ISLE F4Q11 CONF CALL NOTES

ISLE beats handily and numbers need to go higher.

"While we are seeing signs that the economic conditions for our business are slowly beginning to improve, we are cautiously optimistic that the positive changes we have made during the past two years will soon begin to have a more dramatic impact on our bottom line."

- Virginia McDowell, the Company's president and chief executive officer

HIGHLIGHTS FROM THE RELEASE

• "Across our portfolio, we have been introducing new entertainment options through our Jester's Jam concert series, new dining options with the popular Otis & Henry's concept, and we have also streamlined our marketing to benefit from the synergy created by more centralized promotional and branding programs. As a result of these targeted investments, we have been able to maintain a reasonable mix of rated and retail business, even through tough economic times, and believe that this is an area of further opportunity for fiscal 2012. Further, we have recently put in place new marketing programs in Colorado and management in Vicksburg that we believe will positively impact our results in periods to come."
• "Flooding along the Mississippi River resulted in the closures of five properties including: Davenport, Iowa; Caruthersville, Missouri; and Lula, Vicksburg and Natchez in Mississippi. At this point, three properties have reopened with Lula and Natchez remaining closed. We hope to reopen Lula this weekend, pending regulatory approval; however Natchez will remain closed until the Mississippi River recedes further."
• Development updates: 
  • Cape Girardeau, Missouri: 
    • $125MM budget
    • broke ground on March 31, 2011
    • in final phase of contractor selection
    • planned to open late in 2012
    • 1,000 slots/ 28 tables
  • Nemacolin Woodlands Resort, Pennsylvania:
    • Through a development agreement with the Resort, ISLE will develop & manage Lady Luck Nemacolin
    • 600 slots/ 28 tables
    • Assuming no appeals filed by 6/19, construction should commence late summer 11' and the casino will open 9 months later (May 2012 or F1Q13)
• As of 4/24/11, ISLE had non-restricted cash of $75MM and $1.2BN of total debt w/ $175MM of R/C availability
• "Fiscal Year 2011 capital expenditures were $58.6 million, of which $13.0 million related to Cape Girardeau, $0.3 million related to Nemacolin and $45.3 million related to maintenance capital expenditures, including conversion of approximately 2,600 slot machines to the Bally's slot system technology."
• FY12 guidance for non-operating items:
  •  D&A: $89-91MM
  • Cash income taxes: less than $5MM (primarily state income taxes)
  • Interest expense, net of capitalized interest: $83-86MM
  • Corporate and development expenses: $43MM, including $6MM of non cash stock comp
  • Maintenance capex: $50MM
  • Project capex: $90-100MM

CONF CALL

• They continue to see signs of a recovery in half of the properties in their portfolio.
• Hope to have a new COO within a month
• Interest in the Q included a $2.2MM write-off related to their former credit facility
• $33MM drawn on R/C; $500MM on new T/L, $357MM sub notes, $4MM of other debt
• Flooding & claims: Deductibles are around $250k/location. They expect the first report filed for Davenport in the next few weeks. Timing of settling the claims depends on when the properties reopen and what happens elsewhere like Tunica.

Q&A

• If anything happens in Florida, then they expect to get parity treatment
• Volumes in Vicksburg were healthy when they reopened
• Mechanics of recognizing insurance proceeds.  Business interruption comes through as revenues. It's still to be determined whether they will have any write-offs from property damage.   You get reimbursed for certain costs as well like payroll.
• Customer behavior in impacted regions - In Vicksburg, the results have been in-line with prior expectations.  Caruthersville is also in-line with prior expectations.  Not that many people live in the flood plains at their properties. Don't think that there will be much of an adverse impact on their customers.
• Why was corporate expense so low and why is the guidance for next year so high?
  
  • They spent a lot of money earlier this year to get licensed in PA & MO
  • Claim that the corporate number for the year was $42MM
• They plan to have a GMP order on the Cape Girardeau project - generally speaking around $50-65MM is covered by that 
• If there are appeals filed by June 19th at Nemacolin, it's unclear how long the delay would be, but don't think it will be that long.  They don't think that they will get appeals. They pay $150,000 per year in base fees to the resort and a % of revenues over $30MM. They expect that the fee that they will pay will be about $400,000 per year.
• Even with the flood impact, they expect to be in compliance with their covenants
• Capex spend throughout the year? Assuming everything is on time
  • 10% in 1Q; 15% in 2Q and balance is in the back half - either equal or 4Q loaded
• Blackhawk numbers in the 4Q are actually masking a very positive trend.  The last quarter's numbers include some impact from renovations and management/ marketing/ dining/ hotel yield changes.  The trends are positive there, though.
• KC market - competition in advance of Kansas speedway?
  • They are happy with their performance there; they have been gaining market share. They are not going to market into the Kansas Speedway opening.
• Thoughts on IL proposal?
  • Still unclear on how the governor will respond.  Veto is still a possibility.
  • It will likely come down to a negotiation between the governor and the mayor