10-Q

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
(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.

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2011 and June 30, 2011	3
	Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2011 and 2010	4
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended September 30, 2011 and 2010	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2011 and 2010	6
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	34
PART II.	OTHER INFORMATION	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 6.	Exhibits	35
SIGNATURES		36

2

PART I

ITEM 1.                FINANCIAL STATEMENTS

BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,2011			June 30, 2011
	(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.

3

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.

4

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 Special		Treasury			Additional Paid-In		Accumulated Other Comprehensive Income (Loss)			Retained			Noncontrolling			Total Stockholders’
	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.

5

BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months EndedSeptember 30,
	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.

6

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 September 30,
	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.

7

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.

8

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 Using Input Type
	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	$	—

9

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 Recognized in OCI on Derivative (Effective Portion)		Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
	(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 in Other Income (Expense)
Non-Designated Derivative	Three Months Ended September 30, 2011		Three Months Ended September 30, 2010
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.

10

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 as of September 30, 2011						Accounts and Notes Receivable as of June 30, 2011
	Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment		Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment
	(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

11

The activity related to the allowance for doubtful accounts is summarized below:

	Allowance for Doubtful Accounts
	Beginning Balance as of June 30, 2011			Charge- offs		Recoveries		Provision			Ending Balance as of September 30, 2011			Ending Balance Individually Evaluated for Impairment			Ending Balance Collectively Evaluated for Impairment
	(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, 2011		June 30,2011
	(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.

12

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 Past Due		91 to 180 Days Past Due		181 + Days Past Due		Total Past Due		Current		Total Receivable		Recorded Investment 90 Days and Accruing
	(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, 2011		June 30, 2011
	(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.

13

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.

14

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.

15

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.

16

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 September 30,
	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 September 30,
	2011	2010
	(in 000s)
Stock options, RSU and restricted stock	785	793

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3.             GOODWILL AND INTANGIBLE ASSETS

Intangible assets consist of the following:

		September 30, 2011							June 30, 2011
	Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(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.

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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.

19

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 (in 000s)		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.

20

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 Price		Remaining Contractual Term	Aggregate Intrinsic Value
	(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 Stock		Weighted Average Grant Date Fair Value		RSUs		Weighted Average Grant Date Fair Value
	(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 September 30,
	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.

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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.

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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.

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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 September 30,
	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 September 30,
	2011		2010
	(in 000s)
Revenues:
United States and Canada	$	158,726	$	145,712
International	36,241		25,096
Total revenues	$	194,967	$	170,808
Operating income:
United States and Canada	$	35,740	$	31,625
International	1,651		2,379
Total operating income	$	37,391	$	34,004

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We begin this section with a summary of our key operating business divisions as of September 30, 2011. The overview is followed by a detailed analysis of our results of operations and our financial condition and liquidity as of and for the three months ended September 30, 2011 and 2010. References to “we,” “our,” “us,” or the “Company” refer to Bally Technologies, Inc. and its subsidiaries.

Forward Looking Statements

Certain statements made or incorporated by reference in this Quarterly Report on Form 10-Q, in our other filings with the Securities and Exchange Commission (“SEC”), in our press releases and in statements made by or with the approval of authorized personnel constitute “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the safe harbor created thereby. Forward looking statements reflect intent, belief or current expectations with respect to, among other things, future events and financial trends affecting us. Forward looking statements are typically identified by words such as “believes,” “estimates,” “expects,” “anticipates,” “plans,” “should,” “would” and similar expressions.

Although we believe the expectations reflected in any forward looking statements are reasonable, readers are cautioned that forward looking statements involve known and unknown risks and uncertainties, are not guarantees of future performance and that actual results, performance or achievements may differ materially from any future results, performance or achievements expressed or implied by such forward looking statements. These differences can arise as a result of the risks described in Item 1A, Risk Factors included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011 (the “2011 10-K”), as well as other factors such as the impact of competition, the impact of any prolonged downturn in the economy or the financial markets, our ability to service debt, product development, foreign operations, dependence on key personnel, the ability to integrate future acquisitions, regulation by gaming authorities, the outcome of pending litigation matters, gaming taxes, market risks and the potential adverse effects to our financial condition, results of operations or prospects.

Forward looking statements in this Quarterly Report on Form 10-Q speak only as of the date hereof, and forward looking statements in documents incorporated by reference speak only as of the date of those documents. Unless otherwise required by law, we undertake no obligation to publicly update or revise these forward looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, we cannot assure you that the forward looking statements contained in this Quarterly Report on Form 10-Q will, in fact, transpire.

Business Overview

We are 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, we offer 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. Our 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.

We derive our revenue from the following:

·	Gaming Equipment	—	Sale of gaming devices and related equipment, parts and conversion kits;
·	Gaming Operations	—	Operation of linked progressive systems, video lottery and centrally determined systems and the rental of gaming devices and content; and
·	Systems	—	Sale and support of specialized systems-based software and hardware products and related recurring hardware and software maintenance revenue.

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We review certain financial measures in assessing our financial condition and operating performance not only in connection with creating our forecasts and in making comparisons to financial results from prior periods, but also in making comparisons to our competitors’ financial results and our internal plans. We focus on fluctuations in revenue, cost and gross margin and also pay close attention to changes in our consolidated operating income, net income, diluted earnings per share, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, including asset charges and share-based compensation), cash flows from operations and free cash flow (cash flows from operating activities less capital expenditures) as they are key indicators of our success. We also measure changes in selling, general and administrative (“SG&A”) expenses as a percent of revenue, which indicate management’s ability to control costs, as well as changes in research and development (“R&D”) costs as a percent of revenue, which demonstrate investment in technology and product development. The measures listed above are not a comprehensive list of all factors considered by us in assessing our financial condition and operating performance, and we may consider other individual measures as required by trends and discrete events arising in a specific period, but they are the key indicators.

We are currently operating in a challenging economic environment. The combination of economic uncertainty, lower demand for replacement products and reduced opportunities from new or expanded markets has negatively impacted our consolidated results. The gaming sector was and continues to be negatively impacted by lower consumer spending and limited resources available to fund capital projects. As a result of the challenging economic environment, we have provided select customers a greater amount of payment terms for periods up to one year, and in some cases for periods up to three years. We expect to continue to extended credit for these longer periods for the foreseeable future.

Despite the effect of the continued tough economic conditions currently facing the gaming industry, gaming equipment, gaming operations and systems revenues increased in the current quarter, when compared to the same period last year.

Gaming equipment revenues were $64.4 million and $51.0 million for the three months ended September 30, 2011 and 2010, respectively. Gaming equipment revenues improved due primarily to an increase in new gaming devices sold with a higher ASP, and an increase in conversion kit revenue during the current period, when compared to the same period last year. During the three months ended September 30, 2011 and 2010, we sold 2,329 and 2,000 new gaming devices in the United States and Canada, respectively, of which 2,179 and 1,763 were replacement units, respectively. Our Pro Series cabinets with ALPHA 2 technology are state of the art for the industry with regards to ergonomics, processing power, display technology, input device, operating system, sound and serviceability. This platform allowed for the development of new, more compelling games and also facilitated our game download solution for customers. Our Pro Series cabinets also feature the iDeck, first of its kind multi-touch fully programmable and downloadable button panel which offers opportunity to add more interaction to the game-play experience with mystery bonus events, virtual shooting galleries and skill-based bonus games.

Systems revenues were $45.6 million and $40.6 million for the three months ended September 30, 2011 and 2010, respectively. During the three months ended September 30, 2011, when compared to the same period last year, increases in maintenance revenue of $1.8 million, and software and services revenue of $6.0 million, were offset by decreases in hardware revenue of $2.7 million during the same period. Even though systems sales have been impacted by the economic environment, our core enterprise systems, such as SDS, which runs on both Unix and Windows using the same code base, our iVIEW Display Manager (“DM”) and our Elite Bonusing Suite continued to generate positive interest. In late fiscal 2011, we announced an enterprise-wide agreement with one of the world’s largest casino entertainment companies to implement iView DM player-user-interfaces across their casino operations. We have continued to invest in the basics of enterprise software development, delivery, customer support and services discipline, on improving core products, providing quality upgrade options for our customers, and increasing customer satisfaction levels through better service and support which are all serving us well in these difficult economic times.

