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Isle of Capri Casinos, Inc. (NASDAQ:ISLE)

F2Q10 Earnings Call

December 1, 2008 11:00 am ET

Executives

Jill Haynes – Senior Director of Corporate Communications

James B. Perry – Chairman of the Board & Chief Executive Officer

Virginia M. McDowell – President & Chief Operating Officer

Dale R. Black – Chief Financial Officer & Senior Vice President

Analysts

[Larry Classman]

David Katz – Oppenheimer & Co.

Dennis Forst – Keybanc Capital Markets

Justin Sebastiano - Nollenberger Capital Partners

Dennis Farrell – Morgan Stanley

[Jason Sansone]

[James Taylor]

John Maxwell – Jefferies & Co.

David Hargreaves – Sterne Agee

Andrew Brown – Conning Asset Management

Welcome to the Isle of Capri Casinos Incorporated second quarter conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session with instructions given at that time. As a reminder, today’s conference is being recorded and will be made available for replay. Information regarding accessing the replay will be given at the end of today’s conference. I will now turn the call over to Jill Haynes.

Jill Haynes

All statements made during this call that relate to future results and events are forward-looking statements that are based on our current expectations. Actual results and events could differ materially from those projected in the forward-looking statements because of risks and uncertainties which are discussed in our annual and quarterly SEC filings and in the cautionary statement contained in our press release. We assume no obligation to update our forward-looking statements.

We are joined on the call today by Jim Perry, Chairman and Chief Executive Officer; Virginia McDowell, President and Chief Operating Officer; and Dale Black, Chief Financial Officer. With that, I’ll turn the call over to Virginia McDowell.

Virginia M. McDowell

We are pleased with the results for the majority of our properties given the ongoing issues with the economy. Despite reductions in consumer spending in most leisure categories, there is still fundamental demand for gaming as evidenced by year-over-year increases in rate of visitation at nearly every Isle property outside of Missouri. The issue continues to be pressure on the top line from patrons spending less per visit and fewer high margin retail players.

This is consistent with Black Friday shopping behavior this year where a national survey indicated more shoppers spending less money with a clear trend to bargain hunting. While we do believe that the economy is on a slow road to recovery, it is important to realize that the economic impact of the recession is still hitting hard in many regional markets judging by increases in the unemployment rate in each of the 14 counties where an Isle property is located.

The national average unemployment rate of 10.2% in October is the highest since April 1983 and three of our properties: Kansas City; Caruthersville; and Lula saw unemployment rates even higher than the national average. Despite the economic pressures we continue to face, we have been successful in overhauling our cost structure. Over the past two years we have introduced aggressive cost cutting programs and enterprise wide initiatives designed to elevate the customer experience and create value as we continue to focus on executing the fundamentals at each of our properties.

While we do search for ways to reduce costs across the company, we also look for specific opportunities to improve the operation of each individual location. We were successful in increasing EBITDA, market share or margins at more than half of our 14 properties year-over-year and are currently running in excess of 25% margins at seven of those properties, in excess of 20% margins at two additional.

Whether the transformation of an underperforming high end restaurant in Waterloo where covers nearly tripled, significant savings in Lake Charles as a result of analyzing telecommunications usage or saving nearly $500,000 in IT costs by moving to shared regional servers at two Lady Luck properties, we successfully increased efficiency and/or profitability without negatively impacting the customer experience. As indicated in the Q2 press however, we continue to address issues in Pompano, Lake Charles and Bettendorf.

We are very pleased to announce the sale yesterday of the remaining two casinos we operated in the United Kingdom and expect the sale of our non-operating assets in the UK to be completed within the next month. We’re also pleased to announce that we have formerly ended our operations in Grand Bahamas and have successfully transitioned the property to a new operator. In addition, we continue to pursue opportunities for future growth including management contracts and accretive tuck in acquisitions and with that I’ll turn it over to Dale.

Dale R. Black

I just quickly want to make sure to talk about a couple of the unusual items in the press release this time. We did record a $6.8 million receivable in the quarter that represents the discounted value of some cost recovery in a contract that the company had related to its former development opportunities in Pittsburgh. Previously all of these things had been expensed and once the casino in Pittsburgh opened we changed our outlook I guess on the collectability on that amount and we’ve been receiving the payments on schedule and now have recorded a receivable.

