1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
Our fiscal year is reported on a 52/53-week period ending on the Saturday nearest to September 30. Similarly, our quarters end on the Saturday nearest to the last day of the quarter end month. For simplicity, fiscal periods in this report are presented using the calendar month end as outlined in the table below.
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Fiscal Periods
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As Presented
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Actual
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blank
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Current quarter and six months
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March 31, 2014
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March 29, 2014
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Prior year quarter and six months
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March 31, 2013
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March 30, 2013
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Prior year end
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September 30, 2013
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September 28, 2013
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Our consolidated interim financial statements for the second quarter ended March 31, 2014 incorporate all of the accounts of International Game Technology, including all majority-owned or controlled subsidiaries and VIEs for which IGT is the primary beneficiary. All inter-company accounts and transactions were eliminated. These financial statements were prepared without audit on a basis consistent with the comparative prior year quarter ended March 31, 2013, and as appropriate, with the audited financial statements for the year ended September 30, 2013.
Certain information and footnote disclosures have been condensed or omitted in conformity with SEC and US GAAP guidance for interim financial statements. All adjustments of a normal recurring nature necessary to fairly state our consolidated results of operations, financial position, and cash flows have been included for all periods presented. Interim period results are not necessarily indicative of full year results. This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended September 30, 2013.
Unless otherwise indicated in this report:
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●
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references to years relate to our fiscal years ending September 30
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dollar amounts in tables are presented in millions, except per share amounts and par value
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current refers to the quarter ended March 31, 2014
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italicized text with an attached superscript trademark or copyright notation indicates trademarks of IGT or its licensors, and additional IGT trademark information is available on our website at www.IGT.com
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Use of Estimates
We are required to make estimates, judgments and assumptions that we believe are reasonable based on our historical experience, contract terms, observance of known trends in our company and the industry as a whole, and information available from other outside sources. Our estimates affect reported amounts for assets, liabilities, revenues, expenses, and related disclosures. Actual results may differ from initial estimates.
RECENTLY ADOPTED ACCOUNTING STANDARDS OR UPDATES
Offsetting Assets and Liabilities
In December 2011, the FASB issued an ASU to require new disclosures associated with offsetting financial instruments and derivative instruments on the balance sheet that will enable users to evaluate the effect on an entity's financial position. In January 2013, the FASB issued an ASU to clarify the scope of disclosures about offsetting assets and liabilities. The scope of the new disclosures was narrowed to include derivatives, repurchase agreements and securities borrowing and lending that are offset or subject to an enforceable master netting arrangement or similar agreement. Both ASUs were effective for our 2014 first quarter and had no material impact on our financial statements.
RECENTLY ISSUED ACCOUNTING STANDARDS OR UPDATES--NOT YET ADOPTED
Discontinued Operations
In April 2014, the FASB issued an ASU that raises the threshold for disposals to qualify as discontinued operations to be based on strategic shifts that have or will have a major effect on an entity's operations and financial results. This ASU will be effective for our 2015 first quarter and is not expected to have a material impact on our financial statements.
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward Exists
In July 2013, the FASB issued an ASU requiring the netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax position. This ASU will be effective for our 2015 first quarter and is not expected to have a material impact on our financial statements.
Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries
In March 2013, the FASB issued an ASU requiring the release of cumulative translation adjustment into net income when an entity either sells a part or all of its investment in or no longer holds a controlling financial interest in a foreign entity. This ASU will be effective prospectively for our 2015 first quarter and is not expected to have a material impact on our financial statements.
Obligations Resulting from Joint and Several Liability Arrangements
In February 2013, the FASB issued an ASU to require new disclosures for an entity that is jointly and severally liable to measure the obligation as the sum of the amount the entity has agreed with co-obligors to pay and any additional amount it expects to pay on behalf of a co-obligor. This ASU will be effective for our 2015 first quarter and is not expected to have a material impact on our financial statements.
2. VARIABLE INTERESTS AND AFFILIATES
VARIABLE INTEREST ENTITIES
New Jersey Trusts
Regulation in New Jersey requires that annuitized WAP jackpot payments to winners be administered through an individual trust set up for each WAP system. These trusts are VIEs and IGT is the primary consolidating beneficiary, because these VIE trusts are designed for the sole purpose of administering jackpot payments for IGT WAP winners and IGT guarantees all liabilities of the trusts. The assets of these consolidated VIEs can only be used to settle trust obligations and have been segregated on our balance sheet. The consolidation of these VIEs primarily increases jackpot liabilities and related assets, as well as interest income and equivalent offsetting interest expense. Consolidated VIE trust assets and equivalent liabilities totaled $44.2 million at March 31, 2014 and $48.6 million at September 30, 2013.
Latin America Distributor
In March 2012, we contracted with a third party distributor in Latin America to sell IGT products. The distributor was a VIE as it was unable to finance its activities without additional support from IGT; however, the distributor was not consolidated because IGT does not have contractual or implied control. This arrangement was terminated by mutual agreement in January 2014. For the periods ended March 31, 2014, we recognized revenues of $0.5 million for the quarter and $2.7 million for the six months and ending receivables totaled $5.7 million.
