Boyd Gaming Corporation (BYD) Q1 2008 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the first quarter 2008 Boyd Gaming earnings conference call. My name is Fab and I’ll be your coordinator for today. At this time all participants are in listen only mode. We will conduct a question and answer session towards the end of this conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call Mr. Keith Smith, President and CEO.

Good morning everyone. Welcome to our first quarter conference call. Joining me on the call this morning is Paul Chakmak, our Executive Vice President and Chief Operating Officer. Before we begin I need to remind you that our comments today will include statements relating to our future results including the financial outlook and expectations for our second quarter 2008, our expansion and development projects and other market business and property trends that are forward-looking statements within the Private Securities Litigation Reform Act. The company undertakes no obligation to update or revise the forward-looking statements whether as a result of new information, future events or otherwise. Actual results may differ materially from those projected in any forward-looking statements as a result of certain risks and uncertainties including but not limited to those noted in our earning release, our periodic reports and other filings with the SEC. I’d also like to remind everyone that during our call today we will make reference to non-GAAP financial measures. For a complete reconciliation of historical non-GAAP to GAAP financial measures please refer to our earnings press release on Form 8K furnished to the SEC today both of which are available in the investor section of our website at www.BoydGaming.com. We do not provide a reconciliation of forward-looking measures due to our inability to project special charges and certain expenses including pre-opening expenses. Finally, as a reminder we are broadcasting this call on our website at www.BoydGaming.com and www.StreetEvents.com. Earlier this morning we released our first quarter results. These results were in line with consensus estimates as well as our guidance provided at the conclusion of last quarter’s call. During the quarter consumers across the company faced and increasing number of challenge including higher food prices, higher mortgage payments, unprecedented gasoline prices and the prospects of higher unemployment. As a result of these issues, like many other consumer oriented companies we experienced a difficult quarter as consumers pulled back on discretionary spending. We proactively responded to this down turn in business by refining our operations and adjusting our expense levels to be more in line with current business volumes. I’m extremely pleased with the quick and aggressive actions taken by our management team in dealing with this challenging landscape. This is not the first time we’ve seen a downturn in the economy and having an experienced management team has and will enable us to manage through these tough times. We remain confident in our ability to whether these challenges and to emerge in an excellent position to capitalize on long term growth opportunities across the country. Now, I’d like to spend a few moments on our development projects which are at the heart of our long term growth potential. In Atlantic City we are nearing the opening of the spectacular Water Club which is scheduled for the end of June. We have recently completed media events in New York, Boston, Philadelphia and Washington DC and are wrapping up our hiring process. We will begin our training program shortly to ensure we deliver on the highly personalized service levels that Water Club will be known for. The Water Club will be unrivaled by any other property in the Atlantic City marketplace featuring five swimming pools: three indoor pools and two outdoor pools, a two story spa located on the 32nd floor, additional meeting space, three two story resident suites and six designer retail outlet. In Michigan City, Indiana our $130 million expansion of Blue Chip remains on schedule for an opening this December. As most of you already know, this development project will add a dramatic 22 story hotel tower that will include 300 new upscale guest rooms, a spa and fitness center, additional meeting and event space, a new dining and night life experience and a new [inaudible]. We will be formerly topping off the hotel later this week. When complete Blue Chip will become a true regional destination with the most hotel rooms in the market. This added capacity will enable us to expand our reach in the regional destination market and give us the ability to further tap in to the seven million adults living with a 150 mile radius of the property. Moving to the Las Vegas strip, we continue to diligently pursue debt and equity financing for our joint venture with Morgan’s Hotel Group. Based on our progress to date we expect to complete the capital raising and begin construction during the summer. Construction of all other aspects of Echelon continue to advance with foundation work nearly complete on our wholly owned hotels which include Hotel Echelon, the Enclave and Shangri-La Las Vegas. In addition, steel erection for the low rise of portion of the building began this week and excavation for High Street the retail promenade and the meeting center has been completed and foundation work is well underway. We remain on budget and on schedule for a third quarter 2010 opening. As we move forward in to the remainder of 08 the health of the economy will certainly continue to play a key role. Our management team will remain focused on continuing to refine our operations and aggressively managed through whatever challenges present themselves. In addition, we are fortunate to have two exciting projects coming on line during the remainder of 2008: the Water Club; and the new hotel at Blue Chip. These two projects will enable us to continue to grow the business and will be a catalyst of earnings growth over the next 12 to 18 months. Longer term, the Echelon project will provide momentum for the company to continue to grow well in to the future. Thank you for your time this morning. I would now like to turn the call over to Paul Chakmak our Chief Operating Officer.

