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Ameristar Casinos, Inc. (NASDAQ:ASCA)

Q2 2008 Earnings Call

August 4, 2008 5:00 am ET

Executives

Gordon R. Kanofsky - CEO and Vice Chairman

Thomas Steinbauer - Chief Financial Officer

Analysts

Larry Klatzkin - Jefferies

David Katz - Oppenheimer & Co.

Dennis Forst - KeyBanc Capital Markets

Joseph Greff - JPMorgan

Justin Sebastiano - Morgan Joseph & Co., Inc.

Ryan Worst - Brean Murray, Carret & Co.

David Hargreaves - KBC Financial

Operator

Welcome to Ameristar's 2008 second quarter earnings conference call. (Operator Instructions)

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 Quarterly Results Conference Calls. This presentation corresponds to the comments that will be made in the call and provides some additional useful information with regard to financial results.

During the course of this conference call the company will state beliefs and make projections or other forward-looking statements regarding future events and the future financial performance of the company. We wish to caution you that such statements are just projections and expectations and that actual results or events may differ materially. I refer you to the forward-looking statements section of the slide presentation in today's press release.

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

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

Gordon R. Kanofsky

We appreciate your participation in today’s call. With me is Tom Steinbauer, our Chief Financial Officer.

I want to go over just briefly with you what we intend to cover today so you have a road map for where we're going to go. I'll have some brief introductory remarks as an overview, and then Tom will cover a review of the financial performance in the second quarter in more detail and he'll also cover for you in more detail our strategic plan to control costs and improve operating margins, which is going to be a key to our future operating success. He'll also cover balance sheet and other financial data that's of typical importance to you all on the call for each quarter. And then I'll pick it back up with capital projects update and a governmental affairs update, and then we'll turn the call over to you for your questions that we'll be pleased to answer.

As we keep going into the overview, I first wanted to mention that this is the first call that we've had with all of you since the management transition that occurred on June 2nd, a brief status report on that. I know we met with a number of analysts and institutional shareholders in the middle of June in St. Charles when we had only been in position for a couple of weeks, but we now have our feet much more firmly on the ground, and things are going quite well.

We've divided and conquered with the division of roles across the senior management. I'm very pleased to have Larry Hodges on board as the President and Chief Operating Officer and Peter Walsh, with his expanded responsibilities overseeing HR and communications administration. And, of course, Tom and I have been involved in the company in one form or another since 1993, 15 years. And, you know, Ray, of course, is very involved as chairman and is keeping a close watch on a lot of things like capital projects and marketing and entertainment, slot programs and the like. So we've got a good strong management team in place, and we're very pleased with how things have been going in the last two months.

With that, let's turn over to Slide 4 and start talking about the quarter which, unfortunately, as you all know and you've seen in a lot of other companies, both inside and outside our industry, it's a tough quarter. Economic conditions are not really great out there. Our same-store net revenues were flat, and our same-store EBITDA declined, unfortunately.

We think there's three principal factors behind all of this. The weak economy is first and foremost the biggest driver of it. We also had engaged during the first half of the year with a ramp up as the year took fold of increased promotional spending, trying to drive additional revenues into the business that would be profitable, and that was unfortunately not as successful as we would have liked, and you'll hear today what we're doing about that to curtail it. And the Colorado smoking ban on a year-over-year basis was pretty tough with the Colorado market down close to 11.5% year-over-year.

We've had some new amenities come online during the quarter. Finishing up the St. Charles hotel project at the end of May, as well as at the end of May we brought the Vicksburg expansion and the casino and the garage online. There was an immediate benefit, especially out of Vicksburg, with an increase in our market domination down there. And we also re-branded the Chicago property. It's now fully an Ameristar property on June 24th.

We're going to talk a lot today about our strategic plan to reduce costs and improve profitability. We've been focused on that as a very major project since the new management team has been in place at the beginning of June. It's been a solid effort that's been well coordinated with a lot of communication and collaboration and teamwork among the entire management team at corporate and at the properties, and I particularly want to pay a compliment to Larry Hodges for his leadership in that project.

It's been a rapid but strategically deployed project. We've implemented work force reductions that will produce an annualized savings of $20 million. These, of course, were difficult decisions. We have a lot of valued team members that unfortunately have lost their jobs as a result of it, but we think it was a necessary step for the health of our business financially and we've made those difficult decisions.

