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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
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INTERNATIONAL GAME TECHNOLOGY
(NAME OF ISSUER AND PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $.000625 PER SHARE
(TITLE OF CLASS OF SECURITIES)
459902102
(CUSIP NUMBER OF CLASS OF SECURITIES)
SARA BETH BROWN
VICE PRESIDENT AND GENERAL COUNSEL
INTERNATIONAL GAME TECHNOLOGY
9295 PROTOTYPE DRIVE
RENO, NEVADA 89511
(775) 448-7777
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS ON BEHALF OF THE PERSON FILING STATEMENT)
COPY TO:
J. JAY HERRON, ESQ.
STEPHANIE I. SPLANE, ESQ.
O'MELVENY & MYERS LLP
610 NEWPORT CENTER DRIVE, SUITE 1700
NEWPORT BEACH, CALIFORNIA 92660
(949) 760-9600
DECEMBER 9, 1999
(DATE TENDER OFFER FIRST PUBLISHED, SENT OR GIVEN TO SECURITY HOLDERS)
------------------------
CALCULATION OF FILING FEE
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TRANSACTION VALUATION* AMOUNT OF FILING FEE
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$231,000,000 $46,200
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</TABLE>
* Calculated solely for purposes of determining the filing fee. Determined
pursuant to Rule 0-11(b)(1), based upon the purchase of 11,000,000 shares at
$21.00 per share.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
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Amount Previously Paid: Not Applicable Filing Party: Not Applicable
Form or Registration No.: Not Applicable Date Filed: Not Applicable
</TABLE>
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This Issuer Tender Offer Statement on Schedule 13E-4 (this "Statement")
relates to the tender offer by International Game Technology, a Nevada
corporation (the "Company"), to purchase up to 11,000,000 shares of common
stock, par value $.000625 per share (the "Common Stock"), at a price, net to the
seller in cash, of $21.00 per share, upon the terms and subject to the
conditions set forth in the offer to purchase, dated December 9, 1999 (the
"offer to purchase") and the related letter of transmittal, which are herein
collectively referred to as the "offer." Copies of such documents are filed as
Exhibits (a)(1) and (a)(2), respectively, to this Statement.
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is International Game Technology, a Nevada
corporation. The address of its principal executive offices is 9295 Prototype
Drive, Reno, Nevada 89511 (telephone number (775) 448-7777).
(b) The information set forth in "Introduction," "Section 1. Number of
Shares; Proration" and "Section 9. Interests of Directors and Executive
Officers; Transactions and Arrangements Concerning the Shares" in the offer to
purchase is incorporated herein by reference. The offer is being made to all
holders of shares of the Common Stock, including officers, directors and
affiliates of the Company. The Company has been advised that none of its
directors or officers intend to tender shares in the offer.
(c) The information set forth in "Introduction" and "Section 7. Price Range
of Shares" in the offer to purchase is incorporated herein by reference.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth in "Section 10. Source and Amount of
Funds" in the offer to purchase is incorporated herein by reference.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER.
(a)-(j) The information set forth in "Introduction," "Section 8. Background
and Purpose of the Offer; Certain Effects of the Offer," "Section 9. Interests
of Directors and Executive Officers; Transactions and Arrangements Concerning
the Shares" and "Section 12. Effect of the Offer on the Market for Shares;
Registration Under the Securities Exchange Act" in the offer to purchase is
incorporated herein by reference.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The information set forth in "Section 9. Interests of Directors and
Executive Officers; Transactions and Arrangements Concerning the Shares" and
"Schedule I -- Certain Transactions Involving Shares" in the offer to purchase
is incorporated herein by reference.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE ISSUER'S SECURITIES.
The information set forth in "Introduction," "Section 8. Background and
Purpose of the Offer; Certain Effects of the Offer" and "Section 9. Interests of
Directors and Executive Officers; Transactions and Arrangements Concerning the
Shares" in the offer to purchase is incorporated herein by reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in "Introduction" and "Section 16. Fees and
Expenses" in the offer to purchase is incorporated herein by reference.
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ITEM 7. FINANCIAL INFORMATION.
(a)-(b) The information set forth in "Section 11. Certain Information About
the Company" in the offer to purchase is incorporated herein by reference. The
information set forth on pages 34 through 67 and page 72 of the Company's Annual
Report on Form 10-K for the fiscal year ended October 2, 1999, filed as Exhibit
(g)(1) hereto, is incorporated herein by reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) Not applicable.
(b) The information set forth in "Section 13. Certain Legal Matters" in the
offer to purchase is incorporated herein by reference.
(c) The information set forth in "Section 12. Effect of the Offer on the
Market for Shares; Registration Under the Securities Exchange Act" in the offer
to purchase is incorporated herein by reference.
(d) Not applicable.
(e) The information set forth in the offer to purchase and the related
letter of transmittal, copies of which are attached hereto as Exhibits (a)(1)
and (a)(2), respectively, is incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
(a)(1) Offer to Purchase dated December 9, 1999.
Form of Letter of Transmittal.
(a)(2)
Form of Notice of Guaranteed Delivery.
(a)(3)
Form of Letter to brokers, dealers, commercial banks, trust
(a)(4) companies and other nominees.
Form of Letter to clients for use by brokers, dealers,
(a)(5) commercial banks, trust companies and other nominees.
Press release issued by the Company dated December 6, 1999.
(a)(6)
Form of summary advertisement dated December 9, 1999.
(a)(7)
Guidelines for Certification of Taxpayer Identification
(a)(8) Number on Substitute Form W-9.
Press release issued by the Company dated December 9, 1999.
(a)(9)
Letter to the Company's stockholders from Charles N.
(a)(10) Mathewson, Chairman of the Board and Chief Executive Officer
of the Company, dated December 9, 1999.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
Pages 34 through 67 and page 72 of the Company's Annual
(g)(1) Report on Form 10-K for the fiscal year ended October 2,
1999.
</TABLE>
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
INTERNATIONAL GAME TECHNOLOGY
By: /s/ MAUREEN T. MULLARKEY
------------------------------------
Maureen T. Mullarkey
Chief Financial Officer and
Vice President, Finance
Dated: December 9, 1999
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INDEX TO EXHIBITS
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ITEM DESCRIPTION PAGE
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(a)(1) Offer to Purchase dated December 9, 1999.
(a)(2) Form of Letter of Transmittal.
(a)(3) Form of Notice of Guaranteed Delivery.
(a)(4) Form of Letter to brokers, dealers, commercial banks, trust
companies and other nominees.
(a)(5) Form of Letter to clients for use by brokers, dealers,
commercial banks, trust companies and other nominees.
(a)(6) Press release issued by the Company dated December 6, 1999.
(a)(7) Form of summary advertisement dated December 9, 1999.
(a)(8) Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(9) Press release issued by the Company dated December 9, 1999.
(a)(10) Letter to the Company's stockholders from Charles N.
Mathewson, Chairman of the Board and Chief Executive Officer
of the Company, dated December 9, 1999.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g)(1) Pages 34 through 67 and page 72 of the Company's Annual
Report on Form 10-K for the fiscal year ended October 2,
1999.
</TABLE>
<PAGE> 1
EXHIBIT (A)(1)
OFFER TO PURCHASE FOR CASH
BY
INTERNATIONAL GAME TECHNOLOGY
UP TO 11,000,000 SHARES OF ITS COMMON STOCK AT A
PURCHASE PRICE OF $21.00 PER SHARE
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JANUARY 7, 2000
UNLESS THE OFFER IS EXTENDED.
International Game Technology, a Nevada corporation (the "Company"),
invites its stockholders to tender shares of its common stock, par value
$.000625 per share, to the Company at a price of $21.00 per share in cash, upon
the terms and subject to the conditions set forth in this offer to purchase and
the related letter of transmittal, which together constitute the offer. We will
pay $21.00 per share, net to the seller in cash, for up to 11,000,000 shares
validly tendered and not withdrawn, upon the terms and subject to the conditions
of the offer, including the proration terms. The Company reserves the right, in
its sole discretion, to purchase more than 11,000,000 shares pursuant to the
offer.
THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE
SECTION 6.
The common stock is listed and principally traded on the New York Stock
Exchange, Inc. under the symbol "IGT." On December 6, 1999, the last full
trading day on the NYSE prior to the announcement by the Company of the offer,
including the price and number of shares sought, the closing per share sales
price as reported on the NYSE Composite Tape was $17 9/16. STOCKHOLDERS ARE
URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. SEE SECTION 7.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER,
STOCKHOLDERS MUST MAKE THEIR OWN DECISION WHETHER TO TENDER SHARES AND, IF SO,
HOW MANY SHARES TO TENDER. NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES
ANY RECOMMENDATION AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES. THE
COMPANY HAS BEEN ADVISED THAT NONE OF ITS DIRECTORS OR OFFICERS INTEND TO TENDER
SHARES IN THE OFFER.
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THE DEALER MANAGER FOR THE OFFER IS:
SALOMON SMITH BARNEY
388 GREENWICH STREET
NEW YORK, NEW YORK 10013
(212) 816-6000
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THE DATE OF THIS OFFER TO PURCHASE IS DECEMBER 9, 1999.
<PAGE> 2
TABLE OF CONTENTS
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SECTION PAGE
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Summary.......................................................... 2
Introduction..................................................... 3
The Offer........................................................ 4
1. Number of Shares; Proration................................. 4
2. Tenders by Owners of Fewer than 100 Shares.................. 5
3. Procedure for Tendering Shares.............................. 6
4. Withdrawal Rights........................................... 9
5. Purchase of Shares and Payment of Purchase Price............ 10
6. Certain Conditions of the Offer............................. 10
7. Price Range of Shares....................................... 12
8. Background and Purpose of the Offer; Certain Effects of the
Offer....................................................... 12
9. Interests of Directors and Executive Officers; Transactions
and Arrangements Concerning the Shares...................... 13
10. Source and Amount of Funds.................................. 13
11. Certain Information about the Company....................... 13
12. Effect of the Offer on the Market for Shares; Registration
under the Securities Exchange Act........................... 19
13. Certain Legal Matters....................................... 20
14. Certain United States Federal Income Tax Consequences....... 20
15. Extension of the Offer; Termination; Amendment.............. 23
16. Fees and Expenses........................................... 24
17. Miscellaneous............................................... 25
SCHEDULE I -- Certain Transactions Involving Shares.............. 26
</TABLE>
(i)
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IMPORTANT
Except as described below, any stockholder of the Company desiring to
accept the offer should either:
(1) complete and sign the letter of transmittal or a facsimile thereof
in accordance with the instructions in the letter of transmittal, mail or
deliver it with any required signature guarantee and any other required
documents to The Bank of New York, as depositary, and either mail or
deliver the stock certificates for such shares to the depositary, with all
such other documents, or follow the procedure for book-entry delivery set
forth in Section 3, or
(2) request the stockholder's broker, dealer, commercial bank, trust
company or other nominee to effect the transaction for him or her.
A stockholder having shares registered in the name of a broker, dealer,
commercial bank, trust company or other nominee must contact that broker,
dealer, commercial bank, trust company or other nominee if such stockholder
desires to tender such shares. Stockholders who desire to tender shares and
whose certificates for such shares are not immediately available or who cannot
comply with the procedure for book-entry transfer on a timely basis or whose
other required documentation cannot be delivered to the depositary, in any case,
by the expiration of the offer should tender such shares by following the
procedures for guaranteed delivery set forth in Section 3. For shares to be
properly tendered, the depositary must timely receive a properly completed
letter of transmittal.
If you have any questions or requests for assistance or for additional
copies of this offer to purchase, the letter of transmittal or the notice of
guaranteed delivery, please direct them to Georgeson Shareholder Communications
Inc., as information agent, at its address and telephone number set forth on the
back cover of this offer to purchase.
WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON BEHALF OF
US AS TO WHETHER STOCKHOLDERS SHOULD TENDER OR REFRAIN FROM TENDERING SHARES
PURSUANT TO THE OFFER. WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFER ON OUR BEHALF OTHER
THAN THOSE CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL.
DO NOT RELY ON ANY SUCH RECOMMENDATION OR ANY SUCH INFORMATION OR
REPRESENTATIONS, IF GIVEN OR MADE, AS HAVING BEEN AUTHORIZED BY US.
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SUMMARY
This general summary is provided for your convenience and is qualified in
its entirety by reference to the full text and more specific details of this
offer to purchase.
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Number of Shares to be Purchased and 11,000,000 shares. $21.00 net to the seller in cash.
Purchase Price
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How to Tender Shares See Section 3. Call the information agent (Georgeson
Shareholder Communications Inc.) at (800) 223-2064 or
consult your broker for assistance.
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Brokerage Commissions None.
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Stock Transfer Tax None, if payment is made to the registered holder.
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Expiration and Proration Dates Friday, January 7, 2000, at 12:00 midnight, New York City
time, unless extended by us.
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Payment Date As soon as practicable after the expiration date.
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Position of the Company Neither we nor our Board of Directors makes any
recommendation to any stockholder as to whether to tender or
refrain from tendering shares.
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Withdrawal Rights Tendered shares may be withdrawn at any time until 12:00
midnight, New York City time, on Friday, January 7, 2000
(unless the offer is extended by the Company) and, if the
Company has not yet accepted the shares for payment, at any
time after 12:00 midnight, New York City time, on Monday,
February 7th, 2000. See Section 4.
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Odd Lots There will be no proration of shares tendered by any
stockholder owning beneficially fewer than 100 shares in the
aggregate as of the close of business December 6, 1999 and
as of the expiration date,
who tenders all such shares prior to the expiration date and
who checks the "Odd Lots" box in the letter of transmittal.
</TABLE>
FURTHER DEVELOPMENTS
Call the information agent or consult your broker.
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TO THE HOLDERS OF SHARES OF COMMON STOCK OF
INTERNATIONAL GAME TECHNOLOGY:
INTRODUCTION
We invite the stockholders of International Game Technology, a Nevada
corporation (the "Company"), to tender to the Company shares of its common
stock, par value $.000625 per share, at a price of $21.00 per share in cash,
upon the terms and subject to the conditions set forth in this offer to purchase
and the related letter of transmittal, which together constitute the "offer."
We will pay $21.00, net to the seller in cash, for up to 11,000,000 shares
validly tendered prior to the expiration date, as defined in Section 1, and not
withdrawn, upon the terms and subject to the conditions of the offer, including
the proration terms described below. We reserve the right, in our sole
discretion, to purchase more than 11,000,000 shares pursuant to the offer.
If, before the expiration date, more than 11,000,000 shares, or such
greater number of shares as the Company may decide to purchase, are validly
tendered and not withdrawn, we will, upon the terms and subject to the
conditions of the offer, purchase shares first from all odd lot owners, that is
owners of fewer than 100 shares of the common stock (excluding shares
attributable to individual accounts under the Company's Profit Sharing Plan but
including shares held in the Company's Employee Stock Purchase Plan) as of
December 6, 1999, who validly tender all their shares and then on a pro rata
basis from all other stockholders who validly tender shares and do not withdraw
them prior to the expiration date. We will return at our own expense all shares
not purchased pursuant to the offer, including shares not purchased because of
proration.
The $21.00 purchase price will be paid net to the tendering stockholder in
cash for all shares. Tendering stockholders will not be obligated to pay
brokerage commissions, solicitation fees or, subject to Instruction 7 of the
letter of transmittal, stock transfer taxes on the Company's purchase of shares
pursuant to the offer. HOWEVER, ANY TENDERING STOCKHOLDER OR OTHER PAYEE WHO
FAILS TO COMPLETE, SIGN AND RETURN TO THE DEPOSITARY THE SUBSTITUTE FORM W-9
THAT IS INCLUDED WITH THE LETTER OF TRANSMITTAL MAY BE SUBJECT TO REQUIRED
BACKUP FEDERAL INCOME TAX WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAYABLE TO
SUCH STOCKHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. SEE SECTION 3.
On December 6, 1999, we announced our intention to make an offer to
purchase up to 11,000,000 shares at $21.00 per share with the offer to commence
on December 9, 1999. We are making the offer because we believe:
(1) the shares are undervalued in the public market;
(2) the offer represents the opportunity to return a portion of the
Company's cash to stockholders permitting them to invest it according to
their preferences and objectives;
(3) after the offer is completed, we expect to have sufficient cash
flow and access to other sources of funding to meet the Company's cash
needs for normal operations and anticipated capital expenditures for the
foreseeable future;
(4) after considering alternatives, investing in our shares is an
attractive use of capital and an efficient means to provide value to our
shareholders; and
(5) the consummation of the offer should not foreclose possible future
acquisitions by the Company.
As of December 6, 1999, there were 85,923,363 shares outstanding, net of
treasury shares, and 5,611,700 shares issuable upon exercise of all outstanding
stock options of which 3,202,155 and 3,409,655 options are exercisable as of
December 6, 1999 and January 7, 2000, respectively. The 11,000,000 shares that
we are offering to purchase represent approximately 13% of the outstanding
shares and approximately 12% assuming the exercise of all outstanding options.
The shares are listed on the New York Stock Exchange, Inc.
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under the symbol "IGT." On December 6, 1999, the last full trading day on the
NYSE prior to our announcement of the offer, the closing per share sales price,
as reported on the NYSE composite tape, was $17 9/16. WE URGE STOCKHOLDERS TO
OBTAIN CURRENT QUOTATIONS ON THE MARKET PRICE OF THE SHARES.
THE OFFER
1. NUMBER OF SHARES; PRORATION
Upon the terms and subject to the conditions of the offer, we will accept
for payment 11,000,000 shares or such lesser number of shares as are validly
tendered before the expiration date, and not withdrawn in accordance with
Section 4, at a net cash price of $21.00 per share. The term "expiration date"
means 12:00 midnight, New York City time, on Friday, January 7, 2000, unless and
until we in our sole discretion extend the period of time during which the offer
is open, in which event the term "expiration date" shall refer to the latest
time and date at which the offer, as so extended by us, is scheduled to expire.
See Section 15 for a description of our right to extend the time during which
the offer is open and to delay, terminate or amend the offer. Subject to Section
2 below, if the offer is oversubscribed, shares tendered and not withdrawn
before the expiration date will be eligible for proration.
We reserve the right, in our sole discretion, to purchase more than
11,000,000 shares pursuant to the offer. See Section 15. In accordance with
applicable regulations of the Securities and Exchange Commission, we may
purchase pursuant to the offer an additional number of shares not to exceed 2%
of the outstanding shares without extending the offer. If
(a) (1) we increase or decrease the price to be paid for shares,
(2) we increase or decrease the fee of Salomon Smith Barney, as
dealer manager,
(3) we increase the number of shares being sought and such increase
in the number of shares being sought exceeds 2% of the outstanding
shares, or
(4) we decrease the number of shares being sought, and
(b) the offer is scheduled to expire at any time earlier than the
expiration of a period ending on the tenth business day from, and
including, the date that notice of such increase or decrease is first
published, sent or given as specified in Section 15,
then we will extend the offer until the expiration of such ten business day
period. For purposes of the offer, a "business day" means any day that is not a
Saturday, Sunday or federal holiday and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City time.
THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE
SECTION 6.
We will pay the $21.00 purchase price for all shares validly tendered prior
to the expiration date and not withdrawn, upon the terms and subject to the
conditions of the offer. We will return, at our expense, as promptly as
practicable following the expiration date all shares which we do not purchase in
the offer, including shares we do not purchase because of proration.
If the number of shares validly tendered and not withdrawn prior to the
expiration date is less than or equal to 11,000,000 shares (or such greater
number of shares as we may elect to purchase), we will, upon the terms and
subject to the conditions of the offer, purchase at the purchase price all
shares so tendered.
Priority. Upon the terms and subject to the conditions of the offer, in
the event that prior to the expiration date more than 11,000,000 shares (or such
greater number of shares as we may elect to purchase in
4
<PAGE> 7
the offer) are validly tendered and not withdrawn, we will purchase such validly
tendered shares in the following order of priority:
(1) all shares validly tendered and not withdrawn prior to the
expiration date by any odd lot owner who:
(a) tenders all shares (excluding shares attributable to individual
accounts under the Company's Profit Sharing Plan but including shares
held in the Company's Employee Stock Purchase Plan) beneficially owned
by such odd lot owner (partial tenders will not qualify for this
preference); and
(b) completes the box captioned "Odd Lots" on the letter of
transmittal and, if applicable, on the notice of guaranteed delivery;
and
(2) after purchase of all of the foregoing shares, all other shares
validly tendered and not withdrawn prior to the expiration date on a pro
rata basis.
Proration. In the event that proration is required, we will determine the
final proration factor as promptly as practicable after the expiration date.
Proration for each stockholder tendering shares, other than odd lot owners,
shall be based on the ratio of the number of shares tendered by such stockholder
to the total number of shares tendered by all stockholders, other than odd lot
owners. This ratio will be applied to stockholders tendering shares, other than
odd lot owners, to determine the number of shares that we will purchase from
each such stockholder in the offer. Although we do not expect to be able to
announce the final results of such proration until approximately seven business
days after the expiration date, we will announce preliminary results of
proration by press release as promptly as practicable after the expiration date.
Such preliminary information can be obtained from the information agent and may
be available from a stockholder's broker.
As described in Section 14, the number of shares that we will purchase from
a stockholder may affect the United States federal income tax consequences to
the stockholder of such purchase and therefore may be relevant to a
stockholder's decision whether to tender shares. The letter of transmittal
affords each tendering stockholder the opportunity to designate the order of
priority in which shares tendered are to be purchased in the event of proration.
We will mail this offer to purchase and the related letter of transmittal
to record holders of shares as of December 6, 1999 and furnish to brokers, banks
and similar persons whose names, or the names of whose nominees, appear on our
stockholder list or, if applicable, who are listed as participants in a clearing
agency's security position listing for subsequent transmittal to beneficial
owners of shares.
2. TENDERS BY OWNERS OF FEWER THAN 100 SHARES
Upon the terms and subject to the conditions of the offer, we will accept
for purchase, without proration, all shares validly tendered and not withdrawn
on or prior to the expiration date by or on behalf of odd lot owners, that is
stockholders who beneficially owned as of the close of business on December 6,
1999, and continue to beneficially own as of the expiration date, an aggregate
of fewer than 100 shares, excluding shares attributable to individual accounts
under the Company's Profit Sharing Plan, but including shares held in the
Company's Employee Stock Purchase Plan. To avoid proration, however, an odd lot
owner must validly tender all such shares that such odd lot owner beneficially
owns; partial tenders will not qualify for this preference. This preference is
not available to partial tenders or to owners of 100 or more shares in the
aggregate, even if such owners have separate stock certificates for fewer than
100 such shares. Any odd lot owner wishing to tender all such shares
beneficially owned by such stockholder in this offer must complete the box
captioned "Odd Lots" in the letter of transmittal and, if applicable, on the
notice of guaranteed delivery. See Section 3 below. Stockholders owning an
aggregate of less than 100 shares whose shares are purchased pursuant to the
offer will avoid both the payment of brokerage commissions and any applicable
odd lot discounts payable on a sale of their shares in transactions on the NYSE.
5
<PAGE> 8
We also reserve the right, but will not be obligated, to purchase all
shares duly tendered by any stockholder who tendered all shares beneficially
owned and who, as a result of proration, would then beneficially own an
aggregate of fewer than 100 shares. If we exercise this right, we will increase
the number of shares that we are offering to purchase in the offer by the number
of shares we purchase through the exercise of such right.
3. PROCEDURE FOR TENDERING SHARES
Proper Tender of Shares. For shares to be validly tendered pursuant to the
offer:
(1) the certificates for such shares, or confirmation of receipt of
such shares pursuant to the procedures for book-entry transfer set forth
below, together with a properly completed and duly executed letter of
transmittal, or manually signed facsimile thereof, with any required
signature guarantees, and any other documents required by the letter of
transmittal, must be received prior to 12:00 midnight, New York City time,
on the expiration date by the depositary at its address set forth on the
back cover of this offer to purchase; or
(2) the tendering stockholder must comply with the guaranteed delivery
procedure set forth below.
Odd lot owners who tender all shares must complete the section entitled
"Odd Lots" on the letter of transmittal in order to qualify for the preferential
treatment available to odd lot owners as set forth in Section 2 above.
Signature Guarantees and Method of Delivery. No signature guarantee is
required on the letter of transmittal if:
(1) The letter of transmittal is signed by the registered holder of
the shares tendered and payment and delivery are to be made directly to
such registered holder. Registered holder, for purposes of this Section 3,
includes any participant in The Depository Trust Company, as the book-entry
transfer facility, whose name appears on a security position listing as the
holder of the shares, or
(2) Shares are tendered for the account of an eligible institution,
that is a member firm of a registered national securities exchange, a
member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company, not a savings bank or savings and loan
association, having an office, branch or agency in the United States.
In all other cases, all signatures on the letter of transmittal must be
guaranteed by an eligible institution. See Instruction 1 of the letter of
transmittal.
If a certificate representing shares is registered in the name of a person
other than the signer of a letter of transmittal, or if payment is to be made,
or shares not purchased or tendered are to be issued, to a person other than the
registered holder, the certificate must be endorsed or accompanied by an
appropriate stock power, in either case signed exactly as the name of the
registered holder appears on the certificate, with the signature on the
certificate or stock power guaranteed by an eligible institution. In this
regard, see Section 5 for information with respect to applicable stock transfer
taxes. In all cases, payment for shares tendered and accepted for payment
pursuant to the offer will be made only after timely receipt by the depositary
of certificates for such shares, or a timely confirmation of a book-entry
transfer of such shares into the depositary's account at the book-entry transfer
facility as described above, a properly completed and duly executed letter of
transmittal, or manually signed facsimile thereof, and any other documents
required by the letter of transmittal.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING SHARE CERTIFICATES, THE
LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE ELECTION AND
RISK OF THE TENDERING STOCKHOLDER. IF YOU DECIDE TO MAKE DELIVERY BY MAIL, WE
RECOMMEND YOU USE REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED.
Book-Entry Delivery. The depositary will establish an account with respect
to the shares at the book-entry transfer facility for purposes of the offer
within two business days after the date of this offer to purchase.
