EVERI HOLDINGS INC., 10-Q filed on 11/7/2017
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2017
Nov. 1, 2017
Document And Entity Information [Abstract]
 
 
Entity Registrant Name
Everi Holdings Inc. 
 
Entity Central Index Key
0001318568 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2017 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-31 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
67,366,979 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q3 
 
Trading Symbol
EVRI 
 
CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Revenues
$ 247,322 
$ 222,177 
$ 727,089 
$ 641,946 
Costs and expenses
 
 
 
 
Operating expenses
29,463 
26,996 
87,235 
87,735 
Research and development
4,545 
4,460 
13,706 
14,499 
Depreciation
12,539 
12,367 
34,765 
37,172 
Amortization
17,322 
24,104 
52,086 
70,887 
Total costs and expenses
227,527 
210,605 
663,399 
620,530 
Operating income
19,795 
11,572 
63,690 
21,416 
Other expenses
 
 
 
 
Interest expense, net of interest income
23,368 
24,815 
72,306 
74,548 
Loss on extinguishment of debt
 
 
14,615 
 
Total other expenses
23,368 
24,815 
86,921 
74,548 
Loss before income tax
(3,573)
(13,243)
(23,231)
(53,132)
Income tax provision (benefit)
716 
(4,989)
3,623 
(20,930)
Net loss
(4,289)
(8,254)
(26,854)
(32,202)
Foreign currency translation
602 
(394)
1,710 
(1,314)
Comprehensive loss
(3,687)
(8,648)
(25,144)
(33,516)
Loss per share
 
 
 
 
Basic
$ (0.06)
$ (0.12)
$ (0.40)
$ (0.49)
Diluted
$ (0.06)
$ (0.12)
$ (0.40)
$ (0.49)
Weighted average common shares outstanding
 
 
 
 
Basic
66,897 
66,049 
66,449 
66,041 
Diluted
66,897 
66,049 
66,449 
66,041 
Games
 
 
 
 
Revenues
55,452 
56,218 
165,832 
158,660 
Costs and expenses
 
 
 
 
Cost of revenue (exclusive of depreciation and amortization)
13,820 
15,467 
39,503 
36,871 
Operating income
1,787 
(4,183)
9,301 
(14,638)
Payments
 
 
 
 
Revenues
191,870 
165,959 
561,257 
483,286 
Costs and expenses
 
 
 
 
Cost of revenue (exclusive of depreciation and amortization)
149,838 
127,211 
436,104 
373,366 
Operating income
$ 18,008 
$ 15,755 
$ 54,389 
$ 36,054 
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2017
Dec. 31, 2016
Current assets
 
 
Cash and cash equivalents
$ 108,471 
$ 119,051 
Settlement receivables
127,443 
128,821 
Trade and other receivables, net of allowances for doubtful accounts of $5,427 and $4,701 at September 30, 2017 and December 31, 2016, respectively
44,971 
56,651 
Inventory
23,790 
19,068 
Prepaid expenses and other assets
22,538 
18,048 
Total current assets
327,213 
341,639 
Non-current assets
 
 
Property, equipment and leased assets, net
109,399 
98,439 
Goodwill
640,593 
640,546 
Other intangible assets, net
338,074 
317,997 
Other receivables
2,876 
2,020 
Other assets
7,450 
7,522 
Total non-current assets
1,098,392 
1,066,524 
Total assets
1,425,605 
1,408,163 
Current liabilities
 
 
Settlement liabilities
197,494 
239,123 
Accounts payable and accrued expenses
126,625 
94,391 
Current portion of long-term debt
8,200 
10,000 
Total current liabilities
332,319 
343,514 
Non-current liabilities
 
 
Deferred tax liability
60,785 
57,611 
Long-term debt, less current portion
1,130,671 
1,111,880 
Other accrued expenses and liabilities
25,634 
2,951 
Total non-current liabilities
1,217,090 
1,172,442 
Total liabilities
1,549,409 
1,515,956 
Commitments and contingencies (Note 12)
   
   
Stockholders’ deficit
 
 
Common stock, $0.001 par value, 500,000 shares authorized and 91,918 and 90,952 shares issued at September 30, 2017 and December 31, 2016, respectively
92 
91 
Convertible preferred stock, $0.001 par value, 50,000 shares authorized and 0 shares outstanding at September 30, 2017 and December 31, 2016, respectively
   
   
Additional paid-in capital
273,906 
264,755 
Accumulated deficit
(221,152)
(194,299)
Accumulated other comprehensive loss
(399)
(2,109)
Treasury stock, at cost, 24,872 and 24,867 shares at September 30, 2017 and December 31, 2016, respectively
(176,251)
(176,231)
Total stockholders’ deficit
(123,804)
(107,793)
Total liabilities and stockholders’ deficit
$ 1,425,605 
$ 1,408,163 
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Sep. 30, 2017
Dec. 31, 2016
Statement Of Financial Position [Abstract]
 
 
Allowances for doubtful accounts
$ 5,427 
$ 4,701 
Common stock par value (in dollars per share)
$ 0.001 
$ 0.001 
Common stock, shares authorized
500,000,000 
500,000,000 
Common stock, shares issued
91,918,086 
90,952,185 
Convertible preferred stock, par value (in dollars per share)
$ 0.001 
$ 0.001 
Convertible preferred stock, shares authorized
50,000,000 
50,000,000 
Convertible preferred stock, shares outstanding
Treasury stock, shares
24,872,000 
24,867,000 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Cash flows from operating activities
 
 
Net loss
$ (26,854)
$ (32,202)
Adjustments to reconcile net loss to cash provided by operating activities:
 
 
Depreciation and amortization
86,851 
108,059 
Amortization of financing costs
4,567 
5,023 
Loss on sale or disposal of assets
1,580 
2,554 
Accretion of contract rights
5,845 
6,521 
Provision for bad debts
7,946 
7,192 
Deferred income taxes
3,174 
(22,259)
Write-down of assets
 
4,289 
Reserve for obsolescence
46 
942 
Loss on extinguishment of debt
14,615 
 
Stock-based compensation
5,125 
4,146 
Changes in operating assets and liabilities:
 
 
Settlement receivables
1,569 
9,158 
Trade and other receivables
2,767 
(1,386)
Inventory
(5,314)
6,315 
Prepaid and other assets
(3,337)
2,912 
Settlement liabilities
(41,799)
(22,000)
Accounts payable and accrued expenses
12,981 
6,544 
Net cash provided by operating activities
69,762 
85,808 
Cash flows from investing activities
 
 
Capital expenditures
(70,057)
(67,025)
Acquisitions, net of cash acquired
 
(694)
Proceeds from sale of fixed assets
4,608 
Placement fee agreements
(13,132)
(11,187)
Changes in restricted cash
(149)
88 
Net cash used in investing activities
(83,334)
(74,210)
Cash flows from financing activities
 
