PENN Entertainment Inc (PENN) 2004 Q2 法說會逐字稿

Good morning, ladies and gentlemen, welcome to the Argosy Gaming Company second quarter 2004 earnings conference call. At this time I would like to introduce Erin Williams, Vice President and Treasurer who will introduce the other speakers, Thank you Mrs. WIlliams you may begin your conference.

Good morning everyone and welcome to the Argosy Gaming company conference call. With me today are Dick Glasier our President and CEO, and Dale Black Senior Vice President, and Chief Financial Officer. Before I turn the call over to Dick, I need to remind everyone that we will be making some forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. We caution you that forward-looking statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by our comments today. These include, but are not limited to to competitive and general economic conditions in the markets in which we operate, construction delays related to our capital expansion projects the effects of future legislation or regulatory changes on the company's operations, as well as other risks and uncertainties detailed from time to time in our SEC filings. The information in this call related to forward-looking statements may be relied upon subject to previous Safe Harbor statement as of today and they continue to be used while this call remains in the active portion of our website. We undertake no obligation to publicly update any of our forward-looking statements that we will be making today whether as a result of new information, future events, or otherwise and with that I'd like to turn the call over to Dick.

Thanks Erin and thanks everybody for joining us this morning. I know it's a busy time for you. So we're going to be brief. Let me just give you a little bit of comments on our operating results and Dale will give you more details on the financials. Net income for the quarter was just over $18 million and that's up from $7 million last year. Revenues were up 3% in the quarter, keep in mind that in Illinois our revenues are down given the tax environment there. We are very focused on the bottom line, not the top line and we think that managing the revenues that way gives us the highest revenue for our two Illinois casinos. On the expense side our property management teams have done a great job, if you look at casino expense, which is predominantly payroll they are both favorable on absolute dollars and as a percent of revenue. The conversion to the new Tito slot products has had a positive impact to our cost structure. At Riverside where we have a significantly bigger casino we achieved economies of scale in terms of casino expenses there.

Baton Rouge our team has done a great job in finding labor savings. And particularly in the Illinois properties we have been very effective in bringing down our labor costs, again in a declining revenue situation. This has been a key to being able to offset much of the new tax burden there. The actions that are labor-related were reducing table gains, increasing slot products and reducing hours of operations. Also our SG&A expenses are in very good shape, particularly the marketing and promotion cost and again this is particularly true in the Illinois properties. For the second quarter Argosy's EBITDA was also up at 66 million compared to about 45 last year. EBITDA in both years was effected by some unusual accounting items, including an asset write down, and a one time retroactive tax in 2003, and debt refinancing this year. And Dale will go into more depth to give you an understanding of that in a moment.

Operationally Kansas City continues to be doing very, very well. We opened that property in December. The first quarter our revenues were up 56% and I am pleased to say in the second quarter they are up 56%. It's important to note that the Kansas City market has grown and we are not simply stealing share and that market is up 11%. Argosy has added a terrific new entertainment product in Kansas City and we're attracting a lot more retail play. In Illinois, which I mentioned earlier with regard to the tax situation, this quarter is a particularly difficult comp compared to last year. We had just opened up in the second quarter last year our new casino there. We did very well in the second quarter as we attracted a lot of new customers and we do have a somewhat higher tax rate this year compared to last year, after we go through all the accounting. We have been successful in offsetting much of the tax increase in Joliet, their revenues fell $9 million, but EBITDA was just off about $2 million and that's an apples to apples comparison. Again we have taken similar actions at our Alton property in the St. Louis market, but we continue to be hurt by competitive pressures in the St. Louis market. Our philosophy has been not to heavy up on promotion and marketing costs in that market. We just think that we're just -- we're chasing marginal business, and we are not going to do that.

In the second quarter in the Illinois properties we finally got approval to put the Tito slot product in. We are essentially 100% now in both properties for Tito going forward in Illinois we should be able to receive the benefits of Tito, both on the revenue and the expense side that we have experienced at our other properties. Again I want to commend the Alton and Joliet management teams for guiding these properties through a very unfriendly tax environment. And Lawrenceburg we had a solid quarter and both revenues and EBITDA were up year-over-year. Lawrenceburg was affected by the opening up of a new hotel by one of our competitors. Again, our operating philosophy is not to chase business with incremental marketing dollars, especially those marginal customers. Lawrenceburg is off to a good early start for the third quarter.

