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Penn National Gaming (NASDAQ:PENN)

Q4 2012 Earnings Call

January 31, 2013 10:00 am ET

Executives

Joseph Jaffoni

Peter M. Carlino - Chairman of the Board and Chief Executive Officer

Timothy J. Wilmott - President and Chief Operating Officer

William J. Clifford - Chief Financial Officer and Senior Vice President of Finance

Eric Schippers - Senior Vice President, Public Affairs & Government Relations

Analysts

Felicia R. Hendrix - Barclays Capital, Research Division

Joseph Greff - JP Morgan Chase & Co, Research Division

Carlo Santarelli - Deutsche Bank AG, Research Division

Richard A. Hightower - ISI Group Inc., Research Division

Shaun C. Kelley - BofA Merrill Lynch, Research Division

Dennis Farrell - Wells Fargo Securities, LLC, Research Division

Ray Cheesman

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Penn National Gaming Fourth Quarter Conference Call. [Operator Instructions] Afterwards, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead.

Joseph Jaffoni

Thanks, Tina. Good morning and thanks everyone for joining Penn National Gaming's 2012 fourth quarter conference call and discussion of the planned REIT. We'll get to management's presentation and comments momentarily as well as your Q&A, but first I'll 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. And when required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measure 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. Peter?

Peter M. Carlino

Well, thank you, Joe, and good morning, everyone. Well, to get right at it, the fourth quarter was a little softer than we and you all would have liked. We'll take some time perhaps to talk about some of the reasons for that. And then broadly, I think, you can define as well as I, the sense in the economy today. We had of course the election this fall. And I think in general, a despondency in the part of a lot of folks and a few of us still despondent following the results of that election. We've got higher taxes to deal with and despite promises that it wouldn't affect the middle class, we all know of course, that it has. So these are unsettled times.

Nonetheless, there's still lots of good stuff going on at Penn. Ohio continues to ramp-up for us. And I'm going to ask Tim to talk about this in much more detail. As we opened Penn National, I think we were pretty careful in saying then that we expected a multiyear evolution in a market that was largely new. We expect and I think you can count on pretty much the same effect in the Ohio markets as they mature over the next couple of years. Needless to say, we would have liked to have more out-of-the-box up front. But things are moving along well there and ultimately those properties will be everything that we think that they should be.

We've got the racetracks coming along and we'll probably get to that in more detail later. So all in all, I mean, it's a -- it was a tough last quarter, much tougher than we would have liked but this is a new year and we're off and running with a lot of good stuff. To me, it's making significant progress. Again, we'll answer your questions about that. So on balance, at Penn, we always take the long view and the long view in my mind looks very good. Tim, why don't you take some time and share your thoughts?

Timothy J. Wilmott

Thanks, Peter. I'd like to cover 3 different subjects at the outset of our call. The first is what we're seeing in Ohio. And clearly, we're seeing a slower ramp-up in slot volumes than we initially expected, especially in Columbus to a lesser extent in Toledo, but we thought we'd be further ahead in slot volumes than we actually are.

On the other side of it though, table games, food and beverage revenues and poker revenues are actually exceeding our expectations and have been very, very solid. We continue to work in Columbus to try to continue to penetrate new households and continue to introduce our Hollywood facility to the new customers in central Ohio. And in both Toledo and in Columbus, we do expect in January to show a sequential growth month-over-month in our slot volumes. So we are making progress. There's no questions, we look at the metrics in Ohio and we look at our penetration levels. We're going to get to where we want to be, it's just going to be a slower ramp-up than we had originally thought. So we're going to continue to stay focused very aggressively on introducing our Hollywood products to customers in those 2 markets and continue to grow the business as we progressed through 2013.