 
Repayments of new credit facility
(2,050)
 
Repayments of prior credit facility
(465,600)
(21,900)
Repayments of secured notes
(335,000)
 
Proceeds from current credit facility
820,000 
 
Debt issuance costs and discounts
(19,748)
(480)
Proceeds from exercise of stock options
4,046 
 
Purchase of treasury stock
(21)
(17)
Net cash provided by (used in) financing activities
1,627 
(22,397)
Effect of exchange rates on cash
1,365 
(743)
Cash and cash equivalents
 
 
Net decrease for the period
(10,580)
(11,542)
Balance, beginning of the period
119,051 
102,030 
Balance, end of the period
108,471 
90,488 
Supplemental cash disclosures
 
 
Cash paid for interest
59,894 
55,465 
Cash paid for income tax
760 
1,124 
Cash refunded for income tax
200 
92 
Supplemental non-cash disclosures
 
 
Accrued and unpaid capital expenditures
4,736 
1,427 
Accrued and unpaid placement fees
39,074 
 
Accrued and unpaid contingent liability for acquisitions
 
(3,169)
Transfer of leased gaming equipment to inventory
$ 6,093 
$ 6,222 
BUSINESS
BUSINESS

1.

BUSINESS

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.) (“Everi Games Holding”), 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 to casino operators. Everi Games provides: (a) comprehensive content, electronic gaming units and systems for Native American and commercial casinos, including both Wide-Area Progressive (“WAP”) systems and the TournEvent® slot tournament solution; and (b) the central determinant system for the video lottery terminals installed in the State of New York. Everi Payments provides: (a) access to cash at gaming facilities via Automated Teller Machine (“ATM”) 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.

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Our unaudited condensed consolidated financial statements included herein have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Some of the information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair statement of results for the interim periods have been made. The results for the three and nine months ended September 30, 2017 are not necessarily indicative of results to be expected for the full fiscal year. The Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

There have been no changes to our basis of presentation and significant accounting policies since the most recent filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

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. The estimated fair value and outstanding balances of our borrowings are as follows (in thousands).

 

 

 

Level of

Hierarchy

 

Fair Value

 

 

Outstanding

Balance

 

September 30, 2017

 

 

 

 

 

 

 

 

 

 

Term loan

 

2

 

$

826,130

 

 

$

817,950

 

Senior unsecured notes

 

1

 

$

378,875

 

 

$

350,000

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

Term loan

 

1

 

$

451,632

 

 

$

465,600

 

Senior secured notes

 

3

 

$

324,950

 

 

$

335,000

 

Senior unsecured notes

 

1

 

$

350,000

 

 

$

350,000

 

 

The term loan facility was reported at fair value using a Level 2 input as there were quoted prices in markets that were not considered active as of September 30, 2017. The senior unsecured notes were reported at fair value using a Level 1 input as there were quoted prices in markets that were considered active as of September 30, 2017.

The term loan was reported at fair value using a Level 1 input as there were quoted prices in markets that were considered active as of December 31, 2016. The senior secured notes were reported at fair value using a Level 3 input as there was no market activity or observable inputs as of December 31, 2016. The senior unsecured notes were reported at fair value using a Level 1 input as there were quoted prices in markets that were considered active as of December 31, 2016.

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 January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-04, which provides updated guidance on the goodwill impairment test and the method by which an entity recognizes an impairment charge. These amendments eliminate Step 2 from the current goodwill impairment process and require that an entity recognize an impairment charge equal to the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. Additionally, a company should also take into consideration income tax effects from tax deductible goodwill on the carrying amount of a reporting unit when recording an impairment loss. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This guidance will be applied using a prospective approach. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We adopted this guidance in the current period. As no indicators of impairment were identified for our goodwill during the three and nine months ended September 30, 2017, this ASU did not impact our Financial Statements.

In March 2016, the FASB issued ASU No. 2016-09, which simplifies several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. This guidance will be applied either prospectively, retrospectively or using a modified retrospective transition method, depending on the area covered in this update. Early adoption is permitted. We adopted this guidance in the current period on a prospective basis. As of September 30, 2017, the adoption of ASU No. 2016-09 has not materially impacted our Financial Statements. With respect to forfeitures, the Company will continue to estimate the number of awards expected to be forfeited in accordance with our existing accounting policy. In addition, our Cash Flows present excess tax benefits as operating activities in the current period, as the prior period was not adjusted.

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 last-in, first-out (“LIFO”) or the retail inventory method. The amendments do not apply to inventory that is measured using 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 adopted this guidance in the current period. This ASU did not have a material impact on our Financial Statements.

Recent Accounting Guidance Not Yet Adopted

In May 2017, the FASB issued ASU No. 2017-09 to clarify which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. An entity is required to account for the effects of a modification unless all of the following conditions are met: (i) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or value using an alternative measurement method) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; (ii) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted in the first period of the year this guidance is adopted. We are currently evaluating the impact of adopting this guidance on our Financial Statements.

In January 2017, the FASB issued ASU No. 2017-01, which clarifies the definition of a business. The amendments affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This guidance will be applied using a prospective approach as of the beginning of the first period of adoption. Early adoption is permitted for acquisitions, or disposals that occur before the issuance date or effectiveness date of the amendments when the transaction has not been reported in financial statements that have been issued or made available for issuance. We are currently evaluating the impact of adopting this guidance on our Financial Statements.

In October 2016, the FASB issued ASU No. 2016-18, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This guidance will be applied using a retrospective approach to each period presented. Early adoption is permitted and adoption in an interim period should reflect adjustments as of the beginning of the fiscal year that includes that interim period. We are currently evaluating the impact of adopting this guidance on our Financial Statements.

In October 2016, the FASB issued ASU No. 2016-16, which provides updated guidance on the recognition of the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs, and this eliminates the exception for an intra-entity transfer of such assets. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This guidance will be applied using a modified retrospective approach through a cumulative-effective adjustment directly to retained earnings as of the beginning of the period of adoption. Early adoption is permitted during the first interim period of the year this guidance is adopted. We are currently evaluating the impact of adopting this guidance on our Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15, which provides updated guidance on the classification of certain cash receipts and cash payments in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This guidance will be applied using a retrospective approach. If it is impracticable to apply the amendments retrospectively for some of the issues within this ASU, the amendments for those issues would be applied prospectively as of the earliest date practicable. Early adoption is permitted including adoption in an interim period. We are currently evaluating the impact of adopting this guidance on our Financial Statements.

In June 2016, the FASB issued ASU No. 2016-13, which provides updated guidance on credit losses for financial assets measured at amortized cost basis and available-for sale debt securities. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This guidance will be applied using a modified retrospective approach for the cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective and using a prospective approach for debt securities for which any other-than-temporary impairment had been recognized before the effective date. Early adoption is permitted for fiscal years beginning after December 15, 2018. We are currently evaluating the impact of adopting this guidance on our Financial Statements.