The other thing that we had this quarter, the other large item was a favorable income tax settlement related to state income tax audit at a couple of our properties that rolled through this quarter. When you cut out the noise I guess in the numbers, our reported income for the quarter was $0.06. If you take out the unusual items our EPS from continuing operations without those items would have been about $0.20 loss compared to a $0.34 loss last year.

From a capital structure standpoint, we had about $76 million of cash at the end of the quarter. Our debt is $1.2 billion, $54 million on the revolver, $821 million on the term loan, $357 million in bonds and $6 million of other debt. We have paid down $63 million of debt in the first six months of our fiscal year. We’re proud to have been able to do that. Then, it usually comes up capitalized interest, in case people ask, is negligible it’s less than $25,000 in the quarter.

With that, we can turn it over to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from [Larry Classman].

[Larry Classman]

A couple of questions here, as far as what exactly are you guys doing to fight the new competition in Iowa, what kind of stuff are you guys doing?

Virginia M. McDowell

Well, there’s actually two different markets that we’re kind of facing competition in, one in Illinois and one in Iowa. The expansion of the Diamond Jo property and the Mystic property in Dubuque will anniversary out in December. That is slightly impacting the quad cities property a little bit more, Waterloo year-over-year. Then obviously the quad cities properties continue to be impacted by [inaudible] will anniversary out in December year-over-year. A little bit tougher in the quad cities obviously because of the physical plant that Jumer has built. We’re still running over 25% margins at both of those properties there, it’s just a very tough market for a variety of reasons.

[Larry Classman]

Can you probably stabilize at current levels?

Virginia M. McDowell

Well, here’s the thing Larry, if you look at between 50% and 60% of our business particularly in Bettendorf comes from the Illinois side of the river and we continue to have bridge impact issues midweek. So, the I74 bridge is still under construction midweek and if you look at where we are down we’re down more midweek than on weekends. Once the bridge construction gets behind us we think it’s going to be a little bit better in the market. We continue to use the quad cities river front convention center as a marketing tool. We continue to push for conventions both midweek and weekends to the extent that we can find the business and continue to look for opportunities to improve our marketing programs there.

[Larry Classman]

When is the bridge done? I mean obviously, nothing is firm?

Virginia M. McDowell

It’s kind of ongoing. It’s one of those perpetual bridge construction projects. We were told originally it was suppose to be done within three months, now I think it’s closer to six but it kind of rolls.

[Larry Classman]

Pompano, at this point the numbers are not really improving and the Indians aren’t changing the way they operate, is there a point where you guys just say, “We’re losing money not making. We’re just going to pull it?” I mean do we take a loss indefinitely?

Virginia M. McDowell

Well, part of the problem in Pompano is we had a marketing promotion that went south in the quarter. That marketing promotion for that one day probably cost us close to $500,000 in EBITDA. The problem was it was a little bit too successful in terms of redemption. I think those numbers, the numbers for the quarter are artificially low. I think what you have to look at in Pompano is that we have continued to be aggressive in the Florida market in terms of making legislature understand what the situation is there.

I gave a keynote speech at the Florida Gaming Summit where we really brought to the legislature attention what we believe the potential for the market is and told them to be extremely careful in accepting the existing compact in terms of a short term revenue fix as opposed to what the state is leaving on the table in the long term. We’re not going to do anything with that property Larry until we have a better understanding of what is going to happen in that market as it relates to tax relief.

We have found out that there will be a special session sometime in the next couple of weeks but gaming will not be part of it. We’ll continue to push for a special session that does include gaming over the next few months.

[Larry Classman]

So there’s not a point where you guys say, “This is just not cutting it for us.” Or, at least let the state know that you’re not an endless source of tax revenues for them that they can depend on if they’re not going to make it workable for you.

Virginia M. McDowell

I think Larry that we’ve made our position very clear to the state and continue to work very closely with South Florida Coalition of Pari-Mutuals to get the word out there. But again, until we get better clarity and visibility, we’re not going to do anything with that property.

[Larry Classman]

The last one is in Colorado was I was hoping to see more gains as the law changes. Do we still think we’re going to ramp up for improvements?