Let me just give you an update on our capital projects. Most of you are aware that we announced building a hotel and a new parking facility in Kansas City at our Riverside property. Garage construction starts next month for 1400-space garage that garage will be immediately adjacent to the casino facility and it will be a great plus in terms of having all the right components at the Riverside property. The hotel, which will be about 250 rooms, luxury rooms, it will be a top notch product and we expect to open the hotel at the end of 2006. It's a little bit earlier than we had initially told you and again the total project cost is approximately $75 million. We did announce a new development agreement with the city of Lawrenceburg for an expansion of our facility there. That agreement provides for credit, a rent credit of up to $50 million for and expansion -- to fund expansion in Lawrenceburg. We're looking at several different options at the property to see which will give us the best return. We'll talk to you more about that in the next few months. We will be finalizing our decision this quarter.

The project will be a combination of increased gaming positions, more parking, and an expansion of our hotel facility, really a new hotel. We are currently estimating for planning purposes this project is $150 million in that range. And that number is before the subsidy from the city. And finally in Sioux City we are moving the former Riverside Boat to Sioux City. The boat's left Kansas City, should be arriving in Sioux City in the next few day. This facility will open in about a month, it'll be a 30% expanse of gaming positions and significantly larger gaming floor and we should start seeing results from this project in the fourth quarter. Dale. Want to give us a little bit more color.

Thanks Dick, good morning everyone. First thing I want to do is just sort of explain a little better or reconcile if you will the quarterly earnings numbers, both for this year and last year for everyone. As Dick mentioned we reported earnings 63 cents this quarter versus 24 cents last year. Both years however had some what I will call unusual items that I want to comment on a little bit. This year in the second quarter we were negatively impacted marginally by a 2 cent charge related to the final portion of the refinancing out of our 10.75 notes that we did earlier this year. On a positive side we recognized a 5 cent per share credit for the first half year's impact of the new agreement with the city of Lawrenceburg. When we get through this in a minute, I am going to explain how we're doing, how the accounting for this agreement will take place. But as I mentioned, it was a 5 cent pickup if you will, for this year's -- in this year's earnings.

Last year in the second quarter, if you remember, included charges of 26 cents for the combined impact of a catch up adjustment for taxes in Indiana and writing off Fargas and Joliet after the most recent tax increase. If you strip out all of these items, and kind of look at normalized earnings, 2004 would have been 60 cents and 2003 would have been 50 cents. For the six-month period, the 2004 earnings of 76 cents reflect a total of 52 cents in the financing charges and a 5 cents Lawrenceburg credit for sort of a normalized rate of $1.23. Whereas 2003 earnings of 74 cents include the 26 cents that I just discussed for kind of a normalized rate of $1. Also if you take a look at the impact of margins on the first half of the year and you strip these items out of the margins, EBITDA margins at the properties increased from approximately 24% last year to almost 25.5 this year.

The development agreement with the city of Lawrenceburg is being accounted for as a reduction in our annual operating expenses both through SG&A, as almost like a rent expense, over the next ten years. In other words, we expect to take $5 million a year less in development fee expenses than we otherwise would have under the previous agreement. As long as our revenues are above the threshold levels required to earn the credit and at this point in time, revenues need to be -- casino revenues need to be above $400 million for us to realize the full impact of the credit. So we are well above that at this point in time. That's why -- since the agreement is effective the first half -- or January 1, of this year, we took a half year's impact in the second quarter. A little bit on our capital spending, capital spending in the second quarter was 15.2 million bringing year-to-date capital spending to about $45 million. Of the $45 million, about $26 million has been on project capital almost exclusively for those final payments of the new Kansas City facilities. And the rest has been on maintenance capital.