Next, I wanted to just give an update on St. Louis. As many of you know, we closed the transaction of that acquisition in the first half of November, and we've been working very hard to integrate all of our systems in there. And I believe by the end of the year, we've stabilized the customer experience and now have all of the information we need to service customers. And it's now turned our attention to rebranding the Hollywood look and feel into the public space in the casino space and that project got started right after the first of the year. We're breaking up the casino floor in chunks. We've got a large phase underway right now. We have about 400 machines offline as we do that phase 1 work and these will occur throughout the course of the year and conclude in the early December time period of 2013. And we're doing our very best to try to make sure we don't dampen revenues and diminish the customer experience while we do all this construction work. And the design and construction team has done a very good job up to this point to accomplish that objective.

The last thing in my concluding remarks, just the general overview of what we saw in the fourth quarter. And clearly, as we look at the 18 properties that were showing year-over-year results, half of those properties are now experiencing the effect of new supply. And as we look at that effect, as we expected, we are losing trips to this new supply in various markets. But the average quality of the player that has stayed with us has actually improved a bit. And we're able to respond to the newer business volumes and the newer and updated trip frequencies. And I think you'll see in our results that generally overall, we're managing to our lower volumes very efficiently. We've shown 170-basis-point improvement year-over-year in our EBITDA margin across the enterprise. And as I reflect back on the fourth quarter, October was a very soft month and the pre-election softness was evident across almost every market. Then we get into the fiscal cliff uncertainty toward the end of the year. And now what we're trying to assess is the impact of workers seeing lower amounts in their paycheck with the increased payroll taxes. And it's a time where we're still assessing what the impact is going to be on consumer spending. I'll end with a final comment. We're seeing, so far in January, pretty similar volumes to what we saw in the fourth quarter. So we're not seeing any changes to business volumes at least through the first 4 weeks of the new year.

So with that, we'd like to -- we've got entire team here, we'd like to turn it over to questions from the callers.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Felicia Hendrix of Barclays.

Felicia R. Hendrix - Barclays Capital, Research Division

Tim, thanks for those comments, those were helpful. I just wanted to touch on a couple of things that you said. First, just regarding the outlook and what you're seeing or what you think we're going to see for the year. You lowered your guidance for '13. Language in the release was cautious. Clearly there's still a lot of uncertainty in the market place given some comments that you just made. With these new numbers though, do you feel like you're in a better place or do you still feel like if you had to handicap your new guidance at all? I mean, how do you feel about that?

Timothy J. Wilmott

Well our expert handicap around guidance is Bill.

Peter M. Carlino

We're all pointing at Bill right now.

Timothy J. Wilmott

We're going to turn that question, Felicia, over to Bill to give you his insider's track.

William J. Clifford

The inside look at the numbers. I think we feel reasonably good about these numbers. I think -- I wouldn't want to indicate that this is like a slam dunk, that we're going to hit the numbers. But I think, looking out over the year in its entirety and assuming there's no catastrophic events that happened like all of a sudden Congress decides to do something really stupid relative to itemized deductions or whatever. That -- then we feel that this is a number that's attainable. I think I would cover -- I would -- I guess, in summary, covered as probably 50-50, that there's probably in that range. We're in a 50-50 range in terms of expectations. It could be a little bit higher, it could be a bit lower but I feel pretty good about the number.

Timothy J. Wilmott

The one thing on the first quarter assessment of where we are. We looked last year, we were fortunate to have just tremendous winter weather in our markets. So I think we factored in that -- a more of a normal winter going through the first quarter and we also obviously factored in the fact that we don't have 29 days in February like we had last year.

Felicia R. Hendrix - Barclays Capital, Research Division

Okay. And then, on Ohio. And this is really for all of you because you guys have decades of experience in this industry and in opening new markets. Just -- can you help frame for us what you think is going on in Ohio? It sounds like your tone has kind of gotten a little more cautious than it's been. Obviously, the numbers have been what they are, but even in previous conversations, you guys seemed a little bit more optimistic. So is it market saturation? Just overall, is it something else? What do you think is going on in Ohio?

Timothy J. Wilmott

I think the -- in Central Ohio, the primary issues is market penetration and getting into new households. We have to do a better job of introducing our new facility on the west side of town to more and more customers. I don't think that it's saturation, clearly not in Central Ohio. And I don't think it's saturation in Northwest Ohio either, Felicia, because you looked at -- you look at the Detroit market in the fourth quarter, they were only down 3%. And our numbers in the Toledo market really represented regional growth for that part of the Midwest. So I don't believe there's a saturation issue that we're experiencing in Ohio right now. It's more a penetration issue.

