GOLDEN ENTERTAINMENT, INC. - Quarter Report: 2008 March (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, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

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 May 5, 2008, there were 24,915,675 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 Operations and Comprehensive 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 March 30, 2008, Lakes owned approximately 61% of WPT Enterprises, Inc. (“WPTE”). Accordingly, Lakes’ unaudited condensed consolidated financial statements include the unaudited 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 30, 2007, previously filed with the SEC on March 12, 2008, 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.

 

Certain minor reclassifications to amounts previously reported have been made to conform to the current period presentation. These reclassifications had no effect on net loss or shareholders’ equity as previously presented.

 

 

On December 31, 2007, the Company adopted the methods of fair value as described in Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”), to value its financial assets. The adoption of SFAS No. 157 in the first quarter of 2008 did not impact net income.

 

The Company’s financial instruments that are measured at estimated fair value use inputs from among the three levels of the fair value hierarchy set forth in SFAS No. 157 as follows:

 

Level 1 inputs:  Unadjusted quoted prices in active markets for identical assets or liabilities, which prices are available at the measurement date.

 

Level 2 inputs:  Include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e. interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

 

Level 3 inputs:  Unobservable inputs that reflect management’s estimates about the assumptions that market participants would use in pricing the asset or liability. Management develops these inputs based on the best information available, including internally-developed data.

 

In estimating fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.

 

None of the Company’s financial assets are measured using level 2 inputs.

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

Financial assets carried at fair value as of March 30, 2008 are classified in the table below in one of the three categories described above:

 

 

 

 

For financial assets that utilize Level 1 inputs, the Company utilizes direct observable price quotes in active markets (corporate paper, municipal bond and certificate of deposit markets) for identical assets.

 

Due to the lack of observable market quotes on the Company’s auction rate securities (“ARS”) portfolio, the Company utilizes valuation models that rely exclusively on Level 3 inputs, including those that are based on management’s estimates of expected cash flow streams and collateral values, default risk underlying the security, discount rates and overall capital market liquidity. The valuation of the Company’s ARS investment portfolio is subject to uncertainties and evolving market conditions that are difficult to predict. Factors that may impact the Company’s valuation include changes to credit ratings of the securities as well as to the underlying assets supporting those securities, rates of default of the underlying assets, underlying collateral value, discount rates, and ongoing strength and quality of market credit and liquidity.

 

In addition, due to the lack of observable market quotes on the Company’s notes receivable from Indian tribes, the Company utilizes valuation models that rely exclusively on Level 3 inputs including those that are based on management’s estimates of expected cash flow streams, casino opening dates and probabilities of casinos opening, projected pre- and post-opening date interest rates, and discount rates. The estimated casino opening date used in the valuation reflects the weighted-average of three scenarios: a base case (which is based on the Company’s forecasted casino opening date) and one and two years out from the base case. The projected pre- and post-opening interest rates are based upon the one year U.S. Treasury Bill spot-yield curve per Bloomberg and the specific assumptions on contract term, stated interest rate and casino opening date. The discount rate for the projects is based on the yields available on certain financial instruments at the valuation date, the risk level of equity investments in general, and the specific operating risks associated with open and operating gaming enterprises similar to each of the projects. In estimating this discount rate, market data of other public gaming related companies is also considered. The probability applied to each project is based upon a weighting of four different scenarios with the fourth scenario assuming the casino never opens. The first three scenarios assume the casino opens but applies different opening dates as discussed above. The probability weighting applied to each scenario captures the element of risk in these projects and is based upon the status of each project, review of the critical milestones and likelihood of achieving the milestones.

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

The following table summarizes the activity for those financial assets where fair value measurements are estimated utilizing Level 3 inputs (ARS and notes receivable from Indian tribes) (in thousands):

 

 

 

 

 

The Company’s investment portfolio includes investments in ARS. The types of ARS investments that the Company owns are backed by student loans, the majority of which are guaranteed under the Federal Family Education Loan Program (“FFELP”), and all of which have credit ratings of AAA or Aaa. As of March 30, 2008 and December 30, 2007, investments in marketable securities with original maturity dates beyond three months consist of the following (in thousands):

 

 

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

 

During the first quarters of 2008 and 2007 the amount of unrealized gains (losses) previously reported as other comprehensive income that were realized and included in the unaudited condensed consolidated statement of operations and comprehensive loss were not material.

 

As a result of current liquidity issues surrounding the Company’s ARS, the Company’s ARS were reclassified from short-term to long-term investments in marketable securities as of March 30, 2008.

 

 

The majority of the assets related to Indian casino projects are in the form of notes receivable due from the Indian tribes pursuant to the Company’s development, financing, consulting and management agreements. The repayment terms of the loans are specific to each Indian tribe and are dependent upon the operating performance of each gaming facility. Repayments of the loans are required to be made only if distributable profits are available from the operation of the related casinos. In addition, repayment of the loans and the development, financing, consulting and management fees under contracts are subordinated to certain other financial obligations of the respective operations. Generally, the order of priority of payments from the casinos’ cash flows is as follows: a certain minimum monthly priority payment to the Indian tribe; repayment of senior debt associated with construction and equipping of the casino with interest accrued thereon; repayment of various debt with interest accrued thereon due to Lakes; development, financing, consulting and management fees to Lakes; and other obligations, with the remaining funds distributed to the Indian tribe.

