Edgar Filing: BALLY TECHNOLOGIES, INC.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-31558

BALLY TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

NEVADA		88-0104066
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6601 S. Bermuda Rd.

Las Vegas, Nevada 89119

(Address of principal executive offices)

(702) 584-7700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer x		Accelerated Filer o

Non-Accelerated Filer o		Smaller Reporting Company o
(do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

The number of shares of common stock, $0.10 par value, outstanding as of May 5, 2014, was 39,275,000 which do not include 26,717,000 shares held in treasury.

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TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION	3

Item 1.	Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets as of March 31, 2014 and June 30, 2013	3

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2014 and 2013	4

	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended March 31, 2014 and 2013	5

	Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended March 31, 2014 and 2013	6

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2014 and 2013	7

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	42

PART II.	OTHER INFORMATION	43

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 6.	Exhibits	44

SIGNATURES		45

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PART I

ITEM 1. FINANCIAL STATEMENTS

BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2014			June 30, 2013
	(in 000s, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	90,484		$	63,220
Restricted cash	13,779			12,939
Accounts and notes receivable, net of allowances for doubtful accounts of $15,772 and $14,813	306,637			248,497
Inventories	91,812			68,407
Prepaid and refundable income tax	31,259			21,845
Deferred income tax assets	50,913			38,305
Deferred cost of revenue	15,460			22,417
Prepaid assets	20,458			14,527
Other current assets	5,023			2,920
Total current assets	625,825			493,077
Restricted long-term investments	16,703			14,786
Long-term accounts and notes receivables, net of allowances for doubtful accounts of $1,492 and $1,764	63,696			65,456
Property, plant and equipment, net of accumulated depreciation of $70,574 and $60,556	71,514			35,097
Leased gaming equipment, net of accumulated depreciation of $242,063 and $209,680	131,369			113,751
Goodwill	997,522			172,162
Intangible assets, net	519,868			25,076
Deferred income tax assets	3,683			17,944
Income tax receivable	979			1,837
Deferred cost of revenue	8,861			12,105
Other assets, net	53,979			27,974
Total assets	$	2,493,999		$	979,265

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	33,921		$	25,863
Accrued and other liabilities	110,240			91,127
Jackpot liabilities	12,566			11,731
Deferred revenue	41,851			62,254
Income tax payable	2,225			11,345
Current maturities of long-term debt	41,182			24,615
Total current liabilities	241,985			226,935
Long-term debt, net of current maturities	1,831,061			580,000
Deferred revenue	25,038			23,696
Other income tax liability	11,448			12,658
Deferred income tax liabilities	135,046			171
Other liabilities	24,293			16,633
Total liabilities	2,268,871			860,093
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock, $.10 par value; 100,000,000 shares authorized; 65,983,000 and 65,318,000 shares issued and 39,266,000 and 38,855,000 outstanding	6,590			6,523
Treasury stock at cost, 26,717,000 and 26,463,000 shares	(1,095,737		)	(1,058,381		)
Additional paid-in capital	586,224			535,759
Accumulated other comprehensive loss	(5,356		)	(10,692		)
Retained earnings	732,778			646,339
Total Bally Technologies, Inc. stockholders’ equity	224,499			119,548
Noncontrolling interests	629			(376		)
Total stockholders’ equity	225,128			119,172
Total liabilities and stockholders’ equity	$	2,493,999		$	979,265

See accompanying notes to unaudited condensed consolidated financial statements.

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BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2014			2013			2014			2013
	(in 000s, except per share amounts)
Revenues:
Gaming equipment and systems	$	209,329		$	157,102		$	534,114		$	430,436
Product lease, operation and royalty	129,070			102,045			338,767			302,201
	338,399			259,147			872,881			732,637
Costs and expenses:
Cost of gaming equipment and systems (1)	86,307			61,419			213,729			168,978
Cost of product lease, operation and royalty(1)	40,537			29,992			103,521			90,320
Selling, general and administrative	88,248			72,218			251,661			204,586
Research and development costs	36,677			29,098			98,890			80,792
Depreciation and amortization	20,523			5,755			37,460			17,046
	272,292			198,482			705,261			561,722
Operating income	66,107			60,665			167,620			170,915
Other income (expense):
Interest income	1,976			1,191			6,946			3,738
Interest expense	(20,861		)	(4,389		)	(37,083		)	(13,544		)
Other, net	(3,453		)	(1,534		)	(5,562		)	(3,336		)
Income from operations before income taxes	43,769			55,933			131,921			157,773
Income tax expense	(16,200		)	(17,527		)	(44,477		)	(55,345		)
Net income	27,569			38,406			87,444			102,428
Less net income (loss) attributable to noncontrolling interests	125			(43		)	1,005			(1,679		)
Net income attributable to Bally Technologies, Inc.	$	27,444		$	38,449		$	86,439		$	104,107

Basic and Diluted earnings per share attributable to Bally Technologies, Inc.:
Basic earnings per share	$	0.71		$	0.95		$	2.25		$	2.56
Diluted earnings per share	$	0.70		$	0.93		$	2.21		$	2.50

Weighted average shares outstanding:
Basic	38,614			40,483			38,493			40,594
Diluted	39,205			41,199			39,156			41,614

(1) Cost of gaming equipment and systems and product lease, operation and royalty exclude amortization related to intangible assets which are included in depreciation and amortization.

See accompanying notes to unaudited condensed consolidated financial statements.

