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Ameristar Casinos, Inc. (NASDAQ:ASCA)

Q4 2009 Earnings Call Transcript

February 3, 2010 11:00 am ET

Executives

Gordon Kanofsky – Vice Chairman and CEO

Tom Steinbauer – SVP, Finance and CFO

Analysts

Larry Klatzin [ph] – Capital Lane [ph]

Ryan Worst – Brean Murray

David Katz – Oppenheimer

Dennis Forst – KeyBanc

Joe Greff – J.P. Morgan

Justin Sebastiano – Morgan Joseph

Steve Altebrando – Sidoti & Company

Jane Pedreira – FDR

Mark Ashanti [ph] – ING

Paul Lukasky [ph] – Brown Stone Asset Management

Operator

Welcome to Ameristar’s 2009 fourth quarter conference call. I would like to remind you that today’s call is being recorded. All participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation.

Before we get started, I would like to remind you that a slide presentation is available on Ameristar’s Web site, www.ameristar.com. It can be located by clicking on the About Ameristar link on the home page, then clicking on the Investor Relations link in the left hand column, then clicking on the Presentation Slide Show link under the Quarterly Results Conference Calls section. This presentation corresponds with comments that will be made in the call and provides additional useful information with regard to financial results.

During the course of this conference call, the company will state beliefs and make projections or other forward-looking statements regarding future events and the future financial performance of the company. We wish to caution you that such statements are just projections and expectations, and that actual results or events may differ materially. I refer you to the forward-looking statements section in the slide presentation and in the news release issued earlier today about the company’s first quarter financial results, the latter, which are available on the company’s Web site.

In addition, company will discuss EBITDA, adjusted EBITDA, and adjusted EPS, which are non-GAAP financial measures. A definition and reconciliation of these measures to the most comparable GAAP financial measures are included in both the news release and the slide presentation.

It is now my pleasure to turn the call over to Gordon Kanofsky, Ameristar’s CEO and Vice Chairman.

Gordon Kanofsky

Thank you, Melissa. That was quite a mouthful, but you read it quiet well. I think you have the toughest part of the call. I’m joined here today, as usual, by Tom Steinbauer, our CFO. We’re very happy to have all of you join us this morning following the release of our earnings released earlier this morning.

I'm going to start off with slide three in the presentation, which is just a quick summary of the areas of topics we’re going to discuss this morning. First, we’ll start with some highlights from the fourth quarter as well as the full year of 2009. We’ll pick up with a little bit of discussion about performance of our new Black Hawk Hotel and the related part of the property there, and the regulatory reform. We'll talk about the unfortunate bridge closure in East Chicago, and get into a comprehensive review of the key financial metrics for the quarter and for the year, the balance sheet and other financial data, and some of the estimates for the first quarter of 2010 and the full year estimates as well. And then we’re going to turn it over to you so you can ask your questions. And we’ll be happy to provide as many answers as we possibly can.

Turning over to slide four, I’m very pleased with our performance in the fourth quarter. We had a record adjusted EBITDA for the fourth quarter of $73.1 million, with an adjusted EBITDA margin of 25.1%. We did this with the net revenue decline of every single property except Black Hawk. We broke the prior EBITDA record, which was set in 2008 fourth quarter by $4.2 million or 6.1%. And on a consolidated basis, we have a net revenue decline of $2.4 million or almost 1%. We broke the adjusted EBITDA margin for fourth quarter by 1.6% points. The previous record again was set in the fourth quarter of 2008 at 23.5%.

Clearly, the operational efficiencies that we have built into the business continue to help us weather the challenging economic conditions. We had four of our properties improve their adjusted EBITDA margins, Black Hawk, Kansas City, Vicksburg, and St. Charles, due primarily, we believe, to the effective management of costs and the regulatory enhancements we’ve seen in Missouri and Colorado over the year. The East Chicago margin was flat, which actually we think is a pretty good positive considering the Cline Avenue bridge that’s been closed since the middle of November.

Black Hawk improved in all key financial metrics, the synergy between the September 29th opening of the hotel and the July 2nd regulatory changes has resulted in a substantial improvement in net revenues and an even more substantial improvement in adjusted EBITDA. We’ll pick up with that later. We've got several slides the Black Hawk property.

We also completed the final debt restructuring step on our balance sheet in November, with the extension of $600 million in revolver commitments, which Tom will cover in his part of the presentation.

Turning over to slide five is highlights for the full year. Again another record, we had annual adjusted EBITDA of $331.2 million beating the previous high water marks set in 2008 by $24.1 million or almost 8%. We did this with the $52.5 million drop in net revenues. We’re really proud of this performance.

The strong consolidated adjusted EBITDA growth despite the decline in revenues was mostly due to $60 million in savings that we’ve extracted from the operations in a variety of ways, plus almost 10 months of loss on our removal on the year-over-year basis in Missouri, six months of the regulatory reform in Colorado, and the first three months of the hotel operations at Black Hawk.