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

Information with respect to the estimated fair value of notes receivable activity primarily related to three separate projects for the Pokagon Band of Potawatomi Indians (“Pokagon Band”), Shingle Springs Band of Miwok Indians (“Shingle Springs Tribe”) and the Jamul Indian Village (“Jamul Tribe”) is summarized in the following table (in thousands):

 

 

 

 

Pokagon Band.  Lakes has a five-year contract to manage the Four Winds Casino Resort for the Pokagon Band in New Buffalo Township, Michigan near Interstate 94. Lakes began managing the Four Winds Casino Resort when it opened to the public on August 2, 2007. The Four Winds Casino Resort is located near the first Interstate 94 exit in southwestern Michigan and approximately 75 miles east of Chicago. The facility features approximately 3,000 slot machines and approximately 85 table games as well as multiple restaurants and bars, a parking garage, a hotel and other facilities.

 

Shingle Springs Tribe.  Lakes has contracts to develop and subsequently manage for seven years the Red Hawk Casino, which is being built on the Rancheria of the Shingle Springs Band in El Dorado County, California, adjacent to U.S. Highway 50, approximately 30 miles east of Sacramento, California. The terms and assumptions

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

used to value the notes receivable at estimated fair value related to the Shingle Springs Tribe are as follows (dollars in thousands):

 

 

 

 

On April 30, 2007 a construction permit was issued for the U.S. Highway 50 interchange project, which provides direct access to the Red Hawk Casino site. Construction began on the U.S. Highway 50 interchange on May 7, 2007. On June 28, 2007 an affiliate of the Shingle Springs Tribe closed on a $450 million senior note financing to fund the Red Hawk Casino project, and site construction commenced. The Red Hawk Casino is planned to open in late 2008.

 

Jamul Tribe.

 

Lakes has contracts to develop and finance a casino to be built on the reservation of the Jamul Tribe located on Interstate 94, approximately 20 miles east of San Diego, California (the “Jamul Casino”). The terms and

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

assumptions used to value the notes receivable at estimated fair value related to the Jamul Tribe are as follows (dollars in thousands):

 

 

The Jamul Casino project has been delayed due to issues with road access to the proposed casino site. The Jamul Tribe has submitted an encroachment permit application to CalTrans, which will result in a project study report to determine the optimal access point for traffic to the Jamul Casino without disruption of traffic on the state highway. The Jamul Tribe has continued construction on their reservation of the driveway road leading to the Jamul Casino site. In addition to its work with CalTrans, the Jamul Tribe has submitted an application to the Bureau of Indian Affairs (the “BIA”) for recognition of an access drive across its land to create a second means of access to the site over an Indian reservation road. Lakes and the leaders of the Jamul Tribe are currently evaluating plans for the Jamul Casino to determine when construction of the facility will start and when casino operations will begin. Lakes continues to believe that adequate financing will be obtained and the project will be successfully completed.

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

 

Intangible assets.  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):

 

 

 

 

Land held for development.  Land held for development is comprised of land held for possible transfer to Indian tribes for use in certain of the future casino resort projects. In the event that this land is not transferred to the tribes, the Company has the right to sell it. These assets are evaluated for impairment in combination with intangible assets related to the acquisition of the management, development, consulting or financing contracts and other assets related to the Indian casino projects. As of March 30, 2008 and December 30, 2007, land held for development related to Indian casino projects was $7.7 million and $7.6 million, respectively, recorded at its cost. As of March 30, 2008, land held for development primarily related to land near the location of the planned Jamul Casino project.

 

Other.  As of March 30, 2008 and December 30, 2007 other assets related to Indian casino projects were approximately $5.1 million and $5.2 million, respectively. Included in this category are costs incurred related to the Indian casino projects which have not yet been included as part of the notes receivable because of timing of the payment of these costs. When paid, these amounts will be allocated between notes receivable and intangible assets related to the acquisition of the management, development, consulting or financing contracts and will be evaluated for changes in fair value or impairment, respectively. These amounts vary from period to period due to timing of payment. Also included in this category are receivables from related parties of $4.3 million that are directly related to the development and opening of Lakes’ Indian casino projects.

 

 

Upon opening of the Four Winds Casino Resort, the Company became obligated to pay approximately $11 million to an unrelated third party as part of an agreement associated with the Company obtaining the management contract with the Pokagon Band. The payment is payable quarterly over the term of the five-year management agreement for the Four Winds Casino Resort. The Company is also obligated to pay approximately $3 million over 24 months to a separate unrelated third party on behalf of the Pokagon Band in accordance with the management contract which commenced when the casino opened. These obligations do not have a stated interest rate and have payments terms which extend beyond one fiscal year. As a result, these obligations have been recorded at their net present value with effective interest rates of 16.7% and 14.1%, respectively, and the difference between

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

the face amount and the net present value of the obligations is recorded as a discount, which is amortized to interest expense as the payments are made pursuant to the respective agreements.

 

During 2006, the Lyle Berman Family Partnership (the “Partnership”) purchased a portion of the first obligation discussed above from the unrelated third party and receives approximately $0.3 million per year of the payment stream related to this obligation during the five-year term of the management contract of the Four Winds Casino Resort. Lyle Berman, Lakes’ Chairman and Chief Executive Officer, does not have an ownership or other beneficial interest in the Partnership. Neil I. Sell, a director of Lakes, is one of the trustees of the irrevocable trusts for the benefit of Lyle Berman’s children that are the partners in the Partnership.

