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Executives

Christopher K. Plant - Vice President, Investor Relations & Treasurer

Daniel R. Lee - Chairman of the Board & Chief Executive Officer

Wade W. Hundley – President

Stephen H. Capp - Executive Vice President & Chief Financial Officer

Clifford D. Kortman - President, Pinnacle Design & Construction

Analysts

Celeste Brown – Morgan Stanley

Felicia Hendricks – Lehman Brothers

Carlos Santarelli – Bear Stearns

Cameron McKnight – JP Morgan

Betsy Gorton – Goldman Sachs

Dennis Forst – Keybanc Capital Markets

Pinnacle Entertainment, Inc. (PNK) Q4 2007 Earnings Call February 26, 2008 11:00 AM ET

Operator

My name is Nicole and I will be your conference operator today. At this time I would like to welcome everyone to the Pinnacle Entertainment fourth quarter 2007 earnings conference call.

All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions) I would now like to introduce Chris Plant, Vice President and Treasurer. Mr. Plant, you may begin your conference.

Christopher K. Plant

Good morning, everyone and welcome to our fourth quarter 2007 earnings conference call. Early this morning we released our fourth quarter and full year 2007 financial results. If you do not have a copy of the announcement and would like one sent to you, please contact us at 702-784-7777 or at Investors@PNKmail.com. In a few moments you will hear from and have an opportunity to ask questions of our Chairman and CEO Dan Lee; President, Wade Hundley; and CFO, Steve Capp.

Now let me remind you that during the course of this conference call management may 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 and that actual events or results may differ materially. I refer you to the Safe Harbor Statement that’s included in today’s press release and to our annual report on Form 10-K, quarterly reports on Form 10-Qs and to our press releases and documents filed with the SEC.

With that said, I’ll turn the call over to our President, Wade Hundley.

Wade W. Hundley

Our fourth quarter met our expectations wrapping up a solid 2007 with the opening of Lumiere Place in St. Louis just before Christmas and solid performance during the quarter from our major properties in Lake Charles, New Orleans and Indiana. Company wide EBITDA for the fourth quarter was $32.3 million on $220 million in revenues as compared to $34.5 in EBITDA on $213 million in revenues a year ago. For the full year of 2007 EBITDA was $169 million on consolidated revenues of $924 million as compared to EBITDA of $203 million on $912 million in revenues in 2006. As we have reminded you many times in the past our 2006 results were positively impacted by the fact that several of our competitors in the Gulf Coast region were temporarily closed by the effects of Hurricanes Katrina and Rita. The biggest contributor to our performance during the fourth quarter and the entire year was our L'Auberge du Lac property in Lake Charles. For the fourth quarter L’Auberge produced $15.8 million of EBITDA on over $77 million of revenue a slight decrease in EBITDA versus the 2006 levels as a result of disruption associated with the conversion of the ACFC operating system at the property during the month of October and November. During this period sections of our casino floor were down periodically and we were forced to over comp many of our customers due to our inability to track their play while the conversion was taking place. For all of 2007 the property generated record EBITDA of over $75 million on $321 million in revenues.

We had also opened 208 rooms of our total of 252 rooms $67 million expansion just before New Year’s and these rooms have been very received. Hotel occupancy for the full year was in excess of 92%. All of our new rooms and suites at the property together with new retail shops and an adult pool are now open and well celebrate this fact with a ribbon cutting at the property this coming Friday.

In New Orleans our Boomtown property continued to show very strong performance. For the quarter the property generated $11.9 million of EBITDA on $39 million of revenues slightly down from the same quarter a year ago. For the entire year EBITDA was $54.2 million well above the $50 million we had forecasted at the beginning of the year on $162 million in revenues.

EBITDA at our Belterra property increased to $7.7 million in the fourth quarter from $6.4 million in the same period a year ago on $42 million of revenues. For the year EBITDA increased 5% to a near record $39.3 million on $178 million of revenues. Also during the fourth quarter we opened our new retail shops at Belterra and completed the renovation of our top floor suites.

At Boomtown Bossier City revenues and EBITDA were $20.4 million and $3.5 million respectively for the fourth quarter as compared to $22 million and $3.8 million respectively for the fourth quarter a year ago. For the full year EBITDA was $18 million on nearly $90 million of revenues. Bossier remains a very competitive market but Boomtown Bossier has shown very steady performance during the past six months.

In Reno our Boomtown property is in transition. We closed our truck stop in June to make room for the new Cabela’s property which opened in mid-November and this closure resulted in a substantial decrease in revenues during the fourth quarter to $13.7 million and negative EBITDA for the period of $1.1 million. For the year EBITDA was $3.5 million on just over $67 million in revenues. We recently made a management change in Reno and all of our hotel rooms will be refurbished during 2008. In addition Cabela’s opened their store in November next door to the Boomtown site and we hope to find ways to capitalize on this new traffic at the Boomtown exit off of I-80.

In St. Louis we opened our Lumiere Place property to the public on December 19th to huge crowds and great reviews. The property looks fantastic and has performed very well since opening despite the fact that we have not yet had our full complement of weapons to drive revenue. The property’s two hotels, the 200-room Four Seasons and the 295-room HoteLumiere began operating earlier this month in stages and should be operating at full capacity within the next 30 days.

SleeK, our high end steakhouse and lounge is schedule to open in early March and one of our main parking lots which has served as the primary construction staging area for the past two years is currently being paved and should be available to the property in the next two weeks. In addition the tunnel under Interstate 70 which connects the property to the Edward Jones Dome and the St. Louis Convention Center will open in April which will allow us to have a major grand opening celebration in early May for our customers. For the fourth quarter our St. Louis operations including the Lumiere Place property and the President Casino generated revenues of $17.4 million which included $5.5 million from Lumiere Place during its first 12 days of operation a negative EBITDA of $131,000.

We expect to continue to grow our revenues substantially in St. Louis as the property gets its full complement of offerings and our focus over the next six months, as it was at L’Auberge when we first opened that property, will be on the top line in exposing as many customers as possible in the St. Louis area of what Lumiere Place has to offer. After this initial period we will also be working out the operational gates testing various marketing programs and getting our staffing levels right in the various venues, we will turn our attention to maximizing the bottom line performance from the property. From Pat’s experience we believe this is the best strategy to ensure the long term success of the property and we have a great team in place in St. Louis to execute this plan. We are very encouraged and excited by what we have seen to date in St. Louis and expect Lumiere Place to be a dominant force in that market for many years to come.

Our international operations in Argentina and the Bahamas generated $3.5 million of EBITDA on $9.8 million of revenues in the fourth quarter up substantially from $2 million of EBITDA on $7.7 million of revenues during the same period a year ago. For the year international operations contributed $12.8 million in EBITDA on over $39 million in revenues a 35% increase on the bottom line from the previous year.

