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1. BUSINESS AND BASIS OF PRESENTATION
Everi Holdings Inc. (formerly known as Global Cash Access Holdings, Inc.) (“Everi Holdings,” “Holdings” or “Everi”) is a holding company, the assets of which are the issued and outstanding shares of capital stock of each of Everi Games Holding Inc. (formerly known as Multimedia Games Holding Company, Inc.), which owns all of the issued and outstanding shares of capital stock of Everi Games Inc. (formerly known as Multimedia Games, Inc.) (“Everi Games” or “Games”) and Everi Payments Inc. (formerly known as Global Cash Access, Inc.) (“Everi Payments” or “Payments”). Unless otherwise indicated, the terms the “Company,” “we,” “us” and “our” refer to Holdings together with its consolidated subsidiaries.
Everi is dedicated to providing video and mechanical reel gaming content and technology solutions, integrated gaming payments solutions and compliance and efficiency software. Everi Games provides: (a) comprehensive content, electronic gaming units and systems for Native American and commercial casinos, including the award winning TournEvent® slot tournament solution; and (b) the central determinant system for the video lottery terminals installed at racetracks in the State of New York. Everi Payments provides: (a) access to cash at gaming facilities via Automated Teller Machine cash withdrawals, credit card cash access transactions, point of sale (“POS”) debit card transactions, and check verification and warranty services; (b) fully integrated gaming industry kiosks that provide cash access and related services; (c) products and services that improve credit decision making, automate cashier operations and enhance patron marketing activities for gaming establishments; (d) compliance, audit and data solutions; and (e) online payment processing solutions for gaming operators in states that offer intrastate, Internet-based gaming and lottery activities.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
All intercompany transactions and balances have been eliminated in consolidation.
Business Combinations
We apply the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations”, in the accounting for acquisitions. It requires us to recognize separately from goodwill the assets acquired and the liabilities assumed, at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Significant estimates and assumptions are required to value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable. These estimates are preliminary and typically include the calculation of an appropriate discount rate and projection of the cash flows associated with each acquired asset over its estimated useful life. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. In addition, deferred tax assets, deferred tax liabilities, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We reevaluate these items quarterly based upon facts and circumstances that existed as of the acquisition date and any adjustments to its preliminary estimates are recorded to goodwill, in the period of identification, if identified within the measurement period. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.
Acquisition-related Costs
We recognize a liability for acquisition-related costs when the expense is incurred. Acquisition-related costs include financial advisory, legal and debt fees; accounting, consulting, and professional fees associated with due diligence, valuation and integration; severance; and other related costs and adjustments.
Cash and Cash Equivalents
Cash and cash equivalents include cash and all balances on deposit in banks and financial institutions. We consider all highly liquid investments with maturities of three months or less at the time of purchase to be cash and cash equivalents. Such balances generally exceed the federal insurance limits. However, we periodically evaluate the creditworthiness of these institutions to minimize risk.
ATM Funding Agreements
We obtain all of the cash required to operate our Automated Teller Machines (“ATM” or “ATMs”) through various ATM Funding Agreements. Some gaming establishments provide the cash utilized within the ATM (“Site‑Funded”). The Site‑Funded receivables generated for the amount of cash dispensed from transactions performed at our ATMs are owned by us and we are liable to the gaming establishment for the face amount of the cash dispensed. In the Consolidated Balance Sheets, the amount of the receivable for transactions processed on these ATM transactions is included within settlement receivables and the amount due to the gaming establishment for the face amount of dispensing transactions is included within settlement liabilities.
For the Non‑Site‑Funded locations, our Contract Cash Solutions Agreement with Wells Fargo allows us to use funds owned by Wells Fargo to provide the currency needed for normal operating requirements for our ATMs. For the use of these funds, we pay Wells Fargo a cash usage fee on the average daily balance of funds utilized multiplied by a contractually defined cash usage rate. Under this agreement, all currency supplied by Wells Fargo remains the sole property of Wells Fargo at all times until it is dispensed, at which time Wells Fargo obtains an interest in the corresponding settlement receivable. As the cash is never an asset of ours, supplied cash is not reflected on our balance sheet. We are charged a cash usage fee for the cash used in these ATMs, which is included as interest expense in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. We recognize the fees as interest expense due to the similar operational characteristics to a revolving line of credit, the fact that the fees are calculated on a financial index and the fees are paid for access to a capital resource.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts related to our trade and other receivables and notes receivable that have been deemed to have a high risk of uncollectibility. Management reviews its accounts and notes receivable on a quarterly basis to determine if any receivables will potentially be uncollectible. Management analyzes historical collection trends and changes in our customer payment patterns, customer concentration, and creditworthiness when evaluating the adequacy of our allowance for doubtful accounts. In our overall allowance for doubtful accounts we include any receivable balances for which uncertainty exists as to whether the account balance has become uncollectible. Based on the information available, management believes the allowance for doubtful accounts is adequate; however, actual write-offs may exceed the recorded allowance.
Settlement Receivables and Settlement Liabilities
In the credit card cash access and POS debit card cash access transactions provided by us, the gaming establishment is reimbursed for the cash disbursed to gaming patrons through the issuance of a negotiable instrument or through electronic settlement. We receive reimbursement from the patron’s credit or debit card issuer for the transaction in an amount equal to the amount owing to the gaming establishment plus the fee charged to the patron. This reimbursement is included within the settlement receivables on the Consolidated Balance Sheets. The amounts owed to gaming establishments are included within settlement liabilities on the Consolidated Balance Sheets.
Warranty Receivables
If a gaming establishment chooses to have a check warranted, it sends a request to our third party check warranty service provider, asking whether it would be willing to accept the risk of cashing the check. If the check warranty provider accepts the risk and warrants the check, the gaming establishment negotiates the patron’s check by providing cash for the face amount of the check. If the check is dishonored by the patron’s bank upon presentment, the gaming establishment invokes the warranty, and the check warranty service provider purchases the check from the gaming establishment for the full check amount and then pursues collection activities on its own. In our Central Credit Check Warranty product under our agreement with the third party service provider, we receive all of the check warranty revenue. We are exposed to risk for the losses associated with any warranted items that cannot be collected from patrons issuing the items. Warranty receivables are defined as any amounts paid by the third party check warranty service provider to gaming establishments to purchase dishonored checks. Additionally, we pay a fee to the third party check warranty service provider for its services.
The warranty receivables amount is recorded in other receivables, net on our Consolidated Balance Sheets. On a monthly basis, the Company evaluates the collectability of the outstanding balances and establishes a reserve for the face amount of the expected losses on these receivables. The warranty expense associated with this reserve is included within cost of revenues (exclusive of depreciation and amortization) on our Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.
Inventory
Our inventory primarily consists of component parts as well as finished goods and work-in-progress. The cost of inventory includes cost of materials, labor, overhead and freight. The inventory is stated at the lower of cost or market and accounted for using the first in, first out method.
Property, Equipment and Leased Assets
Property, equipment and leased assets are stated at cost, less accumulated depreciation, computed using the straight-line method over the lesser of the estimated life of the related assets, generally three to five years, or the related lease term. Player terminals and related components and equipment are included in our rental pool. The rental pool can be further delineated as “rental pool – deployed,” which consists of assets deployed at customer sites under participation arrangements, and “rental pool – undeployed,” which consists of assets held by us that are available for customer use. Rental pool – undeployed consists of both new units awaiting deployment to a customer site and previously deployed units currently back with us to be refurbished awaiting re-deployment. Routine maintenance of property, equipment and leased gaming equipment is expensed in the period incurred, while major component upgrades are capitalized and depreciated over the estimated remaining useful life of the component. Sales and retirements of depreciable property are recorded by removing the related cost and accumulated depreciation from the accounts. Gains or losses on sales and retirements of property are reflected in our Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. Property, equipment and leased assets are reviewed for impairment whenever events or circumstances indicate that their carrying amounts may not be recoverable. Impairment is indicated when undiscounted future cash flows do not exceed the asset’s carrying value.
Development and Placement Fee Agreements
We enter into development and placement fee agreements to provide financing for new gaming facilities or for the expansion of existing facilities. All or a portion of the funds provided under development agreements are reimbursed to us, while funds provided under placement fee agreements are not reimbursed. In return, the facility dedicates a percentage of its floor space to placement of our player terminals, and we receive a fixed percentage of those player terminals' hold per day over the term of the agreement which is generally for 12 to 83 months. Certain of the agreements contain player terminal performance standards that could allow the facility to reduce a portion of our guaranteed floor space. In addition, certain development agreements allow the facilities to buy out floor space after advances that are subject to repayment have been repaid. The agreements typically provide for a portion of the amounts retained by the gaming facility for their share of the operating profits of the facility to be used to repay some or all of the advances recorded as notes receivable.
Goodwill
Goodwill represents the excess of the purchase price over the identifiable tangible and intangible assets acquired plus liabilities assumed arising from business combinations. We test for impairment annually on a reporting unit basis, at the beginning of our fourth fiscal quarter, or more often under certain circumstances. The annual impairment test is completed using either: a qualitative Step 0 assessment based on reviewing relevant events and circumstances; or a quantitative Step 1 assessment, which determines the fair value of the reporting unit, using an income approach that discounts future cash flows based on the estimated future results of our reporting units and a market approach that compares market multiples of comparable companies to determine whether or not any impairment exists. If the fair value of a reporting unit is less than its carrying amount, we use the Step 2 assessment to determine the impairment. Our reporting units are identified as operating segments or one level below. Reporting units must: (a) engage in business activities from which they earn revenues and incur expenses; (b) have operating results that are regularly reviewed by our chief operating decision makers to ascertain the resources to be allocated to the segment and assess its performance; and (c) have discrete financial information available. As of December 31, 2015, our reporting units included: Games, Cash Advance, ATM, Check Services, Kiosk Sales and Service, Central Credit, and Everi Compliance.
Other Intangible Assets
Other intangible assets are stated at cost, less accumulated amortization, computed primarily using the straight-line method. Other intangible assets consist primarily of: (i) customer contracts (rights to provide Games and Payments services to gaming establishment customers), developed technology, trade names and trademarks and contract rights acquired through business combinations; (ii) capitalized software development costs; and (iii) the acquisition cost of our patent related to the 3-in-1 rollover technology acquired in 2005. Customer contracts require us to make renewal assumptions, which impact the estimated useful lives of such assets. Capitalized software development costs require us to make certain judgments as to the stages of development and costs eligible for capitalization. Capitalized software costs placed in service are amortized over their useful lives, generally not to exceed five years. The acquisition cost of the 3-in-1 Rollover patent is being amortized over the term of the patent, which expires in 2018. We review intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events or circumstances include, but are not limited to, a significant decrease in the fair value of the underlying business or market price of the asset, a significant adverse change in legal factors or business climate that could affect the value of an asset, or a current period operating or cash flow loss combined with a history of operating or cash flow losses. We group intangible assets for impairment analysis at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of intangible assets is measured by a comparison of the carrying amount of the asset to future, net cash flows expected to be generated by the asset, undiscounted and without interest. Any impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Debt Issuance Costs
Debt issuance costs incurred in connection with long-term borrowings are capitalized and amortized to interest expense based upon the related debt agreements using the straight-line method, which approximates the effective interest method. Debt issuance costs related to line-of-credit arrangements are included in other assets, non-current, on the Consolidated Balance Sheets. All other debt issuance costs are included in long-term debt.
Original Issue Discounts
Original issue discounts incurred in connection with long-term borrowings are capitalized and amortized to interest expense based upon the related debt agreements using the straight-line method, which approximates the effective interest method. These amounts are recorded as contra-liabilities and included in long-term debt on the Consolidated Balance Sheets.
Deferred Revenue
Deferred revenue represents amounts from the sale of fully integrated kiosks and related service contracts, anti-money laundering and tax compliance software, and gaming equipment and systems that have been billed, or for which notes receivable have been executed, but which transaction has not met our revenue recognition criteria. The cost of the fully integrated kiosks and related service contracts, anti-money laundering and tax compliance software, and gaming equipment and systems is deferred and recorded at the time revenue is recognized. Amounts are classified between current and long-term liabilities, based upon the expected period in which the revenue will be recognized.
Revenue Recognition
Overall
We recognize revenue when evidence of an arrangement exists, services have been rendered, the price is fixed or determinable and collectability is reasonably assured. We evaluate our revenue streams for proper timing of revenue recognition. Revenue is recognized as products are delivered and or services are performed.
Games Revenues
Games revenues are primarily generated by our gaming operations under development, placement, and participation arrangements in which we provides our customers with player terminals, player terminal-content licenses and back-office equipment, collectively referred to herein as leased gaming equipment. Under these arrangements, we retain ownership of the leased gaming equipment installed at customer facilities, and we receive revenue based on a percentage of the net win per day generated by the leased gaming equipment or a fixed daily fee based on the number of player terminals installed at the facility. Revenue from lease participation or daily fee arrangements are considered both realizable and earned at the end of each gaming day.
Games revenues generated by player terminals deployed at sites under development or placement fee agreements is reduced by the accretion of contract rights acquired as part of those agreements. Contract rights are amounts allocated to intangible assets for dedicated floor space resulting from such agreements, described under “Development and Placement Fee Agreements.” The related amortization expense, or accretion of contract rights, is netted against our respective revenue category in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.
We also generate games revenues from back-office fees with certain customers. Back-office fees cover the service and maintenance costs for back-office servers installed in each gaming facility to run our gaming equipment, as well as the cost of related software updates. Back-office fees are considered both realizable and earned at the end of each gaming day.
Payments Revenues
Cash advance revenues are comprised of transaction fees assessed to gaming patrons in connection with credit card cash access and POS debit card transactions and are recognized at the time the transactions are authorized. Such fees are based on a combination of a fixed amount plus a percentage of the face amount of the credit card cash access or POS debit card transaction amount.
ATM revenues are comprised of transaction fees in the form of cardholder surcharges assessed to gaming patrons in connection with ATM cash withdrawals at the time the transactions are authorized and reverse interchange fees paid to us by the patrons’ issuing banks. Cardholder surcharges are recognized as revenue when a transaction is initiated and reverse interchange is recognized as revenue on a monthly basis based on the total transactions occurring during the month. The cardholder surcharges assessed to gaming patrons in connection with ATM cash withdrawals are currently a fixed dollar amount and not a percentage of the transaction amount.
Check services revenues are principally comprised of check warranty revenues and are generally based upon a percentage of the face amount of checks warranted. These fees are paid to us by gaming establishments.
Other revenues include amounts derived from the sale of cash access devices, such as the provision of certain professional services, software licensing, and certain other ancillary fees associated with the sale, installation and maintenance of those devices. In addition, other revenues consist of Central Credit revenues that are based upon either a flat monthly unlimited usage fee or a variable fee structure driven by the volume of patron credit histories generated. Also included in other revenues are revenues generated from ancillary marketing, database and Internet gaming activities.
Equipment and Systems Revenues
We sell gaming equipment, fully integrated kiosks and gaming systems directly to our customers under independent sales contracts through normal credit terms, or may grant extended credit terms under contracts secured by the related equipment.
For sales arrangements with multiple deliverables, we apply the guidance from ASC 605-25, “Revenue Recognition - Multiple-Element Arrangements.” In addition, we apply the guidance from ASC 985-605, “Software – Revenue Recognition” which affects vendors that sell or lease tangible products in an arrangement that contains software that is more than incidental to the tangible product as a whole and clarifies what guidance should be used in allocating and measuring revenue.
The majority of our multiple element sales contracts are for some combination of gaming equipment, player terminals, content, system software, license fees, ancillary equipment and maintenance.
Revenue related to systems arrangements that contain both software and non-software deliverables requires allocation of the arrangement fee to the separate deliverables using the relative selling price method. Revenue for software deliverables is recognized under software revenue recognition guidance. Revenue resulting from the sale of non-software deliverables, such as gaming devices and other hardware, are accounted for based on other applicable revenue recognition guidance as the devices are tangible products containing both software and non-software components that function together to deliver the product's essential functionality.
In allocating the arrangement fees to separate deliverables, we evaluate whether we have vendor-specific objective evidence (“VSOE”) of selling price, third party evidence (“TPE”) or estimate of selling price (“ESP”) for gaming devices, maintenance and product support fees and other revenue sources. We generally use ESP to determine the selling price used in the allocation of separate deliverables, as VSOE and TPE are generally not available. We determine the ESP on separate deliverables by estimating a margin typically received on such items and applying that margin to the product cost incurred.
Generally, player terminal sales include ancillary equipment, such as networking gear, bases, chairs, and occasionally signage, some of which may be necessary for the full functionality of the player terminals in a casino. This ancillary equipment comprises an install kit that is shipped simultaneously with the player terminals. Although our products are analyzed as multiple deliverable arrangements, revenue for the player terminal and ancillary equipment is not recognized until all elements essential for the functionality of the product have been shipped or delivered. This includes game theme software and essential ancillary equipment. If elements that are not essential to the functionality of the player terminals are shipped after the unit, such as signage, chairs, or bases, these items would be classified as deferred revenue until shipped or delivered.
Cost of Revenues (exclusive of depreciation and amortization)
The cost of revenues (exclusive of depreciation and amortization) represents the direct costs required to perform revenue generating transactions. The principal costs included within cost of revenues (exclusive of depreciation and amortization) are commissions paid to gaming establishments, interchange fees paid to credit and debit card networks, transaction processing fees to our transaction processor, inventory and related costs associated with the sale of our fully integrated kiosks, electronic gaming machines and system sales, check cashing warranties, field service and network operations personnel.
Advertising, Marketing and Promotional Costs
We expense advertising, marketing and promotional costs as incurred. Total advertising, marketing and promotional costs, included in operating expenses in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income, were $0.9 million, $1.1 million and $0.7 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Research and Development Costs
We conduct research and development activities primarily to develop gaming systems, gaming engines, casino data management systems, casino central monitoring systems, video lottery outcome determination systems, gaming platforms and gaming content, as well as to add enhancements to our existing product lines. We believe our ability to deliver differentiated, appealing products and services to the marketplace is based on our research and development investments, and we expect to continue to make such investments in the future. Research and development costs consist primarily of salaries and benefits, consulting fees and game lab testing fees. Once the technological feasibility of a project has been established, it is transferred from research to development and capitalization of development costs begins until the product is available for general release.
Research and development costs were $19.1 million and $0.8 million for the years ended December 31, 2015 and 2014, respectively. As research and development costs relate to our Games segment which was acquired in 2014, there were no material research and development costs for the year ended December 31, 2013.
Income Taxes
Income tax expense includes U.S. and international income taxes, plus the provision for U.S. taxes on undistributed earnings of international subsidiaries not deemed to be permanently invested. Since it is management’s practice and current intent to reinvest the earnings in the international operations of our foreign subsidiaries, U.S. federal income taxes have not been provided on the undistributed earnings of any foreign subsidiaries except for GCA Macau. Some items of income and expense are not reported in tax returns and the consolidated financial statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes.
Employee Benefits Plan
In connection with the acquisition of Everi Games Holding Inc., we merged the Everi Payments 401(k) Plan (“Merged 401(k) Plan”) into the Everi Games Holding Inc. 401(k) Plan (“Surviving 401(k) Plan”), which was adopted for domestic employees of Everi Games and Everi Payments and their domestic subsidiaries. The Surving 401(k) Plan Participant investment elections were not mapped from the current provider as the Merged Plan assets were liquidated from their current investments and the proceeds were provided to the new provider. The Participant contributions were sent to the new provider into the Plan’s default fund until such time that a Participant made investment elections. The Surviving 401(k) Plan structure is similar to the Merged 401(k) Plan and allows employees to defer up to the lesser of the Internal Revenue Code prescribed maximum amount or 100% of their income on a pre-tax basis through contributions to the plan. As a benefit to employees, we match a percentage of these employee contributions (as defined in the plan document). Expenses related to the matching portion of the contributions to the 401(k) Plan were $1.3 million, $0.5 million and $0.5 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Fair Values of Financial Instruments
The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time, based upon relevant market information about the financial instrument.
The carrying amount of cash and cash equivalents, settlement receivables, trade receivables, other receivables, settlement liabilities, accounts payable and accrued expenses approximates fair value due to the short-term maturities of these instruments. The fair value of our borrowings are estimated based on various inputs to determine a market price, such as: market demand and supply, size of tranche, maturity and similar instruments trading in more active markets.
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Year Ended December 31, |
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2015 |
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Level of |
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Outstanding |
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Hierarchy |
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Fair Value |
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Balance |
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Term loan |
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1 |
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$ |
445,900 |
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$ |
490,000 |
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Senior secured notes |
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3 |
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$ |
314,900 |
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$ |
335,000 |
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Senior unsecured notes |
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1 |
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$ |
297,500 |
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$ |
350,000 |
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The senior secured notes were fair valued using a Level 3 input by evaluating the trading activities of similar debt instruments as there was no market activity as of December 31, 2015. The senior unsecured notes were syndicated in April 2015 and transitioned from level 3 to level 1 on the fair value hierarchy.
At December 31, 2014, the fair value of our long-term debt was considered to approximate the carrying amount as our acquisition of Everi Games occurred on December 19, 2014, for which our long-term debt was incurred.
Foreign Currency Translation
Foreign currency denominated assets and liabilities for those foreign entities for which the local currency is the functional currency are translated into U.S. dollars based on exchange rates prevailing at the end of each year. Revenues and expenses are translated at average exchange rates during the year. The effects of foreign exchange gains and losses arising from these translations are included as a component of other comprehensive income on the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. Translation adjustments on intercompany balances of a long-term investment nature are recorded as a component of Accumulated Other Comprehensive Income on our Consolidated Balance Sheets.
Use of Estimates
We have made estimates and judgments affecting the amounts reported in these financial statements and the accompanying notes. The actual results may differ from these estimates. These accounting estimates incorporated into the consolidated financial statements include, but are not limited to:
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the estimates and assumptions related to the preparation of the unaudited pro forma financial information contained herein; |
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the estimates and assumptions related to the preliminary purchase price allocation based on the estimated fair values of the assets acquired and liabilities assumed related to any of our acquisitions; |
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the estimated reserve for warranty expense associated with our check warranty receivables; |
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the valuation and recognition of share based compensation; |
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the valuation allowance on our deferred income tax assets; |
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the estimated cash flows in assessing the recoverability of long lived assets; |
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the estimates of future operating performance, weighted average cost of capital (“WACC”) and growth rates as well as other factors used in our annual goodwill and assets impairment evaluations; |
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the renewal assumptions used for customer contracts to estimate the useful lives of such assets; and |
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the judgments used to determine the stages of development and costs eligible for capitalization as internally developed software. |
Earnings Applicable to Common Stock
Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the effect of potential common stock resulting from assumed stock option exercises and vesting of restricted stock unless it is antidilutive.
Share‑Based Compensation
Share-based payment awards result in a cost that is measured at fair value on the award’s grant date.
Our time-based stock options, including our cliff vesting time-based awards, expected to be exercised currently, and in future periods, were measured at fair value on the grant date using the Black Scholes model. Our restricted stock awards expected to be vested currently, and in future periods, were measured at fair value based on the stock price on the grant date. The compensation expense is recognized on a straight-line basis over the vesting period of the awards.
Our market-based stock options will vest if our average stock price in any period of 30 consecutive trading days meets certain target prices during a four year period that commenced on the grant date of these options. If these target prices are not met during the four year period, the unvested shares underlying the options will terminate except if there is a change in control of the Company, as defined in the 2014 Equity Incentive Plan, in which case, the unvested shares underlying such options shall become fully vested on the effective date of such change in control transaction. The options were measured at fair value on the grant date using a lattice-based valuation model based on the median time horizon from the date of grant for these options to the vesting date for those paths that achieved the target threshold(s). The compensation expense is recognized on a straight-line basis over the median vesting periods calculated under such valuation model.
Forfeitures are estimated at the grant date for our time-based and market-based awards, with such estimates updated periodically; and with actual forfeitures recognized currently to the extent they differ from the estimates.
Unless otherwise provided by the administrator of our equity incentive plans, stock options granted under our plans generally expire ten years from the date of grant. In connection with our annual grant in 2015, certain market-based stock option awards were issued that expire seven years from the date of grant. The exercise price of stock options is generally the closing market price of our common stock on the date of the stock option grant.
Reclassification of Prior Year Balances
Reclassifications were made to the prior-period financial statements to conform to the current period presentation.
Recent Accounting Guidance
Recently Adopted Accounting Guidance
In November 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-17 Balance Sheet Classification of Deferred Taxes, which requires that deferred tax assets and deferred tax liabilities be classified as noncurrent in the balance sheet. ASU No. 2015-17 is effective for the interim and annual periods beginning after December 15, 2016. Early adoption is permitted. During the fourth quarter of 2015, we elected to prospectively adopt this standard. The prior reporting period was not retrospectively adjusted. The adoption of this guidance had no impact on our Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.
In September 2015, the FASB issued ASU No. 2015-16, which provides guidance on business combinations. The ASU requires an acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the estimated amounts, calculated as if the accounting had been completed at the acquisition date. The standard is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. We implemented this guidance during the current period as it impacted the final purchase price allocation adjustments associated with our acquisition of Multimedia Games Holdings Inc.
Recent Accounting Guidance Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, which provides guidance on the accounting treatment of leases. The ASU establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements and disclosures included within Notes to the Consolidated Financial Statements.
In July 2015, the FASB issued ASU No. 2015-11, which provides guidance on the measurement of inventory value. The amendments require an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. The pronouncement is effective for annual periods beginning after December 15, 2016, and interim periods within those fiscal years, and early adoption is permitted. We are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements and disclosures included within Notes to the Consolidated Financial Statements.
In April 2015, the FASB issued ASU No. 2015-03, which provides guidance to simplify the presentation of debt issuance costs. These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The pronouncement is effective for annual periods beginning after December 15, 2015, and interim periods within those fiscal years, and early adoption is permitted for financial statements that have not been previously issued. This guidance was further clarified in ASU No. 2015-15 which addressed the treatment of debt issuance costs related to line-of credit arrangements. It noted that as ASU No. 2015-03 did not provide guidance on debt issuance costs related to line-of credit arrangements, the SEC would not object to an entity deferring and presenting these specific debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We expect to adopt the guidance in ASU No. 2015-03 and 2015-15 to reclassify all debt issuance costs not associated with line-of-credit arrangements from other assets, non-current to contra-liabilities to long-term debt on our Consolidated Balance Sheets and related notes for the year ending December 31, 2016.
In January 2015, the FASB issued ASU No. 2015-01, which eliminates the requirement that an entity separately classify, present and disclose extraordinary events and transactions. The pronouncement is effective for annual periods ending after December 15, 2015. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. We expect to implement this guidance for the year ended December 31, 2016 and do not anticipate the ASU to have a material impact on our results of operations or financial condition.
In August 2014, the FASB issued ASU No. 2014-15, which provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The pronouncement is effective for annual periods ending after December 15, 2016, and interim periods thereafter, and early adoption is permitted. We are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements and disclosures included within Notes to the Consolidated Financial Statements.
In June 2014, the FASB issued ASU No. 2014-12, which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. The standard is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. We expect to implement this guidance for the year ended December 31, 2016 and do not anticipate the ASU to have a material impact on our results of operations or financial condition.
In May 2014, the FASB issued ASU No. 2014-09, which creates FASB ASC Topic 606, “Revenue from Contracts with Customers” and supersedes ASC Topic 605, “Revenue Recognition”. The guidance replaces industry-specific guidance and establishes a single five-step model to identify and recognize revenue. The core principle of the guidance is that an entity should recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Additionally, the guidance requires the entity to disclose further quantitative and qualitative information regarding the nature and amount of revenues arising from contracts with customers, as well as other information about the significant judgments and estimates used in recognizing revenues from contracts with customers. This guidance was originally effective for interim and annual reporting periods beginning after December 15, 2016; however, in August 2015, the FASB issued ASU No. 2015-14, which extended the effective date to interim and annual periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2015, including interim reporting periods within that reporting period. This guidance may be adopted retrospectively or under a modified retrospective method where the cumulative effect is recognized at the date of initial application. We are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements and disclosures included within our Notes to the Consolidated Financial Statements.
|
3. BUSINESS COMBINATIONS
We account for business combinations in accordance with ASC 805, which requires that the identifiable assets acquired and liabilities assumed be recorded at their estimated fair values on the acquisition date separately from goodwill, which is the excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities. We include the results of operations of an acquired business as of the acquisition date.