6
<PAGE> 9
Any financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of the shares by causing such
facility to transfer such shares into the depositary's account in accordance
with such facility's procedure for such transfer. Even though delivery of shares
may be effected through book-entry transfer into the depositary's account at the
book-entry transfer facility, a properly completed and duly executed letter of
transmittal, or manually signed facsimile thereof, with any required signature
guarantees and other required documents must, in any case, be transmitted to and
received by the depositary at one of its addresses set forth on the back cover
of this offer to purchase prior to the expiration date. DELIVERY OF THE LETTER
OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS TO THE BOOK-ENTRY TRANSFER
FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Guaranteed Delivery. If a stockholder desires to tender shares pursuant to
the offer and such stockholder's share certificates cannot be delivered to the
depositary prior to the expiration date (or the procedures for book-entry
transfer cannot be completed on a timely basis) or time will not permit all
required documents to reach the depositary before the expiration date, such
shares may nevertheless be tendered provided that all of the following
conditions are satisfied:
(1) such tender is made by or through an eligible institution;
(2) the depositary receives (by hand, mail, overnight courier,
telegram or facsimile transmission), on or prior to the expiration date, a
properly completed and duly executed notice of guaranteed delivery
substantially in the form we have provided with this offer to purchase,
including (where required) a signature guarantee by an eligible institution
in the form set forth in such notice of guaranteed delivery; and
(3) the certificates for all tendered shares in proper form for
transfer (or confirmation of book-entry transfer of such shares into the
depositary's account at the book-entry transfer facility), together with a
properly completed and duly executed letter of transmittal (or manually
signed facsimile thereof) and any required signature guarantees or other
documents required by the letter of transmittal, are received by the
depositary within three NYSE trading days after the date the depositary
receives such notice of guaranteed delivery.
Return of Certificates. If we do not purchase all of the tendered shares,
or if less than all shares evidenced by a stockholder's certificates are
tendered, certificates for unpurchased shares will be returned at our expense as
promptly as practicable after the expiration or termination of the offer. If
shares are tendered by book-entry transfer at the book-entry transfer facility,
such shares will be credited to the appropriate account maintained by the
tendering stockholder at the book-entry transfer facility, without expense to
such stockholder.
Backup Federal Income Tax Withholding. Under the United States federal
income tax backup withholding rules, unless an exemption applies under the
applicable law and regulations, 31% of the gross proceeds payable to a
stockholder or other payee pursuant to the offer must be withheld and remitted
to the United States Treasury, unless the stockholder or other payee provides
such person's taxpayer identification number, employer identification number or
social security number, to the depositary and certifies under penalties of
perjury that such number is correct. Therefore, each tendering stockholder
should complete and sign the Substitute Form W-9 included as part of the letter
of transmittal so as to provide the information and certification necessary to
avoid backup withholding, unless such stockholder otherwise establishes to the
satisfaction of the depositary that the stockholder is not subject to backup
withholding. Certain stockholders, including, among others, corporations and
certain foreign stockholders, in addition to foreign corporations, are not
subject to the backup withholding and reporting requirements described herein.
However, for a noncorporate foreign stockholder to qualify as an exempt
recipient, that stockholder must submit an IRS Form W-8, a Substitute Form W-8
or a W-8BEN, signed under penalties of perjury, attesting to that stockholder's
exempt status. Such statements can be obtained from the depositary. See
Instructions 10 and 11 of the letter of transmittal.
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<PAGE> 10
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING EQUAL TO 31% OF THE GROSS
PAYMENTS MADE TO STOCKHOLDERS FOR SHARES PURCHASED PURSUANT TO THE OFFER, EACH
STOCKHOLDER WHO DOES NOT OTHERWISE ESTABLISH AN EXEMPTION FROM SUCH WITHHOLDING
MUST PROVIDE THE DEPOSITARY WITH THE STOCKHOLDER'S CORRECT TAXPAYER
IDENTIFICATION NUMBER AND PROVIDE CERTAIN OTHER INFORMATION BY COMPLETING THE
SUBSTITUTE FORM W-9 INCLUDED WITH THE LETTER OF TRANSMITTAL.
For a discussion of certain United States federal income tax consequences
to tendering stockholders, see Section 14.
Withholding For Foreign Stockholders. Even if a foreign stockholder has
provided the required certification to avoid backup withholding, the depositary
will withhold United States federal income taxes equal to 30% of the gross
payments payable to a foreign stockholder or his or her agent unless the
depositary determines that a reduced rate of withholding is available pursuant
to a tax treaty or that an exemption from withholding is applicable because such
gross proceeds are effectively connected with the conduct of a trade or business
within the United States. For this purpose, a foreign stockholder is any
stockholder that is not (1) a citizen or resident of the United States, (2) a
corporation or other entity taxed as a corporation created or organized in or
under the laws of the United States, any State or any political subdivision
thereof, (3) an estate, the income of which is subject to United States federal
income taxation regardless of the source of such income or (4) a trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States fiduciaries have the
authority to control all substantial decisions relating to the trust. In order
to obtain a reduced rate of withholding pursuant to a tax treaty, a foreign
stockholder must deliver to the depositary before the payment a properly
completed and executed IRS Form 1001 or IRS Form W-8BEN. In order to obtain an
exemption from withholding on the grounds that the gross proceeds paid pursuant
to the offer are effectively connected with the conduct of a trade or business
within the United States, a foreign stockholder must deliver to the depositary a
properly completed and executed IRS Form 4224 or IRS Form W-8ECI. The depositary
will determine a stockholder's status as a foreign stockholder and eligibility
for a reduced rate of, or exemption from, withholding by reference to any
outstanding certificates or statements concerning eligibility for a reduced rate
of, or exemption from, withholding (e.g., IRS Form 1001, IRS Form 4224, IRS Form
W-8BEN or IRS Form W-8ECI), unless facts and circumstances indicate that such
reliance is not warranted. A foreign stockholder may be eligible to obtain a
refund of all or a portion of any tax withheld if such stockholder meets the
"complete redemption," "substantially disproportionate" or "not essentially
equivalent to a dividend" test described in Section 14 or is otherwise able to
establish that no tax or a reduced amount of tax is due. Foreign stockholders
are urged to consult their own tax advisors regarding the application of United
States federal income tax withholding, including eligibility for a withholding
tax reduction or exemption, and the refund procedure. See Instructions 10 and 11
of the letter of transmittal.
Tendering Stockholder's Representation and Warranty; the Company's
Acceptance Constitutes an Agreement. It is a violation of Rule 14e-4 under the
Securities Exchange Act of 1934 for a person acting alone or in concert with
others, directly or indirectly, to tender shares for such person's own account
unless at the time of tender and at the expiration date such person (1) has a
"net long position" equal to or greater than the number of shares tendered and
will deliver or cause to be delivered such shares for the purpose of tender to
us within the period specified in the offer, or (2) is the beneficial owner of
equivalent securities (that is other securities immediately convertible into,
exercisable for or exchangeable into shares) and, upon the acceptance of such
tender, will acquire such shares by conversion, exchange or exercise of such
equivalent securities to the extent required by the terms of the offer and will
deliver or cause to be delivered such shares so acquired for the purpose of
tender to us within the period specified in the offer. Rule 14e-4 also provides
a similar restriction applicable to the tender on behalf of another person. A
tender of shares made pursuant to any method of delivery permitted by the offer
will constitute the tendering stockholder's representation and warranty to us
that (1) such stockholder has a "net long position" in shares or equivalent
securities being tendered within the meaning of Rule 14e-4, and (2) such tender
of shares complies with Rule 14e-4. Our
8
<PAGE> 11
acceptance for payment of shares tendered pursuant to the offer will constitute
a binding agreement between the tendering stockholder and us upon the terms and
subject to the conditions of the offer.
Determination of Validity; Rejection of Shares; Waiver of Defects; No
Obligation to Give Notice of Defects. We will determine, in our sole
discretion, all questions as to the number of shares to be accepted, the price
to be paid therefor and the validity, form, eligibility, including time of
receipt, and acceptance for payment of any tender of shares. Our determination
will be final and binding on all parties. We reserve the absolute right to
reject any or all tenders we determine not to be in proper form or the
acceptance of or payment for which may, in the opinion of our counsel, be
unlawful. We also reserve the absolute right to waive any of the conditions of
the offer and any defect or irregularity in the tender of any particular shares
or any particular stockholder. No tender of shares will be deemed to be properly
made until all defects or irregularities have been cured or waived. None of the
Company, the dealer manager, the depositary, the information agent or any other
person is or will be obligated to give notice of any defects or irregularities
in tenders, and none of them will incur any liability for failure to give any
such notice.
Certificates for shares, together with a properly completed letter of
transmittal and any other documents required by the letter of transmittal, must
be delivered to the depositary and not to the Company. Any such documents
delivered to the Company will not be forwarded to the depositary and therefore
will not be deemed to be validly tendered.
4. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 4, tenders of shares pursuant
to the offer are irrevocable. Shares tendered pursuant to the offer may be
withdrawn at any time before the expiration date and, unless the Company has
accepted the shares for payment as provided in this offer to purchase, may also
be withdrawn after 12:00 midnight, New York City time, on Monday, February 7,
2000.
For a withdrawal of shares to be effective, the depositary must receive, at
its address set forth on the back cover of this offer to purchase, a notice of
withdrawal in written, telegraphic or facsimile transmission form on a timely
basis. Such notice of withdrawal must specify the name of the person who
tendered the shares to be withdrawn, the number of shares tendered, the number
of shares to be withdrawn and the name of the registered holder, if different
from that of the person who tendered such shares. If the certificates have been
delivered or otherwise identified to the depositary, then, prior to the release
of such certificates, the tendering stockholder must also submit the serial
numbers shown on the particular certificates evidencing the shares and the
signature on the notice of withdrawal must be guaranteed by an eligible
institution, except in the case of shares tendered by an eligible institution.
If shares have been tendered pursuant to the procedure for book-entry transfer
set forth in Section 3, the notice of withdrawal must specify the name and the
number of the account at the book-entry transfer facility to be credited with
the withdrawn shares and otherwise comply with the procedures of such facility.
We will determine, in our sole discretion, all questions as to the form and
validity, including time of receipt, of notices of withdrawal. Our determination
will be final and binding on all parties. None of the Company, the dealer
manager, the depositary, the information agent or any other person is or will be
obligated to give any notice of any defects or irregularities in any notice of
withdrawal, and none of them will incur any liability for failure to give any
such notice. Withdrawals may not be rescinded, and any shares properly withdrawn
will thereafter be deemed not tendered for purposes of the offer. However,
withdrawn shares may be retendered before the expiration date by again following
any of the procedures described in Section 3.
If we extend the offer, or if we are delayed in our purchase of shares or
are unable to purchase shares in the offer for any reason, then, without
prejudice to our rights under the offer, the depositary may, subject to
applicable law, retain on our behalf all tendered shares, and such shares may
not be withdrawn except to the extent tendering stockholders are entitled to
withdrawal rights as described in this Section 4.
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<PAGE> 12
5. PURCHASE OF SHARES AND PAYMENT OF PURCHASE PRICE
Upon the terms and subject to the conditions of the offer, we will purchase
and pay the $21.00 purchase price for all of the shares we accept for payment in
the offer as soon as practicable after the expiration date. In all cases, we
will make prompt payment for shares tendered and accepted for payment in the
offer, subject to possible delay in the event of proration, but only after the
depositary timely receives certificates for shares, or timely confirmation of a
book-entry transfer of such shares into the depositary's account at one of the
book-entry transfer facilities, a properly completed and duly executed letter of
transmittal, or manually signed facsimile thereof, and any other required
documents.
We will pay for the shares purchased in the offer by depositing the
aggregate purchase price therefor with the depositary, which will act as agent
for tendering holders of such shares for the purpose of receiving payment from
us and transmitting payment to the tendering stockholders. In the event of
proration, we will determine the proration factor and pay for those tendered
shares accepted for payment as soon as practicable after the expiration date.
However, we do not expect to be able to announce the final results of any such
proration until approximately seven business days after the expiration date.
Under no circumstances will we pay interest on the purchase price including,
without limitation, by reason of any delay in making payment. Certificates for
all shares not purchased, including all shares not purchased due to proration,
will be returned, or, in the case of shares tendered by book-entry transfer,
such shares will be credited to the account maintained with the book-entry
transfer facility by the participant who so delivered such shares, as promptly
as practicable following the expiration date or termination of the offer without
expense to the tendering stockholder. In addition, if certain events occur, we
may not be obligated to purchase shares in the offer. See Section 6.
We will pay all stock transfer taxes, if any, payable on the transfer to us
of shares purchased pursuant to the offer; provided, however, that if payment of
the purchase price is to be made to, or, in the circumstances permitted by the
offer, if unpurchased shares are to be registered in the name of, any person
other than the registered holder, or if tendered certificates are registered in
the name of any person other than the person signing the letter of transmittal,
the amount of all stock transfer taxes, if any, whether imposed on the
registered holder or such other person, payable on account of the transfer to
such person will be deducted from the purchase price unless evidence
satisfactory to us of the payment of such taxes or exemption therefrom is
submitted. See Instruction 7 of the letter of transmittal.
Any tendering stockholder or other payee who fails to complete fully, sign
and return to the depositary the Substitute Form W-9 included with the letter of
transmittal may be subject to required backup federal income tax withholding of
31% of the gross proceeds paid to such stockholder or other payee pursuant to
the offer. See Section 3. Also see Section 3 regarding federal income tax
consequences for foreign stockholders.
6. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provision of the offer, we shall not be required
to accept for payment, purchase or pay for any shares tendered, and may
terminate or amend the offer or may postpone the acceptance for payment of, or
the purchase of and the payment for shares tendered, subject to Rule 13e-4(f)
promulgated under the Securities Exchange Act, if at any time on or after
December 9, 1999 and prior to the time of payment for any such shares, whether
any shares have theretofore been accepted for payment, purchased or paid for
pursuant to the offer, any of the following events occur, or are determined by
us to have occurred, that, in our sole judgment in any such case and regardless
of the circumstances giving rise thereto, including any action or omission to
act by us, makes it inadvisable to proceed with the offer or with such
acceptance for payment or payments:
(a) any action, suit or proceeding by any government or governmental,
regulatory or administrative agency or authority or by any other person,
domestic or foreign, is threatened, instituted or pending before any court,
agency, authority or other tribunal, or any judgment, order or injunction
is entered, enforced or deemed applicable by any such court, authority,
agency or tribunal, which (1) challenges or seeks to make illegal, or to
delay or otherwise directly or indirectly to restrain, prohibit or
otherwise affect the making of the offer, the acquisition of shares
pursuant to the offer or is otherwise related in any manner
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<PAGE> 13
to, or otherwise affects, the offer; or (2) could, in our sole judgment,
materially affect our business, condition, financial or otherwise, income,
operations or prospects, taken as a whole, or otherwise materially impair
in any way the contemplated future conduct of our business, taken as a
whole, or materially impair the offer's contemplated benefits to us;
(b) any action is threatened or taken, or any approval is withheld, or
any statute, rule or regulation is invoked, proposed, sought, promulgated,
enacted, entered, amended, enforced or deemed to be applicable to the offer
or us or any of our subsidiaries, by any government or governmental,
regulatory or administrative authority or agency or tribunal, domestic or
foreign, which, in our sole judgment, would or might directly or indirectly
result in any of the consequences referred to in clause (1) or (2) of
paragraph (a) above;
(c) the declaration of any banking moratorium or any suspension of
payments in respect of banks in the United States (whether or not
mandatory);
(d) any general suspension of trading in, or limitation on prices for,
securities on any United States national securities exchange or in the
over-the-counter market;
(e) the commencement of a war, armed hostilities or any other national
or international crisis directly or indirectly involving the United States;
(f) any limitation (whether or not mandatory) by any governmental,
regulatory or administrative agency or authority on, or any event which, in
our sole judgment, might materially affect, the extension of credit by
banks or other lending institutions in the United States;
(g) any significant decrease in the market price of the shares or in
the market prices of equity securities generally in the United States or
any change in the general political, market, economic or financial
conditions or in the commercial paper markets in the United States or
abroad that could have, in our sole judgment, a material adverse effect on
our business, condition, financial or otherwise, income, operations or
prospects, taken as a whole, or on the trading in the shares;
(h) in the case of any of the foregoing existing at the time of the
announcement of the offer, a material acceleration or worsening thereof;
(i) any decline in either the Dow Jones Industrial Average or the S&P
500 Composite Index by an amount in excess of 10% measured from the close
of business on December 9, 1999;
(j) any change occurs or is threatened in our business, condition,
financial or otherwise, income, operations, stock ownership or prospects,
taken as a whole, which in our sole judgment is or may be material to us;
(k) a tender or exchange offer with respect to some or all of our
outstanding shares, other than the offer, or a merger or acquisition
proposal for us, is proposed, announced or made by another person or is
publicly disclosed, or we learn that (1) any person or "group," within the
meaning of Section 13(d)(3) of the Securities Exchange Act, has acquired or
proposes to acquire beneficial ownership of more than 5% of the outstanding
shares, or any new group is formed that beneficially owns more than 5% of
our outstanding shares; or
(l) any person or group files a Notification and Report Form under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 reflecting an intent
to acquire us or any of our shares.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition, including any
action or inaction by us, or may be waived by us in whole or in part. Our
failure at any time to exercise any of the foregoing rights shall not be deemed
a waiver of any such right, and each such right shall be deemed an ongoing right
that may be asserted by us at any time and from time to time. Our determination
concerning the events described above and any related judgment or decision by us
regarding the inadvisability of proceeding with the purchase of or payment for
any shares tendered will be final and binding on all parties.
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7. PRICE RANGE OF SHARES
The shares are listed on the NYSE. The high and low closing sales prices
per share on the NYSE Composite Tape as compiled from published financial
sources for the periods indicated are listed below:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 1998
1st Fiscal Quarter.......................................... 26 13/16 21 7/8
2nd Fiscal Quarter........................................ 26 3/16 23 3/16
3rd Fiscal Quarter........................................ 28 9/16 23 5/8
4th Fiscal Quarter........................................ 28 7/8 18 1/2
Fiscal 1999
1st Fiscal Quarter........................................ 24 1/2 16 1/2
2nd Fiscal Quarter........................................ 23 7/16 14 3/8
3rd Fiscal Quarter........................................ 19 1/2 14 11/16
4th Fiscal Quarter........................................ 19 1/4 16 3/16
Fiscal 2000
1st Fiscal Quarter (through December 8, 1999)............. 20 5/8 17 9/16
</TABLE>
On December 6, 1999, the last full trading day on the NYSE prior to our
announcement of the purchase price and the number of shares sought in the offer,
the closing per share price on the NYSE was $17 9/16. WE URGE STOCKHOLDERS TO
OBTAIN CURRENT QUOTATIONS OF THE MARKET PRICE OF THE SHARES.
8. BACKGROUND AND PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER
On December 6, 1999, we announced our intention to make an offer to
purchase up to 11,000,000 shares at $21.00 per share with the offer to commence
on December 9, 1999. We are making the offer because we believe:
(1) the shares are undervalued in the public market;
(2) the offer represents the opportunity to return a portion of the
Company's cash to stockholders permitting them to invest it according to
their preferences and objectives;
(3) after the offer is completed, we expect to have sufficient cash
flow and access to other sources of funding to meet the Company's cash
needs for normal operations and anticipated capital expenditures for the
foreseeable future;
(4) after considering alternatives, investing in our shares is an
attractive use of capital and an efficient means to provide value to our
shareholders; and
(5) the consummation of the offer should not foreclose possible future
acquisitions by the Company.
The offer provides stockholders who are considering a sale of all or a
portion of their shares the opportunity to sell their shares to us at $21.00 per
share. Any odd lot owners whose shares are purchased pursuant to the offer will
avoid both the payment of brokerage commissions and any applicable odd lot
discounts payable on sales of odd lots. To the extent the purchase of shares in
the offer results in a reduction in the number of record or beneficial holders
of shares, the costs to us for services to stockholders will be reduced.
Stockholders who determine not to accept the offer will increase their
proportionate interest in our equity, and thus in our future earnings and
assets, subject to our right to issue additional shares and other equity
securities in the future.
Our Board of Directors has approved the offer. However, stockholders must
make their own decision whether to tender shares and, if so, how many shares to
tender. Neither we nor our Board of Directors makes any recommendation to any
stockholder as to whether to tender or refrain from tendering shares and neither
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<PAGE> 15
we nor our Board of Directors has authorized any person to make any such
recommendation. We have been advised that none of our directors or senior
executive officers intend to tender shares in the offer.
We may in the future repurchase additional shares in the open market, in
private transactions, through tender offers or otherwise. Any such purchases may
be on the same terms as, or on terms that are more or less favorable to
stockholders than, the terms of the offer. However, Rule 13e-4 under the
Securities Exchange Act generally prohibits us and our affiliates from
purchasing any shares, other than through the offer, until at least ten business
days after the expiration or termination of the offer. Any possible future
purchases by us will depend on many factors, including the market price of the
shares, the results of the offer, our business and financial position and
general economic and market conditions.
Except as required by applicable law or, if required, the rules of any
securities exchange on which shares are listed, shares we acquire pursuant to
the offer will be retained as treasury stock by us, unless and until we
determine to retire such shares, and will be available for us to issue without
further stockholder action, for purposes including, but not limited to, the
acquisition of other businesses, the raising of additional capital for use in
our business and the satisfaction of obligations under existing or future
employee benefit plans. We have no current plans for issuance of the shares
repurchased pursuant to the offer.
9. INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS; TRANSACTIONS AND ARRANGEMENTS
CONCERNING THE SHARES
As of December 6, 1999, there were 85,923,363 shares outstanding, net of
treasury stock, and 5,611,700 shares issuable upon exercise of all outstanding
options. As of December 6, 1999, our directors and executive officers as a group
(15 persons) beneficially owned 5,742,283 shares, including 2,258,631 shares
issuable to such persons upon exercise of options exercisable within sixty days
of such date, which constituted approximately 6.5% of the outstanding shares,
including shares issuable if all exercisable options were exercised at such
time.
If we purchase 11,000,000 shares in the offer and no director or executive
officer tenders shares, then after the purchase of such 11,000,000 shares, our
directors and executive officers as a group would beneficially own approximately
7.4% of the outstanding shares, including the 2,258,631 shares issuable on
exercise of options held by directors and executive officers which are
exercisable within sixty days of December 6, 1999.
Except as set forth in this offer to purchase and in Schedule I hereto,
based upon our records and upon information provided to us by our directors,
executive officers, associates and subsidiaries, neither we nor any of our
associates or subsidiaries or persons controlling us nor, to the best of our
knowledge, any of our directors or executive officers or any of our
subsidiaries, nor any associates or subsidiaries of any of the foregoing, has
effected any transactions in the shares during the 40 business days prior to the
date hereof.
Neither we nor any person controlling us nor, to our knowledge, any of our
directors or executive officers, is a party to any contract, arrangement,
understanding or relationship with any other person relating, directly or
indirectly, to the offer with respect to any of our securities, including, but
not limited to, any contract, arrangement, understanding or relationship
concerning the transfer or the voting of any such securities, joint ventures,
loan or option arrangements, puts or calls, guarantees of loans, guarantees
against loss or the giving or withholding of proxies, consents or
authorizations.
10. SOURCE AND AMOUNT OF FUNDS
Assuming that we purchase 11,000,000 shares in the offer at a purchase
price of $21.00 per share, we expect the maximum aggregate cost, including all
fees and expenses applicable to the offer, to be approximately $231,750,000.
This amount will be paid from available cash and cash equivalents.
11. CERTAIN INFORMATION ABOUT THE COMPANY
The Company is one of the largest manufacturers of computerized casino
gaming products and operators of proprietary gaming systems in the world and was
the first to develop computerized video gaming machines. The Company was founded
in 1980 and has principally served the casino gaming industry in the United
States. In 1986, we began expanding our business internationally and currently
manufacture gaming products
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<PAGE> 16
in Australia, Japan and the United Kingdom in addition to the United States. The
Company also maintains sales offices in legalized gaming jurisdictions globally,
including Argentina, Brazil, New Zealand, Peru, South Africa and The
Netherlands. The Company is currently licensed to provide gaming products in
every significant legalized gaming jurisdiction in the world.
We were incorporated in the state of Nevada in December 1980. Our executive
offices are located at 9295 Prototype Drive, Reno, Nevada 89511 and our
telephone number is (795) 448-7777.
Historical Financial Information. The table below sets forth summary
historical consolidated financial information of the Company and its
subsidiaries. The historical financial information for fiscal years 1999 and
1998 has been derived from, and should be read in conjunction with, our audited
consolidated financial statements as reported in our Annual Report on Form 10-K
for the fiscal year ended October 2, 1999, which financial statements are hereby
incorporated herein by reference. The summary historical financial information
should be read in conjunction with, and is qualified in its entirety by
reference to, the audited financial statements and the related notes thereto
from which it has been derived. Copies of the Company's periodic reports may be
inspected or obtained from the Securities and Exchange Commission in the manner
specified under "Additional Information" below.
14
<PAGE> 17
INTERNATIONAL GAME TECHNOLOGY
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
(AMOUNTS IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
REVENUES
Product sales............................................... $576,598 $477,024
Gaming operations......................................... 353,064 347,099
-------- --------
Total revenues.................................... 929,662 824,123
-------- --------
COSTS AND EXPENSES
Cost of product sales..................................... 365,948 279,337
Cost of gaming operations................................. 142,497 158,528
Selling, general and administrative....................... 129,211 105,945
Depreciation and amortization............................. 23,955 18,635
Research and development.................................. 45,462 38,066
Provision for bad debts................................... 8,153 4,735
Impairment of assets and restructuring charges............ 98,118 --
-------- --------
Total costs and expenses.......................... 813,344 605,246
-------- --------
INCOME FROM OPERATIONS...................................... 116,318 218,877
-------- --------
OTHER INCOME (EXPENSE)
Interest income........................................... 55,525 45,346
Interest expense.......................................... (72,764) (41,049)
Gain on investments....................................... 5,438 1,031
Gain (loss) on the sale of assets......................... (562) 10,115
Other..................................................... (2,562) 212
-------- --------
Other income (expense), net............................... (14,925) 15,655
-------- --------
INCOME BEFORE INCOME TAXES.................................. 101,393 234,532
PROVISION FOR INCOME TAXES.................................. 36,081 82,086
-------- --------
INCOME BEFORE EXTRAORDINARY ITEM............................ 65,312 152,446
EXTRAORDINARY LOSS ON EARLY REDEMPTION OF DEBT, NET OF
INCOME TAX BENEFIT OF $1,640.............................. (3,254) --
-------- --------
NET INCOME.................................................. $ 62,058 $152,446
======== ========
BASIC EARNINGS (LOSS) PER SHARE
Income before Extraordinary Item.......................... $ 0.65 $ 1.35
Extraordinary loss........................................ (0.03) --
-------- --------
Net income................................................ $ 0.62 $ 1.35
======== ========
DILUTED EARNINGS (LOSS) PER SHARE
Income before Extraordinary Item.......................... $ 0.65 $ 1.33
Extraordinary loss........................................ (0.03) --
-------- --------
Net income................................................ $ 0.62 $ 1.33
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.................. 99,461 113,064
WEIGHTED AVERAGE COMMON AND POTENTIAL SHARES OUTSTANDING.... 100,238 114,703
</TABLE>
<TABLE>
<S> <C> <C>
SELECTED BALANCE SHEET DATA
Working capital............................................. $ 762,684 $ 470,003
Total assets less excess of cost of assets acquired over
book value............................................. $1,613,789 $1,446,671
Total assets.............................................. $1,765,060 $1,543,628
Long-term notes payable and capital lease obligations..... $ 990,436 $ 322,510
Stockholders' equity...................................... $ 242,218 $ 541,276
</TABLE>
15
<PAGE> 18
Fiscal 1999 net income of $62.1 million includes certain one-time charges
recorded in the fourth quarter totaling $98.1 million ($70.4 million, net of tax
effects). The write-off of intangible assets related to IGT-Australia's
acquisition of Olympic Amusements and expenses associated with the planned
restructuring of the Australia operations accounted for $92.9 million of the
one-time charges. The restructuring plan for Australia includes narrowing
current product lines and use of the Company's Reno, Nevada manufacturing plant
to reduce product costs. Additionally, in 1999 we recorded impairment charges of
$5.2 million, relating to changes in our recoverability assessment of inventory
and receivables in Brazil. The government in Brazil recently rescinded the law
allowing gaming devices in bingo halls throughout this market. An extraordinary
loss on early redemption of debt of $3.3 million was also recognized during
fiscal 1999. Net income for the year ended October 2, 1999 before the one-time
charges totaled $135.7 million versus net income of $152.4 million in fiscal
1998.
