EXHIBIT 11
INTERNATIONAL GAME TECHNOLOGY
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
(Dollars in thousands)
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1995 1994 1993
<S> <C> <C> <C>
Primary Shares Outstanding:
Common Stock Outstanding at
Beginning of Period 149,465,774 138,938,605 130,601,920
Shares Issued Under
Stock Option Plans 652,760 800,523 2,800,346
Percentage of Time
Outstanding 37.7% 65.4% 77.4%
Weighted Average Shares
Outstanding 245,993 523,887 2,166,117
Shares Issued to Radica
Common Stock ---- 374,436 ----
Percentage of Time Outstanding ---- 61.9% ----
Weighted Average Shares
Outstanding ---- 231,842 ----
Shares Issued From the Conversion
of Convertible
Subordinated Notes ---- 9,338,877 5,527,133
Percentage of Time Outstanding ---- 52.1% 37.6%
Weighted Average Shares
Outstanding ---- 4,861,607 2,080,186
Shares Issued Under Gifts ---- 13,333 8,948
Percentage of Time Outstanding ---- 62.5% 59.7%
Weighted Average Shares
Outstanding ---- 8,329 5,344
Shares Purchased and Held
in Treasury (21,268,046) (17,098,646) (14,071,458)
Percentage of Time
Outstanding 91.7% 87.3% 99.8%
Weighted Average Shares
Outstanding (19,513,289) (14,932,659) (14,041,972)
Common Stock Equivalent of
Options
Outstanding 895,093 1,748,625 2,806,220
Weighted Average Number of
Primary Common
and Common Equivalent
Shares Outstanding 131,093,571 131,380,236 123,617,815
Fully Diluted Shares Outstanding:
Additional Dilutive Effect of
Stock Options ---- ---- 206,811
Assumed Conversion of
Convertible Notes ---- 4,477,270 12,785,881
Weighted Average Number of Fully
Diluted Common and
Common Equivalent Shares
Outstanding 131,093,571 135,857,506 136,610,507
Income From Continuing
Operations $ 92,648 $ 140,447 $ 105,578
Income From Discontinued
Operations ---- ---- 13,447
Net Income $ 92,648 $ 140,447 $ 119,025
Primary Earnings Per Share:
Income From Continuing
Operations $ 0.71 $ 1.07 $ 0.85
Income From Discontinued
Operations ---- ---- 0.11
Net Income $ 0.71 $ 1.07 $ 0.96
Fully Diluted Earnings
Per Share: (1)
Income From Continuing
Operations $ 0.71 $ 1.05 $ 0.80
Income From Discontinued
Operations ---- ---- 0.10
Net Income $ 0.71 $ 1.05 $ 0.90
</TABLE>
(1) Based on addition of $1,635 and $4,549, net of taxes, to
income from continuing operations in 1994 and 1993,
respectively, representing interest on convertible
subordinated notes.
Exhibit 24
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statements Nos. 2-75843, 2-91475, 33-20308, 33-27657, 33-69400
and 33-63608 on Form S-8 of our report dated November 3, 1995
appearing in this Annual Report on Form 10-K of International
Game Technology for the year ended September 30, 1995.
Reno, Nevada
December 26, 1995
FORM 10-K
Securities And Exchange Commission
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
Commission File Number 001-10684
International Game Technology
(Exact name of registrant as specified in its charter)
Nevada 88-0173041
(State of Incorporation)(I.R.S. Employer Identification No.)
5270 Neil Road, Reno, Nevada 89502
(Address of principal executive offices)
Registrant's telephone number, including area code: (702) 686-1200
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassName of Each Exchange on Which Registered
Common Stock, Par Value $.000625 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of November 30, 1995:
$1,551,137,371
The number of shares outstanding of each of the registrant's classes of
common stock, as of November 30, 1995:
128,850,488 shares of Common Stock, $.000625 Par Value
Part III incorporates information by reference from the Registrant's
definitive Proxy Statement to be filed with the Commission within 120 days
after the close of the Registrant's fiscal year.
<PAGE>
Table Of Contents
Part I
Page
Item 1. Business 3
Item 2. Properties 23
Item 3. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 24
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters 24
Item 6. Selected Financial Data 25
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 26
Item 8. Consolidated Financial Statements and Supplementary Data 33
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 65
Part III
Item 10. Directors and Executive Officers of the Registrant 65
Item 11. Executive Compensation 65
Item 12. Security Ownership of Certain Beneficial Owners and Management
65
Item 13. Certain Relationships and Related Transactions 65
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
66
Signatures 68
<PAGE>
Part I
Item 1. Business
General
International Game Technology (the "Company") was incorporated in
December 1980 to acquire the gaming licensee and operating entity,
IGT, and facilitate the Company's initial public offering. In
addition to its 100% ownership of IGT, each of the following
corporations is a direct or indirect wholly-owned subsidiary of
the Company: I.G.T.-Australia, Pty. Ltd. ("IGT-Australia"); IGT-
Europe b.v. ("IGT-Europe"); IGT-Iceland Ltd. ("IGT-Iceland"); IGT-
Japan k.k. ("IGT-Japan"); I.G.T.-Argentina S.A. ("IGT-Argentina");
IGT-do Brazil Ltda. ("IGT-Brazil"); and International Game
Technology-Africa (Pty) Ltd. ("IGT-Africa").
IGT is the largest manufacturer of computerized casino gaming
products and proprietary gaming 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, as well as wide area progressive systems.
In addition to gaming product sales and leases, the Company has
developed and sells computerized linked proprietary systems to
monitor lottery video gaming terminals and has developed
specialized lottery video gaming terminals for lotteries and other
applications. 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-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 Northern 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.
IGT-Argentina was established in December 1993 and opened an
office in Buenos Aires, Argentina to distribute and market gaming
products in Argentina and Peru.
IGT-Brazil opened an office Sao Paulo, Brazil in October 1994 and
subsequently was incorporated in March 1995 to distribute and
market gaming products in Brazil.
IGT-Africa opened an office in September 1994 in Johannesburg
South Africa and subsequently was incorporated in October 1995 to
distribute and market gaming products in Southern Africa.
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.
<PAGE>
Item 1. Business (continued)
Discontinued Operations
During fiscal 1993, the Company divested its investments in casino
operations through the sale of its interest in the President
Riverboat Casinos, Inc. ("PRC") and CMS-International ("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.
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 (see Note 13 of
Notes to the Consolidated Financial Statements).
<PAGE>
Item 1. Business (continued)
<TABLE>
The following table shows the revenues, operating results and
identifiable assets for the continuing operations of the Company's
two principal lines of business.
<CAPTION>
Years Ended September 30,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Manufacture of Gaming Products:
Revenues $416,424 $514,121 $335,641
Operating Profit 109,465 169,541 123,320
Identifiable Assets 364,161 364,368 262,454
Gaming Operations:
Revenues $204,362 $160,340 $142,389
Operating Profit 58,137 48,964 41,620
Identifiable Assets 260,968 215,746 151,234
Geographic Area Data:
North America:
Revenues:
Unaffiliated Customers $565,553 $621,222 $426,864
Inter-area Transfers 21,006 13,169 14,576
Operating Profit 169,694 210,432 163,622
Identifiable Assets 914,410 812,496 608,519
Australia:
Revenues $33,641 $ 42,270 $ 39,681
Operating Profit (Loss) ( 5,873) 1,507 5,078
Identifiable Assets 44,165 44,759 27,067
Europe:
Revenues $21,592 $ 10,969 $ 11,485
Operating Profit 4,044 1,573 (1,808)
Identifiable Assets 13,123 10,753 11,007
</TABLE>
See also Note 2 of Notes to Consolidated Financial Statements
<PAGE>
Item 1. Business (continued)
Gaming Products
Products
The Company develops its gaming products for both domestic and
international markets. In domestic markets, the Company targets
the traditional casino gaming market and the government sponsored
video gaming market. In international markets, the Company
targets both casino-style and gaming-hall markets.
Over the past decade, advancements in gaming machine technology
have attracted a greater number of North American players to slot
and video machines due primarily to higher jackpots and enhanced
player appeal. These improvements have significantly influenced
casino gaming revenues. Generally, annual slot and video revenues
of domestic casinos exceed revenues from table games.
The Company was the first to develop computerized video gaming,
and today under the Players Edge Plus trademark, the Company sells
a variety of different computerized video gaming machines. The
machines include video poker and "blackjack" products in the
upright, slant-top and drop-in bar models. The Players Edge Plus
line is also available in slant-top keno, dual screen keno, bingo
and large screen video poker and video slots. Players Edge Plus
machines offer player appeal and security including multilevel
progressives, imbedded and side-mount bill acceptors, enhanced
sound packages, imbedded progressive meters and data communication
devices.
The Company also offers a complete line of spinning reel slot
machines sold under the trademark S-Plus. The S-Plus series slot
machines use an advanced microprocessor system that accommodates
several progressive link configurations, enhanced audit trail
functions, selection of game software and optional side-mount or
imbedded bill acceptors. S-Plus machines run existing S-slot
programs or the latest partitioned software which facilitates
program updates. A game change can occur quickly by selecting a
new program chip from IGT's game library and by changing the glass
and reel strips. The S-Plus machines are manufactured in various
sizes and colors and are offered in several designs including
upright, slant top and drop-in-bar.
The Company manufactures and markets video gaming terminals
("VGTs") for government sponsored gaming programs. The VGTs are
similar to the Company's video gaming machines, although the
wagering and payment of jackpots differ. After inserting money in
a VGT, the player is issued credit and plays the machine like a
traditional video machine. Player losses are deducted from the
credit and winnings are added instead of coins being dropped into
a tray. Upon completion of play, the VGT prints out a ticket
showing the remaining amount of credit, and the ticket is
redeemable for cash. Unlike traditional gaming machines, VGTs are
typically linked to a central computer for accounting and security
purposes which is monitored by the state lotteries or other
government agencies.
IGT offers the Winner's Choice as its newest generation video
machine for the video gaming industry. The Reduced Instruction
Set Computer ("RISC") processor-based technology of the Winner's
Choice uses Intel's Multimedia and Superscalar processor, the
80960. The Winner's Choice product line offers interactive game
play features and graphics in a highly secure and reliable multi-
game package. The internal architecture offers customers improved
game flexibility and expansion capabilities. The Winners Choice
also offers improved security features including silicon signature
chips in all PC boards, enhanced door monitoring and extensive
event log with time and date stamp available. The Winner's Choice
product is approved for sale in Nevada and West Virginia and with
the United States Army. The Company has initiated the regulatory
approval process to license Winner's Choice in New Jersey and
several Midwestern riverboat and Native American markets.
<PAGE>
Item 1. Business (continued)
IGT also develops, manufactures and markets microprocessor based
Slot Marketing and Revenue Tracking "SMART" systems. The SMART
computer system identifies frequent players, records playing
history, provides direct marketing information, automates slot
accounting and provides additional security to casino customers.
IGT provides SMART system 24-hour technical support and a software
maintenance agreement for on-site service by specially trained
system engineers.
The Company's innovations in slot and video technology have
increased the machines' earning potential by improving the ease
and speed of play, and by decreasing down-time through improved
reliability and added service features. All new gaming machines
offer a wide variety of games, innovative designs, sophisticated
security features, self-diagnostic capabilities, and various
accounting and data retention functions. The Company's
engineering and design staff continually provide technological
improvements and ongoing game development. The Company has
obtained numerous patents on various aspects of its video and reel-
type gaming machines and systems. The visual aspects of the
product are upgraded and customized by the Company's graphic
design and silk-screen departments.
<TABLE>
The following schedule illustrates revenues derived from the sale
of gaming machines:
<CAPTION>
Fiscal Years Ended September 30,
(Dollars in Thousands) 1995 1994 1993
<S> <C> <C> <C>
Reel-Type Slot Machines $226,216 $312,459 $194,126
Video Products 125,648 125,483 75,506
Video Gaming Terminals 271 10,830 15,100
</TABLE>
Markets
Overview
Demand for the Company's products comes principally from three
sources: sales resulting from the establishment of new gaming
jurisdictions; sales resulting from expansions of casinos within
existing gaming markets; and sales resulting from the replacement
of older machines with newer technologically advanced machines in
existing markets. Historically, gaming machines have a mechanical
life of approximately 10 years. However, in established markets,
such as Nevada, gaming machines are replaced on average between
three to seven years. Replacement occurs as a result of
technological advances, new designs, improvements in visual
characteristics, the development of new games, and the evolving
preference of casino patrons.
IGT has benefited in recent years from the significant expansion
of legalized gaming. As part of this expansion, casino style
gaming has become an increasingly important component of the
"leisure time" industry. The increased legalization and
popularity of gaming has presented growth opportunities for the
Company both in the domestic market (North America) and in the
emerging international market. Specifically, in the past few
years, the introduction of riverboat style gaming in the U.S.
Midwest, the expansion of Native American Class III style casino
gaming, the growth in the Nevada market and the continued
development of government sponsored casino gaming have presented
expanded markets for gaming machines.
While the Company believes the trend of growth in the gaming
industry will continue, the rate of growth in the North American
marketplace has diminished since the substantial growth recorded
in the early 1990's. During fiscal 1994 and 1995, the gaming
industry in the United States was influenced by strong public
opinion, the potential threat of a federal gaming tax and a more
conservative Republican controlled Congress. These external
influences are outside the control of the Company. As a result,
the Company cannot predict the rate at which new markets will develop
and any slow down or delay in the growth of new markets will
adversely affect the Company's future results.
<PAGE>
North American Markets
Nevada
The most established North American gaming markets are Nevada and
Atlantic City. Nevada is both the oldest and largest market for
the Company's products with an installed base of approximately
182,000 gaming machines. Of these machines, the Company estimates
it manufactured 133,400.
Over the past few years, there has been increased demand for
gaming products attributed to the construction of new casino
properties and the expansion or refurbishment of existing
operations in Nevada. The market for gaming products in Nevada
grew significantly during fiscal 1994. Strong demand for new
products and increased demand for gaming machines with imbedded
bill acceptors accelerated the replacement of existing machines.
However, in fiscal 1995, the Nevada gaming industry experienced a
building slowdown when compared to fiscal 1994. As a result, the
total number of new large casino operations opened during fiscal
1995 was substantially fewer than in fiscal 1994. In fiscal 1995,
the Company provided gaming machines to the new casino operations
of the Silver Legacy Casino in Reno, Nevada and The Texas Gambling
Hall in Las Vegas, Nevada. In addition, several other Nevada
properties to which the Company sold gaming machines underwent
smaller scale expansions in fiscal 1995. The Company had unit
sales of 25,300 machines to the Nevada market during fiscal 1995
as compared to 28,900 in fiscal 1994.
Several major new casinos are currently under construction in Las
Vegas and are scheduled to open mid to late calendar 1996 or early
1997. These properties include: Monte Carlo; New York, New York;
Paris; and Bellagio. The Company, at present, does not have
commitments for product purchases from these casinos and, due to
the timing of the scheduled opening of these properties, the
Company does not expect to make sales to these properties in
fiscal 1996.
The Company received replacement orders in fiscal 1995 from
various Nevada casinos for machines with imbedded bill acceptors.
In 1996, the Company expects that demand for machines with
imbedded bill acceptors will continue but the level of demand
cannot be predicted. Demand for the products is dependent, in
part, upon the competitiveness of casinos and the willingness of
casinos to incur the costs associated with replacing existing
older gaming machines with new machines.
Atlantic City
Atlantic City is the second largest gaming market in the world.
The installed base for the Atlantic City market is approximately
29,000 gaming machines. Of these machines, the Company estimates
it manufactured 13,800. The New Jersey Casino Control Commission
regulations limit the number or share of gaming machines any one
producer can supply the Atlantic City casino industry. In fiscal
1995, several casinos in Atlantic City underwent expansions or
made machine upgrades. The Company, through its distributor
Atlantic City Coin & Slot Service Company, sold approximately
4,600 machines to the various Atlantic City and Caribbean
properties in fiscal 1995 as compared to 2,800 in fiscal 1994. As
in Nevada, the Company also anticipates continued future demand
for replacement machines with imbedded bill acceptors in Atlantic
City but the level of demand cannot be predicted.
<PAGE>
Item 1. Business (continued)
Mirage Resorts Inc. has proposed the development of a large scale
casino project in Atlantic City with Circus Circus Inc. as a
tentative partner. The project would open in late 1997 or early
1998 assuming it proceeds. This will be the first newly
constructed casino entrant into the Atlantic City gaming market
since the opening of the Trump Taj Mahal in April 1990. The new
casino will be a substantial competitive addition to the Atlantic
City marketplace. Assuming the project is constructed, other
Atlantic City casinos may make machine upgrades to remain
competitive.
Riverboat Gaming
Riverboat-style gaming began in Iowa during 1991 and as of
September 1995 was operating in five States: Iowa; Illinois;
Louisiana; Mississippi; and Missouri. Riverboat gaming is also
legal in the state of Indiana but was not operational during
fiscal 1995. At the end of fiscal 1995, the riverboat gaming
installed gaming machine base was estimated at 60,500 operating on
more than 75 riverboats. Of these machines, the Company estimates
it manufactured 50,000. In fiscal 1995, the Company delivered
13,300 gaming machines to riverboat casino operators as compared
to 31,800 in fiscal 1994. The Harrah's Jazz Casino in New
Orleans, Louisiana opened in late fiscal 1995 and required the
purchase of 3,150 gaming machines. Of these machines, the Company
sold approximately 1,500. The Harrah's Jazz Casino has
subsequently closed and is currently undergoing a reorganization.
The Company has received payment in full for the machines
purchased by Harrah's Jazz.
The State of Indiana will begin riverboat gaming operations in mid
fiscal 1996 and eventually is expected to have 11 casino licenses
issued throughout the state. As of September 30, 1995, IGT has
confirmed sales orders for a significant portion of total machines
required for the five new Indiana riverboats expected to open by
the end of fiscal 1996. The remaining six Indiana riverboats are
scheduled to begin operations in fiscal 1997.
During fiscal 1995, several states expressed interest in
introducing riverboat gaming legislation, including Massachusetts,
Ohio, Pennsylvania, and South Carolina as well as additional
expansion in Illinois. Throughout this period, none of these
states has made significant legislative progress towards this
goal. Several of these states may again pursue the approval issue
in 1996. The further expansion of riverboat gaming in these and
in any other potential jurisdictions will continue to be the
subject of intense public debate and legalization typically
requiring a public referendum or other legislative action. In
addition, any favorable public referendum or legislative action
may be the subject of legal challenges. These factors have and
will continue to influence and potentially delay the timing and
opening of riverboat gaming in new domestic jurisdictions.
Native American Gaming
Casino-style gaming continued to expand on Native American lands
during fiscal 1995. Native American gaming is regulated under the
Indian Gaming Regulatory Act of 1988 which permits specific types
of gaming. Pursuant to these regulations, permissible gaming
devices are denoted as "Class III Gaming" which requires, as a
condition to implementation, that the Native American tribe and
the state government in which the Native American lands are
located enter into a compact governing the terms of the proposed
gaming. IGT machines are placed only with Native American tribes
who have negotiated compacts with their respective states and have
received approval by the U.S. Department of the Interior.