NEWave, Inc.
In April 2014, we acquired all of the outstanding capital stock of NEWave, Inc. (“NEWave”) for an aggregate purchase price of approximately $14.9 million, of which we estimated that approximately $2.5 million would be paid in the second quarter of 2015. On June 30, 2015, a final payment of $2.3 million was remitted. NEWave is a supplier of anti-money laundering compliance, audit and data efficiency software to the gaming industry. The NEWave acquisition did not have a material impact on our results of operations or financial condition.
We have not provided the supplemental pro forma impact of the NEWave acquisition on the revenue and earnings of the combined entity as if the acquisition date had been January 1, 2014, and the amount of revenue and earnings derived from NEWave have not been presented on a supplemental basis as such amounts are not material for the twelve months ended December 31, 2015 and 2014, respectively.
Everi Games Holding Inc.
On December 19, 2014, Holdings completed its acquisition of Everi Games Holding Inc. (formerly known as Multimedia Games Holding Company, Inc.) (“Everi Games Holding”). Pursuant to the terms of the Agreement and Plan of Merger, dated as of September 8, 2014 (the “Merger Agreement”), by and among Holdings, Movie Merger Sub, Inc., a wholly owned subsidiary of Holdings (“Merger Sub”), and Everi Games Holding, Merger Sub merged with and into Everi Games Holding, with Everi Games Holding continuing as the surviving corporation (the “Merger”). In the Merger, Everi Games Holding became a wholly owned subsidiary of Holdings. Also, as a result of the Merger, each outstanding share of common stock, par value $0.01 per share, of Everi Games, other than shares held by Holdings, Everi Games Holding, Merger Sub or their respective subsidiaries, was cancelled and converted into the right to receive $36.50 in cash, without interest (“Merger Consideration”), together with the acceleration and full vesting of Everi Games Holding equity awards, (collectively, the “Total Merger Consideration”).
Everi Games designs, manufactures and supplies gaming machines and systems to commercial and Native American casino operators as well as select lottery operators and commercial bingo facility operators. Everi Games’ revenue is generated from the operation of gaming machines in revenue sharing or lease arrangements and from the sale of gaming machines and systems that feature proprietary game themes.
Our combination with Everi Games Holding creates a provider of Payments and Games solutions for our gaming establishment customers. The business combination provides us with: (a) growth opportunities, (b) enhanced scale, diversification and margins, and (c) the ability to increase profitability through cost synergies.
The total purchase consideration for Everi Games Holding was as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
Amount |
|
|
Purchase consideration |
|
|
|
|
Total purchase price for Everi Games common stock (29,948 shares at $36.50 per share) |
|
$ |
1,093,105 |
|
Payment in respect to Everi Games outstanding equity awards |
|
|
56,284 |
|
Total merger consideration |
|
|
1,149,389 |
|
Repayments of Everi Games debt and other obligations |
|
|
25,065 |
|
Less: Everi Games outstanding cash at acquisition date |
|
|
(118,299) |
|
Total purchase consideration |
|
$ |
1,056,155 |
|
The Merger was accounted for using the acquisition method of accounting, which requires, among other things, the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date. The excess of the purchase price over those fair values was recorded as goodwill, none of which was deductible for tax purposes. The goodwill recognized is attributable primarily to the income potential from Everi Games penetrating into the Class III commercial casino market, the assembled workforce of Everi Games and expected synergies.
The estimates and assumptions used include the projected timing and amount of future cash flows and discount rates reflecting risk inherent in the future cash flows. The estimated fair values of Multimedia’s assets acquired and liabilities assumed and resulting goodwill were subject to adjustment as the Company finalized its fair value analysis. The significant items for which a final fair value adjustment was applicable and included in the filing of this Annual Report on Form 10-K were most notably: accrued liabilities, the valuation and estimated useful lives of tangible and intangible assets and deferred income taxes. We completed our fair value determinations and recorded the final measurement period adjustments to goodwill during the fourth quarter of 2015 in accordance with the newly adopted guidance set forth in ASU No. 2015-16 with no material change in our fair value determinations; however, there were differences compared to those amounts at December 31, 2014. In accordance with this new guidance and the immaterial nature of the measurement period adjustments, the goodwill associated with the acquisition as shown in this Note 3 section did not change from the amounts disclosed in our 2014 Annual Report on Form 10-K.
We analyzed our inventory and fixed asset groups in conjunction with a review of our accrual amounts recorded in connection with the original purchase price allocation estimates. The nature of the identified inventory and undeployed fixed assets were gaming machines and related equipment with no future use that should not have been allocated any value in the original purchase price allocation. The final measurement period adjustments to goodwill were approximately $0.9 million, comprised of $1.1 million related to tangible assets and accrued liabilities and $0.2 million associated with deferred income taxes, partially offset by approximately $0.4 million associated with the tax effect of these measurement period adjustments. We determined the final measurement period adjustments to be immaterial on both a quantitative and a qualitative basis.
The information below reflects the purchase price allocation (in thousands):
|
|
|
|
|
|
|
Amount |
|
|
Purchase price allocation |
|
|
|
|
Current assets |
|
$ |
68,548 |
|
Property, equipment and leasehold improvements, net |
|
|
87,283 |
|
Goodwill |
|
|
669,542 |
|
Other intangible assets, net |
|
|
403,300 |
|
Other receivables, non-current |
|
|
5,030 |
|
Other assets, long-term |
|
|
3,392 |
|
Deferred tax asset, non-current |
|
|
22,287 |
|
Total assets |
|
|
1,259,382 |
|
Current liabilities |
|
|
44,291 |
|
Deferred tax liability, non-current |
|
|
158,418 |
|
Other accrued expenses and liabilities |
|
|
518 |
|
Total liabilities |
|
|
203,227 |
|
Net assets acquired |
|
$ |
1,056,155 |
|
Trade receivables acquired of $24.7 million were considered to be collectible and therefore the carrying amounts were considered to approximate fair value. Inventory acquired of $16.5 million was fair valued based on model-based valuations for which inputs and value drivers were observable.
The following table summarizes acquired tangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Useful Life |
|
Estimated |
|
|||
|
|
(years) |
|
Fair Value |
|
|||
Property, equipment and leased assets |
|
|
|
|
|
|
|
|
Gaming equipment |
|
2 |
- |
4 |
|
$ |
78,201 |
|
Leasehold and building improvements |
|
Lease Term |
|
|
2,105 |
|
||
Machinery and equipment |
|
3 |
- |
5 |
|
|
4,126 |
|
Other |
|
2 |
- |
7 |
|
|
2,851 |
|
Total property, equipment and leased assets |
|
|
|
|
|
$ |
87,283 |
|
The fair value of property, equipment and leased assets was determined using the cost approach as the primary approach for valuing the majority of the personal property. The market approach was used to estimate the value of vehicles. The income approach was used to quantify any economic obsolescence that may be present in the personal property. No economic obsolescence adjustments were made to the personal property, as the business enterprise valuation indicated sufficient cash flows to support the values established through the cost and market approaches.
The following table summarizes acquired intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Useful Life |
|
Estimated |
|
|||
|
|
(years) |
|
Fair Value |
|
|||
Other intangible assets |
|
|
|
|
|
|
|
|
Tradenames and trademarks |
|
3 |
- |
7 |
|
$ |
14,800 |
|
Computer software |
|
3 |
- |
5 |
|
|
3,755 |
|
Developed technology |
|
2 |
- |
6 |
|
|
139,645 |
|
Customer relationships |
|
8 |
- |
12 |
|
|
231,100 |
|
Contract rights |
|
1 |
- |
7 |
|
|
14,000 |
|
Total other intangible assets |
|
|
|
|
|
$ |
403,300 |
|
The fair values of trade names and trademarks and developed technology were determined by applying the income approach utilizing the relief from royalty methodology. The fair value of customer relationships was determined by applying the income approach utilizing the excess earnings methodology. The fair value of contract rights was considered to approximate the carrying amount based on contractual obligations associated with these other intangible assets. The discount rates utilized to estimate the fair value of these other intangible assets ranged from 10.0% to 11.0%.
Everi Payments and Everi Games Holding had different fiscal year ends. Accordingly, the unaudited pro forma combined statements of income for the year ended December 31, 2014 combined historical Everi Consolidated Statements of Income and Comprehensive Income for its year ended December 31, 2014 with historical Everi Games Holding Consolidated Statements of Operations for its year ended September 30, 2014, giving effect to the Merger as if it had occurred on January 1, 2013. The unaudited pro forma combined statements of income for the year ended December 31, 2013 combined historical Everi Consolidated Statements of Income and Comprehensive Income for its year ended December 31, 2013 with historical Everi Games Consolidated Statements of Operations for its year ended September 30, 2013, giving effect to the Merger as if it had occurred on January 1, 2013.
The unaudited pro forma combined financial information does not purport to represent the results of operations of Everi that would have actually resulted had the Merger been completed as of the dates indicated, nor should the information be taken as indicative of the future results of operations or financial position of the combined company. The unaudited pro forma combined financial statements do not reflect the impacts of any potential operational efficiencies, cost savings or economies of scale that Everi may achieve with respect to the combined operations of Everi and Everi Games Holding. The unaudited pro forma amounts include the historical operating results of the Company and Everi Games Holding prior to the Merger, with adjustments directly attributable to the Merger. The unaudited pro forma results include increases to depreciation and amortization expense based on the purchased intangible assets and the step-up in basis associated with tangible assets acquired and increases to interest expense, related to debt issued to fund the Merger. Also reflected in the year ended December 31, 2014 are adjustments for the impact of acquisition-related costs and other cost as a result of the Merger of $27.4 million. There were no acquisition-related costs incurred for the year ended December 31, 2013. All adjustments utilized an effective federal statutory tax rate of 35.0%.
The following table reflects selected financial data from the unaudited pro forma consolidated financial information assuming the Merger occurred as of January 1, 2013 (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
||||
|
|
2014 |
|
2013 |
|
||
Unaudited pro forma results of operations (in thousands, except per share amounts) |
|
|
|
|
|
|
|
Revenues |
|
$ |
800,732 |
|
$ |
771,810 |
|
Net (loss) |
|
|
(5,083) |
|
|
(7,003) |
|
Basic loss per share |
|
|
(0.08) |
|
|
(0.11) |
|
Diluted loss per share |
|
|
(0.08) |
|
|
(0.10) |
|
The financial results for Everi Games Holding included in our Consolidated Statements of Income and Comprehensive Income since the acquisition date of December 19, 2014 reflected revenues of approximately $7.4 million and net loss of approximately $3.0 million, including acquisition-related costs of $1.3 million.
During the years ended December 31, 2015 and 2014, we expensed approximately $2.7 and $10.7 million, respectively, of costs related to the acquisition of Everi Games for financial advisory services, financing related fees, accounting and legal fees and other transaction-related expenses and are included in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income within Operating Expenses. These costs do not include any costs related to additional site consolidation or rationalization that we might consider following the closing of the Merger.
Resort Advantage, LLC
In August 2015, we acquired certain assets of Resort Advantage, LLC (“Resort Advantage”) for an aggregate purchase price of approximately $14.0 million, of which we estimated that approximately $4.7 million would be paid under the provisions of the agreement over a period of 40 months. Resort Advantage is a supplier of comprehensive and integrated solutions for complete Financial Crimes Enforcement Network (“FinCEN”) and IRS regulatory compliance to the gaming industry. The Resort Advantage acquisition did not have a material impact on our results of operations or financial condition.
We have not provided the supplemental pro forma impact of the Resort Advantage acquisition on the revenue and earnings of the combined entity as if the acquisition date had been January 1, 2014, and the amount of revenue and earnings derived from Resort Advantage have not been presented on a supplemental basis as such amounts are not material for the twelve months ended December 31, 2015 and 2014, respectively.
|
4. ATM FUNDING AGREEMENTS
Contract Cash Solutions Agreement
Our Contract Cash Solutions Agreement with Wells Fargo Bank, N.A. (“Wells Fargo”) allows us to use funds owned by Wells Fargo to provide the currency needed for normal operating requirements for our ATMs. For the use of these funds, we pay Wells Fargo a cash usage fee on the average daily balance of funds utilized multiplied by a contractually defined cash usage rate. These cash usage fees, reflected as interest expense within the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income, were $2.3 million, $2.3 million and $2.2 million for the years ended December 31, 2015, 2014 and 2013, respectively. We are exposed to interest rate risk to the extent that the applicable London Interbank Offered Rate (“LIBOR”) increases.
Under this agreement, all currency supplied by Wells Fargo remains the sole property of Wells Fargo at all times until it is dispensed, at which time Wells Fargo obtains an interest in the corresponding settlement receivable which is recorded on a net basis. As these funds are not our assets, supplied cash is not reflected on the Consolidated Balance Sheets. The outstanding balances of ATM cash utilized by us from Wells Fargo were $364.5 million and $396.3 million as of December 31, 2015 and 2014, respectively.
In November 2014, we amended the Contract Cash Solutions Agreement to extend the term one year until November 30, 2015.
In June 2015, we amended the Contract Cash Solutions Agreement to decrease the maximum amount of cash to be provided to us from $500.0 million to $425.0 million and to extend the term of the agreement from November 30, 2015 to June 30, 2018.
We are responsible for any losses of cash in the ATMs under this agreement and we self-insure for this risk. We incurred no material losses related to this self-insurance for the years ended December 31, 2015 and 2014.
Site‑Funded ATMs
We operate ATMs at certain customer gaming establishments where the gaming establishment provides the cash required for the ATM operational needs. We are required to reimburse the customer for the amount of cash dispensed from these Site-Funded ATMs. The Site-Funded ATM liability is included within “Settlement liabilities” in the accompanying Consolidated Balance Sheets and was $84.9 million and $69.3 million as of December 31, 2015 and 2014, respectively.
|
5. TRADE RECEIVABLES
Trade receivables represent short-term credit granted to customers for which collateral is generally not required. The balance of trade receivables consists of outstanding balances owed to us by gaming establishments and casino patrons. The balance of trade receivables consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
||
|
2015 |
|
2014 |
|
||
|
|
|
|
|
|
|
Trade receivables, net |
|
|
|
|
|
|
Games trade receivables |
$ |
38,064 |
|
$ |
28,270 |
|
Payments trade receivables |
|
14,318 |
|
|
9,427 |
|
Total trade receivables, net |
$ |
52,382 |
|
$ |
37,697 |
|
A significant portion of the balance of the allowance for doubtful accounts for trade receivables is from warranty receivables. On a monthly basis, we evaluate the collectability of the outstanding balances and establish a reserve for the face amount of the expected losses on these receivables. The warranty expense associated with this reserve is included within cost of revenues (exclusive of depreciation and amortization) in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.
A summary activity of the reserve for warranty losses is as follows (in thousands):
|
|
Amount |
|
|
Balance, December 31, 2012 |
|
$ |
6,908 |
|
Warranty expense provision |
|
|
7,874 |
|
Charge offs against reserve |
|
|
(12,005) |
|
Balance, December 31, 2013 |
|
$ |
2,777 |
|
Warranty expense provision |
|
|
9,029 |
|
Charge offs against reserve |
|
|
(9,022) |
|
Balance, December 31, 2014 |
|
$ |
2,784 |
|
Warranty expense provision |
|
|
9,263 |
|
Charge offs against reserve |
|
|
(9,074) |
|
Balance, December 31, 2015 |
|
$ |
2,973 |
|
While the reserve for warranty losses comprises the majority of the Company’s total allowance for trade receivables, the Company had bad debt expense of $0.9 million during the year ended December 31, 2015. The amount expensed for other charge-offs during the year ended December 31, 2014 was not material. As of December 31, 2015, the Company had $0.9 million reserves exclusive of the warranty reserve. The combined balance of other reserves was not material as of December 31, 2014.
|
7. PREPAID AND OTHER ASSETS
Prepaid and other assets include the balance of prepaid expenses, deposits, debt issuance costs, restricted cash and other assets. The short-term portion of these assets is included in prepaid and other assets and the long-term portion is included in other assets, non-current.
The balance of prepaid and other assets, current consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
||
|
2015 |
|
2014 |
|
||
Prepaid expenses and other assets |
|
|
|
|
|
|
Prepaid expenses |
$ |
8,255 |
|
$ |
7,163 |
|
Deposits |
|
8,946 |
|
|
8,781 |
|
Other |
|
3,571 |
|
|
3,044 |
|
Total prepaid expenses and other assets |
$ |
20,772 |
|
$ |
18,988 |
|
The balance of other assets, non-current consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
||
|
2015 |
|
2014 |
|
||
Other assets, non-current |
|
|
|
|
|
|
Debt issuance costs |
$ |
24,599 |
|
$ |
41,109 |
|
Prepaid expenses and deposits, non-current |
|
4,521 |
|
|
3,956 |
|
Other |
|
5,934 |
|
|
5,878 |
|
Total other assets, non-current |
$ |
35,054 |
|
$ |
50,943 |
|
|
8. INVENTORY
Our inventory primarily consists of component parts as well as finished goods and work-in-progress. The cost of inventory includes cost of materials, labor, overhead and freight. The inventory is stated at the lower of cost or market and accounted for using the first in, first out method.
Inventory consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
||
|
2015 |
|
2014 |
|
||
Inventory |
|
|
|
|
|
|
Raw materials and component parts, net of reserves of $912 and $22, respectively |
$ |
23,663 |
|
$ |
21,151 |
|
Work in progress |
|
1,495 |
|
|
803 |
|
Finished goods |
|
3,580 |
|
|
5,209 |
|
Total inventory |
$ |
28,738 |
|
$ |
27,163 |
|
|
9. PROPERTY, EQUIPMENT AND LEASED ASSETS
Property, equipment and leased assets consist of the following (amounts in thousands):
|
|
|
|
At December 31, 2015 |
|
At December 31, 2014 |
|
||||||||||||||||
|
|
Useful Life |
|
|
|
|
Accumulated |
|
Net Book |
|
|
|
Accumulated |
|
Net Book |
|
|||||||
|
|
(Years) |
|
Cost |
|
Depreciation |
|
Value |
|
Cost |
|
Depreciation |
|
Value |
|
||||||||
Property, equipment and leased assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental pool - deployed |
|
2 |
- |
4 |
|
$ |
91,743 |
|
$ |
29,993 |
|
$ |
61,750 |
|
$ |
70,295 |
|
$ |
876 |
|
$ |
69,419 |
|
Rental pool - undeployed |
|
2 |
- |
4 |
|
|
11,950 |
|
|
3,361 |
|
|
8,589 |
|
|
10,562 |
|
|
151 |
|
|
10,411 |
|
ATM equipment |
|
|
5 |
|
|
|
20,601 |
|
|
12,885 |
|
|
7,716 |
|
|
23,572 |
|
|
16,544 |
|
|
7,028 |
|
Leasehold and building improvements |
|
Lease Term |
|
|
7,564 |
|
|
2,038 |
|
|
5,526 |
|
|
6,289 |
|
|
895 |
|
|
5,394 |
|
||
Cash advance equipment |
|
|
3 |
|
|
|
7,662 |
|
|
2,711 |
|
|
4,951 |
|
|
3,372 |
|
|
1,873 |
|
|
1,499 |
|
Machinery, office and other equipment |
|
2 |
- |
5 |
|
|
32,313 |
|
|
14,537 |
|
|
17,776 |
|
|
21,405 |
|
|
9,071 |
|
|
12,334 |
|
Total |
|
|
|
|
|
$ |
171,833 |
|
$ |
65,525 |
|
$ |
106,308 |
|
$ |
135,495 |
|
$ |
29,410 |
|
$ |
106,085 |
|
Depreciation expense related to other property, equipment and leased assets totaled approximately $45.6 million, $8.7 million and $7.4 million for the years ended December 31, 2015, 2014 and 2013, respectively. In connection with our fourth quarter 2015 annual financial statement review, we determined that certain of our gaming fixed assets either: (a) had economic lives that were no longer supportable and shortened given approximately one year of experience with the Games segment that resulted in an accelerated depreciation charge of approximately $2.6 million in the current period; or (b) were fully impaired as there was little to no movement in the portfolio with recent shipments having been returned and no future deployment anticipated that resulted in an accelerated depreciation charge of approximately $1.0 million in the current period. Our property, equipment and leased assets were not impaired for the years ended December 31, 2014 and 2013.
In connection with the sale of certain assets related to our PokerTek products during the year ended December 31, 2015 for a purchase price of $5.4 million, we recorded a gain of approximately $3.9 million, which was included in operating expenses in our Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.
|
10. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Goodwill represents the excess of the purchase price over the identifiable tangible and intangible assets acquired plus liabilities assumed arising from business combinations.
In accordance with ASC 350, we test goodwill at the reporting unit level, which in certain cases may be a component of an operating segment, for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
Goodwill Testing
In performing the 2015 annual impairment test, we utilized the two-step approach prescribed under ASC 350. The first step required a comparison of the carrying value of each reporting unit to its estimated fair value. To estimate the fair value of our reporting units for Step 1, we used a combination of the income approach and the market approach. The income approach is based on a discounted cash flow (“DCF”) analysis. This method involves estimating the after-tax cash flows attributable to a reporting unit and then discounting the after-tax cash flows to a present value, using a risk-adjusted discount rate. Assumptions used in the DCF require the exercise of significant judgment, including, but not limited to: appropriate discount rates and terminal values, growth rates and the amount and timing of expected future cash flows. The forecasted cash flows are based on our most recent annual budget and projected years beyond. Our budgets and forecasted cash flows are based on estimated future growth rates. We believe our assumptions are consistent with the plans and estimates used to manage the underlying businesses. The discount rates, which are intended to reflect the risks inherent in future cash flow projections, used in the DCF are based on estimates of the weighted average cost of capital (“WACC”) of market participants relative to each respective reporting unit. The market approach considers comparable market data based on multiples of revenue or earnings before taxes, depreciation and amortization (“EBITDA”).
If the carrying amount of a reporting unit exceeds its estimated fair value, we are required to perform the second step of the goodwill impairment test to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of a reporting unit’s goodwill to its carrying amount. The implied fair value of goodwill is derived by performing a hypothetical purchase price allocation for the reporting unit as of the measurement date, allocating the reporting unit’s estimated fair value to its assets and liabilities. The residual amount from performing this allocation represents the implied fair value of goodwill. To the extent this implied fair value is below the carrying amount of goodwill, an impairment charge is recorded.
Key assumptions used in estimating fair value under the discounted cash flow approach included a discount rate of: (a) 11.0% for the Cash Advance, ATM, Check Services and Central Credit reporting units; (b) 10.0% for the Games reporting unit; (c) 12.5% for the Kiosk Sales and Services reporting unit; and (d) 16.0%, for the Compliance reporting unit. In addition, projected compound average revenue growth rates of approximately (3.3)% to 14.0% and terminal value growth rates of approximately (1.0)% to 3.1% were used in the analyses. The discounted cash flow analyses for our reporting units included estimated future cash inflows from operations and estimated future cash outflows for capital expenditures.
Key assumptions used in estimating fair value under the market approach were based on observed market multiples of enterprise value to revenue and EBITDA for both comparable publicly traded companies and recent merger and acquisition transactions involving similar companies to estimate appropriate controlling basis multiples to apply to each of the reporting units. Based on the multiples implied by this market data, we selected multiples of revenue of approximately 0.9 to 10.6 times and multiples of EBITDA of 5.0 to 8.7 times.
The estimate of fair value requires significant judgment. We based our fair value estimates on assumptions that we believe to be reasonable; but that are unpredictable and inherently uncertain, including: estimates of future growth rates, operating margins and assumptions about the overall economic climate as well as the competitive environment for our reporting units. There can be no assurance that our estimates and assumptions made for purposes of our goodwill testing will prove to be accurate predictions of the future. If our assumptions regarding business plans, competitive environments or anticipated growth rates are not correct, we may be required to record goodwill impairment charges in future periods, whether in connection with our next annual impairment testing, or earlier, if an indicator of an impairment is present prior to our next annual evaluation.
We conduct our annual impairment test for our reporting units during the fourth quarter of each reporting period.
In connection with our annual goodwill impairment testing process for 2015, we determined that our Games reporting unit did not pass the step one test and therefore we were required to conduct a step two analysis to determine the amount of impairment which was approximately $75 million for the year ended December 31, 2015. This conclusion was primarily based upon limited growth and capital expenditure constraints in the gaming industry, consolidation and increased competition in the gaming manufacturing space, stock market volatility, global and domestic economic uncertainty, and lower than expected operating profits and cash flows in 2015. Based on these indicators, we revised our estimates and assumptions for the Games reporting unit, which resulted in a goodwill impairment charge.
Our goodwill was not impaired for the years ended December 31, 2014 and 2013 based upon the results of our testing.
The changes in the carrying amount of goodwill are as follows (in thousands):
|
|
Cash |
|
ATM |
|
Check |
|
Games |
|
Other |
|
Total |
|
||||||
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013 |
|
$ |
100,880 |
|
$ |
33,051 |
|
$ |
23,281 |
|
$ |
— |
|
$ |
22,872 |
|
$ |
180,084 |
|
Goodwill acquired during the year |
|
|
— |
|
|
— |
|
|
— |
|
|
669,452 |
|
|
8,439 |
|
|
677,891 |
|
Foreign translation adjustment |
|
|
(62) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(62) |
|
Balance, December 31, 2014 |
|
$ |
100,818 |
|
$ |
33,051 |
|
$ |
23,281 |
|
$ |
669,452 |
|
$ |
31,311 |
|
$ |
857,913 |
|
Goodwill acquired during the year |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
6,117 |
|
|
6,117 |
|
Goodwill impairment |
|
|
— |
|
|
— |
|
|
— |
|
|
(75,008) |
|
|
— |
|
|
(75,008) |
|
Foreign translation adjustment |
|
|
(115) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(115) |
|
Other* |
|
|
— |
|
|
— |
|
|
— |
|
|
896 |
|
|
— |
|
|
896 |
|
Balance, December 31, 2015 |
|
$ |
100,703 |
|
$ |
33,051 |
|
$ |
23,281 |
|
$ |
595,340 |
|
$ |
37,428 |
|
$ |
789,803 |
|
*Includes the final 2015 measurement period adjustments associated with the acquisition of our Games business in late 2014.
Other Intangible Assets
Other intangible assets consist of the following (in thousands):
|
|
|
|
At December 31, 2015 |
|
At December 31, 2014 |
||||||||||||||||
|
|
Useful Life |
|
|
|
|
Accumulated |
|
Net Book |
|
|
|
|
Accumulated |
|
Net Book |
||||||
|
|
(years) |
|
Cost |
|
Amortization |
|
Value |
|
Cost |
|
Amortization |
|
Value |
||||||||
Other intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract rights under development and placement fee agreements |
|
1 |
- |
7 |
|
$ |
16,453 |
|
$ |
7,612 |
|
$ |
8,841 |
|
$ |
14,000 |
|
$ |
301 |
|
$ |
13,699 |
Customer contracts |
|
7 |
- |
14 |
|
|
50,177 |
|
|
34,755 |
|
|
15,422 |
|
|
43,938 |
|
|
29,931 |
|
|
14,007 |
Customer relationships |
|
8 |
- |
12 |
|
|
231,100 |
|
|
21,723 |
|
|
209,377 |
|
|
231,100 |
|
|
733 |
|
|
230,367 |
Developed technology and software |
|
1 |
- |
6 |
|
|
197,658 |
|
|
63,591 |
|
|
134,067 |
|
|
174,417 |
|
|
14,604 |
|
|
159,813 |
Patents, trademarks and other |
|
1 |
- |
17 |
|
|
28,240 |
|
|
13,485 |
|
|
14,755 |
|
|
27,856 |
|
|
8,957 |
|
|
18,899 |
Total |
|
|
|
|
|
$ |
523,628 |
|
$ |
141,166 |
|
$ |
382,462 |
|
$ |
491,311 |
|
$ |
54,526 |
|
$ |
436,785 |
On a quarterly basis, we evaluate our other intangible assets for potential impairment as part of our quarterly review process. There was no material impairment identified for any of our other intangible assets for the years ended December 31, 2015 and 2013. For the year ended December 31, 2014, our online payment processing intangible assets were identified for further testing. We determined that these definite-lived intangible assets were potentially impaired primarily due to a combination of the following factors: (a) legislative constraints at the state and federal level; (b) significant changes in management; and (c) lower than anticipated operating results.
