PENN Entertainment Inc (PENN) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by. Welcome to the Penn National Gaming first-quarter results 2009 conference call.

During this presentation, all participants are in a listen-only mode. (Operator Instructions). As a reminder, today's conference is being recorded on Thursday, April 23, 2009. It's now my pleasure to turn the conference over to Joe Jaffoni, Investor Relations.

Good morning and thanks, everyone, for joining Penn National Gaming's 2009 first-quarter conference call. We'll get to management's presentation and comments momentarily, as well as your questions and answers.

But first, I'm going to review the Safe Harbor disclosure. (technical difficulty) 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 10-K and 10-Q. Penn National 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'd like to turn the call over to Peter Carlino, the Company's President and CEO.

Thank you, Joe, and good morning, everyone. Happy to be here with you this morning to talk about our first-quarter results. And as usual, with me is most of our senior management team, so that we can give you as complete a picture as possible.

I think our corporate staff has done a pretty good job, Bill Clifford, in organizing a lot of very complex information in what we think is a fairly effective way. We will rely, as always, on your questions to direct us where you would like us to go.

But before I do that, let me ask, first, Tim Wilmott to just give you a very, very brief outline of what the quarter was like and what our performance was like. Under the circumstances, I think, frankly, and given the market, not too bad.

As we look at the first quarter, generally January was slightly above our expectations. We had a very robust February, which was by far the best month of the quarter. And March was just slightly below expectations, but, overall, you can see that we produced what I would characterize as very solid results overall for the quarter.

And the good news is the first three weeks of April are looking more like January. Slightly above our expectations, and, again, the message is the world is not ending. People in these regional markets are enjoying casino entertainment.

We are generally seeing trip frequencies and visitation patterns pretty flat year over year across most of our businesses. And coupled with the fact that we have been able to reduce our operating expenses over the course of the second half of 2008 into 2009, I think resulted in a little better margin performance than what the Street expected.

Good. Thank you, Tim. Bill, there's a couple things I know you want to highlight.

The stuff that I wanted to highlight really relates to the accounting treatment around Joliet, with the fire that we had. The accounting principles basically dictate that you can't recognize -- one, we have insurance. And the insurance, we fully expect to be reimbursed for all of our construction costs and all of our operating results and lost profit that we will incur as a result of the fire, obviously subject to the deductible of roughly a $2.5 million deductible in the property, two days of business interruption, and $50,000 on the builders' risk portion, which is the portion attributable to the construction improvements that were underway.

The piece that I want to clarify or try to help out with here is recognizing that we were expecting EBITDA results in the second quarter, third and fourth quarter, unless we can settle the insurance proceeds by the end of the year, we will not be allowed by the accounting rules to recognize that EBITDA through our income statement until we actually settle out the claim and have received all the cash.

The impact for that, which we have outlined in the guidance, but I think is just a -- may need a little bit of tweaking, is the number that's been there is $14.8 million, which -- for the year, which includes the first quarter, which candidly was above our expectations, so if you were to take Joliet's performance for the second, third, and fourth quarter, the impact on our guidance is roughly $17 million. And with that, I'll turn it back to Peter.

Let me make a comment about Joliet. As most of you know, we were in the process of a significant renovation at that property, which is, in part, what led -- or what directly led to this unfortunate fire. As we have highlighted in all of our public releases, fortunately no one was hurt, which is probably the most significant issue. And we expect to be up and operating again pretty quickly.

There are some -- do you want to put -- we've got a public date out there, Tim. Do we want --

Yes, I think we are still looking for re-opening Joliet, just on a casino barge, with limited food and beverage offerings, at the end of the second quarter.

Yes. The trick to that is, frankly, there's still a lot of debris out front, which insurance companies are still sifting through. And frankly, until that is out of the way, we can't say with absolute assurance that we are going to open. That's why I highlight that point. But I think we are going to get there.

It is also the case that -- unfortunate though this is, it does present us an opportunity to do something newer, different, and better, and we will do our very, very best in the shortest possible time to open Joliet and make it a highly, highly competitive product. So, several of us just recently were reviewing architectural sketches and floor plans for a new landside facility, as work, by the way, continues apace on the barge itself right now. It should be very exciting, and we'll make the best of the situation.

So with that, why don't we turn this over to questions? Operator?

(Operator Instructions). David Katz, Oppenheimer & Co..

So, a couple of issues. Looking at Missouri, and I guess Riverside, we would love some insight as to how to gauge the loss limit and how that plays out. If we look at the first few months, we see a little bit of upside, revenue-wise. There's incremental tax associated against that. How should we be thinking about that, let's say, the next four quarters?

What we have seen in Riverside with the removal of the $500 loss limit has been mostly visible on table games volumes. We've seen about a 25% to 30% increase in table games drop in the first quarter. That's really driving the revenue growth.

We've seen some slight growth in slots, but it's been mostly table games. And when you net out the revenue growth on top of the 1% increase in tax rate, I think our EBITDA margins, quarter over quarter, were essentially flat. Obviously, we had greater EBITDA this year in Riverside than last year, but it's mostly due to table games volume increases.

So, I guess that's exactly my point. Is there an inflection point where it becomes a net positive EBITDA for that property?

I think it has been accretive to overall EBITDA. The margins are essentially flat, but we have seen a -- we've seen a revenue growth of almost 8%, 9% in that business for the first quarter. So it is accretive to EBITDA, based on our first quarter -- full quarter of operating without loss limit.

Is it -- are you able to gauge whether or not it's driving incremental slot play?

