ACCOUNTS AND NOTES RECEIVABLE

3 Months Ended

Sep. 30, 2012

ACCOUNTS AND NOTES RECEIVABLE

ACCOUNTS AND NOTES RECEIVABLE

3.ACCOUNTS AND NOTES RECEIVABLE

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 generally at market rates.

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, and notes receivable, which are related to development financing loans.

Trade receivables with contract terms greater than one year relate to the sale of gaming equipment and systems transactions, 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. Customers with sales-type leasing arrangements typically have a long-standing credit history with the Company.

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 require scheduled quarterly principal reductions and may also include accelerated payment terms based upon a percentage of net-win from gaming devices sold or leased to these customers. Notes receivable as of September 30, 2012, include $16.0 million, net of discounts of $3.3 million, related to development financing loans made to HBG Connex S.P.A. (“HBG”) to allow it to make advance payments necessary to obtain gaming licenses in the Italian Video Lottery Terminal (“VLT”) market. HBG has initiated arbitration proceedings against the Company as a result of alleged damages from delays in obtaining regulatory approval of certain gaming equipment to be leased to HBG (see Note 9 to the unaudited condensed consolidated financial statements, Commitments and Contingencies) and has not made required payments on the notes receivable. The Company has not recorded an impairment as management expects to collect amounts due under the notes receivable.

The Company’s accounts and notes receivable were as follows:

	Accounts and Notes Receivable as of September 30, 2012						Accounts and Notes Receivable as of June 30, 2012
	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	$	187,391	$	3,927	$	183,464	$	173,889	$	3,655	$	170,234
Contract term greater than one year:
Trade receivables, current	80,723		59,840		20,883		85,075		41,213		43,862
Trade receivables, noncurrent	24,278		9,962		14,316		30,476		7,213		23,263
	105,001		69,802		35,199		115,551		48,426		67,125
Lease receivables, current	14,929		14,929		—		14,763		14,763		—
Lease receivables, noncurrent	13,670		13,670		—		15,070		15,070		—
	28,599		28,599		—		29,833		29,833		—
Notes receivable, current	7,712		7,712		—		5,188		5,188		—
Notes receivable, noncurrent	11,095		11,095		—		13,269		13,269		—
	18,807		18,807		—		18,457		18,457		—
Total current	290,755		86,408		204,347		278,915		64,819		214,096
Total noncurrent	49,043		34,727		14,316		58,815		35,552		23,263
Total	$	339,798	$	121,135	$	218,663	$	337,730	$	100,371	$	237,359

The activity related to the allowance for doubtful accounts for the quarter ended September 30, 2012 is summarized below:

	Allowance for Doubtful Accounts
	Beginning Balance as of June 30, 2012			Charge- offs		Recoveries		Provision			Ending Balance as of September 30, 2012			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	$	(6,138	)	$	821	$	—	$	(1,256	)	$	(6,573	)	$	(2,457	)	$	(4,116	)
Contract term greater than one year:
Trade receivables, current	(7,935		)	56		177		(2,399		)	(10,101		)	(6,985		)	(3,116		)
Trade receivables, noncurrent	(1,279		)	295		—		(155		)	(1,139		)	(174		)	(965		)
	(9,214		)	351		177		(2,554		)	(11,240		)	(7,159		)	(4,081		)
Lease receivables, current	—			—		—		—			—			—			—
Lease receivables, noncurrent	—			—		—		—			—			—			—
	—			—		—		—			—			—			—
Notes receivable, current	—			—		—		—			—			—			—
Notes receivable, noncurrent	(1,750		)	—		—		(806		)	(2,556		)	(2,556		)	—
	(1,750		)	—		—		(806		)	(2,556		)	(2,556		)	—
Total current	(14,073		)	877		177		(3,655		)	(16,674		)	(9,442		)	(7,232		)
Total noncurrent	(3,029		)	295		—		(961		)	(3,695		)	(2,730		)	(965		)
Total	$	(17,102	)	$	1,172	$	177	$	(4,616	)	$	(20,369	)	$	(12,172	)	$	(8,197	)

The activity related to the allowance for doubtful accounts for the quarter ended September 30, 2011 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 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, which includes the review of any modifications of accounts and notes receivable, if applicable, the Company utilizes historic collection experience for the most recent twelve month period to establish an allowance for doubtful accounts. 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 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’s notes receivable are reviewed quarterly, at a minimum, for impairment. 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 or as an indicator of an impaired loan.

The Company accrues interest, if applicable, on its accounts and notes receivables per the terms of the agreement. Interest is not accrued on past due accounts and notes receivable, or individual amounts that the Company has determined and specifically identified as not collectible. 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, 2012:

	1 to 90 Days Past Due		91 to 180 Days Past Due		181 + Days Past Due		Total Past Due		Current		Total Receivable		Recorded Investment in Receivables on Nonaccrual Status		Recorded Investment 90 Days and Accruing
	(in 000s)
Trade receivables	$	8,703	$	4,716	$	10,613	$	24,032	$	80,969	$	105,001	$	24,032	$	—
Lease receivables	—		—		—		—		28,599		28,599		—		—
Notes receivable	1,459		1,454		1,768		4,681		14,126		18,807		18,807		—
Total	$	10,162	$	6,170	$	12,381	$	28,713	$	123,694	$	152,407	$	42,839	$	—

The following summarizes the aging of past due receivables, excluding trade accounts receivable with a contract term less than one year, as of June 30, 2012:

	1 to 90 Days Past Due		91 to 180 Days Past Due		181 + Days Past Due		Total Past Due		Current		Total Receivable		Recorded Investment in Receivables on Nonaccrual Status		Recorded Investment 90 Days and Accruing
	(in 000s)
Trade receivables	$	7,278	$	4,197	$	8,735	$	20,210	$	95,341	$	115,551	$	20,210	$	—
Lease receivables	—		—		—		—		29,833		29,833		—		—
Notes receivable	1,427		1,423		319		3,169		15,288		18,457		18,457		—
Total	$	8,705	$	5,620	$	9,054	$	23,379	$	140,462	$	163,841	$	38,667	$	—

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 are infrequent and generally do not represent a concession as they result only in a delay of payment that is typically insignificant to our total trade, lease and notes receivable balances. There were no significant modifications of accounts and notes receivable during the period.

Impairment is recognized when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of a note arrangement. Due to an individual customer’s filing of a bankruptcy petition, the Company recognized an impairment charge on notes receivable of $1.8 million in fiscal year 2012 and an additional $0.8 million in the quarter ended September 30, 2012 after estimating the fair value of the collateral less costs to sell.

	Impaired Loans
	Recorded Investment		Unpaid Principal Balance		Related Allowance			Average Recorded Investment		Interest Income Recognized
	(in 000s)
As of September 30, 2012:
With an allowance recorded:
Notes receivable	$	2,856	$	2,856	$	(2,556	)	$	2,856	$	—
With no related allowance recorded:
Notes receivable	—		—		—			—		—
Total	$	2,856	$	2,856	$	(2,556	)	$	2,856	$	—
As of June 30, 2012:
With an allowance recorded:
Notes receivable	$	2,856	$	2,856	$	(1,750	)	$	2,856	$	—
With no related allowance recorded:
Notes receivable	—		—		—			—		—
Total	$	2,856	$	2,856	$	(1,750	)	$	2,856	$	—

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, 2012 and June 30, 2012, the fair value of the accounts and notes receivable, net, approximate the carrying value.