Golden Entertainment Inc (GDEN) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, welcome to the Lake Entertainment fourth quarter results conference call. I would now like the turn the meeting over to Mr. Tim Cope, President and CFO. Please go ahead, Mr. Cope.

Thank you. Good afternoon, and welcome to Lakes Entertainment fourth quarter 2007 earnings conference call. On the call with me 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 in 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 a general overview and update on our casino projects. I will then discuss the fourth quarter financial results and recent business events and then we will conduct a question-and-answer session. Lyle.

Thank you, Tim, and welcome everyone to Lakes fourth quarter earnings call. I'd like to start out by saying 2007 was the year of progress for Lakes with the opening of the Four Winds Casino Resort as well as positive movement on other projects. We plan to build on these accomplishments in 2008 with the pipeline of growth projects that we believe positions us well for long-term revenue and earnings growth. The fourth quarter saw the first full quarter results from the new Four Winds Casino Resort in New Buffalo, Michigan, which we manage for the Pokagon Band of Potawatomi Indians. We are pleased to note that since its opening, key performance metrics for the casino have continued to improve. In addition the Four Winds customer loyalty program continues to rapidly expand and our club membership has greatly exceeded our initial expectations.

While we are happy with the early results of the casino we are always working to improve the Four Winds guest experience and maximize the operating results. In addition to Four Winds, we continue to see strong results at the Cimarron Casino in Perkins, Oklahoma, which we manage for the Iowa tribe in Oklahoma. The casino which contained 360 class three slot machines, doubled profits in our first year of management and continues to show steady improvements. Obviously we are very pleased with the full full-year results we saw from Cimarron and expect continue solid performance from Cimarron in 2008.

Moving to our development projects. As I review each casino project, please remember they're not in any order of significant or state of completion. And, of course, estimated construction start dates and opening dates are subject to change. We will start with the Shingle Springs Casino project near Sacramento, California which is the casino development and management project currently under construction with the Shingle Springs Band of Miwok Indians. We are pleased to note that the development of the casino remains within budget and on schedule for a planned grand opening in late fourth quarter 2008. We are currently in the process of arranging FF&E financing of approximately $65 million. Once completed, the facility will host approximately 2,100 slot machines and gaming devices, 75 gaming tables, 10 different food and beverage outlets and approximately 3,200 covered parking spaces. We will also have a dedicated interchange from U.S. route 50 which is the road connecting San Francisco and Lake Tahoe, allowing easy access for our customers to the casino only a few hundred yards away. With four million people living within a 50-mile radius of the casino and only one major competitor in the region, we believe the Shingle Springs project is well positioned to achieve a strong ROI and create shareholder value. You can see web cam shots of the construction on our web site at www.lakesentertainment.com.

The Jamul Indian Village Casino project near San Diego has faced development challenges. There has been incremental progress in our quest to build the casino on the tribe's existing six acre reservation, as the tribe has been improving the road on the reservation to the highway. As I mentioned on last quarter's call, Lakes has also acquired approximately 100 acres of land contiguous to the six acres of the reservation land that could be used for the casino support facilities if the land is taken into trust. Planning is on going to redesign the casino to provide for approximately 1,000 class two gaming devices along with 25 class two table games. Along with the tribe, we are working together to determine when the casino construction can begin, hopefully in late 2008 and we are shooting for operations to commence in 2010.

Now to discuss our second project with the Iowa Tribe of Oklahoma, the Iowa Casino Resort located on U.S. route 66 near Chandler, Oklahoma and part of the greater Oklahoma City market. Along with the tribe, we are waiting on the Bureau of Indian Affairs for approval of the land plan on which the casino resort will be built. After the BIA approval is received we expect to rapidly receive (inaudible) approval of our management contract, the last step needed before design, financing and construction of the project begins. Once approval is received, we expect the 12 to 18 month development and construction time line with the possible opening of the Iowa Casino in the fall of 2009. The casino is currently planned to have approximately 1500 class three slot machines, 50 table games, four restaurants and a 250 room hotel. The facility is master planned for future development that may include additional gaming space, hotel rooms, a golf course and other market driven amenities.

In Vicksburg, Mississippi, we own or have the option to own 400 plus acres of land in Vicksburg.. The initial scope of this project-- potential casino project would be 12 to 1500 slot machines, 40 to 50 table games, a 250 room hotel, meeting space, a poker room and multiple food and beverage outlets. However, we want to note that the financial environment is not conducive to begin development and we continue to evaluate whether to proceed with this project. But in any event, we do not expect further development efforts before 2009. With that, I will turn the call back over to Tim to provide an overview of recent business issues and financial results. Tim.

