Harrah's Entertainment Inc. Q2 2008 Earnings Call Transcript

| About: Harrah's Entertainment (HET)

Harrah's Entertainment Inc. (HET) Q2 2008 Earnings Call August 8, 2008 11:00 AM ET

Executives

Jonathan Halkyard - CFO and Treasurer

Gary Loveman - Chairman, President and CEO

Analysts

Kevin Coyne - Goldman Sachs

James Kayler - Banc of America Securities

Dennis Forst - KeyBanc

Jane Pedreira - Lehman Brothers

Lee Olive - Citi

Steven Walker - Royal Bank of Scotland

Operator

Good morning, my name is Regina and I will be your conference Operator today. At this time I would like to welcome everyone to the Harrah's Entertainment second quarter 2008 conference call. All lines have been placed on mute to prevent any background noise. After the speakers remark there will be a question-and-answer session. (Operator Instructions).

Thank you. Mr. Jonathan Halkyard, you may begin your conference.

Jonathan Halkyard

Thank you, Regina and good morning. Welcome to the Harrah's Entertainment conference call to review our second quarter results. Joining me is Gary Loveman, Chairman, President and Chief Executive Officer. I want to call your attention to the following information. This call and the simultaneous live webcast at www.harrahs.com are covered by the safe harbor disclaimer in our public documents and documents filed and furnished with the Securities and Exchange Commission.

The forward-looking statements made during this conference call reflect the opinion of management as of the date of this call. There are risks and uncertainties with such statements that are detailed in our filings with the SEC. Further, today we are reporting an quarterly results as of the date of this call. These results are not necessarily indicative of results in future periods. Also, please note that prior to this call, we furnished the Form-8K with this mornings press release to the SEC.

This call, the webcast and its reply are the property of Harrah's. It is not rebroadcast or used by any other party without prior written consent of Harrah's. If you do not agree with these terms, please disconnect now. By remaining on the line you agree to be down by these terms. Gary?

Gary Loveman

Thanks, Jonathan, good morning everyone. This morning, we reported the results for the second quarter on the consolidated basis revenue is down 4% from the last year, property EBITDA down 10%. These results reflect the challenging operating environment our industry is currently facing.

The confluence of rising energy costs, declining consumer asset values, and nationwide credit crunch has created economic headwinds as challenging, as any I have experienced in the 10 years I have been in the business. I'm encouraged though that our company has been able to continue to outperform the competition in most of the markets where's we operate.

Driven by the industry's premier loyalty program we've maintained high occupancy rates throughout our portfolio of hotels and sustained a high-quality experience for our guests. We've also realized the benefits of our corporate cost savings initiatives implemented last year to bolster financial results, while maintaining our ability to provide affective centralized services and develop new capabilities for our operating businesses.

Additionally, our property management team's realized the benefits of certain profit enhancement initiatives as we continue to reduce expenses company wide in response to lower business levels. As you'll hear from Jonathan in a moment, we also continue to have significant liquidity despite the challenging operating environment.

Looking ahead, we'll continue to focus on the customer experience, while maintaining our detailed attention to cost management. In addition our results will be bolstered by several capital projects which have recently been completed. The $565 million expansion of Harrah's Atlantic City; is now fully open and early results from the project have been encouraging, particularly the strong occupancy in our new hotel tower and increases in non-gaming revenue.

In the [center] of the country, May 23rd mark the opening of the newly renovated and re-branded Harrah's Tunica, formerly Grand Tunica. And early June saw the introduction of the legendary Horseshoe brand in the Southern Indiana following the renovation and re-branding of the former Caesars Indiana property.

And I'm particularly excited that today marks the grand opening of the $485 million Horseshoe Hammond expansion which we think truly changes the state of competition in Midwestern casino gaming. With over a 100,000 square feet of Casino space and numerous compelling amenities, this facility will provide a premier gaming experience for Chicago and customers are positioning to capture a much greater share of the market.

