UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-10684
INTERNATIONAL GAME TECHNOLOGY
(Exact name of registrant as specified in charter)
Nevada 88-0173041
(State of Incorporation) (IRS Employer Identification No.)
5270 Neil Road, Reno, Nevada 89502
(Address of principal executive offices)
(702) 686-1200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. 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, 1995
Common Stock, 129,946,684
par value $.000625 per share
<PAGE>
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, 1994. 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,
and facilitate the Company's initial public offering. In addition to the
Company s 100% ownership of IGT, each of the following corporations
is a direct or indirect wholly-owned subsidiary of the Company:
IGT-Australia, Pty. Ltd. ("IGT-Australia"); IGT-Europe b.v.
("IGT-Europe"); IGT-Iceland Ltd. ("IGT-Iceland"); and IGT-Japan k.k.
("IGT-Japan ).
IGT 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 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.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements(continued)
IGT-International was established in September 1993 to oversee all
operations outside of North America by the Company's foreign subsidiaries. In
January 1995, IGT-International was merged into IGT (formerly named IGT-North
America).
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.
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
5270 Neil Road, Reno, Nevada 89502; its telephone number is (702) 686-1200.
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>
<TABLE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
(Dollars in thousands, THREE MONTHS ENDED
except per share amounts) DECEMBER 31,
1994 1993
<S> <C> <C>
REVENUES:
Product sales . . . . . . . $114,144 $113,419
Gaming operations . . . . . 45,036 36,348
Total revenues. . . . . . 159,180 149,767
COSTS AND EXPENSES:
Cost of product sales . . . 66,252 60,481
Gaming operations . . . . . 19,016 16,936
Selling, general and admin. 22,352 16,824
Depreciation and amortization 6,259 4,559
Research and development. . 7,079 3,876
Provision for bad debts . . 1,486 1,566
Total costs and expenses. 122,444 104,242
INCOME FROM OPERATIONS . . . . . 36,736 45,525
OTHER INCOME (EXPENSE):
Interest income . . . . . . 8,991 6,735
Interest expense. . . . . . ( 5,113) ( 2,853)
Gain (loss) on the sale
of assets. . . . . . . . ( 695) 477
Other . . . . . . . . . . 121 ( 706)
Other income, net . . . . . 3,304 3,653
INCOME BEFORE INCOME TAXES . . . . 40,040 49,178
PROVISION FOR INCOME TAXES . . . 14,414 18,786
NET INCOME .. . . . . . . . .. . $ 25,626 $ 30,392
PRIMARY EARNINGS PER SHARE . . . $ 0.19 $ 0.23
FULLY DILUTED EARNINGS PER SHARE . $ 0.19 $ 0.22
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 133,667,419 129,626,026
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ASSUMING FULL
DILUTION 133,667,419 136,579,807
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31, SEPTEMBER 30,
1994 1994
(Dollars in thousands) (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents . $ 197,292 $ 142,730
Short-term investments,
lower of cost or market . . 41,158 60,320
Accounts receivable,
net of allowances
for doubtful accounts of $4,358
and $3,956. . . . . . . . 151,653 129,796
Current maturities of long-term notes
and contracts receivable, net of
allowances. . . . . . . . 75,236 81,007
Inventories, net of allowances for
obsolescence of $15,083 and $13,864:
Raw materials . . . . . . 50,491 59,498
Work-in-process . . . . . 4,632 3,604
Finished goods. . . . . . 27,861 40,908
Total inventories . . . . 82,984 104,010
Deferred income taxes . . . 22,921 19,615
Prepaid expenses and other. 17,862 21,612
Total current assets. . . 589,106 559,090
LONG-TERM NOTES AND CONTRACTS RECEIVABLE,
net of allowances and current
maturities. . . . . . . . . 55,312 61,212
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land . 14,038 13,691
Buildings . . . . . . . . . 14,116 13,344
Gaming operations equipment 63,518 60,785
Manufacturing machinery and equip 64,398 59,227
Leasehold improvements. . . 10,632 9,393
Total . . . . . . . . . . 166,702 156,440
Less accumulated depreciation and
amortization. . . . . . . ( 65,078) ( 59,195)
Property, plant and equipment,net 101,624 97,245
INVESTMENTS TO FUND LIABILITIES
TO JACKPOT WINNERS. . . . . 140,107 131,036
OTHER ASSETS . . . . . . . . . . 20,523 19,425
Total Assets. . . . . . . $ 906,672 $ 868,008
</TABLE>
(Continued)
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, SEPTEMBER 30,
1994 1994
(Dollars in thousands) (Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term notes
payable and capital lease
obligations . . $ 2,668 $ 2,613
Accounts payable . . 20,504 20,890
Jackpot liabilities. . . 19,482 18,562
Accrued employee benefit plan
liabilities . . 5,259 17,509
Accrued dividends payable. . . 3,973 3,971
Accrued vacation liability . . 5,507 4,542
Accrued income taxes . . 20,123 -
Other accrued liabilities. . . 13,936 10,305