Virginia M. McDowell

The interesting thing in Colorado is the initial research that was done in Colorado basically indicated that most of the benefit would accrue from the increase in hours and limits. The truth of the matter is when you look at the market that most of the increases come from table games and slot revenue is generally flat. So, the question is how much of the market is still being impacted by the economy. Clearly, we were looking for better gains and clearly we’re going to do everything that we can to become competitive in that market.

[Larry Classman]

Is it reasonable to think long term you still hope to make $50 million on that property?

Virginia M. McDowell

Well, we had always said that we would help that the Ameristar hotel expansion grows the market and we continue to believe that. We’re hoping as the economy recovers in Denver that more people do come up the market to experience what’s happening in Black Hawk and we’ll benefit from that.

[Larry Classman]

But thinking you can make $50 long term is not unreasonable?

Virginia M. McDowell

I don’t know that we ever said $50.

[Larry Classman]

I know that you didn’t, I’m just asking.

Dale R. Black

We’re not going to start giving guidance now.

Operator

Your next question comes from David Katz – Oppenheimer & Co.

David Katz – Oppenheimer & Co.

I wanted to just circle back on one of Dale’s issues and talk about the cash flow and financial strategy. I think you probably have exceeded our expectations a little bit in paying down debt but if you can just talk about the allocation of scarce free cash flow. In some cases there are some properties that could use a couple of bucks here and there but at the same time getting the leverage down should be value enhancing for the stock and for investors. Can you just update us on how you’re thinking about that?

Dale R. Black

I think consistent with what we’ve been talking about on our last couple of calls, I mean our focus for the last several months has been on making sure we’re preserving cash flow, paying down debt and making sure we keep ourselves well within the limits of our credit facility. Longer term though as we talked about on the last call, we know that there’s some opportunities in some properties with some capital projects as well as some properties that have a little bit of deferred maintenance in them. As we get a little bit more comfortable I guess, if you will, that things have bottomed out or are starting to improve we’ll start allocating more capital dollars back in to some of those projects.

David Katz – Oppenheimer & Co.

So it sounds like the leverage reduction remains the priority and we’d really have to be looking at some bright incremental improvement or some increase in that free cash generation in order to start thinking about spending more money on properties at this point?

Dale R. Black

Yes, above our maintenance capital.

David Katz – Oppenheimer & Co.

This may be an odd question but given some of the market’s volatility and your stock has been higher than it is now but it’s also been lower, how are you thinking about the prospect of doing an equity offering at some point and perhaps once you did that you could then focus more exclusively on some of that deferred maintenance cap ex perhaps?

Dale R. Black

To kind of sum it up, we’ve looked at basically every avenue available to us on the right side of the balance sheet knowing that at some point in time over the next couple of years we’re going to need to probably term out some of our bank debt. Our maturities aren’t until 2012 but you don’t wait until the end of 2011 to start addressing that. Our issue has been more on right now just to term out cheap debt is very detrimental to free cash flow with the arbitraging of rates. We have and are considering basically all forms of capital as possibilities and if we had the right catalyst to issue equity, it is something that we would consider. I’m not going to sit here and predict how we’re going to address our capital structure over time, I think it will depend more on the market conditions whenever we have something to address.

David Katz – Oppenheimer & Co.

One last question if I may, with respect to the early stage strategy of branding/management contracts and seeing some of the opportunities that may evolve either in Kansas, Ohio, Maryland, etc. have you made any progress on those and what’s your kind of view of that landscape?

Dale R. Black

I guess the best way to say it is we are actively in several discussions on a lot of different fronts. Pretty much anything that you read about we’re following. Some of them are probably real opportunities for us, some of them that are the more larger scale, Greenfield development type projects probably aren’t the best opportunities for us right now. While we don’t have anything to talk about publically, we’ve got a lot of irons in the fire. Eric is a busy guy right now.

Operator

Your next question comes from Dennis Forst – Keybanc Capital Markets.

Dennis Forst – Keybanc Capital Markets

Virginia, I noticed that your promotional allowances were up in both the first and second quarter year-over-year anywhere from 3% to 5% while revenues are down. Is that intentional, is that part of the problem as you said in Pompano, or is that just a response to competition?

Virginia M. McDowell

I think that you’ve got to look at Pompano and Lake Charles as being the primary drivers there.

Dennis Forst – Keybanc Capital Markets

In Lake Charles it’s a competitive situation there with L’Auberge?