Finally, construction is well underway at Caesars Palace in Las Vegas. In mid-2009 we'll open 665-room Octavius Tower, and add 263,000 square feet of meeting and convention space. Clearly, the current environment is a challenging one and the numbers we're reporting today are not indicative of what I expect from our company. However, we're taking the right actions to weather the storm.

The continued execution of our core loyalty strategies, a sustained focus on reducing expenses in response to lower business levels, and ensuring we drive returns on capital investments will help keep us ahead of our competitors and maximize our cash flow, in addition, to positioning us to ultimately benefit from the future economic recovery.

Now let me turn to some specifics of the second quarter results. Overall, system-wide same store gaming revenues which include properties to open more than a year were down 6% in the quarter. In Las Vegas, play from VIP and AEP customers declined 7% from the 2007 second quarter while play from our retail and unrated customers was down 16%. At our non-Las Vegas properties, play from VIP and AEP customers declined 5%, while play from retail and unrated customers was down 9%.

Now turning to a regional analysis, in Las Vegas, revenues fell 5% from 2007 second quarter, property EBITDA down 7%. City-wide occupancy was 95%, close to last year's figure of 97%. However, the yield of our occupied rooms was a bit weaker. Spin per hotel guests was approximately 9.5% lower than prior year.

In Atlantic City, the region which includes Harrah's Chester, revenues rose 1%. However, property EBITDA decreased 7%, due in part to some higher advertising cost. Atlantic City visitor volumes continue to be lower than prior year due to the impact of regional competition in smoking restrictions.

Overall, customer trips to Atlantic City were down 9% year-on-year. Harrah's Chester which opened in the first quarter 2007 continues to post strong results. In Louisiana/Mississippi region, revenues were 5% lower while property EBITDA fell 13%. The declines were driven by significantly lower customer volumes, particularly in Tunica. Construction disruption leading up to the grand opening of the new Harrah's Tunica contributed to the declines as well.

In the Iowa/Missouri region, second quarter revenues were 4% lower, property EBITDA was down 5%. The declines in the region are due to fewer customer trips at our St. Louis property which has been impacted by the recent opening of a competitor facility. Effective cost management led to year-over-year EBITDA increases at our Iowa and Kansas City properties, which partially offset the declines in St. Louis. In Illinois and Indiana, second quarter revenues declined 9% in the Illinois/Indiana region, while property EBITDA was down 10%.

Lower results are primarily due to the Illinois smoking ban implemented the 1st of this year, which has led to a decline in both, customer trips and spin per trip's, typically the duration of these trips are shortened. Disruption in the Caesars Indiana property leading to it's re-branding as the Horseshoe also contributed to the declines. Effective cost management throughout the region allowed us to nearly sustain our margin with prior year despite depressed business levels.

In the other Nevada region which includes Northern Nevada and Laughlin, second quarter revenues dropped 9%, property EBITDA fell 29%, compared with the 2007 second quarter. This region continues to be impacted by a challenging competitive environment, particularly in Northern Nevada, which has resulted in lower spending per customer trip and increased marketing expenses. Higher fuel costs on our air-charter program also contributed to these declines.

In the Omnibus managed international and other category, which includes the Native American managed properties and international properties, second quarter revenues rose 11% driven primarily by the opening of three new London Clubs properties. However, EBITDA declined 36% in this region due to lower table games whole percentage and smoking restrictions, both of which had impacted the London Clubs properties. In addition, prior year figures included management fees from our Native American managed facility at Prairie Bend which we exited in June of 2007.

Now I'll turn to Jonathan for additional details regarding the second quarter results. Jonathan?

Jonathan Halkyard

Thanks, Gary. Consolidated second quarter net revenues decreased 4% to $2.6 billion from $2.7 billion a year ago. Loss from continuing operations for the second quarter with $98 million, down from last year's income of $195 million. Second quarter property EBITDA was down 10% to $646 million, from $714 million a year ago.

