MINNEAPOLIS--(BUSINESS WIRE)--Aug. 6, 2008--Lakes Entertainment,
Inc. (NASDAQ: LACO) today announced results for the three and
six-month periods ended June 29, 2008.
The consolidating summary results for the second quarter of 2008
compared to the consolidating summary results for the second quarter
ended July 1, 2007, for Lakes Entertainment, Inc. and WPT Enterprises,
Inc. ("WPTE"), Lakes' majority-owned subsidiary, are as follows:
Quarter ended Quarter ended
June 29, 2008 July 1, 2007
($ in thousands, Consoli- Consoli-
except per share) Lakes WPTE dated Lakes WPTE dated
-------- -------- -------- ------ -------- --------
Total revenues $ 5,885 $ 5,074 $10,959 $ 409 $ 7,720 $8,129
Selling, general &
admin expense 7,650 6,293 13,943 4,113 5,853 9,966
Net unrealized
gains on notes
rec. 1,125 - 1,125 8,939 - 8,939
Earnings (loss)
from operations (2,404) (4,130) (6,534) 5,141 (3,587) 1,554
Net earnings
(loss) - common $(1,304) $(3,882) $(5,186) $9,913 $(3,339) $6,574
Earnings (loss)
per common share
- diluted $ (0.21) $ 0.25
Consolidating summary results for the six months ended June 29,
2008 compared to consolidating summary results for the six months
ended July 1, 2007 for Lakes and WPTE are as follows:
Six months ended Six months ended
June 29, 2008 July 1, 2007
($ in thousands,
except per Consoli- Consoli
share) Lakes WPTE dated Lakes WPTE -dated
-------- -------- ---------------- -------- --------
Total revenues $10,486 $10,034 $ 20,520 $ 887 $12,212 $13,099
Selling, general
& admin expense 13,159 11,676 24,835 8,682 11,039 19,721
Net unrealized
gain (loss) on
notes rec. (858) - (858) 9,104 - 9,104
Earnings (loss)
from operations (7,064) (7,323) (14,387) 786 (6,530) (5,744)
Net earnings
(loss) - common $(5,380) $(6,711) $(12,091) $2,371 $(5,619) $(3,248)
-------- -------- --------- ------ -------- --------
Loss per common
share - diluted $ (0.49) $ (0.14)
Lyle Berman, Chief Executive Officer of Lakes, stated, "We are
pleased with results from the Four Winds Casino Resort in the face of
a very difficult macroeconomic environment. In another positive for
the Company, we are excited that California Governor Schwarzenegger
and the Shingle Springs Band of Miwok Indians were able to amend their
gaming compact, which will allow for expanded Class III gaming at the
Red Hawk Casino once the amendment is ratified by the State of
California's legislature and approved by the Bureau of Indian Affairs.
Approval is expected prior to the planned opening of the Red Hawk
Casino which is still on schedule for late fourth quarter of this
year. Further, yesterday we delivered petitions containing over
750,000 signatures to the Ohio Secretary of State and we anticipate
enough signatures will be verified in the requisite number of counties
in order to place the MyOhioNow casino resort initiative on the Ohio
ballot in November."
Further commenting on second quarter results, Tim Cope, President
and Chief Financial Officer of Lakes, stated, "Following the improved
performance in March of this year, the Four Winds Casino Resort
continued to perform well and exceeded our expectations in the second
quarter. In Oklahoma, the Cimarron Casino reported strong results with
an improvement in year-over-year performance and in California, the
construction of the Red Hawk Casino for the Shingle Springs Tribe in
California remains on schedule and within budget for its expected
grand opening."
Second Quarter Results
Lakes Entertainment reported consolidated second quarter 2008
revenues of $11.0 million, a 34.8% increase from the prior-year
period. Lakes' revenue increased $5.5 million, primarily due to a full
quarter contribution of management fees from the Four Winds Casino
Resort, which is owned by the Pokagon Band of Potawatomi Indians
("Pokagon Band"), compared to no contribution from that property in
the second quarter of 2007. Revenue related to WPTE decreased to $5.1
million for the second quarter of 2008, compared to $7.7 million in
the prior-year period. The decrease was due to a decline in domestic
television license fee income from the World Poker Tour(R) television
program, which was due to lower per episode license fees under the
Game Show Network agreement in effect during the 2008 period, as
compared to the Travel Channel agreement which was in effect during
the 2007 period.
