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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. Everi Games provides: (a) comprehensive content, electronic gaming units and systems for Native American and commercial casinos, including the award winning TournEvent® slot tournament solution; and (b) the central determinant system for the video lottery terminals installed 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.
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2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
All intercompany transactions and balances have been eliminated in consolidation.
Business Combinations
We apply the provisions of the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations”, in the accounting for acquisitions. It requires us to recognize separately from goodwill the assets acquired and the liabilities assumed, at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Significant estimates and assumptions are required to value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable. These estimates are preliminary and typically include the calculation of an appropriate discount rate and projection of the cash flows associated with each acquired asset over its estimated useful life. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. In addition, deferred tax assets, deferred tax liabilities, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We reevaluate these items quarterly based upon facts and circumstances that existed as of the acquisition date and any adjustments to its preliminary estimates are recorded to goodwill, in the period of identification, if identified within the measurement period. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.
Acquisition-related Costs
We recognize a liability for acquisition-related costs when the expense is incurred. Acquisition-related costs include, but are not limited to: financial advisory, legal and debt fees; accounting, consulting, and professional fees associated with due diligence, valuation and integration; severance; and other related costs and adjustments.
Cash and Cash Equivalents
Cash and cash equivalents include cash and all balances on deposit in banks and financial institutions. We consider all highly liquid investments with maturities of three months or less at the time of purchase to be cash and cash equivalents. Such balances generally exceed the federal insurance limits. However, we periodically evaluate the creditworthiness of these institutions to minimize risk.
ATM Funding Agreements
We obtain all of the cash required to operate our ATMs through various ATM Funding Agreements. Some gaming establishments provide the cash utilized within the ATM (“Site‑Funded”). The Site‑Funded receivables generated for the amount of cash dispensed from transactions performed at our ATMs are owned by us and we are liable to the gaming establishment for the face amount of the cash dispensed. In the Consolidated Balance Sheets, the amount of the receivable for transactions processed on these ATM transactions is included within settlement receivables and the amount due to the gaming establishment for the face amount of dispensing transactions is included within settlement liabilities.
For the Non‑Site‑Funded locations, our Contract Cash Solutions Agreement with Wells Fargo allows us to use funds owned by Wells Fargo to provide the currency needed for normal operating requirements for our ATMs. For the use of these funds, we pay Wells Fargo a cash usage fee on the average daily balance of funds utilized multiplied by a contractually defined cash usage rate. Under this agreement, all currency supplied by Wells Fargo remains the sole property of Wells Fargo at all times until it is dispensed, at which time Wells Fargo obtains an interest in the corresponding settlement receivable. As the cash is never an asset of ours, supplied cash is not reflected on our balance sheet. We are charged a cash usage fee for the cash used in these ATMs, which is included as interest expense in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. We recognize the fees as interest expense due to the similar operational characteristics to a revolving line of credit, the fact that the fees are calculated on a financial index and the fees are paid for access to a capital resource.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts related to our trade and other receivables and notes receivable that have been deemed to have a high risk of uncollectibility. Management reviews its accounts and notes receivable on a quarterly basis to determine if any receivables will potentially be uncollectible. Management analyzes historical collection trends and changes in our customer payment patterns, customer concentration, and creditworthiness when evaluating the adequacy of our allowance for doubtful accounts. In our overall allowance for doubtful accounts we include any receivable balances for which uncertainty exists as to whether the account balance has become uncollectible. Based on the information available, management believes the allowance for doubtful accounts is adequate; however, actual write-offs may exceed the recorded allowance.
Settlement Receivables and Settlement Liabilities
In the credit card cash access and POS debit card cash access transactions provided by us, the gaming establishment is reimbursed for the cash disbursed to gaming patrons through the issuance of a negotiable instrument or through electronic settlement. We receive reimbursement from the patron’s credit or debit card issuer for the transaction in an amount equal to the amount owed to the gaming establishment plus the fee charged to the patron. This reimbursement is included within the settlement receivables on the Consolidated Balance Sheets. The amounts owed to gaming establishments are included within settlement liabilities on the Consolidated Balance Sheets.
Warranty Receivables
If a gaming establishment chooses to have a check warranted, it sends a request to our third party check warranty service provider, asking whether it would be willing to accept the risk of cashing the check. If the check warranty provider accepts the risk and warrants the check, the gaming establishment negotiates the patron’s check by providing cash for the face amount of the check. If the check is dishonored by the patron’s bank upon presentment, the gaming establishment invokes the warranty, and the check warranty service provider purchases the check from the gaming establishment for the full check amount and then pursues collection activities on its own. In our Central Credit Check Warranty product under our agreement with the third party service provider, we receive all of the check warranty revenue. We are exposed to risk for the losses associated with any warranted items that cannot be collected from patrons issuing the items. Warranty receivables are defined as any amounts paid by the third party check warranty service provider to gaming establishments to purchase dishonored checks. Additionally, we pay a fee to the third party check warranty service provider for its services.
The warranty receivables amount is recorded in trade receivables, net on our Consolidated Balance Sheets. On a monthly basis, the Company evaluates the collectability of the outstanding balances and establishes a reserve for the face amount of the expected losses on these receivables. The warranty expense associated with this reserve is included within cost of revenues (exclusive of depreciation and amortization) on our Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.
Inventory
Our inventory primarily consists of component parts as well as finished goods and work-in-progress. The cost of inventory includes cost of materials, labor, overhead and freight. The inventory is stated at the lower of cost or market and accounted for using the first in, first out method.
Property, Equipment and Leased Assets
Property, equipment and leased assets are stated at cost, less accumulated depreciation, computed using the straight-line method over the lesser of the estimated life of the related assets, generally two to five years, or the related lease term. Player terminals and related components and equipment are included in our rental pool. The rental pool can be further delineated as “rental pool – deployed,” which consists of assets deployed at customer sites under participation arrangements, and “rental pool – undeployed,” which consists of assets held by us that are available for customer use. Rental pool – undeployed consists of both new units awaiting deployment to a customer site and previously deployed units currently back with us to be refurbished awaiting re-deployment. Routine maintenance of property, equipment and leased gaming equipment is expensed in the period incurred, while major component upgrades are capitalized and depreciated over the estimated remaining useful life of the component. Sales and retirements of depreciable property are recorded by removing the related cost and accumulated depreciation from the accounts. Gains or losses on sales and retirements of property are reflected in our Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. Property, equipment and leased assets are reviewed for impairment whenever events or circumstances indicate that their carrying amounts may not be recoverable. Impairment is indicated when undiscounted future cash flows do not exceed the asset’s carrying value.
Development and Placement Fee Agreements
We enter into development and placement fee agreements to provide financing for new gaming facilities or for the expansion of existing facilities. All or a portion of the funds provided under development agreements are reimbursed to us, while funds provided under placement fee agreements are not reimbursed. In return, the facility dedicates a percentage of its floor space to placement of our player terminals, and we receive a fixed percentage of those player terminals' hold per day over the term of the agreement which is generally for 12 to 83 months. Certain of the agreements contain player terminal performance standards that could allow the facility to reduce a portion of our guaranteed floor space. In addition, certain development agreements allow the facilities to buy out floor space after advances that are subject to repayment have been repaid. The agreements typically provide for a portion of the amounts retained by the gaming facility for their share of the operating profits of the facility to be used to repay some or all of the advances recorded as notes receivable.
Goodwill
Goodwill represents the excess of the purchase price over the identifiable tangible and intangible assets acquired plus liabilities assumed arising from business combinations. We test for impairment annually on a reporting unit basis, at the beginning of our fourth fiscal quarter, or more often under certain circumstances. The annual impairment test is completed using either: a qualitative Step 0 assessment based on reviewing relevant events and circumstances; or a quantitative Step 1 assessment, which determines the fair value of the reporting unit, using an income approach that discounts future cash flows based on the estimated future results of our reporting units and a market approach that compares market multiples of comparable companies to determine whether or not any impairment exists. If the fair value of a reporting unit is less than its carrying amount, we use the Step 2 assessment to determine the impairment. Our reporting units are identified as operating segments or one level below. Reporting units must: (a) engage in business activities from which they earn revenues and incur expenses; (b) have operating results that are regularly reviewed by our chief operating decision makers to ascertain the resources to be allocated to the segment and assess its performance; and (c) have discrete financial information available. As of December 31, 2016, our reporting units included: Games, Cash Access, Kiosk Sales and Service, Central Credit, and Everi Compliance. During the year ended December 31, 2016, the Company combined its Cash Advance, ATM and Check Services reporting units into a Cash Access reporting unit to be consistent with the current corporate structure and segment management.
Other Intangible Assets
Other intangible assets are stated at cost, less accumulated amortization, computed primarily using the straight-line method. Other intangible assets consist primarily of: (i) customer contracts (rights to provide Games and Payments services to gaming establishment customers), developed technology, trade names and trademarks and contract rights acquired through business combinations; (ii) capitalized software development costs; and (iii) the acquisition cost of our patent related to the 3-in-1 rollover technology acquired in 2005. Customer contracts require us to make renewal assumptions, which impact the estimated useful lives of such assets. Capitalized software development costs require us to make certain judgments as to the stages of development and costs eligible for capitalization. Capitalized software costs placed in service are amortized over their useful lives, generally not to exceed five years. The acquisition cost of the 3-in-1 Rollover patent is being amortized over the term of the patent, which expires in 2018. We review intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events or circumstances include, but are not limited to, a significant decrease in the fair value of the underlying business or market price of the asset, a significant adverse change in legal factors or business climate that could affect the value of an asset, or a current period operating or cash flow loss combined with a history of operating or cash flow losses. We group intangible assets for impairment analysis at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of intangible assets is measured by a comparison of the carrying amount of the asset to future, net cash flows expected to be generated by the asset, undiscounted and without interest or taxes. Any impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Debt Issuance Costs
Debt issuance costs incurred in connection with long-term borrowings are capitalized and amortized to interest expense based upon the related debt agreements using the straight-line method, which approximates the effective interest method. Debt issuance costs related to line-of-credit arrangements are included in other assets, non-current, on the Consolidated Balance Sheets. All other debt issuance costs are included as contra-liabilities in long-term debt.
Original Issue Discounts
Original issue discounts incurred in connection with long-term borrowings are capitalized and amortized to interest expense based upon the related debt agreements using the straight-line method, which approximates the effective interest method. These amounts are recorded as contra-liabilities and included in long-term debt on the Consolidated Balance Sheets.
Deferred Revenue
Deferred revenue represents amounts from the sale of fully integrated kiosks and related service contracts, anti-money laundering and tax compliance software, and gaming equipment and systems that have been billed, or for which notes receivable have been executed, but which transaction has not met our revenue recognition criteria. The cost of the fully integrated kiosks and related service contracts, anti-money laundering and tax compliance software, and gaming equipment and systems is deferred and recorded at the time revenue is recognized. Amounts are classified between current and long-term liabilities, based upon the expected period in which the revenue will be recognized.
Revenue Recognition
Overall
We recognize revenue when evidence of an arrangement exists, services have been rendered, the price is fixed or determinable and collectability is reasonably assured. We evaluate our revenue streams for proper timing of revenue recognition. Revenue is recognized as products are delivered and or services are performed.
Games Revenues
Games revenues are primarily generated by our gaming operations under development, placement, and participation arrangements in which we provide our customers with player terminals, player terminal-content licenses and back-office equipment, collectively referred to herein as leased gaming equipment. Under these arrangements, we retain ownership of the leased gaming equipment installed at customer facilities, and we receive revenue based on a percentage of the net win per day generated by the leased gaming equipment or a fixed daily fee based on the number of player terminals installed at the facility. Revenue from lease participation or daily fee arrangements are considered both realizable and earned at the end of each gaming day.
Games revenues generated by player terminals deployed at sites under development or placement fee agreements are reduced by the accretion of contract rights acquired as part of those agreements. Contract rights are amounts allocated to intangible assets for dedicated floor space resulting from such agreements, described under “Development and Placement Fee Agreements.” The related amortization expense, or accretion of contract rights, is netted against our respective revenue category in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.
We also generate Games revenues from back-office fees with certain customers. Back-office fees cover the service and maintenance costs for back-office servers installed in each gaming facility to run our gaming equipment, as well as the cost of related software updates. Back-office fees are considered both realizable and earned at the end of each gaming day.
Payments Revenues
Cash advance revenues are comprised of transaction fees assessed to gaming patrons in connection with credit card cash access and POS debit card cash access transactions and are recognized at the time the transactions are authorized. Such fees are based on a combination of a fixed amount plus a percentage of the face amount of the credit card cash access or POS debit card cash access transaction amount.
ATM revenues are comprised of transaction fees in the form of cardholder surcharges assessed to gaming patrons in connection with ATM cash withdrawals at the time the transactions are authorized and reverse interchange fees paid to us by the patrons’ issuing banks. Cardholder surcharges and reverse interchange are recognized as revenue when a transaction is initiated. The cardholder surcharges assessed to gaming patrons in connection with ATM cash withdrawals are currently a fixed dollar amount and not a percentage of the transaction amount.
Check services revenues are principally comprised of check warranty revenues and are generally based upon a percentage of the face amount of checks warranted. These fees are paid to us by gaming establishments.
Other revenues include amounts derived from the sale of cash access devices, such as the provision of certain professional services, software licensing, and certain other ancillary fees associated with the sale, installation and maintenance of those devices. In addition, other revenues consist of Central Credit revenues that are based upon either a flat monthly unlimited usage fee or a variable fee structure driven by the volume of patron credit histories generated. Also included in other revenues are revenues generated from ancillary marketing, database and Internet gaming activities.
Equipment and Systems Revenues
We sell gaming equipment, fully integrated kiosks and gaming systems directly to our customers under independent sales contracts through normal credit terms, or may grant extended credit terms under contracts secured by the related equipment.
For sales arrangements with multiple deliverables, we apply the guidance from ASC 605-25, “Revenue Recognition - Multiple-Element Arrangements.” In addition, we apply the guidance from ASC 985-605, “Software – Revenue Recognition” which affects vendors that sell or lease tangible products in an arrangement that contains software that is more than incidental to the tangible product as a whole and clarifies what guidance should be used in allocating and measuring revenue.
The majority of our multiple element sales contracts are for some combination of gaming equipment, player terminals, content, system software, license fees, ancillary equipment and maintenance.
Revenue related to systems arrangements that contain both software and non-software deliverables requires allocation of the arrangement fee to the separate deliverables using the relative selling price method. Revenue for software deliverables is recognized under software revenue recognition guidance. Revenue resulting from the sale of non-software deliverables, such as gaming devices and other hardware, are accounted for based on other applicable revenue recognition guidance as the devices are tangible products containing both software and non-software components that function together to deliver the product's essential functionality.
In allocating the arrangement fees to separate deliverables, we evaluate whether we have vendor-specific objective evidence (“VSOE”) of selling price, third party evidence (“TPE”) or estimate of selling price (“ESP”) for gaming devices, maintenance and product support fees and other revenue sources. We generally use ESP to determine the selling price used in the allocation of separate deliverables, as VSOE and TPE are generally not available. We determine the ESP on separate deliverables by estimating a margin typically received on such items and applying that margin to the product cost incurred.
Generally, player terminal sales include ancillary equipment, such as networking gear, bases, chairs, and occasionally signage, some of which may be necessary for the full functionality of the player terminals in a casino. This ancillary equipment comprises an install kit that is shipped simultaneously with the player terminals. Although our products are analyzed as multiple deliverable arrangements, revenue for the player terminal and ancillary equipment is not recognized until all elements essential for the functionality of the product have been shipped or delivered. This includes game theme software and essential ancillary equipment. If elements that are not essential to the functionality of the player terminals are shipped after the unit, such as signage, chairs, or bases, these items would be classified as deferred revenue until shipped or delivered.
Cost of Revenues (exclusive of depreciation and amortization)
The cost of revenues (exclusive of depreciation and amortization) represents the direct costs required to perform revenue generating transactions. The principal costs included within cost of revenues (exclusive of depreciation and amortization) are commissions paid to gaming establishments, interchange fees paid to credit and debit card networks, transaction processing fees to our transaction processor, inventory and related costs associated with the sale of our fully integrated kiosks, electronic gaming machines and system sales, check cashing warranties, field service and network operations personnel.
Advertising, Marketing and Promotional Costs
We expense advertising, marketing and promotional costs as incurred. Total advertising, marketing and promotional costs, included in operating expenses in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income, were $1.2 million, $0.9 million and $1.1 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Research and Development Costs
We conduct research and development activities primarily to develop gaming systems, gaming engines, casino data management systems, casino central monitoring systems, video lottery outcome determination systems, gaming platforms and gaming content, as well as to add enhancements to our existing product lines. We believe our ability to deliver differentiated, appealing products and services to the marketplace is based on our research and development investments, and we expect to continue to make such investments in the future. Research and development costs consist primarily of salaries and benefits, consulting fees and game lab testing fees. Once the technological feasibility of a project has been established, it is transferred from research to development and capitalization of development costs begins until the product is available for general release.
Research and development costs were $19.4 million, $19.1 million and $0.8 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Income Taxes
We are subject to income taxes in the United States as well as various states and foreign jurisdictions in which we operate. In accordance with accounting guidance, our income taxes include amounts from domestic and international jurisdictions, plus the provision for U.S. taxes on undistributed earnings of international subsidiaries not deemed to be permanently invested. Since it is our practice and current intent to reinvest the earnings in the international operations of our foreign subsidiaries, U.S. federal income taxes have not been provided on the undistributed earnings of any foreign subsidiaries, except for our GCA (Macau) S.A. subsidiary. Some items of income and expense are not reported in tax returns and the Consolidated Financial Statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes.
Our deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or income tax returns. Deferred tax assets and liabilities are determined based upon differences between financial statement carrying amounts of existing assets and their respective tax bases using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. The effect on the income tax provision or benefit and deferred tax assets and liabilities for a change in rates is recognized in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income in the period that includes the enactment date.
When measuring deferred tax assets, certain estimates and assumptions are required to assess whether a valuation allowance should be established by evaluating both positive and negative factors in accordance with accounting guidance. This evaluation requires that we exercise judgment in determining the relative significance of each factor. The assessment of valuation allowance involves significant estimates regarding future taxable income and when it is recognized, the amount and timing of taxable differences, the reversal of temporary differences and the implementation of tax-planning strategies. A valuation allowance is established based on the weight of available evidence, including both positive and negative indicators, if it is more likely than not that a portion, or all, of the deferred tax assets will not be realized. Greater weight is given to evidence that is objectively verifiable, most notably historical results. If we report a cumulative loss from continuing operations before income taxes for a reasonable period of time, this form of negative evidence is difficult to overcome. Therefore, we include certain aspects of our historical results in our forecasts of future taxable income, as we do not have the ability to solely rely on forecasted improvements in earnings to recover deferred tax assets. When we report a cumulative loss position, to the extent our results of operations improve, such that we have the ability to overcome the more likely than not accounting standard, we expect to be able to reverse the valuation allowance in the applicable period of determination. In addition, we rely on deferred tax liabilities in our assessment of the realizability of deferred tax assets if the temporary timing difference is anticipated to reverse in the same period and jurisdiction and the deferred tax liabilities are of the same character as the temporary differences giving rise to the deferred tax assets.
We also follow accounting guidance to account for uncertainty in income taxes as recognized in our consolidated financial statements. The accounting standard creates a single model to address uncertainty in income tax positions and prescribes the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. The standard also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Under this standard, we may recognize tax benefits from an uncertain position only if it is more likely than not that the position will be sustained upon examination by taxing authorities based on the technical merits of the issue. The amount recognized is the largest benefit that we believe has greater than a 50% likelihood of being realized upon settlement. Actual income taxes paid may vary from estimates depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed.
Employee Benefits Plan
In connection with the acquisition of Everi Games Holding, we merged the Everi Payments 401(k) Plan (“Merged 401(k) Plan”) into the Everi Games Holding 401(k) Plan (“Surviving 401(k) Plan”), which was adopted for domestic employees of Everi Games and Everi Payments and their domestic subsidiaries. The Surviving 401(k) Plan Participant investment elections were not mapped from the current provider as the Merged 401(k) Plan assets were liquidated from their current investments and the proceeds were provided to the new provider. The participant contributions were sent to the new provider into the Surviving 401(k) Plan’s default fund until such time that a participant made investment elections. The Surviving 401(k) Plan structure is similar to the Merged 401(k) Plan and allows employees to defer up to the lesser of the Internal Revenue Code prescribed maximum amount or 100% of their income on a pre-tax basis through contributions to the plan. As a benefit to employees, we match a percentage of these employee contributions (as defined in the plan document). Expenses related to the matching portion of the contributions to the Surviving 401(k) Plan were $1.9 million, $1.3 million and $0.5 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Fair Values of Financial Instruments
The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time, based upon relevant market information about the financial instrument.
The carrying amount of cash and cash equivalents, settlement receivables, trade receivables, other receivables, settlement liabilities, accounts payable and accrued expenses approximates fair value due to the short-term maturities of these instruments. The fair value of our borrowings are estimated based on various inputs to determine a market price, such as: market demand and supply, size of tranche, maturity and similar instruments trading in more active markets.
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Level of |
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Outstanding |
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Hierarchy |
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Fair Value |
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Balance |
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December 31, 2016 |
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Term loan |
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1 |
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$ |
451,632 |
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$ |
465,600 |
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Senior secured notes |
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3 |
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$ |
324,950 |
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$ |
335,000 |
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Senior unsecured notes |
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1 |
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$ |
350,000 |
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$ |
350,000 |
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December 31, 2015 |
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Term loan |
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1 |
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$ |
445,900 |
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$ |
490,000 |
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Senior secured notes |
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3 |
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$ |
314,900 |
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$ |
335,000 |
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Senior unsecured notes |
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1 |
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$ |
297,500 |
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$ |
350,000 |
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The senior secured notes were fair valued using a Level 3 input as there was no market activity or observable inputs as of December 31, 2016 and December 31, 2015. The fair value of the senior secured notes was derived using the same rate as the term loan given that both were treated similarly as of December 31, 2016. The fair value of the senior secured notes was derived using a Level 3 input by evaluating the trading activities of similar debt instruments as of December 31, 2015.
Foreign Currency Translation
Foreign currency denominated assets and liabilities for those foreign entities for which the local currency is the functional currency are translated into U.S. dollars based on exchange rates prevailing at the end of each year. Revenues and expenses are translated at average exchange rates during the year. The effects of foreign exchange gains and losses arising from these translations are included as a component of other comprehensive income on the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. Translation adjustments on intercompany balances of a long-term investment nature are recorded as a component of Accumulated Other Comprehensive Income on our Consolidated Balance Sheets.
Use of Estimates
We have made estimates and judgments affecting the amounts reported in these financial statements and the accompanying notes. The actual results may differ from these estimates. These accounting estimates incorporated into the Consolidated Financial Statements include, but are not limited to:
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the estimates and assumptions related to the preparation of the unaudited pro forma financial information contained herein; |
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the estimates and assumptions related to the preliminary and final purchase price allocation based on the estimated fair values of the assets acquired and liabilities assumed related to any of our acquisitions; |
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the estimated reserve for warranty expense associated with our check warranty receivables; |
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the estimated reserve for bad debt expense associated with our trade receivables; |
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the estimated reserve for inventory obsolescence; |
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the valuation and recognition of share based compensation; |
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the valuation allowance on our deferred income tax assets; |
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the estimated cash flows in assessing the recoverability of long lived assets; |
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the estimates of future operating performance, weighted average cost of capital (“WACC”) and growth rates as well as other factors used in our annual goodwill and assets impairment evaluations; |
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the renewal assumptions used for customer contracts to estimate the useful lives of such assets; and |
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the judgments used to determine the stages of development and costs eligible for capitalization as internally developed software. |
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the estimated liability for health care claims under our self-insured health care program. |
Earnings Applicable to Common Stock
Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the effect of potential common stock resulting from assumed stock option exercises and vesting of restricted stock unless it is antidilutive.
Share‑Based Compensation
Share-based payment awards result in a cost that is measured at fair value on the award’s grant date.
Our time-based stock options were measured at fair value on the grant date using the Black Scholes model. Our restricted stock awards were measured at fair value based on the stock price on the grant date. The compensation expense is recognized on a straight-line basis over the vesting period of the awards.
Our market-based options granted in 2016 under our 2014 Equity Incentive Plan (the “2014 Plan”) and 2012 Equity Incentive Plan (as amended, the “2012 Plan”) 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.
Our market-based stock options granted in 2015 under the 2014 Plan will vest if our average stock price in any period of 30 consecutive trading days meets certain target prices during a four-year period that commenced on the grant date of these options. If these target prices are not met during the four year period, the unvested shares underlying the options will terminate except if there is a Change in Control (as defined in the 2014 Plan) of the Company, in which case, the unvested shares underlying such options shall become fully vested on the effective date of such change in control transaction.
All market-based options were measured at fair value on the grant date using a lattice-based valuation model based on the median time horizon from the date of grant for these options to the vesting date for those paths that achieved the target threshold(s). The compensation expense is recognized on a straight-line basis over the median vesting periods calculated under such valuation model.
Forfeitures are estimated at the grant date for our time-based and market-based awards, with such estimates updated periodically; and with actual forfeitures recognized currently to the extent they differ from the estimates.
Unless otherwise provided by the administrator of our equity incentive plans, stock options granted under our plans generally expire ten years from the date of grant. In connection with our annual grant in 2015, certain market-based stock option awards were issued that expire seven years from the date of grant. The exercise price of stock options is generally the closing market price of our common stock on the date of the stock option grant.
Reclassification of Prior Year Balances
Reclassifications were made to the prior-period financial statements to conform to the current period presentation.
Recent Accounting Guidance
Recently Adopted Accounting Guidance
In April 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-03, which provides guidance to simplify the presentation of debt issuance costs. These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The pronouncement is effective for annual periods beginning after December 15, 2015, and interim periods within those fiscal years, and early adoption is permitted for financial statements that have not been previously issued. This guidance was further clarified in ASU No. 2015-15, which addressed the treatment of debt issuance costs related to line-of credit arrangements. It noted that as ASU No. 2015-03 did not provide guidance on debt issuance costs related to line-of credit arrangements, the SEC would not object to an entity deferring and presenting these specific debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We adopted the guidance in ASU Nos. 2015-03 and 2015-15 retrospectively to reclassify all debt issuance costs not associated with line-of-credit arrangements from the non-current portion of other assets to contra-liabilities and presented them as reductions to the face amount of each respective long-term debt instrument on our Consolidated Balance Sheets and related notes during the current period.
In January 2015, the FASB issued ASU No. 2015-01, which eliminates the requirement that an entity separately classify, present and disclose extraordinary events and transactions. The pronouncement is effective for annual periods ending after December 15, 2015. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. We adopted this guidance during the current period. There was no impact on our Consolidated Financial Statements, as we do not have any extraordinary items.
In August 2014, the FASB issued ASU No. 2014-15, which provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The pronouncement is effective for annual periods ending after December 15, 2016, and interim periods thereafter, and early adoption is permitted. We adopted this guidance during the current period. There was no impact on our Consolidated Financial Statements.
In June 2014, the FASB issued ASU No. 2014-12, which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. The standard is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. We adopted this guidance during the current period. There was no impact on our Consolidated Financial Statements.
Recent Accounting Guidance Not Yet Adopted
In January 2017, the FASB issued 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 are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements and disclosures included within Notes to Consolidated 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 Consolidated Financial Statements and disclosures included within Notes to Consolidated 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 Consolidated Financial Statements and disclosures included within Notes to Consolidated 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 Consolidated Financial Statements and disclosures included within Notes to Consolidated 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 Consolidated Financial Statements and disclosures included within Notes to Consolidated 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 an 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 Consolidated Financial Statements and disclosures included within Notes to Consolidated 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 are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements and disclosures included within Notes to Consolidated 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 Consolidated 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 Consolidated Balance Sheets, which will result in the recording of right of use assets and lease obligations and are currently discussed in “Note 13 Commitments and Contingencies.”
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 are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements and disclosures included within Notes to Consolidated Financial Statements.
