News Column

Lakes Entertainment Announces Results for Second Quarter 2014

August 6, 2014

MINNEAPOLIS--(BUSINESS WIRE)-- Lakes Entertainment, Inc. (NASDAQ: LACO) today announced results for the three and six months ended June 29, 2014.

Second Quarter Results

Net earnings for the second quarter of 2014 were $0.1 million, compared to net earnings of $0.2 million for the second quarter of 2013. Earnings from operations were $0.3 million for the second quarter of 2014 compared to a loss from operations of $1.2 million for the second quarter of 2013. Basic and diluted earnings per share were less than $0.01 for the second quarter of 2014 compared to basic and diluted earnings per share of $0.01 for the second quarter of 2013.

Lakes Entertainment reported second quarter 2014 net revenues of $14.1 million, compared to prior-year second quarter net revenues of $8.5 million. Second quarter 2014 net revenues were related to the operation of Rocky Gap Casino Resort near Cumberland, Maryland, (“Rocky Gap”). Lakes acquired this property in August 2012 and gaming operations began on May 22, 2013. During the second quarter of 2013, net revenues of $4.8 million were related to the operation of Rocky Gap. Also included in prior-year second quarter net revenues were $3.7 million in management fees related to the management of the Red Hawk Casino, near Sacramento, California, owned by the Shingle Springs Band of Miwok Indians. There were no management fees earned during the second quarter of 2014 due to the August 29, 2013 termination of the management agreement for the Red Hawk Casino.

During the second quarters of 2014 and 2013, property operating expenses for Rocky Gap were $8.2 million and $3.4 million, respectively, and primarily related to gaming operations, rooms, food and beverage and golf. The increase in property operating expenses resulted primarily from the inclusion of gaming-related expenses in the entire current year quarter. Gaming commenced in May 2013, therefore, gaming expenses were included for only a portion of the prior-year second quarter.

For the second quarter of 2014, selling, general and administrative expenses were $5.7 million compared to $4.6 million for the second quarter of 2013. Included in these amounts were Lakes corporate selling, general and administrative expenses of $1.9 million and $2.0 million during the second quarters of 2014 and 2013, respectively. Lakes corporate selling, general and administrative expenses consist primarily of payroll and related expenses and professional fees as well as $0.4 million of business development costs. Rocky Gap selling, general and administrative expenses were $3.8 million and $2.6 million during the second quarters of 2014 and 2013, respectively. The increase in Rocky Gap selling, general and administrative expenses was due primarily to increases in marketing and advertising expenses, and payroll and related expenses related to the addition of gaming during May 2013.

During the second quarter of 2014, Lakes entered into an agreement to sell its interest in Dania Casino & Jai Alai in Dania Beach, Florida for a total of $2.6 million. Per the agreement, on April 21, 2014, Lakes received $1.0 million in exchange for 40% of Lakes’ interest in the project. The remaining purchase price will be paid in three equal semi-annual installments of approximately $0.5 million and 20% of Lakes’ original ownership will be transferred upon each remaining payment. Upon the receipt of the payment during the second quarter of 2014, Lakes recognized a $1.0 million gain on sale of cost method investment since this asset had previously been written off.

During the second quarter of 2013, Lakes recognized preopening expenses of $0.9 million related to the Rocky Gap project. There were no preopening expenses during the current year period.

Depreciation and amortization was $0.9 million for the three months ended June 29, 2014 compared to $0.5 million for the three months ended June 30, 2013. The increase was due primarily to depreciation on Rocky Gap fixed assets.

Six Month Results

Net losses for the six months ended June 29, 2014 were $1.7 million, compared to net losses of $0.1 million for the six months ended June 30, 2013. Loss from operations was $1.3 million for the first six months of 2014 compared to a loss from operations of $3.1 million for the first six months of 2013. Basic and diluted losses were $0.06 per share for the first half of 2014 compared to basic and diluted losses of less than $0.01 per share for the first half of 2013.

