International Game Technology Reports Fourth Quarter and Fiscal Year 2009 Results

International Game Technology Reports Fourth Quarter and Fiscal Year 2009
Results

RENO, Nev. Nov. 5 /PRNewswire-FirstCall/ -- International Game Technology
(NYSE: IGT) announced today operating results for the fourth quarter and
fiscal year ended September 30, 2009. Net loss for the quarter was $21.3
million or $0.07 per diluted share, inclusive of previously disclosed non-cash
charges of $0.26 per diluted share and restructuring expense of $0.01 per
diluted share. Net income for the same quarter last year was $52.1 million or
$0.18 per diluted share, inclusive of non-cash investment write-downs of $0.10
per diluted share. For the fiscal year, net income was $149.0 million or
$0.51 per diluted share, inclusive of the aforementioned fourth quarter
charges of $0.26 per diluted share and restructuring expense of $0.07 per
diluted share. Net Income for the prior fiscal year was $342.5 million or
$1.10 per diluted share. Comparability for the quarter and fiscal year was
affected by a number of items included in a supplemental schedule at the end
of this release.

"Our fiscal 2009 results reflect a challenging operating environment which we
believe stabilized during our fiscal third and fourth quarters," said CEO
Patti Hart. "While we remain cautious on the timing and extent of the
replacement cycle, we have been encouraged by modest upticks in spending by
many of our casino operator customers over the past two quarters."

Gaming Operations
Fourth quarter revenues and gross profit from gaming operations totaled $283.2
million and $170.2 million, respectively, compared to $331.0 million and
$192.7 million for the same quarter last year. For the year ended September
30, 2009, revenues and gross profit from gaming operations totaled $1.2
billion and $683.8 million, respectively, compared to $1.3 billion and $778.1
million in the prior year. Revenues and gross profit decreased primarily due
to lower play levels and continued shifts in installed base mix to include
more lower-yielding, stand-alone lease machines.

For the current quarter and fiscal year, gross margins on gaming operations
were 60% and 58% respectively, compared to 58% for both prior year periods.
The current quarter benefited from a larger base of fully depreciated units.

As of September 30, 2009, IGT's gaming operations installed base totaled
61,400 units, an increase of 300 units from the immediately preceding quarter
and an increase of 900 units over the prior year. Installed base growth in
international markets was partially offset by a reduction in domestic
placements. As of September 30, 2009, approximately 85% of our installed base
was comprised of variable fee games that earn a percentage of machine play
levels rather than a fixed daily fee.

Product Sales

Quarters Ended Years Ended
September 30, September 30,
------------------ ---------------
2009 2008 2009 2008
---- ---- ---- ----
Revenues (in millions)
North America - Machine $67.9 $114.0 $376.9 $432.2
North America - Non-Machine 59.4 69.6 240.6 299.4
International - Machine 66.0 93.0 212.4 362.6
International - Non-Machine 38.1 24.6 105.2 96.5
---- ---- ----- ----
Total $231.4 $301.2 $935.1 $1,190.7

Gross Margin
North America 50% 54% 51% 54%
International 53% 53% 48% 54%
Total 51% 54% 50% 54%

Unit Information
North America
Units Shipped 6,100 11,000 26,400 37,100
Shipped, Not Recognized (2,000) (2,100) (2,800) (2,100)
Recognized, Previously Shipped 100 - 2,300 -
--- --- ----- ---
Equivalent Units Recognized 4,200 8,900 25,900 35,000

International
Units Shipped 9,500 11,200 29,800 37,700
Shipped, Not Recognized (1,700) - (2,200) -
Recognized, Previously Shipped 100 - 100 -
--- --- --- ---
Equivalent Units Recognized 7,900 11,200 27,700 37,700

Product sales revenues and gross profit in the fourth quarter declined 23% and
26%, respectively, while units shipped worldwide decreased 30% over the prior
year quarter. For the fiscal year ended September 30, 2009, product sales
revenues and gross profit declined 21% and 27%, respectively, while units
shipped worldwide decreased 25% over the prior year. North America revenues
decreased 31% for the quarter and 16% for the fiscal year, largely driven by
fewer new openings and replacement sales. International revenues declined 11%
for the quarter and 31% for the fiscal year as international markets continue
to feel the effects of the economic slowdown, most notably in Continental
Europe, Japan and South America, and unfavorable changes in currency exchange
rates. Consolidated gross margin on product sales for the quarter was 51%
compared to 54% in the prior year quarter, and 50% for the full year compared
to 54% last year. Both periods were unfavorably impacted by lower volumes
spread across fixed manufacturing costs, as well as higher costs related to
systems upgrades and fewer systems sales, which carry higher margins.

