Money market funds were primarily money market securities valued based on quoted market prices in active markets.
Investment securities were commercial paper debt securities valued based on quoted market prices for similar instruments, using observable market based inputs.
Derivative assets and liabilities were valued using quoted forward pricing from bank counterparties, LIBOR credit default swap rates for non-performance risk, forward yields for the 10-year treasury sourced from Bloomberg, and net settlement amounts where appropriate. These are presented primarily as components of other assets, other liabilities, notes payable, and AOCI. See Note 9.
Acquisition contingent earn-out payable related to DoubleDown reaching certain earnings targets was valued with a DCF model applied to the expected payments determined based on probability-weighted internal earnings projections. We applied a rate of probability (10% - 90%) to each outstanding scenario, as well as a risk-adjusted discount rate of 18%, to derive the estimated fair value at December 31, 2013. Changes in the projections and/or the probabilities are the most significant assumptions and result in directionally similar changes in the fair value. Discount rate changes cause a directionally opposite change in the fair value. Acquisition contingent earn-out payable was presented as a component of other liabilities, $60.0 million current and $50.9 million noncurrent at December 31, 2013 versus $57.6 million current and $48.8 million noncurrent at September 30, 2013. The payable fair value
increased $4.5 million du
ring the first quarter ended December 31, 2013 primarily due to the time-value of money.
Reconciliation of Items Carried at Fair Value Using Significant Unobservable Inputs (Level 3)
Contracts and notes receivable were valued using DCF, incorporating expected payments and market interest rates relative to the credit risk of each customer (low 7.5 %, medium 8.0 %, high 9.5 % - 11.25 %). Credit risk is determined on a number of factors, including customer size, type, financial condition, historical collection experience, account aging, and credit ratings derived from credit reporting agencies and other industry trade reports. Contracts are secured by the underlying assets sold and notes are secured by the developed property and/or other assets. The high risk category includes most of our development financing loans in new markets and customers in regions with a history of currency or economic instability, such as Latin America. See Notes 3 and 4.
Jackpot liabilities were valued using DCF, incorporating expected future payment timing, estimated funding rates based on the treasury yield curve, and IGT's nonperformance credit risk. Expected annuity payments over 1-25 years (average 10 years) were discounted using the 10-year treasury yield curve rate (3.00%) for the estimated funding rate and the 10-year credit default swap rate (1.65%) for nonperformance risk. The present value (carrying value) of the expected lump sum payments were discounted using the 1-year treasury yield curve rate (.11%) with the 1-year credit default swap rate (.22%) for the current amounts and the 2-year treasury yield curve rate (.39%) with the 2-year credit default swap rate (.34%) for noncurrent amounts. Significant increases (decreases) in any of these inputs in isolation would result in a lower (higher) fair value measurement. Generally, changes in the estimated funding rates do not correlate with changes in nonperformance credit risk.
The majority of our debt was level 1 and valued using quoted market prices or dealer quotes for the identical financial instrument when traded as an asset in an active market. Outstanding borrowings, if any, under our revolving credit facility are level 2 and fair value is determined using DCF of expected payments at current borrowing rates. Carrying values in the table excluded swap adjustments and equity components of convertible debt.
Our valuation policies and procedures are determined by the Accounting Department, which ultimately reports to the Chief Financial Officer, in coordination with appropriate business asset owners and third-party valuation services when needed. Changes in fair value and methods for calibration, back testing, and other testing procedures of pricing models are evaluated through analytical review by managers of the responsible Accounting Department quarterly, by the Global Controller at inception and periodically with significant changes. Material valuations are discussed with the Audit Committee at inception and periodically if changes are significant or if impairment charges are recorded. Third-party information is evaluated for consistency with the FASB ASC for fair value measurement through analytical review and in-depth discussions with a variety of valuation experts.
