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

9 Months Ended

Sep. 30, 2011

Goodwill and Other Intangibles [Abstract]

GOODWILL AND OTHER INTANGIBLES

6. GOODWILL & OTHER INTANGIBLES

Goodwill:

Goodwill represents the excess of the purchase price over fair market value of net assets acquired in connection with the Stockman’s Casino operation and the Rising Star Casino Resort. Goodwill is $5.8 million and $1.6 million for Stockman’s and Rising Star as of September 30, 2011, respectively. The Company’s review of goodwill associated with the purchase of Stockman’s as of September 30, 2011, resulted in a $4.5 million impairment of Stockman’s goodwill and related assets using a market approach considering an earnings multiple of 6.25 times. The calculation, which is subject to change as a result of future economic uncertainty, contemplates changes for both current year and future year estimates in earnings and the impact of these changes to the fair value of Stockman’s, although there is always some uncertainty in key assumptions including projected future earnings growth. The Company acquired the Rising Star on April 1, 2011 for approximately $43 million, before adjusting for working capital and cash acquired. 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, 2011 (unaudited)
	Estimated		Gross
	Life		Carrying		Accumulated			Expense /			Intangible
	(years)		Value		Amortization			Disposals			Asset, Net
*Amortizing Intangibles assets:*
Player Loyalty Program-Rising Star		3	$	1,700,000	$	(283,333	)	$	—		$	1,416,667

Nevada State Bank Loan Fees		15		218,545		(218,545	)		—			—

Wells Fargo Bank Loan Fees		5		2,614,438		(488,370	)		—			2,126,068

*Non-amortizing intangible assets:*
Gaming License-Rising Star	Indefinite			9,900,000		—			—			9,900,000
Gaming Licensing Costs	Indefinite			484,676		—			(29,762	)		454,914
Trademarks	Indefinite			26,889		—			—			26,889

			$	14,944,548	$	(990,248	)	$	(29,762	)	$	13,924,538


	December 31, 2010
	Estimated		Gross
	Life		Carrying		Accumulated			Expense /		Intangible
	(years)		Value		Amortization			Disposals		Asset, Net
*Amortizing Intangibles assets:*
Nevada State Bank Loan Fees		15	$	218,545	$	(96,087	)	$	—	$	122,458
Wells Fargo Bank Loan Fees		5		1,965,646		—			—		1,965,646

*Non-amortizing intangible assets:*
Gaming Licensing Costs	Indefinite			464,232		—			—		464,232
Trademarks	Indefinite			11,818		—			—		11,818

			$	2,660,241	$	(96,087	)	$	—	$	2,564,154

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 is 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 are accumulated and amortized over the term of the related debt, based on an effective interest method. Loan fees incurred for Nevada State Bank in the amount of $0.2 million 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. The Company recognized amortization expense of $0.1 million during the first quarter of 2011 as a result of the termination. On October 29, 2010, the Company entered into a Credit Agreement with Wells Fargo Bank. In December 2010, the Company entered into a Commitment Increase Agreement to increase the funds available under the Credit Agreement. Loan fees related to the Wells Fargo Bank debt were $2.6 million and are being amortized over the five-year term of the loan. The aggregate amortization expense was $0.2 million and $3,655 for the three months ended September 30, 2011 and September 30, 2010, respectively; and $0.6 million and $10,966 for the nine months ended September 30, 2011 and September 30, 2010, respectively.

Gaming Licenses

Gaming license rights represent the value of the license to conduct gaming in certain jurisdictions, which is 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 is 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. The Company reviewed existing gaming licenses as of September 30, 2011 and recognized an expense of $29,762 related to gaming licensing costs pertaining to a former director, who is no longer affiliated with the organization.

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

The Company amortizes its definite-lived intangible assets, including its player loyalty program and loan fees, over their estimated useful lives. The aggregate amortization expense was $0.4 million and $3,655 for the three months ended September 30, 2011 and September 30, 2010, respectively; and $0.9 million and $10,966 for the nine months ended September 30, 2011 and September 30, 2010, respectively.

Total amortization expense for intangible assets for the years ending December 30, 2011, 2012, 2013, 2014, 2015 and thereafter is anticipated to be approximately $1.3 million, $1.3 million, $1.1 million, $0.5 million, $0.2 million, and $12,400, 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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