We also have made a very significant change to the structure of our properties and how they're managed. We are trying to do very similarly what we've done at corporate in terms of broadening the senior management team so that they can focus more clearly on key initiatives and spread the work around among a group of key people. As a result now our GMs have a fewer number of direct reports. They'll be able to be strategically focused as a result of that. Our AGMs now have dual roles in addition to supporting the general manager in a broad way. They also will have functional oversight for one or more departments.

And we've also consolidated a number of complementary departments under a single VP whereas we used to have multiple directors over things such as food and beverage and hotel. Now there's a VP of hospitality. Similarly, there used to be a director of slot operations and a director of table games at a property. Those are not consolidated under a VP of casino operations. So that provides a lot of efficiencies, both from a cost perspective, but even more importantly, it streamlines our management and allows us to be more focused and move forward.

We're very pleased that most of these newly created senior positions at the properties have been filled internally. There's a few minor number of ones that will be filled with external recruits, but we generally have been successful in building bench strength and this will allow us to build even more bench strength throughout our company.

As you know, we've also announced that Chet Koch, who's become the permanent GM at our Kansas City property, and we've filled some key positions at the Chicago property recently, predominantly in player development and HR. Still need to get a permanent GM at that property, and we're focused on that from a recruiting standpoint.

In addition to the work force reductions, we're also making significant reductions in our promotional spending. As I said, that had ramped up over the year. July unfortunately is going to have a very similar level as June did. There's reductions beginning in August, further reductions kicking in in September, and when we get to the fourth quarter we'll have a full implementation for that quarter of the reductions there.

I want to emphasize, however, that we're not compromising on the quality of the Ameristar guest experience. It's been an important driver of our success during the entire history of the company, and we think we've made smart decisions to reduce costs and improve profitability without any compromises on that. We're still holding true to Craig Neilsen's principles that built Ameristar.

And with that, I'll toss it over to Tom.

Thomas Steinbauer

As Gordy indicated, I'll run through a number of the financial data and statistics for the quarter in my section.

Beginning with Slide 5, net revenues increased 29.6% over the same period in 2007. This includes $74.5 million of revenue contribution from East Chicago, which we did not own in 2007. On a same-store basis, net revenues were essentially flat for the quarter. This was resulting from introducing our guests to the new hotel in St. Charles and our companywide increase in promotional spending. After factoring out the transition and re-branding costs related to the quarter for pre-opening expenses, adjusted EBITDA increased 15.6% year-over-year. East Chicago contributed $13.1 million of adjusted EBITDA in the second quarter of 2008. On a same-store basis, adjusted EBITDA declined by 3.9%.

Adjusted EBITDA margin, as you might expect, also declined. That decline was 2.8 percentage points compared to the second quarter of 2007, and on a same-store basis, adjusted EBITDA margin declined 1 percentage point. This decline is a result of the weakening economy combined with our increased promotional spending. Our promotional spending was up significantly, as Gordy indicated, in the first and second quarters compared to last year, and based on current economic conditions - the economic environment, we have begun to curtail that spending, and I will provide more information on that in just a few minutes.

Turning to Slide 6 and 7, where we have some property highlights, let's look at St. Charles first. With the opening of the new hotel, we were able to increase revenues by 5%, however the adjusted EBITDA was down year-over-year and this was associated to higher costs with the opening of the hotel and certain other nongaming amenities at the property that also were being operated this year for the first time versus last year.

Market share did increase 1 percentage point compared to the first quarter of 2008 in St. Charles. As we move forward, we have further opportunities we believe to optimize the contribution of the hotel and gain better operating efficiencies, including a continued ongoing focus for our overall yield management, with the goal of enhancing rate, occupancy levels, and a mix of comp versus cash occupied rooms.

Also we're going to continue now with all of the nongaming amenities open marketing the property as a full-destination resort that offers, you know, a high-quality conference center, health club, spa, along with the hotel restaurant and the new nightclub that opened at the end of last year. And also we will be making adjustments to promotional spending where we believe appropriate based on ongoing economic conditions.

In Vicksburg, we also saw some new amenities open. Our new casino opened a month early, in May, along with our 1,000space parking garage. We are pleased with the results so far from the opening of these two areas. The property achieved an increase in market share in each month of the second quarter, culminating with a market share of 50.6% in June - this in a market where growth rates have been essentially flat this year.

