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 September 30, 2011
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 |
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(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 October 31, 2011, was 43,344,000 which do not include 18,390,000 shares held in treasury.
BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
September 30, |
|
June 30, |
| ||
|
|
|
(in 000s, except share amounts) |
| ||||
|
ASSETS |
|
|
|
|
| ||
|
Current assets: |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
61,937 |
|
$ |
66,425 |
|
|
Restricted cash |
|
8,888 |
|
8,419 |
| ||
|
Accounts and notes receivable, net of allowances for doubtful accounts of $12,478 and $11,059 |
|
221,722 |
|
235,246 |
| ||
|
Inventories |
|
73,804 |
|
68,634 |
| ||
|
Prepaid and refundable income tax |
|
14,890 |
|
36,332 |
| ||
|
Deferred income tax assets |
|
28,986 |
|
29,318 |
| ||
|
Deferred cost of revenue |
|
12,368 |
|
13,795 |
| ||
|
Prepaid assets |
|
13,928 |
|
10,524 |
| ||
|
Other current assets |
|
5,673 |
|
4,984 |
| ||
|
Total current assets |
|
442,196 |
|
473,677 |
| ||
|
Restricted long-term investments |
|
12,801 |
|
12,485 |
| ||
|
Long-term accounts and notes receivables, net of allowances for doubtful accounts of $561 and $507 |
|
50,147 |
|
46,659 |
| ||
|
Property, plant and equipment, net of accumulated depreciation of $52,782 and $51,570 |
|
31,980 |
|
33,266 |
| ||
|
Leased gaming equipment, net of accumulated depreciation of $182,708 and $176,137 |
|
108,167 |
|
96,691 |
| ||
|
Goodwill |
|
168,893 |
|
162,110 |
| ||
|
Intangible assets, net |
|
35,436 |
|
34,865 |
| ||
|
Deferred income tax assets |
|
14,083 |
|
12,120 |
| ||
|
Income tax receivable |
|
12,047 |
|
10,972 |
| ||
|
Deferred cost of revenue |
|
22,143 |
|
23,193 |
| ||
|
Other assets, net |
|
20,161 |
|
21,356 |
| ||
|
Total assets |
|
$ |
918,054 |
|
$ |
927,394 |
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
|
Current liabilities: |
|
|
|
|
| ||
|
Accounts payable |
|
$ |
34,334 |
|
$ |
38,411 |
|
|
Accrued and other liabilities |
|
60,549 |
|
58,295 |
| ||
|
Customer deposits |
|
4,610 |
|
4,930 |
| ||
|
Jackpot liabilities |
|
8,573 |
|
11,894 |
| ||
|
Deferred revenue |
|
30,956 |
|
28,900 |
| ||
|
Income tax payable |
|
3,756 |
|
3,033 |
| ||
|
Current maturities of long-term debt |
|
15,165 |
|
15,153 |
| ||
|
Total current liabilities |
|
157,943 |
|
160,616 |
| ||
|
Long-term debt, net of current maturities |
|
491,500 |
|
500,250 |
| ||
|
Deferred revenue |
|
36,548 |
|
34,788 |
| ||
|
Other income tax liability |
|
10,731 |
|
9,321 |
| ||
|
Other liabilities |
|
16,943 |
|
7,827 |
| ||
|
Total liabilities |
|
713,665 |
|
712,802 |
| ||
|
Commitments and contingencies (Note 8) |
|
|
|
|
| ||
|
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; 61,713,000 and 61,541,000 shares issued and 43,512,000 and 44,397,000 outstanding |
|
6,166 |
|
6,149 |
| ||
|
Treasury stock at cost, 18,201,000 and 17,144,000 shares |
|
(665,574 |
) |
(634,268 |
) | ||
|
Additional paid-in capital |
|
448,365 |
|
442,713 |
| ||
|
Accumulated other comprehensive loss |
|
(10,386 |
) |
(3,064 |
) | ||
|
Retained earnings |
|
424,139 |
|
401,363 |
| ||
|
Total Bally Technologies, Inc. stockholders’ equity |
|
202,722 |
|
212,905 |
| ||
|
Noncontrolling interests |
|
1,667 |
|
1,687 |
| ||
|
Total stockholders’ equity |
|
204,389 |
|
214,592 |
| ||
|
Total liabilities and stockholders’ equity |
|
$ |
918,054 |
|
$ |
927,394 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
Three Months Ended |
| ||||
|
|
|
September 30, |
| ||||
|
|
|
2011 |
|
2010 |
| ||
|
|
|
(in 000s, except per share amounts) |
| ||||
|
Revenues: |
|
|
|
|
| ||
|
Gaming equipment and systems |
|
$ |
110,013 |
|
$ |
91,588 |
|
|
Gaming operations |
|
84,954 |
|
79,220 |
| ||
|
|
|
194,967 |
|
170,808 |
| ||
|
Costs and expenses: |
|
|
|
|
| ||
|
Cost of gaming equipment and systems (1) |
|
47,101 |
|
36,957 |
| ||
|
Cost of gaming operations |
|
24,232 |
|
22,222 |
| ||
|
Selling, general and administrative |
|
57,222 |
|
51,614 |
| ||
|
Research and development costs |
|
23,386 |
|
21,384 |
| ||
|
Depreciation and amortization |
|
5,635 |
|
4,627 |
| ||
|
|
|
157,576 |
|
136,804 |
| ||
|
Operating income |
|
37,391 |
|
34,004 |
| ||
|
Other income (expense): |
|
|
|
|
| ||
|
Interest income |
|
1,324 |
|
1,119 |
| ||
|
Interest expense |
|
(4,597 |
) |
(3,033 |
) | ||
|
Other, net |
|
(1,856 |
) |
1,847 |
| ||
|
Income from continuing operations before income taxes |
|
32,262 |
|
33,937 |
| ||
|
Income tax expense |
|
(11,853 |
) |
(12,285 |
) | ||
|
Income from continuing operations |
|
20,409 |
|
21,652 |
| ||
|
Loss on sale of discontinued operations, net of tax |
|
— |
|
(403 |
) | ||
|
Net income |
|
20,409 |
|
21,249 |
| ||
|
Less net income (loss) attributable to noncontrolling interests |
|
17 |
|
(540 |
) | ||
|
Net income attributable to Bally Technologies, Inc. |
|
$ |
20,392 |
|
$ |
21,789 |
|
|
Basic earnings per share attributable to Bally Technologies, Inc.: |
|
|
|
|
| ||
|
Income from continuing operations |
|
0.47 |
|
0.42 |
| ||
|
Loss on sale of discontinued operations |
|
— |
|
(0.01 |
) | ||
|
Basic earnings per share |
|
$ |
0.47 |
|
$ |
0.41 |
|
|
Diluted earnings per share attributable to Bally Technologies, Inc.: |
|
|
|
|
| ||
|
Income from continuing operations |
|
0.45 |
|
0.40 |
| ||
|
Loss on sale of discontinued operations |
|
— |
|
(0.01 |
) | ||
|
Diluted earnings per share |
|
$ |
0.45 |
|
$ |
0.39 |
|
|
Weighted average shares outstanding: |
|
|
|
|
| ||
|
Basic |
|
43,708 |
|
53,676 |
| ||
|
Diluted |
|
45,567 |
|
56,032 |
| ||
|
Amounts attributable to Bally Technologies, Inc.: |
|
|
|
|
| ||
|
Income from continuing operations, net of tax |
|
$ |
20,392 |
|
$ |
22,192 |
|
|
Loss on sale of discontinued operations, net of tax |
|
— |
|
(403 |
) | ||
|
Net income |
|
$ |
20,392 |
|
$ |
21,789 |
|
|
(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.
BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
|
|
|
Common Stock |
|
Series E |
|
Treasury |
|
Additional |
|
Accumulated |
|
Retained |
|
Noncontrolling |
|
Total |
| ||||||||||
|
|
|
Shares |
|
Dollars |
|
Stock |
|
Stock |
|
Capital |
|
(“OCI”) |
|
Earnings |
|
Interests |
|
Equity |
| ||||||||
|
|
|
(in 000s) |
| ||||||||||||||||||||||||
|
Balances at June 30, 2010 |
|
59,495 |
|
$ |
5,943 |
|
$ |
12 |
|
$ |
(157,053 |
) |
$ |
392,853 |
|
$ |
(3,044 |
) |
$ |
303,100 |
|
$ |
2,381 |
|
$ |
544,192 |
|
|
Net income from continuing operations, net of tax |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
22,192 |
|
(540 |
) |
21,652 |
| ||||||||
|
Loss on sale of discontinued operations, net of tax |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(403 |
) |
— |
|
(403 |
) | ||||||||
|
Foreign currency translation adjustment |
|
— |
|
— |
|
— |
|
— |
|
— |
|
1,172 |
|
— |
|
— |
|
1,172 |
| ||||||||
|
Unrealized loss on derivative financial instruments, net of tax |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(420 |
) |
— |
|
— |
|
(420 |
) | ||||||||
|
Total comprehensive income |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
$ |
22,001 |
| |||||||
|
Distributions to noncontrolling interests |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(123 |
) |
(123 |
) | ||||||||
|
Issuance and receipt of restricted stock, ESPP shares, stock options and related tax and tax benefit |
|
48 |
|
5 |
|
— |
|
(125 |
) |
1,086 |
|
— |
|
— |
|
— |
|
966 |
| ||||||||
|
Purchase of common stock for treasury |
|
— |
|
— |
|
— |
|
(22,145 |
) |
— |
|
— |
|
— |
|
— |
|
(22,145 |
) | ||||||||
|
Share-based compensation |
|
— |
|
— |
|
— |
|
— |
|
3,284 |
|
— |
|
— |
|
— |
|
3,284 |
| ||||||||
|
Balances at September 30, 2010 |
|
59,543 |
|
$ |
5,948 |
|
$ |
12 |
|
$ |
(179,323 |
) |
$ |
397,223 |
|
$ |
(2,292 |
) |
$ |
324,889 |
|
$ |
1,718 |
|
$ |
548,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Balances at June 30, 2011 |
|
61,541 |
|
$ |
6,149 |
|
$ |
12 |
|
$ |
(634,268 |
) |
$ |
442,713 |
|
$ |
(3,064 |
) |
$ |
401,363 |
|
$ |
1,687 |
|
$ |
214,592 |
|
|
Net income from continuing operations, net of tax |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
20,392 |
|
17 |
|
20,409 |
| ||||||||
|
Foreign currency translation adjustment |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(2,010 |
) |
— |
|
— |
|
(2,010 |
) | ||||||||
|
Unrealized loss on derivative financial instruments, net of tax |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(5,312 |
) |
— |
|
— |
|
(5,312 |
) | ||||||||
|
Total comprehensive income |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
$ |
13,087 |
| |||||||
|
Distributions to noncontrolling interests |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(37 |
) |
(37 |
) | ||||||||
|
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 |
|
172 |
|
17 |
|
— |
|
(338 |
) |
2,260 |
|
— |
|
— |
|
— |
|
1,939 |
| ||||||||
|
Purchase of common stock for treasury |
|
— |
|
— |
|
— |
|
(30,968 |
) |
— |
|
— |
|
— |
|
— |
|
(30,968 |
) | ||||||||
|
Share-based compensation |
|
— |
|
— |
|
— |
|
— |
|
3,392 |
|
— |
|
— |
|
— |
|
3,392 |
| ||||||||
|
Balances at September 30, 2011 |
|
61,713 |
|
$ |
6,166 |
|
$ |
12 |
|
$ |
(665,574 |
) |
$ |
448,365 |
|
$ |
(10,386 |
) |
$ |
424,139 |
|
$ |
1,667 |
|
$ |
204,389 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
Three Months Ended |
| ||||
|
|
|
2011 |
|
2010 |
| ||
|
|
|
(in 000s) |
| ||||
|
Cash flows from operating activities: |
|
|
|
|
| ||
|
Net income |
|
$ |
20,409 |
|
$ |
21,249 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
|
Loss on sale of discontinued operations, net of tax |
|
— |
|
403 |
| ||
|
Depreciation and amortization |
|
20,209 |
|
18,124 |
| ||
|
Share-based compensation |
|
3,392 |
|
3,284 |
| ||
|
Amortization of deferred debt issuance costs |
|
440 |
|
963 |
| ||
|
Income tax (benefit) expense |
|
(176 |
) |
3,466 |
| ||
|
Provision for doubtful accounts |
|
2,528 |
|
1,012 |
| ||
|
Inventory write-downs |
|
1,191 |
|
758 |
| ||
|
Excess tax benefit of stock option exercises |
|
(341 |
) |
(333 |
) | ||
|
Other |
|
487 |
|
(140 |
) | ||
|
Change in operating assets and liabilities: |
|
|
|
|
| ||
|
Accounts and notes receivable |
|
8,525 |
|
774 |
| ||
|
Inventories |
|
(31,443 |
) |
(20,491 |
) | ||
|
Prepaid and refundable income tax and income tax payable |
|
21,488 |
|
(3,742 |
) | ||
|
Other current assets |
|
(4,992 |
) |
(5,104 |
) | ||
|
Accounts payable |
|
(3,937 |
) |
787 |
| ||
|
Accrued liabilities, customer deposits and jackpot liabilities |
|
2,082 |
|
(8,404 |
) | ||
|
Deferred revenue and deferred cost of revenue |
|
6,431 |
|
(1,479 |
) | ||
|
Net cash provided by operating activities |
|
46,293 |
|
11,127 |
| ||
|
Cash flows from investing activities: |
|
|
|
|
| ||
|
Acquisition |
|
(6,000 |
) |
— |
| ||
|
Capital expenditures |
|
(1,634 |
) |
(1,957 |
) | ||
|
Restricted cash and investments |
|
(786 |
) |
2,328 |
| ||
|
Additions to other long-term assets |
|
(1,581 |
) |
(3,072 |
) | ||
|
Net cash used in investing activities |
|
(10,001 |
) |
(2,701 |
) | ||
|
Cash flows from financing activities: |
|
|
|
|
| ||
|
Proceeds from revolving credit facility |
|
— |
|
4,369 |
| ||
|
Payments on revolving credit facility |
|
(5,000 |
) |
— |
| ||
|
Capitalized debt issuance costs |
|
— |
|
(158 |
) | ||
|
Reduction of long-term debt |
|
(3,760 |
) |
(8,756 |
) | ||
|
Distributions to noncontrolling interests |
|
(37 |
) |
(123 |
) | ||
|
Purchase of treasury stock |
|
(31,306 |
) |
(22,270 |
) | ||
|
Excess tax benefit of stock option exercises |
|
341 |
|
333 |
| ||
|
Proceeds from exercise of stock options and employee stock purchases |
|
2,006 |
|
