Boyd Gaming Corp (BYD) 2003 Q2 法說會逐字稿

Good day and welcome, everyone, to the Boyd Gaming second quarter 2003 earnings results conference call. Today's call is being recorded. With us today from the company is the president, Mr. Don Snyder and the executive Vice President and Chief Financial Officer, Mr. Ellis Landau. At this time, I'd like to turn the call over to Mr. Landau. Please go ahead, sir.

Good afternoon, everyone and welcome to our second quarter earnings conference call before I begin, let me make a few announcements. Certain statements made in this conference call may be forward-looking statements. The actual results may vary from what was contained in the statements. The variances could be material.

We refer you to our public filings for the risk factors you should know before you a invest. In addition to this telephone call, we're broadcasting this on our web site at www.Boyd Gaming.com as well as www.firstcallevents.com. I'm joined today by Don Snyder, the president of our company, by Keith Smith, our Chief Operating Officer and by Bob Boughner, who is the chief executive of Borgata. In the presentation part of the call, before the Q&A, I, Don and then Bob will speak and then all four of us will be available to respond to any questions you may have.

A short while ago, we issued the press release, it contained not only our second quarter results, but also other important updates and announcements, including the announcement that the -- the initiation of a clearly dividends program. We'll cover all of these -- all the things that were covered in the press release during the various speakers in this presentation. First, let's talk about the second quarter. This year we operated all nine units fully in the second quarter of 2003 and the second quarter of 2002, so, we have apples to apples comparisons.

We reported revenues that were equal to the second quarter of 2002 this year. The EBITDA, the EBITDA out of those nine units was $70 million, that's down about 10% from the prior year. And it being that I've adjusted out a one-time retroactive tax imposed on us in Indiana that was a $2.5 million gaming tax. This is our first down property EBITDA quarter since the first quarter of 2001. There is no one thing responsible for it on the revenue side. It was the Iraq war early in the quarter, sluggish economy, competition of certain markets. We saw higher costs including such things as gaming taxes and the cost of transportation of our customers in the Hawaiian visitor market.

Looking at the properties individually and let me mention some of the larger ones, Samsung Las Vegas continued to shine after a stellar first quarter it had a very good second quarter. Delta Downs has really come into its own, in the second quarter, it reported EBITDA of $7.3 million. That puts it, by the way, over $15 million for the first half of the year. Delta Downs slot machines did $241 per unit per day in the quarter. And that is about the same as last year. By the way, last year's results had a one-time boost of a $1.5 million that came from a refund in the horse race purse fund.

So, the true comparison basis is 7.3 compared to $5.2 million, a really excellent gain. Revenues were about the same and where we got it was in excellent margin improvement. We got up to 21.2 from 15.2% that was the margin last year. Blue Chip report is strong, 11.7% revenue gain. That essentially covered its gaming tax increase that was imposed last year. It did close to $22 million in EBITDA in the quarter, when you add back the $3.5 million one-time charge. That's about the same as it did last year before dark side and the higher gaming taxes came into into effect. In downtown Las Vegas, one of our three properties there had a down quarter. The other two were fine and, by the way, that property is running nicely ahead in July.

The core business of the three properties remains very solid. The majority of downtown's decline was in the cost of the air travel operations where we're not yet been able to offset those higher costs with better revenue yields. And with Par-A-Dice, it's mostly gaming taxes, we were hurt in the second quarter this year versus the second quarter last year from the '02 tax and we're going to be hurt even more in the third quarter and beyond from the 2003 tax. We will be taking steps to mitigate this increase as much as possible but unmitigated it's about $4 million a quarter of the pretax bottom line.

Looking forward to Q3, as we discussed in the release, when you look at all of our properties together, we feel that we can get back to matching the prior year period EBITDA. We think we can do that in the third quarter with the exception that -- with the caveat that we don't expect to cover the $4 million gaming tax increase at Par-A-Dice. If you look at that altogether and take that $4 million or so off, that puts Q3 property EBITDA pretty close to where we came out in the just-concluded second quarter. When you go down to the EPS line, you see that we reported second quarter adjusted EPS of 21 cents a share, versus the 29 cents that we reported last year.

That -- for the six months, puts us at 50 cents a share on an adjusted EPS basis, versus 60 cents. And adjusted EPS, as you see, excludes principally preopening expenses and they were very high in the second quarter. Our share of the Borgata preopening expenses hit us in Q2 and you see that $11.9 million preopening charge and that's adjusted out when we talk about adjusted EPS. Moving beyond the properties, we're very pleased to report that our board of directors declared a dividend to our shareholders. The seven and a half ten quarterly dividend that was declared translates into 30 cents a year annually.

