Boyd Gaming Corp (BYD) 2006 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the third quarter 2006 Boyd Gaming earnings conference call. My name is Danielle, and I will be your coordinator for today. [OPERATOR INSTRUCTIONS].

I would now like to turn the presentation over to your host for today's call, Mr. Keith Smith, President and Chief Operating Officer of Boyd Gaming. Please proceed, sir.

Thank you, operator, and good morning, everyone. Welcome to our third quarter conference call. Joining me on the call is Paul Chakmak, our Executive Vice President, Chief Financial Officer and Treasurer. Before we begin, I need remind you that our comments today will include statements relating to our financial results, including the financial outlook and expectations for our 2006 fourth quarter, the pending exchange of the Barbary Coast, our expansion and development projects and other market, business and property trends that are forward-looking statements within the Private Securities Litigation Reform Act of 1995.

The Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events, or otherwise. Actual results may differ materially from those projected in any forward-looking statements, as a result of certain risks and uncertainties including, but not limited to those noted in our earnings release, our periodic reports and our other filings with the SEC. I would also like to remind everyone that during our call today we will be making reference to nonGAAP financial measure, and for complete reconciliation of nonGAAP to GAAP financial measures, please refer to our earnings press release and our Form 8-K furnished to the SEC today. Copy of both documents are available on the investor relations section of our website at boydgaming.com. Also as a reminder, we're broadcasting this call on our website at boydgaming.com and at streetevents.com.

Earlier this morning we released our third quarter results. Our third quarter represented a continued transition period for the Company, as Blue Chip moved from the launch phase of our new operation to a more targeted and marketing and operating focus, as Borgata focused on successfully launching our new public space expansion, and as we continue to deal with the effects of added capacity in the Las Vegas Locals markets and move forward with strategies to strengthen our operation. Additionally, we closed on the sale of South Coast yesterday, which itself presents a number of benefits. We were able to reduce the number of outstanding shares of our common stock, repay more than $400 million of debt, and were able to more completely integrate our Coast business. We have already identified an estimated $10 million in cost savings relative or related to the integration. Lastly, we announced an agreement to exchange the Barbary [technical difficulty] 24 acres adjacent to our Echelon site. As we continue to move through this transition, we will look at every facet of our business to find ways to both strengthen and grow the Company.

Looking at our business units more specifically, we had another strong performance in downtown Las Vegas. We were especially pleased with our downtown record results, considering there were 10% fewer hotel rooms in the market and a great deal of construction disruption at another major property. In the central region, Blue Chip and Treasure Chest led the quarterly highlights, as Blue Chip continues to focus on margin improvement and Treasurer Chest continues to perform above pre-hurricane levels. There's no question we've benefited greatly over the last year with the capacity of limitations in that area. At that time time we recognize that as the Gulf Coast properties continue to reopen, we will return to pre-hurricane levels at some point in the future.

Our Las Vegas Locals business continue to adjust for new capacity in the market. While Paul will review this area in more detail, I wanted to update you on some changes we are making to our Locals business. When we looked at the business as a whole, we realized the competitive landscape has changed dramatically and we wanted to strengthen those operations by redeploying management to fit the individual situation. More specifically, we have moved the general manager from our Sam's Town Las Vegas operation to lead our Sun Coast operation. We've also moved the general manager soon to be closed Stardust to lead the Orleans. Both of these individuals bring a significant amount of experience and talent to their new roles and they have the specific market knowledge and market experience to help these properties compete more effectively. In each case, we have partnered these individuals with an executive from the property to create a stronger management team. We believe the added depth to both of these properties will help accelerate the changes needed to deal with new capacity.

Finally, in Atlantic City, Borgata set new revenue records and began winding down its initial marketing and promotional efforts relating to its recently completed public space expansion. We also announced a new branding initiative that will allow us to position our property as part of a larger network, further capitalizing on our central customer database, And we will be a phased introduction of one-card player program. We believe that by combining our individual property player clubs into a one-card program, we can enhance the value of our players club, as well as drive additional cross-property visitation, We plan to begin rolling out the initial phase of the player club upgrade to the central region in 2007. We also will bring together our Las Vegas Locals property under one operating and marketing structure, with the goal of creating a stronger presence in the market, increasing customer loyalty and generating additional economies. Our six central region properties, which historically operated individually, will be similarly structured, but in a way that respects their distinct characteristics. An important aspect to our central region strategy will be to use our large customer database to drive business to a Las Vegas location.

Turning to our growth pipeline, we made solid progress on both the short-term and long-term fronts during the quarter. In Atlantic City, construction of the Water Club is going well, and we're through five floors of a 43-story hotel tower. As we said before, we feel very confident about our expansion program at Borgata, and especially good about the fact that we're building to meet existing demand for our product. We're still on schedule for a late 2007 opening. At Blue Chip in Michigan City, Indiana, we may remember we completed an expansion earlier this year in January that included a totally new casino, an enhanced dock-side side pavilion with four new dining experiences, and an entertainment lounge, which gave us an opportunity to elevate the Blue Chip brand, reaching a broader demographic.