Turning to some other income statement items, depreciation and amortization of property and equipment in the quarter was $176 million, down 14% from the 2007 second quarter. The decrease is due to the assignment of revised values in life to assets as part of our preliminary purchase price allocation in connection with our acquisition earlier this year. We expect the purchase price allocation to be completed by the end of this year.

Amortization of intangible assets was $48 million, up from $18 million a year ago. The increase was also a result of our preliminary purchase price allocation. Interest expense for the second quarter was $468 million. Interest expense includes the change in the value of our derivative instruments, a credit of $61 million. As of June 30, 2008, our fixed-to-floating rate mix taking into account interest rate swaps with 70% fixed rate and 30% floating rate debt.

The average interest rate on our floating rate debt at the end of the second quarter was 5.5%. The book value of our total debt was approximately $24 billion at the end of the quarter, and our cash balance at the end of the quarter was approximately $1.2 billion. Our $2 billion revolving credit facility was undrawn at the end of the quarter with $1.8 billion of availability net of approximately $200 million in outstanding letters of credit. Capital spending in the quarter totaled approximately $462 million.

Gary, that concludes my report.

Gary Loveman

Thank you, Jonathan. With new projects and new facilities continuing to come online, and with efficient geographically diversified operations in place, we feel we are well positioned to maximize our cash flows during this period of economic difficulty and ultimately benefit from an upcoming upturn in the economy.

Operator, we are now prepared to take questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Kevin Coyne with Goldman Sachs.

Kevin Coyne - Goldman Sachs

Hi, thank you for taking my call. Just a few questions. Just as we think about CapEx for this year and next year, obviously, we've seen some changes from some of your competitors in terms of the pipeline. And I was wondering if you could give us a sense as to what you're thinking, obviously, you're moving forward on Caesars Tower and the convention spaces.

Is there any plan or possibility to delay or postpone some of these plan to growth CapEx in light of the challenging times? And maybe as you think about 2009 CapEx, I know you've given us some '08 guidance. If you can kind of help couch 2009 CapEx, where do you think that is going to be?

Gary Loveman

Well, this is Gary. I am going to take a quick pass at the overview nature of your question and let Jonathan provide any specifics. We have had in the pipeline a series of projects that are now online, Horseshoe Hammond opening today, here is Atlantic City having been completed recently. That leaves us really with one significant project, the expansion of Caesars Palace which we detailed a moment ago. We are moving fully ahead on that project which we consider to be strategically very important, given the other aspects that are coming online in Las Vegas.

Once that project is finished, there are not other very large or comparably-sized capital projects in the pipeline at the moment. We are certainly scrutinizing our maintenance CapEx carefully as you would expect us to do in light of current circumstances, and of course, the total CapEx spend is a consequence to the elimination of these programs that have just been completed will cycle beyond fairly substantially. Jonathan, do you want to speak as specifics?

Jonathan Halkyard

Sure. Just as it relates to the remainder of 2008, we have approximately $100 million left depending on Harrah's Atlantic City, and although the project is completed, it's common for these things to be worked out over a period of time after the projects have completed. Roughly the same amount on our project in Hammond. And our remaining spending this year on the Caesars Palace expansion will be approximately $250 million to $275 million.

The bulk of our 2009 growth capital, as Gary described will be the completion of what is underway at Caesars Palace, the convention center and the hotel tower along with the beginning of that second phase. That will be the majority of our capital at this point in 2009, and that will be approximately $500 million of spending. And then, I believe in terms of our maintenance capital spending, 4% to 5% of net revenues is still a good guideline.

Kevin Coyne - Goldman Sachs

Okay. So, obviously EBITDA, the run rate that when the deal was done, I think we talked about $2 billion and obviously we're off of that. Can you give us maybe a sense of where you think '08 EBITDA for Harrah's Operating Company, what you're thinking or give us a little direction as to what you're seeing as to where we could think about that? 2 billion seems like a stretch, but obviously, this could be a trough with Hammond opening, are you thinking somewhere in the 1.8, 1.9 area, $1.8billion?

