EX-99.1 8 0008.txt SPIN FOR CASH JV FINANCIALS Spin for Cash Wide Area Progressive Joint Venture Financial Statements for the years ended September 30, 2000, October 2, 1999 and September 30, 1998 and Independent Auditors' Report INDEPENDENT AUDITORS' REPORT To the Co-Venturers of the Spin for Cash Wide Area Progressive Joint Venture: We have audited the accompanying balance sheets of the Spin for Cash Wide Area Progressive Joint Venture (the "Venture") as of September 30, 2000 and October 2, 1999, and the related statements of income, venturers' capital, and cash flows for the years ended September 30, 2000, October 2, 1999 and September 30, 1998. These financial statements are the responsibility of the Venture's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 financial statements present fairly, in all material respects, the financial position of the Venture as of September 30, 2000 and October 2, 1999, and the results of its operations and its cash flows for the years ended September 30, 2000, October 2, 1999 and September 30, 1998, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Reno, Nevada November 6, 2000 SPIN FOR CASH WIDE AREA PROGRESSIVE JOINT VENTURE STATEMENTS OF INCOME
Years Ended September 30, October 2, September 30, 2000 1999 1998 ------------------------------------------------------------------------------------ (Dollars in thousands) REVENUES: Gaming operations $375,379 $293,460 $246,851 -------- -------- -------- COSTS AND EXPENSES: Cost of gaming operations 139,329 121,774 99,768 Depreciation 25,206 20,405 15,124 Research and development 3,853 3,216 2,088 Selling, general, and administrative 300 177 189 Provision for bad debts 28 - 125 -------- -------- -------- Total expenses 168,716 145,572 117,294 -------- -------- -------- INCOME FROM OPERATIONS 206,663 147,888 129,557 -------- -------- -------- OTHER INCOME (EXPENSE): Interest income 9,778 6,307 3,745 Interest expense (4,494) (4,234) (2,323) Loss on investments - (3) - Foreign currency valuation (15) - - -------- -------- -------- Total other income (expense), net 5,269 2,070 1,422 -------- -------- -------- NET INCOME $211,932 $149,958 $130,979 ======== ======== ========
The accompanying notes are an integral part of these financial statements. SPIN FOR CASH WIDE AREA PROGRESSIVE JOINT VENTURE BALANCE SHEETS September 30, October 2, 2000 1999 ------------------------------------------------------------------------------- (Dollars in thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 70,279 $ 57,783 Accounts receivable, net of allowance for doubtful accounts of $102 and $74 35,785 24,674 Investments to fund liabilities to jackpot winners 6,558 4,741 Prepaid royalties 27,443 15,238 Prepaid expenses and other 3,396 931 -------- -------- Total current assets 143,461 103,367 -------- -------- FURNITURE, FIXTURES AND EQUIPMENT, at cost 91,208 51,688 Less accumulated depreciation (49,879) (29,309) -------- -------- Furniture, fixtures and equipment, net 41,329 22,379 -------- -------- PREPAID ROYALTIES - 24,164 -------- -------- INVESTMENTS TO FUND LIABILITIES TO JACKPOT WINNERS 68,274 50,033 -------- -------- TOTAL ASSETS $253,064 $199,943 ======== ======== LIABILITIES AND VENTURERS' CAPITAL CURRENT LIABILITIES: Accounts payable to IGT $ 3,260 $ 27,997 Accounts payable to Anchor 18 715 Jackpot liabilities 26,592 26,529 Commissions and other payables 866 1,297 Capital lease payable to IGT - 398 -------- -------- Total current liabilities 30,736 56,936 LONG-TERM JACKPOT LIABILITIES 81,575 66,197 -------- -------- Total liabilities 112,311 123,133 VENTURERS' CAPITAL 140,753 76,810 -------- -------- TOTAL LIABILITIES AND VENTURERS' CAPITAL $253,064 $199,943 ======== ======== The accompanying notes are an integral part of these financial statements. SPIN FOR CASH WIDE AREA PROGRESSIVE JOINT VENTURE STATEMENTS OF CASH FLOWS
Years Ended ------------------------------------------- September 30, October 2, September 30, 2000 1999 1998 --------------------------------------------------------------------------------------------------- (Dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $211,932 $149,958 $130,979 -------- -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 25,206 20,405 15,124 Provision for bad debts 28 - 125 Increase in accounts receivable (11,139) (4,495) (8,517) (Increase) decrease in prepaid expenses and other 12,186 (38,494) (1,725) Increase (decrease) in accounts payable and accrued expenses (26,263) 17,370 (13,526) -------- -------- -------- Total adjustments 18 (5,214) (8,519) -------- -------- -------- Net cash provided by operating activities 211,950 144,744 122,460 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in furniture, fixtures, and equipment (46,552) (10,749) (31,802) Proceeds from the sale of furniture, fixtures, and equipment 2,396 2,735 2,774 Proceeds from investments to fund liabilities to jackpot winners 4,684 35,449 5,892 Purchase of investments to fund liabilities to jackpot winners (24,742) (21,105) (63,653) -------- -------- -------- Net cash provided by (used in) investing activities (64,214) 6,330 (86,789) ---------- -------- --------
SPIN FOR CASH WIDE AREA PROGRESSIVE JOINT VENTURE STATEMENTS OF CASH FLOWS