3. RECEIVABLES
ACCOUNTS RECEIVABLE
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March 31, 2014
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September 30, 2013
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Allowances for Credit Losses
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$
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25.1
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$
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22.3
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CUSTOMER FINANCING—CONTRACTS AND NOTES
Recorded Investment
(principal and interest due, net of deferred interest and fees)
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March 31, 2014
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September 30, 2013
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Individually evaluated for impairment
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$
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93.8
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$
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82.4
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Collectively evaluated for impairment
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370.6
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391.0
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Total
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$
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464.4
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$
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473.4
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Allowances for Credit Losses
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March 31, 2014
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September 30, 2013
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Individually evaluated for impairment
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$
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73.0
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$
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63.4
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Collectively evaluated for impairment
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15.4
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15.1
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Total
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$
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88.4
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$
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78.5
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Reconciliation of Allowances for Credit Losses
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Second Quarters
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Six Months
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Periods Ended March 31,
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2014
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2013
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2014
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2013
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Beginning balance
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$
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80.0
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$
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76.6
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$
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78.5
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$
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72.8
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Charge-offs
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-
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-
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-
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Recoveries
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-
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-
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-
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-
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Provisions
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8.4
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4.0
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9.9
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7.8
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Ending balance
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$
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88.4
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$
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80.6
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$
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88.4
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$
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80.6
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Current portion
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$
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81.8
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$
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63.3
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$
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81.8
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$
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63.3
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Noncurrent portion
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6.6
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17.3
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6.6
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17.3
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Recorded Investment Aging Analysis
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March 31, 2014
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September 30, 2013
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Contracts
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Notes
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Total
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Contracts
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Notes
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Total
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Past Due
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1-29 days
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$
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10.2
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$
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1.3
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$
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11.5
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$
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18.4
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$
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1.5
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$
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19.9
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30-59 days
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7.4
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1.3
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8.7
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5.1
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1.4
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6.5
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60-89 days
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5.3
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1.2
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6.5
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4.5
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1.3
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5.8
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Over 90 days
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16.5
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59.0
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75.5
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16.1
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54.9
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71.0
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Total*
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$
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39.4
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$
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62.8
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$
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102.2
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$
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44.1
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$
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59.1
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$
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103.2
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Amount not past due**
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|
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349.5
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12.7
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362.2
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339.1
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31.1
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370.2
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Grand total
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$
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388.9
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$
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75.5
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$
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464.4
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$
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383.2
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$
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90.2
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$
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473.4
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*Alabama impaired note included in total past due
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$
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62.5
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$
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62.5
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$
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56.2
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$
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56.2
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**Alabama impaired note included in amount not past due
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12.5
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|
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12.5
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|
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|
|
|
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18.8
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18.8
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|
|
|
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|
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|
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Over 90 days, accruing interest
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|
$
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1.9
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|
|
$
|
0.3
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|
|
$
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2.2
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$
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-
|
|
|
$
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1.3
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|
|
$
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1.3
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Nonaccrual status
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|
|
9.1
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|
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|
75.0
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|
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|
84.1
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|
|
|
13.5
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|
|
|
76.2
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|
|
|
89.7
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|
Recorded Investment by Credit Quality Indicator
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|
March 31, 2014
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|
|
September 30, 2013
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|
(Using Credit Profile by Internally Assigned Risk Grade)
|
|
Contracts
|
|
|
Notes
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|
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Total
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|
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Contracts
|
|
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Notes
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|
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Total
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|
Low
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|
$
|
157.9
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|
|
$
|
-
|
|
|
$
|
157.9
|
|
|
$
|
126.1
|
|
|
$
|
-
|
|
|
$
|
126.1
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|
Medium
|
|
|
94.3
|
|
|
|
-
|
|
|
|
94.3
|
|
|
|
100.2
|
|
|
|
0.1
|
|
|
|
100.3
|
|
High*
|
|
|
136.7
|
|
|
|
75.5
|
|
|
|
212.2
|
|
|
|
156.9
|
|
|
|
90.1
|
|
|
|
247.0
|
|
Total
|
|
$
|
388.9
|
|
|
$
|
75.5
|
|
|
$
|
464.4
|
|
|
$
|
383.2
|
|
|
$
|
90.2
|
|
|
$
|
473.4
|
|
*Alabama impaired note included
|
|
|
|
|
|
$
|
75.0
|
|
|
$
|
75.0
|
|
|
|
|
|
|
$
|
75.0
|
|
|
$
|
75.0
|
|
Impaired Loans
|
|
March 31, 2014
|
|
|
September 30, 2013
|
|
|
|
Contracts
|
|
|
Notes
|
|
|
Total
|
|
|
Contracts
|
|
|
Notes
|
|
|
Total
|
|
Recorded investment
|
|
$
|
17.4
|
|
|
$
|
75.5
|
|
|
$
|
92.9
|
|
|
$
|
5.7
|
|
|
$
|
75.0
|
|
|
$
|
80.7
|
|
Unpaid principal face
|
|
|
17.7
|
|
|
|
75.5
|
|
|
|
93.2
|
|
|
|
5.8
|
|
|
|
75.0
|
|
|
|
80.8
|
|
Related allowance
|
|
|
10.6
|
|
|
|
62.4
|
|
|
|
73.0
|
|
|
|
2.6
|
|
|
|
60.8
|
|
|
|
63.4
|
|
Average recorded investment
|
|
|
11.6
|
|
|
|
75.3
|
|
|
|
86.9
|
|
|
|
4.1
|
|
|
|
75.0
|
|
|
|
79.1
|
|
Interest income recognized on impaired contracts, none of which was cash basis, totaled $0.2 million for the three and six months ended March 31, 2014 and $0.4 million during the comparable six months of the prior year.
