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Ameristar Casinos Inc. (NASDAQ:ASCA)

Q4 2007 Earnings Call

February 20, 2008 5:00 pm ET

Executives

Gordy Kanofsky - Chairman and EVP

John Boushy - President and CEO

Tom Steinbauer - CFO

Analysts

Charlie Rareshide - Coker & Palmer

Larry Klatzkin - Jefferies

Ryan Worst - Brean Murray

David Katz from Oppenheimer

Joe Greff - Bear Stearns

Cameron McKnight - JP Morgan

Dennis Forst - KeyBanc

Jane Pedreira - Lehman Brothers

Operator

Welcome to Ameristar 2007 fourth quarter and yearend Earnings 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 questions following the presentation. At this time, I would like to turn the call over to Tom Steinbauer, Ameristar's Chief Financial Officer.

Tom Steinbauer

Good afternoon everyone and thank you for joining us on our call today. With me in Las Vegas we have John Boushy, Ameristar’s CEO and President and Gordy Kanofsky, Chairman and Executive Vice President.

Before we get started, I would like to remind you there is a slide presentation available on Ameristar’s website, www.ameristar.com, in the investor relations section under quarterly results conference calls.

This presentation corresponds to the comments that we will make in the call and provide some additional useful information with regard to our financial results. During the course of this conference call, we will state beliefs and make projections or other forward-looking statements regarding the future events and future financial performance of the company.

We wish to caution you that such statements are just projections and expectations; actual results for events may differ materially. I refer you to the forward-looking information that was included in today’s press release and is included in our slide presentation on slide 2.

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

It is now my pleasure to turn the call over to John Boushy. John?

John Boushy

Thanks Tom. Today we'll cover the items listed on slide 3, which includes our fourth quarter and full year 2007 results, discuss the legislative and political environment affecting our industry, describe the growth projects at our properties and share with you our views on the outlook for 2008.

Let me start with a summary of today’s results, which we list on slide 4. We maintained stable profit margins and market positions at our properties on a same-store basis for the full year of 2007.

In the fourth quarter, our property showed resilience in the face of three major negative factors: First, there was a general softening of the overall economic environment. Second, severe weather in most of our markets negatively impacted EBITDA. We estimate the EBITDA impact was $3 million to $3.5 million. And third, construction related disruptions at St. Charles and Vicksburg impacted EBITDA, most notably at Vicksburg.

In other words, we held our own during a tough period and reported respectable results for the fourth quarter. That said, our results fell short of our initial expectations and we are diligently working to enhance our future performance.

For the full year, we maintained strong positions in each of our markets. Most notably, in Black Hawk, we grew our market share, increased our EBITDA by almost 50% and improved our EBITDA margins. Tom will cover property highlights later in the call.

In 2007, we continued to build for the future through investments and important expansion projects and the integration our Resorts East Chicago acquisition. I'll cover our progress on these projects later in our remarks.

Finally, Ameristar has always delivered industry leading margins. In 2008, we expect to arrive at a profit by controlling cost during these soft economic times and by driving profitable revenue growth as our expansion investments come online and we fully transition East Chicago.

I'm sure you noticed that today's release did not include detailed guidance expectations for 2008. After careful deliberation, we decided to no longer provide guidance of our expected financial results, due to competitive conditions, especially in light of the fact that two of our competitors have either become, or will become, private companies shortly.

However, we do include estimates of certain financial metrics we believe you'll find helpful in projecting our results and Tom will provide you additional insights in his comments. At this point, speaking of Tom, I would like to turn the call back over to Tom who'll review our financial results in more detail.

Tom Steinbauer

Thank you, John. I'll start by taking a few minutes to discuss the fourth quarter and the full year, then I will walk you through the performance by property and end with some full year information that you should take into account when building your 2008 models.

Turning to slide 5, net revenues for the fourth quarter were up 24% over the 2006 period. This number includes $64.4 million contribution from the East Chicago property, which we owned and operated for the entire period. On a same-store basis, excluding East Chicago, revenues declined 2.3%.

Looking at the full year, net revenues increased 8% over 2006 to $1.1 billion. This includes $73.6 million in net revenues from East Chicago. On a same-store basis, net revenues were basically flat, due to slower market growth, severe weather conditions and construction related disruption, which impacted the fourth quarter.

Turning to adjusted EBITDA for the fourth quarter, we were essentially flat at $66.8 million versus $66.6 million a year ago. Pre-opening expense associated with our St. Charles hotel and related expansion activities were $2.1 million for the fourth quarter and $2.8 million for the full year. Also, integration and transition expenses associated with our acquisition of Resorts East Chicago were $1 million and $2.1 million for the fourth quarter and the year 2007, respectfully.

We consider this to be a very stable quarter in light of the various factors that adversely impacted performance. For example, with the exception of Vicksburg, all of our properties were negatively impacted by weather; three times as bad if you measure the impact by the number of days than the comparable period in 2006, as John mentioned and as we note on slide 6.

We estimated the negative impact of the adverse weather to EBITDA was $3 million to $3.5 million. And there was still significant construction related disruption associated with the expansion projects at both St. Charles and Vicksburg that negatively affected our performance in the fourth quarter. For Vicksburg alone, we estimate that the impact of the construction related disruption was between $1 million and $1.5 million to EBIDTA for 2007, with most of that coming in the fourth quarter.

Now despite the challenges in the fourth quarter that I just mentioned, there were some high points in the period that I would like to share with you on slide 7 and 8. Ameristar Black Hawk continues to demonstrate strong performance hosting its 7th consecutive quarter of net revenue and EBITDA growth, since its re-branding in April 2006. As we have said previously, Black Hawk continues to serve as an excellent example of how we have been able to drive profitable growth through upgrades and improvements in service while applying our proven operational and marketing strategies.