Hello everybody. Before I talk about our results I’d like to begin with an update on our branding initiative. We successfully launched the first phase of our nationwide consolidated players’ club last quarter when our Las Vegas locals’ property reunited under a new club coast card. While it’s early initial results from our one card launch have shown positive trends. Las Vegas locals rated play per customer for our top tiers, that’s Sapphire and Emerald have grown nearly 12% year-over-year. Additionally, accounts with cross property play increased 35% from Q1 07 to Q1 08 in the Las Vegas locals market. These findings while preliminary show our new tiered club coast program has been well accepted by our most loyal customers. We are now preparing to seize on the same success we have experienced initially in the Las Vegas locals market on a larger scale. Blue Chip recently introduced their new players’ club program to wide spread customer acceptance. As we roll out Be Connected across the Midwest and south region we expect to see similar benefits in terms of increasing loyalty and building cross property play with our core customers. We are introducing programs such as play your way to Vegas that provides us a unique opportunity to drive visitation to our existing Las Vegas properties. When the program launch is completed players will be able to use their cards at Boyd Gaming properties in Nevada, Illinois, Indiana, Louisiana and Mississippi. We are confident that the defining aspects of our one card loyalty program will provide us a key competitive advantage in the coming months and years. As Keith stated earlier, this is a very challenging environment to operate in and forecasting the Las Vegas locals market has been difficult. By some measures the effects of a slowing economy are less notable. The population is still growing by over 5,300 residents per month and the number of people employed is flat to last year. However, a sharp decrease in home values as well as a decrease in both residential and commercial construction has clearly shaken consumer confidence. As a result EBITDA for our Las Vegas locals segments decreased $7.9 million or 11% from prior year levels. In the near term we will have to be patient as our local customers exercise more caution with their entertainment dollars. However, history has shown that each cycle of new construction on the strip has been accompanied by increased visitation and job creation and there is no question in our minds that as the new strip resorts come on line local gaming will rebound along side of them. In downtown Las Vegas EBTIDA declined $3.7 million from prior year results due to a combination of decreased gaming revenues as well as increased losses with our Hawaiian Chartered business which has been impacted by sharply higher fuel costs. The Midwest and south region has been the most resilient to the economic downturn. While Blue Chip EBITDA was down $13 million on a year-over-year basis, the balance of the region collectively increased EBITDA by $1.4 million or 3.9%. Blue Chip continues to be impacted by new competition but as construction progresses on the new hotel we’ll be better positioned to expand our reach and improve our market share. In Atlantic City, Borgata’s gaming revenues in the quarter declined 4.6% from prior year levels and resulted in our share of Borgata’s operating income decreasing by $2.9 million. Increased gasoline prices, competition from the Pennsylvania slot parlors and general economic worries all contributed to the decrease. Borgata nonetheless remains atop the Atlantic City market leading in virtually every key gaming area. The results for the first quarter have given us a much better perspective on 2008. Consumers are clearly shaken by the economy and we expect the first half of the year to remain challenging. In the near term we will operate our businesses as efficiently as possible and remain focused on growth and branding initiatives. With those factors in mind, for the second quarter 2008 we’re estimating adjusted EPS from continuing operations to range between $0.28 and $0.33 per share with a corresponding adjusted EBITDA of $118 million to $128 million. Operator at this time we’d be happy to take some questions.

