PENN Entertainment Inc (PENN) 2006 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Penn National Gaming second quarter results conference call. [Operator Instructions] I would now like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir.

Good morning and thank you, everyone, for joining us this morning on Penn National Gaming's 2006 second quarter conference call. We will get to management's presentation and comments momentarily, as well as your Q&A. But, first, I'll review the safe harbor disclosure.

In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements that involve risk and uncertainties within the meaning of the Private Securities Litigation format of 1995. Such forward-looking statements reflect the company's current expectations and beliefs, but are not guarantees of future performance and, as such, actual results may vary materially from expectations.

The risk and uncertainties associated with the forward-looking statements are described in today's news announcement and the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10K and 10Q.

Penn National assumes no obligation to publicly update or revise any forward-looking statements. Today's call and webcast may include non-GAAP financial measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP will be found in today's news announcement, as well as on the company's website.

With that, I'll turn the call over Penn National's Chairman/CEO, Peter Carlino. Peter?

Thank you, Joe, and good morning everyone. Welcome to our second quarter call. With me on the telephone today are Kevin DeSanctis, Len DeAngelo, Bill Clifford, Jordan Savitch, Robert Ippolito and Steve Snyder.

We are very pleased to announce another great quarter at Penn. Almost across the board performances at our properties were just excellent. We have exceeded our guidance by $0.02 and I think, as we look at the quarter and are prepared to talk with you about, things are going very, very well. Obviously, another record for our company.

I would, again, call your attention to our press release and commend Bill and his staff for what I think is an extremely thorough job. So, that for those who haven't read the release thoroughly, I strongly encourage you to do that. There's a lot of information there that has been pretty carefully thought out to be as helpful as possible. We try to be as transparent and open and precise here at Penn from the earliest days and I think this document reflects that.

I would also like to talk about some exciting things that are happening here and that have moved along since we talked last quarter.

The first, of course, is at Penn National. Most of you would know that in Pennsylvania, the distributor licenses were released at the end of June, which was the gating issue for the ability of the Gaming Commission to award Category 1 licenses in 90 days. Based upon the information that we've gotten from the board-- and I think you've probably seen this as well-- they're quite committed to getting these licenses out at the earliest possible time. And we fully expect that licenses will be granted in a very timely way.

With that in mind, we've actually now-- or, rather on the first of August-- will start construction at Penn National. You might recall, we began demolition some months ago in preparation for this day and we are now committed to begin construction.

For the moment, I should point out, we are not planning a temporary facility. I am anticipating that question. We wouldn't rule it out completely, but we've got no-- and the industry has gotten no-- guidance at all from the Gaming Commission about how they are going to handle the possible pro ration of the minimum $10 million local tax, which, with a limited number of gaming machines, would be a significant drag on a temporary facility.

So, there's a lot of questions still unanswered and, for the moment at least, we're satisfied that getting underway, building the primary facility that we would all be proud of and getting there as quickly as possible is the best for all of us.

Maine also is moving along pretty well. Steve's had to spend a lot of time between here and Bangor and Augusta, but it would appear that we're on our way to an early permanent facility start in 2007. And, we're doing quite well with the temporary facility, perhaps even a little better than we had anticipated. So, we view that as a bright spot and a bright opportunity going forward.

Finally, Argosy, you might recall that we've committed to follow through with a very significant expansion that had begun with our predecessors at Argosy. I should point out that the delays and some of the cost increase that we see at Argosy has been largely occasioned by the Army Corp of Engineers. I mean, there is a process when you're building on waterways and, certainly, waterways that have some historic background, that archeology, urban archeology, is a critical part of it.

And that process has just been very, very exacting and very, very difficult. We do not yet have the permits that we need, although I am told by Steve, who's nodding his head next to me here, that they're about to happen. Of course, you've heard this for a little while, but I do think it's safe to say that we have sort of narrowed the issues for the Corp of Engineers.

There's only so much you can do and, the moment we get a permit in hand, we'll start immediately on a parking garage, which, as many of you know, is the biggest single constraint right now. Just inadequate parking, we cannot handle capacity at Lawrenceburg. So, getting that garage up and running is the first and most important thing.

