RENO, Nev., April 17 /PRNewswire-FirstCall/ -- International Game
Technology (NYSE: IGT) announced today operating results for the second
quarter ended March 31, 2008. Net income for the quarter was $68.4 million
or $0.22 per diluted share versus $128.2 million or $0.38 per diluted share
in the same quarter last year. For the six-month period ended March 31,
2008, net income was $182.1 million or $0.57 per diluted share compared to
$249.2 million or $0.73 per diluted share in the same period last year.
The second quarter of the current year was unfavorably impacted by a
number of significant items including a steep decline in interest rates,
technological obsolescence charges related to the transition toward our new
cabinets and platforms, additional bad debt provisions and discrete tax
items. Collectively, these items totaled $20.4 million after tax or $0.06
per diluted share. On a comparative basis, the second quarter of the prior
year was favorably impacted by gains from Gulf Coast hurricane property
damage and business interruption insurance proceeds and the sale of a
corporate aircraft, as well as favorable bad debt provisions collectively
totaling $17.1 million after tax or $0.05 per diluted share. A supplemental
schedule of these items is included at the end of this release.
"IGT's second quarter results were challenged by the current market
environment," said Chairman and CEO TJ Matthews. "We remain focused on
strategic initiatives which will maintain our standing as the leading
worldwide provider of innovative gaming products and services. We continue
to prepare for the introduction of the next generation of technological
innovations and look forward to the market-driven expansion in domestic and
international jurisdictions we believe will develop in the near future.
Recent strategic accomplishments that will enhance IGT's long-term
opportunities include our sb(TM)-related agreements with Harrah's and
CityCenter, our cross-licensing agreement with WMS, our strategic alliances
with Progressive Gaming, Games Media and The Global Draw, and our potential
acquisition of Cyberview Technology, Inc."
Gaming Operations
Second quarter revenues and gross profit from gaming operations were
$341.0 million and $183.9 million, respectively, compared to $341.1 million
and $211.0 million for the same quarter last year. For the six months ended
March 31, 2008, revenues and gross profit from gaming operations totaled
$673.4 million and $383.4 million, respectively, compared to $666.0 million
and $397.7 million in the same prior year period. Although we realized
increased game placements, revenues were comparable to the prior year
periods as a result of lower play levels largely attributable to recent
economic conditions. For the current quarter and year-to-date, gross
margins on gaming operations were 54% and 57%, respectively, compared to
62% and 60% in the prior year.
Gaming operations gross profit and margins were impacted by the
significant decline in interest rates during the quarter. A 200 basis-point
reduction in interest rates resulted in $12.3 million of additional jackpot
expense for the quarter due to higher costs to fund jackpot liabilities. In
addition, the current quarter also included $8.0 million of technological
obsolescence charges for fixed assets related to our transition to new game
cabinets and platforms. In the prior year quarter, gross profit and gross
margin were favorably impacted by a gain from Gulf Coast hurricane property
insurance totaling $5.0 million.
As of March 31, 2008, our gaming operations installed base totaled
58,700, an increase of 3,900 units from the prior year quarter and down 100
units from the immediately preceding quarter. Year-over-year growth was
primarily the result of expansion in Oklahoma, Mexico, Florida and Africa.
The sequential quarter reduction primarily resulted from the transition of
Class II products to for-sale Class III machines in Florida and California.
Product Sales
Quarters Ended Six Months Ended
March 31, March 31,
2008 2007 2008 2007
Revenues (in millions)
North America $148.4 $180.6 $315.3 $388.0
International 83.8 88.0 230.5 198.0
Total $232.2 $268.6 $545.8 $586.0
Gross Margin
North America 55% 55% 54% 55%
International 54% 52% 53% 49%
Total 55% 54% 54% 53%
Units Shipped
North America 6,500 9,700 13,900 21,900
International 5,600 9,100 18,500 23,700
Total 12,100 18,800 32,400 45,600
Worldwide product sales revenues generated second quarter gross profit
of $126.6 million compared to $145.5 million in the prior year, primarily
due to lower machine shipments across all markets. Domestic shipments were
low primarily due to minimal new or expansion opportunities during the
quarter combined with the continued trough in North America replacement
demand. Internationally, lower shipments, primarily in the UK and Japan,
were the result of slower market conditions. Non-machine revenues
(comprised of gaming systems, parts, service and other fees) totaled $87.1
million or 38% of total product sales versus $89.8 million or 33% in the
comparable prior year quarter.
For the six-month period ended March 31, 2008, worldwide product sales
generated gross profit of $293.8 million versus $310.8 million in the prior
year. Lower North America machine revenues were partially offset by
stronger international revenues year-to-date, with notable increases in
Europe, Australia, Asia, and Africa. Non-machine revenues improved to
$186.5 million or 34% of total product sales compared to $174.5 million or
30% of total product sales in the prior half-year period.
