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Executives

John Boushy, President and Chief Executive Officer

Thomas Steinbauer, Chief Financial Officer

Gordon R. Kanofsky, Co-chairman and Executive Vice President

Analysts

David Katz - Oppenheimer & Co.

Ryan Worst - Brean Murray, Carret & Co

Justin Sebastiano - Morgan Joseph & Co Inc

Dennis Forst - Keybanc Capital Markets

Joseph Greff - Bear Stearns

Lawrence Klatzkin - Jefferies & Co.

Jane Pedreira – Lehmann Brothers

Ameristar Casinos Inc. (ASCA) Q1 2008 Earnings Call May 8, 2008 9:00 AM ET

Operator

Good day, Ladies and Gentlemen, and welcome to Ameristar’s First Quarter Earnings Conference Call. I’d like to remind you that today’s call is being recorded. All participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. At this time, I’d like to turn the call over to Tom Steinbauer, Ameristar’s Chief Financial Officer.

Tom Steinbauer

Good morning everyone, and thank you for joining us on our call today. With me here today in Las Vegas, we have John Boushy, Ameristar’s CEO and President, and Gordy Kanofsky, Co-chairman and Executive Vice President. Before we get started, I would like to remind you that there is a slide presentation available on Ameristar’s website, www.ameristar.com in the Investor Relations section under Quality 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 and that actual results or events may differ materially. I refer you to the forward-looking statement 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. As you can see from slide 3, John will lead off with overview comments followed financial review, a discussion of the legislative and political environment, and then a review of our growth projects, and our business outlook. It is now my pleasure to turn the call over to John Boushy.

John Boushy

Thanks, Tom, and Good Morning! Turning to slide 4, we believe that Ameristar performed reasonably well from an operating perspective in the first quarter of 2008, and on a comparative basis, we would say we saw good progress over the fourth quarter of last year. Each of our properties rebounded from a very weak January to turn in solid February numbers in numerous locations as you’ve seen in the various market reports. That positive trend continued through March. We held our own in spite of the effects of a soft economic environment and even hit some high points. These high points include regaining the #1 market position in the St. Louis market despite competitor expansion there and beginning to create positive results from the marketing and operating strategies we’re putting in place in East Chicago. In fact, from the fourth quarter of 2007 to the first quarter of 2008, Ameristar succeeded in maintaining stable market share positions in all markets.

Our first quarter adjusted EBITDA was in line with our internal forecasts, which anticipated lower year-over-year comparisons. Finally, during the first quarter, we made significant progress in our expansion and enhancement projects which form the cornerstone of Ameristar’s gross strategies that I’ll cover in a few minutes. Now, Tom, I would like to turn the call over to you so that you can review our financial performance and discuss the impairment accounting charge.

Tom Steinbauer

Thanks John. Starting on slide 5, net revenues increased 25.4% over the 2007 period. This number includes $75.4 million contribution from East Chicago. On the same store basis, net revenues were down 3.75%. Promotional allowances in the first quarter increased on a year over year basis because of the inclusion of East Chicago, also due to the fact that we took advantage of the initial opening period at our St. Charles Hotel to introduce to our best players and let them experience our superior products. As we mentioned in the release, our performance for the quarter was generally in line with our expectations. However, we were negatively impacted by the difficult economic conditions as well as increased competition in several of our markets.

In addition, we recorded a non-cash impairment charge of $129 million for intangible assets related to our East Chicago acquisition. The revaluation of East Chicago’s intangible assets was caused by the significant deterioration in the debt and equity capital markets coupled with current poor environment and its negative impact on our growth assumptions for this property. Also we had $1 million of transition and rebranding cost for East Chicago during the quarter, and $800,000 for pre-opening expense in St. Charles. After factoring out the impairment charge, the rebranding cost, and the pre-opening expenses, our adjusted EBITDA increased 7.5% year over year. Adjusted EBITDA margin declined 4.1 percentage points compared to the first quarter of 2007, and on a same-store basis, adjusted EBITDA margin declined 2.5 percentage points. We believe this decline is principally due to the impact of the weakening of economy on our gaming revenues. Once the economy begins to improve, we expect to see margin improvement.

Now turning to slide 6, let’s take a look at the performance of our properties. Ameristar Casino Resorts Spa in St. Charles partially opened a new hotel in late January. We saw sequential improvement as the suites came online and regained our market share position in February and extended that lead further in March. In East Chicago, we saw the initial benefits of our marketing efforts as the property posted solid revenue and market share improvement throughout the first quarter, setting a new property record in March for gross revenue in a single month. I would also like to point out that there was legislation passed in Indiana in March that placed a cap on real property tax rate. As a result of this legislation, we will recognize a property tax reduction in East Chicago of $4.4 million for the year or $1.1 million for quarter. In Kansas City, which has become a more competitive market, our property was able to maintain its market share position consistent with the fourth quarter of 2007. Black Hawk grew market share compared to the fourth quarter of 2007, and year-over-year revenue performance was significantly better than the overall market. However, the entire market was negatively impacted by the state-wide smoking ban which became effective on January 1st of this year. In Vicksburg, we maintained the dominant position in this market and delivered solid margins despite continued construction disruption associated with our expansion activities underway at the properties. Finally, in Council Bluffs, we were able to maintain generally stable revenues and margins year over year despite the slowing economy. Jackpot was impacted by harsh weather conditions throughout the quarter, but we did start to see the property gain traction late in March.