It doesn't seem to be incremental slot play. It does seem to be slightly better quality slot play because of the limit being removed. But again, by far, the greatest and noticeable difference is in the table games.

And then, I just wanted to ask about Illinois. It's a -- there's obviously a lot of moving parts in that market, with the Horseshoe boat that's open. And now, the Joliet property going out for a period of time.

How should we think about Aurora for the next quarter or so? Are you seeing that you are able to capture any of those customers that were Joliet customers and sort of keep them in the family, so to speak?

We have been able to get -- with the cooperation of the Illinois Gaming Board, we were able in Aurora to accept Joliet offers that were in the hands of Joliet customers. And we are starting to see some increase in the month of April in Aurora's business, in part due to Joliet customers that are visiting Aurora.

I would imagine -- I don't know this firsthand, but I would imagine, obviously, Harrah's Joliet being the big beneficiary of Empress's closing. But we had seen a slight increase in Aurora's business levels over what we saw in the first quarter, due to the movement of customers up there from Joliet.

Let me stick my nose in that. I think Tim highlighted that the biggest beneficiary clearly is going to be Harrah's in the short run. But I don't think that concerns us a great deal, only because our new offering will be new, pretty exciting, and we will quickly reclaim that business and grab the kind of marketshare improvement that we're looking for.

We still -- David, even before the Joliet fire, we certainly had seen, mostly in Aurora, the impact of the Hammond offering affecting Aurora. We did get some business from within the loop in Chicagoland. And that's going to continue to persist as we anniversary that opening, come this August, of what happened in Hammond.

But generally, I thought Aurora's management of their margins and operating in the first quarter was very solid.

And then, one last one, and then I'll step aside. With respect to your shopping efforts in Las Vegas, what ever insight you can share with us. If it's more likely, less likely, more attractive, less attractive -- any updates on your thinking or approach there, I'm sure, would be interesting for everyone.

I'm going to have to disappoint you, David, by saying (multiple speakers) that there is virtually nothing we can say. If anything, that issue has gotten much, much too much attention.

A series of recent articles that link us with potential companies or properties is not helpful to the process. And, in fact, we have never publicly have said that we want anything more than a single property on the Las Vegas strip if we can find one. That still remains our interest. Time alone will tell whether we can find the right opportunity at the right price.

There's really nothing else to be said about that. I am, frankly, very sorry that all the -- press speculation has been out there. It far overplays this issue for us right now.

So, we have the interest. Time alone will tell whether we can match it with an opportunity.

The New York Post is never disappointing, and I think you'd be disappointed if I didn't ask. Thanks very much. (multiple speakers)

I think this is a remark on the Post article. There were quotes and things said that have been pulled all the way back to last year's gaming conference. So when you take different quotes and pull them together in different time frames, and then lump them together at you will, I'm not quite sure that the Post article is a very good reflection of anything we have ever said at any point in time.

Yes, exactly. Some of the most interesting quotes were made at a time when none of this stuff that you're all currently thinking about was out there. So it's unfortunate. It's just a hodgepodge of things pulled together to make a story. We would have preferred not to have seen it that way.

But, look, common sense says if there is opportunity, we are going to follow it. But it's no more exciting than that. Enough said.

Thank you.

Larry Klatzkin, Jefferies & Company Inc..

I'm more in the retirement mode, but hi, Peter. How are you doing?

The question is how are you doing?

I'm living the life of the idle rich. The question I have is, one, what's your hurdle rate for -- I mean, you guys have a nice amount of cash, you're in a great position, there's a lot of opportunities out there. What would you look for as your hurdle rate for buying something if it became -- if something attractive came available? (multiple speakers)

I'm going to let Bill take that. But, look, the issue is always for us -- centered around free cash flow. And in the end, you can only pay what you -- what will generate, after all bills are paid, free cash to pay down your debt.

And I'll let Bill address that. But -- and that's obviously influenced by the cost of money, and a whole host of things. So --

You know, listen. I think at Penn we've talked about this numerous times, but for those of you that heard it before, bear with me. The reality is we are pretty simplistic about how we view this stuff. We don't do any kind of really sophisticated stuff that you learn at Wharton Business School.

We take a much more simplistic view of the world. And we basically start with EBITDA, and we do a qualitative judgment in terms of what we think sustainable EBITDA is. We subtract what we think our interest expense is going to be, what our maintenance CapEx related to the project is going to be, and what our taxes are going to be. And there needs to be a residual.

Whatever that residual is, we then measure that against the total acquisition cost, and we are looking for free cash flow in the 5% range. So that, on $1 billion -- if we were to do a $1 billion acquisition, we would expect to generate an incremental $50 million worth of free cash flow.

And that process, basically -- now there's some judgment that comes into play. Obviously, to the extent that we find a property that we believe has tremendous upside, clearly we would tighten, on the current EBITDA basis or even in the first-year basis, we might tend to move that target down below 5%. If we thought that EBITDA was declining, we'd obviously need a target return that's higher than 5%.

So I think that's pretty much our simplistic way of looking at things, and it factors in the cost of capital, it factors in what your maintenance costs are going to be, and it factors in what you believe your sustainable operating results are going to be. (multiple speakers)

That's a reasonable method to follow. I don't disagree with it.

This is so uncomplicated. I still scratch my head and many of you have heard me say this before. When I first got into the public world and we started talking about these financings, and I began to ask questions like how do we begin to retire debt, and some of our trusty banks and lenders would say, well, you kind of don't. You just roll it over.

Look, if you look at a 5% free cash flow after all bills are paid, that's still a 20-year amortization as -- old real estate guys.