These definite-lived intangible assets were evaluated using an undiscounted cash flow approach to determine if an impairment existed. As impairment was indicated based on the undiscounted cash flow approach, we discounted the cash flows and applied probability factors to calculate the resulting fair values and compared to the existing carrying value to determine the amount of impairment. The amount of impairment was approximately $3.1 million leaving a revised cost basis of $1.6 million and a remaining life of three years at December 31, 2014. This amount was recorded in Operating Expenses in our Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. These assets have been valued using level 3 fair value inputs.
Amortization expense related to other intangible assets totaled approximately $85.5 million, $14.2 million and $9.6 million for the years ended December 31, 2015, 2014 and 2013, respectively. We capitalized and placed into service $6.1 million, $8.2 million and $5.1 million of software development costs for the years ended December 31, 2015, 2014 and 2013, respectively.
The total net book value of amortizable intangible assets was approximately $382.5 million at December 31, 2015. The total net book value of amortizable intangible assets was approximately $436.8 million at December 31, 2014. The anticipated amortization expense related to other intangible assets, assuming no subsequent impairment of the underlying assets, is as follows (in thousands):
|
|
Amount |
|
|
Anticipated amortization expense(1) |
|
|
|
|
2016 |
|
$ |
95,077 |
|
2017 |
|
|
53,775 |
|
2018 |
|
|
40,479 |
|
2019 |
|
|
37,923 |
|
2020 |
|
|
35,748 |
|
Thereafter |
|
|
110,119 |
|
Total |
|
$ |
373,121 |
|
(1) |
For the year ended December 31, 2015, the Company had $9.3 million in other intangible assets which had not yet been placed into service. |
We enter into development and placement fee agreements to provide financing for new gaming facilities or for the expansion or improvement of existing facilities. All or a portion of the funds provided under development agreements are reimbursed to us, while funding under placement fee agreements is not reimbursed. In return for the fees under these agreements, each facility dedicates a percentage of its floor space, or an agreed upon unit count, for the placement of our EGMs over the term of the agreement, generally 12 to 83 months, and we receive a fixed percentage or flat fee of those machines’ hold per day. Certain of the agreements contain EGM performance standards that could allow the respective facility to reduce a portion of our guaranteed floor space.
In addition, certain development agreements allow the facilities to buy out floor space after advances that are subject to repayment have been repaid. The development agreements typically provide for a portion of the amounts retained by each facility for its share of the operating profits of the facility to be used to repay some or all of the advances recorded as notes receivable which are included as part of other receivables current and non-current in the Consolidated Balance Sheets. Placement fees and amounts advanced in excess of those to be reimbursed by the customer for real property and land improvements are allocated to intangible assets and are generally amortized over the term of the contract, which is recorded as a reduction of revenue generated from the facility. In the past we have, and in the future, we may, by mutual agreement, amend these agreements to reduce our floor space at the facilities. Any proceeds received for the reduction of floor space is first applied against the intangible asset for that particular development or placement fee agreement, if any, and the remaining net book value of the intangible asset is prospectively amortized on a straight-line method over the remaining estimated useful life.
During the year ended December 31, 2015, we paid approximately $2.8 million to a customer for certain of its locations in Oklahoma to extend the placement of nearly 300 units for an additional term of up to 60 months.
|
12. LONG-TERM DEBT
The following table summarizes our indebtedness (in thousands):
|
At December 31, |
|
At December 31, |
|
|
||
|
2015 |
|
2014 |
|
|
||
Long-term debt |
|
|
|
|
|
|
|
Senior secured term loan |
$ |
490,000 |
|
$ |
500,000 |
|
|
Senior secured notes |
|
335,000 |
|
|
350,000 |
|
|
Senior unsecured notes |
|
350,000 |
|
|
350,000 |
|
|
Total debt |
|
1,175,000 |
|
|
1,200,000 |
|
|
Less: debt issuance costs and warrant discount |
|
(11,421) |
|
|
(11,213) |
|
|
Total debt after discount |
|
1,163,579 |
|
|
1,188,787 |
|
|
Less: current portion of long-term debt |
|
(10,000) |
|
|
(10,000) |
|
|
Long-term debt, less current portion |
$ |
1,153,579 |
|
$ |
1,178,787 |
|
|
In connection with the Merger, we refinanced all of our indebtedness outstanding under the Prior Credit Facilities with proceeds from the Credit Facilities and the Notes.
Credit Facilities
In December 2014, Everi Payments, as borrower, and Holdings entered into a credit agreement among Everi Payments, Holdings, Bank of America, N.A. as administrative agent, collateral agent, swing line lender and letter of credit issuer; Deutsche Bank Securities Inc., as syndication agent; and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities, Inc. as joint lead arrangers and joint book managers, which governs the Credit Facilities (the “Credit Agreement”). The Credit Facilities consist of the $500.0 million Term Loan that matures in 2020 and the $50.0 million Revolving Credit Facility that matures in 2019. The fees associated with the Credit Facilities included discounts of approximately $7.5 million and debt issuance costs of approximately $13.9 million. All borrowings under the Credit Facilities are subject to the satisfaction of customary conditions, including the absence of a default and compliance with representations and warranties.
We are required to repay the Term Loan in an amount equal to 0.50% per quarter of the initial aggregate principal with the final principal repayment installment on the maturity date. Interest is due in arrears each March, June, September and December and at the maturity date; however, interest may be remitted within one to three months of such dates.
The Term Loan had an applicable interest rate of 6.25% as of December 31, 2015 and December 31, 2014.
The interest rate per annum applicable to the Revolving Credit Facility is, at our option, the base rate or LIBOR plus, in each case, an applicable margin. The interest rate per annum applicable to the Term Loan is also, at our option, the base rate or LIBOR plus, in each case, an applicable margin. LIBOR will be reset at the beginning of each selected interest period based on the LIBOR rate then in effect; provided that, with respect to the Revolving Credit Facility, if LIBOR is below zero, then such rate will be equal to zero plus the applicable margin, and, with respect to the Term Loan, if LIBOR is below 1.0%, then such rate will be equal to 1.0% plus the applicable margin. The base rate is a fluctuating interest rate equal to the highest of (a) the prime lending rate announced by the administrative agent, (b) the federal funds effective rate from time to time plus 0.50%, and (c) LIBOR (after taking account of any applicable floor) applicable for an interest period of one month plus 1.00%. The applicable margins of 4.75% and 5.25% for the Revolving Credit Facility and Term Loan, respectively, are subject to adjustment based on our consolidated secured leverage ratio.
Voluntary prepayments of the Term Loan and the Revolving Credit Facility and voluntary reductions in the unused commitments are permitted in whole or in part, in minimum amounts as set forth in the Credit Agreement, with prior notice but without premium or penalty.
Subject to certain exceptions, the obligations under the Credit Facilities are secured by substantially all of the present and after acquired assets of each of Everi Payments, Holdings and the subsidiary guarantors (the “Collateral”) including: (a) a perfected first priority pledge of all the capital stock of Everi Payments and each domestic direct, wholly owned material restricted subsidiary held by Holdings, Everi Payments or any such subsidiary guarantor; and (b) a perfected first priority security interest in substantially all other tangible and intangible assets of Holdings, Everi Payments, and such subsidiary guarantors (including, but not limited to, accounts receivable, inventory, equipment, general intangibles, investment property, real property, intellectual property and the proceeds of the foregoing). Subject to certain exceptions, the Credit Facilities are unconditionally guaranteed by Holdings and such subsidiary guarantors and Everi Games and its material domestic subsidiaries.
The Credit Agreement contains certain covenants that, among other things, limit Holdings’ ability, and the ability of certain of its subsidiaries, to incur additional indebtedness; sell assets or consolidate or merge with or into other companies; pay dividends or repurchase or redeem capital stock; make certain investments; issue capital stock of subsidiaries; incur liens; prepay, redeem or repurchase subordinated debt; and enter into certain types of transactions with our affiliates. The Credit Agreement also requires Holdings, together with its subsidiaries, to comply with a consolidated secured leverage ratio as well as an annual excess cash flow payment requirement.
Events of default under the Credit Agreement include customary events such as a cross-default provision with respect to other material debt (which includes the Refinanced Secured Notes and the Unsecured Notes). In addition, an event of default will occur if Holdings undergoes a change of control. This is defined to include the case where Holdings ceases to own 100% of the equity interests of Everi Payments, or where any person or group acquires a percentage of the economic or voting interests of Holdings’ capital stock of 35% or more (determined on a fully diluted basis), or where a majority of the board of directors of Everi Payments ceases to consist of persons who are directors of Holdings on the closing date of the Credit Facilities or other directors whose nomination for election to the board of directors of Holdings was recommended by a majority of the then continuing directors.
At December 31, 2015, we had approximately $490.0 million of borrowings outstanding under the Term Loan and $50.0 million of additional borrowing availability under the Revolving Credit Facility, based upon borrowing base calculations as of such date. We were in compliance with the terms of the Credit Facilities as of December 31, 2015.
We expect that our cash provided by operating activities will be sufficient for our operating and debt servicing needs during the next 12 months. If not, we have sufficient borrowings available under our Credit Facilities to meet additional funding requirements. We monitor the financial strength of our lenders on an ongoing basis using publicly-available information. Based upon that information, we believe there is not a likelihood that any of our lenders might not be able to honor their commitments under the Credit Agreement.
Senior Secured Notes and Refinance of Senior Secured Notes
In December 2014, we issued $350.0 million in aggregate principal amount of 7.75% Secured Notes due 2021. The fees associated with the Secured Notes included debt issuance costs of approximately $13.6 million. The Secured Notes were acquired by the initial purchasers pursuant to the terms of a purchase agreement. Under the terms of the purchase agreement, during a one year period following the closing and upon prior notice from the initial purchasers, the Company was required to use commercially reasonable efforts to aid the purchasers in the resale of the Secured Notes, including by preparing an updated offering memorandum and participating in reasonable marketing efforts including road shows, to the extent required therein. Alternatively, we had the ability to redeem the Secured Notes from the initial purchasers without penalty. On April 15, 2015, the Company entered into the Note Purchase Agreement, among Everi Payments, the Purchaser, and the Collateral Agent, and issued $335.0 million in aggregate principal amount of the 7.25% Refinanced Secured Notes due 2021 to the Purchaser in a private offering. With the proceeds from the issuance of the Refinanced Secured Notes, we redeemed, in full, the Company’s then outstanding Secured Notes from the initial purchasers in accordance with the terms of the indenture governing the Secured Notes. In connection with the issuance of the Refinanced Secured Notes during the second quarter of 2015, we expensed $13.0 million of related debt issuance costs and fees to “Loss on extinguishment of debt” associated with the redeemed Senior Secured Notes that were outstanding prior to the refinance transaction.
In connection with the issuance of the Refinanced Secured Notes and pursuant to the terms of the Note Purchase Agreement, the Company issued the Warrant to the Purchaser. The Warrant expires on the sixth anniversary of the date of issuance. The number of shares issuable pursuant to the Warrant and the warrant exercise price are subject to adjustment for stock splits, reverse stock splits, stock dividends, mergers and certain other events. The Warrant was valued at $2.2 million using a modified Black-Scholes model and was accounted for as a debt discount.
Interest is due quarterly in arrears each January, April, July and October.
We were in compliance with the terms of the Refinanced Secured Notes as of December 31, 2015.
Senior Unsecured Notes
In December 2014, we issued $350.0 million in aggregate principal amount of 10.0% Unsecured Notes due 2022. The fees associated with the Unsecured Notes included original issue discounts of approximately $3.8 million and debt issuance costs of approximately $14.0 million.
Interest is due semi-annually in arrears each January and July.
The Unsecured Notes were acquired by the initial purchasers pursuant to the terms of a purchase agreement. Under the terms of the purchase agreement, during a one-year period following the closing and upon prior notice from the initial purchasers, the Company was required to use commercially reasonable efforts to aid the purchasers in the resale of the Unsecured Notes, including by preparing an updated offering memorandum and participating in reasonable marketing efforts including road shows, to the extent required therein. The Unsecured Notes were resold by the initial purchasers to third parties in the second quarter of 2015.
In connection with the issuance of the Unsecured Notes, the Company entered into a registration rights agreement pursuant to which the Company agreed, for the benefit of the initial holders of the Unsecured Notes, to file with the SEC, and use its commercially reasonable efforts to cause to become effective, a registration statement relating to an offer to exchange the Unsecured Notes for an issue of SEC-registered notes with terms identical to the Unsecured Notes. On October 23, 2015, we filed a registration statement on Form S-4 with the SEC in accordance with the registration rights agreement outlining our offer to exchange the Unsecured Notes for identical notes without transfer restrictions. The registration statement was declared effective on November 3, 2015, and the exchange offer for the Unsecured Notes was completed on December 4, 2015 with 100% percent participation.
We were in compliance with the terms of the Unsecured Notes as of December 31, 2015.
Principal Repayments
The maturities of our borrowings at December 31, 2015 are as follows (in thousands):
|
|
|
|
|
|
|
Amount |
|
|
Maturities of borrowings |
|
|
|
|
2016 |
|
$ |
10,000 |
|
2017 |
|
|
10,000 |
|
2018 |
|
|
10,000 |
|
2019 |
|
|
10,000 |
|
2020 |
|
|
450,000 |
|
Thereafter |
|
|
685,000 |
|
Total |
|
$ |
1,175,000 |
|
|
13. COMMITMENTS AND CONTINGENCIES
Lease Obligations
We lease office facilities and operating equipment under cancelable and non‑cancelable agreements. Total rent expense was approximately $5.5 million, $1.9 million and $1.8 million for the years ended December 31, 2015, 2014 and 2013, respectively.
In October 2012, we entered into a long‑term lease agreement related to office space for our corporate headquarters located in Las Vegas, Nevada, which we occupied in the first half of 2013.
In September 2014, the long-term lease agreement for office space in Austin, Texas, was extended through March 2021.
As of December 31, 2015, the minimum aggregate rental commitment under all non‑cancelable operating leases were as follows (in thousands):
|
|
Amount |
|
|
Minimum aggregate rental commitments |
|
|
|
|
2016 |
|
$ |
4,410 |
|
2017 |
|
|
4,171 |
|
2018 |
|
|
4,064 |
|
2019 |
|
|
4,064 |
|
2020 |
|
|
3,925 |
|
Thereafter |
|
|
5,900 |
|
Total |
|
$ |
26,534 |
|
Litigation Claims and Assessments
Everi Games Holding Shareholder Litigation
Putative shareholders of Everi Games Holding filed suits in the United States District Court for the Western District of Texas (the “Texas Federal Action”) and the District Court of Travis County, Texas (the “Texas State Court Action”) alleging that the directors of Everi Games Holding breached their fiduciary duties in connection with the Merger. The complaints further alleged that Everi Holdings and its formerly wholly-owned merger subsidiary, Merger Sub, aided and abetted those purported breaches of fiduciary duty.
The parties agreed to settle all claims asserted in the Texas Federal Action. Everi Games Holding agreed to make certain additional disclosures in its proxy statement related to the Merger, and made those disclosures in a Current Report on Form 8-K filed on November 21, 2014. In addition, the defendants agreed not to oppose plaintiffs’ application for an attorneys’ fee award of up to $310,000. The court in the Texas Federal Action approved the settlement, awarded attorneys’ fees of $310,000, and entered judgment. The deadline to file any appeal from the judgment has expired and no appeal has been filed.
The judgment in the Texas Federal Action includes a release of the claims asserted in the Texas State Court Action. The Texas State Court Action has been dismissed with prejudice.
Alabama Litigation
The Company is currently involved in one lawsuit related to Everi Games Holding’s former charity bingo operations in the State of Alabama, which we believe is not material from a damages perspective. The lawsuit is currently pending in federal court and includes claims related to the alleged illegality of electronic charity bingo in the State of Alabama.
Ozetta Hardy v. Whitehall Gaming Center, LLC, et al., a civil action, was filed against Whitehall Gaming Center, LLC (an entity that does not exist), Cornerstone Community Outreach, Inc., and Freedom Trail Ventures, Ltd., in the Circuit Court of Lowndes County, Alabama. On June 3, 2010, Everi Games Holding and other manufacturers were added as defendants. The plaintiffs, who claim to have been patrons of White Hall, allege that Everi Games participated in gambling operations that violated Alabama state law by supplying to White Hall purportedly unlawful electronic bingo machines played by the plaintiffs, and the plaintiffs seek recovery of the monies lost on all electronic bingo games played by the plaintiffs in the six months prior to the filing of the complaint under Ala. Code, Sec 8-1-150(A). The plaintiffs requested that the court certify the action as a class action. On July 2, 2010, the defendants removed the case to the United States District Court for the Middle District of Alabama, Northern Division. The court has not ruled on the plaintiffs' motion for class certification. The Company continues to vigorously defend this matter. Given the inherent uncertainties in this litigation, however, the Company is unable to make any prediction as to the ultimate outcome.
We are also subject to other claims and suits that arise from time to time in the ordinary course of business. We do not believe the liabilities, if any, which may ultimately result from the outcome of such matters, individually or in the aggregate, will have a material adverse impact on our financial position, liquidity or results of operations.
|
14. SHAREHOLDERS’ EQUITY
Preferred Stock. Our amended and restated certificate of incorporation, as amended, allows our Board of Directors, without further action by stockholders, to issue up to 50,000,000 shares of preferred stock in one or more series and to fix the designations, powers, preferences, privileges and relative participating, optional, or special rights as well as the qualifications, limitations or restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences. As of December 31, 2015 and 2014, we had no shares of preferred stock outstanding.
Common Stock. Subject to the preferences that may apply to shares of preferred stock that may be outstanding at the time, the holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available at the times and in the amounts as our Board of Directors may from time to time determine. All dividends are non-cumulative. In the event of the liquidation, dissolution or winding up of Everi, the holders of common stock are entitled to share ratably in all assets remaining after the payment of liabilities, subject to the prior distribution rights of preferred stock, if any, then outstanding. Each stockholder is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for. The common stock is not entitled to preemptive rights and is not subject to conversion or redemption. There are no sinking fund provisions applicable to the common stock. Each outstanding share of common stock is fully paid and non-assessable. As of December 31, 2015 and 2014, we had 90,877,273 and 90,405,450 shares of common stock issued, respectively.
Common Stock Repurchase Program. There were no share repurchases for the year ended December 31, 2015. Our most recent share repurchase program commenced in the first quarter of 2013 and expired at the end of the fourth quarter of 2014, wherein we repurchased approximately 1.5 million shares of common stock for cash of approximately $11.7 million under the share repurchase program for the year ended December 31, 2014.
Treasury Stock. Employees may direct us to withhold vested shares of restricted stock to satisfy the minimum statutory withholding requirements applicable to their restricted stock vesting. We repurchased or withheld from restricted stock awards 32,617 and 55,502 shares of common stock at an aggregate purchase price of $0.2 million and $0.5 million, for the years ended December 31, 2015 and 2014, respectively, to satisfy the minimum applicable tax withholding obligations related to the vesting of such restricted stock awards.
|
15. WEIGHTED AVERAGE SHARES OF COMMON STOCK
The weighted average number of common stock outstanding used in the computation of basic and diluted earnings per share is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
||||
|
|
2015 |
|
2014 |
|
2013 |
|
Weighted average shares |
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic |
|
65,854 |
|
65,780 |
|
66,014 |
|
Potential dilution from equity grants(1) |
|
— |
|
1,083 |
|
1,191 |
|
Weighted average number of common shares outstanding - diluted |
|
65,854 |
|
66,863 |
|
67,205 |
|
(1) |
The Company was in a net loss position for the year ended December 31, 2015, and therefore, potential dilution from the application of the treasury stock method was not applicable. The potential dilution excludes the weighted average effect of equity awards to acquire 7.6 million and 5.9 million shares of our common stock at December 31, 2014 and 2013, respectively, as the application of the treasury stock method, as required, makes them anti‑dilutive. |
|
16. SHARE‑BASED COMPENSATION
Equity Incentive Awards
Our 2014 Equity Incentive Plan (the “2014 Plan”) is used to attract and retain the best available personnel, to provide additional incentives to employees, directors and consultants and to promote the success of our business. The 2014 Plan superseded the then current 2005 Stock Incentive Plan (the “2005 Plan”). The 2014 Plan is administered by the Compensation Committee of our Board of Directors, which has the authority to select individuals who are to receive options or other equity incentive awards and to specify the terms and conditions of grants of options or other equity incentive awards, the vesting provisions, the term and the exercise price.
Generally, we grant the following award types: (a) time-based options, (b) cliff-vesting time-based options, (c) market-based options, and (d) restricted stock. These awards have varying vesting provisions and expiration periods. For the year ended December 31, 2015, we granted time-based options and market-based options.
Our time-based stock options granted under the 2014 Plan vest at a rate of 25% per year on each of the first four yearly anniversaries of the option grant dates. These options expire after a ten-year period.
Our market-based stock options granted under the 2014 Plan vest if our average stock price in any period of 30 consecutive trading days meets certain target prices during a four-year period that commenced on the date of grant for these options. If these target prices are not met during such four-year period, the unvested shares underlying the options will terminate; however, upon the Participant’s termination of Service, if the Participant’s Service is terminated by the Company without Cause within ten days prior to, or within 18 months after, the date a Change in Control is consummated, the unvested options granted would become fully vested. These options expire after a seven-year period.
A summary of award activity is as follows (in thousands):
|
|
Stock Options |
|
Restricted Stock |
|
|
|
Granted |
|
Granted |
|
Outstanding, December 31, 2014 |
|
13,626 |
|
440 |
|
Additional authorized shares |
|
— |
|
— |
|
Granted |
|
6,512 |
|
— |
|
Exercised options or vested shares |
|
(343) |
|
(128) |
|
Canceled or forfeited |
|
(2,355) |
|
(2) |
|
Outstanding, December 31, 2015 |
|
17,440 |
|
310 |
|
The maximum number of shares available for future equity awards under the 2014 Plan is approximately 6.6 million shares of our common stock. There are no shares available for future equity awards under the 2005 Plan.
Stock Options
The fair value of options was determined as of the date of grant using the Black‑Scholes option pricing model with the following weighted‑average assumptions:
|
|
|
|
|
|
|
|
|
|
Year ended |
|
||||
|
|
December 31, |
|
||||
|
|
2015 |
|
2014 |
|
2013 |
|
Risk-free interest rate |
|
1 |
% |
1 |
% |
1 |
% |
Expected life of options (in years) |
|
4 |
|
4 |
|
4 |
|
Expected volatility |
|
43 |
% |
54 |
% |
61 |
% |
Expected dividend yield |
|
0 |
% |
0 |
% |
0 |
% |
The fair value of our cliff vesting time-based options granted in the second quarter of 2014 was determined using the Black Scholes option pricing model as of the date of grant. For the five year cliff vesting time-based options, the assumptions were: (a) risk-free interest rate of 2%; (b) expected term of five years; (c) expected volatility of 52%; and (d) no expected dividend yield. For the six year cliff vesting time-based options, the assumptions were: (a) risk-free interest rate of 2%; (b) expected term of six years; (c) expected volatility of 58%; and (d) no expected dividend yield.
The fair value of our market-based options was determined using a lattice-based option valuation model as of the date of grant. For the market-based options issued during 2015, the assumptions were: (a) risk-free interest rate of 1%; (b) measurement period of four years; (c) expected volatility of 47%; and (d) no expected dividend yield. For the market-based options issued in the second quarter 2014, the assumptions were: (a) risk-free interest rate of 1%; (b) measurement period of four years; (c) expected volatility of 52%; and (d) no expected dividend yield. For the market-based options issued in the first quarter 2014, the assumptions were: (a) risk-free interest rate of 1%; (b) measurement period of four years; (c) expected volatility of 51%; and (d) no expected dividend yield.
The fair value of the converted options related to the Merger was recalculated upon consummation of the acquisition and it was determined that the original fair value approximated the value upon conversion and was still applicable and will continue to amortize to stock compensation expense over the remaining life of the award.
The following tables present the options activity:
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Number of |
|
Weighted Average |
|
Average Life |
|
Aggregate |
|
||
|
|
Common Shares |
|
Exercise Price |
|
Remaining |
|
Intrinsic Value |
|
||
|
|
(in thousands) |
|
(per share) |
|
(years) |
|
(in thousands) |
|
||
Outstanding, December 31, 2014 |
|
13,626 |
|
$ |
7.64 |
|
6.5 |
|
$ |
9,148 |
|
Granted |
|
6,512 |
|
|
7.68 |
|
|
|
|
|
|
Exercised |
|
(343) |
|
|
5.35 |
|
|
|
|
|
|
Canceled or forfeited |
|
(2,355) |
|
|
9.82 |
|
|
|
|
|
|
Outstanding, December 31, 2015 |
|
17,440 |
|
$ |
7.41 |
|
6.6 |
|
$ |
1,212 |
|
Vested and expected to vest, December 31, 2015 |
|
14,503 |
|
$ |
7.35 |
|
6.4 |
|
$ |
1,212 |
|
Exercisable, December 31, 2015 |
|
6,908 |
|
$ |
7.13 |
|
4.4 |
|
$ |
1,212 |
|
|
|
|
|
|
|
Options Outstanding |
|
Options Exercisable |
|
||||||||
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Weighted |
|
|
|
Weighted |
|
||
|
|
|
|
|
|
Number |
|
Remaining |
|
Average |
|
Number |
|
Average |
|
||
|
|
|
|
|
|
Outstanding |
|
Contract |
|
Exercise |
|
Exercisable |
|
Exercise |
|
||
Range of Exercise Prices |
|
(000’s) |
|
Life (Years) |
|
Prices |
|
(000’s) |
|
Price |
|
||||||
$ |
— |
|
$ |
5.99 |
|
2,195 |
|
5.4 |
|
$ |
4.43 |
|
2,104 |
|
$ |
4.40 |
|
|
6.00 |
|
|
8.99 |
|
13,973 |
|
7.2 |
|
|
7.54 |
|
3,535 |
|
|
7.33 |
|
|
9.00 |
|
|
12.99 |
|
1,007 |
|
1.9 |
|
|
9.99 |
|
1,004 |
|
|
9.99 |
|
|
13.00 |
|
|
13.99 |
|
5 |
|
0.6 |
|
|
13.79 |
|
5 |
|
|
13.79 |
|
|
14.00 |
|
|
14.99 |
|
60 |
|
1.4 |
|
|
14.58 |
|
60 |
|
|
14.58 |
|
|
15.00 |
|
|
15.99 |
|
100 |
|
0.7 |
|
|
15.08 |
|
100 |
|
|
15.08 |
|
|
16.00 |
|
|
18.99 |
|
100 |
|
0.8 |
|
|
16.05 |
|
100 |
|
|
16.05 |
|
|
|
|
|
|
|
17,440 |
|
|
|
|
|
|
6,908 |
|
|
|
|
There were 6.5 million, 6.6 million and 1.2 million options granted for the years ended December 31, 2015, 2014 and 2013, respectively. The weighted average grant date fair value per share of the options granted was $2.48, $3.20 and $3.31 for the years ended December 31, 2015, 2014 and 2013, respectively. The total intrinsic value of options exercised was $0.8 million, $2.8 million and $4.6 million for the years ended December 31, 2015, 2014 and 2013, respectively.