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. While we are currently assessing the impact of this ASU on our Financial Statements, we expect the primary impact to our consolidated financial position upon adoption will be the recognition, on a discounted basis, of our minimum commitments under noncancelable operating leases on our Balance Sheets, which will result in the recording of right of use assets and lease obligations and are currently discussed in “Note 12 — Commitments and Contingencies.”

In May 2014, the FASB issued ASU No. 2014-09, which creates FASB Accounting Standards Codification (“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. The guidance in ASU 2014-09 was further updated by ASU 2016-08 in March 2016, which provides clarification on the implementation of the principal versus agent considerations in ASU 2014-09. In April 2016, the FASB issued ASU 2016-10, which provides clarification on the implementation of performance obligations and licensing in ASU 2014-09. In May 2016, the FASB issued ASU 2016-11, which amends guidance provided in two SEC Staff Announcements at the March 3, 2016 Emerging Issues Task Force meeting over various topics relating to ASU 606. In May 2016, the FASB issued ASU 2016-12, which clarified various topics in ASU 606. In December 2016, the FASB issued ASU 2016-20, which clarified additional topics in ASU 606. 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 have performed a review of the requirements of the standard and identified our major revenue streams and the anticipated impact to each of them:

 

Major Revenue Stream

 

Preliminary Expected Impact Upon Adoption

 

 

 

Games Segment:

 

 

 

 

 

Game Sales

 

We expect revenue recognition to be consistent with our current practices, however, there may be some differences as we continue to evaluate the implications.

 

 

 

Game Operations

 

We expect revenue recognition to be consistent with our current practices, however, with respect to our WAP offering(s), for which we initiated this year, we will be required to net the direct costs with Games revenues as opposed to our existing practice of recording those amounts to Games cost of revenues. WAP jackpot expense was approximately $0.1 million and $0.3 million for the three and nine months ended September 30, 2017, respectively.

 

 

 

Payments Segment:

 

 

 

 

 

Cash Advance, ATM and Check Services

 

We generally expect revenue recognition to be consistent with our current practices, however, there may potentially be significant differences as we continue to evaluate the implications specifically related to our reporting these revenues on a gross versus net basis. As such, there will be no effect on operating income, net loss, cash flows or the timing of revenues recognized and costs incurred. In addition, there may be changes to the Kiosk Sales and Services and Compliance Sales and Services offerings that impact cash advance, ATM and check services revenue streams as we continue to evaluate the revenue recognition standard.

 

 

 

Central Credit

 

We expect revenue recognition to be consistent with our current practices, however, there may be differences as we continue to evaluate the implications.

 

 

 

Kiosk Sales and Services

 

We expect to encounter some level of change to our revenue recognition practices for these revenue streams under the new guidance, however, the amounts are not anticipated to be material as we continue to evaluate the implications.

 

 

 

Compliance Sales and Services

 

We expect to encounter some level of change to our revenue recognition practices for these revenue streams under the new guidance, however, the amounts are not anticipated to be material as we continue to evaluate the implications.

 

Currently, we do not expect our Games or certain of our Payments revenues to be materially impacted by the implementation of this guidance; however, we continue to evaluate certain of our other Payments-related revenue streams as there may be a potentially significant impact, depending on our final interpretation of the accounting guidance. More specifically, based on the transition guidance related to the new revenue recognition standard, we are in the process of determining if our cash advance, ATM and check services revenue streams will be required to be reported “net of transaction price” rather than our current gross revenue presentation basis. Under the existing Topic 605, certain factors that supported our gross reporting position have been eliminated in the new Topic 606. In addition, our understanding of the new transition guidance, as it specifically pertains to payments from customers, may further require us to report certain of these Payments-related revenue streams on a net presentation basis. If our conclusions, in accordance with GAAP, support a net reporting of these specific revenue streams, this will have a significant impact on our revenues, cost of revenues and margins for the affected revenue streams, however, there will be no effect on operating income, net loss, cash flows or the timing of revenues recognized and costs incurred.

As we continue to take the necessary measures of preparedness in connection with the adoption of the new revenue recognition standard, we continue to do the following:

 

Evaluate our revenue streams to determine the extent, if any, of the changes to the timing and amount of revenue recorded in each reporting period.

 

Review our existing accounting policies, procedures and internal controls to further determine the impact of the new standard on our Financial Statements.

 

Prepare the enhanced disclosures and updates to our revenue recognition policies to identify performance obligations to customers and that will require significant judgment in both measurement and recognition.

 

Review in detail our sales contract terms and conditions to determine the necessary adjustments, if any.

 

Monitor the activity of the FASB and the transition resource group as it relates to specific interpretive guidance that may impact us.

We may identify other impacts from the implementation of this guidance as we continue our assessment. We expect to adopt this guidance using the modified retrospective method beginning in the first quarter of 2018.

BUSINESS COMBINATIONS
BUSINESS COMBINATIONS

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. We had no material acquisitions for the three and nine months ended September 30, 2017 and 2016.

FUNDING AGREEMENTS
FUNDING AGREEMENTS

4.

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 Statements of Loss, were $1.2 million and $3.5 million for the three and nine months ended September 30, 2017, respectively, and $0.7 million and $2.3 million for the three and nine months ended September 30, 2016, 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 Balance Sheets. The outstanding balances of ATM cash utilized by us from Wells Fargo were $226.6 million and $285.4 million as of September 30, 2017 and December 31, 2016, respectively.

The Contract Cash Solutions Agreement, as amended, provides us with cash in the maximum amount of $425.0 million during the term of the agreement, which expires on June 30, 2019.

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 three and nine months ended September 30, 2017 and 2016.

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 included within settlement liabilities in the accompanying Balance Sheets was $134.1 million and $151.0 million as of September 30, 2017 and December 31, 2016, respectively.

Prefunded Cash Access Agreements

Due to certain regulatory requirements, some international gaming establishments require prefunding of cash to cover all outstanding settlement amounts in order for us to provide cash access services to their properties. We enter into agreements with these operators for which we supply our cash access services for their properties. Under these agreements, we maintain sole discretion to either continue or cease operations as well as discretion over the amounts prefunded to the properties and may request amounts to be refunded to us, with appropriate notice to the operator, at any time. The initial prefunded amounts and subsequent amounts from the settlement of transactions are deposited into a bank account that is to be used exclusively for cash access services, and we maintain the right to monitor all transaction activity in that account. The total amount of prefunded cash outstanding was approximately $9.3 million and $8.5 million at September 30, 2017 and December 31, 2016, respectively, and is included in prepaid expenses and other assets on our Balance Sheets.

TRADE AND OTHER RECEIVABLES
TRADE AND OTHER RECEIVABLES

5.

