Edgar Filing: INTERNATIONAL GAME TECHNOLOGY

igt20130725_10q.htm

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 29, 2013

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number 001-10684

International Game Technology

(Exact name of registrant as specified in its charter)

Nevada	88-0173041
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

6355 South Buffalo Drive, Las Vegas, Nevada 89113

(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: (702) 669-7777

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer [X]	Accelerated filer [ ]

Non-accelerated filer [ ] (Do not check if a smaller reporting company)	Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

The number of shares outstanding of each of the registrant’s classes of common stock, as of July 30, 2013:

260.8 million shares of common stock at $.00015625 par value.

TABLE OF CONTENTS

GLOSSARY OF TERMS AND ABBREVIATIONS (as used in this document)		3

PART I – FINANCIAL INFORMATION

Item 1. Unaudited Consolidated Interim Financial Statements		4

	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	5

	CONSOLIDATED BALANCE SHEETS	6

	CONSOLIDATED STATEMENTS OF CASH FLOWS	7

	SUPPLEMENTAL CASH FLOWS INFORMATION	8

	NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		30

	OVERVIEW	32

	CONSOLIDATED RESULTS - A Year Over Year Comparative Analysis	33

	BUSINESS SEGMENT RESULTS (See Note 15)	39

	LIQUIDITY AND CAPITAL RESOURCES	43

	RECENTLY ISSUED ACCOUNTING STANDARDS OR UPDATES	46

	CRITICAL ACCOUNTING ESTIMATES	46

Item 3. Quantitative and Qualitative Disclosures about Market Risk		47

Item 4. Controls and Procedures		48

PART II – OTHER INFORMATION

Item 1. Legal Proceedings		48

Item 1A. Risk Factors		48

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		56

Item 3. Defaults Upon Senior Securities		56

Item 4. Mine Safety Disclosures		56

Item 5. Other Information		56

Item 6. Exhibits		57

GLOSSARY OF TERMS AND ABBREVIATIONS (as used in this document)

Fiscal dates—actual:	Fiscal dates—as presented:
June 29, 2013	June 30, 2013
July 2, 2012	June 30, 2012
September 29, 2012	September 30, 2012

Abbreviation/term	Definition
Anchor	Anchor Gaming
AOCI	accumulated other comprehensive income (loss)
APIC	additional paid-in-capital
ASP	average sales price per machine unit
ASR	accelerated share repurchase transaction
ASU	Accounting Standards Update
5.5% Bonds	5.5% fixed rate notes due 2020
7.5% Bonds	7.5% fixed rate notes due 2019
bps	basis points
CEO	chief executive officer
CFO	chief financial officer
DAU	Daily Active Users
DCF	discounted cash flow
DoubleDown	Double Down Interactive LLC
EBITDA	earnings before interest, taxes, depreciation, and amortization
EPS	earnings per share
ERISA	Employee Retirement Income Security Act
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
GAAP	generally accepted accounting principles
IGT, we, our, the Company	International Game Technology and its consolidated entities
IGT rgs^®	IGT Remote Game Server^®
IP	intellectual property
IRS	Internal Revenue Service
LBG	Lightning Box Games Pty
LIBOR	London inter-bank offered rate
MAU	Monthly Active Users
MDA	management’s discussion and analysis of financial condition and results of operations
Notes	3.25% convertible notes due 2014
OSHA	Occupational Safety & Health Administration
pp	percentage points
R&D	research and development
SEC	Securities and Exchange Commission
SIP	2002 Stock Incentive Plan
SG&A	sales, general and administrative
UK	United Kingdom
US	United States
UTBs	unrecognized tax benefits
VIE	variable interest entity
VWAP	average daily volume weighted average price
VLT	video lottery terminal
WAP	wide area progressive
Yield	average revenue per unit per day
*	not meaningful (in tables)