We’re also very pleased with our adjusted EPS, which grew $0.04 despite the $0.34 increase in interest expense that was driven by the successful debt restructuring efforts in 2009. As you know in November of 2008, Missouri’s voters passed proposition A, which eliminated the loss limits and the mandatory player tracking cards. Based on our review of the growth rates and various other regional markets in the central part of the country that had stable competitive and regulatory conditions, we believe we’ve already more than recovered our 2008 lobbying costs of $7.6 million on the first year of operations under loss (inaudible).

And speaking of great returns on lobbying costs, we believe we’ve recovered more than 100% of our $2.1 million in lobbying costs in the Colorado initiative in just the first three months following the effective date of the regulatory changes, which was July 2nd. Those changes include going to 24/7 gaming in increase of six hours a day. Maximum bet increased from $5 to $100 in expansion of the types of table games that are allowed.

We also had, as you know, our 536-room hotel opened on September 29th. So far it’s just been gangbusters, which had very strong cash demand, very high occupancy levels, and very solid margins. In the fourth quarter the Black Hawk market was one of the best performing US gaming markets with a 14.9% year-over-year growth rate. We took almost five times our fair share of that market growth with our new hotel as evidenced by our 60.4% year-over-year increase in revenues in the fourth quarter, and a market share -- excuse me, a 64.4% increase in our market share to a total of 27.1%.

Turning over to slide seven, we've got more information about the Black Hawk property. It’s a very strong quarter, as we said, thanks to the hotel opening and the changes in the regulatory environment, plus the margin efficiencies that we built into the business. For the fourth quarter, our net revenues nearly doubled, and our adjusted EBITDA was up 152.1%. The margin increased 7.2 points. We clearly think this reflects our ability to officially grow our EBITDA with our current operating structure as in when the economy starts to rebound at our other locations. The annual results at Black Hawk also reflects strong growth in all key metrics with an 84.7% of the full year adjusted EBITDA growth occurring in the second half of the year speaking to the contribution of the regulatory reform and our new hotel.

Turning over to slide seven, we’ve got a chart that shows the market growth in Black Hawk along with Ameristar’s market share, obviously throughout 2008, is a huge impact in the market growth due to the smoking ban that went into effect January 1st of that year. And then on the first half of 2009, lessened a little bit, but still down due to the economy, our market shares stayed relativity consistent throughout that entire period with a little bit of an up-tick in the second quarter leading up to the regulatory reform. And then when the regulatory reform had -- you see substantial market growth as well as a little of an up-tick again in our market share. And then when our hotel opens in the fourth quarter, the market growth gets even more extreme and our market share shoots up. We clearly think these are sustainable levels of market share for us and think that the property will have much growth ahead of it as we continue to penetrate the Denver market with a product that is never seen before.

Turning over to slide nine, as you know, the Cline Avenue bridge was closed by the Indiana Department of Transportation. That was indefinitely closed on November 13th due to safety concerns. After further analysis at the end of the year, in that announcement, the bridge will be permanently closed, which obviously resulted in some traffic detours and has adversely affected our financial performance. It's still a work in progress with the state and local officials in terms of coming up with better routings. Replacing the bridge is probably several years off into the future, probably the earliest it can be would be three to four years before there's a new roadway that would be opened up. In the meantime, the state and local governments have been very cooperative with us and all the other local businesses and residents in the area to try to minimize the impact as much as possible. We think there's still more that can be done on that front. We're continuing to fine tune our marketing efforts and our operational efforts at the property to right size the profitability and maximize it.

In light of this, with that said, our best current estimate is that's probably an annualized EBITDA impact of the downside for the property within the range of $10 million to $15 million from this. We're hoping to overcome as much of that as we can, but we need another few months to sort through things with the state as well as with our customers to figure that out.

So as a result of the bridge closure and its impact on the longer term forecasts of the financial results for the property, we had to take a non-cash impairment charge in the fourth quarter of almost $112 million, $111.7 million on a pre-tax basis or $66.2 million on an after-tax basis. Obviously it's a non-cash charge and it's eliminated from adjusted EBITDA.

So with that, I'll turn it over to Tom who will pick up on a more comprehensive look at the financial results, and the balance sheet and our estimates.

Tom Steinbauer

Thank you, Gordy. Slide 10, again, the four major financial metrics we've looked at, our net revenue, adjusted EBITDA, the adjusted EBITDA margin, adjusted EPS.

Gordy covered the financial highlights pretty significant -- extensively. I'm not going to be redundant, other than to get back to the fact that we did have a $52 million decline in revenue in annualized basis, the $24 million increase in EBITDA, which reflects basically us cutting $60 million of costs from our operating model. And while revenues were down, all three of our other key metrics improved on an annualized basis, evidence that the efficient operating model has worked effectively in 2009 creating this increased profitability.

