Boyd Gaming Corp (BYD) 2004 Q1 法說會逐字稿

Good day and welcome everyone to the Boyd Gaming First Quarter 2004 Earnings Results Conference Call. This call is being recorded. With us today from the company is the Executive Vice President and Chief Financial Officer, Mr. Ellis Landau, the President Mr. Don Snyder and the CEO of Borgata, Mr. Bob Boughner. At this time, I would like to turn the call over to Mr. Landau. Please go ahead, sir.

Thank you, and good morning or good afternoon everyone, and welcome to our first quarter earnings conference call. Before I begin, let me make a few comments. The presentation today may contain some forward-looking statements. The results may vary from what's contained in those statements. The variances may be material, and I refer you to our public filings for the risk factors you need to know before you invest. I also want to point out that today's call is being webcast on boydgaming.com and firstcallevents.com.

Joining me today on the call are Don Snyder, Keith Smith, and Bob Boughner. Don as you know is our President; Keith is our Chief Operating Officer; and Bob is Chief Executive of Borgata. Don, Bob and I will make some remarks and then all four of us will be available to respond to your questions. A short while ago, we issued a release of our first quarter financial results. We reported adjusted earnings of $0.29 per share, which was equal to the $0.29 in adjusted earnings per share that we reported in the first quarter last year. We had one adjustment to earnings in each period. Last year our $0.29 did not include $0.04 of fielding expenses relating to Borgata and this year's $0.29 does not include a $0.09 per share one-time adjustment to our income tax provision, relating to state income taxes, Indiana. We described the issues relating to boosting our tax provision in the first quarter in our press release, and I will discuss that some more in just a few moments.

Now to our operating results in the first quarter. Revenues were strong in the quarter, as Borgata results are not included in our revenues, our revenue results are same store and those results showed a 2.5% increase. We reported EBITDA of $81m versus $72m last year for an increase of 12.2%. Borgata was not opened in the first quarter of last year and this year our half of Borgata's operating income, is included in our EBITDA.

We had a couple of real standouts in the quarter. We had great performances at both Borgata and our large Las Vegas local’s property Sam's Town. Before I talk more about those two, let me mention some other areas of operation. Our central region, which is our riverboat segment that also picks up, Delta Downs, reported lower EBITDA down $5m versus the first quarter last year. Much of that can be traced to the large gaming tax increase in Illinois that we were hit with in July 2003. The good news of that we only have one more quarter of tough comparisons with this tax and that it is due to sunset in the middle of 2005.

We also lost a little ground at Delta Downs, due to construction disruption. Our entrances were being worked on and the casino was tougher for our customers to navigate. Turning to Nevada, first let me say that the new and increased taxes that went into effect last summer cost us about $1m overall in the first quarter on our Nevada operations. Turning to Stardust, Stardust showed a really nice turnaround in the first quarter. Business was strong there as evidenced by an 8% revenue gain. This $5.5m EBITDA was its best quarter in 5 years. And Sam’s Town, Las Vegas had strong business throughout the quarter. Revenue there was up over 8% year-over-year. While the property's EBITDA was $10.6m in the first quarter last year, we were proud to point out that, that was a record quarter. In the just completed first quarter, we blew through that record by almost $2m. And in April so far, the strength of both of those properties, Stardust and Sam's Town is continuing.

And now for Borgata. Bob will speak proudly as to Borgata's operations and discuss some of its future plans in just a few minutes. But let me just say a few things. Borgata just went through its first winter. And if you are an Atlantic City operator, winters are supposed to be a time you wish your casino was some place else, but not Borgata. I’ve said that the boardwalk may be seasonal, the beach may be seasonal, but having fun is not seasonal, and Borgata results showed it. Table games continue to be a powerhouse. Slot showed tremendous improvement in the quarter. In February and March, they were first in the market in win per unit per day. They were second overall in the quarter missing first place by only $1. Borgata did $269 per unit per day and the number 1 to $270. Non-gaming revenue was a strong $50m in the quarter. Extra margins, as the weather got colder, margins got better. For most people, it just doesn't happen that way. From 20.4% in Borgata's first quarter of operations in the summer last year to 23.9% in the December quarter to 27.5% this quarter. And then finally for EBITDA, we've been saying for some time, that we expect Borgata to be an upper quartile performer in EBITDA, when it matured. It has only been three quarters of results, and Borgata was number 1 in EBITDA in Atlantic City in the first quarter, at $40m. And then looking out over the last few years, no one has done more than that in any first quarter.