For the rest of year we anticipate spending approximately 50 to $60 million of capital. Of this amount, approximately $20 million will be the remaining portion of our maintenance capital for this year with the balance being spent on projects. Included in the project capital forecast is the bulk of the $8 million that we're spending to renovate and relocate the former Kansas City vessel to Sioux City and the balance is what we anticipate spending on the Kansas City and Lawrenceburg project. Those two numbers are a little bit softer as we are still early on in the -- particularly in Lawrenceburg we're really early in the planning stages, we should have a little bit better idea exactly on those later in the year. As we note in our press release we are in the process of renegotiating our bank credit facility and expect to finalize it late in the third quarter. We expect the new facility, besides being more flexible to be priced at rates lower than our existing facilities. However, due to our borrowing levels and the time of year that it will be finalized we don't expect to see a meaningful impact from the interest savings on our 2004 results. We do expect and incur a charge of about 11 cents related to this financing in the third quarter.

I want to talk to you as well a little bit on our updated guidance that we put in the press release. On our last call we indicated that we expected earnings for 2004 to be in the range of $1.73 to $1.83 after consideration of 52 cents in finance charges related to the financing of our bonds that we did earlier this year. We still believe that it the $1.73 to $1.83 is kind of an accurate range. However, that's after consideration of a couple of new items. Firstly, the Lawrenceburg credit 5 cents of which was reflected in the second quarter will have a 9 cent per share positive impact on our annual earnings. However, we as I just mentioned we expect to incur 11 cents per share in incremental financing charges that weren't in that earlier estimate related to our new bank transactions. In essence we have increased our guidance marginally by a couple of cents based on our operating performance and our view for the rest of the of the year. We are, you know, that is our guidance for now and we do believe that as we have always said we try to give numbers that we're pretty certain that we can achieve and I hope this explains a little bit of maybe how we got to where we're at and why it hasn't really changed in absolute numbers from the last call. And operator, with that, I think we could turn the call over for questions.

At this this time I would like to remind everyone in order to ask a question, please press star and then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Larry Klatzkin with Jefferies & Co..

Hey guys.

Hi.

Hey, the -- a couple of questions here one would be could you guys -- would you guys consider bidding on a property in Pennsylvania with everything going on?

Yes.

Yes.

Be more specific, yes.

All right. That is as good as I can expect. Second, interest expense and corporate expense for the rest of year?

I think the trend that you have seen in the second quarter probably in both of those really weren't a whole lot of unusual items in either one, other than in the corporate expense that, you know, the financing charges are reflected in the corporate expense and kind of roll through there. There was about $760,000 of that pretax in the second quarter. The interest, I think the interest trends that you saw in the second quarter probably should continue, because our that reflects a full quarter's worth of the refinancing that we did earlier this year.

Okay. As far as Illinois tax cut goes, do you think it's pretty safe it's going to happen?

Well, I'm not sure Illinois is ever safe. The special session that was just completed by the legislators in Illinois there was no -- nothing in the gaming area was really brought to the floor The current legislation calls for the rollback the second half of next year. We continue to be optimistic. We continue to do things that we can to encourage the legislators to understand the favorable economics that the state would realize by creating a much better business environment than they have there now. So from everything we know, yes, we think it will rollback but there is no guarantees

No guarantees in life. I am getting a question from the clients and I apologize for asking about this, but rumors about you guys and bidding on a property in Shreveport can you talk about that?

Well, we're familiar with the Shreveport market, we are looking in a number of markets and there is -- we've not finalized anything and so it would be premature, but we have been looking in that market.

All right and the last question. MGM and Harah's have a few things that may be offered any market in particular you might be glancing at?

We think there is opportunities in four or five markets that we think there will be properties potentially available and we are spending time understanding specific property opportunities.

Would you guys -- if you could do some acquisitions is there a debt ratio that you try to keep below or any kind of financial standards you are trying to keep to in the context of doing an acquisition.

Absolutely. (Laughter)

What would that be?

Did you want me to be a little bit more specific?

Just a little bit.

I think that for a short period of time taking our leverage up makes sense if it's the right opportunity, but over the long run we think that our leverage in the four times makes a lot of sense. But to take it up somewhat beyond that for a short period of time, if it's the right opportunity, yes.

All right. Well, thanks, guys.

Your next question comes from line of Robin Farley with UBS.