Gaming operations revenues were $85.0 million and $79.2 million for the three months ended September 30, 2011 and 2010, respectively. Revenues were stronger quarter over quarter due primarily to the continued performance of existing and new premium game titles which increased rental and participation revenue, improvements in linked progressive and lottery systems revenues, and increases in our centrally determined business. We experienced significant growth in the installed base of our rental and daily-fee games and linked progressive systems which increased by approximately 1,550 and 218 units, respectively, over September 30, 2010. First quarter fiscal year 2012 results benefitted from our growing product offerings and innovations, such as U-Spin, and the continued success of our Cash Spin, Hot Spin, Vegas Hits and Cash Wizard games, Digital Tower Series platforms and Hot Shot family of games. Our linked progressive system revenue increased due primarily to the recent introduction of our Betty Boop Love Meter and Money Vault™ wide-area progressive games. We continue to focus our development efforts on the introduction of new and innovative games and cabinets both for our spinning-reel and video platforms.

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International revenues were $36.2 million and $25.1 million for the three months ended September 30, 2011 and 2010, respectively. International revenues increased in the current quarter, when compared to the same period last year, due primarily to increases in sales in Mexico, South America, Australia, Europe and Asia. We continue to focus on international expansion opportunities including the recent expansion into Australia.

There are several new and potential gaming market developments that we believe will benefit us in the long term. In North America, we are focused on approved new jurisdictional opportunities and expansions in Canada, Illinois, Ohio, New York, Kansas, Maryland, New Jersey, Louisiana, Mississippi and California, and the potential for market opportunities in Massachusetts, Florida, New Hampshire, Michigan, Maine and Texas. The breadth and timing of such opportunities remain uncertain due to the legislative process in these jurisdictions, as well as the difficult credit environment facing certain of our customers and the risk of the gaming industry impact of continued economic uncertainty. We are also engaged in expanding our position in South Africa, Australia, New Zealand, and Mexico, and, in the future, we also expect to generate revenue from the new Italian VLT market and from potential new markets in Eastern Europe, Greece, Taiwan, Korea, Japan and Brazil. Further, as we continue to grow and gain market share in Asia, opportunities are anticipated to arise in that region which would enable us to further expand internationally.

Net cash provided by operating activities from continuing operations was $46.3 million and $11.1 million for the three months ended September 30, 2011 and 2010, respectively. Cash flows provided by operating activities from continuing operations in the current period were positively affected by decreases in prepaid and refundable income tax due primarily to a refund of $12.0 million in prior taxes paid, decreases in accounts and notes receivable due to increases in collections, and increases in deferred revenue, which were slightly offset by increases in inventory due primarily to transfers of finished goods to leased gaming equipment during the same period.

In the three months ended September 30, 2011, we made payments on our term loan and revolving line of credit totaling $8.8 million, and purchased approximately 1.0 million shares of our common stock for $31.0 million.

Management monitors and reviews its SG&A expenses in comparison to current revenues and future opportunities. SG&A expenses from continuing operations increased to $57.2 million during the three months ended September 30, 2011 from $51.6 million in the same period in 2010. SG&A expenses from continuing operations decreased as a percentage of revenue at 29% during the three months ended September 30, 2011, when compared to 30% during the three months ended September 30, 2010. The increase in SG&A expenses during the three months ended September 30, 2011 was due primarily to increases in payroll and related expenses, legal fees, and bad debt expense, when compared to the same period last year. Payroll and related expenses increased due primarily to an increase in headcount in the comparative periods primarily as a result of our expansion into new international markets where we have not yet commenced revenue generating activities. Legal fees increased due primarily to costs associated with litigation and fees related to our entrance into new international markets. Bad debt expense increased due primarily to an increase in the allowance for doubtful accounts recorded in the current quarter in response to our expansion of credit offered to our customers, exposure in certain international markets and specific customer credit situations. Bad debt as a percentage of revenue continues to remain at approximately 1%.

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Results of Operations

The summary financial results and operating statistics are as follows:

	Three Months Ended September 30,
	2011		% Rev		2010		% Rev
	(dollars in millions)
Revenues:
Gaming Equipment	$	64.4	33	%	$	51.0	30	%
Gaming Operations	85.0		44	%	79.2		46	%
Systems	45.6		23	%	40.6		24	%
Total revenues	$	195.0	100	%	$	170.8	100	%
Gross Margin:
Gaming Equipment(1)	$	28.4	44	%	$	24.9	49	%
Gaming Operations	60.7		71	%	57.0		72	%
Systems(1)	34.5		76	%	29.7		73	%
Total gross margin	$	123.6	63	%	$	111.6	65	%
Selling, general and administrative	$	57.2	29	%	$	51.6	30	%
Research and development costs	23.4		12	%	21.4		13	%
Depreciation and amortization	5.6		3	%	4.6		3	%
Operating income	$	37.4	19	%	$	34.0	20	%
Income from continuing operations	$	20.4	10	%	$	21.7	13	%

(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.

	Three Months Ended September 30,
	2011		2010
Operating Statistics
New gaming devices	3,399		2,823
New unit Average Selling Price (“ASP”)	$	16,624	$	15,685
End of period installed base:
Gaming monitoring units installed base	408,000		388,000
Linked progressive systems	1,181		963
Rental and daily-fee games	14,466		12,916
Video lottery systems	8,418		7,966
Centrally determined systems	48,125		49,070

Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010

Total revenues increased $24.2 million to $195.0 million, or 14%, in the three months ended September 30, 2011, when compared to the same period last year, as a result of the following:

Gaming Equipment Revenue. Gaming Equipment revenue increased $13.4 million, or 26%, to approximately $64.4 million primarily as a result of a 20% increase in new gaming device sales to 3,399 units in the three months ended September 30, 2011, when compared to 2,823 units in the same period last year. ASP of new gaming devices increased by 6% to $16,624 in the three months ended September 30, 2011 when compared to $15,685 in the same period last year. The increase in ASP was primarily as a result of the mix of products sold, including sales of the new Pro Series cabinets with Alpha 2 technology in the current fiscal quarter which made up approximately 75% of shipments.

Gaming Equipment Gross Margin. Gaming Equipment gross margin decreased to 44% in the three months ended September 30, 2011 from 49%, in the same period last year, due primarily to the write-down of older technology platforms, an increase in royalty-based fees associated with third-party themes due to an increase in the number of related unit and game conversion kit sales, and the increased cost of our new Pro Series cabinets. We are in the beginning period of new product launches and the Company does not expect further margin erosion.

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Gaming Operations Revenue. Gaming Operations revenue increased $5.8 million, or 7%, to approximately $85.0 million in the three months ended September 30, 2011, when compared to the same period last year, primarily as a result of an increase in participation and rental revenue and the placements of higher yield premium products, including Cash Spin, Hot Spin, Vegas Hits and Cash Wizard, the performance of our linked progressive and lottery systems installed base, as well as the continued success of our Digital Tower Series and Hot Shot family of games. The improvement in participation and rental revenue and wide-area progressive revenue was primarily due to increases in our end of period installed base of games, that included a 12% increase in the installed games base of rental and daily-fee games, and an 23% increase in the installed games base of linked progressive systems due primarily to the release of our Betty Boop Love Meter and Money Vault™ wide-area progressive games.

Gaming Operations Gross Margin. Gross margin remained relatively consistent at 71% in the three months ended September 30, 2011, when compared to 72% in the same period last year.

Systems Revenue. Systems revenue increased $5.0 million, or 12%, to approximately $45.6 million in the three months ended September 30, 2011, when compared to the same period last year. Maintenance revenue increased $1.8 million in the three months ended September 30, 2011, when compared to the same period last year, as a result of the increased install base of customers on our systems. During the three months ended September 30, 2011, increases in maintenance revenue of 11% and software and services revenue of 66% were offset by a decrease in hardware revenue of 18%, when compared to the same period last year.

Systems Gross Margin. Systems gross margin increased to 76% in the three months ended September 30, 2011 from 73%, in the same period last year, primarily as a result of a change in the mix of products sold in the comparative periods including an increase in maintenance and software and services revenue which involves minimal variable costs. Specifically, Systems revenues for the three months ended September 30, 2011 were comprised of 28% hardware, 39% maintenance and 33% software and services revenue, as compared to 38% hardware, 39% maintenance and 23% software and services revenue in the same period last year.

Selling, General and Administrative Expenses. SG&A expenses increased $5.6 million, or 11%, in the three months ended September 30, 2011, when compared to the same period last year, due primarily to increases in payroll and related expenses, legal fees, and bad debt expense. Payroll and related expenses increased due primarily to an increase in headcount in the comparative periods primarily as a result of our expansion into new international markets where we have not yet commenced significant revenue generating activities. Legal fees increased due primarily to costs associated with litigation and fees related to our entrance into new international markets. Bad debt expense increased due primarily to an increase in the allowance for doubtful accounts recorded in the current quarter in response to our expansion of credit offered to our customers and increased exposure in international markets. Bad debt as a percentage of revenue continues to remain at approximately 1%.

