美高梅國際酒店集團 (MGM) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Mandalay resort group first quarter earnings conference call.

During the presentation all participants will be in a listen only mode.

Afterwards we will conduct a question and answer session.

At that time if you have a question, please press the 1 followed by the 4 on your telephone.

As a reminder this conference is being recorded, Thursday May 29, 2003.

I would now like the turn to conference over to Glenn Schaeffer, president and Chief Financial Officer of Mandalay resort group.

Thank you, operator good afternoon we welcome you to Mandalay's first quarter conference call on our results for our period ended April 30, 2003.

With me today is Les Martin our Chief Accounting Officer.

Before we before we begin let me dispense with the customary disclaimer.

The information that we provide during this call may include forward looking statements within the meaning of section 27 A of the securities act 1933 and section 21 E of the securities exchange act of 1934.

They can be identified by the fact that they do not relate strictly to historical or current facts.

Our forward looking statements will be based on our current expectations about future events, and may include statements related to the following.

Our new 1122 all suite tower which is currently under construction at Mandalay Bay, anticipated financing transactions which will include the possible refinancing of our operating leases, and our intent to call our 9 and a quarter % senior subordinated notes.

Our anticipated capital spending levels, the potential impact of any additional competition, potential impact of any change in tax policies, the status of the development of our permanent casino in Detroit, future share repurchase activity, and our expected levels of depreciation, operating lease rent, interest expense or capitalized interest.

Any forward looking statements involve risks and uncertainties.That could cause actual results to differ materially from those that are expressed in or implied by any of our statements.

Information concerning factors that could affect our future financial results is included in the caption under the same title item 1 of our annual report, form 10 K filed for the year ended January 31, 2003.

We do not undertake any obligation to publicly update any of our forward looking statements, whether as a result of new information, future events or otherwise.

Any further disclosures made on related subjects in our subsequent filings with the Securities and Exchange Commission should be consulted.

These statements have been provided as permitted by the Private Securities Litigation Reform Act of 1995.

In line with our new policy and financial communications, Mandalay has provided a supplemental schedule with this earnings release that reconciles operating cash flow to cap defined operating income.

We will refer to both measures in the press release as well as on this call.

We hold that operating cash flow is a useful benchmark engaging profitability for our industry.

Our first quarter indeed indicated the positive direction of Mandalay resort group bolstered by our recent expansion projects.

We reported on a fully diluted basis 69 cents per share against 68 a year ago with the add backs that are described in the first paragraph of the press release to equivocate to operating earnings, it would be fair to call it an even quarter against last year' all time record results.

This is a strong comparison, as compared to the first quarter results of our prime competitors here in on the Las Vegas strip.

I'll note that our first quarter included two war-affected months, both March and April, which are also the highly weighted months of our fiscal quarter.

On a straight-up calendar quarter, which is to say, January to March, which two of our major competitors on the strip performed on, Mandalay was the high performer.

As to Rev Par comparisons, all of our properties from January through March we were Rev Par positive at all of our properties on the Las Vegas strip, and on a blended basis we're up 14% in Rev Par year to year.

We were positive comparators in operating cash flow and in that calendar quarter we had a distinctly positive comparison of EPS compared to the year prior.

The quarter we just finished, sort of the 1st major Las Vegas strip company to post positive results for the full quarter since 9/11 and we did it in a quarter, a pretty decent comeback quarter in the fiscal period a year ago.

The principal driver of this uptick was Mandalay Bay.

The convention center drew the business and more that we anticipated throughout the first quarter.

This is the single most important lever or catalyst in bumping up our company's Rev Par on the Las Vegas strip to which our company's earnings are most sensitive, and it is working according to plan.

We hosted 19 trade shows in the first quarter.

Our average room rate at Mandalay Bay was $201 in the three months.

That's a 9% increase in Rev Par over a pretty solid period a year ago.

While we nudged positively in Rev Par elsewhere on the strip, if you blend together Monte Carlo and Circus Circus, our 5% Rev Par uptick was basically pare I carried by Mandalay Bay.