You've got to pay down debt. So we are rabidly focused on that. It's so simple, so axiomatic, that I don't know why anybody even questions it.

So that's what it's all about. How do we build net value for shareholders? That's our discipline. Our story is no more complicated than that.

I think that's a good method. Last question, just a little regulatory look at -- the threat of Kentucky seems to be going away. How is Ohio going? Possible change in Kansas law and the prospects of a vote in West Virginia?

That covers just about everything the Company is working on. We will divide that up and sort of spread it around. Because the situations are different in every state.

West Virginia is -- let me take that one, then I'll direct the others elsewhere -- is, of course, an ongoing huge opportunity for us. The challenge, of course, is convincing local voters that this is a net plus for the community.

There has been a shift in the allocation of potential tax dollars from this in a more favorable way to local schools and the like that may help our ability to sell this to the public at the appropriate time. We think that this needs to occur in a general election, so it won't happen this spring. Could, could be run this fall. That decision has not been made yet.

We remain intensely engaged with that issue. As you might guess, the state of West Virginia, the state itself, is very, very anxious to have table games come to Charleston, because we are the largest single facility, by far, in that state. And a huge revenue generator for them, and a reliable source of revenue for the state.

So, we are completely aligned. It's the nature of the facility -- of that location, as I think many of you know, is that we are kind of a -- become a bedroom community for Washington, D.C., parts of Virginia, and Maryland. And that's as more and more folks have come in, looking to escape the city, so to speak, these are people not tied to the community who would just assume keep all growth out.

So we have a very unique situation in our little quadrant of West Virginia that makes it a little bit more challenging. I have no doubt we will get table games at Charleston. It's only a matter of when.

We'll keep an eye on the fall, in that general election, but until our government affairs folks and our entire team conclude that it makes sense to run it, we will not. So we will get there.

Steve, do you want to talk about Maryland? Or Kansas? Or both?

In response to your other questions, in Maryland we filed a supplemental application with the lottery commission on April 15. They are really, right now, sitting back, waiting to see what's going to happen with the zoning issues in Anne Arundel County.

So the Maryland implementation looks like it's going to take its time. They are still targeting an award of licenses by the fall. We'll wait and see how that progresses.

In Kansas, we've filed our zoning and our applications for our site plan in Wyandotte County, with the unified government. We expect, in affect, the first meeting of the lottery facility review board in Kansas on the northeast and south-central zones is this Friday.

We'll get more guidance from that meeting, but we do expect that the Kansas awards, based on the existing schedule under the statute, will come some time also in the fall with final review of the background and suitability investigations later on in the calendar year.

You had also asked about Kentucky. I think you know Kentucky is pretty much quiet right now, pending a special session, and we'll wait and see what happens with that special session.

You also asked about Ohio. Ohio, the election board approved our initiative as a single initiative. If you go to one of the Cleveland Cavaliers playoff games, you'll see our signature gatherers. We are diligently out there collecting signatures with the July 1 target of filing no less than 800,000 signatures in anticipation of the required 412 or 420,000 that are required.

And we continue to work in the state of Ohio to build coalitions, both with our local communities that we are proposing these facilities in and with the other business and civic leaders around the state to take this question right to the voters.

That's kind of the waterfront. I think I covered all the states that you had asked about, but if I forgot one, let me know.

That's fine. Thank you, guys. I appreciate the answers.

Felicia Hendrix, Barclays Capital.

Hi. Actually, it's Anthony Powell, calling on behalf of Felicia. First of all, congratulations, guys, on the numbers. Great quarter. And a question on margins, I guess. You brought down costs a lot, year over year. Are your competitors actually bringing down marketing costs as well? How is the marketing outlook looking in each of your markets?

What we have seen out there is, for the most part, all of our competitors in these regional markets have behaved very rationally in the first quarter. We are not seeing any markets that are under any heavy promotional spending across our marketplaces. So that's been a very positive sign.

I think everyone realizes in these difficult economic times that you've got to focus your marketing dollars on your best customers that are your most loyal, and there's not a level of prospecting or stealing of share that we have typically seen in these regional markets going back three, five years ago. That's behaved very, very well.

Currently, as I said at the outset, we have been able to reduce our expenses almost across the entire enterprise commensurate with business volumes that resulted in these margins that you are seeing in the first quarter.

The one property that didn't really increase margins that much was Bangor. What's going on there, and how is the ramp-up going at the new property?

The issue in Bangor is last year we operated in a very small temporary facility that had very low overhead expense, and we moved into the permanent facility in the third quarter of last year, that has a much higher overhead with utilities and real estate taxes and so forth.

We've been able to grow the business about 30%. We're trying to penetrate the southern Maine markets in the Portland area and Augusta. We still have some work to do there.

We've got to get our revenues levels higher. We were, unfortunately, experiencing a difficult winter in Bangor in the first quarter this year, more so than last year. So the reason for the deteriorating margins is because we are operating in a new, larger facility that has to grow this business and enhance the revenue levels higher than we currently experience.

And that's what we're focused on, continuing to create trial where the customers can come from, which is primarily from down south.

The truth is, we did open this new product in -- into a recession, which hasn't helped. And Maine, in particular, has been very, very hard hit. I think with all the national press, there are harder times in the state of Maine.

So again, there's some macro issues that are impacting that facility. But I think, long term, we've got a great piece of urban architecture in downtown Bangor. It's a terrific facility. And I think it will be fine.

Understood. I guess more of a topical question on acquisitions and development. Would you be willing to take on more debt than you have now in order to pursue all your development opportunities and any acquisitions at the same time?

