XML 55 R19.htm IDEA: XBRL DOCUMENT v2.4.0.6
Note 14. Financial Instruments and Fair Value Measurements
 9 Months Ended
Sep. 30, 2012
Fair Value Disclosures [Text Block]
14.  Financial Instruments and Fair Value Measurements

Overview

Estimates of fair value for financial assets and liabilities are based on the framework established in the accounting guidance for fair value measurements. The framework defines fair value, provides guidance for measuring fair value, and requires certain disclosures. The framework discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The framework utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

 
·
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

 
·
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 
·
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The Company’s financial instruments consist of cash and cash equivalents, notes receivable and other long-term assets related to Indian casino projects, cost method investments, accounts payable and contract acquisition costs payable.

For the Company’s cash and cash equivalents, accounts payable and current portion of contract acquisition costs payable, the carrying amounts approximate fair value because of the short duration of these financial instruments.

Balances Measured at Fair Value on a Nonrecurring Basis

The following table shows the amounts of certain of the Company’s assets measured at fair value on a nonrecurring basis (in thousands):

   
September 30, 2012
 
 
 
 
 
 
Balance
   
 
Level 1
   
 
Level 2
   
 
Level 3
 
Assets
                       
Land held for development
  $ 1,130       —       —     $ 1,130  
Land held for sale
    405       —       —       405  
Property and equipment related to the acquisition of the Rocky Gap Resort
    6,173       —       —       6,173  
Intangible assets related to the acquisition of the Rocky Gap Resort
    627       —       —       627  

   
January 1, 2012
 
 
 
 
 
 
Balance
   
 
Level 1
   
 
Level 2
   
 
Level 3
 
Assets
                       
Land held for development
  $ 1,130       —       —     $ 1,130  
Land held for sale
    1,729       —       —       1,729  

Land held for development and land held for sale – Land held for development and land held for sale are measured using unobservable (Level 3) inputs that utilize the market approach technique and reflect management’s estimates about the assumptions that market participants would use in pricing the asset. Significant inputs include recent transactions of comparable properties as well as consideration of its highest and best use.  See note 8, Land, for further discussion regarding the valuation of the land held for development and land held for sale.

Property and equipment related to the acquisition of the Rocky Gap Resort – Property and equipment acquired in connection with the Company’s acquisition of the Rocky Gap Resort during the third quarter of 2012 were measured using unobservable (Level 3) inputs.  The fair value of the building, site improvements, and furniture, fixtures and equipment were calculated using the cost approach.  The cost approach computes the cost to replace the asset, less accrued depreciation resulting from physical deterioration, functional obsolescence and external obsolescence.  The cost estimates for these assets were based on the guidelines provided by Marshall Valuation Services and Hotel Cost Estimating Guide 2012 published by HVS.  See note 4, Investment in Evitts Resort, LLC and Acquisition of Rocky Gap Lodge & Golf Resort, for further discussion regarding the acquisition of the Rocky Gap Resort’s property and equipment.

Intangible assets related to the acquisition of the Rocky Gap Resort – The identified intangible assets acquired in connection with the Company’s acquisition of the Rocky Gap Resort during the third quarter of 2012 were measured using unobservable (Level 3) inputs.  The fair value of the advance bookings was calculated using the excess earnings approach which is an application of the income approach and computes the present value of cash flows attributable to the associated future income stream. Significant inputs include advance revenue, related operating expense, sales and marketing expense avoided and a discount rate.  The fair value of the memberships was calculated using the income approach with significant inputs including estimated attrition rate, revenue growth rate, and discount rate.  See note 4, Investment in Evitts Resort, LLC and Acquisition of Rocky Gap Lodge & Golf Resort, for further discussion regarding the acquisition of the Rocky Gap Resort’s intangible assets.

Balances Disclosed at Fair Value

The following table includes the estimated fair value of certain of the Company’s financial instruments (in thousands):

   
September 30, 2012
 
 
 
 
 
Carrying Value, net
of Current Portion
   
Estimated Fair
 Value
 
Fair Value
Hierarchy
Assets
             
Shingle Springs notes and interest receivable
  $ 37,103     $ 35,783  
Level 3
Other assets related to Indian casino projects     4,763       4,006   Level 3

     
   
January 1, 2012
 
 
 
 
Carrying Value, net of Current Portion
   
Estimated Fair Value
 
 
Fair Value Hierarchy
Assets
             
Shingle Springs notes and interest receivable
  $ 34,160     $ 18,545  
Level 3
Other assets related to Indian casino projects
    7,315       5,900  
Level 3

Shingle Springs notes and interest receivable - Management estimates the fair value of the notes and interest receivable from the Shingle Springs Tribe as of September 30, 2012 to be approximately $35.8 million using a discount rate of 20% and a remaining estimated term of 100 months. Management estimated the fair value of the notes and interest receivable from the Shingle Springs Tribe as of January 1, 2012, to be approximately $18.5 million using a discount rate of 33% and a remaining estimated term of 109 months.

Other assets related to Indian casino projects - These assets include financial instruments related to deferred management fees and interest due from the Shingle Springs Tribe and amounts due from Mr. Kevin M. Kean (see note 6, Intangible and Other Assets Related to Indian Casino Projects). The Company estimates the fair value of other assets related to the Shingle Springs Tribe and Mr. Kean to be $4.0 million as of September 30, 2012 using a discount rate of 19.5%.  Management estimated the fair value of these financial instruments related to the Shingle Springs Tribe and Mr. Kean to be $5.9 million as of January 1, 2012 using a discount rate of 19.5%.

Investment in unconsolidated investee - The fair value of the Company’s investment in unconsolidated investee was not estimated as of September 30, 2012 or January 1, 2012, as there were no events or changes in circumstances that may have a significant adverse effect on the fair value of the investment, and Lakes’ management determined that it was not practicable to estimate the fair value of the investment (see note 7, Investment in Unconsolidated Investee).

Contract acquisition costs payable - The carrying amount of the liability approximates its estimated fair value of $4.8 million and $5.6 million as of September 30, 2012 and January 1, 2012, respectively (see note 10, Contract Acquisition Costs Payable).