Unobservable inputs are used only to the extent that observable inputs are not available and reflect management assumptions that cannot be corroborated with observable market data about what market participants would use in pricing the asset or liability, including assumptions about risk. Our unobservable inputs consist primarily of expected cash flows, stock price volatility, and other rates derived through extrapolation or interpolation. These inputs are developed based on the best information available, including trends deduced from available historical information and future expectations, using company specific data and market or industry published data. These inputs are validated for reasonableness by analytic comparison to other relevant valuation statistics whenever possible. Unobservable inputs depend on the facts and circumstances specific to a given asset or liability and require significant professional judgment.
The notional amount of foreign currency contracts hedging our exposure related to monetary assets and liabilities denominated in nonfunctional currency totaled $44.3 million at December 31, 2013 and $91.9 million at September 30, 2013.
Presentation
of Derivative Amounts
Except for net interest receivable related to our interest rate swaps, all derivatives are recorded on a gross basis.
Balance Sheet Location and Fair Value
|
|
December 31, 2013
|
|
|
September 31, 2013
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
Non-designated Hedges -- Foreign Currency Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets and deferred costs (current)
|
|
$
|
1.6
|
|
|
$
|
-
|
|
|
$
|
0.5
|
|
|
$
|
-
|
|
Other accrued liabilities
|
|
|
-
|
|
|
|
0.4
|
|
|
|
-
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Designated Hedges - Interest Rate Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets and deferred costs (noncurrent)
|
|
|
55.4
|
|
|
|
-
|
|
|
$
|
66.5
|
|
|
|
-
|
|
Long-term debt
|
|
|
-
|
|
|
|
61.0
|
|
|
|
-
|
|
|
|
71.1
|
|
Swap interest receivable
|
|
|
2.0
|
|
|
|
-
|
|
|
|
15.6
|
|
|
|
-
|
|
Gross Derivatives
|
|
$
|
59.0
|
|
|
$
|
61.4
|
|
|
$
|
82.6
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap interest receivable offset
|
|
|
(1.1
|
)
)
|
|
|
-
|
|
|
|
(8.0
|
)
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Derivatives
|
|
$
|
57.9
|
|
|
$
|
61.4
|
|
|
$
|
74.6
|
|
|
$
|
72.2
|
|
Income Statement Location and Income (expense)
First Quarters Ended December 31,
|
|
2013
|
|
|
2012
|
|
Non-designated Hedges --Foreign Currency Contracts
|
|
|
|
|
|
|
Other income (expense)
|
|
$
|
1.2
|
|
|
$
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
Designated Hedges -- Interest Rate Swaps
|
|
|
|
|
|
|
|
|
Ineffectiveness: Other income (expense)
|
|
$
|
(1.1
|
)
|
|
$
|
1.4
|
|
Effectiveness: Interest expense
|
|
|
6.8
|
|
|
|
5.0
|
|
10. CREDIT FACILITIES AND INDEBTEDNESS
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2013
|
|
|
2013
|
|
Credit facility
|
|
$
|
-
|
|
|
$
|
-
|
|
3.25% Convertible Notes (due May 2014)
|
|
|
850.0
|
|
|
|
850.0
|
|
7.5% Bonds (due June 2019)
|
|
|
500.0
|
|
|
|
500.0
|
|
5.5% Bonds (due June 2020)
|
|
|
300.0
|
|
|
|
300.0
|
|
5.35% Bonds (due October 2023)
|
|
|
500.0
|
|
|
|
500.0
|
|
Total principal debt obligations
|
|
|
2,150.0
|
|
|
|
2,150.0
|
|
Discounts:
|
|
|
|
|
|
|
|
|
3.25% Convertible Notes
|
|
|
(13.6
|
)
|
|
|
(23.3
|
)
|
7.5% Bonds
|
|
|
(1.7
|
)
|
|
|
(1.8
|
)
|
5.5% Bonds
|
|
|
(0.9
|
)
|
|
|
(0.9
|
)
|
5.35% Bonds
|
|
|
(2.0
|
)
|
|
|
(2.1
|
)
|
Swap fair value adjustments:
|
|
|
|
|
|
|
|
|
7.5% Bonds
|
|
|
42.6
|
|
|
|
48.4
|
|
5.5% Bonds
|
|
|
18.4
|
|
|
|
22.6
|
|
Total outstanding debt, net
|
|
$
|
2,192.8
|
|
|
$
|
2,192.9
|
|
IGT was compliant with all covenants and embedded features required no bifurcation at December 31, 2013.
