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Note 7. Long-Term Assets Related to Indian Casino Projects - Notes and Interest Receivable

9 Months Ended

Sep. 29, 2013

Long Term Assets Related To Indian Casino Projects Notes And Interest Receivable [Abstract]

Long Term Assets Related To Indian Casino Projects Notes And Interest Receivable

7. Long-Term Assets Related to Indian Casino Projects — Notes and Interest Receivable

Notes and interest receivable included in long-term assets related to Indian casino projects as of December 30, 2012 consisted of notes and interest receivable due from the Shingle Springs Tribe pursuant to the Company’s development and management agreement with the Shingle Springs Tribe for the Red Hawk Casino. Under the terms of the development and management agreement, Lakes made advances to the Shingle Springs Tribe of $74.4 million including interest accrued through the opening date of the Red Hawk Casino on December 17, 2008 and had an agreement to manage the property through December 17, 2015.

The notes and related interest receivable were considered paid in full on August 29, 2013, when the Shingle Springs Tribe paid Lakes $57.1 million pursuant to the Debt Termination Agreement. See note 3, Debt Termination Agreement with the Shingle Springs Tribe. As a result of the receipt of the Debt Payment, during the third quarter of 2013, Lakes recognized approximately $17.4 million in recovery of impairment on notes receivable because the Shingle Springs Notes had previously been impaired and were valued at $39.7 million. The face value of the Shingle Springs Notes including accrued interest was $69.7 million as of the Payment Date. The management agreement under which Lakes was managing the Red Hawk Casino also terminated on the Payment Date.

Until the Payment Date, the Company performed an impairment analysis on the notes receivable at least quarterly. At January 2, 2011, Lakes evaluated the notes receivable from the Shingle Springs Tribe for impairment and concluded that it was probable that substantial amounts due would not be repaid within the contract term and therefore determined that the notes receivable were impaired. Lakes evaluated the notes receivable from the Shingle Springs Tribe for impairment as of December 30, 2012 and concluded that the notes receivable continued to be impaired.

As part of the impairment analysis, the Company estimated the timing and amount of future repayments on the notes receivable by analyzing actual payments received on the notes receivable compared to scheduled payments required under the contractual terms of the notes receivable. The Company also considered forecasts for future periods which were based on a variety of factors including actual historical performance, changes in competition in the market the property serves, changes in the economic environment in the market the property serves, any regulatory changes, marketing initiatives and property offerings. Estimates of timing and amount of future repayments were then compared to payments required per the contractual terms of the notes receivable to estimate the remaining amounts due on the notes receivable at the end of the contract term with the Shingle Springs Tribe. Prior to entering into the Debt Termination Agreement, the contractual terms of the notes receivable required that all amounts due on the notes receivable were to be repaid during the contract term. Due to improvements in certain of the factors considered in the impairment analysis, including operational results, the estimated amounts due at the end of the contract term decreased as of December 30, 2012 compared to the estimated amounts due at the end of the contract term as of January 2, 2011. Although the estimated amounts due at the end of the contract term decreased, the estimated amounts due remained significant and as a result, the Company determined that a significant change that would cause the impairment on the notes receivable to be remeasured had not occurred as of December 30, 2012.

Information with respect to the notes and interest receivable as of December 30, 2012 is summarized in the following table (in thousands). There were no notes and interest receivable related to Indian casino projects as of September 29, 2013.

	December 30, 2012
Notes receivable	$	66,720
Interest receivable		2,704
Unearned discount		(12,299	)
Allowance for impaired notes receivable		(18,878	)
Total notes and interest receivable, net of discount and allowance	$	38,247

A summary of the activity in the allowance for impaired notes receivable is as follows (in thousands):

2013
Allowance for impaired notes balance, December 30, 2012	$	18,878
Impairment charge on notes receivable		—
Recoveries		(17,816	)
Charge-offs		—
Accretion of impairment charge on notes receivable included in interest income		(1,062	)
Allowance for impaired notes balance, September 29, 2013	$	—

2012
Allowance for impaired notes balance, January 1, 2012	$	20,118
Impairment charge on notes receivable		—
Recoveries		—
Charge-offs		—
Accretion of impairment charge on notes receivable included in interest income		(838	)
Allowance for impaired notes balance, September 30, 2012	$	19,280