GOLDEN ENTERTAINMENT, INC. - Quarter Report: 2007 September (Form 10-Q)

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

 

 

Form 10-Q

 

 

Commission File No. 0-24993

 

LAKES ENTERTAINMENT, INC.

(Exact name of registrant as specified in its charter)

 

 

 

(952) 449-9092

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o     Accelerated Filer þ      Non Accelerated Filer o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

 

As of November 5, 2007, there were 24,515,675 shares of Common Stock, $0.01 par value per share, outstanding.

 

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

INDEX

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Condensed Consolidated Balance Sheets

 

 

See notes to unaudited condensed consolidated financial statements

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss)

 

 

See notes to unaudited condensed consolidated financial statements

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Cash Flows

 

 

See notes to unaudited condensed consolidated financial statements

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

The unaudited condensed consolidated financial statements of Lakes Entertainment, Inc., a Minnesota corporation (“Lakes” or the “Company”), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. Accordingly, certain information normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States has been condensed and/or omitted. As of September 30, 2007, Lakes owned approximately 61% of WPT Enterprises, Inc. (“WPTE”). Accordingly, Lakes’ unaudited condensed consolidated financial statements include the results of operations of WPTE, and a substantial portion of Lakes’ revenues for the periods reported have been derived from WPTE’s business. For further information, please refer to the annual audited consolidated financial statements of the Company, and the related notes included within the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, as amended, previously filed with the SEC on October 19, 2007, from which the balance sheet information as of that date is derived.

 

In the opinion of management, all adjustments considered necessary for a fair presentation have been included, consisting only of normal recurring adjustments. The results for the current interim period are not necessarily indicative of the results to be expected for the full year.

 

WPTE has reclassified $7.0 million of investments in marketable securities that were previously reported erroneously as current assets to non-current assets as of December 31, 2006. This reclassification is also reflected in Lakes’ Unaudited Condensed Consolidated Balance Sheet. In addition, certain other minor reclassifications to amounts previously reported have been made to conform to the current period presentation. These reclassifications had no effect on net earnings (loss) or shareholders’ equity as previously presented.

 

 

At September 30, 2007 and December 31, 2006, long-term assets related to Indian casino projects are primarily related to three separate projects for the Pokagon Band of Potawatomi Indians (the “Pokagon Band”), Shingle Springs Band of Miwok Indians (the “Shingle Springs Tribe”) and the Jamul Indian Village (the “Jamul Tribe”) as indicated in the following tables (in thousands):

 

 

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

 

 

 

Pokagon Band.

 

On August 2, 2007, the Four Winds Casino Resort in New Buffalo, Michigan opened to the public. Lakes has a five-year contract for management of the Four Winds Casino Resort. Accordingly, management fees for the approximate eight weeks of operations since the opening have been included in the accompanying unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2007.

 

On March 2, 2007 (the “Settlement Date”), Lakes contracted with a group of investors for their participation in the loans made by Lakes to the Pokagon Band for the development of the Four Winds Casino Resort, which loans have been assumed by the Pokagon Gaming Authority. As of the Settlement Date, the face value of Lakes’ notes receivable was approximately $104.2 million, including accrued interest of approximately $33.0 million. On the Settlement Date, Lakes transferred 100% of the Pokagon Gaming Authority loans to the aforementioned group of investors for cash proceeds of approximately $102.1 million, which was based upon the accreted value of the Pokagon Gaming Authority loans less a two percent discount. Lakes incurred transaction fees of approximately $1.1 million, which were recorded as a reduction of net realized and unrealized gains on notes receivable in the accompanying Unaudited Condensed Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss). Accordingly, based upon the previously recorded estimated fair value of the notes at December 31, 2006, Lakes realized a gain of $0.5 million as a result of the consummation of the participation agreement.

 

The participation agreements also allow the participants to pledge or exchange the notes receivable and Lakes no longer has any rights or obligations with respect to the loans and is isolated from liability, even in default. As a result, the Pokagon notes receivable participation transaction has been treated as a sale pursuant to Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. The sale does not have any effect on Lakes’ related management agreement with the Pokagon Band.

 

The participation agreements entitled Lakes to appoint an agent for purposes of servicing and administering of the loans. Accordingly, Lakes has appointed Bank of America, N.A. (“BofA”) to provide these services for an annual fee of approximately $20,000.

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

Shingle Springs Tribe.