Thank you, Lyle. Let's start with the fourth quarter results for Lakes Entertainment. Fourth quarter 2007 consolidated revenues were $8.3 million, up 36.5% from the prior year period. Revenue was boosted by $3 million increase of management consulting and development fees driven by full quarter contribution from Four Winds Casino Resort compared to no contribution from that property in the fourth quarter of 2006. Management fees were $200,000 for the fourth quarter of 2006. In accordance with the management contract with the Pokagon Band, preopening expenses during the construction phase of the project are shared proportionately by Lakes by the first 12 months of the Four Winds operation. To clarify, Lakes proportionate share is approximately $4 million over the first 12 months of operations and only the first 12 months. There's no impact on Lakes fee in subsequent years. Combined management fees of $3.2 million for the fourth quarter of 2007 are net of Lakes share of these preopening expenses.

License fee income from WPTE related to the World Poker Tour television series was down $2 million year-over-year to $3.1 million primarily due to the delivery of fewer episodes in the fourth quarter of 2007, versus the fourth quarter of 2006. Consolidated selling, general and administrative expenses were up $1.9 million from the prior year period to $10.3 million due primarily to WPTE's launch of Season One of the WPTE's tractor poker tour in China as well as higher costs preparing for the launch of clubwpt.com. Contributing to the increase in selling, general and administrative expenses were additional costs associated with increased development and management activities related to Lakes Indian casino projects.

Fourth quarter of 2007, Lakes selling, general and administrative expenses consisted primarily of payroll and related expenses of $2.7 million including stock compensation expense for all share based payment awards, travel related costs of $0.6 million professional fees of $1.1 million. Other costs and expenses in fourth quarter of 2007 include the amortization of intangible assets of approximately $1.7 million associated with the casino project with the Pokagon Band which began when the Four Winds Casino project opened in August 2007. Net realized and unrealized gains and losses on notes receivable relate primarily to the company's notes receivable from Indian tribes which are adjusted to estimated fair value based upon the current status of the related tribal casino projects. In the fourth quarter of 2007, net unrealized losses on notes receivable were $1.3 million compared to net unrealized gains of $12.8 million in the prior year period as most of the gains in the fourth quarter of 2006 were related to the casino development projects with the Pokagon Band. Net unrealized losses in the current year quarter related primarily to an increase in the discount rate associated with the casino development project with the Jamul Indian Village, due to a decrease in estimated operating results pr the casino operation once open.

As previously announced, during March 2007, Lakes contract with a group of investors for their participation in the loans made by Lakes to the Pokagon Band and assumed by the Pokagon Gaming Authority an agreed upon price of 98% of the face value of the loans of the settlement date. Accordingly as of December 31, 2006, the Pokagon Band notes receivable were adjusted to the negotiated participation price which resulted in unrealized gains in the fourth quarter of 2006. This participation arrangement was accounted for as a sale during 2007. The sales did not have any effect on Lakes management agreement for the Four Winds Casino Resort. Lakes reported a consolidated operating loss for the fourth quarter of $6.7 million a decline of $13.8 million from the prior year period mainly due to decrease in net unrealized gains on notes receivable while net loss for the quarter was $6.6 million down from net earnings of $4.7 million in the fourth quarter of 2006. Loss applicable to common shareholders per fully diluted share was $0.27 versus earnings applicable to common shareholders of $0.19 per fully diluted share in the prior year period.

Next I will discuss full year results for 2007. Consolidated revenue for the full year of 2007 totaled $28.5 million compared to . $29.9 million for the full year 2006. Revenue for both years was derived primarily from the operations of WPTE. WPTE related revenue was $21.7 million for 2007 compared to $29.3 million for 2006. The decrease in revenue related primarily to the delivery of no episodes of the professional poker tour television series during 2007 compared to the delivery of 24 episodes of the professional poker tour during 2006. Revenue for 2007 also included management fees from the Cimarron Casino and management fees for approximately five months of operations from the Four Winds Casino Resort. The combined management fees were $6.6 million for 2007. Management and consulting fees for 2006 were $0.6 million. Net realized and unrealized gains on notes receivable were $7.2 million and $51.7 million 2000 and 2006 respectively. During 2007, net unrealized gains on notes receivable resulted primarily from favorable events occurring during 2007 related to the casino project with the Shingle Springs tribe which increased the estimated fair value of related notes receivable.