(Operator Instructions) Your first question comes from the line of Larry Klatzkin – Jefferies. Lawrence Klatzkin – Jefferies & Co.: A couple of questions here, construction costs for Echelon Place and for the Blue Chip property can you just embellish on that?

Well, construction costs for both those projects are running on budget and we haven’t updated any budget numbers on either of those projects because they both continue to remain on budget. So, I don’t know if there’s any other clarity that I can provide. Lawrence Klatzkin – Jefferies & Co.: What does it take in Florida to go forward? Is there’s anything that you’re looking for to reconsider the timing of that?

Well, we’re obviously watching closely some of the legislative action relative to tax rate. As we’ve all taken a look at that market the revenues coming from that market for the paramutuals has been less than anticipated. As a result with a tax rate over 50% it’s certainly challenging to make an investment there. So, I think a key factor in our mind would be some rationalization of the ultimate tax rate to spurn economic development there. Lawrence Klatzkin – Jefferies & Co.: As far as corporate expense, I know your corporate expense is a lot lower than people were thinking for the first quarter. Should we still think of it being higher in the second quarter like you had previously indicated?

No, I think the expectations for the second quarter what we said on our last call was for the full year corporate expense was going to run about $8 to $10 million higher than 2007 and we said that increase would predominately be in the first half of the year as a result of the one card launch. To Keith’s comments and as you would expect we have had a very sharp eye on expenses. With that said, we think it is very important to launch the be connected initiative throughout the Midwest and south region and so though corporate expense was only about I think $1.5 million higher in Q1 versus the same period in 07, you should expect it to be higher than what was maybe an abnormally low corporate expense number in the second quarter of 07 more along the lines of what I had estimated previously. Then, I would suggest that we would go back to a more normal pattern. Lawrence Klatzkin – Jefferies & Co.: Then the last thing, Michigan City’s proposing some kind of smoking ban, is anything going on with that?

I think there’s been a little bit written about that recently and the facts as we understand them is there’s simply an individual out there collecting information. We’ve talked to the mayor, we’ve talked to various council people, the understand the importance of the Blue Chip to the community so it’s more of an information gathering not a proposed smoking ban so I think there’s probably just some misinformation out there.

Your next question comes from the line of Celeste Brown – Morgan Stanley. Celeste Brown – Morgan Stanley: Just thinking about the Water Club expansion, I know times have changed quite a bit since you originally announced it and particularly with the economy and the smoking ban with AC and everything but how do you think about the return now and the cumulative investment there I think will be about $600 million with the gaming expansion and then the hotel tower. Are you still thinking around 15% or should we temper our expectations in this environment?

Well, as you indicated with the economy, with competition from Philadelphia and smoking it has a much bigger impact than when we first anticipated and developed this project so I think returns probably are a little bit lower than maybe we originally anticipated. We’re certainly expecting big things from the Water Club, it’s a beautiful property, it’s a beautiful hotel when you get a chance to see it and we’ve had good early demand for the rooms as we’ve opened up sales. But, returns will probably bit a little bit lower than initially expected. Celeste Brown – Morgan Stanley: Then how do you think about this now full smoking ban in AC? Do you think you’ve felt the full impact considering how much of the floor has been cut down? Or, is there may be a bit more of an impact now on the market now that there’s a full ban in place?

The full ban actually goes in to place sometime between now and October 15th, or said another way by October 15th we need to be 100% non-smoking on the casino floor so between now and then we’re still allowed to have the same 25% that we’ve been restricted to for the last little while. We’re working on plans to accommodate our guests smoking. We think it will have some impact, I don’t know that it will be a significant change to what you’re seeing today.

Your next question comes from the line of Joe Greff – Bear Stearns. Joseph Greff – Bear Stearns: Paul can you talk about your willingness to provide back drop financing to Morgan’s Hotels joint venture. I think you guys referenced this earlier in the call, I joined late.