 

The following table provides the key assumptions used to value the notes receivable at estimated fair value (dollars in thousands):

 

 

 

 

On June 28, 2007, an affiliate of the Shingle Springs Tribe closed on a $450 million senior note financing to fund the Foothill Oaks Casino project in Shingle Springs, California. Immediately following the closing of this financing, Lakes was repaid approximately $17.2 million by the Shingle Springs Tribe for land Lakes had previously purchased on behalf of the Shingle Springs Tribe, and for certain construction advances including accrued interest thereon. Lakes, through a wholly-owned subsidiary, has management and development agreements with an affiliate of the Shingle Springs Tribe to develop and manage the Foothill Oaks Casino. Amounts owed to Lakes under the management and development agreements are subordinated to the $450 million senior note financing.

 

The net unrealized gains on notes receivable related to the Shingle Springs Tribe casino project were $1.2 million and $2.6 million for the three months ended September 30, 2007 and October 1, 2006, respectively, and $7.9 million and $5.1 million for the nine months ended September 30, 2007 and October 1, 2006, respectively, and are included in the accompanying Unaudited Condensed Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss).

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

Jamul Tribe.

 

The following table provides the key assumptions used to value the notes receivable at estimated fair value (dollars in thousands):

 

 

The net unrealized gain (loss) on notes receivable related to the Jamul Tribe casino project were ($1.8) million and $1.1 million for the three months ended September 30, 2007 and October 1, 2006, respectively, and ($0.1) million and $8.4 million for the nine months ended September 30, 2007 and October 1, 2006, respectively, and are included in the accompanying Unaudited Condensed Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss).

 

 

Intangible assets consist of costs associated with the acquisition of the management, development, consulting or financing contracts related to tribal gaming projects and are periodically evaluated for impairment after they are initially recorded. Information with respect to the intangible assets related to the acquisition of management, development, consulting or financing contracts by project is summarized as follows, (in thousands):

 

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

Lakes amortizes the intangible assets related to the acquisition of the management, development, consulting or financing contracts under the straight-line method over the lives of the contracts in accordance with FASB No. 142, which commences when the related casinos open. Amortization expense related to the Four Winds Casino Resort commenced upon opening in August of 2007.

 

The opening of the Four Winds Casino Resort triggered obligations for Lakes to pay two unrelated third parties amounts related to the acquisition of the management contract with the Pokagon Band. The first obligation of $10.6 million is payable quarterly for five years and the second obligation of $3.2 million is payable monthly for two years. These obligations do not have a stated interest rate and have payments terms which extend beyond one fiscal year. As a result, these intangible assets and related obligations have been recorded at their net present value. The intangible assets are being amortized over the life of the management contract.

 

The related obligations have also been recorded at their net present value and the difference between the face amount, $13.8 million, and the net present value of the obligations, $9.8 million, is recorded as a discount, which is amortized to interest expense as the payments are made pursuant to the respective agreement.

 

For the three and nine months ended September 30, 2007, Lakes recognized approximately $1.1 million of amortization expense for intangible assets related to Indian casino projects and $0.3 million of interest expense related to the obligation to third parties for acquisition of the Pokagon management contract. There was no amortization or interest expense related to intangible assets recognized in the comparable 2006 periods.

 

During fiscal 2006, Lakes recognized a $1.2 million impairment charge related to its intangible asset related to the acquisition of the management, development and consulting contracts with the Pawnee Nation’s Chilocco Casino and Travel Plaza.

 

 

On March 2, 2007, Lakes repaid its $105 million credit agreement with BofA and certain lenders under a financing facility (the “Credit Agreement”), using proceeds received from the Pokagon notes receivable participation transaction (as described in Note 2) in addition to amounts previously included in a restricted interest reserve account related to the Credit Agreement. Lakes incurred approximately $1.1 million in a prepayment penalty associated with the payoff of the Credit Agreement. The prepayment penalty, along with the remaining unamortized portion of the related debt issuance costs and unamortized discount of approximately $1.8 million and $0.9 million, respectively, were also written off, resulting in a loss on extinguishment of debt of approximately $3.8 million in the first quarter of 2007, which is included in the accompanying Unaudited Condensed Consolidated Statement of Earnings (Loss) and Comprehensive Earnings (Loss).

 

 

Pursuant to the terms and conditions of a financing agreement dated as of February 15, 2006 among Lakes, PLKS Funding, LLC and various subsidiaries of Lakes, PLKS Holdings, LLC (“PLKS”) was granted a warrant to purchase common shares of Lakes at $7.50 per share (the “Warrant”), which had an expiration date of February 15, 2013. During April 2007, PLKS exercised and purchased 102,500 shares underlying the Warrant at $7.50 per share and paid Lakes $0.8 million.