Turning to our balance sheet, on slide 7, total cash at the end of the first quarter was $78.9 million. Construction in progress increased $40.5 million from year end 2007 to $412.2 million. Total debt decreased $26.2 million to approximately $1.62 billion as we repaid $25 million on our revolver during March 2007. At the end of the first quarter, the balance capacity under our revolver was $167.6 million; however, our ability to borrow on our credit facility is limited based upon our senior leverage ratio, which has a limit of 5.25 latest 12-month EBITDA. Our credit facility allows us to incur total debt of up to 6.25 LTM EBITDA. On a pro forma basis, at March 31, 2007, our senior debt coverage ratio was approximately 5.1, and our interest coverage was 2.7 times. Our borrowing capacity along with expected operating cash flow remained sufficient to fund all ongoing growth projects. Our current credit facility gives us the flexibility to borrow funds for future growth. However, these additional funds would have to be borrowed at the sub-debt level at higher interest rates. Moving to slide 8, I just want to point out a couple of adjustments to our outlook from last quarter. We have increased our tax rates slightly, 1% for the year. Also, we’ve lowered the interest expense because we repaid debt, expect to borrow less in the second quarter, and have a lower rate on borrowing. Now, I will turn the call over to Gordy.

Gordon R. Kanofsky

Thanks Tom. Turning to slide 9, work continues on a ballot initiative that would allow Missouri casinos to operate on a level playing field with their competitors in neighboring states. State officials project the Yes for Schools First initiative would generate more than $130 million annually and incremental funding for elementary and secondary education through the modernization of Missouri’s gaming statues including the $500 loss limit. This measure would also cap the number of gaming licenses to those that are 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 receipts tax from 20% to 21%. The Schools First Coalition, of which we are a member, has gathered the required signatures to place the measure on the November ballot. The signatures are now being verified in the counties which they were collected, and once the Secretary of State has verified them, we will certify the measure for the ballot.

A lawsuit has been filed against the Missouri Secretary of State and State Auditor challenging the accuracy and legality of the Schools First ballot summary. A representative of the Schools First Coalition has intervened in the case and will be seeking a motion to dismiss it in the near future. We do not believe this lawsuit has any merit. Also in Missouri, we were successful in obtaining an exemption from the recently passed Kansas City indoor smoking ban ordinance for the casino floor and 25% of the hotel rooms that are KC property. The exemption remains in place until neighboring counties hosting casinos pass casino smoking bans. Finally in Missouri, the gaming commission has postponed its expedited effort to consider an additional license in Sugar Creek which is in close proximity to our Kansas City property. While additional action on this matter may be taken in the future by the commission, we are hopeful that any such effort will be delayed until after the impact of any potential gaming in Kansas is better understood, and speaking of Kansas, we still expect the Kansas Supreme Court to rule on the constitutionality of the Kansas gaming law during the summer.

Turning to Iowa, a statewide indoor smoking ban was passed by the General Assembly. However, the measure does include an exemption for casino floors and 20% of all hotel rooms. This law will take effect on July 1st. As shown on slide 10, in Colorado, the owner of the state’s four race tracks has decided not to pursue a November ballot initiative that would have authorized up to 4 racinos. The casino gaming industry is assessing whether the industry should support a ballot initiative in 2008 to amend the constitution to authorize an increase of the bet limits, allow additional types of table games, authorize 24-hour gaming instead of the current 18-hour gaming day, and establish a fixed tax rate. The industry recently submitted to the Colorado legislative council staff an initiative package believed to have the broadest voter appeal. By the end of May, the council and the title board will process the initiative and certify a ballot summary. At that time, depending upon the language approved by the council and a cost-benefit analysis, we along with other operators will determine whether to support the ballot initiative through the November general election. As you know, this presidential election is expected to generate a record voter turnout, and large voter turnouts tends to produce more favorable outcomes on gaming measures.

In Indiana, as Tom mentioned earlier, we are very pleased the legislature took action to adopt property tax reforms to address issues that affected home owners and businesses throughout the state. This reform measure has reduced the property tax rate in an area which includes our East Chicago property by approximately one-third. In addition to the tax rate adjustment, our appeal of the county’s assessed value of our property remains pending, and now I’ll turn the call over to John.

John Boushy

Thanks Gordy. We’re optimistic about the positive impact of the ballot initiatives in Missouri and Colorado could have on the casino industry in general and on Ameristar specifically, and we’re really looking forward to the voting results in November. As mentioned during the introduction, we’ve made substantial progress on our expansion projects. Beginning on slide 11, we’re pleased to present the all new Ameristar Casino Resorts Spa. Let’s experience this like our guests do. First, the arrival experience has been enhanced as shown by the before and after aerial photos on slide 12. On slide 13, you can see that upon arrival, our guests have over 50% more parking spaces to park their cars near our facility. On slide 14, you see our two-story hotel lobby which overlooks the Missouri River. The next slide shows our spacious luxury suites that feature a sunken living area and two flat screen TVs. By the end of the first quarter, 325 suites were available for occupancy, and before the end of May, the indoor/outdoor pool which is on slide 16 surrounded by landscaped grounds and fire kits along with a 7000-sq ft spa should be completed just in time for the summer. These offerings augment our other new high-quality amenities available to our St Charles guests. The home night club shown on slide 17 features many well-known celebrities and DJs that perform to sell-out weekend crowds as shown in the picture. Licks, our trendy new circle bar at the casino floor, reverberates with high-energy music that complements the excitement that emanates from the surrounding table games, and our convention center pictured on slide 18, in conjunction with our luxury suites, is becoming the preferred place for business meetings and social functions in the greater St. Louis area.

We’ve read that several analysts have visited St. Louis over the last month or two, and we’ve very pleased with their reports about the competitiveness of our property. We believe they are seeing exactly the same that our guests are experiencing—a distinctive upscale regional gaming destination with broad appeal. As noted on slide 19, we regained the #1 position in the market in February with only a portion of our total suites available, and we extended our leadership in March as more suites came on line. We filled over 97% of our available suites during the first quarter, and we’ve seen a sizeable increase in gaming revenue from gamers who are staying at our hotel. Currently, all but two presidential suites are available, and all suites will be completed by the end of this month.