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BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2014			2013			2014			2013
	(in 000s)

Net Income	$	27,569		$	38,406		$	87,444		$	102,428

Other comprehensive income (loss):
Foreign currency translation adjustment before income taxes	12,210			(522		)	4,856			370
Income tax expense	—			—			—			—
Foreign currency translation adjustment	12,210			(522		)	4,856			370

Unrealized gain (loss) on derivative financial instruments before income taxes	(2,646		)	1,196			739			1,959
Income tax expense (benefit)	926			(419		)	(259		)	(686		)
Unrealized gain (loss) on derivative financial instruments	(1,720		)	777			480			1,273

Total other comprehensive income, net of income taxes	10,490			255			5,336			1,643
Comprehensive income	38,059			38,661			92,780			104,071

Less: comprehensive income (loss) attributable to noncontrolling interests	125			(43		)	1,005			(1,679		)
Comprehensive income attributable to Bally Technologies, Inc.	$	37,934		$	38,704		$	91,775		$	105,750

See accompanying notes to unaudited condensed consolidated financial statements.

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BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED MARCH 31, 2014 AND 2013

	Common Stock			Series E Special		Treasury			Additional Paid-In		Accumulated Other Comprehensive Income (Loss)			Retained		Noncontrolling			Total Stockholders’
	Shares	Dollars		Stock		Stock			Capital		(“OCI”)			Earnings		Interests			Equity
	(in 000s)
Balances at June 30, 2012	63,150	$	6,309	$	12	$	(790,633	)	$	489,002	$	(13,477	)	$	504,895	$	1,367		$	197,475
Net income (loss)	—	—		—		—			—		—			104,107		(1,679		)	102,428
Foreign currency translation adjustment	—	—		—		—			—		370			—		—			370
Unrealized loss on derivative financial instruments, net of tax	—	—		—		—			—		1,273			—		—			1,273
Total comprehensive income	—	—		—		—			—		—			—		—			$	104,071
Distributions to noncontrolling interests	—	—		—		—			—		—			—		(27		)	(27		)
Issuance and receipt of restricted stock, ESPP shares, stock options and related tax and tax benefit	1,781	178		—		(9,099		)	42,419		—			—		—			33,498
Purchase of common stock for treasury	—	—		—		(122,606		)	—		—			—		—			(122,606		)
Share-based compensation	—	—		—		—			9,676		—			—		—			9,676
Balances at March 31, 2013	64,931	$	6,487	$	12	$	(922,338	)	$	541,097	$	(11,834	)	$	609,002	$	(339	)	$	222,087

Balances at June 30, 2013	65,318	$	6,523	$	—	$	(1,058,381	)	$	535,759	$	(10,692	)	$	646,339	$	(376	)	$	119,172
Net income	—	—		—		—			—		—			86,439		1,005			87,444
Foreign currency translation adjustment	—	—		—		—			—		4,856			—		—			4,856
Unrealized loss on derivative financial instruments, net of tax	—	—		—		—			—		480			—		—			480
Total comprehensive income	—	—		—		—			—		—			—		—			$	92,780
Issuance and receipt of restricted stock, ESPP shares, stock options and related tax and tax benefit	665	67		—		(4,856		)	17,610		—			—		—			12,821
Settlement of accelerated share repurchase forward contract	—	—		—		(22,500		)	22,500		—			—		—			—
Purchase of common stock for treasury	—	—		—		(10,000		)	—		—			—		—			(10,000		)
Share-based compensation	—	—		—		—			10,355		—			—		—			10,355
Balances at March 31, 2014	65,983	$	6,590	$	—	$	(1,095,737	)	$	586,224	$	(5,356	)	$	732,778	$	629		$	225,128

See accompanying notes to unaudited condensed consolidated financial statements.

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BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended March 31,
	2014			2013
	(in 000s)
Cash flows from operating activities:
Net income	$	87,444		$	102,428
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	93,391			66,006
Share-based compensation	10,355			9,676
Amortization of deferred debt issuance costs	3,291			1,319
Income tax (benefit) expense	(1,870		)	5,304
Provision for doubtful accounts	3,684			9,103
Inventory write-downs	5,295			4,108
Excess tax benefit of stock option exercises	(3,917		)	(15,871		)
Other	233			1,031
Change in operating assets and liabilities:
Accounts and notes receivable	2,003			10,654
Inventories	(27,671		)	(39,026		)
Prepaid and refundable income tax and income tax payable	(6,233		)	(4,117		)
Other current assets and other assets	(455		)	(2,811		)
Accounts payable	3,366			(12,407		)
Accrued liabilities and jackpot liabilities	(6,786		)	(2,772		)
Deferred revenue and deferred cost of revenue	(12,647		)	6,831
Net cash provided by operating activities	149,483			139,456
Cash flows from investing activities:
Acquisition, net of cash acquired	(1,344,137		)	—
Capital expenditures	(15,464		)	(11,003		)
Restricted cash and investments	(2,757		)	51
Financing provided to customer	—			(1,228		)
Payments received from development financing	2,283			—
Additions to other long-term assets	(8,222		)	(905		)
Net cash used in investing activities	(1,368,297		)	(13,085		)
Cash flows from financing activities:
Proceeds from revolving credit facility	330,000			55,000
Payments on revolving credit facility	(130,000		)	(65,000		)
Proceeds from long-term debt	1,100,000			—
Payments on long-term debt and capital leases	(22,447		)	(11,305		)
Capitalized debt issuance costs	(33,016		)	—
Acquisition-related contingent consideration	(459		)	—
Distributions to noncontrolling interests	—			(27		)
Purchase of treasury stock	(14,856		)	(131,705		)
Excess tax benefit of stock option exercises	3,917			15,871
Proceeds from exercise of stock options and employee stock purchases	13,558			26,475
Net cash provided by (used in) financing activities	1,246,697			(110,691		)

Effect of exchange rate changes on cash	(619		)	938

Cash and cash equivalents:
Increase for period	27,264			16,618
Balance, beginning of period	63,220			32,673
Balance, end of period	$	90,484		$	49,291

See accompanying notes to unaudited condensed consolidated financial statements.