Thanks. I have got a couple of questions. In general when you look at assets for sale out there I know a couple of months ago you said there was really nothing at a reasonable price. Are you seeing asset prices come down or has that not really happened yet?

I think that the -- many people think that there will be some opportunities coming out of the MGM and Harah's transactions and so I do think we are going to go into a period where there will be some opportunities and we'll see how that works out. As you know, nothing is likely to really get finalized for at least several quarters, but we're working to see what would make sense for Argosy.

And I don't know if you said when the Lawrenceburg hotel might open?

We haven't and we'll be talking more about that this quarter in terms of the specifics of the project and the timing.

Okay. And can you talk about any construction disruption that you anticipate based on, you know, both at Kansas City and potentially at Lawrenceburg.

Well, construction disruption is something that we have to minimize. We think that there will be some construction disruption in Kansas City, but that we can work through it and shorten up the time frame. We are adding and the biggest part of that will be parking. And we think that we have some solutions. We are actually opening a satellite lot across the street that should add about 250 spaces within the next month or so.

What's the timeframe during which you think that will be disrupted like what quarters would we see that impact you?

I would like to hold back on that, because we have got a couple different construction approaches in Kansas City that we are looking at.

Suffice it to say though that the bulk of the construction Kansas City on the new garage will be done next year.

So in your second half guidance should not be impacted either way by construction disruption?

I don't think so, maybe some minor amounts in the fourth quarter.

And then lastly, I wonder if you could comment on anything in your Alton property and that market that you are seeing on the marketing side with Ameristar and Harah's just base on some of the comments they have made about marketing in that market?

Well, it would -- we're amazed sometimes at some of the offers that we see in the market for St. Louis. As I had mentioned in my opening comments, we just don't think chasing that business makes sense. And that is why we are more focused on EBITDA than top line. Illinois is a difficult situation with the tax environment, but to also try to go after some of the marginal business. With a facility that does not compete in some ways with Harah's and Ameristar doesn't make sense for us. They are having their own battle.

Okay. Great. Thank you very much.

Your next question comes from the line of Bill Lerner with Prudential

Thanks guys, few questions. One just Dale to clarify on the Lawrenceburg credit, just talk about -- is that going to be a quarterly accumulation of the credit and just trying to figure out how we'll see that in numbers going forward?

It should be, I mean we look at that every year -- as you know, our fee to the city of Lawrenceburg is on a sliding scale .

Yeah.

It's kind of like the gaming taxes are. So we sit down and evaluate every year what we think our effective rate of revenue is going to be, okay, for the year. So what our fee is going to be and then spread that out over -- that rate throughout the year and given the fact there is not a kind of seasonality in our business if it's a $5 million credit, it's going to be pretty close to a 1.2 million a 1.3 million a quarter.

Got it. Okay. That is helpful. The second one is given the Harah's situation, they talked a bit about disposing of some brands. One out there maybe the Grand I think they are still trying to determine what they are going to do in that respect, but perhaps there's a few others. You guys have in the past talked about potentially looking at a brand beyond Argosy or rebranding, what are your thoughts and I don't know that, you know, Harah's is going to sell brands outright with no assets attached, but is that something you would consider?

We'd consider buying intellectual property?

Yeah.

But clearly the idea of the Grand properties that is on our list -- .

I'm saying just in terms of the brand itself.

No, I don't think so.

Okay and just the last one just relates to Ohio and how are you guys viewing this now internally? Do you see Ohio as a bigger risk of expansion given the Pennsylvania situation, maybe after (INAUDIBLE) I don't know, but how are you thinking about Ohio at this stage?

There's no crystal ball as many of you know almost two years ago there was seven or eight states that said they would have expansion of gaming in the next year, and only one of those has done it in Pennsylvania. I think Pennsylvania does move the train along a little bit, but there are a number of factors in Ohio for example, as you mentioned Taft will be factors in trying to evaluate timing. In the long run, I think I have said in the past, if I was a betting person, I would say in the long, long run some of those states will have it, but it's going to take some time. Not only when the legislation is passed, but just to get up and running I think Pennsylvania probably won't see much of an effect until the end of next year.