The Company, through its distributor Sodak Gaming, Inc., began
selling machines to authorized Native American casinos in 1990.
The Company has either directly or through its distributor sold
machines to Native American casinos in the following 15 states:
Arizona, Colorado, Connecticut, Iowa, Louisiana, Michigan,
Minnesota, Mississippi, Montana, New Mexico, North Carolina, North
Dakota, Oregon, South Dakota and Wisconsin. In addition to the
approved states, Class III compacts are either under consideration
or there has
<PAGE>
Item 1. Business (continued)
been ongoing litigation between Native American tribes and the
state governments in several other states. The favorable
resolution and approval of compacts in any of these states would
provide additional market opportunities for the Company's
products. The Company cannot, however, predict when and whether
any such approvals will occur.
At the end of fiscal 1995, the installed base of Class III gaming
machines within Native American operations was approximately
52,000 gaming machines. Of these machines, the Company estimates
it manufactured and sold through its distributor 38,000. In
fiscal 1995, the Company estimates it sold 8,800 gaming machines
to approved Native American casinos as compared to 11,700 in
fiscal 1994.
Limited Stakes Gaming
The States of Colorado and South Dakota offer limited stakes
casino-style gaming throughout specified historic "mining towns."
Colorado currently has an installed base of nearly 13,000 gaming
machines in the cities of Blackhawk, Central City and Cripple
Creek. Of these gaming machines, IGT estimates it manufactured
11,000. In fiscal 1995, the Company sold approximately 3,000
gaming machines to Colorado casino operators as compared to 1,400
in fiscal 1994. South Dakota has an installed gaming machine base
of nearly 2,200 gaming machines in Deadwood. Of these machines,
IGT estimates it manufactured 1,600.
Racetrack Gaming
In fiscal 1995, the State of Iowa legalized the introduction of
gaming machines at the various racetrack facilities within the
state. There were a total of 2,800 gaming machines installed
among the Iowa racetracks of Bluff's Run, Dubuque Greyhound Park
and Prairie Meadows. Of these machines, the Company estimates it
manufactured 2,400. The introduction of gaming machines at
various racetracks has been approved by the State of Delaware and
is expected to occur in fiscal 1996.
Government Sponsored Gaming
Government sponsored gaming in North America is also a market for
the Company's gaming products. Video gaming terminals are
currently operational in Louisiana, Montana, Oregon, Rhode Island,
South Carolina, South Dakota, West Virginia and the Canadian
Provinces of Alberta, Manitoba, New Brunswick, Newfoundland, Nova
Scotia, Prince Edward Island, Quebec and Saskatchewan. The
Company supplied the central computer systems for government
sponsored gaming in Louisiana, Manitoba and Oregon and
manufactured approximately 21,000 of the 106,000 total video
gaming terminals installed in North America.
In addition to video terminal gaming, various Canadian provincial
governments have approved casino style gaming. Several provinces
including Manitoba, Nova Scotia, Ontario and Quebec have casino
operations. At the end of fiscal 1995, the total installed base
of gaming machines in the Canadian Provinces was approximately
7,100 gaming machines. Of these machines, the Company estimates
it manufactured 3,900. In fiscal 1995, the Company sold
approximately 800 gaming machines in the Canadian marketplace as
compared to 2,100 in fiscal 1994.
Cruise Ship Gaming
The Company also markets its machine products to international
cruise ship operators. The Company estimates that the cruise ship
market has approximately 9,500 gaming machines in place. Of these
machines, the Company estimates it manufactured 6,500. In fiscal
1995, the Company sold approximately 1,900 gaming machines to
various licensed cruise ship operators as compared to 1,300 in
fiscal 1994.
<PAGE>
Item 1. Business (continued)
International Markets
Demand for casino style gaming products also exists in
international jurisdictions. Traditionally, gaming in
international markets has consisted of both North American casino-
style gaming, private clubs, and in some countries smaller scale
"gaming halls." International casinos commonly target the tourist
population and are usually located in large urban areas or
designated tourist locations. The number of large scale casinos
per jurisdiction may be limited by the government. The casinos
may be privately owned, government owned or a joint venture
between the state and a private operator. Frequently, the
investment in these facilities is significant and therefore often
managed by world-wide casino operators. In addition, there are
also corporate as well as charity run operations in the
international arena.
The number of machines within "gaming halls" is usually fewer than
what is found in casinos, but it is common to find numerous halls
located throughout a jurisdiction. The types of games within the
halls can include amusement with prize machines (AWP) as well as
gaming machines. In some foreign jurisdictions, the machines pay
out in the form of tickets, vouchers or tokens, rather than actual
coins. These gaming establishments are usually privately owned,
and, due to the smaller size of the locations, the investment
required is significantly less than that for casino developments.
Australia and New Zealand
The Australian market is the most established international
jurisdiction for gaming products outside of North America. Casino
style gaming has existed in Australia since 1973. Currently, a
total of twelve casinos operate in Australia within the States of
Queensland, the Northern Territory, Western Australia, South
Australia, Victoria, Tasmania and the Australian Capital
Territory. The installed base for the Australian market is
approximately 124,000 gaming machines in use in legalized casinos,
pubs and clubs. The Company began selling gaming machines in
Australia in 1986 and of these machines, the Company estimates it
manufactured 24,000. In fiscal 1995, the Company had sales of
approximately 4,200 gaming machines in Australia as compared to
5,800 gaming machines in fiscal 1994.
The State of New South Wales is the largest market in Australia
for gaming machines, with an estimated total of 72,000 gaming
machines in 2,100 pubs and 1,500 not-for-profit clubs. Gaming
operations have expanded in New South Wales as a casino operator
has been licensed for the temporary Sydney Casino which began
operations at the end of fiscal 1995. In addition to New South
Wales, several Australian jurisdictions have implemented or are
considering the legalization or expansion of gaming operations
within their borders. In calendar 1996, in Queensland, the Reef
Casino at Cairns and the Treasury Casino in Brisbane are scheduled
to open. The Government of the Northern Territory has also
announced the expansion of gaming machine operations into clubs
and hotels to commence in fiscal 1996. The Government of Tasmania
has approved a similar expansion of gaming into clubs and hotels
in the island state during calendar 1997.
Gaming also exists in New Zealand in the form of casino style
gaming, and gaming in pubs and clubs. Casino style gaming was
introduced in New Zealand during fiscal 1995 with the commencement
of operations at the Christchurch Casino. The installed base for
the New Zealand market is approximately 8,200 gaming machines. Of
these machines, the Company estimates it manufactured 3,900. In
fiscal 1995, the Company had sales of approximately 620 gaming
machines in New Zealand as compared to 570 gaming machines in
fiscal 1994. The New Zealand market is expected to continue to
expand with the scheduled opening of the Sky City project in
Auckland in calendar 1996.
<PAGE>
Item 1. Business (continued)
Europe, Middle East And North Africa
The European, Middle Eastern and North African markets are
serviced by the Company's sales and distribution center located in
The Netherlands. The Company has had a direct sales presence in
Europe since February 1992. Since that time, increasing customer
awareness of product availability, combined with service and
training assistance, has contributed to improvements in the
Company's share of this market. The Company has identified a
significant number of customers for the Company's gaming machines
in Eastern Europe, Western Europe, the Middle East and Northern
Africa. The European market is a unique market as many countries
also have established AWP machines which provide competition for
the casino style gaming machines.
The Company estimates that throughout all of Europe, the Middle
East and North Africa, the market base of legally installed gaming
machines is in excess of 52,500 gaming machines. Of these
machines, the Company estimates it manufactured 11,100. In fiscal
1995, the Company made sales of 3,900 machines throughout this
market. The majority of these machines were to casino operations
in Turkey, Greece, Romania, France and other European casino
jurisdictions.
During fiscal 1993, the Company completed an agreement with the
University of Iceland Lottery ("UIL") to supply video terminals
and a central system linking the video terminals. The central
system incorporates a progressive jackpot feature. The Iceland
system, managed by the UIL, which began operating in December
1993, continues to operate with 350 video lottery terminals
manufactured by the Company.
Africa
The Company has targeted the African market as a developing market
for the Company's products. Currently, there are several approved
jurisdictions to which the Company sells its products including
Kenya, Namibia, and South Africa.
Specifically, the Government of South Africa has recently taken
steps to expand legalized gaming. Current gaming legislation in
South Africa prohibits most forms of gambling except for
charitable lotteries, betting on horse racing, and casino gaming
in what were previously known as the independent homelands. In
October 1994, the South African Lotteries and Gambling Board
issued an interim report to the Minister of Justice recommending
the legalization of various forms of lotteries and gambling. The
Board recommended the authorization of 40 casino licenses
throughout the country. Draft national legislation adopts this
recommendation, although it leaves specific implementation to each
of the nine provinces. This draft legislation will be considered
in 1996, but there is no guarantee that it, or similar
legislation, will be enacted.
Legislation authorizing casino gaming has now been enacted in
three South African provinces, although these provinces will need
to establish gaming boards and adopt regulations before they can
begin issuing licenses. Similar legislation is under
consideration in five of the remaining six provinces.
In two of the three provinces where legislation has been enacted,
the legislation also authorizes limited gaming machines (limited
in number, wager and payout) in other venues such as bars and
taverns. The specific limitations will be defined in regulations.
In response to these developments, the Company established IGT-
Africa with a sales and service office in Benmore, a suburb of
Johannesburg, South Africa.
During fiscal 1995, the Company made sales to Sun International,
the operator of the 17 approved casinos in South Africa. In
fiscal 1996, contingent upon final enactment of all the necessary
legislation and regulatory approval of the South African
government, the Company is exploring the possibility of sales of
gaming machines to the new facilities contemplated under the South
African gaming legislation.
<PAGE>
Item 1. Business (continued)
Asia
The Company has identified Japan and China as important markets
for the Company's products. The Japanese market consists of more
than 3,600,000 Pachinko machines and 700,000 Pachisuro machines
which operate in 18,000 parlors throughout the country. The
Company designed a Pachisuro machine (Japanese-style slot machine)
for this market which was approved in April 1993 by the Japanese
technical testing laboratory (Security Electronics and
Communications Technology Association). In November 1995, IGT-
Japan became the first non-Japanese company to be admitted as a
full member to Japan's 20 member Nichidenkyo, an association of
Pachisuro manufacturers. IGT-Japan's new membership status gives
the Company the opportunity to compete for a share of Japan's
Pachisuro machine replacement market estimated at approximately
300,000 machines annually. In response, IGT-Japan has established
a regional distribution network to market the Company's Pachisuro
machines.
During fiscal 1994, the Company increased its investment in
design, sales and support staff of the IGT-Japan office to pursue
the Japanese market and continued this investment throughout
fiscal 1995. IGT-Japan has designed a machine which is currently
awaiting regulatory approval. Approval is expected in calendar
1996. There were no sales to this market during fiscal 1994 or
1995.
The Company also targets China as a potential future market for
its products. It may, however, take several years for a developed
market to evolve. Although gaming is generally prohibited under
the current central government within China, there are several
provinces where the local governments have the authority to
approve and license the development of entertainment centers
housing amusement machines for which the Company has adapted its
products. The Company has been working closely with national,
provincial and municipal governments and in response, established
a sales office in Hong Kong, and representative offices in
Shanghai and Beijing to pursue these markets. The Company is also
developing a customized product with several game variations for
the Chinese and other Asian markets which comply with current
regulatory requirements.
During fiscal 1995, the Company initiated operations with
international partners to develop a bingo and entertainment center
in Zhengzhou, Henan Province, China. The center has 364 of the
Company's Players Choice Arcade machines and offers live bingo and
other forms of entertainment (See Note 11 to the Consolidated
Financial Statements). Additional business ventures are being
considered for other approved jurisdictions. In response, the
Company has engaged several distributors to market the Company's
machines to these jurisdictions. In fiscal 1995, the number of
machines sold was minimal.
Latin America
The Company has targeted the Latin America market for its
products. The pace and timing of developments within these
markets cannot, however, be predicted. Casino gaming is currently
legal in Argentina, Chile, Colombia, Ecuador, Paraguay, Peru and
Uruguay. The Company is working with joint partners to explore
and develop business opportunities within approved jurisdictions
in the Latin American marketplace. In response to the developing
Latin American marketplace, the Company has customized existing
products for the Latin American market by translating more than 25
games into Spanish and Portuguese and by adapting graphics and
language to local cultures.
Privatization efforts are underway in Argentina and may occur in
Uruguay where the governments currently own the casino gaming
halls. In response, the Company maintains a sales and service
office located in Buenos Aires. During fiscal 1995, the Company
also entered into a joint partnership for gaming development
within Argentina and Peru (See Note 11 to the Consolidated
Financial Statements). In Venezuela, Paraguay and Bolivia the
governments are reviewing and updating current regulations
governing a wide array of gaming.
<PAGE>
Item 1. Business (continued)
Gaming Operations
Proprietary Systems
The Company developed and introduced the world's first
electronically-linked, inter-casino proprietary gaming machine
system in 1986. These systems link gaming machines in various
casinos to a central computer. The systems build a large
"progressive" jackpot which increases with every wager made
throughout the system. The systems are designed to increase
gaming machine play for participating casinos by giving players
the opportunity to win jackpots substantially larger than those
available from gaming machines which are not linked to a
progressive system. The following are linked progressive systems
developed by the Company.
In Nevada, eight systems developed by the Company are operated
under the names Megabucks, Quartermania, Nevada Nickels, Fabulous
Fifties, High Rollers, Quarters Deluxe, Dollars Deluxe and Keno
Deluxe. Of the total 4,700 gaming machines linked to these
systems, 2,700 are owned by the Company and 2,000 are owned by
casinos.
In Atlantic City, New Jersey, seven systems developed by the
Company operate under the names Megabucks, Quartermania, Fabulous
Fifties, High Rollers, Megapoker, Pokermania and Dollars Deluxe.
These systems are operated by a trust managed by representatives
from participating casinos. The Company owns all of the
approximately 1,250 machines linked to these progressive systems.
In Mississippi, eight systems developed by the Company are
operated under the names Megabucks, Quartermania, Fabulous
Fifties, Mississippi Nickels, Pokermania, High Rollers, Quarters
Deluxe and Dollars Deluxe. Of the total 1,000 gaming machines
linked to these systems, 300 are owned by the Company and 700 are
owned by casinos.
In Colorado, three systems developed by the Company are operated
under the names Megabucks, Quartermania and Colorado Nickels. Of
the total 330 gaming machines linked to these systems, 80 are
owned by the Company and 250 are owned by casinos.
In Louisiana, five systems developed by the Company are operated
under the names Megabucks, Quartermania, Louisiana Nickels,
Fabulous Fifties and High Rollers. Of the total 230 gaming
machines, 220 are owned by the Company and 10 are owned by
casinos.
In Native American casinos, two systems developed by the Company
are operated under the names Megabucks and Quartermania.
Approximately 560 machines operate on these systems in casinos in
the States of Iowa, Michigan, Mississippi, New Mexico, North
Dakota, South Dakota, Wisconsin and Connecticut. The systems in
Native American casinos began operating in August 1994.
Other systems in operation include a Deadwood, South Dakota
Quartermania system which includes approximately 30 machines owned
by casinos. In Iceland, one system developed by the Company
operates under the name Gullnaman with approximately 350 Company
owned machines operating on this system. A Megabucks system in
Macau consists of approximately 200 machines owned by casinos.
The Company has also initiated the regulatory approval process to
operate its proprietary systems within each specific jurisdiction
of the States of Illinois, Iowa and Missouri.
The operation of linked progressive systems varies between
jurisdictions as a result of different gaming regulations. In
Nevada, Mississippi, Louisiana, South Dakota and Native American
locations, the casinos retain the net win, less a percentage paid
to the Company to fund the progressive jackpots. These jackpots
are paid in equal installments over a ten to twenty-five year
period. In Atlantic City, the casinos retain the net win, less a
<PAGE>
Item 1. Business (continued)
percentage paid to a trust managed by representatives of the
participating casinos to fund the jackpots and pay other system
expenses. The trust records a liability to the Company for an
annual casino licensing fee as well as an annual machine rental
fee for each machine. In Colorado, the casinos retain the net win
less a percentage paid to a separate fund managed by the Company
which pays the jackpots. Progressive system lease fees are paid
to the Company from this fund.
The Company also offers a "leased" link progressive system which
links gaming machines within a single casino or multiple casinos
of common ownership. Currently, three major hotel casinos operate
leased link progressive systems with approximately 350 gaming
machines linked on all such systems.
In September 1992, Rhode Island began operating a video lottery
system linking approximately 850 video lottery terminals at two
pari-mutuel facilities. As of September 30, 1995, an estimated
1,500 terminals were operating on the system. IGT, one of four
manufacturers providing terminals, supplied approximately 350
terminals installed on this system and receives revenue for the
use of the terminals.
Video gaming in Oregon commenced in March of 1992, and IGT was
awarded the contract to supply the central computer system that
currently links approximately 7,300 terminals. This contract will
expire in fiscal 1996. The Company currently leases approximately
2,100 machines to the Oregon State Lottery.
Lease Operations
The Company leases gaming equipment to its customers, and as of
September 30, 1995, leased approximately 3,800 gaming machines
primarily in the Midwestern riverboat, Colorado and Nevada
markets. The Company also operates approximately 1,650 machines
under participation and rental agreements primarily in the Nevada
casino market.
In January 1993, the Company began operating approximately 190
gaming machines at the Reno/Tahoe International Airport under a
contract with the Airport Authority. The Airport Authority shares
in the net win of the machines with a minimum annual guaranteed
amount.
<TABLE>
The following table shows the revenues recorded from gaming
operations.
<CAPTION>
Years Ended September 30,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Proprietary Systems $191,607 $146,800 $124,275
Lease Operations 12,755 13,540 18,114
Total $204,362 $160,340 $142,389
</TABLE>
Marketing And Sales
IGT markets gaming products and proprietary systems through its
internal sales staff, agents and distributors. The Company
employs 166 sales personnel in offices in several United States
locations as well as Asia, Australia, Canada, Europe, Latin
America and South Africa.
IGT uses distributors for sales to specific markets including
Louisiana, New Jersey, Native American reservations, the Miami
cruise ship market, a Canadian maritime province, the Caribbean
and France. The Company's agreements with distributors do not
specify minimum purchases but provide that the Company may
terminate the distribution agreement if certain performance
standards are not met.
<PAGE>
Item 1. Business (continued)
The Company considers its customer service department an important
aspect of the overall marketing strategy. IGT typically provides
a 90-day service and parts warranty for its gaming machines. The
Company currently has approximately 260 trained service personnel
for customer assistance and maintains service offices in Colorado,
Mississippi, Missouri, Montana, Nevada, New Jersey, Argentina,
Australia, Brazil, Canada, Japan, New Zealand, South Africa and
The Netherlands. A customer hotline is available 24 hours a day,
seven days a week to respond to customer questions.
