PENN Entertainment Inc (PENN) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Penn National Gaming first quarter earnings conference call.

During 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 1, 2003.

I would now like to turn the conference over to Mr. Joe Giafoni, Investor Relations, please go ahead, sir.

Thank you, operator. I'll take a moment to read the Safe Harbor language. Before we begin, I'd like to read the following cautionary statement: In addition to historical facts our statements of current condition on today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may vary materially from expectations although company believes its expectations are based on reasonable assumption within the bounds of its knowledge of business and operations, there can be no assurance that actual results will not differ materially from the company's expectations.

Meaningful factors which is could cause actual results to differ from expectations, include but are not limited to, risks related to the following: Successful completion of capital projects, the activity of the company's competitors, the existence of attractive acquisition candidates, the company's ability to maintain regulatory approvals towards its existing businesses and to receive regulatory approvals for new its businesses, the passage of state or federal legislation that would expand, restrict, further tax or prevent gaming operations in the jurisdictions in which the company operates, the company's dependance on key personnel, the company's inability to realize the benefits of the integration of Hollywood Casino Corporation or any other acquired entity.

The maintenance of agreements with company's horsemen and pari-mutual clerks, the impact of terrorism and other international hostilities and other factors as discussed in the company's filings with the United States Securities and Exchange Commission. The company does not intend to update publicly any forward-looking statements except as required by law.

Today's call and webcast may also include nonGAAP financial measures within the meaning of SEC regulation G. When required a reconciliation of all nonGAAP financial measures to the most directly comparable financial measure calculating and presented in accordance with GAAP can be found in today's press release. And with that, Peter Carlino, the Chairman and CEO of Penn National Gaming will take you through the better part of the call.

Thank you, Joe, and good morning, welcome to all of you who have dialed in. We're very happy and -- or I should say first, we have with us most of the senior management at Penn National at two locations one in New York, one back at the home office. We try, as always, to have everybody who can be helpful to you available for your questions.

Great quarter for us. Very strong quarter, very, very happy with the result. I think the tag line that we issued with our release pointing to all of Penn National's existing casino properties posting year-over-year EBITDA gains speaks for itself. Obviously, the Hollywood properties are much too new for us to comment about that. And as it happens, only Pennsylvania racing operations are down as they have been for quite some time.

This strong performance is in spite of the fact that we had across the board, mostly in the Northeast, but elsewhere as well as, very, very tough weather. Charlestown, for example, lost the entire two days -- lost entirely the President's Day weekend, which is a very, very significant loss to us. We toyed with doing the math and giving you an answer, about what it meant, but it's quite a lot. But despite that, we had a great quarter. We're very happy and looking forward.

As usual now, I won't spend a whole lot of time saying more than that we're very pleased, then I'll immediately move to open the phones to questions and let you direct us where you'd like us to go. I can anticipate some questions but we'll let you ask them. So with that, operator, would you please open the calls?

Thank you. Ladies and gentlemen, if you would like to register a question, please press the 1 followed by 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered, and you wish to withdraw your registration, please press the 1 followed by 3.

If you are using a speakerphone, please pick up your hand set before entering your request. One moment, please, for the first question.

The first question comes from the line of Joe Griff from Fulcrum Global Partners. Please go ahead with your question.

Good morning everybody, nice addition to the call here. Can you give us an update on Shreveport and give us a sense of the momentum for PA slots, I guess we are hearing in general pretty positive things coming out of the House and the PA Senate as well.

Why don't we do this. I'll let Jordan Savitch talk about Shreveport and I'll handle the question about Pennsylvania slots.

Sure.

Thanks, Peter, Joe, it's been a fairly quiet on the Shreveport front. We obtained a financial adviser who spent most of the last 30 to 45 days really looking and digging in and looking at the property. The financial advisors had some contact with the bond holders and we expect to have some more fuller discussions with them in the near future.

When's that 60 day period end for you to respond formally to them?

There's not -- it's not a period to respond formally. They, as as previously disclosed, delivered a default notice on, if I recall, I think it was March 13th to the property saying there's a default and there's a 60-day cure period. I believe that expires on May 12.

Any other question about any follow up on that before we move on to Pennsylvania?

No, Peter.

Let's talk about Pennsylvania. My remarks about this will be very cautious because, as I have always said, and never change, where legislation is concerned, nothing is certain. So I emphasize that again. It's very clear that starting with the public sentiment that polling continues to improve.

Our most recent polling indicates close to 70% support for slots at our Pennsylvania racetracks. The issue has never been stronger. Polling around the capital in the newspapers have done some of this, indicate that the majority of legislators appear to support slots at the racetrack as well.

Now, all that having been said, there are -- and as you well know, the Governor campaigned on that issue and I think it a key part of his strategy to raise funds for needs in Pennsylvania. Let's look at some of the issues.

The subtext for this or maybe it's the overlay, what overlays this entire question is a very, very serious budget debate in Pennsylvania. And I won't go into the vagueries that, but it's quite complicated and remember, we have a Democratic Governor and Republican House and Senate. So there's a lot of political jockeying.

