FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended December 31, 1993 Commission File Number 001-10684
INTERNATIONAL GAME TECHNOLOGY
(Exact name of registrant as specified in charter)
Nevada 88-0173041
(State of Incorporation) (I.R.S. Employer Identification No.)
5270 Neil Road, Reno, Nevada 89510
(Address of principal executive offices)
Registrant's telephone number, including area code (702) 688-0100
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 9, 1994
Common Stock, par value $.000625 per share 127,945,452
<PAGE>
Page 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
FORM 10-Q
The accompanying consolidated financial statements have been prepared
by the Company, without audit, and reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of the results
for the interim periods. The statements have been prepared in accordance
with the regulations of the Securities and Exchange Commission (the "SEC"),
but omit certain information and footnote disclosures necessary to present
the statements in accordance with generally accepted accounting principles.
These financial statements should be read in conjunction with the
financial statements, accounting policies and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1993. Management believes that the disclosures are adequate to make
the information presented herein not misleading.
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 1992 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.
<PAGE>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
FORM 10-Q
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.
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 or 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 share 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
5 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.
The consolidated financial statements include the accounts of the
Company and all its majority-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.
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Page 4
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, THREE MONTHS ENDED
except per share amounts) DECEMBER 31,
1993 1992
REVENUES:
<S> <C> <C>
Product sales....................... $113,419 $55,048
Gaming operations................... 36,348 32,216
Total revenues ................... 149,767 87,264
COSTS AND EXPENSES:
Cost of product sales............... 60,481 27,795
Gaming operations................... 16,936 12,738
Selling, general and administrative. 16,824 11,921
Depreciation and amortization....... 4,559 5,029
Research and development............ 3,876 3,628
Provision for bad debts............. 1,566 961
Total costs and expenses.......... 104,242 62,072
INCOME FROM OPERATIONS................ 45,525 25,192
OTHER INCOME (EXPENSE):
Interest income..................... 6,735 5,425
Interest expense.................... ( 2,853) ( 3,026)
Gain on the sale of assets.......... 477 5,921
Other............................... ( 706) 1,311
Other Income, net.................. 3,653 9,631
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES................. 49,178 34,823
PROVISION FOR INCOME TAXES............ 18,786 13,643
INCOME FROM CONTINUING OPERATIONS..... 30,392 21,180
DISCONTINUED OPERATIONS:
Income from operations, including
tax benefit of $6................. - 356
Gain on disposition, net of taxes
of $9,573......................... - 14,013
Income from discontinued
operations........................ - 14,369
NET INCOME............................ $ 30,392 $35,549
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(Continued)
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Page 6
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Continued from previous page)
THREE MONTHS ENDED
DECEMBER 31,
1993 1992
[/TABLE]
[CAPTION]
PRIMARY EARNINGS PER SHARE:
[S] [C] [C]
Income from continuing operations... $ 0.23 $ 0.17
Income from discontinued
operations........................ - 0.12
NET INCOME............................ $ 0.23 $ 0.29
FULLY DILUTED EARNINGS PER SHARE:
Income from continuing operations... $ 0.22 $ 0.16
Income from discontinued
operations........................ - 0.11
NET INCOME............................ $ 0.22 $ 0.27
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING....... 129,626,026 122,955,010
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ASSUMING FULL DILUTION.. 136,579,807 137,889,872
[/TABLE]
Earnings per share are calculated on the basis of the weighted average
number of common and, if dilutive, common equivalent shares outstanding.
The accompanying notes are an integral part of these consolidated financial
statements.
