FORM 10-K/A
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, 1994
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:
Name of Each Exchange
Title of Each Class 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. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of November 30, 1994: $2,139,355,000
The number of shares outstanding of each of the registrant's classes
of common stock, as of November 30, 1994: 132,376,728 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. . . . . . . . . . . . . . . . . . . . . 28
ITEM 3. Legal Proceedings . . . . . . . . . . . . . . . . . 29
ITEM 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . . . 29
PART II
ITEM 5. Market for Registrant's Common Stock and
Related Stockholder Matters . . . . . . . . . . . . 30
ITEM 6. Selected Financial Data . . . . . . . . . . . . . . 31
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 32
ITEM 8. Consolidated Financial Statements and
Supplementary Data. . . . . . . . . . . . . . . . . 43
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. . . . . . . 81
PART III
ITEM 10. Directors and Executive Officers of the Registrant . 81
ITEM 11. Executive Compensation . . . . . . . . . . . . . . 81
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . 82
ITEM 13. Certain Relationships and Related Transactions . . 83
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . 84
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 86
<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
(renamed IGT-North America), and facilitate the Company's initial public
offering. In addition to its 100% ownership of IGT-North America, each of
the following corporations is a direct or indirect wholly-owned subsidiary
of the Company: IGT-International ("IGT-International"); IGT-Australia,
Pty. Ltd. ("IGT-Australia"); IGT-Europe b.v. ("IGT-Europe"); IGT-Iceland
Ltd. ("IGT-Iceland"); and IGT-Japan k.k. ("IGT-Japan"). In December 1992,
the Company sold its interest in its riverboat partnerships and on
September 30, 1993 sold its interest in CMS-International ("CMS"). See
"Discontinued Operations."
IGT-North America is the largest manufacturer of computerized casino
gaming products and proprietary systems in the world. The Company believes
it manufactures the broadest range of microprocessor-based gaming machines
available. The Company also develops and manufactures "SMART" systems
which monitor slot machine play and track player activity. In addition to
gaming product sales and leases, the Company has developed and sells
computerized linked proprietary systems to monitor video gaming terminals
and has developed specialized video gaming terminals for lotteries and
other applications. IGT-North America also develops and operates
proprietary software linked progressive systems. The Company derives
revenues related to the operations of these systems as well as collects
license and franchise fees for the use of the systems.
IGT-International was established in September 1993 to oversee all
operations outside of North America by the Company's foreign subsidiaries.
IGT-Australia, located in Sydney, Australia, manufactures
microprocessor-based gaming products and proprietary systems, and performs
engineering, manufacturing, sales and marketing and distribution operations
for the Australian markets as well as other gaming jurisdictions in the
Southern Hemisphere and Pacific Rim.
IGT-Europe was established in The Netherlands in February 1992 to
distribute and market gaming products in Eastern and Western Europe and
Africa. Prior to providing direct sales, the Company sold its products in
these markets through a distributor.
IGT-Iceland was established in September 1993 to provide system
software, machines, equipment and technical assistance to support Iceland's
video lottery operations.
<PAGE>
ITEM 1. BUSINESS (continued)
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. No sales were
made to this market in fiscal 1994.
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.
Discontinued Operations
During fiscal 1993, the Company divested its investments in casino
operations through the sale of its interest in the President Riverboat
Casinos, Inc. ("PRC") and CMS. These dispositions were made as part of the
Company's strategy to focus on its core businesses of manufacturing
machines and the development of proprietary systems software.
Iowa Riverboat Corporation ("IRC"), a wholly-owned subsidiary of the
Company, established in March 1990, was a 40% partner in an Iowa
partnership that owned and operated the President riverboat casino and the
Blackhawk Hotel in Davenport, Iowa. International Acceptance Corporation
("IAC"), also a wholly-owned subsidiary of the Company, owned 45% of a
riverboat excursion operation and the permanently docked Admiral riverboat
in St. Louis, Missouri. In December 1992, the Company contributed the
assets of IRC and IAC to PRC in exchange for 1,671,429 shares of PRC common
stock. These shares were subsequently sold to the public as part of an
initial public offering of PRC common stock on December 17, 1992 (see Note
12 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 following table shows the revenues, operating results and
identifiable assets for the continuing operations of the Company's two
principal lines of business.
<PAGE>
ITEM 1. BUSINESS (continued)
<TABLE>
Years Ended
September 30,
<CAPTION>
1994 1993 1992
(Amounts in thousands)
<S> <C> <C> <C>
Manufacture of Gaming Products:
Revenues . . . . . . . . . . $514,121 $335,641 $ 236,372
Operating Profit(1). . . . . 169,541 123,320 72,753
Identifiable Assets. . . . . 364,368 262,454 188,852
Gaming Operations:
Revenues . . . . . . . . . . $160,340 $142,389 $ 127,222
Operating Profit(1). . . . . 48,964 41,620 39,311
Identifiable Assets:
Discontinued Casino
Operations . . . . . . . . - - 30,737
Gaming Operations. . . . . 215,746 151,234 117,595
Geographic Area Data:
United States:
Revenues:
Unaffiliated Customers . $608,847 $ 413,121 $326,136
Inter-area Transfers . . 13,169 14,576 6,163
Operating Profit . . . . . 208,794 160,419 106,506
Identifiable Assets. . . . 806,861 600,472 460,686
Australia:
Revenues . . . . . . . . . $ 42,270 $ 39,681 $ 34,580
Operating Profit . . . . . 1,507 5,078 4,067
Identifiable Assets. . . . 44,759 27,067 24,465
Europe:
Revenues . . . . . . . . . $ 10,969 $ 11,485 $ 2,878
Operating Profit . . . . . 1,573 ( 1,808) ( 707)
Identifiable Assets. . . . 10,753 11,007 4,822
Canada:
Revenues . . . . . . . . . $ 12,375 $ 13,743 $ -
Operating Profit . . . . . 1,638 3,203 -
Identifiable Assets. . . . 5,635 8,047 -
<FN>
(1) Operating profit presented in this amended 10K reflects an allocation of
a portion of selling, general, and administrative and research and development
expenses not previously allocated to each of the Company's two business
segments.
</FN>
</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
terminal 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 games. The games 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, embedded and
side-mount bill acceptors, enhanced sound packages, embedded progressive
meters and data communication devices.
The Company also offers a complete line of spinning reel slot machines
sold under the trademark S-Plus. The S-Plus series slot machines use an
advanced microprocessor system that accommodates several progressive link
configurations, enhanced audit trail functions, selection of game software
and optional side-mount or embedded bill acceptors. S-Plus machines run
existing S-slot programs or the latest partitioned software which
facilitates program updates. A game change can occur quickly by selecting
a new program chip from IGT's extensive game library and by changing the
glass and reel strips. The S-Plus machines are manufactured in various
sizes and colors and are offered in several designs including upright,
slant top and drop-in-bar.
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
<PAGE>
ITEM 1. BUSINESS (continued)
out a ticket showing the remaining amount of credit, and the ticket is
redeemable for cash. Unlike traditional gaming machines, VGTs are
typically linked to a central computer for accounting and security
purposes, which is monitored by the state lotteries or other government
agencies.
The Company introduced a new multigame video product, Winners Choice, in
September 1994 at the World Gaming Congress held in Las Vegas, Nevada. The
Company intends to sell the product in both casino and video lottery
jurisdictions worldwide subject to obtaining any required regulatory
approval. The Winners Choice video product is currently the only gaming
machine available with a RISC processor using the Intel 80960
microprocessor. The RISC processor simplifies the internal operation of
the machine and offers improved upgradability and software compatibility to
allow for future enhancements. The Winners Choice has the capability for up
to one hundred combinations of game types and paytable variations. IGT's
modular game software architecture with high level interface permits quick
response for new development. 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 Company has initiated the regulatory approval process to
license Winners Choice in Connecticut, Iowa, Louisiana, Mississippi, New
Jersey and Nevada.
IGT-North America also develops, manufactures and markets microprocessor
based Slot Marketing and Revenue Tracking "SMART" systems. The SMART
computer system identifies frequent players, records playing history,
provides direct marketing information, automates slot accounting and
provides additional security to casino customers. IGT provides SMART
system 24-hour technical support and a software maintenance agreement for
on-site service by specially trained system engineers.
The Company's innovations in slot and video technology have increased the
machines' earning potential by improving the ease and speed of play, and by
decreasing down-time through improved reliability and added service
features. All new gaming machines offer a wide variety of games,
innovative designs, sophisticated security features, self-diagnostic
capabilities, and various accounting and data retention functions. The
Company's engineering and design staff continually provide technological
improvements and ongoing game development. The Company has obtained
numerous patents on various aspects of the video and reel-type gaming
machines and systems. The visual aspects of the product are upgraded and
customized by the Company's graphic design and silkscreen departments.
<PAGE>
ITEM 1. BUSINESS (continued)
The following schedule illustrates revenues derived from the sale of
gaming:
<TABLE>
Fiscal Years Ended September 30,
<CAPTION>
1994 1993 1992
(Amounts in Thousands)
<S> <C> <C> <C>
Reel-Type Slot Machines $308,898 $194,126 $105,818
Video Products 162,092 75,506 62,338
Video Gaming Terminals 10,830 15,100 22,172
</TABLE>
Markets
The Company has benefited in the past few years from the significant
expansion of legalized gaming primarily in the Midwestern market, Native
American gaming and Canadian government sponsored casino gaming market.
The Company believes that new markets for gaming products will continue to
open but at the same time, the pace and timing of such growth is uncertain.
During fiscal 1994, the gaming industry in the United States was influenced
by public opinion, the legal and electoral process, and the threat of a
federal gaming tax. Many of these same or similar factors are also present
in developing international markets. These factors are outside the control
of the Company in both domestic and international markets. As a result,
the Company cannot predict the rate at which domestic and foreign markets
will develop and any slow down or delays in the growth of new markets will
adversely affect the Company's future results.
The Company markets its gaming products in North America and in other
jurisdictions throughout the world. The most established North American
markets are Nevada and Atlantic City. The Company manufactured
approximately 12,000 of the estimated 27,000 gaming machines currently in
place in Atlantic City. Nevada is both the oldest and largest market for
the Company's products with an installed base of approximately 170,000
machines of which the Company manufactured approximately 116,000.
Within Nevada, there has been increased demand for gaming products
attributable to the construction of new casinos and the expansion and
refurbishment of existing casinos. The increased demand began with the
opening of the Mirage hotel and casino in 1989 and the Excalibur hotel and
casino in 1990. In fiscal 1991 and fiscal 1992, the Company's sales volume
in Nevada increased due to additional casino expansions and the replacement
of older machines with new games, designs and technological advancements.
The opening of three "mega-resorts," the Luxor, MGM Grand and Treasure
Island, significantly increased demand for gaming products in fiscal 1993
and early fiscal 1994. These three hotel casinos increased the
<PAGE>
Item 1. BUSINESS (continued)
installed base of gaming machines in Nevada by over 8,000 machines while
adding approximately 10,000 hotel rooms in Las Vegas, Nevada. The Company
manufactured approximately 6,500 of the more than 8,000 machines
initially installed at these three hotels. The market for gaming products
in Nevada continued to grow during fiscal 1994 due to new casino openings
at Boomtown, Boulder Station and Buffalo Bills which increased the
installed base of gaming machines in Nevada by over 4,800 machines. Most
of these machines were manufactured by the Company. Several expansions
also occurred in fiscal 1994 at Arizona Charlies, Casino Royale,
Rio Suites, Sams Town and Virgin River. Demand for gaming products,
including the Company's products, grew in fiscal 1994 because existing
casinos replaced a greater number of older gaming machines. In particular,
strong demand for gaming machines with embedded bill-acceptors
accelerated the replacement of existing machines. During fiscal 1994,
significant product replacements occurred at properties owned by
Circus Circus, Golden Nugget, Harrahs, Mirage and Palace Station and a
significant number of the Company's products were installed at these
casinos as replacement products. Gaming machines have a mechanical
life of approximately 10 years, although in established markets,
such as Nevada, they are replaced on average between five to seven years.
Replacement occurs as a result of technological advances, new designs,
improvements in the visual characteristics, and the development of new games.
The Company is aware of two large casinos projected to operate over
1,000 gaming machines each that will open during fiscal 1995. The Silver
Legacy in Reno, Nevada and The Texas Gambling Hall in Las Vegas, Nevada are
both under construction and expected to open in the Summer of 1995. As of
April 30, 1995, the Company has contracts to sell machines to the Silver
Legacy and to the Texas Gambling Hall. The Company also expects there to be
number of smaller properties that expand or remodel. The Company also
anticipates continued demand for embedded bill acceptors but
the level of demand cannot be predicted. Demand for the product
is dependent, in part, on the competitiveness of casinos and
the willingness of casinos to incur the costs associated with
replacing existing gaming machines with new machines.
Riverboat gaming began in Iowa during 1991 and as of September 30,
1994 was operating in five states: Iowa, Illinois, Louisiana, Mississippi
and Missouri. Riverboat gaming is also legal in Indiana but was not
operational at the end of fiscal 1994. At the end of fiscal 1994, the
riverboat installed base was estimated at 50,000 gaming machines operating
<PAGE>
Item 1. BUSINESS (continued)
on over 50 riverboats in five states and IGT manufactured approximately
40,000 of these machines.