There was $18.1 million in unrecognized compensation expense related to options expected to vest as of December 31, 2015. This cost was expected to be recognized on a straight‑line basis over a weighted average period of 2.6 years. We received $1.8 million in proceeds from the exercise of options and recorded $7.4 million in non‑cash compensation expense related to options granted that were expected to vest for the year ended and as of December 31, 2015.
We recorded $7.6 million and $4.4 million in non‑cash compensation expense related to options granted that were expected to vest as of December 31, 2014 and 2013, respectively. We received $5.3 million and $8.4 million in cash from the exercise of options for the years ended December 31, 2014 and 2013, respectively.
Restricted Stock
The following is a summary of non‑vested share awards for our time‑based restricted shares:
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
Shares |
|
Average Grant |
|
|
|
|
Outstanding |
|
Date Fair Value |
|
|
|
|
(in thousands) |
|
(per share) |
|
|
Outstanding, December 31, 2014 |
|
440 |
|
$ |
7.11 |
|
Granted |
|
— |
|
|
— |
|
Vested |
|
(128) |
|
|
7.11 |
|
Forfeited |
|
(2) |
|
|
7.09 |
|
Outstanding, December 31, 2015 |
|
310 |
|
$ |
7.11 |
|
There were no shares of restricted stock granted for the year ended December 31, 2015 but 0.3 million and 0.4 million shares of restricted stock were granted for the years ended December 31, 2014, and 2013, respectively. The weighted average grant date fair value per share of restricted stock granted was $7.12 and $7.09 for the years ended December 31, 2014 and 2013. The total fair value of restricted stock vested was $0.6 million, $1.4 million and $0.7 million for the years ended December 31, 2015, 2014 and 2013 respectively.
There was $2.0 million in unrecognized compensation expense related to shares of time‑based restricted shares expected to vest as of December 31, 2015 and is expected to be recognized on a straight‑line basis over a weighted average period of 2.4 years. There were 0.2 million shares, 0.2 million shares and 0.1 million shares of restricted stock that vested and we recorded $0.9 million, $1.2 million and $0.7 million in non‑cash compensation expense related to the restricted stock granted that was expected to vest during 2015, 2014, and 2013, respectively.
|
17. INCOME TAXES
The following presents consolidated (loss) income before tax for domestic and foreign operations (in thousands):
|
|
Year Ended December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Consolidated (loss) income before tax |
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
(129,602) |
|
$ |
13,870 |
|
$ |
35,473 |
|
Foreign |
|
|
6,519 |
|
|
6,431 |
|
|
3,412 |
|
Total |
|
$ |
(123,083) |
|
$ |
20,301 |
|
$ |
38,885 |
|
The income tax (benefit) provision attributable to (loss) income from operations before tax consists of the following components (in thousands):
|
|
Year Ended December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Income tax (benefit) provision |
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
(19,746) |
|
$ |
6,637 |
|
$ |
13,626 |
|
Foreign |
|
|
1,635 |
|
|
1,524 |
|
|
861 |
|
Total income tax (benefit) provision |
|
$ |
(18,111) |
|
$ |
8,161 |
|
$ |
14,487 |
|
Income tax provision components |
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
1,767 |
|
$ |
1,598 |
|
$ |
844 |
|
Deferred |
|
|
(19,878) |
|
|
6,563 |
|
|
13,643 |
|
Total income tax (benefit) provision |
|
$ |
(18,111) |
|
$ |
8,161 |
|
$ |
14,487 |
|
A reconciliation of the federal statutory rate and the effective income tax rate is as follows:
|
|
Year Ended |
|
||||
|
|
December 31, |
|
||||
|
|
2015 |
|
2014 |
|
2013 |
|
Income tax reconciliation |
|
|
|
|
|
|
|
Federal statutory rate |
|
35.0 |
% |
35.0 |
% |
35.0 |
% |
Foreign provision |
|
0.6 |
% |
(3.6) |
% |
(1.0) |
% |
State/province income tax |
|
1.1 |
% |
0.9 |
% |
1.3 |
% |
Non-deductible compensation cost |
|
(1.1) |
% |
0.7 |
% |
1.1 |
% |
Non-deductible acquisition cost |
|
0.0 |
% |
5.9 |
% |
0.0 |
% |
Adjustment to carrying value |
|
0.6 |
% |
1.9 |
% |
0.3 |
% |
Research credit |
|
0.6 |
% |
0.0 |
% |
0.0 |
% |
Goodwill impairment |
|
(21.3) |
% |
0.0 |
% |
0.0 |
% |
Other |
|
(0.8) |
% |
(0.6) |
% |
0.6 |
% |
Effective tax rate |
|
14.7 |
% |
40.2 |
% |
37.3 |
% |
The major tax‑effected components of the deferred tax assets and liabilities are as follows (in thousands):
|
|
Year Ended December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Deferred income tax assets related to: |
|
|
|
|
|
|
|
|
|
|
Intangibles |
|
$ |
— |
|
$ |
— |
|
$ |
44,845 |
|
Net operating losses |
|
|
81,531 |
|
|
64,357 |
|
|
37,333 |
|
Stock compensation expense |
|
|
10,212 |
|
|
8,841 |
|
|
7,066 |
|
Accounts receivable allowances |
|
|
1,444 |
|
|
1,613 |
|
|
1,703 |
|
Accrued and prepaid expenses |
|
|
3,958 |
|
|
7,917 |
|
|
1,331 |
|
Long-term debt |
|
|
300 |
|
|
290 |
|
|
348 |
|
Other |
|
|
658 |
|
|
373 |
|
|
406 |
|
Tax credits |
|
|
5,896 |
|
|
5,146 |
|
|
— |
|
Property, equipment and leasehold improvements |
|
|
— |
|
|
— |
|
|
333 |
|
Valuation allowance |
|
|
(1,442) |
|
|
(2,319) |
|
|
(1,379) |
|
Total deferred income tax assets |
|
$ |
102,557 |
|
$ |
86,218 |
|
$ |
91,986 |
|
Deferred income tax liabilities related to: |
|
|
|
|
|
|
|
|
|
|
Property, equipment and leased assets |
|
|
18,274 |
|
$ |
23,785 |
|
$ |
— |
|
Intangibles |
|
|
108,727 |
|
|
109,103 |
|
|
— |
|
Other |
|
|
3,200 |
|
|
1,072 |
|
|
942 |
|
Total deferred income tax liabilities |
|
|
130,201 |
|
$ |
133,960 |
|
$ |
942 |
|
Deferred income taxes, net |
|
$ |
(27,644) |
|
$ |
(47,742) |
|
$ |
91,044 |
|
The Company prospectively adopted the provisions of ASU No. 2015-17 as of December 31, 2015. The adoption of the provision caused us to reclassify current deferred tax assets to noncurrent (netted within noncurrent liabilities) on our Consolidated Balance Sheets. The prior reporting period was not retrospectively adjusted.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):
|
|
Year Ended December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Unrecognized tax benefit |
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefit at the beginning of the period |
|
$ |
729 |
|
$ |
— |
|
$ |
— |
|
Gross increases - tax positions in prior period |
|
|
— |
|
|
— |
|
|
— |
|
Gross decreases - tax positions in prior period |
|
|
— |
|
|
— |
|
|
— |
|
Gross increases - tax positions in current period |
|
|
— |
|
|
729 |
|
|
— |
|
Settlements |
|
|
— |
|
|
— |
|
|
— |
|
Unrecognized tax benefit at the end of the period |
|
$ |
729 |
|
$ |
729 |
|
$ |
— |
|
For all of our investments in foreign subsidiaries, except for GCA (Macau), deferred taxes have not been provided on unrepatriated foreign earnings. Unrepatriated earnings were approximately $17.1 million as of December 31, 2015. These earnings were considered permanently reinvested, as it was management’s intention to reinvest foreign earnings in foreign operations. We project sufficient cash flow or sufficient borrowings available under our Credit Facilities in the U.S. and therefore do not need to repatriate these foreign earnings to finance U.S. operations at this time.
As a result of certain realization requirements under the accounting guidance on share based payments, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting at December 31, 2015, 2014 and 2013, respectively. Equity will be increased by $4.6 million if, and when, such deferred tax assets are ultimately realized. We use the accounting guidance on income taxes ordering for purposes of determining when excess tax benefits have been realized.
We had $218.8 million, or $76.6 million, tax effected, of accumulated federal net operating losses as of December 31, 2015. The net operating losses can be carried forward and applied to offset taxable income for 20 years and will expire starting in 2024. We had $4.3 million, tax effected, of federal research and development credit carry forwards and $1.6 million of federal alternative minimum tax credit carry forwards as of December 31, 2015. The research and development credits are limited to a 20 year carry forward period and will expire starting in 2033. The federal alternative minimum tax credit carry forwards do not expire.
We had tax effected state net operating loss carry forwards of approximately $9.4 million as of December 31, 2015. The state net operating loss carry forwards will expire between 2016 and 2036. The determination and utilization of these state net operating loss carry forwards are dependent upon apportionment percentages and other respective state laws, which can change from year to year. As of December 31, 2015, $1.2 million of our valuation allowance relates to certain state net operating loss carry forwards which are expected to expire before utilization, due to shorter carry forward periods and decreased apportionment percentages in those states. The remaining valuation allowance of $0.2 million relates to foreign net operating losses.
We recognized a deferred tax asset upon our conversion from a limited liability company to a corporation on May 14, 2004. Prior to that time, all tax attributes flowed through to the members of the limited liability company. The principal component of the deferred tax asset is a difference between our assets for financial accounting and tax purposes. This difference results from a significant balance of acquired goodwill of approximately $687.4 million that was generated as part of the conversion to a corporation plus approximately $97.6 million in pre-existing goodwill carried over from periods prior to the conversion. Both of these assets are recorded for tax purposes but not for accounting purposes. This asset is amortized over 15 years for tax purposes, resulting in annual pretax income being $52.3 million lower for tax purposes than for financial accounting purposes. At an estimated blended domestic statutory tax rate of 37.2%, this results in tax payments being approximately $19.5 million less than the annual provision for income taxes shown on the income statement for financial accounting purposes, or the amount of the annual provision, if less. There is an expected aggregate of $64.9 million in cash savings over the remaining life of the portion of our deferred tax asset related to the conversion. This deferred tax asset may be subject to certain limitations. We believe that it is more likely than not that we will be able to utilize our deferred tax asset. However, the utilization of this tax asset is subject to many factors including, but not limited to, a change of control of the Company and future earnings.
We have analyzed filing positions in all of the federal, state and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. As part of the Merger in 2014, the Company recorded $0.7 million of unrecognized tax benefits. The Company has not accrued any penalties and interest for its unrecognized tax benefits. Other than the unrecognized tax benefit related to the Merger, we believe that our income tax filing positions and deductions will be sustained upon audit and we do not anticipate any other adjustments that will result in a material change to our financial position. We may from time to time be assessed interest or penalties by tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. Our policy for recording interest and penalties associated with audits and unrecognized tax benefits is to record such items as a component of income tax expense.
We are subject to taxation in the U.S. and various states and foreign jurisdictions. We have a number of federal and state income tax years still open for examination as a result of our net operating loss carry forwards. Accordingly, we are subject to examination for both U.S. federal and some of the state tax returns for the years 2004 to present. For the remaining state, local and foreign jurisdictions, with some exceptions, we are no longer subject to examination by tax authorities for years before 2012.
|
18. RELATED PARTY TRANSACTIONS
A member of our Board of Directors served as a member of the board of directors of a gaming company until April 2013 for which we provide various cash access products and services that are insignificant to our net income. This board member received customary both cash and equity compensation from this gaming company in consideration for serving on its board of directors, however, none of this consideration was tied in any manner to our performance or obligations under our cash access agreements with the gaming company. In addition, this board member was not involved in the negotiation of our cash access agreements with this gaming company.
In October 2012, we entered into a long-term lease agreement related to office space for our corporate headquarters in which we moved into during the first half of 2013. We had engaged a brokerage firm in connection with the search for our corporate headquarters. An executive officer of this brokerage firm is the brother of our former Chief Financial Officer. This brokerage firm received approximately $0.4 million as compensation for acting as our broker.
|
19. SEGMENT INFORMATION
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-making group in deciding how to allocate resources and in assessing performance. Our chief operating decision-making group consists of the Chief Executive Officer and the Chief Financial Officer. This group manages the business, allocates resources and measures profitability based on our operating segments. The operating segments are reviewed separately because each represents products that can be sold separately to our customers.
Since the most recent filing of our Annual Report on Form 10-K for the year ended December 31, 2014, and in connection with the Merger, our chief operating decision-making group has determined the following to be the operating segments for which we conduct business: (a) Games, and (b) Payments. Therefore, beginning in the first quarter of 2015, we are reporting our financial performance based on our new segments in both the current and prior periods. This change had no impact on our consolidated financial statements. Each of these segments is monitored by our management for performance against its internal forecast and is consistent with our internal management reporting.
· |
The Games segment provides solutions directly to gaming establishments to offer their patrons gaming entertainment related experiences including: leased gaming equipment; sales and maintenance related services of gaming equipment; gaming systems; and ancillary products and services. |
· |
The Payments segment provides solutions directly to gaming establishments to offer their patrons cash access related services and products including: access to cash at gaming facilities via ATM cash withdrawals, credit card cash access transactions and point of sale debit card transactions; check-related services; fully integrated kiosks and maintenance services; compliance, audit and data software; casino credit data and reporting services and other ancillary offerings. |
Corporate overhead expenses have been allocated to the segments either through specific identification or based on a reasonable methodology. In addition, we allocate depreciation and amortization expenses to the business segments.
Our business is predominantly domestic, with no specific regional concentrations and no significant assets in foreign locations.
The accounting policies of the operating segments are generally the same as those described in the summary of significant accounting policies.
The following tables present segment information (in thousands):
|
|
|
|
|
|
|
||||
|
|
For the Year Ended December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
Games |
|
$ |
214,424 |
|
$ |
7,406 |
|
$ |
— |
|
Payments |
|
|
612,575 |
|
|
585,647 |
|
|
582,444 |
|
Total revenues |
|
$ |
826,999 |
|
$ |
593,053 |
|
$ |
582,444 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
|
|
|
|
|
|
|
|
Games |
|
$ |
(73,503) |
|
$ |
(1,423) |
|
$ |
— |
|
Payments |
|
|
63,773 |
|
|
35,205 |
|
|
49,150 |
|
Total operating (loss) income |
|
$ |
(9,730) |
|
$ |
33,782 |
|
$ |
49,150 |
|
|
|
At |
||||
|
|
December 31, 2015 |
|
December 31, 2014 |
||
Total assets |
|
|
|
|
|
|
Games |
|
$ |
1,086,147 |
|
$ |
1,242,822 |
Payments |
|
|
487,918 |
|
|
464,463 |
Total assets |
|
$ |
1,574,065 |
|
$ |
1,707,285 |
Major customers. For the years ended December 31, 2015, 2014 and 2013, no single customer accounted for more than 10% of our revenues. Our five largest customers accounted for approximately 30%, 28% and 33% of our total revenue in 2015, 2014 and 2013, respectively.
|
20. SELECTED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The unaudited selected quarterly results of operations are as follows (in thousands, except for per share amounts):
|
|
Quarter |
|
|||||||||||||
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
Year |
|
|||||
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
207,473 |
|
$ |
206,364 |
|
$ |
208,746 |
|
$ |
204,416 |
|
$ |
826,999 |
|
Operating income (loss) |
|
|
28,141 |
|
|
16,336 |
|
|
14,716 |
|
|
(68,923) |
|
|
(9,730) |
|
Net income (loss) |
|
|
469 |
|
|
(12,741) |
|
|
(6,110) |
|
|
(86,590) |
|
|
(104,972) |
|
Basic earnings (loss) per share |
|
$ |
0.01 |
|
$ |
(0.19) |
|
$ |
(0.09) |
|
$ |
(1.31) |
|
$ |
(1.59) |
|
Diluted earnings (loss) per share |
|
$ |
0.01 |
|
$ |
(0.19) |
|
$ |
(0.09) |
|
$ |
(1.31) |
|
$ |
(1.59) |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
65,623 |
|
|
65,844 |
|
|
65,941 |
|
|
66,004 |
|
|
65,854 |
|
Diluted |
|
|
66,492 |
|
|
65,844 |
|
|
65,941 |
|
|
66,004 |
|
|
65,854 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
150,571 |
|
$ |
144,946 |
|
$ |
145,481 |
|
$ |
152,055 |
|
$ |
593,053 |
|
Operating income |
|
|
13,013 |
|
|
9,622 |
|
|
10,771 |
|
|
376 |
|
|
33,782 |
|
Net income (loss) |
|
|
7,489 |
|
|
4,724 |
|
|
5,676 |
|
|
(5,749) |
|
|
12,140 |
|
Basic earnings (loss) per share |
|
$ |
0.11 |
|
$ |
0.07 |
|
$ |
0.09 |
|
$ |
(0.09) |
|
$ |
0.18 |
|
Diluted earnings (loss) per share |
|
$ |
0.11 |
|
$ |
0.07 |
|
$ |
0.09 |
|
$ |
(0.09) |
|
$ |
0.18 |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
65,910 |
|
|
65,970 |
|
|
65,589 |
|
|
65,608 |
|
|
65,780 |
|
Diluted |
|
|
67,370 |
|
|
67,087 |
|
|
66,747 |
|
|
66,397 |
|
|
66,863 |
|
|
21. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
We conduct substantially all of our business through our U.S. and foreign subsidiaries. Everi Payments’ (“Subsidiary Issuer”) obligations under the Unsecured Notes are fully and unconditionally guaranteed, subject to certain customary release provisions, on a joint and several basis by Holdings (“Parent”) and substantially all of our 100%-owned U.S. subsidiaries other than Subsidiary Issuer (the “Guarantor Subsidiaries” and, together with Parent, the “Guarantors” and each a “Guarantor” ). The guarantees of our Unsecured Notes will be released under the following customary circumstances: (i) the sale or disposition of all or substantially all of the assets of the Guarantor (by way of merger, consolidation, or otherwise) to a person that is not (either before or after giving effect to such transaction) Parent, Subsidiary Issuer or a restricted subsidiary; (ii) the sale or disposition of sufficient capital stock of the Guarantor to a person that is not (either before or after giving effect to such transaction) Parent, Subsidiary Issuer or a restricted subsidiary and the Guarantor ceases to be a restricted subsidiary of Subsidiary Issuer as a result of the sale or other disposition; (iii) the designation of the Guarantor as an unrestricted subsidiary in accordance with the Indenture; or (iv) the legal or covenant defeasance of the Unsecured Notes or the satisfaction and discharge of the Indenture.
Presented below is condensed consolidating financial information for (a) Parent, (b) Subsidiary Issuer, (c) the Guarantor Subsidiaries and (d) our U.S. subsidiaries that are not Guarantor Subsidiaries and our foreign subsidiaries (collectively, the “Non-Guarantor Subsidiaries”) as of December 31, 2015 and December 31, 2014 and for the years ended December 31, 2015, 2014 and 2013. The condensed consolidating financial information has been presented to show the nature of assets held and the results of operations and cash flows of Parent, Subsidiary Issuer, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries assuming that the guarantee structure of the Unsecured Notes had been in effect at the beginning of the periods presented.
|
Year Ended December 31, 2015 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
— |
|
$ |
566,634 |
|
$ |
243,974 |
|
$ |
17,219 |
|
$ |
(828) |
|
$ |
826,999 |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization) |
|
— |
|
|
444,990 |
|
|
56,382 |
|
|
9,025 |
|
|
— |
|
|
510,397 |
Operating expenses |
|
— |
|
|
61,615 |
|
|
38,554 |
|
|
1,861 |
|
|
(828) |
|
|
101,202 |
Research and development |
|
— |
|
|
— |
|
|
19,098 |
|
|
— |
|
|
— |
|
|
19,098 |
Goodwill impairment |
|
— |
|
|
— |
|
|
75,008 |
|
|
— |
|
|
— |
|
|
75,008 |
Depreciation |
|
— |
|
|
7,635 |
|
|
37,734 |
|
|
182 |
|
|
— |
|
|
45,551 |
Amortization |
|
— |
|
|
9,842 |
|
|
73,195 |
|
|
2,436 |
|
|
— |
|
|
85,473 |
Total costs and expenses |
|
— |
|
|
524,082 |
|
|
299,971 |
|
|
13,504 |
|
|
(828) |
|
|
836,729 |
Operating income (loss) |
|
— |
|
|
42,552 |
|
|
(55,997) |
|
|
3,715 |
|
|
— |
|
|
(9,730) |
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
7,639 |
|
|
92,343 |
|
|
308 |
|
|
— |
|
|
100,290 |
Income (loss) from subsidiaries |
|
104,972 |
|
|
(13,777) |
|
|
— |
|
|
— |
|
|
(91,195) |
|
|
— |
Loss on extinguishment of debt |
|
— |
|
|
13,063 |
|
|
— |
|
|
— |
|
|
— |
|
|
13,063 |
Total other expenses |
|
104,972 |
|
|
6,925 |
|
|
92,343 |
|
|
308 |
|
|
(91,195) |
|
|
113,353 |
(Loss) income from operations before tax |
|
(104,972) |
|
|
35,627 |
|
|
(148,340) |
|
|
3,407 |
|
|
91,195 |
|
|
(123,083) |
Income tax provision (benefit) |
|
— |
|
|
8,342 |
|
|
(27,673) |
|
|
1,220 |
|
|
— |
|
|
(18,111) |
Net (loss) income |
|
(104,972) |
|
|
27,285 |
|
|
(120,667) |
|
|
2,187 |
|
|
91,195 |
|
|
(104,972) |
Foreign currency translation |
|
(1,251) |
|
|
— |
|
|
— |
|
|
(1,251) |
|
|
1,251 |
|
|
(1,251) |
Comprehensive (loss) income |
$ |
(106,223) |
|
$ |
27,285 |
|
$ |
(120,667) |
|
$ |
936 |
|
$ |
92,446 |
|
$ |
(106,223) |
|
Year Ended December 31, 2014 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
— |
|
$ |
542,206 |
|
$ |
35,689 |
|
$ |
15,891 |
|
$ |
(733) |
|
$ |
593,053 |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization) |
|
— |
|
|
422,544 |
|
|
10,864 |
|
|
6,663 |
|
|
— |
|
|
440,071 |
Operating expenses |
|
— |
|
|
88,087 |
|
|
5,719 |
|
|
2,379 |
|
|
(733) |
|
|
95,452 |
Research and development |
|
— |
|
|
— |
|
|
804 |
|
|
— |
|
|
— |
|
|
804 |
Depreciation |
|
— |
|
|
7,428 |
|
|
1,134 |
|
|
183 |
|
|
— |
|
|
8,745 |
Amortization |
|
— |
|
|
11,180 |
|
|
2,454 |
|
|
565 |
|
|
— |
|
|
14,199 |
Total costs and expenses |
|
— |
|
|
529,239 |
|
|
20,975 |
|
|
9,790 |
|
|
(733) |
|
|
559,271 |
Operating income |
|
— |
|
|
12,967 |
|
|
14,714 |
|
|
6,101 |
|
|
— |
|
|
33,782 |
Other (income) expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
7,675 |
|
|
3,290 |
|
|
(209) |
|
|
— |
|
|
10,756 |
Income from subsidiaries |
|
(12,140) |
|
|
(15,218) |
|
|
— |
|
|
— |
|
|
27,358 |
|
|
— |
Loss on extinguishment of debt |
|
— |
|
|
2,523 |
|
|
202 |
|
|
— |
|
|
— |
|
|
2,725 |
Total other (income) expense |
|
(12,140) |
|
|
(5,020) |
|
|
3,492 |
|
|
(209) |
|
|
27,358 |
|
|
13,481 |
Income from operations before tax |
|
12,140 |
|
|
17,987 |
|
|
11,222 |
|
|
6,310 |
|
|
(27,358) |
|
|
20,301 |
Income tax expense |
|
— |
|
|
2,801 |
|
|
3,784 |
|
|
1,576 |
|
|
— |
|
|
8,161 |
Net income |
|
12,140 |
|
|
15,186 |
|
|
7,438 |
|
|
4,734 |
|
|
(27,358) |
|
|
12,140 |
Foreign currency translation |
|
(1,258) |
|
|
— |
|
|
— |
|
|
(1,258) |
|
|
1,258 |
|
|
(1,258) |
Comprehensive income |
$ |
10,882 |
|
$ |
15,186 |
|
$ |
7,438 |
|
$ |
3,476 |
|
$ |
(26,100) |
|
$ |
10,882 |
|
Year Ended December 31, 2013 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
— |
|
$ |
541,002 |
|
$ |
28,277 |
|
$ |
13,838 |
|
$ |
(673) |
|
$ |
582,444 |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization) |
|
— |
|
|
424,129 |
|
|
7,905 |
|
|
7,760 |
|
|
— |
|
|
439,794 |
Operating expenses |
|
— |
|
|
71,623 |
|
|
3,445 |
|
|
2,167 |
|
|
(673) |
|
|
76,562 |
Depreciation |
|
— |
|
|
7,186 |
|
|
1 |
|
|
163 |
|
|
— |
|
|
7,350 |
Amortization |
|
— |
|
|
9,217 |
|
|
— |
|
|
371 |
|
|
— |
|
|
9,588 |
Total costs and expenses |
|
— |
|
|
512,155 |
|
|
11,351 |
|
|
10,461 |
|
|
(673) |
|
|
533,294 |
Operating income |
|
— |
