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Merger and Acquisitions | 12 Months Ended
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Dec. 31, 2017
Business Combinations [Abstract] |
Merger and Acquisitions | Note 3 – Merger and Acquisitions American Acquisition Overview On October 20, 2017, the Company completed the acquisition of all of the outstanding equity interests of American from its former equity holders 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. Pursuant to the post-closing adjustment provisions in the purchase agreement, the cash portion of the consideration paid in the American Acquisition was subsequently increased to $787.6 million. At the time of the American Acquisition, American owned and operated four casino hotel properties in Nevada: the Stratosphere, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder in Las Vegas, and the Aquarius in Laughlin. As of October 20, 2017, the American casino properties offered an aggregate of 3,865 slots, 89 table games and 4,896 hotel rooms. Purchase Price The American Acquisition has been accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification 805, Business Combinations (“ASC 805”), which, among other things, establishes that equity issued to effect the acquisition be measured at the closing date of the transaction at the then-current market price. Accordingly, the fair value of the Company's common stock issued to ACEP Holdings at the closing is based on the closing price per share of the Company's common stock on October 20, 2017 of $25.08. The following is a summary of the components of the purchase price paid by the Company to the sellers in the American Acquisition (after taking into account the adjustment to the cash portion of the purchase price pursuant to the post-closing adjustment provisions of the purchase agreement, as described above):
(In thousands) |  |  |  | Amount |
Cash consideration |  |  |  | $ | 787,581 |
Fair value of common stock issued to ACEP Holdings |  |  |  |  | 101,486 |
Total purchase price |  |  |  | $ | 889,067 |
Purchase Price Allocation Under ASC 805, the purchase price of the acquisition is 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 is 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. The following table summarizes the preliminary allocation of the purchase price as of October 20, 2017 (the closing date of the American Acquisition), based on preliminary estimates of the fair values of the assets acquired and liabilities assumed:
(In thousands) |  |  |  | Amount |
Current assets |  |  |  | $ | 83,079 |
Property and equipment |  |  |  |  | 754,581 |
Other noncurrent assets |  |  |  |  | 264 |
Intangible assets |  |  |  |  | 66,140 |
Goodwill |  |  |  |  | 52,479 |
Liabilities |  |  |  |  | (67,476 | )
Total assets acquired, net of liabilities assumed |  |  |  | $ | 889,067 |
The following table summarizes the preliminary values assigned to acquired property and equipment and estimated useful lives by category:
|  | Remaining |  | Amount Assigned |
|  | Useful Life (Years) |  | (In thousands) |
Land |  | Not applicable |  | $ | 106,800 |
Land improvements |  | 15 |  |  | 6,240 |
Building and improvements |  | 45 |  |  | 607,698 |
Furniture, fixtures and equipment |  | 3-4 |  |  | 32,829 |
Construction in process |  | Not applicable |  |  | 1,014 |
Total property and equipment |  |  |  | $ | 754,581 |
The following table summarizes the preliminary values assigned to acquired intangible assets and estimated useful lives by category:
|  | Remaining |  | Amount Assigned |
|  | Useful Life (Years) |  | (In thousands) |
Trade names |  | Indefinite |  | $ | 34,510 |
Players loyalty programs |  | 3 |  |  | 26,850 |
Leasehold interest |  | 3-80 |  |  | 3,110 |
In-place lease value |  | 3-4 |  |  | 1,670 |
Total intangible assets |  |  |  | $ | 66,140 |
See Note 12, Financial Instruments and Fair Value Measurements, for further discussion regarding the valuation of the tangible and intangible assets acquired through the American Acquisition. 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) (the “First Lien Facility”) and a $200.0 million senior secured second lien term loan facility (the “Second Lien Term Loan” and, together with the First Lien Facility, the “Credit Facilities”). The Company used the net proceeds from the borrowings under the Credit 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 (the “Former Credit Facility”), and to pay certain transaction fees and expenses. See Note 7, Debt, for a discussion of the Credit Facilities and associated refinancing. Pro Forma Financial Information The following unaudited pro forma combined financial information has been prepared by management for illustrative purposes only and does not purport to represent what the results of operations, financial condition or other financial information of the Company would have been if the American Acquisition had occurred as of the date indicated or what such results or financial condition will be for any future periods. The unaudited pro forma combined financial information is based on preliminary estimates and assumptions and on the information available at the time of the preparation thereof. Any of these preliminary estimates and assumptions may change, be revised or prove to be materially different, and the estimates and assumptions may not be representative of facts existing at the time of the American Acquisition. The unaudited pro forma combined financial information does not reflect non-recurring charges that will be incurred in connection with the American Acquisition, nor any cost savings and synergies expected to result from the American Acquisition (and associated costs to achieve such savings or synergies), nor any costs associated with severance, restructuring or integration activities resulting from the American Acquisition. The following table summarizes certain unaudited pro forma combined financial information derived from a combination of the historical consolidated financial statements of the Company and of American for the years ended December 31, 2017 and 2016, adjusted to give effect to the American Acquisition and related transactions (including the refinancing). The unaudited pro forma combined financial information was prepared as if the American Acquisition occurred on January 1, 2016.
