Note 2 – Acquisitions

American Acquisition

Overview

On October 20, 2017, subsequent to quarter end, the Company completed the acquisition of all of the outstanding equity interests of American from its former equity holders (the “American Acquisition”) for aggregate consideration consisting of $781.0 million in cash (subject to certain post-closing adjustments) and the issuance by the Company of 4,046,494 shares of its common stock to W2007/ACEP Holdings, LLC (“ACEP Holdings”), a former American equity holder. Of the cash consideration, $5.0 million is being held in escrow as security for satisfaction of the sellers’ post-closing working capital adjustment obligations in accordance with the purchase agreement governing the American Acquisition (the “Purchase Agreement”). At the closing of the American Acquisition, the Company entered into a stockholders agreement with ACEP Holdings that includes, among other things, a 90-day restriction on sales of the Company’s common stock by ACEP Holdings (subject to certain exceptions) and a standstill agreement. Also at the closing of the American Acquisition, the Company entered into a registration rights agreement with ACEP Holdings with respect to the shares of the Company’s common stock that were issued at the closing.

American owns and operates four casino hotel properties in Nevada: the Stratosphere Casino, Hotel & Tower, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder in Las Vegas, and the Aquarius Casino Resort in Laughlin. As of October 20, 2017, the American casino properties offered an aggregate of 3,865 slot machines, 89 table games and 4,896 hotel rooms.

Acquisition Method of Accounting

The American Acquisition will be accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations (“ASC 805”). Under the acquisition method, the total estimated purchase price, or consideration transferred, is measured at the acquisition closing date. The purchase price of the acquisition will be allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over the fair values will be recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill and will allocate goodwill to each of the business segments at the conclusion of the measurement period. As described above, the consideration paid by the Company at the closing of the American Acquisition is subject to certain post-closing adjustments under the Purchase Agreement.

Refinancing

In connection with the closing of the American Acquisition, the Company entered into two new credit agreements with respect to a $900.0 million senior secured first lien credit facility (consisting of $800.0 million in term loans and a $100.0 million revolving credit facility, which was undrawn at closing) and a $200.0 million senior secured second lien term loan facility. The Company used the net proceeds from the borrowings under these facilities at the closing primarily to fund the cash purchase price in the American Acquisition (a portion of which was used to repay American’s outstanding senior secured indebtedness), to refinance the Company’s outstanding senior secured indebtedness under its then-existing senior secured credit facility, and to pay certain transaction fees and expenses. See Note 5, Long-Term Debt, for a discussion of the new credit agreements and associated refinancing.

Montana Acquisitions

Overview

On January 29, 2016, the Company completed the acquisition of approximately 1,100 gaming devices, as well as certain other non-gaming assets and the right to operate within certain locations (the “Initial Montana Acquisition”). The total consideration for the transaction was $20.1 million, including the issuance of $0.5 million of the Company’s common stock (comprising 50,252 shares at fair value at issuance of $9.95 per share). In connection with the Initial Montana Acquisition, the Company is required to pay the sellers contingent consideration of up to a total of $2.0 million in cash paid in four quarterly payments, which began in September 2017, subject to certain potential adjustments. See Note 9, Financial Instruments and Fair Value Measurements, for further discussion regarding the estimated fair value of the contingent consideration and the Company’s revaluation of such contingent consideration in the third quarter.

On April 22, 2016, the Company completed the acquisition of approximately 1,800 gaming devices, as well as amusement devices and certain other non-gaming assets and the right to operate within certain locations, from Amusement Services, LLC (the “Second Montana Acquisition”, and, together with the Initial Montana Acquisition, the “Montana Acquisitions”). The total consideration for the transaction was $25.7 million.

Acquisition Method of Accounting

The Company followed the acquisition method of accounting for the Montana Acquisitions per ASC 805 guidance. In accordance with ASC 805, the Company allocated the purchase price for each Montana Acquisition to the tangible and intangible assets acquired and liabilities assumed based on their fair values, which were determined primarily by management with assistance from third-party appraisals. The excess of the purchase prices over those fair values was recorded as goodwill.

The allocation of the $20.1 million purchase price of the Initial Montana Acquisition was finalized in the first quarter of 2017 and as of the date of the acquisition was comprised of the following:

(In thousands)	Final Purchase Price Allocation
Cash and cash equivalents	$	1,700
Property and equivalents		2,350
Intangible assets		14,400
Goodwill		1,680
Total acquired assets	$	20,130

The intangible assets acquired in the Initial Montana Acquisition and the related weighted-average useful lives of definite-lived intangible assets were as follows:

(In thousands)	Useful Life	As Recorded, at Fair Value
Customer relationships	15 years	$	9,800
Non-competition agreements	5 years		3,900
Trade name	4 years		500
Other	15 years		200
Total intangible assets acquired		$	14,400

The allocation of the $25.7 million purchase price of the Second Montana Acquisition was finalized in the second quarter of 2017 and as of the date of acquisition was comprised of the following:

(In thousands)	Final Purchase Price Allocation
Cash and other current assets	$	404
Property and equipment		7,839
Intangible assets		11,400
Goodwill		6,013
Total acquired assets	$	25,656

The intangible assets acquired in the Second Montana Acquisition and the related weighted-average useful lives of definite-lived intangible assets were as follows:

(In thousands)	Useful Life	As Recorded, at Fair Value
Customer relationships	15 years	$	9,100
Non-competition agreements	5 years		1,800
Trade name	4 years		200
Other	15 years		300
Total intangible assets acquired		$	11,400

The goodwill recognized in the Montana Acquisitions was primarily attributable to potential expansion and future development of, and anticipated synergies from, the acquired businesses and is expected to be deductible for income tax purposes. The Company's estimation of the fair value of the assets acquired in the Montana Acquisitions as of the respective dates of the acquisitions was determined based on certain valuations and analyses.

The Company reports the results of operations from each of the Montana Acquisitions, subsequent to their respective closing dates, within its Distributed Gaming segment. For each of the three months ended September 30, 2017 and 2016, net revenues from the Montana Acquisitions totaled $15.1 million. For the nine months ended September 30, 2017 and 2016, net revenues from the Montana Acquisitions totaled $45.7 million and $32.0 million, respectively. For each of the three months ended September 30, 2017 and 2016, there were no transaction-related costs for the Montana Acquisitions. For each of the nine months ended September 30, 2017 and 2016, transaction-related costs for the Montana Acquisitions totaled $0.2 million. All transaction-related costs for the Montana Acquisitions were included in preopening expenses. The Company may incur additional transaction-related costs related to the Montana Acquisitions in future periods. Pro forma information is not being presented as there is no practicable method to calculate pro forma earnings given that the Montana Acquisitions were asset purchases that represented only a component of the businesses of the sellers. As a result, historical financial information obtained would have required significant estimates.