**Tableof Contents**

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**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C. 20549**

** **

**FORM 10-Q**

** **
| x | ** ** | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|---|------------|---------------------------------------------------------------------------------------------------------|

** **

**For the quarterly period ended March 31, 2009**

** **

**OR**

** **
| o | ** ** | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|---|------------|----------------------------------------------------------------------------------------------------------|

** **

**For thetransition period from                  to                  **

 

**Commission File Number: **333-117633

** **

**SENECA GAMING CORPORATION**

(Exact name ofregistrant as specified in its charter)

 
| **Not Applicable**                                               | ** ** | **7990**                                                   | ** ** | **54-2122988**                         |
|------------------------------------------------------------------|------------|------------------------------------------------------------|------------|----------------------------------------|
| (State  or other jurisdiction of  incorporation or organization) |       | (Primary  Standard Industrial  Classification Code Number) |       | (I.R.S.  Employer  Identification No.) |

 

**310 Fourth Street**

**Niagara Falls, New York (SenecaNation Territory) 14303**

**(716) 299-1100**

(Address, including zip code, and telephonenumber,

including area code, of registrant’sprincipal executive offices)

 

Indicateby check mark whether the registrant has (1) has filed all reportsrequired to be filed by Section 13 or 15 (d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant toRule 405 of Regulation S-T (§232.405 of this chapter) during the preceding12 months (or for such shorter period that the registrant was required tosubmit and post such files).  Yes o No o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See definitions of “large accelerated filer,”“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of theExchange Act. (Check one):

 
| Large accelerated filer o                      |   | Accelerated  filer o         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer x                       |   | Smaller  reporting company o |
| (Do not check if  a smaller reporting company) |   |                              |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes o No x

 

At May 15,2009, the registrant had no outstanding shares of common stock. The registrantis wholly owned by the Seneca Nation of Indians.

 

 

 

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**TABLE OF CONTENTS**

 
| **PART I.**  | **FINANCIAL  INFORMATION**                                                                                                                    |   |
|-------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Item 1.           | Financial  Statements                                                                                                                         |   |
|              | Consolidated Balance Sheets as of March 31, 2009  (Unaudited) and September 30, 2008                                                | 1      |
|              | Consolidated Statements of Income and Changes in  Capital for the three months and six months ended March 31, 2009 and  2008 (Unaudited) | 2      |
|              | Consolidated  Statements of Cash Flows for the six months ended March 31, 2009 and  2008 (Unaudited)                                     | 3      |
|              | Notes to Condensed Consolidated Financial Statements                                                                                          | 4      |
| Item 2.           | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                   | 12     |
| Item 3.           | Quantitative  and Qualitative Disclosures About Market Risk                                                                                   | 32     |
| Item 4T.          | Controls and  Procedures                                                                                                                      | 33     |
|              |                                                                                                                                          |   |
| **PART II.** | **OTHER INFORMATION**                                                                                                                         |   |
| Item 1.           | Legal Proceedings                                                                                                                             | 33     |
| Item 1A.          | Risk Factors                                                                                                                                  | 34     |
| Item 2.           | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                  | 34     |
| Item 3.           | Defaults  Upon Senior Securities                                                                                                              | 34     |
| Item 4.           | Submission  of Matters to a Vote of Security Holders                                                                                          | 34     |
| Item 5.           | Other Information                                                                                                                             | 34     |
| Item 6.           | Exhibits                                                                                                                                      | 34     |
|              | Signatures                                                                                                                                    | 35     |

 

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**PART I. FINANCIAL INFORMATION**

 

**Item I.****                                                             ****Financial Statements**

 

**SENECA GAMING CORPORATION**

**CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

 
| ** **                               | ** ** | **March 31,**                   | ** ** | **September 30,** | ** ** |
|------------------------------------------|------------|--------------------------------------|------------|------------------------|------------|
| ** **                               | ** ** | **2009**                             | ** ** | **2008**               | ** ** |
| ** **                               | ** ** | **(Dollars in Thousands)** | ** ** |
| **Assets**                               | ** ** | ** **                           | ** ** | ** **             | ** ** |
| Current assets:                          |       |                                 |       |                   |       |
| Cash and cash equivalents                |       | $                                    | 65,612     |                   | $          | 53,305 |   |
| Short-term investments                   |       | 150                                  |       | 300                    |       |
| Receivables, net                         |       | 3,044                                |       | 2,705                  |       |
| Inventories                              |       | 3,821                                |       | 4,196                  |       |
| Other current assets                     |       | 12,075                               |       | 9,127                  |       |
| Total current assets                     |       | 84,702                               |       | 69,633                 |       |
|                                     |       |                                 |       |                   |       |
| Property and equipment, net              |       | 792,045                              |       | 799,335                |       |
| Other long-term assets                   |       | 66,065                               |       | 66,750                 |       |
|                                     |       |                                 |       |                   |       |
| Total assets                             |       | $                                    | 942,812    |                   | $          | 935,718 |   |
|                                     |       |                                 |       |                   |       |
| **Liabilities and Capital**              | ** ** | ** **                           | ** ** | ** **             | ** ** |
| Current liabilities:                     |       |                                 |       |                   |       |
| Trade payables                           |       | $                                    | 1,603      |                   | $          | 3,368 |   |
| Construction payables                    |       | 13,720                               |       | 29,619                 |       |
| Distributions payable to  Nation         |       | —                               |       | 24,000                 |       |
| Exclusivity fees payable                 |       | 9,271                                |       | 9,234                  |       |
| Accrued interest payable                 |       | 15,104                               |       | 15,104                 |       |
| Accrued regulatory costs                 |       | 31,634                               |       | 27,888                 |       |
| Accrued gaming liabilities               |       | 16,081                               |       | 15,657                 |       |
| Accrued payroll and  related liabilities |       | 13,779                               |       | 10,138                 |       |
| Other current liabilities                |       | 12,087                               |       | 13,511                 |       |
| Senior secured revolving  loan payable   |       | 20,000                               |       | —                 |       |
| Total current liabilities                |       | 133,279                              |       | 148,519                |       |
|                                     |       |                                 |       |                   |       |
| Long-term debt                           |       | 496,857                              |       | 496,353                |       |
|                                     |       |                                 |       |                   |       |
| Total liabilities                        |       | 630,136                              |       | 644,872                |       |
|                                     |       |                                 |       |                   |       |
| Capital:                                 |       |                                 |       |                   |       |
| Retained earnings                        |       | 312,676                              |       | 290,846                |       |
|                                     |       |                                 |       |                   |       |
| Total liabilities and  capital           |       | $                                    | 942,812    |                   | $          | 935,718 |   |

 

See accompanying notes to consolidated financial statements.

 

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**SENECAGAMING CORPORATION**

**CONSOLIDATED STATEMENTS OF INCOME ANDCHANGES IN CAPITAL**

**(Unaudited)**

 
| ** **                                                                             | ** ** | **Three Months Ended  March 31,** | ** ** | **Six Months Ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                             | ** ** | **2009**                                         | ** ** | **2008**                                       | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                                             | ** ** | **(Dollars in Thousands)**             | ** ** |
| **Revenues**                                                                           | ** ** | ** **                                       | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                             | ** ** | ** **                                       | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Gaming                                                                                 |       | $                                                | 141,320    |                                           | $          | 154,366 |   | $ | 278,343 |   | $ | 304,446 |   |
| Food and beverage                                                                      |       | 14,231                                           |       | 15,568                                         |       | 28,435 |   | 30,382 |   |
| Lodging                                                                                |       | 5,577                                            |       | 6,910                                          |       | 11,872 |   | 14,224 |   |
| Retail, entertainment and  other                                                       |       | 5,825                                            |       | 5,646                                          |       | 12,266 |   | 12,317 |   |
| Gross Revenue                                                                          |       | 166,953                                          |       | 182,490                                        |       | 330,916 |   | 361.369 |   |
| Less: Promotional  allowances                                                          |       | (26,915                                          | )          | (31,473                                        | )          | (52,159 | ) | (60,151 | ) |
| Net revenues                                                                           |       | 140,038                                          |       | 151,017                                        |       | 278,757 |   | 301,218 |   |
|                                                                                   |       |                                             |       |                                           |       |   |   |   |   |
| **Expenses**                                                                           | ** ** | ** **                                       | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                             | ** ** | ** **                                       | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Gaming                                                                                 |       | 36,424                                           |       | 41,509                                         |       | 73,650 |   | 82,947 |   |
| Food and beverage                                                                      |       | 10,697                                           |       | 12,098                                         |       | 21,904 |   | 24,715 |   |
| Lodging                                                                                |       | 3,128                                            |       | 3,279                                          |       | 6,159 |   | 6,526 |   |
| Retail, entertainment and  other                                                       |       | 3,467                                            |       | 3,814                                          |       | 7,445 |   | 8,173 |   |
| Advertising, general and  administrative                                               |       | 46,365                                           |       | 47,310                                         |       | 95,865 |   | 96,832 |   |
| Pre-opening costs                                                                      |       | 78                                               |       | 131                                            |       | 136 |   | 224 |   |
| Depreciation                                                                           |       | 12,583                                           |       | 12,287                                         |       | 25,170 |   | 25,929 |   |
|                                                                                   |       |                                             |       |                                           |       |   |   |   |   |
| Total operating expenses                                                               |       | 112,742                                          |       | 120,428                                        |       | 230,329 |   | 245,346 |   |
|                                                                                   |       |                                             |       |                                           |       |   |   |   |   |
| Operating income                                                                       |       | 27,296                                           |       | 30,589                                         |       | 48,428 |   | 55,872 |   |
|                                                                                   |       |                                             |       |                                           |       |   |   |   |   |
| Other non-operating  expense                                                           |       | (50                                              | )          | (150                                           | )     | (163 | ) | (3,900 | ) |
| Interest income                                                                        |       | 23                                               |       | 374                                            |       | 81 |   | 1,122 |   |
| Interest expense                                                                       |       | (9,674                                           | )          | (9,872                                         | )          | (19,277 | ) | (19,743 | ) |
|                                                                                   |       |                                             |       |                                           |       |   |   |   |   |
| Net income                                                                             |       | $                                                | 17,595     |                                           | $          | 20,941 |   | $ | 29,069 |   | $ | 33,351 |   |
|                                                                                   |       |                                             |       |                                           |       |   |   |   |   |
| Beginning capital balance                                                              |       | $                                                | 285,814    |                                           | $          | 238,025 |   | $ | 290,846 |   | $ | 230,244 |   |
| Cash distributions rescinded by (declared to) the Nation      |       | 9,267                                            |       | (5,276                                         | )          | (7,239 | ) | (9,905 | ) |
| Ending capital balance                                                                 |       | $                                                | 312,676    |                                           | $          | 253,690 |   | $ | 312,676 |   | $ | 253,690 |   |

 

See accompanying notes to consolidated financial statements.

 

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**SENECA GAMING CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                         | ** ** | **Six Months Ended**       | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                         | ** ** | **March 31,**                   | ** ** |
| ** **                                                                         | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                                                                         | ** ** | **(Dollars in Thousands)** | ** ** |
| **Cash flows relating to  operating activities:**                                  | ** ** | ** **                           | ** ** | ** ** | ** ** |
|                                                                               |       |                                 |       |   |   |
| Net income                                                                         |       | $                                    | 29,069     |   | $ | 33,351 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |       |                                 |       |   |   |
| Depreciation                                                                       |       | 25,170                               |       | 25,929 |   |
| Loss on disposal of assets                                                         |       | 7                                    |       | 71 |   |
| Amortization of deferred  financing costs, debt discount                           |       | 1,621                                |       | 1,619 |   |
| Other than temporary  decline in investments                                       |       | 150                                  |       | 3,900 |   |
| Provision for bad debts                                                            |       | 201                                  |       | 22 |   |
|                                                                               |       |                                 |       |   |   |
| Change in operating assets  and liabilities:                                       |       |                                 |       |   |   |
| Current assets                                                                     |       | (1,113                               | )     | 828 |   |
| Long-term assets                                                                   |       | 50                                   |       | (289 | )  |
| Current liabilities                                                                |       | 4,659                                |       | (143 | )  |
|                                                                               |       |                                 |       |   |   |
| Net cash provided by  operating activities                                         |       | 59,814                               |       | 65,288 |   |
|                                                                               |       |                                 |       |   |   |
| **Cash flows relating to  investing activities:**                                  | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Purchases of property and  equipment                                               |       | (33,786                              | )          | (58,237 | ) |
| Land acquisition costs                                                             |       | (482                                 | )          | (3,706 | ) |
| Deposits to restricted  cash                                                       |       | —                               |       | (2,074 | )  |
| Sale of investments, net                                                           |       | —                               |       | 14,600 |   |
|                                                                               |       |                                 |       |   |   |
| Net cash used in investing  activities                                             |       | (34,268                              | )          | (49,417 | ) |
|                                                                               |       |                                 |       |   |   |
| **Cash flows relating to  financing activities:**                                  | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Proceeds from senior  secured revolving loan agreement                             | ** ** | 20,000                               | ** ** | — | ** ** |
| Distributions paid to the  Nation                                                  |       | (33,239                              | )          | (33,905 | ) |
|                                                                               |       |                                 |       |   |   |
| Net cash used in financing  activities                                             |       | (13,239                              | )          | (33,905 | ) |
|                                                                               |       |                                 |       |   |   |
| Net increase (decrease) in  cash                                                   |       | 12,307                               |       | (18,034 | ) |
|                                                                               |       |                                 |       |   |   |
| Cash balances:                                                                     |       |                                 |       |   |   |
| Beginning of period                                                                |       | 53,305                               |       | 78,662 |   |
|                                                                               |       |                                 |       |   |   |
| End of period                                                                      |       | $                                    | 65,612     |   | $ | 60,628 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

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**SENECA GAMING CORPORATION**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(Unaudited)**

 

**1.**                                      Organization and Basis of Presentation

** **

Theconsolidated financial statements include the accounts of Seneca GamingCorporation, or SGC, and its wholly owned subsidiaries, or collectively, theCompany.  In consolidation, allintercompany balances and transactions have been eliminated.  The accompanying unaudited consolidatedfinancial statements have been prepared in accordance with U.S. generallyaccepted accounting principles for interim financial information.  Accordingly, they do not include all of theinformation and notes required by generally accepted accounting principles forcomplete financial statements.  In theopinion of SGC’s management, all adjustments, consisting of normal recurringaccruals, considered necessary for a fair presentation have been included.  Operating results for the three months andsix months ended March 31, 2009 are not necessarily indicative of theresults that may be expected for the year ending September 30, 2009.  For further information, reference is made tothe consolidated financial statements and notes thereto included in SGC’sAnnual Report on Form 10-K for the fiscal year ended September 30,2008, or 2008 Form 10-K, as well as SGC’s other filings with theSecurities and Exchange Commission, or SEC, pursuant to the Securities ExchangeAct of 1934, as amended.

 

Certain prior yearamounts have been reclassified to conform to current year presentation.

 

SGC,which was formed on August 1, 2002, is wholly owned by the Seneca Nationof Indians, or the Nation.  The Nation isa federally recognized Indian tribe with total territorial land comprising approximately54,000 acres in the Western New York region. SGC was organized by the Nation to operate and manage its Class IIIgaming activities on the Nation’s territories pursuant to the Indian GamingRegulatory Act of 1988, or IGRA.  UnderIGRA, federally recognized Indian tribes are permitted to conduct full-scalecasino gaming operations on tribal land, subject to, among other things, thenegotiation of a compact with the affected state.  Pursuant to IGRA, the Nation entered into theNation-State Gaming Compact with the State of New York dated April 12,2002, or the Compact, which has been approved by the Federal Bureau of IndianAffairs, Department of the Interior.  TheCompact expires in December 2016 and automatically renews for anadditional seven year period unless either the Nation or the State of New Yorkobjects in writing, in which case the parties are required to negotiate in goodfaith to address the objecting party’s concerns, with only the issue of aparty’s good faith subject to third party dispute resolution.  The Compact provides that its terms willremain in effect during the pendency of such negotiations.  The Compact provides the Nation the exclusiveright to conduct Class III gaming activities at three sites in the westernregion of the State of New York.

 

TheNation’s Constitution established the Nation’s Council, or the Council, to actas the Nation’s legislative authority. The Council acts on the Nation’s behalf with respect to SGC, and theCouncil established the Seneca Gaming Authority, or SGA, to regulate the gamingactivities of SGC under the Compact.

 

TheCouncil, at the request of the SGC Board of Directors, chartered threesubsidiary corporations of SGC to operate the three sites authorized by theCompact.  In addition, the SGC Board ofDirectors hired the executive management of SGC to oversee, develop and managethe three sites. The subsidiary corporations that operate the three sitesauthorized by the Compact are as follows:

 

·                                          Seneca Niagara Falls Gaming Corporation,or SNFGC;

 

·                                          Seneca Territory Gaming Corporation, orSTGC; and

 

·                                          Seneca Erie Gaming Corporation, or SEGC.