As you can tell, we are really proud of what's been accomplished there and Bob will have more to say about that shortly. I'd now like to discuss one thing in the non-operating area. We generally want an income tax rate of about 39% as you know. This quarter you see it at 57% because of a charge we took to become fully accrued for Indiana state income taxes that we become more likely to owe, following a tax court ruling earlier this week. Normal-- just looking forward-- the normal quarterly rate, tax rate for the rest of the year should run at about 40%. By the time the Coast merger where their properties are in a no income tax state, that number should come back down to about 39%. The payments we will owe the state, if we ultimately do not prevail is about $17m with about $6m of that coming back to us in federal tax benefit. The ongoing effect of this is about $5m per year based on our current gaming win, and we will get about a $1.75m federal tax benefit each year, on that amount.

Donald will now discuss other things going on with the company, one of which is our pending merger with Coast Casinos. Let me just point out that our great Sam’s Town results speak not only to our individual achievement there, but also to a strong locals market in Las Vegas. Of course, we will greatly explain that business segment for us. So we are really forward to combining our two companies and greatly upsizing one of our strongest areas of operation. Now let me turn the microphone over to our President, Don Snyder.

Thank you, Ellis. The first quarter as Ellis suggested, really was an important and a big quarter for us, a busy quarter too. And really in a few ways. First, the solid overall operating results, especially in the face of challenges in Illinois with the increased taxes in the aftermath from that and the construction disruption at Delta Downs, made us feel good about the core business. We were especially pleased with the record results at Sam’s Town, Las Vegas. The team at Sam’s Town from management down through the employee ranks had that property humming in its-- as it celebrates its 25th birthday this year, we feel very very good about that property, how it operates and how it's positioned in that strong locals market that Ellis alluded to.

We’re also truly impressed, as I think you are and should be with the performance at Borgata. It lays a very strong foundation for, strong expectations for future performance by us and optimism for the expansion of that wonderful property which we've positioned with you as being in the planning stages. Now. Bob is going to talk about both aspects of the Borgata in just a few minutes, but we're truly impressed and proud of what has been accomplished and what we think we can continue to accomplish in that market place.

But not to take anything away from what has happened in those properties and others around the company, we had two other developments during the quarter, which will play a very big role in completing a major transformation of our company, a transformation, which has been a result of a thoughtful strategic process over the past several years that we've discussed with you throughout that period of time. Of course I'm talking about the pending acquisition of Harrah's Shreveport soon to become Sam’s Town Shreveport, which we announced on January 20th and the wonderfully strategic pending merger with Coast Casinos, which we announced on February 9th.

We're excited about Sam’s Town Shreveport, it will be our fifth acquisition of a single property operation in the past seven years. Diversifying and strengthening our operating foundation has been a core strategy. We feel very good about what we've accomplished in the Midwest and Southern gaming markets over this past seven years, and especially now with this very strong addition to what has become an impressive group of properties in this riverboat market segment.

The transition plan for Sam’s Town Shreveport is developed and ready to go. We had lot of experience and success with this type of transition so are confident that it will go well. With the recent retirement of Judge Crane from the Louisiana Gaming Control Board, creating a small delay, we now expect to have our approval hearing for that acquisition in May. We certainly do not expect any difficulties with the approval once it is heard by the Gaming Control Board.

Let me now spend a little time on the pending Coast Casino's merger, to say we're excited about this transaction would be a gross understatement. This is clearly a strategic transaction for both companies. Both groups of shareholders and the respective management teams. A true win-win transaction, a transforming combination that positions board gaming to move forward with great enthusiasm.

On our February 9th conference call with investors, we provided great detail on the transaction and the rationale for it. While I don't want to go through that same level of detail today, I will highlight some of the more significant points and then we can answer any questions that you have beyond that. As you know this is a $1.3b merger. It was unanimously approved by both boards and we are pending shareholder approval which is now scheduled for April 29 by the co-shareholders and April 30 by the Boyd Gaming shareholders. It is anticipated to close in mid 2004, we're very much on track with that and we expect that the transaction will be immediately accretive to Boyd's earnings per share. Gaming and other regulatory approvals are well on underway and we certainly don't expect anything out of the ordinary as we move through that process.

Coast will become a wholly owned subsidiary of Boyd Gaming. It will be a separate operating unit led by Michael Gaughan(ph) as the CEO of that operating unit, and the co Senior Executives will retain their positions with the Coast division of Boyd Gaming Corporation, and that's a very important part of this transaction from our point of view. It is truly a natural fit; it expands our capabilities by adding one of the best brands in the business in a very strong market segment, the Las Vegas locals market here in Las Vegas. This is about growth it's not about cost cutting as we said in that conference call and we don't expect negative impact at all on the employees. It will be business as usual as we move forward.