Peter M. Carlino

Felicia, let me add something to that. I was thinking as Tim was talking about Charles Town. We started very slowly over the years in Charles Town, opening many, many years ago with 400 machines. There, we took our time. We grew that property to the lofty levels that we have it today in 500 machine increments. Somebody consider just thinking about Columbus, it's that, literally overnight, we dumped over 5,000 machines into the market. And expected instant results. And maybe in a sense that wasn't reasonable. So as we look at it and just think about it, it's going to take some time to absorb that. As Tim well said though, we have every confidence that those machines will be well and better absorbed over time. And I think that's really the best illustration I can give you.

Felicia R. Hendrix - Barclays Capital, Research Division

That's actually really helpful. Just final housekeeping. Bill, corporate expense is a little bit higher than we expected in the quarter. Should we look at that as a trend or how should we expect that to trend especially as you work through the REIT conversion?

William J. Clifford

Well, listen, I think, in this quarter we had some items that were onetime of -- in nature as we've disclosed relative to some development costs in the Cherokee County accrual that we've taken, as well as we were ended up about $2 million higher on the Maryland lobbying expenses than what we've indicated when we updated our expectations back in November. I think going forward, I would expect corporate overhead to come back to a more normal level, probably in the -- on a normalized basis, somewhere around $80 million would be our expectations. Now, having said that, if we get to the REIT conversion, there's going to be a lot of stuff happening at the end, it will have an enormous amount of charges going all over the place as we go through the reorganization of the company, tender costs, et cetera, et cetera, et cetera. So when the -- there will be adjustments to goodwill, there will be a number of advisory fees and underwriting fees and all kinds of good stuff that keeps bankers on Wall Street very happy, as well as attorneys and accountants. So we'll have lots of happy consultants that we're not including in this number. But on -- but I kind of look at that as just kind of a cost to doing business to obviously make the transition. And we have not include those expenses in our guidance. We're trying to keep it, trying to help people understand the run rate because that's how we look at the company. As we look at it going forward saying, "What do we care about?" Well, what we care about is the sustainable run rates and what's the normalized expenditures going to be on a going forward basis.

Operator

Our next question comes from Joe Greff of JPMorgan.

Joseph Greff - JP Morgan Chase & Co, Research Division

Just another question on the 2013 revised guidance. The revised guidance is 3% below where it was before, not a huge amount. The delta and EBITDA, is that kind of broad-based or is that concentrated, really, based on this slower Ohio ramp? And then, Tim, on the topic of Ohio, both Toledo and Columbus. Should we think about the operating expense structure changing there if you're marketing a little bit more that -- than and maybe looking back at the 4Q in Columbus, maybe you were under-spending on marketing relative to the market penetration rate that you've experienced? And third question, I guess, with respect to the 2 Ohio tracks, given this initial experience for the 2 properties in Ohio, does that -- did that experience -- did this experience cause you to rethink how you're maybe marketing or going to run those tracks?

William J. Clifford

I'll touch on the first question and then turn it over to Tim.

Timothy J. Wilmott

I'll get the last 2.

William J. Clifford

Relative to what changed in our guidance. I would say that it is a combination of primarily what we saw in November, December and trend lines in January and its impacts on just where we are today as a base level for Columbus and Toledo. And recognizing where that's at is really what's caused the majority of the delta. And that's reflected as you'll see in the rent adjustments if you translate that further out to the REIT. You can see that we've obviously brought down our revenue expectations in Columbus and Toledo, which is what's causing the rent reduction of roughly the $8 million in rent reduction. There's also a little bit of an impact in terms of what we're seeing in Hollywood St. Louis, so that's really the bulk of what's changed since. And we're just kind of working through some issues there and I'm sure we're going to get everything in line and on track. But also understanding just how much there may be in construction disruption. But I would say that quite candidly, relative to the 3 items have changed that, that's certainly by far, the smallest change was what we're seeing in St. Louis.