So that our issue is sort of in the middle of that whole morass right now. Now, Kevin and I spent a couple of productive day on the hill over the last few day, Kevin will be back tomorrow, I'll be back next week. This is an everyday thing, frankly, for the company as we would hope to get this issue voted out, voted on, and perhaps passed sometime May-June. That's a hope, only that.

There are many, many complications, mostly related to the whole budget issue and I can't emphasize that enough. We remain cautiously optimistic. We think that there's always some out layers, again, keeping this process tightly managed is very, very important.

If you look at the debauchle in Maryland, which we're not too sad about, there you had a Governor who just kind of went off in the wrong direction from the start and it never really got back under control.

Here, I think, we have a pretty organized effort. The Governor's very clear about what he wants and gets now to refinements and trade-offs. There are always the usual suspects of those who would like to see casinos in the state. The Governor has made it very clear maybe that's an idea for the future. It's not an idea now.

There's a very realistic sense on most legislators' parts that it is only slots at the racetrack could have a chance at passing, and at a party we hosted a fundraiser the other night, for one of the political caucus's, and by the way, we made presentations, formal and informal to both caucuses, many, I can tell you I'm with you, but don't give me that river boat or slots in bars stuff or you're going to lose my vote.

And of course our response is standard "great, we'll tell your colleagues then, to make sure they keep it out of possible amendment".

So it's the usual political jockeying. It's very civil. The fact that you see it's largely quiet, and perhaps that the antis have mustered now even a more shrill and extreme effort probably underscores the fact things are moving steadily along.

Again, no certainty, but the matter is being very actively worked on every day. I'm not going to give you a percentage thought. I'm just going to say the issue is very much alive and very actively worked on by those of us here at the company.

One quick follow-up, knowing that things can change pretty quickly. Is it the Tomlinson bill that has, in your view, the most momentum, versus the [Duwiese bill]?

Yes. The Tomlinson bill is the, quote, "industry bill", and it's Senator Tommy Tomlinson who has taken lead on this effort for a very very long time. I think it's widely recognized. On the democratic side, the [Duwiese] bill is another of a whole handful of bills that are out there.

So I think there's a template in place, that is the Tomlinson bill, their those who will argue for aspects of one bill or another, and that's what gets resolved as it gets down to a final piece of legislation. We're all going to have to stay tuned on that.

You can imagine there will be all kind of wild amendments proposed, many of them nonsensical or many purposefully destructive in an effort to try to slow it down or stop it, and the process, as you probably know, is one of kind of work with your strong supporters to beat back the silliness and to keep everybody on message and on focus and to try to get it passed.

So, I can only tell you that the company is very well mobilized on this as are the other companies in the state. We're not alone. And that we're prepared to do what it takes to try to lead this thing to success.

Great. Thank you very much.

Thank you.

The next question comes from the line of Larry Clatskin from Jefferies. Please go ahead with your question.

Hey, Peter. Good morning. Couple questions. How April trends at this point, you're a month into the quarter, can you talk at all about how you're doing?

Where, Larry?

April trends throughout the company?

I don't think we want to do that. I mean, some of these numbers are public.

Generally, Larry, there's no change. I mean, numbers are fine. There's nothing radical one way or the other. So there's not much to talk about.

You know, we're pretty predicable type of company. You know, we don't deal any high-limit baccarat or anything like that. There's no surprises.

Okay. That's first. The second question would be the, I guess, the new communist state of Illinois in the Governor's comments and I was expecting some bill to come out on the other side earlier this week which hasn't happened yet. Can you talk about what's going on in Illinois pro and con?

You probably know as much as we do, Larry. The behavior there in Illinois and the comments of the Governor are and were appalling, I don't mind saying that. But I think the reaction has been universal. It leaves one speechless.

In particular for someone whose proportedly trying to encourage investment in the state. I think that's one that, again, we have all forces marshalled. We're one part of a much larger group. We're the new kids on the block. We have some strong representatives around the issue.

I'm not sure anybody controls the issues in that state as it happens and we're still trying to feel our way through it, frankly. We hope, sincerely hope, and I won't say expect, but would hope that this issue will die under its own weight and the industry, frankly, remains focused on trying to get a rational piece of economics established in the state.

There are ways to build revenue, if the state of Illinois really wants to do that and we all know what that is. It is perhaps to -- and I don't mind saying it, though many laugh, is to get a rollback in some form or fashion that allows us to be competitive on the margin. We point to Hollywood. It's the perfect example of what destructive taxation can do.

You recall they had spent, and I thought rather magnificently, the $75 million to expand that facility in Aurora. Did a wonderful job, it was very successful, they built that property quite successfully, driven considerable new revenue to the top line and managed to get out virtually nothing to the bottom line. So what you had there was a company making a $75 million investment in the state and the state actually ex-appropriating, I don't know what other word you can use for it, their entire investment, took it with the stroke of a pen, their entire investment, took it with a stroke of a pen.

So long as you have that kind of a climate, no company's going to make any investment ever again in that state.