PART I – FINANCIAL INFORMATION

Item 1.	Unaudited Consolidated Interim Financial Statements

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME		5

CONSOLIDATED BALANCE SHEETS		6

CONSOLIDATED STATEMENTS OF CASH FLOWS		7

SUPPLEMENTAL CASH FLOWS INFORMATION		8

NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS		9

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	9

2.	VARIABLE INTERESTS AND AFFILIATES	11

3.	RECEIVABLES	12

4.	CONCENTRATIONS OF CREDIT RISK	14

5.	INVENTORIES	14

6.	PROPERTY, PLANT AND EQUIPMENT	14

7.	GOODWILL AND OTHER INTANGIBLES	14

8.	FAIR VALUE MEASUREMENTS	15

9.	FINANCIAL DERIVATIVES	17

10.	CREDIT FACILITIES AND INDEBTEDNESS	19

11.	CONTINGENCIES	20

12.	INCOME TAXES	25

13.	EMPLOYEE BENEFIT PLANS	26

14.	EARNINGS PER SHARE	27

15.	BUSINESS SEGMENTS	27

16.	DISCONTINUED OPERATIONS	28

17.	BUSINESS ACQUISITIONS	29

18.	SUBSEQUENT EVENT	29

See accompanying notes

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Periods Ended June 30,
	Third Quarters						Nine Months
	2013			2012			2013			2012
(In millions, except per share amounts)
Revenues
Gaming operations	$	247.3		$	258.2		$	744.3		$	776.4
Product sales		259.2			231.6			772.9			653.4
Interactive		72.5			43.0			192.0			89.8
Total revenues		579.0			532.8			1,709.2			1,519.6
Costs and operating expenses
Cost of gaming operations		95.6			102.5			282.7			303.5
Cost of product sales		119.3			107.2			363.7			305.4
Cost of interactive		26.9			20.5			75.1			42.5
Selling, general and administrative		114.4			104.9			325.0			303.8
Research and development		59.8			55.1			172.3			157.3
Depreciation and amortization		19.3			21.1			58.0			55.8
Contingent acquisition-related costs		19.2			26.0			58.6			37.8
Impairment		1.5			-			3.1			-
Total costs and operating expenses		456.0			437.3			1,338.5			1,206.1
Operating income		123.0			95.5			370.7			313.5
Other income (expense)
Interest income		11.5			11.0			34.0			33.9
Interest expense		(30.5	)		(30.8	)		(92.4	)		(90.9	)
Other		(6.7	)		(1.6	)		(9.6	)		(6.4	)
Total other income (expense)		(25.7	)		(21.4	)		(68.0	)		(63.4	)
Income from continuing operations before tax		97.3			74.1			302.7			250.1
Income tax provision		31.6			27.2			93.5			90.5
Income from continuing operations		65.7			46.9			209.2			159.6
Loss from discontinued operations, net of tax		-			(0.3	)		-			(1.8	)
Net income	$	65.7		$	46.6		$	209.2		$	157.8
Other comprehensive income (loss)
Foreign currency translation adjustment		(10.1	)		(12.2	)		(15.2	)		7.2
Unrealized gain (loss), net of tax		4.4			0.2			4.4			(0.1	)
Comprehensive income	$	60.0		$	34.6		$	198.4		$	164.9

Basic earnings (loss) per share
Continuing operations	$	0.25		$	0.16		$	0.79		$	0.54
Discontinued operations		-			-			-			(0.01	)
Net income	$	0.25		$	0.16		$	0.79		$	0.53

Diluted earnings (loss) per share
Continuing operations	$	0.25		$	0.16		$	0.79		$	0.54
Discontinued operations		-			-			-			(0.01	)
Net income	$	0.25		$	0.16		$	0.79		$	0.53

Cash dividends declared per share	$	0.09		$	0.06		$	0.24		$	0.18

Weighted average shares outstanding
Basic		260.6			292.7			263.4			295.6
Diluted		263.2			294.3			265.6			297.2

