PENN Entertainment Inc (PENN) 2002 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Hollywood Casino Corporation third quarter earnings teleconference. At this time all participants are on a listen only mode. Later we will conduct a question and answer session with instructions given at that time. If you should require assistance during the call, please press 0, then * and an operator will assist you. As a reminder, this teleconference is being recorded. I would now like to turn the conference over to the Chairman and Chief Executive Officer, Mr. Ed Pratt. Please go ahead sir.

Thank you and I appreciate you all joining us today. As you know, we released this morning our third quarter and nine-month end of June 30th, I'm sorry, September 30th. With, as with all the other formats in the past, with me today is Paul Yates, the Chief Financial Officer for the company. I'm going to start by turning it over to Paul and let him take you through more detail in our results and then I'll follow up with some commentary once Paul is finished. Paul, you want to --

Thanks, Ed. Good morning everybody. I apologize in advance if I'm a little difficult to hear because I'm in the middle of fighting a cold. With that, I want to start out real quickly with a quick housekeeping item. As a reminder, this conference is covered by the safe harbor language and the press release that announced this conference call, as well as on the registration page for the webcast. If you've not read or you do not agree with this language, please disconnect now. With that, overall it was a good quarter for us. All three of our properties generated strong results. Unfortunately, we reported lower operating cash flow and earnings in the quarter due to the exorbitant tax increase recently passed by the State of Illinois, which become effective on July 1st. Specifically, we reported EBITDA for the quarter of 21.5 million, which was 7.8% lower than third quarter of last year. In terms of net earnings, our pro forma earnings per share before non-recurring items was a loss of 9 cents per share, versus income of 4 cents per share reported in the third quarter of last year. As I mentioned on previous conference calls, we report pro forma EPS in our earnings releases because all the equity research analysts that follow our company present their estimates on this basis. They use pro forma EPS estimates to increase the comparability of our earnings to other gaming companies.

We think its helpful to look at what our earnings would have been had the Illinois tax rates not been changed. It's really the best way to do an apples to apples comparison of our performance in the third quarter of this year with the third quarter of last year. On that basis, and assuming that the Illinois gaming tax rates hadn't changed and the old rates had remained in effect in the quarter, we would have reported record results. Our EBITDA would have increased year over year by 31.3% to a record 30.6 million. We would have reported a dramatic increase in our pro forma EPS to 13 cents per share in the third quarter of this year from 4 cents per share we earned in the third quarter of last year. With that as an overview, I'm just going to quickly spend a couple moments reviewing the third quarter results for each of our properties.

Turning first to the Aurora casino, the third quarter was the first full quarter that we operated our new expanded facility. Our new dockside facility has been everything that we expected it to be. Our customers love it, it is arguably the finest gaming product in the Midwest and we believe that our management team has done an excellent job of utilizing this incredible product to increase our penetration in the Chicago gaming market. With our new facility, we've dramatically increased our market share of the Chicago gaming market. What I want to do is just give you a couple of figures just to demonstrate that fact. I'm going to give you our fair market share.

Fair market shares, as I think a lot of you are aware, is really a measure that is used in the gaming industry to measure the relative productivity. Anything above a hundred percent is considered, obviously, very good because you're capturing a market share in excess of the capacity that you operate in the marketplace. Last year, for 2001, our fair market share was 117.5 percent in Aurora. In the first quarter of this year, and as you may recall, we opened up our new dockside casino expansion in pieces. In the first quarter we had half of our new facility opened for half the quarter. We were able to increase our fair market share to 125.3 percent. In the second quarter, we operated half of our facility for the entire quarter, we increased our fair share to 133.1. And the third quarter, which is the quarter we just completed which, once again, which is the first full quarter we operated this new facility, we increased our market share to 140.6 percent.

So just to backtrack and summarize, I think we've made a tremendous amount of progress this year. We started out the year with a fair market share of 117.5 and in the third quarter, we captured a fair market share of 140.6 percent. We are clearly outperforming our competitors in the Chicago marketplace.