| Year Ended December 31, |
| 2017 |  |  | 2016 |
(In thousands, except per share data) |  |  |  |  |  |  |
Pro forma combined net revenues | $ | 843,484 |  |  | $ | 794,265 |
Pro forma combined net income |  | 23,107 |  |  |  | 28,338 |
Pro forma combined net income per share: |  |  |  |  |  |  |
Basic | $ | 0.88 |  |  | $ | 1.08 |
Diluted |  | 0.83 |  |  |  | 1.07 |
Weighted-average common shares outstanding: |  |  |  |  |  |  |
Basic |  | 26,342 |  |  |  | 26,181 |
Diluted |  | 27,897 |  |  |  | 26,500 |
The following adjustments have been made to the pro forma combined net income and pro forma combined net income per share in the table above:
| • | Adjustment to eliminate the historical shareholders’ equity of American and the issuance of 4,046,494 shares of common stock of the Company to ACEP Holdings at the closing of the American Acquisition valued at $101.5 million.
| • | Adjustment to eliminate transaction costs incurred by the Company and American in connection with the American Acquisition.
| • | Adjustments to remove severance costs, sale-related expenses and restricted stock unit compensation costs incurred by American related to the American Acquisition.
| • | Adjustments to depreciation and amortization expense of property, plant and equipment and intangible assets acquired by the Company resulting from the effect of the preliminary purchase price allocation.
| • | Adjustments to interest expense and debt issuance costs resulting from the refinancing of the Company’s and American’s former senior secured credit facilities, and the removal of the historical interest expense of the Company and American related to their respective senior secured indebtedness that was repaid as part of the refinancing. The pro forma adjustments are based on the amounts borrowed in the refinancing and the interest rates in effect at the closing of the American Acquisition.
| • | Adjustment to remove the loss on extinguishment of the Company and American’s senior secured indebtedness resulting from the refinancing.
| • | Adjustments to income tax benefit (provision) as a result of the application of the guidance in ASC 740 and the Company’s combined federal and state statutory rate.