 

 

Consolidated share-based compensation expense related to employee stock options was $0.5 million and $1.2 million for the three months ended March 30, 2008 and April 1, 2007, respectively.

 

No income tax benefit was recognized in Lakes’ unaudited condensed consolidated statements of operations and comprehensive loss for share-based compensation arrangements for the three months ended March 30, 2008 and April 1, 2007. 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.

 

The following values represent the average per grant for the indicated variables used to value options granted during the three months ended March 30, 2008 and April 1, 2007, respectively. There have been no significant changes to the assumptions thus far in 2008 and none are expected during the remainder of 2008.

 

Lakes’ stock option plans:

 

 

 

 

 

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 ended March 30, 2008 and April 1, 2007 (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 March 30, 2008 (unaudited):

 

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on Lakes’ closing stock price of $4.58 on March 28, 2008, which would have been received by the option holders had all option holders exercised their options as of that date. Options exercised during the three months ended March 30, 2008 did not have an intrinsic value. The total intrinsic value of options exercised during the three months ended April 1, 2007 was $0.5 million. As of March 30, 2008, Lakes’ unrecognized share-based compensation was approximately $1.3 million, which is expected to be recognized over a weighted-average period of 3.0 years. The weighted-average grant-date fair value of stock options granted during the three months ended March 30, 2008 was $3.35 per share.

 

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 ended March 30, 2008 and April 1, 2007 (unaudited):

 

 

The following table summarizes significant ranges of WPTE outstanding and exercisable options as of March 30, 2008 (unaudited):

 

 

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on WPTE’s closing stock price of $1.52 on March 28, 2008, which would have been received by the option holders had all option holders exercised their options as of that date. No options were exercised during the three months ended March 30, 2008 and April 1, 2007, respectively. As of March 30, 2008, WPTE’s unrecognized share-based compensation was approximately $2.4 million, which is expected to be recognized over a weighted-average period

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

of 2.7 years. There were no options granted during the three months ended March 30, 2008. The weighted-average grant-date fair value of stock options granted during the three months ended April 1, 2007 was $3.27 per share.

 

Both Lakes and WPTE issue new shares of common stock upon the exercise of options.

 

 

For all periods, basic loss applicable to common shareholders per share is calculated by dividing net loss applicable to common shareholders by the weighted-average number of common shares outstanding. Stock options that could potentially dilute the loss applicable to shareholders per share in the future of 4,141,650 and 4,603,900 shares were not included in the computation of diluted loss applicable to common shareholders per share for the three months ended March 30, 2008 and April 1, 2007, respectively, because the effects would have been anti-dilutive for those periods due to net losses.

 

 

Management has evaluated all evidence and determined that historical net losses (excluding net realized and unrealized gains on notes receivable) generated over the past five years, outweighed the current positive evidence that the Company believes exists surrounding its ability to generate significant income from its long-term assets related to Indian casino projects. Therefore, the Company has recorded a 100% valuation allowance against deferred tax assets arising from net operating loss carryforwards and other ordinary items at March 30, 2008, and December 30, 2007, as management has concluded that is it more likely than not that the tax benefits will not be realized in the foreseeable future.

 

The Company also has deferred tax assets related to capital losses of approximately $8.1 million as of March 30, 2008. The realization of these benefits is dependent on the generation of capital gains during the applicable carryforward periods. The Company believes that it will have capital gains in future years to utilize a portion of these benefits due to significant appreciation in its investment in WPTE, which has a minimal cost basis. The Company owns approximately 12.5 million shares of WPTE common stock valued at approximately $19 million as of March 30, 2008, based upon the closing stock price as reported by the NASDAQ Global Market. However, as of the first quarter of 2008, the Company has recorded a valuation allowance against the portion of the capital losses that are not expected to be covered by future sales of WPTE based on the price of WPTE’s common stock at March 30, 2008, combined with volume restrictions on how many WPTE shares Lakes can sell, and Lakes will monitor and adjust this valuation allowance on a quarterly basis, if necessary. As of March 30, 2008, the valuation allowance was $3.6 million, resulting in a net deferred tax asset related to capital losses of $4.5 million.

 

 

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. Lakes may be required to pay an assessment of up to $8.6 million, plus interest, if it is not successful in this matter. Lakes’ management has determined that it is more likely than not that it will be able to support its position related to this tax matter. A liability has been recorded for an estimated settlement including accrued interest and fees, which is included as part of income taxes payable on the accompanying condensed consolidated balance sheets. Interest expense related to this uncertain tax position is recorded as a component of income tax expense.

 

WPTE litigation.  In 2006, a legal action was commenced against WPTE by seven poker players that alleged, among other things, an unfair business practice of WPTE. On April 18, 2008, WPTE settled the lawsuit without cost

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

by agreeing to implement a new standard player release form to be provided to all players at all future WPT tournaments and events.

 

Miscellaneous legal matters.  Lakes and its subsidiaries (including WPTE) are involved in various other inquiries, administrative proceedings, and 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 the likelihood of an unfavorable outcome is remote. Accordingly, no provision for loss has been recorded in connection therewith.