Research and Development Costs. R&D costs increased $2.0 million, or 9%, in the three months ended September 30, 2011, when compared to the same period last year, due primarily to increased product development efforts requiring an increase in employees. The increased costs reflect our continued focus on our technology assets including content development on the ALPHA 2 platform and the new Pro Series cabinets as well as development of iVIEW DM.

Depreciation and Amortization Expense. Depreciation and amortization expense increased $1.0 million, or 22%, in the three months ended September 30, 2011, when compared to same period last year, primarily as a result of additional of leased gaming equipment year over year.

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Other Income (Expense), Income Tax Expense and Net Income (Loss) Attributable to Noncontrolling Interests

Other income (expense) and income tax expense from continuing operations and net loss (income) attributable to noncontrolling interests was as follows:

	Three Months EndedSeptember 30,
	2011			2010
	(in 000s)
Other income (expense)
Interest income	$	1.3		$	1.1
Interest expense	(4.6		)	(3.0		)
Other, net	(1.9		)	1.8
Total other expense	(5.2		)	(0.1		)
Income tax expense	(11.9		)	(12.3		)
Net loss (income) attributable to noncontrolling interests	0			0.5

Other Income (Expense). Other expense increased $5.1 million in the three months ended September 30, 2011, when compared to the same period last year, due primarily to foreign currency translations. In the three months ended September 30, 2011, losses on foreign currency translation were $2.1 million, when compared to gains on foreign currency translation of $1.7 million in the same period last year. Interest expense increased $1.6 million in the three months ended September 30, 2011, when compared to the same period last year, due primarily to the increase in long-term debt upon entering into the amended and restated credit agreement in April 2011.

Income Tax Expense. Income tax expense decreased $0.4 million during the three months ended September 30, 2011, when compared to the same period last year, due primarily to the reduction in net income. The effective income tax rate for continuing operations for the three months ended September 30, 2011 and 2010 was 36.7% and 36.2%, respectively.

Net loss (income) attributable to noncontrolling interests. Net income attributable to noncontrolling interests increased $0.5 million in the three months ended September 30, 2011, when compared to the same period last year.

Financial Condition and Liquidity

Working Capital

	September 30,		June 30,		Increase (decrease)
	2011		2011		Amount			%
	(in 000s)
Cash and cash equivalents	$	61,937	$	66,425	$	(4,488	)	(7	)%
Total long-term debt, including current maturities	$	506,665	$	515,403	$	8,738		2	%
Total current assets	$	442,196	$	473,677	$	(31,481	)	(7	)%
Total current liabilities	157,943		160,616		2,673			2	%
Net working capital	$	284,253	$	313,061	$	(28,808	)	(9	)%

Pursuant to various state gaming regulations, certain cash accounts are maintained to ensure availability of funds to pay wide-area progressive jackpot awards in installments rather than in one lump-sum. At September 30, 2011 and June 30, 2011, these accounts had an aggregate value of approximately $8.9 million and $8.4 million, respectively, which are classified as restricted cash in our unaudited condensed consolidated balance sheets. In addition, we purchase U.S. Treasury Strip Securities for the benefit of jackpot winners who elect to receive winnings in annual or weekly installment payments. These securities are included in restricted long-term investments in the accompanying unaudited condensed consolidated balance sheets, and totaled $12.8 million and $12.5 million as of September 30, 2011 and June 30, 2011, respectively.

On September 30, 2011 and June 30, 2011, the amount of cash and investments held by foreign subsidiaries was $19.1 million and $18.2 million, respectively. If these funds are needed for our operations in the U.S., we would be required to accrue and pay U.S. taxes to repatriate these funds.

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Our net working capital decreased $28.8 million in the three months ended September 30, 2011, when compared to June 30, 2011, and was affected by a $4.5 million decrease in cash and cash equivalents during the same period and by net working capital increases for the following components:

·A decrease of $13.5 million current accounts and notes receivable due primarily to an increase in cash collections during the period;

·A decrease of $21.4 million in prepaid and refundable income tax due primarily to a cash refund of $12.0 million and a carryforward of an overpayment in fiscal year 2011, offsetting fiscal year 2012 taxes payable;

·An increase of $5.2 million in inventories due primarily to the build-up of finished goods inventory in certain international locations and raw materials inventory for systems;

·A decrease of $4.1 million in accounts payable due primarily to the timing of check runs in the comparable periods; and

·A decrease of $3.3 million in current jackpot liabilities due primarily to the adoption of new guidance related to casino jackpot liabilities during the current period.

Current accounts and notes receivable decreased $13.5 million and long-term accounts and notes receivable increased $3.5 million during the three months ended September 30, 2011, when compared to June 30, 2011. Current accounts and notes receivable decreased due to an increase in collections during the current period, while long-term accounts and notes receivable increased due primarily to an increase in certain new systems contracts and international sales during the current period. As of September 30, 2011, our DSO’s decreased to 109 days from 116 days at June 30, 2011.

On April 15, 2011, we 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.

Effective December 2008, we 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, we 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 and June 30, 2011, the combined swap agreements had a notional value of $292.5 million and $296.3 million, respectively.

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 our domestic property and is guaranteed by each of our 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 our ability and certain of our 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.

31

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 we were unable to repay the indebtedness upon its acceleration, the lenders could proceed against the underlying collateral. We were in compliance with all of the credit facility covenants as of September 30 and June 30, 2011.

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.

Management believes that cash flows from current operating activities will provide us with sufficient capital resources and liquidity to operate our business for at least the next 12 months.

At September 30, 2011, we had no material commitments for capital expenditures.

Cash Flow Summary

Our primary sources of liquidity include existing cash and cash equivalents, cash flows from all operating activities and the availability of funds under our revolving credit facility.

We utilize our cash to acquire materials for the manufacture of goods for resale, to pay payroll, interest, taxes and SG&A expenses and to fund R&D activities.

Cash flows provided by continuing operating activities were $46.3 million in the three months ended September 30, 2011 as compared to $11.1 million in the same period last year, a $35.2 million increase. Cash flows from operating activities of continuing operations for the three months ended September 30, 2011 were positively affected by decreases in prepaid and refundable income tax due primarily to a refund of $12.0 million in prior taxes paid, decreases in accounts and notes receivable due to increases in collections, and increases in deferred revenue. Cash flows were negatively impacted by our investment in inventories to significantly expand our installed base of leased gaming equipment and to build games for the new market opportunity in Italy during the same period.

Cash utilized for investing activities from continuing operations is primarily for capital expenditures related to furniture, fixtures, office and gaming equipment and improvements in leaseholds, financing arrangements with customers and investments in technology and other long-term assets. During the three months ended September 30, 2011 and 2010, we made capital expenditures of $1.6 million and $2.0 million, respectively. In addition, we made payments of $6.0 million related to acquisitions.

Cash utilized for financing activities from continuing operations is primarily for the payment of principal on our debt and the purchase of shares of our common stock. We made payments of $8.8 million on our term loan and revolving line of credit, and purchased 1.0 million shares of our common stock for $31.0 million under our share repurchase plan during the three months ended September 30, 2011.

Cash provided by financing activities is primarily from proceeds from the exercise of stock options and purchases of stock under our 2008 Employee Stock Purchase Plan (the “2008 ESPP”), borrowings under our revolving credit facility, and excess tax benefits of stock option exercises. During the three months ended September 30, 2011, employees exercised options for 73,254 shares of common stock for $1.4 million and purchased 23,442 shares of common stock for $0.6 million under our 2008 ESPP.

32

Critical Accounting Policies

A description of our critical accounting policies can be found in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2011 10-K. There were no material changes to those policies during the three months ended September 30, 2011.

Other Recently Issued Accounting Pronouncements

For a description of other recently issued accounting pronouncements, see Note 1 to the unaudited condensed consolidated financial statements, Description of Business and Summary of Significant Accounting Policies.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

As of September 30, 2011, we had total debt outstanding of approximately $506.7 million which consisted primarily of a $292.5 million term loan and $214.0 million of borrowings under our revolving credit facility. We have minimized our exposure to market interest rate risk because the variable interest rate on the term loan was effectively converted to a fixed rate as a result of the floating-to-fixed interest rate swaps discussed in Note 4 to the unaudited condensed consolidated financial statements, Long-Term Debt. As of September 30, 2011, the interest rate on the revolving credit facility was 1.97% and the interest rate on our term loan was approximately 3.82%, after giving effect to our interest rate swaps.

