18
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to_____
Commission File Number 001-10684
INTERNATIONAL GAME TECHNOLOGY
(Exact name of registrant as specified in charter)
Nevada 88-0173041
(State of Incorporation) (IRS Employer Identification No.)
5270 Neil Road, Reno, Nevada 89502
(Address of principal executive offices)
(702) 448-1200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at February 11, 1997
Common Stock 122,813,288
par value $.000625 per share
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
The accompanying condensed consolidated financial statements have
been prepared by the Company, without audit, and reflect all
adjustments which are, in the opinion of management, necessary for a
fair statement of the results for the interim periods. The statements
have been prepared in accordance with the regulations of the
Securities and Exchange Commission (the "SEC"), but omit certain
information and footnote disclosures necessary to present the
statements in accordance with generally accepted accounting
principles.
These financial statements should be read in conjunction with the
financial statements, accounting policies and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996. Management believes that the disclosures are
adequate to make the information presented herein not misleading.
Organization
International Game Technology (the "Company") was incorporated
in December 1980 to acquire the gaming licensee and operating entity,
IGT, and facilitate the Company's initial public offering. In
addition to its 100% ownership of IGT, each of the following
corporations is a direct or indirect wholly-owned subsidiary of the
Company: I.G.T.-Argentina S.A. ("IGT-Argentina"); I.G.T.
(Australia), Pty. Ltd. ("IGT-Australia"); IGT do Brasil Ltda. ("IGT-
Brazil"); IGT-Europe b.v. ("IGT-Europe"); IGT-Iceland, Ltd. ("IGT-
Iceland"); IGT-Japan K.K. ("IGT-Japan"); International Game
Technology-Africa (Pty.) Ltd. ("IGT-Africa"); and International Game
Technology S.R. Ltda. ("IGT-Peru").
IGT is one of the largest manufacturers of computerized casino
gaming products and proprietary gaming systems in the world. The
Company believes it manufactures the broadest range of microprocessor-
based gaming machines available. The Company also develops and
manufactures systems which monitor slot machine play and track player
activity, as well as wide area progressive systems. In addition to
gaming product sales and leases, the Company has developed and sells
computerized linked proprietary systems to monitor lottery video
gaming terminals and has developed specialized lottery video gaming
terminals for lotteries and other applications. The Company derives
revenues related to the operations of these systems as well as
collects license and franchise fees for the use of the systems.
IGT-Australia was established in March 1985 and is located in
Sydney, Australia. IGT-Australia manufactures microprocessor-based
gaming products and proprietary systems, and performs engineering,
manufacturing, sales and marketing and distribution operations for
the Australian markets as well as other gaming jurisdictions in the
Southern Hemisphere and Pacific Rim.
IGT-Europe was established in The Netherlands in February 1992
to distribute and market gaming products in Eastern and Western
Europe and Northern Africa. Prior to providing direct sales, the
Company sold its products in these markets through a distributor.
<PAGE>
Item 1. Financial Statements, (continued)
IGT-Iceland was established in September 1993 to provide system
software, machines, equipment and technical assistance to support
Iceland's video lottery operations.
IGT-Japan was established in July 1990, and in November 1992,
opened an office in Tokyo, Japan. In April 1993, IGT-Japan was
approved to supply Pachisuro gaming machines to the Japanese market.
IGT-Argentina was established in December 1993 and opened an
office in Buenos Aires, Argentina to distribute and market gaming
products in Argentina and Peru.
IGT-Brazil opened an office in October 1994 in Sao Paulo, Brazil
and subsequently was incorporated in March 1995 to distribute and
market gaming products in Brazil.
IGT-Africa opened an office in September 1994 in Johannesburg,
South Africa and subsequently was incorporated in October 1995 to
distribute and market gaming products in Southern Africa.
IGT-Peru was established in July 1996 and opened an office in
Lima, Peru to support proprietary systems and to distribute and
market gaming products in Peru.
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) 448-1200.
The condensed consolidated financial statements include the
accounts of the Company and all its majority-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated.