In the month of May both Mandalay Bay and Luxor compared well up in Rev Par against the same quarter a year ago and a low double digit pace our combined Rev Par on the strip in this month would readily exceed the plus 5%, plus 5% number compared to May a year ago, in fact, it might be double that.

If the world will only remove itself from the way traveling consumers to the Las Vegas strip an upward direction seems indicated.

Mandalay Bay did generate $46.4 million in operating cash flow in the quarter.

That's approximately $40 million a year ago.

That's our best quarterly perform an ever at Mandalay Bay.

Luxor for its part came close to a solid performance a year ago comparing $32.5 million in operating cash flow against $34.4 million.

At Excalibur we posted $25.1 million in operating cash flow against approximately $26 million, a little bit above that.

And at our 50% owned point Monte Carlo we delivered $22.4m versus $26.5 million dollars a year ago.

At Circus Circus we compared $15.8 million in operating cash flow against $18.9 million in the quarter a year ago.

In our other Nevada marks the tone was softer.

In Reno operating cash flow from our portion of the Silverlake is 50% owners and Circus Circus Reno combined was about just over $3 million below the EBITDA we produced a year ago, and in Laughlin the figures compared down a like amount.

I should remind you that a fractional portion of our company's operating cash flow derives from these ancillary market, and a downturn in their total result against a year ago, while not cheering, is not a particular hamper to our future earnings growth.

The scale of native American gaming in California has affected these smaller border markets mainly during the mid-week periods.

Also where we generated $23.8 million in operating cash flow.

We own a 50% interest in that.

In Grand Victoria in Elgin, Illinois, that compares against $32.2 million last year, and remember in the first quarter last year, that was a quarter before a higher tax rate on casino revenues was instituted.

That was the whole difference in our year-to-year performance, and that higher tax rate amounted to about 5 cents per share in the quarter year to year.

In Detroit our Motor City casino posted $32.8 million in operating cash flow against $36.3 million.

It's a project that we own 53.5%.

And in Tunica, Mississippi, the Gold Strike produced $7.3 million in operating cash flow against $7.1 million and that is uptick came despite an intense promotional environment in the Tunica market.

During the first quarter we bought in 3.3 million shares of our stock by taking out the existing forward equity purchase contract of $100 million.

Shares outstanding in this second quarter will approximate $60 million year over year from here if there weren't share re-purchases.

The lower share count will only serve to heighten EPS comparisons as we go forward as it happened in the first quarter.

Interest expense is in fairly rapid decline at Mandalay resort group.

Over the past year we have swapped a portion of our debt portfolio that was in fixed rate into floating rates taking advantage of generationaly if not historically low interest rates.

We are also replacing or refinancing debt instruments coming due in the year 2003, $300 million in principal amount, 150 next month, 150 in November, with lower price paper.

The 2% convertible notes we sold two months ago, to be exact.

This positive contribution to our earnings will be meaningful, as it kicks in over the coming course of the fiscal year.You can also expect that we will call our 9 and a quarterer% bonds due 2005 and likewise replace that financing with lower cost alternatives.

In the current environment, this last move alone would add 40 cents to our earnings per share over the next two years.

All told, interest expense in this company should drop starting when we did swaps last year, to the piece I just announced.

Our interest expense in a two-year period will have declined by 20%.

As our revenues ramp up, largely by Rev Par increases as previously described, more and more of that growth dropped directly to the EPS line, especially if the interest expense falls and the share base has been downsized.

We have operating profit leveraging and financial leveraging, and they're going to come to work here very quickly.

Our credit statistics are improving at the same time, clearly as the interest coverage gets better and debt to EBITDA ratios come down.

Depreciation expense, as we noted in our last quarter call, will be a lower figure this year than last.

In the vicinity of 150 to $160 million.

The non-operating side of our income statement has become a significant contributor to our earnings growth.

We are on track as to budget and timing for our 1122-room all suites tower at Mandalay Bay which will open this November.

