GOLDEN ENTERTAINMENT, INC. - Quarter Report: 2010 October (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 has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

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 8, 2010, there were 26,369,377 shares of Common Stock, $0.01 par value per share, outstanding.

 

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

INDEX

 

 

 

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

 

 

See notes to consolidated financial statements.

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings

 

 

See notes to consolidated financial statements.

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows

 

 

See notes to consolidated financial statements.

LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

 

The unaudited consolidated financial statements of Lakes Entertainment, Inc., a Minnesota corporation, and Subsidiaries (individually and collectively “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.

 

Management has evaluated the consolidated financial statements for subsequent events (Notes 8 and 15) through the date this Quarterly Report on Form 10-Q was filed with the SEC. 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 January 3, 2010, previously filed with the SEC, 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. The results for the current interim period are not necessarily indicative of the results to be expected for the full year.

 

 

In January 2010, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2010-6, Improving Disclosures About Fair Value Measurements, which requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. ASU 2010-6 was effective for Lakes’ fiscal year beginning January 4, 2010, except for Level 3 reconciliation disclosures which will be effective for the fiscal year beginning January 3, 2011. The adoption of ASU 2010-6 did not have a material impact on Lakes’ financial statements for the three and nine months ended October 3, 2010, and the adoption of Level 3 reconciliation disclosures is not expected to have a material impact on Lakes’ financial statements for the fiscal year beginning January 3, 2011.

 

 

At January 3, 2010, the Company’s investment portfolio was comprised of investments in auction rate securities (“ARS”), all held by UBS Financial Services, Inc. (“UBS”). See also Note 8 for a discussion of Lakes’ credit line agreement with UBS. At January 3, 2010, the Company also had the nontransferable right to sell the ARS (the “Rights”), at par value to UBS at any time during the period of June 30, 2010, through July 2, 2012. The par value of the Company’s ARS was $24.3 million as of January 3, 2010.

 

During the three months ended July 4, 2010, the Company exercised the Rights and the remaining ARS were purchased by UBS (Note 4). There were no remaining ARS investments as of October 3, 2010.

 

 

Financial instruments.  The Company’s financial instruments consist of cash and equivalents, accounts receivable, investments in securities, notes receivable and other long-term assets related to Indian casino projects, equity and cost method investments, accounts payable, contract acquisition costs payable and lines of credit. Cash equivalents consist of highly-liquid investments with an original maturity of three months or less.

 

For the Company’s cash and equivalents, accounts receivable, accounts payable and current portion of contract acquisition costs payable, the carrying amounts approximate fair value because of the short duration of these financial instruments. The methods used in estimating the fair value of Company’s notes receivable from the Shingle Springs Tribe and Iowa Tribe of Oklahoma (Note 5), investment in unconsolidated investees (Note 7), other long-term assets related to Indian casino projects (Note 6) and long-term contract acquisition costs payable (Note 9) are discussed in the referenced notes to the unaudited consolidated financial statements.

 

Investments in ARS, Rights, and in notes receivable from Indian Tribes for projects under development are measured at estimated fair value on a recurring basis using unobservable (Level 3) inputs that reflect management’s estimates about the assumptions that market participants would use in pricing the asset or liability, including estimated cash flows and valuation metrics. The determination of fair value for these items is described below.

 

Fair value measurements.  The following is a list of the most significant factors affecting the estimated cash flows and discount rates used in the Company’s valuation models by asset type:

 

 

The Company’s financial assets that are carried at estimated fair value based on level 3 inputs are summarized below (in thousands):

 

 

Changes in the carrying value of these asset types follows (in thousands):

 

 

To value the Company’s ARS portfolio, the Company utilized valuation models 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 portfolio was subject to uncertainties and evolving market conditions that were difficult to predict. Factors that may have impacted the estimated fair value included changes to credit ratings of the ARS as well as to the assets collateralizing the securities, rates of default of the underlying assets, underlying collateral value, discount rates, and evolving market conditions affecting the liquidity of the ARS.

 

The Rights were a free standing asset separate from the ARS, and represented the Company’s contractual right to require UBS to purchase the Company’s ARS at par value during the period of June 30, 2010 through July 2, 2012. In order to determine the estimated fair value of the Rights, the Company utilized valuation models based on management’s estimates of expected cash flow streams, intrinsic value, and the credit worthiness of UBS.

 

To value the Company’s notes receivable from Indian tribes, the Company utilizes valuation models based on management’s estimates of expected cash flow streams, discount rates, and as applicable, probabilities of casinos opening and the expected opening dates, projected pre- and post-opening date interest rates. 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 similar financial instruments. In estimating this discount rate, market data of other public gaming related companies is also considered. The estimated casino opening date used in the valuations of the notes receivable related to Indian casino projects that are not yet under construction and in the development phase 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. Once a casino project is under construction, the weighted-average scenarios are no longer used and only the planned opening date is used in the valuation. 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 probability applied to each project is based upon a weighting of various possible scenarios with one scenario assuming the casino never opens. The other scenarios assume the casino opens but apply different opening dates. The probability-weighting applied to each scenario is intended to effectively capture 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.