As previously announced, during June 2007, an affiliate of the Shingle Springs tribe closed on a $450 million senior note financing to fund the casino project and construction on the project began during the second quarter of 2007. Partially offsetting the unrealized gains associated with the Shingle Springs project were unrealized losses associated with the casino development project with the Jamul tribe. As I mentioned earlier, the decrease in estimated fair value of the notes receivable from the Jamul tribe related primarily due an increase in the discount rate due to a decrease in estimated operating results from the casino operation once open. Of the $51.7 million in net unrealized gains on notes receivable during 2006, approximately $36 million was related to the casino development project with the Pokagon Band.

The unrealized gains on the Pokagon Band notes receivable resulted from a combination of favorable events occurring during 2006 as well as the sale of the Pokagon notes. Consolidated selling, general and administrative expenses were $40.1 million in 2007 compared to $35.2 million in 2006. Approximately $4.1 million of the increase related to WPTE and was primarily due to WPTE's efforts to develop their on line gaming business including cost to develop infrastructure prior to entering into an agreement with CrypotoLogic and head count cost associated with WPTE's Israel operations. Increases were also associated with the development of the tractor poker tour in China, and infrastructure and development cost associated with WPTE nongaming web site at worldpokertour and clubwpt.com. The remaining increase of the $800,000 related to additional costs associated with increased development and management activities related to Lakes Indian casino projects.

For 2007, Lakes selling, general and administrative expenses consisted of primarily a payroll and related expenses of $10.3 million including stock compensation expense for all share-based payment awards, travel related costs of $2.5 million, and professional fees of $3.3 million. Other costs and expenses for 2007 included amortization of intangible assets of approximately $2.8 million associated with the casino projects for the Pokagon Band. The operating loss for the full year of 2007 was $18.8 million down $53 million from the prior year, mainly due to the lower unrealized gains on notes receivable, while net loss applicable to common shareholders for 2007 was $15 million down from net earnings applicable to common shareholders of $19.8 million in 2006. Loss applicable to common shareholders per fully diluted share was $0.63 versus earnings applicable to common shareholders of $0.80 per fully diluted share in the prior year period.

Now I would like to discuss our liquidity and auction rate securities. As of December 30th, 2007, we had $9.2 million in cash and cash equivalents. Of this amount, $5.3 million related to Lakes and $3.9 million related to WPTE. We also had $53.5 million in short-term investment in marketable securities of which $30.5 million related to Lakes and $23 million related to WPTE. All of Lakes short-term investments in marketable securities and $7.8 million of WPTE short-term securities -- short-term investments and marketable securities were auction rate securities which I will refer to as ARS. The types of ARS that the company owns are backed by student loans, the majority of which are guaranteed under the. federal family education loan program and all have credit ratings of AAA when purchased. Neither Lakes nor WPTE own any other type of ARS investments. None of our investments in ARS qualify or have ever been classified in our financial statements as cash or cash equivalents. The interest rates on these ARS are reset every seven to 35 days by an auction process.

Historically, these types of ARS investments have been highly liquid. As a result of the recent liquidity issues experienced in the Global Credit and Capital Markets, in February and March of 2008, auctions for ARS investments held by us failed. An auction failure means that is the amount of securities submitted for sale exceeds the amount of purchase orders and the parties wishing to sale the securities are instead required to hold the investment until a successful auction is completed. The ARS investments continue to pay interest in accordance with the terms of the underlying security. However, liquidity will be limited until there is a successful auction or until such time as other markets for these ARS investments develop. Account statements for February, 2008, received from the firms managing our investments indicated no decrease in the fair value of these securities and the underlying credit quality of the assets backing our ARS investments have not been impacted by the reduced liquidity of these ARS investments. As a result of these recent events, we are in the process of evaluating the extent of any impairment in our ARS investments resulting from the lack of liquidity. However, we are not yet able to quantify the ament of possible impairment, if any, that may occur in the foreseeable future. Lakes currently expects to be able to obtain funds in order to fulfill its future liquidity needs, if it is unable to liquidate its ARS investments by mid 2008 as needed, and is exploring several financing alternatives. WPTE does not believe that any lack of liquidity during the next 12 months relating to this matter will have an impact on its ability to fund its operations.

In addition to our financial results, we are providing the following guidance for 2008. We currently plan for selling, general and administrative expenses to remain relatively flat for 2008 with anticipated increases in travel-related, payroll-related areas expected to be offset for the most part by projected decreases in professional fees. In addition, we currently expect amortization of intangible assets related to Indian casino projects to increase in 2008 to approximately $7.2 million as a result of the full-year amortization expense associated with the Four Winds Casino Resort in 2008. Historically Lakes' revenues have come from WPTE. During fiscal 2008, Lakes also expects significant revenues from the management of Indian casino properties including the Four Winds Casino Resort. However due to the relatively short operating history of the casinos we currently manage, we do not plan to provide revenue guidance for Lakes. Now, back to Lyle for the wrap

Thank you, Tim. For 2008, Lakes remains focused on successfully managing our current operations and opening our existing projects under construction or in development. We will continue to work hand in hand with our tribal partners to bring our projects to fruition and with the capital we will accumulation over the next few years, we will explore various alternatives in which to best utilize the funds while providing increasing long-term value for our shareholders. We are excited about our current position and the new year. And with that, I will turn the call over to the operator for questions.