Turning to Slide 7, Council Bluffs was somewhat of a bright spot. That economy and market seem to be holding up fairly well even though there does seem to be a nationwide economic downturn. During the quarter we were able to maintain generally stable revenues and margins year-over-year despite the economy, and the property increased net revenues and EBITDA by 1.6% and 2.6%, respectively, over the same period the previous year.

In East Chicago we have seen improved performance year-over-year as a result of the continued implementation of our marketing and guest service programs, as well as other enhancements we have made to the property. The property experienced an increase in market share of 1.8 percentage points compared to the same quarter last year, and also improved its market share by 0.3% compared to the first quarter of 2008.

Black Hawk, this has been a very difficult market for us and all of the operators there this year. The market and our property continue to be negatively impacted by the smoking ban that went into effect January 1st, high gas prices as well as a weakened economy, with an 11.3% market contraction year-over-year. For the quarter, Ameristar net revenues decreased 10.4% and EBITDA declined 23.6% compared to the second quarter last year.

Moving on to Slide 8, you know, this is really kind of the meat of the presentation this quarter with looking forward and looking at improving operating profit margins as the company does move forward in the fact of difficult economic conditions. As the weak economic conditions continue to impact our business volume, we have developed and implemented a strategic plan to improve efficiencies and reduce the company's cost structure, driving increased profitability.

As Gordy mentioned earlier, our goal is to manage our properties and corporate as efficiently as possible. As a result, we have implemented a plan that includes two main components.

The first main component is the work force reduction that was mentioned by Gordy. This took place last week, and we anticipate will result in annualized savings of something like $20 million. This represents 6% of our latest 12-month compensation number as of 6/30/2008. This effort eliminated 244 positions from across our properties and the corporate office, which represents roughly 3% of our total work force.

In addition, we've made some adjustments to scheduling and staffing and also some attrition has taken place in the last several months. This has resulted in 150 full-time positions being eliminated as we move forward in the third quarter.

There will be a resulting charge for this effort. During the third quarter we anticipate approximately a $2 million charge for severance costs. The change in our work force has resulted in a more efficient and streamlined property management structure, as mentioned by Gordy, as we have combined positions and reduced the number of direct reports to senior management. In addition to this, as always we are going to continue to focus on implementing cost efficiencies beyond this program and beyond our promotional costs as we have always done.

The second main component of cost reductions is related to promo spending. As Gordy indicated, we are going to make significant reductions to promotional spending moving forward. In response to the weakness in the economy, we did attempt to drive incremental profitable revenues during the first and second quarter through increased promotional activity.

This strategy proved less than successful, and obviously the largest component of promotional allowance in our industry is coin. We did see a good utilization of the coin that we used, but it didn't create the incremental revenue that we had anticipated. So we're going to make adjustments in the third quarter and will begin reducing promotional costs in August, with significant reductions occurring in the fourth quarter, as Gordy previously mentioned.

Moving on to the balance sheet, cash at the end of the quarter was $79.2 million. As you can see, we pretty much have reduced our day-to-day use related to cash from approximately $100 million, which was the run rate in the past, down to about $80 million.

Construction in progress decreased significantly in the quarter. It's now - that decrease was $238.9 million versus $121 million in the prior year, primarily due obviously to St. Charles and Vicksburg expansions coming online in the second quarter.

Total debt decreased $23 million to approximately $1.620 billion at the end of the second quarter compared to 2007. We were able to maintain basically the same leverage ratios or financial ratios as we did at the end of the first quarter. For the second quarter, total debt - senior debt, which is basically the same as total for us at this point in time, was 5.13. Our interest coverage is still well above 3 at 3.23. And we expect to remain in compliance with all debt covenants in Q3.

Subsequent to Q2 we borrowed an additional $30 million under our current revolver. The company is permitted to incur subordinated debt of up to $500 million, providing more borrowing capacity relative to senior leverage ratio covenant. Basically, I'm mentioning that as that, you know, we intend to maintain compliance with our ratios under our senior revolving credit facility. We have flexibility in our existing credit facility to borrow up to $500 million of sub debt and, you know, we obviously are going to do what is necessary to maintain compliance with the senior credit facility.

Also we entered into an interest rate swap. As all of you know, all of our borrowings at this point are floating rate, and so we decided to fix some of that rate and so we entered into a $500 million variable rate debt - $500 million twoyear swap that became effective basically on July 20th. The rate for that debt is 4.95% assuming that the addon, which is 175 basis points, remains the same over that two-year period.

