<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's condensed consolidated statements of income and consolidated balance
sheets and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000353944
<NAME> INTERNATIONAL GAME TECHNOLOGY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 148,351
<SECURITIES> 13,411
<RECEIVABLES> 221,590
<ALLOWANCES> 17,295
<INVENTORY> 108,013
<CURRENT-ASSETS> 552,745
<PP&E> 270,870
<DEPRECIATION> 97,103
<TOTAL-ASSETS> 1,223,772
<CURRENT-LIABILITIES> 169,277
<BONDS> 0
0
0
<COMMON> 95
<OTHER-SE> 543,276
<TOTAL-LIABILITY-AND-EQUITY> 1,223,772
<SALES> 95,357
<TOTAL-REVENUES> 165,011
<CGS> 54,716
<TOTAL-COSTS> 89,211
<OTHER-EXPENSES> 31,628
<LOSS-PROVISION> 1,386
<INTEREST-EXPENSE> 8,789
<INCOME-PRETAX> 45,639
<INCOME-TAX> 15,974
<INCOME-CONTINUING> 29,665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,665
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
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, 1997
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.)
9295 Prototype Drive, Reno, Nevada 89511
(Address of principal executive offices)
(702) 448-7777
(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 January 31, 1998
Common Stock 113,854,771
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, 1997. 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 to 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. Limited ("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 (Proprietary) Limited ("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 wide area progressive systems and 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 lottery
terminals and has developed specialized video lottery 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-Argentina was established in December 1993 and has an office
in Buenos Aires, Argentina to distribute and market gaming products
in Argentina.
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-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.
<PAGE>
Item 1. Financial Statements, (continued)
IGT-Europe was established in The Netherlands in February 1992
to distribute and market gaming products in Eastern and Western
Europe and Northern Africa. Prior to providing direct sales, the
Company sold its products in these markets through a distributor.
IGT-Iceland was established in September 1993 to provide system
software, machines, equipment and technical assistance to support
Iceland's video lottery operations.
IGT-Japan was established in July 1990, and in November 1992,
opened an office in Tokyo, Japan. In April 1993, IGT-Japan was
approved to supply pachisuro gaming machines to the Japanese market.
IGT-Africa opened an office in September 1994 and subsequently
was incorporated in October 1995 to distribute and market gaming
products in Southern Africa. The office is located in Midrand, South
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 9295 Prototype Drive, Reno, Nevada 89511; its telephone
number is (702) 448-7777.
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,
1997 1996
(Amounts in thousands, except per share
amounts)
<S> <C> <C>
Revenues
Product sales $ 95,357 $129,333
Gaming operations 69,654 60,048
Total revenues 165,011 189,381
Costs And Expenses
Cost of product sales 54,716 68,702
Cost of gaming operations 34,495 33,787
Selling, general and administrative 20,986 23,816
Depreciation and amortization 3,366 3,093
Research and development 7,276 7,395
Provision for bad debts 1,386 2,814
Total costs and expenses 122,225 139,607
Income From Operations 42,786 49,774
Other Income (Expense)
Interest income 11,175 10,229
Interest expense (8,789) (6,892)
Gain on sale of assets 1,041 305
Other (574) (810)
Other income, net 2,853 2,832
Income Before Income Taxes 45,639 52,606
Provision For Income Taxes 15,974 18,938
Net Income $ 29,665 $ 33,668
Basic Earnings Per Share $ 0.26 $ 0.27
Diluted Earnings Per Share $ 0.26 $ 0.27
Weighted Average Common Shares Outstanding 113,771 125,642
Weighted Average Common and Common
Equivalent Shares Outstanding 115,719 127,035
</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,
1997 1997
(Dollars in thousands)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 148,351 $ 151,771
Investment securities, at market value 13,411 14,944
Accounts receivable, net of allowances
for doubtful accounts of $6,138 and
$5,899 156,340 173,783
Current maturities of long-term notes
and contracts receivable, net of
allowances 65,250 74,686
Inventories, net of allowances for
obsolescence of $12,999 and $14,881:
Raw materials 60,547 50,484
Work-in-process 4,708 3,606
Finished goods 42,758 38,354
Total inventories 108,013 92,444
