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 June 30, 1994
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 June 30, 1994 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 August 1, 1994
Common Stock, par value $.000625 per share 132,311,800
<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
(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"), 100% of IGT-Japan k.k. ("IGT-Japan") and approximately 9% of
Radica Games Limited ("Radica"). 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-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.
<PAGE>
Page 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
FORM 10-Q
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 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
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.
<PAGE>
Page 4
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, THREE MONTHS ENDED NINE MONTHS ENDED
except per share amounts) JUNE 30, JUNE 30,
1994 1993 1994 1993
REVENUES:
<S> <C> <C> <C> <C>
Product sales.............. $146,881 $ 92,090 $387,325 $214,162
Gaming operations.......... 40,801 39,896 114,660 103,810
Total revenues........... 187,682 131,986 501,985 317,972
COSTS AND EXPENSES:
Cost of product sales...... 77,016 46,463 204,174 107,767
Gaming operations.......... 17,678 17,268 51,089 45,016
Selling, general and
administrative........... 18,773 15,216 58,610 39,628
Depreciation and
amortization............. 5,122 5,263 14,367 15,127
Research and development... 6,144 4,112 15,282 11,996
Provision for bad debts.... 1,291 1,350 6,098 3,464
Total costs and expenses. 126,024 89,672 349,620 222,998
INCOME FROM OPERATIONS....... 61,658 42,314 152,365 94,974
OTHER INCOME (EXPENSE):
Interest income ........... 7,223 6,809 21,061 19,240
Interest expense........... ( 2,794) ( 3,175) ( 8,548) ( 9,543)
Gain on the sale of assets. ( 1,987) 2,952 101 9,583
Other...................... 455 ( 103) ( 416) 395
Other income, net........ 2,897 6,483 12,198 19,675
INCOME FROM CONTINUING OPER-
ATIONS BEFORE INCOME TAXES. 64,555 48,797 164,563 114,649
PROVISION FOR INCOME TAXES... 24,650 19,150 62,853 44,944
INCOME FROM CONTINUING
OPERATIONS................. 39,905 29,647 101,710 69,705
DISCONTINUED OPERATIONS:
Income from operations,
including tax provision
of $225 and $202......... - 363 - 580
Gain on disposition, net of
taxes of $9,573.......... - - - 14,013
Income from discontinued
operations............... - 363 - 14,593
NET INCOME................... $ 39,905 $ 30,010 $101,710 $ 84,298
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(Continued)
<PAGE>
Page 5
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(Shares in thousands) THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1994 1993 1994 1993
PRIMARY EARNINGS PER SHARE:
<S> <C> <C> <C> <C>
Income from continuing
operations.............. $ 0.30 $ 0.24 $ 0.78 $ 0.56
Income from discontinued
operations.............. - - - 0.12
NET INCOME.................. $ 0.30 $ 0.24 $ 0.78 $ 0.68
FULLY DILUTED EARNINGS PER
SHARE:
Income from continuing
operations.............. $ 0.30 $ 0.23 $ 0.76 $ 0.54
Income from discontinued
operations.............. - - - 0.10
NET INCOME.................. $ 0.30 $ 0.23 $ 0.76 $ 0.64
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING............... 132,154 124,973 130,596 124,683
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
ASSUMING FULL DILUTION.... 136,481 136,677 136,582 138,336
</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.