Foreign Currency Exchange Rate Risk

Certain of our foreign subsidiaries use their local currency as their functional currency and are exposed to risks resulting from fluctuations in foreign currency exchange rates. During the three months ended September 30, 2011, we recognized foreign currency exchange rate losses of approximately $2.1 million, and during the three months ended September 30, 2010, we recognized foreign currency exchange rate gains of approximately $1.7 million. We estimate that a hypothetical 10% strengthening (or weakening) of the U.S. dollar for fiscal 2012 would have an immaterial impact on our business.

In addition, the net assets of these subsidiaries are exposed to foreign currency translation gains and losses which are included as a component of accumulated other comprehensive income in stockholders’ equity in our unaudited condensed consolidated balance sheets. Such translation resulted in unrealized losses of $2.0 million as of September 30, 2011, and unrealized gains of $0.8 million as of June 30, 2011.

We 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 reduce the risk that earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. See Note 1 to the unaudited condensed consolidated financial statements, Description of Business and Summary of Significant Policies (Fair value of financial instruments).

33

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) promulgated under the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e) and 15d-15(e) as of the end of the period covered by this report.

Based on this evaluation our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2011.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected or that judgments in decision-making are not based on faulty input.

Changes in Internal Control Over Financial Reporting during the Quarter Ended September 30, 2011

Although we update our internal controls as necessary to accommodate any modifications to our business processes and accounting procedures as part of our normal operations, there were no changes in our internal control over financial reporting that occurred in the three months ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

34

PART II

ITEM 1.LEGAL PROCEEDINGS

For a description of our legal proceedings, see Note 8 to the unaudited condensed consolidated financial statements, Commitments and Contingencies, which is incorporated by reference in response to this item.

ITEM 1A.RISK FACTORS

The Company is subject to risks and uncertainties that could cause our actual results to differ materially from the expectations expressed in the forward looking statements. Factors that could cause our actual results to differ from expectations are described under “Item 1A. Risk Factors” in the 2011 10-K, to which there were no material changes during the period covered by this Quarterly Report on Form 10-Q.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On April 4, 2010, the Company’s Board of Directors approved a new share repurchase plan under which, subject to price and market conditions, purchases of shares of common stock can be made from time to time in the open market or in private negotiated transactions using available cash, in an aggregate amount of up to $150 million. On April 6, 2011, the Company’s Board of Directors increased the share repurchase plan amount to an amount equal to $550 million minus the amount repurchased in the Company’s Dutch auction tender offer described under Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in the 2011 10-K.

Our quarterly share repurchases under this plan, excluding treasury shares acquired in non-cash transactions related to forfeited stock awards and shares exchanged for options exercised, were as follows:

Period	Total Number of Shares (or Units) Purchased	Average Price Paid Per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs
					$	151,658,558
July 1 - July 31, 2011	—	$	—	—	$	151,658,558
August 1 — August 31, 2011	518,300	$	30.34	518,300	$	135,933,299
September 1 - September 30, 2011	528,500	$	28.84	528,500	$	120,690,333
Total	1,046,800	$	29.58	1,046,800

ITEM 6.EXHIBITS

Exhibits	Description
31.1	Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

*Pursuant to applicable securities laws and regulations, the Company is deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and is not subject to liability under any anti-fraud provisions of the federal securities laws as long as the Company has made a good faith attempt to comply with the submission requirements and promptly amends the interactive data files after becoming aware that the interactive data files fails to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability.

35

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

BALLY TECHNOLOGIES, INC.		Date: November 4, 2011
By	/s/Richard Haddrill
	Richard Haddrill
	Chief Executive Officer
	(Principal Executive Officer)
By	/s/Neil P. Davidson
	Neil P. Davidson
	Senior Vice President, Chief Financial Officer and Treasurer
	(Principal Financial and Accounting Officer)

36

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Richard Haddrill, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Bally Technologies, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2011

/s/Richard Haddrill

Richard Haddrill

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Neil P. Davidson, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Bally Technologies, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2011

/s/Neil P. Davidson

Neil P. Davidson

Senior Vice President, Chief Financial Officer and Treasurer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Bally Technologies, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended September 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard Haddrill, President and Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 that, to my knowledge:

1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date:  November 4, 2011

/s/Richard Haddrill

Richard Haddrill

Chief Executive Officer

(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Bally Technologies, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Neil P. Davidson, Senior Vice President, Chief Financial Officer and Treasurer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 that, to my knowledge:

1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date:  November 4, 2011

/s/Neil P. Davidson

Neil P. Davidson

Senior Vice President, Chief Financial Officer and Treasurer

(Principal Financial Officer)

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data	3 Months Ended
	Sep. 30, 2011		Sep. 30, 2010
Revenues:
Gaming equipment and systems	$ 110,013		$ 91,588
Gaming operations	84,954		79,220
Total revenues	194,967		170,808
Costs and expenses:
Cost of gaming equipment and systems	47,101	[1]	36,957	[1]
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
Total costs and expenses	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 (in dollars per share)	$ 0.47		$ 0.42
Loss on sale of discontinued operations (in dollars per share)			$ (0.01)
Basic earnings per share (in dollars per share)	$ 0.47		$ 0.41
Diluted earnings per share attributable to Bally Technologies, Inc.:
Income from continuing operations (in dollars per share)	$ 0.45		$ 0.40
Loss on sale of discontinued operations (in dollars per share)			$ (0.01)
Diluted earnings per share (in dollars per share)	$ 0.45		$ 0.39
Weighted average shares outstanding:
Basic (in shares)	43,708		53,676
Diluted (in shares)	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.

XML

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $) In Thousands	Total	Common Stock	Series E Special Stock	Treasury Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Income (Loss) ("OCI")	Retained Earnings	Noncontrolling Interests	Comprehensive Income
Balances at Jun. 30, 2010	$ 544,192	$ 5,943	$ 12	$ (157,053)	$ 392,853	$ (3,044)	$ 303,100	$ 2,381
Balances (in shares) at Jun. 30, 2010		59,495
Increase (Decrease) in Stockholders' Equity
Net income from continuing operations, net of tax	21,652						22,192	(540)	21,652
Loss on sale of discontinued operations, net of tax	(403)						(403)		(403)
Foreign currency translation adjustment	1,172					1,172			1,172
Unrealized loss on derivative financial instruments, net of tax	(420)					(420)			(420)
Total comprehensive income	22,001								22,001
Distributions to noncontrolling interests	(123)							(123)
Issuance and receipt of restricted stock, ESPP shares, stock options and related tax and tax benefit	966	5		(125)	1,086
Issuance and receipt of restricted stock, ESPP shares, stock options and related tax and tax benefit (in shares)		48
Purchase of common stock for treasury	(22,145)			(22,145)
Share-based compensation	3,284				3,284
Balances at Sep. 30, 2010	548,175	5,948	12	(179,323)	397,223	(2,292)	324,889	1,718
Balances (in shares) at Sep. 30, 2010		59,543
Balances at Jun. 30, 2011	214,592	6,149	12	(634,268)	442,713	(3,064)	401,363	1,687
Balances (in shares) at Jun. 30, 2011		61,541
Increase (Decrease) in Stockholders' Equity
Net income from continuing operations, net of tax	20,409						20,392	17	20,409
Foreign currency translation adjustment	(2,010)					(2,010)			(2,010)
Unrealized loss on derivative financial instruments, net of tax	(5,312)					(5,312)			(5,312)
Total comprehensive income	13,087								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	1,939	17		(338)	2,260
Issuance and receipt of restricted stock, ESPP shares, stock options and related tax and tax benefit (in shares)		172
Purchase of common stock for treasury	(30,968)			(30,968)
Share-based compensation	3,392				3,392
Balances at Sep. 30, 2011	$ 204,389	$ 6,166	$ 12	$ (665,574)	$ 448,365	$ (10,386)	$ 424,139	$ 1,667
Balances (in shares) at Sep. 30, 2011		61,713