4. CONCENTRATIONS OF CREDIT RISK
Net Receivables By Region At March 31, 2014
|
|
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Nevada
|
13 %
|
|
Argentina
|
12 %
|
|
|
Illinois
|
7 %
|
|
Europe
|
7 %
|
|
|
Louisiana
|
5 %
|
|
Mexico
|
7 %
|
|
|
California
|
5 %
|
|
Australia
|
5 %
|
|
|
Other (less than 4% individually)
|
29 %
|
|
Other (less than 4% individually)
|
10 %
|
|
|
North America
|
59 %
|
|
International
|
41 %
|
|
|
5. INVENTORIES
|
|
March 31, 2014
|
|
|
September 30, 2013
|
|
Raw materials
|
|
$
|
53.1
|
|
|
$
|
51.2
|
|
Work-in-process
|
|
|
2.1
|
|
|
|
2.7
|
|
Finished goods
|
|
|
20.8
|
|
|
|
36.2
|
|
Total
|
|
$
|
76.0
|
|
|
$
|
90.1
|
|
6
.
PROPERTY, PLANT AND EQUIPMENT
|
|
March 31, 2014
|
|
|
September 30, 2013
|
|
Land
|
|
$
|
61.2
|
|
|
$
|
61.2
|
|
Buildings
|
|
|
231.7
|
|
|
|
231.3
|
|
Leasehold improvements
|
|
|
16.2
|
|
|
|
16.4
|
|
Machinery, furniture and equipment
|
|
|
285.1
|
|
|
|
309.0
|
|
Gaming operations equipment
|
|
|
758.2
|
|
|
|
785.9
|
|
Total cost
|
|
|
1,352.4
|
|
|
|
1,403.8
|
|
Less accumulated depreciation
|
|
|
(908.5
|
)
|
|
|
(919.9
|
)
|
Property, plant and equipment, net
|
|
$
|
443.9
|
|
|
$
|
483.9
|
|
7. GOODWILL AND OTHER INTANGIBLES
GOODWILL
Activity By Segment For the Six Months Ended March 31, 2014
|
|
North America
|
|
|
International
|
|
|
Total
|
|
Beginning balance
|
|
|
1,275.4
|
|
|
$
|
195.7
|
|
|
$
|
1,471.1
|
|
Foreign currency adjustment
|
|
|
-
|
|
|
|
0.4
|
|
|
|
0.4
|
|
Ending balance
|
|
$
|
1,275.4
|
|
|
$
|
196.1
|
|
|
$
|
1,471.5
|
|
OTHER INTANGIBLES
|
|
March 31, 2014
|
|
|
September 30, 2013
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Patents
|
|
$
|
377.9
|
|
|
$
|
344.7
|
|
|
$
|
33.2
|
|
|
$
|
376.1
|
|
|
$
|
334.1
|
|
|
$
|
42.0
|
|
Developed technology
|
|
|
129.1
|
|
|
|
87.2
|
|
|
|
41.9
|
|
|
|
129.1
|
|
|
|
79.9
|
|
|
|
49.2
|
|
Contracts
|
|
|
20.1
|
|
|
|
18.9
|
|
|
|
1.2
|
|
|
|
20.1
|
|
|
|
18.6
|
|
|
|
1.5
|
|
Reacquired rights
|
|
|
14.7
|
|
|
|
5.9
|
|
|
|
8.8
|
|
|
|
14.7
|
|
|
|
5.2
|
|
|
|
9.5
|
|
Customer relationships
|
|
|
61.2
|
|
|
|
46.1
|
|
|
|
15.1
|
|
|
|
61.2
|
|
|
|
40.1
|
|
|
|
21.1
|
|
Trademarks
|
|
|
12.5
|
|
|
|
6.4
|
|
|
|
6.1
|
|
|
|
12.5
|
|
|
|
5.2
|
|
|
|
7.3
|
|
Total
|
|
$
|
615.5
|
|
|
$
|
509.2
|
|
|
$
|
106.3
|
|
|
$
|
613.7
|
|
|
$
|
483.1
|
|
|
$
|
130.6
|
|
Aggregate Amortization
As Of And For The Periods Ended March 31,
|
|
Second Quarters
|
|
|
Six Months
|
|
|
Future Annual Estimates
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
$
|
13.5
|
|
|
$
|
16.3
|
|
|
$
|
27.0
|
|
|
$
|
31.9
|
|
|
$
|
53.7
|
|
|
$
|
36.5
|
|
|
$
|
20.3
|
|
|
$
|
10.2
|
|
|
$
|
5.2
|
|
8. FAIR VALUE MEASUREMENTS
FINANCIAL ASSETS (LIABILITIES) CARRIED AT FAIR VALUE
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
72.1
|
|
|
$
|
72.1
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investment securities
|
|
|
15.0
|
|
|
|
-
|
|
|
|
15.0
|
|
|
|
-
|
|
Derivative assets
|
|
|
65.3
|
|
|
|
-
|
|
|
|
65.3
|
|
|
|
-
|
|
Derivative liabilities
|
|
|
(62.6
|
)
|
|
|
-
|
|
|
|
(62.6
|
)
|
|
|
-
|
|
Acquisition contingent earn-out payable
|
|
|
(53.0
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(53.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
168.0
|
|
|
$
|
168.0
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investment securities
|
|
|
28.8
|
|
|
|
-
|
|
|
|
28.8
|
|
|
|
-
|
|
Derivative assets
|
|
|
74.6
|
|
|
|
-
|
|
|
|
74.6
|
|
|
