PENN Entertainment Inc (PENN) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Penn National Gaming second-quarter financial results 2009 conference call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions). As a reminder this conference is being recorded Wednesday, July 29, 2009.

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

Thank you, Nelson. Good morning and thank you, everyone for joining Penn National Gaming's 2009 second-quarter conference call. We will get to management's presentation and comments momentarily as well as your questions and answers but as is our practice we will first review the Safe Harbor disclosure.

In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements that involve 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 can vary materially from expectations.

The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and in 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 can also include non-GAAP financial measures within the meaning of SEC Regulation G, and when required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's news announcement as well on the Company's website.

Having reviewed the Safe Harbor language, I will now introduce Peter Carlino, the Company's Chairman and CEO. Peter.

Well, thanks, Joe. And good morning, everyone. As you can see, we had what I'd describe as an okay quarter. Not wonderful. But I guess in many ways that is indicative of where we find ourselves with the economy overall and just less-than-robust performance as we look across the country at our various properties.

Consistent with what we have always done, we will try to keep our comments up front to the minimum, and then move to your questions and try to go where you would like us to go. Before I do that, though, I thought we would share just our general view on guidance and how we've arrived at where we began this year and why we have taken a consistent view looking forward. And I am going to ask Bill Clifford, of course, to do that, and we'll move quickly to Tim Wilmott, who will just give you a little bit of color from some of our properties.

Thanks, Peter. As we started the year, we had EBITDA of roughly 625. And we put out first-quarter guidance. We actually beat first-quarter guidance, primarily attributable to February's better than expected results. But at the time when we gave the next three quarters' guidance and the second-quarter guidance, we basically didn't view that as a trend and kept our guidance flat.

As we went through -- we now go through the second quarter, clearly we fell below our guidance by roughly $5 million, which Tim is going to touch on in a bit, for a variety of reasons, but we, again, don't view that anything has really changed in the outlook for the year or the economy or our customers' prospects. And accordingly, what we have done is we have left third quarter and fourth quarter flat with where we originally had them. So I would take the view, or this is our view, that generally speaking going forward, we are treating it -- the second quarter as a bit of volatility. First quarter was up. The second quarter was a little down. But generally everything is on track and in line with our expectations.

Do you want to talk about July?

Yes, July, I mean -- and this isn't -- this is guidance as we did it prior to reviewing the second quarter. We are within 100 -- we are actually $100,000 to the good. For all net purposes we are spot on in our guidance for July. So I think July trends are completely consistent with our expectations.

I wanted to provide everyone with some highlights of some of the issues that occurred in the second quarter that caused some of our margins to not be where we want them to be. And I wanted to specifically highlight four properties.

The first one is Lawrenceburg. As many of you know we completed and opened on the end of June our new facility in Lawrenceburg, but clearly the transition of closing the old boat for four days and moving the product over was longer than we had anticipated and more costly than we anticipated from a expense standpoint, and that certainly hurt the performance in the second quarter of Lawrenceburg. On top of that we had an unusually large spike in catastrophic claims. We wanted to provide as much transparency to the second-quarter results Over the course of a full year we don't think it's anything material, but it certainly did spike if the second quarter, nothing more than that. It's really for transparency reasons that we highlight that issue.

In Joliet, everyone knows we had the fire on March 20, and were closed for most of the second quarter. We did have some additional expenses paying our employees an additional five days more than our coverage of business interruption provided, which impacted slightly the performance or the overall results in the second quarter due to the Joliet reopening which occurred on June 25. We also had softness in our Zia Park operation. Clearly the effect of lower gas prices affects our west Texas feeder markets of Odessa, Lubbock and Midland. We certainly saw some softness there that impacted the top line and also the margins at our Zia Park facility.

And finally at Penn National, we had very good revenue performance there, but we had an additional charge of $3 million in the quarter of catch-up regulatory fees that really go back to 2008 that have now got us caught-up with our regulatory expenses in the state of Pennsylvania, but that $3 million hit affected the margins fairly significantly in the second quarter for Penn National as well.

I did want to highlight, since we talk about Lawrenceburg and Joliet as they have now opened and have had about four weeks of running, we are very pleased that they are performing in line with our expectations both in southern Indiana and also in Chicagoland, and the efforts of the teams there to get the properties positioned now to move forward. We are very pleased with their performance and look forward for a good third and fourth quarter there as the July results, as Bill highlighted, continue to be online with our expectations. Peter.

Very good. Thanks, Tim. With that, operator, why don't we take questions.

Thank you. (Operator Instructions). One moment please for the first question. Our first question comes from the line of Joe Greff with JPMorgan. Please proceed.

Good morning, everyone. Just going back and looking at the second quarter, I was hoping you could help quantify the variance between your guidance and actual EBITDA results between the things -- among the things that you highlighted, Lawrenceburg, the two items there, the transition and the medical claims, Charles Town? And then the one comment to that, Pennsylvania with the one $3 million catch-up regulatory fees. Was that in your prior guidance for the second quarter? And then I have some follow-ups.