(Continued)
<PAGE>
Page 6
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Dollars in thousands) JUNE 30, SEPT. 30,
1994 1993
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents................ $ 35,298 $ 85,346
Short-term investments, at lower of cost
or market (market value of $102,897
and $147,123).......................... 102,897 131,994
Accounts receivable, net of allowances
for doubtful accounts of $7,974
and $7,935............................. 130,606 81,857
Current maturities of long-term notes
and contracts receivable, net of
allowances............................. 80,260 60,673
Inventories:
Raw materials.......................... 59,923 40,225
Work-in-process........................ 6,068 4,998
Finished goods......................... 48,823 29,855
Total inventories...................... 114,814 75,078
Deferred income taxes.................... 15,995 10,932
Prepaid expenses and other............... 18,333 14,255
Total current assets.................. 498,203 460,135
LONG-TERM NOTES AND CONTRACTS RECEIVABLE,
net of allowances and current
maturities............................... 57,698 46,908
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land..................................... 7,043 989
Buildings ............................... 4,213 4,213
Gaming and casino operations equipment... 48,975 39,375
Manufacturing machinery and equipment.... 57,151 43,456
Leasehold improvements................... 9,271 5,529
126,653 93,562
Less accumulated depreciation and
amortization........................... ( 54,863) ( 42,689)
Property, plant and equipment, net... 71,790 50,873
INVESTMENTS TO FUND LIABILITIES
TO JACKPOT WINNERS....................... 116,321 82,266
OTHER ASSETS............................... 21,391 6,411
Total assets........................... $765,403 $646,593
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 7
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands) JUNE 30, SEPT. 30,
1994 1993
(Unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Current maturities of long-term notes
payable and capital lease
obligations............................. $46,511 $ 462
Accounts payable.......................... 24,093 22,620
Jackpot liabilities....................... 15,722 11,882
Accrued employee benefit plan
liabilities............................. 9,843 19,651
Accrued interest payable.................. 88 1,352
Accrued vacation liability................ 5,261 3,771
Accrued income taxes...................... 10,896 11,649
Other accrued liabilities................. 16,204 12,362
Total current liabilities............... 128,618 83,749
LONG-TERM NOTES PAYABLE AND CAPITAL LEASE
OBLIGATIONS, net of current maturities.... 307 617
CONVERTIBLE SUBORDINATED NOTES PAYABLE...... - 59,998
LONG-TERM JACKPOT LIABILITIES............... 134,096 106,476
DEFERRED INCOME TAXES....................... 13,294 17,187
OTHER LIABILITIES........................... 19 17
Total liabilities....................... 276,334 268,044
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.000625 par value;
320,000,000 shares authorized;
149,372,846 and 138,938,605 shares
issued ................................. 93 87
Additional paid-in capital................ 225,873 146,869
Retained earnings......................... 350,263 259,125
Treasury stock; 17,098,646 and
14,071,460 shares at cost............... ( 87,160) ( 27,532)
Total stockholders' equity.............. 489,069 378,549
Total liabilities and
stockholders' equity.................. $765,403 $646,593
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 8
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) NINE MONTHS ENDED
JUNE 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
NET INCOME ........................... $101,710 $84,298
Adjustments to reconcile net income to
net cash provided by
operating activities:
Depreciation and amortization....... 14,367 15,127
Amortization of long-term debt
discount and offering costs....... 545 1,259
Provision for bad debts............. 6,098 3,464
Gain on sale of assets.............. ( 101) ( 9,583)
Gain on sale of discontinued
operations........................ - ( 14,013)
Donated common stock................ 500 250
(Increase) decrease in assets:
Receivables ...................... ( 85,227) ( 39,710)
Inventories....................... ( 39,736) ( 8,189)
Prepaid expenses and other........ ( 392) 256
Other assets...................... ( 5,881) 2,603
Increase (decrease) in liabilities:
Accounts payable and accrued
liabilities..................... ( 4,489) ( 6,603)
Accrued and deferred income taxes
payable, net of tax benefit
of stock option and purchase
plans........................... ( 4,901) 4,596
Other............................... ( 13) ( 879)
Total adjustments................. (119,230) ( 51,422)
Net cash provided by (used in)
operating activities................ ( 17,520) 32,876
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(Continued)
<PAGE>
Page 9
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued from previous page)
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) NINE MONTHS ENDED
JUNE 30,
1994 1993
CASH FLOWS FROM INVESTING ACTIVITIES:
<S> <C> <C>
Investment in property, plant
and equipment......................... ($ 39,668) ($ 33,732)
Proceeds from sale of property,
plant and equipment................... 3,384 7,938
Purchase of short term investments...... ( 110,064) ( 102,885)
Proceeds from sale of short term
investments........................... 140,012 86,569
Proceeds from investments to fund
liabilities to jackpot winners........ 11,964 8,499
Purchase of investments to fund
liabilities to jackpot winners........ ( 49,703) ( 35,652)
Proceeds from sale of discontinued
operations............................ - 28,749
Net cash used in investing activities. ( 44,075) ( 40,514)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt.............. ( 261) ( 618)
Payments on liabilities to
jackpot winners....................... ( 11,964) ( 8,499)
Collections from systems to fund
liabilities to jackpot winners........ 43,424 33,867
Proceeds from stock options
exercised............................. 745 3,050
Proceeds from employee stock purchases.. 1,034 869
Payments of cash dividend............... ( 11,525) ( 3,674)
Payments to purchase treasury stock..... ( 57,097) -
Proceeds from short-term borrowings..... 46,000 -
Foreign currency exchange gain (loss)... 1,191 ( 1,060)
Net cash provided by
financing activities................ 11,547 23,935
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. ( 50,048) 16,297
CASH PROVIDED BY DISCONTINUED OPERATIONS.. - 12,022
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD..................... 85,346 69,159
CASH AND CASH EQUIVALENTS AT END OF
PERIOD.................................. $ 35,298 $ 97,478
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 10
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>
June 30, September 30,
(Dollars in thousands) 1994 1993
(Unaudited)
<S> <C> <C>
Allowances for doubtful notes and
contracts:
Current............................ $5,428 $5,588
Long-term.......................... 2,918 3,363
$8,346 $8,951
</TABLE>
2. Lines of Credit
As of June 30, 1994, the Company had a $50 million unsecured bank line
of credit with various interest rate options available. The line of credit
is used to fund operations and to facilitate standby letters of credit.