We feel good about our cash flows over time time and are happy to be rewarding our shareholders in this way. Don Snyder will talk more about this in just a moment. We also reported development plans at two of our successful central region properties, Delta Downs and Blue Chip. We like make our properties better to better serve and retain and grow our already strong customer base.

Don will be discussing this more in a few moments and Keith is available for questions on those when we get to the question and answer period. And now on to Borgata, many of you have seen it by now and I hope you see why we were so enthusiastic during the whole structuring period about bringing such a beautiful next-generation property to the east coast gaming market. A lot of people, and by the way, they're not all research analysts and investors, a lot of people are visiting Borgata and a lot of people are having fun at Borgata. Bob Boughner will discuss some early returns with you in just a minute.

But let me, before he talks more about it, let me give you some interesting pieces of data. Last July, July of 2002, the Atlantic city market did as a whole $262 win per slot machine per day. Harrah's was No. 1 in the category. For the first 26 days of operation, from July 3 through July 28, Monday, July 28 inclusive, at Borgata, our slot machines are averaging $306 per unit per day. We think that places us at or near the top of the market this July in that category. Last July, the Atlantic City market as a whole did $3,122 win per table game per day. Cesar's was No. 1 in the category.

For the first 26 days of operation at Borgata, our table games are averaging $4,257 win per table game per day. We think that puts us at or near the top of the market this July in that category. For the first 26 days of operation, July 3 through July 28, Borgata is averaging just a touch under $1,600,000 per day in total gaming revenue. If you drop that statistic into last July's ranking of gaming win -- per gaming revenue per day, we would be third behind Cesar's and the much larger Bally's in gaming win. That makes us an upper quartile property. Now, keep in mind and I know you know this because you've been reminding us of this for some time.

They have 24 years of customer relationships and databases and experience and we have 26 days. Bugs worked out by them in 1979, we're working out today. Just like every other opening, just like our Delta Downs, margin improvements come over time. But we have had lots of customers from the beginning and we don't think the crowds are a one-time or summer phenomenon. We think that the best is yet to come. And with that, let me turn it over to our president, Don Snyder.

Thanks, Ellis. With those comments, I think we're all anxious to hear what Bob Boughner has to say.

But bear with me while I put a few other comments around some of the things Ellis has already touched on. In these quarterly calls, I typically put my comments in the context of our core strategies, which we've shared with you consistently in recent years. First, building an increasingly strong and diverse operating foundation. Second, creating gross strategically and thoughtfully. And third, maintaining a strong financial structure while enhancing shareholder value.

I will do the same thing here this afternoon for this quarter but we'll change the order a bit to focus on the last of these three core strategies first. It is the board's decision to initiate payment of cash dividends which prompts me to start there but as you will hear, it reflects the progress that we have made on the operating front in recent years, enhanced greatly by our success on the growth and financial fronts, with support -- supports the board's decision to initiate dividend payments.

We feel very good about the progress that we have made in recent years, while the second quarter of this year saw a roughly 10% decline in property EBITDA. It follows a confidence-building eight straight quarters of property EBITDA meeting or exceeding the comparable quarter in the prior year. Looking ahead, as we say in our earnings release and as Ellis has articulated, we expect that the third quarter property EBITDA will again meet or exceed the prior year, exclusive of the effects of the tax increase in Illinois. And again, as we say in the release, we expect the Borgata to make a significant contribution to income in 2004.

We also feel very comfortable with our financial structure and our debt ratios, reflecting the progress that we have made on the cash flow front, progress that we have had with our deleveraging program and the wonderful job that Ellis has done in structuring our debt in the past two years, which, among other things, provides flexibility to consider both internal and external growth opportunities as we have successfully in the past several years. So, with the confidence in long-term sustainable EBITDA and free cash flow, confidence that our financial structure and leverage provides the flexibility to return value to shareholders while still maintaining the flexibility to support reasonable growth, we are pleased to announce the board's approval of this dividend policy.

Our modest share repurchase program will also remain in effect as will our commitment to reducing debt if we don't have the right growth opportunity in front of us. Let me move a bit beyond the dividend policy and turn for a moment to the second quarter operating results, before then making a few comments on growth opportunities and turning the microphone over to Bob Boughner to discuss the Borgata's initial results. As Bill -- as Bill said in our release, operating conditions remain difficult in the second quarter. However, there were some bright spots, which deserve emphasis here today.