I'll answer the Pennsylvania. Yes, we definitely had the Pennsylvania charge in our guidance. And I think the other thing I would add on the Pennsylvania piece is that when you back out the catch-up portion, our second-quarter normalized margins were roughly 19.6% for the quarter -- would have been for the quarter without the catch-up.

The variance is probably -- the $5 million variance is probably 50% Lawrenceburg and then you have Joliet, Zia and Charles Town that probably represent the majority of the rest of the variance, Joe.

Okay. Helpful. And then your comments about how the second quarter turned out and then how July is trending spot-on with your internal forecasts. Can you just comment on July? I mean, I think that's what we saw in the second quarter, was April was good, June was not good, and May was somewhere in between. Is that a trend or is there a comparison issue? And then if you can maybe comment on July, if you see it picking up from June levels. And then, specifically, at Lawrenceburg you mentioned you are pleased there. Can you just talk about maybe sort of in the neighborhood of a revenue growth rate there in the first 29 days here in July or maybe what -- you can put it in as sort of a win per spot per day perspective. And then with respect to Joliet opening up, is that having any negative impact at Aurora?

Joe, let's break that into a couple of questions. I think you had three or four there.

I can keep going.

To your very first question, I don't think there is any trend. That's what we are all -- there is no magic to this. If we all sat around in a room, everybody in this phone call can try to divine a plan going forward. You know, your guess is probably as good as ours. In fact, if you've got a perfect idea, call us and tell us and we will make the adjustments.

The truth is there is no trend and that things are kind of mushy. They are up, they are down, and it's very, very difficult, probably the most difficult that we have ever seen, in trying to forecast the future when the future is so obviously unknown. The wheels aren't coming off the cart; I mean, that's what we are feeling. There's a visceral sense. That is what I am trying to share with you and to all our investors.

The wheels aren't coming off the cart. We have got a lot of customers out there. Business is good. It's just not wonderful and we can't kind of divine, with the of information we have got, where it is going to go. So July is looking pretty nice and we feel comfortable with that, but who the heck knows what August is going to look like. We are in that kind of a mode. So if we are a little mushy on than kind of question, it is because I think that's all we can do.

To the specifics, why don't I give that to Tim.

I will just add to Peter's comments, Joe. I don't think we are seeing any rebound on consumer spending anywhere. It's still same kind of trends overall. As you look at the first six months of 2009, there is ups and downs through that period, and July is more of the same.

Regarding your question, Joliet's opening has had a slight negative effect on Aurora, which we expected, given the reopening of that property. So that has occurred. And Lawrenceburg, you will see the Indiana results come out I believe the end of next week. We are showing good solid double-digit growth there. There's still a few days left in the month, but it is right on line with our expectations, given the capital we have put in there. And the good news in Lawrenceburg is that our -- the customer response has been very, very positive, and we are seeing record volumes now with the new facility, which we expected, going through the turnstiles and playing slots and table games. And universally, the response of the consumer has been extremely positive from the product we delivered there.

Great. And then if I could have two more. Just on West Virginia table games, there were some recent articles stating that it might make sense right now for a vote in Jefferson County in November. If you can discuss any polling there and any sense there. And then my final question for Bill, if he has any thoughts on issuing any notes here, given some others in the sector successfully completing some pricing on notes.

Joe, that question falls in among a handful of similar questions we expect to get this morning, to which my answer is going to be pretty much the same. That is, we really can't tell you much because it would be unwise for us to do so. Look, we are still firmly engaged in West Virginia. We are very, very much on top of that issue. How and when we will run a referendum is -- has not been publicly disclosed. We have a very clear view about that now. Probably I guess as of yesterday sitting around here, we certainly had set some internal targets. It looks encouraging, but, again, nothing certain and we are not prepared at this instant to give you the precise date.

And, Joe, to answer your question on, certainly we are currently evaluating and looking at our capital structure and figuring out how to deal with the revolver that is maturing in October of next year, as well as certainly taking a look at the fact that our capital structure is very top heavy in terms of a lot more senior secured debt and very little sub debt. So we are feverishly working on it, and I would think that quite candidly there will be something getting announced here within the next several weeks.

Good enough. Thanks, guys.

You are welcome, Joe.

Our next question comes from the line of Felicia Hendrix with Barclays Capital. Please proceed.

Hi, good morning, guys.

Hi, Felicia.

Hi. On Lawrenceburg, I am just wondering what -- now that you have been open for a little bit, wondering what you are seeing from the competition in terms of -- from your competitors in terms of promotion -- the promotional environment.

Felicia, we really right now see no change in the customer reinvestment or marketing activities from the two Indianapolis casinos or our two competitors to the south of us, so the promotional activity there really is unchanged from what we saw in the second quarter.

Great. And then just moving on to Ohio, I am just wondering if you could handicap the probability of the state going with both the racinos and then the full-on casinos.