Consolidated selling, general and administrative expenses were up
$4.0 million from the prior-year period to $13.9 million due to
development costs associated with the proposed Ohio casino resort
project. For the second quarter of 2008, Lakes' selling, general and
administrative expenses were $7.7 million and consisted primarily of
payroll and related expenses of $2.1 million (including share-based
compensation), the development costs associated with the Ohio casino
resort initiative of $4.0 million, travel expenses of $0.7 million and
professional fees of $0.5 million.
Other costs and expenses incurred in the second quarter of 2008
included amortization of intangible assets of approximately $1.7
million associated with the casino project with the Pokagon Band which
commenced upon the opening of the Four Winds Casino Resort in August
2007.
Net unrealized gains on notes receivable relate to the Company's
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 second quarter of
2008, net unrealized gains on notes receivable were $1.1 million,
compared to net unrealized gains of $8.9 million in the prior-year
period. The difference in unrealized gains on a quarter-over-quarter
basis was primarily due to the recognition of a $7.7 million
unrealized gain in the second quarter of 2007 due to closing on a $450
million senior note financing to fund the Red Hawk Casino project in
Shingle Springs, California, which increased the probability of the
opening of the casino.
The loss from operations for the second quarter of 2008 was $6.5
million, compared to earnings from operations of $1.6 million in the
second quarter of 2007, while net loss applicable to common
shareholders for the second quarter of 2008 was $5.2 million, compared
to net earnings applicable to common shareholders of $6.6 million in
the second quarter of 2007. The difference resulted primarily from the
items discussed above, in addition to the net effect of items
occurring in the prior-year period, including $4.9 million of interest
income resulting from the repayment for land Lakes had previously
purchased on the Shingle Springs Tribe's behalf, partially offset by a
loss on abandonment of online gaming assets by WPTE of $2.3 million
and a stock warrant inducement discount of $1.4 million. Loss
applicable to common shareholders per fully diluted share was $0.21 in
the second quarter of 2008, compared to earnings applicable to common
shareholders per fully diluted share of $0.25 for the second quarter
of 2007.
Six Month 2008 Results
Lakes Entertainment reported consolidated revenues for the
six-month period ended June 29, 2008 of $20.5 million, up 56.7% from
the prior-year period. Lakes' revenue increased $9.6 million over the
six-month period ended June 29, 2008, primarily due to a full six
months contribution of management fees from the Four Winds Casino
Resort, compared to no contribution from that property for the six
months ended July 1, 2007. Revenue related to WPTE declined to $10.0
million for the six months ended June 29, 2008, compared to $12.2
million in the prior-year period. The decrease was due to a decline in
domestic television license fee income from the World Poker Tour(R)
television program, which was due to lower per episode license fees
under the Game Show Network agreement in effect during the 2008
period, as compared to the Travel Channel agreement which was in
effect during the 2007 period.
Consolidated selling, general and administrative expenses for the
six months ended June 29, 2008 were up $5.1 million from the
prior-year period to $24.8 million due primarily to $5.7 million in
development costs associated with the proposed Ohio casino resort
project. For the six months ended June 29, 2008, Lakes' selling,
general and administrative expenses were $13.2 million and consisted
primarily of payroll and related expenses of $4.3 million (including
share-based compensation), the development costs associated with the
Ohio casino resort initiative of $5.7 million, travel expenses of $1.3
million and professional fees of $1.1 million.
Other costs and expenses for the six months ended June 29, 2008
included amortization of intangible assets of approximately $3.4
million associated with the casino project with the Pokagon Band which
commenced upon the opening of the Four Winds Casino Resort in August
2007.
For the six months ended June 29, 2008, net unrealized losses on
notes receivable were $0.9 million, compared to net realized and
unrealized gains of $9.1 million in the prior-year period. Net
unrealized losses in the six-month period ended June 29, 2008 were due
primarily to a decrease in projected interest rates, due to current
market conditions, for the notes receivable related to the Red Hawk
Casino project with the Shingle Springs Tribe and the notes receivable
related to the casino project with the Jamul Indian Village. The
difference in the year-over-year basis was primarily due to the
recognition of a $7.7 million unrealized gain in the six months ended
July 1, 2007 due to closing on a $450 million senior note financing to
fund the Red Hawk Casino project in Shingle Springs, California, which
increased the probability of the opening of the casino.