While gaming was recently legalized in Missouri and Indiana, court
challenges regarding the constitutionality of gaming significantly delayed
the development of these markets. Riverboat gaming was initially approved
by the voters in Missouri in November, 1992, and by the Indiana legislature
in June, 1993. The Missouri Supreme Court in January, 1994 ruled that slot
machines were defined as games of chance and therefore prohibited by the
Missouri constitution. On April 5, 1994, a Missouri referendum to approve
games of chance was narrowly defeated. The third referendum regarding the
legalization of gaming was held on November 8, 1994 and the people of
Missouri voted in favor of an amendment to the state's constitution
allowing slot machine gaming. At the end of fiscal 1994, five riverboats
operated (without slot machines) in Missouri and 17 applications for
riverboat casino licenses were pending before the Missouri Gaming
Commission. In May, 1994, a Porter County, Indiana judge ruled that the
Indiana gaming law violated the state's constitution based on special
legislation favoring a particular community. On November 21, 1994, the
Indiana Supreme Court ruled that the Indiana gaming law was in fact in
agreement with the states constitution. The Indiana gaming regulations
limit the number of riverboat casino licenses to 11.
Several states may introduce riverboat gaming legislation during 1995
legislature sessions including Illinois, Massachusetts, Ohio, Pennsylvania,
and South Carolina. The further expansion of riverboat gaming in these and
in any other potential jurisdictions will be the subject of 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 the timing and opening of riverboat
gaming in new markets.
Casino-style gaming expanded on Native American lands in fiscal 1994.
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 gaming operators who have
negotiated a compact with the state and received approval by the U. S.
<PAGE>
Item 1. BUSINESS (continued)
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 in the following 13 states: Arizona, Colorado, Connecticut, Iowa,
Louisiana, Michigan, Minnesota, Mississippi, Montana, North Dakota, Oregon,
South Dakota and Wisconsin. There are 11 tribes in 5 of the above states
that have approved compacts but have not commenced gaming operations in
fiscal 1994. Compacts have also been approved by the U.S. Department of
the Interior in North Carolina and Rhode Island although no deliveries were
made into these jurisdictions during fiscal 1994. In addition to the
approved states, Class III compacts are under consideration in several
states including Alabama, Massachusetts, and New Mexico. Several other
states including California, Florida, Kansas, Oklahoma and Washington have
been in the compacting process for several years due to ongoing litigation
between Native American and state governments. The installed base of
Indian gaming machines at September 30, 1994 was approximately 40,000
units, and the Company estimates it manufactured 30,000 of these machines.
Government-sponsored gaming in North America is a market for the
Company's video and slot 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,
Saskatchewan and Quebec. The Company supplied the central computer systems
for government sponsored gaming in Manitoba, Oregon and Louisiana and
manufactured approximately 21,000 of the 92,000 total video gaming
terminals installed in North America.
In addition to video terminal gaming, various Canadian governments
have approved casino gaming. The Province of Manitoba opened two casino
style entertainment centers during September 1993 with approximately 600
slot machines of which the Company supplied 540. The Province of Quebec
began casino-style gaming in Montreal during October 1993, and the Company
supplied 480 of the 1,200 units initially installed. A second casino
opened just north of Quebec City in July 1994. The Company manufactured
approximately 150 of the 230 total machines at this casino. In May 1994,
the Province of Ontario opened its first casino in Windsor. The Company
supplied approximately 1,100 of the 1,700 total machines at the Windsor
casino. Two additional casinos are planned for Ontario, and according to
industry publications, Niagara Falls, Ottawa and Toronto are targeted
locations. In April 1994, the government of Nova Scotia indicated it will
license two casinos, one in Halifax and one in Cape Breton. The casinos
will be provincially owned and one operator will finance, construct and run
both casinos. It is anticipated that the government of Nova Scotia will
choose one of three potential operators early in 1995.
<PAGE>
Item 1. BUSINESS (continued)
In addition to the traditional and emerging U.S. markets, gaming is
expanding in international markets. Gaming in international markets
includes both western casino-style gaming, private clubs, and in some
countries, smaller scale gaming-halls . The casino-style gaming is
similar to North American gaming because the properties are larger-scale
and the casino themes and games are westernized. International casinos
commonly target the tourist population and they 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 are 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 they are at times managed by major
world-wide casino operators.
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 as well as gaming machines. In some foreign jurisdictions, the
machines pay out tickets or tokens rather than coins. These gaming
establishments are usually privately owned. Due to the smaller size of the
locations, and because they house fewer machines, the investment required
is significantly less than that for casino developments.
The Australian market is the most established international
jurisdiction for gaming products outside of North America. The State of
New South Wales is the second largest market in the world for gaming
machines with an estimated total of 72,000 machines in 2,100 pubs and 1,500
not-for-profit clubs. The Company began selling machines in Australia in
1986 and has supplied approximately 18,000 of the machines in New South
Wales. The average life of a gaming machine in the New South Wales market
is between 7 and 10 years. In 1991, the State of Queensland legalized the
operation of gaming machines in private pubs and clubs. The State of
Queensland awarded the Company a contract to provide the central computer
system linking the machines for accounting and security purposes. The
central computer system was installed and accepted in October 1991 and
gaming commenced in February 1992. The Company supplied approximately
6,000 machines of the 15,000 estimated total machines. Gaming began in the
State of Victoria during July 1992 using two separate central systems.
Approximately 7,000 machines are operated by competing agencies that are
each allowed to place up to 20,000 machines. To date, the Company has had
minimal sales into the Victorian market. South Australia legalized gaming
in September of 1992, and gaming operations began in July, 1994. The
Company supplied approximately 1,500 of the estimated 4,000 machines
currently in place. Other Australian jurisdictions are considering the
legalization or expansion of gaming operations. The Government of
Tasmania, for example, has signalled its intention to expand gaming into
<PAGE>
Item 1. BUSINESS (continued)
clubs and hotels in the next several years. Pub and club gaming also exists
in New Zealand and the Company supplied approximately 3,800 of the 7,700
total machines used in these facilities.
In addition to the above mentioned pub and club markets, casino-style
gaming has existed in Australia since 1973. Currently, a total of ten
casinos operate in Australia within the States of Queensland, the Northern
Territory, Western Australia, South Australia, Victoria, Tasmania, and the
Australian Capital Territory. Also, one casino recently began operations
in New Zealand. Casino-style gaming expanded during calendar 1994 with the
Crown Casino of Melbourne, Victoria opening in July, 1994, and the Casino
in Christ Church, New Zealand opening in November, 1994. Casino
developments continue to expand in Australia with the opening of the
Brisbane, Queensland casino scheduled for April, 1995. An operator was
also selected for the Sydney Harbour, New South Wales planned casino. One
additional casino is approved for the state of New South Wales and further
expansions are either proposed or approved in Cairns, Queensland and in
Auckland, New Zealand.
The European and 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 improved market share.
Sales during fiscal 1994 were primarily to casinos in France, Turkey, The
Netherlands, South Africa and Slovenia.
During fiscal 1993 the Company completed an agreement with the
University of Iceland Lottery, ("UIL") to supply video lottery terminals
and a central system linking the video lottery terminals. The central
system incorporates a progressive jackpot feature. The Iceland system,
managed by the UIL, began operating in December 1993 with 350 video lottery
terminals manufactured by the Company.
Although recent developments indicate gaming may soon expand within
Greece, Sweden, and South Africa, the rate of growth of the European market
for the Company's gaming products, and the degree to which the Company will
successfully penetrate this market, is uncertain.
In Greece, the ministry of tourism is planning to license 12 casinos
within the national territory. Casino gaming will include various forms of
live gaming and slot machines. The development of casino gaming in Greece
recently stalled because the current socialist government canceled the
prior government's bidding process. The new casino license bill requires
potential operators to make additional investments and pay greater taxes
than the previous legislation. The current casino bill in Greece resulted
<PAGE>
ITEM 1. BUSINESS (continued)
in some casino operators pulling out of the bidding process which makes it
difficult to predict the timing of development within this market.
In South Africa, the Lotteries and Gambling Board issued an interim
report in October 1994 to the minister of Justice recommending the
legalization of some form of lotteries and gambling. The Board also
recommended that the proceeds be used to aid the government's
reconstruction and development program. Current gaming regulations within
South Africa prohibit all forms of gambling except for betting on horse
racing and casino gaming in the what were previously known as the
independent homeland countries. In response to these developments, the
Company established IGT-Africa with a sales and service office in Sandown,
a suburb of Johannesburg, South Africa.
In Sweden the parliament recently put into effect regulations allowing
the use of video gaming devices starting in early 1995. Regulations state
that only games yielding prizes other than cash will be allowed, and that
the operation and gaming proceeds will come under the control of charitable
organizations. The Company intends to participate in this market, yet
there can be no assurances since the Swedish government has neither
selected vendors nor the operator of the central system.
The Company has identified several important international markets
where it has, or is seeking to establish, a local presence, including
Japan, China and Latin America. The Japan market consists of over
3,600,000 Pachinko machines and 730,000 Pachisuro machines which operate in
parlors throughout the country. The Company designed a Pachisuro
(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). IGT is the first U.S. company
authorized to supply Pachisuro machines and will compete with approximately
20 Japan-based companies that currently supply this market. Japan remains
a developing market for the Company and during fiscal 1994 the Company
increased its investment in design, sales and support staff and continues
to pursue what is the largest regulated machine market in the world. The
sales within this market have been minimal to date.
The Company targets China as a potential future market for its
products, it may however, take several years for a fully regulated and
developed gaming market to evolve. While gambling is illegal in China,
video game arcades housing amusement with prize machines are allowed under
the current central government policies. China's high growth rates and
<PAGE>
ITEM 1. BUSINESS (continued)
rising levels of disposable income have contributed to significant growth
in the country's video game arcade industry. The Company established IGT
(Asia) Company, Limited during fiscal 1994 with a central office in Hong
Kong. The Company is also in the process of applying for a representative
office in Shanghai, and is developing a customized product with several
game variations for the Chinese and other Asian markets.
The Company targets Latin America as a potential market for its
products realizing that the pace and timing of developments within the
region is very difficult to predict. Casino gaming is currently legal in
Argentina, Chili, Colombia, Costa Rica, Ecuador, Paraguay, Peru and
Uruguay. Recent developments indicate a possible expansion in the gaming
industry including casino privatization efforts and the establishment of
new and/or more definitive gaming regulations. Privatization efforts are
expected in Argentina and Uruguay where the governments currently own
approximately 60 and 10 casinos, respectively. Brazil outlawed gaming in
1946, but the government recently legalized live bingo and may also
consider the legalization of casino gaming. In Venezuela, Paraguay and
Bolivia the governments are reviewing and updating current regulations
governing a wide array of gaming. The Company established IGT-Argentina, a
sales and service office located in Buenos Aires during fiscal 1994. The
Company also established IGT-Brazil, a sales and service office located in
Sao Paulo during fiscal 1994. The Company has customized existing products
for the Latin American market by translating over 25 games into Spanish and
Portuguese and by adapting graphics and language to local cultures.
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, seven systems developed by the Company are operated under
the names Megabucks, Quartermania, Nevada Nickels, Fabulous Fifties, High
<PAGE>
ITEM 1. BUSINESS (continued)
Rollers, Quarters Deluxe and Dollars Deluxe. Of the total 4,200 gaming
machines linked to these systems, 2,250 are owned by the Company and 1,950
are owned by casinos.
In Atlantic City, New Jersey, six systems developed by the Company
operate under the names Megabucks, Quartermania, Fabulous Fifties, High
Rollers, Megapoker and Pokermania. These systems are operated by a trust
managed by representatives from participating casinos. The Company owns
all of the approximately 1,100 machines linked to these progressive
systems.
In Mississippi, six systems developed by the Company are operated
under the names Megabucks, Quartermania, Fabulous Fifties, Mississippi
Nickels, Pokermania and High Rollers. Of the total 1,200 gaming machines
linked to these systems, 300 are owned by the Company and 900 are owned by
casinos.
In Colorado, two systems developed by the Company are operated under
the names Megabucks and Quartermania. Approximately 300 casino owned
machines are operated on these systems.
In Louisiana, five systems developed by the Company began operating in
August, 1994 under the names Megabucks, Quartermania, Louisiana Nickels,
Fabulous Fifties, and High Rollers. Of the total 90 gaming machines, 60
are owned by the Company and 30 are casino owned.
In Native American casinos, two systems developed by the Company are
operated under the names Megabucks and Quartermania. Approximately 100
machines operate on these systems in casinos in the states of North Dakota,
South Dakota, Iowa and Michigan. The systems in Native American casinos
began operating in August 1994 and represent the first interstate operation
of the Company's proprietary systems.
Other systems include a Megabucks system in Macau which consists of
approximately 180 machines owned by the casinos and a Deadwood, South
Dakota Quartermania system which includes approximately 50 casino owned
machines. The Company has also initiated the regulatory approval process
to operate its proprietary systems on the five riverboats operating in
Missouri.
The operation of linked progressive systems varies between
jurisdictions as a result of different gaming regulations. In Nevada,
<PAGE>
ITEM 1. BUSINESS (continued)
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 out in equal
installments over a ten to twenty year period. The Company also earns
interest on these funds until jackpots are paid. In Atlantic City, the
casinos retain the net win, less a percentage paid to a trust managed by
representatives of the participating casinos to fund the jackpots and pay
other system expenses. The trust records a liability to the Company for an
annual casino licensing fee as well as an annual machine rental fee for
each machine. In Colorado, the casinos retain the net win less a
percentage paid to a separate fund managed by the Company which pays the
jackpots. Progressive system lease fees are paid to the Company from this
fund.
The Company also offers a "leased" link progressive system which links
gaming machines within a single casino or multiple casinos of common
ownership. Currently three major hotel casinos operate such systems, with
from three to seven hotel casinos linked per system. Approximately 300
gaming machines are linked between all such systems as of October 31, 1994.
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, 1994, an estimated 1,300 terminals were
operating on the system. IGT, one of four manufacturers providing
terminals, supplied approximately 325 terminals installed on this system
and receives a percentage of the net win from its terminals.
Video gaming in Oregon commenced in March of 1992, and IGT was awarded
the contract to supply the central computer system that currently links
approximately 6,600 terminals. The Company currently leases approximately
2,000 machines to the Oregon State Lottery.