The answer is sure. But at what rate and at what leverage, and the long list of -- . Obviously, the world isn't what it was, and I think we have a very realistic sense of where it is today. And for the appropriate property with a strong certainty of the kind of EBITDA that we need,

I think I would add on to the comments Peter just made. Listen, I think this is a new era in credit. And I perceive this new era lasting for a period, certainly in the three- to four-year range, where companies that have got leverage under four times, which is certainly what we would like to accomplish, are going to be rewarded with a lower cost of capital.

Currently, you can see that our bonds are currently trading significantly under pretty much everybody else in the gaming industry. And that's because we've got the best leverage. Obviously, we've also got some cash.

But we believe that we will have a competitive advantage to the extent that we can make an acquisition and keep our leverage under four times. And it would be our goal to do that.

Now, that doesn't mean that we won't make an exception, and I think Peter touched on it quite eloquently, which is that if a unique, once-in-a-lifetime opportunity avails itself and is a clear path to deleveraging, to getting back down below four times, in a predictable, short period, that we would certainly look at going over four times leverage.

But just a run-of-the-mill acquisition development story, I don't think we would expect to take our leverage up over four times. And I think we will be rewarded with that with a lower cost of capital than the people we'll be competing with, which will give us an advantage, obviously, on purchase price, as well as other -- based on our mechanisms and our methodology, will give us an advantage to be able to make sure we are not losing out on any opportunities when they come down the path.

Thanks a lot.

Dennis Forst, KeyBanc Capital Markets.

Good morning. I just had a couple of items for Bill. First of all, capitalized interest in the quarter. Was there much of that?

There was roughly $2.9 million.

And then, CapEx in the quarter, and for the second-quarter expectations?

First quarter, let me give you the first quarter. We had $63.6 million of total CapEx. That broke out roughly $47.6 million of project CapEx and roughly $16 million of maintenance.

In the second quarter, we are looking at $97 million of CapEx, which would be $71.4 million of projects, roughly $25 million of maintenance CapEx, and obviously, that's made up primarily of Lawrenceburg, which would be in the final stretches of getting completed.

And we are looking at, for the year, we are looking at total CapEx of roughly $300 million, which breaks out between projects, roughly $213 million, and roughly $89 million of maintenance CapEx, although some of that stuff could probably be -- roughly $10 million of it could be characterized as project.

And then, where does Joliet fall into those numbers?

Joliet, right now we are still in the process of understanding exactly what our reconstruction costs are and how much we are going to get reimbursed from the insurance company.

At this point in time, we are basing our estimates, and it's clearly not as a result of any negotiations or feedback or anything else, but it's our expectation that we will spend the $50 million that we had originally projected to spend, and that the incremental spend around the pavilion and whatever other modifications we may due at the site will be reimbursed from the insurance proceeds.

No guesstimate yet of what that incremental spend might have to be?

It's way too early. There's two problems. One is we haven't had -- we really aren't anywhere near to finished with our estimates on the cost of rebuilding the existing facility as it was, which is the amount that we are going to be entitled to, and we are not even finished with the conceptual drawings yet of what we intend to build.

So between those two, I've got two major pieces of information that we just don't have today. So I think, clearly -- I will say this. It's certainly going to be our goal not to overspend relative to what the cost, the original cost, of rebuilding was. And that we won't be spending in excess of the insurance proceeds for that part of the rebuild after factoring in the $50 million.

In fact, you can count on that. Because we are not starting until we have all of that in hand. We've got bid prices. We will execute a plan, bid prices in hand, and then and only then do we commence to do what we -- whatever it is we're going to do.

We are going to be very disciplined about that, and cost control is the name of the game for us.

Bill, I just wanted to understand your clarification on the Empress impact for the rest of the year. In the guidance, you say the impact from the fire in the second quarter is going to be about $5.7 million of EBITDA, meaning you were expecting $5.7 million and now it's going to be zero, right?

That's correct.

And then, the full year, will you -- once you reopen the boat, you will have EBITDA in the third and fourth quarter, will you not?

Yes, we will. That number that I gave earlier was the difference --

The $14.8 million.

Right. Because we were originally expected to be substantially complete with a complete facility, I believe, in the third quarter of this year, and we are now going to be, obviously, operating out of a temporary facility and we would -- we're going to expect that our results will not be as robust as they will be when we have a fully functional facility.

Not to mention the construction disruption of customers who will be -- obviously, as we are rebuilding the pavilion there, it's going to be a big task on our part to be able to figure out a way to get customers into -- onto the casino facility and not have an impact. (multiple speakers)

Let me interject. We had an interesting experience as we were constructing the $50 million in improvements that we had promised, that though we were tunneling people through construction, and it was indeed a pretty heavily affected construction site, our business was improving (multiple speakers). There was some serious thought, I think, for a while, of just kind of leaving it that way because we were doing so well. So, Tim, do you want to --

The only thing I'll also say is when we do open the casino at the end of the second quarter, we have accelerated all the work in the VIP areas on the boat and all the casino work. So it's going to a brand-new casino experience. We're going to have a temporary buffet offering, plus a small grill area for food, but the entire casino experience will be brand new and very competitive with the other offerings in Chicagoland.

What we won't have are all the landside non-gaming amenities -- yet. And that's what we are working on as Peter and Bill have said. Still in the conceptual stages of how we're going to rebuild Joliet.

So the casino itself will look approximately like you wanted it to look, assuming everything went as planned.

That is correct.

I assume, Bill, that along with the lower expectations of EBITDA, that there'll be some cutback in depreciation, too, given that the pavilion is not there?