We will also turn our attention to the brand new barge, which is quite an undertaking, although it is under construction and moving along quite well. We just need the permits, actually, to put it in place.

So, that's another large project, another important effort that we're looking forward to. So, let's keep our fingers crossed for the next week or two, we get the necessary permits from the Corp of Engineers.

I would like to ask Bill Clifford to highlight a few financial issues before I continue. Bill?

Thanks, Peter. One of the things I wanted to clarify, which on hindsight upon looking at the press release, we probably could have added one more detail. It think we've done an enormous number of details in the press release. And that is that the company re-classed cash back coupons mailed to customers from a marketing expense to revenue, thereby reducing both obviously the expense and the revenue. And the piece that is missing in the press release, that we could have added, is the impact in the second quarter was roughly $23.5 million and the first quarter would have been roughly $21.4 million.

So, that would, when you're looking at what you've seen historically from Penn reported on the revenues, revenues would be reduced by those amounts, the $23.5 in the second and the $21.4 in the first. Now, this re-class has zero impact on EBITDA, operating income, net income or earnings per share. So, I think, hopefully, for anybody who is working on the models, you can account for that little piece of information.

The other concept that I wanted to cover was just generally speaking that, you know, we're very enthusiastic about how the year for 2006 looks out. And, although on our year-to-year guidance relative to what we've put out before, that we are basically absorbing the impacts of the Illinois tax, as well as quite candidly some interest expense issues related to one increase in LIBOR, as well as some timing on insurance proceeds where we were a little optimistic earlier in our guidance relative to the time when we thought the insurance would get settled out.

I think it's still going well in terms of our insurance negotiations. It's just going slowly. It's still very cordial. All of our discussions with the insurance companies have been certainly productive and I think we're coming close to the point where we can have, get to some kind of a resolution on the issues. Again, nothing that candidly is a major controversy. It's just a matter of timing and inordinate amounts of detail that they're looking for that takes time to put together.

Okay. Bill, thanks. And lastly, let me comment on our announcement that Kevin will be leaving the company by year end '06. I think the announcement speaks for itself and, but I do need to comment that it's a disappointment to me personally. Kevin has been a significant part of all the good things that we've done here over the last five years and he and I have been talking over the last while about his goals and ambitions. And, I think at this point in life, if Kevin has decided that it's a good time for him to do something on his own. This is utterly amicable and, frankly, a bit of a disappointment to me, but we'll move on passed that. And, Kevin's on the wire, so Kevin, do you want to just take a moment to speak about that?

No. I think that sort of covers it, Peter. I mean in terms of my departure, the one thing that I think is good from a company perspective is that the timing is probably right. You know, for the last five years we've been going from transaction to transaction and we have a little bit of a lull right now. So, it's a good time, if I'm going to go off and do something else, for the company to transition very smoothly.

Good. Kevin, thanks.

We have announced also that we've engaged Heidrick & Struggles to begin a process of searching for a successor. But, our core team is much in place. Kevin's going to be here for a good bit of time, so I expect it will go very, very smoothly.

So, with that, let me open the floor to questions. Operator?

[Operator Instructions] Our first question comes from Larry Klatzkin of Jefferies & Co. Please proceed with your question.

Yes, a couple of things. Are you going to possibly-- other companies have done this where you've done this revenue adjustment thing, which a lot of companies have done-- given us quarterly last year what the numbers would have been on the revenue side so we can adjust our models. Is that possible for you guys to do that?

Sure, we can do that. In the second quarter-- I'm not sure I have all the numbers from last year relative to--

What usually the companies do is they put on the website or they send out a supplemental sheet with the adjusted numbers from last year. We don't need it this minute, but that would be helpful if you would get something out to that.

Not a problem.

Second, as far as Ohio's chances-- I know you guys are big on the push on that.

We're certainly involved.

What do you think the chances are at this point?

Well, Steve Snyder's sitting here quietly. We'll ask Steve to talk about that.