With that I’ll turn it over to Steve.

Stephen H. Capp

Good morning, all. A couple things about the income statement, net income specifically that some of it’s obvious but I want to point out anyway, some of it’s not so obvious. Depreciation and amortization were up for the quarter and the year due principally to the President Boat. We’ve got a rather accelerated schedule there given the nature of the asset but also and to a lesser extent the December in service dates of Lumiere Place and the L’Auberge du Lac hotel tower expansion. We obviously had higher pre-opening and development expenses for the quarter and year due principally to the December Lumiere Place opening as well. Our book interest expense was down considerably due to higher capped interest associated again primarily with Lumiere Place and recall for the prior annual period we had a $45 million merger termination payment that boosted the 06 annual results.

Maybe something that’s not quite so obvious the fairly unusual income tax provision for both the quarter and the year, the quarter was actually an income tax of 2% versus an operating loss of $18.1 million and the full year we showed an income tax benefit of 25% versus an operating loss of $1.8 million. Those are fairly unusual numbers and there are a number of contributing factors leading to those tax results but the principal three factors applied to both periods, although at varying amounts, the first being the gaming revenue taxes in Indiana which we pay pursuant to our Belterra property are non-deductible for state income tax purposes. That obviously works against us, we believe that that is the only state in the Union in which such tax provision applies. We think that kind of isolates Indiana as a bit unusual in that regard but that cuts against us in our income taxes in any given period. The second factor lobbying expenses we incurred in the fourth quarter and obviously full year which are non-deductible for book tax purposes here associated with our Bad Roots Campaign and then thirdly a deferred tax asset impairment at our Argentina subsidiary due to a recent tax audit there which is actually still ongoing but we’ve taken that provision.

Quickly cap ex for the fourth quarter in total about $196 million that includes – I’ll just give you the major two components - $102 million for the St. Louis segment that includes two boat hotels and Lumiere Place Casino and then $26 million for the L’Auberge Tower in the quarter. On the year, $537 million of total cap ex $311 million of that at the St. Louis segment and just about $70 million for L’Auberge for the year. Interest, I think we noted in the press release, total interest expense, cash interest expense $18 million for the quarter versus $16 million a year ago. And then finally from a balance sheet perspective we ended the year in pretty good shape and we remain so here in February. We had $191 million of cash that’s net of restricted cash and we’re in a similar position today with our balance sheet here in late February. We also had considerable availability under our revolving credit facility at year end and as of today that availability net of borrowings and leverage of credit outstanding is about $189 million. So we have a little less than $400 million of cash and credit availability in the system here and and importantly, we are substantially completed, almost entirely complete, with Lumiere Place, the L’Auberge du Lac hotel tower and the Argentina hotel in Neuquén with only some construction payables to flex through their system on a go forward basis.

That’s about it here. Over to you, Dan.

Daniel R. Lee

A few things, we had a couple of big accomplishments in the quarter, one of course was getting the voter approval in Baton Rouge. It was a pretty hard fought battle, the existing casinos fought it pretty hard but voters saw through it and we won by a 56/44 vote which for a gaming referendum is a pretty wide margin of victory and we’re looking forward to building something spectacular in Baton Rouge.

Second is the insurance claim and let me on elaborate on this a little because I think it helps to understand it. Insurance for companies like ours tends to be purchased in layers. There were a wide assortment of companies that were in the first $100 million layer then there’s one company alone that has the next $50 million layer. Then the next $100 million layer was shared by two companies and then there was a last layer of $150 million that was held by one company alone and that company was the same company that half of the $100 million layer below it. In fact I’m going to use the names just because it’s easier to understand. The layer between $100 and $150 million is Allianz and the layer between $150 and $250 is shared by Arch and RSUI and the layer from $250 to $400 is RSUI on their own.

We initially computed our insurance losses to be a little over $350 million, this is all from the destruction of Biloxi and damage in New Orleans from Hurricanes Katrina and Rita. We went back through and scrubbed those numbers and in the interest of trying to reach a resolution came down to about $300 million and the insurance companies were much lower numbers and we had been negotiating with them and suing them. We reached a resolution this quarter with Arch Insurance Company and they are paying us by the middle of March $36.75 million of their $50 million exposure and that’s significant if you think of where Arch is in the picture because at least in theory Arch should not owe us anything unless the Alliance layer is wiped out because that’s the layer between $100 and $150 and Arch’s exposure begins at $150. We don’t have a resolution yet with Allianz. RSUI is [peri-passeau] with Arch in the $100 million layer but then has its own $150 million layer above that.

Now we’ve never claimed that the damage was $400 million but if the damage was $400 million RSUI would owe us $200. I think it’s fair to say that RSUI has greater exposure than Arch and very specifically had equal exposure in the $100 million layer. I explain all of that because if you’re trying to estimate how much our insurance claims are worth the resolution with Arch should give you a pretty good benchmark to go from and try to figure out where we might be willing to settle with the others but we have no such settlement and may not, it may ultimately be resolved in court and the case is already filed with the Federal court here in Nevada and will probably be heard later this year. That’s the insurance.

Now a lot of you know I was self [inaudible] analyst in the 80’s and I actually got out of business school in 1980 and I was thinking last night, this morning, the last week what the situation is and it’s kind of interesting if you take it in a historical context. I’m kind of letting my age show. I’m not as old as Kirk [Accorion] or Steve [Winn] but I’ve been around longer than a lot of the people on the phone call here. When I got out of business school in 1980 single B-rated companies if they could get money at all and [inaudible] was just starting the high-yield business the cost of capital was in the teens. But of course inflation was 14%, not 5% and the gaming stocks were frankly just coming off the bubble. Resorts International and Oakland and Atlantic City in 1978 in May, their total investment was $37 million, believe it or not it’s the same building up there today, but $37 million and they made $70 odd million in their first seven months of operation and as a result of those extreme results resorts had the gaming stock in the late 70’s that soared and there were stocks that were up a hundred-fold including resorts and about the time I got out of business school in 1980 there was a bit of a hangover settling in because there were seven other casinos under construction and people were wondering can they all make it, is Atlantic City going to get overbuilt, etcetera, etcetera. And there were some stocks like Golden Nugget, Inc. which became Harrah’s Resorts or Holiday Inns which became Harrah’s which were quite depressed and had you bought them then you’d be comfortably retired today.