The overall marketing philosophy is to offer its customers not
only the broadest product line but also ongoing game development.
IGT's game library contains numerous game variations.
Reprogramming machines for the newest games and changing the
graphics design can be accomplished quickly. In international
markets, the Company's strategy is to respond to developing
markets with local presence, customized games, new product
introductions and local production.
In addition to offering an expansive product line, the Company
provides customized services in response to specific casino
requests. These services include high quality graphics design,
silk-screen printing of gaming machine glass, video graphics,
customized game development and interior design services. During
fiscal 1995, IGT developed more than 25 new games which included a
variety of custom artwork for casinos that opened, renovated or
expanded in fiscal 1995. The Company also offers customized
design services that utilize computer aided design and three-
dimensional studio software programs. The Company's design
department has the ability to generate a casino floor layout and
can create a proposed casino slot mix for its customers. The
final design incorporates casino colors, themes, signage, custom
graphics and includes either an overhead floor plan layout,
viewable from any angle, or a three-dimensional moving walk-
through of the casino.
The Company's products and services are sold to gaming operators
in jurisdictions where gaming is legal. Its products and services
are also sold to government entities which conduct gaming
operations. During fiscal 1995, the Company's ten largest
customers accounted for 33% of its gaming product sales. Sodak
Gaming, the Company's principal distributor of gaming products to
Native American reservations, was the largest purchaser of the
Company's products, accounting for approximately 12% of total
product sales. The Company believes the loss of this customer
would not have a long-term material adverse effect on product
sales of the Company as other means of distribution to this market
are available. There were no other individual customers
accounting for greater than 10% of the Company's product sales.
The nature of the Company's business encompasses large initial
orders of gaming products upon the opening, expansion or
renovation of a casino as well as for the start-up of government
sponsored video gaming operations. Subsequent orders from
established customers result from remodeling or expansion of
existing facilities as well as replacement of machines due to
technological advancements, new designs and upgrades.
Sales of the Company's products can fluctuate from quarter to
quarter as new jurisdictions legalize gaming and new casinos in
established gaming markets are opened.
Competition
Product Sales
The most significant factor influencing the purchase of all types
of gaming machines is player appeal followed by a mix of elements
including service, price, reliability, technical capability and
the financial condition and reputation of the manufacturer.
Player appeal is key because it combines the machine design,
hardware, software and play features that ultimately improves the
earning power of gaming machines. IGT devotes substantial
resources to continually upgrade its products and conduct ongoing
game development efforts. The Company's customer service
organization is also a significant contributor to IGT's overall
competitive position.
<PAGE>
Item 1. Business (continued)
The Company has made significant investment in research and
development of products tailored toward the specific demands of
its customers (casino operators) as well as the users of its
products. In this context, IGT has developed more than 25
different game themes which are tested to measure consumer appeal.
IGT uses Megatest, an on-line computerized testing and monitoring
system, to evaluate and forecast acceptance of new products.
Megatest uses the Company's wide area progressive technology to
monitor from a central computer the performance of games placed in
a representative sample of casinos throughout the State of Nevada.
The new product test games are measured against a control group to
evaluate the performance of the test games in real-time. The
Megatest program allows IGT to test more games with greater
accuracy and in a shorter time frame.
IGT also offers its customers educational programs and several
customer related services. The Company provides customer
education in the form of installation training on-site,
periodically at IGT locations, on demand on-site training and
videotape instruction. Other custom services include a 24-hour
customer service hotline, a monthly technical services bulletin,
customer notifications, a slot line news letter for slot floor
managers and program summary reports designed to answer specific
software systems questions. In early 1995, IGT opened the
Technical Assistance Center (TAC), a fully staffed facility to
provide 24-hour telephone support to all types of system
customers. The TAC has access to a range of field support
engineering resources to resolve technical issues.
IGT also provides customers information through an electronic
bulletin board system (BBS). Customers can access this system 24
hours a day, seven days a week. The system lets users view and
download a variety of information related to IGT products and
services. This system gives customers information on demand and
provides a direct link for two way communication between the
customer and IGT.
The Company competes with substantial U.S. and foreign
manufacturers in the casino style gaming machine market. The
primary competitors are Bally Gaming International, Inc.
("Bally"), Sigma Game, Inc. ("Sigma"), and Universal Distributing
of Nevada, Inc. ("Universal"). Bally is a Nevada company and was
recently acquired by Alliance Gaming, Inc., a Nevada slot route
operator. Sigma and Universal are Japanese companies. In
addition, two manufacturers, WMS Industries, Inc. and Video
Lottery Consultants, Inc., recently developed casino products and
are either authorized to sell their products or are in the
licensing process in many U.S. gaming jurisdictions. There are
several competitors for the international arena including
Aristocrat, Atronic, Cirsa and Novomatic among others.
The Company's slot marketing and revenue tracking system (SMART)
provides accounting and player tracking analytical support to
operators. The Company views this product line as an increasingly
important complementary offering. In the accounting and player
tracking systems product market, the Company competes with Casino
Data Systems, Acres Gaming, Bally's SDS and several other system
manufacturers.
The Company considers itself one of five primary competitors in
the video gaming terminal market with no one supplier dominating
the market. Competitors in this market include three large
domestic lottery suppliers, G-Tech, WMS Industries, Inc. and Video
Lottery Consultants, Inc. as well as Spielo, a supplier based in
Canada. These suppliers have an established presence in the
lottery market, substantial resources and specialize in the
development and marketing of gaming terminals to governments. The
Company continues to view the video lottery industry as an
important market for its products.
<PAGE>
Item 1. Business (continued)
Gaming Operations
IGT has introduced progressive systems within both existing and
new gaming jurisdictions. The Company currently has in operation
36 wide area progressives systems throughout nine gaming
jurisdictions including Native American Casinos, Macau and
Iceland. Wide area progressive systems link machines within a
given jurisdiction to offer large slot jackpots (often exceeding
U.S. $1 million) with the primary jackpot paid in annual
installments. The most significant factor influencing the play on
progressive systems is enhanced player appeal resulting from the
large slot jackpot payouts. The systems appeal to casinos due to
the games earnings premium and because they emphasize strong
security and control features.
The competition in the progressive systems business has increased
with the introduction of Casino Data Systems (CDS) "Cool Millions"
progressive system. This product offering is a direct competitor
to IGT's Megabucks and Dollars Deluxe progressive systems. CDS
currently has its progressive system installed in the casino
gaming markets of Nevada and Mississippi within North America. In
addition, CDS is developing a quarter slot progressive system to
compete with the Company's Quartermania and Quarters Deluxe
products. CDS has also applied for gaming approval in Louisiana
as well as to start operations of progressive systems on Native
American lands.
IGT provides substantial marketing and advertising support for its
wide area progressive systems products and competes on the basis
of the Company's progressive systems brand names, product market
appeal, large jackpot awards, player loyalty and technical and
marketing experience.
Manufacturing and Suppliers
The Company's manufacturing operations primarily involve assembly
of electronic and computer components, including chips, video
monitors and prefabricated parts purchased from outside sources.
The Company does however, operate custom wood cabinet
manufacturing and silkscreen facilities. The Company is not
dependent upon any one supplier for any raw material. The Company
purchases certain components from subcontractors and believes that
alternative sources of these components are available. The
Company believes its relations with its vendors are good. The
Company uses technical staff to assure quality control.
The Company generally carries a significant amount of inventory
due to the broad range of products it manufactures and to
facilitate its capacity to fill customer orders on a timely basis.
Patents, Copyrights and Trade Secrets
The Company's computer programs and technical know-how are its
main trade secrets, and management believes that they can best be
protected by using technical devices to protect the computer
programs and by enforcing contracts with certain employees and
others with respect to the use of proprietary information, trade
secrets and covenants not to compete. The Company has obtained
patents and copyrights with respect to aspects of its games, and
has patent applications on file for protection of certain
developments it has created. No assurance can be given that the
pending applications will be granted. These patents range in
subject matter from coin-handling apparatus, fiber-optic light
pens, coin-escalator mechanisms through optical door interlock and
other aspects of video and mechanical slot machines and systems.
There can be no assurance that the patents will not be infringed
or that others will not develop technology that does not violate
the patents.
<PAGE>
Item 1. Business (continued)
Employees
As of September 30, 1995, the Company, including all subsidiaries,
employed approximately 2,420 persons, including 417 in
administrative positions, 166 in sales and 424 in engineering. Of
the total employees, IGT (the Company's North American operations)
accounted for 2,094; IGT-Australia, 280; IGT-Europe, 30; and IGT-
Japan, 5; IGT-Argentina, 5; IGT-Brazil, 3; and IGT-Africa, 3. The
total number of employees declined in fiscal 1995 by approximately
370 as compared with the number of employees at September 30,
1994.
Government Regulation
Nevada Regulation
The manufacture, sale and distribution of gaming devices in Nevada
are subject to extensive state laws, regulations of the Nevada
Gaming Commission and State Gaming Control Board (the "Nevada
Commission"), and various county and municipal ordinances. These
laws, regulations and ordinances primarily concern the
responsibility, financial stability and character of gaming
equipment manufacturers, distributors and operators, as well as
persons financially interested or involved in gaming operations.
The manufacture, distribution and operation of gaming devices
require separate licenses. The laws, regulations and supervisory
procedures of the Nevada Commission seek to (i) prevent unsavory
or unsuitable persons from having a direct or indirect involvement
with gaming at any time or in any capacity, (ii) establish and
maintain responsible accounting practices and procedures, (iii)
maintain effective control over the financial practices of
licensees, including establishing minimum procedures for internal
fiscal affairs and the safeguarding of assets and revenues,
providing reliable record keeping and requiring the filing of
periodic reports with the Nevada Commission, (iv) prevent cheating
and fraudulent practices, and (v) provide a source of state and
local revenues through taxation and licensing fees. Changes in
such laws, regulations and procedures could have an adverse effect
on the Company's operations.
A Nevada gaming licensee is subject to numerous restrictions.
Licenses must be renewed periodically and licensing authorities
have broad discretion with regard to such renewals. Licenses are
not transferable. Each type of machine sold by the Company in
Nevada must first be approved by the Nevada Commission, which may
require subsequent machine modification. Substantially all
material loans, leases, sales of securities and similar financing
transactions must be reported to or approved by the Nevada
Commission. Changes in legislation or in judicial or regulatory
interpretations could occur which could adversely affect the
Company.
A publicly traded corporation must be registered and found
suitable to hold an interest in a corporate subsidiary which holds
a gaming license. International Game Technology has been
registered by the Nevada Commission as a publicly traded holding
company and was permitted to acquire IGT as its wholly-owned
subsidiary. As a registered holding company, it is required
periodically to submit detailed financial and operating reports to
such Commission and furnish any other information which the
Commission may require. No person may become a stockholder of, or
receive any percentage of profits from, a licensed subsidiary
without first obtaining licenses and approvals from the Nevada
Commission. Officers, directors and key employees of a licensed
subsidiary and of the Company who are actively engaged in the
administration or supervision of gaming must be found suitable. No
proceeds from any public sale of securities of a registered
holding corporation may be used for gaming operations in Nevada or
to acquire a gaming property without the prior approval of the
Nevada Commission. The Company believes it has all required
licenses to carry on its business in Nevada.
<PAGE>
Item 1. Business (continued)
Officers, directors, and certain key employees of the Company who
are actively and directly involved in gaming activities of the
Company's licensed gaming subsidiary may be required to be
licensed or found suitable. Officers, directors, and certain key
employees of the Company's licensed gaming subsidiary must file
applications with the Nevada Commission and may be required to be
licensed or found suitable. Employees associated with gaming must
obtain work permits which are subject to immediate suspension
under certain circumstances. In addition, anyone having a
material relationship or involvement with the Company may be
required to be found suitable or licensed, in which case those
persons would be required to pay the costs and fees of the State
Gaming Control Board (the "Control Board") in connection with the
investigation. An application for licensure or finding of
suitability may be denied for any cause deemed reasonable by the
Nevada Commission. A finding of suitability is comparable to
licensing and both require submission of detailed personal and
financial information followed by a thorough investigation.
Changes in licensed positions must be reported to the Nevada
Commission. In addition to its authority to deny an application
for a license or finding of suitability, the Nevada Commission has
jurisdiction to disapprove a change in position by such officer,
director, or key employee. The Nevada Commission has the power to
require the Company and its licensed gaming subsidiary to suspend
or dismiss officers, directors or other key employees and to sever
relationships with other persons who refuse to file appropriate
applications or whom the authorities find unsuitable to act in
such capacities. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in
Nevada.
The Company and its licensed gaming subsidiary are required to
submit detailed financial and operating reports to the Nevada
Commission. If it were determined that gaming laws were violated
by a licensee, the gaming licenses it holds could be limited,
conditioned, suspended or revoked subject to compliance with
certain statutory and regulatory procedures. In addition to the
licensee, the Company and the persons involved could be subject to
substantial fines for each separate violation of the gaming laws
at the discretion of the Nevada Commission. In addition, a
supervisor could be appointed by the Nevada Commission to operate
the Company's gaming property and, under certain circumstances,
earnings generated during the supervisor's appointment could be
forfeited to the State of Nevada. The limitation, conditioning or
suspension of any gaming license or the appointment of a
supervisor could (and revocation of the gaming license would)
materially and adversely affect the Company's operations.
The Nevada Commission may also require any beneficial holder of
the Company's voting securities, regardless of the number of
shares owned, to file an application, be investigated, and be
found suitable, in which case the applicant would be required to
pay the costs and fees of the Control Board investigation. If the
beneficial holder of voting securities who must be found suitable
is a corporation, partnership, or trust, it must submit detailed
business and financial information including a list of beneficial
owners. Any person who acquires 5% or more of the Company's voting
securities must report the acquisition to the Nevada Commission;
any person who becomes a beneficial owner of 10% or more of the
Company's voting securities must apply for a finding of
suitability within 30 days after the Chairman of the Nevada Board
mails the written notice requiring such finding.
Under certain circumstances, an Institutional Investor, as such
term is defined in the Nevada Regulations, which acquires more
than 10%, but not more than 15%, of the Company's voting
securities may apply to the Nevada Commission for a waiver of such
finding of suitability requirements, provided the institutional
investor holds the voting securities for investment purposes only.
An institutional investor will not be deemed to hold voting
securities for investment purposes unless the voting securities
were acquired and are held in the ordinary course of business as
an institutional investor and not for the purpose of causing,
directly or indirectly, the election of a majority of the board of
directors of the Company, any change in the Company's corporate
charter, bylaws, management, policies or operations of the
Company, or any of its gaming affiliates, or any other action
which
<PAGE>
Item 1. Business (continued)
the Nevada Commission finds to be inconsistent with holding the
Company's voting securities for investment purposes only.
Activities which are not deemed to be inconsistent with holding
voting securities for investment purposes only include: (i) voting
on all matters voted on by stockholders; (ii) making financial and
other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a
change in its management, policies or operations; and (iii) such
other activities as the Nevada Commission may determine to be
consistent with such investment intent.
The Nevada Commission has the power to investigate any debt or
equity security holder of the Company. The Clark County Liquor
and Gaming Licensing Board, which has jurisdiction over gaming in
the Las Vegas area, may similarly require a finding of suitability
for a security holder. The applicant stockholder is required to
pay all costs of such investigation. The bylaws of the Company
provide for the Company to pay such costs as to its officers,
directors or employees.
Any person who fails or refuses to apply for a finding of
suitability or a license within 30 days after being ordered to do
so by the Nevada Commission or Chairman of the Nevada Board may be
found unsuitable. The same restrictions apply to a record owner
if the record owner, after request, fails to identify the
beneficial owner. Any stockholder found unsuitable and who holds,
directly or indirectly, any beneficial ownership of the Common
Stock beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The
Company is subject to disciplinary action, and possible loss of
its approvals, if, after it receives notice that a person is
unsuitable to be a stockholder or to have any other relationship
with the Company, the Company (i) pays that person any dividend or
interest upon voting securities of the Company, (ii) allows that
person to exercise, directly or indirectly, any voting right
conferred through securities held by that person, (iii) gives
remuneration in any form to that person, for services rendered or
otherwise, or (iv) fails to pursue all lawful efforts to require
such unsuitable person to relinquish his voting securities for
cash at fair market value. Additionally the Clark County
authorities have taken the position that they have the authority
to approve all persons owning or controlling the stock of any
corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder
of any debt security of the Company to file applications, be
investigated and be found suitable to own the debt security of the
Company. If the Nevada Commission determines that a person is
unsuitable to own such security, then pursuant to the Nevada Act,
the Company can be sanctioned, including the loss of its
approvals, if without the prior approval of the Nevada Commission,
it: (i) pays to the unsuitable person any dividend, interest, or
any distribution whatsoever; (ii) recognizes any voting right by
such unsuitable person in connection with such securities; (iii)
pays the unsuitable person remuneration in any form; or (iv) makes
any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation, or similar
transaction.
The Company is required to maintain a current stock ledger in
Nevada which may be examined by the Nevada Commission at any time.
If any securities are held in trust by an agent or by a nominee,
the record holder may be required to disclose the identity of the
beneficial owner to the Nevada Commission. A failure to make such
disclosure may be grounds for finding the record holder
unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner.
The Nevada Commission has the power at any time to require the
Company's stock certificates to bear a legend indicating that the
securities are subject to the Nevada Gaming Control Act ("the
"Nevada Act") and the regulations of the Nevada Commission. To
date, the Nevada Commission has not imposed such a requirement.
The Company may not make a public offering of its securities
without the prior approval of the Nevada Commission if the
securities or proceeds therefrom are intended to be used to
construct, acquire or finance gaming facilities in Nevada, or
retire or extend obligations incurred for such purposes. Such
approval, if given, does not constitute a finding, recommendation,
or approval by the Nevada Commission or the Nevada Board as
<PAGE>
Item 1. Business (continued)
to the accuracy or adequacy of the prospectus or investment merits
of the securities. Any representation to the contrary is
unlawful. Changes in control of the Company through merger,
consolidation, acquisition of assets, management or consulting
agreements or any form of takeover cannot occur without the prior
investigation of the Control Board and approval of the Nevada
Commission. Entities seeking to acquire control of the Company
must satisfy the Nevada Board and Nevada Commission in a variety
of stringent standards prior to assuming control of the Company.
The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval
process relating to the transaction.
The Nevada legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting
securities and other corporate defense tactics that affect
corporate gaming licensees in Nevada, and corporations whose stock
is publicly-traded that are affiliated with those operations, may
be injurious to stable and productive corporate gaming. The
Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business
practices upon Nevada's gaming industry and to further Nevada's
policy to (i) assure the financial stability of corporate gaming
operators and their affiliates; (ii) preserve the beneficial
aspects of conducting business in the corporate form; and (iii)
promote a neutral environment for the orderly governance of
corporate affairs. Approvals are, in certain circumstances,
required from the Nevada Commission before the Company can make
exceptional repurchases of voting securities above the current
market price thereof and before a corporate acquisition opposed by
management can be consummated. Nevada's gaming laws and
regulations also require prior approval by the Nevada Commission
if the Company were to adopt a plan of recapitalization proposed
by the Company's Board of Directors in opposition to a tender
offer made directly to its stockholders for the purpose of
acquiring control of the Company.