Can't. It's just the way it is. So, we think that what they've got to do is expand positions. I mean, having -- let the market or or come closer to let the market, as most states do, determine -- or not most, but as many states do, determine what -- as we do in West Virginia, what the machine count will be. So we continue to suggest there really ought to be more gaming positions available. That's Number 1.

We continue to encourage, of course, a roll back around the margins and we suggest that the tenth licensing, from our point of view, we think it is a reality, should be, it's been there, we all bought knowing it was likely to occur, that with proper economics in place, they should be able to sell that license for a fair number and let it go at that. There is a lot of pressure as you probably know, from the racetracks.

Again, I'm not close enough to Illinois politics to comment too much about that. But speaking as an old racetracker, the tracks got a bad deal at the outset. Or at least were ignored at the time the casino legislation was put in place. And it hurt them.

Now, what their strength is, and whether they can effectively make the case that they ought to be included, I almost have a small emotional twinge in my heart for these guys, believe me, I wouldn't be sad if they didn't get slots, but I think that's a big issue.

Politically, it's a big issue and maybe at the end of the day, that's part of the Governor's objective, and that is pure speculation on my part part. I've not talked to his office or anybody in it. Maybe there's a formula that includes a modestly small allocation to racetracks. Who knows? Maybe that is a subtext in all of this as well.

So I think that the proposal as we all heard it should die under its own weight but I think the issue of what will be the proper economic answer in Illinois is still very much in debate right now.

Okay. Peter, I appreciate that. If the tracks get slots, would that have -- there's four tracks in Illinois. If you get more positions, that would more than offset the position of slots to tracks.

It depends how many slots to tracks, it depends on which tracks, you can look at the math and try to figure it out. But look, it's a big state. With a fairly sizable population. I think it's certainly a better alternative, certainly for the state it is to do that and we think we'll be just fine.

Okay. Good. I guess that's -- as far as Charlestown further expansion, what are your plans with that property at this point?

You mean past this summer's opening?

Yes.

Too soon to tell. I think that 3,500 machines we should be good for a while and we're not looking much past that.

I did look at a number the other day, in fact, in connection with our presentations to the Commonwealth of Pennsylvania and it is rather startling to look at how little penetration we actually have in that Southern Pennsylvania, Maryland, Northern Virginia market. It's rather incredible. It's a very huge market and we could imagine growth there for a long time. But suffice it to say for now, we haven't yet gotten to the next round of expansion.

It will be fabulous. We're very excited about it. I'm sure it's going to be very well-received in the market. You can look, I'm not going to quote numbers, you can go to West Virginia and look at what our revenues are up already this year, and it can only improve, we believe. So it's going to keep us entertained for a while.

Okay. Well, thanks Peter, good results.

Thank you.

The next question comes from the line of Joe Haddock from Wachovia Securities, please go ahead with your question.

It may sound redundant but nice quarter, gentlemen. Just if Pennsylvania should pass favorable legislation, Peter, about how long do you think a lead time would be before you get your first machines up and running and also could you give us any type of update where West Virginia's standing on table games at this time? Thanks.

Those are two -- well, the first one is easier, the second one we'll get to Kevin's been silent for wall for a while, we'll let him answer West Virginia.

Look, we have -- there are so many variables to this. If we get a proper bill, that will determine what we're willing to spend. This company has always been focused on return on our investment and caution and prudence and all that sort of thing, you know we are.

So and we point this out very clearly to the legislators with whom we interact, that you need for us to be motivated to spend a fair amount of money and you need for us to have the capital to advertise and the margins to advertise so that we can drive revenue to you. This is simple economics, but it's a very hard message to sell when you have folks who say well, we think you should have more. I understand that sometimes more can be less.

So, there will ultimately be a function of just let's say what the economics of the bill are. We have committed that we could open facilities on a temporary basis and not all slots and not everything, but the four to five month period we're hopeful to be able to do that. One of the commitments we've made at the company, and I credit Kevin with this actually, you know, very imaginative thought, and that was look, we're in the process of buying machines all the time and upgrading our properties every day.

So that we are making, planning to make the kind of purchases that will have Pennsylvania machines available, which, if they can be placed in Pennsylvania, will be placed there, if they can't, will be absorbed among other our properties, just for the normal kind of turnover. We have an advantage no other company in the state has. We buy these machines all the time anyway.

So we're going to have sufficient machines to open and make an impact very, very early. The concept would be we start construction on a permanent facility, at the same time we move swiftly to open a temporary facility with as many machines as we possibly can get to begin driving revenue.

In my wild fantasies would be to hopefully pay for a lot of our construction with ongoing revenue. That may not work but it's an objective in my mind and that's what we're going to try to do.

West Virginia, I think that's a Kevin question. I've been talking too much and he's just so anxious to talk.

You know, this subject's been beat about quite a bit. As you're aware, one of our colleagues in West Virginia is very intent upon having table games in the state. We just don't believe there's any constituency to put table games in if, in a situation that would be profitable.

Just building on what Peter said earlier, if it's not profitable, why don't have any interest in table games. So at this point, we don't see any move from the Governor's office for table games, we don't see any constituency for table games, and frankly we would not support table games under the current economic terms.

Very good, thank you.

You're welcome.