On April 27th, we launched our bright shiny new marketing campaign to introduce our new and improved St. Charles property to St. Louis residents in general and to regional potential visitors in a broad regional marketing approach.

Moving south to Vicksburg, you can see on slides 20 through 22 that we’re very close to completing the casino expansion and the new expanded 1000-space parking garage that will result in improve d direct access to the casino floor. The interior of the Vicksburg casino expansion will be clean, crisp, and comfortably contemporary. We now expect to open the parking garage and casino expansion by end of May, thereby accelerating our efforts to grow our market-leading share beyond 46%. Additional amenities which include restaurants, a VIP lounge, and retail offerings will open by fall, and we are in the final stages of determining the scope, budget, and timing for the refurbishment of the existing casino.

Turning now to slide 23, the third expansion project is taking place at Black Hawk which serves Denver, and you’ll recall that Denver is the fifth largest feeder market to Las Vegas. The interior renderings on slide 24 give just an inkling of the investment we’re making to grow the Denver market and further build up on our market share position. We are transforming Black Hawk into the Rocky Mountain gaming destination resort with a 536-room hotel. The luxury hotel will have a full array of amenities including a rooftop pool and a luxury spa. Completion is scheduled for the fall of 2009.

Now, let’s move to East Chicago on slide 25 where we continue to believe that the large Chicago land market place provides us with long-term growth potential, and we believe we are making noteworthy progress. Our enhancement program is well underway. We’re installed new slot machines, replaced furnishings and carpet, and upgraded our foot and beverage offerings. We’ve implemented guest service improvements, and on that note, I want to congratulate the entire East Chicago management team which has significantly improved their guest satisfaction scores as measured by J.D. Power. During the first quarter, we also initiated our Ameristar direct marketing, advertising, and promotional approaches. As a result, our market share sequentially increased over 2.5 percentage points from January to February, and from February to March, we were up another 1.2 percentage points to close March at 33.4%. In March, we set a new all-time record for gross gaming revenue in a single month. Our program to rebrand the property to Ameristar is now slated for late June of this year.

There’s one other item I’d like to review related to expansion that’s not covered on our slides. As noted in our earnings release today, we decided to defer the planned expansion of our Council Bluffs facility. We continue to see opportunity to grow both the Council Bluffs market and our market share through this expansion. We have a plan to deliver the expansion within an appropriate timeframe and cost; however, we decided to delay the planned expansion due to the current cost in terms of incremental borrowing.

Concluding with slide 26, as we move forward into the second quarter and the rest of 2008, the current economic outlook is expected to drive difficult same-store year-over-year comparisons through at least the first half of 2008. We’re optimistic about the impact the economic stimulus package will have on our revenues during the second and third quarters, and within this challenging environment and somewhat unpredictable environment, we believe that our centralized, hands-on operating approach is an important plus as we evaluate our operating cost structure, and we expect to continue to manage and/or enhance our capital expenditure involving the way we make decisions around our capital expenditures and borrowings. Our major expansion projects in St. Charles and Vicksburg are coming on line this quarter and provide us with the opportunity to build already strong positions in these two markets. We also expect continued positive operating momentum in Chicago as we complete our rebranding by the end of the second quarter.

Before opening the call to questions, I want to remind everyone that as we have indicated in the past, we will not comment on the amended Schedule 13D filed on October 22, 2007, by the executives of the estate of Craig Neilsen. Neither management nor the representatives of the estate will be addressing any questions today related to the matters discussed in the 13D filing. With that caveat, we’re happy to take your question on Ameristar’s strategies, directions, and performance.

We’re ready to take questions

Question-and-Answer Session

Operator

Thank you. (Instructions). Our first question is coming from Lawrence Klatzkin with Jefferies.

Lawrence Klatzkin - Jefferies & Co.

Hi guys!

John Boushy

Hi, good morning Larry!

Lawrence Klatzkin - Jefferies & Co.

You guys are not used to this early morning call, are you?

John Boushy

Well, we just wanted to see if the java actually worked this early in the morning or not.

Lawrence Klatzkin - Jefferies & Co.

(Laughing). We all appreciate daytime calls, but you don’t have to do it this early. A couple of questions – one, EPS adjusted, you didn’t really list it in your text, and I think we’re all coming out with $0.42. Is that right, or is it lower than that?

Gordon R. Kanofsky

It’s actually lower than that. You really need to discount all of those adjusted items, and what you end up with is about approximately $0.29. I know what you release kind of gets you to the $0.42, but it really is taking and eliminating all of those adjusted items, and when you do, you end up with $0.29 compared, I think, to the street estimate which was like $0.32, so we’re fairly close to what you guys were looking at us doing this quarter.

Lawrence Klatzkin - Jefferies & Co.

Okay, that makes a lot more sense. The bill in Missouri doesn’t include a limit any new casinos anymore? It does not stop Sugar Creek?

Gordon R. Kanofsky

It would if it’s passed. I mean Sugar Creek has been postponed indefinitely. I don’t expect they’re going to pick it up any time soon, so if the ballot initiative Larry, that should resolve Sugar Creek for the long term.

Lawrence Klatzkin - Jefferies & Co.

Okay. That’s what I was hoping. And the effect if they would pass the bet limit, given how many casinos you have in Missouri, what could that mean to you guys?

Gordon R. Kanofsky

Actually, we have an internal view about that. We have not discussed that publically, but it’s a pretty health return.

Lawrence Klatzkin - Jefferies & Co.

Alright, bigger than the bread box?

John Boushy

Bigger than the bread box.

Lawrence Klatzkin - Jefferies & Co.

And I was going to ask the same question for Colorado, if you got more hours. Is more hours worth even more than change in the bet limit?