That's a $230 million project, and it will be a significant driver of growth for us next year, especially as it stimulates a further climb in Rev Par at Mandalay Bay.

As we indicated in the annual report just mailed, we could be one of the fortunate few public companies that can sustain reply grow our earnings at a 10% plus rate while requiring no net capital out-lace over the next three to five-year period.

A 5-% top line increase at this company translates now into multiples of that % an in EPS.

Rate of return on invested capital is on the rise at Mandalay resort group.

Free cash flow is the answer to most of life's woes and that's a metric we follow closely at Mandalay.

If you look forward over 4 quarters, our pace is to exceed $5 per share of free cash flow if disruptive events in the geopolitical realm will only subside.

So with is that overview of earning results, earning power and financial condition, we'd be pleased to entertain questions.

Ladies and gentlemen, if you were to register a question, please press the 1 followed by the 4 on your telephone.

You will hear a three-tone prompt to acknowledge your request.

If you'd like to withdraw your registration, please press the 1, followed by the 3.

If you're using a speakerphone, please lift your handset before entering your request.

One moment, please, for the first question.

The first question will come from the line of Larry Klatskin with Jeffries & & Company.

Please proceed with your question.

Are there any effects on your properties?

Any what?

Say it again.

Cable holdings.

No.

Hold was normal in the quarter.

Talk about the status of tax changes both in Nevada and in Illinois.

I don't think we'd be expert in what's going to happen in Illinois but you'll probably find out Saturday night late.

With respect to Nevada, I think the expectation is there ought to be a tax bill that's cobbled together here pretty quickly, and our expectation would be a quite mild increase in the gaming tax, which would be with respect to our EPS, undetectable.

(Inaudible.).70%.

What?

Rate any differently on your property?

I think it's too soon for us to anticipate that, Larry.

Okay.

Bookings going forward, what are you seeing for. (inaudible.)

We're staying the course.

I mean be we have in have indicated in the past that our expectation at Mandalay Bay, which is the biggest beneficiary at the convention center, whereas a year ago about 18% of our room nights were sold to the convention and meeting business at this property, it will be double that this year at least, and that we will achieve something around 35% utilization of that space which is 60% of our selling days or selling capacity.

That next year that number will be in the 40s, and by the third year probably 50%.

The sales are easier to make today than they were before you had the building open and proven.

The convention center is getting rave reviews.

I think you can check that for yourself on internet sites.

And, you know, the proof is in the pudding.

We have a star in the making here.

Do you have any room rate applications that you can talk about?

We have modeled about a $220 average rate there.

Given with the growth in Rev Par is at Mandalay Bay today, I'm halfway suspicious that's low.

The last question, a couple of other income (Inaudible.).

We will be interested in expansion of jurisdictional opportunities, yes.

We have looked at that market.

I know the past history in our industry is trying to place your bets before you know what's actually going to happen.

It hasn't been very reliable.

But we have an intent, if the opportunity's attractive enough compared to other opportunities, to look when there is something to be done.

Thank you so much.

Thanks.

the next question will come from the line of Steve Kent with Goldman Sachs.

Please proceed with your question.

Hi, Glenn.

I'm just wondering, Luxor casino revenues were down about 13% but Rev Par was up.

Do you think you're displacing casino customers with convention customers?

And then similarly, are you seeing carryover of customers on the convention side into Luxor and into Excalibur and in a more significant way?

Steve, the answer to the 1st thing, the answer is no.

I mean, March, which is of course the biggest month in our fiscal quarter, was a flawed month, and you've just got a very different business than had year ago, particularly with the war and the quality of customer you might have displaced from a year ago this time.

So I don't think you're seeing any sort of trend there.

Our expectation for Luxor this year is that its room night sold portion might go from roundly 8% to 11 or 12, and that Excalibur probably 5 or 6 to 8.

The biggest beneficiary still and yet will be Mandalay Bay.

Luxor to some degree.

The positive Rev Par direction at Luxor is important.