Over the past 12 months, we are pleased to report that Black Hawk has achieved a 16% cash-on-cash return on our total investment to date. With pre-opening expenses and construction related disruption experienced at Ameristar St. Charles in the fourth quarter, as well as an increased competition from a new casino opened by an existing competitor in the market, this property continues to be a strong competitor.

Although EBITDA declined 2% for the year at Council Bluffs due to softer market conditions and significant adverse weather, the property increased its market share in the fourth quarter of 2007, compared to the third quarter. Ameristar Kansas City posted increased profitability on a year-over-year basis, despite the fact that this has become a more competitive market and there was a significant amount of bad weather in this market during the fourth quarter.

As I mentioned previously, Ameristar Vicksburg had substantial construction related disruption during the fourth quarter. In addition, this property continues to be impacted by the reopening of Gulf Coast Casinos that were previously closed as a result of Hurricane Katrina. However, despite this, Ameristar Vicksburg continues to dominate the market, holding the number one market position for the last 13 years.

During the fourth quarter, we began to implement our business model and related operating strategies at Resorts East Chicago. The fourth quarter EBITDA contribution from East Chicago was $8.7 million, which includes just under $1 million of integration and transition related expenses.

Fourth quarter 2007 results were negatively impacted by adverse weather and the disruption associated with the change in ownership of the property. As you know, this was our first full quarter of ownership, and clearly this is not indicative of what we think we can do in this market. As we implement our marketing strategies and continue the upgrades and enhancements in the property in advance of our re-branding, we are confident that we will gain further traction at East Chicago as we move into 2008.

Finally, Jackpot's strong market position, which we intend to reinforce through our hotel, renovation at Cactus Pete’s helped us post record revenue and EBITDA for the year.

Turning to the balance sheet on slide 9, total cash at the end if the fourth quarter was $98.5 million, and construction in progress increased $174 million to $360.7 million since December 31, 2006. For the full year, total debt increased $763 million to approximately [$6.5 billion] at yearend.

In the third quarter, we amended our existing credit facility, increased our revolver by $600 million and drew funds down to fund the acquisition of the East Chicago. At the end of the year we had borrowing availability under the credit agreement of approximately $165 million.

On a pro forma basis at December 31, 2007 our total debt coverage ratio was approximately 5.1 times EBITDA and our interest coverage was 2.9 times. Our borrowing capacity, along with expected operating cash flow, remained sufficient to fund all growth projects that we have announced.

Now let's turn to our financial matrix on slide 10, which should be helpful as you build your models for the coming year and the first quarter. As we noted in the release, we expect the economic conditions to remain challenging in 2008 and anticipate that the first half of the year will be a period of difficult same-store year-over-year comparison.

We expect capital expenditures in the range of $275 million to $300 million of which $225 million to $240 million will be allocated to expansion projects at existing properties and re-branding. The balance should be considered maintenance CapEx.

Depreciation for the full year is expected to be in the range of $110 million to $115 million and should be $26 million in the first quarter of 2008 and approximately $28 million in each successive quarter. We have also included our 2008 estimates for stock based compensation, pre-opening and re-branding costs and our effective income tax rate, as well as additional borrowings and related interest costs.

With that, I'll turn the call over to Gordy to review legislative news.

Gordy Kanofsky

Thanks Tom, turning over to slide 11, this is a busy time of the year in the legislative affairs area; it is in every year when the governments come back into session. As you know, earlier this month, the District Court in Shawnee County, Kansas ruled that the Kansas casino gaming bill passed by the legislature last spring is constitutional on its face. The Attorney General has appealed the decision to the Kansas Supreme Court and the court has set a schedule for briefs and oral argument for the spring of this year.

It is generally believed the court will issue a ruling during the summer and we continue to believe the constitutional challenge for the new statute has substantial merits. While we expect any additional casinos in Kansas would increase completion from Missouri operators, we believe there could be a significant period of lead time from the development of a regulatory structure and new gaming facilities.

Additionally, due to the high quality of Ameristar Kansas City, as well as the distance between our location and the proposed locations of the new facilities in Kansas, we believe our casino will be the least impacted in the Missouri market by any Kansas expansion. In the long term, the passage of the gaming bill will grow the entire gaming market in the greater Kansas City region, but the additional supply available in the market would reduce each operator’s share of the gaming market.

It is important to note that the passage of the gaming bill in Kansas makes it that much more important to allow Missouri casinos to operate on a level playing field with their competitors in neighboring states. Missouri is only gaming jurisdiction with a loss limit, which creates an inconvenience for guests who are required to obtain and use a player tracking card in connection with the enforcement of the loss limit.

We believe there are sufficient votes in the Missouri legislature to pass legislation to modernize Missouri's gaming regulatory structure. But procedural rules in the senate have allowed a single senator to fill a buster and block a vote on such a bill, which we believe is also favorably supported by a majority of Missouri voters.

Consequently, we're supporting the yes for the schools’ first initiative to generate more than $100 million annually in incremental funding for elementary and secondary education through the modernization of Missouri's gaming statutes, including the removal of the $500 loss limit. This measure would also cap the number of gaming licenses to those already operating or under construction in the state, remove the requirement that patrons present a player tracking card prior to entering the Casino and increase the adjusted gross proceeds tax from 20% to 21%.

The Attorney General has approved the form of the initiative decision; the coalition is now awaiting final ballot language from the Secretary of State, so they can begin gathering signatures to place the measure on the November ballot. While the coalition proceeds with the ballot initiative, we are also continuing to pursue a legislative solution to this matter.

Also, in Missouri we are closely monitoring the Missouri Gaming Commission's consideration of an additional gaming licensing in the Kansas City gaming market. In January, the commission received, without public presentation or discussion, a report from its consulting economist from the University of Missouri at St. Louis, on the governmental and industry impacts of new casinos in the state.