Investments to fund liabilities to
jackpot winners 36,876 35,088
Deferred income taxes 15,251 18,229
Prepaid expenses and other 9,253 10,601
Total current assets 552,745 571,546
Long-term notes and contracts receivable,
net of allowances and current maturities 29,961 32,524
Property, plant and equipment, at cost
Land 24,731 25,391
Buildings 73,438 74,366
Gaming operations equipment 66,213 66,240
Manufacturing machinery and equipment 94,180 97,564
Leasehold improvements 4,908 5,306
Construction in progress 7,400 1,451
Total 270,870 270,318
Less accumulated depreciation and
amortization (97,103) (91,842)
Property, plant and equipment, net 173,767 178,476
Investments to fund liabilities to jackpot
winners 330,734 313,719
Deferred income taxes 104,709 98,072
Other assets 31,856 20,715
Total Assets $1,223,772 $1,215,052
</TABLE>
<PAGE>
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
(Dollars in thousands)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term notes
payable and capital lease obligations $ 25,484 $ 25,414
Accounts payable 42,585 46,238
Jackpot liabilities 44,336 42,485
Accrued employee benefit plan
liabilities 9,584 17,147
Accrued dividends payable 3,414 3,411
Accrued income taxes 17,191 -
Other accrued liabilities 26,683 29,893
Total current liabilities 169,277 164,588
Long-term notes payable and capital lease
obligations, net of current maturities 100,709 140,713
Long-term jackpot liabilities 409,899 389,235
Other liabilities 516 669
Total Liabilities 680,401 695,205
Commitments and contingencies - -
Stockholders' equity
Common stock, $.000625 par value;
320,000,000 shares authorized;
151,973,501 and 151,882,710 shares
issued 95 95
Additional paid-in capital 245,489 243,950
Retained earnings 711,233 688,597
Treasury stock; 38,175,382 and
38,174,676 shares at cost (413,635) (413,617)
Net unrealized gain on investment
securities 189 822
Total Stockholders' Equity 543,371 519,847
Total Liabilities and Stockholders'
Equity $1,223,772 $1,215,052
</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,
1997 1996
(Dollars in thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 29,665 $ 33,668
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,707 8,224
Provision for bad debts 1,386 2,814
Provision for inventory obsolescence 1,937 1,754
Loss on investments and sale of assets (1,042) (305)
Common stock awards 649 530
(Increase) decrease in assets:
Receivables 26,588 (19,872)
Inventories (20,777) (16,498)
Prepaid expenses and other 1,304 12,155
Other assets (11,177) (103)
Net deferred income tax asset, net of
tax benefit of stock option and
purchase plans 12,525 8,862
Increase in accounts payable and
accrued liabilities (13,820) (10,455)
Other (55) 415
Total adjustments 6,225 (12,479)
Net cash provided by operating
activities 35,890 21,189
</TABLE>
<PAGE>
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1997 1996
(Dollars in thousands)
<S> <C> <C>
Cash Flows from Investing Activities
Investment in property, plant and
equipment (3,777) (9,171)
Proceeds from sale of property, plant
and equipment 170 7,040
Purchase of investment securities (267) (2,946)
Proceeds from sale of investment
securities 1,910 9,347
Proceeds from investments to fund
liabilities to jackpot winners 9,994 7,599
Purchase of investments to fund
liabilities to jackpot winners (28,797) (24,565)
Net cash used in investing activities (20,767) (12,696)
Cash Flows from Financing Activities
Principal payments on debt (55,260) (71)
Payments on jackpot liabilities (9,994) (7,599)
Collections from systems to fund jackpot
liabilities 32,509 30,712
Proceeds from stock options exercised 754 150
Payments of cash dividends (3,455) (3,785)
Proceeds from long-term debt 16,314 2,400
Payments to purchase treasury stock - (40,158)
Net cash used in financing activities (19,132) (18,351)
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 589 (1,117)
Net Decrease in Cash and Cash Equivalents (3,420) (10,975)
Cash and Cash Equivalents at:
Beginning of Period 151,771 169,900
End of Period $148,351 $158,925
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
Notes to Condensed Consolidated Financial Statements
1. Construction of New Cabinet Manufacturing Facility
The Company is constructing an 85,000 square foot cabinet
manufacturing facility adjacent to the corporate headquarters,
manufacturing and warehousing facility in Reno, Nevada. The cabinet
manufacturing facility is substantially completed, and is scheduled to
be operational by the end of March 1998. The total cost is estimated
at $4.2 million. As of December 31, 1997, $2.5 million had been
incurred for the project.