Credit Facility
At December 31, 2013, no borrowings were outstanding under our $1.0 billion revolving credit facility, $972.2 million was available, and $27.8 million was reserved for letters of credit and performance bonds.
3.25% Convertible Notes
First Quarter Ended December 31,
|
|
2013
|
|
|
2012
|
|
Contractual interest expense
|
|
$
|
6.9
|
|
|
$
|
6.9
|
|
Discount amortization
|
|
|
9.8
|
|
|
|
8.9
|
|
Remaining discount amortization period (in months)
|
|
|
4
|
|
|
|
|
|
11. CONTINGENCIES
Litigation
From time to time, in the normal course of its operations, the Company is a party to litigation matters and claims. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and the Company's view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred. The Company records a provision for contingent losses when it is both probable that a liability will be incurred and the amount or range of the loss can be reasonably estimated. Except as otherwise stated below, we have concluded that we cannot estimate the reasonably possible loss or range of loss, including reasonably possible losses in excess of amounts already accrued, for each specific matter disclosed below. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company's operations or its financial position, liquidity or results of operations.
Atlantic Lotteries
In an action brought in the Supreme Court of New Foundland and Labrador by Babstock and Small as representatives of a purported class of persons allegedly harmed by VLT gaming in the Province of New Foundland and Labrador. Atlantic Lottery Corporation has impleaded VLC, Inc., IGT-Canada, Inc., International Game Technology and other third party defendants seeking indemnification for any judgment recovered against Atlantic Lottery Corporation in the main action. Plaintiffs filed a motion for class action certification on September 17, 2012. The Court has decided to address the motion for certification in two phases. Under Phase 1, the Court will determine whether the Plaintiffs have pleaded a cause of action. Hearings on Phase 1 were held on June 6 and 7, 2013. The Court has not yet issued a decision. Should the Court conclude that Plaintiffs have pleaded a cause of action, then, under Phase 2, the Court would determine the appropriateness of certification of the putative class.
Shareholder Actions
On April 8, 2011, the Company was nominally sued in a derivative complaint filed in the US District Court for the District of Nevada, captioned Arduini v. Hart, et al., Case No. 3:11-cv-00255. Plaintiff purportedly brought this action on behalf of the Company. The complaint asserts claims against various current and former officers and directors of the Company, for breaches of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and contribution and indemnification. The complaint sought an unspecified amount of damages. A motion to dismiss was filed. On March 14, 2012, defendants' motion to dismiss the action was granted. On April 3, 2012, the plaintiff appealed to the US Court of Appeals for the Ninth Circuit. Oral argument has been scheduled for April 10, 2014.
Lightning Box Games
On July 30, 2013, IGT was sued in US District Court for the Northern District of Illinois for patent infringement by Lightning Box Games (LBG), captioned Lightning Box Games PTY LTD. v. International Game Technology and Caesars Entertainment Corporation, Case No. 13-cv-5423. LBG alleges infringement of two related patents for "Electronic System for Playing of Reel-Type Games," and specifically accuses IGT's MultiPLAY video slot machines of infringing one or more claims of the patents. LBG is seeking, among other items, preliminary and permanent injunctive relief, monetary damages resulting from the infringing conduct (including pre- and post-judgment interest), and court costs. IGT intends to vigorously defend against the claims asserted in this lawsuit.