 

During May 2010, a subsidiary of Lakes entered into a termination agreement with the Iowa Tribe of Oklahoma (“Termination Agreement with the Iowa Tribe”) terminating all contracts and agreements between them including the Management Agreement for the Cimarron Casino and the Consulting Agreement and Note Agreements for the Ioway Casino Resort. As a result, the note receivable from the Iowa Tribe of Oklahoma is no longer adjusted to its estimated fair value on a quarterly basis, but rather it is evaluated periodically for impairment pursuant to Accounting Standards Codification (“ASC”) 310.

 

Land held for development is measured at estimated fair value on a nonrecurring basis using unobservable (Level 3) inputs that utilize the market approach technique and reflect management’s estimates about the assumptions that market participants would use in pricing the asset. Significant inputs include recent transactions of comparable properties as well as consideration of its highest and best use.

 

 

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 successful development and operating performance of each gaming facility. Repayment of the loans is required 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, with the remaining funds distributed to the Indian tribe.

 

Information with respect to the long-term notes receivable activity is summarized in the following table (in thousands):

 

 

 

 

Shingle Springs Tribe.  The carrying value of Lakes’ notes receivable from the Shingle Springs Tribe was $53.3 million, including current portion, as of October 3, 2010. Management estimates the fair value of this financial instrument as of October 3, 2010 to be approximately $46.8 million using a discount rate of 18.5% and a remaining term of 63 months.

 

Jamul Tribe.  The terms and assumptions used to value Lakes’ notes receivable from the Jamul Tribe at estimated fair value are as follows (dollars in thousands):

 

 

Iowa Tribe.  During the three months ended April 4, 2010, the Iowa Tribe decided not to pursue the proposed Ioway Casino Resort with Lakes. During May 2010, a subsidiary of Lakes entered into a Termination Agreement with the Iowa Tribe whereby the Iowa Tribe agreed to pay Lakes a total of $4.5 million of which $1.0 million was paid in May 2010 and the remaining $3.5 million is required to be paid in 15 equal monthly installments commencing on June 15, 2010. The Iowa Tribe is permitted to make prepayments on the outstanding amount at a 6.00% discount during the first twelve months after the execution of the Termination Agreement.

 

As a result of the Termination Agreement with the Iowa Tribe, the carrying value of the notes receivable was adjusted to its estimated fair value of as of April 4, 2010 and the difference between the then estimated fair value and the amount contractually due under the Termination Agreement with the Iowa Tribe is being amortized into interest income using the effective interest method over the remaining term. The note receivable is no longer adjusted to estimated fair value, but rather it is evaluated periodically for impairment pursuant to ASC 310. The payment terms of the Termination Agreement with the Iowa Tribe and a discount rate of 6.0% were used as the assumptions for the determination of estimated fair value as of April 4, 2010.

 

Lakes recorded an unrealized gain of zero and $0.9 million for the three and nine months ended October 3, 2010, respectively, which is included in net unrealized gains from notes receivable in the unaudited consolidated statements of earnings. At October 3, 2010, the carrying value of the note receivable is $2.3 million, which approximates fair value.

 

The terms and assumptions used to value Lakes’ notes receivable from the Iowa Tribe at estimated fair value as of January 3, 2010 are as follows (dollars in thousands):

 

 

 

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 by project is summarized as follows (in thousands):

 

 

 

 

Land held for development.  Land held for development in this category is 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. Lakes currently owns approximately 96 acres of land held for development located adjacent to the Jamul Casino project location, which is carried at $1.0 million as of October 3, 2010 and January 3, 2010.

 

As of October 3, 2010 and January 3, 2010, Lakes also owns approximately 114 acres of land held for development located in Oklahoma. As of January 3, 2010, Lakes had invested $0.8 million in land held for development, which was being held for future transfer to the Iowa Tribe. As a result of the Iowa Tribe’s decision on April 2, 2010 not to move forward with Lakes on the Ioway Casino Resort, management performed an assessment of the land fair value and has deemed the land impaired. As a result, Lakes adjusted the carrying value of this land to its estimated fair value of $0.2 million, recorded an impairment of $0.7 million during the three months ended April 4, 2010, and reclassified the land to Land held for development (not related to Indian casino projects). No impairment losses related to Land held for development were recognized during the three months ended October 3, 2010.

 

Other.  As of October 3, 2010 and January 3, 2010 other assets included amounts due from Mr. Kevin M. Kean. Financial instruments related to Mr. Kean have a carrying value of $1.9 million and $2.3 million, net of current portion, as of October 3, 2010 and January 3, 2010, respectively. In addition other long-term assets include financial instruments related to the Shingle Springs Tribe of $2.6 million and $1.5 million as of October 3, 2010 and January 3,

 

2010, respectively. Management estimates the fair value of the financial instruments related to Mr. Kean and the Shingle Springs Tribe to be $4.2 million as of October 3, 2010 using a discount rate of 18.50%.

 

 

Equity method investment.  At January 3, 2010, the Company had a 16.67% ownership interest in Kansas Gaming Partners, LLC (“Kansas Partners”) which wholly owns Chisholm Creek Casino Resort, LLC (“Chisholm Creek”), an entity formed to develop and manage a casino in south central Kansas. Lakes entered into an agreement to perform certain management and development services related to this potential casino. As of January 3, 2010, Lakes had invested approximately $8.4 million in Kansas Partners which is included in the Investment in Unconsolidated Investees in the Consolidated Balance Sheets. During April 2010, Chisholm Creek withdrew its application to be the Lottery Facility Gaming Manager in the South Central Gaming Zone in Kansas, and as a result, Lakes also terminated its involvement with this project. Accordingly, Lakes received approximately $8.3 million representing a refund of Lakes’ 2009 capital contribution related to the deposit of a privilege fee with the State of Kansas for the Chisholm Creek project. As of October 3, 2010, the Company has no amounts recorded in the Consolidated Balance Sheets related to an ownership interest in Kansas Partners.