(OPERATOR INSTRUCTIONS). Your first question comes from the line of Todd Eilers with Roth Capital Partners. Please proceed.

Hi, Lyle, hi Tim. Thanks for taking my call.

You bet.

Just a couple of quick questions. With regards to liquidity, and financing needs, can you maybe tell us what your-- your capital needs are for '08 and maybe what the potential options are that you are considering if you are not able to-- to liquid or use the auction rate investment securities?

Tim, you want to take that.

In terms of capital needs, we have our operating expenses which are pretty well defined so we think we are fine with that. Any, capital costs of course related to projects it depends on the status of the development if either, if we get approval at the Iowa project and move forward with that which would be good news or depending on how we end up with the (inaudible) project that we are continuing to develop. In terms of the liquidity needs, again we have-- short-term we certainly have some cash available to cover short-term liquidity needs, and we are very confident at this point in time we will have are either a line of credit or some other form of liquidity available to us backed by the auction rate securities, even if the auction rate securities aren't able to be sold in the near future.

Okay. But you're anticipating some form of debt then not equity; is that what you are saying?

That's correct. With we are very comfortable-- very confident that that will take place.

Okay. And then also I don't know if I heard you guys or not, did you break out the contribution of management fees from Pokagon or the Four Winds versus your Oklahoma revenue?

You know, again we did not break that out and as we discussed, it is a little bit sensitive, of course, in the business we are in with our Native American . partners it is very private to them what their type of operations are doing. So I think it is fair to say, if you just look at comparisons year-over-year, where you saw we had limited amount of management fees in '06 versus what we are producing in the five months in '07. I think you can garner that information very

Okay. Okay. And then you mentioned the preopening cost roughly $4 million for the first 12 months and that your management fee income or revenues reported after that. So to get, an apples-to-apples at least going forward after that's done, it is simply just adding the -- Is it roughly $1 million per quarter? Is that how it works out to be or is that, how is that.

That's correct. It is about a million a quarter because that number is now set, whatever it is, it is. The total of that preopening. So it amortizes monthly, but it ends up to be just about a million, a shade over a million a quarter.

Okay, so if we assume that Oklahoma revenue is similar to what it was the last several quarters then looks like you guys are for Four Winds are at maybe, I don't know 2.7, $2.8 million. So you know, if we with added a million to that, and 3.7, $3.8 million in management fee revenue from that project is that the correct way to look at it?

I think that's fair.

Okay. Also, I noticed taxes in the quarter were a little bit higher than, than we were looking for. Can you talk about that a little bit, what the increase was there?

In the tax provision what we did, was we've been taking deferred tax assets are an allowance against potential capital gains and capital losses that we have recorded. What we have been doing is we've been, assuming our capital losses will be covered by capital gains yet to be incurred in the future as predicated on a strategy of being able to monetize some amount of the world poker tour stock we own which has a zero tax basis.

Right.

And as the world poker tour stock has come down unfortunately, that offset isn't as great as it used to be so now we've had to take some provision for the amount we are not able to cover with that.

Okay. How about going forward, what should we expect in terms of taxes for you guys? Should we expect that to drop back down to kind of where it was at the last several quarter which is is anywhere 300,000 to $500,000?

I would say at this point I would expect to stay similar to the fourth quarter.

Okay. Okay. And then last question, for your notes receivables, you gave a-- a fair value total fair value, can you break that out between projects?

The fair value, I can do that. The Jamul fair value is $21 million approximately; Shingle Springs is approximately $54 million, Iowa is about $4 million.

Okay. Perfect.

Let me go one step further, Todd. I will give you the actual face value of those two.

Okay.

And again this is in our public filings. So the Jamul face value is approximately $42 million. This is principle and interest. Shingle Springs is approximately $67 million, and Iowa is approximately $5 million.

Okay. Great. Thanks, Tim. Appreciate it. That's all for me.

Your next question comes from the line of [Mark Grandal with Key Colony Fund]. Please proceed.