 

 

Lakes’ principal business is the development, financing and management of gaming-related properties. Additionally, the Company is the majority owner of WPTE. All of Lakes’ and substantially all of WPTE’s operations to date are conducted in the United States. Episodes of the World Poker Tour^® television series are distributed internationally primarily 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’ Margin Account Agreement.  Effective April 11, 2008, Lakes entered into an agreement with UBS Financial Services Inc for the purpose of borrowing and/or obtaining credit in a principal amount not to exceed $11.0 million (the “Margin Account Agreement”). Lakes has made an initial draw under the Margin Account Agreement in the principal amount of $3.0 million to be used for working capital purposes. The Margin Account Agreement is secured by Lakes’ ARS. Amounts borrowed under the Margin Account Agreement are due and

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)

 

payable on demand and bear interest at a floating rate of interest per annum equal to the sum of the prevailing daily 30-day LIBOR plus 25 basis points.

 

Lakes’ joint venture with Myohionow.com, LLC.  Effective as of April 29, 2008, Lakes Ohio Development, LLC, an indirect wholly owned subsidiary of Lakes, entered into a joint venture agreement with Myohionow.com, LLC (“Myohio”) dated April 29, 2008 (the “Agreement”) for the purpose of placing on the November 4, 2008 Ohio statewide election ballot a referendum to amend the Ohio constitution to permit a casino resort to be located at the intersections of Interstate 71 and State Route 73 in Clinton County, Ohio (the “Referendum”) and, if approved, developing and operating the proposed casino resort in Clinton County, Ohio. Lakes is planning to loan approximately $8 million to the joint venture through August at an interest rate of 10% per annum, and an additional amount from August to the November election depending on various factors including polling numbers, market studies, and media efforts. Lakes will be required to seek additional sources of financing to fund the additional costs Lakes plans to incur from August to the November of 2008 election. Lakes is currently exploring several financing alternatives and expects to be able to obtain funding as necessary. The amounts loaned will be repaid only upon the successful development, opening and operation of this proposed casino. Although the Agreement provides that Lakes will initially own 80% of the joint venture, Lakes anticipates that its ownership will be reduced to not more than 70% at the time the proposed casino resort opens as a result of contingent factors arising from the passage of the Referendum and financing the development of the proposed casino resort.

 

If the Referendum passes, the joint venture must advance to the owners of Myohio an annual amount totaling approximately $250,000 to be paid in equal monthly installments commencing on December 1, 2008, as an advance of any profit distributions due and payable to Myohio, which will be offset against the first such profit distribution. As compensation for Lakes’ management services for the casino resort once open, Lakes shall be paid one percent of the gross casino revenues.

 

Overview

 

We develop, finance and manage Indian-owned casino properties. We currently have development and management or financing agreements with four separate tribes for casino operations in Michigan, California, and Oklahoma for a total of five separate casino projects as follows:

 

 

We have also explored, and continue to explore, other development projects with Indian tribes. We are also involved in other business activities, including potential development of a non-Indian casino in Mississippi, pursuing potential development of a non-Indian casino in Ohio, and the development of new table games for licensing to both Tribal and non-Tribal casinos. In addition, as of March 30, 2008, we owned approximately 61% of WPTE, a separate publicly-held company principally engaged in the creation of internationally branded entertainment and consumer projects driven by the development, production and marketing of televised programming based on gaming themes, the development and operation of an online gaming website, the licensing and sale of branded products and the sale of corporate sponsorships. Our consolidated financial statements include the results of operations of WPTE.

WPTE creates internationally branded entertainment and consumer products driven by the development, production and marketing of televised programming based on gaming themes. WPTE created the World Poker Tour^®, or WPT, a television show based on a series of high-stakes poker tournaments that currently airs on the Game Show Network (“GSN”) and the Travel Channel (“TRV”) in the United States, and has been licensed for broadcast globally. WPTE offers a real-money online gaming website, which prohibits wagers from players in the United States and other restricted jurisdictions. WPTE also has operations in mainland China, pursuant to its agreement with the China Leisure Sports Administrative Center (the “CLSAC”) where WPTE is developing and marketing the WPT China National Traktor Poker Tour. In January 2008, WPTE launched ClubWPT.com, an innovative subscription-based online poker club targeted to the estimated 60 million poker players in the United States and currently offered in 38 States. WPTE currently licenses its brand to companies in the business of poker equipment and instruction, apparel, publishing, electronic and wireless entertainment, DVD/home entertainment, casino games and giftware and is also engaged in the sale of corporate sponsorships. WPTE has four business segments:

 

WPT Studios, WPTE’s multi-media entertainment division, generates revenue from the domestic and international licensing of television broadcasts, international television sponsorship revenue and through casino host fees. Since WPTE’s inception, the WPT Studios division has been responsible for 73% of total revenue. WPTE licensed Season One through Season Five of the WPT series to TRV for telecast in the United States under an exclusive license agreement (the “TRV Agreement”). Prior to 2007, WPTE also licensed Season One of the Professional Poker Tour^tm (“PPT”) television series to TRV. On April 2, 2007, WPTE entered into an agreement (the “GSN Agreement”) with GSN, pursuant to which GSN agreed to license from WPTE Season Six of the WPT series for the payment of a $300,000 license fee per episode. Under the TRV Agreement, WPTE received an average of $477,000 per episode for Season Five. WPTE has license agreements for the distribution of WPT and PPT episodes into international territories, for which WPTE receives license fees, net of WPTE’s agent’s sales fee and agreed upon sales and marketing expenses. WPTE also collects annual host fees from member casinos that host WPT events (WPTE’s member casinos).