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Page 7
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Dollars in thousands) DEC. 31, SEPT. 30,
1993 1993
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents................ $ 79,404 $ 85,346
Short-term investments, at cost (market
value of $161,079 and $147,123)........ 147,143 131,994
Accounts receivable, net of allowances
for doubtful accounts of $5,945
and $7,935............................. 105,910 81,857
Current maturities of long-term notes
and contracts receivable, net of
allowances............................. 50,179 60,673
Inventories:
Raw materials.......................... 50,670 40,225
Work-in-process........................ 6,191 4,998
Finished goods......................... 33,467 29,855
Total inventories.................... 90,328 75,078
Deferred income taxes................... 10,932 10,932
Prepaid expenses and other.............. 13,921 14,255
Total current assets.................. 497,817 460,135
LONG-TERM NOTES AND CONTRACTS RECEIVABLE,
net of allowances and current
maturities............................... 40,111 46,908
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land..................................... 1,990 989
Buildings ............................... 4,213 4,213
Gaming and casino operations equipment... 43,658 39,375
Manufacturing machinery and equipment.... 47,570 43,456
Leasehold improvements................... 6,796 5,529
104,227 93,562
Less accumulated depreciation and
amortization........................... ( 46,552) ( 42,689)
Property, plant and equipment, net... 57,675 50,873
INVESTMENTS TO FUND LIABILITIES
TO JACKPOT WINNERS....................... 90,738 82,266
OTHER ASSETS............................... 5,384 6,411
TOTAL ASSETS............................... $691,725 $646,593
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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Page 8
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands) DEC. 31, SEPT. 30,
1993 1993
CURRENT LIABILITIES: (Unaudited)
<S> <C> <C>
Current maturities of long-term notes
payable and capital lease
obligations............................. $ 197 $ 462
Accounts payable.......................... 21,854 22,620
Jackpot liabilities....................... 13,290 11,882
Accrued employee benefit plan
liabilities............................. 3,410 19,651
Accrued interest payable.................. 239 1,352
Accrued vacation liability................ 4,660 3,771
Accrued and deferred income taxes......... 17,647 11,649
Other accrued liabilities................. 31,543 12,362
Total current liabilities............... 92,840 83,749
LONG-TERM NOTES PAYABLE AND CAPITAL LEASE
OBLIGATIONS, net of current maturities.. 798 617
CONVERTIBLE SUBORDINATED NOTES PAYABLE.. 43,566 59,998
LONG-TERM JACKPOT LIABILITIES........... 115,926 106,476
DEFERRED INCOME TAXES................... 16,563 17,187
OTHER LIABILITIES....................... 18 17
Total liabilities....................... 269,711 268,044
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.000625 par value;
320,000,000 shares authorized;
142,083,807 and 138,938,605 shares
issued ................................. 89 87
Additional paid-in capital................ 166,335 146,869
Retained earnings......................... 285,653 259,125
Treasury stock; 14,157,246 and
14,071,460 shares at cost............... ( 30,063) ( 7,532)
Total stockholders' equity.............. 422,014 378,549
Total liabilities and
stockholders' equity.................. $691,725 $646,593
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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Page 9
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) THREE MONTHS ENDED
DECEMBER 31,
1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
NET INCOME ........................... $30,392 $35,549
Adjustments to reconcile net income to
net cash provided by
operating activities:
Depreciation and amortization....... 4,559 5,029
Amortization of long-term debt
discount and offering costs....... 205 457
Provision for bad debts............. 1,566 961
Gain on sale of assets.............. ( 477) ( 5,921)
Gain on sale of discontinued
operations........................ - ( 14,013)
Donated common stock................ 500 -
(Increase) decrease in assets:
Receivables ...................... ( 8,328) ( 5,221)
Inventories....................... ( 15,250) ( 1,795)
Prepaid expenses and other........ 1,186 ( 71)
Other assets...................... 626 3,241
Increase (decrease) in liabilities:
Accounts payable and accrued
liabilities..................... 1,858 ( 15,650)
Accrued and deferred income taxes
payable, net of tax benefit
of stock option and purchase
plans........................... 5,374 12,445
Other............................... 26 187
Total adjustments................. ( 8,155) ( 20,351)
Net cash provided by
operating activities................ 22,237 15,198
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(Continued)
<PAGE>
Page 10
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued from previous page)
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) THREE MONTHS ENDED
DECEMBER 31,
1993 1992
CASH FLOWS FROM INVESTING ACTIVITIES:
<S> <C> <C>
Investment in property, plant
and equipment......................... ($ 12,491) ($ 10,040)
Proceeds from sale of property,
plant and equipment................... 1,091 3,989
Purchase of short term investments...... ( 109,836) ( 27,648)
Proceeds from sale of short term
investments........................... 95,160 12,812
Proceeds from investments to fund
liabilities to jackpot winners........ 3,343 2,364
Purchase of investments to fund
liabilities to jackpot winners........ ( 12,667) ( 14,227)
Proceeds from sale of discontinued
operations............................ - 28,749
Net cash used in investing activities. ( 35,400) ( 4,001)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt.............. ( 91) ( 387)
Payments on liabilities to
jackpot winners....................... ( 3,343) ( 2,364)
Collections from systems to fund
liabilities to jackpot winners........ 14,201 8,533
Proceeds from stock options
exercised............................. 246 2,519
Payments of cash dividend............... ( 3,821) -
Proceeds of long-term debt.............. 8 21
Foreign currency exchange gain (loss)... 21 ( 768)
Net cash provided by
financing activities................ 7,221 7,554
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS........................ ( 5,942) 18,751
CASH PROVIDED BY DISCONTINUED OPERATIONS.. - 13,351
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD..................... 85,346 69,159
CASH AND CASH EQUIVALENTS AT END OF
PERIOD.................................. $ 79,404 $101,261
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 11
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Notes and Contracts Receivable
The following allowances for doubtful notes and contracts were netted
against current and long-term maturities:
<TABLE>
<CAPTION>
December 31, September 30,
(Dollars in thousands) 1993 1993
(Unaudited)
Allowances for doubtful notes and
contracts:
<S> <C> <C>
Current............................ $5,463 $5,588
Long-term.......................... 2,938 3,363
$8,401 $8,951
2. Lines of Credit
As of December 31, 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 December 31, 1993, $3,999,000 was available under
this line of credit.
