Full House Resorts, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

GOODWILL & OTHER INTANGIBLES

GOODWILL & OTHER INTANGIBLES

12 Months Ended

Dec. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

5. GOODWILL AND OTHER INTANGIBLES

Goodwill represents the excess of the purchase price over fair value of net assets acquired in connection with Silver Slipper Casino, Rising Star Casino Resort and Stockman’s Casino operations. In accordance with the authoritative guidance for goodwill and other intangible assets, we test our goodwill and indefinite-lived intangible assets for impairment annually or if a triggering event occurs. We evaluate goodwill and indefinite-lived intangible assets utilizing the market approach and income approach applying discounted cash flows.

Due to various factors, including weak economic conditions, lower than anticipated discretionary consumer spending, and increased competition in our Indiana market, we realized lower than expected operating results during 2014. We performed interim impairment assessments of goodwill and indefinite-lived intangible assets as of June 30, 2014 for all relevant properties and recognized a $1.6 million and $9.9 million impairment of Rising Star Casino Resort’s goodwill and gaming license, respectively, which were recorded as impairment charges in the Statements of Operations. Key assumptions included in the analysis were estimates of future cash flows including outflows for capital expenditures, a long-term growth rate of 1% and a discount rate of 11.2%. During 2013, we recognized a $4.0 million impairment of goodwill at Stockman’s Casino.

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 Silver Slipper Casino, Rising Star Casino Resort and Stockman’s Casino, although there is always some uncertainty in key assumptions including projected future earnings growth. If our estimates of projected cash flows related to our assets are not achieved, we may be subject to future impairment charges, which could have a material adverse impact on our consolidated financial statements. We do not reverse the impairment charges if subsequent evaluations result in an increase in the estimated value of the asset.

Goodwill:

As of December 31, 2014 and 2013, goodwill associated with our acquisition of our gaming properties totaled $16.5 million and $18.1 million, net of impairment write-downs of $1.6 million and $4.0 million, respectively. Changes in the carrying value of goodwill for the periods presented follows:


	Year ended December 31, 2014 (in thousands)
	Balance at beginning of the year		Impairments			Balance at end of the year
Stockman’s Casino	$	1,809	$	--		$	1,809
Rising Star Casino Resort		1,647		(1,647	)		--
Silver Slipper Casino		14,671		--			14,671
Goodwill, net of accumulated impairment losses	$	18,127	$	(1,647	)	$	16,480


	Year ended December 31, 2013 (in thousands)
	Balance at beginning of the year		Impairments			Balance at end of the year
Stockman’s Casino	$	5,809	$	(4,000	)	$	1,809
Rising Star Casino Resort		1,647		--			1,647
Silver Slipper Casino		14,671		--			14,671
Goodwill, net of accumulated impairment losses	$	22,127	$	(4,000	)	$	18,127

Other Intangible Assets:

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

	December 31, 2014
	Estimated Life (Years)	Gross Carrying Value		Accumulated Amortization			Impairment / Write-offs, Net			Intangible Assets, Net
Amortizing Intangible Assets:
Player Loyalty Program - Rising Star	3	$	1,700	$	(1,700	)	$	--		$	-
Player Loyalty Program - Silver Slipper	3		5,900		(4,425	)		--			1,475
Land Lease and Water Rights - Silver Slipper	46		1,420		(70	)		--			1,350
Capital One Bank Loan Fees	3		5,049		(3,241	)		--			1,808
ABC Funding, LLC Loan Fees	5		1,428		(586	)		--			842

Non-amortizing Intangible Assets:
Gaming License - Rising Star	Indefinite		9,900		--			(9,900	)		--
Gaming License – Silver Slipper	Indefinite		105		--			(44	)		61
Gaming Licensing – Northern Nevada	Indefinite		523		--			(67	)		456
Trademarks	Indefinite		40		--			--			40
		$	26,065	$	(10,022	)	$	(10,011	)	$	6,032

Other Intangible Assets Subtotal		$	19,588	$	(6,195	)	$	(10,011	)	$	3,382
Loan Fees Subtotal			6,477		(3,827	)		--			2,650
		$	26,065	$	(10,022	)	$	(10,011	)	$	6,032