Jonathan Halkyard

I prefer that you just use our disclosures at this point. We're not going to get into guidance for EBITDA for the remainder of 2008.

Kevin Coyne - Goldman Sachs

Okay. I know in the 8-K that you filed recently regarding the election to pick some of the notes you had referred to potential to look at buying back some debt. I was just wondering if you can give us an update on that? And also may be some of your thinking, would it be mostly to manage the near dated maturities or would you potentially consider other debts that's trailing at a shorter discounts at par?

Gary Loveman

I'm not going to comment on any specific issues that we would be looking at. We clearly believe that by opting for the pick option for our next interest payment in February was the appropriate thing to do given the pricing of our debt in the current credit market as compared to the terms of that pick option. So beyond that election and the statement that we've made in our 8-K that we're certainly looking at our outstanding debt, we're not going to make any other comments. And I know you understand why we cannot do that.

Kevin Coyne - Goldman Sachs

Have you bought any debt back subsequent to the quarter?

Jonathan Halkyard

Also, we're not going to comment on what we've been doing since the end of the quarter.

Kevin Coyne - Goldman Sachs

Okay. I guess just turning to Las Vegas for a quick second. I notice that obviously the consolidated results down 5.4% on a revenue basis and the OpCo property seems to lag there at 7.6%, implying that the CMBS properties were only down about 3.5%. I was wondering if, number one, if you can comment some of the trends we've seen is that there's been strong international visitation to Vegas at some of the higher end properties.

Wondering if you could first comment on whether you've seen that in any of your properties as well as the mix shift, I guess is somewhat surprising that why did the CMBS properties outperform some of the other OpCo properties?

Jonathan Halkyard

I will comment on that and then invite Gary to add as well, if he would like. The Rio which is in the CMBS group performed quite strongly due in large part to the World Series of Poker. And our Flamingo property continues to extraordinarily well for a number of reasons. But those are the two individual property performances that I would highlight in the quarter that might have contributed in part to that dynamic you're describing.

Gary Loveman

I'll just add something to what Jonathan was saying. Remember you are looking at first differences not the levels, you're looking at the change in behavior over the years as oppose to the absolute level performance.

I think that Caesar's is continuing to have a very good run off of very high numbers last year. What Jonathan was commenting on is the continuing improvement performance of the Flamingo which has been improving its performance ever since we bought from Caesar's and the benefit of the World Series of Poker at the Rio.

It's not that we're seeing a tremendous distinction between the operating effect of these different brands and just whether they're working off with somewhat more or less demanding baselines on the year-over-year comparisons.

With respect to international travel, there is some increase in the international travel certainly there is a tremendous currency over troughs for any visitor into the United States, or with this creative time particularly for Europeans. But it's not a big enough piece of the activity stream to be really meaningful to the results. So it certainly is helpful but it's not a first order affect, really.

Jonathan Halkyard

That's it, Kevin. Regina, we could I think take the next question. Thanks, Kevin.

Operator

Sure. Your next question comes from the line of James Kayler of Banc of America Securities.

James Kayler - Banc of America Securities

Hi, guys.

Jonathan Halkyard

Morning.

James Kayler - Banc of America Securities

Thanks. I guess first of all, I know obviously understand you guys aren't guiding guidance. But on their conference, MGM talked about in Vegas in particular, feeling pretty good that the third quarter would be a trough the net bookings, forward bookings implied that fourth quarter should be better. Are you guys seeing similar patterns, do you have visibility into that?

Gary Loveman

Well we have visibility into forward booking patterns. We see a continuation of the current environment in Las Vegas based on what we've seen in the last several months. I think two comments are appropriate. The first is that forecasting accuracy in American business and every business I know have gone down rather dramatically in several months. It is also true that people are making their reservations to come to Las Vegas with a shorter booking than we've seen historically.

