PENN Entertainment Inc (PENN) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Penn National gaming second quarter results conference. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator instructions). I would now like to turn the conference over to Mr. Joe Jaffoni. Please go ahead.

Thank you, Kayla. Good morning, everyone and thank you for joining Penn National Gaming's 2012 second quarter conference call. We'll get to management presentations and comments momentarily, as well as your questions and answers. But as is the practice, I'll 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 may 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 may include non-GAAP financial measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the Company's website.

With that, I'm happy to turn the call over to Peter Carlino, the Company's Chairman and CEO.

Thank you, Joe. and good morning, everyone. We're happy to report what we believe to be a good quarter, and you will recall that 2012 was a year that we characterized as a transitional year for the Company, for all the reasons that most of you well know. And it has proved to be much the case. We realize and appreciate the difficulty you all have in trying to estimate just what our performance is going to be throughout this year. I think Bill made it pretty clear that he wasn't having all that much fun with that either as he looked ahead in 2012, trying to guess where we're going to be as we move into a whole new reality in 2013 and beyond. So we're especially pleased that we seem to have this quarter pretty well nailed. And it was good quarter.

Before we get to our Q&A, which, as you know, we move to very quickly, I think Bill would make a couple of comments, and Tim has a few items that he would like to call your attention to. So with that, Bill?

Sure, thanks, Peter. I'm just going to highlight a few items that are in our press release and in our guidance as well as real quick comments on the quarter. I think relative to cannibalization in the second quarter, I would like to believe that it was all brilliance. But we really did do a really good job of estimating what the impact of cannibalization would be on the quarter for us in total. Did we get it perfect by property? No, but in offsetting the substance between different properties, it came in line pretty darn close to where we thought it was going to be.

Relative to some guidance issues, I think there's been a little bit of confusion about how much we had for Columbus in the fourth quarter. All I can tell you is in our guidance last quarter, Columbus was already factored in as an early fourth-quarter opening. Essentially, our guidance for Columbus relative to EBITDA contribution in the fourth quarter is unchanged from our last guidance. We did increase -- within our guidance we've increased. One of the new items is obviously the Caesars acquisition in St. Louis, which is factoring in roughly $2.5 million of reopening expenses. We do not have either the EBITDA contribution or the expected interest costs associated with the acquisition because we don't have a firm date yet on when that transaction will close.

Relative to guidance on EPS line items, there is an increase in depreciation relative to our guidance last time, which is accounting for the bulk of the increase in the other below-EBITDA line adjustments. And that reflects approximately $4 million for accelerated depreciation on the Ohio racetracks of Beulah and Toledo. And then we have some other adjustments in depreciation totaling roughly $3.2 million to get us to roughly $7.2 million of adjustments quarter over quarter.

On a comparison to last year, a lot of people may not recall that last year in the third quarter there was $20 million of EBITDA associated with our sale of Maryland Jockey Club, which was reflected in EBITDA. So that's why you're seeing a fairly sizable difference between last year's EBITDA and this year's EBITDA, as well as this year in the third quarter there's roughly $5 million of additional preopening expenses this year versus what we incurred last year.

And with that, I'll leave it up to Tim to make some further comments.

Thank you, Bill. You all have seen the generally flattish revenue trends being reported by the states where we operate. And on top of that, looking at the consumer trends, we had the opening of Maryland Live in early June, the opening of Scioto Downs in Columbus in early June, and we're still anniversarying the opening of the 10th license in Illinois in Des Plains. And with all that, as we noted in our report, 8 of our 16 properties year-over-year reported growth in EBITDA. And I'm pleased to report that 11 of our properties actually had improvement in EBITDA margin.

So with all this that we have out there, trying to run our businesses, I think our operating folks are doing a very good job of keeping a handle on their costs and really responding to the trends they are seeing in their respective businesses. And we were certainly presently surprised with what happened in the first quarter with the good weather and the extra day in February. But, generally, what we're seeing out there in the second quarter is more of what we saw in 2011, and generally not having any expectations that we're seeing any improvement in consumer confidence or unemployment levels as we think about the balance of 2012.

Okay, thank you, Tim. With that, operator, why don't we open the call to questions.

(Operator instructions) Felicia Hendrix, Barclays Capital.

Thanks for some of the color. Can we just talk about Toledo for a second? I'm wondering what kind of statistics you can share with us beyond what we already know.

Tim, do you want to -- or Bill?