Mark E Pollack Arbitration
In January 2013, IGT notified Mark E Pollack that it was terminating eight agreements between IGT and Mr. Pollack relating to services provided by Mr. Pollack (e.g., providing ideas for gaming machines and initiating and arranging meetings with various artists and intellectual property owners). Mr. Pollack disagreed that IGT could terminate the agreements and the parties entered mediation pursuant to the dispute resolution provisions in the respective agreements. On October 22, 2013, the parties filed arbitration demands submitting the dispute to arbitration before Judicial Arbitration Mediation Services (JAMS), captioned International Game Technology v. Pollack, Case No. 1260002648 and Pollack v. International Game Technology, Case No. 1260002648. Mr. Pollack is requesting unspecified monetary damages and injunctive relief. IGT is currently working with Mr. Pollack on the selection of an arbitrator to hear the dispute.
WMS Gaming, Inc.
2013 Northern District of Illinois
On July 2, 2013, IGT was sued by WMS Gaming, Inc. in US District Court for the Northern District of Illinois, captioned WMS Gaming, Inc. v. IGT, Case No. 1:13-cv-4788. The suit relates to a contract between the parties. WMS alleges that IGT breached the contract, anticipatorily repudiated the contract, breached the implied covenant of good faith and fair dealing, and violated the Nevada Unfair Trade Practices Act. WMS sought a temporary restraining order, which was denied. WMS is seeking, among other things, declaratory judgment, specific performance, injunctive relief, unspecified monetary damages, and attorneys' fees and costs. IGT intends to vigorously defend against the claims asserted in this lawsuit.
2013 Arbitration
Related to foregoing lawsuit, on September 10, 2013 IGT filed an arbitration with the American Arbitration Association (AAA) against WMS, captioned IGT v. WMS Gaming, Inc., No. 79 517 112 13. IGT and WMS have a license agreement for Ticket-In-Ticket-Out (TITO) enabled gaming machines. IGT alleges WMS failed to pay license fees owed on certain products covered by the agreement. IGT is seeking a judgment that WMS must pay license fees on certain products and monetary damages of $50.0 million resulting from WMS's failure to pay license fees on those products.
2013 District of Nevada
Related to the foregoing lawsuit and arbitration, on October 22, 2013, WMS filed suit in the US District Court for the District of Nevada, captioned WMS Gaming, Inc. v. IGT, Case No. 3:13-cv-00583. WMS is seeking, among other things, a declaratory judgment that the arbitration provision of the license agreement is unenforceable, alleging that IGT is seeking to arbitrate non-arbitrable issues, and seeking a refund of royalties WMS has allegedly overpaid. WMS has filed a motion for preliminary injunction, seeking to enjoin the arbitration. IGT intends to vigorously defend against the claims asserted in this lawsuit.
Global Draw Ltd
On September 17, 2013, Global Draw Limited (an English company) issued proceedings in London against IGT-UK Group Limited (a wholly owned subsidiary of IGT) and IGT, captioned 2013 High Court of Justice (Commercial Court) in London, England, Case No. 2013, Folio 1246. The claim arises out of a Sale and Purchase Agreement dated April 26, 2011 (SPA) pursuant to which Global Draw purchased from IGT-UK all of the shares in an English company called Barcrest Limited. Global Draw seeks to claim against IGT-UK under the terms of indemnities and warranties contained in the SPA, and against IGT under the terms of a guarantee given by IGT in respect of the liabilities of IGT-UK. On November 7, 2013 IGT-UK filed and served a defense and counterclaim in response to the claim and IGT has also entered its defense. The claims assert damages o
f £1.3 million and US $2.9 mill
ion excluding interest, plus other unquantified damages. IGT intends to vigorously defend against the claims asserted in this lawsuit.
Arrangements with Off-Balance Sheet Risks
In the normal course of business, we are party to financial instruments with off-balance sheet risk, such as performance bonds not reflected in our balance sheet. We do not expect any material losses to result from these arrangements and are not dependent on off-balance sheet financing arrangements to fund our operations.
Performance Bonds
Performance bonds outstanding related to certain gaming operations equipment totaled $19.5 million at December 31, 2013. We are liable to reimburse the bond issuer in the event of exercise due to our nonperformance.