The Coast senior management team has unmatched operational experience and we're investing as much in that management team, as we are in the physical assets. With this transaction and with the pending acquisition of Harrah's Shreveport operation, we'll have 19 casinos in 10 distinct markets in six states becoming one of the most diversified casino companies in the industry. The leadership position that we will have in the Las Vegas locals market with the merger with Coast is significant and we feel extremely good about how that positions us strategically in this market place. But with these transactions, it also positions us very well in the Las Vegas strip with two properties very well positioned to take advantage of future growth opportunities in this very strong market place with the Barbary Coast and with the Stardust, and particularly with the 61 acres that we have here at our Stardust property.

After the merger Boyd Gaming will generate about half of its pro forma EBITDA from Nevada, and we think that is significant given the stable regulatory and tax, climate that we enjoy in this very important market place. All of this including the Borgata which Bob is going to talk about in just a few minutes make us feel very good about how the company is positioned for the future. This merger brings into focus a clear growth strategy, a broad-base growth strategy and creates one of the most diversified gaming companies in our industry. All aspects of those transactions are well under way including the financing, we are very pleased with how the financing will be necessary to affect both the Coast and the Shreveport transactions is progressing in all front, Ellis can elaborate on this. If you have questions about this aspect of accomplishing the significant amount of financing that Ellis and Paul Chakmak are putting in place. A quick comment or a quick couple of comments about Delta Downs and Blue Chip two internal expansion opportunities that are important to our future. The Delta Downs' transaction, the expansion is very well underway. We are in our second phase of the $50m capital improvement project at Delta Downs. This $50m expansion project is wrapping up the second phase completing the casino reconfiguration in the new (indiscernible) share and the entry way. It will be nice to get that part behind us and Ellis alluded to some of the construction disruption that we experienced in the first quarter, so it'll be nice to move beyond that.

The new casino area provides customers with a more spacious environment to enjoy our entertainment. The third phase, which we plan to complete by early 2005, includes a well needed a 200-room hotel, a food court an entertainment lounge and special events area. We feel very good about how that property is coming together and how it's going to position us as we go forward.

At Blue Chip, we have shared with you that we are looking to expand that property in a very attractive way. We are still technically in the predevelopment stage of this expansion project but we feel good about the project and the merits in moving forward with that expansion. This project will include a new gaming vessel which is important to allowing Blue Chip to take advantage of the opportunities that exist in that marketplace. With a casino located on one floor, we think we can clearly offer an enhanced gaming experience that will be good for the business. We will also have a new parking garage and a relocated entrance that will make that very successful property positioned to compete even more effectively as we move forward. We can talk a lot more specifically about some of these transactions, if you have some more specific questions but I'd like to now turn the microphone over to Bob Boughner, our CEO of Borgata to talk about that property and where we are going. Bob.

Thank you Don and good afternoon everyone. We were very pleased with our results in the first quarter and we continue to stay very focused on developing our business at Borgata. There were some nice developments that occurred during the first quarter of this year and I'm going to draw on some comparisons to the prior quarter.

Looking at the marketplace, first the Atlantic City market was up in the first quarter of this year, when compared to the fourth quarter of 2003 the market was actually up nicely 6%. Borgata revenue was up approximately 15% when compared to the fourth quarter of last year. We've made significant improvements in both our gaming and non-gaming aspects of our business. Our casino revenues for the quarter clearly exceeded our expectations and we were able to ratchet up, our slot revenues to rank third in the marketplace only behind a nearby competitor Harrah's with approximately 600 more slots than Borgata and Bally's which has approximately 3,000 more slots than Borgata. So, we've been able to narrow the delta, narrow the gap between the performance of Borgata in its first six months compared to our larger and much more seasoned end operators.

On the table game side of our business, we continue to have a significant market share premium, while mentioning slots Borgata's market share premium for the period of July through March the first quarter was nearly 25% in the number two position, and our table games' market share premium for that same period was just a touch over 73% as we continue to really dominate that part of the business. So in summary, on the gaming side the numbers are very strong and we continue to manage the business on a daily basis to continue to grow it and to build on the very solid foundation that we have established. A couple of comments about the non-gaming side of our business. Our hotel occupancy was down approximately 8% when looking at the fourth quarter. We ran 82.5% occupancy and our average daily rate was $125, which is consistent with the fourth quarter. We continued to market our rooms not only to cash paying customers but also to an ever improving slot and table games customer and we are very selective about the levels of complementaries that we award to our customers and we don't mark market our rooms to the bottom end of the slot average daily theoretical.

