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Lakes Entertainment announces results for fourth quarter and full year 201412 March 2015MINNEAPOLIS, Minn. -- (PRESS RELEASE) -- Lakes Entertainment, Inc. (NASDAQ: LACO) today announced results for the three months and 12 months ended December 28, 2014. Fourth Quarter Results Lakes Entertainment reported fourth quarter 2014 net revenues of $12.8 million, compared to prior-year fourth quarter net revenues of $11.4 million. 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. The increase in net revenues was primarily related to an increase in gaming revenues during the fourth quarter of 2014 compared to the fourth quarter of 2013. Net losses for the fourth quarter of 2014 were less than $0.1 million, compared to net losses of $0.9 million for the fourth quarter of 2013. Earnings from operations were $0.2 million for the fourth quarter of 2014 compared to losses from operations of $2.2 million for the fourth quarter of 2013. Basic and diluted losses per share were less than $0.01 for the fourth quarter of 2014 compared to basic and diluted losses per share of $0.06, for the fourth quarter of 2013. During the fourth quarters of 2014 and 2013, property operating expenses for Rocky Gap were $7.5 million and $7.3 million, respectively, and primarily related to gaming operations, rooms, food and beverage and golf. The increase in property operating expenses resulted primarily from an increase in gaming-related expenses, most notably gaming taxes, due to the increase in gaming related revenue in the current year quarter. For the fourth quarters of 2014 and 2013, selling, general and administrative expenses were $5.6 million. Included in these amounts were Lakes corporate selling, general and administrative expenses of $2.0 million and $1.6 million during the fourth 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 $0.5 million of business development costs in the fourth quarter of 2014. Rocky Gap selling, general and administrative expenses were $3.6 million and $4.0 million during the fourth quarters of 2014 and 2013, respectively. The fourth quarter 2014 decline in selling, general and administrative expenses compared to the fourth quarter of 2013 was primarily related to decreases in marketing costs and professional fees. 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. 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. On October 17, 2014, Lakes was paid the entire remaining amount due at a discounted amount of approximately $1.4 million. Upon receipt of this payment during the fourth quarter of 2014, Lakes transferred its remaining ownership and recognized a $1.4 million gain on sale of cost method investment. Depreciation and amortization were $0.9 million for the fourth quarter of 2014 compared to $0.8 million for the fourth quarter of 2013. 12-Month Results Lakes Entertainment reported net revenues of $55.2 million for 2014, compared to net revenues of $38.8 million in the prior year. Net revenues in the current year were related to the operation of Rocky Gap. During the prior year, net revenues of $30.9 million were related to the operation of Rocky Gap. The increase in net revenues related to the operation of Rocky Gap in 2014 compared to 2013 was the result of gaming being included for the entire year in 2014. Gaming was added May 22, 2013. Also included in the prior-year were net revenues of $7.8 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 (the “Shingle Springs Tribe”). There were no management fees earned during the current year due to the August 29, 2013 termination of the management agreement for the Red Hawk Casino. Net losses for the twelve months ended December 28, 2014 were $24.8 million, compared to net earnings of $18.7 million for the twelve months ended December 29, 2013. Losses from operations were $24.0 million for 2014 compared to earnings from operations of $13.4 million for 2013. Basic and diluted losses were $1.86 per share for the twelve months ended December 28, 2014 compared to basic and diluted earnings per share of $1.41 and $1.40, respectively, for the twelve months ended December 29, 2013. During 2014, property operating expenses for Rocky Gap which related primarily to gaming operations, rooms, food and beverage and golf were $31.9 million compared to $19.5 million in the prior-year. The increase in property operating expenses was due to the addition of gaming in May of 2013. For the twelve months ended December 28, 2014, selling, general and administrative expenses were $22.6 million compared to $19.3 million for the twelve months ended December 29, 2013. Included in these amounts were Lakes corporate selling, general and administrative expenses of $7.6 million and $6.8 million, during 2014 and 2013, respectively. Rocky Gap selling, general and administrative expenses were $15.0 million and $12.5 million during 2014 and 2013, respectively. Lakes’ 2014 and 2013 corporate