Deferred revenue increased approximately $48.8 million during the quarter to
$122.0 million as of September 30, 2009, as a result of additional
multi-element contracts. As we continue to pursue our sales strategy, we may
experience increasing levels of deferred revenues from multi-element contracts
including systems software and machines bundled together. Units shipped for
the current periods reflect all units shipped to customers and include units
for which revenues have been deferred. "Equivalent units recognized"
represents units recognized in revenues during the periods under U.S.
generally accepted accounting principles and includes units for which revenues
were previously deferred. We have included in the table above a
reconciliation of units shipped to units recognized in revenue for each period
presented.

Operating Expenses and Other Income/Expense
Fourth quarter operating expenses totaled $261.9 million, compared to $204.4
million in the prior year period. Excluding a non-cash charge of $78.0
million associated with our investment in Walker Digital, restructuring
charges of $5.2 million and bad debt expense of $9.0 million, operating
expense would have been $169.7 million, a 16% decrease from the prior year
quarter. For the full year, operating expenses increased to $830.3 million,
compared to $759.8 million in fiscal 2008, primarily due to the above
mentioned non-cash charges, restructuring charges and higher bad debt
provisions.

Other expense, net, in the fourth quarter totaled $34.8 million, a decrease of
$12.0 million from the prior year period. The decrease was mostly due to
reduced investment write-downs, which included LVGI impairment of $13.3
million in the current quarter and less foreign exchange loss, partially
offset by increased borrowing costs on our recent refinancings. Other
expense, net, for the full year increased $14.8 million to $83.3 million,
driven primarily by additional interest expense, partially offset by reduced
investment write-downs.

Cash Flows, Balance Sheet and Capital Deployment
For the fiscal year ended September 30, 2009, IGT generated $547.9 million in
cash from operations on net income of $149.0 million compared to $486.5
million on net income of $342.5 million in the prior year. Increases in
year-over-year cash from operations were primarily the result of reductions in
receivable and inventory balances and additional pre-payments for long-term
licensing rights in the prior year.

Working capital decreased to $609.2 million at September 30, 2009 compared to
$733.4 million at September 30, 2008. Cash equivalents and short-term
investments (inclusive of restricted amounts) totaled $247.4 million at
September 30, 2009 versus $374.4 million at September 30, 2008. Debt totaled
$2.2 billion at September 30, 2009 compared to $2.3 billion at September 30,
2008. The available capacity on our $1.8 billion line of credit totaled $1.7
billion as of September 30, 2009.

Our 3.25% convertible notes and warrants were excluded from diluted shares
outstanding for the periods ended September 30, 2009, because the conversion
price and exercise price exceeded the average market price of our common
stock. The weighted average stock price during the fourth quarter and the
period from issuance to September 30, 2009 was $19.62 and $18.18,
respectively.

Earnings Conference Call
As previously announced on October 14, 2009, IGT will host a conference call
regarding its Fourth Quarter and Fiscal Year 2009 earnings release on
Thursday, November 5, 2009 at 2:00 p.m. (Pacific Time). 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, November 13, 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 4:00 p.m.
(Pacific Time) on Thursday, November 5, 2009. This replay will run through
Friday, November 13, 2009. The access numbers are as follows:

Domestic callers dial 800-293-4240
International callers dial 203-369-3224

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:
-- We are encouraged by modest upticks in spending by many of our casino
operator customers over the past two quarters

-- Statements about the potential effects of the purchased note hedges
and
sold warrant transactions