In May 2014, the FASB issued ASU No. 2014-09, which creates FASB ASC Topic 606, “Revenue from Contracts with Customers” and supersedes ASC Topic 605, “Revenue Recognition”. The guidance replaces industry-specific guidance and establishes a single five-step model to identify and recognize revenue. The core principle of the guidance is that an entity should recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Additionally, the guidance requires the entity to disclose further quantitative and qualitative information regarding the nature and amount of revenues arising from contracts with customers, as well as other information about the significant judgments and estimates used in recognizing revenues from contracts with customers. 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 will likely adopt this guidance using the retrospective method beginning in the first quarter of 2018. We performed an initial review of the requirements of the standard and are monitoring the activity of the FASB and the transition resource group as it relates to specific interpretive guidance that may impact us. We are currently completing detailed contract reviews to determine necessary adjustments to existing accounting policies and procedures and to support an evaluation of the standard’s impact on our Consolidated Financial Statements and disclosures included within Notes to Consolidated Financial Statements. Based on reviews performed, we do not expect our Payments revenues to be materially impacted by the implementation of this guidance. We are still evaluating Games revenues and equipment and systems revenues to determine the extent, if any, of changes to the timing and amount of revenue recorded in each reporting period. Additionally, the new guidance will require enhanced disclosures, including additions to our revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition. We may identify other impacts from the implementation of this guidance as we continue our assessment.
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3. BUSINESS COMBINATIONS
We account for business combinations in accordance with ASC 805, which requires that the identifiable assets acquired and liabilities assumed be recorded at their estimated fair values on the acquisition date separately from goodwill, which is the excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities. We include the results of operations of an acquired business as of the acquisition date.
NEWave, Inc.
In April 2014, we acquired all of the outstanding capital stock of NEWave, Inc. (“NEWave”) for an aggregate purchase price of approximately $14.9 million, of which we estimated that approximately $2.5 million would be paid in the second quarter of 2015. On June 30, 2015, a final payment of $2.3 million was remitted. NEWave is a supplier of anti-money laundering compliance, audit and data efficiency software to the gaming industry. The NEWave acquisition did not have a material impact on our results of operations or financial condition.
We have not provided the supplemental pro forma impact of the NEWave acquisition on the revenue and earnings of the combined entity as if the acquisition date had been January 1, 2014, and the amount of revenue and earnings derived from NEWave have not been presented on a supplemental basis as such amounts are not material.
Everi Games Holding Inc.
On December 19, 2014, Holdings completed its acquisition of Everi Games Holding Inc. Pursuant to the terms of the Agreement and Plan of Merger, dated as of September 8, 2014, by and among Holdings, Movie Merger Sub, Inc., a wholly owned subsidiary of Holdings (“Merger Sub”), and Everi Games Holding, Merger Sub merged with and into Everi Games Holding, with Everi Games Holding continuing as the surviving corporation (the “Merger”). In the Merger, Everi Games Holding became a wholly owned subsidiary of Holdings. Also, as a result of the Merger, each outstanding share of common stock, par value $0.01 per share, of Everi Games, other than shares held by Holdings, Everi Games Holding, Merger Sub or their respective subsidiaries, was cancelled and converted into the right to receive $36.50 in cash, without interest, together with the acceleration and full vesting of Everi Games Holding equity awards.
Everi Games designs, manufactures and supplies gaming machines and systems to commercial and Native American casino operators as well as select lottery operators and commercial bingo facility operators. Everi Games’ revenue is generated from the operation of gaming machines in revenue sharing or lease arrangements and from the sale of gaming machines and systems that feature proprietary game themes.
Our combination with Everi Games Holding creates a provider of Payments and Games solutions for our gaming establishment customers. The business combination provides us with: (a) growth opportunities, (b) enhanced scale, diversification and margins, and (c) the ability to increase profitability through cost synergies.
The total purchase consideration for Everi Games Holding was as follows (in thousands, except per share amounts):
|
|
Amount |
|
|
Purchase consideration |
|
|
|
|
Total purchase price for Everi Games common stock (29,948 shares at $36.50 per share) |
|
$ |
1,093,105 |
|
Payment in respect to Everi Games outstanding equity awards |
|
|
56,284 |
|
Total merger consideration |
|
|
1,149,389 |
|
Repayments of Everi Games debt and other obligations |
|
|
25,065 |
|
Less: Everi Games outstanding cash at acquisition date |
|
|
(118,299) |
|
Total purchase consideration |
|
$ |
1,056,155 |
|
The Merger was accounted for using the acquisition method of accounting, which requires, among other things, the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date. The excess of the purchase price over those fair values was recorded as goodwill, none of which was deductible for tax purposes. The goodwill recognized is attributable primarily to the income potential from Everi Games penetrating into the Class III commercial casino market, the assembled workforce of Everi Games and expected synergies.
The estimates and assumptions used include the projected timing and amount of future cash flows and discount rates reflecting risk inherent in the future cash flows. The estimated fair values of Multimedia’s assets acquired and liabilities assumed and resulting goodwill were subject to adjustment as the Company finalized its fair value analysis. The significant items for which a final fair value adjustment was applicable and included in the filing of this Annual Report on Form 10-K were most notably: accrued liabilities, the valuation and estimated useful lives of tangible and intangible assets and deferred income taxes. We completed our fair value determinations and recorded the final measurement period adjustments to goodwill during the fourth quarter of 2015 in accordance with the newly adopted guidance set forth in ASU No. 2015-16 with no material change in our fair value determinations; however, there were differences compared to those amounts at December 31, 2014. In accordance with this new guidance and the immaterial nature of the measurement period adjustments, the goodwill associated with the acquisition as shown in this Note 3 section did not change from the amounts disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
We analyzed our inventory and fixed asset groups in conjunction with a review of our accrual amounts recorded in connection with the original purchase price allocation estimates. The nature of the identified inventory and undeployed fixed assets were gaming machines and related equipment with no future use that should not have been allocated any value in the original purchase price allocation. The final measurement period adjustments to goodwill were approximately $0.9 million, comprised of $1.1 million related to tangible assets and accrued liabilities and $0.2 million associated with deferred income taxes, partially offset by approximately $0.4 million associated with the tax effect of these measurement period adjustments. We determined the final measurement period adjustments to be immaterial on both a quantitative and a qualitative basis.
The information below reflects the purchase price allocation (in thousands):
|
|
|
|
|
|
|
Amount |
|
|
Purchase price allocation |
|
|
|
|
Current assets |
|
$ |
68,548 |
|
Property, equipment and leasehold improvements, net |
|
|
87,283 |
|
Goodwill |
|
|
669,542 |
|
Other intangible assets, net |
|
|
403,300 |
|
Other receivables, non-current |
|
|
5,030 |
|
Other assets, long-term |
|
|
3,392 |
|
Deferred tax asset, non-current |
|
|
22,287 |
|
Total assets |
|
|
1,259,382 |
|
Current liabilities |
|
|
44,291 |
|
Deferred tax liability, non-current |
|
|
158,418 |
|
Other accrued expenses and liabilities |
|
|
518 |
|
Total liabilities |
|
|
203,227 |
|
Net assets acquired |
|
$ |
1,056,155 |
|
Trade receivables acquired of $24.7 million were considered to be collectible and therefore the carrying amounts were considered to approximate fair value. Inventory acquired of $16.5 million was fair valued based on model-based valuations for which inputs and value drivers were observable.
The following table summarizes acquired tangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Useful Life |
|
Estimated |
|
|||
|
|
(years) |
|
Fair Value |
|
|||
Property, equipment and leased assets |
|
|
|
|
|
|
|
|
Gaming equipment |
|
2 |
- |
4 |
|
$ |
78,201 |
|
Leasehold and building improvements |
|
Lease Term |
|
|
2,105 |
|
||
Machinery and equipment |
|
3 |
- |
5 |
|
|
4,126 |
|
Other |
|
2 |
- |
7 |
|
|
2,851 |
|
Total property, equipment and leased assets |
|
|
|
|
|
$ |
87,283 |
|
The fair value of property, equipment and leased assets was determined using the cost approach as the primary approach for valuing the majority of the personal property. The market approach was used to estimate the value of vehicles. The income approach was used to quantify any economic obsolescence that may be present in the personal property. No economic obsolescence adjustments were made to the personal property, as the business enterprise valuation indicated sufficient cash flows to support the values established through the cost and market approaches.
The following table summarizes acquired intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Useful Life |
|
Estimated |
|
|||
|
|
(years) |
|
Fair Value |
|
|||
Other intangible assets |
|
|
|
|
|
|
|
|
Tradenames and trademarks |
|
3 |
- |
7 |
|
$ |
14,800 |
|
Computer software |
|
3 |
- |
5 |
|
|
3,755 |
|
Developed technology |
|
2 |
- |
6 |
|
|
139,645 |
|
Customer relationships |
|
8 |
- |
12 |
|
|
231,100 |
|
Contract rights |
|
1 |
- |
7 |
|
|
14,000 |
|
Total other intangible assets |
|
|
|
|
|
$ |
403,300 |
|
The fair values of trade names and trademarks and developed technology were determined by applying the income approach utilizing the relief from royalty methodology. The fair value of customer relationships was determined by applying the income approach utilizing the excess earnings methodology. The fair value of contract rights was considered to approximate the carrying amount based on contractual obligations associated with these other intangible assets. The discount rates utilized to estimate the fair value of these other intangible assets ranged from 10.0% to 11.0%.
Everi Payments and Everi Games Holding had different fiscal year ends. Accordingly, the unaudited pro forma combined statements of income for the year ended December 31, 2014 combined historical Everi Consolidated Statements of Income and Comprehensive Income for its year ended December 31, 2014 with historical Everi Games Holding Consolidated Statements of Operations for its year ended September 30, 2014, giving effect to the Merger as if it had occurred on January 1, 2013.
The unaudited pro forma combined financial information does not purport to represent the results of operations of Everi that would have actually resulted had the Merger been completed as of the dates indicated, nor should the information be taken as indicative of the future results of operations or financial position of the combined company. The unaudited pro forma combined financial statements do not reflect the impacts of any potential operational efficiencies, cost savings or economies of scale that Everi may achieve with respect to the combined operations of Everi and Everi Games Holding. The unaudited pro forma amounts include the historical operating results of the Company and Everi Games Holding prior to the Merger, with adjustments directly attributable to the Merger. The unaudited pro forma results include increases to depreciation and amortization expense based on the purchased intangible assets and the step-up in basis associated with tangible assets acquired and increases to interest expense, related to debt issued to fund the Merger. Also reflected in the year ended December 31, 2014 are adjustments for the impact of acquisition-related costs and other cost as a result of the Merger of $27.4 million. All adjustments utilized an effective federal statutory tax rate of 35.0%.
The following table reflects selected financial data from the unaudited pro forma consolidated financial information assuming the Merger occurred as of January 1, 2013 (in thousands):
|
|
Year Ended December 31, |
|
|
|
|
2014 |
|
|
Unaudited pro forma results of operations (in thousands, except per share amounts) |
|
|
|
|
Revenues |
|
$ |
800,732 |
|
Net loss |
|
|
(5,083) |
|
Basic loss per share |
|
$ |
(0.08) |
|
Diluted loss per share |
|
$ |
(0.08) |
|
The financial results for Everi Games Holding included in our Consolidated Statements of Income and Comprehensive Income since the acquisition date of December 19, 2014 reflected revenues of approximately $7.4 million and net loss of approximately $3.0 million, including acquisition-related costs of $1.3 million.
During the years ended December 31, 2015 and 2014, we expensed approximately $2.7 and $10.7 million, respectively, of costs related to the acquisition of Everi Games Holding for financial advisory services, financing related fees, accounting and legal fees and other transaction-related expenses and are included in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income within Operating Expenses. These costs do not include any costs related to additional site consolidation or rationalization that we might consider following the closing of the Merger.
Resort Advantage, LLC
In August 2015, we acquired certain assets of Resort Advantage, LLC (“Resort Advantage”) for an aggregate purchase price of approximately $13.3 million, of which we estimated that approximately $4.7 million would be paid under the provisions of the agreement over a period of 40 months. As of September 30, 2016, a payment of approximately $0.7 million was remitted, with a remaining estimate of approximately $1.0 million to be potentially paid under the provisions of the agreement over the remaining term. Resort Advantage is a supplier of anti-money laundering compliance, audit and data efficiency software to the gaming industry. The Resort Advantage acquisition did not have a material impact on our results of operations or financial condition. We have not provided the supplemental pro forma impact of the Resort Advantage acquisition on the revenue and earnings of the combined entity as if the acquisition date had been January 1, 2014, and the amount of revenue and earnings derived from Resort Advantage have not been presented on a supplemental basis as such amounts are not material.
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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 Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income, were $3.1 million, $2.3 million and $2.3 million for the years ended December 31, 2016, 2015 and 2014, respectively. We are exposed to interest rate risk to the extent that the applicable London Interbank Offered Rate (“LIBOR”) increases.
Under this agreement, all currency supplied by Wells Fargo remains the sole property of Wells Fargo at all times until it is dispensed, at which time Wells Fargo obtains an interest in the corresponding settlement receivable which is recorded on a net basis. As these funds are not our assets, supplied cash is not reflected on the Consolidated Balance Sheets. The outstanding balances of ATM cash utilized by us from Wells Fargo were $285.4 million and $364.5 million as of December 31, 2016 and 2015, 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 years ended December 31, 2016 and 2015.
Site‑Funded ATMs
We operate ATMs at certain customer gaming establishments where the gaming establishment provides the cash required for the ATM operational needs. We are required to reimburse the customer for the amount of cash dispensed from these Site-Funded ATMs. The Site-Funded ATM liability is included within settlement liabilities in the accompanying Consolidated Balance Sheets and was $151.0 million and $84.9 million as of December 31, 2016 and 2015, 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 $8.5 million and $8.8 million at December 31, 2016 and 2015, respectively, and is included in prepaid expenses and other assets on our Consolidated Balance Sheets.
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5. TRADE RECEIVABLES
Trade receivables represent short-term credit granted to customers for which collateral is generally not required. The balance of trade receivables consists of outstanding balances owed to us by gaming establishments and casino patrons. The balance of trade receivables consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
||
|
2016 |
|
2015 |
|
||
Trade receivables, net |
|
|
|
|
|
|
Games trade receivables |
$ |
44,410 |
|
$ |
38,064 |
|
Payments trade receivables |
|
7,241 |
|
|
14,318 |
|
Total trade receivables, net |
$ |
51,651 |
|
$ |
52,382 |
|
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 includes reserves for both Games and Payments receivables. The provision for doubtful accounts is generally included within operating expenses in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. 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 Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. The outstanding balances of the check warranty and general reserves were $2.7 million and $2.0 million, respectively, as of December 31, 2016 and $3.0 million and $0.9 million, respectively, as of December 31, 2015.
A summary activity of the reserve for warranty losses is as follows (in thousands):
|
|
Amount |
|
|
Balance, December 31, 2013 |
|
$ |
2,777 |
|
Warranty expense provision |
|
|
9,029 |
|
Charge-offs against reserve |
|
|
(9,022) |
|
Balance, December 31, 2014 |
|
|
2,784 |
|
Warranty expense provision |
|
|
9,263 |
|
Charge-offs against reserve |
|
|
(9,074) |
|
Balance, December 31, 2015 |
|
|
2,973 |
|
Warranty expense provision |
|
|
8,694 |
|
Charge-offs against reserve |
|
|
(8,972) |
|
Balance, December 31, 2016 |
|
$ |
2,695 |
|
|
6. OTHER RECEIVABLES
Other receivables include the balance of notes and loans receivable on our games and fully integrated kiosk products; and development agreements, which are generated from reimbursable amounts advanced to tribal customers generally used by the customer to build, expand or renovate its facility.
In addition, we had a note receivable with Bee Cave Games, Inc. (“Bee Cave”), which was established prior to our acquisition of Everi Games Holding in December 2014 pursuant to a secured promissory note in the amount of $4.5 million, which bears annual interest at 7%. The note required interest only payments for the first 24 months followed by repayments of principal and interest in 48 equal monthly installments. In connection with the promissory note, the Company received a warrant to purchase the common stock of Bee Cave and recorded a discount to the note for the fair value of the warrant received.
In May 2016, Bee Cave failed to pay its scheduled interest-only payment that was due related to its $4.5 million secured promissory note payable to Everi Games, for which we issued a Notice of Default and Acceleration to Bee Cave of our intent to foreclose on its assets in full settlement of the outstanding note obligation under the terms of the promissory note. At such time, we recorded a write-down of approximately $4.3 million related to the Bee Cave note receivable and warrant in operating expenses on the Condensed Consolidated Statements of Loss and Comprehensive Loss. During the third quarter of 2016, we foreclosed on the Bee Cave assets, evaluated its platform, and began to utilize these assets in connection with our social gaming strategy to deliver content from our existing game library. Consequently, we extinguished the note receivable and recorded $0.5 million of developed technology and software within other intangible assets, net on the Condensed Consolidated Balance Sheets at that time.
Other receivables also include income taxes receivable and other miscellaneous receivables. The balance of other receivables consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
||
|
2016 |
|
2015 |
|
||
Other receivables |
|
|
|
|
|
|
Notes and loans receivable, net of discount of $0 and $699 at December 31, 2016 and December 31, 2015, respectively |
$ |
5,096 |
|
$ |
9,930 |
|
Federal and state income tax receivable |
|
243 |
|
|
421 |
|
Other |
|
1,681 |
|
|
1,232 |
|
Total other receivables |
|
7,020 |
|
|
11,583 |
|
Less: non-current portion of notes and loans receivable |
|
2,020 |
|
|
6,655 |
|
Total other receivables, current portion |
$ |
5,000 |
|
$ |
4,928 |
|
|
7. 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 Consolidated Balance Sheets.
We reclassified $23.7 million of debt issuance costs related to our outstanding debt from the non-current portion of other assets to contra-liabilities included in long-term debt as of December 31, 2015 in connection with our retrospective adoption of ASU No. 2015-03. The remaining debt issuance costs included in the non-current portion of other assets relate to our line-of-credit arrangements and were not reclassified consistent with our adoption of ASU No. 2015-15.
The balance of prepaid and other assets, current consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
||
2016 |
2015 |
|||||
Prepaid expenses and other assets |
|
|
|
|
|
|
Deposits |
$ |
8,622 |
|
$ |
8,946 |
|
Prepaid expenses |
|
5,937 |
|
|
8,255 |
|
Other |
|
3,489 |
|
|
3,571 |
|
Total prepaid expenses and other assets |
$ |
18,048 |
|
$ |
20,772 |
|
The balance of other assets, non-current consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
|
||
|
2016 |
|
2015 |
|
|
||
Other assets |
|
|
|
|
|
|
|
Prepaid expenses and deposits |
$ |
3,399 |
|
$ |
4,521 |
|
|
Debt issuance costs of revolving credit |
|
689 |
|
|
919 |
|
|
Other |
|
3,434 |
|
|
5,934 |
|
|
Total other assets |
$ |
7,522 |
|
$ |
11,374 |
|
|
|
8. 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 market and accounted for using the FIFO method.
Inventory consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
|
||
|
2016 |
|
2015 |
|
|
||
Inventory |
|
|
|
|
|
|
|
Raw materials and component parts, net of reserves of $2,155 and $912 at December 31, 2016 and December 31, 2015, respectively |
$ |
12,570 |
|
$ |
23,663 |
|
|
Work-in-progress |
|
1,502 |
|
|
1,495 |
|
|
Finished goods |
|
4,996 |
|
|
3,580 |
|
|
Total inventory |
$ |
19,068 |
|
$ |
28,738 |
|
|
|
9. PROPERTY, EQUIPMENT AND LEASED ASSETS
Property, equipment and leased assets consist of the following (amounts in thousands):
|
|
|
|
At December 31, 2016 |
|
At December 31, 2015 |
|
||||||||||||||||
|
|
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 |
|
$ |
123,812 |
|
$ |
59,188 |
|
$ |
64,624 |
|
$ |
91,743 |
|
$ |
29,993 |
|
$ |
61,750 |
|
Rental pool - undeployed |
|
2 |
- |
4 |
|
|
13,456 |
|
|
5,721 |
|
|
7,735 |
|
|
11,950 |
|
|
3,361 |
|
|
8,589 |
|
ATM equipment |
|
|
5 |
|
|
|
16,537 |
|
|
11,189 |
|
|
5,348 |
|
|
20,601 |
|
|
12,885 |
|
|
7,716 |
|
Leasehold and building improvements |
|
Lease Term |
|
|
10,023 |
|
|
3,698 |
|
|
6,325 |
|
|
7,564 |
|
|
2,038 |
|
|
5,526 |
|
||
Cash advance equipment |
|
|
3 |
|
|
|
8,590 |
|
|
4,499 |
|
|
4,091 |
|
|
7,662 |
|
|
2,711 |
|
|
4,951 |
|
Machinery, office and other equipment |
|
2 |
- |
5 |
|
|
30,424 |
|
|
20,108 |
|
|
10,316 |
|
|
32,313 |
|
|
14,537 |
|
|
17,776 |
|
Total |
|
|
|
|
|
$ |
202,842 |
|
$ |
104,403 |
|
$ |
98,439 |
|
$ |
171,833 |
|
$ |
65,525 |
|
$ |
106,308 |
|
In the second quarter of 2016, our corporate aircraft was classified as held for sale and sold for $4.8 million during the period. We recognized a $0.9 million loss on the sale of the aircraft, which was included in operating expenses in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the year ended December 31, 2016. The aircraft was included in machinery, office and other equipment.
In connection with the sale of certain assets related to our PokerTek products during the year ended December 31, 2015 for a purchase price of $5.4 million, we recorded a gain of approximately $3.9 million, which was included in operating expenses in our Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for such period.
Depreciation expense related to other property, equipment and leased assets totaled approximately $50.0 million, $45.6 million and $8.7 million for the years ended December 31, 2016, 2015 and 2014, respectively.
There was no material impairment of our property, equipment and leased assets for the year ended December 31, 2016. In connection with our fourth quarter 2015 annual financial statement review, we determined that certain of our Games fixed assets either: (a) had economic lives that were no longer supportable and shortened given approximately one year of experience with the Games segment that resulted in an accelerated depreciation charge of approximately $2.6 million; or (b) were fully impaired as there was little to no movement in the portfolio with recent shipments having been returned and no future deployment anticipated that resulted in an accelerated depreciation charge of approximately $1.0 million. Our property, equipment and leased assets were not impaired for the year ended December 31, 2014.
|
10. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Goodwill represents the excess of the purchase price over the identifiable tangible and intangible assets acquired plus liabilities assumed arising from business combinations.
In accordance with ASC 350, we test goodwill at the reporting unit level, which 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 use the Step 2 assessment to determine the impairment.
Goodwill Testing
In performing our annual goodwill impairment tests, we utilize the two-step approach prescribed under ASC 350. The first step required a comparison of the carrying value of each reporting unit to its estimated fair value. To estimate the fair value of our reporting units for Step 1, we used a combination of an income valuation approach and a market valuation approach. The income approach is based on a discounted cash flow (“DCF”) analysis. This method involves estimating the after-tax cash flows attributable to a reporting unit and then discounting the after-tax cash flows to a present value, using a risk-adjusted discount rate. Assumptions used in the DCF require the exercise of significant judgment, including, but not limited to: appropriate discount rates and terminal values, growth rates and the amount and timing of expected future cash flows. The forecasted cash flows are based on our most recent annual budget and projected years beyond. Our budgets and forecasted cash flows are based on estimated future growth rates. We believe our assumptions are consistent with the plans and estimates used to manage the underlying businesses. The discount rates, which are intended to reflect the risks inherent in future cash flow projections, used in the DCF are based on estimates of the WACC of market participants relative to each respective reporting unit. The market approach considers comparable market data based on multiples of revenue or earnings before interest, taxes, depreciation and amortization (“EBITDA”).
If the carrying amount of a reporting unit exceeds its estimated fair value, we are required to perform the second step of the goodwill impairment test to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of a reporting unit’s goodwill to its carrying amount. The implied fair value of goodwill is derived by performing a hypothetical purchase price allocation for the reporting unit as of the measurement date and allocating the reporting unit’s estimated fair value to its assets and liabilities. The residual amount from performing this allocation represents the implied fair value of goodwill. To the extent this implied fair value is below the carrying amount of goodwill, an impairment charge is recorded.
We had approximately $640.5 million of goodwill on our Consolidated Balance Sheets at December 31, 2016 resulting from acquisitions of other businesses. All of our goodwill was subject to our annual goodwill impairment testing.
In connection with our annual goodwill impairment testing process for 2016 and 2015, we determined that our Games reporting unit did not pass the step one test and, therefore, we were required to conduct a step two analysis to determine the amount of impairment, which was approximately $146.3 million and $75.0 million for the years ended December 31, 2016 and 2015, respectively. The fair value substantially exceeded the carrying value for each of the Cash Access, Kiosk Sales and Services, Central Credit and Everi Compliance reporting units as of December 31, 2016 and 2015, respectively. The Company’s aggregate goodwill impairment balance was $221.3 million and $75.0 million as of December 31, 2016 and 2015, respectively. The impairment analysis was primarily based upon limited growth and capital expenditure constraints in the gaming industry, consolidation and increased competition in the gaming manufacturing space, stock market volatility, global and domestic economic uncertainty and lower than forecasted operating profits and cash flows in 2016 and 2015. Based on these indicators, we revised our estimates and assumptions for the Games reporting unit. Management performs its annual forecasting process, which, among other factors, includes reviewing recent historical results, company-specific variables and industry trends. This process is generally completed in the fourth quarter and considered in conjunction with the annual goodwill impairment evaluation.
The annual evaluation of goodwill and other non‑amortizing intangible assets requires the use of estimates about future operating results of each reporting unit to determine its estimated fair value. Changes in forecasted operations can materially affect these estimates, which could materially affect our results of operations. The estimate of fair value requires significant judgment and we base our fair value estimates on assumptions that we believe to be reasonable; but that are unpredictable and inherently uncertain, including: estimates of future growth rates, operating margins and assumptions about the overall economic climate as well as the competitive environment for our reporting units. There can be no assurance that our estimates and assumptions made for purposes of our goodwill testing as of the time of testing will prove to be accurate predictions of the future. If our assumptions regarding business plans, competitive environments or anticipated growth rates are not correct, we may be required to record goodwill impairment charges in future periods, whether in connection with our next annual impairment testing, or earlier, if an indicator of an impairment is present prior to our next annual evaluation.
Our reporting units are identified as operating segments or one level below. Reporting units must: (a) engage in business activities from which they earn revenues and incur expenses; (b) have operating results that are regularly reviewed by our chief operating decision makers to ascertain the resources to be allocated to the segment and assess its performance; and (c) have discrete financial information available. As of December 31, 2016, our reporting units included: Games, Cash Access, Kiosk Sales and Services, Central Credit, and Everi Compliance. During the year ended December 31, 2016, the Company combined its Cash Advance, ATM and Check Services reporting units into a single Cash Access reporting unit to be consistent with the current corporate structure and segment management. The use of different assumptions, estimates or judgments in either step of the goodwill impairment testing process, such as the estimated future cash flows of our reporting units, the discount rate used to discount such cash flows, or the estimated fair value of the reporting units’ tangible and intangible assets and liabilities, could significantly increase or decrease the estimated fair value of a reporting unit or its net assets, and therefore, impact the related impairment charge, if any.
The Company determined, based on changes to our structure and the overall management of the business, that the Cash Advance, ATM, and Check Services reporting units would be combined into a single Cash Access reporting unit. Prior to combining these reporting units, we performed a separate impairment test for each of these former reporting units in addition to the test performed on the combined Cash Access reporting unit during our 2016 assessment. There was no indicated impairment for any of these three reporting units prior to combining them into a single unit.
Key assumptions used in estimating fair value of the Games reporting unit under the income approach included a discount rate 10.0% and a terminal value growth rate of approximately 3.0% for the years ended December 31, 2016 and 2015. Projected compound average revenue growth rates of approximately 5.2% and 7.5% were used for the years ended December 31, 2016 and 2015, respectively. The discounted cash flow analyses included estimated future cash inflows from operations and estimated future cash outflows for capital expenditures.
Key assumptions used in estimating fair value of the Games reporting unit under the market approach were based on observed market multiples of enterprise value to revenue and EBITDA for both comparable publicly traded companies and recent merger and acquisition transactions involving similar companies to estimate appropriate controlling basis multiples to apply to each of the reporting units. Based on the multiples implied by this market data, we selected multiples of revenue of approximately 3.1 to 3.4 times and multiples of EBITDA of 6.5 to 8.3 times for the year ended December 31, 2016. We selected multiples of revenue of approximately 3.6 to 4.8 times and multiples of EBITDA of 7.4 to 8.7 times for the year ended December 31, 2015.
Our goodwill was not impaired for the year ended December 31, 2014 based upon the results of our testing.