 

Cost method investments.  Lakes has an investment in Rock Ohio Ventures for the potential development of two casinos in Ohio. This investment is accounted for using the cost method since Lakes does not have the ability to significantly influence the operating and financial decisions of the entity. At October 3, 2010 and January 3, 2010, Lakes had invested a total of approximately $2.4 million in Rock Ohio Ventures, which is included in the Investment in Unconsolidated Investees in the Consolidated Balance Sheets. Lakes has the right, but not the obligation, to make additional investments up to 10% of equity required by Rock Ohio Ventures to develop the potential casinos in Ohio in return for a corresponding equity interest in those casinos (Note 13). The fair value of the Company’s investment in Rock Ohio Ventures was not estimated as of October 3, 2010, as there were no events or changes in circumstances that may have a significant adverse effect on the fair value of the investment, and Lakes’ management determined that it was not practicable to estimate the fair value of the investments.

 

At January 3, 2010, Lakes had an investment of approximately $1.9 million in an entity to be formed in collaboration with Penn Ventures, LLC for the potential development of two casinos in Ohio. This investment was included in the Investment in Unconsolidated Investees in the Consolidated Balance Sheets and was accounted for using the cost method since Lakes did not have the ability to significantly influence the operating and financial decisions of the entity. During the three months ended October 3, 2010, the Company entered into a Termination Agreement with Penn Ventures, LLC in which the Company divested its interest in the entity to be formed in collaboration with Penn Ventures, LLC in exchange for a $25 million payment from Penn Ventures, LLC. Accordingly, a gain on divestiture of cost method investment of $23.1 million was recorded in the Consolidated Statements of Earnings for the three months ended October 3, 2010. As of October 3, 2010, the Company has no amounts recorded in the Consolidated Balance Sheets related to this investment.

 

 

Line of credit payable.  During 2008, Lakes entered into a client agreement (the “Credit Line”) with UBS under which any borrowings were secured by Lakes’ ARS held at UBS. As of January 3, 2010, approximately $16.3 million was outstanding under the Credit Line. During the three months ended July 4, 2010, a portion of the proceeds from the sale of ARS were used to repay the remaining balance of the Credit Line at that time. The Credit Line was closed upon repayment and no additional amounts are available.

 

Non-revolving line of credit payable.  Also during 2008, Lakes entered into a two-year interest only $8.0 million non-revolving line of credit loan agreement (the “Loan Agreement”) with Centennial Bank (formerly First State Bank). Effective October 28, 2010, the Loan Agreement’s maturity date was extended from October 2010 to October 2012. The Loan Agreement is collateralized by primarily all of Lakes’ interest in the real property it owns in Minnetonka, Minnesota. Amounts borrowed under the Loan Agreement bear interest at 8.95%. Lakes’ Chief Executive Officer, Lyle Berman, personally guaranteed the Loan Agreement on behalf of Lakes. As of January 3, 2010, Lakes owed $2 million under the Loan Agreement. During the three months ended October 3,

 

2010, the $2 million in advances on the Loan Agreement were repaid and no amounts were outstanding as of October 3, 2010.

 

 

The Company is obligated to an unrelated third party as part of an agreement associated with the Company obtaining the management contract with the Pokagon Band. As of January 3, 2010, the carrying amount of the liability was $5.3 million, net of a discount of $1.5 million and was previously payable quarterly over the remaining 22 months of the five-year management agreement for the Four Winds Casino Resort. During the three months ended October 3, 2010, the Company made a prepayment of $3.4 million on a portion of the obligation at an 18% discount. As of October 3, 2010, the remaining carrying amount of the liability, which approximates its estimated fair value, was $0.8 million, net of a discount of $0.1 million. Amounts payable during the next 12 fiscal months totaling $0.5 million, net of related discount, are included in current contract acquisition costs payable as of October 3, 2010.

 

During 2006, the Lyle Berman Family Partnership (the “Partnership”) purchased a portion of the obligation discussed above from the unrelated third party. The Partnership 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 any other beneficial interest in the Partnership. However, Neil I. Sell, a director of Lakes, is one of the trustees of the irrevocable trusts for the benefit of Lyle Berman’s children who are partners in the Partnership.

 

During 2009, the Company became obligated to pay Mr. Jerry Argovitz and Mr. Kevin Kean each $1 million per year (prorated based on a 365 day year) during the remainder of the seven-year initial term of the Red Hawk Casino management contract, which commenced in December 2008. These obligations resulted from Mr. Argovitz’s and Mr. Kean’s elections under existing agreements with Lakes to relinquish their respective other rights related to the Red Hawk Casino project. As of October 3, 2010 and January 3, 2010, the remaining carrying amount of the liability, which approximates its estimated fair value, was $6.7 million and $7.2 million, net of a $3.8 million and $4.8 million discount, respectively. Amounts payable during the next 12 fiscal months totaling $0.8 million, net of related discount, are included in current contract acquisition costs payable as of October 3, 2010.