2. 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,
1997 1997
(Dollars in thousands)
<S> <C> <C>
Current $11,157 $ 8,605
Long-term 7,967 9,624
$19,124 $18,229
</TABLE>
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.
Notes to Condensed Consolidated Financial Statements, (continued)
Accounts, contracts, and notes receivable by region as a
percentage of total receivables are as follows:
<TABLE>
<CAPTION>
December 31, 1997
<S> <C>
Nevada 30.6 %
Native American casinos (distributor) 14.6 %
Riverboats (greater Mississippi River area) 14.5 %
South America 11.1 %
Australia 5.4 %
Colorado 3.7 %
Europe 2.3 %
Other regions (individually less than 2%) 17.8 %
Total 100.0 %
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, 1997, had an aggregate balance of $14.7
million. The notes that have been guaranteed are also collateralized
by the respective casino properties. Summit has agreed to indemnify
and hold the Company harmless against any liability arising under
these guarantees. Management believes it is unlikely that the Company
will incur losses relating to these guarantees.
5. Earnings Per Share
During the quarter, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share." The
following table shows the reconciliation of basic earnings per share
("EPS") to diluted EPS available to common stockholders:
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended December 31,
1997 1996
(Amounts in thousands,
except per share amounts)
Weighted Weighted
Net Average Net Average
Income Shares EPS Income Shares EPS
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $29,665 113,771 $0.26 $33,668 125,642 $0.27
Effect of Dilutive
Securities
Stock options outstanding - 1,948 - 1,393
Diluted EPS $29,665 115,719 $0.26 $33,668 127,035 $0.27
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statement, (continued)
Options to purchase 49,668 shares of common stock at December 31,
1997 and 102,583 shares of common stock at December 31, 1996 were not
included in the computation of diluted EPS because the options'
exercise price was greater than the average market price of the common
shares. The options, which expire from December 2002 to December
2007, were still outstanding at the end of the first quarter of fiscal
1998.
6. 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 manufactures gaming machines which are used on its
proprietary systems and are leased to customers under capital leases.
As a result, transfers between inventory and property, plant and
equipment totaling $2.2 million and $5.2 million were made in
quarters ended December 31, 1997 and 1996, respectively.
On December 2, 1997, the Board of Directors declared a quarterly
cash dividend of $0.03 per share, payable on March 3, 1998 to
shareholders of record at the close of business on February 2, 1998.
At December 31, 1997, the Company had accrued $3.4 million for the
payment of this dividend.
The tax benefit of stock options totaled $135,000 and $247,000
for the three month periods ended December 31, 1997 and 1996,
respectively.
Payments of interest for the three month periods ended December
31, 1997 and 1996 were $9.1 million and $8.2 million, respectively.
Payments for income taxes were $1.4 million for the three month
periods ended December 31, 1997 and December 31, 1996.
7. 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 into 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.
<PAGE>
Notes to Condensed Consolidated Financial Statements, (continued)
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.
Thereafter, at a status conference in Las Vegas on December 13,
1996, United States District Court Judge David A. Ezra, a visiting
judge who has now been assigned all three pending cases identified
above, ordered that the plaintiffs in all three cases file a new
consolidated complaint incorporating in one document all claims
against all defendants. All then pending motions from all parties were
ordered deemed as withdrawn without prejudice. The new consolidated
complaint was filed in February 1997. Thereafter, the defendants
timely filed both a Motion to Strike Plaintiff's Consolidated Amended
Complaint based on grounds it exceeded the court's explicit directions
and also a renewed Motion to Dismiss for the same reasons that a
similar motion had been granted previously. On November 3, 1997, Judge
Ezra heard oral argument on all pending motions filed by the
defendants.
In December 1997, Judge Ezra denied the motions that would have
dismissed the Consolidated Amended Complaint or that would have stayed
the action pending Nevada gaming regulatory action. He granted
significant parts of the Motion to Strike and directed the plaintiffs
to file a Second Amended Consolidated Complaint to which the
defendants would be required to answer. It was timely filed and the
defendants are in the process of preparing their answer to be filed in
February 1998.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three Months Ended December 31, 1997 Compared to the Three Months
Ended December 31, 1996
Net income for the quarter was $29.7 million or $.26 per diluted
share versus $33.7 million or $.27 per diluted share in the prior
year.