Route and Lease Operations
Until August 1992, the Company operated one of Nevada's largest route
operations, consisting of machines located in bars and taverns with the
Company responsible for the operation, servicing and collection of the
monies from these machines. The location either shared the net win from
the gaming machines on a percentage basis or received a fee for rental of
space. In August 1992, the Company sold all of its route equipment and
operating contracts which included approximately 1,380 gaming machines at
approximately 160 locations.
<PAGE>
ITEM 1. BUSINESS (continued)
On November 23, 1992, the Company sold all of the equipment and
operating contracts of the Megapoker route (a linked progressive system for
video poker machines located throughout the state of Nevada) as well as
licensing the purchaser to use, in Nevada, all Megapoker software,
trademarks and trade names. This transaction included approximately 280
gaming machines owned and operated by the Company at 62 locations.
The Company leases gaming equipment to its customers and at September
30, 1994 leased approximately 5,900 gaming machines primarily in the
Midwestern riverboat, Colorado and Nevada markets. The Company also
operates approximately 1,000 machines under participation and rental
agreements primarily in the Nevada casino market.
In January 1993, the Company began operating approximately 180 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.
Marketing and Sales
The Company markets gaming products and proprietary systems through
its internal sales staff, agents and distributors. The Company employs
more than 285 sales personnel in offices in several United States locations
as well as Canada, Australia, Europe, South Africa and South America.
The Company uses distributors for sales to specific markets including
Louisiana, Native American reservations, New Jersey, South Carolina, 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.
The Company considers its customer service department an important
aspect of the overall marketing strategy. The Company typically provides a
90 day service and parts warranty for its gaming machines and charges on a
time and material basis thereafter. The Company currently has more than
260 trained service personnel and maintains service offices in Colorado,
Florida, Mississippi, Missouri, Montana, Nevada, New Jersey, Argentina,
Australia, Brazil, Canada, Japan, New Zealand, South Africa and The
Netherlands. The Company also maintains a customer hot-line available 24-
hours a day, seven days a week to respond to customer questions.
<PAGE>
ITEM 1. BUSINESS (continued)
During fiscal 1994, the Company's worldwide sales and service
organization increased by approximately 100 employees to a total of over
500.
The Company's marketing strategy is to offer its customers not only
the broadest product line but also ongoing game development. IGT's game
library contains numerous game variations. Reprogramming machines for the
newest games and changing the glass design can be accomplished quickly.
In 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 silkscreen printing of gaming machine
glass, video graphics, customized game development and interior design
services. IGT developed more than 30 new games which included a variety of
custom artwork for casinos that opened, renovated or expanded in fiscal
1994. The Company also offers customized design services that utilize
computer aided design and three-dimensional studio software programs. The
Company's design department generates a casino floor layout and can create
a proposed casino slot mix for its customers. The final design
incorporates casino colors, themes, signage, custom glass and includes
either an overhead floor plan layout, viewable from any angle, or a three-
dimensional moving walk-through of the casino.
Customers
The Company's products and services are sold to licensed gaming
operators in jurisdictions where gaming is legal. Its products and
services are also sold to government jurisdictions which conduct gaming
operations. At the end of fiscal 1994, the Company believes there were
approximately 400 gaming operators in North America where most of its
products are sold. During fiscal 1994, the Company's ten largest customers
accounted for 27% 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 9.7% 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. 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
<PAGE>
ITEM 1. BUSINESS (continued)
for the start-up of government sponsored video gaming operations.
Subsequent orders from established customers result from remodeling or
expansion of existing facilities as well as replacement of machines due to
technological advancements, new designs and upgrades. Sales of the
Company's products can fluctuate from quarter to quarter as new
jurisdictions throughout the world legalize gaming and new casinos in
established gaming markets are opened. The Company believes that its
revenues from gaming product sales would not be materially affected by the
loss of any single customer.
Competition
Product Sales
The 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.
In the North American casino-style market, IGT considers
itself the leading supplier of gaming machines due to a continual upgrade
of products and ongoing game development efforts. The Company's customer
service organization, with over 260 employees, is also a significant
contribution to IGT's overall competitive position.
The Company competes with substantial U.S. and foreign manufacturers
in the casino style gaming machine market. The primary competitors are
Bally Gaming International, Inc. ("Bally"), Sigma Game, Inc. ("Sigma"), and
Universal Distributing of Nevada, Inc. ("Universal"). Bally is a Nevada
company while Sigma and Universal are Japanese companies. In addition, two
manufacturers, WMS Industries, Inc. and Video Lottery Consultants, Inc.
recently developed casino products and are either authorized to sell their
products, or they are in the licensing process in many U.S. gaming
jurisdictions. In the slot management and revenue tracking market, the
Company competes with Casino Data Systems.
The Company considers itself one of four 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. G-Tech,
WMS Industries, Inc. and Video Lottery Consultants, Inc. have an
established presence in the lottery market, substantial resources, and
specialize in the development and marketing of gaming terminals to
governments.
<PAGE>
ITEM 1. BUSINESS (continued)
Gaming Operations
The most significant factor influencing the play on progressive
systems is enhanced player appeal resulting from large jackpot payouts.
The systems appeal to casinos due to the games earnings premium and because
they emphasize strong security and control features. The shared liability
for jackpots among all casinos also makes it economically feasible for
properties of any size to participate. IGT considers itself the leading
operator of progressive systems and has successfully introduced
additional progressive systems within both existing and new gaming
jurisdictions. The competition in the progressive systems business
is currently limited but could increase in the future.
Manufacturing and Suppliers
The Company's manufacturing operations primarily involve assembly of
electronic and computer components, including chips, video monitors and
prefabricated parts purchased from outside sources. The Company does
however, operate metal fabricating, custom wood cabinet manufacturing and
silkscreen facilities. The Company is not dependent upon any one supplier
for any raw material. The Company purchases certain components from
subcontractors and believes that alternative sources of these components
are available. The Company believes its relations with its vendors are
good. The Company uses technical staff to assure quality control.
The Company generally carries a significant amount of inventory due to
the broad range of products it manufactures and to facilitate its capacity
to fill customer orders on a timely basis.
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
<PAGE>
ITEM 1. BUSINESS (continued)
applications will be granted. These patents range in subject matter from
coin-handling apparatus, fiber-optic light pens, coin-escalator mechanisms
through optical door interlock and other aspects of video and mechanical
slot machines and systems. There can be no assurance that the patents will
not be infringed or that others will not develop technology that does not
violate the patents.
Employees
As of September 30, 1994, the Company, including all subsidiaries,
employed approximately 2,790 persons, including 330 in administrative
positions, 285 in sales and 405 in engineering. Of the total employees,
International Game Technology accounted for 415; IGT-North America, 2000;
IGT-International, 60; IGT-Australia, 280; IGT-Europe, 30; and IGT-Japan,
5. The total number of employees increased in fiscal 1994 by approximately
690 as compared with the number of employees at September 30, 1993. This
increase reflects additions to the administrative, engineering and
manufacturing staffs of the Company. These increases were to improve the
administrative systems, develop new markets, support revenue growth and
develop new products. The Company added approximately 500 assembly
employees to its Reno operation during the period December 1993 through May
1994 in order to meet product demand resulting from the opening of
riverboat casinos and gaming expansion in Nevada. During the fourth
quarter of fiscal 1994, 160 Reno assembly employees were laid off after
completion of the above sales orders. None of the Company's employees is a
member of a collective bargaining unit.
Government Regulation
Nevada Regulation
The manufacture, sale and distribution of gaming devices in Nevada are
subject to extensive state laws, regulations of the Nevada Gaming
Commission and State Gaming Control Board (the "Nevada Commission"), and
various county and municipal ordinances. These laws, regulations and
ordinances primarily concern the responsibility, financial stability and
character of gaming equipment manufacturers, distributors and operators, as
well as persons financially interested or involved in gaming operations.
The manufacture, distribution and operation of gaming devices require
separate licenses. The laws, regulations and supervisory procedures of the
Nevada Commission seek to (i) prevent unsavory or unsuitable persons from
having a direct or indirect involvement with gaming at any time or in any
<PAGE>
ITEM 1. BUSINESS (continued)
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-North
America as its wholly-owned subsidiary. As a registered holding company,
it is required periodically to submit detailed financial and operating
reports to such Commission and furnish any other information which the
Commission may require. No person may become a stockholder of, or receive
any percentage of profits from, a licensed subsidiary without first
obtaining licenses and approvals from the Nevada Commission. Officers,
directors and key employees of a licensed subsidiary and of the Company who
are actively engaged in the administration or supervision of gaming must be
found suitable. No proceeds from any public sale of securities of a
registered holding corporation may be used for gaming operations in Nevada
or to acquire a gaming property without the prior approval of the Nevada
Commission. The Company believes it has all required licenses to carry on
its business in Nevada.
Officers, directors, and certain key employees of the Company who are
actively and directly involved in gaming activities of the Company's
licensed gaming subsidiary may be required to be licensed or found
<PAGE>
ITEM 1. BUSINESS (continued)
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.
<PAGE>
ITEM 1. BUSINESS (continued)
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 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
<PAGE>
ITEM 1. BUSINESS (continued)
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.
<PAGE>
ITEM 1. BUSINESS (continued)
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
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
<PAGE>
ITEM 1. BUSINESS (continued)
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.
ITEM 2. PROPERTIES
The Company owns two adjoining 46,000 square foot office buildings in
Reno, Nevada for use as its corporate offices.
IGT-North America leases approximately 712,300 square feet of office,
warehouse and production facility space in Reno, Nevada and approximately
194,650 square feet of office and warehouse space in Las Vegas, Nevada.
Additionally, IGT-North America leases approximately 81,900 square feet of
office and warehouse space in various states where it conducts business
including Montana, Mississippi, New Jersey, Florida, Colorado and
Louisiana. IGT-International utilizes a portion of the owned office
buildings in Reno, Nevada and a portion of the facilities leased by IGT-
North America in Las Vegas, Nevada.
IGT-Europe leases approximately 10,800 square feet of office and
warehouse space in Hoofddorp, Holland, The Netherlands.
IGT-Australia purchased a 303,800 square foot office production and
warehouse facility in Sydney, New South Wales, Australia in August 1994.
Currently IGT-Australia utilizes 231,200 square feet of this space and
<PAGE>
ITEM 2. PROPERTIES, (continued)
subleases the remainder of the facility. Additionally, IGT-Australia
leases approximately 76,900 square feet of office and warehouse space in
various locations throughout New South Wales.
In May 1994, the Company purchased approximately 78 acres in Reno
Nevada and is in the process of designing a 1,000,000 square foot office,
manufacturing and warehousing facility. The Company anticipates that the
new manufacturing and warehousing facility will be completed in late
calendar 1995, and that the office facility will be completed in late
calendar 1996, absent unexpected delays. The Company's current Reno,
Nevada operations exist in 16 leased buildings and two company owned
buildings, totaling approximately 800,000 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 these facilities to a third party.
ITEM 3. LEGAL PROCEEDINGS
The Company has been named in and has brought lawsuits in the normal
course of business. Management does not expect the outcome of these suits
to have a material adverse effect on the Company's financial position or
results of future operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<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>
High Low
<CAPTION>
Fiscal 1993
<S> <C> <C>
First Quarter. . . . . . . . . . $ 26-3/8 $ 17-7/8
Second Quarter . . . . . . . . . 33 23-3/4
Third Quarter. . . . . . . . . . 39-3/4 28-1/2
Fourth Quarter . . . . . . . . . 41-3/8 32-1/8
Fiscal 1994
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
</TABLE>
As of December 2, 1994 there were approximately 8,757 record holders
of the Company's common stock which had a closing price of $16-5/8 on the
same date.
On April 7, 1993 the Company declared its first quarterly dividend of
$.03 per share, payable on June 1, 1993. The Company declared two
additional quarterly dividends of $.03 per share in fiscal 1993 and four
quarterly dividends of $.03 per share in fiscal 1994. It is anticipated
that comparable cash dividends will continue to be paid in the future.
The Company's transfer agent and registrar is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, NY 10004, (212) 509-4000.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following information has been derived from the Company's
consolidated financial statements:
<TABLE>
(Amounts in thousands, Years Ended
except per share data) September 30,
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Selected Income Statement Data:
Total revenues. . . . $674,461 $478,030 $363,594 $233,002 $204,807
Income from continuing
operations . . . . $140,447 $105,578 $ 63,284 $ 29,780 $ 19,674
Income from
discontinued
operations1. . . . $ - $ 13,447 $ 1,500 $ 450 $ 329
Net income. . . . . . $140,447 $119,025 $ 64,784 $ 30,230 $ 20,003
Income per primary
share from continuing
operations2. . . . $ 1.07 $ 0.85 $ 0.53 $ 0.26 $ 0.17
Net income per primary
share2 . . . . . . $ 1.07 $ 0.96 $ 0.54 $ 0.26 $ 0.17
Net income per fully
diluted share2 . . $ 1.05 $ 0.90 $ 0.52 $ 0.26 $ 0.17
Cash dividends declared
per common share . $ 0.12 $ 0.09 $ - $ - $ -
Average primary common
and common equivalent
shares outstanding2. 131,380 123,618 120,081 116,818 117,135
Average common and common
equivalent shares
outstanding assuming
full dilution2 . . 135,858 136,611 135,448 117,491 117,135
Selected Balance Sheet Data:
Working capital . . . $480,698 $379,680 $257,063 $184,092 $ 80,474
Total assets. . . . . $868,008 $646,593 $489,973 $345,605 $208,523
Convertible Subordinated
Notes Payable. . . $ - $ 59,998 $ 93,999 $ 92,536 $ -
Long-term notes payable
and capital lease
obligations. . . . $111,468 $ 617 $ 19,965 $ 20,767 $ 27,584
Stockholders' Equity. $520,868 $378,549 $214,062 $123,747 $ 92,697
<FN>
<F1>
1 Discontinued operations consist of casino operations which the Company
sold during fiscal 1993. See Note 12 to the Consolidated Financial
Statements for further discussion.