 

 

Share-based compensation expense, which includes stock options and restricted stock units, for the three and nine months ended October 3, 2010 and September 27, 2009, respectively, were as follows (unaudited):

 

 

Stock options.  The Company uses the Black Scholes option pricing model to estimate the fair value and compensation cost associated with employee incentive stock options which requires the consideration of historical employee exercise behavior data and the use of a number of assumptions including volatility of the Company’s stock price, the weighted average risk-free interest rate and the weighted average expected life of the options.

 

There were no options granted during the three and nine months ended October 3, 2010 and the three months ended September 27, 2009. The weighted-average grant-date fair value of options granted during the nine months ended September 27, 2009 was $2.46, which was calculated using the following assumptions: 0% expected dividend yield, 2.52% risk-free interest rate, expected term of 7.7 years, expected volatility of 79.82% and no forfeiture rate.

 

 

 

 

The following table summarizes Lakes’ stock option activity during the three and nine months ended October 3, 2010 and September 27, 2009 (unaudited):

 

 

 

 

 

As of October 3, 2010, the options outstanding had a weighted-average remaining contractual life of 7.0 years, weighted-average exercise price of $3.44 and aggregate intrinsic value of zero. The options exercisable have a weighted-average exercise price of $3.39, a weighted-average remaining contractual life of 5.7 years and aggregate intrinsic value of zero as of October 3, 2010.

 

The total intrinsic value of options exercised during the three and nine months ended September 27, 2009 was immaterial. There were no options exercised during the three and nine months ended October 3, 2010. Lakes’ unrecognized share-based compensation related to stock options was approximately $0.6 million, as of October 3, 2010, which is expected to be recognized over a weighted-average period of 2.6 years.

 

Lakes issues new shares of common stock upon the exercise of options.

 

Restricted stock units.  The following table summarizes Lakes’ restricted stock unit activity during the three and nine months ended October 3, 2010 and September 27, 2009 (unaudited):

 

 

During the nine months ended October 3, 2010, 41,332 common shares were issued upon the vesting of restricted stock units, net of common shares redeemed at the election of the grantee for payroll tax payment. During the three months ended October 3, 2010, no common shares were issued upon the vesting of restricted stock units. As of October 3, 2010, Lakes’ unrecognized share-based compensation was approximately $0.2 million related to non-vested shares, which is expected to be recognized over a weighted-average of 1.3 years.

 

 

For all periods, basic earnings per share (“EPS”) is calculated by dividing net earnings by the weighted-average common shares outstanding. Diluted EPS in profitable years reflects the effect of all potentially dilutive

 

common shares outstanding by dividing net earnings by the weighted-average of all common and potentially dilutive shares outstanding. Potentially dilutive stock options of 1,580,566 and 370,477 shares for the three months ended October 3, 2010 and September 27, 2009, respectively, and 1,580,566 and 313,449 shares for the nine months ended October 3, 2010 and September 27, 2009, respectively, were not used to compute diluted earnings because the exercise prices of the stock options were greater than the average price of Lakes’ common stock and therefore their inclusion would have been anti-dilutive.

 

 

The Company’s effective tax rates were 45% and (0.6%) for the nine months ended October 3, 2010 and September 27, 2009, respectively. For the nine months ended October 3, 2010, the effective tax rate differs from the federal tax rate of 35% primarily due to state income taxes, discrete items recognized and additional valuation allowance recorded due to projected 2010 timing differences. As of October 3, 2010 and January 3, 2010, the Company has recorded a $1.9 million deferred tax asset related to federal and state net operating loss carryforwards and AMT carryforwards. The Company continues to provide a valuation allowance against its other deferred tax assets because management has evaluated all available evidence and has determined that cumulative net losses generated over the past three years outweigh existing positive evidence.

 

As of October 3, 2010, Lakes has recorded a liability of $6.9 million for uncertain tax positions plus an additional $10.4 million for the possible payment of interest and fees related to these tax liabilities (Note 13). These tax liabilities are considered unrecognized tax benefits which would affect Lakes’ effective tax rate if recognized. There were no changes in the components of the liability related to uncertain tax positions during the nine months ended October 3, 2010 and September 27, 2009. The Company recorded $0.1 million and $0.4 million of interest related to the uncertain tax positions as income tax expense for the three and nine months ended October 3, 2010, respectively.

 

 

Rock Ohio Ventures, LLC.  Lakes’ initial capital requirement for a 10% ownership in Rock Ohio Ventures, LLC was $2.4 million. If Lakes chooses not to fund any additional amounts, it will maintain an ownership position in Rock Ohio Ventures, LLC in a pro rata amount of what its $2.4 million payment is to the total amount of equity required to fund the development of the casino. As of October 3, 2010, Lakes has contributed approximately $2.4 million as required as of that date (Note 7).

 

Quest Media Group, LLC.  During March and April 2010, Lakes entered into an agreement and amendment, respectively, with Quest Media Group, LLC (“Quest”), wherein Lakes agreed to pay a fee to Quest for assisting Lakes in partnering with Rock Ohio Ventures, LLC, and Penn Ventures, LLC during 2009 and with MYOHIONOW.COM, LLC in 2008 (collectively the “Project Companies”). Pursuant to the agreement, Lakes shall pay Quest a fee equal to 18.5% of gross distributions from the Project Companies (less certain amounts set forth in the agreement), capped at $0.5 million for the first five years or until Lakes recovers prior expenditures, as set forth in the agreement. The April 2010 amendment increased the fee from 18.0% to 18.5% in exchange for a payment from Quest to Lakes of $0.5 million. During the three months ended October 3, 2010, Lakes made a payment of $0.5 million to Quest as a result of the payment received from the Termination Agreement with Penn Ventures, LLC (Note 7).