 

SNFGCwas formed on August 1, 2002 to operate the Nation’s Class III gamingactivities on the Nation’s territory in Niagara Falls, New York.  Operations at SNFGC’s casino, or SenecaNiagara Casino, commenced December 31, 2002.  On March 31, 2006, SNFGC officiallycompleted the phased opening of its luxury hotel expansion, which included apermanent  147,000 square foot gamingfacility (adding 35,000 square feet of gaming space to the original 112,000square-foot facility), a 604 room luxury hotel with 118 suites of varioussizes, a full-service spa, salon, and fitness center, three fine diningrestaurants (two additional) and a 24 hour casual restaurant, three new 

 

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retailstores, and a 25,200 square-foot multi-purpose room and events center.  The luxury hotel is adjacent and connected tothe Seneca Niagara Casino.  The entirecomplex, including the luxury hotel and the Seneca Niagara Casino, is referredto as the Seneca Niagara Casino and Hotel.

 

STGCwas formed on September 20, 2003 to operate the Nation’s Class IIIgaming activities in Salamanca, New York on the Nation’s then-existingterritorial land. Operations at STGC’s casino, or Seneca Allegany Casino,commenced May 1, 2004 utilizing an approximate 120,000 square foottemporary structure.  On March 30,2007, the phased opening of the permanent gaming facility and resort hotel wascompleted, which included a permanent 63,500 square foot gaming facility(adding 12,000 square feet of additional gaming space to the original temporarygaming facility), a 212-room resort hotel, two fine dining restaurants, a 24hour casual restaurant, a spa and fitness center, and retail and otheramenities.  In March 2008, STGCcompleted a conversion of the former approximate 120,000 square foot temporarycasino structure into an events center and multi-purpose room with a seatingcapacity for 2,200 people, along with additional administrative and supportspace.  The entire complex, including theSeneca Allegany Casino, resort hotel, and events center, is referred to as theSeneca Allegany Casino and Hotel.

 

SEGC was formed on August 9,2003 to operate the Nation’s Class III gaming activities in Erie County,New York.  On October 3, 2005, theNation acquired approximately nine acres of land in the inner-harbor districtof downtown Buffalo, New York.  SEGCcommenced construction of its Seneca Buffalo Creek Casino on those nine acreson December 8, 2005, and on July 3, 2007 commenced Class IIIgaming on such property in a temporary facility, in fulfillment of therequirement set forth in the Nation’s Compact with the State of New York.  Thetemporary facility features approximately 8,600 square feet andincludes 244 slot machines and a snack bar. Variousplaintiffs have filed suit in federal and state court challenging the Nation’sright to conduct Class III gaming on the Nation’s nine acre Buffalo CreekTerritory.  On July 8, 2008, in a federal suit captioned *CitizensAgainst Casino Gambling in Erie County v. Hogen*, the Court issued its decision and orderfinding that, although the Nation’s Buffalo Creek Territory is “Indiancountry”, the NIGC’s determination that the Nation’s Buffalo Creek Territory isgaming-eligible land pursuant to the IGRA’s settlement of a land claimexception was “arbitrary, capricious, and not in accordance with the law”.  The Court’s decision did not provide forinjunctive relief, and SEGC has continued its operations at the Seneca BuffaloCreek Casino.  Plaintiffs subsequentlyfiled a motion on July 14, 2008 to force the court to enforce itsjudgment.

 

OnJanuary 20, 2009, the NIGC approved an amended Class III GamingOrdinance that had been submitted by the Nation and concluded that, based uponnew Department of Interior regulations, IGRA’s general prohibition againstgaming on after-acquired lands did not apply to lands such as the Buffalo CreekTerritory that are held in restricted fee, and that gaming on the Nation’sBuffalo Creek Territory is not precluded by IGRA.  Subsequently, on January 30, 2009, theDistrict Court denied the plaintiffs’ motion to enforce, and further concludedthat the NIGC’s new analysis is presumed valid unless it becomes the subject ofa successful legal challenge.

 

OnMarch 31, 2009, plaintiffs in the litigation noted in the foregoingparagraph filed suit to challenge the NIGC’s approval of the amended Class IIIGaming Ordinance.  Neither the Nation norSGC are parties to this new suit.

 

If the plaintiffsare successful in any of the Buffalo Creek-related legal proceedings, theNation, and therefore SEGC, may be unable to continue operating the existingSeneca Buffalo Creek Casino, may be delayed in the completion of a permanentfacility at this site or may be unable to conduct Class III gaming at thissite.  The Nation, SGC and SEGC will vigorously defend any actions towhich they are parties.  SEGC does notbelieve the foregoing events constitute an impairment of its Buffalo Creekassets at this time.

 

TheNation’s Council has also chartered, at the request of the SGC Board ofDirectors, an additional subsidiary corporation, Lewiston Golf CourseCorporation, or LGCC, a wholly-owned subsidiary of SNFGC.  LGCC was formed on July 18, 2007 by theNation’s Council, as a new wholly-owned subsidiary of SNFGC to own, develop andoperate SGC’s planned golf course in Lewiston, New York.

 

SenecaMassachusetts Gaming Corporation, a wholly-owned subsidiary of SGC, formed on August 11,2007 to explore development opportunities related to gaming in the Commonwealthof Massachusetts, was dissolved by the Nation’s Council on April 11, 2009,and its assets transferred to SGC.

 

**2.****                                    ****Short-Term Investments**

 

Short-term investmentsare classified as available for sale as defined in SFAS No. 115, *Accounting for Certain Investments in Debt and EquitySecurities*.  Investments are stated at fair value.  TheCompany evaluates investments for conditions that may indicate that another-than-temporary decline in market value has occurred. In 

 

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conducting this review,numerous factors are considered which, individually or in combination, mayindicate that a decline is other-than-temporary. Based on this evaluation, another-than-temporary loss on one specific investment of $0.1 million and $0.2million was recorded in the three months ended March 31, 2009 and 2008,respectively, and an other-than-temporary loss on one specific investment of$0.2 million and $3.9 million was recorded in the six months ended March 31,2009 and 2008, respectively, as a component of other non-operating expense. Thecost basis of this investment has been reduced by the amount of theother-than-temporary loss recorded.

 

**3.**                                      **Propertyand Equipment**

 

Inaccordance with the Financial Accounting Standard Board’s Statement ofFinancial Accounting Standards No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets* (SFAS 144), thecarrying value of the Company’s assets are reviewed when events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. If it is determined that an impairment loss has occurred based oncurrent and future levels of income and expected future cash flows as well asother factors, then an impairment loss is recognized as a deduction in determiningoperating income. SGC management has concluded that no such impairment existsat March 31, 2009.

 

**4.**                                      Principal Debt Arrangements

** **

Long-termdebt, as described below, consists of the following:

 
| ** **                                                                                     | ** ** | **As of**                                    | ** ** |
|------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                                     | ** ** | **March 31, 2009**                      | ** ** | **September 30,   2008** | ** ** |
| ** **                                                                                     | ** ** | **(In Thousands of Dollars)** | ** ** |
| 2004 71/4% senior notes due 2012                                                               |       | $                                            | 300,000    |   | $ | 300,000 |   |
| 2005 71/4% senior notes due 2012  plus unamortized discount of $3,143 and $3,647, respectively |       | 196,857                                      |       | 196,353 |   |
|                                                                                           |       | $                                            | 496,857    |   | $ | 496,353 |   |
| Less current maturities of  long-term debt                                                     |       | —                                       |       | — |   |
| Long-term debt                                                                                 |       | $                                            | 496,857    |   | $ | 496,353 |   |

 

**7**1/4% Senior Notes due 2012

** **

On May 5, 2004, SGCissued $300.0 million in 71/4% seniornotes due 2012, or the 2004 senior notes.  On May 23, 2005, SGCissued an additional $200.0 million in 71/4% seniornotes due 2012, Series B, or the 2005 senior notes, and together with the2004 senior notes, the Senior Notes.

 

The Senior Notes areguaranteed by SNFGC, STGC, SEGC and LGCC. The 2005 senior notes are treated asa single class with the 2004 senior notes and are identical to the 2004 seniornotes, except for certain tax attributes and prior to November 1, 2005 theamount of interest accrued thereon.   Interest on the Senior Notes ispayable semi-annually on May 1 and November 1.  The Senior Notesare unsecured and rank equally.  As of March 31, 2009, aggregateaccrued interest on the Senior Notes was $15.1 million. The Senior Notes,which mature on May 1, 2012, are redeemable at SGC’s option in whole or inpart at any time after May 1, 2008 at the redemption prices set forth inthe Senior Notes Indenture, are subject to redemption requirements imposed bygaming laws and regulations and are required to be repurchased by SGC at theoption of holders upon certain change of control events.

 

TheSenior Notes Indenture contains certain financial and non-financial covenants.The financial covenants include limitations on restricted payments and theincurrence of indebtedness, while the non-financial covenants include reportingobligations and compliance with laws and regulations. As of March 31,2009, SGC was in compliance with all covenants in the Indenture.

 

**SeniorSecured Revolving Loan Agreement**

 

Effective June 19, 2008, SGC entered into a $50.0million Senior Secured Revolving Loan Agreement, which matures on June 19,2009.  The maturity date may be extendedby SGC at its election (at any time after the six months anniversary of theclosing date and prior to June 19, 2009) for an additional period of sixmonths provided that no default or event of default exists at the time ofelection.  Amounts borrowed under theSenior Secured Revolving Loan Agreement bear interest at either one, three orsix-month LIBOR plus one and one quarter percent 

 

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(1.25%), or the prime rate (as reported in *The Wall Street Journal*) plus one quarterpercent (0.25%).  Any outstandingprincipal balance shall be paid by, or on, the maturity date.

 

SGC’sobligations under the Senior Secured Revolving Loan Agreement are secured bysubstantially all gaming and related assets (including substantially all gamingrevenues) not constituting real property or improvements.  SGC’sobligations are guaranteed by SNFGC, STGC, SEGC and LGCC.  The guarantors’ obligations are securedby substantially all of each guarantor’s gaming and related assets (includingsubstantially all gaming revenues) not constituting real property orimprovements.

 

TheSenior Secured Revolving Loan Agreement contains certain financial covenantsrequiring minimum consolidated EBITDA of $160 million (on a rolling 12 monthbasis) and compliance with certain leverage and coverage ratios. The SeniorSecured Revolving Loan Agreement also contains additional customary covenants,including covenants restricting the incurrence of additional indebtedness, thecreation of additional liens and the disposition of assets. As of March 31,2009, SGC was in compliance with all covenants in the Senior Secured RevolvingLoan Agreement.

 

As of March 31, 2009, at SGC’s request, thelender under the Senior Secured Revolving Loan Agreement had issued letters ofcredit totaling $17.7 million, $11.2 million of which may be drawn upon to fundthe purchase of certain parcels within the 50 acre “footprint” described in theCompact with New York State and designated for ownership by the Nation, withthe remaining $6.5 million issued in connection with worker’s compensationpolicies and certain other contracts, as required.  On October 29, 2008, SGC borrowed $20.0million under the Senior Secured Revolving Loan Agreement.  As of March 31, 2009, $12.3 million wasavailable to be drawn under the Senior Secured Revolving Loan Agreement.   On April 9, 2009, SGC paid $5.0 millionon the Senior Secured Revolving Loan Agreement, reducing the outstandingprincipal balance to $15 million and increasing the availability to $17.3million.

 

**5.****                                     ****Related-Party Transactions**

 

**Distributions**

 

Distributionspaid to the Nation, or on the Nation’s behalf, as described below, consist ofthe following:

 
| ** **                            | ** ** | **Six Months Ended  March 31,** | ** ** |
|---------------------------------------|------------|------------------------------------------------|------------|
| ** **                            | ** ** | **2009**                                       | ** ** | **2008** | ** ** |
| ** **                            | ** ** | **(In Millions of Dollars)**    | ** ** |
| ** **                            | ** ** | ** **                                     | ** ** | ** ** | ** ** |
| Cash distributions                    |       | $                                              | 26.2       |   | $ | 24.2 |   |
| Distribution agreement  distributions |       | 7.0                                            |       | 9.7 |   |
|                                  |       | $                                              | 33.2       |   | $ | 33.9 |   |

 

*CashDistributions*

 

·                  SGC paid cash distributions to the Nation in the amount of $4 millionper month from October 2008 through February 2009, totaling $20million.  In addition, in November 2008,SGC paid an additional $1.2 million distribution to the Nation.

 

·                  In July 2008, SGC declared cash distributions to the Nationtotaling $20 million, of which $10 million was payable in each of fiscal year2009 and 2010.  These amounts were to bepayable in ten equal monthly payments of $1 million beginning October 1,2008 and 2009, respectively.  During thesix months ended March 31, 2009, SGC paid cash distributions of $5 millionto the Nation pursuant to the foregoing distribution declarations.  In February 2009, the Nation passed aresolution rescinding the July 2008 resolution.  Furthermore, any distributions paid inaccordance with the July 2008 resolution were to be applied towards futuredistributions.  In March 2009, SGCapplied $3 million previously paid under the July 2008 resolution towardthe March 2009 distribution.  As of March 31,2009, $2 million is recorded as an other current asset on the consolidatedbalance sheet and is reported as a distribution paid to the Nation on theconsolidated statement of cash flows.

 

·                  SGC paid cash distributions to the Nation in the amount of $4 millionper month from October 2007 through March 2008, totaling $24million.  In addition, SGC paid anadditional $0.2 million in distributions to the Nation during the six monthsended March 31, 2008.

 

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*Distribution Agreement Obligations*

 

·                  During the six months ended March 31, 2009 and 2008, SGCdistributed $7.0 million and $9.7 million, respectively, to the Nation underthe Distribution Agreement, dated April 27, 2007, relating to the SenecaNation of Indians Capital Improvements Authority’s special obligation bonds(See Note 6).

 

**SGC has recorded approximately $58.7 million in landand related acquisition costs as ‘Other long-term assets’ in the accompanyingconsolidated balance sheets as of March 31, 2009, which are expected to betransferred to the Nation in the future at cost.**

** **

**Operating Lease Agreements**

** **

*Head Leases:*

 

TheNation has entered into operating lease agreements (each a Head Lease) witheach of SNFGC, STGC and SEGC.  Due to therelated party nature of these Head Leases, which can be effectively modified bythe Nation, SGC records monthly Head Lease expense equal to the requiredpayment amount for the respective month. Payment increases under the Head Leases are restricted under the termsof the Indenture governing the Senior Notes and the Distribution Agreementreferenced in Note 6.  The Head Leasescontain no renewal options or escalation clauses.

 

Expensesresulting from the above Head Lease agreements were as follows for the threeand six months ended March 31, 2009 and 2008:

 
| ** ** | ** ** | **Three Months Ended  March 31,** | ** ** | **Six Months Ended  March 31,** | ** ** |
|------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|
| ** ** | ** ** | **2009**                                         | ** ** | **2008**                                       | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** ** | ** ** | **(Dollars in Millions)**              | ** ** |
| SNFGC      |       | $                                                | 8.8        |                                           | $          | 5.7 |   | $ | 18.0 |   | $ | 12.2 |   |
| STGC       |       | 5.5                                              |       | 5.0                                            |       | 12.0 |   | 10.1 |   |
| SEGC       |       | 3.5                                              |       | 4.8                                            |       | 8.0 |   | 8.7 |   |
|       |       | $                                                | 17.8       |                                           | $          | 15.5 |   | $ | 38.0 |   | $ | 31.0 |   |

 

SNFGC,STGC and SEGC record the Head Lease costs as a component of advertising,general and administrative costs in the accompanying consolidated statements ofincome.

 

Seneca Niagara Falls Gaming Corporation

 

TheSNFGC Head Lease (dated October 25, 2002) has a term of 21 years andcovers use of the land and certain improvements existing at the commencement ofsuch Head Lease, principally including structures formerly known as the NiagaraFalls Convention Center and Lackey Plaza. Effective October 1, 2007, the monthly payments were $1,365,909 permonth, as approved by the board of directors of SGC and SNFGC.  Pursuant to the terms of the Amended andRestated SNFGC Head Lease entered into on March 27, 2008, and effective October 1,2007, payments were further increased, at the request of the Nation, to$2,033,333 per month, with such increase effective as of October 1,2007.  On August 1, 2008, at therequest of the Nation, SGC approved an increase in the SNFGC Head Lease to$3,083,333 per month, effective October 1, 2008, and to $3,666,667 permonth, effective October 1, 2009. On March 19, 2009 SNFGC entered into an amendment to the foregoingHead Lease agreement with the Nation, which reduced payments to $3,007,208 permonth effective October 1, 2008.

 

Seneca Territory Gaming Corporation

 

TheSTGC Head Lease (effective as of May 1, 2004) has a term of 21 years afterthe commencement of the Nation’s Class III gaming operations under theCompact, and covers use of the land which is currently being used in operatingthe Seneca Allegany Casino and Hotel. Effective October 1, 2007, the monthly payments were $1,365,909, asapproved by the board of directors of STGC. Pursuant to an amendment to the STGC Head Lease entered into on March 27,2008, and effective as of October 1, 2007, the payments were increased, atthe request of the Nation, to $1,691,667 per month.  On August 1, 2008, at the request of theNation, SGC approved increases in 

 

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thepayments under the STGC Head Lease to $2,166,666 per month effective October 1,2008, and to $2,666,667 per month effective October 1, 2009.  On March 19, 2009 STGC entered into anamendment to the foregoing Head Lease agreement with the Nation, which reducedpayments to $2 million per month effective October 1, 2008.