The changes in the carrying amount of goodwill are as follows (in thousands):
|
|
Cash Access |
|
Games |
|
Other |
|
Total |
|
||||
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014 |
|
$ |
157,150 |
|
$ |
669,452 |
|
$ |
31,311 |
|
$ |
857,913 |
|
Goodwill acquired during the year |
|
|
— |
|
|
— |
|
|
6,117 |
|
|
6,117 |
|
Goodwill impairment |
|
|
— |
|
|
(75,008) |
|
|
— |
|
|
(75,008) |
|
Foreign translation adjustment |
|
|
(115) |
|
|
— |
|
|
— |
|
|
(115) |
|
Other(1) |
|
|
— |
|
|
896 |
|
|
— |
|
|
896 |
|
Balance, December 31, 2015 |
|
$ |
157,035 |
|
$ |
595,340 |
|
$ |
37,428 |
|
$ |
789,803 |
|
Goodwill impairment |
|
|
— |
|
|
(146,299) |
|
|
— |
|
|
(146,299) |
|
Foreign translation adjustment |
|
|
20 |
|
|
— |
|
|
— |
|
|
20 |
|
Other(2) |
|
|
— |
|
|
— |
|
|
(2,978) |
|
|
(2,978) |
|
Balance, December 31, 2016 |
|
$ |
157,055 |
|
$ |
449,041 |
|
$ |
34,450 |
|
$ |
640,546 |
|
(1) |
Includes the final 2015 measurement period adjustments associated with the acquisition of our Games business in late 2014. |
(2) |
Includes the final 2016 measurement period adjustments associated with the acquisition of certain assets of Resort Advantage in late 2015. |
Other Intangible Assets
Other intangible assets consist of the following (in thousands):
|
|
|
|
At December 31, 2016 |
|
At December 31, 2015 |
||||||||||||||||
|
|
Useful Life |
|
|
|
|
Accumulated |
|
Net Book |
|
|
|
|
Accumulated |
|
Net Book |
||||||
|
|
(years) |
|
Cost |
|
Amortization |
|
Value |
|
Cost |
|
Amortization |
|
Value |
||||||||
Other intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract rights under development and placement fee agreements |
|
1 |
- |
7 |
|
$ |
17,742 |
|
$ |
6,281 |
|
$ |
11,461 |
|
$ |
16,453 |
|
$ |
7,612 |
|
$ |
8,841 |
Customer contracts |
|
7 |
- |
14 |
|
|
50,975 |
|
|
40,419 |
|
|
10,556 |
|
|
50,177 |
|
|
34,755 |
|
|
15,422 |
Customer relationships |
|
8 |
- |
12 |
|
|
231,100 |
|
|
42,688 |
|
|
188,412 |
|
|
231,100 |
|
|
21,723 |
|
|
209,377 |
Developed technology and software |
|
1 |
- |
6 |
|
|
224,265 |
|
|
126,721 |
|
|
97,544 |
|
|
197,658 |
|
|
63,591 |
|
|
134,067 |
Patents, trademarks and other |
|
1 |
- |
17 |
|
|
27,771 |
|
|
17,747 |
|
|
10,024 |
|
|
28,240 |
|
|
13,485 |
|
|
14,755 |
Total |
|
|
|
|
|
$ |
551,853 |
|
$ |
233,856 |
|
$ |
317,997 |
|
$ |
523,628 |
|
$ |
141,166 |
|
$ |
382,462 |
Amortization expense related to other intangible assets totaled approximately $94.6 million, $85.5 million and $14.2 million for the years ended December 31, 2016, 2015 and 2014, respectively. We capitalized $24.2 million and $21.0 million of internal software development costs for the years ended December 31, 2016 and 2015, respectively.
On a quarterly basis, we evaluate our other intangible assets for potential impairment as part of our quarterly review process. There was no material impairment identified for any of our other intangible assets for the years ended December 31, 2016 and 2015. For the year ended December 31, 2014, our online payment processing intangible assets were identified for further testing. We determined that these definite-lived intangible assets were potentially impaired primarily due to a combination of the following factors: (a) legislative constraints at the state and federal level; (b) significant changes in management; and (c) lower than anticipated operating results.
These definite-lived intangible assets were evaluated using an undiscounted cash flow approach to determine if an impairment existed. As impairment was indicated based on the undiscounted cash flow approach, we discounted the cash flows and applied probability factors to calculate the resulting fair values and compared to the existing carrying value to determine the amount of impairment. The amount of impairment was approximately $3.1 million leaving a revised cost basis of $1.6 million and a remaining life of three years at December 31, 2014. This amount was recorded in Operating Expenses in our Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. These assets have been valued using level 3 fair value inputs.
The anticipated amortization expense related to other intangible assets, assuming no subsequent impairment of the underlying assets, is as follows (in thousands):
Anticipated amortization expense |
|
Amount |
|
|
2017 |
|
$ |
68,765 |
|
2018 |
|
|
50,899 |
|
2019 |
|
|
40,693 |
|
2020 |
|
|
35,978 |
|
2021 |
|
|
23,396 |
|
Thereafter |
|
|
84,293 |
|
Total(1) |
|
$ |
304,024 |
|
(1) |
For the year ended December 31, 2016, the Company had $14.0 million in other intangible assets which had not yet been placed into service. |
We enter into development and placement fee agreements to provide financing for new gaming facilities or for the expansion or improvement of existing facilities. All or a portion of the funds provided under development agreements are reimbursed to us, while funding under placement fee agreements is not reimbursed. In return for the fees under these agreements, each facility dedicates a percentage of its floor space, or an agreed upon unit count, for the placement of our EGMs over the term of the agreement, generally 12 to 83 months, and we receive a fixed percentage or flat fee of those machines’ hold per day. Certain of the agreements contain EGM performance standards that could allow the respective facility to reduce a portion of our guaranteed floor space.
In addition, certain development agreements allow the facilities to buy out floor space after advances that are subject to repayment have been repaid. The development agreements typically provide for a portion of the amounts retained by each facility for its share of the operating profits of the facility to be used to repay some or all of the advances recorded as notes receivable, which are included as part of other receivables current and non-current in the Consolidated Balance Sheets. There were no receivables related to development agreements at December 31, 2016 and 2015, respectively. Placement fees and amounts advanced in excess of those to be reimbursed by the customer for real property and land improvements are allocated to intangible assets and are generally amortized over the term of the contract, which is recorded as a reduction of revenue generated from the facility. In the past we have, and in the future, we may, by mutual agreement, amend these agreements to reduce our floor space at the facilities. Any proceeds received for the reduction of floor space is first applied against the intangible asset for that particular development or placement fee agreement, if any, and the remaining net book value of the intangible asset is prospectively amortized on a straight-line method over the remaining estimated useful life. We paid approximately $11.3 million and $2.8 million to extend the term of placement fee agreements with a customer for certain of its locations for the years ended December 31, 2016 and 2015, respectively.
During the year ended December 31, 2016, we foreclosed on the Bee Cave assets, evaluated its platform, and began to utilize these assets in connection with our social gaming strategy to deliver content from our existing game library. Consequently, we extinguished the note receivable and recorded $0.5 million of developed technology and software within other intangible assets, net on the Consolidated Balance Sheets during the period.
|
11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following table presents our accounts payable and accrued expenses (amounts in thousands):
|
At December 31, |
|
At December 31, |
|
||
|
2016 |
|
2015 |
|
||
Accounts payable and accrued expenses |
|
|
|
|
|
|
Trade accounts payable |
$ |
55,352 |
|
$ |
69,182 |
|
Payroll and related expenses |
|
12,305 |
|
|
8,565 |
|
Deferred and unearned revenues |
|
9,222 |
|
|
10,836 |
|
Cash access processing and related expenses |
|
7,001 |
|
|
4,662 |
|
Accrued taxes |
|
2,587 |
|
|
1,654 |
|
Accrued interest |
|
82 |
|
|
73 |
|
Other |
|
7,842 |
|
|
6,540 |
|
Total accounts payable and accrued expenses |
$ |
94,391 |
|
$ |
101,512 |
|
|
12. LONG-TERM DEBT
The following table summarizes our indebtedness (in thousands):
|
At December 31, |
|
At December 31, |
|
|
||
|
2016 |
|
2015 |
|
|
||
Long-term debt |
|
|
|
|
|
|
|
Senior secured term loan |
$ |
465,600 |
|
$ |
490,000 |
|
|
Senior secured notes |
|
335,000 |
|
|
335,000 |
|
|
Senior unsecured notes |
|
350,000 |
|
|
350,000 |
|
|
Total debt |
|
1,150,600 |
|
|
1,175,000 |
|
|
Less: debt issuance costs and warrant discount |
|
(28,720) |
|
|
(35,101) |
|
|
Total debt after debt issuance costs and discount |
|
1,121,880 |
|
|
1,139,899 |
|
|
Less: current portion of long-term debt |
|
(10,000) |
|
|
(10,000) |
|
|
Long-term debt, less current portion |
$ |
1,111,880 |
|
$ |
1,129,899 |
|
|
We reclassified $23.7 million of debt issuance costs related to our outstanding debt from the non-current portion of other assets to contra-liabilities included in long-term debt as of December 31, 2015 in connection with our retrospective adoption of ASU No. 2015-03. The remaining debt issuance costs included in the non-current portion of other assets relates to our line-of-credit arrangements and were not reclassified consistent with our adoption of ASU No. 2015-15.
Credit Facilities
In December 2014, Everi Payments, as borrower, and Holdings entered into a credit facility 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 “Credit Agreement”). The Credit Agreement consists of the $500.0 million, six-year senior secured term loan facility that matures in 2020 (the “Term Loan”) and the $50.0 million, five-year senior secured revolving credit facility that matures in 2019 (the “Revolving Credit Facility,” and together with the Term Loan, the “Credit Facilities”). The fees associated with the Credit Facilities included discounts of approximately $7.5 million and debt issuance costs of approximately $13.9 million. All borrowings under the Credit Facilities are subject to the satisfaction of customary conditions, including the absence of a default and compliance with representations and warranties.
We are required to repay the Term Loan in an amount equal to 0.50% per quarter of the initial aggregate principal with the final principal repayment installment on the maturity date. Interest is due in arrears each March, June, September and December and at the maturity date. However, interest may be remitted within one to three months of such dates.
The Term Loan had an applicable interest rate of 6.25% as of December 31, 2016 and 2015, which represents LIBOR plus a 5.25% margin
The interest rate per annum applicable to the Revolving Credit Facility is, at our option, the base rate or LIBOR plus, in each case, an applicable margin. The interest rate per annum applicable to the Term Loan is also, at our option, the base rate or LIBOR plus, in each case, an applicable margin. We have historically elected to pay interest based on LIBOR, and we expect to continue to pay interest based on LIBOR. LIBOR will be reset at the beginning of each selected interest period based on the LIBOR rate then in effect; provided that, with respect to the Revolving Credit Facility, if LIBOR is below zero, then such rate will be equal to zero plus the applicable margin, and, with respect to the Term Loan, if LIBOR is below 1.0%, then such rate will be equal to 1.0% plus the applicable margin. The base rate is a fluctuating interest rate equal to the highest of (a) the prime lending rate announced by the administrative agent, (b) the federal funds effective rate from time to time plus 0.50%, and (c) LIBOR (after taking account of any applicable floor) applicable for an interest period of one month plus 1.00%. The applicable margins of 4.75% and 5.25% for the Revolving Credit Facility and Term Loan, respectively, are subject to adjustment based on our consolidated secured leverage ratio.
Voluntary prepayments of the Term Loan and the Revolving Credit Facility and voluntary reductions in the unused commitments are permitted in whole or in part, in minimum amounts as set forth in the Credit Agreement, with prior notice but without premium or penalty.
Subject to certain exceptions, the obligations under the Credit Facilities are secured by substantially all of the present and after acquired assets of each of Everi Payments, Holdings and the subsidiary guarantors, including: (a) a perfected first priority pledge of all the capital stock of Everi Payments and each domestic direct, wholly owned material restricted subsidiary held by Holdings, Everi Payments or any such subsidiary guarantor; and (b) a perfected first priority security interest in substantially all other tangible and intangible assets of Holdings, Everi Payments, and such subsidiary guarantors (including, but not limited to, accounts receivable, inventory, equipment, general intangibles, investment property, real property, intellectual property and the proceeds of the foregoing). Subject to certain exceptions, the Credit Facilities are unconditionally guaranteed by Holdings and such subsidiary guarantors, including Everi Games Holdings and its material domestic subsidiaries.
The Credit Agreement contains certain covenants that, among other things, limit Holdings’ ability, and the ability of certain of its subsidiaries, to incur additional indebtedness; sell assets or consolidate or merge with or into other companies; pay dividends or repurchase or redeem capital stock; make certain investments; issue capital stock of subsidiaries; incur liens; prepay, redeem or repurchase subordinated debt; and enter into certain types of transactions with our affiliates. The Credit Agreement also requires Holdings, together with its subsidiaries, to comply with a maximum consolidated secured leverage ratio as well as an annual excess cash flow requirement. At December 31, 2016, our consolidated secured leverage ratio was 3.80, with a maximum allowable ratio of 4.25. Our consolidated secured maximum leverage ratio will be 4.00, 3.75 and 3.50 as of December 31, 2017, 2018 and 2019 and thereafter, respectively. Based on our excess cash flow calculation at December 31, 2015, an excess cash flow payment of approximately $14.4 million was made during the year ended December 31, 2016.
Events of default under the Credit Agreement include customary events such as a cross-default provision with respect to other material debt (which includes the Refinanced Secured Notes and the Unsecured Notes (each defined below)). In addition, an event of default will occur if Holdings undergoes a change of control. This is defined to include the case where Holdings ceases to own 100% of the equity interests of Everi Payments, or where any person or group acquires a percentage of the economic or voting interests of Holdings’ capital stock of 35% or more (determined on a fully diluted basis), or where a majority of the board of directors of Everi Holdings ceases to consist of persons who are directors of Holdings on the closing date of the Credit Facilities or other directors whose nomination for election to the board of directors of Holdings was recommended by a majority of the then continuing directors.
At December 31, 2016, we had approximately $465.6 million of borrowings outstanding under the Term Loan and no borrowings outstanding under the Revolving Credit Facility. We had $50.0 million of additional borrowing availability under the Revolving Credit Facility as of December 31, 2016. The weighted average interest rate on the Credit Facilities was approximately 6.25% for the year ended December 31, 2016.
We were in compliance with the terms of the Credit Facilities as of December 31, 2016 and 2015.
We expect that our cash provided by operating activities will be sufficient for our operating and debt servicing needs during the next 12 months. If not, we have sufficient borrowings available under our Credit Facilities to meet additional funding requirements. We monitor the financial strength of our lenders on an ongoing basis using publicly-available information. Based upon that information, we believe there is not a likelihood that any of our lenders might not be able to honor their commitments under the Credit Agreement.
Senior Secured Notes and Refinance of Senior Secured Notes
In December 2014, we issued $350.0 million in aggregate principal amount of 7.75% Secured Notes due 2021 (the “Secured Notes”). The fees associated with the Secured Notes included debt issuance costs of approximately $13.6 million. The Secured Notes were acquired by the initial purchasers pursuant to the terms of a purchase agreement. Under the terms of the purchase agreement, during a one-year period following the closing and upon prior notice from the initial purchasers, the Company was required to use commercially reasonable efforts to aid the purchasers in the resale of the Secured Notes, including by preparing an updated offering memorandum and participating in reasonable marketing efforts including road shows, to the extent required therein. Alternatively, we had the ability to redeem the Secured Notes from the initial purchasers without penalty. On April 15, 2015, the Company entered into a note purchase agreement with Everi Payments, CPPIB Credit Investments III Inc. (the “Purchaser”), and Deutsche Bank Trust Company Americas, as collateral agent (the “Note Purchase Agreement”), and issued $335.0 million in aggregate principal amount of the 7.25% Secured Notes due 2021 (the “Refinanced Secured Notes”) to the Purchaser in a private offering. With the proceeds from the issuance of the Refinanced Secured Notes, we redeemed, in full, the Company’s then outstanding Secured Notes from the initial purchasers in accordance with the terms of the indenture governing the Secured Notes. In connection with the issuance of the Refinanced Secured Notes during the second quarter of 2015, we expensed $13.0 million of related debt issuance costs and fees to loss on extinguishment of debt associated with the redeemed Secured Notes that were outstanding prior to the refinance transaction.
In connection with the issuance of the Refinanced Secured Notes and pursuant to the terms of the Note Purchase Agreement, the Company issued a warrant to purchase shares of the Company’s common stock (the “Warrant”) to the Purchaser. The Warrant expires on the sixth anniversary of the date of issuance. The number of shares issuable pursuant to the Warrant and the warrant exercise price are subject to adjustment for stock splits, reverse stock splits, stock dividends, mergers and certain other events. The Warrant was valued at $2.2 million using a modified Black-Scholes model and was accounted for as a debt discount.
Interest is due quarterly in arrears each January, April, July and October.
We were in compliance with the terms of the Refinanced Secured Notes as of December 31, 2016 and 2015.
Senior Unsecured Notes
In December 2014, we issued $350.0 million in aggregate principal amount of 10.0% 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 connection with the issuance of the Unsecured Notes, the Company entered into a registration rights agreement pursuant to which the Company agreed, for the benefit of the initial holders of the Unsecured Notes, to file with the SEC, and use its commercially reasonable efforts to cause to become effective, a registration statement relating to an offer to exchange the Unsecured Notes for an issue of SEC-registered notes with terms identical to the Unsecured Notes. On October 23, 2015, we filed a registration statement on Form S-4 with the SEC in accordance with the registration rights agreement outlining our offer to exchange the Unsecured Notes for identical notes without transfer restrictions. The registration statement was declared effective on November 3, 2015, and the exchange offer for the Unsecured Notes was completed on December 4, 2015 with 100% participation.
We were in compliance with the terms of the Unsecured Notes as of December 31, 2016 and 2015.
Principal Repayments
The maturities of our borrowings at December 31, 2016 are as follows (in thousands):
|
|
|
|
|
|
|
Amount |
|
|
Maturities of borrowings |
|
|
|
|
2017 |
|
$ |
10,000 |
|
2018 |
|
|
10,000 |
|
2019 |
|
|
10,000 |
|
2020 |
|
|
435,600 |
|
2021 |
|
|
335,000 |
|
Thereafter |
|
|
350,000 |
|
Total |
|
$ |
1,150,600 |
|
|
13. COMMITMENTS AND CONTINGENCIES
Lease Obligations
We lease office facilities and operating equipment under cancelable and non‑cancelable agreements. Total rent expense was approximately $6.8 million, $5.9 million and $1.9 million for the years ended December 31, 2016, 2015 and 2014, respectively.
We have a long‑term lease agreement related to office space for our corporate headquarters located in Las Vegas, Nevada that expires in April 2023.
In September 2014, the long-term lease agreement for office space in Austin, Texas, was extended through June 2021.
We also have leased facilities in Chicago, Illinois and Reno, Nevada, which support the design, production and expansion of our gaming content. The long-term lease agreement for our Chicago facilities commenced in November 2015 and expires in January 2023. The long-term lease agreement for our Reno facilities commenced in October 2015 and expires in April 2021.
As of December 31, 2016, the minimum aggregate rental commitment under all non‑cancelable operating leases were as follows (in thousands):
|
|
Amount |
|
|
Minimum aggregate rental commitments |
|
|
|
|
2017 |
|
$ |
4,803 |
|
2018 |
|
|
4,408 |
|
2019 |
|
|
4,462 |
|
2020 |
|
|
4,148 |
|
2021 |
|
|
3,254 |
|
Thereafter |
|
|
2,432 |
|
Total |
|
$ |
23,507 |
|
Litigation Claims and Assessments
We are subject to claims and suits that arise from time to time in the ordinary course of business. We do not believe the liabilities, if any, which may ultimately result from the outcome of such matters, individually or in the aggregate, will have a material adverse impact on our financial position, liquidity or results of operations.
Gain Contingency Settlement
In January 2014, we filed a complaint against certain third party defendants alleging conspiracy in restraint of competition regarding interchange fees, monopolization by defendants in the relevant market, and attempted monopolization of the defendants in the relevant market. We demanded a trial by jury of all issues so triable. The defendants filed a motion to dismiss on March 13, 2014. A settlement agreement was reached as of January 16, 2015. On January 22, 2015, the settlement agreement was executed and delivered for which we received $14.4 million in cash and recorded the settlement proceeds in the first quarter of 2015. This settlement is included as a reduction of operating expenses in our Consolidated Statements of (Loss) and Comprehensive (Loss) Income for the year ended December 31, 2015.
|
14. SHAREHOLDERS’ EQUITY
Preferred Stock. Our amended and restated certificate of incorporation, as amended, allows our Board of Directors, without further action by stockholders, to issue up to 50,000,000 shares of preferred stock in one or more series and to fix the designations, powers, preferences, privileges and relative participating, optional, or special rights as well as the qualifications, limitations or restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences. As of December 31, 2016 and 2015, we had no shares of preferred stock outstanding.
Common Stock. Subject to the preferences that may apply to shares of preferred stock that may be outstanding at the time, the holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available at the times and in the amounts as our Board of Directors may from time to time determine. All dividends are non-cumulative. In the event of the liquidation, dissolution or winding up of Everi, the holders of common stock are entitled to share ratably in all assets remaining after the payment of liabilities, subject to the prior distribution rights of preferred stock, if any, then outstanding. Each stockholder is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for. The common stock is not entitled to preemptive rights and is not subject to conversion or redemption. There are no sinking fund provisions applicable to the common stock. Each outstanding share of common stock is fully paid and non-assessable. As of December 31, 2016 and 2015, we had 90,952,185 and 90,877,273 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 repurchased or withheld from restricted stock awards 18,717 and 32,617 shares of common stock at an aggregate purchase price of $41,528 and $0.2 million for the years ended December 31, 2016 and 2015, respectively, to satisfy the minimum applicable tax withholding obligations related to the vesting of such restricted stock awards.
|
15. WEIGHTED AVERAGE SHARES OF COMMON STOCK
The weighted average number of common stock outstanding used in the computation of basic and diluted earnings per share is as follows (in thousands):
|
|
|
At December 31, |
|
||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
Weighted average shares |
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic |
|
|
66,050 |
|
65,854 |
|
65,780 |
|
Potential dilution from equity grants(1) |
|
|
— |
|
— |
|
1,083 |
|
Weighted average number of common shares outstanding - diluted |
|
|
66,050 |
|
65,854 |
|
66,863 |
|
(1) |
The Company was in a net loss position for the years ended December 31, 2016 and 2015, respectively, and therefore, no potential dilution from the application of the treasury stock method was applicable. Equity awards to purchase approximately 15.7 million and 14.2 million shares of common stock for the years ended December 31, 2016 and 2015, respectively, were excluded from the computation of diluted net loss per share, as their effect would have been anti-dilutive. |
|
16. SHARE‑BASED COMPENSATION
Equity Incentive Awards
Our 2014 Equity Incentive Plan (the “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 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 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 year ended December 31, 2016, we granted time- and market-based options.
Our time-based stock options generally vest at a rate of 25% per year on each of the first four anniversaries of the grant dates and 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.
Our market-based stock options granted in 2015 vest if our average stock price in any period of 30 consecutive trading days meets certain target prices during a four-year period that commenced on the date of grant for these options. These options expire after a seven-year period.
A summary of award activity is as follows (in thousands):
|
|
Stock Options |
|
Restricted Stock |
|
|
|
Granted |
|
Granted |
|
Outstanding, December 31, 2015 |
|
17,440 |
|
310 |
|
Additional authorized shares |
|
— |
|
— |
|
Granted |
|
4,383 |
|
— |
|
Exercised options or vested shares |
|
— |
|
(75) |
|
Cancelled or forfeited |
|
(3,590) |
|
(155) |
|
Outstanding, December 31, 2016 |
|
18,233 |
|
80 |
|
The maximum number of shares available for future equity awards under the 2012 Plan and the 2014 Plan is approximately 5.0 million shares of our common stock. There are no shares available for future equity awards under the 2005 Plan.
Stock Options
The fair value of our standard time-based options was determined as of the date of grant using the Black-Scholes option pricing model with the following assumptions:
|
|
Year ended |
|
||||
|
|
December 31, |
|
||||
|
|
2016 |
|
2015 |
|
2014 |
|
Risk-free interest rate |
|
1 |
% |
1 |
% |
1 |
% |
Expected life of options (in years) |
|
5 |
|
4 |
|
4 |
|
Expected volatility |
|
51 |
% |
43 |
% |
54 |
% |
Expected dividend yield |
|
— |
% |
— |
% |
— |
% |
During 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 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. 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.
The fair value of market-based options granted in connection with the annual grant that occurred during the second quarters of 2016 and 2015 and the first quarter of 2014 was determined as of the date of grant using a lattice-based option valuation model with the following assumptions:
|
|
Year ended |
|||||
|
|
December 31, |
|||||
|
|
2016 |
|
2015 |
|
2014 |
|
Risk-free interest rate |
|
2 |
% |
1 |
% |
1 |
% |
Measurement period (in years) |
|
10 |
|
4 |
|
4 |
|
Expected volatility |
|
68 |
% |
47 |
% |
52 |
% |
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. For the market-based options granted during the fourth quarter of 2016, the assumptions were: (a) risk-free interest rate of 2%; (b) expected term of ten years; (c) expected volatility of 70%; and (d) no expected dividend yield.
For the market-based options granted in the first quarter 2014, the assumptions were: (a) risk-free interest rate of 1%; (b) measurement period of four years; (c) expected volatility of 51%; and (d) no expected dividend yield.
The fair value of the converted options related to the Merger was recalculated upon consummation of the acquisition and it was determined that the original fair value approximated the value upon conversion and was still applicable and will continue to amortize to stock compensation expense over the remaining life of the awards.
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, 2015 |
|
17,440 |
|
$ |
7.41 |
|
6.6 |
|
$ |
1,212 |
|
Granted |
|
4,383 |
|
|
1.67 |
|
|
|
|
|
|
Exercised |
|
— |
|
|
— |
|
|
|
|
|
|
Canceled or forfeited |
|
(3,590) |
|
|
7.46 |
|
|
|
|
|
|
Outstanding, December 31, 2016 |
|
18,233 |
|
$ |
6.02 |
|
6.4 |
|
$ |
2,387 |
|
Vested and expected to vest, December 31, 2016 |
|
16,126 |
|
$ |
6.13 |
|
6.3 |
|
$ |
1,872 |
|
Exercisable, December 31, 2016 |
|
9,492 |
|
$ |
7.16 |
|
4.8 |
|
$ |
— |
|
|
|
|
|
|
|
Options Outstanding |
|
Options Exercisable |
|
||||||||
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Weighted |
|
|
|
Weighted |
|
||
|
|
|
|
|
|
Number |
|
Remaining |
|
Average |
|
Number |
|
Average |
|
||
|
|
|
|
|
|
Outstanding |
|
Contract |
|
Exercise |
|
Exercisable |
|
Exercise |
|
||
Range of Exercise Prices |
|
(in thousands) |
|
Life (Years) |
|
Prices |
|
(in thousands) |
|
Price |
|
||||||
$ |
1.46 |
|
$ |
1.56 |
|
3,126 |
|
9.4 |
|
$ |
1.46 |
|
— |
|
$ |
— |
|
|
1.57 |
|
|
5.76 |
|
3,081 |
|
6.1 |
|
|
3.68 |
|
2,230 |
|
|
4.22 |
|
|
5.77 |
|
|
6.89 |
|
3,405 |
|
5.0 |
|
|
6.63 |
|
2,174 |
|
|
6.67 |
|
|
6.90 |
|
|
7.73 |
|
1,170 |
|
7.0 |
|
|
7.23 |
|
814 |
|
|
7.20 |
|
|
7.74 |
|
|
7.76 |
|
3,784 |
|
7.2 |
|
|
7.74 |
|
615 |
|
|
7.74 |
|
|
7.77 |
|
|
9.73 |
|
2,609 |
|
6.2 |
|
|
8.69 |
|
2,604 |
|
|
8.69 |
|
|
9.74 |
|
|
14.55 |
|
1,058 |
|
0.9 |
|
|
10.20 |
|
1,055 |
|
|
10.20 |
|
|
|
|
|
|
|
18,233 |
|
|
|
|
|
|
9,492 |
|
|
|
|
There were 4.4 million, 6.5 million and 6.6 million options granted for the years ended December 31, 2016, 2015 and 2014, respectively. The weighted average grant date fair value per share of the options granted was $0.83, $2.48 and $3.20 for the years ended December 31, 2016, 2015 and 2014, respectively. No options were exercised during the year ended December 31, 2016. The total intrinsic value of options exercised was $0.8 million, $2.8 million for the years ended December 31, 2015 and 2014, respectively.
There was $11.7 million in unrecognized compensation expense related to options expected to vest as of December 31, 2016. This cost was expected to be recognized on a straight‑line basis over a weighted average period of 2.1 years. We recorded $6.3 million in non‑cash compensation expense related to options granted that were expected to vest for the year ended and as of December 31, 2016. There were no proceeds received from the exercise of options, as no exercises occurred during the period.
