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

Quarterly report pursuant to Section 13 or 15(d)

GOODWILL & OTHER INTANGIBLES

GOODWILL & OTHER INTANGIBLES

9 Months Ended

Sep. 30, 2012

Contract Rights and Goodwill and Other Intangibles [Abstract]

6. GOODWILL & OTHER INTANGIBLES

Goodwill represents the excess of the purchase price over fair market value of net assets acquired in connection with Stockman’s and Rising Star operations. Goodwill was $5.8 million for Stockman’s and $1.6 million for Rising Star as of September 30, 2012 and December 31, 2011. Our review of Stockman’s and Rising Star goodwill as of September 30, 2012, resulted in approximately a 2% and 19% excess, respectively, of estimated fair value over the carrying value of goodwill and related assets using a market approach considering an earnings multiple of 6.25 times. These 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 Stockman’s and the Rising Star, although there is always some uncertainty in key assumptions including projected future earnings growth.

We acquired the Rising Star on April 1, 2011 for approximately $19.0 million in cash and $33.0 million drawn from our Credit Agreement with Wells Fargo (as discussed in Note 7). The goodwill of $1.6 million is the excess purchase price over the assets purchased.

Other Intangible Assets:

Other intangible assets, net consist of the following:


	September 30, 2012 (unaudited)

	Estimated Life (years)	Gross Carrying Value		Accumulated Amortization			Cumulative Expense / (Disposals)			Intangible Asset, Net
Amortizing intangible assets:
Player Loyalty Program - Rising Star	3	$	1,700,000	$	(850,000	)	$	--		$	850,000
Wells Fargo Bank Loan Fees	5		2,614,438		(924,336	)		(1,690,102	)		--
Capital One Bank Loan Fees	3		901,906		--			--			901,906

Non-amortizing intangible assets:
Gaming License-Indiana	Indefinite		9,900,000		--			--			9,900,000
Gaming License-Mississippi	Indefinite		171,402		--			--			171,402
Gaming Licensing Costs - Nevada	Indefinite		541,653		--			--			541,653
Trademark-Rising Star	Indefinite		32,565		--			--			32,565
		$	15,861,964	$	(1,774,336	)	$	(1,690,102	)	$	12,397,526

	December 31, 2011

	Estimated Life (years)	Gross Carrying Value		Accumulated Amortization			Cumulative Expense / (Disposals)		Intangible Assets, Net
Amortizing intangible assets:
Player Loyalty Program - Rising Star	3	$	1,700,000	$	(425,000	)	$	--	$	1,275,000
Nevada State Bank Loan Fees	15		218,545		(218,545	)		--		--
Wells Fargo Bank Loan Fees	5		2,614,438		(715,946	)		--		1,898,492

Non-amortizing intangible assets:
Gaming License - Indiana	Indefinite		9,900,000		--			--		9,900,000
Gaming Licensing Costs - Nevada	Indefinite		484,676		--			32,131		516,807
Trademark – Rising Star	Indefinite		26,889		--			2,031		28,920
		$	14,944,548	$	(1,359,491	)	$	34,162	$	13,619,219

Player Loyalty Program

The player loyalty program represents the value of repeat business associated with Rising Star’s loyalty program. The value of $1.7 million of the Rising Star player loyalty program 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 player loyalty program. The valuation analysis for the active rated player was based on projected revenues and attrition rates. Rising Star maintains historical information for the proportion of revenues attributable to the rated players for gross gaming revenue.

Loan Fees

Loan fees incurred and paid as a result of debt instruments were accumulated and amortized over the term of the related debt, based on an effective interest method. Loan fees incurred for Nevada State Bank resulted from the credit facility to purchase Stockman’s Casino in 2007. In March 2011, the credit facility with Nevada State Bank was terminated and the amortization of the loan fees was accelerated. We recognized amortization expense of $0.2 million during the first quarter of 2011 as a result of the termination. On October 29, 2010, we entered into a Credit Agreement with Wells Fargo Bank, N.A. (“Wells Fargo Credit Agreement”). In December 2010, we entered into a Commitment Increase Agreement to increase the funds available under the Wells Fargo Credit Agreement. Loan fees related to the Wells Fargo debt were $2.6 million and were to be amortized over the five-year term of the loan. The aggregate amortization was $0.0 million and $0.2 million for the three and nine months ended September 30, 2012 and $0.2 million and $0.6 million for the three and nine months ended September 30, 2011, respectively. We paid off the remaining $25.3 million in debt, which consisted of $24.8 million of our existing long term debt and $0.5 million due on the interest rate swap agreement (“Swap”) related to the Wells Fargo Credit Agreement as of March 30, 2012 and therefore expensed the net remaining loan fees of $1.7 million, after the necessary amortization expense in the first quarter of 2012. We incurred $0.9 million related to obtaining the First Lien Credit Agreement with Capital One, NA, as administrative agent (“First Lien Credit Agreement”) and obtaining the Second Lien Credit Agreement with ABC Funding, LLC as administrative agent (“Second Lien Credit Agreement”), as discussed in Note 7, which will be amortized over the term of the agreements beginning October, 2012.

Gaming License

Gaming licenses 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 reviewed existing gaming licenses as of December 31, 2011 and recognized a write down of $0.03 million related to gaming licensing costs pertaining to a former director, who is no longer affiliated with the organization and $0.02 million related to costs for a new license to be obtained. We incurred $0.2 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 Casino (“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 & Future Amortization

We amortize definite-lived intangible assets, including player loyalty program and loan fees, over their estimated useful lives. The aggregate amortization expense was $0.1 million and $0.4 million for the three months ended and $0.6 million and $0.9 million for the nine months ended September 30, 2012 and September 30, 2011, respectively. Total amortization expense for intangible assets for the years ending September 2013 and September 2014 are anticipated to be approximately $0.6 million and $0.3 million, respectively, which includes the amortization on the remaining Rising Star player loyalty program costs.

- 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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