Hey, guys. A couple of questions here. Could you talk a little bit about the October, November, and December results at Pokagon. In the press release you mentioned some December weather and I am curious how much of an effect that had on the month of December relative to October and November. Then can you also address your event investment in World Poker Tour? Can you just help explain why you are not taking cash out of that company? Are you comfortable with their long-term prospects and how do you really monetize that investment?

This is Lyle. First off, we had a very severe weather in December and in January, in Pokagon but we don't have historical records to compare it to. So we can look day by day at what it could have been or should have been, but it did impact, not just us the entire market, especially in December because on almost every weekend we had snowstorms. With regard to World Poker Tour, as you know, World Poker Tour is a separate public company and certainly we could, I guess we could-- the company could decide to dividend out money to its shareholders but other than that, there really is no access for us to get at that cash. We certainly are very comfortable that the company has long-term viability.

It has got-- I think we will know a great deal more as we've said, at the end of this year. We have three major prongs of revenue growth, the on-line gaming, the WBT club which is the domestic tournament style that people pay a monthly fee to play and of course tractor poker in China where we started the whole tractor poker tour. I think the company itself will know a great deal more in the next six months, on how each of these new revenue prongs are doing. Currently we make the show and sell it to the channel and make money. We license our brand and we syndicate the show, but then our corporate overhead eats up the profit from those things. So we really looking our-- to monetize the brand and the three areas I just said, but certainly at this point we are still reasonably confident that the company is very viable and has long-term growth to it. If those things don't happen by the end of this year, we will very much be looking at alternatives.

Okay. Good. Well, I think with your ownership stake in that company and the fact that you guys are on the board, we want you to be very careful with that capital and make sure.

I can assure you that not only do we-- we share your-- we want to be very careful with that capital and we want to have a company that if things aren't working out, that a great deal of that capital is still preserved to pursue other alternatives. I can assure you that Steve [Lipscomb], CEO and a major shareholder of the company, after ours, is as equality concerned of that as we are.

Good. Just switching over to costs, could you talk a little bit about your costs structure? Is there anything you can do to lower the cost and then.

Well, when you.

One other.

Go ahead. What.

One specific question I have. Can you address how travel expenses are $600,000 in a quarter or I think I heard you say $2.5 million for the year.

I can start to answer that question, I think it's a fair point. The-- some of our costs clearly are related to the development efforts of our projects. Getting-- remember we have roughly 50 full-time employees at Lakes and we have currently three active projects, right. One in Cimarron, one in Four Winds and Shingle Springs. And there's a tremendous amount of effort, work, travel, related costs associated with getting, say for instance, Four Winds open. Our crew basically lived at Four Winds for six months-- which is in our P&L is all travel-related cost. Occuring the same phenomena at Shingle Springs. That's what we do. We provide a turn-key operation. We do all the training, internal control, the planning, the design, the construction overview, the staffing.

So there's a tremendous amount of effort incurred at our level to get these projects open. And some of you can see when we mentioned professional fees. Those professional fees-- a lot of it-- well last year some of it was related certainly with the refiling issues we had with the SEC but some of it also is-- certainly is related to construction project oversight we have on a project by project specific basis, I think go away once the project opens. So from that perspective you will see those project expenses-- or professional fees start to come down as the projects open. I think you will see our travel and travel-related costs come down also because, while we will still be traveling to each of our projects on a regular basis, we won't be there, seven days a week, for months at that time.

This is Lyle. Also commenting. Again, we take great pride in the fact we are a true management company. As Tim said, we employ approximately 50 people. But you have to measure our work product against what we really produce. We are managing casinos by the end of this year that on a run rate-- I am talk about once Shingle Springs is open, that we have a run rate in the casinos that is we will be managing that have an excess-- will have an excess of $300 million of EBITDA. Now, unfortunately, we don't get the benefit of that $300 million of EBITDA. Obviously we only get our share of the net profit, but we do the work load as though we are-- we were managing and owned for our own account, that size of a company and therefore one has to measure that and look at that in relationship to what we are producing opposed to looking at it as relative to our fees.

Okay. And lastly, Jamul-- last time I thought you guys had said, hey we are at the architectural plan phase, waiting for those plans and then we are going to move on to breaking ground. And it seems like we are no longer there. Could you kind f give us an update detail where you are.

I don't think we have said that in past. I don't think we said that we are at that point yet. What we are working with-- there's a lot of legal issues with the Jamul Band and the band and with our concurrence has agreed again to stop pursuing opening the casino under their current compact. We have legal advice that then takes away the options of the state to try to stop us. Right now, the band has a legal opinion that they're able to construct the road, go through the road, to the highway and use that as egress and exit. They're in the process of completing that and we are somewhat waiting to make sure that that all goes smoothly before we actually recommence. We have done some work on the architectural plans but before we recommence and spend a great deal of money to design the final phase and then raise money to (inaudible) Tim, would you want to add anything?

