RENO, Nev., Oct. 30 /PRNewswire-FirstCall/ -- International Game
Technology (NYSE: IGT) announced today operating results for the fourth
quarter and fiscal year ended September 30, 2008. Net income for the quarter
was $52.1 million or $0.18 per diluted share, inclusive of a non-cash charge
of $28.6 million or $0.10 per diluted share from write-downs of certain
investments, versus $122.6 million or $0.38 per diluted share in the same
quarter last year. For the fiscal year, net income was $342.5 million or
$1.10 per diluted share compared to $508.2 million or $1.51 per diluted share
in the same period last year. Comparability for the quarter and fiscal year
periods is affected by a number of items. A supplemental schedule of these
items is included at the end of this release.
"Our fiscal 2008 results reflect challenging economic operating conditions
affecting our customers and in turn our business," said Chairman and CEO TJ
Matthews. "Despite these challenges, we remained focused on key business
initiatives. During 2008, IGT released several new models on our Advanced
Video Platform (AVP(R)) and released close to 700 game titles worldwide across
all platforms. We made significant progress in the development of our
server-based gaming initiatives and will begin commercially deploying initial
versions of this technology in 2009."
Gaming Operations
Fourth quarter gaming operations revenues and gross profit from gaming
operations totaled $331.0 million and $192.7 million, respectively, compared
to $353.3 million and $214.7 million for the same quarter last year. For the
year ended September 30, 2008, revenues and gross profit from gaming
operations totaled $1.3 billion and $778.1 million, respectively, compared to
$1.4 billion and $823.0 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 and central
determination machines.
For the current quarter and fiscal year, gross margins on gaming
operations were 58% compared to 61% and 60%, respectively, in the prior year.
The current quarter was primarily affected by lower play levels. For the
fiscal year, gross margin was negatively impacted by unfavorable interest
rates and technological obsolescence related to the transition to new
products, as well as the prior year hurricane property insurance gain.
As of September 30, 2008, our gaming operations installed base totaled
60,500 units, an increase of 400 units from the immediately preceding quarter
and the prior year quarter. Installed base growth in international markets
and domestic lottery markets was partially offset by reductions in Florida and
California Class II markets as these markets transitioned to Class III
for-sale games. As of September 30, 2008, approximately 74% of our installed
base is comprised of variable fee games that earn a percentage of machine play
levels rather than a fixed daily fee. Based on yield threshold
considerations, the current reported installed base and historical comparisons
have been revised to reflect approximately 900 international units previously
excluded from current and historical periods. Gaming operations revenues were
not impacted by this adjustment in our reported installed base.
Product Sales
Quarters Ended Years Ended
September 30, September 30,
2008 2007 2008 2007
Revenues (in millions)
North America -- Machine $114.0 $99.1 $432.2 $491.6
North America -- Non-Machine 69.6 87.0 299.4 295.1
International -- Machine 93.0 92.4 362.6 384.4
International -- Non-Machine 24.6 31.1 96.5 89.1
Total $301.2 $309.6 $1,190.7 $1,260.2
Gross Margin
North America 54% 54% 54% 55%
International 53% 49% 54% 48%
Total 54% 52% 54% 52%
Units Shipped
North America 8,900 8,300 35,000 43,000
International 11,200 15,100 37,700 62,900
Total 20,100 23,400 72,700 105,900
Worldwide product sales generated fourth quarter gross profit of $161.7
million compared to $161.0 million in the prior year. Non-machine revenues
(gaming systems, parts, conversions and other fees) comprised 31% of total
product sales versus 38% in the comparable prior year quarter. Domestic
shipments increased due to the release of our new AVP(R) models in the fourth
quarter. Internationally, lower shipments into Japan compared to the prior
year quarter were partially offset by increased shipments into Latin America.
For the fiscal year ended September 30, 2008, worldwide product sales
generated gross profit of $641.0 million versus $657.8 million in the prior
year, reflecting a reduction in machine revenues due to continued slow
domestic replacement demand and lower Japan sales. Non-machine revenues
comprised 33% of total product sales for fiscal 2008 compared to 30% of total
product sales in the prior year. The increase in non-machine revenues was
driven by increased intellectual property licensing fees and systems sales.
Additionally, revenues from approximately 1,800 machines shipped during
the fourth quarter are expected to be included in our next fiscal quarter.
Deferred revenue, including the 1,800 machines, increased approximately $38.1
million during the quarter to a total of $62.1 million as of September 30,
2008. This increase is the result of our continued shift toward more
multi-element contracts including systems and software sales.
Operating Expenses and Other Income/Expense
Fourth quarter operating expenses totaled $204.4 million compared to
$179.1 million in the prior year period. Higher legal and compliance fees and
staffing costs comprised the majority of the increase. For the full year,
operating expenses increased to $759.8 million compared to $680.5 million in
fiscal 2007, primarily due to higher staffing costs, bad debt provisions, and
legal and compliance fees, as well as prior year gains from hurricane
insurance and the sale of a corporate airplane.
