10-Q 1 a13-8686_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2013

 

OR

 

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                 to                 

 

 

Commission File Number 001-31558

 

BALLY TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

NEVADA

 

88-0104066

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

6601 S. Bermuda Rd.

Las Vegas, Nevada  89119

(Address of principal executive offices)

 

(702) 584-7700

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x Yes  o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x Yes  o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer x

 

Accelerated Filer o

 

 

 

Non-Accelerated Filer o

 

Smaller Reporting Company o

(do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes  x No

 

The number of shares of Common Stock, $0.10 par value, outstanding as of May 1, 2013, was 38,626,000 which do not include 26,445,000 shares held in treasury.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

 

Page

PART I.

FINANCIAL INFORMATION

3

 

 

 

Item 1.

Financial Statements (Unaudited)

3

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2013 and June 30, 2012

3

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2013 and 2012

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended March 31, 2013 and 2012

5

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended March 31, 2013 and 2012

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2013 and 2012

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements

9

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

 

 

 

Item 4.

Controls and Procedures

35

 

 

 

PART II.

OTHER INFORMATION

36

 

 

 

Item 1.

Legal Proceedings

36

 

 

 

Item 1A.

Risk Factors

36

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

 

 

 

Item 6.

Exhibits

36

 

 

 

SIGNATURES

37

 

2



Table of Contents

 

PART I

 

ITEM 1.                       FINANCIAL STATEMENTS

 

BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

March 31,
2013

 

June 30,
2012

 

 

 

(in 000s, except share amounts)

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

49,291

 

$

32,673

 

Restricted cash

 

14,474

 

13,645

 

Accounts and notes receivable, net of allowances for doubtful accounts of $14,183 and $14,073

 

260,877

 

264,842

 

Inventories

 

65,747

 

75,066

 

Prepaid and refundable income tax

 

25,256

 

13,755

 

Deferred income tax assets

 

39,485

 

42,822

 

Deferred cost of revenue

 

21,967

 

17,615

 

Prepaid assets

 

16,380

 

13,061

 

Other current assets

 

4,136

 

6,980

 

Total current assets

 

497,613

 

480,459

 

Restricted long-term investments

 

11,292

 

12,171

 

Long-term accounts and notes receivables, net of allowances for doubtful accounts of $3,667 and $3,029

 

44,094

 

55,786

 

Property, plant and equipment, net of accumulated depreciation of $59,635 and $58,823

 

33,195

 

30,667

 

Leased gaming equipment, net of accumulated depreciation of $207,002 and $185,846

 

119,147

 

121,151

 

Goodwill

 

172,068

 

171,971

 

Intangible assets, net

 

31,394

 

39,166

 

Deferred income tax assets

 

8,255

 

7,409

 

Income tax receivable

 

12,041

 

12,041

 

Deferred cost of revenue

 

12,299

 

16,542

 

Other assets, net

 

23,582

 

23,104

 

Total assets

 

$

964,980

 

$

970,467

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

29,025

 

$

41,414

 

Accrued and other liabilities

 

92,421

 

85,310

 

Jackpot liabilities

 

10,086

 

11,682

 

Deferred revenue

 

59,096

 

46,314

 

Income tax payable

 

3,505

 

12,226

 

Current maturities of long-term debt

 

22,747

 

17,091

 

Total current liabilities

 

216,880

 

214,037

 

Long-term debt, net of current maturities

 

467,500

 

494,375

 

Deferred revenue

 

21,066

 

26,715

 

Other income tax liability

 

17,445

 

13,922

 

Other liabilities

 

20,002

 

23,943

 

Total liabilities

 

742,893

 

772,992

 

Commitments and contingencies (Note 9)

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Special stock, 10,000,000 shares authorized: Series E, $100 liquidation value; 115 shares issued and outstanding

 

12

 

12

 

Common stock, $.10 par value; 100,000,000 shares authorized; 64,931,000 and 63,150,000 shares issued and 40,992,000 and 42,102,000 outstanding

 

6,487

 

6,309

 

Treasury stock at cost, 23,939,000 and 21,048,000 shares

 

(922,338

)

(790,633

)

Additional paid-in capital

 

541,097

 

489,002

 

Accumulated other comprehensive loss

 

(11,834

)

(13,477

)

Retained earnings

 

609,002

 

504,895

 

Total Bally Technologies, Inc. stockholders’ equity

 

222,426

 

196,108

 

Noncontrolling interests

 

(339

)

1,367

 

Total stockholders’ equity

 

222,087

 

197,475

 

Total liabilities and stockholders’ equity

 

$

964,980

 

$

970,467

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

3



Table of Contents

 

BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(in 000s, except per share amounts)

 

Revenues:

 

 

 

 

 

 

 

 

 

Gaming equipment and systems

 

$

157,102

 

$

136,032

 

$

430,436

 

$

370,262

 

Gaming operations

 

102,045

 

92,508

 

302,201

 

263,702

 

 

 

259,147

 

228,540

 

732,637

 

633,964

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of gaming equipment and systems (1)

 

61,419

 

59,046

 

168,978

 

160,220

 

Cost of gaming operations

 

29,992

 

25,017

 

90,320

 

73,107

 

Selling, general and administrative

 

72,218

 

63,764

 

204,586

 

182,290

 

Research and development costs

 

29,098

 

24,838

 

80,792

 

70,601

 

Depreciation and amortization

 

5,755

 

5,648

 

17,046

 

17,089

 

 

 

198,482

 

178,313

 

561,722

 

503,307

 

Operating income

 

60,665

 

50,227

 

170,915

 

130,657

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

1,191

 

1,225

 

3,738

 

3,695

 

Interest expense

 

(4,389

)

(4,150

)

(13,544

)

(13,232

)

Other, net

 

(1,534

)

325

 

(3,336

)

(2,259

)

Income from operations before income taxes

 

55,933

 

47,627

 

157,773

 

118,861

 

Income tax expense

 

(17,527

)

(17,713

)

(55,345

)

(44,254

)

Net income

 

38,406

 

29,914

 

102,428

 

74,607

 

Less net loss attributable to noncontrolling interests

 

(43

)

(53

)

(1,679

)

(20

)

Net income attributable to Bally Technologies, Inc.

