Tim Cope - President and CFO Lyle Berman - Chairman and CEO

David Dishneau - The Associated Press

Thank you, Whitley. Good afternoon and welcome to Lakes Entertainment's fourth quarter 2014 earnings conference call.

On the call with me is Lyle Berman, Lakes' Chairman of the Board and Chief Executive Officer. As we begin our prepared remarks, I would like to remind everyone that this call is being recorded and that the call contains forward-looking statements, including statements concerning business strategies and their intended results, statements related to the pending merger with Sartini Gaming, Inc.

and other statements concerning anticipated future events. These statements are subject to risks and uncertainties, including those factors described in the press release we issued this morning and in our filings with the SEC and actual results may differ materially.

Lyle will begin our discussion today with a general overview and update on our casino projects. I will then discuss the fourth quarter financial results and recent business events and then we'll conduct a question-and-answer session.

Now I will turn the call over to Lyle Berman.

Thank you Tim and welcome everyone to Lakes' fourth quarter 2014 earnings call. During January of 2015, we announced that we had entered into a merger agreement with Sartini Gaming Inc.

which owns and operates Golden Gaming, LLC which is a leading owner and operator of distributed gaming, taverns and casinos all of which are focused on the Nevada local gaming market. Under the terms of the merger agreement, Lakes' current shareholders on a fully diluted basis are estimated to retain approximately 64.3% of the total post-merger shares of Lakes' common stock with the legacy Golden Gaming shareholder been issued approximately 35.7% of the total fully diluted post-merger shares of Lakes' common stock.

These percentages are subject to adjustments for actual results at the time the merger closes, which is expected to occur later this year. This deal values Lakes at approximately $0.957 per share.

Together the combined company will operate approximately 9,250 slot machines and video lottery terminals in Nevada and Maryland across four casino properties, 48 taverns and over 600 route locations. Lakes and Golden Gaming estimate that on a combined pro forma basis 2015 annual net revenues and adjusted EBITDA will be approximately 348.1 million and 42.1 million respectively, including 3 million of anticipated cost synergies.

Additionally, it is estimated that the combined pro forma 2015 operating free cash flow and adjusted net income will be 33.7 million and 13.0 million respectively, including a full year of the anticipated benefits of refinancing Lakes and Golden Gaming indebtedness. Although previously written off our books, Lakes fares a $60 million note receivable from the Jamul Indian Village, provided that the combined enters into an agreement to monetize the note within three years after the merger closes and receives any amounts due there under no later than three years after the Jamul casino opens.

Then Lakes shareholders at the time of distribution other than the legacy Golden Gaming shareholder except with respect to potential taxes will be entitled to a cash dividend related to any net proceeds the combined company receive from such monetization. The merger is anticipated to close by the end of 2015 and is subject to customary regulatory and other closing conditions being satisfied, including approval by Lakes' shareholders of the issuance of the Lakes shares in connection with the merger.

At closing of the merger, Lakes will remain publicly traded, but will be renamed Golden Gaming, Inc. Blake L.

Sartini -- okay, I will try to speak a little louder. Blake Sartini, currently Chief Executive Officer of Golden Gaming, will remain the Chairman and Chief Executive Officer of the combined company at closing.

I will continue as a Board member and will sign a three year consulting agreement with the combined company. Tim Cope will also continue as a Board member and consultant to the combined company.

We're excited about this transaction and are thrilled to partner with Golden Gaming which has done an outstanding job of building a premiere diversified gaming company in the state of Nevada. The combination of our strong balance sheet and Rocky Gap asset and Golden Gaming's casinos and distributor gaming platform make the combined company truly unique in the marketplace.

Lakes' cash on hand will facilitate Golden Gaming's pursuit of growth opportunities and the refinancing of its debt. We believe this combined company will be well positioned to expand not only in Nevada which has the most stable tax and regulatory record in the country but also into other jurisdictions.

As we previously announced Lakes sold all of its interest in Rock Ohio Ventures LLC for $750,000. This investment had been written down to zero during the third quarter of 2014.

As a result Lakes received a cash payment of approximately $750,000 and we'll recognize a gain on sale of cost method investment of approximately 750,000 during the first quarter of 2015. In Maryland Rocky Gap our wholly owned casino reserve property continues to perform well.

The property met our expectations during the fourth quarter as well as for the 2014 overall. Net revenues for the fourth quarter were 12.8 million compared with 11.4 million in the fourth quarter prior year.

Overall for the year we saw an increase in slot win per unit per day from $158 for 2013 to $179 for 2014. The gaming facility features 577 video lottery terminals, 15 table games, two poker tables and a casino bar along with lobby food and beverage outlet.

The AAA Four Diamond Award winning property also includes a hotel, event center, restaurant spa the only Jack Nicklaus signature golf course in Maryland and a wide variety of outdoor and water activities. Finally the Jamul Indian Village is required to begin payment of principal on our $60 million note receivable when and if the casino opens and certain senior construction development loans have been repaid.

Interest payments have 4.25% on our note receivable would be required immediately upon a casino opening. This note was written off our books in prior years.

The Jamul tribe is working with Penn National Gaming to develop a casino on the tribes' existing reservation. With that I'll turn the call back over to Tim to provide an overview of financial results.

Thank you Lyle. Lakes Entertainment reported fourth quarter 2014 net revenues of $12.8 million compared to prior year fourth quarter net revenue of $11.4 million.

Net revenues were related to the operation of Rocky Gap Casino Resort in Maryland. The increase in net revenues was primarily related to an increase in gaming revenues during the fourth quarter of 2014 compared to the fourth quarter of 2013.