Our poker revenues continue to be very strong. We had a really nice increase of nearly 27% in the first quarter, when looking at the fourth quarter of '03.

Again talking about non-gaming revenues, our cash and comp ratios continue to be very strong. We have roughly 60% of our restaurant revenue, the food and beverage revenue in our restaurants, 60% of that is cash. And we believe that we lead the market and will continue to do so for some period of time, and it's a great indicator and a great endorsement of the popularity of the restaurants that we've built. However, we are also running into issues that relate to capacity. Our restaurants used to fill nearly all the time on weekends, now we're starting to see that flow into the mid-week periods as well. There's a tremendous amount of velocity through this building and our restaurant capacity has reached the point where it is very difficulty for us to accommodate incremental customers and do more covers on the weekends and that's starting to spill over into the midweek, which really sets the stage for a more in-depth discussion of our expansion. We have actively been working throughout the quarter to more clearly define the expansion of Borgata. What we can tell you at this point in time is that we anticipate constructing five restaurants at the property, two incremental bars, as our cash beverage revenue continues to grow. We are planning to construct a 100-table poker room, which we would craft in such a way is that it would be the category killer property in town.

We are looking at approximately a 100 seats in a simulcast facility, a race book and approximately 700 additional slots. In addition to that, we are looking at approximately 20 additional table games and of course the associated storage, office, basement and other modest amounts of administrative space to support that. Further, we intend to expand our spa by about 30%. The demand for the spa has been not only great, but it's been growing and oftentimes, we have waitlists of customers that we simply cannot handle the volume. That occurs principally on weekends, but it is starting to creep into midweek.

And then lastly, we are looking at the meeting space that we've spoken about previously to expand our meeting room capacity, which will help build our midweek occupancy among strong cash paying customers. It's important for us to point out that this expansion is being designed as a high yielding expansion. It is not a defensive maneuver. Oftentimes in our industry, we expand our businesses so that we can keep up with the Joneses, if you will. Well in this case we are the Joneses and we are simply moving forward on a continued execution of the business model and the strategies that we set out when we opened the property.

Lastly and finally, while we are very early into the second quarter we wanted to mention a couple of recent trends. Our daily average gaming revenues are our highest ever, including a very strong debut last summer, and so far with nearly 25% of this second quarter in the bank we have experienced yet another 300 basis point pickup in margin, similar to the 300 basis point pickup in margin that we experienced in the first quarter. I will be available to answer any questions and with that I'll turn the mike back to Ellis.

And we are ready for questions now operator.

Thank you. The question and answer session will be conducted electronically. If you would like to ask a question today, please do so by pressing the star key followed by the digit one on your touchtone telephone. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one to ask a question and we will pause for just moment to assemble our roster. We will take our first question from Larry Klatzkin of Jeffries.

Hi guys, congratulations on great results, particularly at the Borgata.

Thank you.

Question one, Coast, are you going to be getting out first quarter results for Coast and the Shreveport property, so we can continue to track that for our models and such?

Larry, they typically don't report their earnings before -- I'm talking about Coast. Coast does report, as you know, but they typically don't do it early. They do when their Q is filed, which will be probably in another 10 or 15 days. You'll get to see that, but ...

They will continue to report because of that. Okay.

Yes. Prior to the merger they will continue to meet all their normal reporting requirements, and so you'll see that. Harrah’s made their announcement and did not particularly talk about the Shreveport property, but we don't anticipate making a specific announcement about that, but we expect to have it, the transaction completed shortly, then you'll it in our numbers.

Okay, when do you expect the date, I mean, what date would you think I should use, May 15 or --?

The Louisiana Gaming Board meets in the middle of May, I believe, 17th, and the anticipated close would be just a matter of days after that.

Probably about by May 20th. Okay.

That's coming pretty shortly; so then you'll see it in our numbers.

Okay. Second thing is, as far as the Indian attacks, how soon do you think you get (indiscernible), I mean, you’re just taking the charge and you have no idea about -- you're not peeling (ph) it so you're all up to Astar (ph) what happens on it then – about how its working?

Right. We've not been in core process. It's been Astar, the facts are similar. So, we did not -- don't have any case ourselves. We reacted when the decision came down in the Astar case, and while we've not been fully accruing at a 100% before that time because of the uncertainty now, that it looks more likely that it will go the other way, we decided to do the full accrual. So, we from a reporting standpoint will be fully accruing for that tax going forward. As to Astar’s position, we expect them to continue to do the judicial process and we will obviously be watching that.

