Golden Entertainment Inc (GDEN) 2007 Q2 法說會逐字稿

Good morning. My name is Cynthia and I will be your conference operator today. At this time I would like to welcome everyone to the Lakes Entertainment second quarter fiscal 2007 earnings conference call. All lines have been placed on mute to prevent any background noise.

(OPERATOR INSTRUCTIONS).

I would now like to turn today's call over to Tim Cope, President and CFO of Lakes Entertainment. Please go ahead, Sir.

Thank you. Good morning, everyone. Thank you for joining today's conference call as we discuss Lakes Entertainment's second quarter 2007 financial results.

Here with me today is Lyle Berman, Lakes' Chairman of the Board and Chief Executive Officer.

As we begin our prepared remarks I would like to remind everyone this call may contain forward-looking statements within the meaning of the federal securities law including statements concerning business strategies and their intended results and similar statements concerning anticipated future events and expectations that are not historical facts. These forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements do not guarantee future performance and therefore undue reliance should not be placed upon them.

Lyle will begin our discussion today with an update on our casino projects. I will then discuss our second quarter financial results and any recent business expense. Lyle.

Good morning, everyone, and thank you for joining us today. As I review each casino project please remember that they are not in any order of significance or state of completion. Dates of construction and anticipated opening dates are subject to change.

I will begin with the Four Winds Casino resort which opened last Thursday, August 2. Situated on a beautiful landscape just off of I 94 at Michigan Exit 1, we believe that Four Winds sets a completely new standard for gaming in the Midwest.

The Four Winds Casino resort is the only land-based casino in the northern Indiana Western Michigan market. The casino includes approximately 3000 slot machines and 110 table games as well as restaurants, a hotel, retail shopping space and several other amenities. The opening weekend was a fantastic success as we operated at overflow capacities, averaging over 20,000 guests each day.

This remarkable project was completed on schedule and within budget. We are extremely pleased with the finished product and look forward to continuing to work together with the Pokagon Band as we manage this extraordinary casino resort.

The next project I will discuss is the Foothill Oaks Casino which is the development and management project with the Shingle Springs Band of Miwok Indians. Lakes has a seven-year management contract that has been approved by the National Indian Gaming Commission to develop and manage this casino, which is currently under construction on the Rancheria of the Shingle Springs Tribe in El Dorado County, California, approximately 35 miles east of Sacramento.

Construction is also underway on the Interchange which will (technical difficulties) Rancheria to Highway 50. The Shingle Springs Tribal Gaming Authority closed on a $450 million high yield debt offering on June 28, 2007, at the lowest comparative rate yet achieved by any such offering at 9 3/8%.

The Authority will need to obtain up to $85 million of furniture, fixtures and equipment financing. Once completed the facility will host a total of 2000 slot machines and gaming devices, 100 gaming tables, several food and beverage outlets, and approximately 3200 covered parking spaces. We anticipate an opening date in the fourth quarter of 2008 for this project.

Next I will discuss our project with the Jamul Indian Village. Lakes has an agreement for the development and financing of the casino resort operation with the Jamul Indian Village. The Jamul Tribe has a six-acre reservation on which the casinos plan to be built. Lakes also has also acquired approximately 100 acres of land, contiguous to the six acres of reservation land that could be used for the casino support facilities if the land is taken into trust.

The process of getting the land into trust has been slow and, therefore, the current plans are for the casino to be built on the existing six-acre reservation.

The current contact with the state of California and based upon requirements and other compacts approved by the State in 2004, the tribe completed a Tribal Environmental Impact Statement Report that was approved by the tribe's general council with a record of decision issued by the tribe on December 16, 2006. Since that time the Jamul Tribe has received comments from various state agencies including the representative from the California governor's office.

The tribe in the statement met on several occasions in an attempt to address the state's comments related to compact requirements. Resolving the state's comments and other issues concerning the existing compact and negotiating a new compact may take longer than is currently acceptable to the Jamul Tribe. Therefore Lakes and the Jamul Tribe have decided to move forward with the operating of a casino based solely on Class 2 electronic gaming devices and, accordingly, the size and scope of the gaming facility will decrease.

The agreement between Lakes and the Jamul Tribe is currently being modified to reflect the new economics of the revised casino planned, which will not require a compact and will not be subject to approval by the state or [Nigek].

Planning is underway to redesign the casino to provide for approximately 1000 Class 2 gaming devices along with Class 2 table games. The site has been cleared of all residents and all structures have been demolished and removed. Along with the tribe we are currently evaluating the plans to determine when construction will start and when the casino could begin. But we estimate construction to start in the first quarter of 2008 and be completed and opened in the first quarter of 2009.