As I said maybe in past, had 9/11 not intervened two years ago, Luxor would have made $135 million in operating cash flow.

It doesn't have that run rate today.

The difference between, you know, the number that's in the one teens and one that's in the 130s is about $12 of Rev Par.

That can come in a relatively hurry.

We saw it in the first quarter.

As you took the calendar quart, January, February, March, we had that kind of receive Rev Par increase at Luxor, and so strip out the war and the cross currents of that and Luxor has begun to move.

Hey, Glenn.

Just one follow-up separately.

The new room tower, do you think you're going to do a phased opening on that given the seasonal slow period, that November, December period or are you opening up with the full over 1100 rooms?

Well open with the full complement of rooms.

Okay.

Thanks.

The next question will come from the line of Joe Greff(ph) with Folcrum and Global Partners(ph).

Please proceed with your question.

Hey, Glenn, hi Les.

I was hoping you could just give us an update where you and the board might be in terms of thinking about giving out some of the free cash flow.

I know you're a baseball fan, Glenn.

Can you they will tell us what inning you're in terms of dividend.

I'll tell you this way.

We have a policy in this company of distributing capital to its owners, and that will not change.

And we will examine the methods that we think are most meaningful to the recipients, so I can't really say much beyond that, but I would not expect our strikes to change.

We believe that the capital that we don't need immediately for reinvestment or but it another way, project good enough to build a good enough ballpark, we will over the next few years, given that we do not need net capital in this business to grow our earnings I think shareholders should have a high degree of confidence that they will be seeing cash come their way in tax efficient means.

Joe Greff Can you just talk, obviously the Rev Par numbers haven't reflected it, but has there been any impact of construction disruption at Mandalay Bay?

There is no impact of construction disruption at Mandalay Bay.

You can see that in the numbers in the first quarter and the number in the second quarter.

There is no construction disruption.

And then June.

What's your Rev Par forecast at this point?

And can you talk about the booking windows have they gotten any better?

Let me answer that last 1 first, I think you should (inaudible) for a numbers of reason that booking numbers are never going to be what they were before.

Part of that is from the consumer standpoint the media.

The internet, which in our case is pricing calendar attached to it, has given consumers more confidence in sort of holding out later.

Doesn't mean the prices are going down, but I would say today your in two-week to four-week booking window I'm going to guess, based on historical standard, it's on the low side.

I think that's going to be normal going forward just because of the change in the way people can book the rooms.

For us the internet is not a discount medium.

We get full rate on the internet.

I will tell you this year if you if you go across our properties on Las Vegas strip over 20% of our total reservations come on line.

So we can see June.

June will be a positive Rev Par month.

May was a distinctly positive Rev Par month, so is June.

So we'll get out of the way.

The traveling consumer of entertainment is doing the right thing.

So it sound like it will be Rev Par positive in the second quarter?

Well, as I said, we've got two months in the bag from here.

As long as we don't march on Tehran....

I can predict, I think we're going to be in pretty good shape.

We were Rev Par positive in the first quarter.

Great.

Thank you, guys.

the next question comes from the line of Joyce Minor with Lehman Brothers.

Peace proceed.

Glenn, just to comment on your comments a little bit more, did I say you're basically suggesting Rev Par on strip up potentially as much as 10% in May?

It might be.

And then positively on the consumer revenue front as well?

Well, no.

Consumer revenue is not going to go up as room rates.

We're a company that has designed ourselves to be more sense to the room rates and which is exactly where prices are going up on the Las Vegas strip.

There not going up on slot machines.

Can we expect to Casino revenue to be positive?

Typically, they are.

In the first quarter, March had a lot of cross currents in it which affected, that at Luxor.

With respect to our casinos other than your room rates go up faster than wins on slot machines on a percentage basis.

Okay.

We have branded hotel product and establishing business, commodity business.

Right.

Can you quantify at all, Glenn, kind of what you receive in terms of what you would quantify as incremental EBITDA from the convention center in the quarter?