TRADE AND OTHER RECEIVABLES

Trade and loans receivables represent short-term credit granted to customers as well as long-term loans receivable on our games, fully integrated kiosks and compliance products. Trade and loans receivables generally do not require collateral. The balance of trade and loans receivables consists of outstanding balances owed to us by gaming establishments and casino patrons. Other receivables include income taxes receivables and other miscellaneous receivables. The balance of trade and other receivables consisted of the following (in thousands):

 

 

 

At September 30,

 

 

At December 31,

 

 

 

2017

 

 

2016

 

Trade and other receivables, net

 

 

 

 

 

 

 

 

Games trade and loans receivables

 

$

36,837

 

 

$

44,410

 

Payments trade and loans receivables

 

 

10,214

 

 

 

12,337

 

Other receivables

 

 

796

 

 

 

1,924

 

Total trade and other receivables, net

 

$

47,847

 

 

$

58,671

 

Less: non-current portion of receivables

 

 

2,876

 

 

 

2,020

 

Total trade and other receivables,

   current portion

 

$

44,971

 

 

$

56,651

 

 

At least quarterly, we evaluate the collectability of the outstanding balances and establish a reserve for the face amount of the expected losses on our receivables. The allowance for doubtful accounts for trade receivables was $5.4 million and $4.7 million as of September 30, 2017 and December 31, 2016, respectively, and includes reserves for both Games and Payments receivables. The provision for doubtful accounts is generally included within operating expenses in the Statements of Loss. We also have a provision for doubtful accounts specifically associated with our outstanding check warranty receivables, which is included within Payments cost of revenues (exclusive of depreciation and amortization) in the Statements of Loss. The outstanding balances of the check warranty and general reserves were $3.0 million and $2.4 million, respectively, as of September 30, 2017 and $2.7 million and $2.0 million, respectively, as of December 31, 2016.

PREPAID AND OTHER ASSETS
PREPAID AND OTHER ASSETS

6.

PREPAID AND OTHER ASSETS

Prepaid and other assets include the balance of prepaid expenses, deposits, debt issuance costs on our Revolving Credit Facility (defined herein), restricted cash and other assets. The current portion of these assets is included in prepaid and other assets and the non-current portion is included in other assets, both of which are contained within the Balance Sheets.

The balance of the current portion of prepaid and other assets consisted of the following (in thousands):

 

 

 

At September 30,

 

 

At December 31,

 

 

 

2017

 

 

2016

 

Prepaid expenses and other assets

 

 

 

 

 

 

 

 

Deposits

 

$

9,971

 

 

$

8,622

 

Prepaid expenses

 

 

7,870

 

 

 

5,937

 

Other

 

 

4,697

 

 

 

3,489

 

Total prepaid expenses and other assets

 

$

22,538

 

 

$

18,048

 

 

The balance of the non-current portion of other assets consisted of the following (in thousands):

 

 

 

At September 30,

 

 

At December 31,

 

 

 

2017

 

 

2016

 

Other assets

 

 

 

 

 

 

 

 

Prepaid expenses and deposits

 

$

3,464

 

 

$

3,399

 

Debt issuance costs of revolving credit facility

 

 

898

 

 

 

689

 

Other

 

 

3,088

 

 

 

3,434

 

Total other assets

 

$

7,450

 

 

$

7,522

 

 

INVENTORY
INVENTORY

7.

INVENTORY

Our inventory primarily consists of component parts as well as work-in-progress and finished goods. The cost of inventory includes cost of materials, labor, overhead and freight. The inventory is stated at the lower of cost or net realizable value and accounted for using the FIFO method.

Inventory consisted of the following (in thousands):

 

 

 

At September 30,

 

 

At December 31,

 

 

 

2017

 

 

2016

 

Inventory

 

 

 

 

 

 

 

 

Raw materials and component parts, net of reserves of $1,523 and $2,155 at

   September 30, 2017 and December 31, 2016, respectively

 

$

15,974

 

 

$

12,570

 

Work-in-progress

 

 

3,516

 

 

 

1,502

 

Finished goods

 

 

4,300

 

 

 

4,996

 

Total inventory

 

$

23,790

 

 

$

19,068

 

 

PROPERTY, EQUIPMENT AND LEASED ASSETS
PROPERTY, EQUIPMENT AND LEASED ASSETS

8.

PROPERTY, EQUIPMENT AND LEASED ASSETS

Property, equipment and leased assets consist of the following (in thousands):

 

 

 

 

 

At September 30, 2017

 

 

At December 31, 2016

 

 

 

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

 

$

149,895

 

 

$

73,623

 

 

$

76,272

 

 

$

123,812

 

 

$

59,188

 

 

$

64,624

 

Rental pool - undeployed

 

2-4

 

 

19,829

 

 

 

10,874

 

 

 

8,955

 

 

 

13,456

 

 

 

5,721

 

 

 

7,735

 

ATM equipment

 

5

 

 

17,154

 

 

 

11,992

 

 

 

5,162

 

 

 

16,537

 

 

 

11,189

 

 

 

5,348

 

Leasehold and building

   improvements

 

Lease

Term

 

 

10,723

 

 

 

4,820

 

 

 

5,903

 

 

 

10,023

 

 

 

3,698

 

 

 

6,325

 

Cash advance equipment

 

3

 

 

8,492

 

 

 

5,544

 

 

 

2,948

 

 

 

8,590

 

 

 

4,499

 

 

 

4,091

 

Machinery, office and other

   equipment

 

2-5

 

 

33,217

 

 

 

23,058

 

 

 

10,159

 

 

 

30,424

 

 

 

20,108

 

 

 

10,316

 

Total

 

 

 

$

239,310

 

 

$

129,911

 

 

$

109,399

 

 

$

202,842

 

 

$

104,403

 

 

$

98,439

 

 

Depreciation expense related to property, equipment and leased assets totaled approximately $12.5 million and $34.8 million for the three and nine months ended September 30, 2017, respectively, and $12.4 million and $37.2 million for the three and nine months ended September 30, 2016, respectively. There was no material impairment of our property, equipment and leased assets for the three and nine months ended September 30, 2017 and 2016.

GOODWILL AND OTHER INTANGIBLE ASSETS
GOODWILL AND OTHER INTANGIBLE ASSETS

9.

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. The balance of goodwill was $640.6 million and $640.5 million at September 30, 2017 and December 31, 2016, respectively.

In accordance with ASC 350, we test goodwill at the reporting unit level, which are identified as operating segments or one level below, 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.

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 will use the Step 1 assessment to determine the impairment in accordance with the adoption of ASU No 2017-04.

No impairment was identified for our goodwill for the three and nine months ended September 30, 2017 and 2016.