On annualized basis, the 2009 adjusted EBITDA margin improved by at least 4.6 points at three of our properties, Black Hawk, Jackpot, and Kansas City; Black Hawk, for obvious reasons; Jackpot and Kansas City based on extremely good results from the operational people there on the cost side. Adjusted EPS, as Gordy said, was up $0.04 year-over-year despite the increase in interest expense related to restructuring our debt.

Moving to slide 11, let's talk a little bit about what we did this year to improve the balance sheet on the debt side to give us several years of breathing room. Going into the beginning of '09, 76% of our debt was going to mature in November of 2010. Through our efforts in the first quarter and throughout the year, we were able to reduce that amount to 8%. We issued $650 million of senior unsecured notes during the second quarter, over a 9.15 rate -- interest rate on those. All of that money was used to retire the revolver. We were successful in extending maturity on $600 million of the $650 million remaining revolver after the senior unsecured notes were issued. So we're in excellent shape by November '10 through this year to pay down that portion -- pay off the portion of non-extended revolver with our free cash flow this year and some draw downs on the -- from the extended portion of the revolver.

Turning to slide 12, balance sheet, at the end of 2009, cash increased $22.8 million basically from an improved EBITDA performance this year and that's controlling our maintenance CapEx. CIPD [ph] increased $158 million from year-end at 2008. This is all related to Black Hawk and the opening of the Black Hawk Hotel in September of 2009, so we virtually eliminated construction progress from the balance sheet at this point in time.

So outstanding debt was up slightly from the end of '08 due to certain timing issues. The net borrowings increased in real dollars turns $12 million. We anticipated steady reductions of debt during 2010. As all of you know, we're generating substantial amounts of free cash flow from this point forward now that all of our major construction projects have been completed. We did improve our leverage ratio by 27 basis points over the 12-month period, even with the amount of money we spent on capital and slight increase in borrowing given a positive reflection of the increased EBITDA that we generated through the operation efficiencies put in place back in 2008 benefiting all of 2009.

Fixed charge coverage ratio has declined. This is a direct result of higher borrowing costs based on us restructuring our debt during 2009. We expect this ratio to continue to decline slightly in the first two quarters of '10. And then in July, this loss that we currently have in place will expire and we're anticipating significantly lower interest rates if LIBOR stays in the range that it has for the last year for the balance of this year.

Moving on to slide 13, we have a few comments to make about the numbers for 2010. Q1, we estimate non-cash stock-based compensation to be in the range of $2.8 million to $3.3 million. For the year, we're anticipating this number will be $13 million to $14 million, indicating, obviously, there'll be a slight increase in the second half of the year.

Blended Federal tax rate -- Federal and state tax rate will be projected in the neighborhood of 42% to 43% for the first quarter and for the year. As you could tell in the fourth quarter, our tax rate was slightly lower. Again, this was affected by the impairment that we took and the fact that it's in Indiana where we also pay state income tax affected the weighted average tax rate. We don't anticipate that issue in 2010. And we'd hope the combined ratios, which include Indiana state tax rates, will be in the low 40%.

Capital spending for the first quarter will be $30 million to $35 million. We're waiting that -- what we'll spend in the year a little heavily in the -- heavier in the first quarter. We still anticipate total capital spending to be somewhere in the $60 million, $65 million range for the year.

Our net interest expense in Q1 will be in the $33 million to $34 million range. Non-interest expense is going to run between $2.5 million to $3 million. Assuming LIBOR does stay in the range of 25 basis points, which is where it's been for quite some time, at least in the second half of this year with the expiration of the swaps in July, it should save us about $12 million in interest in the second half of the year.

Assuming Board approval, we currently expect to make quarterly dividend payments at the same level as we did in 2009, which would be $10.50 a quarter per share, $0.42 total for the year.

That concludes the formal part of our presentation. Gordy and I now will be happy to take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line Larry Klatzin of Capital Lane [ph].

Gordon Kanofsky

Good morning, Larry.

Larry Klatzin – Capital Lane

Good morning, Gordy. I hope you won your money. A couple of things, one--

Gordon Kanofsky

That's off the board.

Larry Klatzin – Capital Lane

Sorry. Can you talk at all about quarter-to-date how you're doing the various markets for January and a little bit of February?

Tom Steinbauer

We really don't discuss the current period information. If you haven't seen -- I mean -- haven't seen really any change in the economy. So I guess you could say it'd be surprising for us to have seen much of a change in January from December other than weather-related issues.

Larry Klatzin – Capital Lane

Okay. I appreciate that, Tom. Second thing, suit against Colony on resorts property, anything on that or is that dead at this point?

Gordon Kanofsky

I'm sorry. Can you say that again, Larry?

Larry Klatzin – Capital Lane

The lawsuit against the Colony on the Chicago property.

Gordon Kanofsky

Not really any new developments on that.

Larry Klatzin – Capital Lane

All right, all right.

Gordon Kanofsky

The amount in controversy is not a material number.

Larry Klatzkin – Capital Lane

All right. It’s okay. I thought it was originally.