782 |
| ||
|
Net cash used in financing activities |
|
(37,756 |
) |
(25,823 |
) | ||
|
Effect of exchange rate changes on cash |
|
(3,024 |
) |
(3 |
) | ||
|
Net cash provided by (used in) operating activities of discontinued operations |
|
— |
|
(403 |
) | ||
|
|
|
— |
|
(403 |
) | ||
|
Cash and cash equivalents: |
|
|
|
|
| ||
|
Decrease for period |
|
(4,488 |
) |
(17,803 |
) | ||
|
Balance, beginning of period |
|
66,425 |
|
145,089 |
| ||
|
Balance, end of period |
|
$ |
61,937 |
|
$ |
127,286 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
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:
|
|
|
Three Months Ended |
| ||||
|
|
|
2011 |
|
2010 |
| ||
|
|
|
(in 000s) |
| ||||
|
Cash paid for interest |
|
$ |
4,340 |
|
$ |
3,033 |
|
|
Cash paid for income taxes, net of refunds |
|
(10,682 |
) |
11,199 |
| ||
|
|
|
|
|
|
| ||
|
Non-cash investing and financing transactions: |
|
|
|
|
| ||
|
Transfer of inventory to leased gaming equipment (1) |
|
$ |
30,457 |
|
$ |
16,767 |
|
|
Reclassify property, plant and equipment to inventory (1) |
|
3,595 |
|
3,014 |
| ||
|
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 division 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.
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, worldwide gaming company that innovates, designs, manufactures, operates and distributes advanced technology-based gaming devices, systems and server-based solutions. As a global gaming-systems provider, the Company offers technology solutions which provide gaming operators with a wide range of marketing, data management and analysis, accounting, player tracking, security and other software applications and tools to more effectively manage their operations. The Company’s primary hardware technologies include spinning-reel and video gaming devices, specialty gaming devices and wide-area progressive systems for traditional land-based, riverboat and Native American casinos, video lottery and central determination markets and specialized system-based hardware products. In addition to selling its gaming devices, the Company also offers its customers a wide range of rental options.
Principles of presentation and consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information 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. 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, 2011. 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.
Discontinued Operations
The Company was the general partner of Rainbow Casino Vicksburg Partnership (“RCVP”), which operated the Rainbow Casino, a dockside riverboat casino in Vicksburg, Mississippi. On April 5, 2010, the Company entered into a definitive purchase agreement to sell the Rainbow Casino which closed on June 8, 2010. Per the terms of the sale agreement, the Company had certain post-closing adjustments during the three months ended September 30, 2010 which reduced its gain on the sale of the Rainbow Casino by approximately $0.4 million, net of income taxes.
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. 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.
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.
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 September 30, 2011, total outstanding contracts were $33.5 million, or the notional equivalent of €25 million.
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 |
| |||||||
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
| |||
|
|
|
(in 000s) |
| |||||||
|
As of September 30, 2011: |
|
|
|
|
|
|
| |||
|
Assets: |
|
|
|
|
|
|
| |||
|
Other current assets: |
|
|
|
|
|
|
| |||
|
Foreign currency derivative financial instrument |
|
$ |
— |
|
$ |
550 |
|
$ |
— |
|
|
Other assets, net: |
|
|
|
|
|
|
| |||
|
Foreign currency derivative financial instrument |
|
$ |
— |
|
$ |
870 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
| |||
|
Liabilites: |
|
|
|
|
|
|
| |||
|
Accrued and other liabilities: |
|
|
|
|
|
|
| |||
|
Interest rate derivative financial instruments |
|
$ |
— |
|
$ |
4,523 |
|
$ |
— |
|
|
Other liabilities: |
|
|
|
|
|
|
| |||
|
Interest rate derivative financial instrument |
|
$ |
— |
|
$ |
7,551 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
| |||
|
As of June 30, 2011: |
|
|
|
|
|
|
| |||
|
Assets: |
|
|
|
|
|
|
| |||
|
Other assets, net: |
|
|
|
|
|
|
| |||
|
Foreign currency derivative financial instrument |
|
$ |
— |
|
$ |
452 |
|
$ |
— |
|
|
Interest rate derivative financial instruments |
|
$ |
— |
|
$ |
1,231 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
| |||
|
Liabilites: |
|
|
|
|
|
|
| |||
|
Accrued and other liabilities: |
|
|
|
|
|
|
| |||
|
Foreign currency derivative financial instrument |
|
$ |
— |
|
$ |
586 |
|
$ |
— |
|
|
Interest rate derivative financial instruments |
|
$ |
— |
|
$ |
5,133 |
|
$ |
— |
|
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 4 to 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.
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 Loss |
|
Location of Loss |
|
Amount of Loss |
| ||
|
|
|
(in 000s) |
| ||||||
|
For the three months ended September 30, 2011: |
|
|
|
|
|
|
| ||
|
Interest rate swap agreements |
|
$ |
9,521 |
|
Interest expense |
|
$ |
1,349 |
|
|
For the three months ended September 30, 2010: |
|
|
|
|
|
|
| ||
|
Interest rate swap agreement |
|
$ |
1,249 |
|
Interest expense |
|
$ |
602 |
|
|
|
|
Amount of Loss Recognized |
| ||||
|
Non-Designated Derivative |
|
Three Months Ended |
|
Three Months Ended |
| ||
|
Foreign Currency Forward Contract |
|
$ |
1,554 |
|
$ |
— |
|
Accounts and notes receivable, allowance for doubtful accounts and credit quality of financing receivables
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 at market rates.