Absolutely. In the second quarter, we will recognize no depreciation (multiple speakers). And then, in the third and fourth quarter, the only thing that will be -- there will be no depreciation recognized on the pavilion, obviously, but that's (multiple speakers).

Yes. Just about. And then lastly, corporate expense was up, I think, $3 million in the quarter. What did that pertain to?

Roughly two-thirds of that is for lobbying efforts in a variety of locations, but primarily Ohio. And also, we had some incremental outside services related to work we are doing on pursuing a variety of opportunities.

Okay. That's an evil laugh, Peter. Thank you very much.

Carlo Santarelli, JPMorgan.

Just a question. I know you don't want to talk too much in detail about any potential acquisitions, but from your conversations, would you say the bid asks for strip assets right now have narrowed or are coming down at least?

I'm going to be cute and say, no, they haven't moved an inch. But that doesn't say that something doesn't happen.

Look -- in fact, maybe that's the only answer I'm going to give you. The answer -- my sense is no. That there's wildly -- huge disconnect between perceived value or value that one had in any kind of real estate asset, or assets generally, and look at what [we're] worth today.

Of course, that, as we try to emphasize, is most constrained by the cost of money. We all know what drove the kind of pricing that we saw before, and it is gone.

But there are, obviously, extraneous -- there are other events putting pressure on these issues, that are going to cause some of these things to spring loose. There's a lot of projects that are partly completed, and -- look, you know all the stories. So that, some of these may become available at a reasonable price. There's very little else that can be said.

Understood. If you don't mind, I just have one follow-up. I was wondering if you guys could discuss a little bit about April trends and possibly how you are thinking about reaching, maybe, peak property level margins on flattish revenues going forward. If you guys could comment on that stuff, that would be great. Thank you.

I think, as I said at the beginning, April -- the first three weeks of April have started out and look very much like January. So, really, just slightly ahead of our expectations. A little bit better than March.

And we continue to look at opportunities, where they are out there, to be more efficient in managing our cost structure. But I think we've got it pretty tightened down. We go some -- always have some opportunities, but I think, as revenue levels continue to grow, hopefully through the course of 2009, as we get into the summer months especially, with the third quarter being the strongest quarter we have, I think we are well-positioned to handle those business volumes with our current cost structure.

That's helpful, guys. Thank you very much.

Larry Haverty, GAMCO Investors, Inc./Gabelli & Co..

Peter, a couple of questions. One, the idea that you'd be interested in one facility only on the Las Vegas strip is kind of strange, given that the principal players there have very significant frequent flyer programs on their slot play. And especially given the lineage of Tim coming from Harrah's.

So I'm just curious as to whether you've decided that these frequent flyer programs that MGM and Harrah's have are less of a competitive barrier than perhaps they have been telling us. Then I have one follow-up question.

I think a couple of us can take a whack at that, because it's actually an interesting question. We are not Harrah's, we are not MGM, nor do we aspire to be. We don't want to own Las Vegas, we don't want to own the strip.

What we want and believe we need is to round out our portfolio is a good product that is well located, that fits the profile of our customer base. So you can quickly conclude we are not looking for Asian play, we are not flying people in from far-off places.

We are looking for the kind of product that's going to serve the kind of folks who frequent our properties. And that's it.

To that end, by the way, we are working very diligently, which Tim can tell you more about, in completing our integrated database, which I trust will have complete by the end of 2009. To serve that purpose. We don't need to have the largest property. We don't need to even have, necessarily, the best property. We need a good property.

So there are actually quite a few locations that could serve our purpose, some of which might surprise you in their lack of grandeur, if you will. So again, we are already spending too much time in that area, but at least it gives you a sense of our philosophy about how we will use this. We are not trying to make Las Vegas the power base of the Company. We want a spot there, and no more.

But we do know already that we have between 3.5 million and 4 million customers that we have relationships with already at our casino properties. As Peter said, we are consolidating on a common data warehouse platform that will give us certainly an opportunity, because we knew these customers are already going to Las Vegas, to give them reason to, once we do get a property there on the strip, give them a good reason to stay with us.

And that's where we see some potential upside in moving that business to Las Vegas to benefit, down the road, an asset that we will have there.

Will you have an integrated card system for your entire set of stores relatively soon?

Not an integrated card, because we don't have the cross-market visitation that a Harrah's has. We have some strong crossover regions in Chicagoland and down in Biloxi. But it doesn't warrant the level of investment in IT technology, because there isn't a benefit to be realized.

But with this common platform, where the customer warehouse will reside, we will be able to offer rewards and recognition and marketing intervention to customers to give them reasons to stay with us in Las Vegas that doesn't warrant a big investment to have a common card that works across all our properties.

And then, kind of along similar lines, you've got a new casino in Pennsylvania, and I think if I were you, I'd be very happy with what that's doing. And you've got a lot of old casinos. So I'm kind of fascinated whether you believe some folks in the industry that operators are really restraining from replacing slot machines.

Since you've got a lot of old stores or old slot machines, and then, one store with new slot machines, whether you could share with us what your experience is on the differential productivity of the old ones and the new ones, and how you are looking at replacement demand for slots.

The one thing we haven't done is cut back any of our maintenance capital towards refreshing our slot floor with new products. Anywhere between one-sixth and one-seventh of the floor gets changed out annually. So even though we do have some facilities that are older in age, the slot floor is very competitive with everything else that's going on in their respective marketplaces.

And even though Penn National is a little over a year old, their slot floor doesn't look much different than what we have, for example, in Aurora or in Riverside in Kansas City. Because we make sure that we keep the product fresh and competitive.

