Quarterly report pursuant to Section 13 or 15(d)

GOODWILL & OTHER INTANGIBLES

v2.4.0.8
GOODWILL & OTHER INTANGIBLES
9 Months Ended
Sep. 30, 2013
Goodwill and Intangible Assets Disclosure [Abstract]  
GOODWILL & OTHER INTANGIBLES
5.           GOODWILL & OTHER INTANGIBLES
 
Goodwill:
 
Goodwill represents the excess of the purchase price over fair value of net assets acquired in connection with Silver Slipper, Rising Star and Stockman's. 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 utilizing the market approach and income approach applying the discounted cash flows in accordance with the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification™ ("ASC") Topic 350, "Intangibles-Goodwill and Other."
 
Goodwill was $14.7 million for the Silver Slipper, $1.6 million for Rising Star and $5.8 million for Stockman's as of December 31, 2012. Goodwill was $14.7 million for the Silver Slipper, $1.6 million for Rising Star and $1.8 million for Stockman's as of September 30, 2013. 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 the third quarter at some of our properties. We performed interim impairment assessments of goodwill for these properties as of September 30, 2013. We evaluated goodwill for all of the relevant properties and recognized a $4.0 million impairment of Stockman's goodwill. Our review of Rising Star resulted in approximately a 2.6% excess of estimated fair value using the discounted cash flows approach. We evaluated goodwill for the Silver Slipper utilizing the market approach, resulting in approximately a 20.1% excess of estimated fair value over carrying value considering an earnings multiple of 7.0.
 
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, Rising Star and the Silver Slipper, 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.
 
Other Intangible Assets:
 
Other intangible assets, net consist of the following:
       
   
September 30, 2013 (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     $ (1,417 )   $ --     $ 283  
Player Loyalty Program-Silver Slipper
  3       5,900       (1,967 )     --       3,933  
Land Lease and Water Rights-Silver Slipper
  46       1,420       (31 )     --       1,389  
Capital One Bank Loan Fees
  4       4,672       (1,682 )     190       3,180  
ABC Funding, LLC Loan Fees
  4       984       (246 )     14       752  
                                         
Non-amortizing intangible assets:
                                       
Gaming License-Indiana
 
Indefinite
      9,900       --       --       9,900  
Gaming License-Mississippi
 
Indefinite
      115       --       (10 )     105  
Gaming Licensing-Nevada
 
Indefinite
      542       --       (29 )     513  
Trademarks
 
Indefinite
      36       --       4       40  
            $ 25,269     $ (5,343 )   $ 169     $ 20,095  
                                         
Other Intangible assets subtotal
          $ 19,613     $ (3,415 )   $ (35 )   $ 16,163  
Loan Fees subtotal
            5,656       (1,928 )     204       3,932  
            $ 25,269     $ (5,343 )   $ 169     $ 20,095  
 
 

 

 
       
   
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  
                                         
Other Intangible assets subtotal
          $ 19,613     $ (1,507 )   $ --     $ 18,106  
Loan Fees subtotal
            8,269       (1,420 )     (1,690 )     5,159  
            $ 27,882     $ (2,927 )   $ (1,690 )   $ 23,265  
 
Player Loyalty Program
 
The player loyalty program represents the value of repeat business associated with Silver Slipper’s and Rising Star’s loyalty program.  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 player 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 represented the fair value of the water rights based upon the market rates in Hancock County, Mississippi.  The value of the Land Lease and water rights are amortized over the life of the Land Lease, or 46 years.
 

 

 
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.
 
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. On August 26, 2013, we entered into a first amendment to the First Lien Credit Agreement (the “First Lien Amendment”) and an amendment no. 1 to the Second Lien Credit Agreement (the “Second Lien Amendment”) and incurred $0.2 million in additional loan fees, as discussed in Note 6 to the consolidated financial statements.  All of the loan fees are amortized over the terms of the agreements. The First Lien Amendment modifications included an extended maturity date to June 29, 2016, therefore the amortization period for these loan fees was extended.
 
The aggregate loan fee amortization was $0.4 million and $0.0 million for the three months ended September 30, 2013 and September 30, 2012, respectively, and $1.4 million and $0.2 million for the nine months ended September 30, 2013 and September 30, 2012, respectively.
 
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. We reviewed existing gaming licenses as of September 30, 2013 and recognized an expense of $0.1 million related to gaming licensing costs pertaining to a former director and a secretary/general counsel, who are no longer affiliated with us. 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 pursuing a Mississippi gaming license during 2012, 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 $1.1 million and $0.1 million for the three months ended September 30, 2013 and September 30, 2012, respectively and $3.3 million and $0.6 million for the nine months ended September 30, 2013 and September 30, 2012, respectively.