Well, it's hard to pull it apart.

Kind of ballpark it?

In the quarter we were up in -- and you've got to remember you had two war-torn months.

Right.

If you just take the week that Con-Agra was here in March a year ago when you achieved the highest average room rates mid week in the history of the Las Vegas strip and then a year later you replace it with a war, that's a big hole.

In the biggest month of our quarter.

If you just threw that out as the low score, all our properties would have been Rev Par positive in the quarter.

And, you know Mandalay Bay, which as far as I can tell, was probably the leader in Rev Par in the laws Las Vegas strip in this same period.

It would have been up even more.

So, you know, are we getting the rate of return through room rate on that convention center based on what we've seen so far in first year, yes, we are, and we've said that our than intend tent to get a 15% return cash on cash in year 1.

Okay.

Thank you.

the next question will come from the line of Harry Curtis with J P Morgan.

Please proceed with your question.

Yes, hi, Glenn.

Can you just give us a specific on or more detail on your casino when, for the first quarter.

Was it up or down on a percentage basis, please?

Are you talking about the old company, the Las Vegas strip?

I'm sorry.

Just in Las Vegas.

I'll have the guys here do the math while we get another question.

Then I'll follow up with another one.

Can you give us an update, please, on your plans for a permanent casino in Detroit, please?

Well, we still have plans for a permanent casino in Detroit.

We sign a redevelopment agreement to that effect last summer.

But in term of the movement that needs to be made, which is particularly dismissal or settlement of the (inaudible) tribe's suit which is injunctive, the going forward of construction projects there, there is no difference.

As to your first question, Harry, we were down by 1% in casino revenue in the first quarter.

War quarter against a no-war quarter last year.

And last question, as you mentioned, the 60 million share count, that's a full I diluted number, please?

That's pretty close, yeah.

The actual number of shares outstanding in this company today is 59 million and change, fully diluted $61 million.

Thank you.

the next question will come from the line of Robin Farley with UBS Warburg.

I actually have three questions.

The first one is can you give us the dollar amount of lodging revenue versus last year?

Sure.

Keep going, Robin.

the other two questions, one is it looks look the convention center was slightly diluted in this quarter at, of course it's only the first quarter that it opened.

Would you have expected it to be creed owes if it weren't for the impact of the war or is there kind of a normal?

Are you anticipating it's going to take two or three or four quarters?

Say what, Robin.

If you look at the incremental.

The company on the Las Vegas strip came from that convention center, that convention center doing what I just described to Joyce Minor will produce on those numbers something on the order of between 40 and 50 cents a share this year.

That's (inaudible).

I'm just talking about this particular quarter.

This particular quarter, Robin, web you remember you have war in one quart and no war in the other quarter.

That's exactly what my question is.

Except for the war would you expect it to be accretive.

We were 15% in operating cash flow at Mandalay Bay.

But the 6 million increase in EBITDA at Mandalay Bay would have been offset by the increase in depreciation and interest expense which was greater than that $6 million in EBITDA.

I don't think so.

It looks like DNA was up about $3 million and then just using average interest rate on the cost of the convention center it would have added up to a little more than $7 million so it would have been a little bit derivative on the bottom line.

I'm not trying to belabor a point.

I don't know what the number would have been at Mandalay Bay without the war.

We may have made 10 out of that convention center in the first quarter.

Right.

So in other words you would fully expect the convention center to be accretive in this current quart.

Sure.

Okay.

And you don't have --

Wait, wait, Robin.

You have waiting in the quarters, remember.

First and third are the most important quarters for convention centers, not second and fourth.

So by 2 two and three it should be accretive I have.

Sure.

I have one more question, I don't know if you have that lodging revenue.

Robin, this is Les.

The hotel revenue is up about 3.5% over the prior year.

the hotel revenue is up 3.5%?

Company wide.

And your Rev Par was up about 5%, so were there rooms out of service in the quarter?

No.

Not beyond any normal levels.

Okay.