Boy. That -- that is a real tough one. And I am going to be very careful in how I say what I say, because it could, well, appear in tomorrow's papers. Look, there is really no bad news for us in Ohio. If it doesn't occur -- I am not at all suggesting that is our desire, that's okay. I mean, we continue on with the rest of our business, and it is all good.

We do believe that Ohio gaming is a positive for us, and should be a very strong positive for our company if it occurs. It is complicated, for sure, by the fact that there appear now to be competing proposals. And we have done some very careful polling, trying to understand that that means.

I think the bottom line is it is a crap shoot. You read all the stuff that we read and of course we have got boots on the ground there trying to understand it. And there are those opposed on Constitutional grounds and you are going to see all the flurry and fanfare. But the truth is I don't think we have a clue of where it's going to play out. We are doing all the right things in our judgment that can be done. And we are just going to have to see how this goes. Unless, Tim, anybody else?

That's kind of all we can say. It's a very muddied issue. It is kind of fun to look at a situation where there was nothing in Ohio, and out of the blue, the governor has made this proposal. I think it is, frankly, a very smart proposal for the state. It is perhaps what they should have done a long time ago. They have done it now. It will be a huge positive for Ohio, if it happens. So we continue to believe that gaming is a very proper and intelligent resource for states to generate revenues. So I think they've kind of figured it out there and we are cautiously optimistic that it may unfold.

And we are still moving forward with our land-based initiative on the November ballot and we think more gaming in Ohio is good to generate jobs and create more revenues for the state, which is in dire need of job creation. An area like Toledo right now is running 15% unemployment.

Right.

It is a state that needs an economic shot in the arm, and we think more legalized commercial gaming is a good way for them to solve their problems.

Our partners, by the way, on the casino side are very much motivated by bringing jobs and development around the state, and I mean that quite sincerely. It's more than just money in a business. They are very much committed to doing the right thing and creating economic development opportunity, particularly in Cleveland, so that they have the right motivation.

Look, we prefer full casinos, there is no doubt about that, because it is what our customers want. The sort of silly divide between slots and table games, and it is that, just silly, makes no real sense at all. If there is, quote, gambling going on there, there ought to be what customers want. So we think full casinos make sense. But as it unfolds the way it has, we're going to play the hand we are dealt there.

What do you think the chances are with your option on the racetrack in Columbus, what do you think the probability is that you could have two racinos in the state?

Steve, do you want to address that?

The only provision in Ohio, Felicia, is there is a limitation on two -- no more than two facilities being owned commonly. So we've got no problem --

Two racetrack facilities.

Two racetrack facilities. So there is no statutory limit that would affect us given the positioning we have put the Company in.

Okay. And then just quickly, it looked like on a lot of your properties, your revenues actually came in lower than the reported state gaming revenues were. So I am just wondering, is that due to timing or is that something else?

That's an interesting question. I don't know.

What state specifically, Felicia, do you see that?

In -- well, in Charles Town, but there's always something weird there. But in Lawrenceburg, Aurora, Joliet, Riverside -- wait, hang on a second. Lawrenceburg, you came in lower. Aurora -- I mean, there were several of them.

Well, we provide net revenues in our disclosure. You are looking at the gaming revenues, Felicia. So that --

Yes, but I looked at other quarters. The trend is more significant this quarter.

We will have to get back to you on that, Felicia. I will have to do some research and get back to you specifically with what you are seeing in the second quarter versus other quarters.

Okay.

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

Hey, Peter.

How are you?

Not bad, not bad. A couple questions here. One, Bill, just for housekeeping, capitalized interest?

Cap interest in the quarter was 3.5.

All right. And then Peter, you still have an interest in Las Vegas?

Larry, you know perfectly well we always have an interest in Las Vegas.

Okay.

By the way that's all I am going to say.

All right. All right. That's fair.

You know the issue. Let me broadly answer questions like that by saying, look, things have never been busier than they are today here at Penn. We have got people everywhere, just about every state that has the remotest possibility of activity, as some sort of beleaguered and tired-looking folks around this table demonstrate. We are working hard on a lot of issues. So, again, it's right place, right time, right opportunity. And so it goes. But that's all we can ever say.

All right. That's fair. What is the chance at the Indiana tracks in your guys' opinion of getting table games? Would this be a big effect on you guys, or probably, since electronic table games are already there, wouldn't be much, mean much?

Steve, you're on the ground there a lot. Do you want to answer that one?

Yes, Larry, I don't think there is a real great likelihood right now. This doesn't seem to be that great sympathy in Indianapolis for modifying the racino legislation. In terms of an impact on our business, you have been to those properties. They have got electronic table games, they have got electronic poker rooms. I am not sure we'd feel any impact whatsoever if they did modify the enabling legislation.

All right. All right. And then the last question. It says you had some income related to sale of investment debt. Can you tell us what you guys traded?

Can we tell you who we sold?

Yes.