Larry, we've obviously done some polling in the state and the polling right now, if you were to look at it, would be no better than a coin toss. What we've done as an industry is we've started to test our story in one media market in Ohio, that being Toledo, specifically. We've just rolled out a media campaign unique to Toledo. We'll be undertaking that campaign for the next three weeks and we will again poll in Toledo after that point in time to see what kind of ability we have to move the needles in terms of public perception of the internet learning program. So, at this point in time, the best I can answer that question is it's a coin toss and we'll see how things develop.

The other question is, in terms of getting on the ballot, we're quite comfortable that we're approaching 600,000 signatures as we speak, so that we'll have no problems filing sufficient signatures to get on the ballot by the August 9th deadline.

All right. And another question. The timing of adding the additional slots in Bay St. Louis. When should be put that in our model?

You mean Bay St. Louis or do you mean Biloxi?

I mean Bay St. Louis.

It's 850 machines. I think we'll-- we're going to kind of play it out and see how it goes. We're constantly evaluating what's going on in the Gulf Coast market, looking at the market data and relative to what our win-per-units are and how we're going to be doing. I think that if demand warrants it, it will come in right away. If it takes some time to ramp up, it might stretch out into the following year.

All right. As far as Lawrenceburg, could you just give us-- you know, 4,000 positions, will you call them slots and tables?

We're roughly looking-- well, what we've done is we've gone to 4,400 positions, which will include a 30-table poker room down on the, basically, the lower level. That will add another 100 slot positions, roughly, which gets us to roughly, I believe, it's-- not sure exactly-- don't have that handy. Let me get back to you on that, Larry.

Okay. And, Peter. Gary Loveman just spoke on it, but as far as the lawsuit in Illinois, what do you think your chances are?

I'm certainly not going to make a public statement, Larry, about that. It's a legal case. I think that on the law, as I've read it, we actually are in a very good position. I just can't predict the outcome. But, we would not have filed this frivolously-- thought long and hard about whether we should, would participate. And it started with a hard look at the law. I mean, I think that what was done there is just not the right thing to do. And that we're in very good shape from a legal point of view. Outcomes are a different matter. You know, as we all know, we've lost cases that we absolutely should have won and we've won some that, perhaps, we might have lost.

So, this is going to play out. We're reserving money, obviously. We're setting money aside in this case, although there was a stay, if you have read, by a judge who believed at least the case had merit. So, we got a restraining order to hold back payments and that's where we are. But, we're treating it now as if we've got to pay.

Okay, you're taking it out of income, okay.

Yes. From an accounting perspective, we're actually making the payments into a protest fund and it's reflected in the operating results. So, yes, we're definitely showing the expense in our income statement.

All right. Last, to insurance costs in the Coast and the Midwest. Are they going up significantly? How should we adjust?

Insurance costs, we're not completely finished with that, yet. I think insurance, it's safe to say that insurance costs for properties are going up across the company-- or across the country-- in the Midwest as well, but most particularly, obviously, anything that's around a coastline. It's going to be very difficult for the company to get the same amount of insurance that we had last year, if not impossible. And the costs are going to be dramatically higher.

Where that number is going to go is probably somewhere in the $5 to 10 million range for less coverage. That again we haven't finalized those negotiations at this point.

Is that in your guidance, or not really, then?

It's-- yes.

Okay. And then the last thing, Mohegan is having a conference call today at 2:00. They have the right, I guess, as of tomorrow to put back the property. If they do-- and I don't think they'll do it the first day, at least-- what do you guys, what do you feel about that and what are the alternatives? And can you even take the property?

First, there's nothing magical about tomorrow. I don't know why you're looking at that date.

It's because it's the 28th and the first day they can put it back.

No, that's not the case. So, look, there's not too much we can say about that, except to say that we've been in regular contact with the Mohegans. We understand their concerns and at this time they have not put the property back.

When was-- Jordan, what was the official date?

July 1st.

Yeah, it was July 1st, so that date has come and gone. We'll just have to play this out. I don't think we're concerned either way, frankly. So, it will be what it will be.

