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LEASES
6 Months Ended
Jun. 30, 2020
Leases [Abstract]  
LEASES LEASES
We determine if a contract is, or contains, a lease at the inception, or modification, of a contract based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of an asset is predicated upon the notion that a lessee has both the right to (a) obtain substantially all of the economic benefit from the use of the asset; and (b) direct the use of the asset.
Operating lease right-of-use (“ROU”) assets and liabilities are recognized based on the present value of minimum lease payments over the expected lease term at commencement date. Lease expense is recognized on a straight-line basis over the expected lease term. Our lease arrangements have both lease and non-lease components, and we have elected the practical expedient to account for the lease and non-lease elements as a single lease.
Certain of our lease arrangements contain options to renew with terms that generally have the ability to extend the lease term to a range of approximately 1 to 10 years. The exercise of lease renewal options is generally at our sole discretion. The expected lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise such option. The depreciable life of leased assets and leasehold improvements are limited by the expected term of such assets, unless there is a transfer of title or purchase option reasonably certain to be exercised.
Lessee
We enter into operating lease agreements for real estate purposes that generally consist of buildings for office space and warehouses for manufacturing purposes. Certain of our lease agreements consist of rental payments that are periodically adjusted for inflation. Our lease agreements do not contain material residual value guarantees or material restrictive covenants. Our lease agreements do not generally provide explicit rates of interest; therefore, we use our incremental collateralized borrowing rate, which is based on a fully collateralized and fully amortizing loan with a maturity date the same as the length of the lease that is based on the information available at the commencement date to determine the present value of lease payments. Leases with an expected term of 12 months or less (short-term) are not accounted for on our Balance Sheets.
Supplemental balance sheet information related to our operating leases is as follows (in thousands):
Classification on our Balance SheetsAt June 30, 2020At December 31, 2019
Assets
Operating lease ROU assetsOther assets, non-current$9,782  $12,257  
Liabilities(1)
Current operating lease liabilitiesAccounts payable and accrued expenses$6,167  $5,824  
Non-current operating lease liabilitiesOther accrued expenses and liabilities$7,362  $9,628  
(1) The amount of operating lease liabilities recorded on our Balance Sheets upon the adoption of ASC 842 on January 1, 2019 was approximately $18.0 million.
Supplemental cash flow information related to leases is as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Cash paid for long- and short-term leases$2,462  $2,029  $4,250  $3,717  
Operating lease ROU assets obtained in exchange for lease obligations(1)
$156  $—  $860  $15,132  
(2)
(1) The amounts exclude amortization for the period.
(2) The amount includes approximately $0.9 million of operating lease ROU assets obtained in exchange for new lease obligations entered into during the six months ended June 30, 2020. The amount includes approximately $14.1 million of operating lease ROU assets obtained in exchange for existing lease obligations due to the adoption of ASC 842 and $1.1 million of operating lease ROU assets obtained in exchange for new lease obligations entered into during the six months ended June 30, 2019. There were no material new operating lease ROU assets obtained in exchange for lease obligations during the three months ended June 30, 2020 or 2019.
Other information related to lease terms and discount rates is as follows:
At June 30, 2020At December 31, 2019
Weighted average remaining lease term (in years)2.402.96
Weighted average discount rate5.25 %5.25 %
Components of lease expense, which are included in operating expenses, are as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Lease Cost:
Operating lease cost$1,365  $1,331  $2,737  $2,275  
Variable lease cost $468  $400  $912  $839  
Maturities of lease liabilities are summarized as follows as of June 30, 2020 (in thousands):
Year Ending December 31, Amount
2020 (excluding the six months ended June 30, 2020)$3,364  
20215,511  
20223,219  
20231,562  
2024564  
Thereafter328  
Total future minimum lease payments $14,548  
Amount representing interest 1,019  
Present value of future minimum lease payments$13,529  
Current operating lease obligations6,167  
Long-term lease obligations$7,362  
Lessor
We generate lease revenues primarily from our gaming operations activities, with a majority of our leases being month-to-month relationships. Under these arrangements, we retain ownership of the electronic gaming machines (“EGMs”) installed at customer facilities. We receive recurring revenues based on a percentage of the net win per day generated by the leased gaming equipment or a fixed daily fee. Such revenues are generated daily and are limited to the lesser of the net win per day generated by the leased gaming equipment or the fixed daily fee and the lease payments that have been collected from the lessee. Certain of our leases have terms and conditions with options for a lessee to purchase the underlying assets. The cost of property and equipment the Company is leasing to third-parties as of June 30, 2020 is approximately $199.6 million, which includes accumulated depreciation of approximately $118.8 million.
We did not have any new sales transactions that qualified for sales-type lease accounting treatment during the three and six months ended June 30, 2020. We generated lease revenue from sales-type leases in the FinTech segment in the amount of approximately $2.6 million for the three and six months ended June 30, 2019. Our interest income recognized in connection with sales-type leases executed in the prior periods is immaterial.