Years Ended -------------------------------------------------- September 30, October 2, September 30, 2000 1999 1998 --------------------------------------------------------------------------------------------------------- (Dollars in thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on jackpot liabilities $ (79,823) $ (87,096) $ (5,892) Collection from systems to fund jackpot liabilities 92,572 85,045 79,024 Capital contributions 22,275 22,275 - Distributions (170,264) (159,350) (102,143) ---------- ----------- --------- Net cash used in financing activities (135,240) (139,126) (29,011) ---------- ----------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 12,496 11,948 6,660 CASH AND CASH EQUIVALENTS: Beginning of year 57,783 45,835 39,175 ---------- ----------- --------- End of year $ 70,279 $ 57,783 $ 45,835 ========== =========== ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION - Cash paid for interest during the year $ 4,494 $ 4,512 $ 3,696 ========== =========== ========= SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES - Capital lease additions $ - $ 201 $ 2,128 =========== =========== =========
The accompanying notes are an integral part of these financial statements. SPIN FOR CASH WIDE AREA PROGRESSIVE JOINT VENTURE STATEMENTS OF VENTURERS' CAPITAL -------------------------------------------------------------------------------- (Dollars in thousands) Anchor IGT Total ---------- --------- --------- BALANCE, OCTOBER 1, 1997 $ 17,674 $ 17,417 $ 35,091 Distributions (51,200) (50,943) (102,143) Net income 65,489 65,490 130,979 -------- -------- --------- BALANCE, SEPTEMBER 30, 1998 31,963 31,964 63,927 Capital contributions - 22,275 22,275 Distributions (79,675) (79,675) (159,350) Net income 74,979 74,979 149,958 -------- -------- --------- BALANCE, OCTOBER 2, 1999 27,267 49,543 76,810 Capital contributions 22,275 - 22,275 Distributions (85,132) (85,132) (170,264) Net income 105,966 105,966 211,932 -------- -------- --------- BALANCE, SEPTEMBER 30, 2000 $ 70,376 $ 70,377 $ 140,753 ======== ======== ========= The accompanying notes are an integral part of these financial statements. SPIN FOR CASH WIDE AREA PROGRESSIVE JOINT VENTURE NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 1. ORGANIZATION The Spin for Cash Wide Area Progressive Joint Venture (the Venture) is owned equally by IGT, a wholly owned subsidiary of International Game Technology, and Anchor Gaming (Anchor). The Joint Venture Agreement was signed on December 3, 1996. The first machines operated by the Venture were placed into operation on December 12, 1996. The primary purpose of the Venture is to develop and install innovative gaming machines which utilize shared expertise and knowledge. As of September 30, 2000, the Venture was operating in Canada, Colorado, Indiana, Louisiana, Michigan, Mississippi, Missouri, Native American markets, Nevada, New Jersey, South Dakota and cruise ship markets. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - The financial statements of the Venture are maintained in accordance with applicable accounting principles generally accepted in the United States of America. Revenues - Substantially all of the revenues of the Venture are from the operation of linked progressive slot machines. In Colorado, Louisiana, Michigan, Mississippi, Missouri, Native American markets, Nevada, and South Dakota, the Venture provides the machines and operates the central monitoring system. The casinos pay a percentage of the play to the Venture. In New Jersey, each progressive system is operated by an independent trust managed by representatives from participating casinos. The Venture receives revenues based upon a set annual fee per machine per system. Payments to the jackpot winners are made by the trust. In Canada, Indiana, and the cruise ship markets, where machines are not linked, the Venture provides games for a set daily lease fee. In addition the Venture has stand alone machines in which the Venture participates in the revenue from the machine on a percentage or fee basis. Revenues are recognized as earned. Operating Expenses - IGT and Anchor provide most of the services associated with the operation of the Venture. The cost of these operations are billed to the Venture using methodologies that best approximate the actual cost of these services to the respective partner. Interest is accrued at an annual rate of approximately 8.53% and is billed monthly on balances payable to the partners that are greater than 30 days old and on inventories held for the Venture. Management believes that the methods used to allocate these costs are reasonable. Third Party Expenses - IGT and Anchor receive and pay all invoices from third parties for the delivery of goods or services. The partners invoice the Venture for these costs which are recorded by the Venture. Research and Development - IGT and Anchor perform substantially all of the engineering development work for the Venture and invoice the Venture for these services at cost. Research and development charges are expensed as incurred. Cash and Cash Equivalents - Amounts include 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 short-term marketable securities with maturities of 90 days or less. Such investments are stated at cost, which approximates market value. Depreciation - Substantially all of the Venture's depreciable assets are used directly in gaming operations and are provided by the partners who invoice the Venture for these assets at their approximate cost. Depreciation is recorded on the straight-line method over the following estimated useful lives: Gaming operations equipment 2 to 3 years Furniture, fixtures, and equipment 5 years Prepaid Royalties - Amounts include prepayments for registered trademarks used for various Venture products. Estimates - The preparation of financial statements in conformity with accounting principals generally accepted in the United States of America 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. Reclassifications - Certain amounts in the 1999 and 1998 financial statements have been reclassified to be consistent with the presentation used in 2000. 