 

SenecaErie Gaming Corporation

 

TheSEGC Head Lease (effective as of April 1, 2006) has a term of 21 yearsafter the commencement of the Nation’s Class III gaming operations underthe Compact, and covers use of the land which is currently being used inoperating the Seneca Buffalo Creek Casino. Effective October 1, 2007, the monthly payments were $1,287,500, asapproved by the board of directors of SEGC. Pursuant to an amendment to the SEGC Head Lease entered into on March 27,2008, and effective as of October 1, 2007, the payments were increased, atthe request of the Nation, to $1,441,667 per month. On August 1, 2008, atthe request of the Nation, SGC approved an increase in the payments under theSEGC Head Lease to $1,500,000 per month effective October 1, 2008 andthereafter.  On March 19, 2009 SEGCentered into an amendment to the foregoing Head Lease agreement with the Nation,which reduced payments to $1,326,125 per month effective October 1, 2008.

 

In connection with the March 19, 2009 HeadLease amendments described above, for purposes of compliance with its Indenturegoverning the Senior Notes and the Distribution Agreement, SGC obtained anddelivered to Wells Fargo, N.A. (as trustee under the Indenture governing theSenior Notes) written fair market value rent opinions from an independentfinancial advisor with regard to the SNFGC and STGC Head Lease amendments (asrequired by the Indenture).  The SEGCHead Lease amendment reflects a 3% increase in rent as permitted by theIndenture.  The Corporation alsodelivered to Wells Fargo, N.A. (as trustee under the indenture governing theNation’s municipal bonds and a party to the Distribution Agreement) anadditional certification required pursuant to the Distribution Agreement.  Further or additional increases in rentpayable under the Head Lease agreements are restricted under the terms of theCorporation’s Indenture governing its Senior Notes and the DistributionAgreement, and are subject to compliance with all applicable contractualcommitments of the Corporation and the Nation, such that no increase may contravene, or constitutea default under any agreement, indenture, instrument or other commitmentlegally binding upon the Nation, SNFGC, STGC or SEGC, respectively, or to whichthe premises (described in the Head Leases) are subject.

 

*Class IIPoker Leases:*

 

SNFGCand STGC lease space within the Seneca Niagara Casino and Hotel and SenecaAllegany Casino and Hotel, respectively, for operation of poker rooms by SenecaGaming & Entertainment, a Class II business enterprise of theNation.  For the three months ended March 31,2009 and 2008, SGC recorded $0.2 million and $0.2 million of poker room rentalincome and fees, respectively, and for the six months ended March 31, 2009and 2008, SGC recorded $0.4 million and $0.4 million of rental income and fees,respectively.  At March 31, 2009,SGC has recorded $0.3 million as a receivable from the Nation relating to pokerroom rentals and fees as a component of receivables, net in the accompanyingconsolidated balance sheets.

 

*OtherLease:*

 

STGCleases office space in a building owned by the brother of a member of SGC’sBoard of Directors**. **For the three months ended March 31,2009 and 2008, such operating lease expense totaled $63,000 and $63,000,respectively, and for the six months ended March 31, 2009 and 2008, suchoperating lease expense totaled $126,000 and $128,000, respectively.

 

**OtherRelated Party Transactions**

 

*ConstructionServices:*

 

SNFGC,STGC and SEGC have each entered into construction management agreements withSeneca Construction Management Corporation, or SCMC, for certain renovationsand capital improvements at Seneca Niagara Casino and Hotel, Seneca AlleganyCasino and Hotel, and Seneca Buffalo Creek Casino, respectively.  SCMC is wholly owned by the Nation.  For the three months ended March 31,2009 and 2008, SNFGC, STGC and SEGC have collectively made payments to SCMC forconstruction management and related fees of $0.6 million and $0.8 million,respectively, and for the six months ended March 31, 2009 and 2008, SNFGC,STGC and SEGC have collectively made payments to SCMC for constructionmanagement and related fees of $1.6 million and $1.5 million,respectively.  Such fees reflect theamounts earned by SCMC for the performance of construction 

 

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managementservices. Additional amounts paid to SCMC are passed-through and used to paysubcontractors, reimbursements for out-of-pocket expenses and similar costs.

 

*Regulatory Services:*

 

SGC is charged by the Nation for its costs incurred related to theoperation of SGA gaming regulatory services. These include:  a) costs incurredsolely and directly in connection with regulatory services and oversight of SGC’sgaming operations and which are therefore 100% allocable to SGC; and b) an administrationfee, assessed by the Nation for costs indirectly incurred in conjunction withthe operation and regulation of the Corporation, which is fixed as a percentageof direct costs, currently set at 29.56%, as determined by the Nation in itsperformance of administration of the SGA and its oversight of the Company.  Such costs were approximately $2.6 millionand $3.3 million for the three months ended March 31, 2009 and 2008,respectively, and $5.1 million and $5.8 million for the six months ended March 31,2009 and 2008, respectively.

 

SGC is also charged by the Nation for its costs incurred related toservices provided by the New York State Racing and Wagering Board, New YorkState Police, Seneca Nation of Indians Marshals, Buffalo Police****and Cattaraugus County Sheriff Department solely anddirectly in connection with SGC’s operations, which costs were approximately$3.1 million and $2.2 million for the three months ended March 31, 2009and 2008, respectively, and $5.7 million and $5.1 million for the six monthsended March 31, 2009 and 2008, respectively.

 

At March 31, 2009 and September 30, 2008, approximately $31.6million and $27.9 million, respectively, were recorded as “accrued regulatorycosts” in the accompanying consolidated balance sheets, for the payment of suchregulatory costs.

 

*Other:*

 

SNFGC,STGC, and SEGC, through the Corporation’s competitive bidding process, havepurchased goods and services from DRJ Enterprises, which is owned by thebrother-in-law of Barry E. Snyder, Sr., who served as  Chairman of SGC’s Board of Directors until March 13,2009 and as a member of the Board of Directors until March 19, 2009.  Payments to DRJ Enterprises for the threemonths ended March 31, 2009 and 2008 totaled $46,000 and $186,000,respectively.

 

**6.**                                      Commitments and Contingencies

** **

**Distribution Agreement Obligations**

 

On April 27,2007, SGC entered into a Distribution Agreement among the Nation, the SenecaNation of Indians Capital Improvements Authority, or the Authority, SGC andWells Fargo Bank, as Trustee, in connection with the Authority’s issuance intwo series (one tax exempt and the other taxable) of an aggregate principalamount of $159,495,000 special obligation bonds, or the 2007 NationBonds.  The Distribution Agreement obligates SGC, subject to anycontractual restrictions applicable to SGC (including, but not limited to,those contained in the Senior Notes Indenture), to make monthly distributionsto the Nation at the times and in the amounts necessary to enable the Authorityto pay the debt service on the 2007 Nation Bonds as required under theAuthority’s indenture.  At the direction of the Nation and the Authority,SGC pays such distributions directly to the Trustee.  The Authority’s debtservice commenced on June 1, 2007.  For the period from June 1,2007 through November 1, 2007, the Authority’s debt service averagedapproximately $0.9 million per month. For the period from December 1, 2007through June 1, 2008, the Authority’s debt service averaged approximately$1.7 million per month.  In June 2008,it was determined that the amortization (debt service) schedule upon which theforegoing $1.7 million monthly payments was made, was incorrect.  A corrected amortization schedule wasprovided and, after giving effect to a resulting credit for amounts overpaid,for the period from January 1, 2008 through December 1, 2023, theAuthority’s debt service averages approximately $1.2 million per month. Theforegoing debt service averages are based on scheduled payments of interest andprincipal under the Authority’s indenture and bonds and do not address theeffects of any earlier call for redemption, by acceleration or otherwise. The Distribution Agreement provides that neither the Trustee nor theAuthority’s bondholders will have any recourse under the Distribution Agreementto any revenues, assets or property of SGC or its subsidiaries should SGC failto comply with its distribution obligations. For the six months ended March 31, 2009 and 2008, SGC distributedto the Nation $7.0 million and $9.7 million, respectively, for the Authority’sdebt service on the special obligation bonds.

 

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**The Seneca Nation Compact**

** **

As part of its Compact, the Nation agrees to contribute to the State ofNew York a portion of the proceeds from the operation and conduct of eachcategory of Gaming Device for which exclusivity exists, based on the win ofsuch machines (cash dropped into machines, after payouts but before expenses)and totaled on a cumulative quarterly basis to be adjusted annually at the endof the relevant calendar year.  However,beginning in February 2005, the Company began advancing to the Nation on amonthly basis the exclusivity fee due for the prior month.  The exclusivity fee to the State of New Yorkfor years 1–4 (through December 31, 2006), is 18.0%, payable on an annualbasis. Thereafter, the exclusivity fee is 22% for years 5–7 (through December 31,2009), payable on a semi-annual basis and 25.0% for years 8–14 (through December 31,2016), payable on a quarterly basis.

 

Forthe three months ended March 31, 2009 and 2008, total exclusivity feeswere $25.5 million and $27.8 million, respectively.  The $25.5 million exclusivity fee incurredduring the three months ended March 31, 2009 consisted of $16.6 millionattributable to the operation of SNFGC, $6.6 million attributable to theoperation of STGC and $2.3 million attributable to the operation of SEGC.  The $27.8 million exclusivity fee incurredduring the three months ended March 31, 2008 consisted of $19.1 millionattributable to the operation of SNFGC, $7.1 million attributable to theoperation of STGC and $1.6 million attributable to the operation of SEGC.

 

Forthe six months ended March 31, 2009 and 2008, total exclusivity fees were$50.6 million and $54.9 million, respectively. The $50.6 million exclusivity fee incurred during the six months ended March 31,2009 consisted of $33.2 million attributable to the operation of SNFGC, $13.2million attributable to the operation of STGC and $4.2 million attributable tothe operation of SEGC.  The $54.9 millionexclusivity fee incurred during the six months ended March 31, 2008consisted of $37.6 million attributable to the operation of SNFGC, $14.3million attributable to the operation of STGC and $3.0 million attributable tothe operation of SEGC.

 

**Expansion and Development**

** **

As described in Note 1, the Compact provides the Nation the exclusiveright to conduct Class III gaming activities at three sites in the westernregion of the State of New York, subject to certain limited exceptions.  The Company opened its third Class IIIcasino on July 3, 2007 in a temporary facility in Buffalo, New York.  The construction of the Company’s permanentcasino at that site, as well as expansion by STGC at Seneca Allegany Casino andHotel, and the golf course development in Lewiston, New York, requiressignificant capital outlays.

 

Construction activities at Seneca Allegany Casino and Hotel and SenecaBuffalo Creek Casino were suspended in August 2008 and remain suspendedfor reasons including:  the continuingeconomic recession; inability to obtain construction financing at reasonableinterest rates; and operating and other demands on our available cash, such asour payments and distributions to the Nation. The Company continues to engage in strategic planning efforts relativeto the recommencement of construction activities at these locations.  The Company is also evaluating the scalingand scope of its clubhouse design for the Seneca Hickory Stick Golf Club.

 

*Seneca Allegany Casino and Hotel. *On March 30, 2007, STGC officially opened its 212room resort hotel, including two fine dining restaurants, a 24-hour casualrestaurant and certain other amenities, at the Seneca Allegany Casino andHotel.  This expansion followed the December 28,2006 official opening of the permanent gaming floor. The approximate cost ofconstructing and equipping the hotel and expansion project was $169.0 million.  In March 2008, STGC completed theconversion of the former temporary casino at the Seneca Allegany Casino andHotel into a 120,000 square foot events center, and additional administrationspace, at a cost of approximately $29.3 million.  The next phase of construction, whichcommenced in April 2008 and is currently suspended as noted above,provides for an additional 200 room hotel, 31,000 square feet of additionalgaming space and related amenities, and landscaping and exterior façade enhancementsto the property as a whole.  As of March 31,2009, the Company has incurred $17.8 million related to this phase ofconstruction.

 

*Seneca Buffalo Creek Casino. *On July 3, 2007, the Company opened a temporary Class IIIgaming facility at the Seneca Buffalo Creek Territory site (6,000 square feetincluding 135 slot machines and a snack bar) at a cost of approximately $6.8million.  In March 2008, the Companycompleted a 109 slot machine expansion (for a total of 244 slot machines) ofthe temporary Seneca Buffalo Creek Casino.  The permanent Seneca BuffaloCreek Casino and Hotel, construction of which is currently suspended, wasanticipated to open in Summer 2010 and was expected to initially feature 90,000square feet of gaming space with approximately 2,000 slot machines, 45 tablegames and a 22-story all suite hotel with approximately 206 rooms.  Planned amenities included a pool, spa andsalon, four restaurants, meeting rooms, a retail outlet and a 2,200-spaceparking garage.  As of March 31,2009, the Company has incurred $87.2 million on the construction of thepermanent casino and hotel.

 

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*Seneca Hickory Stick Golf Club. *In July 2007, the Company commenced constructionof the Seneca Hickory Stick Golf Club, an 18-hole Robert Trent Jones IIdesigned golf course. The golf course is located in Lewiston, New York and isapproximately eight miles from the Seneca Niagara Casino and Hotel.  Completion of golf course construction iscurrently scheduled for Summer 2009. To allow for proper grow-in of the course,it is anticipated that the official opening of the course will occur in Spring2010. The decision as to when to open the golf course for play will depend uponhow well the course matures throughout the 2009 growing season. As of March 31,2009, the Company has incurred $18.5 million for the purchase of land andconstruction, with a total cost to construct the golf course, clubhouse andrelated amenities estimated to be approximately $25.5 million.

 

**Legal Proceedings**

 

*Citizens Against Casino Gambling in Erie County v. Hogen(1:2009-cv-00291 (WDNY)) — CACGEC III*

 

OnMarch 31, 2009 , Citizens Against Casino Gambling in Erie County  (CACGEC) filed a third action in the UnitedStates District Court, Western District of New York against the Chairman of theNational Indian Gaming Commission, or NIGC, the United States Department ofInterior, the NIGC, the Secretary of the Interior and the President of theUnited States.  The action seeksdeclaratory and injunctive relief under the Administrative Procedure Act, theDeclaratory Judgments Act, and the Indian Regulatory Gaming Act and isprincipally directed at the decision by the NIGC Chairman, on January 20,2009, to approve the Seneca Nation’s amendments to its Class III GamingOrdinance regarding the Nation’s Buffalo Creek Territory.  The NIGC Chairman concluded that IGRA’sgeneral prohibition against gaming on lands acquired after its enactment in1988 does not apply to lands, such as the Buffalo Creek Territory, that are heldin restricted fee.   The plaintiffs claimthat, in approving the Nation’s Class III Gaming ordinance on January 20,2009, the NIGC Chairman ignored the intention of Congress.  The plaintiffs also make several claims thatgo beyond their prior lawsuits.  Mostnotably, they challenge the constitutionality of the land purchase provisionscontained in the Seneca Nation Settlement Act (“SNSA”), and attempt tochallenge in a more extensive fashion than they had previously the validity ofthe Nation-State Gaming Compact.

 

Ifthe plaintiffs ultimately succeed in this action, or in their pending appealsin the CACGEC I and CACGEC II proceedings, the Nation could be unable toconduct any Class III gaming upon lands acquired by the Nation pursuant tothe Seneca Nation Land Claims Settlement Act of 1990 (“SNLCSA”), including theBuffalo Creek Territory.

 

**Item 2.**                                                           Management’s Discussion and Analysis ofFinancial Condition and Results of Operations

** **

You should read thefollowing discussion and analysis in conjunction with the sections titled“Financial Statements” and “Notes to Consolidated Financial Statements”included elsewhere in this Quarterly Report on Form 10-Q.  References below to years are to fiscal yearsof SGC unless otherwise noted. SGC’s fiscal year is from October 1 throughSeptember 30.

 

**Forward-Looking Statements**

 

When used in thisQuarterly Report on Form 10-Q, in other filings with the SEC, in our pressreleases or in our other public communications, the words “believe,”“estimate,” “anticipate,” “expect,” “contemplate,” “may,” “will” and similarexpressions are intended to identify forward-looking statements.  Statements looking forward in time areincluded in this Quarterly Report on Form 10-Q pursuant to the “safeharbor” provision of the Private Securities Litigation Reform Act of 1995.  Such statements are subject to certain risksand uncertainties, which could cause actual results to differ materially,including, but not limited to, the risk factors contained or referenced hereinand in our other reports filed with the SEC pursuant to the Securities ExchangeAct of 1934, as amended, including our 2008 Form 10-K.  Readers are cautioned not to place unduereliance on these forward-looking statements, which speak only as of theirrespective dates.  We undertake noobligation to update these forward-looking statements to reflect events orcircumstances occurring after their respective dates.