I'd also add that a lot of our -- a lot of our facilities, it's [ironic leader] and have been -- either had significant CapEx put into them or really aren't as old as you might necessarily associate them to be.

Lawrenceburg is obviously going to be fresh. Charleston has been ongoing, with expansions and new products over the last several years. The Gulf Coast has benefited from Hurricane Katrina, and is all brand-new construction for all intents and purposes. It's still the same location, same site. Bangor -- I think you already talked about Bangor.

Riverside is a fresh product.

Riverside is a fresh product. Aurora had, just before we bought it roughly five years ago, had a brand-new casino -- large facility added on. Joliet now is going to be a really fresh and new product.

Certainly, Zia Park is a couple of years old, so I think -- generally, I think that's one of the misconceptions about Penn is that our properties are older. The reality is that we really don't think, for the most part, that we have any facilities that are really that old or dated relative to what we would need out of the property.

And then, I gather from some of the earlier comments you don't think that your friends at the banks have gotten more hospitable in the last three months. But there hasn't been any easing of conditions there, in the bank markets that you deal with?

I think what we are starting to see, and you can see it in the sub-debt market, is there clearly has been an inflow of cash, and you are starting to see -- there's been a pretty nice run-up of late on bonds.

The banks, on the other hand, you are seeing some amendments get done, but you're not seeing -- we are not seeing a complete resurgence in the bank lending part. The numbers we are hearing are indicating -- I get conversations from bankers that tell me that if I was going to re-do my senior paper, I'd pay more than I am paying current -- where my sub-debt is currently trading.

So, to me, that's a disconnect that clearly hasn't caught up yet. I'm sure it's going to -- I have every expectation that in the next several months that that will probably change a bit. But right now, I would say that the bond market is actually healthier than the bank market.

Great. Thanks a lot.

Nicole Torraco, Babson Capital Management LLC.

Good morning, guys. I'm wondering if you could just help me bridge from your prior EBITDA guidance to your revised guidance for the year. I assume part of that is Joliet and part of that is the better-than-expected results for this quarter. But it seems there's a little piece missing, if you just do the math with those numbers.

The math there, it relates to the Pennsylvania -- in other words, there's roughly $17 million from Joliet that's missing. Obviously, the improved results in the first quarter and then there's $3 million for Pennsylvania regulatory costs.

Unanticipated regulatory costs.

So your view in terms of the overall environment, you could say -- has not really changed since --

No, I think -- the way we've looked at it -- our guidance is that what we saw -- we saw slightly positive results in January, slightly negative in March, and we saw February, which was really outstanding. But certainly not, in our opinion, at this point, worthy of assuming that that's going to carry us on throughout the year.

So what we have done is effectively left guidance in a line that was where we were and we are treating February as an anomaly, rather than a sustainable trend. Obviously, we're hoping we're wrong, and if, all of a sudden, we see a lot more Februarys, then we'll, obviously, we'll handily beat the numbers that we've got.

But we don't have any data points that give us that confidence that February is going to be recurring. Those kind of results.

That $3 million of Pennsylvania regulatory charges, is that a one-time thing or is that something that's going to be in there (multiple speakers)

We hope it is.

Just a comment about that. That's an assessment, a so-called special assessment that they would undoubtedly argue, the gaming board, is the result of the delays in opening some of the yet-to-be-opened facilities. In other words, they are not getting the contribution they expected from the full complement of Pennsylvania facilities.

Now, that having been said, frankly the costs are too darn high. Period. And they are spending and squandering too much money. And I don't mind saying that publicly, but that is kind of what it is. It's a one-time charge. It's something we, I guess -- because we figure we can try to work with them to influence, but it's a supplemental charge.

What is outstanding on your revolver right now?

Outstanding on the revolver, at the end of the first quarter, we had $117 million.

And I was wondering if you could talk a little bit about your strategic rationale in wanting to acquire, or thinking about buying, a property on the strip. I think part of -- especially in this environment, part of the perceived value of your company is that you don't have a property on the strip.

And that you are all local exposure, and that you are not exposed to the really [fear] declines that Las Vegas has seen. And what a lot of people perceived as overcapacity there. So I was wondering if you could talk about that.

Several of us will probably take a whack at that one. Clearly, you have to make or have a view about the future of Las Vegas. And some of us here think that the future of Las Vegas is incredibly bright.

It, for a whole lot of reasons, has so much critical mass today. It is, without a doubt, the greatest entertainment city in the world.

And despite the current problems and the overcapacity, which, by the way, is going to get worse, [and what's] totally realistic about that, much worse.

As you look to the future, we believe that Las Vegas will, in time, absorb that capacity and return to a very, very robust, very exciting, dramatic place to be.

And you got a lot of other things helping you. California is implosion, I love to say that, and more and more people will continue to exit that state, as fast as they can get out the door, people and businesses, and that's going to eventually prop up and continue the growth cycle that Las Vegas has long seen.

This is a temporary disruption. It could take several years to unfold, and will, frankly. But our view is it's a great city. It will be successful. It's a good time for us to sort of plant our flag there. But in a modest way.

Remember I said earlier, we have no ambition to own Las Vegas. We just want our own local quarter of the world there, and no less and no more.

I would add onto that, it's also our view, quite candidly, that once we get through the expansion of properties that are trying to get finished right now, and obviously, some are having -- some are progressing more smoothly than others. But once those projects get done, we don't really see a whole lot more construction and added capacity coming into the town for quite an extended period of time.

And while the town is absorbing the additional capacity and returning to more robust levels, that will create an opportunity for us to participate in that upswing that we think will happen in Las Vegas over the next five years.