 

On May 4, 2007, Lakes and PLKS amended the exercise price of the Warrant (the “Amendment”). The Amendment reduced the exercise price of the Warrant from $7.50 per share to $6.50 per share for the remaining 1,147,500 shares underlying the Warrant. In consideration for the amended exercise price, PLKS agreed to, within two days of the execution of the Amendment, exercise the Warrant with respect to the remaining 1,147,500 shares underlying the Warrant and pay the aggregate exercise price of $7.5 million, which PLKS did on May 7, 2007. The Company calculated the impacts of the Amendment’s reduction in the exercise price and of PLKS’s agreement to exercise the Warrant within two days of the Amendment’s execution on the fair value of the Warrant using a Black-Scholes pricing model; this calculation of the impacts consisted of valuing the Warrant with and without the

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

Amendment in force. The variables used in the Black-Scholes model were the value of the common stock on which the Warrant was written, the Warrant’s exercise price, the period of time until the Warrant’s expected expiration date, the expected price volatility of the common stock, the zero-coupon risk-free interest rate applicable to the period of time until the Warrant’s expected expiration date, and the present value of the expected dividends on the common stock during the term of the Warrant. As a result of the reduction in exercise price of the Warrant, Lakes recognized a stock warrant inducement discount of approximately $1.4 million during the second quarter of 2007, which is included in the determination of net earnings available to common shareholders for the nine months ended September 30, 2007 in the accompanying Unaudited Condensed Consolidated Statement of Earnings (Loss) and Comprehensive Earnings (Loss).

 

 

The following table summarizes the consolidated share-based compensation expense related to employee stock options and stock purchases and non-vested shares under Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment-Revised 2004 (“SFAS No. 123(R)”) for the three months and nine months ended September 30, 2007 and October 1, 2006, respectively.

 

 

No income tax benefit was recognized in Lakes’ Unaudited Condensed Consolidated Statement of Earnings (Loss) and Comprehensive Earnings (Loss) for share-based compensation arrangements for the three months and nine months ended September 30, 2007 and October 1, 2006. Management assessed the likelihood that the deferred tax assets relating to future tax deductions from share-based compensation will be recovered from future taxable income and determined that a valuation allowance is necessary to the extent that management currently believes it is more likely than not that tax benefits will not be realized. Management’s determination is based primarily on historical earnings volatility, the relatively short operating history of WPTE, and Lakes’ current stages of planned operational activities.

 

Lakes and WPTE both use a Black-Scholes option-pricing model to value stock options, which requires the consideration of historical employee exercise behavior data and the use of a number of assumptions including volatility of the companies’ stock prices, the weighted-average risk-free interest rate, and the weighted-average expected life of the options. Since neither Lakes nor WPTE currently pay dividends, the dividend rate variable in the Black-Scholes model is zero.

 

The following values represent the average per grant for the indicated variables used to value options granted during the three months and nine months ended September 30, 2007 and October 1, 2006, respectively. There have been no significant changes to the assumptions thus far in 2007 and none are expected during the remainder of 2007.

 

Lakes’ stock option plans:

 

 

 

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

 

 

At Lakes’ annual shareholder meeting, which was held on June 6, 2007, Lakes’ shareholders approved the 2007 Lakes Stock Option and Compensation Plan, which reserves a total of 500,000 shares of the Company’s common stock. Shares that are subject to awards that terminate, lapse or are cancelled or forfeited will be available again for grant under the 2007 Plan. The Company issues new shares of common stock upon exercise of options.

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

The following table summarizes Lakes’ stock option activity during the three months and nine months ended September 30, 2007 and October 1, 2006 (unaudited):

 

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

The following table summarizes significant ranges of Lakes’ outstanding and exercisable options as of September 30, 2007 (unaudited):

 

 

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on Lakes’ closing stock price of $9.53 on September 28, 2007, which would have been received by the option holders had all option holders exercised their options as of that date. The total intrinsic value of options exercised during the three months and nine months ended September 30, 2007 and October 1, 2006 were $0.4 million, $0.0 million, $1.3 million and $2.2 million, respectively. As of September 30, 2007, Lakes’ unrecognized share-based compensation related to stock options was approximately $1.4 million, which is expected to be recognized over a weighted-average period of 1.3 years.

