Accounts and Notes Receivable and Credit Quality of Notes Receivable

Accounts and Notes Receivable

The following summarizes the components of current and long-term accounts and notes receivable, net, as of March 31, 2014 and December 31, 2013:



	As of March 31,			As of December 31,
	2014			2013
Current:
Accounts receivable	$	330.2		$	360.4
Notes receivable	150.5			164.3
Allowance for doubtful accounts	(19.0		)	(20.0		)
Current accounts and notes receivable, net	$	461.7		$	504.7
Long-term:
Notes receivable	64.1			72.6
Total accounts and notes receivable, net	$	525.8		$	577.3

Credit Quality of Notes Receivable

Our accounts and notes receivable, net, from customers in Argentina at March 31, 2014 was $36.4 million, which is denominated in U.S. dollars, although our customers pay us in pesos at the spot exchange rate between the peso and the U.S. dollar on the date of payment. In evaluating the collectability of customer receivables in Argentina at March 31, 2014, we specifically evaluated recent payments, receivable aging, any additional security or collateral we had (bills of exchange, pledge agreements, etc.) and other facts and circumstances to determine our customers’ ability to pay. Our customers in Argentina have continued to pay us in pesos based on the spot exchange rate between the peso and the U.S. dollar on payment date. We collected $11.7 million of outstanding receivable balances from customers in Argentina during the three months ended March 31, 2014.

We carry our notes receivable at face amounts less an allowance for doubtful accounts and imputed interest. Interest income is recognized ratably over the life of the note receivable and any related fees or costs to establish the notes are expensed as incurred, as they are considered insignificant. Actual or imputed interest, if any, is determined based on current market rates at the time the note originated and is recorded as interest income in other income (expense), net, ratably over the payment period. We impute interest income on notes receivable with terms greater than one year that do not contain a stated interest rate. The interest rates on our outstanding notes receivable ranged from 5.25% to 10.0% at March 31, 2014. Our policy is to generally recognize interest on our notes receivable until the note receivable is deemed non-performing, which we define as a note on which payments are over 180 days past due. The amount of our non-performing notes was immaterial at March 31, 2014.

Most of our customers are not rated by credit rating agencies. Where possible we seek payment deposits, collateral, pledge agreements, bills of exchange, foreign bank letters of credit or personal guarantees with respect to notes receivable. However, the majority of our international notes receivable are not collateralized. Currently, we have not sold our notes receivable to third parties; therefore, we do not have any off-balance sheet liabilities for factored receivables.

The following summarizes the components of total notes receivable, net, as of March 31, 2014 and December 31, 2013:



	As of March 31, 2014			Balances over 90 days past due			As of December 31, 2013			Balances over 90 days past due
	As of March 31, 2014			Balances over 90 days past due			As of December 31, 2013			Balances over 90 days past due
Notes receivable:
Domestic	$	61.7		$	1.3		$	65.1		$	0.4
International	152.9			10.7			171.8			8.7
Total notes receivable	214.6			12.0			236.9			9.1

Notes receivable allowance for doubtful accounts:
Domestic	—			—			—			—
International	(6.6		)	(4.8		)	(5.6		)	(3.3		)
Total notes receivable allowance for doubtful Accounts	(6.6		)	(4.8		)	(5.6		)	(3.3		)
Note receivable, net	$	208.0		$	7.2		$	231.3		$	5.8

At March 31, 2014, 3.5% of our total notes receivable, net, was past due by over 90 days compared to 2.5% at December 31, 2013.

The following tables detail our evaluation of notes receivable for impairment as of March 31, 2014 and December 31, 2013:



	As of March 31, 2014		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment
Notes receivable:
Domestic	$	61.7	$	12.6	$	49.1
International	152.9		91.7		61.2
Total notes receivable	$	214.6	$	104.3	$	110.3



	As of December 31, 2013		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment
Notes receivable:
Domestic	$	65.1	$	4.8	$	60.3
International	171.8		99.7		72.1
Total notes receivable	$	236.9	$	104.5	$	132.4

The following tables reconcile the allowance for doubtful notes receivable from December 31, 2013 to March 31, 2014:



	Total		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment
Beginning balance at December 31, 2013	$	5.6	$	5.6	$	—
Charge-offs	—		—		—
Recoveries	—		—		—
Provision	1.0		0.9		0.1
Ending Balance at March 31, 2014	$	6.6	$	6.5	$	0.1

Modifications to original financing terms are exceptions to our cash collection process and are a function of collection activities with the customer. If a customer requests a modification of financing terms during the collection process, we evaluate the proposed modification in relation to the recovery of our gaming machines, generally seek additional security and recognize any additional interest income ratably over the remaining new financing term. Additionally, we often take the opportunity to simplify the future payments by consolidating several notes (each typically representing an individual purchase transaction) into one note. In those instances, the aging of any outstanding receivable balance would be adjusted to reflect the new payment terms. Any such modifications generally do not include a concession on the amount owed and generally result only in a delay of payments relative to the original terms.

The following summarizes the notes receivable the financing terms of which were modified during the three months ended March 31, 2014:



		Three Months Ended March 31, 2014
	# of Customers	# of Notes	Pre-Modification Investment		Post-Modification Investment
Financing term modifications:
International (1)	3	9	$	7.0	$	7.0
Total financing term modifications	3	9	$	7.0	$	7.0

(1) The modifications are detailed below:


•	One customer for which three notes were consolidated into one note aggregating $3.1 million, with an average four-month payment extension;


•	One customer with a note for $2.3 million for which original payment terms were extended by nine months; and


•	One customer for which four notes were consolidated into one note aggregating $1.4 million, with an average five-month extension and with another note for $0.2 million for which original terms were extended by seven months.

In certain international jurisdictions, we offer extended financing terms related to our notes receivable. Such financing activities subject us to increased credit risk, which could be exacerbated by, among other things, unfavorable economic conditions or political or economic instability in those regions. Our notes receivable were concentrated in the following international gaming jurisdictions at March 31, 2014:



Peru	21	%
Mexico	16	%
Argentina	16	%
Columbia	7	%
Other (less than 5% individually)	12	%
Total International Notes Receivable	72	%