The next question comes from the line of Ray Cheeseman from Jefferies and Company, please go ahead with your question.

Peter, two questions or one for you and one for Kevin. If you'd like to let Kevin go first, that's fine. I was wondering, what do you believe occurs next Spring in Maryland, if there's been any learning curve with this year that maybe does not get repeated and something successful happens in what appears to be a situation where something could?

And secondly, now that you're the proud owner of a Tunica property, generally considered to be quite a challenging market but you delivered over the last year improved performance at all of your same stores, I'm wondering what Kevin has in mind for the Tunica property and what he sees as a potential down there?

Well, you know, as you know, Tunica is a tough market but the way we operate is a little bit different than some other companies. When we were involved in the merger process with Hollywood, we spent some time with the management team at Tunica and frankly we have a very very strong management team on that property. And over the past couple of years, they've done a pretty good job of -- in terms of performance.

What we're seeing from the team down there is very, very encouraging. We've been very pleasantly surprised with results over the past couple of months. And so I think what all we would be doing is working with the team, making sure that conceptually we were on target. They seem to be clearly doing that at this point.

So, you know we're sort of an "evolution, not revolution", type company. I think you're going to see a nice performance from the property. I think things will evolve over time and I think most of other our operations are performing well in what we would term a mature market.

So I think it's more of the same. But, you know, it's one of those things where, you know, I don't think there's going to be any rapid changes.

Peter?

Any follow up on that, Ray?

No, he did very well with that one.

Good, look, in Maryland, I'm not a prophet or a seer, I think it's unlikely that anything that was going to happen in Maryland next year, they may be talking about a referendum or push it off to years further.

Most of you know, I never lost sleep over Maryland. Are we better off without it? Absolutely. But we don't lose sleep over it, it's a huge market. We're carving a niche that's going to be tough for people to impact, Number 1.

But Number 2, I think they've got a long way to go to get their act together from every point of view, politically. There's so many competing interests there. Again, as a horse -- I initially in my life, these tracks could use some help.

But when you have legislators saying I can't have teachers making less than the racetracks, and looking at a percentage, top line percentage that they want a particular group to take off the top, and equate that with the gross revenue of a facility, forgetting of course that you've got to build the facility for a great deal of money, actually run a business, hire lots of people and hopefully make a profit, some of these folks are clueless, I don't mind saying that publicly. I mean, it leaves you aghast, again.

And frankly the greed, I think the governor's office of Maryland had said that the racetracks are greedy and that very greed cost them that piece of legislation.

So we're happy that that occurred. I hope it happens next year. I think that that's going to be a state that has a high potential to self-destruct. But your guess is as good as mine, we're going to run our business, that's what we do and we will let things fall into place as they may.

Peter, if you'll allow me one more Kevin question, just real quickly: Seeming Indiana moving toward 24 hours a day, does it make any difference in what happens in the Chicago land market that they're going to have lower taxes and full ability to make the business decisions necessary as far as positions and hours versus the strange environment you find yourself in in Illinois?

Ray, I think it makes a huge difference. I think that, frankly, the powers that be in Illinois are giving their neighboring state a huge competitive advantage.

Clearly at marginal tax rates that we're currently working with, and under the proposals that have been thrown out, there's no way you can compete, especially at the lower end of the range. Frankly that's where the majority of your customers are.

So, no I think it's going for very difficult and for some of those operations a little closer to the border there, I think frankly they're in a very difficult spot. So, no, it's tough. It makes it tougher to operate and presents a lot of challenges that we prefer not to have.

Thanks, Kevin.

The next question comes from the line of George Smith from Davenport & Company. Please go ahead with your question.

Morning. I was wondering about Charlestown. Margins were arguably probably definitely depressed a little bit quarter due to weather and you're in a little bit of an expansion mode right now, and will be throughout the year. I guess I'm wondering ultimately what you think the margin potential of the property is, you know, could you get to 30% over, say, three years?

Well, George, I'm not really sure what margins you're looking at. The EBITDA --

EBITDA margins, I'm sorry.

The EBITDA margin Charlestown was 26.9% versus 25.4.

Right.

The previous year. So --

I know that's improvement, I guess I'm just wondering, obviously things could have been better or on weather, again, you're going to be making additions this year. So once everything is completed, I guess internally if you have any targets as to where you can get down the road?

Actually we're very pleased with these margins right now. You have to remember, George, we're at a 60% marginal rate. So it's very difficult getting flow-through when you have marginal rates as high as 60%.

And I'd argue, you know, realizing that we're in a monopoly, we have talked all along that if we can stay in the 25 to 26 range and obviously as revenues increase you have a little room to improve there, but it's very difficult to raise them much higher.

So this may sound negative, but we're pretty pleased with the margins that we have. And I I would not anticipate them going significantly higher.

Okay.

Could you comment quickly on any progress on getting an additional license in the state of Pennsylvania?

Yeah. We can talk a little bit about that. That's a hot issue right now. I'm not sure I want to say a whole lot about it publicly.