Litigation Settlement. On December 9, 1999, the Company and WMS Gaming,
Inc. ("WMS") settled two related patent lawsuits, the first of which was
originally filed in the Federal District Court on May 17, 1994. The lawsuits
related to the Company's claim that WMS infringed upon the Telnaes Patent for
virtual reel technology. Under the settlement agreement, the parties have
dismissed the lawsuits and WMS has agreed to pay the Company approximately
$28.67 million ($1.67 million of which resulted from certain limited WMS
operations previously conducted under a license from the Company). Under the
settlement agreement, WMS will refrain from making, using, selling or offering
for sale of its Model 400 and 401 slot machines until February 24, 2002 when the
Telnaes Patent expires.
Pro Forma Financial Information. The following summary unaudited
consolidated pro forma financial information gives effect to our purchase of
11,000,000 shares in the offer, the acquisition of Sodak Gaming, Inc. and the
issuance of $1 billion of Senior Notes, based on certain assumptions described
in the notes to summary unaudited consolidated pro forma financial information,
as if the consummation of the offer, the acquisition and the Senior Notes
offering had occurred on October 1, 1998 with respect to income statement data,
and on October 2, 1999, with respect to balance sheet data. The pro forma
financial information should be read in conjunction with the historical
consolidated financial information incorporated herein by reference and does not
purport to be indicative of the results that would actually have been attained
had the purchase of the shares pursuant to the offer, the acquisition and the
Senior Notes offering been completed at the dates indicated or that may be
attained in the future.
16
<PAGE> 19
INTERNATIONAL GAME TECHNOLOGY
SUMMARY UNAUDITED CONSOLIDATED PRO FORMA
FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 2, 1999
------------------------------------------------------------------------------------------
ADJUSTMENTS FOR
ACQUISITION OF
SODAK HISTORICAL SODAK AND
10/1/98 TO ISSUANCE OF $1B TENDER OFFER PRO FORMA
HISTORICAL 8/31/99 SENIOR NOTES PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ---------------- --------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
REVENUES
Product sales...................... $576,598 $63,694 $ (44,135)(a) $596,157 -- $596,157
Gaming operations.................. 353,064 14,216 -- 367,280 -- 367,280
-------- ------- --------- -------- -------- --------
Total revenues.............. 929,662 77,910 (44,135) 963,437 -- 963,437
-------- ------- --------- -------- -------- --------
COSTS AND EXPENSES
Cost of product sales.............. 365,948 51,530 (46,230)(b) 371,248 -- 371,248
Cost of gaming operations.......... 142,497 3,060 -- 145,557 -- 145,557
Selling, general and
administrative................... 129,211 8,894 -- 138,105 -- 138,105
Depreciation and amortization...... 23,955 2,538 (566)(c) 28,390 -- 28,390
2,463(d)
Research and development........... 45,462 -- -- 45,462 -- 45,462
Provision for bad debts............ 8,153 -- -- 8,153 -- 8,153
Impairment of assets and
restructuring charges............ 98,118 -- -- 98,118 -- 98,118
-------- ------- --------- -------- -------- --------
Total costs and expenses.... 813,344 66,022 (44,333) 835,033 -- 835,033
-------- ------- --------- -------- -------- --------
INCOME FROM OPERATIONS............... 116,318 11,888 198 128,404 -- 128,404
-------- ------- --------- -------- -------- --------
OTHER INCOME (EXPENSE)
Interest income.................... 55,525 6,803 -- 62,328 $ (4,331)(e) 57,997
Interest expense................... (72,764) (615) 4,338(f) (111,534) -- (111,534)
7,594(g)
(53,303)(h)
3,216(i)
Gain on investments................ 5,438 -- -- 5,438 -- 5,438
Gain (loss) on the sale of
assets........................... (562) -- -- (562) -- (562)
Other.............................. (2,562) -- -- (2,562) -- (2,562)
-------- ------- --------- -------- -------- --------
Other income (expense), net........ (14,925) 6,188 (38,155) (46,892) (4,331) (51,223)
-------- ------- --------- -------- -------- --------
INCOME BEFORE INCOME TAXES........... 101,393 18,076 (37,957) 81,512 (4,331) 77,181
PROVISION FOR INCOME TAXES........... 36,081 6,552 (12,831)(j) 29,802 (1,581) 28,221
-------- ------- --------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM..... 65,312 11,524 (25,126) 51,710 (2,750) 48,960
EXTRAORDINARY LOSS ON EARLY
REDEMPTION OF DEBT, NET OF INCOME
TAX BENEFIT OF $1,640.............. (3,254) -- -- (3,254) -- (3,254)
-------- ------- --------- -------- -------- --------
NET INCOME........................... $ 62,058 $11,524 $ (25,126) $ 48,456 $ (2,750) $ 45,706
======== ======= ========= ======== ======== ========
BASIC EARNINGS (LOSS) PER SHARE
Income before extraordinary item... $ 0.65 $ 0.57 $ 0.62
Extraordinary loss................. $ (0.03) $ (0.03) $ (0.04)
-------- -------- --------
Net income......................... $ 0.62 $ 0.54 $ 0.58
======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE
Income before extraordinary item... $ 0.65 $ 0.57 $ 0.61
Extraordinary loss................. $ (0.03) $ (0.04) $ (0.04)
-------- -------- --------
Net income......................... $ 0.62 $ 0.53 $ 0.57
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................ 99,461 (9,143)(k) 90,318 (11,000)(l) 79,318
WEIGHTED AVERAGE COMMON AND POTENTIAL
SHARES OUTSTANDING................. 100,238 (9,143)(k) 91,095 (11,000)(l) 80,095
</TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<S> <C>
Ratio of Earnings to Fixed Charges -- Actual fiscal 1999.... 3.1(m)
Ratio of Earnings to Fixed Charges -- Pro forma fiscal
1999........................................................ 1.9(m)
Ratio of Earnings to Fixed Charges -- Actual fiscal 1998.... 13.8(m)
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
AS OF OCTOBER 2, 1999
------------------------------------------
TENDER OFFER PRO FORMA AS
HISTORICAL ADJUSTMENTS ADJUSTED
---------- ------------ ------------
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA
Cash and cash equivalents................................... $ 426,343 $(231,000)(n) $ 195,343
Other current assets...................................... 548,897 -- 548,897
Total assets.............................................. 1,765,060 (231,000) 1,534,060
Total current liabilities................................. 212,556 -- 212,556
Working capital........................................... 762,684 (231,000) 531,684
Long-term debt............................................ 990,436 -- 990,436
Stockholders' equity...................................... 242,218 (231,000) 11,218
Book value per common share............................... 2.8 -- 0.2
</TABLE>
- ---------------
(a) To eliminate intercompany revenues relating to the sale of gaming machines
and related parts between the Company and Sodak, from October 1, 1998
through August 31, 1999.
(b) To eliminate the cost of sales associated with the intercompany sales
discussed in note (a) as recorded by the Company and the incremental costs
of goods sold by Sodak resulting from the intercompany sales.
(c) To recognize, for the period from October 1, 1998 through August 31, 1999,
the reduction of depreciation relating to a step-down in basis of property
and equipment to reflect fair market value of the assets acquired in the
purchase of Sodak.
(d) To recognize amortization of goodwill recorded in the purchase of Sodak for
the period from October 1, 1998 through August 31, 1999. Goodwill is
amortized over a 40-year period. The purchase price was allocated to the
fair value of tangible assets acquired of $129.7 million and liabilities
assumed of $38.4 million. Accordingly, $107.6 million was recorded as
goodwill.
(e) To reverse interest income earned on $231 million of debt proceeds used to
complete the tender offer. Interest income was calculated using an interest
rate of 5%.
(f) To eliminate interest expense recorded on the $100 million 7.84% Senior
Notes due 2004 which were repaid using proceeds from the $1 billion of
Senior Notes issued during fiscal 1999.
(g) To eliminate interest expense recorded on the line of credit which was
repaid using proceeds from the $1 billion of Senior Notes issued during
fiscal 1999.
(h) To record additional interest expense on the $1 billion of Senior Notes
issued during fiscal 1999 as if they had been issued on October 1, 1998.
(i) To eliminate interest expense recorded on the IGT Australia Line of Credit
which was repaid using proceeds from the $1 billion of Senior Notes issued
during fiscal 1999.
(j) To reflect the tax effect of the adjustments in (a) through (i), with the
exception of non-tax-deductible goodwill amortization.
(k) To recognize the effect of 1999 treasury stock purchases made from debt
proceeds as if they had been purchased on October 1, 1998.
(l) To recognize the effect of shares purchased in the tender offer as if they
had been purchased on October 1, 1998.
(m) For the purposes of computing this ratio, earnings represent net income
before taxes on income and extraordinary items and fixed charges (such fixed
charges have been adjusted to exclude capitalized interest), and equity in
undistributed earnings of 50%-owned investments. Fixed charges represent
interest expense, excluding the portion related to jackpot liabilities and
including capitalized interest, one-third of total rental expense and
amortization of discount and loan expenses related to long-term debt. The
fiscal 1999 earnings include a one-time charge related to asset impairment
and restructuring of $98.1 million. Excluding these charges, the ratio of
earnings to fixed charges for fiscal 1999 would have been 5.0.
(n) To record the purchase of 11 million shares of common stock at $21.00 per
share.
18
<PAGE> 21
Additional Information. We are subject to the informational filing
requirements of the Securities Exchange Act of 1934 and, in accordance
therewith, are obligated to file reports and other information with the
Securities and Exchange Commission relating to our business, financial condition
and other matters. Information, as of particular dates, concerning our directors
and officers, their remuneration, options granted to them, the principal holders
of our securities and any material interest of such persons in transactions with
us is required to be disclosed in proxy statements distributed to our
stockholders and filed with the Commission. Such reports, proxy statements and
other information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 2120, Washington
D.C. 20549; and at its regional offices located at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, New York, New
York 10048. Copies of such material may also be obtained by mail, upon payment
of the Commission's customary charges, from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549.
The Commission also maintains a web site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. Such reports, proxy statements and other information concerning us
also can be inspected at the offices of the NYSE, 20 Broad Street, New York, New
York 10005, on which the shares are listed.
Forward-Looking Statements. This offer to purchase contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements relate to analyses and other
information which are based on forecasts of future results and estimates of
amounts not yet determinable. These statements also relate to our future
prospects, developments and business strategies. These forward-looking
statements are identified by their use of terms and phrases such as
"anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan,"
"predict," "project," "will" and similar terms and phrases, including references
to assumptions. Such forward-looking statements and the Company's operations,
financial condition and results of operations involve known and unknown risks,
and uncertainties. Such risks and factors include, but are not limited to, the
following: a decline in demand for the Company's gaming products or reduction in
the growth rate of new and existing markets; delays of scheduled openings of
newly constructed or planned casinos; the effect of changes in economic
conditions; a decline in public acceptance of gaming; unfavorable public
referendums or anti-gaming legislation; unfavorable legislation affecting or
directed at manufacturers or operators of gaming products and systems; delays in
approvals from regulatory agencies; political and economic instability in
developing international markets for the Company's products; 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; a decline in the appeal of the Company's gaming products or an increase
in the popularity of existing or new games of competitors; the loss of a
significant distributor; changes in interest rates causing a reduction of
investment income or in market interest rate sensitive investments; loss or
retirement of our key executives; approval of pending patent applications of
parties unrelated to the Company that restrict the ability of the Company to
compete effectively with products that are the subject of such pending patents
or infringement upon existing patents; the effect of regulatory and governmental
actions; unfavorable determination of suitability by gaming regulatory
authorities with respect to our officers, directors or key employees; the
limitation, conditioning, suspension or revocation of any of our gaming
licenses; fluctuations in foreign exchange rates, tariffs and other barriers;
adverse changes in the creditworthiness of parties with whom the Company has
forward currency exchange contracts; the loss of sublessors of the leased
properties no longer used by the Company; the Company's inability to
successfully remedy the Year 2000 readiness issue; and, with respect to legal
actions pending against the Company, 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.
12. EFFECT OF THE OFFER ON THE MARKET FOR SHARES; REGISTRATION UNDER THE
SECURITIES EXCHANGE ACT
Our purchase of shares in the offer will reduce the number of shares that
might otherwise trade publicly and is likely to reduce the number of
stockholders. Nonetheless, the Company anticipates that there will still be a
sufficient number of shares outstanding and publicly traded following the offer
to ensure a continued
19
<PAGE> 22
trading market in the shares. Based on the published guidelines of the NYSE, we
do not believe that our purchase of shares pursuant to the offer will cause our
remaining shares to be delisted from such exchange.
The shares are currently "margin securities" under the rules of the Federal
Reserve Board. This has the effect, among other things, of allowing brokers to
extend credit on the collateral of the shares. The Company believes that,
following the purchase of shares pursuant to the offer, the shares will continue
to be "margin securities" for purposes of the Federal Reserve Board's margin
regulations. Eligibility for treatment as "margin securities" will, however,
continue to depend on maintenance of a minimum daily trading volume.
The shares are registered under the Securities Exchange Act, which
requires, among other things, that we furnish certain information to our
stockholders and to the Commission and comply with the Commission's proxy rules
in connection with meetings of our stockholders. We believe that our purchase of
shares in the offer will not result in the shares becoming eligible for
deregistration under the Securities Exchange Act.
13. CERTAIN LEGAL MATTERS
We are not aware of any license or regulatory permit that appears to be
material to our business that might be adversely affected by our acquisition of
shares as contemplated in the offer or of any approval or other action by any
government or governmental, administrative or regulatory authority or agency,
domestic or foreign, that would be required for our acquisition or ownership of
shares as contemplated by the offer. Should any such approval or other action be
required, we currently contemplate that we will seek such approval or other
action. We cannot predict whether we may determine that we are required to delay
the acceptance for payment of, or payment for, shares tendered in the offer
pending the outcome of any such matter. There can be no assurance that any such
approval or other action, if needed, would be obtained at all or without
substantial conditions or that the failure to obtain any such approval or other
action might not result in adverse consequences to our business. Our obligations
under the offer to accept for payment and pay for shares are subject to certain
conditions. See Section 6.
14. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
In General. The following summary describes certain United States federal
income tax consequences relevant to the offer. The discussion contained in this
summary is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), existing, final, temporary and proposed United States Treasury
regulations promulgated thereunder, rulings, administrative pronouncements and
judicial decisions, changes to which could materially affect the tax
consequences described herein and could be made on a retroactive or prospective
basis. As discussed below, depending upon a stockholder's particular
circumstances, our purchase of such stockholder's shares pursuant to the offer
will be treated either as a sale or a dividend for United States federal income
tax purposes. Accordingly, such a purchase generally will be referred to in this
section of the offer to purchase as an "exchange" of shares for cash.
Scope. This summary does not apply to shares acquired as compensation,
including shares acquired upon the exercise of options or which were or are
subject to forfeiture restrictions. The summary also does not address the state,
local or foreign tax consequences of participating in the offer. The summary
discusses only shares held as capital assets, within the meaning of Section 1221
of the Code, and does not address all of the tax consequences that may be
relevant to particular stockholders in light of their personal circumstances, or
to certain types of stockholders, such as certain financial institutions,
dealers in securities or commodities, insurance companies, tax-exempt
organizations or persons who hold shares as a position in a "straddle" or as a
part of a "hedging", "conversion" or "constructive sale" transaction for United
States federal income tax purposes or persons whose functional currency is not
the United States dollar.
In particular, the discussion of the consequences of an exchange of shares
for cash pursuant to the offer applies only to a United States stockholder. For
purposes of this summary, a "stockholder" is a holder of shares that is (1) a
citizen or resident of the United States, (2) a corporation or other entity
taxable as a corporation created or organized in or under the laws of the United
States, any state or any political subdivision thereof, or (3) an estate, the
income of which is subject to United States federal income taxation regardless
of its source or (4) a trust if a court within the United States is able to
exercise primary supervision
20
<PAGE> 23
over the administration of the trust and one or more United States fiduciaries
have the authority to control all substantial decisions relating to the trust.
This discussion does not address the tax consequences to foreign stockholders
who will be subject to United States federal income tax on a net basis on the
proceeds of their exchange of shares pursuant to the offer because such income
is effectively connected with the conduct of a trade or business within the
United States. Such stockholders are generally taxed in a manner similar to
United States holders. Foreign stockholders who are not subject to United States
federal income tax on a net basis should see Section 3 for a discussion of the
applicable United States withholding rules and the potential for obtaining a
refund of all or a portion of the tax withheld. Each stockholder should consult
such stockholder's tax advisor as to the particular consequences of
participation in the offer.
Characterization of the Sale. An exchange of shares by a stockholder
pursuant to the offer will be a taxable transaction for United States federal
income tax purposes and may also be a taxable transaction under any applicable
state, local and foreign tax laws. The United States federal income tax
consequences of such exchange to a stockholder may vary depending upon the
stockholder's particular facts and circumstances. Under Section 302 of the Code,
an exchange of shares by a stockholder to the Company pursuant to the offer will
be treated as a "sale or exchange" of such shares for United States federal
income tax purposes, rather than as a deemed distribution by the Company with
respect to shares continued to be held, or deemed to be constructively held, by
the tendering stockholder, if the receipt of cash upon such exchange (1) is
"substantially disproportionate" with respect to the stockholder, (2) results in
a "complete termination" of the stockholder's interest in the Company, or (3) is
"not essentially equivalent to a dividend" with respect to the stockholder.
These Section 302 tests are explained more fully below.
If any of the Section 302 tests are satisfied, and the sale of the tendered
shares is therefore treated as a "sale or exchange" of such shares for United
States federal income tax purposes, the tendering stockholder will recognize
capital gain or loss equal to the difference between the amount of cash received
by the stockholder pursuant to the offer and the stockholder's adjusted tax
basis in the shares sold pursuant to the offer. Any such gain or loss recognized
by individuals, trusts or estates will be long-term capital gain or loss if the
shares have been held for more than 12 months. Therefore, a tendering
stockholder may want to take the various adjusted tax bases and holding periods
of his shares, if such characteristics are not uniform, into account in
determining which shares to tender.
If none of the Section 302 tests is satisfied, then, to the extent of our
current and accumulated earnings and profits, the tendering stockholder will be
treated as having received a dividend taxable as ordinary income in an amount
equal to the entire amount of cash received by the stockholder pursuant to the
offer, without reduction for the adjusted tax basis of the shares sold pursuant
to the offer, no loss will be recognized, and, subject to reduction as described
below for corporate stockholders eligible for the dividends-received deduction,
the tendering stockholder's adjusted tax basis in the shares exchanged pursuant
to the offer will be added to such stockholder's adjusted tax basis in its
remaining shares, if any. No assurance can be given that any of the Section 302
tests will be satisfied as to any particular stockholder (other than odd lot
stockholders who tender according to Section 2 above) and thus no assurance can
be given that any particular stockholder will not be treated as having received
a dividend taxable as ordinary income. If the exchange of shares by a
stockholder is not treated as a sale or exchange for federal income tax
purposes, any cash received for shares pursuant to the offer in excess of our
current and accumulated earnings and profits will be treated, first, as a
nontaxable return of capital to the extent of the stockholder's adjusted tax
basis in such shares, and thereafter, as taxable capital gain, to the extent the
cash received exceeds such basis.
Constructive Ownership of Stock. In determining whether any of the Section
302 tests are satisfied, a stockholder must take into account not only the
shares which are actually owned by the stockholder, but also shares which are
constructively owned by the stockholder by reason of the attribution rules set
forth in Section 318 of the Code. Under Section 318 of the Code, a stockholder
may be treated as owning (1) shares that are actually owned, and in some cases
constructively owned, by certain related individuals or entities in which the
stockholder owns an interest, or, in the case of stockholders that are entities,
by certain individuals or entities that own an interest in the stockholder, and
(2) shares which the stockholder has the right to acquire by exercise of an
option or a conversion right contained in another instrument held by the
stockholder. Contemporaneous dispositions or acquisitions of shares by a
stockholder or related individuals or entities may
21
<PAGE> 24
be deemed to be part of a single integrated transaction which will be taken into
account in determining whether any of the Section 302 tests have been satisfied
in connection with shares sold pursuant to the offer. Each stockholder should be
aware that because proration may occur in the offer, even if all the shares
actually and constructively owned by a stockholder are tendered pursuant to the
offer, we may purchase fewer than all of such shares. Thus, proration may affect
whether a sale by a stockholder pursuant to the offer will meet any of the
Section 302 tests.
Section 302 Tests. One of the following tests must be satisfied in order
for the exchange of shares pursuant to the offer to be treated as a sale or
exchange for federal income tax purposes.
a. Substantially Disproportionate Test. The receipt of cash by a
stockholder will be "substantially disproportionate" if the percentage of
the outstanding shares actually and constructively owned by the stockholder
immediately following the exchange of shares pursuant to the offer
(treating all shares purchased pursuant to the offer as not being
outstanding) is less than 80% of the percentage of the outstanding shares
actually and constructively owned by such stockholder immediately before
the exchange of shares pursuant to the offer (treating all shares purchased
pursuant to the offer as outstanding). Stockholders should consult their
own tax advisors with respect to the application of the "substantially
disproportionate' test to their particular situation and circumstances.
b. Complete Termination Test. The receipt of cash by a stockholder
will be a "complete termination" of the stockholder's interest in the
Company if either (1) all of the shares actually and constructively owned
by the stockholder are exchanged pursuant to the offer, or (2) all of the
shares actually owned by the stockholder are exchanged pursuant to the
offer and, with respect to the shares constructively owned by the
stockholder which are not exchanged pursuant to the offer, the stockholder
is eligible to waive (and effectively waives) constructive ownership of all
such shares under procedures described in Section 302(c) of the Code.
Stockholders considering making such a waiver should do so in consultation
with their own tax advisors.
c. Not Essentially Equivalent to a Dividend Test. Even if the receipt
of cash by a stockholder fails to satisfy the "substantially
disproportionate" test and the "complete termination" test, a stockholder
may nevertheless satisfy the "not essentially equivalent to a dividend"
test if the stockholder's exchange of shares pursuant to the offer results
in a "meaningful reduction" in the stockholder's proportionate interest in
the Company. Whether the receipt of cash by a stockholder who exchanges
shares pursuant to the offer will be "not essentially equivalent to a
dividend" will depend upon the stockholder's particular facts and
circumstances The IRS has indicated in published Revenue Rulings that even
a small reduction in the proportionate interest of a small minority
stockholder in a publicly held corporation who exercises no control over
corporate affairs may constitute such a "meaningful reduction."
Stockholders expecting to rely on the "not essentially equivalent to a
dividend" test should consult their own tax advisors as to its application
to their particular situation and circumstances.
Although the issue is not free from doubt, it may be possible for a
tendering stockholder to satisfy one of the above three tests by
contemporaneously selling or otherwise disposing of all or some of the shares
that are actually owned (or by causing another to sell or otherwise dispose of
all or some of the shares that are constructively owned) by such stockholder but
are not purchased pursuant to the offer. Correspondingly, a tendering
stockholder may not be able to satisfy one of the above three tests because of
contemporaneous acquisitions of shares by such stockholder or by some person or
entity whose shares would be treated as constructively owned by such
stockholder. Stockholders should consult their tax advisors regarding the tax
consequences of such sales or acquisitions in their particular circumstances.
Corporate Stockholder Dividend Treatment. If an exchange of shares
pursuant to the offer by a corporate stockholder is treated as a dividend, the
corporate stockholder may be entitled to claim a deduction in an amount equal to
70% of the gross dividend under Section 243 of the Code, subject to applicable
limitations. Corporate stockholders should consider the effect of Section 246(c)
of the Code, which disallows the 70% dividends-received deduction with respect
to any dividend on any share of stock that is held for 45 days or less during
the 90-day period beginning on the date which is 45 days before the date on
which such share becomes ex-dividend with respect to such dividend. For this
purpose, the length of time a taxpayer is
22
<PAGE> 25
deemed to have held stock may be reduced by periods during which the taxpayer's
risk of loss with respect to the stock is diminished by reason of the existence
of certain options or other hedging transactions. Moreover, under Section 246A
of the Code, if a corporate stockholder has incurred indebtedness directly
attributable to an investment in shares, the 70% dividends-received deduction
may be reduced by a percentage generally computed based on the amount of such
indebtedness and the stockholder's total adjusted tax basis in the shares.
In addition, any amount received by a corporate stockholder pursuant to the
offer that is treated as a dividend will generally constitute an "extraordinary
dividend" under Section 1059 of the Code. Generally, an "extraordinary dividend"
is a dividend that (1) equals or exceeds 10% of the stockholder's tax basis in
its shares (treating all dividends having ex-dividend dates within an 85-day
period as a single dividend) or (2) exceeds 20% of the stockholder's adjusted
tax basis in the shares (treating all dividends having ex-dividend dates within
a 365-day period as a single dividend). Accordingly, a corporate stockholder
would be required under Section 1059(a) of the Code to reduce its adjusted tax
basis, but not below zero, in its shares by the non-taxed portion of the
extraordinary dividend (i.e., the portion of the dividend for which a deduction
is allowed) and, if such portion exceeds the stockholder's adjusted tax basis in
its shares, to treat the excess as gain from the sale of such shares in the year
in which the dividend is received. These basis reduction and gain recognition
rules would be applied by taking account only of the stockholder's adjusted tax
basis in the shares that were sold, without regard to other shares that the
stockholder may continue to own. Corporate stockholders should consult their own
tax advisors as to the application of Sections 243, 246, 246A and 1059 of the
Code to the offer, and to any dividends which may be treated as paid with
respect to shares sold pursuant to the offer.
We cannot predict whether or to what extent the offer will be
oversubscribed. If the offer is oversubscribed, proration of the tenders
pursuant to the offer will cause us to accept fewer shares than are tendered.