|
|
28,847 |
|
|
16,926 |
|
|
3,377 |
|
|
— |
|
|
49,150 |
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
10,342 |
|
|
— |
|
|
(77) |
|
|
— |
|
|
10,265 |
Income from subsidiaries |
|
(24,398) |
|
|
(13,596) |
|
|
— |
|
|
— |
|
|
37,994 |
|
|
— |
Total other expenses |
|
(24,398) |
|
|
(3,254) |
|
|
— |
|
|
(77) |
|
|
37,994 |
|
|
10,265 |
Income from operations before tax |
|
24,398 |
|
|
32,101 |
|
|
16,926 |
|
|
3,454 |
|
|
(37,994) |
|
|
38,885 |
Income tax provision |
|
— |
|
|
7,703 |
|
|
5,924 |
|
|
860 |
|
|
— |
|
|
14,487 |
Net income |
|
24,398 |
|
|
24,398 |
|
|
11,002 |
|
|
2,594 |
|
|
(37,994) |
|
|
24,398 |
Foreign currency translation |
|
269 |
|
|
— |
|
|
— |
|
|
269 |
|
|
(269) |
|
|
269 |
Comprehensive income |
$ |
24,667 |
|
$ |
24,398 |
|
$ |
11,002 |
|
$ |
2,863 |
|
$ |
(38,263) |
|
$ |
24,667 |
|
At December 31, 2015 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
6 |
|
$ |
87,078 |
|
$ |
3,900 |
|
$ |
11,046 |
|
$ |
— |
|
$ |
102,030 |
Settlement receivables |
|
— |
|
|
42,437 |
|
|
— |
|
|
2,496 |
|
|
— |
|
|
44,933 |
Trade receivables, net |
|
— |
|
|
10,750 |
|
|
41,634 |
|
|
(2) |
|
|
— |
|
|
52,382 |
Other receivables |
|
— |
|
|
4,063 |
|
|
833 |
|
|
32 |
|
|
— |
|
|
4,928 |
Inventory |
|
— |
|
|
12,772 |
|
|
15,966 |
|
|
— |
|
|
— |
|
|
28,738 |
Prepaid expenses and other assets |
|
— |
|
|
6,464 |
|
|
5,160 |
|
|
9,148 |
|
|
— |
|
|
20,772 |
Deferred tax asset |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Intercompany balances |
|
— |
|
|
39,810 |
|
|
168,659 |
|
|
1,431 |
|
|
(209,900) |
|
|
— |
Total current assets |
|
6 |
|
|
203,374 |
|
|
236,152 |
|
|
24,151 |
|
|
(209,900) |
|
|
253,783 |
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements, net |
|
— |
|
|
26,472 |
|
|
79,514 |
|
|
322 |
|
|
— |
|
|
106,308 |
Goodwill |
|
— |
|
|
154,395 |
|
|
634,811 |
|
|
597 |
|
|
— |
|
|
789,803 |
Other intangible assets, net |
|
— |
|
|
32,000 |
|
|
343,629 |
|
|
6,833 |
|
|
— |
|
|
382,462 |
Other receivables, non-current |
|
— |
|
|
3,256 |
|
|
3,399 |
|
|
— |
|
|
— |
|
|
6,655 |
Investment in subsidiaries |
|
137,414 |
|
|
159,735 |
|
|
— |
|
|
86 |
|
|
(297,235) |
|
|
— |
Deferred tax asset, non-current |
|
— |
|
|
65,577 |
|
|
— |
|
|
— |
|
|
(65,577) |
|
|
— |
Other assets, non-current |
|
— |
|
|
30,936 |
|
|
3,667 |
|
|
451 |
|
|
— |
|
|
35,054 |
Intercompany balances |
|
— |
|
|
1,136,505 |
|
|
— |
|
|
— |
|
|
(1,136,505) |
|
|
— |
Total non-current assets |
|
137,414 |
|
|
1,608,876 |
|
|
1,065,020 |
|
|
8,289 |
|
|
(1,499,317) |
|
|
1,320,282 |
Total assets |
$ |
137,420 |
|
$ |
1,812,250 |
|
$ |
1,301,172 |
|
$ |
32,440 |
|
$ |
(1,709,217) |
|
$ |
1,574,065 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement liabilities |
$ |
— |
|
$ |
136,109 |
|
$ |
162 |
|
$ |
3,548 |
|
$ |
— |
|
$ |
139,819 |
Accounts payable and accrued expenses |
|
— |
|
|
67,736 |
|
|
32,593 |
|
|
1,183 |
|
|
— |
|
|
101,512 |
Current portion of long-term debt |
|
— |
|
|
10,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
10,000 |
Intercompany balances |
|
— |
|
|
170,091 |
|
|
32,732 |
|
|
7,077 |
|
|
(209,900) |
|
|
— |
Total current liabilities |
|
— |
|
|
383,936 |
|
|
65,487 |
|
|
11,808 |
|
|
(209,900) |
|
|
251,331 |
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability, non-current |
|
— |
|
|
— |
|
|
93,221 |
|
|
— |
|
|
(65,577) |
|
|
27,644 |
Long-term debt, less current portion |
|
— |
|
|
1,153,579 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,153,579 |
Other accrued expenses and liabilities |
|
— |
|
|
3,624 |
|
|
467 |
|
|
— |
|
|
— |
|
|
4,091 |
Intercompany balances |
|
— |
|
|
— |
|
|
1,136,505 |
|
|
— |
|
|
(1,136,505) |
|
|
— |
Total non-current liabilities |
|
— |
|
|
1,157,203 |
|
|
1,230,193 |
|
|
— |
|
|
(1,202,082) |
|
|
1,185,314 |
Total liabilities |
|
— |
|
|
1,541,139 |
|
|
1,295,680 |
|
|
11,808 |
|
|
(1,411,982) |
|
|
1,436,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
91 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
91 |
Additional paid-in capital |
|
258,020 |
|
|
80,443 |
|
|
3,670 |
|
|
21,101 |
|
|
(105,214) |
|
|
258,020 |
Retained earnings |
|
55,180 |
|
|
190,375 |
|
|
1,797 |
|
|
1,180 |
|
|
(193,352) |
|
|
55,180 |
Accumulated other comprehensive income |
|
318 |
|
|
293 |
|
|
25 |
|
|
(1,649) |
|
|
1,331 |
|
|
318 |
Treasury stock, at cost |
|
(176,189) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(176,189) |
Total stockholders’ equity |
|
137,420 |
|
|
271,111 |
|
|
5,492 |
|
|
20,632 |
|
|
(297,235) |
|
|
137,420 |
Total liabilities and stockholders’ equity |
$ |
137,420 |
|
$ |
1,812,250 |
|
$ |
1,301,172 |
|
$ |
32,440 |
|
$ |
(1,709,217) |
|
$ |
1,574,065 |
|
At December 31, 2014 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
— |
|
$ |
68,143 |
|
$ |
6,489 |
|
$ |
14,463 |
|
$ |
— |
|
$ |
89,095 |
Settlement receivables |
|
— |
|
|
40,157 |
|
|
— |
|
|
3,131 |
|
|
— |
|
|
43,288 |
Trade receivables, net |
|
— |
|
|
6,578 |
|
|
31,116 |
|
|
3 |
|
|
— |
|
|
37,697 |
Other receivables |
|
— |
|
|
3,416 |
|
|
16,992 |
|
|
145 |
|
|
— |
|
|
20,553 |
Inventory |
|
— |
|
|
10,595 |
|
|
16,568 |
|
|
— |
|
|
— |
|
|
27,163 |
Prepaid expenses and other assets |
|
— |
|
|
7,143 |
|
|
2,821 |
|
|
9,024 |
|
|
— |
|
|
18,988 |
Deferred tax asset |
|
— |
|
|
2,743 |
|
|
6,848 |
|
|
— |
|
|
— |
|
|
9,591 |
Intercompany balances |
|
— |
|
|
18,038 |
|
|
151,179 |
|
|
1,623 |
|
|
(170,840) |
|
|
— |
Total current assets |
|
— |
|
|
156,813 |
|
|
232,013 |
|
|
28,389 |
|
|
(170,840) |
|
|
246,375 |
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements, net |
|
— |
|
|
17,864 |
|
|
87,898 |
|
|
323 |
|
|
— |
|
|
106,085 |
Goodwill |
|
— |
|
|
148,278 |
|
|
708,922 |
|
|
713 |
|
|
— |
|
|
857,913 |
Other intangible assets, net |
|
— |
|
|
24,771 |
|
|
402,816 |
|
|
9,198 |
|
|
— |
|
|
436,785 |
Other receivables, non-current |
|
— |
|
|
4,411 |
|
|
4,773 |
|
|
— |
|
|
— |
|
|
9,184 |
Investment in subsidiaries |
|
231,473 |
|
|
147,195 |
|
|
— |
|
|
86 |
|
|
(378,754) |
|
|
— |
Deferred tax asset, non-current |
|
— |
|
|
78,229 |
|
|
— |
|
|
— |
|
|
(78,229) |
|
|
— |
Other assets, non-current |
|
— |
|
|
47,508 |
|
|
3,366 |
|
|
69 |
|
|
— |
|
|
50,943 |
Intercompany balances |
|
— |
|
|
1,130,380 |
|
|
— |
|
|
— |
|
|
(1,130,380) |
|
|
— |
Total non-current assets |
|
231,473 |
|
|
1,598,636 |
|
|
1,207,775 |
|
|
10,389 |
|
|
(1,587,363) |
|
|
1,460,910 |
Total assets |
$ |
231,473 |
|
$ |
1,755,449 |
|
$ |
1,439,788 |
|
$ |
38,778 |
|
$ |
(1,758,203) |
|
$ |
1,707,285 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement liabilities |
$ |
— |
|
$ |
111,375 |
|
$ |
140 |
|
$ |
7,642 |
|
$ |
— |
|
$ |
119,157 |
Accounts payable and accrued expenses |
|
— |
|
|
61,544 |
|
|
41,395 |
|
|
1,729 |
|
|
— |
|
|
104,668 |
Current portion of long-term debt |
|
— |
|
|
10,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
10,000 |
Intercompany balances |
|
— |
|
|
152,802 |
|
|
8,159 |
|
|
9,879 |
|
|
(170,840) |
|
|
— |
Total current liabilities |
|
— |
|
|
335,721 |
|
|
49,694 |
|
|
19,250 |
|
|
(170,840) |
|
|
233,825 |
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability, non-current |
|
— |
|
|
1,072 |
|
|
134,490 |
|
|
— |
|
|
(78,229) |
|
|
57,333 |
Long-term debt, less current portion |
|
— |
|
|
1,178,787 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,178,787 |
Other accrued expenses and liabilities |
|
— |
|
|
5,377 |
|
|
490 |
|
|
— |
|
|
— |
|
|
5,867 |
Intercompany balances |
|
— |
|
|
— |
|
|
1,130,380 |
|
|
— |
|
|
(1,130,380) |
|
|
— |
Total non-current liabilities |
|
— |
|
|
1,185,236 |
|
|
1,265,360 |
|
|
— |
|
|
(1,208,609) |
|
|
1,241,987 |
Total liabilities |
|
— |
|
|
1,520,957 |
|
|
1,315,054 |
|
|
19,250 |
|
|
(1,379,449) |
|
|
1,475,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
90 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
90 |
Convertible preferred stock |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Additional paid-in capital |
|
245,682 |
|
|
69,654 |
|
|
2,269 |
|
|
21,115 |
|
|
(93,038) |
|
|
245,682 |
Retained earnings |
|
160,152 |
|
|
163,269 |
|
|
122,465 |
|
|
(1,006) |
|
|
(284,728) |
|
|
160,152 |
Accumulated other comprehensive income |
|
1,569 |
|
|
1,569 |
|
|
— |
|
|
(581) |
|
|
(988) |
|
|
1,569 |
Treasury stock, at cost |
|
(176,020) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(176,020) |
Total stockholders’ equity |
|
231,473 |
|
|
234,492 |
|
|
124,734 |
|
|
19,528 |
|
|
(378,754) |
|
|
231,473 |
Total liabilities and stockholders’ equity |
$ |
231,473 |
|
$ |
1,755,449 |
|
$ |
1,439,788 |
|
$ |
38,778 |
|
$ |
(1,758,203) |
|
$ |
1,707,285 |
|
Year Ended December 31, 2015 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
$ |
(104,972) |
|
$ |
27,285 |
|
$ |
(120,667) |
|
$ |
2,187 |
|
$ |
91,195 |
|
$ |
(104,972) |
Adjustments to reconcile net (loss) income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
— |
|
|
17,477 |
|
|
110,929 |
|
|
2,618 |
|
|
— |
|
|
131,024 |
Amortization of financing costs |
|
— |
|
|
7,109 |
|
|
— |
|
|
— |
|
|
— |
|
|
7,109 |
Loss/(gain) on sale or disposal of assets |
|
— |
|
|
75 |
|
|
(2,864) |
|
|
— |
|
|
— |
|
|
(2,789) |
Accretion of contract rights |
|
— |
|
|
— |
|
|
7,614 |
|
|
— |
|
|
— |
|
|
7,614 |
Provision for bad debts |
|
— |
|
|
51 |
|
|
10,084 |
|
|
— |
|
|
— |
|
|
10,135 |
Reserve for obsolescence |
|
— |
|
|
140 |
|
|
1,103 |
|
|
— |
|
|
— |
|
|
1,243 |
Goodwill impairment |
|
— |
|
|
— |
|
|
75,008 |
|
|
— |
|
|
— |
|
|
75,008 |
Loss on early extinguishment of debt |
|
— |
|
|
13,063 |
|
|
— |
|
|
— |
|
|
— |
|
|
13,063 |
Equity loss (income) |
|
104,972 |
|
|
(13,777) |
|
|
— |
|
|
— |
|
|
(91,195) |
|
|
— |
Stock-based compensation |
|
— |
|
|
6,883 |
|
|
1,401 |
|
|
— |
|
|
— |
|
|
8,284 |
Other non-cash items |
|
— |
|
|
— |
|
|
(149) |
|
|
— |
|
|
— |
|
|
(149) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net settlement receivables and liabilities |
|
— |
|
|
22,455 |
|
|
22 |
|
|
(3,078) |
|
|
— |
|
|
19,399 |
Other changes in operating assets and liabilities |
|
(4) |
|
|
(3,299) |
|
|
(36,278) |
|
|
(801) |
|
|
— |
|
|
(40,382) |
Net cash (used in) provided by operating activities |
|
(4) |
|
|
77,462 |
|
|
46,203 |
|
|
926 |
|
|
— |
|
|
124,587 |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired |
|
— |
|
|
(10,857) |
|
|
— |
|
|
— |
|
|
— |
|
|
(10,857) |
Capital expenditures |
|
— |
|
|
(25,796) |
|
|
(51,108) |
|
|
(84) |
|
|
— |
|
|
(76,988) |
Proceeds from sale of fixed assets |
|
— |
|
|
102 |
|
|
2,000 |
|
|
— |
|
|
— |
|
|
2,102 |
Repayments under development agreements |
|
— |
|
|
— |
|
|
3,104 |
|
|
— |
|
|
— |
|
|
3,104 |
Advances under development and placement agreements |
|
— |
|
|
— |
|
|
(2,813) |
|
|
— |
|
|
— |
|
|
(2,813) |
Changes in restricted cash and cash equivalents |
|
— |
|
|
(97) |
|
|
— |
|
|
— |
|
|
— |
|
|
(97) |
Intercompany investing activities |
|
(3,906) |
|
|
6,593 |
|
|
25 |
|
|
(9) |
|
|
(2,703) |
|
|
— |
Net cash used in investing activities |
|
(3,906) |
|
|
(30,055) |
|
|
(48,792) |
|
|
(93) |
|
|
(2,703) |
|
|
(85,549) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of credit facility |
|
— |
|
|
(10,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
(10,000) |
Repayments of secured notes |
|
— |
|
|
(350,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
(350,000) |
Proceeds from issuance of secured notes |
|
— |
|
|
335,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
335,000 |
Debt issuance costs |
|
— |
|
|
(1,221) |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,221) |
Issuance of warrants |
|
2,246 |
|
|
(2,246) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Proceeds from exercise of stock options |
|
1,839 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,839 |
Purchase of treasury stock |
|
(169) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(169) |
Intercompany financing activities |
|
— |
|
|
(5) |
|
|
— |
|
|
(2,698) |
|
|
2,703 |
|
|
— |
Net cash provided by (used in) financing activities |
|
3,916 |
|
|
(28,472) |
|
|
— |
|
|
(2,698) |
|
|
2,703 |
|
|
(24,551) |
Effect of exchange rates on cash |
|
— |
|
|
— |
|
|
— |
|
|
(1,552) |
|
|
— |
|
|
(1,552) |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) for the period |
|
6 |
|
|
18,935 |
|
|
(2,589) |
|
|
(3,417) |
|
|
— |
|
|
12,935 |
Balance, beginning of the period |
|
— |
|
|
68,143 |
|
|
6,489 |
|
|
14,463 |
|
|
— |
|
|
89,095 |
Balance, end of the period |
$ |
6 |
|
|
87,078 |
|
|
3,900 |
|
|
11,046 |
|
|
— |
|
|
102,030 |
|
Year Ended December 31, 2014 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
12,140 |
|
$ |
15,186 |
|
$ |
7,438 |
|
$ |
4,734 |
|
$ |
(27,358) |
|
$ |
12,140 |
Adjustments to reconcile net (loss) income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
— |
|
|
18,608 |
|
|
3,588 |
|
|
748 |
|
|
— |
|
|
22,944 |
Amortization of financing costs |
|
— |
|
|
2,035 |
|
|
— |
|
|
— |
|
|
— |
|
|
2,035 |
Loss on sale or disposal of assets |
|
— |
|
|
54 |
|
|
— |
|
|
1 |
|
|
— |
|
|
55 |
Accretion of contract rights |
|
— |
|
|
— |
|
|
301 |
|
|
— |
|
|
— |
|
|
301 |
Provision for bad debts |
|
— |
|
|
— |
|
|
8,991 |
|
|
— |
|
|
— |
|
|
8,991 |
Reserve for obsolescence |
|
— |
|
|
270 |
|
|
— |
|
|
— |
|
|
— |
|
|
270 |
Other asset impairment |
|
— |
|
|
3,129 |
|
|
— |
|
|
— |
|
|
— |
|
|
3,129 |
Loss on early extinguishment of debt |
|
— |
|
|
2,523 |
|
|
202 |
|
|
— |
|
|
— |
|
|
2,725 |
Equity income |
|
(12,140) |
|
|
(15,218) |
|
|
— |
|
|
— |
|
|
27,358 |
|
|
— |
Stock-based compensation |
|
— |
|
|
8,849 |
|
|
27 |
|
|
— |
|
|
— |
|
|
8,876 |
Other non-cash items |
|
— |
|
|
(2) |
|
|
(17) |
|
|
— |
|
|
— |
|
|
(19) |
Changes in operating assets and liabilities: |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Net settlement receivables and liabilities |
|
— |
|
|
(31,414) |
|
|
141 |
|
|
594 |
|
|
— |
|
|
(30,679) |
Other changes in operating assets and liabilities |
|
(47) |
|
|
34,504 |
|
|
(20,047) |
|
|
(20,647) |
|
|
— |
|
|
(6,237) |
Net cash (used in) provided by operating activities |
|
(47) |
|
|
38,524 |
|
|
624 |
|
|
(14,570) |
|
|
— |
|
|
24,531 |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired |
|
— |
|
|
(11,845) |
|
|
(1,056,155) |
|
|
— |
|
|
— |
|
|
(1,068,000) |
Capital expenditures |
|
— |
|
|
(5,886) |
|
|
(3,464) |
|
|
(9,092) |
|
|
— |
|
|
(18,442) |
Proceeds from sale of fixed assets |
|
— |
|
|
421 |
|
|
— |
|
|
— |
|
|
— |
|
|
421 |
Repayments under development agreements |
|
— |
|
|
— |
|
|
276 |
|
|
— |
|
|
— |
|
|
276 |
Changes in restricted cash and cash equivalents |
|
— |
|
|
(102) |
|
|
— |
|
|
— |
|
|
— |
|
|
(102) |
Intercompany investing activities |
|
6,889 |
|
|
(1,085,709) |
|
|
— |
|
|
(1,425) |
|
|
1,080,245 |
|
|
— |
Net cash provided by (used in) investing activities |
|
6,889 |
|
|
(1,103,121) |
|
|
(1,059,343) |
|
|
(10,517) |
|
|
1,080,245 |
|
|
(1,085,847) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of prior credit facility |
|
— |
|
|
(103,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
(103,000) |
Proceeds from securing credit facility |
|
— |
|
|
500,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
500,000 |
Proceeds from issuance of secured notes |
|
— |
|
|
350,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
350,000 |
Proceeds from issuance of unsecured notes |
|
— |
|
|
350,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
350,000 |
Debt issuance costs |
|
— |
|
|
(52,735) |
|
|
— |
|
|
— |
|
|
— |
|
|
(52,735) |
Proceeds from exercise of stock options |
|
5,338 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5,338 |
Purchase of treasury stock |
|
(12,180) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(12,180) |
Intercompany financing activities |
|
— |
|
|
(12,098) |
|
|
1,063,059 |
|
|
29,284 |
|
|
(1,080,245) |
|
|
— |
Net cash (used in) provided by financing activities |
|
(6,842) |
|
|
1,032,167 |
|
|
1,063,059 |
|
|
29,284 |
|
|
(1,080,245) |
|
|
1,037,423 |
Effect of exchange rates on cash |
|
— |
|
|
— |
|
|
— |
|
|
(1,266) |
|
|
— |
|
|
(1,266) |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase for the period |
|
— |
|
|
(32,430) |
|
|
4,340 |
|
|
2,931 |
|
|
— |
|
|
(25,159) |
Balance, beginning of the period |
|
— |
|
|
100,573 |
|
|
2,149 |
|
|
11,532 |
|
|
— |
|
|
114,254 |
Balance, end of the period |
$ |
— |
|
$ |
68,143 |
|
$ |
6,489 |
|
$ |
14,463 |
|
$ |
— |
|
$ |
89,095 |
|
Year Ended December 31, 2013 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
24,398 |
|
$ |
24,398 |
|
$ |
11,002 |
|
$ |
2,594 |
|
$ |
(37,994) |
|
$ |
24,398 |
Adjustments to reconcile net (loss) income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
— |
|
|
16,403 |
|
|
1 |
|
|
534 |
|
|
— |
|
|
16,938 |
Amortization of financing costs |
|
— |
|
|
1,793 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,793 |
Loss (gain) on sale or disposal of assets |
|
— |
|
|
180 |
|
|
— |
|
|
(2) |
|
|
— |
|
|
178 |
Provision for bad debts |
|
— |
|
|
— |
|
|
7,874 |
|
|
— |
|
|
— |
|
|
7,874 |
Reserve for obsolescence |
|
— |
|
|
150 |
|
|
— |
|
|
— |
|
|
— |
|
|
150 |
Equity income |
|
(24,398) |
|
|
(13,596) |
|
|
— |
|
|
— |
|
|
37,994 |
|
|
— |
Stock-based compensation |
|
— |
|
|
5,078 |
|
|
— |
|
|
— |
|
|
— |
|
|
5,078 |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net settlement receivables and liabilities |
|
— |
|
|
(44,264) |
|
|
— |
|
|
(1,729) |
|
|
— |
|
|
(45,993) |
Other changes in operating assets and liabilities |
|
19 |
|
|
13,241 |
|
|
(18,880) |
|
|
(462) |
|
|
— |
|
|
(6,082) |
Net cash provided by (used in) operating activities |
|
19 |
|
|
3,383 |
|
|
(3) |
|
|
935 |
|
|
— |
|
|
4,334 |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
— |
|
|
(13,450) |
|
|
(330) |
|
|
(206) |
|
|
— |
|
|
(13,986) |
Proceeds from sale of fixed assets |
|
— |
|
|
86 |
|
|
— |
|
|
— |
|
|
— |
|
|
86 |
Changes in restricted cash and cash equivalents |
|
— |
|
|
(90) |
|
|
— |
|
|
— |
|
|
— |
|
|
(90) |
Intercompany investing activities |
|
9,900 |
|
|
(4,676) |
|
|
— |
|
|
— |
|
|
(5,224) |
|
|
— |
Net cash provided by (used in) investing activities |
|
9,900 |
|
|
(18,130) |
|
|
(330) |
|
|
(206) |
|
|
(5,224) |
|
|
(13,990) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of prior credit facility |
|
— |
|
|
(18,500) |
|
|
— |
|
|
— |
|
|
— |
|
|
(18,500) |
Debt issuance costs |
|
— |
|
|
(764) |
|
|
— |
|
|
— |
|
|
— |
|
|
(764) |
Proceeds from exercise of stock options |
|
8,431 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
8,431 |
Purchase of treasury stock |
|
(18,350) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(18,350) |
Intercompany financing activities |
|
— |
|
|
(7,056) |
|
|
2,000 |
|
|
(168) |
|
|
5,224 |
|
|
— |
Net cash (used in) provided by financing activities |
|
(9,919) |
|
|
(26,320) |
|
|
2,000 |
|
|
(168) |
|
|
5,224 |
|
|
(29,183) |
Effect of exchange rates on cash |
|
— |
|
|
— |
|
|
— |
|
|
73 |
|
|
— |
|
|
73 |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase for the period |
|
— |
|
|
(41,067) |
|
|
1,667 |
|
|
634 |
|
|
— |
|
|
(38,766) |
Balance, beginning of the period |
|
— |
|
|
141,640 |
|
|
482 |
|
|
10,898 |
|
|
— |
|
|
153,020 |
Balance, end of the period |
$ |
— |
|
$ |
100,573 |
|
$ |
2,149 |
|
$ |
11,532 |
|
$ |
— |
|
$ |
114,254 |
|
22. SUBSEQUENT EVENTS
As of the date of the filing of our Annual Report on Form 10-K, we had not identified, and were not aware of, any material subsequent events that occurred for the year ended December 31, 2015.
|
Principles of Consolidation
All intercompany transactions and balances have been eliminated in consolidation.
Business Combinations
We apply the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations”, in the accounting for acquisitions. It requires us to recognize separately from goodwill the assets acquired and the liabilities assumed, at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Significant estimates and assumptions are required to value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable. These estimates are preliminary and typically include the calculation of an appropriate discount rate and projection of the cash flows associated with each acquired asset over its estimated useful life. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. In addition, deferred tax assets, deferred tax liabilities, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We reevaluate these items quarterly based upon facts and circumstances that existed as of the acquisition date and any adjustments to its preliminary estimates are recorded to goodwill, in the period of identification, if identified within the measurement period. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.
Acquisition-related Costs
We recognize a liability for acquisition-related costs when the expense is incurred. Acquisition-related costs include financial advisory, legal and debt fees; accounting, consulting, and professional fees associated with due diligence, valuation and integration; severance; and other related costs and adjustments.
Cash and Cash Equivalents
Cash and cash equivalents include cash and all balances on deposit in banks and financial institutions. We consider all highly liquid investments with maturities of three months or less at the time of purchase to be cash and cash equivalents. Such balances generally exceed the federal insurance limits. However, we periodically evaluate the creditworthiness of these institutions to minimize risk.
ATM Funding Agreements
We obtain all of the cash required to operate our Automated Teller Machines (“ATM” or “ATMs”) through various ATM Funding Agreements. Some gaming establishments provide the cash utilized within the ATM (“Site‑Funded”). The Site‑Funded receivables generated for the amount of cash dispensed from transactions performed at our ATMs are owned by us and we are liable to the gaming establishment for the face amount of the cash dispensed. In the Consolidated Balance Sheets, the amount of the receivable for transactions processed on these ATM transactions is included within settlement receivables and the amount due to the gaming establishment for the face amount of dispensing transactions is included within settlement liabilities.
For the Non‑Site‑Funded locations, our Contract Cash Solutions Agreement with Wells Fargo allows us to use funds owned by Wells Fargo to provide the currency needed for normal operating requirements for our ATMs. For the use of these funds, we pay Wells Fargo a cash usage fee on the average daily balance of funds utilized multiplied by a contractually defined cash usage rate. Under this agreement, all currency supplied by Wells Fargo remains the sole property of Wells Fargo at all times until it is dispensed, at which time Wells Fargo obtains an interest in the corresponding settlement receivable. As the cash is never an asset of ours, supplied cash is not reflected on our balance sheet. We are charged a cash usage fee for the cash used in these ATMs, which is included as interest expense in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. We recognize the fees as interest expense due to the similar operational characteristics to a revolving line of credit, the fact that the fees are calculated on a financial index and the fees are paid for access to a capital resource.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts related to our trade and other receivables and notes receivable that have been deemed to have a high risk of uncollectibility. Management reviews its accounts and notes receivable on a quarterly basis to determine if any receivables will potentially be uncollectible. Management analyzes historical collection trends and changes in our customer payment patterns, customer concentration, and creditworthiness when evaluating the adequacy of our allowance for doubtful accounts. In our overall allowance for doubtful accounts we include any receivable balances for which uncertainty exists as to whether the account balance has become uncollectible. Based on the information available, management believes the allowance for doubtful accounts is adequate; however, actual write-offs may exceed the recorded allowance.
Settlement Receivables and Settlement Liabilities
In the credit card cash access and POS debit card cash access transactions provided by us, the gaming establishment is reimbursed for the cash disbursed to gaming patrons through the issuance of a negotiable instrument or through electronic settlement. We receive reimbursement from the patron’s credit or debit card issuer for the transaction in an amount equal to the amount owing to the gaming establishment plus the fee charged to the patron. This reimbursement is included within the settlement receivables on the Consolidated Balance Sheets. The amounts owed to gaming establishments are included within settlement liabilities on the Consolidated Balance Sheets.
