IGT Reports Profit Down

2 Nov 2004

RENO, Nevada – (PRESS RELEASE) -- International Game Technology (NYSE: IGT) today reported its operating results for the fourth quarter and fiscal year ended September 30, 2004.

Fourth quarter financial highlights:

* Non-GAAP adjusted income from continuing operations per diluted share of $0.35 increased 21% over prior year quarter

* Revenues increased 14% to $621.7 million over prior year quarter

* Completed redemption of $569.6 million of 8.375% senior notes

* Dividend declared in September of $0.12 per share reflected a 20% increase from the previous $0.10 quarterly dividend per share

Fiscal year financial highlights:

* Record income from continuing operations of $429.8 million

* Record revenue of $2.5 billion increased 17% over prior year

* Record operating income of $814.3 million increased 22% over prior year

* Cash flows provided by operating activities totaled $623.6 million, up 53% over prior year

* Share repurchases of approximately 4.1 million shares totaling $129.7 million

Selected fiscal year records:

* Worldwide machine sales of 159,200 units

* Product sales revenue of $1.3 billion, an increase of 24% over prior year

* Domestic replacement sales units of 73,300, an increase of 26% over last year

* Consolidated product sales gross margins of 52%, compared to 49% last year

* Gaming operations revenue of $1.2 billion, increased 10% over prior year

* Installed base of 37,200 recurring revenue games

"We had a record year at IGT in every significant measure of our business. We continue to succeed due to the strength of IGT's development efforts for games, platforms, and systems, and the contributions of all our employees. By adapting IGT technology, we gained access to new markets in New York, Alabama, and Oklahoma, further expanding our geographic reach. The diversity of the IGT product line and the breadth of the markets we serve allows us to generate consistently strong earnings and cash flow," commented TJ Matthews, IGT's Chief Executive Officer.

Fourth quarter net income totaled $54.3 million or $0.15 per diluted share versus $108.3 million or $0.31 per diluted share in the prior year quarter. For the fiscal year, net income totaled $488.7 million or $1.34 per diluted share compared to $390.7 million or $1.11 per diluted share in the prior year period.

Significant items during the current quarter included the early redemption of IGT's senior notes completed during July and a tax adjustment. The early redemption reduced income from continuing operations by $77.0 million, after tax, or $0.21 per diluted share. The tax adjustment of $3.6 million was primarily due to the additional utilization of prior year foreign income tax credits resulting from changes to the geographic mix of estimated annual taxable income.

Non-GAAP adjusted income from continuing operations totaled $127.7 million or $0.35 per diluted share for the fourth quarter and $492.9 million or $1.35 per diluted share for fiscal 2004. A reconciliation between IGT's GAAP income from continuing operations and non-GAAP adjusted income from continuing operations is provided in a supplemental table at the end of this release.

During the first quarter of fiscal 2004, we completed the sale of IGT OnLine Entertainment Systems, Inc., resulting in a gain of $56.8 million, net of tax. Our prior period financial statements have been reclassified to present the lottery systems operations, as well as the casinos, slot route and pari-mutuel operations previously sold, in discontinued operations.

Gaming Operations

Revenues from gaming operations totaled a record $308.8 million in the current quarter, an increase from $274.7 million in the fourth quarter of fiscal 2003. Revenues increased primarily due to increased unit placements and the consolidation of additional revenues and expenses from our variable interest entities (VIEs), in accordance with new accounting rules. IGT generated incremental revenues from new markets including New York, Alabama, and Oklahoma. Quarterly gross profit from gaming operations was $160.5 million, up 2% compared to $156.8 million in the prior year quarter. Gross profit margins on gaming operations totaled 52% for the current quarter compared to 57% in the prior year period due to changes in interest rates, which increased our costs to fund jackpot payments to winners, and from the impact of the consolidation of the VIEs mentioned previously.

