Golden Entertainment Inc (GDEN) 2010 Q4 法說會逐字稿

Good day ladies and gentlemen. Welcome to the fourth-quarter 2010 Lakes Entertainment Incorporated earnings conference call. My name is Jasmine, and I will be your operator for today.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host, to Mr. Tim Cope. Please proceed.

Thank you Jasmine. Good afternoon and welcome to Lakes Entertainment's fourth-quarter 2010 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 intended results and similar statements concerning anticipated future events and expectations that are not historical facts. These statements do not guarantee future performance and are subject to risks and uncertainties, including those risks described in our filings with the Securities and Exchange Commission.

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. Then we will conduct a question-and-answer session. Now I'd like to turn the call over to Lyle Berman.

Thank you Tim. Welcome, everyone, to Lakes' fourth-quarter 2010 earnings call. The beautiful Four Winds casino owned by the Pokagon Band of Potawatomi Indians in New Buffalo Michigan, continued to post strong results, showing a significant improvement from the fourth quarter of 2009. We continue to see positive improvements in guest counts, gaming play and overall net revenue amounts, and the hotel operates at close to 100% occupancy.

Increased advertising in Chicago and a greater focus on providing an appealing and exciting product to our local customer base has resulted in an increase in the number of new loyalty club members, along with the fourth-quarter revenue improvements. We are pleased that this property continues to perform well in this market, even with increased competition.

In Northern California, the general overall economy continues to be one of the worst in the country, and the Red Hawk Casino continues to feel its effects. We saw a decrease in management fee income in the fourth quarter, and for the first time since opening, all scheduled principal payments on our loan were deferred. We do continue to receive interest payments as scheduled.

Red Hawk is taking proactive steps to improve the casino performance by implementing a variety of new marketing initiatives. Feedback from extensive guest research has enabled the property to offer a new variety of liberal slots and table game products and increased player rewards, as well as continue to emphasize quality dining with exceptional new value meals. The renewed emphasis at Red Hawk is clearly on providing great guest service, a great gamble, and superior food offerings in an overall fun and exciting atmosphere. Recent trends indicate that guests are responding favorably to these initiatives, and 2011 operating results are showing improvements compared to the fourth quarter. We are committed to achieving consistently strong operating results at this property while focusing on guest loyalty, trip frequency and employee pride. We are working closely with the Shingle Springs Tribal Gaming Authority to ensure that this property is operated as efficiently as possible for the benefit of the Shingle Springs tribe and Lakes.

In Ohio, Rock Ohio Ventures announced that it had formed a venture with a subsidiary of Caesar's Entertainment providing for the joint ownership and management of Rock Ohio Caesar's, the entity that will ultimately own, develop and operate the two Ohio casinos. Lakes continues to have the right to own up to 10% of Rock's ownership in the two casinos, provided that Lakes funds a proportionate amount of the capital required from Rock to develop such casinos.

According to public information, the first phase of the casino project in Cleveland is under construction and is expected to open in 2012 at a cost of approximately $350 million. This phase of the casino is expected to open with approximately 2000 slot machines, 65 table games, a large poker room, multiple food and beverage outlets.

The Cincinnati Casino is currently in the planning phase and is expected to cost approximately $400 million. When it opens, the casino will include approximately 2300 slot machines, 70 table games, a poker room, food and beverage outlets, and a parking structure with approximately 2500 spaces. Since year-end, we have invested an additional $6 million in these projects, and we expect to make further investments as development progresses.

With respect to the Jamul Indian Village casino project near San Diego, the tribe and Caltrans have recently entered into an agreement which will permit Caltrans to review and process the Jamul tribe's (inaudible) permit application. The Jamul tribe is currently performing various environmental and traffic studies so that it can continue to move forward with its efforts to ultimately develop a casino on its reservation. The tribe has a contract with the state allowing for Class III gaming, should all regulatory and legal requirements be met.

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

Thank you. As Lyle mentioned, the Red Hawk casinos continue to face challenges in its market and at year-end we evaluated the notes receivable from the Shingle Springs tribe and concluded that the notes receivable were impaired, resulting in a charge on notes receivables of $21 million during the fourth quarter of 2010. Lakes does not currently estimate that these principal amounts will be repaid within the contract terms due to the continued harsh economic climate in northern California and increased competition from a neighboring casino expansion in the Red Hawk market, which has negatively impacted cash flows for the property.