Warranty Receivables
If a gaming establishment chooses to have a check warranted, it sends a request to our third party check warranty service provider, asking whether it would be willing to accept the risk of cashing the check. If the check warranty provider accepts the risk and warrants the check, the gaming establishment negotiates the patron’s check by providing cash for the face amount of the check. If the check is dishonored by the patron’s bank upon presentment, the gaming establishment invokes the warranty, and the check warranty service provider purchases the check from the gaming establishment for the full check amount and then pursues collection activities on its own. In our Central Credit Check Warranty product under our agreement with the third party service provider, we receive all of the check warranty revenue. We are exposed to risk for the losses associated with any warranted items that cannot be collected from patrons issuing the items. Warranty receivables are defined as any amounts paid by the third party check warranty service provider to gaming establishments to purchase dishonored checks. Additionally, we pay a fee to the third party check warranty service provider for its services.
The warranty receivables amount is recorded in other receivables, net on our Consolidated Balance Sheets. On a monthly basis, the Company evaluates the collectability of the outstanding balances and establishes a reserve for the face amount of the expected losses on these receivables. The warranty expense associated with this reserve is included within cost of revenues (exclusive of depreciation and amortization) on our Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.
Inventory
Our inventory primarily consists of component parts as well as finished goods and work-in-progress. The cost of inventory includes cost of materials, labor, overhead and freight. The inventory is stated at the lower of cost or market and accounted for using the first in, first out method.
Property, Equipment and Leased Assets
Property, equipment and leased assets are stated at cost, less accumulated depreciation, computed using the straight-line method over the lesser of the estimated life of the related assets, generally three to five years, or the related lease term. Player terminals and related components and equipment are included in our rental pool. The rental pool can be further delineated as “rental pool – deployed,” which consists of assets deployed at customer sites under participation arrangements, and “rental pool – undeployed,” which consists of assets held by us that are available for customer use. Rental pool – undeployed consists of both new units awaiting deployment to a customer site and previously deployed units currently back with us to be refurbished awaiting re-deployment. Routine maintenance of property, equipment and leased gaming equipment is expensed in the period incurred, while major component upgrades are capitalized and depreciated over the estimated remaining useful life of the component. Sales and retirements of depreciable property are recorded by removing the related cost and accumulated depreciation from the accounts. Gains or losses on sales and retirements of property are reflected in our Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. Property, equipment and leased assets are reviewed for impairment whenever events or circumstances indicate that their carrying amounts may not be recoverable. Impairment is indicated when undiscounted future cash flows do not exceed the asset’s carrying value.
Development and Placement Fee Agreements
We enter into development and placement fee agreements to provide financing for new gaming facilities or for the expansion of existing facilities. All or a portion of the funds provided under development agreements are reimbursed to us, while funds provided under placement fee agreements are not reimbursed. In return, the facility dedicates a percentage of its floor space to placement of our player terminals, and we receive a fixed percentage of those player terminals' hold per day over the term of the agreement which is generally for 12 to 83 months. Certain of the agreements contain player terminal performance standards that could allow the facility to reduce a portion of our guaranteed floor space. In addition, certain development agreements allow the facilities to buy out floor space after advances that are subject to repayment have been repaid. The agreements typically provide for a portion of the amounts retained by the gaming facility for their share of the operating profits of the facility to be used to repay some or all of the advances recorded as notes receivable.
Goodwill
Goodwill represents the excess of the purchase price over the identifiable tangible and intangible assets acquired plus liabilities assumed arising from business combinations. We test for impairment annually on a reporting unit basis, at the beginning of our fourth fiscal quarter, or more often under certain circumstances. The annual impairment test is completed using either: a qualitative Step 0 assessment based on reviewing relevant events and circumstances; or a quantitative Step 1 assessment, which determines the fair value of the reporting unit, using an income approach that discounts future cash flows based on the estimated future results of our reporting units and a market approach that compares market multiples of comparable companies to determine whether or not any impairment exists. If the fair value of a reporting unit is less than its carrying amount, we use the Step 2 assessment to determine the impairment. Our reporting units are identified as operating segments or one level below. Reporting units must: (a) engage in business activities from which they earn revenues and incur expenses; (b) have operating results that are regularly reviewed by our chief operating decision makers to ascertain the resources to be allocated to the segment and assess its performance; and (c) have discrete financial information available. As of December 31, 2015, our reporting units included: Games, Cash Advance, ATM, Check Services, Kiosk Sales and Service, Central Credit, and Everi Compliance.
Other Intangible Assets
Other intangible assets are stated at cost, less accumulated amortization, computed primarily using the straight-line method. Other intangible assets consist primarily of: (i) customer contracts (rights to provide Games and Payments services to gaming establishment customers), developed technology, trade names and trademarks and contract rights acquired through business combinations; (ii) capitalized software development costs; and (iii) the acquisition cost of our patent related to the 3-in-1 rollover technology acquired in 2005. Customer contracts require us to make renewal assumptions, which impact the estimated useful lives of such assets. Capitalized software development costs require us to make certain judgments as to the stages of development and costs eligible for capitalization. Capitalized software costs placed in service are amortized over their useful lives, generally not to exceed five years. The acquisition cost of the 3-in-1 Rollover patent is being amortized over the term of the patent, which expires in 2018. We review intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events or circumstances include, but are not limited to, a significant decrease in the fair value of the underlying business or market price of the asset, a significant adverse change in legal factors or business climate that could affect the value of an asset, or a current period operating or cash flow loss combined with a history of operating or cash flow losses. We group intangible assets for impairment analysis at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of intangible assets is measured by a comparison of the carrying amount of the asset to future, net cash flows expected to be generated by the asset, undiscounted and without interest. Any impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Debt Issuance Costs
Debt issuance costs incurred in connection with long-term borrowings are capitalized and amortized to interest expense based upon the related debt agreements using the straight-line method, which approximates the effective interest method. Debt issuance costs related to line-of-credit arrangements are included in other assets, non-current, on the Consolidated Balance Sheets. All other debt issuance costs are included in long-term debt.
Original Issue Discounts
Original issue discounts incurred in connection with long-term borrowings are capitalized and amortized to interest expense based upon the related debt agreements using the straight-line method, which approximates the effective interest method. These amounts are recorded as contra-liabilities and included in long-term debt on the Consolidated Balance Sheets.
Deferred Revenue
Deferred revenue represents amounts from the sale of fully integrated kiosks and related service contracts, anti-money laundering and tax compliance software, and gaming equipment and systems that have been billed, or for which notes receivable have been executed, but which transaction has not met our revenue recognition criteria. The cost of the fully integrated kiosks and related service contracts, anti-money laundering and tax compliance software, and gaming equipment and systems is deferred and recorded at the time revenue is recognized. Amounts are classified between current and long-term liabilities, based upon the expected period in which the revenue will be recognized.
Revenue Recognition
Overall
We recognize revenue when evidence of an arrangement exists, services have been rendered, the price is fixed or determinable and collectability is reasonably assured. We evaluate our revenue streams for proper timing of revenue recognition. Revenue is recognized as products are delivered and or services are performed.
Games Revenues
Games revenues are primarily generated by our gaming operations under development, placement, and participation arrangements in which we provides our customers with player terminals, player terminal-content licenses and back-office equipment, collectively referred to herein as leased gaming equipment. Under these arrangements, we retain ownership of the leased gaming equipment installed at customer facilities, and we receive revenue based on a percentage of the net win per day generated by the leased gaming equipment or a fixed daily fee based on the number of player terminals installed at the facility. Revenue from lease participation or daily fee arrangements are considered both realizable and earned at the end of each gaming day.
Games revenues generated by player terminals deployed at sites under development or placement fee agreements is reduced by the accretion of contract rights acquired as part of those agreements. Contract rights are amounts allocated to intangible assets for dedicated floor space resulting from such agreements, described under “Development and Placement Fee Agreements.” The related amortization expense, or accretion of contract rights, is netted against our respective revenue category in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.
We also generate games revenues from back-office fees with certain customers. Back-office fees cover the service and maintenance costs for back-office servers installed in each gaming facility to run our gaming equipment, as well as the cost of related software updates. Back-office fees are considered both realizable and earned at the end of each gaming day.
Payments Revenues
Cash advance revenues are comprised of transaction fees assessed to gaming patrons in connection with credit card cash access and POS debit card transactions and are recognized at the time the transactions are authorized. Such fees are based on a combination of a fixed amount plus a percentage of the face amount of the credit card cash access or POS debit card transaction amount.
ATM revenues are comprised of transaction fees in the form of cardholder surcharges assessed to gaming patrons in connection with ATM cash withdrawals at the time the transactions are authorized and reverse interchange fees paid to us by the patrons’ issuing banks. Cardholder surcharges are recognized as revenue when a transaction is initiated and reverse interchange is recognized as revenue on a monthly basis based on the total transactions occurring during the month. The cardholder surcharges assessed to gaming patrons in connection with ATM cash withdrawals are currently a fixed dollar amount and not a percentage of the transaction amount.
Check services revenues are principally comprised of check warranty revenues and are generally based upon a percentage of the face amount of checks warranted. These fees are paid to us by gaming establishments.
Other revenues include amounts derived from the sale of cash access devices, such as the provision of certain professional services, software licensing, and certain other ancillary fees associated with the sale, installation and maintenance of those devices. In addition, other revenues consist of Central Credit revenues that are based upon either a flat monthly unlimited usage fee or a variable fee structure driven by the volume of patron credit histories generated. Also included in other revenues are revenues generated from ancillary marketing, database and Internet gaming activities.
Equipment and Systems Revenues
We sell gaming equipment, fully integrated kiosks and gaming systems directly to our customers under independent sales contracts through normal credit terms, or may grant extended credit terms under contracts secured by the related equipment.
For sales arrangements with multiple deliverables, we apply the guidance from ASC 605-25, “Revenue Recognition - Multiple-Element Arrangements.” In addition, we apply the guidance from ASC 985-605, “Software – Revenue Recognition” which affects vendors that sell or lease tangible products in an arrangement that contains software that is more than incidental to the tangible product as a whole and clarifies what guidance should be used in allocating and measuring revenue.
The majority of our multiple element sales contracts are for some combination of gaming equipment, player terminals, content, system software, license fees, ancillary equipment and maintenance.
Revenue related to systems arrangements that contain both software and non-software deliverables requires allocation of the arrangement fee to the separate deliverables using the relative selling price method. Revenue for software deliverables is recognized under software revenue recognition guidance. Revenue resulting from the sale of non-software deliverables, such as gaming devices and other hardware, are accounted for based on other applicable revenue recognition guidance as the devices are tangible products containing both software and non-software components that function together to deliver the product's essential functionality.
In allocating the arrangement fees to separate deliverables, we evaluate whether we have vendor-specific objective evidence (“VSOE”) of selling price, third party evidence (“TPE”) or estimate of selling price (“ESP”) for gaming devices, maintenance and product support fees and other revenue sources. We generally use ESP to determine the selling price used in the allocation of separate deliverables, as VSOE and TPE are generally not available. We determine the ESP on separate deliverables by estimating a margin typically received on such items and applying that margin to the product cost incurred.
Generally, player terminal sales include ancillary equipment, such as networking gear, bases, chairs, and occasionally signage, some of which may be necessary for the full functionality of the player terminals in a casino. This ancillary equipment comprises an install kit that is shipped simultaneously with the player terminals. Although our products are analyzed as multiple deliverable arrangements, revenue for the player terminal and ancillary equipment is not recognized until all elements essential for the functionality of the product have been shipped or delivered. This includes game theme software and essential ancillary equipment. If elements that are not essential to the functionality of the player terminals are shipped after the unit, such as signage, chairs, or bases, these items would be classified as deferred revenue until shipped or delivered.
Cost of Revenues (exclusive of depreciation and amortization)
The cost of revenues (exclusive of depreciation and amortization) represents the direct costs required to perform revenue generating transactions. The principal costs included within cost of revenues (exclusive of depreciation and amortization) are commissions paid to gaming establishments, interchange fees paid to credit and debit card networks, transaction processing fees to our transaction processor, inventory and related costs associated with the sale of our fully integrated kiosks, electronic gaming machines and system sales, check cashing warranties, field service and network operations personnel.
Advertising, Marketing and Promotional Costs
We expense advertising, marketing and promotional costs as incurred. Total advertising, marketing and promotional costs, included in operating expenses in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income, were $0.9 million, $1.1 million and $0.7 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Research and Development Costs
We conduct research and development activities primarily to develop gaming systems, gaming engines, casino data management systems, casino central monitoring systems, video lottery outcome determination systems, gaming platforms and gaming content, as well as to add enhancements to our existing product lines. We believe our ability to deliver differentiated, appealing products and services to the marketplace is based on our research and development investments, and we expect to continue to make such investments in the future. Research and development costs consist primarily of salaries and benefits, consulting fees and game lab testing fees. Once the technological feasibility of a project has been established, it is transferred from research to development and capitalization of development costs begins until the product is available for general release.
Research and development costs were $19.1 million and $0.8 million for the years ended December 31, 2015 and 2014, respectively. As research and development costs relate to our Games segment which was acquired in 2014, there were no material research and development costs for the year ended December 31, 2013.
Income Taxes
Income tax expense includes U.S. and international income taxes, plus the provision for U.S. taxes on undistributed earnings of international subsidiaries not deemed to be permanently invested. Since it is management’s practice and current intent to reinvest the earnings in the international operations of our foreign subsidiaries, U.S. federal income taxes have not been provided on the undistributed earnings of any foreign subsidiaries except for GCA Macau. Some items of income and expense are not reported in tax returns and the consolidated financial statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes.
Employee Benefits Plan
In connection with the acquisition of Everi Games Holding Inc., we merged the Everi Payments 401(k) Plan (“Merged 401(k) Plan”) into the Everi Games Holding Inc. 401(k) Plan (“Surviving 401(k) Plan”), which was adopted for domestic employees of Everi Games and Everi Payments and their domestic subsidiaries. The Surving 401(k) Plan Participant investment elections were not mapped from the current provider as the Merged Plan assets were liquidated from their current investments and the proceeds were provided to the new provider. The Participant contributions were sent to the new provider into the Plan’s default fund until such time that a Participant made investment elections. The Surviving 401(k) Plan structure is similar to the Merged 401(k) Plan and allows employees to defer up to the lesser of the Internal Revenue Code prescribed maximum amount or 100% of their income on a pre-tax basis through contributions to the plan. As a benefit to employees, we match a percentage of these employee contributions (as defined in the plan document). Expenses related to the matching portion of the contributions to the 401(k) Plan were $1.3 million, $0.5 million and $0.5 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Fair Values of Financial Instruments
The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time, based upon relevant market information about the financial instrument.
The carrying amount of cash and cash equivalents, settlement receivables, trade receivables, other receivables, settlement liabilities, accounts payable and accrued expenses approximates fair value due to the short-term maturities of these instruments. The fair value of our borrowings are estimated based on various inputs to determine a market price, such as: market demand and supply, size of tranche, maturity and similar instruments trading in more active markets.
|
|
Year Ended December 31, |
|
||||||
|
|
2015 |
|
||||||
|
|
Level of |
|
|
|
|
Outstanding |
|
|
|
|
Hierarchy |
|
Fair Value |
|
Balance |
|
||
Term loan |
|
1 |
|
$ |
445,900 |
|
$ |
490,000 |
|
Senior secured notes |
|
3 |
|
$ |
314,900 |
|
$ |
335,000 |
|
Senior unsecured notes |
|
1 |
|
$ |
297,500 |
|
$ |
350,000 |
|
The senior secured notes were fair valued using a Level 3 input by evaluating the trading activities of similar debt instruments as there was no market activity as of December 31, 2015. The senior unsecured notes were syndicated in April 2015 and transitioned from level 3 to level 1 on the fair value hierarchy.
At December 31, 2014, the fair value of our long-term debt was considered to approximate the carrying amount as our acquisition of Everi Games occurred on December 19, 2014, for which our long-term debt was incurred.
Foreign Currency Translation
Foreign currency denominated assets and liabilities for those foreign entities for which the local currency is the functional currency are translated into U.S. dollars based on exchange rates prevailing at the end of each year. Revenues and expenses are translated at average exchange rates during the year. The effects of foreign exchange gains and losses arising from these translations are included as a component of other comprehensive income on the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. Translation adjustments on intercompany balances of a long-term investment nature are recorded as a component of Accumulated Other Comprehensive Income on our Consolidated Balance Sheets.
Use of Estimates
We have made estimates and judgments affecting the amounts reported in these financial statements and the accompanying notes. The actual results may differ from these estimates. These accounting estimates incorporated into the consolidated financial statements include, but are not limited to:
· |
the estimates and assumptions related to the preparation of the unaudited pro forma financial information contained herein; |
· |
the estimates and assumptions related to the preliminary purchase price allocation based on the estimated fair values of the assets acquired and liabilities assumed related to any of our acquisitions; |
· |
the estimated reserve for warranty expense associated with our check warranty receivables; |
· |
the valuation and recognition of share based compensation; |
· |
the valuation allowance on our deferred income tax assets; |
· |
the estimated cash flows in assessing the recoverability of long lived assets; |
· |
the estimates of future operating performance, weighted average cost of capital (“WACC”) and growth rates as well as other factors used in our annual goodwill and assets impairment evaluations; |
· |
the renewal assumptions used for customer contracts to estimate the useful lives of such assets; and |
· |
the judgments used to determine the stages of development and costs eligible for capitalization as internally developed software. |
Earnings Applicable to Common Stock
Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the effect of potential common stock resulting from assumed stock option exercises and vesting of restricted stock unless it is antidilutive.
Share‑Based Compensation
Share-based payment awards result in a cost that is measured at fair value on the award’s grant date.
Our time-based stock options, including our cliff vesting time-based awards, expected to be exercised currently, and in future periods, were measured at fair value on the grant date using the Black Scholes model. Our restricted stock awards expected to be vested currently, and in future periods, were measured at fair value based on the stock price on the grant date. The compensation expense is recognized on a straight-line basis over the vesting period of the awards.
Our market-based stock options will vest if our average stock price in any period of 30 consecutive trading days meets certain target prices during a four year period that commenced on the grant date of these options. If these target prices are not met during the four year period, the unvested shares underlying the options will terminate except if there is a change in control of the Company, as defined in the 2014 Equity Incentive Plan, in which case, the unvested shares underlying such options shall become fully vested on the effective date of such change in control transaction. The options were measured at fair value on the grant date using a lattice-based valuation model based on the median time horizon from the date of grant for these options to the vesting date for those paths that achieved the target threshold(s). The compensation expense is recognized on a straight-line basis over the median vesting periods calculated under such valuation model.
Forfeitures are estimated at the grant date for our time-based and market-based awards, with such estimates updated periodically; and with actual forfeitures recognized currently to the extent they differ from the estimates.
Unless otherwise provided by the administrator of our equity incentive plans, stock options granted under our plans generally expire ten years from the date of grant. In connection with our annual grant in 2015, certain market-based stock option awards were issued that expire seven years from the date of grant. The exercise price of stock options is generally the closing market price of our common stock on the date of the stock option grant.
Reclassification of Prior Year Balances
Reclassifications were made to the prior-period financial statements to conform to the current period presentation.
Recent Accounting Guidance
Recently Adopted Accounting Guidance
In November 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-17 Balance Sheet Classification of Deferred Taxes, which requires that deferred tax assets and deferred tax liabilities be classified as noncurrent in the balance sheet. ASU No. 2015-17 is effective for the interim and annual periods beginning after December 15, 2016. Early adoption is permitted. During the fourth quarter of 2015, we elected to prospectively adopt this standard. The prior reporting period was not retrospectively adjusted. The adoption of this guidance had no impact on our Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.
In September 2015, the FASB issued ASU No. 2015-16, which provides guidance on business combinations. The ASU requires an acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the estimated amounts, calculated as if the accounting had been completed at the acquisition date. The standard is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. We implemented this guidance during the current period as it impacted the final purchase price allocation adjustments associated with our acquisition of Multimedia Games Holdings Inc.
Recent Accounting Guidance Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, which provides guidance on the accounting treatment of leases. The ASU establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements and disclosures included within Notes to the Consolidated Financial Statements.
In July 2015, the FASB issued ASU No. 2015-11, which provides guidance on the measurement of inventory value. The amendments require an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. The pronouncement is effective for annual periods beginning after December 15, 2016, and interim periods within those fiscal years, and early adoption is permitted. We are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements and disclosures included within Notes to the Consolidated Financial Statements.
In April 2015, the FASB issued ASU No. 2015-03, which provides guidance to simplify the presentation of debt issuance costs. These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The pronouncement is effective for annual periods beginning after December 15, 2015, and interim periods within those fiscal years, and early adoption is permitted for financial statements that have not been previously issued. This guidance was further clarified in ASU No. 2015-15 which addressed the treatment of debt issuance costs related to line-of credit arrangements. It noted that as ASU No. 2015-03 did not provide guidance on debt issuance costs related to line-of credit arrangements, the SEC would not object to an entity deferring and presenting these specific debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We expect to adopt the guidance in ASU No. 2015-03 and 2015-15 to reclassify all debt issuance costs not associated with line-of-credit arrangements from other assets, non-current to contra-liabilities to long-term debt on our Consolidated Balance Sheets and related notes for the year ending December 31, 2016.
In January 2015, the FASB issued ASU No. 2015-01, which eliminates the requirement that an entity separately classify, present and disclose extraordinary events and transactions. The pronouncement is effective for annual periods ending after December 15, 2015. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. We expect to implement this guidance for the year ended December 31, 2016 and do not anticipate the ASU to have a material impact on our results of operations or financial condition.
In August 2014, the FASB issued ASU No. 2014-15, which provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The pronouncement is effective for annual periods ending after December 15, 2016, and interim periods thereafter, and early adoption is permitted. We are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements and disclosures included within Notes to the Consolidated Financial Statements.
In June 2014, the FASB issued ASU No. 2014-12, which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. The standard is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. We expect to implement this guidance for the year ended December 31, 2016 and do not anticipate the ASU to have a material impact on our results of operations or financial condition.
In May 2014, the FASB issued ASU No. 2014-09, which creates FASB ASC Topic 606, “Revenue from Contracts with Customers” and supersedes ASC Topic 605, “Revenue Recognition”. The guidance replaces industry-specific guidance and establishes a single five-step model to identify and recognize revenue. The core principle of the guidance is that an entity should recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Additionally, the guidance requires the entity to disclose further quantitative and qualitative information regarding the nature and amount of revenues arising from contracts with customers, as well as other information about the significant judgments and estimates used in recognizing revenues from contracts with customers. This guidance was originally effective for interim and annual reporting periods beginning after December 15, 2016; however, in August 2015, the FASB issued ASU No. 2015-14, which extended the effective date to interim and annual periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2015, including interim reporting periods within that reporting period. This guidance may be adopted retrospectively or under a modified retrospective method where the cumulative effect is recognized at the date of initial application. We are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements and disclosures included within our Notes to the Consolidated Financial Statements.