Today we're announcing plans for another expansion, focusing on the non-gaming amenities and adding 300 new guests rooms, a spa and fitness center, additional meeting and event space, more dining and night life experiences, and a new porte cochere. We plan to begin construction of the $130 million project later in the first quarter and expect it to be completed in late 2008. The new project will allow us to continue to build on our new operation, and with the additional rooms, we plan to reach out to customers located in more distant markets. Customer acceptance of our new Blue Chip brand has been strong from the beginning, leading us to believe we are in the early innings of the development of that market, and that's why we're moving ahead with the new expansion.

At the end of the quarter, we announced an agreement with Harrah's Entertainment to exchange the Barbary Coast for a 24-acre parcel adjacent to our Echelon Place project. When we complete the transaction in early 2007, we will control 87 continuous acres and over a quarter mile of strip frontage, centrally located in the area that many believe will ultimately become the luxury corridor of the Las Vegas strip. While we do not anticipate any scope changes to the current plan for Echelon Place, we are looking at the additional land relative to our site plan so that we can maximize opportunities for the remaining acreage. With the Stardust closing next week, we remain on schedule to implode the structure late in the first quarter and begin construction of the Echelon Place in the second quarter of 2007.

In Florida, we have submitted our slot application and look forward to receiving an approval in the next several months. We're monitoring the pending lawsuit filed against the state of Florida, which is challenging the validity of the signatures gathered for the related referendum. In the meantime, we continue to work on the design and program elements for the project, so that we will be in a position to begin construction upon.completion of our acquisition. As for our north Las Vegas site, we're closely monitoring the growth dynamics associated with that part of the Las Vegas valley, as we continue to work through the conceptual design phase for this project. Our current plan is to begin construction in mid-2007.

As we move forward, we will continue to refine our operations and look for opportunities to improve profitability. From our branding initiative and management changes to the continued integration of our Coast properties and the refinement our Blue Chip and Borgata operations, we have made and will continue to make changes and implement new strategies that will make us stronger.

Now I'd like to turn the call over to Paul Chakmak, our Chief Financial Officer, to talk to you about some of any operating dynamics we're seeing in our various business units.

Thanks, Keith. Hello, everybody. The third quarter had a number of unique situations associated with it, including two divestitures, one of which we completed yesterday, as Keith noted, and the other we recently announced. This is clearly a case of addition by subtraction, and while we're a bit smaller, we have clearly unlocked the value of Barbary Coast with our land exchange and strengthened the Company with the South Coast sale, which provided for the repurchase of over 3.4 million shares of our common stock and the repayment of more than $400 million of debt. We began this transition phase in the second quarter and as Keith said -- and we expect to continue it into early next year.

Let's begin on the central region. Blue Chip stood out, as the property increased revenue by over 16% and improved EBITDA margin by over 330 basis-points from the second quarter of 2006, partially because we were winding down our launch phase for the new expansion during the quarter. We're seeing a great deal of market demand for our facility and brand, which is exactly why we're moving forward with the next expansion phase, focusing on the non-gaming amenities, as Keith outlined. As the Gulf Coast continues to add new capacity, we are seeing Treasure Chest normalize. For those of you that remember what it was like pre-hurricane, Treasure Chest has always served a largely local clientele and we're now seeing the effects of new capacity in the region.

Again, downtown also had an impressive quarter, with record third quarter adjusted EBITDA of $9.5 million, largely attributable to greater operating efficiencies. This is particularly impressive, given the description Keith mentioned at other properties in the downtown market. Our Las Vegas Locals results came down to the same two issues we talked about last quarter, new capacity in the market and increased promotional spending. It's important to note that this is the first full quarter with the additional capacity. As you saw in the press release, both net revenues and adjusted EBITDA decreased on a quarter-over-quarter basis. In any event we remain very positive in the Locals business and the areas population statistics continue to support that position.

As an example, if you look at the Clark County driver license count for September 2006, there were more than 7,800 new residence licenses issued, a 17% increase over the prior year and slightly about 2.3% more than the prior month. Unemployment for Clark County dropped again to 4% in September. I also thought it would be helpful to look at longer trend in order to make sense of what is happening in our Locals business. Three of our Locals properties, Sam's Town, The Orleans and Gold Coast were up 11% collectively for the 2006 quarter versus the same quarter two years prior in 2004.

I also wanted to talk a little bit about discontinued operations. As we noted, previously included in our Las Vegas Locals region were the result of Barbary Coast and South Coast, which are now reported as discontinued ops. Had the two properties been included on a combined basis, they would have reported adjusted EBITDA of $13.7 million for the third quarter 2006 and $39.9 million for the nine-month period ended September 30, 2006. On an individual basis, adjusted EBITDA for South Coast was $9.8 million and Barbary Coast was $3.9 million in the third quarter. For the nine months ended September 30, '06, adjusted EBITDA for South Coast was $26.2 million and Barbary Coast was $13.8 million. One final note related to Barbary. I talked about unlocking the value of this asset and we clearly did that, as the Barbary was valued at over 20 times its trailing 12-month cash flow.