Peter, are you investing in Kevin's new company?

I might like to. I would like to. You'll have to speak with Kevin about that.

Thank you very much, guys.

Okay.

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

Joseph Greff; Good morning, guys. Peter, are there any restrictions with Kevin? Or, Kevin, can you talk about this in terms of non-competes? And then with respect to finding a replacement with Kevin, obviously, with Heidrick & Struggles you're looking at external candidates. Are there any internal candidates to replace Kevin?

Well, somebody's got us by the tail, here. Might want to advance their cases.

Look, let's do it in reverse order. Tell me first, what was the first question?

Is Kevin subject to any kind of non-compete?

Frankly, we haven't worked through-- I'm going to tell you exactly. We really haven't signed off on any kind of final agreement or even made any effort yet to have a dot the I's and cross the T's agreement with Kevin. I assume we will and we need to polish up whatever details. I don't foresee any restrictions on what Kevin would choose to do. There may be some as we all sit in a room with Kevin, scratch our heads and see if there are any conflicts. I think Kevin would be as concerned about a conflict. I know Kevin would be-- he'll speak for himself in just a moment-- as we would be. So, I don't see that emerging as an issue at all.

I would point out that Len, as our EVP, had-- and again, Kevin might take a moment to talk about that-- the primary daily contact with properties actually for quite some time. Bill was very much involved. The whole team is involved. So, that this company is today a whole lot more than-- as vital as Kevin has been-- a whole lot more than any one person. I'd like to think that includes me.

The goal always is to build and we continue to build just a first rate team. And, again, we've got some superb people out at the properties, who you know we rely on very heavily to provide the kind of leadership that rolls up to results that we like.

So, I won't say it's a quote non-event. It's a disappointment that Kevin has found himself at a point in life where he wants to take another course and I think that's really super. But, as he leaves, he leaves a company in very, very good shape.

Kevin, any comments?

Yes, I think, Joe, when I look at it I feel very much as Peter does. One of the things I think we have done particularly well for the last several years is putting together a great team. I think with Len and Bill, Jordan, Gene, some folks that you probably aren't as familiar with, and obviously all of the GMs that we have out there. You know, the way that we run our business is really very dependent upon individuals who are in place. And so, while it's been a great run, there are some things that I want to accomplish on a personal basis, I'm very comfortable with where Penn sits right now and I have made recommendations to Peter. I think we have a very strong team. And I don't think we'll miss a beat, to be quite honest with you. So, I'm pretty comfortable with where Penn is.

Okay. Great. And just a general question. As you look over the last few weeks and anything in June, I mean, are you guys noticing an inflection point in consumer spending or any kind of trends due to higher gas prices, et cetera. And one final question-- before I wish Kevin good luck-- Bill, can you provide cash debt and CapEx in the quarter? And good luck to you, Kevin. Thank you.

Let me work off the nitty-gritty here and then we'll try and remember what those other questions were.

The cash at the end of the second quarter was $130.3 million. Our bank debt was at $23-- $2.345 billion. Capital leases at roughly $11.6 million. We have some old outstanding Argosy bonds totally roughly $163,000. And there's $450 million of our sub-debt for a total debt figure of $2.807 billion. That pretty much covers that side of the equation.

On the CapEx for the quarter, we spent roughly $48.3 million on project-related items, $17.8 million on maintenance CapEx, roughly $53.6 million on repairs in the Gulf Coast, for a total CapEx in the quarter of $119.7 million. And looking at the full year, we project our project CapEx to total out to roughly $257.8 million. Maintenance CapEx should be right around $59.5 million. Katrina total spend should be around $153.6 million. For the year, total CapEx will be approximately $481.1 million.

And the stuff on Gold Coast, do you expect that ultimately to be partially or wholly reimbursed by insurance proceeds?

Yes. Today we've-- on the insurance side-- we've collected, we've got commitments already from the insurance companies to give us $100 million, of which we've received roughly $80 million to date. We're working off the last $20 million.

But, we expect that.

We expect to get-- we expect, certainly these are progress payments, is how I would refer to them at this point. And certainly we expect to get the entire balance back from the insurance companies.