The report concluded that new casinos in the St. Louis and Kansas City markets would generate minimal increases in aggregate gaming tax revenues, but would have a material adverse impact on existing gaming facilities and their employees. Despite the report from its own consulting economist, the commission is proceeding with the consideration of license application for Sugar Creek in the Kansas City market.

We believe the possibility of Kansas Casinos in the generally mature market, strongly argues for a continuation of the long standing commission policy of caution. We, along with others, are advocating this position in Jefferson City.

Turning to Iowa, the Ponca Tribe of Nebraska recently received approval from the National Indian Gaming Commission to conduct Class II gaming on approximately five acres in Carter Lake Iowa, a short distance from the Omaha airport. Due to a historical change in the course of the Missouri River, Carter Lake is the only portion of Iowa located west of the Missouri River and it is completely surrounded by Nebraska and the river.

Gaming in Carter Lake would have a negative impact on the Council Bluffs gaming market. To provide some background on this situation, in 1999 the tribe purchased the land at Carter Lake. The land was taken into trust in 2003 with a commitment from the tribe that the land would not be used for gaming purposes. Last summer, the tribes sought to have the same parcel approved to Class II gaming pursuant to an exception to the prohibition against gaming on trust land required after 1988. The Chairman of the commission denied that request last fall. The tribe immediately appealed the decision and the NIGC reversed the Chairman's decision in late December 2007.

The Attorney General of Nebraska has already filed an action in Federal Court, challenging the NIGCs decision. It is our understanding that the Iowa Attorney General is currently contemplating a similar action. In addition, we believe it is unlikely the Governor Culver in Iowa will entertain any Class III compact negotiations with the tribe until after any outstanding legal issues are resolved.

In Colorado, we're keeping our ear close to the ground tracking a possible November ballot initiative that would allow slot machines in some of the state race tracks. This is an important issue to the Colorado gaming industry, since two of the tracks are located in close proximity to Denver. You may recall that a similar measure was overwhelming defeated in 2003 by an approximately 80 to 20 margin.

The industry is also assessing whether there is sufficient voter support for a constitutional initiative to amend several of the regulatory impediments that currently constrain gaming and tax revenues in the state. These include the $5 bet limit, limitations on types of table games and limitations on operating hours.

Finally, we are continuing to closely monitor the various gaming expansion proposals that have been discussed and introduced in Illinois. To this point, the expansions contemplated in the proposals have included multiple variations of a land based casino in downtown Chicago, additional river boats in greater Chicago, allowing the existing river boats to add more gaming positions and the legalization of slots and tracks.

A capital funding plan is still being considered and no clear funding source has yet been identified. Gaming expansion remains a possible source of funding, however, gaming expansion bills have been introduced many times over the last several years in Illinois and none have garnered enough support for passage. Of course the passage of the gaming expansion bill for the Chicago area could have an impact on all northwest Indiana casino operators.

John, back to you.

John Boushy

Thanks Gordy. As you mentioned, there is a lot going on in the legislative environment these days. I’ll begin by reviewing the two projects that are coming online in the first half of 2008, St. Charles and Vicksburg. Then I’ll move to the East Chicago acquisition and finally I'll cover Black Hawk.

Let’s start with St. Charles, our regional resort destination that is close to completion. On slide 12, you can see one of the high quality amenities opened in late December. World renounced performers and entertainers have appeared at HOME, our 17.5 thousand square foot night club. Since opening, we have catered to sellout crowds and this offering is extending our appeal to the 21 to 35 demographic.

In addition to HOME, we also opened LIXX, a trendy circle bar that's situated right on the gaming floor. LIXX compliments and enhances the energy that naturally emanates from the surrounding table games, by inserting additional high energy music. The renovation and modernization of Ameristar Boulevard, which was completed in December has greatly improved access to the property and the new lighting and additional landscaping that is currently being installed will provide an excellent guest arrival experience.

Speaking of excellent guest experiences, we opened the first 100 guest suites at the luxurious Ameristar St. Charles hotel at the end of January. We have seen exceptional demand for this hotel from the start, and on slide 13, you san see exactly why.

Our VIP hosting and direct mail campaigns are producing twice as many responses as expected. We are generating significant incremental gaming revenues from our overnight guests that stay in the hotel. Since opening the hotel on January 28th, we have experienced just over a 95% occupancy rate. We've had a very successful beginning and expect strong demand for the luxurious upscale property to continue.

Over each of the next several months, between 80 and 100 additional suites should come online each month with the entire 400 suite Ameristar hotel expected to be fully operational in May. This will coincide with the completion of the 7,000 square foot spa and indoor/outdoor pool, in time to take advantage of the summer vacation season.

Our second major expansion project for 2008 is at Vicksburg, where we are moving ahead with $100 million expansion program that's designed to enhance our leadership in this market. We completed the hotel renovation in December, and the striking results are pictured on the bottom of slide 14.

As you can clearly see on the top of the slide, work is progressing nicely on the casino expansion and on the 1,000 space parking garage that will have direct access to the casino floor. The casino and garage are slated for completion in June of this year, with the balance of the project targeted for the third quarter. We expect the expansion will positively impact Vicksburg's market growth and increase our market share.

As Tom already mentioned, we are transitioning East Chicago to an Ameristar branded property. Turning to slide 15, our corporate and property teams have synchronized their efforts and are making initial improvements to every aspect of the guest experience.

We have already added new games. We have changed both the slot machine mix and gaming layout and we are upgrading the casino. We are enhancing the dining experiences, elevating guest service standards and replacing or refreshing various furnishings. With several improvements to the property already completed, we are now progressively fine tuning our marketing and promotional activities in order to most effectively attract our target guest.

Market conditions were soft through January and the transition into the marketing approaches further impacted our revenues. In February, we’re beginning to see our approaches take hold and we are confident that there is tremendous potential. We believe we are developing the right formula to generate significant profitable growth in this important location. Re-branding to Ameristar is expected no later than the third quarter of this year.

