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 March 31, 2013
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
(Registrants 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 May 1, 2013, was 38,626,000 which do not include 26,445,000 shares held in treasury.
BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
March 31, |
|
June 30, |
| ||
|
|
(in 000s, except share amounts) |
| ||||
ASSETS |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
49,291 |
|
$ |
32,673 |
|
Restricted cash |
|
14,474 |
|
13,645 |
| ||
Accounts and notes receivable, net of allowances for doubtful accounts of $14,183 and $14,073 |
|
260,877 |
|
264,842 |
| ||
Inventories |
|
65,747 |
|
75,066 |
| ||
Prepaid and refundable income tax |
|
25,256 |
|
13,755 |
| ||
Deferred income tax assets |
|
39,485 |
|
42,822 |
| ||
Deferred cost of revenue |
|
21,967 |
|
17,615 |
| ||
Prepaid assets |
|
16,380 |
|
13,061 |
| ||
Other current assets |
|
4,136 |
|
6,980 |
| ||
Total current assets |
|
497,613 |
|
480,459 |
| ||
Restricted long-term investments |
|
11,292 |
|
12,171 |
| ||
Long-term accounts and notes receivables, net of allowances for doubtful accounts of $3,667 and $3,029 |
|
44,094 |
|
55,786 |
| ||
Property, plant and equipment, net of accumulated depreciation of $59,635 and $58,823 |
|
33,195 |
|
30,667 |
| ||
Leased gaming equipment, net of accumulated depreciation of $207,002 and $185,846 |
|
119,147 |
|
121,151 |
| ||
Goodwill |
|
172,068 |
|
171,971 |
| ||
Intangible assets, net |
|
31,394 |
|
39,166 |
| ||
Deferred income tax assets |
|
8,255 |
|
7,409 |
| ||
Income tax receivable |
|
12,041 |
|
12,041 |
| ||
Deferred cost of revenue |
|
12,299 |
|
16,542 |
| ||
Other assets, net |
|
23,582 |
|
23,104 |
| ||
Total assets |
|
$ |
964,980 |
|
$ |
970,467 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable |
|
$ |
29,025 |
|
$ |
41,414 |
|
Accrued and other liabilities |
|
92,421 |
|
85,310 |
| ||
Jackpot liabilities |
|
10,086 |
|
11,682 |
| ||
Deferred revenue |
|
59,096 |
|
46,314 |
| ||
Income tax payable |
|
3,505 |
|
12,226 |
| ||
Current maturities of long-term debt |
|
22,747 |
|
17,091 |
| ||
Total current liabilities |
|
216,880 |
|
214,037 |
| ||
Long-term debt, net of current maturities |
|
467,500 |
|
494,375 |
| ||
Deferred revenue |
|
21,066 |
|
26,715 |
| ||
Other income tax liability |
|
17,445 |
|
13,922 |
| ||
Other liabilities |
|
20,002 |
|
23,943 |
| ||
Total liabilities |
|
742,893 |
|
772,992 |
| ||
Commitments and contingencies (Note 9) |
|
|
|
|
| ||
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; 64,931,000 and 63,150,000 shares issued and 40,992,000 and 42,102,000 outstanding |
|
6,487 |
|
6,309 |
| ||
Treasury stock at cost, 23,939,000 and 21,048,000 shares |
|
(922,338 |
) |
(790,633 |
) | ||
Additional paid-in capital |
|
541,097 |
|
489,002 |
| ||
Accumulated other comprehensive loss |
|
(11,834 |
) |
(13,477 |
) | ||
Retained earnings |
|
609,002 |
|
504,895 |
| ||
Total Bally Technologies, Inc. stockholders equity |
|
222,426 |
|
196,108 |
| ||
Noncontrolling interests |
|
(339 |
) |
1,367 |
| ||
Total stockholders equity |
|
222,087 |
|
197,475 |
| ||
Total liabilities and stockholders equity |
|
$ |
964,980 |
|
$ |
970,467 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
March 31, |
|
March 31, |
| ||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
(in 000s, except per share amounts) |
| ||||||||||
Revenues: |
|
|
|
|
|
|
|
|
| ||||
Gaming equipment and systems |
|
$ |
157,102 |
|
$ |
136,032 |
|
$ |
430,436 |
|
$ |
370,262 |
|
Gaming operations |
|
102,045 |
|
92,508 |
|
302,201 |
|
263,702 |
| ||||
|
|
259,147 |
|
228,540 |
|
732,637 |
|
633,964 |
| ||||
Costs and expenses: |
|
|
|
|
|
|
|
|
| ||||
Cost of gaming equipment and systems (1) |
|
61,419 |
|
59,046 |
|
168,978 |
|
160,220 |
| ||||
Cost of gaming operations |
|
29,992 |
|
25,017 |
|
90,320 |
|
73,107 |
| ||||
Selling, general and administrative |
|
72,218 |
|
63,764 |
|
204,586 |
|
182,290 |
| ||||
Research and development costs |
|
29,098 |
|
24,838 |
|
80,792 |
|
70,601 |
| ||||
Depreciation and amortization |
|
5,755 |
|
5,648 |
|
17,046 |
|
17,089 |
| ||||
|
|
198,482 |
|
178,313 |
|
561,722 |
|
503,307 |
| ||||
Operating income |
|
60,665 |
|
50,227 |
|
170,915 |
|
130,657 |
| ||||
Other income (expense): |
|
|
|
|
|
|
|
|
| ||||
Interest income |
|
1,191 |
|
1,225 |
|
3,738 |
|
3,695 |
| ||||
Interest expense |
|
(4,389 |
) |
(4,150 |
) |
(13,544 |
) |
(13,232 |
) | ||||
Other, net |
|
(1,534 |
) |
325 |
|
(3,336 |
) |
(2,259 |
) | ||||
Income from operations before income taxes |
|
55,933 |
|
47,627 |
|
157,773 |
|
118,861 |
| ||||
Income tax expense |
|
(17,527 |
) |
(17,713 |
) |
(55,345 |
) |
(44,254 |
) | ||||
Net income |
|
38,406 |
|
29,914 |
|
102,428 |
|
74,607 |
| ||||
Less net loss attributable to noncontrolling interests |
|
(43 |
) |
(53 |
) |
(1,679 |
) |
(20 |
) | ||||
Net income attributable to Bally Technologies, Inc. |
|
$ |
38,449 |
|
$ |
29,967 |
|
$ |
104,107 |
|
$ |
74,627 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic and Diluted earnings per share attributable to Bally Technologies, Inc.: |
|
|
|
|
|
|
|
|
| ||||
Basic earnings per share |
|
$ |
0.95 |
|
$ |
0.70 |
|
$ |
2.56 |
|
$ |
1.73 |
|
Diluted earnings per share |
|
$ |
0.93 |
|
$ |
0.67 |
|
$ |
2.50 |
|
$ |
1.65 |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
40,483 |
|
43,087 |
|
40,594 |
|
43,229 |
| ||||
Diluted |
|
41,199 |
|
45,052 |
|
41,614 |
|
45,138 |
|
(1) Cost of gaming equipment and systems exclude amortization related to certain intangibles, including core technology and license rights, which are included in depreciation and amortization.
See accompanying notes to unaudited condensed consolidated financial statements.
BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
March 31, |
|
March 31, |
| ||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
(in 000s) |
| ||||||||||
Net Income |
|
$ |
38,406 |
|
$ |
29,914 |
|
$ |
102,428 |
|
$ |
74,607 |
|
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustment before income taxes |
|
(522 |
) |
648 |
|
370 |
|
(2,536 |
) | ||||
Income tax expense |
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustment |
|
(522 |
) |
648 |
|
370 |
|
(2,536 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Unrealized gain (loss) on derivative financial instruments before income taxes |
|
1,196 |
|
124 |
|
1,959 |
|
(8,211 |
) | ||||
Income tax expense (benefit) |
|
(419 |
) |
(43 |
) |
(686 |
) |
2,874 |
| ||||
Unrealized gain (loss) on derivative financial instruments |
|
777 |
|
81 |
|
1,273 |
|
(5,337 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Total other comprehensive income (loss), net of income taxes |
|
255 |
|
729 |
|
1,643 |
|
(7,873 |
) | ||||
Comprehensive income |
|
38,661 |
|
30,643 |
|
104,071 |
|
66,734 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Less: comprehensive loss attributable to noncontrolling interests |
|
(43 |
) |
(53 |
) |
(1,679 |
) |
(20 |
) | ||||
Comprehensive income attributable to Bally Technologies, Inc. |
|
$ |
38,704 |
|
$ |
30,696 |
|
$ |
105,750 |
|
$ |
66,754 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2013 AND 2012
|
|
Common Stock |
|
Series E |
|
Treasury |
|
Additional |
|
Accumulated |
|
Retained |
|
Noncontrolling |
|
Total |
| ||||||||||
|
|
Shares |
|
Dollars |
|
Stock |
|
Stock |
|
Capital |
|
(OCI) |
|
Earnings |
|
Interests |
|
Equity |
| ||||||||
|
|
(in 000s) |
| ||||||||||||||||||||||||
Balances at June 30, 2011 |
|
61,541 |
|
$ |
6,149 |
|
$ |
12 |
|
$ |
(634,268 |
) |
$ |
442,713 |
|
$ |
(3,064 |
) |
$ |
401,363 |
|
$ |
1,687 |
|
$ |
214,592 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
74,627 |
|
(20 |
) |
74,607 |
| ||||||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
(2,536 |
) |
|
|
|
|
(2,536 |
) | ||||||||
Unrealized loss on derivative financial instruments, net of tax |
|
|
|
|
|
|
|
|
|
|
|
(5,337 |
) |
|
|
|
|
(5,337 |
) | ||||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
66,734 |
| |||||||
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(138 |
) |
(138 |
) | ||||||||
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 |
|
1,158 |
|
114 |
|
|
|
(1,157 |
) |
23,648 |
|
|
|
|
|
|
|
22,605 |
| ||||||||
Purchase of common stock for treasury |
|
|
|
|
|
|
|
(81,608 |
) |
|
|
|
|
|
|
|
|
(81,608 |
) | ||||||||
Share-based compensation |
|
|
|
|
|
|
|
|
|
10,986 |
|
|
|
|
|
|
|
10,986 |
| ||||||||
Balances at March 31, 2012. |
|
62,699 |
|
$ |
6,263 |
|
$ |
12 |
|
$ |
(717,033 |
) |
$ |
477,347 |
|
$ |
(10,937 |
) |
$ |
478,374 |
|
$ |
1,529 |
|
$ |
235,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balances at June 30, 2012 |
|
63,150 |
|
$ |
6,309 |
|
$ |
12 |
|
$ |
(790,633 |
) |
$ |
489,002 |
|
$ |
(13,477 |
) |
$ |
504,895 |
|
$ |
1,367 |
|
$ |
197,475 |
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
104,107 |
|
(1,679 |
) |
102,428 |
| ||||||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
370 |
|
|
|
|
|
370 |
| ||||||||
Unrealized loss on derivative financial instruments, net of tax |
|
|
|
|
|
|
|
|
|
|
|
1,273 |
|
|
|
|
|
1,273 |
| ||||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
104,071 |
| |||||||
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27 |
) |
(27 |
) | ||||||||
Issuance and receipt of restricted stock, ESPP shares, stock options and related tax and tax benefit |
|
1,781 |
|
178 |
|
|
|
(9,099 |
) |
42,419 |
|
|
|
|
|
|
|
33,498 |
| ||||||||
Purchase of common stock for treasury |
|
|
|
|
|
|
|
(122,606 |
) |
|
|
|
|
|
|
|
|
(122,606 |
) | ||||||||
Share-based compensation |
|
|
|
|
|
|
|
|
|
9,676 |
|
|
|
|
|
|
|
9,676 |
| ||||||||
Balances at March 31, 2013 |
|
64,931 |
|
$ |
6,487 |
|
$ |
12 |
|
$ |
(922,338 |
) |
$ |
541,097 |
|
$ |
(11,834 |
) |
$ |
609,002 |
|
$ |
(339 |
) |
$ |
222,087 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Nine Months Ended |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
(in 000s) |
| ||||
Cash flows from operating activities: |
|
|
|
|
| ||
Net income |
|
$ |
102,428 |
|
$ |
74,607 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
|
66,006 |
|
61,325 |
| ||
Share-based compensation |
|
9,676 |
|
10,986 |
| ||
Amortization of deferred debt issuance costs |
|
1,319 |
|
1,351 |
| ||
Income tax expense |
|
5,304 |
|
2,452 |
| ||
Provision for doubtful accounts |
|
9,103 |
|
8,262 |
| ||
Inventory write-downs |
|
4,108 |
|
4,003 |
| ||
Excess tax benefit of stock option exercises |
|
(15,871 |
) |
(4,589 |
) | ||
Other |
|
1,031 |
|
1,641 |
| ||
Change in operating assets and liabilities: |
|
|
|
|
| ||
Accounts and notes receivable |
|
10,654 |
|
(33,889 |
) | ||
Inventories |
|
(39,026 |
) |
(83,414 |
) | ||
Prepaid and refundable income tax and income tax payable |
|
(4,117 |
) |
22,584 |
| ||
Other current assets and other assets |
|
(2,811 |
) |
(4,227 |
) | ||
Accounts payable |
|
(12,407 |
) |
(4,657 |
) | ||
Accrued liabilities and jackpot liabilities |
|
(2,772 |
) |
10,686 |
| ||
Deferred revenue and deferred cost of revenue |
|
6,831 |
|
8,048 |
| ||
Net cash provided by operating activities |
|
139,456 |
|
75,169 |
| ||
Cash flows from investing activities: |
|
|
|
|
| ||
Acquisition |
|
|
|
(6,000 |
) | ||
Capital expenditures |
|
(11,003 |
) |
(6,890 |
) | ||
Restricted cash and investments |
|
51 |
|
(4,013 |
) | ||
Financing provided to customer |
|
(1,228 |
) |
|
| ||
Additions to other long-term assets |
|
(905 |
) |
(5,288 |
) | ||
Net cash used in investing activities |
|
(13,085 |
) |
(22,191 |
) | ||
Cash flows from financing activities: |
|
|
|
|
| ||
Proceeds from revolving credit facility |
|
55,000 |
|
10,000 |
| ||
Payments on revolving credit facility |
|
(65,000 |
) |
(30,000 |
) | ||
Payments on long-term debt and capital leases |
|
(11,305 |
) |
(11,280 |
) | ||
Distributions to noncontrolling interests |
|
(27 |
) |
(138 |
) | ||
Purchase of treasury stock |
|
(131,705 |
) |
(74,976 |
) | ||
Excess tax benefit of stock option exercises |
|
15,871 |
|
4,589 |
| ||
Proceeds from exercise of stock options and employee stock purchases |
|
26,475 |
|
18,875 |
| ||
Net cash used in financing activities |
|
(110,691 |
) |
(82,930 |
) | ||
|
|
|
|
|
| ||
Effect of exchange rate changes on cash |
|
938 |
|
(734 |
) | ||
|
|
|
|
|
| ||
Cash and cash equivalents: |
|
|
|
|
| ||
Increase (decrease) for period |
|
16,618 |
|
(30,686 |
) | ||
Balance, beginning of period |
|
32,673 |
|
66,425 |
| ||
Balance, end of period |
|
$ |
49,291 |
|
$ |
35,739 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental information is related to the unaudited condensed consolidated statements of cash flows:
|
|
Nine Months Ended |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
(in 000s) |
| ||||
Cash paid for interest |
|
$ |
12,403 |
|
$ |
12,945 |
|
Cash paid for income taxes, net of refunds |
|
54,906 |
|
19,244 |
| ||
|
|
|
|
|
| ||
Non-cash investing and financing transactions: |
|
|
|
|
| ||
Transfer of inventory to leased gaming equipment (1) |
|
$ |
59,998 |
|
$ |
80,246 |
|
Reclassify property, plant and equipment to inventory (1) |
|
11,814 |
|
12,239 |
| ||
Accrued purchase of treasury stock |
|
|
|
7,789 |
| ||
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 during a particular period, but it does not separately earmark purchases for leased gaming equipment. Without such an earmarking process, the Company is unable to determine whether the parts used to construct leased gaming equipment during a particular period came from inventory on hand at the beginning of the period or was constructed from inventory procured during the period of deployment, thus requiring the expenditure of cash.
BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bally Technologies, Inc. (Bally or the Company), a Nevada corporation, is a diversified global gaming company that designs, manufactures, operates and distributes advanced technology-based gaming devices, systems, server-based solutions, custom mobile applications, and interactive applications. The Companys innovations and technology solutions allow its customers to more effectively manage their operations using our wide range of marketing, data management and analysis, accounting, player tracking, security and other software applications and tools. The Company also provides hardware, including spinning-reel and video gaming devices, specialty gaming devices, and wide-area progressive systems. Under its business-to-business model, the Company supports customers that include traditional land-based, riverboat, and Native American casinos, video lottery and central determination markets.
Principles of presentation and consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Bally Technologies, Inc., and its wholly owned and partially owned subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and, pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC), include all adjustments necessary to fairly present the Companys consolidated financial position, results of operations and cash flows for each period presented. All adjustments are of a normal, recurring nature. 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 Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2012. 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.
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.
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 instruments 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 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. Cash equivalents and investment securities to fund jackpot liabilities have Level 1 inputs with values based on quoted market prices. Accounts and notes receivable and jackpot liabilities have Level 3 inputs and were valued using Discounted Cash Flows (DCF) incorporating expected future payment timing and current borrowing rates. Long-term debt has Level 2 inputs and was valued using DCF incorporating expected future payment timing and current borrowing rates.
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 March 31, 2013 and June 30, 2012, euro forward contracts for a total of $38.8 million and $38.0 million, respectively, or the equivalent of 30.0 million and 30.0 million, respectively, were outstanding. In addition, as of March 31, 2013, a pound sterling forward contract for $2.3 million, or the equivalent of £1.5 million, was outstanding.
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 Companys derivative financial instruments are measured at fair value on a recurring basis, and the balances were as follows:
|
|
Fair Value Measurements |
| |||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
| |||
|
|
(in 000s) |
| |||||||
As of March 31, 2013: |
|
|
|
|
|
|
| |||
Assets: |
|
|
|
|
|
|
| |||
Other assets, net: |
|
|
|
|
|
|
| |||
Foreign currency derivative financial instrument |
|
$ |
|
|
$ |
789 |
|
$ |
|
|
|
|
|
|
|
|
|
| |||
Liabilities: |
|
|
|
|
|
|
| |||
Accrued and other liabilities: |
|
|
|
|
|
|
| |||
Foreign currency derivative financial instruments |
|
$ |
|
|
$ |
451 |
|
$ |
|
|
Interest rate derivative financial instrument |
|
$ |
|
|
$ |
4,816 |
|
$ |
|
|
Other liabilities: |
|
|
|
|
|
|
| |||
Interest rate derivative financial instrument |
|
$ |
|
|
$ |
7,057 |
|
$ |
|
|
|
|
|
|
|
|
|
| |||
As of June 30, 2012: |
|
|
|
|
|
|
| |||
Assets: |
|
|
|
|
|
|
| |||
Other assets, net: |
|
|
|
|
|
|
| |||
Foreign currency derivative financial instrument |
|
$ |
|
|
$ |
2,850 |
|
$ |
|
|
Liabilities: |
|
|
|
|
|
|
| |||
Accrued and other liabilities: |
|
|
|
|
|
|
| |||
Foreign currency derivative financial instrument |
|
$ |
|
|
$ |
115 |
|
$ |
|
|
Interest rate derivative financial instruments |
|
$ |
|
|
$ |
4,804 |
|
$ |
|
|
Other liabilities: |
|
|
|
|
|
|
| |||
Interest rate derivative financial instrument |
|
$ |
|
|
$ |
9,028 |
|
$ |
|
|
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 Companys discounted cash flow techniques use observable market inputs, such as LIBOR-based yield curves and foreign currency forward rates. See Note 5 to the 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 Gain |
|
Location of Gain |
|
Amount of Gain |
|
Location of Gain |
|
Amount of Gain |
| |||
|
|
(in 000s) |
| |||||||||||
For the three months ended March 31, 2013: |
|
|
|
|
|
|
|
|
|
|
| |||
Interest rate swap agreements |
|
$ |
(91 |
) |
Interest expense |
|
$ |
(1,287 |
) |
Interest expense |
|
$ |
|
|
For the three months ended March 31, 2012: |
|
|
|
|
|
|
|
|
|
|
| |||
Interest rate swap agreement |
|
$ |
(1,064 |
) |
Interest expense |
|
$ |
(1,188 |
) |
Interest expense |
|
$ |
|
|
Cash Flow Hedging Relationship |
|
Amount of Gain |
|
Location of Gain |
|
Amount of Gain |
|
Location of Gain |
|
Amount of Gain |
| |||
|
|
(in 000s) |
| |||||||||||
For the nine months ended March 31, 2013: |
|
|
|
|
|
|
|
|
|
|
| |||
Interest rate swap agreements |
|
$ |
(1,889 |
) |
Interest expense |
|
$ |
(3,848 |
) |
Interest expense |
|
$ |
(9 |
) |
For the nine months ended March 31, 2012: |
|
|
|
|
|
|
|
|
|
|
| |||
Interest rate swap agreement |
|
$ |
(12,025 |
) |
Interest expense |
|
$ |
(3,813 |
) |
Interest expense |
|
$ |
|
|
|
|
Amount of Gain (Loss) Recognized |
| ||||||||||
|
|
Three Months |
|
Three Months |
|
Nine Months |
|
Nine Months |
| ||||
Non-Designated Derivative |
|
March 31, |
|
March 31, |
|
March 31, |
|
March 31, |
| ||||
|
|
(in 000s) |
| ||||||||||
Foreign Currency Forward Contracts |
|
$ |
1,402 |
|
$ |
(1,105 |
) |
$ |
(494 |
) |
$ |
1,945 |
|
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:
|
|
March 31, |
|
June 30, |
| ||
|
|
(in 000s) |
| ||||
Raw materials |
|
$ |
44,052 |
|
$ |
50,498 |
|
Work-in-process |
|
2,021 |
|
1,713 |
| ||
Finished goods |
|
19,674 |
|
22,855 |
| ||
Total |
|
$ |
65,747 |
|
$ |
75,066 |
|
Revenue recognition
The Companys 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 all other items 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 customers 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 fee is considered fixed and determinable.