Next I will discuss the current status of our agreements with the Pawnee Nation of Oklahoma. In January 2005 the Pawnee Business Council, which is the tribal government leadership of the Pawnee Nation, approved a tribal agreement ratifying consulting and management contracts between a Lakes subsidiary, the Pawnee Tribal Development Corp., and the Pawnee TDC Gaming subsidiaries comprised of the tribal entities that own and operate the tribal casino, relating to the existing trading post casino and two other proposed facilities, the Travel Plaza casino and the [Chilako] casino.

Subsequent to that time certain of our agreements have been disputed by the Pawnee Business Council. Lakes and the tribe are currently in discussions to resolve any past disputes and to potentially start Chilako casino development plans as well as possibly continue with the other Pawnee casino projects.

Lakes has advanced approximately $5 million to the Pawnee TDC related to these projects under the existing agreements. As a result of the dispute related to our agreements, we have decreased the carrying value of these notes receivable to zero on our financial statements.

We intend to work with the Pawnee TDC to resolve all of the financial terms of the contract including repayment of the advances. However there can be no assurance that we will receive any future payments related to these projects or that we will be repaid in full for our advances. We will continue to work with the Pawnee TDC and Business Council to reach a resolution.

Now I will discuss our projects with the Iowa tribe of Oklahoma. Lakes has signed a consulting and management agreement with the Iowa tribe to assist in the development, construction and management of two gaming facilities. The first one is the existing Cimmaron on facility which is located in Perkins, Oklahoma, approximately eight miles from Stillwater which we are currently managing. This casino has been renovated to increase gaming machines from 240 to 350. It also includes six electronic table games, new backup to the house spaces and a new snack bar.

We are very pleased to be working with the Iowa tribe on this project. Business is good, and we are very proud of this locally themed casino.

The second project with the Iowa tribe of Oklahoma is the development of a full-service casino and resort, which will be named the Ioway Casino on tribal land located on Route 66 -- midway between [Warwerk] and Chandler, Oklahoma, which is approximately 30 miles from downtown Oklahoma City.

The Iowa tribe has members that own a 74-acre allotment on U.S. Route 66 from whom the Iowa Tribe has acquired the rights to purchase and/or lease the land for the casino development. An additional 100 acres of fee land has been acquired to provide the necessary site for the project. The long-term plan is to acquire an additional 300 acres of non-trust land for the development of the majority of the nongaming facilities.

The Bureau of Indian Affairs must approve the transfer of the land to the tribe. To date, approximately 80% of the [Alatees] have transferred their land interest to the tribe with the BIA approval. The BIA must also approve the leasing of the additional acres of (inaudible) land to complete the site. This requires preparation of an environmental assessment for the proposed project and the issuance of a finding of no significant impact by the BIA.

The [EA] was completed and submitted to the BIA in March of 2007 for the issuance of a Fonzie which will allow approval of the leases. We continue to work with the tribe and the BIA to receive final approval for land leases.

The master plan and draft environmental assessment have been submitted to the BIA and NIGAC; once to prove the E. A. will pave the way for NIGAC approval of our management contract. The NIGAC has provided their final comments to the tribe on the contract; and subject to these revisions and the issuance of a Fonzie the NIGAC can approve the management contract.

The proposed development is planned to have approximately 1200 slot machines, 30 table games, four restaurants, a 150-room motel, a child care facility, parking and back of the house support facilities. Future development may include additional gaming, hotel rooms, meetings space, special events center, golf course and other market-driven amenities.

We anticipate construction to begin in early 2008 with an anticipated opening in early 2009.

The final project to discuss today is our own casino development plan in Vicksburg, Mississippi. Lakes has purchased land in Vicksburg just south of downtown and adjacent to the Mississippi River. Our current site has been approved for gaming by the Mississippi Gaming Commission. Once complete the casino's plan to house 1200 to 1500 slot machines, 46 table games, 12 poker tables, four restaurants, a 250-room hotel with meeting rooms, parking and a possible child care facility.

We currently anticipate construction to begin in the first quarter of 2009 with the first quarter of 2010 -- excuse me. We currently anticipate construction to begin in the first quarter of 2008 with a first quarter of 2009 opening.

With that I'll turn the call back over to Tim to provide an overview of recent business issues and financial results.

Thank you, Lyle.

Revenue for the second quarter of 2007 totaled $8.1 million compared to $11.2 million for the second quarter ended July 2, 2006. Earnings from operations were $1.6 million for the current year quarter compared to earnings from operations of $15.7 million for the prior year comparable period.