 

**Overview**

** **

SGC is wholly owned bythe Nation and chartered to develop, manage and direct all of the Nation’s Class IIIgaming operations on the Nation’s territories in Western New York. SGC waschartered by the Nation in August 2002. In August 2002, the Nation entered into the Compact with New YorkState that provides the Nation 

 

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with the right toestablish and operate three Class III gaming facilities in Western NewYork.  We currently operate three Class IIIgaming facilities in Western New York—Seneca Niagara Casino and Hotel, which is located in the City of Niagara Falls,New York (Niagara Territory) and operated by SNFGC, approximately 20 milesnorth of Buffalo, New York; Seneca Allegany Casino and Hotel, which is locatedin the City of Salamanca, New York (Allegany Territory) and operated by STGC,approximately 75 miles northeast of Erie, Pennsylvania; and Seneca BuffaloCreek Casino, which is located in the inner harbor district of Buffalo, NewYork (Buffalo Creek Territory) and operated by SEGC. Seneca Niagara Casino andHotel opened on December 31, 2002 (initially, as the Seneca NiagaraCasino).  Seneca Allegany Casino andHotel opened on May 1, 2004 (initially, as the Seneca AlleganyCasino).  Seneca Buffalo Creek Casinocommenced operations on July 3, 2007 in a temporary facility.  Our three casinos are located on land held inrestricted fee by the Nation, which, together with the rights under theCompact, allows us to conduct Class III gaming operations at theselocations in New York State and to operate the only casino gaming facilities inWestern New York State to offer both Class III slot machines and tablegames.

 

**ExecutiveSummary**

 

***Our Current Operations.*****    We currently operate three Class IIIgaming facilities:  Seneca Niagara Casinoand Hotel, in the City of Niagara Falls, New York (Niagara Territory),featuring over 147,000 square feet of gaming space, 4,095 slot machines, 102table games and 604 hotel rooms; Seneca Allegany Casino and Hotel, in the Cityof Salamanca, New York (Allegany Territory), featuring over 63,500 square feetof gaming space, 2,322 slot machines, 41 table games and 212 hotel rooms; andthe Seneca Buffalo Creek Casino (slots only temporary facility), in the City ofBuffalo, New York (Buffalo Creek Territory), featuring 244 slot machines.  See “Executive Summary — Seneca Buffalo CreekCasino,” “Part II. Item 1. — Legal Proceedings,” and “2008 Form 10-KItem 3. — Legal Proceedings” for information regarding the status of, andlitigation related to, our Seneca Buffalo Creek Casino.  Our operations also include dining,entertainment, retail and spa and salon services.  For the three months ended March 31,2009, approximately 92% of our net revenue was derived from our gamingactivities.

 

***Seneca Niagara Casino and Hotel****. *   Upon opening on December 31, 2002,Seneca Niagara Casino primarily relied on drive-in and bus patrons from theBuffalo, Niagara Falls, and Rochester areas in New York and secondarily fromErie, Pennsylvania, Ohio and other parts of New York.

 

In March 2006, SNFGC officially completed thephased opening of its luxury hotel expansion, which included a permanent147,000 square foot gaming facility (providing 35,000 square feet more gamingspace than the original 112,000 square feet), a 604 room luxury hotel with 118suites of various sizes, a full-service spa, salon, and fitness center, threefine dining restaurants (two additional) and a 24 hour casual restaurant, threenew retail stores, and a 25,200 square foot multi-purpose room and eventscenter.  The expansion of Seneca NiagaraCasino and Hotel, including the addition of our luxury hotel and otheramenities, has enabled us to attract higher-end patrons, increase length ofstay, and extend our geographic market penetration and appeal to a more diversedemographic base.

 

***Seneca Allegany Casino and Hotel****.*   Since opening on May 1, 2004, Seneca Allegany Casino and Hotel hasattracted patrons from the southern portion of Western New York, Erie andPittsburgh, Pennsylvania and Ohio.  As ofMarch 31, 2009, approximately 42% of the casino’s patron base is fromoutside of the State of New York.

 

In March 2007, weopened a 212-room resort hotel, including two fine dining restaurants, a24-hour casual restaurant and certain other amenities after officially openingthe new permanent gaming floor in December 2006.  In March 2008, we completed theconversion of the former approximate 120,000 square foot temporary casinostructure into an events center with a seating capacity for 2,200 people, alongwith additional administrative office space and amenities.  We believe the new resort hotel, permanentcasino and events center provide a first-class gaming experience for ourpatrons, helping to increase patrons’ length of stay and to maintain thecompetitive position of the facility in light of competition in Pennsylvania,consisting principally of Presque Isle Downs, a new gaming facility that openedin late February 2007 in Erie, Pennsylvania approximately 80 miles fromthe Seneca Allegany Casino and Hotel. Presque Isle Downs has approximately 2,000 slot machines and offersdining and entertainment options that include a steakhouse, a buffet and fourlounges, but it does not offer table games or lodging.

 

Construction on our nextphase of development at Seneca Allegany Casino and Hotel, which was planned toinclude an additional 200 room hotel tower, and up to 30,000 square feet ofadditional gaming space and related amenities, for a total estimated cost of upto $130 million, remains suspended for reasons including:  the continuing economic recession; inabilityto obtain construction financing at reasonable interest rates; and operatingand other demands on our available cash, such as our payments and distributionsto the Nation.  The Company continues toengage in strategic planning efforts relative to the recommencement ofconstruction activities at this location.

 

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***SenecaBuffalo Creek Casino****.    *On October 3, 2005, the Nationacquired approximately nine acres of land in the inner-harbor district ofBuffalo, New York.  On July 3, 2007,we began operating a temporary Class III gaming facility (approximately6,000 square feet) featuring 135 slot machines and a snack bar.  During the quarter ended March 31, 2008,the temporary facility was expanded to include an additional 109 slot machines.The current temporary facility is approximately 8,600 square feet, and features244 slot machines and a snack bar.

 

On October 3, 2007,we formally announced our plans for a permanent casino and hotel complex on theBuffalo Creek Territory having an estimated cost of $333 million, featuringapproximately 90,000 square feet of gaming space; 2,000 slot machines; 45 tablegames; a 22-story all suite hotel; four restaurants; a full-service spa andsalon; retail and other amenities; and a 2,200-space parking garage.

 

We suspended constructionon the permanent Seneca Buffalo Creek Casino and hotel in August 2008 forreasons including:  the continuingeconomic recession; inability to obtain construction financing at reasonableinterest rates; and operating and other demands on our available cash, such asour payments and distributions to the Nation. The Company continues to engage in strategic planning efforts relativeto the recommencement of construction activities at this location.

 

Our ability to continue to operate the Seneca BuffaloCreek Casino temporary facility, our ability to complete construction of thepermanent facility, as well as the timing of the construction and opening ofthe permanent Seneca Buffalo Creek Casino, will depend on various factors,including existing legal challenges and the availability of financing onacceptable terms.  Reference is made toour 2008 Form 10-K and to our Quarterly Report on Form 10-Q for thequarter ended December 31, 2008, for a description of the legalproceedings relating to the Seneca Buffalo Creek Casino.  See also “Part II. Item 1 - LegalProceedings” for additional developments

 

***Seneca Hickory Stick Golf Club —Lewiston, New York****.  *In March 2006, we acquired 257 acresof land with the intent to design and build a championship level golf course inLewiston, New York, approximately eight miles from Seneca Niagara Casino andHotel.  We selected the Robert Trent Jones II firm to design the golfcourse.  Construction of the golf course commenced in July 2007, withcompletion of construction scheduled for Summer 2009.  To allow for proper grow-in of the course, itis anticipated that the official opening of the course will occur in Spring2010.  The decision as to when to openthe golf course for play will depend upon how well the course maturesthroughout the 2009 growing season.  Thetotal cost to construct the golf course, clubhouse and related amenities isestimated to be approximately $25.5 million.

 

***Key Performance Indicators.*****   Our operating results are dependent on the volume of patrons at ourcasinos, our ability to attract them for repeat visits and our ability toincrease patron revenue per trip.

 

***Marketing.****    *We use an integrated marketing strategy to attract andretain our patrons and to brand the Seneca name.  We coordinate our marketing events tomaximize the quality and length of stay of patron visits and to minimizecompetition among our gaming facilities. The luxury hotel and related amenities at the Seneca Niagara Casino andHotel and the resort hotel and related amenities at Seneca Allegany Casino andHotel further enhance our marketing initiatives in the region, including areasof New York outside of the Niagara Falls and Salamanca areas, in Pennsylvania,Ohio, and Toronto, Canada and in areas outside the region including Michigan,Massachusetts, and Connecticut.

 

***Seasonality.***    We have generally observed seasonal increases in gaming activity duringthe spring and summer months and decreases in gaming activity during wintermonths associated with inclement weather.

 

***Overall Outlook****.*    SGC believes that it is the premier gaming operator in Western New YorkState and in the areas of Northern Pennsylvania and Ohio located within itsprimary and secondary markets. Since the December 31, 2002 opening of theSeneca Niagara Casino, SGC has invested significantly in the development,expansion and maintenance of its gaming facilities, including the completion ofthe hotel and gaming expansion projects at Seneca Niagara Casino and Hotel andSeneca Allegany Casino and Hotel, and the opening of the temporary casino onthe Seneca Buffalo Creek Territory.  Theseinvestments have enabled SGC to maintain its position as the premier gamingoperator in the region described above. To further that objective, and to provide for expanded opportunities inthe convention and tourism markets, a master planning process continues withrespect to the Niagara Falls, Allegany and Buffalo gaming and relatedfacilities. A principal goal is for the facilities to complement each other,offering diverse hotel, entertainment and gaming experiences for our guests.

 

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Although thecurrent economic recession and increased regional competition continue topresent operational challenges, we believe our operating results positivelyreflect our ongoing ability to respond and adapt to such conditions, and on theNation’s efforts to work with the Corporation to mitigate the impact of theseadverse developments.  We also continueto believe that, notwithstanding these challenges, the Western New York hotel,entertainment and gaming markets are underserved, and that the exclusivityprovided by the Compact will continue to present us with a unique opportunityto serve these markets.  The Corporationcontinues to engage in joint financing planning initiatives with its owner toassess the Corporation’s financial condition and its liquidity needs, and tohelp ensure that appropriate strategic plans are being developed andimplemented to meet the Corporation’s liquidity requirements and the ongoingchallenges presented by the current economic environment.  Managementintends to continue to work closely with the Nation to help ensure cashgenerated from operations, available cash and cash equivalents, short-terminvestments and cash available under Senior Secured Revolving Loan Agreementare sufficient to service our debt, satisfy our other financial obligations andcommitments and meet our working capital requirements for the remainder of thefiscal year.

 

***RecentDevelopments. ***Theongoing recession has continued to negatively impact our operating performanceand results, primarily due to reduced consumer discretionary spending, whichhas negatively impacted consumer spending on gaming and entertainment.  Over the past twelve months, we haveattempted to mitigate the effects of the economic recession throughimplementation of expense reduction measures and efforts to increaseoperational efficiencies.  In December 2008,we implemented a multifaceted plan to further reduce expenses, the primarycomponents of which were an approximate five percent workforce reduction,together with a wage freeze for all employees earning in excess of $70,000 peryear, voluntary salary reductions for senior management and suspension of ourbonus program which had historically been paid in December of eachyear.  While we have successfully reducedcertain expenses and increased certain operational efficiencies, we anticipatecontinuing to take measures to help preserve SGC’s financial condition,maintain adequate liquidity and position us for future growth and success, andendeavor to do so in a manner that will not compromise the quality or levels ofour offerings and services provided at each of our properties.

 

Followingdiscussions with the Nation, our payments and distributions to the Nation werereduced in an effort to enhance our liquidity position, provide cash forpriority maintenance capital expenditures and fund a reserve for potentialrepurchase or repayment of our senior debt. The measures resulting from the joint planning initiatives with theNation included principally, rescission of an earlier Council request for $20million relating to certain capital improvement projects of the Nation, areduction in monthly distributions to the Nation from the then-current level of$4 million per month to $3 million per month commencing in March 2009, thereturn of $5 million previously distributed to the Nation for the capitalimprovement projects described above (a portion of which has been, and theremainder of which will be, used as a credit against SGC’s monthly distributionobligations), and a $5 million reduction in rent for fiscal 2009 under theCorporation’s Head Leases.

 

On April 9, 2009, SGC paid $5.0 million on theSenior Secured Revolving Loan Agreement, reducing the outstanding principalbalance to $15 million and increasing the availability to $17.3 million.

 

**CriticalAccounting Policies and Estimates**

** **

There have been nochanges in critical accounting policies and estimates since the filing of our2008 Form 10-K.

 

**Reclassifications**

 

Certain prior yearamounts have been reclassified to conform to current year presentation.

 

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**OperatingResults - Three Months Ended March 31, 2009 Compared to the Three MonthsEnded March 31, 2008**

** **

*Summaryof Operating Results*

 

Asof March 31, 2009, we own and operate the Seneca Niagara Casino and Hotelin Niagara Falls, New York; the Seneca Allegany Casino and Hotel in Salamanca,New York; and the Seneca Buffalo Creek Casino in Buffalo, New York.  In addition, Lewiston Golf Course Corporationwas established to operate a golf course which is currently under constructionin Lewiston, New York.  All of ourrevenues are derived from the operations of our completed facilities.

 

Thefollowing table summarizes our results from operations by property:

 
| ** **                            | ** ** | **Three Months Ended**     | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|
| ** **                            | ** ** | **March 31,**                   | ** ** |
| ** **                            | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                            | ** ** | **(Dollars in Thousands)** | ** ** |
| Net revenues:                         | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Seneca Niagara Falls Casino and Hotel |       | $                                    | 93,954     |   | $ | 105,735 |   |
| Seneca Allegany Casino and Hotel      | ** ** | 35,692                               | ** ** | 38,019 | ** ** |
| Seneca Buffalo Creek Casino           |       | 10,392                               |       | 7,263 |   |
| Total                                 |       | $                                    | 140,038    |   | $ | 151,017 |   |
|                                  |       |                                 |       |   |   |
| Operating expenses:                   | ** ** |                                 | ** ** |   | ** ** |
| Seneca Niagara Falls Casino and Hotel |       | $                                    | 69,300     |   | $ | 72,948 |   |
| Seneca Allegany Casino and Hotel      |       | 35,322                               |       | 37,710 |   |
| Seneca Buffalo Creek Casino           |       | 7,410                                |       | 7,799 |   |
| Seneca Hickory Stick Golf Club        |       | 53                                   |       | — |   |
| Seneca Gaming Corporation             |       | 657                                  |       | 1,971 |   |
| Total                                 |       | $                                    | 112,742    |   | $ | 120,428 |   |
|                                  |       |                                 |       |   |   |
| Operating income (loss):              |       |                                 |       |   |   |
| Seneca Niagara Falls Casino and Hotel |       | $                                    | 24,654     |   | $ | 32,787 |   |
| Seneca Allegany Casino and Hotel      |       | 370                                  |       | 309 |   |
| Seneca Buffalo Creek Casino           |       | 2,982                                |       | (536 | ) |
| Seneca Hickory Stick Golf Club        |       | (53                                  | )          | — |   |
| Seneca Gaming Corporation             |       | (657                                 | )     | (1,971 | )  |
| Total                                 |       | $                                    | 27,296     |   | $ | 30,589 |   |

 

The most importantfactors or trends contributing to our operating performance during the threemonths ended March 31, 2009 and 2008 were:

 

Positive factors andtrends

 

                        ·                  The reduction of expenses attributable to implementation of operatinginitiatives, which included:  a   continued focus on hotel yield management;reduced food and beverage costs as a percentage of food and beverage revenue;repricing of our food and beverage products; initiatives to increase our cashpaying patrons; reduced marketing costs; and labor efficiencies achievedthrough active monitoring of scheduling activities and a reduction inworkforce;

 

                        ·                  The rescission of an earlier Council request for $20 million, areduction in monthly distributions to the Nation from the current level of $4million per month to $3 million per month commencing in March 2009, and areduction in Head Leases payments for Fiscal 2009 from $81 million to $76million;

 

                        ·                  The increase in the average daily number of slot machines at ourtemporary facility on the Buffalo Creek Territory in March 2008, andextension of hours of operation effective February 2009;

 

                        ·                  The opening of the Seneca Events Center at Seneca Allegany Casino andHotel in March 2008, resulting in increased entertainment offerings forour patrons;

 

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                        ·                  Our ability to enroll patrons in our cross-property Seneca LinkPlayer’s Card program, which continues to facilitate the use of effectivedirect mail and targeted marketing programs to establish patron loyalty to theSeneca brand at a profitable level; and

 

                        ·                  Our mix of slot machines, which we believe is superior to ourcompetition and includes the latest product offerings by leading slotmanufacturers.