No, we will tell you who we sold -- who knows, it may dip again and we may want to buy it. Reality is we've sold all but about $5 million worth of the bonds, but we've still got $5 million sitting in the unrestricted subs. But we've basically sold all of the other positions that we had and we happily took our $6.6 million gain. And recognize that we are very happy to have made the purchase, and we are also very happy to have sold the bonds at a nice profit. And we will see what happens, and it gives us dry powder for whatever it is that may come along down the pike that we find of interest.

Asking you what the $5 million left is in is probably not going to get answers.

Well, if I won't tell you what I sold, I am not going to tell you what I still own.

All right. That's fair. All right, guys, thank you very much.

Thank you.

Our next question comes from the line of David Katz with Oppenheimer.

Good morning.

Good morning.

Tim, you highlighted some of the medical costs that were I think cited in the press release, but I am not sure you quantified that. Can you -- can you give us some parameters around how big an impact that was?

It was about $800,000.

Okay.

Almost $1 million.

A little less than a million. Okay. And then, if we look at Lawrenceburg at the moment, and obviously since the project started, and we have all talked about this, many, many things have changed or could be changing going forward. Perhaps you can help us just think about what a reasonable expected return is on that spend, and we can perhaps spend some time thinking about how long it takes you to ramp to that level. And we should probably do it irrespective of any events that may occur in Ohio, right? And we could go back and try and gauge what the impact would be should that occur, as it occurs, if it occurs.

I think we -- we have generally taken the position that we don't want to give specific property-by-property guidance. And there's a good reason for that, because there's a lot of volatility between the properties, and it's one of the benefits of being diversified, is that you have got lots of properties out there. And obviously we don't nail every property every quarter. I would hate to represent the company that is that accurate in terms of its ability to guidance exactly where it is going to end up. What happens is we end up with some properties obviously doing better, some properties doing a little bit worse. And generally speaking, that's what I would call normal volatility. And for that reason, I think we are going to pass on answering where we think specifically what kind of returns we're going to see out of Lawrenceburg.

The other thing, David, that -- to try to answer your question, it's going to take three or four quarters for Lawrenceburg to get fully ramped up and stabilized. We also have some additional work that we want to do to upgrade the amenities in the pavilion that's going to occur over the next three or four quarters as well, nothing significant, but we certainly have some restaurants that need upgraded. And that's going to be occurring over the next 12 to 15 months. But in terms of when we think Lawrenceburg will be running on all cylinders, it's going to take a few quarters out there for us to expose the new product to as many new consumers as we possibly can and then get all of our marketing programs in place that support the new facility.

Got it. While we are in Ohio, I notice that your guidance says it excludes any lobbying costs that may occur in Ohio. Right? And I think at one point or maybe as of the last call, we may have been thinking that the Ohio referendum effort was really going to be put off for a year, and now, it is back on track. Should we be thinking about adding in some costs with all of that?

Well, I think, one is, the situation is extremely fluid, even internally here in terms of our strategies relative to how much we are going to spend and where we are going to spend it and what's the best way to spend it and all of those types of issues. Part of the reason we are not including it in the guidance is we haven't got a completely firm grip on exactly what we are going to spend because the situation is evolving on almost a day-to-day basis. So the answer to that question is maybe you should.

Okay.

Unlike the effort that we had made to defeat poor legislation in the past, where frankly we did what was necessary, and if you would ask, is there a budget, I would have said, quite frankly, no. Tell us what it's going to do or require to win. In this case, we have a very defined budget in mind. I am just not sure -- and it is reasonable. Very reasonable, from our point of view.

Compared to last time.

Compared to last time. It is a whole lot less. But we are not sure how and if it is going to be deployed, so that is a discussion with our partners. As I say, you read all the stuff that we do. In fact, if I look at my daily press summaries that we get, 25 of the items, it seems, are on Ohio from various cities, various opinions, various thoughts, all the stuff that you all have available, so that we are very much engaged in a lot of analysis, trying to figure out how this is all going to fall out. We don't expect, for example, the challenge to our signature gathering will prevail. It is kind of a silly thing that these folks have done probably to get publicity to try to oppose us. So this is a very fluid situation, as I think Bill said it. And our goals are carefully crafted there. But how it's going to play out in light of the governor's current effort and where we fit in that is just unknown.

Okay.

(multiple speakers) nothing.

Okay. It is never nothing. One last quick one, if I may. Tim, even if we add back the $3 million into Pennsylvania, and I think the last guidance you had out there had $2.4 million contemplated, but even if we add that in, and we do see a little bit of a ramp in the profitability of that property. And, whatever sort of comments -- future comments you can share with us about how you expect that to continue to ramp or what sort of an optimal profitability level is there since it is such a new property and there's a lot going on in the area will be helpful.

