Conference Call, 03/08/97: Circus Circus Enterprises (NYSE: CIR) Q4 '96

FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

Circus Circus Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CIR)") else Response.Write("(NYSE: CIR)") end if %>
P.O. Box 14967
Las Vegas, NV 89114-4967
(702) 734-0410
http://www.circuscircus.org/

UNION CITY, CA (March 8, 1997)/FOOLWIRE/ ---Circus Circus Enterprises reported fourth quarter and fiscal 1996 results on February 27th. For the fourth quarter they reported $15.139 million in net income or $0.16 per share against $35.633 million or $0.35 per share last year. This was below analyst estimates of $0.19 per share.

TOUGH QUARTER. As advertised, it was a tough quarter with particular severity on two fronts. First, there was a construction disruption at both Circus Circus Las Vegas and Luxor. They went through the low point as to construction disruption in the quarter and the worst is behind them. They have begun rising at a pretty significant clip in February at both Circus Circus Las Vegas and Luxor, but they will not be to full earning power immediately at either property when you look at the scope of improvement.

DEVELOPMENTS AT LUXOR. They will have a graduated climb at Luxor as they complete the feeder elements to the casino which are the moving covered walkway which connects Excalibur to Luxor, and they expect to open that before the end of March. That will also, they think, drive business more to Excalibur as well. Other feeder elements are restaurants, which they will open this Spring -- particularly a steakhouse and Italian restaurant -- and a showroom, which they expect to come aboard in late Summer, perhaps October 1st. With respect to the showroom, which they'd otherwise anticipated to be about mid-Summer, they have encountered a substance which has slowed their ability to dig foundation and they have had to relocate utilities.

CASINO AND SHOWROOM. From the standpoint of the casino, showroom, and restaurant packaging as well as the walkway are all important. Some 40% of their customers go to a show in the evening and they don't have a show at Luxor. So the showroom gives them an anchor with respect to holding customers longer during their swing shift. In the evenings, they also know that their customers like to eat steak dinners and Italian dinners. They know which ones customers eat at, but the restaurants aren't open yet. And, the walkway will connect the new rooms (1,950 rooms) both ways to both casinos. So, all of those have an element of importance as to reaching their full earning power in the casino proper.

WHERE THEY ARE WITH LUXOR. They are in the 11th month of construction at Luxor. They have either remodelled or built 2 million square feel. This is not refurbishment, this is a total makeover of the property. For people who have seen the building, Circus Circus thinks they can all take pride in what they have and their expectation is that they will successfully reposition Luxor at a higher end of the market and deliver very satisfying results, but it won't be instantaneous given the scope of this overhaul. They will have, in total, somewhere through $300 million in capital invested in Luxor for improvements and the rooms when it is finished. The original cost was approximately $400 million.

FEBRUARY ABOVE LAST YEAR, EVEN WITH CONSTRUCTION. Luxor will be a key asset on the master planned mile which, in its former condition they weren't as convinced of and will, by a distance in their view, this year set its EBITDA operating cash flow record. They are on that course, they expect to top that next year and they think with Project Paradise sited next to it, they will top that number the following year. In February, they were not in construction at Luxor last year, and it appears that they will make more operating income -- more casino revenue, considerably more room revenue, and considerably more EBITDA -- than they did last year in February. So, they are on their way back and towards significant growth. At Circus Circus Las Vegas, they can make those same claims. The ascent in earnings production here has begun. Again, it is a big climb but they have come on strong in February and in all categories that matter in terms of delivering profits and the profits are above last year in February.

RENO FLOODS. Reno was another tough spot in the quarter. It was essentially a national disaster area for most of the Christmas holidays which is the opportunity you have to make money in the fourth quarter in Reno. The project, if you put their 50% of the Silver Legacy together with Circus Circus Reno, they delivered about $3 million in operating cash flow against $6.6 million a year ago. This is the year, much awaited, that the bowlers are back, which are a prime driver of the slot revenue from March to June. Both Legacy and Circus Circus have had quite satisfactory Februarys ahead of last year's same month. Silver Legacy for the year last year generated about $41 million in cash flow. Their expectation is that they will get through $50 million EBITDA this year.

LAUGHLIN NEVADA. In the non-core markets, they haven't found the bottom in Laughlin yet. They were down a fair degree in Laughlin to both properties in the fourth quarter and they can say the same for the Jean properties on the highway. Laughlin is hard to call at this point. Laughlin's challenges come two ways. First is the rapid spread of native American casinos in central Arizona which competes for the "impulse" or "day-trip" business to Laughlin. That had been a principle feeder market. There are also native American casinos in San Diego county. On the one hand, they have competitors for their day-trip business that weren't there 4-6 years ago when Laughlin hit its peak. Second, the destination customer has more choices today. In the 1980s and early 1990s, the only new buildings of any size being built in Nevada were in Laughlin. In the 1990s that has been the case on the Las Vegas Strip. Laughlin is kind of pinched between and has a little bit of the downtown Las Vegas disease. Their expectation this year is that they should be able to run relatively close to this past year, but that is not a promise. That is a market that is hard to pronounce a solution at the current time.