In addition, due to the carrying amount of the intangible assets associated with the Shingle Springs project exceeding the expected future cash flows from the management agreement for the Red Hawk Casino, impairment losses of $16.7 million were recognized on these intangible assets during the fourth quarter of 2010. While Lakes has concluded that it's probable that substantial amounts due from the Shingle Springs tribe will not be repaid within the contract term, we do expect to eventually be repaid in full, and the Shingle Springs tribe will remain legally obligated to repay any remaining amounts due to Lakes subsequent to the conclusion of the contract.

On March 17, 2011, Lakes and the Louisiana Department of Revenue entered into a settlement agreement whereby Lakes agreed to pay the Louisiana Department of Revenue $9 million in full and final payment related to a tax litigation matter. In return, the Louisiana Department of Revenue agreed to dismiss the suit and discharge Lakes from all proceedings and liabilities relating to this matter. We are pleased with the settlement agreement which allowed us to reduce our recorded liability related to this matter by $8.5 million and remove the uncertainty that had existed relating to this issue.

Net losses for the fourth quarter of 2010 were $28.1 million compared to $2.4 million in the fourth quarter of 2009. Losses from operations were $39.5 million for the fourth quarter of 2010 compared to $3.2 million for the fourth quarter of 2009. Basic and diluted losses were $1.07 per share for the fourth quarter of 2010, compared to $0.09 per share for the fourth quarter of 2009.

Lakes reported fourth-quarter 2010 revenues of $4.7 million compared to 2009 fourth-quarter revenues of $5.3 million. This decline was due to the elimination of management fees from the Cimarron casino project as a result of the termination of the management agreement for that casino in May 2010, as well as a decline in management fees associated with the Red Hawk Casino project compared to fourth quarter of 2009. The decline was partially offset by an increase in management fees earned from the Four Winds casino Resort during the fourth quarter of 2010 compared to the prior-year period.

For the fourth quarter of 2010, Lakes' selling, general and administrative expenses were $2.3 million compared to $2.9 million in the fourth quarter of 2009. Selling, general and administrative expenses consisted primarily of payroll and related expenses, trial expenses and professional fees. Decreases in each of these categories resulted in a $0.6 million decline in selling, general and administrative expenses during the fourth quarter of 2010 compared to the fourth quarter of 2009.

As I mentioned earlier, the notes receivable from the Shingle Springs Tribal Gaming Authority were impaired as of January 2, 2011, resulting in an impairment charge on notes receivable of $21 million during the fourth quarter of 2010. There were no impairment charges on notes receivable during the fourth quarter of 2009.

Lakes recognized other non-cash impairment losses of $18.8 million during the fourth quarter of 2010 and $1.3 million during the fourth quarter of 2009. The fourth-quarter 2010 impairment losses included $16.7 million related to intangible assets associated with the Shingle Springs project. Also included were impairments related to land held for development during the fourth quarters of 2010 and 2009 of $1.6 million and $0.5 million, respectively, related to the continued uncertainty surrounding the development of the Vicksburg project in Mississippi. Fourth-quarter impairment losses of $0.5 million in 2010 and $0.8 million in 2009 related to the continued uncertainties surrounding the completion of the Jamul project.

Amortization of intangible assets related to the operating casinos was $2.8 million for the fourth quarter of 2010 and for the fourth quarter of 2009. Net unrealized gains and losses on notes receivable relate to the Company's notes receivable from Indian tribes relating to casino projects that are not yet opened which are adjusted to estimated fair value based upon the current status of such projects and evolving market conditions.

In the fourth quarter of 2010, net unrealized gains and notes receivable were $0.8 million, compared to net unrealized losses of $1.4 million in the prior-year period. The net unrealized gains in the fourth quarter of 2010 consisted of gains related to the Jamul project due primarily to improvements in the credit markets. The net unrealized losses in the fourth quarter of 2009 were primarily related to the Jamul project because of further delays in expected opening date of that project.

Other income or expense net for the fourth quarter of 2010 decreased to $1 million from $2.2 million in the fourth quarter of 2009.

Income tax benefit for the fourth quarter of 2010 was $10.4 million compared to a provision of $1.5 million for the fourth quarter of 2009. The current-period tax benefit consists primarily of an $8.5 million tax benefit related to the adjustment to reduce the liability previously recorded for the tax litigation matter with the Louisiana Department of Revenue to the $9 million settlement amount.

In summary, our fourth-quarter results were significantly impacted as a result of impairment charges to our Shingle Springs notes and related intangible assets. Although we have concluded that substantial amounts due from the Shingle Springs tribe will not be repaid within the contract term, the Shingle Springs tribe will remain legally obligated to repay any remaining amounts due to Lakes subsequent to the conclusion of the contract, which we currently expect to happen. As Lyle mentioned, a variety of initiatives have been implemented to improve results at the property.