Gordon Kanofsky

It was originally. But with the settlement that we reached on the property tax assessment with the local government, the magnitude of the claim is significantly reduced.

Larry Klatzkin – Capital Lane

All right. As far as regulation, anything we should be aware of that may be happening from your market?

Gordon Kanofsky

It should be pretty stable regulatory-wise. I don’t anticipate anything different. Obviously, all the state legislatures are in session, and state governments, like the Federal government and most everybody else in the country, are strapped for money. So we’ll be actively involved and doing what we can to protect our interest. But I’m not aware of anything out there that’s got strong legs at this point that’s worthy of comment.

Larry Klatzkin – Capital Lane

All right. And then the last thing would be Riviera and Chapter 11, it doesn’t seem like they’re doing everything they can do in Black Hawk. If that comes up in sale, would you guys be interested in that?

Gordon Kanofsky

That would do a lot for us looking at what we’ve got there in terms of the quality of our property versus theirs and locational differences a little bit. But we’ll be opportunistic. And obviously, we measure growth opportunities against the benefits that we can obtain from de-leveraging. And in this day and age, I think that being a little more conservative than aggressive is probably the right thing. So I don’t see a lot of compelling price points on the stressed assets that make it worth to jump in. We’re committed to getting through the recession with the strongest possible foundation that we can. And so, we’ll look at things and we will continue to look for ways that we can meaningfully grow the company and enhance long term shareholder value. But we’re going to be all prudent right now as well, but haven’t seen the end of the economic difficulties.

Larry Klatzkin – Capital Lane

All right. Great, guys. Thanks.

Gordon Kanofsky

Thank you.

Operator

Your next question comes from Ryan Worst of Brean Murray.

Ryan Worst – Brean Murray

Thanks. Good morning, guys.

Gordon Kanofsky

Hi, Ryan.

Tom Steinbauer

Hi, Ryan.

Ryan Worst – Brean Murray

Just a couple of questions, Tom, can you go over CapEx again? I think you said $60 million to $65 million for the full year, and the slide presentation says $70 million to $80 million. And then also, just -- could you breakout maintenance for 2010 and what that is versus 2009?

Tom Steinbauer

Well we spent a little over $60-some million on true maintenance CapEx during the 2009 period. As we indicated, we expect to do $30 million to $35 million in the first quarter of 2000 waiting what we’re going to spend more leveling into the first quarter. We obviously don’t breakdown our CapEx by components for competitive reasons. And we believe it’ll be $60 million to $65 million. I'd have to say the $70 million to $80 is a mistake at this point.

Ryan Worst – Brean Murray

Isn’t it the expected payments and stuff you've already done on Black Hawk and St. Charles differential?

Tom Steinbauer

Well it could be. If we come to a settlement on St. Charles, we have a dollar amount embedded in the $70 million to $80 million, and there’s still a little bit of payment left to our contractor in Black Hawk based on work done in 2009. So the difference between what could be used in cash related to capital spend that was completed in ’09 will be paid for in ’10 versus what we’re actually going to put in place in ’10 and pay for.

Ryan Worst – Brean Murray

Okay. And then on the corporate expense side, it looked like you guys were at about $11 million, including stock comp in the first quarter. Is that a good run rate going forward?

Tom Steinbauer

Well we haven’t given guidance on what that would be. Obviously there’s, as you would expect, year-to-year some cost of living increase related to costs in ’09. In ’08, we did an excellent job in reducing CapEx. Our corporate expenditures in ’08 saw slight increase in ’09, may see another slight increase in ’10, but not material.

Ryan Worst – Brean Murray

Okay. And then on the operations in Black Hawk, can you talk about the hotel inefficiencies that you had in the fourth quarter. And whether or if margins could get back to previous level of the third quarter, with the exception of seasonality.

Tom Steinbauer

Other than seasonality, I think we do believe that the run rate we saw -- the benefit of the third quarter was a change in the new law. And a little bit of benefit acts the pre-opening costs related to the hotel. Fourth quarter was impacted by weather as it always is in the Black Hawk market. And we basically felt Black Hawk had an excellent quarter and that the hotel had an excellent occupancy level even with the weather, and basically, we were responsible for all the growth in the market for the quarter.

Gordon Kanofsky

We can also sign more efficiencies, but I think the opening that we had on the Black Hawk Hotel is strongest we’ve ever had in the company. And whatever inefficiencies may exist there is fairly tiny in the scheme of things.

Ryan Worst – Brean Murray

Okay. Thanks.

Operator

Your next question comes from David Katz of Oppenheimer.

Gordon Kanofsky

Good morning, David.

David Katz – Oppenheimer

Hi, good morning. So two questions, one, the total CapEx from the release was $25.8 million. And I’m sorry, did you break out for us what portion of that is maintenance or my mistake, and that’s just project CapEx and there was maintenance on top of that?

Gordon Kanofsky

Are you talking about the fourth quarter or for what we talked about in ’10?

David Katz – Oppenheimer

The fourth quarter of ’09.