|
-
|
|
Derivative liabilities
|
|
|
(72.2
|
)
|
|
|
-
|
|
|
|
(72.2
|
)
|
|
|
-
|
|
Acquisition contingent earn-out payable
|
|
|
(106.4
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(106.4
|
)
|
Valuation Techniques and Balance Sheet Presentation
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% - 60%) to each outstanding scenario, as well as a risk-adjusted discount rate of 18%, to derive the estimated fair value at March 31, 2014. 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. The payable fair value
increased
$2.1
million during the 2014 second quarter and $
6.6
million for the six months
ended March 31, 2014 primarily due to the time-value of money. Changes in fair value are recorded to earnings as a component of contingent acquisition-related costs and the payable balance of $53.0 million is presented as a component of other current liabilities at March 31, 2014 versus $57.6 million current and $48.8 million noncurrent at September 30, 2013. Earn-out consideration of $60.0 million (excluding payroll taxes) was paid during the 2014 second quarter for earnings targets met by DoubleDown for calendar 2013, and $45.0 million (excluding payroll taxes) was paid during the 2013 second quarter for earnings targets met for calendar 2012.
Reconciliation of Items Carried at Fair Value Using Significant Unobservable Inputs (Level 3)
Acquisition Contingent Consideration Payable for the Six Months Ended March 31,
|
|
2014
|
|
|
2013
|
|
Beginning balance
|
|
$
|
(106.4
|
)
|
|
$
|
(116.4
|
)
|
Accretion (interest and fair value adjustment)
|
|
|
(6.6
|
)
|
|
|
(16.2
|
)
|
Payments
|
|
|
60.0
|
|
|
|
45.0
|
|
Ending balance
|
|
$
|
(53.0
|
)
|
|
$
|
(87.6
|
)
|
FINANCIAL ASSETS (LIABILITIES) NOT CARRIED AT FAIR VALUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Gain (Loss)
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jackpot investments
|
|
$
|
308.3
|
|
|
$
|
343.1
|
|
|
$
|
343.1
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
34.8
|
|
Contracts & notes receivable
|
|
|
376.0
|
|
|
|
369.5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
369.5
|
|
|
|
(6.5
|
)
|
Jackpot liabilities
|
|
|
(400.4
|
)
|
|
|
(395.8
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(395.8
|
)
|
|
|
4.6
|
|
Debt
|
|
|
(2,141.9
|
)
|
|
|
(2,293.7
|
)
|
|
|
(2,293.7
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(151.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jackpot investments
|
|
$
|
325.1
|
|
|
$
|
366.3
|
|
|
$
|
366.3
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
41.2
|
|
Contracts & notes receivable
|
|
|
394.9
|
|
|
|
388.3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
388.3
|
|
|
|
(6.6
|
)
|
Jackpot liabilities
|
|
|
(425.0
|
)
|
|
|
(425.2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(425.2
|
)
|
|
|
(0.2
|
)
|
Debt
|
|
|
(2,121.9
|
)
|
|
|
(2,346.6
|
)
|
|
|
(2,346.6
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(224.7
|
)
|
Valuation Techniques and Balance Sheet Presentation
Jackpot investments
were valued based on quoted market prices.
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 (2.72%) for the estimated funding rate and the 10-year credit default swap rate (2.00%) 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 (.45%) with the 2-year credit default swap rate (.38%) 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.
Debt
is predominantly 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.