 

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. Lakes expects to have motion hearings this year and a trial shortly thereafter. Management intends to continue to vigorously contest this action by the Louisiana Department of Revenue. However, 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 recorded an estimated liability related to this examination, including accrued interest and fees, which is included as part of income taxes payable on the accompanying consolidated balance sheets.

 

Miscellaneous legal matters.  Lakes and its subsidiaries 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, and although unable to estimate the minimum costs, if any, to be incurred in connection with these matters, management currently believes that the likelihood of an unfavorable outcome is remote, and is not likely to have a material adverse effect upon Lakes’ unaudited consolidated financial statements. Accordingly, no provision has been made with regard to these matters.

 

 

Lakes’ segments reported below 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 Indian Casino Projects segment includes operations and assets related to the development, financing and management of gaming-related properties for the Shingle Springs Tribe, Pokagon Band, Jamul Tribe and Iowa Tribe. The Non-Indian Casino Projects segment includes operations and assets related to the development, financing and management of gaming-related properties in Mississippi and Ohio. The total assets in “Corporate and Eliminations” below primarily relate to Lakes’ short-term investments, deferred tax assets, and the Lakes corporate office building. 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.

 

 

 

 

 

On October 15, 2010, the Company implemented a reduction in force resulting in the termination of 13 employees. These actions are designed to streamline and reduce the Company’s cost structure, increase its financial strength and align its workforce with anticipated staffing needs. The Company expects to incur one-time costs totaling approximately $500,000, which relate to cash outlays for employee severance benefits which will be reflected in the financial results in the fourth fiscal quarter 2010.

 

Overview

 

Lakes Entertainment, Inc. and subsidiaries (“Lakes”, “we, or “our”) primarily develops, finances and manages casino properties with a historical emphasis on those that are Indian-owned. We currently have development and management or financing agreements with three separate tribes for casino operations in Michigan and California, for a total of three separate casino projects as follows:

 

 

During May 2010, a subsidiary of Lakes entered into a termination agreement with the Iowa Tribe of Oklahoma, its governmental components and instrumentalities (collectively, the “Iowa Tribe”) (“Termination Agreement with the Iowa Tribe”), whereby, in consideration of the parties terminating all contracts and agreements between them (including the Management Agreement under which Lakes was managing the Cimarron Casino, the Consulting Agreement for the Ioway Casino Resort, and the Amended and Restated Ioway Note under which approximately $5.0 million was advanced), the Iowa Tribe agreed to pay to Lakes a total of $4.5 million in the following manner: $1 million to be paid within two days of execution of the Termination Agreement with the Iowa Tribe and the sum of $3.5 million to be paid in 15 equal monthly installments commencing on June 15, 2010. The Iowa Tribe is permitted to make prepayments on the outstanding amount at a 6% discount during the first twelve months after the execution of the Termination Agreement with the Iowa Tribe.

 

We have also explored, and continue to explore, other casino development projects. An overview of our non-Indian projects are as follows:

 

 

 

Results of Operations

 

The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q for the three and nine months ended October 3, 2010.

 

Three months ended October 3, 2010 compared to the three months ended September 27, 2009

 

Revenues.  Total revenues were $8.2 million for the third quarter of 2010 compared to revenues of $6.6 million for the third quarter of 2009. This improvement was primarily related to an increase in management fees earned from the Four Winds Casino Resort during the third quarter of 2010 compared to the prior year period, partially offset by a decrease in management fees earned related to the Cimarron Casino project, due to the termination of that agreement in May 2010.

 

Selling, general and administrative expenses.  Selling, general and administrative expenses were $2.9 million in the third quarter of 2010 compared to $3.5 million for the third quarter of 2009. For the third quarter of 2010, Lakes’ selling, general and administrative expenses consisted primarily of payroll and related expenses (including share-based compensation) of $1.7 million, travel expenses of $0.5 million, and professional fees of $0.4 million. The decrease was primarily due to a decrease in professional fees. For the third quarter of 2009, Lakes’ selling,

general and administrative expenses consisted primarily of payroll and related expenses (including share-based compensation) of $1.8 million, travel expenses of $0.5 million and professional fees of $1.0 million including costs associated with the application for a gaming site in the State of Kansas of $0.2 million.

 

Impairment losses.  Impairment losses were $0.6 million in the third quarter of 2010 and the third quarter of 2009. The 2010 impairment losses related primarily to continued uncertainty surrounding the Jamul Casino.

 

Amortization of intangible assets related to Indian casino projects.  Amortization of intangible assets related to Indian casino projects for the third quarter of 2010 was $2.8 million compared to $2.6 million for the third quarter of 2009.

 

Net unrealized gains on notes receivable.  Net unrealized gains on notes receivable relate primarily to our notes receivable from Indian tribes for casino projects that are not yet open, which are adjusted to estimated fair value, based upon the current status of the related tribal casino projects and evolving market conditions. In the third quarter of 2010, net unrealized gains on notes receivable were $0.5 million, compared to net unrealized gains of $0.9 million in the prior year period. The net unrealized gain in the third quarter of 2010 related to the Jamul Indian Village (“Jamul Tribe”) near San Diego, California due primarily to improvement in the credit markets. The net unrealized gains in the third quarter of 2009 consisted of $0.7 million related to the Jamul Casino project with the Jamul Tribe and $0.2 million related to the Iowa Tribe’s Ioway Casino project due primarily to improvement in the credit markets.