Virginia M. McDowell

Well, I mean you guys have heard our competitors report in that market. It is highly competitive. One of the things that’s interesting and that I haven’t heard anybody mention yet is that if you look at the Houston market, Houston I think I don’t know if they do it by month or by week, the week or the month prior to the Thanksgiving holiday had the highest decline in RevPAR in the United States so I think you’re starting to see a little bit of impact in the Houston market as well which obviously is going to impact Lake Charles. So, just a highly promotional market that we’ve been trying to get our hands around and quite frankly could have done a better job in the quarter.

Dennis Forst – Keybanc Capital Markets

Then for Dale, can you explain the receivable situation in Pittsburgh, how much the gross side is, how much you get periodically, who do you get it from?

Dale R. Black

The total amount of it was $10 million over four years and then we discounted it back and put it on our balance sheet. We’ve been receiving payments for about six months but we really didn’t change our outlook on what I’ll say total collectability until some of the data came around this quarter, the casino got open, there’s some sort of settlement between the operator and the city on making the development payments. But, it all relates to money the company had expended back two or three years ago when they were trying to get the Pittsburg development. It was an agreement with the Penguins.

Dennis Forst – Keybanc Capital Markets

Who’s paying you money on a monthly basis?

Dale R. Black

The Penguins.

Dennis Forst – Keybanc Capital Markets

That is equal payments monthly to total $10 million over four years including some interest?

Dale R. Black

No. The payments are gross and then what we did is we discounted, we imputed an interest rate on the back to the number reported.

Dennis Forst – Keybanc Capital Markets

Going forward though there will be no income statement impact because you’ve taken it all now in this quarter?

Dale R. Black

There will be interest income over time but nothing material.

Dennis Forst – Keybanc Capital Markets

Then the state tax adjustments, what states and was that a cash payment to you?

Dale R. Black

No, it was a liability we settled for less than we had it on the books.

Dennis Forst – Keybanc Capital Markets

What states?

Dale R. Black

Louisiana.

Dennis Forst – Keybanc Capital Markets

So you settled for less than what had already been booked/

Dale R. Black

Yes.

Dennis Forst – Keybanc Capital Markets

What did you sell the UK assets for? Did you get any cash out of it?

Dale R. Black

$2 million pounds.

Dennis Forst – Keybanc Capital Markets

The non-operating assets, will there be much in the way of cash for that?

Dale R. Black

Yes. Not a lot.

Dennis Forst – Keybanc Capital Markets

The third quarter and fourth quarter will have no Bahamas impact? It was almost $1 million loss in the second quarter which surprised me because I didn’t think there would be losses any longer.

Dale R. Black

It will be negligible. There will be a little bit of carryover in the third quarter. We just got out of it this month.

Dennis Forst – Keybanc Capital Markets

I thought that the contract was up in June and you were just doing some consulting services and were actually going to make money for that. Where did that $1 million loss come from?

Virginia M. McDowell

We are actually suppose to be reimbursed for our operating expenses including any losses by the Bahamian government.

Dale R. Black

But, there was a little bit of stuff that wasn’t covered, some of our outside costs that we incurred at the corporate level to get out of there and some things like that. Quite frankly, the operating results were a little bit less than what we hoped for when we negotiated the deal.

Dennis Forst – Keybanc Capital Markets

But in theory you might get reimbursed from the Bahamian government?

Dale R. Black

We’ll have a little bit but it should have no – what we expect to get reimbursed has been reflected in the operating numbers.

Dennis Forst – Keybanc Capital Markets

Lastly, what is a normal tax rate or what should we expect the next couple of quarters?

Dale R. Black

Outside the adjustment, our tax rate this quarter was about 37%.

Operator

Your next question comes from Justin Sebastiano - Nollenberger Capital Partners.

Justin Sebastiano - Nollenberger Capital Partners

As far as Lake Charles, you talked about I guess your competitors there being rather promotional and talking about the Houston market being somewhat weaker but what are you guys doing at the property level to try and improve results there? I think in the press release you talked about making changes or addressing issues there, what exactly is that?

Virginia M. McDowell

Justin, what we primarily did is we made some significant changes to the management team there.

Justin Sebastiano - Nollenberger Capital Partners

So was that the GM, Assistant GM, some slots guy or something like that?

