PENN Entertainment Inc (PENN) 2006 Q4 法說會逐字稿

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

Thank you, operator, and good morning everyone. Thank you for joining us Penn National Gaming's 2006 fourth 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 call contains forward-looking statements that involve risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company's current expectations and beliefs, but are not guarantees of future performance. As such, actual results may vary materially from expectations.

The risks 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 Form 10Q.

Penn National Gaming assumes no obligation to publicly update or revise any forward-looking statements. Today's call and webcast may also 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 press release, as well as on the company's website.

With that, I'll turn the call over to Peter Carlino, the company's Chairman and CEO. Peter?

Thank you. Thank you, Joe. Good morning, everyone. We had, from the company's point of view, a very good fourth quarter that, apart from the costs related to a large M&A effort that we pursued this quarter, we exceeded our guidance by $0.02. And with approximately $630 million of EBITDA for the year, 2006 was a very good year for Penn National. As usual, I'll keep my comments brief and let you lead by your questions where you'd like to go. But first, let me highlight activity at some of our properties and then I'll ask Bill Clifford to make a few remarks about '07 guidance.

Quickly rolling down some of the major properties at Penn National, as we sit here today, steel is up and moving and, despite the cold weather, moving well. And it would appear that, knock on wood, at this moment we're on time and looking quite good for completion by the end of '07, and opening very early first quarter of next year.

Charles Town, you'll note from our release is slightly delayed, about 60 days, which is not a huge loss for us, but there is a delay. But we'll be open by the good weather and the critical spring dates down there. Those are simply some construction delays with our contractors.

Kansas City right now the new hotel is on target for its opening April 1. And, by the way, I forgot to mention that with me today as usual Bill Clifford, looking around the table, Len DeAngelo, Jordan Savitch, Steve Snyder and Robert Ippolito. And Len just reminded me it is the first of April.

Lawrenceburg's been trickier. I know many of you probably wonder what has been going on at Lawrenceburg and we've kind of wondered that ourselves sometimes. There have been a number of events well beyond our control related to environmental Army Corp of Engineering issues there. They tell me now, believe me I and others are on top of that all the time, are settled. I don't see anybody saying they're not. So, that there are bulldozers, they assured me, on the site today and that we're finally moving ahead with that critical project. It's just been a very devilish problem to get over some of these environmental things that go back, frankly, before our acquisition of the company. But, we're hopeful now that things are moving full speed ahead.

At Bangor, things look okay. We have budgeted more cost there, which I think as we've explained, it is largely attributable to a hotel that we think will be a critical component of that project and a very helpful component. In addition, some site-related cost. But that project is moving along and we expect to proceed on time.

The only facility that we have, I think, any significant question about as you'll see in the numbers, is Bay St. Louis. We're off to a slow start there and that property, as you may know, is in the area of probably the largest devastation anywhere on the Gulf Coast. It really is quite extraordinary for those of you who have seen it. The bridge is still out that connects us to the, all of the eastern population, towns like Bay. St. Louis, itself, Pass Christian and others, are utterly devastated. We've only opened a temporary facility there and we are, remain cautious, frankly, as we look at that market, in trying to decide what we want to do with that property going forward. That will be related to the bridge opening, to our sense of where those towns are going to be going in the future and also taking a look at the competitive landscape. We'll have to put that all into the mix.

But, apart from Bay St. Louis, I think things are well in really all fronts and even Bay St. Louis, again, we expect we'll have an answer, but we're just going to take our time and survey that market.

Bill, any comment now for '07?

Relative to the guidance, I would, within our press release on page 8 I think there's a nice little table there that talks about our guidance. But I also point out something that is a little bit new that we haven't really done before, helping people understand, or at least outlining, some of the critical issues in our minds that there may be confusion on relative to performance on a year-over-year basis. Those are referenced in our referenced in our EBITDA reconciliation from this year to last year. And you can see in 2006, we look at EBITDA roughly 629.2. We anticipate over the course of the year factoring in some of the items in that Peter just talked about. That our existing operations and corporate, net corporate expense, will climb roughly 36.9. We expect the addition of Zia Park to happen in the third quarter, which is worth roughly 13 million.