TUNICA COUNTY MISSISSIPPI. In Tunica County, Mississippi, they began construction on their 1,200 room tower which they expect to open in phases in December of this year. The first 1,000 rooms will be open at the beginning of December and all 1,200 rooms will be open by Christmas week. They will encounter comparisons that are difficult between now and then. They have been generating, prior to construction, about $1 million per month in operating cash flow and it's doubtful that they will keep that pace as they go through the construction phases this year, particularly as they convert the casino from the pink circus tent to a more Monte Carlo-ized, classy, dressy casino through the course of this Summer. Beyond that they think they have a property that will be a profit leader in Tunica and they think profit leadership will be 3 or 4 firms there, not the batch that are all in business there today.

GULF COAST. In the Gulf Coast, the intent is to do what they are doing in Tunica. In Tunica they will change the name from Circus Circus to the Gold Strike. What you are getting in Tunica is one broom tower of the Monte Carlo and as much as you can make over that pink tent to a Monte Carlo casino, that's what you will have there as well -- marble and chandeliers and the classic interior. At the Gulf Coast, which is the north tip of the Bay St. Louis off Interstate 10, they would look for 1,500 rooms, probably two towers, and a Monte Carlo-style casino and resort -- $225 million is the expected cost. This has been a ground war down there literally with respect to their having a number of opponents who apparently share the same view they do about the quality of the site and don't want to see them build the Gold Strike complex on that site. They have 500 acres under option and visible to the freeway. Their view is that momentum is still on their side. They have, at this point, acquired all local permits. One of those, which is essentially the discharge permit or the sanitary permit, is being challenged by their opponents who want a full evidentiary hearing of what staff had recommended and the Department of Environmental Quality there had approved. That will happen this Spring. From there they would be prepared to go to the Army Corp of Engineers and from there to get a building permit. So, the fastest they could start construction, all of that said, would be the end of this year. They probably have a 15-month construction period after that.

DETROIT/WINDSOR. In Detroit, they forewent their contract there to manage the Windsor casino. They were under a temporary agreement with the Ontario province. They have, as part of that agreement, a tail that forbids them to compete in Detroit until April 30th of this year. They are honoring that clause and expect to declare candidacy in Detroit and will pursue a casino license in Detroit come May.

MONTE CARLO IN LAS VEGAS. On the sunny side, Monte Carlo in Las Vegas continues to perform outstandingly. The run rate in EBITDA at the resort is about $95 million. That is what they delivered if you annualize the run rate in the 7 plus months it was in operation this past year. The production of profits there is intact after the opening of New York New York. In fact their headcounts at Monte Carlo went up since New York opened. That $95 million is on a denominator of actual cash to billing of $313 million. If you look at the actual cash cost of the land that was contributed by Mirage to the property, it's about a $335 million all in cost, so it's a high return project. For the seven month period it was open, the EBITDA was $57.4 with an operating cash flow margin of 35%.

STRATEGY. Popular elegance works. That's what Luxor is, that's what Circus Circus is going to be positioned as because they have rebuilt their competitive positioning on the Las Vegas Strip. It is what Monte Carlo demonstrates -- if you are the best in class and can offer a little bit more luxury for the price, you are going to appeal to the broadest market because everybody wants the best for a little less.

EXCALIBUR. The Excalibur set its record in operating cash flow for the year at approximately $102 million in EBITDA. In the fourth quarter where they figure they were a couple million dollars back of fourth quarter in cash flow a year ago. The casino revenue was $124.4 million for the year versus $120 a year ago, up 4%. In last year's January they shook out about $1 million in accruals credited to Excalibur. So, if you look at pure operations, they were pretty close to flat in the quarter. They expect to see a pickup in the walk traffic at Excalibur once the moving walkway connects Luxor to Excalibur to the corner where the bridge is at New York so people can come in and walk through the casino at Excalibur, up and over to the casino at Luxor and back.

GRAND VICTORIA RIVERBOAT. In Illinois, the Grand Victoria remains the most profitable cruising gaming vessel in the country. The numbers in the fourth quarter are a bit suppressed because of the profit sharing arrangements they have with the local entities there, both the King County and the city of Elgin. But the indicators continue to be strong. They have had upticks in their casino revenues since the opening of competitors in Indiana. So they continue to produce extremely consistent and strong results at the Grand Victoria. As far as prospects for a dockside location, there always may be a chance, but trying to handicap legislature behavior or actions is a tougher game than running casinos. They would clearly benefit by liberalization of anything to do with cruising or number of units or number of headcount/boarders per cruise. Their understanding is that their may be, on the regulatory side, some relief there so they may be able to board more people per cruise. They benefit more than anybody else in Illinois by any of those changes because they have the biggest single-level casino and the biggest boat, the most land-side tight facility -- when they pull the Grand Victoria up to the shore at 410 feet in length and hook it to the land pavilion, it looks like a land-based casino. It looks like the Colorado Belle. So, their view is that any liberalization is positive for them and they have continued to produce very good numbers even with additional competition in the region.