<F2>
2 Restated to give retroactive effect for two-for-one stock splits in 1990,
1991, 1992 and 1993.
</FN>
</TABLE>
<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 of gaming products (product sales) and gaming operations.
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 Company believes that gaming markets will continue to expand as
gaming is legalized in new domestic and foreign jurisdictions. For
example, in November 1994, the Missouri electorate approved the use of
gaming devices on riverboats in Missouri and the Indiana Supreme Court
denied a constitutional challenge to riverboat gaming in that state. At
the same time, however, the gaming industry and the pace of its growth
domestically has been and continues to be influenced by public opinion, the
legal and electoral processes and, in fiscal 1994, the threat of a United
States federal gaming tax. Similar factors are present in many of the
international jurisdictions in which the Company is doing business or
expects new markets to develop. These factors are outside the control of
the Company. 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.
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
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
sale of its Nevada route operation in November 1992.
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 embedded 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).
Research and development 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 development of new gaming products and systems has
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
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 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.
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 14 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 reflect an
allocation of a portion of selling, general, and administrative and research
and development expenses to each of the 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.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
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.
Fiscal 1993 Compared to Fiscal 1992
Net income for fiscal 1993 increased 84% to $119,025,000 or $.96 ($.90
fully diluted) per share compared to net income of $64,784,000 or $.54 per
share (adjusted to reflect a two-for-one stock split effective March 17,
1993) for fiscal 1992. Net income in both years included income from
discontinued casino and riverboat operations of $13,447,000 in fiscal 1993
and $1,500,000 in fiscal 1992. Income from continuing operations increased
67% to $105,578,000 or $.85 per share compared to $63,284,000 or $.53 per
share in fiscal 1992. This increase in income from continuing operations
resulted primarily from a 42% increase in product sales and a 17% increase
in revenues from the Company's linked progressive systems business.
Revenues and Cost of Sales
Total revenues for fiscal 1993 increased 31% to $478.0 million. This
increase included a 42% or $99.3 million increase in product sales and a
12% or $15.2 million increase in gaming operations revenues. In fiscal
1993 gaming machine shipments grew to 68,900 (compared to 46,100 in fiscal
1992) primarily as a result of increased product demand in the North
American riverboat and Indian casino markets and the Southern Nevada casino
market. The riverboat sales occurred primarily in the states of
Mississippi, Illinois and Iowa. Currently six states have approved
riverboat gaming and seven states either have bills in legislation or are
considered likely to introduce or re-introduce riverboat legislation.
The Company sells machines to casino operations on Indian lands
through an independent distributor. In fiscal 1993, sales to this
distributor totaled $40.2 million compared to $27.1 million in fiscal 1992.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCI
CONDITION AND RESULTS OF OPERATIONS (continued)
The Las Vegas, Nevada market continued to expand with the opening of
the Luxor and Treasure Island hotel casinos in late fiscal 1993, and the
MGM Grand Hotel in early fiscal 1994. In addition, product sales continued
to increase in Canada, Europe and Australia as the Company increased its
efforts in these international markets.
Gaming operations revenue increased $15.2 million or 12% to $142.4
million in fiscal 1993 as a result of a higher volume of play on the Nevada
progressive systems, the introduction of new systems in Mississippi and
Rhode Island and growth in the number of units leased to the Oregon state
lottery and North American riverboat markets. These increases were
partially offset by the sale of the Company's Nevada route operations and
the Megapoker systems route in August and November 1992, respectively.
IGT-International recently signed a contract with the University of
Iceland Lottery to supply the video lottery terminals and a central system
with a progressive jackpot feature. This system began operating in
December 1993 with 350 video lottery terminals.
The gross margin on product sales increased to 50.2% in fiscal 1993
compared to 48.3% in fiscal 1992, reflecting improved production
efficiencies at both the IGT-North America and IGT-Australia manufacturing
facilities.
Expenses
Gaming operations expense increased $8.0 million or 14.7% primarily as
a result of the growth in jackpot expenses associated with the Company's
linked progressive systems. This increase in jackpot expense reflects
increases in play on the Nevada systems and the introduction of new
systems. Also contributing to this increase were the expenses associated
with the operation of approximately 180 gaming machines at the Reno/Tahoe
International Airport under an agreement which began in January 1993.
Offsetting these expense increases was the Company's sale of its Nevada
route operations and the Megapoker route to Jackpot Enterprises.
Selling, general and administrative expenses increased $4.9 million or
9.3% due to growth in the number of employees, incentive and benefit plan
cost increases, the February 1992 opening and 1993 expansion of a sales and
distribution facility in Amsterdam, The Netherlands, and the establishment
of a manufacturing facility in Manitoba, Canada in late fiscal 1992.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Depreciation and amortization expense increased $3.4 million or 20% as a
result of increased lease financing, wherein the Company retains ownership
of and depreciates the machines in the Colorado and Riverboat markets and
expansion of the proprietary systems business.
The growth in research and development expense from $11.8 million to
$16.5 million resulted from the addition of engineering personnel,
increased consulting services expense, and increased incentive compensation
and benefit costs. The provision for bad debts declined to $3.8 million
for fiscal 1993 compared to $4.6 million in the prior year.
Other Income and Expense
As a result of the sales growth and the Company's ability to finance
customer sales, notes and contracts receivable increased $36.8 million or
52%, causing interest income to increase in fiscal 1993. Also contributing
to the $7.9 million increase in interest income in fiscal 1993 was
increased income on the Company's investment of excess cash and the growth
in the systems business in which income is recognized on the Company's cash
investments used to pay progressive system jackpot winners. Interest
expense increased $2.0 million to $12.7 million in fiscal 1993 due to
additional interest recorded on the liabilities to the progressive systems
jackpot winners. This was partially offset by a reduction in interest
expense from the conversion of approximately $42.7 million of the Company's
convertible subordinated notes to common stock. The growth of the
Company's progressive systems increases both interest income and interest
expense. The Company records interest income on funds invested to secure
jackpot payments and records commensurate interest expense on the
outstanding liabilities to jackpot winners.
During fiscal 1993 the Company recorded a gain of $10.1 million on the
sale of assets primarily consisting of gains on the sale of certain
securities held in the Company's investment portfolio, and to a lesser
extent a gain on the sale of the Megapoker route (see Note 14 of the Notes
to the Consolidated Financial Statements).
<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 reflect an
allocation of a portion of selling, general, and administrative and
research and development expenses to each of the business segments.
Manufacturing operating profit increased 70% or $50.6 million in
fiscal 1993 compared to fiscal 1992. This increase resulted primarily from
increased product sales, and an improved gross profit margin on product
sales, and increased interest income. The increase in interest income was
due to higher balances of interest earning notes and contracts receivable
resulting from increased sales.
The gaming operations operating profit increased 6% or $2.3 million in
fiscal 1993 compared to fiscal 1992. This increase resulted primarily from
increased game operations revenue and interest income. Higher depreciation
expense due to increased lease financing and increased interest expense
related to the progressive systems liabilities partially offset the overall
growth in gaming operations operating profit.
Discontinued Operations
During fiscal 1993, the Company divested its investments in casino
operations through the sale of its interest in the President Riverboat
Casinos, Inc. ("PRC") and the sale of CMS. 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.
Foreign Operations
Approximately 11% of the Company's revenues in fiscal 1994 were derived
outside of the United States. International operations are subject to
certain risks, including but not limited to, unexpected changes in
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
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 tranactions 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.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
Working capital increased $101.0 million during fiscal 1994 to $480.7
million at September 30, 1994. This increase was primarily the result of a
$57.4 million increase in cash and cash equivalents, a $48.8 million
increase in accounts receivable, a $16.2 million increase in the current
maturities of note and contracts receivable, a $28.9 million increase in
inventories, and a $11.6 million reduction in accrued income taxes payable.
The above increases in working capital were partially offset by a $71.7
million decline in short term investments, the proceeds of which were used
to fund stock repurchases made in fiscal 1994. The increase in cash and
cash equivalents resulted from the investment of the proceeds received from
the sale of Senior Notes issued in September 1994 (see Note 11 to the
Consolidated Financial Statements). These proceeds are primarily being
used to fund the construction of the new Reno, Nevada manufacturing
facility and for general corporate purposes, (See "Properties"). The 60%
increase in accounts receivable and the 25% increase in the current
maturities of notes and contracts receivable reflect the overall increase
in product sales of 53% in fiscal 1994 over the prior fiscal year.
The growth in inventories resulted from a $19.3 million increase in
raw materials and a $11.1 million increase in finished goods inventory.
During fiscal 1994, the Company increased it's raw materials inventory to
support a significant sales increase of gaming machines with the embedded
dollar bill acceptor feature, improve the turnaround time in providing
customers with spare parts and support a growing customer base. The
increase in finished goods was the result of an increase in completed
machines held by the Company, awaiting shipment. At September, 30, 1993,
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
accrued income taxes were $11.6 million and represented United States and
Canadian income taxes payable, which were subsequently paid in fiscal 1994.
Cash Flow
During fiscal 1994 the Company's cash and cash equivalents increased
$57.4 million to $142.7 million. Cash provided by operating activities for
the years ended September 30, 1994, 1993 and 1992 totaled $14.8 million,
$56.1 million and $38.6 million, respectively. Cash provided by operating
activities was reduced by increases in receivables and inventories during
fiscal 1992, 1993 and 1994, and in 1994 by a reduction in accrued income
taxes. The larger inventories and increased receivables have been required
to support the sales growth.
The primary source of cash from financing activities included $62.8
million, $48.0 million and $33.5 million in proceeds from systems to fund
liabilities to jackpot winners for the years ended September 30, 1994, 1993
and 1992, respectively, and in fiscal 1994, $113.6 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 11 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 $57.1 million of the Company's
common stock and the payment of cash dividends. Cash dividends were paid in
1994 and 1993 totaling $15.5 million and $7.4 million, respectively.
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 $73.2 million, $46.0 million and $32.5 million in fiscal 1994, 1993
and 1992 respectively. These purchases consisted primarily of the
capitalization of gaming machines and equipment leased in certain gaming
jurisdictions along with purchases of office furniture and computer
equipment to support the Company's expansion. In addition, in fiscal 1994,
the Company purchased a manufacturing and office facility in Sydney
Australia for approximately $13.0 million ($18.0 million Australian) and a
78 acre site in Reno, Nevada for the Company's future facilities expansion
for approximately $6.0 million. 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 designing a
headquarters and manufacturing facility on the above mentioned 78 acre site
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
with an estimated construction cost of $75.0 million (see note 16 to the
Consolidated Financial Statements). The facility is expected to be
completed in late 1996. The funds for the construction of this future
facility as well as the other capital expenditures anticipated during
fiscal 1995 will be derived from the Company`s existing cash flow and the
proceeds received from the September 1994 private placement of Senior
Notes.
During December 1992, the Company received $44.7 million in proceeds
from the initial public offering of the Company's ownership of certain
riverboat operations. These proceeds consisted of $16.2 million as payment
for outstanding loans including interest from the riverboat operations and
$28.5 million as proceeds from the sale of 100% of its equity in the
riverboat operations. The Company also received $1,000,000 as cash
proceeds from the sale of its ownership in CMS International. See Note 12
to the Consolidated Financial Statements for discussion of Discontinued
Operations.
Stock Repurchase Plan
On October 3, 1989, the Board of Directors authorized the repurchase
of up to 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 ended September 30, 1993, the Company repurchased an
additional 2,768,876 shares for an aggregate purchase price of $8,895,000.
On February 22, 1994, the Board again reaffirmed the repurchase of up to
10% of the Company's then outstanding shares and during the fiscal year
ended September 30, 1994, the Company repurchased an additional 2,941,400
shares for an aggregate purchase price of $57,100,000.
Recently Issued Accounting Standards to be Adopted
The Financial Accounting Standards Board issued in May 1993 SFAS No.
115 "Accounting for Certain Investments in Debt and Equity Securities."
This statement, effective for the Company's fiscal year ending September
30, 1995, will require that unrealized gains and losses on securities
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
defined as "trading securities" be included in income and that unrealized
gains and losses on securities defined as "available-for-sale" will be
excluded from income and reported in a separate component of stockholders'
equity. During the fiscal year ended September 30, 1994, the Company
accounted for it's investments under FASB 12, and accordingly recorded an
unrealized loss in income of $998,000. If SFAS No. 115 had been
adopted at September 30, 1994, it would have increased income from
continuing operations, before income taxes by $998,000 and had no effect on
stockholders' equity.
Lines of Credit
As of September 30, 1994, the Company had a $50.0 million unsecured
bank line of credit with various interest rate options available to the
Company. The line of credit is used for the purpose of funding operations
and to facilitate standby letters of credit. The Company is charged a
nominal fee on amounts used against the line as security for letters of
credit. Funds available under this line are reduced by any amounts used as
security for letters of credit. At September 30, 1994, $46.0 million was
available under this line of credit.
IGT-Australia had a $440,000 (Australian) bank line of credit
available as of September 30, 1994. Interest is paid at the lender's
reference rate plus 1%. This line is secured by equitable mortgages, and
has a provision for review and renewal annually in May. At September 30,
1994, no funds were drawn under this line.
The Company is required to comply, and is in compliance, with certain
covenants contained in these line of credit agreements and its Senior Notes
which, among other things, limit financial commitments the Company may make
without the written consent of the lender and require the maintenance of
certain financial ratios, minimum working capital and net worth of the
Company.
IMPACT OF INFLATION
Inflation has not had a significant effect on the Company's operations
during the three fiscal years ended September 30, 1994.