Games placed with customers on a trial basis are recorded as revenue once the trial period has ended, the customer has accepted the games, and all other revenue recognition criteria have been satisfied. Amounts billed to customers prior to completing the earnings process are deferred until the revenue recognition criteria are satisfied.
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 simultaneously. 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 devices.
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 revenue recognition criteria have been satisfied.
As the combination of game content software and the tangible gaming device function together to deliver the products essential functionality, revenue from the sale of gaming devices is recognized under general 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 provided all revenue recognition criteria have been satisfied. Revenue from maintenance and product support fees sold with perpetual licenses is recognized over the term of the support period. The Companys 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. 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 satisfied. 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 on a straight-line basis over the term of the support period which is generally twelve 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 Companys software maintenance and product support arrangements are generally for twelve 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. For example, 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 content 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 managements 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 December 31, 2011, the Company chose to early adopt new accounting guidance to make the presentation of items within other comprehensive income (OCI) more prominent. The new standard requires 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 are no longer allowed to present items of OCI only in the statement of stockholders equity. The Company chose to present the items in two separate consecutive statements. The new guidance was applied retrospectively.
Effective December 31, 2011, new accounting guidance for testing goodwill impairment 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 Company has not yet utilized this method in its evaluation of goodwill impairment.
Effective September 30, 2012, new accounting guidance for testing indefinite-lived intangible assets permits an entity to first access qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. The outcome of the assessment is used as a basis for determining whether it is necessary to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with ASC Topic 350. The Company has not yet utilized this method in its evaluation of indefinite-lived intangible assets impairment.
Recently issued accounting pronouncements not yet adopted
In December 2011, the FASB issued new accounting guidance for disclosures about offsetting assets and liabilities which requires an entity to disclose information about financial instruments that have been offset and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities will be required to provide both net (offset amounts) and gross information in the notes to the financial statements for relevant assets and liabilities that are offset. The new guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company expects to adopt this guidance in fiscal year 2014 and does not believe it will have a significant impact on its consolidated results of operations, financial condition and cash flows.
In February 2013, the FASB issued new accounting guidance to improve the reporting of reclassifications out of accumulated other comprehensive income. Under the guidance, an entity is required to provide information about the amounts reclassified out of accumulated other comprehensive income (AOCI) by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. The guidance did not change the requirements for reporting net income or other comprehensive income in the financial statements. The new guidance is effective for annual reporting periods beginning on or after December 15, 2012, and interim periods within those annual periods. The Company expects to adopt this guidance in fiscal year 2014 and does not believe it will have a significant impact on its consolidated results of operations, financial condition and cash flows.
The Company believes there is no additional new accounting guidance adopted but not yet effective that is relevant to the readers of our financial statements. However, there are numerous new proposals under development which, if and when enacted, may have a significant impact on its financial reporting.
2. EARNINGS PER SHARE
Basic earnings per share are computed by dividing earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share reflect the additional dilution from all potentially dilutive securities.
The computation of basic and diluted earnings per share applicable to the Companys common stock is as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
(in 000s, except per share amounts) |
| ||||||||||
Net income attributable to Bally Technologies, Inc. |
|
$ |
38,449 |
|
$ |
29,967 |
|
$ |
104,107 |
|
$ |
74,627 |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding |
|
40,483 |
|
43,087 |
|
40,594 |
|
43,229 |
| ||||
Dilutive effect of: |
|
|
|
|
|
|
|
|
| ||||
Stock options, Restricted Stock Units (RSU) and restricted stock |
|
716 |
|
1,965 |
|
1,020 |
|
1,909 |
| ||||
Weighted average diluted shares outstanding |
|
41,199 |
|
45,052 |
|
41,614 |
|
45,138 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted earnings per share attributable to Bally Technologies, Inc.: |
|
|
|
|
|
|
|
|
| ||||
Basic earnings per share |
|
$ |
0.95 |
|
$ |
0.70 |
|
$ |
2.56 |
|
$ |
1.73 |
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted earnings per share |
|
$ |
0.93 |
|
$ |
0.67 |
|
$ |
2.50 |
|
$ |
1.65 |
|
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 |
|
Nine Months Ended |
| ||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
|
|
(in 000s) |
| ||||||
Stock options, RSU and restricted stock |
|
76 |
|
524 |
|
115 |
|
713 |
|
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 March 31, 2013, include $15.9 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 Companys accounts and notes receivable were as follows:
|
|
Accounts and Notes Receivable |
|
Accounts and Notes Receivable |
| ||||||||||||||
|
|
Ending |
|
Ending |
|
Ending Balance |
|
Ending |
|
Ending Balance |
|
Ending Balance |
| ||||||
|
|
(in 000s) |
| ||||||||||||||||
Contract term less than one year: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Trade and other receivables, current |
|
$ |
180,309 |
|
$ |
2,407 |
|
$ |
177,902 |
|
$ |
173,889 |
|
$ |
3,655 |
|
$ |
170,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Contract term greater than one year: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Trade receivables, current |
|
79,278 |
|
57,553 |
|
21,725 |
|
85,075 |
|
41,213 |
|
43,862 |
| ||||||
Trade receivables, noncurrent |
|
32,567 |
|
12,255 |
|
20,312 |
|
30,476 |
|
7,213 |
|
23,263 |
| ||||||
|
|
111,845 |
|
69,808 |
|
42,037 |
|
115,551 |
|
48,426 |
|
67,125 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Lease receivables, current |
|
6,098 |
|
6,098 |
|
|
|
14,763 |
|
14,763 |
|
|
| ||||||
Lease receivables, noncurrent |
|
4,664 |
|
4,664 |
|
|
|
15,070 |
|
15,070 |
|
|
| ||||||
|
|
10,762 |
|
10,762 |
|
|
|
29,833 |
|
29,833 |
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Notes receivable, current |
|
9,375 |
|
9,375 |
|
|
|
5,188 |
|
5,188 |
|
|
| ||||||
Notes receivable, noncurrent |
|
10,530 |
|
10,530 |
|
|
|
13,269 |
|
13,269 |
|
|
| ||||||
|
|
19,905 |
|
19,905 |
|
|
|
18,457 |
|
18,457 |
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total current |
|
275,060 |
|
75,433 |
|
199,627 |
|
278,915 |
|
64,819 |
|
214,096 |
| ||||||
Total noncurrent |
|
47,761 |
|
27,449 |
|
20,312 |
|
58,815 |
|
35,552 |
|
23,263 |
| ||||||
Total |
|
$ |
322,821 |
|
$ |
102,882 |
|
$ |
219,939 |
|
$ |
337,730 |
|
$ |
100,371 |
|
$ |
237,359 |
|
The activity related to the allowance for doubtful accounts for the nine months ended March 31, 2013 is summarized below:
|
|
Allowance for Doubtful Accounts |
| |||||||||||||||||||
|
|
Beginning |
|
Charge- |
|
Recoveries |
|
Provision |
|
Ending |
|
Ending |
|
Ending |
| |||||||
|
|
(in 000s) |
| |||||||||||||||||||
Contract term less than one year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Trade and other receivables, current |
|
$ |
(6,138 |
) |
$ |
1,042 |
|
$ |
|
|
$ |
184 |
|
$ |
(4,912 |
) |
$ |
(2,051 |
) |
$ |
(2,861 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Contract term greater than one year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Trade receivables, current |
|
(7,935 |
) |
5,471 |
|
557 |
|
(7,364 |
) |
(9,271 |
) |
(7,068 |
) |
(2,203 |
) | |||||||
Trade receivables, noncurrent |
|
(1,279 |
) |
1,285 |
|
|
|
(1,117 |
) |
(1,111 |
) |
|
|
(1,111 |
) | |||||||
|
|
(9,214 |
) |
6,756 |
|
557 |
|
(8,481 |
) |
(10,382 |
) |
(7,068 |
) |
(3,314 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
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 |
) |
$ |
6,513 |
|
$ |
557 |
|
$ |
(7,180 |
) |
$ |
(14,183 |
) |
$ |
(9,119 |
) |
$ |
(5,064 |
) |
Total noncurrent |
|
(3,029 |
) |
1,285 |
|
|
|
(1,923 |
) |
(3,667 |
) |
(2,556 |
) |
(1,111 |
) | |||||||
Total |
|
$ |
(17,102 |
) |
$ |
7,798 |
|
$ |
557 |
|
$ |
(9,103 |
) |
$ |
(17,850 |
) |
$ |
(11,675 |
) |
$ |
(6,175 |
) |
The activity related to the allowance for doubtful accounts for the nine months ended March 31, 2012 is summarized below:
|
|
Allowance for Doubtful Accounts |
| |||||||||||||||||||
|
|
Beginning |
|
Charge- |
|
Recoveries |
|
Provision |
|
Ending |
|
Ending |
|
Ending |
| |||||||
|
|
(in 000s) |
| |||||||||||||||||||
Contract term less than one year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Trade and other receivables, current |
|
$ |
(5,875 |
) |
$ |
719 |
|
$ |
241 |
|
$ |
(1,290 |
) |
$ |
(6,205 |
) |
$ |
(2,506 |
) |
$ |
(3,699 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Contract term greater than one year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Trade receivables, current |
|
(5,184 |
) |
336 |
|
241 |
|
(2,900 |
) |
(7,507 |
) |
(4,497 |
) |
(3,010 |
) | |||||||
Trade receivables, noncurrent |
|
(507 |
) |
1,041 |
|
|
|
(2,322 |
) |
(1,788 |
) |
(457 |
) |
(1,331 |
) | |||||||
|
|
(5,691 |
) |
1,377 |
|
241 |
|
(5,222 |
) |
(9,295 |
) |
(4,954 |
) |
(4,341 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Lease receivables, current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Lease receivables, noncurrent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Notes receivable, current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Notes receivable, noncurrent |
|
|
|
|
|
|
|
(1,750 |
) |
(1,750 |
) |
(1,750 |
) |
|
| |||||||
|
|
|
|
|
|
|
|
(1,750 |
) |
(1,750 |
) |
(1,750 |
) |
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total current |
|
$ |
(11,059 |
) |
$ |
1,055 |
|
$ |
482 |
|
$ |
(4,190 |
) |
$ |
(13,712 |
) |
$ |
(7,003 |
) |
$ |
(6,709 |
) |
Total noncurrent |
|
(507 |
) |
1,041 |
|
|
|
(4,072 |
) |
(3,538 |
) |
(2,207 |
) |
(1,331 |
) | |||||||
Total |
|
$ |
(11,566 |
) |
$ |
2,096 |
|
$ |
482 |
|
$ |
(8,262 |
) |
$ |
(17,250 |
) |
$ |
(9,210 |
) |
$ |
(8,040 |
) |
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 customers 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 operators license and verify with the applicable regulatory agency that they have the financial resources to operate a gaming establishment. Many of the Companys 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 Companys 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 March 31, 2013:
|
|
1 to 90 Days |
|
91 to 180 |
|
181 + Days |
|
Total |
|
Current |
|
Total |
|
Recorded |
|
Recorded |
| ||||||||
|
|
(in 000s) |
| ||||||||||||||||||||||
Trade receivables |
|
$ |
8,385 |
|
$ |
3,766 |
|
$ |
6,201 |
|
$ |
18,352 |
|
$ |
93,493 |
|
$ |
111,845 |
|
$ |
18,352 |
|
$ |
|
|
Lease receivables |
|
|
|
|
|
|
|
|
|
10,762 |
|
10,762 |
|
|
|
|
| ||||||||
Notes receivable |
|
1,512 |
|
1,498 |
|
4,781 |
|
7,791 |
|
12,114 |
|
19,905 |
|
18,731 |
|
|
| ||||||||
Total |
|
$ |
9,897 |
|
$ |
5,264 |
|
$ |
10,982 |
|
$ |
26,143 |
|
$ |
116,369 |
|
$ |
142,512 |
|
$ |
37,083 |
|
$ |
|
|
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 |
|
91 to 180 |
|
181 + Days |
|
Total |
|
Current |
|
Total |
|
Recorded |
|
Recorded |
| ||||||||
|
|
(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 customers 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 nine months ended March 31, 2013 after estimating the fair value of the collateral less costs to sell.
|
|
Impaired Loans |
| |||||||||||||
|
|
Recorded |
|
Unpaid |
|
Related |
|
Average |
|
Interest |
| |||||
|
|
(in 000s) |
| |||||||||||||
As of March 31, 2013: |
|
|
|
|
|
|
|
|
|
|
| |||||
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 March 31, 2013 and June 30, 2012, the fair value of the accounts and notes receivable, net, approximate the carrying value.
4. GOODWILL AND INTANGIBLE ASSETS
Intangible assets consist of the following:
|
|
|
|
March 31, 2013 |
|
June 30, 2012 |
| ||||||||||||||
|
|
Useful |
|
Gross |
|
Accumulated |
|
Net |
|
Gross |
|
Accumulated |
|
Net |
| ||||||
|
|
(dollars in 000s) |
| ||||||||||||||||||
Computer software |
|
3 - 5 |
|
$ |
39,552 |
|
$ |
(35,710 |
) |
$ |
3,842 |
|
$ |
39,633 |
|
$ |
(34,442 |
) |
$ |
5,191 |
|
License rights |
|
3 - 13 |
|
12,790 |
|
(6,319 |
) |
6,471 |
|
8,440 |
|
(4,251 |
) |
4,189 |
| ||||||
Trademarks |
|
5 - 10 |
|
2,430 |
|
(2,233 |
) |
197 |
|
2,430 |
|
(2,216 |
) |
214 |
| ||||||
Core technology |
|
5 - 14 |
|
27,063 |
|
(20,898 |
) |
6,165 |
|
27,063 |
|
(17,935 |
) |
9,128 |
| ||||||
Contracts |
|
2 - 10 |
|
15,576 |
|
(9,455 |
) |
6,121 |
|
15,496 |
|
(8,522 |
) |
6,974 |
| ||||||
Other intangibles |
|
3 - 5 |
|
1,857 |
|
(759 |
) |
1,098 |
|
6,574 |
|
(604 |
) |
5,970 |
| ||||||
Total finite lived intangible assets |
|
|
|
$ |
99,268 |
|
$ |
(75,374 |
) |
$ |
23,894 |
|
$ |
99,636 |
|
$ |
(67,970 |
) |
$ |
31,666 |
|
Trademark |
|
indefinite |
|
7,500 |
|
|
|
7,500 |
|
7,500 |
|
|
|
7,500 |
| ||||||
Total |
|
|
|
$ |
106,768 |
|
$ |
(75,374 |
) |
$ |
31,394 |
|
$ |
107,136 |
|
$ |
(67,970 |
) |
$ |
39,166 |
|
Total amortization expense related to finite lived intangible assets was $2.9 million and $2.4 million for the three months ended March 31, 2013 and 2012, respectively, which included computer software amortization expense of $0.6 million and $0.5 million for the three months ended March 31, 2013 and 2012, respectively.
Total amortization expense related to finite lived intangible assets was $8.2 million and $7.3 million for the nine months ended March 31, 2013 and 2012, respectively, which included computer software amortization expense of $1.8 million and $1.7 million for the nine months ended March 31, 2013 and 2012, respectively.
Future amortization of finite lived intangible assets is scheduled as follows:
Year Ended June 30, |
|
(in 000s) |
| |
2013 (remaining three months of fiscal year) |
|
$ |
3,309 |
|
2014 |
|
8,791 |
| |
2015 |
|
5,100 |
| |
2016 |
|
2,950 |
| |
2017 |
|
1,757 |
| |
Thereafter |
|
1,987 |
| |
Total |
|
$ |
23,894 |
|
The changes in the carrying amount of goodwill are as follows:
|
|
(in 000s) |
| |
Balance at June 30, 2012 |
|
$ |
171,971 |
|
Foreign currency translation adjustment |
|
97 |
| |
Balance at March 31, 2013 |
|
$ |
172,068 |
|
No impairment charges for goodwill and intangible assets were necessary for the nine months ended March 31, 2013 and 2012.
5. LONG-TERM DEBT
Long-term debt consists of the following:
|
|
March 31, |
|
June 30, |
| ||
|
|
2013 |
|
2012 |
| ||
|
|
(in 000s) |
| ||||
Revolving credit facility |
|
$ |
220,000 |
|
$ |
230,000 |
|
Term loan facility |
|
270,000 |
|
281,250 |
| ||
Other, generally unsecured |
|
247 |
|
216 |
| ||
Long-term debt |
|
490,247 |
|
511,466 |
| ||
Less current maturities |
|
(22,747 |
) |
(17,091 |
) | ||
Long-term debt, net of current maturities |
|
$ |
467,500 |
|
$ |
494,375 |
|
As of March 31, 2013 and June 30, 2012, there was approximately $180.0 million and $170.0 million, respectively, 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. Subsequent to March 31, 2013, the Company entered into an amended and restated credit agreement. See Note 11 to the unaudited condensed consolidated financial statements, Subsequent Events.
The interest rate on the credit facility is subject to a leverage-based pricing grid that ranges from LIBOR plus a margin of 1.00% to 2.00%.
As of March 31, 2013 and June 30, 2012, the interest rate on the revolving credit facility was 1.70% and 1.75%, respectively, and the interest rate on the term loan was 3.59% and 3.58%, respectively, after giving effect to the floating-to-fixed interest rate swaps.
Under the credit facility, the term loan requires quarterly principal reductions in an amount equal to $3,750,000, through March 2013; $5,625,000, through March 2014; $7,500,000, from June 2014 until the term loans 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 Companys domestic property and is guaranteed by each of the Companys domestic subsidiaries, excluding any noncontrolling interests, and is secured by a pledge agreement.
The credit facility contains a number of covenants that, among other things, restrict the Companys 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 March 31, 2013 and June 30, 2012.
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% (plus applicable margin). 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% (plus applicable margin). The second interest rate swap has an accreting and subsequently amortizing notional in order to hedge the targeted amount of debt over the life of the swap. At March 31, 2013 and June 30, 2012, the combined swap agreements had notional values of $270.0 million and $281.3 million, respectively.
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 fiscal 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 March 31, 2013, the Company had an insignificant amount of ineffectiveness on its cash flow hedge. As of June 30, 2012, 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 $4.8 million.
Additional information on the Companys interest rate swaps are as follows:
Interest Rate Swaps |
|
Balance Sheet Location |
|
Fair Value |
|
Location of Offsetting Balance |
| |
Cash flow hedges$270.0 million LIBOR based debt |
|
Accrued and other liabilities |
|
$ |
4,816 |
|
|
|
|
|
Other liabilities |
|
7,057 |
|
|
| |
|
|
|
|
$ |
11,873 |
|
Accumulated other comprehensive income (before income taxes) |
|
6. 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 Companys common stock. The employees purchase price is equal to 85% of the fair market value. During the nine months ended March 31, 2013 and 2012, employees purchased 58,531 shares and 59,907 shares of common stock for approximately $2.3 million and $1.9 million, respectively, under the 2008 ESPP.
Share-Based Award Plans
Stock option activity as of and for the nine months ended March 31, 2013 is summarized below:
|
|
|
|
Weighted Average |
|
|
| ||||
|
|
Shares |
|
Exercise |
|
Remaining |
|
Aggregate |
| ||
|
|
(in 000s) |
|
(per share) |
|
(years) |
|
(in 000s) |
| ||
Balance outstanding as of June 30, 2012 |
|
2,545 |
|
$ |
26.40 |
|
|
|
$ |
51,655 |
|
Granted |
|
30 |
|
46.78 |
|
|
|
|
| ||
Exercised |
|
(1,024 |
) |
23.61 |
|
|
|
|
| ||
Forfeited or expired |
|
(20 |
) |
31.56 |
|
|
|
|
| ||
Balance outstanding as of March 31, 2013 |
|
1,531 |
|
$ |
28.59 |
|
2.97 |
|
$ |
35,787 |
|
Exercisable as of March 31, 2013 |
|
1,176 |
|
$ |
25.72 |
|
2.42 |
|
$ |
30,880 |
|
Restricted stock and RSU activity as of and for the nine months ended March 31, 2013 is summarized below:
|
|
Restricted |
|
Weighted |
|
RSUs |
|
Weighted |
| ||
|
|
(in 000s) |
|
(per share) |
|
(in 000s) |
|
(per share) |
| ||
Balance outstanding as of June 30, 2012 |
|
568 |
|
$ |
41.31 |
|
570 |
|
$ |
17.69 |
|
Granted |
|
174 |
|
46.66 |
|
82 |
|
45.65 |
| ||
Vested / Released |
|
(116 |
) |
38.31 |
|
(570 |
) |
17.69 |
| ||
Forfeited or expired |
|
(10 |
) |
37.28 |
|
|
|
|
| ||
Balance outstanding as of March 31, 2013 |
|
616 |
|
$ |
43.46 |
|
82 |
|
$ |
45.65 |
|
Share-Based Compensation
The following table presents share-based compensation expense and related effect of the income tax benefit included in the Companys unaudited condensed consolidated statements of operations:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
(in 000s) |
| ||||||||||
Selling, general and administrative |
|
$ |
2,381 |
|
$ |
2,655 |
|
$ |
6,408 |
|
$ |
7,808 |
|
Research and development costs |
|
1,096 |
|
989 |
|
3,280 |
|
3,011 |
| ||||
Cost of gaming equipment and systems and gaming operations |
|
42 |
|
60 |
|
(12 |
) |
167 |
| ||||
Share-based compensation expense before tax |
|
3,519 |
|
3,704 |
|
9,676 |
|
10,986 |
| ||||
Income tax benefit |
|
1,231 |
|
1,296 |
|
3,386 |
|
3,845 |
| ||||
Net share-based compensation expense |
|
$ |
2,288 |
|
$ |
2,408 |
|
$ |
6,290 |
|
$ |
7,141 |
|
As of March 31, 2013, there was $4.4 million of total unrecognized compensation expense related to the unvested portion of stock options which will be recognized over the subsequent 1.48 years. In addition, as of March 31, 2013, there was $22.7 million of total unrecognized compensation expense related to the unvested portion of restricted stock and RSUs which will be recognized over the subsequent 1.89 years.