Trade receivables with contract terms greater than one year relate to the sale of gaming equipment and, to a lesser extent, systems transactions that include software as a major component of the sale, 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. These customers typically have a long-standing credit history with the Company. Revenue from these lease arrangements is not significant.
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 also include accelerated payment terms based upon a percentage of net-win from gaming devices sold or leased to these customers.
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, or lease receivables, and notes receivable, which are primarily for developmental financing loans.
The Company’s accounts and notes receivable were as follows:
|
|
|
Accounts and Notes Receivable |
|
Accounts and Notes Receivable |
| ||||||||||||||
|
|
|
Ending |
|
Ending |
|
Ending |
|
Ending |
|
Ending |
|
Ending |
| ||||||
|
|
|
(in 000s) |
| ||||||||||||||||
|
Contract term less than one year: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Trade and other receivables, current |
|
$ |
146,877 |
|
$ |
3,143 |
|
$ |
143,734 |
|
$ |
162,202 |
|
$ |
2,064 |
|
$ |
160,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Contract term greater than one year: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Trade receivables, current |
|
72,993 |
|
3,473 |
|
69,520 |
|
72,237 |
|
3,973 |
|
68,264 |
| ||||||
|
Trade receivables, noncurrent |
|
19,611 |
|
— |
|
19,611 |
|
15,111 |
|
213 |
|
14,898 |
| ||||||
|
|
|
92,604 |
|
3,473 |
|
89,131 |
|
87,348 |
|
4,186 |
|
83,162 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Lease receivables, current |
|
11,469 |
|
11,469 |
|
— |
|
10,245 |
|
10,245 |
|
— |
| ||||||
|
Lease receivables, noncurrent |
|
14,613 |
|
14,613 |
|
— |
|
13,490 |
|
13,490 |
|
— |
| ||||||
|
|
|
26,082 |
|
26,082 |
|
— |
|
23,735 |
|
23,735 |
|
— |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Notes receivable, current |
|
2,861 |
|
2,861 |
|
— |
|
1,621 |
|
1,621 |
|
— |
| ||||||
|
Notes receivable, noncurrent |
|
16,484 |
|
16,484 |
|
— |
|
18,565 |
|
18,565 |
|
— |
| ||||||
|
|
|
19,345 |
|
19,345 |
|
— |
|
20,186 |
|
20,186 |
|
— |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total current |
|
234,200 |
|
20,946 |
|
213,254 |
|
246,305 |
|
17,903 |
|
228,402 |
| ||||||
|
Total noncurrent |
|
50,708 |
|
31,097 |
|
19,611 |
|
47,166 |
|
32,268 |
|
14,898 |
| ||||||
|
Total |
|
$ |
284,908 |
|
$ |
52,043 |
|
$ |
232,865 |
|
$ |
293,471 |
|
$ |
50,171 |
|
$ |
243,300 |
|
The activity related to the allowance for doubtful accounts is summarized below:
|
|
|
Allowance for Doubtful Accounts |
| |||||||||||||||||||
|
|
|
Beginning |
|
Charge- |
|
Recoveries |
|
Provision |
|
Ending |
|
Ending |
|
Ending |
| |||||||
|
|
|
(in 000s) |
| |||||||||||||||||||
|
Contract term less than one year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Trade and other receivables, current |
|
$ |
(5,875 |
) |
$ |
480 |
|
$ |
125 |
|
$ |
(2,326 |
) |
$ |
(7,596 |
) |
$ |
(3,143 |
) |
$ |
(4,453 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Contract term greater than one year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Trade receivables, current |
|
(5,184 |
) |
336 |
|
— |
|
(34 |
) |
(4,882 |
) |
(3,473 |
) |
(1,409 |
) | |||||||
|
Trade receivables, noncurrent |
|
(507 |
) |
114 |
|
— |
|
(168 |
) |
(561 |
) |
— |
|
(561 |
) | |||||||
|
|
|
(5,691 |
) |
450 |
|
— |
|
(202 |
) |
(5,443 |
) |
(3,473 |
) |
(1,970 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Lease receivables, current |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||||
|
Lease receivables, noncurrent |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||||
|
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Notes receivable, current |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||||
|
Notes receivable, noncurrent |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||||
|
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Total current |
|
(11,059 |
) |
816 |
|
125 |
|
(2,360 |
) |
(12,478 |
) |
(6,616 |
) |
(5,862 |
) | |||||||
|
Total noncurrent |
|
(507 |
) |
114 |
|
— |
|
(168 |
) |
(561 |
) |
— |
|
(561 |
) | |||||||
|
Total |
|
$ |
(11,566 |
) |
$ |
930 |
|
$ |
125 |
|
$ |
(2,528 |
) |
$ |
(13,039 |
) |
$ |
(6,616 |
) |
$ |
(6,423 |
) |
The Company accrues interest, if applicable, on its receivables per the terms of the agreement. Interest is not accrued on delinquent accounts that the Company has determined and specifically identified as not collectible. The Company’s recorded investment in receivables on nonaccrual status, excluding trade accounts receivable with a contract term less than one year, is as follows:
|
Recorded Investment in Receivables on Nonaccrual Status |
|
September 30, |
|
June 30, |
| ||
|
|
|
(in 000s) |
| ||||
|
Trade receivables |
|
$ |
3,473 |
|
$ |
4,186 |
|
|
Lease receivables |
|
— |
|
— |
| ||
|
Notes receivables |
|
— |
|
— |
| ||
|
Total |
|
$ |
3,473 |
|
$ |
4,186 |
|
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, the Company utilizes historic collection experience for the most recent twelve month period, where applicable, to establish an allowance for doubtful accounts receivable. 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 and notes 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 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.
The following summarizes the aging of past due receivables, excluding trade accounts receivable with a contract term less than one year, as of September 30, 2011:
|
|
|
1 to 90 Days |
|
91 to 180 Days |
|
181 + Days |
|
Total |
|
Current |
|
Total |
|
Recorded |
| |||||||
|
|
|
(in 000s) |
| |||||||||||||||||||
|
Trade receivables |
|
$ |
6,871 |
|
$ |
3,481 |
|
$ |
6,955 |
|
$ |
17,307 |
|
$ |
75,297 |
|
$ |
92,604 |
|
$ |
— |
|
|
Lease receivables |
|
— |
|
— |
|
— |
|
— |
|
26,082 |
|
26,082 |
|
— |
| |||||||
|
Notes receivable |
|
— |
|
— |
|
— |
|
— |
|
19,345 |
|
19,345 |
|
— |
| |||||||
|
Total |
|
$ |
6,871 |
|
$ |
3,481 |
|
$ |
6,955 |
|
$ |
17,307 |
|
$ |
120,724 |
|
$ |
138,031 |
|
$ |
— |
|
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 have not been material to our total trade, lease and note receivable balances.
