PENN Entertainment Inc (PENN) 2010 Q2 法說會逐字稿

Welcome to the Penn National Gaming second quarter earnings 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 today, Thursday, July 22, 2010. I would now like to turn the conference over to Mr. Joe Jaffoni, Investor Relations. Please go ahead, sir.

Thank you Nelson and good morning to everyone. Thank you for joining the Penn National Gaming's 2010 second quarter conference call. We will get to management's presentation and comments momentarily as well as your question and answers but first I will 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 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 may also include non-GAAP financial measures, within the meaning of the 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 on today's Press Release as well as on the Company's website. With that, I will turn the all other to Peter Carlino, the Company's Chairman and CEO. Peter?

Thank you Joe. Good morning everyone. Sorry for the delay. A terrific number of people dialing in this morning. I can tell you that we are happy to report a solid quarter in what is still tough economic times. I guess I could characterize our business as, well, not wonderful but it is stable. And there are some bright spots that we will highlight further through our presentation. Here at corporate we are -- we have our usual team of all of our corporate players.

So here to answer your questions, and to talk about some of the terrific growth opportunities that we have at hand. It is probably a very interesting time for us, but in one hand we are frustrated, as I suspect all of you are, with the absence of a clear and strong rebound in the market. On the other hand, I don't know that Penn has ever had as many fabulous opportunities at hand in our history. So, a lot of good stuff happening, and we keep our eye on the horizon. So with that, I will turn this over to questions and answers. I have confidence that you will get to everything that you want to know.

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

Good morning, everybody. I have three questions. The first question is I know it is early days but can you just discuss the impact of table games in Pennsylvania? If you can give us any visitation volume statistics or table play levels or the impact on slots and maybe the impact on expenses. That's my first question. My second question is within your guidance, you have included Beulah park and Maryland Jockey Club, can you talk about that EBITDA impact?

I am presuming those are going to be losses. If you can clarify that and give us a sense of that impact, that would be helpful. And then the third point, maybe for Bill or Peter, for all of you, obviously you have been buying back some stock, is that a function of where the stock price and valuation is? Or is that plus a combination of maybe, you are not really seeing anything in the way of meaningful acquisitions perhaps in Las Vegas or whatnot? But if you can talk about that as well. Thank you.

Well, those are three good questions. Why don't we ask Tim to start with the first and maybe Bill two and three, and maybe get a couple of others to chime in?

All right, Peter. Joe, as you know, Penn National just opened up table games July 13. So we're a little over a week into it. We have seen a very strong reception to the offering of table games. We have 40 table games and 12 poker right now in the operation. We have seen some lift in tables. It is still very, very early. I am sorry, some lift in slots but it is still very, very early given the newness of the offering. We have seen very strong demand for poker, very strong demand for table games. The other competitors on the eastern part of the state of Pennsylvania just opened up on Sunday. So we haven't had a full weekend yet to see what that effect is going to be yet, if any. But the early results are encouraging.

I might as well move to Charlestown as well, we opened up table games in Charlestown on July 2. It's been a ramp up. We are not yet at full capacity. We are still waiting for employees to get licensed by the state there. We are operating around 60 table games, and about 14 poker tables there. Like in Pennsylvania, we have seen a lift, we have seen a lift in overall slot volumes as well. It is still very early. We have been encouraged by the amount of Asian play we're seeing out of the Washington, DC market as well, which has been encouraging. Both are good stories for us, still way too early to give you any conclusive remarks about what the overall impact is and what the expenses are associated with it as we continue to stabilize both openings.

Let me interject, Tim. It is fun again to see four and five people standing deep in line to try to get in a spot. Screaming to get there. So it is fun, a lot of energy off to a great start, too soon to say more. BIll, why don't you move on to Beulah and Ohio --

Right. Relative to the track, clearly the Maryland track, the second quarter is highly profitable with the [Preakness]and then they lose money on throughout the rest of the year. So, but I will tell you that what we have got in guidance for the next couple of quarters for the new track losses of our share is basically around $3.5 million of loss, but --

Is that per quarter or is that in total?

That's in total, both quarters.

Okay.