Virginia M. McDowell

There were changes for three of the top people at the property.

Justin Sebastiano - Nollenberger Capital Partners

When did that take place?

Virginia M. McDowell

Within the last month.

Justin Sebastiano - Nollenberger Capital Partners

Did you promote from within, did you get outside gaming people, how were those positions filled?

Virginia M. McDowell

We promoted from within.

Justin Sebastiano - Nollenberger Capital Partners

From other properties or at Lake Charles?

Virginia M. McDowell

From other properties.

Justin Sebastiano - Nollenberger Capital Partners

As far as Colorado it seems everyone I’ve spoken to is at this point hoping that Ameristar grows the market because Amendment 50, while July seems the numbers were very good they’ve fallen off from that time and so now everybody is kind of pinning their hopes on Ameristar. Are you seeing them grow the market with the hotel? I know it’s only been open about two months but are you seeing the results you had hoped for?

Virginia M. McDowell

We are seeing some growth in the market above what we saw in August which was a disappointment. We’re continuing to focus on our hotel occupancy for the quarter. If you look at the quarter our hotel occupancy was in excess of 90%. We’re continuing to look at opportunities to quite frankly improve our slot revenue. As I had said earlier in the call, most of the increase that’s come as a result is table games and we’re looking at opportunities on the casino floor to freshen the casino floor and do some things, layout changes, [inaudible] changes, so on and so forth to try and drive slot revenue.

Justin Sebastiano - Nollenberger Capital Partners

As far as the cash to comp, how much of the rooms are you comping? How much are you giving away?

Virginia M. McDowell

I don’t have that in front of me.

Justin Sebastiano - Nollenberger Capital Partners

Then Pompano, I mean I know we spoke about that already but as far as looking forward, can we kind of take what you did in the last third and fourth quarter and project that forward or are things just worse there where we really should continue to look for year-over-year declines? I know the October quarter is usually pretty bad anyways.

Virginia M. McDowell

As I said, this quarter almost $500,000 we had there was a marketing promotion that happened in one day. But, if you remember that we go in to snowbird season now so this is traditionally our strongest season.

Justin Sebastiano - Nollenberger Capital Partners

So looking year-over-year then it wouldn’t be terrible to look at that $2 million level for January and something close to $4 million in April or is that a little wishful thinking at this point given the local economy?

Dale R. Black

Again, we haven’t given any guidance.

Justin Sebastiano - Nollenberger Capital Partners

Then just lastly, in Mississippi, the properties there third quarter last year the January quarter in Biloxi you were below $1 million but I assume there were some onetime events in that quarter or was that purely the weak economy and what happened in the fourth quarter last year? Can we look for a considerable increase based on what you’re seeing so far in November?

Virginia M. McDowell

Well, I think you have to look at the Biloxi market I mean we’ve been successful there in terms of maintaining share in a declining market. Biloxi was one of the properties where we actually had a year-over-year increase in both EBTIDA and margins as a result of our cost containment programs. I think kind of look at the trend in the second to tell you where we go from there.

Operator

Your next question comes from Dennis Farrell – Morgan Stanley.

Dennis Farrell – Morgan Stanley

A couple of quick questions for you, one we talked about Lake Charles a little bit here but just quickly, what do you think Virginia is the stabilized margin for that property?

Virginia M. McDowell

We have it running about 16%, almost 17% last year. I would say that’s closer to where we would hope to be.

Dennis Farrell – Morgan Stanley

Dale, in terms of corporate expense guidance for the full year, what do you think will shake out?

Dale R. Black

Well, I think we’re still on track for what we talked about earlier in the year. We have had a little bit, not on the cash cost but on the total corporate costs we’ve had a little bit of a timing change I guess if you will because of when we issue our equity awards this year came three months earlier than it did afterwards than it did last year so we started the amortization of that a little bit sooner. But, right now we’re tracking right where we thought we would for the year.

Dennis Farrell – Morgan Stanley

Stock comp for the quarter was 2.6?

Dale R. Black

2.6 this quarter.

Dennis Farrell – Morgan Stanley

Then in terms of where did the bank leverage calculation shake out at the end of the quarter?

Dale R. Black

Per the credit agreement it’s 3.7.

