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International Game Technology Reports 2009 Second Quarter Results

Posted on: Thursday, 23 April 2009, 06:30 CDT

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

Source: PR Newswire

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