3. INVESTMENTS TO FUND LIABILITIES TO JACKPOT WINNERS These investments represent discounted US government treasury securities purchased to meet obligations for making payments to linked progressive systems jackpot winners. At September 30, 2000, the Venture had both the intent and ability to hold these investments to maturity and, therefore, classified 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 2025. Investments to fund liabilities to jackpot winners at September 30, 2000 and October 2, 1999 are as follows: Amortized Gross Unrealized Market ------------------ Cost Gains Losses Value -------------------------------------------------------------------- (Dollars in thousands) September 30, 2000 US government obligations $74,832 $1,240 $(1,237) $74,835 ======= ====== ======= ======= October 2, 1999 US government obligations $54,774 $ 679 $(2,382) $53,071 ======= ====== ======= ======= Federal legislation passed in October 1998 permits jackpot winners to elect to receive the discounted value of progressive jackpots won in lieu of annual installments. For jackpots won after the 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 the Venture 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. Therefore, we do not anticipate additional sales of held-to-maturity investments. Proceeds from the sale of these securities were paid to jackpot winners. Therefore, the net realized loss was offset by an equal gain on the settlement of winner liabilities. Below is a summary of sales of these securities: Fiscal Fiscal 2000 1999 ---------------------------------------------- (Dollars in thousands) Proceeds from sale $898 $32,798 Gross realized gains - 107 Gross realized losses 108 1,215 4. CAPITAL LEASES During fiscal 2000, the Venture discontinued leasing machines under capital leases. During fiscal 1999, the Venture leased machines for the operation of Louisiana and Missouri linked progressive systems. The machines were leased from IGT at a rate of 1/36 of the value of the assets each month. As of October 2, 1999, the assets had a net value of $398,000. 5. LIABILITIES TO JACKPOT WINNERS The Venture receives a percentage of the amount played or machine rental and service fees from the linked progressive systems to fund the related jackpot payments in Colorado, Louisiana, Michigan, Mississippi, Missouri, Native American, Nevada, and South Dakota systems. 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 26 years without interest. Future gross payments due to jackpot winners under these systems at September 30, 2000 are as follows: Fiscal Year Ending Payment ------------------------------------ (Dollars in thousands) 2001 $ 18,551 2002 6,558 2003 6,558 2004 6,558 2005 6,558 2006 and after 96,132 -------- $140,915 Jackpot liabilities in the amount of the present value of the jackpots are recorded concurrently with the recognition of the related revenue. Jackpot liabilities include discounted payments due to winners for jackpots won and amounts accrued for jackpots not yet won that are contractual obligations of the Venture. Jackpot liabilities consist of the following: September 30, October 2, 2000 1999 ------------------------------------------------------------------- (Dollars in thousands) Gross payments due to jackpot winners $140,915 $ 188,918 Unamortized discount on payments to jackpot winners (60,227) (138,608) Accrual for jackpots not yet won 27,479 42,416 -------- --------- Total jackpot liabilities 108,167 92,726 Less current liabilities (26,592) (26,529) -------- --------- Long-term jackpot liabilities $ 81,575 $ 66,197 ======== ========= The Venture amortizes the discount on the winner liabilities, recognizing it as interest expense. During fiscal years 2000, 1999, and 1998, the Venture recorded interest expense on jackpot liabilities of $3.8 million, $4.2 million, and $2.3 million. The Venture is required to maintain cash and investments relating to systems liabilities in separate accounts. During fiscal years 2000, 1999, and 1998, the Venture recorded interest income on jackpot investments of $3.8 million, $4.2 million, and $2.3 million. 6. INCOME TAXES The Venture has not made any provision for federal income taxes due to its election to be taxed as a pass-through entity under Internal Revenue Code, Section 704A. Under this election, income of the Venture is taxable to the individual venturers. 7. RELATED-PARTY TRANSACTIONS Substantially all of the goods and services recorded by the Venture are provided by or paid for by IGT and Anchor. These transactions are recorded by the Venture as a trade payable. At September 30, 2000 and October 2, 1999, the payable to IGT was $3.3 million and $28.0 million. As of September 30, 2000 and October 2, 1999, $18,000 and $715,000 was payable to Anchor. The Venture incurred interest expense to IGT of $703,000 during fiscal 2000, $50,000 in fiscal 1999 and $31,000 in fiscal 1998. ******