Any person who is licensed, required to be licensed, registered,
required to be registered, or is under common control with such
persons (collectively, "Licensees"), and who proposes to become
involved in a gaming venture outside of Nevada is required to
deposit with the Control Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of
investigation by the Control Board of the licensee's participation
in foreign gaming. The revolving fund is subject to increase or
decrease at the discretion of the Nevada Commission. Thereafter,
Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. A licensee is also
subject to disciplinary action by the Nevada Commission if it
knowingly violates any laws of the foreign jurisdiction pertaining
to the foreign gaming operation, fails to conduct the foreign
gaming operation in accordance with the standards of honesty and
integrity required of Nevada gaming operations, engages in
activities that are harmful to the State of Nevada or its ability
to collect gaming taxes and fees, or employs a person in the
foreign operation who has been denied a license or finding of
suitability in Nevada on the grounds of personal unsuitability.
Other Jurisdictions
Many other jurisdictions in which the Company does business
require various licenses, permits, and approvals in connection
with the manufacture and/or the distribution of gaming devices,
and operation of progressive systems, typically involving
restrictions similar in most respects to those of Nevada.
Thus far the Company has never been denied any such necessary
governmental licenses, permits or approvals. No assurances, however,
can be given that such required licenses, permits or approvals will
be given or renewed in the future.
<PAGE>
Item 2. Properties
The Company owns two adjoining office buildings in Reno, Nevada
totaling 92,000 square feet. The Company occupies approximately
72,000 square feet for use primarily as its research and
development and corporate offices. The remaining square footage
is leased to third parties.
IGT leases approximately 839,000 square feet of office, warehouse
and production facility space in Reno, Nevada and approximately
150,000 square feet of office and warehouse space in Las Vegas,
Nevada.
In May 1994, the Company purchased approximately 78 acres in Reno,
Nevada and is in the process of building an approximate 915,000
square foot office, manufacturing and warehousing facility. The
Company anticipates that the new manufacturing and warehousing
facility will be completed in the second calendar quarter of 1996,
and that the office facility will be completed in late calendar
1996, absent unexpected delays. The Company's current Reno,
Nevada operations exist in 17 leased buildings and two Company
owned office buildings, totaling approximately 885,000 square
feet. The currently leased facilities have various lease
expiration dates through the year 2001. It is currently
anticipated that the Company will be able to sub-lease the leased
facilities and sell the two owned office buildings to third
parties.
Additionally, IGT leases approximately 91,000 square feet of
office and warehouse space in other Nevada locations and various
states within the United States where it conducts business
including Colorado, Florida, Louisiana, Mississippi, Missouri,
Montana and New Jersey.
IGT-Europe leases approximately 35,000 square feet of office and
warehouse space in Hoofddorp, Amsterdam, The Netherlands.
IGT-Australia owns a 303,800 square foot office production and
warehouse facility in Sydney, New South Wales, Australia.
Currently, IGT-Australia utilizes approximately 269,000 square
feet of this space and subleases the remainder of the facility.
In Wellington, New Zealand, IGT-Australia owns a 12,000 square
foot office and warehouse facility. Additionally, IGT-Australia
leases approximately 60,000 square feet of office and warehouse
space in various locations throughout New South Wales.
Item 3. Legal Proceedings
The Company has been named in and has brought lawsuits in the
normal course of business. Management does not expect the outcome
of these suits, including the lawsuit described below, to have a
material adverse effect on the Company's financial position or
results of future operations.
The Company is a defendant in three class action lawsuits, one filed
in the United States District Court of Nevada, Southern Division,
entitled Larry Schreier v. Caesar's World, Inc.,
et al., and two filed in the United States District Court of Florida,
Orlando Division, entitled Poulos v. Caesar's World, Inc., et al.,
and Ahern v. Caesar's World, Inc., et al., which have been consolidated
in a single action. Also named as defendants in these actions are
many, if not most, of the largest gaming companies in the United States,
and certain other gaming equipment manufacturers. Each complaint is
identical in its material allegations. The actions allege that the
defendants have engaged in fraudulent and misleading conduct by inducing
people to play video poker machines and electronic slot machines, based
on false beliefs concerning how the machines operate and the extent to
which there is actually an opportunity to win on a given play. The
complaints allege that the defendant's acts constitute violations of the
Racketeer Influenced and Corrupt Organizations Act ("RICO"), and also give
rise to claims for common law fraud and unjust enrichment, and it seeks
compensatory, special consequential, incidental and punitive damages
of several billion dollars.
In response to the complaints, all of the defentants, including the
Company, filed motions attacking the pleadings for failure to state a claim,
seeking to dismiss the complaints for lack of personal jurisdiction and
venue, and seeking to transfer venue of the actions to Las Vegas. The
Court has granted the defendants' motion to transfer venue of the action
to Las Vegas. Plaintiffs have responded to all motions, and have also
propounded discovery with respect to each defendant on jurisdiciton, venue,
and class issues. The Company expects that there will be further briefing
on the motions, and the Court has not indicated when it will rule on these
motions. Plaintiffs have also filed their motion to certify the class.
A representative group of the defendants took the deposition of each
plaintiff, and also obtained documents from the plaintiffs. It is not
known when the Court will rule on the class certification motions.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
<PAGE>
Part II
Item 5. Market For Registrant's Common Stock And Related
Stockholder Matters
The Company's common stock is listed on the New York Stock
Exchange under the symbol "IGT". Two-for-one stock splits of the
Company's common stock were effected on July 16, 1990, August 23,
1991, March 24, 1992 and March 17, 1993. The following table sets
forth the high and low sales prices of the common stock (adjusted
to reflect the above mentioned stock splits) on the NYSE composite
tape:
<TABLE>
<CAPTION>
Fiscal 1994 High Low
<S> <C> <C>
First Quarter $ 41-1/4 $ 28-1/4
Second Quarter 33-1/2 26-1/8
Third Quarter 28-1/4 17-1/4
Fourth Quarter 24-3/4 18-1/2
Fiscal 1995 High Low
First Quarter $ 20 7/8 $ 14 7/8
Second Quarter 15 3/4 12 1/2
Third Quarter 17 12 3/8
Fourth Quarter 15 7/8 13
</TABLE>
As of December 18, 1995 there were approximately 9,117 record
holders of the Company's common stock which had a closing price of
$11 on the same date.
The Company declared four quarterly dividends of $.03 per share in
both fiscal 1994 and fiscal 1995. It is anticipated that
comparable cash dividends will continue to be paid in the future.
The Company's transfer agent and registrar is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York 10004,
(212) 509-4000.
Item 6. Selected Financial Data
<TABLE>
The following information has been derived from the Company's
consolidated financial statements:
<CAPTION>
Years Ended September 30,
(Amounts in thousands, except per share data)
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Selected Income Statement Data
Total revenues $620,786 $674,461 $478,030 $363,594 $233,002
Income from continuing
operations $ 92,648 $140,447 $105,578 $ 63,284 $ 29,780
Income from discontinued
operations1 $ - $ - $ 13,447 $ 1,500 $ 450
Net income $ 92,648 $140,447 $119,025 $ 64,784 $ 30,230
Income per primary share from
continuing operations $ 0.71 $ 1.07 $ 0.85 $ 0.53 $ 0.26
Income per fully diluted
share from
continuing operations $ 0.71 $ 1.05 $ 0.80 $ 0.51 $ 0.26
Net income per primary share$ 0.71 $ 1.07 $ 0.96 $ 0.54 $ 0.26
Net income per fully
diluted share $ 0.71 $ 1.05 $ 0.90 $ 0.52 $ 0.26
Cash dividends declared
per common share $ 0.12 $ 0.12 $ 0.09 $ - $ -
Average primary common and
common equivalent shares
outstanding 131,094 131,380 123,618 120,081 116,818
Average common and common
equivalent shares
outstanding assuming
full dilution 131,094 135,858 136,611 135,448 117,491
Selected Balance Sheet Data
Working capital $508,917 $480,698 $379,680 $257,063 $184,092
Total assets $971,698 $868,008 $646,593 $489,973 $345,605
Convertible Subordinated
Notes Payable $ - $ - $ 59,998 $ 93,999 $ 92,536
Long-term notes payable
and capital lease
obligations $107,543 $111,468 $ 617 $ 19,965 $ 20,767
Stockholders' Equity $554,090 $520,868 $378,549 $214,062 $123,747
</TABLE>
1 Discontinued operations consist of casino operations which the
Company sold during fiscal 1993. See Note 13 to the Consolidated
Financial Statements for further discussion.
<PAGE>
Item 7. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
Results Of Operations
The Company operates principally in two lines of business: the
manufacture and sale of gaming products (product sales), and
gaming operations (proprietary systems and gaming equipment
leasing).
Fiscal 1995 Compared to Fiscal 1994
Net income for fiscal 1995 was $92.6 million or $.71 per fully
diluted share compared to fiscal 1994 net income of $140.4 million
or $1.05 per fully diluted share. This decline in net income
resulted from an 8% reduction in revenues, a 1% increase in total
costs and expenses and a one-time pre-tax charge of $14.6 million
related to the decline in value of the Company's investment in the
common stock of Radica Games Limited, ("Radica"). The Company
purchased approximately 11.2% of Radica for $5.9 million in cash
and 374,436 shares of the Company's common stock, representing a
total purchase price of $16.1 million, in fiscal 1994.
Revenues and Cost of Sales
The 8% decline in revenues resulted from a 19% reduction in
product sales partially offset by a 27% increase in gaming
operation revenues. The Company sold 74,000 gaming machines in
fiscal 1995 compared to 95,000 gaming machines in fiscal 1994.
The majority of this decline resulted from reduced sales to the
Mississippi, Louisiana and Missouri riverboat markets and the
Nevada casino market. During fiscal 1994, these markets accounted
for a greater number of high volume sales in conjunction with the
opening of a greater number of new casinos. Sales in the Native
American market also declined in fiscal 1995.
The Company anticipates that the slower growth of the U.S. market
experienced in fiscal 1995 will continue in the near future. This
decreased rate of growth may be offset, in part, by future growth
in international markets. The Company is pursuing international
opportunities in a variety of jurisdictions including
opportunities in South Africa, Asia and South America. The pace
of growth within domestic and international markets is, however,
outside the control of the Company and has been and continues to
be influenced by public opinion and the legal and electoral
processes. As a result, the Company cannot predict the rate at
which domestic and international markets will develop and any slow
down or delay in the growth of new markets will adversely affect
the Company's future results. Additionally, the Company
anticipates increased competition in the sales of gaming products
with the recent and anticipated future governmental licensing of
competitors.
The 27% increase in gaming operations revenue in fiscal 1995 was
due to a 31% increase in proprietary systems revenue. The systems
revenue increase resulted from both the introduction of new games
within existing markets and the addition of new markets. As of
September 30, 1995, there were approximately 8,700 linked
progressive gaming machines operating on 36 IGT systems in nine
jurisdictions compared to approximately 7,400 such machines
operating at September 30, 1994. The increase in gaming
operations revenue was partially offset by a 6% decline in leasing
revenues. The Company anticipates that additional markets will
continue to be approved for linked progressive games within the
United States and internationally during fiscal 1996 and 1997.
However, the Company has also experienced increased competition in
the proprietary systems business.
The gross margin on product sales declined to 44% in fiscal 1995
compared to 47.2% in fiscal 1994. This reduction is primarily
attributable to higher unit costs associated with lower production
levels for the units sold during the first three quarters of the
fiscal year. The gross margin in the fourth quarter improved to
45.8% compared to 43.3% for the first three quarters of fiscal
1995 reflecting improved operating efficiencies at lower
production levels. The gross margin on gaming operations declined
from 55.9% in fiscal 1994 to 52.4% in fiscal 1995 as a result of
higher cost of interest sensitive annuities the Company purchases
to fund jackpot payments.
<PAGE>
Item 7. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations, (continued)
Expenses
Selling, general and administrative expenses were $88.6 million
for fiscal 1995, an increase of 5.6% or $4.7 million compared to
the prior year. This increase is attributable to greater
personnel and administrative costs throughout the Company.
Depreciation and amortization expense was $27.9 million during
fiscal 1995, an increase of 39.0% or $7.8 million compared to the
prior year. This increase is due to depreciable asset additions
during the year and the acceleration of depreciation on existing
leasehold improvements in response to the construction of a new
manufacturing and office facility in Reno (See Note 17 to the
Consolidated Financial Statements). The asset additions primarily
included linked progressive systems games in conjunction with the
expansion of the Company's systems business, manufacturing,
administrative and engineering equipment and a new manufacturing
and office facility in Australia, which replaced a leased
facility.
Engineering expenses were $28.5 million for fiscal 1995, an
increase of 22% or $5.1 million compared to the prior year. This
increase is a result of additional engineering personnel utilized
in the development of new gaming and systems products. The
development of new gaming products and systems has been and
remains an important part of the Company's long-term strategic
plan and the Company expects to continue to devote substantial
resources to research and development.
The provision for bad debts was $5.9 million for fiscal 1995, a
decline of 18.4% or $1.3 million compared to the prior fiscal
year. This reduction reflects the 19% decline in product sales
during fiscal 1995 and a 12.9% decline in receivables from
September 30, 1994.
Other Income and Expense
Interest income was $37.6 million for fiscal 1995, an increase of
$8.0 million compared to fiscal 1994. This increase primarily
resulted from the growth in progressive systems play which
provides funds to the Company to pay future jackpot payments along
with higher average interest rates earned on such funds. These
funds are invested in income-providing investments until the
amounts are paid out. Additionally, interest income earned on the
Company's notes and contracts receivable increased due to higher
balances during fiscal 1995 compared to fiscal 1994.
Interest expense was $20.4 million for fiscal 1995, an increase of
$8.6 million compared to fiscal 1994. This increase was primarily
due to the private placement of $100.0 million of 7.84% Senior
Notes in September 1994, (see Note 12 to the Consolidated
Financial Statements), and increased interest associated with the
growth in jackpot liabilities. These increases were partially
offset by the May 1994 conversion of the interest bearing
Convertible Subordinated Notes into common stock.
The net gain (loss) on securities resulted in a loss of $12.0
million in fiscal 1995 compared to a gain of $935,000 in fiscal
1994. In the fourth quarter of fiscal 1995, the Company wrote
down its investment in 2.1 million common shares of Radica to
market value resulting in a $14.6 million charge to pre-tax
income. Based on Radica's financial results for their quarter
ended July 31, 1995, the Company deemed the decline in Radica's
stock price was other than temporary. Radica realized its second
consecutive and largest quarterly loss of $.08 per share for the
quarter ended July 31, 1995. This write down was partially offset
by net gains on the sale of other securities from the Company's
investment portfolio.
<PAGE>
Item 7. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations, (continued)
Business Segments Operating Profit (see Note 2 of Notes to
Consolidated Financial Statements)
Manufacturing and gaming operations operating profit reflects an
allocation of a portion of selling, general, and administrative
and engineering expenses to each of these business segments.
Manufacturing operating profit declined 35% or $60.1 million in
fiscal 1995 compared to fiscal 1994 primarily as a result of a 19%
decline in product sales and a reduction in the gross profit
margin to 44% in fiscal 1995 from 47.2% in fiscal 1994.
Gaming operations operating profit increased 19% or $9.2 million
in fiscal 1995. This improvement resulted from a 27% increase in
gaming operations revenues due to the growth of proprietary
systems revenue in existing and new markets. Partially offsetting
this increase was a lower gross margin on gaming operations and
increased depreciation expense due to the increase in gaming
machines utilized on the linked progressive systems. The lower
gross margin was a result of the higher cost of interest sensitive
annuities purchased to fund the jackpot payments.
Foreign Operations
Approximately 18% of the Company's revenues in fiscal 1995 were
derived outside of the United States. International operations
are subject to certain risks, including but not limited to,
unexpected changes in regulatory requirements, fluctuations in
exchange rates, tariffs and other barriers, and political and
economic instability. There can be no assurance that these
factors will not have an adverse impact on the Company's future
sales or operating results. To date, the Company has not
experienced significant translation or transaction losses related
to foreign exchange fluctuations due to the limited size of its
foreign operations. As the Company continues to expand its
international operations, exposures to gains and losses on foreign
currency transactions may increase. The Company has not yet
engaged, but may in the future engage, in currency hedging
transactions intended to reduce the effect of fluctuations in
foreign currency exchange rates.
Fiscal 1994 Compared to Fiscal 1993
Net income from continuing operations for fiscal 1994 was $140.4
million (or $1.05 per fully diluted share), an increase of $34.9
million or 33% over fiscal 1993. Total revenues in fiscal 1994
were $674.5 million, an increase of 41% over the $478.0 million of
the prior year. The growth in revenues and net income from
continuing operations resulted from increases in product sales and
game operations revenues.
Revenues and Cost of Sales
The 41% increase in revenues included an increase in product sales
revenues of 53% or $178.5 million and an increase in gaming
operations revenue of 13% or $18.0 million. Gaming machine
shipments totaled 95,000 units in fiscal 1994 compared to 69,000
units in fiscal 1993. This growth resulted from increased product
demand in the mid-western riverboat and Nevada markets. Large
sales were made to new riverboat casino properties opening in
Mississippi, Louisiana and Missouri. In Southern Nevada, sales
increased due to the opening of new casino properties and the
replacement of older machines at existing properties. During
fiscal 1994, no sales were made to the Japanese market.
The increase in gaming operations revenues resulted from an 18%
improvement in proprietary systems revenue due primarily to the
expansion of the Mississippi and Colorado systems. Offsetting
this increase, lease revenues declined 25% as lessees exercised
options to purchase gaming equipment, the closure of certain
casinos in Colorado and the Company's sale of its Nevada route
operation in November 1992.
<PAGE>
Item 7. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations, (continued)
The gross margin on product sales declined to 47.2% in fiscal 1994
compared to 50.2% in fiscal 1993. This decline resulted primarily
from increased sales of gaming machines with imbedded bill
validators, which have lower gross profit margins, an increase in
inventory obsolescence expense resulting from the introduction of
new product lines in fiscal 1994, and to a lesser extent, an
increase in large sales where the Company grants larger discounts.
Expenses
Gaming operations expenses increased 13% or $8.0 million to $70.7
million in fiscal 1994 compared to the prior year. This increase
was due to a 16% increase in proprietary systems costs primarily
reflecting the growth in jackpot expense associated with the 18%
increase in systems revenue. In addition, the development and
start up costs of new systems and the upgrading of existing
systems games contributed to this expense increase in fiscal 1994.
Gaming operations expenses will continue to increase as revenues
increase and new systems are installed.