And my broad question about general consumer spending per different properties in your portfolio?

You know, I'll offer my thoughts that it's really hard to tell. We don't have any data that would suggest there's anything unusual. July has been, I think, a little spotty across the board, but as we sit and talk about it ourselves, we're reminded that April and May were not particularly good months for us, but June was spectacular. So, you know, we're-- this is a longer term process. At the moment, we think things are fine and we're doing fine.

Thank you guys.

You always like to look at your dailies and see yourself blowing through budgets by wide margins. I mean, so-- but this is a longer term process and days and even weeks don't really provide much of an answer.

Peter, I'd just like to add to that. Joe, with our stuff there isn't a tremendous amount of movement either way, generally. You know, we look at our individual markets. They're pretty stable markets. So, we don't have a ton of volatility and I agree with Peter. This year has been a little unusual. April and May not great months, they were okay, not great. June an excellent month. July started a little bit slower than we probably would like, but again we would like to blow through our budget. So, I don't think we can say with any great degree of certainty that there is any trend developing.

I'm all set. Thanks.

Very good.

Our next question comes from the line of George Smith of Davenport. Please proceed with your question.

Hey, good morning. The heightened budgets for Lawrenceburg, Bangor and Penn National, I guess particularly Penn National and Bangor. Do they change your targeted cash on cash returns? I guess, what do you think is achievable at each of those three?

Well, I think certainly with Lawrenceburg, if I start with Lawrenceburg, obviously higher costs never improve cash on cash returns, because the places we're going to do what we're going to do. Certainly, but from the perspective of saying that Lawrenceburg we've certainly increased a bit of the scope. We're looking at the market with some additional gaming positions. Certainly it's going to mitigate a bit of the cost increases.

Penn National, I think we're very comfortable, as well as what we've seen data out of Maine, that we're very comfortable, that we're going to still hit our threshold targets in both of those markets. Unfortunately, the passage of time is really probably the primary contributor to those increases, because construction costs have gone up. Some of the site conditions in Maine have, as we've gotten more detail there has caused the cost of construction to go up there, as well. But, I think we're still comfortable that we're going to be-- that those properties are going to perform spectacularly, quite candidly.

I think it's safe to say, look. We've always taken a very conservative view in making pronouncements about what we have seen from those properties. Bill says it well. We're not concerned about the net result, even with the adjustment in cost. In the Argosy case, we actually increased the scope significantly there. So, there's some new opportunity that we've provided. Maine, of course, is doing very well and, again, we've been very conservative in our projections for Pennsylvania itself. Look, we'd rather costs not be where they are, but I think you all know that across the board, construction costs are up virtually everywhere and significantly. We'd rather than not be, but they are what they are. We're moving rapidly ahead and we'll do fine.

Okay. And there has been a great deal of speculation recently in the press regarding Pinnacle potentially purchasing Sands, Atlantic City. And I know that's a property that you guys are at least rumored to have an interest in or that some expect you might have an interest in. I know you've stated an interest in Atlantic City. Bottom line being, I think a lot of people would have expected that would be something that could end up in your hands and I'm wondering if you could comment on if there's potential for that or just what you think about those rumors?

We'd be happy to. I mean, you can rest assured that we have unturned every rock and continue to that is there to be examined. And quite candidly, we're not a buyer at the prices. Real simple. But, would we be interested in that property? Absolutely. Would we pay what is thought to be the purchase price? Not a chance.

So, look, I can't comment on what others are willing to do or might do. I can only tell you what we-- you know, we've had very fundamental disciplines here that I think are much as cornerstone of our success. Those will not change. We kind of just ignore what's going on around us and stay focused on the values that we hold.

So, we'd like to be a player there. That property could be attractive, but I think it's ill-lustered and I'm glad you raised the question. We wouldn't be a player at those prices. It's real simple.

Okay. And, Bill, I apologize since you mentioned in the press release, but in terms of thus far what you've seen in Biloxi from a win-per-unit perspective?