Total current liabilities . . 91,452 78,392
LONG-TERM NOTES PAYABLE AND CAPITAL LEASE
OBLIGATIONS,
net of current maturities 112,016 111,468
LONG-TERM JACKPOT LIABILITIES. . . 158,955 146,640
DEFERRED INCOME TAXES. . 292 10,618
OTHER LIABILITIES. . 35 22
Total liabilities . 362,750 347,140
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.000625 par value;
320,000,000 shares authorized;
149,525,369 and 149,465,774 shares
issued. . 93 93
Additional paid-in capital . 227,112 226,712
Retained earnings. . 409,068 385,511
Treasury stock;
17,098,646 shares at cost . . ( 87,160) ( 87,160)
Unrealized loss on investments ( 5,191) ( 4,288)
Total stockholders' equity 543,922 520,868
Total liabilities and
stockholders' equity. . . $906,672 $868,008
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands) THREE MONTHS ENDED
DECEMBER 31,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME . . $ 25,626 $ 30,392
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization. . . 6,259 4,559
Amortization of long-term debt
discount and offering costs - 205
Provision for bad debts. 1,486 1,566
Provision for inventory obsolescence 1,495 1,626
(Gain) loss on sale of assets. . . 695 ( 477)
Donated common stock . . - 500
(Increase) decrease in assets:
Receivables . . ( 11,672) ( 8,328)
Inventories . . 19,531 ( 16,876)
Prepaid expenses and other 4,851 1,186
Other assets. . ( 2,815) 626
Increase (decrease) in liabilities:
Accounts payable and accrued
liabilities. . ( 8,040) 1,858
Accrued and deferred income taxes
payable, net of tax benefit
of stock option and purchase
plans. . . 9,105 5,374
Other . . 29 26
Total adjustments . 20,924 ( 8,155)
Net cash provided by
operating activities . . 46,550 22,237
</TABLE>
(Continued)
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued from previous page)
(Unaudited)
THREE MONTHS ENDED
(Dollars in thousands) DECEMBER 31,
1994 1993
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property, plant
and equipment . ($ 10,865) ($ 12,491)
Proceeds from sale of property,
plant and equipment . . . 1,152 1,091
Purchase of short term investments ( 6,365) ( 109,836)
Proceeds from sale of short term
investments . . 23,687 95,160
Proceeds from investments to fund
liabilities to jackpot winners 4,295 3,343
Purchase of investments to fund
liabilities to jackpot winners ( 14,467) ( 12,667)
Net cash used in investing
activities . . ( 2,563) ( 35,400)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt . . ( 99) ( 91)
Payments on liabilities to
jackpot winners . . ( 4,295) ( 3,343)
Collections from systems to fund
liabilities to jackpot winners 17,530 14,201
Proceeds from stock options
exercised . . . 232 246
Payments of cash dividends . . ( 3,971) ( 3,821)
Proceeds of long-term debt . . - 8
Foreign currency exchange gain 1,178 21
Net cash provided by financing
activities . . 10,575 7,221
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . 54,562 ( 5,942)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD. . . 142,730 85,346
CASH AND CASH EQUIVALENTS AT END OF
PERIOD . . $197,292 $ 79,404
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
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,
1994 1994
(Dollars in thousands) (Unaudited)
<S> <C> <C>
Current. . $ 3,924 $ 3,729
Long-term. . . 10,212 9,707
$ 14,136 $ 13,436
</TABLE>
2. Lines of Credit
As of December 31, 1994, the Company had a $50.0 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 funding 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 December 31,1994, $46.0 was available under
this line of credit.
IGT-Australia had a $440,000 (Australian) bank line of
credit available as of December 31, 1994. 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, 1994, no funds were drawn under this line.
The Company is required to comply, and is in compliance, with
certain covenants contained in these line of credit agreements 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.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Debt Offerings
Senior Notes
In September 1994, the Company completed a $100,000,000
private placement of 7.84% Senior Notes (the "Senior Notes").
The Senior Notes require annual principal payments of $14.3 million
commencing in September 1998 through 2003 and
a final principal payment of $14.2 million in September 2004.
Interest is paid quarterly. The Senior Notes contain covenants which
limit the financial commitments the Company may make and require the
maintenance of a minimum level of consolidated net worth.
The net proceeds from the Senior Notes of $99.6 million will be used
to finance the construction of a new manufacturing and
headquarters facility and for general corporate purposes.
Australian Cash Advance Facility
In August 1994, the Company was advanced $18,000,000 (Australian),
from an Australian bank under a cash advance facility. Annual principal
payments (Australian) are $3,000,000, $6,000,000, $6,000,000 and $3,000,000
at September 30, 1995, 1996, 1997, and June 30, 1998, respectively.