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 June 30,
1994, $279,000 was available under this line of credit.
The Company is required to comply, and is in compliance, with certain
covenants contained in the 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.
IGT-Australia had a bank lease facility available at June 30, 1994
which provides up to $3 million (Australian) to fund motor vehicle and
equipment purchases. Interest rates on this line are determined at the
time of acquisition of the equipment based on market rates. At June 30,
1994, $206,000 (Australian) was drawn under this line. The line is secured
by equitable mortgages and has a provision for review and renewal annually
in May.
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 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. Semi-annual interest payments at 5-
1/2% along with the original issue discount represent a yield of 8.5% per
annum. Net proceeds from the issue and sale of the Notes were $89,426,800.
<PAGE>
Page 11
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the terms of the Notes, the Company called all the outstanding
Notes for redemption on June 1, 1994. The redemption price was 84.414% of
the principal amount due at maturity together with accrued and unpaid
interest to the date of redemption. At the option of the holder, the Notes
were convertible into common stock of the Company at a conversion rate of
129.384 shares per each $1000 principal amount until May 31, 1994. All the
outstanding notes were converted prior to the redemption date. During the
nine months ended June 30, 1994 and 1993, notes with a face amount of
$72,180,000 and $26,189,000 were converted to 9,338,877 and 3,388,421
shares of the Company's common stock, respectively.
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 $9,218,000 and
$25,818,000 for the quarter and nine months ended June 30, 1993,
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 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.
<PAGE>
Page 12
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 June 30, 1994 an aggregate balance of $17.1 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 June 30, 1993 is as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) Riverboat CMS
Operations Int'l Total
<S> <C> <C> <C>
Income from operations.......... $ - $ 588 $ 588
Gain on disposal................ - - -
Income on discontinued
operations before taxes....... $ - $ 588 $ 588
Income tax provision............ - ( 225) ( 225)
Income on discontinued
operations, net of taxes........ $ - $ 363 $ 363
</TABLE>
The composition of income from discontinued operations for the nine
months ended June 30, 1993 is as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) Riverboat CMS
Operations Int'l Total
<S> <C> <C> <C>
Income from operations.......... $ 245 $ 537 $ 782
Gain on disposal................ 23,586 - 23,586
Income on discontinued
operations before taxes....... $23,831 537 24,368
Income tax provision............ ( 9,573) ( 202) ( 9,775)
Income on discontinued
operations, net of taxes...... $14,258 $ 335 $14,593
</TABLE>
<PAGE>
Page 13
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. The three largest
distributors represent 12% of total receivables. At June 30, 1994
accounts, contracts, and notes receivable by region as a percentage of
total receivables are as follows:
<TABLE>
<CAPTION>
Regions
<S> <C>
Riverboats (greater Mississippi
River area).................. 36.8%
Nevada......................... 24.7%
Colorado....................... 7.5%
Indian Casinos (distributor)... 6.5%
Other Regions
(individually less than 5%).. 24.5%
100.0%
</TABLE>
8. Investment in Radica
During February 1994, the Company purchased 9.2% of Radica Games
Limited ("Radica") for cash of $5,850,000 and 374,436 shares of the
Company's common stock, valued upon issuance at $10,250,000. Radica is a
Hong Kong corporation which designs, develops, manufactures, and
distributes non-gaming casino theme games. Radica maintains production
facilities in China. The Company believes this investment will provide
manufacturing capacity for the international market and enhance its
business knowledge of the China market.
<PAGE>
Page 14
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Purchase of Treasury Stock
During the quarter ended June 30, 1994, the Company purchased
2,941,400 shares of its outstanding stock for a total of $57.1 million in
cash. This purchase was in connection with a stock repurchase program
reaffirmed by the Board of Directors in February 1994.