Gordon R. Kanofsky

Generally that’s our thinking. Different people and different-sized casinos can have different views about that, but extending the operating hours particularly with the number of hotel rooms that we’ll have in the market, we think, would be a very big plus to us, and there’s a good bank for the buck from the ballot initiative passing in Colorado, and the benefits are probably a little less in Colorado than Missouri relative to our cost of participating in the coalitions, but both of them have very strong paybacks from our perspective.

Lawrence Klatzkin - Jefferies & Co.

Alright, good, and the last question—I know you didn’t address this—the suit with colony, can you explain it and tell us what you think about it?

Gordon R. Kanofsky

We’re not going to comment on pending litigation.

Lawrence Klatzkin - Jefferies & Co.

Or just explain what the suit is, which is not your opinion, just the facts…

Gordon R. Kanofsky

Well, it has to do with disclosures relating to the property taxes that affected the property beginning in 2007.

Gordon R. Kanofsky

Alright. I wish you good luck with that, and thanks guys.

John Boushy

Thanks Larry. Hope you have a great day!

Gordon R. Kanofsky

You too!

Operator

Thank you. Our next question is coming from David Katz with Oppenheimer & Co.

David Katz - Oppenheimer & Co.

Hi, good morning!

Gordon R. Kanofsky

Hi, good morning, David. How’re you doing this morning?

David Katz - Oppenheimer & Co.

Doing well. Big fan of the early morning java.

John Boushy

Satisfaction comes in many forms.

David Katz - Oppenheimer & Co.

It does. I wanted to just spend another minute on Missouri. The loss-limit prospect—if we could maybe just get a little more detail as to what the steps and timing are. I suppose we can’t be surprised if there are challenges and probably the prospect of more challenges at every step along the way, right? Is there something we should think about in terms of developing the language for the referendum? How does that work exactly?

John Boushy

The language has been certified. It’s a just question of at this point getting the signatures certified. The coalition collected a substantial number of signatures in excess of those required in each of the congressional districts, so I’m feeling pretty good that we’ll pass that. The law suit is one of those that people will throw up. Anybody as you know with $35 can pretty much get to the filing room at the courthouse, and looking at it, we’re not terribly concerned about the merits of that lawsuit. The next step, getting past all this stuff with the initiative certified with the signatures, in early August, is going to lead to a ramping up a campaign to get the initiative passed. So, we’re looking forward to November. The polling has been in our view very positive for this initiative, and we think it has a lot of upside for a lot of different people in the state. We’ve organized and fashioned the initiative to have the broadest appeal, and with the high-voter turnout, we’re optimistic. Certainly no promises, but we’re optimistic.

Gordon R. Kanofsky

A number of us have been following the industry ever since it was legalized in this arena. I think we’ve all had hopes that from time to time have been dashed in terms of being able to repeal the loss limits. I think the approach that the coalition has put together is really the best holistic approach that I’ve seen in the 13 or 15 years that this opportunity to repeal the law has occurred. The constituents, very everybody in the state of Missouri, benefits from this, and we’re really looking forward to the turnout that’s going to occur in November. The demographics of the turnout, I think, are very positive for what it is that we have to do. Of course it’s not over till it’s over, but we’re feeling good about the work that’s been done so far.

David Katz - Oppenheimer & Co.

What does the recent polling data indicate?

John Boushy

The polling data is internal to the coalition, and hasn’t been publicly released.

Gordon R. Kanofsky

Obviously, for us to move forward with this kind of an approach, it would indicate that we expect it to be a positive vote in our favor.

John Boushy

In terms of the economic impact, as we said, the state officials in analyzing the ballot initiative have projected that it generates more than $130 in incremental tax revenue for education in the state. You can, I think, certainly use that kind of number to back in to what it means for the industry.

David Katz - Oppenheimer & Co.

How do you think about the competitive landscape around Lake Charles? I know there are certainly some geographic boundaries, etc., but there is a downtown property, there’s another property, I believe, coming up next year south of the city…What are you doing to prepare if anything, and how are you looking at that competitive landscape involving?

John Boushy

I presume that you mean St. Charles?

David Katz - Oppenheimer & Co.

I do, yes. St. Charles.

John Boushy

Okay, because you mentioned Lake Charles, and I wasn’t sure that we have a property in Lake Charles yet. (Laughing). Well, we might be interested in competing there perhaps.

In St. Charles, a couple of things – first of all, I think how we prepare for any kind of competitive environment is do exactly the things that we are really known for. Number one, we make sure that we are putting forward the best gaming experience to our guests, and as a results of that and as a result of the high-quality facilities that we have, as a result of the guest service that we provide, as a result of the quality of the product that we provide, which is above those of our competitors, we believe that that allows us to capture and garner more than our fair share. As we look at what’s happening in St. Charles and in the Greater St. Louis market, we are very pleased with the sequential growth that we’re seeing. Yes, there’s been a competitive impact. Basically the market has increased by about 23 percent in terms of number of gaming positions, but despite that impact what we’re seeing is that our revenues are growing, the fast that our guests are really enjoying the experience that they have with our hotel and other amenities that we’re opening up, and our first quarter performance frankly was in the absence of having all our hotel room and still having some things going on from construction standpoint. So, I think, first and foremost getting the project truly completed in the second quarter of this year is going to be really great. I think that I mentioned in my remarks that we achieved 97% occupancy during the first quarter, so we know how to reach out to our guests, we know how to provide them and offer them an opportunity to really introduce them to our property.

I think relative to the various locations and properties that you’re describing, a lot of that has to do with some of the distance between properties. The downtown property is accessible by a different set of customers than, generally speaking, we really draw from and the core of our customer base. As we look at our performance, we tend to measure ourselves relative to coaster competitors rather than the downtown competitors, and given how we have retained our market share and/or grow it in the face of competitive supply in comparison to our closest competitor in the market, we’re feeling that we’re performing quite well in that regard.

