ISLE 2Q FY 2011 CONFERENCE CALL NOTES

In-line quarter; Florida helped results.

“Revenues in our markets were generally flat during the quarter...We are pleased to have achieved modestly increased results in Iowa, Missouri and Mississippi.  Management initiatives in Lake Charles to control costs and cut out unprofitable marketing efforts led to an increase in earnings despite decreased net revenues.  In Florida, we were able to take advantage of the gaming tax rates and modify our marketing efforts to achieve significant year over year improvement. In Black Hawk, we had a significant decrease in EBITDA due to a major competitive expansion in the market, which recently had its one year anniversary.  Our midweek revenues and hotel occupancy were impacted the most significantly.  We continue to refine our marketing programs and cost savings initiatives, and believe these changes will lead to more positive results in the coming periods. Including our recently acquired Vicksburg property, our operating costs decreased by $1.0 million, or 0.8%.  Excluding Vicksburg, we decreased our same-store operating cost structure by $5.3 million, or 4.0%, during the quarter.  Overall, we remain dedicated to keeping our costs tight and marketing to our most profitable customers until the economy improves."

- Virginia McDowell, President and COO of ISLE

HIGHLIGHTS FROM THE RELEASE

  • "While we have recently seen positive signs in certain economic indicators and hope this positive news will continue, we believe that discretionary consumer spending could continue to lag these trends."
  • Corp & development expenses: $10.9MM ($12.3MM in F2Q 10)
  • Non-cash stock comp: $2.4MM ($2.6MM in F2Q 10)
  • $64.1MM in cash; $1.26BN in debt
  • Interest expense: $23.4MM ($17.9MM in F2Q 10) primarily as a result of increased borrowing costs and increased borrowings related to the acquisition of Rainbow Casino in Vicksburg.
  • Capex: $13MM--all maintenance
    • Capex for remainder of FY2011: $22MM
    • Cape Girardeau Capex: $10MM
  • PA license decision: Dec 16 or early January

CONF CALL NOTES

  • Cape Girardeau: construction will start in summer of 2011; completion in 2012
  • Cautiously optimistic on consumer spending environment; rebound in jobs market is necessary for spending growth.
  • Other line in FQ2 2010: Pittsburgh Penguins receivable
  • EPS: -0.06 comparable with -0.18 last year
  • $1.26BN debt (85MM outstanding on revolver) $813MM in term loans; 357MM under the 7% bond indenture; 5MM other
    • Leverage ratio: 6.9x
    • Interest coverage: 2.3x
    • Available credit  facility: 106MM
  • Cape Girardeau funding: FCF and existing credit facility

Q & A

  • FY2011 maintenance capex: half of maintenance capex is slot-related (incl. conversion kits)
  • Pompano: still trying to find right marketing mix; good run rate going forward; big improvement in mid-week business
    • Competition: Coconut Creek expansion will include hotel; but still needs state approval
  • Colorado competition: had tough Q; had tough comps; weak mid-week business; benefited from increased retail play
  • Interested in Riviera Casino in Black Hawk if it becomes available? No.
  • Discontinued operations: income tax audits: favorable income tax from UK operations; could see a little more of this in the future.
  • Bettendorf: reopened highway helped the property; saw weekend business recover; had increase in mid-week convention business to better utilization of convention facilities.
  • Davenport: competitor pressured mid-tier  business. If offered $140-160MM for Davenport, then ISLE is interested. Agreement with operator runs to 2019.
  • Margin improvement: primarily due to tax decrease in FL and targeted marketing programs and cost containment measures.
  • Weather was not abnormal in October
  • Lake Charles market:
    • Upcoming competitor $450MM Mojito Pointe will have an impact
    • Sees pressure from Houston market and from competitors regarding mid-week promotions
  • $50MM Nemacolin project--funding through revolver and FCF
    • Each year will pay a $350K-500K all-in fee (base fee and % of revenue fee to the resort); rest of earnings will go to ISLE
  • Will amend senior credit facility (July 2012)
  • Not worried about January covenant 7.4x even with the two new projects
  • Biloxi: benefited from Alabama closures; still highly competitive; benefited from the double-digit declines in Pensacola market
  • Apples-apples quarter for Caruthersville would see 13% EBITDA growth YoY when one excludes the $950,000 tax effect  in FY2Q10
  • Q had Increase in retail play is a result of consumer confidence increasing; best example is Florida
  • More greenfield projects and property transactions possible
  • ROIC for the new projects: high teens; Cape G will be similar to Boonville
  • Operating costs down by $30MM; sees more flow-through once revenues recover