Okay, as far as the downtown properties, is the health warning done? Is that all resolved at this point? Are there still some cases being showing up?

I’m going to let Keith Smith, our Chief Operating Officer, respond to that.

Hi, Larry. We haven't -- the number of complaints, if you are (indiscernible) are down into the very low single-digits. It's for the most part largely behind us. We had a couple of week spike back in March when that created a lot of press, but for the most part it's behind us.

Okay. So are the Health Department warnings gone now?

I don't know if they have quote, unquote “officially` closed it out.” I don't believe that they have, but once again the number of cases we're seeing is in the low-single digits and frankly, with a lot of tourists in town, you always have a few people who are getting ill. They come to the town ill. So, I don't know if it is officially over but its well behind us.

Okay. As far the timing of the Monorail to the Stardust, is that – (indiscernible) said something about it maybe delayed as late as 2007. Is that look like its going to be that long to get that going?

Yes. This is Don. The expansion of the Monorail has always been where the Stardust would get picked up at essentially the same time as the extension to downtown, but the latest estimates are 2007. The Monorail, the first phase of the Monorail is not fully operational – is not operational yet. They are still in the test mode. They expect to be operational this summer, and kind of how the ridership figures look will determine to a certain extent what the specific timing will be on the expansion of the Monorail route to downtown and to the Stardust. But it's really not defined at this point in time, and won't be until after they open the first phase.

Okay. You guys changed your reporting method on the Borgata (technical difficulty quarters; you did 50% of EBITDA and now you are doing 50% of operating income. Next year, reported EBITDA will slow. Any reason for the change, and I thought just I’d just point that out?

Well Larry, we want to come up with a singular way of doing it. In the financial statements, as you know, we do report our half of operating income and then we report our half of non-operating income, and then when we converted that to saying what the half of EBITDA was it really, may have led to some confusion. So, we have a -- one-way of doing it now, that will just be half of op-income in EBITDA. You're welcome to -- Borgata's full numbers are reported in the release. So, you're welcome to take, their EBITDA and treat it any way you would like, but all the information is laid out. We'll just use one way of referring to EBITDA going forward, which will be the operating income of the company plus the company's appreciation, which picks up Borgata as we’ve described it.

Right, but when you put the EBIDTA out in your press release, it comes out to not include the depreciation from the Borgata, so it seems lower?

Borgata’s depreciation is expensed when we do EBITDA, that's correct. Until the joint venture we thought that was the appropriate way to do it.

Okay. Then in last quarter, you did it differently. Okay. Well I am seeing, just the Delta Downs, how it looks in April, and from your other properties how April is looking?

Well, we mentioned the particular strength of both Sam's Town and Stardust in our wholly owned group. They were strong in the first quarter and they remain strong. Don't have much to say about the other properties in April. They're doing well, but we didn't – haven’t pointed those out individually. And of course Bob mentioned, Borgata continues to do quite well in April.

All Right.

A lot of the trends you saw in the first quarter continue into the second quarter.

Okay. Thanks guys.

Moving on, we will take our next question from Dennis Forst of Key McDonald (ph) .

Good morning. I had a question for Bob about Borgata, I'd been monitoring the quarterly numbers and it seems as if the operating costs have gone down each quarter, yet the promotional allowances actually in the first quarter spiked up pretty dramatically, up about $10m. I obviously -- gaming win was up a lot but, what do you account for the promotional allowances being up so much in the first quarter?

I'll give you two parts to your one question. One is, we have - we have reduced our payroll expenses at the property by nearly 30% since our peak last summer. And given our place in the market place, we have been very aggressive in going after new business consistent with our plan all along. In the process of doing that, the market place responded with some very aggressive offers, and Borgata was competitive with those offers. I would also add that the way that we account for our promotional allowances includes an accrual for comp dollars, which our customers earn and slot dollars which our customers earn but perhaps at that point had not yet redeemed. So, our promotional allowances reflect those costs. We're very comfortable that during this period of time in the first quarter, that we did the right thing and we saw the results in our cash flows and our margins. We were able to, as I mentioned, substantially improve margins. Looking at the second quarter, what we've seen so far is some of our competitors have softened their approach, and as a result of that I think that, for the properties as a whole in Atlantic City, its a little bit early yet but its likely to conclude that you'll see as a percentage those promotional allowances coming down a bit.

Good. And on the operating cost on an absolute basis, is that likely to remain similar on an absolute dollar basis.

You know it's hard to tell at this point in time --- could you be more specific with the question?