Ellis touched on these briefly and I'd like to just elaborate a bit on what he has said and go perhaps a little bit beyond in a couple of cases. Sam's Town Las Vegas and Delta Downs performed particularly well in the second quarter. Sam's Town continued to improve, following the expansion which was completed in 2000 with both EBITDA and EBITDA margins improving for the quarter -- for this quarter versus last year's quarter. And that property is receiving wonderful recognition for the gaming and entertainment experience that they are providing.

Winning recently 20-something best of awards in the recently-completed casino player survey that is more than any other properties in the local market and something we're extremely proud of. Delta Downs reported second quarter EBITDA as Ellis has touched on, excluding the one-time purse credit, that was 39% above the same period last year, very much getting us tried in the second year of operations there in denton, Louisiana. At Blue Chip, the revenue increase of nearly 12% essentially offset the increase in gaming taxes, which went into effect last August and we feel good about the progress that they're making in managing that tax situation.

Management at all three properties deserves special recognition for those accomplishments, especially given the competitive dynamics in all three of those markets. Let me now comment on the growth opportunities that we see in front of us. We've mentioned in previous quarters a number of growth opportunities in addition to the Borgata, which exists within our portfolio of properties. Today in our release, we shared two very specific projects in that regard. Both involving two of our best performers, Delta Downs and Blue Chip. First, the company will begin a $50 million expansion project at Delta Downs.

The first phase of this project involves increasing the size of the casino building to provide customers with a more open and comfortable environment, including wider aisles on the slot floor. This is made possible by recently-passed legislation, which will substantially enhance the gaming experience that we can provide to our customers. We have seen in other markets that an enhanced gaming environment can lead to increased play. The second phase planned to begin in early 2004, involves development of a hotel at the property, which initially is expected to contain about 200 guest rooms. We feel that given our premiere location and with the flexibility provided by significant acreage at Delta Downs, these rooms can increase the utilization of the 1500 slot machines in nonpeak hours, allowing to us grow the business and its cash flow.

At Blue Chip, the reasons for development are very similar. Enhancing the customer gaming experience to provide growth opportunities. Planning is currently under way for a project which is expected to include a new boat, allowing for more gaming positions and for the casino to be all on one floor, versus the three-story boat now in operation. We also expect to build a new parking structure. As most of you know, Blue Chip is a busy and productive property. At times, so busy as to discourage or even forcing us to turn away business. This expansion project will enhance the gaming experience for our customers, but also will add capacity to better accommodate customer demand during peak periods.

While we have a few steps to go through, we feel very good about the prospects for this expansion and the enhanced -- this expansion and enhancement project at Blue Chip. Now let me make a few brief comments about the Borgata before turning to Bob for a much more detailed discussion. As Bill Boyd said in the release, the initial reaction from customers to our beautiful property have been overwhelmingly positive. We're very please pleased and proud of what Bob Boughner and his team have created. For those of you who have been there know what we're talking about, for those of you who have not been there, please come see Borgata, we think you will be impressed. With that, let me ask Bob to give you a few more specifics, relative to the performance of the property.

Bob?

Thank you, Don and good afternoon, everybody. Just to reiterate a bit of what's been stated, we opened Borgata on July 3 and as we anticipated, news of our opening traveled very quickly. Within a few hours, we had capacity crowds, even though it was 2:00 in the morning. Our gaming floor opened with 145 gaming tables, 34 of which are poker games. We had 3,590 slot machines available, as approximately 50 of our Sigma slot machines did not meet standards set forth by the division of gaming enforcement and therefore they were not available. We expect those games to be available within the next few weeks.

Our rapid pace system also known as ticket in and ticket out, has made -- met with great acceptance. When surveyed, 89% of our customers regarded ticket in ticket out very favorably. We currently process an average of approximately 86,000 tickets per day. Our patron database currently consists of approximately 235,000 patrons and continues to build steadily and nicely each day. Already, a little over 5% have achieved premium status. 65% of our current customers live within 100 miles of Borgata. With regard to the age of the patrons in our patron database, I'd like to summarize that for you.