 

Negative factors and trends

 

                        ·                  The effects of increased Head Lease payments to the Nation from $62million to $76 million, which have reduced our cash reserves and fundsavailable for construction, capital reinvestment and liquidity reserves;

 

                        ·                  The ongoing economic recession, which has reduced consumer spending andencouraged an apparent transition to gaming of logistical convenience;

 

                        ·                  Adverse credit market conditions which have reduced the availability,and increased the cost, of capital for expansion projects;

 

                        ·                  Limited maintenance capital investment in both our Niagara Falls andAllegany properties; and

 

                        ·                  Competition from Presque Isle Downs in Erie, Pennsylvania,approximately  80 miles from the SenecaAllegany Casino and Hotel and 120 miles from the Seneca Niagara Casino andHotel, and additional marketing by New York racinos which may be attributable,in part, to recent New York State legislation providing financial support formarketing to racinos.

 

*GrossRevenues*

 

Gross revenuesconsisted of the following:

 
| ** **                      | ** ** | **Three Months Ended**     | ** ** |
|---------------------------------|------------|--------------------------------------|------------|
| ** **                      | ** ** | **March 31,**                   | ** ** |
| ** **                      | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                      | ** ** | **(Dollars in Thousands)** | ** ** |
| Gaming                          |       | $                                    | 141,320    |   | $ | 154,366 |   |
| Food and beverage               |       | 14,231                               |       | 15,568 |   |
| Lodging                         |       | 5,577                                |       | 6,910 |   |
| Retail, entertainment and other |       | 5,825                                |       | 5,646 |   |
| Total                           |       | $                                    | 166,953    |   | $ | 182,490 |   |

 

The table belowsummarizes the percentage of gross revenues from each revenue source:

 
| ** **                      | ** ** | **Three Months Ended** | ** ** |
|---------------------------------|------------|----------------------------------|------------|
| ** **                      | ** ** | **March 31,**               | ** ** |
| ** **                      | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| Gaming                          |       | 84.7                             | %          | 84.6 | % |
| Food and beverage               |       | 8.5                              | %          | 8.5 | % |
| Lodging                         |       | 3.3                              | %          | 3.8 | % |
| Retail, entertainment and other |       | 3.5                              | %          | 3.1 | % |
| Total                           |       | 100.0                            | %          | 100.0 | % |
|                                 |            |                                  |            |  |  |  |

 

*GamingRevenue*

 

Our gaming revenue forthe three months ended March 31, 2009 decreased when compared to the sameperiod in the prior year, primarily due to the impact of adverse economicconditions which reduced consumer demand for gaming and entertainmentofferings.

 

Our net gaming revenue,net of promotional credits of $12.9 million and $14.4 million in the threemonths ended March 31, 2009 and 2008, respectively, decreased $11.5million, or 8%, when comparing these periods. During the 

 

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three months ended March 31,2009, Seneca Niagara Casino and Hotel’s net gaming revenue decreased $12.1million, or 12%; Seneca Allegany Casino and Hotel’s net gaming revenuedecreased $2.4 million, or 7%; and Seneca Buffalo Creek Casino’s net gamingrevenue increased $3.0 million, or 42% when comparing  these same periods.

 

The following tablepresents data related to slot revenues (in thousands, except where noted):

 
| ** **                                           | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                           | ** ** | **March 31,**               | ** ** |
| ** **                                           | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| Slot handle                                          |       | $                                | 1,520,560  |   | $ | 1,648,864 |   |
| Gross slot revenue                                   |       | $                                | 129,582    |   | $ | 141,304 |   |
| Net slot revenue                                     |       | $                                | 113,885    |   | $ | 122,691 |   |
| Weighted average number of slot machines (in  units) |       | 6,664                            |       | 6,680 |   |
| Gross slot hold percentage                           |       | 8.5                              | %          | 8.6 | % |
| Gross slot win per unit per day (in dollars)         |       | $                                | 216        |   | $ | 232 |   |

 

Net slot revenuedecreased $8.8 million, or 7%, when comparing the three months ended March 31,2009 to the three months ended March 31, 2008.

 

Slotpromotional credits, which are recorded in gross slot revenues and promotionalallowances, amounted to $8.5 million and $9.3 million at Seneca Niagara Casinoand Hotel during the three months ended March 31, 2009 and 2008,respectively, and $4.4 million and $5.1 million at Seneca Allegany Casino andHotel during the three months ended March 31, 2009 and 2008,respectively.  The decrease in slotpromotional credit play during the three months ended March 31, 2009 wasprimarily due to decreased slot play.

 

The following tablepresents data related to table game revenues (in thousands, except wherenoted):

 
| ** **                                               | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                               | ** ** | **March 31,**               | ** ** |
| ** **                                               | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| Table games drop                                         |       | $                                | 90,649     |   | $ | 102,845 |   |
| Net table games revenue                                  |       | $                                | 14,455     |   | $ | 17,132 |   |
| Weighted average number of table games (in units)        |       | 143                              |       | 142 |   |
| Table games hold percentage                              |       | 16.0                             | %          | 16.6 | % |
| Gross table games revenue per unit per day (in  dollars) |       | $                                | 1,130      |   | $ | 1,317 |   |

 

Net table games revenuedecreased $2.7 million, or 16%, when comparing the three months ended March 31,2009 to the three months ended March 31, 2008.  The decrease was principally due to thosefactors previously noted, as well as a decrease in the table games holdpercentage when comparing these same periods.

 

*Food andBeverage Revenue*

 

The following tablepresents data related to food and beverage revenue (in thousands, except wherenoted):

 
| ** **                 | ** ** | **Three Months Ended** | ** ** |
|----------------------------|------------|----------------------------------|------------|
| ** **                 | ** ** | **March 31,**               | ** ** |
| ** **                 | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| Covers                     |       | 956                              |       | 1,071 |   |
| Average check (in dollars) |       | $                                | 14.88      |   | $ | 14.54 |   |
|                            |            |                                  |            |  |  |  |  |

 

During the three monthsended March 31, 2009, our consolidated food and beverage revenue decreased$1.3 million, or 9% when compared to the same period in 2008, primarily due toa decrease in consumer spending, which resulted in a decrease in the number ofcovers, offset by an increase in the average revenue per check.  Seneca Niagara Casino and Hotel’s food andbeverage revenue accounted for $1.2 million of the decrease; Seneca AlleganyCasino and Hotel’s and food and beverage revenue accounted for $0.1 million ofthe decrease; and Seneca Buffalo Creek Casino’s food and beverage revenueapproximated revenue for the same quarter in the prior year.  During the three months ended March 31,2009 and 2008, 52% and 58%, respectively, of our food and beverage revenue werethe result of Seneca Link Player’s Card point redemptions.

 

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*LodgingRevenue*

 

The following tablepresents data related to lodging revenue:

 
| ** **                          | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **March 31,**               | ** ** |
| ** **                          | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| Occupied rooms                      |       | 68,946                           |       | 69,382 |   |
| Average daily room rate (ADR)       |       | $                                | 80.88      |   | $ | 99.60 |   |
| Occupancy rate                      |       |                             | 94.5       | % |   | 94.3 | % |
| Revenue per available room (REVPAR) |       | $                                | 76.44      |   | $ | 93.90 |   |

 

During the three monthsended March 31, 2009, our lodging revenue decreased by $1.3 million, or19%, when compared to the three months ended March 31, 2008, due to adecrease in average rate per occupied room. During the three months ended March 31, 2009, SGC implementedmarketing strategies and offered hotel room rates at discounted prices in aneffort to continue to stimulate casino patron visitation and encourage longertrip duration.  Seneca Niagara Casino andHotel’s lodging revenue accounted for $1.0 million of the decrease and SenecaAllegany Casino and Hotel’s lodging revenue accounted for $0.3 million of thedecrease.  During the three months ended March 31,2009 and 2008, 21% and 17%, respectively, of our lodging revenue wasattributable to cash payments by patrons (as compared to revenue attributableto patron complimentaries).

 

*Retail,Entertainment and Other Revenue*

 

During the three monthsended March 31, 2009, our retail, entertainment and other revenueincreased $0.2 million, or 3%, when compared to the same period in2008.  During the three months ended March 31,2009 and 2008, 77% and 78%, respectively, of our retail revenue, and 41% and45% of our entertainment revenue, respectively, was attributable to Seneca LinkPlayer’s Card point redemptions.

 

*PromotionalAllowances*

 

SGC operates a complimentary program in which food andbeverage, retail, entertainment, and other services are provided to patronsbased on points earned through the Seneca Link Player’s Card.  The retail value of these complimentary itemsis included in gross revenues and then deducted as promotional allowances toarrive at net revenues.

 

Theretail value of providing such promotional allowances was included in revenuesas follows:

 
| ** **                      | ** ** | **Three Months Ended**     | ** ** |
|---------------------------------|------------|--------------------------------------|------------|
| ** **                      | ** ** | **March 31,**                   | ** ** |
| ** **                      | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                      | ** ** | **(Dollars in Thousands)** | ** ** |
| Gaming                          |       | $                                    | 12,867     |   | $ | 14,429 |   |
| Food and beverage               |       | 7,605                                |       | 9,189 |   |
| Lodging                         |       | 4,225                                |       | 5,558 |   |
| Retail, entertainment and other |       | 2,216                                |       | 2,297 |   |
| Total                           |       | $                                    | 26,915     |   | $ | 31,473 |   |
|                                 |            |                                      |            |  |  |  |  |  |

 

Theestimated cost of providing such promotional allowances was as follows:

 
| ** **                      | ** ** | **Three Months Ended**     | ** ** |
|---------------------------------|------------|--------------------------------------|------------|
| ** **                      | ** ** | **March 31,**                   | ** ** |
| ** **                      | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                      | ** ** | **(Dollars in Thousands)** | ** ** |
| Food and beverage               |       | $                                    | 5,418      |   | $ | 6,898 |   |
| Lodging                         |       | 2,085                                |       | 2,822 |   |
| Retail, entertainment and other |       | 1,825                                |       | 2,295 |   |
| Total                           |       | $                                    | 9,328      |   | $ | 12,015 |   |
|                                 |            |                                      |            |  |  |  |  |  |

 

Promotional allowances as a percentage of gamingrevenue were 19.0% and 20.4% during the three months ended 

 

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March 31, 2009 and 2008, respectively.  Promotional allowances decreased $4.6million, or 14%, when comparing the three months ended March 31, 2009 tothe same period in 2008.

 

*DetailedOperating Expense Information*

 
| ** **                              | ** ** | **Three Months Ended**     | ** ** |
|-----------------------------------------|------------|--------------------------------------|------------|
| ** **                              | ** ** | **March 31,**                   | ** ** |
| ** **                              | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                              | ** ** | **(Dollars in Thousands)** | ** ** |
|                                    |       |                                 |       |   |   |
| Operating expenses:                     |       |                                 |       |   |   |
| Gaming                                  |       | $                                    | 36,424     |   | $ | 41,509 |   |
| Food and beverage                       |       | 10,697                               |       | 12,098 |   |
| Lodging                                 |       | 3,128                                |       | 3,279 |   |
| Retail, entertainment and other         |       | 3,467                                |       | 3,814 |   |
| Advertising, general and administrative |       | 46,365                               |       | 47,310 |   |
| Pre-opening costs                       |       | 78                                   |       | 131 |   |
| Depreciation                            |       | 12,583                               |       | 12,287 |   |
| Total Operating expenses                |       | $                                    | 112,742    |   | $ | 120,428 |   |

 

*GamingExpenses*

 

Gaming expensesprincipally consist of costs incurred from operating our table games and slotmachines, of which the primary components are payroll and payroll related costsand the slot exclusivity fee paid to New York State pursuant to the Compact.

 

The following tablesummarizes the exclusivity fee incurred by property:

 
| ** **                            | ** ** | **Three Months Ended**     | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|
| ** **                            | ** ** | **March 31,**                   | ** ** |
| ** **                            | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                            | ** ** | **(Dollars in Thousands)** | ** ** |
| Seneca Niagara Falls Casino and Hotel |       | $                                    | 16,625     |   | $ | 19,087 |   |
| Seneca Allegany Casino and Hotel      |       | 6,593                                |       | 7,110 |   |
| Seneca Buffalo Creek Casino           |       | 2,243                                |       | 1,575 |   |
| Total                                 |       | $                                    | 25,461     |   | $ | 27,772 |   |
|                                       |            |                                      |            |  |  |  |  |  |

 

The slot exclusivity feedecreased $2.3 million from $27.8 million for the three months ended March 31,2008 to $25.5 million for the three months ended March 31, 2009, due tolower net slot revenues.  Gaming expensesas a percentage of gross gaming revenues were 25.8% and 26.9% for the threemonths ended March 31, 2009 and 2008, respectively.

 

*Food andBeverage Expenses*

 

Food and beverageexpenses represent those costs incurred for the operation of our restaurants,snack bars and beverage outlets.  Theprimary components of these expenses are the cost of food and beverage productsand payroll and payroll related expenses for team members providing theservice.  During the three months ended March 31,2009, food and beverage costs decreased $1.4 million, or 12%, when compared tothe same period in 2008, due primarily to a concerted effort to reduce allcomponents of such costs, while maintaining superior product offerings to ourpatrons.  Food and beverage expenses as apercentage of food and beverage revenues were 75.2% and 77.7% for the threemonths ended March 31, 2009 and 2008, respectively.

 

*LodgingExpenses*

 

Lodging expensesrepresent those costs incurred for the operation of our luxury hotel at SenecaNiagara Casino and Hotel and our resort hotel at Seneca Allegany Casino andHotel.  The components of these expensesinclude payroll and payroll related expenses, guest amenity supplies, laundryand other expenses.  During the threemonths ended March 31, 2009, lodging expenses decreased $0.2 million, or5%, as compared to the three month period ended March 31, 2008.  The decrease is primarily due to a $0.1million decrease in payroll and benefit expenses and a $0.1 

 

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million decrease inlaundry expense.  Lodging expenses as apercentage of lodging revenues were 56.1% and 47.5% for the three months ended March 31,2009 and 2008, respectively.

 

*Retail,Entertainment and Other Expenses*

 

Retail, entertainment andother expenses primarily represent those costs incurred for the operation ofour retail shops and spas, and our entertainment offerings.  The components of these expenses includepayroll and payroll related costs, the purchase of products offered for sale inour retail outlets and contract costs for entertainers.  For the three months ended March 31,2009, these costs decreased approximately $0.3 million, or 9%, over thecomparable 2008 period, due principally to a $0.7 million decrease in headlineentertainment costs, offset by a $0.1 million increase in payroll and benefitexpenses and a $0.1 million increase in bank fees.  Retail, entertainment and other expenses as apercentage of retail, entertainment and other revenues were 59.5% and 67.6%,for the three months ended March 31, 2009 and 2008, respectively.

 

*Advertising,General and Administrative Expenses*

 

Advertising, general andadministrative expenses consist primarily of payroll and payroll relatedexpenses, regulatory fees, advertising and marketing costs, Head Lease expense,insurance, legal and utility costs.  Forthe three months ended March 31, 2009, such costs decreased $0.9 million,or 2%, from the same period in 2008.  Forthe three months ended March 31, 2009, a $2.3 million increase in HeadLease expense over the comparative period in 2008, was offset by a $1.5 milliondecrease in promotional expenses, a $1.2 million decrease in advertising costsand a $0.5 million decrease in special event costs. Advertising, general andadministrative expenses as a percentage of gross revenues were 27.8% and 25.9%,for the three months ended March 31, 2009 and 2008, respectively.

 

*Pre-openingExpenses*

 

Pre-opening expenses arenon-recurring costs incurred to support the expected opening of newfacilities.  During the three monthsended March 31, 2009, pre-opening expenses incurred were primarily relatedto the preparation of the Seneca Hickory Stick Golf Club, to be operated by theLewiston Golf Course Corporation.  Duringthe three months ended March 31, 2008, pre-opening expenses consisted ofcosts related to the opening of the Seneca Events Center at Seneca AlleganyCasino and Hotel in March 2008.

 

*DepreciationExpense*

 

During the three monthsended March 31, 2009 and 2008, depreciation expense was $12.6 million and$12.3 million, respectively, an increase of $0.3 million, or 2%.

 

*OtherNon-Operating Expenses*

 

Thefollowing table summarizes information related to other non-operating expenses:

 
| ** **             | ** ** | **Three Months Ended**     | ** ** |
|------------------------|------------|--------------------------------------|------------|
| ** **             | ** ** | **March 31,**                   | ** ** |
| ** **             | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **             | ** ** | **(Dollars in Thousands)** | ** ** |
|                   |       |                                 |       |   |   |
| Non-operating expenses |       | $                                    | (50        | ) | $ | (150 | ) |
|                        |            |                                      |            |  |  |  |  |

 

During the three monthsended March 31,2009 and 2008, we recorded an other-than-temporary loss on one specificinvestment of $0.1 million and $0.2 million, respectively, as othernon-operating expense. The cost basis of this investment has been reduced bythe amount of the other-than-temporary loss recorded.

 

*Interest Income*

 

Interest income was $0.1 million for the three monthsended March 31, 2009, compared to $0.4 million for the three months ended March 31,2008.  The decrease in interest incomecan be attributed to the decrease in the average cash balance on deposit withfinancial institutions in interest bearing accounts when comparing theseperiods.

