RENO, Nev., Jan. 22 /PRNewswire-FirstCall/ -- International Game
Technology (NYSE: IGT) reported financial results for the first quarter ended
December 31, 2008.
Net income for the quarter was $65.7 million or $0.22 per diluted share
compared to $113.7 million or $0.36 per diluted share in the same quarter last
year. Comparability for the quarter was unfavorably impacted by a number of
significant items that total $20.4 million, after tax, or $0.07 per diluted
share. A supplemental schedule of these items is included at the end of this
release.
Comparability was also affected by an extra week in the current quarter
due to the Company's 52/53-week fiscal year, where fiscal 2009 will contain 53
weeks versus the normal 52 weeks in fiscal 2008. As a result, the current
year quarter was 14 weeks in length compared to 13 weeks in the prior year
quarter.
"Our first quarter results reflect the on-going effects of difficult
economic conditions worldwide that have impacted both gaming operators and
casino patrons. Although we expect to continue to face a challenging global
market environment in the near-term, we remain focused on IGT's long term
objectives. During the quarter we filled key strategic roles, implemented
cost rationalization initiatives and completed the upgrade of our entire line
of machine products headlined by our innovative Multi- Layer Display(R)
(MLD(R)) technology and REELdepth(TM) games," said Chairman and CEO TJ
Matthews.
Gaming Operations
Quarters Ended
December 31,
2008 2007
Revenues (in millions)
North America $267.5 $295.2
International 45.8 37.1
Total $313.3 $332.3
Gross Margin
North America 51% 59%
International 54% 64%
Total 52% 60%
Installed Base
North America 46,900 48,900
International 14,000 10,800
Total 60,900 59,700
Gaming operations posted quarterly year-over-year revenue and gross profit
declines of 6% and 19%, respectively. These declines were the result of lower
play levels largely attributable to unfavorable economic conditions combined
with continued shifts in the installed base mix toward lower-yielding stand
alone, lease and central determination games. Gross margin was further
impacted by the additional interest rate reductions during the quarter that
contributed $17.2 million in additional jackpot-related expense due to higher
costs to fund jackpot liabilities, as well as $3.5 million in fixed asset
charges related to technological obsolescence. Excluding significant items
from the comparable periods (see supplemental table), gross margin on gaming
operations would have been 58% compared to 61% last year. The extra week of
operations during the quarter contributed approximately $22.4 million in
revenue and $11.5 million in gross profit.
The installed base of recurring revenue games increased 1,200 units or 2%
from last year and 400 units from the previous sequential quarter. Growth in
international and domestic lease operations markets was partially offset by
reductions in Florida and California Class II operations as a result of the
Native American operators transitioning to Class III for-sale gaming products.
Product Sales
Quarters Ended
December 31,
2008 2007
Revenues (in millions)
North America - Machine $137.4 $90.8
North America - Non Machine 77.6 76.1
International - Machine 53.5 123.4
International - Non Machine 19.8 23.2
Total $288.3 $313.5
Gross Margin
North America 51% 54%
International 49% 52%
Total 50% 53%
Units Shipped
North America 9,500 7,300
International 6,200 12,900
Total 15,700 20,200
Product sales revenue declined 8% and gross profit declined 14% for the
quarter on a 22% reduction in worldwide machine shipments. On a regional
basis, North America revenues improved 29% on stronger machine shipments into
new or expanding markets, partially offsetting international revenue declines
on softer international demand. International results were challenged by both
the unfavorable global economic conditions and difficult comparisons to record
results in the prior year. Total gross margin on product sales was 50%
compared to 53% in the prior year, primarily due to obsolescence charges and a
less favorable product sales mix.
Operating Expenses, Other Expense and Taxes
Operating expenses increased $35.0 million over the prior year quarter and
$1.4 million sequentially. However, the current quarter included $17.4
million in restructuring charges, $11.3 million in bad debt provisions
compared to a favorable provision in the prior year, and approximately $12.6
million in additional expenses associated with an extra week of operations.
Excluding these items, operating expenses decreased 6% from the prior year and
18% sequentially.
Other expense, net, totaled $19.8 million, up from $7.6 million in the
prior year quarter. The increase was mostly driven by higher interest on
increased borrowings and investment write-downs.
The tax rate for the quarter was 18.2% compared to 39.6% in the prior
year, mostly due to the closure of the 2000 and 2001 IRS exams, retroactive
R&D tax credits and other discrete tax items. Excluding the discrete items,
IGT's tax rate would have been approximately 38%.
Balance Sheet and Capital Deployment
For the quarter ended December 31, 2008, IGT generated $149.5 million in
cash from operations on net income of $65.7 million compared to $120.2 million
on net income of $113.7 million in the prior year.
Working capital increased to $745.4 million compared to $733.4 million as
of September 30, 2008. Cash and equivalents (inclusive of restricted amounts)
totaled $380.7 million and debt totaled $2.3 billion, with $1.1 billion of
available capacity on the Company's $2.5 billion line of credit as of December
31, 2008.
Earnings Conference Call
As announced on December 26, 2008, IGT will host a conference call to
discuss First 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. Minimum requirements to listen to the
broadcast include Windows Media Player and at least a 28.8Kbps connection to
the Internet. If you are unable to participate during the live webcast, the
call will be archived until Friday, January 30, 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, January 30, 2009.