 

Since WPTE’s inception, domestic television distribution fees from the TRV Agreement, an agreement with TRV relating to the PPT series and the GSN Agreement have been responsible for approximately 56% of WPTE’s total revenue. For each season covered by the TRV Agreement and related options, TRV has exclusive rights to exhibit the episodes in that season an unlimited number of times on its television network in the United States for four years, or three years in the case of Season One of the WPT.

 

Under both the TRV and GSN Agreements, TRV and GSN pay fixed license fees for each episode WPTE produces, which are payable at various times during the pre-production, production and post-production process and are recognized upon receipt and acceptance of the completed episode. Television production costs related to WPT episodes are generally capitalized and charged to cost of revenues as revenues are recognized. Therefore, the timing and number of episodes involved in the various seasons of the series affect the timing of the revenues and expenses of the WPT Studios business. For Season Six of the WPT, WPTE is scheduled to produce a total of 23 episodes, production of which began in May of 2007 and WPTE expects to be completed by July 2008, with telecasts of the episodes scheduled to air between March 2008 and August 2008. Pursuant to the GSN Agreement, they have an exclusive option to license Season Seven of the WPT series which expires on May 24, 2008.

 

From 2004 until December 2006, WPTE licensed its shows internationally through an exclusive agreement with Alfred Haber Distribution, Inc. (“Alfred Haber”). In December 2006, WPTE notified Alfred Haber that they would no longer be the international distributor for WPTE shows, since WPTE began utilizing its internal staff and resources to distribute its shows into the international marketplace. During 2007, WPTE came to an arrangement with Alfred Haber whereby they provide non-exclusive assistance on international licensing matters on a case-by-case basis based on substantially the same terms as WPTE’s previous relationship with them.

 

In December 2006, WPTE signed a multi-year agreement with PartyGaming Plc (“PartyGaming”), owner of PartyPoker.com, pursuant to which they will sponsor certain international television broadcasts of the WPT and PPT. PartyGaming pays WPTE fixed fees for entering into broadcast sponsorship arrangements that meet certain requirements, with maximum payment levels for each of the covered seasons of each series. For the quarter ended

March 30, 2008, WPTE recognized revenues of $0.7 million from the PartyGaming agreement. No revenues were recognized for the quarter ended April 1, 2007.

 

WPT Global Marketing includes branded consumer products, sponsorship and partnerships, and event management divisions. WPTE’s branded consumer products division generates revenue principally from royalties from the licensing of WPTE’s brand to companies seeking to use the WPT brand and logo in the retail sales of their consumer products.

 

WPTE domestic sponsorship and event management division generates revenue from corporate sponsorship and management of televised and live events. During 2007, WPTE signed a three-year agreement with Blue Diamond Almonds to sponsor Seasons Six, Seven and Eight of the WPT. In return for online and event presence, Blue Diamond will pay approximately $0.2 million per season. WPTE also signed an agreement with Southwest Airlines to be the official airline of the WPT for Season Six.

 

In February 2006, WPTE launched an events division offering help in designing special programs for corporations, meeting planners and charitable organizations for entertainment purposes only.

 

WPT Online includes the international real money gaming website at WorldPokerTour.com and content website at WorldPokerTour.com, which includes poker tournament coverage and live updates thereof, statistics, poker player information, an online merchandise store, and ClubWPT.com which launched in January 2008.

 

In 2006, WPTE decided to commission the development of its own software for WPTE’s online poker room. WPTE licensed a software platform from CyberArts Licensing, LLC, and hired approximately 30 employees in Israel to develop the software and support infrastructure. However, the development of the CyberArts-based site ceased on April 23, 2007, when WPTE entered into a three year software supply and support agreement (the “Agreement”) with CryptoLogic. As a result of the decision to utilize CryptoLogic and move away from the internally-developed online gaming platform based on CyberArts software, WPTE wrote off certain property and equipment and related capitalized costs of approximately $2.3 million during the second quarter of 2007. In addition to the write off of assets, WPTE curtailed its Israel operations and closed one of its two offices during the second quarter of 2007 and in the fourth quarter of 2007, WPTE closed the remaining office in Israel.

 

Pursuant to the Agreement, CryptoLogic operates an online gaming site for WPTE featuring a poker room and casino games utilizing its proprietary software, in exchange for a percentage of the revenue generated from the site. WPTE is entitled to approximately 80% of net gaming revenues, as defined below, from the operation of the site. Under the Agreement, WPTE is also a member in a centralized online gaming network (the “Network”) with several other licensees of CryptoLogic pursuant to which players are able to play on WPTE branded gaming site on the Network.

 

On June 14, 2007, CryptoLogic delivered the poker software to WPTE and the online poker room became operational on June 28, 2007. On July 26, 2007, CryptoLogic delivered 10 casino games (the “Initial Casino”). Effective March 5, 2008, WPTE executed an amendment to the Agreement, exercising its option for a full suite of casino games (the “Full Casino”) with an annual minimum guarantee payable to CryptoLogic from WPTE of approximately $0.8 million, and WPTE exercised its option to have CryptoLogic develop two additional poker language rooms in Spanish and German for $0.1 million. In a separate amendment to the agreement dated March 5, 2008, WPTE agreed to extend the term of the License Agreement with CryptoLogic an additional year through June 30, 2011.