Moving to Atlantic City. Borgata posted record revenues. With our launch campaign concluding, we are shifting to more normalized marketing levels. For the third quarter 2006, there was approximately $4 million in nonrecurring marketing expense directly related to our product launch, not to mention the three-day New Jersey state shut down, which resulted in an estimated loss in additional $4 million in adjusted EBITDA.

Finally I think it's important to note that Borgata's results were impacted by certain labor inefficiencies related to the launch of the public space expansion. Net income for Borgata declined to $45.1 million for the third quarter 2006, as compared to $55.9 million in the same period 2005, essentially due to increased marketing expense associated with the opening of our public space expansion, as well as higher depreciation and interest expense related to the project. Borgata set a new record for the third quarter in gross gaming revenue and posted the widest margin increase over the previous years quarter by almost double any other property in the market. Prior to the third quarter, no property in Atlantic -- in the Atlantic City market had every eclipsed the $70 million gross gaming revenue mark for a single month until Borgata, which did it each of the three months of the quarter. Our credit stats also remain strong. Our leverage ratio after completing the South Coast sale is approximately 3.5 times. Also worth noting is that, with our repurchase of stock, we reduced our free float by over 6%.

Now let's move into the guidance part of the call. There have been a number of events since our last call which requires additional color relative to our guidance for the fourth quarter when compared to the same period in the prior year. So let me take a little more time than usual discussing how our fourth quarter forecast compares to the prior year's fourth quarter. The South Coast, Barbary Coast and Stardust provided an estimate $0.05 per share to adjusted EPS in last year's fourth quarter. As a result of the announced divestitures and the closure of the Stardust, we have assumed there will be no contribution from these operations for the quarter. In addition, share-based compensation would have reduced EPS in last year's fourth quarter by $0.05 per share.

Finally, other impacts to EPS in the fourth quarter when compared to last year will include the normalization of Treasurer Chest from its record fourth quarter 2005 performance, an estimated impact of $0.10 per share, the current run rate of our Las Vegas Locals business, an estimated impact of $0.09 per share and a higher tax rate over the same period in 2005. In addition to these factors, the Blue Chip and Borgata expansions continue to ramp-up, but we have not yet achieved our targeted return. So, for the fourth quarter, we're anticipating adjusted EPS from continuing operations to range between $0.35 and $0.40 per share, and the comparable adjusted EBITDA to be between $135 and $145 million.

Operator, at that time we'd like to open the floor up for some questions.

[OPERATOR INSTRUCTIONS] And your first call comes from the line of Larry Klatzkin with Jefferies and Company. Please proceed.

Hey, guys.

Morning, Larry.

One question. What was the option expense for the third quarter?

The option expense was about -- about $5 million.

Okay. Great. Second question would be -- on the labor inefficiencies that you're talking about, are those -- should we expect Borgata to probably end up beating last year -- that all of this stuff is gone and we should see a good shot at a gain year-to- year?

You are asking about the fourth quarter, Larry?

Yes, fourth quarter.

Well, clearly, as we saw when we launched the property back in 2003, we spent a lot of money, a lot of effort to provide the right service levels and introduce the product and we did that again in the third quarter. We have begun to refine those costs. A lot of the inefficiencies were related to the food areas. As you open new restaurants with the caliber of chefs that we have, they're just inefficient. So we would expect to make great progress on that in the fourth quarter. As we continue to see increased revenues, yes, we'd expect to see some of that make it to the bottom line, absolutely.

Alright, alright. Good, good. Another question would be, as far as the -- sorry about that. As far as the marketing war with the local casinos in Vagus, has that at this point cut back or is that still, with the takeover now and the change of the name for the South Coast going to make a difference going forward for a little while?

I don't know that the transition of the South Coast, from South Coast to South Point will change much from a promotional standpoint in the market. I think that the promotional spending is still a little elevated. We certainly spend a little bit more in the quarter in our Locals division on promotions -- excuse me -- and continues at a little higher than normal level.

Okay. it was in the Times last weekend that apparently Hawaii is -- fares to Hawaii from the West Coast have come down just dramatically to almost record lows. Is that bringing a benefit to you with your customers from Hawaii to downtown?

Larry, as you know we run six charters a week from Honolulu into Las Vegas, and the majority of our customers travel on our own charters. We haven't seen a significant change in the traffic from Hawaii. I think those -- those travelers are used to fluctuations in prices of airfare between the islands and the mainland here, but we haven't seen a significant change.

Alright. Last question, the value of the land in Pennsylvania, I assume it's not a significant income. What kind of amount of cash can we see coming in?

Well, I mean, the land was acquired for $26 million, Larry, and you know, we -- we did some updated appraisals on that land and considered the closing cost associated with flipping it, but we expect to achieve a number about in that area is our expectation as far as the cash back to the Company.

Alright. Thank you guys.

Thanks, Larry.