Timothy J. Wilmott

Joe, the second question regarding what we're seeing in terms of reinvestment. It was noticed that our competitor in Columbus outspent us 4 to 1 in the month of December with promotional slot play. And we are going to respond and have responded in the fight zones we think are there for those customers. But I don't think you're going to see that have a material effect on margins in the Columbus market. And in Toledo, no, we're a little bit more by ourselves there. And Detroit's an hour away, North in Cleveland is a couple of hours to the East. We are looking at again the fight zones, but any increase in reinvestment will be done very thoughtfully with a disciplined test and control process to make sure that it is going to enhance EBITDA. And then finally, to talk about Dayton and Youngstown, based on what we've seen so far in the Columbus and Toledo markets. I think the one thing that we're going to look at, we still believe our location in North Dayton and Youngstown are very good operations for us. We're going to place a lot of thought into how much slot product we put on the floor initially to make sure we allocate the capital properly to those markets. And then as we see business trends improve, continue to add product when the wind per units hit our certain thresholds that trigger us for more supply. But it doesn't at all give us any concern that we're not going to get good returns of those investments in Dayton and Youngstown as well.

Joseph Greff - JP Morgan Chase & Co, Research Division

Great. And though my final question, if you can maybe give us the cash debt CapEx in the quarter? And 2013 maintenance and project CapEx?

William J. Clifford

Sure. Yes. The 12/31, well, fourth quarter. Total cash was $260.5 million and that's obviously higher than we normally run. Big part of that was just the way the calendar broke and the way New Year's Eve broke so there was a -- we did $10 million -- we didn't have an opportunity by the first to get the cash, not that's terribly unusual compared to last year, either. But it definitely was part of the reason for the higher cash balance. The total debt, total bank debt was $2.394 billion. We had capital leases of roughly $2.1325 billion and another item for the $10 million giving us the total of, total debt of $2,730.6 billion at the end of the quarter. And the CapEx for the quarter -- total CapEx was $108 million, of which $87.8 million of that was project CapEx and $20 million -- $20.3 million of maintenance CapEx. Projects, breaking down primarily being Columbus and Toledo, drove $77 million of the $87 million, as well as we've spent roughly $8.9 million in St. Louis and the rest was kind of spread across the company. Looking at '13, we're expecting $275 million of project CapEx and roughly $97.9 million worth of maintenance CapEx for next year. Looking at the third -- or the first quarter, I would break that down but we'd expect to spend roughly $49.4 million on project CapEx in the first quarter and $27.2 million of maintenance CapEx.

Operator

Our next question comes from Carlo Santarelli of Deutsche Bank.

Carlo Santarelli - Deutsche Bank AG, Research Division

Tim, I appreciate kind of some of the color you provided on Ohio before. I was just wondering if, when we think about margins, does the action that you guys previously provided, which was kind of looking at the tax differential between Hollywood Pennsylvania and these assets, still hold true given the slot ramp? And do you still kind of have similar expectations, and then I just have one quick follow-up.

Timothy J. Wilmott

Carlo, we do. And I think that's still the proxy to use. If you look at the trends in margin over a 3-year period at Penn National and then do the tax differential. I think that, that thinking still applies.

Carlo Santarelli - Deutsche Bank AG, Research Division

Great. And then just quickly to touch on the Southern Plains region in the fourth quarter. Looks like, obviously, the revenue growth was solid, flow-through on it a bit weak, is it -- could we attribute most of that just to some stuff thrown in the St. Louis here in the early days that obviously dragged down the margins or should we be thinking about some of the other properties, maybe seeing some kind of margin pressure, as well as being obviously seeing some top line headwinds?

Timothy J. Wilmott

Well go ahead, Bill, then I'll add.