The operating loss for the six months ended June 29, 2008 was
$14.4 million, compared to an operating loss of $5.7 million in the
prior-year period, while net loss applicable to common shareholders
for the six months ended June 29, 2008 was $12.1 million, compared to
a loss of $3.2 million in the comparable prior-year period. Loss
applicable to common shareholders per fully diluted share was $0.49 in
the six months ended June 29, 2008, compared to a loss per fully
diluted share of $0.14 for the prior-year period.
Liquidity and Balance Sheet
As of June 29, 2008, the Company had $9.9 million in cash and cash
equivalents, $6.4 million in short-term investments in marketable
securities, and $37.5 million in long-term investments in marketable
securities. Of these amounts, $4.5 million in cash and cash
equivalents related to Lakes and $25.0 million in long-term
investments related to Lakes. All other amounts related to WPTE. All
of Lakes' long-term investments in marketable securities and
$11.4 million of WPTE's long-term investments in marketable securities
are comprised of auction rate securities ("ARS"). As a result of
liquidity issues surrounding the ARS discussed below, the ARS are
classified as long-term investments in marketable securities as of
June 29, 2008. The types of ARS 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"). Neither Lakes nor
WPTE own any other type of ARS. None of our ARS qualify, or have ever
been classified in our consolidated financial statements, as cash or
cash equivalents.
Historically, these types of ARS 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 liquidity issues
experienced in the global credit and capital markets, the auctions for
all of the Company's ARS began failing in February 2008. The failures
of these auctions do not affect the value of the collateral underlying
the ARS, and both Lakes and WPTE continue to earn and receive interest
on the ARS at contractually set rates. However, it will not be
possible to liquidate the 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 July 2008, Lakes and WPTE
received account statements for June 2008 from the firms managing the
ARS which estimated the fair value of the ARS. Lakes and WPTE analyzed
these statements and have concluded that a temporary decline in
estimated fair value of $2.8 million related to the ARS has occurred
as a result of the current lack of liquidity. This consolidated
decline in estimated fair value includes $1.8 million related to Lakes
and $1.0 million related to WPTE. Since we consider the decline in the
estimated fair value of ARS to be temporary, the related unrealized
loss is included in accumulated other comprehensive loss in the
shareholders' equity section of the Company's balance sheet as of June
29, 2008. If the Company were required to liquidate the ARS over the
coming months as a source of financing, it is likely that the proceeds
would be substantially less than the carrying value of the ARS.
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"). During June 2008, the Margin Account
Agreement limit was increased to $12.5 million. Lakes made an initial
draw under the Margin Account Agreement in the principal amount of
$3.0 million for working capital purposes. Lakes is currently seeking
additional sources of financing to fund additional costs that are
planned to be incurred between September and December of this year
associated with the previously announced Ohio casino resort
initiative. These additional costs, which are currently expected to
approximate between $10 million and $20 million, will only be incurred
if this initiative is successfully placed on the Ohio ballot and are
dependent on various factors including polling numbers, market studies
and media efforts. Lakes 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.
Lakes also had notes receivable from Indian tribes which are
recorded at their estimated fair value of $79.6 million as of June 29,
2008. The corresponding face value of these notes, including accrued
interest, was $122.7 million. As of June 29, 2008, the Company's
obligation related to its Margin Account Agreement was $2.8 million,
and long-term contract acquisition costs payable were $6.1 million.
About Lakes Entertainment
Lakes Entertainment, Inc. currently has 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 sites. Lakes is currently managing the Cimarron Casino
for the Iowa Tribe of Oklahoma and the Four Winds Casino Resort for
the Pokagon Band of Potawatomi Indians. Lakes is also involved in
other business activities, including possible development of a Company
owned casino resort project in Vicksburg, Mississippi and the
development of new table games for licensing to Tribal and non-Tribal
casinos. The Company also owns approximately 61 percent of WPT
Enterprises, Inc. (NASDAQ: WPTE), a separate publicly held media and
entertainment company engaged in the creation of internationally
branded entertainment and consumer products driven by the development,
production and marketing of televised programming based on gaming
themes, including the World Poker Tour(R) television series, the
operation of an online gaming website, the licensing and sale of
branded products and the sale of corporate sponsorships.