9. FINANCIAL DERIVATIVES
FOREIGN CURRENCY HEDGING
The notional amount of foreign currency contracts hedging our exposure related to monetary assets and liabilities denominated in nonfunctional currency totaled $56.8 million at March 31, 2014 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
|
|
March 31, 2014
|
|
|
September 30, 2013
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
Non-designated Foreign Currency Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets and deferred costs (current)
|
|
$
|
0.1
|
|
|
$
|
-
|
|
|
$
|
0.5
|
|
|
$
|
-
|
|
Other accrued liabilities
|
|
|
-
|
|
|
|
1.0
|
|
|
|
-
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Designated Hedges - Interest Rate Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets and deferred costs (noncurrent)
|
|
|
72.9
|
|
|
|
-
|
|
|
|
82.1
|
|
|
|
-
|
|
Long-term debt
|
|
|
-
|
|
|
|
61.6
|
|
|
|
-
|
|
|
|
71.1
|
|
Gross Derivatives
|
|
|
73.0
|
|
|
|
62.6
|
|
|
|
82.6
|
|
|
|
72.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap interest receivable offset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets and deferred costs (current)
|
|
|
(7.7
|
)
|
|
|
-
|
|
|
|
(8.0
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Derivatives
|
|
$
|
65.3
|
|
|
$
|
62.6
|
|
|
$
|
74.6
|
|
|
$
|
72.2
|
|
Income Statement Location and Income (expense)
|
|
Second Quarters
|
|
|
Six Months
|
|
Periods Ended March 31,
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Non-designated Hedges-Foreign Currency Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
$
|
(1.4
|
)
|
|
$
|
0.2
|
|
|
$
|
(0.2
|
)
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Designated Hedges-Interest Rate Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ineffectiveness: Other income (expense)
|
|
$
|
1.4
|
|
|
$
|
(1.9
|
)
|
|
$
|
0.3
|
|
|
$
|
(0.5
|
)
|
Effectiveness: Interest expense
|
|
|
6.8
|
|
|
|
6.6
|
|
|
|
13.6
|
|
|
|
11.6
|
|
10. CREDIT FACILITIES AND INDEBTEDNESS
|
|
March 31, 2014
|
|
|
September 30, 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 (at face)
|
|
|
2,150.0
|
|
|
|
2,150.0
|
|
|
|
|
|
|
|
|
|
|
Discounts:
|
|
|
|
|
|
|
|
|
3.25% Convertible Notes
|
|
|
(3.6
|
)
|
|
|
(23.3
|
)
|
7.5% Bonds
|
|
|
(1.7
|
)
|
|
|
(1.8
|
)
|
5.5% Bonds
|
|
|
(0.9
|
)
|
|
|
(0.9
|
)
|
5.35% Bonds
|
|
|
(1.9
|
)
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
Swap fair value adjustments:
|
|
|
|
|
|
|
|
|
7.5% Bonds
|
|
|
42.0
|
|
|
|
48.4
|
|
5.5% Bonds
|
|
|
19.6
|
|
|
|
22.6
|
|
Total outstanding debt recorded, net
|
|
$
|
2,203.5
|
|
|
$
|
2,192.9
|
|
IGT was compliant with all covenants and embedded features required no bifurcation at March 31, 2014.
Credit Facility
At March 31, 2014, 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, performance bonds, and bank guarantees.
3.25% Convertible Notes
|
|
Second Quarters
|
|
|
Six Months
|
|
Periods Ended March 31,
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Contractual interest expense
|
|
$
|
6.9
|
|
|
$
|
6.9
|
|
|
$
|
13.8
|
|
|
$
|
13.8
|
|
Discount amortization
|
|
|
10.0
|
|
|
|
9.1
|
|
|
|
19.8
|
|
|
|
18.0
|
|
Remaining discount amortization period (in months)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. CONTINGENCIES
LEGAL PROCEEDINGS
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. With respect to litigation and other legal proceedings where the Company has determined that a loss is reasonably possible, the Company is unable to estimate the amount or range of reasonably possible loss in excess of amounts already accrued, due to the inherent difficulty of predicting the outcome of and uncertainties regarding such litigation and legal proceedings. 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
On April 26, 2012, representatives of a purported class of persons allegedly harmed by VLT gaming filed an action in the Supreme Court 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 Derivative Action
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 arguments were made to the Ninth Circuit on 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. The case was temporarily stayed pending Court ordered settlement discussions. On April 23, 2014, IGT and LBG executed a Settlement Agreement. On April 29, 2014, the Court dismissed the case with prejudice.
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. An arbitrator has been selected, and the parties are in the process of scheduling the arbitration dates.
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. On March 25, 2014 the Court stayed this action pending resolution of the related arbitration between IGT and WMS.
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. The arbitration panel has been agreed to by IGT and WMS and discovery has commenced.
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. WMS's motion for preliminary injunction was denied on March 21, 2014 and the case was stayed pending the related arbitration between IGT and WMS.
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. Global Draw has filed a summary judgment application pertaining to the interpretation of certain terms of the SPA that governed the sale of Barcrest Limited. IGT plans to file a defense to the summary judgment application. A hearing on the summary judgment application is currently scheduled for June 24-25, 2014.
OTHER 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 $19.4 million at March 31, 2014. 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 $8.2 million at March 31, 2014.
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 retain a portion of our workers' compensation, automobile liability, directors' and officers' liability, electronic errors and omissions liability, and property and crime risks in the form of deductibles or self-insured retentions and we are self-insured for various levels of 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.