	December 31, 2013
	Estimated Life (Years)	Gross Carrying Value		Accumulated Amortization			Write-offs, Net			Intangible Assets, Net
Amortizing Intangible Assets:
Player Loyalty Program - Rising Star	3	$	1,700	$	(1,558	)	$	--		$	142
Player Loyalty Program - Silver Slipper	3		5,900		(2,458	)		--			3,442
Land Lease and Water Rights - Silver Slipper	46		1,420		(39	)		--			1,381
Capital One Bank Loan Fees	3		4,887		(2,019	)		--			2,868
ABC Funding, LLC Loan Fees	4		998		(308	)		--			690

Non-amortizing Intangible Assets:
Gaming License - Rising Star	Indefinite		9,900		--			--			9,900
Gaming License – Silver Slipper	Indefinite		115		--			(10	)		105
Gaming License – Northern Nevada	Indefinite		542		--			(19	)		523
Trademarks	Indefinite		40		--			--			40
		$	25,502	$	(6,382	)	$	(29	)	$	19,091

Other Intangible Assets Subtotal		$	19,617	$	(4,055	)	$	(29	)	$	15,533
Loan Fees Subtotal			5,885		(2,327	)		--			3,558
		$	25,502	$	(6,382	)	$	(29	)	$	19,091

Customer Loyalty Programs. The player loyalty programs represent the value of repeat business associated with Silver Slipper Casino’s and Rising Star Casino Resort’s loyalty programs. The value of $5.9 million and $1.7 million of the Silver Slipper Casino’s and Rising Star Casino Resort’s 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 analyses for the active rated players were based on projected revenues and attrition rates. Silver Slipper Casino and Rising Star Casino Resort 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 Casino 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 marshland and the seven-acre casino parcel on which the Silver Slipper Casino was subsequently built. The lease was amended and extended on February 26, 2013, as discussed in Note 12. 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 represented the fair value of the water rights based upon market rates in Hancock County, Mississippi. The term of the land lease is 46 years.

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 October 1, 2012, we funded the purchase of the Silver Slipper Casino with the full amount of the $50.0 million First Lien Credit Facility (“First Lien Credit Facility”) with Capital One Bank, N.A. (“Capital One”) and the full amount of the Second Lien Credit Facility (“Second Lien Credit Facility”) with ABC Funding, LLC, as discussed in Note 7. We incurred $4.7 million in loan fees related to obtaining the First Lien Credit Facility and $1.0 million in loan fees related to obtaining the Second Lien Credit Facility. On August 26, 2013, we entered into a first amendment to the First Lien Credit Facility (the “First Lien Amendment”) and an amendment to the Second Lien Credit Facility (the “Second Lien Amendment”) and incurred $0.2 million in additional loan fees, as discussed in Note 7. The First Lien Amendment modifications included an extended maturity date to June 29, 2016, and thus the amortization period for these loan fees was also extended. On July 18, 2014, we entered into a second amendment to the First Lien Credit Facility (the “First Lien 2nd Amendment”) and an amendment to the Second Lien Credit Facility (the “Second Lien 2nd Amendment”) and incurred $0.2 million in additional loan fees, as discussed in Note 7. Effective December 31, 2014 we entered into a third amendment to the First Lien Credit Facility (the “First Lien 3rd Amendment”) and an amendment to the Second Lien Credit Facility (the “Second Lien 3rd Amendment”) and incurred $0.3 million in additional loan fees, as discussed in Note 7. The Second Lien 3rd Amendment modifications included an extended maturity date to April 1, 2017, and thus the amortization period for these loan fees was also extended.

The amortization of loan fees was $1.5 million and $1.8 million for the years ended December 31, 2014 and December 31, 2013, respectively.

Gaming Licenses. 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 the $9.9 million Rising Star Casino Resort gaming license was estimated 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 amortized 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 and recognized an expense of $10.2 million, including a $9.9 million impairment of the gaming license at Rising Star Casino Resort during 2014, and $0.1 million during 2013.

Trademark. Trademarks are based on the legal fees and recording fees primarily 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 and Future Amortization. The aggregate amortization expense was $3.6 million and $4.4 million for the years ended December 31, 2014 and December 31, 2013, respectively.

Total amortization expense for intangible assets for the years ending December 31, 2015, 2016, 2017, 2018, 2019 and thereafter is anticipated to be approximately $3.1 million, $1.1 million, $0.2 million, $0.03 million, $0.03 million, and $1.2 million, 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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