 

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*Interest Expense*

 

The following tablesummarizes information related to interest on our long-term debt and SeniorSecured Revolving Loan Agreement:

 
| ** **       | ** ** | **Three Months Ended**     | ** ** |
|------------------|------------|--------------------------------------|------------|
| ** **       | ** ** | **March 31,**                   | ** ** |
| ** **       | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **       | ** ** | **(Dollars in Thousands)** | ** ** |
|             |       |                                 |       |   |   |
| Interest expense |       | $                                    | 9,674      |   | $ | 9,872 |   |
|                  |            |                                      |            |  |  |  |  |

 

During the three monthsended March 31, 2009, interest expense consisted substantially of intereston our $500 million aggregate principal amount of 71⁄4% senior notes, including$0.8 million of amortization related to financing costs and discount, which waspartially offset by $0.4 million of capitalized interest on our constructionactivities for our Seneca Hickory Stick Golf Club.  During the three months ended March 31,2008, there was no interest capitalized in conjunction with our constructionactivities.

 

*Net Income*

 

Netincome for the three months ended March 31, 2009 was $17.6 million,compared to $20.9 million for the three months ended March 31, 2008, adecrease of $3.3 million, or 16%, for the reasons stated above.

 

**OperatingResults - Six Months Ended March 31, 2009 Compared to the Six Months EndedMarch 31, 2008**

** **

*Summaryof Operating Results*

 

Thefollowing table summarizes our results from operations by property:

 
| ** **                            | ** ** | **Six Months Ended**       | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|
| ** **                            | ** ** | **March 31,**                   | ** ** |
| ** **                            | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                            | ** ** | **(Dollars in Thousands)** | ** ** |
| Net revenues:                         | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Seneca Niagara Falls Casino and Hotel |       | $                                    | 188,260    |   | $ | 210,180 |   |
| Seneca Allegany Casino and Hotel      | ** ** | 71,272                               | ** ** | 77,082 | ** ** |
| Seneca Buffalo Creek Casino           | ** ** | 19,225                               | ** ** | 13,956 | ** ** |
| Total                                 |       | $                                    | 278,757    |   | $ | 301,218 |   |
|                                  |       |                                 |       |   |   |
| Operating expenses:                   |       |                                 |       |   |   |
| Seneca Niagara Falls Casino and Hotel |       | $                                    | 141,437    |   | $ | 151,747 |   |
| Seneca Allegany Casino and Hotel      |       | 72,381                               |       | 76,767 |   |
| Seneca Buffalo Creek Casino           |       | 15,323                               |       | 14,573 |   |
| Seneca Hickory Stick Golf Club        |       | 102                                  |       | — |   |
| Seneca Gaming Corporation             |       | 1,086                                |       | 2,259 |   |
| Total                                 |       | $                                    | 230,329    |   | $ | 245,346 |   |
|                                  |       |                                 |       |   |   |
| Operating income (loss):              |       |                                 |       |   |   |
| Seneca Niagara Falls Casino and Hotel |       | $                                    | 46,823     |   | $ | 58,433 |   |
| Seneca Allegany Casino and Hotel      |       | (1,109                               | )          | 315 |   |
| Seneca Buffalo Creek Casino           |       | 3,902                                |       | (617 | ) |
| Seneca Hickory Stick Golf Club        |       | (102                                 | )          | — |   |
| Seneca Gaming Corporation:            |       | (1,086                               | )          | (2,259 | ) |
| Total                                 |       | $                                    | 48,428     |   | $ | 55,872 |   |

 

The most importantfactors or trends contributing to our operating performance during the sixmonths ended March 31, 2009 and 2008 were similar to those noted above forthe three month periods ended March 31, 2009 and 2008.

 

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*GrossRevenues*

 

Gross revenuesconsisted of the following:

 
| ** **                      | ** ** | **Six Months Ended**       | ** ** |
|---------------------------------|------------|--------------------------------------|------------|
| ** **                      | ** ** | **March 31,**                   | ** ** |
| ** **                      | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                      | ** ** | **(Dollars in Thousands)** | ** ** |
| Gaming                          |       | $                                    | 278,343    |   | $ | 304,446 |   |
| Food and beverage               |       | 28,435                               |       | 30,382 |   |
| Lodging                         |       | 11,872                               |       | 14,224 |   |
| Retail, entertainment and other |       | 12,266                               |       | 12,317 |   |
|     Total        |       | $                                    | 330,916    |   | $ | 361,369 |   |

 

The table belowsummarizes the percentage of gross revenues from each revenue source:

 
| ** **                      | ** ** | **Six Months Ended** | ** ** |
|---------------------------------|------------|--------------------------------|------------|
| ** **                      | ** ** | **March 31,**             | ** ** |
| ** **                      | ** ** | **2009**                       | ** ** | **2008** | ** ** |
| Gaming                          |       | 84.1                           | %          | 84.3 | % |
| Food and beverage               |       | 8.6                            | %          | 8.4 | % |
| Lodging                         |       | 3.6                            | %          | 3.9 | % |
| Retail, entertainment and other |       | 3.7                            | %          | 3.4 | % |
|     Total        |       | 100.0                          | %          | 100.0 | % |
|                                 |            |                                |            |  |  |  |

 

*GamingRevenue*

 

Our gaming revenue forthe six months ended March 31, 2009 decreased when compared to the sameperiod in the prior year, primarily due to the impact of adverse economicconditions which reduced consumer demand for gaming and entertainmentofferings.

 

Our net gaming revenue,net of promotional credits of $22.9 million and $26.5 million in the six monthsended March 31, 2009 and 2008, respectively, decreased $22.5 million, or8%, when comparing these periods.  Duringthe six months ended March 31, 2009, Seneca Niagara Casino and Hotel’s netgaming revenue decreased $21.9 million, or 11%; Seneca Allegany Casino and Hotel’snet gaming revenue decreased $5.6 million, or 8%; and Seneca Buffalo CreekCasino’s net gaming revenue increased $5.1 million, or 37% when comparing  these same periods.

 

The following tablepresents data related to slot revenues (in thousands, except where noted):

 
| ** **                                           | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                           | ** ** | **March 31,**             | ** ** |
| ** **                                           | ** ** | **2009**                       | ** ** | **2008** | ** ** |
| Slot handle                                          |       | $                              | 2,992,796  |   | $ | 3,245,653 |   |
| Gross slot revenue                                   |       | $                              | 254,445    |   | $ | 277,063 |   |
| Net slot revenue                                     |       | $                              | 225,461    |   | $ | 242,221 |   |
| Weighted average number of slot machines (in  units) |       | 6,672                          |       | 6,677 |   |
| Gross slot hold percentage                           |       | 8.5                            | %          | 8.5 | % |
| Gross slot win per unit per day (in dollars)         |       | $                              | 210        |   | $ | 227 |   |

 

Net slot revenuedecreased $16.8 million, or 7%, when comparing the six months ended March 31,2009 to the six months ended March 31, 2008.

 

Slotpromotional credits, which are recorded in gross slot revenues and promotionalallowances, amounted to $16.3 million and $15.9 million at Seneca NiagaraCasino and Hotel during the six months ended March 31, 2009 and 2008,respectively, and $6.6 million and $10.6 million at Seneca Allegany Casino andHotel during the six months ended March 31, 2009 and 2008,respectively.  The decrease in slotpromotional credit play during the six months ended March 31, 2009 wasprimarily due to decreased slot play.

 

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The following tablepresents data related to table game revenues (in thousands, except wherenoted):

 
| ** **                                               | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                               | ** ** | **March 31,**             | ** ** |
| ** **                                               | ** ** | **2009**                       | ** ** | **2008** | ** ** |
| Table games drop                                         |       | $                              | 183,004    |   | $ | 213,826 |   |
| Net table games revenue                                  |       | $                              | 29,753     |   | $ | 35,457 |   |
| Weighted average number of table games (in units)        |       | 143                            |       | 142 |   |
| Table games hold percentage                              |       | 16.3                           | %          | 16.6 | % |
| Gross table games revenue per unit per day (in  dollars) |       | $                              | 1,152      |   | $ | 1,361 |   |

 

Net table games revenuedecreased $5.7 million, or 16%, when comparing the six months ended March 31,2009 to the six months ended March 31, 2008.  The decrease was due to those factors previouslynoted, as well as a decrease in the table games hold percentage when comparingthese same periods.

 

*Food andBeverage Revenue*

 

The following tablepresents data related to food and beverage revenue (in thousands, except wherenoted):

 
| ** **                 | ** ** | **Six Months Ended** | ** ** |
|----------------------------|------------|--------------------------------|------------|
| ** **                 | ** ** | **March 31,**             | ** ** |
| ** **                 | ** ** | **2009**                       | ** ** | **2008** | ** ** |
| Covers                     |       | 1,891                          |       | 2,098 |   |
| Average check (in dollars) |       | $                              | 15.04      |   | $ | 14.48 |   |
|                            |            |                                |            |  |  |  |  |

 

During the six monthsended March 31, 2009, our consolidated food and beverage revenue decreased$1.9 million, or 6% when compared to the same period in 2008, due primarily tothe decrease in consumer spending, which resulted in a decrease in the numberof covers, offset by an increase in the average revenue per check.  Seneca Niagara Casino and Hotel’s food andbeverage revenue accounted for $1.8 million of the decrease; Seneca AlleganyCasino and Hotel’s food and beverage revenue accounted for $0.2 million of thedecrease; and Seneca Buffalo Creek Casino’s food and beverage revenue increased$0.1 million over the same quarter in the prior year.  During the six months ended March 31,2009 and 2008, 52% and 56%, respectively, of our food and beverage revenue werethe result of Seneca Link Player’s Card point redemptions.

 

*LodgingRevenue*

 

The following tablepresents data related to lodging revenue:

 
| ** **                          | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------|------------|--------------------------------|------------|
| ** **                          | ** ** | **March 31,**             | ** ** |
| ** **                          | ** ** | **2009**                       | ** ** | **2008** | ** ** |
| Occupied rooms                      |       | 137,041                        |       | 136,769 |   |
| Average daily room rate (ADR)       |       | $                              | 86.63      |   | $ | 104.00 |   |
| Occupancy rate                      |       |                           | 93.6       | % | 92.4 | % |
| Revenue per available room (REVPAR) |       | $                              | 81.11      |   | $ | 96.14 |   |

 

During the six monthsended March 31, 2009, our lodging revenue decreased by $2.4 million, or17%, when compared to the six months ended March 31, 2008, due to adecrease in average rate per occupied room. During the six months ended March 31, 2009, SGC implementedmarketing strategies and offered hotel room rates at discounted prices in aneffort to continue to stimulate casino patron visitation and encourage longertrip duration.  Seneca Niagara Casino andHotel’s lodging revenue accounted for $1.8 million of the decrease and SenecaAllegany Casino and Hotel’s lodging revenue accounted for $0.6 million of thedecrease.  During the six months ended March 31,2009 and 2008, 24% and 21%, respectively, of our lodging revenue wasattributable to cash payments by patrons (as compared to revenue attributableto patron complimentaries).

 

*Retail,Entertainment and Other Revenue*

 

During the six monthsended March 31, 2009, our retail, entertainment and other revenuedecreased $0.1 million, or 1%, when compared to the same period in2008.  During the six months ended March 31,2009 and 2008, 80% and 75%, respectively, of our retail revenue, and 50% and50% of our entertainment revenue, respectively, was attributable to Seneca LinkPlayer’s Card point redemptions.

 

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*PromotionalAllowances*

 

SGC operates a complimentary program in which food andbeverage, retail, entertainment, and other services are provided to patronsbased on points earned through the Seneca Link Player’s Card.  The retail value of these complimentary itemsis included in gross revenues and then deducted as promotional allowances toarrive at net revenues.

 

Theretail value of providing such promotional allowances was included in revenuesas follows:

 
| ** **                      | ** ** | **Six Months Ended**       | ** ** |
|---------------------------------|------------|--------------------------------------|------------|
| ** **                      | ** ** | **March 31,**                   | ** ** |
| ** **                      | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                      | ** ** | **(Dollars in Thousands)** | ** ** |
| Gaming                          |       | $                                    | 22,904     |   | $ | 26,545 |   |
| Food and beverage               |       | 15,266                               |       | 17,345 |   |
| Lodging                         |       | 8,736                                |       | 10,935 |   |
| Retail, entertainment and other |       | 5,253                                |       | 5,326 |   |
|     Total        |       | $                                    | 52,159     |   | $ | 60,151 |   |
|                                 |            |                                      |            |  |  |  |  |  |

 

Theestimated cost of providing such promotional allowances was as follows:

 
| ** **                      | ** ** | **Six Months Ended**       | ** ** |
|---------------------------------|------------|--------------------------------------|------------|
| ** **                      | ** ** | **March 31,**                   | ** ** |
| ** **                      | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                      | ** ** | **(Dollars in Thousands)** | ** ** |
| Food and beverage               |       | $                                    | 11,198     |   | $ | 13,813 |   |
| Lodging                         |       | 4,877                                |       | 5,413 |   |
| Retail, entertainment and other |       | 4,375                                |       | 5,000 |   |
|     Total        |       | $                                    | 20,450     |   | $ | 24,226 |   |
|                                 |            |                                      |            |  |  |  |  |  |

 

Promotional allowances as a percentage of gamingrevenue were 18.7% and 19.8% during the six months ended March 31, 2009and 2008, respectively.  Promotionalallowances decreased $8.0 million, or 13%, when comparing the six months ended March 31,2009 to the same period in 2008.

 

*DetailedOperating Expense Information*

 
| ** **                              | ** ** | **Six Months Ended**       | ** ** |
|-----------------------------------------|------------|--------------------------------------|------------|
| ** **                              | ** ** | **March 31,**                   | ** ** |
| ** **                              | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                              | ** ** | **(Dollars in Thousands)** | ** ** |
|                                    |       |                                 |       |   |   |
| Operating expenses:                     |       |                                 |       |   |   |
| Gaming                                  |       | $                                    | 73,650     |   | $ | 82,947 |   |
| Food and beverage                       |       | 21,904                               |       | 24,715 |   |
| Lodging                                 |       | 6,159                                |       | 6,526 |   |
| Retail, entertainment and other         |       | 7,445                                |       | 8,173 |   |
| Advertising, general and administrative |       | 95,865                               |       | 96,832 |   |
| Pre-opening costs                       |       | 136                                  |       | 224 |   |
| Depreciation                            |       | 25,170                               |       | 25,929 |   |
| Total Operating expenses                |       | $                                    | 230,329    |   | $ | 245,346 |   |

 

*GamingExpenses*

 

Gaming expensesprincipally consist of costs incurred from operating our table games and slotmachines, of which the primary components are payroll and payroll related costsand the slot exclusivity fee paid to New York State pursuant to the Compact.

 

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The following tablesummarizes the exclusivity fee incurred by property:

 
| ** **                            | ** ** | **Six Months Ended**       | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|
| ** **                            | ** ** | **March 31,**                   | ** ** |
| ** **                            | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                            | ** ** | **(Dollars in Thousands)** | ** ** |
| Seneca Niagara Falls Casino and Hotel |       | $                                    | 33,197     |   | $ | 37,562 |   |
| Seneca Allegany Casino and Hotel      |       | 13,192                               |       | 14,295 |   |
| Seneca Buffalo Creek Casino           |       | 4,153                                |       | 3,027 |   |
|     Total              |       | $                                    | 50,542     |   | $ | 54,884 |   |
|                                       |            |                                      |            |  |  |  |  |  |

 

The slot exclusivity feedecreased $4.4 million from $54.9 million for the six months ended March 31,2008 to $50.5 million for the six months ended March 31, 2009, due tolower net slot revenues.  Gaming expensesas a percentage of gross gaming revenues were 26.5% and 27.2% for the sixmonths ended March 31, 2009 and 2008, respectively.

 

*Food andBeverage Expenses*

 

Food and beverageexpenses represent those costs incurred for the operation of our restaurants,snack bars and beverage outlets.  Theprimary components of these expenses are the cost of food and beverage productsand payroll and payroll related expenses for team members providing theservice.  During the six months ended March 31,2009, food and beverage costs decreased $2.8 million, or 11%, when compared tothe same period in 2008, due primarily to a concerted effort to reduce allcomponents of such costs, while maintaining superior product offerings to ourpatrons.  Food and beverage expenses as apercentage of food and beverage revenues were 77.0% and 81.3% for the sixmonths ended March 31, 2009 and 2008, respectively.

 

*LodgingExpenses*

 

Lodging expensesrepresent those costs incurred for the operation of our luxury hotel and spa atSeneca Niagara Casino and Hotel and our resort hotel and spa at Seneca AlleganyCasino and Hotel.  The components ofthese expenses include payroll and payroll related expenses, guest amenitysupplies, laundry and other expenses. During the six months ended March 31, 2009, lodging expensesdecreased $0.4 million, or 6%, as compared to the six month period ended March 31,2008.  The decrease is primarily due to a$0.3 million decrease in payroll and benefit expenses.  Lodging expenses as a percentage of lodgingrevenues were 51.9% and 45.9% for the six months ended March 31, 2009 and2008, respectively.