ATLANTIC CITY. In Atlantic City, Circus Circus continues to follow the lead of Mirage there. Mirage is the master developer for the H-track site. Circus is taking a look and has a signed agreement with Mirage. They are discussing it with Mirage. There are some cost changes since Mirage's deal with the state and the city, so that is in process currently.

MILLENNIUM SITE. With regard to the Millennium site buildout, they would say that it would be a fair expectation that they will go faster with the buildout of the Millennium than they have otherwise advertised. They intend to move fairly quickly with announcements beyond Project Paradise and we will hear something this year.

OCCUPANCY RATES/AVERAGE ROOM RATES IN FEBRUARY. In Luxor in the month of February they will run 95% occupancy with a room rate in the upper $70s, like $77 against about $84-85 about a year ago. Excalibur is running 100% occupancy and is up in average room rate to $62 against $58 a year ago. Circus Circus Las Vegas with its 1,000 new rooms is running 99% occupancy at a $50 average room rate against $46 a year ago. They think you can expect at Luxor that they will probably bring occupancy down a bit and the room rate will go up. You can expect them to generate something like a 90% occupancy rate for the year at Luxor, looking at forward bookings, with an average room rate around $80.

SHAREHOLDER VALUE. On the non-operating side, they repurchased a sizeable number of shares in the fourth quarter -- 6.4 million shares at about $33 per share. They will continue to consider share repurchase. They will be opportunistic going forward. They have a goal of maintaining an investment grade credit rating so there are some issues with respect to how much leverage and how soon. And, they are in the midst of a capital spending cycle that is pretty aggressive. As they indicated before, this isn't the end of that. They now have 94 million shares outstanding for the current quarter. Their idea of repurchase has to do with the financial strategy of the company. They are investing in a direction of this company and the insider management today owns over 20% of the stock. They have control of the prime land bank in the premier market in the world in their industry and as they build out that asset base and continue to bring on new units at a faster rate than any competitor in the industry, they intend to shrink the share base underneath those new units, which they think is a formula for shareholder value.

BALANCE SHEET AND OTHER ITEMS. As to balance sheet items, they have long-term debt at the end of the fiscal year of $1.4 billion. They finished the quarter with $69.516 million in cash. Equity was $971.79 million. Capital expenditures for the year was about $587 million. In the coming year it will probably be in the vicinity of $500 million. They expect their tax rate this year to be 37%. Depreciation in the quarter was $25.5 million in the fourth quarter and the run rate will be about $121 million.

GOING FORWARD -- PROJECT PARADISE. The buildout of this company didn't take one year, it'll take more than that. They have sort of a turnaround and growth story combined. They think they have now reached the stage where they are more on the growth story side than on the turnaround and they look forward to proving that through the coming quarters and next year (1998) when they open Project Paradise in December, which they expect to begin construction in earnest on in March. They have not announced publicly the cost for Project Paradise yet. That will be the subject of a board meeting, but they don't think anything's different from what has been out in the public at least as printed or rumored. The press has estimated $800 million to $1 billion. That's the right range and it will be closer to the $800 million than the $1 billion. There will be 3,800 rooms in Paradise proper and 400 rooms will come when they do the Four Seasons, so there will be 4,200 rooms in total in the complex.

GOING FORWARD -- PROPERTY TRANSPORT LINKS. With respect to transport and links, they think they are probably in the best shape in Las Vegas. They have two freeway exits which bracket the master planned mile at Russell Road and Tropicana. They will have a slip ramp that comes off Russell Road and expect a road there called Resort Boulevard which will be a Strip within the Strip. People can come right off the freeway exits, drop in on that road and come into all the Circus Circus properties from the back. The expectation at this juncture is that road will then go under Tropicana Boulevard on the back side between Tropicana and Flamingo and be able to deliver customers to Monte Carlo and Bellagio as well. With respect to Circus properties, all of the properties on the master-planned site which is Excalibur to Luxor (that's the walkway they open in March), Luxor to Project Paradise and beyond, there will be a transit system that interconnects all properties. They are not expresses, you are not going to be able to get on at one property and be able to arrive at the other corner in 8 seconds. The idea is that they will take people from casino to casino, people will never have to get in a car again, and they will walk across casinos. There will be any number of systems that will take you from building to building. They have the ability under their agreement with Mirage to connect Monte Carlo to Excalibur into the master-planned mile. And, of course, when Bellagio opens, from their lobby there will be a connector to where their micro brewery is at the Monte Carlo and that will be a permanent connection link as well. So, it can be the case in the not too distant future that you will have both road system and interconnect transits between the buildings on the three miles of the most vital areas of the Las Vegas Strip. That is largely because of Mirage and Circus Circus. They are the principal owners of buildings on that stretch. They are the closest to the airport and have the two closest exits to Los Angeles, so they have the best site in the city with regard to ease of entry.

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