Moving on to Slide 10, some of our basic financial data, we have modified some of these numbers now that we're six months into the year, and I wanted to point out a few of those changes.

In stock-based compensation, we've changed the range down to $10 to $11 million.

Our federal state tax rate is now going to be probably 45% to 46%, excluding the effect of the East Chicago impairment recorded in the first quarter.

Third, total capital spending for the year is expected to be in the range of $255 to $275 million for the year, which includes maintenance Capex of $35 to $45 million.

Fourth quarter net borrowings for the year estimated to be in the range of $65 to $80 million.

Last, a slight increase to the interest expense is anticipated. We've changed that range to $79 to $84 million, up from $77 to $82 million. This is based on a slightly higher debt balance that we think will be out there by the end of the quarter, a slightly higher rate than where we are now, which is about 5%, and capitalized interest is going to be a little less than what we had projected.

I'd now like to turn the call back over to Gordy.

Gordon R. Kanofsky

I'm going to pick up on Slide 11, discuss our capital projects.

Ameristar Vicksburg, which we mentioned, opened a month early at the end of May. The expansion there but in an additional 500 gaming positions, and we also have now covered parking. The first time we've had covered parking at the Vicksburg property. It's now much more convenient than ever before. We'll also be adding a Pearl's Oyster Bar, which has been so successful for us at our two Missouri properties, and a DeliLUX, opening later this month. We opened a new VIP Star Players Club in mid-July.

The poker room there in Vicksburg has been particularly successful so far, and as we've noted, the property stepped up its market share in June to 50.6%. I want to really highlight that because we had a pretty rough opening there from the acceleration of the schedule. We ended up with some signage issues in the garage, where floors numbered in the garage didn't match up with those in the elevators. That's been quickly fixed, but it took a little bit of time. And we had a number of slot machines that were not functional at the opening of the expansion due to some technical difficulties and those took the course of over three weeks to get resolved.

So we still had some challenges in June, but we hit 50.6% in a four-casino market, so we're particularly proud of that.

We're moving forward over the next few months with a very light refurbishment of the existing casino floor, a little bit of wallpaper, carpeting and paint, freshening up the bathrooms, some new slots, dual slot bases, the like, but it's going to be in the neighborhood of a $6 million project. We think that will bring it up to Ameristar standards and have a high degree of consistency with the new casino expansion, and we're pleased to announce that project and its modest budget.

Turning over to Slides 12 and 13 is the re-branded Ameristar East Chicago. We spent about $30 million there on rebranding, renovations and promotional and other expenses. We certainly enhanced the casino floor. The layout is much improved, much more similar to a typical Ameristar property with an interesting layout and finishes, some new slot machines. And as is typical with an Ameristar property, we've improved both the quality of the food and the quality of the service as well as some of the physical facilities in the restaurants.

We've also brought the Player's Lounge up to an Ameristar VIP Star Club level. We've got just a few items to finish, including a Starbuck's, and we're introducing the property to the Chicagoland market with a free concert series. We had a very successful concert last month with Lionel Richie. This month we'll have Smokey Robinson, and next month's Reba McEntire.

As we said, we've had some market share growth since acquisition, almost 2 percentage points, but the northwest Indiana, Chicagoland market is certainly a much softer market than it was when we looked at buying the property. We expect the Horseshu impact. There's going to be some sampling. Ultimately the market will stabilize. We have a lot of confidence in the Ameristar brand and our ability to distinguish ourselves competitively against the new Horseshu in Hammond.

Turning over to Slide 14 is our Black Hawk Hotel, which is under development there and should be opening in the later part of 2009. Ray and Larry and I were there just last week, and construction is moving along very quickly and rapidly. They're pouring a floor about every four days, which is about a day ahead of schedule. This hotel will transform the Black Hawk market to a true destination facility. This will be the first facility in that market, we believe, that's of true destination resort quality. We took a tour of the model rooms and suites last week, and they're absolutely stunning. It's important that we obviously get the ballot initiative passed in Colorado which will allow Black Hawk to achieve it's full potential. Budget for the Black Hawk project is still on tract at $235 to $240 million.

And now let's turn it over to government affairs on Slide 15. The Kansas Supreme Court, as I think most of you know, upheld the lower court's ruling of the constitutionality of the Kansas Gaming Bill in June. That law, to remind you, authorizes a full-scale destination gaming facility and a racino at The Woodlands racetrack for Wyandotte County, which is just across the border from Kansas City, Missouri.