Some of the bad news, which obviously offsets the above, is that we've got incremental insurance costs for a full year of roughly $14 million, pre-opening expenses related to primarily Penn National, although there are some, also some expenses in there for the Kansas City hotel. Those total up to $10.5 million. The Illinois tax increase, assuming that we don't prevail with the court case, we're assuming there's another $6.5 million.

So, I think at the end of the day, actually the fact that we've grown guidance or EBITDA from 648 versus 629 in the face of what are some incremental expenses, I would hope provides a little bit of clarity. I'm sure most people will be having to factor in the pre-opening side, which I don't believe earned most analyst numbers.

So, a good year.

Bill Clifford. A good year.

In '07, but obviously a transition year for the company as we get geared for lots of good new stuff in '08. And that's kind of the way we look at it here. We remain very active on the M&A front, you know, ever looking throughout the United States and, in more recent times, throughout the world, at a variety of opportunities. So, I think as we get started here in '07, I'd like all of our shareholders to recognize that Penn is as focused as ever and looking forward to getting to the next level.

So, with that, operator, we'll take questions.

[Operator Instructions] Our first question comes from the line of Joseph Greff, with Bear Stearns. Please proceed with your question.

Good morning everyone. Peter, I have three kind of bigger picture questions for you. One, I guess right now this current environment, how has your thinking, or has the company's thinking, changed with regard to acquisitions in this current environment, with regard to your historical acquisition criteria? And then, how much is out there and sort of what markets appeal to you right now, if that's changed at all? The second question is, obviously today's the day, obviously it's important in the West Virginia House with the table games legislation there. I guess, what's your understanding of how things are progressing there? How optimistic are you? And then my third question is an easier one- - any updates on replacing Kevin's spot? Thank you.

Well, you've got three questions. Let's start with the M&A side. Look, multiples have run. I think that's stating the obvious. So, that we have to look a lot more carefully and cautiously at what's out there. So, is it tougher today than it was previously? Absolutely.

Might we pay up a little bit for some key assets in places that we want to be? Clearly, we have stated publicly that we'd like to be in Atlantic City. We'd like to be in Las Vegas. We'd like to be in a couple of other major cities where we've poked around from time to time. It's not clear at all that there are properties in any of those markets, frankly, at prices we'd want to pay. And we may not.

So, I mean, I'd underscore that our fundamental disciplines and free cash flow requirements are still the same. So, unless there's a story or something we can leads us to the right answer, we're not going to go there. And we're quite happy to pay down debt and build value in any way we must. So, I think those disciplines remain the same.

West Virginia tables, look, it's still an active thing. You know, we typically don't comment on legislation. First, because it's unpredictable, don't know which way it's going to go. We're obviously hopeful that the West Virginia Legislature will support a fair table games bill. But, it's really not within our control. So, that I'd like to think that, if not now, somewhere in time as the state of West Virginia looks to protect the very, very strong revenue base and market that we've built, that they'll create this opportunity. But, the critical different, which is tough to explain to legislatures, is that tables are different. I mean, they're actually, there's a whole different cost structure related to the operation of those games. And, as some of you know, you can actually on a given day or hour lose money. So, that we are encouraged. We are hopeful, but I think in good time, this thing will play out. So, that's really all I can say about West Virginia.

Kevin? A replacement for a chief operating officer moves slowly. Obviously, it's- - I won't say it's at the top of our list with the folks sitting around me today. I think we're in fine shape in operating this company on a day-to-day basis, so it's not been a top of line priority. And we've been distracted the last quarter, as I mentioned. We spent a lot of time working on a couple of significant issues that really took most of my time and attention and, frankly, most of our staff. So, I've turned my attention to it again.

What I want to underscore is that Kevin's loss is that, from a day-to-day perspective, puts a lot more pressure on me to work harder in the day-to-day with our team here, but has really no significant impact on the operation of this business. It's not ideal for the long haul. As you know, we've engaged Heidrick & Stuggles to identify some candidates. We're looking for a particular type of person and when we find that person, we will make that decision. But, in the meantime, it's just one of those things we're working on.

I think that covers all three.

Right. I have a quick- - thank you, Peter. I have a quick follow up for Bill. Can you just help us understand maybe the seasonality of Zia Park. I know you provided us revenue, trailing revenues, and EBITDA. And I guess you have an opportunity for taking out some expenses there. And then, while you're maybe doing that, in terms of balance sheet items, can you provide us cash debt, CapEx for the quarter, please?