Relative to whether a property opens in the southern St. Louis next year, I think time will be the just judge of actually how long it takes to get that property opened, and certainly as it does, we will make sure that we continue to provide the best gaming experience and the best overall experience that we have in our properties.

David Katz - Oppenheimer & Co.

Great! And last quick one, just on resorts – looking out a year or two or three, what kind of margin run rate are we aspiring to over time?

Gordon R. Kanofsky

I think what you’re seeing in the way of margin right now, with some slight improvement, is what we’re thinking about. You know what our margins are and have been historically at the other properties. The one difference with this market is that the tax rate is about 10 to 12 points higher in relative terms to the state of Missouri market, so I think if you take our Missouri performance levels and discount that, we should attain maybe slightly a little bit above that.

John Boushy

And I think we’re really making sure that we’re establishing the relationships with our guests in the East Chicago. That’s going to be then followed up with the introduction of our brand – the Ameristar brand – toward the end of June, and from that point and going forward, I think it’s important that with stronger relationships with customers, which frankly was something that we saw as we were getting into the market place we really needed to build, I think there are some opportunities as described to slightly improve the margins there.

David Katz - Oppenheimer & Co.

Got it. Thanks so much.

John Boushy

Thanks, David.

Operator

Thank you. Our next question is coming from Ryan Worst from Brean Murray.

Ryan Worst - Brean Murray, Carret & Co

Thanks. Good morning guys.

John Boushy

Hi good morning!

Ryan Worst - Brean Murray, Carret & Co

Just a couple of quick questions – John, you mentioned 97% occupancy a couple of times. What was the average number of rooms or total room nights that you had in the quarter?

John Boushy

Yes, the average number of rooms was around 250, I believe, for the quarter.

Ryan Worst - Brean Murray, Carret & Co

Okay, and then you didn’t mention anything about construction disruption at Vicksburg that impacted you in the fourth quarter. Did it have an impact in the first quarter, and then what do you see going forward there?

Tom Steinbauer

Can you repeat that question? I am sorry.

Ryan Worst - Brean Murray, Carret & Co

The impact of construction disruption at Vicksburg in the first quarter.

Tom Steinbauer

There was marginal disruption, maybe 1 to 2 points in market share, but the property, as we said, we’re looking at most of the gaming area and the garage opening by the end of May, so we should have that pretty much behind us here for the new facility by the end of the second quarter.

John Boushy

Ryan, let me correct the answer that I gave before.

Ryan Worst - Brean Murray, Carret & Co

Sure.

John Boushy

The average number of hotel rooms that we had for the first quarter was just at 180.

Ryan Worst - Brean Murray, Carret & Co

Okay, and then, is your corporate expense, should that be pretty constant going forward including the spending that you may have on the ballot initiatives?

Tom Steinbauer

We’re not going to speak specifically to what we’re spending on the ballot initiative, but as you can tell, we’ve have seen some decrease, and I think run rate from this point forward could be fairly consistent. Obviously, we’re going to continue to look at cost in all areas as we monitor the economy and make adjustments where we think we can if the economy continues to remain slow.

John Boushy

And I think that’s little bit of a good spring board. One of the things we’re doing in this kind of an economic time is we’re really making sure that any kind of staff position that opens up, we make sure that we need to fill it in. That’s true not only at the corporate level, but at all of our property level positions. We are actively engaged in various cost-containment initiatives and/or revenue growth initiatives, both of which contribute positively to growing our EBITDA.

Ryan Worst - Brean Murray, Carret & Co

Any comments on the Kansas City environment – is the decrease related to the general economy or is there a change in the competitive situation there and marketing environment?

Tom Steinbauer

Obviously the economy is causing some of the disruption, but also with new hotel, there’s been some change in the competitive landscape there, which has created some of the issue with our market share as we move forward, and actually as you guys can tell from the first quarter numbers, we’re actually slightly up from where we were at the end of the fourth quarter, but there is more competition in that market with the facility now being open a full year.

Ryan Worst - Brean Murray, Carret & Co

Sure, great! Thanks guys.

John Boushy

You’re welcome.

Operator

Thank you. The next question is coming from Joseph Greff from Bear Stearns.

Joseph Greff - Bear Stearns

Good morning everyone!

John Boushy

Good morning Joe!

Joseph Greff - Bear Stearns

Question on East Chicago – the Horseshoe Hammond expansion, is that opening earlier than Labor Day? I think that’s what we’ve heard in the market.

John Boushy

That’s something that we’ve heard from a rumor standpoint as well.

Joseph Greff - Bear Stearns

Not to make comparisons between other properties, competitive issues, and with your situation, but what kind of expected impact do you see from that property? Obviously Blue Chip has had a big impact from four wins – some of it’s been inflicted with construction, which you guys don't have, but are you sort of looking for a trial experience that that might have a similar type of revenue decline?

Tom Steinbauer

We don’t speak specifically to the competitive situation and what may happen, but as we talked about when we open new facilities and markets or expand, there’s always a test period that seems to have a greater impact in the competitive environment than the long-term impact, so I would suggest that when you guys are looking at that market, that’s what you should factor in.

Joseph Greff - Bear Stearns

Okay, and they you’ve been asked this a ton of times over the years, Tom – Missouri loss limits goes away; what sort of EBITDA impact do you think it has roughly?

Tom Steinbauer

I think Gordy answered that a little earlier, in that we do not respond to that question directly as to what we think the improvement is. As you said, over the years, I think it will mean a lot more to us in St. Charles, with our new hotel product there and the high quality of that facility and the fact that some of that business has obviously been going across the river ever since gaming was legalized in Missouri, so we certainly anticipate a much better improvement in the St. Charles facility and in Kansas City.