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 and
maintaining 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, deploy and manage frequent
introductions of innovative products and systems
-- 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
-- Risks of regulatory approvals for new products and systems
-- Risks inherent in developing, deploying, and managing new products and
systems

-- The uncertainty involved in player operator acceptance of new products
and systems

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 Years Ended
September 30, September 30,
---------------- ---------------
2009 2008 2009 2008
---- ---- ---- ----
(In millions, except per
share amounts)
Revenues
Gaming operations $283.2 $331.0 $1,178.9 $1,337.9
Product sales 231.4 301.2 935.1 1,190.7
----- ----- ----- -------
Total revenues 514.6 632.2 2,114.0 2,528.6
----- ----- ------- -------
Costs and operating expenses
Cost of gaming operations 113.0 138.3 495.1 559.8
Cost of product sales 112.4 139.5 467.3 549.7
Selling, general and
administrative 104.1 124.9 425.1 458.5
Research and development 53.4 59.6 211.8 223.0
Restructuring charges 5.2 - 35.0 1.6
Depreciation and amortization 21.2 19.9 80.4 76.7
Loss on other assets 78.0 - 78.0 -
---- --- ---- ---
Total costs and operating
expenses 487.3 482.2 1,792.7 1,869.3
----- ----- ------- -------
Operating income 27.3 150.0 321.3 659.3
---- ----- ----- -----
Other income (expense), net (34.8) (46.8) (83.3) (68.5)
------ ------ ------ ------
Income (loss) before tax (7.5) 103.2 238.0 590.8
Income tax provisions 13.8 51.1 89.0 248.3
---- ---- ---- -----
Net income (loss) $(21.3) $52.1 $149.0 $342.5
====== ===== ====== ======
Basic earnings per share ($0.07) $0.18 $0.51 $1.11
Diluted earnings per share ($0.07) $0.18 $0.51 $1.10
Weighted average shares
outstanding
Basic 294.5 296.1 293.8 308.0
Diluted (a) 294.5 297.0 294.5 310.4

(a) The current quarter weighted average shares outstanding included no
incremental shares because the effect of the loss would be antidilutive.

Unaudited Condensed Consolidated Balance Sheets
September 30,
----------------------
2009 2008
---- ----
(In millions)
Assets
Current assets
Cash and equivalents $146.7 $266.4
Investment securities 21.3 -
Restricted cash and investments 79.4 108.0
Jackpot annuity investments 67.2 67.5
Receivables, net 489.1 530.3
Inventories 157.8 218.3
Other assets and deferred costs 272.2 279.6
----- -----
Total current assets 1,233.7 1,470.1
Property, plant and equipment, net 558.8 590.9
Jackpot annuity investments 396.9 423.4
Notes and contracts receivable, net 249.4 148.2
Goodwill and other intangibles, net 1,410.7 1,407.4
Other assets and deferred costs 538.7 517.4
----- -----
Total assets $4,388.2 $4,557.4
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of notes payable $5.3 $16.0
Accounts payable 90.5 105.7
Jackpot liabilities 155.5 189.7
Accrued income taxes 9.4 15.3
Dividends payable 17.8 42.9
Other accrued liabilities 346.0 367.1
----- -----
Total current liabilities 624.5 736.7
Notes payable, net of current
maturities 2,169.5 2,247.1
Non-current jackpot liabilities 432.6 461.0
Other liabilities 194.3 203.6
----- -----
Total liabilities 3,420.9 3,648.4
Total stockholders' equity 967.3 909.0
----- -----
Total liabilities and stockholders'
equity $4,388.2 $4,557.4
======== ========