 

As a result of the amendments, WPTE is now entitled to the following percentages of net gaming revenue: (a) 100% of the first $37,500 per month, (b) 79% of revenue in excess of $37,500 but less than $500,000 per month; and (d) 80% of the revenue in excess of $500,000 per month. CryptoLogic is entitled to earn minimum guaranteed revenue associated with the Initial Casino of $500,000 per year or $125,000 per quarter and upon launch of the Full Casino, CryptoLogic will be entitled to a minimum revenue guarantee of $750,000 per year or $187,500 per quarter. For the quarter ended March 30, 2008, the minimum revenue guarantee to CryptoLogic exceeded WPTE’s share of net revenues by approximately $101,000, which will be netted against future settlements due from CryptoLogic.

 

If, at any time after the nine-month anniversary of the go-live date, monthly gaming revenues fall below $0.5 million for three consecutive months, CryptoLogic has the right to terminate the Agreement on 90 days written

notice. However, WPTE may prevent any such termination through payment of the shortfall of CryptoLogic’s percentage of such gaming revenue within 30 days of receipt of CryptoLogic’s notice of termination.

 

For the three months ended March 30, 2008, WPTE’s online gaming business generated approximately $240,000 in net revenues, compared to costs of revenues of approximately $181,000. Online revenues are presented gross of CryptoLogic costs and net of network promotions, bonuses, and cash incentives provided to patrons.

 

The non-gaming website at WorldPokerTour.com includes poker tournament coverage and live updates thereof, statistics, poker player information, an online merchandise store and ClubWPT.com which launched in January 2008. ClubWPT.com offers a monthly subscription package for $19.95 per month, as well as discounted quarterly and annual options. In return, members receive exclusive club benefits and points which make them eligible to enter into over 5,000 live poker and elimination black jack tournaments, sit-n-go poker tournaments and poker ring games for a chance to win over $100,000 in cash and prizes each month which could include a $10,000 seat into a WPT televised main event. Non-subscribers who do not wish to purchase the other club benefits are offered a free or alternative means of entry.

 

WPTE uses a third party service provider, Ultimate Blackjack Tour, LLC (“UBT”), to operate its subscription-based online service for ClubWPT.com, which includes supporting the software, technical operations and customer service. In return for UBT’s services, UBT earns a percentage of net revenues which is calculated as subscriber fees less certain costs (which are allocated on a customer-by-customer basis) including chargebacks, prize pool, club content, financial charges and compliance fees.

 

WPT China.  On August 6, 2007, WPTE entered into a cooperation agreement (the “Cooperation Agreement”) with the CLSAC, a Chinese government-sanctioned body with authority over certain leisure sports, including the popular Chinese national card game “Traktor Poker” or “Tuo La Ji.” Pursuant to the Cooperation Agreement, WPTE has the right to brand and exploit the WPT China National Traktor Poker Tour (the “Traktor Poker Tour”) during the five year term of the Cooperation Agreement. Additionally, WPTE is afforded certain marketing and sponsorship rights in conjunction with the Traktor Poker Tour, including the right to sanction and derive revenue from third-party branding at tour events, the right to exploit films and other content generated in conjunction with the Traktor Poker Tour in all media and WPTE expects the largest opportunities to stem from online and mobile subscriptions. Furthermore, the CLSAC agreed to organize no less than 15 Traktor Poker Tour events each year during the term, to secure placement of the championship finals on a major Chinese television station, and to promote the Traktor Poker Tour. In exchange, WPTE pays a yearly fee to the CLSAC, which started at approximately $0.5 million for the first year and increases by ten percent annually for the remaining four years of the term. WPTE also has a unilateral option to extend the agreement for an additional five years, provided that the yearly fee for the first year of the renewed term, will increase by 25% from the fifth year of the term.

 

On October 12, 2007, WPTE officially launched the inaugural season of the Traktor Poker Tour in Lanzhou, Gansu, and to date, the WPTE has completed the 15 regional preliminary tournaments. The Traktor Poker Tour Season One champion will be crowned at the championship event in mid-2008 and WPTE expects the event to be televised on a major Chinese broadcaster.

 

Results of Operations

 

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q for the three months ended March 30, 2008.

 

Three months ended March 30, 2008 compared to the three months ended April 1, 2007

 

Revenues.  Consolidated revenues for the first quarter of 2008 increased to $9.6 million, or 92.3% from the prior-year period. Lakes’ revenue increased to $4.6 million, primarily due to a full quarter contribution of management fees from the Four Winds Casino Resort, which is owned by the Pokagon Band, compared to no contribution from the Four Winds Casino Resort in the prior-year period. Revenue related to WPTE increased to $5.0 million for the first quarter of 2008, compared to $4.5 million in the prior-year period. This increase was due to

an increase in hosting and sponsorship revenues, primarily driven by international television sponsorship revenues that did not exist in the prior-year period.