John Boushy

And if you see the $130 million to back in based up on a 1% increase in the AGR tax overall, coupled with increased business volumes, looking at the state auditor’s analysis, you at least can understand the industry-wide impact of the removal of the loss limits and the other changes to the statutes. Even if you just apply that pro rata among operators, you will get some idea of the impact of the impact of it, and as Tom mentioned, we think St. Charles has a great opportunity and even, I think, Kansas City has a great opportunity because of the quality of the properties to serve as an enhanced destination in the Midwest as people look for high-quality property and want to have a higher gaming experience.

Joseph Greff - Bear Stearns

One final question for you, Tom, where do you see leverage levels – that’s EBITDA at the end of the year?

Tom Steinbauer

I think we’ll be fairly close to the 5.25 – that’s allowed under the senior portion of the credit facility.

Joseph Greff - Bear Stearns

Great! Thanks guys.

Operator

Thank you. The next question is coming from Dennis Forst - Keybanc Capital Markets.

Dennis Forst - Keybanc Capital Markets

Hi, when you talk about market share, John, in St. Louis, are you including the two Illinois boats also?

Gordon R. Kanofsky

He really was talking about Harrahs and us.

Tom Steinbauer

Yeah, I was predominantly talking about Harrahs and us, in terms of the location.

Dennis Forst - Keybanc Capital Markets

Okay, and then what was your market share in Black Hawk during the quarter?

Tom Steinbauer

17.1%

Dennis Forst - Keybanc Capital Markets

And in Vicksburg?

John Boushy

It was 43.9% for the quarter

Dennis Forst - Keybanc Capital Markets

Okay, so that was down a couple of percentage points.

Tom Steinbauer

Yes, slightly.

Dennis Forst - Keybanc Capital Markets

There will be a new competitor opening up, I think, before the end of this year in Vicksburg?

John Boushy

Yes, that’s correct. And just a correction on the market share – the Vicksburg market share for the first quarter was 45.5%. so there was a slight decline over the prior year. Again, it was 0.8 percentage points, driven largely because of the construction.

Tom Steinbauer

Yes, less than 1% loss of market share.

Gordon R. Kanofsky

The location of our property is superior to any in the market and always will be. The competitor is a fairly small operation. We continue to see declines in competitiveness of some of the existing properties in the market. We’re going to now have terrific parking compared to historically – we’ve actually had kind of a disadvantage in parking because of the spread-out nature of our parking arrangements in Vicksburg, and we’ve taken the best parking out of service for well over a year as we’ve been building the expansion and the parking garage. Now with the parking garage coming on line and being able to walk directly into the casino from that garage, I think we’re feeling pretty good about our competitive position in Vicksburg.

John Boushy

And to really create a comparison, of all the casinos that I’ve visited, as we look at bringing on the Vicksburg, it is among the most, if not the most, convenient and accessible parking garage to the casino space. I think especially in the Vicksburg market where we’re going to be unique in the closeness of a parking garage and the fact that our guests are going to be able to park in the parking garage and within 50 feet of entering the building be in the casino is going to be something that we’re really looking forward to bringing on line, which is why we concluded that it would make sense to accelerate the construction there so that we can open the facility before the end of May.

Dennis Forst - Keybanc Capital Markets

I applaud you for getting that opened before the new competitor, but that new competitor could actually be helping to close proximity and taking market share from others – is that a realistic expectation?

John Boushy

I think the new competitor will—in a market like Vicksburg, the weak and going to get weaker, and so I think as Gordy and Tom have mentioned, a number of our competitors are already fairly weak in that market. Our view is that we’re going to be able to hold our own and grow our market share from where we are as we go forward, even with the competitor coming into the market.

Dennis Forst - Keybanc Capital Markets

Does the market grow at all with this new competitor?

Gordon R. Kanofsky

I think there’ll be some. Frankly, I think we’re going to help to grow the market.

Dennis Forst - Keybanc Capital Markets

So, if the market grows a little bit and you pick up your market share, say, to 50% --I think on one of the previous calls you said you said even maybe as high as 50 to 55%, that’s a pretty good move for you. Isn’t it?

Gordon R. Kanofsky

I think that would be a very good move. Hopefully, you all think it would be a pretty good move too.

Dennis Forst - Keybanc Capital Markets

Yeah, I am trying to get to the $0.29 number, Tom. I guess a simple way is to just add back $129 million of impairments

Tom Steinbauer

And the $1 million for rebranding and the $800,000 for pre-opening. You can’t really get to it unfortunately based on what we’ve provided.

Dennis Forst - Keybanc Capital Markets

Unless you use a 45% tax rate?

Tom Steinbauer

Right. You have to use that. Because one is calculated at the federal rate, and obviously the earnings release numbers at the 45%.

Dennis Forst - Keybanc Capital Markets

Actually, I think the earnings release was at 39%. It blended, I guess, that 35% rate and the 45%. So, 45% and adding back all those items, I still get $0.31 or $0.32. You add back about $131 million, you have about $31 million of pre-tax.

Tom Steinbauer

Well, I will work through the calculation if you want later, but it’s $0.29, trust me.

Dennis Forst - Keybanc Capital Markets

The 45% factors in non-tax deductibility of your lobbying efforts this year?

Tom Steinbauer

Right. We haven’t quantified that in total, but there are expenses that are not deductible for tax purposes that are in the financials.

Dennis Forst - Keybanc Capital Markets

Normally we wouldn’t have a tax rate that high.

Tom Steinbauer

And actually it rounds to 46%, not 45%.

Dennis Forst - Keybanc Capital Markets

Okay.

John Boushy

And while this is not an appropriate GAAP term, frankly we look at the ballot expenses as being one-time expenses that we’re doing in order to achieve a certain outcome. It’s not really embedded in the operating performance of the business.

Dennis Forst - Keybanc Capital Markets

Will those be in corporate expense – whatever they are and whatever states you spend money on, will that be in corporate expense?

Tom Steinbauer

Yes.

Dennis Forst - Keybanc Capital Markets

And you still think corporate expense will be consistent on a quarterly basis from where it was in the first quarter.