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BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED SUPPLEMENTAL CASH FLOW INFORMATION

The following supplemental information is related to the unaudited condensed consolidated statements of cash flows:

	Nine Months Ended March 31,
	2014		2013
	(in 000s)
Cash paid for interest	$	34,002	$	12,403
Cash paid for income taxes, net of refunds	52,957		54,906

Non-cash investing and financing transactions:
Transfer of inventory to leased gaming equipment (1)	$	37,482	$	59,998
Reclassify property, plant and equipment to inventory (1)	8,706		11,814

(1) As a result of the inability to separately identify the cash flows associated with the construction of leased gaming equipment, the Company has included all additions to leased gaming equipment as an increase in inventory under cash used in operating activities in the unaudited condensed consolidated statement of cash flows. In addition, cash generated from the sale of used gaming equipment classified as leased gaming equipment is also included in cash provided by operating activities in the unaudited condensed consolidated statement of cash flows. The Company has one process to procure raw materials for the assembly of both inventory and leased gaming equipment. The materials requisition planning process considers the number of devices the Company expects to build for sale and for use in its gaming operations during a particular period, but it does not separately earmark purchases for leased gaming equipment. Without such an earmarking process, the Company is unable to determine whether the parts used to construct leased gaming equipment during a particular period came from inventory on hand at the beginning of the period or was constructed from inventory procured during the period of deployment, thus requiring the expenditure of cash.

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BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

References to “we,” “our,” “us,” “Bally” or the “Company” refer to Bally Technologies, Inc. and its consolidated subsidiaries.

Bally, a Nevada corporation, is a diversified global gaming supplier that designs, manufactures, operates and distributes electronic gaming machines (“EGMs”), gaming operations, networked and casino-management systems, table game products and interactive applications that drive revenue and provide operating efficiencies for gaming operators. The Company supplies innovative hardware and games, including spinning-reel and video gaming devices, specialty gaming devices, table game products and wide-area progressive systems. The Company’s casino-management technology solutions allow its customers to more effectively manage their operations using our wide range of marketing, data management and analysis, accounting, player tracking, security and other software applications and tools. Under its business-to-business model, the Company supports customers that include traditional land-based, riverboat, and Native American casinos, interactive, video lottery and central determination markets.

Principles of presentation and consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Bally Technologies, Inc., and its subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), include all adjustments necessary to fairly present the Company’s consolidated financial position, results of operations and cash flows for each period presented. All adjustments are of a normal, recurring nature. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations. The results of operations for an interim period are not necessarily indicative of the results that may be expected for any other interim period or the year as a whole. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2013. References to specific U.S. GAAP within this report cite topics within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

All material intercompany accounts and transactions have been eliminated in consolidation.

Use of estimates and assumptions

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. Actual results could differ from those estimates.

Business Combinations

The Company applies the provisions of ASC 805, Business Combinations, in the accounting for acquisitions. It requires the Company 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 inherently uncertain and subject to refinement. 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. The Company reevaluates 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 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 operations.

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Fair value of financial instruments

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.

All financial assets and liabilities are recognized or disclosed at fair value using a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There are three levels of inputs that may be used to measure fair value:

· Level 1: quoted prices in active markets for identical assets or liabilities;

· Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

· Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amounts reflected in the accompanying unaudited condensed consolidated balance sheets for cash equivalents, accounts and notes receivable, investment securities to fund jackpot liabilities, accounts payable, jackpot liabilities and long-term debt approximate their respective fair values. Cash equivalents and investment securities to fund jackpot liabilities have Level 1 inputs with values based on quoted market prices. Accounts and notes receivable and jackpot liabilities have Level 3 inputs and were valued using Discounted Cash Flows (“DCF”) incorporating expected future payment timing and current borrowing rates. Long-term debt has Level 2 inputs and was valued using DCF incorporating expected future payment timing and current borrowing rates.

The Company transacts business in various foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency risk. The Company enters into foreign currency forward contracts, generally with maturities of twelve months or less, to hedge recognized foreign currency assets and liabilities to reduce the risk that earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. The gains or losses resulting from changes in the fair value of these forward contracts, which are not designated as accounting hedges, are reported in other income (expense) in the unaudited condensed consolidated statements of operations, and generally offset the gains and losses associated with the underlying foreign-currency-denominated balances, which are also reported in other income (expense). As of March 31, 2014 and June 30, 2013, euro forward contracts for a total of $53.6 million and $33.0 million, respectively, or the equivalent of €39.0 and €25.3 million, were outstanding. In addition, as of March 31, 2014 and June 30, 2013, pound sterling forward contracts for a total of $5.0 million and $2.3 million, respectively, or the equivalent of £3.0 million and £1.5 million, were outstanding. In addition, as of March 31, 2014, a Canadian dollar forward contract for a total of $6.8 million, or the equivalent of C$7.5 million, was outstanding.

The Company may use interest rate derivatives to manage the interest expense generated by variable rate debt and foreign currency derivatives to manage foreign exchange risk. The Company’s derivative financial instruments are measured at fair value on a recurring basis, and the balances were as follows:

	Fair Value Measurements Using Input Type
	Level 1		Level 2		Level 3
	(in 000s)
As of March 31, 2014:
Assets:
Other assets:
Interest rate derivative financial instrument	$	—	$	1,029	$	—
Liabilities:
Accrued and other liabilities:
Foreign currency derivative financial instruments	$	—	$	783	$	—
Interest rate derivative financial instrument	$	—	$	4,463	$	—
Other liabilities:
Interest rate derivative financial instrument	$	—	$	5,444	$	—

As of June 30, 2013:
Assets:
Other current assets:
Foreign currency derivative financial instrument	$	—	$	397	$	—
Liabilities:
Accrued and other liabilities:
Foreign currency derivative financial instrument	$	—	$	22	$	—
Interest rate derivative financial instruments	$	—	$	4,689	$	—
Other liabilities:
Interest rate derivative financial instrument	$	—	$	4,927	$	—

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The valuation techniques used to measure the fair value of the derivative financial instruments above in which the counterparties have high credit ratings, were derived from pricing models, such as discounted cash flow techniques, with all significant inputs derived from or corroborated by observable market data. The Company’s discounted cash flow techniques use observable market inputs, such as LIBOR-based yield curves and foreign currency forward rates. See Note 7 to the unaudited condensed consolidated financial statements, Long-Term Debt.