Tom mentioned earlier that we are already realizing excellent returns on our investments in Black Hawk today. As we turn to slide 16, we wanted to give you more insight into the great potential that we see in the Denver area. Our research shows that the greater Denver market is the fifth largest feeder market to Las Vegas, with twice the percentage of residents visiting Las Vegas compared to any other markets where we operate. Further, the Denver markets median household income is higher than the national average, making it a demographically attractive market.

We believe there is untapped potential in Black Hawk, which is being constrained by the lack of world class resort destination offerings. We expect to turn this potential into growth for Ameristar by developing a luxury hotel with multiple high quality amenities such as a spa, rooftop pool and various dining choices. Given the destination casino resort spa that we are developing, we will be in an excellent position to capture additional revenue as we attract visits to Black Hawk that will grow the Black Hawk market.

Turning now to slide 17, this new luxury hotel will have a breathtaking view of the Rockies and a full range of amenities including deluxe spa suites with in-room whirlpool baths and rock fire places, which is shown on the slide. We have already talked out one of the elevator cores, which is pictured on the bottom left corner.

Construction of the hotel podium, which is pictured to the right of the elevator core is progressing nicely now that we have overcome the various side issues. We continue to anticipate the construction will be completed during the second half of 2009 at a cost of $235 million to $240 million. This represents an increase of between $15 million and $20 million due to higher material cost and the unforeseen site conditions, which necessitated the relocation of various incoming utilities.

To wrap up the growth project area and to sum up, we are very enthusiastic about our growth potential for 2008. Ameristar properties enjoy important competitive advantages appealing to a broad demographics and diverse markets. We have major projects, both St. Charles and Vicksburg that are coming online this year to extend our competitive advantages. And we look forward to transitioning and re-branding our Chicago Land property to Ameristar East Chicago this year. All together, we expect to see rewarding growth in both revenues and EBITDA during 2008.

That said, we expect the half of 2008 will be a period of difficult year-over-year same store comparisons, reflecting the general economic slowdown as well as some of the same issues that negatively impacted our fourth quarter 2007 results, at least early in 2008, such as weather and construction related disruptions.

The good news is that our industry, like many others, is expected to benefit from the economic stimulus package that is slated to be distributed starting in May. We expect to see the benefits of this program beginning in the mid second quarter and lasting into the mid third quarter. Given these positive signals, our proven marketing and operating strategies and the quality of our growth pipeline, Ameristar is well positioned to achieve improving operating profitability in 2008.

Before I open the call to questions, I want to remind everybody that as we have indicated in the past, we will not comment on the amended Schedule 13-D filed by the co-executors of the estate of Craig Nielsen on October 22, 2007. Neither management nor the representatives of the estate will be addressing today any questions related to the matters discussed in the 13-D filing. With that, we are happy to take your questions on Ameristar's strategies, direction and performance.

So, Mary, let’s open the call up for questions.

Question-and-Answer Session

(Operator Instructions). And our first question comes from Charlie Rareshide from Coker & Palmer, please go ahead.

Charlie Rareshide - Coker & Palmer

Good morning gentlemen. Tom could you just do me a favor and breakout the internal CapEx budget between 225 and 240 by property?

Tom Steinbauer

The internal CapEx budget for '08 or for…

Charlie Rareshide - Coker & Palmer

For '08?

Tom Steinbauer

Between 225 and 240 we basically have $27 million left in St. Charles, $50 million remaining in Vicksburg for a total of $77 million and the balance is basically going to come up for Black Hawk for the major projects.

Charlie Rareshide - Coker & Palmer

Okay and anything towards resorts for '08?

Tom Steinbauer

And resorts, you are basically looking at about $20 million left on re-branding $21 million, $22 million.

Charlie Rareshide - Coker & Palmer

Okay. And on the subject of resorts, John could you talk just a little bit about Horseshu Hammond, their impact that you're kind of anticipating and how you prepare for that when they open the new facility towards the middle of this year?

John Boushy

Sure, thanks for your question Charlie. I think the first thing that we're doing to prepare from that is making sure that we re-brand the Resorts East Chicago property to a point that we're lot more comfortable with it being in Ameristar. So, all of the investments that we’re making currently, the upgrading of the casino experience, the upgrading of the service experience, the dining experience that we have are all things that we think position ourselves very well in the face of the Horseshu Hammond project. So I think predominantly we’re really focusing our attention on getting through the transition that we talked about in the fourth quarter is exactly what we’re focused on.

In addition to that I think that we continue to, one of the reasons we went into the Chicago landmark it is because we see that there is a lot of growth potential in Chicago and our expectation is that Horseshu will be able to through the introduction of their new supply, that they’ll be able to really energize and drive more market growth in the Chicago land area. Certainly there will be some trials initially and some visitation of people who currently enjoy visiting casinos to go visit the new Horseshu property.

At the same time we think that our challenge is to really make sure that we do what we do everywhere in everyone of our markets, which is to build a substantial amount of loyalty with our guests so that even though they may go try Horseshu they’ll continue to come back and return as a loyal Ameristar guest.

Charlie Rareshide - Coker & Palmer Inc.

Ok that’s it from me.

John Boushy

Thanks Charlie

Tom Steinbauer

Thanks Charlie

Operator

And our next question comes from Larry Klatzkin from Jefferies, please go ahead.

Larry Klatzkin - Jefferies

Hey guys, I am number 2 but I…

Gordy Kanofsky

Larry the string has been broken.

Larry Klatzkin - Jefferies

I'm number two but I tried harder. Couple of question, first, just a title question, cap interest for the fourth quarter.

Tom Steinbauer

Cap interest for the fourth quarter, I have it right here, its $6.4 million. Year-to-date it was 19.9, just to give you that.