 

Selling, general and administrative expenses.  Selling, general and administrative expenses increased $1.2 million from the prior-year period to $10.9 million due to $1.6 million in development costs associated with the proposed Ohio casino resort project. For the first quarter of 2008, Lakes’ selling, general and administrative expenses were $5.5 million and consisted primarily of payroll and related expenses of $2.2 million, including share-based compensation, the development costs associated with the Ohio casino resort project of $1.6 million and professional fees of $0.6 million. WPTE’s selling, general and administrative expenses increased $0.2 million from the prior-year period to $5.4 million in the first quarter of 2008. WPTE’s selling, general and administrative expenses consisted primarily of payroll and related expenses of $2.0 million, including share-based compensation, promotional costs of $1.3 million and professional fees of $0.8 million.

 

Production costs.  WPTE’s production costs increased by approximately $0.5 million in the first quarter of 2008 compared to the 2007 period. The increase was primarily a result of the delivery of seven episodes of Season Six of the WPT in the current period versus the delivery of five episodes of Season Five in the prior year period.

 

Gross margins.  WPTE’s overall gross margins were 46% in the first quarter of 2008 compared to 52% in the 2007 period. Domestic television licensing margins were 6% in the first quarter of 2008 compared to 37% in the 2007 period. The decrease was principally because of the lower fees per episode under the GSN contract. The lower domestic television margins in the first quarter of 2008 were partially offset by increased margin contribution from international television and sponsorship.

 

Amortization of intangible assets related to Indian casino projects.  Amortization of intangible assets related to Indian casino projects was $1.7 million for the first quarter of 2008. This amortization related primarily to the intangible assets associated with the Four Winds Casino Resort, which began when it opened to the public on August 2, 2007. Amortization of intangible assets related to the Indian casino projects for the first quarter of 2007 was not material.

 

Net realized and unrealized gains (losses) on notes receivable.  Net realized and unrealized gains (losses) on notes receivable relate primarily to our notes receivable from Indian tribes, which are adjusted to estimated fair value, based upon the current status of the related tribal casino projects and evolving market conditions. In the first quarter of 2008, we reported net unrealized losses on notes receivable of $2.0 million, compared to net realized and unrealized gains of $0.2 million in the prior-year period. Net unrealized losses in the first quarter of 2008 were due primarily to a decrease in projected pre- and post-opening date interest rates, due to current market conditions related to the notes receivable related to the Red Hawk Casino project with the Shingle Springs Tribe and the notes receivable related to the Jamul Casino project with the Jamul Tribe.

 

Other income (expense).  Other income (expense) for the first quarter of 2008 was $0.5 million compared to ($3.1) million for the first quarter of 2007. In March 2007, Lakes’ then existing $105 million credit agreement was repaid in conjunction with the Pokagon notes receivable participation transaction. This repayment resulted in a loss on extinguishment of debt of approximately $3.8 million during the first quarter of 2007.

 

Income Taxes.  The income tax provision was $0.7 million and $0.3 million for the three months ended March 30, 2008 and April 1, 2007, respectively. Our effective tax rates were 9% and 3% for the first quarter of 2008 and the corresponding 2007 period, respectively. Lakes’ income tax provision in the current year period consists primarily of a valuation allowance against deferred tax assets related to capital losses for the portion that are not expected to be realized through future sales of WPTE common stock as described below, and approximately $0.3 million of interest on a Louisiana tax audit matter (Note 10 to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q). In the prior year period, the income tax provision was primarily related to Lakes’ interest on an audit matter.

 

Minority interest.  The minority interest in WPTE’s loss was approximately $1.1 million and $0.9 million for the three months ended March 30, 2008 and April 1, 2007, respectively. WPTE’s net losses were $2.8 million and $2.3 million for the three months ended March 30, 2008 and April 1, 2007, respectively.

Liquidity and Capital Resources

 

As of March 30, 2008, we had $8.6 million in cash and cash equivalents, $8.5 million in short-term investments in marketable securities, and $38.8 million in long-term investments in marketable securities. Of these amounts, $3.6 million in cash and cash equivalents related to Lakes and $25.5 million in long-term investments related to Lakes. All other amounts related to WPTE. All of Lakes’ long-term investments in marketable securities and $11.3 million of WPTE’s long-term investments in marketable securities were auction rate securities (“ARS”) (See Note 3 to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q). As a result of current liquidity issues surrounding our ARS discussed below, our ARS were reclassified from short-term to long-term investments in marketable securities as of March 30, 2008. The types of ARS investments that both Lakes and WPTE own are backed by student loans, the majority of which are guaranteed under the Federal Family Education Loan Program (“FFELP”), and all had credit ratings of AAA or Aaa. Neither Lakes nor WPTE own any other type of ARS investments. None of our investments in ARS qualify, or have ever been classified in our consolidated financial statements, as cash or cash equivalents.

 

Historically, these types of ARS investments have been highly liquid using an auction process that resets the applicable interest rate at predetermined intervals, typically every 7 to 35 days, to provide liquidity at par. However, as a result of the recent liquidity issues experienced in the global credit and capital markets, the auctions for all of our ARS began failing in February 2008, when sell orders exceeded buy orders. The failures of these auctions do not affect the value of the collateral underlying the ARS, and we will continue to earn and receive interest on our ARS at contractually set rates. However, we will not be able to liquidate our ARS until the issuer calls the security, a successful auction occurs, a buyer is found outside of the auction process or the security matures. During April of 2008, we received account statements dated March 30, 2008, from the firms managing our ARS which estimated the fair value of our ARS. We analyzed these statements and have concluded that a temporary decline in estimated fair value of $2.4 million related to our ARS has occurred as a result of the current lack of liquidity. This consolidated decline in fair value includes $1.3 million related to Lakes and $1.1 million related to WPTE. Since we consider the decline in the estimated fair value of our ARS to be temporary, the related unrealized loss is included in accumulated other comprehensive loss in the shareholders’ equity section of our balance sheet as of March 30, 2008.