Accounting for Derivative Instruments and Hedging Activity

The Company assesses, both at the inception of each designated hedge and on an on-going basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. Such highly effective derivatives are granted hedge accounting treatment. The interest rate derivative instruments meet these requirements and are accounted for as cash flow hedges.

The impact of the cash flow hedge and non-designated foreign currency derivatives on the unaudited condensed consolidated financial statements is depicted below:

Cash Flow Hedging Relationship	Amount of Loss Recognized in OCI on Derivative (Effective Portion)			Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Loss Recognized in Income on Derivative (Ineffective Portion)	Amount of Loss Recognized in Income on Derivative (Ineffective Portion)
	(in 000s)
For the three months ended March 31, 2014:
Interest rate swap agreements	$	(3,866	)	Interest expense	$	(1,219	)	Interest expense	$	—
For the three months ended March 31, 2013:
Interest rate swap agreement	$	(91	)	Interest expense	$	(1,287	)	Interest expense	$	—

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Cash Flow Hedging Relationship	Amount of Loss Recognized in OCI on Derivative (Effective Portion)			Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Loss Recognized in Income on Derivative (Ineffective Portion)	Amount of Loss Recognized in Income on Derivative (Ineffective Portion)
	(in 000s)
For the nine months ended March 31, 2014:
Interest rate swap agreements	$	(3,033	)	Interest expense	$	(3,771	)	Interest expense	$	—
For the nine months ended March 31, 2013:
Interest rate swap agreement	$	(1,889	)	Interest expense	$	(3,848	)	Interest expense	$	(9	)

	Amount of Gain (Loss) Recognized in Other Income (Expense)
	Three Months Ended			Three Months Ended		Nine Months Ended			Nine Months Ended
Non-Designated Derivative	March 31, 2014			March 31, 2013		March 31, 2014			March 31, 2013
	(in 000s)
Foreign Currency Forward Contracts	$	(320	)	$	1,402	$	(2,338	)	$	(494	)

The pre-tax changes in other comprehensive income for the nine months ended March 31, 2014 and 2013 are as follows:

	Amount
	(in 000s)
Interest Rate Derivative Financial Instrument OCI Rollforward:	Nine Months Ended March 31, 2014			Nine Months Ended March 31, 2013
Beginning balance	$	(9,616	)	$	(13,832	)
Amount recognized in OCI on derivative	(3,033		)	(1,889		)
Amount reclassified from OCI into income	3,771			3,848
Unrealized loss on derivative financial instruments	$	(8,878	)	$	(11,873	)

The following tables reconcile the net fair values of assets and liabilities, subject to offsetting arrangements that are recorded in the unaudited condensed consolidated balance sheets:

	Offsetting of Derivative Assets
			Gross Amounts Offset in the Unaudited		Net Amounts of Assets Presented in the Unaudited		Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets
Description	Gross Amounts of Recognized Assets		Condensed Consolidated Balance Sheets		Condensed Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Net Amount
	(in 000s)
As of March 31, 2014:
Interest rate derivative financial instrument	$	1,029	$	—	$	1,029	$	(1,029	)	$	—	$	—

As of June 30, 2013:
Foreign currency derivative financial instrument	$	397	$	—	$	397	$	(22	)	$	—	$	375

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	Offsetting of Derivative Liabilities
				Gross Amounts Offset in the Unaudited		Net Amounts of Liabilities Presented in the Unaudited			Gross Amounts Not Offset in the Unaudited Condensed Consolidated Balance Sheets
Description	Gross Amounts of Recognized Liabilities			Condensed Consolidated Balance Sheets		Condensed Consolidated Balance Sheets			Financial Instruments		Cash Collateral Pledged		Net Amount
	(in 000s)
As of March 31, 2014:
Foreign currency derivative financial instruments	$	(783	)	$	—	$	(783	)	$	—	$	—	$	(783	)
Interest rate derivative financial instrument	$	(9,907	)	$	—	$	(9,907	)	$	1,029	$	—	$	(8,878	)

As of June 30, 2013:
Foreign currency derivative financial instruments	$	(22	)	$	—	$	(22	)	$	22	$	—	$	—
Interest rate derivative financial instrument	$	(9,616	)	$	—	$	(9,616	)	$	—	$	—	$	(9,616	)

Accounts and notes receivable and allowances for doubtful accounts

Accounts and notes receivable are stated at face value less an allowance for doubtful accounts. The Company generally grants customers credit terms for periods of 30 to 120 days, but may also grant extended payment terms to some customers for periods generally up to three years, with interest generally at market rates.

The Company evaluates the credit quality of its accounts and notes receivable and establishes an allowance for doubtful accounts based on a combination of factors including, but not limited to, customer collection experience, economic conditions and the customer’s financial condition. In addition to specific account identification, which includes the review of any modifications of accounts and notes receivable, if applicable, the Company utilizes historic collection experience to establish an allowance for doubtful accounts. Receivables are written off only after the Company has exhausted all reasonable collection efforts.

