Acquisition and Purchase Accounting

3 Months Ended

Mar. 31, 2015

Acquisition and Purchase Accounting

Acquisition and Purchase Accounting

Note 2. Acquisition and Purchase Accounting

        The Merger has been accounted for as a reverse acquisition of MTR Gaming by HoldCo under which HoldCo is considered the acquirer for accounting purposes.

Consideration Transferred

        The total consideration paid was $103.0 million. The purchase consideration in a reverse acquisition was determined with reference to the value of equity the accounting acquirer, HoldCo, would have had to issue to the owners of the accounting acquiree, MTR Gaming, to give them the same percentage interest in the combined entity. However, in a reverse acquisition between a public company as the legal acquirer and a private company as the accounting acquirer, the fair value of the legal acquirer's publicly traded stock generally was a more reliable determination of the fair value of the purchase consideration than the fair value of the accounting acquirer's untraded equity security, and, as such, was used in calculating the purchase consideration. Accordingly, the following table provides the calculation of the purchase price using the fair value of the outstanding common stock of MTR Gaming based on the closing stock price of $4.43 on the Merger Date, as well as a reconciliation of the total shares outstanding on the Merger Date.

ERI Outstanding Share Calculation:
Shares issued to HoldCo(1)		23,286,202
Number of MTR Gaming shares outstanding on the Merger Date(2)		28,386,084
MTR Gaming RSUs that vested upon closing of the Merger(3)		499,179
Total ERI shares outstanding—before share repurchase		52,171,465
MTR Gaming shares acquired at $6.05 per share based on $35.0 million cash election(4)		(5,785,123	)
Total ERI shares outstanding at Merger Date(5)		46,386,342
Resorts % ownership		50.20	%
MTR Gaming % ownership		49.80	%
Consideration Transferred (dollars in thousands, except stock price)
Number of MTR Gaming shares outstanding at the Merger Date		28,386,084
MTR Gaming RSUs that vested upon closing of the Merger		499,179
MTR Gaming shares acquired at $6.05 per share based on $35.0 million cash election		(5,785,123	)
Total net MTR Gaming shares		23,100,140
FMV of MTR Gaming common stock at Merger Date	$	4.43
Fair value of MTR Gaming shares	$	102,334
Fair value of MTR Gaming stock options(3)		677
Total consideration transferred	$	103,011

(1)	The number of shares issued to members of HoldCo in the Mergers as merger consideration was determined pursuant to the terms of the Merger Agreement. The shares have been adjusted based upon the final review, as defined in the Merger Agreement. As a result, 25,290 escrow shares previously issued were returned to authorized and unissued prior to December 31, 2014.
(2)	Number of shares of MTR Gaming common stock issued and outstanding immediately prior to closing.
(3)	Pursuant to the MTR Gaming 2010 Long-Term Incentive Plan, immediately prior to closing, all outstanding stock options and MTR Gaming RSUs vested and became immediately exercisable. All vested MTR Gaming RSUs were exchanged for one share of ERI common stock. All outstanding stock options became exercisable for shares of ERI common stock with the same terms as the previous awards.
(4)	Total cash election includes $30.0 million paid by MTR Gaming and $5.0 million paid by HoldCo on the Merger Date.
(5)	The number of shares issued and outstanding, after settlement of the escrow shares, as determined pursuant to the terms of the Merger Agreement.

Final Purchase Price Allocation

        The following table summarizes the fair values of the assets acquired and liabilities assumed at the Merger Date. The fair values were based on management's analysis, including work performed by third-party valuation specialists. The following table summarizes the final purchase price allocation of the acquired assets and assumed liabilities as recorded at fair value on the Merger Date (dollars in thousands):

Current and other assets	$	75,031
Property and equipment		289,211
Goodwill		66,826
Intangible assets(1)		473,000
Other noncurrent assets		20,381
Total assets		924,449
Current liabilities		46,446
Long-term debt(2)		624,877
Deferred income taxes(3)		143,104
Other noncurrent liabilities		7,011
Total liabilities assumed		821,438
Net assets acquired	$	103,011

(1)	Intangible assets consist of gaming licenses, trade names and customer loyalty programs.
(2)	Long-term debt was comprised of MTR Second Lien Notes totaling $570.7 million.
(3)	Deferred tax liabilities were derived based on fair value adjustments for property and equipment, identified intangibles, deferred financing costs, certain long term liabilities and long-term debt.

        Goodwill, the excess of the purchase price of acquiring MTR Gaming over the fair market value of the net assets acquired, in the amount of $66.8 million, was recorded as of the Merger Date. The Company considers the goodwill to represent benefits expected to be realized as a result of the Merger.

Pro Forma Information

        The following table includes the pro forma results for the three months ended March 31, 2014 which gives effect to the Merger as if it had occurred on January 1, 2013 and reflect proforma adjustments that are expected to have a continuing impact on the results of operations of the Company and are directly attributable to the Merger (amounts in thousands, except per share data):

	Three Months Ended March 31, 2014 (unaudited)
Net revenues	$	171,858
Net loss		(3,127	)
Net loss per common share:
Basic and diluted	$	(0.07	)
Weighted shares outstanding:
Basic and diluted		46,386,342

        These pro forma results do not necessarily represent the results of operations that would have been achieved if the Merger had taken place on January 1, 2013, nor are they indicative of the results of operations for future periods. The pro forma amounts include the historical operating results of the Company and MTR Gaming prior to the acquisition, with adjustments directly attributable to the Merger.