I would say that the win-per-unit in Biloxi is tracking pretty much in line with what we thought it was going to do. Again, I think maybe-- and I don't want to overemphasize this by any stretch-- maybe a little slightly less than what we thought it was going to do on a win-per-unit basis. But, candidly, we're very anxious to see what's happening with the month of July relative to a bunch of assumptions that we've put together on how the market's going to do. We clearly have data from our property, but we don't know if having-- if all of the revenue that we're seeing is incremental to the market or whether we have in fact potentially may have had the effect of simply redistributing the existing gaming revenues. And once we've seen what those revenue numbers in July are, we'll have a much-- at that point in time, we can make a much more clearly defined opinion on exactly what's happening on the Gulf Coast.

All right. Last question. Ohio still sounds like we're going to spend $8 to $10 million. That has not changed.

I don't think, quite candidly, we're really not going to comment on the amount that we're spending. Obviously, it doesn't serve the company to be having that information circulated publicly, so I think we're going to stay quiet on that issue.

But it will be less. We'll always comment that it's less. It's going to be-- we're going to be very frugal with our spending, but I don't think we want to be out there on record with exactly what we expect to spend, nor quite candidly do we have all the information today. The reality is that this is a day-by-day situation that develops each day and new information comes in and certainly we're going to assess the opportunities for victory. And, if appropriate, we're going to put the amount of resources we need to win behind it.

Okay. Kevin, congratulations. Good luck. Thanks guys.

Thank you.

Thank you.

Our next question comes from the line if Ryan Worst with Brean Murray. Please proceed with your question.

Thanks. Good morning. Just a couple of questions. Can you talk about the margins at Charles Town. Looks like they were down a little bit during the quarter. And then, Bill, you mentioned that you expect to receive the balance of the insurance proceeds, but you didn't say what that balance was. You know, I assume it's more than $100 million. And then, also the construction phase at Penn National. Previously, it was 12 to 13 months, so I think, you know, if you start August 1st, that would make it a fourth quarter event. And then, maybe --

Ryan, slow down. Too many questions, here. We'll give you a follow up question.

All right.

Margin. The margin at Charles Town this particular quarter was affected by the couple of tenths of a point relating to the tax rate on the margin. We're paying a 60% tax rate. And as revenues continue to grow, that does have a margin effect of approximately $500,000 in the quarter.

And also, there's been a decline in racing revenues associated with that property. Nothing particularly that's going on. It's just part of the long term industry trend with decline in racing handles.

They were the two major impacts. Couple of insurance cost increases and pre-opening costs as associated with the buffet. That was the--

Right. What was the impact of that?

The buffet?

Yes. Was that significant?

It was only $100,000 in pre-opening costs.

And there's no disruption from that?

Only to the-- no, no disruption in the sense of the buffet opening. But we should note that as we go forward in the third quarter, on a year-to-year basis, that property is going to be down 300 to 400 slot machines, because at this time last year, we had the space occupied by slots and then in the fourth quarter, we took those slots off the floor to begin construction for the buffet, which gets us ready for the next stage that opens in the first quarter of '07.

The next phase is under construction and we are still doing some work with the garage. It's open, but not completely finished, so there's some minimal disruption going on there.

Okay.

What was the other question?

On the construction phase at Penn National?

We're saying first quarter of '08. I think that-- go ahead, Bill.

I was going to say, the reality is that the reason we're looking at the first quarter is clearly we obviously want to give ourselves a little bit of space. In other words, we think we can get there. But, the reality is the way the tax is currently structured in Pennsylvania with a minimum $10 million tax, that's an annual minimum, without regard, as it stands today, for when you open.

So, if you were to open in November or December, you'd still owe the $10 million. And that just doesn't seem to make much sense to open because you're going to end up with the negative operating results for the first month or two if you still owed that tax. So, we think that the more likely scenario is it will open at the beginning of the year.

We should point out that I believe that the Gaming Board has the power to adjust that and to pro rate or do something else. But my suspicion is that they probably will do when they realize nobody's going to open on a partial year, particularly when it's very short stuff. So, these are the answers that we really haven't had yet. They've got lots of other pressures, as well. They're well aware of this.