In the third quarter of '02, Aurora's net revenues increased by 23.5 percent to a record 67 million. The quarter included the two highest monthly totals for casino revenues in the property's history. Our impressive top-line growth in the quarter was achieved despite a significant increase in competition for the legalization of dockside gaming in Indiana, which occurred in August, and the continued deterioration of the local Chicago economy. Unfortunately, our significant additional revenues did not translate into incremental EBITDA for the Aurora casino in the third quarter. Aurora's EBIDTA for the quarter decreased year-over-year by 10 percent to 16.6 million.

This decrease was due entirely to the dramatic increase in Illinois gaming and admission taxes that the property incurred in the quarter. As we mentioned in the release, gaming and admission taxes increased year-over-year by 13.7 million, or 74.5 percent, with the imposition of a new tax rate. If the tax rate had not changed, Auroroa's EBITDA would have increased by 39.6 percent in the third quarter to a record 25.7 million. Which, once again, we think really gives a very good barometer of the relative performance of our Aurora casino.

In terms of other operating costs, we continue to manage the facility very aggressively. In the third quarter, EBITDA operating expenses, other than gaming and admissions taxes, increased year-over-year by only 4.9 percent which we believe compares very favorably to the property's 23.5 percent increase in net revenues for the quarter. Despite the tax increase, we remain very confident that we're well-positioned to continue to grow our revenue and customer bases. We have the premier product in the Chicago marketplace, which we believe continues to be an under-penetrated market. We'll continue to aggressively manage our operating costs to maximize the profitability of Aurora casino given the new tax rate.

With that I'm going to quickly move over to Tunica. Third quarter was a great quarter for us in Tunica. The property's net revenues increased year-over-year by a strong 4.6 percent to 26.2 million. We did have low percentage in the third quarter of last year. We also had low percentage this year, so this is a pure volume increase, pure strong top-line casino increases in Tunica, but more importantly, our EBITDA increased by 18.2 percent year-over-year to 6.1 million. We've got a great facility in Tunica, our customers love the product, we spent capital expenditure dollars wisely in order to maintain superior quality of our facility, while preserving the very strong return on investment we generate at this facility. Our management team has done an incredible job of achieving two conflicting goals: One, we continue to provide our customers with a superior level of service; and two, we continue to aggressively manage our costs. In terms of the second point, the Tunica Casino's operating costs increased by only one percent during the third quarter of this year.

Excluding gaming taxes, which increased with our higher Casino revenues, operating costs were flat. The Tunica Casino had a terrific quarter despite the fact that it had ongoing disruption from its hotel renovation program. During the quarter, nearly 10 percent of our hotel rooms were out of service. This is not an insignificant number, particularly when you consider that every weekend we fill essentially every hotel room with high-quality customers. As we started to put the new hotel rooms back into service, the customer response has been overwhelmingly positive. The hotel renovation will further solidify Tunica's position as one of the premier facilities in the marketplace.

Real quickly I want to cover Shreveport before I turn it back over to Ed. Overall, I would have to say we're disappointed in the performance of our Shreveport resort, but on a relative basis, we're performing reasonably well. The property's net revenues for the third quarter declined by 1.1 percent to 36.8 million. With the aggressive management of operating costs, the Shreveport Resort reported an 8.1 percent year-over-year increase in its EBITDA to 4.6 million for the third quarter of this year. Unfortunately, we continue to be hamstrung by the difficult market conditions.

The market has contracted for each of the last four months, and when I say the last four months, we're talking about June through September, which is historically the strongest seasonal portion of that market. That makes five out of the first nine months of the year that the market has had negative year-over-year growth. Shreveport City market continues to be negatively impacted by the deteriorating economic conditions in its principle feeder markets, in particular the Dallas, Ft. Worth metropolitan market. Two of the important drivers for the Dallas economy are transportation and telecom; as I'm sure all of you are well aware, these factors have been particularly hard hit in the current economic downturn.

