MINNEAPOLIS -- Lakes Entertainment, Inc. (NASDAQ:LACO) today announced results for the first quarter ended April 2, 2006. Revenue for the three months ended April 2, 2006 totaled $6.6 million compared
to $4.1 million for the three months ended April 3, 2005. Earnings from operations were $10.2 million for the first quarter of 2006 compared to a loss from operations of $2.8 million for the first quarter of 2005. Net earnings for the quarter ended April 2, 2006 were $11.7 million and basic and diluted earnings were $0.52 per share and $0.48 per share, respectively. This compares with a net loss of $2.1 million, and basic and diluted losses of $0.10 per share in the prior year period.
Revenues for both quarters were derived primarily from the operations of Lakes' majority-owned subsidiary, WPT Enterprises, Inc. ("WPTE"), primarily from television license fees related to the World Poker Tour television series ("WPT"). The increase in revenues was primarily the result of the delivery of six WPT episodes and one Professional Poker Tour episode ("PPT") during the first quarter of 2006, versus five WPT episodes during the first quarter of 2005. During the first quarter of 2006, WPTE and the Travel Channel entered into an agreement to air WPTE's PPT television series. The PPT features a series of invitation-only tournaments that are limited to the highest-ranked players in the world. The PPT is expected to begin airing in the 3rd quarter of 2006. Also contributing to the increase in revenues were WPTE online gaming revenues of approximately $0.9 million during the first quarter of 2006. There were no online gaming revenues during the first quarter of 2005.
Net unrealized gains on notes receivable were $15.5 million and $2.8 million for the three months ended April 2, 2006 and April 3, 2005, respectively, related to the adjustment to fair value of the Company's notes receivable from Indian tribes. The increase in unrealized gains of approximately $12.7 million related primarily to increased probability of opening for the casino development projects with the Pokagon Band of Potawatomi Indians in New Buffalo, Michigan ("Pokagon Band") and with the Jamul Indian Village near San Diego, California, due to favorable events occurring during the first quarter of 2006. In April 2006, the Company received a cash payment of approximately $2.6 million from the Kickapoo Traditional Tribe of Texas ("Kickapoo Tribe") related to a note receivable that was fully written down in November 2005 at the time that the Kickapoo Tribe and Lakes terminated their business relationship. Accordingly, the note was revalued at $2.6 million as of April 2, 2006, and a gain of that amount recognized in the first quarter of 2006 which also contributed to the increase in unrealized gains on notes receivable during the current year quarter.
Selling, general and administrative expenses were $9.2 million for the first quarter of 2006, compared to $6.5 million for the first quarter of 2005. The increase of approximately $2.7 million was primarily due to the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment," ("SFAS 123R") which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee and director stock options and stock purchases based on estimated fair values. For the three months ended April 2, 2006, share-based compensation expense recognized under SFAS 123R consisted of stock-based compensation expense related to employee and director stock options and employee and director stock purchases of approximately $2.2 million, of which approximately $1.5 million related to WPTE and $0.7 million related to Lakes. There was no share-based compensation expense related to employee and director stock options and stock purchases recognized during the three months ended April 3, 2005. The remaining increase in selling, general and administrative expenses in the first quarter of 2006 as compared to the first quarter of 2005 was due primarily to additional headcount related costs.
WPTE's production costs were $2.4 million for the three months ended April 2, 2006 compared to $3.2 million for the three months ended April 3, 2005. It is WPTE's policy to expense production costs if a firm commitment or an executed distribution agreement is not in place. With the agreement to broadcast the PPT completed in January 2006, WPTE began capitalizing ongoing costs incurred associated with the production of the show during the first quarter of 2006, and will expense those costs as episodes are delivered to the Travel Channel. During 2005 all production costs associated with the PPT were expensed as incurred resulting in higher production costs during the prior year period.
Other income was $5.5 million in the first quarter of 2006 compared to $0.5 million in the first quarter of 2005. Other income in the 2006 period included a gain on sale of securities of $5.7 million related to a sale of 630,000 shares of common stock of PokerTek, Inc. ("PokerTek") held by WPTE, at a price per share equal to $9.03. WPTE had a minimal basis in the PokerTek stock.
Also during the first quarter of 2006, Lakes settled a short-swing profit matter, which resulted in a payment to Lakes of approximately $2.8 million. This settlement did not impact Lakes' earnings.
Lyle Berman, Chief Executive Officer of Lakes, stated "The first quarter of 2006 was very positive for Lakes. We are very pleased with the January 2006 Federal Court ruling in favor of the Pokagon casino in Michigan which resulted in land being placed into trust by the BIA for the Pokagon Band, as well as the March 2006 NIGC approval of our management agreement with the Pokagon Band. We are working diligently to finalize financing of the Pokagon project so that casino construction can begin - which we expect to occur during June of 2006." Mr. Berman continued, "During the first quarter we signed a development, financing and services agreement with the Jamul Indian Village in California. We are working on the architectural plans for this project and anticipate beginning construction within the next twelve months. We also continue to focus on our remaining Indian-owned casino projects and are working to obtain all necessary approvals, so that construction can begin at the earliest possible date."
Tim Cope, President and Chief Financial Officer of Lakes, stated "We are very excited about the progress that was made for our Company during the first quarter of 2006. During the first quarter our common stock was re-listed on NASDAQ after successfully resolving all issues with the SEC during 2005." Mr. Cope continued, "During February 2006, we closed on a $50 million financing facility with an affiliate of Prentice Capital Management, LP. An initial draw of $25 million was made under the facility. Approximately $10 million of the initial draw was used to repay in full our 2005 loan from the Lyle Berman Family Partnership. We continue to explore additional financing alternatives to fund our operational and development needs. We anticipate beginning the construction phase of various projects during 2006 and are looking forward to successfully opening and operating these casino projects with our Tribal partners."
About Lakes Entertainment
Lakes Entertainment, Inc. currently has development and management agreements with five separate Tribes for new casino operations in Michigan, California, and Oklahoma, a total of eight separate casino sites. In addition, Lakes has announced plans to develop a company owned casino resort project in Vicksburg, Mississippi. The Company also owns approximately 62% of WPT Enterprises, Inc. (Nasdaq "WPTE"), a separate publicly held media and entertainment company principally engaged in the development, production and marketing of gaming themed televised programming including the World Poker Tour television series, the licensing and sale of branded products and the sale of corporate sponsorships.
Lakes Entertainment, Inc.
130 Cheshire Lane
Minnetonka,, MN 55305
|Lakes Entertainment, Inc. currently has development and management agreements with five separate Tribes for new casino operations in Michigan, California, and Oklahoma, a total of eight separate casino sites. In addition, Lakes has announced plans to develop a company owned casino resort project in Vicksburg, Mississippi. The company's website displays all past historical press releases.|