Sure, relative to Zia Park, the seasonality, that's pretty steady quarter-to-quarter. They don't- - at least, it's pretty hard to tell. It's a fairly new operation as well, so. But, generally speaking, I'd say it's pretty even throughout.

Relative to cost savings opportunities, I would argue that introduction of Sarbanes Oxley into their operation is probably not going to help the cost structure. On the other hand, being a part of a larger organization will help on other issues. So, I think on a balancing act, I think we think it will be roughly, cost structure should be roughly similar, post and, pre and post, whatever synergies we pick up as they blend into the corporate structure, we'll more than make up for the costs associated with implementing some of the control features that, you know, it's a single, stand-alone entity in a non-public environment, they don't have to deal with.

The balance sheets items here, total cash at the end of the year was $168.5 million. Bank debt was $2.343 billion. Capital lease is 10.5. Pocono Downs balance due there on- - we can negotiate a settlement with the Mohegans- - is $25 million. Two sets of bonds for 250 and 200, for a total of 450, less total debt at 2.8, $2.9 billion. That should cover everything you're looking for there.

: Let me add one comment about Zia Park. We actually see some nice upside over the next couple of years in that market. It's a very rapidly growing area. There's much discussion here now about building a hotel, which I actually think and most of you know, we're not hotel builders for the sake of building hotels. I think we're all fond of saying we're not in the hotel business. So, but where it serves our facility, we're not unwilling to invest there. This is probably a market where a modest-size hotel makes a lot of sense and we can see some nice growth in that little property over the next few years. So, we are hopeful it's going to be a nice opportunity for us.

Thanks guys.

Our next question comes from the line of Larry Klatzkin with Jefferies. Please proceed with your question.

Hey guys. Couple of them. One, just to clean up on balance sheet. Capitalized interest? Currently and what it might go forward? And then corporate going forward?

Capitalized interest in the fourth quarter was $2.4 million, for a total of roughly $8 million for the year. Looking forward in the first quarter we're expecting roughly $3.8 million and for the year $20.8 million.

All right. And corporate expense going forward?

Corporate expense we actually expect to be relatively flat in a year-over-year basis. As a result of, obviously, there's some increase in cost, but expecting, well, one of the positions is keeping Kevin's open position is helping control it. But, no, we're actually expecting corporate overhead to be roughly flat.

Okay. As far as Bay St. Louis goes. You guys have said before that you again wouldn't begin selling it and on that same light the two proposed casinos on I-10 that would kind of block you off a little bit from people coming from that direction.

Peter Carlino. Look, our preference is not to sell. I mean, fundamentally I'm not a seller. Don't, the concept of selling anything is not one of my favorite things. And I certainly, to the degree folks are listening at the properties, that's not been an active discussion here at all. I think the bigger question is what can we do to maximize value at that property and that's really where our attention is focused now. Go down and look at the market, have a realistic sense of how quickly it's going to come back. In fact, we just acquired some more ground to improve our entrance to the property. We're updating costs on building a permanent facility. And I would suggest that we're actually more forward-looking than not, that's really where our time is spent.

As to competition, look, I've been on record before saying that I think there is an irrational exuberance down in the Gulf Coast market. This is a place that was utterly flat, going nowhere, pre-hurricanes. And suddenly, there's this sudden rush and interest to build lots and lots of new facilities. Well, somebody's got to show us where the business is coming from, because it's not coming out of the air and people aren't parachuting in from faraway places. So, that- - and look, I think insurance costs are going to be very sobering for a lot of prospective builders there. So, that, there's a lot of talk. Our view is let's run our business, keep an eye on what others are doing. If, in the end, people do foolish things, we can't stop that and then we'll deal with it when we get there. But, it's a market that requires caution and I think that's, along the shore, we're doing very well at Boomtown and quite happy there. But again, we are cautious about that market.

All right. Then, in Baton Rouge, I guess, Columbia Sussex did a survey showing that nobody wants the Pinnacle casino. What are you seeing for what's going to happen there?