Despite the difficult economic conditions, we believe we've done an excellent job in managing our operating costs at the Shreveport Resort. Excluding gaming taxes, which increased due to a one percent increase in the gaming tax rate, our EBITDA cost in the quarter decrease year-over-year by 3.6 percent. In terms of our marketing and customer development programs, we are being as aggressive as we can be without jeopardizing our current cash flow. The Ft. Worth--Dallas Ft. Worth economy improves, and we believe it will, we believe that the Shreveport market will grow, and that our property will be a prime beneficiary. We are uniquely positioned in the marketplace, operating Shreveport's premiere quality facility, and its only destination resort.

And with that, I'm going to turn it back to--over to Ed Pratt III.

Thank you Paul. I'll start--I'll just pick up where Paul left off on the Shreveport first, and tell you that I think the marketing strategy and the cost-cutting strategy that we put in place several months ago has paid off for us, and in what is a disappointing overall market for us, we continue to pick up--although not the sort of gains that we would hope, and in a strong growth market, we do tend to continue to pick up market share, and we're able to maintain a much more realistic cost structure, in the past few months. What is disappointed us in that market is the fact that during the--what we were hopeful were the strong summer months, the market actually declined year-over-year, and in the third quarter and each and every month.

We did see a little relief from that, and the overall market, it appears that it strengthened a little bit, and in the October period of time, but its clearly schizophrenic and clearly a market that contracting at this point and time, so we will continue to operate as well as we can in that market place, and I think we will continue to pick up market share and continue to pick up strides against our competitors, and we would hope that the economy will clearly improve in time in the Dallas-Ft. Worth area, and that the overall market will pick up gains and as it does, we remain very confident that we will pick up our fair share - if not more than our fair share - of those gains and perform well.

I would also mention to you that the retail component of the project across the street under our garage and along the frontage there is open. It is complete. It is open in its entirety. I think for with the exception of just a couple small shops, and it is doing very well. It is been a strong component of bringing a lot of local business into the downtown Shreveport area, and we hope to be able to take advantage of that and build upon our local base of customers. As you know, a lot of that type of retail needs a good local base in order to be successful.

They have been able to track that with a multitude of restaurants and food-and-beverage facilities and other entertainment type of venues that exist there, and we hope to be able to build our database of local customers, given their success. And we think that's going to have a positive trend on our business going forward as well. I would then turn to Tunica and tell you that we are very pleased with the results in Tunica. We continue to buck the trends in the market and outperform the market, and have done very well in that marketplace. And we have done it at a time when we're under construction.

As Paul pointed out, we are in the process as we announced a couple of calls ago, of renovating all of our guest rooms, and that being the case, we have at any given point and time right now, about 10% of our guest rooms out of service, going through that process. And in spite of that, have performed very well and our consistent marketing strategy of the past that we have talked about on several calls, we continue to stay the course with that marketing strategy, and we continue to do what we think is important to our facility to keep it one of the best liked, if not the best liked facility in the market place. And I think between that and just excellent consistent management we continue to outperform the market and are very pleased with our Tunica results. Likewise we are extremely pleased with our results in Aurora.

Had it not been for the increase in taxation, we would have had huge blockbuster numbers coming out of that facility. The expansion has done as we anticipated that it would. It has performed very well. To kind of remind you and give you some specifics, we, in our last call, I believe we'd just opened up the parking facility - a new parking facility which was the last piece of that expansion or addition, along with the 50 plus thousand square foot of new single level casino, and it has become some of the most popular parking, and the facility just entirely tied together has done very well. And if you recall, we went ahead and renovated the land-based pavilion, the first and second level. Tied it all together. So that property is going through a period now where it's enjoying its new expanded facilities without disruption of any construction. And as Paul pointed out, we've made sizeable gains in market share against our competitors, and I think that's going to continue to be the case in that market.