Other Intangible Assets

Other intangible assets consist of the following (in thousands):

 

 

 

 

At September 30, 2017

 

 

At December 31, 2016

 

 

 

Useful Life

 

 

 

 

 

Accumulated

 

 

Net Book

 

 

 

 

 

 

Accumulated

 

 

Net Book

 

 

 

(years)

 

Cost

 

 

Amortization

 

 

Value

 

 

Cost

 

 

Amortization

 

 

Value

 

Other intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract rights under placement

   fee agreements

 

1-7

 

$

59,605

 

 

$

1,782

 

 

$

57,823

 

 

$

17,742

 

 

$

6,281

 

 

$

11,461

 

Customer contracts

 

7-14

 

 

50,975

 

 

 

42,768

 

 

 

8,207

 

 

 

50,975

 

 

 

40,419

 

 

 

10,556

 

Customer relationships

 

8-12

 

 

231,100

 

 

 

58,412

 

 

 

172,688

 

 

 

231,100

 

 

 

42,688

 

 

 

188,412

 

Developed technology and

   software

 

1-6

 

 

244,151

 

 

 

152,706

 

 

 

91,445

 

 

 

224,265

 

 

 

126,721

 

 

 

97,544

 

Patents, trademarks and other

 

1-17

 

 

28,834

 

 

 

20,923

 

 

 

7,911

 

 

 

27,771

 

 

 

17,747

 

 

 

10,024

 

Total

 

 

 

$

614,665

 

 

$

276,591

 

 

$

338,074

 

 

$

551,853

 

 

$

233,856

 

 

$

317,997

 

 

Amortization expense related to other intangible assets was approximately $17.3 million and $52.1 million for the three and nine months ended September 30, 2017, respectively, and $24.1 million and $70.9 million for the three and nine months ended September 30, 2016, respectively.

We evaluate our other intangible assets for potential impairment in connection with our quarterly review process. There was no material impairment identified for any of our other intangible assets for the three and nine months ended September 30, 2017 and 2016.

We enter into placement fee agreements to provide financing for new gaming facilities or for the expansion or improvement of existing facilities. The 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 electronic gaming machines (“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.

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 are first applied against the intangible asset for that particular 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. In July 2017, we entered into a placement fee agreement with a customer for certain of its locations for approximately $49.1 million, net of $10.1 million of unamortized fees related to superseded contracts. During the three and nine months ended September 30, 2017, we paid approximately $10.1 million and $13.1 million, respectively, in placement fees primarily related to this agreement. For the nine months ended September 30, 2016, $11.2 million was paid to extend the term of placement fee agreements with the same customer for certain of its locations. We did not enter into any placement fee agreements or incur related fees during the three months ended September 30, 2016.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES

10.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

The following table presents our accounts payable and accrued expenses (in thousands):

 

 

 

At September 30,

 

 

At December 31,

 

 

 

2017

 

 

2016

 

Accounts payable and accrued expenses

 

 

 

 

 

 

 

 

Trade accounts payable

 

$

62,422

 

 

$

55,352

 

Placement fees(1)

 

 

16,746

 

 

 

 

Accrued interest

 

 

7,650

 

 

 

82

 

Payroll and related expenses

 

 

10,207

 

 

 

12,305

 

Deferred and unearned revenues

 

 

9,981

 

 

 

9,222

 

Cash access processing and related expenses

 

 

7,682

 

 

 

7,001

 

Accrued taxes

 

 

2,734

 

 

 

2,587

 

Other

 

 

9,203

 

 

 

7,842

 

Total accounts payable and accrued expenses

 

$

126,625

 

 

$

94,391

 

 

 

(1)

The total outstanding balance of the placement fees was $39.1 million. The remaining $22.3 million of non-current placement fees was included in other accrued expenses and liabilities in our Balance Sheets as of September 30, 2017.

LONG-TERM DEBT
LONG-TERM DEBT

11.

LONG-TERM DEBT

The following table summarizes our outstanding indebtedness (in thousands):

 

 

 

At September 30,

 

 

At December 31,

 

 

 

2017

 

 

2016

 

Long-term debt

 

 

 

 

 

 

 

 

Senior secured term loan

 

$

817,950

 

 

$

465,600

 

Senior secured notes

 

 

 

 

 

335,000

 

Senior unsecured notes

 

 

350,000

 

 

 

350,000

 

Total debt

 

 

1,167,950

 

 

 

1,150,600

 

Less: debt issuance costs and discount

 

 

(29,079

)

 

 

(28,720

)

Total debt after debt issuance costs and

   discount

 

 

1,138,871

 

 

 

1,121,880

 

Less: current portion of long-term debt

 

 

(8,200

)

 

 

(10,000

)

Long-term debt, less current portion

 

$

1,130,671

 

 

$

1,111,880

 

 

Refinancing

On May 9, 2017 (the “Closing Date”), Everi Payments, as borrower, and Holdings entered into a credit agreement with the lenders party thereto and Jefferies Finance LLC, as administrative agent, collateral agent, swing line lender, letter of credit issuer, sole lead arranger and sole book manager (the “New Credit Agreement”). The New Credit Agreement provides for: (i) a $35.0 million, five-year senior secured revolving credit facility (the “New Revolving Credit Facility”); and (ii) an $820.0 million, seven-year senior secured term loan facility (the “New Term Loan Facility,” and together with the New Revolving Credit Facility, the “New Credit Facilities”). The fees associated with the New Credit Facilities included discounts of approximately $4.1 million and debt issuance costs of approximately $15.5 million. All borrowings under the New Credit Facilities are subject to the satisfaction of customary conditions, including the absence of defaults and the accuracy of representations and warranties.

The proceeds from the New Term Loan Facility incurred on the Closing Date were used to: (i) refinance: (a) the Everi Payments existing credit facility with an outstanding balance of approximately $462.3 million with 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 (the “Prior Credit Facility”); and (b) the Everi Payments 7.25% Senior Secured Notes due 2021 in the aggregate original principal amount of $335.0 million (the “Refinanced Secured Notes”); and (ii) pay related transaction fees and expenses.

In connection with the refinancing, we recorded a non-cash charge of approximately $14.6 million during the second quarter of 2017 related to the unamortized deferred financing fees and discounts related to the extinguished term loan under the Prior Credit Facility and the redeemed Refinanced Secured Notes. No prepayment penalties were incurred.

New Credit Facilities

The New Term Loan Facility matures seven years after the Closing Date (the “Stated Term Maturity Date”); provided that, if on the date that is 91 days prior to the maturity date (the “Unsecured Notes Maturity Date”) for the Everi Payments 10.00% Senior Unsecured Notes due 2022 in the aggregate original principal amount of $350.0 million (the “Unsecured Notes”), any Unsecured Notes remain outstanding and the Unsecured Notes Maturity Date has not been extended to a date that is at least six months after the Stated Term Maturity Date, then the New Term Loan Facility shall mature on the date that is 91 days before the Unsecured Notes Maturity Date. The New Revolving Credit Facility matures five years after the Closing Date; provided, that, if on the date that is 121 days prior to the Unsecured Notes Maturity Date, any Unsecured Notes remain outstanding and the Unsecured Notes Maturity Date has not been extended to a date that is at least six months after the Stated Term Maturity Date, then the New Revolving Credit Facility shall mature on the date that is 121 days before the Unsecured Notes Maturity Date. The New Revolving Credit Facility is available for general corporate purposes, including permitted acquisitions, working capital and the issuance of letters of credit.

The interest rate per annum applicable to loans under the New Revolving Credit Facility will be, at Everi Payments’ option, the base rate or the Eurodollar Rate (defined to be the London Interbank Offered Rate or a comparable or successor rate) (the “Eurodollar Rate”) plus, in each case, an applicable margin. The interest rate per annum applicable to the New Term Loan Facility will also be, at Everi Payments’ option, the base rate or the Eurodollar Rate plus, in each case, an applicable margin. The Eurodollar Rate will be reset at the beginning of each selected interest period based on the Eurodollar Rate then in effect; provided that, if the Eurodollar Rate 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: (i) the prime lending rate announced by the administrative agent; (ii) the federal funds effective rate from time to time plus 0.50%; and (iii) the Eurodollar Rate (after taking account of any applicable floor) applicable for an interest period of one month plus 1.00%. The applicable margins for both the New Revolving Credit Facility and the New Term Loan Facility are: (i) 4.50% in respect of Eurodollar Rate loans and (ii) 3.50% in respect of base rate loans.

Voluntary prepayments of the term loan and the revolving loans and voluntary reductions in the unused commitments are permitted in whole or in part, in minimum amounts as set forth in the New Credit Agreement governing the New Credit Facilities, with prior notice but without premium or penalty, except that certain refinancings of the term loans within six months after the Closing Date will be subject to a prepayment premium of 1.00% of the principal amount repaid.

Subject to certain exceptions, the obligations under the New Credit Facilities are secured by substantially all of the present and subsequently acquired assets of each of Everi Payments, Holdings and the subsidiary guarantors party thereto including: (i) 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 (ii) 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 New Credit Facilities are unconditionally guaranteed by Holdings and such subsidiary guarantors.

The New Credit Agreement governing the New Credit Facilities 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 its affiliates. The New Credit Agreement governing the New Credit Facilities also requires Holdings, together with its subsidiaries, to comply with a consolidated secured leverage ratio. At September 30, 2017, our consolidated secured leverage ratio was 3.63 to 1.00, with a maximum allowable ratio of 5.00 to 1.00. Our maximum consolidated secured leverage ratio will be 5.00 to 1.00, 4.75 to 1.00, and 4.50 to 1.00 as of December 31, 2017, 2018, and 2019 and thereafter, respectively.

We were in compliance with the terms of the New Credit Facilities as of September 30, 2017.

Events of default under the New Credit Agreement governing the New Credit Facilities include customary events such as a cross-default provision with respect to other material debt. 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).

We are required to repay the New Term Loan Facility in an amount equal to 0.25% per quarter of the initial aggregate principal, with the final principal repayment installment on the maturity date. Interest is due in arrears on each interest payment date applicable thereto and at such other times as may be specified in the New Credit Agreement. As to any loan other than a base rate loan, the interest payment dates shall be the last day of each interest period applicable to such loan and the maturity date (provided, however, that if any interest period for a Eurodollar Rate loan exceeds three months, the respective dates that fall every three months after the beginning of such interest period shall also be interest payment dates). As to any base rate loan, the interest payment dates shall be last business day of each March, June, September and December and the maturity date.  

For the quarter ended September 30, 2017, the New Term Loan Facility had an applicable weighted average interest rate of 5.74%. For the nine months ended September 30, 2017, the Prior Credit Facility had an applicable weighted average interest rate of 6.29%; the New Term Loan Facility had an applicable weighted average interest rate of 5.71%; and a blended weighted average interest rate of 5.87% for the period ended September 30, 2017.

At September 30, 2017, we had $818.0 million of borrowings outstanding under the New Term Loan Facility and no borrowings outstanding under the New Revolving Credit Facility. We had $35.0 million of additional borrowing availability under the New Revolving Credit Facility as of September 30, 2017.

Refinanced Senior Secured Notes

In connection with entering into the New Credit Agreement, on May 9, 2017, Everi Payments redeemed in full $335.0 million face value (plus accrued interest) of the Refinanced Secured Notes. As a result of the redemption, the Company recorded $1.7 million, which consisted of unamortized deferred financing fees of $0.2 million and discounts of $1.5 million. These fees are included in the total $14.6 million non-cash charge.

Senior Unsecured Notes

In December 2014, we issued $350.0 million in aggregate principal amount of 10.00% Unsecured Notes due 2022 (the “Unsecured Notes”). 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 December 2015, we completed an exchange offer in which all of the unregistered Unsecured Notes were exchanged for a like amount of Unsecured Notes that had been registered under the Securities Act.

We were in compliance with the terms of the Unsecured Notes as of September 30, 2017 and December 31, 2016.

COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES

12.

COMMITMENTS AND CONTINGENCIES

The following transactions have resulted in a change in our commitments under contractual obligations as compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016:

In May 2017, we entered into the New Credit Agreement, which provides for the $35.0 million New Revolving Credit Facility and the $820.0 million New Term Loan Facility. Under the New Credit Agreement, we are required to make principal payments of 1% annually of $2.0 million in 2017, $8.2 million in years 2018 through 2021 and $783.1 million thereafter. We also have required interest payments, computed using a weighted average interest rate at September 30, 2017 of 5.74%, of $12.0 million, $46.6 million, $46.1 million, $45.7 million, $45.3 million and $104.5 million from 2017 through 2021 and thereafter, respectively.

In July 2017, we extended the term of our placement fee agreements to 6 years and 11 months with our largest customer in Oklahoma. Under the terms of the agreement, we made a $10.0 million cash payment in August 2017 and will pay approximately $5.6 million per quarter in placement fees, beginning in January 2018 and ending in July 2019.

We are involved in various investigations, claims and lawsuits in the ordinary course of our business. In addition, various legal actions, claims and governmental inquiries and proceedings are pending or may be instituted or asserted in the future against us and our subsidiaries. Although the outcome of our legal proceedings cannot be predicted with certainty and no assurances can be provided, based upon current information, 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.

SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY

13.

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 September 30, 2017 and December 31, 2016, 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 September 30, 2017 and December 31, 2016, we had 91,918,086 and 90,952,185 shares of common stock issued, respectively.

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 withheld from restricted stock awards 1,365 and 4,394 shares of common stock for the three and nine months ended September 30, 2017, respectively, at an aggregate purchase price of $10,115 and $20,706, respectively, and 2,223 and 7,135 shares of common stock for the three and nine months ended September 30, 2016, respectively, at an aggregate purchase price of $3,879 and $16,894, respectively, to satisfy the minimum applicable tax withholding obligations related to the vesting of such restricted stock awards.  

WEIGHTED AVERAGE COMMON SHARES
WEIGHTED AVERAGE COMMON SHARES

14.

WEIGHTED AVERAGE COMMON SHARES

The weighted average number of shares of common stock outstanding used in the computation of basic and diluted loss per share is as follows (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Weighted average shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares

   outstanding - basic

 

 

66,897

 

 

 

66,049

 

 

 

66,449

 

 

 

66,041

 

Potential dilution from equity awards(1)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common

   shares outstanding - diluted

 

 

66,897

 

 

 

66,049

 

 

 

66,449

 

 

 

66,041

 

 

(1)

The Company was in a net loss position for the three and nine months ended September 30, 2017 and 2016; therefore, potentially dilutive common shares were excluded as their effects would be antidilutive under the application of the treasury method. Equity awards to purchase approximately 8.0 million and 12.0 million shares of common stock for the three and nine months ended September 30, 2017, respectively, and 18.5 million and 15.9 million shares of common stock for the three and nine months ended September 30, 2016, respectively, were excluded from the diluted net loss per share results.  

SHARE-BASED COMPENSATION
SHARE-BASED COMPENSATION

15.

SHARE-BASED COMPENSATION

Equity Incentive Awards

Our 2014 Equity Incentive Plan (as amended and restated effective May 23, 2017, the “Amended and Restated 2014 Plan”) and our 2012 Equity Incentive Plan (as amended, the “2012 Plan”) are 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 Amended and Restated 2014 Plan superseded the then current 2005 Stock Incentive Plan (the “2005 Plan”). The 2012 Plan was assumed in connection with our acquisition of Everi Games Holding and conformed to include similar provisions to those as set forth in the Amended and Restated 2014 Plan. Our equity incentive plans are administered by the Compensation Committee of our Board of Directors, which has the authority to select individuals who are to receive equity incentive awards and to specify the terms and conditions of grants of such awards, including, but not limited to, the vesting provisions and exercise prices.

Generally, we grant the following award types: (a) time-based options, (b) market-based options and (c) restricted stock. These awards have varying vesting provisions and expiration periods. For the three and nine months ended September 30, 2017, we granted time- and market-based options.

Our time-based stock options granted under our equity plans generally vest at a rate of 25% per year on each of the first four anniversaries of the option grant dates. These options expire after a ten-year period. We estimate forfeiture amounts based on historical patterns.

Our market-based options granted in 2017 vest at a rate of 25% per year on each of the first four anniversaries of the grant date, provided that as of the vesting date for each vesting tranche, the closing price of the Company’s shares on the New York Stock Exchange is at least a specified price hurdle, defined as a 25% premium to the closing stock price on the grant date. If the price hurdle is not met as of the vesting date for a vesting tranche, then the vested tranche shall vest and become vested shares on the last day of a period of 30 consecutive trading days during which the closing price is at least the price hurdle. These options expire after a ten-year period.

Our market-based options granted in 2016 vest at a rate of 25% per year on each of the first four anniversaries of the grant date, provided that as of the vesting date for each vesting tranche, the closing price of the Company’s shares on the New York Stock Exchange is at least a specified price hurdle, defined as a 50% premium to the closing stock price on the grant date. If the price hurdle is not met as of the vesting date for a vesting tranche, then the vested tranche shall vest and become vested shares on the last day of a period of 30 consecutive trading days during which the closing price is at least the price hurdle. These options expire after a ten-year period.

A summary of award activity is as follows (in thousands):

 

 

 

Stock Options

 

 

Restricted Stock

 

 

 

Granted

 

 

Granted

 

Outstanding, December 31, 2016

 

 

18,233

 

 

 

80

 

Granted

 

 

4,107

 

 

 

40

 

Exercised options or vested shares

 

 

(950

)

 

 

(16

)

Cancelled or forfeited

 

 

(358

)

 

 

 

Outstanding, September 30, 2017

 

 

21,032

 

 

 

104

 

 

The maximum number of shares available for future equity awards, both under the Amended and Restated 2014 Plan and the 2012 Plan, is approximately 4.6 million shares of our common stock. There are no shares available for future equity awards under the 2005 Plan.

Stock Options

The fair values of our standard time-based options were determined as of the date of grant using the Black-Scholes option pricing model with the following assumptions:

 

 

 

Nine months ended

 

 

 

 

September 30,

 

 

 

 

2017

 

 

 

2016

 

 

Risk-free interest rate

 

 

2

 

%

 

 

1

 

%

Expected life of options (in years)

 

 

6

 

 

 

 

5

 

 

Expected volatility

 

 

54

 

%

 

 

51

 

%

Expected dividend yield

 

 

 

%

 

 

 

%

 

For the nine months ended September 30, 2016, certain executive and director grants were valued under the Black-Scholes option pricing model that utilized different assumptions from those used for our standard time-based options. For the time-based options granted on February 25, 2016, the assumptions were: (a) risk-free interest rate of 1%; (b) expected term of five years; (c) expected volatility of 49%; and (d) no expected dividend yield. For the time-based options granted on February 13, 2016, the assumptions were: (a) risk-free interest rate of 1%; (b) expected term of six years; (c) expected volatility of 49%; and (d) no expected dividend yield.

The fair values of our market-based options were determined as of the date of grant using a lattice-based option valuation model with the following assumptions:

 

 

 

Nine months ended

 

 

 

 

September 30,

 

 

 

 

2017

 

 

 

2016

 

 

Risk-free interest rate

 

 

3

 

%

 

 

2

 

%

Measurement period (in years)

 

 

10

 

 

 

 

10

 

 

Expected volatility

 

 

70

 

%

 

 

68

 

%

Expected dividend yield

 

 

 

%

 

 

 

%

 

For the market-based options granted during the third quarter of 2016, the assumptions were: (a) risk-free interest rate of 2%; (b) expected term of ten years; (c) expected volatility of 69% and (d) no expected dividend yield.