Inventories

Inventories are stated at the lower of cost, determined on a first in, first out basis, or market. Cost elements included in work-in-process and finished goods include raw materials, direct labor and manufacturing overhead. Inventories consist of the following:

	March 31, 2014		June 30, 2013
	(in 000s)
Raw materials	$	56,195	$	42,464
Work-in-process	928		1,508
Finished goods	34,689		24,435
Total	$	91,812	$	68,407

Property, plant and equipment and leased gaming equipment

Property, plant and equipment is stated at cost and depreciated over the estimated useful lives or lease term, if less, using the straight line method as follows: buildings and improvements, five to forty years; furniture, fixtures and equipment, three to seven years; and leasehold improvements, the shorter of lease term or ten years. Leased gaming equipment is stated at cost and depreciated over the estimated useful lives ranging from one to five years. Depreciation and asset charges related to leased gaming equipment are recorded to cost of product lease, operation and royalty in the consolidated statements of operations.

Significant replacements and improvements are capitalized while other maintenance and repairs are expensed. The cost and accumulated depreciation of assets retired or otherwise disposed of are eliminated from the accounts and any resulting gain or loss is credited or charged to income.

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Revenue recognition

The Company’s revenue recognition policy is to record revenue when all of the following criteria have been satisfied:

· Persuasive evidence of an arrangement exists;

· The price or fee to the customer is fixed or determinable;

· Collectability is reasonably assured; and

· Delivery has occurred.

Revenues are reported net of incentive rebates, discounts, sales taxes and all other items of a similar nature. For products sold under arrangements with extended payment terms the probability of collection is evaluated based on a review of the customer’s credit worthiness and a review of historic collection experience on contracts with extended payment terms. As a result of such review, the Company recognizes revenue on extended payment term arrangements when the Company has determined that collectability is reasonably assured and the fee is considered fixed and determinable.

Products placed with customers on a trial basis are recorded as revenue once the trial period has ended, the customer has accepted the games, and all other revenue recognition criteria have been satisfied. The Company’s standard sales contracts do not contain right of return provisions and the Company has not experienced significant sales returns. Therefore, the Company has not recorded an allowance for sales returns. Amounts billed to customers prior to completing the earnings process are deferred until the revenue recognition criteria are satisfied.

Product Lease, Operation and Royalty Revenue. Product lease, operation and royalty revenue is earned from the renting or leasing of tangible products and the licensing of intangible products. Product lease and operation revenue is derived from gaming operations, including the operation of linked progressive systems, the rental of EGMs, game content and the related systems placed with customers, and the lease of table game products, including automatic card shufflers, deck checkers and roulette chip sorters. Product royalty revenue is derived from gaming operations and table game products, including the licensing of proprietary table game content. Product lease and operation revenue is earned and recognized based on a share of money wagered, a share of the net winnings, or on a fixed daily or monthly rate. The fee entitles the customer to full use of the gaming equipment and includes maintenance, licensing of the game content software and connection to a linked progressive system, where applicable. In certain markets, the Company also charges a daily system connection fee for the customer to connect to a central determination system and/or back-office system. The Company does not consider these arrangements to have multiple revenue-generating activities as the services offered are a comprehensive solution in exchange for a fee and all of the products and services are delivered simultaneously. Product royalty revenue from table game products, including the licensing of proprietary table game content, is earned based on a fixed monthly rate. Product lease, operation and royalty revenue is recognized under general revenue recognition guidance as the deliverables provide the customer with rights to use tangible gaming devices and software that is essential to the functionality of the gaming devices.

Gaming Equipment and Systems Revenue

Gaming Equipment Revenue. Gaming Equipment revenue is generated from the sale of EGMs, including up-front licensing rights to game content, table game products, including the sale of lifetime licenses to the Company’s proprietary table games, and parts and other ancillary equipment. Arrangements may also include sales of game content conversion kits that enable customers to replace game content without purchasing a new EGM. Gaming equipment arrangements do not include maintenance and product support fees beyond a standard warranty period. The recognition of revenue from product sales occurs as title and risk of loss have passed to the customer and all other revenue recognition criteria have been satisfied. Revenue is recorded for the sale of lifetime licenses, under which the Company has no continuing obligation, on the effective date of the license.

As the combination of game content software and the tangible EGMs and table game products function together to deliver the product’s essential functionality, revenue from the sale of EGMs and table game products is recognized under general revenue recognition guidance. Game content conversion kits are considered software deliverables and are recognized in accordance with software revenue recognition guidance.

Casino-Management Systems Revenue. Systems revenue arrangements generally include a combination of casino-management systems software licenses, systems-based hardware products, maintenance and product support fees and professional services. The primary function of casino-management systems software licensed by the Company is aiding customers in more effectively running their businesses with marketing, data management and analysis, accounting, player tracking and security features.

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Revenue for casino-management systems software and maintenance and product support fees is recognized under software revenue recognition guidance. Although the casino-management systems software and certain systems-based hardware products function together, the functionality of casino-management systems software is primarily derived from the software. The casino-management systems software is not essential to the functionality of the systems-based hardware products.

The Company licenses casino-management systems software on a perpetual basis or under time-based licenses. Revenue from perpetual license software is recognized at the inception of the license term provided all revenue recognition criteria have been satisfied. Revenue from maintenance and product support fees sold with perpetual licenses is recognized over the term of the support period. The Company’s time-based licenses are generally for twelve month terms and are bundled with software maintenance and product support fees. All revenue from such arrangements is recognized over the term of the license.