No. I think it has gone slower than expected, but I will say that the road on the reservation is actively being constructed. We are moving dirt. We are building the road out from where the casino will sit out to highway 94. Part of the process of doing that is-- is the surrounding infrastructure the water and electrical that's needed to get to the property that's part of running up through that road. So it is just taking longer to coordinate with the-- the local providers than expected but we are actually moving dirt on that site. And with anticipation of cutting into that road in the near future.

There is no question that the tribe has a local opposition and certainly they're, what I call the vocal minority but they have vocal opposition. The tribe has legal opinions but at this point they think they're free to go forward but each day we are taking it one day at that time.

Okay, guys. Thank you.

And your next question comes from the line of [Reshee Perette KBC Financial]. Please proceed.

Gentlemen, on the last call you guys had cited some dealer inefficiencies at Pokagon. Can you talk about what the situation there now?

I think that's pretty much been resolved. Certainly, when we first opened you had dealer inefficiencies from two major aspects, one is mistakes, just flat out mistakes, that they misread the hands and pay off a customer, we should have won and they pay them off but more important is productivity. Productivity is how many hands per hour you deal because, as you know, the more hands per hour you deal, then the more handle we get and the more profit-- theoretical profit we should have. Both of those have pretty much been corrected; however, one understands that as you have labor turnover, the more turnover you have the more new dealers you have and the more change you have, but I think we have seen that in the last several months our hold has a percentage of drop has gotten more back to normal.

Now, you guys, also I guess now you mention weather in December.

And January.

Right. I mean that's what I was going to get at. Looking to the first quarter things look a lot worse. I am wondering if we should be warming our expectations accordingly.

Well, when you say worse I am not sure what you mean worse than what you are comparing to.

Accord to go the national weather service there was something like one inch of accumulation in December and three in January and two in February.

Well there's no doubt they've had unusual weather occurrences and clearly, I have been here many days in snowstorm or many days when it is clear and when it is clear, you get much more better business-- or much better business, but I think what you will see is January it was certainly affected somewhat by weather. February also, but not as much, and we are expecting , March to clear up as the spring

Are there any offsetting considerations or impacts we can hope might, might help? The number of tournaments perhaps, or our marketing strategies that you are maybe timing of spent or anything.

I think it is safe from a marketing strategy or expectation that we have a number of promotional event-type of-- events taking place that clearly again that the weather when we can see the positive of those type of marketing events, I think we have a pretty solid marketing program as Lyle mentioned earlier we have a fantastic amount of participants in our players club program, that we have a very strong direct mail program associated with that. I don't think marketing necessarily is the detriment or the issue right now. It is just a matter of letting people get to the property.

But Shingle Springs, is there any kind of updated expectations or anything with respect to a new compact-- something that would el allow more class three machines.

Well, this is Lyle again. The tribe is currently negotiating with the governor's office. I think it is fair to say we expect that the tribe will be signing a new compact with the governors office that has to be ratified by the legislature but we are still pursuing that. The tribe is still pursuing that with our full support.

Any updates as to the lawsuit with tribes former partners?

I don't think so, but that really has no affect on us. Tim, do you want to.

No, I think that's fair. There's really no update on that, just kind of going through the legal process. And again, as Lyle mentioned certainly had no affect on the operations of the casino but I think it was a long way to come-- to go there. In terms of the process-- the legal process.

Anything you can say about the status of the KAR partners and their licensing process.

All I can say to that is that they are actively being investigated. They both applied for licensing with the national and gaming commission. To our knowledge that still is going on, they neither have been licensed nor been denied a license. We have no-- I don't think we are privy no any information other than that.

When did they apply, how long has it been so far?

Oh, quite a long time.

Years.

It is in the years.

Years, yes.

Okay.

But, I will say this, it has been years, but because [NIGIK] because they're overworked and underpaid, as they claim, they generally don't work real hard on one until a need and then like in Jerry [Argovitz's] case, there's no need until Shingle Springs opens. So it is not on the forefront of their list and the same goes for Kevin [Kane] with regard to Shingle Springs and Jamul although he also has applied for licensing for small fees in Cimarron.

Any thoughts about timing of expanding a hotel or building some sort of an expansion at Pokagon?

Yes, the tribe is, has-- we have been actively working with the tribe. They have clearly want to do some expansion, the major part of the expansion would be hotel rooms and then amenities to go with those hotel rooms or maybe some casino expansion but not a great deal. It is actively working on it. We are working on it. I would say in the optimistic case we probably would like to see construction start within a year.