Interest is paid quarterly in arrears at a blended rate comprised of fixed
and floating rates. The proceeds of the loan were used to acquire
manufacturing and administrative facilities in Sydney, Australia.
4. Construction of New Corporate Headquarters and Manufacturing
Facility
In May 1994, the Company purchased a 78 acre site in Reno Nevada for
approximately $6.0 million for the construction of an approximately 1,000,000
square foot office, manufacturing and warehousing facility. Currently the
facility is in its design phase with an estimated completion date of late
calendar 1996, absent unexpected delays, and an estimated construction cost of
$75.0 million.
5. 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.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. 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, 1994 accounts,
contracts, and notes receivable by region as a percentage of
total receivables are as follows:
<TABLE>
<S> <C>
Riverboats (greater Mississippi River area) 34.0%
Nevada . . 30.1%
Native American Casinos (distributor) 10.7%
Colorado . 6.1%
Louisiana (distributor). 3.2%
New Jersey (distributor) . . . 2.6%
Other Regions (individually less than 5%) 13.3%
Total . . 100.0%
</TABLE>
Effective September 30, 1993, the Company sold its equity
ownership interest in CMS-International (CMS) to Summit
Casinos-Nevada, Inc. ( Summit ), whose owners include senior
management of CMS. The Company remains as guarantor on certain
indebtedness of CMS, which had at December 31, 1994 an aggregate balance
of $16.7 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 liabiliy arising under these guarantees.
Management believes the likelihood of losses relating to these guarantees
is remote.
7. Subsequent Events
A stock repurchase program was originally authorized by the
Board of Directors in October 1989. This repurchase
program was most recently reaffirmed in February 1994 and currently
allows for the purchase of up to 24.0 million shares. During
January 1995, the Company purchased 2,525,150 shares of its own
outstanding stock for a total of $33,555,226 in cash.
As of January 31, 1995, the Company has purchased a total of
16.6 million shares (adjusted for stock splits) under this repurchase program.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Supplemental Statement of Cash Flows Information
Certain noncash investing and financing activities are not
reflected in the consolidated statements of cash flows.
The tax benefit of stock options totaled $168,000 and
$3,948,000 for the three months ended December 31, 1994 and 1993, respectively.
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. At the option of the holder, the Notes were convertible
into common stock of theCompany. During the three months ended
December 31, 1993, notes with a face amount of $20,308,000 were
converted to 2,627,520 shares of the Company's common stock.
All the Notes were converted as of May 31, 1994.
During the quarter ended December 31, 1994, unrealized
losses on investments, net of taxes totaling $900,000 were recorded as
Unrealized Losses on Investments in stockholder s equity.
On December 2, 1994, the Board of Directors declared a quarterly
cash dividend of $.03 per share, payable on March 1, 1995
to shareholders of record at the close of business on February 1, 1995.
At December 31, 1994, the Company had accrued $3,973,000 for the
payment of this dividend.
Payments of interest for the three months ended
December 31, 1994 and 1993 were $4,723,000 and $3,761,000, respectively.
Payments for income taxes for the first three months of fiscal 1995
and 1994 were $1,500,000 and $12,788,000, respectively.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1994
COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 1993
Revenues totaled $159.2 million in the first quarter of fiscal 1995
as compared to $149.8 million in the same period of fiscal 1994. Net income
for the quarter was $25.6 million or $.19 per share (fully diluted)
versus $30.4 million or $.22 per share in the prior year.
Revenues and Cost of Sales
Total revenues increased 6.3% due to a 1% improvement in
product sales and growth in gaming operations of 24%.
Product sales revenues were $114.1 million and $113.4
million for the first quarter of fiscal 1995 and 1994, respectively.
During the first quarter of fiscal 1995, the Company sold
20,000 gaming machines compared to 22,000 sold in the same prior
year period. The average sales price per machine increased in the current
quarter due to the embedded bill acceptor. Product sales during the
first quarter of fiscal 1994 were driven by the opening of new casinos
in the midwestern riverboat and Nevada markets, including such
"mega-resorts" as the MGM Grand and Treasure Island. During the
first quarter of 1995, large machine installations for new gaming
operations were significantly lower than in the same period
of fiscal 1994. However, replacement of older gaming machines with
machines equipped with the embedded bill acceptor generated strong sales
in the Nevada, New Jersey and Native American gaming markets during the
current quarter. Gaming machine sales in the European markets through the
Company's subsidiary IGT-Europe also increased.