Operating Expenses and Other Income/Expense
Consolidated operating expenses totaled $183.9 million in the second
quarter and $354.7 million year-to-date compared to $154.3 million and
$321.0 million in the same prior year periods, respectively. Operating
expenses in the second quarter of the prior year were favorably impacted by
gains from business interruption insurance totaling $12.0 million and the
sale of a corporate aircraft totaling $5.8 million. In addition to these
items, current quarter operating expenses were higher primarily as a result
of higher bad debt provisions and a greater investment in research and
development.
Other expense, net, in the second quarter was $8.8 million, compared to
other income, net, of $2.3 million in the prior year quarter, primarily due
to higher interest on increased borrowings and reduced investment-related
interest income.
Cash Flows & Balance Sheet
In the first half of fiscal 2008, IGT generated $195.0 million in
operating cash flow on net income of $182.1 million compared to $366.5
million in operating cash flow on net income of $249.2 million in the prior
year period. Lower operating cash flow was the result of lower net income,
additional prepayments to secure long-term licensing rights, and changes
within working capital.
Working capital increased to $718.4 million at March 31, 2008 compared
to $595.5 million at September 30, 2007. Cash equivalents and short-term
investments (inclusive of restricted amounts) totaled $358.5 million at
March 31, 2008 versus $400.7 million at September 30, 2007. Debt totaled
$1.7 billion at March 31, 2008 compared to $1.5 billion at September 30,
2007.
Capital Deployment
On February 26, 2008, our Board of Directors declared a quarterly cash
dividend of fourteen cents ($0.14) per share, payable on April 2, 2008 to
shareholders of record on March 19, 2008.
During the second quarter, IGT repurchased 2.3 million shares at an
aggregate cost of $95.8 million. Year-to-date, share repurchases totaled
5.8 million shares at an aggregate cost of $245.0 million. The remaining
authorization under the Company's stock repurchase program totaled 27.4
million shares at March 31, 2008.
As previously announced on March 27, 2008, IGT will host a conference
call regarding its Second Quarter Fiscal Year 2008 earnings release on
Thursday, April 17, 2008 at 6:00 a.m. (Pacific Time). The access numbers
are as follows:
Domestic callers dial 888-455-9641, passcode IGT
International callers dial 517-308-9004, 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, April 25,
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, April 17, 2008. This replay will run
through Friday, April 25, 2008. The access numbers are as follows:
Domestic callers dial 866-396-4180
International callers dial 203-369-0506
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 remain focused on strategic initiatives which will maintain our
standing as the leading worldwide provider of innovative gaming
products and services
We continue to prepare for the introduction of the next generation of
technological innovations and look forward to the market-driven
expansion in domestic and international jurisdictions we believe will
develop in the near future
-- Recent strategic accomplishments that will enhance IGT's long-term
opportunities include our sb(TM)-related agreements with Harrah's and
CityCenter, our cross-licensing agreement with WMS, our strategic
alliances with Progressive Gaming, Games Media and The Global Draw,
and our potential acquisition of Cyberview Technology, Inc.
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
-- 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 Six Months Ended
March 31, March 31,
2008 2007 2008 2007
(In millions, except per share amounts)
Revenues
Gaming operations $341.0 $341.1 $673.4 $666.0
Product sales 232.2 268.6 545.8 586.0
Total revenues 573.2 609.7 1,219.2 1,252.0
Costs and operating expenses
Cost of gaming operations 157.1 130.1 290.0 268.3
Cost of product sales 105.6 123.1 252.0 275.2
Selling, general and administrative 111.5 87.2 211.8 185.5
Research and development 53.8 47.8 105.1 97.1
Depreciation and amortization 18.6 19.3 37.8 38.4
Total costs and operating expenses 446.6 407.5 896.7 864.5
Operating income 126.6 202.2 322.5 387.5
Other income (expense), net (8.8) 2.3 (16.6) 6.7
Income before tax 117.8 204.5 305.9 394.2
Income tax provisions 49.4 76.3 123.8 145.0
Net income $68.4 $128.2 $182.1 $249.2
Basic earnings per share $0.22 $0.38 $0.58 $0.75
Diluted earnings per share $0.22 $0.38 $0.57 $0.73
Weighted average shares outstanding
Basic 312.3 335.2 313.4 333.9
Diluted 315.9 340.2 317.2 342.4
Unaudited Condensed Consolidated Balance Sheets
March 31, September 30,
2008 2007
(In millions)
Assets
Current assets