Letters of Credit
Outstanding letters of credit issued under our domestic credit facility to ensure payment to certain vendors and governmental agencies totaled $8.3 million at December 31, 2013.
IGT Licensor Arrangements
Our sales agreements that include software and IP licensing arrangements may require IGT to indemnify the third-party licensee against liability and damages (including legal defense costs) arising from any claims of patent, copyright, trademark infringement, or trade secret misappropriation. Should such a claim occur, we could be required to make payments to the licensee for any liabilities or damages incurred. Historically, we have not incurred any significant settlement costs due to infringement claims. As we consider the likelihood of incurring future costs to be remote, no liability has been recorded.
Self-Insurance
We are self-insured for various levels of workers' compensation, directors' and officers' liability, and electronic errors and omissions liability, as well as employee medical, dental, prescription drug, and disability coverage. We purchase stop loss coverage to protect against unexpected claims. Accrued insurance claims and reserves include estimated settlements for known claims, and actuarial estimates for claims incurred but not reported.
State and Federal Taxes
We are subject to sales, use, income, gaming and other tax audits and administrative proceedings in various US federal, state, local, and foreign jurisdictions. While we believe we have properly reported our tax liabilities in each jurisdiction, we can give no assurance that taxing authorities will not propose adjustments that increase our tax liabilities.
Product Warranties
The majority of our products are generally covered by a warranty for periods ranging from 90 to 180 days. We estimated accrued warranty costs in the table below based on historical trends in product failure rates and expected costs to provide warranty services.
Three Months Ended December 31,
|
|
2013
|
|
|
2012
|
|
Beginning balance
|
|
$
|
4.4
|
|
|
$
|
4.2
|
|
Reduction for payments made
|
|
|
(1.4
|
)
|
|
|
(2.5
|
)
|
Accrual for new warranties issued
|
|
|
2.6
|
|
|
|
3.9
|
|
Adjustments for pre-existing warranties
|
|
|
(1.5
|
)
|
|
|
(1.4
|
)
|
Ending balance
|
|
$
|
4.1
|
|
|
$
|
4.2
|
|
12. INCOME TAXES
Our provision for income taxes is based on an estimated effective annual income tax rate, as well as the impact of discrete items, if any, occurring during the period. The provision differs from income taxes currently payable because certain items of income and expense are recognized in different periods for financial statement purposes than for tax return purposes. We reduce deferred tax assets by a valuation allowance when it is more likely than not that some or all of the deferred tax assets will not be realized.
Our effective tax rate for the three months ended December 31, 2
013 decreased t
o -4.9 % from 33.2% for the same prior year period. The current year effective tax rate was positively impacted by the settlement of income tax audits for fiscal years 1999, and 2006 through 2009.
At December 31, 2013, our gross UTBs totaled $69.2 million, excluding related accrued interest and penalties of $11.1 million. At December 31, 2013, $52.3 million of our UTBs, including related accrued interest, penalties, and indirect effects in other jurisdictions, would affect our effective tax rate if recognized. During the three months ended December 31, 2013, our UTBs decreased $40.0 million and related interest and penalties decreased $12.2 million. We do not believe our total UTBs will change significantly during the next twelve months.
As of December 31, 2013 we effectively settled audits with the US tax authorities related to our fiscal year 1999 and 2006 through 2009 tax years. As a result of the settlement, we reduced our tax provision by $29.6 million and our UTBs by $33.1 million, inclusive of related interest, penalties and indirect effects in other jurisdictions.
We are also subject to examination in various state and foreign jurisdictions. We believe we have recorded all appropriate provisions for outstanding issues for all jurisdictions and open years. However, we can give no assurance that taxing authorities will not propose adjustments that increase our tax liabilities.
