Quarterly report pursuant to Section 13 or 15(d)

GOODWILL & OTHER INTANGIBLES

v2.4.0.6
GOODWILL & OTHER INTANGIBLES
6 Months Ended
Jun. 30, 2012
Contract Rights and Goodwill and Other Intangibles [Abstract]  
GOODWILL AND OTHER INTANGIBLES
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 is $5.8 million for Stockman’s and $1.6 million for Rising Star as of June 30, 2012 and December 31, 2011.  Our review of goodwill as of June 30, 2012, resulted in approximately a 18% excess of estimated fair value over the carrying value of Stockman’s 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:
 
   
June 30, 2012 (unaudited)
 
                               
   
Estimated
Life (years)
   
Gross
Carrying
Value
   
Accumulated Amortization
   
Cumulative Expense / Disposals
   
Intangible
Assets, Net
 
Amortizing Intangibles assets:
                             
Player Loyalty Program - Rising Star
    3     $ 1,700,000     $ (708,333 )   $ -     $ 991,667  
Wells Fargo Bank Loan Fees
    5       2,614,438       (924,336 )     (1,690,102 )     -  
Capital One Bank Loan Fees
    3       165,265                       165,265  
Non-amortizing intangible assets:
                                       
Gaming License-GEI - Rising Star
 
Indefinite
      9,900,000       -       -       9,900,000  
Gaming License- Silver Slipper Casino Venture, LLC
 
Indefinite
      142,081       -       -       142,081  
Gaming Licensing Costs - Nevada
 
Indefinite
      516,807       -       1       516,808  
Trademarks
 
Indefinite
      28,920       -       2,668       31,588  
            $ 15,067,511     $ (1,632,669 )   $ (1,687,433 )   $ 11,747,409  
 
 
 
 
   
December 31, 2011
 
                               
   
Estimated
Life (years)
   
Gross Carrying Value
   
Accumulated Amortization
   
Cumulative Expense / (Disposals)
   
Intangible
Assets, Net
 
Amortizing Intangibles 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-GEI - Rising Star
 
Indefinite
      9,900,000       --       -       9,900,000  
Gaming Licensing Costs
 
Indefinite
      484,676       --       32,131       516,807  
Trademarks
 
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.  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 six months ended June 30, 2012 and $0.2 million and $0.4 million for the three and six months ended June 30, 2011, respectively.  We paid off the remaining $25.3 million in debt, which consisted of $24.8 of our existing long term debt and $0.5 million due on the interest rate swap agreement (“Swap”) related to the Credit Agreement with Wells Fargo 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 $0.2 million related to obtaining the First Lien Credit Agreement with Capital One, NA, as administrative agent (“Capital One Credit Agreement”), as discussed in Note 7 to the consolidated financial statements.
 
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 $0.1 million in costs related to pursing a Mississippi gaming license for the purchase of  all of the outstanding membership interest of Silver Slipper Casino Venture, LLC and 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 $0.2 million for the three months ended and $0.5 million and $0.4 million for the six months ended June 30, 2012 and June 30, 2011, respectively. Total amortization expense for intangible assets for the years ending June 2013 and June 2014 are anticipated to be approximately $0.6 million and $0.4 million, respectively, which represents the amortization on the remaining Rising Star player loyalty program costs, but does not include the amortization for the Capital One Bank loan fees, as these cannot be estimated at this time.