There was $18.1 million in unrecognized compensation expense related to options expected to vest as of December 31, 2015. This cost was expected to be recognized on a straight line basis over a weighted average period of 2.6 years. We recorded $7.4 million and $7.6 million in non‑cash compensation expense related to options granted that were expected to vest as of December 31, 2015 and 2014, respectively. We received $1.8 million and $5.3 million in cash from the exercise of options for the years ended December 31, 2015 and 2014, respectively.
Restricted Stock
The following is a summary of non‑vested share awards for our time‑based restricted shares:
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
Shares |
|
Average Grant |
|
|
|
|
Outstanding |
|
Date Fair Value |
|
|
|
|
(in thousands) |
|
(per share) |
|
|
Outstanding, December 31, 2015 |
|
310 |
|
$ |
7.11 |
|
Granted |
|
— |
|
|
— |
|
Vested |
|
(75) |
|
|
7.10 |
|
Forfeited |
|
(155) |
|
|
7.12 |
|
Outstanding, December 31, 2016 |
|
80 |
|
$ |
7.12 |
|
There were no shares of restricted stock granted for the year ended December 31, 2016. The total fair value of restricted stock vested was $0.2 million for the year ended December 31, 2016. There was $1.0 million in unrecognized compensation expense related to shares of time‑based restricted shares expected to vest as of December 31, 2016 and is expected to be recognized on a straight‑line basis over a weighted average period of 1.7 years. There were 0.1 million shares of restricted stock that vested during 2016, and we recorded $0.5 million in non-cash compensation expense related to the restricted stock granted that was expected to vest during 2016.
There were no shares of restricted stock granted for the year ended December 31, 2015, and 0.3 million shares of restricted stock were granted for the year ended December 31, 2014. The weighted average grant date fair value per share of restricted stock granted was $7.12 for the year ended December 31, 2014. The total fair value of restricted stock vested was $0.6 million and $1.4 million for the years ended December 31, 2015 and 2014, respectively. There was $2.0 million and $3.0 million in unrecognized compensation expense related to shares of time‑based restricted shares expected to vest as of December 31, 2015 and 2014, respectively, and is expected to be recognized on a straight‑line basis over a weighted average period of 2.4 years and 3.3 years, respectively. There were 0.2 million shares and 0.2 million shares of restricted stock that vested during 2015 and 2014, respectively, and we recorded $0.9 million and $1.2 million in non‑cash compensation expense related to the restricted stock granted that was expected to vest during 2015 and 2014, respectively.
|
17. INCOME TAXES
The following presents consolidated (loss) income before tax for domestic and foreign operations (in thousands):
|
|
Year Ended December 31, |
|
|||||||
|
|
2016 |
|
2015 |
|
2014 |
|
|||
Consolidated (loss) income before tax |
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
(225,538) |
|
$ |
(129,602) |
|
$ |
13,870 |
|
Foreign |
|
|
7,755 |
|
|
6,519 |
|
|
6,431 |
|
Total |
|
$ |
(217,783) |
|
$ |
(123,083) |
|
$ |
20,301 |
|
The income tax (benefit) provision attributable to (loss) income from operations before tax consists of the following components (in thousands):
|
|
Year Ended December 31, |
|
|||||||
|
|
2016 |
|
2015 |
|
2014 |
|
|||
Income tax (benefit) provision |
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
30,400 |
|
$ |
(19,746) |
|
$ |
6,637 |
|
Foreign |
|
|
1,296 |
|
|
1,635 |
|
|
1,524 |
|
Total income tax (benefit) provision |
|
$ |
31,696 |
|
$ |
(18,111) |
|
$ |
8,161 |
|
Income tax (benefit) provision components |
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
1,756 |
|
$ |
1,767 |
|
$ |
1,598 |
|
Deferred |
|
|
29,940 |
|
|
(19,878) |
|
|
6,563 |
|
Total income tax (benefit) provision |
|
$ |
31,696 |
|
$ |
(18,111) |
|
$ |
8,161 |
|
A reconciliation of the federal statutory rate and the effective income tax rate is as follows:
|
|
Year Ended |
|
||||
|
|
December 31, |
|
||||
|
|
2016 |
|
2015 |
|
2014 |
|
Income tax reconciliation |
|
|
|
|
|
|
|
Federal statutory rate |
|
35.0 |
% |
35.0 |
% |
35.0 |
% |
Foreign provision |
|
0.5 |
% |
0.6 |
% |
(3.6) |
% |
State/province income tax |
|
0.8 |
% |
1.1 |
% |
0.9 |
% |
Non-deductible compensation cost |
|
(0.5) |
% |
(1.1) |
% |
0.7 |
% |
Non-deductible acquisition cost |
|
0.0 |
% |
0.0 |
% |
5.9 |
% |
Adjustment to carrying value |
|
0.2 |
% |
0.6 |
% |
1.9 |
% |
Research credit |
|
0.2 |
% |
0.6 |
% |
0.0 |
% |
Valuation allowance |
|
(27.4) |
% |
0.0 |
% |
0.0 |
% |
Goodwill impairment |
|
(23.5) |
% |
(21.3) |
% |
0.0 |
% |
Other |
|
0.1 |
% |
(0.8) |
% |
(0.6) |
% |
Effective tax rate |
|
(14.6) |
% |
14.7 |
% |
40.2 |
% |
The major tax‑effected components of the deferred tax assets and liabilities are as follows (in thousands):
|
|
Year Ended December 31, |
|
|||||||
|
|
2016 |
|
2015 |
|
2014 |
|
|||
Deferred income tax assets related to: |
|
|
|
|
|
|
|
|
|
|
Net operating losses |
|
$ |
98,664 |
|
$ |
81,531 |
|
$ |
64,357 |
|
Stock compensation expense |
|
|
11,559 |
|
|
10,212 |
|
|
8,841 |
|
Accounts receivable allowances |
|
|
1,745 |
|
|
1,444 |
|
|
1,613 |
|
Accrued and prepaid expenses |
|
|
6,276 |
|
|
3,958 |
|
|
7,917 |
|
Long-term debt |
|
|
493 |
|
|
300 |
|
|
290 |
|
Other |
|
|
1,399 |
|
|
658 |
|
|
373 |
|
Tax credits |
|
|
6,394 |
|
|
5,896 |
|
|
5,146 |
|
Valuation allowance |
|
|
(61,012) |
|
|
(1,442) |
|
|
(2,319) |
|
Total deferred income tax assets |
|
$ |
65,518 |
|
$ |
102,557 |
|
$ |
86,218 |
|
Deferred income tax liabilities related to: |
|
|
|
|
|
|
|
|
|
|
Property, equipment and leased assets |
|
$ |
13,216 |
|
$ |
18,274 |
|
$ |
23,785 |
|
Intangibles |
|
|
106,307 |
|
|
108,727 |
|
|
109,103 |
|
Other |
|
|
3,606 |
|
|
3,200 |
|
|
1,072 |
|
Total deferred income tax liabilities |
|
$ |
123,129 |
|
$ |
130,201 |
|
$ |
133,960 |
|
Deferred income taxes, net |
|
$ |
(57,611) |
|
$ |
(27,644) |
|
$ |
(47,742) |
|
The Company prospectively adopted the provisions of ASU No. 2015-17 as of December 31, 2015. The adoption of the provision caused us to reclassify current deferred tax assets to noncurrent (netted within noncurrent liabilities) on our Consolidated Balance Sheets. The prior reporting period was not retrospectively adjusted.
For all of our investments in foreign subsidiaries, except for GCA (Macau), deferred taxes have not been provided on unrepatriated foreign earnings. Unrepatriated earnings were approximately $23.3 million as of December 31, 2016. These earnings were considered permanently reinvested, as it was management’s intention to reinvest foreign earnings in foreign operations. We project sufficient cash flow or sufficient borrowings available under our Credit Facilities in the U.S. and therefore do not need to repatriate these foreign earnings to finance U.S. operations at this time.
As a result of certain realization requirements under the accounting guidance on share based payments, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting at December 31, 2016, 2015 and 2014, respectively. Equity will be increased by $4.6 million if, and when, such deferred tax assets are ultimately realized. We use the accounting guidance on income taxes ordering for purposes of determining when excess tax benefits have been realized.
Deferred tax assets arise primarily because expenses have been recorded in historical financial statement periods that will not become deductible for income taxes until future tax years. We record valuation allowances to reduce the book value of our deferred tax assets to amounts that are estimated on a more likely than not basis to be realized. This assessment requires judgment and is performed on the basis of the weight of all available evidence, both positive and negative, with greater weight placed on information that is objectively verifiable such as historical performance.
During the fourth quarter of 2016, we evaluated negative evidence noting that for the three-year period then ended, we reported a cumulative net loss. Pursuant to accounting guidance, a cumulative loss in recent years is a significant piece of negative evidence that must be considered and is difficult to overcome without sufficient objectively verifiable, positive evidence. As such, certain aspects of our historical results were included in our forecasted taxable income. Although our forecast of future taxable income was a positive indicator, since this form of evidence was not objectively verifiable, its weight was not sufficient to overcome the negative evidence.
As a result of this evaluation, we increased our valuation allowance for deferred tax assets by $59.6 million. The ultimate realization of deferred tax assets depends on having sufficient taxable income in the future years when the tax deductions associated with the deferred tax assets become deductible. The establishment of a valuation allowance does not impact cash, nor does it preclude us from using our tax credits, loss carryforwards and other deferred tax assets in the future.
We had $265.0 million, or $92.8 million, tax effected, of accumulated federal net operating losses as of December 31, 2016. The net operating losses can be carried forward and applied to offset taxable income for 20 years and will expire starting in 2024. We had $4.8 million, tax effected, of federal research and development credit carry forwards and $1.6 million of federal alternative minimum tax credit carry forwards as of December 31, 2016. The research and development credits are limited to a 20 year carry forward period and will expire starting in 2033. The federal alternative minimum tax credit carry forwards do not expire. As of December 31, 2016, $53.7 million of our valuation allowance relates to federal net operating loss carry forwards and credits that we estimate are not more likely than not to be realized.
We had tax effected state net operating loss carry forwards of approximately $10.4 million as of December 31, 2016. The state net operating loss carry forwards will expire between 2017 and 2037. The determination and utilization of these state net operating loss carry forwards are dependent upon apportionment percentages and other respective state laws, which can change from year to year. As of December 31, 2016, $7.2 million of our valuation allowance relates to certain state net operating loss carry forwards that we estimate are not more likely than not to be realized. The remaining valuation allowance of $0.1 million relates to foreign net operating losses.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):
|
|
Year Ended December 31, |
|
|||||||
|
|
2016 |
|
2015 |
|
2014 |
|
|||
Unrecognized tax benefit |
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefit at the beginning of the period |
|
$ |
729 |
|
$ |
729 |
|
$ |
— |
|
Gross increases - tax positions in prior period |
|
|
105 |
|
|
— |
|
|
— |
|
Gross decreases - tax positions in prior period |
|
|
— |
|
|
— |
|
|
— |
|
Gross increases - tax positions in current period |
|
|
— |
|
|
— |
|
|
729 |
|
Settlements |
|
|
— |
|
|
— |
|
|
— |
|
Unrecognized tax benefit at the end of the period |
|
$ |
834 |
|
$ |
729 |
|
$ |
729 |
|
We have analyzed filing positions in all of the federal, state and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. As of December 31, 2016, 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 Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.
We are subject to taxation in the U.S. and various states and foreign jurisdictions. We have a number of federal and state income tax years still open for examination as a result of our net operating loss carry forwards. Accordingly, we are subject to examination for both U.S. federal and some of the state tax returns for the years 2004 to present. For the remaining state, local and foreign jurisdictions, with some exceptions, we are no longer subject to examination by tax authorities for years before 2013.
|
18. SEGMENT INFORMATION
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-making group in deciding how to allocate resources and in assessing performance. Our chief operating decision-making group consists of the Chief Executive Officer and the Chief Financial Officer. This group manages the business, allocates resources and measures profitability based on our operating segments. The operating segments are reviewed separately because each represents products that can be sold separately to our customers.
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 allocate depreciation and amortization expenses to the business segments.
Our business is predominantly domestic, with no specific regional concentrations and no significant assets in foreign locations.
The accounting policies of the operating segments are generally the same as those described in the summary of significant accounting policies.
The following tables present segment information (in thousands):
|
|
|
For the Year Ended December 31, |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
Games |
|
|
$ |
213,253 |
|
$ |
214,424 |
|
$ |
7,406 |
|
Payments |
|
|
|
646,203 |
|
|
612,575 |
|
|
585,647 |
|
Total revenues |
|
|
$ |
859,456 |
|
$ |
826,999 |
|
$ |
593,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
|
|
|
|
|
|
|
|
|
Games |
|
|
$ |
(166,243) |
|
$ |
(73,503) |
|
$ |
(1,423) |
|
Payments |
|
|
|
47,688 |
|
|
63,773 |
|
|
35,205 |
|
Total operating (loss) income |
|
|
$ |
(118,555) |
|
$ |
(9,730) |
|
$ |
33,782 |
|
|
|
At December 31, 2016 |
|
At December 31, 2015 |
||
Total assets |
|
|
|
|
|
|
Games |
|
$ |
894,213 |
|
$ |
1,086,147 |
Payments |
|
|
513,950 |
|
|
464,238 |
Total assets |
|
$ |
1,408,163 |
|
$ |
1,550,385 |
Major customers. For the years ended December 31, 2016, 2015 and 2014, no single customer accounted for more than 10% of our revenues. Our five largest customers accounted for approximately 31%, 30% and 28% of our total revenue in 2016, 2015 and 2014, respectively.
|
19. SELECTED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The unaudited selected quarterly results of operations are as follows (in thousands, except for per share amounts)*:
|
|
Quarter |
|
|
|
|
||||||||||
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
Year |
|
|||||
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
205,769 |
|
$ |
214,000 |
|
$ |
222,177 |
|
$ |
217,510 |
|
$ |
859,456 |
|
Operating income (loss) |
|
|
3,785 |
|
|
6,060 |
|
|
11,572 |
|
|
(139,972) |
|
|
(118,555) |
|
Net loss |
|
|
(13,151) |
|
|
(10,796) |
|
|
(8,254) |
|
|
(217,278) |
|
|
(249,479) |
|
Basic loss per share |
|
$ |
(0.20) |
|
$ |
(0.16) |
|
$ |
(0.12) |
|
$ |
(3.29) |
|
$ |
(3.78) |
|
Diluted loss per share |
|
$ |
(0.20) |
|
$ |
(0.16) |
|
$ |
(0.12) |
|
$ |
(3.29) |
|
$ |
(3.78) |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
66,034 |
|
|
66,041 |
|
|
66,049 |
|
|
66,074 |
|
|
66,050 |
|
Diluted |
|
|
66,034 |
|
|
66,041 |
|
|
66,049 |
|
|
66,074 |
|
|
66,050 |
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
207,473 |
|
$ |
206,364 |
|
$ |
208,746 |
|
$ |
204,416 |
|
$ |
826,999 |
|
Operating income (loss) |
|
|
28,141 |
|
|
16,336 |
|
|
14,716 |
|
|
(68,923) |
|
|
(9,730) |
|
Net income (loss) |
|
|
469 |
|
|
(12,741) |
|
|
(6,110) |
|
|
(86,590) |
|
|
(104,972) |
|
Basic earnings (loss) per share |
|
$ |
0.01 |
|
$ |
(0.19) |
|
$ |
(0.09) |
|
$ |
(1.31) |
|
$ |
(1.59) |
|
Diluted earnings (loss) per share |
|
$ |
0.01 |
|
$ |
(0.19) |
|
$ |
(0.09) |
|
$ |
(1.31) |
|
$ |
(1.59) |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
65,623 |
|
|
65,844 |
|
|
65,941 |
|
|
66,004 |
|
|
65,854 |
|
Diluted |
|
|
66,492 |
|
|
65,844 |
|
|
65,941 |
|
|
66,004 |
|
|
65,854 |
|
*Rounding may cause variances.
|
20. 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 December 31, 2016 and December 31, 2015 and for the years ended December 31, 2016, 2015 and 2014. The condensed consolidating financial information has been presented to show the nature of assets held and the results of operations and cash flows of Parent, Subsidiary Issuer, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries assuming that the guarantee structure of the Unsecured Notes had been in effect at the beginning of the periods presented.
|
Year Ended December 31, 2016 |
||||||||||||||||
|
|
|
|
|
|
|
Non- |
|
|
|
|
||||||
|
|
|
Subsidiary |
|
Guarantor |
|
Guarantor |
|
|
|
|
||||||
|
Parent |
|
Issuer |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
— |
|
$ |
599,173 |
|
$ |
241,937 |
|
$ |
25,096 |
|
$ |
(6,750) |
|
$ |
859,456 |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization) |
|
— |
|
|
480,210 |
|
|
59,802 |
|
|
14,764 |
|
|
(5,762) |
|
|
549,014 |
Operating expenses |
|
— |
|
|
73,352 |
|
|
44,526 |
|
|
1,819 |
|
|
(988) |
|
|
118,709 |
Research and development |
|
— |
|
|
— |
|
|
19,326 |
|
|
30 |
|
|
— |
|
|
19,356 |
Goodwill impairment |
|
— |
|
|
— |
|
|
146,299 |
|
|
— |
|
|
— |
|
|
146,299 |
Depreciation |
|
— |
|
|
8,278 |
|
|
41,391 |
|
|
326 |
|
|
— |
|
|
49,995 |
Amortization |
|
— |
|
|
12,641 |
|
|
79,805 |
|
|
2,192 |
|
|
— |
|
|
94,638 |
Total costs and expenses |
|
— |
|
|
574,481 |
|
|
391,149 |
|
|
19,131 |
|
|
(6,750) |
|
|
978,011 |
Operating income (loss) |
|
— |
|
|
24,692 |
|
|
(149,212) |
|
|
5,965 |
|
|
— |
|
|
(118,555) |
Other expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
6,114 |
|
|
92,896 |
|
|
218 |
|
|
— |
|
|
99,228 |
Equity in loss (income) of subsidiaries |
|
249,479 |
|
|
(14,981) |
|
|
(1,917) |
|
|
— |
|
|
(232,581) |
|
|
— |
Total other expense (income) |
|
249,479 |
|
|
(8,867) |
|
|
90,979 |
|
|
218 |
|
|
(232,581) |
|
|
99,228 |
(Loss) income before income tax |
|
(249,479) |
|
|
33,559 |
|
|
(240,191) |
|
|
5,747 |
|
|
232,581 |
|
|
(217,783) |
Income tax provision (benefit) |
|
— |
|
|
21,679 |
|
|
8,881 |
|
|
1,136 |
|
|
— |
|
|
31,696 |
Net (loss) income |
|
(249,479) |
|
|
11,880 |
|
|
(249,072) |
|
|
4,611 |
|
|
232,581 |
|
|
(249,479) |
Foreign currency translation |
|
(2,427) |
|
|
— |
|
|
— |
|
|
(2,427) |
|
|
2,427 |
|
|
(2,427) |
Comprehensive (loss) income |
$ |
(251,906) |
|
$ |
11,880 |
|
$ |
(249,072) |
|
$ |
2,184 |
|
$ |
235,008 |
|
$ |
(251,906) |
|
Year Ended December 31, 2015 |
||||||||||||||||
|
|
|
|
|
|
|
Non- |
|
|
|
|
||||||
|
|
|
Subsidiary |
|
Guarantor |
|
Guarantor |
|
|
|
|
||||||
|
Parent |
|
Issuer |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
— |
|
$ |
566,634 |
|
$ |
243,974 |
|
$ |
17,219 |
|
$ |
(828) |
|
$ |
826,999 |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization) |
|
— |
|
|
444,990 |
|
|
56,382 |
|
|
9,025 |
|
|
— |
|
|
510,397 |
Operating expenses |
|
— |
|
|
61,615 |
|
|
38,554 |
|
|
1,861 |
|
|
(828) |
|
|
101,202 |
Research and development |
|
— |
|
|
— |
|
|
19,098 |
|
|
— |
|
|
— |
|
|
19,098 |
Goodwill impairment |
|
— |
|
|
— |
|
|
75,008 |
|
|
— |
|
|
— |
|
|
75,008 |
Depreciation |
|
— |
|
|
7,635 |
|
|
37,734 |
|
|
182 |
|
|
— |
|
|
45,551 |
Amortization |
|
— |
|
|
9,842 |
|
|
73,195 |
|
|
2,436 |
|
|
— |
|
|
85,473 |
Total costs and expenses |
|
— |
|
|
524,082 |
|
|
299,971 |
|
|
13,504 |
|
|
(828) |
|
|
836,729 |
Operating income (loss) |
|
— |
|
|
42,552 |
|
|
(55,997) |
|
|
3,715 |
|
|
— |
|
|
(9,730) |
Other expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
7,639 |
|
|
92,343 |
|
|
308 |
|
|
— |
|
|
100,290 |
Equity in loss (income) of subsidiaries |
|
104,972 |
|
|
(13,777) |
|
|
— |
|
|
— |
|
|
(91,195) |
|
|
— |
Loss on extinguishment of debt |
|
— |
|
|
13,063 |
|
|
— |
|
|
— |
|
|
— |
|
|
13,063 |
Total other expense |
|
104,972 |
|
|
6,925 |
|
|
92,343 |
|
|
308 |
|
|
(91,195) |
|
|
113,353 |
(Loss) income before income tax |
|
(104,972) |
|
|
35,627 |
|
|
(148,340) |
|
|
3,407 |
|
|
91,195 |
|
|
(123,083) |
Income tax provision (benefit) |
|
— |
|
|
8,342 |
|
|
(27,673) |
|
|
1,220 |
|
|
— |
|
|
(18,111) |
Net (loss) income |
|
(104,972) |
|
|
27,285 |
|
|
(120,667) |
|
|
2,187 |
|
|
91,195 |
|
|
(104,972) |
Foreign currency translation |
|
(1,251) |
|
|
— |
|
|
— |
|
|
(1,251) |
|
|
1,251 |
|
|
(1,251) |
Comprehensive (loss) income |
$ |
(106,223) |
|
$ |
27,285 |
|
$ |
(120,667) |
|
$ |
936 |
|
$ |
92,446 |
|
$ |
(106,223) |
|
Year Ended December 31, 2014 |
||||||||||||||||
|
|
|
|
|
|
|
Non- |
|
|
|
|
||||||
|
|
|
Subsidiary |
|
Guarantor |
|
Guarantor |
|
|
|
|
||||||
|
Parent |
|
Issuer |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
— |
|
$ |
542,206 |
|
$ |
35,689 |
|
$ |
15,891 |
|
$ |
(733) |
|
$ |
593,053 |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization) |
|
— |
|
|
422,544 |
|
|
10,864 |
|
|
6,663 |
|
|
— |
|
|
440,071 |
Operating expenses |
|
— |
|
|
88,087 |
|
|
5,719 |
|
|
2,379 |
|
|
(733) |
|
|
95,452 |
Research and development |
|
— |
|
|
— |
|
|
804 |
|
|
— |
|
|
— |
|
|
804 |
Depreciation |
|
— |
|
|
7,428 |
|
|
1,134 |
|
|
183 |
|
|
— |
|
|
8,745 |
Amortization |
|
— |
|
|
11,180 |
|
|
2,454 |
|
|
565 |
|
|
— |
|
|
14,199 |
Total costs and expenses |
|
— |
|
|
529,239 |
|
|
20,975 |
|
|
9,790 |
|
|
(733) |
|
|
559,271 |
Operating income |
|
— |
|
|
12,967 |
|
|
14,714 |
|
|
6,101 |
|
|
— |
|
|
33,782 |
Other expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
7,675 |
|
|
3,290 |
|
|
(209) |
|
|
— |
|
|
10,756 |
Equity in income of subsidiaries |
|
(12,140) |
|
|
(15,218) |
|
|
— |
|
|
— |
|
|
27,358 |
|
|
— |
Loss on extinguishment of debt |
|
— |
|
|
2,523 |
|
|
202 |
|
|
— |
|
|
— |
|
|
2,725 |
Total other (income) expense |
|
(12,140) |
|
|
(5,020) |
|
|
3,492 |
|
|
(209) |
|
|
27,358 |
|
|
13,481 |
Income before income tax |
|
12,140 |
|
|
17,987 |
|
|
11,222 |
|
|
6,310 |
|
|
(27,358) |
|
|
20,301 |
Income tax provision |
|
— |
|
|
2,801 |
|
|
3,784 |
|
|
1,576 |
|
|
— |
|
|
8,161 |
Net income |
|
12,140 |
|
|
15,186 |
|
|
7,438 |
|
|
4,734 |
|
|
(27,358) |
|
|
12,140 |
Foreign currency translation |
|
(1,258) |
|
|
— |
|
|
— |
|
|
(1,258) |
|
|
1,258 |
|
|
(1,258) |
Comprehensive income |
$ |
10,882 |
|
$ |
15,186 |
|
$ |
7,438 |
|
$ |
3,476 |
|
$ |
(26,100) |
|
$ |
10,882 |
|
At December 31, 2016 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
— |
|
$ |
88,648 |
|
$ |
9,103 |
|
$ |
21,300 |
|
$ |
— |
|
$ |
119,051 |
Settlement receivables |
|
— |
|
|
122,222 |
|
|
— |
|
|
6,599 |
|
|
— |
|
|
128,821 |
Trade receivables, net |
|
— |
|
|
4,401 |
|
|
41,500 |
|
|
5,750 |
|
|
— |
|
|
51,651 |
Other receivables |
|
— |
|
|
4,600 |
|
|
243 |
|
|
157 |
|
|
— |
|
|
5,000 |
Inventory |
|
— |
|
|
6,009 |
|
|
13,059 |
|
|
— |
|
|
— |
|
|
19,068 |
Prepaid expenses and other assets |
|
— |
|
|
5,359 |
|
|
3,807 |
|
|
8,882 |
|
|
— |
|
|
18,048 |
Intercompany balances |
|
— |
|
|
106,729 |
|
|
188,028 |
|
|
1,461 |
|
|
(296,218) |
|
|
— |
Total current assets |
|
— |
|
|
337,968 |
|
|
255,740 |
|
|
44,149 |
|
|
(296,218) |
|
|
341,639 |
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leased assets, net |
|
— |
|
|
15,144 |
|
|
81,993 |
|
|
1,302 |
|
|
— |
|
|
98,439 |
Goodwill |
|
— |
|
|
151,417 |
|
|
488,512 |
|
|
617 |
|
|
— |
|
|
640,546 |
Other intangible assets, net |
|
— |
|
|
23,901 |
|
|
289,338 |
|
|
4,758 |
|
|
— |
|
|
317,997 |
Other receivables |
|
— |
|
|
2,019 |
|
|
— |
|
|
1 |
|
|
— |
|
|
2,020 |
Investment in subsidiaries |
|
(107,751) |
|
|
171,979 |
|
|
1,293 |
|
|
86 |
|
|
(65,607) |
|
|
— |
Deferred tax asset |
|
— |
|
|
37,578 |
|
|
— |
|
|
— |
|
|
(37,578) |
|
|
— |
Other assets |
|
— |
|
|
4,940 |
|
|
2,286 |
|
|
296 |
|
|
— |
|
|
7,522 |
Intercompany balances |
|
— |
|
|
1,143,115 |
|
|
7,851 |
|
|
— |
|
|
(1,150,966) |
|
|
— |
Total non-current assets |
|
(107,751) |
|
|
1,550,093 |
|
|
871,273 |
|
|
7,060 |
|
|
(1,254,151) |
|
|
1,066,524 |
Total assets |
$ |
(107,751) |
|
$ |
1,888,061 |
|
$ |
1,127,013 |
|
$ |
51,209 |
|
$ |
(1,550,369) |
|
$ |
1,408,163 |
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement liabilities |
$ |
— |
|
$ |
225,170 |
|
$ |
268 |
|
$ |
13,685 |
|
$ |
— |
|
$ |
239,123 |
Accounts payable and accrued expenses |
|
— |
|
|
64,192 |
|
|
28,970 |
|
|
1,229 |
|
|
— |
|
|
94,391 |
Current portion of long-term debt |
|
— |
|
|
10,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
10,000 |
Intercompany balances |
|
— |
|
|
189,488 |
|
|
101,387 |
|
|
5,343 |
|
|
(296,218) |
|
|
— |
Total current liabilities |
|
— |
|
|
488,850 |
|
|
130,625 |
|
|
20,257 |
|
|
(296,218) |
|
|
343,514 |
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability |
|
— |
|
|
— |
|
|
95,189 |
|
|
— |
|
|
(37,578) |
|
|
57,611 |
Long-term debt, less current portion |
|
— |
|
|
1,111,880 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,111,880 |
Other accrued expenses and liabilities |
|
— |
|
|
2,583 |
|
|
368 |
|
|
— |
|
|
— |
|
|
2,951 |
Intercompany balances |
|
— |
|
|
— |
|
|
1,143,116 |
|
|
7,850 |
|
|
(1,150,966) |
|
|
— |
Total non-current liabilities |
|
— |
|
|
1,114,463 |
|
|
1,238,673 |
|
|
7,850 |
|
|
(1,188,544) |
|
|
1,172,442 |
Total liabilities |
|
— |
|
|
1,603,313 |
|
|
1,369,298 |
|
|
28,107 |
|
|
(1,484,762) |
|
|
1,515,956 |
Stockholders’ (deficit) equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
91 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
91 |
Additional paid-in capital |
|
264,755 |
|
|
85,499 |
|
|
5,314 |
|
|
21,093 |
|
|
(111,906) |
|
|
264,755 |
Retained (deficit) earnings |
|
(194,299) |
|
|
201,316 |
|
|
(247,273) |
|
|
5,168 |
|
|
40,789 |
|
|
(194,299) |
Accumulated other comprehensive loss |
|
(2,067) |
|
|
(2,067) |
|
|
(326) |
|
|
(3,159) |
|
|
5,510 |
|
|
(2,109) |
Treasury stock, at cost |
|
(176,231) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(176,231) |
Total stockholders’ (deficit) equity |
|
(107,751) |
|
|
284,748 |
|
|
(242,285) |
|
|
23,102 |
|
|
(65,607) |
|
|
(107,793) |
Total liabilities and stockholders’ (deficit) equity |
$ |
(107,751) |
|
$ |
1,888,061 |
|
$ |
1,127,013 |
|
$ |
51,209 |
|
$ |
(1,550,369) |
|
$ |
1,408,163 |
|
At December 31, 2015 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
6 |
|
$ |
87,078 |
|
$ |
3,900 |
|
$ |
11,046 |
|
$ |
— |
|
$ |
102,030 |
Settlement receivables |
|
— |
|
|
42,437 |
|
|
— |
|
|
2,496 |
|
|
— |
|
|
44,933 |
Trade receivables, net |
|
— |
|
|
10,750 |
|
|
41,634 |
|
|
(2) |
|
|
— |
|
|
52,382 |
Other receivables |
|
— |
|
|
4,063 |
|
|
833 |
|
|
32 |
|
|
— |
|
|
4,928 |
Inventory |
|
— |
|
|
12,772 |
|
|
15,966 |
|
|
— |
|
|
— |
|
|
28,738 |
Prepaid expenses and other assets |
|
— |
|
|
6,464 |
|
|
5,160 |
|
|
9,148 |
|
|
— |
|
|
20,772 |
Intercompany balances |
|
— |
|
|
39,810 |
|
|
168,659 |
|
|
1,431 |
|
|
(209,900) |
|
|
— |
Total current assets |
|
6 |
|
|
203,374 |
|
|
236,152 |
|
|
24,151 |
|
|
(209,900) |
|
|
253,783 |
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leased assets, net |
|
— |
|
|
26,472 |
|
|
79,514 |
|
|
322 |
|
|
— |
|
|
106,308 |
Goodwill |
|
— |
|
|
154,395 |
|
|
634,811 |
|
|
597 |
|
|
— |
|
|
789,803 |
Other intangible assets, net |
|
— |
|
|
32,000 |
|
|
343,629 |
|
|
6,833 |
|
|
— |
|
|
382,462 |
Other receivables |
|
— |
|
|
3,256 |
|
|
3,399 |
|
|
— |
|
|
— |
|
|
6,655 |
Investment in subsidiaries |
|
137,414 |
|
|
159,735 |
|
|
— |
|
|
86 |
|
|
(297,235) |
|
|
— |
Deferred tax asset |
|
— |
|
|
65,577 |
|
|
— |
|
|
— |
|
|
(65,577) |
|
|
— |
Other assets |
|
— |
|
|
7,256 |
|
|
3,667 |
|
|
451 |
|
|
— |
|
|
11,374 |
Intercompany balances |
|
— |
|
|
1,136,505 |
|
|
— |
|
|
— |
|
|
(1,136,505) |
|
|
— |
Total non-current assets |
|
137,414 |
|
|
1,585,196 |
|
|
1,065,020 |
|
|
8,289 |
|
|
(1,499,317) |
|
|
1,296,602 |
Total assets |
$ |
137,420 |
|
$ |
1,788,570 |
|
$ |
1,301,172 |
|
$ |
32,440 |
|
$ |
(1,709,217) |
|
$ |
1,550,385 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement liabilities |
$ |
— |
|
$ |
136,109 |
|
$ |
162 |
|
$ |
3,548 |
|
$ |
— |
|
$ |
139,819 |
Accounts payable and accrued expenses |
|
— |
|
|
67,736 |
|
|
32,593 |
|
|
1,183 |
|
|
— |
|
|
101,512 |
Current portion of long-term debt |
|
— |
|
|
10,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
10,000 |
Intercompany balances |
|
— |
|
|
170,091 |
|
|
32,732 |
|
|
7,077 |
|
|
(209,900) |
|
|
— |
Total current liabilities |
|
— |
|
|
383,936 |
|
|
65,487 |
|
|
11,808 |
|
|
(209,900) |
|
|
251,331 |
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability |
|
— |
|
|
— |
|
|
93,221 |
|
|
— |
|
|
(65,577) |
|
|
27,644 |
Long-term debt, less current portion |
|
— |
|
|
1,129,899 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,129,899 |
Other accrued expenses and liabilities |
|
— |
|
|
3,624 |
|
|
467 |
|
|
— |
|
|
— |
|
|
4,091 |
Intercompany balances |
|
— |
|
|
— |
|
|
1,136,505 |
|
|
— |
|
|
(1,136,505) |
|
|
— |
Total non-current liabilities |
|
— |
|
|
1,133,523 |
|
|
1,230,193 |
|
|
— |
|
|
(1,202,082) |
|
|
1,161,634 |
Total liabilities |
|
— |
|
|
1,517,459 |
|
|
1,295,680 |
|
|
11,808 |
|
|
(1,411,982) |
|
|
1,412,965 |
Stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
91 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
91 |
Additional paid-in capital |
|
258,020 |
|
|
80,443 |
|
|
3,670 |
|
|
21,101 |
|
|
(105,214) |
|
|
258,020 |
Retained earnings |
|
55,180 |
|
|
190,375 |
|
|
1,797 |
|
|
1,180 |
|
|
(193,352) |
|
|
55,180 |
Accumulated other comprehensive income (loss) |
|
318 |
|
|
293 |
|
|
25 |
|
|
(1,649) |
|
|
1,331 |
|
|
318 |
Treasury stock, at cost |
|
(176,189) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(176,189) |
Total stockholders’ equity |
|
137,420 |
|
|
271,111 |
|
|
5,492 |
|
|
20,632 |
|
|
(297,235) |
|
|
137,420 |
Total liabilities and stockholders’ equity |
$ |
137,420 |
|
$ |
1,788,570 |
|
$ |
1,301,172 |
|
$ |
32,440 |
|
$ |
(1,709,217) |
|
$ |
1,550,385 |
|
Year Ended December 31, 2016 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
$ |
(249,479) |
|
$ |
11,880 |
|
$ |
(249,072) |
|
$ |
4,611 |
|
$ |
232,581 |
|
$ |
(249,479) |
Adjustments to reconcile net loss to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
— |
|
|
20,919 |
|
|
121,196 |
|
|
2,518 |
|
|
— |
|
|
144,633 |
Amortization of financing costs |
|
— |
|
|
6,695 |
|
|
— |
|
|
— |
|
|
— |
|
|
6,695 |
Loss on sale or disposal of assets |
|
— |
|
|
1,353 |
|
|
1,198 |
|
|
12 |
|
|
— |
|
|
2,563 |
Accretion of contract rights |
|
— |
|
|
— |
|
|
8,692 |
|
|
— |
|
|
— |
|
|
8,692 |
Provision for bad debts |
|
— |
|
|
74 |
|
|
9,834 |
|
|
— |
|
|
— |
|
|
9,908 |
Reserve for obsolescence |
|
— |
|
|
860 |
|
|
2,721 |
|
|
— |
|
|
— |
|
|
3,581 |
Other asset impairment |
|
— |
|
|
— |
|
|
4,289 |
|
|
— |
|
|
— |
|
|
4,289 |
Goodwill impairment |
|
— |
|
|
— |
|
|
146,299 |
|
|
— |
|
|
— |
|
|
146,299 |
Equity in loss (income) of subsidiaries |
|
249,479 |
|
|
(14,981) |
|
|
(1,917) |
|
|
— |
|
|
(232,581) |
|
|
— |
Stock-based compensation |
|
— |
|
|
5,091 |
|
|
1,644 |
|
|
— |
|
|
— |
|
|
6,735 |
Other non-cash items |
|
— |
|
|
— |
|
|
(38) |
|
|
— |
|
|
— |
|
|
(38) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net settlement receivables and liabilities |
|
— |
|
|
9,275 |
|
|
106 |
|
|
5,866 |
|
|
— |
|
|
15,247 |
Other changes in operating assets and liabilities |
|
1 |
|
|
(11,643) |
|
|
43,772 |
|
|
456 |
|
|
— |
|
|
32,586 |
Net cash provided by operating activities |
|
1 |
|
|
29,523 |
|
|
88,724 |
|
|
13,463 |
|
|
— |
|
|
131,711 |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
— |
|
|
(8,094) |
|
|
(71,583) |
|
|
(1,064) |
|
|
— |
|
|
(80,741) |
Acquisitions, net of cash acquired |
|
— |
|
|
(694) |
|
|
— |
|
|
— |
|
|
— |
|
|
(694) |
Proceeds from sale of fixed assets |
|
— |
|
|
4,599 |
|
|
— |
|
|
— |
|
|
— |
|
|
4,599 |
Placement fee agreements |
|
— |
|
|
— |
|
|
(11,312) |
|
|
— |
|
|
— |
|
|
(11,312) |
Changes in restricted cash and cash equivalents |
|
— |
|
|
94 |
|
|
— |
|
|
— |
|
|
— |
|
|
94 |
Intercompany investing activities |
|
35 |
|
|
1,058 |
|
|
(626) |
|
|
339 |
|
|
(806) |
|
|
— |
Net cash provided by (used in) investing activities |
|
35 |
|
|
(3,037) |
|
|
(83,521) |
|
|
(725) |
|
|
(806) |
|
|
(88,054) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of credit facility |
|
— |
|
|
(24,400) |
|
|
— |
|
|
— |
|
|
— |
|
|
(24,400) |
Debt issuance costs |
|
— |
|
|
(480) |
|
|
— |
|
|
— |
|
|
— |
|
|
(480) |
Purchase of treasury stock |
|
(42) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(42) |
Intercompany financing activities |
|
— |
|
|
(36) |
|
|
— |
|
|
(770) |
|
|
806 |
|
|
— |
Net cash used in financing activities |
|
(42) |
|
|
(24,916) |
|
|
— |
|
|
(770) |
|
|
806 |
|
|
(24,922) |
Effect of exchange rates on cash |
|
— |
|
|
— |
|
|
— |
|
|
(1,714) |
|
|
— |
|
|
(1,714) |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase for the period |
|
(6) |
|
|
1,570 |
|
|
5,203 |
|
|
10,254 |
|
|
— |
|
|
17,021 |
Balance, beginning of the period |
|
6 |
|
|
87,078 |
|
|
3,900 |
|
|
11,046 |
|
|
— |
|
|
102,030 |
Balance, end of the period |
$ |
— |
|
$ |
88,648 |
|
$ |
9,103 |
|
$ |
21,300 |
|
$ |
— |
|
$ |
119,051 |
|
Year Ended December 31, 2015 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
$ |
(104,972) |
|
$ |
27,285 |
|
$ |
(120,667) |
|
$ |
2,187 |
|
$ |
91,195 |
|
$ |
(104,972) |
Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
— |
|
|
17,477 |
|
|
110,929 |
|
|
2,618 |
|
|
— |
|
|
131,024 |
Amortization of financing costs |
|
— |
|
|
7,109 |
|
|
— |
|
|
— |
|
|
— |
|
|
7,109 |
Loss (gain) on sale or disposal of assets |
|
— |
|
|
75 |
|
|
(2,864) |
|
|
— |
|
|
— |
|
|
(2,789) |
Accretion of contract rights |
|
— |
|
|
— |
|
|
7,614 |
|
|
— |
|
|
— |
|
|
7,614 |
Provision for bad debts |
|
— |
|
|
51 |
|
|
10,084 |
|
|
— |
|
|
— |
|
|
10,135 |
Reserve for obsolescence |
|
— |
|
|
140 |
|
|
1,103 |
|
|
— |
|
|
— |
|
|
1,243 |
Goodwill impairment |
|
— |
|
|
— |
|
|
75,008 |
|
|
— |
|
|
— |
|
|
75,008 |
Loss on early extinguishment of debt |
|
— |
|
|
13,063 |
|
|
— |
|
|
— |
|
|
— |
|
|
13,063 |
Equity in loss (income) of subsidiaries |
|
104,972 |
|
|
(13,777) |
|
|
— |
|
|
— |
|
|
(91,195) |
|
|
— |
Stock-based compensation |
|
— |
|
|
6,883 |
|
|
1,401 |
|
|
— |
|
|
— |
|
|
8,284 |
Other non-cash items |
|
— |
|
|
— |
|
|
(149) |
|
|
— |
|
|
— |
|
|
(149) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net settlement receivables and liabilities |
|
— |
|
|
22,455 |
|
|
22 |
|
|
(3,078) |
|
|
— |
|
|
19,399 |
Other changes in operating assets and liabilities |
|
(4) |
|
|
(3,299) |
|
|
(36,278) |
|
|
(801) |
|
|
— |
|
|
(40,382) |
Net cash (used in) provided by operating activities |
|
(4) |
|
|
77,462 |
|
|
46,203 |
|
|
926 |
|
|
— |
|
|
124,587 |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
— |
|
|
(25,796) |
|
|
(51,108) |
|
|
(84) |
|
|
— |
|
|
(76,988) |
Acquisitions, net of cash acquired |
|
— |
|
|
(10,857) |
|
|
— |
|
|
— |
|
|
— |
|
|
(10,857) |
Proceeds from sale of fixed assets |
|
— |
|
|
102 |
|
|
2,000 |
|
|
— |
|
|
— |
|
|
2,102 |
Placement fee agreements |
|
— |
|
|
— |
|
|
(2,813) |
|
|
— |
|
|
— |
|
|
(2,813) |
Repayments under development agreements |
|
— |
|
|
— |
|
|
3,104 |
|
|
— |
|
|
— |
|
|
3,104 |
Changes in restricted cash and cash equivalents |
|
— |
|
|
(97) |
|
|
— |
|
|
— |
|
|
— |
|
|
(97) |
Intercompany investing activities |
|
(3,906) |
|
|
6,593 |
|
|
25 |
|
|
(9) |
|
|
(2,703) |
|
|
— |
Net cash used in investing activities |
|
(3,906) |
|
|
(30,055) |
|
|
(48,792) |
|
|
(93) |
|
|
(2,703) |
|
|
(85,549) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of prior credit facility |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Repayments of credit facility |
|
— |
|
|
(10,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
(10,000) |
Repayments of secured notes |
|
— |
|
|
(350,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
(350,000) |
Repayments of unsecured notes |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Proceeds from issuance of secured notes |
|
— |
|
|
335,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
335,000 |
Debt issuance costs |
|
— |
|
|
(1,221) |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,221) |
Issuance of warrant |
|
2,246 |
|
|
(2,246) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Proceeds from exercise of stock options |
|
1,839 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,839 |
Purchase of treasury stock |
|
(169) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(169) |
Intercompany financing activities |
|
— |
|
|
(5) |
|
|
— |
|
|
(2,698) |
|
|
2,703 |
|
|
— |
Net cash provided by (used in) financing activities |
|
3,916 |
|
|
(28,472) |
|
|
— |
|
|
(2,698) |
|
|
2,703 |
|
|
(24,551) |
Effect of exchange rates on cash |
|
— |
|
|
— |
|
|
— |
|
|
(1,552) |
|
|
— |
|
|
(1,552) |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) for the period |
|
6 |
|
|
18,935 |
|
|
(2,589) |
|
|
(3,417) |
|
|
— |
|
|
12,935 |
Balance, beginning of the period |
|
— |
|
|
68,143 |
|
|
6,489 |
|
|
14,463 |
|
|
— |
|
|
89,095 |
Balance, end of the period |
$ |
6 |
|
$ |
87,078 |
|
$ |
3,900 |
|
$ |
11,046 |
|
$ |
— |
|
$ |
102,030 |
|
Year Ended December 31, 2014 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
12,140 |
|
$ |
15,186 |
|
$ |
7,438 |
|
$ |
4,734 |
|
$ |
(27,358) |
|
$ |
12,140 |
Adjustments to reconcile net (loss) income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
— |
|
|
18,608 |
|
|
3,588 |
|
|
748 |
|
|
— |
|
|
22,944 |
Amortization of financing costs |
|
— |
|
|
2,035 |
|
|
— |
|
|
— |
|
|
— |
|
|
2,035 |
Loss on sale or disposal of assets |
|
— |
|
|
54 |
|
|
— |
|
|
1 |
|
|
— |
|
|
55 |
Accretion of contract rights |
|
— |
|
|
— |
|
|
301 |
|
|
— |
|
|
— |
|
|
301 |
Provision for bad debts |
|
— |
|
|
— |
|
|
8,991 |
|
|
— |
|
|
— |
|
|
8,991 |
Reserve for obsolescence |
|
— |
|
|
270 |
|
|
— |
|
|
— |
|
|
— |
|
|
270 |
Other asset impairment |
|
— |
|
|
3,129 |
|
|
— |
|
|
— |
|
|
— |
|
|
3,129 |
Loss on early extinguishment of debt |
|
— |
|
|
2,523 |
|
|
202 |
|
|
— |
|
|
— |
|
|
2,725 |
Equity in income of subsidiaries |
|
(12,140) |
|
|
(15,218) |
|
|
— |
|
|
— |
|
|
27,358 |
|
|
— |
Stock-based compensation |
|
— |
|
|
8,849 |
|
|
27 |
|
|
— |
|
|
— |
|
|
8,876 |
Other non-cash items |
|
— |
|
|
(2) |
|
|
(17) |
|
|
— |
|
|
— |
|
|
(19) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net settlement receivables and liabilities |
|
— |
|
|
(31,414) |
|
|
141 |
|
|
594 |
|
|
— |
|
|
(30,679) |
Other changes in operating assets and liabilities |
|
(47) |
|
|
34,504 |
|
|
(20,047) |
|
|
(20,647) |
|
|
— |
|
|
(6,237) |
Net cash (used in) provided by operating activities |
|
(47) |
|
|
38,524 |
|
|
624 |
|
|
(14,570) |
|
|
— |
|
|
24,531 |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
— |
|
|
(5,886) |
|
|
(3,464) |
|
|
(9,092) |
|
|
— |
|
|
(18,442) |
Acquisitions, net of cash acquired |
|
— |
|
|
(11,845) |
|
|
(1,056,155) |
|
|
— |
|
|
— |
|
|
(1,068,000) |
Proceeds from sale of fixed assets |
|
— |
|
|
421 |
|
|
— |
|
|
— |
|
|
— |
|
|
421 |
Repayments under development agreements |
|
— |
|
|
— |
|
|
276 |
|
|
— |
|
|
— |
|
|
276 |
Changes in restricted cash and cash equivalents |
|
— |
|
|
(102) |
|
|
— |
|
|
— |
|
|
— |
|
|
(102) |
Intercompany investing activities |
|
6,889 |
|
|
(1,085,709) |
|
|
— |
|
|
(1,425) |
|
|
1,080,245 |
|
|
— |
Net cash provided by (used in) investing activities |
|
6,889 |
|
|
(1,103,121) |
|
|
(1,059,343) |
|
|
(10,517) |
|
|
1,080,245 |
|
|
(1,085,847) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of prior credit facility |
|
— |
|
|
(103,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
(103,000) |
Proceeds from securing credit facility |
|
— |
|
|
500,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
500,000 |
Proceeds from issuance of secured notes |
|
— |
|
|
350,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
350,000 |
Proceeds from issuance of unsecured notes |
|
— |
|
|
350,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
350,000 |
Debt issuance costs |
|
— |
|
|
(52,735) |
|
|
— |
|
|
— |
|
|
— |
|
|
(52,735) |
Proceeds from exercise of stock options |
|
5,338 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5,338 |
Purchase of treasury stock |
|
(12,180) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(12,180) |
Intercompany financing activities |
|
— |
|
|
(12,098) |
|
|
1,063,059 |
|
|
29,284 |
|
|
(1,080,245) |
|
|
— |
Net cash (used in) provided by financing activities |
|
(6,842) |
|
|
1,032,167 |
|
|
1,063,059 |
|
|
29,284 |
|
|
(1,080,245) |
|
|
1,037,423 |
Effect of exchange rates on cash |
|
— |
|
|
— |
|
|
— |
|
|
(1,266) |
|
|
— |
|
|
(1,266) |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase for the period |
|
— |
|
|
(32,430) |
|
|
4,340 |
|
|
2,931 |
|
|
— |
|
|
(25,159) |
Balance, beginning of the period |
|
— |
|
|
100,573 |
|
|
2,149 |
|
|
11,532 |
|
|
— |
|
|
114,254 |
Balance, end of the period |
$ |
— |
|
$ |
68,143 |
|
$ |
6,489 |
|
$ |
14,463 |
|
$ |
— |
|
$ |
89,095 |
|
21. SUBSEQUENT EVENTS
As of the date of the filing of our Annual Report on Form 10-K, we had not identified, and were not aware of, any material subsequent events that occurred for the year ended December 31, 2016.
|
Principles of Consolidation
All intercompany transactions and balances have been eliminated in consolidation.
Business Combinations
We apply the provisions of the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations”, in the accounting for acquisitions. It requires us to recognize separately from goodwill the assets acquired and the liabilities assumed, at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Significant estimates and assumptions are required to value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable. These estimates are preliminary and typically include the calculation of an appropriate discount rate and projection of the cash flows associated with each acquired asset over its estimated useful life. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. In addition, deferred tax assets, deferred tax liabilities, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We reevaluate these items quarterly based upon facts and circumstances that existed as of the acquisition date and any adjustments to its preliminary estimates are recorded to goodwill, in the period of identification, if identified within the measurement period. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.
Acquisition-related Costs
We recognize a liability for acquisition-related costs when the expense is incurred. Acquisition-related costs include, but are not limited to: financial advisory, legal and debt fees; accounting, consulting, and professional fees associated with due diligence, valuation and integration; severance; and other related costs and adjustments.
Cash and Cash Equivalents
Cash and cash equivalents include cash and all balances on deposit in banks and financial institutions. We consider all highly liquid investments with maturities of three months or less at the time of purchase to be cash and cash equivalents. Such balances generally exceed the federal insurance limits. However, we periodically evaluate the creditworthiness of these institutions to minimize risk.
ATM Funding Agreements
We obtain all of the cash required to operate our ATMs through various ATM Funding Agreements. Some gaming establishments provide the cash utilized within the ATM (“Site‑Funded”). The Site‑Funded receivables generated for the amount of cash dispensed from transactions performed at our ATMs are owned by us and we are liable to the gaming establishment for the face amount of the cash dispensed. In the Consolidated Balance Sheets, the amount of the receivable for transactions processed on these ATM transactions is included within settlement receivables and the amount due to the gaming establishment for the face amount of dispensing transactions is included within settlement liabilities.
For the Non‑Site‑Funded locations, our Contract Cash Solutions Agreement with Wells Fargo allows us to use funds owned by Wells Fargo to provide the currency needed for normal operating requirements for our ATMs. For the use of these funds, we pay Wells Fargo a cash usage fee on the average daily balance of funds utilized multiplied by a contractually defined cash usage rate. Under this agreement, all currency supplied by Wells Fargo remains the sole property of Wells Fargo at all times until it is dispensed, at which time Wells Fargo obtains an interest in the corresponding settlement receivable. As the cash is never an asset of ours, supplied cash is not reflected on our balance sheet. We are charged a cash usage fee for the cash used in these ATMs, which is included as interest expense in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. We recognize the fees as interest expense due to the similar operational characteristics to a revolving line of credit, the fact that the fees are calculated on a financial index and the fees are paid for access to a capital resource.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts related to our trade and other receivables and notes receivable that have been deemed to have a high risk of uncollectibility. Management reviews its accounts and notes receivable on a quarterly basis to determine if any receivables will potentially be uncollectible. Management analyzes historical collection trends and changes in our customer payment patterns, customer concentration, and creditworthiness when evaluating the adequacy of our allowance for doubtful accounts. In our overall allowance for doubtful accounts we include any receivable balances for which uncertainty exists as to whether the account balance has become uncollectible. Based on the information available, management believes the allowance for doubtful accounts is adequate; however, actual write-offs may exceed the recorded allowance.
Settlement Receivables and Settlement Liabilities
In the credit card cash access and POS debit card cash access transactions provided by us, the gaming establishment is reimbursed for the cash disbursed to gaming patrons through the issuance of a negotiable instrument or through electronic settlement. We receive reimbursement from the patron’s credit or debit card issuer for the transaction in an amount equal to the amount owed to the gaming establishment plus the fee charged to the patron. This reimbursement is included within the settlement receivables on the Consolidated Balance Sheets. The amounts owed to gaming establishments are included within settlement liabilities on the Consolidated Balance Sheets.
Warranty Receivables
If a gaming establishment chooses to have a check warranted, it sends a request to our third party check warranty service provider, asking whether it would be willing to accept the risk of cashing the check. If the check warranty provider accepts the risk and warrants the check, the gaming establishment negotiates the patron’s check by providing cash for the face amount of the check. If the check is dishonored by the patron’s bank upon presentment, the gaming establishment invokes the warranty, and the check warranty service provider purchases the check from the gaming establishment for the full check amount and then pursues collection activities on its own. In our Central Credit Check Warranty product under our agreement with the third party service provider, we receive all of the check warranty revenue. We are exposed to risk for the losses associated with any warranted items that cannot be collected from patrons issuing the items. Warranty receivables are defined as any amounts paid by the third party check warranty service provider to gaming establishments to purchase dishonored checks. Additionally, we pay a fee to the third party check warranty service provider for its services.
The warranty receivables amount is recorded in trade receivables, net on our Consolidated Balance Sheets. On a monthly basis, the Company evaluates the collectability of the outstanding balances and establishes a reserve for the face amount of the expected losses on these receivables. The warranty expense associated with this reserve is included within cost of revenues (exclusive of depreciation and amortization) on our Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.
Inventory
Our inventory primarily consists of component parts as well as finished goods and work-in-progress. The cost of inventory includes cost of materials, labor, overhead and freight. The inventory is stated at the lower of cost or market and accounted for using the first in, first out method.
Property, Equipment and Leased Assets
Property, equipment and leased assets are stated at cost, less accumulated depreciation, computed using the straight-line method over the lesser of the estimated life of the related assets, generally two to five years, or the related lease term. Player terminals and related components and equipment are included in our rental pool. The rental pool can be further delineated as “rental pool – deployed,” which consists of assets deployed at customer sites under participation arrangements, and “rental pool – undeployed,” which consists of assets held by us that are available for customer use. Rental pool – undeployed consists of both new units awaiting deployment to a customer site and previously deployed units currently back with us to be refurbished awaiting re-deployment. Routine maintenance of property, equipment and leased gaming equipment is expensed in the period incurred, while major component upgrades are capitalized and depreciated over the estimated remaining useful life of the component. Sales and retirements of depreciable property are recorded by removing the related cost and accumulated depreciation from the accounts. Gains or losses on sales and retirements of property are reflected in our Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. Property, equipment and leased assets are reviewed for impairment whenever events or circumstances indicate that their carrying amounts may not be recoverable. Impairment is indicated when undiscounted future cash flows do not exceed the asset’s carrying value.
Development and Placement Fee Agreements
We enter into development and placement fee agreements to provide financing for new gaming facilities or for the expansion of existing facilities. All or a portion of the funds provided under development agreements are reimbursed to us, while funds provided under placement fee agreements are not reimbursed. In return, the facility dedicates a percentage of its floor space to placement of our player terminals, and we receive a fixed percentage of those player terminals' hold per day over the term of the agreement which is generally for 12 to 83 months. Certain of the agreements contain player terminal performance standards that could allow the facility to reduce a portion of our guaranteed floor space. In addition, certain development agreements allow the facilities to buy out floor space after advances that are subject to repayment have been repaid. The agreements typically provide for a portion of the amounts retained by the gaming facility for their share of the operating profits of the facility to be used to repay some or all of the advances recorded as notes receivable.
Goodwill
Goodwill represents the excess of the purchase price over the identifiable tangible and intangible assets acquired plus liabilities assumed arising from business combinations. We test for impairment annually on a reporting unit basis, at the beginning of our fourth fiscal quarter, or more often under certain circumstances. The annual impairment test is completed using either: a qualitative Step 0 assessment based on reviewing relevant events and circumstances; or a quantitative Step 1 assessment, which determines the fair value of the reporting unit, using an income approach that discounts future cash flows based on the estimated future results of our reporting units and a market approach that compares market multiples of comparable companies to determine whether or not any impairment exists. If the fair value of a reporting unit is less than its carrying amount, we use the Step 2 assessment to determine the impairment. Our reporting units are identified as operating segments or one level below. Reporting units must: (a) engage in business activities from which they earn revenues and incur expenses; (b) have operating results that are regularly reviewed by our chief operating decision makers to ascertain the resources to be allocated to the segment and assess its performance; and (c) have discrete financial information available. As of December 31, 2016, our reporting units included: Games, Cash Access, Kiosk Sales and Service, Central Credit, and Everi Compliance. During the year ended December 31, 2016, the Company combined its Cash Advance, ATM and Check Services reporting units into a Cash Access reporting unit to be consistent with the current corporate structure and segment management.
Other Intangible Assets
Other intangible assets are stated at cost, less accumulated amortization, computed primarily using the straight-line method. Other intangible assets consist primarily of: (i) customer contracts (rights to provide Games and Payments services to gaming establishment customers), developed technology, trade names and trademarks and contract rights acquired through business combinations; (ii) capitalized software development costs; and (iii) the acquisition cost of our patent related to the 3-in-1 rollover technology acquired in 2005. Customer contracts require us to make renewal assumptions, which impact the estimated useful lives of such assets. Capitalized software development costs require us to make certain judgments as to the stages of development and costs eligible for capitalization. Capitalized software costs placed in service are amortized over their useful lives, generally not to exceed five years. The acquisition cost of the 3-in-1 Rollover patent is being amortized over the term of the patent, which expires in 2018. We review intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events or circumstances include, but are not limited to, a significant decrease in the fair value of the underlying business or market price of the asset, a significant adverse change in legal factors or business climate that could affect the value of an asset, or a current period operating or cash flow loss combined with a history of operating or cash flow losses. We group intangible assets for impairment analysis at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of intangible assets is measured by a comparison of the carrying amount of the asset to future, net cash flows expected to be generated by the asset, undiscounted and without interest or taxes. Any impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Debt Issuance Costs
Debt issuance costs incurred in connection with long-term borrowings are capitalized and amortized to interest expense based upon the related debt agreements using the straight-line method, which approximates the effective interest method. Debt issuance costs related to line-of-credit arrangements are included in other assets, non-current, on the Consolidated Balance Sheets. All other debt issuance costs are included as contra-liabilities in long-term debt.
Original Issue Discounts
Original issue discounts incurred in connection with long-term borrowings are capitalized and amortized to interest expense based upon the related debt agreements using the straight-line method, which approximates the effective interest method. These amounts are recorded as contra-liabilities and included in long-term debt on the Consolidated Balance Sheets.
Deferred Revenue
Deferred revenue represents amounts from the sale of fully integrated kiosks and related service contracts, anti-money laundering and tax compliance software, and gaming equipment and systems that have been billed, or for which notes receivable have been executed, but which transaction has not met our revenue recognition criteria. The cost of the fully integrated kiosks and related service contracts, anti-money laundering and tax compliance software, and gaming equipment and systems is deferred and recorded at the time revenue is recognized. Amounts are classified between current and long-term liabilities, based upon the expected period in which the revenue will be recognized.
Revenue Recognition
Overall
We recognize revenue when evidence of an arrangement exists, services have been rendered, the price is fixed or determinable and collectability is reasonably assured. We evaluate our revenue streams for proper timing of revenue recognition. Revenue is recognized as products are delivered and or services are performed.
Games Revenues
Games revenues are primarily generated by our gaming operations under development, placement, and participation arrangements in which we provide our customers with player terminals, player terminal-content licenses and back-office equipment, collectively referred to herein as leased gaming equipment. Under these arrangements, we retain ownership of the leased gaming equipment installed at customer facilities, and we receive revenue based on a percentage of the net win per day generated by the leased gaming equipment or a fixed daily fee based on the number of player terminals installed at the facility. Revenue from lease participation or daily fee arrangements are considered both realizable and earned at the end of each gaming day.
Games revenues generated by player terminals deployed at sites under development or placement fee agreements are reduced by the accretion of contract rights acquired as part of those agreements. Contract rights are amounts allocated to intangible assets for dedicated floor space resulting from such agreements, described under “Development and Placement Fee Agreements.” The related amortization expense, or accretion of contract rights, is netted against our respective revenue category in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.
We also generate Games revenues from back-office fees with certain customers. Back-office fees cover the service and maintenance costs for back-office servers installed in each gaming facility to run our gaming equipment, as well as the cost of related software updates. Back-office fees are considered both realizable and earned at the end of each gaming day.
Payments Revenues
Cash advance revenues are comprised of transaction fees assessed to gaming patrons in connection with credit card cash access and POS debit card cash access transactions and are recognized at the time the transactions are authorized. Such fees are based on a combination of a fixed amount plus a percentage of the face amount of the credit card cash access or POS debit card cash access transaction amount.
ATM revenues are comprised of transaction fees in the form of cardholder surcharges assessed to gaming patrons in connection with ATM cash withdrawals at the time the transactions are authorized and reverse interchange fees paid to us by the patrons’ issuing banks. Cardholder surcharges and reverse interchange are recognized as revenue when a transaction is initiated. The cardholder surcharges assessed to gaming patrons in connection with ATM cash withdrawals are currently a fixed dollar amount and not a percentage of the transaction amount.
Check services revenues are principally comprised of check warranty revenues and are generally based upon a percentage of the face amount of checks warranted. These fees are paid to us by gaming establishments.
Other revenues include amounts derived from the sale of cash access devices, such as the provision of certain professional services, software licensing, and certain other ancillary fees associated with the sale, installation and maintenance of those devices. In addition, other revenues consist of Central Credit revenues that are based upon either a flat monthly unlimited usage fee or a variable fee structure driven by the volume of patron credit histories generated. Also included in other revenues are revenues generated from ancillary marketing, database and Internet gaming activities.
Equipment and Systems Revenues
We sell gaming equipment, fully integrated kiosks and gaming systems directly to our customers under independent sales contracts through normal credit terms, or may grant extended credit terms under contracts secured by the related equipment.
For sales arrangements with multiple deliverables, we apply the guidance from ASC 605-25, “Revenue Recognition - Multiple-Element Arrangements.” In addition, we apply the guidance from ASC 985-605, “Software – Revenue Recognition” which affects vendors that sell or lease tangible products in an arrangement that contains software that is more than incidental to the tangible product as a whole and clarifies what guidance should be used in allocating and measuring revenue.
The majority of our multiple element sales contracts are for some combination of gaming equipment, player terminals, content, system software, license fees, ancillary equipment and maintenance.
Revenue related to systems arrangements that contain both software and non-software deliverables requires allocation of the arrangement fee to the separate deliverables using the relative selling price method. Revenue for software deliverables is recognized under software revenue recognition guidance. Revenue resulting from the sale of non-software deliverables, such as gaming devices and other hardware, are accounted for based on other applicable revenue recognition guidance as the devices are tangible products containing both software and non-software components that function together to deliver the product's essential functionality.
In allocating the arrangement fees to separate deliverables, we evaluate whether we have vendor-specific objective evidence (“VSOE”) of selling price, third party evidence (“TPE”) or estimate of selling price (“ESP”) for gaming devices, maintenance and product support fees and other revenue sources. We generally use ESP to determine the selling price used in the allocation of separate deliverables, as VSOE and TPE are generally not available. We determine the ESP on separate deliverables by estimating a margin typically received on such items and applying that margin to the product cost incurred.
Generally, player terminal sales include ancillary equipment, such as networking gear, bases, chairs, and occasionally signage, some of which may be necessary for the full functionality of the player terminals in a casino. This ancillary equipment comprises an install kit that is shipped simultaneously with the player terminals. Although our products are analyzed as multiple deliverable arrangements, revenue for the player terminal and ancillary equipment is not recognized until all elements essential for the functionality of the product have been shipped or delivered. This includes game theme software and essential ancillary equipment. If elements that are not essential to the functionality of the player terminals are shipped after the unit, such as signage, chairs, or bases, these items would be classified as deferred revenue until shipped or delivered.
Cost of Revenues (exclusive of depreciation and amortization)
The cost of revenues (exclusive of depreciation and amortization) represents the direct costs required to perform revenue generating transactions. The principal costs included within cost of revenues (exclusive of depreciation and amortization) are commissions paid to gaming establishments, interchange fees paid to credit and debit card networks, transaction processing fees to our transaction processor, inventory and related costs associated with the sale of our fully integrated kiosks, electronic gaming machines and system sales, check cashing warranties, field service and network operations personnel.
Advertising, Marketing and Promotional Costs
We expense advertising, marketing and promotional costs as incurred. Total advertising, marketing and promotional costs, included in operating expenses in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income, were $1.2 million, $0.9 million and $1.1 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Research and Development Costs
We conduct research and development activities primarily to develop gaming systems, gaming engines, casino data management systems, casino central monitoring systems, video lottery outcome determination systems, gaming platforms and gaming content, as well as to add enhancements to our existing product lines. We believe our ability to deliver differentiated, appealing products and services to the marketplace is based on our research and development investments, and we expect to continue to make such investments in the future. Research and development costs consist primarily of salaries and benefits, consulting fees and game lab testing fees. Once the technological feasibility of a project has been established, it is transferred from research to development and capitalization of development costs begins until the product is available for general release.
Research and development costs were $19.4 million, $19.1 million and $0.8 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Income Taxes
We are subject to income taxes in the United States as well as various states and foreign jurisdictions in which we operate. In accordance with accounting guidance, our income taxes include amounts from domestic and international jurisdictions, plus the provision for U.S. taxes on undistributed earnings of international subsidiaries not deemed to be permanently invested. Since it is our practice and current intent to reinvest the earnings in the international operations of our foreign subsidiaries, U.S. federal income taxes have not been provided on the undistributed earnings of any foreign subsidiaries, except for our GCA (Macau) S.A. subsidiary. Some items of income and expense are not reported in tax returns and the Consolidated Financial Statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes.
Our deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or income tax returns. Deferred tax assets and liabilities are determined based upon differences between financial statement carrying amounts of existing assets and their respective tax bases using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. The effect on the income tax provision or benefit and deferred tax assets and liabilities for a change in rates is recognized in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income in the period that includes the enactment date.
When measuring deferred tax assets, certain estimates and assumptions are required to assess whether a valuation allowance should be established by evaluating both positive and negative factors in accordance with accounting guidance. This evaluation requires that we exercise judgment in determining the relative significance of each factor. The assessment of valuation allowance involves significant estimates regarding future taxable income and when it is recognized, the amount and timing of taxable differences, the reversal of temporary differences and the implementation of tax-planning strategies. A valuation allowance is established based on the weight of available evidence, including both positive and negative indicators, if it is more likely than not that a portion, or all, of the deferred tax assets will not be realized. Greater weight is given to evidence that is objectively verifiable, most notably historical results. If we report a cumulative loss from continuing operations before income taxes for a reasonable period of time, this form of negative evidence is difficult to overcome. Therefore, we include certain aspects of our historical results in our forecasts of future taxable income, as we do not have the ability to solely rely on forecasted improvements in earnings to recover deferred tax assets. When we report a cumulative loss position, to the extent our results of operations improve, such that we have the ability to overcome the more likely than not accounting standard, we expect to be able to reverse the valuation allowance in the applicable period of determination. In addition, we rely on deferred tax liabilities in our assessment of the realizability of deferred tax assets if the temporary timing difference is anticipated to reverse in the same period and jurisdiction and the deferred tax liabilities are of the same character as the temporary differences giving rise to the deferred tax assets.
We also follow accounting guidance to account for uncertainty in income taxes as recognized in our consolidated financial statements. The accounting standard creates a single model to address uncertainty in income tax positions and prescribes the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. The standard also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Under this standard, we may recognize tax benefits from an uncertain position only if it is more likely than not that the position will be sustained upon examination by taxing authorities based on the technical merits of the issue. The amount recognized is the largest benefit that we believe has greater than a 50% likelihood of being realized upon settlement. Actual income taxes paid may vary from estimates depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed.
Employee Benefits Plan
In connection with the acquisition of Everi Games Holding, we merged the Everi Payments 401(k) Plan (“Merged 401(k) Plan”) into the Everi Games Holding 401(k) Plan (“Surviving 401(k) Plan”), which was adopted for domestic employees of Everi Games and Everi Payments and their domestic subsidiaries. The Surviving 401(k) Plan Participant investment elections were not mapped from the current provider as the Merged 401(k) Plan assets were liquidated from their current investments and the proceeds were provided to the new provider. The participant contributions were sent to the new provider into the Surviving 401(k) Plan’s default fund until such time that a participant made investment elections. The Surviving 401(k) Plan structure is similar to the Merged 401(k) Plan and allows employees to defer up to the lesser of the Internal Revenue Code prescribed maximum amount or 100% of their income on a pre-tax basis through contributions to the plan. As a benefit to employees, we match a percentage of these employee contributions (as defined in the plan document). Expenses related to the matching portion of the contributions to the Surviving 401(k) Plan were $1.9 million, $1.3 million and $0.5 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Fair Values of Financial Instruments
The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time, based upon relevant market information about the financial instrument.
The carrying amount of cash and cash equivalents, settlement receivables, trade receivables, other receivables, settlement liabilities, accounts payable and accrued expenses approximates fair value due to the short-term maturities of these instruments. The fair value of our borrowings are estimated based on various inputs to determine a market price, such as: market demand and supply, size of tranche, maturity and similar instruments trading in more active markets.
|
|
Level of |
|
|
|
|
Outstanding |
|
|
|
|
Hierarchy |
|
Fair Value |
|
Balance |
|
||
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 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015 |
|
|
|
|
|
|
|
|
|
Term loan |
|
1 |
|
$ |
445,900 |
|
$ |
490,000 |
|
Senior secured notes |
|
3 |
|
$ |
314,900 |
|
$ |
335,000 |
|
Senior unsecured notes |
|
1 |
|
$ |
297,500 |
|
$ |
350,000 |
|
The senior secured notes were fair valued using a Level 3 input as there was no market activity or observable inputs as of December 31, 2016 and December 31, 2015. The fair value of the senior secured notes was derived using the same rate as the term loan given that both were treated similarly as of December 31, 2016. The fair value of the senior secured notes was derived using a Level 3 input by evaluating the trading activities of similar debt instruments as of December 31, 2015.
Foreign Currency Translation
Foreign currency denominated assets and liabilities for those foreign entities for which the local currency is the functional currency are translated into U.S. dollars based on exchange rates prevailing at the end of each year. Revenues and expenses are translated at average exchange rates during the year. The effects of foreign exchange gains and losses arising from these translations are included as a component of other comprehensive income on the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. Translation adjustments on intercompany balances of a long-term investment nature are recorded as a component of Accumulated Other Comprehensive Income on our Consolidated Balance Sheets.
Use of Estimates
We have made estimates and judgments affecting the amounts reported in these financial statements and the accompanying notes. The actual results may differ from these estimates. These accounting estimates incorporated into the Consolidated Financial Statements include, but are not limited to:
· |
the estimates and assumptions related to the preparation of the unaudited pro forma financial information contained herein; |
· |
the estimates and assumptions related to the preliminary and final purchase price allocation based on the estimated fair values of the assets acquired and liabilities assumed related to any of our acquisitions; |
· |
the estimated reserve for warranty expense associated with our check warranty receivables; |
· |
the estimated reserve for bad debt expense associated with our trade receivables; |
· |
the estimated reserve for inventory obsolescence; |
· |
the valuation and recognition of share based compensation; |
· |
the valuation allowance on our deferred income tax assets; |
· |
the estimated cash flows in assessing the recoverability of long lived assets; |
· |
the estimates of future operating performance, weighted average cost of capital (“WACC”) and growth rates as well as other factors used in our annual goodwill and assets impairment evaluations; |
· |
the renewal assumptions used for customer contracts to estimate the useful lives of such assets; and |
· |
the judgments used to determine the stages of development and costs eligible for capitalization as internally developed software. |
· |
the estimated liability for health care claims under our self-insured health care program. |
Earnings Applicable to Common Stock
Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the effect of potential common stock resulting from assumed stock option exercises and vesting of restricted stock unless it is antidilutive.
Share‑Based Compensation
Share-based payment awards result in a cost that is measured at fair value on the award’s grant date.
Our time-based stock options were measured at fair value on the grant date using the Black Scholes model. Our restricted stock awards were measured at fair value based on the stock price on the grant date. The compensation expense is recognized on a straight-line basis over the vesting period of the awards.
Our market-based options granted in 2016 under our 2014 Equity Incentive Plan (the “2014 Plan”) and 2012 Equity Incentive Plan (as amended, the “2012 Plan”) 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.
Our market-based stock options granted in 2015 under the 2014 Plan will vest if our average stock price in any period of 30 consecutive trading days meets certain target prices during a four-year period that commenced on the grant date of these options. If these target prices are not met during the four year period, the unvested shares underlying the options will terminate except if there is a Change in Control (as defined in the 2014 Plan) of the Company, in which case, the unvested shares underlying such options shall become fully vested on the effective date of such change in control transaction.
All market-based options were measured at fair value on the grant date using a lattice-based valuation model based on the median time horizon from the date of grant for these options to the vesting date for those paths that achieved the target threshold(s). The compensation expense is recognized on a straight-line basis over the median vesting periods calculated under such valuation model.
Forfeitures are estimated at the grant date for our time-based and market-based awards, with such estimates updated periodically; and with actual forfeitures recognized currently to the extent they differ from the estimates.
Unless otherwise provided by the administrator of our equity incentive plans, stock options granted under our plans generally expire ten years from the date of grant. In connection with our annual grant in 2015, certain market-based stock option awards were issued that expire seven years from the date of grant. The exercise price of stock options is generally the closing market price of our common stock on the date of the stock option grant.
Reclassification of Prior Year Balances
Reclassifications were made to the prior-period financial statements to conform to the current period presentation.
Recent Accounting Guidance
Recently Adopted Accounting Guidance
In April 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-03, which provides guidance to simplify the presentation of debt issuance costs. These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The pronouncement is effective for annual periods beginning after December 15, 2015, and interim periods within those fiscal years, and early adoption is permitted for financial statements that have not been previously issued. This guidance was further clarified in ASU No. 2015-15, which addressed the treatment of debt issuance costs related to line-of credit arrangements. It noted that as ASU No. 2015-03 did not provide guidance on debt issuance costs related to line-of credit arrangements, the SEC would not object to an entity deferring and presenting these specific debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We adopted the guidance in ASU Nos. 2015-03 and 2015-15 retrospectively to reclassify all debt issuance costs not associated with line-of-credit arrangements from the non-current portion of other assets to contra-liabilities and presented them as reductions to the face amount of each respective long-term debt instrument on our Consolidated Balance Sheets and related notes during the current period.
In January 2015, the FASB issued ASU No. 2015-01, which eliminates the requirement that an entity separately classify, present and disclose extraordinary events and transactions. The pronouncement is effective for annual periods ending after December 15, 2015. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. We adopted this guidance during the current period. There was no impact on our Consolidated Financial Statements, as we do not have any extraordinary items.
In August 2014, the FASB issued ASU No. 2014-15, which provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The pronouncement is effective for annual periods ending after December 15, 2016, and interim periods thereafter, and early adoption is permitted. We adopted this guidance during the current period. There was no impact on our Consolidated Financial Statements.
In June 2014, the FASB issued ASU No. 2014-12, which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. The standard is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. We adopted this guidance during the current period. There was no impact on our Consolidated Financial Statements.
Recent Accounting Guidance Not Yet Adopted
In January 2017, the FASB issued 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 are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements and disclosures included within Notes to Consolidated 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 Consolidated Financial Statements and disclosures included within Notes to Consolidated 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 Consolidated Financial Statements and disclosures included within Notes to Consolidated 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 Consolidated Financial Statements and disclosures included within Notes to Consolidated 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 Consolidated Financial Statements and disclosures included within Notes to Consolidated 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 an 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 Consolidated Financial Statements and disclosures included within Notes to Consolidated 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 are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements and disclosures included within Notes to Consolidated 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 Consolidated 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 Consolidated Balance Sheets, which will result in the recording of right of use assets and lease obligations and are currently discussed in “Note 13 Commitments and Contingencies.”
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 are currently evaluating the impact of adopting this guidance on our Consolidated Financial Statements and disclosures included within Notes to Consolidated Financial Statements.
In May 2014, the FASB issued ASU No. 2014-09, which creates FASB ASC Topic 606, “Revenue from Contracts with Customers” and supersedes ASC Topic 605, “Revenue Recognition”. The guidance replaces industry-specific guidance and establishes a single five-step model to identify and recognize revenue. The core principle of the guidance is that an entity should recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Additionally, the guidance requires the entity to disclose further quantitative and qualitative information regarding the nature and amount of revenues arising from contracts with customers, as well as other information about the significant judgments and estimates used in recognizing revenues from contracts with customers. 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 will likely adopt this guidance using the retrospective method beginning in the first quarter of 2018. We performed an initial review of the requirements of the standard and are monitoring the activity of the FASB and the transition resource group as it relates to specific interpretive guidance that may impact us. We are currently completing detailed contract reviews to determine necessary adjustments to existing accounting policies and procedures and to support an evaluation of the standard’s impact on our Consolidated Financial Statements and disclosures included within Notes to Consolidated Financial Statements. Based on reviews performed, we do not expect our Payments revenues to be materially impacted by the implementation of this guidance. We are still evaluating Games revenues and equipment and systems revenues to determine the extent, if any, of changes to the timing and amount of revenue recorded in each reporting period. Additionally, the new guidance will require enhanced disclosures, including additions to our revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition. We may identify other impacts from the implementation of this guidance as we continue our assessment.
|
|
|
Level of |
|
|
|
|
Outstanding |
|
|
|
|
Hierarchy |
|
Fair Value |
|
Balance |
|
||
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 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015 |
|
|
|
|
|
|
|
|
|
Term loan |
|
1 |
|
$ |
445,900 |
|
$ |
490,000 |
|
Senior secured notes |
|
3 |
|
$ |
314,900 |
|
$ |
335,000 |
|
Senior unsecured notes |
|
1 |
|
$ |
297,500 |
|
$ |
350,000 |
|
|
The total purchase consideration for Everi Games Holding was as follows (in thousands, except per share amounts):
|
|
Amount |
|
|
Purchase consideration |
|
|
|
|
Total purchase price for Everi Games common stock (29,948 shares at $36.50 per share) |
|
$ |
1,093,105 |
|
Payment in respect to Everi Games outstanding equity awards |
|
|
56,284 |
|
Total merger consideration |
|
|
1,149,389 |
|
Repayments of Everi Games debt and other obligations |
|
|
25,065 |
|
Less: Everi Games outstanding cash at acquisition date |
|
|
(118,299) |
|
Total purchase consideration |
|
$ |
1,056,155 |
|
The information below reflects the purchase price allocation (in thousands):
|
|
|
|
|
|
|
Amount |
|
|
Purchase price allocation |
|
|
|
|
Current assets |
|
$ |
68,548 |
|
Property, equipment and leasehold improvements, net |
|
|
87,283 |
|
Goodwill |
|
|
669,542 |
|
Other intangible assets, net |
|
|
403,300 |
|
Other receivables, non-current |
|
|
5,030 |
|
Other assets, long-term |
|
|
3,392 |
|
Deferred tax asset, non-current |
|
|
22,287 |
|
Total assets |
|
|
1,259,382 |
|
Current liabilities |
|
|
44,291 |
|
Deferred tax liability, non-current |
|
|
158,418 |
|
Other accrued expenses and liabilities |
|
|
518 |
|
Total liabilities |
|
|
203,227 |
|
Net assets acquired |
|
$ |
1,056,155 |
|
The following table summarizes acquired tangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Useful Life |
|
Estimated |
|
|||
|
|
(years) |
|
Fair Value |
|
|||
Property, equipment and leased assets |
|
|
|
|
|
|
|
|
Gaming equipment |
|
2 |
- |
4 |
|
$ |
78,201 |
|
Leasehold and building improvements |
|
Lease Term |
|
|
2,105 |
|
||
Machinery and equipment |
|
3 |
- |
5 |
|
|
4,126 |
|
Other |
|
2 |
- |
7 |
|
|
2,851 |
|
Total property, equipment and leased assets |
|
|
|
|
|
$ |
87,283 |
|
The following table summarizes acquired intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Useful Life |
|
Estimated |
|
|||
|
|
(years) |
|
Fair Value |
|
|||
Other intangible assets |
|
|
|
|
|
|
|
|
Tradenames and trademarks |
|
3 |
- |
7 |
|
$ |
14,800 |
|
Computer software |
|
3 |
- |
5 |
|
|
3,755 |
|
Developed technology |
|
2 |
- |
6 |
|
|
139,645 |
|
Customer relationships |
|
8 |
- |
12 |
|
|
231,100 |
|
Contract rights |
|
1 |
- |
7 |
|
|
14,000 |
|
Total other intangible assets |
|
|
|
|
|
$ |
403,300 |
|
The following table reflects selected financial data from the unaudited pro forma consolidated financial information assuming the Merger occurred as of January 1, 2013 (in thousands):
|
|
Year Ended December 31, |
|
|
|
|
2014 |
|
|
Unaudited pro forma results of operations (in thousands, except per share amounts) |
|
|
|
|
Revenues |
|
$ |
800,732 |
|
Net loss |
|
|
(5,083) |
|
Basic loss per share |
|
$ |
(0.08) |
|
Diluted loss per share |
|
$ |
(0.08) |
|
|
The balance of trade receivables consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
||
|
2016 |
|
2015 |
|
||
Trade receivables, net |
|
|
|
|
|
|
Games trade receivables |
$ |
44,410 |
|
$ |
38,064 |
|
Payments trade receivables |
|
7,241 |
|
|
14,318 |
|
Total trade receivables, net |
$ |
51,651 |
|
$ |
52,382 |
|
A summary activity of the reserve for warranty losses is as follows (in thousands):
|
|
Amount |
|
|
Balance, December 31, 2013 |
|
$ |
2,777 |
|
Warranty expense provision |
|
|
9,029 |
|
Charge-offs against reserve |
|
|
(9,022) |
|
Balance, December 31, 2014 |
|
|
2,784 |
|
Warranty expense provision |
|
|
9,263 |
|
Charge-offs against reserve |
|
|
(9,074) |
|
Balance, December 31, 2015 |
|
|
2,973 |
|
Warranty expense provision |
|
|
8,694 |
|
Charge-offs against reserve |
|
|
(8,972) |
|
Balance, December 31, 2016 |
|
$ |
2,695 |
|
|
The balance of other receivables consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
||
|
2016 |
|
2015 |
|
||
Other receivables |
|
|
|
|
|
|
Notes and loans receivable, net of discount of $0 and $699 at December 31, 2016 and December 31, 2015, respectively |
$ |
5,096 |
|
$ |
9,930 |
|
Federal and state income tax receivable |
|
243 |
|
|
421 |
|
Other |
|
1,681 |
|
|
1,232 |
|
Total other receivables |
|
7,020 |
|
|
11,583 |
|
Less: non-current portion of notes and loans receivable |
|
2,020 |
|
|
6,655 |
|
Total other receivables, current portion |
$ |
5,000 |
|
$ |
4,928 |
|
|
The balance of prepaid and other assets, current consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
||
2016 |
2015 |
|||||
Prepaid expenses and other assets |
|
|
|
|
|
|
Deposits |
$ |
8,622 |
|
$ |
8,946 |
|
Prepaid expenses |
|
5,937 |
|
|
8,255 |
|
Other |
|
3,489 |
|
|
3,571 |
|
Total prepaid expenses and other assets |
$ |
18,048 |
|
$ |
20,772 |
|
The balance of other assets, non-current consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
|
||
|
2016 |
|
2015 |
|
|
||
Other assets |
|
|
|
|
|
|
|
Prepaid expenses and deposits |
$ |
3,399 |
|
$ |
4,521 |
|
|
Debt issuance costs of revolving credit |
|
689 |
|
|
919 |
|
|
Other |
|
3,434 |
|
|
5,934 |
|
|
Total other assets |
$ |
7,522 |
|
$ |
11,374 |
|
|
|
Inventory consisted of the following (in thousands):
|
At December 31, |
|
At December 31, |
|
|
||
|
2016 |
|
2015 |
|
|
||
Inventory |
|
|
|
|
|
|
|
Raw materials and component parts, net of reserves of $2,155 and $912 at December 31, 2016 and December 31, 2015, respectively |
$ |
12,570 |
|
$ |
23,663 |
|
|
Work-in-progress |
|
1,502 |
|
|
1,495 |
|
|
Finished goods |
|
4,996 |
|
|
3,580 |
|
|
Total inventory |
$ |
19,068 |
|
$ |
28,738 |
|
|
|
Property, equipment and leased assets consist of the following (amounts in thousands):
|
|
|
|
At December 31, 2016 |
|
At December 31, 2015 |
|
||||||||||||||||
|
|
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 |
|
$ |
123,812 |
|
$ |
59,188 |
|
$ |
64,624 |
|
$ |
91,743 |
|
$ |
29,993 |
|
$ |
61,750 |
|
Rental pool - undeployed |
|
2 |
- |
4 |
|
|
13,456 |
|
|
5,721 |
|
|
7,735 |
|
|
11,950 |
|
|
3,361 |
|
|
8,589 |
|
ATM equipment |
|
|
5 |
|
|
|
16,537 |
|
|
11,189 |
|
|
5,348 |
|
|
20,601 |
|
|
12,885 |
|
|
7,716 |
|
Leasehold and building improvements |
|
Lease Term |
|
|
10,023 |
|
|
3,698 |
|
|
6,325 |
|
|
7,564 |
|
|
2,038 |
|
|
5,526 |
|
||
Cash advance equipment |
|
|
3 |
|
|
|
8,590 |
|
|
4,499 |
|
|
4,091 |
|
|
7,662 |
|
|
2,711 |
|
|
4,951 |
|
Machinery, office and other equipment |
|
2 |
- |
5 |
|
|
30,424 |
|
|
20,108 |
|
|
10,316 |
|
|
32,313 |
|
|
14,537 |
|
|
17,776 |
|
Total |
|
|
|
|
|
$ |
202,842 |
|
$ |
104,403 |
|
$ |
98,439 |
|
$ |
171,833 |
|
$ |
65,525 |
|
$ |
106,308 |
|
|
The changes in the carrying amount of goodwill are as follows (in thousands):
|
|
Cash Access |
|
Games |
|
Other |
|
Total |
|
||||
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014 |
|
$ |
157,150 |
|
$ |
669,452 |
|
$ |
31,311 |
|
$ |
857,913 |
|
Goodwill acquired during the year |
|
|
— |
|
|
— |
|
|
6,117 |
|
|
6,117 |
|
Goodwill impairment |
|
|
— |
|
|
(75,008) |
|
|
— |
|
|
(75,008) |
|
Foreign translation adjustment |
|
|
(115) |
|
|
— |
|
|
— |
|
|
(115) |
|
Other(1) |
|
|
— |
|
|
896 |
|
|
— |
|
|
896 |
|
Balance, December 31, 2015 |
|
$ |
157,035 |
|
$ |
595,340 |
|
$ |
37,428 |
|
$ |
789,803 |
|
Goodwill impairment |
|
|
— |
|
|
(146,299) |
|
|
— |
|
|
(146,299) |
|
Foreign translation adjustment |
|
|
20 |
|
|
— |
|
|
— |
|
|
20 |
|
Other(2) |
|
|
— |
|
|
— |
|
|
(2,978) |
|
|
(2,978) |
|
Balance, December 31, 2016 |
|
$ |
157,055 |
|
$ |
449,041 |
|
$ |
34,450 |
|
$ |
640,546 |
|
(1) |
Includes the final 2015 measurement period adjustments associated with the acquisition of our Games business in late 2014. |
(2) |
Includes the final 2016 measurement period adjustments associated with the acquisition of certain assets of Resort Advantage in late 2015. |
Other intangible assets consist of the following (in thousands):
|
|
|
|
At December 31, 2016 |
|
At December 31, 2015 |
||||||||||||||||
|
|
Useful Life |
|
|
|
|
Accumulated |
|
Net Book |
|
|
|
|
Accumulated |
|
Net Book |
||||||
|
|
(years) |
|
Cost |
|
Amortization |
|
Value |
|
Cost |
|
Amortization |
|
Value |
||||||||
Other intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract rights under development and placement fee agreements |
|
1 |
- |
7 |
|
$ |
17,742 |
|
$ |
6,281 |
|
$ |
11,461 |
|
$ |
16,453 |
|
$ |
7,612 |
|
$ |
8,841 |
Customer contracts |
|
7 |
- |
14 |
|
|
50,975 |
|
|
40,419 |
|
|
10,556 |
|
|
50,177 |
|
|
34,755 |
|
|
15,422 |
Customer relationships |
|
8 |
- |
12 |
|
|
231,100 |
|
|
42,688 |
|
|
188,412 |
|
|
231,100 |
|
|
21,723 |
|
|
209,377 |
Developed technology and software |
|
1 |
- |
6 |
|
|
224,265 |
|
|
126,721 |
|
|
97,544 |
|
|
197,658 |
|
|
63,591 |
|
|
134,067 |
Patents, trademarks and other |
|
1 |
- |
17 |
|
|
27,771 |
|
|
17,747 |
|
|
10,024 |
|
|
28,240 |
|
|
13,485 |
|
|
14,755 |
Total |
|
|
|
|
|
$ |
551,853 |
|
$ |
233,856 |
|
$ |
317,997 |
|
$ |
523,628 |
|
$ |
141,166 |
|
$ |
382,462 |
The anticipated amortization expense related to other intangible assets, assuming no subsequent impairment of the underlying assets, is as follows (in thousands):
Anticipated amortization expense |
|
Amount |
|
|
2017 |
|
$ |
68,765 |
|
2018 |
|
|
50,899 |
|
2019 |
|
|
40,693 |
|
2020 |
|
|
35,978 |
|
2021 |
|
|
23,396 |
|
Thereafter |
|
|
84,293 |
|
Total(1) |
|
$ |
304,024 |
|
|
The following table presents our accounts payable and accrued expenses (amounts in thousands):
|
At December 31, |
|
At December 31, |
|
||
|
2016 |
|
2015 |
|
||
Accounts payable and accrued expenses |
|
|
|
|
|
|
Trade accounts payable |
$ |
55,352 |
|
$ |
69,182 |
|
Payroll and related expenses |
|
12,305 |
|
|
8,565 |
|
Deferred and unearned revenues |
|
9,222 |
|
|
10,836 |
|
Cash access processing and related expenses |
|
7,001 |
|
|
4,662 |
|
Accrued taxes |
|
2,587 |
|
|
1,654 |
|
Accrued interest |
|
82 |
|
|
73 |
|
Other |
|
7,842 |
|
|
6,540 |
|
Total accounts payable and accrued expenses |
$ |
94,391 |
|
$ |
101,512 |
|
|
The following table summarizes our indebtedness (in thousands):
|
At December 31, |
|
At December 31, |
|
|
||
|
2016 |
|
2015 |
|
|
||
Long-term debt |
|
|
|
|
|
|
|
Senior secured term loan |
$ |
465,600 |
|
$ |
490,000 |
|
|
Senior secured notes |
|
335,000 |
|
|
335,000 |
|
|
Senior unsecured notes |
|
350,000 |
|
|
350,000 |
|
|
Total debt |
|
1,150,600 |
|
|
1,175,000 |
|
|
Less: debt issuance costs and warrant discount |
|
(28,720) |
|
|
(35,101) |
|
|
Total debt after debt issuance costs and discount |
|
1,121,880 |
|
|
1,139,899 |
|
|
Less: current portion of long-term debt |
|
(10,000) |
|
|
(10,000) |
|
|
Long-term debt, less current portion |
$ |
1,111,880 |
|
$ |
1,129,899 |
|
|
The maturities of our borrowings at December 31, 2016 are as follows (in thousands):
|
|
|
|
|
|
|
Amount |
|
|
Maturities of borrowings |
|
|
|
|
2017 |
|
$ |
10,000 |
|
2018 |
|
|
10,000 |
|
2019 |
|
|
10,000 |
|
2020 |
|
|
435,600 |
|
2021 |
|
|
335,000 |
|
Thereafter |
|
|
350,000 |
|
Total |
|
$ |
1,150,600 |
|
|
As of December 31, 2016, the minimum aggregate rental commitment under all non‑cancelable operating leases were as follows (in thousands):
|
|
Amount |
|
|
Minimum aggregate rental commitments |
|
|
|
|
2017 |
|
$ |
4,803 |
|
2018 |
|
|
4,408 |
|
2019 |
|
|
4,462 |
|
2020 |
|
|
4,148 |
|
2021 |
|
|
3,254 |
|
Thereafter |
|
|
2,432 |
|
Total |
|
$ |
23,507 |
|
|
The weighted average number of common stock outstanding used in the computation of basic and diluted earnings per share is as follows (in thousands):
|
|
|
At December 31, |
|
||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
Weighted average shares |
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic |
|
|
66,050 |
|
65,854 |
|
65,780 |
|
Potential dilution from equity grants(1) |
|
|
— |
|
— |
|
1,083 |
|
Weighted average number of common shares outstanding - diluted |
|
|
66,050 |
|
65,854 |
|
66,863 |
|
The Company was in a net loss position for the years ended December 31, 2016 and 2015, respectively, and therefore, no potential dilution from the application of the treasury stock method was applicable. Equity awards to purchase approximately 15.7 million and 14.2 million shares of common stock for the years ended December 31, 2016 and 2015, respectively, were excluded from the computation of diluted net loss per share, as their effect would have been anti-dilutive.
|
A summary of award activity is as follows (in thousands):
|
|
Stock Options |
|
Restricted Stock |
|
|
|
Granted |
|
Granted |
|
Outstanding, December 31, 2015 |
|
17,440 |
|
310 |
|
Additional authorized shares |
|
— |
|
— |
|
Granted |
|
4,383 |
|
— |
|
Exercised options or vested shares |
|
— |
|
(75) |
|
Cancelled or forfeited |
|
(3,590) |
|
(155) |
|
Outstanding, December 31, 2016 |
|
18,233 |
|
80 |
|
|
|
|
|
|
|
|
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, 2015 |
|
17,440 |
|
$ |
7.41 |
|
6.6 |
|
$ |
1,212 |
|
Granted |
|
4,383 |
|
|
1.67 |
|
|
|
|
|
|
Exercised |
|
— |
|
|
— |
|
|
|
|
|
|
Canceled or forfeited |
|
(3,590) |
|
|
7.46 |
|
|
|
|
|
|
Outstanding, December 31, 2016 |
|
18,233 |
|
$ |
6.02 |
|
6.4 |
|
$ |
2,387 |
|
Vested and expected to vest, December 31, 2016 |
|
16,126 |
|
$ |
6.13 |
|
6.3 |
|
$ |
1,872 |
|
Exercisable, December 31, 2016 |
|
9,492 |
|
$ |
7.16 |
|
4.8 |
|
$ |
— |
|
|
|
|
|
|
|
Options Outstanding |
|
Options Exercisable |
|
||||||||
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Weighted |
|
|
|
Weighted |
|
||
|
|
|
|
|
|
Number |
|
Remaining |
|
Average |
|
Number |
|
Average |
|
||
|
|
|
|
|
|
Outstanding |
|
Contract |
|
Exercise |
|
Exercisable |
|
Exercise |
|
||
Range of Exercise Prices |
|
(in thousands) |
|
Life (Years) |
|
Prices |
|
(in thousands) |
|
Price |
|
||||||
$ |
1.46 |
|
$ |
1.56 |
|
3,126 |
|
9.4 |
|
$ |
1.46 |
|
— |
|
$ |
— |
|
|
1.57 |
|
|
5.76 |
|
3,081 |
|
6.1 |
|
|
3.68 |
|
2,230 |
|
|
4.22 |
|
|
5.77 |
|
|
6.89 |
|
3,405 |
|
5.0 |
|
|
6.63 |
|
2,174 |
|
|
6.67 |
|
|
6.90 |
|
|
7.73 |
|
1,170 |
|
7.0 |
|
|
7.23 |
|
814 |
|
|
7.20 |
|
|
7.74 |
|
|
7.76 |
|
3,784 |
|
7.2 |
|
|
7.74 |
|
615 |
|
|
7.74 |
|
|
7.77 |
|
|
9.73 |
|
2,609 |
|
6.2 |
|
|
8.69 |
|
2,604 |
|
|
8.69 |
|
|
9.74 |
|
|
14.55 |
|
1,058 |
|
0.9 |
|
|
10.20 |
|
1,055 |
|
|
10.20 |
|
|
|
|
|
|
|
18,233 |
|
|
|
|
|
|
9,492 |
|
|
|
|
The following is a summary of non‑vested share awards for our time‑based restricted shares:
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
Shares |
|
Average Grant |
|
|
|
|
Outstanding |
|
Date Fair Value |
|
|
|
|
(in thousands) |
|
(per share) |
|
|
Outstanding, December 31, 2015 |
|
310 |
|
$ |
7.11 |
|
Granted |
|
— |
|
|
— |
|
Vested |
|
(75) |
|
|
7.10 |
|
Forfeited |
|
(155) |
|
|
7.12 |
|
Outstanding, December 31, 2016 |
|
80 |
|
$ |
7.12 |
|
|
|
Year ended |
|
||||
|
|
December 31, |
|
||||
|
|
2016 |
|
2015 |
|
2014 |
|
Risk-free interest rate |
|
1 |
% |
1 |
% |
1 |
% |
Expected life of options (in years) |
|
5 |
|
4 |
|
4 |
|
Expected volatility |
|
51 |
% |
43 |
% |
54 |
% |
Expected dividend yield |
|
— |
% |
— |
% |
— |
% |
|
|
Year ended |
|||||
|
|
December 31, |
|||||
|
|
2016 |
|
2015 |
|
2014 |
|
Risk-free interest rate |
|
2 |
% |
1 |
% |
1 |
% |
Measurement period (in years) |
|
10 |
|
4 |
|
4 |
|
Expected volatility |
|
68 |
% |
47 |
% |
52 |
% |
Expected dividend yield |
|
— |
% |
— |
% |
— |
% |
|
The following presents consolidated (loss) income before tax for domestic and foreign operations (in thousands):
|
|
Year Ended December 31, |
|
|||||||
|
|
2016 |
|
2015 |
|
2014 |
|
|||
Consolidated (loss) income before tax |
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
(225,538) |
|
$ |
(129,602) |
|
$ |
13,870 |
|
Foreign |
|
|
7,755 |
|
|
6,519 |
|
|
6,431 |
|
Total |
|
$ |
(217,783) |
|
$ |
(123,083) |
|
$ |
20,301 |
|
The income tax (benefit) provision attributable to (loss) income from operations before tax consists of the following components (in thousands):
|
|
Year Ended December 31, |
|
|||||||
|
|
2016 |
|
2015 |
|
2014 |
|
|||
Income tax (benefit) provision |
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
30,400 |
|
$ |
(19,746) |
|
$ |
6,637 |
|
Foreign |
|
|
1,296 |
|
|
1,635 |
|
|
1,524 |
|
Total income tax (benefit) provision |
|
$ |
31,696 |
|
$ |
(18,111) |
|
$ |
8,161 |
|
Income tax (benefit) provision components |
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
1,756 |
|
$ |
1,767 |
|
$ |
1,598 |
|
Deferred |
|
|
29,940 |
|
|
(19,878) |
|
|
6,563 |
|
Total income tax (benefit) provision |
|
$ |
31,696 |
|
$ |
(18,111) |
|
$ |
8,161 |
|
|
|
Year Ended |
|
||||
|
|
December 31, |
|
||||
|
|
2016 |
|
2015 |
|
2014 |
|
Income tax reconciliation |
|
|
|
|
|
|
|
Federal statutory rate |
|
35.0 |
% |
35.0 |
% |
35.0 |
% |
Foreign provision |
|
0.5 |
% |
0.6 |
% |
(3.6) |
% |
State/province income tax |
|
0.8 |
% |
1.1 |
% |
0.9 |
% |
Non-deductible compensation cost |
|
(0.5) |
% |
(1.1) |
% |
0.7 |
% |
Non-deductible acquisition cost |
|
0.0 |
% |
0.0 |
% |
5.9 |
% |
Adjustment to carrying value |
|
0.2 |
% |
0.6 |
% |
1.9 |
% |
Research credit |
|
0.2 |
% |
0.6 |
% |
0.0 |
% |
Valuation allowance |
|
(27.4) |
% |
0.0 |
% |
0.0 |
% |
Goodwill impairment |
|
(23.5) |
% |
(21.3) |
% |
0.0 |
% |
Other |
|
0.1 |
% |
(0.8) |
% |
(0.6) |
% |
Effective tax rate |
|
(14.6) |
% |
14.7 |
% |
40.2 |
% |
The major tax‑effected components of the deferred tax assets and liabilities are as follows (in thousands):
|
|
Year Ended December 31, |
|
|||||||
|
|
2016 |
|
2015 |
|
2014 |
|
|||
Deferred income tax assets related to: |
|
|
|
|
|
|
|
|
|
|
Net operating losses |
|
$ |
98,664 |
|
$ |
81,531 |
|
$ |
64,357 |
|
Stock compensation expense |
|
|
11,559 |
|
|
10,212 |
|
|
8,841 |
|
Accounts receivable allowances |
|
|
1,745 |
|
|
1,444 |
|
|
1,613 |
|
Accrued and prepaid expenses |
|
|
6,276 |
|
|
3,958 |
|
|
7,917 |
|
Long-term debt |
|
|
493 |
|
|
300 |
|
|
290 |
|
Other |
|
|
1,399 |
|
|
658 |
|
|
373 |
|
Tax credits |
|
|
6,394 |
|
|
5,896 |
|
|
5,146 |
|
Valuation allowance |
|
|
(61,012) |
|
|
(1,442) |
|
|
(2,319) |
|
Total deferred income tax assets |
|
$ |
65,518 |
|
$ |
102,557 |
|
$ |
86,218 |
|
Deferred income tax liabilities related to: |
|
|
|
|
|
|
|
|
|
|
Property, equipment and leased assets |
|
$ |
13,216 |
|
$ |
18,274 |
|
$ |
23,785 |
|
Intangibles |
|
|
106,307 |
|
|
108,727 |
|
|
109,103 |
|
Other |
|
|
3,606 |
|
|
3,200 |
|
|
1,072 |
|
Total deferred income tax liabilities |
|
$ |
123,129 |
|
$ |
130,201 |
|
$ |
133,960 |
|
Deferred income taxes, net |
|
$ |
(57,611) |
|
$ |
(27,644) |
|
$ |
(47,742) |
|
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):
|
|
Year Ended December 31, |
|
|||||||
|
|
2016 |
|
2015 |
|
2014 |
|
|||
Unrecognized tax benefit |
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefit at the beginning of the period |
|
$ |
729 |
|
$ |
729 |
|
$ |
— |
|
Gross increases - tax positions in prior period |
|
|
105 |
|
|
— |
|
|
— |
|
Gross decreases - tax positions in prior period |
|
|
— |
|
|
— |
|
|
— |
|
Gross increases - tax positions in current period |
|
|
— |
|
|
— |
|
|
729 |
|
Settlements |
|
|
— |
|
|
— |
|
|
— |
|
Unrecognized tax benefit at the end of the period |
|
$ |
834 |
|
$ |
729 |
|
$ |
729 |
|
|
The following tables present segment information (in thousands):
|
|
|
For the Year Ended December 31, |
|
|||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
Games |
|
|
$ |
213,253 |
|
$ |
214,424 |
|
$ |
7,406 |
|
Payments |
|
|
|
646,203 |
|
|
612,575 |
|
|
585,647 |
|
Total revenues |
|
|
$ |
859,456 |
|
$ |
826,999 |
|
$ |
593,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
|
|
|
|
|
|
|
|
|
Games |
|
|
$ |
(166,243) |
|
$ |
(73,503) |
|
$ |
(1,423) |
|
Payments |
|
|
|
47,688 |
|
|
63,773 |
|
|
35,205 |
|
Total operating (loss) income |
|
|
$ |
(118,555) |
|
$ |
(9,730) |
|
$ |
33,782 |
|
|
|
At December 31, 2016 |
|
At December 31, 2015 |
||
Total assets |
|
|
|
|
|
|
Games |
|
$ |
894,213 |
|
$ |
1,086,147 |
Payments |
|
|
513,950 |
|
|
464,238 |
Total assets |
|
$ |
1,408,163 |
|
$ |
1,550,385 |
|
The unaudited selected quarterly results of operations are as follows (in thousands, except for per share amounts)*:
|
|
Quarter |
|
|
|
|
||||||||||
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
Year |
|
|||||
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
205,769 |
|
$ |
214,000 |
|
$ |
222,177 |
|
$ |
217,510 |
|
$ |
859,456 |
|
Operating income (loss) |
|
|
3,785 |
|
|
6,060 |
|
|
11,572 |
|
|
(139,972) |
|
|
(118,555) |
|
Net loss |
|
|
(13,151) |
|
|
(10,796) |
|
|
(8,254) |
|
|
(217,278) |
|
|
(249,479) |
|
Basic loss per share |
|
$ |
(0.20) |
|
$ |
(0.16) |
|
$ |
(0.12) |
|
$ |
(3.29) |
|
$ |
(3.78) |
|
Diluted loss per share |
|
$ |
(0.20) |
|
$ |
(0.16) |
|
$ |
(0.12) |
|
$ |
(3.29) |
|
$ |
(3.78) |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
66,034 |
|
|
66,041 |
|
|
66,049 |
|
|
66,074 |
|
|
66,050 |
|
Diluted |
|
|
66,034 |
|
|
66,041 |
|
|
66,049 |
|
|
66,074 |
|
|
66,050 |
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
207,473 |
|
$ |
206,364 |
|
$ |
208,746 |
|
$ |
204,416 |
|
$ |
826,999 |
|
Operating income (loss) |
|
|
28,141 |
|
|
16,336 |
|
|
14,716 |
|
|
(68,923) |
|
|
(9,730) |
|
Net income (loss) |
|
|
469 |
|
|
(12,741) |
|
|
(6,110) |
|
|
(86,590) |
|
|
(104,972) |
|
Basic earnings (loss) per share |
|
$ |
0.01 |
|
$ |
(0.19) |
|
$ |
(0.09) |
|
$ |
(1.31) |
|
$ |
(1.59) |
|
Diluted earnings (loss) per share |
|
$ |
0.01 |
|
$ |
(0.19) |
|
$ |
(0.09) |
|
$ |
(1.31) |
|
$ |
(1.59) |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
65,623 |
|
|
65,844 |
|
|
65,941 |
|
|
66,004 |
|
|
65,854 |
|
Diluted |
|
|
66,492 |
|
|
65,844 |
|
|
65,941 |
|
|
66,004 |
|
|
65,854 |
|
|
|
Year Ended December 31, 2016 |
||||||||||||||||
|
|
|
|
|
|
|
Non- |
|
|
|
|
||||||
|
|
|
Subsidiary |
|
Guarantor |
|
Guarantor |
|
|
|
|
||||||
|
Parent |
|
Issuer |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
— |
|
$ |
599,173 |
|
$ |
241,937 |
|
$ |
25,096 |
|
$ |
(6,750) |
|
$ |
859,456 |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization) |
|
— |
|
|
480,210 |
|
|
59,802 |
|
|
14,764 |
|
|
(5,762) |
|
|
549,014 |
Operating expenses |
|
— |
|
|
73,352 |
|
|
44,526 |
|
|
1,819 |
|
|
(988) |
|
|
118,709 |
Research and development |
|
— |
|
|
— |
|
|
19,326 |
|
|
30 |
|
|
— |
|
|
19,356 |
Goodwill impairment |
|
— |
|
|
— |
|
|
146,299 |
|
|
— |
|
|
— |
|
|
146,299 |
Depreciation |
|
— |
|
|
8,278 |
|
|
41,391 |
|
|
326 |
|
|
— |
|
|
49,995 |
Amortization |
|
— |
|
|
12,641 |
|
|
79,805 |
|
|
2,192 |
|
|
— |
|
|
94,638 |
Total costs and expenses |
|
— |
|
|
574,481 |
|
|
391,149 |
|
|
19,131 |
|
|
(6,750) |
|
|
978,011 |
Operating income (loss) |
|
— |
|
|
24,692 |
|
|
(149,212) |
|
|
5,965 |
|
|
— |
|
|
(118,555) |
Other expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
6,114 |
|
|
92,896 |
|
|
218 |
|
|
— |
|
|
99,228 |
Equity in loss (income) of subsidiaries |
|
249,479 |
|
|
(14,981) |
|
|
(1,917) |
|
|
— |
|
|
(232,581) |
|
|
— |
Total other expense (income) |
|
249,479 |
|
|