63% of our patron database consists of patrons over 50 years of age. Those in the age category of 51 to 60 years old represent the highest group of 27%. Those in the age of 60 years old to 70 years old represent 21%, which is the identical number of 21 to 40-year-olds. Those patrons representing 70 years and above represent 15%. And those 41 to 50 years old represent 17% of the database. I'd like to discuss a few of the nongaming highlights of the property. On opening day, we made a little over 1100 rooms available for sale. And intentionally and systematically have racheted up the available inventory since that date.

This past weekend we accepted 100% -- rather we occupied 100% of the 1900 rooms available for sale. The response to the guest room quality has exceeded our very high expectations, guests often comment on the very luxurious beds and bathrooms and the comfort in the rooms. Nongaming revenues are about 23% of our total revenues. More than double the market and clearly in line with our early expectations. 60% of the nongaming revenues are cash, in line with our early expectations as well. As the patron database grows and the players earn their complimentaries, we expect that the cash revenues will predictablely decline somewhat and also gaming revenues are expected to increase at the same time.

Shortly after we opened, we initiated a policy requiring persons under 18 years of age to be accompanied by a hotel guest. Staffing levels at the property are approximately where we thought or about 4800 associates. Our toughest challenges have all been volume-related. Our inbound call center volumes are running about 11,000 calls per day and we're successfully handling a little bit more than 9,000 of those calls per day. It is a high class problem, but a problem nevertheless. Call volumes and call durations exceeded our forecast and we're working dilligently not only on the technology, but on the people aspects to resolve it. Of particularly important part of our overall strategy was customer intent to return as a focus in our first four months of operation. The results have been very gratifying. 96% of those surveys have indicated intent to return to the property.

With approximately 40% of those strongly stating that they intend to return to the property. 95% of those surveyed said they would recommend Borgata to others. Now, while these scores -- while all scores are overall very high, females over 65 years of age have the highest intent to return score of all of the segments. When asked in open-ended question, the most two common responses were as follows. Borgata is the best place in town. And Borgata reminds us of Las Vegas.

When asked which casinos the customers frequented the most, other than their now visit to Borgata, the No. 4 answer at 12% was Las Vegas. Which is not a casino, obviously, but an indication that Borgata at least initially has been somewhat successful in eaching out -- reaching out to the Atlantic City rejector. That has also anecdotely been supported since the day we opened based on conversations with customers. I would lastly like to characterize that we view Borgata as in a ramp up mode, ramping up not only the rooms, ramping up the availability in restaurant seats, building a database and so on, so, we would anticipate that to continue to build over the course of the next few months and seasonally adjusted, revenues continue to build, but would need to be seasonally adjusted as that -- as the marketplace normally experiences some declines compared to the summer months. We do believe however that Borgata will be somewhat insolated from that seaonal decline, and as much as we do have a substantial room supply which will be fully operational very very shortly. That concludes my comments.

I figure we can go to the question and answer now.

Thank you, sir. At this time ladies and gentlemen, if you'd like to ask a question, please press the star key follwed by the digit one on your touch-tone phone. Once again, if you would like to ask a question at this time, please press star 1. We'll take our first question today from Larry Klatzkin with Jeffries.

Hey, guys. How you doing?

Good, Larry.

Got a bunch of questions here -- I got a bunch of questions here --

Larry, one -- (inaudible)

One and a quarter, how does it translate into earnings per share --

Say that again please, Larry?

You know, you saw you're going to do the same in the third quarter as the second quarter. How does it translate on a cash flow basis?

What we said was that the -- the property EBITDA would probably come in pretty close to the $70 million that you saw in the second quarter. And other things being relatively equal, we would expect that to carry down somewhere in the range of that 21 cents per share. We indicated that Borgata would not make a meaningful contribution to earnings. That's why you keep everything else constant and there is nothing additive at that point from Borgata in the estimate.

Okay, as far as the Indian tribe by Blue Chip, it got legalized a year ago. It seems to be taking its time. Do you think it's a risk here? Or will be sitting there for a long time?

We don't have any indication yet that it's moving ahead. There are still a lot of hurdles. We're planning to continue to move forward in that market to take advantage of the tremendous position that Blue Chip has and the enhancements that we're going to make to the project, we think with or without the Pokagans will serve our company extremely well.

All right. As far as Illinois, what kind of actions -- I mean a lot of people will talk about the mission taxes, cutting back hours, adding slot machines, table games, what actions are you working on at your property?

I'm going to ask Keith Smith to answer that question.

