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LEASES
6 Months Ended
Jun. 30, 2021
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 (i) obtain substantially all of the economic benefit from the use of the asset; and (ii) 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. As of June 30, 2021 and December 31, 2020, our finance leases were not material.
Supplemental balance sheet information related to our operating leases is as follows (in thousands):
Classification on our Balance SheetsAt June 30, 2021At December 31, 2020
Assets
Operating lease ROU assetsOther assets, non-current$14,369 $16,104 
Liabilities
Current operating lease liabilitiesAccounts payable and accrued expenses$5,410 $5,649 
Non-current operating lease liabilitiesOther accrued expenses and liabilities$14,160 $16,077 
Supplemental cash flow information related to leases is as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Cash paid for:
Long-term operating leases$1,745 $1,983 $3,370 $3,281 
Short-term operating leases$389 $479 $819 $969 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases(1)
$667 $156 $667 $860 
(1) The amounts are presented net of current year terminations and exclude amortization for the period.
Other information related to lease terms and discount rates is as follows:
At June 30, 2021At December 31, 2020
Weighted Average Remaining Lease Term (in years):
Operating leases3.894.16
Weighted Average Discount Rate:
Operating leases5.13 %5.16 %
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,
2021202020212020
Operating Lease Cost:
Operating lease cost (1)
$1,456 $1,365 $2,916 $2,737 
Variable lease cost $385 $468 $635 $912 
(1) The amount includes approximately $1.2 million and $2.4 million in non-cash lease expense for the three and six months ended June 30, 2021, respectively, and $1.1 million and $2.2 million for the three and six months ended June 30, 2020, respectively.
Maturities of lease liabilities are summarized as follows as of June 30, 2021 (in thousands):
Year Ending December 31, Amount
2021 (excluding the six months ended June 30, 2021)
$3,184 
20226,160 
20234,780 
20243,548 
20252,889 
Thereafter1,044 
Total future minimum lease payments 21,605 
Amount representing interest 2,035 
Present value of future minimum lease payments19,570 
Current operating lease obligations5,410 
Long-term lease obligations$14,160 
Lessor
We generate lease revenues primarily from our gaming operations activities, and the majority of our leases are month-to-month leases. 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. Refer to "Note 9 - Property and Equipment" for details of our rental pool assets cost and accumulated depreciation.
We did not have material sales transactions that qualified for sales-type lease accounting treatment during the three and six months ended June 30, 2021 and 2020. Our interest income recognized in connection with sales-type leases executed in the prior periods was not material.
Supplemental balance sheet information related to our sales-type leases is as follows (in thousands):
Classification on our Balance SheetsAt June 30, 2021At December 31, 2020
Assets
Net investment in sales-type leases — currentTrade and other receivables, net$1,352 $1,397 
Net investment in sales-type leases — non-currentOther receivables$372 $803 
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 (i) obtain substantially all of the economic benefit from the use of the asset; and (ii) 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. As of June 30, 2021 and December 31, 2020, our finance leases were not material.
Supplemental balance sheet information related to our operating leases is as follows (in thousands):
Classification on our Balance SheetsAt June 30, 2021At December 31, 2020
Assets
Operating lease ROU assetsOther assets, non-current$14,369 $16,104 
Liabilities
Current operating lease liabilitiesAccounts payable and accrued expenses$5,410 $5,649 
Non-current operating lease liabilitiesOther accrued expenses and liabilities$14,160 $16,077 
Supplemental cash flow information related to leases is as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Cash paid for:
Long-term operating leases$1,745 $1,983 $3,370 $3,281 
Short-term operating leases$389 $479 $819 $969 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases(1)
$667 $156 $667 $860 
(1) The amounts are presented net of current year terminations and exclude amortization for the period.
Other information related to lease terms and discount rates is as follows:
At June 30, 2021At December 31, 2020
Weighted Average Remaining Lease Term (in years):
Operating leases3.894.16
Weighted Average Discount Rate:
Operating leases5.13 %5.16 %
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,
2021202020212020
Operating Lease Cost:
Operating lease cost (1)
$1,456 $1,365 $2,916 $2,737 
Variable lease cost $385 $468 $635 $912 
(1) The amount includes approximately $1.2 million and $2.4 million in non-cash lease expense for the three and six months ended June 30, 2021, respectively, and $1.1 million and $2.2 million for the three and six months ended June 30, 2020, respectively.
Maturities of lease liabilities are summarized as follows as of June 30, 2021 (in thousands):
Year Ending December 31, Amount
2021 (excluding the six months ended June 30, 2021)
$3,184 
20226,160 
20234,780 
20243,548 
20252,889 
Thereafter1,044 
Total future minimum lease payments 21,605 
Amount representing interest 2,035 
Present value of future minimum lease payments19,570 
Current operating lease obligations5,410 
Long-term lease obligations$14,160 
Lessor
We generate lease revenues primarily from our gaming operations activities, and the majority of our leases are month-to-month leases. 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. Refer to "Note 9 - Property and Equipment" for details of our rental pool assets cost and accumulated depreciation.
We did not have material sales transactions that qualified for sales-type lease accounting treatment during the three and six months ended June 30, 2021 and 2020. Our interest income recognized in connection with sales-type leases executed in the prior periods was not material.
Supplemental balance sheet information related to our sales-type leases is as follows (in thousands):
Classification on our Balance SheetsAt June 30, 2021At December 31, 2020
Assets
Net investment in sales-type leases — currentTrade and other receivables, net$1,352 $1,397 
Net investment in sales-type leases — non-currentOther receivables$372 $803