 

$

38,449

 

$

29,967

 

$

104,107

 

$

74,627

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted earnings per share attributable to Bally Technologies, Inc.:

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.95

 

$

0.70

 

$

2.56

 

$

1.73

 

Diluted earnings per share

 

$

0.93

 

$

0.67

 

$

2.50

 

$

1.65

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

40,483

 

43,087

 

40,594

 

43,229

 

Diluted

 

41,199

 

45,052

 

41,614

 

45,138

 

 


(1)         Cost of gaming equipment and systems exclude amortization related to certain intangibles, including core technology and license rights, which are included in depreciation and amortization.

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4



Table of Contents

 

BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(in 000s)

 

Net Income

 

$

38,406

 

$

29,914

 

$

102,428

 

$

74,607

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment before income taxes

 

(522

)

648

 

370

 

(2,536

)

Income tax expense

 

 

 

 

 

Foreign currency translation adjustment

 

(522

)

648

 

370

 

(2,536

)

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on derivative financial instruments before income taxes

 

1,196

 

124

 

1,959

 

(8,211

)

Income tax expense (benefit)

 

(419

)

(43

)

(686

)

2,874

 

Unrealized gain (loss) on derivative financial instruments

 

777

 

81

 

1,273

 

(5,337

)

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss), net of income taxes

 

255

 

729

 

1,643

 

(7,873

)

Comprehensive income

 

38,661

 

30,643

 

104,071

 

66,734

 

 

 

 

 

 

 

 

 

 

 

Less: comprehensive loss attributable to noncontrolling interests

 

(43

)

(53

)

(1,679

)

(20

)

Comprehensive income attributable to Bally Technologies, Inc.

 

$

38,704

 

$

30,696

 

$

105,750

 

$

66,754

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5



Table of Contents

 

BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED MARCH 31, 2013 AND 2012

 

 

 

Common Stock

 

Series E
Special

 

Treasury

 

Additional
Paid-In

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Retained

 

Noncontrolling

 

Total
Stockholders’

 

 

 

Shares

 

Dollars

 

Stock

 

Stock

 

Capital

 

(“OCI”)

 

Earnings

 

Interests

 

Equity

 

 

 

(in 000s)

 

Balances at June 30, 2011

 

61,541

 

$

6,149

 

$

12

 

$

(634,268

)

$

442,713

 

$

(3,064

)

$

401,363

 

$

1,687

 

$

214,592

 

Net income

 

 

 

 

 

 

 

74,627

 

(20

)

74,607

 

Foreign currency translation adjustment

 

 

 

 

 

 

(2,536

)

 

 

(2,536

)

Unrealized loss on derivative financial instruments, net of tax

 

 

 

 

 

 

(5,337

)

 

 

(5,337

)

Total comprehensive income

 

 

 

 

 

 

 

 

 

$

66,734

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

(138

)

(138

)

Cumulative effect of adoption of ASU 2010-16

 

 

 

 

 

 

 

2,384

 

 

2,384

 

Issuance and receipt of restricted stock, ESPP shares, stock options and related tax and tax benefit

 

1,158

 

114

 

 

(1,157

)

23,648

 

 

 

 

22,605

 

Purchase of common stock for treasury

 

 

 

 

(81,608

)

 

 

 

 

(81,608

)

Share-based compensation

 

 

 

 

 

10,986

 

 

 

 

10,986

 

Balances at March 31, 2012.

 

62,699

 

$

6,263

 

$

12

 

$

(717,033

)

$

477,347

 

$

(10,937

)

$

478,374

 

$

1,529

 

$

235,555

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at June 30, 2012

 

63,150

 

$

6,309

 

$

12

 

$

(790,633

)

$

489,002

 

$

(13,477

)

$

504,895

 

$

1,367

 

$

197,475

 

Net income (loss)

 

 

 

 

 

 

 

104,107

 

(1,679

)

102,428

 

Foreign currency translation adjustment

 

 

 

 

 

 

370

 

 

 

370

 

Unrealized loss on derivative financial instruments, net of tax

 

 

 

 

 

 

1,273

 

 

 

1,273

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

$

104,071

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

(27

)

(27

)

Issuance and receipt of restricted stock, ESPP shares, stock options and related tax and tax benefit

 

1,781

 

178

 

 

(9,099

)

42,419

 

 

 

 

33,498

 

Purchase of common stock for treasury

 

 

 

 

(122,606

)

 

 

 

 

(122,606

)

Share-based compensation

 

 

 

 

 

9,676

 

 

 

 

9,676

 

Balances at March 31, 2013

 

64,931

 

$

6,487

 

$

12

 

$

(922,338

)

$

541,097

 

$

(11,834

)

$

609,002

 

$

(339

)

$

222,087

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

6



Table of Contents

 

BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Nine Months Ended
March 31,

 

 

 

2013

 

2012

 

 

 

(in 000s)

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

102,428

 

$

74,607

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

66,006

 

61,325

 

Share-based compensation

 

9,676

 

10,986

 

Amortization of deferred debt issuance costs

 

1,319

 

1,351

 

Income tax expense

 

5,304

 

2,452

 

Provision for doubtful accounts

 

9,103

 

8,262

 

Inventory write-downs

 

4,108

 

4,003

 

Excess tax benefit of stock option exercises

 

(15,871

)

(4,589

)

Other

 

1,031

 

1,641

 