<PAGE>
Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
(Amounts in thousands, except per share amounts)
<S> <C> <C>
Revenues
Product sales $129,333 $99,080
Gaming operations 60,048 57,143
Total revenues 189,381 156,223
Costs And Expenses
Cost of product sales 68,702 54,930
Gaming operations 33,787 33,758
Selling, general and administrative 23,816 25,509
Depreciation and amortization 3,093 3,385
Research and development 7,395 6,303
Provision for bad debts 2,814 1,664
Total costs and expenses 139,607 125,549
Income From Operations 49,774 30,674
Other Income (Expense)
Interest income 10,229 9,730
Interest expense (6,892) (5,219)
Gain (loss) on sale of assets 305 (14)
Other (810) 8,042
Other income, net 2,832 12,539
Income Before Income Taxes 52,606 43,213
Provision For Income Taxes 18,938 15,550
Net Income $33,668 $27,663
Primary Earnings Per Share $0.27 $0.21
Fully Diluted Earnings Per Share $0.27 $0.21
Weighted Average Common and Common Equivalent
Shares Outstanding 127,035 128,879
Weighted Average Common Shares Outstanding
Assuming Full Dilution 127,033 128,879
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
(Dollars in thousands)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 158,925 $ 169,900
Investment securities, at market value 55,590 60,858
Accounts receivable, net of allowances
for doubtful accounts of $8,621 and
$5,681 160,291 148,305
Current maturities of long-term notes
and contracts receivable, net of
allowances 75,105 72,063
Inventories, net of allowances for
obsolescence of $18,127 and $18,165:
Raw materials 57,371 54,600
Work-in-process 4,547 4,316
Finished goods 47,029 1,427
Total inventories 108,947 100,343
Deferred income taxes 23,959 19,354
Investments to fund liabilities to
jackpot winners 28,994 27,343
Prepaid expenses and other 5,337 17,426
Total current assets 617,148 615,592
Long-term notes and contracts receivable,
net of allowances and current maturities 48,515 46,473
Property, plant and equipment, at cost
Land 25,382 25,610
Buildings 54,598 58,574
Gaming operations equipment 72,892 73,641
Manufacturing machinery and equipment 80,099 77,025
Leasehold improvements 7,853 9,960
Construction in progress 21,541 16,136
Total 262,365 260,946
Less accumulated depreciation and
amortization (84,052) (83,144)
Property, plant and equipment, net 178,313 177,802
Investments to fund liabilities to jackpot
winners 259,655 244,340
Deferred income taxes 73,086 65,194
Other assets 4,698 4,786
Total Assets $1,181,415 $1,154,187
</TABLE>
<PAGE>
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
(Dollars in thousands)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term notes
payable and capital lease obligations 15,268 8,119
Accounts payable 33,625 33,145
Jackpot liabilities 36,529 33,489
Accrued employee benefit plan
liabilities 6,916 16,175
Accrued dividends payable 3,722 3,767
Accrued income taxes 24,083 -
Accrued vacation liability 6,446 6,271
Other accrued liabilities 22,105 26,476
Total current liabilities 148,694 127,442
Long-term notes payable and capital lease
obligations, net of current maturities 102,408 107,155
Long-term jackpot liabilities 312,937 292,864
Other liabilities 3,544 3,526
Total Liabilities 567,583 530,987
Commitments and contingencies
Stockholders' equity
Common stock, $.000625 par value;
320,000,000 shares authorized;
151,340,484 and 150,690,308 shares
issued 94 94
Additional paid-in capital 238,061 237,365
Retained earnings 597,115 567,565
Treasury stock; 27,242,976 and
25,114,476 shares at cost (228,301) (188,143)
Net unrealized gain on investment
securities 6,863 6,319
Total Stockholders' Equity 613,832 623,200
Total Liabilities and Stockholders'
Equity $1,181,415 $1,154,187
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
(Dollars in thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Net income $33,668 $27,663
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,224 6,866
Provision for bad debts 2,814 1,664
Provision for inventory obsolescence 1,754 3,303
Gain (loss) on investments and sale of
assets (305) 14
Common stock awards 530 -
(Increase) decrease in assets:
Receivables (19,872) 13,036
Inventories (16,498) (22,491)
Prepaid expenses and other 12,155 (781)
Other assets (103) (5,307)
Increase (decrease) in liabilities:
Accounts payable and accrued
liabilities (10,455) 669
Accrued and deferred income taxes
payable, net of tax benefit of stock
option and purchase plans 8,862 15,003
Other 415 257
Total adjustments (12,479) 12,233
Net cash provided by operating
activities 21,189 39,896
</TABLE>
<PAGE>
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
(Dollars in thousands)
<S> <C> <C>