See accompanying notes

CONSOLIDATED BALANCE SHEETS

	June 30, 2013			September 30, 2012
(In millions, except par value)
Assets
Current assets
Cash and equivalents	$	229.3		$	206.3
Restricted cash and investment securities		71.0			79.7
Restricted cash and investment securities of VIEs		1.8			2.2
Jackpot annuity investments		44.4			46.9
Jackpot annuity investments of VIEs		13.0			13.3
Accounts receivable, net		334.6			346.6
Current maturities of contracts and notes receivable, net		225.5			218.2
Inventories		95.4			92.9
Deferred income taxes		122.2			96.7
Other assets and deferred costs		132.1			160.5
Total current assets		1,269.3			1,263.3
Property, plant and equipment, net		499.2			555.7
Jackpot annuity investments		236.0			252.3
Jackpot annuity investments of VIEs		36.7			43.4
Contracts and notes receivable, net		123.5			139.3
Goodwill		1,464.8			1,469.7
Other intangible assets, net		145.8			193.4
Deferred income taxes		122.8			106.5
Other assets and deferred costs		216.3			261.5
Total Assets	$	4,114.4		$	4,285.1
Liabilities and Shareholders' Equity
Liabilities
Current liabilities
Short-term debt	$	817.3		$	-
Accounts payable		98.7			87.5
Jackpot liabilities, current portion		139.3			152.4
Accrued employee benefits		31.6			43.7
Accrued income taxes		11.4			8.1
Dividends payable		23.5			16.0
Other accrued liabilities		343.6			322.6
Total current liabilities		1,465.4			630.3
Long-term debt		867.9			1,846.4
Jackpot liabilities		296.5			328.6
Other liabilities		197.1			282.0
Total Liabilities		2,826.9			3,087.3
Commitments and Contingencies
Shareholders' Equity
Common stock: $.00015625 par value; 1,280.0 shares authorized; 270.4 and 343.5 issued; 260.6 and 266.1 outstanding		-			0.1
Additional paid-in capital		1,409.0			1,585.1
Treasury stock at cost: 9.8 and 77.4 shares		(165.3	)		(1,332.9	)
Retained earnings		50.1			941.0
Accumulated other comprehensive income		(6.3	)		4.5
Total Equity		1,287.5			1,197.8
Total Liabilities and Shareholders' Equity	$	4,114.4		$	4,285.1

See accompanying notes

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended June 30,	2013			2012
(In millions)
Operating
Net income	$	209.2		$	157.8
Adjustments:
Depreciation and amortization		175.6			179.3
Acquisition-related contingent earn-out costs		28.0			11.1
Discounts and deferred issuance costs		33.7			30.6
Share-based compensation		28.7			25.4
Impairment		3.1			1.5
Excess tax benefits from employee stock plans		(1.4	)		(2.4	)
Other non-cash items		9.1			6.9
Changes in operating assets and liabilities, excluding acquisitions:
Receivables		(20.7	)		(24.6	)
Inventories		3.7			(14.4	)
Accounts payable and accrued liabilities		(58.7	)		14.5
Jackpot liabilities		(58.2	)		(38.5	)
Income taxes, net of employee stock plans		(24.1	)		(4.1	)
Other assets and deferred costs		7.2			(16.1	)
Net operating cash flows		335.2			327.0
Investing
Capital expenditures		(97.1	)		(170.8	)
Proceeds from assets sold		15.3			20.4
Jackpot annuity investments, net		39.3			36.7
Changes in restricted cash		8.8			6.7
Loans receivable cash advanced		-			(0.8	)
Loans receivable payments received		22.6			22.3
Proceeds from unconsolidated affiliates		-			9.2
Business acquisitions, net of cash acquired		-			(233.9	)
Net investing cash flows		(11.1	)		(310.2	)
Financing
Debt proceeds		160.0			280.0
Debt repayments		(300.0	)		-
Debt issuance costs		(3.2	)		-
Employee stock plan proceeds		12.3			12.7
Excess tax benefits from employee stock plans		1.4			2.4
Share repurchases		(81.0	)		(475.1	)
Noncontrolling interest acquired		-			(2.5	)
Dividends paid		(55.5	)		(53.5	)
Acquisition-related contingent consideration		(27.9	)		-
Net financing cash flows		(293.9	)		(236.0	)
Foreign exchange rates effect on cash and equivalents		(7.2	)		0.5
Net change in cash and equivalents		23.0			(218.7	)
Beginning cash and equivalents		206.3			460.0
Ending cash and equivalents	$	229.3		$	241.3