The Company’s notes receivable are reviewed quarterly, at a minimum, for impairment. The customer’s solvency, collection experience, legal and regulatory environment and other financial information may indicate that the loan is impaired. As of September 30 and June 30, 2011, respectively, the Company had no impaired loans in its accounts and notes receivable balances. No further interest is accrued once a loan is impaired.
The fair value of accounts and notes receivable, net, is estimated by discounting expected future cash flows using current interest rates at which similar loans would be made to borrowers, with similar credit ratings and remaining maturities. As of September 30 and June 30, 2011, respectively, the fair value of the accounts and notes receivable, net, approximate the carrying value.
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:
|
|
|
September 30, |
|
June 30, |
| ||
|
|
|
(in 000s) |
| ||||
|
Raw materials |
|
$ |
52,416 |
|
$ |
53,926 |
|
|
Work-in-process |
|
1,228 |
|
1,630 |
| ||
|
Finished goods |
|
20,160 |
|
13,078 |
| ||
|
Total |
|
$ |
73,804 |
|
$ |
68,634 |
|
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 other taxes 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 fees are fixed and determinable.
Games placed with customers on a trial basis are not recognized as revenue until the trial period ends, the customer accepts the games and all other relevant criteria have been met. Amounts billed to customers prior to completing the earnings process are deferred until the revenue recognition criteria are met.
Effective July 1, 2009, the Company adopted new accounting guidance related to revenue recognition for multiple deliverable arrangements and certain revenue arrangements that include software elements. The Company elected to adopt this guidance prior to the required effective date using the prospective method. Accordingly, this guidance was applied to all new or materially modified revenue arrangements entered into since the start of the Company’s fiscal year of adoption, which was July 1, 2009.
Prior to the adoption of the new revenue recognition guidance, gaming equipment and systems revenue was recognized in accordance with software revenue recognition guidance. The new guidance amended the scope of software revenue recognition to exclude all tangible products containing both software and nonsoftware components that function together to deliver the product’s essential functionality. As a result of applying the new guidance, certain products that were previously accounted for under the scope of software revenue recognition guidance are no longer accounted for as software.
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 contemporaneously. 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 device.
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 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. Prior to July 1, 2009, gaming devices were recognized under software 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 if all revenue recognition criteria have been met. 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.
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. Prior to July 1, 2009, systems- based hardware was recognized under software 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 met. 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 during the term of the support period which is generally 12 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 12 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. 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 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 July 1, 2011, the Company adopted new accounting guidance related to accruals for casino jackpot liabilities. Specifically, the guidance clarifies that an entity should not accrue jackpot liabilities, or portions thereof, before a jackpot is won if the entity can avoid paying the jackpot. Jackpots should be accrued and charged to revenue when an entity has the obligation to pay the jackpot. The guidance applies to both base and progressive jackpots. The new guidance was applied by recording a cumulative-effect adjustment to opening retained earnings of $2.4 million on July 1, 2011.
On July 1, 2011, the Company adopted new accounting guidance related to troubled debt restructuring. The guidance clarifies which loan modifications constitute troubled debt restructurings to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosures of troubled debt restructurings.
Recently issued accounting pronouncements not yet adopted
In May 2011, the FASB issued new accounting guidance related to fair value measurements. The new guidance changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. The guidance also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. The new guidance is to be applied prospectively and is effective for interim and annual periods beginning on or after December 15, 2011. The Company expects to adopt the guidance in the second quarter of fiscal year 2012 and does not believe it will have a significant impact on its consolidated financial statement footnote disclosures.
In June 2011, the FASB issued new accounting guidance to make the presentation of items within other comprehensive income (“OCI”) more prominent. The new standard will require 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 will no longer be allowed to present items of OCI in the statement of stockholders’ equity. The new guidance is to be applied retrospectively and is effective for interim or annual periods beginning after December 15, 2011. The Company expects to adopt the guidance in the second quarter of fiscal year 2012. The adoption of this standard will change the presentation of the Company’s consolidated financial statements.
In September 2011, the FASB issued new accounting guidance for testing goodwill for impairment which 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 new guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company expects to adopt the guidance in the second quarter of fiscal year 2012 and does not believe it will have any 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.
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 |
| ||||
|
|
|
2011 |
|
2010 |
| ||
|
|
|
(in 000s, except per share amounts) |
| ||||
|
Amounts attributable to Bally Technologies, Inc.: |
|
|
|
|
| ||
|
Income from continuing operations, net of tax |
|
$ |
20,392 |
|
$ |
22,192 |
|
|
Loss on sale of discontinued operations, net of tax |
|
— |
|
(403 |
) | ||
|
Net income |
|
$ |
20,392 |
|
$ |
21,789 |
|
|
|
|
|
|
|
| ||
|
Weighted average shares outstanding |
|
43,708 |
|
53,676 |
| ||
|
Dilutive effect of: |
|
|
|
|
| ||
|
Stock options, Restricted Stock Units (“RSU”) and restricted stock |
|
1,859 |
|
2,355 |
| ||
|
Warrants |
|
— |
|
1 |
| ||
|
Weighted average diluted shares outstanding |
|
45,567 |
|
56,032 |
| ||
|
|
|
|
|
|
| ||
|
Basic earnings per share attributable to Bally Technologies, Inc. |
|
|
|
|
| ||
|
Income from continuing operations |
|
$ |
0.47 |
|
$ |
0.42 |
|
|
Loss on sale of discontinued operations |
|
— |
|
(0.01 |
) | ||
|
Basic earnings per share |
|