Unaudited Condensed Consolidated Statements of Cash Flows

Years Ended
September 30,
--------------------------
2009 2008
---- ----
(In millions)
Operations
Net income $149.0 $342.5
Depreciation, amortization, and asset
charges 276.8 286.0
Other non-cash items 82.2 54.3
Losses and impairments on other assets 93.7 28.6
Changes in operating assets and
liabilities:
Receivables 8.1 (76.8)
Inventories 55.6 (83.0)
Other assets and deferred costs 1.0 (48.4)
Income taxes (35.4) 8.6
Accounts payable and accrued
liabilities 6.3 (3.0)
Jackpot liabilities (89.4) (22.3)
------ ------
Cash from operations 547.9 486.5
----- -----
Investing
Capital expenditures (257.4) (298.2)
Proceeds from assets sold 13.8 34.1
Investments, net (12.0) 57.4
Jackpot annuity investments, net 54.3 45.7
Changes in restricted cash 29.0 (77.3)
Loans receivable, net (100.3) (43.1)
Business acquisitions, net of cash
acquired (15.8) (84.3)
------ ------
Cash from investing (288.4) (365.7)
------- -------
Financing
Debt related proceeds (payments), net (273.5) 754.1
Employee stock plans 13.6 86.0
Share repurchases - (779.7)
Dividends paid (121.3) (175.6)
------- -------
Cash from financing (381.2) (115.2)
------- -------
Foreign exchange rates effect on cash 2.0 (0.5)
--- -----
Net change in cash and equivalents (119.7) 5.1
Beginning cash and equivalents 266.4 261.3
----- -----
Ending cash and equivalents $146.7 $266.4
====== ======

Unaudited Supplemental Data
Quarters Ended Years Ended
September 30, September 30,
Reconciliation of Net Income -------------- -------------
to Adjusted EBITDA 2009 2008 2009 2008
---------------------------- ---- ---- ---- ----
(In millions)
Net income (loss) $(21.3) $52.1 $149.0 $342.5
Income tax provisions 13.8 51.1 89.0 248.3
Depreciation, amortization,
and asset charges 64.5 75.6 276.8 286.0
Other (income) expense, net 34.8 46.8 83.3 68.5
Other charges:
Share-based compensation
(excluding restructuring
adjustment) 9.6 10.9 42.4 38.4
Restructuring charges 5.2 - 35.0 1.6
Loss on other assets 78.0 - 78.0 -
---- --- ---- ---
Adjusted EBITDA $184.6 $236.5 $753.5 $985.3
====== ====== ====== ======

Adjusted EBITDA (earnings before interest, taxes, depreciation and
amortization, including other income/expense, net, and other charges as
noted in the table above ) 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.

Years Ended
September 30,
Reconciliation of Cash from ---------------
Operations to Free Cash Flow 2009 2008
----------------------------- ---- ----
(In millions)

Cash from operations $547.9 $486.5
Investment in property, plant and equipment (37.7) (92.5)
Investment in gaming operations equipment (180.8) (190.6)
Investment in intellectual property (38.9) (15.1)
------ ------
Free Cash Flow before dividends 290.5 188.3
Dividends paid (121.3) (175.6)
------ ------
Free Cash Flow $169.2 $12.7
====== =====

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)
Quarters Ended Years Ended
September 30, September 30,
Items Affecting Income statement -------------- -------------
Comparability line impacted 2009 2008 2009 2008
-----------------------------------------------------------------------
(In millions, except per share amounts) favorable (unfavorable)

Impact of Cost of gaming
interest rate operations
changes on
jackpot
liabilities $(2.2) $(0.6) $(8.2) $(16.2)
Salvage value Cost of gaming
adjustments operations (1.7) - (1.7) (5.3)
Fixed asset Cost of gaming
charges operations
(technological
obsolescence) - - (3.5) (5.1)
Inventory Cost of product
write-downs sales
(technological
obsolescence) - (5.0) (2.6) (7.4)
Bad debt Sales, General, &
provision Administrative (9.0) (3.5) (33.9) (9.0)
Foreign Other income
currency loss (expense), net (1.2) (4.7) (6.8) (4.4)
----- ----- ----- -----
Subtotal before Income (loss)
tax before tax (14.1) (13.8) (56.7) (47.4)
Tax effect Income tax
provision 5.2 5.4 21.0 18.0
--- --- ---- ----
Subtotal after Net income (loss)
tax $(8.9) $(8.4) $(35.7) $(29.4)
----- ----- ------ ------