Then there were others like American Beef and Bison Breeders, believe it or not, that was actually a casino company, that went out of business. They had two businesses, they were trying to develop a casino in Atlantic City and they had a patent on the merger of a buffalo and a cow and they sold beefalo. Anyway, 1987 Caesars was going private at $30 a share and then you had the market crash in October and Caesars in one fell swoop went from $30 a share to $10 and there’s a fellow by the name of Marty Sosnoff who was taking it private, he had a bunch of stock, he owned it unmerged and he got margin call that day and I remember just watching that stock just plummet and I remember going on our inside system like you all have saying hey this awfully cheap at $18 and by the time I was done talking it was $14 and I went back on and said you should mortgage your house and buy it, by the time I was done saying that it was at $10 and I went home wondering what the hell reality really was, but had you bought Caesars at $10 you have a gotten a heck of a return.

People were also concerned in 1987 that Golden Nugget was building The Mirage, that Las Vegas was going to be overbuilt, that Steve Winn was nuts, that no casino in Las Vegas could ever do $1 million a day in revenues and the stock were very cheap in the late 80’s. 1989 Mirage did well, it opened, the stocks all recovered. That laid the groundwork for Treasure Island, Luxor and MGM, and MGM started in 1989. Then you had a bubble in 1994, Casino Magic one of the three legs of our stool here opened the first casino in the Mississippi Gulf Coast, in Bay St. Louis the thing did exceptionally well. Casino Magic was the highest performing stock on the NASDAQ I think. I think in the year 1995 it also went up by fifty-fold, there are a whole bunch of other companies like Grand Casinos went up a lot, President Casinos, Bell Casinos and Harrah’s who was also developing a lot of riverboats. Then people gradually found out that not everybody can build one of these things and get 100% cash-on-cash return. There was in Tunica County that cost $12 million, made $70 million in its first year and went bankrupt in its third year. That was the Splash Casino. Dell Casinos went bankrupt, President Casinos went bankrupt, Grand Casinos did well, kept reinvesting and ended up being acquired by what is today Harrah’s and Casino Magic was acquired by us.

So you had kind of a bubble in the mid-90’s from the riverboats and then back to reality. Then you had 911, it was going to be the end of travel as we know it, stocks all plummeted, bonds went up. I remember buying Mandalay Bay bonds at a 13% yield thinking we’re the first mortgage on Mandalay Bay and I’m in good shape, which I was, and then you had 2007 in recent history. Everybody’s going private which is a game that is at least temporarily on hold with the credit markets where they are. Land on the Strip is worth $35 million an acre. Well there were a couple pieces that sold for $35 million an acre. Now you have guys with options at $17 million an acre that aren’t exercising the options. So, land’s only worth what you can put it work and make money on it and we found that $35 million an acre is very hard to make those numbers work. And then of course a year ago people thought you could build unlimited number of casinos in Macao and they’d all pay for themselves inside of one year. Macao’s a great market but it’s not that good and I think people realized that now.

So where are we today? Well, people seem to think nobody’s ever going private which isn’t true. They’ll be leveraged by outside casino companies again and credit markets will come back. People are worried that there is going to be a recession and no one will ever gamble, that’s not true. As we’re sitting here the slot machines are going tinkle, tinkle, tinkle and every now and then I have to go back to one of our properties and remind ourselves because I spend too much time talking with guys on Wall Street all think there’s nobody in the places and there are thousands of people in our casinos as we speak.

Then you have a very specific problem, the Harrah’s deal is basically a hung deal. $20 billion of paper shoved into the high yield market for casino paper on the heels of the huge [Kirsner] deal, with the huge Station Casinos deal and they finally got to the point with the high yield market for paper and the gaming industry got indigestion and of course you all know what happens when that happens. The institutional sales person on the investment bank desk starts calling up with a list of people who hold their bonds and say, hey you should sell the Pinnacle bonds because it’s a 10% yield and buy this piece of Harrah’s paper, it’s got a 16% yield because we need to clear it off debts which allows the investment banks to diversify their position and kind of clear their desks and so they spread the misery throughout the gaming industry and before you know it you see our bonds trading at $74, our new bonds which is like a 13% yield and if you track the price of that, that price dropped the day Harrah’s cancelled their road show.

We traded lock step with single B bonds in general until that day and there was nothing we did wrong or different. And then of course you had the Penn deal as the overhang on the hung deal. So you have kind of an institutional issue where there’s not enough capacity in the debt markets to absorb the deals and that is spread to all casino borrowers and then you start saying, geez with that sort of high real interest rates, 13%, inflation’s not 10 or 14% as it was in 1980, inflation is 4 or 5%. That’s perhaps the highest real interest rates we’ve seen in our lifetime. Frankly it’s a pretty good buying opportunity if you’ve got 2% sitting in money market funds or you’re getting 3.5% in 10 year Treasuries, well that’s less than inflation. That doesn’t normally happen, so if you had the flight to quality last year congratulations. But now it’s time to think about getting some yield because you’re not even matching inflation.

I know a year ago when I did the capital asset pricing model figure at our cost of equity capital it was about 13%. Why would you go for a 13% yield in our stock if you get a 13% yield in our bonds? So of course the stock market is adjusted accordingly and so our stock is down, meaning that people who invest in our stock expect a return substantially higher than 13% and I certainly do for these prices. If I’m right, I think from these prices, you’re looking at returns in our stock substantially in excess of 20%. I hope, knock on wood, that’s what we’re trying to get to.

So where does that leave us a company? Frankly you try not to go to the market for capital today because the window is essentially closed or expensive. Fortunately we have quite a bit of inexpensive capital. We have a $625 million credit line at LIBOR 1.5, of course the drop in the Fed funds rate that affects LIBOR so at this point, so LIBOR plus 1.5 is something under 5% and we’re using part of that, about $150 million, Steve? $160?

Stephen H. Capp

We had $140 funded plus LCs.

Daniel R. Lee

$140 funded today and a handful of LC’s. $20 million of LC’s. There’s $10 I think we get back here shortly from our St. Louis. So our ability to access the credit line is limited by covenants in our bond issues. The small bond issues, which I think is 8.75, limits it to $350 million so it’s an incremental couple hundred million from where we are today. That bond issue becomes callable in October. There is an 8.25% bond issue which has a carve out for senior indebtedness of $475 million that becomes callable in March. Our biggest bond issue, the one issued last May, has a carve out for senior indebtedness of $1.5 billion. So that bond issue would actually us to go back and increase our credit facility – our credit facility was $1 billion a year ago. We chose to pay it down some and I think in normal credit markets we could increase that bank facility quite a bit.