$ |
0.47 |
|
$ |
0.41 |
|
|
|
|
|
|
|
| ||
|
Diluted earnings per share attributable to Bally Technologies, Inc. |
|
|
|
|
| ||
|
Income from continuing operations |
|
$ |
0.45 |
|
$ |
0.40 |
|
|
Loss on sale of discontinued operations |
|
— |
|
(0.01 |
) | ||
|
Diluted earnings per share |
|
$ |
0.45 |
|
$ |
0.39 |
|
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 |
| ||
|
|
|
2011 |
|
2010 |
|
|
|
|
(in 000s) |
| ||
|
Stock options, RSU and restricted stock |
|
785 |
|
793 |
|
3. GOODWILL AND INTANGIBLE ASSETS
Intangible assets consist of the following:
|
|
|
|
|
September 30, 2011 |
|
June 30, 2011 |
| ||||||||||||||
|
|
|
Useful |
|
Gross |
|
Accumulated |
|
Net |
|
Gross |
|
Accumulated |
|
Net |
| ||||||
|
|
|
(dollars in 000s) |
| ||||||||||||||||||
|
Computer software |
|
3 - 9 |
|
$ |
36,798 |
|
$ |
(32,569 |
) |
$ |
4,229 |
|
$ |
36,725 |
|
$ |
(31,841 |
) |
$ |
4,884 |
|
|
License rights |
|
3 - 13 |
|
8,694 |
|
(3,126 |
) |
5,568 |
|
4,344 |
|
(2,751 |
) |
1,593 |
| ||||||
|
Trademarks |
|
5 - 9 |
|
2,203 |
|
(2,203 |
) |
— |
|
2,203 |
|
(2,203 |
) |
— |
| ||||||
|
Core technology |
|
5 - 14 |
|
23,763 |
|
(15,103 |
) |
8,660 |
|
22,763 |
|
(14,107 |
) |
8,656 |
| ||||||
|
Contracts |
|
5 - 10 |
|
15,665 |
|
(7,623 |
) |
8,042 |
|
15,303 |
|
(7,372 |
) |
7,931 |
| ||||||
|
Other intangibles |
|
3 - 5 |
|
1,933 |
|
(496 |
) |
1,437 |
|
5,337 |
|
(1,036 |
) |
4,301 |
| ||||||
|
Total finite lived intangible assets |
|
|
|
$ |
89,056 |
|
$ |
(61,120 |
) |
$ |
27,936 |
|
$ |
86,675 |
|
$ |
(59,310 |
) |
$ |
27,365 |
|
|
Trademark |
|
indefinite |
|
7,500 |
|
— |
|
7,500 |
|
7,500 |
|
— |
|
7,500 |
| ||||||
|
Total |
|
|
|
$ |
96,556 |
|
$ |
(61,120 |
) |
$ |
35,436 |
|
$ |
94,175 |
|
$ |
(59,310 |
) |
$ |
34,865 |
|
Total amortization expense related to finite lived intangible assets was $2.4 million and $2.6 million for the three months ended September 30, 2011 and 2010, respectively, which included computer software amortization expense of $0.6 million and $1.1 million for the three months ended September 30, 2011 and 2010, respectively. Future amortization of finite lived intangible assets is scheduled as follows:
|
Year Ended June 30, |
|
(in 000s) |
| |
|
2012 (remaining nine months of fiscal year) |
|
$ |
8,348 |
|
|
2013 |
|
9,392 |
| |
|
2014 |
|
4,890 |
| |
|
2015 |
|
2,181 |
| |
|
2016 |
|
1,671 |
| |
|
Thereafter |
|
1,454 |
| |
|
Total |
|
$ |
27,936 |
|
All goodwill is associated with continuing operations. The changes in the carrying amount of goodwill for the three months ended September 30, 2011, are as follows:
|
|
|
(in 000s) |
| |
|
Balance at June 30, 2011 |
|
$ |
162,110 |
|
|
Additions |
|
7,131 |
| |
|
Foreign currency translation adjustment |
|
(348 |
) | |
|
Balance at September 30, 2011 |
|
$ |
168,893 |
|
In July 2011, the Company acquired substantially all of the assets and liabilities of MacroView Labs. No impairment charges for goodwill and intangible assets were necessary for the three months ended September 30, 2011 and 2010.
4. LONG-TERM DEBT
Long-term debt consists of the following:
|
|
|
September 30, |
|
June 30, |
| ||
|
|
|
2011 |
|
2011 |
| ||
|
|
|
(in 000s) |
| ||||
|
Revolving credit facility |
|
$ |
214,000 |
|
$ |
219,000 |
|
|
Term loan facility |
|
292,500 |
|
296,250 |
| ||
|
Other, generally unsecured |
|
165 |
|
153 |
| ||
|
Long-term debt |
|
506,665 |
|
515,403 |
| ||
|
Less current maturities |
|
(15,165 |
) |
(15,153 |
) | ||
|
Long-term debt, net of current maturities |
|
$ |
491,500 |
|
$ |
500,250 |
|
As of September 30, 2011, there was approximately $186.0 million of undrawn availability under the revolving credit facility. Availability under the revolving credit facility is reduced to the extent of outstanding letters of credit.
On April 15, 2011, the Company entered into an amended and restated credit agreement, that provides for a $700 million senior secured credit facility comprised of a $300 million, five-year term loan and a $400 million, five-year revolving credit facility, including a $50 million sublimit for the issuance of standby letters of credit, a $10 million sublimit for swingline loans and a $150 million sublimit for multicurrency borrowings approved under the credit facility.
The interest rate on the credit facility is subject to a leverage-based pricing grid based on LIBOR plus a margin between 1.25% and 2.00%. As of September 30, 2011, the interest rate on the revolving credit facility was 1.97% and the interest rate on the term loan was approximately 3.82%, after giving effect to the floating-to-fixed interest rate swaps discussed below.
Under the credit facility, the term loan requires quarterly principal reductions in an amount equal to 1.25% of the effective date term loan amount, or $3,750,000, through March 2013; an amount equal to 1.875% of the effective date term loan amount, or $5,625,000, through March 2014; an amount equal to 2.50% of the effective date term loan amount, or $7,500,000, from June 2014 until the term loan’s maturity in May 2016 upon when the remaining outstanding principal balance of $187,500,000 is due.
The credit facility is collateralized by substantially all of the Company’s domestic property and is guaranteed by each of the Company’s domestic subsidiaries, excluding any noncontrolling interests, and is secured by a pledge agreement.
The fair value of long-term debt is estimated by discounting expected cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and remaining maturities. As of September 30 and June 30, 2011, the fair value of long-term debt approximated the carrying value.
The credit facility contains a number of covenants that, among other things, restrict the Company’s ability and certain of its subsidiaries to dispose of assets, incur additional indebtedness or issue preferred stock, pay dividends or make other distributions, enter into certain acquisitions, repurchase equity interests or subordinated indebtedness, issue or sell equity interests of our subsidiaries, engage in mergers or acquisitions or certain transactions with subsidiaries and affiliates, and that otherwise restrict corporate activities.
The financial covenants under the credit facility consist of a leverage ratio and an interest coverage ratio. The leverage ratio is computed as total debt outstanding at the end of the quarter divided by the trailing twelve months Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), excluding certain cash and non-cash charges. The interest coverage ratio is computed as EBITDA for the trailing twelve months divided by the trailing twelve months of interest charges.
A breach of any of the covenants or the inability to comply with the required financial ratios could result in a default under the credit facility. In the event of any such default, the lenders could elect to declare all borrowings outstanding under the credit facility, together with any accrued interest and other fees, to be due and payable. If the Company were unable to repay the indebtedness upon its acceleration, the lenders could proceed against the underlying collateral. The Company was in compliance with all of the credit facility covenants as of September 30 and June 30, 2011.