7. STOCKHOLDERS EQUITY
Share Repurchase Plan
The Companys 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. Subsequent to March 31, 2013, the Company entered into an accelerated share repurchase agreement. See Note 11 to the unaudited condensed consolidated financial statements, Subsequent Events.
During the nine months ended March 31, 2013 and 2012, the Company repurchased 2.7 million shares and 2.3 million shares of common stock for $122.6 million and $81.6 million, respectively, under the share repurchase plan. As of March 31, 2013, $94.6 million remained available under the plan for repurchase in future periods.
8. 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 31.3% and 37.2% for the three months ended March 31, 2013 and 2012, respectively, and 35.1% and 37.2% for the nine months ended March 31, 2013 and 2012, respectively. The decrease in the effective income tax rate for the three and nine months ended March 31, 2013 compared to 2012 is primarily attributable to a favorable increase in the federal manufacturing deduction and the reinstatement of the federal research and development tax credit which was retroactive to January 1, 2012.
The IRS commenced examination of the Companys United States federal income tax returns for 2006 through 2009 during fiscal year 2011. The IRS completed its field examination of the open tax years and issued a Revenue Agents Report in January 2012. The Company filed a formal protest regarding certain unagreed adjustments in March 2012. The case has been assigned to the IRS Appeals Office in Laguna Niguel, California. If successful in defending the Companys position, it would result in a reduction to unrecognized tax benefits and a corresponding reduction of income tax provisions of approximately $3.7 million. If the IRS were to prevail in full, it would result in additional income tax provisions of approximately $7.1 million for the tax years 2006 through 2009.
It is reasonably possible that within the next twelve months the Company will resolve the matter presently under consideration with the IRS, which may increase or decrease unrecognized tax benefits for the open tax years. However, an estimate of such increase or decrease cannot reasonably be made.
As of March 31, 2013, the Company has $16.1 million related to uncertain tax positions, excluding related accrued interest and penalties, $16.0 million of which, if recognized, would impact the effective tax rate. As of March 31, 2013, the Company has $2.0 million accrued for the payment of interest and penalties.
Excluding the IRS Appeals case described above, it is reasonably possible that the Companys amount of unrecognized tax benefits may decrease within the next twelve months by a range up to $1.2 million.
The Company files numerous consolidated and separate income tax returns in the United States and various state and foreign jurisdictions. The Company is currently under examination in certain states and foreign jurisdictions. With few exceptions, the Company is no longer subject to United States federal, state and local, or foreign income tax examinations for years before fiscal 2006.
9. 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, regulatory 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 February 2012, HBG filed requests for arbitration in the National and International Chamber of Arbitration of Milan, Italy, against the Companys Dutch and Italian subsidiaries (Bally Netherlands and Bally Italy, respectively). HBG alleged breach of contract (i) by Bally Netherlands in connection with a contractual arrangement pursuant to which the Company agreed to supply certain gaming equipment and (ii) by Bally Italy in connection with financial assistance for HBGs acquisition of licenses to operate gaming equipment in certain Italian markets. The Company responded in March 2012 denying the allegations and seeking to dismiss HBGs claims. Bally Netherlands has asserted a counterclaim against HBG for breach of contract for failure to assist in altering its products to conform to regulatory requirements in the Italian market. The counterclaim seeks equitable relief compelling HBG to perform its contractual obligations as well as an undetermined amount of monetary damages. While it is possible the arbitration could result in damages against the Company, management has assessed the merits of HBGs claim for alleged damages of approximately 114 million and believes that a range of potential loss related to this claim is not estimable.
In December 2004, International Game Technology (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 Companys 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 IGTs 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 Companys motions for summary judgment, ruling that IGTs two wheel patents and a touch-screen player-tracking patent were invalid; that even if the patents were valid, the Companys 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 IGTs alleged antitrust violations and in favor of Bally on IGTs remaining claim that Bally infringed an IGT player tracking patent. The Company appealed the summary judgment on Ballys antitrust claims against IGT, and on December 17, 2012, a divided panel of the Federal Circuit Court of Appeals affirmed. The Companys petition for rehearing by the full court was denied on January 29, 2013.
The Company is also a party to various claims and lawsuits relating to routine matters that arise from time to time in the ordinary course of its business. Although, management does not currently believe that the outcome of such claims, including the matters discussed above, in the aggregate, will have a material effect on its consolidated financial position, results of operations or cash flows, these matters are subject to inherent uncertainties and managements view of these matters may change in the future.
As of March 31, 2013, the Company accrued aggregate liabilities of $7.0 million in other current liabilities for its contingent legal matters. While the Company intends to defend all legal matters vigorously, adverse outcomes that the Company estimates are reasonable could possibly reach approximately $12.2 million in the aggregate beyond recorded amounts.
Were unfavorable final outcomes to occur, there exists the possibility of a material adverse impact on the Companys financial statements for the period in which the effects become reasonably estimable.
10. SEGMENT AND GEOGRAPHICAL INFORMATION
The Companys revenue consists of: 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 |
|
Nine Months Ended |
| ||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
(in 000s) |
| ||||||||||
Revenues: |
|
|
|
|
|
|
|
|
| ||||
Gaming Equipment and Systems |
|
|
|
|
|
|
|
|
| ||||
Gaming Equipment |
|
$ |
85,776 |
|
$ |
79,256 |
|
$ |
251,056 |
|
$ |
213,839 |
|
Gaming Operations |
|
102,045 |
|
92,508 |
|
302,201 |
|
263,702 |
| ||||
Systems |
|
71,326 |
|
56,776 |
|
179,380 |
|
156,423 |
| ||||
Total revenues |
|
$ |
259,147 |
|
$ |
228,540 |
|
$ |
732,637 |
|
$ |
633,964 |
|
|
|
|
|
|
|
|
|
|
| ||||
Gross Margin(1): |
|
|
|
|
|
|
|
|
| ||||
Gaming Equipment and Systems |
|
|
|
|
|
|
|
|
| ||||
Gaming Equipment |
|
$ |
43,468 |
|
$ |
36,578 |
|
$ |
126,599 |
|
$ |
94,993 |
|
Gaming Operations |
|
72,053 |
|
67,491 |
|
211,881 |
|
190,595 |
| ||||
Systems |
|
52,215 |
|
40,408 |
|
134,859 |
|
115,049 |
| ||||
Total gross margin |
|
$ |
167,736 |
|
$ |
144,477 |
|
$ |
473,339 |
|
$ |
400,637 |
|
(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. The table below presents information as to the Companys revenues and operating income by geographic region which is determined by country of destination:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
(in 000s) |
| ||||||||||
Revenues: |
|
|
|
|
|
|
|
|
| ||||
United States and Canada |
|
$ |
212,699 |
|
$ |
187,108 |
|
$ |
621,583 |
|
$ |
516,601 |
|
International |
|
46,448 |
|
41,432 |
|
111,054 |
|
117,363 |
| ||||
Total revenues |
|
$ |
259,147 |
|
$ |
228,540 |
|
$ |
732,637 |
|
$ |
633,964 |
|
|
|
|
|
|
|
|
|
|
| ||||
Operating income: |
|
|
|
|
|
|
|
|
| ||||
United States and Canada |
|
$ |
52,353 |
|
$ |
43,892 |
|
$ |
165,406 |
|
$ |
118,326 |
|
International |
|
8,312 |
|
6,335 |
|
5,509 |
|
12,331 |
| ||||
Total operating income |
|
$ |
60,665 |
|
$ |
50,227 |
|
$ |
170,915 |
|
$ |
130,657 |
|
11. SUBSEQUENT EVENTS
On April 19, 2013, the Company entered into an amended and restated credit agreement (collectively, the New Credit Facility), that provides for a $1.07 billion senior secured credit facility comprised of a $370.0 million, five-year term loan and a $700.0 million, five-year revolving credit facility. The maturity date for the New Credit Facility was extended to April 19, 2018. Loans under the New Credit Facility will bear interest at a variable rate of interest equal to either the applicable base rate or LIBOR, plus in each case an interest margin determined by the Companys leverage ratio, with a range of base rate margins from zero basis points to 100 basis points and a range of LIBOR margins from 100 basis points to 200 basis points.
On April 24, 2013, the Companys 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 $300.0 million.
On April 24, 2013, the Company entered into an accelerated share repurchase agreement with J.P. Morgan Securities LLC (JPMorgan) under which it paid JPMorgan $150.0 million and JPMorgan delivered 2,349,364 shares of the Companys common stock on April 26, 2013, representing a substantial majority of the shares expected to be repurchased under the agreement. Upon final settlement of the agreement, the Company may receive additional shares or pay additional cash or shares (at its option) based on a discount to the average of the daily volume weighted average price of the Companys common stock during the repurchase period. The agreement is subject to customary termination and adjustment provisions following the occurrence of specified events, including major corporate transactions such as announcements of mergers and acquisitions.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We begin this section with a summary of our operations as of March 31, 2013. 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 and nine months ended March 31, 2013 and 2012. 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, 2012 (the 2012 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 global gaming company that designs, manufactures, operates, and distributes advanced technology-based gaming devices, systems, server-based solutions, custom mobile applications, and interactive applications. Our innovations and technology solutions allow our customers to more effectively manage their operations using our wide range of marketing, data management and analysis, accounting, player tracking, security, and other software applications and tools. We also provide hardware, including spinning-reel and video gaming devices, specialty gaming devices, and wide-area progressive systems. Under our business-to-business model, we support customers that include traditional land-based, riverboat, and Native American casinos, video lottery and central determination markets.
Our gaming equipment, gaming operations, and systems product lines have increasingly converged with the proliferation of high-speed networks. Key innovation drivers in our industry are Ethernet-based gaming floors, downloadable and server-based games and applications, and open protocols and common industry standards in game and system development. Players benefit from these advances by gaining more exciting experiences, better communication from casino owners, and superior customer service from gaming operators. Our customers benefit through operational efficiencies that can increase their profits and streamline their operations.
We derive our revenue from the following:
|
|
Three Months Ended March 31, |
|
Nine Months Ended March 31, |
| ||||||||||||||||
|
|
2013 |
|
% Rev |
|
2012 |
|
% Rev |
|
2013 |
|
% Rev |
|
2012 |
|
% Rev |
| ||||
|
|
(dollars in millions) |
| ||||||||||||||||||
Gaming Equipment |
|
$ |
85.8 |
|
33 |
% |
$ |
79.3 |
|
35 |
% |
$ |
251.1 |
|
34 |
% |
$ |
213.9 |
|
34 |
% |
Gaming Operations |
|
102.0 |
|
39 |
% |
92.5 |
|
40 |
% |
302.2 |
|
41 |
% |
263.7 |
|
41 |
% | ||||
Systems |
|
71.3 |
|
28 |
% |
56.8 |
|
25 |
% |
179.3 |
|
25 |
% |
156.4 |
|
25 |
% | ||||
|
|
$ |
259.1 |
|
100 |
% |
$ |
228.6 |
|
100 |
% |
$ |
732.6 |
|
100 |
% |
$ |
634.0 |
|
100 |
% |
· 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, hardware and interactive products and related recurring maintenance revenue. |
We review certain financial measures in assessing our financial condition and operating performance not only in connection with creating our internal forecasts and in making comparisons to financial results from prior periods, but also in making comparisons to our competitors financial results. 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 loss contingencies 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 managements 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 continue to operate in a challenging economic environment. 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 extend credit for these longer periods for the foreseeable future.
There are several new and potential gaming market developments that we believe will benefit us in the long term. In our domestic market, we are focused on approved new jurisdictional opportunities and expansions in Canada, Illinois, Ohio, Maryland, Louisiana, Mississippi, Florida, Massachusetts, Pennsylvania and California, and the potential for new market opportunities in New Hampshire, Kentucky 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, Italy, the Philippines, Vietnam, and Mexico, and from potential new markets in Eastern Europe, Greece, Taiwan, South Korea, Japan, and Brazil. Our entry into the Italian VLT market was delayed by a lengthened regulatory approval process that developed in that market after we submitted our products for approval. As a result, certain customers and partners have modified their business approach to the market, which has, at least in the near term, reduced the amount of business we expected from the Italian VLT market. We received regulatory approval for our products and began deploying VLTs in Italy during July 2012.
Gaming Equipment
|
|
Three Months Ended March 31, |
|
Nine Months Ended March 31, |
| ||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
(dollars in millions, except ASP) |
| ||||||||||
Revenues |
|
$ |
85.8 |
|
$ |
79.3 |
|
$ |
251.1 |
|
$ |
213.9 |
|
|
|
|
|
|
|
|
|
|
| ||||
New gaming devices |
|
4,923 |
|
4,147 |
|
14,096 |
|
11,182 |
| ||||
New unit Average Selling Price (ASP) |
|
$ |
16,051 |
|
$ |
17,073 |
|
$ |
16,476 |
|
$ |
16,978 |
|
Gaming equipment revenues improved in the three and nine months ended March 31, 2013 due primarily to an increase in the number of new gaming devices sold as a result of our investments in key platform and hardware innovations. 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 allows for the development of new, more compelling games and also facilitates our game download solution for customers. Our Pro Series cabinets also feature the iDeck, a 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. We have and will continue to expand the number of game-development teams producing content on our new ALPHA 2 technology.
Gaming equipment gross margins increased to 51% and 50% in the three and nine months ended March 31, 2013, respectively, when compared to 46% and 44% in the three and nine months ended March 31, 2012, respectively, primarily driven by benefits from continued cost reductions on the Pro Series line of cabinets and sales mix.
Gaming Operations
|
|
Three Months Ended March 31, |
|
Nine Months Ended March 31, |
| ||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
(dollars in millions) |
| ||||||||||
Revenues |
|
$ |
102.0 |
|
$ |
92.5 |
|
$ |
302.2 |
|
$ |
263.7 |
|
|
|
|
|
|
|
|
|
|
| ||||
End of period installed base: |
|
|
|
|
|
|
|
|
| ||||
Linked progressive systems |
|
|
|
|
|
2,365 |
|
1,388 |
| ||||
Rental and daily-fee games |
|
|
|
|
|
14,953 |
|
14,824 |
| ||||
Video lottery systems |
|
|
|
|
|
12,059 |
|
10,989 |
| ||||
Centrally determined systems |
|
|
|
|
|
37,201 |
|
47,450 |
| ||||
Revenues increased during the three and nine months ended March 31, 2013 due primarily to the significant investments we have made in our game development studios and game platform in recent years, the continued placement of premium games, including the recently released Pawn Stars, Hot Shot Progressive, and Cash Wizard Tiki Magic, the continued success of Cash Connection, the latest wide-area progressive (WAP) link, and the benefit from a full nine months of results from games placed in Resorts World New York City in late calendar year 2011. The release of Michael Jackson King of Pop, GREASE, Betty Boops Fortune Teller, and Cash Spin Jackpot, all on our WAP link Cash Connection, drove another WAP record for revenue and units placed. In addition, we anticipate releasing a new WAP game, NASCAR®, during the fourth quarter of fiscal year 2013.
The installed base of centrally determined systems has declined as certain customers have upgraded these systems to utilize more sophisticated player tracking, bonus and marketing applications, and are now covered under systems maintenance.
Systems
|
|
Three Months Ended March 31, |
|
Nine Months Ended March 31, |
| ||||||||||||||||
|
|
2013 |
|
|
|
2012 |
|
|
|
2013 |
|
|
|
2012 |
|
|
| ||||
|
|
(dollars in millions) |
| ||||||||||||||||||
Hardware |
|
$ |
25.6 |
|
36 |
% |
$ |
20.4 |
|
36 |
% |
$ |
54.0 |
|
30 |
% |
$ |
51.0 |
|
33 |
% |
Software and services |
|
22.8 |
|
32 |
% |
16.8 |
|
30 |
% |
58.6 |
|
33 |
% |
50.0 |
|
32 |
% | ||||
Maintenance |
|
22.9 |
|
32 |
% |
19.6 |
|
34 |
% |
66.7 |
|
37 |
% |
55.4 |
|
35 |
% | ||||
|
|
$ |
71.3 |
|
100 |
% |
$ |
56.8 |
|
100 |
% |
$ |
179.3 |
|
100 |
% |
$ |
156.4 |
|
100 |
% |
Our Systems revenues are comprised of:
· Hardware, including our iVIEW player-user-interface device and specialized system-based products.
· Software and services, including licenses of our core systems and suite of player tracking, bonusing, and marketing applications and customized system solutions.
· Maintenance, providing access to future enhancements or upgrades to the system software for a fee based on a percent of the license fee.
The combination of iVIEW DM and Elite Bonusing Suite and other features such as Universal Card across multiple properties are becoming increasingly compelling return-on-investment propositions with multiple customer instances of demonstrable value generated from such implementations. During the nine months ended March 31, 2013, one large casino customer in Las Vegas, Nevada successfully launched NASCAR® Virtual Racing across the casino floor on both iVIEW and iVIEW DM. We have had several large installations during the current fiscal year and are also making good progress with international systems installations including Canada, South Africa, and New Zealand.
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.
Operating Expenses
|
|
Three Months Ended March 31, |
|
Nine Months Ended March 31, |
| ||||||||||||||||
|
|
2013 |
|
% of |
|
2012 |
|
% of |
|
2013 |
|
% of |
|
2012 |
|
% of |
| ||||
|
|
(dollars in millions) |
| ||||||||||||||||||
Selling, general and administrative |
|
$ |
72.2 |
|
28 |
% |
$ |
63.8 |
|
28 |
% |
$ |
204.6 |
|
28 |
% |
$ |
182.3 |
|
29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development costs |
|
$ |
29.1 |
|
11 |
% |
$ |
24.8 |
|
11 |
% |
$ |
80.8 |
|
11 |
% |
$ |
70.6 |
|
11 |
% |
The increase in SG&A expenses in the three and nine months ended March 31, 2013 was due primarily to increases in payroll and related expenses. Payroll and related expenses increased due primarily to an increase in headcount in the comparative periods.
The increase in R&D costs in both periods was attributable to our continued focus on our technology assets. R&D was consistent at 11% of total revenues in each period.
Liquidity
Total cash and cash equivalents increased $16.6 million in the nine months ended March 31, 2013, when compared to a decrease of $30.7 million in the same period last year. Net cash provided by operating activities was $139.5 million and $75.2 million for the nine months ended March 31, 2013 and 2012, respectively. Cash provided by operating activities in the current period was positively impacted by improvements in net income and decreases in accounts receivable and inventory, which were offset by an increase in prepaid and refundable income tax and an increase in the excess tax benefit of stock option exercises, when compared to the same period last year.
During the nine months ended March 31, 2013, we made payments of $65.0 million and $11.3 million on our revolving credit facility and term loan facility, respectively, made capital expenditures of $11.0 million, and repurchased $131.7 million of our common stock. These cash outlays were partially offset by proceeds of $55.0 million from borrowings under our credit facility, and proceeds of $26.5 million from the exercise of employee stock options and purchases of common stock under our 2008 Employee Stock Purchase Plan (the 2008 ESPP).
Results of Operations
The summary financial results and operating statistics are as follows:
|
|
Three Months Ended March 31, |
|
Nine Months Ended March 31, |
| ||||||||||||||||
|
|
2013 |
|
% |
|
2012 |
|
% |
|
2013 |
|
% |
|
2012 |
|
% |
| ||||
|
|
(dollars in millions) |
| ||||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gaming Equipment |
|
$ |
85.8 |
|
33 |
% |
$ |
79.3 |
|
35 |
% |
$ |
251.1 |
|
34 |
% |
$ |
213.9 |
|
34 |
% |
Gaming Operations |
|
102.0 |
|
39 |
% |
92.5 |
|
40 |
% |
302.2 |
|
41 |
% |
263.7 |
|
41 |
% | ||||
Systems |
|
71.3 |
|
28 |
% |
56.8 |
|
25 |
% |
179.3 |
|
25 |
% |
156.4 |
|
25 |
% | ||||
Total revenues |
|
$ |
259.1 |
|
100 |
% |
$ |
228.6 |
|
100 |
% |
$ |
732.6 |
|
100 |
% |
$ |
634.0 |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross Margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gaming Equipment(1) |
|
$ |
43.5 |
|
51 |
% |
$ |
36.6 |
|
46 |
% |
$ |
126.6 |
|
50 |
% |
$ |
95.0 |
|
44 |
% |
Gaming Operations |
|
72.0 |
|
71 |
% |
67.5 |
|
73 |
% |
211.8 |
|
70 |
% |
190.6 |
|
72 |
% | ||||
Systems(1) |
|
52.2 |
|
73 |
% |
40.4 |
|
71 |
% |
134.9 |
|
75 |
% |
115.0 |
|
74 |
% | ||||
Total gross margin |
|
$ |
167.7 |
|
65 |
% |
$ |
144.5 |
|
63 |
% |
$ |
473.3 |
|
65 |
% |
$ |
400.6 |
|
63 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Selling, general and administrative |
|
$ |
72.2 |
|
28 |
% |
$ |
63.8 |
|
28 |
% |
$ |
204.6 |
|
28 |
% |
$ |
182.3 |
|
29 |
% |
Research and development costs |
|
29.1 |
|
11 |
% |
24.8 |
|
11 |
% |
80.8 |
|
11 |
% |
70.6 |
|
11 |
% | ||||
Depreciation and amortization |
|
5.7 |
|
3 |
% |
5.7 |
|
2 |
% |
17.0 |
|
3 |
% |
17.1 |
|
3 |
% | ||||
Operating income |
|
$ |
60.7 |
|
23 |
% |
$ |
50.2 |
|
22 |
% |
$ |
170.9 |
|
23 |
% |
$ |
130.6 |
|
21 |
% |
(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 March 31, 2013 Compared to Three Months Ended March 31, 2012
Total revenues increased $30.5 million to $259.1 million, or 13%, in the three months ended March 31, 2013, when compared to the same period last year, as a result of the following:
Gaming Equipment Revenue. Gaming Equipment revenue increased by $6.5 million, or 8%, to approximately $85.8 million primarily as a result of:
· a 19% increase in new gaming device sales to 4,923 units in the three months ended March 31, 2013, when compared to 4,147 units in the same period last year, driven by higher domestic replacement sales, including the shipment of 788 Canadian VLTs, as well as by the shipment of 656 units into the Illinois Video Gaming Terminal (VGT) market; offset by
· a 6% decrease in ASP to $16,051 in the three months ended March 31, 2013, when compared to $17,073 in the same period last year, due primarily to a higher mix of lower-ASP VLT and VGT units sold in the current quarter and lower-ASP units sold in certain international markets.