Net earnings available to common shareholders for the second quarter of 2007 were $6.6 million, and basic and diluted earnings available to common shareholders were $0.28 per share and $0.25 per share respectively. This compares with net earnings available to common shareholders of $3.2 million, and basic and diluted earnings available to common shareholders of $0.14 per share and $0.13 per share, respectively, in the second quarter of 2006.

During the second quarter of 2007 net earnings available to common shareholders were reduced by approximately $1.4 million resulting from a previously announced amendment to the exercise price of the common stock purchase warrant. As a result of the amendment, the warrantholder purchased the remaining shares underlying the warrant and paid the aggregate exercise price of approximately $7.5 million to Lakes.

Revenues for both years were derived primarily from television license fees related to the World Poker Tour television series of Lakes' majority-owned subsidiary, WPTE Enterprises Inc. The decrease in revenues during the second quarter of 2007 compared to the second quarter of 2006 was primarily a result of the delivery of nine episodes of the Professional Poker Tour television series in the second quarter of 2006 versus the delivery of no episodes of the PPT in the 2007 period and the delivery of nine episodes of Season 5 of the WPT television series in the second quarter of 2007, versus the delivery of 10 episodes of Season 5 of the WPT television series in the 2006 period.

During the second quarter of 2007, casino management fees were approximately $400,000, compared to casino management fees of approximately $200,000 in the second quarter of 2006.

Net realized and unrealized gains on notes receivable were $8.9 million and $17.6 million for the second quarter of 2007 and the second quarter of 2006, respectively. The net realized and unrealized gains of the second quarter of 2007 related to the Company's notes receivables from the Shingle Springs Tribe and the Jamul Tribe, which were adjusted to estimated fair value based upon the current status of the related tribal casino project.

The $8.9 million in unrealized gains recognized in the second quarter of 2007 were primarily related to favorable events occurring related to the casino project with the Shingle Springs Tribe, which increased the fair value of the notes receivable from that tribe. As I mentioned earlier the Shingle Springs Tribal Game and Authority closed on a $450 million single note financing to fund their Foothill Oaks casino project and the construction on the project began during a second quarter of 2007.

During the second quarter of 2006, the net realized and unrealized gains of $17.6 million related primarily to the increased fair value of the Company's notes receivable related to the casino development with the Pokagon Band, due primarily to favorable events occurring during that quarter.

Selling, general, and administrative expenses were $10 million during the second quarter of 2007, compared to $8.8 million in the second quarter of 2006. The increase primarily related to additional headcount and development costs associated with WPTE's online gaming efforts.

Included in costs and expenses for the second quarter of 2007 is a $2.3 million write off of online gaming assets which resulted from WPTE's season internal development of its previously planned stand-alone online gaming platform after entering into an agreement with CrypotoLogic in late April 2007, the relaunched WPTE's online gaming site CrypotoLogic Platform.

Other income for the second quarter of 2007 was $5.5 million, compared to other expense of $7.7 million for the second quarter of 2006. Immediately following the close of the financing for the project with the Shingle Springs Tribe, Lakes was repaid approximately $17.2 million by the Shingle Springs Tribe for land Lakes had previously purchased on their behalf and for certain construction advances and certain accrued interest.

As a result, Lakes recognized interest income of approximately $4.9 million during the second quarter of 2007.

Other expense during the second quarter of 2006 related primarily to a loss on extinguishment of debt of $6.8 million, related to the payoff of a financing facility during June of 2006.

The provision for income taxes was $300,000 for the second quarter of 2007 and $3.8 million for the second quarter of 2006. The provision in both quarters related primarily to previously announced audit matters.

In summary, we are very pleased with the progress we have made on all of our projects during the second quarter of 2007. The opening of the Four Winds Casino and the start of the construction of the Shingle Springs project are major steps forward for the tribes and for Lakes. We appreciate all of our tribal partners and associates and their dedication to making all of our projects successful.

With that I'll turn the call over to the operators for questions.

(OPERATOR INSTRUCTIONS). Chris Krueger with Northlands Securities.

Congratulations on the Four Winds opening. On that note for the Four Winds, can you -- I think I've asked this before, but now you'll start to generate revenues from that project. Just so we are clear on this, would you expect revenues to hit Lakes in the third quarter initially or the fourth quarter?

It would be partial in the third quarter and then a full quarter in the fourth quarter.