But it does look like -- I mean versus the normal level last year it does appear that some rooms were out of service.

That 5% was just Las Vegas strip.

It was just the strip.

He gave you for the whole company.

It's the whole company on hotel revenue.

Do you have the hotel revenue for the strip versus last year?

Not handy.

There's work on that.

We'll go back to work, Robin.

Do you have a third question?

Then the third question just on the free cash flow just to clarify your comment earlier about $5 per share cash flow, that would be for fiscal '05.

That would be 12 months starting with the second quarter going forward.

12 months starting in this quarter?

Second quarter, yes.

And then free cash flow, so you're saying that's $5.00 a share that will be either sharing repurchase, debt pay-down or dividends over the next 12 months.

That would be true.

Once we get the -- let's put it another way, Robin.

We still have payments to make on the tower we have under construction, so I would just say when I say free cash flow, those pro be the ject.

Once we open the tower at the end of the year so now you're really into a fiscal '05 that latter statement would be true.

After November or basically fiscal '05, then $5.00 a share free cash flow would be debt pay down or dividends.

That's true.

Thank you.

Sure.

Robin, this is Les again.

The room revenue growth on the strip matched the Rev Par growth, 5%, basically.

Okay.

Will you give Tuesday dollar amounts or not?

Sure. the total room revenue on the strip, this includes Monte Carlo so it's a little bit fuzzy because it includes 100% Monte Carlo's room revenue was $159.5 million against $152.7 million a year ago.

So your company wide Rev Par then, does it change every year?

On the strip if the first quarter up 5%.

Right, but that just match up to the lodging company wide Rev Par?

We're going to work on that.

Sure.

Thank you.

Sure.

the next question will come from the line of Jay Coogan with Banc of America.

Please proceed with your question.

Good afternoon, everybody.

I've got a few questions for you here.

First, and I know this is just kind of maybe looking a little too closely but so we're clear, February you said before, Glenn, was up 10%.

Do you want to give us the numbers in terms of Rev Par on the strip for March and April so we have that since I think we now know?

We're on the air.

Right.

Even the guys that win those quiz shows have the answers given this them first.

All right.

Moving on to the convention center here, can you talk a little bit about, you talked about booking pace being in line with expectations.

Could you confirm that the shows that you've already had so far this year are in fact rebooking for future years as expected?

And also can you talk a little bit about what you're seeing on the rate side?

Well, we have a lot of shows.

We have about 60 plus shows this year.

I've not heard of anybody who is not rebooking?

Have you heard differently?

Nope, I haven't heard differently.

We have had great reception for people here.

I mean, remember, this is the newest and the latest version of a convention or meeting space in the world.

It is the largest convention space in private hands in the world, and nobody else is going to take the title from us because most of our competitors are municipalities sitting with ten, 15, 20-year-old gray boxes that were built on the low bid and serve municipal food, so the reception has been very high, so when we say that we're going to go from 35% utilization to 40 something to 50, clearly that presumes that we keep what we've got and we're adding, and that's the case.

You talked last quarter about some of the enhancements on the food and beverage side that you're planning on doing given that you needed a little bit more space, more seats, et cetera.

Can you talk about how far along you are on that?

Not exactly.

I can tell you what we're going to do.

We will add a sports lounge where some of our staff is condition only housed right there at the ingress to the convention center.

We'll add some kiosks.

We're certainly going to add restaurant seats both close to the convention center, on the roof of, let's say the top floor of the new tower that we opened, and we will add restaurant seats in the -- on the boutique shopping area which will be the bridge that connects the Luxor to Mandalay Bay, and so by the end of the year most of those seats will be in place.

Okay.

And another couple quick ones for you.

You mentioned earlier about the potential interest in dividends.

Can you talk a little bit about what timing we might be talking about given that your cap ex schedule and probably expectations to get if balance sheet in maybe a little bit better shape to make sure if we were going to have some other kind of external event that you would be able to continue the dividend without cutting it?

Can you talk about what the potential timing for Mandalay would be should you decide to pursue meaningful dividend?