One of the things, Felicia -- you've seen the June numbers. We were slightly surprised to the good side with what we saw in June. We're seeing very good trends in the development of a database there, but that's going to take another 6 to 9 months to fully develop. We've seen great trends in food and beverage revenues. They've far exceeded our expectations, so our outlets are being very well-received. And generally what we saw in June, as we typically see in new openings, we have new dealers. And it takes a while for productivity to improve. And we certainly are getting, now, improvement as we get into the third quarter in hands per hour. So we expect to see ongoing improvement to our table games performance due to the proficiency of our team there.

Overall, we are very positive with what we've seen in Toledo for the first couple months of opening. And as you saw with the Detroit numbers in the month of June, we generally grew the market with what we had opening in Toledo, which is another encouraging sign.

It is. And then, Bill, you had mentioned that your outlook right now -- let me rephrase that -- your guidance really didn't change for -- what's implicit in your guidance for Columbus has really changed. But as you guys talk and look at Toledo, how are you thinking about Columbus?

Well, we haven't really taken what we've seen in Toledo and necessarily translated it over to Columbus in terms of the performance we've seen in Toledo, partially because we've internally expected that Toledo was in a more gaming experienced market, I guess is the best way of putting it, versus Columbus, which is more of a newer market. Now, obviously people in Columbus have been frequenting places, different locations, whether it be West Virginia or Indiana properties, but not to the degree that we had in Toledo. So I think our expectations in Columbus really haven't changed that much.

I think we think most of our surprise, to the extent we've seen it in Toledo, is because of the fact that the market has been exposed to Detroit for a very long period and, therefore, the penetration level may have been a little bit faster than what we would have thought was going to happen in Toledo. That's a long-winded way of saying that we really haven't adjusted Columbus, based on what we've seen in Toledo.

Thanks. Just talking about Maryland for one second, how's the initial cannibalization at Charlestown from Maryland Live been relative to your expectations? And then, can you just talk about where you see gaming expansion going there in Maryland?

I'll take the first one, on the impact of Charlestown. You've seen the numbers, the weekly numbers coming out of West Virginia, Felicia. It's still very early. They only opened up on June 6, so we're just a little over a month into the impact, and they are expected to add more product at Maryland Live over the next few months. But generally, right now the impact has been slightly less than we've expected. But it's still very, very early. And we'll see how their expansion continues to evolve our business levels in Charlestown. It's very early to say, and we don't want to provide any long-term indication, given the newness of Maryland Live.

I'll just add just a couple of -- we look at Maryland live as really having an impact, not only on Charlestown but Perryville, and even Penn National to a certain degree. So on a combined basis, pretty much in line with where we thought it was going to be. We've also seen and what we've factored in is clearly an understanding that the cannibalization in the first month is not necessarily completely indicative of -- it's roughly in line with what we've seen, but -- and I don't mean to be pessimistic here in any way. But, clearly, we've seen in other jurisdictions where the impact on the properties in the first month becomes -- there is a little bit more impact to come. That's factored into our guidance, the fact that we would expect to see a little bit more cannibalization at Charlestown as the months go forward with Maryland Live as things settle down and the excitement and the brouhaha over the new property starts to wane and people start to settle into a more predictable pattern.

We are, as you would guess, always cautious. And I think the guys have done a terrific job of trying to estimate the unknowable. So that's partly our job, and they have worked very hard on that. So I think you have the best answer we can provide. As to where other legislation is going, I'm going to ask Eric Schippers to make some comment on that.

As you probably know, the Governor has until August 20, to try to, if he's going to do expansion, get something approved through the legislature in order to make the ballot by November. I think it's safe to say that we have viewed the process from the very beginning as just a sleazy process that has unfolded in Maryland. The reality is that the owners of Rosecroft, we represent the long-term solution for revitalization of racing in that state. And we have made the argument that slots at the racetrack is really the only way to save many thousands of agricultural jobs and everybody that benefits from the racing industry. And yet, we have been on the outside looking in throughout this process, due to what can only be described as a back-room deal between National Harbor and the county executives. And now, shockingly, the governor is the one who is doing a full-court press to try to bring about a deal that, by anybody's measure, is a sole source contract for National Harbor.

So, hopefully, that captures just the level of disgust we have with this process that has unfolded, and we're going to continue to fight it because we think it's an unfair process. And even if they do come out with a competitive bid process, we think it will be less than competitive. It's already been handicapped for the other guys. And we're going to continue to fight to try to prevent the special session. And then, ultimately, if it gets to the ballot, we have no choice but to fight it, given our level of investment at Rosecroft.