Change in operating assets and liabilities:

 

 

 

 

 

Accounts and notes receivable

 

10,654

 

(33,889

)

Inventories

 

(39,026

)

(83,414

)

Prepaid and refundable income tax and income tax payable

 

(4,117

)

22,584

 

Other current assets and other assets

 

(2,811

)

(4,227

)

Accounts payable

 

(12,407

)

(4,657

)

Accrued liabilities and jackpot liabilities

 

(2,772

)

10,686

 

Deferred revenue and deferred cost of revenue

 

6,831

 

8,048

 

Net cash provided by operating activities

 

139,456

 

75,169

 

Cash flows from investing activities:

 

 

 

 

 

Acquisition

 

 

(6,000

)

Capital expenditures

 

(11,003

)

(6,890

)

Restricted cash and investments

 

51

 

(4,013

)

Financing provided to customer

 

(1,228

)

 

Additions to other long-term assets

 

(905

)

(5,288

)

Net cash used in investing activities

 

(13,085

)

(22,191

)

Cash flows from financing activities:

 

 

 

 

 

Proceeds from revolving credit facility

 

55,000

 

10,000

 

Payments on revolving credit facility

 

(65,000

)

(30,000

)

Payments on long-term debt and capital leases

 

(11,305

)

(11,280

)

Distributions to noncontrolling interests

 

(27

)

(138

)

Purchase of treasury stock

 

(131,705

)

(74,976

)

Excess tax benefit of stock option exercises

 

15,871

 

4,589

 

Proceeds from exercise of stock options and employee stock purchases

 

26,475

 

18,875

 

Net cash used in financing activities

 

(110,691

)

(82,930

)

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

938

 

(734

)

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

Increase (decrease) for period

 

16,618

 

(30,686

)

Balance, beginning of period

 

32,673

 

66,425

 

Balance, end of period

 

$

49,291

 

$

35,739

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

7



Table of Contents

 

BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED SUPPLEMENTAL CASH FLOW INFORMATION

 

The following supplemental information is related to the unaudited condensed consolidated statements of cash flows:

 

 

 

Nine Months Ended
March 31,

 

 

 

2013

 

2012

 

 

 

(in 000s)

 

Cash paid for interest

 

$

12,403

 

$

12,945

 

Cash paid for income taxes, net of refunds

 

54,906

 

19,244

 

 

 

 

 

 

 

Non-cash investing and financing transactions:

 

 

 

 

 

Transfer of inventory to leased gaming equipment (1)

 

$

59,998

 

$

80,246

 

Reclassify property, plant and equipment to inventory (1)

 

11,814

 

12,239

 

Accrued purchase of treasury stock

 

 

7,789

 

Liabilities assumed in acquisition

 

 

2,830

 

 


(1)                                 As a result of the inability to separately identify the cash flows associated with the construction of leased gaming equipment, the Company has included all additions to leased gaming equipment as an increase in inventory under cash used in operating activities in the unaudited condensed consolidated statement of cash flows. In addition, cash generated from the sale of used gaming equipment classified as leased gaming equipment is also included in cash provided by operating activities in the unaudited condensed consolidated statement of cash flows. The Company has one process to procure raw materials for the assembly of both inventory and leased gaming equipment. The materials requisition planning process considers the number of devices the Company expects to build for sale and for use in its gaming operations during a particular period, but it does not separately earmark purchases for leased gaming equipment. Without such an earmarking process, the Company is unable to determine whether the parts used to construct leased gaming equipment during a particular period came from inventory on hand at the beginning of the period or was constructed from inventory procured during the period of deployment, thus requiring the expenditure of cash.

 

8



 

BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.                                      DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Bally Technologies, Inc. (“Bally” or the “Company”), a Nevada corporation, is a diversified global gaming company that designs, manufactures, operates and distributes advanced technology-based gaming devices, systems, server-based solutions, custom mobile applications, and interactive applications. The Company’s innovations and technology solutions allow its customers to more effectively manage their operations using our wide range of marketing, data management and analysis, accounting, player tracking, security and other software applications and tools. The Company also provides hardware, including spinning-reel and video gaming devices, specialty gaming devices, and wide-area progressive systems. Under its business-to-business model, the Company supports customers that include traditional land-based, riverboat, and Native American casinos, video lottery and central determination markets.

 

Principles of presentation and consolidation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Bally Technologies, Inc., and its wholly owned and partially owned subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), include all adjustments necessary to fairly present the Company’s consolidated financial position, results of operations and cash flows for each period presented. All adjustments are of a normal, recurring nature. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations. The results of operations for an interim period are not necessarily indicative of the results that may be expected for any other interim period or the year as a whole. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012. References to specific U.S. GAAP within this report cite topics within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

 

All intercompany accounts and transactions have been eliminated in consolidation.

 

Use of estimates

 

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Fair value of financial instruments

 

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.

 

All financial assets and liabilities are recognized or disclosed at fair value using a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There are three levels of inputs that may be used to measure fair value:

 

·                  Level 1:                            quoted prices in active markets for identical assets or liabilities;

 

·                  Level 2:                            inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

 

·                  Level 3:  unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

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The carrying amounts reflected in the accompanying unaudited condensed consolidated balance sheets for cash equivalents, accounts and notes receivable, investment securities to fund jackpot liabilities, accounts payable, jackpot liabilities and long-term debt approximate their respective fair values. Cash equivalents and investment securities to fund jackpot liabilities have Level 1 inputs with values based on quoted market prices. Accounts and notes receivable and jackpot liabilities have Level 3 inputs and were valued using Discounted Cash Flows (“DCF”) incorporating expected future payment timing and current borrowing rates. Long-term debt has Level 2 inputs and was valued using DCF incorporating expected future payment timing and current borrowing rates.