 

*Retail,Entertainment and Other Expenses*

 

Retail, entertainment andother expenses primarily represent those costs incurred for the operation ofour retail shops and spas, and our entertainment offerings.  The components of these expenses includepayroll and payroll related costs, the purchase of products offered for sale inour retail outlets and spas and contract costs for entertainers.  For the six months ended March 31, 2009,these costs decreased approximately $0.7 million, or 9%, over the comparable2008 period, due principally to a $0.5 million decrease in retail cost of salesand a decrease of $0.6 million in headline entertainment costs, offset by a$0.1 million increase in bank fees. Retail, entertainment and other expenses as a percentage of retail,entertainment and other revenues were 60.7% and 66.4%, for the six months endedMarch 31, 2009 and 2008, respectively.

 

*Advertising,General and Administrative Expenses*

 

Advertising, general andadministrative expenses consist primarily of payroll and payroll relatedexpenses, regulatory fees, advertising and marketing costs, Head Lease expense,insurance, legal and utility costs.  Forthe six months ended March 31, 2009, such costs decreased $1.0 million, or1%, from the same period in 2008.  Forthe six months ended March 31, 2009, Head Lease expense increased $7.0million over the comparative period in 2008, and payroll and benefits increased$2.2 million, due primarily to a reassessment of an accrual for certainemployee benefit costs which resulted in a reduction of such expenses of $2.3million during the six months ended March 31, 2008.  These increases were primarily offset by a$2.3 million decrease in advertising costs, a $1.7 million decrease in specialevent costs, a $1.4 million decrease in promotional expenses, a $0.7 milliondecrease in utility costs, a $0.5 million decrease in transportation costs, anda $0.2 million decrease in insurance costs. Furthermore, during the six months ended March 31, 2008, a writeoff of $1.1 million was recognized related to external development costsassociated with Seneca Massachusetts Gaming Corporation.  Advertising, general and administrativeexpenses as a percentage of gross revenues were 29.0% and 26.8%, for the sixmonths ended March 31, 2009 and 2008, respectively.

 

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*Pre-openingExpenses*

 

Pre-opening expenses arenon-recurring costs incurred to support the expected opening of newfacilities.  During the six months ended March 31,2009, pre-opening expenses incurred were primarily related to the constructionand  preparation of the Seneca HickoryStick Golf Club, to be operated by the Lewiston Golf Course Corporation.  During the six months ended March 31,2009, pre-opening expenses decreased when compared to the same period in 2008due to the opening of the Seneca Events Center at Seneca Allegany Casino andHotel in March 2008.

 

*DepreciationExpense*

 

During the six monthsended March 31, 2009 and 2008, depreciation expense was $25.2 million and$25.9 million, respectively, a decrease of $0.7 million, or 3%.

 

*OtherNon-Operating Expenses*

 

Thefollowing table summarizes information related to other non-operating expenses:

 
| ** **             | ** ** | **Six Months Ended**       | ** ** |
|------------------------|------------|--------------------------------------|------------|
| ** **             | ** ** | **March 31,**                   | ** ** |
| ** **             | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **             | ** ** | **(Dollars in Thousands)** | ** ** |
|                   |       |                                 |       |   |   |
| Non-operating expenses |       | $                                    | (163)      |   | $ | (3,900) |   |
|                        |            |                                      |            |  |  |  |  |

 

During the six months ended March 31, 2009 and 2008, werecorded an other-than-temporary loss on one specific investment of $0.2million and $3.9 million, respectively, as other non-operating expense. Thecost basis of this investment has been reduced by the amount of theother-than-temporary loss recorded.

 

*Interest Income*

 

Interest income was $0.1 million for the six monthsended March 31, 2009, compared to $1.1 million for the six months ended March 31,2008.  The decrease in interest incomecan be attributed to the decrease in the average cash balance on deposit withfinancial institutions in interest bearing accounts when comparing theseperiods.

 

*Interest Expense*

 

The following tablesummarizes information related to interest on our long-term debt and SeniorSecured Revolving Loan Agreement:

 
| ** **       | ** ** | **Six Months Ended**       | ** ** |
|------------------|------------|--------------------------------------|------------|
| ** **       | ** ** | **March 31,**                   | ** ** |
| ** **       | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **       | ** ** | **(Dollars in Thousands)** | ** ** |
|             |       |                                 |       |   |   |
| Interest expense |       | $                                    | 19,277     |   | $ | 19,743 |   |
|                  |            |                                      |            |  |  |  |  |

 

During the six monthsended March 31, 2009, interest expense consisted primarily of interest onour $500 million aggregate principal amount of 71⁄4% senior notes, including $1.6million of amortization related to financing costs and discount, which waspartially offset by $0.7 million of capitalized interest on our constructionactivities for our Seneca Hickory Stick Golf Club.  During the six months ended March 31,2008, there was no interest capitalized in conjunction with our constructionactivities.

 

*Net Income*

 

Netincome for the six months ended March 31, 2009 was $29.1 million, comparedto $33.4 million for the six months ended March 31, 2008, a decrease of$4.3 million, or 13%, primarily for the reasons stated above.

 

**Liquidityand Capital Resources**

 

As previouslydiscussed, the Corporation’s senior management continues to monitor, and reviewwith the Corporation’s Board of Directors and its owner, the Seneca Nation ofIndians, the Corporation’s financial condition 

 

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and liquidityneeds, to help ensure appropriate strategic plans are developed and implementedto meet ongoing economic challenges and to address the ongoing liquidityrequirements of the Corporation.

 

In addition, we intend towork closely with the Corporation’s owner to help ensure cash generated fromour operations, available cash and cash equivalents, short-term investments andcash available under our Senior Secured Revolving Loan Agreement are sufficientto service our debt, satisfy our other financial obligations and commitmentsand to meet our working capital requirements for the remainder of the currentfiscal year.

 

Our ability to fund ouroperations, make planned capital expenditures, service our debt and satisfy ourother financial obligations and commitments depends on our future operatingperformance and cash flow, which are in turn subject to prevailing economicconditions and to financial, business and other factors, some of which arebeyond our control.  Additionally, unliketraditional corporations, we are prohibited by law from obtaining capitalthrough an offering of equity securities and our ability to incur additionalindebtedness is limited under the terms of the Indenture governing the seniornotes, the Distribution Agreement and the Senior Secured Revolving LoanAgreement.  Reference is made to ourAnnual Report on Form 10-K for the year ended September 30, 2008 fora description of certain risk factors discussing SGC’s ability to generate cashflow to complete its expansion projects.

 

We are leveraged, havesignificant interest payment requirements under the Senior Notes Indenture andhave repayment obligations under the Senior Secured Revolving Loan Agreementwhich matures in June 2009 (unless extended by us for six months), inaddition to distribution obligations under the Distribution Agreement and othercommitments from time to time to the Nation. We make distributions to theNation pursuant to declarations by our Board of Directors.  During the six months ended March 31,2009 we distributed $26.2 million to the Nation pursuant to suchdeclarations.  We distributed anadditional $7.0 million to the Nation during the six months ended March 31,2009 pursuant to the Distribution Agreement. As such, limitations on our capital resources could force us to delay orabandon capital projects as well as the construction and development ofproposed expansion projects.

 

*CashFlows*

 
| ** **                                             | ** ** | **Six Months Ended**       | ** ** |
|--------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                             | ** ** | **March 31,**                   | ** ** |
| ** **                                             | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| ** **                                             | ** ** | **(Dollars in Thousands)** | ** ** |
| ** **                                             | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Net cash provided by operations                        |       | $                                    | 59,814     |   | $ | 65,288 |   |
|                                                   |       |                                 |       |   |   |
| Cash flows relating to investing activities            |       |                                 |       |   |   |
| Purchases of property and equipment                    |       | (33,786                              | )          | (58,237 | ) |
| Land acquisition costs                                 |       | (482                                 | )          | (3,706 | ) |
| Deposits to restricted cash                            |       | —                               |       | (2,074 | )  |
| Sale of investments, net                               |       | —                               |       | 14,600 |   |
| Net cash used in investing activities                  |       | (34,268                              | )          | (49,417 | ) |
|                                                   |       |                                 |       |   |   |
| Cash flows relating to financing activities            |       |                                 |       |   |   |
| Proceeds from senior secured revolving loan  agreement |       | 20,000                               |       | — |   |
| Distributions paid to the Nation                       |       | (33,239                              | )          | (33,905 | ) |
| Net cash used in financing activities                  |       | (13,239                              | )          | (33,905 | ) |
|                                                   |       |                                 |       |   |   |
| Net increase (decrease) in cash and cash  equivalents  |       | $                                    | 12,307     |   | $ | (18,034 | ) |
|                                                        |            |                                      |            |  |  |  |  |  |

 

*CashFlows—Operating Activities*

 

The $5.5 million decreasein cash flows from operations during the six months ended March 31, 2009as compared to the six months ended March 31, 2008 was primarily due to a$4.3 million decrease in net income, as previously described, a decrease in another than temporary loss in investment of $3.8 million, and a $1.9 millionincrease in cash paid for current assets, offset by a decrease in net cash paidfor current liabilities of $4.8 million.

 

*CashFlows—Investing Activities*

 

During the six monthsended March 31, 2009, cash flows used in investing activities wereapproximately $34.3 million, compared to $49.4 million during the six monthsended March 31, 2008.  The decreaseof $15.1 million was due to:  a decreasein proceeds from the sale of investments of $14.6 million; offset by a $2.1million reduction in 

 

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deposits to restrictedcash; a decrease in cash paid for property and equipment of $24.4 million; anda decrease in cash paid for land acquisition of $3.2 million.

 

During the six monthsended March 31, 2009, capital expenditures were $33.8 million andconsisted of:  $14.0 million relating tothe construction of the permanent Seneca Buffalo Creek Casino and Hotel on theNation’s Buffalo Creek Territory;  $5.6million associated with pre-construction costs relating to the additional hoteltower at the Seneca Allegany Casino and Hotel; $3.3 million relating toconstruction of the Seneca Hickory Stick Golf Club; and $1.0 million for theconversion of the temporary gaming facility at Seneca Allegany Casino and Hotelinto an events center, with related amenities. The remaining $9.9 million in capital expenditures were principally forthe acquisition of equipment for existing casino operations.  Our land acquisitions of $0.5 million includelegal expenses and other acquisition costs related to certain parcelswithin the 50 acre “footprint” described in the Compact with New York State anddesignated for ownership by the Nation.

 

*CashFlows—Financing Activities*

 

During the six months ended March 31, 2009, net cash used infinancing activities was $13.2 million, compared to $33.9 million during thesix months ended March 31, 2008, a decrease of $20.7 million.  The decrease was due to a decrease indistributions paid to the Nation of $0.7 million and by proceeds from ourSenior Secured Revolving Loan Agreement of $20.0 million.

 

During the sixmonths ended March 31, 2009, distributions to the Nation amounted to $33.2million, compared to $33.9 million during the six months ended March 31,2008.  Cash distributions were $26.2million and payments pursuant to the Distribution Agreement were $7.0 million.

 

*PrincipalDebt Arrangements*

 

As of March 31, 2009,our debt instruments and facilities consisted of the 2004 and 2005 senior noteson which we pay a fixed interest rate of 71⁄4%, and a $50.0 million SeniorSecured Revolving Loan Agreement, which matures on June 19, 2009 (with anoption to extend for six months). Following is a summary of certain material terms of the senior notes andthe Senior Secured Revolving Loan Agreement.

 

The Senior Notes.  On May 5, 2004 and May 23, 2005, SGC issued $300.0 million and$200.0 million, respectively, in senior notes with fixed interest payable at arate of 71⁄4% per annum due 2012, which we refer to collectively as the SeniorNotes, under the Indenture.  The SeniorNotes are currently guaranteed by SNFGC, STGC, SEGC, and LGCC.  Interest on the Senior Notes is payable semi-annuallyon May 1 and November 1.  TheSenior Notes mature on May 1, 2012. The Senior Notes are unsecured general obligations.  As of March 31, 2009, accrued intereston the Senior Notes was $15.1 million. As of March 31, 2009, SGC was in compliance with all covenants inthe Indenture.

 

Senior Secured RevolvingLoan Agreement.  Effective June 19, 2008, SGC enteredinto a $50.0 million Senior Secured Revolving Loan Agreement, which matures on June 19,2009.  The maturity date may be extendedby SGC at its election (at any time after the six month anniversary of theclosing date and prior to June 19, 2009) for an additional period of sixmonths, provided that no default or event of default exists at the time ofelection.  Amounts borrowed under the Senior Secured Revolving LoanAgreement bear interest at either one, three or six-month LIBOR plus one andone quarter percent (1.25%), or the prime rate (as reported in *The Wall Street Journal*) plus one quarterpercent (0.25%).  Any outstandingprincipal balance is required to be paid on the maturity date.

 

SGC’s obligations underthe Senior Secured Revolving Loan Agreement are secured by substantially allgaming and related assets (including substantially all gaming revenues) notconstituting real property or improvements.  SGC’s obligations areguaranteed by SNFGC, STGC, SEGC and LGCC.  The guarantors’ obligations aresecured by substantially all of each guarantor’s gaming and related assets(including substantially all gaming revenues) not constituting real property orimprovements.

 

TheSenior Secured Revolving Loan Agreement contains certain financial covenantsrequiring minimum consolidated EBITDA of $160 million (on a rolling 12 monthbasis) and compliance with certain leverage and coverage ratios. The SeniorSecured Revolving Loan Agreement also contains additional customary covenants,including covenants restricting the incurrence of additional indebtedness, thecreation of additional liens, and the disposition of assets. As of March 31,2009, SGC was in compliance with all covenants in the Senior Secured RevolvingLoan Agreement.

 

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As of March 31, 2009, at SGC’s request, thelender under the Senior Secured Revolving Loan Agreement had issued letters ofcredit totaling $17.7 million, $11.2 million of which may be drawn upon to fundthe purchase of certain parcels within the 50 acre “footprint” described in theCompact with New York State and designated for ownership by the Nation, withthe remaining $6.5 million issued in connection with worker’s compensationpolicies and certain other contracts, as required.

 

On October 29, 2008 SGC borrowed $20.0 millionunder the Senior Secured Revolving Loan Agreement.  As of March 31, 2009, $12.3 million wasavailable to be drawn under the loan agreement.  On April 9, 2009, SGC paid $5 million onthe Senior Secured Revolving Loan Agreement, reducing the outstanding principalbalance to $15 million and increasing the availability to $17.3 million.

 

Effective June 19, 2008, SGC’s securedreimbursement facilities were terminated and all outstanding letters of creditunder such facilities were assumed as outstanding letters of credit under theSenior Secured Revolving Loan Agreement.

 

*DistributionAgreement Obligations*

 

On April 27,2007, SGC entered into a Distribution Agreement among the Nation, the SenecaNation of Indians Capital Improvements Authority, or the Authority, SGC andWells Fargo Bank, as Trustee, in connection with the Authority’s issuance intwo series (one tax exempt and the other taxable) of an aggregate principalamount of $159,495,000 special obligation bonds, or the 2007 Nation Bonds.  The Distribution Agreement obligates SGC,subject to any contractual restrictions applicable to SGC (including, but notlimited to, those contained in the Senior Notes Indenture) to make monthlydistributions to the Nation at the times and in the amounts necessary to enablethe Authority to pay the debt service on the 2007 Nation Bonds as requiredunder the Authority’s indenture.  At thedirection of the Nation and the Authority, SGC pays such distributions directlyto the Trustee.  The Authority’s debtservice commenced on June 1, 2007. For the period from June 1, 2007 through November 1, 2007, theAuthority’s debt service averaged approximately $0.9 million permonth.  For the period December 1,2007 through June 1, 2008, the Authority’s debt service averagedapproximately $1.7 million per month.  InJune 2008, it was determined that the amortization (debt service) scheduleprovided, upon which the foregoing $1.7 million monthly payments was made, wasincorrect.  A corrected amortizationschedule was provided and, after giving effect to a resulting credit foramounts overpaid, for the period from January 1, 2008 through December 1,2023, the Authority’s debt service averages approximately $1.2 million permonth.  The foregoing debt serviceaverages are based on scheduled payments of interest and principal under theAuthority’s indenture and bonds and do not address the effects of any earliercall for redemption, by acceleration or otherwise.  The Distribution Agreement provides thatneither the Trustee nor the Authority’s bondholders will have any recourseunder the Distribution Agreement to any revenues, assets or property of SGC orits subsidiaries should SGC fail to comply with our distributionobligations.  During the six months endedMarch 31, 2009 and 2008, SGC distributed to the Nation $7.0 million and$9.7 million, respectively, for the Authority’s debt service on the specialobligation bonds.

 

Referenceis made to the Senior Notes Indenture, the Senior Secured Revolving LoanAgreement and the Distribution Agreement for an understanding of all terms ofsuch financing arrangements.