And obviously, the one caveat is is that we are not going to -- we are not going to stretch too far to get something in Las Vegas. It's not a mission-critical statement. It's a goal. And we are never going to deviate from our overall philosophy of growing free cash flow in our pursuit to get to Las Vegas.

We believe it's a mechanism that will enhance that, but if -- the one thing you can't fix is overpaying for an asset. And so, that's part of our discipline here. We'll look at it and take a view.

We are doing a lot of analysis on Las Vegas, understanding the history of it, understanding revenues per occupied room, where they trended in '03 through -- really through '08, where we think those revenues are going to go in the future.

And we are going to, hopefully, take an educated view as to what we think the average revenue per room in Las Vegas is going to be for the next five years, and reasonable margins around that, and base our acquisition price on what we think the town is going to do, and then, more specifically whichever property we should be so fortunate as to be able to negotiate for.

Bill, I think you did a terrific job with that. If I had to say so, it's not mission-critical. That's a good way to explain it.

And I emphasize again, if you look at the new capacity that is just ahead of us, things are going to get much worse before they get better. That's my view. Do the math on average room rates and look at the new capacity. Tim, do you want to add to that?

I couldn't say it better than you guys did. I think '09, '10, and '11 are going to be tough years.

But there's no other place in the world like Las Vegas. It's a long-term vision that we think Las Vegas is going to be a very viable market for us, five, seven, 10 years down the road. And that's why we have an interest in being there and being part of that growth story.

That's it.

Thanks. I appreciate your thoughts on that.

Ryan Worst, Brean Murray, Carret & Co..

Good morning. Just in terms of the acquisition strategy, Peter, obviously you've thoroughly covered Las Vegas. But is there any other markets that are still -- that you're still interested in?

Look at any of the big markets. The view today is that if there is gaming happening, Penn has to be there. To the best degree that we possibly can.

That's why you see us in all the new venues, and why our government affairs folks are in such places as Massachusetts and Texas and Kentucky, and you name it. There is not a place that we are not at least -- looking around and making -- to make sure that we are competitive in there, if it's going to open up.

There are some markets we've been fiddling around and have in the past, Detroit. Look, specific spots are really not important. I think you can conclude that if there is an opportunity, Penn is there, somewhere. We might not actually get to the goal line because we choose not to, but if it's out there in the U.S., we are there. I can promise you that.

Bill, in terms of Lawrenceburg, you guys mentioned there's going to be some pre-opening and construction disruption. Any kind of idea of how much that would cost, and I guess most of those costs would be incurred in the second quarter?

That's right. But we are not going to give specifics. We try to stay away from specific guidance. I'm not exactly sure if Tim wants to talk about the amount of pre-opening.

Listen, the pre-opening is going to be fairly minimal. I think the biggest part of the disruption is actually the actual transfer of operations from the existing boat to the new boat. That's really where we see the bulk of the disruption coming from.

There's going to be a time sometime in late June, where we are going to have to shut the casino down and move product over to the new casino vessel. But we are on schedule with everything.

We expect to open this in the beginning of the third quarter, and we're going to be on budget, and I think we're going to have a category-killer product in Lawrenceburg, and we are going to be rebranding Lawrenceburg to a Hollywood. And it's going to create a whole new experience for the customers there, and I think the level of disruption at the end of the second quarter will be minimized and it won't be that material.

Tim, what do you think about the impact of the racinos? Is that waning a little bit, or are you still seeing a significant impact in terms of your customer base?

We certainly did see the impact when Indiana Live opened up their $200 million expansion in the mid-part of March. That certainly affected business there, and we have not seen any waning of business away from the racinos.

If you look at their March results, they were the best on a combined basis than they have been since they opened middle part of last year. And we've lost about 60% of our business from the Indianapolis market into Lawrenceburg.

And certainly, the capital that just went into play there has created a whole new level of energy and excitement at Indiana Live, so we are still having that play out and affecting our business a bit in Lawrenceburg.

Okay, thanks. Just on the corporate expense side, do you expect that number to kind of stay elevated over the next few quarters?

I think the biggest number that we've got to worry about is, obviously, what we might be doing in Ohio. If we get into a full-blown campaign, those expenses could certainly continue and maybe ramp up slightly.

But other than that, I don't see our corporate expenses deviating much.

Okay, great. Thanks.

Lawrence Goldstein, Santa Monica Partners.

We have been shareholders from the day of the public offering, courtesy of Tony Pollock convincing us. And we've been happy ones.

It seems to me that, listening to conference calls over the year and so on, over the years, that really nothing has changed. There are just more zeros, more development, more acquisition, more spread, more states. And always, EBITDA.

There was one thing that was different, and I would appreciate a comment on it. And that was the sale of the company that was -- that obviously didn't go through. And so, the thinking had to clearly change at that point, at the point of the decision to sell the company.

And your colleague just mentioned a moment ago that when you think long term, you're thinking about where you want to be. I think you said 7 to 10 years, seven or eight years out, which is just great.

My question is, having gone through that experience, what might shareholders look forward to as the endgame? A succession to you, when your day to retire comes, or are we going to be part of something else?

That's like hearing true confession or something. That's an interesting question. Probably the one thing I was really not prepared to answer, but let's take a whack at it. There is no mystery.

I don't think any of us here is looking at an end. We view ourselves as, frankly, at the beginning.

The sale process is just one of those unfortunate things. I think we had the right idea at the right time. But the goal here is always to maximize shareholder value. I know we say it in every piece of literature we put out, but it is a religion here.