 

Other income (expense), net.  Other income (expense), net for the third quarter of 2010 was $23.8 million compared to $1.1 million for the third quarter of 2009. Included in other income (expense), net for the third quarter of 2010 is a gain on divestiture of cost method investment of $23.1 million. During the third quarter of 2010, Lakes entered into a Termination Agreement with Penn Ventures, LLC in which the Company divested its interest in the entity to be formed in collaboration with Penn Ventures, LLC in exchange for a $25 million payment from Penn Ventures, LLC which resulted in this gain.

 

Income taxes (benefit).  The income tax provision for the third quarter of 2010 was $11.0 million compared to an income tax benefit of $0.4 million for the third quarter of 2009. Our estimated effective tax rates were 42% and (23%) for the third quarter of 2010 and the third quarter of 2009, respectively. The effective tax rate differs from the federal tax rate of 35% due to state income taxes, valuation allowance, and provisions for interest charges on uncertain tax positions. Lakes’ income tax provision in the current year period consists primarily of current income tax provision of $10.9 million and a current provision of approximately $0.1 million of interest on a Louisiana tax audit matter (Note 13 to the unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q).

 

Nine months ended October 3, 2010 compared to the nine months ended September 27, 2009

 

Revenues.  Total revenues for the nine months ended October 3, 2010 were $19.9 million compared to $21.0 million for the nine months ended September 27, 2009. This decrease was primarily due to a reduction in management fees earned from the Cimarron Casino project, due to the termination of that agreement in May 2010 as well as a slight decrease in management fees earned from the Red Hawk Casino. Partially offsetting this decline was an increase in management fees earned in 2010 from the Four Winds Casino Resort.

 

Selling, general and administrative expenses.  Selling, general and administrative expenses for the nine months ended October 3, 2010 were $9.4 million compared to $11.3 million in the prior year period. For the first nine months of 2010, Lakes’ selling, general and administrative expenses consisted primarily of payroll and related expenses (including share-based compensation) of $5.3 million, travel expenses of $1.6 million and professional fees of $1.3 million. For the first nine months of 2009, Lakes’ selling, general and administrative expenses consisted primarily of payroll and related expenses (including share-based compensation) of $5.8 million, travel expenses of $2.2 million and professional fees of $2.3 million including costs associated with the application for a gaming site in the State of Kansas of $0.5 million.

 

Impairment losses.  Impairment losses were $4.0 million for the nine months ended October 3, 2010 compared to $2.9 million for the nine months ended September 27, 2009. Due to the Iowa Tribe’s decision not to move forward with Lakes for the development and management of the Ioway Casino Resort, impairment losses of

$2.1 million were recognized during the first nine months of 2010 in connection with land and intangible assets related to the Ioway Casino Project. In addition, due to the continued uncertainty surrounding the Jamul Casino project associated with delays in progress as well as ongoing issues in the credit markets and general economic uncertainties, we recognized impairment losses of $1.9 million during the first nine months of 2010. The 2009 impairment losses related primarily to continued uncertainty surrounding the Jamul Casino project.

 

Amortization of intangible assets related to Indian casino projects.  Amortization of intangible assets related to Indian casino projects for the nine months ended October 3, 2010 was $8.4 million compared to $7.6 million in the prior-year period.

 

Net unrealized gains on notes receivable.  In the first nine months of 2010, net unrealized gains on notes receivable were $0.8 million, compared to net unrealized gains of $3.2 million in the prior year period. The net unrealized gains in the current year period consisted primarily of gains related to the Iowa Tribe of $0.9 million which resulted from the previously announced Termination Agreement with the Iowa Tribe in May 2010. Partially offsetting these gains were net losses related to the Jamul Tribe of $0.1 million, due primarily to ongoing issues in the credit markets. The net unrealized gains in the prior year period were related to the project with the Jamul Tribe and the Iowa Tribe due primarily to improvements in the credit markets during that period.

 

Other income (expense), net.  Other income (expense), net for the nine months ended October 3, 2010 was $27.1 million compared to $3.9 million in the prior-year period. Included in other income (expense), net for the third quarter of 2010 is a gain on divestiture of cost method investment of $23.1 million. During the third quarter of 2010, Lakes entered into a Termination Agreement with Penn Ventures, LLC in which the Company divested its interest in the entity to be formed in collaboration with Penn Ventures, LLC in exchange for a $25 million payment from Penn Ventures, LLC which resulted in this gain.

 

Income taxes (benefit).  The income tax provision was $11.5 million compared to an income tax benefit of less than $0.1 million for the nine months ended October 3, 2010 and September 27, 2009, respectively. Our estimated effective tax rates were 45% and (0.6%) for the nine months ended October 3, 2010 and the corresponding 2009 period, respectively. The estimated effective tax rate differs from the federal tax rate of 35% due to state income taxes, discrete items recognized and additional valuation allowance due to projected 2010 timing differences. Lakes’ estimated income tax provision in the current year period consists primarily of current income tax provision, additional valuation allowance against deferred taxes and $0.4 million of interest on a Louisiana tax audit matter (Note 13 to the unaudited 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 a valuation allowance against deferred tax assets related to capital losses for the portion that was not expected to be realized.

