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International Game Technology Reports 2009 Second Quarter Results

RENO, Nev., April 23 /PRNewswire-FirstCall/ -- International Game Technology (NYSE: IGT) reported financial results for the second quarter ended March 31, 2009.

Net income for the quarter was $38.3 million or $0.13 per diluted share compared to $68.4 million or $0.22 per diluted share in the same quarter last year. For the six month period ended March 31, 2009, net income was $104.0 million or $0.35 per diluted share compared to $182.1 million or $0.57 per diluted share in the same period last year. Both the current and prior year three and six month periods were unfavorably impacted by a number of significant items. A supplemental schedule detailing these items is included at the end of this release.

"Our second quarter saw continued difficult economic conditions worldwide impacting our financial results, but in a number of jurisdictions we are beginning to see stability in play levels," said CEO Patti Hart. "While the environment has been challenging, the success of our innovative new products and business efficiency initiatives give us confidence in our future prospects. In my first month as CEO, I have seen the determination of our employees to capitalize on our industry leadership, and I am confident the results of our efforts will allow IGT to emerge a stronger company once we experience a period of sustained economic stabilization."


    Gaming Operations

                           Quarters Ended       Six Months Ended
                               March 31,            March 31,
                           2009        2008     2009        2008
    Revenues (in
     millions)
      North America      $256.9      $302.9   $524.4      $598.1
      International        37.6        38.1     83.4        75.3
      Total              $294.5      $341.0   $607.8      $673.4

    Gross Margin
      North America          59%         55%      55%         57%
      International          57%         47%      55%         56%
      Total                  59%         54%      55%         57%

    Installed Base
      North America      46,600      48,500
      International      14,700      11,100
      Total              61,300      59,600

Gaming operations quarterly revenues and gross profit declined 14% and 6%, respectively, over the prior year quarter. Declines were the result of lower play levels as well as growth in the mix of stand alone and lease operations games in our installed base. Gross margin was 59% in the quarter compared to 54% in the prior year quarter. The prior year margin was negatively impacted by additional jackpot expense associated with a sharp decline in interest rates and charges for technological obsolescence during that quarter.


    Our installed base of recurring revenue games increased to 61,300 units,
up 1,700 units or 3% from the prior year and up 400 units from the previous
sequential quarter.  The increase over the prior year was driven by growth in
international placements partially offset by a reduction in domestic CDS/Class
II and Class III markets.


    Product Sales
                                      Quarters Ended      Six Months Ended
                                         March 31,           March 31,
                                     2009        2008     2009        2008
    Revenues (in millions)
      North America - Machine       $74.9       $81.7   $212.4      $172.4
      North America - Non Machine    52.0        66.7    129.6       142.9
      International - Machine        36.6        63.4     90.1       186.9
      International - Non Machine    17.7        20.4     37.4        43.6
      Total                        $181.2      $232.2   $469.5      $545.8

    Gross Margin
      North America                    49%         55%      50%         54%
      International                    46%         54%      48%         53%
      Total                            48%         55%      49%         54%

    Units Shipped
      North America                 5,500       6,500   14,900      13,900
      International                 7,100       5,600   13,400      18,500
      Total                        12,600      12,100   28,300      32,400

Product sales revenues and gross profit in the second quarter declined 22% and 31%, respectively, while units shipped worldwide increased 4% over the prior year period. On a regional basis for the quarter, North America revenues decreased 14% driven by a decline in replacement sales partially offset by increased sales of new/expansion units. International revenues declined 35% for the quarter as a result of a less favorable geographic mix of sales, with fewer shipments into casino markets partially offset by increased shipments into Japan and the UK. Total consolidated gross margin on product sales for the quarter was 48% compared to 55% in the prior year quarter, primarily due to a greater proportion of lower margin sales in Japan and the UK and lower levels of non-machines revenues.

Operating Expenses, Other Expense and Taxes

Operating expenses totaled $189.8 million for the quarter, an increase of $5.9 million over the prior year quarter and a sequential decrease of $16.0 million. SG&A, excluding restructuring costs and bad debt provisions, was $96.4 million in the current quarter, a decline of $7.2 or 7%, from the prior sequential quarter.