Right away we have as inexpensive capital north of $100 million of cash earning like 2%. We have insurance proceeds which is at the moment $36.75 million that we anticipate to get in a month but we continue to deal with the other insurance companies and hopefully they’ll pay us inside of a year or so. That’s a pretty substantial number. Then we have cash flow from operations we generate even after maintenance cap ex about $100 million a year. So we’ve got a few hundred million of inexpensive capital and we’re using that to fund all the development activities that we have going on most of which are relatively small. In Atlantic City for example we spend about $2 million a month on architects working towards the day when we can get the stars aligned and I’ll come back to that in a minute. Also the inexpensive cash we have pretty readily pays to complete River City which is under construction, we’re about $50 million into the $375 now and it should open in about 15 months. We’re also refurbishing the guest rooms in Reno, we’re building elevator barge in Bossier City and we’re watching all this stuff pretty carefully and I think all of that can be done with the inexpensive capital.

Then you get to a second tier and that’s like the second tier capital on site is refinancing those bonds and if we were to do it today it would be pretty expensive. Hopefully the overhang in the market clears and we’re able to do it sometime in the next six or nine months less expensively. I doubt we’re going to be able to refinance them at the 8% coupons they have now. However if you refinance those bonds and use a covenant package similar to the 7.5% bonds then you get full access to the credit line which is at 4.5%. So if you issue bonds at a high cost but then you’re getting a somewhat similar amount of capital at a low cost, the blended cost of capital isn’t too far off the 8% we’re paying now. The credit line only has a couple years to go so I would call that intermediate cost capital and that plus taking the credit line back up to where it used to be would fund Sugar Cane Bay and Baton Rouge and recognize those are both pretty high return projects as well. So we’re feeling pretty good there.

In a longer term context if we need to go for capital in a bigger way as we would for Atlantic City it becomes problematic a little bit because the return we would expect to get on a major project in Atlantic City is probably in the low teens. Now that’s cash-on-cash un-leveraged which is what this industry normally uses which is much higher standard than any other real estate business would tend to look at equity returns after borrowing money. But we typically look to get cash-on-cash on leveraged returns and most of our projects are 15 or 20%. I think Atlantic City is probably a little under 15%, maybe even 12 or 13%. Now it’s a more reliable return because it’s a very mature market. You can look at how the other properties are doing, you can forecast what you’re likely to do much better than you can in some new market where no casino exists.

Let me put it in perspective, a place like Baton Rouge where we think we can build a place for $250 million that’ll make $50 million a year, that’s a 20% cash-on-cash return. You build that even if you’re borrowing money at 13% just as people built in Atlantic City in the early days borrowing money at 13%. In Atlantic City you probably don’t. If credit markets stay exactly where they are today for the next two or three years, we’re not going to borrow the money to go to Atlantic City. It’s not going to make sense. We need the stars to align. We need to have a building we can build for X that we expect to return Y and the cost of capital of Z has to be less than Y divided into X. It’s pretty simple math. We think the stars will align so we continue to work towards that, we never envisioned arranging the money until late next year so we have quite some time for the credit markets to improve but I’ve been asked by a number of people, how the hell are you going to build Atlantic City? And the answer is if credit markets don’t improve, we won’t build. We’re not alone. Rebels bust capital will be higher than ours. MGM is still putting together their financing for City Center here, they’re actually more levered than we are. If it’s difficult for us to arrange financing, it’s difficult for anybody to arrange financing and that’s just reality. On the other hand if the credit markets don’t improve, there’ll be some serious issues in the economy and I think the question of whether we build in Atlantic City is kind of moot.

I just want to be straight up about that. We do think credit markets will improve before we need to build. We don’t have a gun to our heads. If we have to wait a year until they improve that’s okay. The land’s not going anywhere. It frankly just gives us more time to make the plans better. My experience having been around this industry for a long time is the credit markets will improve before architects are done designing the building. That’s where we are with Atlantic City.

If you look at us a little bit and somewhere I’m sure Chris referenced all the Safe Harbor language so I can speak a little freely and tell you we try to make these numbers but you never know. The year just ended. We had EBITDA of about $169 million. If you look at the numbers and we posted some tables for the early results of Lumiere Place in St. Louis it’s already – if you include the President – it’s already pretty close to $15 million a month and we don’t even have either hotel fully opened yet. They’re both partially opened and both are doing pretty well. But they’re not fully opened. But if you just use $15 million a month that would be $180 million year of gaming win. If you can get a 25% margin that’s $45 million of EBITDA. Now we won’t have a 25% margin this year because marketing costs are high, payroll costs are high and so on, but I think we have a good shot at that sort of thing next year.

The goal this year is to try to stabilize it better than $15 million a month in gaming revenue this year and then strive for $50 million EBITDA next year and that’s very similar to kind of how we tracked at L’Auberge and of course we told everybody at L’Auberge we’d do $60 and we’ve done $75 million a year now for two years. Frankly all the trends at Lumiere Place are promising. The place looks great. The customers like it. The repeat customers are building the win per customer visit is improving with the loss limits there that tends to happen. You tend to open slowly. We also put on the website the initial opening months of the other major casinos in Missouri and I think it’s safe to say we’ve had one of the most successful openings in Missouri history. But if you use the numbers I tossed around, let’s say it’s $50 million from Lumiere Place when it matured. So our company’s EBITDA run rate would be about $220. We just added 250 rooms at Lake Charles. I think that probably adds an incremental $10 million a year which is a 15% cash-on-cash return so you’re up to about $230. This is after corporate overhead and I will tell you probably $10 of our $40 million in corporate overhead is related to all the stuff we’re trying to build. If we weren’t so aggressively trying to expand we wouldn’t need as much in travel expenses and some of the other stuff that we have at corporate. But set that aside, and just assume our run rate’s about $230 we complete River City, we’ve been pretty straight up saying that we think the two places together in St. Louis will eventually normalize at about $130 so that means River City is an incremental $80 and that takes you to something a little north of $300 million of EBITDA.

We have 60 million shares outstanding so our market cap today is somewhere around $950 million. We have about $900 million in debt. We’re going to borrow another $200 million or so to complete River City and we have land in Atlantic City that cost us about $300 million. I think it’s worth at least that and we have miscellaneous land elsewhere in the company that’s worth $100. Let’s assume the insurance claims go into River City for the moment so that would leave you a net enterprise value of about $1.6 billion meaning that we’re trading at like 5.5 times our EBITDA. Now if you want to take it to the next step and say okay let’s suppose we built Baton Rouge for $250 and the cash flow is $50, Sugar Cane Bay for $350 and the cash flow is $50 and you say well let’s suppose that’s where the company ends up and you do the math you’ll find it’s similarly cheap and then Atlantic City it’s like, well if we can borrow the money at the normal rates that we were borrowing six months ago that everybody was borrowing six months ago, of course we’ll build Atlantic City and hopefully that’s a great project and that’s a great place. You can do the math again on that and see where we are in five years and you’ll see that we think there’s a lot of upside in our stock from here.