Well, I don't think they're effort polls particularly well in that market. And I think it is apparent to us that the public it would appear is not widely supportive of it. I don't think anybody is, other than Pinnacle. So, again, that's a game that's going to have to play out. You can bet in that situation that we will be very aggressive, both with the gaming commission, to the degree that we can, in protecting our territory. You know, we've got an adjustment and a lot of effort in that market, as does Columbia Sussex, now. And to just allow Pinnacle to wander into town is a very bad thing. So, that we'll do whatever we can at every level to fight that effort. And, yes, it would appear that they're not wanted in that market. So, they've got an uphill battle and they publicly said that they're going to fight that battle. May the better person win.

All right. And the last question, this whole smoking trend around the country, where market after market is seeing a banning of smoking. What do you see for your markets and what the effect may be?

I don't know. Len, do you have any thought about that?

Well, I mean, the only, we've got Colorado is the only active one right now. We've had Canada go no smoking and that's effected our RMA fees. But most of our other markets are fairly quiet on that front. Mississippi has talked a little bit about it. I don't know how serious it is. But, yes, there's no doubt that there is a short term negative effect and you have to grow your way through it. We'll see what happens in New Jersey when they have to deal with it. But, clearly, you have a short term impact from that, that has varied somewhat from market to market. But it's not rampant in our markets right now.

All right. Well, thanks, guys.

Our next question comes from the line of Harry Curtis with J. P. Morgan. Please proceed with your question.

Hi, good morning. Peter, question. If you could discuss the opportunity you saw for your shareholders in the Harrah's transaction.

That, Harry, with some caution, let me give you our thinking. And let me pause for a moment and think myself. We were surprised when that opportunity appeared. We looked at it very quickly and, as we do, and decided that there actually was, first, a considerable opportunity there. And second, looking at the capital markets, learned very quickly that we could participate, that actually this was something that we could do. We started initially looking at partners. That is to say, as we all know, there's a lot of cash available today and we began to get calls from various people. that also was a prompting influence that would have liked to participate with us. But, as we examined the idea of bringing in outside cash, which would have made it even easier, we could not figure out, nor did I think we spent a lot of time- - and Bill and his team spent a lot of time- - looking at this, could not find a way to do it in a way that was advantageous for Penn's shareholders. It was just too dilutive. And that's not what we're about. We finally considered that, with the help of our lenders, that we can do this ourselves.

So, our effort was a very serious one. It was a significant one and my sense was, along with the lines that we had proposed to the board of that company, would have been fabulous for us and would have been fabulous for them. I still remain convinced that what we had offered, which was a combination of cash and stock and a very considerable residual position of their shareholders with the combined new company, far exceeded in value by any measure the kind of cash number that you see up today. But cash is understandable, cash is an easier sell and, in the end, I think that their board made the judgment that cash was a simpler thing.

We had the capacity to go much farther than we went. But my sense was, particularly since there would have been a very large residual ownership of their shareholders in the combined new company, that we would be shifting too much value from our shareholders to theirs, in the sense that, you know, it's a delicate balance. We have very a significant cash component and a very large upside, if you will, in participating in the new entity. Suffice it to say that we saw, as we examined that very closely, enormous opportunity. But, we approached this as we always do with a very disciplined sense of where we were prepared to go and, when we got to that level, we stopped.

I mean, someone asked me today or just recently, how we approached this and should we have undertaken this at all? And my sense of this, it popped into my mind that over the years, let me illustrate it this way. Years past, I should say, used to get a lot of speeding tickets, the only moving violations I ever got. And it was always my habit to take those to court and to appeal those tickets. And, you know, it turns out that more than half the time, probably 60% of the time, I got off, A, because I showed up and maybe the officer involved did not, or there was some technical problem or some issue. So, the point gets to be, we had no way of knowing where the, our competitors might have gone and half of one's responsibility in life if you think the way I do, is to show up. So, we did. We put a very significant offer on the table and it was a very significant effort. But, in the end, it's about balancing risk reward for our shareholders and we felt that we made the right choice. I would suggest that perhaps they didn't. But, that's our feeling about it, Harry.

And what does it say about the strategic future for Penn? Right now it sounds like you're sticking to your knitting, but how aggressive are you going to be over the coming months in seeking other large opportunities?