Other expense, net, totaled $11.6 million, up from $8.8 million in the prior year quarter. The increase was mostly driven by higher interest on increased borrowings and losses on foreign currency exchange, partially offset by gains on investments and retirement of debt.

The tax rate for the quarter was 34.6% compared to 41.9% in the prior year, mostly due to favorable discrete tax items. Excluding these items, the current quarter tax rate would have been approximately 38.0% compared to 37.6% in the prior year quarter.

Balance Sheet and Capital Deployment

For the six months ended March 31, 2009, IGT generated $206.1 million in cash from operations on net income of $104.0 million compared to $195.0 million on net income of $182.1 million in the prior year period.

Working capital increased to $734.0 million at March 31, 2009 compared to $733.4 million at September 30, 2008. Cash and equivalents (inclusive of restricted amounts) totaled $287.9 million and debt totaled $2.2 billion, with $1.0 billion of available capacity on the Company's $2.5 billion line of credit as of March 31, 2009.

Earnings Conference Call

As announced on April 2, 2009, IGT will host a conference call to discuss Second Quarter results at 6:00 a.m. Pacific Time today. The access numbers are as follows:


    Domestic callers dial 888-843-9209, passcode IGT
    International callers dial 415-228-4953, passcode IGT

The conference call will also be broadcast live over the Internet. A link to the webcast is available at our website http://www.IGT.com/InvestorRelations. If you are unable to participate during the live webcast, the call will be archived until Friday, May 1, 2009 at http://www.IGT.com/InvestorRelations.

Interested parties not having access to the Internet may listen to a taped replay of the entire conference call commencing at approximately 8:00 a.m. Pacific Time today. This replay will run through Friday, May 1, 2009. The access numbers are as follows:


    Domestic callers dial 800-925-5092
    International callers dial 402-661-5143

In this release, we make some "forward looking" statements, which are not historical facts, but are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects and proposed new products, services, developments or business strategies. These statements are identified by their use of terms and phrases such as: anticipate; believe; could; estimate; expect; intend; may; plan; predict; project; forecast; on track; continue; and other similar terms and phrases including references to assumptions. These phrases and statements include, but are not limited to, the following:

    --  in a number of jurisdictions we are beginning to see stability in play
        levels.
    --  the success of our innovative new products and business efficiency
        initiatives give us confidence in our future prospects.
    --  the results of our efforts will allow IGT to emerge a stronger company
        once we experience a period of sustained economic stabilization.

Actual results could differ materially from those projected or reflected in any of our forward looking statements. Our future financial condition and results of operations, as well as any forward looking statements, are subject to change and to inherent known and unknown risks and uncertainties. We do not intend, and undertake no obligation, to update our forward looking statements to reflect future events or circumstances. We urge you to carefully review the following discussion of the specific risks and uncertainties that affect our business. These include, but are not limited to:

    --  Unfavorable changes to regulations or problems with obtaining needed
        licenses or approvals
    --  Decline in the popularity of IGT games or unfavorable changes in
        player and operator preferences or a decline in play levels, including
        play levels of recurring revenue games
    --  Continuing or worsening unfavorable economic conditions which may
        reduce product sales, the play levels of our participation games and
        our ability to collect outstanding receivables from our customers
    --  Decreases in or continued low interest rates which in turn increases
        our costs to fund jackpots
    --  Slow growth in the number of new casinos or the rate of replacement of
        existing gaming machines
    --  Failure to successfully develop and manage frequent introductions of
        innovative products
    --  Failure to attract, retain and motivate key employees which may
        adversely affect our ability to compete
    --  Failure or inability to protect our intellectual property
    --  Claims of intellectual property infringement or invalidity
    --  Outstanding debt obligations and significant investments or financing
        commitments which could adversely impact our liquidity
    --  Risks related to international operations

Historical results achieved are not necessarily indicative of future prospects of IGT. More information on factors that could affect IGT's business and financial results are included in our most recent Annual Report on Form 10-K and other public filings made with the Securities and Exchange Commission.

International Game Technology (www.IGT.com) is a global company specializing in the design, development, manufacturing, distribution and sales of computerized gaming machines and systems products.

