INTERNATIONAL GAME TECHNOLOGY 
By LAS VEGAS, Jan. 20, 2011 /PRNewswire/ -- International Game Technology (NYSE: IGT) announced today operating results for the fiscal first quarter ended December 31, 2010. Income from continuing operations for the quarter was $73 million, or $0.25 per share, compared to $75 million, or $0.26 per share, in the same quarter last year. This quarter's earnings were favorably impacted by $0.04 per share from certain discrete tax benefits and gain on the sale of our equity investment in China LotSynergy Holdings, Ltd. ("CLS"), as set forth in a supplemental schedule attached to this release.
"Our first quarter results are reflective of our focus on improving our profitability and processes. While consistent top-line growth remains challenging, our internal cost cutting and operational improvement strategies are solidly taking hold," said CEO Patti Hart. "Based on early customer feedback, we are confident that our recently released games are gaining momentum. We look forward to better demonstrating our top-line focused initiatives in the second half of this year and beyond."
Consolidated Operations
Consolidated revenues for the first quarter were $465 million, of which 56% was generated from gaming operations and 44% from product sales, compared to $515 million for the same quarter last year. Consolidated gross profit and operating income for the quarter were $276 million and $121 million, respectively, compared to $296 million and $144 million, in the prior year first quarter. Consolidated revenues decreased primarily due to fewer international openings and expansions in the quarter versus last year.
Gaming Operations
First quarter revenues from gaming operations totaled $261 million compared to $277 million for the same quarter last year. Revenues decreased primarily due to a reduced installed base. Average revenue per unit in the first quarter was $50.38, a decrease of $0.48 per day from the immediately preceding quarter and an increase of $1.13 year over year. The year over year increase was mainly due to fewer lower-yielding units.
Gaming operations gross profit totaled $165 million in the first quarter, down 5% year over year. For the current quarter, gross margins on gaming operations were 63%, compared to 62% for the same quarter last year. Margins for this year's quarter were positively impacted by the removal of lower yielding charitable bingo games in Alabama.
At the end of the quarter, IGT's gaming operations installed base totaled 56,700 units, a decrease of 300 units from the immediately preceding quarter and 5,400 units from the prior year first quarter primarily due to the closure of certain charitable bingo facilities in Alabama (4,900 units) and the conversion of leased games to for-sale units in Mexico (1,000 units).
Product Sales
First quarter product sales revenues were $204 million, down 14% from $238 million a year ago. Globally, the company recognized 9,400 units in the quarter, down from 11,900 for the corresponding quarter of last year, primarily due to fewer new shipments in both International and North America regions.
Gross profit in the first quarter declined 9% to $112 million while gross margin improved nearly 300 bps to 55%. The increase in gross margin resulted primarily from a stronger mix of non-machine sales and an improved geographic mix.
Operating Expenses and Other Income/Expense
First quarter operating expenses increased to $155 million compared to $152 million in the prior year quarter, primarily due to higher research and development expenses, partially offset by lower bad debt and depreciation expense.
Other expense, net, in the first quarter decreased to $18 million compared to $29 million in the prior year quarter, primarily due to lower interest expense on reduced borrowings and gain on the sale of our CLS equity investment.
Cash Flows, Balance Sheet and Capital Deployment
For the quarter ended December 31, 2010, IGT generated $102 million in cash from operations on net income of $74 million compared to $169 million on net income of $73 million in the prior year period.
Working capital increased to $654 million at December 31, 2010 compared to $620 million at September 30, 2010. Cash equivalents and short-term investments (inclusive of restricted amounts) totaled $254 million and contractual debt obligations totaled $1.67 billion, with $1.21 billion of available capacity on our $1.24 billion line of credit as of December 31, 2010. In the first quarter, the company paid down debt obligations by $80 million.
The company's 3.25% convertible notes and warrants were excluded from diluted shares outstanding for the period ended December 31, 2010, because the conversion price and exercise price exceeded the average market price of our common stock.