Gaming Equipment Gross Margin. Gaming Equipment gross margin increased to 51% in the three months ended March 31, 2013 from 46%, in the same period last year, due primarily to continued cost reductions on the Pro Series line of cabinets and sales mix.
Gaming Operations Revenue. Gaming Operations revenue increased $9.5 million, or 10%, to approximately $102.0 million in the three months ended March 31, 2013, when compared to the same period last year, primarily as a result of:
· an increase in participation and rental revenue due to an increase in our end of period installed base of games, the continuing placements of higher yield premium products, and newer and more popular game titles; and
· an increase in linked progressive revenue driven by growth in the installed base of games due primarily to the introduction of our WAP link Cash Connection in late fiscal year 2012.
Gaming Operations Gross Margin. Gaming Operations gross margin decreased to 71% in the three months ended March 31, 2013 from 73% in the same period last year, due primarily to higher jackpot expense.
Systems Revenue. Systems revenue increased $14.5 million, or 26%, to approximately $71.3 million in the three months ended March 31, 2013, when compared to the same period last year. The increase in revenue was comprised of a $3.3 million, or 17%, increase in maintenance revenue due to the increased install base of customers on our systems, a $5.2 million, or 25%, increase in hardware revenue, and a $6.0 million, or 36%, increase in software and services revenue during the same period.
Systems Gross Margin. Systems gross margin increased to 73% in the three months ended March 31, 2013 from 71%, 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 revenue and software and services revenue which involve minimal variable costs.
Selling, General and Administrative Expenses. SG&A expenses increased $8.4 million, or 13%, in the three months ended March 31, 2013, when compared to the same period last year, due primarily to increases in payroll and related expenses. Payroll and related expenses increased due primarily to an increase in headcount in the comparative periods primarily as a result of our expansion into international markets.
Research and Development Costs. R&D costs increased $4.3 million, or 17%, in the three months ended March 31, 2013, when compared to the same period last year, due primarily to increased product development efforts requiring an increase in employees. R&D was consistent at 11% of total revenues in both periods.
Depreciation and Amortization Expense. Depreciation and amortization expense was consistent at $5.7 million in each period.
Nine Months Ended March 31, 2013 Compared to Nine Months Ended March 31, 2012
Total revenues increased $98.6 million to $732.6 million, or 16%, in the nine months ended March 31, 2013, when compared to the same period last year, as a result of the following:
Gaming Equipment Revenue. Gaming Equipment revenue increased by $37.2 million, or 17%, to approximately $251.1 million primarily as a result of:
· a 26% increase in new gaming device sales to 14,096 units in the nine months ended March 31, 2013, when compared to 11,182 units in the same period last year, driven by higher domestic replacement sales, including Canadian VLT shipments, as well as by the shipments into the Illinois VGT market; offset by
· a 3% decrease in ASP to $16,476 in the nine months ended March 31, 2013, when compared to $16,978 in the same period last year, due primarily to a higher mix of lower-ASP VLT and VGT units sold.
Gaming Equipment Gross Margin. Gaming Equipment gross margin increased to 50% in the nine months ended March 31, 2013 from 44%, in the same period last year, due primarily to continued cost reductions on certain models of the Pro Series line of cabinets and sales mix.
Gaming Operations Revenue. Gaming Operations revenue increased $38.5 million, or 15%, to approximately $302.2 million in the nine months ended March 31, 2013, when compared to the same period last year, primarily as a result of:
· an increase in participation and rental revenue due to an increase in our end of period installed base of games, the continuing placements of higher yield premium products, and newer and more popular game titles;
· an increase in linked progressive revenue driven by growth in the installed base of games due primarily to the introduction of our WAP link Cash Connection in late fiscal year 2012; and
· the performance of our lottery systems due to increases in our end of period installed base of games due primarily to previous placed games at Resorts World Casino New York City which opened in late calendar year 2011.
Gaming Operations Gross Margin. Gaming Operations gross margin decreased to 70% in the nine months ended March 31, 2013 from 72% in the same period last year, due primarily to higher jackpot expense.
Systems Revenue. Systems revenue increased $22.9 million, or 15%, to approximately $179.3 million in the nine months ended March 31, 2013, when compared to the same period last year, which was comprised primarily of an $11.3 million, or 20%, increase in maintenance revenue due to the increased install base of customers on our systems, a $3.0 million, or 6%, increase in hardware revenue, and a $8.6 million, or 17%, increase in software and services revenue during the same period.
Systems Gross Margin. Systems gross margin increased to 75% in the nine months ended March 31, 2013 from 74%, 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 revenue and software and services revenue which involve minimal variable costs.
Selling, General and Administrative Expenses. SG&A expenses increased $22.3 million, or 12%, in the nine months ended March 31, 2013, when compared to the same period last year, due primarily to increases in payroll and related expenses. Payroll and related expenses increased due primarily to an increase in headcount in the comparative periods primarily as a result of our expansion into international markets, and certain compensation related to executive transitions.
Research and Development Costs. R&D costs increased $10.2 million, or 14%, in the nine months ended March 31, 2013, when compared to the same period last year, due primarily to increased product development efforts requiring an increase in employees. R&D was consistent at 11% of total revenues in both periods.
Depreciation and Amortization Expense. Depreciation and amortization expense decreased slightly by $0.1 million, or 1%, in the nine months ended March 31, 2013, when compared to the same period last year.
Other Income (Expense), Income Tax Expense and Net Income (Loss) Attributable to Noncontrolling Interests
Other income (expense), income tax expense and net loss (income) attributable to noncontrolling interests was as follows:
|
|
Three Months Ended March 31, |
|
Nine Months Ended March 31, |
| ||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
(in millions) |
| ||||||||||
Other income (expense): |
|
|
|
|
|
|
|
|
| ||||
Interest income |
|
$ |
1.2 |
|
$ |
1.2 |
|
$ |
3.7 |
|
$ |
3.7 |
|
Interest expense |
|
(4.4 |
) |
(4.1 |
) |
(13.5 |
) |
(13.2 |
) | ||||
Other, net |
|
(1.5 |
) |
0.3 |
|
(3.3 |
) |
(2.3 |
) | ||||
Total other expense |
|
$ |
(4.7 |
) |
$ |
(2.6 |
) |
$ |
(13.1 |
) |
$ |
(11.8 |
) |
Income tax expense |
|
(17.5 |
) |
(17.7 |
) |
(55.3 |
) |
(44.3 |
) | ||||
Net income (loss) attributable to noncontrolling interests |
|
|
|
(0.1 |
) |
(1.7 |
) |
|
|
Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012
Other Income (Expense). Total other expense increased $2.1 million in the three months ended March 31, 2013, when compared to the same period last year, due primarily to foreign currency translations. In the three months ended March 31, 2013, losses on foreign currency translation were $1.6 million, when compared to gains on foreign currency translations of $0.2 million in the same period last year. Interest expense increased by $0.3 million in three months ended March 31, 2013, when compared to the same period last year.
Income Tax Expense. Income tax expense decreased by $0.2 million during the three months ended March 31, 2013, when compared to the same period last year. The effective income tax rate for the three months ended March 31, 2013 and 2012 was 31.3% and 37.2%, respectively. The decrease in the effective income tax rate for the three months ended March 31, 2013, when compared to the same period last year, is primarily attributable to a favorable increase in the federal manufacturing deduction and the reinstatement of the federal research and development tax credit which was retroactive to January 1, 2012.
Nine Months Ended March 31, 2013 Compared to Nine Months Ended March 31, 2012
Other Income (Expense). Total other expense increased $1.3 million in the nine months ended March 31, 2013, when compared to the same period last year, due primarily to foreign currency translations. In the nine months ended March 31, 2013, losses on foreign currency translation were $3.5 million, when compared to $2.7 million in the same period last year. Interest expense increased by $0.3 million in the nine months ended March 31, 2013, when compared to the same period last year.
Income Tax Expense. Income tax expense increased $11.0 million during the nine months ended March 31, 2013, when compared to the same period last year, due primarily to the increase in net income during the same period. The effective income tax rate for the nine months ended March 31, 2013 and 2012 was 35.1% and 37.2%, respectively. The decrease in the effective income tax rate for the nine months ended March 31, 2013, when compared to the same period last year, is primarily attributable to a favorable increase in the federal manufacturing deduction and the reinstatement of the federal research and development tax credit which was retroactive to January 1, 2012.
Net loss (income) attributable to noncontrolling interests. Net loss attributable to noncontrolling interests increased $1.7 million in the nine months ended March 31, 2013, when compared to the same period last year, due to higher jackpot expense.
Financial Condition and Liquidity
Working Capital
|
|
March 31, |
|
June 30, |
|
Increase (decrease) |
| |||||
|
|
2013 |
|
2012 |
|
Amount |
|
% |
| |||
|
|
(in 000s) |
| |||||||||
Cash and cash equivalents |
|
$ |
49,291 |
|
$ |
32,673 |
|
$ |
16,618 |
|
51 |
% |
|
|
|
|
|
|
|
|
|
| |||
Total long-term debt, including current maturities |
|
$ |
490,247 |
|
$ |
511,466 |
|
$ |
(21,219 |
) |
(4 |
)% |
|
|
|
|
|
|
|
|
|
| |||
Total current assets |
|
$ |
497,613 |
|
$ |
480,459 |
|
$ |
17,154 |
|
4 |
% |
Total current liabilities |
|
216,880 |
|
214,037 |
|
2,843 |
|
1 |
% | |||
Net working capital |
|
$ |
280,733 |
|
$ |
266,422 |
|
$ |
14,311 |
|
5 |
% |
Pursuant to various state gaming regulations, certain cash accounts are maintained to ensure availability of funds to pay WAP jackpot awards in installments rather than in one lump-sum. At March 31, 2013 and June 30, 2012, these accounts had an aggregate value of approximately $14.5 million and $13.6 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 $11.3 million and $12.2 million as of March 31, 2013 and June 30, 2012, respectively.
On March 31, 2013 and June 30, 2012, the amount of cash and investments held by foreign subsidiaries was $26.0 million and $22.6 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.
Our net working capital increased by $14.3 million in the nine months ended March 31, 2013, when compared to June 30, 2012, and was primarily affected by a $16.6 million increase in cash and cash equivalents during the same period. Decreases in inventory and current accounts and notes receivable were primarily offset by increases in prepaid and refundable income tax, and decreases in accounts payable and income tax payable were primarily offset by increases in current deferred revenue and accrued and other liabilities during the same period.
Total current and long-term accounts and notes receivable decreased by $15.7 million during the nine months ended March 31, 2013, when compared to June 30, 2012, due primarily to a customer contract election during the second quarter of fiscal year 2013. As of March 31, 2013, our DSOs decreased to 106 days from 113 days at June 30, 2012 due to an increase in collections.
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. See Note 5 to the unaudited condensed consolidated financial statements, Long-Term Debt. See also Note 11 to the unaudited condensed consolidated financial statements, Subsequent Events, regarding our amendment and restatement of the credit facility to provide for a $1.07 billion senior secured credit facility comprised of a $370.0 million, five-year term loan and a $700.0 million, five-year revolving credit facility.
As of March 31, 2013 and June 30, 2012, there was approximately $180.0 million and $170.0 million, respectively, 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 March 31, 2013, 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 operating activities were $139.5 million in the nine months ended March 31, 2013 as compared to $75.2 million in the same period last year, a $64.3 million increase. In the comparable periods, cash flows from operating activities for the nine months ended March 31, 2013 were positively impacted by improvements in net income and decreases in accounts receivable and inventory, which were offset by an increase in prepaid and refundable income tax and an increase in the excess tax benefit of stock option exercises, when compared to the same period last year.
Cash utilized for investing activities is primarily for capital expenditures related to office and gaming equipment and improvements in leaseholds, financing arrangements with customers, acquisitions, and investments in technology and other long-term assets. During the nine months ended March 31, 2013 and 2012, we made capital expenditures of $11.0 million and $6.9 million, respectively. In addition, we made payments of $6.0 million related to acquisitions in the nine months ended March 31, 2012.
Cash utilized for financing activities is primarily for the payment of principal on our debt and the repurchase of shares of our common stock. During the nine months ended March 31, 2013, we made payments of $76.3 million on our credit facility and repurchased $131.7 million of our common stock. During the nine months ended March 31, 2012, we made payments of $41.3 million on our credit facility and repurchased $75.0 million of our common stock.
Cash provided by financing activities is primarily from proceeds from the exercise of stock options and purchases of stock under our 2008 ESPP, borrowings under our revolving credit facility, and excess tax benefits of stock option exercises. During the nine months ended March 31, 2013, we borrowed $55.0 million under our revolving credit facility. In addition, during the nine months ended March 31, 2013, employees purchased common stock through the exercise of stock options or the participation in the 2008 ESPP for $26.5 million. During the nine months ended March 31, 2012, employees purchased common stock through the exercise of stock options or the participation in the 2008 ESPP for $18.9 million. In addition, we borrowed $10.0 million under our revolving credit facility during the nine months ended March 31, 2012.
Critical Accounting Policies
A description of our critical accounting policies can be found in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations in the 2012 Form 10-K. There were no material changes to those policies during the nine months ended March 31, 2013.
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 March 31, 2013, we had total debt outstanding of approximately $490.2 million which consisted primarily of a $270.0 million term loan and $220.0 million of borrowing under our revolving credit facility. During the nine months ended March 31, 2013, the interest rate for the credit facility was subject to a leveraged based pricing grid.
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 entered into in December 2008 and June 2011, respectively, and discussed in Note 5 to the unaudited condensed consolidated financial statements, Long-Term Debt. As of March 31, 2013, the interest rate on the revolving credit facility was 1.70% and the interest rate on our term loan was approximately 3.59%, after giving effect to our interest rate swaps. We estimate a hypothetical decline of 100 bps in applicable interest rates would have an immaterial impact on our business because we manage this exposure with derivative financial instruments.
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 March 31, 2013 and 2012, we recognized a foreign currency exchange rate loss of approximately $1.6 million and a foreign currency exchange rate gain of approximately $0.2 million, respectively. During the nine months ended March 31, 2013 and 2012, we recognized foreign currency exchange rate losses of approximately $3.5 million and $2.7 million, respectively. We estimate that a hypothetical 10% strengthening (or weakening) of the U.S. dollar for fiscal 2013 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 gains of $0.4 million as of March 31, 2013.
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).
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 March 31, 2013.
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 March 31, 2013
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 March 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
For a description of our legal proceedings, see Note 9 to the unaudited condensed consolidated financial statements, Commitments and Contingencies, which is incorporated by reference in response to this item.
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 2012 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
The Companys Board of Directors have historically approved a variety of share repurchase programs under which, subject to price and market conditions, purchases of shares could be made from time to time in the open market or in privately negotiated transactions using available cash.
On October 24, 2012, the Companys Board of Directors approved a new $150.0 million share-repurchase program, which replaced the Companys prior repurchase program under which there remained $23,236,159 in unused capacity at such time. See Note 11 to the unaudited condensed consolidated financial statements, Subsequent Events, regarding the Companys Board of Directors approval of a new $300.0 million share-repurchase program, which replaced the repurchase program described above.
Our quarterly share repurchases under this program approved on October 24, 2012, excluding treasury shares acquired in non-cash transactions related to forfeited stock awards and shares exchanged for options exercised, were as follows:
Period |
|
Total |
|
Average Price |
|
Total Number of |
|
Maximum Number |
| ||
|
|
|
|
|
|
|
|
$ |
125,910,240 |
| |
January 1 - January 31, 2013 |
|
|
|
$ |
|
|
|
|
$ |
125,910,240 |
|
February 1 - February 28, 2013 |
|
577,772 |
|
$ |
48.95 |
|
577,772 |
|
$ |
97,628,083 |
|
March 1 - March 31, 2013 |
|
63,361 |
|
$ |
47.36 |
|
63,361 |
|
$ |
94,627,072 |
|
Total |
|
641,133 |
|
$ |
48.79 |
|
641,133 |
|
|
|
Exhibits |
|
Description |
|
|
|
10.1 |
|
Master ConfirmationUncollared Accelerated Share Repurchase dated April 24, 2013 by and between J.P. Morgan Securities LLC and Bally Technologies, Inc. |
31.1 |
|
Certification of Chief Executive Officer, pursuant to Securities Exchange Act Rule 13a-14(a). |
31.2 |
|
Certification of Chief Financial Officer, pursuant to Securities Exchange Act Rule 13a-14(a). |
32.1 |
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. |
32.2 |
|
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350. |
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 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: May 6, 2013 | |
|
|
|
|
|
|
|
|
By |
/s/Ramesh Srinivasan |
|
|
|
Ramesh Srinivasan |
|
|
|
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) |
|
|
Exhibit 10.1
EXECUTION VERSION
JPMorgan Chase Bank, National Association
P.O. Box 161
60 Victoria Embankment
London EC4Y 0JP
England
|
April 24, 2013 |
To: Bally Technologies, Inc.
6601 S. Bermuda Rd.
Las Vegas, Nevada 89119
Attention: Chief Financial Officer
Telephone No.: (702) 584-7700
Re: Master ConfirmationUncollared Accelerated Share Repurchase
This master confirmation (this Master Confirmation), dated as of April 24, 2013, is intended to set forth certain terms and provisions of certain Transactions (each, a Transaction) entered into from time to time between J.P. Morgan Securities LLC (JPMS), as agent for JPMorgan Chase Bank, National Association, London Branch (JPMorgan), and Bally Technologies, Inc., a Nevada corporation (Counterparty). This Master Confirmation, taken alone, is neither a commitment by either party to enter into any Transaction nor evidence of a Transaction. The additional terms of any particular Transaction shall be set forth in a Supplemental Confirmation in the form of Schedule A hereto (a Supplemental Confirmation), which shall reference this Master Confirmation and supplement, form a part of, and be subject to this Master Confirmation. This Master Confirmation and each Supplemental Confirmation together shall constitute a Confirmation as referred to in the Agreement specified below.
The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the Equity Definitions), as published by the International Swaps and Derivatives Association, Inc., are incorporated into this Master Confirmation. This Master Confirmation and each Supplemental Confirmation evidence a complete binding agreement between Counterparty and JPMorgan as to the subject matter and terms of each Transaction to which this Master Confirmation and such Supplemental Confirmation relate and shall supersede all prior or contemporaneous written or oral communications with respect thereto.
This Master Confirmation and each Supplemental Confirmation supplement, form a part of, and are subject to an agreement in the form of the 2002 ISDA Master Agreement (the Agreement) as if JPMorgan and Counterparty had executed the Agreement on the date of this Master Confirmation (but without any Schedule except for (i) the election of New York law as the governing law (without reference to its choice of law provisions) and (ii) the election that subparagraph (ii) of Section 2(c) will not apply to the Transactions.
The Transactions shall be the sole Transactions under the Agreement. If there exists any ISDA Master Agreement between JPMorgan and Counterparty or any confirmation or other agreement between JPMorgan and Counterparty pursuant to which an ISDA Master Agreement is deemed to exist between JPMorgan and Counterparty, then notwithstanding anything to the contrary in such ISDA Master Agreement, such confirmation or agreement or any other agreement to which JPMorgan and Counterparty are parties, the Transactions shall not be considered Transactions under, or otherwise governed by, such existing or deemed ISDA Master Agreement, and the occurrence of any Event of Default or Termination Event under the Agreement with respect to either party or any Transaction shall not, by itself, give rise to any right or obligation under any such other agreement or deemed agreement. Notwithstanding anything to the contrary in any other agreement between the parties or their Affiliates, the Transactions shall not be Specified Transactions (or similarly treated) under any other agreement between the parties or their Affiliates.
JPMorgan Chase Bank, National Association
Organised under the laws of the United States as a National Banking Association.
Main Office 1111 Polaris Parkway, Columbus, Ohio 43240
Registered as a branch in England & Wales branch No. BR000746
Registered Branch Office 25 Bank Street, Canary Wharf, London, E14 5JP
Authorised and regulated by the Financial Services Authority
All provisions contained or incorporated by reference in the Agreement shall govern this Master Confirmation and each Supplemental Confirmation except as expressly modified herein or in the related Supplemental Confirmation.
If, in relation to any Transaction to which this Master Confirmation and a Supplemental Confirmation relate, there is any inconsistency between the Agreement, this Master Confirmation, such Supplemental Confirmation and the Equity Definitions, the following will prevail for purposes of such Transaction in the order of precedence indicated: (i) such Supplemental Confirmation; (ii) this Master Confirmation; (iii) the Equity Definitions; and (iv) the Agreement.
1. Each Transaction constitutes a Share Forward Transaction for the purposes of the Equity Definitions. Set forth below are the terms and conditions that, together with the terms and conditions set forth in the Supplemental Confirmation relating to any Transaction, shall govern such Transaction.
General Terms.