And so obviously when you roll in the next year, obviously you will pick up -- you will get the benefit of the Preakness which we are not going to get this year. Relative to the stock buyback, and I'll let others chime in, quite candidly it is -- we purchased the stock because, frankly, in our view, the stock price was at a compellingly low value or low level. We compare free cash flow to an enterprise value calculation and compare that against our acquisitions and quite candidly we are highly satisfied that we would not be able to get an acquisition done at a better price. So, quite candidly that was the metric by which we make the decision that a prudent use to use some of the surplus liquidity and to buyback the shares as long as they're at levels that we are highly comfortable that we are not going to be able to find an acquisition at a similar price.

You said that pretty well. Let me make one comment, Joe, because the question was also about Ohio and go back just a minute to racetracks. We are not in the business of buying money-losing racetracks because we like to lose money. Clearly, in each case, there's a strategy surrounding those purchases and a plan that we hope will unfold over time. We can't today get into exactly what that is. Some of it should be apparent to you. But, we do plan over time to try to turn those losses into significant profits for our shareholders. So, this is all good stuff and we are working hard on all of those things today. Does that answer -- Go ahead.

Bill, did you talk about Beulah park, the impact there?

Well, that is included. I'm not -- we are not going to give details relative to individual property levels, but that was the results for both properties combined.

Got you. I was hoping you can give us a balance sheet and CapEx information.

Sure. At the end of the second quarter, we had a total of $398 million in cash which represented, there was roughly $244 million at (inaudible) and unrestricted subsidiary. The amount outstanding on our B loans was $1.518 billion. Between capital leases and now the amount we owe, the city of Aurora, that comes in at $9.2 million. We had $375 million in bonds, nothing outstanding on our revolver for a total debt of $2.1 billion.

Our CapEx for the quarter was $90.8 million consisting of roughly $67.5 million in projects and roughly $23.2 million of maintenance CapEx. Looking out for the year, on CapEx we are looking at a total project CapEx -- I am sorry, a total project CapEx of roughly $431 million, made up of $338.4 million in projects, roughly $92 million in maintenance CapEx. A big cause for the decline relative to our previous guidance on project CapEx is we had originally projected that the license fees for $100 million in Ohio would be paid in 2010 or in the fourth quarter, and we now think those will get shifted out into early next year.

Thank you very much.

You're welcome.

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

Hi. Good morning, guys.

Good morning.

Bill, just on the $30 million write down of the arena district land, I was just wondering do you really expect to have a $30 million capital loss there?

Well, obviously, I will probably leave this to the guys who can better that talk about how to mitigate it. On a pure financial loss on the site, yes. But there's some other considerations that I will let others talk about in terms of how we might think we might mitigate some of that.

Where we are Felicia working with the city and the community there in central Ohio to try to get recovery of that value due to the -- their request to relocate out to the west side of town. And we are working very cooperatively with the city to do that in the business community. And we do expect that, that will certainly come to be. And then the other advantage of being on the west side obviously is a better location with better access for our customers long term. We are still very, very bullish on the overall development in Columbus having a land-based casino in that market under the terms that were approved last November. It will be very beneficial to our shareholders.

I really -- just political but do you have a any sense or guess of how much you could get -- how much mitigation -- how successful mitigation could be?

We don't have right now that is, it is too fluid to really put a number to it with any degree of accuracy.

Okay. And then just moving back to Ohio, probably also a fluid situation, just wondering if there's a sense of timing of when you might get the judge's declaratory judgment regarding the [VLTs] at racetracks. And just, Peter, maybe some of your thoughts on your comfort level that you might be able to move the tracks if this does go through.

That's a tough question, Felicia. What -- look. We support what is good for the state of Ohio. And if the governor's proposal succeeds in the courts, where it surely will land, then we will step forward with great enthusiasm and make it work. On the issue of relocating which I know has been subject of some speculation, it is really not -- way too early for us to even think about such things. It -- and probably not helpful now to get into a discussion about it. So, I think we will get one step -- things unfold one step at that time. We are delighted that we have a stake in the horse racing business in Ohio. And we are just going to have to see where it goes. We are happy if it occurs. Obviously, we are -- but we are happy if we proceed with just our -- the four facilities in the state. It is all good stuff. Our two, but I meant the four licensed facilities in the state.

Felicia, this is Eric Schippers. In terms of timing, as you know the governor has expressed a desire to seek the declaratory judgment. We don't have a sense of timing and whether that's going to start in lower court or go straight to the state supreme court, that is still getting worked out by the governor's office. I'll note that there has been a threatened challenge from other parties as well, potentially legal challenges. So it is still pretty fluid on the legal front right now.