Other expense, net, in the fourth quarter increased $44.4 million to $46.8
million, largely due to $28.6 million related to write-downs of our
investments in China LotSynergy Holdings and Progressive Gaming International
Corporation. Other expense for the full year increased $73.0 million from
fiscal 2007 to $68.5 million. These increases were also driven by additional
interest expense on higher borrowings, reduced interest income and unfavorable
foreign currency exchange losses.
Cash Flows and Balance Sheet
For the fiscal year ended September 30, 2008, IGT generated $516.3 million
in cash from operations on net income of $342.5 million compared to $821.5
million on net income of $508.2 million in the prior year period. Reductions
in year-over-year cash from operations were primarily the result of lower
earnings, increased inventory, additional prepayments to secure long-term
licensing rights and increases in accounts receivable.
Working capital increased to $733.4 million at September 30, 2008 compared
to $595.5 million at September 30, 2007. Cash equivalents and short-term
investments (inclusive of restricted amounts) totaled $374.4 million at
September 30, 2008 versus $400.7 million at September 30, 2007. Debt totaled
$2.3 billion at September 30, 2008 compared to $1.5 billion at September 30,
2007. The available capacity on our $2.5 billion line of credit totaled $1.2
billion as of September 30, 2008.
Capital Deployment
On August 19, 2008, our Board of Directors declared a quarterly cash
dividend of fourteen and one-half cents ($0.145) per share, payable on October
2, 2008 to shareholders of record on September 11, 2008.
During the fourth quarter, IGT repurchased 11.6 million shares at an
aggregate cost of $268.8 million. For the fiscal year, share repurchases
totaled 25.5 million shares at an aggregate cost of $779.7 million. The
remaining authorization under the Company's stock repurchase program totaled
7.7 million shares at September 30, 2008.
As previously announced on October 9, 2008, IGT will host a conference
call regarding its Fourth Quarter and Fiscal Year 2008 earnings release on
Thursday, October 30, 2008 at 6:00 a.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 7, 2008 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) on Thursday, October 30, 2008. This replay will run through
Friday, November 7, 2008. The access numbers are as follows:
Domestic callers dial 866-451-9003
International callers dial 203-369-1207
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 made significant progress in the development of our server-based
gaming initiatives and will begin commercially deploying a portion of
this technology in 2009
-- Revenues from approximately 1,800 machines shipped during the fourth
quarter are expected to be included in our next fiscal quarter
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 or
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 our participation games
-- Unfavorable economic conditions which may reduce our product sales and
the play levels of our participation games
-- Decreases in 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 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 (http://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,
2008 2007 2008 2007
(In millions, except per share amounts)
Revenues
Gaming operations $331.0 $353.3 $1,337.9 $1,361.2
Product sales 301.2 309.6 1,190.7 1,260.2
Total revenues 632.2 662.9 2,528.6 2,621.4
Costs and operating expenses
Cost of gaming operations 138.3 138.6 559.8 538.2
Cost of product sales 139.5 148.6 549.7 602.4
Selling, general and administrative 124.9 105.4 460.1 397.9
Research and development 59.6 53.7 223.0 202.2
Depreciation and amortization 19.9 20.0 76.7 80.4
Total costs and operating expenses 482.2 466.3 1,869.3 1,821.1
Operating income 150.0 196.6 659.3 800.3
Other income (expense), net (46.8) (2.4) (68.5) 4.5
Income before tax 103.2 194.2 590.8 804.8
Income tax provisions 51.1 71.6 248.3 296.6
Net income $52.1 $122.6 $342.5 $508.2
Basic earnings per share $0.18 $0.38 $1.11 $1.54
Diluted earnings per share $0.18 $0.38 $1.10 $1.51
Weighted average shares outstanding
Basic 296.1 322.0 308.0 330.1
Diluted 297.0 325.4 310.4 336.1
Unaudited Condensed Consolidated Balance Sheets
September 30,
2008 2007
(In millions)
Assets
Current assets
Cash and equivalents $266.4 $261.3
Investment securities, at market value -- 51.3
Restricted cash and investments 108.0 88.1
Receivables, net 530.3 503.1
Inventories 218.3 144.8
Jackpot annuity investments 67.5 66.5
Other 279.6 171.9
Total current assets 1,470.1 1,287.0
Notes and contracts receivable, net 148.2 63.6
Property, plant and equipment, net 590.9 567.4