The access numbers are as follows:
Domestic callers dial 866-429-0570
International callers dial 203-369-0912
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 expect to continue to face a challenging global market environment
in the near-term
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
* 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 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
December 31,
2008 2007
(In millions, except per share amounts)
Revenues
Gaming operations $313.3 $332.3
Product sales 288.3 313.5
Total revenues 601.6 645.8
Costs and operating expenses
Cost of gaming operations 151.9 132.9
Cost of product sales 143.8 146.4
Selling, general and administrative 114.9 100.3
Research and development 53.5 51.3
Restructuring charges 17.4 -
Depreciation and amortization 20.0 19.2
Total costs and operating expenses 501.5 450.1
Operating income 100.1 195.7
Other income (expense), net (19.8) (7.6)
Income before tax 80.3 188.1
Income tax provisions 14.6 74.4
Net income $65.7 $113.7
Basic earnings per share $0.22 $0.36
Diluted earnings per share $0.22 $0.36
Weighted average shares outstanding
Basic 293.3 314.4
Diluted 293.7 318.4
Unaudited Condensed Consolidated Balance Sheets
December 31, September 30,
2008 2008
(In millions)
Assets
Current assets
Cash and equivalents $261.1 $266.4
Restricted cash and investments 119.6 108.0
Receivables, net 468.1 530.3
Inventories 207.8 218.3
Jackpot annuity investments 67.9 67.5
Other 241.7 279.6
Total current assets 1,366.2 1,470.1
Notes and contracts receivable, net 178.7 148.2
Property, plant and equipment, net 583.6 590.9
Jackpot annuity investments 423.2 423.4
Goodwill and intangibles, net 1,384.3 1,407.4
Other assets 507.1 517.4
Total assets $4,443.1 $4,557.4
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of notes payable $11.7 $16.0
Accounts payable 81.1 105.7
Jackpot liabilities 211.8 189.7
Accrued income taxes 16.0 15.3
Dividends payable 42.8 42.9
Other accrued liabilities 257.4 367.1
Total current liabilities 620.8 736.7
Notes payable, net of current
maturities 2,270.5 2,247.1
Non-current jackpot liabilities 459.8 461.0
Other liabilities 186.7 203.6
Total liabilities 3,537.8 3,648.4
Total stockholders' equity 905.3 909.0
Total liabilities and stockholders' equity $4,443.1 $4,557.4
Unaudited Condensed Consolidated Statements of Cash Flows
Three Months Ended
December 31,
2008 2007
(In millions)
Operations
Net income $65.7 $113.7
Depreciation, amortization, and asset charges 79.1 69.3
Other non-cash items 26.4 8.9
Changes in operating assets and liabilities:
Receivables 47.3 22.4
Inventories 3.4 3.2
Accounts payable and accrued liabilities (105.1) (103.6)
Jackpot liabilities 13.0 (3.5)
Income taxes (0.9) 48.7
Prepaid and other assets 20.6 (38.9)
Cash from operations 149.5 120.2
Investing
Capital expenditures (76.0) (62.7)
Investments, net (10.3) 15.0
Jackpot annuity investments, net 7.2 8.6
Changes in restricted cash (11.6) (5.3)
Business acquisitions (0.1) -
Other (38.3) (6.8)
Cash from investing (129.1) (51.2)
Financing
Debt proceeds (repayments), net 22.2 118.2
Employee stock plans 0.1 30.5
Dividends paid (42.9) (44.4)
Share repurchases - (149.2)
Cash from financing (20.6) (44.9)
Foreign exchange rates effect on cash (5.1) 0.5
Net change in cash and equivalents (5.3) 24.6
Beginning cash and equivalents 266.4 261.3
Ending cash and equivalents $261.1 $285.9
Unaudited Supplemental Data
Reconciliation of Net Income to Adjusted EBITDA Quarters Ended
December 31,
2008 2007
(In millions)
Net income $65.7 $113.7
Income tax provisions 14.6 74.4
Other (income) expense, net 19.8 7.6
Restructuring charges 17.4 -
Depreciation and amortization 79.1 69.3
Share-based compensation (excluding
restructuring charges) 12.4 9.3
Adjusted EBITDA $209.0 $274.3
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 manage
Reconciliation of Cash from Operations Three Months Ended
to Free Cash Flow December 31,
2008 2007
(In millions)
Cash from operations $149.5 $120.2
Investment in property, plant and equipment (17.1) (23.1)
Investment in gaming operations equipment (57.3) (35.4)
Investment in intellectual property (1.6) (4.2)
Free Cash Flow before dividends 73.5 57.5
Dividends paid (42.9) (44.4)
Free Cash Flow $30.6 $13.1
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 ca
Unaudited Supplemental Data (continued)
Items Affecting Comparability
Quarter Ended
December 31,
Income statement 2008 2007
(In millions) line impacted favorable (unfavorable)
Interest rate changes Cost of gaming
on jackpot expense operations $(17.2) $(1.2)
Salvage value Cost of gaming
adjustments operations - (2.4)
Fixed asset charges
(technological Cost of gaming
obsolescence) operations (3.5) -
Inventory write-downs
(technological Cost of product
obsolescence) sales (2.6) -
Restructuring charges Sales, General, &
Administrative (17.4) -
Bad debt provision Sales, General, &
Administrative (11.3) 4.6
Investment write- Other income &
downs (a) expense (5.3) -
Foreign currency Other income &
exchange losses expense (4.1) (2.2)
Gain on repurchases
of convertible Other income &
debentures expense 4.4 -
Subtotal amounts
before tax Income before tax $(57.0) $(1.2)
Tax effect (a) Income tax
provision 19.6 0.4
Discrete tax items Income tax
provision 17.0 (2.3)
Total amounts after tax $(20.4) $(3.1)
(a) No tax benefit associated with investment write-downs
SOURCE International Game Technology
-0- 01/22/2009
/CONTACT: Patrick Cavanaugh, Chief Financial Officer of International
Game Technology, +1-866-296-4232/
/Web site: http://www.igt.com/
(IGT)
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