I talked a lot. I feel more like an analyst at the moment than CEO but I’m happy to take questions.

Question-And-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Celeste Brown with Morgan Stanley.

Celeste Brown – Morgan Stanley

Just a quick housekeeping question, what will the corporate run rate be this year? It’s been a little lumpy, it was a little lumpy in 2007.

Daniel R. Lee

We’re trying hard to hold them in 08 to the annual level they were at in 07 and I think that means in the first quarter we’ll probably still be above last year but hopefully we can recover that later in the year. We had some legal expenses this past year that hopefully we don’t have in the year ahead and some stuff like that. We’re trying hard to hold the expenses to the level they had last year. There was a big increase from 06 to 07 as we staffed up in marketing operations and so on. For example, there’s an office building we leased that we’re outfitting the inside of and we haven’t gotten that done as fast as we had hoped and it’s not a big number of our own expenditures because there’s tenant improvements associated with the lease. In the meantime we’ve got people in temporary office space that we’ve had to lease so hopefully our rent expense this year is less than it was last year. And legal expenses hopefully are less and we hope to hold the payroll at approximately where it is today.

Celeste Brown – Morgan Stanley

And then what do you think the EBITDA L’Auberge would have been without all of the disruption and the comp issues in the fourth quarter?

Daniel R. Lee

It probably cost us a couple million bucks in the quarter prior to EBITDA.

Celeste Brown – Morgan Stanley

And then do you think you can make any EBITDA in 2008 with the issues going on in Reno?

Daniel R. Lee

We just changed the GM there. Our GM from New Orleans has been one of our better GMs moved up there replacing somebody who had been there 30 years. He’s gone through just in the last couple of weeks the payroll looking carefully at the amount of staffing we need to have and we’ve made some adjustments there. The guest rooms have gotten pretty beat up, we are going to refurbish the rooms this year. And the other thing is Reno is very summer seasonal so the goal there is always not to lose more in the winter than you make in the summer. I think we’ll not only have EBITDA for the year but I think we can do better than last year especially as we get the better rooms on line. That property used to make $20 million a year before they had all the unique casinos in California. I don’t think we get back to that but I think we can go from a big percentage improvement over 3.5% but that’s not going to move the needle for the company.

Celeste Brown – Morgan Stanley

And then, Dan, how do you think about future opportunities? Right now it’s hard to fund the current ones, but Missouri it sounds like is going to move forward with allowing another license in Kansas City. Is that something that interests you?

Daniel R. Lee

We’ve got a pretty big proposal in Kansas City, Kansas that we’ve put a lot of effort into and in fact we were one of the three entities chosen by the unified government to be recommended to the state and state legislation requires you to have local endorsement. There’s also at least one entity in Edwardsville which is another township within Wyandotte County. It’s a competitive process but we like the situation in Kansas. It’s got no loss limits, it’s land based, there’s no limitation on size. The gaming taxes are somewhat similar to what they are in Missouri and we think it’s a pretty big opportunity and we think we have the best proposal with any of them campus. To distract that by chasing Sugar Creek especially when the Gaming Commission only gave us about three weeks to find out where the hell Sugar Creek is an put in a think which just struck me as a very, very tight timeframe. I think we’re going to stay focused on Kansas for that market. I should mention we are part of the Schools First Coalition with the AmeriStar folks to try to change the loss limits in Missouri so that’s something that we’ll be focusing on in the second half of this year. Signature gathering is going on now. I think the language has been approved by the Secretary of State and hopefully it’s on the November ballot. It would raise a lot of money for the schools in Missouri. One percentage point increase in gaming taxes, but of course also allowing us to bring in gamblers outside of the state and do it economically which you really can’t do with a $500 loss limit, boos the state’s revenues quite a bit. In our case we think the benefit for us in St. Louis is pretty big. Obviously if we do get the casino in Kansas City, Kansas and Missouri doesn’t change the loss limits that would be kind of better for us in Kansas City. On balance we’d rather see the loss limits go away, we think it’s kind of silly legislation and inconveniences our customers.

Celeste Brown – Morgan Stanley

Finally just one last question, sorry to be a question hog. Have you thought about partnerships for any of these properties if the debt markets don’t open up so you can continue with your growth pipeline?

Daniel R. Lee

It’s certainly a possibility. I watched what Jim [Yurin] did with [Dubois], I thought it was pretty smart and I know where Dubois is, I don’t know the people yet but I know where it is. But there’s no reason to go there yet. We’re still long enough away raising our money but we could partner with other casino companies or we could partner with Sovereign Capital like MGM has done for City Center. There’s a lot of things you look at. Ultimately a partnership is not usually inexpensive capital either. First off you’re giving up half the equity. I mean imagine how much better if Boyd Gaming had an opportunity at one point to buy out Mirage’s interest in the Borgata for about $100 million and they chose not to do it because they didn’t want to take on that much leverage on their own. Imagine if they had. At this point they’re paying MGM $100 million a year. As great as the Borgata has been for Boyd’s stock price it would have been much greater had they owned 100% of it. The other thing that it does is it forces you to go to project financing and if we can’t do it on our own balance sheet you’d first look to see can you project finance it and then that comes down to can you get enough equity out of the restricted family to create entity that is project financable . If you bring in a partner you’re stuck going to project financing and project financing probably costs 200 or 300 basis points on your debt capital. It’s obviously something we would look at. We’ll look at anything frankly. Just to put it in perspective we have about $5.00 per share in land in Atlantic City with no direct debt on it other than our corporate debt. You could even go to the extreme. Our land in Atlantic City is not for sale and not looking to sell it but if you did sell it, it would change our need for capital pretty significantly. What we could sell that land for in Atlantic City would pay for – you could take that money and then throw it in with our cache of operations and build Kansas City or certainly Baton Rouge. I think it would be silly for us to sell, it’s a big part of this company’s future and we do think credit markets will improve and frankly what we have designed for Atlantic City is pretty spectacular. Spectacular enough that I don’t want to show it to anybody yet because we don’t know what it costs. We were interviewing cost estimators last week to hire an independent firm to go through and give us an accurate estimate of what it’s going to cost and then as I said earlier there’s usually a process where you lay off and say okay this is what it’s going to costs, this is what we think it can earn and what’s the cost to capital. We’re still at the point of compiling our dreams, what can go into this property and they’re pretty big and pretty spectacular. But I don’t want to show it to you guys and then have to disappoint you by saying well that was a great building but we can’t afford it. So we’re going through that process.

Operator

Your next question comes from the line of Felicia Hendricks with Lehman Brothers.