Yeah. Okay. Thanks.

Our next question come from the line of David Anders with Merrill Lynch

Just a quick question as far as the tax rate in Joliet, are we going to be apples to apples then in the third quarter, so I can look at last year's EBITDA levels and assume that had a normal tax rate or were there some catch ups in that tax rate last year?

Well, there won't be catch ups, except for the fact that -- let me say it this way David -- on the say revenues, okay, our tax rate would be marginally higher still in the third and fourth quarter because you have got the full year -- in 2004 you have got the full year impact of the new rates, . Where last year you still had a blend even in the third and fourth quarter between the old and the new.

Got it. Thank you.

Your next question comes from the line of Larry Haverty with State Street Research.

Yeah. Hi. Two quick questions one, I'm just wondering if you could give us a cumulative estimate of what the tax in Illinois cost on a running-12-month basis, in terms of EBITDA reductions?

We did some work on that a year ago, but the numbers have turned out to be different and we haven't really looked at that. I'm not sure Larry, that is really a good comparison, because we also changed our method of operations. We have the casino, the new casino open in Joliet for the full year versus 3/4, it's not a number that we are using for any decision-making.

The reason being it's so hard -- there are so many moving foul poles-- .

Well, if it goes back though the EBITDA should go up fairly significantly in those assets?

That is correct.

Do you have any quantification of fairly significant or should we let folks on the street estimate it?

Well, that gets into understanding market share and the revenues at each property.

We did say last year though that based on the revenues that we had done prior -- you know prior to the increase, there's 12 months prior to the increase it was about a $25 million hit. Now the Joliet property had been open a month before that increase. So, I mean, now, you know we have done some things operationally to try to mitigate it. But on that revenue base, that would have been the outcome.

Okay. And the second thing I was in Lawrenceburg a couple of months ago and they were doing really well with the penny slots and I am wondering if you could give us an update on that, whether that looks like the next new thing or if that is just an anomaly of that particular market?

It's not an anomaly of that particular market, the two penny and one cent and the entire low denomination product line is clearly the trend. I think we're at all our properties on average load denominants about 50% of the floor. And that is is an important trend and the manufacturers continue to come out with good game content in that area.

Would you say 15% or 50?

50.

50 and that would include nickels though?

Yes.

Where are you on one and two penny though?

We are is expanding, I think at every property one and two-cent machines. We tried the two cent in Kansas City before the opening about a year and a half ago and part of it was game content it just didn't take off. But in the last six months it's been taking off at all the properties.

So do you think overall with what you have seen this kind of accelerates the replacement cycle or is this just same old same old in terms of your strategy to replace stocks?

Well, remember that we put in we accelerated our replacement cycle which has historically been on a five-year cycle plus or minus to effectively doing it in two years with going to 100% Tito by the end of this year. We -- the machines have conversion packages. So to a large extent, most cases you can convert from nickel to 1 and 2 pennies. So we have a lot of flexibility with the machine base that we have.

Thanks a lot Dick.

Your next question comes from the line of David Vas with Banc of America Securities.

Thanks. Hey, can you talk a little bit about the Lawrenceburg credit once again. Is there a minimum capital investment that you need to have in there before you get the tax break?

No.

There is not?

No.

So conceivably you could do something a lot more minor than $150 million?

Essentially if we spend $50 million and maintain our revenue base, we'll get the $50 million credit.

Okay. It's good to have that flexibility.

Yeah. What we are trying to do and Dick alluded to as we go through the planning is make sure we do the right project for that facility, not necessarily just enough to get the credit though.

Right. And I know it's early, but assuming you announce something and it's fairly major, when would you expect to get that project open? Is it a late '06 or is it a '07 type of deal?

It's probably at least a couple of years to get all the components in place.

Okay. On acquisitions, again, can you prioritize for us a little bit how you think of things in terms of what's more important? Is it a growing market? Is it a high quality asset? Is it an asset that is underperforming that you think you could invest more capital in and improve? how should we think about that?