The Commonwealth, I think, quite rightly, decided that the license process was getting out of hand. There was a sudden interest in building racetracks in Pennsylvania, and so everybody that really wants to be in the slot business suddenly decided that racing's a good idea. And that's fine, that makes sense, there were licenses available.

What the state just recently decided to do is create a process. But what has happened is that before the process was established, one racetrack was approved up in Erie, again no impact on us other than our Erie off-track.

But I assure you, before they open there, they will pay us properly for the closure of that facility, and agree to to hire our employees. If it gets to that, I'll say it on a public phone call, because it's no mystery that if they're allowed to open that racetrack and ultimately do, it will essentially close our off-track facilities but they have agreed to take on all of our employees. But we will see, again, I wouldn't lose a lot of sleep over that of the we'll see how it plays out.

For now, we're running a happy and successful facility in that market. The most interesting thing is that the racing commission, the harness commission just approved a racetrack in Chester which was a very interesting piece of -- apparently over the Governor's objections at the time.

So at a meeting in which they said this is out of control, we need to establish a process to review this, they promptly select from a whole host of applications, one application, approve it and then make rules. Now, we think that that license is not likely to stand, that award is not likely to stand. It may happen at the end of the day, Chester gets the license.

But we think that the courts are likely to decide that this is my unprofessional, unlawyerly conclusion, that there's plenty of precedent around an issue that what they did was highly improper. We would expect and hope a court would turn it around and fairly promptly and they'll go through a process. We're quite happy with the business we have in Pennsylvania.

We do intend to follow through with our license application that's been there -- a strategy we're working on that we cannot publicly discuss right now. I simply say stay tuned. We're happy with where we are, pursuing that other license is not a huge issue for us but there's a, I think a particularly useful idea that we've come up with that we intend to pursue.

But we will be subject, clearly, to this new process and as I say, we have a strategy and we'll pursue it. So how's that for a complicated non answer?

That's good. Just as a reminder, what percent of from Charlestown customers come from Pennsylvania and I guess you've always pointed, which customers would have a closer option if slots were indeed legalized in Pennsylvania, can you remind me what those figures are?

Actually not a lot. The only people who would have an impact on us is us, Penn National. They're all our customers, it's our market and it's only about 11%, maybe 12, something in that range. Not a huge part of our business. So it's very good circumstance for us.

If anything, George, it probably would be a benefit because now we can offer them two different facilities to go to.

All right. Thanks very much and good quarter.

Thank you.

The next question comes from the line of David Anders from Merrill Lynch. Please go ahead with your question.

Great. Kevin, an operational question. It looks like Bay St. Louis, as well as Casino Rouge, at least relative to my expectations, performed a little better. If you could comment on kind of just ongoing improvements on the revenue side, the cost side and what the strategy is.

But also it looks like on a full year basis, the company's kind of tweaked up the EBITDA assumptions or guidance. What's the primary driver of that in your mind, is it that -- is it your existing properties or is it the Hollywood acquisition, it looks a little better than you thought?

I'll let Bill answer the second one in terms of tweaking up the EBITDA. And I'll give you a little overview from my perspective on how I believe that works.

Okay, thanks.

First, in terms of Rouge, and Magic, I think it's just -- as you know, both of these operations have relatively new managers, they've been in it over a year. And a lot of the programs that they've implemented have had time to work. And they're starting to get some repeat visitation and they're also tweaking their programs and, you know, our company looks at this very simplistically.

Your job is to increase revenue revenues and decrease expenses. I think both of those things are in place at Rouge. We've talked about a little more targeted marketing, a little more database marketing, and as you've seen over the past year, we've tweaked our market share up to about 58 plus-minus percent. So there are no big changes going on. Similar to the question we answered earlier, we would expect the same thing in all our other properties and sort of a similar thing at Tunica.

Casino Magic is a little different. If you remember last ye, we consistently said that Casino Magic was a 2003 story because it takes you a while to be able to learn how a facility works and how to operate the facility and maximize the overall profitability of the facility. And I think our manager down there, John [Jagonitch], has done an excellent job in bringing together their team. Focusing in on how to achieve revenues in a market that isn't really growing particularly well.

And the second piece of that is how to take those revenues and get some flow through. I think that's what you started to see in the first quarter and hopefully will continue on that path.

Similar with John Zimmerman, in Casino Rouge, he's done pretty much the same thing in a market that's not growing particularly well. He's targeted specific revenues and then figured a way to get some flow through out of it. There's not a lot of complicated thought going on, sort of meat and potatoes type of stuff.

In terms of the overall margins, I think when you look at the overall margins, I'll let Bill talk about how it works through the numbers in terms of on a company-wide basis, I just want to make sure that people understand that in our company, each of our operations, the performance that you're seeing at the company level is a direct result of all the individual management teams that we have in our nine gaming properties and our three racing properties.

So ultimately the company will live or die based upon the individual performances of those teams. And that's the way -- that's the management philosophy we stress and I think you'll see across the board we're pretty pleased that in each of those situations our managers have done a pretty good job of making sure that their costs are totally in alignment with their revenues. And that's a key part of our business. I'll let Bill just touch on sort of the overall situation.