Well, I think our direction at this point continues to be along the lines of raising some additional equity given the current status of the debt markets from third parties as well as have providing what is effectively project financing on the overall Morgan’s complex. I think obviously we believe the Mondrian and the Delano play and important part of the overall complex and Morgan’s adds certainly value in managing those particular hotels. At the same time we certainly have to be practical about the resources that Boyd Gaming has and so we certainly balance those out. At the current pace we certainly expect to be able to complete the financing we’re anticipating in the summer as Keith mentioned and then we will be fully designed and bid out and ready to start construction. Joseph Greff – Bear Stearns: Okay. Then maybe this is more – well you can be as quantitative as you want and maybe you’ll provide at least some qualitative response. When you look to the back part of this year and in to next year what kind of impact do you think the Cannery East has on your overall stake of locals’ revenue and EBITDA margins and EBITDA performance? And, is there a way that you can operate that property any differently so that you can preserve margins?

We’ll we’ve been making significant investment in Sam’s Town Las Vegas in particular. That in our mind would really be the only property that would be impacted as the Cannery East is adjacent to Sam’s Town Las Vegas but really miles away from the other three properties that make up the major Las Vegas local properties. We have gone about really very diligently making significant public space improvements and will continue to do so at Sam’s Town Las Vegas where from a total investment standpoint we are obviously well, well in excess of what the Cannery will be putting forward as far as product offerings is concerned both in terms of public space, hotel rooms, meeting space, etc. and obviously have a very loyal clientele out there and have competed certainly heads up in that market with others including many of the Station properties. Joseph Greff – Bear Stearns: Sam’s Town is about 25% of total EBITDA, roughly right?

For the Las Vegas locals market? It is a little bit less than that but in that ballpark. There’s certainly always an impact when some new entrant comes in to a market capacity and the bolder strip region is being increased our estimation of about 15% and obviously there will be some cannibalization associated with a 15% increase in gaming position that will be shared throughout the region. Joseph Greff – Bear Stearns: Then an easy question, construction in progress at the end of the quarter, what was the balance?

It’s about $400 million. Joseph Greff – Bear Stearns: And planned cap ex for this year, has it changed from the last call?

No changes.

Your next question comes from the line of Felicia Hendricks – Lehman Brothers. Felicia Hendricks – Lehman Brothers: Just getting back to your financial flexibility, I was wondering if you could just walk me through what kind of flexibility you have for raising more expansion capital if you need to? For example, do you think you could still leverage Borgata? Can you increase your revolver? Those sorts of things?

Well, on the revolver side Felicia the total revolver size is $4 billion so obviously we have significant capacity under that overall facility with obviously a covenant package that ramps up as far as total leverage is concerned as spend on Echelon progresses. So, that provides us certainly significant liquidity and is a competitive advantage to us and we certainly know that very well and we’re very protective of that. As it relates to additional capital needs Borgata continues to be really under levered from a pure corporate finance perspective. We have always said that we wanted to get the Water Club open and operational and then we would look in 2009 and beyond with MGM to really right size the capital structure. It certainly affords us the opportunity to take a dividend out of Borgata in excess of what are already very large dividends based on the existing operation base. So Borgata is a real opportunity I think for both the companies that own it. Felicia Hendricks – Lehman Brothers: Staying on Borgata for one second, just as a follow up, you talked about returns earlier and maybe this is the same way of asking the question or a different way. When I think about the EBITDA margins after you open, are you looking to kind of go back to more normalized levels or because the environment is so different now you’re going to look towards something in between those levels that you use to do and what we’ve been seeing now. Can you maybe just give us some kind of idea of where you think margins might come out?

It’s a little difficult to answer that question. What will happen when the Water Club opens is the revenue mix of the property will continue to change as we open up a property that will have fairly high hotel rates and will have good flow through on those rates as we bring more people in to the building that dine in the restaurants. Those margins are somewhat different than the casino margins so the mix of revenues will continue to change there and I couldn’t today give you an indication of where those margins will settle in because once again, the business mix will change as we fill up that hotel. Felicia Hendricks – Lehman Brothers: Then just to your Las Vegas locals operation, I was wondering if you had looked at your STE level and if you had kind of analyzed where they are particularly in this environment if perhaps they’re too high? And, are you planning on maybe cutting those numbers? I know a lot of your competitors have.