Unaudited Condensed Consolidated Statements of Income


                                         Quarters Ended   Six Months Ended
                                            March 31,        March 31,
                                         --------------   ----------------
                                          2009    2008     2009     2008
    ----------------------------------------------------------------------

(In millions, except per share

     amounts)
    Revenues
      Gaming operations                   $294.5  $341.0   $607.8   $673.4
      Product sales                        181.2   232.2    469.5    545.8
                                           -----   -----    -----    -----
      Total revenues                       475.7   573.2  1,077.3  1,219.2
                                           -----   -----  -------  -------

Costs and operating expenses

      Cost of gaming operations            121.5   157.1    273.4    290.0
      Cost of product sales                 94.2   105.6    238.0    252.0
      Selling, general and administrative  109.3   111.5    224.3    211.8
      Research and development              52.8    53.8    106.3    105.1
      Restructuring charges                  8.3       -     25.7        -
      Depreciation and amortization         19.4    18.6     39.4     37.8
                                            ----    ----     ----     ----
      Total costs and operating expenses   405.5   446.6    907.1    896.7
                                           -----   -----    -----    -----
    Operating income                        70.2   126.6    170.2    322.5
                                            ----   -----    -----    -----
    Other income (expense), net            (11.6)   (8.8)   (31.4)   (16.6)
                                          ------   -----   ------   ------
    Income before tax                       58.6   117.8    138.8    305.9
      Income tax provisions                 20.3    49.4     34.8    123.8
                                            ----    ----     ----    -----
    Net income                             $38.3   $68.4   $104.0   $182.1
                                           =====   =====   ======   ======
    Basic earnings per share               $0.13   $0.22    $0.35    $0.58
    Diluted earnings per share             $0.13   $0.22    $0.35    $0.57
    Weighted average shares
     outstanding
      Basic                                293.6   312.3    293.4    313.4
      Diluted                              293.9   315.9    293.7    317.2

Unaudited Condensed Consolidated Balance Sheets


                                                      March 31,  September 30,
                                                        2009         2008

--------------------------------------------------------------------------

(In millions)

Assets

      Current assets
        Cash and equivalents                           $191.2       $266.4
        Restricted cash and investments                  96.7        108.0
        Receivables, net                                422.1        530.3
        Inventories                                     189.3        218.3
        Jackpot annuity investments                      67.9         67.5
        Other                                           313.4        279.6
                                                        -----        -----
          Total current assets                        1,280.6      1,470.1
      Notes and contracts receivable, net               202.8        148.2
      Property, plant and equipment, net                582.7        590.9
      Jackpot annuity investments                       413.6        423.4
      Goodwill and intangibles, net                   1,390.0      1,407.4
      Other assets                                      497.0        517.4
                                                        -----        -----
      Total assets                                   $4,366.7     $4,557.4
                                                     ========     ========

Liabilities and Stockholders' Equity

      Current liabilities
        Current maturities of notes payable              $0.9        $16.0
        Accounts payable                                 63.3        105.7
        Jackpot liabilities                             178.7        189.7
        Accrued income taxes                              3.2         15.3
        Dividends payable                                17.8         42.9
        Other accrued liabilities                       282.7        367.1
                                                        -----        -----
          Total current liabilities                     546.6        736.7
      Notes payable, net of current maturities        2,248.1      2,247.1
      Non-current jackpot liabilities                   453.5        461.0
      Other liabilities                                 175.9        203.6
                                                        -----        -----
      Total liabilities                               3,424.1      3,648.4
      Total stockholders' equity                        942.6        909.0
                                                        -----        -----
      Total liabilities and stockholders' equity     $4,366.7     $4,557.4
                                                     ========     ========

Unaudited Condensed Consolidated Statements of Cash Flows


                                                       Six Months Ended
                                                           March 31,
                                                       ----------------
                                                      2009          2008

---------------------------------------------------------------------

(In millions)

Operations

      Net income                                     $104.0        $182.1
      Depreciation, amortization, and asset
       charges                                        148.2         146.4
      Other non-cash items                             47.0          29.4
      Changes in operating assets and
       liabilities:
        Receivables                                    85.5          49.7
        Inventories                                    21.3         (39.0)
        Accounts payable and accrued liabilities      (95.9)        (94.9)
        Jackpot liabilities                           (31.5)          0.1
        Income taxes                                  (76.0)        (29.8)
        Prepaid and other assets                        3.5         (49.0)
                                                     ------        ------
    Cash from operations                              206.1         195.0
                                                      -----         -----
    Investing
      Capital expenditures                           (133.9)       (150.2)
      Investments, net                                (11.9)         67.1
      Jackpot annuity investments, net                 23.7          16.6
      Changes in restricted cash                       11.3         (70.5)
      Loan advances (repayments), net                 (62.6)         (9.9)
      Business acquisitions                           (15.7)         (3.0)
      Other                                             3.7           3.9
                                                      -----         -----
    Cash from investing                              (185.4)       (146.0)
                                                    -------       -------