Systems-based hardware products include embedded software that is essential to the functionality of the hardware. Accordingly, revenue related to all systems-based hardware sales and related maintenance and product support fees are recognized under general revenue recognition guidance. Revenue from the sale of systems-based hardware is generally recognized upon delivery when title and risk of loss have passed to the customer and all other revenue recognition criteria are satisfied. However, in the case of arrangements involving a systems installation, revenue on the systems-based hardware is generally not recognized until the system has been installed and the customer has accepted the system. Hardware maintenance and product support fees are recognized on a straight-line basis over the term of the support period which is generally twelve months.

Software maintenance and product support provides customers with rights to unspecified software product upgrades, maintenance and patches released during the term of the support period. The Company’s software maintenance and product support arrangements are generally for twelve month periods. Software maintenance and product support is recognized on a straight-line basis over the term of the support period.

Multiple Element Arrangements. The Company enters into revenue arrangements that may consist of multiple deliverables of its products and services. For example, customers may enter into arrangements with the Company for the implementation of casino-management systems, which will generally include a combination of casino-management systems software licenses, systems-based hardware products, maintenance and product support fees, and professional services. Certain gaming equipment arrangements may also include the sale of gaming devices and game content conversion kits.

Revenue arrangements with multiple deliverables are allocated to separate units of accounting if the deliverables meet both of the following criteria:

· The delivered items have value to the customer on a stand-alone basis. The items have value on a stand-alone basis if they are sold separately by any vendor or the customer could resell the delivered items on a stand-alone basis; and

· If the arrangement includes a general right of return relative to the delivered items, delivery or performance of the undelivered items is considered probable and substantially in the control of the Company.

At the inception of a multiple element arrangement, fees under the arrangement are allocated to the non-software deliverables and to the software deliverables as a group based on their relative selling price. Software deliverables are further subject to separation and allocation based on software revenue recognition guidance as described in the following paragraph. When applying the relative selling price method, a hierarchy is used for estimating the selling price based first on vendor-specific objective evidence (“VSOE”), then third-party evidence (“TPE”) and finally management’s estimate of the selling price (“ESP”). Revenue for each unit of accounting is recognized when the relevant recognition criteria for each respective element has been met.

In allocating arrangement fees under the relative selling price hierarchy, the Company uses VSOE for all products that have been sold on a stand-alone basis. As TPE is generally not available, the Company uses ESP for products that are not sold on a stand-alone basis and for recently introduced products that are sold on a stand-alone basis but for which a history of stand-alone sales has not yet been developed. Following these guidelines, the Company uses either VSOE or ESP for EGMs, table game products, systems-based hardware products, maintenance and product support fees associated with perpetual licenses and professional services; and ESP for perpetual and time-based software licenses and maintenance and product support fees associated with time-based licenses.

The Company uses the residual method to recognize revenue allocated to software deliverables. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered element and is recognized as revenue. In arrangements in which the Company does not have VSOE of fair value of all undelivered software elements, revenue is deferred until delivery occurs or VSOE of fair value has been established for any remaining undelivered software elements. In the event the only undelivered software element is maintenance and product support for which VSOE of fair value does not exist, the revenue is recognized ratably over the maintenance and product support period.

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The establishment of VSOE requires judgment as to whether there is a sufficient quantity of items sold on a stand-alone basis and whether the prices demonstrate an appropriate level of concentration to conclude that VSOE exists. In determining ESP, management considers a variety of information including historic pricing and discounting practices, competitive market activity, internal costs, and the pricing and discounting practices of products sold in the same arrangements.

Recently adopted accounting pronouncements

Effective September 30, 2012, new accounting guidance for testing indefinite-lived intangible assets permits an entity to first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. The outcome of the assessment is used as a basis for determining whether it is necessary to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with ASC Topic 350. The Company has not yet utilized this method in its evaluation of indefinite-lived intangible assets impairment.

On July 1, 2013, the Company adopted new accounting guidance for disclosures about offsetting assets and liabilities which requires an entity to disclose both gross and net information about derivatives, repurchase and reverse repurchase agreements, securities borrowings and lending transactions eligible for offset in the statement of financial position. This information is intended to enable users of the financial statements to understand the effect of these arrangements on the Company’s financial position. The adoption of this guidance did not have a significant impact on the Company’s consolidated results of operations, financial condition and cash flows.

On July 1, 2013, the Company adopted new accounting guidance to improve the reporting of reclassifications out of accumulated other comprehensive income (“AOCI”). Under the guidance, an entity is required to provide information about the amounts reclassified out of AOCI by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. The guidance did not change the requirements for reporting net income or other comprehensive income in the financial statements. The adoption of this guidance did not have a significant impact on the Company’s consolidated results of operations, financial condition and cash flows.

Recently issued accounting pronouncements not yet adopted

In February 2013, the FASB issued new accounting guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date, including debt arrangements, other contractual obligations, and settled litigation and judicial rulings. The new guidance will be effective prospectively for the Company in its fiscal year 2015 first quarter and is not expected to have a significant impact on its consolidated results of operations, financial condition and cash flows.

In March 2013, the FASB issued new accounting guidance requiring the release of cumulative translation adjustment into net income when an entity either sells a part or all of its investment in or no longer holds a controlling financial interest in a foreign entity. The new guidance will be effective prospectively for the Company in its fiscal year 2015 first quarter and is not expected to have a significant impact on its consolidated results of operations, financial condition and cash flows.

In April 2014, the FASB issued new accounting guidance that changes the threshold for reporting discontinued operations and adds new disclosures. The new guidance defines a discontinued operation as a disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale and will be effective for the Company in its fiscal year 2015 first quarter. The guidance may impact the Company’s reporting and disclosures if it disposes of a component after the effective date.

The Company believes there is no additional new accounting guidance adopted but not yet effective that is relevant to the readers of our financial statements. However, there are numerous new proposals under development which, if and when enacted, may have a significant impact on its financial reporting.