selling, general and administrative expenses consist primarily of payroll and related expenses and professional fees, as well as $1.3 million of business development costs in 2014. The increase in Rocky Gap selling, general and administrative expenses was due primarily to increases in payroll and related expenses and marketing and advertising expenses related to the addition of gaming during May 2013. Lakes recognized approximately $17.4 million in recovery of impairment charges during 2013 related to a $57.1 million payment it received on notes receivable from the Shingle Springs Tribe that had previously been impaired and were valued at $39.7 million as of the payment date. During 2013, Lakes recognized a gain of $3.8 million on extinguishment of liabilities associated with contract acquisition costs related to the project with the Shingle Springs Tribe due to the termination of the management agreement. 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. During October 2014, Lakes was paid the entire remaining amount due at a discounted amount of approximately $1.4 million and transferred its remaining ownership. As a result of the receipt of these payments, Lakes recognized a $2.4 million gain on sale of cost method investment, during 2014, since this asset had previously been written off. Lakes recognized charges related to arbitration award of $2.5 million during 2014, which included the $2.4 million award and $0.1 million of legal fees. The award resulted from an arbitration action brought by Argovitz against Lakes relating to a prior agreement pertaining to the management agreement with the Shingle Springs Tribe. Lakes recognized non-cash impairments and other losses of $21.0 million during 2014 related to its investment in Rock Ohio Ventures, LLC (“Rock Ohio”), a privately held company, that owns 80% of the Horseshoe Casino Cleveland in Cleveland, Ohio; the Horseshoe Casino Cincinnati in Cincinnati, Ohio; the ThistleDown Racino in North Randall, Ohio; and Turfway Park, a thoroughbred horseracing track located in Florence, Kentucky. Based on information provided by Rock Ohio, Lakes determined that there was significant uncertainty surrounding the recovery of Lakes’ investment in Rock Ohio. The Ohio gaming properties did not perform as expected, which led to forecasted potential working capital requirement issues that did not exist prior to the third quarter of 2014, based on information previously available to Lakes. As a result, Lakes determined that an other-than-temporary impairment had occurred and reduced the carrying value of the investment to its estimated fair value of zero as of September 28, 2014. Effective January 25, 2015, Lakes sold this investment for approximately $0.8 million. As a result, Lakes received a cash payment of approximately $0.8 million and will recognize a gain on sale of cost method investment of approximately $0.8 million during the first quarter 2015. Lakes recognized impairments and other losses of $3.4 million during the twelve months ended December 29, 2013. Included in the impairments were $2.4 million related to intangible assets associated with the development and management agreement with the Shingle Springs Tribe, which were considered fully impaired upon the termination of the management agreement on August 29, 2013. In addition, receivables of approximately $1.0 million from related parties, that were directly related to the development and opening of Lakes’ Indian casino projects, were determined to be uncollectible and were impaired during 2013. During 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. Depreciation and amortization was $3.5 million during 2014 compared to $2.3 million during 2013. The increase related to depreciation on Rocky Gap fixed assets. Lyle Berman, Chief Executive Officer of Lakes stated, “During January 2015, we announced a merger agreement with Golden Gaming, Inc. and look forward to working through approvals and the closing of this transaction, which we expect to occur later this year. The combination of Lakes’ strong balance sheet and our Rocky Gap property, with Golden Gaming’s casinos and distributed gaming platform and taverns, will make this combined company unique in the marketplace. Lakes’ cash will facilitate refinancing as well as growth and we believe the company will be well positioned for expansion in Nevada and other jurisdictions. We are very excited about this transaction and believe it will benefit Lakes’ shareholders tremendously.” Further commenting, Tim Cope, President and Chief Financial Officer of Lakes, stated, “Rocky Gap operations continued to perform well. The property met expectations during the fourth quarter and for 2014 overall and even with an increase in the number of machines, we saw an increase in slot win per-unit per-day from $158 for 2013 to $179 for 2014. The gaming facility features 577 video lottery terminals, 15 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.” |