Interest Rate Swap Agreements
Effective December 2008, the Company entered into a floating-to-fixed interest rate swap agreement with an original notional value of $218.8 million and a maturity date of September 26, 2012 to fix floating LIBOR based debt to fixed rate debt at an interest rate of 1.89%. Effective June 2011, the Company entered into a second floating-to-fixed rate swap agreement with an original notional value of $165.0 million and a maturity date of May 13, 2016 to fix a portion of the floating LIBOR based debt under the new term loan to fixed rate debt at an interest rate of 2.09%. At September 30, 2011, the combined swap agreements had a notional value of $292.5 million.
The Company has documented and designated these interest rate swaps as cash flow hedges. Based on the assessment of effectiveness using statistical regression, the Company determined that the interest rate swaps are effective. Effectiveness testing of the hedge relationships and measurement to quantify ineffectiveness is performed each quarter using the hypothetical derivative method. As the interest rate swaps qualify as cash flow hedges, the Company adjusts the cash flow hedges on a quarterly basis to their fair value with a corresponding offset to accumulated Other Comprehensive Income (“OCI”). The interest rate swaps have been and are expected to remain highly effective for the life of the hedges. Effective amounts are reclassified to interest expense as the related hedged expense is incurred. Any ineffectiveness is reclassified from accumulated other comprehensive income to other income (expense). As of September 30, 2011, the Company had no ineffectiveness on its cash flow hedges. Amounts related to the swaps expected to be reclassified from other comprehensive income to interest expense in the next twelve months total $4.5 million.
Additional information on the Company’s interest rate swaps are as follows:
|
Interest Rate Swaps |
|
Balance Sheet Location |
|
Fair Value |
|
Location of Offsetting Balance |
| |
|
Cash flow hedges—$292.5 million LIBOR based debt |
|
Accrued and other liabilities |
|
$ |
4,523 |
|
|
|
|
|
|
Other liabilities |
|
7,551 |
|
|
| |
|
|
|
|
|
$ |
12,074 |
|
Accumulated other comprehensive income (before income taxes) |
|
5. SHARE-BASED COMPENSATION
Employee Stock Purchase Plan
The 2008 Employee Stock Purchase Plan (the “2008 ESPP”) provides that eligible employees are able to contribute up to 10% of their eligible earnings towards the quarterly purchase of the Company’s common stock. The employee’s purchase price is equal to 85% of the fair market value. During the three months ended September 30, 2011 and 2010, employees purchased 23,442 shares and 19,572 shares of common stock for approximately $0.6 million and $0.5 million, respectively, under the 2008 ESPP.
Share-Based Award Plans
Stock option activity as of and for the three months ended September 30, 2011 is summarized below:
|
|
|
|
|
Weighted Average |
|
|
| ||||
|
|
|
Shares |
|
Exercise |
|
Remaining |
|
Aggregate |
| ||
|
|
|
(in 000s) |
|
(per share) |
|
(years) |
|
(in 000s) |
| ||
|
Balance outstanding as of June 30, 2011 |
|
3,682 |
|
$ |
24.45 |
|
|
|
$ |
60,558 |
|
|
Granted |
|
14 |
|
33.82 |
|
|
|
|
| ||
|
Exercised |
|
(73 |
) |
18.84 |
|
|
|
|
| ||
|
Forfeited or expired |
|
(20 |
) |
34.06 |
|
|
|
|
| ||
|
Balance outstanding as of September 30, 2011 |
|
3,603 |
|
$ |
24.54 |
|
3.62 |
|
$ |
19,074 |
|
|
Exercisable as of September 30, 2011 |
|
2,751 |
|
$ |
21.31 |
|
3.10 |
|
$ |
18,242 |
|
Restricted stock and RSU activity as of and for the three months ended September 30, 2011 is summarized below:
|
|
|
Restricted |
|
Weighted |
|
RSUs |
|
Weighted |
| ||
|
|
|
(in 000s) |
|
(per share) |
|
(in 000s) |
|
(per share) |
| ||
|
Balance outstanding as of June 30, 2011 |
|
337 |
|
$ |
38.42 |
|
600 |
|
$ |
18.92 |
|
|
Granted |
|
73 |
|
40.84 |
|
— |
|
— |
| ||
|
Vested |
|
(15 |
) |
33.98 |
|
(15 |
) |
42.01 |
| ||
|
Forfeited or expired |
|
— |
|
— |
|
— |
|
— |
| ||
|
Balance outstanding as of September 30, 2011 |
|
395 |
|
$ |
39.04 |
|
585 |
|
$ |
18.32 |
|
|
Vested as of September 30, 2011 |
|
|
|
|
|
534 |
|
$ |
16.04 |
| |
Share-Based Compensation
The following table presents share-based compensation expense and related effect of the income tax benefit included in the Company’s unaudited condensed consolidated statements of operations:
|
|
|
Three Months Ended |
| ||||
|
|
|
2011 |
|
2010 |
| ||
|
|
|
(in 000s) |
| ||||
|
Selling, general and administrative |
|
$ |
2,422 |
|
$ |
2,407 |
|
|
Research and development costs |
|
927 |
|
836 |
| ||
|
Cost of gaming equipment and systems and gaming operations |
|
43 |
|
41 |
| ||
|
Share-based compensation expense before tax |
|
3,392 |
|
3,284 |
| ||
|
Income tax benefit |
|
1,187 |
|
1,149 |
| ||
|
Net share-based compensation expense |
|
$ |
2,205 |
|
$ |
2,135 |
|
As of September 30, 2011, there was $10.0 million of total unrecognized compensation expense related to the unvested portion of stock options which will be recognized over the subsequent 1.80 years. In addition, as of September 30, 2011, there was $12.9 million of total unrecognized compensation expense related to the unvested portion of restricted stock and RSUs which will be recognized over the subsequent 1.79 years.
6. STOCKHOLDERS’ EQUITY
Share Repurchase Plan
The Company’s Board of Directors have approved a variety of share repurchase plans under which, subject to price and market conditions, purchases of shares can be made from time to time in the open market or in privately negotiated transactions using available cash.
During the three months ended September 30, 2011 and 2010, the Company repurchased 1,046,800 shares and 670,745 shares of common stock for $31.0 million and $22.1 million, respectively, under the share repurchase plan. As of September 30, 2011, $120.7 million remained available under the plan for repurchase in future periods.
7. INCOME TAXES
The provision for income taxes for interim periods is based on the current estimate of the annual effective tax rate expected to be applicable for the full fiscal year and the impact of discrete items, if any, and is adjusted as necessary for quarterly events. The effective income tax rate was approximately 36.7% and 36.2% for the three months ended September 30, 2011 and 2010, respectively. The increase in the effective income tax rate is primarily attributable to the expiration of the tax holiday for our subsidiary in India as of March 31, 2011.
