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Note 4. Investment in Evitts Resort, LLC and Acquisition of Rocky Gap Lodge & Golf Resort | 9 Months Ended
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Sep. 30, 2012
Business Combination Disclosure [Text Block] | 4. Investment in Evitts Resort, LLC and Acquisition of Rocky Gap Lodge & Golf Resort In September 2011, Lakes entered into a joint venture with Addy Entertainment, LLC (“Addy”) to form Evitts Resort, LLC (“Evitts”). In April 2012, a video lottery operation license (“License”) for the Rocky Gap Lodge & Golf Resort in Allegany County, Maryland (the “Rocky Gap Resort”) was awarded to Evitts by the State of Maryland Video Lottery Facility Location Commission (the “Commission”). In May 2012, Lakes paid Addy $0.6 million for its ownership interest in Evitts, giving Lakes full ownership of Evitts. Acquisition of the Rocky Gap Resort and Application of the Acquisition Method of Accounting On August 3, 2012, Lakes acquired the assets of the Rocky Gap Resort pursuant to an asset purchase agreement (the “Purchase Agreement”) for $6.8 million paid with cash on hand. As provided in the Purchase Agreement, Lakes acquired substantially all of the assets used in the Rocky Gap Resort’s business, which is primarily the operation of a AAA Four Diamond Award® winning resort and includes a 215-room hotel, convention center, spa, two restaurants and the only Jack Nicklaus signature golf course in Maryland. This acquisition is consistent with Lakes’ strategy of developing, operating, and owning or managing casino resort properties. The Company plans to renovate the existing facilities to convert the approximately 24,000 square feet of convention and meeting space into a gaming facility that will feature a minimum of 500 video lottery terminals, a bar and a food outlet. The total cost of the project is currently expected to be approximately $30.0 million. Lakes currently plans to fund the entire cost of the project with cash on hand, but may obtain third-party financing for a portion of the project costs. The financial position of the Rocky Gap Resort is included in the Company’s consolidated balance sheet as of September 30, 2012 and its results of operations for the period from August 3, 2012 through September 30, 2012 are included in the Company’s consolidated statements of operations and cash flows for the three and nine months ended September 30, 2012. From the date of the acquisition of the Rocky Gap Resort on August 3, 2012 through September 30, 2012, Lakes recorded $1.7 million in revenue and no net earnings from the Rocky Gap Resort’s operations. The operating results of the Rocky Gap Resort are included in the Company’s consolidated statements of operations in the non-Indian casino projects segment. Room revenue is recognized at the time of occupancy and food and beverage and retail revenue is recognized at the time of sale. Total assets related to Evitts were approximately $10.6 million as of September 30, 2012 which consisted primarily of property, equipment and intangible assets related to the acquisition of the Rocky Gap Resort and a $2.1 million license fee deposit paid by Evitts to the Commission during the third quarter of 2011. Total assets related to Evitts were approximately $2.3 million as of January 1, 2012 which consisted primarily of the license fee deposit. Included in impairments and other losses during the three and nine months ended September 30, 2012 were $0.7 million and $1.2 million, respectively, related to costs associated with development plans for the Rocky Gap Resort which were subsequently revised. The acquisition has been accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. Under the acquisition method of accounting, the total purchase price is allocated to the net tangible and intangible assets of the Rocky Gap Resort acquired in connection with the acquisition, based on their estimated fair values. The allocation of the purchase price to the assets acquired and liabilities assumed is as follows (in thousands):
|  | Amount |
Building |  | $ | 2,788 |
Site improvements |  |  | 2,091 |
Furniture and equipment |  |  | 1,294 |
Intangible assets |  |  | 627 |
Inventories |  |  | 126 |
Other assets |  |  | 136 |
Current liabilities assumed |  |  | (228 | )
Total purchase price |  | $ | 6,834 |
The amounts assigned to intangible assets by category are summarized in the table below (in thousands):
|  | Useful Life (years) |  |  | Amount Assigned |
Advance bookings |  |  | 1.4 |  |  | $ | 179 |
Memberships |  |  | 25 |  |  |  | 448 |
Total intangible assets |  |  |  |  |  | $ | 627 |
Advance bookings – Advance bookings are reservations that represent future cash flows the Company will enjoy when the guest visits the Rocky Gap Resort. These reservations have been “pre-sold” as of the acquisition date of August 3, 2012 and would not require future sales or marketing expenses to be incurred. Memberships – Memberships provide access to the golf course and related amenities in exchange for the payment of dues. The portion of the Rocky Gap Resort’s income attributed to the possession of such membership contracts forms the basis of the intangible value. Amortization expense related to the advance bookings and memberships intangible assets for the period from August 3, 2012 through September 30, 2012 was approximately $0.1 million. See note 14, Financial Instruments and Fair Value Measurements, for further discussion regarding the valuation of the acquired tangible and intangible assets. Operating Ground Lease In connection with the closing of the acquisition of the Rocky Gap Resort, Evitts entered into a 40 year operating ground lease (the “Lease Agreement”) with the Maryland Department of Natural Resources (the “Maryland DNR”) for approximately 268 acres in the Rocky Gap State Park on which the Rocky Gap Resort is situated. The Lease Agreement contains an option to renew for 20 years after the initial 40-year term. Payments are due under the Lease Agreement according to the following terms:
| · | From August 3, 2012 and until the casino opens for public play, rent in the form of surcharges is due and payable annually. These surcharges are billed to and collected from guests and are $3.00 per room, per night and $1.00 per round of golf (“Surcharge Revenue”), with a minimum annual payment of approximately $0.2 million.
