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Note 3. Rocky Gap Casino Resort
 12 Months Ended
Dec. 29, 2013
Business Combinations [Abstract]  
Business Combination Disclosure [Text Block]

3. Rocky Gap Casino Resort


Background


In April 2012, a video lottery operation license (“Gaming License”) for the Rocky Gap Lodge & Golf Resort was awarded to the Company by the State of Maryland Video Lottery Facility Location Commission (the “Commission”). In August 2012, Lakes acquired the assets of Rocky Gap for $6.8 million and simultaneously entered into an operating lease for the underlying land (see note 21, Commitments and Contingencies). The AAA Four Diamond Award® winning resort included a hotel, convention center, spa, two restaurants and the only Jack Nicklaus signature golf course in Maryland.


After acquiring Rocky Gap, the Company converted the existing convention center space into a gaming facility and renamed the property Rocky Gap Casino Resort. The gaming facility opened to the public on May 22, 2013 and features 558 video lottery terminals (“VLTs”), 10 table games, three poker tables, a casino bar and a new lobby food and beverage outlet. A new event and conference center, which can accommodate large groups and features multiple flexible use meeting rooms opened during the fourth quarter of 2013. The total cost of the Rocky Gap project was approximately $35.0 million, which included the initial acquisition cost.


Total assets related to Rocky Gap were approximately $34.4 million and $12.0 million as of December 29, 2013 and December 30, 2012, respectively, which consisted primarily of property, equipment, construction in process, intangible assets related to the acquisition of Rocky Gap, and the Gaming License. Included in impairments and other losses during fiscal 2012 was $1.2 million related to costs associated with initial development plans for Rocky Gap which were subsequently revised.


Application of the Acquisition Method of Accounting


The acquisition of Rocky Gap was 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 Rocky Gap 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 Rocky Gap. 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 Rocky Gap’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 twelve months ended December 29, 2013 was less than $0.1 million and was approximately $0.2 million for the period from August 3, 2012 through December 30, 2012.


Gaming License


Amortization of the Gaming License began on May 22, 2013, the date the gaming facility opened for public play, and is being amortized over its 15 year term. Amortization expense related to the Gaming License was $0.1 million and zero for the twelve months ended December 29, 2013 and December 30, 2012, respectively.


Information with respect to the Gaming License is as follows (in thousands):


   

December 29,

2013

   

December 30,

2012

 

Original cost

  $ 2,100     $ 2,100  

Accumulated amortization

    (85 )     —  
    $ 2,015     $ 2,100  

The estimated future amortization expense related to the Gaming License for the next five years and thereafter is as follows (in thousands): 


   

2014

   

2015

   

2016

   

2017

   

2018

   

Thereafter

 
                                                 

Estimated amortization expense

  $ 140     $ 140     $ 140     $ 140     $ 140     $ 1,315  

Unaudited Pro Forma Condensed Consolidated Financial Information


The following unaudited pro forma condensed consolidated financial results of operations for the fiscal year ended December 30, 2012 are presented as if the acquisition had been completed at the beginning of the period. The amounts shown for the year ended December 29, 2013 are based on actual results for the period:


   

Years Ended

 
   

December 29,

2013

   

December 30,

2012

 
           

(Pro forma)

 
    (In thousands, except per-share data)  

Total net revenues

  $ 38,790     $ 15,078  

Net earnings attributable to Lakes Entertainment, Inc.

    18,651       2,062  
                 

Earnings per share:

               

Basic

    0.70       0.08  

Diluted

    0.70       0.08  
                 

Weighted average common shares outstanding:

               

Basic

    26,483       26,438  

Diluted

    26,689       26,439  

The unaudited pro forma condensed consolidated financial results for the year ended December 30, 2012 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 the 2012 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 attributable to Lakes and pro forma earnings per share for the year ended December 30, 2012 in the table above:


 

●

Management and service fees paid by Rocky Gap to the previous management company have been excluded as Rocky Gap would not have incurred these costs if owned by Lakes.


 

●

Ground rent expense incurred by Rocky Gap has been adjusted to reflect the terms of the lease agreement that Lakes and the Maryland DNR entered into upon the acquisition of Rocky Gap, as further discussed in note 21, Commitments and Contingencies.


 

●

Interest expense incurred by Rocky Gap has been excluded as Lakes did not assume the debt of Rocky Gap upon the acquisition of the property.