Trade Date: |
|
For each Transaction, as set forth in the related Supplemental Confirmation. |
|
|
|
Buyer: |
|
Counterparty |
|
|
|
Seller: |
|
JPMorgan |
|
|
|
Shares: |
|
The common stock of Counterparty, par value USD 0.10 per share (Exchange symbol BYI). |
|
|
|
Exchange: |
|
The New York Stock Exchange |
|
|
|
Related Exchange(s): |
|
All Exchanges. |
|
|
|
Prepayment/Variable Obligation: |
|
Applicable |
|
|
|
Prepayment Amount: |
|
For each Transaction, as set forth in the related Supplemental Confirmation. |
|
|
|
Prepayment Date: |
|
For each Transaction, as set forth in the related Supplemental Confirmation. |
|
|
|
Contract Fee: |
|
For each Transaction, as set forth in the related Supplemental Confirmation, if any. On the Prepayment Date, Buyer shall pay Seller an amount in USD equal to the Contract Fee, if any, in immediately available funds by wire transfer to an account specified by Seller. |
Valuation.
|
|
|
VWAP Price: |
|
For any Exchange Business Day, the volume-weighted average price at which the Shares trade as reported in the composite transactions for United States exchanges and quotation systems, during the regular trading session for the Exchange on such Exchange Business Day, excluding (i) trades that do not settle regular way, (ii) opening (regular way) reported trades in the consolidated system on such Exchange Business Day, (iii) trades that occur in the last ten minutes before the scheduled close of trading on the Exchange on such Exchange Business Day and ten minutes before the scheduled close of the primary trading in the market where the trade is effected, and (iv) trades on such Exchange Business Day that do not satisfy the requirements of Rule 10b-18(b)(3) under the Securities |
|
|
Exchange Act of 1934, as amended (the Exchange Act), as determined in good faith and in a commercially reasonable manner by the Calculation Agent (all such trades other than any trades described in clauses (i) to (iv) above, Rule 10b-18 Eligible Transactions); provided that the Calculation Agent shall use the Bloomberg Page BYI US <Equity> AQR SEC (or any successor thereto) for such Exchange Business Day to determine the VWAP Price, absent manifest error or unavailability of such page or successor thereto. | ||
|
|
|
|
|
Forward Price: |
|
For each Transaction, the arithmetic average of the VWAP Prices for all of the Exchange Business Days in the Calculation Period for such Transaction, subject to Valuation Disruption below. | ||
|
|
| ||
Forward Price Adjustment Amount: |
|
For each Transaction, as set forth in the related Supplemental Confirmation. | ||
|
|
| ||
Calculation Period: |
|
For each Transaction, the period from, and including, the Calculation Period Start Date for such Transaction to, and including, the Termination Date for such Transaction. | ||
|
|
| ||
Calculation Period Start Date: |
|
For each Transaction, as set forth in the related Supplemental Confirmation. | ||
|
|
| ||
Termination Date: |
|
For each Transaction, the Scheduled Termination Date for such Transaction; provided that JPMorgan shall have the right to designate any Exchange Business Day on or after the First Acceleration Date to be the Termination Date for such Transaction (the Accelerated Termination Date) by delivering notice to Counterparty of any such designation prior to 6:00 p.m. (New York City time) on the Exchange Business Day immediately following the designated Accelerated Termination Date. | ||
|
|
| ||
Scheduled Termination Date: |
|
For each Transaction, as set forth in the related Supplemental Confirmation, subject to postponement as provided in Valuation Disruption below. | ||
|
|
| ||
First Acceleration Date: |
|
For each Transaction, as set forth in the related Supplemental Confirmation. | ||
|
|
| ||
Valuation Disruption: |
|
The definition of Market Disruption Event in Section 6.3(a) of the Equity Definitions is hereby amended by deleting the words at any time during the one-hour period that ends at the relevant Valuation Time, Latest Exercise Time, Knock-in Valuation Time or Knock-out Valuation Time, as the case may be and inserting the words at any time on any Exchange Business Day during the Calculation Period or Settlement Valuation Period after the word material, in the third line thereof. | ||
|
|
|
|
|
|
|
Section 6.3(d) of the Equity Definitions is hereby amended by deleting the remainder of the provision following the term Scheduled Closing Time in the fourth line thereof. |
|
|
Notwithstanding anything to the contrary in the Equity Definitions, to the extent that a Disrupted Day occurs (i) in the Calculation Period, the Calculation Agent may, in its good faith and commercially reasonable discretion, postpone the Scheduled Termination Date by no more than such number of Disrupted Days, or (ii) in the Settlement Valuation Period, the Calculation Agent may extend the Settlement Valuation Period by no more than such number of Disrupted Days. The Calculation Agent shall also determine whether (i) such Disrupted Day is a Disrupted Day in full, in which case the VWAP Price for such Disrupted Day shall not be included for purposes of determining the Forward Price or the Settlement Price, as the case may be, or (ii) such Disrupted Day is a Disrupted Day only in part, in which case the VWAP Price for such Disrupted Day shall be determined by the Calculation Agent based on Rule 10b-18 Eligible Transactions in the Shares on such Disrupted Day taking into account the nature and duration of the relevant Market Disruption Event, and the weighting of the VWAP Price for the relevant Exchange Business Days during the Calculation Period or the Settlement Valuation Period, as the case may be, shall be adjusted in a commercially reasonable manner by the Calculation Agent for purposes of determining the Forward Price or the Settlement Price, as the case may be, with such adjustments based on, among other factors, the duration of any Market Disruption Event and the volume, historical trading patterns and price of the Shares. Any Exchange Business Day on which, as of the date hereof, the Exchange is scheduled to close prior to its normal close of trading shall be deemed not to be an Exchange Business Day; if a closure of the Exchange prior to its normal close of trading on any Exchange Business Day is scheduled following the date hereof, then such Exchange Business Day shall be deemed to be a Disrupted Day in full. |
|
|
|
|
|
If a Disrupted Day occurs during the Calculation Period for any Transaction or the Settlement Valuation Period for any Transaction, as the case may be, and each of the nine immediately following consecutive Exchange Business Days is a Disrupted Day (a Disruption Event), then the Calculation Agent, in its good faith and commercially reasonable discretion, may deem such Disruption Event (and each consecutive Disrupted Day thereafter) to be either (x) a Potential Adjustment Event in respect of such Transaction or (y) an Additional Termination Event in respect of such Transaction, with Counterparty as the sole Affected Party and such Transaction as the sole Affected Transaction and with the amount under Section 6(e) of the Agreement determined taking into account the fact that the Calculation Period or Settlement Valuation Period, as the case may be, had fewer Exchange Business Days than originally anticipated. |
Settlement Terms.
|
|
|
Settlement Procedures: |
|
For each Transaction: |
|
|
| |
|
|
(i) |
if the Number of Shares to be Delivered for such Transaction is positive, Physical Settlement shall be applicable to such Transaction; provided that JPMorgan does not, and shall not, make the agreement or the representations set forth in Section 9.11 of the Equity Definitions related to the restrictions imposed by applicable securities laws with respect to any Shares delivered by JPMorgan to Counterparty under any Transaction; or |
|
|
|
|
|
|
(ii) |
if the Number of Shares to be Delivered for such Transaction is negative, then the Counterparty Settlement Provisions in Annex A hereto shall apply to such Transaction. |
|
|
| |
Number of Shares to be Delivered: |
|
For each Transaction, a number of Shares (rounded down to the nearest whole number) equal to (a)(i) the Prepayment Amount for such Transaction, divided by (ii)(A) the Forward Price for such Transaction minus (B) the Forward Price Adjustment Amount for such Transaction, minus (b) the number of Initial Shares for such Transaction; provided that if the result of the calculation in clause (a)(ii) is equal to or less than the Floor Price for such Transaction, then the Number of Shares to be Delivered for such Transaction shall be determined as if clause (a)(ii) were replaced with (ii) the Floor Price for such Transaction. For the avoidance of doubt, if the Forward Price Adjustment Amount for any Transaction is a negative number, clause (a)(ii) of the immediately preceding sentence shall be equal to (A) the Forward Price for such Transaction, plus (B) the absolute value of the Forward Price Adjustment Amount. | |
|
|
| |
Floor Price: |
|
For each Transaction, as set forth in the related Supplemental Confirmation. | |
|
|
| |
Excess Dividend Amount: |
|
For the avoidance of doubt, all references to the Excess Dividend Amount shall be deleted from Section 9.2(a)(iii) of the Equity Definitions. | |
|
|
| |
Settlement Date: |
|
For each Transaction, if the Number of Shares to be Delivered for such Transaction is positive, the date that is the second Clearance System Business Day immediately following the Termination Date for such Transaction. | |
|
|
| |
Settlement Currency: |
|
USD | |
|
|
| |
Initial Share Delivery: |
|
For each Transaction, JPMorgan shall deliver a number of Shares equal to the Initial Shares for such Transaction to Counterparty on the Initial Share Delivery Date for such Transaction in accordance with Section 9.4 of the Equity Definitions, with such Initial Share Delivery Date deemed to be a Settlement Date for purposes of such Section 9.4. | |
|
|
| |
Initial Share Delivery Date: |
|
For each Transaction, as set forth in the related Supplemental Confirmation. | |
|
|
| |
Initial Shares: |
|
For each Transaction, as set forth in the related Supplemental Confirmation. |
Share Adjustments.
|
|
|
Potential Adjustment Event: |
|
In addition to the events described in Section 11.2(e) of the Equity Definitions, it shall constitute an additional Potential Adjustment Event if (x) the Scheduled Termination Date for any Transaction is postponed for at least three consecutive Exchange Business Days pursuant to Valuation Disruption above (including, for the avoidance of doubt, pursuant to Section 7 hereof), (y) a Regulatory Disruption as described in Section 7 occurs and is continuing for at least three consecutive Exchange Business Days or (z) a Disruption Event occurs. In the case of any event described in clause (x), (y) or (z) above occurs, the Calculation Agent may, in its commercially reasonable discretion, adjust any relevant terms of such Transaction as necessary to preserve as nearly as practicable the fair value of such Transaction to JPMorgan prior to such postponement, Regulatory Disruption or Disruption Event, as the case may be. |
|
|
|
Excess Dividend: |
|
Any dividend or distribution on the Shares (other than any dividend or distribution of the type described in Section 11.2(e)(i) or Section 11.2(e)(ii)(A) of the Equity Definitions or any Extraordinary Dividend). Extraordinary Dividend means the per Share cash dividend or distribution, or a portion thereof, declared by Counterparty on the Shares that is classified by the board of directors of Counterparty as an extraordinary dividend. |
|
|
|
Consequences of Excess Dividend: |
|
The declaration by the Issuer of any Excess Dividend, the ex-dividend date for which occurs or is scheduled to occur during the Relevant Dividend Period for any Transaction, shall, at JPMorgans election in its sole discretion, either (x) constitute an Additional Termination Event in respect of such Transaction, with Counterparty as the sole Affected Party and such Transaction as the sole Affected Transaction or (y) result in an adjustment, by the Calculation Agent, to the exercise, settlement, payment or any other terms of the relevant Transaction as the Calculation Agent determines appropriate to account for the economic effect on such Transaction of such Excess Dividend. |
|
|
|
Method of Adjustment: |
|
Calculation Agent Adjustment |
|
|
|
Relevant Dividend Period: |
|
For each Transaction, the period from, and including, the Trade Date for such Transaction to, and including, the Relevant Dividend Period End Date for such Transaction. |
|
|
|
Relevant Dividend Period End Date: |
|
For each Transaction, if the Number of Shares to be Delivered for such Transaction is negative, the last day of the Settlement Valuation Period; otherwise, the Termination Date for such Transaction. |
Extraordinary Events.
|
|
|
Consequences of Merger Events: |
|
|
|
|
|
(a) Share-for-Share: |
|
Modified Calculation Agent Adjustment |
|
|
|
(b) Share-for-Other: |
|
Cancellation and Payment |
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(c) Share-for-Combined: |
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Component Adjustment |
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Tender Offer: |
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Applicable; provided that (a) Section 12.1(l) of the Equity Definitions shall be amended (i) by deleting the parenthetical in the fifth line thereof, (ii) by replacing that in the fifth line thereof with whether or not such announcement and (iii) by adding immediately after the words Tender Offer in the fifth line thereof , and any publicly announced change or amendment to such an announcement (including, without limitation, the announcement of an abandonment of such intention) and (b) Sections 12.3(a) and 12.3(d) of the Equity Definitions shall each be amended by replacing each occurrence of the words Tender Offer Date by Announcement Date. |
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Consequences of Tender Offers: |
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(a) Share-for-Share: |
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Modified Calculation Agent Adjustment |
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(b) Share-for-Other: |
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Modified Calculation Agent Adjustment |
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(c) Share-for-Combined: |
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Modified Calculation Agent Adjustment |
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Nationalization, Insolvency or Delisting: |
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Cancellation and Payment; provided that in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it shall also constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors); if the Shares are immediately re-listed, re-traded or re-quoted on any such exchange or quotation system, such exchange or quotation system shall be deemed to be the Exchange. |
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Additional Disruption Events: |
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(a) Change in Law: |
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Applicable; provided that (a) Section 12.9(a)(ii) of the Equity Definitions is hereby amended by (i) replacing the phrase the interpretation in the third line thereof with the phrase , or public announcement of, the formal or informal interpretation, (ii) by replacing the word Shares where it appears in clause (X) thereof with the words Hedge Positions and (iii) by immediately following the word Transaction in clause (X) thereof, adding the phrase in the manner contemplated by the Hedging Party on the Trade Date; (b) Section 12.9(a)(ii) of the Equity Definitions is hereby amended by replacing the parenthetical beginning after the word regulation in the second line thereof the words (including, for the avoidance of doubt and without limitation, (x) any tax law or (y) adoption or promulgation of new regulations authorized or mandated by existing statute); and (c) JPMorgan shall not terminate the Transaction for a Change in Law referred to in clause (Y) of Section |
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12.9(a)(ii) of the Equity Definitions except to the extent it is exercising its right to terminate transactions as a result of a Change in Law event with respect to other similarly situated customers in respect of similar transactions. |
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(b) Failure to Deliver: |
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Applicable |
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(c) Insolvency Filing: |
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Applicable |
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(d) Loss of Stock Borrow: |
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Applicable |
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Maximum Stock Loan Rate: |
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For each Transaction, as set forth in the related Supplemental Confirmation. |
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Hedging Party: |
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JPMorgan |
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Determining Party: |
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JPMorgan |
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(e) Hedging Disruption: |
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Applicable; provided, that Section 12.9(a)(v) of the Equity Definitions is hereby modified by inserting the following sentence at the end of such Section: Such inability described in clauses (A) or (B) above shall not constitute a Hedging Disruption unless the Hedging Party determines that such inability could result in continued performance by the Hedging Party under the Transaction being commercially unreasonable or commercially impracticable. |
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Hedging Party: |
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JPMorgan |
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Determining Party: |
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JPMorgan |
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(f) Increased Cost of Stock Borrow: |
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Applicable |
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Initial Stock Loan Rate: |
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For each Transaction, as set forth in the related Supplemental Confirmation. |
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Hedging Party: |
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JPMorgan |
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Determining Party: |
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JPMorgan |
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Hedging Adjustments: |
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For the avoidance of doubt, whenever the Calculation Agent is called upon to make an adjustment pursuant to the terms of this Confirmation or the Equity Definitions to take into account the effect of an event, the Calculation Agent shall make such adjustment by reference to the effect of such event on JPMorgan, assuming that JPMorgan maintains a commercially reasonable Hedge Position. |
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Non-Reliance/Agreements and |
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Acknowledgements Regarding |
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Hedging Activities/Additional |
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Acknowledgements: |
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Applicable |
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2. |
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Calculation Agent. |
JPMorgan. Whenever the Calculation Agent is required to act or to exercise judgment in any way with respect to any Transaction hereunder, it will do so in good faith and in a commercially reasonable manner. Following any |
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determination or calculation by the Calculation Agent hereunder, the Calculation Agent will, upon request, provide to Counterparty promptly following such request a report (in a commonly used file format for the storage and manipulation of financial data without disclosing any proprietary models or other information that is proprietary or confidential) displaying in reasonable detail the basis for such determination or calculation, as the case may be. |
3. Account Details.
(a) Account for payments to Counterparty:
Bank: Bank of America, 300 S. Fourth Street, Floor 2, Las Vegas, NV 89101
ABA#: 026009593
Acct No.: 990086803
Beneficiary: Bally Technologies Inc
Account for delivery of Shares to Counterparty:
To be provided by Counterparty separately.
(b) Account for payments to JPMorgan:
Bank: JPMorgan Chase Bank, N.A.
ABA#: 021000021
Acct No.: 099997979
Beneficiary: JPMorgan Chase Bank, N.A. New York
Ref: Derivatives
Account for delivery of Shares to JPMorgan:
DTC 0060
4. Offices.
(a) The Office of Counterparty for each Transaction is: Inapplicable, Counterparty is not a Multibranch Party.
(b) The Office of JPMorgan for each Transaction is: London
JPMorgan Chase Bank, National Association
London Branch
P.O. Box 161
60 Victoria Embankment
London EC4Y 0JP
England
5. Notices.
(a) Address for notices or communications to Counterparty:
Bally Technologies, Inc.
6601 S. Bermuda Rd.
Las Vegas, Nevada 89119
Attention: Chief Financial Officer
Telephone No.: (702) 584-7700
Email Address: ndavidson@ballytech.com
(b) Address for notices or communications to JPMorgan:
JPMorgan Chase Bank, National Association
EDG Marketing Support
Email: edg_special_equities_notices@jpmorgan.com
With a copy to:
Sudheer Tegulapalle
Executive Director
383 Madison Avenue, Floor 05
New York, NY, 10179, United States
Telephone No: (212) 622-2100
Facsimile No: (212) 622-0398
Email: sudheer.r.tegulapalle@jpmorgan.com
6. Representations, Warranties and Agreements.
(a) Additional Representations, Warranties and Covenants of Each Party. In addition to the representations, warranties and covenants in the Agreement, each party represents, warrants and covenants to the other party that:
(i) It is an eligible contract participant (as such term is defined in the Commodity Exchange Act, as amended).
(ii) Each party acknowledges that the offer and sale of each Transaction to it is intended to be exempt from registration under the Securities Act of 1933, as amended (the Securities Act), by virtue of Section 4(2) thereof. Accordingly, each party represents and warrants to the other that (A) it has the financial ability to bear the economic risk of its investment in each Transaction and is able to bear a total loss of its investment, (B) it is an accredited investor as that term is defined under Regulation D under the Securities Act and (C) the disposition of each Transaction is restricted under this Master Confirmation, the Securities Act and state securities laws.
(b) Additional Representations, Warranties and Covenants of Counterparty. In addition to the representations, warranties and covenants in the Agreement, Counterparty represents, warrants and covenants to JPMorgan that:
(i) As of the Trade Date for each Transaction hereunder, Counterparty is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. Each of this Master Confirmation and the Supplemental Confirmation for such Transaction has been duly authorized, executed and delivered by Counterparty and (assuming due authorization, execution and delivery thereof by JPMorgan) this Master Confirmation, as supplemented by such Supplemental Confirmation, constitutes a valid and legally binding obligation of Counterparty. Counterparty has all corporate power to enter into this Master Confirmation and such Supplemental Confirmation and to consummate the transactions contemplated hereby and thereby and to purchase the Shares and deliver any Settlement Shares in accordance with the terms hereof and thereof.
(ii) As of the Trade Date for each Transaction hereunder, the execution and delivery by Counterparty of, and the performance by Counterparty of its obligations under, this Master Confirmation and the Supplemental Confirmation for such Transaction, and the consummation of the transactions herein and therein contemplated, do not conflict with or violate (A) any provision of the certificate of incorporation, by-laws or other constitutive documents of Counterparty, (B) any statute or order, rule, regulation or judgment of any court or governmental agency or body having jurisdiction over
Counterparty or any of its subsidiaries or any of their respective assets or (C) any contractual restriction binding on or affecting Counterparty or any of its subsidiaries or any of its assets.
(iii) As of the Trade Date for each Transaction hereunder, all governmental and other consents that are required to have been obtained by Counterparty with respect to performance, execution and delivery of this Master Confirmation and the Supplemental Confirmation for such Transaction have been obtained and are in full force and effect and all conditions of any such consents have been complied with.
(iv) As of the Trade Date for each Transaction hereunder, (A) such Transaction is being entered into pursuant to a publicly disclosed Share buy-back program and its Board of Directors has approved the use of derivatives to effect the Share buy-back program, and (B) there is no internal policy of Counterparty, whether written or oral, that would prohibit Counterparty from entering into any aspect of such Transaction, including, without limitation, the purchases of Shares to be made pursuant to such Transaction.
(v) As of the Trade Date for each Transaction hereunder, the purchase or writing of such Transaction and the transactions contemplated hereby will not violate Rule 13e-1 or Rule 13e-4 under the Exchange Act.
(vi) As of the Trade Date for each Transaction hereunder, it is not entering into such Transaction, and as of the date of any election with respect to any Transaction hereunder, it is not making such election, in each case (A) on the basis of, and is not aware of, any material non-public information regarding Counterparty or the Shares, (B) in anticipation of, in connection with, or to facilitate, a distribution of its securities, a self tender offer or a third-party tender offer in violation of the Exchange Act or (C) to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for the Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for the Shares).
(vii) Counterparty (A) is capable of evaluating investment risks independently, both in general and with regard to all transactions and investment strategies involving a security or securities; (B) will exercise independent judgment in evaluating the recommendations of any broker-dealer or its associated persons, unless it has otherwise notified the broker-dealer in writing; and (C) has total assets of at least USD 50,000,000 as of the date hereof.
(viii) As of the Trade Date for each Transaction hereunder, and as of the date of any election pursuant to Section 15 or Settlement Method Election contained in the Counterparty Settlement Provisions with respect to any Transaction hereunder, Counterparty is in compliance with its reporting obligations under the Exchange Act and its most recent Annual Report on Form 10-K, together with all reports subsequently filed by it pursuant to the Exchange Act, taken together and as amended and supplemented to the date of this representation, do not, as of their respective filing dates, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(ix) Counterparty has made, and will make, all filings required to be made by it with the Securities and Exchange Commission, any securities exchange or any other regulatory body with respect to each Transaction.
