Full House Resorts, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

GOODWILL AND OTHER INTANGIBLES

GOODWILL AND OTHER INTANGIBLES

3 Months Ended

Mar. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

5. GOODWILL AND OTHER INTANGIBLES

Goodwill represents the excess of the purchase price over fair market value of net assets acquired in connection with Silver Slipper, Rising Star and Stockman’s operations. Goodwill was $14.7 million for Silver Slipper, $1.6 million for Rising Star and $5.8 million for Stockman’s as of March 31, 2013 and December 31, 2012. Impairment calculations, which are subject to change as a result of future economic uncertainty, contemplate changes for both current year and future year estimates in earnings and the impact of these changes to the fair value of Silver Slipper, Rising Star and Stockman’s, although there is always some uncertainty in key assumptions including projected future earnings growth.

A summary of the changes to goodwill is as follows (in thousands):

	Three months ended March 31, 2013
	Balance at beginning of the period		Changes during the period		Balance at end of the period
Stockman’s Goodwill	$	5,809	$	--	$	5,809
Rising Star Goodwill		1,647		--		1,647
Silver Slipper Goodwill		14,671		--		14,671
Goodwill, net of accumulated impairment losses	$	22,127	$	--	$	22,127

	Three months ended March 31, 2012
	Balance at beginning of the period		Changes during the period		Balance at end of the period
Stockman’s Goodwill	$	5,809	$	--	$	5,809
Rising Star Goodwill		1,647		--		1,647
Goodwill, net of accumulated impairment losses	$	7,456	$	--	$	7,456

Other Intangible Assets:

Other intangible assets, net consist of the following (in thousands):

	March 31, 2013 (unaudited)

	Estimated Life (years)		Gross Carrying Value		Accumulated Amortization			Cumulative Expense / (Disposals)		Intangible Assets, Net
Amortizing Intangible assets:
Player Loyalty Program - Rising Star		3	$	1,700	$	(1,133	)	$	--	$	567
Player Loyalty Program - Silver Slipper		3		5,900		(983	)		--		4,917
Land Lease and Water Rights - Silver Slipper		46		1,420		(46	)		--		1,374
Capital One Bank Loan Fees		3		4,671		(868	)		9		3,812
ABC Funding, LLC Loan Fees		4		984		(123	)		14		875

Non-amortizing intangible assets:
Gaming License-Indiana	Indefinite			9,900		--			--		9,900
Gaming License-Mississippi	Indefinite			115		--			3		118
Gaming License-Nevada	Indefinite			542		--			87		629
Trademarks	Indefinite			36		--			3		39
			$	25,268	$	(3,153	)	$	116	$	22,231

	December 31, 2012

	Estimated Life (years)		Gross Carrying Value		Accumulated Amortization			Cumulative Expense / (Disposals)			Intangible Assets, Net
Amortizing Intangible assets:
Player Loyalty Program - Rising Star		3	$	1,700	$	(992	)	$	--		$	708
Player Loyalty Program - Silver Slipper		3		5,900		(492	)		--			5,408
Land Lease and Water Rights - Silver Slipper		46		1,420		(23	)		--			1,397
Wells Fargo Bank Loan Fees		5		2,614		(924	)		(1,690	)		-
Capital One Bank Loan Fees		3		4,671		(434	)		--			4,237
ABC Funding, LLC Loan Fees		4		984		(62	)		--			922

Non-amortizing intangible assets:
Gaming License-Indiana	Indefinite			9,900		--			--			9,900
Gaming License-Mississippi	Indefinite			115		--			--			115
Gaming License-Nevada	Indefinite			542		--			--			542
Trademarks	Indefinite			36		--			--			36
			$	27,882	$	(2,927	)	$	(1,690	)	$	23,265

Player Loyalty Program

The player loyalty programs represent the value of repeat business associated with Silver Slipper’s and Rising Star’s loyalty programs. The value of $5.9 million and $1.7 million of the Silver Slipper and Rising Star player loyalty programs, respectively, were determined using a multi-period excess earning method of the income approach, which examines the economic returns contributed by the identified tangible and intangible assets of a company, and then isolates the excess return, which is attributable to the asset being valued, based on cash flows attributable to the player loyalty program. The valuation analysis for the active rated players was based on projected revenues and attrition rates. Silver Slipper and Rising Star maintain historical information for the proportion of revenues attributable to the rated players for gross gaming revenue. The value of the player loyalty programs are amortized over a life of three years.

Land Lease and Water Rights

In November 2004, Silver Slipper entered into a lease agreement with Cure Land Company, LLC for approximately 38 acres of land (“Land Lease”), which includes approximately 31 acres of protected marsh land as well as a seven acre casino parcel, on which the Silver Slipper was subsequently built. The lease was amended and extended on February 26, 2013, as discussed in Note 8 to the consolidated financial statements. The $1.0 million Land Lease represents the excess fair value of the land over the estimated net present value of the Land Lease payments. The $0.4 million of water rights represents the fair value of the water rights based upon the current market rate in Hancock County, Mississippi.

Loan Fees

Loan fees incurred and paid as a result of debt instruments are accumulated and amortized over the term of the related debt, based on an effective interest method. On March 30, 2012, we paid off the then remaining debt and interest rate swap (“Swap”), related to the Credit Agreement with Wells Fargo (“Wells Fargo Credit Agreement”), and therefore expensed the net remaining loan fees and incurred a $1.7 million loss on extinguishment of debt.

On October 1, 2012, we funded the purchase of the Silver Slipper with the full amount of the $50.0 million first lien term loan (“First Lien Credit Agreement”) with Capital One Bank, N.A. (“Capital One”) and the full amount of the second lien term loan (“Second Lien Credit Agreement”) with ABC Funding, LLC, as discussed in Note 6 to the consolidated financial statements. We incurred $4.7 million in loan fees related to obtaining the First Lien Credit Agreement and $1.0 million in loan fees related to obtaining the Second Lien Credit Agreement which are amortized over the terms of the agreements, which began October 2012.

The aggregate loan fee amortization was $0.5 million and $0.2 million for the three months ended March 31, 2013 and March 31, 2012, respectively.

Gaming License

Gaming license rights represent the value of the license to conduct gaming in certain jurisdictions, which are subject to highly extensive regulatory oversight and, in some cases, a limitation on the number of licenses available for issuance. The value of $9.9 million of the Rising Star gaming license was determined using a multi-period excess earning method of the income approach, which examines the economic returns contributed by the identified tangible and intangible assets of a company, and then isolates the excess return, which is attributable to the asset being valued, based on cash flows attributable to the gaming license. The other gaming license values are based on actual costs. Gaming licenses are not subject to amortization as they have indefinite useful lives and are evaluated for potential impairment on an annual basis unless events or changes in circumstances indicate the carrying amount of the gaming licenses may not be recoverable. We incurred $0.1 million in costs related to obtaining a Mississippi gaming license for the purchase of all of the outstanding membership interest of Silver Slipper Casino Venture LLC which owns and operates the Silver Slipper.

Trademark

Trademarks are based on the legal fees and recording fees related to the trademark of the “Rising Star Casino Resort” name, and variations of such name. Trademarks are not subject to amortization, as they have an indefinite useful life and are evaluated for potential impairment on an annual basis unless events or changes in circumstances indicate the carrying amount of the trademark may not be recoverable.

Current Amortization

We amortize our definite-lived intangible assets, including our player loyalty programs, loan fees, land leases and water rights over their estimated useful lives. The aggregate amortization expense was $1.2 million and $0.4 million for the three months ended March 31, 2013 and March 31, 2012, respectively.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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