Property and Equipment and Leased Gaming Equipment

9 Months Ended

Jun. 30, 2013

Property, Plant and Equipment [Abstract]

Property and Equipment and Leased Gaming Equipment

PROPERTY AND EQUIPMENT AND LEASED GAMING EQUIPMENT

The Company’s property and equipment and leased gaming equipment consisted of the following:



	June 30, 2013							September 30, 2012
	Cost		Accum. Depr.			Net Book Value		Cost		Accum. Depr.			Net Book Value
	(In thousands)
Rental pool – deployed	$	171,897	$	(110,927	)	$	60,970	$	169,262	$	(122,439	)	$	46,823
Rental pool – undeployed ⁽¹⁾	19,023		(14,354		)	4,669		42,320		(38,303		)	4,017
Machinery and equipment	4,746		(1,634		)	3,112		11,005		(7,864		)	3,141
Computer software	5,535		(3,356		)	2,179		6,712		(5,145		)	1,567
Vehicles	2,859		(1,475		)	1,384		2,640		(1,510		)	1,130
Other	4,263		(2,909		)	1,354		3,832		(2,586		)	1,246
Total property and equipment and leased gaming equipment	$	208,323	$	(134,655	)	$	73,668	$	235,771	$	(177,847	)	$	57,924

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(1)	Gaming equipment and third-party gaming content licenses begin depreciating when they are available for customer use. Property and equipment and leased gaming equipment is depreciated as follows: Rental pool – deployed and undeployed, 2 to 4years; Machinery and equipment, 5 to 7 years; Computer software, 3 to 5 years; Vehicles, 3 to 10 years; and Other, 3 to 7 years.

The Company recorded depreciation and amortization expense related to property and equipment and leased gaming equipment of $7.3 million and $20.7 million for the three and nine month periods ended June 30, 2013, respectively, and $8.4 million and $25.4 million for the three and nine month periods ended June 30, 2012, respectively. The Company periodically reviews the depreciable lives of its property and equipment and leased gaming equipment. During the first quarter 2013, the Company conducted such a review and analyzed the current age of leased gaming equipment on customers' floors, the current and historical replacement rate and the useful lives used for comparable assets by its competitors. The Company determined that because of two events that occurred during the beginning of fiscal 2013, the Company is now able to control the life cycles of its products: namely, the Company transitioned from a distributor to a manufacturer, and the beginning of fiscal year 2013 marked the three year anniversary of the deployment of the Company's proprietary wide-body cabinet, allowing the Company to better control its products' life cycles. Based on this review, the Company determined that a four year depreciable life on leased gaming equipment more accurately reflected the current age of leased gaming equipment on customer's floors, the current and historical replacement rate, and the useful lives used for comparable assets by its competitors. Accordingly, the Company increased the depreciable lives of leased gaming equipment, both proprietary and third party machines, to four years from three years, effective October 1, 2012. The effect of this change increased operating income by approximately $1.7 million and net income by $1.1 million, or $0.03 per diluted share, for the three months ended June 30, 2013 and $6.0 million of operating income and $3.8 million of net income, or $0.13 per diluted share, for the nine months ended June 30, 2013.

In accordance with ASC Topic 360, “Property, Plant, and Equipment,” the Company (i) recognizes an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows; and (ii) measures an impairment loss as the difference between the carrying amount and fair value of the asset. During the nine month period ended June 30, 2013, the Company did not experience a triggering event that would have caused an impairment analysis assessment.

During the three and nine month periods ended June 30, 2013, the Company sold $587,000 and $1.9 million, respectively, of net book value related to the Company's proprietary units on trial or revenue share in our installed base. The majority of these sales were trial units that converted to a sale. During the three and nine month periods ended June 30, 2013, the Company disposed of, or wrote off, $171,000 and $413,000, respectively, of net book value related to third-party gaming content licenses, installation costs, and other equipment.

During the three and nine month periods ended June 30, 2012, the Company sold $1.4 million and $3.9 million, respectively, of net book value related to the Company's proprietary units on trial or revenue share from our installed base. The majority of these sales were trial units that converted to a sale. During the three and nine month periods ended June 30, 2012, the Company disposed of, or wrote off, $40,000 and $630,000, respectively, of net book value related to third-party gaming content licenses, installation costs, and other equipment.

Leased gaming equipment consist of rental pool assets that are either placed under participation arrangements at customer facilities (rental pool – deployed) or warehoused by the Company for future deployment (rental pool – undeployed).

- Definition

The entire disclosure for long-lived, physical assets that are used in the normal conduct of business to produce goods and services and not intended for resale. Examples include land, buildings, machinery and equipment, and other types of furniture and equipment including, but not limited to, office equipment, furniture and fixtures, and computer equipment and software. This disclosure may include property plant and equipment accounting policies and methodology, a schedule of property, plant and equipment gross, additions, deletions, transfers and other changes, depreciation, depletion and amortization expense, net, accumulated depreciation, depletion and amortization expense and useful lives, income statement disclosures, assets held for sale and public utility disclosures.

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