See accompanying notes

SUPPLEMENTAL CASH FLOWS INFORMATION

Nine Months Ended June 30,	2013			2012
(In millions)
Jackpot funding
Change in jackpot liabilities	$	(58.2	)	$	(38.5	)
Jackpot annuity purchases		(3.8	)		(8.2	)
Jackpot annuity proceeds		43.1			44.9
Net change in jackpot annuity investments		39.3			36.7
Net jackpot funding	$	(18.9	)	$	(1.8	)
Capital expenditures
Property, plant and equipment	$	(18.7	)	$	(35.3	)
Gaming operations equipment		(78.1	)		(133.2	)
Intellectual property		(0.3	)		(2.3	)
Total	$	(97.1	)	$	(170.8	)
Payments
Interest	$	57.7		$	59.2
Income taxes		116.6			93.3
Acquisition-related retention bonuses		29.7			-
Acquisition-related contingent earn out consideration
Operating cash flows		17.2			-
Financing cash flows		27.9			-
	$	45.1		$	-
Non-cash investing and financing items:
Accrued capital asset additions	$	(1.0	)	$	0.7
Interest accretion for jackpot annuity investments		13.5			15.0
Business acquisitions/purchase price adjustments
Fair value of assets	$	-		$	350.5
Fair value of liabilities		-			116.6

Payments for acquisition-related contingent earn-out consideration

Amounts accrued as of the acquisition date are reflected in financing cash flows. Payments for amounts accrued subsequent to the acquisition date, in excess of amounts accrued as part of the purchase price allocation, are reflected in operating cash flows within changes in accounts payable and accrued liabilities.

Depreciation and amortization

Amounts reflected in operating cash flows are comprised of operating expenses shown separately on the income statements, plus those amounts included within cost of product sales, cost of gaming operations, cost of interactive, and discontinued operations.

See accompanying notes

NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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.

	Period End
	Actual	Presented as
Current quarter	June 29, 2013	June 30, 2013
Prior year quarter	June 30, 2012	June 30, 2012
Prior year end	September 29, 2012	September 30, 2012

Our consolidated interim financial statements include the accounts of International Game Technology, including all majority-owned or controlled subsidiaries and VIEs for which we are the primary beneficiary. All inter-company accounts and transactions have been eliminated.

Our consolidated interim financial statements for the current quarter ended June 30, 2013 were prepared without audit on a basis consistent with the comparative quarter ended June 30, 2012, and as appropriate, with the audited financial statements for the year ended September 30, 2012. Certain information and footnote disclosures have been condensed or omitted in conformity with SEC and US GAAP guidance for interim reviews.

Our consolidated interim financial statements include all adjustments of a normal recurring nature necessary to fairly state our consolidated results of operations, financial position, and cash flows 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, 2012.

Unless otherwise indicated in this report:

●

references to years relate to our fiscal years ending September 30

●

dollar amounts in tables are presented in millions, except per share amounts and par value

●

current refers to the quarter ended June 30, 2013

●

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

Use of Estimates

Our consolidated interim financial statements are prepared in conformity with US GAAP. Accordingly, 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.

Treasury Stock Retirement

In December 2012, we retired 75.0 million treasury shares, which decreased treasury stock by $1,252.2 million, APIC by $215.1 million and retained earnings by $1,037.1 million.

Accumulated Other Comprehensive Income (Loss)

	Foreign Currency Translation			Unrealized Gain on Interest Rate Lock			Total
*Third Quarter Ended June 30, 2013*
AOCI beginning balance	$	(0.6	)	$	-		$	(0.6	)
Other comprehensive income before reclassifications:
Amount before tax		(10.1	)		6.9			(3.2	)
Income tax at 37%		-			(2.5	)		(2.5	)
Amount net of tax		(10.1	)		4.4			(5.7	)
Reclassifications to earnings		-			-			-
Net other comprehensive income		(10.1	)		4.4			(5.7	)
AOCI ending balance	$	(10.7	)	$	4.4		$	(6.3	)

*Nine Months Ended June 30, 2013*
AOCI beginning balance	$	4.5		$	-		$	4.5
Other comprehensive income before reclassifications:
Amount before tax		(15.2	)		6.9			(8.3	)
Income tax at 37%		-			(2.5	)		(2.5	)
Amount net of tax		(15.2	)		4.4			(10.8	)
Reclassifications to earnings		-			-			-
Net other comprehensive income		(15.2	)		4.4			(10.8	)
AOCI ending balance	$	(10.7	)	$	4.4		$	(6.3	)

Related Party Transaction

On June 27, 2013, IGT entered into a settlement agreement with the members of the Ader Group (as defined below) in connection with the proxy contest relating to IGT’s 2013 annual meeting of stockholders. Pursuant to the settlement agreement, the members of the Ader Group have agreed to observe certain standstill provisions for the four-year period beginning on the date of the settlement agreement. In addition, the Ader Group and IGT have agreed to a mutual release of claims in connection with, relating to or resulting from the proxy contest. They have also entered into mutual non-disparagement agreements. Furthermore, IGT agreed to reimburse the Ader Group for its documented out-of-pocket costs, fees, and expenses incurred in connection with the proxy contest, up to a maximum of $2.5 million, which was accrued for at June 30, 2013.