William J. Clifford

Well, certainly, the St. Louis piece did have a little bit of an impact on the margins for that region. But I would also highlight that there's been some tough markets down in the Gulf Coast. And obviously, Baton Rouge is under pressure due to the competition in Baton Rouge, which is -- Baton Rouge, historically had very high margins which when you're under severe revenue pressures are difficult to maintain. I mean, we're certainly doing, I think, a very credible and admirable job. It doesn't mean we don't have some more room for improvement. And then Tunica has been a bit of a rough market as well in the fourth quarter.

Timothy J. Wilmott

Carlo, there's no question, at the St. Louis there's preopening expenses that we had in the quarter that are affecting that number. The other thing that I'll add is unfortunately, in the fourth quarter, in that region, we had some what we would characterize as fairly egregious attempts to increase our real estate taxes that we had to accrue for as well, which will go -- which we have appealed. And that is something, unfortunately, is going to be a fight for us to get a more reasonable level of taxation out of a couple of those markets in that region.

Operator

Our next question comes from Richard Hightower of ISI Group.

Richard A. Hightower - ISI Group Inc., Research Division

Actually, just looking forward to the PropCo structure. Can you give us anymore color on discussions that you guys have had with potential sellers to PropCo? And how those discussions are going? And then any updates on how you intend to finance potential acquisitions under that structure?

Peter M. Carlino

Yes, I will give that one to Bill. There's a real clear answer for that.

William J. Clifford

Yes. No, look, and there haven't been any discussions as we've organically are precluded from having those discussions by virtue of the regulations around tax REIT spends. As I think I've been infamously quoted at this point, 10 seconds after the spin is over, we will be calling and approaching people with potential ideas for how to make that structure grow and obviously add properties to PropCo. The -- I forgot second question.

Timothy J. Wilmott

Finance.

William J. Clifford

Oh, the financing. In financing, we are right now in the process of putting together the lead arranger group and I can -- I'm happy to report that we are getting very good enthusiasm for helping us get this done and the amount of commitment that we're asking for from our lead arrangers has been, from my perspective, we're very happy and in fact, I would expect that we would have all of our pro rata revolver and loan pieces of capital structure already completely done prior to actually going out to the open market. In terms of knowing that the money will be there and I think, listen, I think there's some room for enthusiasm that potentially we might be able to come in a little bit under what we've got in our guidance relative to interests' expectations. But obviously not going to move those today because that based on market conditions today and we're obviously not going to be able to get this finalized for a period of time. The -- so what we're going to do, just leave our expectations where they're at and we'll see where -- obviously, as we get closer to knowing exactly what the date is of the spin and seeing what marketing conditions are at the time, updating it as appropriate if that -- if it warrants.

Richard A. Hightower - ISI Group Inc., Research Division

Great. Okay. Actually, on the financing side, I was actually referring to and maybe I wasn't clear, I guess theoretically, financing new acquisitions under PropCo maybe it's premature to have those discussions but just in general, how you guys are thinking about doing that going forward, post-spin?

William J. Clifford

So financing -- what was being contemplated for PropCo is we're looking to have a very nice-sized revolver that would take care of almost every normal relatively decent-sized acquisition. So that we could then turn around, and obviously the revolver would be used to ensure that we have the money and we have a credible buyer and then as soon as that either in advance or immediately after the transaction gets done then you replace that with a more permanent piece of capital structure.

Richard A. Hightower - ISI Group Inc., Research Division

I mean, would you intend to do that on sort of a leveraged neutral basis, raising equity...

William J. Clifford

Yes.

Richard A. Hightower - ISI Group Inc., Research Division

As the case would call for it?

William J. Clifford

No. That's absolutely...

Richard A. Hightower - ISI Group Inc., Research Division

A typical REIT structure, I guess, is a better way...

William J. Clifford

Yes, I mean that is the nature of the REIT when you are divvying out 90% of your pretax income as a minimum and you sort of have expectations due to 80% of AFFO that doesn't get a whole lot of deleveraging. So yes, there will be equity raises as well.

Operator

[Operator Instructions] And our next question comes from Shaun Kelley of Bank of America.