Revenues and Gross Profit Margins
Revenues for the first quarter of fiscal 1998 totaled $165
million as compared to $189.4 million in the first quarter of fiscal
1997. This fluctuation resulted from lower product sales, partially
offset by growth in gaming operations revenue. Product sales totaled
$95.4 million and $129.3 million for the quarters ended December 31,
1997 and 1996, respectively. During the current quarter, the Company
sold a total of 14,600 gaming machines compared to 23,700 in the first
quarter of 1997. Internationally, machine sales totaled 6,000 during
the current quarter versus 6,800 during the prior year quarter. The
decrease in sales domestically was most pronounced in Nevada and
Canada due to fewer casino openings and expansions. International
sales included 1,500 machines in Australia and 2,700 machines in
Japan.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (continued)
Revenues from gaming operations in the first quarter increased
16% to $69.7 million compared to $60 million for the same period last
year. This increase is due to the additional number of MegaJackpotsT
games online at the end of the first quarter of fiscal 1998. The
installed base of machines operating on these systems grew to 12,300
at the end of the current quarter compared to 9,500 one year earlier.
This increase is primarily attributable to the ongoing popularity of
the Wheel of Fortuner game, which is subject to a joint venture with
Anchor Gaming. The introduction of MegaJackpotsT in Missouri, along
with Super Megabucks and Jeopardyr in Nevada, also contributed to the
overall increase.
Gross profit on total revenues for the first quarter of fiscal
1998 was $75.8 million compared to $86.9 million for the first quarter
of fiscal 1997. The gross margin on product sales decreased from 47%
in the first quarter of fiscal 1997 to 43% in the current quarter due
to lower production volumes and a higher mix of Game King and VisionT
series products, which generally have lower gross margins. The gross
margin on gaming operations was $35.2 million or 51% versus $26.3
million or 44% for the first quarters of fiscal 1998 and 1997,
respectively. This increase in gross profit margin is primarily due
to joint venture activities totaling $11.8 million during the current
quarter, which are reported net of expenses. This improvement was
offset by declining interest rates which increased the costs of
interest sensitive assets the Company purchases to fund jackpot
payments.
Expenses
Selling, general and administrative expenses decreased $2.8
million to $21 million in the first quarter of fiscal 1998 in
comparison to the same prior year period. This fluctuation resulted
from cost reductions both domestically and internationally.
Depreciation and amortization expense totaled $3.4 million and $3.1
million for the quarters ended December 31, 1997 and 1996,
respectively. This increase is due to depreciation expense on the new
administrative facility and an increase in depreciation expense
resulting from a higher level of assets in the current period, offset
by a decrease in depreciation on international assets which have been
fully depreciated.
Research and development expenses were consistent between the two
periods. These expenses totaled $7.3 million for the current quarter
compared to $7.4 million for the first quarter of fiscal 1997. The
provision for bad debts in the first quarter decreased 50% to $1.4
million compared to $2.8 million recorded in the prior year period.
This decline is due primarily to decreased product sales volume.
Other Income and Expense
The increase in interest income of $946,000 from the prior year
period is primarily attributable to an increase in interest income
from investments to fund future jackpot payments partially offset by
lower interest income from investment securities. Investment
securities were sold during the last year to fund purchases of
treasury stock, resulting in a decline in interest and dividend
income.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (continued)
Interest expense of $8.8 million for the quarter ended December
31, 1997 increased from $6.9 million in the prior year quarter as a
result of the growth in jackpot liabilities. Additionally, $479,000
of interest expense was incurred on the corporate line of credit in
the current quarter. There was no outstanding balance on this line in
the first quarter of the prior year. In the prior year period, a
larger portion of interest expense associated with construction of the
Company's manufacturing facility was capitalized, resulting in an
increase in interest expense related to long-term debt in the current
period.
During the first quarter of fiscal 1998, the Company recognized a
gain of $1 million on the sale of assets, compared to a gain of
$305,000 in the comparable prior year period. This gain is
attributable to the sale of securities during the current quarter. In
the first quarter of fiscal 1997, the gain recognized on the sale of
the former administrative buildings in Reno, Nevada was offset by the
writedown of investments in China.
