Bally Technologies (BYI)

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Bally Technologies 10-Q 2011

Documents found in this filing:

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2011

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

For the transition period from to

Commission File Number 001-31558

BALLY TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

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

6601 S. Bermuda Rd.

Las Vegas, Nevada 89119

(Address of principal executive offices)

(702) 584-7700

(Registrant’s telephone number, including area code)

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

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

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

Large Accelerated Filer x		Accelerated Filer o

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

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

The number of shares of Common Stock, $0.10 par value, outstanding as of October 31, 2011, was 43,344,000 which do not include 18,390,000 shares held in treasury.

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TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION	3

Item 1.	Financial Statements	3

	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2011 and June 30, 2011	3

	Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2011 and 2010	4

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended September 30, 2011 and 2010	5

	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2011 and 2010	6

	Notes to Unaudited Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	34

PART II.	OTHER INFORMATION	35

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 6.	Exhibits	35

SIGNATURES		36

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PART I

ITEM 1. FINANCIAL STATEMENTS

BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2011			June 30, 2011
	(in 000s, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	61,937		$	66,425
Restricted cash	8,888			8,419
Accounts and notes receivable, net of allowances for doubtful accounts of $12,478 and $11,059	221,722			235,246
Inventories	73,804			68,634
Prepaid and refundable income tax	14,890			36,332
Deferred income tax assets	28,986			29,318
Deferred cost of revenue	12,368			13,795
Prepaid assets	13,928			10,524
Other current assets	5,673			4,984
Total current assets	442,196			473,677
Restricted long-term investments	12,801			12,485
Long-term accounts and notes receivables, net of allowances for doubtful accounts of $561 and $507	50,147			46,659
Property, plant and equipment, net of accumulated depreciation of $52,782 and $51,570	31,980			33,266
Leased gaming equipment, net of accumulated depreciation of $182,708 and $176,137	108,167			96,691
Goodwill	168,893			162,110
Intangible assets, net	35,436			34,865
Deferred income tax assets	14,083			12,120
Income tax receivable	12,047			10,972
Deferred cost of revenue	22,143			23,193
Other assets, net	20,161			21,356
Total assets	$	918,054		$	927,394
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	34,334		$	38,411
Accrued and other liabilities	60,549			58,295
Customer deposits	4,610			4,930
Jackpot liabilities	8,573			11,894
Deferred revenue	30,956			28,900
Income tax payable	3,756			3,033
Current maturities of long-term debt	15,165			15,153
Total current liabilities	157,943			160,616
Long-term debt, net of current maturities	491,500			500,250
Deferred revenue	36,548			34,788
Other income tax liability	10,731			9,321
Other liabilities	16,943			7,827
Total liabilities	713,665			712,802
Commitments and contingencies (Note 8)
Stockholders’ equity:
Special stock, 10,000,000 shares authorized: Series E, $100 liquidation value; 115 shares issued and outstanding	12			12
Common stock, $.10 par value; 100,000,000 shares authorized; 61,713,000 and 61,541,000 shares issued and 43,512,000 and 44,397,000 outstanding	6,166			6,149
Treasury stock at cost, 18,201,000 and 17,144,000 shares	(665,574		)	(634,268		)
Additional paid-in capital	448,365			442,713
Accumulated other comprehensive loss	(10,386		)	(3,064		)
Retained earnings	424,139			401,363
Total Bally Technologies, Inc. stockholders’ equity	202,722			212,905
Noncontrolling interests	1,667			1,687
Total stockholders’ equity	204,389			214,592
Total liabilities and stockholders’ equity	$	918,054		$	927,394

See accompanying notes to unaudited condensed consolidated financial statements.

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BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended
	September 30,
	2011			2010
	(in 000s, except per share amounts)
Revenues:
Gaming equipment and systems	$	110,013		$	91,588
Gaming operations	84,954			79,220
	194,967			170,808
Costs and expenses:
Cost of gaming equipment and systems (1)	47,101			36,957
Cost of gaming operations	24,232			22,222
Selling, general and administrative	57,222			51,614
Research and development costs	23,386			21,384
Depreciation and amortization	5,635			4,627
	157,576			136,804
Operating income	37,391			34,004
Other income (expense):
Interest income	1,324			1,119
Interest expense	(4,597		)	(3,033		)
Other, net	(1,856		)	1,847
Income from continuing operations before income taxes	32,262			33,937
Income tax expense	(11,853		)	(12,285		)
Income from continuing operations	20,409			21,652
Loss on sale of discontinued operations, net of tax	—			(403		)
Net income	20,409			21,249
Less net income (loss) attributable to noncontrolling interests	17			(540		)
Net income attributable to Bally Technologies, Inc.	$	20,392		$	21,789
Basic earnings per share attributable to Bally Technologies, Inc.:
Income from continuing operations	0.47			0.42
Loss on sale of discontinued operations	—			(0.01		)
Basic earnings per share	$	0.47		$	0.41
Diluted earnings per share attributable to Bally Technologies, Inc.:
Income from continuing operations	0.45			0.40
Loss on sale of discontinued operations	—			(0.01		)
Diluted earnings per share	$	0.45		$	0.39
Weighted average shares outstanding:
Basic	43,708			53,676
Diluted	45,567			56,032
Amounts attributable to Bally Technologies, Inc.:
Income from continuing operations, net of tax	$	20,392		$	22,192
Loss on sale of discontinued operations, net of tax	—			(403		)
Net income	$	20,392		$	21,789

(1)	Cost of gaming equipment and systems exclude amortization related to certain intangibles, including core technology and license rights, which are included in depreciation and amortization.

See accompanying notes to unaudited condensed consolidated financial statements.

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BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

	Common Stock			Series E Special		Treasury			Additional Paid-In		Accumulated Other Comprehensive Income (Loss)			Retained			Noncontrolling			Total Stockholders’
	Shares	Dollars		Stock		Stock			Capital		(“OCI”)			Earnings			Interests			Equity
	(in 000s)
Balances at June 30, 2010	59,495	$	5,943	$	12	$	(157,053	)	$	392,853	$	(3,044	)	$	303,100		$	2,381		$	544,192
Net income from continuing operations, net of tax	—	—		—		—			—		—			22,192			(540		)	21,652
Loss on sale of discontinued operations, net of tax	—	—		—		—			—		—			(403		)	—			(403		)
Foreign currency translation adjustment	—	—		—		—			—		1,172			—			—			1,172
Unrealized loss on derivative financial instruments, net of tax	—	—		—		—			—		(420		)	—			—			(420		)
Total comprehensive income	—	—		—		—			—		—			—			—			$	22,001
Distributions to noncontrolling interests	—	—		—		—			—		—			—			(123		)	(123		)
Issuance and receipt of restricted stock, ESPP shares, stock options and related tax and tax benefit	48	5		—		(125		)	1,086		—			—			—			966
Purchase of common stock for treasury	—	—		—		(22,145		)	—		—			—			—			(22,145		)
Share-based compensation	—	—		—		—			3,284		—			—			—			3,284
Balances at September 30, 2010	59,543	$	5,948	$	12	$	(179,323	)	$	397,223	$	(2,292	)	$	324,889		$	1,718		$	548,175

Balances at June 30, 2011	61,541	$	6,149	$	12	$	(634,268	)	$	442,713	$	(3,064	)	$	401,363		$	1,687		$	214,592
Net income from continuing operations, net of tax	—	—		—		—			—		—			20,392			17			20,409
Foreign currency translation adjustment	—	—		—		—			—		(2,010		)	—			—			(2,010		)
Unrealized loss on derivative financial instruments, net of tax	—	—		—		—			—		(5,312		)	—			—			(5,312		)
Total comprehensive income	—	—		—		—			—		—			—			—			$	13,087
Distributions to noncontrolling interests	—	—		—		—			—		—			—			(37		)	(37		)
Cumulative effect of adoption of ASU 2010-16	—	—		—		—			—		—			2,384			—			2,384
Issuance and receipt of restricted stock, ESPP shares, stock options and related tax and tax benefit	172	17		—		(338		)	2,260		—			—			—			1,939
Purchase of common stock for treasury	—	—		—		(30,968		)	—		—			—			—			(30,968		)
Share-based compensation	—	—		—		—			3,392		—			—			—			3,392
Balances at September 30, 2011	61,713	$	6,166	$	12	$	(665,574	)	$	448,365	$	(10,386	)	$	424,139		$	1,667		$	204,389

See accompanying notes to unaudited condensed consolidated financial statements.

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BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended September 30,
	2011			2010
	(in 000s)
Cash flows from operating activities:
Net income	$	20,409		$	21,249
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on sale of discontinued operations, net of tax	—			403
Depreciation and amortization	20,209			18,124
Share-based compensation	3,392			3,284
Amortization of deferred debt issuance costs	440			963
Income tax (benefit) expense	(176		)	3,466
Provision for doubtful accounts	2,528			1,012
Inventory write-downs	1,191			758
Excess tax benefit of stock option exercises	(341		)	(333		)
Other	487			(140		)
Change in operating assets and liabilities:
Accounts and notes receivable	8,525			774
Inventories	(31,443		)	(20,491		)
Prepaid and refundable income tax and income tax payable	21,488			(3,742		)
Other current assets	(4,992		)	(5,104		)
Accounts payable	(3,937		)	787
Accrued liabilities, customer deposits and jackpot liabilities	2,082			(8,404		)
Deferred revenue and deferred cost of revenue	6,431			(1,479		)
Net cash provided by operating activities	46,293			11,127
Cash flows from investing activities:
Acquisition	(6,000		)	—
Capital expenditures	(1,634		)	(1,957		)
Restricted cash and investments	(786		)	2,328
Additions to other long-term assets	(1,581		)	(3,072		)
Net cash used in investing activities	(10,001		)	(2,701		)
Cash flows from financing activities:
Proceeds from revolving credit facility	—			4,369
Payments on revolving credit facility	(5,000		)	—
Capitalized debt issuance costs	—			(158		)
Reduction of long-term debt	(3,760		)	(8,756		)
Distributions to noncontrolling interests	(37		)	(123		)
Purchase of treasury stock	(31,306		)	(22,270		)
Excess tax benefit of stock option exercises	341			333
Proceeds from exercise of stock options and employee stock purchases	2,006			782
Net cash used in financing activities	(37,756		)	(25,823		)
Effect of exchange rate changes on cash	(3,024		)	(3		)
Net cash provided by (used in) operating activities of discontinued operations	—			(403		)
	—			(403		)
Cash and cash equivalents:
Decrease for period	(4,488		)	(17,803		)
Balance, beginning of period	66,425			145,089
Balance, end of period	$	61,937		$	127,286

See accompanying notes to unaudited condensed consolidated financial statements.

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BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED SUPPLEMENTAL CASH FLOW INFORMATION

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

	Three Months Ended September 30,
	2011			2010
	(in 000s)
Cash paid for interest	$	4,340		$	3,033
Cash paid for income taxes, net of refunds	(10,682		)	11,199

Non-cash investing and financing transactions:
Transfer of inventory to leased gaming equipment (1)	$	30,457		$	16,767
Reclassify property, plant and equipment to inventory (1)	3,595			3,014
Liabilities assumed in acquisition	2,830			—

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

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BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Bally Technologies, Inc. (“Bally” or the “Company”), a Nevada corporation, is a diversified, worldwide gaming company that innovates, designs, manufactures, operates and distributes advanced technology-based gaming devices, systems and server-based solutions. As a global gaming-systems provider, the Company offers technology solutions which provide gaming operators with a wide range of marketing, data management and analysis, accounting, player tracking, security and other software applications and tools to more effectively manage their operations. The Company’s primary hardware technologies include spinning-reel and video gaming devices, specialty gaming devices and wide-area progressive systems for traditional land-based, riverboat and Native American casinos, video lottery and central determination markets and specialized system-based hardware products. In addition to selling its gaming devices, the Company also offers its customers a wide range of rental options.

Principles of presentation and consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), include all adjustments necessary to fairly present the Company’s consolidated financial position, results of operations and cash flows for each period presented. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations. The results of operations for an interim period are not necessarily indicative of the results that may be expected for any other interim period or the year as a whole. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011. References to specific U.S. GAAP within this report cite topics within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

All intercompany accounts and transactions have been eliminated in consolidation.

Discontinued Operations

The Company was the general partner of Rainbow Casino Vicksburg Partnership (“RCVP”), which operated the Rainbow Casino, a dockside riverboat casino in Vicksburg, Mississippi. On April 5, 2010, the Company entered into a definitive purchase agreement to sell the Rainbow Casino which closed on June 8, 2010. Per the terms of the sale agreement, the Company had certain post-closing adjustments during the three months ended September 30, 2010 which reduced its gain on the sale of the Rainbow Casino by approximately $0.4 million, net of income taxes.

Use of estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair value of financial instruments

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amounts reflected in the accompanying unaudited condensed consolidated balance sheets for cash equivalents, accounts and notes receivable, investment securities to fund jackpot liabilities, accounts payable, jackpot liabilities and long-term debt approximate their respective fair values.

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

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

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

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

The Company transacts business in various foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency risk. The Company may enter into foreign currency forward contracts, generally with maturities of twelve months or less, to hedge recognized foreign currency assets and liabilities to reduce the risk that earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. The gains or losses resulting from changes in the fair value of these forward contracts, which are not designated as accounting hedges, are reported in other income (expense) in the unaudited condensed consolidated statements of operations, and generally offset the gains and losses associated with the underlying foreign-currency-denominated balances, which are also reported in other income (expense). As of September 30, 2011, total outstanding contracts were $33.5 million, or the notional equivalent of €25 million.

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

	Fair Value Measurements Using Input Type
	Level 1		Level 2		Level 3
	(in 000s)
As of September 30, 2011:
Assets:
Other current assets:
Foreign currency derivative financial instrument	$	—	$	550	$	—
Other assets, net:
Foreign currency derivative financial instrument	$	—	$	870	$	—

Liabilites:
Accrued and other liabilities:
Interest rate derivative financial instruments	$	—	$	4,523	$	—
Other liabilities:
Interest rate derivative financial instrument	$	—	$	7,551	$	—

As of June 30, 2011:
Assets:
Other assets, net:
Foreign currency derivative financial instrument	$	—	$	452	$	—
Interest rate derivative financial instruments	$	—	$	1,231	$	—

Liabilites:
Accrued and other liabilities:
Foreign currency derivative financial instrument	$	—	$	586	$	—
Interest rate derivative financial instruments	$	—	$	5,133	$	—

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The valuation techniques used to measure the fair value of the derivative financial instrument above in which the counterparties have high credit ratings, were derived from pricing models, such as discounted cash flow techniques, with all significant inputs derived from or corroborated by observable market data. The Company’s discounted cash flow techniques use observable market inputs, such as LIBOR-based yield curves and foreign currency forward rates. See Note 4 to unaudited condensed consolidated financial statements, Long-Term Debt.

Accounting for Derivative Instruments and Hedging Activity

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

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

Cash Flow Hedging Relationship	Amount of Loss Recognized in OCI on Derivative (Effective Portion)		Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
	(in 000s)
For the three months ended September 30, 2011:
Interest rate swap agreements	$	9,521	Interest expense	$	1,349
For the three months ended September 30, 2010:
Interest rate swap agreement	$	1,249	Interest expense	$	602

	Amount of Loss Recognized in Other Income (Expense)
Non-Designated Derivative	Three Months Ended September 30, 2011		Three Months Ended September 30, 2010
Foreign Currency Forward Contract	$	1,554	$	—

Accounts and notes receivable, allowance for doubtful accounts and credit quality of financing receivables

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

Trade receivables with contract terms greater than one year relate to the sale of gaming equipment and, to a lesser extent, systems transactions that include software as a major component of the sale, and are generally collateralized by the related equipment sold, although the value of such equipment, if repossessed, may be less than the receivable balance outstanding. Sales-type leasing arrangements relate to gaming equipment and include options to purchase the equipment at the end of the lease term at established prices. These customers typically have a long-standing credit history with the Company. Revenue from these lease arrangements is not significant.

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The Company has also provided development financing to certain customers in the form of notes receivable with repayment terms of three to ten years. These notes may also include accelerated payment terms based upon a percentage of net-win from gaming devices sold or leased to these customers.

The Company has one portfolio segment, the casino industry customer, and four classes of receivables including its trade receivables with a contract term less than one year, trade receivables with a contract term greater than one year, sales-type leasing arrangements, or lease receivables, and notes receivable, which are primarily for developmental financing loans.

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

	Accounts and Notes Receivable as of September 30, 2011						Accounts and Notes Receivable as of June 30, 2011
	Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment		Ending Balance		Ending Balance Individually Evaluated for Impairment		Ending Balance Collectively Evaluated for Impairment
	(in 000s)
Contract term less than one year:
Trade and other receivables, current	$	146,877	$	3,143	$	143,734	$	162,202	$	2,064	$	160,138

Contract term greater than one year:
Trade receivables, current	72,993		3,473		69,520		72,237		3,973		68,264
Trade receivables, noncurrent	19,611		—		19,611		15,111		213		14,898
	92,604		3,473		89,131		87,348		4,186		83,162

Lease receivables, current	11,469		11,469		—		10,245		10,245		—
Lease receivables, noncurrent	14,613		14,613		—		13,490		13,490		—
	26,082		26,082		—		23,735		23,735		—

Notes receivable, current	2,861		2,861		—		1,621		1,621		—
Notes receivable, noncurrent	16,484		16,484		—		18,565		18,565		—
	19,345		19,345		—		20,186		20,186		—

Total current	234,200		20,946		213,254		246,305		17,903		228,402
Total noncurrent	50,708		31,097		19,611		47,166		32,268		14,898
Total	$	284,908	$	52,043	$	232,865	$	293,471	$	50,171	$	243,300

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The activity related to the allowance for doubtful accounts is summarized below:

	Allowance for Doubtful Accounts
	Beginning Balance as of June 30, 2011			Charge- offs		Recoveries		Provision			Ending Balance as of September 30, 2011			Ending Balance Individually Evaluated for Impairment			Ending Balance Collectively Evaluated for Impairment
	(in 000s)
Contract term less than one year:
Trade and other receivables, current	$	(5,875	)	$	480	$	125	$	(2,326	)	$	(7,596	)	$	(3,143	)	$	(4,453	)

Contract term greater than one year:
Trade receivables, current	(5,184		)	336		—		(34		)	(4,882		)	(3,473		)	(1,409		)
Trade receivables, noncurrent	(507		)	114		—		(168		)	(561		)	—			(561		)
	(5,691		)	450		—		(202		)	(5,443		)	(3,473		)	(1,970		)

Lease receivables, current	—			—		—		—			—			—			—
Lease receivables, noncurrent	—			—		—		—			—			—			—
	—			—		—		—			—			—			—

Notes receivable, current	—			—		—		—			—			—			—
Notes receivable, noncurrent	—			—		—		—			—			—			—
	—			—		—		—			—			—			—

Total current	(11,059		)	816		125		(2,360		)	(12,478		)	(6,616		)	(5,862		)
Total noncurrent	(507		)	114		—		(168		)	(561		)	—			(561		)
Total	$	(11,566	)	$	930	$	125	$	(2,528	)	$	(13,039	)	$	(6,616	)	$	(6,423	)

The Company accrues interest, if applicable, on its receivables per the terms of the agreement. Interest is not accrued on delinquent accounts that the Company has determined and specifically identified as not collectible. The Company’s recorded investment in receivables on nonaccrual status, excluding trade accounts receivable with a contract term less than one year, is as follows:

Recorded Investment in Receivables on Nonaccrual Status	September 30, 2011		June 30, 2011
	(in 000s)
Trade receivables	$	3,473	$	4,186
Lease receivables	—		—
Notes receivables	—		—
Total	$	3,473	$	4,186

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

Gaming is a highly regulated industry requiring customers to obtain a gaming operator’s license and verify with the applicable regulatory agency that they have the financial resources to operate a gaming establishment. Many of the Company’s customers, including new casinos that have opened in recent years, are owned by existing multi-property customers that have established a favorable payment history with the Company. Customer accounts typically include a mix of trade receivables balances with terms for periods of 30 to 120 days and financing receivables resulting from extended payment terms.

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The Company monitors the credit quality of its accounts and notes receivable by reviewing an aging of customer invoices. Invoices are considered past due if a scheduled payment is not received within contractually agreed upon terms. The Company also reviews a variety of other relevant qualitative information such as collection experience, economic conditions and specific customer financial conditions to evaluate credit risk in recording the allowance for doubtful accounts.

The following summarizes the aging of past due receivables, excluding trade accounts receivable with a contract term less than one year, as of September 30, 2011:

	1 to 90 Days Past Due		91 to 180 Days Past Due		181 + Days Past Due		Total Past Due		Current		Total Receivable		Recorded Investment 90 Days and Accruing
	(in 000s)
Trade receivables	$	6,871	$	3,481	$	6,955	$	17,307	$	75,297	$	92,604	$	—
Lease receivables	—		—		—		—		26,082		26,082		—
Notes receivable	—		—		—		—		19,345		19,345		—
Total	$	6,871	$	3,481	$	6,955	$	17,307	$	120,724	$	138,031	$	—

The aging of customer invoices is based on their contractually agreed upon payment terms, which in certain rare circumstances have been modified from the original financing terms. The modifications of original financing terms have not been material to our total trade, lease and note receivable balances.

The Company’s notes receivable are reviewed quarterly, at a minimum, for impairment. The customer’s solvency, collection experience, legal and regulatory environment and other financial information may indicate that the loan is impaired. As of September 30 and June 30, 2011, respectively, the Company had no impaired loans in its accounts and notes receivable balances. No further interest is accrued once a loan is impaired.

The fair value of accounts and notes receivable, net, is estimated by discounting expected future cash flows using current interest rates at which similar loans would be made to borrowers, with similar credit ratings and remaining maturities. As of September 30 and June 30, 2011, respectively, the fair value of the accounts and notes receivable, net, approximate the carrying value.

Inventories

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

	September 30, 2011		June 30, 2011
	(in 000s)
Raw materials	$	52,416	$	53,926
Work-in-process	1,228		1,630
Finished goods	20,160		13,078
Total	$	73,804	$	68,634

Revenue recognition

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

· Persuasive evidence of an arrangement exists;

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

· Collectability is reasonably assured;

· Delivery has occurred; and

· No significant contractual obligations remain.

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

Games placed with customers on a trial basis are not recognized as revenue until the trial period ends, the customer accepts the games and all other relevant criteria have been met. Amounts billed to customers prior to completing the earnings process are deferred until the revenue recognition criteria are met.

Effective July 1, 2009, the Company adopted new accounting guidance related to revenue recognition for multiple deliverable arrangements and certain revenue arrangements that include software elements. The Company elected to adopt this guidance prior to the required effective date using the prospective method. Accordingly, this guidance was applied to all new or materially modified revenue arrangements entered into since the start of the Company’s fiscal year of adoption, which was July 1, 2009.

Prior to the adoption of the new revenue recognition guidance, gaming equipment and systems revenue was recognized in accordance with software revenue recognition guidance. The new guidance amended the scope of software revenue recognition to exclude all tangible products containing both software and nonsoftware components that function together to deliver the product’s essential functionality. As a result of applying the new guidance, certain products that were previously accounted for under the scope of software revenue recognition guidance are no longer accounted for as software.

Gaming Operations Revenue. Gaming operations revenue consists of the operation of linked progressive systems and the rental of gaming devices, game content and the related systems placed with customers. Fees under these arrangements are earned and recognized based on a share of money wagered, a share of the net winnings, or on a fixed daily rate. The daily fee entitles the customer to full use of the gaming device and includes maintenance, licensing of the game content software and connection to a linked progressive system, where applicable. In certain markets, the Company also charges a daily system connection fee for the customer to connect to a central determination system and/or back-office system. The Company does not consider these arrangements to have multiple revenue-generating activities as the services offered are a comprehensive solution in exchange for a daily fee and all of the products and services are delivered contemporaneously. Gaming operations revenue is recognized under general revenue recognition guidance as the deliverables provide the customer with rights to use tangible gaming devices and software that is essential to the functionality of the gaming device.

Gaming Equipment Revenue. Gaming Equipment revenue is generated from the sale of gaming devices and licensing rights to game content software that is installed in the gaming device, parts, and other ancillary equipment. Arrangements may also include sales of game content conversion kits which enable customers to replace game content without purchasing a new gaming device. Gaming equipment arrangements do not include maintenance and product support fees beyond a standard warranty period. The recognition of revenue from the sale of gaming devices occurs as title and risk of loss have passed to the customer and all other criteria have been satisfied.

As the combination of game content software and the tangible gaming device function together to deliver the product’s essential functionality, revenue from the sale of gaming devices is recognized under general revenue recognition guidance. Prior to July 1, 2009, gaming devices were recognized under software revenue recognition guidance. Game content conversion kits are considered software deliverables and are recognized in accordance with software revenue recognition guidance.

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

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

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

Systems-based hardware includes embedded software that is essential to the functionality of the hardware. Accordingly, revenue related to all systems-based hardware sales and related maintenance and product support fees are recognized under general revenue recognition guidance. Prior to July 1, 2009, systems- based hardware was recognized under software revenue recognition guidance. Revenue from the sale of systems-based hardware is generally recognized upon delivery when title and risk of loss have passed to the customer and all other revenue recognition criteria are met. However, in the case of arrangements involving a systems installation, revenue on the systems-based hardware is generally not recognized until the system has been installed and the customer has accepted the system. Hardware maintenance and product support fees are recognized during the term of the support period which is generally 12 months.

Software maintenance and product support provides customers with rights to unspecified software product upgrades, maintenance and patches released during the term of the support period. The Company’s software maintenance and product support arrangements are generally for 12 month periods. Software maintenance and product support is recognized on a straight-line basis over the term of the support period.

Multiple Element Arrangements. The Company enters into revenue arrangements that may consist of multiple deliverables of its products and services. Customers may enter into arrangements with the Company for the implementation of systems software and the sale of gaming devices. Arrangements for the implementation of systems software will generally include a combination of systems software licenses, systems-based hardware products, maintenance and product support fees, and professional services. Certain gaming equipment arrangements may also include the sale of gaming devices and game conversion kits. Revenue arrangements with multiple deliverables are allocated to separate units of accounting if the deliverables meet both of the following criteria:

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

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

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

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

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

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

Recently adopted accounting pronouncements

On July 1, 2011, the Company adopted new accounting guidance related to accruals for casino jackpot liabilities. Specifically, the guidance clarifies that an entity should not accrue jackpot liabilities, or portions thereof, before a jackpot is won if the entity can avoid paying the jackpot. Jackpots should be accrued and charged to revenue when an entity has the obligation to pay the jackpot. The guidance applies to both base and progressive jackpots. The new guidance was applied by recording a cumulative-effect adjustment to opening retained earnings of $2.4 million on July 1, 2011.

On July 1, 2011, the Company adopted new accounting guidance related to troubled debt restructuring. The guidance clarifies which loan modifications constitute troubled debt restructurings to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosures of troubled debt restructurings.

Recently issued accounting pronouncements not yet adopted

In May 2011, the FASB issued new accounting guidance related to fair value measurements. The new guidance changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. The guidance also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. The new guidance is to be applied prospectively and is effective for interim and annual periods beginning on or after December 15, 2011. The Company expects to adopt the guidance in the second quarter of fiscal year 2012 and does not believe it will have a significant impact on its consolidated financial statement footnote disclosures.

In June 2011, the FASB issued new accounting guidance to make the presentation of items within other comprehensive income (“OCI”) more prominent. The new standard will require companies to present items of net income, items of OCI and total comprehensive income in one continuous statement or two separate consecutive statements, and companies will no longer be allowed to present items of OCI in the statement of stockholders’ equity. The new guidance is to be applied retrospectively and is effective for interim or annual periods beginning after December 15, 2011. The Company expects to adopt the guidance in the second quarter of fiscal year 2012. The adoption of this standard will change the presentation of the Company’s consolidated financial statements.

In September 2011, the FASB issued new accounting guidance for testing goodwill for impairment which permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The new guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company expects to adopt the guidance in the second quarter of fiscal year 2012 and does not believe it will have any impact on its consolidated results of operations, financial condition and cash flows.

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

2. EARNINGS PER SHARE

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

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

	Three Months Ended September 30,
	2011		2010
	(in 000s, except per share amounts)
Amounts attributable to Bally Technologies, Inc.:
Income from continuing operations, net of tax	$	20,392	$	22,192
Loss on sale of discontinued operations, net of tax	—		(403		)
Net income	$	20,392	$	21,789

Weighted average shares outstanding	43,708		53,676
Dilutive effect of:
Stock options, Restricted Stock Units (“RSU”) and restricted stock	1,859		2,355
Warrants	—		1
Weighted average diluted shares outstanding	45,567		56,032

Basic earnings per share attributable to Bally Technologies, Inc.
Income from continuing operations	$	0.47	$	0.42
Loss on sale of discontinued operations	—		(0.01		)
Basic earnings per share	$	0.47	$	0.41

Diluted earnings per share attributable to Bally Technologies, Inc.
Income from continuing operations	$	0.45	$	0.40
Loss on sale of discontinued operations	—		(0.01		)
Diluted earnings per share	$	0.45	$	0.39

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

	Three Months Ended September 30,
	2011	2010
	(in 000s)
Stock options, RSU and restricted stock	785	793

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3. GOODWILL AND INTANGIBLE ASSETS

Intangible assets consist of the following:

		September 30, 2011							June 30, 2011
	Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(dollars in 000s)
Computer software	3 - 9	$	36,798	$	(32,569	)	$	4,229	$	36,725	$	(31,841	)	$	4,884
License rights	3 - 13	8,694		(3,126		)	5,568		4,344		(2,751		)	1,593
Trademarks	5 - 9	2,203		(2,203		)	—		2,203		(2,203		)	—
Core technology	5 - 14	23,763		(15,103		)	8,660		22,763		(14,107		)	8,656
Contracts	5 - 10	15,665		(7,623		)	8,042		15,303		(7,372		)	7,931
Other intangibles	3 - 5	1,933		(496		)	1,437		5,337		(1,036		)	4,301
Total finite lived intangible assets		$	89,056	$	(61,120	)	$	27,936	$	86,675	$	(59,310	)	$	27,365
Trademark	indefinite	7,500		—			7,500		7,500		—			7,500
Total		$	96,556	$	(61,120	)	$	35,436	$	94,175	$	(59,310	)	$	34,865

Total amortization expense related to finite lived intangible assets was $2.4 million and $2.6 million for the three months ended September 30, 2011 and 2010, respectively, which included computer software amortization expense of $0.6 million and $1.1 million for the three months ended September 30, 2011 and 2010, respectively. Future amortization of finite lived intangible assets is scheduled as follows:

Year Ended June 30,	(in 000s)
2012 (remaining nine months of fiscal year)	$	8,348
2013	9,392
2014	4,890
2015	2,181
2016	1,671
Thereafter	1,454
Total	$	27,936

All goodwill is associated with continuing operations. The changes in the carrying amount of goodwill for the three months ended September 30, 2011, are as follows:

	(in 000s)
Balance at June 30, 2011	$	162,110
Additions	7,131
Foreign currency translation adjustment	(348		)
Balance at September 30, 2011	$	168,893

In July 2011, the Company acquired substantially all of the assets and liabilities of MacroView Labs. No impairment charges for goodwill and intangible assets were necessary for the three months ended September 30, 2011 and 2010.

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4. LONG-TERM DEBT

Long-term debt consists of the following:

	September 30,			June 30,
	2011			2011
	(in 000s)
Revolving credit facility	$	214,000		$	219,000
Term loan facility	292,500			296,250
Other, generally unsecured	165			153
Long-term debt	506,665			515,403
Less current maturities	(15,165		)	(15,153		)
Long-term debt, net of current maturities	$	491,500		$	500,250

As of September 30, 2011, there was approximately $186.0 million of undrawn availability under the revolving credit facility. Availability under the revolving credit facility is reduced to the extent of outstanding letters of credit.

On April 15, 2011, the Company entered into an amended and restated credit agreement, that provides for a $700 million senior secured credit facility comprised of a $300 million, five-year term loan and a $400 million, five-year revolving credit facility, including a $50 million sublimit for the issuance of standby letters of credit, a $10 million sublimit for swingline loans and a $150 million sublimit for multicurrency borrowings approved under the credit facility.

The interest rate on the credit facility is subject to a leverage-based pricing grid based on LIBOR plus a margin between 1.25% and 2.00%. As of September 30, 2011, the interest rate on the revolving credit facility was 1.97% and the interest rate on the term loan was approximately 3.82%, after giving effect to the floating-to-fixed interest rate swaps discussed below.

Under the credit facility, the term loan requires quarterly principal reductions in an amount equal to 1.25% of the effective date term loan amount, or $3,750,000, through March 2013; an amount equal to 1.875% of the effective date term loan amount, or $5,625,000, through March 2014; an amount equal to 2.50% of the effective date term loan amount, or $7,500,000, from June 2014 until the term loan’s maturity in May 2016 upon when the remaining outstanding principal balance of $187,500,000 is due.

The credit facility is collateralized by substantially all of the Company’s domestic property and is guaranteed by each of the Company’s domestic subsidiaries, excluding any noncontrolling interests, and is secured by a pledge agreement.

The fair value of long-term debt is estimated by discounting expected cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and remaining maturities. As of September 30 and June 30, 2011, the fair value of long-term debt approximated the carrying value.

The credit facility contains a number of covenants that, among other things, restrict the Company’s ability and certain of its subsidiaries to dispose of assets, incur additional indebtedness or issue preferred stock, pay dividends or make other distributions, enter into certain acquisitions, repurchase equity interests or subordinated indebtedness, issue or sell equity interests of our subsidiaries, engage in mergers or acquisitions or certain transactions with subsidiaries and affiliates, and that otherwise restrict corporate activities.

The financial covenants under the credit facility consist of a leverage ratio and an interest coverage ratio. The leverage ratio is computed as total debt outstanding at the end of the quarter divided by the trailing twelve months Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), excluding certain cash and non-cash charges. The interest coverage ratio is computed as EBITDA for the trailing twelve months divided by the trailing twelve months of interest charges.

A breach of any of the covenants or the inability to comply with the required financial ratios could result in a default under the credit facility. In the event of any such default, the lenders could elect to declare all borrowings outstanding under the credit facility, together with any accrued interest and other fees, to be due and payable. If the Company were unable to repay the indebtedness upon its acceleration, the lenders could proceed against the underlying collateral. The Company was in compliance with all of the credit facility covenants as of September 30 and June 30, 2011.

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Interest Rate Swap Agreements

Effective December 2008, the Company entered into a floating-to-fixed interest rate swap agreement with an original notional value of $218.8 million and a maturity date of September 26, 2012 to fix floating LIBOR based debt to fixed rate debt at an interest rate of 1.89%. Effective June 2011, the Company entered into a second floating-to-fixed rate swap agreement with an original notional value of $165.0 million and a maturity date of May 13, 2016 to fix a portion of the floating LIBOR based debt under the new term loan to fixed rate debt at an interest rate of 2.09%. At September 30, 2011, the combined swap agreements had a notional value of $292.5 million.

The Company has documented and designated these interest rate swaps as cash flow hedges. Based on the assessment of effectiveness using statistical regression, the Company determined that the interest rate swaps are effective. Effectiveness testing of the hedge relationships and measurement to quantify ineffectiveness is performed each quarter using the hypothetical derivative method. As the interest rate swaps qualify as cash flow hedges, the Company adjusts the cash flow hedges on a quarterly basis to their fair value with a corresponding offset to accumulated Other Comprehensive Income (“OCI”). The interest rate swaps have been and are expected to remain highly effective for the life of the hedges. Effective amounts are reclassified to interest expense as the related hedged expense is incurred. Any ineffectiveness is reclassified from accumulated other comprehensive income to other income (expense). As of September 30, 2011, the Company had no ineffectiveness on its cash flow hedges. Amounts related to the swaps expected to be reclassified from other comprehensive income to interest expense in the next twelve months total $4.5 million.

Additional information on the Company’s interest rate swaps are as follows:

Interest Rate Swaps	Balance Sheet Location	Fair Value (in 000s)		Location of Offsetting Balance
Cash flow hedges—$292.5 million LIBOR based debt	Accrued and other liabilities	$	4,523
	Other liabilities	7,551
		$	12,074	Accumulated other comprehensive income (before income taxes)

5. SHARE-BASED COMPENSATION

Employee Stock Purchase Plan

The 2008 Employee Stock Purchase Plan (the “2008 ESPP”) provides that eligible employees are able to contribute up to 10% of their eligible earnings towards the quarterly purchase of the Company’s common stock. The employee’s purchase price is equal to 85% of the fair market value. During the three months ended September 30, 2011 and 2010, employees purchased 23,442 shares and 19,572 shares of common stock for approximately $0.6 million and $0.5 million, respectively, under the 2008 ESPP.

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Share-Based Award Plans

Stock option activity as of and for the three months ended September 30, 2011 is summarized below:

		Weighted Average
	Shares	Exercise Price		Remaining Contractual Term	Aggregate Intrinsic Value
	(in 000s)	(per share)		(years)	(in 000s)
Balance outstanding as of June 30, 2011	3,682	$	24.45

Bally Technologies (BYI)

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