Shaun C. Kelley - BofA Merrill Lynch, Research Division

I just wanted to go back to, I think, in the prepared remarks, Tim, you mentioned a little bit about the consumer and the trends hadn't really changed in January. I was just wondering if you could help us break down what you're seeing because I think what was surprising to us in the fourth quarter was how broad-based some of the declines were. I mean, we obviously expected impacts at places like Lawrenceburg and in West Virginia but I think what's surprising is some of the other markets that we're seeing that are kind of more of what would you consider core or stable markets started to put up some very soft numbers. So could you just give us a little bit of a sense, whether it's kind of, is it the lower end customer that's feeling a little bit more constrained? Or what are you guys seeing out of this that you could give us a little bit more color on in terms of consumer behavior?

Timothy J. Wilmott

It certainly, Shaun, is more at the lower end with less trips to retail consumers. That's a general statement across the enterprise. We are seeing some trip decline throughout all of the segments of the business. So as I said in my prepared remarks, some of that is due to cannibalization. But generally, the big issue and the majority of our loss of business volumes have been at the retail end.

Shaun C. Kelley - BofA Merrill Lynch, Research Division

Good, that's helpful. And then, I guess, one more on Ohio to kind of beat the dead horse there. But the question is, just as we think about the back half, clearly, you are looking for some improvement as you guys kind of dig in pretty good on the slot side in Columbus. But with the amount of supply with Cincinnati coming on, as big as it is, I think either Northfield Park has announced a pretty substantial kind of at least targeted amount of slots in that market. I mean, is it still fair that even with -- I guess what I'm trying to understand is even with all the additional supply, do you still think we can kind of build off the current levels just given what you guys know about how these properties ramped and how this market's going to perform?

Timothy J. Wilmott

Yes, Shaun. Given the locations of the Horseshoe at downtown Cincinnati facility and the Northfield facility up in the Cleveland market, we do not think in our modeling, in our guidance and our expectations that, that's going to affect the business in Central Ohio, which is a couple of hours away drive time. Our expectations and our thoughts around Central Ohio really are focused in on the 1.8 million people in the Columbus MSA.

Operator

And our next question comes from Dennis Farrell of Wells Fargo.

Dennis Farrell - Wells Fargo Securities, LLC, Research Division

I was just wondering how much slot market share do you believe Internet cafés are taking in Ohio? And do you believe lawmakers will regulate or ban these sweepstakes facilities in the near future?

Timothy J. Wilmott

Great question. There are 800, over 800 Internet cafés in Ohio today and I've visited those facilities and I've seen the customers there and my visual observation is it's having some effect on what you're seeing in Ohio and there are slot players that are in these Internet cafés. We are working along with others in the industry to try to get these illegal outlets to be taken off -- out of operation. I'll let Eric Schippers, our head of government relations, give you an update on our expectations in Columbus moving forward.

Eric Schippers

Yes. In Ohio, there's been a bill that was filed that's called HB 7, which there's going to be a hearing on next week. And there's a lot of momentum behind it. You're seeing the Attorney General and others with the strong desire to crack down on these. And I think, what you're going to see is a severe restriction to the point of virtual elimination of many of these unlawful sweepstakes cafés. So we're hopeful. We've got a pretty broad coalition that's fighting for the bill. And as you know, last session maybe it passed the house and we just run out of time in the Senate. So in both chambers, the legislation has been given priority status, so we expect for a positive outcome this time around.

Timothy J. Wilmott

And, Dennis, we know we have support from the leadership in the Governor's Office in both the house and Senate that, that's the direction they all want us to head.

Operator

[Operator Instructions] And we do have a follow-up from the line of Joe Greff of JPMorgan.

Joseph Greff - JP Morgan Chase & Co, Research Division

Guys, you may have had this in the press release and maybe we've missed it with a busy morning. The pro forma leverage levels that -- at PropCo, has that change relative to the guidance that you provided on a pro forma basis on November 15?