Well, because of our operating strength, a sweet spot would be for us to take an underperforming asset at the right price. There will be some of that opportunity, I think in the next couple of quarters that we'll look at closely? We always like to have a good asset in a good market. I mean, if you want to prioritize and put that on the graph, that would be where we want to be, but then you have to pay the price and at the end of it's all a matter of what kind of return could we get?

Okay. Would you be more interested in smaller deals or maybe a transformational-type acquisition?

Not sure I know what you mean by transformational but--

One that really moves the needle.

We would like to do one that would move the needle, again if we can get it at the right price and that is one of the reasons, why I said earlier that we could stretch our balance sheet for a short period of time to achieve that. I think we are in a very good position with our balance sheet and the fact that we are in the midst of renegotiating with the banks right now, chart sheet that gives us a lot more flexibility.

I agree with that happy hunting.

Your next question comes from the line of Joe Greff with Fulcrum Global Partners. Thank you.

Hi, good morning guys, I'm all set. Thank you.

Your next question comes the line of Michael Rosenthal with Shankman Capital.

At Sioux City you certainly have one of higher win per units in the market or in the state to what extent could that additional capacity be immediately absorbed or what should we look for there?

We have assumed that there will be a small amount of dilution as we bring it on, but we're confident that fairly shortly we'll be able to absorb that capacity it's not just a matter of adding machines, but also it's going to be a much nicer project with that boat. Have you seen Sioux City?

I have not, no.

Well, you might want to wait a month. (Laughter)

The one thing there too to keep in mind is that the facility is coming right on the heels of the tax increase in Iowa. So part of the return we were going to get or had expected to get by moving the boat up there in essence now is going to be going to the state. But we still think over time it's going to be positive.

Your next question comes from the line of Dennis Forst with KeyBanc/McDonald.

A question about the credit in Lawrenceburg. It's $5 million per year, 50 million maximum so does that work out to 5 million a year for ten years?

Exactly.

And it's no more than 5 million a year?

Right. In essence there is a window in the development agreement in which we earn that credit. And the window works out to be $5 million.

And why do you start earning in January 1, '04?

That is just what we negotiated.

Okay. And then lastly on that, it is a reduction of cash payments you have to make?

As ramp.

As ramp and it is going on long-term -- I don't see where it's non-recurring why you would net that out against the cost of -- extinguishment of debt?

No, no, no. It's not that it's non-recurring, it's that it's a change from what we had previously talked about. It was a new item that hadn't been introduced -- I wasn't trying to say that it was a non-recurring item.

Okay. And so we should see that 9 cents a share added to earnings estimates for the next couple of years also?

Exactly.

Okay. Good. Thanks.

Until 2014.

Yeah. 2013.

Well, what's a year. (Laughter)

Okay And as long as I am still on, you paid off over $50 million of debt in the second quarter?

This year, we have.

Yeah. In the second quarter this year debt came down about $50 million. Okay. Just wanted to make sure that I was correct. Thanks.

At this time I would like to remind everyone in order to ask a question, please press star and then the number 1 on your telephone keypad. Your next question comes from the line of Ray Chestman with Jefferies & Company.

I congratulate you on moving an asset that still has a lot of life in it up to Sioux City, I'm wondering is there anything else going on in Iowa. You know there's a fair amount of talk that the commission will get its act together in the next couple of months and start to work on some proposals for new licenses and the fact of the matter is that -- I'm wondering if any of those, you think, would end up eventually being within in your market area?

Doesn't appear to be any activity close to Sioux City if that is your question.

Great.

There was a lot of discussion two weeks ago in Des Moines and it appears that people have put their cards, taken their cards off the table and there won't be (INAUDIBLE) in Des Moines.

So as long as west Des Moines doesn't come back, Dick, you are okay?

Des Moines is not really our market that. I mean that's two and a half hours drive from Sioux City at least. So really the things that could affect us would be if it was one of smaller communities in northwest Iowa, but that doesn't appear to be happening right now.

Okay. The size of your bank facility today and the availability, it's about 330 right now?

Yes.

And the availability would be? Yeah. We got--

It was 20 million at the end -- about 20 million at the end of the quarter.

So, you know it would be 300 over 300 available.

Okay. And the size that you are seeking?