Six Months Ended March 31,
|
|
2014
|
|
|
2013
|
|
Beginning balance
|
|
$
|
4.4
|
|
|
$
|
4.2
|
|
Reduction for payments made
|
|
|
(2.3
|
)
|
|
|
(3.4
|
)
|
Accrual for new warranties issued
|
|
|
2.7
|
|
|
|
5.0
|
|
Adjustments for pre-existing warranties
|
|
|
(1.4
|
)
|
|
|
(1.5
|
)
|
Ending balance
|
|
$
|
3.4
|
|
|
$
|
4.3
|
|
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 six months ended March 31, 2014
decreased t
o 11.0 % from 30.1% 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, partially offset by the adverse impact of nondeductible foreign currency losses related to the Argentine peso devaluation in January 2014. Our 2013 effective tax rate was favorably impacted by an increase in our manufacturing deduction and certain favorable discrete tax items of million, including the expiration of the statute of limitations in certain foreign jurisdictions and a retroactive reinstatement of the R&D tax credit.
At March 31, 2014, our gross UTBs totaled $69.1 million, excluding related accrued interest and penalties of $11.8 million. At March 31, 2014, $52.8 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 six months ended March 31, 2014, our UTBs
decreased
$40.1 million and related interest and penalties
decreased
$11.6 million. We do not believe our total UTBs will change significantly during the next twelve months.
As of March 31, 2014 we 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
SIP Share-based Compensation As Of And For The Six Months Ended March 31, 2014
|
|
|
|
|
Weighted Average
|
|
|
|
|
OPTIONS
|
|
Shares
|
|
|
Exercise
Price
Per
Share
|
|
|
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at beginning of fiscal year
|
|
|
9.1
|
|
|
$
|
18.57
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Exercised
|
|
|
(0.2
|
)
|
|
|
13.60
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(0.1
|
)
|
|
|
16.91
|
|
|
|
|
|
|
|
Expired
|
|
|
(0.2
|
)
|
|
|
29.62
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
8.6
|
|
|
$
|
18.50
|
|
|
|
4.7
|
|
|
$
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
|
|
|
8.5
|
|
|
$
|
17.82
|
|
|
|
4.7
|
|
|
$
|
4.3
|
|
Exercisable at end of period
|
|
|
7.7
|
|
|
$
|
18.79
|
|
|
|
4.4
|
|
|
$
|
4.3
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
RESTRICTED SHARE UNITS
|
|
Shares
|
|
|
Grant Date
Fair Value
Per Share
|
|
|
Remaining
Vesting
Period
(in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at beginning of fiscal year
|
|
|
6.3
|
|
|
$
|
14.55
|
|
|
|
|
|
|
|
Granted
|
|
|
3.5
|
|
|
|
16.29
|
|
|
|
|
|
|
|
Vested
|
|
|
(2.6
|
)
|
|
|
14.39
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(0.3
|
)
|
|
|
15.07
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
6.9
|
|
|
$
|
15.45
|
|
|
|
1.8
|
|
|
$
|
94.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to vest
|
|
|
5.6
|
|
|
$
|
15.38
|
|
|
|
1.8
|
|
|
$
|
76.5
|
|
OTHER INFORMATION
|
|
|
|
|
|
Shares available for future grant
|
|
|
18.5
|
|
Unrecognized costs for outstanding awards
|
|
$
|
82.7
|
|
Weighted average future recognition period (in years)
|
|
|
2.0
|
|
14. EARNINGS PER SHARE
|
|
Second Quarters
|
|
|
Six Months
|
|
Periods Ended March 31,
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Net income available to common shares
|
|
$
|
25.7
|
|
|
$
|
78.2
|
|
|
$
|
105.0
|
|
|
$
|
143.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
247.7
|
|
|
|
263.6
|
|
|
|
250.2
|
|
|
|
264.7
|
|
Dilutive effect of non-participating share-based awards
|
|
|
0.9
|
|
|
|
2.0
|
|
|
|
1.7
|
|
|
|
2.0
|
|
Diluted weighted average common shares outstanding
|
|
|
248.6
|
|
|
|
265.6
|
|
|
|
251.9
|
|
|
|
266.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
0.10
|
|
|
$
|
0.30
|
|
|
$
|
0.42
|
|
|
$
|
0.54
|
|
Diluted EPS
|
|
$
|
0.10
|
|
|
$
|
0.29
|
|
|
$
|
0.42
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares excluded from diluted EPS because the effect would be anti-dilutive:
|
|
Share-based awards
|
|
|
6.1
|
|
|
|
8.5
|
|
|
|
4.7
|
|
|
|
8.9
|
|
3.25 % Convertible Notes
|
|
|
42.6
|
|
|
|
42.6
|
|
|
|
42.6
|
|
|
|
42.6
|
|
Hedges
|
|
|
(42.6
|
)
|
|
|
(42.6
|
)
|
|
|
(42.6
|
)
|
|
|
(42.6
|
)
|
Warrants
|
|
|
42.6
|
|
|
|
42.6
|
|
|
|
42.6
|
|
|
|
42.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares repurchased, including net shares:
*
|
|
|
3.4
|
|
|
|
4.4
|
|
|
|
12.2
|
|
|
|
7.1
|
|
Average price per share
|
|
$
|
17.21
|
|
|
$
|
17.02
|
|
|
$
|
17.26
|
|
|
$
|
15.61
|
|
Aggregate payments
|
|
$
|
0.3
|
|
|
$
|
75.1
|
|
|
$
|
211.3
|
|
|
$
|
75.1
|
|
Remaining authorization at March 31, 2014
|
|
$
|
209.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Net shares tendered by employees at vesting for tax withholding obligations (in thousands)
|
|
|
16.6
|
|
|
|
5.5
|
|
|
|
627.6
|
|
|
|
250.5
|
|
Accelerated Share Repurchase
In January 2014, we received the final delivery of 3.4 million shares of IGT common stock under a $200.0 million accelerated share repurchase transaction executed in November 2013. We received 11.6 million total shares based on the VWAP over the transaction period for an average discounted price of $17.22 per share.