I'll say it plainly. It's pretty clear to us that the fix is in, in Maryland, which is shocking because that state -- I think incorrectly, by the way, at the outset -- was very focused on competitive bidding for these facilities. That was their whole focus at the last round. We encouraged them and felt strongly that there are better models around the United States. Look at West Virginia, look at Pennsylvania, look at Delaware, where there is gaming, but the racing industry was included. Racing was saved in a very dramatic way, many, many, many many thousands of jobs, plus we have gaming. Pennsylvania is probably the best model in the United States for a balance between freestanding facilities -- no problem -- and protecting the racetrack.

So for the state of Maryland to suddenly shift to this sort of inside deal that is not competitive -- and of course, now we know that the fix is in with National Harbor. So, look, this is going to be a fight. And we're not happy about it. Let me point you to places like New Jersey, where the racing industry has completely failed; Illinois, where it has completely failed; and, unfortunately, probably would and should stay that way because the casino industry has way too much money invested in Illinois.

So once this horse is out of the barn, if I can use that metaphor, there's no putting it back. That is to say, you've got to include your racetracks as part of a gaming expansion in the state up front or the likelihood of it coming later is ever slimmer. So we view this as a very serious battle about doing the right thing and stopping what we view as a very flawed effort and literally out of character with what the state has done in the past, having an open and competitive process. So we're scratching our head about this. You can appreciate that this will be a very dramatic fight and we're ready for that.

Thank you, thank you for your candor and I appreciate it.

You get nothing else, if not candor, with us.

I know, thanks.

Harry Curtis, Nomura Securities.

Peter, a quick question for you on the transaction market -- do you think that the Harrah's transaction was one-off, or is there a sense that there are more sub-8 times trailing EBITDA deals to be done in sort of stable markets? And ultimately, what I'm trying to get at is, while this makes sense from a financial point of view, I'm trying to get a better understanding of what your strategic endgame here is. Is it simply to increase cash flow? Is it to build a hub-and-spoke network? What is this going to look like in five years?

Boy, that's a series of questions, Harry. Look, it's probably all of the above. This is a big-time property in a big-time market that, for reasons that I think we all well understand, has been somewhat neglected, though performing very, very well in a market where we are not in a major way. So are always anxious, willing to continue to build our franchise around the United States in key places.

As to the availability of other properties and other opportunities, that's hard to say. You know it when you see it. I suspect there will be more. We have an appetite to do more and a long-term plan that kind of always is a thread running through everything we do. At the moment, look, we're well engaged with building new properties, which is a whole lot of fun, fighting a few battles on the fringes of some of our existing properties. So we have -- I won't say our hands are full; they're not. But there's less going on at Penn, and we see, actually, a brighter future as this industry settles out. Look, this is a maturing industry. You see what we all see going on out there, and I see that as opportunity for us looking ahead. But precisely which courses this is going to take I can't tell you today. As I like to say and I've said in the past, we get up here every day and, as I like to say, spin the wheel, and on that wheel are all the opportunities in the United States and frankly, now, around the world that we look at. Some of our people are, to say, off in foreign places right now working on things. It's a daily focus for this Company. And we've been able to pull some rabbits out of a hat in the past. I expect we'll be able to do that in the future. So we're no less motivated, no less focused. So that's a very vague answer, but that's the nature of the business we're in.

I'll just add on that I think, really, when you talk about the specific strategy, spoke-and-wheel, what on, our strategy is about growing free cash flow per share. Any and every opportunity that we have, that we're going to have an ability to do that, we're going to take advantage of it. That's really the underlying driving force behind all the decisions that were making here at Penn.

That's a very good point. We have a very good sense internally of where we see as we roll into 2013, 2014 and 2015 of where the free cash flow in this Company is going to be. And it's a very impressive number, frankly. That is what drives us. It always has been, most of you know, what has driven us. It's not how big we are. In the end, it's how much money we have in our hands. And we're never confused.

And just as a last follow-up, do you have a sense -- it's probably not going to happen in 2013, but thinking about returning cash flow to shareholders? You've got a fairly decent amount of growth in front of you, a decent amount of project CapEx. Do you foresee a time when that free cash flow really begins to get returned to shareholders in the form of a dividend, or even more aggressive share repurchases?

I think, clearly, the answer is we're going to be doing what we can to increase free cash flow per share. And if that involves buying back shares, fine. I would remind everybody that we have the preferred equity sitting out there for the maturity in 2015, which currently has a dilution impact of roughly 27 million to 28 million shares, currently costs us 0% to leave that out there. So there's certainly no incentive for us to go out and accelerate the redemption of that instrument. But that's a mechanism that sits out there. Quite candidly, it fits very nicely, given where our projected capital expenditures are as we stand today would allow us to redeem that instrument. And maybe we'll come up with something else even more attractive than that. But that's the reserve trick in the bag, so to speak, that should -- will have an impact and help us down the future in terms of growing free cash flow per share. And it effectively is a very nice built-in mechanism for us to do a very significant repurchase of shares effectively.