The one thing that we are watching closely, as Paul pointed out, the - Indiana, as you know, went dockside. They do have more positions in their facilities than we do, which allows them to kind of take a better advantage of peak periods and weekends and holidays. We're watching closely. There has been a slight flattening of the overall market - not in our facility.

Our facility continues to have big gains, given our new product, but there has been some softening in that marketplace, which primarily is related, we believe, to two factors. One is just the overall economy in the country - starting to feel a slight impact in the Chicagoland market, and also Indiana being able to become more competitive with their dockside facilities. And we would hope that that - the secondary piece of that equation will help us in our efforts, which are a joint effort with the other Illinois operators, to continue our effort to convince the Illinois Legislature that we need relief from this - from this - the enormous tax increase and that we need more gaming positions within our operation and therefore to insure that we don't lose any business over to the Indiana side of the Chicagoland market. That effort is ongoing and continuing, and we believe now that the elections are behind us, we have had some - several results there that should help us in our efforts to get relief and get an increased number of gaming positions in the existing operations in Illinois.

But saying all that, we have been very pleased with our operation in Illinois and the strides we have made.

I would give you an update on one other item as it relates to Aurora. As you know, we instituted cost-saving measures to attempt to help offset part of the impact of the taxes, and I think we went through that in a conference call that we had and defined in detail what those - what those measures would be. I'm happy to report that we have implemented over the course of the last few months each and every one of those cost-saving measures. We have seen the impact of that already, and I think we'll continue to see a favorable impact from those cost-cutting measures going forward.

As we said, I believe, on the call, it would take us into the fourth quarter to really start to see the impact of each and every one of those. Some of those cost-saving measures take a little time in terms of seeing the impact. But they are in place. We did execute that plan as we described to you. And we expect to see - continue to see favorable trends from those efforts, and we also expect to continue to see good strides in terms of market share increase in that market for our facility.

the last thing before we open it up for questions I'd like to give you an update on, and that in our merger with Penn National. I'm pleased to tell you that it is going extremely well. We are on our anticipated schedule as it relates to approvals from the various gaming jurisdictions in which we need approval for the transaction. We have spent a tremendous amount of time with the - with the executive management at Penn in order to insure that we have as smooth a transition as possible in this merger and I would tell you from my opinion, I think it's gone extremely well. And I think that the two companies are going to mold together very nicely. And I think it's going to be a very smooth transition. We recently hosted the executive management of Penn at our properties and toured each of the properties and held discussions with the management at each property and I can report to you that I think everyone is very happy with the long-term strategies and game plan as laid out by the chairman, Peter Carlino, Penn National and his vision for the combined companies going forward.

I think everyone is very pleased with what they've heard and it is, has been a very positively received and again, I think it's going to be a very smooth transaction. I would also tell you that I just was recently with Peter Carlino in Charleston and have started to work with him and assist their team along with our design team in terms of starting to look at ideas in terms of their conversion of their properties to the Hollywood theme and I tell you that the quality of the properties is such that it's going to be very nice conversion and I think there are going to be some excellent Hollywood, additional Hollywood facilities come out of the combined merge companies and we look forward to continuing that effort so that we can meet Peter's goals in terms of his time frame for converting some of his properties. But I believe that it is going to be an extremely smooth transition and as I've said in the beginning, it is moving right on schedule as we speak to you today. And with that, we're prepared to open it up to any questions you have for Paul or I.

Thank you. Ladies and gentlemen, if you would like ask a question, please press the 1 on your touch-tone phone. You will hear a tone indicating that you have been placed in queue. If you have pressed 1 prior to this announcement, we please ask that you do so again. You may remove yourself from queue at any time by pressing the # key. If you're using a speakerphone, please pick up the handset before pressing the number. Once again, if you have a question or comment, please press the 1 on your touch-tone phone at this time. First line we'll open is Dennis Forst at McDonald Investments, please go ahead.

Good morning. Paul, let me ask you how you're calculating the gaming taxes in Illinois. Are you making some assumption for the 12 months ending June '03 and then using your accrual method?