The Woodlands Racino would be subject to a significantly higher tax rate than the destination gaming facility. They've been in negotiation with the state over the - there's a variable amount of essentially tax that can be paid by that racino, and they've been in negotiations with the state over it and announced last week that they would be closing later in August due to the inability to achieve what they consider to be an acceptable economic outcome. My guess is there'll still be some negotiation going back and forth on that, and whether The Woodlands ultimately closes or not is yet to be seen.

Also a couple of weeks ago one of the license applicants for the destination facility, Las Vegas Sands, dropped out citing concerns over the economic viability in light of current financing costs and the potential for the removal of the loss limits in Missouri.

Turning now to Missouri, obviously the Schools First initiative is a very important one that our company is supporting. It would allow us to fully maximize the destination potential of our St. Charles and our Kansas City properties. And most importantly, if Kansas does proceed with casinos right across the border, it will create a level playing field for our facility by the removal of the loss limits as well as the removal of a mandatory player's card requirement.

Cost in the initiative for getting those is an increase in the gaming tax of 1%, and the initiative would also cap the number of gaming licenses in Missouri to those currently in existence plus those under construction, which is essentially the pentacle property in South County, St. Louis.

The coalition captured about 178,000 signatures, far more than needed. We expect that the Secretary of State will complete the verification of those signatures any day now. The Missouri Chamber of Commerce and a large number of school groups have supported - signed on with their support for the coalition. We're not aware of any serious opposition groups at this point, and we remain cautiously optimistic that the Missouri ballot initiative will pass.

Turning to Slide 16 is the second ballot initiative we are supporting along with other casinos in Colorado. It's the Coloradans for Sensible Solution. It would increase the bet limits from $5 to $100. It would allow 24-hour gaming - as a reminder, at this point we're required to be shut down, like all casinos in Colorado, from 2:00 a.m. to 8:00 a.m. - and would also expand the number of - the types of table games that can be in the market, including craps and roulette. And further, it would establish a fixed tax rate at the current levels.

About two weeks ago 130,000 signatures were turned in; 76,000 are required, so we have a high degree of confidence that the verification of those will go very smoothly. The increased revenues to the state from this initiative would support the state's community colleges, and they have all signed on or a good portion of them, obviously, have signed on for their support. And as in Missouri, we're also unaware of any serious opposition to this initiative, and we also are cautiously optimistic about its passage.

Turning over to Slide 17, the legal battles over the Ponca Tribe's proposal to develop a casino in Carter Lake, Iowa continue. As a reminder of the history of that, the tribe had a few acres put into trust in Carter Lake, Iowa a few years ago. Carter Lake is on the west side of the Missouri River, so it's completely surrounded by Nebraska. It's right outside the Omaha Airport. The tribe was able to secure that land going into trust on representations that it would not be used for gaming and instead would be used for a health care facility for tribal members.

They subsequently applied to have it approved for gaming, and the National Indian Gaming Commission approved that at the end of December last year. The State of Nebraska has filed suit over it. The Department of Justice and the National Indian Gaming Commission are challenging Nebraska's standing. The Iowa Attorney General has indicated that he's expecting to file suit against the approval shortly, and Governor Culver in Iowa has said that he has no intentions of negotiating a compact with the tribe at this time, pending the outcome of legal proceedings.

Over in Illinois there's a little bit of encouraging news coming out. We've obviously been watching the Illinois legislative efforts to try to expand capital spending to improve infrastructure in the state. In the past, gaming en3 had been the primary funding mechanism for that, and there'd been a lot of dissention within state government over it. The Illinois House, at a special session earlier this summer, refused to approve that kind of an expansion of gaming, so there's been a continuing stalemate.

Governor Blagojevich called a meeting last week with the legislative leaders. House Speaker Madigan did not attend that but sent a deputy, and our understanding from published reports is that the governor has proposed a significant cutback in the amount of capital spending and has taken a significant gaming expansion, including a downtown Chicago casino, off the table as funding mechanisms, instead looking at a possible sale of the lottery and increased sales taxes resulting from higher fuel prices as a funding mechanism. The outcome remains uncertain, obviously, in Illinois but, as I said, this latest news is encouraging and we're hopeful to see that it will move forward that way.