Gordon Kanofsky

The $25 million was basically maintenance CapEx.

David Katz – Oppenheimer

Okay.

Tom Steinbauer

That lot was completed in September, and everything was transferred from construction progress. And so, what was found in the fourth quarter is basically maintenance CapEx.

David Katz – Oppenheimer

Entirely maintenance, so there was very little project or anything else on top of that. Okay.

Tom Steinbauer

Yes. Basically, we’re out of the project business at this point in time other than wrapping up the payments related to Walt [ph] and if we ever come to a settlement with them and final payments on (inaudible).

David Katz – Oppenheimer

Right.

Tom Steinbauer

Of the $25 million, about $4 million you could relate to the project payments on Black Hawk.

David Katz – Oppenheimer

Yes. Okay. Perfect. And then I had a different question that frankly hasn’t come up in some time, and to the degree that you can, a little bit of an update or refresher on the state foundation and the process through which that is or isn’t evolving would be helpful.

Gordon Kanofsky

I think you’re going to get the same answer you’ve got in the past. I left that hat in my other office. I got a 13-D on file from October of 2007. I believe it is -- it’s the latest filing by the -- via state with the SEC, and it’ pretty comprehensive and forth right. And I don’t really have anything to say at this point beyond what’s in the 13-D. We haven’t had any occasion to feel the need to amend it.

David Katz – Oppenheimer

Okay, okay. Thanks very much.

Gordon Kanofsky

Sure.

Operator

You next question comes from Dennis Forst of KeyBanc.

Dennis Forst – KeyBanc

Yes. Good morning. I have a couple of questions for clarification, on the corporate and other expense, does that include the $3.8 million of discontinued expansion?

Gordon Kanofsky

Yes.

Dennis Forst – KeyBanc

Okay. So if you back that out, you get to a more normal run rate.

Gordon Kanofsky

Yes, the 3.A, every year when we have taken some write off and we have most year in less than three or four years taking some write off on projects that were done and then abandoned. It’s at corporate. And obviously, the impairment for a Chicago is at a Chicago.

Dennis Forst – KeyBanc

Right. And the pre-opening was at Black Hawk?

Gordon Kanofsky

It was recorded at Black Hawk. That's correct.

Dennis Forst – KeyBanc

And the construction and progress of the $18.5 million at the end of the year, what does that consist of? Is that just final payoff at Black Hawk?

Tom Steinbauer

That’s a certain amount of exposure related to St. Charles, with our contractor there. And then the, for the most part, pay down of what’s left on Black Hawk to our contractor are there.

Dennis Forst – KeyBanc

Okay. Good enough. What are the -- understand what you felt your market share was in Vicksburg in the fourth quarter. Was it still in the low 40s?

Gordon Kanofsky

It is about 42% to 43%.

Dennis Forst – KeyBanc

Okay. And where do you suppose that could go? It used to be well higher. And I remember comments in previous calls that you didn’t think that the new competitor there was going to have much of an impact on your market share. Do you still feel that way? Do you feel you’ll get back to the high 40s?

Gordon Kanofsky

I think at this point in time with the way the economy is the competitive environment, being in the 42% to 44% range is probably a reasonable ongoing expectation.

Dennis Forst – KeyBanc

Okay. And then lastly, for Gordy. Gordy, you said that you’re not really looking on anything that valuations are staying too high, that it would take a compelling valuation. I just wanted the definition of “compelling”.

Gordy Kanofsky

Well, it’s a balance of the risk with the opportunity. What you're seeing now is a continuation, Dennis, of lenders being in a distress situation, getting involved but because of the regulatory constraints, they're still leaving equity and management in place because it’s too cumbersome to step in. So you’re seeing the complications I think created from that make it difficult to the workouts come out, buyout situations of what you see in some other less regulated industries.

So I can’t tell you necessarily what it would take because even if somebody offered the potential for a 25% return on investment if there was significant jurisdictional risk that we associated with that that they could drop it down to 10%. It’s probably something that we have to evaluate and balance those things. But the 15% to 20% are aligned, just as we’ve always said, what’s necessary to get us excited enough to go into a more serious due diligence.

So we look in a lot of things. We run some preliminary analysis. I think we have a good analytical team and can do that quickly and efficiently and with the ballpark. As I said, we’re not sitting on our heels, but we got to find things that makes sense for the longer term.

Dennis Forst – KeyBanc

Okay. And then where the government affairs people focusing their attention this year in the local legislatures? Are you worried about anything, are there any opportunities for more improvement similar to what we saw in Colorado and Missouri the year before or are you worried about tax increases anywhere?

Tom Steinbauer

I worry about tax increases everywhere. I don’t think -- you’re not going to see anything happen this year that’s going to act like Amendment 50 or Proposition A in terms of producing extreme growth. You might see a few things percolate through that might have some modest benefit for the industry. We’re focused on every single state.

The smoking ban is an issue that we face a lot of jurisdictions, tax increases. So it’s an across the board approach. We don’t focus on any one state to the exclusion of any others. The team is strong and they spend an awful lot of time on the road during January through May.