Okay. Looking at the SG&A expenses, can we assume soon going forward that generally for the Lakes Corp. business not including World Poker should we generally hold steady at that kind of the level we saw in the second quarter are something whereabouts? Hello?

Yes. That's about what they will be. We don't anticipate to any additional expenses for Lakes at this point in time. Might slightly vary, but pretty much it is what is at this point.

Did you have any CapEx in the quarter?

Not at the Lakes level, no.

Last question for the Jamul Casino, I missed the dates. Was it an estimated first quarter of '08 construction and an estimated opening of first quarter '09?

Yes.

Last on the Vicksburg project, to get that project -- to begin that project in the first quarter of '08 what kind of a finance would you need or do you have enough -- do you expect to have enough cash on hand to at least get it started? Or can you go over that a little bit?

The total project costs were in the $225 million, $230 million range and we would need approximately again this was an estimate by BoA a while back that we would need about $50 million of equity or (inaudible) plays like equity in order to do it and we believe that in the second, third quarter of this year once Shingle Springs is substantially under construction, it's highly likely that we can probably borrow the money if we choose to against that asset. We have no other debt in order to fund our share of the 50 -- our $50 million.

Matthew Farkas with Paradyne Capital.

My question was answered. Thank you. It was about regarding financing for Vicksburg.

James Kayler with Banc of America Securities.

This is Greg [Rezili] for James.

I just have a few questions for you on the Four Winds. As far as the final construction budget, do you have any idea how that ended up?

At this point in time we are below budget and of course we have I think the according to the bond indenture we have a six-month tail on that to wind things up and get final contracts completed. But at this point in time we are under budget.

Yes. As it stands now I guess as far as the inventure and the mandatory offer to repurchase, does it appear that you are going to have over $1 million left in that disbursement account?

We anticipate that at this time, but of course yet to be determined.

So do you have any idea of exactly how much or like (inaudible) like a ballpark?

No, again, we are just finalizing the contracts and sign off on everything first.

Sounds good. I know it's only been a week or so, but just initial idea as to how performance is (inaudible) traffic stats? Anything that you --?

We don't put out wind per unit at this time. Remember this is a travel owned casino and subject to what they put out. But crowds were immense. We did announce that the first three days that we had over 20,000 people which really is more people than we really can handle. Obviously that is a bump. We are waiting for this weekend now to see what will finally coming today and tomorrow and Sunday will be comps against last weekend and so we will get a chance to see what those are.

So I guess from the grand opening have things kind of tapered off? Or we are still at that 20,000 plus level?

No things have certainly been tapering off. If you remember you have a double whammy. First of you have grand opening but equally or even more important it was on the weekend. So it's early when we talk about Monday, Tuesday, Wednesday and Thursday you would certainly expect to taper off and then of course you see as normal a substantial increase on the weekends. So we are waiting to see what our first non opening weekend will be.

I guess if you can quantify the difference between (inaudible) weekend but how far did things taper off during the week? What kind of traffic did you see?

I think on the Monday, Tuesday it was about if I recall about three-quarters, 13 to 15.

Then I guess as far as your customer database that you were able to get going before and obviously after the opening as far as the customer mix in there, is it what you expected? Are we seeing (inaudible) coming from?

The customer, I don't have any reports on where they are coming from. The mix is clearly it's a very -- it's definitely a higher end casino than some of the other riverboats in that marketplace. We have been signing up for our database anywhere from, I think 4000 to 8000 people a day.

So we are very happy with the desire to sign up and although we have 22 stations that sign people up there's still sometimes many times a 15 to 20 minute wait. But that shows that obviously anybody signing up is certainly planning to return. So I think that's a very good sign.

I guess looking forward is there any expansions planned for the property as in master plan for anything in (multiple speakers)?

Clearly this is being master planned for a complete destination resort. It surely will have another 7 -- 600 to 800 rooms, golf course, shooting range, all the other things. Perhaps an indoor water park. We don't know yet but we are certainly -- we are just in our infancy getting ready. This is going to grow and grow and grow so it is going to be clearly the premier destination casino resort in the Midwest.

Excellent. That takes care of me. Congrats on your opening and I look forward to seeing the property.

Justin Sebastiano with Nollenberger Capital.

Quickly on the Vicksburg, I know people are asking questions on financing and you had mentioned that B of A did some work for you a while back and considering the change in the credit markets and what type of money has -- is that going to change then the amount of how much you think you are going to have to finance and what differences the costs today than what -- from what B of A did for you?

First off, the markets come and go as we will know and right now it would be, one could argue it might be very difficult to finance almost anything in the high yield market. We are not ready to go to market for six months so I think we will look at that issue when we get there.