Larry, this is Keith. We're taking a look at everything right now. Suffice to say everything is on the table. We're trying to determine the areas of the highest cost savings to us and the lowest impact to both our customers and employees. We're not prepared to -- to talk in more specifics right now until, you know, until we're ready, until we talk to our employees, but everything is on the table.

All right. As far as the -- the final Borgata budget, do you have a number that you can talk about, as far -- I know it's not final now, but do you have something closer you can tell us.

You've seen the public letter is $1.1 billion, just rounding to that, you know, we don't have a final number in the exactly where it's going to come out. So, really, we really don't want to get into anything specific until we add everything up, but it is, you know, the last number you saw was about $1.07 billion and it's probably going to be somewhere around there, a little bit higher. We'd rather wait until the numbers are finally in before we have anything officially published. And Larry, can I ask that we give some other people a chance?

My last comment is just, you know, as far as reporting in Atlantic City, you know, 25 years, everyone's been putting out numbers like they've been, and you guys are doing a little different I'm curious why does 10 days make a difference when the number is going to come out, anyway?

We will ask Bob Boughner to respond to that.

Larry, the issue is, and as I have stated publicly in the past couple of days, that informal practice of various properties reporting to -- to properties who in turn aggregate that information and then pass the information along, while the market is still open, to a private individual, who happens to be a reporter for the Atlantic City Press and then that information is then published around to a selected number of individuals and then ultimately appears in the Atlantic City Press the following morning. Further, the information that happened to be reported was not consistent from one property to the next.

Some properties choosing to include wide area progressive slot productions and some properties choosing not to do that. It was our view that that was a potentially unlawful practice to disclose that information. In the matter that it was done. And that we really did not want to participate in that. And further, that the casino control commission publishes those numbers as they have every year for the past 25 years. About the middle of the month. And from our standpoint that was certainly a better way to go rather than participating in what we believe was selective disclosure.

Okay. Next question.

Next we go to Harry Curtis with JP Morgan.

Hi. Guys, could you comment on how your Las Vegas properties have rebounded in the -- in the third quarter? And your outlook for demand in the fall, please?

Keith, do you want to answer that question, please?

Well, if in terms of rebounding in the third quarter, we're obviously just through July and what we've seen in July is a nice rebound from the second quarter.

What we actually saw in the second quarter were very positive trends as you -- as you cut through the numbers and you look at the April, May, June results at most of our properties we saw trends increasing as you went through April, May and June. Obviously we had the effect of the war in April, the single biggest impact of all of our business in Las Vegas. We're having a nice July and we'd expect that to continue. In terms of demand for the fall, once again, the business looks -- looks good. The demand is there and -- and like I said, I don't have a whole lot more to say.

Can you put your thumb on it, for example, do you see any -- any pricing power into the summer and do you have any convention bookings to the extent that you get them, that you're either pleased or not pleased with?

Well, we've got three -- pretty much three district markets as you look at the Las Vegas properties. Downtown, the Hawaiian market, the core business is sound. The plans are flying full. The hotels remain full. On the boulder strip, the Samsung property and two other properties are doing very, very well. Sam's Town's been on about a two year trend of increasing year over year results and that continues we have a very solid management team there.

They're doing a very good job in running the business and growing the revenues at the business. We're very happy with the way things are going there. At the Stardust, we actually do have a change in management there. You know, we look at convention bookings, we do have some degree of convention bookings there and future hotel occupancies, they look modest, nothing I'd brag about the. I don't know if there's a pricing improvement we're going to see there. I don't see average rates of that property going up significantly between now and the end of the year, but we will be able to hold our own.

Very good.

Harry, this is Ellis. As you know, the -- I discourage people from using our -- our Las Vegas operations as as a bell weather for what you see in some of the larger properties. We had the locals business, we have the very unique nature with the Hawaiians and the Stardust is not that large of a property. So, I -- just want to let you know we've never really wanted to be -- to be the one to be able to be an indicator for general Las Vegas trends given what we have here.

I appreciate that. I'm just thinking about the trickle down economics theory. [ Laughter ]

Okay, we can discuss that in more detail after the call.

All right.

We'll take our next question from Steve Kent with Goldman Sachs.

Hi, good afternoon. Maybe Bob could just talk a little bit more about where the biggest margin opportunities are at the Borgata, for example, is it labor reductions? Or, you know, reducing your -- your hours? Is it a mix change?