(x) The Shares are not, and Counterparty will not cause the Shares to be, subject to a restricted period (as defined in Regulation M promulgated under the Exchange Act) at any time during any Regulation M Period (as defined below) for any Transaction unless Counterparty has provided written notice to JPMorgan of such restricted period not later than the Exchange Business Day immediately preceding the first day of such restricted period; Counterparty acknowledges that any such notice may cause a Disrupted Day to
occur pursuant to Section 7 below; accordingly, Counterparty acknowledges that its delivery of such notice must comply with the standards set forth in Section 8 below. Regulation M Period means, for any Transaction, (A) the Relevant Period (as defined below) for such Transaction, (B) the Settlement Valuation Period, if any, for such Transaction and (C) the Seller Termination Purchase Period (as defined below), if any, for such Transaction. Relevant Period means, for any Transaction, the period commencing on the Calculation Period Start Date for such Transaction and ending on the later of (1) the earlier of (x) the Scheduled Termination Date and (y) the last Additional Relevant Day (as specified in the related Supplemental Confirmation) for such Transaction, or such earlier day as elected by JPMorgan and communicated to Counterparty on such day (or, if later, the First Acceleration Date without regard to any acceleration thereof pursuant to Special Provisions for Acquisition Transaction Announcements below) and (2) if Section 15 is applicable to such Transaction, the date on which all deliveries owed pursuant to Section 15 have been made.
(xi) As of the Trade Date, the Prepayment Date and any Cash Settlement Payment Date for each Transaction, Counterparty is not, and will not be, insolvent (as such term is defined under Section 101(32) of the U.S. Bankruptcy Code (Title 11 of the United States Code) (the Bankruptcy Code)) and Counterparty would be able to purchase a number of Shares with a value equal to the Prepayment Amount in compliance with the laws of the jurisdiction of Counterpartys incorporation.
(xii) Counterparty is not, and after giving effect to each Transaction will not be, required to register as an investment company as such term is defined in the Investment Company Act of 1940, as amended.
(xiii) [reserved]
(xiv) Counterparty has not entered, and will not enter, into any repurchase transaction with respect to the Shares (or any security convertible into or exchangeable for the Shares) (including, without limitation, any agreements similar to the Transactions described herein) where any initial hedge period, calculation period, relevant period, settlement valuation period or seller termination purchase period (each however defined) in such other transaction will overlap at any time (including, without limitation, as a result of extensions in such initial hedge period, calculation period, relevant period, settlement valuation period or seller termination purchase period as provided in the relevant agreements) with any Relevant Period, any Settlement Valuation Period (if applicable) or any Seller Termination Purchase Period (if applicable) under this Master Confirmation, except for any such other agreements entered into with JPMorgan. In the event that the initial hedge period, relevant period, calculation period or settlement valuation period in any other transaction overlaps with any Relevant Period, any Settlement Valuation Period (if applicable) or any Seller Termination Purchase Period (if applicable) under this Master Confirmation as a result of any postponement of the Scheduled Termination Date or extension of the Settlement Valuation Period pursuant to Valuation Disruption above or any analogous provision in such other transaction, except any such other transaction entered into with JPMorgan, Counterparty shall promptly amend such other transaction to avoid any such overlap.
(xv) Upon a request by JPMorgan, Counterparty shall as soon as reasonably practicable (it being understood that if requested, Counterparty shall use commercially reasonable efforts to provide such notice at least one day prior to the first day of, as applicable, the Calculation Period, the Settlement Valuation Period, if any, or the Seller Termination Purchase Period, if any) for any Transaction, notify JPMorgan of the total number of Shares purchased in Rule 10b-18 purchases of blocks pursuant to the once-a-week block exception set forth in paragraph (b)(4) of Rule 10b-18 under the Exchange Act (Rule 10b-18) by or for Counterparty or any of its affiliated purchasers (as defined in Rule 10b-18) during each of the four calendar weeks preceding such day and during the calendar week in which such day occurs (Rule 10b-18 purchase and blocks each
being used as defined in Rule 10b-18), which notice shall be substantially in the form set forth in Schedule B hereto.
(xvi) As of the Trade Date for each Transaction hereunder, and as of the date of any election with respect to any Transaction hereunder, there has not been any Merger Announcement (as defined below).
(xvii) There is not any applicable gaming law, rule or regulation in any jurisdiction in which it then operates or is licensed that imposes or would impose any obligation on any person who, under any relevant definition of ownership, owns less than 5.0% of any class of securities of Counterparty as a result of such ownership. Counterparty shall immediately notify Dealer if it becomes aware of any such obligation after the Trade Date.
7. Regulatory Disruption. In the event that JPMorgan concludes, in its reasonable good faith discretion, based on advice of counsel, that it is appropriate with respect to any legal, regulatory or self-regulatory requirements or related policies and procedures (whether or not such requirements, policies or procedures are imposed by law or have been voluntarily adopted by JPMorgan, but provided that such policies or procedures are related to legal, regulatory or self-regulatory issues and are generally applicable in similar situations and applied to any Transaction hereunder in a non-discriminatory manner), for it to refrain from or decrease any market activity on any Exchange Business Day or Days during the Calculation Period or, if applicable, the Settlement Valuation Period, JPMorgan may by written notice to Counterparty elect to deem that a Market Disruption Event has occurred and will be continuing on such Exchange Business Day or Days.
8. 10b5-1 Plan. Counterparty represents, warrants and covenants to JPMorgan that:
(a) Counterparty is entering into this Master Confirmation and each Transaction hereunder in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1 under the Exchange Act (Rule 10b5-1) or any other antifraud or anti-manipulation provisions of the federal or applicable state securities laws and that it has not entered into or altered and will not enter into or alter any corresponding or hedging transaction or position with respect to the Shares. Counterparty acknowledges that it is the intent of the parties that each Transaction entered into under this Master Confirmation comply with the requirements of paragraphs (c)(1)(i)(A) and (B) of Rule 10b5-1 and each Transaction entered into under this Master Confirmation shall be interpreted to comply with the requirements of Rule 10b5-1(c).
(b) During the Calculation Period and the Settlement Valuation Period, if any, for any Transaction and in connection with the delivery of any Alternative Delivery Units for any Transaction, JPMorgan (or its agent or Affiliate) may effect transactions in Shares in connection with such Transaction. The timing of such transactions by JPMorgan, the price paid or received per Share pursuant to such transactions and the manner in which such transactions are made, including, without limitation, whether such transactions are made on any securities exchange or privately, shall be within the sole judgment of JPMorgan. Counterparty acknowledges and agrees that all such transactions shall be made in JPMorgans sole commercially reasonable judgment and for JPMorgans own account.
(c) Counterparty does not have, and shall not attempt to exercise, any control or influence over how, when or whether JPMorgan (or its agent or Affiliate) makes any purchases or sales (within the meaning of Rule 10b5-1(c)(1)(i)(B)(3)) in connection with any Transaction entered into under this Master Confirmation, including, without limitation, over how, when or whether JPMorgan (or its agent or Affiliate) enters into any hedging transactions. Counterparty represents and warrants that it has consulted with its own advisors as to the legal aspects of its adoption and implementation of this Master Confirmation and each Supplemental Confirmation under Rule 10b5-1.
(d) Counterparty acknowledges and agrees that any amendment, modification, waiver or termination of this Master Confirmation or any Supplemental Confirmation must be effected in accordance with the requirements for the amendment or termination of a plan as defined in Rule 10b5-1(c).
Without limiting the generality of the foregoing, any such amendment, modification, waiver or termination shall be made in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5, and no such amendment, modification or waiver shall be made at any time at which Counterparty or any officer, director, manager or similar person of Counterparty is aware of any material non-public information regarding Counterparty or the Shares.
(e) Counterparty shall not, directly or indirectly, communicate any information relating to the Shares or any Transaction (including, without limitation, any notices required by Section 10(a)) to any employee of JPMorgan or JPMS, other than as set forth in the Communications Procedures attached as Annex C hereto.
9. Counterparty Purchases. Counterparty (or any affiliate or affiliated purchaser as defined in Rule 10b-18) shall not, without the prior written consent of JPMorgan, directly or indirectly (including, without limitation, by means of a derivative instrument) purchase, offer to purchase, place any bid or limit order that would effect a purchase of, or commence any tender offer relating to, any Shares (or equivalent interest, including, without limitation, a unit of beneficial interest in a trust or limited partnership or a depository share), listed contracts on the Shares or securities that are convertible into, or exchangeable or exercisable for Shares (including, without limitation, any Rule 10b-18 purchases of blocks (as defined in Rule 10b-18)) during any Relevant Period, any Settlement Valuation Period (if applicable) or any Seller Termination Purchase Period (if applicable), under this Master Confirmation except through JPMorgan (it being understood that, for the avoidance of doubt, JPMorgan is under no obligation to execute any such purchases outside of this Transaction); provided, that (a) this Section 9 shall not limit Counterpartys ability (or the ability of any affiliate or affiliated purchaser of Counterparty), (i) pursuant to its employee incentive plans, to re-acquire Shares in connection with the related equity transactions; (ii) to withhold shares to cover exercise price and/or tax liabilities associated with such equity transactions; or (iii) to grant stock and options to affiliated purchasers (as defined in Rule 10b-18) or the ability of such affiliated purchasers to acquire such stock or options, in connection with the Counterpartys compensatory plans for directors, officers and employees or any agreements with respect to the compensation of directors, officers or employees of any entities that are acquisition targets of Issuer, so long as, in the case of clause (i), (ii) or (iii) of this sentence, any such re-acquisition, withholding, grant, acquisition or other purchase does not constitute a Rule 10b-18 Purchase (as defined in Rule 10b-18) and (b) that Counterparty or such affiliate or affiliated purchaser may purchase Shares in (x) unsolicited transactions or (y) privately negotiated (off-market) transactions that are not Rule 10b-18 purchases (as defined in Rule 10b-18), in each case without Dealers consent..
10. Special Provisions for Merger Transactions. Notwithstanding anything to the contrary herein or in the Equity Definitions:
(a) Counterparty agrees that it:
(i) will not during the period commencing on the Trade Date for any Transaction and ending on the last day of the Relevant Period or, if applicable, the later of the last day of the Settlement Valuation Period and the last day of the Seller Termination Purchase Period, for such Transaction make (and, in the case of any third-party, use its commercially reasonable efforts to prevent any such third-party from making) any public announcement (as defined in Rule 165(f) under the Securities Act) of any Merger Transaction or potential Merger Transaction (a Merger Announcement) unless such Merger Announcement is made prior to the opening or after the close of the regular trading session on the Exchange for the Shares;
(ii) shall promptly (but in any event prior to the next opening of the regular trading session on the Exchange) notify JPMorgan following any such Merger Announcement that such Merger Announcement has been made; and
(iii) shall promptly (but in any event prior to the next opening of the regular trading session on the Exchange) provide JPMorgan with written notice specifying (i) Counterpartys average daily Rule 10b-18 Purchases (as defined in Rule 10b-18) during the three full calendar months immediately preceding the announcement date of any Merger
Transaction or potential Merger Transaction that were not effected through JPMorgan or its Affiliates and (ii) the number of Shares purchased pursuant to the proviso in Rule 10b-18(b)(4) under the Exchange Act for the three full calendar months preceding the announcement date of any Merger Transaction or potential Merger Transaction. Such written notice shall be deemed to be a certification by Counterparty to JPMorgan that such information is true and correct. In addition, Counterparty shall promptly notify JPMorgan of the earlier to occur of the completion of such transaction and the completion of the vote by target shareholders.
(b) Counterparty acknowledges that any such Merger Announcement or delivery of a notice with respect thereto may cause the terms of any Transaction to be adjusted or such Transaction to be terminated, in each case to the extent expressly provided herein; accordingly, Counterparty acknowledges that its delivery of such notice must comply with the standards set forth in Section 8 above.
(c) Upon the occurrence of any Merger Announcement (whether made by Counterparty or a third party), JPMorgan in its commercially reasonable discretion, based on the advice of counsel, may elect to deem that a Market Disruption Event has occurred and will be continuing on such Exchange Business Day or Days as determined by JPMorgan (it being understood that the consequences set forth under clause (x) of Potential Adjustment Event or under Disruption Event may occur as provided in such provisions).
Merger Transaction means any merger, acquisition or similar transaction involving a recapitalization as contemplated by Rule 10b-18(a)(13)(iv) under the Exchange Act.
11. Special Provisions for Acquisition Transaction Announcements. Notwithstanding anything to the contrary herein or in the Equity Definitions:
(a) If an Acquisition Transaction Announcement occurs after the Trade Date and on or prior to the Settlement Date for any Transaction, then the Calculation Agent shall make such adjustment to the Forward Price Adjustment Amount (including reducing the Forward Price Adjustment Amount to zero but not including making such amount a negative number), if any as the Calculation Agent shall determine to be necessary to preserve the fair value of the Transaction after giving effect to such Acquisition Transaction Announcement If an Acquisition Transaction Announcement occurs after the Trade Date, but prior to the First Acceleration Date of any Transaction, the First Acceleration Date shall be the date of such Acquisition Transaction Announcement. If the Number of Shares to be Delivered for any settlement of any Transaction is a negative number as a result of any adjustment described in this clause (a), then the terms of the Counterparty Settlement Provisions in Annex A hereto shall apply.
(b) Acquisition Transaction Announcement means any of the following, if and only if the Calculation Agent determines that such announcement has a material effect on the theoretical value of the Transaction, (i) the announcement of an Acquisition Transaction or an event that, if consummated, would result in an Acquisition Transaction, (ii) an announcement that Counterparty or any of its subsidiaries has entered into an agreement, a letter of intent or an understanding designed to result in an Acquisition Transaction, (iii) the announcement of the intention to solicit or enter into, or to explore strategic alternatives or other similar undertaking that may include, an Acquisition Transaction, (iv) any other announcement that in the reasonable judgment of the Calculation Agent may result in an Acquisition Transaction, or (v) any announcement of any change or amendment to any previous Acquisition Transaction Announcement (including any announcement of the abandonment of any such previously announced Acquisition Transaction, agreement, letter of intent, understanding or intention). For the avoidance of doubt, announcements as used in the definition of Acquisition Transaction Announcement refer to any public announcement whether made by the Issuer or a third party.
(c) Acquisition Transaction means any of (i) any Merger Event (for purposes of this definition the definition of Merger Event shall be read with the references therein to 100% being replaced by 25% and references to 50% being replaced by 75% and without reference to the clause
beginning immediately following the definition of Reverse Merger therein to the end of such definition) or Tender Offer, (ii) the sale or transfer of all or substantially all of the assets of Counterparty, (iii) a recapitalization, reclassification, binding share exchange or other similar transaction with respect to Counterparty, (iv) any acquisition by Counterparty or any of its subsidiaries where the aggregate consideration transferable by Counterparty or its subsidiaries exceeds 50% of the market capitalization of Counterparty, (v) any lease, exchange, transfer, disposition (including, without limitation, by way of spin-off or distribution) of assets (including, without limitation, any capital stock or other ownership interests in subsidiaries, but, for the avoidance of doubt, not including any capital stock of Counterparty) or other similar event by Counterparty or any of its subsidiaries where the aggregate consideration transferable or receivable by or to Counterparty or its subsidiaries exceeds 30% of the market capitalization of Counterparty and (vi) any transaction in which Counterparty or its board of directors has a legal obligation to make a recommendation to its shareholders in respect of such transaction (whether pursuant to Rule 14e-2 under the Exchange Act or otherwise).
12. Acknowledgments.
(a) The parties hereto intend for:
(i) each Transaction to be a securities contract as defined in Section 741(7) of the Bankruptcy Code and a forward contract as defined in Section 101(25) of the Bankruptcy Code, and the parties hereto to be entitled to the protections afforded by, among other Sections, Sections 362(b)(6), 362(b)(27), 362(o), 546(e), 546(j), 555, 556, 560 and 561 of the Bankruptcy Code;
(ii) the Agreement to be a master netting agreement as defined in Section 101(38A) of the Bankruptcy Code;
(iii) a partys right to liquidate, terminate or accelerate any Transaction, net out or offset termination values or payment amounts, and to exercise any other remedies upon the occurrence of any Event of Default or Termination Event under the Agreement with respect to the other party or any Extraordinary Event that results in the termination or cancellation of any Transaction to constitute a contractual right (as defined in the Bankruptcy Code); and
(iv) all payments for, under or in connection with each Transaction, all payments for the Shares (including, for the avoidance of doubt, payment of the Prepayment Amount) and the transfer of such Shares to constitute settlement payments and transfers (as defined in the Bankruptcy Code).
(b) Counterparty acknowledges that:
(i) during the term of any Transaction, JPMorgan and its Affiliates may buy or sell Shares or other securities or buy or sell options or futures contracts or enter into swaps or other derivative securities in order to establish, adjust or unwind its hedge position with respect to such Transaction;
(ii) JPMorgan and its Affiliates may also be active in the market for the Shares and Share-linked transactions other than in connection with hedging activities in relation to any Transaction;
(iii) JPMorgan shall make its own determination as to whether, when or in what manner any hedging or market activities in Counterpartys securities shall be conducted and shall do so in a manner that it deems appropriate to hedge its price and market risk with respect to the Forward Price and the VWAP Price;
(iv) any market activities of JPMorgan and its Affiliates with respect to the Shares may affect the market price and volatility of the Shares, as well as the Forward Price and VWAP Price, each in a manner that may be adverse to Counterparty; and
(v) each Transaction is a derivatives transaction in which it has granted JPMorgan an option; JPMorgan may purchase shares for its own account at an average price that may be greater than, or less than, the price paid by Counterparty under the terms of the related Transaction.
13. No Collateral, Netting or Setoff. Notwithstanding any provision of the Agreement or any other agreement between the parties to the contrary, the obligations of Counterparty hereunder are not secured by any collateral. Obligations under any Transaction shall not be netted, recouped or set off (including pursuant to Section 6 of the Agreement) against any other obligations of the parties, whether arising under the Agreement, this Master Confirmation or any Supplemental Confirmation, or under any other agreement between the parties hereto, by operation of law or otherwise, and no other obligations of the parties shall be netted, recouped or set off (including pursuant to Section 6 of the Agreement) against obligations under any Transaction, whether arising under the Agreement, this Master Confirmation or any Supplemental Confirmation, or under any other agreement between the parties hereto, by operation of law or otherwise, and each party hereby waives any such right of setoff, netting or recoupment.
14. Delivery of Shares. Notwithstanding anything to the contrary herein, JPMorgan may, by prior notice to Counterparty, satisfy its obligation to deliver any Shares or other securities on any date due (an Original Delivery Date) by making separate deliveries of Shares or such securities, as the case may be, at more than one time on or prior to such Original Delivery Date, so long as the aggregate number of Shares and other securities so delivered on or prior to such Original Delivery Date is equal to the number required to be delivered on such Original Delivery Date.
15. Alternative Termination Settlement. In the event that (a) an Early Termination Date (whether as a result of an Event of Default or a Termination Event) occurs or is designated with respect to any Transaction or (b) any Transaction is cancelled or terminated upon the occurrence of an Extraordinary Event (except as a result of (i) a Nationalization, Insolvency or Merger Event in which the consideration to be paid to holders of Shares consists solely of cash, (ii) a Merger Event or Tender Offer that is within Counterpartys control, or (iii) an Event of Default in which Counterparty is the Defaulting Party or a Termination Event in which Counterparty is the Affected Party other than an Event of Default of the type described in Section 5(a)(iii), (v), (vi), (vii) or (viii) of the Agreement or a Termination Event of the type described in Section 5(b) of the Agreement, in each case that resulted from an event or events outside Counterpartys control), if either party would owe any amount to the other party pursuant to Section 6(d)(ii) of the Agreement or any Cancellation Amount pursuant to Article 12 of the Equity Definitions (any such amount, a Payment Amount), then, in lieu of any payment of such Payment Amount, unless Counterparty makes an election to the contrary no later than the Early Termination Date or the date on which such Transaction is terminated or cancelled, Counterparty or JPMorgan, as the case may be, shall deliver to the other party a number of Shares (or, in the case of a Nationalization, Insolvency or Merger Event, a number of units, each comprising the number or amount of the securities or property that a hypothetical holder of one Share would receive in such Nationalization, Insolvency or Merger Event, as the case may be (each such unit, an Alternative Delivery Unit) with a value equal to the Payment Amount, as determined by the Calculation Agent over a commercially reasonable period of time (and the parties agree that, in making such determination of value, the Calculation Agent may take into account a number of factors, including, without limitation, the market price of the Shares or Alternative Delivery Units on the Early Termination Date or the date of early cancellation or termination, as the case may be, and, if such delivery is made by JPMorgan, the prices at which JPMorgan purchases Shares or Alternative Delivery Units to fulfill its delivery obligations under this Section 15); provided that in determining the composition of any Alternative Delivery Unit, if the relevant Nationalization, Insolvency or Merger Event involves a choice of consideration to be received by holders, such holder shall be deemed to have elected to receive the maximum possible amount of cash; and provided further that Counterparty may elect that the provisions of this Section 15 above providing for the delivery of Shares or Alternative Delivery Units, as the case may be, shall not apply only if Counterparty represents and warrants to JPMorgan, in writing on the date it notifies JPMorgan of such election, that, as of such date, Counterparty is not aware of any material non-public information regarding Counterparty or the Shares and is making such election in good faith and not as part
of a plan or scheme to evade compliance with the federal securities laws. If delivery of Shares or Alternative Delivery Units, as the case may be, pursuant to this Section 15 is to be made by Counterparty, paragraphs 2 through 7 of Annex A hereto shall apply as if (A) such delivery were a settlement of such Transaction to which Net Share Settlement applied, (B) the Cash Settlement Payment Date were the Early Termination Date or the date of early cancellation or termination, as the case may be, and (C) the Forward Cash Settlement Amount were equal to (x) zero minus (y) the Payment Amount owed by Counterparty. For the avoidance of doubt, if Counterparty validly elects for the provisions of this Section 15 relating to the delivery of Shares or Alternative Delivery Units, as the case may be, not to apply to any Payment Amount, the provisions of Article 12 of the Equity Definitions, or the provisions of Section 6(d)(ii) of the Agreement, as the case may be, shall apply. If delivery of Shares or Alternative Delivery Units, as the case may be, is to be made by JPMorgan pursuant to this Section 15, the period during which JPMorgan purchases Shares or Alternative Delivery Units to fulfill its delivery obligations under this Section 15 shall be referred to as the Seller Termination Purchase Period.