I know that our outside counsel has spent a significant amount of time-- I suspect a number of other companies have done the same-- addressing this. There are a number of loose ends that, frankly, they just haven't gotten to yet. But, assuming that it goes the way Bill outlined and, also to give ourselves a couple of months to be smart before you all start pin holing in something in November, I think we're just going to stick with the first quarter of '08.

Okay, great. And then just two follow ups. And that is the balance of the insurance proceed question. And then, Kevin, just good luck and sorry to see you go. I was wondering if you or maybe, Peter, could comment on the management structure at Penn and some of your regional operators and experience that they have?

I'll address the insurance issue. You know, clearly, there's a range out there on the insurance proceeds. We would expect the number to be in excess of what it's going to take us to get back up and running, which we've already indicated on the call is $154 million. But, I'm not going to indicate on this call exactly what we think that's going to be.

There is clearly lots of room for negotiation around those numbers in terms of how those numbers are going to settle out in terms of methodology calculation. Because, we've also got impacts of a variety of sub-limits within the insurance policy that are being negotiated. So, we're very confident we're going to receive the $154 million and we can tell you that we're very comfortable that we're going to receive more than that. I'm just not going to comment on how much.

Okay, thanks.

My-- how the company-- and this is my own speculation. I haven't even discussed it with the group here. They recognize that they've got a large commitment. So, what they've clearly done is to advance cash on an as-needed basis without ever having to settle the big argument. There will undoubtedly be some pattern here, because what they do with our company has to follow a logic that they're willing to share with another company.

So, this is a very big, global thing, understandably involving lots and lots of money and lots of companies. So that what they continue to do is to write checks to sustain the work that we're doing, but they have not made a commitment yet as to whether it's all going to unfold. And it does involve more than just our company. So, we understand that-- I won't call it a game, but that process. And, believe me, the folks have been in London, in Bermuda and every place in between, are very much on top of the insurance issue. So, I think Bill answered it best. We remain confident that we'll get a proper settlement.

Peter, do you want to respond on the structure?

Oh. Why don't you do that, Kevin, if you're still on the phone.

Basically, our structure-- I guess the term that everybody likes to use that I'm not overly fond of is decentralized. All of our businesses are essentially local in nature. So, we put a significant amount of autonomy out to each general manager in a couple of areas. And we probably said a thousand times that we think that there's two areas that really can make or break an operation and that's marketing spend and payroll. And so we give a lot of autonomy to our GMs to run their businesses and really stay focused on those few items. And obviously on a strategic basis, each one of them has a view on how their business should go forward.

At the corporate office Len pretty much oversees all of the operations. So, when you take me out of the picture, the reality is not much changes on business perspective at the local level. It's really much more from a corporate perspective.

Okay, great. Thanks. And good luck, Kevin.

Our next question comes from the line of Dennis Forst with Keybanc. Please proceed with your question.

I just had one housekeeping item. Capitalized interest in the quarter, Bill?

Capitalized interest in the second quarter was $2.2 million.

$2.2. Okay, and then just one question on operations. I wanted to understand whether the shut down in Atlantic City had any positive impact on any property. I'm just thinking of Charles Town. Did they benefit at all from Atlantic City closing down for a few days or being disrupted for over a week?

The impact was so-- I mean the effect was so short in duration that I don't think we really saw anything in Charles Town.

Okay. In general, do you think that the Tuesday, 4th of July was a negative for the industry as a whole?

Across the board?

Yes. I'm just wondering how you-- actually, maybe a different way of asking it the same question is, was the 4th of July weekend a good weekend? Was it about what you expected it to be?

It was about what we expected it to be.

In fairness, our operations are much different than either Las Vegas or Atlantic City operations. I think that where the holiday lands can be a pretty important factor on people coming in and leaving. So, unfortunately, we don't have anything in Las Vegas or Atlantic City, so for us to comment on that is pretty difficult. I don't think we see that big a change on holiday weekends in our business.

Okay. Good.