That would be overwritten I presume by a supreme court ruling.

Right.

I think governor has done the wise thing just put it straight to the court. Ask him, it works or it doesn't.

Move the question.

Exactly, move the question.

Okay. And is there any political risk that he doesn't sign that executive order? I mean, obviously ,the politics play a role in everything but also he's -- I mean he has signed it before. So I was just wondering if you thought there was any risk there.

Felicia, anything can happen. The state is facing an $8 billion deficit and the governor has expressed a desire for [VLTs] and tracks to be a part of that. But there is an election in November. And obviously, we don't know what the outcome of that election is going to be or what his opponent feels about VLTs at the track. He has been silent on the issues. So the whole question is still rather fluid but as far as this governor is concerned he has expressed a desire to move forward on it.

Whatever he did, Eric, it is going to end up in courts. Is that -- You would agree. It is going to end in court one way or the other. What he has done is preemptively decide I know it is going there, let's send it there right away, and get an answer. And that's what you should expect.

Absolutely.

Okay. And then, my final question is on the buybacks, I was just wondering if you or I don't know if this is a Board decision have ever thought about putting in place a [NP51]program to repurchase shares just you probably could have taken advantage of some lower stock prices in quarter if that was in place?

We're -- actually relative to whether when we can buy shares and whatnot we are guided by when we have an open window but we also have the discretion to be able to weigh the ultimate window if we believe that there's no material non-public information in the market. I guess - we have (inaudible) probably a different approach.

You have the window and then this opportunity. That's a good answer. Okay. Thank you.

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

Hi guys.

Hey Larry.

Hey guys, a couple of things. One, the Lotto Commission actually published proposed the rule for the slots at tracks which I guess is a little early for them since it hasn't happened yet. But in that they're proposing a couple of things like that the tracks own -- pay for the slot machines a little different, a couple of other rules. Do you guys have any opinions on how that would look for you guys and the structure they're proposing now?

Eric, do you want to apply or Tim?

I mean, Eric, it is really just starting the process. I don't know if that's where they will end up. We have been asked to participate in the drafting of these rules and regulations. As Eric said before, there's still a lot of unanswered legal questions that have to get resolved and I clearly believe the rules and regulations that may be out there floating around may not be what happens in the final form. I wouldn't want to speculate on any of the details yet.

All right. I thought it was encouraging when they go ahead and said they were going to petition in the supreme court too and proposing rules saying it is going to happen. Christie's proposed some major changes in Atlantic City, I know that's a place you guys had looked in past. If Christie goes ahead with what it's doing and part of it is to encourage companies like yours to come into town, any opinion on that at this point? Too early.

Yes with, I --

Are you still not Atlantic City favorable?

Obviously, table games just opened in Pennsylvania. There are still more casinos in Philadelphia, two opens, Aqueduct hopefully in our lifetime we will get [VLTs]. There's still, I believe a lot of more pressure on Atlantic City. I was encouraged by what was proposed. I think they're the right steps to make Atlantic City more viable but from our perspective, it is still years away from looking at a new world in that market given the pressure that continues to exist that will only dampen behind down there.

Those volumes are never coming back, Larry.

I don't -- I mean, I agree with you 100%.

But you have to wait to see how it levels out and as Tim aptly pointed out there's a whole lot more to come here in Pennsylvania. I think the results of tables in Philadelphia Park for example and you are seeing a lot of activity up at the Sands Bethlehem, it is going to be stunning. That can't be good news.

No, I do agree with you, Peter. You are right. Things may get a little cheap then in the market even if you were interested.

You've got SugarHouse opening in the fall. And the former Foxwoods site is going to with open with a new group. So it is going to be big time facilities, obviously. So we will have to see how it plays. So, we are years away from being able to judge where Atlantic City will level out.

Okay. That's fair and I don't disagree with you. Station auction August 6, still something you are thinking about? At least not going to say definitely yes but something that is going on the radar screen?

Bill?

I think we can say we are definitely not interested.

Okay.

Under other circumstances we might have been, and we -- you can imagine, we, like everything else, spent a lot of time with that. But the quick answer is no.

Okay. That's -- I actually don't disagree with you again but that's good news to hear. Kentucky, I know that would be something damaging to you -- that has been some movement there. I don't think anything real but do you have any opinion on that?