Felicia Hendricks – Lehman Brothers

Dan, with the insurance proceeds I’m wondering if all goes your way how much do you expect to net in total?

Daniel R. Lee

Let’s assume RSUI who has similar exposure in the key layer as Arch if they paid us the same that would be another $36.75 million. I think we have some consultants we have to give one percentage point to so let’s call it $36 million for each Arch and RSUI and of course they shouldn’t owe us a dime unless Allianz pays us all that they owe us and that would be another $45 million.

Felicia Hendricks – Lehman Brothers

So based on the anticipated final portions of these insurance you gave us a really good overview of your financing needs short, medium and long term. Just wondering with the receipt of the insurance proceeds again if everything goes your way how much time does that buy you until you need to tap into debt?

Daniel R. Lee

The way your question is phrased is – One way to address this, when I got the first draft of our 10-K and that’ll be filed on Friday, there’s a risk section in the 10-K where the lawyers generally draft it and they take a draconian worst case view of what might happen and their first draft of it said we’re building this great big pipeline and if credit markets don’t improve we’re going to run out of money. I sat down with them and said that will not happen because we simply won’t start building stuff that we’re not confident that we have the resources to finish it. It’s not an issue of running out of money, it’s an issue of when do you start Atlantic City. Take Baton Rouge for example, the referendum just passed. Now we have an agreement with the Louisiana Gaming Commission that has a certain timeframe in it. But we need to get zoning approvals and I’m sure that those won’t necessarily come easily and so we’ve got to work through that. We will now start designing it. We have a rendering of what it will be so you kind of a rough outside look but we haven’t even begun to do the working drawings that a carpenter needs to decide how to build something and that takes probably a year to 16 months before we are in a position to put a shovel in the ground. There’s other stuff like the non-casino hotel in New Orleans. We don’t have a development agreement on that, it’s not a high teen return project. If the credit markets don’t improve we’d probably sit on that indefinitely until the credit markets do improve. We’re paying a lot of attention, our Board is paying a lot of attention, Steve and I discuss it all day long of what are we comfortable on. So it’s not a question of when do you need more money it’s really a question of when do start these things and we’re in real good shape for the next project and pretty good shape for the next few projects and really the 700 pound gorilla is Atlantic City which is why singled it out.

Stephen H. Capp

Yours is a huge question vis-à-vis the street and it’s the one we keep getting right at us. One of the things Louis did for me recently or for us was put together a slide looking back at Lumiere Place. From when we started bidding on this thing the RFP process by the MGC and the city of St. Louis when do you actually open the doors on the casino? The answer is four and a half years. And hotels just open even longer than that. My point being as you start to overlay the average project development timeline of any given project onto a balance sheet, that balance sheet changes in an enormous amount between when you RFP or conceive something and when you actually need to start talking about detailed construction drawings, when you RFP the gross maximum price contract, the interaction of all that, putting a shovel in the ground, completing the thing, getting the doors opened, all that – there’s a lot of interplay and a lot changes and so we don’t have a discreet answer to your question or the broad question from Wall Street, gee how much money do you have, how much can you build because of the fluidity involved in that process. Of course shareholders pay us to manage that process and the company and we have a lot of comfort in doing that from a liquidity perspective. We’re pretty good at raising capital and we think the markets will come back as they have typically in the past and so we’re okay with all that stuff.

Daniel R. Lee

But I go back to the little analysis I did trying to value our company. I purposely started with only what we have today plus River City because if you found you could not refinance the existing bonds at any price I think that’s kind of where we’d end up. You hope that never is the case and I doubt that’s the case and there is a price you could refinance those bonds, but if you want the worst, worst case scenario that’s where you end up and Louisiana would take back the licenses and life would go on. I don’t think that will happen. I believe we could raise the money. I think we could raise the money even today, it just wouldn’t be a very pretty interest rate. The intermediate step is to say we build Baton Rouge, Sugar Cane Bay, refurbish the rooms, of course River City but you don’t get to Atlantic City because there’s capital available but not available at a cost that you can make Atlantic City work. And that would be kind of an intermediate analysis and you’d say if we did that what’s the company worth and of course I think ultimately they’ve got to recognize it. If the credit markets stayed the way are today, let me put it in perspective. The issuance of high yield bonds month in, month out for several years was about $15 billion per month. The first two months of this year they haven’t even reached $1 billion. The credit window is essentially closed. For us that’s okay. We have some competitors who have buildings that are half built and they don’t’ have the money to finish it. We have a policy of not starting something unless we’re reasonably certain we have the resources to finish it. We think with the schedule of our projects we’re going to be okay with that. But the real question is if the credit markets don’t reopen what do you build and what don’t you build? Well that depends on the return on each project and what the cost of capital is at that time and when the architects are done with it. But I think in all likelihood the credit markets will come back because frankly if they don’t there’s a lot of industries that are going to be in much worse shape than our industry and there’s a lot of companies that are going to be in much worse shape than our company and this whole question of if and when are you going to build is going to pretty moot because every car company will be bankrupt and most airlines and so on. So I think people have to sit back and say wait a minute, I can get a 13% yield of bonds on this and all they have to do is stop building stuff? Anyway, that’s the bottom line.

Felicia Hendricks – Lehman Brothers

In the interest of time I just have one other question very much changing gears. In January your revenues for L’Auberge were up 3.5% after being negative for the past couple of months, would you attribute that all to the new hotel? The market was up also but what I’m trying to figure out is the rest of your markets we’ve been seeing that they’ve been having a tough time and I’m trying to parse out is it weather, is it the economy? It’s kind of tough to parse things out in the winter time. I’m hoping you can give us some color.

Daniel R. Lee

Once you get to more than about two or three properties the weather kind of offsets each other. If we have a snowstorm in Reno one year we’ll have an ice storm at Belterra the next year so I try not to use weather as the explanation for anything because you’ll drive yourself nuts trying to figure out the weather from year to year. If you have one or two properties, okay use weather. But it’s not really weather. I will say at L’Auberge the additional rooms are a pretty big plus for the property. Kind of buried in there is the fact that there are 10 high roller suites that turned out to be as nice as the four billers we have, they’re not quite as many square feet but the decorum is just awesome and they’re very popular. So at the high end we great increased the product we have for the high end customer and I think that’s going to yield some pretty big benefits this year. I will warn you in January the revenue was up, the profit was not, so don’t get too exuberant about it. But that’s in part because for the first time L’Auberge was running television ads in Baton Rouge which is about an hour and a half away and that’s a function of all of us spent a lot of time in Baton Rouge and it was obvious Beau Rivage which is an hour and a half away spends a lot of money advertising in Baton Rouge, maybe we should too. So we were advertising and it’ll take time for that to produce some benefits and there was some staffing issues with the new hotel tower. On the other hand I’ll tell you the improvement of revenues was achieved despite a pretty miserable whole percentage. As I said earlier we think we’ll go from about $75 million to at least $85 million this year at L’Auberge and that just reflects $60 million of incremental capital earning 15% and I’d be pretty disappointed if we don’t do that.