Montana Acquisitions On January 29, 2016, the Company completed the Initial Montana Acquisition, which involved the acquisition of approximately 1,100 slots, as well as certain other non-gaming assets and the right to operate within certain locations, from C. Lohman Games, Inc., Rocky Mountain Gaming, Inc. and Brandy’s Shoreliner Restaurant, Inc., for total consideration of $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. In the third quarter of 2017, the Company revalued the estimated fair value of the contingent consideration and recognized a gain on revaluation of contingent consideration of $1.7 million on the Company’s consolidated statement of operations. In the first quarter of 2018 the contingent consideration was paid in full. The allocation of the $20.1 million purchase price to the assets acquired as of January 29, 2016 includes $1.7 million of cash, $2.4 million of property and equipment, $14.4 million of intangible assets and $1.6 million of goodwill. The amounts assigned to intangible assets include customer relationships of $9.8 million with an economic life of 15 years, non-compete agreements of $3.9 million with an economic life of five years, trade names of $0.5 million with an economic life of four years and other amounts of $0.2 million with an economic life of 15 years. On April 22, 2016, the Company completed the Second Montana Acquisition, which involved the acquisition of approximately 1,800 slots, as well as amusement devices and certain other non-gaming assets and the right to operate within certain locations, from Amusement Services, LLC, for total consideration of $25.7 million. The allocation of the $25.7 million purchase price to the assets acquired as of April 22, 2016 includes $0.3 million of cash, less than $0.1 million of prepaid gaming license fees, $7.8 million of property and equipment, $11.4 million of intangible assets and $6.0 million of goodwill. The amounts assigned to intangible assets include customer relationships of $9.1 million with an economic life of 15 years, non-compete agreements of $1.8 million with an economic life of five years, trade names of $0.2 million with an economic life of four years and other amounts of $0.3 million with an economic life of 15 years. The goodwill recognized in the Montana Acquisitions is 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 reports the results of operations from each of the Montana Acquisitions, subsequent to their respective closing dates, within its Distributed Gaming segment. 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. Merger with Sartini Gaming, Inc. On July 31, 2015, the Company acquired Sartini Gaming through the consummation of the Merger. At the effective time of the Merger, all issued and outstanding shares of capital stock of Sartini Gaming were canceled and converted into the right to receive shares of the Company’s common stock. At the closing of the Merger, the Company issued 7,772,736 shares of its common stock to The Blake L. Sartini and Delise F. Sartini Family Trust (the “Sartini Trust”), as sole shareholder of Sartini Gaming in accordance with the agreement and plan of merger (the “Merger Agreement”). In addition, at the closing of the Merger, the Company issued 457,172 shares of its common stock to holders of warrants issued by a subsidiary of Sartini Gaming that elected to receive shares of the Company’s common stock in exchange for their warrants. The total number of shares of the Company’s common stock issued in connection with the Merger was subject to adjustment pursuant to the post-closing adjustment provisions of the Merger Agreement. In connection with such post-closing adjustment, the Company issued an additional 223,657 shares of its common stock to the Sartini Trust. As a result, the value of the purchase consideration following such adjustment was $77.4 million. This amount is the product of the 8,453,565 shares of the Company’s common stock issued in the aggregate in connection with the Merger and the closing price of $9.15 per share of the Company's common stock on July 31, 2015. In August 2016, the 777,274 shares previously held in escrow as security in the event of any claims for indemnifiable losses in accordance with the Merger Agreement were released to the Sartini Trust in accordance with the terms of the escrow agreement. Under the Merger Agreement, the number of shares of the Company’s common stock issued in connection with the Merger reflected the pre-Merger value of Sartini Gaming relative to the pre-Merger value of the Company, which pre-Merger values were calculated in accordance with formulas set forth in the Merger Agreement. To determine the number of shares of the Company’s common stock issued in connection with the Merger, the sum of the number of shares of the Company’s common stock outstanding immediately prior to the Merger and the number of shares issuable upon the exercise of outstanding in-the-money stock options was divided by the percentage of the total pre-Merger value of both companies that represented the Company’s pre-Merger value to determine the total number of fully diluted shares immediately following the Merger. The number of shares of the Company’s common stock issued in connection with the Merger was the difference between the total number of fully diluted shares immediately following the Merger and the total number of fully diluted shares immediately prior to the Merger. No fractional shares of the Company’s common stock were issued in connection with the Merger, and any fractional share was rounded to the nearest whole share. The Merger Agreement specified the procedure for determining the pre-Merger values of Sartini Gaming and the Company. The final pre-Merger values of the Company and Sartini Gaming were determined and approved during the fourth quarter of 2015, pursuant to the post-closing adjustment provisions of the Merger Agreement. The total number of shares of the Company’s common stock issued in connection with the Merger was as follows:
Pre-Merger Value of Lakes |  |  | Lakes % |  |  | Pre-Merger Value of Sartini Gaming |  |  | Sartini Gaming % |  |  | Total Post-Closing Shares(1) |  |  | Total Shares Issued in Connection with Merger(2) |
$ | 134,615,083 |  |  | 62.6% |  |  | $ | 80,523,753 |  |  | 37.4% |  |  |  | 22,592,260 |  |  |  | 8,453,565 |
(1) | Calculated as the sum of the number of shares of the Company’s common stock outstanding immediately after the Merger (on a fully diluted basis, including shares issuable upon the exercise of outstanding in-the-money stock options) and the number of shares of the Company’s common stock issued pursuant to the post-closing adjustment provisions of the Merger Agreement.
(2) | Includes 457,172 shares of the Company’s common stock that were issued to certain former holders of warrants issued by a subsidiary of Sartini Gaming upon the closing of the Merger.
Merger Accounting The Merger has been accounted for under the purchase method of accounting in accordance with ASC 805. Under the purchase method, the total purchase price, or consideration transferred, was measured at the Merger closing date. The purchase price of the acquisition was 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 estimated fair values was recorded as goodwill. The goodwill recognized in the Merger was primarily attributable to potential expansion and future development of, and anticipated synergies from, the tavern brands and the acquired distributed gaming and casino businesses, while enhancing the Company’s existing brand and casino portfolio. None of the goodwill recognized is expected to be deductible for income tax purposes. The Company allocated the goodwill to each reporting unit at the conclusion of the measurement period. Measurement Period Adjustments The final pre-Merger values of the Company and Sartini Gaming were determined and approved during the fourth quarter of 2015, pursuant to the post-closing adjustment provisions of the Merger Agreement. As a result of this post-closing adjustment calculation, the number of shares issued in connection with the Merger was increased by an additional 223,657 shares, and the 388,637 shares of the Company's common stock held in escrow as security for the post-closing adjustment were released to the Sartini Trust. The effect of the issuance of these additional shares on the purchase price consideration calculation was an increase of $2.1 million to $77.4 million. This amount is the product of the 8,453,565 total shares of the Company’s common stock issued in connection with the Merger on July 31, 2015 and issued pursuant to the post-closing “true-up” adjustment and the $9.15 per share closing price of the Company's common stock on July 31, 2015. The Company accounted for the issuance of the additional 223,657 shares, and the adjustment of the purchase price consideration, during the fourth quarter of 2015 when the additional shares were issued. The measurement period for the Merger ended on July 31, 2016. In addition to the issuance of the additional shares pursuant to the post-closing adjustment calculation mentioned above, during the measurement period, the Company:
| • | recorded a deferred tax liability totaling $14.7 million due to the assumption of a net deferred tax liability generated from intangible assets acquired in the Merger, with a corresponding increase to goodwill by the same amount;
| • | recorded an adjustment to increase goodwill by $1.6 million, decreasing accounts receivable by the same amount, due to the determination that receivables acquired as part of the Merger were deemed to be uncollectible as of the Merger date;
| • | further analyzed the trade names acquired as part of the Merger, which were originally given 10 year useful lives, and concluded that the trade names are indefinite-lived. An adjustment to reverse $0.2 million of amortization for the trade names in the third quarter of 2015 was recorded during the fourth quarter of 2015;
| • | determined that the preliminary estimated useful lives of certain tangible acquired assets were not consistent with the useful lives used by other market participants. The useful lives determined during the measurement period were updated to reflect the Company’s determination and are reflected in the property and equipment by category table below;
| • | identified an acquired prepaid asset (recorded in other current assets previously) that was reclassified to a gaming license that represents the Company’s ability and right to operate in its current capacity in Montana. Management has valued the gaming license using estimates for explicit and implicit costs to obtain the gaming license and has determined the license has an indefinite life;
| • | recorded an adjustment to increase goodwill by less than $0.1 million, increasing accrued taxes by the same amount, due to a tax liability resulting from a prior year assumed as part of the Merger;
| • | recorded an adjustment to increase goodwill by $0.3 million, decreasing player relationships at the Company’s Gold Town Casino by the same amount, due to an increase in the discount rate used in the valuation upon further review. This adjustment triggered a release of $0.1 million of the previously recorded deferred tax liability, with a corresponding decrease to goodwill by the same amount; and
| • | identified $0.9 million worth of equipment that was disposed of prior to the Merger but recorded in the opening balance. As such, the Company recorded an increase to goodwill for the amount of equipment written off.