IGT-Australia had a $440,000 (Australian) bank line of credit
available as of December 31, 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 December 31,
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-North America 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.
3. 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
<PAGE>
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INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
amount, subject to adjustments in certain events. During the three months
ended December 31, 1993 and 1992, notes with a face amount of $20,308,000
and $155,000 were converted to 2,627,520 and 20,052 shares of the Company's
common stock, respectively.
The Notes may be redeemed by the Company on or after June 1, 1994, in
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.
4. Income Taxes
The provision for income taxes is computed on pre-tax income reported
in the financial statements. The provision differs from income taxes
currently payable because certain items of income and expense are
recognized in different periods for financial statement and tax return
purposes. The Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," effective as of October 1, 1992.
There was no material effect on the Company's financial statements due to
the adoption of this statement.
5. Discontinued Operations
In connection with the Company's focus on gaming machine manufacture
and proprietary software systems development, the Company 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 $8,749,000 for the
quarter ended December 31, 1992. 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
<PAGE>
Page 13
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
transfer of its ownership interests, the Company received 1,671,429 shares
of PRC common stock representing approximately 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 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 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 December 31, 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 for the quarter
ended December 31, 1992 is as follows:
</TABLE>
<TABLE>
<CAPTION>
(Dollars in Thousands) Riverboat CMS
Operations Int'l Total
<S> <C> <C> <C>
Income (loss) from operations... $ 365 $ (15) $ 350
Gain on disposal................ 23,586 - 23,586
Income (loss) on discontinued
operations before taxes....... $23,951 (15) 23,936
Income tax (provision)
benefit....................... ( 9,573) 6 ( 9,567)
Income (loss) on discontinued
operations, net of taxes...... $14,378 $ (9) $14,369
</TABLE>
<PAGE>
Page 14
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. 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
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.
7. 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.
Product sales and the resulting receivables are concentrated in
specific legalized gaming regions. The Company also distributes a portion
of its products through third party distributors resulting in significant
distributor receivables. At December 31, 1993 accounts, contracts, and
notes receivable by region as a percentage of total receivables are as
follows:
Regions
Nevada......................... 31.6%
Riverboats (greater Mississippi
River area).................. 21.3%
Indian Casinos (distributor)... 12.4%
Colorado....................... 9.3%
Louisiana (distributor)........ 5.6%
8. 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 three
months ended December 31, 1993 and 1992 of zero and $46,000, respectively.
The Company had additions to long term notes payable during the three
<PAGE>
Page 15
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
months ended December 31, 1993 and 1992 of $8,000 and $21,000,
respectively.
Payments of interest for the three months ended December 31, 1993 and
1992 were $3,761 and $4,775, respectively. Payments for income taxes for
the first three months of fiscal 1994 and 1993 were $12,788,000 and
$16,879,000, respectively.
During the three months ended December 31, 1993 and 1992, notes with a
face amount of $20,308,000 and $155,000 were converted to 2,627,520 and
20,052 shares of the Company's common stock, respectively.
On November 30, 1993, the Board of Directors declared a quarterly cash
dividend of $.03 per share. The dividend is payable on March 1, 1994 to
shareholders of record at the close of business on February 1, 1994. At
December 31, 1993, the Company had accrued $3,838,000 for the payment of
this dividend.
<PAGE>
Page 16
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1993
COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 1992
Net income from continuing operations increased 43% to $30.4 million
or $.22 per fully diluted share for the first quarter of fiscal 1994. This
improvement was driven by increased product sales in both traditional and
emerging markets. Total revenues of $149.8 million during the quarter grew
72% over revenues of $87.3 million reported in the first quarter of 1993.
Revenues and Cost of Sales
The growth in revenues during the quarter ended December 31, 1993 in
comparison with the same period in the prior year was primarily due to
increased product sales. Product sales totaled $113.4 million and $55.0
million, in the first quarter of 1994 and 1993, respectively, representing
a 106% increase. The Company shipped over 22,000 gaming machines during
the quarter compared to 11,000 during the prior year period. The emerging
riverboat gaming market and new Nevada gaming properties provided the
predominant areas of sales growth.
Riverboat gaming properties continue to generate demand for the
Company's gaming products. Riverboat machine sales totaled over 8,500 in
the first quarter of fiscal 1994 compared to approximately 460 in the same
period last year. New operations in the state of Mississippi accounted for
a majority of such sales along with riverboat casinos in Missouri,
Louisiana, and Illinois. Approximately 34 riverboat casinos currently
operate in the Mississippi River region and several additional riverboats
are expected to be approved for gaming.