Gaming operations revenues for the fiscal year increased 10% to $1.2 billion from $1.1 billion in the prior year, primarily due to an increase in unit placements. Gross profit from gaming operations for fiscal 2004 increased 10% to $629.1 million compared to $571.8 million in the prior year, primarily due to higher play levels on IGT's MegaJackpots(TM) wide-area progressive systems. Gross profit margins on gaming operations totaled 54% for fiscal 2004, the same as the prior year.

IGT's installed base of recurring revenue machines ended the current quarter at a record 37,200 machines, an increase of 3,200 from the same quarter last year and 800 from the immediately preceding quarter. IGT is continuing its efforts to place more higher-yielding traditional wide-area progressive (WAP) games on casino floors, while managing the removal of lower- yielding units.

Product Sales

Product sales revenue totaled $312.9 million, an increase of 15% over $272.8 million in the prior year quarter due primarily to strong pricing realization, systems revenues and increased sales to international casino markets, slightly offset by lower domestic shipments. Gross profit on product sales increased 13% for the quarter to $160.4 million versus $141.8 million in the prior year quarter. Gross profit margins on product sales were 51% in the current quarter, down slightly from 52% in the prior year quarter due to a higher mix of lower-margin sales to Canadian lotteries and a greater mix of international sales.

Domestically, product sales revenue of $235.4 million was up from $215.6 million in the prior year quarter. Gross profit margins on domestic product sales were 53% for the current quarter, the same as the prior year quarter. International product sales revenue of $77.5 million increased 36% from $57.2 million in the same quarter last year, primarily due to increased unit sales to all markets outside of Japan. Gross profit margins on international product sales were 46% for the current quarter versus 50% in the prior year quarter due to shifts in product mix.

For the year, product sales revenue reached $1.3 billion, an increase of 24% from $1.1 billion in the prior year. Gross profit on product sales increased 32% for fiscal 2004 to $690.2 million versus $523.1 million in the prior year. Gross profit margins on product sales increased to 52% versus 49% for the prior year, due to improved pricing realization, improvements in operating efficiencies, and increased higher-margin gaming systems revenues.

For the year domestic product sales revenue of $991.1 million increased $148.2 million, or 18% from $842.9 million in the prior year. Gross profit margins on domestic product sales were 54%, up from 50% in the prior year. Domestic increases were due to record sales volumes driven by replacement demand due to widespread acceptance of Ticket-In, Ticket-Out (TITO). International product sales revenue of $330.3 million increased 46% from $225.7 million in the prior year, primarily due to higher unit sales to all markets and favorable exchange rates. Gross profit margins on international product sales were 46% versus 44% in the prior year due to an improved mix of higher-margin casino units sold during the year and favorable exchange rates.

Operating Expenses and Other Income/Expense

Operating expenses for the fourth quarter and fiscal year totaled $125.8 million and $504.9 million, respectively, compared to $116.3 million and $429.0 million in the prior year periods. Increased operating expenses related primarily to the acquisition of Acres Gaming in late October 2003, along with additional investment in research and development. Bad debt expense decreased to $ 2.1 million in the current quarter versus $ 5.0 million in the same quarter last year, as a result of decreased receivable balances and the Manitoba Lottery completing its payment in the same quarter its products were shipped. Operating expenses totaled 20% of revenues for the quarter and fiscal year periods, down from 21% of revenues in the prior quarter and the same as the prior year.

Other expense, net, for the current quarter and fiscal year increased to $116.6 million and $160.9 million, respectively, from $20.1 million and $67.4 million in the prior year periods, primarily due to the loss on early retirement of debt previously mentioned.

Cash Flows & Balance Sheet

During the year ended September 30, 2004, IGT generated $623.6 million in cash flows from operating activities on income from continuing operations of $429.8 million. Working capital was $0.9 billion at the end of the current year, down from $1.1 billion at September 30, 2003 related to the redemption of senior notes completed during the year.