Jackpot annuity investments 423.4 441.5
Goodwill and intangibles, net 1,407.4 1,362.1
Other assets 517.4 445.9
Total assets $4,557.4 $4,167.5
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of notes payable $16.0 $5.6
Accounts payable 105.7 121.1
Jackpot liabilities 189.7 170.7
Accrued income taxes 15.3 49.5
Dividends payable 42.9 44.4
Other accrued liabilities 367.1 300.2
Total current liabilities 736.7 691.5
Notes payable, net of current maturities 2,247.1 1,503.0
Non-current jackpot liabilities 461.0 472.4
Other liabilities 203.6 47.9
Total liabilities 3,648.4 2,714.8
Total stockholders' equity 909.0 1,452.7
Total liabilities and stockholders' equity $4,557.4 $4,167.5
Unaudited Condensed Consolidated Statements of Cash Flows
Years Ended
September 30,
2008 2007
(In millions)
Operations
Net income $342.5 $508.2
Depreciation, amortization, and asset charges 286.0 265.5
Other non-cash items 104.7 38.8
Changes in operating assets and liabilities:
Receivables (76.8) (22.8)
Inventories (75.0) 23.2
Accounts payable and accrued liabilities (3.0) 36.6
Jackpot liabilities (22.3) (47.2)
Income taxes 8.6 (6.4)
Prepaid and other assets (48.4) 25.6
Cash from operations 516.3 821.5
Investing
Capital expenditures (298.2) (344.3)
Investments, net 57.4 42.0
Jackpot annuity investments, net 45.7 29.4
Changes in restricted cash (77.3) 12.4
Business acquisitions (84.3) (37.2)
Other (38.8) 1.0
Cash from investing (395.5) (296.7)
Financing
Debt proceeds (repayments), net 754.1 652.9
Employee stock plans 86.0 82.7
Dividends paid (175.6) (173.8)
Share repurchases (779.7) (1,118.3)
Cash from financing (115.2) (556.5)
Foreign exchange rates effect on cash (0.5) (1.6)
Net change in cash and equivalents 5.1 (33.3)
Beginning cash and equivalents 261.3 294.6
Ending cash and equivalents $266.4 $261.3
Unaudited Supplemental Data
Quarters Ended Years Ended
September 30, September 30,
Calculation of Earnings Per Share 2008 2007 2008 2007
(In millions, except per share amounts)
Net income $52.1 $122.6 $342.5 $508.2
Basic weighted average shares
outstanding 296.1 322.0 308.0 330.1
Dilutive effect of stock awards 0.9 3.4 2.4 4.1
Dilutive effect of convertible
debentures -- -- -- 1.9
Diluted weighted average shares
outstanding 297.0 325.4 310.4 336.1
Basic earnings per share $0.18 $0.38 $1.11 $1.54
Diluted earnings per share $0.18 $0.38 $1.10 $1.51
Quarters Ended Years Ended
Reconciliation of Net Income to September 30, September 30,
Adjusted EBITDA 2008 2007 2008 2007
(In millions)
Net income $52.1 $122.6 $342.5 $508.2
Income tax provisions 51.1 71.6 248.3 296.6
Other (income) expense, net 46.8 2.4 68.5 (4.5)
Depreciation and amortization 75.6 66.9 286.0 265.5
Share-based compensation 10.9 8.9 38.4 35.7
Adjusted EBITDA $236.5 $272.4 $983.7 $1,101.5
Adjusted EBITDA (earnings before interest, taxes, depreciation and
amortization, including asset charges, share-based compensation, 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.
Reconciliation of Cash from Years Ended
Operations to Free Cash Flow September 30,
2008 2007
(In millions)
Cash from operations $516.3 $821.5
Investment in property, plant and
equipment (92.5) (134.1)
Investment in gaming operations
equipment (190.6) (194.4)
Investment in intellectual property (15.1) (15.8)
Free Cash Flow before dividends 218.1 477.2
Dividends paid (175.6) (173.8)
Free Cash Flow $42.5 $303.4
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)
Income Quarter Year
statement Ended Ended
Items Affecting line September 30, September 30,
Comparability impacted 2008 2007 2008 2007
(In millions) favorable (unfavorable) favorable (unfavorable)
Other
Investment income &
write-downs (1) expense $(28.6) $-- $(28.6) $--
Other
Foreign currency income &
exchange losses expense (4.7) 0.2 (4.4) (0.5)
Interest rate Cost of
changes on gaming
jackpot expense operations (1.5) (2.9) (25.3) (9.0)
Hurricane Cost of
insurance gain, gaming
property operations -- -- -- 5.0
Fixed asset
charges Cost of
(technological gaming
obsolescence) operations -- -- (10.4) --
Inventory
write-downs Cost of
(technological product
obsolescence) sales (5.0) -- (7.4) --
Sales,
General, &
Bad debt Administ-
provision rative (3.5) (1.5) (9.0) 6.0
Hurricane Sales,
insurance gain, General, &
business Administ-
interruption rative -- -- -- 12.0
Sales,
Gain on sale of General, &
corporate Administ-
airplane rative -- -- -- 5.8
Subtotal
amounts Income
before tax before tax $(43.3) $(4.2) $(85.1) $19.3
Income tax
Tax effect provision 5.8 1.6 22.2 (8.2)
Discrete tax Income tax
items provision (0.6) (1.1) (8.9) 5.7
Total amounts
after tax $(38.1) $(3.7) $(71.8) $16.8
(1) There is no tax benefit associated with these investment write-downs.