16. Calculations and Payment Date upon Early Termination. The parties acknowledge and agree that in calculating (a) the Close-Out Amount pursuant to Section 6 of the Agreement and (b) the amount due upon cancellation or termination of any Transaction (whether in whole or in part) pursuant to Article 12 of the Equity Definitions as a result of an Extraordinary Event, JPMorgan may, if commercially reasonable to do so (but need not), determine such amount based on (i) expected losses assuming a commercially reasonable (including, without limitation, with regard to reasonable legal and regulatory guidelines) risk bid were used to determine loss or (ii) the price at which one or more market participants would offer to sell to the Seller a block of shares of Common Stock equal in number to the Sellers hedge position in relation to the Transaction. Notwithstanding anything to the contrary in Section 6(d)(ii) of the Agreement or Article 12 of the Equity Definitions, if Counterparty elects to receive or deliver Shares or Alternative Delivery Units in accordance with Section 15, such Shares or Alternative Delivery Units shall be delivered on a date selected by JPMorgan as promptly as practicable.
17. Limit on Beneficial Ownership. Notwithstanding anything to the contrary in this Master Confirmation, Counterparty acknowledges and agrees that, on any day, JPMorgan shall not be obligated to receive from Counterparty any Shares, and Counterparty shall not be entitled to deliver to JPMorgan any Shares, to the extent (but only to the extent) that after such transactions JPMorgan, JPMorgans ultimate parent entity or any Affiliate thereof would directly or indirectly under any federal, state or local (including non-U.S.) laws, regulations or regulatory orders applicable to ownership of Shares, own, beneficially own, constructively own, control, hold the power to vote or otherwise meet a relevant definition of ownership in excess of a number of Shares equal at any time on such day in excess of 4% of the outstanding Shares. Any purported receipt of Shares shall be void and have no effect to the extent (but only to the extent) that after such receipt, JPMorgan, JPMorgans ultimate parent entity or any Affiliate thereof would directly or indirectly under any federal, state or local (including non-U.S.) laws, regulations or regulatory orders applicable to ownership of Shares, own, beneficially own, constructively own, control, hold the power to vote or otherwise meet a relevant definition of ownership in excess of a number of Shares equal at any time on such day in excess of 4% of the outstanding Shares. If, on any day, any receipt of Shares by JPMorgan is not effected, in whole or in part, as a result of this Section 17, Counterpartys obligations to deliver such Shares shall not be extinguished and any such delivery shall be effected over time by Counterparty as promptly as JPMorgan determines, such that after any such delivery, would directly or indirectly funder any federal, state or local (including non-U.S.) laws, regulations or regulatory orders applicable to ownership of Shares, own, beneficially own, constructively own, control, hold the power to vote or otherwise meet a relevant definition of ownership in excess of a number of Shares equal at any time on such day in excess of 4% of the outstanding Shares.
18. Maximum Share Delivery. Notwithstanding anything to the contrary in this Master Confirmation, in no event shall JPMorgan be required to deliver any Shares, or any Shares or other securities comprising Alternative Delivery Units, in respect of any Transaction in excess of the Maximum Number of Shares set forth in the Supplemental Confirmation for such Transaction.
19. Additional Termination Events.
(a) The occurrence of an event described in paragraph III of Annex B hereto will constitute an Additional Termination Event, with Counterparty as the sole Affected Party and the Transactions specified in such paragraph III as the Affected Transactions.
(b) Notwithstanding anything to the contrary in Section 6 of the Agreement, if a Termination Price is specified in the Supplemental Confirmation for any Transaction, then an Additional Termination Event will occur without any notice or action by JPMorgan or Counterparty if the price of the Shares on the Exchange at any time falls below such Termination Price, with Counterparty as the sole Affected Party and such Transaction as the sole Affected Transaction.
(c) Upon the occurrence of a Regulatory Event, JPMorgan may designate any Exchange Business Day as an Early Termination Date with respect to a portion of the Transaction (the Terminated Portion), such that following such partial termination no Regulatory Event exists. In the event that Dealer so designates an Early Termination Date with respect to a Terminated Portion, an amount due shall be made pursuant to Section 6 of the Agreement as if (1) an Early Termination Date had been designated in respect of a Transaction having terms identical to the Transaction, with a Prepayment Amount and Initial Shares determined by JPMorgan to be proportionate to the portion of the Transaction which gives rise to the Regulatory Event, (2) Counterparty were the sole Affected Party with respect to such partial termination and (3) the Terminated Portion were the sole Affected Transaction.
Regulatory Event means that Dealer determines in its good faith reasonable discretion, based upon the advice of counsel, that in connection with being party to this Transaction or acquiring, establishing, reestablishing, substituting, maintaining, unwinding or disposing of any Hedge Position that Dealer or its affiliates deems necessary or appropriate to hedge Dealers risk in respect of this Transaction, Dealer or its affiliates could reasonably be expected to either (i) be obligated to register or make filings with or provide notification or information to any gaming authority or (ii) incur additional material risk, liability or cost as a result of having to comply with any applicable gaming laws, rules or regulations.
20. Non-confidentiality. JPMorgan and Counterparty hereby acknowledge and agree that, subject to Section 8(e), each is authorized to disclose every aspect of this Master Confirmation, any Supplemental Confirmation and the transactions contemplated hereby and thereby to any and all persons, without limitation of any kind, and there are no express or implied agreements, arrangements or understandings to the contrary.
21. Counterparty Indemnification. Counterparty agrees to indemnify and hold harmless JPMorgan and its officers, directors, employees, Affiliates, advisors, agents and controlling persons (each, an Indemnified Person) from and against any and all losses, claims, damages and liabilities, joint or several (collectively, Obligations), to which an Indemnified Person may become subject arising out of or in connection with any violation of applicable gaming law, rule or regulation in any jurisdiction in connection with entry into or performance of this Transaction or JPMorgans hedging of its obligations hereunder, including, without limitation, a breach by Counterparty of its representations, warranties or covenants under Section 6(b)(xvii) of this Master Confirmation, or any claim, litigation, investigation or proceeding relating thereto, regardless of whether any of such Indemnified Person is a party thereto, and to reimburse, within 30 days, upon written request, each such Indemnified Person for any reasonable legal or other expenses incurred in connection with investigating, preparation for, providing evidence for or defending any of the foregoing; provided, however, that Counterparty shall not have any liability to any Indemnified Person to the extent that such Obligations (a) are finally determined by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnified Person (and in such case, such Indemnified Person shall promptly return to Counterparty any amounts previously expended by Counterparty hereunder) or (b) are trading losses incurred by JPMorgan as part of its purchases or sales of Shares pursuant to this Master Confirmation or any Supplemental Confirmation (unless such trading losses are related to the breach of any agreement, term or covenant herein).
22. Designation of Affiliates. Notwithstanding any other provision in this Master Confirmation to the contrary requiring or allowing JPMorgan to purchase, sell, receive or deliver any Shares or other securities to or from Counterparty, JPMorgan may designate any of its Affiliates to purchase, sell, receive or deliver such Shares or other securities and otherwise to perform JPMorgans obligations in respect of any Transaction and any such designee may assume such obligations. JPMorgan may assign the right to receive Settlement Shares to any third party who may legally receive Settlement Shares. JPMorgan shall be discharged of its obligations to Counterparty only to the extent of any such performance. For the avoidance of doubt, JPMorgan hereby acknowledges that notwithstanding any such designation hereunder, to the extent any of JPMorgans obligations in respect of any Transaction are not completed by its designee, JPMorgan shall be obligated to continue to perform or to cause any other of its designees to perform in respect of such obligations.
23. Amendments to the Equity Definitions.
(a) Section 11.2(a) of the Equity Definitions is hereby amended by deleting the words a diluting or concentrative and replacing them with the words a material; and adding the phrase or such Transaction at the end of the sentence.
(b) Section 11.2(c) of the Equity Definitions is hereby amended by (i) replacing the words a diluting or concentrative with a material in the fifth line thereof, (ii) adding the phrase or such Transaction after the words the relevant Shares in the same sentence, (iii) deleting the words dilutive or concentrative in the sixth to last line thereof, and (iv) deleting the phrase (provided that no adjustments will be made to account solely for changes in volatility, expected dividends, stock loan rate or liquidity relative to the relevant Shares) and replacing it with the phrase (and, for the avoidance of doubt, adjustments may be made to account solely for changes in volatility, expected dividends, stock loan rate or liquidity relative to the relevant Shares).
(c) Section 11.2(e)(vii) of the Equity Definitions is hereby amended by deleting the words a diluting or concentrative and replacing them with the word a material; and adding the phrase or the relevant Transaction at the end of the sentence.
(d) Section 12.6(a)(ii) of the Equity Definitions is hereby amended by (i) deleting from the fourth line thereof the word or after the word official and inserting a comma therefor, and (ii) deleting the semi-colon at the end of subsection (B) thereof and inserting the following words therefor or (C) at JPMorgans option, the occurrence of any of the events specified in Section 5(a)(vii) (1) through (9) of the ISDA Master Agreement with respect to that Issuer.
(e) Section 12.9(b)(iv) of the Equity Definitions is hereby amended by:
(i) deleting (1) subsection (A) in its entirety, (2) the phrase or (B) following subsection (A) and (3) the phrase in each case in subsection (B); and
(ii) replacing the phrase neither the Non-Hedging Party nor the Lending Party lends Shares with the phrase such Lending Party does not lend Shares in the penultimate sentence.
(f) Section 12.9(b)(v) of the Equity Definitions is hereby amended by:
(i) adding the word or immediately before subsection (B) and deleting the comma at the end of subsection (A); and
(ii) (1) deleting subsection (C) in its entirety, (2) deleting the word or immediately preceding subsection (C), (3) deleting the penultimate sentence in its entirety and replacing it with the sentence The Hedging Party will determine the Cancellation Amount payable by one party to the other and (4) deleting clause (X) in the final sentence
24. Extraordinary Dividend. If Counterparty declares any Extraordinary Dividend that has a record date during the period commencing on the Trade Date for any Transaction and ending of the last day of the Relevant Period or, if applicable, the later of the last day of the Settlement Valuation Period and the last day of the Seller Termination Purchase Period, for such Transaction, then prior to or on the date on which such Extraordinary Dividend is paid by Counterparty to holders of record, Counterparty shall pay to JPMorgan, for each Transaction under this Master Confirmation, an amount in cash equal to the product of (i) the amount of such Extraordinary Dividend and (ii) the theoretical short delta number of shares as of the opening of business on the related ex-dividend date, as determined by the Calculation Agent, required for JPMorgan to hedge its exposure to such Transaction.
25. Status of Claims in Bankruptcy. JPMorgan acknowledges and agrees that neither this Master Confirmation nor any Supplemental Confirmation is intended to convey to JPMorgan rights against Counterparty with respect to any Transaction that are senior to the claims of common stockholders of Counterparty in any United States bankruptcy proceedings of Counterparty; provided that nothing herein shall limit or shall be deemed to limit JPMorgans right to pursue remedies in the event of a breach by Counterparty of its obligations and agreements with respect to any Transaction; provided further that nothing herein shall limit or shall be deemed to limit JPMorgans rights in respect of any transactions other than any Transaction.
26. Wall Street Transparency and Accountability Act. In connection with Section 739 of the Wall Street Transparency and Accountability Act of 2010 (WSTAA), the parties hereby agree that neither the enactment of WSTAA or any regulation under the WSTAA, nor any requirement under WSTAA or an amendment made by WSTAA, nor any similar legal certainty provision in any legislation enacted, or rule or regulation promulgated, on or after the date of this Master Confirmation, shall limit or otherwise impair either partys otherwise applicable rights to terminate, renegotiate, modify, amend or supplement any Supplemental Confirmation, this Master Confirmation or the Agreement, as applicable, arising from a termination event, force majeure, illegality, increased costs, regulatory change or similar event under any Supplemental Confirmation, this Master Confirmation, the Equity Definitions incorporated herein, or the Agreement (including, without limitation, rights arising from Change in Law, Loss of Stock Borrow, Increased Cost of Stock Borrow, Hedging Disruption, Increased Cost of Hedging, or Illegality).
27. Role of Agent. Each party agrees and acknowledges that (a) JPMS, an Affiliate of JPMorgan, has acted solely as agent and not as principal with respect to this Master Confirmation and each Transaction and (b) JPMS has no obligation or liability, by way of guaranty, endorsement or otherwise, in any manner in respect of any Transaction (including, if applicable, in respect of the settlement thereof). Each party agrees it will look solely to the other party (or any guarantor in respect thereof) for performance of such other partys obligations under any Transaction. JPMS is authorized to act as agent for JPMorgan.
28. Waiver of Jury Trial. EACH PARTY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING RELATING TO THE AGREEMENT, THIS MASTER CONFIRMATION, EACH SUPPLEMENTAL CONFIRMATION, THE TRANSACTIONS HEREUNDER AND ALL MATTERS ARISING IN CONNECTION WITH THE AGREEMENT, THIS MASTER CONFIRMATION AND ANY SUPPLEMENTAL CONFIRMATION AND THE TRANSACTIONS HEREUNDER. EACH PARTY (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF SUCH A SUIT, ACTION OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HAVE BEEN INDUCED TO ENTER INTO THE TRANSACTIONS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS PROVIDED HEREIN.
29. Counterparts. This Master Confirmation may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Master Confirmation by signing and delivering one or more counterparts.
30. Delivery or Receipt of Cash. For the avoidance of doubt, other than payment of the Prepayment Amount by Counterparty, nothing in this Master Confirmation shall be interpreted as requiring Counterparty to cash
settle any Transaction, except in circumstances where cash settlement is within Counterpartys control (including, without limitation, where the Counterparty fails timely to elect to deliver Shares in accordance with the Counterparty Settlement Provisions or deliver or receive Alternative Delivery Units in accordance with Section 15) or in those circumstances in which holders of Shares would also receive cash.
Please confirm that the foregoing correctly sets forth the terms of our agreement by executing this Master Confirmation and returning it to us.
Very truly yours,
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J.P. MORGAN SECURITIES LLC, as agent for JPMorgan Chase Bank, National Association | ||
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By: |
/s/Sudheer R. Tegulapalle | |
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Authorized Signatory | ||
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Name: Sudheer R. Tegulapalle | ||
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Accepted and confirmed |
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as of the date first set |
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forth above: |
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BALLY TECHNOLOGIES, INC. |
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By: |
/s/ Neil P. Davidson |
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Authorized Signatory |
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Name: Neil Davidson |
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JPMorgan Chase Bank, National Association
Organised under the laws of the United States as a National Banking Association.
Main Office 1111 Polaris Parkway, Columbus, Ohio 43240
Registered as a branch in England & Wales branch No. BR000746
Registered Branch Office 25 Bank Street, Canary Wharf, London, E14 5JP
Authorised and regulated by the Financial Services Authority
SCHEDULE A
FORM OF SUPPLEMENTAL CONFIRMATION
JPMorgan Chase Bank, National Association
P.O. Box 161
60 Victoria Embankment
London EC4Y 0JP
England
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To: Bally Technologies, Inc.
6601 S. Bermuda Rd.
Las Vegas, Nevada 89119
Attention: Chief Financial Officer
Telephone No.: (702) 584-7700
Re: Supplemental ConfirmationUncollared Accelerated Share Repurchase
The purpose of this Supplemental Confirmation is to confirm the terms and conditions of the Transaction entered into between J.P. Morgan Securities LLC, as agent for JPMorgan Chase Bank, National Association, London Branch (JPMorgan), and Bally Technologies, Inc., a Nevada corporation (Counterparty) on the Trade Date specified below. This Supplemental Confirmation is a binding contract between JPMorgan and Counterparty as of the relevant Trade Date for the Transaction referenced below.
1. This Supplemental Confirmation supplements, forms part of, and is subject to the Master Confirmation, dated as of [ ], 2013 (the Master Confirmation), between JPMorgan and Counterparty, as amended and supplemented from time to time. All provisions contained in the Master Confirmation govern this Supplemental Confirmation except as expressly modified below.
2. The terms of the Transaction to which this Supplemental Confirmation relates are as follows:
Trade Date: |
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Forward Price Adjustment Amount: |
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Calculation Period Start Date: |
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The [ ]th Exchange Business Day immediately following the Trade Date. |
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Scheduled Termination Date: |
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The [ ]th Exchange Business Day immediately following the Trade Date. |
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First Acceleration Date: |
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The [ ]th Exchange Business Day immediately following the Trade Date. |
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Prepayment Amount: |
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Prepayment Date: |
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Initial Shares: |
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[ ] Shares; provided that if, in connection with the Transaction, JPMorgan is unable, after using its good |
JPMorgan Chase Bank, National Association
Organised under the laws of the United States as a National Banking Association.
Main Office 1111 Polaris Parkway, Columbus, Ohio 43240
Registered as a branch in England & Wales branch No. BR000746
Registered Branch Office 25 Bank Street, Canary Wharf, London, E14 5JP
Authorised and regulated by the Financial Services Authority
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faith commercially reasonable efforts, to borrow or otherwise acquire a number of Shares equal to the Initial Shares for delivery to Counterparty on the Initial Share Delivery Date, the Initial Shares delivered on the Initial Share Delivery Date shall be reduced to such number of Shares that JPMorgan is able to so borrow or otherwise acquire, and JPMorgan shall use reasonable good faith efforts to borrow or otherwise acquire a number of Shares equal to the shortfall in the Initial Share Delivery and to deliver such additional Shares as soon as reasonably practicable. The aggregate of all Shares delivered to Counterparty in respect of the Transaction pursuant to this paragraph shall be the Initial Shares for purposes of Number of Shares to be Delivered in the Master Confirmation. |
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Initial Share Delivery Date: |
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[ ], 20[ ] |
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Maximum Stock Loan Rate: |
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[ ] basis points per annum |
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Initial Stock Loan Rate: |
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[ ] basis points per annum |
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Maximum Number of Shares: |
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[ ](1) Shares |
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Floor Price: |
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USD 0.01 per Share |
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Contract Fee: |
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Termination Price: |
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USD [ ] per Share |
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Additional Relevant Days: |
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The [ ] Exchange Business Days immediately following the Calculation Period. |
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Reserved Shares: |
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Notwithstanding anything to the contrary in the Master Confirmation, as of the date of this Supplemental Confirmation, the Reserved Shares shall be equal to [ ] Shares. |
3. Counterparty represents and warrants to JPMorgan that neither it nor any affiliated purchaser (as defined in Rule 10b-18 under the Exchange Act) has made any purchases of blocks pursuant to the proviso in Rule 10b-18(b)(4) under the Exchange Act during either (i) the four full calendar weeks immediately preceding the Trade Date or (ii) during the calendar week in which the Trade Date occurs.
4. This Supplemental Confirmation may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Supplemental Confirmation by signing and delivering one or more counterparts.
(1) To be approximately 50% of the total number of Shares outstanding on the Trade Date.
Please confirm that the foregoing correctly sets forth the terms of our agreement by executing this Supplemental Confirmation and returning it to us.
Very truly yours,
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J.P. MORGAN SECURITIES LLC, as agent for JPMorgan Chase Bank, National Association | ||
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Accepted and confirmed |
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as of the Trade Date: |
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BALLY TECHNOLOGIES, INC. |
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By: |
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JPMorgan Chase Bank, National Association
Organised under the laws of the United States as a National Banking Association.
Main Office 1111 Polaris Parkway, Columbus, Ohio 43240
Registered as a branch in England & Wales branch No. BR000746
Registered Branch Office 25 Bank Street, Canary Wharf, London, E14 5JP
Authorised and regulated by the Financial Services Authority
SCHEDULE B
FORM OF CERTIFICATE OF RULE 10B-18 PURCHASES
[Letterhead of Counterparty]
JPMorgan Chase Bank, National Association
c/o J.P. Morgan Securities LLC
383 Madison Avenue
5th Floor
New York, New York 10172
Re: Uncollared Accelerated Share Repurchase
Ladies and Gentlemen:
In connection with our entry into the Master Confirmation, dated as of April 24, 2013, between J.P. Morgan Securities LLC, as agent for JPMorgan Chase Bank, National Association, London Branch, and Bally Technologies, Inc., a Nevada corporation, as amended and supplemented from time to time (the Master Confirmation), we hereby represent that set forth below is the total number of shares of our common stock purchased by or for us or any of our affiliated purchasers in Rule 10b-18 purchases of blocks (all as defined in Rule 10b-18 under the Securities Exchange Act of 1934) pursuant to the once-a-week block exception set forth in Rule 10b-18(b)(4) during the four full calendar weeks immediately preceding the first day of the [Calculation Period][Settlement Valuation Period][Seller Termination Purchase Period] (as defined in the Master Confirmation) and the week during which the first day of such [Calculation Period][Settlement Valuation Period][Seller Termination Purchase Period] occurs.
Number of Shares:
We understand that you will use this information in calculating trading volume for purposes of Rule 10b-18.