No. And there is a couple different ways you can do it. And I know some of our competitors have done it differently but I mean, just standing back, what you always do in Illinois in any jurisdiction where we have a graduated tax rate is you have an ongoing projection, internal projection, of what you think you're going to be doing in terms of casino revenues for the total year. And that gives you your total gaming tax and then obviously you have got have an average tax rate that you can use to spread out over whatever period. Now what we did, unlike I believe Harrah's and Argosi, they basically did a catch up in the second quarter to get themselves caught up. What we did is we said, okay, July 1, we know what our total revenues are for July 1. We know what our total taxes are and then we did a forecast, which we continued to update in terms of what our casino revenues will be for the end of the year --

End of the year meaning December or next June?

No, December. December. So basically, what we then have to, we basically at any point in time have an idea of what we think our total taxes are going to be for the entire year and what we've paid. So that backs into an average effective tax rate. I mean, I'll give you a number, what we're basically using for the second half of this year is around 42% is what our effective tax rate is. Now, obviously, this tax, these terrible tax rates would effect the entire year that would be lower. I mean, next year it's going to be, you know, more like in the, you know, 38 38 ½% range when you spread it out over the entire year, but because we had to catch up fairly quickly. You know, the taxes weren't retroactive in but, you know, the cumulative revenues we did have were factored into the new tax rate. So we stepped into, you know, obviously, the 50 percent tax rate almost immediately. So what we basically used is an effective rate of around 42 percent for the remainder of this year and that's continuing to get modified each month as we have ...

Excuse me.

... actual revenues and then next year, depending upon what your forecast is--you're going to forecast, you know, total revenues for the year, total taxes--and then that'll get spread fairly evenly over the--over the month.

And that's going to probably be around 50 percent ...

No, no, no, no ...

... adding in--no, adding in the admissions?

No, I think if you're looking at the effective gaming tax, I mean--I don't have my numbers in front of me and obviously I'm not going to give you a projection--but I think you're going to see something in the upper 30s and then the admissions is fairly easy. It's just $3 per person. But no, you're not going to see 50 percent. Remember the 50 percent tax only kicks in after ...

Two hundred.

Yes. So your average tax rate is going to be quite a bit lower than that.

OK. No, I was thinking of adding in the admissions, too. OK, I'll work that out.

Yes, even with admissions, Dennis, you're not going to get anywhere near ...

Yes. So was there some catch-up then in this third quarter?

It's not really catch-up, but because we have a shorter time period to get ourselves fully accrued for the full gaming tax, we are running at a much higher effective tax rate than somebody like Harrah's or Argocy, who took a charge in the second quarter to basically get themselves caught up. I mean, we have six months to pick up a lot of additional taxes and that's why our effective tax rate is considerably higher. As I mentioned, it's around 42 percent. But our average tax rate for the year is going to be considerably lower than that, but ...

Yes.

... and next year it's going to be considerably ...

Which is the same as Argocy or Harrah's.

Right, I mean ...

If you look at the whole year, you'll be on an apples to apples basis ...

That's right. That's right.

OK.

You know, I mean, obviously, I mean, you understand why we do it that way because as you start at the beginning of the year you have a much lower tax rate and if you did that on a tax basis, it would be very--it would skew your operating results so you really try to spread it out so it's evenly for the whole year. And, unfortunately, because we had such a draconian change in the middle of the year, we had to change our calculations effective July 1. We ended up with a much higher average tax rate for the second half of this year than we would have if these terrible tax rates had been in effect the entire year.

OK, great. Thanks.

Sure.

Our next question will come from the line of Larry at Jefferies & Company. Please go ahead.

Hi, Larry.

Boy, I'm getting toward the end, here.

So I got a couple. One if you could talk about how October's looking for you guys?

I mean, October was good month for us. I mean, we continued to have very strong, you know, market share growth in Aurora and the trends at Tunica continue and, unfortunately, the trends in Shreveport continue. So I think, really, October's a continuation of the third quarter for us.