Yeah, I mean, when we looked at the EBITDA, I think, you know, there's some pluses and minuses at each property that we kind of take a look at. And obviously we're very happy with the results from the first quarter specifically, obviously, the two properties Kevin talked about as well as Charlestown.

And we're also taking -- so there's not any particular property that dramatically stands out in terms of our upshot. We just feel a little more comfortable and a little further into the process and we've been able to see some of the results of some of the programs put in place and get a little more comfortable there. And there's also a bit of slight comfort that we've got, we're progressing very well with the integration of the Hollywood corporate processes and some of the expenses there that were definitely well on track towards accomplishing what we look to accomplish there.

Great, thank you.

The next question comes from the line of Bill Brady from Presidio, please go ahead with your question.

Very good quarter, very pleased. A couple questions, one getting back to Illinois, it's my understanding that the term of the legislature expires on May 23. So do you feel that whatever is going to happen will happen in the last three weeks of this month? And I have a follow-up question on Boomtown, Biloxi.

I think it's unlikely. I'm looking at Kevin, it looks like he's shaking his head. You agree, Kevin?

Yeah. I don't think there's necessarily any magic date. I think that they will stay in session until they resolve their issues. It could go on for a much longer time than the 23rd. I wouldn't look to that as any final date.

Now, if your question is, is anything likely to happen, again, where politics are concerned, I think that as I said earlier, we believe that nothing bad is likely to happen happen. So I mean, let me knock on wood as I make that statement, we believe nothing bad is likely to happen.

I think the question is can we get some movement and make something good happen in a constructive way in Illinois. And that we're very focused with, with the legislature.

You said on a daily basis you're managing the process in Pennsylvania are you also doing that in Illinois as well?

Quite obviously, we're not quite as engaged in Illinois as we are in Pennsylvania for just issues of geography, in fact, urgency, because the most important thing we can do for this company right now is to try to get slot machines approved at our two racetracks, period. As a company quite candidly, we try the to make the judgment every day, what is the next most important thing we ought to be doing to produce results. That's it.

Concern about the Illinois question, we've got folks on the ground working the issue, we've been out there. But we think at the moment that's calmed down pretty much. There are a lot of people I've been in touch with, the CEO's of some of the other properties affected there. And everybody's fully engaged and I'll tell you, nobody admits to having any sense that there is any control there -- I don't mean control in the sense of votes or what have you, who's kind of running the process.

It's a very difficult process there, apparently. So but I think we're breathing a little bit easier, I think most people realize that finally what was proposed is so wildly destructive that it borders on unspeakable. So, I think we're breathing a bit easier and we'll just have to stay tuned.

Let me just build on what Peter was saying. If there's any silver lining here, there seems to be a realization that what's been done up to this point has created zero value in the temp license. We believe that there's some movement towards figuring out the strategy with the nine other votes to create a little more enthusiasm for purchasing that license.

So we think that's really, really helpful. And we're sort of working with everybody to try to come up with a scenario that would put some more confidence into selling that temp license.

Because the state is fixated, or at least appears to be focused, on getting a certain amount of money, I think 350 million is the most talked about number in the state and I think everybody's come to the conclusion that that's not going to happen unless there's a significant amount of stability placed back into that situation. So, you know, it's very early days, but that gives us a little bit of hope.

Okay. Looks like did you a very good job of controlling costs in Boomtown, but it was the only property where revenue did not increase. Do you want to address that for a second?

Sure. Boomtown, if you remember last year, had a very, very strong revenue year. As a matter of fact, '02 versus '01, I believe they were up somewhere between 10 and 11%, pretty much outpaced the market.

This year, what they've done in '03 versus '02, the market was about flat to slightly negative and we were down about 2%. And really what you saw there was the management team there made a conscious decision to take some air out of their programs at the lower end and that created a little reduction of revenues. But that allowed them to produce a little stronger profit.

Now, clearly as a company we are not focused on the concept of saving our way to success, but, you know, you have to look at this from a situational analysis standpoint. The team there is focused on trying to grow revenues, but grow them at a profitable rate.

So I think you'll see them managing their property very smartly and over the past several calls, you probably heard that as a group, I think we're very pleased with the level of expertise of our team there. And we have a lot of confidence that they'll be able to produce a very good result there. Actually, we're always pleasantly surprised when we see them eeking out profitability above the market rate.

So in general, I think we're okay with what's going on there. We'd like to see a little more revenue growth but we think they did some smart things in terms of altering their programs.

Is a database marketing program as well-developed there as it is in the other properties?

Yes, all of our properties are pretty much database oriented. And of course there's an acquisition strategy that will require a little more promotional activity, but it's sort of a cyclical type thing.

Okay. Thanks.

You're welcome.

The next question comes from the line of John Fleischman from Julius Company. Please go ahead with your question.

Yes, gentlemen, you had a very lovely quarter, I wish I would have bought some more of your stock but anyway, about the Hollywood -- no first of all, let me go to Casino Magic. I'm an RVer and I am a poker player.

About two years ago, they took the poker out of Casino Magic so I had to quit going there, now I have to go up to all the way to Tunica area. And the men usually play poker at the women play slots and black jack and the men also play craps. And now, I've been going up there for three years now, and it's very nice up there.