Daniel B. Silvers, is a member of both the IGT Board of Directors and of the Ader Group which is collectively comprised of Ader Investment Management LP, Ader Long/Short Fund LP, Doha Partners I LP, Ader Fund Management LLC, Ader Investment Management LLC, Jason N. Ader, Raymond J. Brooks, Jr., Charles N. Mathewson, Daniel B. Silvers, Laura T. Conover-Ferchak, Andrew P. Nelson, and Richard H. Pickup.

Impairment

Impairment charges included $1.5 million related to our UK building held for sale for the third quarter and $1.6 million related to our Alabama notes receivable for the nine months ended June 30, 2013. See Note 19 of our Annual Report on Form 10-K for the year ended September 30, 2012 for additional information about our Alabama notes.

Recently Adopted Accounting Standards or Updates

Qualitative Impairment Assessment for Goodwill and Other Indefinite-Lived Intangibles

At the beginning of 2013, we adopted an ASU issued in September 2011 to simplify the annual goodwill impairment test by allowing an entity to first assess qualitative factors, considering the totality of events and circumstances, to determine that there is a greater than 50% likelihood that the carrying amount of a reporting unit is less than its fair value. If so, then the two-step impairment test is not required. We also adopted an ASU issued in July 2012 to simplify the impairment testing for other indefinite-lived intangibles in a similar fashion. The adoption of these ASUs did not have a material impact on our financial statements.

Amounts Reclassified Out of Accumulated Other Comprehensive Income (AOCI)

In our 2013 second quarter, we adopted an ASU issued in February 2013 requiring disclosure about the reclassifications out of AOCI. For significant reclassifications out of AOCI to earnings in their entirety in the same reporting period, disclosure is required about the effect of the reclassifications on the respective line items on the income statement. This ASU was effective prospectively beginning with our second quarter ended March 31, 2013 and did not have a material impact on our financial statements.

Recently Issued Accounting Standards or Updates—Not Yet Adopted

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 a foreign entity or no longer holds a controlling financial interest in a foreign subsidiary. 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.

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 will be effective for our 2014 first quarter and are not expected to have a material impact on our financial statements.

2. VARIABLE INTERESTS AND AFFILIATES

Variable Interest Entities

New Jersey Trusts

New Jersey regulation 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 $51.5 million at June 30, 2013 and $58.9 million at September 30, 2012.

Latin America Distributor

In March 2012, we contracted with a third party distributor in Latin America to sell IGT products. The distributor is a VIE as it is 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. Under the agreement, our maximum exposure at June 30, 2013 consisted of $0.5 million in note financing provided for operating costs and contract financing under a revolving line of credit of $13.0 million for IGT product purchases. Revenues recognized related to this distributor totaled $0.9 million for the 2013 third quarter and $8.6 million for the nine months ended June 30, 2013. Contracts and notes receivable due from this distributor totaled $12.0 million at June 30, 2013 ($7.9 million current and $4.1 million non-current).

3. RECEIVABLES

Accounts Receivable

Allowances for Credit Losses		June 30, 2013				September 30, 2012
Total		$	21.5			$	19.1

Customer Financing (Contracts and Notes)

	June 30, 2013		September 30, 2012
*Recorded Investment(principal and interest due, net of deferred interest and fees)***
Individually evaluated for impairment	$	77.7	$	123.2
Collectively evaluated for impairment		347.4		307.1
Total	$	425.1	$	430.3

Allowances for Credit Losses
Individually evaluated for impairment	$	61.4	$	59.9
Collectively evaluated for impairment		14.7		12.9
Total	$	76.1	$	72.8

Reconciliation of Allowances for Credit Losses	Periods Ended June 30,
	Third Quarters						Nine Months
	2013			2012			2013		2012
Beginning balance	$	80.6		$	70.5		$	72.8	$	71.4
Charge-offs		-			-			-		-
Recoveries		-			-			-		-
Provisions⁽¹⁾		(4.5	)		(0.5	)		3.3		(1.4	)
Ending balance	$	76.1		$	70.0		$	76.1	$	70.0
Current	$	61.4		$	48.1		$	61.4	$	48.1
Non-current	$	14.7		$	21.9		$	14.7	$	21.9

⁽¹⁾ Included $1.6 million additional Alabama note impairment recorded during the quarter ended March 31, 2013 related to the associated property collateral. The remaining net carrying amount of the note totaled $14.9 million at June 30, 2013.