It seems like your debt went up during the quarter. Am I mistaken on that? And what was the reason for it?

You're mistaken, Larry.

Alright.

It should have gone down. I mean, we're not incurring any additional debt, we're paying off a modest amount of leased financing and then, you know, the OID on the smaller Shreveport bond continues to go down. So debt is actually lower in the third quarter.

OK, . As far as regulation goes, what's the talk in Illinois now with the--now that the election's done, what's the feeling of a chance of more or , whatever.

Well, I think we have a favorable--Larry, we had a favorable result in the election. We obviously wanted the Democratic candidate to win. I think he's more favorably inclined toward the industry. I think the consensus is is that we have a very good shot--I mean, the budget problems in Illinois continue to get larger, actually. They obviously never did balance the budget, in this effort, and it appears that you know, we may have an excellent opportunity for an increased number of gaming positions, and if I had to handicap, I think the chances are more likely that we can--although we're going to work an effort to try to get a rollback of the taxes, as well as an increase in gaming positions. I think given the--giving the need to raise additional tax dollars for the state, I think there's a real opportunity to get increased numbers of positions, one, to help a--our competitive position with Indiana, which is now dockside with more positions in each operation, as you know, than the Chicagoland competitors; and secondly, it will obviously raise more overall tax revenues for the state. And I think we got a lot of help in this election. Some of the leadership that had not been with us in the past is no longer going to be in power for the first time in a long time in Springfield, and I think we have an opportunity to have a good reasonable dialogue about what is the best way to raise tax revenues for the state of Illinois, and we haven't been able to accomplish that in the past, so you know we're very optimistic, and that process will commence immediately.

Okay. Have a nice day.

Thanks.

Thanks, Larry.

Thank you, our next question will come from the line of at Banc of America. Please go ahead.

Hey, good morning.

Hey David.

Hi, in terms of potential incremental positions in Illinois, you would be--how could you comment on the profitability, given the marginal tax rate at 50 percent?

Well, I mean, if you look at the relative productivity of our existing capacity, and you know, we look at our penetration of the market, I mean we still think that we're only penetrating, you know roughly 20 percent of the adult population in our core market, which is roughly within a 30 to 45 minute drive, so we think that there's a lot of room for additional productive capacity in the marketplace. So I mean, obviously we're not going to give you a projection, and I think even with this egregious tax rate, you know, the way we manage operating costs, I mean we can generate fairly good returns from incremental capacity. I mean, I guess the one caution note I would say, you know, kind of adding to what Ed said, I mean, we're--we still don't have a tremendous amount of confidence in the political process in Illinois, and obviously when you start talking about additional capacity for the casinos, there's the opportunity or the chance or the risk that you could be talking about other capacities. So I think we're fairly cautious, but you know, if it was status quo, and it was the existing tax rate the existing structure and the additional capacity in the marketplace, we know that additional gaming positions would be a positive for us. It would also generate substantial additional revenue for the state. We think we're uniquely positioned, given our physical plant, that we could add significant additional capacity fairly quickly, so if nothing else changed, t hat would clearly be a positive for us, and I think if you looked at the relative productivity of our existing gaming positions, even if you haircut those numbers, it would generate a very nice return for us Dave.

Okay. Do you have a feel for how quickly things might progress with the last license there?

I don't--you know, it's really hard to tell, Dave. They seem to keep running into more and more issues. I know that their original--their timing was that they wanted to try to wrap something up by the end of this year. Well that's obviously not going to happen, and I'm not sure that I can give you what a good time frame is, because you know, what the--I know the desire of the state, and that seems to be the desire of the gaming board as to move that process along, and get that license in operation, but with all the legal issues and the bankruptcy issues, they just can't seem to get it moved off dead center, and we don't see a lot of movement in that direction, given all the other issues that - but I don't really - I have kind of given up guessing on when they are going to be able to push that forward.