I'm just looking at operating costs of about $106m, which is just the difference between EBITDA and net revenues and that was a $120m in the third quarter, it was a $108m in the fourth quarter, its a $106m in the first quarter of '04. I'm just wondering whether that number has some more room to come down, is there anymore, -- as you get the property more mature and understand how to run it even better, can that number continue to come down at all?

I think there is always going to be some opportunity and we continue to explore that, but you’ll probably see some modest ramp up pay roll again as we get to our summer months which will ramp down as we work out into the fourth quarter of the year. But that's pretty logical to assume that you are going to see some minor changes there but nothing significant.

Good. Thank you very much.

Welcome.

We'll take our next question from Steven Cole of [Inaudible] Crest.

Hi. Just a touching on the EBITDA margins at on the Borgata, you saw 350 basis, sequential improvement and from my calculations some where around a 700 basis point improvement since the September quarter. Can you just provide some more details on what you did specifically at the property to achieve these results. How far into the process you are in and where those margins can go. Thank you.

What I would say is third quarter of '03 numbers reflect our launch advertising campaign. We had -- and also higher than normal payroll expenditures. We were launching the property and there is inherent inefficiencies associated with operating these businesses in an initial launch mode. We were very pleased and gratified that we were able to bring those numbers down very quickly and we did a very nice ramp up in terms of pay roll efficiencies and that continued in the fourth quarter. And as I mentioned, we've seen, at least in the early part, we are only about 25% of the way through the second quarter. We have seen another nice big approximately 300 basis points pick up in margin. Its our view that as we approach the next quarter that we are likely to see even more incremental pick up, principally driven by higher revenues rather than cost reduction.

Thank you.

We'll take our next question from Daniel Davila of Sterne, Agee & Leach.

Well, good afternoon here. I think one of Larry's 20 questions covered mine. Thank you gentlemen.

We'll take our next question from Michael Rosenthal of Shinkman (ph) Capital.

A few questions. The completion guarantee that you had, did you have to fulfill that this quarter or are you sharing that would MGM.

Boyd Gaming never had to perform under the completion guarantee, in any way. The property was built by Borgata fully under their equity contributions they received from their parent, that were shared by the construction loan and then ultimately out of some of the cash flow of the property that made its final payments. There was an expenditure that went beyond the agreed upon amount with MGM Mirage that by our agreement in our joint venture agreement is solely the responsibility of Boyd Gaming. We have not paid anything into the property at this point -- into the venture at this point because there has been no funds required, as I mentioned Borgata was able to pay all the final costs on their own. We haven't paid that, we recorded the payables as you saw in our public filings, but there has been no payment under that and we're still discussing how that obligation will eventually be satisfied. But there has been no real completion guarantee payments made at all by -- anything done under the completion guarantee and that completion guarantee is now extinguished.

And this is for Bob. The whole percentage at Borgata, would you say that's a normal percentage over last several quarters, it still seems kind of low.

Well, I would be happy to invite you to a seminar on hold percentage at some point where we've a thorough review of what hold percentage really means, I assume you are referring to table games and its our view that given the high level of volume at Borgata is that our hold percentage will under perform in terms of percentages in the market. What we focus on is generating substantial volumes of throughput in the building, dealing in honest game, a game that is well protected. And at the same time generating a 70% something market share premium with the win per unit that's substantially higher than any other operator in the market place. But if you look at it on a very simplistic basis, which some folks tend to do, our whole percentage in table games in the aggregate will be lower than the market average.

And then lastly Ellis, the ongoing Indiana costs, assuming that this ruling is upheld. Do you say it's a $1m or $3m a year net or just over $3m a year net?

Right That's correct, the ongoing incremental tax is (indiscernible) over $3m a year, net of the federal benefit.

And well - I'll follow up on that, thanks.

We will take our next question from Ray Chapman of Jeffries and Company.

Congratulations Mr. Boughner on the Borgata, spectacular, but what you didn't tell us when you were talking about your anticipation of meeting customer demand was the timing that you have in mind?

Thank you very much for the kind comment. We are currently in the process of drawing plans. The plans will then be submitted through the regulatory process, which in New Jersey is a long process as all who've gone through the process would understand, but clearly it's our anticipation of moving this forward very quickly and as soon as we have determined a more definite timeframe, we'll make that information known, but this is an active project and we are working very diligently to finalize the plans and to -- we've got the scope nailed down, we're finalizing the plans, getting those to the point where we can generate the construction drawings as soon as possible and then we'll be nailing down the costs associated with this. I would not look to see anything occur as a result of this development. The soonest possible date would be to model something in for the fourth quarter of `05, but that of course is subject to change depending on the length of time the project sits in regulatory and agency review.

Must be frustrating not to have those weapons at your disposal at this moment?