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . 44
Consolidated Statements of Income for the
years ended September 30, 1994, 1993 and 1992. . . . . . . . . 45
Consolidated Balance Sheets, September 30, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Consolidated Statements of Cash Flows for the
years ended September 30, 1994, 1993 and 1992. . . . . . . . . 49
Consolidated Statements of Changes in Stockholders'
Equity for the years ended September 30,
1994, 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . 51
Notes to Consolidated Financial Statements . . . . . . . . . . 52
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
of International Game Technology:
We have audited the accompanying consolidated balance sheets of
International Game Technology and Subsidiaries as of September 30, 1994 and
1993, 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, 1994. 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, 1994 and 1993, and the
results of their operations and their cash flows for each of the three
years in the period ended September 30, 1994 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 4, 1994
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
(Dollars in thousands except per share amounts)
Years Ended September 30,
<CAPTION>
REVENUES: 1994 1993 1992
<S> <C> <C> <C>
Product sales. . . . . . . $ 514,121 $ 335,641 $236,372
Gaming operations. . . . . 160,340 142,389 127,222
Total revenues (including
related party transactions
of $36,845, $15,589,
and $11,775). . . . . . 674,461 478,030 363,594
COSTS AND EXPENSES:
Cost of product sales. . . 271,374 167,017 122,125
Gaming operations. . . . . 70,692 62,715 54,680
Selling, general and
administrative . . . . . 83,871 57,526 52,646
Depreciation and
amortization . . . . . . 20,074 20,196 16,826
Research and development . 23,345 16,523 11,807
Provision for bad debts. . 7,199 3,815 4,608
Total costs and expenses . . 476,555 327,792 262,692
INCOME FROM OPERATIONS . . . 197,906 150,238 100,902
OTHER INCOME (EXPENSE):
Interest income. . . . . . 29,531 26,283 18,409
Interest expense . . . . . ( 11,794) ( 12,749) ( 10,790)
Gain on securities, net. . 935 9,505 63
Gain (loss) on the sale of
assets . . . . . . . . ( 797) 585 ( 1,112)
Other. . . . . . . . . . . ( 1,021) 282 ( 2,785)
Other income, net. . . . 16,854 23,906 3,785
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES. . . . 214,760 174,144 104,687
PROVISION FOR INCOME TAXES . 74,313 68,566 41,403
INCOME FROM CONTINUING
OPERATIONS . . . . . . . . 140,447 105,578 63,284
DISCONTINUED OPERATIONS:
Income from operations, net
of taxes of $257 and $893 - 705 1,500
Gain on disposition, net
of taxes of $8,888 . . . - 12,742 -
Income from discontinued
operations . . . . . . . - 13,447 1,500
NET INCOME . . . . . . . . . $140,447 $119,025 $ 64,784
</TABLE>
(continued)
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(continued from previous page)
(Dollars in thousands except per share amounts)
<TABLE>
Years Ended September 30,
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Income from continuing
operations . . . . . . . . $ 1.07 $ 0.85 $ 0.53
Income from discontinued
operations . . . . . . . . - 0.11 0.01
Net Income . . . . . . . . . $ 1.07 $ 0.96 $ 0.54
FULLY DILUTED EARNINGS PER SHARE:
Income from continuing
operations . . . . . . . . $ 1.05 $ 0.80 $ 0.51
Income from discontinued
operations . . . . . . . . - 0.10 0.01
Net Income . . . . . . . . . $ 1.05 $ 0.90 $ 0.52
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING. . . . . . . . . 131,380,236 123,617,815 120,081,086
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ASSUMING FULL
DILUTION . . . . . . . . . . 135,857,506 136,610,507 135,448,282
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
September 30,
<CAPTION>
(Dollars in thousands) 1994 1993
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . $142,730 $ 85,346
Short-term investments, lower of
cost or market . . . . . . . . . . . . 60,320 131,994
Accounts receivable (including $5,557 and
$1,262 due from related parties), net
of allowances for doubtful accounts
of $3,956 and $6,974 . . . . . . . . . 129,796 81,042
Current maturities of long-term notes
and contracts receivable (including
$5,244 and $175 due from related
parties), net of allowances. . . . . . 81,007 64,782
Inventories, net of allowances for
obsolescence of $13,864 and $7,116:
Raw materials . . . . . . . . . . . . 59,498 40,225
Work-in-process . . . . . . . . . . . 3,604 4,998
Finished goods. . . . . . . . . . . . 40,908 29,855
Total inventories . . . . . . . . . . 104,010 75,078
Deferred income taxes. . . . . . . . . . 19,615 10,932
Investments to fund liabilities to
jackpot winners. . . . . . . . . . . . 15,105 9,782
Prepaid expenses and other . . . . . . . 6,507 4,473
Total current assets. . . . . . . . . 559,090 463,429
LONG-TERM NOTES AND CONTRACTS RECEIVABLE
(including $9 and $651 due from
related parties), net of allowances
and current maturities . . . . . . . . . 61,212 43,614
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land . . . . . . . . . . . . . . . . . . 13,691 989
Buildings. . . . . . . . . . . . . . . . 13,344 4,213
Gaming operations equipment. . . . . . . 60,785 39,375
Manufacturing machinery and equipment. . 59,227 43,456
Leasehold improvements . . . . . . . . . 9,393 5,529
Total. . . . . . . . . . . . . . . . . . 156,440 93,562
Less accumulated depreciation and
amortization . . . . . . . . . . . . . ( 59,195) ( 42,689)
Property, plant and equipment, net . . . 97,245 50,873
INVESTMENTS TO FUND LIABILITIES
TO JACKPOT WINNERS . . . . . . . . . . . 131,036 82,266
OTHER ASSETS . . . . . . . . . . . . . . . 19,425 6,411
Total Assets . . . . . . . . . . . . . $ 868,008 $ 646,593
</TABLE>
(continued)
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued from previous page)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands) September 30,
1994 1993
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term notes
payable and capital lease obligations. . . $ 2,613 $ 462
Accounts payable . . . . . . . . . . . . . . 20,890 22,620
Jackpot liabilities. . . . . . . . . . . . . 18,562 11,882
Accrued employee benefit plan
liabilities. . . . . . . . . . . . . . . . 17,509 19,651
Accrued dividends payable. . . . . . . . . . 3,971 3,746
Accrued vacation liability . . . . . . . . . 4,542 3,771
Accrued income taxes . . . . . . . . . . . . - 11,649
Other accrued liabilities. . . . . . . . . . 10,305 9,968
Total current liabilities. . . . . . . . . 78,392 83,749
LONG-TERM NOTES PAYABLE AND CAPITAL
LEASE OBLIGATIONS, NET OF CURRENT
MATURITIES . . . . . . . . . . . . . . . . . 111,468 617
CONVERTIBLE SUBORDINATED NOTES
PAYABLE. . . . . . . . . . . . . . . . . . . - 59,998
LONG-TERM JACKPOT LIABILITIES. . . . . . . . . 146,640 106,476
DEFERRED INCOME TAXES. . . . . . . . . . . . . 10,618 17,187
OTHER LIABILITIES. . . . . . . . . . . . . . . 22 17
Total liabilities. . . . . . . . . . . . . 347,140 268,044
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.000625 par value;
320,000,000 shares authorized;
149,465,774 and 138,938,605 shares
issued . . . . . . . . . . . . . . . . . . 93 87
Additional paid-in capital . . . . . . . . . 226,712 146,869
Retained earnings. . . . . . . . . . . . . . 385,511 259,125
Treasury stock; 17,098,646 and
14,071,460 shares, at cost . . . . . . . . ( 87,160) ( 27,532)
Unrealized loss on investment. . . . . . . . ( 4,288) -
Total stockholders' equity . . . . . . . . 520,868 378,549
Total liabilities and
stockholders' equity. . . . . . . . . . . $868,008 $646,593
</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>
(Dollars in thousands)
Years Ended September 30,
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . $140,447 $119,025 $ 64,784
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization. . 20,074 20,196 16,826
Amortization of long-term debt
discount and offering costs. . 545 1,517 1,724
Provision for bad debts. . . . . 7,199 3,815 4,608
Provision for inventory
obsolescence . . . . . . . . . 8,668 981 6,030
(Gain) loss on sale of assets. . ( 138) ( 10,090) 1,049
Gain on sale of discontinued
operations . . . . . . . . . . - ( 12,742) -
Donated common stock . . . . . . 500 250 1,060
(Increase) decrease in assets:
Receivables. . . . . . . . . . ( 89,776) ( 64,763) ( 66,176)
Inventories. . . . . . . . . . ( 37,600) ( 13,847) ( 31,807)
Prepaid expenses and other . . ( 2,033) ( 12,440) ( 864)
Other assets . . . . . . . . . ( 8,545) 4,110 ( 45)
Increase (decrease) in liabilities:
Accounts payable and accrued
liabilities . . . . . . . . . ( 2,765) 7,520 18,817
Accrued and deferred income taxes
payable, net of tax benefit
of stock option and purchase
plans . . . . . . . . . . . . ( 21,770) 12,583 22,963
Other . ( 30) ( 22) ( 402)
Total adjustments. . . . . . . ( 125,671) ( 62,932) ( 26,217)
Net cash provided by operating
activities. . . . . . . . . . 14,776 56,093 38,567
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property,
plant and equipment. . . . . . ( 73,182) ( 46,064) ( 32,487)
Proceeds from sale of property,
plant and equipment. . . . . . 6,071 9,408 6,524
Purchase of short-term investments ( 114,265) ( 154,515) ( 132,127)
</TABLE>
(continued)
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued from previous page)
<TABLE>
<CAPTION>
(Dollars in thousands) Years Ended
September 30,
1994 1993 1992
<S> <C> <C> <C>
Proceeds from sale of short
term investments . . . . . . . 186,868 110,460 120,217
Proceeds from investments to fund
liabilities to jackpot winners . 15,932 11,139 6,754
Purchase of investments to fund
liabilities to jackpot winners . ( 70,025) ( 46,262) ( 20,763)
Investment in and advances to
unconsolidated affiliates. . . - 29,749 -
Net cash used in investing
activities. . . . . . . . . . ( 48,601) ( 86,085) ( 51,882)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt . . . ( 563) ( 870) ( 1,331)
Payments on jackpot liabilities. ( 15,932) ( 11,139) ( 6,754)
Collections from systems to fund
jackpot liabilities. . . . . . 62,776 48,003 33,546
Proceeds from stock options
exercised. . . . . . . . . . . 1,261 3,514 1,138
Proceeds from employee stock
purchases. . . . . . . . . . . 1,035 869 563
Payments for purchase of treasury
stock. . . . . . . . . . . . . ( 57,097) - -
Payments of cash dividends . . . ( 15,495) ( 7,350) -
Proceeds from long-term debt . . 113,565 - -
Foreign currency exchange gain
(loss) . . . . . . . . . . . . 1,659 ( 726) ( 1,737)
Net cash provided by financing
activities. . . . . . . . . . 91,209 32,300 25,425
NET CASH PROVIDED BY CONTINUING
OPERATIONS . . . . . . . . . . . 57,384 2,308 12,110
NET CASH PROVIDED BY (USED IN)
DISCONTINUED OPERATIONS. . . . . - 13,879 ( 887)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR. . . . . . . . 85,346 69,159 57,936
CASH AND CASH EQUIVALENTS AT
END OF YEAR. . . . . . . . . . . $142,730 $ 85,346 $ 69,159
</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
(Amounts in thousands) September 30,
1994 1993 1992
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of year
Shares: 126,260 in 1992, 130,602
in 1993, and 138,939 in 1994. . . . $ 87 $ 82 $ 79
Stock options exercised
Shares: 3,155 in 1992, 2,731 in
1993, and 758 in 1994 . . . . . . . - 2 3
Conversion of subordinated notes
Shares: 11 in 1992, 5,527 in 1993,
and 9,339 in 1994 . . . . . . . . . 6 3 -
Other transactions
Shares: 1,176 in 1992, 79 in 1993
and 430 in 1994 . . . . . . . . . . - - -
Balance at end of year
Shares: 149,466 in 1994 . . . . . $ 93 $ 87 $ 82
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year . . . . . $146,869 $ 85,584 $ 57,866
Stock options exercised. . . . . . . . 4,826 8,387 3,365
Tax benefit of stock options . . . . . 5,131 18,137 12,358
Donated stock. . . . . . . . . . . . . 500 250 1,060
Conversion of subordinated notes . . . 59,136 34,511 85
Purchase of Radica interest. . . . . . 10,250 - -
EDT share exchange . . . . . . . . . . - - 10,850
Balance at end of year . . . . . . . . $226,712 $146,869 $ 85,584
RETAINED EARNING
Balance at beginning of year . . . . . $259,125 $151,922 $ 87,659
Currency translation adjustments . . . 1,659 ( 727) ( 1,737)
EDT share exchange . . . . . . . . . . - - 1,216
Dividends declared . . . . . . . . . . ( 15,720) ( 11,095) -
Net income . . . . . . . . . . . . . . 140,447 119,025 64,784
Balance at end of year . . . . . . . . $385,511 $259,125 $151,922
TREASURY STOCK
Balance at beginning of year . . . . . ($ 27,532) ($ 23,526) ($ 21,857)
Purchase of treasury stock . . . . . . ( 59,628) ( 4,006) ( 1,669)
Balance at end of year . . . . . . . . ($ 87,160) ($ 27,532) ($ 23,526)
UNREALIZED LOSS ON NON-CURRENT INVESTMENT
Balance at beginning of year . . . . . - - -
Unrealized loss on investment. . . . ($ 4,288) - -
Balance at end of year . . . . . . . . ($ 4,288) - -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. 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-North America, and facilitate the Company's initial public
offering. In addition to its 100% ownership of IGT-North America, each of
the following corporations is a direct or indirect wholly-owned subsidiary
of the Company: IGT-International ("IGT-International"); IGT-Australia,
Pty. Ltd. ("IGT-Australia"); IGT-Europe b.v. ("IGT-Europe"); IGT-Iceland
Ltd. ("IGT-Iceland"); and IGT-Japan k.k. ("IGT-Japan"). In December 1992
the Company sold its interest in its riverboat partnerships, and
additionally, on September 30, 1993 sold its interest in CMS-International
("CMS").
