Golden Entertainment Inc (GDEN) 2008 Q4 法說會逐字稿

Good day, and welcome to the fourth quarter 2008 Lakes Entertainment Incorporated earnings conference call. My name is [Candice] and I will be your coordinator for today. At this time all participants are in listen-only mode. We will conduct a question and answer session, after management's remarks. (Operator Instructions) I would now like to turn the presentation over to your host for today's conference, President and Chief Financial Officer, Mr. Tim Cope. Sir, you may proceed.

Thank you, Candice. Good afternoon, welcome to Lakes Entertainment's fourth quarter 2008 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 that 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. And 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'll then discuss the fourth quarter financial results, recent business events, and then we'll conduct a question and answer. With that, I'll turn it over to Lyle.

Thank you, Tim, and welcome, everyone, to Lakes' fourth quarter earnings call. Before talking about our current operations and developments, I want to briefly mention the current economic environment.

Obviously here at Lakes, we are concerned about what has occurred in the financial markets over the past year. And we are keeping a very close tabs on our operations and especially our cost structure as we enter 2009. While it is difficult to forecast our business in the short-term due to the volatile economic conditions, we want to stress that our fundamental business remains strong and we believe that we will weather any storm that comes our way. I would also like to emphasize that although we are always evaluating potential new opportunities, our current focus remains on the management of our three casino operations and the successful development of our remaining projects under contract.

Speaking of which, let's start off with our operations and development discussions with the latest from the Red Hawk Casino in Shingle Springs, California. Which is a casino project with the Shingle Springs Band of Miwok Indians. The Bureau of Indian Affairs approved the amended contract permitting us to open the casino on December, 17th 2008 with a full compliment of class three gaming. We are pleased to report that we opened the casino within budget and on schedule.

The casino hosts approximately 2,100 slot machines and gaming devices, 75 gaming tables, ten different food and beverage outlets, retail space, a child care facility, and arcade, and approximately 3,200 covered parking spaces. It also has a dedicated interchange from US 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.

The casino received glowing reviews from the press and the customers and we saw solid December numbers, especially with respect to guest counts. Initial financial results have been good in both the table game revenue area and our guest enjoyment of the many food and beverage outlets. Results from slot machines, however, have not yet met our expectations. It is no secret that California and in particular the general Sacramento area has been one of the hardest hit areas during the stressful economic times. We are encouraged by the large number of customers Red Hawk continues to receive and we expect improved overall results as progress is made in California to stem the economic crisis.

For the opening two-week period ending December 28th, 2008 and the first month of 2009, Lakes received its prorated share of loan repayments, along with a management fee. There is no assurance that business volumes will continue to support these payments in the future. However, 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 in the future and create shareholder value.

We continue to see strong results at the Four Winds Casino Resort in New Buffalo, Michigan, which we manage for the Pokagon Band of Potawatomi Indians. The fourth quarter results continued to meet our expectations, despite the volatile economy. Key business indicators, such as gaming volumes compared to the market share remained relatively even during the fourth quarter from the prior year quarter, in spite of the increased competition from the new Horseshoe casino barge that opened in August 2008. Although there are clearly effects from the weakened economy throughout the gaming market, Four Winds continues to offer the leading casino/hotel product in the region.

In addition to Four Winds and Red Hawk, we continue to see strong results at the Cimarron casino in Perkins, Oklahoma, which we manage for the Iowa Tribe of Oklahoma. The casino, which contains approximately 370 class three slot machines, saw total revenue up once again in the fourth of 2008 from the prior year period. Obviously we are very pleased with the full year results from Cimarron and expect continued solid performance in 2009.

Moving to our development project, as I review each casino project, please remember they are not in any order of significance or state of completion. And of course estimated construction start dates and opening dates are subject to change. The casino project near San Diego with the Jamul Indian Village continues to face developmental challenges. The Jamul casino project has been delayed due to various political and regulatory issues relating to access from State Highway 94 to the proposed casino site. The Jamul tribe has initiated a federal lawsuit against the California transportation authority as a result of ongoing site access issues.