I think Bill answered that very well. You can that we're focused on, be thrilled to take it back in. But it's not the only thing we look at. That's my usual -- again, vague answers. Trust us; we look at every opportunity here and we'll continue to do that.

That's perfect, thanks, guys.

Joe Greff, JPMorgan.

With regard to what's implied in the second half outlook or guidance at Charlestown, the impact for Maryland Live -- is it, the impact, any different than where you were a quarter ago? I know you don't want to be specific, but have you changed it when you look at your aggregated guidance?

Certainly not, on an overall basis. Again, we're looking at the impact that Maryland would have across three properties, which includes Perryville, Penn National and Charlestown, obviously, Charlestown and Perryville having a more significant impact than Penn National. But no, we haven't changed that. We're still pretty comfortable with where we were as of the guidance from last quarter.

And then a question for you on the reverse side. Obviously, the gaming revenue impact there has probably been greater than maybe what some of us had originally expected. Can you talk about maybe what you're doing at the property to mitigate that? I'm presuming, just based on how you report, that contra revenue or promotional allowances are far less. If you can maybe give us a sense of net revenues or margins directionally, that would be helpful understanding that property.

I'm going to let Tim answer that question, because he can do it more thoroughly than I, but just one point I want to make in principle. Those properties on the Kansas side and the Missouri side are completely independent, as we know. And our general managers are charged to push those properties to the limit for maximizing performance in both cases, and the chips fall where they may. That's the guiding light for us. We want both of those properties to be successful. What we'd like to do, of course, is to get ever more business from some of our competitors in the market. But why not let Tim talk about that?

Thanks, Peter. As you know, Riverside is the closest casino to the speedway, and we fully expected that it would take the largest hit from the Kansas Speedway opening. But with all that, we have continued to look at our fight zones in and around that market and try to capture share from Ameristar and Harrah's and, to a lesser extent, [Isle]. And they have been very aggressive in preserving their slot business, especially. And that's been our challenge, but we're not going to be undisciplined in how we go after that. So we've continued to look at geographically where we think we have opportunities to continue to grow the business at a very profitable level, but not overspend in our marketing dollars. And I think generally our margins there have held up very, very well, even though the revenue impact has been double-digit decline. And we'll continue to do that as well at Riverside and, as Peter said, continue to grow both of those businesses as Kansas Speedway evolves now into month six and beyond. We think Riverside has held up reasonably well and the speedway is still continuing to grow its business, especially on the slots side, and that will continue as that market evolves, as that property evolves. As we typically see, it typically takes a couple years for new properties to fully mature.

Great, thank you. And Bill, can you give us cash debt at the end of the quarter, what CapEx was in the quarter and CapEx for the balance of the year? And do you have much in there for Ohio VLTs?

Our cash balance of the end of the quarter was $204.1 million. Total bank debt was $1,775,000,000, cap leases of roughly $2.1 million -- $2.2 million. And bonds were 325, for total debt of $2,102,000,000. Cap interest for the quarter was roughly $17.8 million. Our CapEx for the quarter was $184.5 million, made up of project CapEx of roughly $154.2 million, and maintenance CapEx was roughly $30.2 million.

Looking forward into the -- let's see; you wanted to know about -- looking forward into the third and fourth quarter, our project CapEx is expected to be roughly $160 million for the third quarter and roughly $88.9 million for the fourth quarter. That's -- maintenance CapEx in the third quarter is roughly $23.7 million and maintenance CapEx for the fourth quarter, we're projected to be around $21.2 million. The bulk of our CapEx is -- the only thing that we've got relative to Youngstown and Dayton is we've got the $10 million application fee that we've paid that we'll be paying in the third quarter. We don't expect to see a lot of project CapEx spent actually this year because we're still in the design phases, and the initial costs are relatively minor on those tracks. We're going to pursue those quickly and as expeditiously as possible, but we don't expect to see a lot of spending in the fourth quarter.

Thank you.

Steven Kent, Goldman Sachs.

Two questions for you -- first, on EBITDA margins, they declined year-over-year by 74 basis points, and I was just wondering if you could maybe talk to some of the operating initiatives you have in place for the balance of this year to reverse that, reverse that quarter trend. And then, second, Boyd Gaming, I can't help but note, said that they were seeing consumer weakness, and essentially that seemed to be getting worse through the quarter and maybe -- we haven't talked to them yet, but maybe even into July. Could you talk about what you saw the progression, some of the trends from April, May and June and maybe into the first few weeks of the third quarter?