Cash Flows from Investing Activities
Investment in property, plant and
equipment (9,171) (25,404)
Proceeds from sale of property, plant
and equipment 7,040 7,282
Purchase of investment securities (2,946) (7,686)
Proceeds from sale of investment
securities 9,347 6,751
Proceeds from investments to fund
liabilities to jackpot winners 7,599 6,029
Purchase of investments to fund
liabilities to jackpot winners (24,565) (24,504)
Net cash used in investing activities (12,696) (37,532)
Cash Flows from Financing Activities
Principal payments on debt (71) (1,978)
Payments on jackpot liabilities (7,599) (6,029)
Collections from systems to fund jackpot
liabilities 30,712 29,191
Proceeds from stock options exercised 150 62
Payments of cash dividends (3,785) (3,866)
Proceeds from long-term debt 2,400 1,501
Payments to purchase treasury stock (40,158) (27,425)
Net cash used in financing activities (18,351) (8,544)
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (1,117) 169
Net Decrease in Cash and Cash Equivalents (10,975) (6,011)
Cash and Cash Equivalents at Beginning of
Period 169,900 241,613
Cash and Cash Equivalents at End of Period $158,925 $235,602
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
Notes to Condensed Consolidated Financial Statements
1. Notes and Contracts Receivable
The following allowances for doubtful notes and contracts were
netted against current and long-term maturities:
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
<S> <C> <C>
(Dollars in thousands)
Current $ 5,326 $ 4,538
Long-term 14,323 15,237
$19,649 $19,775
</TABLE>
2. 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 1.1 million square foot corporate headquarters and
manufacturing and warehousing facility. The manufacturing and
warehousing facility was completed in January 1996, and now houses
substantially all operations and related personnel. The corporate
office facility is substantially complete and the Company anticipates
the buildings will be fully occupied by April 1997. The total cost,
including the site, is estimated at $82.4 million. To date, $79.6
million has been incurred for the project.
3. Income Taxes
The provision for income taxes is computed on pre-tax income
reported in the financial statements. The provision differs from
income taxes currently payable because certain items of income and
expense are recognized in different periods for financial statement
and tax return purposes.
4. Concentrations of Credit Risk
The financial instruments that potentially subject the Company
to concentrations of credit risk consist principally of cash and cash
equivalents and accounts, contracts, and notes receivable. The
Company maintains cash and cash equivalents with various financial
institutions in amounts, which at times, may be in excess of the FDIC
insurance limits.
Product sales and the resulting receivables are concentrated in
specific legalized gaming regions. The Company also distributes a
significant portion of its products through third party distributors
resulting in significant distributor receivables.
<PAGE>
Notes to Condensed Consolidated Financial Statements
Accounts, contracts, and notes receivable by region as a
percentage of total receivables are as follows:
<TABLE>
<CAPTION>
December 31, 1996
<S> <C>
Nevada 37.0 %
Riverboats (greater Mississippi River area) 21.7 %
Native American casinos (distributor) 8.4 %
South America 8.2 %
Australia 6.4 %
Colorado 5.0 %
Europe 2.2 %
Other regions (individually less than 3%) 11.1 %
Total 100.0 %
</TABLE>
Effective September 30, 1993, the Company sold its equity
ownership interest in CMS-International ("CMS") to Summit Casinos-
Nevada, Inc. ("Summit"), whose owners include senior management of
CMS. The Company remains as guarantor on certain indebtedness of CMS,
which, at December 31, 1996, had an aggregate balance of $15.4
million. The notes that have been guaranteed are also collateralized
by the respective casino properties. Summit has agreed to indemnify
and hold the Company harmless against any liability arising under
these guarantees. Management believes it is unlikely that the Company
will incur losses relating to these guarantees.
5. Supplemental Statement of Cash Flows Information
Certain noncash investing and financing activities are not
reflected in the condensed consolidated statements of cash flows.
The Company issued notes or incurred capital lease obligations to
obtain property, plant and equipment totaling $12,000 in the quarter
ended December 31, 1996. The Company did not issue notes or incur
capital lease obligations for purchases of property, plant and
equipment for the quarter ended December 31, 1995.