 

The Company transacts business in various foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency risk. The Company may enter into foreign currency forward contracts, generally with maturities of twelve months or less, to hedge recognized foreign currency assets and liabilities to reduce the risk that earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. The gains or losses resulting from changes in the fair value of these forward contracts, which are not designated as accounting hedges, are reported in other income (expense) in the unaudited condensed consolidated statements of operations, and generally offset the gains and losses associated with the underlying foreign-currency-denominated balances, which are also reported in other income (expense). As of March 31, 2013 and June 30, 2012, euro forward contracts for a total of $38.8 million and $38.0 million, respectively, or the equivalent of €30.0 million and €30.0 million, respectively, were outstanding. In addition, as of March 31, 2013, a pound sterling forward contract for $2.3 million, or the equivalent of £1.5 million, was outstanding.

 

The Company may use interest rate derivatives to manage the interest expense generated by variable rate debt and foreign currency derivatives to manage foreign exchange risk. The Company’s derivative financial instruments are measured at fair value on a recurring basis, and the balances were as follows:

 

 

 

Fair Value Measurements
Using Input Type

 

 

 

Level 1

 

Level 2

 

Level 3

 

 

 

(in 000s)

 

As of March 31, 2013:

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Other assets, net:

 

 

 

 

 

 

 

Foreign currency derivative financial instrument

 

$

 

 

$

789

 

$

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Accrued and other liabilities:

 

 

 

 

 

 

 

Foreign currency derivative financial instruments

 

$

 

$

451

 

$

 

Interest rate derivative financial instrument

 

$

 

$

4,816

 

$

 

Other liabilities:

 

 

 

 

 

 

 

Interest rate derivative financial instrument

 

$

 

$

7,057

 

$

 

 

 

 

 

 

 

 

 

As of June 30, 2012:

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Other assets, net:

 

 

 

 

 

 

 

Foreign currency derivative financial instrument

 

$

 

$

2,850

 

$

 

Liabilities:

 

 

 

 

 

 

 

Accrued and other liabilities:

 

 

 

 

 

 

 

Foreign currency derivative financial instrument

 

$

 

$

115

 

$

 

Interest rate derivative financial instruments

 

$

 

$

4,804

 

$

 

Other liabilities:

 

 

 

 

 

 

 

Interest rate derivative financial instrument

 

$

 

$

9,028

 

$

 

 

The valuation techniques used to measure the fair value of the derivative financial instrument above in which the counterparties have high credit ratings, were derived from pricing models, such as discounted cash flow techniques, with all significant inputs derived from or corroborated by observable market data. The Company’s discounted cash flow techniques use observable market inputs, such as LIBOR-based yield curves and foreign currency forward rates. See Note 5 to the unaudited condensed consolidated financial statements, Long-Term Debt.

 

Accounting for Derivative Instruments and Hedging Activity

 

The Company assesses, both at the inception of each designated hedge and on an on-going basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. Such highly effective derivatives are granted hedge accounting treatment. The interest rate derivative instruments meet these requirements and are accounted for as cash flow hedges.

 

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The impact of the cash flow hedge and non-designated foreign currency derivatives on the unaudited condensed consolidated financial statements is depicted below:

 

Cash Flow Hedging Relationship

 

Amount of Gain
(Loss)
Recognized in
OCI on
Derivative

(Effective
Portion)

 

Location of Gain
(Loss)
Reclassified from

Accumulated
OCI into Income

(Effective
Portion)

 

Amount of Gain
(Loss)
Reclassified from

Accumulated
OCI into Income
(Effective

Portion)

 

Location of Gain
(Loss) Recognized
in Income on
Derivative
(Ineffective
Portion)

 

Amount of Gain
(Loss) Recognized
in Income on
Derivative
(Ineffective
Portion)

 

 

 

(in 000s)

 

For the three months ended March 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements

 

$

(91

)

Interest expense

 

$

(1,287

)

Interest expense

 

$

 

For the three months ended March 31, 2012:

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreement

 

$

(1,064

)

Interest expense

 

$

(1,188

)

Interest expense

 

$

 

 

Cash Flow Hedging Relationship

 

Amount of Gain
(Loss)
Recognized in
OCI on
Derivative

(Effective
Portion)

 

Location of Gain
(Loss)
Reclassified from

Accumulated
OCI into Income

(Effective
Portion)

 

Amount of Gain
(Loss)
Reclassified from

Accumulated
OCI into Income
(Effective

Portion)

 

Location of Gain
(Loss) Recognized
in Income on
Derivative
(Ineffective
Portion)

 

Amount of Gain
(Loss) Recognized
in Income on
Derivative
(Ineffective
Portion)

 

 

 

(in 000s)

 

For the nine months ended March 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements

 

$

(1,889

)

Interest expense

 

$

(3,848

)

Interest expense

 

$

(9

)

For the nine months ended March 31, 2012:

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreement

 

$

(12,025

)

Interest expense

 

$

(3,813

)

Interest expense

 

$

 

 

 

 

Amount of Gain (Loss) Recognized
in Other Income (Expense)

 

 

 

Three Months
Ended

 

Three Months
Ended

 

Nine Months
Ended

 

Nine Months
Ended

 

Non-Designated Derivative

 

March 31,
2013

 

March 31,
2012

 

March 31,
2013

 

March 31,
2012

 

 

 

(in 000s)

 

Foreign Currency Forward Contracts

 

$

1,402

 

$

(1,105

)

$

(494

)

$

1,945

 

 

Inventories

 

Inventories are stated at the lower of cost, determined on a first in, first out basis, or market. Cost elements included in work-in-process and finished goods include raw materials, direct labor and manufacturing overhead. Inventories consist of the following:

 

 

 

March 31,
2013

 

June 30,
2012

 

 

 

(in 000s)

 

Raw materials

 

$

44,052

 

$

50,498

 

Work-in-process

 

2,021

 

1,713

 

Finished goods

 

19,674

 

22,855

 

Total

 

$

65,747

 

$

75,066

 

 

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Table of Contents

 

Revenue recognition

 

The Company’s revenue recognition policy is to record revenue when all of the following criteria have been satisfied:

 

·                  Persuasive evidence of an arrangement exists;

 

·                  The price or fee to the customer is fixed or determinable;

 

·                  Collectability is reasonably assured;

 

·                  Delivery has occurred; and

 

·                  No significant contractual obligations remain.