Age Analysis of Recorded Investment	June 30, 2013						September 30, 2012
	Contracts		Notes		Total		Contracts		Notes		Total
Past Due:
1-29 days	$	8.8	$	1.4	$	10.2	$	6.6	$	-	$	6.6
30-59 days		6.0		1.5		7.5		6.0		1.4		7.4
60-89 days		4.8		1.4		6.2		1.4		1.4		2.8
Over 90 days		15.9		50.7		66.6		6.3		40.0		46.3
Total past due	$	35.5	$	55.0	$	90.5	$	20.3	$	42.8	$	63.1
Total current ⁽²⁾		289.8		44.8		334.6		288.1		79.1		367.2
Grand total	$	325.3	$	99.8	$	425.1	$	308.4	$	121.9	$	430.3

Over 90 days and accruing interest	$	-	$	1.2	$	1.2	$	1.4	$	0.3	$	1.7
Nonaccrual status (not accruing interest)	19.8			76.8		96.6		13.8		75.0		88.8

⁽²⁾ includes impaired Alabama note of $21.5 at June 30, 2013 and $35.0 at September 30, 2012

Recorded Investment by Credit Quality Indicator Using Credit Profile by Internally Assigned Risk Grade
	June 30, 2013						September 30, 2012
	Contracts		Notes		Total		Contracts		Notes		Total
Low	$	84.5	$	-	$	84.5	$	87.8	$	-	$	87.8
Medium		82.0		0.1		82.1		68.3		0.2		68.5
High ⁽³⁾		158.8		99.7		258.5		152.3		121.7		274.0
Total recorded investment	$	325.3	$	99.8	$	425.1	$	308.4	$	121.9	$	430.3

⁽³⁾ includes $75.0 of impaired Alabama note receivable

Impaired loans	June 30, 2013						September 30, 2012
	Contracts		Notes		Total		Contracts		Notes		Total
Recorded investment	$	2.7	$	75.0	$	77.7	$	2.5	$	75.0	$	77.5
Unpaid principal face		2.7		75.0		77.7		2.5		75.0		77.5
Related allowance		1.3		60.1		61.4		1.4		58.5		59.9
Average recorded investment		2.6		75.0		77.6		3.9		79.5		83.4

Interest income recognized on impaired contracts totaled $0.5 million (accrual basis) for the nine months ended June 30, 2013 and no interest income was recognized on impaired loans during the comparable prior year period.

4. CONCENTRATIONS OF CREDIT RISK

Receivables By Legal Gaming Region At June 30, 2013

Nevada	9	%
Canada	7
Illinois	6
California	5
Other (less than 4% individually)	25
North America	52	%

Argentina	18	%
Europe	9
Australia	5
Mexico	6
Other (less than 4% individually)	10
International	48	%

5. INVENTORIES

	June 30, 2013		September 30, 2012
Raw materials	$	54.0	$	48.8
Work-in-process		4.4		2.4
Finished goods		37.0		41.7
Total	$	95.4	$	92.9

6. PROPERTY, PLANT AND EQUIPMENT

	June 30, 2013			September 30, 2012
Land	$	61.2		$	62.7
Buildings		231.1			236.7
Leasehold improvements		15.6			15.3
Machinery, furniture and equipment		304.7			287.9
Gaming operations equipment		802.6			813.5
Total		1,415.2			1,416.1
Less accumulated depreciation		(916.0	)		(860.4	)
Property, plant and equipment, net	$	499.2		$	555.7

7. GOODWILL AND OTHER INTANGIBLES

Goodwill

Activity By Segment
For the Nine Months Ended June 30, 2013	North America			International			Total
Beginning balance	$	1,275.6		$	194.1		$	1,469.7
Purchase price adjustment		(0.2	)		-			(0.2	)
Foreign currency		-			(4.7	)		(4.7	)
Ending balance	$	1,275.4		$	189.4		$	1,464.8

Other Intangibles

During the nine months ended June 30, 2013, $0.2 million of patent legal costs were capitalized with a weighted average life of 2.8 years.