Additional Information
In the quarter, the company recognized tax benefits of $7 million, or approximately $0.03 per share, from the implementation of certain tax planning strategies and the reinstatement of the Research and Development Tax Credit. As a result, the tax rate for the current quarter was 29%. The company expects the tax rate to be 36% in each of the next three quarters, or approximately 34% for the full year.
References to per share amounts in this release are based on diluted shares of our common stock, unless otherwise specified.
Earnings Conference Call
As previously announced on Dec. 30, 2010, IGT will host a conference call regarding its First Quarter Fiscal Year 2011 earnings release on Thursday, Jan. 20, 2011 at 2:00 p.m. PST. The access numbers are as follows:
Domestic callers dial 888-843-9209, passcode IGT
International callers dial 312-470-7145, 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 Thursday, Jan. 27, 2011 also at http://www.IGT.com/InvestorRelations.
Interested parties who cannot participate at the time of the call may listen to a taped replay of the entire conference call commencing at approximately 4:00 p.m. PST on Thursday, Jan. 20, 2011. This replay will run through Thursday, Jan. 27, 2011. The access numbers are as follows:
Domestic callers dial 866-505-9256
International callers dial 203-369-1880
Q1 FY 2011 Excel file
Q1 FY 2011 PDF of this press release
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This press release contains forward-looking statements that involve risks and uncertainties. These statements include our expected future financial and operational performance, our strategic and operational plans, and statements about the potential effects of the purchased note hedges and sold warrant transactions. Actual results may differ materially from the results predicted, and reported results should not be considered an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, general economic conditions and changes in economic conditions affecting the casino industry; changes in interest rates affecting our jackpot liability expense; slow growth in the number of new gaming jurisdictions or new casinos or the rate of replacement of existing gaming machines; changes in operator or player preferences for our games; changes in laws or regulations affecting our business; our ability to develop and introduce new products and their acceptance by our customers; risks related to our international operations and the additional risks and uncertainties included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for fiscal 2010 filed with the SEC on December 1, 2010, as amended by Amendment No. 1 to our Annual Report on Form 10-K filed with the SEC on December 29, 2010, and available on the SEC website at www.sec.gov and on our investor relations website at www.IGT.com/InvestorRelations. Additional information will also be set forth in our Quarterly Report on Form 10-Q for our fiscal quarter ended December 31, 2010, which we expect to file with the SEC in the first quarter of calendar 2011. All information provided in this release is as of January 20, 2011, and IGT undertakes no duty to update this information.
About IGT
International Game Technology (NYSE: IGT) is a global leader in the design, development, and manufacture of gaming machines and systems products, as well as online and mobile gaming solutions for regulated markets. More information about IGT is available at www.IGT.com.
Unaudited Condensed Consolidated Statements
of Income
Quarters Ended
December 31,
------------
2010 2009
---- ----
(In millions, except per share
amounts)
Revenues
Gaming operations $260.6 $276.7
Product sales 204.2 238.4
----- -----
Total revenues 464.8 515.1
----- -----
Costs and operating expenses
Cost of gaming operations 95.9 104.0
Cost of product sales 92.7 115.3
Selling, general and administrative 84.9 87.3
Research and development 51.7 45.4
Depreciation and amortization 18.2 19.4
---- ----
Total costs and operating expenses 343.4 371.4
----- -----
Operating income 121.4 143.7