Larry Klatzkin - Jefferies

Okay. And then, the final budget for St. Louis, what do you finally come in at, with that all said and done?

John Boushy

We continue to expect St. Louis to be in the $265 million range. So, obviously we need to get it completed and we are looking forward to getting that done, but at this point our expectations in that it's going to come in at the previously announced numbers.

Larry Klatzkin - Jefferies

Despite your contractors attempts and otherwise, okay. Are you still committed to doubling the EBITDA and are you still committed to maybe doing some more acquisitions?

John Boushy

Yeah Larry, I think, when we outlined in early 2007 our 50-50 growth strategy, we continue to be dedicated to the accomplishment of our 50-50 growth strategy and as you recall, about 50% of that growth was coming from internal projects, which if you look at the projects that we have on the books, we feel very good about our ability to achieve that. The other 50% was through acquisitions and the Resorts East Chicago gets us a portion of the way there, we think it's important to focus our attention on transitioning and completely integrating the Resorts East Chicago acquisition, and we'll be turning our attentions to how to accomplish our growth objectives as we see a light at the end of the tunnel.

Larry Klatzkin - Jefferies

Alright, and then as far as the value of the losing the loss limit in Colorado, what do you think that could mean to you?

Gordy Kanofsky

You mean the loss limit in Missouri?

Larry Klatzkin - Jefferies

Well, I mean, well actually the bet limit in Colorado and the loss limit in Missouri, for each of those. What do you see the potential revenue gains? I know for EBITDA gains, but just kind of revenue what you hope for?

Gordy Kanofsky

We have not publicly stated what we think is there, well actually we've done some modeling and we think its fair both are very attractive for us. In Colorado frankly the bet limit is an issue, but the bigger issue from our perspective is the limitation on operating hours. The casinos currently have to close at 2 am and with the mountain roads a lot of people actually leave substantially earlier than that to beat the traffic and they don't reopen again until 8 am in the morning. So we think that the combination of the 500 plus hotel rooms we’ll have going to 24 hour operations will greatly expand the revenue potential for the property as well as the market in general.

And in Missouri I think the last limits, there is relatively small number of people hit the last limit level during the 2 hour cruising periods, but there is a lot of inconvenience associated with it because of a need to ID everybody at the gate and for everybody to go get a player tracking card, which they sometimes leave at home and then have to stand in line again particularly on the weekends to do that.

So I think opening up the convenience as well as the opportunity for people to game in a way that they do in every other jurisdiction and the quality of our facilities, which in Kansas City and St. Charles are true destination resorts. There is a lot of growth potential for the state as well as the gaming operators including us.

Larry Klatzkin - Jefferies

Alright. And you also don't bring in any high rollers at this point. I assume there are some in that market. Would that also kind of prevent some from really playing in Missouri and they really play in Illinois, I guess?

Gordy Kanofsky

Yeah, I think that a lot people have figured out ways to circumvent the loss limits without necessarily violating the law. For example they may not cash in their chips and then they have got the ability to without buying in which is what the real limit is, is buying in. They have got the ability if they have come back with their chips to what they are buying in the current period to gamble at a larger level.

The state owned economists have predicted that loss limits removal would create more than $100 million annually coming into the state for education funding. So that should give you some idea what the revenue potential is for the state as well as the operators.

Larry Klatzkin - Jefferies

Well, thank you guys, I appreciate it.

Tom Steinbauer

Thanks Larry, better luck next quarter on being number one.

Operator

Our next question comes from Ryan Worst from Brean Murray. Please go ahead.

Ryan Worst - Brean Murray

Thanks, good afternoon guys.

Tom Steinbauer

Hi Ryan, how are you?

Ryan Worst - Brean Murray

Good and how you’re doing?

Tom Steinbauer

Good.

Ryan Worst - Brean Murray

Just a question on the corporate expense, it looks like it was about $13 million including stock comp. Is that a good run rate going forward for you guys?

Tom Steinbauer

For the one quarter that included East Chicago. Yeah, I would say that that probably is a reasonable run rate going forward.

Ryan Worst - Brean Murray

Okay.

Tom Steinbauer

I mean, it obviously included about $1 million integration costs, but net that would be a good run rate

John Boushy

On an adjusted EBIDTA basis we expect our 2008 corporate expense to be roughly in line with our 2007 corporate expense, right Tom.

Tom Steinbauer

I'm sorry, yeah, I was thinking of another line item. No it’s going to be roughly the same, that’s correct John.

John Boushy

And that's really as a result of you know part of our cost management approaches to really make sure that as we see a softening economy we make sure that we are managing our costs in a wise way.

Ryan Worst - Brean Murray

Okay and then in Colorado could you talk about the impact of the smoking ban that began in January, it seemed like numbers weren’t really that bad but was there any positive impact to year-over-year comparisons of weather in January, for the Black Hawk market?

John Boushy

Well I think it's a little premature to talk about the year-over-year weather impact. We certainly will report on that as the first quarter comes to a close in terms of smoking. The impact of smoking ban, there has been impact from smoking ban; frankly we can't really tell you exactly how much that is, because at the same time there has also been some differences in weather year-over-year. So, I think at this point, if you look at the market statistics that were released, I think the market in January declined about 3% or so.

Tom Steinbauer

A little over 3%.

John Boushy

3.5% or so, and so I think that is probably not a bad indication of an impact, certainly I think some of that may come from smoking, some of that from weather, we'll have to get a few more months under our belt to really get a sense of that.

Ryan Worst - Brean Murray

Okay and then, you talked a little bit about disruption in Vicksburg. Is that going to continue until that project opens up, is it going to worsen or get better? And that's it. Thanks.