Steven, this is Tim. I'll cover the first question and the second question. I'm sure Peter or Bill may want to add on to what I'm seeing. But in terms of the EBITDA margin, we have year-over-year the biggest difference is preopening expense that is in there for Toledo and Columbus that wasn't near the levels it was a year ago. As I said at the outset, 11 of our properties actually had improved EBITDA margin year-over-year. So the big difference is the preopening expense for those new properties.

With regard to progression of consumer trends as the quarter has progressed, clearly it hasn't, from our perspective, gotten any worse. It's really been flat. We're not seeing any erosion of consumer trends from what we saw in the second quarter. It hasn't gotten better, but it has not gotten worse.

Thanks.

I think that says it, yes, exactly. Bill, any other (multiple speakers)?

No, no, that's it. We rest on that. So things are okay.

Shaun Kelley, Bank of America Merrill Lynch.

Just one more going back to the cannibalization discussion. I noticed in your guidance commentary that you had changed a little bit of your language around the impacts you were seeing on Lawrenceburg. Could you maybe elaborate? Are you seeing some impact there from Scioto right now? And what's the anticipation? Is there more expected impact from Columbus now in your guidance than maybe you were previously thinking?

Without being too specific, it is clear that we are seeing an impact from the opening of Scioto Downs. The Columbus market -- obviously, Lawrenceburg was, when there was no gaming in Ohio, was clearly generating significant -- almost all this business comes from Ohio. And, certainly, Columbus was a factor in that.

I think we were potentially a little bit surprised with the impact there from Scioto Downs. We didn't -- we thought, with the limitations relative to the facility and whatnot, that it wasn't going to have potentially the impact it had, but it has. So what I think I would advise is that I think the initial impact has been maybe slightly more than what we thought it was going to be, but all that means is that we think that the impact, then, of opening Columbus should already be somewhat absorbed into the actual results we've already seen. So we're pretty much leaving the cannibalization impact to Columbus, generally the Columbus market, unchanged. And so we do acknowledge that there will be some additional impact when we build our facility in Columbus.

Okay (multiple speakers).

To be clear, that's not out of line with what we estimated for the Lawrenceburg impact overall.

That's right.

So we're not changing that.

That's correct.

Okay, I get it. And the second question is just on Sioux City. That's been also, it sounds like, a bit of an ongoing, perhaps frustrating process. Could you give us the latest there in terms of where the negotiations sit, and just maybe what the time line of events looks like? I think based on the old model when you broke out property levels, we're probably looking for maybe low $20 million of EBITDA contribution from the property. What kind of impact would we expect if it was a negative outcome there?

Let me say at the outset that we remain mystified by the behavior some of the parties in Iowa. We've had, obviously, a very long record of success there, obviously committed to building a new facility as the judgment has been made by the state and apparently by the Racing and Gaming Commission that they prefer land side properties. Tricky, of course, because we still have a lot of unamortized cost where we presently sit.

The process has gotten a little bit more heated, as you know. I'm going to let Jordan Savitch speak to just a little bit of the legal side of this. But we think that the behavior, as I characterized it, in as nice a way as I can, is mystifying in Iowa. We obviously cannot allow them to head down the path that they claim they are and have filed suit to challenge that. It's a terrible precedent in the state of Iowa for every other player in that state, because it means now that potentially that that state is utterly unstable, untrustworthy and now unpredictable.

So look, I would hope and expect that saner heads will prevail in the end. But it's an intriguing process. It's not a good precedent, as I said, for the state. All other operators can and really ought to be concerned about it. But it's also a bad precedent around the United States. The idea that you would pull a successful license from a high-performance operator is madness. So in any case, Jordan, do you want to add anything to that?

The words you guys used to describe it -- frustrating and mystifying -- are pretty good words. In terms of the specifics, we had been in the process of discussing with our local partners, the city and our local charitable sponsor a land side move and trying to renew some agreements in connection with that. The Racing and Gaming Commission at the last minute two meetings ago had floated out there that their intentions to do an RFP, which was pre-surprising to us. Following that, we entered into an agreement through 2015 with our charitable partner to get some more time to take a look at this to try to figure out an orderly and good way to do a land side move. And at the last meeting, the gaming board did not approve the contract and issued dates for the RFP which we were really completely floored by. And at this point, we're trying to still make sense of what happened at that meeting, what's going to happen next, the next meeting on August 23. And it's hard to offer you any kind of insight into what's going to happen going forward. It's certainly a very unprecedented and predictable situation.