Your next question comes from the line of Jeff Logsdon with BMO Capital. Please proceed.

Relative to Echelon Place, can you talk a little bit about, or expand on the comments that you all made in January about the retail component? What's the size of that again? And then you had talked,, I think about maybe potentially taking on a partner in that, what the rational would be behind that?

Well a couple of things, Jeff. The size of the retail is about 300,000 square feet gross and we still very much have a strategy to bring on a retail partner, or as you'd expect an active dialogue with folks on that front. As far as the -- the rationale, it's very similar to the rationale to the Morgan joint venture that was announced last January. Strategic partners, we believe, are additive to the overall project, both for their expertise as well as to some extent derisking, from our perspective, the total investment we're making in the project. As it relates to retail, you should expect that our partner will be a major retail owner and operator that we believe will add to both the lease-up and the operational aspects of that overall project. So we'll be out with more details on that, as we get closer to breaking ground.

Okay. Thank you.

Your next question will come from the line of Harry Curtis with JPMorgan. Please proceed.

Hi, good morning, guys. Couple of questions. First of all, do you have any sense how long this competitive environment in the Locals market's going to last?

Harry when we talked about this last quarter, we -- we said that -- excuse me -- we expected generally that it would take 12 to 18 months to absorb the new capacity in the marketplace. We still feel that it's in that ballpark in terms of the absorption of that capacity. How long the increased promotional spending will exist, it's hard to say. I don't -- I don't have any feel for that.

Are there any sources of demand in the Locals market that you think are under stress?

What do you mean by that, Harry?

Like any of your customers that you have a good feel for. For example, in the construction industry, do they represent a big enough piece of your -- of your business, for example, to take note of?

I understand where you are coming from now. I think overall from a customer standpoint, I would-- I would -- or I have the view that things are actually more positive than they were during the course of the summer. Not just because of the seasonality in the business but if you look at these different components that we talk about, unemployment, growth in population, as we all know, continued strong commercial construction demand generally on the strip, but frankly, throughout the valley relative to commercial office space, et cetera, that part of the economy continues to boom, and those are very much our customers.

And then the last question. You mentioned, Keith, rolling out the player card. What is the investment to roll that out? And there is an ongoing cost to operate it?

The investment has been made over the last several years, as we have been upgrading technology to be able to accomplish this. We just completed the upgrade of the technology at our Coast properties over the summer, so the technology's currently in place. The investment going forward is more on a marketing level, and -- and I don't have any numbers to share with you at that point. There will be ongoing expense related, not necessarily to the one-card program, but to the entire branding initiative going forward, but yet there will be ongoing costs related to that.

Harry, this is very much the next step of the ACSC upgrade we've talked about for the last year or so. ACSC is now deployed in all of our properties, and to Keith's point about the cost of that, that has really already been borne now in the numbers, and so we're going on with any next phase of that.

Okay, that's great. Thanks a lot.

Your next question will come from the line of Jay Cogan with Banc of America Securities. Please proceed.

Good morning. I have a few questions just on Echelon. If Paul or somebody could just maybe talk a little bit about the 24 acres, if it may or may not be leased partially included in the development -- just trying to make sure I understand the wording in the press release of phase 1 let's say in 2010. If you talk a little bit about just generally about what some of your ideas are, as you're just looking at initially, understanding you're in the initial stages there. And then should we still expect updated CapEx numbers for Echelon Place to come sometime maybe in the beginning -- very beginning of 2007? And then I've got some questions about Blue Chip.

As far as timing is concerned first, Jay, yes, we expect that in the early part of next year we'd be out with updated numbers, as well as, just frankly, with some more detail on the architecture and the layout. As far as the 24 acres, or now the total of 87 acres, as you know, we were using substantially all of the 63 acres that we owned, which is where the Stardust is currently located. It's not our intention to change the scope of Echelon, meaning the components of hotel and meeting space, and casino, retail, et cetera. It is our intention to look at the site and say, how can we create the most value, both from the layout and flow of the to-be-built Echelon, as well as the additional 20-plus acres that we're going to have as land for future growth. Future growth meaning, you know, after Echelon opens. And so we're -- we're considering the location of buildings and roadways, but it is not our intention to, as I said, increase the scope of the overall design from what we have currently stated.

We've heard residential might be a part of this potentially. Is there something that you are looking at now, whereas you hadn't looked at it originally with Echelon? Is there anything from a -- on these 24 acres specifically? And is there any other kind of component that might come on kind of early, or should we think about this as encore is to win Las Vegas?

I think your comment on encore to win over the Palazzo to the Venetian is accurate. Could be by way of a new -- new property, as they have done -- could be -- and we want to make sure we're in a position. It could be by way of just expansion of certain components, like making the casino bigger or making the meeting space larger, and we'll have those options to deal with as we assess market demand once Echelon opens. To the first question, Keith, maybe you can take it.

I'm sorry, will you repeat the first part of your question.

It was just a question as to whether or not you are now looking more sat the residential side of the equation, as others have in the market. It was an area that you hadn't looked at really before, wasn't expected to be part of Echelon Place, and I'm wondering if you are starting to think about it as you consider the overall return for the property?