Selling general and administrative expense increased 46% or $26.3
million to $83.9 million in fiscal 1994 compared to the prior
year. This increase primarily reflects additional employees hired
during the year in staff positions to improve the Company's
administrative systems, to support the Company's higher level of
revenues, develop new markets and expand the Company into a
multinational corporation. Additionally, outside professional
services costs increased in fiscal 1994 primarily as a result of
increased legal fees in commencing operations in new countries and
protecting patents. The Company believes that its expanded staff
and increased outside professional fees will need to be maintained
to support the Company's operations and continuing efforts to
identify and take advantage of new markets.
Depreciation and amortization expense decreased 1% in fiscal 1994
with increased proprietary systems, manufacturing and
administration equipment depreciation offset by reduced
depreciation of leased gaming machines (see above description of
the decline in lease revenues).
Engineering expense increased 41% or $6.8 million to $23.3 million
in fiscal 1994, due to the addition of engineering personnel to
support the development of new gaming products and systems to meet
the needs of developing gaming markets. In fiscal 1994, the
Company introduced the "Winners Choice" product line for both the
casino and video lottery markets.
The provision for bad debts increased 89% or $3.8 million to $7.2
million in fiscal 1994 reflecting a 44% increase in receivables
and increased sales to developing markets.
Other income and expense
Interest income increased 12% or $3.2 million to $29.5 million in
fiscal 1994. This increase is primarily attributable to the above
mentioned increase in systems play resulting in increased income
producing investments to fund future jackpot payments. In
addition, increased interest income was earned on the Company's
increased balance of notes and contracts receivable. Partially
offsetting these increases, interest income on investments
declined with the use of funds to repurchase shares of Company
common stock. (See Liquidity and Capital Resources).
Interest expense declined 7% or $1.0 million to $11.8 million
during fiscal 1994 compared to the prior year as a result of the
conversion from October 1993 through May 1994 of all then
outstanding Convertible Subordinated Notes into Common Stock of
the Company. This decline was partially offset by the increase in
systems play and associated growth in proprietary systems
jackpots. Interest expense increases as the level of jackpot
liabilities increases.
<PAGE>
Item 7. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations, (continued)
In fiscal 1993, the Company recorded a gain of $10.1 million on
the sale of securities held by the Company and, to a lesser
extent, the sale of the Megapoker route (see Note 15 of the Notes
to the Consolidated Financial Statements). In fiscal 1994, gains
on the sale of securities held by the Company were offset by
unrealized losses on other securities.
Business Segments Operating Profit (see Note 2 of Notes to
Consolidated Financial Statements)
Manufacturing and gaming operations operating profit reflects an
allocation of a portion of selling, general, and administrative
and engineering expenses to each of these business segments.
Manufacturing operating profit increased 37% or $46.2 million in
fiscal 1994 compared to fiscal 1993. This increase resulted
primarily from increased product sales, partially offset by the
decline of the gross profit margin on product sales and increased
bad debt expense relating to product sales.
Gaming operations operating profit increased 18% or $7.3 million
in fiscal 1994 compared to the prior year. This increase resulted
primarily from an increase in game operations revenues, reduced
depreciation expense and increased interest income partially
offset by increased interest expense. Depreciation expense
declined due to a reduction in the number of Company owned leased
machines at customer locations. The increase in progressive
systems play resulted in both increased interest income from
investments to fund future jackpot payments and increased interest
expense from liabilities to jackpot winners.
Discontinued Operations
During fiscal 1993, the Company divested its investments in casino
operations through the sale of its interest in PRC and the sale of
CMS. The sale was part of the Company's strategy to focus on its
core businesses of manufacturing machines and the development of
proprietary systems software.
In December 1992 the Company sold its interest in PRC for $28.7
million, recognizing a gain of $23.6 million. The net gain on the
discontinued riverboat operation after including fiscal 1993
income from operations and after deducting the effective income
taxes was $14.3 million. In September 1993 the Company sold its
ownership interest in CMS for $3.0 million recognizing a pre-tax
loss of $2.0 million. The net loss on the discontinued CMS
operation after including fiscal 1993 income from operations and
after adding back the effective income tax benefit was $811,000.
Liquidity And Capital Resources - Fiscal 1995
Working Capital
Working capital increased $28.2 million during fiscal 1995 to
$508.9 million at September 30, 1995. This increase was primarily
the result of a $98.9 million increase in cash and cash
equivalents. This increase was partially offset by a $30.2
million decline in inventories, a $16.6 million reduction in
accounts receivable, a $12.5 million reduction in investment
securities and a $8.0 million increase in accounts payable.
The increase in cash and cash equivalents resulted from cash
provided by operating activities of $153.4 million, cash used in
investing activities of $56.9 million and cash provided by
financing activities of $2.9 million. The $30.2 million or 29.0%
decline in inventories consisted of a decline in raw materials of
$20.0 million or 33.3% and a decline in finished goods of $11.4
million or 28.0%. These reductions were the result of lower
product unit sales and improved inventory management. The $16.6
million reduction in accounts receivable also reflects the
decline in product sales. The $8.0 million increase in accounts
payable is the result of accrued
<PAGE>
Item 7. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations, (continued)
construction costs on the Company's new Reno, Nevada manufacturing
facility upon which significant construction commenced during
fiscal 1995 and increased accrued inventory purchases related to a
new Australian product line. The $12.5 million decline in
investment securities reflects the Company's decision to invest a
greater percentage of its investment securities in cash equivalent
instruments.
Cash Flow
During fiscal 1995, the Company's cash and cash equivalents
increased $98.9 million to $241.6 million. Cash provided by (used
in) operating activities for the years ended September 30, 1995,
1994 and 1993 totaled $153.4 million, ($.5) million and $46.4
million, respectively. In fiscal 1995, cash provided by operating
activities was increased by reductions in receivables and
inventories and decreased by reductions in accrued and deferred
income taxes. During fiscal 1994 and 1993, cash provided by (used
in) operating activities was reduced by increases in receivables
and inventories.
The Company's primary investing activities included the purchase
of investments to fund liabilities to jackpot winners and the
purchase of property, plant and equipment. Purchases of property,
plant and equipment totaled $43.5 million, $56.8 million, $48.0
million and $36.2 million $33.5 million in fiscal 1995, 1994, 1993
and 19931992, respectively. In fiscal 1995, these purchases
consisted primarily of costs associated with construction of the
Company's manufacturing facility. In fiscal 1994, the Company
purchased a manufacturing and office facility in Sydney, Australia
for approximately $13.0 million and a 78-acre site in Reno, Nevada
for the Company's facilities expansion for approximately $6.0
million. Additionally, purchases of office furniture and computer
equipment to support the Company's expansion contributed to cash
used in investing activities each year. In addition, in fiscal
1993, the Company acquired two office buildings for $5.2 million
and a $10.0 million aircraft for regional and international travel
needs. The Company is currently building a headquarters and
manufacturing facility on the above mentioned 78-acre site with an
estimated construction cost of $82.4 million (see Note 17 to the
Consolidated Financial Statements). The Company anticipates that
the manufacturing facility will be completed in the second
calendar quarter of 1996 and that the headquarters will be
completed in late calendar 1996, absent unexpected delays. The
funds for the construction of this facility as well as the other
capital expenditures anticipated during fiscal 1996 will be
derived from the Company's existing cash flow and the proceeds
received from the September 1994 private placement of Senior
Notes.
The primary source of cash from financing activities included
$92.6 million, $62.8 million and $48.0 million in proceeds from
systems to fund liabilities to jackpot winners for the years ended
September 30, 1995, 1994 and 1993, respectively, and in fiscal
1994, $112.9 million in proceeds received from long-term debt
borrowings. The long-term debt proceeds included a $100.0 million
private placement of Senior Notes (see Note 12 to the Consolidated
Financial Statements) and proceeds from bank borrowings of $13.0
million ($18.0 million Australian). Financing activities
offsetting these increases were the repurchase of $56.1 and $57.1
million of the Company's common stock in fiscal 1995 and 1994,
respectively, and the payment of cash dividends. Cash dividends
were paid in 1995, 1994 and 1993 totaling $15.6 million, $15.5
million and $7.4 million, respectively.
Stock Repurchase Plan
On October 3, 1989, the Board of Directors authorized the
repurchase of up to 10% of the Company's then outstanding shares.
Pursuant to such Board action, a total of 8,338,904 shares (as
adjusted for the two-for-one stock splits effective July 16, 1990,
August 23, 1991, March 24, 1992, and March 17, 1993) had been
repurchased as of September 30, 1990. On October 4, 1990, the
Board reaffirmed this authorization and authorized a further
repurchase of 12.0 million shares to a total of 23.6 million
shares. During the three years
<PAGE>
Item 7. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations, (continued)
ended September 30, 1993, the Company repurchased an additional
2,768,876 shares for an aggregate purchase price of $8,895,000.
During the fiscal years ended September 30, 1994 and 1995, the
Company repurchased 2,941,400 shares for an aggregate purchase
price of $57,100,000 and 4,169,400 shares for an aggregate
purchase price of $56,121,219, respectively.
Recently Issued Accounting Standards
The Financial Accounting Standards Board ("FASB") issued SFAS No.
121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" in March 1995. This
statement, effective for the Company's fiscal year ended September
30, 1997, requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Management believes that if SFAS No. 121 had been adopted at
September 30, 1995, it would not have had a significant effect on
the financial position or results of operations of the Company.
The FASB issued SFAS No. 123 "Accounting for Awards of Stock-Based
Compensation to Employees" in October, 1995. This statement,
effective for the Company's fiscal year ended September 30, 1997,
requires certain disclosures about the impact on results of
operations of the fair value of stock-based employee compensation
arrangements. Management believes that if SFAS No. 123 had been
adopted at September 30, 1995, it would not have had a significant
effect on the financial position or results of operations of the
Company.
Reclassifications
Certain amounts in the 1994 and 1993 consolidated financial
statements have been reclassified to be consistent with the
presentation used in fiscal year 1995.
Lines of Credit
As of September 30, 1995, 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 September 30, 1995, $47.9
million was available under this line of credit.
IGT-Australia had a $4,440,000 (Australian) bank line of credit
available as of September 30, 1995. Interest is paid at the lender's
reference rate plus 1%. This line is supported by a comfort letter
from the Company, and has a provision for review and renewal annually
in January. At September 30, 1995, 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 and
its Senior Notes which, among other things, limit financial
commitments the Company may make without the written consent of
the lenders and require the maintenance of certain financial
ratios, minimum working capital and net worth of the Company.
Impact of Inflation
Inflation has not had a significant effect on the Company's
operations during the three fiscal years in the period ended
September 30, 1995.
<PAGE>
Item 8. Consolidated Financial Statements And Supplementary Data
Index to Financial Statements Page
Independent Auditors' Report 34
Consolidated Statements of Income for the
years ended September 30, 1995, 1994 and 1993 35
Consolidated Balance Sheets,
September 30, 1995 and 1994 37
Consolidated Statements of Cash Flows for the
years ended September 30, 1995, 1994 and 1993 39
Consolidated Statements of Changes in Stockholders'
Equity for the years ended September 30, 1995, 1994 and 1993 41
Notes to Consolidated Financial Statements 42
Independent Auditors' Report
<PAGE>
To the Stockholders and Board of Directors
of International Game Technology:
We have audited the accompanying consolidated balance sheets of
International Game Technology and Subsidiaries as of September 30,
1995 and 1994, and the related consolidated statements of income,
cash flows and changes in stockholders' equity for each of the
three years in the period ended September 30, 1995. Our audits
also included the consolidated financial statement schedule listed
in the Index at Item 14(a)(2). These financial statements and
financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion
on the financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
International Game Technology and Subsidiaries as of September 30,
1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended September
30, 1995 in conformity with generally accepted accounting
principles. Also, in our opinion, such consolidated financial
statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Reno, Nevada
November 3, 1995
<PAGE>
<TABLE>
International Game Technology and Subsidiaries
Consolidated Statements Of Income
<CAPTION>
Years Ended September 30,
(Dollars in thousands except per share amounts)
1995 1994 1993
<S> <C> <C> <C>
Revenues
Product sales $416,424 $514,121 $335,641
Gaming operations 204,362 160,340 142,389
Total revenues (including
related party transactions
of $27,080, $36,845,
and $15,589) 620,786 674,461 478,030
Costs and Expenses
Cost of product sales 233,367 271,374 167,017
Gaming operations 97,263 70,692 62,715
Selling, general and
administrative 88,551 83,871 57,526
Depreciation and amortization 27,896 20,074 20,196
Research and development 28,491 23,345 16,523
Provision for bad debts 5,877 7,199 3,815
Total costs and expenses 481,445 476,555 327,792
Income from Operations 139,341 197,906 150,238
Other Income (Expense)
Interest income 37,575 29,531 26,283
Interest expense (20,374) (11,794) (12,749)
Gain (loss) on securities, net (12,033) 935 9,505
Gain (loss) on the sale of assets 83 (797) 585
Other 172 (1,021) 282
Other income, net 5,423 16,854 23,906
Income from Continuing Operations
Before Income Taxes 144,764 214,760 174,144
Provision for Income Taxes 52,116 74,313 68,566
Income from Continuing Operations 92,648 140,447 105,578
Discontinued Operations
Income from operations, net
of taxes of $257 - - 705
Gain on disposition, net of
taxes of $8,888 - - 12,742
Income from discontinued operations - - 13,447
Net Income $ 92,648 $140,447 $119,025
</TABLE>
<PAGE>
<TABLE>
International Game Technology and Subsidiaries
Consolidated Statements of Income (continued)
<CAPTION>
Years Ended September 30,
(Dollars in thousands except per
share amounts) 1995 1994 1993
<S> <C> <C> <C>
Primary Earnings Per Share
Income from continuing operations $ 0.71 $ 1.07 $ 0.85
Income from discontinued operations - - 0.11
Net Income $ 0.71 $ 1.07 $ 0.96
Fully Diluted Earnings Per Share
Income from continuing operations $ 0.71 $ 1.05 $ 0.80
Income from discontinued operations - - 0.10
Net Income $ 0.71 $ 1.05 $ 0.90
Weighted Average Common and Common
Equivalent Shares Outstanding 131,093,571 131,380,236 123,617,815
Weighted Average Common Shares
Outstanding
Assuming Full Dilution 131,093,571 135,857,506 136,610,507
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
International Game Technology and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
September 30,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $241,613 $142,730
Investment securities, at market value 47,813 60,320
Accounts receivable (including $837
and $5,557 due from related parties),
net of allowances for doubtful
accounts of $5,182 and $3,956 113,196 129,796
Current maturities of long-term notes
and contracts receivable (including
$8,744 and $5,244 due from related
parties), net of allowances 80,271 81,007
Inventories, net of allowances for
obsolescence of $14,902 and $13,864:
Raw materials 39,526 59,498
Work-in-process 4,836 3,604
Finished goods 29,463 40,908
Total inventories 73,825 104,010
Deferred income taxes 25,336 19,615
Investments to fund liabilities to
jackpot winners 19,465 15,105
Prepaid expenses and other 5,117 6,507
Total current assets 606,636 559,090
Long-Term Notes and Contracts Receivable
(including $2,801 and $9 due from
related parties), net of allowances
and current maturities 43,511 61,212
Property, Plant and Equipment, at cost:
Land 13,910 13,691
Buildings 14,270 13,344
Gaming operations equipment 68,096 60,785
Manufacturing machinery and equipment 62,454 59,227
Leasehold improvements 12,362 9,393
Construction in progress 23,999 -
Total 195,091 156,440
Less accumulated depreciation and
amortization (75,793) (59,195)
Property, plant and equipment, net 119,298 97,245
Investments to Fund Liabilities to
Jackpot Winners 167,398 131,036
Deferred Income Taxes 27,735 1,805
Other Assets 7,120 17,620
Total Assets $971,698 $868,008
</TABLE>
(continued)
<PAGE>
International Game Technology and Subsidiaries
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
September 30,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term notes
payable and capital lease obligations $7,385 $2,613
Accounts payable 28,862 20,890
Jackpot liabilities 25,072 18,562
Accrued employee benefit plan liabilities 11,302 17,509
Accrued dividends payable 3,866 3,971
Accrued vacation liability 5,664 4,542
Other accrued liabilities 15,568 10,305
Total current liabilities 97,719 78,392
Long-Term Notes Payable and Capital
Lease Obligations, Net of Current Maturities 107,543 111,468
Long-Term Jackpot Liabilities 212,341 146,640
Deferred Income Taxes - 10,618
Other Liabilities 5 22
Total liabilities 417,608 347,140
Commitments And Contingencies
Stockholders' Equity:
Common stock, $.000625 par value;
320,000,000 shares authorized;
150,118,534 and 149,465,774
shares issued 94 93
Additional paid-in capital 231,338 226,712
Retained earnings 463,039 385,511
Treasury stock; 21,268,046 and
17,098,646 shares, at cost (143,281) (87,160)
Net unrealized gain (loss) on
investment securities 2,900 (4,288)
Total stockholders' equity 554,090 520,868
Total Liabilities and Stockholders' Equity $971,698 $868,008
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
International Game Technology and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended September 30,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $92,648 $140,447 $119,025
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 27,896 20,074 20,196
Amortization of long-term debt
discount and offering costs - 545 1,517
Provision for bad debts 5,877 7,199 3,815
Provision for inventory obsolescence 9,347 8,668 981
(Gain) loss on sale of assets 11,950 (138) (10,090)
Gain on sale of discontinued
operations - - (12,742)
Donated common stock - 500 250
(Increase) decrease in assets:
Receivables 29,929 (89,605) (65,531)
Inventories 9,950 (52,157) (24,448)
Prepaid expenses and other (3,050) (2,688) (11,644)
Other assets (11,477) (8,561) 4,082
Increase (decrease) in liabilities:
Accounts payable and accrued
liabilities 7,992 (3,493) 7,918
Accrued and deferred income
taxes payable, net of tax
benefit of stock option and
purchase plans (27,007) (21,949) 12,862
Other (699) 615 245
Total adjustments 60,708 (140,990) (72,589)
Net cash provided by
(used in) operating activities 153,356 (543) 46,436
</TABLE>
(continued)
<PAGE>
International Game Technology and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Years Ended September 30,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Cash Flows from Investing Activities
Investment in property, plant
and equipment (43,537) (56,839) (36,159)
Proceeds from sale of property,
plant and equipment 6,806 6,334 9,206
Purchase of investment securities (13,861) (114,265) (154,515)
Proceeds from sale of investment
securities 34,385 186,868 110,460
Proceeds from investments to fund
liabilities to jackpot winners 20,353 15,932 11,139
Purchase of investments to fund
liabilities to jackpot winners (61,075) (70,025) (46,262)
Investment in and advances to
unconsolidated affiliates - - 29,749
Net cash used in investing
activities (56,929) (31,995) (76,382)
Cash Flows from Financing Activities
Principal payments on debt (458) (523) (796)
Payments on jackpot liabilities (20,353) (15,932) (11,139)
Collections from systems to fund
jackpot liabilities 92,564 62,776 48,003
Proceeds from stock options
exercised 1,920 1,261 3,514
Proceeds from employee stock
purchases 958 1,035 869
Payments for purchase of treasury
stock (56,121) (57,097) -
Payments of cash dividends (15,631) (15,495) (7,351)
Proceeds from long-term debt - 112,904 -
Net cash provided by financing
activities 2,879 88,929 33,100
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (423) 993 (846)
Net Cash Provided by Continuing
Operations 98,883 57,384 2,308
Net Cash Provided by Discontinued
Operations - - 13,879
Net Increase in Cash and Cash
Equivalents 98,883 57,384 16,187
Cash and Cash Equivalents at
Beginning of Year 142,730 85,346 69,159
Cash and Cash Equivalents at
End of Year $241,613 $142,730 $ 85,346
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
International Game Technology and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Years Ended September 30,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Common Stock
Balance at beginning of year
Shares: 130,602 in 1993, 138,939
in 1994 and 149,466 in 1995 $93 $87 $82
Stock options exercised
Shares: 2,731 in 1993, 758 in
1994 and 573 in 1995 1 - 2
Conversion of subordinated notes
Shares: 5,527 in 1993 and
9,339 in 1994 - 6 3
Balance at end of year
Shares: 150,119 in 1995 $94 $93 $87
Additional Paid-In Capital
Balance at beginning of year $226,712 $146,869 $85,584
Stock options exercised 2,877 4,826 8,387
Tax benefit of stock options 1,749 5,131 18,137
Donated stock - 500 250
Conversion of subordinated notes - 59,136 34,511
Purchase of Radica interest - 10,250 -
Balance at end of year $231,338 $226,712 $146,869
Retained Earnings
Balance at beginning of year $385,511 $259,125 $151,922
Currency translation adjustments 769 1,659 (727)
Dividends declared (15,889) (15,720) (11,095)
Net income 92,648 140,447 119,025
Balance at end of year $463,039 $385,511 $259,125
Treasury Stock
Balance at beginning of year ($87,160) ($27,532) ($23,526)
Purchase of treasury stock (56,121) (59,628) (4,006)
Balance at end of year ($143,281) ($87,160) ($27,532)
Net Unrealized Gain (Loss) on
Investment Securities
Balance at beginning of year ($4,288) $ - $ -
Net unrealized loss on
investment securities at
October 1, 1994 (649) - -
Net unrealized gain (loss) on
investment securities 1,808 (4,288) -
Recognized loss on investment
security 6,029 - -
Balance at end of year $2,900 ($4,288) $ -
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Notes To Consolidated Financial Statements
1. Organization and Summary of Significant Accounting Policies
Organization
International Game Technology (the "Company") was incorporated in
December 1980 to acquire the gaming licensee and operating entity,
IGT, and facilitate the Company's initial public offering. In
addition to its 100% ownership of IGT, each of the following
corporations is a direct or indirect wholly-owned subsidiary of
the Company: I.G.T.-Australia, Pty. Ltd. ("IGT-Australia"); IGT-
Europe b.v. ("IGT-Europe"); IGT-Iceland Ltd. ("IGT-Iceland"); IGT-
Japan k.k. ("IGT-Japan"); I.G.T.-Argentina S.A. ("IGT-Argentina");
IGT-do Brazil Ltda. ("IGT-Brazil"); and International Game
Technology-Africa (Pty) Ltd. ("IGT-Africa").