You're quite right.

I was wondering if I could also ask one of the other managers for the timing of the completion of Phase II at Delta Downs, so that you can get the entrances opened up and the people back in the building and back on a positive earnings track and then when do you believe that you'll complete the Phase III, the hotel rooms.

This is Keith Smith. Phase II will be -- There is two parts of Phase II, one we'll get the portico share back and that's been probably the single most significant piece of disruption for our customers, we had to build a temporary portico share at one of the other ends of the building and then walk people through a maze to get to the casino. That will be turned over to us in the next two weeks. The rest of Phase II, which is the final expansion of the casino, will be completed by mid June and you know, the bulk of the construction or disruption will behind us at that point. Phase III, which is the 200 room hotel, should be turned over to us the end of this year. We are not anticipating opening that hotel until early January.

Okay and then Mr. Snyder, I was wondering if you might talk -- you are person who outlined the expansion in Blue Chip and obviously that would be a single floor casino, make you tremendously more competitive with the things going on around you. What is the kind of a -- I know you don't have definitive plans, but what are you thinking, is that an '05 model or an '06 model?

I'll go ahead and follow-up on that also. Given the current timing and the current status of the development of that and the drawings and we are still in the drawing phase there also, we have the scope pretty well defined, we are still drawing plans [Inaudible] the costs. We would hope that we would open it in late '05, late being November, December so I think for planning purposes you would be looking at a real impact in '06.

Thank you very much for the clarity.

We will take our next question from Joe Greff of Fulcrum Global Partners.

Hey guys. Most of my questions have been answered. Ellis could you just give us some balance sheet items like what CAPEX was in the quarter?

Yes that is in the release, Joe, we have some of the financial information that we've missed. CAPEX was $16.2m, $9.8m was normal CAPEX $6.5m related to the expansions at Delta Downs and Blue chip and most of that was Delta Downs

And a CAPEX number for full year '04?

Well we've talked about the maintenance. We continually talk about the maintenance CAPEX coming in somewhere around $75m and that would assume the addition of Shreveport. When Coast comes in they run about $25m a year or so. Our overall run rate going forward with the expanded company we expect to be $100m. For this year these will be coming on of course mid-year those other ones. The--that's the maintenance we also have our expansion CAPEX that relates to the things we've talked about that could run about $200m overall expansion CAPEX for the year depending upon when we get started in Blue chip and things like that.

Thank you.

We will take our next question from Dennis Forst of Key McDonald.

Yes Ellis I just wanted to get a clarification on the tax rate. The $5m plus of assessment did that go through March or was that through December?

No it goes through March. Everything that you saw recorded as of March 31 is through March 31.

Okay so if you had been expensing it, then there may have been another $750,000 worth of taxes that would have been excluded from that $0.09 non-recurring charge. If we are assuming going forward you are going to be paying somewhere around $750,000 extra in your tax budget it would be safe to assume that the first quarter should have had that also or could have had that?

Yes the tax rate if there was not the catch up it was just the quarter you would see that 1% incremental tax rate.

And that's the 40% you were projecting for the second quarter.

Yes the 39 which we’ve generally run given federal and state would go to about 40 when you look at the thing fully it in this [Inaudible] That -- you're right, that extra 1% would have been in there anyway.

Then you -- as you said when you get Coast it will go down to 39ish

Right Coast income is not state tax, so that will bring the overall--

That will come in at 35%.

That's right. That comes in just in the 30s -- so they run a tax rate of just around the federal rate which is 35%

Okay, thanks.

Moving on, we will take our next question from David [Inaudible] .

Hi gentlemen. I had two questions, I apologize if they were already asked. But could you tell us what we should model for the tax rate going out over the next few quarters since we had the spike up this quarter? And the second thing I was hoping you could do is kind of talk to us about the debt levels in the Borgata JV, kind of where they were at the peak, how much has gotten paid down and what the -- what we would expect to see there over time?

The tax rate we suggest would be back to about 40% from the – we saw a 57% rate in the first quarter. I would go back to 40% for Q2 and then after Coast comes in -- let’s assume that happens in mid-summer-- that would take it back down to 39. So the quarterlies would go more like 40, 39. But before I give you the other one. I want to point out when I mentioned that capital expenditures were $200m for expense and that assumed that post merger with Coast because it brings in the South Coast and New Orleans and things like that. Boyd standalone that we just talked about being Delta Downs and Blue Chip. So that larger number does include the -- includes all of the Coast expenditures also. The Borgata’s debt balance as of the end of the quarter was $573m. That as you know they started with a loan of $630m and they've paid it down to $573m as of March 31.