----- -----
Other income (expense)
Interest income 13.4 16.0
Interest expense (35.4) (43.2)
Other 4.0 (1.3)
--- ----
Total other income (expense) (18.0) (28.5)
----- -----
Income from continuing operations
before tax 103.4 115.2
Income tax provision 30.0 39.8
---- ----
Income from continuing operations 73.4 75.4
Income (loss) from discontinued
operations, net of tax 0.3 (2.1)
--- ----
Net income $73.7 $73.3
===== =====
Basic earnings per share
Continuing operations $0.25 $0.26
Discontinued operations - (0.01)
--- -----
Net income $0.25 $0.25
===== =====
Diluted earnings per share
Continuing operations $0.25 $0.26
Discontinued operations - (0.01)
--- -----
Net income $0.25 $0.25
===== =====
Weighted average shares outstanding
Basic 297.6 295.1
Diluted 298.8 297.4
Unaudited Condensed Consolidated Balance
Sheets
September
December 31, 30,
------------ ---------
2010 2010
---- ----
(In millions)
Assets
Current assets
Cash and equivalents $168.7 $158.4
Restricted cash and investments 84.9 90.5
Jackpot annuity investments 64.9 65.1
Receivables, net 472.5 474.4
Inventories 113.0 97.6
Other assets and deferred costs 271.1 316.4
----- -----
Total current assets 1,175.1 1,202.4
Property, plant and equipment, net 584.3 586.7
Jackpot annuity investments 356.5 360.8
Contracts and notes receivable, net 147.5 171.9
Goodwill and other intangibles, net 1,340.5 1,353.7
Other assets and deferred costs 308.7 331.5
----- -----
Total Assets $3,912.6 $4,007.0
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $84.8 $84.6
Jackpot liabilities, current portion 170.0 179.1
Accrued income taxes 1.9 1.8
Dividends payable 17.9 17.9
Other accrued liabilities 246.7 298.9
----- -----
Total current liabilities 521.3 582.3
Long-term debt 1,568.1 1,674.3
Jackpot liabilities 383.7 391.8
Other liabilities 137.9 124.3
----- -----
Total Liabilities 2,611.0 2,772.7
Total Equity 1,301.6 1,234.3
------- -------
Total Liabilities and Stockholders' Equity $3,912.6 $4,007.0
======== ========
Unaudited Condensed Consolidated Statements of Cash
Flows
Three Months Ended
December 31,
------------
2010 2009
---- ----
(In millions)
Operating
Net income $73.7 $73.3
Depreciation and amortization 55.1 62.7
Other non-cash items 17.2 27.3
Changes in operating assets and
liabilities:
Receivables 18.6 23.3
Inventories (13.9) 8.8
Other assets and deferred costs 7.4 15.7
Income taxes 22.0 24.7
Accounts payable and accrued liabilities (54.8) (58.3)
Jackpot liabilities (22.9) (8.8)
----- ----
Net operating cash flows 102.4 168.7
----- -----
Investing
Capital expenditures (42.3) (53.3)
Jackpot annuity investments, net 10.3 10.8
Changes in restricted cash 5.5 (5.0)
Loans receivable, net 6.9 (15.6)
Other 18.7 (3.6)
---- ----
Net investing cash flows (0.9) (66.7)
---- -----
Financing
Debt related proceeds (payments), net (80.0) (62.6)
Employee stock plans 5.5 5.1
Dividends paid (17.9) (17.8)
----- -----
Net financing cash flows (92.4) (75.3)
----- -----
Foreign exchange rates effect on cash 1.2 (0.4)
--- ----
Net change in cash and equivalents 10.3 26.3
Beginning cash and equivalents 158.4 146.7
----- -----
Ending cash and equivalents $168.7 $173.0
====== ======
Unaudited Supplemental Data
Revenue Metrics Quarters Ended
December 31,
------------
2010 2009
---- ----
In millions, unless otherwise noted
Gaming Operations
-----------------
Revenues $260.6 $276.7
North America 218.0 233.8
International 42.6 42.9
Gross margin 63% 62%
North America 61% 61%
International 72% 72%
Installed base ('000) 56.7 62.1
North America 41.0 45.7
International 15.7 16.4
Average revenue per unit per day
(0.00) $50.38 $49.25
Product Sales
-------------
Revenues, total $204.2 $238.4
North America 133.8 135.3
International 70.4 103.1
Machines $123.3 $161.2
North America 75.5 83.7
International 47.8 77.5
Non-machine $80.9 $77.2
North America 58.3 51.6
International 22.6 25.6
Gross margin 55% 52%
North America 57% 54%
International 50% 48%
Units recognized ('000) 9.4 11.9
North America 5.1 5.5
International 4.3 6.4
Units shipped* ('000) 8.7 11.2
North America 4.5 5.3
New 1.4 2.3
Replacement 3.1 3.0