And on top of that, is there a wide enough window that Congress has provided you with?

You're asking a lot of questions.

The day we announce a dividend, We have to announce it to the entire market;

I can't announce it to you on this call so when we announce, we'll, you know, put out a press release to that effect.

Clearly, we're coming into a period of time in this company's history that coincides pretty well with this tax reform window, and our intent now, as always, has been we think it's good governance, we think that it is the right way to treat shareholders, to return them fair capital, so, you know, our policy or our point of view isn't any different.

As to specific changes in that policy when we announce it, we will announce it.

And a last quick one for you.

On the slots is that an 8 to $10 million benefit for you or can you help quantify that for us that you just announced the 400 some million?

If you take all the pieces together, the slots, the refinancings this year of the coupon debt with the convertible that we sold two months ago, the call of the 275 million nine and a quarter bonds, with their replacement with an alternative instrument that, you know, is below price compared to that hike relative in the environment, that high-price coupon, the company from the middle of last summer until next year, when you get the full flow-through of this effect, we will have cut our interest expense around $35 million on an annual basis over 60 million share base.

Got you.

Great.

Thanks a lot, Glenn.

The next question will come from the line of Dennis Forest with McDonald.

Please proceed with your question.

Hi, Glenn and Les.

I just had a couple of more or less housekeeping items.

Capital expenditures in the first quarter?

They were $86 million, Dennis.

Okay.

And capped interest?

Capitalized interest in the first quarter?

Just about a million, Dennis

But that's going up as the tower goes up?

Yes.

They are probably around 5 to $6 million for the year.

They will.

Okay.

And that should stop -- in November you're opening?

Yes.

So it will be pretty close to zero by the fourth quarter.

Yeah, that would be right.

And then lastly, any other balance sheet items?

Total debt?

Equity?

Thing like that?

Total debt net quart, $2.865 billion.

Okay.

Cash on the balance sheet $161 million.

Equity, $830 million.

I'm sorry.

Equity is what?

$330 million.

So your debt bully went up a little bit as you bought back the 3.3 mil?

Yes, correct and made closing payments on the convention center and starting payments on the tower.

Would you expect debt to go down in the next quarter as you're building the tower?

This year our debt is pretty close to where it will peak.

I would expect over the ensuing few years you will see the debt coming down.

I mean, the interesting thing from a mathematics to earning per share is while our debt has risen over the last three years, our interest expense has table considerably.

It's as if we got 30 million shares for nothing.

Okay.

And you talked about a potential mild increase in the gaming tax for Nevada.

Now, is it going to be a gaming tax or is it going to be the gross revenue tax?

Well, it looks like --

In your eyes?

We can't say today.

The biggest effect for the gamers, the likelihood is that it will be a fractional increase in the gaming revenue tax.

You know, this is a tax policy.

In Nevada the complication is that they're going to have to create a policy that makes other businesses pay taxes, too, so there is, it's going to be sort of a menu.

Some people think that it might be a half a percentage point.

I've heard a quarter percentage point.

Right now you don't have unity as to how to go about it other than we will be making the strike forward.

You don't see this in ever state, toward some tax fairness.

Other people who benefit from the creation of jobs in the Gaming industry are going to pay something like taxes.

So do you think a couple of the other industries are going to be contributing some type of a --

Something -- --

a gross revenue tax or something equivalent then.

a likelihood, Dennis.

Thanks.

the next question will come from the line of Michael Retbrock with Smith Barney.

Please proceed with your question.

We are all set.

Thank you.

The next question will come from the line of Larry Hubbardy with.State Street Research.

Please proceed with your question.

Hi, Glenn.

Three questions for you where you won't have to look up the answers.

You know me.

The first thing is a qualitative few of the suite product versus Venetian.

Do you have the two floors, two televisions?

We invite anybody to come out and we'll show you the model room but we have a 750-square foot room which is bigger than any of the versions.

We understand are currently in construction.

It is two rooms.