Well, as aggressive as ever. I mean, this is only a couple of months passed, or six weeks, seven weeks, past our last one. So, we'll take a deep breath. But, nothing changes. Look, we have a very, very aggressive motivation here to build this business. But, always with a level of caution. So, it's, you know, hasn't changed. And those of you who have followed us for a long period of time kind of know how we think. You've talked to Bill, you've talked to others over time and you know how we think about this. So, we're as hungry as ever. But, this is all about opportunity. Who would have guessed that that opportunity would appear out of the blue? Are we prepared to pounce as quickly as possible? Absolutely. Will we do something similar again? Absolutely. But again, it gets down to the numbers and does it make sense for our shareholders.

Let me move on to a second question. Can you give us an update on how the Empress may play out over the next year and a half?

The answer is, we don't know. Look, we're under a requirement to divest the property within a timeframe. We have appealed to the gaming commission over time that the time was not quite right for us to do that. And I've said and re-said that we really, really would like to stay and that still is our primary desire. But respecting what our requirements are, we're prepared to do what we must. Now, again, the climate there is very, very difficult. It's hard to move the asset at the numbers we want in the face of this current legal dispute, tax increase and some of the uncertainty that remains in that state. So, there's still a lot of uncertainty there. We're not sure where it's going to go. I've expressed what our desire is. And you can assume that we're actively working on that issue every day, so that, you know, we're going to have to stay tuned. And I don't have that answer myself.

Is there any probability, a reasonable probability, that you will be able to stay?

The game's not over 'til the game's over. So, I think it's, I couldn't possibly speak for what the gaming commission would do. I think we've been successful to date in making our case, that, given the instability there, it's a very difficult environment for us to sell at a fair number. That's one of the things that has been part of the equation to date. That hasn't changed, because since all that debate started, we had this latest tax increase. And they've been very supportive to date. So, we're hopeful that they continue to be supportive and, in the end, perhaps take a different view. That's our hope, that is our absolute desire and that's kind of where we're coming from. But, again, we'll do whatever we must as that time comes.

Thanks, Peter.

Our next question comes from the line of David Anders with Merrill Lynch. Please proceed with your question.

Great. Thank you very much. Bill, some clarification on the current quarter. I believe you had a table that said the diluted earnings, kind of excluding what you thought at one time was $0.32. But then in the footnotes, you said you should depreciation and the M&A fees added, deemed that as another $0.04. Is that correct?

Yes.

And, what, can you break out the M&A fees? Would that be half of that gain or?

It would be about 80%, 80 to 90.

Okay. And is there any pre-opening in that?

Pre-opening is de minimis.

Okay. And going forward, I notice that you, the casino companies are starting to put a pre-opening above EBITDA or into the kind of above the EBITDA line. Is there a new accounting treatment that we should be aware of and would all your guidance going forward generally include pre-openings?

It will. I mean, candidly our pre-opening expense to date is almost immaterial. It's just obviously with a brand new opening with a facility that's shut down, incremental operating costs in a pre-opening environment are material enough for us to feel that it's appropriate to basically separate that out for people's benefit. I would say that we continue to include it as a normal operating expense, which is basically what the literature tells us we have to do.

Okay. Could it, I mean, that does explain $0.07 on the forward year, approximately, so it is meaningful. Okay, thank you.

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

Yes, good morning. Wanted to ask about Lawrenceburg, first of all. Looking at Lawrenceburg, it had in the fourth quarter the lowest revenues of the year, yet the highest costs for the year. Is there something going on there that is just for that property alone? Or is it a competitive situation? Is there something else that we should be aware of?

No. It's mostly, you've got a large insurance cost in that quarter for that property as well, since it's on, it's in Flood Zone A. So, we do have a large increase there. And there was a credit in the fourth quarter of '05 that was material. So, on a year-to-year basis, the costs are up more than what would be considered normal.

Okay. So, it's not related to higher promotional or marketing costs. And the insurance costs going forward will be similar as to the fourth quarter? Or was the fourth quarter a catch-up?

Yes.

Okay. And then also in Lawrenceburg, we're hearing about Indiana maybe using a more restrictive code for new properties that Boyd used. What's the situation there as far as what you're going to have to do with the barge you're building?