Financing

      Debt proceeds (repayments), net                  (8.9)        184.1
      Employee stock plans                              5.4          81.7
      Dividends paid                                  (85.8)        (88.4)
      Share repurchases                                   -        (245.0)
                                                     ------       -------
    Cash from financing                               (89.3)        (67.6)
                                                     ------        ------
    Foreign exchange rates effect on cash              (6.6)          9.3
                                                      -----         -----
    Net change in cash and equivalents                (75.2)         (9.3)
    Beginning cash and equivalents                    266.4         261.3
                                                      -----         -----
    Ending cash and equivalents                      $191.2        $252.0
                                                     ======        ======


Unaudited Supplemental Data

                                            Quarters      Six Months
                                             Ended          Ended
                                            March 31,      March 31,

Reconciliation of Net Income to -------------------------

     Adjusted EBITDA                       2009   2008   2009   2008

----------------------------------------------------------------

(In millions)

      Net income                           $38.3  $68.4 $104.0 $182.1
      Income tax provisions                 20.3   49.4   34.8  123.8
      Other (income) expense, net           11.6    8.8   31.4   16.6
      Restructuring charges                  8.3      -   25.7      -
      Depreciation and amortization         69.1   77.1  148.2  146.4
      Share-based compensation (excluding
       restructuring adjustment)             9.4    8.0   21.8   17.3
                                            ----   ----   ----   ----
      Adjusted EBITDA                     $157.0 $211.7 $365.9 $486.2
                                          ====== ====== ====== ======

Adjusted EBITDA (earnings before interest, taxes, depreciation and

amortization, including fixed asset charges, share-based compensation,

restructuring charges, and other income/expense, net) is a supplemental

non-GAAP financial measure used by our management and commonly used by

industry analysts to evaluate our financial performance. Adjusted EBITDA

provides useful information to investors regarding our ability to service

debt and is a commonly used financial analysis tool for measuring and

comparing gaming companies in several areas of liquidity, operating

performance, valuation and leverage. Adjusted EBITDA should not be

construed as an alternative to operating income (as an indicator of our

operating performance) or net cash from operations (as a measure of

liquidity) as determined in accordance with generally accepted accounting

principles. All companies do not calculate Adjusted EBITDA in the same

manner and IGT's presentation may not be comparable to those presented by

    other companies.


                                                   Six Months Ended
                                                       March 31,

Reconciliation of Cash from Operations ----------------

     to Free Cash Flow                               2009     2008

---------------------------------------------------------------

(In millions)

      Cash from operations                         $206.1   $195.0
      Investment in property, plant and equipment   (28.4)   (52.4)
      Investment in gaming operations equipment    (101.2)   (91.9)
      Investment in intellectual property            (4.3)    (5.9)
                                                    -----    -----
      Free Cash Flow before dividends                72.2     44.8
      Dividends paid                                (85.8)   (88.4)
                                                   ------   ------
      Free Cash Flow                               $(13.6)  $(43.6)
                                                  =======  =======

Free cash flow is a supplemental non-GAAP financial measure used by our

management and commonly used by industry analysts to evaluate the

discretionary amount of our net cash from operations. Net cash from

operations is reduced by amounts expended for capital expenditures and

dividends paid. Free cash flow should not be construed as an alternative

to net cash from operations or other cash flow measurements determined in

accordance with generally accepted accounting principles. All companies

do not calculate free cash flow in the same manner and IGT's presentation

may not be comparable to those presented by other companies.