I mean, you can close the door on the bedroom.

You have what amounts to a hospitality suite in the front, a big plasma screen TV.

You have the hyper-speed form of internet, so you have a business office with a hospitality suite.

The bathroom is reminiscent, it's a take-off of the St. Regis bathrooms in New York City. except ours is bigger.

With a television in there as well.

If you want to get a look at the hospitality suite/work station, that is a feature photo if the report we just mailed.

Then the second and third questions are somewhat easier.

When did Mama Mia open and how do you do you see evaluate that because it's obviously producing a lot of traffic.

It is.

Mama Mia opened in February.

With a very high return.

The return on relative to investment will probably be the best show done on the Las Vegas strip but we are currently experiencing many nights sellout on Mama Mia.

So we are a company today that does something other than (inaudible).

And then the last thing, Lisa Boleri is there and that opens I guess November, December and what kind of tenants are there and what kind of lease rates are you signing in maybe have to look that one up.

We have about 98,000 feet that will be in there, 41 different tenants.

It will be boutiques with a high fashion orientation, buts there will be bookstore, wine store, art gallery, all kinds of shoe and boutique clothing stores, restaurants, sort of hip design pallet.

We think we're still innovating on the Las Vegas strip with style.

And it's leased.

The lease is varied depending on the tenant, size of space, and actually the merchandise.

No names to drop right now.

I can give you some names.

They wouldn't mean a lot to you.

They're boutique type companies, and they are some of them European fashion clothes.

The best way to do it is come over and go shopping with us.

Thanks a lot, Glenn.

the next question will come from the line of David Ander with Merrill Lynch.

Please proceed with your question.

Great, thanks.

Hey, Glenn, strategically longer term what happens to properties like Laughlin, Gold Strike?

Do you see any of those EBITDA negative?

I think we're going to see Laughlin is going to be EBITDA negative nor is Reno.

If you look at the amount of our operating cash flow which we think is susceptible in those boarder markets, it might be 1% of our company's operating cash flows going forward, so I mean they still produce free cash flow and we can deploy it in profitable things or we can buy stock with it or, you know, so we're trying to hold the line in those markets and get our growth off the south end of the Las Vegas strip.

So you're not spending a lot of management time on it necessarily.

No.

And the second question, on the expense front with respect to Las Vegas, anything you need to be doing to control that or is this going to kind of keep creeping up with with the culinary union contract?

I think what you're going to see is if you look at the culinary contract, which is about 4-1/2% per year over the period and about, oh, a third of our employees, would be covered by that contract, while our costs are going up higher than the rate of no inflation, they are certainly going up at a lower rate and will go up at a lower rate relative to our prices on the strip, so we are going to see growth above top line and more decidedly bottom line.

One-third your employees are covered under it, and what% of labor of your total cost again?

If look at our total expenses on the Las Vegas strip it would be about 43%.

Great.

Thank you.

Once again, ladies and gentlemen, to register a question please press the 1 followed by the 4 on your telephone.

The next question will come from the line of Derek Cribs with Glenn View Capital.

Hi, Glenn.

My question has to do with your free cash flow balance as well.

What maintenance cap ex number are you using to arrive at that?

$75 million.

So post the convention.

Yes.

That number would be good for probably three years.

So for three years past this November cap ex should be not be meaningfully higher than $75 million?

The only thing that changes is if we found some project that was so enterprising.

I would say two years for sure.

We happen to believe the demonstration of the free cash flow power of this company is worth a lot more on the stock market that is being valued today so we're bound to prove it.

I would agree so that's why I'm picking on this issue.

So at least for a couple of years?

Yes, we agree with you on that.

Thank you.

Gentlemen, there are no further questions.

I will now turn the conference back to you.

Thank you very much.

We didn't get everybody's math problems solved. feel free to call either mere Les and we'll be happy to take those questions.

Thank you.

Ladies and gentlemen.

That does conclude your conference call for today.

We thank you for your participation and ask that you please disconnect your lines.