Operator

Your next question comes from the line of Carlos Santarelli with Bear Stearns.

Carlos Santarelli – Bear Stearns

I was just trying to get a feel for 2008 and what you guys kind of look at as a total cap ex budget and how much of that is firm and how much is variable?

Daniel R. Lee

Maintenance cap ex is about 30, Reno is 10, Bossier City is 10 and River City is 325 to go. Much of that will fall in 09 not in 08.

Stephen H. Capp

Probably about a 50 handle on River City in 08 in cash outlay this year.

Daniel R. Lee

So we got 325 to go, we’ll spend 50 this year and the bulk of it in 09.

Stephen H. Capp

By the way we’re 50 into River City so that’s a lot [inaudible]

Daniel R. Lee

That’s why I used 325.

Carlos Santarelli – Bear Stearns

And then do you guys have a construction in progress balance at the end of 4Q?

Stephen H. Capp

CIP balance?

Carlos Santarelli – Bear Stearns

Yes.

Stephen H. Capp

Yeah, we do have one, I don’t have it here. Sorry about that.

Daniel R. Lee

No problem. If you were to take it to today it’s the $15 million in River City. Because everything is pretty much open and –

Stephen H. Capp

Well, okay, 12/31/08.

Daniel R. Lee

12/31/08 was something more than that because the hotels weren’t open. But if you were to estimate what it is today the only thing out there actively under construction –

Stephen H. Capp

We have $13 million in Argentina hotel tower on top of that.

Operator

Your next question comes from the line of Cameron McKnight with JP Morgan.

Cameron McKnight – JP Morgan

Just on L’Auberge I gather you were carrying additional staff ahead of the hotel opening, do you expect that with five hotels now open that the margins will start to ramp or is it going to take the pedestrian tunnel to open before we really start to see the property achieving a run rate?

Daniel R. Lee

I think you said L’Auberge but then mention [inaudible]. Lumiere frankly I’ve told the management team to focus on getting revenues this year and worry about the margins next year. So that’s why we don’t give guidance or anything else. I think we’ll make money this year but I don’t want to set an expectation that then has them doing anything other than focusing on getting market share and repeat business and locking in. You build these places to be 30 year businesses. But obviously margins will improve over time. The pedestrian tunnel will be a nice plus, the big sign will be a nice plus, the sign is one of the biggest signs outside of Las Vegas in the world. It opens in May. When you open you’re always slammed with a lot of business and your employees don’t know their jobs yet and a lot of employees find out that they really don’t want to be a bartender and so you tend to have high turnover and so you staff accordingly. You overstaff knowing that quite a few people are going to leave also knowing that they’re inefficient in their jobs and you don’t want that penalize the customer and so you purposely overstaff. At L’Auberge I think we managed to have the payroll rationalize itself without actually doing any layoffs. The turnover got us there but we opened with over 3,000 employees and we’ve ended up today with about 2,000 employees. Okay, so we went from 3,600 to 3,100. And then the marketing costs initially you’re on television and that’s expensive and then you gradually build a mailing list and shift over to direct mail which is more effective on the marketing cost so your marketing costs go down.

Operator

Your next question comes from the line of Betsy Gorton with Goldman Sachs.

Betsy Gorton – Goldman Sachs

Just a quick question on New Orleans, do you continue to think that that property has stabilized and think that EBITDA in the $45 to $50 million range for next year is reasonable?

Daniel R. Lee

We actually finished this past year at $54 and if you do a monthly or quarterly trend we seem to be stabilized at about that level. So I think we’re stabilized a little bit above the range you said.

Unidentified Male Speaker

We’re off to a good start.

Daniel R. Lee

It’s also off to a good start this quarter. Time for one more please.

Operator

Your next question comes from the line of Dennis Forst with Keybanc.

Dennis Forst – Keybanc Capital Markets

I wanted to get a couple of clarifications, Dan or Steve, on cap ex again particularly at River City. I think, Dan, you said a couple hundred million more of debt to finish River City. So that means debt will peak out something over $1 billion assuming the insurance payoffs. Is that right?

Daniel R. Lee

There’s three sources of capital to think about for River City. First is the other $200 million that we can borrow under our credit line inside of all of our existing debt covenants, so that’s $200 million. There’s roughly $100 million of surplus cash we have today. We also have cash flow from operations about $100 that we will get over the next year to 15 months and then if we get something from the insurance companies. If you add that all up it’s significantly more than the $325 million needed to complete River City and that’s why we’re in pretty good shape and now as the architects completing the designs for Sugar Cane Bay which will be the next in queue we’re trying to figure out what the sources of capital are to make sure we’re reasonably comfortable with that. By the way just so you know we have essentially no leases in the company. We’ve not leased televisions, we don’t lease switchboards, we don’t lease elevators, we don’t lease furniture because back when we could borrow money at 5% it was cheaper to just do it through the credit line. All of that’s an avenue for us so there’s a lot of stuff we haven’t looked at. We generally own our own ATM machines. That’s tens of millions of dollars sitting in cash in the ATM machines. You can do deals with banks where they’ll take over the ATM machine then they get more of the fee than we do. But it’s capital that’s available and it’s probably cheaper than going to the high yield market today but more expensive than borrowing under the credit line last year.

Stephen H. Capp

And, Dennis, I’m sure you’ve got this but there’s about a $25 million non-cash element to the $375 overseas budget for capped interest. If you want to talk nickels, dimes, quarters that’s also in there.

Dennis Forst – Keybanc Capital Markets

And just to make sure my numbers work out right, you said you’ve already spent about $50 million on River City, you’re going to spend another $50 million this year or was that the first quarter?

Daniel R. Lee

River City is $375 million, we’re in at $50. Steve’s point is there’s about $25 million of capitalized interest in that budget. There’s also at least $5 million of capitalized rent. It’s a weird deal.

Stephen H. Capp

Yeah, yeah.

Daniel R. Lee

We don’t actually pay rent until we open but the accountants require you to add up the 99 years’ rent divided by like 103 in impute rent even though you’re not paying it.

Stephen H. Capp

During the construction period.

Daniel R. Lee

Right. And that’s part of the budget so there’s probably $30 million of non-cash stuff in the budget so we’ve got call it $295 to go. You said we spent $50 million the balance of this year. Cliff Kortman, our President of Construction is sitting here. That sounds a little light to me. You think that’s fair?