XML

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $)	3 Months Ended
	Sep. 30, 2011 Y D M segment count classofreceivable Statement	Sep. 30, 2010	Sep. 30, 2011 Recurring basis Level 2 Other current assets.	Sep. 30, 2011 Recurring basis Level 2 Other assets, net	Jun. 30, 2011 Recurring basis Level 2 Other assets, net	Sep. 30, 2011 Recurring basis Level 2 Accrued and other liabilities.	Jun. 30, 2011 Recurring basis Level 2 Accrued and other liabilities.	Sep. 30, 2011 Recurring basis Level 2 Other liabilities	Sep. 30, 2011 Accrued and other liabilities.	Sep. 30, 2011 Other liabilities
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Post-closing adjustments to reduce gain on sale of discontinued operations	$ 400,000
Fair value of financial instruments
Maximum maturity period for foreign currency forward contracts (in months)	12
Total amount outstanding under foreign currency forward contracts	33,500,000
Fair value of derivative assets and liabilities
Asset: Foreign currency derivative financial instrument			550,000	870,000	452,000
Asset: Interest rate derivative financial instruments					1,231,000
Liability: Foreign currency derivative financial instrument							586,000
Liability: Interest rate derivative financial instruments	12,074,000					4,523,000	5,133,000	7,551,000	4,523,000	7,551,000
Accounting for Derivative Instruments and Hedging Activity
Interest rate swap agreement, Amount of Loss Recognized in OCI on Derivative (Effective Portion)	9,521,000	1,249,000
Interest rate swap agreement, Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	1,349,000	602,000
Foreign Currency Forward Contract, Amount of Loss Recognized in Other Income (Expense)	$ 1,554,000

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands	Sep. 30, 2011	Jun. 30, 2011
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
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

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EARNINGS PER SHARE (Details) (USD $) In Thousands, except Per Share data	3 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
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 attributable to Bally Technologies, Inc.	$ 20,392	$ 21,789
Weighted average common shares outstanding (in shares)	43,708	53,676
Dilutive effect of:
Stock options, Restricted Stock Units ("RSU") and restricted stock (in shares)	1,859	2,355
Warrants (in shares)		1
Weighted average diluted shares outstanding (in shares)	45,567	56,032
Basic earnings per share attributable to Bally Technologies, Inc.:
Income from continuing operations (in dollars per share)	$ 0.47	$ 0.42
Loss on sale of discontinued operations (in dollars per share)		$ (0.01)
Basic earnings per share (in dollars per share)	$ 0.47	$ 0.41
Diluted earnings per share attributable to Bally Technologies, Inc.:
Income from continuing operations (in dollars per share)	$ 0.45	$ 0.40
Loss on sale of discontinued operations (in dollars per share)		$ (0.01)
Diluted earnings per share (in dollars per share)	$ 0.45	$ 0.39
Stock options, RSU and restricted stock having anti-dilutive effect in calculation of diluted earnings per share (in shares)	785	793

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STOCKHOLDERS' EQUITY

3 Months Ended

Sep. 30, 2011

STOCKHOLDERS' EQUITY

STOCKHOLDERS' EQUITY

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.

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GOODWILL AND INTANGIBLE ASSETS (Details) (USD $)	3 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Jun. 30, 2011
Intangible assets
Gross Carrying Amount of finite-lived intangible assets	$ 89,056,000		$ 86,675,000
Accumulated Amortization of finite-lived intangible assets	(61,120,000)		(59,310,000)
Net Carrying Amount of finite-lived intangible assets	27,936,000		27,365,000
Gross Carrying Amount of total intangible assets	96,556,000		94,175,000
Net Carrying Amount of total intangible assets	35,436,000		34,865,000
Accumulated Amortization on total intangible assets	(61,120,000)		(59,310,000)
Amortization expense of finite-lived intangible assets	2,400,000	2,600,000
Future amortization of finite lived intangible assets
2012	8,348,000
2013	9,392,000
2014	4,890,000
2015	2,181,000
2016	1,671,000
Thereafter	1,454,000
Total	27,936,000
Changes in the carrying amount of goodwill
Balance at the beginning of the period	162,110,000
Additions	7,131,000
Foreign currency translation adjustment	(348,000)
Balance at the end of the period	168,893,000
Computer software
Intangible assets
Useful Life, minimum (in years)	3
Useful Life, maximum (in years)	9
Gross Carrying Amount of finite-lived intangible assets	36,798,000		36,725,000
Accumulated Amortization of finite-lived intangible assets	(32,569,000)		(31,841,000)
Net Carrying Amount of finite-lived intangible assets	4,229,000		4,884,000
Amortization expense of finite-lived intangible assets	600,000	1,100,000
License rights
Intangible assets
Useful Life, minimum (in years)	3
Useful Life, maximum (in years)	13
Gross Carrying Amount of finite-lived intangible assets	8,694,000		4,344,000
Accumulated Amortization of finite-lived intangible assets	(3,126,000)		(2,751,000)
Net Carrying Amount of finite-lived intangible assets	5,568,000		1,593,000
Trademarks
Intangible assets
Useful Life, minimum (in years)	5
Useful Life, maximum (in years)	9
Gross Carrying Amount of finite-lived intangible assets	2,203,000		2,203,000
Accumulated Amortization of finite-lived intangible assets	(2,203,000)		(2,203,000)
Gross Carrying Amount of total intangible assets	7,500,000		7,500,000
Net Carrying Amount of total intangible assets	7,500,000		7,500,000
Core technology
Intangible assets
Useful Life, minimum (in years)	5
Useful Life, maximum (in years)	14
Gross Carrying Amount of finite-lived intangible assets	23,763,000		22,763,000
Accumulated Amortization of finite-lived intangible assets	(15,103,000)		(14,107,000)
Net Carrying Amount of finite-lived intangible assets	8,660,000		8,656,000
Contracts
Intangible assets
Useful Life, minimum (in years)	5
Useful Life, maximum (in years)	10
Gross Carrying Amount of finite-lived intangible assets	15,665,000		15,303,000
Accumulated Amortization of finite-lived intangible assets	(7,623,000)		(7,372,000)
Net Carrying Amount of finite-lived intangible assets	8,042,000		7,931,000
Other intangibles
Intangible assets
Useful Life, minimum (in years)	3
Useful Life, maximum (in years)	5
Gross Carrying Amount of finite-lived intangible assets	1,933,000		5,337,000
Accumulated Amortization of finite-lived intangible assets	(496,000)		(1,036,000)
Net Carrying Amount of finite-lived intangible assets	$ 1,437,000		$ 4,301,000

XML

Document and Entity Information	3 Months Ended
	Sep. 30, 2011	Oct. 31, 2011
Document and Entity Information
Entity Registrant Name	BALLY TECHNOLOGIES, INC.
Entity Central Index Key	0000002491
Document Type	10-Q
Document Period End Date	Sep. 30, 2011
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		43,344,000
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1

XML

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Sep. 30, 2011 Y D M segment count classofreceivable Statement	Jul. 02, 2011 Adoption of new accounting guidance
Revenue recognition
Time-based licenses term (in months)	12
Period for fee recognition on hardware maintenance and product support arrangements (in months)	12
Period for software maintenance and product support arrangements (in months)	12
Recently adopted accounting pronouncements
Cumulative effect adjustment to opening retained earnings		$ 2.4
Number of continuous statements	1
Number of separate consecutive statements	2

XML

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Sep. 30, 2011

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Schedule of fair value of derivative liabilities

	Fair Value Measurements Using Input Type
	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	$	—

Schedule of impact of the cash flow hedge and non-designated foreign currency derivatives on the consolidated financial statements

Cash Flow Hedging Relationship	Amount of Loss Recognized in OCI on Derivative (Effective Portion)		Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
	(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 in Other Income (Expense)
Non-Designated Derivative	Three Months Ended September 30, 2011		Three Months Ended September 30, 2010
Foreign Currency Forward Contract	$	1,554	$	—

Schedule of accounts and notes receivable

	Accounts and Notes Receivable as of September 30, 2011						Accounts and Notes Receivable as of June 30, 2011
	Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment		Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment
	(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

Schedule of the allowance for doubtful accounts on accounts and notes receivable

	Allowance for Doubtful Accounts
	Beginning Balance as of June 30, 2011			Charge- offs		Recoveries		Provision			Ending Balance as of September 30, 2011			Ending Balance Individually Evaluated for Impairment			Ending Balance Collectively Evaluated for Impairment
	(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	)

Schedule of recorded investment in receivables on nonaccrual status

Recorded Investment in Receivables on Nonaccrual Status	September 30, 2011		June 30,2011
	(in 000s)
Trade receivables	$	3,473	$	4,186
Lease receivables	—		—
Notes receivables	—		—
Total	$	3,473	$	4,186