IGT is the largest manufacturer of computerized casino gaming
products and proprietary gaming 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, as well as wide area progressive systems.
In addition to gaming product sales and leases, the Company has
developed and sells computerized linked proprietary systems to
monitor lottery video gaming terminals and has developed
specialized lottery video gaming terminals for lotteries and other
applications. 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-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 Northern 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.
IGT-Argentina was established in December 1993 and opened an
office in Buenos Aires, Argentina to distribute and market gaming
products in Argentina and Peru.
IGT-Brazil opened an office Sao Paulo, Brazil in October 1994 and
subsequently was incorporated in March 1995 to distribute and
market gaming products in Brazil.
IGT-Africa opened an office in September 1994 in Johannesburg
South Africa and subsequently was incorporated in October 1995 to
distribute and market gaming products in Southern Africa.
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.
<PAGE>
Notes To Consolidated Financial Statements, (continued)
Discontinued Operations
During fiscal 1993, the Company divested its investments in casino
operations through the sale of its interest in the President
Riverboat Casinos, Inc. ("PRC") and CMS-International ("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 13 of Notes 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 its majority owned subsidiaries. All material
intercompany accounts and transactions have been eliminated. The
disposal of interests in riverboat partnerships and CMS
(collectively, "casino operations") has been accounted for as
discontinued operations. Accordingly, operating results and cash
flows of casino operations are segregated and reported as
discontinued operations in the accompanying consolidated
statements of income and cash flows.
Product Sales
The Company makes product sales for cash, on normal credit terms
(90 days or less), over longer term installments, and through
participation in the net winnings of the machines until the
purchase price is paid. Generally, sales are recorded when the
products are shipped and title passes to the customer.
Gaming Operations
Gaming operations revenues consist of revenues relating to the
operations of the proprietary systems division, a share of the net
gaming winnings from the operation of machines at customer
locations, and the lease and rental of gaming and video lottery
machines. Revenue from systems products installed in New Jersey
casinos is not recognized until receipt is assured.
The Company's linked proprietary systems are operated in Colorado,
Louisiana, Mississippi, Nevada, New Jersey, South Dakota and in
Native American casinos and internationally in Iceland and Macau.
In Atlantic City, each system is operated by an independent trust
managed by representatives from the participating casinos. The
trust records a liability to the Company for annual casino fees as
well as machine rental fees. Payments to jackpot winners are made
by the trust.
<PAGE>
Notes To Consolidated Financial Statements, (continued)
In Louisiana, Mississippi, Nevada, South Dakota and the Native
American casinos, the systems are operated by the Company and the
casinos pay a percentage of play to the Company. In Colorado, the
Company operates the systems and charges the casinos a machine
rental and service fee. The Company recognizes the amounts
received from the casinos as revenue. In these jurisdictions, the
jackpots resulting from progressive system play are a legal
liability of the Company under the systems operating agreements.
The jackpots are paid in equal installments without interest over
a ten to twenty-five year period. The Company records the cost of
investments to fund the annual jackpot payments to winners as a
part of gaming operations expense. These costs totaled $88.8
million, $66.7 million, and $61.1 million during the years ended
September 30, 1995, 1994, and 1993, respectively.
In Macau and Iceland, the Company receives a percentage of the net
win.
Jackpot liabilities in the amount of the present value of the
jackpots are recorded concurrently with the recognition of the
related revenue. Jackpot liabilities include jackpots won and
amounts accrued for jackpots not yet won that are contractual
obligations of the Company. At September 30, 1995 and 1994, the
Company had accrued, net of unamortized discounts, approximately
$237.4 million and $165.2 million respectively, for outstanding
progressive jackpot liabilities. At September 30, 1995 and 1994,
the unamortized discount on such liabilities totaled $137.7
million and $111.5 million, respectively. The Company amortizes
the discounts on the liabilities, recognizing it as interest
expense, and records commensurate interest income on the
investments purchased to fund the payments to the jackpot winners.
During fiscal 1995, 1994 and 1993, the Company recorded interest
expense on jackpot liabilities of $12.1 million, $8.4 million and
$5.9 million, respectively. The Company is required to maintain
cash and investments relating to systems liabilities in separate
accounts.
<TABLE>
<CAPTION>
The following table shows the revenues recorded from gaming
operations.
Years Ended September 30,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Proprietary Systems $191,607 $146,800 $124,275
Lease Operations 12,755 13,540 18,114
Total $204,362 $160,340 $142,389
</TABLE>
Research and Development
Research and development costs are expensed as incurred.
Cash and Cash Equivalents
This includes cash required for funding current systems jackpot
payments as well as purchasing investments to meet obligations for
making payments to jackpot winners. Cash in excess of daily
requirements is generally invested in various marketable
securities. If these securities have original maturities of three
months or less they are considered cash equivalents. Such
investments are stated at cost, which approximates market, and are
deemed to be cash equivalents for purposes of the consolidated
statements of cash flows.
Investment Securities
Effective October 1, 1994, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Under SFAS
No. 115, the Company's investment securities have been classified
as "available-for-sale" and stated at market value, with
unrealized gains and losses, net of income tax effects, excluded
from income and reported in a separate component of stockholders'
equity for fiscal 1995. Market value is determined by the most
recently traded price of the security at the balance sheet date.
Net realized gains or losses are determined on the specific
identification cost method.
<PAGE>
Notes To Consolidated Financial Statements, (continued)
The adoption of SFAS No. 115 did not have a material effect on the
Company's financial position or results of operations. Investment
securities at September 30, 1994 were carried at the aggregate lower
of cost or market.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Depreciation and Amortization
Depreciation and amortization are provided on the straight-line
method over the following useful lives:
Gaming operations equipment 1 to 5 years
Manufacturing machinery and
equipment 3 to 5 years
Buildings 40 years
Leasehold improvements Term of Lease
Building under capital lease Term of Lease
Maintenance and repairs are expensed as incurred. The costs of
improvements are capitalized. Gains or losses on the disposition
of assets are included in income.
Investments to Fund Liabilities to Jackpot Winners
These investments represent discounted U.S. Treasury Securities
purchased to meet obligations for making payments to linked
progressive systems jackpot winners. The Company has both the
intent and ability to hold these investments to maturity and,
therefore, has classified them as held-to-maturity under the
provisions of SFAS No. 115. Accordingly, these investments are
stated at cost, adjusted for amortization of premiums and
accretion of discounts over the term of the security using the
interest method. There were no gross unrealized losses or gains
at September 30, 1995. Securities in this portfolio have maturity
dates through 2014.
Other Assets
Other assets include the Company's investment in Radica Games
Limited ("Radica"), a manufacturer of non-gambling casino theme
games, debt issue and placement costs, deposits, patents,
goodwill, gaming rights and certain investments. Debt issue costs
are amortized as a component of interest expense over the term of
the related debt (see Note 11). The cost of gaming rights is
amortized on a straight-line basis over the terms of the
agreements. Patents and goodwill are amortized over periods of
seven years and five years, respectively. During fiscal 1994, the
Company accounted for its non-current investment in Radica at the
lower of cost or market, based on quoted market prices. At
September 30, 1994, the Company recorded an unrealized loss on
this investment of $4,288,000 as a separate component of
stockholders' equity. During the fourth quarter of fiscal 1995,
the Company deemed the decline in Radica's stock price to be other
than temporary; accordingly the Company recorded a pretax charge
to income of $14.6 million.
<PAGE>
Notes To Consolidated Financial Statements, (continued)
Earnings Per Share
Earnings per share is computed based upon the weighted average
number of common and common equivalent shares outstanding.
Foreign Currency Translation
The financial statements of foreign subsidiaries have been
translated into U.S. dollars for consolidated reporting purposes
in accordance with Statement of Financial Accounting Standards
("SFAS") No. 52. All asset and liability accounts have been
translated using the current exchange rate at the balance sheet
date. Income statement amounts have been translated using the
average exchange rate for the year. The gains and losses
resulting from the translation adjustments have been accumulated
as a component of stockholders' equity, being netted against
retained earnings due to the immateriality of the amounts. The
effect on the consolidated statements of operations of translation
gains and losses is insignificant for all years presented.
Recently Issued Accounting Standards
The Financial Accounting Standards Board ("FASB") issued SFAS No.
121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" in March 1995. This
statement, effective for the Company's fiscal year ended September
30, 1997, requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Management believes that if SFAS No. 121 had been adopted at
September 30, 1995, it would not have had a significant effect on
the financial position or results of operations of the Company.
The FASB issued SFAS No. 123 "Accounting for Awards of Stock-Based
Compensation to Employees" in October, 1995. This statement,
effective for the Company's fiscal year ended September 30, 1997,
requires certain disclosures about the impact on results of
operations of the fair value of stock-based employee compensation
arrangements. Management believes that if SFAS No. 123 had been
adopted at September 30, 1995, it would not have had a significant
effect on the financial position or results of operations of the
Company.
Reclassifications
Certain amounts in the 1994 and 1993 consolidated financial
statements have been reclassified to be consistent with the
presentation used in fiscal year 1995.
<PAGE>
Notes To Consolidated Financial Statements, (continued)
2. Business Segments
The Company operates principally in two lines of business: the
manufacture of gaming products and gaming operations. The table
below presents information as to the Company's operations in
different industries.
<TABLE>
<CAPTION>
Years Ended September 30,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Revenues
Manufacture of gaming products $416,424 $514,121 $335,641
Gaming operations 204,362 160,340 142,389
Total $620,786 $674,461 $478,030
Operating Profit
Manufacture of gaming products $109,465 $169,541 $123,320
Gaming operations 58,137 48,964 41,620
Total 167,602 218,505 164,940
Other Income (Expense), Including
Interest Expense (22,838) (3,745) 9,204
Income from Continuing Operations
Before Income Taxes $144,764 $214,760 $174,144
Capital Expenditures
Manufacture of gaming products $ 25,351 $ 17,854 $ 8,499
Gaming operations 19,240 29,488 20,269
Corporate 10,944 25,840 17,345
Total $ 55,535 $ 73,182 $ 46,113
Depreciation and Amortization
Manufacture of gaming products $ 2,855 $ 2,610 $ 1,740
Gaming operations 13,963 11,526 14,699
Corporate 11,078 5,938 3,757
Total $ 27,896 $ 20,074 $ 20,196
Identifiable Assets
Manufacture of gaming products $364,161 $364,368 $262,454
Gaming operations 260,968 215,746 151,234
Corporate 346,569 287,894 232,905
Total $971,698 $868,008 $646,593
</TABLE>
<PAGE>
Notes To Consolidated Financial Statements, (continued)
The Company has operations based in the United States, Australia
and Europe. The table below presents information as to the
Company's operations by geographic region.
<TABLE>
<CAPTION>
Years Ended September 30,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Revenues
North America $586,559 $634,391 $441,440
Australia 33,641 42,270 39,681
Europe 21,592 10,969 11,485
Eliminations (21,006) (13,169) (14,576)
Total $620,786 $674,461 $478,030
Operating Profit (Loss)
North America $169,694 $219,598 $168,078
Australia (5,873) 1,507 5,078
Europe 4,044 1,573 (1,808)
Eliminations (263) (4,173) (6,408)
Total 167,602 218,505 164,940
Other Income (Expense),
Including
Interest Expense (22,838) (3,745) 9,204
Income From Continuing
Operations
Before Income Taxes $144,764 $214,760 $174,144
Identifiable Assets
North America $914,410 $812,496 $608,519
Australia 44,165 44,759 27,067
Europe 13,123 10,753 11,007
Total $971,698 $868,008 $646,593
</TABLE>
On a consolidated basis the Company does not recognize
intersegment revenues or expenses upon the transfer of gaming
products between segments. Operating profit is revenue and
interest income less cost of sales and operating expenses,
including related operating depreciation and amortization,
provisions for bad debts, and an allocation of a portion of
selling, general and administrative and research and development
expenses. Other income (expense) includes interest expense,
interest income and gain (loss) on sale of assets.
During the fiscal years ended September 30, 1995, 1994 and 1993, the
Company made net sales of $41.0 million, $49.9 million and $40.2
million respectively, to Sodak Gaming, the Company's principal
distributor of gaming products to Native American reservations.
These sales aggregated approximately 9.8%, 9.7% and 12.0% of the
Company's total product sales for the fiscal years 1995, 1994 and
1993, respectively. The Company believes the loss of this customer
would not have a long-term material adverse effect on product sales
as other means of distribution to this market are available.
<PAGE>
Notes to Consolidated Financial Statements, (continued)
The Company had total export sales from the United States of
approximately $12,358,000, $13,190,000 and $13,522,000 during the
fiscal years ended September 30, 1995, 1994 and 1993,
respectively.
3. Investment Securities
<TABLE>
A summary of investment securities at September 30, 1995 follows:
<CAPTION>
Gross Gross
Net Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
September 30, 1995
<S> <C> <C> <C> <C>
United States Government
and Agency Obligations $3,927 $49 $ - $3,976
Corporate Bonds 17,997 9 (1,169) 16,837
Equity Securities 21,428 6,499 (927) 27,000
$43,352 $6,557 ($2,096) $47,813
</TABLE>
At September 30, 1995, debt securities had maturity dates ranging
from one month to two years. The proceeds from sales of available-
for-sale securities in fiscal 1995 were $34.4 million and the gross
realized gains and gross realized losses on those sales were
$2,996,000 and $886,000, respectively.
<TABLE>
<CAPTION>
A summary of investment securities at September 30, 1994 follows:
Gross Gross
Net Unrealized Unrealized Market
(Dollars in Thousands) Cost Gains Losses Value
September 30, 1994
<S> <C> <C> <C> <C>
United States Government
and Agency Obligations $11,067 $30 $ - $11,097
Corporate Bonds 10,827 - (1,160) 9,667
Equity Securities 29,670 1,522 (914) 30,278
Other 9,754 - (476) 9,278
$61,318 $1,552 ($2,550) $60,320
</TABLE>
4. Notes and Contracts Receivable
The Company grants customers extended payment terms under
contracts of sale. These contracts are generally for terms of one
to five years, with interest recognized at prevailing rates, and
are secured by the related equipment sold.
The Company has provided loans, principally for financial
assistance, to several customers. At September 30, 1995 and 1994,
the balance of such loans totaled $2,728,000 and $1,002,000,
respectively. There were no allowances for doubtful loans as of
September 30, 1995 and 1994. These loans are generally for terms
of one to five years with interest at prevailing rates.
Notes to Consolidated Financial Statements, (continued)
<TABLE>
The following table represents the estimated future collections of
notes and contracts receivable (net of allowances) at September
30, 1995:
<CAPTION>
(Dollars in thousands)
Years Ending September 30, Estimated Receipts
<S> <C>
1996 $ 80,271
1997 22,690
1998 15,463
1999 2,141
2000 775
2001 and after 2,442
$123,782
</TABLE>
<TABLE>
At September 30, 1995 and 1994, the following allowances for
doubtful notes and contracts were netted against current and long-
term maturities:
<CAPTION>
September 30,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Current $3,465 $3,729
Long-term 10,149 9,707
$13,614 $13,436
</TABLE>
5. Lines of Credit
As of September 30, 1995, 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 September
30, 1995, $47.9 million was available under this line of credit.
IGT-Australia had a $4,440,000 (Australian) bank line of credit
available as of September 30, 1995. Interest is paid at the lender's
reference rate plus 1%. This line is supported by a comfort letter
from the Company, and has a provision for review and renewal annually
in January. At September 30, 1995, 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 and its Senior
Notes which, among other things, limit financial commitments the
Company may make without the written consent of the lenders and
require the maintenance of certain financial ratios, minimum working
capital and net worth of the Company.