No, we haven't necessarily changed our view on that. Early on we were unsure as to the depth of that market. We continue to watch that market and look at it, but we don't have any current update on the Echelon plan. It still contains the components we announced earlier in the year, and don't have anything else to mention at this point.

Jay, I wouldn't take the view that we didn't look at residential. We spent a lot of time looking at residential. We announced the project we thought from our perspective had the best component for us.

Poor choice of words for somebody who's been up since 2:00 this morning. Let me just ask then on Blue Chip as it relates to CapEx for phase 2. First, if you didn't do phase 2, where do you think the return will come in for the original $170 million upgrade? And second how should we think about the all-in return once this is done?

The original -- the original $170 million project was targeted to have a mid-teen's return and we are on track to achieve that return as we look at our 2007 numbers. We do target a minimum return on our projects of the mid-teens, and as we look at the hotel and other amenities that are part of the $130 million project, we would also expect to be getting in that same range.

Are you expecting results for the first part to kind of accelerate into -- you know you had good results in 3Q -- into 4Q and into next year we should actually see some pretty significant growth still?

Yes.

Thanks.

Your next question comes from the line of David Katz with CIBC World Markets. Please proceed.

Hi, good morning -- or good afternoon. Just on Borgata, you know, I guess I was expecting a little more revenue at a little bit lower margin, and you know, obviously that may just be my, you know, not modeling it well. But can you just talk a bit about your strategy there, and -- and you know, I guess in general or relative terms, what we can expect to see looking forward the next few quarters?

Well, a couple of things with respect to the public space expansion of the Borgata. First of all, this was the first phase of a two-phase expansion, and we built it and opened it ahead of the Water Club addition that we're currently building, so that we could get it open and take advantage of some demand. The expansion won't be fully efficient -- it wasn't designed to be fully efficient until the Water Club and those 800 rooms open, and so it is all meant to work together, so this will continue to build. We, frankly, were quite happy with the revenue growth that we saw during the quarter, achieving over $70 million in each of the months and creating new records. In the face of being shut down for three days, we were quite pleased with that. With respect to none of that flowing to the bottom line, once again, it was part of our launch strategy. As we did in 2003, we followed our plan. We understand our plan. We'll begin to refine that in the fourth quarter, when we will expect to start to see some flow through, as we did, again going back to 2003. So we're happy with the results. We think we're on track with the plan we put together, and you'll continue to see the public space expansion gain efficiencies throughout '07. But once again, it won't be fully efficient -- it won't be fully absorbed until we get the additional 800 rooms of the Water Club open in late '07.

Thanks very much.

Sure.

Your next question comes from the line of Joseph Greff with Bear Stearns. Please proceed.

Hey, guys.

Hey, Joe.

With respect to this additional expansion at Blue Chip, do you expect any renovation disruption there?

There will be some work in the porte cochere area and around the front door. Any time you are doing work in that part of the building it does create some disruption to the operation, there's no question about that. We've seen it in our previous projects. That's the long answer to what should be a short answer of yes.

With respect -- kind of going back to the Locals, with respect to the Locals market, maybe you can help us out in the third quarter in terms of the year-over-year increase in promotional allowances or complementaries? And then if you could comment what you're expecting in the 4Q relative to the 3Q? Is that going down? Is it staying constant? Are you increasing it?

I'll take the back half of the question and let Keith address the front part of it. As far as the fourth quarter, we're certainly not expecting an acceleration or higher promotional activity. At the same time as you can see from our guidance, we've tempered our expectation on what the competition will do in this area, and, as a result, the impact on the numbers. I mean marketing costs do have a significant impact on -- in any market we operate in. And to the extent those start to abate or ease, you obviously see very significant flow through.

But so far in the first 26 days of the 4Q you really haven't seen anything with that easing?

We haven't -- beginning of the -- October thus far looks like a lot like August and September. Now, as you look at the Locals properties as a group, you really -- and you talk about promotional expenses, you have to start to dissect it, because the increases in promotional spending in a place like Sam's Town or Gold Coast, which are further away from the new properties, is a lot less and frankly more normal than it is at a Sun Coast or at an Orleans. It's probably highest at the Sun Coast in terms of year-over-year increases in promotional spending. Second highest at the Orleans and more towards normal levels -- slightly elevated, but more normal at Gold Coast and Sam's Town. You really have to look through the pieces, and we're not prepared to get into those numbers, but it certainly is most elevated at Sun Coast.

And then the labor inefficiencies at Borgata with the public space expansion, when you do rationalize those expenses? How long of a time frame?

It was part of the plan to begin in the fourth quarter. We have begun that process already. We don't have a time frame on it. It will continue through the fourth quarter, and -- and most likely into the first quarter. We don't want to knee-jerk react and take too dramatic of a reaction. We have high standards and high service levels that we want to continue to offer. These are still new restaurants. They've only been open for three months, with once again some very, very high-caliber chefs. And we just have to understand how they operate and how to best utilize them. I think you'll continue to see that refinement, clearly through the fourth quarter and probably into Q1.