 

Lakes entered into a client agreement with UBS Financial Services Inc effective April 11, 2008 for the purpose of borrowing and/or obtaining credit in a principal amount not to exceed $11.0 million (the “Margin Account Agreement”). Lakes made an initial draw under the Margin Account Agreement in the principal amount of $3.0 million to be used for working capital purposes. We will be required to seek additional sources of financing to fund additional costs we plan to incur between August and November of this year associated with the recently announced Ohio casino resort project. These costs are dependent on various factors including polling numbers, market studies and media efforts. Lakes is currently exploring several financing alternatives and expects to be able to obtain funding as necessary. WPTE does not believe that any lack of liquidity during the next 12 months relating to its ARS will have an impact on its ability to fund its operations.

 

As discussed above or otherwise, we may from time to time seek additional capital to fund our development costs which will require us to obtain additional sources of financing. If the financing is in the form of equity financing it will be dilutive to Lakes’ shareholders, and any debt financing may involve additional restrictive covenants. An inability to raise such funds when needed might require Lakes to delay, scale back or eliminate some of its expansion and development goals.

 

WPTE intends to use funds currently on hand for working capital and capital expenditures associated with the expansion of WPTE online gaming, media, and other businesses and for general corporate purposes. WPTE anticipates that sales and marketing costs will increase significantly in upcoming quarters as WPTE markets its real money online gaming website and its subscription-based online site, ClubWPT.com. In addition, WPTE intends to invest significantly in international expansion, including developing and marketing the Traktor Poker Tour. WPTE expects that cash, cash equivalents and investments in marketable securities on hand and generated from operations will be sufficient to fund WPTE’s working capital and capital expenditure requirements for at least the next 12 months even considering the current liquidity issues with ARS. If these securities remain illiquid for a period greater than 12 months, then WPTE may be required to seek additional working capital to fund its operations or

fund its expansion plans. To raise working capital, WPTE may seek to sell additional equity securities, issue debt or convertible securities, or seek to obtain credit facilities through financial institutions.

 

Lakes’ agreements with tribal partners require that we provide certain financing for project development in the form of loans, which has been Lakes’ major use of cash over the past three years, in addition to on-going corporate costs. These loans to our tribal partners are interest bearing; however, the loans and related interest are not due until the casino is built and has established profitable operations. In the event that the casinos are not built, our only recourse is to attempt to liquidate assets of the development, if any, excluding any land in trust.

 

Lakes’ cash forecast requirements do not include construction-related costs that will be incurred when projects begin construction. The construction of our pending casino projects will depend on the ability of the tribes and/or Lakes to obtain financing for the projects. If such financing cannot be obtained on acceptable terms, it may not be possible to complete these projects, which could have a material adverse effect on our results of operations and financial condition. In order to assist the tribes, we may be required to guarantee the tribes’ debt financing or otherwise provide support for the tribes’ obligations. Guarantees by us, if any, will increase our potential exposure in the event of a default by any of these tribes.

 

We believe that our casino development projects currently in progress will be constructed and ultimately, along with those currently operating, will achieve profitable operations; however, no assurance can be made that this will occur. If this does not occur, it is likely that we would incur substantial or complete losses on our notes receivable from Indian tribes and related intangible assets associated with the acquisition of the management, development, consulting and financing contracts. In addition, if our casino development projects currently in progress are not completed or, upon completion, fail to successfully compete in the highly competitive market for gaming activities, we may lack the funds to compete for and develop future gaming or other business opportunities and our business could be adversely affected to the extent that we may be forced to cease our operations entirely.

 

The following table summarizes the remaining contractual obligations as of March 30, 2008 (in millions):

 

 

 

 

 

We have incurred cumulative development and land costs of approximately $6.4 million and $2.9 million, respectively, relating to the development of a Company-owned non-Indian casino in Vicksburg, Mississippi. These costs are included in property and equipment as construction in progress and land, respectively. We have received various regulatory approvals to develop our own casino near Vicksburg, Mississippi. Lakes is continuing to evaluate whether to proceed with this project, but in any event does not expect further development efforts before 2009.

 

Critical Accounting Policies and Estimates

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date and reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, long-term assets related to Indian casino projects, deferred television costs, investments, litigation costs, income taxes, share-based compensation and

derivative financial instruments. We base our estimates and judgments on historical experience and on various other factors that are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

We believe the following critical accounting policies involve the more significant judgments and estimates used in the preparation of our consolidated financial statements.

 

Revenue recognition.  Revenue from the management, development, and financing of, and consulting with, Indian-owned casino gaming facilities is recognized as it is earned pursuant to each respective agreement. See further discussion below under the caption “Long-term assets related to Indian casino projects.”

 

Revenue from the domestic and international distribution of WPTE’s television series is recognized as earned under the following criteria established by the American Institute of Certified Public Accountants Statement of Position (“SOP”) No. 00-2, Accounting by Producers or Distributors of Films (“SOP 00-2”):