I wanted to say one other thing, too. Actually, we've achieved a lot more balance among our properties. It's kind of interesting to look at our daily operating report. We have a daily C&L that all of us look at with great interest and it's highly accurate as we've discovered many times. It's gratifying, frankly, to look at property-to-property. And, interestingly, Joliet may be up and Aurora down, or vice versa. Charles Town up, something else down. And so it goes.

But the net result at the bottom as you look at income and EBITDA is generally where we want it to be. And I find that particularly gratifying. There's a lot of balance in the portfolio. The reality is that no crystal ball is exactly perfect, but we've done a pretty good job over time of having a grasp on the big picture and, so far, that's the way it's worked out.

Okay. Thank you.

[Operator Instructions] We have a follow up question from the line of Larry Klatzkin of Jefferies and Company. Please proceed with your question.

Hey, Peter. There's talk now and after your wonderful comment at the Mid-Atlantic Gaming Conference about public domain that using public domain on Bader Field, maybe making a third gaming center in Atlantic City. Would you guys have an interest in that if that happens?

Well, we clearly do. I'll let Steve address it, because he's-- well, he's there all the time.

Yes, Larry. The issue with Bader Field is not one of public domain. The FAA lease on Bader Field expires in September of this year. The City Council has taken a very active look at designating that parcel of land, 110 acres, as a redevelopment zone. And, in conjunction with considering it as a redevelopment zone, they are exploring a number of options, which may or may not include a gaming site or multiple gaming sites.

All right. And then a second. Any chance Bullwhackers may be sold to an individual who lives in Denver?

Larry, we haven't talked about that.

I don't live in Denver, Larry.

Well, in Colorado, sorry. Thanks guys.

We've had no discussion about that at all.

All right. Good to hear it.

Any other questions?

We have a question from [Airy Sass] with M.D. [Sass]. Please proceed with your question.

Hi, thanks for taking my call. Just curious on your outlook on Casino Rouge. Obviously, EBITDA was down sharply. Just curious what you're seeing down there. Are people sort of migrating out now and should we sort of push that down linearly going forward for the rest of the year?

Well, yes. As I recall, we've been very cautious as we've talked about, and encouraged all of you to be cautious about, your estimations for Rouge. Bill, do you want to address that?

Yes, I think we've-- Rouge is performing pretty much as we thought it was going to perform, which is probably part of the reason why second quarter came in where it came in. One of the things that we look at that we take particular interest in, last year there was a ball in Congress. And if you look at the attendance level in Baton Rouge, it's only up about 4% over 2004. So, the attendance figures are indicating that the population is normalizing or that the volume levels are volumizing. The win per customer is up.

And we would expect that over time as the stimuli that are affecting Baton Rouge go away, that we will basically return to a slightly better environment than what it was before, because there is a permanent population shift. But, it's going to be pretty much in line and just a little better than where it was before the hurricane. I would expect, yes, that we would continue to see-- I don't think you'll see as sharp of a drop off as what you see relative to what happened in the first quarter or second quarter. I think we're getting closer to the normal level going forward. But, yes, I would expect to see a bit of decline from here.

Okay. Thanks. One other question on Charles Town. What was the win-per-unit per day there? Can you give that, as well?

Well, it's bounced--

I believe it's averaging around $295.

Right.

$295.

If you look at it on a year-to-date basis. Somewhere in that range.

Okay, thanks. And, Kevin, good luck.

Thank you.

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

Hey guys. Just was hoping you could help us out with a little body language on interest expense for the year, your weighted average cost of debt and maybe just throw out the [pick] for variable.

Well, there's roughly $1.4 billion worth of slots and then there's the sub-debt. We're looking at interest-- and our current expectation looking at the LIBOR curve-- we think interest expense is going to be around $196 million, that's after capitalized interest.

Okay. Okay, thank you.

There are no further questions from the phone lines. Mr. Carlino, I'll now turn the call back over to you.

Very good. Thanks. I hope this call has been helpful and we'll look forward to talking with you all in the next quarter. Thanks again.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation. [Operator Instructions]. Have a good day.