I don't -- we -- essentially we are renegotiating our existing deal. I don't want to -- we haven't said enough -- we haven't said really any more than that about the structure of the new facility and I would rather not get into that at this time. But essentially it's -- the pieces may be a little different, but it's going to essentially be about the same size deal.

Okay and then lastly, I was wondering is there some comfort you can give us in '05, for capital expenditures something we can use to put into the computer?

I think we are probably a little bit aways from doing that until we get a little further along in our planning for Lawrenceburg to be able to give you a number that is meaningful.

The CapEx maintenance CapEx number will probably be lower in '05 marginally than this year because we are finished with the Tito program. But the timing of Kansas City ramp up and Lawrenceburg ramp up, we need another quarter or so to be able to give you good direction on that.

And the maintenance spending this year, I think you said was something close to $40 million?

Yes.

So if we were to say 30 to 35 next year that would be okay for maintenance and then we'll make our own guesses about how you are ramping those projects out?

Yeah. Yes. And as we get more color on it obviously we'll let you know. But if I gave you a number now, it it would be sort of a wide estimate -- wide range that probably wouldn't be that meaningful until we get a little bit further along in the planning and design.

Dick mentioned before your operational strengths, one of the places that jumped out at me was Baton Rouge. Is there any additional color you could give us about the secrets of your operations that you have applied to Baton Rouge to really get some rubber to the road there and start to get some EBITDA out of that property?

Well, first of all the, I think the management team has really come together. We brought in a new GM over a year ago and his team has done a lot. We are looking at some action, some opportunities to provide some additional food and beverage facilities right near the boat. We are at somewhat of a disadvantage because of the distance from the boat to the pavilion area and I think that they have looked at a number of things. I will say that one of the positives going forward for next year in that property is that there is a huge bowling convention and I know that seems a little strange, but there is going to be a lot of people in the downtown Baton Rouge area and that is where we are. Plus they just finished their government facility complex to revitalize the city. So there is some good things going on in that market.

That bowling congress runs for nine months next year so it's -- it's the thing they have in Reno every other year. It's a pretty big event and it will essentially be right across the street from us.

So they'll be bowling in catfish town you finally figured out what to do with it.

I hope they don't hit the wall.

Thank you very much for your comments.

Your next question comes from the line of Rick Downs, from Par Capital?

Hello gentlemen.

Hello.

Yeah, I just wanted to make sure I'm just following up on several questions that people have been jumping around on, some of the activities you've been engaged in, just wanted to make sure we're all on the same page about what we view as value creation versus value destruction and that would go to, you know, we all heard about Black Hawk, about the bidding there and everyone has heard about action in Shreveport. Maybe you can give us a little color when you talk about an asset like Shreveport that's underperforming, where a current company similar to you Penn gaming has collected lots to participate, why you view that market as differently, given what is happening in Oklahoma, given what is happening in that market in terms of what Harah's has done with Horse Shoe, what they are doing with the racetrack, could you just put a little color on what your insights are and what we can expect if you do acquire that property?

I think it's premature for us to get into details. We are simply looking at it at this time. At the end of the day, I think it's a matter of how you can structure the purchase and what the price is. That is a good asset it is a market that is fed from the Texas market. And it's a matter of can you get a -- structure a good purchase agreement and again we can't really speak too much more to that. But you have got a huge market in Fortworth and Dallas in particular, 9 million people.

And can we assume that your people are very familiar with what the Chickasaw Nation and the Choctaw Indian nations have been doing in terms of rapid expansion of facilities, which as of yet are not of the Shreveport quality but if you look -- if you go visit those enterprises and see what their future blue-prints are for what they are putting up, they are putting up pretty significant facilities within 45 minutes of Dallas.

Well, it's a little bit longer than 45 minutes, but we have seen the tent the smoke goes up the top of the tent and they have -- they have been doing well in terms of attracting people to play the slot products. So we are very familiar with it?

It sounds like you don't take it that seriously?

Again I think it's a matter of the price that we negotiate.

Okay. Thank you very much.

At this time there are no further question. Are there any closing remarks?

Thank you for joining us.

This concludes today's conference call, you may now disconnect.