We are not confused, as management of this company, what our goal is. It's the game, if you will. It's the game we play. It's to build a bigger, better, smarter company but never at the expense of remembering it's about building shareholder value.

No, I have been very direct in trying to measure value. Of course, looking at our stock price day to day, if you look at the history of that over time, you could get whiplash from looking at the up and down, the up and down.

Frankly, it's not an issue that I spend any time thinking about. Not at all. People wander in my office and say, you see what our stock did today. I say, no, I haven't any idea. Nor, frankly, do I care.

I take the view that if you put up -- because markets are ephemeral. When we get calls -- and this was a surprise in our first year as a public company, when people would call. I can understand when the price was down and [that's] what's going on.

But they would call just as frequently as the price went up. Why is it up? And then, of course, I started getting the smartass answers like there's more buyers than sellers. The usual -- who knows?

Our view is simple. If you put up the numbers, day in, day out, year in, year out, the market figures it out. I am interested in the trendline, not in the data point, day to day.

So that, if you look at Penn over a long period of years, thank God we have been able to build this business and build earnings and do all those things that would justify the kind of performance that we've had, that has been very good, and thank God we've been able to do that.

We got to a point where I judged that there was terrific opportunity. We weren't out to sell this Company. It was not a goal, had never crossed my mind. But again, my responsibility is to shareholders, to my family, who I represent, and whose shares, frankly, I vote and to whom I am responsible, as is every other shareholder in this Company.

So that if the price is at a level where you say to yourself, my gosh, that's awfully appealing, I think we will take it. Of course, we would do that. We did it in a nanosecond. It was the right idea at the right time.

I liked where tax rates were I had a view that capital gains taxes weren't going to sit where they were, and my worst fears have been more than realized.

So we made the right choice. We made it just six months too late in getting there because of the unique nature of this business, a long time -- the long regulatory process of approval, and we just didn't quite make it to the goal. Nothing we could have done different or better, and it's incredibly sad, say I as a shareholder to all of you who have been with us.

But that game is over. We exited with a fair settlement, and we are trying to make the -- do the very best we can do. Again, I can't worry about where -- when the stock hit silly numbers.

What we do is take a view here that we are back in a new game again. We are still -- we're an ever-stronger company than we ever were before, and now we are off to the new horizon with the same goals in mind. Where that path will lead, whether -- will we be a public company, independent, 100 years from now, I kind of hope so. 100 years from now, long after I am gone.

But the course will take what it will take. You're asking philosophy, really, and I am telling you that we are just back to a new base. And happily better than most.

That's right. Listen, I would add onto that, when we were back in that period, we were in competitive bid situations, looking to buy assets and companies and organizations, and finding ourselves at roughly 70% of the winning bids. And came to recognition that we really weren't going to be able to buy anything, given where the markets were and where the appetite was.

Further, when you compounded that, and I'm not going to say I take credit for predicting the demise of the credit markets, but I knew it wasn't going to get any better than when people were able to borrow money at nine times leverage and LIBOR plus 200 or 250. That was simply not -- it's not going to get any better than that.

And that's really what caused multiples to go where they were at the time, or at least that's my view, that that's what caused multiples to go at the time, because very cheap capital at high leverage rates allows you to pay very, very incredibly high prices for companies, and still generate a positive return for the equity.

So it's the combination of those events led us to the conclusion that the valuations that we could get for the Company were stuff that we probably wouldn't see -- it was irresponsible not to take advantage of that era and that time.

And it's obviously, as Peter just indicated, we were about six months late. But at least, for having gone through the effort and charged ahead, we certainly came out better for having tried than had we not done anything at all. That's obviously in the form of the settlement that we got after the deal didn't happen.

Other than lamenting what might have been, I think all of us do a little bit of that, certainly all of us -- everybody in corporate staff as well, but that's yesterday's news. We are well onto, now, doing what we must to start that climb to growth again.

We have a view that, over the next few years, that if things go our way, and we run this Company responsibly, that we have every opportunity to get back to the same kind of number, even inflation-adjusted -- and cost of carry adjusted to get shareholders back to where we would like them to be. So that's our view.

So it sounds like, in summary, of that long-winded -- and I appreciate it -- response, if somebody is willing to pay more than it's worth, you will have to -- you'd pay attention to that and just as you indicated, you may bid 70% of what transaction took place. When you can buy something below what is worth, you'll buy. And in between, you're going to keep your nose to the grindstone, stick to the left, and by the way, I wasn't saying too bad you didn't sell.

I was saying what should we look forward to in the future, being independent or not? And I am, frankly, very delighted that you didn't sell, because I don't see any reason why, if you'd stick to your left, you won't grow bigger, faster.

We appreciate that point of view, and that's certainly our attitude here. Besides, it is what it is, and we are off to the next thing.

Thank you.

Jim Bradshaw, Bares Capital Management.

Most of my questions have been answered. I was just wondering if you purchased any corporate bonds in this quarter.

No, we didn't have any activity around corporate bonds or stock buyback in the first quarter.

Thank you.

Operator, I think we are going to give this just a few more minutes, and then we are going to have to call it. So let's take one or maybe two more questions.

It appears that we did have a question from the line of George Smith; however, he has de-queued. So, gentlemen, if I may, I'll return the conference back to you (multiple speakers) for concluding remarks.

Maybe I scared everybody away. As always, we thank you for joining us today. I hope we've given you a flavor of what's going on here at Penn, and we look forward to seeing you again next quarter. Thanks very much.

Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation, and ask that you please disconnect. Thank you once again. Have a great day.