The only thing I would like to add to what Jordan and Peter had mentioned is, given all this frustrating uncertainty in Sioux City, the good news is it hasn't affected business levels. And our employees there, under a lot of stress with this, have performed very, very well in providing a good guest experience and continuing to maintain the operating performance of that business at levels that meet our expectations. And it's really tough for our employees to work under these conditions, and they've performed beyond our expectations.

I've got to add one more thing. Look, one has to hope that in the end that the Racing and Gaming Commission will do the right thing, recognize that, look, we are one of the best, if not the best regional operator in the United States. I'd like to think we are. There's nobody who can do a better job or who has done a better job for them. So their behavior in this case -- there's a whole new group there, unfortunately, with no history. And I think they've just acted rationally. And in the end, one might hope that saner thinking will prevail. So we remain optimistic, but we'll do what we have to do if it gets to it.

So just to be clear on how this is going through, then, for right now, business continues as usual until at least the RFP is completed and something else is awarded? Or, would you guys operate until a new facility were to open underneath somebody else? Or just exactly how long would you guys continue to operate here?

Well, we intend to operate forever, so you get our mindset. But we can't predict what the behavior is going to be on the other side, and we have jobs to protect, we have business to protect, we have an investment to protect. So you can imagine that, absent a favorable agreement -- which, again, we have to assume will occur -- that this will be a fight to the death. This is unprecedented, for someone to come in and grab a couple hundred million dollars of investment and, well, you know -- well, take it -- not the cash, I'm talking about the business value. It's a lot (multiple speakers) -- and do this. It's just amazing. So we scratch our head, and you get the idea.

Yes, I've probably beat the dead horse on that one. And then my last would just be real quickly on St. Louis. Obviously, you guys are in process on that one. But any change in direction in terms of your assumptions that you've been watching the problem more closely or just in terms of where you've been at there in terms of how much capital you would need to put in? Have any assumptions really changed there, or you have directionally in terms of timing?

Generally speaking, we're pretty pleased with how the property is doing in the interim period, so there's been no nasty or any kind of bad surprises on that level. We're still in the process of developing internal budgets in terms of what we want to do, and obviously that's an iterative process where you start with your fantasies and then you come back to reality. And that's a process that you find out, well, if I want to do everything I want to do, how much will it cost? And you say, well that -- gee, that doesn't -- may or may not make sense, and then you'll make adjustments from there. So that process is not complete.

On the timing, it's still fourth quarter. We'll see. There's a lot of issues that have to get resolved, not the least of which is obviously getting through the regulatory process. But there's a tremendous number of issues that we've got to resolve in terms of being ready to operate the properties. This is, without doubt, one of the most difficult transitions we've done, just given the method of operation by Caesars, where they're much more centralized than any other property we've ever acquired before. So we've got to have all of our ducks in a row in terms of systems and training and employees and functions that are have got to be migrated back to the property. And all of that stuff is underway and going well, but there's a lot of work. It's not nearly as much of a plug-and-play as what we've seen in other transitions that we've done, when we've made other acquisitions. There's no doubt that it's helpful that we've done these other acquisitions because this would be a fairly daunting task, had this been our first try at acquiring a new property. The management team is changing out. That's not normally what we do. Normally, as we've acquired properties, we've kept the management team intact. And there's going to be a change-out almost not completely, but at least of the top guys. Most of the guys are leaving to take other positions in Caesars that we're replacing and we've made some announcements on some of the key positions. Certainly, the GM and the CFO and HR are all going to be Penn employees who have got experience with Penn, which is from our perspective good. But, again, that just makes the transition a little bit more difficult. Other than that, I think I'll turn it over to Tim.

Bill said most of it. That said, we're still in line with our expectations for a fourth quarter close and the rebranding of that property from Harrah's to Hollywood. And we're still working on the details of what all that's going to mean and what's going to happen and time of close, and then what's going to happen post close as we continue to evolve and improve that facility. But everything is still in line with our original expectations.

The concept plans are now complete. We looked at them yesterday, so we have a very clear sense of what we want to do, as Bill well said. Now it's not getting priced and we'll see how close we can get to our goal to convert this to a Hollywood property and get -- and sell some of the excitement that is the Hollywood theme.

Great, thank you very much.

Joel Simkins, Credit Suisse.

A couple quick questions here -- number one, can you talk about Canada, perhaps, and what you're looking at in Ontario at this point? Are you interested more in the downtown location, or perhaps some of the more suburban opportunities?

Joel, in fact, Steve Snyder and are going to be up in August meeting with representatives from Ontario to have -- begin those discussions. We have a broad interest in any opportunity in that province. So Toronto is certainly of interest if we have a better understanding of what they're looking to do there, plus there's other regional markets in that province that also we view as very attractive. So I don't think we've excluded any of our opportunities yet. It's still very early in the discussion stages, but I would say we're interested in everything that represents a good growth opportunity for Penn.

