Lakes Entertainment Inc. (LACO) filed Quarterly Report for the period ended 2009-09-27.
Lakes Entertainment owns approximately 80% of the World Poker Tour the entertainment and media company that films and produces the World Poker Tour television series currently shown on Travel Channel. Lakes Entertainment Inc. has a market cap of $88.2 million; its shares were traded at around $3.35 with and P/S ratio of 3.7. Lakes Entertainment Inc. had an annual average earning growth of 33% over the past 5 years.
Highlight of Business Operations:
Selling, general and administrative expenses. Selling, general and administrative expenses were $3.5 million in the third quarter of 2009 compared to $4.2 million for the third quarter of 2008. For the third quarter of 2009, Lakes’ selling, general and administrative expenses consisted primarily of payroll and related expenses of $1.8 million, including share-based compensation, travel expenses of $0.5 million, professional fees of $1.0 million, and costs associated with the application for a gaming site in the State of Kansas of $0.2 million. For the third quarter of 2008, Lakes’ selling, general and administrative expenses consisted primarily of payroll and related expenses of $2.5 million, including share-based compensation, travel expenses of $0.8 million, and professional fees of $0.5 million.
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 2009, net unrealized gains on notes receivable were $0.9 million, compared to net unrealized gains of $1.8 million in the prior year period. 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. Net unrealized gains in the third quarter of 2008 were related primarily to the notes receivable related to the Red Hawk Casino project with the Shingle Springs Tribe associated with continued progress toward a fourth quarter 2008 opening of the Red Hawk Casino, partially offset by unrealized losses associated with a decrease in probability of opening of the Jamul Casino.
Selling, general and administrative expenses. Selling, general and administrative expenses for the nine months ended September 27, 2009 were $11.3 million compared to $11.7 million in the prior year period. For the first nine months of 2009, Lakes’ selling, general and administrative expenses consisted primarily of payroll and related expenses of $5.8 million, including share-based compensation, travel expenses of $2.2 million, professional fees of $2.3 million, and costs associated with the application for a gaming site in the State of Kansas of $0.5 million. For the first nine months of 2008, Lakes’ selling, general and administrative expenses consisted primarily of payroll and related expenses of $6.8 million, including share-based compensation, travel expenses of $2.0 million, and professional fees of $1.6 million.
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 first nine months of 2009, net unrealized gains on notes receivable were $3.2 million, compared to net unrealized gains of $1.0 million in the prior-year period. The net unrealized gains for the nine months ended September 27, 2009 consisted of $2.8 million related to the Jamul Casino project with the Jamul Tribe and $0.4 million related to the Iowa Tribe’s Ioway Casino project due primarily to improvement in the credit markets. Net unrealized gains in the prior-year period were due primarily to the notes receivable related to the Red Hawk Casino project with the Shingle Springs Tribe associated with the continued progress toward a fourth quarter 2008 opening of the Red Hawk Casino, partially offset by unrealized losses associated with a decrease in probability of opening of the Jamul Casino.
Income taxes (benefit). The estimated income tax benefit was less than $0.1 million compared to an income tax provision of $3.5 million for the nine months ended September 27, 2009 and September 28, 2008, respectively. Our estimated effective tax rates were (0.6%) and 46.6% for the nine months ended September 27, 2009 and the corresponding 2008 period, respectively. The estimated effective tax rate differs from the federal tax rate of 35% due to state income taxes, permanent differences, release of valuation allowance, stock based compensation deductions included in net operating loss carryforwards, and provisions for interest charges on uncertain tax positions. Lakes’ estimated income tax benefit in the current year period consists primarily of release of valuation allowance against deferred taxes related to net operating loss carryforwards, partially offset by $0.5 million of interest on a Louisiana tax audit matter (Note 14 to the unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q), which were offset by an additional paid-in capital adjustment of $0.8 million. 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.
As of September 27, 2009, we had $7.0 million in cash and equivalents and $24.3 million of investments in securities recorded at estimated fair value (including nontransferable rights to sell our auction rate securities (“ARS”) back to UBS Financial Services, Inc. (“UBS”) (“Rights”) of approximately $2.5 million) which is partially offset by advances on an existing line of credit with UBS of $16.3 million described below. We currently believe that our cash and equivalents balance, our cash flows from operations and our existing financing sources discussed below may not be sufficient to meet our recorded obligations and operating expenses during the next 12 months. Lakes is involved in an ongoing litigation matter with the Louisiana Department of Revenue (Note 14 to the unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q) and if Lakes is not successful in this matter and is required to pay up to an $8.6 million assessment plus interest during the next 12 months, it may be necessary for Lakes to obtain additional financing. Lakes currently expects to be able to obtain funds in order to fulfill its potential future liquidity needs. However, we cannot assure you that such financing will be available at all, or at acceptable terms, or that such financing will not be dilutive to our stockholders.
LACO is in the portfolios of HOTCHKIS & WILEY of HOTCHKIS & WILEY Capital Management LLC.
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