IGT-North America is the largest manufacturer of computerized casino
gaming products and proprietary systems in the world. IGT-North America
believes it manufactures the broadest range of microprocessor-based gaming
machines available. The Company also develops and manufactures "SMART"
systems which monitor slot machine play and track player activity. In
addition to gaming product sales and leases, IGT-North America has
developed and sells computerized linked proprietary systems to monitor
video gaming terminals and has developed specialized video gaming terminals
for lotteries and other applications. IGT-North America also develops and
operates proprietary software linked progressive systems. The Company
derives revenues related to the operations of these systems as well as
collects license and franchise fees for the use of the systems.
IGT-International was established in September 1993 to oversee all
sales of gaming products outside of North America by the Company's foreign
subsidiaries.
IGT-Australia, located in Sydney, Australia, manufactures
microprocessor-based gaming products and proprietary systems, and performs
engineering, manufacturing, sales, marketing and distribution operations
for the Australian markets as well as other gaming jurisdictions in the
Southern Hemisphere and Pacific Rim.
IGT-Europe was established in The Netherlands in February 1992 to
distribute and market gaming products in Eastern and Western Europe and
Africa. Prior to providing direct sales, the Company sold its products in
these markets through a distributor.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(continued)
IGT-Iceland was established in September 1993 to provide video lottery
system software, machines, equipment and technical assistance to support
Iceland's video lottery operations.
IGT-Japan was established in July 1990, and in November 1992 opened an
office in Tokyo, Japan. On April 16, 1993, IGT-Japan was approved to
supply Pachisuro gaming machines to the Japanese market. No sales were
made to this market in fiscal 1994.
Discontinued Operations - Iowa Riverboat Corporation ("IRC"), a
wholly-owned subsidiary of the Company, established in March 1990, was a
40% partner in an Iowa partnership that owned and operated the President
riverboat casino and the Blackhawk Hotel in Davenport, Iowa. International
Acceptance Corporation ("IAC"), also a wholly-owned subsidiary of the
Company, owned 45% of a riverboat excursion operation and the permanently
docked Admiral riverboat in St. Louis, Missouri. In December 1992, the
Company contributed the assets of IRC and IAC to President Riverboat
Casinos ("PRC") in exchange for 1,671,429 shares of PRC common stock.
These shares were subsequently sold to the public as part of an initial
public offering of PRC common stock on December 17, 1992 (see Note 12).
CMS, established in August 1988, operated casinos and hotel/casinos
for the Company including the Silver Club hotel and casino and The Treasury
Club casino in Sparks, Nevada, the El Capitan Club in Hawthorne, Nevada and
the King's Casino on the island of Antigua in the Caribbean. Effective
September 30, 1993 the Company sold its ownership interest in CMS to Summit
Casinos Nevada, Inc. (see Note 12).
The consolidated financial statements include the accounts of the
Company and its majority owned subsidiaries. All material intercompany
accounts and transactions have been eliminated. The disposal of interests
in riverboat partnerships and CMS (collectively, "casino operations") has
been accounted for as discontinued operations. Accordingly, operating
results and cash flows of casino operations are segregated and reported as
discontinued operations in the accompanying consolidated statements of
income and cash flows.
Common Stock Split - On March 17, 1993, the Company effected a two-
for-one split of its common stock and a corresponding reduction in the par
value of its common stock from $.00125 to $.000625 per share. Prior years'
shares outstanding and per share amounts have been restated to reflect the
stock split.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(continued)
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 proprietary systems are operated in Nevada, New Jersey,
Mississippi, South Dakota, Colorado, Louisiana and in Native American
casinos and internationally in Macau and Iceland.
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.
In Macau and Iceland, the Company receives a percentage of the net win.
In Nevada, Mississippi, South Dakota, Louisiana 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 out in equal installments without
interest over a ten to twenty 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 $66.7 million, $61.1 million,
and $48.2 million during the years ended September 30, 1994, 1993, and 1992,
respectively.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(continued)
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, 1994 and 1993, the Company had accrued, net of unamortized discounts,
approximately $165.2 million and $118.4 million respectively, for
outstanding progressive jackpot liabilities. At September 30, 1994 and
1993, the unamortized discount on such liabilities totaled $111.5 million
and $92.8 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 1994, 1993, and 1992, the Company recorded
interest expense on jackpot liabilities of $8.4 million, $5.9 million
and $4.0 million, respectively. The Company is required to maintain
cash and investments relating to systems liabilities in separate accounts.
The following table shows the revenues recorded from gaming
operations.
<TABLE>
<CAPTION>
Years Ended
(Dollars in thousands) September 30,
1994 1993 1992
<S> <C> <C> <C>
Proprietary Systems. . . . $146,800 $124,275 $106,639
Lease Operations . . . . . 13,540 18,114 20,583
Total. . . . . . . . . . . $160,340 $142,389 $127,222
</TABLE>
Research and Development - Research and development costs are expensed
as incurred.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(continued)
Cash and Cash Equivalents - This includes cash required for funding
current systems jackpot payments as well as purchasing investments to meet
obligations for making payments to jackpot winners. Cash in excess of
daily requirements is generally invested in various marketable securities.
If these securities have original maturities of three months or less they
are considered cash equivalents. Such investments are stated at cost,
which approximates market, and are deemed to be cash equivalents for
purposes of the consolidated statements of cash flows.
Short-Term Investments - This represents a portfolio of marketable
securities consisting primarily of U.S. government securities, corporate
bonds with original maturities beyond three months and common and preferred
stocks. Similar items with original maturities of three months or less at
the date of purchase are considered to be cash equivalents. Marketable
securities are carried at the lower of their aggregate cost or market
value. At September 30, 1994, short term investments had a cost basis of
$61,318,000 and a market value of $60,320,000. At September 30, 1993,
short term investment had a cost basis of $131,994,000 and a market value
of $147,123,000.
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
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(continued)
obligations for making payments to linked progressive systems winners.
Such investments are stated at cost. The gaming regulations of certain
states provide how these funds are to be maintained.
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. The Company accounts
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.
Earnings Per Share - Earnings per share is computed based upon the
weighted average number of common and common equivalent shares outstanding.
Prior period weighted average shares outstanding and earnings per share
have been restated to reflect the effects of the Company's 1993 stock
split.
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 to be Adopted - The Financial
Accounting Standards Board issued in May 1993 SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." This statement,
effective for the Company's fiscal year ending September 30, 1995, will
require that unrealized gains and losses on securities defined as "trading
securities" be included in income and that unrealized gains and losses on
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
(continued)
securities defined as "available-for-sale" will be excluded from income and
reported in a separate component of stockholders' equity. During the
fiscal year ended September 30, 1994, the Company accounted for it's
investments under FASB 12, and accordingly recorded an unrealized loss in
income of $998,000. If SFAS No. 115 had been adopted for the year ended
September 30, 1994, income from continuing operations before income taxes
would have increased by $998,000, with no effect on stockholders' equity.
Reclassification - Certain amounts in the 1993 and 1992 consolidated
financial statements have been reclassified to be consistent with the
presentation used in fiscal year 1994.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business Segments
The Company operates principally in two lines of business: the
manufacture of gaming products and gaming operations. The table below
presents information as to the Company's operations in different
industries.
<TABLE>
<CAPTION>
Years Ended
(Dollars in thousands) September 30,
1994 1993 1992
<S> <C> <C> <C>
REVENUES:
Manufacture of Gaming Products. $514,121 $335,641 $236,372
Gaming Operations . . . . . . . 160,340 142,389 127,222
Total. . . . . . . . . . . . $674,461 $478,030 $363,594
OPERATING PROFIT:
Manufacture of Gaming Products. $169,541 $123,320 $ 72,753
Gaming Operations . . . . . . . 48,964 41,620 39,311
Total. . . . . . . . . . . . 218,505 164,940 112,064
OTHER INCOME (EXPENSE), INCLUDING
INTEREST EXPENSE. . . . . . . . ( 3,745) 9,204 ( 7,377)
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES . . . . . . $214,760 $174,144 $104,687
CAPITAL EXPENDITURES:
Manufacture of Gaming
Products . . . . . . . . . . $ 17,854 $ 8,499 $ 3,560
Casino Operations . . . . . . . - - 1,182
Gaming Operations . . . . . . . 29,488 20,269 22,808
Corporate . . . . . . . . . . . 25,840 17,345 7,587
Total. . . . . . . . . . . . $ 73,182 $ 46,113 $ 35,137
DEPRECIATION AND AMORTIZATION:
Manufacture of Gaming Products. $ 2,610 $ 1,740 $ 1,655
Gaming Operations . . . . . . . 11,526 14,699 11,860
Corporate . . . . . . . . . . . 5,938 3,757 3,311
Total. . . . . . . . . . . . $ 20,074 $ 20,196 $ 16,826
IDENTIFIABLE ASSETS:
Manufacture of Gaming Products. $364,368 $262,454 $188,852
Casino Operations . . . . . . . - - 30,737
Gaming Operations . . . . . . . 215,746 151,234 117,595
Corporate . . . . . . . . . . . 287,894 232,905 152,789
Total. . . . . . . . . . . . $868,008 $646,593 $489,973
</TABLE>
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business Segments (continued)
The Company has operations based in the United States, Canada,
Australia and Europe. The table below presents information as to the
Company's operations by geographic region.
<TABLE>
<CAPTION>
(Dollars in thousands) Years Ended
September 30,
1994 1993 1992
<S> <C> <C> <C>
REVENUES:
United States. . . . . . . $622,016 $427,697 $332,299
Canada . . . . . . . . . . 12,375 13,743 -
Australia. . . . . . . . . 42,270 39,681 34,580
Europe . . . . . . . . . . 10,969 11,485 2,878
Eliminations . . . . . . . ( 13,169) ( 14,576) ( 6,163)
Total. . . . . . . . . . $674,461 $478,030 $363,594
OPERATING PROFIT:
United States. . . . . . . $217,960 $164,875 $111,399
Canada . . . . . . . . . . 1,638 3,203 -
Australia. . . . . . . . . 1,507 5,078 4,067
Europe . . . . . . . . . . 1,573 ( 1,808) ( 707)
Eliminations . . . . . . . ( 4,173) ( 6,408) ( 2,695)
Total. . . . . . . . . . 218,505 164,940 112,064
OTHER INCOME (EXPENSE), INCLUDING
INTEREST EXPENSE . . . . . ( 3,745) 9,204 ( 7,377)
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES. . . . $214,760 $174,144 $104,687
IDENTIFIABLE ASSETS:
United States. . . . . . . $806,861 $600,472 $460,686
Canada . . . . . . . . . . 5,635 8,047 -
Australia. . . . . . . . . 44,759 27,067 24,465
Europe . . . . . . . . . . 10,753 11,007 4,822
Total. . . . . . . . . . $868,008 $646,593 $489,973
</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, and provisions for bad debts. Operating profit presented
in this amended 10K reflects an allocation of a portion of selling,
general, and administrative and research and development expenses not
previously allocated to each of the Company's two business segments.
Other income (expense) includes interest expense, interest income and
gain (loss) on the sale of securities and other assets.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business Segments (continued)
During the fiscal years ended September 30, 1994, 1993 and 1992, the
Company made net sales of $49.9 million, $40.2 million and 27.1 million
respectively, to Sodak Gaming, the Company's principal distributor of
gaming products to Native American Indian reservations in Wisconsin,
Minnesota and to other areas in the Midwest and western United States.
These sales aggregated approximately 9.7%, 12.0% and 11.5% of the Company's
total product sales for the fiscal years 1994, 1993 and 1992, 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.
The Company had total export sales from the United States of
approximately $13,190,000, $13,522,000 and $29,006,000 during the fiscal
years ended September 30, 1994, 1993 and 1992, respectively.
3. Notes and Contracts Receivable
The Company grants customers extended payment terms under contracts of
sale. These contracts are generally for terms of one to five years, with
interest recognized at prevailing rates, and are secured by the related
equipment sold.
The Company has provided loans, principally for financial assistance,
to several customers. At September 30, 1994 and 1993, the balance of such
loans totaled $1,002,000 and $994,000, respectively, net of the related
allowance for doubtful accounts of $25,000 as of September 30, 1994 and
1993. These loans are generally for terms of one to five years with
interest at prevailing rates.
The following table represents, at September 30, 1994, the estimated
future collections of notes and contracts receivable (net of allowances):
<TABLE>
<CAPTION>
Years Ending September 30, Estimated Receipts
(Dollars in thousands)
<S> <C>
1995 . . . $ 81,007
1996 . . . 33,723
1997 . . . 14,017
1998 . . . 5,011
1999 . . . 2,513
2000 and after . . . . . . . . . . . . . . . . 5,948
$142,219
</TABLE>
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Notes and Contracts Receivable (continued)
At September 30, 1994 and 1993, the following allowances for doubtful
notes and contracts were netted against current and long-term maturities:
<TABLE>
<CAPTION>
(Dollars in thousands) September 30,
1994 1993
<S> <C> <C>
Current. . . . . . . . . . . . $ 3,729 $ 1,478
Long-term. . . . . . . . . . . 9,707 6,657
$13,436 $ 8,135
</TABLE>
4. Lines of Credit
As of September 30, 1994, the Company had a $50.0 million unsecured bank
line of credit with various interest rate options available to the Company.