 

Liquidity and Capital Resources

 

As of October 3, 2010, we had $46.9 million in cash and cash equivalents. We currently believe that our cash and cash equivalents balance and our cash flows from operations will be sufficient to meet our working capital requirements during the next 12 months. We currently expect to be able to obtain funds in order to fulfill our potential future capital needs. However, such financing may not be available at all, or at acceptable terms, or it may be dilutive to our stockholders.

 

Our operating results and performance depend significantly on economic conditions and their effects on consumer spending in the casinos we manage. Declines in consumer spending cause our revenue generated from the management of these casinos to be adversely affected.

 

During the nine months ended October 3, 2010, UBS Financial Services (“UBS”) purchased our remaining Auction Rate Securities at their par value of $21.9 million. A portion of the proceeds were used to repay the remaining balance of $14.7 million on our related line of credit with UBS, which was subsequently closed upon repayment. These transactions resulted in a net additional liquidity of $7.2 million to Lakes, and Lakes has no remaining Auction Rate Securities investments and no remaining outstanding balance on the related line of credit.

 

On April 9, 2010, Chisholm Creek withdrew its application to be the Lottery Facility Gaming Manager in the South Central Gaming Zone in Kansas. As a result, we received approximately $8.3 million from Kansas Gaming

Partners, LLC on April 14, 2010 representing our previous capital contribution for the deposit of a privilege fee with the State of Kansas.

 

During May 2010, we entered into the Termination Agreement with the Iowa Tribe whereby the Iowa Tribe agreed to pay to us a total of $4.5 million of which $1 million was received within two days of execution of the Termination Agreement with the Iowa Tribe and the sum of $3.5 million is required to be paid in 15 equal monthly installments commencing on June 15, 2010. The Iowa Tribe is permitted to make prepayments on the outstanding amount at a 6% discount during the first twelve months after the execution of the Termination Agreement.

 

On July 13, 2010, we entered into a Termination Agreement with Penn Ventures, LLC whereby, in consideration of the parties terminating the Funding and Option Agreement entered into during October 2009, Penn Ventures, LLC paid us $25 million. Accordingly, we no longer have any rights, obligations or interest in the entity that was to be formed in collaboration with Penn Ventures for the development of casinos in Toledo and Columbus, Ohio. As a result of the payment received from the Termination Agreement with Penn Ventures, LLC, we paid Quest Media Group, LLC (“Quest”) $0.5 million during the third quarter of 2010, in accordance with a separate agreement between Lakes and Quest (Note 13 to the unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q).

 

Per our agreement with Rock Ohio Ventures related to two potential Ohio casinos, Lakes expects to invest additional funds in those projects. As a result we may need to obtain additional financing.

 

During 2008, we closed on a two-year interest only $8.0 million non-revolving line of credit loan agreement (the “Loan Agreement”) with Centennial Bank (formerly First State Bank). Effective October 28, 2010, the Loan Agreement’s maturity date was extended from October 2010 to October 2012. Amounts borrowed under the Loan Agreement bear interest at 8.95%. As of January 3, 2010, Lakes had drawn $2.0 million under the Loan Agreement. These advances were repaid during the quarter ended October 3, 2010 and no amounts were outstanding at October 3, 2010.

 

During the three months ended October 3, 2010, we made a prepayment of contract acquisition costs payable of $3.4 million at an 18% discount. Amounts remaining of approximately $0.9 million under this obligation are payable thru August 2012.

 

On October 15, 2010, we implemented a reduction in force resulting in the termination of 13 employees. These actions are designed to streamline and reduce the Company’s cost structure, increase its financial strength and align its workforce with anticipated staffing needs. We expect to incur one-time costs totaling approximately $500,000, which relate to cash outlays for employee severance benefits which will be reflected in the financial results in the fourth fiscal quarter 2010.

 

Lakes derives its revenues from the management of the Cimarron Casino, the Four Winds Casino Resort and the Red Hawk Casino. Due to the May 2010 Termination Agreement with the Iowa Tribe, Lakes no longer receives management fees for the Cimarron Casino. Our management contracts with the Four Winds Casino Resort and the Red Hawk Casino extend through fiscal July 2012 and December 2015, respectively. Because of the relatively short operating history of the casinos we manage, and the uncertainty in the economic environment, the amount of our ongoing management fees is uncertain.

 

Lakes’ forecasted operating cash requirements do not include construction-related costs that will be incurred when pending and future development projects begin construction because the construction of our pending casino projects will depend on the ability of the tribes and/or Lakes or its partners to obtain additional financing for the projects, which based on the general economic environment, is subject to considerable uncertainty. 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 future results of operations, cash flows and financial condition. If our casino development project with the Jamul Tribe is not constructed or if constructed, does not achieve profitable operations in the highly competitive market for gaming activities, our only recourse is to attempt to liquidate assets of the development, if any, excluding any land in trust and it is likely that we would incur complete losses on our notes receivable and any related intangible assets.

In order to assist the tribes, we may elect to guarantee the tribes’ debt financing or otherwise provide support for the tribes’ obligations. Guarantees by us, if any, will increase our potential exposure to losses and other adverse consequences in the event of a default by any of these tribes. In addition, 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 information regarding contractual obligations as of October 3, 2010 (in millions):

 

 

 

 

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, investment securities, litigation costs, income taxes, and share-based compensation. 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, 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.”