Therefore, a stockholder (other than an odd lot stockholder who tenders
according to Section 2 above) can be given no assurance that a sufficient number
of such stockholder's shares will be exchanged pursuant to the offer to ensure
that such exchange will be treated as a sale, rather than as a dividend, for
United States federal income tax purposes pursuant to the rules discussed above.
Backup Withholding. See Section 3 with respect to the application of
United States federal income tax backup withholding.
THE TAX CONSEQUENCES OF A SALE OF SHARES IN THE OFFER MAY VARY DEPENDING
UPON, AMONG OTHER THINGS, THE PARTICULAR SITUATION AND CIRCUMSTANCES OF THE
TENDERING STOCKHOLDER. NO INFORMATION IS PROVIDED HEREIN AS TO THE STATE, LOCAL
OR FOREIGN TAX CONSEQUENCES OF THE TRANSACTION CONTEMPLATED BY THE OFFER.
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SALES MADE
BY THEM PURSUANT TO THE OFFER, INCLUDING THE EFFECT OF THE STOCK OWNERSHIP
ATTRIBUTION RULES MENTIONED ABOVE.
15. EXTENSION OF THE OFFER; TERMINATION; AMENDMENT
We expressly reserve the right, in our sole discretion, at any time and
from time to time, and regardless of whether or not any of the events set forth
in Section 6 occur or are deemed by us to have occurred, to extend the period of
time during which the offer is open and thereby delay acceptance for payment of,
and payment for, any shares by giving oral or written notice of such extension
to the depositary and making a public announcement of the extension. We also
expressly reserve the right, in our sole discretion, to terminate the offer and
not accept for payment or pay for any shares not already accepted for payment or
paid for or, subject to applicable law, to postpone payment for shares upon the
occurrence of any of the conditions specified in Section 6 by giving oral or
written notice of such termination or postponement to the depositary and making
a public announcement of the termination or postponement. Our reservation of the
right to delay payment for shares which we have accepted for payment is limited
by Rule 13e-4(f)(5) under the Securities Exchange
23
<PAGE> 26
Act, which requires that we must pay the consideration offered or return the
shares tendered promptly after termination or withdrawal of a tender offer.
Subject to compliance with applicable law, we further reserve the right, in
our sole discretion, and regardless of whether any of the events set forth in
Section 6 shall occur or are deemed by us to have occurred, to amend the offer
in any respect, including, without limitation, by decreasing or increasing the
consideration offered in the offer to holders of shares or by decreasing or
increasing the number of shares being sought in the offer. Amendments to the
offer may be made at any time and from time to time effected by public
announcement. Such announcement, in the case of an extension, shall be issued no
later than 9:00 a.m., New York City time, on the next business day after the
last previously scheduled or announced expiration date. Any public announcement
made pursuant to the offer will be disseminated promptly to stockholders in a
manner reasonably designed to inform stockholders of such change. Without
limiting the manner in which we may choose to make any public announcement,
except as provided by applicable law, including Rule 13e-4(e)(2) promulgated
under the Securities Exchange Act, we shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
making a release to the Dow Jones News Service.
If we make a material change in the terms of the offer or the information
concerning the offer, or if we waive a material condition of the offer, we will
extend the offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(2)
under the Securities Exchange Act. If (1) we increase or decrease the price to
be paid for shares, we increase or decrease the dealer manager's soliciting fee,
we increase the number of shares being sought and such increase in the number of
shares being sought exceeds 2% of the outstanding shares, or we decrease the
number of shares being sought, and (2) the offer is scheduled to expire at any
time earlier than the expiration of a period ending on the tenth business day
from, and including, the date that notice of such increase or decrease is first
published, sent or given, we will extend the offer until the expiration of such
period of ten business days.
16. FEES AND EXPENSES
We have retained Salomon Smith Barney to act as the dealer manager in
connection with the offer. Salomon Smith Barney will receive reasonable and
customary compensation for its services as dealer manager. We have agreed to
indemnify Salomon Smith Barney against certain liabilities in connection with
the offer, including certain liabilities under the federal securities laws.
Salomon Smith Barney has rendered various investment banking and other advisory
services to the Company in the past, for which they have received customary
compensation, and can be expected to render similar services to the Company in
the future.
We have retained Georgeson Shareholder Communications Inc. as information
agent and The Bank of New York as depositary in connection with the offer. The
information agent and the depositary will receive reasonable and customary
compensation for their services. We will also reimburse the information agent
and the depositary for out-of-pocket expenses and have agreed to indemnify the
information agent and the depositary against certain liabilities in connection
with the offer, including certain liabilities under the federal securities laws.
The dealer manager and information agent may contact stockholders by mail,
telephone, telex, telegraph and personal interviews, and may request brokers,
dealers and other nominee stockholders to forward materials relating to the
offer to beneficial owners. Neither the information agent nor the depositary has
been retained to make solicitations or recommendations in connection with the
offer.
We will not pay fees or commissions to any broker, dealer, commercial bank,
trust company or other person, other than the dealer manager, for soliciting any
shares pursuant to the offer. We will, however, on request, reimburse such
persons for customary handling and mailing expenses incurred in forwarding
materials in respect of the offer to the beneficial owners for which they act as
nominees. No such broker, dealer, commercial bank or trust company has been
authorized to act as our agent for purposes of the offer. We will pay, or cause
to be paid, any stock transfer taxes on our purchase of shares, except as
otherwise provided in Instruction 7 of the letter of transmittal.
24
<PAGE> 27
17. MISCELLANEOUS
We are not aware of any jurisdiction where the making of the offer is not
in compliance with applicable law. If we become aware of any jurisdiction where
the making of the offer is not in compliance with any valid applicable law, we
will make a good faith effort to comply with such law. If, after such good faith
effort, we cannot comply with such law, we will not make the offer to, nor will
we accept tenders from or on behalf of, the holders of shares residing in such
jurisdiction. In any jurisdiction where the securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer is being made on
our behalf by the dealer manager or one or more registered brokers or dealers
licensed under the laws of such jurisdiction.
Pursuant to Rule 13e-4 promulgated under the Securities Exchange Act, we
have filed with the Commission an Issuer Tender Offer Statement on Schedule
13E-4 which contains additional information with respect to the offer. The
Schedule 13E-4, including the exhibits and any amendments thereto, may be
examined, and copies may be obtained, at the same places and in the same manner
as is set forth in Section 11 with respect to information concerning us.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF US OR THE DEALER MANAGER IN CONNECTION WITH THE
OFFER OTHER THAN THOSE CONTAINED IN THIS OFFER TO PURCHASE OR IN THE RELATED
LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US OR THE DEALER MANAGER.
INTERNATIONAL GAME TECHNOLOGY
December 9, 1999
25
<PAGE> 28
SCHEDULE I
CERTAIN TRANSACTIONS INVOLVING SHARES
Except as set forth below, based upon the records of the Company and upon
information provided to the Company by its directors, executive officers,
associates and subsidiaries, neither the Company nor any of its associates or
subsidiaries or persons controlling the Company, nor, to the Company's
knowledge, any of the directors or executive officers of the Company, nor any
associates or subsidiaries of any of the foregoing, has effected any
transactions in the Company's common stock during the 40 business days prior to
December 9, 1999.
The following transactions were effected by the Company as part of its
share repurchase program:
<TABLE>
<CAPTION>
NO. OF
DATE OF SHARES PRICE PER
TRANSACTION PURCHASED SHARE TRANSACTION
- ----------- --------- --------- -----------
<S> <C> <C> <C>
10/21/99 500,000 $19.0938 Acquired from Broker
11/15/99 45,000 18.3611 "
11/16/99 30,000 18.6442 "
11/17/99 227,500 18.6378 "
11/18/99 142,200 18.3408 "
11/19/99 52,700 18.3709 "
11/22/99 13,600 18.2574 "
11/23/99 78,400 18.3526 "
11/26/99 16,000 18.0625 "
11/29/99 8,900 18.1563 "
11/30/99 50,000 17.8125 "
</TABLE>
The following transaction was effected by one of the Company's executive
officers:
<TABLE>
<CAPTION>
NO. OF
SHARES PRICE PER
NAME AND TITLE PURCHASED SHARE TRANSACTION
-------------- --------- --------- -----------
<S> <C> <C> <C>
Roland Getner, 10,000 $18.53 Acquired from Broker
President and Chief
Executive Officer of
Sodak Gaming Company
</TABLE>
26
<PAGE> 29
Facsimile copies of the letter of transmittal will be accepted. A holder of
shares or such stockholder's broker, dealer, commercial bank, trust company or
other nominee should properly complete and send or deliver the letter of
transmittal and certificates for the shares and any other required documents to
the depositary at its address set forth below:
THE BANK OF NEW YORK
The Depositary Agent
<TABLE>
<S> <C>
BY MAIL: BY HAND OR OVERNIGHT DELIVERY:
Tender & Exchange Department Tender & Exchange Department
P.O. Box 11248 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, New York 10286-1248 New York, New York 10286
</TABLE>
BY FACSIMILE TRANSMISSION
(For Eligible Institutions Only)
(212) 815-6213
FOR CONFIRMATION BY TELEPHONE:
(212) 815-6156
Any questions or requests for assistance or for additional copies of this
offer to purchase, the letter of transmittal or the notice of guaranteed
delivery may be directed to the information agent, at the telephone number and
address below. Stockholders may also contact their broker, dealer, commercial
bank or trust company for assistance concerning the offer. To confirm delivery
of shares, stockholders are directed to contact the depositary.
The Information Agent for the Offer is:
GEORGESON SHAREHOLDER COMMUNICATIONS INC.
17 State Street
10th Floor
New York, New York 10004
Bankers and Brokers Call Collect: (212) 440-9800
All Others Call Toll-Free: (800) 223-2064
The Dealer Manager for the Offer is:
SALOMON SMITH BARNEY
388 Greenwich Street
New York, New York 10013
(212) 816-6000
December 9, 1999
<PAGE> 1
EXHIBIT (A)(2)
INTERNATIONAL GAME TECHNOLOGY
LETTER OF TRANSMITTAL
FOR
TENDER OF SHARES OF COMMON STOCK
PURSUANT TO OFFER TO PURCHASE DATED DECEMBER 9, 1999
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON FRIDAY, JANUARY 7, 2000, UNLESS THE OFFER IS EXTENDED.
The Depositary For The Offer Is:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR OVERNIGHT DELIVERY:
Tender & Exchange Department (For Eligible Institutions Tender & Exchange Department
P.O. Box 11248 Only) 101 Barclay Street
Church Street Station (212) 815-6213 Receive and Deliver Window
New York, New York 10286-1248 New York, New York 10286
FOR CONFIRMATION BY TELEPHONE:
(212) 815-6156
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
DELIVERIES TO THE COMPANY WILL NOT BE FORWARDED TO THE DEPOSITARY AND THEREFORE
WILL NOT CONSTITUTE VALID DELIVERY. DELIVERIES TO THE BOOK-ENTRY TRANSFER
FACILITY WILL NOT CONSTITUTE VALID DELIVERY TO THE DEPOSITARY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED. FOR ASSISTANCE COMPLETING THIS LETTER OF
TRANSMITTAL, PLEASE CALL THE INFORMATION AGENT AT (800) 223-2064.
NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE INSTRUCTIONS SET
FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY.
Stockholders who cannot deliver their share certificates and any other
required documents to the depositary by the expiration date must tender their
shares using the guaranteed delivery procedure set forth in Section 3 of the
offer to purchase. See Instruction 2.
All Tendering Holders Complete This Box If Any Of The Information Is Left
Blank:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ------------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) CERTIFICATE(S) ENCLOSED
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES NUMBER
CERTIFICATE REPRESENTED BY OF SHARES
NUMBER(S)(1) CERTIFICATE(S)(1) TENDERED(2)
<S> <C> <C> <C>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
Total Shares
- ------------------------------------------------------------------------------------------------------------------------
INDICATE IN THIS BOX THE ORDER (BY CERTIFICATE NUMBER) IN WHICH SHARES ARE TO BE PURCHASED IN THE EVENT OF PRORATION.
(3) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY.)
1ST: 2ND: 3RD: 4TH: 5TH:
- ------------------------------------------------------------------------------------------------------------------------
(1) Need not be completed by stockholders tendering by book-entry transfer.
(2) Unless otherwise indicated, it will be assumed that all shares described above are being tendered. See Instruction
4.
(3) If you do not designate an order, then in the event that less than all shares tendered are purchased due to
proration, shares will be selected for purchase by the depositary. See Instruction 13.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
(BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO
THE DEPOSITARY'S ACCOUNT AT THE DEPOSITARY TRUST COMPANY ("THE BOOK-ENTRY
TRANSFER FACILITY") AND COMPLETE THE FOLLOWING:
DTC Account No.
- --------------------------------------------------------------------------------
Transaction Code No.
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s)
- --------------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
- ----------------------------------------------------------------------
Name of Institution that Guaranteed Delivery
- ----------------------------------------------------------------------------
If delivery is by book-entry transfer:
Name of Tendering Institution
- --------------------------------------------------------------------------------
DTC Account No.
- --------------------------------------------------------------------------------
Transaction Code No.
- --------------------------------------------------------------------------------
2
<PAGE> 3
Ladies and Gentlemen:
The undersigned hereby tenders to International Game Technology, a Nevada
corporation (the "Company"), the above-described shares of its common stock, par
value $.000625 per share, at 21.00 per share, net to the seller in cash, upon
the terms and subject to the conditions set forth in the offer to purchase,
dated December 9, 1999 (the "offer to purchase"), receipt of which is hereby
acknowledged, and in this letter of transmittal (which together constitute the
"offer").
Subject to, and effective upon, acceptance for payment of and payment for
the shares tendered herewith in accordance with the terms and subject to the
conditions of the offer (including, if the offer is extended or amended, the
terms and conditions of any such extension or amendment), the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to all the shares that are being tendered hereby or
orders the registration of such shares tendered by book-entry transfer that are
purchased pursuant to the offer to or upon the order of the Company and hereby
irrevocably constitutes and appoints the depositary the true and lawful agent
and attorney-in-fact of the undersigned with respect to such shares, with full
power of substitution (such power of attorney being deemed to be an irrevocable
power coupled with an interest), to:
(i) deliver certificates for such shares, or transfer ownership of such
shares on the account books maintained by the book-entry transfer
facility, together, in any such case, with all accompanying evidences
of transfer and authenticity, to or upon the order of the Company upon
receipt by the depositary, as the undersigned's agent, of the purchase
price with respect to such shares;
(ii) present certificates for such shares for cancellation and transfer on
the books of the Company; and
(iii) receive all benefits and otherwise exercise all rights of beneficial
ownership of such shares, all in accordance with the terms of the
offer.
The undersigned hereby represents and warrants to the Company that the
undersigned has full power and authority to tender, sell, assign and transfer
the shares tendered hereby and that, when and to the extent the same are
accepted for payment by the Company, the Company will acquire good, marketable
and unencumbered title thereto, free and clear of all liens, restrictions,
charges, encumbrances, conditional sales agreements or other obligations
relating to the sale or transfer thereof, and the same will not be subject to
any adverse claims. The undersigned will, upon request, execute and deliver any
additional documents deemed by the depositary or the Company to be necessary or
desirable to complete the sale, assignment and transfer of the shares tendered
hereby.
The undersigned represents and warrants to the Company that the undersigned
has read and agrees to all of the terms of the offer. All authority herein
conferred or agreed to be conferred shall not be affected by and shall survive
the death or incapacity of the undersigned, and any obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Except as stated in the offer, this
tender is irrevocable.
The undersigned understands that tenders of shares pursuant to any one of
the procedures described in Section 3 of the offer to purchase and in the
instructions will constitute the undersigned's representation and warranty to
the Company that (i) the undersigned has a net long position in the shares or
equivalent securities being tendered within the meaning of Rule 14e-4
promulgated under the Securities Exchange Act of 1934, as amended, and (ii) the
tender of such shares complies with Rule 14e-4. The Company's acceptance for
payment of shares tendered pursuant to the offer will constitute a binding
agreement between the undersigned and the Company upon the terms and subject to
the conditions of the offer.
The names and addresses of the registered holders should be printed, if
they are not already printed above, exactly as they appear on the certificates
representing shares tendered hereby. The certificate numbers, the number of
shares represented by such certificates and the number of shares that the
undersigned wishes to tender should be indicated in the appropriate boxes on
this letter of transmittal.
The undersigned recognizes that, under certain circumstances set forth in
the offer to purchase, the Company may terminate or amend the offer or may,
subject to applicable law, postpone the acceptance for payment of, or the
payment for, shares tendered or may not be required to purchase any of the
shares tendered hereby or may accept for payment fewer than all of the shares
tendered hereby.
3
<PAGE> 4
Unless otherwise indicated under "Special Payment Instructions," please
issue the check for the purchase price of any shares purchased, and/or return
any shares not tendered or not purchased, in the name(s) of the undersigned
(and, in the case of shares tendered by book-entry transfer, by credit to the
account at the book-entry transfer facility). Similarly, unless otherwise
indicated under "Special Delivery Instructions," please mail the check for the
purchase price of any shares purchased and/or any certificates for shares not
tendered or not purchased (and accompanying documents, as appropriate) to the
undersigned at the address shown below the undersigned's signature(s). In the
event that both "Special Payment Instructions" and "Special Delivery
Instructions" are completed, please issue the check for the purchase price of
any shares purchased and/or return any shares not tendered or not purchased in
the name(s) of, and mail such check and/or any certificates to, the person(s) so
indicated. The undersigned recognizes that the Company has no obligation,
pursuant to the "Special Payment Instructions," to transfer any shares from the
name of the registered holder(s) thereof if the Company does not accept for
payment any of the shares so tendered.
The undersigned understands that acceptance of shares by the Company for
payment will constitute a binding agreement between the undersigned and the
Company upon the terms and subject to the conditions of the offer.
SPECIAL PAYMENT INSTRUCTIONS
(See Instructions 2, 5 and 7)
To be completed ONLY if the check for the aggregate purchase price of
shares purchased and/or certificates for shares not tendered or not purchased
are to be issued in the name of someone other than the undersigned.
Issue [ ] Check and/or
[ ] Certificate(s) to:
Name:
- -----------------------------------------------
(PLEASE PRINT)
Address
- ----------------------------------------------
-------------------------------------------------------
(INCLUDE ZIP CODE)
- -------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 2, 5 and 7)
To be completed ONLY if the check for the aggregate purchase price of
shares purchased and/or certificates for shares not tendered or not purchased
are to be mailed to someone other than the undersigned, or to the undersigned at
an address other than that shown below the undersigned's signature(s).
Mail [ ] Check and/or
[ ] Certificate(s) to:
Name:
- -----------------------------------------------
(PLEASE PRINT)
Address
- ----------------------------------------------
-------------------------------------------------------
(INCLUDE ZIP CODE)
- -------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
4
<PAGE> 5
ODD LOTS
(See Instruction 8)
This section is to be completed ONLY if shares are being tendered by or on
behalf of a person who owned beneficially, as of the close of business on
December 6, 1999, and who continues to own beneficially as of the expiration
date, an aggregate of fewer than 100 shares.
The undersigned either (check one box):
[ ] owned beneficially, as of the close of business on December 6, 1999,
and continues to own beneficially as of the expiration date, an
aggregate of fewer than 100 shares (excluding shares attributable to
the undersigned's account, if any, under the Company's Profit Sharing
Plan but including shares held in the Company's Employee Stock Purchase
Plan), all of which are being tendered, or
[ ] is a broker, dealer, commercial bank, trust company or other nominee
that (i) is tendering, for the beneficial owners thereof, shares with
respect to which it is the record owner, and (ii) believes, based upon
representations made to it by each such beneficial owner, that such
beneficial owner owned beneficially, as of the close of business on
December 6, 1999, and continues to own beneficially as of the
expiration date, an aggregate of fewer than 100 shares (excluding
shares attributable to individual accounts under the Company's Profit
Sharing Plan but including shares held in the Company's Employee Stock
Purchase Plan) and is tendering all of such shares.
5
<PAGE> 6
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 1, 5 AND 7)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 CONTAINED HEREIN)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Dated:
- --------------------------- ,
- ------------
Name(s):
- --------------------------------------------------------------------------------
------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title):
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
-------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
(Must be signed by registered holder(s) exactly as name(s) appear(s) on share
certificate(s) or on a security position listing or by person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, please set forth full title and see Instruction 5.)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
Dated:
- --------------------------- ,
- ------------
Name of Firm:
- --------------------------------------------------------------------------------
Capacity (full title):
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
- --------------------------------------------------------------------------------
6
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. Except as otherwise provided below, all
signatures on this letter of transmittal must be guaranteed by a firm that is a
recognized member of an eligible institution, as set forth in the offer to
purchase, unless (i) this letter of transmittal is signed by the registered
holder(s) of the shares (which term, for purposes of this document, shall
include any participant in the book-entry transfer facility) tendered herewith
and such holder(s) have not completed the box entitled "Special Payment
Instructions" or the box entitled "Special Delivery Instructions" on this letter
of transmittal, or (ii) such shares are tendered for the account of an eligible
institution. See Instruction 5.
2. Delivery of Letter of Transmittal and Share Certificates; Guaranteed
Delivery Procedures. This letter of transmittal is to be used either if share
certificates are to be forwarded herewith or if delivery of shares is to be made
by book-entry transfer pursuant to the procedures set forth in Section 3 of the
offer to purchase. Certificates for all physically delivered shares, or a
confirmation of a book-entry transfer into the depositary's account at the
book-entry transfer facility of all shares delivered electronically, as well as
a properly completed and duly executed letter of transmittal (or manually signed
facsimile thereof) and any other documents required by this letter of
transmittal, must be received by the depositary at one of its addresses set
forth on the front page of this letter of transmittal prior to the expiration
date. If certificates are forwarded to the depositary in multiple deliveries, a
properly completed and duly executed letter of transmittal must accompany each
such delivery.
Stockholders whose share certificates are not immediately available, who
cannot deliver their shares and all other required documents to the depositary
or who cannot complete the procedure for delivery by book-entry transfer prior
to the expiration date may tender their shares pursuant to the guaranteed
delivery procedure set forth in Section 3 of the offer to purchase. Pursuant to
such procedure: (i) such tender must be made by or through an eligible
institution; (ii) a properly completed and duly executed notice of guaranteed
delivery substantially in the form provided by the Company (with any required
signature guarantees) must be received by the depositary prior to the expiration
date; and (iii) the certificates for all physically delivered shares in proper
form for transfer by delivery, or a confirmation of a book- entry transfer into
the depositary's account at the book-entry transfer facility of all shares
delivered electronically, in each case together with a properly completed and
duly executed letter of transmittal (or manually signed facsimile thereof) and
any other documents required by this letter of transmittal, must be received by
the depositary within three New York Stock Exchange, Inc. trading days after the
date the depositary receives such notice of guaranteed delivery, all as provided
in Section 3 of the offer to purchase.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING SHARE CERTIFICATES, THE
LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE ELECTION AND
RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative or contingent tenders will be accepted. By executing this
letter of transmittal (or facsimile thereof), the tendering stockholder waives
any right to receive any notice of the acceptance for payment of the shares.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and/or the number of shares should be listed on a separate
signed schedule and attached to this letter of transmittal.
4. Partial Tenders (Not Applicable to Stockholders who Tender by Book-Entry
Transfer). If fewer than all the shares represented by any certificate
delivered to the depositary are to be tendered, fill in the number of shares
that are to be tendered in the box entitled "Number of Shares Tendered." In such
case, a new certificate for the remainder of the shares represented by the old
certificate will be sent to the person(s) signing this letter of transmittal,
unless otherwise provided in the "Special Payment Instructions" or "Special
Delivery Instructions" boxes on this letter of transmittal, as promptly as
practicable following the expiration or termination of the offer. All shares
represented by certificates delivered to the depositary will be deemed to have
been tendered unless otherwise indicated.
7
<PAGE> 8
5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If
this letter of transmittal is signed by the registered holder(s) of the shares
tendered hereby, the signatures(s) must correspond with the name(s) as written
on the face of the certificates without alteration, enlargement or any change
whatsoever.
If any of the shares tendered hereby are held of record by two or more
persons, all such persons must sign this letter of transmittal.
If any of the shares tendered hereby are registered in different names on
different certificates, it will be necessary to complete, sign and submit as
many separate letters of transmittal (or manually signed facsimiles thereof) as
there are different registrations of certificates.
If this letter of transmittal is signed by the registered holder(s) of the
shares tendered hereby, no endorsements of certificates or separate stock powers
are required unless payment of the purchase price is to be made to, or shares
not tendered or not purchased are to be registered in the name of, any person
other than the registered holder(s), in which case the certificate(s) evidencing
the shares tendered hereby must be endorsed or accompanied by appropriate stock
powers, in either case signed exactly as the name(s) of the registered holder(s)
appear(s) on such certificates. Signatures on any such certificates or stock
powers must be guaranteed by an eligible institution. See Instruction 1.
If this letter of transmittal is signed by a person other than the
registered holder(s) of the shares tendered hereby, certificates evidencing the
shares tendered hereby must be endorsed or accompanied by appropriate stock
powers, in either case, signed exactly as the name(s) of the registered
holder(s) appear(s) on such certificate(s). Signature(s) on any such
certificates or stock powers must be guaranteed by an eligible institution. See
Instruction 1.
If this letter of transmittal or any certificate or stock power is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory to
the Company of the authority of such person so to act must be submitted.
6. Stock Transfer Taxes. The Company will pay or cause to be paid any
stock transfer taxes with respect to the sale and transfer of any shares to it
or its order pursuant to the offer. If, however, payment of the aggregate
purchase price is to be made to, or shares not tendered or not purchased are to
be registered in the name of, any person other than the registered holder(s), or
if tendered shares are registered in the name of any person other than the
person(s) signing this letter of transmittal, the amount of any stock transfer
taxes (whether imposed on the registered holder(s), such other person or
otherwise) payable on account of the transfer to such person will be deducted
from the purchase price unless satisfactory evidence of the payment of such
taxes, or exemption therefrom, is submitted. See Section 5 of the offer to
purchase. Except as provided in this Instruction 6, it will not be necessary to
affix transfer tax stamps to the certificates representing shares tendered
hereby.
7. Special Payment and Delivery Instructions. If a check for the purchase
price of any shares tendered hereby is to be issued in the name of, and/or any
shares not tendered or not purchased are to be returned to, a person other than
the person(s) signing this letter of transmittal, or if the check and/or any
certificates for shares not tendered or not purchased are to be mailed to
someone other than the person(s) signing this letter of transmittal or to an
address other than that shown above in the box captioned "Description of Shares
Tendered," then the boxes captioned "Special Payment Instructions" and/or
"Special Delivery Instructions" on this letter of transmittal should be
completed. Stockholders tendering shares by book-entry transfer will have any
shares not accepted for payment returned by crediting the account maintained by
such shareowner at the book-entry transfer facility.