And Joe, the product at Borgata, as you know -- I'm sure you've been there a few times -- it's been embraced with great, great demand. High-end restaurants, as Keith pointed out, require very high level of service quality. And the efficiencies are borne in a couple of ways and the one that really transpires over time in the biggest way is people as they get adjusted to their jobs and adjusted to their new environment, just operate more efficiently, And that's what we saw when the launched Borgata in July of 2003. You can back and look at those numbers and see the steepness of the curve relative to that ramp-up, and we should see something like that relative to the expansions we're doing now.

Do you think with the public space expansion that the property is more seasonal than it has been? Or certainly. it's been less seasonal than others in the market?

I guess time will tell. I believe with, the added, you know, slot capacity and the added table game capacity, we certainly be able to peak-the-peaks, if you will, much greater. Tha on weekends and on busy periods, with the added capacity, we'll be able to truly take advantage of it. And clearly on a midweek in December, that added capacity isn't needed. So you may see -- you can call it seasonality -- you may see more peaks in the business, because of that added capacity. Once again, the 800 room Water Club tower comes on line, then I believe you'll see it start to level out, because that capacity that we built was specifically built somewhat to take advantage of a need today, but more to be connected to the Water Club.

We obviously, as you know, don't have any problems filling rooms at Borgata. Whether it's December or whether it's August, the place stays -- stays full. And Keith's point, having more, having better high-quality rooms for what is a very deep customer base in the northeast will be very additive to the future of that project.

Great. And then one final question. Paul, with respect to the 4Q guidance, I was hoping you could give idea of corporate expense, depreciation, interest expense, tax rate, what's kind of built into that?

Well, tax rate we've estimated at kind of where we're currently running, about 36, 36.25. As far as depreciation is concerned, the number for the fourth quarter, about $42 million and interest expense about 38. What was the other question, Joe?

Corporation expense.

Corporate expense for the quarter should run about where it's been running, you know, $11 million or so.

Great. Thank you very much.

Your next question comes from the line of David Barteld with NCPI. Please proceed.

Hey, guys. Taking a look at the Las Vegas Local market, your net revenues you give out, you're trying to dig down into them a little bit deeper., I was hoping that, Paul, maybe you could give us the casino revenues or gaming revenues for that group for 2006 and 2005 in the third quarters?

I don't think I have those numbers in front of me, David. I'd have to circle back with you. We've typically not done that in that level of detail, and not planning on really changing that, at this point. Though, I will tell you, in fairness, that for our Locals business, casino revenue is a significant chunk, at least 80%, without going back at looking at the number of -- of the total revenue at those operations.

Right. I'm aware of that, so let's come out at this from a different angle. You're down about $14.5 million or 7%, well, your total promotional allowance. And while I don't know how that's broken out among your property segments is up just $4 million. So, doesn't it seem reasonable to acknowledge that you're losing market share on the casino side, considering it's the vast majority of your revenues?

I'll have to circle back with you on that one David. I'm not totally following the thought process.

Okay. You losing $14.5 million and your total promotional allowance is up four. It just seems like you losing market share, and I was trying to get an idea what your thoughts were on that?

David, I believe the promotional allowances isn't the only part of marketing.

I mean, if you look at for example, David, the accounting for downloadable credits is a good example, which is used widely now in the business. That number does not show up in the promotional allowance. It shows up as a [conter] revenue answer.

Yes, I understand all of that, but without the numbers in front of us, I'm just trying to ballpark it. It just seems like, given the growth in the market, that your percentage of it is lower, and that's just the way it seems to me. I guess if -- we can talk about that further offline.

Fair enough.

Thanks.

Your next question comes from the line of Celeste Brown with Morgan Stanley. Please proceed.

Hey, guys.

Good morning.

Can you give us the Treasurer Chest EBITDA number just for last year, just so we have something to start off of. It's difficult to figure it out the -- you know, with the central region being so large. Like I said, Celeste, we expect a $0.10 EPS hit because of Treasurer Chest in the fourth quarter. EPS, when you go back and do the math, for every penny, it's about $1.4 million in EBITDA. So factually speaking, we're expecting a $14 million reduction, about, in EBITDA at Treasurer Chest on a quarter-over-quarter basis. I don't want to get into a habit of breaking out individual numbers, but you certainly know where the run rates were of Treasurer Chest pre-hurricane. We broke them out in 2004. It was in the low 20s of EBITDA overall and I think that probably gets you enough to get a lot closer.

Okay. Great. And then, in regards to what you are doing with the Coast properties, it sounds like you are just pulling them into the Boyd fold, moving some of your managers there. Is that what you're goal is?

I think the goal is to obviously further the integration process with the Coast properties, but also to redeploy the talented managers we have throughout the Company and try and get the right people in the right places. It just so happened that those individuals went over to the Coast properties, but there's other transitions at other levels of people moving around. So it wasn't necessarily to put those managers there to put, quote Boyd managers in Coast properties, we're all part of the same Company. But it was to redeploy assets were needed. We don't do it a lot. We haven't done it -- we haven't done it in a while, but we do it when needed.