The Company manufactures gaming machines which are leased to
customers under capital leases. Accordingly, transfers from
inventory to property, plant and equipment totaling $5.2 million and
$6.4 million were made in quarters ended December 31, 1996 and 1995,
respectively.
On December 3, 1996, the Board of Directors declared a quarterly
cash dividend of $.03 per share, payable on March 3, 1997 to
shareholders of record at the close of business on February 3, 1997.
At December 31, 1996, the Company had accrued $3.7 million for the
payment of this dividend.
Payments of interest for the three months ended December 31,
1996 and 1995 were $8.2 million and $6.8 million, respectively.
Payments for income taxes for the three months ended December 31,
1996 and 1995 were $1.4 million and $2.0 million, respectively.
<PAGE>
Notes to Condensed Consolidated Financial Statements
6. Contingencies
The Company has been named in and has brought lawsuits in the
normal course of business. Management does not expect the outcome of
these suits, including the lawsuit described below, to have a
material adverse effect on the Company's financial position or
results of future operations.
The Company is a defendant in three class action lawsuits, one
filed in the United States District Court of Nevada, Southern
Division, entitled Larry Schreier v. Caesar's World, Inc., et al.,
and two filed in the United States District Court of Florida, Orlando
Division, entitled Poulos v. Caesar's World, Inc., et al. and Ahern
v. Caesar's World, Inc., et al., which have been consolidated in a
single action. Also named as defendants in these actions are many, if
not most, of the largest gaming companies in the United States, and
certain other gaming equipment manufacturers. Each complaint is
identical in its material allegations. The actions allege that the
defendants have engaged in fraudulent and misleading conduct by
inducing people to play video poker machines and electronic slot
machines, based on false beliefs concerning how the machines operate
and the extent to which there is actually an opportunity to win on a
given play. The complaints allege that the defendants' acts
constitute violations of the Racketeer Influenced and Corrupt
Organizations Act, and also give rise to claims for common law fraud
and unjust enrichment, and seeks compensatory, special consequential,
incidental and punitive damages of several billion dollars.
In response to the Poulos and Ahern complaints, all of the
defendants, including the Company, filed motions to transfer venue.
The Court granted the defendants' motion to transfer venue of the
action to Las Vegas. The defendants also filed motions to dismiss the
actions challenging the pleadings for failure to state a claim and
seeking to dismiss the complaints for lack of personal jurisdiction
and venue. The Court granted the defendants' motions to dismiss, with
leave to amend the pleadings. The plaintiffs filed amended pleadings
and the defendants again filed motions to dismiss. The Court has not
indicated when it will rule on these motions.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three Months Ended December 31, 1996 Compared to the Three Months
Ended December 31, 1995
Revenues for the first quarter of fiscal 1997 totaled $189.4
million as compared to $156.2 million in the first quarter of fiscal
1996. Net income for the quarter was $33.7 million or $.27 per fully
diluted share versus $27.7 million or $.21 per fully diluted share in
the prior year.
Revenues and Gross Profit Margins
Total revenues increased 21% as a result of a 31% increase in
product sales revenue and a 5% gain in gaming operations revenue.
Product sales revenue of $129.3 million for the first quarter of
fiscal 1997 increased $30.3 million compared to the same prior year
period. The Company sold 23,800 and 15,800 machines during the first
quarter of fiscal 1997 and 1996, respectively. Domestic machine sales
increased 5,700 units over the prior year period due to new casino
openings in the Nevada and Canada markets. Sales in Japan, which
commenced in July 1996, accounted for an increase of $3.3 million in
international revenues.
Revenues from gaming operations in the first quarter grew to
$60.0 million in comparison to $57.1 million for the same period last
year. This increase is primarily attributable to the expansion of the
Company's linked progressive systems in the Native American,
Mississippi and Louisiana markets where the number of systems and the
installed base have increased since the first quarter of fiscal 1996.
Nevada wide area progressive system revenues in the prior year period
were at record levels due, in part, to two consecutive world record
jackpots on the Company's Megabucks system. Lease operations revenues
increased $3.5 million over the comparable prior year quarter due to
the introduction of video gaming at three pari-mutuel facilities in
Delaware.