During the current quarter, IGT completed the previously announced redemption of all $569.6 million principal amount of its 8.375% senior notes for a total cost of $683.4 million. In February, IGT also redeemed $400 million face value of 7.875% senior notes. In conjunction with the July redemption IGT entered into a new $1.3 billion revolving credit facility and $200.0 million term loan. As a result, IGT has increased its liquidity (cash and available amount on its line of credit) to $2.1 billion as of September 30, 2004, compared to $1.5 billion at September 30, 2003.

Capital expenditures increased to $210.9 million during the current fiscal year from $128.6 million in the comparable prior year, primarily related to incremental growth in placements of gaming operations units and increased investment in intellectual property.

Cash and equivalents totaled $765.1 million at September 30, 2004 and $1.3 billion at September 30, 2003. Total debt was $792.0 million at September 30, 2004, a decrease of $761.0 million from September 30, 2003. The decrease in cash and debt was primarily due to the redemption of senior notes.

"With record earnings and cash flows, we returned significant profits back to our shareholders in the form of dividends and share repurchases, while also further strengthening our balance sheet with debt redemption over the course of fiscal 2004," added Matthews.

Capital Deployment

As previously announced on September 29, 2004, IGT's Board of Directors declared a quarterly cash dividend of $0.12 per share that was paid on October 26, 2004 to shareholders of record on October 12, 2004.

IGT repurchased 3.4 million shares during the quarter for $105.6 million at an average price of $31.01 per share. For the year, IGT repurchased 4.1 million shares for $129.8 million at an average price of $31.81. As of September 30, 2004, the remaining share repurchase authorization under IGT's stock repurchase program totaled 35.8 million shares.

As part of its fiscal 2004 capital deployment initiatives, IGT redeemed $969.6 million in senior notes, paid out $138.9 million in dividends and spent $129.7 million to repurchase shares.

As previously announced on October 12, 2004, International Game Technology (NYSE "IGT") will host a conference call regarding its Fourth Quarter and Fiscal Year 2004 earnings release on Tuesday, November 2, 2004 at 6:00 a.m. (Pacific Standard Time) with TJ Matthews, Chief Executive Officer, and Maureen T. Mullarkey, Chief Financial Officer, of International Game Technology. The access numbers are as follows:

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	IGT Reports Profit Down 2 Nov 2004 RENO, Nevada – (PRESS RELEASE) -- International Game Technology (NYSE: IGT) today reported its operating results for the fourth quarter and fiscal year ended September 30, 2004. Fourth quarter financial highlights: * Non-GAAP adjusted income from continuing operations per diluted share of $0.35 increased 21% over prior year quarter * Revenues increased 14% to $621.7 million over prior year quarter * Completed redemption of $569.6 million of 8.375% senior notes * Dividend declared in September of $0.12 per share reflected a 20% increase from the previous $0.10 quarterly dividend per share Fiscal year financial highlights: * Record income from continuing operations of $429.8 million * Record revenue of $2.5 billion increased 17% over prior year * Record operating income of $814.3 million increased 22% over prior year * Cash flows provided by operating activities totaled $623.6 million, up 53% over prior year * Share repurchases of approximately 4.1 million shares totaling $129.7 million Selected fiscal year records: * Worldwide machine sales of 159,200 units * Product sales revenue of $1.3 billion, an increase of 24% over prior year * Domestic replacement sales units of 73,300, an increase of 26% over last year * Consolidated product sales gross margins of 52%, compared to 49% last year * Gaming operations revenue of $1.2 billion, increased 10% over prior year * Installed base of 37,200 recurring revenue games "We had a record year at IGT in every significant measure of our business. We continue to succeed due to the strength of IGT's development efforts for games, platforms, and systems, and the contributions of all our employees. By adapting IGT technology, we gained access to new markets in New York, Alabama, and Oklahoma, further expanding our geographic reach. The diversity of the IGT product line and the breadth of the markets we serve allows us to generate consistently strong earnings and cash flow," commented TJ Matthews, IGT's Chief Executive Officer. Fourth quarter net income totaled $54.3 million or $0.15 per diluted share versus $108.3 million or $0.31 per diluted share in the prior year quarter. For the fiscal year, net income totaled $488.7 million or $1.34 per diluted share compared to $390.7 million or $1.11 per diluted share in the prior year period. Significant items during the current quarter included the early redemption of IGT's senior notes completed during July and a tax adjustment. The early redemption reduced income from continuing operations by $77.0 million, after tax, or $0.21 per diluted share. The tax adjustment of $3.6 million was primarily due to the additional utilization of prior year foreign income tax credits resulting from changes to the geographic mix of estimated annual taxable income. Non-GAAP adjusted income from continuing operations totaled $127.7 million or $0.35 per diluted share for the fourth quarter and $492.9 million or $1.35 per diluted share for fiscal 2004. A reconciliation between IGT's GAAP income from continuing operations and non-GAAP adjusted income from continuing operations is provided in a supplemental table at the end of this release. During the first quarter of fiscal 2004, we completed the sale of IGT OnLine Entertainment Systems, Inc., resulting in a gain of $56.8 million, net of tax. Our prior period financial statements have been reclassified to present the lottery systems operations, as well as the casinos, slot route and pari-mutuel operations previously sold, in discontinued operations. Gaming Operations Revenues from gaming operations totaled a record $308.8 million in the current quarter, an increase from $274.7 million in the fourth quarter of fiscal 2003. Revenues increased primarily due to increased unit placements and the consolidation of additional revenues and expenses from our variable interest entities (VIEs), in accordance with new accounting rules. IGT generated incremental revenues from new markets including New York, Alabama, and Oklahoma. Quarterly gross profit from gaming operations was $160.5 million, up 2% compared to $156.8 million in the prior year quarter. Gross profit margins on gaming operations totaled 52% for the current quarter compared to 57% in the prior year period due to changes in interest rates, which increased our costs to fund jackpot payments to winners, and from the impact of the consolidation of the VIEs mentioned previously. Gaming operations revenues for the fiscal year increased 10% to $1.2 billion from $1.1 billion in the prior year, primarily due to an increase in unit placements. Gross profit from gaming operations for fiscal 2004 increased 10% to $629.1 million compared to $571.8 million in the prior year, primarily due to higher play levels on IGT's MegaJackpots(TM) wide-area progressive systems. Gross profit margins on gaming operations totaled 54% for fiscal 2004, the same as the prior year. IGT's installed base of recurring revenue machines ended the current quarter at a record 37,200 machines, an increase of 3,200 from the same quarter last year and 800 from the immediately preceding quarter. IGT is continuing its efforts to place more higher-yielding traditional wide-area progressive (WAP) games on casino floors, while managing the removal of lower- yielding units. Product Sales Product sales revenue totaled $312.9 million, an increase of 15% over $272.8 million in the prior year quarter due primarily to strong pricing realization, systems revenues and increased sales to international casino markets, slightly offset by lower domestic shipments. Gross profit on product sales increased 13% for the quarter to $160.4 million versus $141.8 million in the prior year quarter. Gross profit margins on product sales were 51% in the current quarter, down slightly from 52% in the prior year quarter