Other:
Restructuring Restructuring
charges charges $(5.2) $- $(35.0) $(1.6)
Debt Sales, General, &
refinancing Administrative
advisory fees - - (1.8) -
Debt Other income
refinancing (expense), net
breakage
charges - - (4.4) -
Gain on Other income
repurchases of (expense), net
convertible
debentures - - 6.5 -
Loss on other Loss on other
assets assets (78.0) - (78.0) -
Investment Other income
loss (a) (expense), net (13.6) (28.6) (15.7) (28.6)
------ ------ ------ ------
Subtotal Income (loss)
before tax before tax (96.8) (28.6) (128.4) (30.2)
Tax effect Income tax
(a) provision 31.4 - 42.9 0.6
Tax items Income tax
provision (12.6) (0.6) 7.7 (8.9)
------ ----- --- -----
Subtotal Net income
after tax (loss) $(78.0) $(29.2) $(77.8) $(38.5)
------ ------ ------ ------

Total before Income (loss)
tax before tax $(110.9) $(42.4) $(185.1) $(77.6)
Total tax Income tax
effect provision 24.0 4.8 71.6 9.7
---- --- ---- ---
Total Net income (loss) $(86.9) $(37.6) $(113.5) $(67.9)
after tax ====== ====== ======= ======

Total per
diluted share $(0.30) $(0.13) $(0.39) $(0.22)
====== ====== ====== ======

(a) Certain investment gain/loss has no tax effect

Non-cash charges
previously disclosed,
after tax:
Walker Loss on other
Digital assets
intellectual
property
restructuring $(49.2)
LVGI Other income
investment (expense), net
impairment (12.7)
Foreign Income tax
deferred tax provision
valuation
allowance (15.3)
------
$(77.2)
======

Unaudited Supplemental Data (continued)

Impact of Share Price on Diluted Shares Outstanding from $850.0
Million 3.25% Convertible Notes Issued May 11, 2009, Purchased
Bond Hedges, and Sold Warrants

Closing Incremental Dilution
Stock Price --------------------
Assumption GAAP (1) Proforma (2)
----------- -------------------------
(Shares outstanding in millions)
$10.00 - -
$12.00 - -
$14.00 - -
$16.00 - -
$18.00 - -
$20.00 0.1 -
$22.00 3.9 -
$24.00 7.2 -
$26.00 9.9 -
$28.00 12.2 -
$30.00 14.2 -
$32.00 18.5 2.5
$34.00 22.4 4.8
$36.00 25.9 6.9
$38.00 29.0 8.8
$40.00 31.8 10.5
$42.00 34.4 12.0
$44.00 36.7 13.4
$46.00 38.8 14.7
$48.00 40.7 15.8
$50.00 42.5 16.9
$52.00 44.1 17.9
$54.00 45.6 18.8
$56.00 47.0 19.7
$58.00 48.4 20.4
$60.00 49.6 21.2

The table above demonstrates the estimated potential impact on the
diluted share count used in calculating diluted earnings per share
for IGT's 3.25% convertible notes and the related purchased note
hedges and separate sold warrant transactions assuming certain stock
price levels. The convertible notes and sold warrants were excluded
from our diluted shares outstanding for the period ended September 30,
2009, because the conversion price and exercise price exceeded the
average market price of our common stock.

(1) GAAP dilution is calculated per GAAP requirements by reference to
the amount by which our stock price exceeds the initial $19.97
conversion price of the convertible notes plus dilution from the sold
warrants to the extent our stock price exceeds the warrants' exercise
price of $30.14 and excludes the impact of the purchased note hedges
which have an exercise price of $19.97, because the convertible note
hedges are anti-dilutive.

(2) Pro Forma dilution represents the estimated potential economic
dilution including the anti-dilutive impact of the purchased note
hedges.

The table above is for illustrative purposes only; IGT is unable to
predict its future stock price and IGT's stock could trade below or
above the closing price assumptions in the table.

SOURCE International Game Technology

Patrick Cavanaugh, Executive Vice President, Chief Financial Officer and
Treasurer, or Craig Billings, Vice President Corporate Finance/Investor
Relations, both of IGT, 1-866-296-4232