 

WPTE stock option plan:

 

 

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

 

The following table summarizes WPTE stock option activity during the three months and nine months ended September 30, 2007 and October 1, 2006 (unaudited):

 

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

The following table summarizes significant ranges of WPTE outstanding and exercisable options as of September 30, 2007 (unaudited):

 

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on WPTE’s closing stock price of $2.88 on September 28, 2007, which would have been received by the option holders had all option holders exercised their options as of that date. The total intrinsic value of options exercised during the nine months ended September 30, 2007 and October 1, 2006 were, $0.5 million and $1.4 million, respectively. As of September 30, 2007. No options were exercised during the three months ended September 30, 2007 and October 1, 2006, respectively. As of September 30, 2007, WPTE’s unrecognized share-based compensation related to stock options was approximately $2.5 million, which is expected to be recognized over a weighted-average period of 2.7 years.

 

 

For all periods, basic earnings (loss) available to common shareholders per share is calculated by dividing net earnings (loss) available to common shareholders by the weighted-average number of common shares outstanding during the applicable period. For the three months and nine months ended October 1, 2006, respectively, diluted earnings (loss) available to common shareholders per share reflects the effect of all potentially dilutive common shares outstanding by dividing net earnings (loss) available to common shareholders by the weighted-average of all common and potentially dilutive shares outstanding. Stock options of approximately 1.9 million were not included in the computation of diluted earnings (loss) available to common shareholders per share for the three months and nine months ended September 30, 2007, respectively, because the effects would have been anti-dilutive for those periods.

 

 

Lakes evaluated the ability to utilize deferred tax assets arising from net operating loss carryforwards, and other ordinary items and determined that a valuation allowance was appropriate at September 30, 2007 and December 31, 2006. Lakes evaluated all evidence and determined net losses (excluding net realized and unrealized gains and losses on notes receivable) generated over the past five years outweighed the current positive evidence that Lakes believes exists surrounding its ability to generate significant income from its long-term assets related to Indian casino projects. Therefore, Lakes recorded a 100% valuation allowance against its deferred tax assets related to net operating losses and other ordinary items at September 30, 2007, and December 31, 2006, which is the primary reason that Lakes’ effective tax rate is not comparable to the statutory federal rate of 35%.

 

Lakes has recorded deferred tax assets related to capital losses. The realization of these benefits is dependent on the generation of capital gains during the applicable carryforward periods. Lakes believes it will have sufficient capital gains in the foreseeable future to utilize these benefits due to significant appreciation in its investment in WPTE, which has a minimal cost basis and could be sold at a substantial gain. Lakes owns approximately 12.5 million shares of WPTE common stock valued at approximately $36 million as of September 30, 2007 based

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

upon the closing stock price as reported by NASDAQ on September 28, 2007 of $2.88. Accordingly, Lakes has not established a valuation allowance for these deferred tax assets.

 

Lakes is currently disputing the results of an audit by the Internal Revenue Service (“IRS”) for the fiscal years ended 2001 and 2000, and has been petitioned by the Louisiana Department of Revenue to pay additional Louisiana corporation income and/or franchise taxes for the fiscal years ended 1999 through 2002. Lakes may be required to pay taxes up to approximately $12 million plus interest and fees related to these two tax matters. Excluding these matters, Lakes is no longer subject to U.S. federal or state/local income tax examinations by tax authorities for years prior to 2003.

 

Effective January 1, 2007, Lakes adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). The adoption of FIN 48 resulted in an increase of $1.4 million in Lakes’ liability for unrecognized tax benefits, which was accounted for as a reduction of retained earnings as of January 1, 2007. The adoption of FIN 48 did not materially affect net operating loss carry forwards, the related deferred tax assets and valuation allowance thereon, nor the income tax provision through September 30, 2007.

 

At the beginning of 2007, Lakes’ liability for uncertain tax positions was $10.1 million plus an additional $8.2 million for the possible payment of interest and fees related to these tax liabilities. These tax liabilities are considered unrecognized tax benefits which would affect Lakes’ effective tax rate if recognized. Lakes records changes in accrued interest related to uncertain tax positions as a component of income tax expense. There were no significant changes in components of the liability during the first nine months of 2007.

 

Lakes files a consolidated U.S. federal income tax return, as well as income tax returns in various states.

 

Lakes believes it is reasonably possible that, within the next 12 months, it could recognize previously unrecognized tax benefits of between $0.6 million and $1.4 million as a result of the resolution of the IRS audit discussed above.