They just moved toward instant racing machines and it is going to be interesting to see how that gets factored into a broader push for slots. I think some are going to believe that well let's see how this plays out now with these historic racing MacHines, and so it may have actually set back the efforts to push forward standing gaming there for maybe a couple of years. Steve, do you want to --

I don't think that's true. The racing commission as you know approved rules authorizing instant racing games and I think that puts -- as Eric pointed out puts a dent raising in the legislative effort to help racing for time being.

I think it was an acknowledgement they weren't able to get over the hurdle with full blown slot machines. So it was somewhat of a compromise between the industry and the powers that be.

All right. You and -- they haven't started yet, have they?

I am sorry, we couldn't hear the question, Larry?

That hasn't started yet. You haven't had any experience yet of what it means -- I don't think it means a lot.

No, it has not, Larry.

As Steve said, they just started with the rules and regulations in trying to figure out how the games should be played.

All right. Then last question, Rio, for sale a couple of other things you still looking around the strip for Vegas? Is that stuff they could attract, Peter, realizing maybe a little early?

We are not really aware that Rio is for sale. We see what we see or heard what we heard but there's certainly no active process that involves in any way. I think more broadly, on the horizon, there's nothing really out there.

Yes. I mean quite candidly, I don't see, there are some other assets if play in Las Vegas, obviously, and we certainly have got -- we are actively involved in those. Obviously, there's the Green Valley Ranch, there's Aliante, probably the biggie. But, at this point, I don't think we are pretty realistic that the valuations that people are expecting are probably going to fit within our criteria or there's a potential that they're not really going to trade, and they're going to remain with their existing, in some form of restructured debt situation, remains with existing arms.

All right. Thank you guys.

Our next question is from Mark Strawn with Morgan Stanley, please proceed.

Hi, good morning guys. One quick question on margins. If I look at the implied margins at the back of year of guidance, there seem like there's a slight sequential down tick there. I would assume that, that's more seasonal fluctuations as opposed to any other issues, perhaps margin dilution from tables at West Virginia or Pennsylvania?

Well, the single biggest factor is the racetrack with a negative EBITDA impact with some revenues associated with the track, obviously. As well as Terryville comes on in the fourth quarter which we think it is going to be very successful but with a 67% tax rate, that property is not -- it is going to operate below the Company average operating margin.

Okay. And one quick follow up on spend per visit levels, if you just look across the portfolio right now, are you seeing those levels trend along the bottom here, any improvements in any markets whatsoever at this point?

Mark, no. I mean we are still seeing the same consumer trend that we saw in prior quarters. It hasn't gotten any better. It hasn't gotten any worse. As you look at the unemployment levels around the markets we operate in, and you look at the housing pricing, I mean we are still seeing softness on both of those macro economic fronts and it is reflected in our consumers. So really no major changes as you see, as you look at the April, May, June numbers that get reported by the states. It is still very much status quo and very sluggish.

Okay. Thank you very much.

Our next question comes from the line of David Katz with Jefferies. Please proceed. Mr. Katz your line is open. You may proceed.

Move to the other call.

Okay, Mr. Katz, we will place your line back into the queue. (Operator Instructions) Our next question comes from the line of Chris Woronka with Deutsche bank. Please proceed.

Hi. Good morning, guys. Two quick ones for me, one on the margins I know at Aurora, you had the charge for the police situation. Was there anything else there?

Chris, unfortunately we can't hear you very well. Could you speak up a little louder?

Yes. Sure.

Much better.

Okay. So I had Aurora for the quarter, know you had the police charge, the security charge, is there anything else that might have impacted margins? I know you had somewhat precipitous fall in revenue or is that just it?

Last year if you recall, Joliet was closed for the second quarter and we moved a lot of that business over to Aurora while we were closed for about 90 days. So that is really the big change in revenue year-over-year. Other than the one-time payment to the city, the only other thing in the numbers, we did have a $300,000 worth of severance in the second quarter that was in the number. But, other than that, it was mostly affected by the year-over-year changes in the competitive environment, with Empress Joliet being closed.

Okay. Great. Then on the full year guidance, it is obviously up I think about $26 million, when you adjust for the second quarter results. Do you know how much of that -- is any of that due to Terryville opening a month earlier? I know it wouldn't be a real big number but is that at least a small part of it?

It is. It is also on the revenue side, we are factoring in the one month earlier openings also Charlestown and National Table Games, again those are not going be enormous numbers, and also some racing.