And in the past I think you guys have said you thought the property could benefit from as much as say 800 hundred rooms.

Six to 800 rooms and then the associated amenities, spa, a few more restaurants, convention space that would all go with that.

Not to beat a dead horse, but looking back to the third quarter and trying to reconcile management fees to the EBITDA. Now that they've reported the $21.5 million that has been made public record, I wondering if we can find a way to reconcile it because adding back a million bucks and dividing by 24% doesn't get you in the same ZIP code. There has got to be a way for us to somehow model the company going forward. We want to be interested in the company and try and promote the story and it would help a lot if we could get from point A to point B.

And Dave, I commenting on your $21 million-- first of all, I don't think there have been any public numbers released at Four Winds. I'm not sure where that $21 million is coming from. If you are even using that number for a third quarter, remember that's eight weeks. Right. So I am not,-- again I am not sure where you are getting the number from but when you say third quarter in this case that's an eight week period.

Okay. Maybe we could follow up off line about that then.

Okay.

I guess now also, with respect to your forward plans, there's a lot of new property that are opening up for possible acquisition around the country. I am wondering, what-- where your priorities stand in terms of Vicksburg versus possibly acquiring something else that's up for sale out there, there's--

We certainly are looking at those opportunities. There's no question that there are other opportunities. There's a number of properties for sale and will become for sale. We continue to evaluate all of those.

Finally, Mr. Berman, if you could comment on your personal thoughts about where the stock and trading and your intentions in terms of whether you would anticipate making any additional sale this year of stock. I know you have got needs and funding requirements and what not, but--

First of certainly I am just absolutely shocked that our stock is as low as it is.

Killing me. It is hurting me.

Well, it is hurting me also. I, you know the old saying more sellers than buyers but in truth, we are trading substantially below our liquid-- I won't say our liquid but our realistic book value which is composed of primarily hard assets and loans to tribes. So I am quite shocked. I mean it is trading below, if you just looked at our future, I mean the future cash flow of the company is valued at minus. It is valued today at a minus number. In terms of my own personal plans at this point, I guess I can't say until I do buy some or don't, I don't think I would put that out in the public domain on whether I am planning to or not.

Thank you very much.

Your next question comes from the line of Clint Morrison with Feltl and Company Please proceed.

Hey, guys. Start with the Jamul -- you obviously took a little bit of a whack at the valuation again as you did in the previous quarter and I think you indicated that it was sort of a reduced expectations, but the time frames also been pushed out a little bit. Sort of why-- why do we think the returns and the profitability are different now than we thought a quarter ago or as part of that discount the fact that we are kind of next year as opposed to the middle of this year for a start?

Pertaining to the time, unfortunately, it is just before we actually start construction, the time keeps going. That's just a function of where we are at in the project in terms of getting the road done or whatever takes place out there to move that flow of construction forward.

That wasn't a factor of the decrease in the valuation?

No, I will tell you, frankly, the discount went up based on what we currently feel now, looking at the market and based on the fact that some of the surrounding companies-- surrounding properties, casinos, have now receive new compacts. So they are actually rapidly expanding class three operations. We just think it become more competitive at this point in time until we can actually get open and/or ratify the compact there and also utilize a full class three casino environment.

Okay. Cimarron. I know you are not breaking it out, but was there any sort of seasonality or weather impacts that affect or affected that casino or should we rightly kind of assume that the management fee there was probably similar in the fourth quarter as to the third quarter?

Well, I think Cimarron does well and continues to improve although, again it is not a big, big number in the scheme of our projects, but it is very similar, it is turning up just slightly.

Okay. So, okay, but there's no sort of seasonality in, there's no reason for us to think that there, that it is too out of whack with what it did in the previous quarter.

No, that's a fair estimate.

Okay. The-- your adjustable rate securities failed auction, I understand those, some of those tend to reset and some reset up, can you give us a sense as to what might have changed in terms of the interest rate you getting on that 30ish million.

Some have a penalty rate associated with them that go up into the teens but on a, annual average I think, just from my understanding right, there's an overall federal limitation on government-backed bonds that would limit it to-- back to the stated coupon rate of roughly 4%.

This is Lyle again. If I understand it correctly and I am learning a little more about it, is that when they reset-- it is almost a function of a prepaid interest, it is like a penalty where they pay prepaid interest, but if you look at it over a year's time frame, the rate is really pretty much flat. Is that, Tim, what your understanding is as well?

Yep, that's right.

Okay, so we don't expect any change. When is the next auction coming up for your holdings, do you know?

You know we have several and they are all in different states, so I can't give you the exact date of the next one but probably-- some come up every week.