The Internal Revenue Service (“IRS”) commenced examination of the Company’s United States federal income tax returns for 2003 through 2005 in the fourth quarter of 2006. Throughout the examination, the IRS proposed, and management agreed to, certain adjustments related to the open tax years that have been recorded in the income tax provision. In January 2009, the IRS completed its field examination of the open tax years and issued a Revenue Agent’s Report. Also in January 2009, the Company paid $3.4 million in tax and $1.2 million in interest to the IRS to settle certain agreed adjustments. The Company filed a formal protest regarding certain unagreed adjustments and the case was assigned to the IRS Las Vegas Appeals Office in July 2009. In June 2010, the Company agreed to settle all remaining issues with the IRS. Formal closure of the case occurred in October 2010 and the Company has received a refund from the IRS of $2.3 million, including $0.6 million in interest.
The Internal Revenue Service (“IRS”) commenced examination of the Company’s United States federal income tax returns for 2006 through 2009 during fiscal 2011.
As of September 30, 2011, the Company has $9.7 million related to uncertain tax positions, excluding related accrued interest and penalties, $9.6 million of which, if recognized, would impact the effective tax rate. As of September 30, 2011, the Company has $1.4 million accrued for the payment of interest and penalties.
It is reasonably possible that the Company’s amount of unrecognized tax benefits may decrease within the next twelve months by a range up to $0.4 million.
The Company files numerous consolidated and separate income tax returns in the United States and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to United States federal income tax examinations for years before fiscal 2006 and is no longer subject to state and local, or foreign income tax examinations for years before 2003.
8. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is subject to legal proceedings, claims and investigations in the ordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights, indemnification claims, commercial, employment and other matters. Liabilities related to such matters are recorded when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. All legal costs associated with litigation are expensed as incurred.
In October 2010, WMS Gaming Inc. (“WMS”) filed a patent infringement lawsuit against the Company in the United States District Court for the District of Northern Illinois. The complaint asserted that several of the Company’s products using iReel displays infringe two WMS patents and sought injunctive relief and damages in unspecified amounts. WMS later amended its complaint to assert three additional patents related to the use of a video screen in conjunction with a gaming machine using mechanical reels also infringe certain WMS patents. As part of its response, the Company asserted counterclaims seeking damages and other unspecified relief against WMS for violation of certain Company patents, including claims that the WMS patents are invalid, unenforceable, and not infringed. A trial date has not been set.
In April 2006, International Game Technology (“IGT”) filed a patent infringement lawsuit against the Company in the United States District Court for the District of Delaware. The complaint asserted that the Company’s Bally Power Bonusing products infringe patents held by IGT, and sought injunctive relief and damages in unspecified amounts. In April 2009, the district court issued an order finding that two of the Company’s products, ACSC Power Winners and ACSC Power Reward, infringe some patent claims asserted by IGT, but not others. Both parties appealed. On October 6, 2011, the Federal Circuit Court of Appeals affirmed the district court’s decision, and the case will now be remanded back to the district court for discovery and trial on the issue of damages. In the meantime, the Company undertook technical changes to ensure non-infringement for the two products partially in question.
In December 2004, IGT filed a patent infringement lawsuit against the Company in the United States District Court for the District of Nevada. The complaint asserted that the Company’s wheel-based games, its games with a reel in the top box and its iVIEW products infringed on patents held by IGT, and sought injunctive relief and damages in unspecified amounts. As part of the defense, the Company asserted counterclaims seeking damages and other relief against IGT, including claims that IGT’s patents were invalid, unenforceable and not infringed, as well as several claims that IGT engaged in anti-competitive conduct in violation of state and federal antitrust laws. In October 2008, the court granted the Company’s motions for summary judgment, ruling that IGT’s two “wheel” patents and a touch-screen player-tracking patent were invalid; that even if the patents were valid, the Company’s wheel-based games at issue would not infringe; and that certain of its iVIEW products do not infringe the two asserted player- tracking patents. The summary judgment determinations were upheld by the Federal Circuit Court of Appeals. Upon remand, the District Court granted summary judgment in favor of IGT on the remaining portion of the case regarding IGT’s alleged antitrust violations and in favor of Bally on IGT’s remaining claim that Bally infringed an IGT player tracking patent. An appeal of the summary judgment on Bally’s antitrust claims against IGT is pending.
The Company has accrued liabilities related to these contingent liabilities, but such amounts, including the potential range of amounts that management believes is likely, are not material to the financial statements. While the matters described above are subject to inherent uncertainties, management believes that the ultimate resolution of such matters, individually or in aggregate, will not have a material effect on the financial statements.
9. SEGMENT AND GEOGRAPHICAL INFORMATION
The Company’s revenue consists of three sources: Gaming Equipment, which includes the sale of gaming devices and related equipment, parts and conversion kits; Gaming Operations, which includes the operation of wide-area progressive, video lottery and centrally determined systems and the rental of gaming devices and content; and Systems, which includes the sale and support of computerized monitoring systems and related recurring hardware and software maintenance revenue.
The following is a summary of revenues and gross margin:
|
|
|
Three Months Ended |
| ||||
|
|
|
2011 |
|
2010 |
| ||
|
|
|
(in 000s) |
| ||||
|
Revenues: |
|
|
|
|
| ||
|
Gaming Equipment and Systems |
|
|
|
|
| ||
|
Gaming Equipment |
|
$ |
64,447 |
|
$ |
51,038 |
|
|
Gaming Operations |
|
84,954 |
|
79,220 |
| ||
|
Systems |
|
45,566 |
|
40,550 |
| ||
|
Total revenues |
|
$ |
194,967 |
|
$ |
170,808 |
|
|
|
|
|
|
|
| ||
|
Gross Margin(1): |
|
|
|
|
| ||
|
Gaming Equipment and Systems |
|
|
|
|
| ||
|
Gaming Equipment |
|
$ |
28,401 |
|
$ |
24,926 |
|
|
Gaming Operations |
|
60,722 |
|
56,998 |
| ||
|
Systems |
|
34,511 |
|
29,705 |
| ||
|
Total gross margin |
|
$ |
123,634 |
|
$ |
111,629 |
|
(1) Gross Margin from Gaming Equipment and Systems excludes amortization related to certain intangibles including core technology and license rights, which are included in depreciation and amortization.
The Company has operations based primarily in the United States as well as significant sales and distribution offices based in Europe, and other foreign locations, including South America and India. The table below presents information as to the Company’s revenues and operating income by geographic region which is determined by country of destination:
|
|
|
Three Months Ended |
| ||||
|
|
|
2011 |
|
2010 |
| ||
|
|
|
(in 000s) |
| ||||
|
Revenues: |
|
|
|
|
| ||
|
United States and Canada |
|
$ |
158,726 |
|
$ |
145,712 |
|
|
International |
|
36,241 |
|
25,096 |
| ||
|
Total revenues |
|
$ |
194,967 |
|
$ |
170,808 |
|
|
|
|
||||||