Notes to Consolidated Financial Statements, (continued)
6. Notes Payable, Capital Lease Obligations and Liabilities to
Jackpot Winners
<TABLE>
Notes payable and capital lease obligations consist of the
following as of:
<CAPTION>
September 30,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Senior notes (see Note 12) $100,000 $100,000
Australian cash advance
facility (see Note 12) 13,600 13,212
Capital lease obligations
(see Note 9) 320 632
Other notes payable 1,008 237
Total 114,928 114,081
Less current maturities 7,385 2,613
Long-term notes payable and
capital lease obligations,
net of current maturities $107,543 $111,468
</TABLE>
<TABLE>
The following table represents the future fiscal year principal
payments of these notes and capital lease obligations at September
30, 1995:
<CAPTION>
(Dollars in thousands)
Years Ending September 30, Principal Payments
<S> <C>
1996 $7,385
1997 5,271
1998 16,572
1999 14,300
2000 14,300
2001 and after 57,100
$114,928
</TABLE>
From the Colorado, Louisiana, Mississippi, Nevada, South Dakota
and Native American systems, the Company receives a percentage of
the amount played or machine rental and service fee from the
linked progressive systems to fund the related jackpot payments.
The jackpots are paid in equal annual installments without
interest over a ten to twenty-five year period. The following
schedule sets forth the future fiscal year principal payments for
the jackpot winners under these systems at September 30, 1995:
<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ending September 30, Principal Payments
<S> <C>
1996 $20,353
1997 19,854
1998 19,173
1999 19,173
2000 19,173
2001 and after 227,695
$325,421
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements, (continued)
7. Income Taxes
During 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." The impact of adopting this new standard was not
material to any of the consolidated financial statements of the
Company for 1993. Prior to 1993, the Company accounted for income
taxes under SFAS No. 96.
SFAS No. 109 requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax
returns. Deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes, and (b) operating loss and tax credit
carryforwards. The Company determines the net current deferred
tax asset or liability and the net noncurrent asset or liability
separately for federal, state, and foreign jurisdictions.
<TABLE>
The effective income tax rates on income attributable to
continuing operations differ from the statutory United States
federal income tax rates as follows:
<CAPTION>
Years Ended September 30,
(Dollars in thousands) 1995 1994 1993
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Taxes at federal
statutory rate $50,667 35.0% $75,166 35.0% $60,602 34.8%
Foreign subsidiaries tax 15 0.0 342 0.2 2,402 1.4
State income tax, net 1,431 1.0 2,096 1.0 2,273 1.3
Foreign sales corporation (577) (0.4) (1,171) (0.5) (1,280) (0.7)
Other, net 580 0.4 (2,120) (1.1) 4,569 2.6
Provision for income taxes
for income from
continuing operations $52,116 36.0% $74,313 34.6% $68,566 39.4%
</TABLE>
During 1993, enacted changes in United States federal legislation
increased the income tax rate from 34% to 35%. A blended rate was
utilized in fiscal 1993, and the full 35% rate is used for the
subsequent years.
<TABLE>
<CAPTION>
Components of the provision for income taxes on income from
continuing operations were as follows:
Years Ended September 30,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Current
Federal $93,919 $86,112 $78,544
State 3,778 4,143 3,497
Foreign (3,780) 1,115 5,111
Total current 93,917 91,370 87,152
Deferred
Federal (39,494) (15,797) (18,586)
State (2,119) (918) -
Foreign (188) (342) -
Total deferred (41,801) (17,057) (18,586)
Provision for income taxes for
income from continuing
operations $52,116 $74,313 $68,566
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements, (continued)
Total fiscal 1995 pre-tax income consists of $140,635,000 subject to Unite
d States taxation and $4,129,000 of foreign taxable income. Total
fiscal 1994 pre-tax income consists of $209,208,000 subject to
United States taxation and $5,552,000 of foreign taxable income.
Total fiscal 1993 pre-tax income consists of $164,625,000 subject
to United States taxation and $9,519,000 of foreign taxable
income.
<TABLE>
<CAPTION>
Significant components of the Company's deferred tax assets and
liabilities are as follows:
September 30,
(Dollars in thousands) 1995 1994
<S> <C> <C>
Deferred tax liabilities
Reserve differential for gaming activities $ - ($10,161)
Other (1,488) (2,258)
(1,488) (12,419)
Deferred tax assets
Receivable reserve 6,258 5,291
Reserves not currently deductible 4,839 6,438
Reserve differential for gaming activities 27,332 6,280
Difference between book and tax basis
of property 682 814
Foreign subsidiaries 4,793 3,137
Unrealized loss on investments 4,087 -
State income taxes 4,100 -
Other 2,468 1,261
54,559 23,221
Net deferred tax asset $53,071 $10,802
Reflected in the consolidated balance
sheets as:
Current deferred asset - net $25,336 $19,615
Noncurrent deferred asset - net 27,735 1,805
Noncurrent deferred liability - net - (10,618)
Net deferred tax asset $53,071 $10,802
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements, (continued)
8. Employee Benefit Plans
Employee Profit Sharing Plans
In 1980, the Company adopted a qualified profit sharing retirement
plan for its employees working in the United States. Company
contributions to the plan are at the sole discretion of the
Company's Board of Directors. Benefits vest over a seven-year
period of employment. Under a discretionary program effective
January 1, 1986, and reviewable by the Board annually,
contributions are based on 5% of annual consolidated pre-tax
operating profits (excluding IGT-Australia, IGT-Europe, IGT-Japan
and operations in China) above a set minimum. Effective for
fiscal 1995, 1994 and 1993, the minimum pre-tax operating profits
were $42,000,000, $78,700,000 and $44,000,000 respectively, before
any allocation to the Plan.
Additionally, a cash sharing plan was adopted effective January 1,
1986, in which 5% of annual consolidated pre-tax operating profits
(excluding IGT-Australia) in excess of $42,000,000, $78,700,000
and $44,000,000 for 1995, 1994 and 1993, respectively, are
distributed to all non IGT-Australia employees on a semi-annual
basis. Contributions to the plan are reviewed annually by the
Board.
Total consolidated profit sharing and cash sharing expense was
$10,593,000, $13,239,000 and $12,564,000 for the fiscal years
ended September 30, 1995, 1994 and 1993, respectively. The
Company's other foreign subsidiaries have similar retirement and
cash sharing plans with one of the plans designed as a
superannuation program.
The Company maintains a discretionary management bonus plan and
IGT maintains a marketing management bonus plan in which key
employees participate. Effective January 1, 1986, 5% of IGT's
annual consolidated pre-tax operating profits (in excess of
$42,000,000, $78,700,000 and $44,000,000 for 1995, 1994 and 1993,
respectively) are distributed under the management bonus plan.
Bonuses for IGT marketing management are computed in part by using
a formula based on product sales levels and gross profit margins
achieved. Total consolidated expense under these plans was
$6,411,000, $7,496,000 and $8,435,000 for the fiscal years ended
September 30, 1995, 1994 and 1993, respectively.
Stock Option Plans
In 1981, the Company adopted a Stock Option Plan under which
nonqualified and incentive stock options to purchase up to
27,104,000 shares may be granted and, in 1993, the Company adopted
a Stock Option Plan under which nonqualified and incentive stock
options to purchase up to 3,000,000 shares may be granted to
employees and up to 250,000 nonqualified stock options may be
granted to non-employee directors of the Company.
Notes to Consolidated Financial Statements, (continued)
Options granted have been granted at fair market value on the date
of grant and, except for non-employee director options, typically
become exercisable in five annual installments although a shorter
period may be provided. At September 30, 1995, options to
purchase 2,612,000 shares were available for grant under the
plans.
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
<S> <C> <C> <C>
Outstanding at September 30, 1992 5,283,254 $ .51 - $18.88
Granted 857,160 $22.81 - $38.63
Cancelled (17,320) $ 1.26 - $25.44
Exercised (2,730,622) $ .51 - $18.88
Outstanding at September 30, 1993 3,392,472 $ .51 - $38.63
Granted 974,076 $18.50 - $40.50
Cancelled (106,847) $22.25 - $34.75
Exercised (739,946) $ .51 - $25.44
Outstanding at September 30, 1994 3,519,755 $ .51 - $40.50
Granted 2,269,120 $12.75 - $20.75
Cancelled (1,736,426) $ 5.98 - $40.50
Exercised (572,047) $ .51 - $11.44
Outstanding at September 30, 1995 3,480,402 $ .51 - $28.50
Options exercisable at September 30,
1995 1,052,016 $ .51 - $20.50
1994 1,419,938 $ .51 - $38.63
1993 1,677,632 $ .51 - $18.88
</TABLE>
In May, 1995, the Company offered to reprice outstanding options to
$12.75 per share. Pursuant to such agreement, options to purchase
approximately 1,299,000 shares were exchanged. The newly granted
options become exercisable over a five-year period.
<PAGE>
Notes to Consolidated Financial Statements, (continued)
Employee Stock Purchase Plan
Effective February 26, 1987, the Company adopted a Qualified
Employee Stock Purchase Plan. Under this Plan, each eligible
employee may be granted an option to purchase a specific number of
shares of the Company's common stock. The term of each option is
twelve months, and the exercise date is the last day of the option
period. Eligible employees include only those employees who have
completed twelve months of continuous service with the Company.
The Plan excludes employees who are officers, 5% or more
shareholders, employees receiving more than $66,000 in annual
compensation and employees of certain subsidiaries.
An aggregate of 2,400,000 shares may be made available under this
plan. Employees may participate in this plan only through payroll
deductions up to a maximum of 10% of their base pay. The option
price is equal to the lesser of 85% of the fair market value of
the common stock on the date of grant or on the date of exercise.
At September 30, 1995, 977,000 shares were available under this
plan.
401(k) Matching Program
Effective January 1, 1993, the Company offered a 401(k) retirement
plan contribution matching program. Under the plan agreement, the
Company matches 100% of employee contributions up to $500 and an
additional 50% of the next $500 contributed by the employee. This
allows for maximum annual Company contributions of $750 to each
employee's 401(k) account. The employees will be 100% vested in
Company contributions at the date the contribution is made. In
fiscal 1995, 1994 and 1993 the Company contributed $938,000,
$824,000 and $512,000, respectively, under this plan.
9. Commitments
The Company leases certain of its facilities and equipment under
various agreements for periods through the year 2001. The
following table shows the future minimum rental payments required
under these operating and capital leases which have initial or
remaining non-cancelable lease terms in excess of one year as of
September 30, 1995.
<TABLE>
<CAPTION>
(Dollars in thousands) Operating Capital
Years Ending September 30, Leases Leases Total
<S> <C> <C> <C>
1996 $ 4,852 $ 262 $5,114
1997 3,196 80 3,276
1998 2,221 5 2,226
1999 1,838 - 1,838
2000 969 - 969
2001 and after 693 - 693
Total minimum payments $13,769 347 $14,116
Amount representing interest (27)
Capital lease obligations 320
Less current portion (257)
Long-term capital lease obligations $ 63
</TABLE>
The cost and related accumulated depreciation of equipment under
capital leases as of September 30, 1995 was $694,000 and $313,000
respectively, and at September 30, 1994, was $1,560,000 and
$927,000, respectively.
<PAGE>
Notes to Consolidated Financial Statements, (continued)
Certain of the leases provide that the Company pay utilities,
maintenance, property taxes, and certain other operating expenses
applicable to the leased property, including liability and
property damage insurance. The lease for the Company's existing
manufacturing facility in Reno extends through 2001. The lease
provides for periodic rental increases.
The total rental expense for the fiscal years ended September 30,
1995, 1994 and 1993 was approximately $6,760,000, $5,576,000, and
$4,753,000, respectively.
10. Contingencies
The Company has been named in and has brought lawsuits in the normal
course of business. Management does not expect the outcome of
these suits, including the lawsuit described below, to have a
material adverse effect on the Company's
financial position or results of future operations.
The Company is a defendant in three class action lawsuits, one filed
in the United States District Court of Nevada, Southern Division,
entitled Larry Schreier v. Caesar's World, Inc., et al., and two
filed in the United States District
Court of Florida, Orlando Division, entitled Poulos v. Caesar's
World, Inc., et al., and Ahern v. Caesar's World, Inc., et al.,
which have been consolidated in a single action. Also named as
defendants in these actions are many, if not most, of the largest
gaming companies in the United States, and certain other gaming equipment
manufacturers. Each complaint is identical in its material allegations.
The actions allege that the defendants have engaged in fraudulent and
misleading conduct by inducing people to play video poker machines and
electronic slot machines, based on false beliefs concerning how the
machines operate and the extent to which there is actually an
opportunity to win on a given play. The complaints allege that
the defendants' acts constitute violaltions of the Racketeer Influenced
and Corrupt Organizations Act ("RICO"), and also give rise to claims for
common law fraud and unjust enrichment, and it seeks compensatory, special
consequential, incidental and punitive damages of several billion dollars.
In response to the complaints, all of the defendants, including the Company,
filed motions attacking the pleadings for failure to state a claim, seeking
to dismiss the complaints for lack of personal jurisdiction and venue, and
seeking to transfer venue of the actions to Las Vegas. The Court has granted
the defendants' motion to transfer venue of the action to Las Vegas.
Plaintiffs have responded to all motions, and have also propounded discovery
with respect to each defendant on jurisdiction, venue, and class issues.
The Company expects that there will be further briefing on the motions, and
the Court has not indicated when it will rule on these motions. Plaintiffs
have also filed their motion to certify the class. A representative
group of the defendants took the deposition of each plaintiff, and also
obtained documents from the plaintiffs. It is not known when the Court will
rule on the class certification motions.
11. Related Party Transactions
Members of the Company's Board of Directors
A member of the Company's Board of Directors is an officer of, and
has an equity interest in, a Nevada gaming business from which the
Company recognized revenues of $1,805,000, $1,486,000, and
$1,735,000 during the fiscal years ended September 30, 1995, 1994
and 1993, respectively. The Company had contracts and accounts
receivable balances from this customer of $1,133,000 and $110,000
at September 30, 1995 and 1994, respectively. He is also a
director and officer of a parent to nine additional gaming
businesses, from which the Company recognized revenues of
$19,886,000, $30,227,000, and $9,083,000 during the fiscal years
ended September 30, 1995, 1994 and 1993, respectively. The
Company had contracts and accounts receivable balances from these
businesses of $8,546,000 and $9,550,000 at September 30, 1995 and
1994, respectively.
Additionally, a member of the Company's Board of Directors is the
Chairman of the Board of a Nevada gaming business from which the
Company recognized revenues of $5,216,000, $5,132,000, and
$4,771,000 during the fiscal years ended September 30, 1995, 1994
and 1993, respectively. The Company had contracts and accounts
receivable balances from this business of $174,000 and $1,150,000
at September 30, 1995 and 1994, respectively.
Effective October 1, 1993, the Company entered into an Agreement
with National Holdings, Inc. ("NHI") to form IGT-NHI Joint Venture
Company (IGT-NHI) to engage in the business of supplying and
operating bingo halls and electronic gaming devices in the Peoples
Republic of China. The Company has a 33% ownership interest in
IGT-NHI. At September 30, 1995 and 1994, IGT-NHI owed the Company
$422,000 and $332,000, respectively on a line of credit and
$1,770,000 and $2,044,000, respectively, on an equipment loan.
The Company entered into a joint venture agreement with a wholly-
owned subsidiary of Ladbroke Group PLC to form Ladbroke Gaming
Argentina ("LGA") on January 27, 1995. LGA, which is 50% owned by
the Company, was formed to own gaming machines and conduct gaming
operations within authorized gaming establishments in Argentina.
During fiscal 1995, the Company recognized $173,000 from sales to
LGA and at September 30, 1995 had accounts and notes receivable of
$337,000.
<PAGE>
Notes to Consolidated Financial Statements, (continued)
12. Debt Offerings
Convertible Subordinated Notes
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 represented a yield of 8.5% per annum. Net
proceeds from the issue and sale of the Notes were $89,426,800.
The Company, as permitted under the terms of the Notes, 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 $1,000 principal amount until May 31,
1994. All the outstanding notes were converted prior to the
redemption date. During fiscal 1994 and 1993, notes with a face
amount of $72,180,000 and $42,719,000 were converted into
9,339,000 and 5,527,000 shares, respectively, of the Company's
common stock.
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 is being 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. Principal
payments (Australian) of $3,000,000, $6,000,000, $6,000,000 and
$3,000,000 are due March 31, 1996, September 30, 1996, September
30, 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.
13. Discontinued Operations
In connection with the Company's focus on gaming machine
manufacture and proprietary software systems development, the
Company has divested its investments in casino operations during
fiscal 1993 through the sale of its interest in CMS and President
Riverboat Casinos, Inc. ("PRC"). The disposition of these
investments has been accounted for as discontinued operations.
The revenues from these operations totaled $34,807,000 and
$35,849,000 for fiscal years 1993 and 1992, respectively. The
separate sales transactions of these investments are described
below.
<PAGE>
Notes to Consolidated Financial Statements, (continued)
Riverboat Operations
During December 1992, the Company transferred 100% of its
ownership interest in three riverboat partnerships to PRC. In
exchange for the transfer of its ownership interests, the Company
received 1,671,429 shares of PRC common stock representing an
approximate 32% ownership of PRC.
The Company, under a selling agreement with the principal
stockholders of PRC, offered all of its 1,671,429 shares of PRC
common stock as a selling shareholder in the initial public
offering ("IPO") of PRC, effective December 17, 1992. The Company
received proceeds from the IPO of $28.7 million and recognized a
pre-tax gain of $23.6 million on the sale. PRC additionally
repaid $16.2 million in outstanding notes to the Company, plus all
accrued interest.
CMS International
Effective September 30, 1993, the Company sold its equity
ownership interest in CMS to Summit Casinos-Nevada, Inc.,
("Summit"), whose owners included 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 remains as guarantor on certain
indebtedness of CMS, which had at September 30, 1995, an aggregate
outstanding balance of $16.2 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 it is unlikely that the Company will incur
losses relating to these guarantees.
<TABLE>
<CAPTION>
The composition of income from discontinued operations in fiscal
1993 is as follows:
Riverboat CMS
(Dollars in Thousands) Operations Int'l Total
<S> <C> <C> <C>
Income from operations $ 245 $717 $962
Gain (loss) on disposal 23,586 (1,956) 21,630
Income (loss) on
discontinued
operations before taxes 23,831 (1,239) 22,592
Income tax (provision)
benefit (9,573) 428 (9,145)
Income (loss) on
discontinued operations,
net of taxes $14,258 ($811) $13,447
</TABLE>
14. Subsequent Event
On October 6, 1995 the State of Victoria and the Company announced
an out of court settlement which provided for a payment of $7.6
million (equivalent U.S. dollars) by the State of Victoria to the
Company in settlement of a matter between the two parties. The
agreed settlement was received by the Company on October 13, 1995
and will be included in other income in the first quarter of
fiscal 1996.
<PAGE>
Notes to Consolidated Financial Statements, (continued)
15. Disposition of Other Operations
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.