William J. Clifford

No. The one thing that's getting factored in as we are acknowledging and recognizing the free cash flow generated by Penns are in 2013. And I expected PropCo leverage stays at 5.5x. We did move OpCo's leverage up to tenths to roughly 5.6x. But, and that -- listen, that -- the whole leverage concept and the amount that we have there is really a relatively fluid piece that, I mean, moving a tenths is probably not -- I don't consider to be a big deal. But clearly, as we get down at the end, and as we get actual results and all the rest of it, there'll be some movement in the E&P cash portion of the dividends. There are also maybe some movements in the actual E&P amounts, not obviously cash as cash is available. Because we're basically back solving for the amount of cash based on the amount that we can -- amount of cash that we can generate and still keep the leverage at the level we want. The overall E&P amount may also fluctuate especially as depending on how the center bridge and how the Fortress shares are resolved. Right now, what we have is we have -- if the company buys back the shares, that actually helps reduce the overall E&P. If the Fortress goes out in sales in the open market then there's not, obviously a reduction in the E&P but there will obviously be more cash available. So all of the stuff is going to kind of depend on where the share prices are as we get closer to the actual spin date. That's all. That's probably got everything really confused for everybody. So, you could be happy to straighten it out.

Operator

Our next question comes from Ray Cheesman for Anfield Capital.

Ray Cheesman

Peter, you guys, I really applaud your intellectual honesty here in a short window to adjust your '13 based upon the end of '12 in a couple of weeks. Do you see that a continuation of the trends of the moment, and obviously if they are -- they end up being long-term impacted by the lack of $30, $40, $50 per paycheck for those customers that you're seeing get hit now. Does it introduce some caution into the numbers, that people are growing around for the big plays in Maryland or the Western Massachusetts. I mean, we're talking enormous numbers. And you, of course, use your prior experience to figure out what the market will do, but if the rules change based upon Acts of Congress, do you have to change your CapEx or restrictions so to speak, in order to make sure that you get what you need as a company as opposed to what the AG would like with museums, water parks, other assorted craziness?

Peter M. Carlino

Wow. Ray, that is a -- that's a very interesting question. Look, let's take it in 2 parts. The first part, is just a general view or where is it all going. Can we, in a very short period of time, deduce what 2013 is going to look like? The answer is, I guess, it's as good as yours. I mean, who the heck knows? We try and have over the years and this is not a self-serving comment, but we've been a very, very rigorous for a very, very long time in trying to get out in front of the best story we can tell you, the most honest, straightforward and all that kind of stuff, you know we do. And we really sweat the details, as Bill said, to try to get it right. We do not like to get it wrong. That doesn't happen very often here. So that's our focus. But our sense about that is probably as good as yours, where is this all going? So I think we've given you a cautious well-thought out approach to that. Now whether and what the flow over into trends for the long haul. If we can answer question one, we'd probably -- we'd have to tell you about question two. I mean, clearly, there is an irrational exuberance around some of what we're hearing from competitors. You've heard me say on these calls in the past, we don't like bidding situations because there's always somebody more stupid out there willing to do something completely nonsensical. And we're just not going to be that person, or that company. We're going to watch these things play out. We're going to be competitive right up to the point where we think that only a moron would go further. There's always a chance that somebody else will do something that they ought not [ph] to do. It just isn't going to affect our judgment, frankly. So could someone overspend in some of these markets even in light of a decent economy? Absolutely, absolutely. I think a lot of folks just don't understand these regional markets. And they'd bring a different mindset. The days of the giant capital spend with rare exceptions are pretty much gone. I mean, we're just not there today. This has become a very mature business. It's a good business but it's one that requires some pretty safe and careful management. So, I'm like, that's sort of a broad non-helpful answer. But it's the best answer we can give you, that we're just not going to change our philosophy here as we look at these investments. We'll be competitive up to the point of suicide then we'll let the other person commit suicide. So that's all I can tell you. But as to where it goes, where the economy is going, your guess is as good as mine.

Operator

Thank you,, Mr. Carlino. There are no further questions at this time. Sir, I'll turn the call back over to you.

Peter M. Carlino

Well, thank you, all, for joining us today. It's been kind of a fun morning and onward and upward and see you next quarter. Thank you.

Operator

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 all lines. Thank you, and have a good day.

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