8. Odd Lots. As described in Section 1 and Section 2 of the offer to
purchase, if fewer than all shares validly tendered at and not withdrawn prior
to the expiration date are to be purchased, the shares purchased first will
consist of all shares tendered by any stockholder who owned beneficially, as of
the close of business on December 6, 1999, and continues to own beneficially as
of the expiration date, an aggregate of fewer than 100 shares (excluding shares
attributable to individual accounts under the Company's Profit Sharing Plan but
including shares held in the Company's Employee Stock Purchase Plan) and who
validly tendered all such shares. Partial tenders of shares will not qualify for
this preference and this preference will not be available unless the box
captioned "Odd Lots" in this letter of transmittal and the notice of guaranteed
delivery, if any, is completed.
8
<PAGE> 9
9. Substitute Form W-9 and Form W-8. Under the United States federal
income tax backup withholding rules, unless an exemption applies under the
applicable laws and regulations, 31% of the gross proceeds payable to a
stockholder or other payee pursuant to the offer must be withheld and remitted
to the United States Treasury, unless the stockholder or other payee provides
such person's taxpayer identification number (employer identification number or
social security number) to the depositary and certifies that such number is
correct. Therefore, each tendering stockholder should complete and sign the
substitute Form W-9 included as part of this letter of transmittal so as to
provide the information and certification necessary to avoid backup withholding,
unless such stockholder otherwise establishes to the satisfaction of the
depositary that it is not subject to backup withholding. Certain stockholders,
including, among others, corporations and certain foreign stockholders (in
addition to foreign corporations), are not subject to the backup withholding and
reporting requirements described herein. In order for a noncorporate foreign
stockholder to qualify as an exempt recipient, that stockholder must submit an
IRS Form W-8, a substitute Form W-8 or a form W-8BEN, signed under penalties of
perjury, attesting to that stockholder's exempt status. Such statements may be
obtained from the depositary.
10. Withholding on Foreign Stockholders. Even if a foreign stockholder has
provided the required certification to avoid backup withholding, the depositary
will withhold United States federal income taxes equal to 30% of the gross
payments payable to a foreign stockholder or his or her agent unless the
depositary determines that a reduced rate of withholding is available pursuant
to a tax treaty or that an exemption from withholding is applicable because such
gross proceeds are effectively connected with the conduct of a trade or business
in the United States. For this purpose, a foreign stockholder is any stockholder
that is not (i) a citizen or resident of the United States, (ii) a corporation
or other entity taxed as a corporation created or organized in or under the laws
of the United States, any state or any political subdivision thereof, (iii) an
estate, the income of which is subject to United States federal income taxation
regardless of the source of such income or (iv) a trust if a court within the
United States is able to exercise primary supervision of the administration of
the trust and one or more United States persons have the authority to control
all substantial decisions of the trust, and one or more United States
fiduciaries have the authority to control all substantial decisions relating to
the trust. In order to obtain a reduced rate of withholding pursuant to a tax
treaty, a foreign stockholder must deliver to the Depositary a properly
completed and executed IRS Form 1001 or IRS Form W-8BEN. In order to obtain an
exemption from withholding on the grounds that the gross proceeds paid pursuant
to the offer are effectively connected with the conduct of a trade or business
within the United States, a foreign stockholder must deliver to the depositary a
properly completed and executed IRS Form 4224 or IRS Form W-8ECI. The depositary
will determine a stockholder's status as a foreign stockholder and eligibility
for a reduced rate of, or an exemption from, withholding by reference to
outstanding certificates or statements concerning eligibility for a reduced rate
of, or exemption from, withholding (e.g., IRS Form 1001, IRS Form 4224, IRS Form
W-8BEN or IRS Form W-8ECI) unless facts and circumstances indicate that such
reliance is not warranted. A foreign stockholder may be eligible to obtain a
refund of all or a portion of any tax withheld if such stockholder meets the
"complete redemption," "substantially disproportionate" or "not essentially
equivalent to a dividend" test described in Section 14 of the offer to purchase
or is otherwise able to establish that no tax or a reduced amount of tax is due.
Foreign stockholders are urged to consult their tax advisors regarding the
application of United States federal income tax withholding, including
eligibility for a withholding tax reduction or exemption and refund procedures.
11. Requests for Assistance or Additional Copies. Any questions or
requests for assistance may be directed to the information agent at its
telephone number and address listed below. Requests for additional copies of the
offer to purchase, this letter of transmittal or other tender offer materials
may be directed to the information agent, and such copies will be furnished
promptly at the Company's expense. Stockholders may also contact their local
broker, dealer, commercial bank or trust company for documents relating to, or
assistance concerning, the offer.
12. Irregularities. All questions as to the number of shares to be
accepted, the price to be paid therefor and the validity, form, eligibility
(including time of receipt) and acceptance for payment of any tender of shares
will be determined by the Company, in its sole discretion, which determination
shall be final and binding on all parties. The Company reserves the absolute
right to reject any or all tenders it determines not to be in proper form or the
acceptance of or payment for which may, in the opinion of the Company's counsel,
be unlawful. The Company also reserves the absolute right to waive any of the
conditions of the offer and any defect or irregularity in the tender of any
particular shares by any particular stockholder. No tender of shares will be
deemed to be validly made until all defects or irregularities have been cured or
waived. None of the Company, the dealer manager, the depositary, the information
agent or any other person is
9
<PAGE> 10
or will be obligated to give notice of any defects or irregularities in tenders,
and none of them will incur any liability for failure to give any such notice.
13. Order of Purchase in Event of Proration. As described in Section 1 of
the offer to purchase, stockholders may designate the order in which their
shares are to be purchased in the event of proration. The order of purchase may
have an effect on the United States federal income tax classification of any
gain or loss on the shares purchased. See Sections 1 and 14 of the offer to
purchase.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A MANUALLY SIGNED FACSIMILE
THEREOF) TOGETHER WITH SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER
AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY, OR THE
NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, PRIOR TO THE
EXPIRATION DATE. STOCKHOLDERS ARE ENCOURAGED TO RETURN A COMPLETED SUBSTITUTE
FORM W-9 WITH THEIR LETTER OF TRANSMITTAL.
10
<PAGE> 11
TO BE COMPLETED BY ALL TENDERING STOCKHOLDERS (SEE INSTRUCTION 8)
PAYOR'S NAME: THE BANK OF NEW YORK
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN IN ------------------------------------
FORM W-9 THE BOX AT RIGHT AND CERTIFY BY Social Security number
SIGNING AND DATING BELOW.
or
------------------------------------
Employer identification number
- ------------------------------------------------------------------------------------------------------------------------------
Part 2 - Certification - Under penalties of perjury, I certify that:
DEPARTMENT OF THE (1) The number shown on this form is my correct Taxpayer Identification Number (or I
TREASURY am waiting for a number to be issued to me);
INTERNAL REVENUE SERVICE (2) I am not subject to backup withholding either because (i) I am exempt from backup
withholding, (ii) I have not been notified by the Internal Revenue Service ("IRS")
that I am subject to backup withholding as a result of a failure to report all
interest or dividends, or (iii) the IRS has notified me that I am no longer
subject to backup withholding; and
(3) any other information provided on this form is true and correct.
- ------------------------------------------------------------------------------------------------------------------------------
Certification Instructions - You must cross out all of Part
PAYER'S REQUEST FOR 2 above if you have been notified by the IRS that you are PART 3
TAXPAYER IDENTIFICATION subject to backup withholding because of underreporting
NUMBER (TIN) AND interest or dividends on your tax return and you have not Awaiting TIN [ ]
CERTIFICATION been notified by the IRS that you are no longer subject to
backup Part 3 withholding.
- ------------------------------------------------------------------------------------------------
Signature: ------------------------- Date:
----------------
Name (Please Print):
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT
TO THE OFFER.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 ("AWAITING TIN") OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a Taxpayer Identification Number by the
time of payment, 31% of all payments made to me on account of the shares shall
be retained until I provide a Taxpayer Identification Number to the depositary
and that, if I do not provide my Taxpayer Identification Number within 60
days, such retained amounts shall be remitted to the IRS as backup withholding
and 31% of all reportable payments made to me thereafter will be withheld and
remitted to the IRS until I provide a Taxpayer Identification Number.
Signature(s):
----------------------------------------------------------------- Date:
-----------------------------------
- --------------------------------------------------------------------------------
11
<PAGE> 12
The Information Agent for the Offer is:
GEORGESON SHAREHOLDER COMMUNICATIONS INC.
17 State Street
10th Floor
New York, New York 10004
Bankers and Brokers Call Collect: (212) 440-9800
All Others Call Toll-Free: (800) 223-2064
The Dealer Manager for the Offer is:
SALOMON SMITH BARNEY
388 Greenwich Street
New York, New York 10013
(212) 816-6000
<PAGE> 1
EXHIBIT (A)(3)
INTERNATIONAL GAME TECHNOLOGY
NOTICE OF GUARANTEED DELIVERY
OF SHARES OF COMMON STOCK
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON FRIDAY, JANUARY 7, 2000, UNLESS THE OFFER IS EXTENDED.
This form, or a form substantially equivalent to this form, must be used to
accept the offer (as defined below) if certificates for the shares of common
stock of International Game Technology are not immediately available, if the
procedure for book-entry transfer cannot be completed on a timely basis, or if
time will not permit all other documents required by the letter of transmittal
to be delivered to the depositary (as defined below) prior to the "expiration
date" (as set forth in Section 1 of the offer to purchase defined below). This
form may be delivered by hand or transmitted by mail or overnight courier, or
(for eligible institutions only) by facsimile transmission, to the depositary.
See Section 3 of the offer to purchase. THE ELIGIBLE INSTITUTION WHICH COMPLETES
THIS FORM MUST COMMUNICATE THE GUARANTEE TO THE DEPOSITARY AND MUST DELIVER THE
LETTER OF TRANSMITTAL AND CERTIFICATES FOR SHARES TO THE DEPOSITARY WITHIN THE
TIME SHOWN HEREIN. FAILURE TO DO SO COULD RESULT IN A FINANCIAL LOSS TO SUCH
ELIGIBLE INSTITUTION.
The Depositary for the Offer is:
THE BANK OF NEW YORK
<TABLE>
<S> <C>
BY MAIL: BY HAND OR OVERNIGHT DELIVERY:
Tender & Exchange Department Tender & Exchange Department
P.O. Box 11248 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, New York 10286-1248 New York, New York 10286
</TABLE>
BY FACSIMILE TRANSMISSION
(For Eligible Institutions Only)
(212) 815-6213
FOR CONFIRMATION BY TELEPHONE:
(212) 815-6156
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to International Game Technology, a Nevada
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the offer to purchase, dated December 9, 1999 (the "offer to
purchase"), and the related letter of transmittal (which together constitute the
"offer"), receipt of which is hereby acknowledged, the number of shares of
common stock, par value $.000625 per share, of the Company listed below,
pursuant to the guaranteed delivery procedure set forth in Section 3 of the
offer to purchase.
<TABLE>
<S> <C>
- ------------------------------------------------------------ ------------------------------------------------------------
NUMBER OF SHARES SIGN HERE
- ------------------------------------------------------------ ------------------------------------------------------------
CERTIFICATE NOS.: (IF AVAILABLE) NAME(S) (PLEASE PRINT)
- ------------------------------------------------------------ ------------------------------------------------------------
ADDRESS AREA CODE AND TELEPHONE NUMBER
- ------------------------------------------------------------ ------------------------------------------------------------
CITY, STATE, ZIP CODE SIGNATURE(S)
- ------------------------------------------------------------ ------------------------------------------------------------
AT THE DEPOSITORY TRUST COMPANY
</TABLE>
ODD LOTS
This section is to be completed ONLY if shares are being tendered by or on
behalf of a person who owned beneficially, as of the close of business on
December 6, 1999, and who continues to own beneficially as of the expiration
date, an aggregate of fewer than 100 shares (excluding shares attributable to
individual accounts under the Company's Profit Sharing Plan but including shares
held in the Company's Employee Stock Purchase Plan).
The undersigned either (check one box):
[ ] owned beneficially, as of the close of business on December 6, 1999 and
continues to own beneficially as of the expiration date, an aggregate
of fewer than 100 shares (excluding shares attributable to the
undersigned's account under the Company's Profit Sharing Plan but
including shares held in the Company's Employee Stock Purchase Plan),
all of which are being tendered, or
[ ] is a broker, dealer, commercial bank, trust company or other nominee
that (i) is tendering, for the beneficial owners thereof, shares with
respect to which it is the record owner, and (ii) believes, based upon
representations made to it by each such beneficial owner, that such
beneficial owner owned beneficially, as of the close of business on
December 6, 1999, and continues to own beneficially as of the
expiration date, an aggregate of fewer than 100 shares (excluding
shares attributable to individual accounts under the Company's Profit
Sharing Plan but including shares held in the Company's Employee Stock
Purchase Plan) and is tendering all of such shares.
2
<PAGE> 3
GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or the National Association of Securities Dealers, Inc. or a
commercial bank or trust company (not a savings bank or savings and loan
association) having an office, branch or agency in the United States hereby
guarantees (i) that the above-named person(s) has a net long position in the
shares being tendered within the meaning of Rule 14e-4 promulgated under the
Securities Exchange Act of 1934, as amended, (ii) that such tender of shares
complies with Rule 14e-4, and (iii) to deliver to the depositary at one of its
addresses set forth above certificate(s) for the shares tendered hereby, in
proper form for transfer, or a confirmation of the book-entry transfer of the
shares tendered hereby into the depositary's account at The Depository Trust
Company in each case together with a properly completed and duly executed
letter(s) of transmittal (or facsimile(s) thereof), with any required signature
guarantee(s) and any other required documents, all within three New York Stock
Exchange, Inc. trading days after the date hereof.
<TABLE>
<S> <C>
- ----------------------------------------------------------- -----------------------------------------------------------
NAME OF FIRM AUTHORIZED SIGNATURE
- ----------------------------------------------------------- -----------------------------------------------------------
ADDRESS NAME
- ----------------------------------------------------------- -----------------------------------------------------------
CITY, STATE, ZIP CODE TITLE
- ----------------------------------------------------------- -----------------------------------------------------------
AREA CODE AND TELEPHONE NUMBER
Dated: --------------------------------------------- , 2000 -----------------------------------------------------------
</TABLE>
THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A
LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN ELIGIBLE INSTITUTION
UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE
APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
DO NOT SEND SHARE CERTIFICATES WITH THIS FORM. YOUR SHARE CERTIFICATES
MUST BE SENT WITH THE LETTER OF TRANSMITTAL.
3
<PAGE> 1
EXHIBIT (a)(4)
SALOMON SMITH BARNEY
388 GREENWICH STREET
NEW YORK, NEW YORK 10013
OFFER TO PURCHASE FOR CASH
UP TO 11,000,000 SHARES OF COMMON STOCK
OF
INTERNATIONAL GAME TECHNOLOGY
AT
$21.00 NET PER SHARE
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON FRIDAY, JANUARY 7, 2000, UNLESS THE OFFER IS EXTENDED.
To Brokers, Dealers, Commercial Banks,
Trust Companies and other Nominees:
We are enclosing the material listed below relating to the offer by
International Game Technology, a Nevada corporation (the "Company"), to purchase
up to 11,000,000 shares of its common stock, par value $.000625 per share, at
$21.00 per share, net to the seller in cash, upon the terms and subject to the
conditions set forth in the offer to purchase dated December 9, 1999 and the
related letter of transmittal (which together constitute the "offer").
We have been engaged by the Company to act as dealer manager with respect
to the offer. We are asking you to contact your clients for whom you hold shares
registered in your name (or in the name of your nominee) or who hold shares
registered in their own names. Please bring the offer to their attention as
promptly as possible. No fees or commissions will be payable to brokers, dealers
or other persons for soliciting tenders of shares pursuant to the offer. The
Company will, however, upon request, reimburse you for customary mailing and
handling expenses incurred by you in forwarding any of the enclosed materials to
your clients. The Company will pay all transfer taxes on its purchase of shares,
subject to Instruction 6 of the letter of transmittal.
Enclosed herewith are copies of the following documents:
1. Offer to Purchase dated December 9, 1999;
2. Letter of Transmittal;
3. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9;
4. Notice of Guaranteed Delivery;
5. Form of letter which may be sent to your clients for whose account
you hold shares in your name or in the name of your nominee, with space
provided for obtaining such clients' instructions with regard to the offer;
and
6. Return envelope addressed to the depositary.
We urge you to contact your clients promptly. Please note that, unless
extended, the offer, the proration period and withdrawal rights will expire at
12:00 midnight, New York City time, on Friday, January 7, 2000.
The offer is not being made to, nor will tenders be accepted from, or on
behalf of, holders of shares residing in any jurisdiction in which the making or
acceptance thereof would not be in compliance with the laws of such
jurisdiction.
As described in the offer to purchase, if more than 11,000,000 shares are
validly tendered and not withdrawn prior to the "expiration date," as defined in
Section 1 of the offer to purchase, the Company will accept shares for purchase
in the following order of priority: (i) all shares validly tendered and not
withdrawn prior to the expiration date by any stockholder who owned
beneficially, as of the close of business on December 6, 1999, and who continues
to own beneficially as of the expiration date, an aggregate of fewer than 100
shares and who validly tenders all of such shares (partial tenders will not
qualify for this preference) and completes the box captioned "Odd Lots" in the
letter of transmittal; and (ii) after purchase of all of the foregoing shares,
all other shares validly tendered and not withdrawn prior to the expiration date
on a pro rata basis.
<PAGE> 2
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER,
STOCKHOLDERS MUST MAKE THEIR OWN DECISION WHETHER TO TENDER SHARES AND, IF SO,
HOW MANY SHARES TO TENDER. NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES
ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING SHARES. THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS DIRECTORS OR
OFFICERS INTEND TO TENDER SHARES IN THE OFFER.
Additional copies of the enclosed material may be obtained from the
undersigned or the information agent. Any questions you may have with respect to
the offer should be directed to the information agent or the undersigned at
their respective addresses and telephone numbers set forth on the back cover of
the enclosed offer to purchase.
Very truly yours,
Salomon Smith Barney
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
AS THE AGENT OF THE COMPANY, THE DEALER MANAGER, THE INFORMATION AGENT OR THE
DEPOSITARY, OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR
BEHALF IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH
AND THE STATEMENTS CONTAINED THEREIN.
2
<PAGE> 1
EXHIBIT (A)(5)
OFFER TO PURCHASE FOR CASH
UP TO 11,000,000 SHARES OF COMMON STOCK
OF
INTERNATIONAL GAME TECHNOLOGY
AT
$21.00 NET PER SHARE
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON FRIDAY, JANUARY 7, 2000, UNLESS THE OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration is an offer to purchase dated December 9,
1999 and the related letter of transmittal (which together constitute the
"offer") relating to an offer by International Game Technology, a Nevada
corporation (the "Company"), to purchase up to 11,000,000 shares of its common
stock, par value $.000625 per share. We are the holder of record of shares held
by us for your account. A tender of any such shares can be made only by us as
the holder of record and pursuant to your instructions. THE LETTER OF
TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY
YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish to tender any or all such
shares held by us for your account, pursuant to the terms and conditions set
forth in the offer.
Your attention is invited to the following:
1. The tender price is $21.00 per share, net to you in cash.
2. The offer is being made for up to 11,000,000 shares. The Company
reserves the right to purchase additional shares of common stock in the
offer.
3. The offer is not conditioned upon any minimum number of shares of
common stock being tendered.
4. Tendering stockholders will not be obligated to pay brokerage fees
or commissions or, subject to Instruction 6 of the letter of transmittal,
transfer taxes in connection with the purchase of shares by the Company.
5. As described in the offer to purchase, if more than 11,000,000
shares have been validly tendered and not withdrawn prior to the
"expiration date," as defined in Section 1 of the offer to purchase, the
Company will accept shares for purchase in the following order of priority:
(i) all shares validly tendered and not withdrawn prior to the expiration
date by any stockholder who owned beneficially, as of the close of business
on December 6, 1999, and who continues to own beneficially as of the
expiration date, an aggregate of fewer than 100 shares (excluding shares
attributable to individual accounts under the Company's Profit Sharing Plan
but including shares held in the Company's Employee Stock Purchase Plan)
and who validly tenders all of such shares (partial tenders will not
qualify for this preference) and completes the box captioned "Odd Lots" in
the letter of transmittal and, if applicable, the notice of guaranteed
delivery; and (ii) after purchase of all of the foregoing shares, all other
shares validly tendered and not withdrawn prior to the expiration date on a
pro rata basis.
6. In the event that proration of tendered shares is required, because
of the difficulty of determining the precise number of shares properly
tendered (due in part to the guaranteed delivery procedure described in the
offer), the Company does not expect to be able to announce the final
results of such proration or pay for any shares which are accepted for
payment until approximately seven business days after the expiration date.
Preliminary results of proration will be announced by a press release as
soon as practicable after the expiration date. Holders of shares may obtain
preliminary information from the dealer manager or the information agent
and may be able to obtain such information from their brokers.
<PAGE> 2
7. The offer, proration period and withdrawal rights will expire at
12:00 midnight, New York City time, on Friday, January 7, 2000, unless
extended.
If you wish to have us tender any or all of your shares, please so instruct
us by completing, executing and returning to us the instruction form set forth
below. An envelope to return your instructions to us is enclosed.
The offer is not being made to, nor will tenders be accepted from, or on
behalf of, holders of shares residing in any jurisdiction in which the making or
acceptance thereof would not be in compliance with the laws of such
jurisdiction.
2
<PAGE> 3
INSTRUCTIONS
The undersigned acknowledges receipt of your letter enclosing the offer to
purchase dated December 9, 1999 of International Game Technology and the related
letter of transmittal, relating to shares of its common stock, par value
$.000625 per share.
This will instruct you to tender the number of shares indicated below held
by you for the account of the undersigned, pursuant to the terms and conditions
set forth in the offer to purchase and the related letter of transmittal.
DATED: , 2000
---------------------------------------
---------------------------------------
SIGNATURE(S)
---------------------------------------
(PLEASE PRINT NAME(S) AND
ADDRESS(ES) HERE)
---------------------------------------
---------------------------------------
Number of Shares of Common Stock
to Be Tendered*
*Unless otherwise indicated, it
will be assumed that all your
shares are to be tendered.
Account No.
3
<PAGE> 1
EXHIBIT(a)(6)
INTERNATIONAL GAME TECHNOLOGY ANNOUNCES $21 PER SHARE CASH TENDER OFFER FOR UP
TO 11 MILLION SHARES
RENO, Nev., Dec. 6/PRNewswire/ -- International Game Technology (NYSE:
IGT -- news) today announced that its Board of Directors has authorized the
Company to purchase under the tender offer up to 11 million shares of IGT common
stock at $21 per share, representing approximately 13% of the outstanding
shares. The offer is expected to commence on or before December 10, 1999 12:00
midnight. As of December 6, 1999, IGT had 85.9 million shares outstanding, The
New York Stock Exchange closing price for IGT stock on December 6, 1999 was
$17 9/16 per share.
The terms of the tender offer will be described more fully in the offering
materials to be distributed to IGT's stockholders. Under the terms of the tender
offer, IGT's stockholders will be given the opportunity to sell up to 11 million
shares of IGT common stock at $21 per share.
If more than 11 million shares are tendered, and IGT does not elect to acquire
such additional shares, there will be a proration. The tender offer will not be
contingent upon any minimum number of shares being tendered.
The Board of Directors of IGT is not making any recommendation to stockholders
as to whether or not they should tender any shares pursuant to the offer.
IGT will finance the tender offer through available cash.
The Company has retained Salomon Smith Barney to act as its financial advisor
and dealer manager for the tender offer.
Statements in this release which are not historical facts are "forward-looking"
statements and "safe harbor statements" under the Private Securities Litigation
Reform Act of 1995 that involve risks and/or uncertainties, including risks
and/or uncertainties as described in the Company's public filings with the
Securities and Exchange Commission.
IGT is a world leader in the design, development and manufacture of
microprocessor-based gaming products and software systems in all jurisdictions
where gaming is legal.
SOURCE: International Game Technology
1
<PAGE> 1
EXHIBIT (a)(7)
[FORM OF SUMMARY ADVERTISEMENT]
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares (as defined below). The offer is made solely by the offer to
purchase, dated December 9, 1999, and the related letter of transmittal and is
being made to all holders of Shares. Capitalized terms not defined in this
announcement have the respective meanings ascribed to such terms in the offer to
purchase. The offer is not being made to, nor will the Company accept tenders
from or on behalf of, holders of Shares in any jurisdiction in which the offer
or its acceptance would violate that jurisdiction's laws. The Company is not
aware of any jurisdiction in which the making of the offer or the tender of
Shares would not be in compliance with the laws of such jurisdiction. In
jurisdictions whose laws require that the offer be made by a licensed broker or
dealer, the offer shall be deemed to be made on the Company's behalf by Salomon
Smith Barney, or by one or more registered brokers or dealers licensed under the
laws of such jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
BY
[IGT LOGO]
UP TO 11,000,000 SHARES OF ITS COMMON STOCK
AT A PURCHASE PRICE OF $21.00 PER SHARE
International Game Technology, a Nevada corporation (the "Company"),
invites its stockholders to tender up to 11,000,000 shares of its common stock,
par value $.000625 per share (the "Shares"), to the Company at $21.00 per Share,
net to the seller in cash (the "Purchase Price"), upon the terms and subject to
the conditions set forth in the offer to purchase dated December 9, 1999 (the
"offer to purchase"), and the related letter of transmittal (which together
constitute the "offer"). The offer is not conditioned on any minimum number of
Shares being tendered. The offer is, however, subject to certain other
conditions set forth in the offer to purchase.
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JANUARY 7,
2000, UNLESS THE OFFER IS EXTENDED. ALL SHARES MUST BE
RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION OF THE
OFFER.
The Board of Directors of the Company has approved the offer. However,
stockholders must make their own decision whether to tender Shares and, if so,
how many Shares to tender. Neither the Company nor its Board of Directors makes
any recommendation to any stockholder as to whether to tender or refrain from
tendering Shares.
The Company will pay the Purchase Price for all Shares validly tendered
prior to the Expiration Date (as defined below) and not withdrawn, upon the
terms and subject to the conditions of the offer, including the proration terms
described below. The term "Expiration Date" means 12:00 midnight, New York City
time, on Friday, January 7, 2000, unless and until the Company in its sole
discretion shall have extended the period of time during which the offer is
open, in which event the term "Expiration Date" shall refer to the latest time
and date at which the offer, as so extended by the Company, shall expire. The
Company reserves the right, in
1
<PAGE> 2
its sole discretion, to purchase more than 11,000,000 Shares pursuant to the
offer. For purposes of the offer, the Company will be deemed to have accepted
for payment (and therefore purchased), subject to proration, Shares that are
validly tendered and not withdrawn when, as and if it gives oral or written
notice to The Bank of New York (the "Depositary") of its acceptance of such
Shares for payment pursuant to the offer. In all cases, payment for Shares
tendered and accepted for payment pursuant to the offer will be made promptly
(subject to possible delay in the event of proration) but only after timely
receipt by the Depositary of certificates for such Shares (or a timely
confirmation of a book-entry transfer of such Shares into the Depositary's
account at The Depository Trust Company (the "Book-Entry Transfer Facility")), a
properly completed and duly executed letter of transmittal (or manually signed
facsimile thereof) and any other required documents.