Very truly yours,
BALLY TECHNOLOGIES, INC. |
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ANNEX A
COUNTERPARTY SETTLEMENT PROVISIONS
1. The following Counterparty Settlement Provisions shall apply to any Transaction to the extent indicated under the Master Confirmation:
Settlement Currency: |
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Settlement Method Election: |
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Applicable; provided that (i) Section 7.1 of the Equity Definitions is hereby amended by deleting the word Physical in the sixth line thereof and replacing it with the words Net Share and (ii) the Electing Party may make a settlement method election only if the Electing Party represents and warrants to JPMorgan in writing on the date it notifies JPMorgan of its election that, as of such date, the Electing Party is not aware of any material non-public information regarding Counterparty or the Shares and is electing the settlement method in good faith and not as part of a plan or scheme to evade compliance with the federal securities laws. |
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Electing Party: |
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Counterparty |
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Settlement Method Election Date: |
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The earlier of (i) the Scheduled Termination Date and (ii) the second Exchange Business Day immediately following the Accelerated Termination Date (in which case the election under Section 7.1 of the Equity Definitions shall be made no later than 10 minutes prior to the open of trading on the Exchange on such second Exchange Business Day), as the case may be. |
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Default Settlement Method: |
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Cash Settlement |
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Forward Cash Settlement Amount: |
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An amount equal to (a) the Number of Shares to be Delivered, multiplied by (b) the Settlement Price. |
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Settlement Price: |
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An amount equal to the sum of the average of the VWAP Prices for the Exchange Business Days in the Settlement Valuation Period, plus USD 0.05, subject to Valuation Disruption as specified in the Master Confirmation (in each case, plus interest on such amount during the Settlement Averaging Period at the rate of interest for Counterpartys long term, unsecured and unsubordinated indebtedness, as determined by the Calculation Agent). |
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Settlement Valuation Period: |
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A number of Exchange Business Days selected by JPMorgan in its reasonable discretion, beginning on the Exchange Business Day immediately following the Exchange Business Day immediately following the Termination Date. |
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Cash Settlement: |
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If Cash Settlement is applicable, then Buyer shall pay to JPMorgan the absolute value of the Forward Cash Settlement Amount on the Cash Settlement Payment Date. |
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Cash Settlement Payment Date: |
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The Exchange Business Day immediately following the last day of the Settlement Valuation Period. |
Net Share Settlement Procedures: |
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If Net Share Settlement is applicable, Net Share Settlement shall be made in accordance with paragraphs 2 through 7 below. |
2. Net Share Settlement shall be made by delivery on the Cash Settlement Payment Date of a number of Shares satisfying the conditions set forth in paragraph 3 below (the Registered Settlement Shares), or a number of Shares not satisfying such conditions (the Unregistered Settlement Shares), in either case with a value equal to the absolute value of the Forward Cash Settlement Amount, with such Shares value based on the value thereof to JPMorgan (which value shall, in the case of Unregistered Settlement Shares, take into account a commercially reasonable illiquidity discount), in each case as determined by the Calculation Agent. If all of the conditions for delivery of either Registered Settlement Shares or Unregistered Settlement Shares have not been satisfied, Cash Settlement shall be applicable in accordance with paragraph 1 above notwithstanding Counterpartys election of Net Share Settlement.
3. Counterparty may only deliver Registered Settlement Shares pursuant to paragraph 2 above if:
(a) a registration statement covering public resale of the Registered Settlement Shares by JPMorgan (the Registration Statement) shall have been filed with the Securities and Exchange Commission under the Securities Act and been declared or otherwise become effective on or prior to the date of delivery, and no stop order shall be in effect with respect to the Registration Statement; a printed prospectus relating to the Registered Settlement Shares (including, without limitation, any prospectus supplement thereto, the Prospectus) shall have been delivered to JPMorgan, in such quantities as JPMorgan shall reasonably have requested, on or prior to the date of delivery;
(b) the form and content of the Registration Statement and the Prospectus (including, without limitation, any sections describing the plan of distribution) shall be satisfactory to JPMorgan;
(c) as of or prior to the date of delivery, JPMorgan and its agents shall have been afforded a reasonable opportunity to conduct a due diligence investigation with respect to Counterparty customary in scope for underwritten offerings of equity securities and the results of such investigation are satisfactory to JPMorgan, in its discretion; and
(d) as of the date of delivery, an agreement (the Underwriting Agreement) shall have been entered into with JPMorgan in connection with the public resale of the Registered Settlement Shares by JPMorgan substantially similar to underwriting agreements customary for underwritten offerings of equity securities of similar size by similar companies, in form and substance satisfactory to JPMorgan, which Underwriting Agreement shall include, without limitation, provisions substantially similar to those contained in such underwriting agreements relating, without limitation, to the indemnification of, and contribution in connection with the liability of, JPMorgan and its Affiliates and the provision of customary opinions, accountants comfort letters and lawyers negative assurance letters.
4. If Counterparty delivers Unregistered Settlement Shares pursuant to paragraph 2 above:
(a) all Unregistered Settlement Shares shall be delivered to JPMorgan (or any Affiliate of JPMorgan designated by JPMorgan) pursuant to the exemption from the registration requirements of the Securities Act provided by Section 4(2) thereof;
(b) as of or prior to the date of delivery, JPMorgan and any potential purchaser of any such shares from JPMorgan (or any Affiliate of JPMorgan designated by JPMorgan) identified by JPMorgan shall be afforded a commercially reasonable opportunity to conduct a due diligence investigation with respect to Counterparty customary in scope for private placements of equity securities of similar size by similar companies (including, without limitation, the right to have made available to them for inspection all financial and other records, pertinent corporate documents and other information reasonably requested by them); provided that any such potential purchaser may be required by Counterparty to enter into a customary nondisclosure agreement with Counterparty in respect of any such due diligence investigation;
(c) as of the date of delivery, Counterparty shall enter into an agreement (a Private Placement Agreement) with JPMorgan (or any Affiliate of JPMorgan designated by JPMorgan) in connection with the private
placement of such shares by Counterparty to JPMorgan (or any such Affiliate) and the private resale of such shares by JPMorgan (or any such Affiliate), substantially similar to private placement purchase agreements customary for private placements of equity securities of similar size by similar companies, in form and substance commercially reasonably satisfactory to JPMorgan, which Private Placement Agreement shall include, without limitation, provisions substantially similar to those contained in such private placement purchase agreements relating, without limitation, to the indemnification of, and contribution in connection with the liability of, JPMorgan and its Affiliates and the provision of customary opinions, accountants comfort letters and lawyers negative assurance letters, and shall provide for the payment by Counterparty of all fees and expenses of JPMorgan (and any such Affiliate) in connection with such resale, including reasonable fees and documented out-of-pocket expenses of counsel for JPMorgan, and shall contain representations, warranties, covenants and agreements of Counterparty reasonably necessary or advisable to establish and maintain the availability of an exemption from the registration requirements of the Securities Act for such resales; and
(d) in connection with the private placement of such shares by Counterparty to JPMorgan (or any such Affiliate) and the private resale of such shares by JPMorgan (or any such Affiliate), Counterparty shall, if so requested by JPMorgan, prepare, in cooperation with JPMorgan, a private placement memorandum in form and substance reasonably satisfactory to JPMorgan and customary for private placements of equity securities of similar companies.
5. JPMorgan, itself or through an Affiliate (the Selling Agent) or any underwriter(s), will sell all, or such lesser portion as may be required hereunder, of the Registered Settlement Shares or Unregistered Settlement Shares and any Makewhole Shares (as defined below) (together, the Settlement Shares) delivered by Counterparty to JPMorgan pursuant to paragraph 6 below commencing on the Cash Settlement Payment Date and continuing until the date on which the aggregate Net Proceeds (as such term is defined below) of such sales, as determined by JPMorgan, is equal to the absolute value of the Forward Cash Settlement Amount (such date, the Final Resale Date). If the proceeds of any sale(s) made by JPMorgan, the Selling Agent or any underwriter(s), net of any fees and commissions (including, without limitation, underwriting or placement fees) customary for similar transactions under the circumstances at the time of the offering, together with carrying charges and expenses incurred in connection with the offer and sale of the Shares (including, without limitation, the covering of any over-allotment or short position (syndicate or otherwise)) (the Net Proceeds) exceed the absolute value of the Forward Cash Settlement Amount, JPMorgan will refund, in USD, such excess to Counterparty on the date that is three (3) Currency Business Days following the Final Resale Date, and, if any portion of the Settlement Shares remains unsold, JPMorgan shall return to Counterparty on that date such unsold Shares.
6. If the Calculation Agent determines that the Net Proceeds received from the sale of the Registered Settlement Shares or Unregistered Settlement Shares or any Makewhole Shares, if any, pursuant to this paragraph 6 are less than the absolute value of the Forward Cash Settlement Amount (the amount in USD by which the Net Proceeds are less than the absolute value of the Forward Cash Settlement Amount being the Shortfall and the date on which such determination is made, the Deficiency Determination Date), Counterparty shall on the Exchange Business Day next succeeding the Deficiency Determination Date (the Makewhole Notice Date) deliver to JPMorgan, through the Selling Agent, a notice of Counterpartys election that Counterparty shall either (i) pay an amount in cash equal to the Shortfall on the day that is one Currency Business Day after the Makewhole Notice Date, or (ii) deliver additional Shares. If Counterparty elects to deliver to JPMorgan additional Shares, then Counterparty shall deliver additional Shares in compliance with the terms and conditions of paragraph 3 or paragraph 4 above, as the case may be (the Makewhole Shares), on the first Clearance System Business Day which is also an Exchange Business Day following the Makewhole Notice Date in such number as the Calculation Agent reasonably believes would have a market value on that Exchange Business Day equal to the Shortfall. Such Makewhole Shares shall be sold by JPMorgan in accordance with the provisions above; provided that if the sum of the Net Proceeds from the sale of the originally delivered Shares and the Net Proceeds from the sale of any Makewhole Shares is less than the absolute value of the Forward Cash Settlement Amount then Counterparty shall, at its election, either make such cash payment or deliver to JPMorgan further Makewhole Shares until such Shortfall has been reduced to zero.
7. Notwithstanding the foregoing, in no event shall the aggregate number of Settlement Shares for any Transaction be greater than the Reserved Shares minus the amount of any Shares actually delivered by Counterparty under any other Transaction under this Master Confirmation (the result of such calculation, the Capped Number). Counterparty represents and warrants (which shall be deemed to be repeated on each day that a Transaction is outstanding) that the Capped Number is equal to or less than the number of Shares determined according to the following formula:
A B
Where A = the number of authorized but unissued shares of Counterparty that are not reserved for future issuance on the date of the determination of the Capped Number; and
B = the maximum number of Shares required to be delivered to third parties if Counterparty elected Net Share Settlement of all transactions in the Shares (other than Transactions in the Shares under this Master Confirmation) with all third parties that are then currently outstanding and unexercised.
Reserved Shares means initially, 7,000,000 Shares. The Reserved Shares may be increased or decreased in a Supplemental Confirmation.
If at any time, as a result of this paragraph 7, Counterparty fails to deliver to JPMorgan any Settlement Shares, Counterparty shall, to the extent that Counterparty has at such time authorized but unissued Shares not reserved for other purposes, promptly notify JPMorgan thereof and deliver to JPMorgan a number of Shares not previously delivered as a result of this paragraph 7. Counterparty agrees to use its best efforts to cause the number of authorized but unissued Shares to be increased, if necessary, to an amount sufficient to permit Counterparty to fulfill its obligation to deliver any Settlement Shares.
ANNEX B
COMMUNICATIONS PROCEDURES
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April 24, 2013 |
I. Introduction
Bally Technologies, Inc. (Counterparty) and J.P. Morgan Securities LLC, as agent for JPMorgan Chase Bank, National Association, London Branch (JPMorgan), have adopted these communications procedures (the Communications Procedures) in connection with entering into the Master Confirmation (the Master Confirmation), dated as of April 24, 2013, between JPMorgan and Counterparty relating to Uncollared Accelerated Share Repurchase transactions. These Communications Procedures supplement, form part of, and are subject to the Master Confirmation.
II. Communications Rules
For each Transaction, from the Trade Date for such Transaction until the date all payments or deliveries of Shares have been made with respect to such Transaction, Counterparty and its Employees and Designees shall not engage in any Program-Related Communication with, or disclose any Material Non-Public Information to, any EDG Trading Personnel. Except as set forth in the preceding sentence, the Master Confirmation shall not limit Counterparty and its Employees and Designees in their communication with Affiliates and Employees of JPMorgan, including, without limitation, Employees who are EDG Permitted Contacts.
III. Termination
If, in the sole judgment of any EDG Trading Personnel or any Affiliate or Employee of JPMorgan participating in any Communication with Counterparty or any Employee or Designee of Counterparty, such Communication would not be permitted by these Communications Procedures, such EDG Trading Personnel or Affiliate or Employee of JPMorgan shall immediately terminate such Communication. In such case, or if such EDG Trading Personnel or Affiliate or Employee of JPMorgan determines following completion of any Communication with Counterparty or any Employee or Designee of Counterparty that such Communication was not permitted by these Communications Procedures, such EDG Trading Personnel or such Affiliate or Employee of JPMorgan shall promptly consult with his or her supervisors and with counsel for JPMorgan regarding such Communication. If, in the reasonable judgment of JPMorgans counsel following such consultation, there is more than an insignificant risk that such Communication could materially jeopardize the availability of the affirmative defenses provided in Rule 10b5-1 under the Exchange Act with respect to any ongoing or contemplated activities of JPMorgan or its Affiliates in respect of any Transaction pursuant to the Master Confirmation, it shall be an Additional Termination Event pursuant to Section 19(a) of the Master Confirmation, with Counterparty as the sole Affected Party and all Transactions under the Master Confirmation as Affected Transactions.
IV. Definitions
Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Master Confirmation. As used herein, the following words and phrases shall have the following meanings:
Communication means any contact or communication (whether written, electronic, oral or otherwise) between Counterparty or any of its Employees or Designees, on the one hand, and JPMorgan or any of its Affiliates or Employees, on the other hand.
Designee means a person designated, in writing or orally, by Counterparty to communicate with JPMorgan on behalf of Counterparty.
EDG Permitted Contact means any of Mr. David Aidelson, Mr. Gregory Batista, Mr. Elliot Chalom, Mr. Steven Seltzer, Mr. James F. Smith, Mr. Sudheer R. Tegulapalle and Ms. Angela B. Terra or any of their designees; provided that JPMorgan may amend the list of EDG Permitted Contacts by delivering a revised list of EDG Permitted Contacts to Counterparty.
EDG Trading Personnel means Mr. Graham Orton, Mr. Michael Tatro and any other Employee of the public side of the Equity Derivatives Group or the Special Equities Group of J.P. Morgan Chase & Co.; provided that JPMorgan may amend the list of EDG Trading Personnel by delivering a revised list of EDG Trading Personnel to Counterparty; and provided further that, for the avoidance of doubt, the persons listed as EDG Permitted Contacts are not EDG Trading Personnel.
Employee means, with respect to any entity, any owner, principal, officer, director, employee or other agent or representative of such entity, and any Affiliate of any of such owner, principal, officer, director, employee, agent or representative.
Material Non-Public Information means information relating to Counterparty or the Shares that (a) has not been widely disseminated by wire service, in one or more newspapers of general circulation, by communication from Counterparty to its shareholders or in a press release, or contained in a public filing made by Counterparty with the Securities and Exchange Commission and (b) a reasonable investor might consider to be of importance in making an investment decision to buy, sell or hold Shares. For the avoidance of doubt and solely by way of illustration, information should be presumed material if it relates to such matters as dividend increases or decreases, earnings estimates, changes in previously released earnings estimates, significant expansion or curtailment of operations, a significant increase or decline of orders, significant merger or acquisition proposals or agreements, significant new products or discoveries, extraordinary borrowing, major litigation, liquidity problems, extraordinary management developments, purchase or sale of substantial assets and similar matters.
Program-Related Communication means any Communication the subject matter of which relates to the Master Confirmation or any Transaction under the Master Confirmation or any activities of JPMorgan (or any of its Affiliates) in respect of the Master Confirmation or any Transaction under the Master Confirmation.
Exhibit 31.1
CERTIFICATION
I, Ramesh Srinivasan, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Bally Technologies, Inc.; | |
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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; | |
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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; | |
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4. |
The registrants 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: | |
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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; |
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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; |
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c. |
Evaluated the effectiveness of the registrants 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 |
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d. |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
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5. |
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): | |
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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 registrants ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 6, 2013 |
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/s/Ramesh Srinivasan |
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Ramesh Srinivasan |
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Chief Executive Officer |
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(Principal Executive Officer) |
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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.; | |
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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; | |
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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; | |
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4. |
The registrants 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: | |
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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; |
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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; |
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c. |
Evaluated the effectiveness of the registrants 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 |
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d. |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
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5. |
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): | |
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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 registrants ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 6, 2013 |
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/s/Neil P. Davidson |
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Neil P. Davidson |
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Senior Vice President, Chief Financial Officer and Treasurer |
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(Principal Financial Officer) |
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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 on Form 10-Q for the fiscal quarter ended March 31, 2013 of Bally Technologies, Inc. (the Company), as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Ramesh Srinivasan, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 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: May 6, 2013
/s/Ramesh Srinivasan |
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Ramesh Srinivasan |
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Chief Executive Officer |
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A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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 on Form 10-Q for the fiscal quarter ended March 31, 2013 of Bally Technologies, Inc. (the Company), 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 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 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: May 6, 2013
/s/Neil P. Davidson |
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Neil P. Davidson |
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Senior Vice President, Chief Financial Officer and Treasurer |
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A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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SHARE-BASED COMPENSATION (Details 3) (USD $)
In Millions, unless otherwise specified |
9 Months Ended |
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Mar. 31, 2013
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Stock options
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Share-Based Compensation | |
Unrecognized compensation cost | $ 4.4 |
Unrecognized compensation cost, period for recognition | 1 year 5 months 23 days |
Restricted stock
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Share-Based Compensation | |
Unrecognized compensation cost | $ 22.7 |
Unrecognized compensation cost, period for recognition | 1 year 10 months 20 days |
LONG-TERM DEBT (Tables)
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9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2013
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Schedule of additional information on the entity's interest rate swaps |
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COMMITMENTS AND CONTINGENCIES (Details)
In Millions, unless otherwise specified |
1 Months Ended | ||
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Mar. 31, 2013
USD ($)
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Feb. 29, 2012
Breach of contract
EUR (€)
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Oct. 31, 2008
Patent infringement lawsuit filed by International Game Technology ("IGT") against the Company
patent
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Litigation | |||
Alleged damages (in euros) | € 114 | ||
Number of patents of plaintiff declared invalid by the court | 2 | ||
Aggregate accrued liabilities, current | 7.0 | ||
Loss contingency, possible loss | $ 12.2 |
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Mar. 31, 2013
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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 global gaming company that designs, manufactures, operates and distributes advanced technology-based gaming devices, systems, server-based solutions, custom mobile applications, and interactive applications. The Company’s innovations and technology solutions allow its customers to more effectively manage their operations using our wide range of marketing, data management and analysis, accounting, player tracking, security and other software applications and tools. The Company also provides hardware, including spinning-reel and video gaming devices, specialty gaming devices, and wide-area progressive systems. Under its business-to-business model, the Company supports customers that include traditional land-based, riverboat, and Native American casinos, video lottery and central determination markets.
Principles of presentation and consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Bally Technologies, Inc., and its wholly owned and partially owned subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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. All adjustments are of a normal, recurring nature. 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, 2012. 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.
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.
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 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. Cash equivalents and investment securities to fund jackpot liabilities have Level 1 inputs with values based on quoted market prices. Accounts and notes receivable and jackpot liabilities have Level 3 inputs and were valued using Discounted Cash Flows (“DCF”) incorporating expected future payment timing and current borrowing rates. Long-term debt has Level 2 inputs and was valued using DCF incorporating expected future payment timing and current borrowing rates.
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 March 31, 2013 and June 30, 2012, euro forward contracts for a total of $38.8 million and $38.0 million, respectively, or the equivalent of €30.0 million and €30.0 million, respectively, were outstanding. In addition, as of March 31, 2013, a pound sterling forward contract for $2.3 million, or the equivalent of £1.5 million, was outstanding.
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:
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 5 to the 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:
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:
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 all other items 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 fee is considered fixed and determinable.
Games placed with customers on a trial basis are recorded as revenue once the trial period has ended, the customer has accepted the games, and all other revenue recognition criteria have been satisfied. Amounts billed to customers prior to completing the earnings process are deferred until the revenue recognition criteria are satisfied.
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 simultaneously. 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 devices.
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 revenue recognition 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. 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 provided all revenue recognition criteria have been satisfied. 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. 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 satisfied. 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 on a straight-line basis over the term of the support period which is generally twelve 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 twelve 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. For example, 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 content 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 December 31, 2011, the Company chose to early adopt new accounting guidance to make the presentation of items within other comprehensive income (“OCI”) more prominent. The new standard requires 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 are no longer allowed to present items of OCI only in the statement of stockholders’ equity. The Company chose to present the items in two separate consecutive statements. The new guidance was applied retrospectively.
Effective December 31, 2011, new accounting guidance for testing goodwill impairment 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 Company has not yet utilized this method in its evaluation of goodwill impairment.
Effective September 30, 2012, new accounting guidance for testing indefinite-lived intangible assets permits an entity to first access qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. The outcome of the assessment is used as a basis for determining whether it is necessary to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with ASC Topic 350. The Company has not yet utilized this method in its evaluation of indefinite-lived intangible assets impairment.
Recently issued accounting pronouncements not yet adopted
In December 2011, the FASB issued new accounting guidance for disclosures about offsetting assets and liabilities which requires an entity to disclose information about financial instruments that have been offset and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities will be required to provide both net (offset amounts) and gross information in the notes to the financial statements for relevant assets and liabilities that are offset. The new guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company expects to adopt this guidance in fiscal year 2014 and does not believe it will have a significant impact on its consolidated results of operations, financial condition and cash flows.
In February 2013, the FASB issued new accounting guidance to improve the reporting of reclassifications out of accumulated other comprehensive income. Under the guidance, an entity is required to provide information about the amounts reclassified out of accumulated other comprehensive income (“AOCI”) by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. The guidance did not change the requirements for reporting net income or other comprehensive income in the financial statements. The new guidance is effective for annual reporting periods beginning on or after December 15, 2012, and interim periods within those annual periods. The Company expects to adopt this guidance in fiscal year 2014 and does not believe it will have a significant 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. |