Okay. Very good. Thanks.

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

Yes. Good morning, everyone. I wanted to get a couple of clarifications on previous questions and then I had a question of my own. Bill, the Beulah and Maryland loss you said $3.5 million in the second half combined. What does it look like next year with the Preakness factored in next year? Can those two together be close to break even?

Well, that's the goal. I think we're going to be working like the dickens to figure out how to improve the racing results and our partners, and the largest loss is obviously within Maryland Jockey Club and clearly, our partners are equally focused on improving the operating results there as well. They're just coming out of a bankruptcy, but I think, they clearly don't understand that they can't continue to operate exactly the same way they have always been operating. I mean, Beulah was, without thought, is going to be an incredibly tough track to get to break even.

Okay.

I think Maryland has the Preakness working for it to help mitigate the operating cost throughout the rest of the year.

Okay. Thanks. And then on a couple of other items. The arena district, what is that written down to, the land you own there? You wrote off $30 million but what's the current book value?

$10 million.

$10 million. Okay. Any time frame on disposing of that?

I don't think we are in a huge hurry. Look. Bill and I had a discussion, I think, in the group earlier about how to characterize this. Look, this is an accounting issue, Bill and I might even disagree about that. It is clear that we bought this as a gaming property so the value is one thing. If you've got to sell it tomorrow for some other purpose it is worth less. But that loss isn't realized and we actually take it. Period. That's the case. Accounting rules today are require you to mark these things to market and if we had to sell it tomorrow, that's probably our assessment of what we can sell it for. But we are in no race to do that. We're looking to mitigate that loss to the best extent possible. But look, we just put it behind us and do whatever accounting requires and say it is $10 million.

Okay.

Steve, you can talk about the process now.

Dennis, as Tim had mentioned we have been engaged in very constructive discussions with the city of Columbus on both our needs and development of the new site as well as the disposition of the old site. We are encouraged as to where those discussions and that dialogue has gone. But it is a very fluid situation. It is global as we look at central Ohio, and to Peter's point, we made a switch for a number of reasons and we think by making that switch we bought some goodwill and that will be reflected in the outcome of these current negotiations.

Thank you. On one of your tables early on in the Press Release, it reconciled the net income that you reported with the adjusted net income, getting it up to $0.29. There was an item just called 'property results' that lowered net income by $3.88 million. What was that? It was right after -- it was right after the Aurora, add back of $4 million net.

That is just a sign issue. It's basically -- there's positive property results of basically $7.4 million which is where we -- the properties actually did better than what we were expecting. It was just to reconcile as reported relative to where we are at.

To your guidance, just getting it to your guidance.

Right.

I got it. Then, where is the pre-opening charges? Is that in corporate expense?

Pre-opening is to the extent that it's in a -- we have pre-opening expenses at Penn National and Charlestown are reflected in the property results. The pre-opening for entities that aren't (inaudible) are reflected in corporate

Okay. What was capitalized interest in the quarter?

Cap interest in the second quarter was $1.7 l million.

So it is going up as you start to putting capital to work on the new projects.

It is. We are projecting -- let me give you a number, it's roughly $2.1 million in both the third and fourth quarter.

Okay, great. The last question has to do with Maryland. Am I right that the ballot measure is going to go forward in Anne Arundel?

You are exactly right. Eric, why don't you talk a little bit about that?

Sure. There was a court decision just yesterday, two days ago that we will now put to voters of Anne Arundel County the question of shall zoning be approved for a slot parlor at Arundel Mills Mall? It is a very controversial issue there. Most voters, we believe in that area, when they voted on gaming expansion thought that the gaming could occur at Laurel Park. And when Laurel Park, unfortunately, didn't proceed in the process and Arundel Mills popped up, it created a firestorm there. And most of the people in the community we have talked to are just thrilled to have an opportunity to get their voice heard on this subject yet again. So that will be --

Will the vote be binding or will court-ish take it through the courts further?

Well, as far as this being on the ballot, it is a done deal. It will be on the ballot in November if there's a successful outcome, in other words overturning the zoning authorization, it would reset the process of bidding out the opportunity for that zone in Maryland.

And obviously, the Arundel Mall will disappear.