Revenues from gaming operations totaled $45 million during
the quarter ended December 31, 1994 compared to $36.3 million
in the comparable prior year period. This increase was a result
of a 23% gain in progressive systems and a 32% improvement in
lease revenue. Throughout fiscal 1994, several progressive
inter-link systems were introduced in Mississippi, Louisiana,
and Native American gaming markets. These new systems contributed to the
increase in progressive system revenue. Additionally,
increased play in the existing markets of New Jersey and Colorado
resulted in higher revenues. Lease revenues grew as a result
of the placement of leased units in the Midwestern riverboat market.
Gross profit on total revenues for the first quarter of
1995 was $73.9 million or 46% compared to $72.4 million and
48% in the same period last year. The gross margin on product sales
declined from 47% to 42% in the
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
current quarter. This decline resulted in part from increased sales of
gaming machines with embedded bill acceptors, which had lower gross profit
margins. In an effort to reduce inventory, production levels were lowered,
which resulted in higher production costs per unit. The gross margin
on gaming operations has increased from 53% in the first quarter
of fiscal 1994 to 58% in the first quarter of fiscal 1995. This improvement
is primarily due to higher interest rates during the first quarter of fiscal
1995 which resulted in a lower cost of annuities the Company purchases
to fund jackpot payments.
Expenses
Selling, general and administrative expenses totaled $22.4
million in thecurrent quarter versus $16.8 million in the same period
last year. The primary factor for this increase is higher staffing
levels throughout the Company. These positions were added to support
higher revenue levels, identify and develop new markets and to address
the Company's expanded administrative needs. Costs associated with
new products and markets, such as business insurance, gaming machine
test and compliance fees, and lobbyist services, also increased. Research
and development expenses increased $3.2 million to $7.1 million for the
quarter ended December 31, 1994. This growth relates to costs incurred
to supportadditional engineering personnel. The Company devotes
substantial resources in this area to continue the aggressive development
of new gaming products and systems for existing and potential markets.
Depreciation and amortization increased $1.7 million to $6.3
million in the first quarter of fiscal 1995. The additional depreciation
relates to asset acquisitions made over the past year. Such acquisitions
include manufacturing and administrative equipment and a new facility in
Australia, which replaced a leased facility. To a lesser extent, the
acceleration of depreciation on existing leasehold improvements
in anticipation of moving to the new manufacturing and administrative
facility (see footnote 4) contributed to the overall increase.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Other Income and Expense
Interest income increased 33% or $2.3 million to $9 million for
the quarter ended December 31, 1994. Higher average balances and the
increase in interest rates resulted in growth in interest income earned on the
Company's notes and contracts receivable. Increased interest income on
investments to fund jackpot liabilities also contributed to the overall
improvement in interest income. Growth in progressive systems play, as
discussed above, results in increased income-producing investments to
fund future jackpot payments.
Interest expense totaled $5.1 million for the first quarter of
fiscal 1995, an increase of $2.3 million. Additional borrowings in late
fiscal 1994 (see footnote 3) resulted in increased interest expense for
the quarter. Interest expense also grew in relation to the
growth in jackpot liabilities. These increases were partially offset by
interest savings realized from the conversion from October 1993 through
May 1994 of the Convertible Subordinated Notes into common stock of the
Company.
In the first quarter of fiscal 1994, the gain on sale of assets
related to realized gains on investments totaled $477,000. In the current
quarter, the loss on sale of assets was due to realized and unrealized
losses on investments totaling $695,000.
WORKING CAPITAL AND CASH FLOW
Working capital increased $17.0 million to $497.7 million during
the three months ended December 31, 1994. The primary factors for this
improvement are as follows: Cash and cash equivalents grew $54.6 million
(see discussion below). Accounts receivable increased $21.9 million due to
large trade sales near the end of the quarter. Inventories declined
$21 million in response to efforts to reduce overall inventory levels.
Accrued employee benefit plan liabilities decreased $12.3 million as a
result of payment of these incentives. Accrued income taxes increased
$20 million due to timing differences in tax payments.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
During the three month period, the Company generated cash from
operations and financing activities of $46.6 million and $10.6 million,
respectively. The positive impact of declining inventory levels on cash
provided by operating activities was partially offset by increasing
receivables. The overall cash accumulation was offset by cash used in
investing activities of $2.6 million, primarily associated with purchases
of short term investments, fixed assets, and investments to fund jackpot
liabilities.
LINES OF CREDIT
As of December 31, 1994, the Company had a $50.0 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 funding 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 December 31, 1994, $46.0 million
was available under this line of credit.
IGT-Australia had a $440,000 (Australian) bank line of credit
available as of December 31, 1994. 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, 1994, no funds
were drawn under this line.
The Company is required to comply, and is in compliance, with
certain covenants contained in these line of credit agreements 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.
ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Marketable Securities," effective as of
October 1, 1994. 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: February 13, 1995
INTERNATIONAL GAME TECHNOLOGY
By:/s/Scott Shackelton
Scott Shackelton
Vice President
Corporate Controller
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<NAME> INTERNATIONAL GAME TECHNOLOGY
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