Supplemental balance sheet information related to our sales-type leases is as follows (in thousands):
Classification on our Balance SheetsAt June 30, 2020At December 31, 2019
Assets
Net investment in sales-type leases — currentTrade and other receivables, net$885  $874  
Net investment in sales-type leases — non-currentOther receivables$861  $1,288  
LEASES LEASES
We determine if a contract is, or contains, a lease at the inception, or modification, of a contract based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of an asset is predicated upon the notion that a lessee has both the right to (a) obtain substantially all of the economic benefit from the use of the asset; and (b) direct the use of the asset.
Operating lease right-of-use (“ROU”) assets and liabilities are recognized based on the present value of minimum lease payments over the expected lease term at commencement date. Lease expense is recognized on a straight-line basis over the expected lease term. Our lease arrangements have both lease and non-lease components, and we have elected the practical expedient to account for the lease and non-lease elements as a single lease.
Certain of our lease arrangements contain options to renew with terms that generally have the ability to extend the lease term to a range of approximately 1 to 10 years. The exercise of lease renewal options is generally at our sole discretion. The expected lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise such option. The depreciable life of leased assets and leasehold improvements are limited by the expected term of such assets, unless there is a transfer of title or purchase option reasonably certain to be exercised.
Lessee
We enter into operating lease agreements for real estate purposes that generally consist of buildings for office space and warehouses for manufacturing purposes. Certain of our lease agreements consist of rental payments that are periodically adjusted for inflation. Our lease agreements do not contain material residual value guarantees or material restrictive covenants. Our lease agreements do not generally provide explicit rates of interest; therefore, we use our incremental collateralized borrowing rate, which is based on a fully collateralized and fully amortizing loan with a maturity date the same as the length of the lease that is based on the information available at the commencement date to determine the present value of lease payments. Leases with an expected term of 12 months or less (short-term) are not accounted for on our Balance Sheets.
Supplemental balance sheet information related to our operating leases is as follows (in thousands):
Classification on our Balance SheetsAt June 30, 2020At December 31, 2019
Assets
Operating lease ROU assetsOther assets, non-current$9,782  $12,257  
Liabilities(1)
Current operating lease liabilitiesAccounts payable and accrued expenses$6,167  $5,824  
Non-current operating lease liabilitiesOther accrued expenses and liabilities$7,362  $9,628  
(1) The amount of operating lease liabilities recorded on our Balance Sheets upon the adoption of ASC 842 on January 1, 2019 was approximately $18.0 million.
Supplemental cash flow information related to leases is as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Cash paid for long- and short-term leases$2,462  $2,029  $4,250  $3,717  
Operating lease ROU assets obtained in exchange for lease obligations(1)
$156  $—  $860  $15,132  
(2)
(1) The amounts exclude amortization for the period.
(2) The amount includes approximately $0.9 million of operating lease ROU assets obtained in exchange for new lease obligations entered into during the six months ended June 30, 2020. The amount includes approximately $14.1 million of operating lease ROU assets obtained in exchange for existing lease obligations due to the adoption of ASC 842 and $1.1 million of operating lease ROU assets obtained in exchange for new lease obligations entered into during the six months ended June 30, 2019. There were no material new operating lease ROU assets obtained in exchange for lease obligations during the three months ended June 30, 2020 or 2019.
Other information related to lease terms and discount rates is as follows:
At June 30, 2020At December 31, 2019
Weighted average remaining lease term (in years)2.402.96
Weighted average discount rate5.25 %5.25 %
Components of lease expense, which are included in operating expenses, are as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Lease Cost:
Operating lease cost$1,365  $1,331  $2,737  $2,275  
Variable lease cost $468  $400  $912  $839  
Maturities of lease liabilities are summarized as follows as of June 30, 2020 (in thousands):
Year Ending December 31, Amount
2020 (excluding the six months ended June 30, 2020)$3,364  
20215,511  
20223,219  
20231,562  
2024564  
Thereafter328  
Total future minimum lease payments $14,548  
Amount representing interest 1,019  
Present value of future minimum lease payments$13,529  
Current operating lease obligations6,167  
Long-term lease obligations$7,362  
Lessor
We generate lease revenues primarily from our gaming operations activities, with a majority of our leases being month-to-month relationships. Under these arrangements, we retain ownership of the electronic gaming machines (“EGMs”) installed at customer facilities. We receive recurring revenues based on a percentage of the net win per day generated by the leased gaming equipment or a fixed daily fee. Such revenues are generated daily and are limited to the lesser of the net win per day generated by the leased gaming equipment or the fixed daily fee and the lease payments that have been collected from the lessee. Certain of our leases have terms and conditions with options for a lessee to purchase the underlying assets. The cost of property and equipment the Company is leasing to third-parties as of June 30, 2020 is approximately $199.6 million, which includes accumulated depreciation of approximately $118.8 million.
We did not have any new sales transactions that qualified for sales-type lease accounting treatment during the three and six months ended June 30, 2020. We generated lease revenue from sales-type leases in the FinTech segment in the amount of approximately $2.6 million for the three and six months ended June 30, 2019. Our interest income recognized in connection with sales-type leases executed in the prior periods is immaterial.
Supplemental balance sheet information related to our sales-type leases is as follows (in thousands):
Classification on our Balance SheetsAt June 30, 2020At December 31, 2019
Assets
Net investment in sales-type leases — currentTrade and other receivables, net$885  $874  
Net investment in sales-type leases — non-currentOther receivables$861  $1,288