13. EMPLOYEE BENEFIT PLANS
Share-based Compensation
SIP As Of And For The Three Months Ended December 31, 2013
|
|
|
|
|
Weighted Average
|
|
|
|
|
Options
|
|
Shares
|
|
|
Exercise
Price
|
|
|
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
(thousands)
|
|
|
(per share)
|
|
|
(years)
|
|
|
(millions)
|
|
Outstanding at beginning of fiscal year
|
|
|
9,088
|
|
|
$
|
18.57
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Exercised
|
|
|
(135
|
)
|
|
|
14.26
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(41
|
)
|
|
|
17.03
|
|
|
|
|
|
|
|
Expired
|
|
|
(50
|
)
|
|
|
22.83
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
8,862
|
|
|
$
|
18.62
|
|
|
|
5.0
|
|
|
$
|
14.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
|
|
|
8,766
|
|
|
$
|
18.65
|
|
|
|
4.9
|
|
|
$
|
14.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
7,888
|
|
|
$
|
18.93
|
|
|
|
4.7
|
|
|
$
|
13.0
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Restricted Shares/Units
|
|
Shares
|
|
|
Grant
Date
Fair Value
|
|
|
Remaining
Vesting
Period
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
(thousands)
|
|
|
(per share)
|
|
|
(years)
|
|
|
(millions)
|
|
Outstanding at beginning of fiscal year
|
|
|
6,350
|
|
|
$
|
14.55
|
|
|
|
|
|
|
|
Granted*
|
|
|
3,318
|
|
|
|
16.35
|
|
|
|
|
|
|
|
Vested
|
|
|
(2,495
|
)
|
|
|
14.32
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(114
|
)
|
|
|
14.84
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
7,059
|
|
|
$
|
15.46
|
|
|
|
1.8
|
|
|
$
|
124.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to vest
|
|
|
6,115
|
|
|
$
|
15.47
|
|
|
|
1.8
|
|
|
$
|
108.0
|
|
* certain awards require satisfaction of a combination of performance and market conditions
Other Information
|
|
|
|
Shares available for future grant
|
|
|
18.3
|
|
Unrecognized costs for outstanding awards
|
|
$
|
106.9
|
|
Weighted average future recognition period (in years)
|
|
|
2.0
|
|
14. EARNINGS PER SHARE
First Quarters Ended December 31,
|
|
2013
|
|
|
2012
|
|
Net income available to common shares
|
|
$
|
79.2
|
|
|
$
|
65.3
|
|
Basic weighted average shares outstanding
|
|
|
252.6
|
|
|
|
265.9
|
|
Dilutive effect of non-participating share-based awards
|
|
|
2.7
|
|
|
|
2.0
|
|
Diluted weighted average common shares outstanding
|
|
|
255.3
|
|
|
|
267.9
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
0.31
|
|
|
$
|
0.25
|
|
Diluted EPS
|
|
$
|
0.31
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares excluded from diluted EPS because the effect would be anti-dilutive:
|
|
Share-based awards
|
|
|
5.1
|
|
|
|
12.7
|
|
Notes
|
|
|
42.6
|
|
|
|
42.6
|
|
Note hedges
|
|
|
(42.6
|
)
|
|
|
(42.6
|
)
|
Warrants
|
|
|
42.6
|
|
|
|
42.6
|
|
Accelerated Share Repurchase
On November 7, 2013, we executed an accelerated share repurchase transaction for $200.0 million of IGT common stock effective through January 22, 2014. We received an initial delivery of 8.2 million shares on November 8, 2013 and 11.6 million total shares were delivered based on the VWAP over the transaction period for an average discounted price of $17.22 per share.