Gross profit on total revenues for the first quarter of fiscal
1997 was $86.9 million compared to $67.5 million for the first quarter
of fiscal 1996. The gross margin on product sales increased from 45%
in the first quarter of fiscal 1996 to 47% in the current quarter due
to improved production efficiencies at both the Company's new
manufacturing facility in Reno, Nevada and at the Company's existing
facility in Australia. The gross margin on gaming operations was 44%
and 41% for the first quarter of fiscal 1997 and 1996, respectively.
This increase in gross profit margin relates to the decrease in the
cost of interest sensitive assets the Company purchases to fund
jackpot payments.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (continued)
Expenses
Selling, general and administrative expenses decreased $1.7
million to $23.8 million in the first quarter of fiscal 1997 in
comparison to the same prior year period. This decline related to
costs associated with relocation to the Company's new manufacturing
facility recorded in the same prior year quarter. The Company also
reduced international administration costs by $1.2 million. These
decreases were partially offset by increased sales and incentive costs
related to higher volume and profitability. Depreciation and
amortization expenses were $3.1 million and $3.4 million for the
quarters ended December 31, 1996 and 1995, respectively. The decline
in depreciation relates to the acceleration of depreciation on
leasehold improvements in prior periods partially offset by
depreciation on a higher level of international assets in the current
period.
Research and development expenses totaled $7.4 million for the
quarter compared to $6.3 million for the first quarter of fiscal 1996.
This increase is due to compliance testing for new products both
domestically and internationally. The provision for bad debts in the
first quarter increased $1.2 million in comparison to the prior year
first quarter due primarily to increased volume and the writedown of
receivables in China.
Other Income and Expense
The increase in interest income from $9.7 million in the prior
year first quarter to $10.2 million in the current quarter is
primarily attributable to an increase in the number of winners on the
Company's linked progressive systems, resulting in increased income-
producing investments to fund future jackpot payments.
Correspondingly, interest expense which totaled $6.9 million and $5.2
million for the first quarter of fiscal 1997 and 1996, respectively,
has increased in response to this overall growth in jackpot
liabilities. In the prior year period, a larger portion of interest
expense associated with construction of the Company's manufacturing
facility was capitalized (see Note 2), resulting in an increase in
interest expense related to long-term debt in the current period.
During the first quarter of fiscal 1997, the Company recognized a
gain of $305,000 on the sale of assets, compared to a loss of $14,000
in the comparable prior year period. In the current year, the
Company's sale of its former administrative buildings in Reno, Nevada
and investment securities, resulted in gains of $753,000 and $301,000,
respectively. These gains were offset by a writedown of investments
in China.
Other income decreased $8.9 million from the first quarter of
fiscal 1996 due primarily to a legal settlement which was received by
IGT-Australia in the prior year period.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (continued)
Liquidity and Capital Resources
Working Capital
Working capital declined $19.7 million to $468.5 million during
the three months ended December 31, 1996. Changes in current assets
contributing to the overall fluctuation in working capital include
increases in accounts receivable related to higher sales volume and
increases in inventories in Australia and North America, offset by
decreases in cash and cash equivalents, investment securities and
prepaid expenses. Prepaid expenses declined due to the application of
deposits toward construction activities. Current maturities of long-
term notes payable and capital lease obligations increased $7.1
million due primarily to increases in the current portion of the
Australian line of credit. Accrued income taxes increased due to the
timing of estimated tax payments. These increases in current
liabilities were offset by a $9.3 million decrease in accrued employee
benefit plan liabilities, resulting from payments during the current
period.
Cash Flow
During the three month period ended December 31, 1996, the
Company generated cash from operating activities of $21.2 million.
Uses of cash resulted from increases in receivables due to higher
volume, increases in inventories and decreases in accounts payable and
accrued liabilities. Decreases in prepaid expenses and other provided
operating cash.
This increase in operating cash was offset by cash used in
investing activities of $12.7 million and cash used in financing
activities of $18.4 million, respectively. The cash used in investing
activities relates primarily to construction of the new manufacturing
facility (see Note 2) as well as purchases of investments to fund
jackpot liabilities. The cash used in financing activities resulted
from purchases of $40.2 million of the Company's common stock under
the stock repurchase program offset by collections from the
progressive systems to fund the related liabilities.
Lines of Credit
As of December 31, 1996, the Company had a $50.0 million
unsecured bank line of credit with various interest rate options
available to the Company. The line of credit is used for the purpose
of funding operations and to facilitate standby letters of credit.