Dennis Forst – KeyBanc

Okay. Thank you very much.

Gordy Kanofsky

Thanks, Dennis.

Operator

Your next question comes from Joe Greff of J.P. Morgan.

Gordon Kanofsky

Good morning, Joe.

Tom Steinbauer

Hi, Joe.

Joe Greff – J.P. Morgan

Good morning, guys. Gordy, you mentioned that the impact in any Chicago from the closure of the Cline Avenue bridge, it would be an EBITDA -- an annual EBITDA impact of $10 million to $15 million relative to where you think the property would have otherwise performed in 2010?

Gordon Kanofsky

Correct.

Joe Greff – J.P. Morgan

That's how I should interpret the comment. Okay. What was the EBITDA impact or what do you roughly calculate the EBITDA impact was in the fourth quarter?

Gordon Kanofsky

I mean, roughly it was in the neighborhood of $2 million to $3 million of EBITDA. Now you see November was worse than December as we’re initially adjusting right to that.

Joe Greff – J.P. Morgan

Right. Okay. Great. And then, Tom, you talked about having (inaudible) free cash flow to continue to reduce your leverage ratios. Where do you see your desk help penny with that ratio driving by the end of this year?

Gordon Kanofsky

By the end of the year, we would expect it to decrease by 25 to 30 basis points -- an additional 25 to 30 basis points for the current year.

Joseph Greff – J.P. Morgan

Great. That’s all, guys. Thank you.

Gordon Kanofsky

Thank you.

Operator

Your next question comes from Justin Sebastiano of Morgan Joseph.

Justin Sebastiano – Morgan Joseph

Thanks. Hi, Guys.

Gordon Kanofsky

Hi. Good morning, Justin.

Justin Sebastiano – Morgan Joseph

So the fourth quarter of Black Hawk, I guess on the third quarter call you said that you were going to market maybe a little heavily with the hotel opening. Did that in fact happen?

Tom Steinbauer

Yes. We’ve been marketing the heck out of the property and it's working.

Justin Sebastiano – Morgan Joseph

Okay. No, clearly. So in that margin numbers as well as whether you could argue maybe is a little bit low because you're marketing heavily. And throughout 2010 you probably won't have to market at heavily, say, in the back half of the year. Do you think that's fair to say? And if so, then we should expect margins to certainly improve maybe closer to what you guys turned into the third quarter?

Gordon Kanofsky

I think we’ll have to -- we’d look at our marketing on a daily, weekly, monthly basis. And we adjust it to maximize profitability in different weather conditions of the summer versus the winter, and different economic conditions, the word of mouth in the market, how long it takes to truly penetrate what we think of the maximum potential of the Denver market, it's going to take some time to figure out. I can't tell you that your assumptions are necessarily sound ones at this point. We’ll have to look at it on a dynamic basis. We’re actually not going to get into the situation of spending marketing dollars that don't produce a return. So we’ll continue to test and probe. And I continue to think that there is still a significant segment of the Denver market that doesn’t yet fully appreciate what’s up in Black Hawk. And our job is to get them up there.

Justin Sebastiano – Morgan Joseph

Okay. So you marketed heavily, but not to the point where you feel like you need to pull back at this point, I mean, depending on what the market's telling you,

Gordon Kanofsky

Correct. As you said, our revenues nearly doubled and the EBITDA is up 152%.

Justin Sebastiano – Morgan Joseph

Yes, absolutely.

Gordon Kanofsky

So probably it's working.

Justin Sebastiano – Morgan Joseph

Okay. I know there’s a lot of questions on this. Just so I’m clear, the $18.4 million of the construction in progress that’s at 12/31/09, is any of that included in your $30 million or $35 million estimate for long Q10 CapEx?

Thomas Steinbauer

Some of it will be, yes. We’ll be paying some of -- some of that will be paid out in the first quarter depending on where we come out with our dealings with contractors.

Justin Sebastiano – Morgan Joseph

Got you. So when you say it’s heavily weighted the first quarter is that predominantly why Or are you spending more on say on slots or something else, whether it’s refreshing rooms with paints and rugs or whatever?

Gordon Kanofsky

We are spending a little bit more in the first quarter because we’re committed to keeping our assets fresh and a lot of our competitors are not doing what we’re doing. We see it as a competitive advantage.

Justin Sebastiano – Morgan Joseph

Okay. And then just lastly, depreciation, you have it going down year-over-year. You have with increase in depreciation of Black Hawk. I assume is that due to the write down in the Chicago?

Tom Steinbauer

No. It’s basically the new facility in St. Charles opened in 2002, so the seven-year live assets there disappearing. With Black Hawk, there is some five-year live assets that are now disappearing. So it’s basically kind of a timing -- just the timing issue of when various large projects have come online in the past and some of those assets are now fully depreciated. The short live assets are now fully depreciated.