Upon the terms and subject to the conditions of the offer, in the event
that prior to the Expiration Date more than 11,000,000 Shares (or such greater
number of Shares as the Company may elect to purchase pursuant to the offer) are
validly tendered and not withdrawn, the Company will purchase such validly
tendered Shares in the following order of priority: (i) all Shares validly
tendered and not withdrawn prior to the Expiration Date by any odd lot owner who
tenders all such Shares beneficially owned by such odd lot owner (partial
tenders will not qualify for this preference) and who completes the box
captioned "Odd Lots" on the letter of transmittal and (ii) after purchase of all
of the foregoing Shares, all other Shares validly tendered and not withdrawn on
a pro rata basis.
The Company is making the offer because it believes: (i) the Shares are
undervalued in the public market; (ii) the offer represents the opportunity to
return a portion of the Company's cash to stockholders permitting them to invest
it according to their preferences and objectives; (iii) after the offer is
completed, the Company expects to have sufficient cash flow and access to other
sources of funding to meet the Company's cash needs for normal operations and
anticipated capital expenditures for the foreseeable future; (iv) after
considering alternatives, investing in its Shares is an attractive use of the
Company's capital and an efficient means to provide value to its stockholders
and (v) the consummation of the offer should not foreclose possible future
acquisitions by the Company.
The Company expressly reserves the right, at any time or from time to time,
in its sole discretion, to extend the period of time during which the offer is
open by giving notice of such extension to the Depositary and making a public
announcement thereof. Subject to certain conditions set forth in the offer to
purchase, the Company also expressly reserves the right to terminate the offer
and not accept for payment any Shares not theretofore accepted for payment.
Shares tendered pursuant to the offer may be withdrawn at any time before
the Expiration Date and, unless accepted for payment by the Company as provided
in the offer to purchase, may also be withdrawn after 12:00 midnight, New York
City time, on Monday, February 7, 2000. For a withdrawal to be effective, the
Depositary must receive a notice of withdrawal in written, telegraphic or
facsimile transmission form on a timely basis. Such notice of withdrawal must
specify the name of the person who tendered the Shares to be withdrawn, the
number of Shares tendered, the number of Shares to be withdrawn and the name of
the registered holder, if different from that of the person who tendered such
Shares. If the certificates have been delivered or otherwise identified to the
Depositary, then, prior to the release of such certificates, the tendering
stockholder must also submit the serial numbers shown on the particular
certificates evidencing the Shares and the signature on the notice of withdrawal
must be guaranteed by the Eligible Institution (except in the case of Shares
tendered by an Eligible Institution). If Shares have been tendered pursuant to
the procedure for book-entry transfer, the notice of withdrawal must specify the
name and the number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Shares and otherwise comply with the procedures of
such facility.
The offer to purchase and the letter of transmittal contain important
information which should be read carefully before stockholders decide whether to
accept or reject the offer. These materials are being mailed to record holders
of Shares and are being furnished to brokers, banks and similar persons whose
names, or the names of whose nominees, appear on the Company's stockholder list
or, if applicable, who are listed as participants in a clearing agency's
security position listing for transmittal to beneficial owners of Shares.
2
<PAGE> 3
The information required to be disclosed by Rule 13e-4(d)(1) under the
Securities Exchange Act of 1934, as amended, is contained in the offer to
purchase and is incorporated by reference herein.
Additional copies of the offer to purchase and the letter of transmittal
may be obtained from the Information Agent and will be furnished at the
Company's expense. Questions and requests for assistance may be directed to the
Information Agent as set forth below.
The Information Agent for the Offer is:
GEORGESON SHAREHOLDER COMMUNICATIONS INC.
17 State Street, 10th Floor
New York, New York 10004
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll Free: (800) 223-2064
The Depositary for the Offer is:
THE BANK OF NEW YORK
101 Barclay Street
New York, New York 10286
The Dealer Manager for the Offer is:
SALOMON SMITH BARNEY
388 Greenwich Street
New York, New York 10013
(212) 816-6000 (Call Collect)
December 9, 1999
3
<PAGE> 1
EXHIBIT (A)(8)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
Social Security Numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer Identification Numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
------------------------------------------------------------------
<TABLE>
<S> <C> <C>
GIVE THE SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- ---------------------------------------------------------------------
1. Individual The individual
2. Two or more individuals (joint The actual owner of the ac-
account) count or, if combined funds,
the first individual on the
account(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings The grantor-trustee(1)
trust account (grantor is also
trustee)
b. So-called trust account that The actual owner(1)
is not a legal or valid trust
under state law
5. Sole proprietorship The owner(3)
- ---------------------------------------------------------------------
GIVE THE EMPLOYER IDEN-
FOR THIS TYPE OF ACCOUNT: TIFICATION NUMBER OF --
- ---------------------------------------------------------------------
6. A valid trust, estate, or The legal entity (Do not
pension trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated in
the account title.)(4)
7. Corporate The corporation
8. Partnership The partnership
9. Association, club, religious, The organization
charitable, or other tax-exempt
organization
10. A broker or registered nominee The broker or nominee
11. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a state
or local government, school
district, or prison) that
receives agricultural program
payments
</TABLE>
------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's Social Security Number.
(3) Show the name of the owner. The name of the business or the "doing business
as" name may also be entered. Either the Social Security Number or the
Employer Identification Number may be used.
(4) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
OBTAINING A NUMBER
If you do not have a Taxpayer Identification Number ("TIN") or you do not know
your number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and apply
for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on all dividend and
interest payments and on broker transactions include the following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under Section 501(a), or an individual
retirement account, or a custodian account under Section 403(b)(7) if the
account satisfies the requirements of Section 401(f)(2).
- - The United States or any agency or instrumentality thereof.
- - A state, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
- - An international organization, or any agency or instrumentality thereof.
- - A registered dealer in securities or commodities registered in the United
States, the District of Columbia, or a possession of the United States.
- - A real estate investment trust.
- - A common trust fund operated by a bank under Section 584(a).
- - An exempt charitable remainder trust, or a non-exempt trust described in
Section 4947(a)(1).
- - An entity registered at all times during the tax year under the Investment
Company Act of 1940.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding including the following:
- - Payments to nonresident aliens subject to withholding under Section 1441.
- - Payments to partnerships not engaged in a trade or business in the United
States, and that have at least one nonresident alien partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
- - Section 401(K) distributions made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including the exempt-interest dividends under
Section 852).
- - Payments described in Section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under Section 1451.
- - Payments made by certain foreign organizations.
Exempt payees described above should file the Substitute Form W-9 to avoid
possible erroneous backup withholding. Complete the Substitute Form W-9 as
follows:
ENTER YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ACROSS THE FACE OF
THE FORM, SIGN, DATE, AND RETURN THE FORM TO THE PAYER.
Certain payments other than interest, dividends, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see Sections 6041, 6041A, 6042, 6044, 6045, 6049,
6050A and 6050N and the regulations thereunder.
PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes and to help verify the accuracy of tax returns. Payers
must be given the numbers whether or not recipients are required to file tax
returns. Payers must generally withhold 31% of taxable interest, dividend, and
certain other payments to a payee who does not furnish a taxpayer identification
number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your correct taxpayer identification number to a requester, you
are subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make a
false statement with no reasonable basis that results in no imposition of backup
withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
(4) MISUSE OF TAXPAYER IDENTIFICATION NUMBERS. -- If the requester discloses or
uses taxpayer identification numbers in violation of Federal law, the requester
may be subject to civil and criminal penalties.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE.
<PAGE> 1
EXHIBIT (A)(9)
INTERNATIONAL GAME TECHNOLOGY COMMENCES $21 PER SHARE CASH TENDER OFFER FOR UP
TO 11 MILLION SHARES
RENO, Nev., Dec. 9/PRNewswire/ -- International Game Technology (NYSE:
IGT -- news) commenced today its tender offer for up to 11 million shares of IGT
common stock at $21 per share, representing approximately 13% of the Company's
outstanding shares. The offer will expire at 12:00 midnight, New York City time,
on Friday, January 7, 2000, unless it is extended by the Company.
The terms of the tender offer will be described more fully in the offering
materials to be distributed to IGT's stockholders. Under the terms of the tender
offer, IGT's stockholders will be given the opportunity to sell up to 11 million
shares of IGT common stock at $21 per share.
If more than 11 million shares are tendered, and IGT does not elect to acquire
such additional shares, there will be a proration. The tender offer will not be
contingent upon any minimum number of shares being tendered.
The Board of Directors of IGT is not making any recommendation to stockholders
as to whether or not they should tender any shares pursuant to the offer.
The Company has retained Salomon Smith Barney to act as its financial advisor
and dealer manager for the tender offer.
Statements in this release which are not historical facts are "forward-looking"
statements and "safe harbor statements" under the Private Securities Litigation
Reform Act of 1995 that involve risks and/or uncertainties, including risks
and/or uncertainties as described in the Company's public filings with the
Securities and Exchange Commission.
IGT is a world leader in the design, development and manufacture of
microprocessor-based gaming products and software systems in all jurisdictions
where gaming is legal.
<PAGE> 1
EXHIBIT (A)(10)
[IGT LETTERHEAD]
DECEMBER 9, 1999
TO OUR STOCKHOLDERS:
International Game Technology (the "Company") is offering to purchase from
its stockholders up to 11,000,000 shares, or approximately 13%, of its
outstanding Common Stock. The purchase price will be $21.00 per share. The offer
is explained in detail in the enclosed Offer to Purchase and Letter of
Transmittal. If you wish to tender your shares, instructions on how to tender
shares are provided in the enclosed materials. We encourage you to read these
materials carefully before making any decision with respect to the offer.
Neither the Company nor your Board of Directors makes any recommendation to any
stockholder whether to tender all or any shares.
Please note that the offer is scheduled to expire at 12:00 midnight, New
York City time, on Friday, January 7, 2000, unless extended by the Company. If
you have any questions regarding the offer or need assistance in tendering your
shares or additional copies of the enclosed materials, please call Georgeson
Shareholder Communications Inc., the Information Agent for the offer, at (800)
223-2064, or Salomon Smith Barney, the Dealer Manager for the offer, at (212)
816-6000 (you may call collect).
/s/ Charles N. Mathewson
Charles N. Mathewson
Chairman of the Board and
Chief Executive Officer
<PAGE> 1
EXHIBIT (g)(1)
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS PAGE
----
<S> <C>
Independent Auditors' Report 35
Consolidated Statements of Income for the
years ended October 2, 1999, September 30, 1998 and 1997 36
Consolidated Balance Sheets, at October 2, 1999 and September 30, 1998 37
Consolidated Statements of Cash Flows for the
years ended October 2, 1999, September 30, 1998 and 1997 39
Consolidated Statements of Changes in Stockholders'
Equity for the years ended October 2, 1999, September 30, 1998 and 1997 41
Notes to Consolidated Financial Statements 42
</TABLE>
34
<PAGE> 2
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 (the "Company") as of October 2, 1999 and
September 30, 1998 and the related consolidated statements of income, cash flows
and changes in stockholders' equity for each of the three years in the period
ended October 2, 1999. 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 these
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 the Company as of October 2, 1999
and September 30, 1998, and the results of its operations and its cash flows for
each of the three years in the period ended October 2, 1999 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 10, 1999
35
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------
OCTOBER 2, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
---------- ------------- -------------
(Amounts in thousands except per share amounts)
<S> <C> <C> <C>
REVENUES
Product sales $ 576,598 $ 477,024 $ 461,150
Gaming operations 353,064 347,099 282,820
--------- --------- ---------
Total revenues 929,662 824,123 743,970
--------- --------- ---------
COSTS AND EXPENSES
Cost of product sales 365,948 279,337 256,480
Cost of gaming operations 142,497 158,528 145,245
Selling, general and administrative 129,211 105,945 98,380
Depreciation and amortization 23,955 18,635 11,846
Research and development 45,462 38,066 31,074
Provision for bad debts 8,153 4,735 9,508
Impairment of assets and restructuring charges 98,118 -- --
--------- --------- ---------
Total costs and expenses 813,344 605,246 552,533
--------- --------- ---------
INCOME FROM OPERATIONS 116,318 218,877 191,437
--------- --------- ---------
OTHER INCOME (EXPENSE)
Interest income 55,525 45,346 41,738
Interest expense (72,764) (41,049) (30,422)
Gain on investments 5,438 1,031 12,885
Gain (loss) on the sale of assets (562) 10,115 (24)
Other (2,562) 212 (2,989)
--------- --------- ---------
Other income (expense), net (14,925) 15,655 21,188
--------- --------- ---------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 101,393 234,532 212,625
PROVISION FOR INCOME TAXES 36,081 82,086 75,378
--------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 65,312 152,446 137,247
EXTRAORDINARY LOSS ON EARLY REDEMPTION OF
DEBT, NET OF INCOME TAX BENEFIT OF $1,640 (3,254) -- --
--------- --------- ---------
NET INCOME $ 62,058 $ 152,446 $ 137,247
========= ========= =========
BASIC EARNINGS PER SHARE
Income before extraordinary item $ 0.65 $ 1.35 $ 1.14
Extraordinary loss (0.03) -- --
--------- --------- ---------
Net income $ 0.62 $ 1.35 $ 1.14
========= ========= =========
DILUTED EARNINGS PER SHARE
Income before extraordinary item $ 0.65 $ 1.33 $ 1.13
Extraordinary loss (0.03) -- --
--------- --------- ---------
Net income $ 0.62 $ 1.33 $ 1.13
========= ========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 99,461 113,064 120,715
WEIGHTED AVERAGE COMMON AND POTENTIAL
SHARES OUTSTANDING 100,238 114,703 121,829
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
36
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 426,343 $ 175,413
Investment securities, at market value 18,546 19,354
Accounts receivable, net of allowances for doubtful
accounts of $8,904 and $5,512 193,479 189,521
Current maturities of long-term notes and contracts
receivable, net of allowances 74,987 63,022
Inventories, net of allowances for obsolescence
of $23,901 and $18,574:
Raw materials 60,616 73,749
Work-in-process 4,902 3,746
Finished goods 51,094 55,659
----------- -----------
Total inventories 116,612 133,154
----------- -----------
Investments to fund liabilities to jackpot winners 27,702 41,216
Deferred income taxes 23,977 16,517
Assets held for sale 42,292 --
Prepaid expenses and other 51,302 32,346
----------- -----------
TOTAL CURRENT ASSETS 975,240 670,543
----------- -----------
LONG-TERM NOTES AND CONTRACTS RECEIVABLE,
NET OF ALLOWANCES AND CURRENT MATURITIES 60,870 37,750
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land 19,938 19,406
Buildings 76,050 71,136
Gaming operations equipment 87,499 73,222
Manufacturing machinery and equipment 114,912 109,576
Leasehold improvements 5,361 4,955
----------- -----------
Total 303,760 278,295
Less accumulated depreciation and amortization (121,644) (109,542)
----------- -----------
Property, plant and equipment, net 182,116 168,753
----------- -----------
INVESTMENTS TO FUND LIABILITIES TO JACKPOT WINNERS 235,230 369,427
DEFERRED INCOME TAXES 89,474 131,708
INTANGIBLE ASSETS 152,036 131,552
OTHER ASSETS 70,094 33,895
----------- -----------
TOTAL ASSETS $ 1,765,060 $ 1,543,628
=========== ===========
</TABLE>
37
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
(Dollars in thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term notes
payable and capital lease obligations $ 3,278 $ 30,311
Accounts payable 55,705 57,277
Jackpot liabilities 41,130 50,659
Accrued employee benefit plan liabilities 23,746 17,512
Accrued interest 30,684 1,106
Other accrued liabilities 58,013 43,675
----------- -----------
TOTAL CURRENT LIABILITIES 212,556 200,540
LONG-TERM NOTES PAYABLE AND CAPITAL
LEASE OBLIGATIONS, NET OF CURRENT MATURITIES 990,436 322,510
LONG-TERM JACKPOT LIABILITIES 316,826 479,217
OTHER LIABILITIES 3,024 85
----------- -----------
TOTAL LIABILITIES 1,522,842 1,002,352
----------- -----------
COMMITMENTS AND CONTINGENCIES (See Note 13)
STOCKHOLDERS' EQUITY
Common stock, $.000625 par value; 320,000,000
shares authorized; 152,871,297 and 152,586,560
shares issued 96 95
Additional paid-in capital 261,941 256,656
Retained earnings 886,392 827,542
Treasury stock; 65,515,867 and 43,721,200 shares, at cost (897,234) (535,797)
Accumulated other comprehensive loss (8,977) (7,220)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 242,218 541,276
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,765,060 $ 1,543,628
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
38
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------
OCTOBER 2, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
---------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 62,058 $ 152,446 $ 137,247
--------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss on debt retirement 4,894 -- --
Depreciation and amortization 52,330 41,468 35,024
Amortization of discounts and deferred offering costs 879 -- --
Provision for bad debts 8,153 4,735 9,508
Impairment of assets and restructuring charges 98,118 -- --
Provision for inventory obsolescence 19,185 9,173 10,022
Gain on investment securities and fixed assets (4,876) (11,146) (12,861)
Common stock awards 1,005 1,973 2,636
(Increase) decrease in assets, net of effects
from acquisitions of businesses:
Receivables 17,257 8,585 (25,166)
Inventories (23,308) (54,664) (14,260)
Prepaid expenses and other (21,867) (21,696) 6,875
Other assets (8,841) 6,473 467
Net deferred income tax asset, net of tax
benefit of employee stock plans 38,165 (22,343) (29,357)
Increase in accounts payable and accrued liabilities,
net of effects from acquisitions of businesses 13,481 6,187 11,253
Earnings of unconsolidated affiliates (in excess of)
less than distributions 4,806 (14,042) (13,172)
Other -- (23) (134)
--------- --------- ---------
Total adjustments 199,381 (45,320) (19,165)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 261,439 107,126 118,082
--------- --------- ---------
</TABLE>
39
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------
OCTOBER 2, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
----------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property, plant and equipment $ (17,751) $ (16,828) $ (33,088)
Proceeds from sale of property, plant and equipment 2,988 24,452 6,579
Purchase of investment securities (12,510) (15,191) (27,898)
Proceeds from sale of investment securities 11,957 12,528 78,338
Proceeds from investments to fund liabilities
to jackpot winners 194,957 40,286 36,100
Purchase of investments to fund liabilities
to jackpot winners (43,589) (102,122) (113,224)
Investment in unconsolidated affiliates (26,229) (1,422) (3,379)
Acquisition of businesses (198,860) (181,764) --
----------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (89,037) (240,061) (56,572)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 1,636,276 624,199 63,185
Principal payments on debt (1,013,484) (430,018) (11,425)
Payments on jackpot liabilities (259,280) (40,286) (36,100)
Collections from systems to fund jackpot liabilities 86,565 138,442 141,467
Proceeds from employee stock plans 3,693 7,484 3,671
Purchases of treasury stock (361,419) (122,180) (225,474)
Penalties paid on early retirement of debt (4,658) -- --
Payments of cash dividends (6,474) (13,594) (14,526)
----------- --------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 81,219 164,047 (79,202)
----------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (2,691) (7,470) (437)
----------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 250,930 23,642 (18,129)
CASH AND CASH EQUIVALENTS AT:
BEGINNING OF YEAR 175,413 151,771 169,900
----------- --------- ---------
END OF YEAR $ 426,343 $ 175,413 $ 151,771
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
40
<PAGE> 8
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------
OCTOBER 2, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
---------- ------------- -------------
(Amounts in thousands)
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of year
152,587; 151,883; and 150,690 shares $ 95 $ 95 $ 94
Employee stock plans
284; 704; and 1,193 shares 1 -- 1
--------- --------- ---------
BALANCE AT END OF YEAR
152,871 shares at 1999 $ 96 $ 95 $ 95
========= ========= =========
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year $ 256,656 $ 243,950 $ 237,365
Employee stock plans 3,710 7,484 3,671
Common stock awards 1,005 1,973 2,636
Tax benefit of employee stock plans 570 3,249 278
--------- --------- ---------
BALANCE AT END OF YEAR $ 261,941 $ 256,656 $ 243,950
========= ========= =========
RETAINED EARNINGS
Balance at beginning of year $ 827,542 $ 688,545 $ 565,491
Dividends declared (3,208) (13,449) (14,193)
Net income 62,058 152,446 137,247
--------- --------- ---------
BALANCE AT END OF YEAR $ 886,392 $ 827,542 $ 688,545
========= ========= =========
TREASURY STOCK
Balance at beginning of year $(535,797) $(413,617) $(188,143)
Purchases of treasury stock (361,437) (122,180) (225,474)
--------- --------- ---------
BALANCE AT END OF YEAR $(897,234) $(535,797) $(413,617)
========= ========= =========
ACCUMULATED OTHER COMPREHENSIVE INCOME (EXPENSE) (a)
Balance at beginning of year $ (7,220) $ 874 $ 8,393
Unrealized gains (losses) on securities, net of
reclassification adjustment (see Note 15) (2,340) 512 (5,497)
Foreign currency translation adjustments 583 (8,606) (2,022)
--------- --------- ---------
BALANCE AT END OF YEAR $ (8,977) $ (7,220) $ 874
========= ========= =========
COMPREHENSIVE INCOME (A)
Net income $ 62,058 $ 152,446 $ 137,247
Unrealized gains (losses) on securities, net of
reclassification adjustment (see Note 15) (2,340) 512 (5,497)
Foreign currency translation adjustments 583 (8,606) (2,022)
--------- --------- ---------
COMPREHENSIVE INCOME $ 60,301 $ 144,352 $ 129,728
========= ========= =========
</TABLE>
- ----------------
(a) All items of comprehensive income and other comprehensive income are
displayed net of tax effects.
The accompanying notes are an integral part of
these consolidated financial statements
41
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
International Game Technology (referred throughout these notes, together with
its consolidated subsidiaries where appropriate, as "IGT," "the Company," "we,"
"our" and "us") was incorporated in December 1980 to acquire the gaming licensee
and operating entity, IGT, and to facilitate our initial public offering. We
operate principally in two lines of business: the development, manufacturing,
marketing and distribution of gaming products (product sales) and development,
marketing and the operation of wide-area progressive systems and gaming
equipment leasing (gaming operations). Our revenues are generated in the US and
internationally in Africa, Australia, Europe, Japan, South America and the
United Kingdom.
Gaming Product Sales
IGT manufactures domestically a broad range of microprocessor-based gaming
machines, consisting of traditional spinning reel slot machines, video gaming
machines and government-sponsored and other video gaming devices. For our
domestic and certain international markets, we offer 400 recognized trademarked
game themes. We typically sell our machines directly or through distributors to
casino operators, but may in certain circumstances finance the sale or lease of
equipment to the operator.
Gaming machines for the casino markets in Europe, South Africa and South America
are similar to the spinning reel and video games in the North American markets.
Features differ in each market but the games are generally multiple coin games
with random outcomes paid in coins returned to the customer. In some
jurisdictions, the machines pay out in the form of tickets, vouchers or tokens,
rather than coins. Gaming machines in Australia, Japan and the United Kingdom
markets, however, are produced locally and differ substantially from domestic
machines.
In addition to gaming machines, IGT develops and sells computerized casino
management systems which provide casino operators with slot and table game
accounting, player tracking and specialized bonusing capabilities. We also
develop and sell specialized proprietary systems to allow the lottery
authorities to monitor video lottery terminals. We derive revenue related to the
operation of these systems and collect license and franchise fees for the use of
the systems.
Gaming Operations
Approximately 4% of the domestic installed base of all gaming machines generate
recurring revenue including wide-area progressive systems and stand-alone
machines in which the manufacturer participates in the revenue from the machine
on a percentage or fee basis. Wide-area progressive systems are
electronically-linked, inter-casino systems that link gaming machines to a
central computer, allowing the system to build a "progressive" jackpot with
every wager made throughout the system until a player hits a winning
combination. In the North American market, IGT estimates it holds more than a
70% share of the installed base of these machines.
We have developed and operated wide-area progressive systems for over 10 years
under such brand names as Jeopardy!, Megabucks, Quartermania and Wheel of
Fortune. Wide-area progressive systems are designed to increase gaming machine
play for participating casinos by giving players the opportunity to win larger
or more frequent jackpots than on machines not linked to progressive systems.
Win (net earnings to the operator) per machine on machines linked to progressive
systems are generally higher than on stand-alone machines.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all of its majority-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.
42
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
PRODUCT SALES
IGT makes product sales for cash, on normal credit terms of 90 days or less, and
over longer term installments. Generally, sales are recorded when the products
are shipped and title passes to the customer.
GAMING OPERATIONS
The following table shows the revenues from gaming operations.
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------
OCTOBER 2, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
---------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Proprietary systems $320,364 $318,499 $253,953
Lease operations 32,700 28,600 28,867
-------- -------- --------
Total $353,064 $347,099 $282,820
======== ======== ========
</TABLE>
Gaming operations revenues consist of revenues relating to the operation of the
proprietary systems, 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. IGT operates several proprietary systems in accordance with
joint venture agreements and accounts for this activity under the equity method.
IGT's portion of joint venture related income, net of expenses, is also included
in gaming operations revenue.
IGT's linked proprietary systems are operated domestically in Colorado,
Louisiana, Michigan, Mississippi, Missouri, Nevada, New Jersey, South Dakota and
Native American casinos, and internationally in Iceland. Stand alone versions of
some of the MegaJackpots games are also operated domestically in Colorado,
Connecticut, Illinois, Indiana, Louisiana, Nevada and on cruise ships, as well
as internationally in Ontario and Quebec.
The operation of linked progressive systems varies among jurisdictions as a
result of different gaming regulations. In all jurisdictions, the casinos pay a
percentage of the handle to fund the progressive jackpot. Funding of the
progressive jackpot differs by jurisdiction but is generally administered by
IGT. Jackpots are currently paid in equal installments over a 20 to 31 year
period or winners can elect to receive the discounted value of the jackpot in
lieu of annual installments. Jackpots on some of our newer MegaJackpots games
are paid out at the time they are won. In Atlantic City, the progressive jackpot
fund is administered by a trust managed by representatives of the participating
casinos. The trust records a liability to IGT for an annual casino licensing fee
as well as an annual machine rental fee for each machine. In Colorado, funding
of progressive jackpots is administered by a separate fund managed by IGT.