(multiple speakers). I'm not capable of predicting what it will be but I think we all agree that they come and go. I've been in the high yield market for 15 years and at times it's very -- lots of money out there. At times there's not as much, but there's generally always money out there for good projects.

So right now your design phase is done. You are basically just waiting on the financing and where you guys stand as far as the revenues you may be getting from Four Winds. And then how far along you are moving with the Foothill Oaks casino (multiple speakers)?

Yes. That is all correct.

And just I guess kind of a housekeeping. Do you have after-tax numbers for the loss on the abandonment of the online gaming assets, the notes receivable gain and your interest income? The $4.9 million that you reported regarding the accrued interest from the land, say, on the construction advances?

Why don't you give me a call later off-line and I will talk you through that?

Clint Morrison with Feltl and Company.

Hey Tim and Lyle. Shortly after you started building the Four Winds you sold the debt associated with the tribe; and now that we have got Shingle Springs being built, any thought we might peddle off that debt and can you kind of talk about what would go into that potential decision?

Well. We are clearly going to be looking at that option probably in the third or fourth quarter. Probably in the fourth quarter of '07. But at this point, we certainly think it is a viable option to do and we are going to be looking at doing it.

Can you -- I don't have the numbers in front of me, what is the debt outstanding with them? And what was -- how much did you discount the Shingle Springs or the previous sale?

We did not discount the previous sale at all. We got market rate on it. I mean, we got what we were getting so we didn't discount it. And the Shingle Springs I believe will owe us approximately $65 million -- .

Yes currently Shingle Springs those are about $50 million and then of course (multiple speakers) accrues.

So you are evaluating considering that potentially you've got $60 million coming in on the fourth quarter if you do that transaction?

That would be correct.

Todd Eilers with Roth Capital Partners.

I apologize, I got on the call a little late but I think most of my questions are answered. I was kind of curious that with regards to the Four Winds, could you maybe give us what your supplier mix was for the slot manufacturers?

Well we had all our usual cast of characters. You know IGT was the big provider. We have IGT's systems in there as well; and of course we had a large contingent of Williams and Valleys and other sort of games.

Any market share numbers?

None to share with you.

All right and then, Tim, can you also break down the long-term assets on the balance sheet by project for the notes receivable and the intangibles?

Sure. I can give you them. On the notes receivable line as [Lyle mentioned], Shingle Springs is approximately 50 million. And (technical difficulty) 25. That's the majority of it. I think the Iowa Tribe is about 3. And then on the intangible asset side we have Pokagon's at about 24. Shingle Springs is 22 and Jamul is 11 as of the end of the quarter.

Lastly,, just moving back to the Shingle Springs. I'm assuming you would still be interested, you and the tribe with the interested in renegotiating compacts with California for an increased number of slots in exchange for sharing some of that revenue with the state. Any further developments on that?

The tribe is currently actively negotiating with the Governor's office for an amended compact which they are reasonably confident that will get within the next two to three weeks. Then it's a question of going to the Legislature and getting them to approve it before the end of the session in September.

(OPERATOR INSTRUCTIONS). (Rishi Parkee) with KBC Financial.

I know you're not giving any metrics on how the Pokagon or Four Winds casino is doing, but can you give us an idea how at least what your competitors are doing in the sense of marketing? I am assuming they upped their marketing? Just give us an idea what they've been doing?

I think in terms of marketing they certainly stepped up their types of marketing. I think they -- from what we can tell, public perception and what we see is they certainly change their player club offers. They've upped their marketing in the general area advertising, billboards, that sort of thing. So -- which is fine. I think that's good. Obviously our closest competitors announced a major expansion with additional hotel rooms which we think is good for the market.

So I think in general the whole level of awareness to that general area has gone (inaudible).

We did hear off the record through our inside sources that blue-chip had one of the best days ever they've had when we opened. So it shows the market, clearly, is expandable.

And just going back on the question about the compact, did you say that the office is going to be receiving the amended compact in three weeks?

I said we -- the tribe is currently negotiating with the Governor's office and we expect to have an amended contract signed within three weeks.

Within three weeks and then -- okay. Approved.

That's just an expected date. No guarantees.

At this time there are no further questions. I would like to turn the call back over to management for closing remarks.

Well, we want to thank you all for your support, for your interest in our company and we look forward to talking to you again in three months. Thank you very much.

Ladies and gentlemen, this does conclude today's Lakes Entertainment second quarter fiscal 2007 earnings conference call. You may now disconnect.