There is one dormant gaming license in Illinois. As you know, it had moved many years ago or it had been approved to move many years ago from East Dubuque to Rosemont, outside of O'Hare Airport. That ended up in litigation and regulatory turmoil for probably close to a decade. The license is now in the process of being auctioned by the state. It'll likely end up in the Chicago area from everything we hear. Under current regulations it would be limited like all other Illinois casinos to date to 1,200 gaming positions.

Wrapping up now on Slide 18, our outlook for 2008, we expect the difficult business conditions to continue through this year and probably into 2009. I wish I had a crystal ball, but there's an awful lot of economists out there that don't have them either. Nonetheless, management is positioning Ameristar to weather this storm. From an operating standpoint, we've made the work force reductions, we're adjusting marketing, we're continuing to look for other ways to save money beyond the labor reductions. And we've got a very prudent balance sheet.

We're limiting our capital spending. We're going to finish the Black Hawk Hotel. We're going to then look at anything out there on a casebycase basis once the economy and financing markets improve, but we're going to be very prudent about that and we don't have any major projects planned at this time beyond the Black Hawk Hotel.

So our focus is continuing to maximize our profitability while at the same time delivering the guest experience that customers have long known Ameristar to provide. We've got a broad appeal at our properties. We're making them even more appealing with the capital projects that have been recently completed as well as the destination hotel in Black Hawk, and we see a lot of upside in 2009 from the ballot initiatives if we can get these passed as well as the local referenda that would be necessary in Black Hawk.

So with that we'll turn it over to your questions. I want to remind everybody that, as you know, I'm coexecutor of Craig Neilsen's estate as well as a cotrustee of the Neilsen Foundation, but I'm here today solely as the CEO of Ameristar and will not be entertaining or discussing questions relevant to the estate or the foundation.

Questions-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Larry Klatzkin - Jefferies.

Larry Klatzkin - Jefferies

Well, first of all, July so far, can you just comment on some of the [inaudible]?

Thomas Steinbauer

You're really breaking up, Larry. What was that again, the July markets?

Larry Klatzkin - Jefferies

Yes. How is July looking?

Thomas Steinbauer

Well, you know, we really don't talk about, you know, current quarters so, you know, the numbers are going to be out here in a few days for each one of the markets so I guess we'll all be surprised at the same time. Sorry, but yes, right now that's what our position is.

Larry Klatzkin - Jefferies

Second question, just to - if you can kind of give us your feeling if [Colorado] and Missouri both pass, which hopefully is the case, what you may expect for the [effect of that] to your company?

Gordon R. Kanofsky

Well, I think it's going to be pretty significant, Larry. I think the Missouri initiative, the state auditor has predicted that there'd be an additional $500 million in total gaming revenue in the state as a result of the passage of that initiative. If you look at the market shares in the state and obviously, a heavier focus, the benefit of this would probably come in the metropolitan areas, you can do the math. It's pretty significant.

Colorado for us, because we only own one property there and it's a little smaller in scale than the ones we have in Kansas City or St. Charles, not quite as much upside there and Colorado hasn't published a fiscal estimate yet. But between the two of them, they should be a very significant driver of increased profitability in 2009.

Larry Klatzkin - Jefferies

The upcoming $2 million, are you going to, expenses and layoffs and such, are you going to count that as an extraordinary and back it out of - shall we back it out of earning [inaudible]?

Thomas Steinbauer

Well, I think, I mean, you guys, you know, can look at your models and make that determination, but, I mean, under GAAP it's a normal expense. So, I mean, obviously we don't intend to hopefully repeat, you know, that type of extraordinary item on an ongoing quarterly basis.

Larry Klatzkin - Jefferies

And then last, corporate expenses going forward, what were you using for the forecast for the year? What kind of corporate should we be looking for?

Thomas Steinbauer

Well, it's a little bit distorted because we have the ballot initiative cost in there, but I think, you know, we haven't given guidance on any of our numbers for the entire year, and I don't think it would be appropriate to do it with corporate other than to say that as we've indicated on this call, we're taking a real hard look at costs. The percentage, corporate experienced the highest percentage change in payroll in this adjustment that we just went through, so I think, you know, looking at corporate levels from some time in the past versus it continuing to increase like it has over the last couple of years might be the right thing to do in your model.

Larry Klatzkin - Jefferies

About of $20 million of savings, maybe $2 or $3 million went to corporate?

Thomas Steinbauer

It's probably a little bit more than that. Probably close to 25%.