But I live in Florida, where they shoot the rockets off and it's 1,000 miles exactly, I do it twice a year, after hurricane season, I'm leaving in about a week. And the fellows there, I know them quite well, you're doing a nice job there, and your company, Penn National Gaming, I never knew who you were, I'm a Florida man, I never went to a racetrack, I was in Florida 35 years. So tell me a little bit more what your things are about Hollywood. You touched on it and I'd like your touching. Thank you very much.

Well, I appreciate your comments but I'm not sure I understand the question. Why there's no poker there? Is that the bottom line?

Yeah, the bottom line in Casino Magic, they have a nice RV park there, and everything. It's nice and much closer than Hollywood, but I would still go to Hollywood, why they pulled it out, I don't think they saved that kind of money by pulling the poker out. I know it's a non event a lot of times but sometimes in life we have non events.

I understand the question.

Thank you, sir.

Kevin, you really need to answer that.

Okay. Really, the way this works is each property management evaluates their product. We look at each of our games as product. It's no different than as simplistic as it sounds, whether you should sell socks or shoes or underwear.

We look at poker and table games and slots as product and what we try to do is put the product on the floor that can sell the most and give us the most profit. And ultimately the manager in that particular location looked at his overall offering and said this is the decision I want to make.

Now, the way we approach this is very simple: Before a manager makes that, we expect them to have some type of a goal and then some type of a way to measure that goal.

I don't think he did at the time.

Well, unfortunately, from my perspective or fortunately from my perspective, I believe he did because if you look at the margins and if you look at the profitability, if you look at what that property's done over the past year, the improvement has been dramatic. So, even though as a customer you may not feel that that worked out, from a shareholder perspective, you should be very pleased about it.

Thank you very much, sir. The best to you guys and I'll have to get some more of your stock but I don't like it at 21, I like it at 11.

Thank you very much.

Thank you, sir.

Thanks a lot.

The next question comes from the line of Ryan Wurst from CL King, please go ahead with your question.

Hi, Peter, a good quarter. I was wonder to go you could speak about the investment you would plan to make in Pennsylvania assuming a reasonable bill was passed?

I hate to make public pronouncements. We talk in the range of $100 million per facility. It could be a little less, a little more. It all depends on the bill. I mean, everything hangs on that, period. We've -- we just don't know. The decision we'll make is we're going to do attractive, tasteful facilities but always mindful of what kind of return we can get.

So, we are already in the design process for some shell buildings that will be tasteful, right now we call them a black box and they're being designed as that.

We'll probably roll out a lot of the Hollywood themes and icons into the buildings. But how far we take the theme and so forth is clearly a function of what we think we can earn. You know what the threshold rate of return is. You've got to be looking at 20 or better solidly. And it will be the facts and strictly the facts.

Okay. And also, concerning table games in West Virginia, would your opinion on that change if Maryland was to legalize some type of gaming?

Well, Kevin took a whack at it, maybe I'll try it this way as well.

Certainly if we were to consider table games, you'd have to look at an entirely different tax structure. We know one of our colleagues is trying to sell this idea to the state.

I've talked to the Governor myself who has told me he has no interest right now in table games. No interest. So we kind of support that point of view. We think it's unnecessary, have no idea why others are trying to push the idea and we think they're trying to -- there may be a bit of salesmanship in trying to sell something that may not have a lot of value.

Now, at a different time and with a different tax structure and if Maryland did something, I think a case could be made that table games would make us more complete facilities. The only true and complete casinos outside of Atlantic City is I guess our nearest competitor, that has a lot of marketing cache and it may have some real value. It is going to take a different kind of legislation. We're always open to that. But at the moment, not a chance.

And Ryan, I'll just add that there's two primary factors that, you know, when Peter asks my view on it, what we want to do, I agree 100% with the significantly reduced tax rate. And we would need a significantly increased bet. If you don't have those two factors present, I wouldn't waste a lot of time on table games.

I can go further and tell you any arrangement has to be an after payout kind of share. In other words, we can't be in a position where we pay a tax rate at any level, yet handle the volatility.

The state has to be part of the ups and downs and probably take a piece of the net however we would choose to do that. I mean, they're going to have to share in some of the pain. We can have a bad day with tables.

Right. Also, Kevin, can you speak about the marketing and promotional environment in the Chicago market?

I'm sorry, say that again?

The marketing and promotional environment in the Chicago market , just what's your take on it?

You know, we just sat down with our managers there. The marketing environment is, from our perspective, I think it's reasonably stable. I don't think that there's anybody getting out of line too far.

The real issue for us from -- is from a tax perspective. You know, with the 50% marginal tax, just a lot of your programs are significantly unprofitable at this point. So that's really the issue, is making sure that your marketing programs are in alignment with your customer's theoretical win.

So we're not overly concerned about the overall stability of the market in terms of, you know, irrational marketing, we're really more concerned with focusing our thought process towards making sure that we have the right programs for the type of customers we're trying to get in the door.

Okay, great. Thanks.