15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Foreign
|
|
|
Gain on
|
|
|
|
|
|
|
Currency
|
|
|
Treasury
|
|
|
|
|
First Quarter Ended December 31, 2013
|
|
Translation
|
|
|
Locks
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
AOCI beginning balance
|
|
$
|
0.2
|
|
|
$
|
8.0
|
|
|
$
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OCI before reclassifications (no tax)
|
|
|
(2.3
|
)
|
|
|
-
|
|
|
|
(2.3
|
)
|
Reclassifications to earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount before tax (interest expense)
|
|
|
-
|
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
Income Tax at 37%
|
|
|
-
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Amount net of tax
|
|
|
-
|
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
Net other comprehensive income
|
|
|
(2.3
|
)
|
|
|
(0.2
|
)
|
|
|
(2.5
|
)
|
AOCI ending balance
|
|
$
|
(2.1
|
)
|
|
$
|
7.8
|
|
|
$
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16. BUSINESS SEGMENTS
We view our business in the following two operating segments:
●
|
North America includes our operations associated with land-based and online-real money customers located in the US and Canada, as well as US-based online social gaming operations
|
●
|
International includes our operations associated with customers located in all other jurisdictions
|
Certain income and expenses related to company-wide initiatives primarily comprised of general and administrative costs and other income (expense) are managed at the corporate level and not allocated to an operating segment. We do not recognize inter-company revenues or expenses upon the transfer of gaming products between operating segments. Segment accounting policies are consistent with those of our consolidated financial statements and segment profit is measured on the basis of operating income. Impairment and restructuring charges, if any, are reflected within the segment where actions occurred.
Our business segments are designed to allocate resources within a framework of management responsibility. Operating costs included in one segment may benefit other segments. Realignment of our business development and administrative functions may result in ongoing changes to allocations of operating cost amongst our operating segments.
Business Segments Financial Information
First Quarters Ended December 31,
|
|
2013
|
|
|
2012
|
|
NORTH AMERICA
|
|
|
|
|
|
|
Revenues
|
|
$
|
427.4
|
|
|
$
|
409.4
|
|
Gaming operations
|
|
|
191.6
|
|
|
|
208.6
|
|
Product sales
|
|
|
170.0
|
|
|
|
158.9
|
|
Interactive
|
|
|
65.8
|
|
|
|
41.9
|
|
Gross profit
|
|
|
244.6
|
|
|
|
244.2
|
|
Gaming operations
|
|
|
113.7
|
|
|
|
129.7
|
|
Product sales
|
|
|
90.0
|
|
|
|
89.2
|
|
Interactive
|
|
|
40.9
|
|
|
|
25.3
|
|
Operating income
|
|
|
105.9
|
|
|
|
112.4
|
|
|
|
|
|
|
|
|
|
|
INTERNATIONAL
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
113.8
|
|
|
$
|
120.9
|
|
Gaming operations
|
|
|
31.4
|
|
|
|
34.0
|
|
Product sales
|
|
|
73.6
|
|
|
|
75.9
|
|
Interactive
|
|
|
8.8
|
|
|
|
11.0
|
|
Gross profit
|
|
|
65.2
|
|
|
|
65.3
|
|
Gaming operations
|
|
|
22.5
|
|
|
|
23.4
|
|
Product sales
|
|
|
36.9
|
|
|
|
36.4
|
|
Interactive
|
|
|
5.8
|
|
|
|
5.5
|
|
Operating income
|
|
|
24.9
|
|
|
|
28.4
|
|
|
|
|
|
|
|
|
|
|
CORPORATE (unallocated)
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
$
|
(27.1
|
)
|
|
$
|
(22.4
|
)
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
541.2
|
|
|
$
|
530.3
|
|
Gaming operations
|
|
|
223.0
|
|
|
|
242.6
|
|
Product sales
|
|
|
243.6
|
|
|
|
234.8
|
|
Interactive
|
|
|
74.6
|
|
|
|
52.9
|
|
Gross profit
|
|
|
309.8
|
|
|
|
309.5
|
|
Gaming operations
|
|
|
136.2
|
|
|
|
153.1
|
|
Product sales
|
|
|
126.9
|
|
|
|
125.6
|
|
Interactive
|
|
|
46.7
|
|
|
|
30.8
|
|
Operating income
|
|
|
103.7
|
|
|
|
118.4
|
|
17. SUBSEQUENT EVENT
In January 2014, the Argentina peso currency was devalued. Based on our net position at December 31, 2013, we expect to record an estimated currency exchange loss of approximately $4.0 million during our 2014 second quarter as a result of remeasuring our peso-based assets and liabilities.