I guess I -- I noticed and there's been reports that the table game trends have been much stronger and, in fact, your own numbers are much stronger than the average, where the slots are less so, I mean still much better than average, but not nearly as incredible as the table game is there. A mixed change in the revenues you're looking for? Then finally, just on the marketing, you know, given the statistics you provided, which seem to be skewing toward an older clientele, but your marketing is really geared toward a younger clientele, is that really also an issue? And does it take time sort of begin to help boost those margins?

Let me take the first question, margins and performance. The numbers that we reported today with win per unit per day in slots over $300, around $306, I think is a resounding endorsement of the popularity of our slot product offering. The level of service that we're provided -- and -- and an endorsement, also, of the acceptance of our rapid pay technology.

Because there are 3,650 gaming positions compared to a few hundred -- rather slot gaming positions, compared to a few hundred table games positions, I think that would go to the -- the difference in the performance on a win per unit basis. We're extremely proud of both of them. With regard to margin improvement, I would think probably the -- the biggest area over time will be labor and that will come in the form of reduced overtime.

We're running a significant amount of overtime and that was planned overtime at the property, even though we're running the actual overtime is even excess of the planned overtime we did that principally as a means to be sure that we could hire the best people and not put ourselves into a situation that would be difficult for us down the road with -- in terms of staffing levels. So, we've tried to manage the -- the overtime carefully but by the same token, use overtime rather than hire people that we really would not need other than the seasonal individuals that we've hired.

Another area where we believe there will be margin improvement will be in cost of sales and food and so on as we normalize the operations there and the efficiencies are picked up and the staff is producing in a way that they would need to do their jobs. With regard to the issue concerning marketing, I think the issue there is very clear. Our -- without having stated that very directly, our goal was to take significant share from our competitors and over the longer term, to increase the size of the market. It is our belief that the way to increase the size of the market comes in two particular areas, both demographically and geographically. A geographically further reach and demographically, 25 to 39-year-olds and demographically, 39 to 54-year-olds.

Both of which are making considerable trial to the property. So, to summarize, we believe we're doing an outstanding job to start with in terms of capturing the existing customer. They are express ing a very high level of intent to return and at the same time, our outreach efforts to a newer customer, whether they be a rejector of Atlantic City or a customer who simply didn't have a property speaking to them, we also believe we've made significant inroads in a short period of time to those customers as well.

Okay, thanks.

We'll go next to Todd Scott with Morgan Stanley. Mr. Scott, your line is open. Please go ahead with your question, sir.

Sorry about that. Good afternoon, guys.

Hi.

Can you all give us some additional details on the Delta Downs exchange in terms of the revenue contribution you're budgeting and the timing of tappen? And are you thinking of that expansion as defensive given Pinnacle's casino coming in?

Keith, you want to take that?

All right. The project is getting -- essentially getting under way as we speak and the first phase of the project, which is the expansion of the casino building, will be complete around the first quarter of next year if all goes well.

I would not say it's defensive, we've been planning this for quite some time and as a matter of fact, being the first casino in operation and not fully understanding all the rules and regulations and how they were going to be applied or put into force, we know a lot more than we did when we first went in there and therefore we're able to just expand the casino and make a more comfortable environment for our guests. We're not in the position of putting out revenue estimates or projtses. Once again, we're going to have the same 1500 slot machines we have today. We hope to expand the hours and the amount of play, but we're not putting revenue projections to it at this point.

Okay. Could you -- could you do the same thing on the Blue Chip in terms of the range of investment size and, you know, approximately the increase in positions?

Well, in Delta Downs, I know we specified an investment amount of approximately $50 million between Phase 1 and Phase 2 there. We're not at that point in Blue Chip werkst in the planning and design phase, we're not able to put a price tag on the project or even a final duration. We're going through it now, we're going through it as quickly as we can. As Ellis said, we'd like to enhance the gaming experience for our customer.

We'd like to have a one-floor casino with slot and table game counts that are greater than what they are today. The exact numbers of how much greater we're still working through to see what makes sense.

Okay, thanks and if I can sneak one more in. Ellis, can you give us an idea of what you expect for maintenance Cap Ex in '04?

In '04, the number we typically use is 65 to 70 million and that shouldn't change in '04.

Great, thanks.

And, Todd, let me say, in terms of Blue Chip, that's not a defensive move in any event. You know, there is a potential for a competitor to come to the north of us, this makes a lot of sense for our customers and for operation regardless of the Pokagan development, whether/when it happens. And so this, this is something I think it makes a lot of sense to expand, but in the event that the competitor does come to Blue Chip, I think it will be stand out to have a property that would be so much upgraded as Blue Chip is going to be.

