are committed to making the move, but the other way, if we should fail, we go back the improved site.

This is centralize but the state constitution was amended and the site specific. So the designated tax parcels are in there currently for the arena district site. All this would do in a very clean and surgical way is amend those tax parcel numbers to be the Delphi site. If this goes down in May, the existing arena site stays in the state constitution and we proceed. We are supportive of this relocation. It is a site that is 120 acres in site, has good transportation access, and is a brownfield development. So it has a lot of things that I think will be of interest to certainly the voter of Franklin County, but also believe the voters statewide to get this thing passed in May. It would be very hard for voters. It would strike me to object when it is really a request from the folks in Franklin County, to allow us to move it from point A to point B. It is really why anyone should care, so we expect that it ought to pass and make everybody happy.

Yes. I guess I was just wondering from your perspective if you have done enough work in terms of whether it is site work, reading about whether there’s any clean up or, just from the cost side, that as you, if the workers through but as you get into it all the sudden you determine maybe the cost for billing that site would be more expensive than the arena district.

We are satisfied that there no material difference between the two sites may even be some opportunity because a little more ground at the new site. So, we are completely neutral on that.

Peter, broader picture if you look at it given more the environment is today, and obviously, the expectation or the hope is it doesn’t continue, but if you look at the investments that you have going forward, do you as a management team kind of step back and say maybe we got to think what we are investing at least initially to make sure we continue to keep kind of keep the balance sheet the way you’ve had it versus, I guess maybe I am just looking at Lawrenceburg as an example of a project that maybe in Hindsight maybe you don’t spend as much if given the kind of returns you are getting at that site now?

Look at the fair question; obviously we are guided by the economic climate which surrounds us in front understand, what is the world that limited today, clearly our threshold, return, needs to be very carefully thought about as we look at stuff going forward. Now, obviously Ohio will be a very adequate return for shareholder investment period. I think we all know that. The Lawrenceburg situation is interesting. This is a project that started before we bought the, the company and significant capital was already committed, I mean under construction at that time and we were headed down that path. So we did follow on. I think we did a terrific job of it. A couple of things just came out of the blue. One was the approval of Slots and Race track which was not foreseen at the time we bought the company and they had already started the project and of course which really came out of the blue and then of course we came in with a very, very high cost for the licenses, I assume nobody will be foolish enough to pay that costs they did anyway and of course they’ve had an unhappy result, but it did have an impact in the market. The other of course is Ohio we would have prepared of course to have not seen anything occur in Ohio, and I guess in one sense, but we felt for the very first that it was inevitable that something would happen with Ohio. So we made the right choice to be part of it. The net result of shareholders despite or, in view of large is still going to be terrific. We will be very excited about that, but look we are using very great care, in what we look at today. Because it is a different world let me recognize no market is safe forever, we have looked very skeptically always at the market in Louisiana. We bowed out of Shreveport its again we think Texas will have slots. Look virtually all of these states will have slots before the game is finished and it will have impact on its neighbors. So, that’s a long answer to say that we are definitely tightening our view of what is an acceptable risk and reward.

Your final question comes from Dennis Farrell - Wells Fargo.

Bill, two question once, I guess what is the current state of the restricted payments basket, basket and when you think about capital allocation going forward, and a share repurchases versus projects financing, what are your thought there?

Is that still has the number I think it is $600 to $700 million remaining. We don’t really have any limitations or any facts of limitations on that front, listen we clearly are evaluating all the time, that the opportunities that we have got, and one of those opportunities buyback own share and clearly as we expect that we believe we would get a better return buying back shares then continue we did that last year, but we certainly are doing it again. We are also mindful of the - we have got the current equity out there, which is an instrument, but we call it on a strike minimum prices is 45, and we will do 250 just downward of our stock, basis. A portion to below 45, and remains at a billion 250 through 267 and the obviously that investors have an opportunity to make the money as our stock goes about 67. We are certainly mindful that as well and we looking at other ways to potentially lock in some value on that instrument based on those happened. It clearly unforeseen at the time we entered those instruments, I don’t think we in anyway expected that our, that the economy would be where it is at, that the value of those shares would be as low as they are, but, we are looking at that as well. So I think the answer to your question is, we are not opposed to doing some financial engineering around improving the outlook for our company, on a going forward basis, in addition to looking at growth opportunities. We have a board meeting scheduled what next Tuesday I think it is and I am sure that will be an item on the agenda. So, look we always aggressively look at all aspects of our capital structure, and that very affirmatively, think very hard about where capital is best meant always with an eye toward caution. So, look, it will be interesting. I will sort of conclude our remarks by saying that let see what our competitors have to say about their experiences elsewhere, be a little discouraged of course if they’re not kind a seeing the same sort of things that we are maybe enlightened, but we have got lots to be excited about as we look forward at the future of this company. Again, my view is as the largest shareholder in business, still always the long view, doing those things that in the end will create the greatest shareholder value. That’s my one and I assure you, only interest. So with that I think we will conclude this call, and if we failed to answer any questions, unfortunately you know where to find Joe, and I am sure we would be happy to fill in any gaps, so you may have left so, with that we look forward to we hope a very positive call next quarter. Perhaps a more positive one, but a lot of great stuff going on here, I think you see that. These are just tough times. So, let’s just hope for a better day. Thank you very much.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day, everybody.