John Boushy

Yeah, thanks for your question, Ryan. Our view is that, the construction disruption that we saw in the fourth quarter is likely to continue in the first quarter of 2008 and we're looking forward to getting the property completely up and operational. It’s amazing how guests decide to drive to different places when they see cranes outside of a building or some of those kinds of things. So certainly, while we're looking forward to having the expansion done from a casino standpoint and have the market's only connected garage where people are going to be able to park their car and easily enter the casino, we're really looking forward to getting that done. So, I suspect that there will be some construction disruption until such time as we get the property completed.

Ryan Worst - Brean Murray

Okay, thanks. John, how about in Colorado, are you guys experiencing any disruption there?

John Boushy

You know, Brian, if we are, we just don't see it, and when we look at it on a period-over-period basis, the great news with the way the whole project is situated in Colorado and you kind of see it on the bottom of slide 17. The hotel is actually towards the back of the property and so therefore where most of the vehicles are and the guest, egress and ingress is all towards the front property.

So in this situation we're really not seeing the kind of disruption and inside the casino there is really no disruption at all from the fact that we have a major expansion program going with the 537 room expansion.

Ryan Worst - Brean Murray

Okay, great. Thank you.

Operator

Our next question comes from David Katz from Oppenheimer, please go ahead.

David Katz from Oppenheimer

Hi good evening.

Tom Steinbauer

Hi David how are doing?

David Katz from Oppenheimer

I am doing well how are you? Most of my issues have been addressed but I guess the one that I struggle with the most is resorts. It certainly has been a good market. As we look it today you are allocating some capital to it. You have a fairly close neighbor who is building a single level, who is putting in some money and building a single level of gaming floor and there is sort of a new native American property out there that's at least so far appears to be formidable competition. What do you think about the decision to sort of keep your multilevel riverboat versus maybe spending some more money and then perhaps we might accuse you of spending defensively, right. Walk us through your thinking on resorts. I guess that's probably the one property that I am struggling with the most.

John Boushy

Okay first I think starting with the market again we continue to view Chicago land as being a very good market with additional gaming demand potential that is being constrained based upon the number of positions within the market. So I think first and foremost we continue to view it as a very attractive market in the United States and that was really a major portion of the rational that caused us to want to be in Chicago land.

In terms of allocating some capital we continue to look at an allocation of between $25 million and $30 million of capital to re-brand the property and I think what that really does is it really brings the property much closer to the level that we would expect of an Ameristar.

Relative to what Horseshu is doing again, I think that the best thing that we can do to generate the kind of financial performance that we believe is the potential for resorts at this point is to really make sure that we’ve got our marketing initiatives working well, make sure we've got our operating initiatives right, make sure we finished the transitioning that we're doing and the improvement of the various aspects at East Chicago that really contribute to a better guest experience. Through that better guest experience coupled with our proven marketing approaches in each and every market within which we operate, we believe that that will lead to loyalty.

We certainly continue to consider what we should be doing going forward in East Chicago but frankly we think we need to demonstrate that if we got our act together with, the performance of the property as it is and we believe that there is an ability and the potential as we've described to improve the financial performance that we've had so far.

I also think that some of the other things that we are thinking about is, we are making sure that we understand as best as you can with Illinois, what the potential outcome is going to be at Illinois. And importantly I think over the course of the last six to nine months, Tom.

Tom Steinbauer

Correct.

John Boushy

I think the credit market Tom is something that you might want to chat up about for a minute.

Tom Steinbauer

Well, obviously looking at a significant additional borrowing right now David, would be somewhat problematic with the situation in the credit markets and the fact that rates seem to be unreasonable related to the risk rewards, so that also a major consideration when we take a look at what we should be doing in East Chicago and the amount of funds that we should be investing.

John Boushy

Yeah. I think the other thing to just note Tom, we as best as we can say by analyzing our database and all those of kinds of things, the impact of the Michigan property, the native American property that is having a fairly substantial impact on blue chip along with the fact that they are undergoing construction. But it's really having a negligible impact on us. It's well under a handful of percentage points.

So, we really see it impacting our revenues at a very modest rate, if at all. So, we don’t really view that that offering is impacting the North West Indiana marketplace. So, David, hopefully that helps outline how we continue to think about resorts and I think it's in all of our best interest to really make sure that we get through the transition that we are currently working on and then we'll take it from there but we look forward to sharing with you in the future any of the direction that we would have related to this important market.

David Katz from Oppenheimer

No I appreciate all the information and I hope the question was put in a -- honestly not sure what my opinion would be having been out to see the market not all that long ago and sort of what I would suggest you do. It has a number of issues, but its sounds like staying focused is probably the right thing to do at the moment.

John Boushy

Well thanks, we certainly think so.

David Katz from Oppenheimer

Okay. I am all set thank you.

John Boushy

Thanks Dave

Tom Steinbauer

Thanks.

Operator

Our next question comes from Joe Greff from Bear Stearns, please go ahead.

Joe Greff - Bear Stearns

Hey gentlemen, Tom what’s your cash tax rate for 2008?

Tom Steinbauer

The cash tax rate for 2008 is going be relatively the same as what we are projecting, which is 42% to 43%. There is minimal difference between our book tax and our cash tax level at this point in time. No more than 1% or 2%.

Joe Greff - Bear Stearns

And then by the end of this year where do you see your leverage levels?

Tom Steinbauer

At the end of this year?

Joe Greff - Bear Stearns

Yes.

Tom Steinbauer

We anticipate [EBITDA] increasing obviously as the projects come online, so we should still be little bit south of 5.25.

Joe Greff - Bear Stearns

And John earlier you had mentioned that at St. Charles there has been exceptional demand for the guest suites and that you have seen incremental gaming revenues from the overnight guests. Can you just talk about what you are seeing in that market in light of Lumiere and maybe what you are seeing for the non-overnight guests?