We’ve actually been preparing if you will, or have been looking at the situation since late in the year in late 2007 and began in early 2008 implementing a plan to refine the operations and to take costs out of the business where we thought costs could come out. We were careful about it we were very thorough about it and have been executing on that plan frankly for the entire first quarter. So, we have reduced headcounts throughout the organization, throughout the company, we’ve reduced expenses where appropriate throughout the company but we’ve done it in a very systematic and very quite fashion once again over many, many months and so you haven’t seen any real blips. Or, maybe to your point we haven’t seen it show up in the newspaper but we have taken a significant amount of cost out of the business already during the quarter.

Your next question comes from the line of Larry Haverty – [Inaudible]. Larry Haverty – [Inaudible]: A couple of questions one, what’s your best guess for cap ex in 2009 and 2010? Then, one follow up question.

Well, we haven’t given specific guidance and haven’t historically given guidance Larry relative to cap ex beyond 2008. Obviously, the preponderance of the capital spending in those two years will be related to Echelon and I think directionally we’ve said we will be fairly equally weighted over the course of the next three years and frankly trailing that even in to 2011 post Echelon’s opening as retentions are released and bills are wrapped up and finally paid. Other than that, relative to major capital spending Blue Chip and obviously the Water Club are completed in 2008 and there are no other major projects other than Echelon in the spending forecast so it would be really limited to about $120 million of maintenance cap ex that we have on an ongoing basis for the company annually. Larry Haverty – [Inaudible]: What’s your net debt at the end of the quarter?

About $2.25 billion. Larry Haverty – [Inaudible]: And, with the troubles in the Las Vegas housing market that you alluded to I’m just curious do you see a set of changes in the construction market where maybe six months to a year from now because things are as bad as they appear to be and probably for the rest of the world aren’t going to get better because they don’t have that $4 billion revolver that you do, that you could be up here and say, “We’ll, we’ve had a decline in construction estimates. Or does the looseness merely allows you to maintain your budgets in the light of pretty nasty material increases on things like steel, etc.

Your question was in relation to the Echelon budget? Larry Haverty – [Inaudible]: Yes.

I think we’re very comfortable today with the Echelon budget given where we’re at with the project. We have another 2.5 years to go certainly before that project is ready to be unveiled but we’re very comfortable with today’s budget and today’s construction climate and we’re getting good interest from contractors to work on the job. We have a lot of bidding going on, on the project. Everyone’s got a tremendous amount of interest and looking out in to the future is difficult. I’m not sure my crystal ball is any better than anybody else’s. Larry Haverty – [Inaudible]: Let’s look in to the past which with the situation you just describe, nine months ago would have you have thought it would be that good in terms of people interested in the prices? Or, is it more or less stable from nine months ago?

Well, I think nine months ago if you probably play back the tape we were very confident about our budget, very confident that we’d have a lot of interest in the job and that we’d be able to get a lot of bidders on the project. So, I think when you fast forward it to today we’re at where we thought we would be at.

Larry, I think the biggest probably difference between what everyone was talking about nine months ago and today was availability of labor and construction labor in particular. And obviously, with the slowdown to put it mildly of the residential market in the region labor is certainly no longer an issue on anybody’s radar screen.

Your next question comes from Steven Kent – Goldman Sachs. Steven Kent – Goldman Sachs: Can you just talk about the negative operating leverage that incurred in the first quarter? I know somebody earlier asked about expense controls and it sounds like you’ve done quite a bit but you’re still getting an almost 2:1 decline in revenues, decline in profit. I’m just wondering if that’s all the charter issues you referred to in the downtown properties? Are there other things that you can do to reduce that kind of negative operating leverage over the next couple of quarters? Then finally, the lower tax rate in the quarter, what are you looking for, for the rest of the year?