Representatives from the Tribe, Lakes, and Cal Trans recently met to discuss how best to resolve any difference with Cal Trans. As a result of that meeting, Cal Trans indicated that while they could not restrict access to the Jamul Indian Village land, they did require an encroachment permit to be obtained. This process is anticipated to take approximately 12 months to complete. The Jamul tribe is considering a stay of its federal lawsuit. Lakes believes the Jamul Tribe will ultimately prevail in this situation. But based on the typical duration of obtaining approvals of this nature, Lakes believes that a near-term resolution of the access issue is not probable.

In addition, the local opposition to this project has not been resolved and Lakes' current expectations that is issue associated with this opposition could cause further delays, even if resolution of the access issue is achieved. These factors, in combination with the general -- with the current general economic environment and probable difficulty of financing projects of this nature at desirable rates, have resulted in a negative impact on the value of Lakes' assets associated with this project. Although the value of Lakes' assets related to the Jamul casino projects have been significantly reduced, Lakes currently plans to continue with the project.

Now I will discuss our second project with the Iowa Tribe of Oklahoma. The Ioway Casino Resort located on US Route 66 near Chandler, Oklahoma. The Bureau of Indian Affairs recently approved the tribal land lease for approximately 64 acres. In addition, the BIA is reviewing the proposed lease agreement for the remaining 15 acres of the development site. Once approval is received, we expect a 12 to 18-month development and construction time line with the possible opening of the Iowa casino the fall of 2010.

The casino is currently planned to have approximately 1200 class three slot machines, 25 table games, three restaurants, and 150-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. Successful completion of this project is dependent upon the ability to obtain construction and equipment financing on terms and conditions that make this a viable casino project. In Vicksburg, Mississippi, we own or have the option to own 400-plus acres of land in Vicksburg. Due to the current financial environment, the proposed Casino Resort development remains on hold at this time.

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

Thank you, Lyle. Before we get to the fourth quarter results for Lakes Entertainment, I would like to remind everyone that after November 21st, 2008, operations of WPTE are not included in Lakes' results of operations and historical results up to that date are included only as discontinued operations.

Lakes Entertainment reported fourth quarter 2008 revenues of $5.5 million, a 67% increase in comparison to prior year period revenues of $3.3 million. This increase is primarily due to improved results from both the Four Winds Casino Resort and the Cimarron Casino during the current year period, as well as fees from the newly opened Red Hawk Casino for a portion of the month of December 2008. For the fourth quarter of 2008, Lakes selling, general and administrative expenses were $3.5 million compared to $4.6 million in the fourth quarter of 2007. Selling, general and administrative expenses consisted primarily of payroll and related expenses, travel expenses, and professional fees.

Development costs associated with the Ohio Casino Resort initiative were $18.4 million during the fourth quarter of 2008. Lakes does not expect to recover those costs. Because of the issues associated with the casino project with the Jamul Indian village that Lyle mentioned, Lakes reevaluated this project and reduced the value of Lakes' assets associated with it. Lakes acknowledges that significant risks exist related to this project. However, the Jamul Tribe has the two basic requirements to eventually build a successful project. Federal recognition as an Indian Tribe, and Indian land eligible for gaming. Lakes has concluded that it is not currently in its best interest to terminate its involvement with the Jamul casino project all together. Lakes will continue to monitor the status of this project.

Net unrealized losses on notes receivable relate to the Company's notes receivable from Indian tribes, which are adjusted to estimated fair value based upon the current status of their related tribal casino projects and evolving market conditions. In the fourth quarter of 2008, net unrealized losses on notes receivable were $18.8 million compared to net unrealized losses of $1.3 million in the prior year period. The net unrealized losses in the fourth quarter of 2008 were primarily due to the recognition of the loss associated with the project with the Jamul Tribe in the amount of $11.8 million. Lakes also recognized an impairment on intangible assets and land held for development related to the Jamul project in the amount of $20.0 million during the fourth quarter of 2008.

Unrealized losses on the notes receivable from the Shingle Springs Tribe related to the Red Hawk Casino were approximately $6.6 million and resulted primarily from a decline in projected interest rates and an increase in the discount rate associated with this project as a result of financial market conditions.

Lakes has received various regulatory approvals to develop a Company held casino on approximately 400 acres near Vicksburg, Mississippi. A total of $9.4 million had been invested as of December 28th, 2008. We are continuing to evaluate all alternatives associated with our Vicksburg project, including whether to proceed with the development of this project or potentially sell it. As a result of the uncertainty surrounding the development of this project and due to changes in the economic environment and credit markets, we adjusted the assets associated with the Vicksburg project to their estimated fair value of $5.4 million as of December 28th, 2008 and recognized an impairment of approximately $4 million during the fourth quarter of 2008.