| · | From the date that the casino opens for public play through year nine of the Lease Agreement, rent in the amount of approximately $0.4 million is due annually, in addition to 0.9% of any gross operator share of gaming revenue (as defined in the Lease Agreement) in excess of approximately $0.3 million, and any Surcharge Revenue in excess of approximately $0.2 million.
| · | From the beginning of year ten through the remaining term of the Lease Agreement, all Surcharge Revenue is due and payable, with a minimum annual payment of approximately $0.2 million, plus the greater of 0.9% of any gross operator share of gaming revenue or approximately $0.3 million, representing a minimum annual rent payment of approximately $0.5 million.
Unaudited Pro Forma Condensed Consolidated Financial Information The following unaudited pro forma condensed consolidated financial results of operations for the three and nine months ended September 30, 2012 and October 2, 2011 are presented as if the acquisition had been completed at the beginning of each period presented:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2012 |  |  | October 2, 2011 |  |  | September 30, 2012 |  |  | October 2, 2011 |
|  | (In thousands, except per-share data) |
Pro forma total gross revenues |  | $ | 4,637 |  |  | $ | 3,468 |  |  | $ | 12,245 |  |  | $ | 40,976 |
Pro forma net earnings (loss) attributable to Lakes Entertainment, Inc. |  |  | 89 |  |  |  | 244 |  |  |  | (1,041 | ) |  |  | 10,433 |
Pro forma earnings (loss) per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 0.00 |  |  |  | 0.01 |  |  |  | (0.04 | ) |  |  | 0.40 |
Diluted |  |  | 0.00 |  |  |  | 0.01 |  |  |  | (0.04 | ) |  |  | 0.39 |
Weighted average common shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 26,441 |  |  |  | 26,406 |  |  |  | 26,438 |  |  |  | 26,402 |
Diluted |  |  | 26,441 |  |  |  | 26,406 |  |  |  | 26,438 |  |  |  | 26,427 |
These unaudited pro forma condensed consolidated financial results have been prepared for illustrative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the first day of each fiscal period presented, or of future results of the consolidated entities. The unaudited pro forma condensed consolidated financial information does not reflect any operating efficiencies and cost savings that may be realized from the integration of the acquisition. The following adjustments have been made to the pro forma net earnings (loss) attributable to Lakes and pro forma earnings (loss) per share in the table above:
| · | Management and service fees paid by the Rocky Gap Resort to the previous management company have been excluded as the Rocky Gap Resort would not have incurred these costs if owned by Lakes.
| · | Ground rent expense incurred by the Rocky Gap Resort has been adjusted to reflect the terms of the Lease Agreement that Lakes and the Maryland DNR entered into upon the acquisition of the Rocky Gap Resort.
| · | Interest expense incurred by the Rocky Gap Resort has been excluded as Lakes did not assume the debt of the Rocky Gap Resort upon the acquisition of the property.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7659399&loc=d3e1392-128463 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6910749&loc=d3e4845-128472 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6910749&loc=d3e4926-128472 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7659399&loc=d3e1490-128463 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7488404&loc=d3e6927-128479 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7488404&loc=d3e7008-128479 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7488404&loc=d3e7000-128479 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=7659399&loc=d3e1524-128463 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7659399&loc=d3e1383-128463 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7659399&loc=d3e1486-128463 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=7659399&loc=d3e1500-128463 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 141R -Paragraph 67-73 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6910749&loc=d3e4934-128472 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 141R -Paragraph F4 -Subparagraph e -Appendix F Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=7659399&loc=d3e1497-128463 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6910749&loc=d3e4922-128472 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Emerging Issues Task Force (EITF) -Number 88-16 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 141 -Paragraph 51, 52 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7488404&loc=d3e6996-128479 + Details
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