Okay. Great. And then I know in the past you haven't wanted to talk about same-store sales in the Locals market with the new property in there. Now you don't have a new property, having sold South Coast, can you give us your expectation for same-store sales in the Locals market for the fourth quarter?

Well, I mean I guess from the standpoint, I guess it depends on what you want to compare it to. Compared to the third quarter, our expectations are continued improvement. It's addressed by both continued absorption in the Las Vegas Locals market relative to growth in population, et cetera. It also -- it also deals with, frankly, the better seasonality in the business, as we get into -- into the fourth quarter relative to the third quarter. So improvements should be borne. The question of magnitude relates to everything else we've been talking about in the Locals business relative to the capacity issues and the marketing issues. So I that's probably I guess the best way I can answer the question, Celeste.

Okay. Thank you.

Your next question comes from the line of David Anders with Merrill Lynch. Please proceed.

Great. Thank you. Paul, I apologize if this was in the full release, but did you have the share count at the very end of the quarter that we should be using looking forward?

Yes it's in the stat page, 86.4 million.

Okay.

I gave you -- David, I gave you like three hours to look at the release, not 30 minutes.

I know you did. Lot of tables there, though. What is the competitor to the Blue Chip -- when would you anticipate they're going to open their facility? Have you heard anything?

Lakes Gaming has announced -- and they're managing that facility -- an August '07 opening. That information's the best information that we have. You may know better.

Okay. Thank you.

Your next question comes from the line of Bill Lerner with Deutsche Bank. Please proceed.

Thanks, guys. Two questions. One, could you give a little more color on the branding initiative that you talked about? Beyond the one card, just so I understand it. I mean, are you talking about a post-sale name change or some type of branding slogan or something? And then I just have a follow-up there.

I think as we look at branding, we're looking to do a better job leveraging up the 18 property network property that we have and to do a better job taking advantage of the large customer database that we have, increasing cross property marketing opportunities and visitation to our Las Vegas properties. We'll be looking at some customer service initiatives and some combined marketing strategies and various other other key elements that -- I guess I'm not prepared to go into at this point. But one of the key elements is the players club, connecting them all together so that they can work as a one-card system. Again, we spent the last several years preparing for this and this is just the next phase of that program. You shouldn't be considering a wholesale name change or the properties changing names. As we said earlier, we want to respect some of the unique characteristics and the unique parts and pieces of the individual properties, but find some advertising and marketing ways to bring them together.

That's helpful. Okay. And then follow-up just on Echelon, do you guys still think you can get in the ground in the original time frame, which I think is 2Q '07, or where are you at on that?

I think we talked about previously, and we still believe or still plan on taking the Stardust down late first quarter. It will be closing November 1st. We'll spend several months, obviously, cleaning up the property and gutting it and taking it down late first quarter and starting that project in the second quarter of '07.

So, Bill, yes, the time line unchanged from what we previously said.

Okay, thanks, guys.

Your next question comes from the line of Larry Klatzkin with Jefferies and Company. Please proceed.

A follow-up on the answers you gave on the guidance. I know you probably won't answer this, but for next year, full year, kind of looking at depreciation and corporate and tax rate, can you guys just give an indication on that?

We haven't -- we haven't given -- given any indication on that. I fully fully plan to do that on the next conference call, as we've typically done in the past.

All right. Just thought I would try.

Your next question come from the line of Adam Steinberg with Morgan Joseph. Please proceed.

Yes, hi, guys. A couple of questions. You know, when I look at -- if I take Borgata and kind of I adjust, adding $7 million to revenue and adding $4 million to EBITDA, based on what you thought the closure cost you, and I'm looking at revenue up 14% and EBITDA flat year-over-year. You know, and that's after an expansion. You said the expansion of Blue Chip, again, revenue was up pretty high but EBITDA was flat. You know what -- what are you doing in terms of when you do these expansions that -- to kind of get the returns at a -- a little bit quicker, [before the stated] 12 to 18-month ramp up. And how can I get comfortable given the performance of some of theses expansions with some of the -- you know, the other initiatives you have going forward, such as the next expansion to Blue Chip and Echelon Place?