Well, you know, the one person who's expert in that area is not at the table. But, suffice it to say, we don't think it has any impact on us. I think it was a misreading. I mean, the rules actually changed from the time Boyd began its project. That's the simple truth. The Coastguard, excuse me, yes, wanted out of this business and the gaming commission, within the full view of its authority, came up with new rules. This facility was built to those rules. And that's the long and short of it.

Okay. Good.

And so, we don't expect any, any change.

Good enough. I just had a couple of quick questions for Bill. Bill, the pre-opening number of $10.5 million, where will that be? Will that be in G&A? Will it be in corporate?

It won't be in corporate. It will probably be, it will be within the operating results for the specific entities. So, it will be, it will show up in the operating performance of Penn National, as well as the operating performance for Riverside.

Okay, and also very early on in your comments, you said something about $36.9 million of, was that a corporate? I missed that.

Oh, it's basically indicating all other, it's basically a catch-all which indicates existing operations in corporate in terms of what we were expecting. Some of the second, the numbers I read off were off the second table on page 8 of the press release.

Okay. And let's see, capital expenditures for the fourth quarter and maybe a guidance for '07?

Sure. CapEx for the fourth quarter breaks down to maintenance CapEx of $19.2 million, project CapEx of 38.3, roughly spent $25.3 million on Katrina, for a total CapEx within the quarter of 82.8. Looking forward to next, first quarter of '07, we're looking at project CapEx of $129 million, which includes $50 million, although it's not technically a CapEx item, the $50 million license fee for Penn National, which we expect to pay next week. And roughly $25 million of maintenance CapEx in the first quarter. For the year, we're looking at a project CapEx of $435 million, maintenance CapEx of $67 million, for a total CapEx for the year of $502.6 million.

Okay. Thanks.

Our next question comes from the line of David Katz with CIBC World Markets. Please proceed with your question.

Hi, good morning. You know, most of my issues have been addressed, but just thinking about the M&A approach, I guess I have two questions. One, which is are you thinking more about branded opportunities versus unbranded? And are there specific markets that you would like not to be in, or like to avoid? And then, just specifically on Atlantic City, is there not a philosophy that by continuing to explore your are betting that the cost of entry is going to go down at some point. If it's right, if it's the right next move, are you not effectively shorting by weighting and maybe just diving in is the right strategy. Just your thoughts on that.

Boy, that's, I mean, that's a reasonable question. I mean, I don't see how you dive in if you know there's cement at the bottom of two feet of water. I mean, that's sort of our view. In other words, my sense is, if a project doesn't pencil out on paper, it's surely isn't going to pencil out or work when you actually go and do it. I mean, it just doesn't kind of work that way. So, that when we apply our numbers and come up to a conclusion that says, uh uh, we can't see a return there. It isn't going to get any better as you actually go and do it.

Now, I can't say too much. In the case of Atlantic City, we're working on a couple of things that may take some time to unfold and we think that, given the right circumstances, we can get in with the proper cost structure. Over-paying for a piece of property or something down there that, which we surely could do, just isn't our style. And I don't think we're going to be disadvantaged by maintaining a little discipline about that. Look, I can't tell you where the opportunities are going to be tomorrow. We just talked about an M&A situation that e had no reason to think would appear. But you saw how it took, quickly, we were able to mobilize and make that happen. That's more of what we're about.

And by the way, I should add parenthetically that, with respect to, despite my kvetching, we had a better offer that, of course it's my point of view, and we got very open in a very, very fair hearing from the board of that company, very much so. In fact, it was actually a very gratifying experience, but for the fact that we lost. But, it was a very, in fact, they could not have been more open and willing to cooperate and we made our case. It just wasn't at the end of the day the winning pitch. But that's kind of the way we think about these things. So, we're just not going to jump in if it doesn't feel good.

That was the answer I was hoping for. But, just in terms of whether we should be thinking in terms of the branded whole companies or individual properties on an unbranded basis, what's the focus?

You know, I shouldn't be too flip about this, but I don't think it matters to us in the end. We're not that brand-focused. Obviously we are rebranding, that having been said, many of our properties around the Hollywood name, which we like, we wouldn't mind consolidating brands, if and when the opportunity appears. But, most markets are local. And any given market, it's the name that gets to be recognized. So, we're not overly brand-focused. That's probably the best way I can answer that question.

Thanks very much.