 

Revenues are reported net of incentive rebates, discounts, sales taxes, and all other items of a similar nature. For products sold under arrangements with extended payment terms the probability of collection is evaluated based on a review of the customer’s credit worthiness and a review of historic collection experience on contracts with extended payment terms. As a result of such review, the Company recognizes revenue on extended payment term arrangements as the Company has determined that collectability is reasonably assured and the fee is considered fixed and determinable.

 

Games placed with customers on a trial basis are recorded as revenue once the trial period has ended, the customer has accepted the games, and all other revenue recognition criteria have been satisfied. Amounts billed to customers prior to completing the earnings process are deferred until the revenue recognition criteria are satisfied.

 

Gaming Operations Revenue.  Gaming operations revenue consists of the operation of linked progressive systems and the rental of gaming devices, game content and the related systems placed with customers. Fees under these arrangements are earned and recognized based on a share of money wagered, a share of the net winnings, or on a fixed daily rate. The daily fee entitles the customer to full use of the gaming device and includes maintenance, licensing of the game content software and connection to a linked progressive system, where applicable. In certain markets, the Company also charges a daily system connection fee for the customer to connect to a central determination system and/or back-office system. The Company does not consider these arrangements to have multiple revenue-generating activities as the services offered are a comprehensive solution in exchange for a daily fee and all of the products and services are delivered simultaneously. Gaming operations revenue is recognized under general revenue recognition guidance as the deliverables provide the customer with rights to use tangible gaming devices and software that is essential to the functionality of the gaming devices.

 

Gaming Equipment Revenue.  Gaming Equipment revenue is generated from the sale of gaming devices and licensing rights to game content software that is installed in the gaming device, parts, and other ancillary equipment. Arrangements may also include sales of game content conversion kits which enable customers to replace game content without purchasing a new gaming device. Gaming equipment arrangements do not include maintenance and product support fees beyond a standard warranty period. The recognition of revenue from the sale of gaming devices occurs as title and risk of loss have passed to the customer and all other revenue recognition criteria have been satisfied.

 

As the combination of game content software and the tangible gaming device function together to deliver the product’s essential functionality, revenue from the sale of gaming devices is recognized under general revenue recognition guidance. Game content conversion kits are considered software deliverables and are recognized in accordance with software revenue recognition guidance.

 

Systems Revenue.  Systems revenue arrangements generally include a combination of systems software licenses, systems-based hardware products, maintenance and product support fees and professional services. The primary function of systems software licensed by the Company is to aid customers to more effectively run their business with marketing, data management and analysis, accounting, player tracking and security features.

 

Revenue for systems software and maintenance and product support fees is recognized under software revenue recognition guidance. Although the systems software and certain systems-based hardware function together, the primary functionality of the systems software is derived from the software and the systems software is not essential to the functionality of the systems-based hardware.

 

The Company licenses systems software on a perpetual basis or under time-based licenses. Revenue from perpetual license software is recognized at the inception of the license term provided all revenue recognition criteria have been satisfied. Revenue from maintenance and product support fees sold with perpetual licenses is recognized over the term of the support period. The Company’s time-based licenses are generally for twelve month terms and are bundled with software maintenance and product support fees. All revenue from such arrangements is recognized over the term of the license.

 

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Table of Contents

 

Systems-based hardware includes embedded software that is essential to the functionality of the hardware. Accordingly, revenue related to all systems-based hardware sales and related maintenance and product support fees are recognized under general revenue recognition guidance. Revenue from the sale of systems-based hardware is generally recognized upon delivery when title and risk of loss have passed to the customer and all other revenue recognition criteria are satisfied. However, in the case of arrangements involving a systems installation, revenue on the systems-based hardware is generally not recognized until the system has been installed and the customer has accepted the system. Hardware maintenance and product support fees are recognized on a straight-line basis over the term of the support period which is generally twelve months.

 

Software maintenance and product support provides customers with rights to unspecified software product upgrades, maintenance and patches released during the term of the support period. The Company’s software maintenance and product support arrangements are generally for twelve month periods. Software maintenance and product support is recognized on a straight-line basis over the term of the support period.

 

Multiple Element Arrangements.  The Company enters into revenue arrangements that may consist of multiple deliverables of its products and services. For example, customers may enter into arrangements with the Company for the implementation of systems software and the sale of gaming devices. Arrangements for the implementation of systems software will generally include a combination of systems software licenses, systems-based hardware products, maintenance and product support fees, and professional services. Certain gaming equipment arrangements may also include the sale of gaming devices and game content conversion kits.

 

Revenue arrangements with multiple deliverables are allocated to separate units of accounting if the deliverables meet both of the following criteria:

 

·                  The delivered items have value to the customer on a stand-alone basis. The items have value on a standalone basis if they are sold separately by any vendor or the customer could resell the delivered items on a standalone basis; and

 

·                  If the arrangement includes a general right of return relative to the delivered items, delivery or performance of the undelivered items is considered probable and substantially in the control of the Company.