15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
|
|
|
Unrealized
Gain (Loss) -
Treasury
Locks
|
|
|
TOTAL
|
|
|
Foreign
Currency
Translation
|
|
|
Unrealized
Gain (Loss) -
Treasury
Locks
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periods Ended March 31, 2014
|
|
Second Quarter
|
|
|
Six Months
|
|
Beginning balance
|
|
$
|
(2.1
|
)
|
|
$
|
7.8
|
|
|
$
|
5.7
|
|
|
$
|
0.2
|
|
|
$
|
8.0
|
|
|
$
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity before reclassifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount before tax
|
|
|
0.7
|
|
|
|
-
|
|
|
|
0.7
|
|
|
|
(1.6
|
)
|
|
|
-
|
|
|
|
(1.6
|
)
|
Income tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amount net of tax
|
|
|
0.7
|
|
|
|
-
|
|
|
|
0.7
|
|
|
|
(1.6
|
)
|
|
|
-
|
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications to earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount before tax *
|
|
|
-
|
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
-
|
|
|
|
(0.6
|
)
|
|
|
(0.6
|
)
|
Income tax effect
|
|
|
-
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
0.2
|
|
|
|
0.2
|
|
Amount net of tax
|
|
|
-
|
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
-
|
|
|
|
(0.4
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income
|
|
|
0.7
|
|
|
|
(0.2
|
)
|
|
|
0.5
|
|
|
|
(1.6
|
)
|
|
|
(0.4
|
)
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(1.4
|
)
|
|
$
|
7.6
|
|
|
$
|
6.2
|
|
|
$
|
(1.4
|
)
|
|
$
|
7.6
|
|
|
$
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periods Ended March 31, 2013
|
|
Second Quarter
|
|
|
Six Months
|
|
Beginning balance
|
|
$
|
7.9
|
|
|
$
|
-
|
|
|
$
|
7.9
|
|
|
$
|
4.5
|
|
|
$
|
-
|
|
|
$
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity before reclassifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount before tax
|
|
|
(8.5
|
)
|
|
|
-
|
|
|
|
(8.5
|
)
|
|
|
(5.1
|
)
|
|
|
-
|
|
|
|
(5.1
|
)
|
Income tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amount net of tax
|
|
|
(8.5
|
)
|
|
|
-
|
|
|
|
(8.5
|
)
|
|
|
(5.1
|
)
|
|
|
-
|
|
|
|
(5.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications to earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount before tax *
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Income tax effect
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amount net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income
|
|
|
(8.5
|
)
|
|
|
-
|
|
|
|
(8.5
|
)
|
|
|
(5.1
|
)
|
|
|
-
|
|
|
|
(5.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(0.6
|
)
|
|
$
|
-
|
|
|
$
|
(0.6
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
-
|
|
|
$
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Income statement location of earnings reclassifications
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
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 all customers serviced by our 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
|
|
Second Quarters
|
|
|
Six Months
|
|
Periods Ended March 31,
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
NORTH AMERICA
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
414.2
|
|
|
$
|
475.7
|
|
|
$
|
841.6
|
|
|
$
|
885.0
|
|
Gaming operations
|
|
|
200.1
|
|
|
|
220.3
|
|
|
|
391.7
|
|
|
|
428.8
|
|
Product sales
|
|
|
143.8
|
|
|
|
200.6
|
|
|
|
313.8
|
|
|
|
359.5
|
|
Interactive
|
|
|
70.3
|
|
|
|
54.8
|
|
|
|
136.1
|
|
|
|
96.7
|
|
Gross profit
|
|
|
240.8
|
|
|
|
272.5
|
|
|
|
485.3
|
|
|
|
516.7
|
|
Gaming operations
|
|
|
116.8
|
|
|
|
133.1
|
|
|
|
230.5
|
|
|
|
262.7
|
|
Product sales
|
|
|
80.4
|
|
|
|
105.7
|
|
|
|
170.4
|
|
|
|
195.0
|
|
Interactive
|
|
|
43.6
|
|
|
|
33.7
|
|
|
|
84.4
|
|
|
|
59.0
|
|