Schedule of aging of past due accounts receivables

	1 to 90 Days Past Due		91 to 180 Days Past Due		181 + Days Past Due		Total Past Due		Current		Total Receivable		Recorded Investment 90 Days and Accruing
	(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	$	—

Schedule of inventory

	September 30, 2011		June 30, 2011
	(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

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EARNINGS PER SHARE

3 Months Ended

Sep. 30, 2011

EARNINGS PER SHARE

EARNINGS PER SHARE

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 September 30,
	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 September 30,
	2011	2010
	(in 000s)
Stock options, RSU and restricted stock	785	793

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COMMITMENTS AND CONTINGENCIES (Details)	1 Months Ended
	Apr. 30, 2009 Patent infringement lawsuit filed by International Game Technology ("IGT") against the Company product	Apr. 30, 2009 Patent infringement lawsuit filed by International Game Technology ("IGT") against the Company product	Oct. 31, 2008 Patent infringement lawsuit filed by International Game Technology ("IGT") against the Company patent	Oct. 31, 2010 WMS Gaming Inc. patent
Litigation
Number of patents against which lawsuit is filed				2
Number of additional patents against which lawsuit is filed				3
Number of products in infringement of patent claims	2
Number of products undergoing technical changes by the Company		2
Number of patents of plaintiff declared invalid by the court			2

XML

COMMITMENTS AND CONTINGENCIES

3 Months Ended

Sep. 30, 2011

COMMITMENTS AND CONTINGENCIES.

COMMITMENTS AND CONTINGENCIES

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.

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GOODWILL AND INTANGIBLE ASSETS (Tables)

3 Months Ended

Sep. 30, 2011

GOODWILL AND INTANGIBLE ASSETS

Schedule of intangible assets

		September 30, 2011							June 30, 2011
	Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(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

Schedule of future amortization of finite lived intangible assets

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

Schedule of changes in the carrying amount of goodwill

	(in 000s)
Balance at June 30, 2011	$	162,110
Additions	7,131
Foreign currency translation adjustment	(348		)
Balance at September 30, 2011	$	168,893

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SEGMENT AND GEOGRAPHICAL INFORMATION

3 Months Ended

Sep. 30, 2011

SEGMENT AND GEOGRAPHICAL INFORMATION

SEGMENT AND GEOGRAPHICAL INFORMATION

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 September 30,
	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 September 30,
	2011		2010
	(in 000s)
Revenues:
United States and Canada	$	158,726	$	145,712
International	36,241		25,096
Total revenues	$	194,967	$	170,808
Operating income:
United States and Canada	$	35,740	$	31,625
International	1,651		2,379
Total operating income	$	37,391	$	34,004

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SHARE-BASED COMPENSATION (Details 3) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Sep. 30, 2011 Y
Stock options
Share-Based Compensation
Unrecognized compensation cost	$ 10.0
Unrecognized compensation cost, period for recognition (in years)	1.80
Restricted stock and RSUs
Share-Based Compensation
Unrecognized compensation cost	$ 12.9
Unrecognized compensation cost, period for recognition (in years)	1.79

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INCOME TAXES

3 Months Ended

Sep. 30, 2011

INCOME TAXES

INCOME TAXES

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.

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CONDENSED CONSOLIDATED SUPPLEMENTAL CASH FLOW INFORMATION (USD $) In Thousands	3 Months Ended
	Sep. 30, 2011		Sep. 30, 2010
The following supplemental information is related to the unaudited condensed consolidated statements of cash flows:
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	30,457	[1]	16,767	[1]
Reclassify property, plant and equipment to inventory	3,595	[1]	3,014	[1]
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.

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GOODWILL AND INTANGIBLE ASSETS

3 Months Ended

Sep. 30, 2011

GOODWILL AND INTANGIBLE ASSETS

GOODWILL AND INTANGIBLE ASSETS

3.             GOODWILL AND INTANGIBLE ASSETS

Intangible assets consist of the following:

		September 30, 2011							June 30, 2011
	Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(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.

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SHARE-BASED COMPENSATION (Details 2) (USD $) In Thousands	3 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Share-based Compensation
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
Selling, general and administrative
Share-based Compensation
Share-based compensation expense before tax	2,422	2,407
Research and development
Share-based Compensation
Share-based compensation expense before tax	927	836
Cost of gaming equipment and systems and operations
Share-based Compensation
Share-based compensation expense before tax	$ 43	$ 41

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LONG-TERM DEBT

3 Months Ended

Sep. 30, 2011

LONG-TERM DEBT

LONG-TERM DEBT

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 (in 000s)		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)

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LONG-TERM DEBT (Details) (USD $)	12 Months Ended								1 Months Ended	3 Months Ended	1 Months Ended		3 Months Ended						1 Months Ended		1 Months Ended
	Jun. 30, 2011	Sep. 30, 2011	Sep. 30, 2011 Revolving credit facility	Jun. 30, 2011 Revolving credit facility	Sep. 30, 2011 Term loan facility	Jun. 30, 2011 Term loan facility	Sep. 30, 2011 Other, generally unsecured	Jun. 30, 2011 Other, generally unsecured	Apr. 30, 2011 New Credit Facility	Sep. 30, 2011 New Credit Facility	Apr. 30, 2011 New Credit Facility, term loan	Apr. 15, 2011 New Credit Facility, term loan Y	Sep. 30, 2011 New Credit Facility, term loan Quarterly principal reduction through March 2013	Sep. 30, 2011 New Credit Facility, term loan Quarterly principal reduction from June 2013 through March 2014	Sep. 30, 2011 New Credit Facility, term loan Quarterly principal reduction from June 2014 through May 2016	Sep. 30, 2011 New Credit Facility, term loan Principal reduction May 2016	Sep. 30, 2011 New Credit Facility, revolving credit	Apr. 15, 2011 New Credit Facility, revolving credit Y	Sep. 30, 2012 Interest rate swap agreement maturing on September 26, 2012	Sep. 26, 2012 Interest rate swap agreement maturing on September 26, 2012	Jun. 30, 2011 Interest rate swap agreement maturing on May 13, 2016
Components of long-term debt
Long-term debt	$ 515,403,000	$ 506,665,000	$ 214,000,000	$ 219,000,000	$ 292,500,000	$ 296,250,000	$ 165,000	$ 153,000
Less current maturities	(15,153,000)	(15,165,000)
Long-term debt, net of current maturities	500,250,000	491,500,000
Overall capacity of senior secured credit facility									700,000,000		300,000,000
Maximum borrowing capacity																		400,000,000
Total undrawn revolver capacity																	186,000,000
Term of facility (in years)												5						5
Sublimit under the revolving credit facility related to standby letters of credit																		50,000,000
Sublimit under the revolving credit facility related to swingline loans																		10,000,000
Sublimit under the revolving credit facility related to multicurrency borrowings																		150,000,000
Variable rate basis										LIBOR
Debt, margin on LIBOR rate, low end of range (as a percent)										1.25%
Debt, margin on LIBOR rate, high end of range (as a percent)										2.00%
Variable interest rate description before hedging of debt	LIBOR																		LIBOR		LIBOR
Notional amount of interest rate swap		292,500,000																		218,800,000	165,000,000
Effective interest rate for hedged variable rate debt (as a percent)																			1.89%		2.09%
Effective interest rate after giving effect to the floating-to-fixed interest rate swaps (as a percent)			3.82%		1.97%
Quarterly principal reductions, percentage of original principal amount (as a percent)													1.25%	1.875%	2.50%
Principal reduction amount													$ 3,750,000	$ 5,625,000	$ 7,500,000	$ 187,500,000

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STOCKHOLDERS' EQUITY (USD $) In Millions, except Share data	3 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Share Repurchase Plan
Shares repurchased during the period under share purchase plan (in shares)	1,046,800	670,745
Remaining authorized amount available to repurchase plan	$ 120.7
Aggregate cost of repurchase under share purchase plan	$ 31.0	$ 22.1