|
|
|
Year Ended December 31, |
|
||||||
|
|
2015 |
|
||||||
|
|
Level of |
|
|
|
|
Outstanding |
|
|
|
|
Hierarchy |
|
Fair Value |
|
Balance |
|
||
Term loan |
|
1 |
|
$ |
445,900 |
|
$ |
490,000 |
|
Senior secured notes |
|
3 |
|
$ |
314,900 |
|
$ |
335,000 |
|
Senior unsecured notes |
|
1 |
|
$ |
297,500 |
|
$ |
350,000 |
|
|
The total purchase consideration for Everi Games Holding was as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
Amount |
|
|
Purchase consideration |
|
|
|
|
Total purchase price for Everi Games common stock (29,948 shares at $36.50 per share) |
|
$ |
1,093,105 |
|
Payment in respect to Everi Games outstanding equity awards |
|
|
56,284 |
|
Total merger consideration |
|
|
1,149,389 |
|
Repayments of Everi Games debt and other obligations |
|
|
25,065 |
|
Less: Everi Games outstanding cash at acquisition date |
|
|
(118,299) |
|
Total purchase consideration |
|
$ |
1,056,155 |
|
The information below reflects the purchase price allocation (in thousands):
|
|
|
|
|
|
|
Amount |
|
|
Purchase price allocation |
|
|
|
|
Current assets |
|
$ |
68,548 |
|
Property, equipment and leasehold improvements, net |
|
|
87,283 |
|
Goodwill |
|
|
669,542 |
|
Other intangible assets, net |
|
|
403,300 |
|
Other receivables, non-current |
|
|
5,030 |
|
Other assets, long-term |
|
|
3,392 |
|
Deferred tax asset, non-current |
|
|
22,287 |
|
Total assets |
|
|
1,259,382 |
|
Current liabilities |
|
|
44,291 |
|
Deferred tax liability, non-current |
|
|
158,418 |
|
Other accrued expenses and liabilities |
|
|
518 |
|
Total liabilities |
|
|
203,227 |
|
Net assets acquired |
|
$ |
1,056,155 |
|
The following table summarizes acquired tangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Useful Life |
|
Estimated |
|
|||
|
|
(years) |
|
Fair Value |
|
|||
Property, equipment and leased assets |
|
|
|
|
|
|
|
|
Gaming equipment |
|
2 |
- |
4 |
|
$ |
78,201 |
|
Leasehold and building improvements |
|
Lease Term |
|
|
2,105 |
|
||
Machinery and equipment |
|
3 |
- |
5 |
|
|
4,126 |
|
Other |
|
2 |
- |
7 |
|
|
2,851 |
|
Total property, equipment and leased assets |
|
|
|
|
|
$ |
87,283 |
|
The following table summarizes acquired intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Useful Life |
|
Estimated |
|
|||
|
|
(years) |
|
Fair Value |
|
|||
Other intangible assets |
|
|
|
|
|
|
|
|
Tradenames and trademarks |
|
3 |
- |
7 |
|
$ |
14,800 |
|
Computer software |
|
3 |
- |
5 |
|
|
3,755 |
|
Developed technology |
|
2 |
- |
6 |
|
|
139,645 |
|
Customer relationships |
|
8 |
- |
12 |
|
|
231,100 |
|
Contract rights |
|
1 |
- |
7 |
|
|
14,000 |
|
Total other intangible assets |
|
|
|
|
|
$ |
403,300 |
|
The following table reflects selected financial data from the unaudited pro forma consolidated financial information assuming the Merger occurred as of January 1, 2013 (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
||||
|
|
2014 |
|
2013 |
|
||
Unaudited pro forma results of operations (in thousands, except per share amounts) |
|
|
|
|
|
|
|
Revenues |
|
$ |
800,732 |
|
$ |
771,810 |
|
Net (loss) |
|
|
(5,083) |
|
|
(7,003) |
|
Basic loss per share |
|
|
(0.08) |
|
|
(0.11) |
|
Diluted loss per share |
|
|
(0.08) |
|
|
(0.10) |
|
|
The balance of trade receivables consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
||
|
2015 |
|
2014 |
|
||
|
|
|
|
|
|
|
Trade receivables, net |
|
|
|
|
|
|
Games trade receivables |
$ |
38,064 |
|
$ |
28,270 |
|
Payments trade receivables |
|
14,318 |
|
|
9,427 |
|
Total trade receivables, net |
$ |
52,382 |
|
$ |
37,697 |
|
A summary activity of the reserve for warranty losses is as follows (in thousands):
|
|
Amount |
|
|
Balance, December 31, 2012 |
|
$ |
6,908 |
|
Warranty expense provision |
|
|
7,874 |
|
Charge offs against reserve |
|
|
(12,005) |
|
Balance, December 31, 2013 |
|
$ |
2,777 |
|
Warranty expense provision |
|
|
9,029 |
|
Charge offs against reserve |
|
|
(9,022) |
|
Balance, December 31, 2014 |
|
$ |
2,784 |
|
Warranty expense provision |
|
|
9,263 |
|
Charge offs against reserve |
|
|
(9,074) |
|
Balance, December 31, 2015 |
|
$ |
2,973 |
|
|
The balance of other receivables consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
||
|
2015 |
|
2014 |
|
||
Other receivables |
|
|
|
|
|
|
Notes and loans receivable, net of discount of $699 and $853, respectively |
$ |
9,930 |
|
$ |
13,939 |
|
Federal and state income tax receivable |
|
421 |
|
|
15,092 |
|
Other |
|
1,232 |
|
|
706 |
|
Total other receivables |
|
11,583 |
|
|
29,737 |
|
Less: Notes and loans receivable, non-current |
|
6,655 |
|
|
9,184 |
|
Total other receivables, current portion |
$ |
4,928 |
|
$ |
20,553 |
|
|
The balance of prepaid and other assets, current consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
||
|
2015 |
|
2014 |
|
||
Prepaid expenses and other assets |
|
|
|
|
|
|
Prepaid expenses |
$ |
8,255 |
|
$ |
7,163 |
|
Deposits |
|
8,946 |
|
|
8,781 |
|
Other |
|
3,571 |
|
|
3,044 |
|
Total prepaid expenses and other assets |
$ |
20,772 |
|
$ |
18,988 |
|
The balance of other assets, non-current consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
||
|
2015 |
|
2014 |
|
||
Other assets, non-current |
|
|
|
|
|
|
Debt issuance costs |
$ |
24,599 |
|
$ |
41,109 |
|
Prepaid expenses and deposits, non-current |
|
4,521 |
|
|
3,956 |
|
Other |
|
5,934 |
|
|
5,878 |
|
Total other assets, non-current |
$ |
35,054 |
|
$ |
50,943 |
|
|
Inventory consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
||
|
2015 |
|
2014 |
|
||
Inventory |
|
|
|
|
|
|
Raw materials and component parts, net of reserves of $912 and $22, respectively |
$ |
23,663 |
|
$ |
21,151 |
|
Work in progress |
|
1,495 |
|
|
803 |
|
Finished goods |
|
3,580 |
|
|
5,209 |
|
Total inventory |
$ |
28,738 |
|
$ |
27,163 |
|
|
Property, equipment and leased assets consist of the following (amounts in thousands):
|
|
|
|
At December 31, 2015 |
|
At December 31, 2014 |
|
||||||||||||||||
|
|
Useful Life |
|
|
|
|
Accumulated |
|
Net Book |
|
|
|
Accumulated |
|
Net Book |
|
|||||||
|
|
(Years) |
|
Cost |
|
Depreciation |
|
Value |
|
Cost |
|
Depreciation |
|
Value |
|
||||||||
Property, equipment and leased assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental pool - deployed |
|
2 |
- |
4 |
|
$ |
91,743 |
|
$ |
29,993 |
|
$ |
61,750 |
|
$ |
70,295 |
|
$ |
876 |
|
$ |
69,419 |
|
Rental pool - undeployed |
|
2 |
- |
4 |
|
|
11,950 |
|
|
3,361 |
|
|
8,589 |
|
|
10,562 |
|
|
151 |
|
|
10,411 |
|
ATM equipment |
|
|
5 |
|
|
|
20,601 |
|
|
12,885 |
|
|
7,716 |
|
|
23,572 |
|
|
16,544 |
|
|
7,028 |
|
Leasehold and building improvements |
|
Lease Term |
|
|
7,564 |
|
|
2,038 |
|
|
5,526 |
|
|
6,289 |
|
|
895 |
|
|
5,394 |
|
||
Cash advance equipment |
|
|
3 |
|
|
|
7,662 |
|
|
2,711 |
|
|
4,951 |
|
|
3,372 |
|
|
1,873 |
|
|
1,499 |
|
Machinery, office and other equipment |
|
2 |
- |
5 |
|
|
32,313 |
|
|
14,537 |
|
|
17,776 |
|
|
21,405 |
|
|
9,071 |
|
|
12,334 |
|
Total |
|
|
|
|
|
$ |
171,833 |
|
$ |
65,525 |
|
$ |
106,308 |
|
$ |
135,495 |
|
$ |
29,410 |
|
$ |
106,085 |
|
|
The changes in the carrying amount of goodwill are as follows (in thousands):
|
|
Cash |
|
ATM |
|
Check |
|
Games |
|
Other |
|
Total |
|
||||||
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013 |
|
$ |
100,880 |
|
$ |
33,051 |
|
$ |
23,281 |
|
$ |
— |
|
$ |
22,872 |
|
$ |
180,084 |
|
Goodwill acquired during the year |
|
|
— |
|
|
— |
|
|
— |
|
|
669,452 |
|
|
8,439 |
|
|
677,891 |
|
Foreign translation adjustment |
|
|
(62) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(62) |
|
Balance, December 31, 2014 |
|
$ |
100,818 |
|
$ |
33,051 |
|
$ |
23,281 |
|
$ |
669,452 |
|
$ |
31,311 |
|
$ |
857,913 |
|
Goodwill acquired during the year |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
6,117 |
|
|
6,117 |
|
Goodwill impairment |
|
|
— |
|
|
— |
|
|
— |
|
|
(75,008) |
|
|
— |
|
|
(75,008) |
|
Foreign translation adjustment |
|
|
(115) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(115) |
|
Other* |
|
|
— |
|
|
— |
|
|
— |
|
|
896 |
|
|
— |
|
|
896 |
|
Balance, December 31, 2015 |
|
$ |
100,703 |
|
$ |
33,051 |
|
$ |
23,281 |
|
$ |
595,340 |
|
$ |
37,428 |
|
$ |
789,803 |
|
Other intangible assets consist of the following (in thousands):
|
|
|
|
At December 31, 2015 |
|
At December 31, 2014 |
||||||||||||||||
|
|
Useful Life |
|
|
|
|
Accumulated |
|
Net Book |
|
|
|
|
Accumulated |
|
Net Book |
||||||
|
|
(years) |
|
Cost |
|
Amortization |
|
Value |
|
Cost |
|
Amortization |
|
Value |
||||||||
Other intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract rights under development and placement fee agreements |
|
1 |
- |
7 |
|
$ |
16,453 |
|
$ |
7,612 |
|
$ |
8,841 |
|
$ |
14,000 |
|
$ |
301 |
|
$ |
13,699 |
Customer contracts |
|
7 |
- |
14 |
|
|
50,177 |
|
|
34,755 |
|
|
15,422 |
|
|
43,938 |
|
|
29,931 |
|
|
14,007 |
Customer relationships |
|
8 |
- |
12 |
|
|
231,100 |
|
|
21,723 |
|
|
209,377 |
|
|
231,100 |
|
|
733 |
|
|
230,367 |
Developed technology and software |
|
1 |
- |
6 |
|
|
197,658 |
|
|
63,591 |
|
|
134,067 |
|
|
174,417 |
|
|
14,604 |
|
|
159,813 |
Patents, trademarks and other |
|
1 |
- |
17 |
|
|
28,240 |
|
|
13,485 |
|
|
14,755 |
|
|
27,856 |
|
|
8,957 |
|
|
18,899 |
Total |
|
|
|
|
|
$ |
523,628 |
|
$ |
141,166 |
|
$ |
382,462 |
|
$ |
491,311 |
|
$ |
54,526 |
|
$ |
436,785 |
The anticipated amortization expense related to other intangible assets, assuming no subsequent impairment of the underlying assets, is as follows (in thousands):
|
|
Amount |
|
|
Anticipated amortization expense(1) |
|
|
|
|
2016 |
|
$ |
95,077 |
|
2017 |
|
|
53,775 |
|
2018 |
|
|
40,479 |
|
2019 |
|
|
37,923 |
|
2020 |
|
|
35,748 |
|
Thereafter |
|
|
110,119 |
|
Total |
|
$ |
373,121 |
|
|
The following table presents our accounts payable and accrued expenses (amounts in thousands):
|
At December 31, |
|
At December 31, |
|
||
|
2015 |
|
2014 |
|
||
Accounts payable and accrued expenses |
|
|
|
|
|
|
Trade accounts payable |
$ |
67,139 |
|
$ |
48,962 |
|
Accrued interest |
|
73 |
|
|
3,387 |
|
Payroll and related expenses |
|
8,565 |
|
|
10,889 |
|
Deferred and unearned revenues |
|
10,836 |
|
|
8,016 |
|
Cash access processing and related expenses |
|
4,662 |
|
|
4,414 |
|
Accrued taxes |
|
1,654 |
|
|
3,195 |
|
Other |
|
8,583 |
|
|
25,805 |
|
Total accounts payable and accrued expenses |
$ |
101,512 |
|
$ |
104,668 |
|
|
|
|
|
|
|
|
|
The following table summarizes our indebtedness (in thousands):
|
At December 31, |
|
At December 31, |
|
|
||
|
2015 |
|
2014 |
|
|
||
Long-term debt |
|
|
|
|
|
|
|
Senior secured term loan |
$ |
490,000 |
|
$ |
500,000 |
|
|
Senior secured notes |
|
335,000 |
|
|
350,000 |
|
|
Senior unsecured notes |
|
350,000 |
|
|
350,000 |
|
|
Total debt |
|
1,175,000 |
|
|
1,200,000 |
|
|
Less: debt issuance costs and warrant discount |
|
(11,421) |
|
|
(11,213) |
|
|
Total debt after discount |
|
1,163,579 |
|
|
1,188,787 |
|
|
Less: current portion of long-term debt |
|
(10,000) |
|
|
(10,000) |
|
|
Long-term debt, less current portion |
$ |
1,153,579 |
|
$ |
1,178,787 |
|
|
The maturities of our borrowings at December 31, 2015 are as follows (in thousands):
|
|
|
|
|
|
|
Amount |
|
|
Maturities of borrowings |
|
|
|
|
2016 |
|
$ |
10,000 |
|
2017 |
|
|
10,000 |
|
2018 |
|
|
10,000 |
|
2019 |
|
|
10,000 |
|
2020 |
|
|
450,000 |
|
Thereafter |
|
|
685,000 |
|
Total |
|
$ |
1,175,000 |
|
|
As of December 31, 2015, the minimum aggregate rental commitment under all non‑cancelable operating leases were as follows (in thousands):
|
|
Amount |
|
|
Minimum aggregate rental commitments |
|
|
|
|
2016 |
|
$ |
4,410 |
|
2017 |
|
|
4,171 |
|
2018 |
|
|
4,064 |
|
2019 |
|
|
4,064 |
|
2020 |
|
|
3,925 |
|
Thereafter |
|
|
5,900 |
|
Total |
|
$ |
26,534 |
|
|
The weighted average number of common stock outstanding used in the computation of basic and diluted earnings per share is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
||||
|
|
2015 |
|
2014 |
|
2013 |
|
Weighted average shares |
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic |
|
65,854 |
|
65,780 |
|
66,014 |
|
Potential dilution from equity grants(1) |
|
— |
|
1,083 |
|
1,191 |
|
Weighted average number of common shares outstanding - diluted |
|
65,854 |
|
66,863 |
|
67,205 |
|
The Company was in a net loss position for the year ended December 31, 2015, and therefore, potential dilution from the application of the treasury stock method was not applicable. The potential dilution excludes the weighted average effect of equity awards to acquire 7.6 million and 5.9 million shares of our common stock at December 31, 2014 and 2013, respectively, as the application of the treasury stock method, as required, makes them anti‑dilutive
|
A summary of award activity is as follows (in thousands):
|
|
Stock Options |
|
Restricted Stock |
|
|
|
Granted |
|
Granted |
|
Outstanding, December 31, 2014 |
|
13,626 |
|
440 |
|
Additional authorized shares |
|
— |
|
— |
|
Granted |
|
6,512 |
|
— |
|
Exercised options or vested shares |
|
(343) |
|
(128) |
|
Canceled or forfeited |
|
(2,355) |
|
(2) |
|
Outstanding, December 31, 2015 |
|
17,440 |
|
310 |
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
||||
|
|
December 31, |
|
||||
|
|
2015 |
|
2014 |
|
2013 |
|
Risk-free interest rate |
|
1 |
% |
1 |
% |
1 |
% |
Expected life of options (in years) |
|
4 |
|
4 |
|
4 |
|
Expected volatility |
|
43 |
% |
54 |
% |
61 |
% |
Expected dividend yield |
|
0 |
% |
0 |
% |
0 |
% |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Number of |
|
Weighted Average |
|
Average Life |
|
Aggregate |
|
||
|
|
Common Shares |
|
Exercise Price |
|
Remaining |
|
Intrinsic Value |
|
||
|
|
(in thousands) |
|
(per share) |
|
(years) |
|
(in thousands) |
|
||
Outstanding, December 31, 2014 |
|
13,626 |
|
$ |
7.64 |
|
6.5 |
|
$ |
9,148 |
|
Granted |
|
6,512 |
|
|
7.68 |
|
|
|
|
|
|
Exercised |
|
(343) |
|
|
5.35 |
|
|
|
|
|
|
Canceled or forfeited |
|
(2,355) |
|
|
9.82 |
|
|
|
|
|
|
Outstanding, December 31, 2015 |
|
17,440 |
|
$ |
7.41 |
|
6.6 |
|
$ |
1,212 |
|
Vested and expected to vest, December 31, 2015 |
|
14,503 |
|
$ |
7.35 |
|
6.4 |
|
$ |
1,212 |
|
Exercisable, December 31, 2015 |
|
6,908 |
|
$ |
7.13 |
|
4.4 |
|
$ |
1,212 |
|
|
|
|
|
|
|
Options Outstanding |
|
Options Exercisable |
|
||||||||
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Weighted |
|
|
|
Weighted |
|
||
|
|
|
|
|
|
Number |
|
Remaining |
|
Average |
|
Number |
|
Average |
|
||
|
|
|
|
|
|
Outstanding |
|
Contract |
|
Exercise |
|
Exercisable |
|
Exercise |
|
||
Range of Exercise Prices |
|
(000’s) |
|
Life (Years) |
|
Prices |
|
(000’s) |
|
Price |
|
||||||
$ |
— |
|
$ |
5.99 |
|
2,195 |
|
5.4 |
|
$ |
4.43 |
|
2,104 |
|
$ |
4.40 |
|
|
6.00 |
|
|
8.99 |
|
13,973 |
|
7.2 |
|
|
7.54 |
|
3,535 |
|
|
7.33 |
|
|
9.00 |
|
|
12.99 |
|
1,007 |
|
1.9 |
|
|
9.99 |
|
1,004 |
|
|
9.99 |
|
|
13.00 |
|
|
13.99 |
|
5 |
|
0.6 |
|
|
13.79 |
|
5 |
|
|
13.79 |
|
|
14.00 |
|
|
14.99 |
|
60 |
|
1.4 |
|
|
14.58 |
|
60 |
|
|
14.58 |
|
|
15.00 |
|
|
15.99 |
|
100 |
|
0.7 |
|
|
15.08 |
|
100 |
|
|
15.08 |
|
|
16.00 |
|
|
18.99 |
|
100 |
|
0.8 |
|
|
16.05 |
|
100 |
|
|
16.05 |
|
|
|
|
|
|
|
17,440 |
|
|
|
|
|
|
6,908 |
|
|
|
|
The following is a summary of non‑vested share awards for our time‑based restricted shares:
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
Shares |
|
Average Grant |
|
|
|
|
Outstanding |
|
Date Fair Value |
|
|
|
|
(in thousands) |
|
(per share) |
|
|
Outstanding, December 31, 2014 |
|
440 |
|
$ |
7.11 |
|
Granted |
|
— |
|
|
— |
|
Vested |
|
(128) |
|
|
7.11 |
|
Forfeited |
|
(2) |
|
|
7.09 |
|
Outstanding, December 31, 2015 |
|
310 |
|
$ |
7.11 |
|
|
The following presents consolidated (loss) income before tax for domestic and foreign operations (in thousands):
|
|
Year Ended December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Consolidated (loss) income before tax |
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
(129,602) |
|
$ |
13,870 |
|
$ |
35,473 |
|
Foreign |
|
|
6,519 |
|
|
6,431 |
|
|
3,412 |
|
Total |
|
$ |
(123,083) |
|
$ |
20,301 |
|
$ |
38,885 |
|
The income tax (benefit) provision attributable to (loss) income from operations before tax consists of the following components (in thousands):
|
|
Year Ended December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Income tax (benefit) provision |
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
(19,746) |
|
$ |
6,637 |
|
$ |
13,626 |
|
Foreign |
|
|
1,635 |
|
|
1,524 |
|
|
861 |
|
Total income tax (benefit) provision |
|
$ |
(18,111) |
|
$ |
8,161 |
|
$ |
14,487 |
|
Income tax provision components |
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
1,767 |
|
$ |
1,598 |
|
$ |
844 |
|
Deferred |
|
|
(19,878) |
|
|
6,563 |
|
|
13,643 |
|
Total income tax (benefit) provision |
|
$ |
(18,111) |
|
$ |
8,161 |
|
$ |
14,487 |
|
|
|
Year Ended |
|
||||
|
|
December 31, |
|
||||
|
|
2015 |
|
2014 |
|
2013 |
|
Income tax reconciliation |
|
|
|
|
|
|
|
Federal statutory rate |
|
35.0 |
% |
35.0 |
% |
35.0 |
% |
Foreign provision |
|
0.6 |
% |
(3.6) |
% |
(1.0) |
% |
State/province income tax |
|
1.1 |
% |
0.9 |
% |
1.3 |
% |
Non-deductible compensation cost |
|
(1.1) |
% |
0.7 |
% |
1.1 |
% |
Non-deductible acquisition cost |
|
0.0 |
% |
5.9 |
% |
0.0 |
% |
Adjustment to carrying value |
|
0.6 |
% |
1.9 |
% |
0.3 |
% |
Research credit |
|
0.6 |
% |
0.0 |
% |
0.0 |
% |
Goodwill impairment |
|
(21.3) |
% |
0.0 |
% |
0.0 |
% |
Other |
|
(0.8) |
% |
(0.6) |
% |
0.6 |
% |
Effective tax rate |
|
14.7 |
% |
40.2 |
% |
37.3 |
% |
The major tax‑effected components of the deferred tax assets and liabilities are as follows (in thousands):
|
|
Year Ended December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Deferred income tax assets related to: |
|
|
|
|
|
|
|
|
|
|
Intangibles |
|
$ |
— |
|
$ |
— |
|
$ |
44,845 |
|
Net operating losses |
|
|
81,531 |
|
|
64,357 |
|
|
37,333 |
|
Stock compensation expense |
|
|
10,212 |
|
|
8,841 |
|
|
7,066 |
|
Accounts receivable allowances |
|
|
1,444 |
|
|
1,613 |
|
|
1,703 |
|
Accrued and prepaid expenses |
|
|
3,958 |
|
|
7,917 |
|
|
1,331 |
|
Long-term debt |
|
|
300 |
|
|
290 |
|
|
348 |
|
Other |
|
|
658 |
|
|
373 |
|
|
406 |
|
Tax credits |
|
|
5,896 |
|
|
5,146 |
|
|
— |
|
Property, equipment and leasehold improvements |
|
|
— |
|
|
— |
|
|
333 |
|
Valuation allowance |
|
|
(1,442) |
|
|
(2,319) |
|
|
(1,379) |
|
Total deferred income tax assets |
|
$ |
102,557 |
|
$ |
86,218 |
|
$ |
91,986 |
|
Deferred income tax liabilities related to: |
|
|
|
|
|
|
|
|
|
|
Property, equipment and leased assets |
|
|
18,274 |
|
$ |
23,785 |
|
$ |
— |
|
Intangibles |
|
|
108,727 |
|
|
109,103 |
|
|
— |
|
Other |
|
|
3,200 |
|
|
1,072 |
|
|
942 |
|
Total deferred income tax liabilities |
|
|
130,201 |
|
$ |
133,960 |
|
$ |
942 |
|
Deferred income taxes, net |
|
$ |
(27,644) |
|
$ |
(47,742) |
|
$ |
91,044 |
|
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):
|
|
Year Ended December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Unrecognized tax benefit |
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefit at the beginning of the period |
|
$ |
729 |
|
$ |
— |
|
$ |
— |
|
Gross increases - tax positions in prior period |
|
|
— |
|
|
— |
|
|
— |
|
Gross decreases - tax positions in prior period |
|
|
— |
|
|
— |
|
|
— |
|
Gross increases - tax positions in current period |
|
|
— |
|
|
729 |
|
|
— |
|
Settlements |
|
|
— |
|
|
— |
|
|
— |
|
Unrecognized tax benefit at the end of the period |
|
$ |
729 |
|
$ |
729 |
|
$ |
— |
|
|
The following tables present segment information (in thousands):
|
|
|
|
|
|
|
||||
|
|
For the Year Ended December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
Games |
|
$ |
214,424 |
|
$ |
7,406 |
|
$ |
— |
|
Payments |
|
|
612,575 |
|
|
585,647 |
|
|
582,444 |
|
Total revenues |
|
$ |
826,999 |
|
$ |
593,053 |
|
$ |
582,444 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
|
|
|
|
|
|
|
|
Games |
|
$ |
(73,503) |
|
$ |
(1,423) |
|
$ |
— |
|
Payments |
|
|
63,773 |
|
|
35,205 |
|
|
49,150 |
|
Total operating (loss) income |
|
$ |
(9,730) |
|
$ |
33,782 |
|
$ |
49,150 |
|
|
|
At |
||||
|
|
December 31, 2015 |
|
December 31, 2014 |
||
Total assets |
|
|
|
|
|
|
Games |
|
$ |
1,086,147 |
|
$ |
1,242,822 |
Payments |
|
|
487,918 |
|
|
464,463 |
Total assets |
|
$ |
1,574,065 |
|
$ |
1,707,285 |
|
The unaudited selected quarterly results of operations are as follows (in thousands, except for per share amounts):
|
|
Quarter |
|
|||||||||||||
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
Year |
|
|||||
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
207,473 |
|
$ |
206,364 |
|
$ |
208,746 |
|
$ |
204,416 |
|
$ |
826,999 |
|
Operating income (loss) |
|
|
28,141 |
|
|
16,336 |
|
|
14,716 |
|
|
(68,923) |
|
|
(9,730) |
|
Net income (loss) |
|
|
469 |
|
|
(12,741) |
|
|
(6,110) |
|
|
(86,590) |
|
|
(104,972) |
|
Basic earnings (loss) per share |
|
$ |
0.01 |
|
$ |
(0.19) |
|
$ |
(0.09) |
|
$ |
(1.31) |
|
$ |
(1.59) |
|
Diluted earnings (loss) per share |
|
$ |
0.01 |
|
$ |
(0.19) |
|
$ |
(0.09) |
|
$ |
(1.31) |
|
$ |
(1.59) |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
65,623 |
|
|
65,844 |
|
|
65,941 |
|
|
66,004 |
|
|
65,854 |
|
Diluted |
|
|
66,492 |
|
|
65,844 |
|
|
65,941 |
|
|
66,004 |
|
|
65,854 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
150,571 |
|
$ |
144,946 |
|
$ |
145,481 |
|
$ |
152,055 |
|
$ |
593,053 |
|
Operating income |
|
|
13,013 |
|
|
9,622 |
|
|
10,771 |
|
|
376 |
|
|
33,782 |
|
Net income (loss) |
|
|
7,489 |
|
|
4,724 |
|
|
5,676 |
|
|
(5,749) |
|
|
12,140 |
|
Basic earnings (loss) per share |
|
$ |
0.11 |
|
$ |
0.07 |
|
$ |
0.09 |
|
$ |
(0.09) |
|
$ |
0.18 |
|
Diluted earnings (loss) per share |
|
$ |
0.11 |
|
$ |
0.07 |
|
$ |
0.09 |
|
$ |
(0.09) |
|
$ |
0.18 |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
65,910 |
|
|
65,970 |
|
|
65,589 |
|
|
65,608 |
|
|
65,780 |
|
Diluted |
|
|
67,370 |
|
|
67,087 |
|
|
66,747 |
|
|
66,397 |
|
|
66,863 |
|
|
|
Year Ended December 31, 2015 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
— |
|
$ |
566,634 |
|
$ |
243,974 |
|
$ |
17,219 |
|
$ |
(828) |
|
$ |
826,999 |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization) |
|
— |
|
|
444,990 |
|
|
56,382 |
|
|
9,025 |
|
|
— |
|
|
510,397 |
Operating expenses |
|
— |
|
|
61,615 |
|
|
38,554 |
|
|
1,861 |
|
|
(828) |
|
|
101,202 |
Research and development |
|
— |
|
|
— |
|
|
19,098 |
|
|
— |
|
|
— |
|
|
19,098 |
Goodwill impairment |
|
— |
|
|
— |
|
|
75,008 |
|
|
— |
|
|
— |
|
|
75,008 |
Depreciation |
|
— |
|
|
7,635 |
|
|
37,734 |
|
|
182 |
|
|
— |
|
|
45,551 |
Amortization |
|
— |
|
|
9,842 |
|
|
73,195 |
|
|
2,436 |
|
|
— |
|
|
85,473 |
Total costs and expenses |
|
— |
|
|
524,082 |
|
|
299,971 |
|
|
13,504 |
|
|
(828) |
|
|