Tom Steinbauer

Depending on the level of those ballot expenses as we move later in the year.

John Boushy

So, to say it in another way, there’s going to be some fluctuation in the corporate expense, and that fluctuation could be predominantly driven by the ballot initiatives.

Dennis Forst - Keybanc Capital Markets

How about pre-opening expense for Vicksburg and rebranding – what are those going to look like, just macro preopening the next couple of quarter.

Tom Steinbauer

On the preopening for Vicksburg…

John Boushy

Preopening for Vicksburg seems to be pretty nominal, Dennis. On East Chicago in the first quarter, we had about $1 million of pre-opening expense. I think a little bit more than that for the second quarter would be appropriate.

Dennis Forst - Keybanc Capital Markets

Okay. Thanks a lot.

Tom Steinbauer

Thanks, Dennis.

Operator

Thank you. The next question is coming from Justin Sebastiano from Morgan Joseph.

Justin Sebastiano - Morgan Joseph & Co Inc

On the 97% occupancy rate at St. Charles, can you maybe say how much was cash versus how much was comp, or at least break down that percentage?

John Boushy

Sure. About 80% of the occupied rooms were driven by relationships with known guests and people who we had a sense as to what their gaming worth was going to be and about 20% was driven by a combination of either what would be termed FIT or group business – so regular cash-paying guests. I think the one thing that I like to focus is that the group and the cash business were garnered in the absence of any broad marketing campaign related to the hotel. We were very judicious on when we wanted to start and launch our marketing program that we referred to in the presentation about the bright shiny new Ameristar, so we were actually pretty pleased with the kind of business that we were getting, and as a part of the fact that we feel very good about the kind of destination that we’re creating, our marketing approach is really geared toward not just driving occupancy from known gamers but also from driving occupancy from regional visitors into St. Louis. One of the things about the St. Louis is that if we look at visitation to St. Louis, it peaks in the May to September kind of timeframe during the summer season, and so a lot of the programs that we have in place, a lot our marketing outreach that we have in place, the regional marketing that we’re doing, a lot of the enhancements to traditional marketing channels that we are using, and really using newer channels like our online marketing and using the internet, I think, will prove very useful. In addition, the other thing that we’re pleased to see is that for those players that we comp’d in the hotel, we saw some significant lift in their gaming revenues compared to prior trips that the same guests had made when they didn’t stay in our hotel, so I think we’re still early. As we mentioned, we have less than half the number on average of hotel rooms during the quarter. Nevertheless, in the first month, we regained #1 market share, and in the second month, we extended that market share, so we’re really looking forward to the second quarter this year and beyond as it relates to really maturing the revenues that come from the hotel.

Justin Sebastiano - Morgan Joseph & Co Inc

And for the 80% comp, where do you that number goes to? Does that come down drastically or is that kind of a good level going forward?

John Boushy

Frankly, Justin, if we could comp every single guest staying at the hotel because it would make us more money, that’s exactly what we’d do, and I think that’s behind the specific approach that we’re using to filling the hotel rooms – we are doing it based on an expected profitability for the guests that are staying in the hotel room, whether it’s a cash-paying guest, whether it’s a group guest, or a gaming guest. So I think we have some internal views about what we expect to have happened. I think the benefit of the approach that we’re using for hotel yield, which is really more driven by what’s the expected profitability of the best in our hotel, really allows us to be flexible and make sure that we are likely to create the most profit on any given night based on how we allocate the room inventory to the various sources of guests.

Justin Sebastiano - Morgan Joseph & Co Inc

Okay, thanks. And in East Chicago, you talked about market share gains. Do you think most of those gains are coming from Illinois customers that are leaving that market from the smoking ban, or is it more inside Indiana, maybe taking…

John Boushy

Well, certainly, as we look at both the market conditions as well as when we look at the database, you know, what we are certainly seeing is that Indiana is not declining at the same rate as Illinois has declined, so we view the fact that some of that as certainly being driven by some Illinois guests coming into Indiana. At the same, as we look at the publicly reported information, we are gaining share and some of our competitors are losing some shares. So, I think it’s coming from a combination of both.

Gordon R. Kanofsky

Let’s not mistake that percentage of improvement on our market share from January to March though is just against our Indiana competitors in the northwest portion of the state, so while there is potentially lift from Illinois shift to Indiana for the entirety of Northwest Indiana market, that improvement is really coming at the expense of the other operators in Northwest Indiana.

Justin Sebastiano - Morgan Joseph & Co Inc

Okay. Thanks, and lastly, you talked about second quarter is going to depend really on the economy. How are you seeing the trend come through in April? I mean is this looking more like March or is it getting sequentially better but still tough year over year?

Tom Steinbauer

Yeah. We really don’t speak generally to current period information, so I think you will have to take a look at the public numbers as they come out, but nationally when you see what’s on the news, the key measurements how the economy is doing have not improved going into the second quarter versus the first. I think you can use that as a good measurement as to what is happening in our markets.

Justin Sebastiano - Morgan Joseph & Co Inc

Okay. Thanks guys.

John Boushy

One of the thoughts I have about that, Justin, is as we think about the reports in the first quarter indicated that there really wasn’t the beginning of recession at least it’s measured by GDP, and as I read and looked at a lot of industries and seeing the trends that are occurring in our business, frankly, I think we are in somewhat of what I would call a recession - a discretionary recession, and by that I mean that there are consumers across the United States that are having to figure out how much do I have to pay for gas so I can drive to work in comparison to whether they want to buy a latte or not, and I think within that context, it’s a little bit unpredictable. I think the first quarter offers us some really good examples of how unpredictable it is. January was like a terrible month. February was like a great month, and March was somewhere in between. The volatility that seems to exist at this point in time creates a little bit of an unpredictable environment, and I think that there are lots of consumers that are trying to figure out exactly whether they are going to buy one less latte and instead start shopping at Wal-Mart, so within that context, our focus is to make sure that we maintain very strong relationships with our guests. Our business model dictates that in order to maintain strong relationships with our guests, we need to have very good facilities which they visit us in, and we need to have strong relationships with our team members who are engaged and empowered and motivated to provide the best guest experience in the industry. Within that context, we want to make sure that all of our decisions are made, so that our team members continue to be very engaged with what we are attempting to provide to our guests every single day.