Clifford D. Kortman

More like 80 probably.

Daniel R. Lee

Probably $80 million dollars between now and December 31st. So $50 to $80 million, somewhere in there. And then the balance should be in the first half of next year.

Dennis Forst – Keybanc Capital Markets

Okay so the first half of next year could be a couple hundred million dollars?

Daniel R. Lee

Sure, pretty easily.

Dennis Forst – Keybanc Capital Markets

So the total cap ex [inaudible]

Daniel R. Lee

Which we have today.

Dennis Forst – Keybanc Capital Markets

Total cap ex for 08 about $30 million maintenance? $10 million in Reno, another $10 million in Bossier and then the $50 to $80 million in River City?

Daniel R. Lee

That would be about right.

Dennis Forst – Keybanc Capital Markets

And then, Steve, what is the -

Daniel R. Lee

Then in 09 you start layering in, we’ll start to have material numbers at Sugar Cane Bay.

Stephen H. Capp

Dennis, keep in mind that if the markets became a bit more receptive to us and others and we were out in them financing and doing other fun things like that, you could see a bit of a change in that cap ex schedule but we’re hunkering down a bit in the meantime.

Daniel R. Lee

And there’s stuff like the truck stop in Reno. We have entitlements for it and so on but we’re not moving very fast on it at the moment.

Dennis Forst – Keybanc Capital Markets

And then just a couple of questions about run rate for depreciation and amortization, it was high in the fourth quarter because of the accelerated depreciation but on a normalized run rate what is that going to look like with Lumiere open?

Stephen H. Capp

That acceleration, Dennis, was with respect to the President boat and that’s not going to change in 08 on a run rate basis. So the rate you’ve seen implied in late 07 carries forward. We do get go-zone accelerated depreciation credit for the L’Auberge tower, that’s a tax effect not a book impact.

Dennis R. Lee

That’s a very big one actually. You’ve got to expense $30 million of the $60 million tower right away which is why we don’t pay a whole lot of taxes. That’s one of the things sheltering our taxes but for book purposes you depreciate it over 30 years, 17 years on average. The furniture, fixtures and –

Stephen H. Capp

That sort of go-zone acceleration will help us protect taxes otherwise due on things like the insurance payment and others. So we’ve got a number of those coming down the pike as we open up these new properties and it’s very helpful on the cash flow basis.

Dennis Forst – Keybanc Capital Markets

I’m thinking somewhere take the fourth quarter depreciation, 22.6 and multiply it by four and then layer on a full year depreciation from Lumiere.

Daniel R. Lee

Yes and now remember we’ve got two new hotels coming on that are not reflected in that 4Q number, Four Seasons and Lumiere. So it’s going to be higher by that number.

Dennis Forst – Keybanc Capital Markets

Even the property itself, the casino wasn’t really reflect much in the fourth quarter, it was only open for a few days.

Daniel R. Lee

That’s correct.

Stephen H. Capp

About half a month, 12, 13 days.

Daniel R. Lee

But at some point, see we bought the President for roughly $40 million and we’re depreciating it at over only a couple years mostly because that the Admiral, the boat that’s there is very old. Like 100 years old. Frankly if we continue to operate it – today it operates like Bill’s does at Harrah’s Tahoe or O’Sheas does at the Flamingo. Here it’s kind of an adjunct. Interestingly our employees from Lumiere Place are legally able to gamble at the President. We’ve grouped together a lot of the back of the house areas to try to economize costs and it helps us get around the loss limits because you could lose $500 at Lumiere Place and then walk down the street, you have a fresh $500. But the referendum in November, if it passes puts a cap on the number of licenses and so suddenly that becomes of value. Well we didn’t assign nor could we assign any value to the license because as of today there is no cap on the number of licenses and if you did keep the riverboat tied up where it is now we still have the two Harrah’s boats from Lake Charles, one of which is pretty big and in decent shape and for not much money we could renovate that and twiddle it up and replace the Admiral. Nevertheless the accountants put the $40 million pretty much against an existing boat that has like two years to go rather than putting it out of business but we think has a longer life than two years. Whether it does so staying there in a new boat or does so by moving somewhere else would leave the business as a longer life than the building. Steve also referenced something else, I want to make sure people aren’t confused. On the insurance proceeds, there’s two components of it. One is the cost that would have cost us to rebuild the building and the other is the business interruption. We probably will not have it resolved at the breakout between one and the other until you have the insurance fully resolved. The cost to build the building is quite a bit higher than the tax basis of the old building and that would cause a taxable gain except in our case we have done an exchange of the real estate into Atlantic City and so the tax basis which gets augmented from it goes into the land in Atlantic City so we don’t have a taxable gain on that part of the insurance proceeds. The business interruption which would be the smaller part of the insurance does create taxable income but things like the go-tax credits and the just the normal tax depreciation from building a new building like Lumiere Place should shelter a good chunk of that. I don’t think you really need to tax effect the insurance proceeds that we’re likely to get and I just wanted to make sure that was clear to people.

Dennis Forst – Keybanc Capital Markets

And then lastly, just the stock comp expense which you break out, is that in G&A or corporate expense or is it spread out through all the line items?

Stephen H. Capp

It’s across the company, Dennis, so I think you’ll find that in –

Daniel R. Lee

The bulk of it’s in corporate but there is a piece of it in the different properties but it’s not in the adjusted EBITDA numbers.

Stephen H. Capp

It’s clearly not in EBITDA but it’s a enterprise-wide number so it’s not just in corporate.

Dennis Forst – Keybanc Capital Markets

But on that schedule that has the EBITDA numbers –

Daniel R. Lee

It’s not in those.

Stephen H. Capp

It’s not in those.

Dennis Forst – Keybanc Capital Markets

It is not in those at all?

Stephen H. Capp

But you’ll see it back on the net income reconciliation as a result.

Daniel R. Lee

And on that the reconciliation –

Stephen H. Capp

Adjusted net income reconciliation, excuse me.

Daniel R. Lee

There’s a reconciliation of adjusted EBITDA to net income and that number there is the stock compensation expense in its totality. Recognize, Dennis, a lot of that is stock options people got in the high 20’s and you computed a compensation expense based on a valuation that today those options aren’t worth anywhere close to what we’re expensing.

Stephen H. Capp

Right.

Dennis Forst – Keybanc Capital Markets

So just where you start that reconciliation, the $32.3 million has $8.8 of corporate expense so that would tell me that the $8.8 of corporate expense has no stock comp in it.

Stephen H. Capp

The $8.8 of corporate does not, that’s correct.

Operator

Thank you for participating in today’s conference call. You may now disconnect.

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