Unaudited Supplemental Data (continued)


                                                          Quarter Ended
    Items Affecting          Income statement               March 31,
     Comparability            line impacted              2009        2008

-------------------------------------------------------------------------

    (In millions, except                              favorable (unfavorable)
     per share amounts)

    Impact of
     interest rate
     changes on
     jackpot liabilities   Cost of gaming operations     $4.8      $(12.3)
    Salvage value
     adjustments           Cost of gaming operations        -           -
    Fixed asset
     charges
     (technological
     obsolescence)         Cost of gaming operations        -        (8.0)
    Inventory
     write-downs
     (technological
     obsolescence)         Cost of product sales            -        (2.4)
    Bad debt               Selling, general, &
     provision              administrative              (12.9)       (5.8)
    Foreign
     currency
     gain (loss)           Other income (expense)        (2.9)        0.4
    Gain on
     repurchases of
     convertible
     debentures            Other income (expense)         2.1           -
                                                        -----       -----
      Subtotal before
       tax                 Income before tax             (8.9)      (28.1)
      Tax effect           Income tax provision           3.4        10.6
                                                         ----        ----
      Subtotal after
       tax                 Net income                   $(5.5)     $(17.5)
                                                        -----      ------

    Other:
      Restructuring        Selling, general, &
       charges              administrative              $(8.3)         $-
      Investment gain
       (loss) (a)          Other income (expense)         2.2           -
                                                          ---         ---
        Subtotal before
         tax               Income before tax             (6.1)          -
        Tax effect (a)     Income tax provision           3.7           -
        Discrete tax
         items             Income tax provision           2.9        (2.6)
                                                          ---       -----
        Subtotal after
         tax               Net income                    $0.5       $(2.6)
                                                        -----     -------

(a)Certain investment write-downs have no tax effect


      Total before tax     Income before tax           $(15.0)     $(28.1)
      Total tax effect     Income tax provision          10.0         8.0
                                                         ----         ---
      Total after tax      Net income                   $(5.0)     $(20.1)
                                                    =========  ==========

      Total per diluted
       share                                           $(0.02)     $(0.06)
                                                     ========  ==========



                                                         Six Months Ended
    Items Affecting          Income statement               March 31,
     Comparability            line impacted              2009        2008

-------------------------------------------------------------------------

    (In millions, except                              favorable (unfavorable)
     per share amounts)

    Impact of
     interest rate
     changes on
     jackpot liabilities   Cost of gaming operations    $(9.2)      $(14.8)
    Salvage value
     adjustments           Cost of gaming operations        -         (5.3)
    Fixed asset
     charges
     (technological
     obsolescence)         Cost of gaming operations     (3.5)        (5.1)
    Inventory
     write-downs
     (technological
     obsolescence)         Cost of product sales         (2.6)        (2.4)
    Bad debt               Selling, general, &
     provision              administrative              (24.2)        (1.2)
    Foreign
     currency
     gain (loss)           Other income (expense)        (7.0)        (1.9)
    Gain on
     repurchases of
     convertible
     debentures            Other income (expense)         6.5            -
                                                          ---          ---
      Subtotal before
       tax                 Income before tax            (40.0)       (30.7)
      Tax effect           Income tax provision          15.2         11.6
                                                         ----         ----
      Subtotal
       after tax           Net income                  $(24.8)      $(19.1)
                                                     --------     --------
    Other:
      Restructuring        Selling, general, &
       charges              administrative             $(25.7)          $-

      Investment gain
       (loss) (a)          Other income (expense)        (3.1)           -
                                                        -----        -----

        Subtotal
         before tax        Income before tax            (28.8)           -
        Tax effect (a)     Income tax provision          10.3            -
        Discrete tax
         items             Income tax provision          19.9         (4.9)
                                                         ----        -----
        Subtotal after
         tax               Net income                    $1.4        $(4.9)
                                                        -----      -------

(a)Certain investment write-downs have no tax effect


      Total before tax     Income before tax           $(68.8)      $(30.7)
      Total tax effect     Income tax provision          45.4          6.7
                                                         ----          ---
      Total after tax      Net income                  $(23.4)      $(24.0)
                                                    =========  ===========

      Total per diluted
       share                                           $(0.08)      $(0.08)
                                                    =========  ===========

SOURCE International Game Technology
CONTACT: Patrick Cavanaugh, Executive Vice President and Chief Financial Officer
or Craig Billings, Vice President Corporate Finance/Investor Relations, both of International Game Technology
1-866-296-4232
Web Site: http://www.igt.com