We continue to have a balance sheet with no debt, which provides us flexibility when considering potential new business opportunities. Further, we implement a reduction in corporate office positions in an effort to streamline and reduce the Company's cost structure and align our workforce with anticipated business needs.

Our business focus continues to remain on operating our managed properties as efficiently as possible and to maintain an investment in Rock Ohio Ventures and its proposed casino developments in Cincinnati and Cleveland. Jamul remains in our project pipeline, and we continuously evaluate other projects which we believe will add value to our Company in the future.

Now, I'll turn the call over to the operator for questions.

(Operator Instructions). David Hargreaves, Sterne Agee.

Hi gentlemen. I was hoping you could elaborate on Shingle Springs and the trends there, and what efforts you are making and what types of responses you are seeing to those.

We are making a great deal of effort to increase frequency of our customer base. We have a very large database. We consistently use what we call the mailbox to encourage people to come. We are -- although we focus always, we are looking -- we pride ourselves on great customer service. Most recently, though, we've tried -- we've certainly determined without a hotel that we are very primarily a locals casino. We are trying to put out -- I guess it's just to become more local-friendly to the patrons because most of our customers come within a 30-mile radius.

I guess I'm trying to get a sense for what inning you're at in terms of relaunching the property. You hired a new GM last March, new Controller last April, new slot guy last July. I think, if I'm not mistaken, you just got a new marketing person on board in December. So I'm wondering if you're still looking for new talent, apart from the ongoing process that you'd always go with. I know you just put on some new billboards in December. Have you made changes to the -- material changes to the product on the floor? What else could you tell us?

I think answer is we are probably in the fourth or fifth inning. Just [a thing] -- the new management team, and it is a new management team, is starting to work together very well. The general manager has been there since last March, so again a year. She clearly is taking the reins. I think, like I said, they have just recently relaunched a campaign, again trying to be even more user-friendly to the local population.

I think it's fair to say we've seen substantial changes on the casino floor, but again that is Casino 101. But we think we have some of many of the newest -- it's obviously a new casino. It's only been open two years, so we started out with a very new product, but clearly you have to adjust your product to your customer desires.

With the new slot -- VP of slots, he has made some major changes not only in the product itself but in the layout of the product. He comes from Station Casinos. He is very knowledgeable on slot machines. We have done a number of -- he's done a number of major changes. Most recently, I believe it opens on April 9, we had a poker room on the second -- on the main casino floor. Unfortunately, it was next to the stage, which was very noisy at times. We are moving that down to the no smoking area of the first floor. I guess you'd call it a basement, but we call it a first floor. We are moving slot machines up into that space, which is a more desirable space than the non-smoking area of the casino.

We've also changed our food product. We've lowered some prices. We've created specials at both popular times as well as off-popular times to increase visitation via that. For example, our buffet, which I think was $14.99 for lunch and $16.99 for dinner, is now $9.99 all from Sunday night until Friday noon. That's with a player's card, but of course anybody can just sign up and get a player's card.

Are you able to say if you are in compliance with Shingle's leverage covenant at year-end?

I think that's working through its process right now. That will become -- we're going to have the Shingle Springs call here the first part of the week, and we can talk in more detail about Shingle Springs at that point.

Should we be reading into anything in terms of why the numbers have been so delayed?

I think it's just all part of the process, you know, going through the various reviews, outside accountants, certainly working with the lending group to come up to a resolution that suits everybody.

I see. Are you able to say sort of which payments were made and which weren't in terms of management fees, how much were paid, loan amortization, how much was repaid? I assume all of the other obligations were repaid, but can you let us know -- were paid for the quarter?

I don't have -- I couldn't tell you the dollar amount off the top of my head. But as Lyle mentioned, I think just the principal payments on our notes were deferred. (multiple speakers) current interest was paid, and the management fees, we are continuing to earn management fees. As the net revenue each month is there, we continue to pay those as well.

All interest on the bonds as well as interest and principal payments on the FF&E notes are all paid and current.

Those are all current.

Currently, what's the run rate that the tribe is getting?

We guarantee them $500,000 a month, so they at least get that. Then of course, as net revenues exceed those levels, they get the balance.

I see. Okay, thank you very much.

(Operator Instructions). At this time, we have no further questions. I would like to turn the call back to Mr. Lyle Berman for closing remarks.

We want to thank everyone for joining us on this conference call. We will focus on continuing to execute on our long-term strategy of generating shareholder value. Thank you once again for your interest in Lakes. We will speak with you again on our next earnings call. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.