Sure. With regards to the Ohio VLT opportunities, you talked about the 2014 opening broadly. Is this tilted to the first half or the second half? And maybe if you could give some color on what you get for the capital your investing in those properties, how we might think of them relative to what you've built in Toledo or perhaps in Kansas?

Right now, Joel, we've filed our applications for relocating with the Ohio Racing Commission. We've not heard back yet on the response to our application. We're hopeful to have a groundbreaking before the end of 2012, and right now we're thinking first half of 2014. But it's still a very fluid process and a lot of things have not been resolved yet. But clearly, with the $50 million license fee and a $75 million relocation fee, we are going to be very disciplined in how we spend our capital there to make sure we get acceptable returns in both Dayton and in the Mahoning Valley area. And it's going to be somewhere in the range of $250 million to $275 million each.

And Tim, I don't know if you want to take this, or Peter, if you want to chime in as well, but maybe give us your latest thoughts regarding federal/state online gaming, and how you think Penn is positioned provided those events happened.

We've maintained a very cautious position that gives us maximum optionality on all of this. Again, I don't think much has changed in Washington on the federal level here. There has been some potential interest in the Senate to push something. It's difficult to predict what's going to happen, given all the uncertainty prior to the election in November. I'm still of the belief that it's more likely that this is going to be a state-by-state kind of expansion initially. And we've been talking with a number of different potential partners here. We have not made any commitments yet because we haven't had to, and we want to maintain as much flexibility as this evolves so that we are certain that there's the right business opportunity and certain that we have the right partnership and economic model to make money if this does happen.

I'll just add that we're also trying to fight what appears to be a trend by some of the states to allow their lotteries to be the one to offer online gaming. And we want to fight to protect the right of the brick and mortars to participate in this, given our investment in the states. So a state-by-state approach is the one that we would prefer, but we've got to do it so that we can be in the game and not on the outside looking in.

Thank you.

Mark Strawn, Morgan Stanley.

Any read-through on the Columbus market for you guys from the opening of Scioto Downs, and any general views on that property since it has opened?

Mark, I've been there a couple of times. It's certainly not to the quality level that we're going to be delivering in Columbus, and it's also in a more challenging location than what we'll have. So I don't think we're drawing any new thinking for our Columbus operation based on the early results of Scioto at this point. It's a very scaled-down operation with just VLTs, no video poker, no electronic table games. So there's not a lot to draw from what we've seen in Scioto, and it hasn't changed our thought process of how we're going to do in Columbus, I think, at all.

Actually, we're glad to see that they're doing quite well. It was a gutsy move on their part to go ahead and take the risk to do what they did and they've been rewarded with that. So I think we view it as a real plus, if you want to take a small window on the market. But you can't really compare the two properties. What we are opening in Columbus is going to be quite spectacular, and it is a very, very large property, as you all get to see.

Great, thanks a lot.

Steve Wieczynski, Stifel Nicolaus.

So when you look at -- I know in your guidance, you have some cannibalization set in there for when Pinnacle's property opens up in September. But how are you thinking about that market over the next year or so? Could this be a market where you see a greater impact from a new opening versus what you're seeing at other properties in your portfolio?

Yes, listen, we've been very public that we think the inclusion of a third facility in Baton Rouge is just going to be almost a disaster for both them and us, whether that's Pinnacle and their projections and what they think they're going to do. And I can tell you that we are definitely on the south side of that. And we expect the impact to be pretty pronounced. The reality is that it's a market that has been shrinking since Katrina, since 2005, and there's no signs that say that the Baton Rouge market is getting any bigger. And we've got some pretty draconian assumptions in our guidance relative to what's going to happen when the property opens up.

Hopefully, we're wrong. I'd love to be wrong on this one. Because -- and maybe I will be and maybe they'll actually be successful at growing the market. But we're definitely viewing the Baton Rouge situation -- at least, I am viewing the Baton Rouge situation -- as really a lose/lose situation, both for us as well as, really, unfortunately, we think for Pinnacle.

The challenge I have with what's going to happen in Baton Rouge is their bet is that they can create a regional destination out of Baton Rouge and potentially take business from New Orleans and the Mississippi Gulf Coast. And we just don't see that happening, and that's why Bill has got a draconian perspective on the guidance that we have for our property there.