So for both reasons, it's really very difficult to pronouncate about how these trends they're going to emerge. We've been encouraged just we've gotten up to any perspective date that the business has firmed up a little bit then we might have hoped looking at it a few weeks earlier. But we're not in a position that we can time the trough or the peak of the business cycle in Las Vegas.

James Kayler - Banc of America Securities

Okay. Visibility is getting tougher and tougher.

Gary Loveman

It is, yes.

Can you just give us an update on the cost savings side where the cost savings that you had outlined on the road show and where you stand? And then I guess given where the environment is there kind of another round of cost savings potential or at least kind of go back in and scrub all the different areas to look for additional cost savings.

Gary Loveman

Yeah, let me take a quick shot at that and Jonathan could elaborate. When we were with you on the road show we envisioned a certain level of growth in revenue and EBITDA that has not been accomplished after the fact. So the cost savings that were envisioned at the time we met with everyone back in January have been achieved, we're on that rate or better across the company.

But, of course, we are having to step that up in light of more discouraging business levels. So we're going back and taking as I think most businesses are in this country, a more I would say a more invasive look at everything that we do to try to make sure that we can keep our EBITDA and revenue decline, if they're going to be decline is it roughly the same numbers rather than one in a multiple to the other. Jonathan, do you want to add anything to that?

Jonathan Halkyard

Sure. In terms of the our corporate cost saving plans that we articulated on the road show that totaled approximately was $165 million. We have achieved a run rate savings of approximately $125 million of that amount, but as Gary described, we had certainly augmented those that, that program with further cost reduction measures principally at the property level but additionally some at the corporate level.

James Kayler - Banc of America Securities

Okay, and then just two final ones. Can you give us any color on how the Horseshoe opening has been received, I guess if the first, see I know that you guys had a big grand opening. But just curious how business spends as you opened the MOAB?

Then just finally, can you give us an update on Margaritaville, there was fresh reports that construction has slowed down. I'm just curious about that project specifically and also just generally our thought about kind of this the off balance sheet projects that we're going it be funding this sort of with equity plus project debt?

Gary Loveman

Well this is Gary. I will take the first two of those three questions. The MOAB has opened very, very well. The grand opening is tonight. The soft opening was a few days ago. We have been very encouraged by the business levels we've experienced leading up to this evening. With respect to Biloxi, we announced that we would slow the pace of construction there that is exactly what we've done. We've done that for a couple of reasons.

First, because business conditions in that market are very trying and new capacity is not exactly what that market needs in the short-term. And second to make sure that we have refined the scope and cost estimates of the project is carefully as possible to make sure we build exactly what it is we think is prudent in that market prospectively. So we have slowed down the pace to regather ourselves and make sure that we have this thing appropriately sized and configured for the marketplace. Jonathan, do you want to take the third.

Jonathan Halkyard

Yeah, James, what was your third question, I apologize.

James Kayler - Banc of America Securities

I think just generally, the sort of other projects that were going to be developed kind of, I think that the idea was to develop them with equity investments with our balance sheet financing. Is there an update on these because the international projects are?

Jonathan Halkyard

No, there is really no update on the international projects as it relates to project financing.

Gary Loveman

Well just to recap some of the things we've already announced. The project that we've been active within Spain for sometime is really sitting idle as the real estate and capital markets in Spain as if anything worse than it is in the United States. That's a project we have always been fond of, but until those markets are much more favorable it is unlikely that there will be much progress there. You know that we withdrew from the project in Slovenia due to difficulty getting in agreement with the government. And the project in the Bahamas, we've also withdrawn from. So I think as far as I know, that concludes the range of things that we'd ever announced that we were involved in.

NEW SPEAKER

Okay.

Jonathan Halkyard

Thanks James. Regina, is there another question?

Operator

Your next question comes from the line of Dennis Forst of KeyBanc.

Dennis Forst - KeyBanc

Good morning. A number of my questions have already been answered but, Gary I was wondering if we could get a little additional color on the Las Vegas hotel business? You said that occupancy was 95% versus 97%. Do you have a RevPAR number?