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SHARE-BASED COMPENSATION (Details) (USD $)	3 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Employee Stock Purchase Plan
Share-Based Compensation
Maximum percentage of eligible earnings that can be contributed by the eligible employee (as a percent)	10.00%
Purchase price expressed as percentage of fair market value of common stock (as a percent)	85.00%
Shares purchased by the employees (in shares)	23,442	19,572
Approximate value of shares purchased by the employees	$ 600,000	$ 500,000
Stock options
Stock options activity
Balance at the beginning of the period (in shares)	3,682,000
Granted (in shares)	14,000
Exercised (in shares)	(73,000)
Forfeited or expired (in shares)	(20,000)
Balance at the end of the period (in shares)	3,603,000
Exercisable at the end of the period (in shares)	2,751,000
Weighted Average Exercise Price
Balance at the beginning of the period (in dollars per share)	$ 24.45
Granted (in dollars per share)	$ 33.82
Exercised (in dollars per share)	$ 18.84
Forfeited or expired (in dollars per share)	$ 34.06
Balance at the end of the period (in dollars per share)	$ 24.54
Exercisable at the end of the period (in dollars per share)	$ 21.31
Weighted Average Remaining Contractual Term
Options outstanding at the end of the period (in years)	3.62
Options exercisable at the end of the period (in years)	3.10
Aggregate Intrinsic Value
Balance at the beginning of the period	60,558,000
Balance at the end of the period	19,074,000
Exercisable at the end of the period	$ 18,242,000
Restricted Stock
Restricted stock and RSU activity
Balance at the beginning of the period (in shares)	337,000
Granted (in shares)	73,000
Released (in shares)	(15,000)
Balance at the end of the period (in shares)	395,000
Weighted Average Grant Date Fair Value
Balance at the beginning of the period (in dollars per share)	$ 38.42
Granted (in dollars per share)	$ 40.84
Released (in dollars per share)	$ 33.98
Balance at the end of the period (in dollars per share)	$ 39.04
Restricted stock units
Restricted stock and RSU activity
Balance at the beginning of the period (in shares)	600,000
Released (in shares)	(15,000)
Balance at the end of the period (in shares)	585,000
Vested at the end of the period (in shares)	534,000
Weighted Average Grant Date Fair Value
Balance at the beginning of the period (in dollars per share)	$ 18.92
Released (in dollars per share)	$ 42.01
Balance at the end of the period (in dollars per share)	$ 18.32
Vested at the end of the period (in dollars per share)	$ 16.04

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EARNINGS PER SHARE (Tables)

3 Months Ended

Sep. 30, 2011

EARNINGS PER SHARE

Schedule of basic and diluted earnings per share

	Three Months Ended September 30,
	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

Schedule of anti-dilutive securities excluded from computation of earnings per share

	Three Months Ended September 30,
	2011	2010
	(in 000s)
Stock options, RSU and restricted stock	785	793

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SHARE-BASED COMPENSATION

3 Months Ended

Sep. 30, 2011

SHARE-BASED COMPENSATION.

SHARE-BASED COMPENSATION

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 Price		Remaining Contractual Term	Aggregate Intrinsic Value
	(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 Stock		Weighted Average Grant Date Fair Value		RSUs		Weighted Average Grant Date Fair Value
	(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 September 30,
	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.

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SHARE-BASED COMPENSATION (Tables)

3 Months Ended

Sep. 30, 2011

SHARE-BASED COMPENSATION.

Schedule of stock option activity

			Weighted Average
	Shares		Exercise Price		Remaining Contractual Term	Aggregate Intrinsic Value
	(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

Schedule of restricted stock and RSU activity

	Restricted Stock		Weighted Average Grant Date Fair Value		RSUs		Weighted Average Grant Date Fair Value
	(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

Schedule of share-based compensation expense and related effect of the income tax benefit

	Three Months Ended September 30,
	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

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LONG-TERM DEBT (Details 2) (USD $)	12 Months Ended		1 Months Ended
	Jun. 30, 2011	Sep. 30, 2011	Jun. 30, 2011 Interest rate swap agreement maturing on May 13, 2016	Sep. 30, 2011 Accrued and other liabilities.	Sep. 30, 2011 Other liabilities
Interest rate swap agreement
Variable interest rate description before hedging of debt	LIBOR		LIBOR
Amounts expected to be reclassified from other comprehensive income to interest expense in the next twelve months		$ 4,500,000
Amount of term loan facility debt hedged		292,500,000
Fair value of interest rate swap liability		$ 12,074,000		$ 4,523,000	$ 7,551,000

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands	3 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
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)
Total cash flows from operating activities of discontinued operations		(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

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SEGMENT AND GEOGRAPHICAL INFORMATION (Tables)

3 Months Ended

Sep. 30, 2011

SEGMENT AND GEOGRAPHICAL INFORMATION

Schedule of revenues and gross margin by segment

	Three Months Ended September 30,
	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

Schedule of revenues, operating income and identifiable assets by geographic region

	Three Months Ended September 30,
	2011		2010
	(in 000s)
Revenues:
United States and Canada	$	158,726	$	145,712
International	36,241		25,096
Total revenues	$	194,967	$	170,808
Operating income:
United States and Canada	$	35,740	$	31,625
International	1,651		2,379
Total operating income	$	37,391	$	34,004

XML

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) (USD $)	3 Months Ended
	Sep. 30, 2011 Y D M segment count classofreceivable Statement	Jun. 30, 2011
Accounts and notes receivable, allowance for doubtful accounts and credit quality of financing receivables
Credit term, low end of range (in days)	30
Credit term, high end of range (in days)	120
Extended credit term, maximum (in years)	3
Contract term for sale of gaming equipment (in years)	1
Development financing notes receivable, repayment terms, low end of range (in years)	3
Development financing notes receivable, repayment terms, high end of range (in years)	10
Number of portfolio segments	1
Number of classes of receivables (in counts)	4
Accounts and Notes Receivable
Ending Balance	$ 284,908,000	$ 293,471,000
Ending balance individually evaluated for impairment	52,043,000	50,171,000
Ending Balance Collectively Evaluated for Impairment	232,865,000	243,300,000
Allowance for Doubtful Accounts
Balance at the beginning of the period	(11,566,000)
Charge-offs	930,000
Recoveries	125,000
Provision	(2,528,000)
Balance at the end of the period	(13,039,000)
Ending Balance Individually Evaluated for Impairment	(6,616,000)
Ending Balance Collectively Evaluated for Impairment	(6,423,000)
Investment in receivables on nonaccrual status
Trade receivables credit term, low end of range (in days)	30
Trade receivables credit term, high end of range (in days)	120
Inventories
Raw materials	52,416,000	53,926,000
Work-in-process	1,228,000	1,630,000
Finished goods	20,160,000	13,078,000
Total	73,804,000	68,634,000
Trade and other receivables | Contract term less than one year | Current
Accounts and Notes Receivable
Ending Balance	146,877,000	162,202,000
Ending balance individually evaluated for impairment	3,143,000	2,064,000
Ending Balance Collectively Evaluated for Impairment	143,734,000	160,138,000
Allowance for Doubtful Accounts
Balance at the beginning of the period	(5,875,000)
Charge-offs	480,000
Recoveries	125,000
Provision	(2,326,000)
Balance at the end of the period	(7,596,000)
Ending Balance Individually Evaluated for Impairment	(3,143,000)
Ending Balance Collectively Evaluated for Impairment	(4,453,000)
Trade receivables | Contract term greater than one year
Accounts and Notes Receivable
Ending Balance	92,604,000	87,348,000
Ending balance individually evaluated for impairment	3,473,000	4,186,000
Ending Balance Collectively Evaluated for Impairment	89,131,000	83,162,000
Allowance for Doubtful Accounts
Balance at the beginning of the period	(5,691,000)
Charge-offs	450,000
Provision	(202,000)
Balance at the end of the period	(5,443,000)
Ending Balance Individually Evaluated for Impairment	(3,473,000)
Ending Balance Collectively Evaluated for Impairment	(1,970,000)
Investment in receivables on nonaccrual status
Recorded investment	3,473,000	4,186,000
Summarizes the aging of past due receivables
1 to 90 Days Past Due	6,871,000
91 to 180 Days Past Due	3,481,000
181 + Days Past Due	6,955,000
Total Past Due	17,307,000
Current	75,297,000
Total Receivable	92,604,000
Trade receivables | Contract term greater than one year | Current
Accounts and Notes Receivable
Ending Balance	72,993,000	72,237,000
Ending balance individually evaluated for impairment	3,473,000	3,973,000
Ending Balance Collectively Evaluated for Impairment	69,520,000	68,264,000
Allowance for Doubtful Accounts
Balance at the beginning of the period	(5,184,000)
Charge-offs	336,000
Provision	(34,000)
Balance at the end of the period	(4,882,000)
Ending Balance Individually Evaluated for Impairment	(3,473,000)
Ending Balance Collectively Evaluated for Impairment	(1,409,000)
Trade receivables | Contract term greater than one year | Noncurrent
Accounts and Notes Receivable
Ending Balance	19,611,000	15,111,000
Ending balance individually evaluated for impairment		213,000
Ending Balance Collectively Evaluated for Impairment	19,611,000	14,898,000
Allowance for Doubtful Accounts
Balance at the beginning of the period	(507,000)
Charge-offs	114,000
Provision	(168,000)
Balance at the end of the period	(561,000)
Ending Balance Collectively Evaluated for Impairment	(561,000)
Notes receivable | Contract term greater than one year
Accounts and Notes Receivable
Ending Balance	19,345,000	20,186,000
Ending balance individually evaluated for impairment	19,345,000	20,186,000
Summarizes the aging of past due receivables
Current	26,082,000
Total Receivable	26,082,000
Notes receivable | Contract term greater than one year | Current
Accounts and Notes Receivable
Ending Balance	2,861,000	1,621,000
Ending balance individually evaluated for impairment	2,861,000	1,621,000
Notes receivable | Contract term greater than one year | Noncurrent
Accounts and Notes Receivable
Ending Balance	16,484,000	18,565,000
Ending balance individually evaluated for impairment	16,484,000	18,565,000
Lease receivables | Contract term greater than one year
Accounts and Notes Receivable
Ending Balance	26,082,000	23,735,000
Ending balance individually evaluated for impairment	26,082,000	23,735,000
Summarizes the aging of past due receivables
Current	19,345,000
Total Receivable	19,345,000
Lease receivables | Contract term greater than one year | Current
Accounts and Notes Receivable
Ending Balance	11,469,000	10,245,000
Ending balance individually evaluated for impairment	11,469,000	10,245,000
Lease receivables | Contract term greater than one year | Noncurrent
Accounts and Notes Receivable
Ending Balance	14,613,000	13,490,000
Ending balance individually evaluated for impairment	14,613,000	13,490,000
Contract term greater than one year
Investment in receivables on nonaccrual status
Recorded investment	3,473,000	4,186,000
Summarizes the aging of past due receivables
1 to 90 Days Past Due	6,871,000
91 to 180 Days Past Due	3,481,000
181 + Days Past Due	6,955,000
Total Past Due	17,307,000
Current	120,724,000
Total Receivable	138,031,000
Current
Accounts and Notes Receivable
Ending Balance	234,200,000	246,305,000
Ending balance individually evaluated for impairment	20,946,000	17,903,000
Ending Balance Collectively Evaluated for Impairment	213,254,000	228,402,000
Allowance for Doubtful Accounts
Balance at the beginning of the period	(11,059,000)
Charge-offs	816,000
Recoveries	125,000
Provision	(2,360,000)
Balance at the end of the period	(12,478,000)
Ending Balance Individually Evaluated for Impairment	(6,616,000)
Ending Balance Collectively Evaluated for Impairment	(5,862,000)
Noncurrent
Accounts and Notes Receivable
Ending Balance	50,708,000	47,166,000
Ending balance individually evaluated for impairment	31,097,000	32,268,000
Ending Balance Collectively Evaluated for Impairment	19,611,000	14,898,000
Allowance for Doubtful Accounts
Balance at the beginning of the period	(507,000)
Charge-offs	114,000
Provision	(168,000)
Balance at the end of the period	(561,000)
Ending Balance Collectively Evaluated for Impairment	$ (561,000)