The loss from operations was $61.1 million for the fourth quarter of 2008 compared to $4.4 million for the fourth quarter of 2007 and resulted primarily from the items mentioned previously. Approximately $42.8 million of the $61.1 million loss from operations resulted from write downs that did not impact Lakes' cash position during the fourth quarter. The loss before discontinued operations for the fourth quarter of 2008 was $67 million compared to $5.4 million in the fourth quarter of 2007. Loss from continued operations applicable to common shareholders were $2.50 per share in the fourth quarter of 2008 compared to $0.22 per share for the fourth quarter of 2007.

With regard to our capital and liquidity position as of December 28th, 2008, Lakes had $6.2 million in cash and cash equivalents and $22.2 million of long-term investments and securities recorded at fair value. All investments in securities are auction rate securities, or ARSs, and held by UBS Financial Services, Inc. As a result of liquidity issues surrounding ARSs, the auction rate securities are classified as long-term investments and securities. Lakes continues to earn and receive interest on the ARSs at contractually set rates. On November 3, 2008, we accepted an offer from UBS given the Company non-transferable rights to sell the auction rate securities at PAR value to UBS at any time during the period of June 30th, 2010 through July 2nd, 2012. The PAR value of the auction rate securities is approximately $26.8 million.

During October of 2008, Lakes entered into a client agreement with UBS, which enabled Lakes to draw $18.2 million and is secured by the auction rate securities held at UBS. Amounts borrowed under the credit line are due and payable on demand and bear interest at a floating interest rate equal to the sum of the prevailing daily 30-day LIBOR plus 100 basis points. Amounts previously drawn under a margin account agreement were transferred to the credit line and the entire remaining amount available under the credit line was drawn down upon its execution. As of December 28th, 2008, approximately $8.2 million was outstanding under the credit line.

Also during October of 2008, Lakes closed on a two-year interest-only $8 million non-revolving line of credit loan agreement with First State Bank. The interest rate of this loan is 8.95%. Lakes has drawn $2 million on this loan agreement. Lakes had notes receivable from Indian tribes recorded at $63.9 million as of December 28th, 2008. Long-term contract acquisition costs payable related to the Pokagon Band project were $5.3 million as of December 28th, 2008.

During fiscal 2009, we expect significant revenues from the management of Indian casino properties, including from the Four Winds Casino Resort, from the Cimarron Casino, and from the Red Hawk Casino, which opened in December of 2008. However, we do not plan to provide revenue guidance.

In 2009, we plan for selling, general, administrative expenses, excluding the costs incurred in fiscal 2008 for the Ohio Casino Resort initiative to remain relatively flat or slightly below the 2008 SG&A costs. In addition, we currently expect amortization of intangible assets related to Indian casino projects to increase in 2009 as a result of amortization expenses associated with the Red Hawk Casino in 2009.

We continue to move forward focused on increasing shareholder value. We fully recognize that our long-term success depends not only on achieving strong operating performance at each of our managed properties during 2009, but also on seeking new business opportunities, which will help us reach our goals.

With that, we'll turn it back to Lyle for a wrapup.

While we were disappointed with 2008's overall bottom line results, which were negatively impacted by costs associated with the [My Ohio Now] Casino Resort initiative, as well as writedowns of assets related to our Jamul and Vicksburg projects, we were pleased with the results from our managed properties. For 2009, we remain focused on successfully managing our current operations. We will continue to work hand in hand with our travel partners to bring our projects to fruition and with the cash we expect to accumulate over the next few years, we will continue to explore various alternatives to best utilize this capital while increasing long-term value for our shareholders.

With that, I will turn the call over to the operator for questions.

Thank you, sir. (Operator Instructions) Our first question will come from the line of Clint Morrison of Feltl Company. Please proceed.

Hi, Lyle and Tim. Red Hawk, I think you just indicated that you did get a management fee of some sort in December and January. Obviously February is done. Can you give us any hint, is February up, down, comparable to January, sort of what's your thought there?