Let me take a quick crack at that and then I'm let Keith add to it. First off -- and I think everybody knows my background on the banking side -- it's actually much more difficult to operate these things than we all expect from the outside. With that said, you know, you have to keep in mind, Adam, the other comment that we added to it of just the marketing cost, the one-time marketing cost associated with the relaunch of the Borgata brand of another $4 million over on top of that. So to say within the first three months, if you really want to truly kind of normalize it, if you will, still in a ramp-up phase, you were ahead of last year from that perspective. I don't know, Keith, maybe you have some other views on the --

Yes, you know, the old thing you have one chance to make a good first impression and we operate these properties for long periods of time. It's not about the day we open or month we open or the return we get on day one of a new project or of a new expansion. It's about ultimately getting to the return that we thought we would get. As we plan those these out, once again, it's never about year one. It's about where we think the ultimate run rate is. We only have one chance to open them and open them properly and create the image and the buzz and create the success that you want, introduce that product to the customer. And it's just our views -- and there's many different ways to run the business, we have many successful competitors -- but it's our view, as we open these expansions and we open these new properties, we use the term launch. And we want to launch them. And we spend a tremendous amount on marketing and advertising and talking to our customers doing that, and then we start to trail -- tail it back. We did it successfully a little more three years ago when we launched the Borgata. I think we've done it successfully with the public space expansion. We took the same approach at Blue Chip and you'll continue to see us take that approach, because we believe it that it creates long-term success and long-term value for the Company. And it's not about the short-term for us. It is about the long term.

Okay, so what you're -- basically what you're saying is that there's a ramp process and we all kind to be a little cognizant that it takes a little longer than, perhaps, you might have expected it to take?

Yes, that's correct.

The next question I have relates to Treasurer Chest and the guidance you gave, kind of saying you'll base it off of the pre-Katrina level, which makes sense to me. But at the same point in time, you did lose a competitor in that the the Bally -- the Bally boat's not reopening. So shouldn't I expect to see a little -- somewhat of a more ramp-up? You know, increase from what -- from those pre-Katrina levels?

We're not saying we're going to be back to pre-Katrina levels in the fourth quarter. We certainly are saying that, obviously, you've got a lot more capacity down there in the Gulf Coast. It opened up through -- through the summer, there's frankly more competition. In all respect to the Bally's boat, it was -- if we go back to revenue numbers, a very, very small competitor to anybody in the Gulf Coast. I'm not sure it had a meaningful impact on anybody.

And are you seeing any impact from the Harrah's Hotel with Treasurer Chest?

Not at this point. To Paul's point, you're earlier question, you also have to remember that there's been a tremendous population shift in New Orleans. There is a tremendous amount of the population that has yet to return to that area and there's whole parts of the city that haven't even begun to be be rebuilt, and many of the customers lived in those areas. So the Bally's revenue was not -- you know, was not that meaningful.

Okay. Thanks.

Your next question comes from the line of David anders with Merrill Lynch. Please proceed.

I'm actually all set. Thank you.

Your next question comes from the line of Dennis Forst with KeyBanc. Please proceed.

Yes, hi, Paul, and Keith. I had a question to try and reconcile the discontinued number. You say there's a $65 million charge, and the net number for the quarter was about $63 million charge for the quarter; is that right?

That -- that's correct.

Okay. Then I'm assuming that the cash flow from the two discontinued properties, the 13.7 is in there somewhere too?

That is correct.

I would have thought it would've just been 65 minus 13.7. I assume you are not depreciating the properties any longer?

Depreciation has stopped, that is correct.

So where's that differential then, Paul?

I'm going to turn it over to Jeff Santoro, who's our Vice President and Controller. He can talk through those numbers.

Great, thanks. For the Barbary Coast, there was [inaudible]. It was what?

Three months of depreciation.

Oh, there was? Why's that? Oh, because the deal wasn't done until October.

You got it.

How much was that depreciation.

About $1 million and change.

Okay.

And [inaudible]

How much was that.

About $2.5 million, I believe.

2.5 for one month. Okay. So that's-- so now that's $3.5 million from 13.7. There's still $10 million of operating income from the 65. I would have thought the loss would be more like $55 million then?

Well, we also char -- we also charged the property [inaudible]

With interest?

Yes.

Okay.

Yes, there's an interest allocation for these properties [inaudible]

Okay.

So, like for instance, for South Coast, the $400 million that we're getting, yesterday. We take -- we take that into [inaudible]

Okay. Talking about that 400, should we net that, Paul, against the debt and come up with a -- a net number, as of now somewhere around $2.2 billion of debt?

That is correct.

And there's no tax liability on that 400?

That is correct.

Okay. And then the same with the shares. You said 86.4 in answer to David's question. Subtract 3.4 million from to that to get shares outstanding today?

No, no. That 86.4 was shares outstanding as of September 30th. The share buy back actually occurred kind of in the middle of August, when we did the --

Okay, so that is already net of that 3.4.

And those are shares outstanding, not fully diluted.

Right. Lastly the non-cash gain that you're going to recognize in this next quarter, $280 million. How do you come by that number?

It's really the -- the difference between the cash basis value that was associated with the acquisition of the two parcels next door to us by Harrah's versus the book value of the Barbary Coast.

Okay. I think that answers all of my questions. Thanks a lot.

Thanks, Dennis.

At this time I would like to turn the presentation back to Mr. Paul Chakmak for closing remarks.

Well, thanks, everybody for joining us today. We appreciate the fact that the -- the quarter was complicated, relative to a lot of the actions that we're taking in -- both from the standpoint of the divestitures that have been announced and completed, as well as a number of things going on in the business, and we're certainly open to further discussions based on questions that you have. Thanks again.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.