 

At the inception of a multiple element arrangement, fees under the arrangement are allocated to the nonsoftware deliverables, and to the software deliverables as a group based on their relative selling price. Software deliverables are further subject to separation and allocation based on software revenue recognition guidance as described in the following paragraph. When applying the relative selling price method, a hierarchy is used for estimating the selling price based first on vendor-specific objective evidence (“VSOE”), then third-party evidence (“TPE”) and finally management’s estimate of the selling price (“ESP”). Revenue for each unit of accounting is recognized when the relevant recognition criteria for each respective element has been met.

 

In allocating arrangement fees under the relative selling price hierarchy, the Company uses VSOE for all products which have been sold on a stand-alone basis. As TPE is generally not available, the Company uses ESP for products that are not sold on a stand-alone basis and for recently introduced products that are sold on a stand-alone basis but for which a history of stand-alone sales has not yet been developed. Following these guidelines, the Company uses either VSOE or ESP for gaming devices, system-based hardware products, maintenance and product support fees associated with perpetual licenses and professional services; and ESP for perpetual and time-based software licenses and maintenance and product support fees associated with time-based licenses.

 

The Company uses the residual method to recognize revenue allocated to software deliverables. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered element and is recognized as revenue. In arrangements in which the Company does not have VSOE of fair value of all undelivered software elements, revenue is deferred until delivery occurs or VSOE of fair value has been established for any remaining undelivered software elements. In the event the only undelivered software element is maintenance and product support for which VSOE of fair value does not exist, the revenue is recognized ratably over the maintenance and product support period.

 

The establishment of VSOE requires judgment as to whether there is a sufficient quantity of items sold on a stand-alone basis and whether the prices demonstrate an appropriate level of concentration to conclude that VSOE exists. In determining ESP, management considers a variety of information including historic pricing and discounting practices, competitive market activity, internal costs, and the pricing and discounting practices of products sold in bundled arrangements.

 

Recently adopted accounting pronouncements

 

On December 31, 2011, the Company chose to early adopt new accounting guidance to make the presentation of items within other comprehensive income (“OCI”) more prominent. The new standard requires companies to present items of net income, items of OCI and total comprehensive income in one continuous statement or two separate consecutive statements, and companies are no longer allowed to present items of OCI only in the statement of stockholders’ equity. The Company chose to present the items in two separate consecutive statements. The new guidance was applied retrospectively.

 

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Effective December 31, 2011, new accounting guidance for testing goodwill impairment permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The Company has not yet utilized this method in its evaluation of goodwill impairment.

 

Effective September 30, 2012, new accounting guidance for testing indefinite-lived intangible assets permits an entity to first access qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. The outcome of the assessment is used as a basis for determining whether it is necessary to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with ASC Topic 350. The Company has not yet utilized this method in its evaluation of indefinite-lived intangible assets impairment.

 

Recently issued accounting pronouncements not yet adopted

 

In December 2011, the FASB issued new accounting guidance for disclosures about offsetting assets and liabilities which requires an entity to disclose information about financial instruments that have been offset and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities will be required to provide both net (offset amounts) and gross information in the notes to the financial statements for relevant assets and liabilities that are offset. The new guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company expects to adopt this guidance in fiscal year 2014 and does not believe it will have a significant impact on its consolidated results of operations, financial condition and cash flows.

 

In February 2013, the FASB issued new accounting guidance to improve the reporting of reclassifications out of accumulated other comprehensive income. Under the guidance, an entity is required to provide information about the amounts reclassified out of accumulated other comprehensive income (“AOCI”) by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. The guidance did not change the requirements for reporting net income or other comprehensive income in the financial statements. The new guidance is effective for annual reporting periods beginning on or after December 15, 2012, and interim periods within those annual periods. The Company expects to adopt this guidance in fiscal year 2014 and does not believe it will have a significant impact on its consolidated results of operations, financial condition and cash flows.

 

The Company believes there is no additional new accounting guidance adopted but not yet effective that is relevant to the readers of our financial statements. However, there are numerous new proposals under development which, if and when enacted, may have a significant impact on its financial reporting.

 

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2.                                      EARNINGS PER SHARE

 

Basic earnings per share are computed by dividing earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share reflect the additional dilution from all potentially dilutive securities.

 

The computation of basic and diluted earnings per share applicable to the Company’s common stock is as follows:

 

 

 

Three Months Ended
March 31,

 

Nine Months Ended
March 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(in 000s, except per share amounts)

 

Net income attributable to Bally Technologies, Inc.

 

$

38,449

 

$

29,967

 

$

104,107

 

$

74,627

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

40,483

 

43,087

 

40,594

 

43,229

 

Dilutive effect of:

 

 

 

 

 

 

 

 

 

Stock options, Restricted Stock Units (“RSU”) and restricted stock

 

716

 

1,965

 

1,020

 

1,909

 

Weighted average diluted shares outstanding

 

41,199

 

45,052

 

41,614

 

45,138

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share attributable to Bally Technologies, Inc.:

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.95

 

$

0.70

 

$

2.56

 

$

1.73

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.93

 

$

0.67

 

$

2.50

 

$

1.65

 

 

Certain securities were excluded from the diluted per share calculation because their inclusion would be anti-dilutive. Such securities consist of the following:

 

 

 

Three Months Ended
March 31,

 

Nine Months Ended
March 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(in 000s)

 

Stock options, RSU and restricted stock

 

76

 

524

 

115

 

713

 

 

3.                                      ACCOUNTS AND NOTES RECEIVABLE

 

Accounts and notes receivable are stated at face value less an allowance for doubtful accounts. The Company generally grants customers credit terms for periods of 30 to 120 days, but may also grant extended payment terms to some customers for periods up to three years, with interest generally at market rates.