 

Share-based compensation expense:  We use the Black-Scholes option pricing method to establish fair value of options. Our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility and actual and projected employee stock option exercise behaviors. Any changes in these assumptions may materially affect the estimated fair value of the share-based award. We determine the estimated fair value per share of restricted stock units as the closing stock price on the date of grant, as reported by the NASDAQ Global Market.

 

Income taxes:  We account for income taxes under the provisions of Accounting Standards Codification (“ASC”) 740, Income Taxes.  The determination of our income tax-related account balances requires the exercise of significant judgment by management. Accordingly, we determine deferred tax assets and liabilities based upon the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. We assess the likelihood that deferred tax assets will be recovered from future taxable income and establish a valuation allowance when management believes recovery is not likely.

 

We record estimated penalties and interest related to income tax matters, including uncertain tax positions as a component of income tax expense.

 

Long-term assets related to Indian casino projects:

 

Notes receivable.  We have formal procedures governing our evaluation of opportunities for potential Indian-owned casino development projects that we follow before entering into agreements to provide financial support for the development of these projects. We determine whether there is probable future economic benefit prior to recording any asset related to the Indian casino project. We initially evaluate the following factors involving critical milestones that affect the probability of developing and operating a casino:

 

 

We account for our notes receivable from the tribes as in-substance structured notes in accordance with the guidance contained in ASC 320, Investments — Debt and Equity Securities. Under their terms, the notes do not

become due and payable unless the projects are completed and operational, and distributable profits are available from the operations. However, in the event our development activity is terminated prior to completion, we generally retain the right to collect in the event of completion by another developer. Because the stated rate of the notes receivable alone is not commensurate with the risk inherent in these projects (at least prior to commencement of operations), the estimated fair value of the notes receivable is generally less than the amount advanced. At the date of each advance, the difference between the estimated fair value of the note receivable and the actual amount advanced is recorded as an intangible asset, and the two assets are accounted for separately.

 

Subsequent to its initial recording at estimated fair value, the note receivable portion of the advance is adjusted to its current estimated fair value at each balance sheet date using then current assumptions including typical market discount rates, and expected repayment terms as may be affected by estimated future interest rates and opening dates, with the latter affected by changes in project-specific circumstances such as ongoing litigation, the status of regulatory approval and other factors previously noted. The notes receivable are not adjusted to a fair value estimate that exceeds the face value of the note plus accrued interest, if any. Due to uncertainties surrounding the projects, no interest income is recognized during the development period, but changes in estimated fair value of the notes receivable still held as of the balance sheet date are recorded as unrealized gains or losses in our consolidated statement of earnings.

 

Upon opening of the casino, any difference between the then estimated fair value of the notes receivables and the amount contractually due under the notes will be amortized into income using the effective interest method over the remaining term of the note. Such notes would then be evaluated for impairment pursuant to ASC 310, Receivables (“ASC 310”).

 

Additionally, upon significant changes in the development activity prior to the opening of a casino, including termination of the project, notes receivable would be evaluated for impairment pursuant to ASC 310 and any necessary decline in the carrying amount will be recorded as unrealized losses in our consolidated statement of earnings. Subsequent to the initial impairment evaluation, we continue to monitor the note receivable for any changes in expected cash flows and recognize those changes in accordance with ASC 310.

 

Intangible assets related to Indian casino projects.  Intangible assets related to the acquisition of the management, development, consulting or financing contracts are accounted for using the guidance in ASC 350, Intangibles — Goodwill and Other (“ASC 350”). Pursuant to that guidance, the assets are periodically evaluated for impairment based on the estimated cash flows from the contract on an undiscounted basis. In the event the carrying value of the intangible assets, in combination with the carrying value of land held for development and other assets associated with the Indian casino projects described below, were to exceed the undiscounted cash flow, an impairment would be recorded. Such an impairment would be measured based on the difference between the fair value and carrying value of the assets. In accordance with ASC 350, we amortize the intangible assets related to the acquisition of the management, development, consulting or financing contracts under the straight-line method over the term of the contracts which commence when the related casinos open. In addition to the intangible asset associated with the cash advances to tribes described above, these assets include actual costs incurred to acquire our interest in the projects from third parties.

 

Land held for development.  Included in land held for development is 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, we have the right to sell it. We evaluate these assets for impairment in combination with intangible assets related to acquisition of management, development, consulting or financing contracts and other assets related to the Indian casino projects as discussed above.

 

Other.  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 are allocated between notes receivable and intangible assets related to the acquisition of management, development, consulting or financing contracts and will be evaluated for changes in fair value or impairment, respectively, as described above. These amounts vary from period to period due to timing of payment of these costs. Also included in this category are receivables from related parties that are directly related to the development and opening of Lakes’ Indian casino projects.

In addition, we incur certain non-reimbursable costs related to the projects that are not included in notes receivable, which are expensed as incurred. These costs include salaries, travel and certain legal costs.

 

Long-term asset related to Indian Casino projects The consolidated balance sheets as of October 3, 2010 and January 3, 2010 include long-term assets related to Indian casino projects of $99.2 million and $110.6 million, respectively, which primarily related to four separate projects. The amounts are as follows by project (in thousands):