The Company is charged a nominal fee on amounts used against the line
as security for letters of credit. Funds available under this line
are reduced by any amounts used as security for letters of credit. At
December 31, 1996, $48.0 million was available under this line of
credit.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (continued)
IGT-Australia had a line of credit and a cash advance facility
totaling $23.5 million (Australian) available as of December 31, 1996.
The line of credit bears interest at the lender's reference rate plus
1%. This line is secured by a comfort letter and guarantee from the
Company, and has a provision for review and renewal annually in
January. At December 31, 1996, $1.5 million was available under this
line. Principal payments on the cash advance facility of $6.0 million
and $3.0 million (Australian) are due September 30, 1997 and June 30,
1998, respectively. Interest is paid quarterly.
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.
Stock Repurchase Plan
A stock repurchase program was originally authorized by the Board
of Directors in October 1990. This repurchase program currently
allows for the purchase of up to 50.0 million shares of the Company's
common stock. During the first quarter of fiscal 1997, the Company
purchased 2.1 million shares for a total of $40.2 million in cash.
From January 1, 1997 through February 11, 1997, the Company purchased
1.3 million shares for a total of $22.9 million in cash. As of
February 11, 1997, the Company is authorized to purchase a remaining
24.5 million shares under this repurchase program.
Recently Issued Accounting Standards
The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" in March 1995. This statement, which the
Company adopted on October 1, 1996, requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
The adoption of this statement did not have a significant effect on
the financial position or results of operations of the Company.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which the Company adopted on October 1,
1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not
require) compensation cost to be measured based on the fair value of
the equity instrument awarded. Companies are permitted, however, to
continue to apply APB Opinion No. 25, which recognizes compensation
cost based on the intrinsic value of the equity instrument awarded.
The Company will continue to apply APB Opinion No. 25 to its stock-
based compensation awards to employees and will disclose the required
pro forma effect on net income and earnings per share in the Company's
Annual Report on Form 10-K for the year ending September 30, 1997.
<PAGE>
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995
The foregoing Management's Discussion and Analysis and other
portions of this report on Form 10-Q, contain various "forward-
looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Sections 21E of the
Securities Exchange Act of 1934, as amended, which represent the
Company's expectations or beliefs concerning future events, including
the following: statements regarding the estimated total cost of the
Company's new facility; the statement that the Company believes it is
unlikely that it will incur any losses relating to its guarantee of
certain indebtedness of CMS; and the statement that the outcome of
pending legal actions will not have a material adverse effect on the
Company's financial position or results of operations. In addition,
statements containing expressions such as "believes," "anticipates"
or "expects" used in the Company's periodic reports on Forms 10-K and
10-Q filed with the SEC are intended to identify forward-looking
statements. The Company cautions that these and similar statements
included in this report and in previously filed periodic reports
including reports filed on Forms 10-K and 10-Q are further qualified
by important factors that could cause actual results to differ
materially from those in the forward-looking statement, including,
without limitation, the following: decline in demand for gaming
products or reduction in the growth rate of new markets; the effect
of economic conditions; a decline in the market acceptability of
gaming; unfavorable public referendums or anti-gaming legislation;
political and economic instability in developing international
markets; a decline in the demand for replacement machines with
imbedded bill acceptors; a decrease in the desire of established
casinos to upgrade machines in response to added competition from
newly constructed casinos; changes in player appeal for gaming
products; the loss of a distributor; changes in interest rates
causing a reduction of investment income or in the market interest
rate sensitive investments; loss or retirement of key executives;
approval of pending patent applications or infringement upon existing
patents; the effect of regulatory and governmental actions;
unfavorable determination of suitability by regulatory authorities
with respect to officers, directors or key employees; the limitation,
conditioning or suspension of any gaming license; adverse results of
significant litigation matters; fluctuations in foreign exchange
rates, tariffs and other barriers and with respect to legal actions,
the discovery of facts not presently known to the Company or
determinations by judges; juries or other finders of fact which do
not accord with the Company's evaluation of the possible liability or
outcome of existing litigation.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: February 13, 1997
INTERNATIONAL GAME TECHNOLOGY
By:/s/Maureen Imus
Maureen Imus
Vice President, Finance
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