Net losses for the fourth quarter of 2014 were less than $0.1 million compared to net losses of $0.9 million for the fourth quarter of 2013. Earnings from operations were $0.2 for the fourth quarter of 2014 compared to the losses from operations of $2.2 million for the fourth quarter of 2013.

Basic and diluted losses per share were less than $0.011 for the fourth quarter of 2014 compared to basic and diluted losses per share of $0.06 for the fourth quarter of 2013. During the fourth quarter of 2014 and 2013 property operating expenses for Rock Gap was $7.5 million and $7.3 million respectively and primarily related to gaming operations rooms, food and beverage and gold.

The increase in property operating expenses resulted primarily from an increase in gaming related expenses most notably gaming taxes, due to increase in gaming related revenue in the current year quarter. For the fourth quarters of 2014 and 2013 selling general and administrative expenses were $5.6 million, included in these amounts were Lakes corporate selling general and administrative expenses of $2 million and $1.6 million during the fourth quarter of 2014 and 2013 respectively.

Lakes Corporate selling general and administrative expenses consists primarily a payroll related expenses and professional fees as well as $0.5 million of business development costs in the fourth quarter of 2014. Rock Gap selling general and administrative expenses were $3.6 million and $4 million during the fourth quarter of 2014 and 2013 respectively.

The fourth quarter 2014 decline in selling general and administrative expenses compared to the fourth quarter of 2013 were primarily related to decreases in marketing costs and professional fees. During the second quarter of 2014 Lakes entered into an agreement to sell its interest in Dania Casino and highlight in Dania Beach, Florida for a total of $2.6 million.

As per the agreement on April 21, 2014 Lakes received $1 million on exchange for 40% of Lakes interest in the project. Upon the receipt of the payment during the second quarter of 2014, Lakes recognized a $1 million gain on the sale of cost method investment, since this asset had previously been written off.

On October 17, 2014 Lakes has paid the entire remaining amount due at a discounted amount of approximately $1.4 million. Upon receipt of this payment during the fourth quarter of 2014, Lakes transferred its remaining ownership and recognized a $1.4 million gain on sale of cost method investment.

Depreciation and amortization was $0.9 million for the fourth quarter of 2014 compared to $0.8 million for the fourth quarter of 2013. In summary, we are very pleased with the operating results at Rocky Gap for the fourth quarter and for the year and we continue to focus on improving the customer experience for all of our Rocky Gap guests.

We look forward to working approvals and the closing of the merger with Golden Gaming which we expect to occur later this year. The combination of Lakes strong balance sheet and our Rocky Gap property with Golden Gaming's casinos, taverns and distributed gaming platform will make this combined company unique in the marketplace.

Lakes' cash will reduce the combined company's cost of capital and facilitate growth and we believe the company will be well positioned for expansion in Nevada and other jurisdictions. We are very excited about this transaction and believe it will be tremendous benefit for the Lakes' shareholders.

Now, I'll turn the call over to the operator for questions.

First I have just a technical question then a business question. At the close, what would be the approximate debt level and number of shares outstanding?

So the approximate number of shares would be 22 million.

All right.

Roughly and as far as the debt outstanding it's going to be subject to the refinancing activities we undertake.

Well, what would be your…

It would be approximately 140 million, I believe – in that range.

And then the business question is, which are the divisions that Golden Gaming is presently engaged in? Which would you expect to be the emphasis for the combined company going forward?

I think the emphasis really is going to be on all three. The distributed gaming platform certainly we see other states legalizing it and other states have already legalized this, so we now in casino, we could acquire other distributed gaming companies, but in addition we could go into new jurisdictions as they legalize distributed gaming.

Taverns, I think we represent something like 15% or so of the Taverns in Nevada alone, so we certainly have expansion there. And of course gaming can be expanded wherever we find a great opportunity.

So I think we see the focus on all three. And we'll take the best opportunity, the best return on investment as they occur.

And if I could I've got one more follow up. Given the high return on investment on the Taverns that's depicted in your merger slides, why have they not expanded the Taverns over the last few years, the number of Taverns that is.

Well I think that they have expanded somewhat in the Taverns, but of course they have been restrained by capital. Golden Gaming was built -- I think it started in 2002 with Lake and a lot of it was expanded with debt and they had certain limitations on expanding and of course now it's a combined company and a much stronger balance sheet will be able to do a much better job.

My question's regarding the pending merger with Sartini. Can you please comment on the allegations in the lawsuit that's been filed [rejecting] to the deal and also say how this dispute could affect the timing of the proposed transaction?

And finally, how this transaction would affect operations of Rocky Gap?

I'll answer, this is Lyle Berman. I think the lawsuits to begin with are totally meritless.

I think as you will know, whenever there is an announced merger, there are groups of attorneys that specialize in doing nothing but filing lawsuits and going on I would call it a witch hunt to see if there is any merit to their arguments. We consider it meritless, they will not affect our merger, they will not affect any of our businesses going forward.

And how this transaction could affect operations of Rocky Gap?

It will not affect at Rocky Gap, it will be Golden Gaming and currently has three casinos on top and now they'll have four casinos, three in [indiscernible] and one in Maryland.

Operator did you say there is no further question.

Operator, did you take the next one then?

Well again this is Lyle Berman talking thank you very much operator for all of your questions. We will focus on continuing to execute on our strategy of generating shareholder value and thank you once again for your interest in Lakes and we will speak with you again on our next earnings call.

Thank you. Bye now.