Well, as I indicated we spent a good amount of time during the quarter taking expense out of the business and trying to manage the operation to the best of our ability. We’ll continue to do that as we go forward throughout the rest of the year. I think each of the regions if you will are different in terms of what they’re seeing. You mentioned the downtown region and fuel prices are having an issue as well as simply the cost of airfares and people getting from Hawaii, getting from the islands over to Las Vegas so there’s an impact on the disposable income the consumer has once they get here. The Midwest, as Paul indicated in his comments are having slightly different issues, the impact there is not as severe as we’re seeing in maybe the Las Vegas locals market. So, each of the regions is somewhat different but we continue to manage the business as effectively and efficiently as we can and we’ll continue to work through that.

On the tax rate question specifically, on the last call we highlighted the fact that we expected the tax rate for 2008 to be about 36.5%. It was a bit lower than that in the first quarter, that was driven by the write down of the [inaudible] assets in particular but I would continue to use 36.5% as our best guess at this point for the remaining quarters of the year.

Your next question comes from the line of Jeff Logsdon – Bank of Montreal. Jeffrey Logsdon – Bank of Montreal : Could you just go back over your expectations now, total project costs on Echelon and your contribution to it just to refresh our memories?

The total project costs for the wholly owned aspects of Echelon is $3.3 billion and all this is detailed quite well in actually the 10K in particular. So that is all really funded by Boyd Gaming. Then you have two joint venture components, you have the Morgan’s joint venture with an estimated project cost of $950 million of which we per our agreement with Morgan’s will put in 6.1 acres of land valued at $91.5 million and Morgan’s will put in a like amount of cash. Then, the retail joint venture with General Growth Properties which has a total estimated budget of $500 million of which again, Boyd Gaming will put in, in this case air rights, Morgan’s would match that amount with $100 million of cash and then at this point in time it’s anticipated that both companies would fund the balance of the project costs equally.

Your next question comes from the line of Bill Lerner – DB. William Lerner – Deutsche Bank Securities: Actually two questions, one on the locals side of things, the number obviously while it was down is probably better than some anticipated especially after looking at January and February down in the higher single digits. So, I guess the first question is, is that attributable to the player card initiative or something else going on there? Then, the other question is on the Olympia JV in North Las Vegas, essentially the impudence to that, I guess it was probably too much supply in the pipeline up there. But, what do you do with your acreage up there and a little bit of color around that would be real helpful.

The Las Vegas locals business itself and the margins, clearly we believe there is benefit to the business in the first quarter relative to the new club coast program. Case in point from some of the stacks that I put on in my comments, we’re really quite pleased in what is obviously a tough business environment to be able to show gains like that at our top tiers. I think that certainly does help drive the business whether its good times or more difficult times and we’ll obviously be well positioned as markets recover overall. To Keith’s point, we have also very systematically tried to address cost issues not only at corporate but also in each one of the operating units and as you know from our past comments we have been focused over an extended period of time really just right sizing and blending in the original three coast properties in to the Boyd style of operation. So all that really comes together to garner the results that were announced.

I think the other thing Bill just about those results is when you look at March in particular the way of the timing of Easter this year and it falling over the first weekend the NCAA tournaments had probably a larger impact than most people anticipated certainly, than we anticipated on the March results. It’s traditionally a very high volume weekend with full occupancies that was not a high volume weekend and we did not have a full occupancy. With respect to Olympia, the Olympia site is not an approved or a zoned site right now. We’re going through the process of attempting to get that zoned. It is part of a master plan community, it is a little closer to the center of the population or what will be the center of the population in North Las Vegas. Our site is a little further on the outskirts and if we’re able to successfully get this project approved and zoned we would end up deed restricting our site and selling it. William Lerner – Deutsche Bank Securities: So in other words you remove the gaming entitlement from it?

Yes.