International 4.2 5.9
New 0.8 1.9
Replacement 3.4 4.0
* includes units with revenue
deferred to future periods
Average revenue per unit ('000) $21.7 $20.0
North America 26.2 24.6
International 16.4 16.1
Average machine sales price ('000) $13.1 $13.6
North America 14.8 15.2
International 11.1 12.1
Unaudited Supplemental Data
(continued)
Reconciliation of GAAP to Non-GAAP
Measures
Adjusted Income from Continuing
Operations
Adjusted EPS from Continuing
Operations
Quarters Ended
December 31,
------------
2010 2009
---- ----
(In millions, except EPS)
GAAP income from continuing
operations $73.4 $75.4
----- -----
Significant items affecting
comparability:
Investment gain (no tax benefit) (4.3) (0.1)
Certain discrete tax items
(benefits) (7.0) -
---- ---
Total items (11.3) (0.1)
----- ----
Adjusted income from continuing
operations $62.1 $75.3
===== =====
GAAP EPS from continuing operations $0.25 $0.26
----- -----
Significant items affecting
comparability:
Investment gain (0.01) -
Certain discrete tax items
(benefits) (0.03) -
----- ---
Total items (0.04) -
----- ---
Adjusted EPS from continuing
operations $0.21 $0.26
===== =====
Adjusted income from continuing operations and adjusted EPS from
continuing operations are both supplemental non-GAAP financial
measures commonly used by management and industry analysts to
evaluate our financial performance. Adjusted income from continuing
operations should not be construed as an alternative to income from
continuing operations, and adjusted EPS from continuing operations
should not be construed as an alternative to EPS from continuing
operations, as indicators of our operating performance determined in
accordance with generally accepted accounting principles. All
companies do not calculate adjusted income from continuing
operations or adjusted EPS from continuing operations in the same
manner, and IGT's presentation may not be comparable to that of
other companies.
Unaudited Supplemental Data (continued)
Reconciliation of GAAP to Non-GAAP Measures
Adjusted EBITDA Quarters Ended
December 31,
------------
2010 2009
---- ----
(In millions)
GAAP Income from continuing operations $73.4 $75.4
Other (income) expense, net 18.0 28.5
Income tax provision 30.0 39.8
Depreciation and amortization 55.1 62.3
Other charges:
Share-based compensation (excluding
restructuring adjustment) 11.0 9.0
Restructuring (0.2) -
---- ---
Adjusted EBITDA $187.3 $215.0
====== ======
Adjusted EBITDA (income/loss from continuing operations before
interest and other non-operating income/expense-net, income tax
provision, depreciation and amortization, and other charges noted in
the reconciliation) 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 GAAP (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.
Unaudited Supplemental Data (continued)
Reconciliation of GAAP to Non-GAAP
Measures
Three Months
Free Cash Flow Ended
December 31,
2010 2009
---- ----
(In millions)
GAAP net operating cash flows $102.4 $168.7
Investment in property, plant and
equipment (1.4) (5.5)
Investment in gaming operations equipment (40.6) (46.3)
Investment in intellectual property (0.3) (1.5)
---- ----
Free Cash Flow (before dividends) 60.1 115.4
Dividends paid (17.9) (17.8)
----- -----
Free Cash Flow (after dividends) $42.2 $97.6
===== =====
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 operating cash flows. Net operating
cash flows are reduced by capital expenditures and/or dividends
paid. Free cash flow should not be construed as an alternative to
net operating cash flows or other cash flow measurements determined
in accordance with GAAP (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)
Impact of Share Price on Diluted Share
Count Used in
Calculating Earnings Per Share from
$850.0 Million
3.25% Convertible Notes Issued May 11,
2009,
Purchased Bond Hedges, and Sold
Warrants
Closing
Stock Price
Assumption
----------
Incremental Dilution
--------------------
Proforma
GAAP (1) (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
December 31, 2010, 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