XML

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Sep. 30, 2011

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 Using Input Type
	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 Recognized in OCI on Derivative (Effective Portion)		Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
	(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 in Other Income (Expense)
Non-Designated Derivative	Three Months Ended September 30, 2011		Three Months Ended September 30, 2010
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 as of September 30, 2011						Accounts and Notes Receivable as of June 30, 2011
	Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment		Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment
	(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 Balance as of June 30, 2011			Charge- offs		Recoveries		Provision			Ending Balance as of September 30, 2011			Ending Balance Individually Evaluated for Impairment			Ending Balance Collectively Evaluated for Impairment
	(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, 2011		June 30,2011
	(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 Past Due		91 to 180 Days Past Due		181 + Days Past Due		Total Past Due		Current		Total Receivable		Recorded Investment 90 Days and Accruing
	(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, 2011		June 30, 2011
	(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.

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DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Sep. 30, 2011

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of presentation and consolidation

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

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

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

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 Using Input Type
	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

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 Recognized in OCI on Derivative (Effective Portion)		Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
	(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 in Other Income (Expense)
Non-Designated Derivative	Three Months Ended September 30, 2011		Three Months Ended September 30, 2010
Foreign Currency Forward Contract	$	1,554	$	—

Accounts and notes receivable, allowance for doubtful accounts and credit quality of financing receivables

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 as of September 30, 2011						Accounts and Notes Receivable as of June 30, 2011
	Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment		Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment
	(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 Balance as of June 30, 2011			Charge- offs		Recoveries		Provision			Ending Balance as of September 30, 2011			Ending Balance Individually Evaluated for Impairment			Ending Balance Collectively Evaluated for Impairment
	(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, 2011		June 30,2011
	(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 Past Due		91 to 180 Days Past Due		181 + Days Past Due		Total Past Due		Current		Total Receivable		Recorded Investment 90 Days and Accruing
	(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

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, 2011		June 30, 2011
	(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

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.

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INCOME TAXES (Details) (USD $) In Millions, unless otherwise specified	1 Months Ended		3 Months Ended
	Oct. 31, 2010	Jan. 31, 2009	Sep. 30, 2011	Sep. 30, 2010
INCOME TAXES
Effective income tax rate (as a percent)			36.70%	36.20%
Tax paid / (refund received) relating to federal income tax returns examination for the year 2003 through 2005	$ (2.3)	$ 3.4
Interest paid / (refund received) relating to federal income tax returns examination for the year 2003 through 2005	(0.6)	1.2
Accrual for uncertain tax positions			9.7
Portion of unrecognized tax benefits, if recognized, would impact entity's effective tax rate			9.6
Accrued interest and penalties related to unrecognized tax benefit			1.4
Decrease in unrecognized tax benefits, is reasonably possible, estimated range, maximum			$ 0.4

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LONG-TERM DEBT (Tables)

3 Months Ended

Sep. 30, 2011

LONG-TERM DEBT

Schedule of long-term debt

	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

Schedule of additional information on the entity's interest rate swap

Interest Rate Swaps	Balance Sheet Location	Fair Value (in 000s)		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)

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data	Sep. 30, 2011	Jun. 30, 2011
CONDENSED CONSOLIDATED BALANCE SHEETS
Accounts and notes receivable, allowances for doubtful accounts (in dollars)	$ 12,478	$ 11,059
Long-term accounts and notes receivables, allowances for doubtful accounts (in dollars)	561	507
Property, plant and equipment, accumulated depreciation (in dollars)	52,782	51,570
Leased gaming equipment, accumulated depreciation (in dollars)	$ 182,708	$ 176,137
Special stock, shares authorized	10,000,000	10,000,000
Special stock, Series E, liquidation value (in dollars per share)	$ 100	$ 100
Special stock, shares issued	115	115
Special stock, shares outstanding	115	115
Common stock, par value (in dollars per share)	$ 0.10	$ 0.10
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	61,713,000	61,541,000
Common stock, shares outstanding	43,512,000	44,397,000
Treasury stock, shares	18,201,000	17,144,000

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SEGMENT AND GEOGRAPHICAL INFORMATION (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2011 Y D M segment count classofreceivable	Sep. 30, 2010
SEGMENT AND GEOGRAPHICAL INFORMATION
Number of revenue sources	3
Revenue and gross margin by segment
Revenues	$ 194,967	$ 170,808
Gross margin	123,634	111,629
Gaming Equipment.
Revenue and gross margin by segment
Revenues	64,447	51,038
Gross margin	28,401	24,926
Gaming Operations
Revenue and gross margin by segment
Revenues	84,954	79,220
Gross margin	60,722	56,998
Systems
Revenue and gross margin by segment
Revenues	45,566	40,550
Gross margin	$ 34,511	$ 29,705

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SEGMENT AND GEOGRAPHICAL INFORMATION (Details 2) (USD $) In Thousands	3 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Revenues, operating income and identifiable assets by geographic region
Revenues	$ 194,967	$ 170,808
Operating income	37,391	34,004
United States and Canada
Revenues, operating income and identifiable assets by geographic region
Revenues	158,726	145,712
Operating income	35,740	31,625
International
Revenues, operating income and identifiable assets by geographic region
Revenues	36,241	25,096
Operating income	$ 1,651	$ 2,379