	June 30, 2013						September 30, 2012
Ending Balances	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
Patents	$	376.4	$	327.9	$	48.5	$	379.6	$	310.7	$	68.9
Developed technology		128.8		76.1		52.7		131.9		68.3		63.6
Contracts	20.0			18.3		1.7		23.9		21.1		2.8
Reacquired rights		14.7		4.8		9.9		14.7		3.5		11.2
Customer relationships		61.1		36.0		25.1		61.1		23.9		37.2
Trademarks		12.5		4.6		7.9		12.5		2.8		9.7
Total	$	613.5	$	467.7	$	145.8	$	623.7	$	430.3	$	193.4

	Periods Ended June 30,
	Third Quarters				Nine Months				Future Annual Estimates
Aggregate Amortization	2013		2012		2013		2012		2013		2014		2015		2016		2017
	$	15.9	$	17.6	$	47.8	$	44.8	$	63.0	$	52.1	$	36.1	$	22.0	$	10.2

8. FAIR VALUE MEASUREMENTS

Financial Assets (Liabilities) Carried at Fair Value

	Fair Value			Level 1		Level 2			Level 3
June 30, 2013
Money market funds	$	172.6		$	172.6	$	-		$	-
Derivative assets		75.7			-		75.7			-
Derivative liabilities		(70.9	)		-		(70.9	)		-
Acquisition contingent consideration payable		(99.4	)		-		-			(99.4	)

September 30, 2012
Money market funds	$	77.0		$	77.0	$	-		$	-
Derivative assets		118.2			-		118.2			-
Derivative liabilities		(119.7	)		-		(119.7	)		-
Acquisition contingent consideration payable		(116.4	)		-		-			(116.4	)

Valuation Techniques and Balance Sheet Presentation

Money market funds were primarily money market securities valued based on quoted market prices in active markets.

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 consideration 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% - 80%) to each outstanding scenario, as well as a risk-adjusted discount rate of 18%, to derive the estimated fair value at June 30, 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 consideration payable was presented as a component of other liabilities, $55.0 million current and $44.4 million noncurrent at June 30, 2013 versus $42.8 million current and $73.6 million noncurrent at September 30, 2012. Earn-out consideration of $45.0 million (excluding payroll taxes) was paid during the 2013 second quarter for earnings targets met by DoubleDown during calendar 2012.

The payable fair value increased during the third quarter and nine months ended June 30, 2013 by $11.8 million and $28.0 million, respectively, for contingent acquisition related costs, along with $7.3 million and $29.8 million, respectively for accrued retention plan compensation. Changes in fair value were primarily due to higher earnings projections and the time-value of money.

Reconciliation of Items Carried at Fair Value Using Significant Unobservable Inputs (Level 3)

Nine Months Ended June 30,	2013			2012
	Acquisition Contingent Consideration Payable			Investments in Unconsolidated Affiliates			Acquisition Contingent Consideration Payable
Beginning balance	$	(116.4	)	$	9.3		$	-
Gain (loss) included in:
Other income (expense) - other		-			(0.7	)		-
Other comprehensive income		-			-			-
Issuances		-			-			(88.9	)
Accretion (interest and fair value adjustment)		(28.0	)		0.6			(11.1	)
Settlements		45.0			(9.2	)		-
Ending balance	$	(99.4	)	$	-		$	(100.0	)

Net change in unrealized gain (loss) included in earnings related to instruments still held	$	-		$	-		$	-

Financial Assets (Liabilities) Not Carried at Fair Value

	Carrying Value			Fair Value			Level 1			Level 2		Level 3			Unrealized Gain (Loss)
June 30, 2013
Jackpot investments	$	330.1		$	375.0		$	375.0		$	-	$	-		$	44.9
Contracts & notes receivable		349.0			339.1			-			-		339.1			(9.9	)
Jackpot liabilities		(435.8	)		(437.0	)		-			-		(437.0	)		(1.2	)
Debt		(1,614.4	)		(1,779.7	)		(1,779.7	)		-		-			(165.3	)

September 30, 2012