Gary Loveman

Jonathan, do we have a handy RevPAR number?

Jonathan Halkyard

Well, no. But Dennis, I think as Gary described in his remarks, the revenue for growth gaming revenue and cash hotel revenue was down about 9.5% year-over-year.

Dennis Forst - KeyBanc

Yes, I think he said spend was down 9.5%. So that is what he meant, gaming revenue.

Jonathan Halkyard

Yes. Gaming revenue plus cash.

Gary Loveman

I think I will just elaborate a little further on this. Gaming revenue has held up a little bit better than I might have expected for our properties in this market. The pressure is on lower end room rates. Of course, you all sample internet offerings that pop up now routinely almost at any portal that you may visit, and you will see that in the marketplace there are extraordinarily aggressive offers for mid-to-lower priced properties, some of which -- there have been some that have offered you a room at $50 and to prone in a food benefit or spa benefit on top of it.

Obviously, that puts a lot of pressure on lower-end properties. So for example in our portfolio, the Imperial Palace can have a hard time competing with room rates of that kind coming from properties that might be considered a little bit premium to it in Las Vegas. And I think that is really where the main pressure is being applied currently.

Dennis Forst - KeyBanc

All right, okay. And then just lastly, capitalized interest for the quarter?

Jonathan Halkyard

$16 million Dennis.

Dennis Forst - KeyBanc

Okay. And for the six months, do you have that?

Jonathan Halkyard

I don't have that. It will be basically double of that. But I'll get back to you.

Dennis Forst - KeyBanc

Got you. Okay. Well, thanks a lot.

Jonathan Halkyard

All right. Thanks, Dennis.

Operator

Your next question comes from the line of Jane Pedreira of Lehman Brothers.

Jane Pedreira - Lehman Brothers

Hi, good morning. Thanks for the call. Can you just comment on the Horseshoe property that you just re-branded down in Southern Indiana? Did you add capacity to this facility, or can you elaborate a little bit more on what you did to re-brand that facility?

Gary Loveman

We principally took away statues of fallen heroes. As you know, this was built as a Caesars year's ago by the company we acquired, principally do respond to concerns by local residents at the time the licenses were left that they wanted a premium brand in the market. We do not think of Caesars as the brand that ought to be on a Riverboat property with somewhat mixed level of amenity. So it has always been our ambition since we acquired Scissors that the appropriate brand for a facility of this type was Horseshoe, and it took us a while to get there but that was really the motivation.

We did not expand capacity at the facility. We do not build any new buildings. Instead, we removed the Roman feel of the place and modernized it in the building, particularly the casino and common areas needed a refreshment of facility and we did that. So we introduced to Jack Binion stake house, we modified the high limit of gaming areas, we introduced a new poker room, all the sorts of things that the company, the Horseshoe brand, and it's been well received so far.

Jane Pedreira - Lehman Brothers

Is there any possibility that you would re-brand the Biloxi Horseshoe as well?

Gary Loveman

The small facility we have currently?

Jane Pedreira - Lehman Brothers

The one that you're going to build now down in Biloxi?

Gary Loveman

I don't think so. We considered whether or not Horseshoe would be the right brand for that facility, but we're very much of the view that Margaritaville is a better brand for that facility.

Jane Pedreira - Lehman Brothers

Okay. And then in terms of spending on it, I know the market is not convenient right now for doing a lot of off-balance sheet non-recourse financing. Would you have the ability to perhaps either reduce the scope or through timing just try to absorb the additional CapEx cost so that you can proceed with it? Should the financing markets not improve?

Gary Loveman

Well, you're using very gentle language when you describe the market as not convenient. I think it is very unlikely that we would proceed by funding that project entirely with equity. Rather we would like to finance it in part with borrowing, as we have always suggested we would. And as we slow the project down, if part we are giving our selves greater flexibility to reinsure the projects so that we can do it with the reasonable amount of equity finance.