Lakes Entertainment reported net revenues of $26.4 million for the first six months of 2014, compared to net revenues of $11.9 million in the prior year period. Net revenues in the current year period were related to the operation of Rocky Gap. During the prior year period, net revenues of $5.4 million were related to the operation of Rocky Gap. Also included in the prior-year period net revenues were $6.4 million in management fees related to the management of the Red Hawk Casino. There were no management fees earned during the current year period due to the August 29, 2013 termination of the management agreement for the Red Hawk Casino.

During the first six months of 2014, property operating expenses for Rocky Gap which related primarily to gaming operations, rooms, food and beverage and golf were $15.5 million compared to $4.0 million in the prior-year period. The increase in property operating expenses was due primarily to the addition of gaming in May of 2013.

For the six months ended June 29, 2014, selling, general and administrative expenses were $11.5 million compared to $8.4 million for the six months ended June 30, 2013. Included in these amounts were Lakes corporate selling, general and administrative expenses of $4.0 million, during the first six months of 2014 and 2013. Rocky Gap selling, general and administrative expenses were $7.5 million and $4.4 million during the first six months of 2014 and 2013, respectively. Lakes corporate selling, general and administrative expenses consist primarily of payroll and related expenses and professional fees as well as $0.8 million of business development costs. The increase in Rocky Gap selling, general and administrative expenses was due primarily to increases in marketing and advertising expenses, and payroll and related expenses related to the addition of gaming during May 2013.

During the six months ended June 30, 2013, Lakes recognized preopening expenses of $1.2 million related to the Rocky Gap project. There were no preopening expenses during the current year period.

During the second quarter of 2014, Lakes entered into an agreement to sell its interest in Dania Casino & Jai Alai in Dania Beach, Florida for a total of $2.6 million. Per the agreement, on April 21, 2014, Lakes received $1.0 million in exchange for 40% of Lakes’ interest in the project. The remaining purchase price will be paid in three equal semi-annual installments of approximately $0.5 million and 20% of Lakes’ original ownership will be transferred upon each remaining payment. Upon the receipt of the payment during the second quarter of 2014, Lakes recognized a $1.0 million gain on sale of cost method investment since this asset had previously been written off.

Depreciation and amortization was $1.7 million for the six months ended June 29, 2014 compared to $0.7 million for the six months ended June 30, 2013. The increase related to depreciation on Rocky Gap fixed assets.

The Company has existing net operating loss carry forwards of approximately $72 million that are available to offset future taxable income.

Tim Cope, President and Chief Financial Officer of Lakes stated, "We are pleased with the performance of Rocky Gap. Although ongoing construction projects had an impact on second quarter operations, the property still performed well. With the recent completion of these projects, including the addition of 150 new parking spaces, the expansion of the fitness center and the remodel of the golf shop, which were completed in early July, we have already seen an increase in visitation and we are looking forward to operating the remainder of the summer and fall seasons with these new offerings. The gaming facility features 577 video lottery terminals, 13 table games, two poker tables and a casino bar along with a lobby food and beverage outlet. The AAA Four Diamond Award® winning property also includes a hotel, event center, restaurants, spa, the only Jack Nicklaus signature golf course in Maryland as well as a wide variety of outdoor and water activities.”

Further commenting, Lyle Berman, Chief Executive Officer of Lakes stated, “With an excess of $80 million in available funds on our balance sheet, we have been and continue to consider new ventures in order to maximize shareholder value. Mr. Berman continued, “We continue to maintain a 10% ownership interest in Rock Ohio Ventures, LLC’s 80% ownership in the Horseshoe Casino Cleveland, the Horseshoe Casino Cincinnati, the Thistledown Racino in North Randall, Ohio and Turfway Park, a racetrack located in Florence, Kentucky.”