Cash and equivalents $252.0 $261.3
Investment securities, at market value 5.2 51.3
Restricted cash and investments 101.3 88.1
Receivables, net 458.4 503.1
Inventories 180.7 144.8
Jackpot annuity investments 67.4 66.5
Other 258.7 171.9
Total current assets 1,323.7 1,287.0
Notes and contracts receivable, net 75.3 63.6
Property, plant and equipment, net 582.4 567.4
Jackpot annuity investments 438.5 441.5
Goodwill and intangibles, net 1,347.9 1,362.1
Other assets 596.8 445.9
Total assets $4,364.6 $4,167.5
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of notes payable $0.9 $5.6
Accounts payable 108.2 121.1
Jackpot liabilities 190.6 170.7
Accrued income taxes 17.0 49.5
Dividends payable 43.9 44.4
Other accrued liabilities 244.7 300.2
Total current liabilities 605.3 691.5
Notes payable, net of current maturities 1,692.1 1,503.0
Non-current jackpot liabilities 468.6 472.4
Other liabilities 228.7 47.9
Total liabilities 2,994.7 2,714.8
Total stockholders' equity 1,369.9 1,452.7
Total liabilities and stockholders' equity $4,364.6 $4,167.5
Unaudited Condensed Consolidated Statements of Cash Flows
Six Months Ended
March 31,
2008 2007
(In millions)
Operations
Net income $182.1 $249.2
Depreciation, amortization, and asset charges 146.4 131.5
Other non-cash items 29.4 12.3
Changes in operating assets and liabilities:
Receivables 49.7 15.5
Inventories (39.0) 0.7
Accounts payable and accrued liabilities (94.9) (22.3)
Jackpot liabilities 0.1 (15.3)
Income taxes (29.8) (21.3)
Prepaid and other assets (49.0) 16.2
Cash from operations 195.0 366.5
Investing
Capital expenditures (150.2) (181.9)
Investments, net 67.1 7.1
Jackpot annuity investments, net 16.6 8.5
Changes in restricted cash (70.5) 4.6
Business acquisitions (3.0) (18.3)
Other (6.0) 2.0
Cash from investing (146.0) (178.0)
Financing
Debt proceeds (repayments), net 184.1 248.7
Employee stock plans 81.7 54.8
Dividends paid (88.4) (87.2)
Share repurchases (245.0) (362.7)
Cash from financing (67.6) (146.4)
Foreign exchange rates effect on cash 9.3 (1.4)
Net change in cash and equivalents (9.3) 40.7
Beginning cash and equivalents 261.3 294.6
Ending cash and equivalents $252.0 $335.3
Unaudited Supplemental Data
Quarters Ended Six Months Ended
March 31, March 31,
Calculation of Earnings Per Share 2008 2007 2008 2007
(In millions, except per share amounts)
Net income $68.4 $128.2 $182.1 $249.2
Basic weighted average shares
outstanding 312.3 335.2 313.4 333.9
Dilutive effect of stock awards 3.6 4.6 3.8 4.8
Dilutive effect of convertible
debentures - 0.4 - 3.7
Diluted weighted average shares
outstanding 315.9 340.2 317.2 342.4
Basic earnings per share $0.22 $0.38 $0.58 $0.75
Diluted earnings per share $0.22 $0.38 $0.57 $0.73
Quarters Ended Six Months Ended
Reconciliation of Net Income to March 31, March 31,
Adjusted EBITDA 2008 2007 2008 2007
(In millions)
Net income $68.4 $128.2 $182.1 $249.2
Income tax provisions 49.4 76.3 123.8 145.0
Other (income) expense, net 8.8 (2.3) 16.6 (6.7)
Depreciation and amortization 77.1 66.3 146.4 131.5
Share-based compensation 8.0 8.4 17.3 17.8
Adjusted EBITDA $211.7 $276.9 $486.2 $536.8
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 Operations to Free Six Months Ended
Cash Flow March 31,
2008 2007
(In millions)
Cash from operations $195.0 $366.5
Investment in property, plant and equipment (52.4) (77.2)
Investment in gaming operations equipment (91.9) (95.3)
Investment in intellectual property (5.9) (9.4)
Free Cash Flow before dividends 44.8 184.6
Dividends paid (88.4) (87.2)
Free Cash Flow $(43.6) $97.4
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)
Significant items affecting Income statement Quarters Ended
comparability line impacted March 31,
2008 2007
(In millions) favorable (unfavorable)
Decline in interest rates Cost of gaming
(jackpot funding) operations $(12.3) $-
Hurricane insurance Cost of gaming
gain, property operations - 5.0
Fixed asset charges Cost of gaming
(technological obsolescence) operations (8.0) -
Inventory write-downs Cost of product
(technological obsolescence) sales (2.4) -
Bad debt provision Sales, General,
& Administrative (5.8) 4.4
Hurricane insurance Sales, General,
gain, business interruption & Administrative - 12.0
Gain on sale of Sales, General,
corporate plane & Administrative - 5.8
Subtotal amounts before tax Income before tax $(28.5) $27.2
Tax effect Income tax provision 10.7 (10.1)
Discrete tax items Income tax provision (2.6) -
Total amounts after tax $(20.4) $17.1
SOURCE International Game Technology
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Related links:
http://www.igt.com
CONTACT:
Patrick Cavanaugh, Vice President, Corporate
Finance & Investor Relations of International Game Technology,
1-866-296-4232
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