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Note 15. Financial Instruments and Fair Value Measurements

6 Months Ended

Jun. 30, 2013

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

15. 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:

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

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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.

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

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

For the Company’s cash and cash equivalents, accounts payable, and current portion of contract acquisition costs payable and long-term debt, the carrying amounts approximate fair value because of the short duration of these financial instruments. The fair value of the Company’s long-term debt approximates the carrying value based upon the Company's expected borrowing rate for debt with similar remaining maturities and comparable risk.

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

		June 30, 2013
		Carrying Value, net of Current Portion				Estimated Fair Value			Fair Value Hierarchy
Assets
Shingle Springs notes and interest receivable		$	40,661			$	53,482		Level 3
Other assets related to Indian casino projects			553				541		Level 3

		December 30, 2012
		Carrying Value, net of Current Portion				Estimated Fair Value			Fair Value Hierarchy
Assets
Shingle Springs notes and interest receivable		$	38,247			$	49,920		Level 3
Other assets related to Indian casino projects			4,786				4,011		Level 3

Shingle Springs notes and interest receivable - The significant inputs utilized in the calculation of the estimated fair value of the Shingle Springs notes and interest receivable include a discount rate and forecasted cash flows for the remaining duration of the management agreement with the Shingle Springs Tribe, which expires in December 2015. Lakes estimates the fair value of the notes and interest receivable from the Shingle Springs Tribe as of June 30, 2013 to be approximately $53.5 million using a discount rate of 12.2% and a remaining estimated term of 91 months. Lakes estimated the fair value of the notes and interest receivable from the Shingle Springs Tribe as of December 30, 2012, to be approximately $49.9 million using a discount rate of 12.8% and a remaining estimated term of 97 months. The increase in the estimated fair value is primarily attributable to a change in the discount rate applied period-over-period. The discount rate utilized in the estimation of the fair value of the notes and interest receivable is indexed on the actual yield of the Shingle Springs Tribal Gaming Authority Senior Notes (“Senior Notes”) due on June 15, 2015. Lakes believes it is reasonable to utilize the actual yield of the Senior Notes, which are traded on the open market, as a basis in the fair value estimation of the Shingle Springs notes and interest receivable because the Shingle Springs notes receivable and the Senior Notes have similar collateral. Lakes adjusts the actual yield by 2.3% to determine the discount rate because the Shingle Springs notes receivable are subordinated to the Senior Notes. The yield demanded by the open market on these Senior Notes declined from 10.6% as of December 30, 2012 to 9.9% as of June 30, 2013, thereby decreasing the discount rate Lakes utilized in the calculation of the fair value of the notes and interest receivable from 12.8% to 12.2%. This decrease in discount rate resulted in the increase in the disclosed fair value of the Shingle Springs notes and interest receivable as of June 30, 2013 compared to December 30, 2012. For further discussion of the Shingle Springs notes and interest receivable, see note 19, Subsequent Event.

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 5, 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 $0.5 million as of June 30, 2013 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 $4.0 million as of December 30, 2012 using a discount rate of 19.5%.

Investments in unconsolidated investees - The fair value of the Company’s investments in unconsolidated investees was not estimated as of June 30, 2013 or December 30, 2012, as there were no events or changes in circumstances that may have a significant adverse effect on the fair value of the investments, and Lakes’ management determined that it was not practicable to estimate the fair value of the investments (see note 6, Investment in Rock Ohio Ventures, LLC and note 7, Investment in Dania Entertainment Holdings, LLC).

Contract acquisition costs payable - The carrying amount of the liability approximates its estimated fair value of $3.9 million and $4.6 million as of June 30, 2013 and December 30, 2012, respectively (see note 10, Contract Acquisition Costs Payable).

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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