Our next question comes from the line of Adam Steinberg with Morgan Joseph. Please proceed with your question.

Yes, hi. Thank you. Real quick question on Bangor or in terms of the increase in CapEx, was that almost all coming from the hotel?

I would characterize it as probably about 50/50. Fifty percent of the cost is coming from the hotel. The rest of it's coming from site conditions and other information that, as we get into and better understanding the site and some of the constraints around the site and construction and environment up in Maine. It's been a little bit of a learning curve for us from our perspective. But, I'd characterize it more in the 50/50 line.

Okay. And the hotel, have you discussed, are you prepared to tell, how many rooms there's going to be in that? How many floors?

I believe it's in the press release and I hate to misquote.

I know that you mentioned the Holiday Inn and how much that was, but I don't think you gave what the one you're going to build is.

I'm sorry, could you repeat that?

Looking at it, seems like you have the number of rooms in the Holiday Inn, but then the next sentence is that you're going to tear that down and build your own.

Well, we're going to build, it's actually on the chart on page 6. It's a hundred, right now at least, we're looking at the hotel in Bangor, we believe it's going to be roughly, or designed for 152 rooms.

152 rooms. And is that going to open at the same time?

Yes.

Yes? All right.

That's actually, let me interject just a little commercial. It's going to be a pretty cool piece of urban architecture and a pretty nice project. This will be a destination I think in many respects, really the quality hotel in town, that's one of the things that factored into our thinking. Obviously, people drive to get to this market and we're finding they'll come a very long way. So, that having approved the plans and studied this pretty thoroughly, it's a pretty cool project. And we think that the hotel is going to be an important component there.

Okay. And the time you give is 15 months from the receipt of building permits. Is that still kind of a 2Q '08 opening?

Yes, 2Q, it would be. Yes. Yes.

All right. The next question relates to Charles Town, where you kind of give, talk about the next phase of expansion that you're looking to do. Have you, when are you going to anticipate beginning that one? Or is that kind of a wait and see until we learn more about the next venture?

I think we're a few weeks away from being able to answer that question. A lot depends on what happens. We have the capacity to add more slots.

The shell's there for the added capacity. We're building the shell now and this phase for the added capacity, what we put in that added capacity and at what time, really can't be answered for.

Look, the part of the story about table games, we certainly try to tell the story. I'm not sure we've been completely effective that to the Legislature there, that it's really not about the tables. There is revenue opportunity there. It's about creating a complete facility that becomes then a destination. And it then becomes a viable alternative for Atlantic City. It just creates a different business model. And everybody's focused on the revenue side or on the tax side, but the Legislature's really ought to support this, because it changes the whole nature of what these properties become. And in a property like Charles Town, again, if it's taxed correctly, we have the ability to make very significant investment.

Again, part of the pitch, we tell the story, it's like a mantra, is that 95% of our employment comes out of the state of West Virginia, but probably 90% of our business comes from everywhere else. So, talk about a win/win model for any state to create jobs in state, but poach all the revenue essentially, because it's not a state with a lot of people. Yet, it is a huge attraction. But, getting folks to understand the economics of this is always a difficult challenge. So, that will have everything to say with how much money we continue to invest in West Virginia.

All right. Just a couple of more questions. Len, you addressed the smoking ban potential earlier. And one of the things I've been hearing is that Missouri is also looking at potentially a smoking ban. What's the possibility that you get a smoking ban and then you don't get the $500 loss limit? Or is that something you look to perhaps meld together to kind of increase the chances?

We don't really have any indication that that's an active direction right now. So, I really can't comment on that.

All right. And then the last question for Bill is the, in January you filed an 8K for a $100 million settlement with your insurers. Was that in this quarter?

Well, the actual, the money, some of the money, most of the money was received in January. But, because we've reached, we really reached an agreement at the end of December, we're recognizing all of the accounting-related items that are going to, fell in the fourth quarter.

All right. So, that $128 million on the income statement, that reflects this $100 million, you just have a payable on your balance sheet. I'm sorry, a receivable on your balance sheet.

That's correct.

Okay. Thank you.

[Operator Instructions] Our next question comes from the line of Ryan Worst with Brean Murray. Please proceed with your question.

Thanks. Just a couple of questions. Bill, do you have, there is a $3.77 million other expense. Was that the M&A activity? Or was the M&A activity in G&A? And if it wasn't, what is that 3.77?