Jane Pedreira - Lehman Brothers

Okay. So in terms of your activity, you would still contemplate putting equity down. Can you give us any guidance on when or how much?

Jonathan Halkyard

As of June 30, our investment in that project was about $110 million. And with a remainder of this year, we expect we will be spending about $40 million to $45 million on the project. And beyond that, we're not going to give guidance.

Jane Pedreira - Lehman Brothers

Okay. And then, but as I recall the total project originally was going to be around $700 million. Do you think that number is going to go down?

Jonathan Halkyard

Down.

Jane Pedreira - Lehman Brothers

Okay, all right. And then just Jonathan, would you be able to give us just the separate cash allowances for OpCo and same for the second quarter CapEx number, if you can, I don't know if that's all OpCo or not?

Jonathan Halkyard

Sure. The Harrah's Operating Company cash is approximately $800 million at June 30. And the Harrah's Operating Company CapEx was just over $400 million. The majority of the CMBS entities CapEx was the Harrah's Atlantic City project during the quarter.

Jane Pedreira - Lehman Brothers

Right. It looks like in the Atlantic City numbers as though the Marina has been quite successful although the other properties aren't doing as well. Is there anything you can do there to try to co-market the properties, I know the market environment isn't real conducive right now, but is there anything you can do to?

Gary Loveman

We are happy with the word co-market. But we offer our customers a choice among our properties in every market where we have more than one property. So if you were a customer of ours receiving invitations to Atlantic City. You would see that you're given an array of brands and array of price points, and asked to consider how you could like to visit us across those.

A very substantial portion of the customers who come to see us in Atlantic City visit more than one of our properties during their time with us. We provide shuttles to get you around. We provide all sorts of incentives for you to visit different amenities at the different properties. So that's very much a part of what we do.

Now it's not surprising that the tiers like City Property had and the especially favorable run had a favorable run. It has this brand new tower with 900 and some odd rooms it has, just view into a pool and nightclub facility, it has new restaurants and it has a new buffet, it has a lot of things that are very appealing in a market where a lot of the properties have been somewhat static for a period of time.

Jonathan Halkyard

Jane. Any other questions?

Jane Pedreira - Lehman Brothers

Just in terms of the corporate cost, it had gone up it was higher than we anticipated. It looks like it had gone up at OpCo. I'm just trying to get a sense for what are some of the reasons that went into that? Was there anything of a non-recurring nature maybe that's embedded in that number? And in terms of how do we look at it going forward, I know you are trying to cut costs. But I was a little surprised that number was as high as it was?

Jonathan Halkyard

Well embedded in that number is a new and recurring monitoring fee that we paid to our equity sponsors. So that's a year-over-year amount that is not comparable and is found in corporate expense. And also in the prior year, we had some benefits, I believe it was a gain on the sale of an aircraft in our corporate expense which depressed that a year-ago.

So before those two items our corporate expense continues to trend downward. But for that fee I described in the third and fourth quarter and onward, we can expect that trend to continue.

Jane Pedreira - Lehman Brothers

So the monitoring fee, is that going to be paid or accrued for each quarter?

Jonathan Halkyard

Yes.

Jane Pedreira - Lehman Brothers

Okay. Okay. I think that's all I have. Thank you.

Jonathan Halkyard

Thanks Jane.

Operator

Your next question comes from the line of Lee [Olive] of Citi.

Lee Olive - Citi

Thanks, guys, all my questions have been answered. Thank you.

Jonathan Halkyard

Thanks.

Operator

Your last question will come from the line of [Steven] Walker of Royal Bank of Scotland.

Steven Walker - Royal Bank of Scotland

All of my questions have been answers as well. Thanks.

Jonathan Halkyard

Thank you.

Gary Loveman

Okay.

Jonathan Halkyard

I think that concludes our call this morning, ladies and gentlemen. Thanks for your help.

Gary Loveman

Okay. Thank you. Thanks, Regina.

Operator

Thank you. This concludes today's conference call. You may now disconnect.

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