Product sales also improved related to the completion of Luxor, MGM
Grand, and Treasure Island casinos in Nevada. The Company supplied over
80% of the gaming machines installed at these locations. Gaming machine
sales in Nevada totaled approximately 7,000 and 3,300 in the first quarter
of fiscal 1994 and 1993, respectively. Nevada hotel and gaming expansion
is expected to continue with new or upgraded facilities planned by several
gaming operators including Station Casinos, Boomtown Hotel and Casino,
Harvey's Resort, Hard Rock Cafe, and others. In addition, these new
casinos and expansions have increased competitive pressure for replacement
of existing gaming machines.
Gaming operations revenue was $36.3 million during the three months
ended December 31, 1993, compared to $32.2 million during the same quarter
last year. This increase resulted from new systems in Mississippi and
greater Nevada systems revenues due to a larger installed machine base and
high jackpot levels. The growth in such revenues was partially offset by
smaller lease revenues in the Colorado market due primarily to leases
restructured as sales.<PAGE>
Page 17
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1993
COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 1992
The gross margin on product sales, 47% and 50% for the quarters ended
December 31, 1993 and 1992, respectively, was lower primarily due to
discounts on the large sales to individual properties in Southern Nevada.
The gross margin on gaming operations also decreased due to lower interest
rates which increased jackpot expenses associated with the Company's linked
progressive systems.
Expenses
Selling, general, and administrative expenses totaled $16.8 million
for the quarter ended December 31, 1993 compared to $11.9 million in the
corresponding prior year period. This increase is attributable to
administrative costs related to higher employee levels, greater
international selling efforts, and added market development costs.
Depreciation and amortization expense decreased $470,000 or 9% primarily
due to a decrease in the number of leased machines in Colorado, as many of
these leases were converted to sales.
The growth in research and development expense from $3.6 million to
$3.9 million resulted primarily from increased engineering personnel. The
Company continues to focus on research and development as a primary factor
for continued success. Bad debts expense increased $605,000 for the
quarter in connection with the improvement in product sales and the
corresponding increase in receivables.
Other Income and Expense
Interest income grew to $6.7 million in the first quarter of fiscal
1994, an increase of $1.3 million. The larger balance of notes and
contracts receivable resulting from sales growth has contributed to the
higher interest income. Both interest income recorded on investments to
fund jackpots and interest expense on the outstanding jackpot liabilities
have grown in response to the overall increase in play and jackpots
associated with the Company's linked progressive systems. This increase to
interest expense was more than offset by interest savings from the
conversion of $63 million of the Company's convertible subordinated notes
to common stock.
During the first quarter of 1993, the Company realized a gain of $5.9
million on the sale of assets primarily consisting of gains on the sale of
certain securities held in the Company's investment portfolio.
Discontinued Operations
During the first quarter of last year, the Company realized a gain of
$14 million from the sale of its investment in riverboat casino operations,
<PAGE>
Page 18
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1993
COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 1992
(Continued from previous page)
as well as income from discontinued casino operations of $356,000. See
Note 5 of the Consolidated Financial Statements regarding discontinued
operations.
Working Capital and Cash Flow
Working capital grew $28.6 million to $405 million during the three
months ended December 31, 1993. The primary factors for this improvement
include a $24.1 million increase in accounts receivable in response to
increasing sales; a $15.3 million increase in inventories to meet the
demand for the Company's products in the future; a $16.2 million decrease
in accrued employee benefit plan liabilities as a result of the payment of
these incentives; and a $19.2 million increase in other accrued liabilities
due primarily to customer deposits on future sales.
During the three month period, the Company generated cash from
operations and financing activities of $22.2 million and $7.2 million,
respectively. Cash provided by operating activities during the period was
reduced by significant growth in receivables and inventories in connection
with increased sales. The overall cash accumulation was offset by cash
used in investing activities of $35.4 million, primarily associated with
purchases of short term investments, fixed assets, and investments to fund
jackpot liabilities.
Lines of Credit
As of December 31, 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 December 31, 1993, $3,999,000 was available under
this line of credit.
IGT-Australia had a $440,000 (Australian) bank line of credit
available as of December 31, 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 December 31,
1993, no funds were drawn under this line.
Adoption of Recently Issued Accounting Standards
The Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," effective as of October 1, 1992. There
<PAGE>
Page 19
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1993
COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 1992
(Continued from previous page)
was no material effect on the Company's financial statements due to the
adoption of this statement.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
<PAGE>
Pursuant to the requirements 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.
Date: February 11, 1994
INTERNATIONAL GAME TECHNOLOGY
By:s/Scott Shackelton
Scott Shackelton
Vice President
Corporate Controller