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2. BUSINESS COMBINATION

On November 25, 2013, the Company completed the acquisition of 100% of the outstanding common stock of SHFL entertainment, Inc. (“SHFL”) for total purchase consideration of $1.38 billion (the “Acquisition”). The Acquisition was funded primarily from proceeds of a new Term Loan B and borrowings from our existing Revolving Credit Facility (see Note 7 to the unaudited condensed consolidated financial statements, Long-Term Debt). The Acquisition has provided the Company with a more diversified suite of products and is anticipated to increase its product development talent. Additionally, the Acquisition is expected to achieve synergies, including, but not limited to, cost savings from economies of scale, more efficient supply chain and distribution channels and the acceleration of revenue through greater access to international markets.

The total purchase consideration for SHFL was as follows:

	(in 000s)
Total purchase price for SHFL common stock (56,626 shares at $23.25 per share)	$	1,316,554
Payments in respect of SHFL stock options, restricted shares, restricted share units and restricted share performance units	46,099
Repayments of SHFL debt and other obligations	19,752
Total purchase consideration	$	1,382,405

The Acquisition 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 is deductible for tax purposes. The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of SHFL.

The Company recognized Acquisition-related costs of $6.2 million and $33.1 million for the three and nine months ended March 31, 2014, respectively. These costs were recorded as selling, general and administrative in the statement of operations. The Company also incurred debt issuance costs of $22.5 million, which were recorded in other long-term assets as well as $10.5 million of original issue discount fees recorded as a discount to long-term debt.

The information below reflects preliminary allocation of the purchase price based on assumptions and estimates related to fair value that are subject to change as additional information may become available during the respective measurement periods (up to one year from the acquisition date). Specifically, the Company is still evaluating the fair value of certain tangible and intangible assets and finalizing the accounting for income taxes. During the quarter ended March 31, 2014, the Company continued to refine the preliminary purchase price allocation and presentation of the related assets acquired and liabilities assumed. As a result, immaterial adjustments were made to the preliminary purchase price allocation which impacted goodwill, current assets, and deferred tax balances as well as the classification of certain elements of property, plant and equipment.

	(in 000s)
Current assets	$	172,375
Property, plant and equipment	31,409
Leased gaming equipment	34,647
Goodwill	821,373
Purchased intangible assets	510,627
Other assets	10,662
Total assets	1,581,093

Current liabilities	37,977
Deferred income tax liabilities	157,655
Other long-term liabilities	3,056
Total liabilities	198,688
Net assets acquired	$	1,382,405

Receivables acquired of $63.9 million (including approximately $16.1 million of trade receivables with contract terms greater than one year and $4.3 million of lease receivables) were valued at their fair value utilizing Level 3 inputs, which fair value approximates the gross contractual amounts receivable.

Inventory acquired totaling $41.0 million was valued at fair value utilizing Level 2 inputs based on model-based valuations for which all significant inputs and value drivers are observable.

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The following table summarizes acquired tangible and intangible assets. These values are preliminary and may change as the purchase price allocation is finalized.

	Useful Life (Years)	Estimated Fair Value (in 000s)
Property, plant and equipment
Land	Indefinite	$	4,673
Buildings and leasehold improvements	5 — 40	17,750
Furniture, fixtures and equipment	3 — 7	8,986
Property, plant and equipment		$	31,409

Leased gaming equipment
Leased gaming equipment	3 — 5	$	34,647

The fair value of property, plant and equipment and leased gaming equipment was determined using market data for similar assets (Level 2).

	Useful Life (Years)	Estimated Fair Value
		(in 000s)
Purchased intangible assets
Computer Software	2 — 3	$	2,669
License Rights	12	1,958
Core technology and content (1)	4 — 18	456,000
Customer relationships	7	43,000
Trademark	5	7,000
Intangible assets		$	510,627

(1) Includes $46 million of in-process research and development (“IPR&D”) assets that are not yet subject to amortization until they reach commercial feasibility.

EGMs and table game products content and IPR&D assets were valued using the multi-period excess earnings method, a form of the income approach (Level 3). This method calculates the value based on the risk-adjusted present value of the cash flows specific to the content and products, allowing for a reasonable return.

Trademark, core technology for the EGM and Electronic Table System (“ETS”) operating systems, and table game products were valued using the relief-from-royalty method, a form of the income approach (Level 3). The relief-from-royalty method estimates the cost savings that accrue to the owner of an intangible asset that would otherwise be payable as royalties or license fees on revenues earned through the use of the asset. The royalty rate is based on an analysis of empirical, market-derived royalty rate for similar assets.

The customer relationships were valued using a with-or-without method, a form of the income approach (Level 3). In this method, fair value is measured by the lost profits associated with the period of time necessary to reacquire the customers. The method involves a comparison of the cash flows assuming as if the customer relationships were in place versus as if the customer relationships were to be created “from scratch”.

The following table includes the financial results for SHFL included in the condensed consolidated statements of operations since the acquisition date of November 25, 2013:

	Three and Nine Months Ended March 31,
	2014		2014
	(in 000s)
Revenue	$	73,797	$	103,210
Net Income (1)	$	3,003	$	2,510

(1) Includes Acquisition-related costs of $2.3 million and $5.1 million, and inventory and asset charges of $4.2 million and $7.3 million for the three and nine months ended March 31, 2014, respectively.

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The following table includes unaudited pro forma consolidated financial information assuming the Acquisition occurred as of July 1, 2012. The pro forma financial information is for information purposes only and does not necessarily represent the results that may occur in the future. The pro forma amounts include the historical operating results of the Company and SHFL prior to the Acquisition, with adjustments directly attributable to the Acquisition. The 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, increases to cost of gaming equipment and systems related to the step-up in basis associated with inventory as well as increases to interest expense, related to debt issued to fund the Acquisition.