Allocation The final allocation of the $77.4 million purchase price to the assets acquired and liabilities assumed as of July 31, 2015 was as follows:
(In thousands) |  | Amount |
Cash |  | $ | 25,539 |
Other current assets |  |  | 14,830 |
Property and equipment |  |  | 83,173 |
Intangible assets |  |  | 80,460 |
Goodwill |  |  | 97,462 |
Current liabilities |  |  | (13,245 | )
Warrant liability |  |  | (3,435 | )
Debt |  |  | (190,587 | )
Deferred tax liability |  |  | (14,576 | )
Other long-term liabilities |  |  | (2,217 | )
Total purchase price |  | $ | 77,404 |
The amounts assigned to property and equipment by category are summarized in the table below:
|  | Remaining |  | Amount Assigned |
|  | Useful Life (Years) |  | (In thousands) |
Land |  | Not applicable |  | $ | 12,470 |
Land improvements |  | 5-14 |  |  | 4,030 |
Building and improvements |  | 19-25 |  |  | 21,310 |
Leasehold improvements |  | 1-28 |  |  | 20,793 |
Furniture, fixtures and equipment |  | 1-11 |  |  | 21,935 |
Construction in process |  | Not applicable |  |  | 2,635 |
Total property and equipment |  |  |  | $ | 83,173 |
The amounts assigned to intangible assets by category as of July 31, 2015 are summarized in the table below:
|  | Remaining |  | Amount Assigned |
|  | Useful Life (Years) |  | (In thousands) |
Trade names |  | Indefinite |  | $ | 12,200 |
Player relationships |  | 8-14 |  |  | 7,300 |
Customer relationships |  | 13-16 |  |  | 59,200 |
Gaming licenses |  | Indefinite |  |  | 960 |
Other intangible assets |  | 2-10 |  |  | 800 |
Total intangible assets |  |  |  | $ | 80,460 |
See Note 12, Financial Instruments and Fair Value Measurements, for further discussion regarding the valuation of the tangible and intangible assets acquired through the Merger. Refinancing In connection with the Merger, the Company entered into the Former Credit Facility to refinance the outstanding senior secured indebtedness of Sartini Gaming and the Company’s then-existing financing facility with Centennial Bank. Jamul Note and Distribution to Shareholders On December 9, 2015, the Company sold its $60.0 million subordinated promissory note (“Jamul Note”) from the Jamul Indian Village (“Jamul Tribe”) to a subsidiary of Penn National Gaming, Inc. for $24.0 million in cash. Under the terms of the Merger Agreement with Sartini Gaming and subject to applicable law, the Company agreed that the proceeds received from the sale of the Jamul Note, net of related costs, would be distributed in a cash dividend to its shareholders holding shares as of the record date for such dividend (other than shareholders that had waived their right to receive such dividend in connection with the Merger). Under the terms of the Merger Agreement, Sartini Gaming’s former sole shareholder, for itself and any related party transferees of its shares, waived their right to receive such dividend with respect to their shares (which totaled 7,996,393 shares in the aggregate). Also in connection with the Merger, holders of an additional 457,172 shares waived their right to receive such dividend. On June 17, 2016, the Board of Directors of the Company approved and declared the special dividend to the eligible shareholders of record on the close of business on June 30, 2016 (the “Record Date”) of cash in the aggregate amount of approximately $23.5 million (the “Special Dividend”), which was paid on July 14, 2016. The $1.71 per share amount of the Special Dividend was calculated by dividing the aggregate amount of the Special Dividend by 13,759,374 outstanding shares of common stock held by eligible shareholders on the close of business on the Record Date (rounded down to the nearest whole cent per share).

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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