And now the way I understand it there were some debt covenant that will not allow you to borrow again until you get it to a certain level. Is that correct?

The way the debt is structured there -- there is a revolving credit and a term portion. So there's no -- the only thing - the only amounts we repay and re-borrow are under our $50m revolver. Other than that the balance of it just has quarterly payments. So there's no - the revolver is in place and is utilized from time to time and the balance is in an advertising loan.

And what do you anticipate paying over the next few quarters as you're putting together plans for the expansion?

Until the expansion begins, we should continue to pay down debt nicely. There is a restriction on dividend payments after the owners, except for the tax that the sponsors pay based on Borgata's income. So, without a lot of the funds being -- flowing up to the sponsors and is used for debt reduction. Until we start the expansion, there is not a lot of capital expenditures that are taking place. So debt reduction is the primary use of free cash flow. So that number should come down nicely through the year until the expansion starts later this year.

So I don't want to kind of beat a dead horse, but if there is $40m in EBITDA we should see debt come down somewhere in that neighborhood next quarter.

Well, $40m EBITDA is before, that is before interest – Bogata’s interest expense they have to pay. They make principal payments and they do have some capital expenditures. So there are some claims on that EBITDA before debt reduction and well of course the principal payments are debt reduction that are mandatory and they do pay beyond that, but interest expense and some capital expenditures also are required and those do not allow you to pay a full $40m if you earn $40m of EBITDA.

All right, great, thanks so much.

We will take our next question from Larry Klatzkin at Jeffries.

Hey guys, just a follow up. One thing, Bob, isn't it right when you open a new casino and training employees they deal a little slower, so your hold is always naturally lower and then over your time in the start up of a casino?

That's certainly been the past although I think there is other factors that probably impact that even more, which would be continuing issues in a place that does the volume and has the game occupancy that Borgata does.

I am trying to get up to the 20 questions Danny put me down for, so I’ve got 20 more. No, just one another question. Stardust, you know, there is all these rumors of wonderful things you are going to do with it and so much is happening around you. Any feeling when timing or when you guys might try to consider what you are doing with it?

This is Don. We said last quarter and it continues to be true today that next year you can expect to hear us talk more specifically about the planning process. We are not actively working on anything right now. We have our plate pretty full with some of these other transactions and we are just going to be patient and get to it when it makes sense, which we think is next year in terms of at least a more specific planning process. So, we really don't have anything more to add to it than that.

All right. Well, thanks guys.

Moving on, we will take our next question from Smeeze Rose (ph) of JP Morgan.

Hi. Thanks. I have just two questions. Could you give us a range on what you are thinking of spending at Borgata on your expansion and then also could you comment on the possibility of VLTs I guess being introduced in Texas and what your thoughts on there are in terms of what you think the likelihood is?

I will make the comment about Borgata. We have not really developed a specific range. As I said earlier in my comments, our view on this expansion is not a defensive maneuver. It is clearly meant to be aggressive. It is meant to be very proactive and an offensive move, if you will. By the same token, we will intend to be fully realistic and treat it as a very high yielding incremental capital investment and I would think that over the course of the next 90 days, we will have a much clearer picture as to the level of investment.

All right.

With regard to Texas, we obviously monitor what is going on there. There is a lot to be done before there is really any clear direction coming out of Texas. We are not overly concerned. It is going to take some time for things to get sorted out. We think that the market that we do business in have good solid substance to them and feel good about how we are positioned. Obviously, we will continue to monitor what goes on in Texas, but it is all -- there is a lot of game yet to be played there.

Okay. Thank you.

We will take our final question from Ray Chapman of Jeffries and Company.

Donald, along the lines of a lot of final game to be played, how about Michigan, with both tribal (ph) still working to try to expand within the state and other forms of gaming looking to try to come alive?

Well, I suppose there is a lot of game to be played there as well. But we feel very good about the position that we have at Blue Chip. It has performed extremely well as you know over a large number of years and it has established a very large and loyal customer base. We think that the investments that we are preparing to make at Blue Chip will position us well to both reward those customers and encourage them to keep coming but also give us a position to further expand our penetration into the market around there That is at a very good market. We do very strong revenues and we have very strong margins there, and are just not losing sleep over what's likely to happen in Michigan.

Thank you very much.

And there are no further questions at this time Mr. Landau. I will now hand the conference back to you for any additional or closing remarks.

Okay. Thank you all for your interest in listening in today and we will look forward to talking to you when our second quarter results come out in July. Thank you.

And that does conclude today's conference call. Thank you for your participation. You may now disconnect.