Progressive system lease fees are paid to IGT from this fund. A linked
progressive system is also operated by a trust in Iowa. IGT derives revenue
based on trust profits.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Research and
development performed for specific customers is charged to cost of product sales
when the related sale is made.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include operating cash as well as cash required for
funding current progressive systems jackpot payments and 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.
43
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
INVESTMENT SECURITIES
Our investment securities are classified as available-for-sale and stated at
market value. Unrealized gains and losses, net of income tax effects, are
excluded from income and reported as a component of accumulated other
comprehensive income. Market value is determined by the most recently traded
price of the security at the balance sheet date. Net realized gains or losses
are determined on the specific identification cost method.
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:
Buildings 39 to 40 years
Gaming operations equipment 2 1/2 to 5 years
Manufacturing machinery and equipment 3 to 15 years
Leasehold improvements Term of lease
Excess of cost over net assets acquired 40 years
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.
LONG-LIVED ASSETS
We review the carrying amount of long-lived assets and certain identifiable
intangibles whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In fiscal 1999, our review
of the recoverability of certain long-lived and intangible assets resulted in
charges to income for the estimated impairment of these assets (see Note 7).
INVESTMENTS TO FUND LIABILITIES TO JACKPOT WINNERS
These investments represent discounted US Treasury Securities purchased to meet
obligations for making payments to linked progressive systems jackpot winners.
We have both the intent and ability to hold these investments to maturity and,
therefore, classify them as held-to-maturity. Accordingly, these investments are
stated at cost, adjusted for amortization of premiums and accretion of discounts
over the term of the security using the interest method. Securities in this
portfolio have maturity dates through 2028. Certain events during fiscal 1999
prompted IGT to sell a portion of these investments prior to maturity (see
Note 4).
OTHER ASSETS
Other assets are primarily comprised of investments in joint ventures which are
accounted for under the equity method and deferred offering costs related to
Senior Notes issued in May 1999 (see Note 8).
Other assets also includes deposits and certain investments.
EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of common
and potential shares outstanding.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
44
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The functional currency of certain of IGT's international subsidiaries is the
local currency. For those subsidiaries, assets and liabilities are translated at
exchange rates in effect at the balance sheet date, and income and expense
accounts at average exchange rates during the year. Resulting translation
adjustments are recorded directly to accumulated other comprehensive income
within stockholders' equity. Gains and losses resulting from foreign currency
transactions are recorded in income. For subsidiaries whose functional currency
is the US dollar, gains and losses on non-US dollar denominated assets and
liabilities are recorded in income.
DERIVATIVES
IGT uses derivative financial instruments to reduce our exposure resulting from
fluctuations in foreign exchange rates and interest rates. Derivative financial
instruments are used to minimize our net exposure, by currency, related to the
foreign currency denominated monetary assets and liabilities of our operations.
These gains and losses are included in income. From time to time, we may hedge
firm foreign currency commitments by entering into forward exchange contracts.
Gains and losses on these hedges are included as a component of the hedged
transaction when recorded. During fiscal 1999, IGT used interest rate swap
agreements to effectively change a variable rate liability to a fixed rate.
Amounts paid under interest rate swap agreements are accrued as interest rates
change and are recognized over the life of the agreement as an adjustment to
interest expense. The counterparties to each of these agreements are major
commercial banks. We believe that losses related to credit risk are remote.
RECENTLY ISSUED ACCOUNTING STANDARDS
On June 30, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging activities and is
effective for the first quarter of our fiscal year ending September 29, 2001. We
believe that adoption of this statement will not have a material impact on our
financial condition or results of operations.
RECLASSIFICATIONS
Certain amounts in the 1998 and 1997 consolidated financial statements have been
reclassified to be consistent with the presentation used in fiscal year 1999.
YEAR END
IGT changed its fiscal year end to the Saturday closest to September 30,
beginning with the fiscal year ended October 2, 1999. Similarly, each quarter
will end on the Saturday closest to the last day of the quarter end month.
2. ACQUISITIONS
In September 1999, we completed the purchase of Sodak Gaming, Inc. ("Sodak"), a
South Dakota-based distributor of casino gaming products and software systems to
Native American casino and gaming operators in the US. The purchase method of
accounting for business combinations was applied to the Sodak acquisition.
Accordingly, the aggregate purchase price of $198.9 million was allocated to the
net assets of $91.3 million based on estimated fair values of the tangible
assets and liabilities at the date of acquisition. The Miss Marquette Iowa
riverboat and associated real property and assets was included in the purchase
price and net assets as an asset held for sale and was subsequently sold for
$41.7 million. We are substantially complete with our evaluation of the fair
values of these assets and liabilities and do not anticipate material
adjustments in fiscal 2000. The excess of the purchase price over the net assets
acquired totaled $107.6 million. This acquisition was funded primarily by the
issuance of Senior Notes in May 1999. Results of Sodak since the closing of the
acquisition are included in the results of operations for the year.
45
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
The following unaudited pro forma financial information is presented as if the
Sodak acquisition had been made at the beginning of fiscal 1998 presented:
<TABLE>
<CAPTION>
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
(Dollars in thousands)
<S> <C> <C>
Total revenues $963,437 $850,028
Income before extraordinary item 65,698 144,486
Net income 62,444 144,486
Earnings per share:
Basic $ 0.63 $ 1.28
Diluted $ 0.62 $ 1.26
</TABLE>
In June 1999, we made an investment in Access Systems Pty., LTD ("Access") of
Sydney, Australia. During fiscal 1999, we owned a minority interest in Access.
We also held options to purchase additional shares and notes convertible into
capital stock of Access. We used the equity method of accounting for this
investment. Subsequent to year end, IGT has elected to convert its equity
interests to a debt instrument in fiscal 2000.
In March 1998, we purchased Barcrest Limited ("Barcrest"), a Manchester,
England-based manufacturer and supplier of gaming related amusement devices and
purchased certain assets of Olympic Amusements Pty. Limited ("Olympic"), a
manufacturer and supplier of electronic gaming machines, gaming systems and
other gaming equipment and services to the Australian gaming market. The
purchase method of accounting for business combinations was applied to the
Barcrest and Olympic acquisitions. Accordingly, the aggregate purchase price of
$181.8 million was allocated to the net assets of $76.5 million based on
estimated fair values of the tangible assets, intangible assets and liabilities
at the dates of acquisition. The excess of the purchase price over the net
assets acquired, totaled $105.3 million (see Note 7). These acquisitions were
funded primarily with additional borrowings on a line of credit, as well as
long-term borrowings by our Australian subsidiary.
3. INVESTMENT SECURITIES
A summary of investment securities at October 2, 1999 and September 30, 1998
follows:
<TABLE>
<CAPTION>
GROSS GROSS
NET UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------- ---------- ---------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
OCTOBER 2, 1999
US government obligations $10,010 $ -- $ (60) $ 9,950
Equity securities 10,083 -- (1,487) 8,596
------- --------- ------- -------
Total investment securities $20,093 $ -- $(1,547) $18,546
======= ========= ======= =======
SEPTEMBER 30, 1998
Total equity securities $17,301 $ 3,009 $ (956) $19,354
======= ========= ======= =======
</TABLE>
At October 2, 1999, debt securities had maturity dates ranging from two months
to 15 years.
The proceeds from sales of available-for-sale securities were $12.0 million,
$12.5 million, and $78.3 million for fiscal 1999, 1998 and 1997. The gross
realized gains were $5.9 million, $1.1 million, and $13.6 million for fiscal
1999, 1998 and 1997. The gross realized losses were $27,000, $187,000 and
$574,000 for fiscal 1999, 1998 and 1997. In fiscal 1999, we also recognized a
$236,000 loss on an equity security deemed to be permanently impaired.
46
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
4. INVESTMENTS TO FUND LIABILITIES TO JACKPOT WINNERS
A summary of investments held to fund liabilities to jackpot winners at October
2, 1999 and September 30, 1998 follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ------------------- FAIR
COST GAINS LOSSES VALUE
--------- ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
OCTOBER 2, 1999
Total US government obligations $262,932 $10,202 $(4,892) $268,242
======== ======= ======= ========
SEPTEMBER 30, 1998
Total US government obligations $410,643 $59,383 $(4,126) $465,900
======== ======= ======= ========
</TABLE>
Federal legislation passed in October 1998 permits jackpot winners to receive
the discounted value of progressive jackpots won in lieu of annual installments.
For jackpots won prior to the effective date of the legislation, the winner was
able to make this election after July 1, 1999. Upon a winner's election after
July 1, 1999, investments held by IGT to fund the winner's liability were sold
to settle the liability. The offer for these past winners to elect a single cash
payment has now expired and we do not anticipate additional sales of these held
to maturity investments.
The proceeds from sales of held-to-maturity securities were $154.1 million for
fiscal 1999. The gross realized gains were $5.7 million. The gross realized
losses were $2.0 million. All proceeds from the sale of these securities were
paid to jackpot winners. Therefore, the net realized gain was offset by an equal
loss on the settlement of winner liabilities.
5. NOTES AND CONTRACTS RECEIVABLE
IGT 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.
IGT has provided loans, principally for financial assistance, to several
customers. With the recent acquisition of Sodak, our portfolio of this type of
loan has increased. The balance of such loans totaled $18.5 million at October
2, 1999 and $2.1 million at September 30, 1998. Allowances for doubtful loans at
October 2, 1999 were $58,000 and zero at September 30, 1998. These loans are
generally for terms of one to five years with interest at prevailing rates. The
following table represents the estimated future collections of notes and
contracts receivable, net of allowances, at October 2, 1999.
<TABLE>
<CAPTION>
FISCAL YEAR ESTIMATED RECEIPTS
----------- ------------------
(Dollars in thousands)
<S> <C>
2000 $ 74,987
2001 40,145
2002 10,687
2003 3,999
2004 5,650
Thereafter 389
--------
$135,857
========
</TABLE>
47
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
At October 2, 1999 and September 30, 1998, the following allowances for doubtful
notes and contracts were netted against current and long-term maturities:
<TABLE>
<CAPTION>
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
(Dollars in thousands)
<S> <C> <C>
Current $ 14,157 $ 10,602
Long-term 5,497 6,126
--------- ---------
$ 19,654 $ 16,728
========= =========
</TABLE>
6. CONCENTRATIONS OF CREDIT RISK
The financial instruments that potentially subject us to concentrations of
credit risk consist principally of cash and cash equivalents and accounts,
contracts, and notes receivable. At October 2, 1999, we had bank deposits in
excess of insured limits of approximately $63.2 million.
Product sales and the resulting receivables are concentrated in specific
legalized gaming regions. We also distribute a portion of our products through
third party distributors resulting in significant distributor receivables.
Accounts, contracts, and notes receivable by region as a percentage of total
receivables at October 2, 1999 are as follows:
<TABLE>
<S> <C>
REGION
Nevada 22%
Native American casinos 21%
Other US regions including joint ventures 15%
South America 8%
Atlantic City (distributor and other) 7%
Europe 7%
Australia 6%
Riverboats (greater Mississippi River area) 4%
Other regions (individually less than 3%) 10%
----
Total 100%
===
</TABLE>
In September 1993, we sold our equity ownership interest in CMS-International
("CMS") to Summit Casinos-Nevada, Inc. ("Summit"), whose owners include senior
management of CMS. During fiscal 1999, we remained as guarantor on certain
indebtedness of CMS, which at October 2, 1999, had an aggregate outstanding
balance of $14.4 million, including principal and accrued interest. CMS is now
under new ownership. On November 5, 1999, we purchased the notes from the lender
and restructured the terms with the new owners. The revised notes call for
monthly payments of principal and interest and have a maturity date of December
31, 2008. The notes remain collateralized by the respective casino properties.
At this time we do not believe a reserve against these notes is necessary.
48
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
7. INTANGIBLE ASSETS AND RESTRUCTURING CHARGES
Intangible assets consist of the following:
<TABLE>
<CAPTION>
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
(Dollars in thousands)
<S> <C> <C>
Intellectual property $ 1,650 $ 37,129
Excess of cost over net assets acquired 153,209 98,778
--------- ---------
154,859 135,907
Less accumulated amortization (2,823) (4,355)
--------- ---------
$ 152,036 $ 131,552
========= =========
</TABLE>
During fiscal 1999, our intangible assets increased by $107.6 million with the
acquisition of Sodak, offset by a decrease of $86.8 million from the write-off
of intangible assets related to Olympic.
We recorded approximately $100 million in intangible assets with the purchase of
Olympic. Soon after the acquisition, IGT-Australia experienced difficulties
assimilating Olympic with its existing operations due to several factors
including: an employee strike which forced us to accelerate the closure of the
Melbourne plant; the resignation of two Managing Directors and the appointment
of the current Managing Director in March 1999; and significant turnover
throughout the company. As a result, an integration plan was not adequately
designed or implemented. Product difficulties were also experienced, including:
numerous machine platforms and multiple games on these platforms creating
complexity in our Australian product offering; difficulty obtaining game
approval due to regulatory delays; and the inability to meet our customers'
demands for new products due to poor game performance in the market. While we
lost significant market share and customer confidence, our competition prospered
in this strong market. During the third quarter, the current Managing Director
initiated business changes, however, the financial losses worsened. In the
fourth quarter, the forecasted outlook continued to decline and we realized
IGT-Australia would not recover from the difficulties experienced with the
Olympic acquisition. The recoverability of the intangible assets was evaluated.
Based on our review, we determined the impairment of the intangible assets to be
their total unamortized value of $86.8 million and recorded this charge in the
fourth quarter along with restructuring charges of $6.0 million, including a
$4.0 million inventory obsolescence charge and $2.0 million in asset and
facility redundancy costs.
We also recorded impairment charges of $5.3 million in fiscal 1999, relating to
changes in our recoverability assessment of inventory and receivables in Brazil.
The government in Brazil recently rescinded the law allowing gaming devices in
bingo halls throughout this market.
8. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Notes payable and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
(Dollars in thousands)
<S> <C> <C>
Senior notes, net of unamortized discount $990,436 $ 85,700
Lines of credit 3,278 195,913
Australian facility agreement -- 71,196
Capital lease obligations -- 12
-------- --------
Total 993,714 352,821
Less current maturities 3,278 30,311
-------- --------
Long-term notes payable and capital lease
obligations, net of current maturities $990,436 $322,510
======== ========
</TABLE>
49
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
SENIOR NOTES
In May 1999, IGT completed the private placement of $1.0 billion in aggregate
principal amount of Senior Notes pursuant to rule 144A under the Securities Act
of 1933. The Senior Notes were issued in two tranches: $400 million aggregate
principal amount of 7.875% Senior Notes, due May 15, 2004, priced at 99.053% and
$600 million aggregate principal amount of 8.375% Senior Notes, due May 15,
2009, priced at 98.974%. In August 1999, we exchanged all outstanding 7.875%
Senior Notes due 2004 and all outstanding 8.375% Senior Notes due 2009 for
identical registered notes. A portion of the proceeds was used to redeem
previously outstanding 7.84% Senior Notes due 2004. This resulted in a
prepayment penalty of $3.3 million after tax, and is reflected in the income
statement as an extraordinary expense. Additionally, we repaid outstanding
borrowings under both our US revolving bank credit facility and our Australian
credit facility and settled a forward equity share repurchase of 4.9 million
shares of our common stock. The remaining net proceeds from the offering were
used to finance our acquisition of Sodak and to fund working capital and our
common stock repurchase program.
CREDIT FACILITIES
Our domestic and foreign facilities totaled $276.3 million at October 2, 1999.
Of this amount, $3.3 million was drawn, $3.2 million was reserved for letters of
credit and the remaining $269.8 million was available. We are required to comply
with certain covenants contained in these agreements which, among other things,
limit financial commitments we may make without the written consent of the
lenders and require the maintenance of certain financial ratios. At October 2,
1999, we were in compliance with all applicable covenants.
CAPITAL LEASES
At October 2, 1999, we had no equipment under capital lease. The cost of
equipment under capital leases at September 30, 1998 was $155,000 and the
related accumulated depreciation was $103,000.
The following table represents the future fiscal year principal payments of the
notes at October 2, 1999:
<TABLE>
<CAPTION>
FISCAL YEAR PRINCIPAL PAYMENTS
----------- ------------------
(Dollars in thousands)
<S> <C>
2000 $ 3,278
2001 --
2002 --
2003 --
2004 400,000
2005 and after 600,000
----------
Total principal payments 1,003,278
Less unamortized discount (9,564)
----------
Net notes payable $ 993,714
==========
</TABLE>
50
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
9. COMMITMENTS
We lease certain of our facilities and equipment under various agreements for
periods through the year 2006. 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
October 2, 1999.
<TABLE>
<CAPTION>
OPERATING
FISCAL YEAR LEASES
----------- ---------
(Dollars in
thousands)
<S> <C>
2000 $ 6,590
2001 4,618
2002 2,753
2003 803
2004 382
2005 and after 470
--------
Total minimum payments $ 15,616
=========
</TABLE>
Certain of the facility leases provide that we pay utilities, maintenance,
property taxes, and certain other operating expenses applicable to the leased
property, including liability and property damage insurance. The lease term for
our previous manufacturing facility in Reno, Nevada extends through February
2003 and the related payments are included in the schedule above. We have sublet
approximately half of this facility to third parties. The terms of the sublease
agreements call for payments of $3.3 million for the period of October 1999
through February 2003. We previously accrued for the future gross lease payments
of these abandoned buildings, net of anticipated sublease receipts, and do not
anticipate additional impact on our results of operations.
The total rental expense was approximately $6.0 million for fiscal 1999, $5.1
million for fiscal 1998 and $3.6 million for fiscal 1997.
10. JACKPOT LIABILITIES
IGT receives a percentage of the amounts wagered or machine rental and service
fees from the linked progressive systems to fund the related jackpot payments.
Winners may elect to receive a single payment of the discounted value of the
jackpot won or annual installments. Equal annual installments are paid over 20
to 31 years without interest.
The following schedule sets forth the future fiscal year payments for the
jackpot winners under these systems at October 2, 1999:
<TABLE>
<CAPTION>
FISCAL YEAR PAYMENTS
----------- --------
(Dollars in
thousands)
<S> <C>
2000 $ 30,882
2001 27,533
2002 27,533
2003 27,490
2004 27,363
2005 and after 290,860
--------
$431,661
========
</TABLE>
51
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
Jackpot liabilities include discounted payments due to winners for jackpots won
and amounts accrued for jackpots not yet won that are contractual obligations of
IGT. Jackpot liabilities consist of the following:
<TABLE>
<CAPTION>
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
<S> <C> <C>
(Dollars in thousands)
Gross payments due to jackpot winners $ 431,661 $ 691,224
Unamortized discount on payments to jackpot winners (162,609) (277,859)
Accrual for jackpots not yet won 88,904 116,511
--------- ---------
Total jackpot liabilities 357,956 529,876
Less current liabilities (41,130) (50,659)
--------- ---------
Long-term jackpot liabilities $ 316,826 $ 479,217
========= =========
</TABLE>
We amortize the discounts on the jackpot liabilities to interest expense. During
fiscal 1999, 1998 and 1997, we recorded interest expense on jackpot liabilities
of $25.9 million, $25.6 million and $21.2 million. We were required to maintain
cash and investments relating to systems liabilities totaling $54.6 million at
October 2, 1999 and $65.3 million at September 30, 1998.
11. FINANCIAL INSTRUMENTS
IGT uses derivative financial instruments for the purpose of reducing its
exposure to adverse fluctuations in interest and foreign exchange rates. While
these hedging instruments are subject to fluctuations in value, such
fluctuations are generally offset by the value of the underlying exposures being
hedged. The Company is not a party to leveraged derivatives and does not hold or
issue financial instruments for speculative purposes.
Foreign Currency Management
We routinely use forward exchange contracts to hedge our net exposures, by
currency, related to the monetary assets and liabilities of our operations
denominated in non-functional currency. The primary business objective of this
hedging program is to minimize the gains and losses resulting from exchange rate
changes. At October 2, 1999 and September 30, 1998, we had net foreign currency
transaction exposure of $41.7 million and $54.8 million, respectively. In fiscal
1999 and 1998, $38.8 million and $43.7 million was hedged with currency forward
contracts. In addition, from time to time, the Company may enter into forward
exchange contracts to establish with certainty the US dollar amount of future
firm commitments denominated in a foreign currency.
Interest Rate Management
In fiscal 1999, the Company effectively converted variable rate debt in
Australia to fixed rate debt using an interest rate swap agreement with three
counterparties. These swaps, which were required under the Australia facility
agreement, had quarterly interest settlement dates. During fiscal 1999, the
Australia facility agreement was paid in full. As a result, these swaps were
settled. No gains or losses were recorded on the settlement.
Other Off-Balance Sheet Instruments
In the normal course of business, IGT 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. We had performance bonds
outstanding that related to our operation of two lottery systems and a gaming
machine route totaling $2.3 million at October 2, 1999 and $2.2 million at
September 30, 1998. IGT is liable to reimburse the bond issuer in the event the
bond is exercised as a result of our non-performance. We had outstanding letters
of credit, issued under our line of credit (see Note 8), totaling $3.2 million
at October 2, 1999 and $2.9 million at September 30, 1998, which were issued to
insure payment by IGT to certain vendors and governmental agencies. Management
does not expect any material losses to result from these off-balance-sheet
instruments.
52
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
At October 2, 1999, we had no foreign currency contracts to hedge firm
commitments. At September 30, 1998, IGT had foreign currency contracts to hedge
firm commitments in the amount of $1.2 million in Australia. The gain or loss on
these instruments was deferred and was recognized in income when the hedged
transactions occur. At September 30, 1998, the unrealized gains/losses on these
instruments, which mature within six months, were immaterial to the consolidated
financial statements.
The following table presents the carrying amount and estimated fair value of
IGT's financial instruments:
<TABLE>
<CAPTION>
OCTOBER 2, 1999 SEPTEMBER 30, 1998
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $426,343 $426,343 $175,413 $175,413
Investment securities 18,546 18,546 19,354 19,354
Notes and contracts receivable 135,857 125,581 100,772 103,301
Investments to fund liabilities to jackpot
winners 262,932 268,242 410,643 465,900
LIABILITIES
Jackpot liabilities 357,956 363,267 529,876 584,924
Notes payable and capital lease obligations 993,714 955,778 352,821 358,778
FOREIGN CURRENCY CONTRACTS
On balance sheet 38,813 39,860 43,737 43,779
Off balance sheet -- -- 1,200 1,199
</TABLE>
The carrying value of cash and cash equivalents approximates fair value because
of the short-term maturity of those instruments. The estimated fair value of
investment securities and investments to fund liabilities to jackpot winners are
based on quoted market prices. The estimated fair value of jackpot liabilities
is based on quoted market prices of investments which upon maturity will be used
to fund these liabilities. The 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. The estimated fair value of the
registered Senior Notes at October 2, 1999, included in notes payable and
capital lease obligations, is based on quoted market prices for an instrument
with similar terms. At September 30, 1998, the estimated fair value of the
Senior Notes, included in notes payable and capital lease obligations, was based
on the yield required at the respective year end of a private placement of
similar terms and credit valuation. The carrying value of the lines of credit,
also included in notes payable and capital lease obligations, approximates fair
value. The estimated fair value of foreign currency contracts is based on quoted
market prices for an instrument with terms similar to the contract at year end.
53
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
12. EARNINGS PER SHARE
Effective October 1, 1997, the Company adopted SFAS No. 128, "Earnings Per
Share." Weighted average shares for the year ended September 30, 1997 has been
restated in accordance with SFAS No. 128. The following table shows the
reconciliation of basic earnings per share ("EPS") to diluted EPS, for income
before extraordinary item at years ended:
<TABLE>
<CAPTION>
OCTOBER 2, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
---------- ------------- -------------
(Dollars in thousands,
except per share amounts)
<S> <C> <C> <C>
Income before extraordinary item $ 65,312 $152,446 $137,247
======== ======== ========
Weighted average common shares outstanding 99,461 113,064 120,715
Dilutive effect of stock options outstanding 777 1,639 1,114
-------- -------- --------
Weighted average common and potential
shares outstanding 100,238 114,703 121,829
======== ======== ========
Basic earnings per share $ 0.65 $ 1.35 $ 1.14
Diluted earnings per share $ 0.65 $ 1.33 $ 1.13
</TABLE>
Options to purchase 1.3 million, 159,000 and 127,000 shares of common stock at
October 2, 1999, September 30, 1998 and 1997, were not included in the
computation of year-to-date diluted EPS because the options' exercise price was
greater than the average market price of the common shares. We have purchased a
total of 761,000 shares, or approximately 1%, of our outstanding common stock
during the period from October 3, 1999 to November 10, 1999. There were no other
transactions in the same period which would have materially changed the number
of common shares or potential common shares outstanding.
13. CONTINGENCIES
IGT has been named in and has brought lawsuits in the normal course of business.
We do not expect the outcome of these suits, including the lawsuits described
below, to have a material adverse effect on our financial position or results of
future operations.
Ahern
Along with a number of other public gaming corporations, IGT 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. The
Court granted the defendants' motion to transfer venue of the consolidated
action to Las Vegas. 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 an opportunity to win on a
given play. The amended complaint alleges 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 December 1997, the Court denied the motions that would have
dismissed the Consolidated Amended Complaint or that would have stayed the
action pending Nevada gaming regulatory action. The defendants filed their
consolidated answer to the Consolidated Amended Complaint on February 11, 1998.
At this time, motions concerning class certification are pending before the
Court.
54
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
WMS
In May 1994, WMS Industries, Inc. instituted a declaratory judgment action (the
"Model 400 Action") against IGT, in the United States District Court for the
Northern District of Illinois. The action sought a declaration that a certain
patent issued in 1984 and owned by IGT (the "Telnaes Patent") was invalid and
that certain reel-type slot machines then made by WMS did not infringe the
Telnaes Patent. We counterclaimed alleging that the Telnaes Patent was infringed
by WMS' reel-type slot machines.
In September 1996, the Trial Court reached a decision in favor of IGT, finding
the Telnaes Patent valid, finding WMS' model 400 slot machine to infringe the
Telnaes Patent, in which we sought a preliminary and permanent injunction and
treble damages. In July 1999, the US Court of Appeals for the Federal Circuit
affirmed the Trial Court's decision that the Telnaes Patent is valid and that
the WMS model 400 slot machine infringed the patent. The Court affirmed the
damages awarded of approximately $10 million plus accrued interest. Still
unresolved is whether the damages award will be trebled, and whether IGT will be
entitled to collect its attorney's fees and costs from WMS. Trebling of the
damages is dependent on whether the infringement was willful. These issues have
been remanded to the District Court for further findings.