John Boushy

Sure. I think as we think about the impact of new competition in the market I would say that against our expectations our performance has been a little bit stronger than we were expecting. So the new competition has frankly had less impact on us a little bit than we were expecting. I think others may be impacted a little bit more; most noticeably the operator that’s right across the parking lot is probably being impacted the most by Lumiere.

Joe Greff - Bear Stearns

Why do you think it impacted less than what you had earlier anticipated?

John Boushy

Why do we think that?

Joe Greff - Bear Stearns

Yeah.

John Boushy

Yeah, I think it goes exactly to the heart of what makes Ameristar successful. We have the broadest set of offerings in a high quality facility with a combination of marketing and operating approaches that I think helps us sustain that kind of an environment. And importantly as we look at what happened in the last part of 2008, we began to reinvigorate and rejuvenate the property through the changing and the gaming mix that we did on our St. Charles floor through the introduction of LIXX, which is the bar that we built in the middle of the casino floor surrounded by table games, with the introduction of a major metropolitan style nightclub. There is nothing like it that exists in St. Louis.

We have had sellout crowds virtually every weekend that we’ve been open and that’s just generating basically a buzz in the market. In addition to that because we completed the Ameristar Boulevard that now offers this significantly improved five lane access to our facility in comparison to a two lane access. It's easier for guests to get in and out of our facility and now with the additional parking's coming online in the hotel and all those kinds of things I think the reason that we are withstanding the competitive onslaught is both a combination of the historical way that we've competed coupled with the fact that were bringing on a very compelling set of offerings, which now includes the 157 hotel rooms that we are renting tonight to our guests and things like that.

So, relative to what we are seeing from a gaming revenues standpoint, we're certainly seeing a positive impact as we mentioned fairly substantial impact of the increase in gaming revenue for those guests that are staying in the hotel. And for those guests that aren't staying in the hotel, we're holding our own when it comes to market share.

Joe Greff - Bear Stearns

Great, excellent. Thank you.

John Boushy

Thanks, Joe.

Operator

Our next question comes from Cameron McKnight from JPMorgan, please go ahead.

Cameron McKnight - JP Morgan

All my questions have been addressed. Thanks, guys.

Tom Steinbauer

Thank you, Cameron.

John Boushy

You are welcome, Cameron we loved those questions.

Operator

Our next question then is from Dennis Forst from KeyBanc, please go ahead.

Dennis Forst - KeyBanc

Okay. I'll ask a few questions.

John Boushy

Hey Dennis, how are you today?

Dennis Forst - KeyBanc

Good, thanks.

John Boushy

Good.

Dennis Forst - KeyBanc

I wanted to get a clarification from Tom on the tax rate for '08; it's going to be in the low forties, last couple of years it's been in the high thirties. In fact the fourth quarter was about 30%. I assume that was just an adjustment but…

Tom Steinbauer

That was based on the state tax adjustment reversal that we received, but the weighted average tax rate, including the State of Indiana from a full year now is what's creating the higher tax-rate Dennis.

Dennis Forst - KeyBanc

Okay. And then, looking at the -- can you just remind us the impairment charge in the fourth quarter of $4.5 million, it was which hotel?

Tom Steinbauer

It was a master plan project that was designed for Kansas City that we have decided to write-off because at the present time. We don't see ourselves going forward with that particular project.

Dennis Forst - KeyBanc

Okay. And I think, wasn’t there a charge a year ago in the fourth quarter too?

Tom Steinbauer

That was related to some design concept work done related to another hotel, a hotel expansion at Vicksburg.

Dennis Forst - KeyBanc

Okay, quarter '06. And then just looking at Vicksburg what was your market share in the fourth quarter? You normally talk about that. Was there some reason you didn't mention it John?

John Boushy

No other than we have so many things to talk about that I guess we just failed to talk about that that was just a touch under 45%.

Dennis Forst - KeyBanc

Okay, that's down from market shares you've had in the last few

John Boushy

And that's really --

Dennis Forst - KeyBanc

Perhaps because of the disruption?

Tom Steinbauer

It’s really reflected by the disruption absolutely Dennis.

Dennis Forst - KeyBanc

Okay, the first quarter of the year normally the biggest quarter for the Vicksburg market?

Tom Steinbauer

The first quarter is tended to be the best quarter for the company in general and Vicksburg yes.

Dennis Forst - KeyBanc

Okay. How about the Black Hawk what was your market share there?

Tom Steinbauer

For the Black Hawk market we were still running in the neighborhood of about 16% weren’t we John.

John Boushy

For the fourth quarter we ended up at 17%.

Tom Steinbauer

17%

Dennis Forst - KeyBanc

17% for the fourth quarter.

Tom Steinbauer

So, some nice sequential growth in the Black Hawk market.

Dennis Forst - KeyBanc

Yeah, I wanted to go back to Kansas City where the Missouri gaming commission is looking at another casino, can you walk us through what you think is going to happen or what you plan to do or what the gaming association plans to do about that. I know you have that referendum. But will that preempt Missouri from issuing another license for that market before you have a chance to get the voter's to vote in November?

Gordy Kanofsky

Well, I think the effectiveness of the referendum would take place after the secretary of state certifies, which would probably be in the late part of this year or early the following year. The referendum caps the licenses for those already in existence, for those under construction. So it's a question of timing for construction. I think the commission seems to be moving forward at almost break-neck pace at this point.

The gaming association made a presentation through its attorney at the Gaming Commission hearing this morning. It's my understanding that the result of that hearing is that the Gaming Commission is taking applications for licenses through March 11th and the next meeting is set for 18th or 19th.

So, we are watching it and obviously the industry is working arm-in-arm to bring the public policy makers attention, the sort of apparent change in philosophy and public policy that the gaming commission seems to be taking and we'll continue to pursue that as aggressively as we can and have as many discussions with as many people as we can.