Liquidity and Capital Resources
Working Capital
Working capital declined $23.5 million to $383.5 million during
the three months ended December 31, 1997. Changes in current assets
contributing to the overall fluctuation in working capital include
decreases in accounts receivable and current maturities of long-term
notes and contracts receivable related to lower sales volume and an
increase in inventory domestically. Accrued income taxes increased
due to the timing of estimated tax payments, partially offset by a
$7.6 million decrease in accrued employee benefit plan liabilities,
resulting from payments during the current period.
Cash Flow
The Company's cash and cash equivalents totaled $148.4 million at
December 31, 1997, a $3.4 million decrease from the prior year end.
Cash provided by operating activities for the quarters ended December
31, 1997 and 1996 totaled $35.9 million and $21.2 million,
respectively. During these periods, fluctuations in receivables and
inventories were influenced by sales volumes and timing and resulted
in the most significant changes in cash flow from operating
activities.
The Company's proprietary systems provide cash through
collections from systems to fund jackpot liabilities and use cash to
purchase investments to fund liabilities to jackpot winners. The net
cash provided by these activities was $3.7 million and $6.1 million
for the periods ended December 31, 1997 and 1996, respectively.
Principal payments on the Company's lines of credit were the
primary financing activity use of cash during the current period.
Purchases of treasury stock of $40.2 million were the primary use of
financing cash in the comparable prior year period.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (continued)
Lines of Credit
As of December 31, 1997, the Company had a $250.0 million
unsecured bank line of credit with various interest rate options
available to the Company. 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, 1997, $233.2 million
was available under this line of credit.
IGT-Australia had a $10.2 million bank line of credit available
as of December 31, 1997. Interest is paid at the lender's reference
rate plus a margin of 1%. This line is supported by a comfort letter
and guarantee from the Company and has a provision for review and
renewal annually in January. At December 31, 1997, $1.3 million was
available under this line.
IGT-Japan had a $5.4 million line of credit available as of
December 31, 1997. The line is supported by a guarantee from the
Company and bears interest at 1.7%. At December 31, 1997,
approximately $3.1 million was available under this line.
The Company is required to comply, and is in compliance, with
certain covenants contained in these agreements which, among other
things, limit financial commitments the Company may make without the
written consent of the lenders and require the maintenance of certain
financial ratios, minimum working capital and net worth of the
Company.
Stock Repurchase Plan
A stock repurchase plan was originally authorized by the Board
of Directors in October 1990. As of December 31, 1997, the Company
was authorized to purchase a remaining 14.9 million shares under the
Board authorization. During the first quarter of fiscal 1998, the
Company reacquired 706 shares in connection with an employee stock
option exercise for $17,000.
Pending Acquisitions
The Company has entered into an agreement to purchase the assets
of Olympic Amusements Pty. Limited ("Olympic"), a leading Australian
manufacturer and supplier of gaming machines and related equipment.
Olympic holds approximately the same portion of the Australian gaming
market as the Company's existing Australian subsidiary, IGT-Australia.
The total purchase price is $104.7 million ($161 million Australian).
Approximately $91 million of the purchase price represents goodwill
and other intangibles. The purchase price is subject to adjustment
based on factors defined in the agreement. The transaction is
scheduled to close in February 1998.
IGT-Australia has a debt agreement pending with the National
Australia Bank to fund $97.5 million ($150 million Australian) of the
purchase price. The agreement requires quarterly principal payments
over five and a half years and bears interest at 5.5%.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (continued)
Recently Issued Accounting Standards
On June 30, 1997, the Financial Accounting Standards Board
("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." This
statement requires companies to classify items of other comprehensive
income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section
of a statement of financial position, and is effective for the
Company's fiscal year ending September 30, 1998. Management intends
to comply with the disclosure requirements of this statement.
On June 30, 1997, the FASB issued SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information." This statement
establishes additional standards for segment reporting in financial
statements and is effective for the Company's fiscal year ending
September 30, 1999. Management intends to comply with the disclosure
requirements of this statement and does not anticipate a material
impact on the results of operations for each segment.
<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 cabinet
manufacturing 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,"
"plans" 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 and existing
markets; delays of scheduled openings of newly constructed casinos;
the effect of economic conditions; a decline in the market
acceptability of gaming; unfavorable public referendums or anti-
gaming legislation; delays or lack of funding from regulatory
agencies for racetrack operations; political and economic instability
in developing international markets; a decline in the demand for
replacement machines; 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; 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 12, 1998
INTERNATIONAL GAME TECHNOLOGY
By:/s/Maureen Imus
Maureen Imus
Vice President, Finance