In November 1996, we commenced an action against WMS in the Trial Court seeking
a judgment declaring that WMS' Model 401 slot machine also infringed the Telnaes
patent. In December 1996, the Court granted our motion for a preliminary
injunction and enjoined WMS from the manufacture, use and sale of the Model 401
slot machine. WMS filed a notice of appeal on May 7, 1998. In July 1999, in a
second suit on WMS' Model 401 machine that was heard by the Federal Circuit
Court of Appeals at the same time, the Court reversed the District Court's
granting of a preliminary injunction to IGT prohibiting the make, use or sale of
WMS' Model 401 machine. The Appellate Court ruled that a different
interpretation of the patent claims than that made by the District Court was
appropriate. This case has also been remanded to the District Court for further
findings in view of the Appellate Court's claim interpretation.
Bally
In July 1999, Bally Gaming, Inc. filed a complaint against IGT in the United
States District Court for the District of New Jersey alleging that certain
wide-area progressive system agreements we entered into with customers in
Atlantic City, New Jersey violate federal and New Jersey antitrust laws. The
complaint sought declaratory and injunctive relief and damages. IGT and Bally
executed a memorandum of understanding resolving all outstanding claims and the
complaint was dismissed with prejudice in September 1999.
14. INCOME TAXES
SFAS No. 109 requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Deferred income taxes reflect the net tax
effects of (a) temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes, and (b) operating loss and tax credit carryforwards. The Company
determines the net current deferred tax asset or liability and the net
noncurrent asset or liability separately for federal, state, and foreign
jurisdictions.
55
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
The effective income tax rates differ from the statutory United States federal
income tax rates as follows for the years ended:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------------
OCTOBER 2, 1999 1998 1997
------------------ ------------------ ------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ---- -------- ---- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Taxes at federal statutory rate $ 35,488 35.0% $ 82,086 35.0% $ 74,419 35.0%
Foreign subsidiaries tax 3,657 3.6 591 0.3 (158) 0.0
State income tax, net 2,670 2.6 2,049 0.9 2,084 1.0
Research and development credits (2,192) (2.2) (247) (0.1) -- 0.0
Valuation allowance, IGT-Australia 6,067 6.0 -- 0.0 -- 0.0
Expiration of tax contingencies (5,344) (5.3) (1,163) (0.5) 123 0.1
Adjustment to estimated income tax accruals (3,306) (3.3) 272 0.1 294 0.1
Other, net (959) (0.8) (1,502) (0.7) (1,384) (0.7)
-------- ---- -------- ---- -------- ----
Provision for income taxes $ 36,081 35.6% $ 82,086 35.0% $ 75,378 35.5%
======== ==== ======== ==== ======== ====
</TABLE>
Components of the provision for income taxes were as follows for the years
ended:
<TABLE>
<CAPTION>
SEPTEMBER 30,
OCTOBER 2, ----------------------
1999 1998 1997
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Current
Federal $(11,602) $ 106,431 $ 102,171
State 358 4,657 3,632
Foreign 9,118 2,922 1,652
-------- --------- ---------
Total current (2,126) 114,010 107,455
-------- --------- ---------
Deferred
Federal 30,761 (30,862) (30,283)
State 1,566 (2,149) (308)
Foreign 5,880 1,087 (1,486)
-------- --------- ---------
Total deferred 38,207 (31,924) (32,077)
-------- --------- ---------
Provision for income taxes $ 36,081 $ 82,086 $ 75,378
======== ========= =========
</TABLE>
56
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
OCTOBER 2, SEPTEMBER 30,
1999 1998
--------- ---------
(Dollars in thousands)
<S> <C> <C>
CURRENT DEFERRED TAX ASSETS
Reserves not currently deductible $ 18,819 $ 13,208
Reserve differential for gaming activities -- 2,315
Foreign subsidiaries 883 687
Unrealized loss on investment securities 542 --
Other 3,733 1,062
CURRENT DEFERRED TAX LIABILITIES
Unrealized gain on investment securities -- (719)
Other -- (36)
--------- ---------
NET CURRENT DEFERRED TAX ASSET 23,977 16,517
--------- ---------
NON-CURRENT DEFERRED TAX ASSETS
Reserves not currently deductible 824 --
Reserve differential for gaming activities 64,669 122,407
Foreign subsidiaries 6,161 5,328
State income taxes 3,349 4,368
Amortization of goodwill 28,380 --
Other 3,111 7,655
NON-CURRENT DEFERRED TAX LIABILITIES
Difference between book and tax basis of property (7,027) (5,793)
Amortization of goodwill (1,599) (1,732)
Other (2,327) (525)
--------- ---------
Total net non-current deferred tax asset 95,541 131,708
Valuation allowance (6,067) --
--------- ---------
NET NON-CURRENT DEFERRED TAX ASSET 89,474 131,708
--------- ---------
NET DEFERRED TAX ASSET $ 113,451 $ 148,225
========= =========
</TABLE>
Due to the uncertainty of the realization of certain deferred tax assets related
to IGT-Australia, IGT has established a valuation allowance in the amount of
$6.1 million.
57
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
15. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, which requires the reporting
of comprehensive income and its components in the financial statements. We
adopted this Statement beginning October 1, 1998. This Statement also requires
that we classify items of other comprehensive income by their nature in an
annual financial statement. The components of IGT's other comprehensive income
are as follows:
<TABLE>
<CAPTION>
TAX
BEFORE-TAX (EXPENSE) NET-OF-TAX
AMOUNT OR BENEFIT AMOUNT
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
YEAR ENDED OCTOBER 2, 1999
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period $ 266 $ (93) $ 173
Less: reclassification adjustment for gains (losses)
realized in net income 3,866 (1,353) 2,513
-------- ------- -------
Net unrealized gains (losses) (3,600) 1,260 (2,340)
Foreign currency translation adjustments 897 (314) 583
-------- ------- -------
OTHER COMPREHENSIVE INCOME (EXPENSE) $ (2,703) $ 946 $(1,757)
======== ======= =======
YEAR ENDED SEPTEMBER 30, 1998
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period $ 1,822 $ (638) $ 1,184
Less: reclassification adjustment for gains (losses)
realized in net income 1,034 (362) 672
-------- ------- -------
Net unrealized gains (losses) 788 (276) 512
Foreign currency translation adjustments (13,240) 4,634 (8,606)
-------- ------- -------
OTHER COMPREHENSIVE INCOME (EXPENSE) $(12,452) $ 4,358 $(8,094)
======== ======= =======
YEAR ENDED SEPTEMBER 30, 1997
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period $ 225 $ (79) $ 146
Less: reclassification adjustment for gains (losses)
realized in net income 8,681 (3,038) 5,643
-------- ------- -------
Net unrealized gains (losses) (8,456) 2,959 (5,497)
Foreign currency translation adjustments (3,111) 1,089 (2,022)
-------- ------- -------
OTHER COMPREHENSIVE INCOME (EXPENSE) $(11,567) $ 4,048 $(7,519)
======== ======= =======
</TABLE>
58
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
ACCUMULATED OTHER COMPREHENSIVE INCOME BALANCES
<TABLE>
<CAPTION>
ACCUMULATED
UNREALIZED FOREIGN OTHER
GAINS (LOSSES) CURRENCY COMPREHENSIVE
ON SECURITIES TRANSLATION INCOME
-------------- ----------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
YEAR ENDED OCTOBER 2, 1999
Beginning balance $ 1,334 $(8,554) $(7,220)
Current-period change (2,340) 583 (1,757)
------- ------- -------
Ending balance $(1,006) $(7,971) $(8,977)
======= ======= =======
YEAR ENDED SEPTEMBER 30, 1998
Beginning balance $ 822 $ 52 $ 874
Current-period change 512 (8,606) (8,094)
------- ------- -------
Ending balance $ 1,334 $(8,554) $(7,220)
======= ======= =======
YEAR ENDED SEPTEMBER 30, 1997
Beginning balance $ 6,319 $ 2,074 $ 8,393
Current-period change (5,497) (2,022) (7,519)
------- ------- -------
Ending balance $ 822 $ 52 $ 874
======= ======= =======
</TABLE>
16. EMPLOYEE BENEFIT PLANS
EMPLOYEE INCENTIVE PLANS
IGT provides the following three employee incentive plans: profit sharing and
401(k) plan, cash sharing and management bonus. Total annual contributions from
operating profits for all three plans for the fiscal years ended 1999, 1998 and
1997 were $27.1 million, $26.5 million and $23.6 million.
The profit sharing and 401(k) plan was adopted for IGT employees working in the
US. IGT matches 75% of an employee's contributions up to $1,000. This allows for
maximum annual company matching contributions of $750 to each employee's
account. Participants are 100% vested in their contributions and IGT's matching
contributions. The remaining portion of IGT's contributions vest over a seven
year period of employment.
The cash sharing plan is distributed semi-annually in May and November to all
non IGT-Australia, IGT-Japan and Barcrest-Japan employees. The management
bonuses are paid out annually to key employees throughout the Company.
Effective September 1, 1999, IGT implemented a non-qualified deferred
compensation plan to provide an unfunded incentive compensation arrangement for
eligible management and highly compensated employees. Participants may elect to
defer up to 50% of their annual base salary, 50% of cash sharing, 50% of
discretionary management bonus and 50% of commissions with a minimum deferral of
$2,000. Distributions can be paid out as short-term payments or at retirement.
Retirement benefits can be paid out as a lump sum or in annual installments over
a term of up to 15 years.
59
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
STOCK-BASED COMPENSATION PLANS
IGT has three stock-based compensation plans, which are described below.
Employee Stock Purchase Plan
In 1987, IGT 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 IGT's common stock. The term of each option is 12 months, and the
exercise date is the last day of the option period. Employees who have completed
90 days of service with IGT are eligible. Highly compensated employees receiving
more than $80,000 in annual compensation were excluded from participating in the
Plan in prior years. In March 1999, the shareholders approved an amendment to
the Plan to allow highly compensated employees to participate in the Plan.
Employees who are 5% or more shareholders and employees of certain subsidiaries
are excluded.
An aggregate of 2.4 million 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 October 2, 1999, 614,000 shares were available under this plan.
Restricted Stock Awards
In March 1996, 600,000 shares were issued to six employees at a price of $.01
per share. These restricted stock awards vest in increments over a five year
period. Dividends on the shares issued are paid to the employees. IGT has the
option to repurchase the unvested shares issued to the employees at $.01 per
share if the employees terminate employment with IGT before the shares have
vested.
Stock Option Plans
In 1981, IGT adopted a Stock Option Plan where non-qualified and incentive stock
options may be granted to domestic and foreign employees. Under this Plan, there
were 27.1 million shares available for grant. The Plan expired in December 1996.
In 1993, IGT adopted an additional Stock Option Plan which permits non-qualified
and incentive stock option awards for up to 5.0 million shares and additional
non-qualified stock option awards to non-employee directors for up to 250,000
shares. In March of 1999, shareholders approved an increase in the number of
awards permitted under the 1993 plan to 8.5 million shares.
Options have been granted at fair market value on the date of grant and, except
for non-employee director options, typically vest ratably over five years
although a shorter period may be provided, and expire 10 years subsequent to the
grant.
In February 1997, IGT amended the 1993 Stock Option Plan to permit the grant of
restricted stock awards of a fixed number of shares to participants determined
by IGT's Board of Directors. Restricted stock awarded to a participant may not
be voluntarily or involuntarily sold, assigned, transferred, pledged or
encumbered during the restricted period. Shares awarded to participants in
fiscal 1999, 1998 and 1997 totaled 50,000, 10,000 and 200,000 shares, at a price
of $.01 per share. The shares vest in increments over a five year period.
60
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
At October 2, 1999, options to purchase 3.5 million shares were available for
grant under the plans.
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at September 30, 1996 4,251,035 $12.64
Granted 1,876,361 $18.07
Forfeited or expired (271,557) $13.98
Exercised (299,102) $ 8.56
---------
Outstanding at September 30, 1997 5,556,737 $14.56
Granted 809,617 $23.30
Forfeited or expired (170,984) $17.63
Exercised (617,742) $10.27
---------
Outstanding at September 30, 1998 5,577,628 $16.19
Granted 500,499 $17.83
Forfeited or expired (280,822) $17.57
Exercised (179,636) $20.09
---------
Outstanding at October 2, 1999 5,617,669 $16.43
=========
Options exercisable at October 2, 1999 3,217,047 $15.14
Options exercisable at September 30,
1998 2,540,732 $14.25
1997 2,366,978 $12.76
</TABLE>
61
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
The following table summarizes information for stock options outstanding and
exercisable at October 2, 1999 in order to assess the number and timing of
shares that may be issued and the cash that may be received as a result of
options exercised:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------------------------------- ------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.79 - $12.75 766,532 5.4 $12.05 537,653 $11.98
12.88 - 13.25 1,508,985 6.4 13.24 1,294,385 13.25
13.63 - 17.63 1,575,855 7.3 16.44 821,885 16.08
17.69 - 28.50 1,766,297 8.1 21.05 563,124 21.17
----------- -----------
$ 1.79 - $28.50 5,617,669 7.0 $16.43 3,217,047 $15.14
=========== ===========
</TABLE>
Valuation of Stock-Based Compensation Plans
IGT adopted SFAS No. 123, "Accounting for Stock-Based Compensation" on October
1, 1996. As permitted by SFAS No. 123, the Company continues to apply Accounting
Principles Board Opinion No. 25 to its stock-based compensation. Accordingly, no
compensation expense has been recognized for the stock option and employee stock
purchase plans. The compensation expense that has been charged against income
for the restricted stock award plan was $1.0 million, $2.0 million and $2.6
million for fiscal 1999, 1998 and 1997. SFAS No. 123 requires compensation
expense to be measured based on the fair value of the equity instrument awarded.
If compensation expense for IGT's three stock-based compensation plans had been
determined in accordance with SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts shown below
for the years ended:
<TABLE>
<CAPTION>
SEPTEMBER 30,
OCTOBER 2, --------------------
1999 1998 1997
---------- -------- --------
(Dollars in thousands,
except per share amounts)
<S> <C> <C> <C>
Net income
As reported $62,058 $152,446 $137,247
Pro forma 57,793 146,948 132,506
Basic earnings per share
As reported $ 0.62 $ 1.35 $ 1.14
Pro forma 0.58 1.30 1.10
Diluted earnings per share
As reported $ 0.62 $ 1.33 $ 1.13
Pro forma 0.58 1.28 1.10
Weighted average fair value of options
granted during the year $ 7.76 $ 8.27 $ 6.27
Weighted average fair value of restricted
stock awards granted during the year $ 17.82 $ 23.75 $ 18.24
</TABLE>
The fair value for stock-based compensation was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997: interest rates (zero-coupon US government
issues with an average remaining life of 1.67 years) of 5.5%, 5.6% and 5.6%;
dividend yields of .14%, .47% and .71%; volatility factors of the expected
market price of IGT's common stock of .45, .35 and .44; weighted-average
expected life of stock options of 1.67 years and an expected life of 1.0 years
for employee stock purchases.
62
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
IGT's employee stock based compensation has characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock based compensation.
17. RELATED PARTY TRANSACTIONS
Related party transactions included in the consolidated financial statements are
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
OCTOBER 2, ------------------------
1999 1998 1997
---------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C>
YEARS ENDED
Total revenues $ 97,017 $ 84,994 $ 35,601
AS OF
Accounts receivable $ 29,667 $ 8,205 $ 25,433
Current maturities of long-term notes
and contracts receivable -- -- 1,831
Long-term notes and contracts receivable -- 4 123
</TABLE>
JOINT VENTURES
We operate certain MegaJackpot systems under joint marketing alliances (the
"Ventures") with various gaming or gaming related companies. Activities of these
Ventures include placement of progressive system and other participation games
and pursuit of video lottery opportunities. IGT owns a 50% share in each of the
Ventures and recognized net revenues of $78.3 million during fiscal 1999. During
the year, $62.3 million in asset and expense transfers and $22.3 million in
capital contributions were made to the Ventures. At October 2, 1999, the Company
had accounts receivable balances from these Ventures of $28.2 million. The
largest aggregate amount of indebtedness outstanding at any time during the year
was $28.2 million.
We apply the equity method of accounting to the joint ventures. Summarized
financial information from the Spin for Cash Joint Venture and Master License
Agreement with Anchor Gaming (the "Anchor joint venture"), our largest joint
venture partner, is as follows for the years ended:
<TABLE>
<CAPTION>
OCTOBER 2, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
----------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Revenues $293,460 $246,851 $60,672
Expenses 145,572 117,294 31,202
Operating income 147,888 129,557 29,470
Net income 149,958 130,979 29,148
</TABLE>
63
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
<TABLE>
<CAPTION>
OCTOBER 2, SEPTEMBER 30,
AS OF 1999 1998
----- ----------- -------------
(Dollars in thousands)
<S> <C> <C>
Total assets $199,943 $171,742
Total liabilities 123,133 107,815
Total equity 76,810 63,927
</TABLE>
OTHER RELATED PARTIES
During fiscal 1997, a member of our Board of Directors was an officer of, and
had an equity interest in, a Nevada gaming business from which the Company
recognized revenues of $956,000. He is also a director and officer of the parent
company of additional gaming businesses, from which we recognized revenues of
$18.7 million in fiscal 1999, $19.8 million in fiscal 1998 and $21.5 million in
fiscal 1997. IGT had contracts and accounts receivable balances from these
businesses of $1.5 million at October 2, 1999 and $1.3 million at September 30,
1998. The largest aggregate amount of contracts and accounts receivable
outstanding at anytime during the year was $1.8 million.
18. SUPPLEMENTAL STATEMENT OF CASH FLOWS AND OTHER INFORMATION
SUPPLEMENTAL STATEMENT OF CASH FLOWS
Certain noncash investing and financing activities are not reflected in the
consolidated statements of cash flows.
No notes or capital lease obligations were issued to obtain property, plant and
equipment in fiscal 1999 and 1998. We incurred $12,000 in capital lease
obligations to obtain property, plant and equipment in fiscal 1997.
We manufacture gaming machines which are used on our proprietary systems and are
leased to customers under operating leases. As the net result of transfers
between inventory and fixed assets, property, plant and equipment increased
$32.9 million in fiscal 1999, $17.3 million in fiscal 1998 and $11.0 million in
fiscal 1997.
The Company had dividends declared, but not yet paid, totaling $3.3 million and
$3.4 million at September 30, 1998 and 1997.
The tax benefit of stock options and the employee stock purchase plan totaled
$570,000 in fiscal 1999, $3.2 million in fiscal 1998 and $278,000 in fiscal
1997.
Payments of interest were $42.6 million in fiscal 1999, $41.2 million in fiscal
1998 and $30.5 million in fiscal 1997. Payments for income taxes were $28.0
million in fiscal 1999, $101.2 million in fiscal 1998 and $97.0 million in
fiscal 1997.
In conjunction with acquisitions of businesses during the current year (see Note
2), the fair value of assets acquired totaled $129.7 million and the fair value
of liabilities assumed totaled $38.4 million. In conjunction with acquisitions
of businesses during fiscal 1998, the fair value of assets acquired totaled
$100.1 million and the fair value of liabilities assumed totaled $23.6 million.
STOCK REPURCHASE PLAN
A stock repurchase plan was originally authorized by our Board of Directors in
October 1990. As of November 10, 1999, IGT could purchase an additional 25.7
million shares under the authorization as modified by the Board of Directors.
During fiscal 1999, we repurchased 21.8 million shares for an aggregate purchase
price of $361.4 million. During fiscal 1998, we repurchased 5.5 million shares
for an aggregate purchase price of $122.2 million. During the period of October
3, 1999 through November 10, 1999, we purchased 761,000 shares for an aggregate
purchase price of $14.4 million.
64
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
19. BUSINESS SEGMENTS
IGT operates principally in two lines of business: (1) the development,
manufacturing, marketing and distribution of gaming products, what we refer to
as "Gaming Product Sales," and (2) the development, marketing and operation of
wide-area progressive systems, what we refer to as "Gaming Operations."
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------------
OCTOBER 2, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
REVENUES
Manufacture of gaming products $ 576,598 $ 477,024 $ 461,150
Gaming operations 353,064 347,099 282,820
----------- ----------- -----------
Total $ 929,662 $ 824,123 $ 743,970
=========== =========== ===========
OPERATING PROFIT
Manufacture of gaming products $ (46,913) $ 80,999 $ 105,629
Gaming operations 185,804 172,696 118,638
----------- ----------- -----------
Total 138,891 253,695 224,267
----------- ----------- -----------
Other expense, including interest
expense (37,498) (19,163) (11,642)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM $ 101,393 $ 234,532 $ 212,625
=========== =========== ===========
DEPRECIATION AND AMORTIZATION
Manufacture of gaming products $ 12,386 $ 9,928 $ 4,900
Gaming operations 22,953 18,017 19,683
Corporate 16,991 13,523 10,441
----------- ----------- -----------
Total $ 52,330 $ 41,468 $ 35,024
=========== =========== ===========
IDENTIFIABLE ASSETS
Manufacture of gaming products $ 700,684 $ 638,618 $ 460,104
Gaming operations 594,964 754,849 600,918
Corporate 469,412 150,161 154,030
----------- ----------- -----------
Total $ 1,765,060 $ 1,543,628 $ 1,215,052
=========== =========== ===========
</TABLE>
65
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
IGT's operations are based in the United States and internationally. The table
below presents information as to our operations by these two regions for the
years ended:
<TABLE>
<CAPTION>
SEPTEMBER 30,
OCTOBER 2, ------------------------------
1999 1998 1997
----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
REVENUES
Domestic
Unaffiliated customers $ 666,685 $ 634,695 $ 601,934
Inter-area transfers 39,395 36,809 30,455
International
Unaffiliated customers 262,977 189,428 142,036
Inter-area transfers 10,935 7,023 --
Eliminations (50,330) (43,832) (30,455)
----------- ----------- -----------
Total $ 929,662 $ 824,123 $ 743,970
=========== =========== ===========
OPERATING PROFIT
Domestic $ 223,428 $ 217,180 $ 205,099
International (84,537) 36,515 19,168
----------- ----------- -----------
Total 138,891 253,695 224,267
----------- ----------- -----------
Other expense, including interest
expense (37,498) (19,163) (11,642)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM $ 101,393 $ 234,532 $ 212,625
=========== =========== ===========
IDENTIFIABLE ASSETS
Domestic $ 1,528,934 $ 1,235,868 $ 1,092,317
International 236,126 307,760 122,735
----------- ----------- -----------
Total $ 1,765,060 $ 1,543,628 $ 1,215,052
=========== =========== ===========
</TABLE>
On a consolidated basis we do not recognize intersegment revenues or expenses
upon the transfer of gaming products between subsidiaries. Operating profit is
revenue and interest income related to investments to fund jackpot liabilities
less cost of sales and operating expenses, including related operating
depreciation and amortization, provisions for bad debts, and an allocation of a
portion of selling, general and administrative and research and development
expenses. Other expense includes interest expense, interest income and gain
(loss) on sale of assets.
We did not have sales to a single customer which exceeded 10% of revenues during
fiscal 1999, 1998 or 1997.
66
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST QTR SECOND QTR THIRD QTR FOURTH QTR
---------- ---------- ----------- ----------
(Dollars in thousands, except per share
amounts and stock prices)
<S> <C> <C> <C> <C>
1999
Total revenues $ 221,706 $ 220,871 $ 258,859 $ 228,226
Gross profit 96,319 101,223 118,761 104,914
Income from operations (loss) 48,394 50,429 63,334 (45,839)
Net income (loss) 34,444 33,831 34,267 (40,484)
Diluted earnings (loss) per share $ 0.32 $ 0.32 $ 0.36 $ (0.45)
Stock price
High $ 24-1/2 $ 23-7/16 $ 19-1/2 $ 19-1/4
Low $ 16-1/2 $ 14-3/8 $ 14-11/16 $ 16-3/16
1998
Total revenues $ 165,011 $ 182,090 $ 222,982 $ 254,040
Gross profit 75,800 89,398 106,954 114,103
Income from operations 42,786 53,223 60,210 62,658
Net income 29,665 35,492 45,595 41,694
Diluted earnings per share $ .26 $ .31 $ .40 $ .37
Stock price
High $ 26-13/16 $ 26-3/16 $ 28-9/16 $ 28-7/8
Low $ 21-7/8 $ 23-3/16 $ 23-5/8 $ 18-1/2
1997
Total revenues $ 189,381 $ 164,371 $ 163,849 $ 226,369
Gross profit 86,892 78,084 75,918 101,347
Income from operations 49,774 40,023 41,899 59,741
Net income 33,668 27,714 34,472 41,393
Diluted earnings per share $ .27 $ .22 $ .29 $ .36
Stock price
High $ 23-1/2 $ 19-3/4 $ 19-1/8 $ 23-1/4
Low $ 17-5/8 $ 16-1/4 $ 15-3/8 $ 16-1/2
</TABLE>
67
<PAGE> 35
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT INCREASE (DECREASE) BALANCE
BEGINNING IN AT END
OF PERIOD PROVISIONS UNREALIZED GAINS OF PERIOD
- ----------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
VALUATION ALLOWANCE ON
INVESTMENT SECURITIES:
Year ended 09/30/97 $ 9,722 $ - $ (8,457) $ 1,265
======== ====== ========= ========
Year ended 09/30/98 $ 1,265 $ - $ 788 $ 2,053
======== ====== ========= ========
Year ended 10/02/99 $ 2,053 $ - $ (3,600) $ (1,547)
======== ====== ========= ========
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT ACCOUNTS BALANCE
BEGINNING WRITTEN AT END
OF PERIOD PROVISIONS RECOVERIES OFF OF PERIOD
- ------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended 09/30/97 $ 5,681 $ 4,597 $ 236 $ 4,615 $ 5,899
======= ======= ======= ======== =======
Year ended 09/30/98 $ 5,899 $ 927 $ 351 $ 1,665 $ 5,512
======= ======= ======= ======== =======
Year ended 10/02/99 $ 5,512 $ 3,959 $ 6 $ 573 $ 8,904
======= ======= ======= ======== =======
ALLOWANCE FOR DOUBTFUL NOTES
AND CONTRACTS RECEIVABLE:
Year ended 09/30/97 $19,775 $ 4,911 $ 211 $ 6,668 $ 18,229
======= ======= ======= ======== ========
Year ended 09/30/98 $18,229 $ 3,808 $ 246 $ 5,555 $ 16,728
======= ======= ======= ======== ========
Year ended 10/02/99 $16,728 $ 4,194 $ 291 $ 1,559 $ 19,654
======= ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT DISPOSED BALANCE
BEGINNING OF AND AT END
OF PERIOD PROVISIONS WRITTEN OFF OF PERIOD
- ---------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
OBSOLETE INVENTORY RESERVE:
Year ended 09/30/97 $18,165 $11,381 $14,665 $14,881
======= ======= ======= =======
Year ended 09/30/98 $14,881 $ 9,173 $ 5,480 $18,574
======= ======= ======= =======
Year ended 10/02/99 $18,574 $19,185 $13,858 $23,901
======= ======= ======= =======
</TABLE>
72