Dennis Farrell – Morgan Stanley

Lastly, obviously you guys just finished November how were trends shaking out thus far across the portfolio? Are you still seeing volumes kind of stable year-over-year and just spend decelerating? Is it kind of stable or increasing?

Dale R. Black

We haven’t seen a whole lot of change since the end of the quarter. I mean Virginia’s comments about visitation and spend per trip I think have followed on and quite frankly until either I don’t know if it’s consumer confidence or unemployment, or whatever the catalyst is going to be to get the consumer acting a little bit differently, I don’t think we’ll see that much change for a while.

Virginia M. McDowell

I mean one of the things that we’re still seeing significant pressure in which we said all along needs to recover is our retail revenue. If you look at our retail revenue without Missouri because it’s difficult to calculate because of the referendum last year, we’re off about 12%.

Operator

Your next question comes from [Jason Sansone].

[Jason Sansone]

I jumped on a minute late and I missed the revolver balance and the term loan balance. Could you repeat that for us?

Dale R. Black

The revolver is $54 million and the term loan is $820 million.

Operator

Your next question comes from Dennis Forst – Keybanc Capital Markets.

Dennis Forst – Keybanc Capital Markets

I had a follow on, Virginia what were you saying about Missouri, the very first comment you made about lower play there. Was that rated play, retail play?

Virginia M. McDowell

No, because of the change in the referendum last year, last November, we had an increase in retail play because everybody use to have a card before so it was nearly 100% rated play so you have a migration to retail.

Dale R. Black

In other words there are people who aren’t using the card anymore that use to have to use a card to get on the casino floor in Missouri so the year-over-year comparison between you rated and retail play is very hard to do in Missouri.

Dennis Forst – Keybanc Capital Markets

That was the only comment you made about that?

Virginia M. McDowell

Yes.

Dennis Forst – Keybanc Capital Markets

The other question was about Davenport, there’s some movement there to pull your license or put it up for bid, what’s the status there?

Virginia M. McDowell

Certainly not pull the license. The City Administration of Davenport kind of has said that they would like for someone to come in to the Davenport market and make a significant investment in the market along the lines of a study they had done early in 2008 called the Cummings Study. The Cummings Study indicated that someone should be willing to come in to the Davenport market and spend $150 million building what the administration hopes would be a land based property. It’s obviously a declining market where there’s significant increased competition. It’s certainly nothing we have an appetite to do and so we had told the City Administration that if they could find somebody that would come in to the market and spend that kind of money and compensate us for our property that we would not stand in their way.

Dennis Forst – Keybanc Capital Markets

Dale, you’re going to be around for the rest of the day for some follow up?

Dale R. Black

I’m here all day.

Operator

Your next question comes from Justin Sebastiano - Nollenberger Capital Partners.

Justin Sebastiano - Nollenberger Capital Partners

Just a quick follow up on your slot spending, looking at the maintenance number I assume your slot spending is included in that?

Virginia M. McDowell

Yes.

Justin Sebastiano - Nollenberger Capital Partners

So how much do you think you’re going to spend the rest of the fiscal year on slots?

Dale R. Black

Probably $8 to $10 million.

Justin Sebastiano - Nollenberger Capital Partners

When do you guys decide on what you’re going to spend for your fiscal ’11 I guess or do you look at it as a calendar year? How do you budget that?

Dale R. Black

Well, we kind of just roll every 12 months, almost a rolling quarterly. I wouldn’t expect a significant increase in maintenance capital going in to next year.

Justin Sebastiano - Nollenberger Capital Partners

Are there any floors that you specifically are targeting to replenish or replace or is it purely you’re going to give X percent to each property?

Virginia M. McDowell

There are some properties where we feel we have some opportunity. I mentioned Black Hawk earlier. I think we’ve got some opportunity in Lake Charles. We tend to do an analysis of the floors, look at the competitive market and then allocate the capital accordingly.

Operator

Your next question comes from [James Taylor].

[James Taylor]

You’ve mentioned that you, I think as well as the rest of the market, is kind of looking for Ameristar Hotel in Colorado to continue to grow the market. Can you comment at all at how?

Virginia M. McDowell

How they’re going to grow the market?

[James Taylor]

In terms of increased visitation to Black Hawk.