due to a higher mix of lower-margin sales to Canadian lotteries and a greater mix of international sales. Domestically, product sales revenue of $235.4 million was up from $215.6 million in the prior year quarter. Gross profit margins on domestic product sales were 53% for the current quarter, the same as the prior year quarter. International product sales revenue of $77.5 million increased 36% from $57.2 million in the same quarter last year, primarily due to increased unit sales to all markets outside of Japan. Gross profit margins on international product sales were 46% for the current quarter versus 50% in the prior year quarter due to shifts in product mix. For the year, product sales revenue reached $1.3 billion, an increase of 24% from $1.1 billion in the prior year. Gross profit on product sales increased 32% for fiscal 2004 to $690.2 million versus $523.1 million in the prior year. Gross profit margins on product sales increased to 52% versus 49% for the prior year, due to improved pricing realization, improvements in operating efficiencies, and increased higher-margin gaming systems revenues. For the year domestic product sales revenue of $991.1 million increased $148.2 million, or 18% from $842.9 million in the prior year. Gross profit margins on domestic product sales were 54%, up from 50% in the prior year. Domestic increases were due to record sales volumes driven by replacement demand due to widespread acceptance of Ticket-In, Ticket-Out (TITO). International product sales revenue of $330.3 million increased 46% from $225.7 million in the prior year, primarily due to higher unit sales to all markets and favorable exchange rates. Gross profit margins on international product sales were 46% versus 44% in the prior year due to an improved mix of higher-margin casino units sold during the year and favorable exchange rates. Operating Expenses and Other Income/Expense Operating expenses for the fourth quarter and fiscal year totaled $125.8 million and $504.9 million, respectively, compared to $116.3 million and $429.0 million in the prior year periods. Increased operating expenses related primarily to the acquisition of Acres Gaming in late October 2003, along with additional investment in research and development. Bad debt expense decreased to $ 2.1 million in the current quarter versus $ 5.0 million in the same quarter last year, as a result of decreased receivable balances and the Manitoba Lottery completing its payment in the same quarter its products were shipped. Operating expenses totaled 20% of revenues for the quarter and fiscal year periods, down from 21% of revenues in the prior quarter and the same as the prior year. Other expense, net, for the current quarter and fiscal year increased to $116.6 million and $160.9 million, respectively, from $20.1 million and $67.4 million in the prior year periods, primarily due to the loss on early retirement of debt previously mentioned. Cash Flows & Balance Sheet During the year ended September 30, 2004, IGT generated $623.6 million in cash flows from operating activities on income from continuing operations of $429.8 million. Working capital was $0.9 billion at the end of the current year, down from $1.1 billion at September 30, 2003 related to the redemption of senior notes completed during the year. During the current quarter, IGT completed the previously announced redemption of all $569.6 million principal amount of its 8.375% senior notes for a total cost of $683.4 million. In February, IGT also redeemed $400 million face value of 7.875% senior notes. In conjunction with the July redemption IGT entered into a new $1.3 billion revolving credit facility and $200.0 million term loan. As a result, IGT has increased its liquidity (cash and available amount on its line of credit) to $2.1 billion as of September 30, 2004, compared to $1.5 billion at September 30, 2003. Capital expenditures increased to $210.9 million during the current fiscal year from $128.6 million in the comparable prior year, primarily related to incremental growth in placements of gaming operations units and increased investment in intellectual property. Cash and equivalents totaled $765.1 million at September 30, 2004 and $1.3 billion at September 30, 2003. Total debt was $792.0 million at September 30, 2004, a decrease of $761.0 million from September 30, 2003. The decrease in cash and debt was primarily due to the redemption of senior notes. "With record earnings and cash flows, we returned significant profits back to our shareholders in the form of dividends and share repurchases, while also further strengthening our balance sheet with debt redemption over the course of fiscal 2004," added Matthews. Capital Deployment As previously announced on September 29, 2004, IGT's Board of Directors declared a quarterly cash dividend of $0.12 per share that was paid on October 26, 2004 to shareholders of record on October 12, 2004. IGT repurchased 3.4 million shares during the quarter for $105.6 million at an average price of $31.01 per share. For the year, IGT repurchased 4.1 million shares for $129.8 million at an average price of $31.81. As of September 30, 2004, the remaining share repurchase authorization under IGT's stock repurchase program totaled 35.8 million shares. As part of its fiscal 2004 capital deployment initiatives, IGT redeemed $969.6 million in senior notes, paid out $138.9 million in dividends and spent $129.7 million to repurchase shares. As previously announced on October 12, 2004, International Game Technology (NYSE "IGT") will host a conference call regarding its Fourth Quarter and Fiscal Year 2004 earnings release on Tuesday, November 2, 2004 at 6:00 a.m. (Pacific Standard Time) with TJ Matthews, Chief Executive Officer, and Maureen T. Mullarkey, Chief Financial Officer, of International Game Technology. The access numbers are as follows: