FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended September 30, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from.............to................
Commission File Number 001-10684
INTERNATIONAL GAME TECHNOLOGY
(Exact name of registrant as specified in its charter)
Nevada 88-0173041
(State of Incorporation) (I.R.S. Employer Identification No.)
520 South Rock Boulevard, Reno, Nevada 89502
(Address of principal executive offices)
Registrant's telephone number, including area code: (702) 688-0100
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, Par Value $.000625 New York Stock Exchange
5-1/2% Convertible Subordinated Notes New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of November 30, 1993: $3,500,265,345
The number of shares outstanding of each of the registrant's classes of
common stock, as of November 30, 1993: 127,136,771 shares of Common Stock,
$.000625 Par Value
Part III incorporates information by reference from the Registrant's
definitive Proxy Statement to be filed with the Commission within 120 days
after the close of the Registrant's fiscal year.
TABLE OF CONTENTS
PART I
Page
ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . . 18
ITEM 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . 19
ITEM 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . . . 19
PART II
ITEM 5. Market for Registrant's Common Stock and
Related Stockholder Matters . . . . . . . . . . . . 19
ITEM 6. Selected Financial Data. . . . . . . . . . . . . . . . 20
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 21
ITEM 8. Consolidated Financial Statements and
Supplementary Data. . . . . . . . . . . . . . . . . 30
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. . . . . . . 61
PART III
ITEM 10. Directors and Executive Officers of the Registrant . . 61
ITEM 11. Executive Compensation . . . . . . . . . . . . . . . . 61
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . 61
ITEM 13. Certain Relationships and Related Transactions . . . . 61
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . 62
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 64
PART I
ITEM 1. BUSINESS
General
International Game Technology (the "Company") was incorporated in
December 1980 to acquire the gaming licensee and operating entity, IGT
(recently renamed IGT-North America), and facilitate the Company's initial
public offering. In addition to its 100% ownership of IGT-North America,
the Company directly or indirectly owns 100% of IGT-International, ("IGT-
International"), 100% of IGT-Australia, Pty. Ltd. ("IGT-Australia"), 100%
of IGT-Europe b.v. ("IGT-Europe"), 99.75% of IGT-Iceland Ltd. ("IGT-
Iceland") and 100% of IGT-Japan k.k. ("IGT-Japan"). In December 1993 the
Company sold its interest in its riverboat partnerships and on September
30, 1993 sold its interest in CMS-International ("CMS"). See "Discontinued
Operations."
IGT-North America is the largest manufacturer of computerized casino
gaming products and proprietary systems in the world. The Company believes
it manufactures the broadest range of microprocessor-based gaming machines
available. The Company also develops and manufactures "SMART" systems
which monitor slot machine play and track player activity. In addition to
gaming product sales and leases, the Company has developed and sells
computerized linked proprietary systems to monitor video gaming terminals
and has developed specialized video gaming terminals for lotteries and
other applications. IGT-North America also develops and operates
proprietary software linked progressive systems. The Company derives
revenues related to the operations of these systems as well as collects
license and franchise fees for the use of the systems.
IGT-International was established in September 1993 to oversee all
operations outside of North America by the Company's foreign subsidiaries.
IGT-International also conducts sales either directly or through
distributors in countries not served by the Company's foreign subsidiaries.
IGT-Australia, located in Sydney, Australia, manufactures
microprocessor-based gaming products and proprietary systems, and performs
engineering, manufacturing, sales and marketing and distribution operations
for the Australian markets as well as other gaming jurisdictions in the
Southern Hemisphere and Pacific Rim.
IGT-Europe was established in The Netherlands in February 1992 to
distribute and market gaming products in Eastern and Western Europe and
Africa. Prior to providing direct sales, the Company sold its products in
these markets through a distributor.
IGT-Iceland was established in September 1993 to provide system
software, machines, equipment and technical assistance to support Iceland's
video lottery operations.
IGT-Japan was established in July 1990, and in November 1992 opened an
office in Tokyo, Japan. On April 16, 1993, IGT-Japan was approved to
supply Pachisuro gaming machines to the Japanese market, and the Company
began delivery of these machines during the third quarter of fiscal 1993.
ITEM 1. BUSINESS (continued)
Discontinued Operations
During fiscal 1993, the Company divested its investments in casino
operations through the sale of its interest in the President Riverboat
Casinos, Inc. ("PRC") and CMS. These dispositions were made as part of the
Company's strategy to focus on its core businesses of manufacturing
machines and the development of proprietary systems software.
Iowa Riverboat Corporation ("IRC"), a wholly-owned subsidiary of the
Company, established in March 1990, was a 40% partner in an Iowa
partnership that owned and operated the President riverboat casino and the
Blackhawk Hotel in Davenport, Iowa. International Acceptance Corporation
("IAC"), also a wholly-owned subsidiary of the Company, owned 45% of a
riverboat excursion operation and the permanently docked Admiral riverboat
in St. Louis, Missouri. In December 1992, the Company contributed the
assets of IRC and IAC to PRC in exchange for 1,671,429 shares of PRC common
stock. These shares were subsequently sold to the public as part of an
initial public offering of PRC common stock on December 17, 1992 (see Note
12 to the Consolidated Financial Statements).
CMS, established in August 1988, operated casinos and hotel/casinos
for the Company including the Silver Club hotel and casino and The Treasury
Club casino in Sparks, Nevada, the El Capitan Club in Hawthorne, Nevada and
the King's Casino on the island of Antigua in the Caribbean. Effective
September 30, 1993, the Company sold its ownership interest in CMS.
Unless the context indicates otherwise, references to "International
Game Technology", "IGT" or the "Company" include International Game
Technology and its wholly-owned subsidiaries and their subsidiaries. The
principal executive offices of the Company are located at 520 South Rock
Boulevard, Reno, Nevada 89502; its telephone number is (702) 688-0100.
The following table shows the revenues, operating results and
identifiable assets for the continuing operations of the Company's two
principal lines of business.
Years Ended
September 30,
1993 1992 1991
(Amounts in thousands)
Manufacture of Gaming Products:
Revenues . . . . . . . . . . $335,641 $236,372 $155,682
Operating Profit. . . . . . 175,888 115,705 69,378
Identifiable Assets . . . . 262,454 188,852 95,515
Gaming Operations:
Revenues . . . . . . . . . . 142,389 $127,222 $ 77,320
Operating Profit. . . . . . 62,391 59,381 26,842
Identifiable Assets:
Discontinued Casino
Operations. . . . . . . . - 30,737 29,785
Gaming Operations . . . . 151,234 117,595 78,328
ITEM 1. BUSINESS (continued)
Years Ended
September 30,
1993 1992 1991
(Amounts in thousands)
Geographic Area Data:
United States:
Revenues:
Unaffiliated Customers. $413,121 $326,136 $207,835
Inter-area Transfers. . 14,576 6,163 1,153
Operating Profit. . . . . 224,152 163,597 87,228
Identifiable Assets . . . 600,472 460,686 328,239
Australia:
Revenues. . . . . . . . . $ 39,681 $ 34,580 $ 25,166
Operating Profit. . . . . 15,269 13,671 8,723
Identifiable Assets . . . 27,067 24,465 17,366
Europe:
Revenues. . . . . . . . . $ 11,485 $ 2,878 $ -
Operating Profit. . . . . 1,025 513 -
Identifiable Assets . . . 11,007 4,822 -
Canada:
Revenues. . . . . . . . . $ 13,743 $ - $ -
Operating Profit. . . . . 4,241 - -
Identifiable Assets . . . 8,047 - -
See also Note 2 of Notes to Consolidated Financial Statements.
Gaming Products
Products
The Company develops its gaming products for two major markets: the
traditional casino gaming market and the government sponsored video gaming
terminal market. During 1993, the Company also began producing pachisuro
machines, a Japanese style slot machine.
The Company was the first to develop computerized video gaming and
today, under the Players Edge Plus trademark, the Company sells a variety
of different games. The games include the video poker and "blackjack"
products in the upright, slant-top and drop-in bar models. The Players
Edge Plus line is also available in slant-top keno, dual screen keno and
large screen video poker and video slots. Players Edge Plus machines offer
player appeal and security including multilevel progressives, embedded and
side-mount bill acceptors, enhanced sound packages, embedded progressive
meters and data communication devices.
The Company also offers a complete line of spinning reel slot
machines sold under the trademark S-Plus. The S-Plus series slot machines
use an advanced microprocessor system that accommodates several progressive
link configurations, enhanced audit trail functions, selection of game
software and optional side-mount or embedded bill acceptors. S-Plus
machines run existing S-slot programs or the latest partitioned software
ITEM 1. BUSINESS (continued)
which facilitates program updates. A game change can occur quickly by
selecting a new program chip from IGT's extensive game library and by
changing the glass and reel strips. The S-Plus machines are manufactured
in various sizes and colors and are offered in several designs including
upright, slant top and drop-in-bar.
IGT-North America also develops, manufactures and markets
microprocessor based Slot Marketing and Revenue Tracking "SMART" systems.
The SMART computer system identifies frequent players, records playing
history, provides direct marketing information, automates slot accounting
and provides additional security to casino customers. IGT provides SMART
system 24-hour technical support and a software maintenance agreement for
on-site service by specially trained system engineers.
Over the past decade, advancements in gaming machine technology have
attracted a greater number of players to slot and video machines due
primarily to higher jackpots and enhanced player appeal. These
improvements have significantly influenced casino gaming revenues.
Generally, annual slot and video revenues of domestic casinos exceed
revenues from table games.
The Company's innovations in slot and video technology have increased
the machines' earning potential by improving the ease and speed of play,
and by decreasing down-time through improved reliability and added service
features. All new gaming machines offer a wide variety of games,
innovative designs, sophisticated security features, self-diagnostic
capabilities, and various accounting and data retention functions. The
Company's engineering and design staff continually provide technological
improvements and ongoing game development. The Company has obtained
numerous patents on various aspects of the video and reel-type gaming
machines and systems. The visual aspects of the product are upgraded and
customized by the Company's graphic design and silkscreen departments.
The Company manufactures and markets video gaming terminals ("VGTs")
for government sponsored gaming programs. The VGTs are similar to the
Company's video gaming machines, although the wagering and payment of
jackpots differ. After inserting money in a VGT, the player is issued
credit and plays the machine like a traditional video machine. Player
losses are deducted from the credit and winnings are added, instead of
coins being dropped into a tray. Upon completion of play, the VGT prints
out a ticket showing the remaining amount of credit, and the ticket is
redeemable for cash. Unlike traditional gaming machines, VGTs are
typically linked to a central computer for accounting and security
purposes, which is monitored by the state lotteries or other government
agencies.
The following schedule illustrates revenues derived from the sale of
gaming products for the fiscal years ended September 30, 1993 and 1992.
Fiscal Years Ended September 30,
1993 1992 1991
(Amounts in Thousands)
Traditional Gaming Products
Reel-Type Slot Machines $194,126 $105,818 $ 61,356
Video Products $ 75,506 $ 62,338 $ 61,953
Video Gaming Terminals $ 15,100 $ 22,172 $ 5,312
ITEM 1. BUSINESS (continued)
Markets
The Company markets its gaming products in North America and in
jurisdictions throughout the world. The largest established North American
markets are Nevada and Atlantic City. The Company estimates that it
manufactured approximately 10,700 of the estimated 24,000 gaming machines
currently in place in Atlantic City. Nevada is both the oldest and largest
market for the Company's products with an installed base of approximately
160,000 machines. The Company estimates it manufactured approximately
140,000 of the total machines currently in use in Nevada.
Within Nevada, there has been increased demand for the Company's
products attributable to the construction of new casinos and the
refurbishment of existing casinos. The increased demand began with the
opening of the Mirage hotel and casino in 1989 and the Excalibur hotel and
casino in 1990. In fiscal 1991 and fiscal 1992, the Company's sales volume
in Nevada increased due to additional casino expansions and the replacement
of older machines with new games, designs and technological advancements.
During calendar 1993, three additional new major properties began operating
in Nevada. These are the Luxor, Treasure Island and the MGM Grand. These
three hotel casinos added more than 8,000 gaming machines or approximately
5% to the installed base of gaming machines in Nevada, and of these
machines approximately 6,500 were manufactured by the Company. The market
for the Company's products in Nevada will continue to grow in the event
casino expansions and refurbishment continue. In addition, the
construction of new casinos has increased competitive pressures for casino
operators to replace existing machines with new or upgraded machines.
Product sales outside of Nevada and New Jersey exceeded 70% of sales
during fiscal 1993 as gaming spread to new jurisdictions in North America.
These new jurisdictions include "limited stakes" gaming in the western
United States, riverboats, Indian gaming and government-sponsored video and
slot gaming.
Riverboat gaming began in Iowa during 1991 and as of September 30,
1993 was operating in three states: Iowa, Illinois and Mississippi.
Riverboat gaming is also legal in Louisiana, Missouri, and Indiana although
not yet operational at the end of fiscal year 1993. Additionally,
riverboat legislation is under consideration in Massachusetts, Minnesota,
Ohio, Pennsylvania, South Carolina, Texas and Virginia. At the end of
fiscal year 1993, the riverboat installed base approximated 16,000 gaming
machines operating on 24 riverboats in three states. IGT estimates that it
manufactured more than 13,000 of these machines.
Casino-style gaming continues to expand on American Indian lands.
Indian gaming is regulated under the Indian Gaming Regulatory Act of 1988
which permits specific types of gaming. Pursuant to these regulations,
permissible gaming devices are denoted as "Class III Gaming" which
requires, as a condition to implementation, that the Indian tribe and the
state government in which the Indian lands are located enter into a compact
governing the terms of the proposed gaming. IGT machines are placed only
with Indian gaming operators who have negotiated a compact with the state
and received approval by the U. S. Department of the Interior. The
Company, through its distributor Sodak Gaming, Inc., began selling machines
to authorized Indian casinos in 1990. The Company has either directly or
through its distributor sold machines in the following 10 states:
ITEM 1. BUSINESS (continued)
Arizona, Colorado, Connecticut, Iowa, Louisiana, Minnesota, Montana, North
Dakota, South Dakota and Wisconsin. Compacts have also been approved in
Mississippi, Michigan and Oregon, although no deliveries were made in these
jurisdictions during fiscal 1993. In addition to the approved states,
Class III compacts are under consideration in several states including
Alabama, California, Maine, Massachusetts, New Mexico, Rhode Island, Texas
and Washington. The installed base of Indian gaming machines at September
30, 1993 was approximately 26,000 units, and the Company estimates it
manufactured 19,500 of these machines.
Government-sponsored gaming in North America also creates a market for
the Company's video and slot products. The Company's video gaming
terminals are currently operational in Louisiana, Oregon Rhode Island,
South Dakota and the Canadian Provinces of Manitoba, New Brunswick,
Newfoundland, Nova Scotia and Prince Edward Island. The Company supplied
the central computer systems for government sponsored gaming in Manitoba,
Oregon and Louisiana and estimates that it manufactured approximately
12,500 of the approximately 50,000 video gaming terminals installed. The
Province of Quebec recently legalized video gaming terminals with an
estimated start up in the first half of calendar year 1994.
In addition to video terminal gaming, various Canadian governments
recently approved slot and video gaming in casino environments. The
Province of Manitoba opened two casino style entertainment centers during
September 1993 with approximately 600 slot machines of which the Company
supplied 540. The Province of Quebec began casino-style gaming in Montreal
during October 1993, and the Company supplied 480 of the 1,200 units
initially installed. Quebec has plans at this time for three additional
casinos. A casino is also planned for Windsor, Ontario, with a scheduled
opening date of early 1994. Casino gaming will commence there in a
temporary facility housing 1,600 slot machines, with the permanent facility
scheduled for a 1996 start up.
In addition to the traditional and emerging U. S. markets, gaming is
also expanding in the Company's international markets. Australia is the
most important market for the Company's gaming machine products outside of
North America. The State of New South Wales is the second largest market
in the world for the Company's gaming machines with an estimated total of
68,000 machines in 2,100 pubs and 1,500 clubs. The Company began selling
machines in Australia in 1986 and has supplied approximately 13,000 of the
machines in New South Wales. In 1991, the State of Queensland legalized
the operation of gaming machines in private pubs and clubs. The State of
Queensland awarded the Company a contract to provide the central computer
system linking the machines for accounting and security purposes. The
central computer system was installed and accepted in October 1991 and
gaming commenced in February 1992. The Company estimates that it supplied
5,300 machines or 38% of the 14,000 total machines. Gaming began in the
State of Victoria during July 1992 using two separate central systems. The
systems are operated by competing agencies that are each allowed to place
up to 10,000 machines. South Australia legalized gaming in September of
1992, but it has not yet been implemented. Other Australian jurisdictions
are considering the legalization or expansion of gaming operations and New
South Wales is considering the expansion of its gaming operation.
The Company has had a direct sales presence in Europe since February
1992. Since that time, increasing customer awareness of product
ITEM 1. BUSINESS (continued)
availability, combined with service and training assistance, has
contributed to improved sales. There have been previous sales in Western
Europe with recent activity in France, Austria, Switzerland and The
Netherlands. Central Europe sales have been made primarily in Turkey,
Slovenia and Poland.
IGT-International completed an agreement in fiscal 1993 with the
University of Iceland Lottery, ("UIL") whereby the Company will supply
video lottery terminals and a central system linking the video lottery
terminals. The central system incorporates a progressive jackpot feature.
The Iceland system, managed by the UIL, began operating in December 1993
with 350 video lottery terminals manufactured by the Company.
The Companys Pachisuro machine was approved in April 1993 for sale in
Japan by the Japanese technical testing laboratory (Security Electronics
and Communications Technology Association). The machine market in Japan
consists of 3,000,000 Pachinko machines and 800,000 Pachisuro machines
which operate in Pachinko parlors throughout the country of Japan. IGT is
the first U.S. company authorized to supply Pachisuro machines and will
compete with approximately 20 Japan-based companies that currently supply
this market.
Gaming Operations
Proprietary Systems
The Company developed and introduced the world's first electronically-
linked, inter-casino proprietary gaming machine system in 1986. These
systems link gaming machines in various casinos to a central computer. The
systems build a large "progressive" jackpot which increases with every
wager made throughout the system. The systems are designed to increase
gaming machine play for participating casinos by giving players the
opportunity to win jackpots substantially larger than those available from
gaming machines which are not linked to a progressive system. The
following are linked progressive systems developed by the Company:
* In Nevada, five systems under the names Megabucks, Quartermania,
Nevada Nickels, Fabulous Fifties, and High Rollers are operated
by the Company. Of the total 3,600 gaming machines linked to
these systems, approximately 1,800 are owned by the Company and
approximately 1,800 are owned by casinos.
* In Atlantic City, New Jersey, seven systems under the names
Megabucks, Quartermania, Fabulous Fifties, High Rollers,
Progressive "21", Megapoker and Pokermania are operated by a
trust managed by representatives from participating casinos. The
Company owns all of the approximately 1,200 machines linked to
these progressive systems.
* In Mississippi, four systems under the names Megabucks,
Quartermania, Fabulous Fifties and Mississippi Nickels are
operated by the Company. Approximately 230 machines are
operated on these systems. Two additional systems are expected
to commence operations in Mississippi in early fiscal 1994:
Pokermania and High Rollers.
ITEM 1. BUSINESS (continued)
* Other systems include a Megabucks system in Macau which consists
of approximately 180 machines owned by the casinos; a
Quartermania system in Colorado linking 156 machines owned by the
casinos; and a Deadwood, South Dakota Quartermania system which
includes approximately 60 casino-owned machines. A Colorado
Megabucks and Colorado Nickels system are planned for
installation in the second fiscal quarter of 1994.
The operation of linked progressive systems varies between
jurisdictions as a result of different gaming regulations. In Nevada,
Mississippi and South Dakota, the casinos retain the net win, less a
percentage paid to the Company to fund the progressive jackpots. These
jackpots are paid out in equal installments over a twenty year period. The
Company also earns interest on these funds until jackpots are paid. In
Atlantic City, the casinos retain the net win, less a percentage paid to a
trust managed by representatives of the participating casinos to fund the
jackpots and pay other system expenses. The trust records a liability to
the Company for an annual casino licensing fee as well as an annual machine
rental fee for each machine. In Colorado, the casinos retain the net win
less a percentage paid to a separate fund managed by the Company which pays
the jackpots. Progressive system lease fees are paid to the Company from
this fund.
The Company also offers a "leased" link progressive system which links
gaming machines within a single casino or multiple casinos of common
ownership. Currently four major hotel casinos operate such systems, with
from three to seven hotel casinos linked per system. Approximately 420
gaming machines are linked between all such systems as of October 31, 1993.
In September 1992, Rhode Island began operation of a video lottery
system linking approximately 850 video lottery terminals at two pari-mutuel
facilities. As of September 30, 1993, an estimated 1,260 terminals were
operating on the system. IGT, one of four manufacturers providing
terminals, has approximately 310 terminals installed on this system and
receives a percentage of the net win from its terminals.
Video gaming in Oregon commenced in March of 1992, and IGT was awarded
the contract to supply the central computer system that currently links
approximately 6,000 terminals. The Company currently leases approximately
1,750 machines to the Oregon State Lottery.
Route and Lease Operations
Until August 1992, the Company operated one of Nevada's largest route
operations, consisting of machines located in bars and taverns with the
Company responsible for the operation, servicing and collection of the
monies from these machines. The location either shared the net win from
the gaming machines on a percentage basis or received a fee for rental of
space. In August 1992, the Company sold all of its route equipment and
operating contracts which included approximately 1,380 gaming machines at
approximately 160 locations.
On November 23, 1992, the Company sold all of the equipment and
operating contracts of the Megapoker route (a linked progressive system for
video poker machines located throughout the state of Nevada) as well as
licensing the purchaser to use, in Nevada, all Megapoker software,
ITEM 1. BUSINESS (continued)
trademarks and trade names. This transaction included approximately 280
gaming machines owned and operated by the Company at 62 locations.
The Company leases gaming equipment to its customers and at September
30, 1993 leased approximately 4,000 gaming machines primarily in the
Colorado, Nevada and riverboat markets.
In January 1993, the Company began operating approximately 180 gaming
machines at the Reno Cannon International Airport under a contract with the
Airport Authority. The Airport Authority shares in the net win of the
machines with a minimum annual guaranteed amount.
Marketing
The Company markets gaming products and proprietary systems through
its internal sales staff, agents and distributors. The Company employs
more than 150 direct sales personnel in offices in several United States
locations as well as Canada, Australia and Europe. The Company uses
distributors for sales to specific markets including Louisiana, South
Carolina, a Canadian maritime province, Atlantic City, the Caribbean,
France, Japan and North American Indian reservations. The Company's
agreements with distributors do not specify minimum purchases but provide
that the Company may terminate the distribution agreement if certain
performance standards are not met.
The Company's marketing strategy is to offer its customers not only
the broadest product line but also ongoing game development. IGT's game
library contains numerous game variations. Reprogramming machines for the
newest games and changing the glass design can be accomplished quickly.
In addition to offering an expansive product line, the Company
provides customized services in response to specific casino requests.
These services include high quality silkscreen printing of gaming machine
glass, video graphics, customized game development and interior design
services. IGT developed more than 20 new games which included a variety of
custom artwork for the Luxor and Treasure Island casinos that opened in
fiscal 1993 and the MGM casino that opened in fiscal 1994 in Las Vegas.
The Company also offers customized design services that utilize computer
aided design and three-dimensional studio software programs. The Company's
design department generates a casino floor layout and can create a proposed
casino slot mix for its customers. The final design incorporates casino
colors, themes, signage, customer glass and includes either an overhead
floor plan layout, viewable from any angle, or a three-dimensional moving
walk-through of the casino.
The Company also considers its customer service department an
important aspect of the overall marketing strategy. The Company typically
provides a 90 day service and parts warranty for its gaming machines and
charges on a time and material basis thereafter. The Company currently has
more than 300 trained service personnel and maintains service offices in
Australia, Canada, Colorado, Florida, Japan, Mississippi, Missouri,
Montana, Nevada, New Jersey, New Zealand and in The Netherlands. The
Company also maintains a customer hot-line available 24-hours a day, seven
days a week to respond to customer questions.<PAGE>
ITEM 1. BUSINESS (continued)
During fiscal 1993, the Company's ten largest customers accounted for
34% of its gaming product sales. Sodak Gaming, the Company's principal
distributor of gaming products to American Indian reservations, was the
largest purchaser of the Company's products, accounting for 12.0% of total
product sales. The Company believes the loss of this customer would not
have a long term material adverse effect on product sales of the Company as
other means of distribution to this market is available. The
nature of the Company's business encompasses large initial orders of gaming
products upon the opening, expansion or renovation of a casino as well as
for the start-up of government sponsored video gaming operations.
Subsequent orders from established customers result from remodeling or
expansion of existing facilities as well as replacement of machines due to
technological advancements, new designs and upgrades. Sales of the
Company's products can fluctuate from quarter to quarter as new
jurisdictions throughout the world legalize gambling and new casinos in
established gaming markets are opened. The Company believes that its
revenues from gaming product sales would not be materially affected by the
loss of any single customer.
Competition
Product Sales
The Company competes with substantial U.S. and foreign manufacturers.
In the casino style gaming machine market, the primary competitors are
Bally Gaming International, Inc. ("Bally"), Sigma Game, Inc. ("Sigma"), and
Universal Distributing of Nevada, Inc. ("Universal"). Bally is a Nevada
company while Sigma and Universal are Japanese companies. In the slot
management and revenue tracking market, the Company competes with Casino
Data Systems. Competitors in the video gaming terminal market include
domestic and Japanese manufacturers, including three large domestic lottery
suppliers, G-Tech, Williams and Video Lottery Consultants. G-Tech,
Williams and Video Lottery Consultants have an established presence in the
lottery market, substantial resources, and specialize in the development
and marketing of gaming terminals to governments.
Gaming Operations
Competition in the progressive systems business is currently limited
but could increase in the future.
Manufacturing and Suppliers
The Company's manufacturing operations primarily involve assembly of
electronic and computer components, including chips, video monitors and
prefabricated parts purchased from outside sources. The Company does,
however, operate metal fabricating, custom wood cabinet manufacturing and
silkscreen facilities. The Company is not dependent upon any one supplier
for any raw material. The Company purchases certain components from
subcontractors and believes that alternative sources of these components
are available. The Company believes its relations with its vendors are
good. The Company uses technical staff to assure quality control.
The Company generally carries a significant amount of inventory due to
the broad range of products it manufactures and to facilitate its capacity
to fill customer orders on a timely basis. In 1993, the Company's
ITEM 1. BUSINESS (continued)
production of gaming machines increased approximately 17% resulting in
inventory growth of approximately 20% in order to meet increased demand
related to existing and developing markets.
Patents, Copyrights and Trade Secrets
The Company's computer programs and technical know-how are its main
trade secrets, and management believes that they can best be protected by
using technical devices to protect the computer programs and by enforcing
contracts with certain employees and others with respect to the use of
proprietary information, trade secrets and covenants not to compete. The
Company has obtained patents and copyrights with respect to aspects of its
games, and has patent applications on file for protection of certain
developments it has created. No assurance can be given that the pending
applications will be granted. These patents range in subject matter from
coin-handling apparatus, fiber-optic light pens, coin-escalator mechanisms
through optical door interlock and other aspects of video and mechanical
slot machines and systems. There can be no assurance that the patents will
not be infringed or that others will not develop technology that does not
violate the patents.
Employees
As of September 30, 1993, the Company, including all subsidiaries,
employed approximately 2,100 persons, including 297 in administrative
positions, 153 in sales and 311 in engineering. Of the total employees,
International Game Technology accounted for 39; IGT-North America, 1787;
IGT-Australia, 230; IGT-Europe, 19; and IGT-Japan, 3. None of the
Company's employees is a member of a collective bargaining unit.
Government Regulation
Nevada Regulation
The manufacture, sale and distribution of gaming devices in Nevada are
subject to extensive state laws, regulations of the Nevada Gaming
Commission and State Gaming Control Board (the "Nevada Commission"), and
various county and municipal ordinances. These laws, regulations and
ordinances primarily concern the responsibility, financial stability and
character of gaming equipment manufacturers, distributors and operators, as
well as persons financially interested or involved in gaming operations.
The manufacture, distribution and operation of gaming devices require
separate licenses. The laws, regulations and supervisory procedures of the
Nevada Commission seek to (i) prevent unsavory or unsuitable persons from
having a direct or indirect involvement with gaming at any time or in any
capacity, (ii) establish and maintain responsible accounting practices and
procedures, (iii) maintain effective control over the financial practices
of licensees, including establishing minimum procedures for internal fiscal
affairs and the safeguarding of assets and revenues, providing reliable
record keeping and requiring the filing of periodic reports with the Nevada
Commission, (iv) prevent cheating and fraudulent practices, and (v) provide
a source of state and local revenues through taxation and licensing fees.
Changes in such laws, regulations and procedures could have an adverse
effect on the Company's operations.<PAGE>
ITEM 1. BUSINESS (continued)
A Nevada gaming licensee is subject to numerous restrictions.
Licenses must be renewed periodically and licensing authorities have broad
discretion with regard to such renewals. Licenses are not transferable.
Each type of machine sold by the Company in Nevada must first be approved
by the Nevada Commission, which may require subsequent machine
modification. Substantially all loans, leases, sales of securities and
similar financing transactions must be reported to or approved by the
Nevada Commission. Changes in legislation or in judicial or regulatory
interpretations could occur which could adversely affect the Company.
No publicly traded corporation is eligible to hold a gaming license,
but must be registered and found suitable to hold an interest in a
corporate subsidiary which holds a gaming license. International Game
Technology has been registered by the Nevada Commission as a publicly
traded holding company and was permitted to acquire IGT-North America as
its wholly-owned subsidiary. As a registered holding company, it is
required periodically to submit detailed financial and operating reports to
such Commission and furnish any other information which the Commission may
require. No person may become a stockholder of, or receive any percentage
of profits from, a licensed subsidiary without first obtaining licenses and
approvals from the Nevada Commission. Officers, directors and key
employees of a licensed subsidiary and of the Company who are actively
engaged in the administration or supervision of gaming must be found
suitable. No proceeds from any public sale of securities of a registered
holding corporation may be used for gaming operations in Nevada or to
acquire a gaming property without the prior approval of the Nevada
Commission. The Company believes it has all required licenses to carry on
its business in Nevada.
Officers, directors and certain key employees of the Company and its
licensed gaming subsidiary are required to be licensed by the Nevada
Commission, and employees associated with gaming must obtain work permits
which are subject to immediate suspension under certain circumstances. In
addition, anyone having a material relationship or involvement with the
Company may be required to be found suitable or licensed, in which case
those persons would be required to pay the costs and fees of the State
Gaming Control Board (the "Control Board") in connection with the
investigation. An application for licensure may be denied for any cause
deemed reasonable by the Nevada Commission. Changes in licensed positions
must be reported to the Nevada Commission. In addition to its authority to
deny an application for a license, the Nevada Commission has jurisdiction
to disapprove a change in position by such officer or key employee. The
Nevada Commission has the power to require licensed gaming subsidiaries to
suspend or dismiss officers, directors or other key employees and to sever
relationships with other persons who refuse to file appropriate
applications or whom the authorities find unsuitable to act in such
capacities.
The Company and its licensed gaming subsidiary are required to submit
detailed financial and operating reports to the Nevada Commission. If it
were determined that gaming laws were violated by a licensee, the gaming
licenses it holds could be limited, conditioned, suspended or revoked. In
addition to the licensee, the Company and the persons involved could be
subject to substantial fines for each separate violation of the gaming laws
at the discretion of the Nevada Commission. In addition, a supervisor
ITEM 1. BUSINESS (continued)
could be appointed by the Nevada Commission to operate the Company's gaming
property and, under certain circumstances, earnings generated during the
supervisor's appointment could be forfeited to the State of Nevada. The
limitation, conditioning or suspension of any gaming license or the
appointment of a supervisor could (and revocation of the gaming license
would) materially and adversely affect the Company's operations.
The Nevada Commission may also require any individual who has a
material relationship with the Company to be investigated and licensed or
found suitable. Any person who acquires 5% or more of the Company's voting
securities must report the acquisition to the Nevada Commission; any person
who becomes a beneficial owner of 10% or more of the Company's voting
securities must apply for a finding of suitability. Under certain
circumstances, an Institutional Investor, as such term is defined in the
Nevada Regulations, which acquires more than 10% of the Company's voting
securities may apply to the Nevada Commission for a waiver of such finding
of suitability requirements. The Nevada Commission has the power to
investigate any debt or equity security holder of the Company. The Clark
County Liquor and Gaming Licensing Board, which has jurisdiction over
gaming in the Las Vegas area, may similarly require a finding of
suitability for a security holder. The applicant stockholder is required
to pay all costs of such investigation. The bylaws of the Company provide
for the Company to pay such costs as to its officers, directors or
employees.
Any person who fails or refuses to apply for a finding of suitability
or a license within 30 days after being ordered to do so by the Nevada
Commission may be found unsuitable. The same restrictions apply to a
beneficial owner if the record owner, after request, fails to identify the
beneficial owner. Any stockholder found unsuitable and who holds, directly
or indirectly, any beneficial ownership of the Common Stock beyond such
period of time as may be prescribed by the Nevada Commission may be guilty
of a gross misdemeanor. The Company is subject to disciplinary action if,
after it receives notice that a person is unsuitable to be a stockholder or
to have any other relationship with the Company, the Company (i) pays that
person any dividend or interest upon voting securities of the Company, (ii)
allows that person to exercise, directly or indirectly, any voting right
conferred through securities held by that person, (iii) gives renumeration
in any form to that person, or (iv) makes any payment to the unsuitable
person by way of principal redemption, conversion, exchange or similar
transaction. If a security holder is found unsuitable, the Company may
itself be found unsuitable if it fails to pursue all lawful efforts to
require such unsuitable person to relinquish his voting securities for cash
at fair market value. Additionally the Clark County authorities have taken
the position that they have the authority to approve all persons owning or
controlling the stock of any corporation controlling a gaming license.
The Company is required to maintain a current stock ledger in Nevada
which may be examined by the Nevada Commission at any time. If any
securities are held in trust by an agent or by a nominee, the record holder
may be required to disclose the identity of the beneficial owner to the
Nevada Commission. A failure to make such disclosure may be grounds for
finding the record holder unsuitable. The Company is also required to
render maximum assistance in determining the identity of the beneficial
owner. The Nevada Commission has the power at any time to require the
Company's stock certificates to bear a legend indicating that the
ITEM 1. BUSINESS (continued)
securities are subject to the Nevada Gaming Control Act ("the "Nevada Act")
and the regulations of the Nevada Commission. To date, the Nevada
Commission has not imposed such a requirement.
The Company may not make a public offering of its securities without
the approval of the Nevada Commission if the securities or proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or retire or extend obligations incurred for such
purposes. Changes in control of the Company through merger, consolidation,
acquisition of assets, management or consulting agreements or any form of
takeover cannot occur without the prior investigation of the Control Board
and approval of the Nevada Commission.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect corporate gaming licensees in Nevada, and
corporations whose stock is publicly-traded that are affiliated with those
operations, may be injurious to stable and productive corporate gaming.
The Nevada Commission has established a regulatory scheme to ameliorate the
potentially adverse effects of these business practices upon Nevada's
gaming industry and to further Nevada's policy to (i) assure the financial
stability of corporate gaming operators and their affiliates; (ii) preserve
the beneficial aspects of conducting business in the corporate form; and
(iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. Nevada's gaming
regulations also require prior approval by the Nevada Commission if the
Company were to adopt a plan of recapitalization proposed by the Company's
Board of Directors in opposition to a tender offer made directly to its
stockholders for the purpose of acquiring control of the Company.
Any person who is licensed, required to be licensed, registered,
required to be registered, or is under common control with such persons
(collectively, "Licensees"), and who proposes to become involved in a
gaming venture outside of Nevada is required to deposit with the Control
Board, and thereafter maintain, a revolving fund in the amount of $10,000
to pay the expenses of investigation of the Control Board of the licensee's
participation in foreign gaming. The revolving fund is subject to increase
or decrease in the discretion of the Nevada Commission. Thereafter,
Licensees are required to comply with certain reporting requirements
imposed by the Nevada Act. A licensee is also subject to disciplinary
action by the Nevada Commission if it knowingly violates any laws of the
foreign jurisdiction pertaining to the foreign gaming operation, fails to
conduct the foreign gaming operation in accordance with the standards of
honesty and integrity required of Nevada gaming operations, engages in
activities that are harmful to the State of Nevada or its ability to
collect gaming taxes and fees, or employs a person in the foreign operation
who has been denied a license or finding of suitability in Nevada on the
ground of personal unsuitability.
Other Jurisdictions
Each other jurisdiction in which the Company does business requires
various licenses, permits, and approvals in connection with the manufacture
ITEM 1. BUSINESS (continued)
and/or the distribution of gaming devices, and operation of progressive
systems typically involving restrictions similar in most respects to those
of Nevada.
Thus far the Company has never been denied any such necessary
governmental licenses, permits or approvals. No assurances, however, can
be given that such required licenses, permits or approvals will be given or
renewed in the future.
ITEM 2. PROPERTIES
In August 1993, the Company purchased adjoining 46,000 square foot
office buildings in Reno, Nevada for use as its corporate offices. IGT-
North America leases approximately 545,700 square feet of office, warehouse
and production facility space in Reno, Nevada and approximately 184,400
square feet of office and warehouse space in Las Vegas, Nevada. IGT-
International currently uses a portion of the facilities leased by IGT-
North America in Reno and Las Vegas, Nevada. Additional office and
production facilities are leased by the Company's subsidiaries in various
other states and countries where the Company conducts business, including
Colorado, Florida, Mississippi, Missouri, Montana, New Jersey, Australia,
Canada, Japan and The Netherlands. The Company believes that its
facilities, which are fully utilized by the Company except for a portion of
the owned office buildings which is sublet to third parties, currently are
suitable for its business and adequate for its current needs. The Company
has entered into an agreement for the purchase of approximately 78 acres in
Reno, Nevada which the Company considers suitable for future construction
of expanded manufacturing, warehouse and corporate office facilities (see
Note 19 to the Consolidated Financial Statements).
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company has been named in and has brought lawsuits in the normal
course of business. Management does not expect the outcome of these suits
to have a material adverse effect on the Company's financial position or
results of future operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange
under the symbol "IGT". Two-for-one stock splits of the Company's common
stock were effected on July 16, 1990, August 23, 1991, March 24, 1992 and
March 17, 1993. The following table sets forth the high and low sales
prices of the common stock (adjusted to reflect the above mentioned stock
splits) on the NYSE composite tape:
High Low
Fiscal 1992
First Quarter. . . . . . . . . . . $ 12 $ 6-1/4
Second Quarter . . . . . . . . . . 17-3/8 10-7/8
Third Quarter. . . . . . . . . . . 17-1/8 11-1/4
Fourth Quarter . . . . . . . . . . 22-1/8 12-7/8
Fiscal 1993
First Quarter. . . . . . . . . . . $ 26-3/8 $ 17-7/8
Second Quarter . . . . . . . . . . 33 23-3/4
Third Quarter. . . . . . . . . . . 39-3/4 28-1/2
Fourth Quarter . . . . . . . . . . 41-3/8 32-1/8
As of December 15, 1993 there were approximately 6,759 record holders
of the Company's common stock which had a closing price of $29-5/8 on the
same date.
On April 14, 1993 the Company declared its first quarterly dividend of
$.03 per share, payable on June 1, 1993. The Company declared its second
and third quarterly dividends of $.03 per share on June 30, 1993 and
September 21, 1993 payable on September 1, 1993 and December 1, 1993,
respectively. It is anticipated that comparable cash dividends will
continue to be paid in the future.
The Company's transfer agent and registrar is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, NY 10004, (212) 509-4000.
ITEM 6. SELECTED FINANCIAL DATA
The following information has been derived from the Company's
consolidated financial statements:
(Amounts in thousands, Years Ended
except per share data) September 30,
1993 1992 1991 1990 1989
Selected Income Statement Data:
Total revenues. . . . $478,030 $363,594 $233,002 $204,807 $149,825
Income from continuing
operations. . . . . $105,578 $63,284 $ 29,780 $ 19,674 $ 14,573
Income (loss) from
discontinued
operations1 . . . . $ 13,447 $ 1,500 $ 450 $ 329 $( 1,092)
Net income. . . . . . $119,025 $ 64,784 $ 30,230 $ 20,003 $ 13,481
Income per primary share
from continuing
operations. . . . . $ 0.85 $ 0.53 $ 0.26 $ 0.17 $ 0.11
Net income per primary
share2. . . . . . . $ 0.96 $ 0.54 $ 0.26 $ 0.17 $ 0.11
Net income per fully
diluted share2. . . $ 0.90 $ 0.52 $ 0.26 $ 0.17 $ 0.11
Cash dividends declared
per common share. . $ 0.09 $ - $ - $ - $ -
Average primary common and
common equivalent shares
outstanding2. . . . 123,618 120,081 116,818 117,135 122,558
Average common and common
equivalent shares
outstanding assuming
full dilution2. . . 136,611 135,448 117,491 117,135 122,558
Selected Balance Sheet Data:
Working capital . . . $376,386 $257,063 $184,092 $ 80,474 $ 68,245
Total assets. . . . . $646,593 $489,973 $345,605 $208,523 $170,492
Convertible Subordinated
Notes Payable . . . $ 59,998 $ 93,999 $ 92,536 $ - $ -
Long-term notes payable
and capital lease
obligations . . . . $ 617 $ 19,965 $ 20,767 $ 27,584 $ 23,909
Stockholders' Equity. $378,549 $214,062 $123,747 $ 92,697 $ 82,028
1 Discontinued operations consist of casino operations which the Company
sold during fiscal 1993. See Note 12 to the Consolidated
Financial Statements for further discussion.
2 Restated to give retroactive effect for two-for-one stock splits
in 1990, 1991, 1992 and 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal 1993 Compared to Fiscal 1992
Net income for fiscal 1993 increased 84% to $119,025,000 or $.96 ($.90
fully diluted) per share compared to net income of $64,784,000 or $.54 per
share (adjusted to reflect a two-for-one stock split effective March 17,
1993) for fiscal 1992. Net income in both years included income from
discontinued casino and riverboat operations of $13,447,000 in fiscal 1993
and $1,500,000 in fiscal 1992. Income from continuing operations increased
67% to $105,578,000 or $.85 per share compared to $63,284,000 or $.53 per
share in fiscal 1992. This increase in income from continuing operations
resulted primarily from a 42% increase in product sales and a 17% increase
in revenues from the Company's linked progressive systems business.
Revenues and Cost of Sales
Total revenues for fiscal 1993 increased 31% to $478.0 million. This
increase included a 42% or $99.3 million increase in product sales and a
12% or $15.2 million increase in gaming operations revenues. In fiscal
1993 gaming machine shipments grew to 68,900 (compared to 46,100 in fiscal
1992) primarily as a result of increased product demand in the North
American riverboat and Indian casino markets and the Southern Nevada casino
market. The riverboat sales occurred primarily in the states of
Mississippi, Illinois and Iowa. Currently six states have approved
riverboat gaming and seven states either have bills in legislation or are
considered likely to introduce or re-introduce riverboat legislation.
The Company sells machines to casino operations on Indian lands
through an independent distributor. In fiscal 1993, sales to this
distributor totaled $40.2 million compared to $27.1 million in fiscal 1992.
It is anticipated that the Indian casino market will continue to grow as
currently approved Indian gaming facilities commence operations and as
additional Indian tribes receive approvals to conduct casino style gaming.
The Las Vegas, Nevada market continued to expand with the opening of
the Luxor and Treasure Island hotel casinos in late fiscal 1993, and the
MGM Grand Hotel in early fiscal 1994.
The Company shipped 3,250 Pachisuro machines to its Japanese
distributor, following successful licensing efforts. In addition, product
sales continued to increase in Canada, Europe and Australia as the Company
increased its efforts in these international markets.
Gaming operations revenue increased $15.2 million or 12% to $142.4
million in fiscal 1993 as a result of a higher volume of play on the Nevada
progressive systems, the introduction of new systems in Mississippi and
Rhode Island and growth in the number of units leased to the Oregon state
lottery and North American riverboat markets. These increases were
partially offset by the sale of the Company's Nevada route operations and
the Megapoker systems route in August and November 1992, respectively.
IGT-International recently signed a contract with the University of
Iceland Lottery to supply the video lottery terminals and a central system
with a progressive jackpot feature. This system began operating in
December 1993 with 350 video lottery terminals.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
The gross margin on product sales increased to 50.2% in fiscal 1993
compared to 48.3% in fiscal 1992, reflecting improved production
efficiencies at both the IGT-North America and IGT-Australia manufacturing
facilities.
Expenses
Gaming operations expense increased $8.0 million or 14.7% primarily as
a result of the growth in jackpot expenses associated with the Company's
linked progressive systems. This increase in jackpot expense reflects
increases in play on the Nevada systems and the introduction of new
systems. Also contributing to this increase were the expenses associated
with the operation of approximately 180 gaming machines at the Reno Cannon
International Airport under an agreement which began in January 1993.
Offsetting these expense increases was the Company's sale of its Nevada
route operations and the Megapoker route to Jackpot Enterprises.
Selling, general and administrative expenses increased $4.9 million or
9.3% due to growth in the number of employees, incentive and benefit plan
cost increases, the February 1992 opening and 1993 expansion of a sales and
distribution facility in Amsterdam, The Netherlands, and the establishment
of a manufacturing facility in Manitoba, Canada in late fiscal 1992.
Depreciation and amortization expense increased $3.4 million or 20% as a
result of increased lease financing, wherein the Company retains ownership
of and depreciates the machines in the Colorado and Riverboat markets and
expansion of the proprietary systems business.
The growth in research and development expense from $11.8 million to
$16.5 million resulted from the addition of engineering personnel,
increased consulting services expense, and increased incentive compensation
and benefit costs. The provision for bad debts declined to $3.8 million
for fiscal 1993 compared to $4.6 million in the prior year.
Other Income and Expense
As a result of the sales growth and the Company's ability to finance
customer sales, notes and contracts receivable increased $36.8 million or
52%, causing interest income to increase in fiscal 1993. Also contributing
to the $7.9 million increase in interest income in fiscal 1993 was
increased income on the Company's investment of excess cash and the growth
in the systems business in which income is recognized on the Company's cash
investments used to pay progressive system jackpot winners. Interest
expense increased $2.0 million to $12.7 million in fiscal 1993 due to
additional interest recorded on the liabilities to the progressive systems
jackpot winners. This was partially offset by a reduction in interest
expense from the conversion of approximately $42.7 million of the Company's
convertible subordinated notes to common stock. The continued growth of
the Company's progressive systems increases both interest income and
interest expense. The Company records interest income on funds invested to
secure jackpot payments and records commensurate interest expense on the
outstanding liabilities to jackpot winners.
During fiscal 1993 the Company recorded a gain of $10.1 million on the
sale of assets primarily consisting of gains on the sale of certain
securities held in the Company's investment portfolio, and to a lesser
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
extent a gain on the sale of the Megapoker route (see Note 14 of the Notes
to the Consolidated Financial Statements).
Discontinued Operations
During fiscal 1993, the Company divested its investments in casino
operations through the sale of its interest in the President Riverboat
Casinos, Inc. ("PRC") and the sale of CMS. This is in connection with the
Company's strategy to focus on its core businesses of manufacturing
machines and the development of proprietary systems software.
In December 1992 the Company sold its interest in PRC for $28.7
million, recognizing a gain of $23.6 million. The net gain on the
discontinued riverboat operation after including fiscal 1993 income from
operations and after deducting the effective income taxes was $14.3
million.
In September 1993 the Company sold its ownership interest in CMS for
$3.0 million recognizing a pre-tax loss of $2.0 million. The net loss on
the discontinued CMS operation after including fiscal 1993 income from
operations and after adding back the effective income tax benefit was
$811,000.
Fiscal 1992 Compared to Fiscal 1991
Net income for fiscal 1992 increased 114.3% to $64,784,000 or $.54
($.52 fully diluted) per share compared to net income of $30,230,000 or
$.26 per share (adjusted to reflect two-for-one stock splits effective
March 24, 1992 and March 17, 1993) for fiscal 1991. This growth in
earnings is attributable to the combination of increased unit sales,
improved margin on product sales as well as higher revenues from the
Company's linked progressive systems including machine lease revenues. Net
income for fiscal 1992 was adversely affected by a charge of $3.2 million
to record the write-down of goodwill relating to the acquisition of EDT in
January 1992, as well as the application of an additional $2.9 million of
the EDT goodwill to the net losses on the dispositions of the Nevada route
and keno systems sales operations.
Revenues and Cost of Sales
Total revenues for fiscal 1992 increased 56.0% to $363.6 million from
$233.0 million for fiscal 1991. The growth in revenue was composed of
increases in product sales and gaming operations revenue of $80.7 million
and $49.9 million, respectively.
The increase in product sales revenue of 51.8% to $236.4 million
during fiscal 1992 resulted from strong demand in expanding markets
including three Colorado mining towns, U.S. military markets, Native
American casinos, riverboats in Illinois, Iowa and Mississippi, and
increased sales in Queensland, Australia. Product sales to traditional
markets, including Nevada, the Company's single largest market, were about
the same as the prior year. Approximately 66% of fiscal 1992 unit sales
were to new and emerging markets while 34% of product sales were to
traditional gaming markets. The growth in product sales revenue during the
current fiscal year is also attributable to video gaming terminal (VGT)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
sales to Louisiana and to the Manitoba Lottery Foundation in Canada.
Worldwide product sales for the year ended September 30, 1992, included
over 46,000 gaming machines as compared to approximately 31,000 during the
prior year.
Revenues from gaming operations grew to $127.2 million in fiscal 1992
from $77.3 million during fiscal 1991, an increase of 64.5%. This
percentage increase is primarily due to a higher volume of play on the
Nevada progressive systems and higher revenues for franchise and licensing
fees for linked progressive systems in Atlantic City casinos.
Additionally, income generated from leased machines to the Oregon State
Lottery and to customers in Colorado provided new sources of gaming and
casino operations revenue in fiscal 1992.
The increased play on the Nevada systems is primarily a result of
enhancements to existing systems including Megabucks and Quartermania, the
record Megabucks jackpot of over $9 million which was won on May 30, 1992,
as well as the introduction of Fabulous Fifties in August of 1991.
Additions to the number of Nevada Nickels system locations also contributed
to this growth. The increase in the Atlantic City progressive systems
revenue resulted primarily from greater revenues recognized from the
Megabucks and Quartermania systems, as well as from the addition of
Fabulous Fifties in April 1991 and Star Poker in September 1991.
The gross profit on product sales grew to 48.3% for fiscal 1992 as
compared to 44.6% for fiscal 1991. The improved margin resulted from
production efficiencies associated with higher sales volume as well as
lower discounts offered during fiscal 1992.
Expenses
Gaming operations expense increased $10.0 million to $54.7 million as
a result of the growth in the linked progressive systems business mentioned
above, as well as increased costs associated with purchasing investments to
fund liabilities to jackpot winners. As the number of jackpots won on the
Nevada progressive systems increases and the jackpot payouts grow, the
costs associated with purchasing investments to fund the liabilities to
jackpot winners increase gaming operations expense correspondingly.
Selling, general and administrative expenses grew 39.2% to $52.6
million for the fiscal year ended September 30, 1992, as compared to $37.8
million for the same prior year period. The increase was due to the
Company's sales and marketing efforts in new and existing markets,
including international sales in Europe and Australia and the expansion of
gaming in Colorado. Additionally, costs associated with the acquisition of
the EDT publicly owned common stock, expenses incurred in the public
offering of the shares held by the Company in the riverboat operation and
increased employee benefits and incentive programs attributable to improved
earnings provided for the overall increase in selling, general and
administrative expense.
Depreciation and amortization expense increased $6.9 million to $16.8
million for fiscal 1992, compared to $9.9 million for fiscal 1991,
resulting from depreciation recorded on machines leased in Colorado and
Oregon as well as amortization of goodwill related to the acquisition of
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
the EDT publicly owned common stock in January 1992. Research and
development expense grew to $11.8 million from $9.4 million attributable to
expenses related to product upgrades and enhancements and developments of
new proprietary software systems.
The provision for bad debts decreased $207,000 to $4.6 million as the
Company feels the reserves for uncollectible receivables are adequate.
Other Income and Expense
Interest income for fiscal 1992 increased $6.4 million or 53.7% to
$18.4 million over the prior year period primarily as a result of the
investment of proceeds received from the issuance in May 1991 of $115
million principal amount of Convertible Subordinated Notes. Additionally,
the growth is attributable to the income recognized on the Company's cash
investments utilized to pay progressive systems jackpot winners. Interest
expense increased 80.3% to $10.8 million as a result of the issuance of the
Convertible Subordinated Notes, and the additional interest expense
recorded on the liabilities to progressive systems jackpot winners.
The Company recorded a benefit of $256,000 related to the minority
interest in losses of EDT. This compares to a benefit of $1,248,000 for
the minority interest in losses of EDT in fiscal 1991.
The Company recorded a net loss of $1.0 million on the sale of assets
primarily composed of the $893,000 net loss on the sale of the Nevada Route
operations (see Note 14 of the Notes to the Consolidated Financial
Statements).
During fiscal 1992, the Company recorded a $3.2 million charge to
other non-operating expense resulting from the write-down of goodwill
associated with the acquisition of EDT publicly owned common stock in
January 1992. The goodwill was assigned proportionally to the separable
asset groups acquired and the remaining goodwill in which the Company could
not justifiably assign was written-off.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
Working capital increased $119.3 million during the year to $376.4
million at September 30, 1993 primarily as a result of a $51.8 million
increase in short-term investments, a $25.4 million increase in accounts
receivable, a $16.2 million increase in cash and cash equivalents, a $16.1
million increase in current maturities of long-term notes and contracts
receivable and a $12.4 million increase in inventories. The increase in
accounts receivable is due to large sales in September 1993 to two new
hotel casinos in Las Vegas, Nevada mentioned above and increased sales in
the fourth quarter to the Company's Indian casino distributor. The
increase in short-term investments and cash and cash equivalents resulted
from the generation of cash from operating and investing activities. The
increase in the current maturities of long-term notes and contracts
receivable is a result of an increase in the amount of sales financed in
fiscal 1993, particularly in the last two quarters of the year. Of the
$12.4 million increase in inventories, $11.8 million represents an increase
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
in raw materials used to support increased production levels and greater
product diversification.
Cash Flow
During fiscal 1993, the Company's cash and cash equivalents increased
$16.2 million to $85.3 million. Cash provided by operating activities for
the years ended September 30, 1993, 1992 and 1991 totaled $56.1 million,
$38.6 million and $59.0 million, respectively. Cash provided by operating
activities was reduced by significant increases in receivables and
inventories during 1992 and 1993. Larger inventories have been required to
support increased sales. The Company has also been able to provide
financing for the product sales growth. The primary sources of cash from
financing activities included $48.0 million, $33.5 million and $26.8
million in proceeds from systems to fund liabilities to jackpot winners for
the years ended September 30, 1993, 1992 and 1991, respectively. In 1993,
for the first time in the Company's history, cash dividends were paid,
totaling $7.4 million. Additionally, during the fiscal year ended
September 30, 1991, the Company received net proceeds of $89.4 million from
the issuance of $115 million principal amount of Convertible Subordinated
Notes.
Purchases of property, plant, and equipment totaling $46.0 million,
$32.5 million and $20.4 million in fiscal 1993, 1992 and 1991,
respectively, partially offset increases in cash and cash equivalents
during these periods. The additions to property, plant, and equipment
consist primarily of the capitalization of gaming machines and equipment
leased in certain gaming jurisdictions along with purchases of office
furniture and computer equipment to support the Company's expansion.
Additionally in fiscal 1993, the Company acquired land and office buildings
of $5.2 million for use by corporate and engineering personnel and a $10.0
million aircraft for regional and international travel needs. The Company
entered into an agreement to purchase approximately 78 acres for the
Company's future plant and facilities expansion for a total purchase price
of approximately $6,129,000, (see Note 19 to the Consolidated Financial
Statements). The funds for this purchase, as well as the other capital
expenditures anticipated during fiscal 1994, will be derived from the
Company's existing cash flow.
The Company's cash requirements for purposes of principal payments on
outstanding debt declined substantially from $28.5 million in fiscal 1991
to $0.9 million in fiscal 1993, as a result of the repayment of outstanding
debt through the issuance of the Convertible Subordinated Notes. Assuming
no material change in the financial markets, the Company anticipates that
all of the $60.0 million principal amount of outstanding notes at September
30, 1993 will be converted to common stock by the third quarter of fiscal
1994.
During December 1992, the Company received $44.7 million in proceeds
from the initial public offering of the Company's ownership of certain
riverboat operations. These proceeds consisted of $16.2 million as payment
for outstanding loans including interest from the riverboat operations and
$28.5 million as proceeds from the sale of 100% of its equity in the
riverboat operations. The Company also received $1,000,000 as cash
proceeds from the sale of its ownership in CMS International. See Note 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
to the Consolidated Financial Statements for discussion of Discontinued
Operations.
Stock Repurchase Plan
On October 3, 1989, the Board of Directors authorized the repurchase
of up to ten percent of the Company's then outstanding shares. Pursuant to
such Board action a total of 8,338,904 shares (as adjusted for the two-for-
one stock splits effective July 16, 1990, August 23, 1991, March 24, 1992,
and March 17, 1993) had been repurchased as of September 30, 1990. On
October 4, 1990, the Board reaffirmed this authorization and authorized a
further repurchase of 12.0 million shares to a total of 23.6 million
shares. During the three years ended September 30, 1993,the Company
repurchased an additional 2,768,876 shares for an aggregate purchase price
of $8,895,000.
Recently Issued Accounting Standards to be Adopted
The Financial Accounting Standards Board issued in May 1993 SFAS No.
115 "Accounting for Certain Investments in Debt and Equity Securities."
This statement, effective for the Company's fiscal year ending September
30, 1995, will require that unrealized gains and losses on securities
defined as "trading securities" be included in income and that unrealized
gains and losses on securities defined as "available-for-sale" will be
excluded from income and reported in a separate component of stockholders'
equity. If this standard had been adopted at September 30, 1993, the
unrealized gains and losses on trading securities would have increased
income from continuing operations before income taxes by $258,000 in fiscal
1993, and the unrealized gains and losses on available-for-sale securities
would have increased stockholders' equity by $14,871,000 at September 30,
1993.
Lines of Credit
As of September 30, 1993, IGT-North America had a $7.5 million
unsecured bank line of credit with various interest rate options available
to the Company. The line of credit is used for the purpose of facilitating
standby letters of credit, and the Company is charged a nominal fee on
amounts used against the line as security for letters of credit. Funds
available under this line are reduced by any amounts used as security for
letters of credit. At September 30, 1993, $4,092,000 was available under
this line of credit.
IGT-Australia had a $440,000 (Australian) bank line of credit
available as of September 30, 1993. Interest is paid at the lender's
reference rate plus 1%. This line is secured by equitable mortgages, and
has a provision for review and renewal annually in May. At September 30,
1993, no funds were drawn under this line.
The Company is required to comply, and is in compliance, with certain
covenants contained in its line of credit agreement which, among other
things, limit financial commitments the Company may make without the
written consent of the lender and require the maintenance of certain
financial ratios, minimum working capital and net worth of the Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Riverboat Disposition
During December 1992, the Company transferred 100% of its ownership
interest in three riverboat partnerships to President Riverboat Casinos,
("PRC") a company incorporated to facilitate a public offering of the
riverboat gaming operations. In exchange for the transfer of its ownership
interests, the Company received 1,671,429 shares of PRC common stock
representing an approximate 32% ownership of PRC.
The Company subsequently sold all of its 1,671,429 shares of PRC
common stock in an initial public offering (the "IPO") of PRC effective
December 17, 1992. The Company realized net proceeds from the IPO of $28.5
million and recognized a pre-tax gain of $23.6 million on the sale. PRC
additionally repaid $16.2 million in outstanding notes to the Company, plus
accrued interest.
CMS Disposition
Effective September 30, 1993, the Company sold its equity ownership
interest in CMS to Summit Casinos-Nevada, Inc., ("Summit"), whose owners
include senior management of CMS. The sale consisted of $750,000 in cash
for the Company's ownership of CMS's preferred stock and $250,000 in cash
and a note of $2,043,529 for CMS's common stock. Additionally, the Company
acquired a stock purchase warrant entitling the Company to purchase a 4.84%
of CMS at a per share price approximately equal to the book value of CMS
("the CMS Warrant"). The CMS Warrant, which expires on the earlier of
September 30, 2003 or the closing of an underwritten public offering of
CMS, is exchangeable for a Warrant to purchase shares of common stock of
any other affiliate of Summit which proposes an underwritten public
offering of its common stock. The Company will remain as guarantor on
certain indebtedness of CMS, which had an aggregate balance of $18.6
million at September 30, 1993. Management believes the likelihood of
losses relating to these guarantees is remote (see Note 12 of the Notes to
the Consolidated Financial Statements).
IMPACT OF INFLATION
Inflation has not had a significant effect on the Company's operations
during the three fiscal years ended September 30, 1993.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . 30
Consolidated Statements of Income for the
years ended September 30, 1993, 1992 and 1991. . . . . . . . . 31
Consolidated Balance Sheets, September 30, 1993
and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Consolidated Statements of Cash Flows for the
years ended September 30, 1993, 1992
and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Consolidated Statements of Changes in Stockholders'
Equity for the years ended September 30,
1993, 1992 and 1991. . . . . . . . . . . . . . . . . . . . . . 37
Notes to Consolidated Financial Statements . . . . . . . . . . 38
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
of International Game Technology:
We have audited the accompanying consolidated balance sheets of
International Game Technology and Subsidiaries as of September 30, 1993 and
1992, and the related consolidated statements of income, cash flows and
changes in stockholders' equity for each of the three years in the period
ended September 30, 1993. Our audits also included the consolidated
financial statement schedules listed in the Index at Item 14(a)(2). These
financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of International Game
Technology and Subsidiaries as of September 30, 1993 and 1992, and the
results of their operations and their cash flows for each of the three
years in the period ended September 30, 1993 in conformity with generally
accepted accounting principles. Also, in our opinion, such consolidated
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE
Reno, Nevada
November 9, 1993
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share amounts)
Years Ended September 30,
REVENUES: 1993 1992 1991
Product sales . . . . . . . $ 335,641 $ 236,372 $ 155,682
Gaming operations . . . . . 142,389 127,222 77,320
Total revenues (including
related party transactions
of $6,680, $5,027
and $12,108 . . . . . . 478,030 363,594 233,002
COSTS AND EXPENSES:
Cost of product sales . . . 167,017 122,125 86,185
Gaming operations . . . . . 62,715 54,680 44,684
Selling, general and
administrative. . . . . . . 57,526 52,646 37,831
Depreciation and
amortization. . . . . . . 20,196 16,826 9,883
Research and development. . 16,523 11,807 9,361
Provision for bad debts . . 3,815 4,608 4,815
Total costs and expenses. . 327,792 262,692 192,759
INCOME FROM OPERATIONS. . . . 150,238 100,902 40,243
OTHER INCOME (EXPENSE):
Interest income . . . . . . 26,283 18,409 11,974
Interest expense . . . . . ( 12,749) ( 10,790) ( 5,986)
Gain (loss) on the sale of
assets. . . . . . . . . . 10,090 ( 1,049) ( 202)
Other . . . . . . . . . . . 282 ( 2,785) 2,340
Other income (expense),
net . . . . . . . . . . . 23,906 3,785 8,126
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES . . . . 174,144 104,687 48,369
PROVISION FOR INCOME TAXES. . 68,566 41,403 18,589
INCOME FROM CONTINUING
OPERATIONS. . . . . . . . . 105,578 63,284 29,780
DISCONTINUED OPERATIONS:
Income from operations, net
of taxes of $257, $893,
and $18 . . . . . . . . . 705 1,500 450
Gain on disposition, net
of taxes of $8,888. . . . 12,742 - -
Income from discontinued
operations. . . . . . . . 13,447 1,500 450
NET INCOME. . . . . . . . . . $ 119,025 $ 64,784 $ 30,230
(continued)
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(continued from previous page)
(Dollars in thousands except per share amounts)
Years Ended September 30,
1993 1992 1991
PRIMARY EARNINGS PER SHARE:
Income from continuing
operations. . . . . . . . $ 0.85 $ 0.53 $ 0.26
Income from discontinued
operations. . . . . . . . 0.11 0.01 0.00
Net Income. . . . . . . . . $ 0.96 $ 0.54 $ 0.26
FULLY DILUTED EARNINGS PER SHARE:
Income from continuing
operations. . . . . . . . $ 0.80 $ 0.51 $ 0.26
Income from discontinued
operations. . . . . . . . 0.10 0.01 0.00
Net Income. . . . . . . . . $ 0.90 $ 0.52 $ 0.26
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING . . . . . . . . 123,617,815 120,081,086 116,818,236
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ASSUMING FULL
DILUTION. . . . . . . . . . 136,610,507 135,448,282 117,491,004
The accompanying notes are an integral part of these consolidated financial
statements.
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30,
(Dollars in thousands) 1993 1992
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . $ 85,346 $ 69,159
Short-term investments, at cost
(market value of $147,123 and $91,003). . 131,994 80,200
Accounts receivable (including $829 and
$148 due from related parties), net
of allowances for doubtful accounts
of $7,935 and $7,058. . . . . . . . . . . 81,857 56,439
Current maturities of long-term notes
and contracts receivable (including
$175 and $1,766 due from related
parties), net of allowances . . . . . . . 60,673 44,535
Inventories:
Raw materials . . . . . . . . . . . . . . . 40,225 28,421
Work-in-process . . . . . . . . . . . . . . 4,998 2,306
Finished goods. . . . . . . . . . . . . . . 29,855 31,960
Total inventories . . . . . . . . . . . . . 75,078 62,687
Deferred income taxes . . . . . . . . . . . 10,932 -
Prepaid expenses and other. . . . . . . . . 14,255 10,189
Total current assets. . . . . . . . . . 460,135 323,209
LONG-TERM NOTES AND CONTRACTS RECEIVABLE
(including $651 and $3,021 due from
related parties), net of allowances
and current maturities. . . . . . . . . . . 46,908 26,238
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land. . . . . . . . . . . . . . . . . . . . 989 5,654
Buildings . . . . . . . . . . . . . . . . . 4,213 14,345
Gaming operations equipment . . . . . . . . 39,375 42,006
Manufacturing machinery and equipment . . . 43,456 28,554
Leasehold improvements. . . . . . . . . . . 5,529 9,388
Total . . . . . . . . . . . . . . . . . . . 93,562 99,947
Less accumulated depreciation and
amortization. . . . . . . . . . . . . . . ( 42,689) ( 39,920)
Property, plant and equipment,
net . . . . . . . . . . . . . . . . . . 50,873 60,027
INVESTMENTS IN UNCONSOLIDATED AFFILIATES. . . - 4,672
LONG-TERM NOTES RECEIVABLE FROM
UNCONSOLIDATED AFFILIATES . . . . . . . . . - 13,167
INVESTMENTS TO FUND LIABILITIES
TO JACKPOT WINNERS. . . . . . . . . . . . . 82,266 50,550
OTHER ASSETS. . . . . . . . . . . . . . . . . 6,411 12,110
Total Assets. . . . . . . . . . . . . . . $646,593 $ 489,973
The accompanying notes are an integral part of these consolidated financial
statements.
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Dollars in thousands) September 30,
1993 1992
CURRENT LIABILITIES:
Current maturities of long-term notes
payable and capital lease
obligations . . . . . . . . . . . . . . . . $ 462 $ 1,865
Accounts payable. . . . . . . . . . . . . . . 22,620 18,454
Jackpot liabilities . . . . . . . . . . . . . 11,882 8,604
Accrued employee benefit plan
liabilities . . . . . . . . . . . . . . . . 19,651 14,555
Accrued interest payable. . . . . . . . . . . 1,352 2,150
Accrued vacation liability. . . . . . . . . . 3,771 3,031
Accrued and deferred income taxes . . . . . . 11,649 4,634
Other accrued liabilities . . . . . . . . . . 12,362 12,853
Total current liabilities . . . . . . . . . 83,749 66,146
LONG-TERM NOTES PAYABLE AND CAPITAL
LEASE OBLIGATIONS NET OF CURRENT
MATURITIES. . . . . . . . . . . . . . . . . 617 19,965
CONVERTIBLE SUBORDINATED NOTES
PAYABLE . . . . . . . . . . . . . . . . . . . 59,998 93,999
LONG-TERM JACKPOT LIABILITIES . . . . . . . . . 106,476 72,889
DEFERRED INCOME TAXES . . . . . . . . . . . . . 17,187 21,577
OTHER LIABILITIES . . . . . . . . . . . . . . . 17 1,335
Total liabilities . . . . . . . . . . . . . 268,044 275,911
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.000625 par value;
320,000,000 shares authorized;
138,938,605 and 130,601,920 shares
issued. . . . . . . . . . . . . . . . . . . 87 82
Additional paid-in capital. . . . . . . . . . 146,869 85,584
Retained earnings . . . . . . . . . . . . . . 259,125 151,922
Treasury stock; 14,071,460 and
13,909,218, at cost . . . . . . . . . . . . ( 27,532) ( 23,526)
Total stockholders' equity. . . . . . . . . 378,549 214,062
Total liabilities and
stockholders' equity. . . . . . . . . . . $646,593 $489,973
The accompanying notes are an integral part of these consolidated financial
statements.
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) Years Ended
September 30,
1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . $ 119,025$ 64,784 $ 30,230
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization . . . . 20,196 16,826 9,883
Amortization of long-term debt
discount and offering costs . . . . 1,517 1,724 527
Provision for bad debts . . . . . . . 3,815 4,608 4,815
Gain (loss) on sale of assets . . . . ( 10,090) 1,049 202
Gain on sale of discontinued
operations. . . . . . . . . . . . . ( 12,742) - -
Donated common stock. . . . . . . . . 250 1,060 -
(Increase) decrease in assets:
Receivables . . . . . . . . . . . . ( 64,763) ( 66,176) ( 3,716)
Inventories . . . . . . . . . . . . ( 12,866) ( 25,777) 1,155
Prepaid expenses and other. . . . . ( 12,440) ( 864) 2,561
Increase (decrease) in other
assets. . . . . . . . . . . . . . . 4,110 ( 45) 1,519
Increase in liabilities:
Accounts payable and accrued
liabilities . . . . . . . . . . . 7,520 18,817 6,167
Accrued and deferred income taxes
payable, net of tax benefit
of stock option and purchase
plans . . . . . . . . . . . . . . 12,583 22,963 6,237
Other . . . . . . . . . . . . . . . . ( 22)( 402) ( 563)
Total adjustments . . . . . . . . . ( 62,932) ( 26,217) 28,787
Net cash provided by operating
activities. . . . . . . . . . . . 56,093 38,567 59,017
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property,
plant and equipment . . . . . . . . ( 46,064) ( 32,487) ( 20,429)
Proceeds from sale of property,
plant and equipment . . . . . . . . 9,408 6,524 6,884
Purchase of short-term investments. . (154,515) (132,127) ( 67,740)
Proceeds from sale of short
term investments. . . . . . . . . . 110,460 120,217 -
Proceeds from investments to fund
liabilities to jackpot winners. . . 11,139 6,754 5,651
Purchase of investments to fund
liabilities to jackpot winners. . . ( 46,262) ( 20,763) ( 22,643)
Investment in and advances to
unconsolidated affiliates . . . . . 29,749 - -
Net cash used in investing
activities. . . . . . . . . . . . ( 86,085) ( 51,882) ( 98,277)
(continued)<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued from previous page)
(Dollars in thousands) Years Ended
September 30,
1993 1992 1991
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt. . . . . . ( 870) ( 1,331) ( 28,482)
Payments on liabilities to jackpot
winners . . . . . . . . . . . . . . ( 11,139) ( 6,754) ( 5,651)
Collections from systems to fund
liabilities to jackpot winners. . . 48,003 33,546 26,806
Proceeds from stock options
exercised . . . . . . . . . . . . . 7,520 2,807 1,213
Proceeds from employee stock
purchases . . . . . . . . . . . . . 869 563 350
Payments for purchase of treasury
stock . . . . . . . . . . . . . . . ( 4,006) ( 1,669) ( 3,220)
Payments of cash dividends. . . . . . ( 7,350) - -
Long-term debt issue costs. . . . . . - - ( 2,636)
Proceeds from long-term debt. . . . . - - 103,524
Foreign currency exchange loss. . . . ( 726) ( 1,737) ( 352)
Net cash provided by financing
activities. . . . . . . . . . . . 32,300 25,425 91,552
NET CASH PROVIDED BY CONTINUING
OPERATIONS. . . . . . . . . . . . . . 2,308 12,110 52,292
CASH PROVIDED BY (USED IN)
DISCONTINUED OPERATIONS . . . . . . . 13,879 ( 887) ( 16,367)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR . . . . . . . . . . 69,159 57,936 22,011
CASH AND CASH EQUIVALENTS AT
END OF YEAR . . . . . . . . . . . . . $ 85,346 $ 69,159 $ 57,936
The accompanying notes are an integral part of these consolidated financial
statements.
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in Additional
thousands) Common Stock Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
BALANCE AT
OCTOBER 1, 1990.... 124,144 $78 $53,474 $57,782 $(18,637) $ 92,697
Stock options
exercised.......... 1,908 1 1,212 - - 1,213
Currency translation
adjustments........ - - - ( 353) - ( 353)
Tax benefit of
stock options...... - - 2,830 - - 2,830
Purchase of treasury
stock.............. - - - - ( 3,220) ( 3,220)
Employee stock
purchases.......... 208 - 350 - - 350
Net income.......... - - - 30,230 - 30,230
BALANCE AT
SEPTEMBER 30, 1991.. 126,260 79 57,866 87,659 (21,857) 123,747
Stock options
exercised.......... 3,155 3 2,802 - - 2,805
Donated stock....... 93 - 1,060 - - 1,060
Currency translation
adjustments........ - - - ( 1,737) - ( 1,737)
Tax benefit of
stock options...... - - 12,358 - - 12,358
Purchase of treasury
stock.............. - - - - ( 1,669) ( 1,669)
Employee stock
purchases.......... 209 - 563 - - 563
Conversion of
subordinated notes. 11 - 85 - - 85
EDT share exchange.. 874 - 10,850 1,216 - 12,066
Net income.......... - - - 64,784 - 64,784
BALANCE AT
SEPTEMBER 30, 1992.. 130,602 82 85,584 151,922 (23,526) 214,062
Stock options
exercised.......... 2,731 2 7,518 - - 7,520
Donated stock....... 9 - 250 - - 250
Currency translation
adjustments........ - - - ( 727) - ( 727)
Tax benefit of
stock options...... - - 18,137 - - 18,137
Purchase of treasury
stock.............. - - - - ( 4,006) ( 4,006)
Employee stock
purchases.......... 70 - 869 - - 869
Conversion of
subordinated notes. 5,527 3 34,511 - - 34,514
Dividends declared.. - - - ( 11,095) - (11,095)
Net income.......... - - - 119,025 - 119,025
BALANCE AT
SEPTEMBER 30, 1993. 138,939 $87 $146,869 $259,125 $(27,532) $378,549
The accompanying notes are an integral part of these consolidated financial
statements.<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization - International Game Technology (the "Company") was
incorporated in December 1980 to acquire the gaming licensee and operating
entity, IGT (recently renamed IGT-North America), and facilitate the
Company's initial public offering. In addition to its 100% ownership of
IGT-North America, the Company directly or indirectly owns 100% of IGT-
International, ("IGT-International"), 100% of IGT-Australia, Pty. Ltd.
("IGT-Australia"), 100% of IGT-Europe b.v. ("IGT-Europe"), 99.75% of IGT-
Iceland Ltd. ("IGT-Iceland") and 100% of IGT-Japan k.k. ("IGT-Japan"). In
December 1993 the Company sold its interest in its riverboat partnerships
and additionally on September 30, 1993 sold its interest in CMS-
International ("CMS").
IGT-North America is the largest manufacturer of computerized casino
gaming products and proprietary systems in the world. IGT-North America
believes it manufactures the broadest range of microprocessor-based gaming
machines available. The Company also develops and manufactures "SMART"
systems which monitor slot machine play and track player activity. In
addition to gaming product sales and leases, IGT-North America has
developed and sells computerized linked proprietary systems to monitor
video gaming terminals and has developed specialized video gaming terminals
for lotteries and other applications. IGT-North America also develops and
operates proprietary software linked progressive systems. The Company
derives revenues related to the operations of these systems as well as
collects license and franchise fees for the use of the systems.
IGT-International was established in September 1993 to oversee all
sales of gaming products outside of North America by the Company's foreign
subsidiaries and to conduct sales either directly or through distributors
in countries not served by the Company's foreign subsidiaries.
IGT-Australia, located in Sydney, Australia, manufactures
microprocessor-based gaming products and proprietary systems, and performs
engineering, manufacturing, sales and marketing and distribution operations
for the Australian markets as well as other gaming jurisdictions in the
Southern Hemisphere and Pacific Rim.
IGT-Europe was established in The Netherlands in February 1992 to
distribute and market gaming products in Eastern and Western Europe and
Africa. Prior to providing direct sales, the Company sold its products in
these markets through a distributor.
IGT-Iceland was established in September 1993 to provide video lottery
system software, machines, equipment and technical assistance to support
Iceland's video lottery operations.
IGT-Japan was established in July 1990, and in November 1992 opened an
office in Tokyo, Japan. On April 16, 1993, IGT-Japan was approved to
supply Pachisuro gaming machines to the Japanese market, and the Company
began delivery of these machines during the third quarter of fiscal 1993.
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(continued)
Discontinued Operations
Iowa Riverboat Corporation ("IRC"), a wholly-owned subsidiary of the
Company, established in March 1990, was a 40% partner in an Iowa
partnership that owned and operated the President riverboat casino and the
Blackhawk Hotel in Davenport, Iowa. International Acceptance Corporation
("IAC"), also a wholly-owned subsidiary of the Company, owned 45% of a
riverboat excursion operation and the permanently docked Admiral riverboat
in St. Louis, Missouri. In December 1992, the Company contributed the
assets of IRC and IAC to PRC in exchange for 1,671,429 shares of PRC common
stock. These shares were subsequently sold to the public as part of an
initial public offering of PRC common stock on December 17, 1992 (see Note
12).
CMS, established in August 1988, operated casinos and hotel/casinos
for the Company including the Silver Club hotel and casino and The Treasury
Club casino in Sparks, Nevada, the El Capitan Club in Hawthorne, Nevada and
the King's Casino on the island of Antigua in the Caribbean. Effective
September 30, 1993 the Company sold its ownership interest in CMS to Summit
Casinos Nevada, Inc. (see Note 12).
The consolidated financial statements include the accounts of the
Company and its majority owned subsidiaries. All material intercompany
accounts and transactions have been eliminated. The disposal of interests
in riverboat partnerships and CMS (collectively, "casino operations") has
been accounted for as discontinued operations. Accordingly, operating
results and cash flows of casino operations are segregated and reported as
discontinued operations in the accompanying consolidated statements of
income and cash flows. Prior year financial statements have been restated
to conform to the current year presentation.
Common Stock Split - On March 17, 1993, the Company effected a two-
for-one split of its common stock and a corresponding reduction in the par
value of its common stock from $.00125 to $.000625 per share. Prior years'
shares outstanding and per share amounts have been restated to reflect the
stock split.
Product Sales - The Company makes product sales for cash, on normal
credit terms (90 days or less), over longer term installments, and through
participation in the net winnings of the machines until the purchase price
is paid. Generally, sales are recorded when title passes to the customer.
Participation sales are recorded when the product is installed unless the
customer does not agree in writing to keep the product installed until the
purchase price is paid, in which case the installment method is used.
Sales of slot management systems generally involve contracts covering
periods up to twelve months. Billings on such contracts are made
periodically in accordance with contract terms. Revenues are recognized
when the title passes to the customer.
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(continued)
Gaming Operations - Gaming operations revenues consist of revenues
relating to the operations of the proprietary systems division, a share of
the net gaming winnings from the operation of machines at customer
locations, and the lease and rental of gaming and video lottery machines.
Revenue from systems products installed in New Jersey casinos is not
recognized until receipt is assured.
The Company's proprietary systems are primarily operated in Nevada and
Atlantic City, New Jersey. In Atlantic City, each system is operated by an
independent trust managed by representatives from the participating
casinos. The trust records a liability to the Company for annual casino
fees as well as machine rental fees. In Nevada, the systems are operated
by the Company. The Nevada casinos retain the net win, less a percentage
paid to the Company to fund the progressive jackpots. The Company earns
interest on these funds until jackpots are paid. These jackpots are paid
out in equal installments without interest over a twenty year period. The
Company records the percentage received as revenue and records as expense
all costs associated with its obligation to fund the jackpot liabilities.
The following table shows the revenues recorded from gaming
operations.
Years Ended
(Dollars in thousands) September 30,
1993 1992 1991
Proprietary Systems. . . . $124,275 $106,639 $ 61,345
Lease Operations . . . . . 18,114 20,583 15,975
Total. . . . . . . . . . . $142,389 $127,222 $ 77,320
At September 30, 1993 and 1992, the Company had accrued approximately
$118.4 million and $81.5 million, respectively, for its share of
outstanding progressive jackpot liabilities. This liability includes the
amount required to provide for payments to systems jackpot winners. The
Company is required to maintain cash and investments relating to systems
liabilities in separate accounts.
Cash and Cash Equivalents - This includes cash required for funding
current systems jackpot payments as well as purchasing investments to meet
obligations for making payments to jackpot winners. Cash in excess of
daily requirements is generally invested in various marketable securities.
If these securities have original maturities of three months or less they
are considered cash equivalents. Such investments are stated at cost,
which approximates market, and are deemed to be cash equivalents for
purposes of the consolidated statements of cash flows.
Short-Term Investments - This represents a portfolio of marketable
securities consisting primarily of U.S. government securities, corporate
bonds with original maturities beyond three months and common and preferred
stocks. Similar items with original maturities of three months or less are
considered to be cash equivalents. Marketable securities are carried at
the lower of their aggregate cost or market value.
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(continued)
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Depreciation and Amortization - Depreciation and amortization are
provided on the straight-line method over the following useful lives:
Gaming operations equipment . . . . . . . . . 1 to 5 years
Manufacturing machinery and equipment . . . . 3 to 5 years
Buildings . . . . . . . . . . . . . . . . . . 40 years
Leasehold improvements. . . . . . . . . . . . Term of Lease
Building under capital lease. . . . . . . . . Term of Lease
Maintenance and repairs are expensed as incurred. The costs of
improvements are capitalized. Gains or losses on the disposition of assets
are included in income.
Investments to Fund Liabilities to Jackpot Winners - These
investments represent discounted U.S. Treasury Securities purchased to meet
obligations for making payments to Nevada, Mississippi, Colorado and South
Dakota linked progressive systems winners. Such investments are stated at
cost. Nevada and Mississippi gaming regulations provide how these funds
are to be maintained.
Other Assets - Other assets include debt issue costs, deposits,
patents, goodwill and gaming rights. Debt issue costs are amortized as a
component of interest expense on the Convertible Subordinated Notes (see
Note 11). The cost of gaming rights is amortized on a straight-line basis
over the terms of the agreements. Patents and goodwill are amortized over
periods of seven years and five years, respectively.
Earnings Per Share - Earnings per share is computed based upon the
weighted average number of common and common equivalent shares outstanding.
Prior period weighted average shares outstanding and earnings per share
have been restated to reflect the effects of the Company's 1993 stock
split. The Convertible Subordinated Notes (see Note 11) are not common
stock equivalents, and they were excluded from the calculation of fully-
diluted earnings per share in 1991 when their effect was anti-dilutive.
Foreign Currency Translation - The financial statements of foreign
subsidiaries have been translated into U.S. dollars for consolidated
reporting purposes in accordance with SFAS No. 52. All asset and liability
accounts have been translated using the current exchange rate at the
balance sheet date. Income statement amounts have been translated using
the average exchange rate for the year. The gains and losses resulting
from the translation adjustments have been accumulated as a component of
stockholders' equity, being netted against retained earnings due to the
immateriality of the amounts. The effect on the consolidated statements of
operations of translation gains and losses is insignificant for all years
presented.
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(continued)
Recently Issued Accounting Standards to be Adopted - The Financial
Accounting Standards Board issued in May 1993 SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." This statement,
effective for the Company's fiscal year ending September 30, 1995, will
require that unrealized gains and losses on securities defined as "trading
securities" be included in income and that unrealized gains and losses on
securities defined as "available-for-sale" will be excluded from income and
reported in a separate component of stockholders' equity. If this standard
had been adopted at September 30, 1993, the unrealized gains and losses on
trading securities would have increased income from continuing operations
before income taxes by $258,000 in fiscal 1993, and the unrealized gains
and losses on available-for-sale securities would have increased
stockholders' equity by $14,871,000 at September 30, 1993.
Reclassification - Certain amounts in the 1992 and 1991 consolidated
financial statements have been reclassified to be consistent with the
presentation used in fiscal year 1993.
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business Segments
The Company operates principally in two lines of business: the
manufacture of gaming products and gaming operations. The table below
presents information as to the Company's operations in different
industries.
Years Ended
(Dollars in thousands) September 30,
1993 1992 1991
REVENUES:
Manufacture of Gaming Products. . $335,641 $236,372 $155,682
Gaming Operations . . . . . . . . 142,389 127,222 77,320
Total . . . . . . . . . . . . . $478,030 $363,594 $233,002
OPERATING PROFIT:
Manufacture of Gaming Products. . $175,888 $115,705 $ 69,378
Gaming Operations . . . . . . . . 62,391 59,381 26,842
Total . . . . . . . . . . . . . 238,279 175,086 96,220
OTHER EXPENSES, INCLUDING
INTEREST EXPENSE. . . . . . . . . 64,135 70,399 47,851
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES . . . . . . . $174,144 $104,687 $ 48,369
CAPITAL EXPENDITURES:
Manufacture of Gaming
Products. . . . . . . . . . . . . $ 8,499 $ 3,560 $ 1,919
Casino Operations . . . . . . . . - 1,182 2,132
Gaming Operations . . . . . . . . 20,269 22,808 13,302
Corporate . . . . . . . . . . . . 17,345 7,587 6,181
Total . . . . . . . . . . . . . $ 46,113 $ 35,137 $ 23,534
DEPRECIATION AND AMORTIZATION:
Manufacture of Gaming Products. . $ 1,740 $ 1,655 $ 1,436
Gaming Operations . . . . . . . . 14,699 11,860 5,956
Corporate . . . . . . . . . . . . 3,757 3,311 2,491
Total . . . . . . . . . . . . . $ 20,196 $ 16,826 $ 9,883
September 30,
1993 1992 1991
IDENTIFIABLE ASSETS:
Manufacture of Gaming Products. . $262,454 $188,852 $95,515
Casino Operations . . . . . . . . - 30,737 29,785
Gaming Operations . . . . . . . . 151,234 117,595 78,328
Corporate . . . . . . . . . . . . 232,905 152,789 141,977
Total . . . . . . . . . . . . . $646,593 $489,973 $345,605
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business Segments (continued)
The Company has operations based in the United States, Canada,
Australia and Europe. The table below presents information as to the
Company's operations by geographic region.
(Dollars in thousands) Years Ended
September 30,
1993 1992 1991
REVENUES:
United States . . . . . . . . $ 427,697 $ 332,299 $ 208,988
Canada. . . . . . . . . . . . 13,743 - -
Australia . . . . . . . . . . 39,681 34,580 25,166
Europe. . . . . . . . . . . . 11,485 2,878 -
Eliminations. . . . . . . . . ( 14,576) ( 6,163) ( 1,153)
Total . . . . . . . . . . . $ 478,030 $ 363,594 $ 233,002
OPERATING PROFIT:
United States . . . . . . . . $ 224,152 $ 163,597 $ 87,228
Canada. . . . . . . . . . . . 4,241 - -
Australia . . . . . . . . . . 15,269 13,671 8,723
Europe. . . . . . . . . . . . 1,025 513 -
Eliminations. . . . . . . . . ( 6,408) ( 2,695) 269
Total . . . . . . . . . . . 238,279 175,086 96,220
OTHER EXPENSES, INCLUDING
INTEREST EXPENSE. . . . . . . 64,135 70,399 47,851
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES . . . . . $174,144 $104,687 $ 48,369
September 30,
1993 1992 1991
IDENTIFIABLE ASSETS:
United States . . . . . . . . $600,472 $460,686 $328,239
Canada. . . . . . . . . . . . 8,047 - -
Australia . . . . . . . . . . 27,067 24,465 17,366
Europe. . . . . . . . . . . . 11,007 4,822 -
Total . . . . . . . . . . . $646,593 $489,973 $345,605
On a consolidated basis the Company does not recognize intersegment
revenues or expenses upon the transfer of gaming products between segments.
Operating profit is revenue and interest income less cost of sales and
operating expenses, including related operating depreciation and
amortization, and provisions for bad debts. Other expenses include
selling, general and administrative expense, interest expense, interest
income and research and development expense.
During the fiscal years ended September 30, 1993 and 1992, the Company
made net sales of $40.2 million and $27.1 million, respectively, to Sodak
Gaming, the Company's principal distributor of gaming products to Native
American Indian reservations in Wisconsin, Minnesota and to other areas in
the midwest and western United States. These sales aggregated
approximately 11.1% and 11.4% of the Company's total product sales for the
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIAR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business Segments (continued)
fiscal years 1993 and 1992, respectively. The Company believes the loss of
this customer would not have a long term material adverse effect on product
sales of the Company as other means of distribution to this market is
available. No single customer accounted for more than 10% of total product
sales of the Company during the fiscal year ended September 30, 1991.
The Company had total export sales from the United States of
approximately $13,522,000, $29,006,000 and $25,514,000 during the fiscal
years ended September 30, 1993, 1992 and 1991, respectively. This amount
declined in the year ended September 30, 1993 primarily due to the
exclusion of Canadian sales in fiscal 1993 as a result of the Company's
production of gaming machines in Canada starting in late fiscal 1992.
3. Notes and Contracts Receivable
The Company grants customers extended payment terms under contracts of
sale. These contracts are generally for terms of one to five years, with
interest recognized at prevailing rates, and are secured by the related
equipment sold.
The Company has provided loans, principally for financial assistance,
to several customers. At September 30, 1993 and 1992, the balance of such
loans totaled $994,000 and $936,000, respectively, net of the related
allowance for doubtful accounts of $25,000 and $321,000, respectively.
These loans are generally for terms of one to five years with interest at
prevailing rates.
The following table represents, at September 30, 1993, the estimated
future collections of notes and contracts receivable (net of allowances):
Years Ending September 30, Estimated Receipts
(Dollars in thousands)
1994 . . . . . . . . . . . . . . . . $ 60,673
1995 . . . . . . . . . . . . . . . . 27,202
1996 . . . . . . . . . . . . . . . . 7,697
1997 . . . . . . . . . . . . . . . . 3,432
1998 . . . . . . . . . . . . . . . . 1,607
1999 and after. . . . . . . . . . . . . . 6,970
$107,581
At September 30, 1993 and 1992, the following allowances for doubtful
notes and contracts were netted against current and long-term maturities:
(Dollars in thousands) September 30,
1993 1992
Allowance for doubtful notes
and contracts:
Current . . . . . . . . . . . . $5,588 $2,438
Long-term . . . . . . . . . . . 3,363 4,361
$8,951 $6,799
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Lines of Credit
As of September 30, 1993, IGT-North America had a $7.5 million
unsecured bank line of credit with various interest rate options available
to the Company. The line of credit is used for the purpose of facilitating
standby letters of credit, and the Company is charged a nominal fee on
amounts used against the line as security for letters of credit. Funds
available under this line are reduced by any amounts used as security for
letters of credit. At September 30, 1993 $4,092,000 was available under
this line of credit.
IGT-Australia had a $440,000 (Australian) bank line of credit
available as of September 30, 1993. Interest is paid at the lender's
reference rate plus 1%. This line is secured by equitable mortgages, and
has a provision for review and renewal annually in May. At September 30,
1993, no funds were drawn under this line.
The Company is required to comply, and is in compliance, with certain
covenants contained in the IGT line of credit agreement which, among other
things, limit financial commitments the Company may make without written
consent of the lender and require the maintenance of certain financial
ratios, minimum working capital and net worth of the Company.
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Notes Payable,Capital Lease Obligations and
Liabilities to Jackpot Winners
Notes payable and capital lease obligations consist of the following
as of:
(Dollars in thousands) September 30,
1993 1992
CMS notes payable to bank, (see Note 12). Notes
assumed by Summit Casinos Nevada, Inc . . . . . $ - $ 19,701
Capital lease obligations (see Note 8). . . . . . 1,079 1,943
Other note payable repaid in 1993 . . . . . . . . - 186
Total . . . . . . . . . . . . . . . . . . . . . 1,079 21,830
Less current maturities . . . . . . . . . . . . . ( 462) ( 1,865)
Long-term notes payable and capital lease
obligations, net of current maturities. . . . . $ 617 $ 19,965
Future fiscal year principal payments of these notes and capital lease
obligations at September 30, 1993, are as follows:
(Dollars in thousands)
1999 and
1994 1995 1996 1997 1998 Later
$ 462 $ 349 $ 195 $ 73 $ - $ -
In Nevada, Mississippi and South Dakota, the Company receives a
percentage of the net win from the linked progressive systems to fund the
related jackpot payments. The jackpots are paid off in equal annual
installments over either a ten or twenty year period. The following
schedule sets forth the future principal payments for the jackpot winners
under these systems at September 30, 1993:
(Dollars in thousands)
Years Ending
September 30,
1994 . . . . . . . . . . $ 9,352
1995 . . . . . . . . . . 8,604
1996 . . . . . . . . . . 7,916
1997 . . . . . . . . . . 7,282
1998 . . . . . . . . . . 6,358
1999 and after . . . . . 53,256
Liabilities to jackpot
winners. . . . . . . . $ 92,768
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Income Taxes
The effective income tax rates on income attributable to continuing
operations differ from the statutory U. S. federal income tax rates as
follows:
Years Ended
(Dollars in thousands) September 30,
1993 1992 1991
Amount Rate Amount Rate Amount Rate
Taxes at federal
statutory rate. . . $60,602 34.8% $35,594 34.0% $16,445 34.0%
Acquisition goodwill and
minority interest-EDT 455 .3 2,300 2.2 424 .9
Foreign subsidiaries
tax . . . . . . . . 2,402 1.4 1,295 1.2 ( 66) ( .1)
State income tax, net 2,273 1.3 563 .5 175 .3
Foreign sales
corporation . . . . ( 1,280) ( .7) ( 740) (.7) - -
Other, net. . . . . . 4,114 2.3 2,391 2.3 1,611 3.3
Actual provision
for income taxes. . $68,566 39.4% $41,403 39.5% $18,589 38.4%
Total fiscal 1993 pre-tax income consists of $164,625,000 subject to
U.S. taxation and $9,519,000 of foreign taxable income. Total fiscal 1992
pre-tax income consists of $98,434,000 subject to U.S. taxation and
$6,253,000 of foreign taxable income. Total fiscal 1991 pre-tax income
consists of $49,031,000 domestic taxable income and a loss of $662,000 for
foreign operations.
Components of the provision for income taxes on income from continuing
operations were as follows:
Years Ended
(Dollars in thousands) September 30,
1993 1992 1991
Current:
Federal . . . . . . . . . . $ 78,544 $ 33,997 $ 17,844
State . . . . . . . . . . . 3,497 659 210
Foreign . . . . . . . . . . 5,111 1,392 -
Total current . . . . . . . 87,152 36,048 18,054
Deferred (primarily federal). ( 18,586) 5,355 535
Total provision from continuing
operations. . . . . . . . . $ 68,566 $ 41,403 $ 18,589
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Income Taxes (continued)
The deferred tax provisions (benefits) are attributable to the following:
Years Ended
(Dollars in thousands) September 30,
1993 1992 1991
Excess of accelerated depreciation
over straight-line depreciation . $( 1,017) $( 268) $( 238)
Provisions for bad debts and receivables
deductible when written off . . . ( 792) (1,519) (1,029)
Provisions for inventory and
fixed asset valuation adjustments
deductible for taxes when realized ( 226) ( 1,092) ( 583)
Book provisions for accrued gaming
activities reported differently
for tax purposes. . . . . . . . . (18,975) 9,151 3,220
Other, net. . . . . . . . . . . . . 2,424 ( 917) ( 835)
$(18,586) $ 5,355 $ 535
During 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 109 "Accounting for Income Taxes." The impact of
adopting this new standard was not material to any of the consolidated
financial statements of the Company for 1993. Prior to 1993, the Company
accounted for income taxes under SFAS No. 96.
Statement 109 requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Deferred income
taxes reflect the net tax effects of (a) temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes, and (b) operating loss and
tax credit carryforwards. The tax items comprising the Company's net
deferred tax liability as of September 30, 1993 are as follows:
Year Ended
(Dollars in thousands)September 30, 1993
Deferred tax liabilities:
Reserve differential for gaming
activities. . . . . . . . . . . . . $16,561
Other . . . . . . . . . . . . . . . . 1,450
. . . . . . . . . . . . . . . . 18,011
Deferred tax assets:
Receivable reserve. . . . . . . . . . 5,023
Reserves not currently deductible . . 3,722
Difference between book and tax
basis of property . . . . . . . . . 2,154
Operating loss carryforwards. . . . . 263
Other . . . . . . . . . . . . . . . . 594
. . . . . . . . . . . . . . . . 11,756
Valuation allowance . . . . . . . . . -
Net deferred tax liability. . . . . . $ 6,255
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Income Taxes (continued)
In August of 1993, enacted changes in Federal legislation increased
the income tax rate for the fiscal year ended September 30, 1993. The rate
increased from 34% to 35%, with a blended rate being applied in fiscal
1993.
7. Employee Benefit Plans
Employee Profit Sharing Plans
In 1980, IGT-North America adopted a qualified profit sharing
retirement plan for its employees. Company contributions to the plan are
at the sole discretion of the Company's Board of Directors. Benefits vest
over a seven-year period of employment. Under a discretionary program
effective January 1, 1986, and reviewable by the Board annually,
contributions are based on 5% of annual IGT-North America pre-tax operating
profits above a set minimum. Effective for 1993, 1992 and 1991, the
minimum pre-tax operating profits were $44,000,000, $28,000,000 and
$12,000,000, respectively, before any allocation to the Plan.
Additionally, a cash sharing plan was adopted by IGT-North America
effective January 1, 1986, in which 5% of annual pre-tax operating profits
of IGT-North America (in excess of $44,000,000, $28,000,000 and
$12,000,000, for 1993, 1992 and 1991, respectively), are distributed to
employees on a semiannual basis. Contributions to the plan are reviewed
annually by the Board.
The Company's other subsidiaries have similar retirement and cash
sharing plans with one of the plans designed as a superannuation program.
Total consolidated profit sharing and cash sharing expense was $12,564,000,
$9,893,000 and $4,573,000 for the fiscal years ended September 30, 1993,
1992 and 1991, respectively.
IGT-North America maintains a discretionary management bonus and a
marketing management bonus plan in which key employees participate.
Effective January 1, 1986, 5% of IGT's annual pre-tax operating profits (in
excess of $44,000,000, $28,000,000 and $12,000,000 for 1993, 1992 and 1991,
respectively) are distributed under the management bonus plan. Bonuses for
marketing management are computed using a formula based on product sales
levels and gross profit margins achieved. The Company's other operating
subsidiaries maintain similar plans. Total consolidated expense under
these plans was $8,435,000,
$5,598,000 and $3,430,000 for the fiscal years ended September 30, 1993,
1992 and 1991, respectively.
Stock Option Plans
In 1981, the Company adopted a Stock Option Plan under which
nonqualified and incentive stock options to purchase up to 27,104,000
shares may be granted and, in 1993, the Company adopted a Stock Option Plan
under which nonqualified and incentive stock options to purchase up to
3,000,000 shares may be granted to employees and up to 250,000 nonqualified
stock options may be granted to non-employee directors of the Company.
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Employee Benefit Plans (continued)
Options granted have been granted at fair market value on the date of grant
and, except for non-employee director options, typically become exercisable
in five annual installments although a shorter period may be provided. At
September 30, 1993, options to purchase 4,011,696 shares were available for
grant under the plans.
Number Option Price
of Shares Per Share
Outstanding at
September
30, 1992. . . . . . . . 5,283,254 $ .51 - $18.88
Granted . . . . . . . . 857,160 $22.81 - $38.63
Cancelled . . . . . . . ( 17,320) $ 1.26 - $25.44
Exercised . . . . . . . (2,730,622) $ .51 - $18.875
Outstanding at
September
30, 1993. . . . . . . . 3,392,472 $ .51 - $38.63
Exercisable
at September
30, 1993. . . . . . . . 1,677,632 $ .51 - $18.88
Employee Stock Purchase Plan
Effective February 26, 1987, the Company adopted a Qualified Employee
Stock Purchase Plan. Under this Plan, each eligible employee may be
granted an option to purchase a specific number of shares of the Company's
common stock. The term of each option is twelve months, and the exercise
date is the last day of the option period. Eligible employees include only
those employees who have completed twelve months of continuous service with
the Company. The Plan excludes employees who are officers, 5% or more
shareholders, employees receiving more than $64,245 in annual compensation
and employees of certain subsidiaries.
An aggregate of 2,400,000 shares may be made available under this
plan. Employees may participate in this plan only through payroll
deductions up to a maximum of 10% of their base pay. The option price is
equal to the lesser of 85% of the fair market value of the common stock on
the date of grant or on the date of exercise. At September 30, 1993,
1,100,472 shares were available under this plan.
401(k) Matching Program
Effective January 1, 1993, the Company offered a 401(k) retirement
plan contribution matching program. Under the plan agreement, the Company
matches 100% of employee contributions up to $500 and an additional 50% of
the next $500 contributed by the employee. This allows for maximum annual
Company contributions of $750 to each employee's 401(k) account. The
employees will be 100% vested in Company contributions at the date the
contribution is made. In fiscal 1993 the Company contributed $512,000
under this plan.
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Commitments
The Company leases certain of its facilities and equipment under
various agreements for periods through the year 2002. The following table
shows the future minimum rental payments required under these operating and
capital leases which have initial or remaining non-cancelable lease terms
in excess of one year as of September 30, 1993.
(Dollars in thousands)
Years Ending Operating Capital
September 30, Leases Leases Total
1994 . . . . . . . . . $ 4,840 $ 577 $ 5,417
1995 . . . . . . . . . 4,224 402 4,626
1996 . . . . . . . . . 3,597 218 3,815
1997 . . . . . . . . . 2,832 74 2,906
1998 . . . . . . . . . 2,044 - 2,044
1999 and after . . . . . 5,768 - 5,768
Total minimum
payments . . . . . . . $ 23,305 1,271 $ 24,576
Amount representing interest ( 192)
Capital lease obligations 1,079
Less current portion ( 462)
Long-term capital lease
obligations $ 617
The cost and related accumulated depreciation of equipment under
capital leases as of September 30, 1993, was $2,010,000 and $1,308,901,
respectively, and at September 30, 1992 was $2,979,000 and $1,107,000,
respectively.
Certain of the leases provide that the Company pay utilities,
maintenance, property taxes, and certain other operating expenses
applicable to the leased property, including liability and property damage
insurance. The lease for the Company's existing manufacturing facility in
Reno extends through 2001. The lease provides for periodic rental
increases.
The total rental expense for the fiscal years ended September 30,
1993, 1992 and 1991 was approximately $4,753,000, $5,746,000 and
$4,562,000, respectively.
9. Contingencies
The Company has been named in and brought lawsuits in the normal
course of its business. Management does not expect the outcome of these
suits to have a material adverse effect on the Company's financial position
or results of future operations.
10. Related Party Transactions
Members of the Company's Board of Directors
A member of the Company's Board of Directors is an officer of, and has
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Related Party Transactions (continued)
an equity interest in, a Nevada gaming business from which the Company
recognized revenues of $889,000, $549,000 and $623,000 during the fiscal
years ended September 30, 1993, 1992 and 1991, respectively. The Company
had contracts and accounts receivable balances from this customer of
$836,000 and $724,000 at September 30, 1993 and 1992, respectively. He is
also a director and officer of a parent to four additional gaming
businesses in Nevada, from which the Company recognized revenues of
$3,727,000, $3,668,000 and $7,478,000 during the fiscal years ended
September 30, 1993, 1992 and 1991, respectively. The Company had contracts
and accounts receivable balances from these businesses of $804,000 and
$97,000 at September 30, 1993 and 1992, respectively.
Additionally, a member of the Company's Board of Directors is the
Chairman of the Board of a Nevada gaming business from which the Company
recognized revenues of $2,064,000, $631,000, and $229,000 during the fiscal
years ended September 30, 1993, 1992 and 1991, respectively. The Company
had contracts and accounts receivable balances from this business of
$15,000 at both September 30, 1993 and 1992.
Riverboat Operations
The Company had an equity ownership interest in riverboat operations
based in Davenport, Iowa and St. Louis, Missouri (see Note 12). The
Company recognized revenues from sales to these operations, net of
intercompany eliminations for its equity ownership, of $179,000 and
$3,778,000 during the fiscal years ended September 30, 1992 and 1991,
respectively. The Company had accounts and notes receivable from these
businesses of $4,196,000 at September 30, 1992. The Company made loans
totalling $11.8 million during the fiscal year ended September 30, 1991, to
the partnerships which manage the riverboat operations. Each of the loans
included interest at 13%, with annual payments of principal and interest.
The principal balance outstanding on the notes at September 30, 1992, was
$13,167,000. The Company accrued interest income related to these loans
totalling $393,000, $1,645,000 and $757,000 during the fiscal years ended
September 30, 1993, 1992 and 1991, respectively. The loans and accrued
interest receivable were paid from the proceeds of the public offering
discussed in Note 12.
11. Debt Offering
In May 1991, the Company completed a $115,000,000 public offering of
5-1/2% Convertible Subordinated Notes (the "Notes") maturing June 1, 2001.
The Notes are convertible at the option of the holder at any time
prior to maturity, unless previously redeemed, into common stock of the
Company at a conversion rate of 129.384 shares per each $1,000 principal
amount, subject to
adjustments in certain events. During fiscal 1993 and 1992, notes with a
face amount of $42,719,000 and $85,000 were converted to 5,527,133 and
10,998 shares of the Company's common stock, respectively.
The Notes may be redeemed by the Company on or after June 1, 1994, in
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Debt Offering (continued)
whole at any time, or in part from time to time, at specified percentages,
graduating annually, of principal amount due at maturity together with
accrued and unpaid interest to the date of redemption. Interest payments
at 5-1/2% are payable semiannually. The Notes were issued at a price of
80.055% of the principal amount due at maturity, representing an original
issue discount of 19.945% from the principal amount payable at maturity.
The 5-1/2% semiannual interest payments and the original issue discount
represent a yield of 8.5% per annum.
The Notes are subordinated to prior payment in full of all senior
indebtedness of the Company as defined in the indenture governing the
Notes, including such indebtedness incurred in the future by the Company
and its subsidiaries. Net proceeds from the issue and sale of the Notes
were $89,426,800. Approximately $18 million of the proceeds were used to
repay indebtedness. The remainder of the proceeds will be used for general
corporate purposes, including capital expenditures and working capital.
12. Discontinued Operations
In connection with the Company's focus on gaming machine manufacture
and proprietary software systems development, the Company has divested its
investments in casino operations during fiscal 1993 through the sale of its
interest in CMS and President Riverboat Casinos, Inc. ("PRC"). The
disposition of these investments has been accounted for as discontinued
operations. The revenues from these operations totaled $34,807,000,
$35,849,000 and $33,865,000 for fiscal years 1993, 1992 and 1991,
respectively. The separate sales transactions of these investments are
described below.
Riverboat Operations
During December 1992, the Company transferred 100% of its ownership
interest in three riverboat partnerships to PRC. In exchange for the
transfer of its ownership interests, the Company received 1,671,429 shares
of PRC common stock representing an approximate 32% ownership of PRC.
The Company, under a selling agreement with the principal stockholders
of PRC, offered all of its 1,671,429 shares of PRC common stock as a
selling shareholder in the initial public offering ("IPO") of PRC,
effective December 17, 1992. The Company received proceeds from the IPO of
$28.7 million and recognized a pre-tax gain of $23.6 million on the sale.
PRC additionally repaid $16.2 million in outstanding notes to the Company,
plus all accrued interest.
CMS International
Effective September 30, 1993, the Company sold its equity ownership
interest in CMS to Summit Casinos-Nevada, Inc., ("Summit"), whose owners
include senior management of CMS. The sale consisted of $750,000 in cash
for the Company's ownership of CMS's preferred stock and $250,000 in cash
and a note of $2,043,529 for CMS's common stock. Additionally, the Company
acquired a stock purchase warrant entitling the Company to purchase a 4.84%
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Discontinued Operations (continued)
of CMS at a per share price approximately equal to the book value of CMS
("the CMS Warrant"). The CMS Warrant, which expires on the earlier of
September 30, 2003 or the closing of an underwritten public offering of
CMS, is exchangeable for a Warrant to purchase shares of common stock of
any other affiliate of Summit which proposes an underwritten public
offering of its common stock.
The Company recognized a pre-tax loss of approximately $2.0 million on
the sale and will remain as guarantor on certain indebtedness of CMS, which
had at September 30, 1993 an aggregate balance of $18.6 million. The notes
that have been guaranteed are also collateralized by the respective casino
properties. Summit has agreed to indemnify and hold the Company harmless
against any liability arising under these guarantees. Management believes
the likelihood of losses relating to these guarantees is remote.
The composition of income from discontinued operations in fiscal 1993
is as follows:
(Dollars in Thousands) Riverboat CMS
Operations Int'l Total
Income from operations. . . . . $ 245 $ 717 $ 962
Gain (loss) on disposal . . . . 23,586 ( 1,956) 21,630
Income (loss) on discontinued
operations before taxes . . . . 23,831 ( 1,239) 22,592
Income tax (provision)
benefit . . . . . . . . . . . . ( 9,573) 428 ( 9,145)
Income (loss) on discontinued
operations, net of taxes. . . . $ 14,258 $( 811) $ 13,447
13. EDT Common Stock
On January 31, 1992, the stockholders of EDT, previously a 43% owned
subsidiary of the Company, approved the exchange of 57% of the EDT common
stock owned by the public for common stock of the Company.
Under the exchange agreement, the market value of the Company's stock
used in the conversion was equal to the average of the per share closing
prices of the Company's stock on the NYSE for the ten consecutive days
ending on the sixth trading day immediately preceding the January 31, 1992,
EDT stockholders meeting at which the exchange was approved. As defined,
the average price of the Company's stock applied on the conversion date was
$49.65, as adjusted to reflect two-for-one stock splits effective March 24,
1992 and March 17, 1993. Accordingly, the outstanding EDT public shares
were converted to approximately 876,000 shares of the Company's common
stock and EDT became a wholly-owned subsidiary of the Company. The
operations of EDT have been merged into those of IGT-North America.
14. Disposition of Other Operations
The route and Megapoker operations and Keno systems business were sold
during fiscal 1992 and 1993. The Company's route and Megapoker operations
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Disposition of Other Operations (continued)
were sold to Jackpot Enterprises, a Nevada corporation in August and
November of 1992, respectively. The route operations included all the
route equipment and operating contracts for the Nevada participation
locations involving approximately 1,380 gaming machines in 160 locations.
This sale resulted in a net loss of $893,000. The Megapoker sale included
all gaming services and associated equipment used on the Megapoker route
along with licenses for all Megapoker software, trademarks, and tradenames.
A net gain of $242,000 was realized on this sale.
In the first quarter of 1993, the Company completed the sale of its
computerized keno system business to Imagineering Systems, Inc. of Reno,
Nevada. All development, manufacturing, sales and service functions for
the keno systems were included in the sale. The sale did not have a
material effect on the Company's consolidated financial statements.
15. Supplemental Statement of Cash Flows Information
Certain noncash investing and financing activities are not reflected
in the consolidated statements of cash flows. The Company incurred capital
lease obligations to obtain property, plant and equipment in the years
ended September 30, 1993, 1992 and 1991 of $46,000, $1,429,000, and
$651,000, respectively. Additionally, the Company exchanged common stock
of the Company for EDT common stock (see Note 13). The Company had no
additions to long-term notes payable during the fiscal years ended
September 30, 1993 and 1992. In fiscal 1991 the Company recorded additions
to long-term notes payable of $58,000.
Payments of interest for the years ended September 30, 1993, 1992 and
1991 were $12,030,000, $12,132,000 and $6,803,000, respectively. Payments
for income taxes for the years ended September 30, 1993, 1992 and 1991 were
$65,699,000, $31,825,000 and $12,045,000, respectively.
During fiscal 1993 and 1992 notes with a face amount of $42,719,000
and $85,000 were converted to 5,527,133 and 10,998 shares of the Company's
common stock, respectively.
The Company had dividends declared, but not yet paid at September 30,
1993 totaling $3,746,000.
The tax benefit of stock options totaled $20,147,000, $12,358,000 and
$1,810,000 for the years ended September 30, 1993, 1992, and 1991,
respectively.
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Selected Quarterly Financial Data (Unaudited)
(Dollars in thousands, except per share amounts and stock prices)
1991
First Qtr Second Qtr Third Qtr Fourth Qtr
Total revenues. . . . $ 52,442 $ 56,819 $ 61,033 $ 62,708
Income from operations 7,130 10,576 10,884 11,653
Income from continuing
operations . . . . . 5,461 7,374 7,817 9,128
Income (loss) from
discontinued
operations . . . . 61 ( 1,415) 34 61,458
Net income. . . . . . 5,522 5,959 8,163 10,586
Primary earnings per share:
Income from continuing
operations . . . . . $ .05 $ .06 $ .07 $ .08
Income (loss) from
discontinued
operations . . . . .00 ( 01) .00 .01
Net income . . . . . $ .05 $ .05 $ .07 $ .09
Stock price
High . . . . . . . . $ 2-1/8 $ 3-3/4 $ 6-1/8 $ 7-1/4
Low . . . . . . . . 1-1/8 1-7/8 3-3/8 5-1/2
1992
First Qtr Second Qtr Third Qtr Fourth Qtr
Total revenues. . . . $ 65,163 $ 66,835 $114,043 $ 117,553
Income from operations 13,826 17,528 33,089 36,459
Income from continuing
operations . . . . . 9,909 11,551 19,476 22,348
Income (loss) from
discontinued
operations . . . . 613 ( 564) 497 954
Net income. . . . . . 10,522 10,987 19,973 23,302
Primary earnings per share:
Income from continuing
operations . . . . . $ .08 $ .10 $ .16 $ .18
Income (loss) from
discontinued
operations . . . . .01 ( .01) .00 .01
Net income . . . . . $ .09 $ .09 $ .16 $ .19
Stock price
High . . . . . . . . $ 12 $ 17-3/8 $ 17-1/8 $ 22-1/8
Low . . . . . . . . 6-1/4 10-7/8 11-1/4 12-7/8
(continued)
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Selected Quarterly Financial Data (Unaudited)
(Dollars in thousands, except per share amounts and stock prices)
(continued from previous page)
1993
First Qtr Second Qtr Third Qtr Fourth Qtr
Total revenues. . . . $ 87,264 $ 98,721 $131,987 $ 160,058
Income from operations 25,191 27,468 42,315 55,264
Income from continuing
operations . . . . . 21,180 18,878 29,647 35,873
Income (loss) from
discontinued
operations . . . . 14,369 ( 139) 363 ( 1,146)
Net income . . . . . 35,549 18,739 30,010 34,727
Primary earnings per share:
Income from continuing
operations . . . . . $ .17 $ .15 $ .24 $ .29
Income (loss) from
discontinued
operations . . . . .12 .00 .00 ( .01)
Net income . . . . . $ . 29 $ .15 $ .24 $ .28
Stock price
High . . . . . . . . $ 26-3/8 $ 33 $ 39-3/4 $ 41-3/8
Low . . . . . . . . 17-7/8 23-3/4 28-1/2 32-1/8
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Fair Value of Financial Instruments
The following table presents the carrying amount and estimated fair
value of the Company's financial instruments in accordance with Statement
of Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments."
September 30, 1993
Carrying Estimated
Amount Fair Value
Assets:
Cash and cash equivalents. . . . . . . . . $ 85,346 $ 85,346
Short term investments . . . . . . . . . . 131,994 147,123
Investments to fund liabilities to
Jackpot winners. . . . . . . . . . . . . 92,048 108,027
Notes and contracts receivable . . . . . . 107,581 127,458
Liabilities:
Convertible subordinated notes
payable. . . . . . . . . . . . . . . . . 59,998 379,219
Liabilities to Jackpot winners . . . . . . 92,768 108,747
Notes payable and capital lease
obligations. . . . . . . . . . . . . . . 1,079 1,079
The carrying value of cash and cash equivalents, short term investments
to fund liabilities to jackpot winners, accounts receivable, accounts
payable, and notes payable and capital lease obligations approximate fair
value because of the short term maturity of those instruments. The
estimated fair value of short term investments, long term investments to
fund liabilities to jackpot winners, and the convertible subordinated notes
payable are based on quoted market prices.
The fair value of the Company's notes and contracts receivable is
estimated by discounting the future cash flows using interest rates
determined by management to reflect the credit risk and remaining
maturities of the related notes and contracts.
In the normal course of business, the Company is a party to financial
instruments with off-balance-sheet risk such as performance bonds and other
guarantees, which are not reflected in the accompanying balance sheets.
Management does not expect any material losses to result from these off-
balance-sheet instruments.
18. Concentrations of Credit Risk
The financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents and accounts, contracts, and notes receivable. The Company
maintains cash and cash equivalents with various financial institutions in
amounts, which at times, may be in excess of the FDIC insurance limits.
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Concentrations of Credit Risk (continued)
Product sales and the resulting receivables are concentrated in
specific legalized gaming regions. The Company also distributes a
significant portion of its products through third party distributors
resulting in significant distributor receivables. At September 30, 1993
accounts, contracts, and notes receivable by region as a percentage of
total receivables are as follows:
Regions
Nevada . . . . . . . . . . . . 29.3%
Riverboats (greater
Mississippi River area). . . 18.6%
Indian Casinos (distributor) . 11.1%
Colorado . . . . . . . . . . . 8.8%
Louisiana (distributor). . . . 6.5%
19. Subsequent Event - Agreement to Purchase 78 acres
The Company has entered into an agreement to purchase approximately 78
acres for $78,571 per acre or a total price of approximately $6,129,000.
The closing of this purchase is subject to the seller receiving certain
approvals from the City of Reno including approval to include the acquired
parcel within the existing South Meadows Properties Planned Unit
Development. Closing is expected to occur in the quarter ending March 31,
1994. The property has been purchased as a site suitable for future
construction of expanded manufacturing, warehouse and corporate office
facilities.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Items 10, 11, 12 and 13 is incorporated by
reference from the 1994 Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days of the end of the fiscal year covered
by this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Consolidated Financial Statements:
Reference is made to the Index to Financial Statements and
Related Information under item 8 in Part II hereof where these
documents are listed.
(a)(2) Consolidated Financial Statement Schedules: Page
I Marketable Securities-Other Security
Investments 62
II Amounts receivable from related parties and
underwriters, promoters, and employees
other than related parties 63
IV Indebtedness of Related Parties 64
VIII Valuation and Qualifying Accounts 65
IX Short-term Borrowings 67
X Supplementary Income Statement
Information 67
Parent Company Financial Statements - Financial Statements of the
Registrant only are omitted under Rule 3-05 as modified by
ASR 302.
(a)(3) Exhibits
3.1 Articles of Incorporation of International Game Technology, as
amended.
3.2 Second Restated Code of Bylaws of International Game Technology,
dated November 11, 1987.
4.1 Indenture for the 5-1/2% Convertible Subordinated Notes due June
1, 2001 (incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-3 No. 33-39856 filed by the
Registrant)
4.2 Form of Convertible Subordinated Notes due June 1, 2001
(incorporated by reference to Exhibit 4.1 to Form 10-K for the
year ended September 30, 1991.)
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(continued)
10.1 Stock Option Plan for Key Employees of International Game Technology,
as amended (incorporated by reference to Exhibit 10.26 to Registration
Statement No. 33-12610 filed by Registrant).
10.2 International Game Technology 1993 Stock Option Plan (incorporated by
reference to Exhibit 4.1 to Registration Statement on Form S-8, File
No. 33-69400 filed by the Registrant).
10.3 Employee Stock Purchase Plan (incorporated by reference to Exhibit
28.1 to Registration Statement on Form S-8, File No. 33-20308 filed by
the Registrant).
10.4 Route Operating and Purchase Agreement and Megapoker Distribution
Agreement dated August 14, 1992, by and between International Game
Technology and Jackpot Enterprises, Inc. (incorporated by reference to
Exhibit 10.3 to Form 10-K for the year ended September 30, 1992).
10.5 Exclusive Distributorship Agreement dated May 5, 1993, between IGT and
Sodak Gaming, Inc.
10.6 Underwriting Agreement dated December 10, 1992, between President
Riverboat Casinos, Inc. and International Game Technology
(incorporated by reference to Exhibit 10.15 of Form 10-K for the year
ended September 30, 1992).
10.7 Stock Purchase and Redemption Agreement dated December 4, 1992, by and
between International Game Technology and Golden Eagle Casinos
International (renamed Summit Casinos International,
Inc.)(incorporated by reference to Exhibit 10.6 of Form 10-K for the
year ended September 30, 1992).
10.8 First Amendment to Stock Purchase and Redemption Agreement between
International Game Technology and Golden Eagle Casinos International
(renamed Summit Casinos International, Inc.) dated March 15, 1993.
10.9 Second Amendment to Stock Purchase and Redemption Agreement between
International Game Technology and Summit Casinos International, Inc.
(formerly named Golden Eagle Casinos International) dated March 24,
1993.
11 Computation of Earnings Per Share
22 Subsidiaries
24 Independent Auditors' Consent
25 Power of Attorney (See page 63 hereof)
(b) Reports on Form 8-K
No report on Form 8-K was filed during the three-month period
ended September 30, 1993.
POWER OF ATTORNEY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the
21st day of December, 1993.
INTERNATIONAL GAME TECHNOLOGY
By:s/John J. Russell
John J. Russell
Director, President, Chief
Executive Officer and Chief
Operating Officer
Each person whose signature appears below hereby authorizes G. Thomas
Baker and Scott H. Shackelton, or either of them, as attorneys-in-fact to
sign on his behalf, individually, and in each capacity stated below, and to
file all amendments and/or supplements to this Annual Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
s/Charles N. Mathewson Chairman, Board of December 22, 1993
Charles N. Mathewson Directors
s/John J. Russell Director, President, December 22, 1993
John J. Russell Chief Executive Officer
and Chief Operating
Officer
s/G. Thomas Baker Vice President Finance December 22, 1993
G. Thomas Baker and Chief Financial
Officer (Principal
Financial Officer)
s/Scott H. Shackelton Chief Accounting Officer December 22, 1993
Scott H. Shackelton (Principal Accounting
Officer)
Director December 22, 1993
Warren L. Nelson
s/Wilbur K. Keating Director December 22, 1993
Wilbur K. Keating
s/Frederick B. Rentschler Director December 22, 1993
Frederick B. Rentschler
s/Albert J. Crosson Director December 22, 1993
Albert J. Crosson
Director December 22, 1993
Claudine B. Williams
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
SCHEDULE I - CONSOLIDATED MARKETABLE SECURITIES-OTHER SECURITY INVESTMENTS
September 30, 1993
(Dollars in Thousands)
ORIGINAL MARKET CARRYING
TYPE OF INVESTMENT COST VALUE VALUE
Fixed Maturities:
Corporate bonds:
Investment firms . . . . . . . $ 5,155 $ 5,383 $ 5,146
Chemical . . . . . . . . . . . 2,300 2,220 2,217
Entertainment. . . . . . . . . 4,690 4,687 4,631
Banking . . . . . . . . . . . 8,744 8,890 8,666
Financial services . . . . . . 5,434 5,407 5,359
General industry . . . . . . . 3,976 4,188 3,984
Municipals . . . . . . . . . . 5,153 5,105 5,099
Retailers. . . . . . . . . . . 3,179 3,164 3,110
Transportation . . . . . . . . 5,297 5,325 5,245
Total Corporate Bonds . . . . . 43,928 44,369 43,457
Equity Securities:
Chemicals. . . . . . . . . . 2,404 2,500 2,404
Financial services . . . . . . 2,192 2,255 2,192
Banking . . . . . . . . . . . 10,266 11,587 10,266
Food service . . . . . . . . . 1,000 1,090 1,000
General industry . . . . . . . 5,735 5,680 5,735
Leisure industry . . . . . . . 7,786 16,488 7,786
Transportation . . . . . . . . 4,825 5,221 4,825
Utilities. . . . . . . . . . . 1,000 1,070 1,000
Total Equity Securities . . . . 35,208 45,891 35,208
U.S. Government and agency
obligations. . . . . . . . . . 36,226 39,001 36,136
Foreign government obligations. 3,761 3,796 3,761
Managed funds . . . . . . . . . 6,509 6,767 6,509
Mutual funds. . . . . . . . . . 5,925 6,304 5,925
Mortgage-backed instruments . . 995 995 998
Total investment in marketable
securities . . . . . . . . . . $132,552 $147,123 $131,994
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
SCHEDULE II - CONSOLIDATED AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
(Dollars in Thousands)
Balance at
Balance at End of Period
Beginning Non
Name of Debtor of Period Additions Deductions Current Current
Robert McMonigle(1)
Year Ended
9/30/93 $ - $191 $ - $ 191 $ -
(1) On September 23, 1993 the Company made a loan to enable Mr. McMonigle,
an employee, to exercise certain stock options. This note bears no
interest and was repaid on October 5, 1993.
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
SCHEDULE IV - CONSOLIDATED INDEBTEDNESS OF RELATED PARTIES
(Dollars in thousands)
INDEBTEDNESS OF:
Current
Balance at Balance Portion
Beginning at End at End
Name of Person of Period Additions Deductions of Period of Period
Warren Nelson,
Board of Directors(1)
Year ended 9/30/91 $ 2,906 $ 5,407 $ 6,797 $ 1,516(2) $ 1,495
Year ended 9/30/92 $ 1,516 $ 4,105 $ 4,897 $ 724(2) $ 690
Year ended 9/30/93 $ 724 $ 4,070 $ 3,946 $ 848(2) $ 814
The Connelly Group(1)
Year ended 9/30/91 $ - $17,913(3)$ 351 $17,562(4) $ 1,608
Year ended 9/30/92 $17,562 $ 1,963(3)$ 2,061 $17,464(4) $ 1,209
Year ended 9/30/93 $17,464 $ 393 $17,857 $ - $ -
(1) See Note 10 of Notes to the Consolidated Financial Statements.
(2) Included in long-term notes and contracts receivable.
(3) Resulted from sales to riverboat operations managed by and loans to
The Connelly Group partnerships.
(4) Included in long-term notes and contracts receivable and
long-term notes receivable from unconsolidated affiliates.
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
SCHEDULE VIII - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Balance at Accounts Balance
Beginning Written at End
of Period Provisions Recoveries Off of Period
Allowance for
Doubtful
Accounts:
Year ended 9/30/91 $2,931 $2,248 $ 36 $1,611 $3,604
Year ended 9/30/92 $3,604 $3,764 $ 25 $ 335 $7,058
Year ended 9/30/93 $7,058 $3,240 $ 420 $2,783 $7,935
Allowance for
Doubtful Notes and
Contracts
Receivable:
Year ended 9/30/91 $4,201 $2,636 $ 135 $ 924 $6,048
Year ended 9/30/92 $6,048 $ 916 $ 288 $ 453 $6,799
Year ended 9/30/93 $6,799 $2,006 $ 208 $ 62 $8,951
Balance at Balance
Beginning Income Income at End
of Period Deferred Recognized of Period
Income Deferred under
the Installment Method:
Year ended 9/30/91 $ 142 $ 689 $ 330 $ 501
Year ended 9/30/92 $ 501 $ - $ 200 $ 301
Year ended 9/30/93 $ 301 $ - $ 280 $ 21
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
SCHEDULE VIII - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS (continued)
(Dollars in thousands)
Inventories
Balance at Disposed Balance
Beginning of and at End
of Period Provisions Written Off of Period
Obsolete Inventory Reserve:
Year ended 9/30/91 $2,917 $8,821 $6,995 $4,743
Year ended 9/30/92 $4,743 $6,030 $2,978 $7,795
Year ended 9/30/93 $7,795 $ 981 $1,660 $7,116
Fixed Assets
Balance at Disposed Balance
Beginning of and at End
of Period Provisions Written Off of Period
Obsolete Fixed Assets
Reserve:
Year ended 9/30/91 $ 548 $ 157 $ 355 $ 350
Year ended 9/30/92 $ 350 $ 489 $ 542 $ 297
Year ended 9/30/93 $ 297 $ 634 $ 664 $ 267
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
SCHEDULE IX - CONSOLIDATED SHORT-TERM BORROWING
(Dollars in thousands)
Weighted
Maximum Average Average
Weighted Amount Amount Interest
Balance Average Outstanding Outstanding Rate
at End Interest During During During
of Period Rate Period Period* Period**
Advances
under lines
of credit:
Year ended
9/30/91 $ - - % $13,350 $ 6,253 9.1%
Year ended
9/30/92 $ - - % $ - $ - - %
Year ended
9/30/93 $ - - % $ - $ - - %
* Average of month-end balances.
** Computed on outstanding month-end balances during the period.
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
EXPENSE ITEMS IN EXCESS OF ONE PERCENT OF TOTAL REVENUES:
(Dollars in thousands) AMOUNT CHARGED TO
COSTS AND EXPENSES
FISCAL YEARS ENDED SEPTEMBER 30
1993 1992 1991
1. Advertising and promotions $3,069 $2,951 $2,431
ARTICLES OF INCORPORATION
OF
INTERNATIONAL GAME TECHNOLOGY
The undersigned individuals acting as incorporators of a
corporation (the "Corporation") under the provisions of Chapter 78
of the Nevada Revised Statutes adopt the following Articles of
Incorporation.
ARTICLE I
Name
The name of the Corporation is INTERNATIONAL GAME TECHNOLOGY.
ARTICLE II
Principal Office and Initial Resident Agent
A. Principal Office. The address of the principal office of
the Corporation is Suite 110, 777 West Second Street, Reno, Nevada.
The Corporation may conduct all or part of its business in any
other part of the State of Nevada.
B. Resident Agent. The resident agent of the Corporation is
Roger H. Elton, located at Suite 110, 777 West Second Street, Reno,
Nevada.
ARTICLE III
Nature of Business
The Corporation may engage in any lawful activity.
ARTICLE IV
Capital
A. Number and Par Value of Shares. The Corporation shall be
authorized to issue Twenty Million (20,000,000) shares of capital
stock with a par value of One Cent ($.01) per share. All of the
shares of stock shall be the same class, without preference or
distinction.
B. Assessment of Shares. The capital stock of the
Corporation, after the amount of the par value has been paid in
money, property, or services, as the Directors shall determine,
shall not be subject to assessment to pay the debts of the
Corporation, nor for any other purpose, and no stock issued as
fully paid shall ever be assessable or assessed, and the Articles
of Incorporation shall not be amended in this respect.
ARTICLE V
Governing Board
A. Name. The members of the governing board of the
Corporation shall be designated as Directors.
B. Initial Board of Directors. The initial number of Board
of Directors shall consist of three (3) members. The names and
addresses of the members of the initial Board of Directors are as
follows. These individuals shall serve as Directors until the
first annual meeting of the shareholders, or until their successors
shall have been elected and qualified.
Name Address
Laurie W. Schwager P.O. Box 2878
Reno, Nevada 89505
Janice A. Gnos P.O. Box 2878
Reno, Nevada 89505
Jill Burns P.O. Box 2878
Reno, Nevada 89505
C. Increase or Decrease of Directors. The number of
Directors of the Corporation may be increased or decreased from
time to time by amendment to the bylaws of the Corporation;
provided, however, that the Board shall consist of less than three
(3) members only if all of the shares of capital stock of the
Corporation are owned beneficially and of record by less than three
(3) shareholders, in which case the number of Directors may be less
than three (3), but not less than the number of beneficial and
record owners of shares.
ARTICLE VI
Names and Addresses of Incorporators
The names and post offices addresses of each of the
incorporators signing these Articles of Incorporation are as
follows:
Name Address
Laurie W. Schwager P.O. Box 2878
Reno, Nevada 89505
Janice A. Gnos P.O. Box 2878
Reno, Nevada 89505
Jill Burns P.O. Box 2878
Reno, Nevada 89505
ARTICLE VII
Period of Existence
The period of existence of the Corporation is perpetual.
DATED: December 22, 1980.
____________________________
Laurie W. Schwager
____________________________
Janice A. Gnos
____________________________
Jill Burns
CERTIFICATE OF AMENDMENT
OF ARTICLES OF INCORPORATION
INTERNATIONAL GAME TECHNOLOGY
International Game Technology, a corporation organized under
and existing by virtue of the laws of the State of Nevada does
hereby certify:
FIRST: The Following resolution was unanimously adopted on
November 11, 1987 by all of the members of the Board of Directors
of the corporation lawfully and duly held that day pursuant to the
Bylaws of the Corporation:
RESOLVED, that the Board of Directors does hereby propose
that ARTICLE V of the Articles of Incorporation of the
Corporation be amended to add thereto the following
provision:
D. Indemnification of Directors and
Officers. To the fullest extent permitted by
the Law of the State of Nevada as the same
exists or may hereafter be amended, a director
or an officer of the Corporation shall not be
personally liable to the Corporation or its
Stockholders for monetary damages for breach
of fiduciary duty as a director or an officer.
Any repeal or modification of this Section
shall not result in any liability for a
director or officer with respect to any action
or omission occurring prior to such repeal or
modification.
SECOND: The shareholders of the Corporation at a meeting duly
and regularly held pursuant to the Bylaws of the Corporation on
February 16, 1988, ratified, adopted and approved the following
resolution:
RESOLVED, that the Articles of Incorporation of the
Corporation be amended to eliminate the personal
liability of directors and officers as permitted by
Nevada law.
THIRD: Of the 5,115,303 shares of the Corporation entitled to
vote at the meeting, there were 3,884,213 present in person or
represented by proxy. Of the 3,884,213 of the shares represented
at the meeting, 3,611,794 (or 70.6%) voted in favor of adopting the
foregoing resolution.
Dated: April 24, 1991
INTERNATIONAL GAME TECHNOLOGY
By: John J. Russell, President
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
The undersigned, being the President and Secretary,
respectively, of International Game Technology, a Nevada
corporation, certify as follows:
1. That the Board of Directors of the Corporation, at a
meeting duly held on July 22, 1981, adopted and consented to the
adoption of certain resolutions calling for the amendment of the
Articles of Incorporation of the Corporation as hereinafter set
forth, declaring the advisability of such amendment, and calling a
meeting of the shareholders for the purpose of considering such
amendment, unless the shareholders shall have earlier adopted and
consented to the adoption of such amendment as provided in NRS
78.320.
2. That said resolution of the Board of Directors called for
the amendment of Article IV of the Articles of Incorporation to add
thereto Section C which, in its entirely, reads as follows:
C. Denial of Pre-Emptive Rights: No
shareholders of any of the capital stock of
the corporation shall, by virtue of his status
as such, have any right to acquire any
additional shares. This section is intended
to, and shall, act as a denial of any pre-
emptive right afforded by Section 78.265 of
the Nevada Revised Statues, or any successor
statute.
3. That all of the shareholders of the Corporation, by
Resolution at a meeting duly held July 23, 1981, did approve, adopt
and consent to the adoption of said amendment.
4. That this certificate is made pursuant to NRS 78.390 and
with the intent to amend the Articles of Incorporation of the
Corporation in the manner set forth above.
DATED this 23rd day of July, 1981.
J. George Drews, President
Raymond D. Pike, Secretary
CERTIFICATE OF REDUCTION OF CAPITAL
THE UNDERSIGNED HEREBY CERTIFY individually and on behalf of
International Game Technology, a Nevada Corporation (the
"Company"), that they are the President and Secretary of the
company and the following is a true and correct copy of resolution
to reduce the stated capital of the Company duly adopted by the
Board of Directors of the Company on December 16, 1986.
WHEREAS, the Company currently has 8,109,887 shares of common
stock, par value $.01 issued and outstanding and the stated
capital of the Company is $81,098.87; and
WHEREAS, the Board of Directors of the Company deems it
advisable and in the best interest of the Company to purchase
a part of the outstanding shares of common stock of the
Company and to reduce the stated capital of the Company.
NOW THEREFORE, BE IT RESOLVED that the Company be, and it
hereby is, authorized to purchase 2,168,020 shares of issued
and outstanding common stock of the Company from William S.
Redd at a price of $10.50 per share, and 1,014,830 shares from
the Ivy Lee Redd Testamentary Trust at a price of $10.00 per
share (collectively the "Repurchased Shares") for a total
purchase price of $32,912,510 (the "Purchase Price"). Upon
purchase of the Repurchased Shares the stated capital of the
Company shall be reduced from said $81,098.87 to $49,270.37;
and
RESOLVED, that the Secretary of the Company is hereby directed
to cancel the certificates representing the Repurchased
Shares. Upon purchase by the Company the Repurchased Shares
shall have the status of authorized but unissued stock; and
RESOLVED, that the Company be, and it hereby is, authorized to
execute promissory notes (the "Notes") in the amount of the
Purchase Price, in favor of William S. Redd and the Ivy Lee
Redd Testamentary Trust; and
RESOLVED, that the President of the Company be and hereby is
authorized to effect purchase of the Repurchased Shares and
execute the Notes and the President or Vice-President and
Secretary or Assistant Secretary of the Company be and they
hereby are directed and authorized to make, execute,
acknowledge, deliver and file a certificate of reduction of
capital setting forth this resolution with the Secretary of
State of Nevada and the Clerk of Washoe County, Nevada.
The reduction of capital as provided herein was made without
the requirement of any
vote or consent of stockholders pursuant to Nev. Rev. State. S
78.420.
IN WITNESS WHEREOF, the undersigned have executed this
Certificate as of this 17th day of March, 1987.
Charles N. Mathewson, President Raymond D. Pike, Secretary
CERTIFICATE OF DIVISION OF SHARES
OF
INTERNATIONAL GAME TECHNOLOGY
International Game Technology, a corporation organized and
existing under the laws of the State of Nevada, in compliance with
Section 78.207 of the Nevada Revised Statutes, by its President and
Secretary, does hereby certify:
1. That International Game Technology desires to divide each
of the shares of the capital stock of the corporation into two
shares, to be effective upon the filing of this Certificate with
the office of the Secretary of State of Nevada.
2. That at a meeting of the Board of Directors of this
corporation duly convened at 520 South Rock Boulevard, Reno,
Nevada, on the 20th day of June, 1990, a resolution was duly
adopted by a majority vote of the duly elected directors of the
corporation authorizing the referenced stock split.
IN WITNESS WHEREOF, the corporation has caused this
certificate to be signed by its President and Secretary, and its
corporate seal to be affixed this 6th day of July, 1990.
INTERNATIONAL GAME TECHNOLOGY
By______________________________
John J. Russell, President
By______________________________
Raymond D. Pike, President
AFFIDAVIT
The undersigned duly elected directors of International Game
Technology, being first duly sworn under penalty of perjury, and in
compliance with Section 78.207 of the Nevada Revised Statutes,
depose and say, that in the best interest of the corporation and
its shareholders, the Board of Directors of the corporation has
authorized the division of each of the shares of capital stock of
the corporation into two shares, to be effective immediately upon
the filing of the Certificate of Division of Shares of
International Game Technology with the office of the Secretary of
State of Nevada.
________________________________
Charles N. Mathewson
________________________________
Claudine Williams
________________________________
Wilbur K. Keating
________________________________
John J. Russell
_______________________________
Albert J. Crosson
CERTIFICATE OF DIVISION OF SHARES
OF
INTERNATIONAL GAME TECHNOLOGY
International Game Technology, a corporation organized and
existing under the laws of the State of Nevada, in compliance with
Section 78.207 of the Nevada Revised Statutes, by its President and
Secretary, does hereby certify:
1. That International Game Technology desires to divide each
of the shares of the capital stock of the corporation into two
shares, to be effective upon the filing of this Certificate with
the office of the Secretary of State of Nevada.
2. That the referenced stock split will result in eighty
million (80,000,000) shares of authorized capital stock of the
corporation with a par value of $.0025 per share.
3. That at a meeting of the Board of Directors of this
corporation duly convened on the 19th day of July, 1991, a
resolution was duly adopted by a unanimous vote of all of the duly
elected directors of the corporation authorizing the referenced
stock split.
IN WITNESS WHEREOF, the corporation has caused this
certificate to be signed by its President and Secretary, and its
corporate seal to be affixed this 9th day of August, 1991.
INTERNATIONAL GAME TECHNOLOGY
By______________________________
John J. Russell, President
By______________________________
Raymond D. Pike, President
AFFIDAVIT
The undersigned duly elected directors of International Game
Technology, being first duly sworn under penalty of perjury, and in
compliance with Section 78.207 of the Nevada Revised Statutes,
depose and say, that in the best interest of the corporation and
its shareholders, the Board of Directors of the corporation has
authorized the division of each of the shares of capital stock of
the corporation into two shares, resulting in eighty million
(80,000,000) shares of authorized capital stock of the corporation
with a par value of $.0025 per share. The referenced stock split
shall be effective immediately upon the filing of the Certificate
of Division of Shares of International Game Technology with the
office of the Secretary of State of Nevada.
Dated this ______ day of July, 1991.
________________________________
Charles N. Mathewson
________________________________
Claudine Williams
________________________________
Wilbur K. Keating
________________________________
John J. Russell
________________________________
Albert J. Crosson
________________________________
Warren L. Nelson
________________________________
William S. Redd
CERTIFICATE OF DIVISION OF SHARES
OF
INTERNATIONAL GAME TECHNOLOGY
International Game Technology, a corporation organized and
existing under the laws of the State of Nevada, in compliance with
Section 78.207 of the Nevada Revised Statutes, by its President and
Secretary, does hereby certify:
1. That International Game Technology desires to divide each
of the shares of the capital stock of the corporation into two
shares, to be effective upon the filing of this Certificate with
the office of the Secretary of State of Nevada.
2. That the referenced stock split will result in one
hundred sixty million (160,000,000) shares of authorized capital
stock of the corporation with a par value of $.00125 per share.
3. That at a meeting of the Board of Directors of this
corporation duly convened on the 25th day of February, 1992, a
resolution was duly adopted by a unanimous vote of all of the duly
elected directors of the corporation authorizing the referenced
stock split.
IN WITNESS WHEREOF, the corporation has caused this
certificate to be signed by its President and Secretary, and its
corporate seal to be affixed this 10th day of March, 1992.
INTERNATIONAL GAME TECHNOLOGY
By______________________________
G. Thomas Baker,
Vice President of Finance,
Chief Financial Officer,
Treasurer
By______________________________
Raymond D. Pike, Secretary
AFFIDAVIT
The undersigned duly elected directors of International Game
Technology, being first duly sworn under penalty of perjury, and in
compliance with Section 78.207 of the Nevada Revised Statutes,
depose and say, that in the best interest of the corporation and
its shareholders, the Board of Directors of the corporation has
authorized the division of each of the shares of capital stock of
the corporation into two shares, resulting in one hundred sixty
million (160,000,000) shares of authorized capital stock of the
corporation with a par value of $.00125 per share. The referenced
stock split shall be effective immediately upon the filing of the
Certificate of Division of Shares of International Game Technology
with the office of the Secretary of State of Nevada.
Dated this ______ day of March, 1992.
________________________________
Charles N. Mathewson
________________________________
Claudine Williams
________________________________
Wilbur K. Keating
________________________________
John J. Russell
________________________________
Albert J. Crosson
________________________________
Warren L. Nelson
CERTIFICATE OF DIVISION OF SHARES
OF
INTERNATIONAL GAME TECHNOLOGY
International Game Technology, a corporation organized and
existing under the laws of the State of Nevada, in compliance with
Section 78.207 of the Nevada Revised Statutes, by its President and
Secretary, does hereby certify:
1. That International Game Technology desires to divide each
of the shares of the capital stock of the corporation into two
shares, to be effective upon the filing of this Certificate with
the office of the Secretary of State of Nevada.
2. That the referenced stock split will result in three
hundred twenty million (320,000,000) shares of authorized capital
stock of the corporation with a par value of $.000625 per share.
3. That at a meeting of the Board of Directors of this
corporation duly convened on the 23th day of February, 1993, a
resolution was duly adopted by a unanimous vote of all of the duly
elected directors of the corporation authorizing the referenced
stock split.
IN WITNESS WHEREOF, the corporation has caused this
certificate to be signed by its President and Secretary, and its
corporate seal to be affixed this 10th day of March, 1993.
INTERNATIONAL GAME TECHNOLOGY
By______________________________
G. Thomas Baker,
Vice President of Finance,
Chief Financial Officer,
Treasurer
By______________________________
Raymond D. Pike, Secretary
AFFIDAVIT
The undersigned duly elected directors of International Game
Technology, being first duly sworn under penalty of perjury, and in
compliance with Section 78.207 of the Nevada Revised Statutes,
depose and say, that in the best interest of the corporation and
its shareholders, the Board of Directors of the corporation has
authorized the division of each of the shares of capital stock of
the corporation into two shares, resulting in three hundred twenty
million (320,000,000) shares of authorized capital stock of the
corporation with a par value of $.000625 per share. The referenced
stock split shall be effective immediately upon the filing of the
Certificate of Division of Shares of International Game Technology
with the office of the Secretary of State of Nevada.
Dated this ______ day of March, 1993.
________________________________
Charles N. Mathewson
________________________________
Claudine Williams
________________________________
Wilbur K. Keating
________________________________
John J. Russell
________________________________
Albert J. Crosson
________________________________
Warren L. Nelson
________________________________
Fred D. Rentschler
SECOND RESTATED
CODE OF BYLAWS
OF
INTERNATIONAL GAME TECHNOLOGY
ARTICLE I
IDENTIFICATION
Section l.0l. Name. The name of the Corporation is
INTERNATIONAL GAME TECHNOLOGY.
Section l.02. Principal Office and Resident Agent. The
address of the principal office of the corporation is 520 South
Rock Boulevard, Reno, Nevada 89502; and the name of the resident
agent at this address is Raymond D. Pike.
Section l.03. Fiscal Year. The fiscal year of the
corporation shall begin on the lst day of October in each year and
end on the 30th day of September next following.
ARTICLE II
CAPITAL STOCK
Section 2.0l. Issuance of Shares. The Capital Stock may be
issued for labor, services, personal property, real estate or
leases thereof or for money from time to time by the Board of
Directors. Treasury shares may be disposed of by the corporation
for such consideration as aforesaid from time to time by the Board
of Directors.
Section 2.02. Payment of Shares. The consideration for the
issuance of shares may be paid, in whole or in part, in money, in
other property, as aforesaid, or in labor or services actually
performed for the corporation. When payment of the consideration
for which shares are to be issued shall have been received by the
corporation, such shares shall be deemed to be fully paid and
nonassessable. Future services shall not constitute payment or
part payment for shares of the corporation. In the absence of
fraud in the transaction, the judgment of the Board of Directors as
to the value of the consideration received for shares shall be
conclusive. No certificate shall be issued for any share until the
share is fully paid.
Section 2.03. Certificates Representing Shares. Each holder
of the Capital Stock of the corporation shall be entitled to a
certificate signed by the President or a Vice President and the
Secretary or an Assistant Secretary of theCorporation, certifying
the number of shares owned by him in the Corporation.
Section 2.04. Transfer of Stock. The corporation shall
register a transfer of a stock certificate presented to it for
transfer if:
Clause (a) Endorsement. The certificate is
properly endorsed by the registered holder or by his duly
authorized attorney;
Clause (b) Witnessing. The endorsement or
endorsements are witnessed by one witness unless this
requirement is waived by the Secretary of the corporation;
Clause (c) Adverse Claims. The corporation has
no notice of any adverse claims or has discharged any duty to
inquiry into any such claims;
Clause (d) Collection of Taxes. There has been
compliance with any applicable law relating to the collection
of taxes;
Clause (e) Regulatory Approvals. All necessary
approvals of appropriate regulatory agencies have been
obtained. All licensing and investigatory fees associated
with obtaining the necessary approvals of all appropriate
regulatory agencies shall be borne by the transferee and not
the corporation; except that in the event the transferee is an
officer, Director or employee of the corporation or any
subsidiary of the corporation, the corporation shall pay such
licensee and investigatory fees for the officer, Director of
employee.
ARTICLE III
THE SHAREHOLDERS
Section 3.0l. Place of Meetings. Meetings of the
Shareholders of the corporation shall be held at the principal
office of the corporation, 520 South Rock Boulevard, Reno, Nevada,
89502, or at any other place within or without the State of Nevada
as may be designated in the notice thereof.
Section 3.02. Annual Meetings. The annual meeting of the
Shareholders shall be held each year at the principal office of the
Corporation at the hour of l0:00 a.m. on February l6 of each
calendar year if this day is a weekday and is not a legal holiday,
and if this day is not a weekday or is a holiday, then on the first
following day that is a
weekday and is not a legal holiday. Failure to hold the annual
meeting at the designated time shall not cause a forfeiture or
dissolution of the Corporation.
Section 3.03. Special Meeting. Special meetings of the
Shareholders may be called by the President, the Board of
Directors, or by the Secretary at the written request (stating the
purpose or purposes for which the meeting is called) of the holders
of not less than one-tenth of all the shares entitled to vote at
the meeting.
Section 3.04. Notice of Meetings; Waiver. Written notice
stating the place, day, and hour of the meeting and, in case of a
special meeting the purpose or purposes for which the meeting is
called, shall be delivered not less than ten (l0) nor more than
sixty (60) days before the date of the meeting, either personally
or by mail, by or at the direction of the President, the Secretary,
or the officer or persons calling the meeting, to each registered
holder entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States
mail addressed to the registered holder at his address as it
appears on the stock transfer books of the corporation, with
postage on it prepaid. Waiver by a Shareholder in writing of
notice of a Shareholders' meeting shall constitute a waiver of
notice of the meeting, whether executed and/or delivered before or
after such meeting.
Section 3.05. Quorum. One third (33-l/3%) of the
Shareholders entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of the Shareholders. The
Shareholders present at a duly organized meeting may continue to do
business until adjournment, notwithstanding the withdrawal of
enough Shareholders to leave less than a quorum. The act of the
majority of the Shareholders entitled to vote at a meeting at which
a quorum is present shall be the act of the Shareholders, unless a
greater number is required by applicable law.
Section 3.06. Proxies. A Shareholder may vote either in
person or by proxy executed in writing by the Shareholder or by his
duly authorized attorney-in-fact. No proxy shall be valid after
six months from the date of its execution, unless otherwise
provided in the proxy.
ARTICLE IV
THE BOARD OF DIRECTORS
Section 4.01. Number and Qualifications. The business and
affairs of the corporation shall be managed by a board of four (4)
directors, two (2) of whom shall be independent directors. The
number of directors may be increased or decreased from time to time
and at any time by the Board of Directors by a resolution making
specific reference to this Section 4.0l of the Bylaws.
Section 4.02. Election. Members of the initial Board of
Directors shall hold office until the first annual meeting of
Shareholders and until their successors shall have been elected and
qualified. At the first annual meeting of Shareholders and at each
annual meeting thereafter, the Shareholders shall elect Directors
to hold office until the next succeeding annual meeting. Each
Director shall hold office for a term for which he is qualified.
Notwithstanding anything herein to the contrary, any Director may
be removed from office at any time by the vote or written consent
of Shareholders representing not less than two-thirds of the issued
and outstanding stock entitled to vote.
Section 4.03. Vacancies. Any vacancy occurring in the Board
of Directors may be filled by the affirmative vote of the majority
of the remaining Directors though less than a quorum of the Board
of Directors. A Director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office,
subject to removal as aforesaid.
Section 4.04. Place of Meeting. Meetings of the Board of
Directors, annual, regular or special, may be held either within or
without the State of Nevada.
Section 4.05. Annual Meetings. Immediately after the annual
meeting of the Shareholders, the Board of Directors shall meet each
year for the purpose of organization, election of officers, and
consideration of any other business that may properly be brought
before the meeting. No notice of any kind to either old or new
members of the Board of Directors for this annual meeting shall be
necessary.
Section 4.06. Other Meetings. Other meetings of the Board of
Directors may be held upon notice by letter, telegram, cable, or
radiogram, delivered for transmission not later than during the
third day immediately preceding the day for the meeting, or by word
of mouth, telephone, or radiophone received not later than during
the second day preceding the day for the meeting, upon the call of
the President or Secretary of the corporation at any place within
or without the State of Nevada. Notice of any meeting of the Board
of Directors may be waived in writing signed by the person or
persons entitled to the notice, whether before or after the time of
the meeting. Neither the business to be transacted at, nor the
purpose of, any meeting of the Board of Directors need be specified
in the notice or waiver of notice of the meeting.
Section 4.07. Quorum. A majority of the number of Directors
holding office shall constitute a quorum for the transaction of
business. The act of the majority of the Directors holding office
shall constitute a quorum for the transaction of business. The act
of the majority of the Directors present at a meeting at which a
quorum has been achieved shall be the act of the Board of Directors
unless the act of a greater number is required by applicable law.
Section 4.08. Action Without A Meeting. Any action that may
be taken at a meeting of the Directors, or a committee, may be
taken without a meeting if a consent in writing, setting forth the
action so taken, shall be signed by all of the Directors or all of
the members of the committee, as the case may be.
Section 4.09. Loans. The Board of Directors shall have the
following power with respect to the lending of funds:
Clause (a) Loan of Funds, Generally. To lend
money in furtherance of any of the purposes of the
corporation; to invest the funds of the corporation from time
to time; and to take and hold any property as security for the
payment of funds so loaned or invested; but to make no loans
secured by the shares of the corporation.
Clause (b) Loan to Employees. To lend money to
its employees, other than its officers and Directors, and to
otherwise assist its employees, officers, and Directors; but
to make no loans secured by the shares of the corporation.
Section 4.10. Indemnification of Directors and Officers.
(a) Policy. It is the policy and intention of the
corporation to provide to its officers and directors broad and
comprehensive indemnification from liability to the full
extent permitted by law.
(b) Right to Indemnification. Each person who was or is a
party or is threatened to be made a party to or is involved in
any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she, or a person of whom he
or she is the legal representative, is or was a director or
officer of the corporation or is or was serving at the request
of the corporation as a director, officer, employee or agent
of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding
is an alleged action or inaction in an official capacity or in
any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by
the corporation to the fullest extent permitted by the laws of
Nevada, as the same exist or may hereafter be amended, against
all costs, charges, expenses, liabilities and losses
(including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in
connection therewith, and such indemnification shall continue
as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that
except as provided in paragraph (c) hereof, the corporation
shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the corporation. The
right to indemnification conferred in this Article shall be a
contract right and shall include the right to be paid by the
corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided,
however, that, if Nevada law requires, the payment of such
expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person
while a director or officer, including, without limitation,
service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery
to the corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Article or
otherwise. The corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of
the corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
(c) Right of Claimant to Bring Suit. If a claim under this
Article is not paid in full by the corporation, the claimant
may at any time thereafter bring suit against the corporation
to recover the unpaid amount of the claim and, if successful
in whole or in part, the claimant shall be entitled to be paid
also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any
proceeding advance of its final disposition where the required
undertaking, if any is required, has been tendered to the
corporation) that the claimant has failed to meet a standard
of conduct which makes it permissible under Nevada law for the
corporation to indemnify the claimant for the amount claimed.
Neither the failure of the corporation (including its Board of
Directors, independent legal counsel, or its shareholders) to
have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in
the circumstances because he or she has met such standard of
conduct, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel
or its shareholders) that the claimant has not met such
standard of conduct, shall be a defense to the action or
create a presumption that the claimant has failed to meet such
standard of conduct.
(d) Non-Exclusivity of Rights. The right to indemnification
and the payment of expenses incurred in defending a proceeding
in advance of its final disposition conferred in this Article
shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the
Articles of Incorporation, Bylaws, agreement, vote of
shareholders or disinterested directors or otherwise.
(e) Insurance. The corporation may maintain insurance, at
its expense, to protect itself and any director, officer,
employee or agent of the corporation or other corporation,
partnership, joint venture, trust or other enterprise against
any such expense, liability or loss, whether or not the
corporation would have the power to indemnify such person
against such expense, liability or loss under Nevada law.
(f) Expenses as a Witness. To the extent that any director,
officer, employee or agent of the corporation is by reason of
such position, or a position with another entity at the
request of the corporation, a witness in any action, suit or
proceeding, he or she shall be indemnified against all costs
and expenses actually and reasonably incurred by him or her or
on his or her behalf in connection therewith.
(g) Indemnity Agreement. The corporation may enter into
agreements with any director, officer, employee or agent of
the corporation to the fullest extent permitted by Nevada law.
(h) Effect of Repeal or Modification. Any repeal or
modification of this Section 4 shall not result in any
liability for a director with respect to any action or
omission occurring prior to such repeal or modification.
SECTION V
THE OFFICERS
Section 5.0l. Officers. The officers of the corporation
shall consist of a President, Vice President, Secretary, Treasurer,
and such other officers and assistant officers and agents as may be
deemed necessary by the Board of Directors at its annual meeting.
Officers need not be Directors of the corporation. Each officer so
elected shall hold office until his successor is elected and
qualified, but shall be subject to removal at any time by the vote
or written consent of a majority of the Directors.
Section 5.02. Vacancies. Whenever any vacancies shall occur
in any office by death, resignation, increase in the number of
officers of the corporation, or otherwise, the same shall be filled
by the Board of Directors, and the officer so elected shall hold
office until his successor is elected and qualified, subject to
removal as aforesaid.
Section 5.03. The Chairman of the Board of Directors. The
Chairman of the Board of Directors shall preside at all meetings of
the Directors, discharge all duties incumbent upon the presiding
officer, and perform such other duties as the Board of Directors
may prescribe.
Section 5.04. The President. The President shall have active
executive management of the operations of the corporation, subject,
however, to the control of the Board of Directors. He shall
preside at all meetings of Shareholders, discharge all the duties
incumbent upon a presiding officer, and perform such other duties
as this Code of Bylaws provides or the Board of Directors may
prescribe. The President shall have full authority to execute
proxies in behalf of the corporation. To vote stock owned by it in
any other corporation, and to execute powers of attorney appointing
other corporation, partnerships, or individuals the agent of the
corporation.
Section 5.05. The Vice President. The Vice President shall
perform all duties incumbent upon the President during the absence
or disability of the President, and shall perform such other duties
as this Code of Bylaws may provide or the Board of Directors may
prescribe.
Section 5.06. The Secretary. The Secretary shall attend all
meetings of the Shareholders and of the Board of Directors, and
shall keep a true and complete record of the proceedings of these
meetings. He shall be custodian of the records of the corporation.
He shall attend to the giving of all notices and shall perform
other duties as this Code of Bylaws may provide or the Board of
Directors may prescribe.
Section 5.07. The Treasurer. The Treasurer shall keep
correct and complete records of account, showing accurately at all
times the financial condition of the corporation. He shall be the
legal custodian of all moneys, notes, securities, and other
valuables that may from time to time come into the possession of
the corporation. He shall immediately deposit all funds of the
corporation coming into his hands in some reliable bank or other
depository to be designated by the Board of Directors, and shall
keep this bank account in the name of the corporation. He shall
furnish at meetings of the Board of Directors, or whenever
requested, a statement of the financial condition of the
corporation, and shall perform such other duties as this Code of
Bylaws may provide or the Board of Directors may prescribe. The
Treasurer may be required to furnish bond in such amount as shall
be determined by the Board of Directors.
Section 5.08. Transfer of Authority. In case of the absence
of any officer of the corporation, or for any other reason that the
Board of Directors may deem sufficient, the Board of Directors may
transfer the powers or duties of that officer to any other officer
or to any Director or employee of the corporation, provided a
majority of the full Board of Directors concurs.
ARTICLE VI
SPECIAL CORPORATE ACTS
Negotiable Instruments, Deeds, and Contracts. All checks,
drafts, notes, bonds, bills of exchange, and orders for the payment
of money of the corporation; all deeds, mortgages, and other
written contracts and agreements to which the corporation shall be
a party; and all assignments or endorsements of stock certificates,
registered bonds, or other securities owned by the corporation
shall, unless otherwise required by law, be signed by the President
and by any one of the following officers who are different persons:
Vice President, Secretary, or Treasurer. The Board of Directors
may designate officers or employees of the corporation, other than
those named above, who may, in the name of the corporation, sign
such instruments; and may authorize the use of facsimile signatures
of any of such persons. Any shares of stock issued by any other
corporation and owned or controlled by the corporation may be voted
at any Shareholders' meeting of the other corporation by the
President of the corporation, if he be present; or, in his absence,
by the Secretary of the corporation and, in the event both the
President and Secretary shall be absent, then by such person as the
President of the corporation shall, by duly executed proxy,
designate to represent the corporation at such Shareholders'
meeting.
ARTICLE VII
AMENDMENTS
The power to alter, amend, or repeal this Code of Bylaws, or
adopt a new Code of Bylaws, is vested in the Board of Directors,
but the affirmative vote of a majority of the Board of Directors
holding office shall be necessary to effect any such action.
I hereby certify that the foregoing Bylaws are a true and
correct copy of the Bylaws of International Game Technology as
adopted on the 11th day of November, l987.
__________________________
Secretary
EXCLUSIVE DISTRIBUTORSHIP AGREEMENT
AGREEMENT, made and entered into in Reno, Nevada, this ____
day of __________, 1993 between Sodak Gaming Services, a South
Dakota corporation (hereinafter referred to as "SGS"); Mike
Wordeman, an individual; and IGT, 520 South Rock Boulevard, Reno,
Nevada, ("IGT").
IT IS AGREED AS FOLLOWS:
1. EXCLUSIVE REPRESENTATION FOR SPECIFIC TERRITORY:
A. Grant of Territory and Marketing Privileges: IGT,
subject to the Operating Requirements set forth below and the other
limitations, terms and conditions set forth herein, grants to SGS:
the sole and exclusive, non-transferable license to purchase for
resale, sell, promote the sale, and distribute IGT Products
lawfully approved for sale in North Dakota, South Dakota, Wyoming,
and for Native American Reservations located in the 48 contiguous
States (except and excluding Nevada, New Jersey and the non-
contiguous States Hawaii and Alaska) and to Indians, aboriginal
peoples or Native peoples in Provinces of Canada where gaming
activity is approved by the appropriate Canadian entity and Sodak
is licensed or approved to distribute IGT Products. "IGT Products"
shall mean IGT manufactured or assembled gaming devices, slot
machines, terminals developed and offered by IGT as video terminals
for a lottery, and IGT-distributed gaming machines designed or
manufactured by others. It is acknowledged and agreed that this
grant does not include, and no rights accrue to SGS hereunder, as
to IGT linked progressive system products, Special Products, or
system management operations conducted in whole or part by IGT; or
to non-gaming applications of IGT Products or Special Products.
All other distributorship arrangements, agreements or
understandings between the parties, except the Wisconsin and South
Dakota Indian Gaming Interlink Agreement ("Interlink Agreement"),
are herewith fully terminated, including without limitation the
prior agreements of August 10, October 28, 1989, February 5, 1990
and January 21, 1991, and April 28, 1992 and all modifications to
said agreements, it being the intention of the parties that this
Agreement and the Interlink Agreement as amended from time to time
shall be the sole distributorship agreements between the parties.
B. Acceptance: SGS hereby accepts the above exclusive
non-transferable license to sell, distribute, and promote IGT
Products in said territory, as limited, and agrees to use its best
efforts in selling and distributing IGT Products in the territory.
Further, so long as this Agreement is in force and effect, SGS and
all affiliates of SGS agree that they, and each of them, shall not
anywhere in North America directly or indirectly solicit orders
for, sell, lease, promote the sale or otherwise deal in products
which compete with or are similar to systems or devices
manufactured by IGT. Notwithstanding the foregoing, SGS may
manufacture, promote the sale of, and distribute specialty
manufactured gaming equipment or supplies as specified in Exhibit
A, attached hereto and incorporated herein, which Exhibit A may be
amended from time to time by written agreement between IGT and SGS.
As used herein, "affiliate" shall be any company or business entity
of which SGS directly or through a subsidiary owns ten percent
(10%) or more of the outstanding equity interests, or any company,
business entity or person which directly or indirectly holds five
percent (5%) or more of SGS (excluding Promus Corporation) or is an
officer of SGS.
C. Specific Reservations:
i. Special Products: SGS shall, within the
guidelines provided in writing by IGT from time to time, solicit
offers only within the territory for Special Products. "Special
Products", as used herein, means IGT linked progressive systems,
keno systems, live game systems, non-video lottery systems, and
products not offered for sale by IGT to gaming or government
customers of IGT. All such offers shall be subject to acceptance
by IGT in its sole discretion. The parties specifically reserve
the dealings as between IGT and SGS for future negotiations as to
each transaction that presents itself.
ii. Special Customers: Notwithstanding anything in
this Agreement to the contrary, IGT may deal directly with any
retail customer where that customer has operations inside and
outside the territory and insists upon dealing with IGT directly.
In all such instances, SGS shall receive a five percent (5%)
commission rateably as IGT is paid on the actual sales price to IGT
less shipping, taxes and all costs attendant to delivery, which
costs are not reimbursed by such customer to IGT. In addition to
the referenced five percent (5%) commission, IGT shall pay Sodak on
a prorated basis, that portion of the actual costs incurred by
Sodak as of the date of sale by IGT pursuant to this provision
which is attributable to the development of the state within which
the customer in question is located as a market for IGT Products
[method to be discussed]. It is understood and agreed that Sodak
is not entitled to a commission for any sale or lease of gaming or
lottery equipment to any Provincial Government for use in any
Canadian Province.
iii. Used Trade-Ins: SGS agrees it shall observe
the territorial structure of IGT marketing to ensure orderly
distribution of IGT Products. Should SGS receive used equipment as
trade-ins on new sales of IGT Products, it may sell such used
equipment even if it is not an IGT Product. If such used equipment
is sold for use outside the territory, SGS agrees to pay no less
than five percent (5%) commission on the sales price of said used
equipment to IGT or the IGT distributor for the location in which
the equipment is to be used.
D. Term: Except as provided in Paragraph 8, this
Agreement shall commence on the date set forth above and continue
for five (5) years. At the end of said five (5) years, this
Agreement shall continue from year to year upon the terms and
conditions set forth herein, unless canceled by either party by
written notice delivered at least ninety (90) days prior to a
proposed termination at the end of said five (5) years or any year
continuance thereafter.
E. Models/Display Machines: IGT may, from time to
time, change the design or specifications for IGT Products and
Special Products and shall designate the specific machine models of
any and all of the machines to be offered to SGS from the entire
range of IGT Products and Special Products licensed by the
applicable licensing body for the specific jurisdiction involved,
during the term of this Agreement.
F. Standard Machine Specifications: IGT agrees that
all IGT machines provided to SGS shall conform to the
specifications of machines licensed by the appropriate licensing
agency for the destination within the territory which SGS
designates the machines to be bound. Any change of or addition to
said specifications by SGS shall only be at the prior approval of
IGT and pursuant to changes authorized by said appropriate
governmental agency. Any change required by governmental authority
having responsibility for the licensure or approval of gaming
machines shall be deemed approved by the parties and shall be a
standard specification to be implemented by SGS and IGT. Any
change thus required shall be deemed to require a change, as
specifically designated by IGT in its sole discretion, to the list
price otherwise applicable. Any retrofit shall be at SGS's cost.
G. Manufacturer's Limited Warranty: IGT warrants all
equipment, parts, supplies and accessories to be in satisfactory
operating condition at the time of shipment from Reno, Nevada. Any
minor repairs, exchanges of parts and adjustments necessary to
maintain satisfactory operating conditions of equipment after
delivery to SGS shall be the responsibility of SGS, except that, in
light of the special circumstances of the distances in the
territory, IGT will replace or repair any IGT part or component
which is defective because of the fault of IGT, PROVIDED these
defective elements are returned to IGT by SGS, shipment at SGS's
expense, within ninety (90) days of shipment from Reno. THE
WARRANTY STATED IN THIS PARAGRAPH IS EXCLUSIVE AND IS IN LIEU OF
ALL OTHER WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS OR
IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR
PURPOSE. IGT shall not be liable to SGS and/or any customer of SGS
for any claim and/or damages including any labor costs, lost
profits, and/or consequential damages. IGT shall defend, indemnify
and hold harmless SGS from and against any and all claims, demands,
suits, and/or causes of action which arise or have arisen either
directly or indirectly as a result of, or in connection with any
patent or copyright matters as to IGT products or special products,
save and except for machines and devices manufactured by others.
H. Price/Payment for IGT Products:
i. IGT Products: IGT shall sell to SGS the IGT
Products (except custom alterations and parts and except Special
Products) at IGT's then current retail list price, as established
by IGT in its sole discretion and provided to SGS from time to time
in writing by IGT, F.O.B. Reno, Nevada, minus twenty-five percent
(25%) as to all IGT Products (except non-Indian Reservation lottery
terminals, which terminals shall be list minus twenty percent
(20%)), plus sales taxes, shipping charges and all costs attendant
to delivery to SGS. A standard IGT Product is that item which has,
prior to the time of customer order, been designed and released to
production by IGT and designated as available for sale in the
territory. Anything different from or in addition to a standard
product is a custom alteration. All custom alterations to IGT's
standard products shall be sold to SGS at IGT's then quoted hourly
rate plus materials minus twenty-five percent (25%). IGT shall
specify custom work prior to acceptance of the purchase order, and
shall provide SGS a written estimate of the custom charges. SGS
must accept the estimate price in writing before it shall be bound
to purchase the custom alteration.
ii. Written Orders for IGT Products: All orders
for IGT Products shall be in writing on forms provided by IGT,
signed by an authorized employee of SGS. No order by SGS or any of
its employees shall be binding upon IGT until the same is formally
accepted in writing by an authorized employee of IGT at IGT's
office in Reno. Once accepted by IGT, an order may be canceled or
modified only by mutual consent, subject to payment to IGT by SGS
of expenditures incurred by IGT in connection with the order which
are not reasonably recoverable.
iii. Payment by SGS for IGT Products: Unless
otherwise specified in writing at the time of order, payment in
full by SGS shall be made to IGT for IGT Products and custom
alterations within ninety (90) days from the date of delivery to
the carrier for shipment. If such payment is made in full within
ninety (90) days, no interest charge shall be applied. Payment for
IGT orders shall be in U.S. dollars to IGT's Reno office. As to
sales on other than 90 day terms, payment in full shall be made in
not more than thirty-six (36) equal monthly installments of
principal, pursuant to such terms as is specified by SGS in the
sales order, together with interest at the rate of two percent (2%)
over the prime lending rate as quoted from time to time by First
Interstate Bank, Los Angeles office; prepayment may be made at
anytime without penalty; payment and interest to commence from the
date of delivery to the carrier for shipment. Any and all amounts
not timely paid shall accrue interest at a default interest rate of
one and one-half percent (1.5%) per month on the unpaid balance of
principal and accrued interest due. Payment in full by SGS shall
be secured by an irrevocable standby letter of credit (or other
form of guaranteed payment acceptable to IGT) in an amount up to
fifty percent (50%) of the total outstanding balance due by SGS to
IGT, which amount shall not be less than Six Million Dollars
($6,000,000.00). The letters of credit shall be in a form
acceptable to IGT, to be drawn against only if payment is not
received by IGT as specified herein. Said letters of credit shall
be renewed not later than thirty (30) days before expiration, and
IGT may be entitled to draw on existing letters of credit if such
advance renewal is not secured. SGS shall be fully liable as to
any deficiencies that may remain owed to IGT by SGS after said
letter of credit draw.
I. Manufacture and Delivery: To enable IGT to
establish production schedules and place orders with its suppliers
with adequate lead time, SGS will furnish IGT, unless otherwise
specified by IGT, with monthly estimates of SGS's requirements for
the next three (3) calendar months. A mutually agreed upon
delivery schedule shall be established for each order. SGS will
select the mode of transportation provided for all deliveries of
IGT Products hereunder and shall be responsible to carriers for all
charges and costs in effectuating delivery of the IGT Products to
SGS at such places as may be mutually agreed from time-to-time.
Each and every shipment shall be deemed delivered as of the date of
receipt of delivery at IGT's warehouse docks, at either Reno,
Nevada, by an authorized agent of SGS or the SGS-designated
carrier.
J. Risk of Loss: Whenever IGT shall cause to be
manufactured and shipped any machines, parts, components or
materials for delivery to SGS, the risk of loss shall be on IGT
until actual delivery of said machines to SGS in Reno, Nevada, or
its designated shipper, in Reno, Nevada, at which time the risk of
loss shall pass to SGS; provided, however, that, if a machine,
part, component, or material is returned to IGT pursuant to
warranty herein, the risk of loss shall pass to IGT upon delivery
to an authorized agent of IGT.
K. Independent Status: All persons hired or employed
by SGS in the discharge of this Agreement shall be considered
employees of SGS and not of IGT and shall be solely and exclusively
under SGS's direction and control. SGS agrees to obtain and
maintain all business licenses necessary to its business, pay all
applicable taxes and fees, and to employ all salesmen, servicemen
or other persons only under terms by which IGT shall be released in
writing from all indebtedness from SGS to such persons. SGS
further agrees to have all persons employed by it properly covered
by Workmen's Compensation or Employer's Liability Insurance, as
required by law; and to assume and pay at its own cost all taxes
and contributions required by an employer under any and all
unemployment insurance, old age pensions and other applicable so-
called social security acts. SGS specifically agrees that it shall
be solely responsible for, and shall indemnify and save IGT
harmless from, any and all loss, damage, and costs (including
attorney's fees) that IGT may sustain, or become liable for, by
reason of claims against IGT, on account of the acts of any
employee or agent of SGS.
L. Dealer Operating Requirements: To provide
appropriate representation, and facilitate proper sale and
servicing of IGT Products, Dealer shall establish and maintain
places of business and/or agencies satisfactory to IGT, in its
reasonable judgment, as to facilities, appearance, sales and
service operations, parts inventory, and trained personnel and
capital equipment. Such facilities shall be sufficiently
established within the territory set forth above to adequately
meet, within IGT's reasonable judgment, the needs of customers
within each jurisdiction for which IGT Products are located within
the said territory.
M. Trade Name: The names IGT, and International Game
Technology, and the names of its products, are registered and/or
are the exclusive property of IGT; and nothing herein contained
shall give to SGS any interest in these names, except the right to
use them during the term of this Agreement in connection with the
lease, operation, service or repair of the machines as provided
herein or applications for necessary permits. Upon termination of
this Agreement for whatever cause, SGS shall abandon at once the
use of the names IGT, or International Game Technology or any
similar name or colorable imitation, or misleading name.
N. Advertising: In the event IGT shall supply SGS
advertising material relative to any of its products, SGS shall
display such advertising material as directed by IGT, and in the
absence of instructions, SGS upon receipt of such materials, shall
promptly display them in a conspicuous and prominent manner.
2. INSTALLATION, MAINTENANCE, PARTS AND SERVICE:
A. Purchase of Inventory: SGS shall maintain, at its
cost, a stock of spare parts adequate to timely meet the needs of
its customers and its obligations under this Agreement.
B. Provision for Service: SGS shall make available and
offer to SGS customers within the territory set forth above through
its own employees or agents, parts and repair service at no cost to
said customers during the first ninety (90) days following
installation for all IGT Products sold or leased in the said
territory. SGS shall provide installation, parts, and repair
service not covered by the ninety (90) day parts and service
warranty, for all IGT Products and Special Products within the
territory, at such rates and charges as are competitive in the
industry and shall make a good faith effort with such service to
maintain the reputation of IGT, subject to all Foreign, Federal,
State and Local laws, statutes, ordinances, regulations and lawful
requirements of the gaming authorities regarding the engagement in
such services.
C. Price of Parts: Except as provided by warranty
herein and except as to parts specified in writing from time to
time by IGT to SGS for which a designated price to SGS is made, the
price of standard IGT manufactured parts and components, parts
obtained by IGT from other suppliers provided to SGS shall be at
the then IGT retail list price, as determined solely by IGT and
provided in writing to SGS from time to time, minus thirty percent
(30%) of said price. A standard IGT part is that item which has,
prior to the time of customer order, been designed and released to
production by IGT; anything different from or in addition to a
standard part is a custom alteration; all custom alterations to
IGT's standard parts shall be sold to SGS at IGT's then quoted
hourly rate minus twenty-five percent (25%). All prices for IGT
parts are F.O.B. Reno, Nevada, to which shall be added applicable
sales tax, shipping and all other costs attendant to delivery to
SGS.
D. Method of Order and Payment: An order for parts or
components shall be in writing specifying the SGS ordering agent,
order number, and sufficiently detailed specifications for
identification of the kind and quantity of the items ordered.
Payment in full shall be made in full, secured by standby
irrevocable letter of credit or other guaranteed payment acceptable
to IGT, from a bank acceptable to IGT, within ninety (90) days of
the date of delivery to SGS of each part sold to SGS. If said
payment is not timely made, interest at one and one-half percent
(1.5%) per month shall accrue on the outstanding balance of
principal and accrued interest until paid in full. Payment for IGT
orders shall be in U.S. Dollars to IGT's Reno, Nevada office.
E. Delivery: Delivery of parts, components and
materials shall be pursuant to the same terms and conditions as set
forth above for delivery of IGT Products.
3. FACILITATION OF SALES AND SERVICE, IGT PROPRIETARY
INTERESTS: To facilitate said sales service by SGS, IGT agrees to
provide SGS with schematics, wiring diagrams, maintenance and
service manuals, and any other technical material as determined
solely by IGT for appropriate IGT Products, special Products, and
parts as ordered by SGS pursuant to this Agreement. IGT also
agrees to train SGS technicians, provided SGS pays all expenses and
travel costs incurred in such training. SGS agrees that the
technical data not available in the normal course of business which
is provided pursuant to this Paragraph and any and all
modifications thereto from whatever party or source constitutes IGT
proprietary information, and SGS, its employees and agents shall
not disclose said information to any third party without the prior
consent of IGT and shall not use such information to the detriment
of IGT or its products. SGS specifically agrees that all software,
processes, mechanisms, art work, trade names, systems and items
whatsoever created, developed or originated by IGT and any and all
modifications thereto from whatever source are and shall remain the
sole property of IGT. This Paragraph shall survive termination of
this Agreement for any reason and the parties agree damages are
inadequate to remedy any breach hereof, and that injunctive relief
is appropriate and may be granted by a court of competent
jurisdiction to halt any such breach.
4. ADDRESSES: Any written notice, or offer and reply
required by this Agreement shall be effective by letter, telegram
and/or telex and the same shall be addressed to:
SGS
Mike Wordeman
Sodak Gaming Services
c/o Mike Wordeman
405 E. Omaha
Rapid City, South Dakota 57701
IGT
John J. Russell
520 South Rock Blvd.
Reno, Nevada 89502
U.S.A.
5. SGS agrees that, to facilitate monitoring by IGT to
assure satisfactory sales and service results, it will:
A. Keep and provide IGT with access at all reasonable
times to accurate accounts, books and records, and reports as to
sales and service, including, but not limited to, warranty work, in
such manner and form as IGT shall, from time to time, require; and
B. Forward immediately to IGT every customer complaint
and governmental order, advice, and communication relating to IGT
Products, Special Products, or IGT.
6. WAIVER OF BREACH: The failure of either party to require
the performance of any term of this Agreement or the waiver by
either party of any breach under this Agreement shall not prevent
a subsequent enforcement of such term, nor be deemed a waiver of
any subsequent breach.
7. BENEFIT: Except as otherwise expressly provided above,
this Agreement supersedes and cancels all prior understandings of
the parties, including but not limited to the agreement between the
parties dated August 10, 1989, October 28, 1989 and February 5,
1990 and all modifications to said Agreements; and shall be binding
upon and inure to the benefit of the legal representatives,
successors, and assigns of SGS and IGT; provided, however, that
neither SGS nor Wordeman shall not assign any interest in this
Agreement without the prior written approval of IGT.
8. EARLY TERMINATION: Other than as provided in Paragraph
1.C. of this Agreement, the Agreement may be terminated as follows:
A. By IGT: IGT may terminate this Agreement as to all
or any part of the territory if:
i. Upon ninety (90) days written notice delivered
by IGT to SGS, if any ownership in SGS or control or control
influence over SGS or its successors is held by or passed to any
single person or single business entity which, in the reasonable
belief of IGT, materially jeopardizes any license or approval or
application by IGT or creates a material conflict of interest in
such person or business entity with IGT and its products and such
ownership or control influence is not forthwith removed, or if
Wordeman either fails to maintain a substantial (5% or more)
ownership of SGS or ceases his substantial involvement in the
operation of SGS (including without limitation his resignation or
termination from his positions as President and CEO of SGS) for any
reason other than as a result of his death or total disability,
without the prior written consent of IGT, which consent shall not
be unreasonably withheld. Stock certificates evidencing at least
five percent (5%) ownership by Wordeman of SGS shall be endorsed
with a restrictive legend prohibiting transfer of said shares
without the prior written consent of IGT;
ii. a. If in the reasonable belief of IGT, SGS
has failed to maintain ethics, reputation, image, or customer
relations in accordance with Industry standards (including without
limitation, standards applicable to distributors licensed by the
States of Nevada and New Jersey), and such failure is not corrected
within ninety (90) days of receipt from IGT of written notice to
Sodak of the specific nature of said failure and the action
necessary to correct said failure; or
b. SGS has failed to provide its best effort
to attain a reasonable level of sales performance and market or
service from IGT Products or Special Products as to any specific
jurisdiction within the territory, and such failure is not
corrected within ninety (90) days of receipt from IGT of written
notice to Sodak of the specific nature of said failure and the
action necessary to correct said failure; or
c. If SGS has directly or indirectly offered
any non-IGT Products which directly compete with IGT Products or
IGT Special Products to the extent such activity is prohibited by
Paragraph 1.B of this Agreement and if such activity is not
corrected by Sodak within ninety (90) days of receipt from IGT of
written notice by Sodak of the nature of the activity and the
action necessary to correct said failure; or
d. If SGS has failed to comply with written
IGT policies or procedures delivered to Sodak which shall be
reasonable and consistent with industry norms if such failure has
materially affected the ability of Sodak to perform its obligations
imposed pursuant to this Agreement and if such failure is not
corrected by Sodak within ninety (90) days of receipt from IGT of
written notice by Sodak of the nature of said failure and the
action necessary to correct said failure; or
e. If SGS has failed to establish and
maintain sufficient facilities as to any specific jurisdiction
within the territory, if such failure has materially affected the
ability of Sodak to perform its obligations imposed pursuant to
this Agreement and such failure is not corrected to the
satisfaction of IGT within a reasonable time following receipt of
written notice to Sodak of the specific nature of said failure and
the action necessary to correct said failure; or
B. By Sodak: Upon written notice delivered to IGT,
Sodak may terminate this Agreement if:
i. In the reasonable belief of Sodak, a material
defect or condition is contained within a significant number of IGT
Products which render those products noncompetitive in the
marketplace, or not fit for the use intended, and which defect or
condition is not corrected within a reasonable time giving due
regard to the nature of the defect.
C. By Either Party: Upon written notice delivered to
the other party, if:
i. The other party has failed to observe all
applicable laws or obtain any necessary license or approval from
each gaming regulatory authority in each applicable jurisdiction
within the territory; and such failure materially affects the
performance of such other party or could materially affect the
complaining party in its business elsewhere. In the event of the
inability of Sodak to obtain a license or approval in a
jurisdiction within the territory does not materially affect IGT's
business elsewhere and if the failure is not corrected by Sodak
within sixty (60) days of receipt of notice by Sodak of the nature
of the failure, IGT may terminate the right of Sodak to distribute
only in that jurisdiction within the territory;
ii. The other party becomes insolvent, or files a
petition for adjudication as bankrupt or insolvent, or executes an
assignment for the benefit of creditors, or has a receiver
appointed for it for any reason; or
iii. The other party materially breaches this
Agreement.
9. EFFECT OF TERMINATION: OBLIGATION OF THE PARTIES: Upon
the termination of this Agreement for any reason, the rights of
each to payment on account of the sale of equipment or services
already performed when this Agreement was in effect shall not be
impaired. Upon such termination, each party shall cooperate with
the other to effect a smooth termination, with minimum economic
harm to each party and with regard to the best interests of
customers, and to reimburse the other in a commercially reasonable
fashion for any expenses incurred by it at the request of the first
party. Upon the termination of this Agreement, SGS will turn over
to IGT copies of all records relating to proprietary information,
confidential information, service activities on IGT Products and
Special Products. Further, upon termination, either party, subject
to the proprietary rights set forth above, shall have the right to
develop, manufacture and sell, lease or otherwise distribute or
operate any and all products in the territory.
10. GAMING LAWS: This Agreement is intended to only
authorize and facilitate the sale, service, and/or distribution of
slot machines and related products in a lawful manner, and is
subject to and conditioned upon all applicable Federal, state and
local laws dealing with such machines. This Agreement shall not be
deemed to require or authorize any act or transaction except as may
be in full compliance with all such legal requirements. It is
specifically agreed by SGS that it shall scrupulously observe all
applicable federal, state and tribal laws relating to the
activities contemplated by this Agreement. This Agreement and the
rights of the parties shall be construed in accordance with the law
of the State of Nevada. Each party hereto agrees to take all
lawful actions necessary and make every lawful effort to procure
and maintain all required Foreign, Federal, State and local
licenses and approvals for compliance with such legal requirements.
A. IGT agrees that it shall pay all costs of licensing
proceedings, governmental investigation and approval required by
Foreign, Federal, State, and local laws, regulations, ordinances or
statutes as to IGT, its stockholders, agents, employees or assigns
and as to IGT-offered slot and/or any modifications, components,
parts or materials of IGT-offered slot machines.
B. SGS agrees that it shall, at no cost to IGT, take
all necessary actions as liaison between IGT and governmental
authorities to coordinate and facilitate governmental investigation
of IGT-offered machines, including facilitation of location testing
of such machines, if such is required.
C. SGS agrees that it shall pay all costs of licensing
proceedings, governmental investigations, and approval required by
Foreign, Federal, State, or local laws, regulations, ordinances or
statutes as to SGS, its stockholders, agents, employees or assigns.
11. FORCE MAJEURE: IGT shall not be liable for any
commissions or damages resulting from failure to accept or fill any
order or orders for IGT Products, Special Products, or parts
hereunder, either in whole or in part, when any such failure shall
be due to any one or more of the following causes: orders or
instructions issued by representatives of the governments of the
United States or Australia, or of any state, territory or district
of the United States or Australia, or of any municipality, or other
political or governmental division of any such state, territory or
district, or on account of IGT's inability to make complete
deliveries of all of its contracts because of the scarcity of labor
or materials used in manufacturing its products, or on account of
fires, strikes, lockouts, differences with workmen, accidents to
machinery, or orders, decrees or judgments of any court, or any
cause not within the direct control of IGT after a good faith
effort.
<PAGE>
DATED as first set forth above.
SGS
BY:_____________________________________
IGT
BY:_____________________________________
For full and adequate consideration, I acknowledge the
personal restrictions placed upon me by Paragraphs 1.A, 1.B, and
8.A above, and specifically agree to abide by said terms and
restrictions.
________________________________________
Mike Wordeman, an individual
________________________________________
Date
FIRST AMENDMENT TO
STOCK PURCHASE AND REDEMPTION AGREEMENT
THIS FIRST AMENDMENT TO STOCK PURCHASE AND REDEMPTION PURCHASE
AGREEMENT ("Amendment"), dated as of this ___________ day of March,
1993, is by and between Golden Eagle Casinos International, a
Nevada corporation ("Golden Eagle") and International Game
Technology, a Nevada corporation ("IGT") with reference to that
certain Stock Purchase and Redemption Agreement (the "Agreement"),
dated as of the fourth day of December, 1992, by and between Golden
Eagle and IGT.
In consideration of the mutual covenants contained herein, the
parties agree as follows:
1. Amendment to Section 1.7. Section 1.7 of the Agreement is
amended to read in its entirety as follows:
"1.7. Financial Statements. The Consolidated Financial
Statements of CMS and the Subsidiaries audited by
Deloitte & Touche for the period ending September 30,
1991, the Financial Statement of King's Casino Limited
audited by Price Waterhouse for the period ending
September 30, 1991, and those portions of the Unaudited
Financial Statements for the period ending September 30,
1992, delivered to Golden Eagle fairly present, in all
material respects, the financial position of CMS and the
Subsidiaries and results of their respective operations
at and for the period therein specified in accordance
with generally accepted accounting principles. All of
the Financial Statements referred to above are
collectively referred to herein as the "Disclosed
Financial Statements."
2. Deletion of Section 8.8. Section 8.8 of the Agreement,
entitled Audited Financial Statements, is hereby deleted in its
entirety.
IN WITNESS WHEREOF, this Amendment has been executed by Golden
Eagle and IGT as of the date first above written.
GOLDEN EAGLE: GOLDEN EAGLE CASINOS INTERNATIONAL
By__________________________________
Roger H. Elton, President
IGT: INTERNATIONAL GAME TECHNOLOGY
By__________________________________
John J. Russell, President
SECOND AMENDMENT TO
STOCK PURCHASE AND REDEMPTION AGREEMENT
THIS SECOND AMENDMENT TO STOCK PURCHASE AND REDEMPTION
AGREEMENT ("Second Amendment"), dated as of this ____ day of May,
1993, is by and between Summit Casinos International, Inc.
(formerly named Golden Eagle Casinos International), a Nevada
corporation ("Summit") and International Game Technology, a Nevada
corporation ("IGT") with reference to that certain Stock Purchase
and Redemption Agreement, dated as of the fourth day of December,
1992, by and between Summit and IGT, as amended by a First
Amendment to Stock Purchase and Redemption Agreement, dated as of
March __, 1993 (the "Agreement"). Except as otherwise defined
herein, capitalized terms used herein without definition have the
meanings ascribed to them in the Agreement.
RECITALS:
A. On March 30, 1993, Golden Eagle Casinos International filed a
Certificate of Amendment to its Articles of Incorporation changing
its name to Summit Casinos International, Inc.
B. In view of changed circumstances relating to King's Casino
Limited, the parties desire to adjust the purchase price for the
Common Stock of CMS by reducing the principal amount of the note
(currently referred to in the Agreement as the "Golden Eagle Note")
to be made by Summit to IGT at closing as provided herein and to
make provision regarding certain dividends of King's Casino
Limited.
C. The parties desire, to amend Section 10 of the Agreement to
reflect the understanding of the parties regarding repayment of
that certain Equipment Financing Agreement and Revolving Note,
pursuant to the terms of the CMS/IGT Substituted Note.
In consideration of the mutual covenants contained herein, the
parties agree as follows:
1. Name Change. Each and every reference in the Agreement to
Golden Eagle and Golden Eagle Casinos International, respectively,
is hereby deleted and replaced by a reference to Summit and Summit
Casinos International, Inc. respectively.
2. Ownership of Summit. Notwithstanding anything to the contrary
in the Agreement, including the provisions of Section 2.2 of the
Agreement, IGT hereby agrees that the shares of Summit may be
contributed by RHE Trust to Summit Riverboat Casinos, Inc. whether
such contribution is effected prior to or following the closing of
the Purchase Agreement.
3. Reduction of Purchase Price. The parties agree that the
purchase price for the Common Stock of CMS shall be reduced by
reducing the principal balance of the Summit Note (formerly the
Golden Eagle Note) from two million eight hundred forty-two
thousand five hundred twenty-nine dollars ($2,842,529.00) to two
million forty-two thousand five hundred twenty-nine dollars
($2,042,529.00). The parties agree that each and every reference
in the Agreement to the principal amount of the Summit Note shall
be changed in accordance with the reduction of the principal
balance as set forth in the preceding sentence. Notwithstanding
anything to the contrary in the Agreement, the parties agree that
any and all dividends or other distribution paid or payable by
Kings Casino, Limited from the date of the Agreement through the
closing of the Agreement shall be paid to CMS and shall be held by
CMS subject to the terms of the Stock Pledge Agreement. Summit
hereby waives any objection that Summit might otherwise have under
the Agreement relating to a change of condition of King's Casino
Limited, including without limitation, objection pursuant to
Section 8.7 of the Agreement.
4. Equipment Revolving Note. Section 10 of the Agreement is
hereby amended to read in its entirety as follows:
"10. CMS/IGT Substituted Note. At closing, IGT agrees
to cause CMS to make, and IGT shall accept, a promissory
note in the form attached as Exhibit "Q" (the "CMS/IGT
Substituted Note") made in substitution and replacement
of (1) that certain Second Consolidated Note made by CMS
to IGT pursuant to that certain Note Purchase and
Consolidation Agreement, dated as of April 30, 1992,
among IGT, IGT, a Nevada corporation, and CMS and (2)
that certain Equipment Financing Agreement and Revolving
Note, dated April 30, 1992, between IGT and CMS. The
CMS/IGT Substituted Note shall be secured pursuant to the
Stock Pledge Agreement set forth as Exhibit "P."
5. Confirmation. Except as amended by this Second Amendment, all
of the other provisions of the Agreement shall continue in full
force and effect without modification.
IN WITNESS WHEREOF, this Second Amendment has been executed by
Summit and IGT as of the date first above written.
IGT: INTERNATIONAL GAME TECHNOLOGY
By__________________________________
John J. Russell, President
SUMMIT: SUMMIT CASINOS INTERNATIONAL, INC.
By__________________________________
Roger H. Elton, President
INTERNATIONAL GAME TECHNOLOGY
COMPUTATION OF EARNINGS PER SHARE
(Dollars in thousands)Years Ended
September 30,
1993 1992 1991
PRIMARY SHARES OUTSTANDING:
COMMON STOCK OUTSTANDING AT
BEGINNING OF PERIOD . . . . .130,601,920126,260,688 124,144,608
SHARES ISSUED UNDER STOCK OPTION PLANS2,800,3463,363,3982,116,080
PERCENTAGE OF TIME OUTSTANDING 77.4% 66.2% 40.2%
WEIGHTED AVERAGE SHARES OUTSTANDING 2,166,117 2,226,774 850,136
SHARES ISSUED IN EXCHANGE OF EDT
COMMON STOCK. . . . . . . . - 874,356 -
PERCENTAGE OF TIME OUTSTANDING - 66.3% -
WEIGHTED AVERAGE SHARES OUTSTANDING - 580,104 -
SHARES ISSUED FROM THE CONVERSION OF
CONVERTIBLE SUBORDINATED NOTES 5,527,133 10,730 -
PERCENTAGE OF TIME OUTSTANDING 37.6% 39.8%-
WEIGHTED AVERAGE SHARES OUTSTANDING 2,080,186 4,270-
SHARES ISSUED UNDER GIFTS . . 8,948 92,748 -
PERCENTAGE OF TIME OUTSTANDING 59.7% 73.3%-
WEIGHTED AVERAGE SHARES OUTSTANDING 5,344 68,002-
SHARES PURCHASED AND HELD IN TREASURY(14,071,458) (13,902,732) (13,741,056)
PERCENTAGE OF TIME OUTSTANDING 99.8% 99.7% 99.5%
WEIGHTED AVERAGE SHARES OUTSTANDING( 14,041,972)( 13,867,974)( 13,669,412)
COMMON STOCK EQUIVALENT OF OPTIONS
OUTSTANDING . . . . . . . . 2,806,220 4,809,222 5,492,904
WEIGHTED AVERAGE NUMBER OF PRIMARY COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING . . . . . . . . 123,617,815 120,081,086 116,818,236
FULLY DILUTED SHARES OUTSTANDING:
ADDITIONAL DILUTIVE EFFECT OF
STOCK OPTIONS . . . . . . . . 206,811 492,314 672,768
ASSUMED CONVERSION OF
CONVERTIBLE NOTES . . . . . 12,785,881 14,874,882 -
WEIGHTED AVERAGE NUMBER OF FULLY DILUTED
COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING . . . . . . . . 136,610,507 135,448,282 117,491,004
INCOME FROM CONTINUING OPERATIONS$105,578 $ 63,284 $ 29,780
INCOME FROM DISCONTINUED OPERATIONS 13,447 1,500 450
NET INCOME. . . . . . . . . $ 119,025$ 64,784$ 30,230
PRIMARY EARNINGS PER SHARE
INCOME FROM CONTINUING OPERATIONS$ 0.85 $ 0.53 $ 0.26
INCOME FROM DISCONTINUED OPERATIONS 0.11 0.01 0.00
NET INCOME. . . . . . . . . $ 0.96$ 0.54$ 0.26
FULLY DILUTED EARNINGS PER SHARE(1)
INCOME FROM CONTINUING OPERATIONS$ 0.80 $ 0.51 $ 0.26
INCOME FROM DISCONTINUED OPERATIONS 0.10 0.01 0.00
NET INCOME. . . . . . . . . $ 0.90$ 0.52$ 0.26
(1)Based on addition of $4,549, $5,313, and $318, net of taxes, to income from
continuing operations in 1993, 1992, and 1991 respect subordinated notes.
EXHIBIT 22
INTERNATIONAL GAME TECHNOLOGY SUBSIDIARIES
Name Jurisdiction of Incorporation
IGT-North America Nevada
International Acceptance Corporation Nevada
Fortune Advertising and Marketing Nevada
FSC Ireland
IGT-Australia Pty. Ltd. New South Wales, Australia
IGT-Montana Montana
IGT-Missouri Missouri
Iowa Riverboat Corporation Nevada
IGT-New Zealand Pty. Ltd. New Zealand
IGT-Europe, b.v. Netherlands
IGT-Japan Japan
IGT-International Nevada
IGT-Iceland Ltd. Iceland
<PAGE>
<PAGE>
EXHIBIT 24
INDEPENDENT AUDITORS' CONSENT
International Game Technology:
We consent to the incorporation by reference in Registration
Statements Nos. 2-75843, 2-91475, 33-20308, 33-27657, 33-69400 and
33-63608 on Form S-8 of our report dated November 9, 1993 appearing
in this Annual Report on Form 10-K of International Game Technology
for the year ended September 30, 1993.
DELOITTE & TOUCHE
Reno, Nevada
December 22, 1993
EXHIBIT 24
INDEPENDENT AUDITORS' CONSENT
International Game Technology:
We consent to the incorporation by reference in Registration
Statements Nos. 2-75843, 2-91475, 33-20308, 33-27657, 33-69400 and
33-63608 on Form S-8 of our report dated November 9, 1993 appearing
in this Annual Report on Form 10-K of International Game Technology
for the year ended September 30, 1993.
DELOITTE & TOUCHE
Reno, Nevada
December 22, 1993