10. Subsequent Events
IGT-Australia has entered into a unsecured financing agreement of up
to $18 million to purchase a new office and manufacturing facility in New
South Wales, Australia. The agreement provides for either a variable or
fixed interest rate based on the bank's market rate plus .6%. The loan
will have a final maturity date of June 30, 1998 with principal payments
due annually beginning June 30, 1995. This agreement is expected to be
finalized during August 1995.
11. Supplemental Statement of Cash Flows Information
Certain noncash investing and financing activities are not reflected
in the consolidated statements of cash flows. During the nine months ended
June 30, 1994, the Company purchased a portion of Radica Games Limited for
cash of $5,850,000 and 374,436 shares of the Company's common stock, valued
upon issuance at $10,250,000. During the nine months ended June 30, 1994
and 1993, notes with a face amount of $72,180,000 and $26,189,000 were
converted to 9,338,877 and 3,388,421 shares of the Company's common stock,
respectively.
Payments of interest for the nine months ended June 30, 1994 and 1993
were $9.3 million and $12.6 million, respectively. Payments for income
taxes for the first nine months of fiscal 1994 and 1993 were $63.6 million,
and $37.0 million, respectively.
On May 24, 1994, the Board of Directors declared a quarterly cash
dividend of $.03 per share. The dividend is payable on September 1, 1994
to shareholders of record at the close of business on August 1, 1994. At
June 30, 1994, the Company had accrued $3,968,000 for the payment of this
dividend.
<PAGE>
Page 15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1994
COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1993
Income from continuing operations grew 35% to $39.9 million or $.30
per share (fully diluted) in the third quarter of fiscal 1994 in comparison
to $29.6 million or $.23 per share for the corresponding prior year
quarter. This increase resulted primarily from growth in product sales,
which totaled $146.9 million in the quarter.
Revenues and Cost of Sales
Total revenues for the quarter ended June 30, 1994 reached $187.7
million compared to $132 million for the quarter ended June 30, 1993. An
increase of approximately 60% in product sales generated the overall
improvement in revenues. Demand for the Company's products was strongest
in the Nevada, riverboat and Indian gaming markets. Machine shipments in
the traditional Nevada market grew over 180% during the quarter driven by
the opening of new properties and strong replacement demand. New
operations for Boomtown Las Vegas, Sam's Town and Palace Station and
significant orders of the imbedded bill acceptor product from properties
such as Mirage and Golden Nugget contributed to the increased machines
sales in this market. Along with the competitive pressures of new and
expanded casino properties throughout the state, the popularity of the
Company's imbedded bill acceptor product increased replacement demand.
Approximately 90% of the total Nevada units sold during the quarter were
equipped with imbedded bill acceptors.
The opening of new casino properties in the riverboat and Indian
gaming markets produced significant machine sales in these areas. Unit
sales of machines to riverboat operators during the quarter increased 124%
over the prior year third quarter. Approximately 30% of the sales were to
Louisiana riverboats and 70% to Mississippi operators. Indian gaming
demand in Louisiana, Arizona, Mississippi, Michigan, and Connecticut
resulted in a 120% increase in machine shipments to this market.
Gaming operation revenue totaled $40.8 million during the current
quarter versus $39.9 million in the corresponding prior year period.
Revenue growth from the Company's linked progressive systems offset
decreased revenue from lease operations. New progressive systems installed
in the Mississippi and Colorado markets along with a larger installed
machine base in Nevada resulted in an increase in progressive systems
revenue. Lease operations decreased primarily due to the conversion of
machine leases to sales in Colorado.
The overall gross margin, 49.5% and 51.7% for the quarter ended June
30, 1994 and 1993, respectively, was lower primarily due to the gross
margin realized on product sales. This decrease is associated with higher
discounts given on large individual sales to several customers. Gaming
operations expense increased primarily in response to growth in jackpot
expenses associated with the Company's linked progressive system.
<PAGE>
Page 16
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1994
COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1993
Expenses
Selling, general and administrative expenses totaled $18.7 million for
the quarter ended June 30, 1994 compared to $15.2 million during the same
period in the prior year. Costs incurred in connection with sales growth
along with costs associated with additional personnel and facilities
contributed to this increase. These additional resources continue to be
focused on expanding the Company's existing and potential markets
worldwide.