 

*OtherCommitments*

 

Wehave acquired approximately 45 acres in the City of Niagara Falls, New York,designated by New York State under the Compact for ownership by the Nation, andintend to acquire approximately three additional acres. Under the Compact, theNation is required to fund the acquisition of this property, including all relatedcosts and expenses. As initial security for the Nation’s obligations to paysite acquisition costs and in furtherance of the ongoing condemnationproceeding, the Nation was required to, and did, deliver, to the Empire StateDevelopment Corporation, or ESDC, a letter of credit in the amount of $33.5million representing 150% of the then estimate of the total remaining siteacquisition costs not yet paid by the Nation. In July 2006, we acquired, through the condemnation process,approximately 18 acres of land and trade fixtures appurtenant thereto fromFallsite, LLC, or Fallsite and Fallsville, LLC, or Fallsville, for an aggregateinitial advance payment of $17.0 million, which land is a portion of the landin the City of Niagara Falls, New York designated under the Compact forownership by the Nation. Of this amount, $7.7 million was drawn on the letterof credit as part of the consideration for the purchase, leaving $25.8 millionavailable under the letter of credit.  InMarch 2007, an additional $11.5 million was drawn under the letter ofcredit to fund the acquisition of 18 additional parcels of land and certainimprovements.  In December 2007, anadditional $3.0 million was drawn under the letter of credit to fund theacquisition of seven additional parcels of land owned by the City of NiagaraFalls.  In connection with the closing ofthe Senior Secured Revolving Loan Agreement, at SGC’s request, the lenderissued letters of credit totaling $17.7 million, $11.2 million 

 

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ofwhich could be drawn upon as of March 31, 2009 to fund the purchase of theremaining parcels within the “footprint” described in the Compact.  If the estimate of such site acquisitioncosts increases or if certain other events occur, the Nation may have toprovide an additional letter of credit or replace the existing one with one fora larger monetary amount or, if acceptable to the ESDC, provide a supplementalcash escrow amount.  Unreimbursed amountson the letter of credit may result in automatic draw-downs under the SeniorSecured Revolving Loan Agreement.

 

The amounts paid tocondemnees from whom we have acquired property are deemed to be advancepayments. Pursuant to the New York State Eminent Domain Procedure Law, or EDPL,the New York state courts will determine the final purchase price to be paid tocondemnees who elect to challenge the initial appraised value of their property.  To date, all record owners from whom propertywas condemned pursuant to the EDPL have reserved rights to claim additionalcompensation.  Four record owners havefiled notices of claim to challenge the fair market value appraisals utilizedby ESDC.  Fallsite LLC and FallsvilleSplash, LLC have filed notices of claim in the amounts of $40.0 and $35.0million for land and trade fixtures, respectively, relating to a former waterpark within the footprint.  ESDC’s fair marketappraisal value for the foregoing was approximately $17.0 million.  Intertrust Development has filed a notice ofclaim for $15.8 million for land and trade fixtures associated with a formerHoliday Inn hotel within the footprint. ESDC’s fair market appraisal value forthe foregoing was $8.2 million (excluding fixtures).  Additionally, JFD Holdings has filed a noticeof claim for an unspecified amount for land and trade fixtures associated witha former Pizza Hut restaurant within the footprint.  ESDC’s fair market appraisal for the foregoingwas approximately $0.4 million.  Thevaluation trial proceedings with regard to the former water park are completewith a decision expected in May 2009. We are finalizing a settlement with regard to the former Holiday Innproperty, which has been approved by both the SGC Board of Directors and theNation’s Council.

 

If acourt determines that the value for the land and improvements, including tradefixtures, is higher than what ESDC has determined to be their appraised values,then we may be liable for the difference and potentially also responsible forcertain additional costs and payments to the applicable condemnee(s), such astheir attorney fees.  As of March 31,2009, we have established a reserve in the amount of $6.4 million for suchmatters, which is included as a component of other current liabilities on SGC’sconsolidated balance sheet.

 

*Expansionand Development Plans*

 

Duringthe next 12 months, due to liquidity concerns, ongoing demands on ourcash, and the state of the capital markets, it is unlikely that we will makesubstantial capital investments in our gaming facilities from cash onhand.  We will rely significantly onexternal financing to complete our expansion projects if and when resumed,which may not be available to us, or, if available, may not be on favorableterms, or terms as favorable as those under our existing indebtedness.

 

*Seneca Allegany Casino and Hotel*

 

In March 2008,we completed the conversion of the former temporary casino facility at SenecaAllegany Casino and Hotel, at a cost of approximately $29.3 million(approximately $4 million under budget), into an approximate 2,200 seat eventcenter with additional amenities and administrative space.  The exterior landscaping and façade enhancements,originally planned as part of the conversion of the temporary casino, have beendeferred to the next phase of construction.

 

Thenext phase of construction, originally planned for an additional 200 room hoteland 30,000 square feet of additional gaming and related amenities, remains suspendedfor reasons including:  the continuingeconomic recession; inability to obtain construction financing on acceptableterms; and operating and other demands on our available cash, such as ourpayments and distributions to the Nation. The Company continues to engage in strategic planning efforts relativeto the recommencement of construction activities at this location.  As of March 31, 2009, the Company hasincurred $17.8 million related to this phase of construction.

 

*Seneca Buffalo Creek Casino*

 

In March 2008, the Company completed a 109 slotmachine expansion (for a total of 244 slot machines) of the temporary SenecaBuffalo Creek Casino.  Construction of the permanent Seneca Buffalo CreekCasino and Hotel commenced in January 2008, with completion originallyestimated for Summer 2010.  The permanent complex was originally plannedto feature 90,000 square feet of gaming space with 2,000 slot machines, 45table games and a 22-story all suite hotel with approximately 206 rooms.  In August  2008, we suspendedconstruction due to various factors, including challenging economic and capitalmarket conditions, operating and other demands on our 

 

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available cash and increased competition andconstruction costs.  We intend to resumeconstruction upon the stabilization of economic and capital market conditions,and assuming sufficient external financing upon acceptable terms becomesavailable.  As of March 31, 2009,the Company has incurred $87.2 million on the construction of the permanentcasino and hotel.     See “Executive Summary — Seneca BuffaloCreek Casino,” “Part II. Item 1. — Legal Proceedings,” and “2008 Form 10-KItem 3. — Legal Proceedings” for information regarding the status of, andlitigation related to, our Seneca Buffalo Creek Casino.

 

*Seneca Hickory Stick Golf Club*

 

InJuly 2007, the Company commenced construction of the Seneca Hickory StickGolf Club, an 18-hole Robert Trent Jones II designed golf course, located inLewiston, New York, approximately eight miles from the Seneca Niagara Casinoand Hotel.  Construction of the course isexpected to be complete in Summer 2009, but to allow for proper grow-in of thecourse, it is anticipated that the official opening of the course will occur inSpring 2010.  As of March 31, 2009,the Company has incurred $18.5 million on land acquisition and constructioncosts, with the total cost to construct the golf course, clubhouse and relatedamenities estimated to be approximately $25.5 million.

 

**Regulation**

 

Ouroperations are regulated by Nation laws, the Compact and federal statutes, mostnotably the Indian Gaming Regulatory Act, or IGRA.  Several bills were proposed during pastsessions of Congress that would have affected Indian gaming but were notenacted into law.  While bills may beintroduced that are relevant to Indian gaming in the 111th Congress,leaders from the committees that have jurisdiction over the IGRA have not madeany indications that gaming regulation will be an agenda item for the 111th Congress.  Moreover, the new administration has yet toappoint new members to the NIGC thus it remains unclear whether theadministration will pursue legislative initiatives related to the topic ofIndian gaming.

 

TheDepartment of the Interior published final regulations effective August 25,2008 governing the conduct of gaming on lands taken into trust after October 17,1988.  The regulations on their face donot purport to impair the ability of the Nation and SGC to expand its gamingoperations.  Future gaming legislation orcourt decisions construing the new regulations could adversely impact expansionof SGC gaming operations and the future growth of the Nation’s revenue base. Inaddition, from time to time, various government officials have proposed taxingIndian casino gaming or otherwise limiting or restricting the conduct of gamingoperations by Indian tribes. No assurance can be given that such legislation, ifand when enacted by Congress, would not have a material adverse effect on theoperations of SGC. If Congress were to enact comprehensive amendments to theIGRA, such legislation could have a material adverse effect on the operationsof SGC. In addition, under federal law, gaming on the Nation’s lands may bedependent upon the permissibility under New York law of certain forms of gamingor similar activities. If New York State were to make various forms of gamingillegal or against public policy (or the courts were to similarly rule), orotherwise to take a legal position adverse to SGC, such actions could have amaterial adverse effect on our ability to conduct our gaming operations ascurrently conducted. Moreover, a 1996 U.S. Supreme Court decision may permit astate to avoid or refuse to negotiate amendments to existing compacts such asthe Compact.

 

**New Accounting Pronouncements**

** **

Thereare no accounting standards that have not yet been adopted which are expectedto have a material impact on our financial reporting.

 

**Item3.**          Quantitative and Qualitative DisclosuresAbout Market Risk

** **

Referenceis made to our 2008 Annual Report on Form 10-K for a complete discussionof our market risk.

 

On June 19,2008, we entered into the Senior Secured Revolving Loan Agreement that exposesSGC to interest rate risk in that amounts borrowed under the Senior Secured Revolving Loan Agreementwill bear interest at either one, three or six-month LIBOR plus one and onequarter percent (1.25%), or the prime rate (as reported in *The Wall Street Journal*) plus one quarterpercent (0.25%).  As of March 31, 2009, we have drawn down$20.0 million on the Senior Secured Revolving Loan Agreement. On April 9,2009, we paid $5 million on the Senior Secured Revolving Loan Agreement, reducingthe outstanding principal balance to $15 million.   See “Item 2. Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Principal DebtArrangements” for further information relating to the Senior Secured RevolvingLoan Agreement.

 

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Since our senior notes are fixed-rate indebtedness,and our obligations under the Distribution Agreement are based upon fixed-rateindebtedness of the Authority, we believe that our overall exposure to marketrisk in the form of interest rate fluctuations is low.

 

**Item4T.          Controls andProcedures**

** **

**Evaluationof Disclosure Controls and Procedures**

 

Wemaintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act)that are designed to ensure that information required to be disclosed in ourExchange Act reports is recorded, processed, summarized and reported within thetime periods specified in the SEC’s rules and forms, and that suchinformation is accumulated and communicated to our management, including ourprincipal executive officer and principal financial officer, as appropriate, toallow timely decisions regarding required disclosure.  In designing and evaluating the disclosurecontrols and procedures, management recognized that any controls andprocedures, no matter how well designed and operated, have inherent limitationsdue to cost issues, the possibility of human error, judgments and assumptionsregarding the likelihood of future events, and the circumvention and overridingof the controls and procedures.  Accordingly, even effective disclosure of controls and procedures canprovide only reasonable assurance of achieving the desired control objectives.

 

SGC’smanagement, under the supervision of our principal executive officer, and withthe participation of our principal executive officer and our principalfinancial officer, has evaluated the effectiveness of the design and operationof our disclosure controls and procedures. Based on that evaluation, our principal executive officer and principalfinancial officer have concluded that the design and operation of ourdisclosure controls and procedures as of March 31, 2009 providedreasonable assurance that the disclosure controls and procedures are effectiveto accomplish their objectives.

 

**Changes in Internal Control over Financial Reporting**

** **

Therehave been no change in our internal control over financial reporting identifiedin connection with the evaluation required by Exchange Act Rules 13a-15 or15d-15 or otherwise that occurred during the quarter ended March 31, 2009that has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

 

**Part II.     OTHER INFORMATION**

 

**Item 1.**            Legal Proceedings

** **

***Citizens Against Casino Gambling in Erie County v.Hogen (1:2009-cv-00291 (WDNY)) — CACGEC III***

 

OnMarch 31, 2009 , Citizens Against Casino Gambling in Erie County  (CACGEC) filed a third action in the UnitedStates District Court, Western District of New York against the Chairman of theNational Indian Gaming Commission, or NIGC, the United States Department ofInterior, the NIGC, the Secretary of the Interior and the President of theUnited States.  The action seeksdeclaratory and injunctive relief under the Administrative Procedure Act, theDeclaratory Judgments Act, and the Indian Regulatory Gaming Act and isprincipally directed at the decision by the NIGC Chairman, on January 20,2009, to approve the Seneca Nation’s amendments to its Class III GamingOrdinance regarding the Nation’s Buffalo Creek Territory.  The NIGC Chairman concluded that IGRA’sgeneral prohibition against gaming on lands acquired after its enactment in1988 does not apply to lands, such as the Buffalo Creek Territory, that areheld in restricted fee.   The plaintiffsclaim that, in approving the Nation’s Class III Gaming ordinance on January 20,2009, the NIGC Chairman ignored the intention of Congress.  The plaintiffs also make several claims thatgo beyond their prior lawsuits.  Mostnotably, they challenge the constitutionality of the land purchase provisionscontained in the Seneca Nation Settlement Act (“SNSA”), and attempt tochallenge in a more extensive fashion than they had previously the validity ofthe Nation-State Gaming Compact.

 

Ifthe plaintiffs ultimately succeed in this action, or in their pending appealsin the CACGEC I and CACGEC II proceedings, the Nation could be unable toconduct any Class III gaming upon lands acquired by the Nation pursuant tothe Seneca Nation Land Claims Settlement Act of 1990 (“SNLCSA”), including theBuffalo Creek Territory.

 

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**Item 1A.**                                                  Risk Factors

** **

There are no materialchanges from the risk factors previously disclosed in our Annual Report on Form 10-Kfor the fiscal year ended September 30, 2008, except as disclosed in this Form 10-Q,including without limitation, the risk factors relating to our Seneca BuffaloCreek Casino set forth in “Item 2 — Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” — “Executive Summary — BuffaloCreek Casino” and those relating to our expansion and development projects setforth in “Item 2 — Management’s Discussion and Analysis of Financial Conditionand Results of Operations” — Liquidity and Capital Resources”.

 

**Item 2.**                                                           Unregistered Sales of Equity Securitiesand Use of Proceeds

** **

Notapplicable.

 

**Item 3.**                                                           Defaults Upon Senior Securities

** **

Notapplicable.

 

**Item 4.**                                                           Submission of Matters to a Vote ofSecurity Holders

** **

Notapplicable.

 

**Item 5.**                                                           Other Information

** **

Notapplicable.

 

**Item 6.****                                                          ****Exhibits**

 
| (a) |   | Exhibits (listed according to the number assigned in  the table in Item 601 of Regulation S-K): |
|-----|--------|-------------------------------------------------------------------------------------------------|

 
| Exhibit  No. | ** ** | **Description**                                                                                                                                                                                                                                                                                                                        |
|--------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |       |                                                                                                                                                                                                                                                                                                                                   |
| 10.1         |       | First Amendment to Amended and Restated Head Lease  Agreement between Seneca Niagara Falls Gaming Corporation and the Seneca  Nation of Indians effective as of October 1, 2008 (incorporated by  reference to Exhibit 10.1 to SGC’s Quarterly Report on Form 10-Q filed  with the SEC on February 17, 2009). |
|         |       |                                                                                                                                                                                                                                                                                                                                   |
| 10.2         |       | Second Amendment to Head Lease Agreement between  Seneca Territory Gaming Corporation and the Seneca Nation of Indians  effective as of October 1, 2008 (incorporated by reference to Exhibit 10.2  to SGC’s Quarterly Report on Form 10-Q filed with the SEC on February 17,  2009).                         |
|         |       |                                                                                                                                                                                                                                                                                                                                   |
| 10.3         |       | Second Amendment to Head Lease Agreement between  Seneca Erie Gaming Corporation and the Seneca Nation of Indians effective as  of October 1, 2008 (incorporated by reference to Exhibit 10.3 to  SGC’s Quarterly Report on Form 10-Q filed with the SEC on February 17,  2009).                              |
|         |       |                                                                                                                                                                                                                                                                                                                                   |
| 31.1         |       | Certification of Catherine Walker, principal  executive officer, pursuant to Rule 13a-14 and 15d-14 of the Securities  Exchange Act of 1934 (filed herewith).                                                                                                                                                                     |
|         |       |                                                                                                                                                                                                                                                                                                                                   |
| 31.2         |       | Certification of David Sheridan, principal financial  officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange  Act of 1934 (filed herewith).                                                                                                                                                                       |
|         |       |                                                                                                                                                                                                                                                                                                                                   |
| 32.1         |       | Certification of Catherine Walker, principal  executive officer and David Sheridan, principal financial officer, pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                |

 

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**SIGNATURES**

** **

**SENECA GAMING CORPORATION**

** **

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

Dated May 15, 2009

 
| /s/ Catherine Walker                         |   |
|----------------------------------------------|--------|
| Catherine Walker                             |   |
| Chief Operating Officer                      |   |
| (Principal Executive Officer)                |   |
|                                         |   |
|                                         |   |
| /s/  David  Sheridan                    |   |
| David Sheridan                               |   |
| Chief Financial Officer                      |   |
| (Principal Financial and Accounting Officer) |   |

 

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