Justin Sebastiano – Morgan Joseph

Okay. All right. Thanks a lot, guys.

Gordon Kanofsky

Thank you.

Operator

Your next question comes from Steve Altebrando of Sidoti & Company.

Steve Altebrando – Sidoti & Company

Hi, guys.

Gordon Kanofsky

Hi, Steve.

Steve Altebrando – Sidoti & Company

You didn’t have that much time to react in terms of the bridge closure in the quarter? Is there room to remove costs from the property?

Gordon Kanofsky

We hope so. We’ll have to right size the cost structure for the revenues. But we also are hopeful that we can find ways to minimize some of the revenue impact.

Steve Altebrando – Sidoti & Company

Okay. Any meaningful changes that you guys are seeing in terms of promotional activity from competitors?

Gordon Kanofsky

It bounces around from market to market. And it can't have a feeling on a comprehensive basis, it’s materially different. In some locations, some competitors spike up for a couple of months and then drop back down. So we can do that kind of activity. You can see it pretty well if you look at the market share results month-over-month in the various jurisdictions.

Steve Altebrando – Sidoti & Company

Okay, so no real trend there. In terms of Black Hawk longer term margins, can we view Council Bluffs as a decent comparable?

Gordon Kanofsky

Well actually, we’re hopeful it will be somewhat above that.

Steve Altebrando – Sidoti & Company

Okay.

Gordon Kanofsky

Yes. Council Bluffs has a slightly lower -- when you take the tax and admission fees for Council Bluffs, Black Hawk’s tax rate is slightly lower.

Steve Altebrando – Sidoti & Company

Okay. And just a last one, was there any meaningful construction payable on the balance sheet?

Tom Steinbauer

Well basically, what’s in construction progress, it’s $8 million or $9 million we’re setting there at the end of the year.

Steve Altebrando – Sidoti & Company

Okay. Thank you.

Operator

Your next question comes from Jane Pedreira of FDR.

Gordon Kanofsky

Good morning, Jane.

Jane Pedreira – FDR

Hi. Good morning. Can you comment at all on dividends going forward? I think on the last call you indicated you thought the Board would be declaring for -- authorizing for dividends this year? Do you know if that’s going to continue?

Gordon Kanofsky

The expectation is that dividends will remain flat. But as with all of the things where we spent our money, it continues to be a dynamically watched situation. Assuming that the business remains stable, I don't have any reason to think that the Board won’t continue to declare dividends at the same rate.

Jane Pedreira – FDR

Okay. Thanks. And then in Indiana, again, just looking at the numbers, December revenue really weren’t offset much. So do we conclude that you’re marketing more in order to drive revenues to the property or was the big hit in the fourth quarter really November with the sudden change?

Gordon Kanofsky

I think you should attribute it to effective promotional spending.

Jane Pedreira – FDR

And is there any way that that's going to abate once customers are a little bit more familiar with how to get to the property?

Gordon Kanofsky

We obviously don't have any interest in over spending on marketing, I think that this state. I said we are still working on making sure that there is an easy path to get into the local market, not just for us, but for every other business and resident in the area. There’s a ;lot of work under way that is already -- some of it has already been done to improve street lighting, synchronization of stop lights, directional signage, including directional signage that’s going up that will have our name on it, to get people there. And it’s just going to take over time for people to adjust to the constructions. So I’m hopeful that over time we’ll be able to back off on some of the promotional spending. As what I’ve said, I’m hopeful that we can do better than attend the $15 million annualize EBITDA impact from the road closure, but it’s still too soon to tell.

Jane Pedreira – FDR

And then, just my last question on the corporate expense was up a little bit. Is there anything of the unusual nature in the fourth quarter or should we just anticipate that level ahead?

Gordon Kanofsky

It really wasn’t anything unusual on corporate. We did write off about $4 million on impairment related to design cost the projects that we’ve now decided to abandon. In particularly expansion that we have at one point in time were looking at for council blast.

We’re also doing some traditional consolidations of functions within corporate and taking some things out of properties that we think that net fallible [ph] grow corporate expense a little bit. It’s going to reduce overall cost, and create better efficiencies and better controls within the organization.

Jane Pedreira – FDR

All right. Thank you very much.

Operator

(Operator Instructions) Your next question is a follow up from Dennis Forst of KeyBanc.

Dennis Forst – KeyBanc

Oh, I’m sorry, guys. I already had it answered. Thanks anyway.

Gordon Kanofsky

Thank you.

Operator

(Operator Instructions) Your next question comes from Mark Ashanti [ph] of ING.

Mark Ashanti – ING

Hi guys, I was wondering what’s your liquidity situation is of December 31?

Thomas Steinbauer

Well, as far as cash and cash equivalents, we are about $96 million. And as we said in the past on a day-in-day-out basis we need $60 million to $65 million to operate. And as far as the revolving credit facility is concerned we have unused capacity within that facility of about $100 million that based on the debt multiples, in theory, we could access if we needed to.

Mark Ashanti – ING

And that’s what, the $600 million revolver?