Operator

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

David Katz - Oppenheimer & Co.

I wanted to just go back to Resorts East Chicago for a bit and, you know, for the quarter, margins, you know, look like it went down a little bit sequentially. And, you know, I guess one of the things we're trying to get a little visibility on is where we think those EBITDA margins can ramp up to, you know, what we should aspire to later this year and as we look into next year?

Thomas Steinbauer

Well, again, I mean, that's - you know, you're talking about us looking forward, I think, you know, what complicates that is the, you know, recent opening at the Horseshu and we're going to continue to look at what impact that may have on revenue distribution and revenue growth in the market. And so I, you know, I'm not sure I can tell you anything more than, you know, continue to look at the historic margins at this point in time and the fact that we have seen some revenue growth at our facility and we anticipate hoping to maintain those revenue levels while we cut, you know, cut back on some of our promotional costs.

But the tax rate there, as you guys know, is about 12 points higher, 13 points higher than our weighted average costs at our other properties, so when you look at our margins at the other properties, you need to take that into consideration when looking at future margins for Chicago.

David Katz - Oppenheimer & Co.

Could we just fill in a couple of details on Capex for the quarter? Maintenance wise, right, I know you make mention in the release of some slot product that you bought. But what - I assume that that's something you include in maintenance Capex, but what was the total maintenance Capex?

Thomas Steinbauer

For the second quarter it was approximately $10 million.

David Katz - Oppenheimer & Co.

It was about $10 million?

Thomas Steinbauer

It is on Slide 10, you know, if you want to look at those detailed numbers later, but yes, we spent $10 million in maintenance Capex in the second quarter and we're anticipating about $10 million for the third quarter.

David Katz - Oppenheimer & Co.

And then looking out into 2009, I just want to make sure I heard Gordy correctly that you don't really have any major Capex we should be thinking about for 2009?

Gordon R. Kanofsky

Other than Black Hawk and wrapping up Black Hawk, that's true. And Black Hawk by year end, we should be looking at about $90 million of that project left to pay for.

David Katz - Oppenheimer & Co.

$90 million slides into next year?

Gordon R. Kanofsky

Yes, as of January 1, 2009, there'll still be, based on where we are right now, on schedule and future payment anticipation, roughly $90 million of that project will still be left to be funded in '09.

And you did hear me correctly on capital spending.

Operator

Your next question comes from Dennis Forst - KeyBanc Capital Markets.

Dennis Forst - KeyBanc Capital Markets

I wanted to see if I could focus a little bit on this $20 million cost reduction. Tom just said about a quarter of it will come out of corporate. What about the other $15 million? Is there going to be a property or two that get a bigger impact? I would guess maybe East Chicago, given the - what's been going on with the promotional allowances there.

Thomas Steinbauer

That's a reasonable expectation that, you know, our two largest revenue producing properties would be the logical ones to take the biggest hit.

Dennis Forst - KeyBanc Capital Markets

And then also shares went up, not dramatically but somewhat in the quarter; trying to figure out why up almost 750,000 shares in the quarter.

Gordon R. Kanofsky

Is that from the -

Dennis Forst - KeyBanc Capital Markets

Sequentially, just from the prior quarter.

Gordon R. Kanofsky

Oh, from prior -

Dennis Forst - KeyBanc Capital Markets

From the first quarter.

Gordon R. Kanofsky

From the first quarter?

Dennis Forst - KeyBanc Capital Markets

Yes.

Gordon R. Kanofsky

Oh, that would have been related to when there was the change in management and some of those shares related to an individual's option program getting accelerated.

Dennis Forst - KeyBanc Capital Markets

Okay. And then lastly on interest expense, there was a pretty substantial decline in the gross interest expense in the quarter from about - again, sequentially from the first quarter, 28 down to 20. Where'd that come from?

Thomas Steinbauer

Interest rate.

Dennis Forst - KeyBanc Capital Markets

Just all [inaudible]?

Thomas Steinbauer

We had some higher interest rate swaps as we rolled into the first quarter of this year from last year. And as we rolled those interest rate swaps, we rolled them at very attractive rates. Basically $1.2 billion was rolled at about 4.5%.

Gordon R. Kanofsky

They weren't swaps. They were just -

Thomas Steinbauer

No, they're LIBOR-based 90-day.