Dennis, to your question, the ballot question has not been drafted but the initiative would be to a citizens veto of zoning ordnance authorizing slots at the mall. So that would certainly be binding. There would be obviously a citizens vote is not an appealable outcome. As you might guess we and our partners are fully committed to doing what's necessary to tell that story and give the voters the opportunity to set this right. So you can imagine that we are highly focused there.

Yes. I am just taking a wild guess and assuming that was at least a little bit of the reason to be involved with Maryland's MI development.

I think I made the comment earlier that we are not in the business of buying money losing track.

Yes.

Look, it is a very challenged business, but look, we have built our careers, if you will, on figuring out how to make racing profitable and how to mix it effectively with gaming.

Okay. Terrific. Thanks for the answers and keep up the good work.

Thank you.

Our next question comes from the line of Larry Haverty with GAMCO, please proceed. Please proceed.

Hi, Peter. I was just curious, I think you guys took out the minority interest in those Ohio casinos for $25 million during the quarter whether it was in the numbers of not but just interested in how you arrived at the $25 million rather than $30 million or $20 million or $10 million or whatever.

Let Tim take that.

Larry, it was obviously a negotiated process between ourselves and [Lakes]. And it represented -- they had contributed, let me go back, they had contributed money towards the Issue 3 campaign in 2009 which gave them the right to a 10% interest in our developments in Toledo and Columbus. And obviously, we looked at what that represented to us and [Lakes] looked at it. And obviously [Lakes] had an obligation if they were going to proceed with us for funding and being a minority partner and we reached the agreement fairly quickly that this was a value that worked for us and it worked for them. And this is a win-win for both parties that we are happy to be now in total control, 100% owners in Toledo and Columbus. And I know they're very happy with their return on their investment as well.

So if you had to guess, Tim, when those things would open, what would your guess be?

Right now, we are making very good progress in Toledo, we're looking now at working the first half of 2012 for an opening of the Hollywood Casino in Toledo. We're working on Columbus on remediation on the Delphi plant site, that's going to take a little longer and we believe Columbus will be a second half 2012 opening, but we are encouraged by both projects and we are working hard on those developments to deliver the Hollywood Casino experience both in Toledo and Columbus in 2012.

So if you think the minority is worth $25 million now for that future stream, that means that asset is probably well north of $250 million on your subjective balance sheet even though it is contributing no cash flow for a couple of years.

We are not going to comment, but you can do the math.

Okay. And then I am just interested are you participating in the Massachusetts circus or studying it or watching it from hopefully far, far away.

I will give the answer I have been giving for 16 years. That's is, if it is happening there we are there. So you can assume anything that's moves it alive in the gaming world, we look at it. Sometimes not very long. All of the major new opportunities clearly we have to be there. Eric probably spends more time and our team Steve and others in Massachusetts than he would like, but -- want to speak to that, Eric?

Yes, we've been heavily involved in looking at the Massachusetts legislative process as it unfolds this year and has unfolded in years past, we have to sweep up the table, so to speak, and have testified in the past, but frankly, all of that involvement does not give us a good (inaudible) or predicting what's going to happen in this conference committee. Because it has come down to only a matter of days before the legislative session which is July 31, and the big blockage, the impasse is over the question of [spots] at the racetrack. And both sides seem pretty dug in on their position. We get reports that there are deals in the works, and they fall apart in a matter of hours later. Suffice it to say both sides are talking, Penn has spent a lot of time introducing ourself, our track records to the powers that be in the legislature with the hope that there will be an opportunity for us to participate down the road.

Great. Thank you.

We have not thrown in the flag, definitively and quite frankly in this case,we're glad because we don't know where the plan is and this is likely going to get to be a flat out bid process in some mix, that has yet to be identified. So, I think we look at it every single day and we, like you, are going to wait and see what happens.

It is hard to figure.

It is not a pretty process.

Aqueduct up north, Peter. But thanks a lot.

Thank you.

Our next question comes from the line of Ryan Worst with Brean Murray, Carret & Co. Please proceed.

Good morning, guys. Thanks. Just a couple of questions. One, could you provide what the pre-opening was for each of those properties, Penn National and Charlestown?

I would probably have to get back to you on that one.

What about a total amount, Bill?

About $1.5 million.

Okay, thanks. And then I was wondering if you guys could talk about what you're seeing on the Gulf Coast maybe in terms of tourism on the general economy relating to the events down there?