Got you. Lastly, in terms of Shreveport, clearly the market has softened up. Can you talk about the competitive environment - what you are seeing out there now, and maybe what your outlook is for the market as a whole next year, given the Louisiana Downs coming on?

I think the market is as competitive a market as we've seen, and at least in a recent period of time. It has been disappointing to see the contraction in the market, but I think you just - as Paul said earlier, I mean, the Dallas-Ft. Worth metro-plex is a large market, and long-term, it is going to be - you know, continue to be a great market. But it has been one of the hardest hit markets given some of the - given the issues with the airline industry and . And I think we are seeing that. People although I will tell you the operators in the market, at least to this point, have been rational, and unlike some markets which we have operated in, were they tend to become somewhat irrational as people are running their marketing programs, will watch each other closely. And we pick our places where we can pick up a little market share, but this is not a market - everyone is managing toward their margins as well in this market. No one is - we haven't seen any signs of anyone running out and letting their marketing cost get such to try to build market share. It is a market where I don't believe near-term you are going to be able to make a lot of strides in market share. I think most of the operators understand that, so they are not going to go out and spend a lot of dollars against it, their bottom lines. And I think that is the positive coming out of the market, is that people are watching their costs, are managing the market, and I think everyone is hopeful that the market will return to some substantial growth rates in the future. And long-term, we remain very bullish long-term. We built a tremendous product there. It will be a market leader and given the right market, I think when the gains come, I believe we are going to get more than our fair share of the gains coming out of the market, certainly out of the Dallas-Ft. Worth, because it is just a higher quality facility than the majority of our competitors in the market. But, you know, we need some - we need a break in the economy here, and we need some growth to help all - you know, help that overall market and help all the competitors in that market, which is going to take time. But we built it for the long-term and we are going to stay the course and watch our costs and continue to make these baby steps that we've had toward increasing market share against our competitors without disrupting the market. We don't want to tilt the market in a negative way and hurt ourselves and everyone else in the market.

And , you should remember. We spent a lot of time talking about it in previous conference calls. I mean what the changes we've made in our operating cost structure, we have a tremendous amount of leverage in this business, and unfortunately we have seen, as the economy has continued to deteriorate, the leverage has gone the other way. But if you really look at our operating costs, the variances in the quarters and the results we've reported this year, it is all top-line driven. So with just some modest improvements in revenues, and it doesn't take a lot. With the kind of operating leverage we have, we can generate fairly substantial improvements in operating cash flow.

And, you know, our internal budgeting and planning looking out to next year, I mean we're factoring in Louisiana , and we're not taking a particularly aggressive position on, you know, improvements in the general market. You know, our crystal ball better than anybody else's. We know Dallas market's going to improve; we just don't know when, so we're not counting on it. But I will tell you just modest improvements in the market and modest improvements in our fair share with our cost structure really results in some fairly substantial improvements in cash flow. And that's really what we're working on and focusing on and planning on for the future.

Great. One last thing, Paul, real quick - the retail area that opened up looks pretty good. Can you give me an idea of how much lease revenue you got in the quarter and what's a good run rate going forward?

You had to ask me that question, didn't you?

It's about 20 - 25,000 a month starting right now. And that's just kind of the base rent. There is some incentive rent, but it's still fairly new and we'll have to kind of, you know, get there . But I will tell you I mean that project was not developed to be, you know, a financial provider of cash through lease rentals. It was really designed to be traffic generator. So we kind of view it as, you know, Mirage's Casino that also happens to pay us some rent. So I don't think you should be looking at that for being a key contributor to the bottom line. But as Ed mentioned earlier, it has been a good traffic generator particularly with local customers which we think over time is certainly going to pay us some dividends, but it's going to pay us dividends in the form of casino revenues.

OK. Great quarter, guys. Right on target.

Thank you.

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And there are no additional questions at this time. Please continue with your presentation.

That basically wraps it up for us. We'll continue to keep you posted on any aspects going forward, and we'll look forward to talking to you at the end of the next quarter. Thank you very much for joining us today.

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