Okay. Fair enough. Tax rate you said similar to last quarter. Are you referring absolute or percentage basis?

Percentage basis.

Okay. Finally, Shingle Springs, new compact sign, when and if it happens would that cause a revaluation of those notes?

Probably. It could-- certainly could, although as we closer to opening, it is-- we have a high probability on those notes already.

Are those at 95%.

That's correct.

Okay. So it could go up a little bit. Okay. That takes care of me. Thank you.

Your next question comes from the line of James [Kayler] with Banc of America Securities. Please proceed with your question.

Hey guys, how are you doing.

Hi, James.

Just a housekeeping point, Tim, if we with did see the Pokagon financials, is the management fee that they report in their financials the same from an accounting perspective as you report as revenue or is there a difference there?

No, it should be the same.

It should be the same number.

Right.

Okay. Very good. Last quarter, when you guys just opened Pokagon, we talked a little bit about some of the start up issues and or-- there are always changes you want to make. Can you maybe give us a recap of things you change that worked and maybe where you stand, I mean are things kind of set or are there additional changes you're making and still tweaking the property.

This is Lyle. I think they're rather set in the context of, from the preopening because you realize that slot mix, whole percentages, all of those things you look at on a quarterly or monthly basis and you do tweak and make some changes. But I think the major changes that we did, have been done, we did a great deal of changing out our machines, not model changes but a big change was any real machine can become another real and any video can become another video but you can't make a real a video. We had too many videos and not enough reals. We were very lucky to find a brand new casino that had just opened that had too many reals and not enough videos and we traded. That amounted to, I think about 300 machines on our part. So that was a very big major change.

Certainly adjusting your labor and your labor schedules and your people. Certainly you overhire when you open a casino. You weed out a lot, a lot of people self weed out. They just don't like the position, the job, the energy and they leave. We also let some people go who don't measure up. You start getting a much more mature labor force and that keeps maturing, but you get a lot of changes early on. Scheduling is another one especially in both table games and restaurants. Those are are two big areas of using people.

You deliberately overstaff to begin with and then you start getting what-- you get down to where you need and we have pretty much adjusted those schedules. So, we have done a great deal of that, some of the hold percentages on machines you look at and you may adjust those either up or down. We have made some reasonable adjustments in those.

Is it a fair to say that margins in the fourth quarter at Pokagon reflect what you hit the run rate or are there still potential.

I think it might be more concern to say maybe the first quarter of this year, first, second quarter of this year probably would get real normalized.

Okay. Probably still some.

Absolutely.

You are working out in the fourth quarter number.

No question about that.

All right. I think that's it. Thanks very much, guys.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of [Alec Leblanc with T. Colony] Please proceed.

Hey guys, I appreciate the further disclosure this time and that's very helpful. The-- when you are looking at these other properties that are out there for sale right now, I just hope when you look at things, if you can buy something at X and if we're selling it for 75% of X we make sure and do all of the math.

Well I agree with you. As you know, the, in recent years. I can't talk about just the last month or two, but you know, casino properties have been going for quite high numbers relative times EBITDA.

Right.

And quite frankly I have no interest in buying something that pencils out to me breaking even. There's also a very big concern when you talk about a major gaming company that can finance an acquisition at 6 or 7% is a great deal different than today when Lakes would have to finance at 11 or 12%. What might be wonderful for Steve [Winterhairs], doesn't work particularly well for Lakes.

They timed that market pretty good. Let me ask one other thing. Have you thought about, and I am sure you have gone through mechanics of the notes and say okay if we had to discount the notes and sell them for X and if we could buy back X, two times X for the stock I know we would take a hit on the notes but if you make it up on the other side, do you go through that exercise?

We clearly have gone through that exercise. One of the-- of course, the unknowns is that when your stock is real low and I won't even use today's price but let's use a couple of days ago price. But you say to yourself, can I really buy that much at that price. And that's kind of the unknown because if you liquidated the notes in the-- let's just say $60 million range.

Right. Could you really guy buy shares back at $6 a share.

You answered my-- sounds like you are making sure you are doing the math and you are.

I appreciate that, if you guys would give me a chance sometime, would you give me a buzz.

I will do that.

Okay.

There are no additional questions at this time. I would like to turn the call over to Lyle Berman for closing remarks.

Just want to thank you all for your support, listening to our story, asking the questions and if you have any other questions, don't hesitate to call Tim Cope or myself. Thank you very much. Tim.

Thank you, everybody.

Okay. I will talk are to you later, Tim.

Thank you for your participation in today's conference. This concluding the presentation. You may now disconnect. Good day.