(8,867) |
|
|
90,979 |
|
|
218 |
|
|
(232,581) |
|
|
99,228 |
(Loss) income before income tax |
|
(249,479) |
|
|
33,559 |
|
|
(240,191) |
|
|
5,747 |
|
|
232,581 |
|
|
(217,783) |
Income tax provision (benefit) |
|
— |
|
|
21,679 |
|
|
8,881 |
|
|
1,136 |
|
|
— |
|
|
31,696 |
Net (loss) income |
|
(249,479) |
|
|
11,880 |
|
|
(249,072) |
|
|
4,611 |
|
|
232,581 |
|
|
(249,479) |
Foreign currency translation |
|
(2,427) |
|
|
— |
|
|
— |
|
|
(2,427) |
|
|
2,427 |
|
|
(2,427) |
Comprehensive (loss) income |
$ |
(251,906) |
|
$ |
11,880 |
|
$ |
(249,072) |
|
$ |
2,184 |
|
$ |
235,008 |
|
$ |
(251,906) |
|
Year Ended December 31, 2015 |
||||||||||||||||
|
|
|
|
|
|
|
Non- |
|
|
|
|
||||||
|
|
|
Subsidiary |
|
Guarantor |
|
Guarantor |
|
|
|
|
||||||
|
Parent |
|
Issuer |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
— |
|
$ |
566,634 |
|
$ |
243,974 |
|
$ |
17,219 |
|
$ |
(828) |
|
$ |
826,999 |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization) |
|
— |
|
|
444,990 |
|
|
56,382 |
|
|
9,025 |
|
|
— |
|
|
510,397 |
Operating expenses |
|
— |
|
|
61,615 |
|
|
38,554 |
|
|
1,861 |
|
|
(828) |
|
|
101,202 |
Research and development |
|
— |
|
|
— |
|
|
19,098 |
|
|
— |
|
|
— |
|
|
19,098 |
Goodwill impairment |
|
— |
|
|
— |
|
|
75,008 |
|
|
— |
|
|
— |
|
|
75,008 |
Depreciation |
|
— |
|
|
7,635 |
|
|
37,734 |
|
|
182 |
|
|
— |
|
|
45,551 |
Amortization |
|
— |
|
|
9,842 |
|
|
73,195 |
|
|
2,436 |
|
|
— |
|
|
85,473 |
Total costs and expenses |
|
— |
|
|
524,082 |
|
|
299,971 |
|
|
13,504 |
|
|
(828) |
|
|
836,729 |
Operating income (loss) |
|
— |
|
|
42,552 |
|
|
(55,997) |
|
|
3,715 |
|
|
— |
|
|
(9,730) |
Other expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
7,639 |
|
|
92,343 |
|
|
308 |
|
|
— |
|
|
100,290 |
Equity in loss (income) of subsidiaries |
|
104,972 |
|
|
(13,777) |
|
|
— |
|
|
— |
|
|
(91,195) |
|
|
— |
Loss on extinguishment of debt |
|
— |
|
|
13,063 |
|
|
— |
|
|
— |
|
|
— |
|
|
13,063 |
Total other expense |
|
104,972 |
|
|
6,925 |
|
|
92,343 |
|
|
308 |
|
|
(91,195) |
|
|
113,353 |
(Loss) income before income tax |
|
(104,972) |
|
|
35,627 |
|
|
(148,340) |
|
|
3,407 |
|
|
91,195 |
|
|
(123,083) |
Income tax provision (benefit) |
|
— |
|
|
8,342 |
|
|
(27,673) |
|
|
1,220 |
|
|
— |
|
|
(18,111) |
Net (loss) income |
|
(104,972) |
|
|
27,285 |
|
|
(120,667) |
|
|
2,187 |
|
|
91,195 |
|
|
(104,972) |
Foreign currency translation |
|
(1,251) |
|
|
— |
|
|
— |
|
|
(1,251) |
|
|
1,251 |
|
|
(1,251) |
Comprehensive (loss) income |
$ |
(106,223) |
|
$ |
27,285 |
|
$ |
(120,667) |
|
$ |
936 |
|
$ |
92,446 |
|
$ |
(106,223) |
|
Year Ended December 31, 2014 |
||||||||||||||||
|
|
|
|
|
|
|
Non- |
|
|
|
|
||||||
|
|
|
Subsidiary |
|
Guarantor |
|
Guarantor |
|
|
|
|
||||||
|
Parent |
|
Issuer |
|
Subsidiaries |
|
Subsidiaries |
|
Eliminations |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
— |
|
$ |
542,206 |
|
$ |
35,689 |
|
$ |
15,891 |
|
$ |
(733) |
|
$ |
593,053 |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization) |
|
— |
|
|
422,544 |
|
|
10,864 |
|
|
6,663 |
|
|
— |
|
|
440,071 |
Operating expenses |
|
— |
|
|
88,087 |
|
|
5,719 |
|
|
2,379 |
|
|
(733) |
|
|
95,452 |
Research and development |
|
— |
|
|
— |
|
|
804 |
|
|
— |
|
|
— |
|
|
804 |
Depreciation |
|
— |
|
|
7,428 |
|
|
1,134 |
|
|
183 |
|
|
— |
|
|
8,745 |
Amortization |
|
— |
|
|
11,180 |
|
|
2,454 |
|
|
565 |
|
|
— |
|
|
14,199 |
Total costs and expenses |
|
— |
|
|
529,239 |
|
|
20,975 |
|
|
9,790 |
|
|
(733) |
|
|
559,271 |
Operating income |
|
— |
|
|
12,967 |
|
|
14,714 |
|
|
6,101 |
|
|
— |
|
|
33,782 |
Other expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
— |
|
|
7,675 |
|
|
3,290 |
|
|
(209) |
|
|
— |
|
|
10,756 |
Equity in income of subsidiaries |
|
(12,140) |
|
|
(15,218) |
|
|
— |
|
|
— |
|
|
27,358 |
|
|
— |
Loss on extinguishment of debt |
|
— |
|
|
2,523 |
|
|
202 |
|
|
— |
|
|
— |
|
|
2,725 |
Total other (income) expense |
|
(12,140) |
|
|
(5,020) |
|
|
3,492 |
|
|
(209) |
|
|
27,358 |
|
|
13,481 |
Income before income tax |
|
12,140 |
|
|
17,987 |
|
|
11,222 |
|
|
6,310 |
|
|
(27,358) |
|
|
20,301 |
Income tax provision |
|
— |
|
|
2,801 |
|
|
3,784 |
|
|
1,576 |
|
|
— |
|
|
8,161 |
Net income |
|
12,140 |
|
|
15,186 |
|
|
7,438 |
|
|
4,734 |
|
|
(27,358) |
|
|
12,140 |
Foreign currency translation |
|
(1,258) |
|
|
— |
|
|
— |
|
|
(1,258) |
|
|
1,258 |
|
|
(1,258) |
Comprehensive income |
$ |
10,882 |
|
$ |
15,186 |
|
$ |
7,438 |
|
$ |
3,476 |
|
$ |
(26,100) |
|
$ |
10,882 |
|
At December 31, 2016 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
— |
|
$ |
88,648 |
|
$ |
9,103 |
|
$ |
21,300 |
|
$ |
— |
|
$ |
119,051 |
Settlement receivables |
|
— |
|
|
122,222 |
|
|
— |
|
|
6,599 |
|
|
— |
|
|
128,821 |
Trade receivables, net |
|
— |
|
|
4,401 |
|
|
41,500 |
|
|
5,750 |
|
|
— |
|
|
51,651 |
Other receivables |
|
— |
|
|
4,600 |
|
|
243 |
|
|
157 |
|
|
— |
|
|
5,000 |
Inventory |
|
— |
|
|
6,009 |
|
|
13,059 |
|
|
— |
|
|
— |
|
|
19,068 |
Prepaid expenses and other assets |
|
— |
|
|
5,359 |
|
|
3,807 |
|
|
8,882 |
|
|
— |
|
|
18,048 |
Intercompany balances |
|
— |
|
|
106,729 |
|
|
188,028 |
|
|
1,461 |
|
|
(296,218) |
|
|
— |
Total current assets |
|
— |
|
|
337,968 |
|
|
255,740 |
|
|
44,149 |
|
|
(296,218) |
|
|
341,639 |
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leased assets, net |
|
— |
|
|
15,144 |
|
|
81,993 |
|
|
1,302 |
|
|
— |
|
|
98,439 |
Goodwill |
|
— |
|
|
151,417 |
|
|
488,512 |
|
|
617 |
|
|
— |
|
|
640,546 |
Other intangible assets, net |
|
— |
|
|
23,901 |
|
|
289,338 |
|
|
4,758 |
|
|
— |
|
|
317,997 |
Other receivables |
|
— |
|
|
2,019 |
|
|
— |
|
|
1 |
|
|
— |
|
|
2,020 |
Investment in subsidiaries |
|
(107,751) |
|
|
171,979 |
|
|
1,293 |
|
|
86 |
|
|
(65,607) |
|
|
— |
Deferred tax asset |
|
— |
|
|
37,578 |
|
|
— |
|
|
— |
|
|
(37,578) |
|
|
— |
Other assets |
|
— |
|
|
4,940 |
|
|
2,286 |
|
|
296 |
|
|
— |
|
|
7,522 |
Intercompany balances |
|
— |
|
|
1,143,115 |
|
|
7,851 |
|
|
— |
|
|
(1,150,966) |
|
|
— |
Total non-current assets |
|
(107,751) |
|
|
1,550,093 |
|
|
871,273 |
|
|
7,060 |
|
|
(1,254,151) |
|
|
1,066,524 |
Total assets |
$ |
(107,751) |
|
$ |
1,888,061 |
|
$ |
1,127,013 |
|
$ |
51,209 |
|
$ |
(1,550,369) |
|
$ |
1,408,163 |
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement liabilities |
$ |
— |
|
$ |
225,170 |
|
$ |
268 |
|
$ |
13,685 |
|
$ |
— |
|
$ |
239,123 |
Accounts payable and accrued expenses |
|
— |
|
|
64,192 |
|
|
28,970 |
|
|
1,229 |
|
|
— |
|
|
94,391 |
Current portion of long-term debt |
|
— |
|
|
10,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
10,000 |
Intercompany balances |
|
— |
|
|
189,488 |
|
|
101,387 |
|
|
5,343 |
|
|
(296,218) |
|
|
— |
Total current liabilities |
|
— |
|
|
488,850 |
|
|
130,625 |
|
|
20,257 |
|
|
(296,218) |
|
|
343,514 |
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability |
|
— |
|
|
— |
|
|
95,189 |
|
|
— |
|
|
(37,578) |
|
|
57,611 |
Long-term debt, less current portion |
|
— |
|
|
1,111,880 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,111,880 |
Other accrued expenses and liabilities |
|
— |
|
|
2,583 |
|
|
368 |
|
|
— |
|
|
— |
|
|
2,951 |
Intercompany balances |
|
— |
|
|
— |
|
|
1,143,116 |
|
|
7,850 |
|
|
(1,150,966) |
|
|
— |
Total non-current liabilities |
|
— |
|
|
1,114,463 |
|
|
1,238,673 |
|
|
7,850 |
|
|
(1,188,544) |
|
|
1,172,442 |
Total liabilities |
|
— |
|
|
1,603,313 |
|
|
1,369,298 |
|
|
28,107 |
|
|
(1,484,762) |
|
|
1,515,956 |
Stockholders’ (deficit) equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
91 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
91 |
Additional paid-in capital |
|
264,755 |
|
|
85,499 |
|
|
5,314 |
|
|
21,093 |
|
|
(111,906) |
|
|
264,755 |
Retained (deficit) earnings |
|
(194,299) |
|
|
201,316 |
|
|
(247,273) |
|
|
5,168 |
|
|
40,789 |
|
|
(194,299) |
Accumulated other comprehensive loss |
|
(2,067) |
|
|
(2,067) |
|
|
(326) |
|
|
(3,159) |
|
|
5,510 |
|
|
(2,109) |
Treasury stock, at cost |
|
(176,231) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(176,231) |
Total stockholders’ (deficit) equity |
|
(107,751) |
|
|
284,748 |
|
|
(242,285) |
|
|
23,102 |
|
|
(65,607) |
|
|
(107,793) |
Total liabilities and stockholders’ (deficit) equity |
$ |
(107,751) |
|
$ |
1,888,061 |
|
$ |
1,127,013 |
|
$ |
51,209 |
|
$ |
(1,550,369) |
|
$ |
1,408,163 |
|
At December 31, 2015 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
6 |
|
$ |
87,078 |
|
$ |
3,900 |
|
$ |
11,046 |
|
$ |
— |
|
$ |
102,030 |
Settlement receivables |
|
— |
|
|
42,437 |
|
|
— |
|
|
2,496 |
|
|
— |
|
|
44,933 |
Trade receivables, net |
|
— |
|
|
10,750 |
|
|
41,634 |
|
|
(2) |
|
|
— |
|
|
52,382 |
Other receivables |
|
— |
|
|
4,063 |
|
|
833 |
|
|
32 |
|
|
— |
|
|
4,928 |
Inventory |
|
— |
|
|
12,772 |
|
|
15,966 |
|
|
— |
|
|
— |
|
|
28,738 |
Prepaid expenses and other assets |
|
— |
|
|
6,464 |
|
|
5,160 |
|
|
9,148 |
|
|
— |
|
|
20,772 |
Intercompany balances |
|
— |
|
|
39,810 |
|
|
168,659 |
|
|
1,431 |
|
|
(209,900) |
|
|
— |
Total current assets |
|
6 |
|
|
203,374 |
|
|
236,152 |
|
|
24,151 |
|
|
(209,900) |
|
|
253,783 |
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leased assets, net |
|
— |
|
|
26,472 |
|
|
79,514 |
|
|
322 |
|
|
— |
|
|
106,308 |
Goodwill |
|
— |
|
|
154,395 |
|
|
634,811 |
|
|
597 |
|
|
— |
|
|
789,803 |
Other intangible assets, net |
|
— |
|
|
32,000 |
|
|
343,629 |
|
|
6,833 |
|
|
— |
|
|
382,462 |
Other receivables |
|
— |
|
|
3,256 |
|
|
3,399 |
|
|
— |
|
|
— |
|
|
6,655 |
Investment in subsidiaries |
|
137,414 |
|
|
159,735 |
|
|
— |
|
|
86 |
|
|
(297,235) |
|
|
— |
Deferred tax asset |
|
— |
|
|
65,577 |
|
|
— |
|
|
— |
|
|
(65,577) |
|
|
— |
Other assets |
|
— |
|
|
7,256 |
|
|
3,667 |
|
|
451 |
|
|
— |
|
|
11,374 |
Intercompany balances |
|
— |
|
|
1,136,505 |
|
|
— |
|
|
— |
|
|
(1,136,505) |
|
|
— |
Total non-current assets |
|
137,414 |
|
|
1,585,196 |
|
|
1,065,020 |
|
|
8,289 |
|
|
(1,499,317) |
|
|
1,296,602 |
Total assets |
$ |
137,420 |
|
$ |
1,788,570 |
|
$ |
1,301,172 |
|
$ |
32,440 |
|
$ |
(1,709,217) |
|
$ |
1,550,385 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement liabilities |
$ |
— |
|
$ |
136,109 |
|
$ |
162 |
|
$ |
3,548 |
|
$ |
— |
|
$ |
139,819 |
Accounts payable and accrued expenses |
|
— |
|
|
67,736 |
|
|
32,593 |
|
|
1,183 |
|
|
— |
|
|
101,512 |
Current portion of long-term debt |
|
— |
|
|
10,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
10,000 |
Intercompany balances |
|
— |
|
|
170,091 |
|
|
32,732 |
|
|
7,077 |
|
|
(209,900) |
|
|
— |
Total current liabilities |
|
— |
|
|
383,936 |
|
|
65,487 |
|
|
11,808 |
|
|
(209,900) |
|
|
251,331 |
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability |
|
— |
|
|
— |
|
|
93,221 |
|
|
— |
|
|
(65,577) |
|
|
27,644 |
Long-term debt, less current portion |
|
— |
|
|
1,129,899 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,129,899 |
Other accrued expenses and liabilities |
|
— |
|
|
3,624 |
|
|
467 |
|
|
— |
|
|
— |
|
|
4,091 |
Intercompany balances |
|
— |
|
|
— |
|
|
1,136,505 |
|
|
— |
|
|
(1,136,505) |
|
|
— |
Total non-current liabilities |
|
— |
|
|
1,133,523 |
|
|
1,230,193 |
|
|
— |
|
|
(1,202,082) |
|
|
1,161,634 |
Total liabilities |
|
— |
|
|
1,517,459 |
|
|
1,295,680 |
|
|
11,808 |
|
|
(1,411,982) |
|
|
1,412,965 |
Stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
91 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
91 |
Additional paid-in capital |
|
258,020 |
|
|
80,443 |
|
|
3,670 |
|
|
21,101 |
|
|
(105,214) |
|
|
258,020 |
Retained earnings |
|
55,180 |
|
|
190,375 |
|
|
1,797 |
|
|
1,180 |
|
|
(193,352) |
|
|
55,180 |
Accumulated other comprehensive income (loss) |
|
318 |
|
|
293 |
|
|
25 |
|
|
(1,649) |
|
|
1,331 |
|
|
318 |
Treasury stock, at cost |
|
(176,189) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(176,189) |
Total stockholders’ equity |
|
137,420 |
|
|
271,111 |
|
|
5,492 |
|
|
20,632 |
|
|
(297,235) |
|
|
137,420 |
Total liabilities and stockholders’ equity |
$ |
137,420 |
|
$ |
1,788,570 |
|
$ |
1,301,172 |
|
$ |
32,440 |
|
$ |
(1,709,217) |
|
$ |
1,550,385 |
|
Year Ended December 31, 2016 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
$ |
(249,479) |
|
$ |
11,880 |
|
$ |
(249,072) |
|
$ |
4,611 |
|
$ |
232,581 |
|
$ |
(249,479) |
Adjustments to reconcile net loss to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
— |
|
|
20,919 |
|
|
121,196 |
|
|
2,518 |
|
|
— |
|
|
144,633 |
Amortization of financing costs |
|
— |
|
|
6,695 |
|
|
— |
|
|
— |
|
|
— |
|
|
6,695 |
Loss on sale or disposal of assets |
|
— |
|
|
1,353 |
|
|
1,198 |
|
|
12 |
|
|
— |
|
|
2,563 |
Accretion of contract rights |
|
— |
|
|
— |
|
|
8,692 |
|
|
— |
|
|
— |
|
|
8,692 |
Provision for bad debts |
|
— |
|
|
74 |
|
|
9,834 |
|
|
— |
|
|
— |
|
|
9,908 |
Reserve for obsolescence |
|
— |
|
|
860 |
|
|
2,721 |
|
|
— |
|
|
— |
|
|
3,581 |
Other asset impairment |
|
— |
|
|
— |
|
|
4,289 |
|
|
— |
|
|
— |
|
|
4,289 |
Goodwill impairment |
|
— |
|
|
— |
|
|
146,299 |
|
|
— |
|
|
— |
|
|
146,299 |
Equity in loss (income) of subsidiaries |
|
249,479 |
|
|
(14,981) |
|
|
(1,917) |
|
|
— |
|
|
(232,581) |
|
|
— |
Stock-based compensation |
|
— |
|
|
5,091 |
|
|
1,644 |
|
|
— |
|
|
— |
|
|
6,735 |
Other non-cash items |
|
— |
|
|
— |
|
|
(38) |
|
|
— |
|
|
— |
|
|
(38) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net settlement receivables and liabilities |
|
— |
|
|
9,275 |
|
|
106 |
|
|
5,866 |
|
|
— |
|
|
15,247 |
Other changes in operating assets and liabilities |
|
1 |
|
|
(11,643) |
|
|
43,772 |
|
|
456 |
|
|
— |
|
|
32,586 |
Net cash provided by operating activities |
|
1 |
|
|
29,523 |
|
|
88,724 |
|
|
13,463 |
|
|
— |
|
|
131,711 |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
— |
|
|
(8,094) |
|
|
(71,583) |
|
|
(1,064) |
|
|
— |
|
|
(80,741) |
Acquisitions, net of cash acquired |
|
— |
|
|
(694) |
|
|
— |
|
|
— |
|
|
— |
|
|
(694) |
Proceeds from sale of fixed assets |
|
— |
|
|
4,599 |
|
|
— |
|
|
— |
|
|
— |
|
|
4,599 |
Placement fee agreements |
|
— |
|
|
— |
|
|
(11,312) |
|
|
— |
|
|
— |
|
|
(11,312) |
Changes in restricted cash and cash equivalents |
|
— |
|
|
94 |
|
|
— |
|
|
— |
|
|
— |
|
|
94 |
Intercompany investing activities |
|
35 |
|
|
1,058 |
|
|
(626) |
|
|
339 |
|
|
(806) |
|
|
— |
Net cash provided by (used in) investing activities |
|
35 |
|
|
(3,037) |
|
|
(83,521) |
|
|
(725) |
|
|
(806) |
|
|
(88,054) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of credit facility |
|
— |
|
|
(24,400) |
|
|
— |
|
|
— |
|
|
— |
|
|
(24,400) |
Debt issuance costs |
|
— |
|
|
(480) |
|
|
— |
|
|
— |
|
|
— |
|
|
(480) |
Purchase of treasury stock |
|
(42) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(42) |
Intercompany financing activities |
|
— |
|
|
(36) |
|
|
— |
|
|
(770) |
|
|
806 |
|
|
— |
Net cash used in financing activities |
|
(42) |
|
|
(24,916) |
|
|
— |
|
|
(770) |
|
|
806 |
|
|
(24,922) |
Effect of exchange rates on cash |
|
— |
|
|
— |
|
|
— |
|
|
(1,714) |
|
|
— |
|
|
(1,714) |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase for the period |
|
(6) |
|
|
1,570 |
|
|
5,203 |
|
|
10,254 |
|
|
— |
|
|
17,021 |
Balance, beginning of the period |
|
6 |
|
|
87,078 |
|
|
3,900 |
|
|
11,046 |
|
|
— |
|
|
102,030 |
Balance, end of the period |
$ |
— |
|
$ |
88,648 |
|
$ |
9,103 |
|
$ |
21,300 |
|
$ |
— |
|
$ |
119,051 |
|
Year Ended December 31, 2015 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
$ |
(104,972) |
|
$ |
27,285 |
|
$ |
(120,667) |
|
$ |
2,187 |
|
$ |
91,195 |
|
$ |
(104,972) |
Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
— |
|
|
17,477 |
|
|
110,929 |
|
|
2,618 |
|
|
— |
|
|
131,024 |
Amortization of financing costs |
|
— |
|
|
7,109 |
|
|
— |
|
|
— |
|
|
— |
|
|
7,109 |
Loss (gain) on sale or disposal of assets |
|
— |
|
|
75 |
|
|
(2,864) |
|
|
— |
|
|
— |
|
|
(2,789) |
Accretion of contract rights |
|
— |
|
|
— |
|
|
7,614 |
|
|
— |
|
|
— |
|
|
7,614 |
Provision for bad debts |
|
— |
|
|
51 |
|
|
10,084 |
|
|
— |
|
|
— |
|
|
10,135 |
Reserve for obsolescence |
|
— |
|
|
140 |
|
|
1,103 |
|
|
— |
|
|
— |
|
|
1,243 |
Goodwill impairment |
|
— |
|
|
— |
|
|
75,008 |
|
|
— |
|
|
— |
|
|
75,008 |
Loss on early extinguishment of debt |
|
— |
|
|
13,063 |
|
|
— |
|
|
— |
|
|
— |
|
|
13,063 |
Equity in loss (income) of subsidiaries |
|
104,972 |
|
|
(13,777) |
|
|
— |
|
|
— |
|
|
(91,195) |
|
|
— |
Stock-based compensation |
|
— |
|
|
6,883 |
|
|
1,401 |
|
|
— |
|
|
— |
|
|
8,284 |
Other non-cash items |
|
— |
|
|
— |
|
|
(149) |
|
|
— |
|
|
— |
|
|
(149) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net settlement receivables and liabilities |
|
— |
|
|
22,455 |
|
|
22 |
|
|
(3,078) |
|
|
— |
|
|
19,399 |
Other changes in operating assets and liabilities |
|
(4) |
|
|
(3,299) |
|
|
(36,278) |
|
|
(801) |
|
|
— |
|
|
(40,382) |
Net cash (used in) provided by operating activities |
|
(4) |
|
|
77,462 |
|
|
46,203 |
|
|
926 |
|
|
— |
|
|
124,587 |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
— |
|
|
(25,796) |
|
|
(51,108) |
|
|
(84) |
|
|
— |
|
|
(76,988) |
Acquisitions, net of cash acquired |
|
— |
|
|
(10,857) |
|
|
— |
|
|
— |
|
|
— |
|
|
(10,857) |
Proceeds from sale of fixed assets |
|
— |
|
|
102 |
|
|
2,000 |
|
|
— |
|
|
— |
|
|
2,102 |
Placement fee agreements |
|
— |
|
|
— |
|
|
(2,813) |
|
|
— |
|
|
— |
|
|
(2,813) |
Repayments under development agreements |
|
— |
|
|
— |
|
|
3,104 |
|
|
— |
|
|
— |
|
|
3,104 |
Changes in restricted cash and cash equivalents |
|
— |
|
|
(97) |
|
|
— |
|
|
— |
|
|
— |
|
|
(97) |
Intercompany investing activities |
|
(3,906) |
|
|
6,593 |
|
|
25 |
|
|
(9) |
|
|
(2,703) |
|
|
— |
Net cash used in investing activities |
|
(3,906) |
|
|
(30,055) |
|
|
(48,792) |
|
|
(93) |
|
|
(2,703) |
|
|
(85,549) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of prior credit facility |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Repayments of credit facility |
|
— |
|
|
(10,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
(10,000) |
Repayments of secured notes |
|
— |
|
|
(350,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
(350,000) |
Repayments of unsecured notes |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Proceeds from issuance of secured notes |
|
— |
|
|
335,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
335,000 |
Debt issuance costs |
|
— |
|
|
(1,221) |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,221) |
Issuance of warrant |
|
2,246 |
|
|
(2,246) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Proceeds from exercise of stock options |
|
1,839 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,839 |
Purchase of treasury stock |
|
(169) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(169) |
Intercompany financing activities |
|
— |
|
|
(5) |
|
|
— |
|
|
(2,698) |
|
|
2,703 |
|
|
— |
Net cash provided by (used in) financing activities |
|
3,916 |
|
|
(28,472) |
|
|
— |
|
|
(2,698) |
|
|
2,703 |
|
|
(24,551) |
Effect of exchange rates on cash |
|
— |
|
|
— |
|
|
— |
|
|
(1,552) |
|
|
— |
|
|
(1,552) |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) for the period |
|
6 |
|
|
18,935 |
|
|
(2,589) |
|
|
(3,417) |
|
|
— |
|
|
12,935 |
Balance, beginning of the period |
|
— |
|
|
68,143 |
|
|
6,489 |
|
|
14,463 |
|
|
— |
|
|
89,095 |
Balance, end of the period |
$ |
6 |
|
$ |
87,078 |
|
$ |
3,900 |
|
$ |
11,046 |
|
$ |
— |
|
$ |
102,030 |
|
Year Ended December 31, 2014 |
||||||||||||||||
|
Parent |
|
Subsidiary |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
12,140 |
|
$ |
15,186 |
|
$ |
7,438 |
|
$ |
4,734 |
|
$ |
(27,358) |
|
$ |
12,140 |
Adjustments to reconcile net (loss) income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
— |
|
|
18,608 |
|
|
3,588 |
|
|
748 |
|
|
— |
|
|
22,944 |
Amortization of financing costs |
|
— |
|
|
2,035 |
|
|
— |
|
|
— |
|
|
— |
|
|
2,035 |
Loss on sale or disposal of assets |
|
— |
|
|
54 |
|
|
— |
|
|
1 |
|
|
— |
|
|
55 |
Accretion of contract rights |
|
— |
|
|
— |
|
|
301 |
|
|
— |
|
|
— |
|
|
301 |
Provision for bad debts |
|
— |
|
|
— |
|
|
8,991 |
|
|
— |
|
|
— |
|
|
8,991 |
Reserve for obsolescence |
|
— |
|
|
270 |
|
|
— |
|
|
— |
|
|
— |
|
|
270 |
Other asset impairment |
|
— |
|
|
3,129 |
|
|
— |
|
|
— |
|
|
— |
|
|
3,129 |
Loss on early extinguishment of debt |
|
— |
|
|
2,523 |
|
|
202 |
|
|
— |
|
|
— |
|
|
2,725 |
Equity in income of subsidiaries |
|
(12,140) |
|
|
(15,218) |
|
|
— |
|
|
— |
|
|
27,358 |
|
|
— |
Stock-based compensation |
|
— |
|
|
8,849 |
|
|
27 |
|
|
— |
|
|
— |
|
|
8,876 |
Other non-cash items |
|
— |
|
|
(2) |
|
|
(17) |
|
|
— |
|
|
— |
|
|
(19) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net settlement receivables and liabilities |
|
— |
|
|
(31,414) |
|
|
141 |
|
|
594 |
|
|
— |
|
|
(30,679) |
Other changes in operating assets and liabilities |
|
(47) |
|
|
34,504 |
|
|
(20,047) |
|
|
(20,647) |
|
|
— |
|
|
(6,237) |
Net cash (used in) provided by operating activities |
|
(47) |
|
|
38,524 |
|
|
624 |
|
|
(14,570) |
|
|
— |
|
|
24,531 |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
— |
|
|
(5,886) |
|
|
(3,464) |
|
|
(9,092) |
|
|
— |
|
|
(18,442) |
Acquisitions, net of cash acquired |
|
— |
|
|
(11,845) |
|
|
(1,056,155) |
|
|
— |
|
|
— |
|
|
(1,068,000) |
Proceeds from sale of fixed assets |
|
— |
|
|
421 |
|
|
— |
|
|
— |
|
|
— |
|
|
421 |
Repayments under development agreements |
|
— |
|
|
— |
|
|
276 |
|
|
— |
|
|
— |
|
|
276 |
Changes in restricted cash and cash equivalents |
|
— |
|
|
(102) |
|
|
— |
|
|
— |
|
|
— |
|
|
(102) |
Intercompany investing activities |
|
6,889 |
|
|
(1,085,709) |
|
|
— |
|
|
(1,425) |
|
|
1,080,245 |
|
|
— |
Net cash provided by (used in) investing activities |
|
6,889 |
|
|
(1,103,121) |
|
|
(1,059,343) |
|
|
(10,517) |
|
|
1,080,245 |
|
|
(1,085,847) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of prior credit facility |
|
— |
|
|
(103,000) |
|
|
— |
|
|
— |
|
|
— |
|
|
(103,000) |
Proceeds from securing credit facility |
|
— |
|
|
500,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
500,000 |
Proceeds from issuance of secured notes |
|
— |
|
|
350,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
350,000 |
Proceeds from issuance of unsecured notes |
|
— |
|
|
350,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
350,000 |
Debt issuance costs |
|
— |
|
|
(52,735) |
|
|
— |
|
|
— |
|
|
— |
|
|
(52,735) |
Proceeds from exercise of stock options |
|
5,338 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5,338 |
Purchase of treasury stock |
|
(12,180) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(12,180) |
Intercompany financing activities |
|
— |
|
|
(12,098) |
|
|
1,063,059 |
|
|
29,284 |
|
|
(1,080,245) |
|
|
— |
Net cash (used in) provided by financing activities |
|
(6,842) |
|
|
1,032,167 |
|
|
1,063,059 |
|
|
29,284 |
|
|
(1,080,245) |
|
|
1,037,423 |
Effect of exchange rates on cash |
|
— |
|
|
— |
|
|
— |
|
|
(1,266) |
|
|
— |
|
|
(1,266) |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase for the period |
|
— |
|
|
(32,430) |
|
|
4,340 |
|
|
2,931 |
|
|
— |
|
|
(25,159) |
Balance, beginning of the period |
|
— |
|
|
100,573 |
|
|
2,149 |
|
|
11,532 |
|
|
— |
|
|
114,254 |
Balance, end of the period |
$ |
— |
|
$ |
68,143 |
|
$ |
6,489 |
|
$ |
14,463 |
|
$ |
— |
|
$ |
89,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|