As far as February results, I mean the month is over. The financial statements aren't prepared yet, but I think what we saw in February was continuing trends similar to what Lyle had mentioned with table and food and beverage and certainly the number of guests doing very well. But with continued need to perform better on the slot machines.

Okay. So it doesn't sound like from -- without the numbers at this point, it was a significantly different performance from what we had seen in the previous period? Is that kind of what I'm hearing?

Well, I think what we're hearing is that we'll continue with the trends as we saw in the January period.

Okay. If you look at your fees, obviously the -- the numbers from essentially Four Winds and Cimarron on an annualized basis were down from the December -- I mean from the September quarter, and obviously some of that is seasonal. Typically ignoring the economy and so forth, do we have a sense as to kind of what the seasonal change would be fourth quarter over third quarter? Do you see what I'm getting at? You annualize, or you did about $5.5 million versus about $6.5 million in the previous quarter. I'm trying to get a sense of how much of that might be sort of the weak economy versus how much might be kind of the typical seasonal December quarter being weaker.

From our perspective, the, it's definitely seasonal. Four Winds, for sure that was seasonal. And I think as we mentioned, year-over-year, it was very comparable from fourth quarter to prior year fourth quarter, even with the Horseshoe opening up, it's mother of all boats as they indicated in August. It's hard to tell if there's an economy. I'm certain there was some economy effect on the numbers, but again, and certainly it was seasonality, but it's hard to understand if it's one way or the other.

Clint, this is Lyle. Just saying that the one thing is that the Northern Indiana River -- the Northern Indiana market is public record and if you went there and you looked at their seasonality, that would give you a good indication.

Okay. Operating expense, I think you kind of indicated down for the year. Is the fourth quarter that we saw sort of a reasonable proxy going forward, or do we think there's sort of still some more cost cutting coming?

I think, again, that you'll see some additional cost cutting. We're very focused on our cost ratios and I think the fourth quarter clearly it wouldn't be in excess of that for the whole year, but I think we're going to be looking at additional cost cutting, where we can.

And with Red Hawk now open, best guess on kind of what's sort of the depreciation and amortization expense is on a quarterly basis?

The amortization we showed from Pokagon contracts will remain consistent. Then you picked up the Shingle Springs intangible is about $22 million and that just spread ratably over the 84 months of the contract.

Okay. So we can just add that on to what we were doing before?

Right.

Okay. And tax rate assumption for next year on a reported basis?

Well, I probably couldn't give you a tax rate assumption. I will say that we still continue to have some NOL carry-forwards of about $10 million, we have some capital loss carry-forwards of about $5 million. So that will be used to offset virtually any taxable income that we achieve throughout the year. So it certainly won't be a full rate in effect, next year because we will shelter that somewhat with the NOLs.

So as we're trying to build our model, what would you suggest we use as a sort of a reported tax rate?

Well, our statutory rate's still about 40%.

Yes.

So use that and then with the guidance on the NOLs and capital losses, just apply that against it.

Okay, and can you give us for Jamul, you obviously had a big writeoff. What was the total for sort of the notes and land assets Q3 and now after the big write-off, what's the total for Jamul on the books?

On the books?

Yes, just sort of adding up the land and the notes and whatever you've got left as investment in the Jamul project.

Well, what we got left on the books, on the notes is worth about $7 million, $7.1 million, I believe, is the note total left on the books.

Yes.

Okay. And the land is is about $500,000.

Okay. So I can back into what it was before that. And are there -- you obviously just had a big hit. Are there any covenants either in that $8 million credit line or your ARS line that are at issue with you guys having obviously a huge loss and a big change in your balance sheet?

Nope, no covenants effected. In fact, there aren't really any covenants in that loan.

Okay. I didn't think so. I just wanted to make sure. Okay. Takes care of me, thank you.

Our next question will come from the line of [David Hargreaves] of Sterne Agee. Please proceed.

Hi, gents. Do you have Pokagon and Shingle reporting dates at this point or can you give us an idea of when we're going to see numbers for those credits?

Well, I think it's towards the end of March. I don't know if I have an exact date yet. It's the last week of March, though, we'll be announcing the investor calls for each of those.

Okay, and when you talk about improved results at Four Winds, I mean I think you sort of clarified with share, but I'm just wondering, then you're talking revenue or margin or both?

Well, definitely margin, I guess is what I'm primarily referring to, which effects our management fees.

Okay, good. And what's the blue chip impact looking like since the opening of the hotel?

It's -- I probably would say it's -- we certainly haven't seen any negative impact in our opinion. The, I think they opened that last week of January and that particular weekend was one of the best weekends we had. So we would like to say they are just bringing more customers to their general market area, but we certainly haven't quantified any effect.

I think it's also -- it's important to remember that in this market it's a drive-in market, so virtually everybody -- almost every single customer, staying at the Blue Chip is a drive-in customer. And as you know, people like to go to other casinos, especially to see the bigger, the big dog on the block, so to speak. So we think we're a net revenue increase because of their hotel rooms.

Makes sense. But does this effect your plans in terms of wanting to expand the hotel capacity?

No, not at all.

Not at all, okay. Now, in terms of what's going on at Fire Keepers and Gun Lake, have you had any changes in your expectations as to what impact you think those properties might have?

Well, certainly the Fire Keepers will have an impact in that particular market area. It's not a big part of our market, but clearly they are going to build a casino that's closer to the customers in the Kalamazoo area. Gun Lake, of course, is still probably several years away from opening and that will have much less of an impact.

Given Station's pretty well documented problems out there, is there an opportunity for Lakes to take over Gun Lake or Grayton?

No, we have a -- we have restricted covenants with the tribe on that.

What about the one north of San Francisco, that great [Morantaria] facility?

That one would be within the scope that we could do if we wanted to. At this point, it appears Station's not talked about abandoning that in any way.

They have to abandon it, or I mean you guys--

Well I think there's something call contract interference, so as long as they have a valid contract with the Tribe and they are performing, I don't think we would get involved in any way with it.

Okay, and then so you have a right to open up a Pokagon satellite facility of 1000 slots. Has there been any change to your plans there?

We're still just working with the Tribe for the, looking at the study, economic studies. And obviously we'll be part of it, but it's the tribal council decision on how they want to proceed and we're actively working with them on both the satellite casinos, as well as expansion of the main casino.

So we shouldn't be thinking there's anything immediate there, then?

I don't think so. I, I would tell you that I don't think anything would start construction at the earliest before the end of this year and opening up sometime in early 2011.

Okay. That's useful. Under Shingle Springs, I guess you guys have been guiding towards win per slot of 350, which -- I guess I'm trying to get a sense. You're not going to be providing any guidance along those lines going forward since it's open now?

No, we wouldn't be.

In the 10-Qs?

No.

Is it possible to give us some sort of percentage or characterization as to where it is relative to what you thought it would be?

David --

75% of what you thought?

We really don't comment on those specifics. As you know, they are tribal-owned properties, pretty sensitive to releasing that kind of data.

Can we say that when you say overall there was a general comment it's in line with expectations, and does that imply that the tables were that much stronger and made up for the slot shortfall, or--

Well, I think what we referred to was December was in line with expectations. That was just the first two weeks. So it's pretty hard to establish a trends based on two weeks of results.

So things really did soften up going into January? When you said February was a continuation of January, I didn't know how much January had been off. I mean how --

Well, again, it's all relative off, right? We have no year-over-year to compare to, so what we're really just saying is the slot results aren't probably what, as much as we expected. But, again, and that continues the trend through February.

I mean, you know I'm constructive on this story. I want to help. And these bonds are in the 50s which imply the thing's going to probably spontaneously implode and I'm just trying to get any kind of comfort I can offer people that it's not that bad. If you could make any kind of comment. Well, you talked about ROI. I assume that implies that -- healthy credit stats.

Sure. I, I would say they are still healthy credit stats and we can certainly maybe talk more about that on the Shingle Springs bond call.

Is there a chance that the Tribe has an, an -- maybe they have -- maybe they haven't built up a lot of cash yet, but bonds in the 50s, I mean that's pretty attractive. Possible repurchase activity?

Again, we'll have to discuss that with the Tribe and then we can talk about it on their call.

Okay. Do you have a final budget yet for that property?

We're close. We're gathering the final numbers and closing out contracts with -- the general contracts are in the subs now.

Because I remember when Pokagon finished, you had some left over that you could use to repurchase bonds and you did. Any chance of a similar type of action here?

We don't anticipate that happening at Shingle Springs.

I see. And any, any liability related to that KAR licensing that we've been waiting on, those partners? You don't have to make any accruals for them in case they get licensed?

At this point, we -- the general rule of law of the National Indian Gaming Commission is there's no accrual that until a person gets licensed, they don't get anything. And when they get licensed, if and when they get licensed, they start getting paid from that point on.

So there's no -- okay, great.

So there's no accrual at this point. Both of them are still going throughout licensing process with the National Indian Gaming Commission and that's all we know because we, that's all we know, is they haven't been and they are still pursuing.

Excellent. Does this recent supreme court ruling effect you guys at all?

We don't think it affects us. Of course all of our casinos that are open.

There's nothing built on -Jamul yet?

No, but Jamul's land has been in trust and this pretty much -- the interpretation is that it's going to effect taking lands into trust in the future, but nobody's going to expect it to go back and saying okay lands that are in trust are going to come out of trust.

And with respect to your Vicksburg project, I mean there's sort of well documented problems that the Choctaws are having to the east and it just seems like that market's struggling a lot. I'm wondering if your view of that is that that's more of something that is a problem for Choctaw or if that's a problem for that region and why --

I think it's both, but I think it's -- the bigger problem is for Choctaw. I think Choctaw just basically overbuilt. They added that second casino and I think they didn't get the incremental increase in revenue, so basically they did what a lot of other casinos have been doing lately, they spent a lot of money on capital, but with no real improvement in top or bottom line, so basically just no return on investment.

In the Vicksburg market, to my knowledge, it's fairly static right now. I mean it's fairly stable, but at this point, with interest rates the way they are, it really doesn't make it a viable project such that some point in the future it might be or we may sell the land to somebody who has a lower cost of capital.

But you're still convinced of the demand for a large scale project like you're contemplating in that market?

Yes, I think it's -- I think it will hurt other people, but, yes, I think it's still a viable project.

What about, I should probably be able to infer a lot of this from the stats you gave us, but what about your ability to be acquisitive at this point? It's going to be a lot of properties coming up for sale.

Well, that's true. The problem, if you look at our balance sheet though, our stock price isn't one that we will really going to be able to acquire with the stock price and the cash buildup probably won't accrue, won't be substantial until 2010 or 2011. So although we keep looking and kicking tires, it's not that we're probably not going to be aggressive in the acquisition mode because we don't have the currency to do it with.

High yield market's still here. We miss you guys. Give me a call. Thank you.

Okay.

Our next question will come from the line of Justin Sebastiano of Morgan Joseph. Please proceed.

Thanks. Hi, guys. The slow start you're seeing at Shingle Springs, I mean it sounds very familiar. It's kind of what I think you guys were going through at the Four Winds when that first opened. Are you seeing similarities in the slow start, maybe it's the product mix, maybe it's the way -- where the hold is set? Can you give me maybe a little bit more color as to a little bit more than just saying it's below expectations?

Well, yes. Certainly we're -- it's some of the similar problems, but some are different. We don't have a hold percentage issue of any kind. We're still pretty much with the market and that's fine. What we're seeing, of course, is when you have a new casino open, you do get what we call a lot of looky-loos. And if we look at the customer guest count, it's fantastic, but our win per customer is below that in which we achieve in Michigan.

And that's a combination -- so it's a combination of three things. Number one, marketing, so getting more people, but more importantly, getting the right people. That involves obviously we're starting to accumulate a very substantial database with our players guard and to bring your better players back more frequently is certainly a goal. Also to reach out in markets further out, like in the San Francisco market helps because the further people come from, the more they spend.

And then lastly, and this is just every -- this is ongoing in every casino, every quarter. And that is readjusting your slot mix, but you'll have much more dramatic readjustment in the first six months of any casino because you obviously change the machine, get more of the good -- of the machines that the customer likes and you decrease the number of the ones they don't like. And although you do that every single quarter, you'll do more of that in the first six months or nine months of a casino than you ever will after that. And we're focused on all three of those.

Okay. What percentage of the floor is participation games?

It's a small percentage, but I think it's in the -- Tim, you can correct me if I'm wrong, is it maybe 6%, 7%?

That's about right, yes.

Okay. Do you think you'll stay at that level?

We have no intentions of going higher.

Do you think you'll bring that down more?

Well, probably not. I think that's probably in the range. Although it has to do -- again, we just look at performances. It's actually the customers tell us. Obviously if they have a participation game. It has to be well above average, but if it is, the customer's saying I want it.

Okay. And then, Tim, if you could give us the face value and then the fair value of the Shingle Springs notes.

Let's see, the face value of Shingle Springs notes are about $74 million.

Okay.

Fair value is about 53 million.

Okay, and how will that be paid out to you guys? Is that -- like do you get quarterly payments from them over time with interest, or how is that working?

It's -- the 74 was fixed as the principle amount at the time the casino opened. And now we'll get paid back principle and interest, interest at prime plus two ratably over the seven-year contract, amortized each month, so we'll get paid each month.

Okay.

So it's like a seven-year fully amortized loan.

Right, okay.

Paid monthly.

And so where does that show up? Is that a net realized gain from the tribal, from the Indian tribes? How does that -- where does that flow through?

Well, interest -- is in interest income. And then the principle is just a reduction in the note receivable.

Okay, just because your interest income looked pretty small but I guess it only had two weeks in there.

There's only two weeks.

Okay. Looking at your interest expense, I mean that was a lot higher than what looks like it should be based on your debt levels. Why is it at that level?

Yes, the interest expense, remember, it's a little confusing, but if going back to Pokagon we have that -- well, bounce back technology and the Harrah's commitments. And so as those cash payments get made, there's a difference between the intent -- the book value and the cash payments and that gets amortized basically in the interest expense over the life of the five-year contract.

Okay. And the Harrah's--

I'm sorry. It's not like interest on a loan that we have outstanding. It's really interest against the payments we need to make to Harrah's and CRC.

Okay. But the Harrah's -- that's not the life of the Four Winds contract is it?

No, that ends this fall, I believe.

Harrah's last payment is August of this year.

Right, so then we can expect interest expense to come down since that goes away?

Yes, that's true.

All else equal?

Yes.

Okay. nd your involvement with My Ohio Now now and Penn National's efforts to possibly bring casino gaming to Ohio, I mean is there -- are you guys involved with that?

Let me just comment that there were several articles in the Ohio newspapers that I would have to report were probably fairly accurate, which means that Penn National and the Cavaliers -- the owner of the Cavaliers were in discussions about possibly sponsoring a referendum. And they included us in some talks as being participant and at this point we're talking.

Okay. So do you have -- I mean I know -- I don't know if you maybe had an option on the land, or do you own any land in Ohio?

We own nothing in Ohio.

Okay. Okay. So right now it's just talks?

At this point, it's at the primary movers and shakers are Penn National and the Cavaliers, the owner of the Cavaliers. And if that goes forward, there is a possibility we may be a minority player in that.

Okay. Have you talked about how much you would have to invest?

It's been discussed, but it's a relatively very modest amount.

Okay. Modest compared to what you guys put up--

Very modest.

Okay, and then the contract acquisition costs payable, Tim, that's on your liabilities, you've got the 5.3 in long-term and then 2.1 in the current portion. That -- I mean I guess that's not considered debt. If -- that is an obligation, though, right? So I mean that could technically be considered -- we should maybe net that against cash if we're trying to value the stock, right?

No, well Tim answer that.

I would say no not only because we have that obligation as long as we're there earning cash.

Okay, so if Four Winds goes away?

Right. If we're no longer the manager, the obligation goes away.

Understood. Okay. Thanks, guys.

Our next question will come from the line of Rob [Wilamouth of Insight Investment]. Please proceed.

Hi, guys. How are you doing?

We're good.

Good.

Good. Just had a question, a few questions for you really to Michigan and the Four Winds and some of the competitors there, or future competitors. First, I remember hearing sort of towards the end of last year that your win per slot there was in the 270 range. Is that the case? And is that holding up as we speak?

Well, we never released that information, so we've not really inclined to comment on it at this time.

I think we can comment that whatever it was is holding up.

It is holding up, okay. And then I was curious, just obviously anecdotal, but do you have any opinion as to why that's holding up, just in light of the economy and Michigan and that kind of thing?

Because we're fabulous marketers.

Well, I figured that.