I guess, Ellis, maybe just one quick -- with these two upgrades and then with the maintenance Cap Ex, would you all expect to be a net borrower in '03 -- or in '04 as you do this? Given the dividend?

We have a little bit of Atlantic City expenditures to finish and then we -- when we're done with that, as we've discussed over some time, the -- the normal maintenance capital expenditures we generate about $100 million a year in free cash flow. We're talking about a dividend now of about $20 million. After the dividend, we're talking about $80 million. That's about -- these two projects and just guessing where Blue Chip may come out, it's about two years of cash flow. It does -- as the projects go into late '03 and '05 for the development, I think free cash flow will pretty much cover the whole thing.

Great, thanks.

We'll take our next question from Jeff Logston with Harris, Nesbitt and Jarard.

Thank you, great property in Atlantic City. Thank you for inviting us all down.

Sure, you're welcome.

Nevada taxes, can you walk through the changes that we're going to keep the kids educated there in Nevada?

The -- do you want to talk about that --

This is Don, I will talk to that. We obviously had a lot of possiblies as the legislative session was in place. In the final analysis, the outcome wasn't as negative as it could have been in some of the earlier versions or bills that were proposed, so we feel reasonably good in terms of the impact on the company of what the final tax package is. I think that the lost opportunity is really for the state to take a broader look at its tax structure and broaden the tax base. I think with all the (inaudible) and the legislature that just wasn't possible and as I say it's the biggest law - in terms of direct impact on us, it's kind of midrange of what we had thought as we worked our way through the session.

And then any - on the Pokagans, any timetable relative to when this revised environmental impact report may come back. Is there any court mandated timeframe or indication?

We're certainly not aware of any mandated timeframes or any expectations for when that's going to be done.

Great, thank you.

We'll take our next question from Joyce Minor with Neeman Brothers.

Hey guys. Bob, just a couple of follow up questions for you. If you could talk a little bit more about your workforce. I guess we've heard mixed things that some of your competitors are saying they've not lost a lot of poeple to you. Maybe if you could give us a sense of where your people came from? We've also heard mixed things as to whether or not you're paying kind of above market wage rates so if you can give us kind of a sense for that. If that's effecting your margins, and maybe a sense for how long in your view it sort of takes you to get maybe 80% of the way there to kind of run rate margins?

First question's where they came from, we're not going to disclose that. It was very broadly distributed, and very broadly distributed, and I woiuld say that roughly 55-56% of the staff at Borgata was working in another Atlantic City casino. And the balance were people that we recruited from outside of the state or outside of the industry in the local marketplace. With regard to wage rates, the claims that Borgata was paying significantly higher rates was absolutely true in critical positions, such as call center representative and a handful of other hourly positions, but clearly not when it comes to the salary positions and clearly not with the majority of positions on the property.

We're actually very consistent in most respects. With regard to the run rate margins, well, it's difficult to predict the timeframe involved in that, our initial focus for the first four months of operation are on the issues that I've spoken about, which is top line revenue, market share, customer trial, customer service levels and customer intent to return. After the initial four-month opening of the property, we will continue to focus on those issues and then begin to adjust for operating performance issues and that period will last several months as we go through the process that very careful, methodical process of adjusting for those operating issues and then finally, as you work your way out of that, achieve the run rate margins.

Okay, maybe I will follow-up on that, maybe for Ellis, but Ellis, you said you're not expecting much in the way of a bottom line contribution from Borgata in the third quarter and kind of skipped right over the fourth quarter and said you expect a significant contribution in '04, would we expect that fourth quarter we get something kind of midling?

We really haven't refined that, Joyce. I think as we did talk about seasonality, we did feel it will be less seasonal than some of the others, but we're not good night sure how that's going to be. And, of course, Bob's four-month initial period falls, you know, right in the midle of that. So, I don't want to forecast at this point.

I think when we talked about '04, it gave us the opportunity for entire 12 month periods to be -- to be at -- good for us. I think it will be, but it's just hard to see how they will ramp up this precisely as you may be asking. As we get closer to it, maybe we will be able to discuss it more. But at this point, it's hard to say out of what it's going to be.

Okay. Maybe one more for Bob, can you help us by providing any information about REVPAR in July or occupied room nights in maybe percent cash versus comp initially and what you expect in the future?