Also reflected in the nine months ended March 31, 2013 is an adjustment for the impact of one-time Acquisition costs related to the Company’s financial advisory fees, legal fees, payroll and related expenses, debt fees, other consulting and professional fees, and accounting, valuation and advisory fees of $34.1 million; $6.2 million and $33.1 million of which have been removed from the three and nine months ended March 31, 2014, respectively. All adjustments utilize an effective tax rate of 35.5%.

The pro forma amounts exclude $17.4 million of one-time Acquisition costs related to SHFL’s financial advisory and legal fees and $12.0 million in stock-based compensation associated with the acceleration of vesting of share based awards upon the change in control.

	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2014		2013		2014		2013
	(in 000s, except per share amounts)
Revenues	$	338,399	$	325,631	$	996,231	$	937,070
Net income attributable to Bally Technologies, Inc.	$	32,744	$	29,425	$	92,975	$	53,289
Basic earnings per share	$	0.85	$	0.73	$	2.42	$	1.31
Diluted earnings per share	$	0.84	$	0. 71	$	2.37	$	1.28

3. EARNINGS PER SHARE

Basic earnings per share are computed by dividing earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share reflect the additional dilution from all potentially dilutive securities.

The computation of basic and diluted earnings per share applicable to the Company’s common stock is as follows:

	Three Months Ended March 31,				Nine Months Ended March 31,
	2014		2013		2014		2013
	(in 000s, except per share amounts)
Net income attributable to Bally Technologies, Inc.	$	27,444	$	38,449	$	86,439	$	104,107

Weighted average shares outstanding	38,614		40,483		38,493		40,594
Dilutive effect of:
Stock options, restricted stock units (“RSU”) and restricted stock	591		716		663		1,020
Weighted average diluted shares outstanding	39,205		41,199		39,156		41,614

Basic and diluted earnings per share attributable to Bally Technologies, Inc.
Basic earnings per share	$	0.71	$	0.95	$	2.25	$	2.56

Diluted earnings per share	$	0.70	$	0.93	$	2.21	$	2.50

Certain securities were excluded from the diluted per share calculation because their inclusion would be anti-dilutive. Such securities consist of the following:

	Three Months Ended March 31,		Nine Months Ended March 31,
	2014	2013	2014	2013
	(in 000s)
Stock options, RSU and restricted stock	—	76	—	115

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4. ACCOUNTS AND NOTES RECEIVABLE

The Company has one portfolio segment, the gaming industry customer, and four classes of receivables including its trade receivables with a contract term less than one year, trade receivables with a contract term greater than one year, sales-type leasing arrangements, and notes receivable, which are related to development financing loans. Trade receivables with contract terms greater than one year relate to the sale of gaming equipment and systems transactions, and are generally collateralized by the related equipment sold, although the value of such equipment, if repossessed, may be less than the receivable balance outstanding. Sales-type leasing arrangements relate to gaming equipment and include options to purchase the gaming equipment at the end of the lease term at established prices. Customers with sales-type leasing arrangements typically have a long-standing credit history with the Company.

On November 25, 2013, the Company completed the Acquisition (see Note 2 to the unaudited condensed consolidated financial statements, Business Combination). As of March 31, 2014, there were $58.2 million in net current receivables and $8.4 million in net long-term accounts receivable related to SHFL.

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

	Accounts and Notes Receivable as of March 31, 2014						Accounts and Notes Receivable as of June 30, 2013
	Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment		Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment
	(in 000s)
Contract term less than one year:
Trade and other receivables, current	$	207,296	$	2,336	$	204,960	$	170,598	$	1,589	$	169,009

Contract term greater than one year:
Trade receivables, current	102,861		74,289		28,572		82,600		63,193		19,407
Trade receivables, noncurrent	35,968		6,166		29,802		40,178		17,961		22,217
	138,829		80,455		58,374		122,778		81,154		41,624

Lease receivables, current	6,767		6,767		—		6,701		6,701		—
Lease receivables, noncurrent	15,532		15,532		—		9,928		9,928		—
	22,299		22,299		—		16,629		16,629		—

Notes receivable, current	5,485		5,485		—		3,411		3,411		—
Notes receivable, noncurrent	13,688		13,688		—		17,114		17,114		—
	19,173		19,173		—		20,525		20,525		—

Total current	322,409		88,877		233,532		263,310		74,894		188,416
Total noncurrent	65,188		35,386		29,802		67,220		45,003		22,217
Total	$	387,597	$	124,263	$	263,334	$	330,530	$	119,897	$	210,633

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The activity related to the allowance for doubtful accounts for the nine months ended March 31, 2014 is summarized below:

	Allowance for Doubtful Accounts
	Beginning Balance as of June 30, 2013			Charge- offs		Recoveries		Provision			Ending Balance as of March 31, 2014			Ending Balance Individually Evaluated for Impairment			Ending Balance Collectively Evaluated for Impairment
	(in 000s)
Contract term less than one year:
Trade and other receivables, current	$	(4,505	)	$	524	$	71	$	(662	)	$	(4,572	)	$	(1,525	)	$	(3,047	)

Contract term greater than one year:
Trade receivables, current	(10,308		)	74		560		(1,429		)	(11,103		)	(8,206		)	(2,897		)
Trade receivables, noncurrent	(1,764		)	112		1,656		(1,494		)	(1,490		)	—			(1,490		)
	(12,072		)	186		2,216		(2,923		)	(12,593		)	(8,206		)	(4,387		)

Lease receivables, current	—			—		—		(97		)	(97		)	(97		)	—
Lease receivables, noncurrent	—			—		—		(2		)	(2		)	(2		)	—
	—			—		—		(99		)	(99		)	(99		)	—

Notes receivable, current