The 3.77 was the bulk, the bulk of that is currency transaction, well, the bulk of it is obviously M&A activity. And then the stub amount is the currency transaction fluctuations relative to our contract in with Casino Rama.

Okay. And then one question for Peter. You talked about using free cash flow to pay down debt. Any update on your thoughts on share repurchases?

You know, we think about it a lot. We've had requests from shareholders to consider that. And we do. But, obviously we've been reluctant to do anything like that to date, simply because we've had better places to place our money. And so long as we see more opportunity on the outside, that's kind of where we're going to continue to go. It's in the mix of things we think about, but it's not up at the top of the list. That's a fair statement, guys?

All right. Thanks.

We have a follow up question from the line of Larry Klatzkin with Jefferies. Please proceed with your question.

Hey guys. One question is, it looks like, and again I'm sure it's not, the budget, the budget in one of your projects went down. Am I seeing that correctly?

Yes, because obviously we have extended the period of construction on a couple of items, most notably the, Lawrenceburg.

Okay, and then I'm saying, on one of your projects, it looks like the budget went down on your Charles Town. It was reduced from 80 to 56.

Well, the garage is completed.

That's what I thought. Okay. You had a couple of other questions on that. Second, the 3% tax? What's the odds, Peter, you manage to defeat that and get your money back?

You know, Larry, boy, Jordan, our General Counsel, is smiling when you say that. Look, I think we're right on the law. I'm not a lawyer, but obviously I've spent a lifetime being involved with lawsuits, one side or the other, as most of do in business. Our sense and being really one of the first to step up and make the case pursing the state law, is this is a highly egregious behavior. There's always a political component. We like to think the courts are utterly, always solemnest. Who knows? Do I think we're right on the law? And I say that with all seriousness. Yes, clearly and strongly so. But, who knows where it's going to go.

Okay. And then the last question. Maryland obviously is always a threat to you and once again it's live again. The claim is this time it's really going to happen. Any feelings on that one?

Come on, Larry. Quit it. I'm joking by the way. Listen, Maryland's always going to happen. And my answer is, yes, someday it's going to happen. It might be next week, it might be five years from now. Who knows? I mean, we just can't build a business, and I would urge you guys not to be too focused on it as well, about stuff that might happen. We're actively engaged in understanding what's going on there. You know, we continue. But, my view has always been the best offense is a great defense, or defense is a good offense, rather. And that's what we do. You know, we continue to build opportunities everywhere. So, that Maryland or any other event, frankly, isn't going to have an impact on this company.

I don't see that the situation has changed a whole lot in Maryland. We don't control that obviously. But it's as complex as ever. And let's just say we stay in touch with that issue. But, I wouldn't lose a lot of sleep over it. Of course, I've been saying that for the last six years and people have been losing sleep over it.

And you've been right. Okay. Well, thanks.

Well, someday I'll be wrong. But, you know, who knows, Larry? That's my only. I almost smile about that.

All right. Thanks.

We have another follow up question from the line of Dennis Forst with Keybanc. Please proceed with your question.

It has to do with Toledo. I'm curious now that there will not be slots at Ohio racetracks, what are the plans for Toledo? And where were the costs related to that lobbying effort?

Well, let's talk about the facility first. Look, that's a very tough business, obviously, the racing industry is yet in very poor shape in the state of Ohio. And slots to assist those facilities is essential to their survival. We'll do whatever we must to keep the place safe and clean and what have you, but there is no opportunity in Ohio, until the day comes when we have slots in Ohio. Do I think it's inevitable? Of course, it's going to happen. It took a long time in Pennsylvania, remember? I've been here with this state, in this state, in this business for many decades, so. And it took a long time. We will prevail there. But, until we do, there's very little we can do in Ohio.

With respect to the costs in the fourth quarter. Normally, we don't go out and give exact numbers. It's basically less than $0.02.

And where was that? Was that also in that other line?

It's in corporate G&A.

In corporate, okay. Thanks a lot, Bill.

Mr. Carlino, there are no further questions from the phone lines at the moment.

Okay. Well, then, I thank you all for tuning in this morning and we'll see you next quarter. Thanks very much.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have yourselves a good day.