No, we believe those numbers at this time would be improving for us to provide that information as it would be more helpful to our competitors than to you.

Alright, thanks.

Next is Jason Glass with Circle T Partners.

Hey, guys, how you doing?

Very nice.

Quick question for you, before you talked about the surveys, you talked about the customers saying Vegas with the No. 4 place where we gamble already. What were the No. 1, 2 and 3 spots in the survey.

Jason, I purposely neglected to mention those, I'd rather not indicate that for the same reasons in my response to Joyce Minor. It's -- it was no surprise to us what the result was but we'd rather, since Las Vegas did not pinpoint a particular property and it was the fourth answer at 12%, we'd rather keep the others as our propriety information.

Okay, great. And my second question for you is giving that it's been a month since the Borgata opening, do you plan on doing any other 50/50 joint ventures going forward? Do you like that type of business model? Do you -- find it cooperating with another management team.

This is Don. We feel very, very good about the joint venture we have with MGM mirage, they've been wonderful partners we think we have been wonderful partners as well and we have a property that we both take a great deal of pride in.

I think that as has been said in other venues, MGM mirage has certainly opened the dialouge with regard to doing additional things at the Borgata in terms of expanding, but we're all said that it's too premature to talk about that. But that is something that down the road, certainly with regards to the Borgata, we talk about. But, where it leads with MGM Mirage or anybody else in terms of other joint ventures, we really don't have any specific thoughts one way or another on that we just feel really good about the one we've got.

Great, thanks, guys.

This is Ellis again, for just a moment on the question Joyce asked about contribution from Borgata to Boyd game's bottom line. We didn't refer to this in the release. The Borgata income, down to the pretax income line, after their interest and their state income tax, will come over to Borgata's -- come over to Boyd's income statement as to half to us and half to MGM mirage. That is not the end of the contribution story because Boyd will begin expensing the interest that we're now capitalizing on our equity investment in Borgata, about $4 million a quarter.

So, in order for Boyd to have a contribution from the Borgata enterprise to our income, in order for it to are accretive, we need to have at least $4 million to come over to us. When I talk about no contribution from Borgata that's meaningful in the quash, was talking about an all-in situation where that $4 million would have to be covered. It doesn't mean Borgata in itself wouldn't be profitable and would not provide something to us and something to MGM, it wouldn't be accretive given that we have to cover the interest on our investment that's here to for been capitalized. I wanth to qlaif that so you have the distinction between boarat's performance and contribution to Boyd Gaming. We can go to the next question now.

Next to Ed Anton with Chartwell.

Yes, along the same lines, in Vegas, any discussion with large property there as far as developing it?

This is Don Snyder. To start out, we continue, as we said in the past, to feel very good about the strategic value we have with that substantial acreage, 61 acres, that we control. But we've also said consistently that we have no immediate plans, in fact, Bill Boyd has said publicly that until Steve Wynns project is open successfully and operating, we're not even going to turn our attention to really planning or thinking about what we do with the property.

It is a long-term strategic asset we said before that the long-term starts to come into focus, but we really are excited about and interested in seeing what Mr. Wynn does and how that impacts the market before we start to plan for specifically.

Anything further, Mr. Anton?

No.

Thank you, sir.

Thank you.

As a reminder, ladies and gentlemen, if you would like to ask a question, press star 1 on your touch-tone phone. We'll go next to John Multy with Bear Stearns.

We're all set here, thanks.

Next question?

We'll go next to David Bartell with Wells Fargo.

Hey, guy. Most of my questions have been answered, but I was thinking, Ellis, you mentioned before that some expenses may carry over into the next quarter, were all pre-opening expenses booked in the second quarter? Or are there any other expenses related to Borgata that you could catagorize or quantify for us that we should be aware of?

In the preopening area, David, we opened July 3, so, actually two days in July we will have some preopening expenses. I don't see them being that much, but they will be there and that is the only thing that's on the Boyd books. And, of course, half of the property's preopening expenses are half to Boyd and half to MGM. Then, no more preopening or capitalized interest in our investment.

All right, thank you.

As a reminder, ladies and gentlemen, that is star 1 for any further questions. This does conclude today's question and answer session, at this time, I'd like to turn the conference back over to Mr. Landau for any additional comments.

Thank you very much for your attention. We, as always, please feel free give a call if you have anything else you'd like to discuss and we will talk to you next quarter. Thank you.

Once again, this concludes today's conference call. We thank you for your participation. You may now disconnect.