836,729 |
Operating income (loss) |
|
— |
|
|
42,552 |
|
|
(55,997) |
|
|
3,715 |
|
|
— |
|
|
(9,730) |
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
7,639 |
|
|
92,343 |
|
|
308 |
|
|
— |
|
|
100,290 |
Income (loss) from subsidiaries |
|
104,972 |
|
|
(13,777) |
|
|
— |
|
|
— |
|
|
(91,195) |
|
|
— |
Loss on extinguishment of debt |
|
— |
|
|
13,063 |
|
|
— |
|
|
— |
|
|
— |
|
|
13,063 |
Total other expenses |
|
104,972 |
|
|
6,925 |
|
|
92,343 |
|
|
308 |
|
|
(91,195) |
|
|
113,353 |
(Loss) income from operations before tax |
|
(104,972) |
|
|
35,627 |
|
|
(148,340) |
|
|
3,407 |
|
|
91,195 |
|
|
(123,083) |
Income tax provision (benefit) |
|
— |
|
|
8,342 |
|
|
(27,673) |
|
|
1,220 |
|
|
— |
|
|
(18,111) |
Net (loss) income |
|
(104,972) |
|
|
27,285 |
|
|
(120,667) |
|
|
2,187 |
|
|
91,195 |
|
|
(104,972) |
Foreign currency translation |
|
(1,251) |
|
|
— |
|
|
— |
|
|
(1,251) |
|
|
1,251 |
|
|
(1,251) |
Comprehensive (loss) income |
$ |
(106,223) |
|
$ |
27,285 |
|
$ |
(120,667) |
|
$ |
936 |
|
$ |
92,446 |
|
$ |
(106,223) |
|
Year Ended December 31, 2014 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
— |
|
$ |
542,206 |
|
$ |
35,689 |
|
$ |
15,891 |
|
$ |
(733) |
|
$ |
593,053 |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization) |
|
— |
|
|
422,544 |
|
|
10,864 |
|
|
6,663 |
|
|
— |
|
|
440,071 |
Operating expenses |
|
— |
|
|
88,087 |
|
|
5,719 |
|
|
2,379 |
|
|
(733) |
|
|
95,452 |
Research and development |
|
— |
|
|
— |
|
|
804 |
|
|
— |
|
|
— |
|
|
804 |
Depreciation |
|
— |
|
|
7,428 |
|
|
1,134 |
|
|
183 |
|
|
— |
|
|
8,745 |
Amortization |
|
— |
|
|
11,180 |
|
|
2,454 |
|
|
565 |
|
|
— |
|
|
14,199 |
Total costs and expenses |
|
— |
|
|
529,239 |
|
|
20,975 |
|
|
9,790 |
|
|
(733) |
|
|
559,271 |
Operating income |
|
— |
|
|
12,967 |
|
|
14,714 |
|
|
6,101 |
|
|
— |
|
|
33,782 |
Other (income) expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
7,675 |
|
|
3,290 |
|
|
(209) |
|
|
— |
|
|
10,756 |
Income from subsidiaries |
|
(12,140) |
|
|
(15,218) |
|
|
— |
|
|
— |
|
|
27,358 |
|
|
— |
Loss on extinguishment of debt |
|
— |
|
|
2,523 |
|
|
202 |
|
|
— |
|
|
— |
|
|
2,725 |
Total other (income) expense |
|
(12,140) |
|
|
(5,020) |
|
|
3,492 |
|
|
(209) |
|
|
27,358 |
|
|
13,481 |
Income from operations before tax |
|
12,140 |
|
|
17,987 |
|
|
11,222 |
|
|
6,310 |
|
|
(27,358) |
|
|
20,301 |
Income tax expense |
|
— |
|
|
2,801 |
|
|
3,784 |
|
|
1,576 |
|
|
— |
|
|
8,161 |
Net income |
|
12,140 |
|
|
15,186 |
|
|
7,438 |
|
|
4,734 |
|
|
(27,358) |
|
|
12,140 |
Foreign currency translation |
|
(1,258) |
|
|
— |
|
|
— |
|
|
(1,258) |
|
|
1,258 |
|
|
(1,258) |
Comprehensive income |
$ |
10,882 |
|
$ |
15,186 |
|
$ |
7,438 |
|
$ |
3,476 |
|
$ |
(26,100) |
|
$ |
10,882 |
|
Year Ended December 31, 2013 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
— |
|
$ |
541,002 |
|
$ |
28,277 |
|
$ |
13,838 |
|
$ |
(673) |
|
$ |
582,444 |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization) |
|
— |
|
|
424,129 |
|
|
7,905 |
|
|
7,760 |
|
|
— |
|
|
439,794 |
Operating expenses |
|
— |
|
|
71,623 |
|
|
3,445 |
|
|
2,167 |
|
|
(673) |
|
|
76,562 |
Depreciation |
|
— |
|
|
7,186 |
|
|
1 |
|
|
163 |
|
|
— |
|
|
7,350 |
Amortization |
|
— |
|
|
9,217 |
|
|
— |
|
|
371 |
|
|
— |
|
|
9,588 |
Total costs and expenses |
|
— |
|
|
512,155 |
|
|
11,351 |
|
|
10,461 |
|
|
(673) |
|
|
533,294 |
Operating income |
|
— |
|
|
28,847 |
|
|
16,926 |
|
|
3,377 |
|
|
— |
|
|
49,150 |
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
10,342 |
|
|
— |
|
|
(77) |
|
|
— |
|
|
10,265 |
Income from subsidiaries |
|
(24,398) |
|
|
(13,596) |
|
|
— |
|
|
— |
|
|
37,994 |
|
|
— |
Total other expenses |
|
(24,398) |
|
|
(3,254) |
|
|
— |
|
|
(77) |
|
|
37,994 |
|
|
10,265 |
Income from operations before tax |
|
24,398 |
|
|
32,101 |
|
|
16,926 |
|
|
3,454 |
|
|
(37,994) |
|
|
38,885 |
Income tax provision |
|
— |
|
|
7,703 |
|
|
5,924 |
|
|
860 |
|
|
— |
|
|
14,487 |
Net income |
|
24,398 |
|
|
24,398 |
|
|
11,002 |
|
|
2,594 |
|
|
(37,994) |
|
|
24,398 |
Foreign currency translation |
|
269 |
|
|
— |
|
|
— |
|
|
269 |
|
|
(269) |
|
|
269 |
Comprehensive income |
$ |
24,667 |
|
$ |
24,398 |
|
$ |
11,002 |
|
$ |
2,863 |
|
$ |
(38,263) |
|
$ |
24,667 |
|
At December 31, 2015 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
6 |
|
$ |
87,078 |
|
$ |
3,900 |
|
$ |
11,046 |
|
$ |
— |
|
$ |
102,030 |
Settlement receivables |
|
— |
|
|
42,437 |
|
|
— |
|
|
2,496 |
|
|
— |
|
|
44,933 |
Trade receivables, net |
|
— |
|
|
10,750 |
|
|
41,634 |
|
|
(2) |
|
|
— |
|
|
52,382 |
Other receivables |
|
— |
|
|
4,063 |
|
|
833 |
|
|
32 |
|
|
— |
|
|
4,928 |
Inventory |
|
— |
|
|
12,772 |
|
|
15,966 |
|
|
— |
|
|
— |
|
|
28,738 |
Prepaid expenses and other assets |
|
— |
|
|
6,464 |
|
|
5,160 |
|
|
9,148 |
|
|
— |
|
|
20,772 |
Deferred tax asset |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Intercompany balances |
|
— |
|
|
39,810 |
|
|
168,659 |
|
|
1,431 |
|
|
(209,900) |
|
|
— |
Total current assets |
|
6 |
|
|
203,374 |
|
|
236,152 |
|
|
24,151 |
|
|
(209,900) |
|
|
253,783 |
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements, net |
|
— |
|
|
26,472 |
|
|
79,514 |
|
|
322 |
|
|
— |
|
|
106,308 |
Goodwill |
|
— |
|
|
154,395 |
|
|
634,811 |
|
|
597 |
|
|
— |
|
|
789,803 |
Other intangible assets, net |
|
— |
|
|
32,000 |
|
|
343,629 |
|
|
6,833 |
|
|
— |
|
|
382,462 |
Other receivables, non-current |
|
— |
|
|
3,256 |
|
|
3,399 |
|
|
— |
|
|
— |
|
|
6,655 |
Investment in subsidiaries |
|
137,414 |
|
|
159,735 |
|
|
— |
|
|
86 |
|
|
(297,235) |
|
|
— |
Deferred tax asset, non-current |
|
— |
|
|
65,577 |
|
|
— |
|
|
— |
|
|
(65,577) |
|
|
— |
Other assets, non-current |
|
— |
|
|
30,936 |
|
|
3,667 |
|
|
451 |
|
|
— |
|
|
35,054 |
Intercompany balances |
|
— |
|
|
1,136,505 |
|
|
— |
|
|
— |
|
|
(1,136,505) |
|
|
— |
Total non-current assets |
|
137,414 |
|
|
1,608,876 |
|
|
1,065,020 |
|
|
8,289 |
|
|
(1,499,317) |
|
|
1,320,282 |
Total assets |
$ |
137,420 |
|
$ |
1,812,250 |
|
$ |
1,301,172 |
|
$ |
32,440 |
|
$ |
(1,709,217) |
|
$ |
1,574,065 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement liabilities |
$ |
— |
|
$ |
136,109 |
|
$ |
162 |
|
$ |
3,548 |
|
$ |
— |
|
$ |
139,819 |
Accounts payable and accrued expenses |
|
— |
|
|
67,736 |
|
|
32,593 |
|
|
1,183 |
|
|
— |
|
|
101,512 |
Current portion of long-term debt |
|
— |
|
|
10,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
10,000 |
Intercompany balances |
|
— |
|
|
170,091 |
|
|
32,732 |
|
|
7,077 |
|
|
(209,900) |
|
|
— |
Total current liabilities |
|
— |
|
|
383,936 |
|
|
65,487 |
|
|
11,808 |
|
|
(209,900) |
|
|
251,331 |
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability, non-current |
|
— |
|
|
— |
|
|
93,221 |
|
|
— |
|
|
(65,577) |
|
|
27,644 |
Long-term debt, less current portion |
|
— |
|
|
1,153,579 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,153,579 |
Other accrued expenses and liabilities |
|
— |
|
|
3,624 |
|
|
467 |
|
|
— |
|
|
— |
|
|
4,091 |
Intercompany balances |
|
— |
|
|
— |
|
|
1,136,505 |
|
|
— |
|
|
(1,136,505) |
|
|
— |
Total non-current liabilities |
|
— |
|
|
1,157,203 |
|
|
1,230,193 |
|
|
— |
|
|
(1,202,082) |
|
|
1,185,314 |
Total liabilities |
|
— |
|
|
1,541,139 |
|
|
1,295,680 |
|
|
11,808 |
|
|
(1,411,982) |
|
|
1,436,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
91 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
91 |
Additional paid-in capital |
|
258,020 |
|
|
80,443 |
|
|
3,670 |
|
|
21,101 |
|
|
(105,214) |
|
|
258,020 |
Retained earnings |
|
55,180 |
|
|
190,375 |
|
|
1,797 |
|
|
1,180 |
|
|
(193,352) |
|
|
55,180 |
Accumulated other comprehensive income |
|
318 |
|
|
293 |
|
|
25 |
|
|
(1,649) |
|
|
1,331 |
|
|
318 |
Treasury stock, at cost |
|
(176,189) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(176,189) |
Total stockholders’ equity |
|
137,420 |
|
|
271,111 |
|
|
5,492 |
|
|
20,632 |
|
|
(297,235) |
|
|
137,420 |
Total liabilities and stockholders’ equity |
$ |
137,420 |
|
$ |
1,812,250 |
|
$ |
1,301,172 |
|
$ |
32,440 |
|
$ |
(1,709,217) |
|
$ |
1,574,065 |
|
At December 31, 2014 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
— |
|
$ |
68,143 |
|
$ |
6,489 |
|
$ |
14,463 |
|
$ |
— |
|
$ |
89,095 |
Settlement receivables |
|
— |
|
|
40,157 |
|
|
— |
|
|
3,131 |
|
|
— |
|
|
43,288 |
Trade receivables, net |
|
— |
|
|
6,578 |
|
|
31,116 |
|
|
3 |
|
|
— |
|
|
37,697 |
Other receivables |
|
— |
|
|
3,416 |
|
|
16,992 |
|
|
145 |
|
|
— |
|
|
20,553 |
Inventory |
|
— |
|
|
10,595 |
|
|
16,568 |
|
|
— |
|
|
— |
|
|
27,163 |
Prepaid expenses and other assets |
|
— |
|
|
7,143 |
|
|
2,821 |
|
|
9,024 |
|
|
— |
|
|
18,988 |
Deferred tax asset |
|
— |
|
|
2,743 |
|
|
6,848 |
|
|
— |
|
|
— |
|
|
9,591 |
Intercompany balances |
|
— |
|
|
18,038 |
|
|
151,179 |
|
|
1,623 |
|
|
(170,840) |
|
|
— |
Total current assets |
|
— |
|
|
156,813 |
|
|
232,013 |
|
|
28,389 |
|
|
(170,840) |
|
|
246,375 |
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements, net |
|
— |
|
|
17,864 |
|
|
87,898 |
|
|
323 |
|
|
— |
|
|
106,085 |
Goodwill |
|
— |
|
|
148,278 |
|
|
708,922 |
|
|
713 |
|
|
— |
|
|
857,913 |
Other intangible assets, net |
|
— |
|
|
24,771 |
|
|
402,816 |
|
|
9,198 |
|
|
— |
|
|
436,785 |
Other receivables, non-current |
|
— |
|
|
4,411 |
|
|
4,773 |
|
|
— |
|
|
— |
|
|
9,184 |
Investment in subsidiaries |
|
231,473 |
|
|
147,195 |
|
|
— |
|
|
86 |
|
|
(378,754) |
|
|
— |
Deferred tax asset, non-current |
|
— |
|
|
78,229 |
|
|
— |
|
|
— |
|
|
(78,229) |
|
|
— |
Other assets, non-current |
|
— |
|
|
47,508 |
|
|
3,366 |
|
|
69 |
|
|
— |
|
|
50,943 |
Intercompany balances |
|
— |
|
|
1,130,380 |
|
|
— |
|
|
— |
|
|
(1,130,380) |
|
|
— |
Total non-current assets |
|
231,473 |
|
|
1,598,636 |
|
|
1,207,775 |
|
|
10,389 |
|
|
(1,587,363) |
|
|
1,460,910 |
Total assets |
$ |
231,473 |
|
$ |
1,755,449 |
|
$ |
1,439,788 |
|
$ |
38,778 |
|
$ |
(1,758,203) |
|
$ |
1,707,285 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement liabilities |
$ |
— |
|
$ |
111,375 |
|
$ |
140 |
|
$ |
7,642 |
|
$ |
— |
|
$ |
119,157 |
Accounts payable and accrued expenses |
|
— |
|
|
61,544 |
|
|
41,395 |
|
|
1,729 |
|
|
— |
|
|
104,668 |
Current portion of long-term debt |
|
— |
|
|
10,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
10,000 |
Intercompany balances |
|
— |
|
|
152,802 |
|
|
8,159 |
|
|
9,879 |
|
|
(170,840) |
|
|
— |
Total current liabilities |
|
— |
|
|
335,721 |
|
|
49,694 |
|
|
19,250 |
|
|
(170,840) |
|
|
233,825 |
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability, non-current |
|
— |
|
|
1,072 |
|
|
134,490 |
|
|
— |
|
|
(78,229) |
|
|
57,333 |
Long-term debt, less current portion |
|
— |
|
|
1,178,787 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,178,787 |
Other accrued expenses and liabilities |
|
— |
|
|
5,377 |
|
|
490 |
|
|
— |
|
|
— |
|
|
5,867 |
Intercompany balances |
|
— |
|
|
— |
|
|
1,130,380 |
|
|
— |
|
|
(1,130,380) |
|
|
— |
Total non-current liabilities |
|
— |
|
|
1,185,236 |
|
|
1,265,360 |
|
|
— |
|
|
(1,208,609) |
|
|
1,241,987 |
Total liabilities |
|
— |
|
|
1,520,957 |
|
|
1,315,054 |
|
|
19,250 |
|
|
(1,379,449) |
|
|
1,475,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
90 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
90 |
Convertible preferred stock |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Additional paid-in capital |
|
245,682 |
|
|
69,654 |
|
|
2,269 |
|
|
21,115 |
|
|
(93,038) |
|
|
245,682 |
Retained earnings |
|
160,152 |
|
|
163,269 |
|
|
122,465 |
|
|
(1,006) |
|
|
(284,728) |
|
|
160,152 |
Accumulated other comprehensive income |
|
1,569 |
|
|
1,569 |
|
|
— |
|
|
(581) |
|
|
(988) |
|
|
1,569 |
Treasury stock, at cost |
|
(176,020) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(176,020) |
Total stockholders’ equity |
|
231,473 |
|
|
234,492 |
|
|
124,734 |
|
|
19,528 |
|
|
(378,754) |
|
|
231,473 |
Total liabilities and stockholders’ equity |
$ |
231,473 |
|
$ |
1,755,449 |
|
$ |
1,439,788 |
|
$ |
38,778 |
|
$ |
(1,758,203) |
|
$ |
1,707,285 |
|
Year Ended December 31, 2015 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
$ |
(104,972) |
|
$ |
27,285 |
|
$ |
(120,667) |
|
$ |
2,187 |
|
$ |
91,195 |
|
$ |
(104,972) |
Adjustments to reconcile net (loss) income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
— |
|
|
17,477 |
|
|
110,929 |
|
|
2,618 |
|
|
— |
|
|
131,024 |
Amortization of financing costs |
|
— |
|
|
7,109 |
|
|
— |
|
|
— |
|
|
— |
|
|
7,109 |
Loss/(gain) on sale or disposal of assets |
|
— |
|
|
75 |
|
|
(2,864) |
|
|
— |
|
|
— |
|
|
(2,789) |
Accretion of contract rights |
|
— |
|
|
— |
|
|
7,614 |
|
|
— |
|
|
— |
|
|
7,614 |
Provision for bad debts |
|
— |
|
|
51 |
|
|
10,084 |
|
|
— |
|
|
— |
|
|
10,135 |
Reserve for obsolescence |
|
— |
|
|
140 |
|
|
1,103 |
|
|
— |
|
|
— |
|
|
1,243 |
Goodwill impairment |
|
— |
|
|
— |
|
|
75,008 |
|
|
— |
|
|
— |
|
|
75,008 |
Loss on early extinguishment of debt |
|
— |
|
|
13,063 |
|
|
— |
|
|
— |
|
|
— |
|
|
13,063 |
Equity loss (income) |
|
104,972 |
|
|
(13,777) |
|
|
— |
|
|
— |
|
|
(91,195) |
|
|
— |
Stock-based compensation |
|
— |
|
|
6,883 |
|
|
1,401 |
|
|
— |
|
|
— |
|
|
8,284 |
Other non-cash items |
|
— |
|
|
— |
|
|
(149) |
|
|
— |
|
|
— |
|
|
(149) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net settlement receivables and liabilities |
|
— |
|
|
22,455 |
|
|
22 |
|
|
(3,078) |
|
|
— |
|
|
19,399 |
Other changes in operating assets and liabilities |
|
(4) |
|
|
(3,299) |
|
|
(36,278) |
|
|
(801) |
|
|
— |
|
|
(40,382) |
Net cash (used in) provided by operating activities |
|
(4) |
|
|
77,462 |
|
|
46,203 |
|
|
926 |
|
|
— |
|
|
124,587 |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired |
|
— |
|
|
(10,857) |
|
|
— |
|
|
— |
|
|
— |
|
|
(10,857) |
Capital expenditures |
|
— |
|
|
(25,796) |
|
|
(51,108) |
|
|
(84) |
|
|
— |
|
|
(76,988) |
Proceeds from sale of fixed assets |
|
— |
|
|
102 |
|
|
2,000 |
|
|
— |
|
|
— |
|
|
2,102 |
Repayments under development agreements |
|
— |
|
|
— |
|
|
3,104 |
|
|
— |
|
|
— |
|
|
3,104 |
Advances under development and placement agreements |
|
— |
|
|
— |
|
|
(2,813) |
|
|
— |
|
|
— |
|
|
(2,813) |
Changes in restricted cash and cash equivalents |
|
— |
|
|
(97) |
|
|
— |
|
|
— |
|
|
— |
|
|
(97) |
Intercompany investing activities |
|
(3,906) |
|
|
6,593 |
|
|
25 |
|
|
(9) |
|
|
(2,703) |
|
|
— |
Net cash used in investing activities |
|
(3,906) |
|
|
(30,055) |
|
|
(48,792) |
|
|
(93) |
|
|
(2,703) |
|
|
(85,549) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of credit facility |
|
— |
|
|
(10,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
(10,000) |
Repayments of secured notes |
|
— |
|
|
(350,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
(350,000) |
Proceeds from issuance of secured notes |
|
— |
|
|
335,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
335,000 |
Debt issuance costs |
|
— |
|
|
(1,221) |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,221) |
Issuance of warrants |
|
2,246 |
|
|
(2,246) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Proceeds from exercise of stock options |
|
1,839 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,839 |
Purchase of treasury stock |
|
(169) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(169) |
Intercompany financing activities |
|
— |
|
|
(5) |
|
|
— |
|
|
(2,698) |
|
|
2,703 |
|
|
— |
Net cash provided by (used in) financing activities |
|
3,916 |
|
|
(28,472) |
|
|
— |
|
|
(2,698) |
|
|
2,703 |
|
|
(24,551) |
Effect of exchange rates on cash |
|
— |
|
|
— |
|
|
— |
|
|
(1,552) |
|
|
— |
|
|
(1,552) |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) for the period |
|
6 |
|
|
18,935 |
|
|
(2,589) |
|
|
(3,417) |
|
|
— |
|
|
12,935 |
Balance, beginning of the period |
|
— |
|
|
68,143 |
|
|
6,489 |
|
|
14,463 |
|
|
— |
|
|
89,095 |
Balance, end of the period |
$ |
6 |
|
|
87,078 |
|
|
3,900 |
|
|
11,046 |
|
|
— |
|
|
102,030 |
|
Year Ended December 31, 2014 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
12,140 |
|
$ |
15,186 |
|
$ |
7,438 |
|
$ |
4,734 |
|
$ |
(27,358) |
|
$ |
12,140 |
Adjustments to reconcile net (loss) income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
— |
|
|
18,608 |
|
|
3,588 |
|
|
748 |
|
|
— |
|
|
22,944 |
Amortization of financing costs |
|
— |
|
|
2,035 |
|
|
— |
|
|
— |
|
|
— |
|
|
2,035 |
Loss on sale or disposal of assets |
|
— |
|
|
54 |
|
|
— |
|
|
1 |
|
|
— |
|
|
55 |
Accretion of contract rights |
|
— |
|
|
— |
|
|
301 |
|
|
— |
|
|
— |
|
|
301 |
Provision for bad debts |
|
— |
|
|
— |
|
|
8,991 |
|
|
— |
|
|
— |
|
|
8,991 |
Reserve for obsolescence |
|
— |
|
|
270 |
|
|
— |
|
|
— |
|
|
— |
|
|
270 |
Other asset impairment |
|
— |
|
|
3,129 |
|
|
— |
|
|
— |
|
|
— |
|
|
3,129 |
Loss on early extinguishment of debt |
|
— |
|
|
2,523 |
|
|
202 |
|
|
— |
|
|
— |
|
|
2,725 |
Equity income |
|
(12,140) |
|
|
(15,218) |
|
|
— |
|
|
— |
|
|
27,358 |
|
|
— |
Stock-based compensation |
|
— |
|
|
8,849 |
|
|
27 |
|
|
— |
|
|
— |
|
|
8,876 |
Other non-cash items |
|
— |
|
|
(2) |
|
|
(17) |
|
|
— |
|
|
— |
|
|
(19) |
Changes in operating assets and liabilities: |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Net settlement receivables and liabilities |
|
— |
|
|
(31,414) |
|
|
141 |
|
|
594 |
|
|
— |
|
|
(30,679) |
Other changes in operating assets and liabilities |
|
(47) |
|
|
34,504 |
|
|
(20,047) |
|
|
(20,647) |
|
|
— |
|
|
(6,237) |
Net cash (used in) provided by operating activities |
|
(47) |
|
|
38,524 |
|
|
624 |
|
|
(14,570) |
|
|
— |
|
|
24,531 |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired |
|
— |
|
|
(11,845) |
|
|
(1,056,155) |
|
|
— |
|
|
— |
|
|
(1,068,000) |
Capital expenditures |
|
— |
|
|
(5,886) |
|
|
(3,464) |
|
|
(9,092) |
|
|
— |
|
|
(18,442) |
Proceeds from sale of fixed assets |
|
— |
|
|
421 |
|
|
— |
|
|
— |
|
|
— |
|
|
421 |
Repayments under development agreements |
|
— |
|
|
— |
|
|
276 |
|
|
— |
|
|
— |
|
|
276 |
Changes in restricted cash and cash equivalents |
|
— |
|
|
(102) |
|
|
— |
|
|
— |
|
|
— |
|
|
(102) |
Intercompany investing activities |
|
6,889 |
|
|
(1,085,709) |
|
|
— |
|
|
(1,425) |
|
|
1,080,245 |
|
|
— |
Net cash provided by (used in) investing activities |
|
6,889 |
|
|
(1,103,121) |
|
|
(1,059,343) |
|
|
(10,517) |
|
|
1,080,245 |
|
|
(1,085,847) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of prior credit facility |
|
— |
|
|
(103,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
(103,000) |
Proceeds from securing credit facility |
|
— |
|
|
500,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
500,000 |
Proceeds from issuance of secured notes |
|
— |
|
|
350,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
350,000 |
Proceeds from issuance of unsecured notes |
|
— |
|
|
350,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
350,000 |
Debt issuance costs |
|
— |
|
|
(52,735) |
|
|
— |
|
|
— |
|
|
— |
|
|
(52,735) |
Proceeds from exercise of stock options |
|
5,338 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5,338 |
Purchase of treasury stock |
|
(12,180) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(12,180) |
Intercompany financing activities |
|
— |
|
|
(12,098) |
|
|
1,063,059 |
|
|
29,284 |
|
|
(1,080,245) |
|
|
— |
Net cash (used in) provided by financing activities |
|
(6,842) |
|
|
1,032,167 |
|
|
1,063,059 |
|
|
29,284 |
|
|
(1,080,245) |
|
|
1,037,423 |
Effect of exchange rates on cash |
|
— |
|
|
— |
|
|
— |
|
|
(1,266) |
|
|
— |
|
|
(1,266) |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase for the period |
|
— |
|
|
(32,430) |
|
|
4,340 |
|
|
2,931 |
|
|
— |
|
|
(25,159) |
Balance, beginning of the period |
|
— |
|
|
100,573 |
|
|
2,149 |
|
|
11,532 |
|
|
— |
|
|
114,254 |
Balance, end of the period |
$ |
— |
|
$ |
68,143 |
|
$ |
6,489 |
|
$ |
14,463 |
|
$ |
— |
|
$ |
89,095 |
|
Year Ended December 31, 2013 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
24,398 |
|
$ |
24,398 |
|
$ |
11,002 |
|
$ |
2,594 |
|
$ |
(37,994) |
|
$ |
24,398 |
Adjustments to reconcile net (loss) income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
— |
|
|
16,403 |
|
|
1 |
|
|
534 |
|
|
— |
|
|
16,938 |
Amortization of financing costs |
|
— |
|
|
1,793 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,793 |
Loss (gain) on sale or disposal of assets |
|
— |
|
|
180 |
|
|
— |
|
|
(2) |
|
|
— |
|
|
178 |
Provision for bad debts |
|
— |
|
|
— |
|
|
7,874 |
|
|
— |
|
|
— |
|
|
7,874 |
Reserve for obsolescence |
|
— |
|
|
150 |
|
|
— |
|
|
— |
|
|
— |
|
|
150 |
Equity income |
|
(24,398) |
|
|
(13,596) |
|
|
— |
|
|
— |
|
|
37,994 |
|
|
— |
Stock-based compensation |
|
— |
|
|
5,078 |
|
|
— |
|
|
— |
|
|
— |
|
|
5,078 |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net settlement receivables and liabilities |
|
— |
|
|
(44,264) |
|
|
— |
|
|
(1,729) |
|
|
— |
|
|
(45,993) |
Other changes in operating assets and liabilities |
|
19 |
|
|
13,241 |
|
|
(18,880) |
|
|
(462) |
|
|
— |
|
|
(6,082) |
Net cash provided by (used in) operating activities |
|
19 |
|
|
3,383 |
|
|
(3) |
|
|
935 |
|
|
— |
|
|
4,334 |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
— |
|
|
(13,450) |
|
|
(330) |
|
|
(206) |
|
|
— |
|
|
(13,986) |
Proceeds from sale of fixed assets |
|
— |
|
|
86 |
|
|
— |
|
|
— |
|
|
— |
|
|
86 |
Changes in restricted cash and cash equivalents |
|
— |
|
|
(90) |
|
|
— |
|
|
— |
|
|
— |
|
|
(90) |
Intercompany investing activities |
|
9,900 |
|
|
(4,676) |
|
|
— |
|
|
— |
|
|
(5,224) |
|
|
— |
Net cash provided by (used in) investing activities |
|
9,900 |
|
|
(18,130) |
|
|
(330) |
|
|
(206) |
|
|
(5,224) |
|
|
(13,990) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of prior credit facility |
|
— |
|
|
(18,500) |
|
|
— |
|
|
— |
|
|
— |
|
|
(18,500) |
Debt issuance costs |
|
— |
|
|
(764) |
|
|
— |
|
|
— |
|
|
— |
|
|
(764) |
Proceeds from exercise of stock options |
|
8,431 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
8,431 |
Purchase of treasury stock |
|
(18,350) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(18,350) |
Intercompany financing activities |
|
— |
|
|
(7,056) |
|
|
2,000 |
|
|
(168) |
|
|
5,224 |
|
|
— |
Net cash (used in) provided by financing activities |
|
(9,919) |
|
|
(26,320) |
|
|
2,000 |
|
|
(168) |
|
|
5,224 |
|
|
(29,183) |
Effect of exchange rates on cash |
|
— |
|
|
— |
|
|
— |
|
|
73 |
|
|
— |
|
|
73 |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase for the period |
|
— |
|
|
(41,067) |
|
|
1,667 |
|
|
634 |
|
|
— |
|
|
(38,766) |
Balance, beginning of the period |
|
— |
|
|
141,640 |
|
|
482 |
|
|
10,898 |
|
|
— |
|
|
153,020 |
Balance, end of the period |
$ |
— |
|
$ |
100,573 |
|
$ |
2,149 |
|
$ |
11,532 |
|
$ |
— |
|
$ |
114,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|