 

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, 2016

 

 

18,233

 

 

$

6.02

 

 

 

6.4

 

 

$

2,387

 

Granted

 

 

4,107

 

 

 

3.38

 

 

 

 

 

 

 

 

 

Exercised

 

 

(950

)

 

 

4.29

 

 

 

 

 

 

 

 

 

Canceled or forfeited

 

 

(358

)

 

 

5.99

 

 

 

 

 

 

 

 

 

Outstanding, September 30, 2017

 

 

21,032

 

 

$

5.58

 

 

 

6.5

 

 

$

48,106

 

Vested and expected to vest, September 30, 2017

 

 

18,401

 

 

$

5.71

 

 

 

6.3

 

 

$

40,291

 

Exercisable, September 30, 2017

 

 

10,539

 

 

$

6.85

 

 

 

4.8

 

 

$

13,298

 

 

There were 45,750 and 4.1 million options granted for the three and nine months ended September 30, 2017, respectively, and 0.2 million and 4.2 million options granted for the three and nine months ended September 30, 2016, respectively. The weighted average grant date fair value per share of options granted was $3.85 and $1.86 for the three and nine months ended September 30, 2017, respectively, and $0.89 and $0.81 for the three and nine months ended September 30, 2016, respectively. The total intrinsic value of options exercised was $0.8 million and $2.8 million for the three and nine months ended September 30, 2017, respectively. No options were exercised during the three and nine months ended September 30, 2016.

There was $11.7 million in unrecognized compensation expense related to options expected to vest as of September 30, 2017. This cost is expected to be recognized on a straight-line basis over a weighted average period of 2.3 years. We recorded $4.8 million in non-cash compensation expense related to options granted that were expected to vest as of September 30, 2017. We received $2.2 million and $4.0 million in cash from the exercise of options for the three and nine months ended September 30, 2017, respectively.

There was $13.5 million in unrecognized compensation expense related to options expected to vest as of September 30, 2016. This cost was expected to be recognized on a straight-line basis over a weighted average period of 2.3 years. We recorded $3.8 million in non-cash compensation expense related to options granted that were expected to vest as of September 30, 2016. There were no proceeds received from the exercise of options as no exercises occurred for the three and nine months ended September 30, 2016.

Restricted Stock

The following is a summary of non-vested share awards for our time-based restricted stock:

 

 

 

 

 

 

 

Weighted

 

 

 

Shares

 

 

Average Grant

 

 

 

Outstanding

 

 

Date Fair Value

 

 

 

(in thousands)

 

 

(per share)

 

Outstanding, December 31, 2016

 

 

80

 

 

$

7.12

 

Granted

 

 

40

 

 

 

6.66

 

Vested

 

 

(16

)

 

 

6.91

 

Forfeited

 

 

 

 

 

 

Outstanding, September 30, 2017

 

 

104

 

 

$

6.97

 

 

There were no shares and 40,000 shares of restricted stock granted for the three and nine months ended September 30, 2017, respectively, and there were no shares of restricted stock granted for the three and nine months ended September 30, 2016. The total fair value of restricted stock vested was $37,958 and $121,979 for the three and nine months ended September 30, 2017, respectively, and $23,393 and $74,100 for the three and nine months ended September 30, 2016, respectively.

There was $0.7 million in unrecognized compensation expense related to shares of time based restricted stock expected to vest as of September 30, 2017. This cost is expected to be recognized on a straight-line basis over a weighted average period of 1.2 years. There were 16,071 shares of restricted stock that vested and we recorded $0.3 million in non-cash compensation expense related to the restricted stock granted that was expected to vest during the nine months ended September 30, 2017.

There was $1.3 million in unrecognized compensation expense related to shares of time-based restricted shares expected to vest as of September 30, 2016. This cost was expected to be recognized on a straight-line basis over a weighted average period of 1.9 years. There were 30,000 shares of time-based restricted shares vested and we recorded $0.3 million in non-cash compensation expense related to the restricted stock granted that was expected to vest during the nine months ended September 30, 2016.

INCOME TAXES
INCOME TAXES

16.

INCOME TAXES

The income tax provision reflected an effective income tax rate of negative 20.0% and negative 15.6% for the three and nine months ended September, 30, 2017, respectively, which was less than the statutory federal rate of 35.0%, primarily due to an increase in our valuation allowance for deferred tax assets, partially offset by state taxes, and the benefit from a research credit. The income tax benefit reflected an effective income tax rate of 37.7% and 39.4% for the three and nine months ended September 30, 2016, respectively, which was higher than the statutory federal rate of 35.0%, primarily due to state taxes, the lower foreign tax rate applicable to our foreign source income, and the benefit from a research credit, partially offset by non-statutory stock options that expired in the year.

During the third quarter of 2017, we increased our valuation allowance by approximately $2.4 million for our deferred tax assets.

We have analyzed filing positions in all of the federal, state and foreign jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. As of September 30, 2017, the Company recorded $0.8 million of unrecognized tax benefits, all of which would impact our effective tax rate, if recognized. We do not anticipate that our unrecognized tax benefits will materially change within the next 12 months. The Company has not accrued any penalties and interest for its unrecognized tax benefits. Other than the unrecognized tax benefit recorded, 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 in our Statements of Loss.

SEGMENT INFORMATION
SEGMENT INFORMATION

17.

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. Our operating segments are managed and reviewed separately, as each represents products that can be sold separately to our customers.

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. We have reported our financial performance based on our segments in both the current and prior periods. 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 POS debit card cash access 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 record 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 Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Games

 

$

55,452

 

 

$

56,218

 

 

$

165,832

 

 

$

158,660

 

Payments

 

 

191,870

 

 

 

165,959

 

 

 

561,257

 

 

 

483,286

 

Total revenues

 

$

247,322

 

 

$

222,177

 

 

$

727,089

 

 

$

641,946

 

Operating income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Games

 

$

1,787

 

 

$

(4,183

)

 

$

9,301

 

 

$

(14,638

)

Payments

 

 

18,008

 

 

 

15,755

 

 

 

54,389

 

 

 

36,054

 

Total operating income

 

$

19,795

 

 

$

11,572

 

 

$

63,690

 

 

$

21,416

 

 

 

 

At September 30, 2017

 

 

At December 31, 2016

 

Total assets

 

 

 

 

 

 

 

 

Games

 

$

927,888

 

 

$

894,213

 

Payments

 

 

497,717

 

 

 

513,950

 

Total assets

 

$

1,425,605

 

 

$

1,408,163

 

 

Major Customers. For the three and nine months ended September 30, 2017 and 2016, no single customer accounted for more than 10% of our revenues. Our five largest customers accounted for approximately 25% and 26% for the three and nine months ended September 30, 2017, respectively, and 30% and 31% for the three and nine months ended September 30, 2016, respectively.

CONDENSED CONSOLIDATING FINANCIAL INFORMATION
CONDENSED CONSOLIDATING FINANCIAL INFORMATION

18.

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 governing the Unsecured Notes; or (iv) the legal or covenant defeasance of the Unsecured Notes or the satisfaction and discharge of the indenture governing the Unsecured Notes.

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 September 30, 2017 and December 31, 2016 and for the three and nine months ended September 30, 2017 and 2016. 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.

 

 

 

Three Months Ended September 30, 2017

 

 

 

Parent

 

 

Subsidiary

Issuer

 

 

Guarantor

Subsidiaries

 

 

Non-

Guarantor

Subsidiaries

 

 

Eliminations

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues