Gaming Equipment, Vehicles and Other Equipment

6 Months Ended

Jun. 30, 2014

Property, Plant and Equipment [Abstract]

Gaming Equipment, Vehicles and Other Equipment

GAMING EQUIPMENT, VEHICLES AND OTHER EQUIPMENT

Gaming equipment, vehicles and other equipment consist of the following (in thousands):

	June 30, 2014			December 31, 2013
Gaming equipment	$	48,468		$	44,212
Vehicles and other equipment	6,268			5,770
Less: Accumulated depreciation	(8,405		)	(477		)
Total gaming equipment, vehicles and other equipment, net	$	46,331		$	49,505

The above amounts, as of June 30, 2014 and December 31, 2013, include net fair value adjustments recorded as part of purchase accounting that increased the aggregate carrying value of property and equipment as of the Closing Date (see Note 3).

Gaming equipment, vehicles and other equipment are depreciated over the respective useful lives of the assets ranging from three to seven years. Depreciation expense was $3.9 million and $4.2 million for the three months ended June 30, 2014 and 2013, respectively. Depreciation expense was $8.2 million and $8.1 million for the six months ended June 30, 2014 and 2013, respectively.

Immaterial Error Correction

The Company determined that costs to install and deliver leased gaming machines were being capitalized and incorrectly depreciated over the useful life of the machine rather than capitalized as initial direct costs and amortized over the term of the lease in accordance with ASC 840-20-35-2. Additionally, the Company determined the gaming machines associated with our gaming equipment leases in Illinois should have been depreciated over 6 years as compared to 5 years given this period represents the estimated term of leases in Illinois and the fact that this represents the useful life in this jurisdiction. Based on the analysis performed, the estimated fair value of gaming equipment, vehicles and other equipment acquired in the Acquisition was overstated by $2.0 million. The Company reduced gaming equipment, vehicles and other equipment by $2.0 million with a corresponding increase to goodwill in the second quarter of 2014. Additionally, for activity subsequent to the Acquisition, the cumulative effect of the analysis performed resulted in a decrease of $2.0 million to gaming equipment, an increase of $0.2 million and $0.4 million to deposits and other and other assets, respectively, and a reduction of $0.3 million in depreciation expense related to the period from the Acquisition date to the second quarter of 2014. We have performed an evaluation to determine if the financial statement impact resulting from these errors in accounting were material, considering both quantitative and qualitative factors. Based on this materiality analysis, we concluded that correcting the cumulative error would be immaterial to the current year financial statements and a correction of the errors, individually and in the aggregate, would not have a material impact to any individual prior post acquisition period financial statements. Accordingly, we have recorded the entire cumulative reduction to depreciation expense of $0.3 million ($0.03 per share) in the consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2014.