The line of credit is used for the purpose of funding operations and to
facilitate standby letters of credit. The Company is charged a nominal fee
on amounts used against the line as security for letters of credit. Funds
available under this line are reduced by any amounts used as security for
letters of credit. At September 30, 1994 $46.0 million was available
under this line of credit.
IGT-Australia had a $440,000 (Australian) bank line of credit available
as of September 30, 1994. Interest is paid at the lender's reference rate
plus 1%. This line is secured by equitable mortgages, and has a provision
for review and renewal annually in May. At September 30, 1994, no funds
were drawn under this line.
The Company is required to comply, and is in compliance, with certain
covenants contained in these line of credit agreements which, among other
things, limit financial commitments the Company may make without written
consent of the lender and require the maintenance of certain financial
ratios, minimum working capital and net worth of the Company.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Notes Payable, Capital Lease Obligations and Liabilities to Jackpot
Winners
Notes payable and capital lease obligations consist of the following
as of:
<TABLE>
<CAPTION>
(Dollars in thousands) September 30,
1994 1993
<S> <C> <C>
Senior notes (see Note 11) . . . . . . . . . . . $100,000 $ -
Australian cash advance facility (see Note 11) . 13,212 -
Capital lease obligations (see Note 8) . . . . . 632 1,079
Other notes payable . . . . . . . . . . . . . . 237 -
Total . 114,081 1,079
Less current maturities. . . . . . . . . . . . . ( 2,613) ( 462)
Long-term notes payable and capital lease
obligations, net of current maturities . . . . $111,468 $ 617
</TABLE>
Future fiscal year principal payments of these notes and capital lease
obligations at September 30, 1994, are as follows:
(Dollars in thousands)
2000 and
1995 1996 1997 1998 1999 Later
$ 2,613 $4,709 $4,556 $16,503 $14,300 $71,400
In Nevada, Mississippi, Louisiana, South Dakota and the Native
American systems, the Company receives a percentage of the amount played
from the linked progressive systems to fund the related jackpot payments.
The jackpots are paid off in equal annual installments without interest
over either a ten or twenty year period. The following schedule sets forth
the future fiscal year principal payments for the jackpot winners under
these systems at September 30, 1994:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
1995 . . . . . . . . . . . . . . $ 15,334
1996 . . . . . . . . . . . . . . 14,175
1997 . . . . . . . . . . . . . . 12,696
1998 . . . . . . . . . . . . . . 11,221
1999 . . . . . . . . . . . . . . 10,373
2000 and after . . . . . . . . . 83,354
Liabilities to jackpot
winners. . . . . . . . . . . . $147,153
</TABLE>
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Income Taxes
The effective income tax rates on income attributable to continuing
operations differ from the statutory U.S. federal income tax rates as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Years Ended September 30,
1994 1993 1992
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Taxes at federal
statutory rate . . . . $ 75,166 35.0% $ 60,602 34.8% $ 35,594 34.0%
Acquisition goodwill and
minority interest-EDT. 88 0.0 455 0.3 2,300 2.2
Foreign subsidiaries
tax. . . . . . . . . . 342 0.2 2,402 1.4 1,295 1.2
State income tax, net. . 2,096 1.0 2,273 1.3 563 0.5
Foreign sales
corporation. . . . . . ( 1,171 )( 0.5) ( 1,280 )( .7) ( 740)( 0.7)
Other, net . . . . . . . ( 2,208) ( 1.1) 4,114 2.3 2,391 2.3
Actual provision
for income taxes . . . $74,313 34.6% $68,566 39.4% $41,403 39.5%
</TABLE>
Total fiscal 1994 pre-tax income consists of $209,208,000 subject to
U.S. taxation and $5,552,000 of foreign taxable income. Total fiscal 1993
pre-tax income consists of $164,625,000 subject to U.S. taxation and
$9,519,000 of foreign taxable income. Total fiscal 1992 pre-tax income
consists of $98,434,000 subject to U.S. taxation and $6,253,000 of foreign
taxable income.
Components of the provision for income taxes on income from continuing
operations were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Years Ended September 30,
1994 1993 1992
<S> <C> <C> <C>
Current:
Federal. . . . . . . . . . $86,112 $78,544 $33,997
State 4,143 3,497 659
Foreign. . . . . . . . . . 1,115 5,111 1,392
Total current. . . . . . . 91,370 87,152 36,048
Deferred (primarily federal) ( 17,057) ( 18,586) 5,355
Total provision from continuing
operations . . . . . . . . $ 74,313 $ 68,566 $41,403
</TABLE>
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Income Taxes (continued)
The deferred tax provisions (benefits) are attributable to the following:
<TABLE>
<CAPTION>
Years Ended
(Dollars in thousands) September 30,
1994 1993 1992
<S> <C> <C> <C>
Excess of accelerated depreciation
over straight-line depreciation . $ 1,397 ($ 1,017 ) ($ 268)
Provisions for bad debts and
receivables deductible
when written off. . . . . . . . . ( 870) ( 792 ) ( 1,519)
Provisions for inventory and fixed
asset valuation adjustments
deductible for taxes when realized ( 2,394) ( 226 ) ( 1,092)
Book provisions for accrued gaming
activities reported differently
for tax purposes. . . . . . . . . ( 14,815) ( 18,975 ) 9,151
Other, net . . . . . . . . . . . . ( 375) 2,424 ( 917)
($ 17,057) ($18,586) $ 5,355
</TABLE>
During 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 109 "Accounting for Income Taxes." The impact of
adopting this new standard was not material to any of the consolidated
financial statements of the Company for 1993. Prior to 1993, the Company
accounted for income taxes under SFAS No. 96.
Statement 109 requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Deferred income
taxes reflect the net tax effects of (a) temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes, and (b) operating loss and
tax credit carryforwards.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Income Taxes (continued)
The tax items comprising the Company's net deferred tax asset and
liability are as follows:
<TABLE>
<CAPTION>
Years Ended
(Dollars in thousands) September 30,
1994 1993
<S> <C> <C>
Deferred tax liabilities:
Reserve differential for gaming
activities . . . . . . . . . . . . ($10,161) ($22,326)
Other .( 2,258) ( 1,450)
( 12,419) ( 23,776)
Deferred tax assets:
Receivable reserve . . . . . . . . . 5,291 5,023
Reserves not currently deductible. . 6,438 3,722
Reserve differential for
gaming activities. . . . . . . . . 6,280 5,765
Difference between book and tax
basis of property. . . . . . . . . 814 2,154
Operating loss carryforwards . . . . - 263
Foreign subsidiaries . . . . . . . . 3,137 -
Other . 1,261 594
23,221 17,521
Valuation allowance. . . . . . . . . - -
Net deferred tax asset(liability). . $10,802 ($ 6,255)
Reflected in the consolidated balance
sheets as:
Current deferred asset - net . . . . $19,615 $ 10,932
Noncurrent deferred asset - net,
included within "Other Assets" . . 1,805 -
Noncurrent deferred liability - net. ( 10,618 ) ($ 17,187)
Net deferred tax asset
(liability) . . . . . . . . . . . $10,802 ($ 6,255)
</TABLE>
7. 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.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Employee Benefit Plans (continued)
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) above a set minimum.
Effective for 1994, 1993 and 1992, the minimum pre-tax operating profits
were $78,700,000, $44,000,000 and $28,000,000 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 $78,700,000, $44,000,000 and
$28,000,000 for 1994, 1993 and 1992, respectively, are distributed to
United States and Europe employees on a semiannual basis. Contributions to
the plan are reviewed annually by the Board.
The Company's other foreign subsidiaries have similar retirement and
cash sharing plans with one of the plans designed as a superannuation
program. Total consolidated profit sharing and cash sharing expense was
$13,239,000, $12,564,000 and $9,893,000 for the fiscal years ended
September 30, 1994, 1993 and 1992, respectively.
The Company maintains a discretionary management bonus plan and IGT-
North America 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 $78,700,000,
$44,000,000 and $28,000,000 for 1994, 1993 and 1992, respectively) are
distributed under the management bonus plan. Bonuses for the IGT-North
America 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 $7,496,000, $8,435,000 and
$5,598,000 for the fiscal years ended September 30, 1994, 1993 and 1992,
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.
Options granted have been granted at fair market value on the date of grant
and, except for non-employee director options, typically become exercisable
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Employee Benefit Plans (continued)
in five annual installments although a shorter period may be provided. At
September 30, 1994, options to purchase 3,144,000 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, 1991. . 8,032,052 $ .51 - $ 6.13
Granted. . . . . . . . . . . . . . . 442,000 $ 7.88 - $18.88
Cancelled. . . . . . . . . . . . . . ( 25,168) $ 6.13 - $ 9.16
Exercised. . . . . . . . . . . . . . (3,165,630) $ .51 - $ 6.13
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
Options exercisable at
September 30,
1994 . . . . . . . . . . . . . . 1,419,938 $ .51 - $38.63
1993 . . . . . . . . . . . . . . 1,677,632 $ .51 - $18.88
1992 . . . . . . . . . . . . . . 1,905,982 $ .51 - $ 6.13
</TABLE>
Employee Stock Purchase Plan
Effective February 26, 1987, the Company adopted a Qualified Employee
Stock Purchase Plan. Under this Plan, each eligible employee may be
granted an option to purchase a specific number of shares of the Company's
common stock. The term of each option is twelve months, and the exercise
date is the last day of the option period. Eligible employees include only
those employees who have completed twelve months of continuous service with
the Company. The Plan excludes employees who are officers, 5% or more
shareholders, employees receiving more than $64,245 in annual compensation
and employees of certain subsidiaries.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Employee Benefit Plans (continued)
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, 1994,
1,058,000 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 1994 and 1993 the Company contributed
$824,000 and $512,000, respectively, under this plan.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Commitments
The Company leases certain of its facilities and equipment under
various agreements for periods through the year 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, 1994.
<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ending Operating Capital
September 30, Leases Leases Total
<S> <C> <C> <C>
1995 . . $ 5,356 $ 412 $ 5,768
1996 . . 4,409 238 4,647
1997 . . 2,915 60 2,975
1998 . . 2,125 - 2,125
1999 . . 1,988 - 1,988
2000 and after . . . . 4,029 - 4,029
Total minimum
payments . . . . . . $ 20,822 710 $ 21,532
Amount representing interest ( 78)
Capital lease obligations 632
Less current portion ( 358)
Long-term capital lease
obligations $ 274
</TABLE>
The cost and related accumulated depreciation of equipment under
capital leases as of September 30, 1994 was $1,560,000 and $927,000,
respectively, and at September 30, 1993, was $2,010,000 and $1,309,000,
respectively.
Certain of the leases provide that the Company pay utilities,
maintenance, property taxes, and certain other operating expenses
applicable to the leased property, including liability and property damage
insurance. The lease for the Company's existing manufacturing facility in
Reno extends through 2001. The lease provides for periodic rental
increases.
The total rental expense for the fiscal years ended September 30,
1994, 1993 and 1992 was approximately $5,576,000, $4,753,000 and
$5,746,000, respectively.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Contingencies
The Company has been named in and brought lawsuits in the normal
course of its business. Management does not expect the outcome of these
suits to have a material adverse effect on the Company's financial position
or results of future operations.
10. Related Party Transactions
Members of the Company's Board of Directors
A member of the Company's Board of Directors is an officer of, and has
an equity interest in, a Nevada gaming business from which the Company
recognized revenues of $1,486,000, $1,735,000 and $2,254,000 during the
fiscal years ended September 30, 1994, 1993 and 1992, respectively. The
Company had contracts and accounts receivable balances from this customer
of $110,000 and $868,000 at September 30, 1994 and 1993, respectively. He
is also a director and officer of a parent to nine additional gaming
businesses, from which the Company recognized revenues of $30,227,000
$9,083,000 and $8,890,000 during the fiscal years ended September 30, 1994,
1993 and 1992, respectively. The Company had contracts and accounts
receivable balances from these businesses of $9,550,000 and $1,020,000 at
September 30, 1994 and 1993, 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 $5,132,000, $4,771,000 and $631,000 during the
fiscal years ended September 30, 1994, 1993 and 1992, respectively. The
Company had contracts and accounts receivable balances from this business
of $1,150,000 and $201,000 at September 30, 1994 and 1993, 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, 1994, IGT-NHI
owed the Company $332,000 on a line of credit and $2,044,000 on an
equipment loan.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. 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 will be used to finance
the construction of a new manufacturing and headquarters facility and for
general corporate purposes.
Australian Cash Advance Facility
In August 1994, the Company was advanced $18,000,000 (Australian),
from an Australian bank under a cash advance facility. Annual principal
payments (Australian) are $3,000,000, $6,000,000, $6,000,000 and $3,000,000
at September 30, 1995, 1996, 1997, and June 30, 1998, respectively.
Interest is paid quarterly in arrears at a blended rate comprised of fixed
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Debt Offerings (continued)
and floating rates. The proceeds of the loan were used to acquire
manufacturing and administrative facilities in Sydney, Australia.
12. Discontinued Operations
In connection with the Company's focus on gaming machine manufacture
and proprietary software systems development, the Company has divested its
investments in casino operations during fiscal 1993 through the sale of its
interest in CMS and President Riverboat Casinos, Inc. ("PRC"). The
disposition of these investments has been accounted for as discontinued
operations. The revenues from these operations totaled $34,807,000 and
$35,849,000 for fiscal years 1993 and 1992, respectively. The separate
sales transactions of these investments are described below.
Riverboat Operations
During December 1992, the Company transferred 100% of its ownership
interest in three riverboat partnerships to PRC. In exchange for the
transfer of its ownership interests, the Company received 1,671,429 shares
of PRC common stock representing an approximate 32% ownership of PRC.