Well, to give you some color, David, on Penn National, I do want to say it appears now, after about two months of operation, that we are not seeing any material impact from Bethlehem in the numbers there. When you add back the one-time catch-up regulatory fees, you know, we are running at margins that are around EBITDA margins around 20%. And I think we can do a little bit better than that going forward as we continue to grow the business. The revenue growth there continues to be good, still showing double-digit growth. That's going to -- typically what we see here is these new properties that open take about three years to fully mature and stabilize. So I still think we have another 18 months or so before Penn National stabilizes and becomes what we would characterize as a mature business. And hopefully by then table games will be introduced in Pennsylvania and we will be able to grow the business through that vehicle.

Perfect, thanks.

Thank you.

Our next question comes from the line of Steve Kent with Goldman Sachs. Please proceed.

Hi, good morning. Two questions.

Good morning.

First on Zia. The impact of west Texas and that economy, you know, what is your sense as to how long that could really have an impact? Is it -- are you literally seeing impact month to month depending on where oil prices are? Or is there something a little bit more substantial there?

And then more broadly, you do note that marketing initiative in Charles Town didn't really work out for you, but could you talk about what strategies are out there, especially in light of whether Harrah's is getting more or less aggressive in their own marketing promotions?

Steve, let me answer the question on Zia. And I am no expert on the oil industry in west Texas, but from what I hear from people that are, that the price of oil needs to be above $70 a barrel for investment to be made in oil exploration in that part of west Texas and southeastern New Mexico. And last year, we were enjoying, obviously, high oil prices and in those markets, it was very robust. We saw in Hobbs, New Mexico, the hotels there running 100% occupancies with ADRs above $100 because of all of the workers that were coming in there that were correlated to the oil industry.

This has been now a trend we saw late in the first quarter, continuing in the second quarter, where we are seeing the local market and our feeder markets not nearly as robust as it was a year ago. And I am told that things won't get better until we see oil above $70 a barrel, and that's an usual circumstance, because in our other businesses we obviously want to see gasoline prices low and consumers not being faced with that hurdle to get in their car and come visit us. But this is an unusual situation in Zia where, when the oil industry and the price of a barrel of oil is high, it does help us there.

Just to add on to your question. Is it a day-to-day fluctuation? No. We think there is about a six to nine-month lag period between the time when the oil prices move -- and obviously not on a dollar basis but move significantly, that there -- it takes time, and I'm going to assume that's because the oil industry, as much as anybody else, doesn't exactly know where the price of oil is going. So they're looking to establish what's a new base and a new trend. And then it takes time for them to make adjustments. Either they start up new production or they basically finish up the existing production and then don't start up new stuff. So we see that as more of a -- it takes a good six to nine months before you will feel the impact.

With regard to Charles Town, we had seen some -- in certain segments, some efforts by that property to try to stimulate revenues in a tough economy that frankly didn't work. We are working toward the fourth quarter where we are going to get some relief from the State of West Virginia to allow tax-free downloadable slot play in there. And that's something we are working toward that we think will have a positive effect on our ability to go after segments of business that, frankly, with that 60% tax rate we can't go after right now because of the marketing expense associated with cash being taxed at that high level. So that's what we are working toward in the fourth quarter at Charles Town to try to stimulate revenues and grow the business in a tax-free promo credit format.

With regard to your question about Harrah's, we are not seeing any increased promotional activity across our markets that we compete with Harrah's against. In fact, in many cases, we are seeing Harrah's pull back significantly in their marketing expense and their marketing activities, not just here in the northeast but in almost every market they operate in.

Okay. Thanks very much.

Our next question comes from the line of Steve Wieczynski with Stifel Nicolaus. Please proceed.

Just going back to Ohio real quick, and just to be clear, if both proposals pass would you be allowed to own a full-blown casino and a racetrack?

Yes. (multiple speakers).

Two and two.

Yes, two and two, exactly.

Okay. Got you. And then, Peter, going --

Yes.

Okay. And then, Peter, going to Kansas, just an update there in terms of what you guys see in terms of the process and when that will all eventually play out.

I may enlist the help of others here, but let me give you the general answer because I cannot be specific. Obviously we have got more time, we have been granted more time to polish our proposal for Kansas, which we have been doing, I think quite successfully, and, Steve, do you want to volunteer?

Yes. The Lottery Commission in the State of Kansas had a deadline of late June to approve management contracts and forward them to the Lottery Facility Review Board. They sought a 60-day extension from the governor. The governor granted them that 60-day extension. So you should look for everything in Kansas to be pushed back well into the fall and possibly even into the winter, November, December -- December, before they make final decisions, given that 60-day extension.

Look, obviously we have seen an opportunity to improve our position there. We are working on it. And we are optimistic. But until it gets done, there is just no certainty. But we are still very enthused and very much engaged in Kansas today.

Okay. Great. Thanks, guys.

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

Yes. Good morning. First, simply CapEx for the second quarter and for the full year, Bill?

Sure. CapEx in the second quarter was a total of $75.5 million. Maintenance CapEx representing roughly $15.6 million and project CapEx was right around $59.8 million. For the year we expect total maintenance CapEx to be roughly $90.5 million and project CapEx to be roughly $216.7 million, for a total of $307.4 million.