Dennis Forst - KeyBanc

What's the earliest you could get your referendum to a vote of the people? Assuming, I guess the fastest way is for the legislature to address it?

John Boushy

Yes.

Gordy Kanofsky

Assuming it could get passed.

John Boushy

Yes, assuming it could get passed, there is the filibuster issue in the Senate and that would still only take effect I believe at the very end of August is when the legislation takes effect in Missouri. But the coalition for Yes For Schools First is geared up for an election in November along with the presidential turnout, which we expect is going to be quite large this year, which typically favors gaming initiatives and the polling that we have done so far is extremely favorable for the initiative.

Dennis Forst - KeyBanc

So you're hoping to have it on the ballot for this November?

John Boushy

Correct

Dennis Forst - KeyBanc

Okay. See if there is anything else to ask? That should do it for me.

John Boushy

Thanks, Dennis.

Dennis Forst - KeyBanc

Thank you.

Gordy Kanofsky

Hey, Dennis thanks.

Dennis Forst - KeyBanc

Thanks a lot

Gordy Kanofsky

Mary, if you don't mind, let's go ahead and take one last one last question.

Operator

Certainly, Sir. And our last question comes from Jane Pedreira from Lehman Brothers. Please go ahead.

Jane Pedreira - Lehman Brothers

Just made it in. I had a couple of questions actually if you don't mind, I wanted to know if you've seen any positive impact in East Chicago from the Illinois smoking ban or is this something that you might expect to see in the future?

John Boushy

Well, our view again, its fairly early but if we look at it, on a perspective of Chicago Land, where Chicago Land being made up of the North East portion of Illinois and the North West portion of Indiana, and if we look at that as the entire market, and then we look at it from a market share standpoint of how much revenue was captured by the North East portion of Illinois versus the North West portion of Indiana. In January, what we saw, for I think the first time in a while, was that the -- in fact, I think the first time since there was like a 70% tax rate or something in Illinois.

For the first time in a while, we've seen a market share migrate over to Indiana. So, I think that that is an indication that the smoking ban is having a negative impact in Illinois and a positive impact in Indiana. Exactly, how much of that, exactly what the quantification is of the impact at this point, we're really going to look at more than just one month's worth of data to make that determination. It would probably be something that we would further understand as a part of the first quarter results.

Jane Pedreira - Lehman Brothers

Okay. I mean, I know Illinois numbers were down overall, but I am sure part of that was weather. Can you just walk us through how you quantify the number of weather days and the impact that weather had on EBITDA?

Tom Steinbauer

Well, I mean basically we took a look at weather days specifically related to, where there was ice or snow type weather conditions last year versus this year. And what we saw last year was about over in '06 about 17 weather days throughout our markets versus about 47 throughout all of them this year. And we really don't talk about specific market EBITDA numbers, but the weather was really bad in the upper Midwest. And so, most of the impact we talk about in the $3 million to $3.5 million occurred in St. Charles, Kansas City and Council Bluffs.

John Boushy

Which is where the storms are running through kind of day after, day after, day after. I think conceptually, what we do is we look at revenue trends of this year on a sequential basis as well as revenue trends compared to prior year. And we know what the flow through is on a property-by-property basis. So we look at the impact of revenues in every one of our markets, coupled with the flow through and come to what the EBITDA estimate was that we share with you earlier.

Jane Pedreira - Lehman Brothers

Are you continuing to see any kind of weather impact into the first quarter so far?

Tom Steinbauer

It's look relatively equal year-over-year for January based on our evaluations.

Jane Pedreira - Lehman Brothers

Okay. And then I have a question on the rebranding in East Chicago, do you now yet, whether you're going to be rebranding, launching your rebranding or marketing before Harrah's opens their new boat, or after?

John Boushy

Yeah. We certainly expect that to occur in the third quarter and I think it would make an awful lot of sense for us to do it before they open. At the same time, we would like to not necessarily let them know what we are up to.

Jane Pedreira - Lehman Brothers

Got you. Okay. I won’t tell them.

John Boushy

Okay.

Jane Pedreira - Lehman Brothers

And then…..

Tom Steinbauer

You won't have to tell them. Well, I notice a number of times in the call list there are people from Harrah's that like to listen into hear what Ameristar is up to.

Jane Pedreira - Lehman Brothers

So sneaky. And then just two more questions. I was a little confused on Colorado. I understand what you were saying about trying to improve the hours of operation but were you saying that there is legislation pending or there might be legislation along those lines to increase the hours of operation?

John Boushy

The association has been looking at the possibility of running a ballot initiative there because these are constitution impediments and can't be changed by the legislature alone. That would address all of three of the impediments. One is the operating hours, one is the bet limits and the third is limitations on the types of table games. That said we're also mindful of the potential track initiative. So the associations being very diligent in approaching and understanding the dynamics of that kind of a referenda process and moving forward accordingly.

Jane Pedreira - Lehman Brothers

Okay. And so does this necessarily have to go through the legislature or can there be just a ballot initiative that's put together by petitions on the part of citizens or does that have to come from the legislature first?

John Boushy

No. The legislature does not need to act.

Jane Pedreira - Lehman Brothers

Okay. So if you had enough willing signatures.

John Boushy

Right

Tom Steinbauer

Yeah. We could take it straight to the press.

Jane Pedreira - Lehman Brothers

Okay. I think that's all I had. Thank you very much.

John Boushy

Thank you, Jane.

Tom Steinbauer

Okay. Thank you Jane, and in closing, I would like to thank our entire Ameristar team for their continued dedication to delivering outstanding guest service each and every day. We have exciting projects that are coming online in the first half of 2008 and we look forward to talking with you about our future accomplishments as is completion of our first quarter. Once again, thank you for joining Ameristar's fourth quarter conference call.

Operator

Thank you everyone. This does conclude today's conference call. You may disconnect your line at this time and please have a wonderful day.

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