The slight overall decline in depreciation and amortization,
approximately $140,000, resulted primarily from the depreciation of fewer
leased casino machines. The number of leased machines, which the Company
depreciates, decreased in comparison to the prior period due to several
leases being converted to sales in the Colorado market. Depreciation
recorded on the office buildings acquired in September 1993 partially
offset this decline.
Research and development expense increased $2 million to $6.1 million
in the third quarter of 1994 as compared to the third quarter of 1993.
This growth is a result of added engineering personnel and continuing
development of new products and product enhancements. The provision for
bad debts for the quarter totaled $1.3 million dollars, a decrease of
$59,000. The Company feels the reserves for uncollectible receivables are
adequate.
Other Income and Expense
Interest income increased $414,000 to $7.2 million for the quarter
ended June 30, 1994. This is attributable in part to higher notes and
contracts receivable balances resulting from the growth in sales. Interest
income on investments, which decreased due to lower average interest-
bearing investment balances, partially offset the above increase. Interest
income on jackpot liabilities also grew in comparison to the third quarter
of fiscal 1993. Both interest income and interest expense on jackpot
liabilities increased in response to the growth in progressive systems play
and the resulting jackpot liabilities.
In addition to the effect of the increase in interest expense relating
to jackpot liabilities, overall interest expense was reduced by interest
savings on the conversion the Company's convertible subordinated notes to
common stock. These notes were all converted as of June 1, 1994.
A loss of $2 million on assets was recorded during the quarter ended
June 30, 1994 as compared to a gain of $3 million in the same prior year
period. The loss in the current quarter reflected realized losses and
market valuation adjustments on marketable securities held in the Company's
portfolio. These losses resulted from lower market values on interest-
sensitive investments. Gains in the prior year period were realized from
the sale of certain securities.
Discontinued Operations
During the second quarter of last year, the Company realized income
from discontinued operations of $363,000. See Note 5 of the Consolidated
Financial Statements regarding discontinued operations.
<PAGE>
Page 17
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS - NINE MONTHS ENDED JUNE 30, 1994
COMPARED TO THE NINE MONTHS ENDED JUNE 30, 1993
For the nine months ended June 30, 1994, net income from continuing
operations reached $101.7 million or $.76 per share (fully diluted). This
represents an increase of 46% and 41%, respectively, over the comparable
prior year period. This growth was driven by an increase in product
revenues of 81% accompanied by an increase in gaming operations revenues of
10.5%.
Revenues and Costs of Sales
Total revenues for the nine months ended June 30, 1994 and 1993 were
$502 million and $318 million, respectively. The gain in revenues was
primarily supported by significant growth in product sales. Product sales
increased $173 million or 81% compared to the prior year period. The
predominant areas of machine sales occurred in the riverboat and Nevada
markets accompanied by strong demand in the Indian casino markets. The
riverboat market expanded significantly during the year in several
jurisdictions and the Company secured a large percentage of the total
casino machines sales in these areas. Fiscal year to date machine
shipments to riverboat operators increased approximately 280% over the
comparable prior year period. Mississippi accounted for the majority of
such sales along with Louisiana and Illinois.
The traditional Nevada market also provided strong demand through the
opening of several new properties and replacement of machines at existing
casinos. Significant individual machine shipments were made to new casino
properties including the Luxor, MGM Grand, and Treasure Island. New and
expanded casinos throughout the state increased competitive pressures for
the replacement of older machines. Replacement demand was also accelerated
by the Company's imbedded bill acceptor product which is very popular with
both casino patrons and operators. Additional expansions and replacements
are anticipated in the Nevada market. Sales also remained strong to Indian
gaming jurisdictions throughout the period.
Revenue growth in the future is dependent on the continued expansion
of gaming markets which may not be as great as experienced during the nine
months ended June 30, 1994.
Gaming operations revenue totaled $114.7 million and $103.8 million
for the nine months ended June 30, 1994 and 1993, a 10.5% increase. The
start-up and expansion of systems in Mississippi and Colorado along with a
larger installed machine base in Nevada generated additional revenues from
the Company's linked progressive systems. This increase in revenues was
partially offset by decreases in lease operation revenues. This reduction
was concentrated primarily in the Colorado market where most lessees have
exercised their options to purchase the equipment.
The Company realized a gross margin of 49.1% and 52% for the nine
months ended June 30, 1994 and 1993, respectively. Gross margin on product
sales was lower primarily due to higher discounts. As sales during the
year included many large volume sales, overall discount percentages on such
sales increased.