Ryan, we haven't seen a major shift in visitation due to oil spill. It really hasn't had a material effect on the businesses down there. We certainly see the clean up people on the beach and Hazmat suits looking for oil. It hasn't materialized. There are certainly more people working down there around this BP issue but really, it hasn't had any material effect on our business. Baton Rouge is more inland.

Right.

Less affected, but Bay St. Louis and Boomtown, really, I wouldn't say it has any effect on the business volumes at all.

Okay. And you are not seeing a drop off in the economy or maybe a pick up because of the relief workers?

Neither. Very similar to what we saw pre-spill.

And then, Tim, I think you talked a little bit about the feeling of the voters in Maryland. But has there been any pulling out indicating any direction whatsoever that that vote might go?

We have obviously been study thing issue closely. I haven't seen any public poll on this question, other than to say what has been publicly reported is that there's a tremendous amount of support for slots at the racetrack. And there has been a lot of controversy over slots at the mall. So we like our chances in the upcoming election and we are going to do and be very active with our partner in seeking a successful outcome and spend what it takes to achieve that.

Okay. And just to clarify, that license, if it is not for that specific location, it automatically goes back to the state?

That license is for any location within two miles of the Baltimore, Washington expressway in or around the county. It just so happens this applicant who the mall site fits those parameters and of course, the portions of Laurel racetrack that fit those parameters.

Look. They made a bad choice with this site from a lot of points of view in the sense that it's a very congested area, that just does not accommodate the traffic that they're going to have to handle. That's why residents are really, really unhappy. I think clearly they're supporting the county for a facility, but they just don't want it there. And that is the problem that these folks have.

Okay. So the applicant doesn't really have a right to the license. It was the location.

Absolutely. Well, the -- the applicant has been granted a designation for a license with the condition. The condition is local zoning, and that is what the referendum is all about, whether or not they will be able to satisfy that condition. Failing that obviously, as mentioned earlier, it goes back to a process, and that process would designate some location inside the parameters I mentioned.

Okay.

(inaudible) and publicly stated that he believes that the slots belong at the racetrack.

That would be, I mean that's what the original intent of the legislation was all about, putting slots at the racetrack and helping to revitalize racing. So the governor has been clear on that as have legislative leaders.

Great. Thanks.

Our next question comes from the line of David Hargreaves with Sterne, Agee & Leach, Inc. Please proceed.

Hi, I understand that one of your competitors in Ohio is planning to have a temporary operation, and if I am not mistaken you have opted not to have a temporary operation. I was wondering if you have anything you could volunteer as to your opinion on whether that's allowable and maybe why you didn't do it.

Our co-partners, on the issue, issued through a referendum have a very difficult site in Cleveland that they're trying to develop long term, and I know they talked about a temporary facility in the old Higley building in Cleveland to get up and running sooner. Our issues and our sites are not as encumbered as that is and we believe the best way to proceed is to get up and running with permanent casinos in both Toledo and Columbus. Both sites would not facilitate the opening of temporary locations on those designated, constitutionally designated locations.

Do you have any --

By the time you go through the process of -- it is not a matter of law. You could do it. It is just not -- we don't gain enough.

Again, it is very difficult to recapture -- quite candidly, it is very difficult to recapture the pre-opening (inaudible) in the amount of time that's different between having a pre-opening facility and a permanent facility, so on a cash on cash basis. Although it sounds very compelling to have a temporary facility opening, by the time you subtract out your operating results for the entire period less the amount of incremental spend, you're really not doing a whole lot more than treading water unless you want to leave the temporary facility open for a extended period of time which is not what we think the right answer is.

Got you. One last thing, if I was to go visit your emerging competitor down in Baton Rouge today, I am wondering, how far along are they?

Well, the last I heard they're moving dirt, but that is all that I have heard from down in Baton Rouge. I do not have any new timetable on when the expected opening is going to be there. I would ask them.

Okay. Thank you very much.

Our next question comes from Anthony Powell with Barclays Capital, please proceed.

Hi, guys. Just a quick follow up on the spend per visitor trends, have you seen a change in July at all or has it been similar to the second quarter?

I mean right now, July is looking very much like we saw in the second quarter, really no material changes. The only thing different in the third quarter is we have already talked about is the changing environment in West Virginia and Pennsylvania with the introduction of table games.

Great. That's it. Thanks.

Pretty much the same.

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

Yes. Bill, I just want wanted to get a clarification the debt number, you gave, did you say $2.1 billion of total debt at the end of the quarter?