Your next question comes from the line of Justin Sebastiano – Morgan Joseph. Justin Sebastiano – Morgan Joseph & Co., Inc.: How have the trends in April compared to those in February and March in the locals market?

Well, I don’t think we’re going to get in to specific trends in April. Obviously, it’s embedded within the guidance for the quarter overall. I think from an overall marketing perspective in the Las Vegas locals market I would say that they are pretty consistent with what we’ve seen over a really relatively extended period of time, 12 to 18 months, so nothing really new there relative to competition. Certainly there have been changes in the way companies have marketed both from our perspective and from the competitors to adjust to new programs but we see that as really part of the really normal course of business. Justin Sebastiano – Morgan Joseph & Co., Inc.: And at the corporate expense level how much of that was related to spending on the one card initiative in the first quarter?

Well, we said in our last call that we expected the $8 to $10 million of increased corporate spending for 2008 to be really associated primarily with the launch of one card. That would imply rough estimate $4 to $5 million in the first quarter. Certainly, that was offset by obviously some more frugal spending in other areas and frankly, not a full spend overall of that launch budget. Justin Sebastiano – Morgan Joseph & Co., Inc.: So what you guys were able to cut out of first quarter ex the one card initiative are you then end up putting that back in the balance of the year in order to get back to that number you said which was basically $8 to $10 million above previous years corporate expense just to get on that same run rate you guys were talking about on fourth quarter conference call?

I think relative to the second quarter I think I would as I said earlier stick with the estimate of it being up $4 to $5 million. As far as the balance of that budget given the current business climate I wouldn’t necessarily expect it will slip in to the third quarter at this point in time. Justin Sebastiano – Morgan Joseph & Co., Inc.: Is there enough fat left in the cost structure to continue to realign these expense levels or at least in second quarter?

Well, I might take offense to the term fat but we continue to look through it. I think you can always continue to look at the business and find ways to refine it and I think the key here is simply matching up expense levels to revenue trends and you have to manage that on a daily and on a weekly basis and we’ll continue to do that. Is there more low hanging fruit or maybe fat to cut out? No, I think we’ve pretty much gone through that. Are there continued opportunities to refine the business? I think there’s always continued opportunities to refine the business and we’ll continue to stay focused on them.

Your next question comes from the line of Dennis Forst – Keybanc Capital. Dennis Forst – Keybanc Capital Markets: I had a question about interest, what is your current cost of capital? It looks like if you add back the capitalized interest in the quarter you get a gross interest expense that’s lower than the first quarter of 07 even though you’re total debt is up at least a couple of hundred million.

This is being driven by LIBOR rates being as low as where they are and the floating component, our overall blended cost of debt capital is about 5% right now. Dennis Forst – Keybanc Capital Markets: How much floating versus fixed? We’re about 60% fixed, a portion of that is obviously our bonds and there is an additional portion of the bank credit facility that is swapped fixed. So right now 60% fixed 40% floating. Dennis Forst – Keybanc Capital Markets: And I think earlier you said your net debt was 2.25%?

Yes, it’s about 2.2% when you look at the numbers. Dennis Forst – Keybanc Capital Markets: Now, in the press release it said 2.4 debt so what’s the difference between the debt in the press release and the 2.2 net debt?

Just the cash that’s on the line below it. Dennis Forst – Keybanc Capital Markets: Then, lastly how much capitalized interest for the year? Is it any different from what you said on the fourth quarter call, you said about $50 million for the year.

Yes, that’s correct. Dennis Forst – Keybanc Capital Markets: Then on a different subject, the locals market, I think in the fourth quarter you gave a qualitative assessment that you thought your market share had gone up a little bit in the December quarter. Can you give us some qualitative guess at where your market share is now after the first quarter?

I don’t think we have any additional color on that other than just some of the stats we put out relative to the club.

There are no further questions in the queue. I would now like to turn the call back over to Mr. Keith Smith for closing remarks.

I want to thank everybody for joining us this morning and we look forward to speaking with you gain for our second quarter conference call. Have a good day.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a wonderful day.