Operating income
|
|
|
92.9
|
|
|
|
124.1
|
|
|
|
198.8
|
|
|
|
236.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERNATIONAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
98.6
|
|
|
$
|
124.3
|
|
|
$
|
212.4
|
|
|
$
|
245.2
|
|
Gaming operations
|
|
|
30.3
|
|
|
|
34.0
|
|
|
|
61.7
|
|
|
|
68.1
|
|
Product sales
|
|
|
58.8
|
|
|
|
78.4
|
|
|
|
132.4
|
|
|
|
154.2
|
|
Interactive
|
|
|
9.5
|
|
|
|
11.9
|
|
|
|
18.3
|
|
|
|
22.9
|
|
Gross profit
|
|
|
52.0
|
|
|
|
68.8
|
|
|
|
117.3
|
|
|
|
134.0
|
|
Gaming operations
|
|
|
23.6
|
|
|
|
23.6
|
|
|
|
46.1
|
|
|
|
47.1
|
|
Product sales
|
|
|
23.6
|
|
|
|
38.3
|
|
|
|
60.5
|
|
|
|
74.5
|
|
Interactive
|
|
|
4.8
|
|
|
|
6.9
|
|
|
|
10.7
|
|
|
|
12.4
|
|
Operating income
|
|
|
4.1
|
|
|
|
32.2
|
|
|
|
29.1
|
|
|
|
60.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CORPORATE (unallocated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
$
|
(24.9
|
)
|
|
$
|
(27.0
|
)
|
|
$
|
(52.2
|
)
|
|
$
|
(49.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
512.8
|
|
|
$
|
600.0
|
|
|
$
|
1,054.0
|
|
|
$
|
1,130.2
|
|
Gaming operations
|
|
|
230.4
|
|
|
|
254.3
|
|
|
|
453.4
|
|
|
|
496.9
|
|
Product sales
|
|
|
202.6
|
|
|
|
279.0
|
|
|
|
446.2
|
|
|
|
513.7
|
|
Interactive
|
|
|
79.8
|
|
|
|
66.7
|
|
|
|
154.4
|
|
|
|
119.6
|
|
Gross profit
|
|
|
292.8
|
|
|
|
341.3
|
|
|
|
602.6
|
|
|
|
650.7
|
|
Gaming operations
|
|
|
140.4
|
|
|
|
156.7
|
|
|
|
276.6
|
|
|
|
309.8
|
|
Product sales
|
|
|
104.0
|
|
|
|
144.0
|
|
|
|
230.9
|
|
|
|
269.5
|
|
Interactive
|
|
|
48.4
|
|
|
|
40.6
|
|
|
|
95.1
|
|
|
|
71.4
|
|
Operating income
|
|
|
72.1
|
|
|
|
129.3
|
|
|
|
175.7
|
|
|
|
247.7
|
|
17. IMPAIRMENT AND RESTRUCTURING
Quarters and Six Months Ended March 31,
|
|
2014
|
|
|
2013
|
|
Impairment - Alabama
|
|
$
|
1.3
|
|
|
$
|
1.6
|
|
Business realignment
|
|
|
16.5
|
|
|
|
-
|
|
Total
|
|
$
|
17.8
|
|
|
$
|
1.6
|
|
Impairment - Alabama
IGT machines ceased to be operated at the VictoryLand, Country Crossing and Greentrack facilities in 2010, as a result of challenges related to the legality of electronic charitable bingo in Alabama. Impairment has been recognized each year since, as the prospects of collecting our Alabama development financing declined with deteriorating market conditions and the decreasing value of associated property collateral. Fair value was determined using expected cash flows discounted at risk-based market rates. The net carrying amount of the remaining Alabama development financing note totale
d $12.9 milli
on at March 31, 2014.
Business Realignment
To address the recent challenges facing the gaming industry, in March 2014 cost-cutting measures were completed under a plan to realign our operating structure. Under this business realignment, we reduced our global workforce by 7% and recorded charges o
f $16.5 million, including $7.7 millio
n for the impairment of abandoned software. The fair value of abandoned software was determined using expected cash flows discounted at risk-based market rates. No further charges related to this business realignment are expected.
Restructuring Charges And Liability Through March 31, 2014
|
|
|
|
|
|
|
North America
|
|
|
International
|
|
|
Consolidated
|
|
Severance (cash)
|
|
$
|
6.0
|
|
|
$
|
2.8
|
|
|
$
|
8.8
|
|
Impairment (non-cash)
|
|
|
7.0
|
|
|
|
0.7
|
|
|
|
7.7
|
|
Total restructuring charges
|
|
$
|
13.0
|
|
|
$
|
3.5
|
|
|
$
|
16.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance accrued
|
|
|
|
|
|
|
|
|
|
$
|
8.8
|
|
Payments
|
|
|
|
|
|
|
|
|
|
|
(1.2
|
)
|
Remaining restructuring liability (expected to be paid within three months)
|
|
|
|
|
|
|
|
|
|
$
|
7.6
|
|