I assume that does not include any spending in Kansas, Ohio, or Maryland?

That's right.

Okay. And then secondly -- I am sorry?

I was going to say it also doesn't include reimbursement from insurance related to the Joliet fire as we work through the replacing the pavilion.

Okay. I noticed an anomaly in your depreciation and amortization charges. Penn National's depreciation almost doubled in the second quarter and you also raised your guidance about $6 million for the full year. What was that related to?

Well, in the second quarter, we had a bit of a catch-up. As we go through the asset segregation analysis on the property, we made an estimate since the opening of last year and it took some time for us to get to a final analysis. And when we got done with the final analysis, there was more value associated with shorter-lived assets. So there was a requirement, obviously an accounting requirement, to catch that up. And we have incorporated that thought process obviously going forward.

What we have done is, recognizing that was a problem, we have altered our mechanisms for how we do that analysis on Lawrenceburg. And hopefully what we have done is also adjust our expectations in terms of where we think the depreciation is going to come out on Lawrenceburg in terms of the asset lives. And hopefully we will have done a much better job on estimating where our depreciation is going to be on a going-forward basis.

Okay. Just to make sure I understand, the catch-up in Harrisburg, which was about $5.5 million, it looks like, is that spread out over the previous three or four quarters? I am trying to get a run -- a future run rate for Harrisburg.

I don't have a depreciation schedule by property. It basically represents the catch-up from opening, which was February of last year, through the second quarter, was the amount of the -- obviously the variance you will see (multiple speakers).

So it sounds like maybe $1 million a quarter. So we should raise our run rate about $1 million a quarter. And then for Lawrenceburg, you said you were going --

Well, Lawrenceburg, we've also got the new project coming online, which is a big part of where you are going to see the increase on a full-year basis, but it's also got -- we have also taken into account what we learned from our experience at Penn National in terms of estimation of the percentage of the assets that end up in the shorter life assets, and accordingly, we have adjusted [depreciation] (multiple speakers).

Got you. Okay. That explains that. And then for Tim, can you give us an update on the process going on in Maryland right now?

Well, Steve is here as well. He can add color to that. We have a meeting coming up in mid-August with the Lottery Commission to present our proposal for Cecil County. And hopefully later in the fall, we will get formal approval to begin development there. As you know, Dennis, the tax rate is 67%. We have got -- we have got a proposal in there that calls for a facility to contain 1500 slot machines and a very modest level of investment that is highly correlated to that high tax rate. And we are hopeful if all goes well that we will be able to break ground late this year and get the facility up and running by the end 2010, early 2011. Steve?

You have covered it, Tim. They held their first meeting with respect to any applicant just two weeks ago down at Ocean Downs and they are targeting the licensing process with their consultants at lottery toward the fall. So I think you should look for decisions in Maryland in the late October, November time frame.

Okay. And you have only mentioned Cecil County. Is there any opportunity still existing in Anne Arundel?

Well, Anne Arundel, as you know, there is a question in terms of the zoning on the single applicant that is there.

Right.

We do have a statutory limit in the Maryland statute that only allowing us to have an ownership interest in a property. So right now our focus is exclusively on Cecil County.

Okay. So you can only have an ownership in one, but you could manage another for someone else if that opportunity arose?

I think that is a possibility. We have not gotten any clarity from the Lottery Commission on that specific question to date.

Look, in a new jurisdiction -- let me add this. There are always difficult questions. They've never faced it before. They are still trying to get their regulatory act together. One of the interesting things that I think would be intriguing to you is that they appear to be requiring a full vetting of some of our larger investors at a relative -- is it 2% now? Where are they -- what is the -- 5?

No, it's below 5.

It's below 5. (multiple speakers)

So it's sort of intriguing, but, of course, that is not going to happen, as you might guess. I am not going to name names. Just pick any of our large investors. I mean, it's a joke. They won't. We wouldn't ask them to. So they have got some issues to get over at their end in Maryland before this is all going to get underway, but I think all things considered it is going pretty well, and expect we are going to get an approval there.

Okay. Thanks for the comments.

Our next question comes from the line of John Maxwell with Jefferies. Please proceed.

Hi, good morning. Peter or Tim, I was just wondering, with Ohio, with the referendum, do you take a different approach this year as opposed to other years as, given the history in Ohio of voting down gaming? Is it just more of hitting away at the jobs and the growth opportunities or just wondering if there is a different way to get the message across for the referendum this year.

Well, we have one big advantage. The governor and the legislature have come out with a plan. And in part, they should -- should be proactively selling that plan because the alternatives for them are worse, raise taxes in a whole lot of other areas. So that is the surprise, I think, to all of us, that the governor did step forward and recognize this is one heck of a good way to raise revenue to close the gap that they've got. So I think that is the significant difference. And it is, of course, about jobs and about benefits statewide. So it is going to be, we think, an easier sell this time around, but still difficult. I mean, Voinovich has come out against this again and there's a handful of people that are just always going to be opposed. But maybe this year the stars are better aligned.

No question the message that is going to resonate most with voters come November is the economic benefits of our proposal. As I mentioned before, these are cities that have very high unemployment, that don't have other sectors of industry that are creating jobs right now. And these are also communities and counties that are in need of funding to support their infrastructure and their ongoing programs. So it is going to be all about the economy, and the reason voters should vote for this is because of the benefits economically that commercial gaming brings.

Okay. And then just, Bill, with Ohio, don't you have to pay on the racino part some of the license fee? Is that in your numbers for this year? Isn't there -- by September '09, doesn't the governor want some money for the racino licenses?

In terms of whether the up-front licensees --

Right.

You know, it is not in our numbers. At this stage, I don't know that it is actually a requirement, that that actually has to get paid in terms of where the final legislation came out, so that is an issue that was floated around earlier, but I don't believe made it into final legislation. In any event, there's a lot of questions that have to be asked about paying the fee and under what circumstances do you get the fee back. Nobody is going to make -- I can't imagine anybody is going to put up a $65 million fee or even a down payment on that fee without the prospect of getting the money back if the governor's order is found to be unconstitutional. So we have not included it because I think there's still lots of issues to get resolved around the issue.

As a layman, I will opine that we think the governor's order is constitutional and should be found so. But who know. But when it disappears into the courts, it could go any which way. Bill is correct. We need to be cautious, though, and I think all will be before you pay money into a black hole. We have had that experience before.

From what I understand there wasn't anything specific in the executive order that requires a payment, but there is the expectation in the rule-making process there may be a requirement for the first of five payments totaling $65 million be made sometime in the fall. And as we've said, there is a lot of uncertainty right now and I think ourselves and others want to have a lot of clarity around all of the legal challenges of this executive order before there's any payments made to the state.

Okay. Just one question on Lawrenceburg. With the prospects of Ohio does that change your marketing focus at all? Are you still, I guess, with that new facility still targeting out to the -- into the Cincinnati area or do you turn more of your market focus maybe a little west into the Indianapolis market? And also, just following on that, are you seeing, Tim, your existing customers staying longer or are you just growing the market beyond what you originally had now that you have more space?

Given the uncertainty in Ohio and how long it traditionally takes these new markets to get up and running, we are not going to change our marketing focus. The primary feeder markets for Lawrenceburg will continue to be Cincinnati, Dayton and to a lesser extent Columbus and Indianapolis. That is not going to change and we don't expect the competitive environment to change for probably a minimum two years given how long it traditionally takes for these things to get up and running and all the legal challenges that are out there.

What we are seeing in Lawrenceburg right now is a lot of new visitation, and a lot of growth that is coming in the unrated segments, which clearly is business that is new to us and volumes that are new to us. We are seeing continued visitation and in some cases, and it's very early, increased visitation from our existing rated base, but a lot of the growth is coming from the unrated segments.

Okay. And then just lastly, just one question on Maryland. Peter, is Laurel raceway still something in your sights? Or do you have enough on your plate right now in Maryland?

That's a good -- that is a fair question. I am just deciding whether I really want to answer it. Look, we recognize there could be more opportunity in Maryland. I think that question came up earlier. There are some limitations called statutory in the law that would limit what we do there. However, we have taken a very aggressive view that perhaps we can do more, and we are talking to people.

It's not clear that Laurel will reappear. I think there was an emotional commitment to that statewide. They would like that to happen and maybe that could happen, but, remember, there has to be a zoning approval for the Anne Arundel site. That hasn't occurred yet. It could go back out to bid again. And there are other sites that are quite good also in Anne Arundel that we're well familiar with. So we are just kind of watching it, sort of actively involved in the process but officially on the sidelines. How is that for, again, another nonanswer?

That's fine. Thank you. Thanks for the answers.

Our next question comes from the line of Steve Altebrando with Sidoti & Company. Please proceed.

Hi, guys. I'm just wondering if you could give any color regarding the financial terms of the Columbus option?

No. We, for a variety of reasons, just don't want to go there.

No. Listen, clearly the option was originally generated in a different era. And so there is going to have to be some potential renegotiations around the purchase price in order for it to work and those are discussions that are ongoing. So --

Plus there are other options in the state. So, look, Ohio is a very interesting situation. It's kind of like a chess board right now. And we are kind of looking at all the pieces.

Okay. I mean, assuming all goes through and you have the potential for four opportunities, is it safe to assume you are not going to be building all four out?

No, that is not a safe assumption.

No, it is not. Look, you would be thrilled to have four facilities even if they are doubling up in a town, in one location. Ohio is a big-time state. I don't remember the numbers precisely but there ain't more than 12 million people in the State of Ohio. They are a major source of gamers for West Virginia, which is kind of too bad, and a major source of gamers in western Pennsylvania, also too bad. I mean, all that business will stay home. There is a vast opportunity in Ohio and you would be thrilled to have as many facilities there as you could legally have.

So, I mean, we'd have to be cautious about spend and all the usual sorts of things, and you know I think we have been very, very disciplined in the past. I think when you see what we roll out for example in Maryland, again, as Tim said, it's very well -- what politicians often don't figure out, and why they don't I just can't quite understand, if you tax something more, you get less. The irony is, they get less and we get less. We make less investment. Now, again, with a fair tax rate, we can -- what we have demonstrated in the past is that we will be very careful about what we spend to make sure that our investment targets are met. It is real simple. So we love the idea of having four facilities in the state if it ever got to that.

Okay. All right. Thanks, guys.

Our next question comes from the line of Dennis Farrell with Wells Fargo Securities. Please proceed.

Good morning, guys. Two quick questions. Bill, if you could provide the balance sheet information for the quarter.

Sure, the total cash was roughly $795 million, of which $646 million sits in the unrestricted subsidiary. Our total bank debt was $1.923 billion, consisting of $136.7 million in a revolver, $199 million of A and $1.588 billion of B. And then we had the two bond issues outstanding for the 15s that are at $250 million and the 11s that are at $200 million and capital leases of roughly $5.5 million for a total debt of $2.379 billion.

Okay. Great. Second question for Peter. I was wondering what are your thoughts about gaming machines being legalized at bars and fraternal organizations, I guess in Pennsylvania? And, two would be, what do you think the impact is in Illinois?

Well, let's start with Pennsylvania. I still think that it is unlikely to occur here. It's probably not a very good idea, though there has always been pressure. The Tavern Association has always been a very strong lobbying group in the state. In fact, that is one of the problems we had for many, many, many years here trying to get legislation for slots at tracks, is we could never uncouple ourselves from those guys who had the power politically to tag onto any bill that we would float for slots at racetracks. We were fortunate this time around that we were able to get a clean bill. But they're back. The governor has supported it, but I don't think there is much support in the legislature. We deal with them in West Virginia, tens of thousands of them. So long as it is limited to a few locations, it's probably not good, but it's also not bad.

What I understand from people on the ground in Illinois that there are over 50,000 of these devices currently in operation illegally that are going to be legitimized with 40,000 units. So the management at our Illinois properties has not given me any indication that there is going to be any material effect on the legalization of these devices in bars and taverns, as Peter said, given the low limit number that each establishment can have and the limited amenities and experiences they can provide their customers.

It had no impact in West Virginia, for example. In fact, I remember asking, we had been open a number of years and they started talking about this and someone started talking about these so-called gray machines. By the way, I have trouble figuring out how something illegal occurs kind of out in the open, as it did there and apparently in many other states as well. And I said where are these things? And the person I was with walked me over to a window at our place in Charles Town and pointed to a bar literally across the street and said, right there. Go down in the basement and you will find a bunch of them, and that was the case. What occurred with legislation, they actually shrank the number and regulated it, which, believe me, was a much better thing. So, didn't have any impact on us. That is our only real experience, is West Virginia.

Thank you.

Our next question is a follow-up from the line of Joe Greff from JPMorgan. Please proceed.

Some of my follow-ups have been asked and answered, but the tax rate, Bill, for the back half of the year?

Should be in the 43% range.

43%. And does it tick up at all 4Q versus 3Q?

Shouldn't, it should be flat.

Thank you.

We always have -- what impacts -- there is always transactions and issues that impact the tax rate, especially lobbying efforts and other items that sometimes crop up that have an impact on quarterly rates, but that is a good run rate.

Thank you.

Thank you. Why don't we take one more question.

Our last question comes from the line of David Katz with Oppenheimer. Please proceed.

Hi, just quickly. Running through some of the CapEx outlook, Bill, I am having -- I think your -- I think you guided to a little over $300 million for the year. And when I sort of look at the projects you have out there, could you just run through what the projects are and some approximate budgets on what those are? I'm coming out a little bit lower in total, even with the maintenance of $90 million.

Well, you probably are because there is some miscellaneous projects at Bay St. Louis, Boomtown, some additional slots at Penn National. We have got an overpass in Riverside, underpass in Baton Rouge, the money spent around Infield. So generally speaking, out of the $216 million, there is roughly $134.6 million for Lawrenceburg, there's $51.1 million for Joliet. And then the other projects, none of which are over $8 million, but spread out amongst a variety of projects.

The miscellaneous, underpass and overpass. Got it.

Underpasses and overpasses and entrances and redos of --

Got it.

Remodels of Bay St. Louis, et cetera.

Got it. Perfect. Thank you.

You are welcome. Well, I assume that's it. Bill, you are done. Bill is finished and you know where to find us. So we thank you for tuning in today. And let's hope that things get a little stronger through the next quarter. We still remain very optimistic here. So thanks very much.

Thank you. Take care.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.