We would have to scratch our head as to why the gaming commission approved a boat in that location. It's clearly, if ever anything was clear, a two-boat market. It's a small market. They simply ran out of places, I think, to put properties, and made, I think, a foolish judgment to allow Pinnacle to go in and decimate the existing two properties. So stay tuned; it's going to be -- I think Bill said it best. We have a realistic assumption of what this is going to be. I don't think it's going to be fun for Pinnacle. We'll do our best, by the way, to make sure that it's not. But this is just a plain foolish decision.

Tim, could you just give an update on what you're seeing right now in Vegas from a promotional standpoint?

Generally more of the same. The locals market continues to be sluggish out there. Promotional activity is slightly more rational than what we saw a couple of quarters ago, and we've certainly, at the end, continued to pare back our marketing expenses where we believe we can improve the profitability of our revenue streams. Generally, it's behaving a little bit better than it had in the past couple of quarters, and we've been able to take advantage of that market, even though, as I said at the outset, it's still a very sluggish market from (technical difficulty).

Okay, great, thanks guys.

Brian Egger, Topeka Capital Markets.

Just as we approach the opening timetable for the video gaming terminals at the restaurants, bars and taverns in Illinois, just wondering if you had any thoughts at all about -- these are obviously smaller facilities -- but about perspective impact on your Illinois properties.

Brian, we don't anticipate any impact from these bars and taverns opening up. We do know that many of these places had illegal operations there in the first place, and this is not something -- we've seen it in other states, specifically in West Virginia, when this all happened. It really didn't have an impact on our land-based operations, and we don't expect Aurora, Joliet or Alton, for this to have any material effect at all.

Okay, thank you.

Dennis Forst, KeyBanc Capital Markets.

First, Bill, I wanted to make sure I heard correctly on the cap interest for the second quarter. What did you say it was?

Cap interest was $3 million.

$3 million, okay. And any guidance for third quarter or fourth quarter with cap interest?

Sure. We've got roughly $2.2 million in the third and roughly $800,000 in the fourth.

Okay, great. And then as far as the guidance on revenues for the third quarter, that would indicate a decline sequentially as well as a decline year-over-year for total revenues, even including the new Toledo casino. So that would indicate to me that you are expecting some rather substantial decreases elsewhere. I've been playing with the numbers all morning and having trouble getting below 710 in revenues. Can you give any color on where those declines are going to be elsewhere, to offset a full quarter from Toledo?

No. On a year-over-year basis, I'm showing, relative to where (inaudible) -- certainly we've got expectations for -- there is going to be cannibalization impacts within Charlestown, Lawrenceburg and National. Baton Rouge starts to kick in, in September. I think we've continued to see declines year-over-year in our Aurora property, as well as Joliet.

But shouldn't those be anniversaried and kind of be flatlined the next couple of quarters with what we saw in the first couple quarters? Or, will there be further deterioration?

Well, not really further deterioration. If you recall what we saw when the rivers opened up is we saw very little impact in the first few months of opening. And now we've settled into a more reasonable pattern. I don't think it's a -- I wouldn't say that we are seeing a deterioration in Aurora and Joliet from the second quarter or even the first quarter of this year, but we're certainly seeing it on a year-over-year basis. With that, I'm really not going to get into more specifics than that. Obviously, it's --

We also have the Riverside impact, too, of the speedway.

That's right. I mean, this is a rough year, guys. I don't want to characterize it any other way in terms of what we're seeing in cannibalization with all the different properties that are affected. The good news is, is as we roll out into 2013 and 2014, that stuff is incorporated. And candidly, as we look at it on a going-forward basis, taking into account the growth pipeline, we're still going to be able to grow from where we're at. So, obviously, it's going to cost us some money to get there, but at the end of the day, we're pretty optimistic on the future.

Good, okay, and I'll go over my assumption with Hayes and try and twist his arm to give me a little (laugher).

And then lastly, for Tim, do you have any feel for what's going to happen in Windsor with their license? Can there be any movement in that market with Caesar's license up there?

Dennis, unfortunately, I have no feel for what the Ontario government is thinking about with that Windsor license at this point. So I don't have any read on that at all.

Okay, but the Ontario -- all the other Ontario licenses are going to be pretty much up for bid, aren't they?

They're looking to privatize everything. They're looking at potentially adding new licenses to underserved markets within that province. I think there's a lot to digest over the next couple months. And as I mentioned, Steve Snyder and I are going to be up there in a couple weeks having some very meaningful dialogue with the folks in the province. So I think within the next 60 to 90 days, how that's going to evolve in that part of Canada will be much clearer to us than it is today.

Terrific, thanks a lot.

We have no further questions at this time.

Excellent, perfect timing. I want to thank you all for joining us today and I look forward to talking again next quarter.

Thanks again.

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