Dennis Forst - KeyBanc Capital Markets

Okay, so those -

Thomas Steinbauer

But we have one that was six months last year, but now we have 90-day LIBORs out there, and as we rolled those toward the end of the first quarter, beginning of the second quarter, they came down substantially, maybe as much as 2.5%.

Operator

Your next question comes from Joseph Greff - JPMorgan.

Joseph Greff - JPMorgan

Tom, you talked about same-store promotional allowances increasing 29.7% or about $13.3 million in the second quarter. Was that predominantly at St. Louis or I was hoping you could kind of help us break that out among the different markets.

Thomas Steinbauer

One percentage I can give you is that about a third of that number was related to hotel promotional comps as we put our players into those rooms to get them to experience the product.

Joseph Greff - JPMorgan

And is the aim then to go back and reduce those promotional allowances to where you were a year ago or to cut them from the run rate at which you were in the second quarter, you know what I mean?

Thomas Steinbauer

That's a number that we never really talk very specifically about but, you know, what I would say is that I think our margins were pretty attractive last year based on what we were doing in the promotional area. So, you know, thinking along those lines might not be inappropriate.

Gordon R. Kanofsky

And it's a constant adjustment on these things, and certain economies, the level of increased spending that we did may have produced a tremendous amount of people digging into their own pockets beyond the coupons. Right now it's unfortunately a little bit like selling ice cream in January to Eskimos, so we're adjusting it down significantly. We'll continue to watch it and do some guerilla warfare-type testing, and we'll continue to adjust it nimbly as we move forward. But for right now, as Tom said, it's going to be a pretty aggressive reduction.

Operator

Your next question comes from Justin Sebastiano - Morgan Joseph & Co., Inc.

Justin Sebastiano - Morgan Joseph & Co., Inc.

As far as the reduction in the comps, are you going to be doing that as well as at East Chicago considering that, you know, Horseshu came online with their new product? I mean, are you going to progressively cut there as well?

Thomas Steinbauer

We're going to take, I mean, each market is going to be looked at slightly differently based on the competitive nature of those markets. And so, you know, that will, you know, adjustments there will be measured based on the change in the competitive environment as we see how the customers in that market respond to that new product.

Justin Sebastiano - Morgan Joseph & Co., Inc.

And do you guys have any internal expectations as far as what type of decline you think East Chicago will incur due to the opening of the new Horseshu?

Gordon R. Kanofsky

None that we're comfortable sharing. I mean, that's a pretty -

Justin Sebastiano - Morgan Joseph & Co., Inc.

I thought I'd try.

Gordon R. Kanofsky

In terms of outlook and guidance, that's a tough number to peg. I mean, there's obviously probably going to be some shorter-term impact that's a little worse while all the sampling is going on. But, you know, it'll take a little bit of time to stabilize. I think everybody had anticipated that the mother of all boats would alter the market in a permanent way, but I think most people felt that it was going to be a significantly higher proportion of market growth as opposed to taking share. I think with the economy the way it is, you know, everybody's looking at it a little bit differently.

But we bought the East Chicago property for the long term, and if the economy turns, Chicago is an extraordinary deep market. We have just re-branded it, upgraded it quite a bit, and we've got our direct mail programs and our operating savvy, and we're in there for the long haul. We look forward to making it a success.

Justin Sebastiano - Morgan Joseph & Co., Inc.

So we're not going to expect to see something happen, [inaudible] over the past year?

Gordon R. Kanofsky

Hopefully not. I mean, I think that the Hammond property is very large and it will grow the market. The question is how much.

Operator

And our next question is from Ryan Worst - Brean Murray, Carret & Co.

Ryan Worst - Brean Murray, Carret & Co.

Tom, on the $1.8 million in severance, was that all severance? I can't tell if that includes the ballot initiatives.

Thomas Steinbauer

No, the approximately $2 million will be severance in the third quarter.

Ryan Worst - Brean Murray, Carret & Co.

Now what about that number for the second quarter, I guess related mostly to John?

Gordon R. Kanofsky

Yes. It's almost all John.

Ryan Worst - Brean Murray, Carret & Co.

And that's the $1.8 million?

Gordon R. Kanofsky

Yes.

Operator

Ladies and gentlemen, there appear to be no more questions at this time.

Gordon R. Kanofsky

Tom and I both appreciate your participation in today's call. We said we were focused on maximizing our profitability. We'll continue to keep our nose to the grindstone on that, and we look forward to updating you again at the end of the next quarter. Have a great day, everybody.

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