 

 

IRS tax audit.  Lakes is under audit by the IRS for the fiscal years ended 2001 and 2000. The IRS is challenging the treatment of income categorized as a capital gain. If Lakes is unsuccessful in sustaining its position, Lakes may be required to pay up to approximately $3.2 million plus accrued interest related to tax on ordinary income. Lakes has recorded a liability for this matter including interest, as described in Note 8, which is included as part of income taxes payable on the accompanying Unaudited Condensed Consolidated Balance Sheets.

 

Louisiana Department of Revenue Litigation Tax Matter.  The Louisiana Department of Revenue maintains a position that Lakes owes additional Louisiana corporation income tax for the period ended January 3, 1999 and the tax years ended 1999 through 2001 and additional Louisiana corporation franchise tax for the tax years ended 2000 through 2002. This determination is the result of an audit of Louisiana tax returns filed by Lakes for the tax periods at issue and relates to the reporting of income earned by Lakes in connection with the managing of two Louisiana-based casinos. On December 20, 2004, the Secretary of the Department of Revenue of the State of Louisiana filed a petition to collect taxes in the amount of $8.6 million, plus interest, against Lakes for the taxable periods set forth above. Lakes maintains that it remitted the proper Louisiana corporation income tax and Louisiana corporation franchise tax for the taxable periods at issue. On February 14, 2005, Lakes filed an answer to the petition to collect taxes asserting all proper defenses and maintaining that no additional taxes were owed and that the petition to collect taxes should be dismissed. Management intends to continue to vigorously contest this action by the Louisiana Department of Revenue. Lakes may be required to pay up to the $8.6 million assessment plus interest if Lakes is not successful in this matter. Lakes has determined it is more likely than not that it will not be able to support its position related to this tax matter. As such, Lakes has recorded a liability for an estimated settlement related to this examination including accrued interest and fees, which is included as part of income taxes payable on the accompanying Unaudited Condensed Consolidated Balance Sheets.

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

WPTE China agreement and related commitment.  On August 6, 2007, WPTE entered into an agreement with a Chinese government-sanctioned body with authority over certain leisure sports, including the popular national Chinese card game “Traktor Poker,” known as Tuo La Ji. During the five year term of the agreement, WPTE is to receive exclusive branding and certain marketing and sponsorship rights related to the China National Traktor Poker Tour. In exchange for these rights, WPTE is required to pay an annual fee, which starts at approximately $0.5 million in the first year and increases by 10% annually for the remaining four years of the agreement. WPTE does not consider the annual fees for years two through five to be commitments as the agreement terminates for failure of payment.

 

WPTE poker player litigation.  On July 19, 2006, a legal action was commenced against WPTE by seven poker players that alleges, among other things, an unfair business practice of WPTE. On March 14, 2007, the plaintiffs filed a motion for summary judgment in the case and on April 12, 2007, WPTE filed its opposition to the motion. On May 22, 2007, the plaintiffs’ motion for summary judgment was denied. A trial date has been set for April 1, 2008. Although WPTE’s management is currently unable to estimate the minimum loss to be incurred, if any, as a result of the ultimate outcome of this matter, it believes that WPTE is not likely to sustain any material loss in connection therewith, and accordingly, no provision for loss has been recorded in connection therewith.

 

Miscellaneous legal matters.  Lakes and its subsidiaries (including WPTE) are involved in various other inquiries, administrative proceedings, and pending or threatened litigation relating to contracts and other matters arising in the normal course of business. While any proceeding or litigation has an element of uncertainty, management currently believes that an unfavorable outcome in these matters is not probable. Furthermore, even in the event of an unfavorable outcome in one or all of these matters, the estimated effect on the unaudited condensed consolidated financial statements would not likely be material. Accordingly, no provision for loss has been recorded in connection therewith.

 

 

Lakes’ principal business is the development and management of gaming-related properties. Additionally, the Company is the majority owner of WPTE. Substantially all of Lakes’ and WPTE’s operations are conducted in the United States. Episodes of the World Poker Tour^® television series are distributed internationally by a third party distributor. Lakes’ segments reported below (in millions) are the segments of the Company for which separate financial information is available and for which operating results are evaluated by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. The total assets in “Corporate and Eliminations” below primarily relate to Lakes’ short-term investments, deferred tax assets, Lakes’ corporate office building and construction in progress related to a Company-owned casino project in Vicksburg, Mississippi. Costs in “Corporate and Eliminations” below have not been allocated to the other segments because these costs are not easily allocable and to do so would not be practical.

 

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)