<PAGE>
Page 18
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS - NINE MONTHS ENDED JUNE 30, 1994
COMPARED TO THE NINE MONTHS ENDED JUNE 30, 1993
Expenses
Selling, general and administrative expense grew to $58.6 million in
the first nine months of fiscal 1994, an increase of $19 million over the
same prior year period. Additional selling costs associated with increased
sales levels contributed to this increase. The Company also hired
additional employees and acquired additional facilities throughout the
period. Licensing the Company's products in gaming jurisdictions
throughout the world also increased such expenses. Depreciation and
amortization decreased $760,000 as a result of fewer leased casino machines
on which the Company records depreciation expense. This decrease is due
primarily to the conversion of leases into sales within the Colorado
region. Depreciation recorded on office buildings acquired in September
1993 partially offset the decreased lease related depreciation.
Research and development expense was $15.3 million and $12 million for
the nine months ended June 30, 1994 and 1993, respectively. Costs
associated with additional engineering personnel and the continuing
development of new and enhanced products generated this increase. The
provision for bad debts increased $2.6 million in response to the
significant increase in total receivables resulting from overall sales
growth.
Other Income and Expense
Interest income grew $1.8 million to $21 million for the nine months
ended June 30, 1994. This increase is primarily attributable to the
increase in systems play which resulted in increased income producing
investments to fund future payments. Additionally, increased notes and
contracts receivable contributed to the growth in interest income offset by
lower average balances of interest-bearing investments.
Interest expense declined due to interest savings on the Company's
convertible subordinated notes. Throughout the period, notes were
converted to common stock resulting in decreased interest expense. As of
June 1, 1994, all such notes had been converted. This decline was
partially offset by the above mentioned increase in systems play and
resulting growth in jackpots. Interest expense increases as the level of
jackpot liabilities increases.
A net loss on assets of $101,000 was recorded during the nine months
ended June 30, 1994 versus a net gain of $9.6 million in the prior year
period. Sales of certain securities held by the Company accounted for the
gains realized in the prior year. Gains on sales of securities during the
current year were offset by unrealized losses on securities held by the
Company at June 30, 1994. These losses were a result of market value
decline on interest-sensitive securities.
Discontinued Operations
During the nine months ended June 30, 1993, the Company realized
income from discontinued operations totaling $14.6 million. See Note 5 of
the Consolidated Financial Statements regarding discontinued operations.
<PAGE>
Page 19
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
CAPITAL RESOURCES AND LIQUIDITY
Working Capital and Cash Flow
Working capital decreased $6.8 million to $369.6 million during the
nine months ended June 30, 1994. Growth of $38.1 million in current assets
was offset by an increase of $44.9 million in current liabilities.
Accounts receivable and current maturities of notes and contracts
receivable generated $68.3 million in working capital as a result of
increased sales. Inventory levels grew $39.7 million to support future
demand across all legalized gaming jurisdictions. Cash, cash equivalents,
and short-term investments declined a total of $79.1 million. Short-term
borrowings of $46 million used for operations also contributed to the
overall decline in working capital.
During the nine month period, the Company generated cash from
financing activities of $11.5 million. Cash proceeds from short-term
borrowings of $46 million and collections from the progressive systems of
$43.4 million were partially offset by the purchase of the Company's stock
to be held as treasury stock in the amount of $57.1 million. Cash used in
operating activities of $17.5 million was primarily effected by significant
growth in receivables and inventories. Cash used in investing activities
of $44 million was attributable in part to purchases of property, plant,
and equipment during the period. These purchases included approximately $7
million for land for the new manufacturing facility in Reno, NV along with
additional manufacturing and office equipment to support added personnel
and manufacturing demands.
Lines of Credit
As of June 30, 1994, the Company had a $50 million unsecured bank line
of credit with various interest rate options available to the Company. The
line of credit is used to fund operations and to facilitate standby letters
of credit. 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
June 30, 1994, $279,000 was available under this line of credit.
IGT-Australia had a bank lease facility available at June 30, 1994
which provides up to $3 million (Australian) to fund motor vehicle and
equipment purchases. Interest rates on this line are determined at the
time of acquisition of the equipment based on market rates. At June 30,
1994, $206,000 (Australian) was drawn under this line. The line is secured
by equitable mortgages, and has a provision for review and renewal annually
in May.
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
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: May 12, 1994
INTERNATIONAL GAME TECHNOLOGY
By: /s/Scott Shackelton
Scott Shackelton
Vice President
Corporate Controller