The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. Certain information
included in this press release (as well as information included in
oral statements or other written statements made or to be made by
Lakes Entertainment, Inc.) contains statements that are
forward-looking, such as statements relating to plans for future
expansion and other business development activities as well as other
capital spending, financing sources and the effects of regulation
(including gaming and tax regulation) and competition. Such
forward-looking information involves important risks and uncertainties
that could significantly affect anticipated results in the future and,
accordingly, such results may differ from those expressed in any
forward-looking statements made by or on behalf of the company. These
risks and uncertainties include, but are not limited to, obtaining a
sufficient number of signatures to place the Ohio casino resort
initiative on the November 4, 2008 Ohio statewide election ballot or
if the referendum is placed on that ballot, that the referendum will
pass or if the referendum passes, that it will not subsequently be
challenged or that other developments will not prevent or delay the
project; need for current financing to meet Lakes' operational and
development needs, including financing needs related to the Ohio
casino resort initiative; those relating to the inability to complete
or possible delays in completion of Lakes' casino projects, including
various regulatory approvals and numerous other conditions which must
be satisfied before completion of these projects; possible termination
or adverse modification of management or development contracts; Lakes
operates in a highly competitive industry; possible changes in
regulations; reliance on continued positive relationships with Indian
tribes and repayment of amounts owed to Lakes by Indian tribes;
possible need for future financing to meet Lakes' expansion goals;
risks of entry into new businesses; reliance on Lakes' management; and
the fact that the WPTE shares held by Lakes are currently not liquid
assets, and there is no assurance that Lakes will be able to realize
value from these holdings equal to the current or future market value
of WPTE common stock. There are also risks and uncertainties relating
to WPTE that may have a material effect on the company's consolidated
results of operations or the market value of the WPTE shares held by
the company, including the risk that WPTE may not obtain sufficient
sponsorship revenues for Season Seven programming of the WPT series;
difficulty of predicting the growth of WPTE's online gaming business,
which is a relatively new industry with an increasing number of market
entrants; reliance on the efforts of CryptoLogic to develop and
maintain the online gaming website in compliance with WPTE's business
model and applicable gaming laws; the potential that WPTE's television
programming will fail to maintain a sufficient audience; the risk that
WPTE may not be able to protect its entertainment concepts, current
and future brands and other intellectual property rights; the risk
that competitors with greater financial resources or marketplace
presence might develop television programming that would directly
compete with WPTE's television programming; risks associated with
future expansion into new or complementary businesses; the termination
or impairment of WPTE's relationships with key licensing and strategic
partners; and WPTE's dependence on its senior management team. For
more information, review the company's filings with the Securities and
Exchange Commission.
LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
June 29, 2008 December 30, 2007
(Unaudited)
----------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents (balances
include $5.4 million and $3.9
million of WPT Enterprises, Inc.) $ 9,926 $ 9,248
Investments in marketable
securities (balances include $6.4
million and $23.0 million of WPT
Enterprises, Inc.) 6,394 53,546
Accounts receivable 3,942 3,570
Other current assets 1,923 3,028
----------------------------------------------------------------------
Total current assets 22,185 69,392
----------------------------------------------------------------------
Property and equipment, net 16,667 16,633
----------------------------------------------------------------------
Long-term assets related to Indian
casino projects:
Notes receivable from Indian tribes 79,611 78,795
Land held for development 7,663 7,631
Intangible assets, net of
accumulated amortization of $6.2
million and $2.8 million 63,865 65,910
Other 5,051 5,176
----------------------------------------------------------------------
Total long-term assets related to
Indian casino projects 156,190 157,512
----------------------------------------------------------------------
Other assets:
Investments in marketable
securities (balances include $12.4
million and $4.2 million of WPT
Enterprises, Inc.) 37,489 4,200
Investment in unconsolidated
investee 2,923 2,923
Deferred tax asset 4,006 4,878
Other long-term assets 664 563
----------------------------------------------------------------------
Total other assets 45,082 12,564
----------------------------------------------------------------------
Total assets $240,124 $256,101
======================================================================
Liabilities and shareholders' equity
Current Liabilities:
Accounts payable $ 2,061 $ 1,559
Income taxes payable 15,667 16,272
Accrued payroll and related costs 1,677 2,788
Deferred revenue 1,125 2,870
Short-term debt 2,760 -
Current portion of contract
acquisition costs payable, net of
$1.2 million discount 2,333 1,903
Other accrued expenses 1,907 2,074
----------------------------------------------------------------------
Total current liabilities 27,530 27,466
----------------------------------------------------------------------
Long-term Liabilities:
Contract acquisition costs payable,
net of current portion and $1.9
million and $2.5 million discount 6,110 7,342
----------------------------------------------------------------------
Total liabilities 33,640 34,808
----------------------------------------------------------------------
Commitments and contingencies
Minority interest in subsidiary 11,204 13,995
Shareholders' equity:
Series A convertible, nonvoting
preferred stock, $.01 par value,
with no dividend rights and no
liquidation preference; authorized
7,500 shares; 4,458 issued and
outstanding at December 30, 2007 - 45
Common stock, $.01 par value;
authorized 200,000 shares; 24,952
and 24,516 issued and outstanding
at June 29, 2008, and December 30,
2007, respectively 250 245
Additional paid-in capital 193,117 190,228
Retained earnings 4,675 16,766
Accumulated other comprehensive
earnings (loss) (2,762) 14
----------------------------------------------------------------------
Total shareholders' equity 195,280 207,298
----------------------------------------------------------------------
Total liabilities and shareholders'
equity $240,124 $256,101
======================================================================
LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Loss)
(In thousands, except per share data)
(Unaudited)
Three months ended Six months ended
------------------ ------------------
June 29, July 1, June 29, July 1,
2008 2007 2008 2007
------------------- ------------------
Revenues:
License fees $ 3,395 $ 6,072 $ 6,971 $ 9,839
Host fees, sponsorship,
online gaming and other 1,697 1,671 3,102 2,425
Management, consulting and
development fees 5,867 386 10,447 835
--------------------------------------------------- ------------------
Total revenues 10,959 8,129 20,520 13,099
--------------------------------------------------- ------------------
Costs and expenses:
Selling, general and
administrative 13,943 9,966 24,835 19,721
Production costs 2,784 3,087 5,454 5,239
Loss on abandonment of online
gaming assets - 2,270 - 2,270
Net impairment losses - - - 331
Amortization of intangible
assets related to Indian
casino projects 1,680 - 3,361 1
Depreciation and amortization 211 191 399 385
--------------------------------------------------- ------------------
Total costs and expenses 18,618 15,514 34,049 27,947
--------------------------------------------------- ------------------
Net realized and unrealized
gains (losses) on notes
receivable 1,125 8,939 (858) 9,104
--------------------------------------------------- ------------------
Earnings (loss) from operations (6,534) 1,554 (14,387) (5,744)
--------------------------------------------------- ------------------
Other income (expense):
Interest income 488 5,495 1,323 6,633
Interest expense (347) - (714) (316)
Amortization of debt issuance
costs - - - (95)
Loss on extinguishment of
debt - - - (3,830)
Other 120 22 182 28
--------------------------------------------------- ------------------
Total other income
(expense), net 261 5,517 791 2,420
--------------------------------------------------- ------------------
Earnings (loss) before income
taxes and minority interest in
net loss of subsidiary (6,273) 7,071 (13,596) (3,324)
Income taxes 431 348 1,119 656
--------------------------------------------------- ------------------
Earnings (loss) before minority
interest in net loss of
subsidiary (6,704) 6,723 (14,715) (3,980)
Minority interest in net loss
of subsidiary 1,518 1,295 2,624 2,176
--------------------------------------------------- ------------------
Net earnings (loss) (5,186) 8,018 (12,091) (1,804)
--------------------------------------------------- ------------------
Stock warrant inducement
discount - 1,444 - 1,444
--------------------------------------------------- ------------------
Net earnings (loss) applicable
to common shareholders (5,186) 6,574 (12,091) (3,248)
=================================================== ==================
Earnings (loss) applicable to
common shareholders per share -
basic ($0.21) $ 0.28 ($0.49) ($0.14)
=================================================== ==================
Earnings (loss) applicable to
common shareholders per share -
diluted ($0.21) $ 0.25 ($0.49) ($0.14)
=================================================== ==================
Weighted-average common shares
outstanding - basic 24,928 23,829 24,766 23,427
=================================================== ==================
Dilutive effect of common stock
equivalents - 2,077 - -
--------------------------------------------------- ------------------
Weighted-average common shares
outstanding - diluted 24,928 25,906 24,766 23,427
=================================================== ==================
CONTACT: Investor Relations:
Integrated Corporate Relations
William Schmitt, 203-682-8200
investorrelations@lakesentertainment.com
or
Lakes Entertainment, Inc.
Timothy Cope, 952-449-7030
SOURCE: Lakes Entertainment, Inc.
|