Justin Sebastiano - Morgan Joseph & Co Inc

Okay. Thanks guys.

Operator

Thank you. (Instructions).

John Boushy

How about if we make this the last question?

Operator

Okay, our final question is coming from Jane Pedreira from Lehmann Brothers

Jane Pedreira – Lehmann Brothers

Alright guys. Thanks for taking my question. Tom commented that the leverage test at 5.25 might get closed by the end of the year. I’m just wondering if you think you might try to get some additional flexibility or would you rather opt and maybe delay push out some CapEx to mitigate the risk of going beyond that covenant?

Tom Steinbauer

Well, we don’t intend to go beyond the covenant, and I guess under the worst possible scenario and the economy slows further, on the total debt multiple, we have 6.25 which gives us another $330 million of borrowing capacity. We would probably look to the sub-debt market for a small instrument that will fill in the gap if that is what we think is necessary. The last thing we want to do touch our revolver. The cost of capital that we have under that borrowing for the second quarter was basically below 5% interest on that.

Jane Pedreira – Lehmann Brothers

Okay, that sounds pretty good.

John Boushy

As we gain traction in some of these markets, I think our view is that while we are certainly making sure that we don’t exceed our covenants because that would be really outcome, we do see ourselves building some cushion between now and the end of the year as the Vicksburg comes online, as St. Charles comes online, and things like that. We have got about $400 million worth of investment that is coming online now, and as you can appreciate, we’ve invested the $400 million which has increased our debt levels, and at the same time, we are not seeing yet the improvement in EBITDA that we certainly expect to see as this comes online.

Jane Pedreira – Lehmann Brothers

I got you. And then in terms of the write-down, you still have a positive stockholders’ equity, so I’m assuming there wouldn’t be any issues around the dividend that you would continue to make.

Gordon R. Kanofsky

As John just indicated, we are going to continue to monitor our cash needs and our borrowing abilities, and as we stated in the past, we really don’t make comments on future dividend perspectives until that event occurs and is approved by the board.

Jane Pedreira – Lehmann Brothers

Okay, alright. If in fact the economy continues to remain difficult, would you in terms of philosophy start managing a little bit more for margin improvement rather than… I know you tend to have a longer term view with service levels and gaining market share, but would you consider changing that philosophy just for a short-term period?

John Boushy

Well, I think we’ve historically had among the top margins in the industry, and the way we get there is because of all the things that we do with our guests in driving revenue, and the way we get to driving revenue with our guests is because our team members provide great service. Certainly, based on the changing environment, we will make sure that we structure and staff our business appropriately, especially staffing to business levels and things like that. At the same time, we really need to be mindful that just like relationships with guests, if you break them, you may not see your guests again. If we break relationships with our team members, we have issues in being able to drive our revenues and guest satisfaction. So our view is that, and we are actively today to identify areas where we can be more efficient and to drive and improve margins compared to where we are today, and we see that there is still some opportunities to do that, but I think it would be somewhat surprising to see something like an MGM announcement come from Ameristar – just to give you a comparison.

Jane Pedreira – Lehmann Brothers

And then one last question – it’s on east Chicago. You talked a long time ago about looking to do a single level bard. Are you taking a wait-and-approach right now, waiting to see how Harrah’s goes or how are you thinking about that?

John Boushy

Yes, I think that that’s largely exactly what we’re doing. Gordy, do you have anything else to add?

Gordon R. Kanofsky

No, I think we still feel very positively about the Chicago market. Obviously, there’s some softness there that is affecting things, and the cost of capital right now weighs on our minds, coupled with what the Horseshoe impact is going to be, so it’s a combination of factors, but we bought into that market because we think it’s got great potential, and we think there are some short-term things that get in the way of moving forward right away at this time, including the Illinois legislation on capital spending and perhaps gaming as major remains a little uncertain, but we look very positively at that market, and look at it as an opportunity

Jane Pedreira – Lehmann Brothers

Thank you so much. Appreciate it.

Operator

Gentlemen, do we have time for a followup from Larry Klatzkin

John Boushy

Well, since it’s Larry…

Tom Steinbauer

As long as it’s a simple question.

Lawrence Klatzkin - Jefferies & Co.

The question we have 23 million people getting $600 over the next month - what do you think that’s going to mean?

John Boushy

I think that we’re looking forward in somewhat of an unpredictable way to the impact of the economic stimulus. When things similar to this have occurred in the past, we’ve certainly seen some impact, so we’re looking forward to that. Being able to predict how much of that actually flows into the gaming industry is probably more art than science at this point, but we’re certainly looking forward to that.

Lawrence Klatzkin - Jefferies & Co.

That’s it. Thanks guys. Keep the daytime calls.

John Boushy

As we conclude our call today, I’d like to acknowledge our Ameristar team members for their continued passion and dedication to creating excellent experiences for our guests every day in all aspects of our operations as we discussed on the call. Despite the current economic situation, I can’t emphasize enough how excited we are about the projects we have coming online this quarter. We look forward to sharing the results from the property launches and rebranding efforts during our second quarter call. Thank you for joining us in the morning for Ameristar’s First Quarter Conference Call.

Operator

Thank you. That does conclude today’s Ameristar Conference Call. You may now disconnect your lines at this time, and have a wonderful day!

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Source: Ameristar Casinos Inc. Q1 2008 Earnings Call Transcript
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