The Company, under a selling agreement with the principal stockholders
of PRC, offered all of its 1,671,429 shares of PRC common stock as a
selling shareholder in the initial public offering ("IPO") of PRC,
effective December 17, 1992. The Company received proceeds from the IPO of
$28.7 million and recognized a pre-tax gain of $23.6 million on the sale.
PRC additionally repaid $16.2 million in outstanding notes to the Company,
plus all accrued interest.
CMS International
Effective September 30, 1993, the Company sold its equity ownership
interest in CMS to Summit Casinos-Nevada, Inc., ("Summit"), whose owners
include senior management of CMS. The sale consisted of $750,000 in cash
for the Company's ownership of CMS's preferred stock and $250,000 in cash
and a note of $2,043,529 for CMS's common stock. Additionally, the Company
acquired a stock purchase warrant entitling the Company to purchase 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
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Discontinued Operations (continued)
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, 1994, an aggregate outstanding balance of $17.0 million.
The notes that have been guaranteed are also collateralized by the
respective casino properties. Summit has agreed to indemnify and hold the
Company harmless against any liability arising under these guarantees.
Management believes the likelihood of losses relating to these guarantees
is remote.
The composition of income from discontinued operations in fiscal 1993
is as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) Riverboat CMS
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>
13. EDT Common Stock
On January 31, 1992, the stockholders of EDT, previously a 43% owned
subsidiary of the Company, approved the exchange of 57% of the EDT common
stock owned by the public for common stock of the Company. Accordingly,
the outstanding EDT public shares were converted to approximately 876,000
shares of the Company's common stock and EDT became a wholly-owned
subsidiary of the Company. The operations of EDT have been merged into
those of IGT-North America.
14. Disposition of Other Operations
The 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
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Disposition of Other Operations (continued)
approximately 1,380 gaming machines in 160 locations. This sale resulted
in a net loss of $893,000. The Megapoker sale included all gaming services
and associated equipment used on the Megapoker route along with licenses
for all Megapoker software, trademarks, and tradenames. A net gain of
$242,000 was realized on this sale.
In the first quarter of 1993, the Company completed the sale of its
computerized keno system business to Imagineering Systems, Inc. of Reno,
Nevada. All development, manufacturing, sales and service functions for
the keno systems were included in the sale. The sale did not have a
material effect on the Company's consolidated financial statements.
15. Supplemental Statement of Cash Flows Information
Certain noncash investing and financing activities are not reflected
in the consolidated statements of cash flows. The Company incurred capital
lease obligations to obtain property, plant and equipment in the years
ended September 30, 1993 and 1992 of $46,000 and $1,429,000, respectively.
Additionally, in fiscal 1993 the Company exchanged common stock of the
Company for EDT common stock (see Note 13).
During fiscal 1994 and 1993 notes with a face amount of $72,180,000,
and $42,719,000 were converted to 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,
1994 and 1993 totaling $3,971,000 and $3,746,000.
During fiscal 1994, 1993, and 1992, common stock with a cost of
$2,530,000, $4,006,000 and $1,669,000 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 Games Ltd. 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 $5,131,000, $18,137,000 and
$12,358,000 for the years ended September 30, 1994, 1993, and 1992,
respectively.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Supplemental Statement of Cash Flows Information (continued)
Payments of interest for the years ended September 30, 1994, 1993 and
1992 were $12,272,000, $12,030,000 and $12,132,000, respectively. Payments
for income taxes for the years ended September 30, 1994, 1993 and 1992 were
$85,962,000, $65,699,000 and $31,825,000, respectively.
16. Construction of New Corporate Headquarters and Manufacturing Facility.
In May 1994, the Company purchased a 78 acre site in Reno Nevada for
approximately $6.0 million for the construction of an approximately
1,000,000 square foot office, manufacturing and warehousing facility.
Currently the facility is in its design phase with an estimated completion
date of late calendar 1996, absent unexpected delays, and an estimated
construction cost of $75.0 million.
17. Selected Quarterly Financial Data (Unaudited)
(Dollars in thousands, except per share amounts and stock prices)
During the fourth quarter of fiscal 1994, the Company reevaluated and
reduced it's fiscal 1994 income tax provision accrual rate. If this
reduction had been reflected throughout the year net income would have
increased by $1.1 million ($.01 per fully diluted share) in the first
quarter, $1.1 million ($.01 per fully diluted share) in the second quarter,
$1.4 million ($.01 per fully diluted share) in the third quarter and
decreased by $3.6 million ($.03 per fully diluted share) in the fourth
quarter.
<TABLE>
<CAPTION>
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>
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIAR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Selected Quarterly Financial Data (Unaudited),(continued)
(Dollars in thousands, except per share amounts and stock prices)
<TABLE>
<CAPTION>
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>
<TABLE>
<CAPTION>
1992
First Qtr Second Qtr Third Qtr Fourth Qtr
<S> <C> <C> <C> <C>
Total revenues . . . $ 65,163 $ 66,835 $114,043 $117,553
Income from operations 13,826 17,528 33,089 36,459
Income from continuing
operations . . . . 9,909 11,551 19,476 22,348
Income (loss) from
discontinued
operations . . . 613 ( 564 ) 497 954
Net income . . . . . 10,522 10,987 19,973 23,302
Primary earnings per share:
Income from continuing
operations . . . $ .08 $ .10 $ .16 $ .18
Income (loss) from
discontinued
operations . . .01 ( .01 ) - .01
Net income . . . . $ .09 $ .09 $ .16 $ .19
Stock price
High . $ 12 $ 17-3/8 $ 17-1/8 $ 22-1/8
Low . . . . . . . 6-1/4 10-7/8 11-1/4 12-7/8
</TABLE>
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Fair Value of Financial Instruments
The following table presents the carrying amount and estimated fair
value of the Company's financial instruments in accordance with Statement
of Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments."
<TABLE>
<CAPTION>
September 30, 1994
Carrying Estimated
Amount Fair Value
<S> <C> <C>
Assets:
Cash and cash equivalents. . . . . . . $142,730 $142,730
Short term investments . . . . . . . . 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>
<TABLE>
<CAPTION>
September 30, 1993
Carrying Estimated
Amount Fair Value
<S> <C> <C>
Assets:
Cash and cash equivalents. . . . . . . $ 85,346 $ 85,346
Short term investments . . . . . . . . 131,994 147,123
Investments to fund liabilities to
Jackpot winners. . . . . . . . . . . 92,048 108,027
Notes and contracts receivable . . . . 107,581 127,458
Liabilities:
Convertible subordinated notes
payable. . . . . . . . . . . . . . . 59,998 379,219
Jackpot liabilities. . . . . . . . . . 118,358 134,337
Notes payable and capital lease
obligations. . . . . . . . . . . . . 1,079 1,079
</TABLE>
The carrying value of cash and cash equivalents at September 30, 1994
and 1993 approximates fair value because of the short term maturity of
those instruments. The estimated fair value of short term investments,
investments to fund liabilities to jackpot winners, and the convertible
subordinated notes payable 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, 1994, was
based on the yield required at September 30, 1994 of a private placement of
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Fair Value of Financial Instruments (continued)
similar terms and credit valuation. The carrying value of notes payable
and capital lease obligations at September 30, 1993 approximates fair value
because of the short term maturity of those investments.
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, 1994 and 1993, the Company had performance bonds outstanding
totaling $2.9 million and $3.9 million, respectively, relating to the
Company's operation of two lottery systems and a gaming machine 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 $17.0 million
at September 30, 1994 (see Note 12). At September 30, 1994 and 1993,
the Company had outstanding letters of credit, issued under the Company's
Line of Credit (see Note 4), totaling $3.9 million and $3.4 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.
19. 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, 1994, the Company had bank deposits in excess of insured limits of
approximately $16,968,000.
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. Concentrations of Credit Risk (continued)
Product sales and the resulting receivables are concentrated in
specific legalized gaming regions. The Company also distributes a
significant portion of its products through third party distributors
resulting in significant distributor receivables. At September 30, 1994
accounts, contracts, and notes receivable by region as a percentage of
total receivables are as follows:
<TABLE>
<CAPTION>
<S> <C>
Regions
Nevada. . . . . . . . . . . . 34.1%
Riverboats (greater
Mississippi River area). . . 33.7%
Indian Casinos (distributor). 9.0%
Colorado. . . . . . . . . . . 6.5%
Louisiana (distributor) . . . 3.7%
Other Regions (individually
less than 5%) . . 13.0%
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
The information required by Items 10, 11 and 12 is incorporated by
reference from the 1995 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>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRAN
Mr. Nelson, a member of the Company's Board of Directors, is an
officer of and has an equity interest in the Cal Neva, a Nevada gaming
business from which the Company recognized revenues of $1,486,000 for
the fiscal year ended September 30, 1994. The Company had contracts
and accounts receivable balances from this customer of $110,000 at
September 30, 1994. During the fiscal year ended September 30, 1994, the
largest amount of the Company's contract receivable balance from such
customer was $826,000. Mr. Nelson is also a director and officer of the
Boyd Group, the parent corporation to nine additional gaming businesses in
the United States. The Company recognized revenues from these
businesses of $30,227,000 for the fiscal year ended September 30, 1994.
The Company had contracts and accounts receivable balances from these
businesses of $9,550,000 as of September 30, 1994. During the fiscal year
ended September 30, 1994, the largest amount of the Company's contract
receivable balances from these customers was $5,186,000.
Ms. Williams, a member of the Company's Board of Directors, is the
Chairman of the Board of Harrahs Las Vegas, a Nevada gaming business from
which the Company recognized revenues of $5,132,000 for the fiscal year
ended September 30, 1994. The Company had contracts and accounts
receivable balances from this business of $1,150,000 at September 30, 1994.
<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 88
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.
3.2 Second Restated Code of Bylaws of International Game Technology,
dated November 11, 1987.
4.1 Note Agreement for the 7.84% Senior Notes due September 1, 2004.
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.
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(continued)
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.
10.6 Shareholders Agreement Radica Holdings Limited and the
shareholders parties hereto dated January 12, 1994.
10.7 Amendment to Shareholders Agreement among Radica Holdings Limited
and the shareholders parties hereto of January 12, 1994 dated
February 16, 1994.
10.8 Stock Option Agreement between International Game Technology and
certain shareholders of Radica Holding Limited dated January 12,
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.
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.
11 Computation of Earnings Per Share
22 Subsidiaries
24 Independent Auditors' Consent
25 Power of Attorney (See page 76 hereof)
(b) Reports on Form 8-K
No report on Form 8-K was filed during the three-month period
ended September 30, 1994.
<PAGE>
POWER OF ATTORNEY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this amended and restated Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: May 12, 1995 International Game Technology
By: s/Scott H. Shackelton
Scott H. Shackelton
Attorney-In-Fact
Signature Title Date
* Chairman, Board of May 12, 1995
Charles N. Mathewson Directors
* Director, President, May 12, 1995
John J. Russell Chief Executive Officer
and Chief Operating
Officer
* Vice President Finance May 12, 1995
G. Thomas Baker and Chief Financial
Officer (Principal
Financial Officer)
* Chief Accounting Officer May 12, 1995
Scott H. Shackelton (Principal Accounting
Officer)
Director May 12, 1995
Warren L. Nelson
* Director May 12, 1995
Wilbur K. Keating
* Director May 12, 1995
Frederick B. Rentschler
* Director May 12, 1995
Albert J. Crosson
Director May 12, 1995
Claudine B. Williams
Director May 12, 1995
Rockwell A. Schnabel
*/s/Scott H. Shackelton Attorney-In-Fact May 12, 1995
Scott H. Shackelton
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
SCHEDULE VIII - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Balance at Amounts Balance
Beginning Written at End
of Period Provisions Off of Period
Valuation allowance on
Marketable Securities:
Year ended 9/30/94 $ - $ 998 $ - $ 998
Balance at Accounts Balance
Beginning Written at End
of Period Provisions Recoveries Off of Period
Allowance for
Doubtful
Accounts:
Year ended 9/30/92 $3,604 $3,764 $ 25 $ 335 $7,058
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
Allowance for
Doubtful Notes and
Contracts
Receivable:
Year ended 9/30/92 $6,048 $ 916 $ 288 $ 453 $ 6,799
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
(continued)
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
SCHEDULE VIII - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS (continued)
(Dollars in thousands)
Balance at Balance
Beginning Income Income at End
of Period Deferred Recognized of Period
Income Deferred
under the Installment
Method:
Year ended 9/30/92 $ 501 $ - $ 200 $ 301
Year ended 9/30/93 $ 301 $ - $ 280 $ 21
Year ended 9/30/94 $ 21 $ 591 $ 25 $ 587
Balance at Disposed Balance
Beginning of and at End
of Period Provisions Written Off of Period
Obsolete Inventory Reserve:
Year ended 9/30/92 $4,743 $ 6,030 $2,978 $ 7,795
Year ended 9/30/93 $7,795 $ 981 $1,660 $ 7,116
Year ended 9/30/94 $7,116 $ 8,668 $1,920 $13,864
Balance at Disposed Balance
Beginning of and at End
of Period Provisions Written Off of Period
Obsolete Fixed Assets
Reserve:
Year ended 9/30/92 $ 350 $ 489 $ 542 $ 297
Year ended 9/30/93 $ 297 $ 634 $ 664 $ 267
Year ended 9/30/94 $ 267 $ 540 $ 482 $ 325
(continued)
<PAGE>
INTERNATIONAL GAME TECHNOLOGY AND SUBSIDIARIES
SCHEDULE VIII - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS (continued)
(Dollars in thousands)
Balance at Amounts Balance
Beginning Written at End
of Period Provisions Off of Period
Valuation allowance on
Investment:
Year ended 9/30/94 $ - $4,288 $ - $4,288
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 4, 1994
appearing in this Annual Report on Form 10-K of International
Game Technology for the year ended September 30, 1994.
DELOITTE & TOUCHE LLP
Reno, Nevada
May 12, 1995