Gordon Kanofsky

That’s off the total revolver, not the portion -- just the portion that extended its maturity. Of that portion there’s about $57 million – $60 million undrawn of that $600 million today.

Mark Ashanti – ING

And what’s your intention? Is your intention to pay off the non-extended portion of the revolver? Or are you looking to refinance that as well?

Thomas Steinbauer

No. We intend to use free cash flow to retire the revolver throughout the year, and then in November, whatever portion that didn’t extend that’s still outstanding. We’ll have more than enough room, and the $600 million that extended to reduce that final little piece to eliminate that permanently.

Gordon Kanofsky

I think we’ve got a really flexible structure from a liquidity stand point. As Tom mentioned, we got to figure how to pay back the non-extended principal amount on the revolver later this year. We have some term loan amortization that has to paid the following year. But other than that, the free cash flow is being used for optional debt reduction. It’s being used to maintain our assets and some of it is being used for dividends to put some return back to the shareholders.

Other than the mandatory debt payments that we got, any of those things are tangible, and we can maneuver around as we -- if we need to for any liquidity purposes or if we find a growth opportunity to make sense to pursue better than debt reduction. We’ve got the ability to do that. It’s a very kind of efficient operating machine at this point. And as I said, we’re keeping our assets fresh. Now we got generally the best assets in almost every market where we operate. If you look at our margins compared to our competitors after backing our gaming taxes, I think you’ll find a very, very compelling story that will demonstrate huge opportunities for flow through of EBITDA when revenues start to return as the economy comes back.

So the question I guess, I would put back to you guys in the Q&A session is -- If you want to be invested in the regional gaming sector over the next couple of years, look at those kind of metrics, and those kind of factors, and decide whether you think Ameristar is a great place to have your monthly invested in that sector.

Mark Ashanti – ING

Fair enough. So if I look forwarded to the expiry of the 150 revolver -- if I were to be at the end of the year of 2010, I guess, basically you’ll have a $600 million facility and then the term loan as well as the (inaudible) notes, and that of the capital searcher.

Gordon Kanofsky

That’ll will be the, yes.

Mark Ashanti – ING

Okay. And then just a separate question, I was curious what the original purchase price was for in Chicago, and the totality of the write downs you’ve taken against it?

Gordon Kanofsky

The original purchase price was $675 million and to date the write downs had been $424 million, in a little -- at that I’ll round it to $424 million. I won’t give you the exact number.

Mark Ashanti – ING

And is there any out of the state yet? You guys have an ETA for any sort of redoing the bridge. I know the time is -- the state is looking to rebuild the bridge. Is that correct?

Gordon Kanofsky

They’re looking to replace the roadway and some way shape performed the -- the roadway there was built 30 somewhat years ago for a much larger traffic flow than currently exist in the area and was built for the elevation to accommodate large vessels on some of the waterways in the area, which no longer fly those waters. So I think you’re looking at a shorter structure, perhaps not as wide that we get it replaced. The Federal government continues to provide infrastructure dollars for the states on some of the recovery spending. So we were hopeful that Indiana will use some of that money to get it done. But you still got to design a road and build it. It's several miles long. So you’re probably looking at a minimum of three or four years before it could be finished.

Mark Ashanti – ING

Okay. Thanks, guys. I appreciate it.

Operator

Your next question comes--

Gordon Kanofsky

Oh, I’m sorry, go ahead.

Operator

I’m sorry, your next question comes from Paul Lukasky [ph] of Brown Stone Asset Management.

Paul Lukasky – Brown Stone Asset Management

Hi. Good morning. Just looking at the promotional (inaudible) dollars, you spent a bit stuff fairly notably in Q4. Should we assign the bulk of that increase to the promotion you did near Chicago? Or where the dollar is spent in other places? And then going forward, should we think of at least for the next few quarters? Is this being a new normal rate, or was it a temporary increase?

Gordon Kanofsky

Part of it is Black Hawk with the hotel addition being one of the promotional items that we provide our better paying guest. And then another piece of it was in Chicago and what we did the last six to seven weeks of the year based on the road being closed. So we obviously are very happy with the return we are getting in the promotional spin. In Black Hawk and at this point what we’ve been doing and in Chicago has been a necessity to maintain volume. And the level of profitability we are attaining there.

So I guess you could look at it as more than likely be ongoing for another quarter to -- and in Black Hawk there might be some seasonality related to that. Because obviously this summer is an excellent tourism period for us whether we spend – and allows us to spend a lot less in that period.

Paul Lukasky – Brown Stone Asset Management

Okay. Thank you very much.

Gordon Kanofsky

Yes. Thank you.

Operator

That was our final question. Now, I’ll turn it back to management for closing remarks.

Gordon Kanofsky

Thanks, Melissa. Thank you everybody for your participation today. Glad to have you with us, and we look forward to talking to you again.

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Source: Ameristar Casinos, Inc. Q4 2009 Earnings Call Transcript
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