 

The Company has one portfolio segment, the casino industry customer, and four classes of receivables including its trade receivables with a contract term less than one year, trade receivables with a contract term greater than one year, sales-type leasing arrangements, and notes receivable, which are related to development financing loans. Trade receivables with contract terms greater than one year relate to the sale of gaming equipment and systems transactions, and are generally collateralized by the related equipment sold, although the value of such equipment, if repossessed, may be less than the receivable balance outstanding. Sales-type leasing arrangements relate to gaming equipment and include options to purchase the equipment at the end of the lease term at established prices. Customers with sales-type leasing arrangements typically have a long-standing credit history with the Company.

 

The Company has also provided development financing to certain customers in the form of notes receivable with repayment terms of three to ten years. These notes may require scheduled quarterly principal reductions and may also include accelerated payment terms based upon a percentage of net-win from gaming devices sold or leased to these customers. Notes receivable as of March 31, 2013, include $15.9 million, net of discounts of $3.3 million, related to development financing loans made to HBG Connex S.P.A. (“HBG”) to allow it to make advance payments necessary to obtain gaming licenses in the Italian Video Lottery Terminal (“VLT”) market. HBG has initiated arbitration proceedings against the Company as a result of alleged damages from delays in obtaining regulatory approval of certain gaming equipment to be leased to HBG (see Note 9 to the unaudited condensed consolidated financial statements, Commitments and Contingencies) and has not made required payments on the notes receivable. The Company has not recorded an impairment as management expects to collect amounts due under the notes receivable.

 

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Table of Contents

 

The Company’s accounts and notes receivable were as follows:

 

 

 

Accounts and Notes Receivable
as of March 31, 2013

 

Accounts and Notes Receivable
as of June 30, 2012

 

 

 

Ending
Balance

 

Ending
Balance
Individually
Evaluated for
Impairment

 

Ending Balance
Collectively
Evaluated for
Impairment

 

Ending
Balance

 

Ending Balance
Individually
Evaluated for
Impairment

 

Ending Balance
Collectively
Evaluated for
Impairment

 

 

 

(in 000s)

 

Contract term less than one year:

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade and other receivables, current

 

$

180,309

 

$

2,407

 

$

177,902

 

$

173,889

 

$

3,655

 

$

170,234

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract term greater than one year:

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade receivables, current

 

79,278

 

57,553

 

21,725

 

85,075

 

41,213

 

43,862

 

Trade receivables, noncurrent

 

32,567

 

12,255

 

20,312

 

30,476

 

7,213

 

23,263

 

 

 

111,845

 

69,808

 

42,037

 

115,551

 

48,426

 

67,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease receivables, current

 

6,098

 

6,098

 

 

14,763

 

14,763

 

 

Lease receivables, noncurrent

 

4,664

 

4,664

 

 

15,070

 

15,070

 

 

 

 

10,762

 

10,762

 

 

29,833

 

29,833

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes receivable, current

 

9,375

 

9,375

 

 

5,188

 

5,188

 

 

Notes receivable, noncurrent

 

10,530

 

10,530

 

 

13,269

 

13,269

 

 

 

 

19,905

 

19,905

 

 

18,457

 

18,457

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current

 

275,060

 

75,433

 

199,627

 

278,915

 

64,819

 

214,096

 

Total noncurrent

 

47,761

 

27,449

 

20,312

 

58,815

 

35,552

 

23,263

 

Total

 

$

322,821

 

$

102,882

 

$

219,939

 

$

337,730

 

$

100,371

 

$

237,359

 

 

The activity related to the allowance for doubtful accounts for the nine months ended March 31, 2013 is summarized below:

 

 

 

Allowance for Doubtful Accounts

 

 

 

Beginning
Balance
as of
June 30, 2012

 

Charge-
offs

 

Recoveries

 

Provision

 

Ending
Balance
as of
March 31,
2013

 

Ending
Balance
Individually
Evaluated for
Impairment

 

Ending
Balance
Collectively
Evaluated for
Impairment

 

 

 

(in 000s)

 

Contract term less than one year:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade and other receivables, current

 

$

(6,138

)

$

1,042

 

$

 

$

184

 

$

(4,912

)

$

(2,051

)

$

(2,861

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract term greater than one year:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade receivables, current

 

(7,935

)

5,471

 

557

 

(7,364

)

(9,271

)

(7,068

)

(2,203

)

Trade receivables, noncurrent

 

(1,279

)

1,285

 

 

(1,117

)

(1,111

)

 

(1,111

)

 

 

(9,214

)

6,756

 

557

 

(8,481

)

(10,382

)

(7,068

)

(3,314

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease receivables, current

 

 

 

 

 

 

 

 

Lease receivables, noncurrent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes receivable, current

 

 

 

 

 

 

 

 

Notes receivable, noncurrent

 

(1,750

)

 

 

(806

)

(2,556

)

(2,556

)

 

 

 

(1,750

)

 

 

(806

)

(2,556

)

(2,556

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current

 

$

(14,073

)

$

6,513

 

$

557

 

$

(7,180

)

$

(14,183

)

$

(9,119

)

$

(5,064

)

Total noncurrent

 

(3,029

)

1,285

 

 

(1,923

)

(3,667

)

(2,556

)

(1,111

)

Total

 

$

(17,102

)

$

7,798

 

$

557

 

$

(9,103

)

$

(17,850

)

$

(11,675

)

$

(6,175

)

 

16



Table of Contents

 

The activity related to the allowance for doubtful accounts for the nine months ended March 31, 2012 is summarized below:

 

 

 

Allowance for Doubtful Accounts

 

 

 

Beginning
Balance
as of
June 30,
2011

 

Charge-
offs

 

Recoveries

 

Provision

 

Ending
Balance
as of
March 31,
2012

 

Ending
Balance
Individually
Evaluated for
Impairment

 

Ending
Balance
Collectively
Evaluated for
Impairment

 

 

 

(in 000s)

 

Contract term less than one year:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade and other receivables, current

 

$

(5,875

)

$

719

 

$

241

 

$

(1,290

)

$

(6,205

)