Well Pokagon is the -- I mean the Four Winds casino is just a first class casino. Obviously it's superior to the boats that are there, although I can't say that it's, it's very equal to the new barge that Harrah's just brought in. But we're very dominant in our market area. And remember, we don't market just to the Chicago market. We market very heavily to Northern Indiana and Western Michigan.

I've actually been in the casino there and I agree that it's definitely a nice facility.

And Sacramento is equally as nice.

Okay. So in terms of the Four Winds, you said you've seen improved results. Is that going back to the gentleman, David, who spoke earlier from Sterne Agee, is that because of just the -- he mentioned you guys had sort of a slow startup there. Is that partly just because of getting the wrinkles out of the initial startup?

I think it's just maturing of the casino. Again, having a much larger database to market to, adjusting your slot mix better. Just all the fine tuning that you do. Obviously your expense side. Whenever you open a casino, you're usually overstaffed and over through attrition and both by the employee side, as well as our deliberate side. You bring your associate -- your associate employees down. So it's been just a very concerted effort to watch the expenses and grow the revenue.

Okay. And then just a few other quick questions. Gun Lake, the time line there, what would be sort of just in your opinion the best case scenario for them in terms of when it would open and then what do you think the worst case is?

Well, best case is, they talked about starting construction in literally a month, which may or may not happen. I don't think so. And probably best case would be opening in 18 months from today. Worst case could be that because their land was recently just taken into trust, and I'm going to suggest that I don't think that any trust land is going to go out of trust, but the, the people who don't want casinos in Michigan are very active in lawsuits.

And I think they will probably bring a lawsuit that will suggest that it shouldn't -- it should go out of trust and I think I read someplace where they are already doing that. So the question is with that lawsuit, can they finance the casino with that lawsuit over hanging? So worst case literally could be it couldn't start for a couple of years if that lawsuit prevented them from getting financing and probably Station's casino isn't in the financial position to guarantee any kind of financing.

And isn't -- aren't the -- isn't that type of financing like the one that was done last year for Fire Keepers, isn't that sort of -- those sort of few and far between right now?

Yes, very few, very far between, and very expensive.

Okay. Next question, Chrysler ,GM bankruptcy, any impact? Do you see any impact on Four Winds if that happens?

Well, they are in the western Michigan market. I think certainly if there's more -- I mean the bankruptcy itself is immaterial. It's what happens to jobs.

Yes.

And certainly if, if jobs and not just jobs in Detroit, but jobs in their plants, but as we all know the spillover effect of all that, I think that certainly will -- will affect, not could, will. To what extent, I don't think we could predict.

Okay. And I think that's it. I appreciate your time.

Okay. Thank you.

Our next question will come from the line of Mike Grondahl of Key Colony. Please proceed.

Hi, guys. Could you talk a little bits about what you want to do with your cash? You have a small cash balance today, but you'll be growing that over '09 and '010 and have you thought at all about a buyback just beginning ever so slightly? You don't have currency to do a whole lot. What are your thoughts about it?

Well, I'll talk a little bit about it. Certainly as we accumulate cash, we're not -- we don't want to hoard it. We would be looking simultaneously at other business opportunities in the gaming space primarily and we would also be looking as alternatives as a stock buyback. And that all would depend on what the opportunities are and of course what are the, with the way the stock price, is it's a balancing act.

But I think I publicly told you before and told other people that we clearly would be looking to -- if we do any kind of an investment in a new opportunity, it would have to have an ROI substantially greater than what we would get by just buying back our own inexpensive stock.

Okay, good. Thank you.

We have a follow-up question from the line of Clint Morrison. Please proceed.

Hi, Tim. I just wanted to make sure I fully understood on the depreciation and amortization. The number obviously, what, $1.7 million or $1.8 million in the last quarter. Does that change at all because of all the write-offs you guys had or do we just basically take this new roughly $700,000, $800,000 and add it on to that for the quarterly number going forward?

Just take the new Shingle Springs amount and add it on.

Okay. That's all I needed. Thanks.

Yes.

At this time, I show no further questions in the queue. I'll turn it back to management for closing remarks.

Well, this is Lyle. I just wanted -- for Lyle and Tim both. We want to thank you all for your interest and we hope that we've brought you up to date on our Company. Tim, anything additional?

No. We appreciate you joining us on the call today.

Okay. Good-bye.

Thank you, sir. And thank you for your participation in today's conference. You may now disconnect. Have a great day.