Virginia M. McDowell

Well, they’ve built a magnificent facility. I mean, clearly best rooms in the market, some might argue some of the nicest rooms in the metro Denver market. Clearly, they’ve been doing a tremendous job marketing this, they’ve pretty much flooded the market with free room offers and promotional reduced offers beginning in September and in to October. This we hope will increase visitation up the mountain.

[James Taylor]

Can you give us directionally an indication if visitation has increased since they’ve had their grand opening?

Virginia M. McDowell

Just look at the market numbers, look at the trend.

[James Taylor]

In terms of Iowa, can you just give us an update on where I think the four casino proposals stand and if any of those are sort of concerning to you?

Virginia M. McDowell

None of them are concerning to us at this time period and I believe they’ve pushed that back in to the next fiscal year, they’ve pushed it back to April again.

Dale R. Black

I think it would be – the last IRGC meeting that I was at which was a month or two ago they had talked about doing tours of the applicant properties late next spring and then making some decisions after they got all applications in and they had done some level of due diligence I guess if you will on the potential sites.

Virginia M. McDowell

But remember the proposals have to include an economic impact statement for any other properties that may be impacted.

[James Taylor]

Then I guess just finally, before the world changed there was a pretty big focus on potentially a big project in Biloxi. When the world gets back to a more normal place is Biloxi still at sort of the top of the list or would you think you would kind of reprioritize cap ex projects?

Virginia M. McDowell

No. I mean, when we’ve talked about the properties where we would prioritize cap ex we’ve talked about our two biggest EBITDA properties which are Black Hawk and Lake Charles. Biloxi would probably wouldn’t be on the top of the list, let’s put it that way.

Operator

Your next question comes from [John Maxwell – Jefferies & Co.]

[John Maxwell – Jefferies & Co.]

Dale a quick question, is the expense recovery add back included in your bank covenant calculations?

Dale R. Black

Frankly, we’re still exploring that a little bit since it is non-cash right now. I think it will flow through the bank covenants as we receive the cash because it was in an unrestricted sum.

[John Maxwell – Jefferies & Co.]

So it doesn’t get picked up from the P&L, it will be as you –

Dale R. Black

We’re still researching that a little bit with the bank and with the legal teams but that’s kind of a preliminary assessment.

[John Maxwell – Jefferies & Co.]

Virginia, obviously there’s a lot of noise coming out of Florida but there seems to be some politicians that are I guess at least speculating that maybe Florida should think about a more widespread approval of gaming. Do you think there’s much to that or do you think it’s just going to be centered around really the Pari-Mutuals and the relationship with the Seminoles?

Virginia M. McDowell

I think that it’s a healthy debate that’s evolving at this point that these guys are looking at alternatives. Most of what we heard about coming out of the last legislation session was just basically signing the contract that’s on the table right now. It doesn’t appear likely based on the compact that was actually put forth by the governor after it was outside of the parameters that were negotiated during the legislative session and I think that the legislature is quite frankly a little put off by that and now is looking at what their options are. If you look at the payments that the Seminoles have offered to make, they are not in line with what other jurisdictions or what the state would be getting from other jurisdictions and I think the state is looking out for the best interest for the citizens of Florida at this point.

Operator

Your next question comes from David Hargreaves – Sterne Agee.

David Hargreaves – Sterne Agee

I’m wondering if you could just review in the covenant compliance I guess there’s some insurance proceeds and recoveries, could you remind us as to how much is there and when some of these things roll off?

Dale R. Black

Yes, there’s about $90 million for insurance that comes out in third quarter and $57 million or so in the debt that falls off in the fourth quarter.

David Hargreaves – Sterne Agee

What is your compliance threshold now and what’s it going to be next two quarters?

Dale R. Black

The covenant now is seven times and it changes to 6 ¾ I think six months from now.

Operator

Your next question comes from Andrew Brown – Conning Asset Management.

Andrew Brown – Conning Asset Management

Just to quickly follow up on that last one, the covenants at seven times what is the current ratio?

Dale R. Black

It’s 3.7 according to the credit agreement.

Andrew Brown – Conning Asset Management

The other question I had is I guess if you could talk about some of the proceeds you might have received from your foreign operations that you’re exiting if those are material?

Virginia M. McDowell

They’re not really material.

Operator

I’m showing no further questions at this time.

Virginia M. McDowell

Thank you very much everybody. We look forward to talking to you next quarter.

Operator

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