About Lakes Entertainment

Lakes Entertainment, Inc. currently owns the Rocky Gap Casino Resort near Cumberland, Maryland. Lakes also has an investment in Rock Ohio Ventures, LLC’s casino and racino developments in Ohio, as well as Turfway Park in Florence, Kentucky.

 
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, need for potential future financing to meet Lakes’ development needs; Lakes operates in a highly competitive industry; possible changes in regulations; possible need for future financing to meet Lakes' expansion goals; risks of entry into new businesses; reliance on Lakes' management; and litigation costs. 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)
       
 
(Unaudited)
      June 29, 2014     December 29, 2013
Assets
Current assets:
Cash and cash equivalents $ 38,164 $ 37,897
Short-term investments 45,450 49,099
Income taxes receivable 2,155 2,155
Other       2,419       1,774
Total current assets       88,188       90,925
Property and equipment, net       33,516       31,659
Other assets:
Investment in unconsolidated investee 20,997 20,997
Gaming license 1,945 2,015
Land held for development 960 1,130
Other       666       535
Total other assets       24,568       24,677
Total assets     $ 146,272     $ 147,261
 
Liabilities and shareholders' equity
Current liabilities:
Current portion of long-term debt $ 1,364 $ 1,251
Other       4,661       3,610
Total current liabilities 6,025 4,861
Long-term debt, net       9,602       10,321
Total liabilities       15,627       15,182
Total shareholders' equity       130,645       132,079
Total liabilities and shareholders' equity     $ 146,272     $ 147,261
 
 
LAKES ENTERTAINMENT, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share data)
               
Three months endedSix months ended
June 29, 2014     June 30, 2013June 29, 2014     June 30, 2013
Revenues:
Management fees $ - $ 3,650 $ - $ 6,378
Gaming 11,068 3,188 21,388 3,188
Room 1,630 615 2,944 879
Food and beverage 1,566 703 2,825 901
Other operating 642 410 977 507
License fees and other       30         23     63         40  
Gross revenues       14,936         8,589     28,197         11,893  
Less promotional allowances       829         40     1,780         40  
Net revenues       14,107         8,549     26,417         11,853  
 
Costs and expenses:
Gaming 6,413 2,018 12,367 2,018
Room 173 214 283 325
Food and beverage 1,190 759 2,223 1,062
Other operating 419 418 661 633
Selling, general and administrative 5,723 4,613 11,463 8,380
Gain on sale of cost method investment (1,000 ) - (1,000 ) -
Preopening expenses - 902 - 1,167
Amortization of intangible assets related to Indian casino projects - 265 - 529
Loss on disposal of property and equipment (1 ) 143 24 143
Depreciation and amortization       864         460     1,717         717  
Total costs and expenses       13,781         9,792     27,738         14,974  
 
Earnings (loss) from operations       326         (1,243 )   (1,321 )       (3,121 )
 
Other income (expense):
Interest income 38 1,741 71 3,494
Interest expense (308 ) (264 ) (626 ) (472 )
Other       1         10     165         10  
Total other income (expense), net       (269 )       1,487     (390 )       3,032  
Earnings (loss) before income taxes 57 244 (1,711 ) (89 )
Income tax benefit       -         -     -         -  
Net earnings (loss)     $ 57       $ 244   $ (1,711 )     $ (89 )
Other comprehensive income       15         -     1         -  
Comprehensive income (loss)     $ 72       $ 244   $ (1,710 )     $ (89 )
 
Weighted-average common shares outstanding
Basic 26,749 26,441 26,738 26,441
Dilutive impact of stock options       499         202     -         -  
Diluted       27,248         26,643     26,738         26,441  
 
Earnings (loss) per share
Basic $ 0.00 $ 0.01 $ (0.06 ) $ (0.00 )
Diluted $ 0.00 $ 0.01 $ (0.06 ) $ (0.00 )
 





Lakes Entertainment, Inc.

Timothy Cope, 952-449-7030

Source: Lakes Entertainment, Inc.


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