The next question comes from Adam Weiss from Chilton Investment. Please go ahead with your question.

Just so I understand your revised guidance versus what you put out in March, can you just explain a little bit about the change in the depreciation going out the rest of the year?

Sure. When we put our numbers together before we had to put the numbers out based on incomplete asset segregatiom which was being performed by the people we've retained to do that.

And we were a little bit conservative in some of our estimates relative to the asset lies as well as the amounts that might be allocated into the trademarks and the name of Hollywood.

And as the final results came back, we ended up with a little mixture of both; a little more money associated with the trademarks which don't get amortized, and some of the asset lies where we assumed a little shorter lives to be conservative ended up getting classified as a little bit longer life assets, some of the fives were sevens and some of the sevens were tens, et cetera.

So more of the asset value was assigned to the Hollywood name?

Nominally, not a lot money, roughly about $10 million more than we expected. But, you know, that had been assumed to be a five-year life so that's 2 million of the difference, and the rest is in the asset lies.

The impact of the fair value of the interest rate swaps, that's a one-time event that you realized in the first quarter, not an ongoing --

That's correct. But there could be a very minimal, nominal, immaterial adjustment required, but within a quarter, it shouldn't be noticeable, to be very frank about it.

Okay. And the issue of that outside consulting firm being brought in for -- to do evaluation on Shreveport, is that something the bond holders pay for or do you pay for that?

The properties pay for that. In theory, all the properties pay for their proportionate share of the study.

Are you talking about who -- [INAUDIBLE]

Oh, sorry, I am sorry, the financial advisors, that's paid for by the property.

I guess where I'm going is if you start to incur some expenses associated with issues with Shreveport that's all factored into your guidance and so forth?

Yes. We've clearly included an estimate for incremental costs associated with restructuring.

Okay. And lastly, on one of your tables in the press release you talk about gain and loss on asset sales associated with each property. But you don't break that out of your sort of recurring EPS. Is that something you experience every quarter?

Traditionally, yes. It deals with -- it might be slot machines of that -- slot machines, carpet whatnot that may have ended up having to be replaced before the depreciable, before the asset life ran its full course on service for whatever reason. Primarily it will relate to ironically, one of the accounting rules is that you put slot machines on the books for five years, some of them don't last that long.

Some last longer than five years. Basically the way the rules work is the asset that once it's fully deappreciated stays on the floor, you discontinue recognizing appreciation. But if you remove one of the machines off the floor that's a little bit earlier than the five year, you have to recognize the difference between the book and what you were able to get for selling the machine or turning it in on a trade-in.

Understood. And as far as Charlestown goes, what would you estimate the average slot count to be sort of second quarter to the end of the year, when do you think you'll have them all in?

July. We should -- I mean, we're targeted for a July opening. I'm not exactly sure what we're planning in terms of whether we're going to bring on all 800.

We will probably bring on about 500, but dribble them all in by the end of the year. I mean, materially, we'll have six and five, 31 -- we'll have about 3,200 machines on the floor by July, so there's about 300 we'll dribble in over the last several months.

Okay. Thank you very much.

Thank you.

The next question comes from the line of Joe Griff from Fulcrum Global Partners, please go ahead with your follow up question.

Okay guys, easy question. Can you provide us with balance sheet data, cash, debt and capex for the quarter, please?

Yep. Cash on hand at the -- at March 31 was $118 million of which there's $15.2 million at the Shreveport assets, included in the $118.

On a debt level basis, we've got $700 million on the bank facilities. We've got capital leases for 16.5 million, $175 million for the bond, $200 million for the 11-1/4's. Also reflected on the balance sheet, which is covered for by cash in escrow, is $360 million worth of Hollywood casino bonds. And obviously the offset in cash is not included in the 118 that I discussed earlier. Capex for the quarter was, we had $9.6 million of which $5.9 million is what we call project capex and $3.7 million of that is in maintenance capex.

And then capex for the balance of the year, is there any change from your prior guidance?

No, we're still -- we're still anticipating maintenance capex in the $30 million range and we're still with the project capex of roughly $58, $59 million. Again, in that $59 million, there's $24 million worth of project capex that's dependent on what ends up happening with the Boomtown moving of the barge, that may or may not happen.

Relative to the second quarter week, we're projecting approximately $11 to $12 million in maintenance capex and $14 million on project capex for a total of roughly $26 million.

And then my one final follow-up question, when per slot per day at Charlestown, what was that?

274.

Awesome.

I'm sorry, 264 versus 274 last year.

Thank you.

The next question comes from John Maxwell from BNP Paribu, please go ahead with your question.

Good morning. Kevin, have you made any management changes or additions down at Shreveport?

No, we've changed nothing in the Hollywood properties at this point.

Okay. And then just lastly, Bill, do you have January and February numbers for the Hollywood properties?

No. We're not -- we're going to put those out with an 8-K coming out in a couple weeks as well as the first quarter results for Shreveport. We'll include that information in our Q.

Okay. Thank you.

Gentlemen, there are no further questions. I will now turn the conference back over to you.

Well, good. Then we'll call it a day. Thank you very much for joining us and see you next quarter.

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.