16. Supplemental Statement of Cash Flows Information
Certain noncash investing and financing activities are not
reflected in the consolidated statements of cash flows. The
Company issued notes or incurred capital lease obligations to
obtain property, plant and equipment in the years ended September
30, 1995 and 1993 of $1,094,000 and $46,000, respectively.
The Company manufactured gaming machines which are leased to
customers under capital leases. Accordingly, transfers from
inventory to property, plant and equipment totaling $11,173,000,
$15,619,000 and $9,936,000 were made in fiscal 1995, 1994, and
1993, respectively.
During fiscal 1994 and 1993, Notes with a face amount of
$72,180,000 and $42,719,000 were converted into 9,338,877 and
5,527,133 shares of the Company's common stock, respectively.
The Company had dividends declared, but not yet paid at September
30, 1995, 1994 and 1993, totaling $3,866,000, $3,971,000 and
$3,746,000, respectively.
During fiscal 1995, 1994, and 1993, common stock with a cost of
$38,000, $2,530,000, and $4,006,000 was acquired in connection
with stock option exercises for the same amounts. The stock
option exercise price on employee stock options may be paid to the
Company by the employee by submitting previously held common stock
of the Company.
During the year ended September 30, 1994, the Company purchased a
portion of Radica for cash of $5,850,000 and 374,436 shares of the
Company's common stock valued upon issuance at $10,250,000.
The tax benefit of stock options totaled $1,749,000, $5,131,000,
and $18,137,000 for the years ended September 30, 1995, 1994, and
1993, respectively.
Payments of interest for the years ended September 30, 1995, 1994
and 1993 were $21,253,000, $12,272,000, and $12,030,000
respectively. Payments for income taxes for the years ended
September 30, 1995, 1994 and 1993 were $91,156,000, $101,860,000,
and $66,056,000, respectively.
<PAGE>
Notes to Consolidated Financial Statements, (continued)
17. 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 915,000 square foot office, manufacturing and
warehousing facility. The Company anticipates that the new
manufacturing and warehousing facility will be completed in the
second calendar quarter of 1996, and that the office facility will
be completed in late calendar 1996 absent unexpected delays, at an
estimated total cost including the site of $82.4 million.
18. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts and stock prices)
1995 First Qtr Second Qtr Third Qtr Fourth Qtr
<S> <C> <C> <C> <C>
Total revenues $159,180 $150,025 $150,775 $160,806
Income from operations 36,736 32,228 34,400 35,977
Income from continuing
operations 25,626 23,062 25,357 18,603
Income(loss) from
discontinued operations - - - -
Net income 25,626 23,062 25,357 18,603
Primary earnings per share:
Income from continuing
operations $ .19 $ .18 $ .20 $ .14
Income(loss) from
discontinued operations - - - -
Net income $ .19 $ .18 $ .20 $ .14
Stock price
High $20 7/8 $15 3/4 $17 $15 7/8
Low $14 7/8 $12 1/2 $12 3/8 $13
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements, (continued)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts and stock prices)
1994 First Qtr Second Qtr Third Qtr Fourth Qtr
<S> <C> <C> <C> <C>
Total revenues $149,767 $164,537 $187,682 $172,475
Income from operations 45,525 45,183 61,658 45,541
Income from continuing
operations 30,392 31,414 39,905 38,736
Income(loss) from
discontinued operations - - - -
Net income 30,392 31,414 39,905 38,736
Primary earnings per share:
Income from continuing
operations $ .23 $ .24 $ .30 $ .29
Income(loss) from
discontinued operations - - - -
Net income $ .23 $ .24 $ .30 $ .29
Stock price
High $41-1/4 $33-1/2 $28-1/4 $24-3/4
Low 28-1/4 26-1/8 17-1/4 18-1/2
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts and stock prices)
1993 First Qtr Second Qtr Third Qtr Fourth Qtr
<S> <C> <C> <C> <C>
Total revenues $87,264 $98,721 $131,987 $160,058
Income from operations 25,191 27,468 42,315 55,264
Income from continuing
operations 21,180 18,878 29,647 35,873
Income (loss) from
discontinued operations 14,369 (139) 363 (1,146)
Net income 35,549 18,739 30,010 34,727
Primary earnings per share:
Income from continuing
operations $ .17 $ .15 $ .24 $ .29
Income (loss) from
discontinued operations .12 - - (.01)
Net income $ .29 $ .15 $ .24 $ .28
Stock price
High $26-3/8 $33 $39-3/4 $41-3/8
Low 17-7/8 23-3/4 28-1/2 32-1/8
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements, (continued)
19. Fair Value of Financial Instruments
The following table presents the carrying amount and estimated
fair value of the Company's financial instruments in accordance
with SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments."
<TABLE>
<CAPTION>
Carrying Estimated
(Dollars in thousands) Amount Fair Value
September 30, 1995
<S> <C> <C>
Assets:
Cash and cash equivalents $241,613 $241,613
Investment securities 47,813 47,813
Investments to fund liabilities to
jackpot winners 186,863 200,031
Notes and contracts receivable 123,782 155,025
Liabilities:
Jackpot liabilities 237,413 250,581
Notes payable and capital
lease obligations 114,928 119,774
</TABLE>
<TABLE>
<CAPTION>
Carrying Estimated
(Dollars in thousands) Amount Fair Value
September 30, 1994
<S> <C> <C>
Assets:
Cash and cash equivalents $142,730 $142,730
Investment securities 60,320 60,320
Investments to fund liabilities
to Jackpot winners 146,141 146,773
Notes and contracts receivable 142,219 180,574
Liabilities:
Jackpot liabilities 165,202 165,833
Notes payable and capital lease
obligations 114,081 112,094
</TABLE>
The carrying value of cash and cash equivalents approximates fair
value because of the short term maturity of those instruments.
The estimated fair value of investment securities and investments
to fund liabilities to jackpot winners are based on quoted market
prices. The estimated fair value of jackpot liabilities is based
on quoted market prices of investments which upon maturity will be
used to fund these liabilities. The estimated fair value of the
Senior Notes, included in notes payable and capital lease
obligations at September 30, 1995 and 1994, was based on the yield
required at September 30, 1995 and 1994, respectively of a private
placement of similar terms and credit valuation.
The fair value of the Company's notes and contracts receivable is
estimated by discounting the future cash flows using interest
rates determined by management to reflect the credit risk and
remaining maturities of the related notes and contracts.
In the normal course of business, the Company is a party to
financial instruments with off-balance-sheet risk such as
performance bonds and other guarantees, which are not reflected in
the accompanying balance sheets. At September 30, 1995 and 1994,
the Company had performance bonds outstanding totaling $3.4
million and $2.9 million, respectively, relating to the Company's
operation of two lottery systems and a gaming machine
<PAGE>
Notes to Consolidated Financial Statements, (continued)
route. The Company is liable to reimburse the bond issuer in the
event the bond is exercised as a result of the Company's non-
performance. The Company is a guarantor on certain indebtedness of
CMS International which had an aggregate outstanding balance of
$16.2 million at September 30, 1995 (see Note 12). At September
30, 1995 and 1994, the Company had outstanding letters of credit,
issued under the Company's Line of Credit (see Note 4), totaling
$2.1 million and $3.9 million, respectively, which were issued to
insure payment by the Company to certain vendors and governmental
agencies. Management does not expect any material losses to
result from these off-balance-sheet instruments.
20. 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. At
September 30, 1995, the Company had bank deposits in excess of
insured limits of approximately $20,027,000.
Product sales and the resulting receivables are concentrated in
specific legalized gaming regions. The Company also distributes a
significant portion of its products through third party
distributors resulting in significant distributor receivables. At
September 30, 1995 accounts, contracts, and notes receivable by
region as a percentage of total receivables are as follows:
<TABLE>
<CAPTION>
<S> <C>
Regions
Nevada 38.2%
Riverboats (greater Mississippi River area) 25.9%
Colorado 7.6%
Native American Casinos (distributor) 7.5%
Louisiana (distributor) 2.3%
Other Regions (individually less than 5%) 18.5%
Total 100.0%
</TABLE>
<PAGE>
Item 9. Changes In And Disagreements With Accountants On
Accounting And Financial Disclosure
Not applicable.
Part III
Item 10. Directors And Executive Officers Of The Registrant
Item 11. Executive Compensation
Item 12. Security Ownership Of Certain Beneficial Owners And
Management
Item 13. Certain Relationships And Related Transactions
The information required by Items 10, 11, 12 and 13 is incorporated
by reference from the 1996 Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days of the end of the
fiscal year covered by this report.
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedule And Reports On
Form 8-K
(a)(1) Consolidated Financial Statements:
Reference is made to the Index to Financial Statements
and Related Information under Item 8 in Part II hereof
where these documents are listed.
(a)(2) Consolidated Financial Statement Schedule: Page
VIII Valuation and Qualifying Accounts 69
Other financial statement schedules are either not
required or the required information is included in the
Consolidated Financial Statements or Notes thereto.
Parent Company Financial Statements - Financial Statements
of the
Registrant only are omitted under Rule 3-05 as modified by
ASR 302.
(a)(3) Exhibits:
3.1 Articles of Incorporation of International Game Technology,
as amended (incorporated by reference to Exhibit 3.1 to
Registrants Report on Form 10-K for the year ended September 30,
1994).
3.2 Second Restated Code of Bylaws of International Game
Technology, dated November 11, 1987 (incorporated by reference
to Exhibit 3.2 to Registrants Report on Form 10-K for the year
ended September 30, 1994).
4.1 Note Agreement for the 7.84% Senior Notes due September 1,
2004 (incorporated by reference to Exhibit 4.1 to Registrants
Report on Form 10-K for the year ended September 30, 1994).
10.1 Stock Option Plan for Key Employees of International Game
Technology, as amended (incorporated by reference to Exhibit
10.26 to Registration Statement No. 33-12610 filed by
Registrant).
10.2 International Game Technology 1993 Stock Option Plan
(incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-8, File No. 33-69400 filed by the
Registrant).
10.3 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 28.1 to Registration Statement on Form S-8, File No. 33-
20308 filed by the Registrant).
10.4 Share Purchase Agreement among certain sellers, Radica
Holdings Limited and International Game Technology dated January
12, 1994 (incorporated by reference to Exhibit 10.4 to
Registrants Report on Form 10-K for the year ended September 30,
1994).
10.5 Amendment to Share Purchase Agreement among certain
sellers, Radica Holdings Limited and International Game
Technology of January 12, 1994 dated February 16, 1994
(incorporated by reference to Exhibit 10.5 to Registrants Report
on Form 10-K for the year ended September 30, 1994).
<PAGE>
Item 14. Exhibits, Financial Statement Schedules And Reports On
Form 8-K (continued)
10.6 Shareholders Agreement Radica Holdings Limited and the
shareholders parties hereto dated January 12, 1994 (incorporated
by reference to Exhibit 10.6 to Registrants Report on Form 10-K
for the year ended September 30, 1994).
10.7 Amendment to Shareholders Agreement among Radica Holdings
Limited and the shareholders parties hereto of January 12, 1994
dated February 16, 1994 (incorporated by reference to Exhibit
10.7 to Registrants Report on Form 10-K for the year ended
September 30, 1994).
10.8 Stock Option Agreement between International Game
Technology and certain shareholders of Radica Holding Limited
dated January 12, 1994 (incorporated by reference to Exhibit
10.8 to Registrants Report on Form 10-K for the year ended
September 30, 1994).
10.9 Stock Purchase and Redemption Agreement dated December 4,
1992, by and between International Game Technology and Golden
Eagle Casinos International (renamed Summit Casinos
International, Inc.) (incorporated by reference to Exhibit 10.6
of Form 10-K for the year ended September 30, 1992).
10.10 First Amendment to Stock Purchase and Redemption
Agreement between International Game Technology and Golden Eagle
Casinos International (renamed Summit Casinos International,
Inc.) dated March 15, 1993 (incorporated by reference to Exhibit
10.10 of Form 10-K for the year ended September 30, 1994).
10.11 Second Amendment to Stock Purchase and Redemption
Agreement between International Game Technology and Summit
Casinos International, Inc. (formerly named Golden Eagle Casinos
International) dated March 24, 1993 (incorporated by reference
to Exhibit 10.11 of Form 10-K for the year ended September 30,
1994).
11 Computation of Earnings Per Share
22 Subsidiaries
24 Independent Auditors' Consent
25 Power of Attorney (See page 68 hereof)
(b) Reports on Form 8-K
No report on Form 8-K was filed during the three-month period
ended September 30, 1995.
<PAGE>
Power Of Attorney
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on
the 21st day of December, 1995.
International Game
Technology
By:
David P. Hanlon
President, Chief Operating
Officer, and
Chief Financial Officer
Each person whose signature appears below hereby authorizes Scott H.
Shackelton and Brian McKay, or either of them, as attorneys-in-fact to
sign on his behalf, individually, and in each capacity stated below,
and to file all amendments and/or supplements to this Annual Report on
Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/Charles N. Mathewson Chairman, Board of Directors 12/28/95
Charles N. Mathewson
/s/John J. Russell Director and Chief Executive Officer 12/28/95
John J. Russell
/s/David P. Hanlon President, Chief Operating Officer, and 12/28/95
David P. Hanlon Chief Financial Officer
/s/Scott H. Shackelton Chief Accounting Officer 12/28/95
Scott H. Shackelton (Principal Accounting Officer)
/s/Warren L. Nelson Director 12/28/95
Warren L. Nelson
/s/Wilbur K. Keating Director 12/28/95
Wilbur K. Keating
/s/Frederick B. Rentschler Director 12/28/95
Frederick B. Rentschler
/s/Albert J. Crosson Director 12/28/95
Albert J. Crosson
/s/Claudine B. Williams Director 12/28/95
Claudine B. Williams
/s/Rockwell A. Schnabel Director 12/28/95
Rockwell A. Schnabel
<PAGE>
SCHEDULE VIII - Consolidated Valuation And Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Balance
Beginning Unrealized at End
(Dollars in thousands) of Period Provisions (Gains)Losses of Period
<S> <C> <C> <C> <C>
Valuation allowance on
Investment Securities:
Year ended 9/30/94 $ - $998 $ - $998
Year ended 9/30/95 $998 $(998) $(4,461) $(4,461)
</TABLE>
<TABLE>
<CAPTION>
Balance at Accounts Balance
Beginning Written at End
(Dollars in thousands) of Period Provisions Recoveries Off of Period
<S> <C> <C> <C> <C> <C>
Allowance for
Doubtful Accounts:
Year ended 9/30/93 $7,058 $2,625 $ 42 $2,751 $6,974
Year ended 9/30/94 $6,974 $1,861 $ 138 $5,017 $3,956
Year ended 9/30/95 $3,956 $2,193 $ 9 $ 976 $5,182
</TABLE>
<TABLE>
<CAPTION>
Allowance for
Doubtful Notes and
Contracts Receivable:
<S> <C> <C> <C> <C> <C>
Year ended 9/30/93 $6,799 $1,190 $ 208 $ 62 $ 8,135
Year ended 9/30/94 $8,135 $5,338 $ 26 $ 63 $13,436
Year ended 9/30/95 $13,436 $3,684 $ 100 $3,606 $13,614
</TABLE>
<TABLE>
<CAPTION>
Balance at Balance
Beginning Income Income at End
(Dollars in thousands) of Period Deferred Recognized of Period
<S> <C> <C> <C> <C>
Income Deferred
under the Installment
Method:
Year ended 9/30/93 $301 $ - $280 $ 21
Year ended 9/30/94 $ 21 $591 $ 25 $587
Year ended 9/30/95 $587 $2,398 $2,955 $ 30
</TABLE>
<TABLE>
<CAPTION>
Balance at Disposed Balance
Beginning of and at End
(Dollars in thousands) of Period Provisions Written Off of Period
<S> <C> <C> <C> <C>
Obsolete Inventory Reserve:
Year ended 9/30/93 $7,795 $ 981 $1,660 $7,116
Year ended 9/30/94 $7,116 $8,668 $1,920 $13,864
Year ended 9/30/95 $13,864 $9,159 $8,121 $14,902
</TABLE>
<TABLE>
<CAPTION>
Balance at Disposed Balance
Beginning of and at End
(Dollars in thousands) of Period Provisions Written Off of Period
<S> <C> <C> <C> <C>
Obsolete Fixed Assets
Reserve:
Year ended 9/30/93 $ 297 $ 634 $ 664 $ 267
Year ended 9/30/94 $ 267 $ 540 $ 482 $ 325
Year ended 9/30/95 $ 325 $1,381 $1,247 $ 459
</TABLE>
EXHIBIT 22
INTERNATIONAL GAME TECHNOLOGY SUBSIDIARIES
NAME JURISDICTION OF INCORPORATION
International Game Technology Nevada
IGT Nevada
IGT-Missouri, Inc. Missouri
IGT-Colorado Corporation Colorado
IGT-Montana, Inc. Montana
Fortune Advertising and Marketing Nevada
International Acceptance Corporation Nevada
IGT-China Management Nevada
IGT-China Nevada
IGT-NHI Joint Venture Company Nevada
Megasports, Inc. Nevada
International Game Technology
Community Foundation Nevada
IGT-Australia Pty. Ltd. New South Wales.
Australia
Megabucks (Australia) Pty. Limited New South Wales,
Australia
Electronic Data Technologies, New South Wales,
Australia Australia
FSC, Ltd. Ireland
IGT-New Zealand New Zealand
IGT-Iceland, Ltd. Iceland
IGT-Argentina, S.A. Argentina
IGT-Europe, b.v. The Netherlands
IGT-Japan, k.k. Japan
IGT PNG Pty., Ltd. New Guinea
IGT (Asia) Company Limited Hong Kong
IGT do Brasil Ltda. Brazil
International Game Technology -
Africa (Pty) Ltd. Johannesburg, South Africa
IGT Foreign Sales Corporation Barbados
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000353944
<NAME> INTERNATIONAL GAME TECHNOLOGY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 241,613
<SECURITIES> 47,813
<RECEIVABLES> 202,114
<ALLOWANCES> 8,647
<INVENTORY> 73,825
<CURRENT-ASSETS> 606,636
<PP&E> 195,091
<DEPRECIATION> 75,793
<TOTAL-ASSETS> 971,698
<CURRENT-LIABILITIES> 97,719
<BONDS> 0
<COMMON> 94
0
0
<OTHER-SE> 553,996
<TOTAL-LIABILITY-AND-EQUITY> 971,698
<SALES> 416,424
<TOTAL-REVENUES> 620,786
<CGS> 233,367
<TOTAL-COSTS> 330,630
<OTHER-EXPENSES> 144,938
<LOSS-PROVISION> 5,877
<INTEREST-EXPENSE> 20,374
<INCOME-PRETAX> 144,764
<INCOME-TAX> 52,116
<INCOME-CONTINUING> 92,648
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,648
<EPS-PRIMARY> .71
<EPS-DILUTED> .71
</TABLE>