$

(2,506

)

$

(3,699

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract term greater than one year:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade receivables, current

 

(5,184

)

336

 

241

 

(2,900

)

(7,507

)

(4,497

)

(3,010

)

Trade receivables, noncurrent

 

(507

)

1,041

 

 

(2,322

)

(1,788

)

(457

)

(1,331

)

 

 

(5,691

)

1,377

 

241

 

(5,222

)

(9,295

)

(4,954

)

(4,341

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease receivables, current

 

 

 

 

 

 

 

 

Lease receivables, noncurrent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes receivable, current

 

 

 

 

 

 

 

 

Notes receivable, noncurrent

 

 

 

 

(1,750

)

(1,750

)

(1,750

)

 

 

 

 

 

 

(1,750

)

(1,750

)

(1,750

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current

 

$

(11,059

)

$

1,055

 

$

482

 

$

(4,190

)

$

(13,712

)

$

(7,003

)

$

(6,709

)

Total noncurrent

 

(507

)

1,041

 

 

(4,072

)

(3,538

)

(2,207

)

(1,331

)

Total

 

$

(11,566

)

$

2,096

 

$

482

 

$

(8,262

)

$

(17,250

)

$

(9,210

)

$

(8,040

)

 

The Company evaluates the credit quality of its accounts and notes receivable and establishes an allowance for doubtful accounts based on a combination of factors including, but not limited to, customer collection experience, economic conditions, and the customer’s financial condition. In addition to specific account identification, which includes the review of any modifications of accounts and notes receivable, if applicable, the Company utilizes historic collection experience for the most recent twelve month period to establish an allowance for doubtful accounts. Receivables are written off only after the Company has exhausted all collection efforts.

 

Gaming is a highly regulated industry requiring customers to obtain a gaming operator’s license and verify with the applicable regulatory agency that they have the financial resources to operate a gaming establishment. Many of the Company’s customers, including new casinos that have opened in recent years, are owned by existing multi-property customers that have established a favorable payment history with the Company. Customer accounts typically include a mix of trade receivables balances with terms for periods of 30 to 120 days and financing receivables resulting from extended payment terms.

 

The Company monitors the credit quality of its accounts receivable by reviewing an aging of customer invoices. Invoices are considered past due if a scheduled payment is not received within contractually agreed upon terms. The Company’s notes receivable are reviewed quarterly, at a minimum, for impairment. The Company also reviews a variety of other relevant qualitative information such as collection experience, economic conditions and specific customer financial conditions to evaluate credit risk in recording the allowance for doubtful accounts or as an indicator of an impaired loan.

 

17



Table of Contents

 

The Company accrues interest, if applicable, on its accounts and notes receivables per the terms of the agreement. Interest is not accrued on past due accounts and notes receivable, or individual amounts that the Company has determined and specifically identified as not collectible. The following summarizes the aging of past due receivables, excluding trade accounts receivable with a contract term less than one year, as of March 31, 2013:

 

 

 

1 to 90 Days
Past Due

 

91 to 180
Days
Past Due

 

181 + Days
Past Due

 

Total
Past Due

 

Current

 

Total
Receivable

 

Recorded
Investment in
Receivables
on Nonaccrual
Status

 

Recorded
Investment
90 Days and
Accruing

 

 

 

(in 000s)

 

Trade receivables

 

$

8,385

 

$

3,766

 

$

6,201

 

$

18,352

 

$

93,493

 

$

111,845

 

$

18,352

 

$

 

Lease receivables

 

 

 

 

 

10,762

 

10,762

 

 

 

Notes receivable

 

1,512

 

1,498

 

4,781

 

7,791

 

12,114

 

19,905

 

18,731

 

 

Total

 

$

9,897

 

$

5,264

 

$

10,982

 

$

26,143

 

$

116,369

 

$

142,512

 

$

37,083

 

$

 

 

The following summarizes the aging of past due receivables, excluding trade accounts receivable with a contract term less than one year, as of June 30, 2012:

 

 

 

1 to 90 Days
Past Due

 

91 to 180
Days
Past Due

 

181 + Days
Past Due

 

Total
Past Due

 

Current

 

Total
Receivable

 

Recorded
Investment in
Receivables
on Nonaccrual
Status

 

Recorded
Investment
90 Days and
Accruing

 

 

 

(in 000s)

 

Trade receivables

 

$

7,278

 

$

4,197

 

$

8,735

 

$

20,210

 

$

95,341

 

$

115,551

 

$

20,210

 

$

 

Lease receivables

 

 

 

 

 

29,833

 

29,833

 

 

 

Notes receivable

 

1,427

 

1,423

 

319

 

3,169

 

15,288

 

18,457

 

18,457

 

 

Total

 

$

8,705

 

$

5,620

 

$

9,054

 

$

23,379

 

$

140,462

 

$

163,841

 

$

38,667

 

$

 

 

The aging of customer invoices is based on their contractually agreed upon payment terms, which in certain rare circumstances have been modified from the original financing terms. The modifications of original financing terms are infrequent and generally do not represent a concession as they result only in a delay of payment that is typically insignificant to our total trade, lease and notes receivable balances. There were no significant modifications of accounts and notes receivable during the period.

 

Impairment is recognized when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of a note arrangement. Due to an individual customer’s filing of a bankruptcy petition, the Company recognized an impairment charge on notes receivable of $1.8 million in fiscal year 2012 and an additional $0.8 million in the nine months ended March 31, 2013 after estimating the fair value of the collateral less costs to sell.

 

 

 

Impaired Loans

 

 

 

Recorded
Investment

 

Unpaid
Principal
Balance

 

Related
Allowance

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

 

 

(in 000s)

 

As of March 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

Notes receivable

 

$

2,856

 

$

2,856

 

$

(2,556

)

$

2,856

 

$