Yes.

Okay. What -- it was $2.3 billion at the end of the previous quarter, did you just use system of your cash to pay down the debt?

Right. We paid down the revolver. At the end of the quarter, the revolver was $205 million.

So do you -- the B term is $1.52 million. The bonds are $375 million and what's the remainder of the current debt?

Capital leases and then now the amount that we owe city of Aurora.

Yes.

And the other bond, it was $250 million at (inaudible).

Got you. Okay. Thanks a lot.

Our next question comes from the line of Neil Portus with Goldman Sachs. Please proceed.

Hi. Thanks. Which markets have been more promotional than others and where are you able to pare back marketing spend this quarter? I guess I am looking to see how sustainable some cuts might be if markets heat up in the second half of the year? Thanks.

Neil, the markets that are most competitive right now are characterized as Kansas City and St. Louis with increased promotional activity in both of those markets by the other larger, large competitors there. Southern Mississippi continues to be very promotional-oriented. That hasn't changed. That has been on going for many, many quarters. Our reaction to all of this has been to look at on a customer by customer basis where we have been able to pull back our promotional spending. We will stay the course. We don't believe what the others are doing is sustainable and accretive to operating cash flows, and I don't see any change in our strategy of trying to rationalize our marketing spend. We are not going to be reactive to the treads we are seeing in the markets where we have recently seen increased promotional spending.

Okay. Where are you able to pare back spend this quarter? Which markets did you successfully do that.

Almost entirely across the Board. I'd say, 75% to 80% of our businesses were able to see reduced promotional spending as we have proceeded quarter to quarter. There were very few where we didn't have opportunities to continue to be smarter with our marketing dollar.

Great. Thanks.

Let me think, Tim, I think you've said that very well. We are not skimping in any market. We are just not being stupid which is a frame of mind that seems to characterize this industry from time to time. We will let these guys blow their brains out, do this for a while until they don't. And we will just continue to be rational.

And we've said in previous quarters, we have seen lower spend per visits by customers, and really, we are just reacting to the changing consumer behavior that we are seeing with our customers and just trying to rationalize our marketing dollars against reduced spending level.

Is that it?

I think it is. All right. Operator?

Thank you. Our next question --

I think we will take maybe just another call.

Okay. Our next question comes from the line of John Maxwell with Jefferies & Company, please proceed.

Hey, good morning. Thanks. Just a quick question, when on Ohio, if I look at what you're planning now with the amount of gaming capacity, seems to be less than what you were talking about in the past. Is that, is that just fine-tuning the development? Or is that possible response to the potential for the VLTs at the tracks?

Well, there's -- I mean I think that the -- I don't know that we have actually reduced it. There's a recognition as you open up a new market, there's a continual growth in that market that is,obviously, much better than inflationary levels because a you penetrate the market, your pieces grow. We haven't, to my knowledge actually downsized any of our proposals --

Well, I guess Bill, when I look at the first quarter you were talking about 3,000 slots in Toledo and now you have 2,000 in Columbus, you were talking about 4,000 and now you listed 3,000. I was just wondering, I don't know what the --

The CapEx hasn't changed from quarter-to-quarter. What we are doing is -- and you said it, we are fine-tuning, John, our development plans. We're going to open with those numbers, 2,000 and 3,000 in Toledo and Columbus, respectively but we want to have the ability as Bill was alluding to, as the market continues to grow early on in the first couple of years, to be able to grow into those higher numbers.

Okay.

But we are, we are just fine-tuning our development and it has it just has a reflection on we know year one will be lower than what we'll see in year three and year four levels.

Sure. Okay. And then just finally, on the Delphi site, I apologize if I missed it but are you past -- I guess there was some talk about remediation efforts being a little bit more than expected. Are you past any of those points at this time? And that $400 million budget, is -- are you pretty comfortable there wouldn't be any surprises?

Yes, John. The entity with whom we contracted in Columbus at the Delphi site, we entered into a turnkey contract along with the remediation and demolition, so we're very comfortable that no cost increases associated with the remediation.

Okay. Great. That's all I had. Thank you.

Thank you.

I think that's it.

Okay. We thank you. We are at, I guess, about 11 AM. And we thank you for your time this morning. We look forward to the next quarter, some pretty exciting stuff and I hope you walk away from this call with a sense that there's a lot of strong and very positive feelings here at Penn. So, we will see you next quarter.

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